Edward Rapp - Chief Financial Officer and Group President of Corporate Services Douglas Oberhelman - Chairman and Chief Executive Officer Steven Wunning - Director and Group President - Caterpillar Inc Mike DeWalt - Director of Investor Relations

Jerry Revich - Goldman Sachs Group Inc. Ann Duignan - JP Morgan Chase & Co Seth Weber - RBC Capital Markets, LLC Henry Kirn - UBS Investment Bank Theoni Pilarinos - Raymond James Ltd. Eli Lustgarten - Longbow Research LLC Andrew Casey - Wells Fargo Securities, LLC David Raso - ISI Group Inc. Jamie Cook - Crédit Suisse AG Joel Tiss - Buckingham Research Group, Inc. Andrew Obin - BofA Merrill Lynch Mark Koznarek - Cleveland Research Company

Good morning, ladies and gentlemen, and welcome to the Second Quarter 2011 Earnings and Bucyrus Acquisition Conference Call. [Operator Instructions] It is my pleasure to turn the floor over to your host, Mike DeWalt. Sir, the floor is yours.

Thank you. And good morning, everyone, and welcome to Caterpillar's Second Quarter Earnings Conference Call. I'm Mike DeWalt, the Director of Investor Relations. I'm pleased to have our Chairman and CEO, Doug Oberhelman; our Group President and CFO, Ed Rapp, here on the call today. And because we'll be discussing the Bucyrus acquisition, I'm also pleased to have Steve Wunning with us today. Steve is our Group President that heads the Resource Industries business. The call today is copyrighted by Caterpillar Inc., and any use, recording or transmission of any portion of the call without the expressed written consent of Caterpillar is strictly prohibited. If you'd like a copy of today's call transcript, we'll be posting it in the Investor section of our caterpillar.com website. It'll be in the section labeled Results Webcast. Now this morning, we'll be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. A discussion of some of the factors that either individually or in the aggregate, we believe could make actual results differ materially from our projections that can be found in our cautionary statements under Item 1A, which Risk Factors, of our Form 10-K filed with the SEC on February 22, 2011, and it's also on our forward-looking statements language contained in today's release. Now this morning's call format will be a little different than we've done in the past. I'll cover our second quarter results and the new outlook for 2011 then I'll turn it over to Ed Rapp and Steve Wunning to take you through the highlights of the Bucyrus acquisition that we closed on July 8. All of that should take about 30 minutes and then leave us about an hour for your questions. Now if you haven't done so already, you should download the Bucyrus presentation from the Investor area of the cat.com website. When you go to the Investor section of cat.com, you'll see a menu on the left-hand side of the screen, and the material that we're going to use today is in the Events & Presentations area. Okay. This morning, we were pleased to report financial results for the second quarter that were significantly better than last year. Sales and revenues were $14.2 billion, and that's the highest of any quarter in history and up 37% from the second quarter 2010. Sales and revenues were up in every geographic region. North America was up 36%; Latin America, 34%; Europe, Africa/Middle East, 51%; and Asia/Pacific was up 41%. Now to provide a consistent comparison with our 2010 results and our previous outlook, we're reporting our results this year with and without the impacts related to the Bucyrus, and we're starting that this quarter. There's a non-GAAP reconciliation in today's earnings release, and if you haven't seen the release yet, you can also find that on the cat.com website. Now excluding Bucyrus-related items that were in our second quarter, profit was $1.72 a share, and that's $0.63 or about 58% higher than the second quarter of 2010. While we didn't close Bucyrus until after the end of the second quarter, we did have $204 million in acquisition costs related to Bucyrus in the quarter. The most significant Bucyrus-related items were down on our other income and expense line below operating profit. And the largest item was the loss of $124 million in the quarter on interest rate swap contracts that we put in place in early -- or late 2010 and early 2011. At the time we put the contracts in place, interest rates were trending up. And considering the amount of debt that we needed to issue to complete the acquisition, we put the swap contracts in place to mitigate the potential for even higher rates. However, between then and the time we issued the debt, rates, in fact, did not go up. They went down. And while that's a very good thing and we were able to issue debt at historically low rates, it did result in losses on the swaps. However, over the life of the debt, the lower rates will be much more of a benefit than the loss we had on the swaps. Now in addition to the loss on the swaps, on that other income and expense line, in the second quarter, we had $38 million of expense related to the bridge financing facility that we put in place. In our operating cost, there was expense related to the acquisition and integration planning, and we incurred about $11 million of interest expense in the quarter on that debt that we issued back in late May. So in total, Bucyrus-related costs in the quarter were $204 million or about $0.20 a share. As a result of that, our total profit in the quarter, including those Bucyrus impacts, was $1.52 a share. Just for your reference, in today's release, we have a Q&A in the back. And Q&A #2 on Page 17 does a pretty good job of laying out the Bucyrus-related impacts in the quarter. Now related to the quarter, I should mention 3 other items that you may want to consider as you review our results, and they're all covered in today's earnings release. On the positive side, we had favorable discrete tax adjustments of $72 million. On the negative side, currency impacts were negative to operating profit, $102 million versus the second quarter of 2010. And the third item is short-term incentive compensation. I'm going to talk about the outlook in a minute, but we raised it, and that had the impact of adding $85 million more incentive compensation in the second quarter than we had in the first quarter, and incentive comp was $95 million higher in the second quarter than it was in the second quarter of 2010. As you do your analysis of our second quarter results, I'm sure many of you will do the math and calculate the incremental operating margin. To help you out with that, we've also included a Q&A. It's #12 on Page 20 of today's release. Now when you calculate incremental margin, your purpose is likely to get another data point on operating performance. We think it makes the analysis more reasonable if you pull out the impact of acquisitions to make it apples-to-apples. Excluding the impact of acquisitions, our consolidated incremental operating profit was 18% in the quarter. That's down from the first quarter, but it's consistent with the outlook we discussed during our conference call at the end of the first quarter. We said then that the first quarter was seasonally light for costs, that price realization was moderate, and R&D costs were expected to go up. In addition, we expected that the negative impact we were anticipating as a result of the disaster in Japan would largely be in the second quarter. Now when you look at the incremental margins, there's another important point you should consider, and that's the impact of currency. A weaker dollar compared with the second quarter of 2010 meant that our sales actually benefited $351 million in the quarter. However, the impact on cost was more. It was $453 million, and that resulted in a negative impact of $102 million on operating profit. If you were to adjust for the currency impact, the incremental operating profit pull-through was 24% in the quarter. In this morning's release, we also updated the outlook for 2011. And we are reporting it also with and without the impact of Bucyrus, and we're doing that to provide a more consistent comparison with our previous outlook. So excluding the impacts of Bucyrus, we increased the outlook today. For sales and revenues, we took it up to $54 billion to $ 55 billion -- I'm sorry, $54 billion to $56 billion in sales and profit of $6.75 to $7.25 a share. That's an increase at the top, the bottom and the midpoint of $2 billion in sales and revenues and $0.50 a share in profit. Our previous outlook, as a reminder, was the sales range -- the sales revenues range of $52 billion to $54 billion and a profit range of $6.25 to $6.75 a share. Now because we've completed the Bucyrus acquisition, we're also providing a new company outlook for 2011 that includes Bucyrus, and this is the first outlook that we've had where we've included Bucyrus. The expected impact of Bucyrus includes the vast majority of the upfront integration and deal-related costs that we expect on the deal but only a half year of actual operating results from Bucyrus. In total, we expect the 2011 impact of the acquisition will be positive to sales about $2 billion but negative to profit per share $0.50. Including Bucyrus then, the sales and revenues outlook is $56 billion to $58 billion, and the profit outlook is $6.25 to $6.75 a share. Now the factors driving that negative impact this year related to Bucyrus include about $700 million of upfront and deal-related integration costs in 3 major areas. The first, we've already talked about, and that's the loss on the interest rate swaps. And for the year, that's about $150 million. Second, we're expecting about $250 million of additional cost this year related to the Bucyrus inventory step-up. And third, we expect another $300 million of costs related to the acquisition and integration expenses like severance costs for Bucyrus executives, cost for the bridge financing, legal cost, advisory fees and a host of other integration-related activities. Now when we announced the deal last November, we said that we expected about $0.50 per share of those upfront costs in the first year, and the $700 million that I reviewed is a bit higher than that for 2 main reasons. First, we didn't expect the interest rate swap losses. And second, the estimate of the inventory step-up is a little bit higher than we expected back in November. Now in addition to the $700 million of upfront costs this year on our outlook, it includes about $80 million of additional interest expense on that debt that we issued back at the end of May. Now partially offsetting those items, we expect operating profit from Bucyrus net of about $150 million of incremental intangible amortization to be about $300 million positive during the second half of 2011. I think we have a pretty good summary of the impacts of Bucyrus on 2011 results on Page 15 of today's release in the Outlook section. One more point, I think, it's good to make about the Bucyrus impact. And that is of that negative $0.15 or $0.50 per share this year, about half of it is behind us in the first half. It's actually in our first half results. The other half will be in the third and fourth quarter. Now I'll just make a couple of quick more points and then I'll turn it over to Ed to start the discussion on the Bucyrus acquisition, and the first of those 2 points is the disaster in Japan. And I'd like to thank our employees, our supply base and our dealers for the exceptional work that they've done. The recovery there has been faster and the net impact less than we anticipated. In the second quarter, sales were negatively impacted about $200 million, and operating profit was negatively impacted about $60 million. That's better than we expected. Our previous estimate was a negative impact of about $300 million for the year and a negative impact of about $100 million to operating profit for the year, most of which we expected in the second quarter. In fact, in Japan, production is now back to or above pre-disaster levels, and there's a good chance that we'll recover much of the sales shortfall later in the second half. Final point this morning is on cash flow, and it's a great story to tell. Our Machinery and Power Systems operating cash flow for the first half of the year was $4.1 billion, and that's a 63% improvement from the first half of 2010. And of that $4.1 billion, about $2.5 billion was in the second quarter. And it's that kind of performance in generating cash that helped us fund the Bucyrus acquisition without the need to issue new equity. Okay. That's the quarter and the outlook, and with that, I'm going to pass it over to Ed to start the discussion on Bucyrus.

Okay, Mike. Hey, thanks. And like he said, we'll walk you through the presentation, and Mike referenced that was out on Investor Relations section of our website. And like he said, before we get into the Q&A, Steven Wunning and I just kind of want to walk through kind of where we're at with Bucyrus. If you go to Page 2, just as a reminder, many of the comments that we will make will involve forward-looking statements as outlined, Mike, in his opening comments. Moving to Page 3. The picture of the -- in terms of the products, on November 15, 2010, when we first unveiled this photo, we thought it really captured the essence of the strategic alignment between these 2 great companies. We were excited then. We're even more excited now. If you move to the next page, Page 4. In terms of the update, what we're going to do is take you through a few items. Number one, the fundamental reasons to acquire Bucyrus absolutely remain. Mining is a great industry that fits our strategy. It fits our business model. We expect robust long-term growth in Mining. In fact, if we look at CapEx projections by our large mining companies, they continue to gain strength. Bucyrus products are highly complementary, and I think that was demonstrated by the global regulatory approval that we received. We've also been very focused on the -- getting ready for this acquisition, and we have made key decisions. And we'll walk through organization, branding, dealer participation as well as funding to give you an update on where we stand. We are absolutely ready for the integration, have had a very well laid out plan that we'll take you through. And then lastly, we'll take you through the numbers, kind of the financial projections and how it looks going forward. So to talk about the strategic fit and some of the key decisions that we've already made, let me turn it over to Steven Wunning, the Group President for Resource Industries. Steve?

Thanks, Ed, and good morning to everybody. Let's start with Page 5. And really, the Mining customers fit our business model exceptionally well. What these customers want, they want low owning and operating cost, high uptime and great productivity, and that's what we do very well. We design and build great machines and engines, and through our dealers, we provide industry-leading product support. And through all of that, that results in low operating cost, less downtime and high productivity. And because of the value our products and services provide, we're able to sell more machines and engines, which results in selling more parts. And it's really a virtuous cycle. And just to point on the parts sales, just to put that in perspective, a D10 consumes 3x its initial price in parts over its life, and many of the Bucyrus products consumes a lot of parts just like that D10. So the mining industry and the Mining customers really fit the Cat business model probably better than anything else. If you go to Page 6, this acquisition actually started with our enterprise strategy in the spring of 2010. And I know most of you have seen the pyramids. And as Ed mentioned, the -- what was really -- in support of that strategy, we really looked at the businesses that we're in, in terms of how attractive the industry is and the strategic fit to Caterpillar's capabilities. And I really can't think of a more attractive industry than mining, not for the next -- just for the next 2 or 3 years but really, for the next 20 to 30 years. And as I've already mentioned, mining is a great strategic fit with our capabilities. And if you look at the big 8 imperatives, the Bucyrus acquisition impacts 3 of the big 8. First and foremost, it allows us to expand our leadership in mining and quarry and aggregates. It also helps us win in China as well grow in India, ASEAN and the CIS. It really allows us to execute the business model as I mentioned and accelerate aftermarket parts and service growth. Because of the -- how well this fits into our overall strategy, we have invested $8.8 billion in Bucyrus, and we're also investing several billion dollars more to significantly expand our factories and design better Mining products. If you go to Page 7, you can see a kind of the array of Bucyrus products. And there's very little overlap with the existing Cat product line except for trucks. And even here, the trucks are very different. We provide mechanical-drive trucks. Bucyrus has electric-drive trucks. Now we have both. Bucyrus allows Cat to enter into attractive underground coal mining industry in a very big way. We now have products such as shears, armored-face conveyors, roof supports, continuous miners and belt systems. Plus, this gives us a strong foothold in China and India. Both are very important mining markets. In fact, this morning, I just got back from India. And yesterday, I was with the President of one of the largest India coal mines, and he's very bullish on coal for many years. They're making capital investments that are very, very large, and a lot those investments would go to Caterpillar type of equipment. And he is very delighted with our Bucyrus acquisition. This is true, with just about every mining company in the world. And if you go to Slide 8, we were a large mining equipment supplier with a neural product line. We basically offered mining trucks, support equipment and trucks and loaders for hard rock mining. But now, if you go to Slide 9, we have the broadest product line in the industry, and this is what our customers have been asking us to do for many years. What they asked us to do is to provide a one-stop shop for equipment and services. What they want are -- is a large strategic supplier with a broad product line and a wide array of services. They want strong, viable business partners to help them be successful. And now, with the Bucyrus acquisition, no one comes as close as we do to meeting what our customers have been asking for. As you go to the next slide, there were a number of key decisions that we had to make, and there were 5 driving forces behind these key decisions. The driving forces. We needed one face to the customer. We want to have one team, one distribution model, one brand, and the fifth driving force was speed of execution. And let me walk you through these 4 key decisions we made and the rationale behind them. As far as the Mining organization, on July 11, we added 10,000 new employees. We wanted to tell every employee as quickly as possible what their job is, who is their boss, where will they work and how much they will get paid, some very basic things. This will largely be accomplished by August 10. So far, the split of the key leaders for these leadership positions has been about 50% Cat and 50% Bucyrus. Our approach there was to pick the best of the best, and that really drove the selection process. We're implementing a functional organization. And we have Dave Bozeman, who will be leading the global manufacturing operations for the Mining business. There's about 18,000 employees in our manufacturing operation reporting to Dave. Dave has some of the largest facilities around the world, and many of you have been through Aurora and our East Peoria and our Decatur facilities, and now you can add South Milwaukee and many, many more facilities. But he's got the largest facilities, and he's got all the facilities that support our Mining business. We've got Chris Curfman. He's got the global sales and marketing for the entire Mining business, and he's got the coverage worldwide for all Mining Products. We've also got Luis de Leon. He's the former Bucyrus Chief Operating Officer. Luis leads all product development, and almost all the engineers report to Luis in the Mining business. Now it's not just these 3 officers. 25 of Caterpillar's 30 vice presidents will be deeply and directly involved in the Bucyrus acquisition. Let's talk about branding on Slide 12. Since November 2011, we've been studying branding very carefully. The Bucyrus name is very, very strong. It really conveyed a great legacy and heritage. And the Bucyrus brand, it means a lot to many, many employees. We didn't make this decision lightly. We talked to customers around the world. We talked to our dealers. We talked to Caterpillar employees, and we talked to Bucyrus employees, and we also talked to branding experts. It was virtually unanimous. Everybody told us, "Go with one brand, and that brand should be Caterpillar." Again, it gets back to one team, one face to the customer. And there is one exception. It's a temporary exception. That's the Unit Rig truck or the Bucyrus truck, and we're going to use the Unit Rig truck name brand for the time being as we begin to integrate the Caterpillar truck line with the Bucyrus truck line. But that would be the only exception, and that's a temporary one. Let's go to Slide 13, which talks about our dealers. Bucyrus really is a manufacturing and a distribution company for most products, and they really deploy a factory-direct model. And what we wanted to do is that we wanted to keep what we do best, which is design and manufacture great engines and machines. And what we wanted to do, what we want our dealers to do is what they do best. And that is sell and support these engines and machines for their entire life. So we'll be selling the distribution to -- business to our dealers. They are very excited about the opportunity, and this is what they have been asking for, for many years. They wanted a much broader product line for the Mining business. We just started discussions with our dealers, but our dealers are very happy and are excited about the opportunity. And they are willing to reimburse Caterpillar for what we paid to buy the Bucyrus distribution business. Collectively, we expect that value to be substantial. Now we have over 180 dealers, but less than 50 make up most of the Mining business. And what we want to do is that we want to reach agreement with our dealers very, very quickly, and we'll close some of the deals with our dealers by the end of this year and the rest by the end of 2012. Now I'm going to turn it over to Ed. He's going to talk about the funding.

Thanks, Steve. On the funding, most of you are up to speed in terms of how we've done this, the ability to avoid the equity issuance, but thought we'd just kind of a lay out a comparison from November 2010, when we announced this, to what we actually did. In terms of the transaction, you're well aware, 100% of the outstanding common stock at $0.92 a share and then the total price ended up at $8.8 billion, which included the assumption of the net debt. If you look at the chart and you compare the November 20 estimate to what we actually did, I think there's 2 keys. Number one, earlier, Mike went through the strong cash flow results we've been able to deliver. And the strength of our balance sheet, it puts us in an exceptionally good position which allowed us to complete the transaction with 0 equity. So you can see on the equity line, no equity issued. And of course, that avoids the dilution, which is good for our stockholders. But the second key one, though, is the strong cash flow combined with the plan that Steve just outlined about selling distribution to our dealers allowed us to move more of the debt ladder to the short term, thus, lowering the interest expense. In fact, the weighted average cost of the debt, including the negative impact of the swaps Mike talked about, is 2.65%. And so if you think about it, an incredibly attractive industry, a company that really does match with our strengths, funded at cost levels we've just never seen before. So we're very pleased with the way this has been funded. We took a little bit of an upfront hit in terms of the swaps, but we'll benefit from that over the long term based on the low cost of funding. As we said when we announced the transaction, we see great opportunities for the synergies. We've spent a lot of time with the integration planning. Steve, why don't you talk about where we're at with integration?

Okay. Well, back in November, when we signed the agreement, we appointed Steve Fisher to lead the effort. Steve is one of the company's best Vice Presidents. Then we dedicated a team of about 100 employees, both from Cat and Bucyrus, and these are some of the very best managers in both of our companies. We have an excellent plan, and we're going to hit the ground running. Several thousand employees will be directly and deeply involved to deliver the synergy benefits. We have an awful lot to do. We have to complete and migrate the branding. We have to integrate and bring on our dealers. We have to bring on our suppliers. We have to bring all of our employees together, adding the 10,000 employees. There's a lot of work in engineering, IT, manufacturing, product support, logistics, but we have a great plan, and now we're executing it. We are becoming more confident we can deliver and exceed the long-term benefits that we expected initially back in November. This is going to be a big winner for Caterpillar. So Ed, why don't you go through the numbers?

Yes. If you go to slide -- Page 16 on the synergy capture, similar to our original discussion with you, we talked about the synergy that's coming across the wide range of areas, and we kind of outlined 4 major buckets. Number one, the sales and support capability of Cat dealers, which you've now heard are fully aligned in terms of the strategy, higher sales and a great opportunity for more aftermarket. The second key area is the use of Cat engines and components in Bucyrus products. And we talked upfront about the time it was going to take to engineer that into the Bucyrus product line, but we continue to see great opportunities. We know there are great cost synergies in the areas of purchasing, engineering and other areas. And in fact, we're already off and running with it. I mean, just some of the basics, such as rolling them into our airline discount agreements, will yield more than a 20% improvement in our cost savings. Rolling them into our express shipping programs yields 20% to 30% improvements. Steel plate, we're seeing 10% to 20% improvements, and we are off and running in terms of going after those cost synergies. And then lastly, the opportunities that come with Cat Reman. So in terms of the expected synergy benefits and the cost to deliver, you can see the layout between the 2011 partial year, kind of a 2012 full year and 2015 being defined here as a mature year. And you can see the net synergy impact in 2011 of about $25 million, ranging between $50 million to $100 million in 2012. And then we're talking about 2015 being over $500 million, and that's up from $400 million that we talked about when we originally announced the deal. As we've gotten into this, we just see greater opportunities. Now on the box, it does characterize one key point. This does not include the impact related to migrating the Bucyrus sales and support businesses to dealers. So all the numbers we're talking about today are the complete business, and of course, those will be adjusted as we transact or sell a portion of the business to the dealers. And we'll provide clarity on that when those transactions take place. So if you kind of weave the cost and the synergies into the financials and go to Page 17, this kind of gives you the expected financial impact. And once again, we're looking at a partial year 2011, full year 2012 and a mature year of 2015. And you can see the Bucyrus standalone operating profit, the synergy benefits we're projecting net of the cost to deliver that and the incremental intangible amortization and depreciation. And then in the first or the partial year there, you see the impact of the inventory step-up and the interest rate swaps. And then in the early days, we'll also see the deal-related integration cost. And so the partial year 2011, a negative $400 million. If you take that plus the interest cost that Mike talked about, that gets you to the negative $0.50 that we talked about earlier. And then for the full year of 2012, we're looking at that to be a positive $500 million. And in a mature year, we're looking at a run rate of about a positive $1.25 billion. And so a little more cost upfront but a much more positive view of what this is going to yield over the long haul. And once again, this doesn't include the impact of our transacting the business with the dealers. So if you go to Page 18, what's changed? I'd say on the negative side, a little bit higher upfront cost being the interest rate swaps and the higher inventory step-up. We expected about $700 million in upfront cost in 2011, including the interest rate swaps and the inventory step-up and the other integrated-related deal cost. And on the positive side, we originally said we would fund with up to $2 billion in equity. And as I went through a great focus across the company on cash flow, and it's helped us to avoid the new equity and the dilution associated with that, which would have been about 3%. Much lower cost of debt to fund the acquisition, very favorable interest rates, very favorable timing in terms of the debt ladder, and that will more than offset the swap losses over the term of the debt. I'd say Mining, in general, has continued to improve, and that makes the timing of the acquisition and the long-term outlook of our Mining business, I'd say, even more positive. And as we get into it, we just have more confidence in the synergy numbers, and we've raised that mature year estimate to over $500 million from what we have previously said of over $400 million. So all in all, we feel really good about where we're at. So if you go to Page 19 for the summary. Great acquisition with the complementary product fit. Yes, we got a lot of work to do, but there's really been some good integration planning that's gone into place. We see very good opportunities for synergies. And as we talked about upfront, it will require some investments to get to some of those. It will take time to integrate, including in the dealer transition. But I think you've seen in the decisions that we've taken upfront that we've given this a lot of thought, and we're going to hit the ground running, much more favorable funding cost than expected last November. And including the incremental interest expense, we expected it to be about $0.50 per share negative to 2011 profit. It'll be a profit contributor after 2011 and then add something in the dollar per share range by 2015. As was the case on November 15, we thought a picture says a thousand words. And if you flip to Page 20, I think the next slide says it all. It felt like a good move back then. It feels like even better news now. So Mike, I think we're ready for Q&A.

I -- Holly, I think with that, we're ready to open up the floor for Q&A.

[Operator Instructions] Our first question of the day is coming from Ann Duignan. Ann Duignan - JP Morgan Chase & Co: Ann Duignan, JPMorgan. There's so many questions. I don't know where to begin, but let me ask my questions around the Bucyrus deal. Can you give us some indication on the synergies, the mature year synergies? Could you break those down into buckets, at least rough buckets, revenues, COGS versus SG&A?

Yes, I would say -- and it's very similar to what we talked about in the very beginning. I think the biggest buckets that we have are generating more service and aftermarket sales and margin, capturing more of that. Our dealers do a fantastic job of that and then driving more sales of the Bucyrus product through the dealers. Two other big categories -- I'm just naming all the big categories -- are putting the Cat components. I mean, our cost of producing an engine, for example, is quite a bit less than the cost that Bucyrus would be paying. That plus the purchasing savings are really the 4 biggest buckets. Ann Duignan - JP Morgan Chase & Co: And order of magnitude, Mike, could you -- is it 60-20-20-20? Or...

All of them are important. All of those are important. We're going to try to avoid, I think, doing a blow-by-blow for each one. I would say they're all -- I don't want to say necessarily equally important, but they're all of a pretty big magnitude. Ann Duignan - JP Morgan Chase & Co: Okay. And on the financing, you talked about the lower cost of financing. Can you talk about interest expense as we go through, again, towards mature years. You're generating a lot of free cash flow. How should we think about free cash flow over the next few years? And what -- how should we think about capital allocation? Will debt repayment be the highest priority now for the next couple of years? If you could help us just think about cash generation and uses of cash as we get towards mature years.

Yes, Anne, this is Ed. And as we kind of took you through in terms of the debt ladder, you saw we moved more to the shorter end of the curve, and that was driven by 2 factors: one, projected strong cash flows from the existing business. The other one is we're producing strategic decisions to sell the distribution assets. That's going to have a cash flow generation capability, and we want to have some debt maturing at that point in time to be able to pay it down. In terms of our capital allocation, if you would, strategy moving forward, I think it's going to be very consistent with what we outlined when we laid the strategy out there. We think there is tremendous growth opportunities that exist out there. I mean, today, we're talking about an acquisition, but we've also outlined the very strong organic growth opportunities, up to $3 billion in CapEx. This year, we see more opportunities to invest moving forward. We're bullish on the long haul. And I think you'll see, from a capital allocation, us continuing down that path, funding those growth opportunities, maintaining our obligations in terms of our pension plans, the moderate increase in the dividend we've talked about in the Las Vegas meeting at CONEXPO, and then truly as a residual share repurchase, but much more skewed towards the growth side. Ann Duignan - JP Morgan Chase & Co: Okay. That's helpful.

Yes. Ann, Doug Oberhelman here, and I just want to comment. Kind of at a top level, our thinking through 2015, which really hasn't changed from what we started on back in New York in 2008, 2009. But if you look at our forecast and the goals we have for 2015, the cash generation here should be -- a good word is probably phenomenal, certainly strong. And the growth opportunities we have that we see around the world that we described to you are really unchanged as we look at the long term. Certainly, the mining investment that we made and will continue to make on capacity to take advantage of that will be huge. But we don't intend at all to vary very far from reinvesting in the business. The way that we structured the debt for the Bucyrus gets us some early drawdowns or pay-downs on debt. So we get our debt-to-cap ratio a lot stronger than it is today, but we're still, even today, after the debt issuance we had, in pretty good shape compared to where we want to be and certainly, compared to where we were in 2009. So strengthening the balance sheet is going to happen in the next couple of years just, I think, naturally, but the growth and the use of cash through the next 5 years will be right back into the business. And of course, some of our announcements, you've seen where we're going with that. We'll continue to talk about that, but I don't view the world has changed very much. In fact, it's probably improved since our Analyst Meeting in New York, it certainly in Las Vegas. So we're pretty optimistic, very optimistic to achieve our 2015 goals that we talked about. Ann Duignan - JP Morgan Chase & Co: Okay. And one final one while I have you on the line there. I'm not quite sure how I understand how Bucy helps you win in China. I mean Bucy -- one of the strategic kind of weaknesses in Bucy's business plan was it didn't really have a China strategy. Could you just expand on how Bucy specifically helps you win in China or what you're going to do differently and particularly in the context of Joy's announcement that they're acquiring IMM?

Ann, it's Steve Wunning. And Bucyrus does have some joint ventures in China. It gives us a foothold to begin to grow that business. Their presence in China is bigger than you think in terms of what they've been able to sell. And it's not just the manufacturing that they have in China, but it's their manufacturing they have outside of China. And China is very big in underground coal, and this now gives us the capability to address the underground coal market in China and India, outside of China -- with manufacturing plants outside of China but also the foothold that Bucyrus already has in China.

We'll take our next question from Andrew Obin. Andrew Obin - BofA Merrill Lynch: BofA Merrill Lynch. Just a question on profitability in the quarter. Sequentially, why did we have profitability hit on construction and resources but not on power even if power pricing was in line with the corporate average? And I understand that there was some Japan impact on the construction side. But even excluding Japan, revenue seems to have gone up $900 million with no improvement to profitability on a sequential basis.

Andrew, this is Mike. I'll back up from that and probably answer the question a little bit different than the way you asked it. When we were sitting here 3 months ago, dissecting the first quarter and talking about our outlook, there was a -- we had quite a bit of discussion about that. Our outlook absolutely reflected a higher sales rate in the first quarter and lower profit for the rest of the year. That's what was in our outlook. That's what we communicated. That's what we talked about. We expected that from the first quarter that we would have higher sales, and this really cuts across all the segments. We said we would have a higher sales. We said the first quarter was a lot higher in price realization than we expected for the year and that that would moderate, and it did. We said the first quarter is seasonally a low-cost quarter. It's usually the lowest-cost quarter of the year. For discretionary cost, it was. Overhead cost did go up as we expected. We said that material costs would -- were going to go up later in the year, and they have gone up some. It's not massive. But I think in the second quarter, material costs were up close to $100 million. So those were all things that we talked about. We talked about R&D going up. It went up in the second quarter as well. There's one other item that happened, and that's the outlook. We actually raised the outlook. Again, excluding Bucyrus, we raised the outlook $0.50 a share for the year. And that caused us to take an incentive comp hit in the second quarter, because we always catch up the year-to-date whenever we make that change. So we have an extra $85 million of incentive comp in the second quarter. So in a nutshell -- and again, this cut across all the segments to differing degrees but essentially the same story. We have higher sales offset by costs that were going up, coming off the seasonal low, usual first quarter. We had the continuing pressure on material cost that we expected. We had the price realization moderating to about what we forecasted. We've had -- we took a price increase in January of about 1%. That's roughly what we got in the second quarter. So everything that happened in the second quarter is essentially consistent with our outlook and what we talked about at this point in time 3 months ago. Andrew Obin - BofA Merrill Lynch: Let me ask a follow-up question. What happens to your Bucyrus synergy number if you transfer all the parts business that you intend by the end of 2012 with no gains or losses on transfer? Just to give us a range what kind of what you might call the accretion we're going to get on what's going to be left to Caterpillar after you're done transferring the business. Just a range, extreme case, if you transfer everything at cost to what you bought it from Bucy.

Not going to do that, not because I'm afraid of the number, but because we made a decision that we've entered discussions with the dealers. The good data that we have is around the total. There are a lot of variables on timing. So in terms of the impact that the dealers are going to have, we'll start talking about that when we have a better handle on the specifics and actually when it's specifically going to happen.

We'll take our next question from Seth Weber. Seth Weber - RBC Capital Markets, LLC: It's RBC. I guess on the Bucyrus transaction, I was surprised to see that all of the -- all of BI's equipment is going to go through the dealers. I mean, can you just talk about the -- your confidence and the competency of the dealers to sell the underground equipment that they really don't have a history with?

Seth, this is Steve Wunning. That's a very good question. I guess to put a little bit more clarity into that is that some of the -- the underground is a great example. The continuous miners, the armored-face carriers, there's a lot of customization there. And even the drag lines in some of the big road shovels, there's not that many that are sold around the world. For those types of products, there's going to still be a lot of factories, support, a lot of application engineers working directly with the customer. So we're not going to transfer that expertise to the dealer, because that doesn't make sense. But what we want to do is to have the dealer along with us there so that he can help us support that product once it's installed and running. So it won't be exactly the same kind of dealer support that we see with, say, a D10, for the big, unique type of Bucyrus products. But they are going to be with us there, because they will have a role. And all those details will be worked out over the next few months. Seth Weber - RBC Capital Markets, LLC: Okay. Okay, that's helpful. I mean, do you think that you'll target a smaller number of more specialized dealers to do the underground? Or it's just going to -- you're not going to get that deep into it?

Well, for the underground, we'll target those dealers that serve -- that where underground within their regions, which does select -- which is a fewer number of dealers. Seth Weber - RBC Capital Markets, LLC: Okay. And then I guess just a follow-up question on the incremental margin. Mike, are you -- is Caterpillar still endorsing the 25% number of target for this year? And if so, is -- I mean is that including the currency adjustment, not including? Could you just clarify that?

Yes. I'll look -- just back to our outlook. Midpoint of our outlook today -- again, when we talked about that number, it was excluding acquisitions. So our outlook again went up $0.50 a share. We're at $55 billion and $7 at the midpoint. And excluding EMD, which is also an acquisition in there that's partial-year-to-partial-year -- so I'm not trying to get too tricky here but just trying to make it apples-to-apples. Our outlook for the year reflects a number that's pretty darn close to 25%. Seth Weber - RBC Capital Markets, LLC: Is that with the currency adjustment though?

Sure. Yes. Seth Weber - RBC Capital Markets, LLC: Yes. Okay.

No, no, no. Wait a minute. That's all in as reported. I mean, we're not adjusting anything out. The only thing we were trying to do in the Q&A regarding currency was just provide some additional explanation of -- we had a bigger hill to climb in the second quarter. I mean, we had expected that incrementals would come down in the second quarter. We knew currency at that time was going to be a headwind. We were just trying to isolate and show you how much of an impact it had. Seth Weber - RBC Capital Markets, LLC: Okay. But on a calculation basis, we should just -- we should use the 18% number, but still assume...

Yes. Seth Weber - RBC Capital Markets, LLC: Okay. And why was currency such a big headwind this quarter?

Well, yes. Well, in the scheme of things, we try to be relatively balanced on an operating income basis, but we're never -- it's never precisely balanced. We had a very positive impact on sales, $351 million. That's a weaker dollar. A lot of that was the euro, the Aussie dollar, Brazil, the comps, virtually every currency was weaker versus the dollar than a year ago, and that upped the sales. But we also have just a ton of cost around the world, not -- non-U.S. cost based, and so that's what we try to balance. So in a perfect world, we would have had $350 million of cost increases. In fact, we had a little over $450 million. One of the things that's changed with currency exposure for us over the past couple of years is our consolidation of Cat Japan. It's in our -- it's consolidated in our results now, and our net Japan cost exposure is quite a bit higher. And most of the negative in the quarter was yen related. I hope that helps.

We'll take our next question from Joel Tiss. Joel Tiss - Buckingham Research Group, Inc.: Buckingham Research. Can you talk a little bit about the pricing side of things? Is there a strategic decision to hold the line on pricing in the nearer term? Or is there any issue with customers being able to accept a little bit higher prices?

This is Mike. I'll start off with it and then maybe one of the guys will want to chime in. But we came into the year -- I'll say 2 things. One, at our Analyst Review in New York a little over a year ago, about a year ago and at CONEXPO, I mean, we made a point then that we are trying to drive the Cat business model. And the Cat business model thrives on a big fuel population, so there's probably some bias that's driving higher sales volume. When we came into this year, our announced price increase was about 1%, rough. I mean, it ranges by product. Kind of the net average was about 1%. That's what we put in place. We don't change pricing every month. We normally do a price increase in January. It'll be at a small midyear. It'll come in July. We announced that a few months ago. And then beyond that, there are month-to-month, quarter-to-quarter fluctuations just based on what product they're selling to what customer and what country, so it does fluctuate a bit, but essentially, we came into the year thinking somewhere around 1%. We had pretty good level in the first quarter. And now, the second quarter is about where we said we expected the year to be.

I'll just comment, again, kind of at a strategic level. Doug Oberhelman here. And I would answer it more emphatically than Mike did about our business model. The Caterpillar business model runs on fuel population which allows our dealers to thrive in the downturn, which they all did through 2008, '09 and '10. In fact, we only lost one dealer in that period of time around the world out of our 180 in the financial problems, and arguably, it was the recession that caused these financial problems. So when our dealers are strong in a downturn, we typically see market share gains coming out of a recovery, which is consistent with what we're seeing today. And therefore, going forward to drive the parts business and the service model that really rings the bell for our customers, which is what they like to see. That's what really has to happen here. And you're seeing a bias towards that in Mike's words, absolutely correct. Joel Tiss - Buckingham Research Group, Inc.: Okay. And then just to follow up, just trying to get down to the question that I think keeps being answered. When you gave us the preliminary 2012 not really guidance but just sort of a range to think about, the $8 to $10, that $8 was based on roughly $55 billion of revenues. So here we are in 2011, but the -- your range is more $7-ish. So can you just give us a sense of what slipped there? And how does that look into 2012? I'm not asking for a forecast. I'm just saying, you know what I mean, the efficiency of the profits relative to the revenues.

Joe, this is Ed. A couple of things I'd say about -- and we're still -- as Mike kind of alluded to earlier, that 2012 number, $8 to $10, $55 billion to $60 billion, we still feel very confident in terms of that. Your question about the $55 billion and $7 would be a couple of things. First of all, when we laid that out, we clearly excluded the acquisitions. And if you take a number of those acquisitions out, especially related to EMD, you're going to get to a sales number that's really closer to about $53.5 billion at the midpoint of our outlook. So that would be one point. The second, as we took you through earlier, we've got additional incentive comp here based on the rate of the outlook. And in a normal year, you'd be at about a 1.0 factor on that incentive comp. So at that level versus what we're at today would add another $0.40 to that $7 number, which once again, moves you closer to that range. The last one is when we laid out the $8 to $10 at $55 billion in 2012, we also laid out the fact that we were transforming our machinery business. And many of those businesses are underway. You're seeing good year over improvement in terms of what they're at in 2011, but we had projected upfront that the -- that transformation was going to be completed by 2012 to deliver those numbers. So those would be the things that would be different from today.

That's a great answer it, Ed. And I'll only add a couple of things to it, and that's the performance of the company since the recovery began in early 2010. And if you look at our incremental margins from that point to today, compare that to the early days of the 2003 ramp-up period, you take our quality levels, our safety levels, our pull-through levels, just about any internal metric we have, and I will give a seat to the Cat Production System, all the credit for this and our management team, we are far better off, arguably 18 to 24 months into the recovery than we were the last time around. So I'm paying a lot of attention to that, and we're spending a lot of time on internal efficiency and productivity. And actually, you're seeing it in the numbers. And certainly, 2012 and 2015 are dependent on us at completing and achieving those numbers, and I am absolutely confident we will.

The next question is coming from Andrew Casey. Andrew Casey - Wells Fargo Securities, LLC: Wells Fargo Securities. A couple of questions. First, on cash flow, you've had back-to-back performances for each quarter, in Q1 and Q2, that are pretty much the best in over a decade for free cash flow, defined as OCF less CapEx. Can you talk about how sustainable that is and what, if any, impact we should expect over the next several quarters from Bucyrus? In other words, is there inventory benefit that you can take advantage of there?

Andy, this is Ed. Good question. And as we laid out the strategy, we made it very clear that we were going to have a very balanced view in terms of the P&L and cash flow. As you remember, we made it one of the top-tier metrics. We took you through OPACC, operating profit after capital charge, and we're really driving that down the organization to create that awareness. And I think you've seen it in terms of the cash flow improvements that we've had. If you look at the year-to-date numbers, and you comment it's very strong, and I'd say a lot of that has been in the profit, the receivables and the payables space. The inventory turns for us this year are what I would say are on line with planned. But going forward, the greatest opportunity does lie in inventory turns. And Doug talked earlier about CPS and what we're doing there. We're also getting very focused in terms of the supply chain, the strategy talked about collaboration with suppliers. If I look at the next great opportunity in terms of cash flow, it's going to be in improving those inventory turns.

Andy, this is Steve Wunning. Just to add to Ed's comments, as a kind of -- one of the line guys is that I've never seen more focus on cash and cash management than what I've seen in the last 2 years. And it's very clear that each of the group Presidents and their leadership team, they've got all the levers and all the controls to deliver on those commitments. And Doug has made it very clear to all of us what we need to do, and our focus on cash has never been higher. Andrew Casey - Wells Fargo Securities, LLC: Okay. And then if I could get a clarification on the FX impact on the quarter. If you hold FX pretty much constant at current rates, what sort of impact do you expect, I guess, for the year within the guidance?

Andy, off the top of my head, I don't have that. Normally, when we do our forecast, we're not -- we don't normally forecast future changes in the longer-term rate. We essentially use a current rate. So we wouldn't be forecasting, from here forward, a change in rates. But the rates, even now versus what they were in the third and fourth quarter a year ago, will obviously be different. Off the top of my head, I don't know what the second half versus second half is off the top of my head. Sorry. Andrew Casey - Wells Fargo Securities, LLC: Okay. I'll follow up later on that, Mike. One last clarification. The integration costs, are you going to give us those on a quarter-by-quarter basis until you're done?

Well, I think for -- the vast majority of them are going to be this year. And so I think, certainly, for the rest of this year, we'll talk about what the total of those upfront integration costs are. I think it'll depend -- for next year, it'll depend a little bit on what are -- when we get to the end of the year, what our forecast for the following year is. Right now, what -- and it's on the slide that Ed showed you. Our estimate for next year right now is about $100 million.

Our next question is coming from Theoni Pilarinos. Theoni Pilarinos - Raymond James Ltd.: Raymond James. I just had a question about the dealers and the payment. I'm just wondering, since most of your dealers are private, how you expect them to finance the purchase and if you -- if Cat Financial will be helping them in any way to do that.

I'd say, first of all, one of the great strengths of the Caterpillar business model is the financial strength of our dealer organization. So if you look at the Mining business, where it happens around the world, those are some of our absolute strongest dealers, well capitalized with good access to credit. There may be some instances where they determine to draw on Cat Finance for financing, but they have plenty of sources in terms of their financing to draw from. So I think the financing of it, from a dealer perspective, is not going to be an issue.

The next question is coming from Mark Koznarek. Mark Koznarek - Cleveland Research Company: Cleveland Research. I just wanted to see if you could provide any kind of, sort of -- even kind of philosophical sort of comments about the transfer of the service capabilities to the dealers. Is it likely to be strictly field population that will be transferred or hired? Or are you contemplating there will be assets sold as part of this?

Mark, this is Steve Wunning, and it's certainly going to be some field population. There'll be a transition of former Bucyrus employees, now Cat, that will go to the dealers. These will basically be the product support people, field people. Bucyrus had a lot of service technicians that worked on the product, so that will naturally go to the dealer. A lot of the parts, warehousing type people, make sense to take it to the dealer. So it's a lot of the people that faced, actually, with the customers or the product, that will naturally go to the dealer. On a case-by-case basis, and that's part of each one of the discussions with the dealers, there will be some assets that will transfer to dealers. And don't have much detail on that, because we're just now beginning to dig into that to figure out which assets would go to the dealer. Mark Koznarek - Cleveland Research Company: So is it reasonable then to assume that this is mostly like labor, that we'll be transferring labor revenues rather than the high profit parts profitability?

This is Mike. I'll jump in. Aftermarket parts are a good profit business for Cat even excluding Bucyrus, and it's a good margin business for dealers as well. And I think as we transition the dealers into Bucyrus, it will be a similar model. I mean, we'll deal with the dealers likely in a similar way on parts like we do with the rest of Cat aftermarket. We acquire the parts. We get them around the world. Dealers hold some inventory. We sell to dealers, they sell to customers. Mark Koznarek - Cleveland Research Company: Got it. Blended tax rate for...

I would just add a little bit to that, Mark. Doug here. And that -- the reason we're going to the dealer model is because we think they will do a better job in the aftermarket with selling more parts and more labor than we would going direct. So while we'll maintain our margin on sales to them and they'll maintain their markup on part sales to their customers, we think the pie is going to grow fairly significantly over time due to their expertise being superior to what we think we could do directly.

Maybe to add on what -- this is Steve. Just to add on Doug's comment. This mining equipment really consumes a lot of parts. And this is just an untapped opportunity, and we really want to leverage our dealers to help us go after that. And that's truly a strength that we have, and we believe that's much better to do it through our dealer than using a factory-direct model.

The next question is coming from Henry Kirn. Henry Kirn - UBS Investment Bank: It's UBS. Sorry, I don't want to beat the transfer of the service business into the ground. But can you talk about how much flexibility you have in selling the pieces from one Cat dealer to another? In other words, if one dealer weren't willing to pay the price you were looking for, could you sell it to another of your dealers? Or are you geographically limited to selling the Bucyrus business?

Yes. Henry, I think that's probably putting a spin on it that is, going down the road, we don't need to go. Steve mentioned this early on. The dealers are super excited about this. They want to grow. This is right down their alley. They've asked us to do this. So I would say we're pretty confident that we'll get this done. Henry Kirn - UBS Investment Bank: That's fair. And on EMD, it was an operating income drag on the quarter, but could you talk about where it is versus your expectations and what you see for the business going forward?

Yes. I'll just say a couple of things. One, it is a very late cycle business. I mean, it's kind of like large mining engines, turbines. It works off of a lengthy backlog. We expected, going into it, that '11 and '12 will likely to be the trough, because it was late cycle before improving. I'd say our expectations around this business are actually very good. Witnessed by the new factory we're putting in monthly to increase locomotive capacity. So our view between here and 2015 for rail is actually very good. But that said, we fully expected, when we did the acquisition that actually both '11 and '12 would be weak years.

Yes. Oberhelman here. I'll just kind of give you my view on where EMD is, which unfortunately, it's being overshadowed by Bucyrus as the smoke fades around here at the moment. But you got to remember that we've got, with EMD installed, a locomotive base around the world, a huge parts opportunity. Freight rail and certainly, freight opportunity is increasing. What we are seeing, where we've gotten into the factories and the supply chain of EMD is lots of opportunity for improvement. We've had good reception from our Class 1 customers about where we're headed on this. And I am -- this will be one of our gems down the road as we go, but it was a mere $800 million acquisition. I guess that kind of got caught up with the shuffle here the last year, but we're really going to be proud of this in 1 year or 2. And it's doing what it's supposed to do here in 2011 and '12. And once we get it really humming, I think it'll be a great addition to our portfolio. I would say the same thing about MWM. We made a comment in the Q&A. We're on track some time this year. That's another one that we haven't talked much about. We will after closing, but that's got a bright future down the road as well.

Henry, this is Ed. The only thing I'd add on the EMD side is it does tie directly to the discussion we're having today on Bucyrus. Because if you listen to the major mining companies around the world, and the issues they've got is the infrastructure to get more support is a huge opportunity. And knowing those large mining through our Cat Mining organization, being able to bring an EMD Progress Rail into those discussions is an upside that I think is really going to make this a great business over the long haul.

The next question is coming from Jamie Cook. Jamie Cook - Crédit Suisse AG: Credit Suisse. Two questions. One, when I think about Bucyrus and how it sort of tied into incentive comp, does management have to hit the specific Bucyrus financials sort of synergy targets you laid out for us today? Or do I -- or does management instead will be compensated more on Cat targets which incorporate Bucyrus? And then my second question relates to, again, sorry, the $8 to $10 in 2012. You guys were pretty vocal about saying the $8 to $10, this excludes acquisitions, and I think the Street was hoping for a material rate, perhaps more in the $9 to $11 or to push out of the $8 to $10 per share range. And it looks like that's off the table based on where you're guiding at 2011 in the initial accretion from Bucyrus. Is that the right way to read it?

Well, I'll tell you what. I'm going to bracket part of that. I'll give you a comment on incentive comps within 2012. And then in terms of Bucyrus-specific incentive comp, I guess I don't know the answer to that, maybe Steve does. On the first question on the incentive -- the short-term incentive comps that we talked about today, raising it because we raised the outlook. That excludes -- for the rest of Cat, it excludes the impact of Bucyrus for this year. When we went into this year, our outlook -- excluding Bucyrus, because it hadn't closed. We didn't know for sure when the timing was going to be. And so for the rest of the company, we set up our incentive comps measures excluding the impact of Bucyrus. So the reason incentive comp went up today is because we took the outlook up, excluding Bucyrus, by $0.50. In terms of the $8 to $12, again, that's a target that we put in place back in '09. Doug made a fairly emphatic "by golly, that's our target" comment a little while ago, but realistically, we don't have an outlook yet for -- a specific outlook for 2012. It's getting a little every -- time goes by, a little more awkward to talk about our target, because 2012 is just right around the quarter. It won't be long before we actually do have guidance for 2012. We normally provide kind of a preliminary sales guidance with our third quarter release, and we'll probably do that again this year. And then in January, we'll give our full year expectations for 2012. I think, as Doug said, we're pretty bullish. I mean, think about it. We raised our sales outlook today. If you take EMD out of it midpoint of our -- which is excluding acquisitions. In 2011, I mean we're already at $53.5 billion roughly without Bucyrus, so things are going pretty darn good. Jamie Cook - Crédit Suisse AG: All right, Mike, a girl's got to try. But then just specific, can someone answer the question with how you see this tied into incentive comp?

Jamie, let me just add to Mike on the incentive piece. We have a small team, that is full time, who's doing the integration. It's about 100 people, as I mentioned. They do have -- their incentive is tied to how well the planning is done and how well we integrate this year. It's not material to the company's financials. The important part here though is that as we do our 2012 business plan, we're going to make sure that the Bucyrus synergies are drilled into those business plans, because we want to make sure that all those synergies hits the bottom line. And the best way to do that is to make sure that each and every one of our businesses and their plans and in their targets and in their incentive plans -- so from 2012 and beyond, these synergies will begin to be drilled into their commitments. Jamie Cook - Crédit Suisse AG: And it's for the broader company, not the small team in 2012 and beyond?

It's used to be for the Mining business and all the other divisions that are supporting the Mining business for their synergy piece. That will be drilled into their business plans.

Yes. And I'll come back to 2012. I think Ed referenced it earlier. Our OPACC, operating profit after capital charge philosophy here, which we have sort of been running in parallel in 2011 with no incentives tied to it -- we intended 2010, as we said in New York and Las Vegas, to bring that in as a metric for management. So far, that parallelling, I guess, review looks very good. We like what we see. And I think the cash flow is indicative of that and maybe a few other things, but we would intend to implement that across the company for all of our employees or in most all of them in 2012.

The next question is coming from Eli Lustgarten. Eli Lustgarten - Longbow Research LLC: Longbow Securities. One -- just a couple of clarifications on the financial side of Bucyrus. You told us in the press release there's $80 million incremental interest charges this year. What's that number for next year? And the $300 million amortization, how long does -- does that go on to the next 10 years? Is that basically on the right up of it?

On the interest, I think if you were to just to assume somewhere, at least for next year, in the $10 million to $11 million a month range on the debt, that would cover it the way we laid it out. Now again, we said we're in discussions on selling pieces of this to dealers. And so ultimately, that will generate some cash and it might change things a little bit. But on an all-in basis, the way we reported the numbers to you today, that $80 million is for 7 months in a week, and I think that comes out close to $11 million a month. Eli Lustgarten - Longbow Research LLC: Okay. That's fine. And the $300 million amortization, that's an ongoing thing? Because...

That's an ongoing thing. And I'll stress this here too, with the inventory step-up at max. Those are estimates right now. I mean, we just completed this acquisition 2 weeks ago and are into the numbers. So don't write those in sum. Those are our best estimates right now, and that amortization is going to be based on -- there'll be different lines of intangible assets. So some will be longer than -- some will go on a long time. Some will be shorter. But I think for the scope of the next few years, you can probably think of that as a reasonable estimate. Eli Lustgarten - Longbow Research LLC: Okay. Now let me ask you a question. When you talk about mining CapEx in the industry of 50% this year, can you give us some idea of where you are in capacity in the Mining business without Bucyrus and for Bucyrus itself? Because we knew a lot of product was sort of sold out, so are we at capacity? And the real question is how much incremental capacity would you have available for 2012 over '11?

Eli, this is Steve Wunning. For some of our products, we are at capacity. But what we're doing is we are making -- in the process of installing some investments that we've already committed to to increase our capacity. We are going to be adding more capacity even sooner now because of the long-term forecast that we see in the mining space over the next couple of years, and we'll be adding that capacity over the next couple of years. The long-term forecast goes out longer than that. We're working with our suppliers and our dealers to make sure that they're prepared for the growth that we see, because the last thing we want to happen is to have our factories ready, but our supply base can't support it. So we're spending an awful lot of time now making sure that they're adding the capacity, and they understand what our plans are. Eli Lustgarten - Longbow Research LLC: I guess I'm trying to ask is how much incremental production can you get out of the mining sector in '12 versus '11 from the capacity now and coming online. I think that you probably wouldn't have much more than 10% to 15% next year, and this is trying to get a feel of that.

Eli, usually, when we get to the third quarter, we kind of do a preliminary guidance on at least the top line for the following year. And while we say that for October, that's probably a better time to talk about that.

Mike, one thing I would add is that what we are doing is we spent a lot of time over the last 4 or 5 years deploying the Cat Production System within our factories. We are now using CPS and deploying it with our supply base, which is allowing us to increase capacity without making additional investments. And that's where a lot of the focus is right now, is to using CPS principles throughout the entire supply chain. Eli Lustgarten - Longbow Research LLC: And can you talk a little bit about the expected impact of cost in the second half of the year? You've got material of $100 million, but we've had commodity cost come up and down. Are we still looking at higher cost in the second half of the year from the first half of the year?

I think it depends a little bit on the category. If you look at material costs and freight costs, which were a pretty good drag on the second quarter, there's probably still a little upside pressure on material cost in the second half. With freight, there's quite a bit of fuel surcharge in there. [Indiscernible] with fuel prices down, there -- maybe there's an opportunity for a little bit of relief in that. In terms of R&D, I suspect that the second half of the year is going to add up a bit. Relative to the second quarter, if you look at incentive comp, that was an $85 million hit versus Q1. Essentially, half of that was related to getting the year-to-date right. So versus the second quarter, based on our outlook, we would have that going down. So I think it's a little bit mixed depending upon the cost category you're looking at. I think if you cut through our guidance though, essentially, what we have at the midpoint of the guidance is sales and profit in the second half on average for the third and fourth quarters. Given we don't have quarterly guidance, but on average, we've got the third and fourth quarter with sales and profits similar to what we did in the second quarter.

The next question is coming from Jerry Revich. Jerry Revich - Goldman Sachs Group Inc.: It's Goldman Sachs. Steve, can you talk about your opportunities on the Bucyrus manufacturing footprint broadly and specifically, comment on the CapEx side? I think the excavator product line is essentially out of capacity at this point.

Jerry, we are looking at all of the Bucyrus operations. It's just very early right now to really determine what our total footprint is. Our main focus right now is looking at capacity that we have and to see what we need to do to increase capacity both for Cat and Bucyrus. It is going to take us a little bit longer to really determine what is the best global footprint for both Cat and Bucyrus for the Mining business, but our focus right now is to -- is looking at how can we increase capacity for both. Jerry Revich - Goldman Sachs Group Inc.: And Ed, to get to the inventory velocity improvement you discussed earlier on the call, can you talk about the extent of improvement you need to see out of your supplier, on-time delivery rates, and just talk about where in that process you stand today?

Yes. Steve commented earlier on the fact that we've spent a lot of time in terms of deploying CPS across our footprint, and now, it's a questions of taking that out to our supply base. And if you go back to the strategy and the heart of it, we talked about the concept of supplier collaboration and integration. And I think what you see us doing is we're fully integrated, as you know, out into our distribution organization, and we're looking to take those very same principles and apply it back to our supply base. I think we're getting outstanding engagement from our supplier organization. I mean, if you think about where we're at with the sales level in the second quarter of 2011, this thing, from a volume perspective, bottomed out back in kind of the third quarter of '09. And from that standing-still point, our supply base has done an outstanding job of responding and taking us to a point where this quarter, we had record sales and revenue. So I think the engagement of our suppliers is there. I think the methodology is proven out in terms of the Cat Production System. It's clearly outlined in our strategy as a priority, which really helps drive this organization. So I think that is the key to getting that inventory improvement that we're looking at going forward. I mean, I'd say between now and 2015, we'd really be looking to drive that inventory turn improvement by about 0.5 point, which would bring a lot more cash to the bottom line. Jerry Revich - Goldman Sachs Group Inc.: Helpful. And Mike, pricing was significantly weaker in Construction Industries this quarter. Can you talk about which regions are seeing less pricing success? And is the July 1 price increase sticking, particularly given the currency headwinds for a lot of your Japanese competitors?

Well, we're in July right now, and I haven't seen any July numbers yet. So the second part of your question is a little tough to answer. The first part, remember, we actually went into the year with a pretty modest expectation for products. I mean, overall, we were only looking for something in an order of magnitude, 1%. And as you can imagine, in areas like mining, I think the opportunity was better there. The environment was better there. And if you look at the numbers in the second quarter, it bears that out. But in general, I would say, overall for the company, we're getting about what we expected, what we announced in January.

The next question is coming from David Raso. David Raso - ISI Group Inc.: ISI. Two questions: one on mix and one on structural costs. The $2 billion increase in revenues, excluding Bucyrus, I know you don't give quarterly revenues, but how much of that $2 billion already played out in 2Q and then for the rest of the year? And when you think of what was raised, where is it coming from? Is it resource, construction? Just give us a little color on that $2 billion number.

Yes. I'd say I'll give you a little bit of color. The second quarter actually was -- we don't give quarterly guidance, but the one bit of info that I can tell you about the second quarter was $100 million impact on Japan was lower than we thought. So the Japan fees was a little bit better. What I would tell you is when we were talking about our outlook 3 months ago, we said, "Hey. For a lot of products, we're capacity constrained or production constrained." I think what allowed us to take this outlook up is actually better production levels at some of those places that were constrained, quicker recovery in Japan and in general, better demand in the areas where we weren't capacity constrained. Solar, for example, is better. Power Systems is better. Construction Industries is better. Mining is getting more production out. So again, we don't do the guidance by quarter. We don't do it by unit, but it was fairly widespread. David Raso - ISI Group Inc.: Okay. So regarding mix going forward, I'm just trying to square up the rest of the year incrementals. Or guide at 18, 19, all in, how much is that currency? And how much is that simply a mix issue? I mean, the revenue guidance is broad-based. It went up to 1 7, 1 8 something like that for the back half of the year. Cost for the second half. When I think of the structural cost though, it's what you just define as like period cost.

Right. David Raso - ISI Group Inc.: All the cost that were going on from the factory expansions, trying to think about '12 operating leverage, where are we in trying to size the capacity for the growth numbers? You spoke of long-term, '12, '13, '14 to out. How much is the cost of some that will get done in '11? And how many of the factories giving an update from you right now on Tianjin, China for the big engines and other facilities? Where are we by the end of '11? Do we get a nice story of revenues next year? And are ready -- put my cost in in '11? Or is it an ongoing issue into '12?

Yes. That's actually -- that's a very good point, David. There's no doubt that the period costs this year are impacted by all those capacity additions that we've in flight. They're all not going to be down this year though. I mean, we've got -- if you take Suzhou, for example, the next phase of that expansion doesn't get -- doesn't really take hold until the end of '12. So the excavator facility in Texas, that will still be in flight through the first part of next year as well. So I mean, we have cost this year. We'll have cost related to capacity expansion next year. Again, when we -- it's a little premature, I think, to talk about -- too much about 2012 cost, because there's a lot of moving pieces. And I think to some degree, it will depend upon what our view is at that point in time on what else we need to do in 2012 to deal with '13, '14 and '15.

David, this is Ed. I think the only thing, back to kind of the earlier comments and some of Doug's points, is that I think you do have to assume, based on our long-term outlook, that there will be continuing investments relative to capacity. I mean the emerging market growth, you know the story there. If you take the U.S. and Europe, where it's 50% of the prior peak, you got little fleets in U.S. dealers today that are below the '02 bottom, average age is 30% older. There's a replacement cycle coming and then that's why you're seeing investment this year. I think you're going to see investment moving forward as well. David Raso - ISI Group Inc.: And indulge me 2 quickies. Other -- the all other category was a little bit of a negative surprise.

Right. David Raso - ISI Group Inc.: What were the drivers there? And then secondarily, how are you viewing growth the rest of the year in China on a year-over-year basis?

Okay. Two things. On the all other, there are 2 pieces of it. There was, sales actually declined, and the margin rate dropped. The sales decline was essentially part of machinery. We sold part of machinery last quarter or actually, at the end of the first quarter. So their revenue sales, sales to outsiders, were in that segment before. So that went away, and Construction and Mining and the Power Systems divisions, their sales now to the dealer, that's independent now, part of machinery, went up a little. So on the sale side, down in that segment, up a little bit in the others. From a profit standpoint, one of the groups -- there's a lot of intercompany activity in that group. One of the groups that's in that group is our internal logistics group. We've seen quite an increase in freight costs this year. A lot of the brunt of the freight cost increase has been borne in that division. And in the short term, it doesn't get passed back to the others. David Raso - ISI Group Inc.: Okay. And regarding China?

I'm not going to do any quarterly guidance on China. Our second quarter -- our sales were up. We're still pretty bullish on China overall. We've got an above 9% GDP growth rate in for China. There's been a lot of discussion in the news about the growth rates there slowing down. That doesn't mean it's going negative, but I do think the growth rate that we all saw in the industry from the first quarter is likely to come down a bit.

Yes. I'm going to conclude, David, with that comment on China. I wanted to get this in at some point, and I'm glad you brought it up, because we do hear a lot about that. We watch it very closely. But I view a slowdown, emphasis on slowdown not crash, in China as pretty favorable for Caterpillar and for our industry. We all knew that market was way too hot, and it probably will heat up again at some point. But a slowdown let's us all in the industry take a breath, make sure we don't over-capacitize, and it gives us a chance to kind of. The other thing it does, it allows us where we can, and because of our -- again, our global footprint, we can source into or out of China, because we are making world-class excavators there. And there are other hot markets where we've been sure that if there's capacity that freeze up in China, we can use elsewhere. So I do not view a slowdown in China as a bad thing at all. I would view a crash as a bad thing. I don't think the Chinese will allow that to happen. They've had a good run over the last 30 years of walking the tightrope. The tightening they started this year was healthy. It started to pay off. We would expect the slowdown. We've seen it. But again, the hot market we saw there in '09, '10, '11 was just too hot. We all knew it. So a slowdown for us, I think, is healthy. But David, I would say slow down, and we'll be watching that very closely. And at some point, it'll pick back up, and I think we'll be, as Mike said, looking at growth rates that are very manageable for us.

All righty. With that, we're slightly over time. Thank you very much for joining us today, and we'll talk to you over the next couple of months.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.