Mike DeWalt - VP, Strategic Services Brad Halverson - Group President - Corporate Services and CFO Doug Oberhelman - Chairman and CEO

Andrew Kaplowitz - Barclays Capital Robert Wertheimer - Vertical Research Partners Jamie Cook - Credit Suisse Nicole DeBlase - Morgan Stanley Timothy Thein - Citigroup Larry De Maria - William Blair Theoni Pilarinos - Raymond James Ross Gilardi - Bank of America Merrill Lynch Jerry Revich - Goldman Sachs David Raso - ISI Group

Good morning, ladies and gentlemen and welcome to the Caterpillar Second Quarter 2014 Earnings Results Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. Now I’d like to turn the floor over to your host, Mike DeWalt. Sir, the floor is yours.

Thank you very much, and good morning, everyone, and welcome to our second quarter earnings call. I'm Mike DeWalt, Caterpillar's Vice President of Strategic Services. And on the call today, I'm pleased to have our Chairman and CEO, Doug Oberhelman; and Group President and CFO, Brad Halverson. Now this call 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. And if you'd like a copy of today's call transcript, we will be posting it in the Investors section of our caterpillar.com Web site, and it'll be in the section labeled Results Webcast. So this morning, we'll be discussing forward-looking information and it certainly involves risks and uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. A discussion of some of those factors that either individually or in the aggregate could make actual results differ materially from our projections can be found in our cautionary statements under Item 1A, which is Risk Factors, out of our Form 10-K filed with the SEC in February of 2014, and also in the forward-looking statements language in today's release. Now in addition to that, a reconciliation of non-GAAP measures can also be found in our release today and again it’s posted on caterpillar.com in the Investors section. Okay, let’s get started this morning and I’ll be covering three themes before we get into the Q&A. Second quarter sales and profit, the outlook for 2014 and our announcement this morning of additional share repurchase expected in the third quarter. Now before we really get into the quarterly numbers I thought it might be helpful to summarize the major themes from this morning’s release. In other words what were the key points we’re trying to get across. The first point is around stability and consistency. Back in October of 2013, we provided a preliminary outlook for 2014 sales and revenues and back then we said it looked to us like 2014 would be a relatively flat year with 2013. That was the case then and that’s the case today. The midpoint of our outlook today is within about 1% of 2013’s sales and revenues. The second main theme this morning is around execution which has been good. Manufacturing, SG&A and R&D costs are close to 500 million, favorable in the first half versus the first half of 2013. Cash flows continue to be strong, we’ve improved inventory turns, PINS continue to improve and we’ve raised our profit outlook again this morning. Now the third major theme this morning is cash deployment, and the actions we’ve taken to help drive shareholder return. With the stock buyback we announced this morning, we expect that from the start of 2013 last year to the end of the third quarter of this year that we will have repurchased $6.2 billion worth of CAT stock and made two substantial increases in the quarterly dividend. So, that’s three themes, consistency, execution and shareholder friendly cash deployment. Okay now let’s get into the second quarter results. Sales and revenues were 14.2 billion, and that was about 3% below the second quarter last year. Construction Industries was up 11%, Resource Industries down 29 and the rest, energy and transportation, financial products and our all other segment combined to be roughly flat with the second quarter of last year. Now for construction, North America has been an area of strength and you might be surprised to hear so is our EAME region particularly Europe in the second quarter, it’s been better as well. Now construction sales in the Latin America were about flat with the second last year but as we get into the third quarter, Latin America will likely turn a bit negative versus last year, and that’s not driven by big economics, it’s primarily related to large sales of Backhoe Loaders and Motor Graders now that we’ve had to the Brazilian government. It was positive for sales last year and through the first half of this year but those orders are complete. So you should expect to see in the retail statistics of your release each month some decline there so don’t be surprised if you see that we expect that it is included in our outlook. Now construction sales in Asia Pacific were down slightly and that includes weaker sales in China. Now in China we started the year 2014 with the improving construction equipment demand but over the second quarter it weakened a bit. Our resource industries segment which again is mostly mining was down 29%. It was down 35% to 40% in every region of the world except North America. North America was much less negative than the other regions partly because the steep sales decline in North America started earlier, in other words it was probably closer to the bottom a year ago. In addition better sales to chlorine aggregate customers was also a factor that part of resource industries tends to be a little more closely aligned with construction and the particularly in North America that has been performing better, so again overall mining sales weak. However, this was the first quarter since 2012 that resource industries sales were higher than the previous quarter. So that means second quarter of 2014 sales were about 6% higher than the first quarter. Sales improved from first to second for both new equipment and for parts. In fact for parts it is the second consecutive quarterly improvement. Q1 of 2014 was up slightly from Q4 of ’13 and Q2 this year was a little better than Q1. Now it is too soon to suggest that the mining business is turning around but it’s going to see sequential improvement. Moving on to energy and transportation it has been incredibly stable high performing business over the past few years and this quarter was no exception. Overall sales for energy and transportation were stable with the second quarter of last year. And even if you take it down to the next level and you look at sales in the major industry served by energy and transportation that’s oil and gas, PowerGen, transportation and industrial the sales were individually pretty flat with the exception of PowerGen and that was down sort of high single-digits but even there we see that being an issue around the timing of some large projects. So in summary on second quarter sales and as you probably expected going into the quarter, construction sales were up nicely, mine sales were lower everything else was pretty much flat. Okay I will shift from sales to profit in the second quarter. Headline numbers, profit per share of $1.69 excluding restructuring and $1.57 including restructuring costs. In comparison profit was $1.45 in the second quarter of 2013. Now by segment resource industries was the only segment that we had that declined versus the second quarter last year the rest were up. And a couple of big bright spots were a profit increase of more than 80% for construction industries and an all time record profit for energy and transportation and in fact their first quarterly profit over a $1 billion. From a consolidated perspective we provide an operating profit comparison by region in our release and today that’s on -- that is the graphic on Page 6 of our financial release because the individual buckets in that waterfall graph were relatively small I’m not going to go into each of them in any detail. But I would summarize by saying that manufacturing cost and products utilization were modestly positive and the negatives were a bit lower sales volume, the restructuring costs in the quarter and absence of a sizable $135 million gain that we had in the second quarter last year related to a settlement with the owners of -- previous owners of our Siwei acquisition. So that’s the quarter, let’s turn to the outlook for 2014 where we’ve made a modest change to sales and revenues and increased our outlook for profit. With sales half of the year is behind us and we have tightened up the range and lowered the midpoint slightly. Now as I mentioned at the outset of the call this morning our view of 2014 sales and revenues has remained reasonably constant, in another words a flattish year versus 2013. We thought that was the case last year we think that’s still the case today. That said with half of the year over we have tighten the range and we have -- the updated range is a forecast of 54 billion to 56 billion in sales and revenues and for reference to previous range was 56 billion plus or minus 5% that meant a range of just over 53 billion to just under 59 billion. The middle of the new range is 55 billion and that is slightly lower than the previous midpoint of 56 billion and most of that change is in construction industries and reflects the weaker sales expectations in China based on the reporting out of China that probably shouldn’t be much of a surprise and decline in expectations in the CIS and in the Africa, Middle East region and given the political turmoil in those parts of the world that’s probably not a big surprise. In terms of profit, for a better understanding of results, we are providing outlook, again both with and without restructuring costs. Today, we have increased the outlook for both. Now excluding restructuring costs, we have increased it to $6.20 a share, that’s a $0.10 increase from the prior forecast. Now our expectation for restructuring costs is near the bottom end of our 400 million to 500 million range. And with restructuring cost all in, our updated outlook is profit per share of 5.75 which is $0.20 per share, better than the previous outlook. Now to help you think about the rest of the year, the third and the fourth quarter, there’s one more thing I would like to cover and that’s how we are thinking about the last two quarters. There is typically seasonality in our sales and we think that’s going to be the case this year as well. So we have got half of the year behind us and you know the midpoint of our outlook. We basically have the second half of the year, not a lot different than the first half. Now we expect sales and revenues in the third quarter to be similar to the first quarter of 2014, and fourth-quarter sales to be more in line with the second quarter of 2014. In terms of profit per share, with lower sales in the third quarter, it would likely be the weakest profit quarter of the year and with higher sales in the fourth quarter, profit per share should be similar to the average of the first and second quarters of 2014. I hope that helps you think about our expectations and how the third and fourth quarter could play out. And if you missed writing that down, again we will be reposting the transcript of this call on our caterpillar.com Web site. Now in addition to our financial results this morning we announced that we expect to purchase or repurchase another $2.5 billion of caterpillar stock in the third quarter. This repurchase is a part of the 10 billion that the Board authorized earlier this year. Now the context behind our repurchases really over the past two years is consistent with our cash deployment priorities. Coming out of the 2008 and 2009 great recession, we had work to do to improve the strength of the balance sheet. We needed to invest for growth, and with very low interest rates our employee benefit plans needed additional funding. Over the past few years we have made significant progress. Our machinery engines and transportations at the capital ratio is at the low-end of our target range. Benefit plan funding is in good shape. And we generally have the production capacity in place that we think we will need for the next few years. And although we will continue to be opportunistic, we aren’t expecting any large acquisitions. So with nearly 9 billion of machinery engines and transportation operating cash flow last year in 2013 and nearly 4 billion in the first half of this year, and with significant cash on hand we have had the opportunity to take substantial actions to improve shareholder return. In 2013 we repurchased $2 billion worth of stock and raised the dividend by 15%. In June of 2014 we increased the dividend again an additional 17%, and by the end of the third quarter of this year we expect to have repurchased about 4.2 billion of stock in 2014. That’s a 1.7 billion in the first quarter, and the 2.5 billion in the third quarter. Rewarding stockholders is an important goal and our actions demonstrate our commitment. So, in summary we had a pretty good second quarter. We raised the profit outlook for 2014 and we announced another $2.5 billion of stock repurchase. So with that we’re ready to shift over to the Q&A portion of the call.

Thank you very much ladies and gentlemen the floor is now open for questions. (Operator Instructions) Okay. We we’ll take our first question from Andrew Kaplowitz, please announce your affiliation.

I'm from Barclays. Good morning, guys. Nice quarter. Barclays Capital: I'm from Barclays. Good morning, guys. Nice quarter.

Hey Andy good morning.

So Mike, you said in the release that dealer inventories declined about $500 million in the quarter and you also talked in the release about the decline in inventories this year now being more than you previously expected mostly driven by Resource Industries. How much did this contribute to the reduction of your sales forecast and what kind of visibility do you have to a bottoming and destocking really across the Company, but particularly in Resource Industries? Barclays Capital: So Mike, you said in the release that dealer inventories declined about $500 million in the quarter and you also talked in the release about the decline in inventories this year now being more than you previously expected mostly driven by Resource Industries. How much did this contribute to the reduction of your sales forecast and what kind of visibility do you have to a bottoming and destocking really across the Company, but particularly in Resource Industries?

Good question Andy, dealer inventory, certainly a benefactor versus our original outlook when we started the year. It kind of looks now like dealer inventory is going to be down maybe $1 billion or so more than we thought. In fact the first quarter and the second quarter combined, we are still a slightly for the year. We had a 700 increase in the first quarter, 500 increased the second quarter, and a lot of that is seasonality. But in the second half we’re looking for about 800 million of decline per quarter, so about a 1.6 billion coming out in the second half, so. Now that’s having an impact on second quarter, I’m sorry second half results. And it’s a couple of things you know, one, we’ve not really had a turnaround in mining yet, and so dealers are continuing to satisfy some demand out of inventory. We thought it was going to be a lot less, coming into the year and things might start picking up, we really haven’t seen that yet. So that’s one factor, and I think on construction, you know dealer inventory we’re going to end the year probably a little bit lower than we thought. And that’s actually despite a pretty darn good year so far for construction. I think it’s a case where we talk a lot about execution, we’ve actually been able to take down our lane one channel inventory that we have and dealers have been able to take their inventory down as well, I think we’re -- when you think about what’s an adequate supply kind of going back to your question, you know it’s within a range and I think particularly for construction it’s getting down to you know a pretty good level. So you know if demand doesn’t decline then you’d have to think going forward the dealer inventory’s going to be in even better shape at the end of this year than it was last year. So in summarize your question, I know I was kind of long winded. Dealer inventories having a bit more of an impact this year in on it, it’s a principle reason why the second half sales aren’t going to be better than what is in our forecast.

Okay, Mike, that's helpful. And then maybe just shifting gears, you talked about the timing of large projects negatively impacting your E&T retail sales, but really your outlook for E&T really hasn't changed. Can you talk about your visibility in this segment? Do you still feel good about it because backlog is up and maybe specifically about power generation, what you see there? Barclays Capital: Okay, Mike, that's helpful. And then maybe just shifting gears, you talked about the timing of large projects negatively impacting your E&T retail sales, but really your outlook for E&T really hasn't changed. Can you talk about your visibility in this segment? Do you still feel good about it because backlog is up and maybe specifically about power generation, what you see there?

Yes, I’d say E&T overall, I’d say we feel very good, second half looks like it’s going to be pretty strong. We’ve had, I would say very good order rates over the last quarter particularly for oil and gas, for large engine products in general but oil and gas has been particularly good, so that’s contributed to the increase in the back log there. With electric power, we kind of have a couple of different businesses. We have -- we break it down between the investor business which is essentially large scale installations that, small we call it retail gen sets. The big gen set business, the big end has been pretty good and that’s the piece of it that can tend to be lumpy around big projects. We had some last year we’ll have some this year. And the timing affects how that plays out, certainly by month and by quarter and you see that in the retail statistics, it’ll move around quite a bit. I’ll tell you we feel pretty good about energy and transportation overall, really most of the sectors within there and particularly the oil and gas.

Thank you, Mike. Barclays Capital: Thank you, Mike.

Okay, we’ll take the next question from Robert Wertheimer, please state your affiliation.

Hi, it's Vertical Research Partners and good morning, everybody. Mike, you mentioned the oil and gas strengthened. I know fracing has been ticking up and some of your channel partners have been bullish on that and the pipeline and a bunch of other stuff. If I am not mistaken, you have a Tier 4 changeover in some of the oil and gas engines for next year. Could you talk generally about the higher horsepower Tier 4, how many engines you have running, how confident you feel whether there is any kind of pre-buy going on there? Vertical Research Partners: Hi, it's Vertical Research Partners and good morning, everybody. Mike, you mentioned the oil and gas strengthened. I know fracing has been ticking up and some of your channel partners have been bullish on that and the pipeline and a bunch of other stuff. If I am not mistaken, you have a Tier 4 changeover in some of the oil and gas engines for next year. Could you talk generally about the higher horsepower Tier 4, how many engines you have running, how confident you feel whether there is any kind of pre-buy going on there?

I’m going to have to defer that question Rob. I’m not an expert on that. I don’t know the number.

Okay. No, that's fine, that's fine. I will follow-up after. I should have sent it before. And then I guess the second question, you just kind of addressed at length, so I apologize for going back to it, but the dealer inventory, which you gave good disclosure on, but are you comfortable that the Construction, which has been very strong and you are gaining share in an up markets, so it is really hard to sort out, but are you comfortable that Construction inventory hasn't restocked a little bit too much? Can you tell that -- especially in LatAm where some of the markets look really soft, you mentioned the big government project, so I'm just curious if you think the Construction inventory overinflated at all in the first half? Your margins were quite good in the first half and you are signaling down. So that is my second question. Vertical Research Partners: Okay. No, that's fine, that's fine. I will follow-up after. I should have sent it before. And then I guess the second question, you just kind of addressed at length, so I apologize for going back to it, but the dealer inventory, which you gave good disclosure on, but are you comfortable that the Construction, which has been very strong and you are gaining share in an up markets, so it is really hard to sort out, but are you comfortable that Construction inventory hasn't restocked a little bit too much? Can you tell that -- especially in LatAm where some of the markets look really soft, you mentioned the big government project, so I'm just curious if you think the Construction inventory overinflated at all in the first half? Your margins were quite good in the first half and you are signaling down. So that is my second question.

No, I think the first and second quarters played out pretty close to what we thought, if you think about it, the first quarter for sales to end users is always one of the lowest quarters of the year. Dealers commonly stock up and then sell it down in the second quarter which they did this year, it came down. And then the third quarter is usually pretty weak as well, a lot of Europe is on vacation, a lot of other parts of the world take vacation time and we feel that in our business, so certainly a bit more of that’ll come out in the third quarter and then again more probably in the fourth quarter. It’s always tough to forecast this with massive accuracy I mean we look at what are reasonable months of sales are but that varies by region and it’s a reasonable range and I think construction based on where we are in terms of the timing of the year lesser expectations are for year-end, is definitely within that reasonable range.

Thank you. And then are you able to say what the total mining dealer de-stock is this year? You have kind of said it, but I just want to make sure I back into it right. Vertical Research Partners: Thank you. And then are you able to say what the total mining dealer de-stock is this year? You have kind of said it, but I just want to make sure I back into it right.

I think it’s going to end up being about 1 billion of memory serves me, I’m not a 100% sure on that but I think that’s over magnitude.

Thanks Mike. Vertical Research Partners: Thanks Mike.

Which is more than we thought coming into the year.

Okay, thank you. Vertical Research Partners: Okay, thank you.

Okay. And we’ll take our next from Jamie Cook, please state your affiliation.

Hi, good morning, Credit Suisse. I guess a couple questions around the mining or the Resource business. The sales were up sequentially, which was nice. The margins were down sequentially. I get the year-over-year issues, but I guess the margins in Resource disappointed a little relative to my expectations. In particular, when you said aftermarket was up again. So can you just talk about that? Is that just investment that you incurred this year that you held off on last year? And then I think last quarter you said in terms of resource margins you expected them to be about flat with the first quarter. Is that still the way to think about it? And then my second question, again, sorry, a follow-up on just the Resource business. You said I think OE and aftermarket was up. Can you give a little color around what markets, both on OE and aftermarket, just a little more color on that commentary you mentioned in the prepared remarks?

Hi, good morning, Credit Suisse. I guess a couple questions around the mining or the Resource business. The sales were up sequentially, which was nice. The margins were down sequentially. I get the year-over-year issues, but I guess the margins in Resource disappointed a little relative to my expectations. In particular, when you said aftermarket was up again. So can you just talk about that? Is that just investment that you incurred this year that you held off on last year? And then I think last quarter you said in terms of resource margins you expected them to be about flat with the first quarter. Is that still the way to think about it? And then my second question, again, sorry, a follow-up on just the Resource business. You said I think OE and aftermarket was up. Can you give a little color around what markets, both on OE and aftermarket, just a little more color on that commentary you mentioned in the prepared remarks?

Yes this is Brad Halverson. Just one comment on our resource industries segment in terms of its margins, this segment is critically important to us and we’ve made a conscious effort to continue to invest in the technology and autonomous mining and those types of things as well as our initiatives around Bucyrus. And so I would say that we have made a conscious decision relative to maybe our normal expectations on pull through to continue to invest in the segment even where their sales are at.

And Jamie their incrementals I think too were really operationally better than the numbers look like just right after face of the statement. Last year they had a $135 million gain from the Siwei settlement so if you take that, if you adjust for that operationally they were pretty good.

No, I get that. But is there any way you can tell us like what the investment number this year relative to sort of what you are thinking about last year and then again how to think about margins for the full year?

No, I get that. But is there any way you can tell us like what the investment number this year relative to sort of what you are thinking about last year and then again how to think about margins for the full year?

Yes we’re at a point now where margins are low enough and sales are low enough the percentages I think the dollars are probably in some ways a little more important and easier way to think about it. We were $140 million something in the first quarter 130 million something in the second quarter and I don’t think you’re going to see material changes from that probably for the rest for the year.

Okay, sorry, and then just any additional color on the commentary with the aftermarket being up again in the second quarter? Was that a sequential uptick from Q1 and then just color on where you are seeing it and on the OE side as well?

Okay, sorry, and then just any additional color on the commentary with the aftermarket being up again in the second quarter? Was that a sequential uptick from Q1 and then just color on where you are seeing it and on the OE side as well?

Yes actually from first to second in fact what I looked at last night was sort of a less about regions and more about products, it was actually I mean small numbers I’m going to start with that small numbers but fairly widespread on the OE. And the part sales we have strength in part sales on things like underground coal trucks traditional CAT were actually a little better than most where we’re seeing down side on the aftermarket now and things like deferred maintenance on big shovels and the drag lines and alike but I’d say that and the numbers aren’t huge even the increase quarter-over-quarter was actually relatively small, but thankfully turned in the right direction.

Okay, great. Thanks I’ll get back in queue.

Okay, great. Thanks I’ll get back in queue.

Okay. We’ll take our next question from Nicole DeBlase. Please announce your affiliation.

Yes, Morgan Stanley. Good morning guys. Morgan Stanley: Yes, Morgan Stanley. Good morning guys.

Good morning.

So I just wanted to address the locomotive business a little bit. Your biggest competitor there saw pretty strong equipment order growth this quarter, I think like 40%. So I am just curious how locomotive orders are trending for Cat? Are you guys seeing the positive impact associated with the Tier 4 pre-buy at all yet? Morgan Stanley: So I just wanted to address the locomotive business a little bit. Your biggest competitor there saw pretty strong equipment order growth this quarter, I think like 40%. So I am just curious how locomotive orders are trending for Cat? Are you guys seeing the positive impact associated with the Tier 4 pre-buy at all yet?

Yes, yes so this is a big year for locomotive sale probably the biggest since we’ve owned EMD. There have been a lot of misconceptions about this and this is a good opportunity I think to clear some of those up EMD has been great acquisition on our part, their market share has gone up in North American locomotives quite a bit since we brought them. Their sales have gone up quite a bit and I would use the words pre-buy but certainly dealers have ordered a lot of locomotives from us as well as our competitors for delivery this year…

Okay. Do you think we'll start seeing the sales pick up in like 3Q or is it mostly a 4Q event? Morgan Stanley: Okay. Do you think we'll start seeing the sales pick up in like 3Q or is it mostly a 4Q event?

Production has been going pretty solid all year long effectively we’re book solid. If we could have built more we probably could have sold a little bit more this year. But we are book solid on locomotives. The timing of the sales is around when we deliver them. And we will probably have a better both third quarter and fourth-quarter. Now on the whole Tier 4 question, we’re close to our customers. There are not that many North America. They’re largely the big class I rail. We have very close relationship with essentially all of them. We have been talking to them about Tier 4 expectations for a long time. They have been telling us they don’t expect to order much for the next couple of years. We have talked to them about our Tier 4 plans. No surprise to them. Our view is that the marketplace expectations over the next -- that the industry North America over the next couple of years is going to be down a lot from where we are right now. And the impact of the timing of our Tier 4 product is not going to have a great material impact on our sales at all.

Okay, that was really helpful. Morgan Stanley: Okay, that was really helpful.

I will just add to it. It’s Doug Oberhelman here. The EMD acquisition in general, as Mike said, we are really happy with that business. Since we have owned tails of more than double, this is a big year, big pre-buy year for sure. We would expect and have an talking to our customers a post-buy anemia in ’15 and ’16. Based on that we modified the Tier 4 development program that was in place and we acquired EMD because we didn't really -- like what we saw in terms of the end product with that engine. In doing that we contemplated that there will be virtually no or little demand in ’15 and ’16 in North America. That’s why we’re ramped up this year. That’s why we delayed our Tier 4 program and we will have a really good offering late ’15 and ’16 in Tier 4, and not to mention, our natural gas program for locomotives is already in place and some of those will be available in fact aren't running today. So we think we really got a good program going. Our market share has gone up significantly as Mike said, in North America and outside North America sales have been fairly active as well. So we’re really pleased with EMD acquisition, more for better ones.

Okay, thanks. And then my second question is on E&T margin. So the segment margins there were really good, reaching a new high this quarter. Was there anything special to call out that drove the 19.5% or do you think that that level of strength could continue into the second half? Morgan Stanley: Okay, thanks. And then my second question is on E&T margin. So the segment margins there were really good, reaching a new high this quarter. Was there anything special to call out that drove the 19.5% or do you think that that level of strength could continue into the second half?

I won’t make any comments on their margin in the second half, as we don’t really do guidance by segment, but they have been doing just fabulous job of executing on sales that were actually down a couple of percentage points. They managed cost down and improved the margins. They’ve been very stable. Whether or not it’s going to be exactly the same for this quarter, you know that depends a lot on production, mix of products, regions they’re sold, I mean you can always expect some bit of up and down in the margin rate. But I think overall they’ve just done a great job. Not just this year, but really over the past three years. Their sales have been stable and profits have been going up.

Okay, thanks. I will pass it on. Morgan Stanley: Okay, thanks. I will pass it on.

We’ll take our next question from Timothy Thein. Please announce your affiliation.

Great, Citigroup. Thanks, good morning. Yes, Mike, just coming back to the comments on oil and gas and specifically within well servicing in North America, I'm curious as the capacity is starting to come back, how do you feel about your relative position in that market in terms of now having the full offering in terms of pumps, transmissions and engines? And kind of related to that, are you seeing any -- just given how quickly demand has come back after being dead for 18 months or so -- are you seeing or experiencing any particular kind of product delays or extended backlogs for your products? Citigroup: Great, Citigroup. Thanks, good morning. Yes, Mike, just coming back to the comments on oil and gas and specifically within well servicing in North America, I'm curious as the capacity is starting to come back, how do you feel about your relative position in that market in terms of now having the full offering in terms of pumps, transmissions and engines? And kind of related to that, are you seeing any -- just given how quickly demand has come back after being dead for 18 months or so -- are you seeing or experiencing any particular kind of product delays or extended backlogs for your products?

Well, you know this is not a business so much, Tim, that orders today and expects it tomorrow. So we are increasing production of large engines. We are taking up the build rates in Lafayette because of the increasing demand, and back to your original point. We’ve been a leader in this kind of business for a long time and I think the additional transmissions and now the pressure pumps with our JV strengthened that. I think it’s a great business. It lines up well with kind of the strength of Caterpillar, durability, reliability, service, dealer network, parts supply, it is a great thing. You’re right, because if you go back a couple of years ago, what words to say, there was plenty of equipment in the market and it slowed down pretty dramatically from there. Last year was quiet a down year for our servicing. But I think they’ve gone through maybe the excess inventory they’ve had that plus a little bit lower supplies of, proper supply of gas supporting prices it looks like, it looks in good orders on our standpoint, it looks like it’s going to be a pretty good business.

Okay, thanks. And then just switching back over to -- you touched earlier on the parts sales and mining. And I saw one of the majors the other day, actually the largest miner, who they are guiding to production growth across some of their key industrial commodities of 4% to 10% in their fiscal FY15. And I recognize the industry is doing a lot more now to kind of sweat their assets, but just going back to what is embedded in your guidance, obviously, you've taken the forecast down a bit on mining. But how long I guess do you expect before we start to see more of a re-coupling between your parts sales versus underlying production? Citigroup: Okay, thanks. And then just switching back over to -- you touched earlier on the parts sales and mining. And I saw one of the majors the other day, actually the largest miner, who they are guiding to production growth across some of their key industrial commodities of 4% to 10% in their fiscal FY15. And I recognize the industry is doing a lot more now to kind of sweat their assets, but just going back to what is embedded in your guidance, obviously, you've taken the forecast down a bit on mining. But how long I guess do you expect before we start to see more of a re-coupling between your parts sales versus underlying production?

That is the $64,000 question, baffling is probably the wrong word, but generally mine production has been pretty good, but equipment sales have been very poor. They probably had a little more equipment that they needed it’s a little bit almost like the tracking situation. So it will come back, there is no doubt about, they’re selling or they’re buying right now at levels that are far below what a normal sustainable replacement level would be but again the question is on little bit like fracing and well servicing, when will that turnaround. It’s hopeful to think that with part sale starting to add job a bit the equipment sales not going down anymore that where add an inflection, but both the mining customers and our sales have proven that it’s in the industry that’s extremely tough to forecast, so the honest answer is it needs to go well, it will go well just the timing of when that’s going to happen that we don’t know.

Just a little more color on Michael. There is no question that there was an artificial boom of until 2011-12 in the world, the bust since then is equally I would of the same magnitude if not worse. We are see our customers delayed maintenance defer maintenance, do you think they have not done in the past. So at some point and as Mike said we don’t when this will come to us even if its replacement part cycle which we haven’t see yet. Now I can fully believe as do our customers that the bottom is just behind us are our numbers are just almost miniscule in terms of taking up, but they are taking up and I think anecdotally with our customers they see that too, when they start to get back into a normal parts replacement cycle and even a normal replacement cycle is a number a lot of that will depend on they’re running and I saw that announcement as well with a big one or two I met with lot of in the last couple months and I know they were talk about taking production down but most of them just trying look again more of the same. So the bottom-line we don’t always going to come back but it will come back and I just see replacement product cycle first in some magnitude.

Thanks. Citigroup: Thanks.

And we’ll take our next question Larry De Maria. Please state your affiliation.

Thanks, Larry De Maria, William Blair. Just stick with EMD for one minute. I think you mentioned that you have an offering late 2015 or 2016 for Tier 4. Is that ahead of schedule for the 2017 launch and how successful are we now in building an international book to offset the declines you mentioned domestically? William Blair: Thanks, Larry De Maria, William Blair. Just stick with EMD for one minute. I think you mentioned that you have an offering late 2015 or 2016 for Tier 4. Is that ahead of schedule for the 2017 launch and how successful are we now in building an international book to offset the declines you mentioned domestically?

Couple of things, our view is that what we should have a Tier 4 diesel offering for 2017. We have actually a big after market rail business a big service rail business and we sale locomotives and components internationally and we’re increasing our passions in rail business as well. So there is a lot of aspects to this and I think with the big push in North America that we’ve had this year that’s a big demand from customers. One of the things that we done our best to do, is to differ as much of the non North American demand as we can in the next year, I’m not going to maybe give a forecast for next year just little early for that we’ll talk about 2015 maybe a little bit more next time we get together for these calls in October. But we have actively tried to focus as much as we possibly could more in North America this year because of the big demand.

Okay, thanks. And then moving over a little bit, I know the business plan obviously calls to increase field population and you got some pricing in Construction, but in strong markets like North America, are we any closer to pushing through bigger price increases or are we still concerned with decreasing PIN at this point? I know it is having some obviously reverberations in the industry, and maybe you are under-earning a little bit compared to potential, but you are improving your market position, so just curious if we are any closer to getting more outsized price gains. William Blair: Okay, thanks. And then moving over a little bit, I know the business plan obviously calls to increase field population and you got some pricing in Construction, but in strong markets like North America, are we any closer to pushing through bigger price increases or are we still concerned with decreasing PIN at this point? I know it is having some obviously reverberations in the industry, and maybe you are under-earning a little bit compared to potential, but you are improving your market position, so just curious if we are any closer to getting more outsized price gains.

I think our strategy over the last few years and we’ve been just pounding through this quarter-after-quarter, just to have very modest pricing, good cost reduction, improve quality, improve delivery performance and get market share and that’s what we’ve been doing. Through that period we’ve had a very stable pricing environment, not much up, not much down and I don’t see that changing in the near future.

Okay, thanks. William Blair: Okay, thanks.

Okay, we’ll take our next question from Theoni Pilarinos, please state your affiliation.

Hi, Raymond James. You made it clear at your Investor Day that it was a priority for you to take some of the cyclicality out of your business and make your cost structure more flexible. Just looking at the mining segment and talking about when it returns -- eventually it will return and when it does how do we balance the uptick in demand that we've see in previous cycles and the backlog that we get to with some of the restructuring and layoff costs that you are taking now? Do you think that you are going to be caught as you have in the past with not enough capacity to meet demand? Raymond James: Hi, Raymond James. You made it clear at your Investor Day that it was a priority for you to take some of the cyclicality out of your business and make your cost structure more flexible. Just looking at the mining segment and talking about when it returns -- eventually it will return and when it does how do we balance the uptick in demand that we've see in previous cycles and the backlog that we get to with some of the restructuring and layoff costs that you are taking now? Do you think that you are going to be caught as you have in the past with not enough capacity to meet demand?

Well, we put in capacity, physical capacity in the last cycle and I think we have adequate capacity in mining, even for a sizeable upturn when it comes. What we’ve tried to do with our cost structure as you say make it more flexible and that means being able to take out costs when volume goes down and add cost when volume comes back in other words, try to make more of the cost structure as variable as we can. And we’ve done that, you know over the past two years in mining we’ve taken a lot of cost out, we’ve taken fixed cost out, or weak off period cost out in our major manufacturing facility, but we’ve done that without materially impacting capacity. So when things turn up there’s no doubt we’ll need to hire more people to get the work done. But I’ll just give you an example of the kinds of things that we’ve done to make that happen. You know we increased capacity quite a bit for large trucks over the course of 2010, ’11 and ’12. But we essentially did that in our Decatur facility, I mean we didn’t have any square footage to do that, it was all about how we laid out the factory, the equipment the processes to get more production out of that facility. So, you know other than depreciation we didn’t add a lot of fixed cost to get extra capacity, so that’s just an example of the kinds of things that we’ve done. I hope we do get a big turnaround that causes us to need more people I mean that’d be good for us, that’d be good for the industry, that’d be good for the country.

Let me just add a little bit more to that, looking back at ’12 we did 65 billion in volume at that time, this will apply to both construction, mining as well as E&T -- energy and transportation for that matter. We’ve been working hard even though on lean manufacturing which is adding capacity every day in a very lean way as we go forward that will come home to help us as well, so, you’ve seen our CapEx numbers come down the last two or three years, we invested early during this cycle to take advantage of that which we did, we built market share, so our CapEx needs are pretty well met, we think organically in the next few years at least early through the next upturn, so we’re in pretty good shape with all of that, I don’t expect to miss a sale to tell you the truth, on the way up when the business returns in mining and I’d go so far to say expect the same thing in construction. Because the lean activities we’re doing here to help us with lead times, shorten lead times and better availability.

Okay, great. Thank you. And my second question has to do with your recovery. You have kind of described as slow and steady so far this year in the US. We've seen a couple of months now of non-res pickup and this has typically been the key turning point for you in addition to the highway bill. How do things sit now that we have had a month or two of non-res pickup, how does that change anything from the slow and steady recovery we've seen, if at all? Raymond James: Okay, great. Thank you. And my second question has to do with your recovery. You have kind of described as slow and steady so far this year in the US. We've seen a couple of months now of non-res pickup and this has typically been the key turning point for you in addition to the highway bill. How do things sit now that we have had a month or two of non-res pickup, how does that change anything from the slow and steady recovery we've seen, if at all?

Well it’s been slow and steady overall, actually North America in construction has been you know pretty good this year, I would describe North America as a little better than slow and steady. And although we didn’t change it a lot you know as a part of the updated outlook, you know the principal change was down for construction as I said before a little, China and then the turmoil in the Middle East and the CIS causing caution. But in the midst of all that we actually edged US construction up a little bit and I think defines there are encouraging. And to put it in some context though, Theoni, we've had a few years of improvement in North American construction. This has been actually a pretty decent year. But even through all of that, we are still thinking this year is kind of unit basis, we are still thinking this year is going to be sort of 15% to 20% below the ’06 peak. So there is still a lot of room I think to run in construction in North America. We just need some sustaining decent economic growth North America. We need the highway bill to get sorted out. We need economic activity -- housing starts a well below what the long-term needs to be the support population growth, and some point little bit like mining. That stuff is going to come back, and when it does it will be part of it. And it’s starting too, now.

Okay, great. Thanks a lot, Mike. Raymond James: Okay, great. Thanks a lot, Mike.

We will take our next question from Ross Gilardi. Please state your affiliation.

Bank of America. Thank you. Mike, with respect to E&T and margins, shouldn't mix work strongly in your favor in the second half versus the first half given the pickup in oil and gas orders that you mentioned, which at least the turbine business I think is your highest margin business. You've got the sharp pickup in locomotive orders as well, which is still in front of you for the rest of the year or at least the locomotive deliveries, excuse me, coupled with a weaker PowerGen market. So I would think margins would be -- the mix would definitely be a benefit in the second half of the year. Bank of America Merrill Lynch: Bank of America. Thank you. Mike, with respect to E&T and margins, shouldn't mix work strongly in your favor in the second half versus the first half given the pickup in oil and gas orders that you mentioned, which at least the turbine business I think is your highest margin business. You've got the sharp pickup in locomotive orders as well, which is still in front of you for the rest of the year or at least the locomotive deliveries, excuse me, coupled with a weaker PowerGen market. So I would think margins would be -- the mix would definitely be a benefit in the second half of the year.

The stuff that you have said was true, or much of it was, but it doesn’t act necessarily that all come to the conclusion that you've drawn. Oil and gas should be, we think good in the second half, but I think most of the areas of the energy and transportation business we think are going to improve in the second half. So it’s not all going to be concentrated in oil and gas. I don’t see a big impact on mix in the second half. We do have a couple of big orders going out, or of one big sale that we are expecting that will probably be a little below the average that will temper -- or be certainly less than the average margin rate, that will temper E&T expectations I think a bit in that, later in the year. And E&T is in some way similar to a lot of the rest of the business. And we have a higher discretionary cost in the second half of the year than we do in the first half of the year. Some engineering programs are likely going to ramp up there a little bit too. I wouldn’t get carried away on -- margins this quarter were quite good. I wouldn’t get carried away at all thinking that you’re going to get a lot better in the second half of E&T. We had a great second quarter there.

Okay, great. And then you talked about pricing as the principal driver of the margin expansion year on year in E&T. Can you flesh out a little bit more what is happening there and is it sustainable? Bank of America Merrill Lynch: Okay, great. And then you talked about pricing as the principal driver of the margin expansion year on year in E&T. Can you flesh out a little bit more what is happening there and is it sustainable?

Say that again?

Yes, in your press release, you attributed the year-on-year operating profit improvement for E&T to pricing and I was wondering what's happening there, any particular businesses where you are seeing more pricing power and is it sustainable? Bank of America: Yes, in your press release, you attributed the year-on-year operating profit improvement for E&T to pricing and I was wondering what's happening there, any particular businesses where you are seeing more pricing power and is it sustainable?

So here is the thing. When the numbers are relatively small in terms of change -- operating profit, if memory serves me up, it was up a little over a 50 million. It wasn’t a lot. When you have small changes in operating profit like that and we are describing the reasons, sometimes it makes it seem as though it's maybe more important than it was. The changes that we had in pricing for Energy and Transportation certainly weren’t outsized. Again, it is like -- for the total Company, if you look at the waterfall chart, all of the buckets are relatively small. So describing anything that’s inside them can make them seem a little more important there are. I don’t think, there is not a big price increase going on there. I don’t see any big change in pricing activity going forward.

Okay, thanks. And just a last one real quick, Russia and CIS, I mean how big is it and what are you seeing with the sanctions? Bank of America: Okay, thanks. And just a last one real quick, Russia and CIS, I mean how big is it and what are you seeing with the sanctions?

Yes, it’s not a huge. The CIS is not huge for us. We don’t do sales by country. It’s as you would expect a lot less than in someplace like China, the industry there is just not as big. But it has come off. Even though it’s not big, it’s come off a lot. And that’s what makes it worth mentioning.

Okay. Alright, thanks very much. Bank of America: Okay. Alright, thanks very much.

We’ll take our next question from Jerry Revich. Please state your affiliation.

Hi good morning, it’s Goldman Sachs. Goldman Sachs: Hi good morning, it’s Goldman Sachs.

Good morning Jerry.

Mike, at the Analyst Day, we spent some time talking about the focus on supplier development and just improving the connectivity. I'm wondering if you could just give us an update on how those efforts are tracking, if you can share supplier on-time deliveries or other metrics that are willing to talk about just to give us a sense for progress? Goldman Sachs: Mike, at the Analyst Day, we spent some time talking about the focus on supplier development and just improving the connectivity. I'm wondering if you could just give us an update on how those efforts are tracking, if you can share supplier on-time deliveries or other metrics that are willing to talk about just to give us a sense for progress?

Jerry, that’s a great question. But as all the things I tried prepare for this call that wasn’t one of them I’d happy to ask the purchasing guys of the Chairmen group that question but I’m afraid I don’t have a good answer for you. How about a second question?

Jerry maybe I just kind of quickly in general terms I can get the numbers back in terms of percent but I would say our global purchasing group under the Dave Bozeman, combining that with our lean initiative focused on built in quality right time and then more importantly perhaps the customer lead times. The collaboration with our supplier is outstanding right now and we are seeing good progress connected to our lean initiatives across the board. So I would say relative to our engagement with suppliers in collaboration and you kind of seeing that taking our material cost results over the last year and half is often very positive.

Okay. And my second question, just on the restructuring costs, it sounds like the timing is moving around a bit. Can you just give us a sense for what kind of cost savings you will be delivering by the fourth quarter on a run rate basis and what kind of tailwind we should look for next year? And then separately, Mike, I guess in the past when sales have stabilized at low levels in places like resources, you have been able to deliver improved profitability and margins even at flat sales once you stopped cutting production and I am wondering if that is a possibility as we think about 2015 if you are willing to address that. Goldman Sachs: Okay. And my second question, just on the restructuring costs, it sounds like the timing is moving around a bit. Can you just give us a sense for what kind of cost savings you will be delivering by the fourth quarter on a run rate basis and what kind of tailwind we should look for next year? And then separately, Mike, I guess in the past when sales have stabilized at low levels in places like resources, you have been able to deliver improved profitability and margins even at flat sales once you stopped cutting production and I am wondering if that is a possibility as we think about 2015 if you are willing to address that.

I will let Mike handle, this is Brad again handle 15 and the back half but I would say the restructuring has just moved a little bit will have some of that cost move in the 2015 I would say probably roughly around the midpoint 450 is still a good number in total but some of that will over 15 and I would say the benefit by a large consistent with what we’ve talked about before but it’s not the only thing we’re doing around cost restructuring across management I would say. We talk a little bit about what we’ve done in terms of last kind of conference. We’re embracing the fact that we do have some cyclicality but I think the thing to remember is the fact that we have a lot diversity and really have one segment right now that’s not performing and it’s in the bottom of their cycle but we have a strong energy in transportation business and construction business strong in North America little concern in developing world with the margins that improve significantly. So I would say from an execution standpoint how we are managing these businesses and where we’re spending our money the good cost reduction last year, we had 500 million roughly in the first half of this year and it’s kind of part of how we’re operating there. So I feel pretty good about the fact that we have good consistent execution.

You didn’t ask this, but I just wanted to time in one more thing that I thought Mike come up but he hasn’t, if you look at the second half of the year and the first half of the year we got a headwind in the second half of the year it was a small headwind, it was the small tailwind in the first half for the year it’s going to be pretty neutral inventory absorption. We’ve had not dealer in inventory, we had a small increase in the first half and we expect that come down in the second half and finish the year a little bit, basically fairly neutral, But what that has meant is that has been a little positive in the first half of the year and it will be a little negative in the second half of the year, and that’s also one of the reasons why you’re seeing a little difference in first half and second half profit.

Thank you. Goldman Sachs: Thank you.

I think we have time for one more.

Okay. We’ll take the next question from David Raso. Please state your affiliation.

ISI. Can I clarify the dealer inventory comments? Sequentially, did you say down $800 million each of the next two quarters? ISI Group: ISI. Can I clarify the dealer inventory comments? Sequentially, did you say down $800 million each of the next two quarters?

Yes we did.

And that includes engines and machines or just machines? ISI Group: And that includes engines and machines or just machines?

That’s machines I don’t think engines is forecast to change much. Dealer inventory in engines is smaller than much more stable what I was talking about was machines.

So just to be clear then, the second half of the year, on a year-over-year basis, production then is going to be largely in line with retail? ISI Group: So just to be clear then, the second half of the year, on a year-over-year basis, production then is going to be largely in line with retail?

Say that again David.

The year-over-year -- the first half of the year, you have had some nice help from the dealer swings in inventory. ISI Group: The year-over-year -- the first half of the year, you have had some nice help from the dealer swings in inventory.

I mean overall it wasn’t much we went up 700 first quarter down 500 second quarter, so first half was 200 million

Well, I'm thinking year over year, Mike. The first half of the year, you had about $1.8 billion. It was about $1.8 billion help, right, just the year-over-year changes. The second half of the year, just so I am clear, it looks like the year-over-year change will be pretty much neutral because last year third quarter, inventory went down $800 million. Last year fourth quarter, inventory went down $700 million sequentially, right, so the year over year is a bit of a push. ISI Group: Well, I'm thinking year over year, Mike. The first half of the year, you had about $1.8 billion. It was about $1.8 billion help, right, just the year-over-year changes. The second half of the year, just so I am clear, it looks like the year-over-year change will be pretty much neutral because last year third quarter, inventory went down $800 million. Last year fourth quarter, inventory went down $700 million sequentially, right, so the year over year is a bit of a push.

Yes.

So that said, if production is going to be basically in line with retail year over year, it implies the dealer stats, the retail stats. You must be looking at something from the dealers that are telling you that the retail data is going to get also pretty close to flat year over year because that is how you are forecasting your own sales for the second half. I know the dealer stats don't include pricing, don't include parts, but I just want to make sure I am reading that right as I see the dealer stats come out. There must be some implication here that the dealer stats do get close to flat over the course of the second half of the year. Is that fair? ISI Group: So that said, if production is going to be basically in line with retail year over year, it implies the dealer stats, the retail stats. You must be looking at something from the dealers that are telling you that the retail data is going to get also pretty close to flat year over year because that is how you are forecasting your own sales for the second half. I know the dealer stats don't include pricing, don't include parts, but I just want to make sure I am reading that right as I see the dealer stats come out. There must be some implication here that the dealer stats do get close to flat over the course of the second half of the year. Is that fair?

Yes. I think we would see it trending move towards that as the year goes on. I think that’s a very reasonable assumption.

Okay. And then last one, the sequential from mining revenue? ISI Group: Okay. And then last one, the sequential from mining revenue?

David, I will just go on from that. Throughout much of last year the mining numbers were continuing to go down. And so what a lot of that will be is -- we will be lapping what was actually quite low Resource Industries. That is probably where you will see a lot of improvement. You’ve already started to see that. This last month on Resource Industries, it was less negative than prior months, by reasonable margin.

Well, to that point, obviously, people watch the monthly retails and the fact is, if you look at the last three months for machines, it was still down 10, engines was also down 10. The way the guide plays out, obviously you must be looking at something from the dealers that tell you we are going to get pretty close to flat year over year in the second half. And I don't mean just one month, I mean basically for the first half and the second half, right? That is how you get to your own sales. So that moment retail turns positive, I mean obviously the stock is going to respond to that. So I am just trying to figure out am I reading that properly, that there is something you are seeing from your dealers that is telling you, you are going to have a machine number, I don't care if it is Resource, Construction, but combined those numbers are going close to flat soon as well as an engines or you couldn't have a flat Cat sales in the second half because there is no longer that big production retail gap. ISI Group: Well, to that point, obviously, people watch the monthly retails and the fact is, if you look at the last three months for machines, it was still down 10, engines was also down 10. The way the guide plays out, obviously you must be looking at something from the dealers that tell you we are going to get pretty close to flat year over year in the second half. And I don't mean just one month, I mean basically for the first half and the second half, right? That is how you get to your own sales. So that moment retail turns positive, I mean obviously the stock is going to respond to that. So I am just trying to figure out am I reading that properly, that there is something you are seeing from your dealers that is telling you, you are going to have a machine number, I don't care if it is Resource, Construction, but combined those numbers are going close to flat soon as well as an engines or you couldn't have a flat Cat sales in the second half because there is no longer that big production retail gap.

I am not going to give you an exact kind of number because as you started up, parts and service matters, pricing matters, currency impact matter a bit. But I think your underlying premise is that the retail stat should relative to a year ago start looking better is absolutely true.

Alright. Now that we are past 12 Eastern, I will cut it off. I'll ask you my second question off-line. But thank you very much. I appreciate it. ISI Group: Alright. Now that we are past 12 Eastern, I will cut it off. I'll ask you my second question off-line. But thank you very much. I appreciate it.

Okay, with that we’re a couple minutes over, we will wrap it up. Thank you very much everyone and we will see you again in October.

Thank you very much. Ladies and gentlemen, this concludes today's presentation. You may disconnect your lines and have a wonderful day. Thank you for your participation.