Good morning, ladies and gentlemen, and welcome to the Caterpillar First Quarter 2016 Results Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mike DeWalt, the Director of Investor Relations. Sir, the floor is yours.

Thank you, and thank you very much for everyone on the line, and welcome to our first quarter earnings call. I'm Mike DeWalt, Caterpillar's Vice President of Financial Services. And on the call with me this morning, we have Doug Oberhelman, our Chairman and CEO, and Brad Halverson, our Group President and CFO. We're going to do today's call similar to what we've done the past couple of quarters. We'll be going through a short slide deck before we get to the Q&A. And if you don't have that slide deck in front of you, it's available on our caterpillar.com website with the conference call webcast link. Remember this call is copyrighted by Caterpillar Inc., any use, recording or transmission of any portion of the call without the expressed written consent of Caterpillar is strictly prohibited. If you like a copy of today's call transcript, we'll be posting it in the Investor section of our caterpillar.com website and that'll be in the section labeled Results Webcast. So if you go to page two of this morning's slide deck, you'll see our forward-looking statements. And certainly, this morning we'll be discussing forward-looking information and that involves risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. In addition to page two of the slide deck, a discussion of some of the factors that individually or in the aggregate could make actual results differ materially from our projections can be found under Item 1A Risk Factors in our Form 10-K filed with the SEC and in the forward-looking statements in today's financial release. In addition, a reconciliation of non-GAAP measures used in both the financial release and this presentation can be found in our financial release and, again, that's been posted on the caterpillar.com website.…

Okay. We're ready for Q&A.

Thank you. Ladies and gentlemen, the floor is now open for questions. And the first question is coming from Stephen Volkmann. Stephen, your line is live, please announce your affiliation and pose your question.

Great. Good morning, guys. That's Jefferies, and thanks for taking the question. Maybe, Mike, I might take you back to your comments on pricing, if you would. It does seem like things have deteriorated kind of sequentially over the last three quarters, and I guess I'm just trying to figure out, it feels like some of this at least probably isn't in your control, and yet you feel – it feels like you have fairly good confidence that things get better in the second half. And I'm just curious if there's any more color you can give us. I don't know, maybe it's product related, maybe it's geography, or how to think about that?

Yeah, it's a little of both, actually. I think one of the big issues going on right now is that we have a stronger dollar. Now, there's much of the world, Europe, for example, Japan, where we sell in local currency, so not as big an issue. We adjust for that. But in places like the U.S. and much of the Africa-Middle East where transaction prices are essentially in dollars, competitors of ours that are coming from a manufacturing base outside the U.S. are being more aggressive on pricing, and so that's putting pressure on us. So that's quite a bit. And then, of course, in mining, it's a deal-by-deal battle, and that business certainly hasn't seen any signs of improvement yet. So dollar is quite a bit of what I think. Douglas R. Oberhelman - Chairman & Chief Executive Officer: Mike, let me just add there on this point. We have for several years really focused on market share. That drives this business. It drives this business model. It drives our dealers. And we've been very fortunate up until now, and I agree with Mike completely that the dollar is a big piece of that, in building market share every year for the last five years. And in fact, we've built market share again so far this year over last year. And that comes with a little bit of sacrifice on price, and that's the balance we're going to continue to drive. And we are – I'll just maybe leave it at that that it's a balance, and it's a kind of a market share gain for us because that drives this company long term.

Great. I appreciate it. Mike, the tax rate going forward, any change?

We did 25% in the first quarter, and that's essentially what our expectation is for the year.

Thank you.

Thank you. And the next question is coming from Andrew Casey. Andrew, please announce your affiliation and pose your question.

Wells Fargo Securities, and good morning. On the guidance, the change in the pricing expectation seems to account for kind of most, if not all, of the guidance reduction. Did you change any of your assumptions related to the variable or period costs that you provided last quarter to offset the rest of the revenue decline?

Yeah, Andy, so price realization is a couple hundred million of the billion. And certainly that goes right to the bottom line. There is additional cost reduction. And a lot of that would come from incentive comp. I mean, that's lower because the outlook is lower. There's a relationship between those. So those are a couple of offsets from the profit side. And then the rest of it is essentially lower sales volume and what the variable margin is on that.

Okay. Thanks, Mike. And then, I just want to ask a second question on the accounting principle change. The benefit that you got this year and then the recast for last year, is that – should we view that as a foundation for future years or can that kind of go the other way?

Well, one of the – the reason the two years were different is because the amortization of prior-year losses for the most part were different. And those – that's out of the equation now, so I think the – that ongoing normal cost will be less influenced by that. So it will be I think relatively speaking no more stable, except for we're doing this mark-to-market now. So at year-end, there will likely be – who knows right now whether or not it will be a big positive or a negative, we don't know and it's not included in the outlook. There could be a mark-to-market change at the end of the year if interest rates go up or down or there's a material change in returns on the funded asset portfolio. You could get quite a bit of variability at year end on that mark-to-market adjustment. Outside of that, I think it's probably a good base to come from.

Okay. Thank you very much.

Thank you. And the next question is coming from Joe O'Dea. Joe, your line is live. Please announce your affiliation and pose your question.

Hi, good morning. It's Vertical Research. First question on the E&T margin in the quarter and then relative to the full-year outlook, it seems like that imbeds some improvement in E&T where you'd found sort of stability in the mid-teens level the previous couple of quarters. So, could you just talk about expectations there, visibility and timing into seeing that step-up or anything that was a bit of an overhang in the quarter?

Yeah. I think the actual operating margins for E&T were down in the first quarter and that's because of relative to the rest of the year – relative to last year, a low sales quarter in the first quarter. So if you think about it, much of the increase in the quarterly sales between the first and the rest of the year is going to be E&T, Energy & Transportation. And that will get added at certainly a higher than operating margin rate. So it's a bit of operating leverage on the sales, they had a pretty low sales quarter. So I think that'll come back up as we go through the year.

Okay. And then on Construction, looking at your revenue trends relative to what we get out of the retail sales statistics, it looks like some pretty significant destock over the past couple of quarters or at least a low rebuild in 1Q relative to normal. In general, how do you characterize inventory levels at your dealers, and I guess particularly in North America, if those have reached pretty thin levels relative to history?

Yeah, so you're right. There is a – there is – if you look at the retail sales for Construction Industries and what we actually reported as sales, there's a disconnect. The – I don't have the number right in front of me, but I think our sales were down 18%, 19% and the retail sales were down less than 10%. The difference is not so much a destocking in the channel. It's – we normally build inventory in the first quarter. We did that in both quarters, but they built a lot more inventory. We built – or dealers, I'm sorry, built more inventory a year ago, so that's negative for our sales and that's what's taken that retail sales level and bumped it up a little bit for us in the first quarter.

And...

I think our – yeah, I would say there's always some seasonality in dealer inventory. It goes up during this part of the year. And then it – everything else being equal, with relatively level demand or expected seasonal demand, it will come down between here and the rest of the year, and that's exactly what we think will happen. Bradley M. Halverson - Chief Financial Officer & Group President: This is Brad. It's hard to look at all the factors, but I will tell you one factor that's influencing this, we believe, is the benefit of Lean. Our – hitting our promise dates to our dealers in terms of the products has improved over the last few years. I think there's a higher level of confidence that we'll deliver the product when they need it, and I think because of the benefits of Lean we're seeing a little bit lower inventory at the dealers.

Got it. That's really helpful. Thank you.

Thank you. And the next question is coming from David Raso. David, your line is live. Please announce your affiliation and pose your question.

Hi, Evercore ISI. I was just trying to think through the inventory changes at the dealer level. Have you changed at all your view of the dealer inventory target for the year and if you can refresh us on what that is?

We've not made any changes. I don't recall talking about a target. I think last year dealer inventory declined I think around $1 billion, if memory serves me.

That's right.

And I would expect it probably to be somewhere close to that this year as well.

And regarding the backlog, how much of the backlog doesn't ship this year? I'm just trying to get a feel for where the backlog is relative to hitting the guide and just trying to understand maybe where – we obviously have our own thoughts about orders for the rest of the year.

Sure.

So where would that leave the backlog toward the end of the year?

Yeah. Honestly, I don't have the – I mean I have the backlog numbers in total which were flat from the end of the year to where we are now. But I don't have a breakdown of what ships later in the year. We'll put that – I think we normally put that in the queue, but I don't have it in front of me, David.

Then I guess maybe the same kind of question. On the backlog change, I think you had mentioned a backlog similar at Solar sequentially. Is that correct?

We didn't say Solar in particular but we said each of the segments. But you could throw Solar in there as well. It was similar to – relatively unchanged from year end to the end of the first quarter; actually up just a touch but not much.

All right. That's helpful. I appreciate it. Thank you.

Yep.

Thank you. And the next question is coming from Ann Duignan. Ann, your line is live. Please announce your affiliation and pose your question.

Hi. It's Ann Duignan, JPMorgan. Douglas R. Oberhelman - Chairman & Chief Executive Officer: Hi, Ann.

Can I ask a question on working capital and the balance sheet and cash flows? If I look at days on hand and days sales outstanding, both were up year-over-year and quarter-over-quarter. Quarter-over-quarter may be seasonal but – should we be concerned at all that inventories are not being caught quickly enough, Doug? And what is the outlook for free cash flow for the full year? I mean you used cash this quarter versus – normally in this type of an environment, we might have expected some inventory relief and working capital to be a positive.

Yeah, Ann. This is Mike. I'll take that. We don't really make a forecast for cash flow. That's never really been a part of our outlook, but if you look at the operating cash flow for this quarter, it was a couple of hundred million positive, and that's despite two big negatives in the first quarter. As a part of our restructuring costs last year, we had a fair bit of employee related costs. And that was, for the most part, paid in January. So there was, I think, about $400 million of extra negative cash flow in the first quarter that was related to the restructuring actions from last year. So that was a bit of a drag. And then, of course, in the first quarter, we always pay – we accrue incentive compensation throughout the year, but it gets paid in the first quarter, and that was I think $600 million. So between the two, we had close to $1 billion drag on operating cash flow in the quarter. So I think you'll see that improve, operating cash flow ought to improve quite a bit from first quarter levels as we go through the rest of the year. I think on inventory, we've been pretty public by saying that the one operational thing that we've not been as happy with is inventory turns. There's all kinds of reasons why quarter to quarter to quarter, things can change, but on balance, our forecast has an improvement in turns built into this year. And we have everybody in the company working to make that happen.

Okay. Thank you. And just as a quick follow-up, I noticed that the Financial Services took $1 billion loan from the parent or from Machinery. Can you talk about what's happening there and why that was necessary? Is that unusual? It didn't show up a year ago. I'm just curious what's going on.

No, that's not unusual. I don't know if I would call it routine, but it's not all that unusual. Intercompany loans between the parent and all of our subsidiaries to kind of help better manage cash happens all the time.

Okay. Thank you. I'll get back in line.

Thank you. And the next question is coming from Robert Wertheimer. Robert, your line is live. Please announce your affiliation and pose your question.

It's Barclays, and good morning, everybody. The question is on the oil patch. Oil service companies are obviously feeling a lot of price pressure, whether it's pressure pumping or offshore rigs, and some of that price pressure – so the fleet in the field is idle, and so maybe it's easier to discount. So I've a specific question. Are you seeing pricing on aftermarket and are you feeling increasing pressure from people like that? And a general question, it sure feels like a lot of people are trying to target – bringing the whole cost curve down to $60 (39:54). I wonder if you feel like you're already there on costs, you never raised pricing as everyone else did or whether you really have a lot of work to do to get structural cost down to where everybody's trying to target it in the future.

Yeah, that's a lot, Rob. First on parts pricing, that – if you look at our year-over-year price realization of the issues that we have, for the most part, that's new machines, that's not aftermarket. And I'm not saying it's zero, but in terms of materiality, it's not that big a deal. So that's the pricing point. In terms of the cost curve, a lot of the product that we have, particularly on the reciprocating engine side, is similar – let's take a 3500 Series engine. It goes into machines, electric power, it goes into marine. It goes into providing power for a drill rig or a frac pump. So it's actually spread across a number of industries. I mean we've worked on the cost structure, and I think actually not just for oil and gas, but across most of our products. I think at the sales level that we're at right now, based on the material cost reductions we've got the Lean-related efficiency improvements, the period cost reductions, the restructuring, I think we've actually done a pretty darn good job on trying to get the cost structure in line for the most part with where reasonable demand would be.

That's perfect. Mike, if I can ask just a very quick procedural one. You don't usually guide the quarter. You did, and I'm sorry if we made you – cost you a trip to London. And then you kind of – obviously, the dealer sales pointed to a slight reduction in the outlook. So that was no surprise. But procedurally, did you just not do it till all the quarterly numbers came in or was there something that sharply accelerated down the last few weeks?

No. I mean, the numbers that – we don't normally provide actual guidance. We kind of nudge, I guess. We provide some color around what we think. And I think we probably didn't do that as explicitly enough when we did our year-end release. And the analyst guidance for the quarter ended up looking more like the pattern for last year rather than the pattern for this year from a quarterly cadence. And we were coming down from oil and gas last year. So I don't think that was well played into the guidance. So no, what we did at Barclays was just trying to get expectations set there, thereabouts where we'd thought all quarter, but was not a big step-down or a run-down, and we ended up actually being pretty close to what we thought. I mean we've got many businesses, not just three segments. Within each one of those, we – like E&T, we have marine, we have recip oil and gas, we've got turbines, we've got power, we've got rail, we've got rail services, and each one is difficult enough to forecast. But there's just a lot of moving parts. I know from the outside looking in, it might seem like our business ought to be easy to forecast, but it's actually pretty tough. But we've come reasonably close, and certainly, we were in the first quarter.

Perfect. Thanks.

Thank you. And the next question is coming from Ross Gilardi. Ross, your line is live. Please announce your affiliation and pose your question.

Hi. Ross Gilardi from Bank of America Merrill Lynch. Good morning, everybody. Douglas R. Oberhelman - Chairman & Chief Executive Officer: Good morning, Ross.

Mike, I was wondering, could you just help us bridge Q1 to sort of the implied step-up in Q2, more from an earnings perspective...

Yeah.

...so you're doing mid- to high-$60 million (44:11) in Q1? And based on your commentary for the revenue breakdown, I mean I assume you're somewhere in a dollar per share neighborhood or something to do the full year. And can you just help us break...

Yeah.

...that down into a few buckets? Are there any weird things going on with other income or anything like that that can make us more comfortable in that step-up that you would see and the need at the very least in Q2 to do the full year?

Yeah. It's actually not that tough, Ross. So in the first quarter, I'll tell you one thing that we – I would say we don't forecast but I guess by definition we tend to forecast at zero is the impact, the short-term impacts of currency as a result of our balance sheet position. And that's below operating profit in that other income line. We tend not to forecast it. Our whole business is hard enough to forecast. Trying to forecast exchange rates over the next three months, we just don't do. So we would be expecting currency exchange in that other income and expense line to essentially be zero. In the first quarter, if memory serves me, we had about $0.05 a share I think negative. So that would be coming out. So that would be a little bit of a boost in the second quarter. And then we have higher sales in the $500 million to $600 million range. You probably want to use something closer to our variable margin rate. I mean, period costs over time like year-over-year, we can fluctuate them up or down. But in the short term, rather than kind of an incremental margin kind of look, variable margin is probably a little bit better indicator. And for us, that's right around 40%. So I think a little less drag from currency translation and higher sales and maybe a little bit more continued cost reduction. But mostly, it's sales and absence of exchange loss, and a little bit of product mix, too.

Got it. Thanks very much. That's helpful. And then can you just talk a little bit more about Solar, the backlog? I mean, any comments you can make on the turbine side? And just your overall exposure to midstream CapEx? We've seen some pipeline cancellation announcements compared to the upstream side. I mean, the midstream CapEx is in the relatively earlier stages of – it seems to be getting cut. So what do you see in there, and given the long lead times, does this pose risks to the 2017 outlook?

Okay. So we'll kind of address those one at a time. I won't mention names, but a company in the last few days announced a pipeline cut. And that doesn't involve us. It doesn't. We're not part of that. So in particular, that one isn't affecting us. The backlog for Solar has remained pretty stable. I mean, it's only a couple hundred million below where it was a year ago at this time. It actually rose a tiny bit from year end. Most of the decline in the business has been oil-related, not gas-related. I think we feel pretty comfortable with the backlog that we have in. Given the lead times of the projects, our stuff would go in maybe more near the end of a big project. I mean, if you're going to put turbines on a platform, you've got to have the platform up before you put the turbines in. So I think we feel pretty comfortable about this year. And I know you asked about 2017. I'm going to politely defer that, not because I'm trying to be cagey, but because it's way too soon to start talking about 2017. There's a whole range of things that could be positive or negative. I think we're probably couple quarters away from getting a good view of that.

Thanks, Mike.

Thanks, Ross.

Thank you. And the next question is coming from Jerry Revich. Jerry, your line is live. Please announce your affiliation and pose your question. Jerry Revich - Goldman Sachs & Co.: Hi. Good morning. It's Goldman Sachs.

Hi, Jerry. Go ahead. Jerry Revich - Goldman Sachs & Co.: Mike, can you talk about the manufacturing facility restructuring program. In the press release, you spoke about 15 facilities have been consolidated. In what inning of that process are we? How many more are we thinking about in front of us on a relative basis to what's been done? And in the past, you've spoken about low 20%s incremental margin targets in a recovery. I'm wondering if the thought process has changed at all based on the change in the footprint.

Well, couple of things on that. When we made the announcement last year in September about these restructuring actions, we were thinking maybe 20 facilities would be impacted. We've announced about 15 plus facilities now this on-highway vocational truck. So at least in terms of numbers of facilities, I think we're pretty far down that path. There's still more to go. And certainly, it will take a little – even for the ones that we've announced, these phase ins, it takes a while to shut down and change and shed the cost. So we still – from a savings standpoint, we still have quite a bit to go. So that's a positive. On the incrementals I think low 20%s is too small a number. Normally, we think of incrementals as around 25%. I think based on all the actions that we've done when recovery starts, Doug has been probably the most vocal in saying this, and I believe it, too. We should probably do a bit better than that when things turn around because we certainly have plenty of capacity right now for most of our products and a period fixed cost structure that could handle a bit more. Jerry Revich - Goldman Sachs & Co.: Okay. And on mining, obviously the commodity price recovery is fairly fresh but I'm wondering if you can comment on what you're seeing at the dealer level for parts demand. Any sort of pickup recently? There have been a couple of higher cost producers that have come back online. I'm wondering if your dealers are reporting pickup in inquiries or broader demand levels for the parts business.

So for mining in particular, it was not a very good first quarter for aftermarket. We said that in the release for Resource Industries. So looking backwards over the last quarter, no, no signs of turnaround at all there. More broadly on aftermarket for the company, I think we feel pretty confident in the outlook for parts, and I think it's a little bit like construction. Sentiment seems to be a little bit more positive, but probably a little too soon to declare victory. Jerry Revich - Goldman Sachs & Co.: Thank you.

Thank you. And the next question is coming from Jamie Cook. Jamie, your line is live. Please announce your affiliation and pose your question. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Hi. Good morning, Credit Suisse. I guess two questions. One, Doug, if you could just provide – and I know in your prepared remarks, you gave some color on China, but I think investors are really trying to struggle with how real is the stimulus, how long this will last. Some of your peers have come out and said the stronger equipment sales in the first part of the year had been more emissions driven and to expect – and for the buy, I guess wasn't real. So I'm just trying to gauge your confidence level. Or are you trying to call China as the bottom? And do you expect things to continue to be strong after the quote unquote pre-buy? And then I guess my second question which I don't know if you'll answer, but I'll try. You've cut numbers today which, I think, the Street wanted. At the same time, your commentary whether it was China or the U.S. seems a little more constructive relative to last quarter. So are you feeling better about the economy? And if there's downside risk to your earnings going forward where are you most concerned? Thank you. Douglas R. Oberhelman - Chairman & Chief Executive Officer: Yeah, thank you. I would share the caution in China. I am pretty sure that it's more than just the tier change, the Tier 3 institution implementation on April 1. Our folks over there were pretty emphatic that that's going to hold and that this is beyond pre-buy. But I am very cautious about how far that goes, and I would share…

I think we have time for one more question.

Okay. The next question is coming from Eli Lustgarten. Eli, your line is live. Please announce your affiliation and pose your question.

Longbow Securities. Good morning, everyone. Thanks for...

Good morning, Eli.

Can we talk a little bit – during the commentary, Mike, you sort of gave us some outlook for the relative sectors. Now we have a restatement of all the numbers, but the...

Right.

...implication is that the 5% to 10% decline in Construction is about the same. But on your numbers it says the 15% decline in E&T that was sort of talked about looks like it'll be closer to 20%, and the 20% decline in Resources looks like it'll be closer to 25% based on the $1 billion change. Is that still a fair statement? And more importantly, we're losing money, it might be more modestly in Resources. With the bankruptcy in PBD (57:29) and U.S. coal production right now down 32% year-to-date, are the losses going to get worse for a while before they get better or can you give us some quantification of what's going on in that sector?

All right. You've got couple questions wrapped up there, and I think I can deal with both of them. The first one on kind of what we said last time, we said CI down 5% to 10%, that's I think still pretty good. We said RI would be down 15% to 20%, and that's probably still in the range, but it's maybe moved up a little. On E&T, we said 10% to 15%. I think it's fair to say that range still holds true, but they're right at the top of it. So I think for E&T, about 15% is probably better than the 10% to 15%. And on the U.S. coal, that business is so low right now, we're not selling much into that industry. So I think all the negative around – I don't want to say all – I think fundamentally the negatives of the market are already in our sales.

Yeah, I guess – I'm asking about the profitability of the Resource business and sales. I mean will the losses get worse for a while as we go through the rest of this year? Or are we able to keep the current loss rate? Or at least some idea what's going to happen in that sector.

Yeah, I don't see anything that would make it worse. I think this is probably – the backlog for that business has stayed pretty flat. Kind of what's coming in and what's going out are on a reasonable balance. So I don't see anything out there that would cause it right now anyway, at least over the next couple of quarters to shift down. Douglas R. Oberhelman - Chairman & Chief Executive Officer: Let me just add to that, Eli. Doug here. There's two things that are going to happen in mining, Resource Industries is specifically mining for us. Number one, we've got a lot of restructuring underway right now and that will help us down the road. Number two, there will – ore is being mined, coal is being mined, trucks are still running, tractors are still dozing, motors are still loading around the world. The replacement cycle has been stretched out a long way which is the first time that's happened to us including parts. And at some point that replacement cycle will come to us, parts first, then rebuilds and then new truck orders. And those are the things we're waiting for. We're closer to it than ever I think just because of the longevity of the replacement cycle here. And we should start to see that I would say at any time. Maybe we're seeing it some signs of it in a few areas as someone mentioned on the call a minute ago but it will come to us.

Okay. Right. Thank you very much.

Okay. With that, thank you again for joining us. This concludes our call, and we'll talk to you next quarter.