Caterpillar Reports First-Quarter Results, Revises Outlook and Announces Resumption of Stock Repurchase

PEORIA, Ill., April 22, 2013 /PRNewswire/ -- Caterpillar Inc. (NYSE: CAT) today reported profit per share of $1.31 in the first quarter of 2013, down from first-quarter 2012 profit per share of $2.37.  First-quarter 2013 sales and revenues were $13.210 billion, a decline from $15.981 billion in the first quarter of 2012.  Profit was $880 million in the first quarter of 2013, compared with $1.586 billion in the first quarter of 2012.

"In our year-end 2012 financial release, we said the first quarter of 2013 would be challenging, and it certainly was.  As expected, inventory changes were a major factor.  Caterpillar and our dealers usually add inventory in the first quarter to prepare for higher end-user demand in the spring and summer.  In the first quarter of 2012, we added about $2 billion to inventory, but this year, we cut inventory by about a half billion dollars.  In the first quarter of 2012, Cat dealers added machine inventory of about $875 million, and this year, they reduced machine inventory by about $700 million.  Those are significant year-to-year swings, and coupled with moderating end-user demand, resulted in sales and revenues being down 17 percent," said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.

"Considering the magnitude of the decline in sales and production, I am very pleased with our performance in the first quarter.  We did a good job managing costs and made even more progress on inventory reduction.  Operating cash flow was a highlight in the quarter and improved nearly $900 million from the first quarter of 2012.  Better cash flow and the strength of our balance sheet are enabling us to resume stock repurchases," Oberhelman added.

Outlook
We have revised our outlook for 2013 to reflect sales and revenues in a range of $57 to $61 billion, with profit per share of about $7.00 at the middle of the sales and revenues outlook range.  The previous outlook for 2013 sales and revenues was a range of $60 to $68 billion and profit per share of $7.00 to $9.00.  

"What's happening in our business and in the economy overall is a mixed picture.  Conditions in the world economy seem relatively stable, and we continue to expect slow growth in 2013," said Oberhelman.

"As we began 2013, we were concerned about economic growth in the United States and China and are pleased with the relative stability we have seen so far this year.  In the United States, we are encouraged by progress so far and are becoming more optimistic on the housing sector in particular.  In China, first quarter economic growth was slightly less than many expected, but in our view, remains consistent with slow growth in the world economy.  In fact, our sales in China were higher in the first quarter of 2013 than they were in the first quarter of 2012, and machine inventories in China have declined substantially from a year ago," said Oberhelman.

"We have three large segments: Construction Industries; Power Systems; and Resource Industries, which is mostly mining.  While expectations for Construction Industries and Power Systems are similar to our previous outlook, our expectations for mining have decreased significantly.  Our revised 2013 outlook reflects a sales decline of about 50 percent from 2012 for traditional Cat machines used in mining and a decline of about 15 percent for sales of machines from our Bucyrus acquisition," said Oberhelman.

"From an operational standpoint, we have taken action to align production, costs and capital expenditures with the sales and revenues outlook.  While 2013 will be a challenging year, we are confident about the long-term prospects for our business, and when conditions improve, the steps we have taken will position us well to serve our customers and deliver better financial results," added Oberhelman.

Stock Repurchase
In February 2007, the Board of Directors authorized the repurchase of $7.5 billion of Caterpillar stock, and in December 2011, the authorization was extended through December 2015.  Through the end of 2008, $3.8 billion of the $7.5 billion authorization was spent, and no shares of stock have been repurchased since then.  We will resume the program in the second quarter and expect repurchases of about $1 billion. 

"The recent decline in the Caterpillar stock price combined with balance sheet strength and positive cash flow has provided an opportune time to resume the stock repurchase program," said Oberhelman.

Notes:

• Glossary of terms is included on pages 17-18; first occurrence of terms shown in bold italics.
• Information on non-GAAP financial measures is included on page 19.

For more than 85 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent.  With 2012 sales and revenues of $65.875 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.  The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services and Progress Rail Services.  More information is available at: http://www.caterpillar.com.

FORWARD-LOOKING STATEMENTS
Certain statements in this Press Release relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should" or other similar words or expressions often identify forward-looking statements.  All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and we do not undertake to update our forward-looking statements.

Caterpillar's actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global economic conditions and economic conditions in the industries and markets we serve; (ii) government monetary or fiscal policies and infrastructure spending; (iii) commodity or component price increases, fluctuations in demand for our products, or limited availability of raw materials and component products, including steel; (iv) our and our customers', dealers' and suppliers' ability to access and manage liquidity; (v) political and economic risks and instability, including national or international conflicts and civil unrest; (vi) our and Cat Financial's ability to: maintain credit ratings, avoid material increases in borrowing costs, and access capital markets; (vii) the financial condition and credit worthiness of Cat Financial's customers; (viii) changes in interest rates or market liquidity; (ix) changes in financial services regulation; (x) inability to realize expected benefits from acquisitions, including ERA Mining Machinery Limited, and divestitures, including the divestiture of the Bucyrus International, Inc. distribution business to our independent dealers; (xi) international trade and investment policies; (xii) market acceptance of our products and services; (xiii) changes in the competitive environment, including market share, pricing and geographic and product mix of sales; (xiv) successful implementation of capacity expansion projects, cost reduction initiatives and efficiency or productivity initiatives, including the Caterpillar Production System; (xv) inventory management decisions and sourcing practices of our dealers or original equipment manufacturers; (xvi) compliance with environmental laws and regulations; (xvii) alleged or actual violations of trade or anti-corruption laws and regulations; (xviii) additional tax expense or exposure; (xix) currency fluctuations; (xx) our or Cat Financial's compliance with financial covenants; (xxi) increased pension plan funding obligations; (xxii) union disputes or other labor matters; (xxiii) significant legal proceedings, claims, lawsuits or investigations; (xxiv) compliance requirements imposed if carbon emissions legislation and/or regulations are adopted; (xxv) changes in accounting standards; (xxvi) failure or breach of information technology security; (xxvii) adverse effects of natural disasters; and (xxviii) other factors described in more detail under "Item 1A.  Risk Factors" in our Form 10-K filed with the SEC on February 19, 2013 for the year ended December 31, 2012.  This filing is available on our website at www.caterpillar.com/secfilings. 

• First-quarter sales and revenues of $13.210 billion were 17 percent lower than the first quarter of 2012.
• Profit per share was $1.31 in the first quarter of 2013, down $1.06 from the first quarter of 2012.
• Inventory continued to decline in the first quarter of 2013 and was about a half billion dollars below year-end 2012.
• Machinery and Power Systems (M&PS) operating cash flow was $1.089 billion in the first quarter of 2013, compared with $234 million in the first quarter of 2012.
• M&PS debt-to-capital ratio was 36.4 percent, down from 37.4 percent at year-end 2012.

2013 Outlook

• The revised 2013 sales and revenues outlook is a range of $57 to $61 billion.  The previous sales and revenues outlook was a range of $60 to $68 billion.
• The decline in the outlook for sales and revenues is primarily related to mining equipment sales.
• The revised 2013 profit outlook is profit per share of about $7.00 at the middle of the sales and revenues outlook range.  The previous profit outlook was a range of $7.00 to $9.00 per share.
• We expect capital expenditures for 2013 will be less than $3 billion.  Capital expenditures were $3.4 billion in 2012.

CONSOLIDATED RESULTS

First Quarter 2013 vs. First Quarter 2012

Consolidated Sales and Revenues Comparison
First Quarter 2013 vs. First Quarter 2012

To access this chart, go to http://caterpillar.com for the downloadable version of Caterpillar 1Q2013 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between the first quarter of 2012 (at left) and the first quarter of 2013 (at right).  Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar.  Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and Revenues
Total sales and revenues were $13.210 billion in the first quarter of 2013, a decrease of $2.771 billion, or 17 percent, from the first quarter of 2012.  When reviewing the change in sales and revenues, we focus on the following perspectives:

• Reason for the change: Sales volume decreased $2.671 billion.  The majority of the decrease was related to changes in dealer new machine inventories.  During the first quarter of 2012, dealers increased machine inventory about $875 million in anticipation of higher demand in the spring and summer.  In the first quarter of 2013, dealers reduced their machine inventories by about $700 million to be better aligned with expected demand.  In addition, the net impact of acquisitions and divestitures was unfavorable $171 million, and the impact of currency was unfavorable $91 million.  These decreases were partially offset by increased price realization of $129 million.  Financial Products revenues were $33 million higher.
• Sales by geographic region: Sales were negatively impacted by dealer inventory changes and declined in all geographic regions.  While sales in Asia/Pacific declined, sales increased in China and were about flat in Japan. 
• Segment: Sales decreased in all segments.  Resource Industries' sales were down 23 percent, Construction Industries' sales decreased 17 percent, and Power Systems' sales were 12 percent lower.  Financial Products' revenues were up 4 percent.

Consolidated Operating Profit

First Quarter 2013 vs. First Quarter 2012

Consolidated Operating Profit Comparison
First Quarter 2013 vs. First Quarter 2012

To access this chart, go to http://caterpillar.com for the downloadable version of Caterpillar 1Q2013 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between the first quarter of 2012 (at left) and the first quarter of 2013 (at right).  Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar.  Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.  The bar entitled Other includes consolidating adjustments and Machinery and Power Systems other operating (income) expenses.

Operating profit for the first quarter of 2013 was $1.218 billion, a decline of $1.105 billion from the first quarter of 2012.  The decrease was primarily the result of lower sales volume, increased manufacturing costs and the unfavorable impact from acquisitions and divestitures.  These decreases were partially offset by improved price realization, increased operating profit at Financial Products and the favorable impact of currency primarily due to the Japanese yen. 

Manufacturing costs increased $317 million.  The increase was primarily due to unfavorable changes in cost absorption resulting from a decrease in inventory during the first quarter of 2013 and an increase in inventory during the first quarter of 2012, as well as inefficiencies driven by lower production in the first quarter of 2013.  These impacts were partially offset by favorable material costs.

Acquisitions and divestitures negatively impacted operating profit by $128 million and included operating losses at Siwei, as well as the impact from selling portions of the Bucyrus distribution business to Cat dealers and the absence of profit from our third party logistics business, which was sold in the third quarter of 2012. 

Other Profit/Loss Items

• Interest expense excluding Financial Products increased $7 million from the first quarter of 2012.
• Other income/expense was income of $29 million compared with income of $88 million in the first quarter of 2012.  The decrease was primarily due to the unfavorable impact of currency gains and losses. 
• The provision for income taxes in the first quarter reflects an estimated annual tax rate of 29.5 percent, excluding the item discussed below, compared with 30 percent for the first quarter of 2012.
  
  As expected, the first-quarter 2013 tax provision also includes a benefit of $87 million primarily related to the research and development tax credit that was retroactively extended for 2012.
• Profit/loss attributable to noncontrolling interests favorably impacted profit by $23 million compared with the first quarter of 2012.

Global Workforce
Caterpillar worldwide full-time employment was 124,874 at the end of the first quarter of 2013 compared with 127,238 at the end of the first quarter of 2012, a decrease of 2,364 full-time employees.  The flexible workforce decreased 9,047 for a total decrease in the global workforce of 11,411. 

The decrease was the result of lower production and divestitures, partially offset by acquisitions.  Divestitures, including the sale of a majority interest in our third party logistics business and portions of the Bucyrus distribution business, decreased the global workforce by 7,736.  The acquisition of Siwei added 4,317 to the global workforce.

Construction Industries
Construction Industries' sales were $4.197 billion in the first quarter of 2013, a decrease of $865 million, or 17 percent, from the first quarter of 2012.  The sales decrease was due to lower volume and the unfavorable impact of currency, partially offset by favorable price realization.  The lower sales volume was primarily due to changes in dealer new machine inventories and decreases in dealer deliveries to end users.  Dealer-reported new machine inventory was about flat during the first quarter of 2013 compared with an increase during the first quarter of 2012.  Sales of new equipment declined, and sales of aftermarket parts were about flat.  Sales declined in all geographic regions of the world.

Construction Industries' profit was $239 million in the first quarter of 2013 compared with $616 million in the first quarter of 2012.  The decrease in profit was primarily due to lower sales volume and increased manufacturing costs, partially offset by favorable price realization.  Higher manufacturing costs were driven by unfavorable changes in cost absorption resulting from a decrease in inventory during the first quarter of 2013 and an increase in inventory during the first quarter of 2012. 

Resource Industries
Resource Industries' sales were $3.676 billion in the first quarter of 2013, a decrease of $1.102 billion, or 23 percent, from the first quarter of 2012.  The sales volume decrease was primarily due to changes in dealer new machine inventories and decreases in dealer deliveries to end users.  Dealer-reported new machine inventory decreased during the first quarter of 2013 compared with an increase during the first quarter of 2012.  Improved price realization partially offset the decrease in sales volume.  While sales for both new equipment and aftermarket parts declined, the more significant decrease was for new equipment. 

Sales decreased in every region of the world except Latin America.  The increase in Latin America sales was primarily due to the timing of shipments in the first quarter of 2012. 

In the first quarter of 2013, mining companies continued to reduce capital expenditures, and new orders continued to be weak and were well below first quarter of 2012.

Resource Industries' profit was $477 million in the first quarter of 2013 compared with $1.168 billion in the first quarter of 2012.  The decrease was a result of lower sales volume, higher manufacturing costs and the unfavorable impact from the acquisition of Siwei and the divestiture of portions of the Bucyrus distribution businesses.  These decreases were partially offset by favorable price realization.  Higher manufacturing costs were driven by lower production in the first quarter of 2013 and unfavorable changes in cost absorption resulting from a decrease in inventory during the first quarter of 2013 and an increase in inventory during the first quarter of 2012.  Depreciation expense also increased.

Power Systems
Power Systems' sales were $4.405 billion in the first quarter of 2013, a decrease of $582 million, or 12 percent, from the first quarter of 2012.  The decrease was primarily the result of lower volume.  Sales decreased in all regions.  Sales were lower for nearly all applications, with the most significant decreases in electric power and industrial applications.  More than one-third of the sales decline was a result of dealers reducing their inventory levels in the first quarter of 2013, compared with dealers increasing inventory levels in the first quarter of 2012.

Power Systems' profit was $598 million in the first quarter of 2013 compared with $812 million in the first quarter of 2012.  The decrease was primarily due to lower sales volume and losses on a power-generation project in EAME.  These unfavorable impacts were partially offset by favorable price realization, decreased SG&A and R&D expenses and the absence of expenses in the first quarter of 2012 from the closure of the Electro-Motive Diesel facility located in London, Ontario. 

Financial Products Segment
Financial Products' revenues were $795 million, an increase of $34 million, or 4 percent, from the first quarter of 2012.  The increase was primarily due to the favorable impact from higher average earning assets and an increase in Cat Insurance revenues.  These increases were partially offset by the unfavorable impact from lower average financing rates on new and existing finance receivables and operating leases.

Financial Products' profit was $273 million in the first quarter of 2013, compared with $205 million in the first quarter of 2012.  The increase was primarily due to a $49 million favorable impact from lower claims experience at Cat Insurance, which includes favorable reserve adjustments, and a $34 million favorable impact from higher average earning assets.

At the end of the first quarter of 2013, past dues at Cat Financial were 2.52 percent compared with 2.26 percent at the end of 2012.  The increase in past dues from year-end is due to seasonality impacts.  At the end of the first quarter of 2012, past dues were 3.19 percent.  Write-offs, net of recoveries, were $10 million for the first quarter of 2013, down from $11 million for the first quarter of 2012. 

As of March 31, 2013, Cat Financial's allowance for credit losses totaled $429 million or 1.49 percent of net finance receivables, compared with $426 million or 1.49 percent of net finance receivables at year-end 2012.  The allowance for credit losses as of March 31, 2012, was $379 million or 1.47 percent of net finance receivables.

All Other Segment
All Other Segment includes groups that provide services such as component manufacturing, remanufacturing and logistics. 

The decrease in sales and profit was primarily due to the absence of our third party logistics business, which was sold in the third quarter of 2012.

Corporate Items and Eliminations
Expense for corporate items and eliminations was $494 million in the first quarter of 2013, a decrease of $134 million from the first quarter of 2012.  Corporate items and eliminations include: corporate-level expenses; timing differences, as some expenses are reported in segment profit on a cash basis; retirement benefit costs other than service cost; currency differences, as segment profit is reported using annual fixed exchange rates; and inter-segment eliminations. 

The decrease in expense from the first quarter of 2012 was primarily due to the favorable impact of timing, partially offset by the unfavorable impact of currency.  Segment profit for 2013 is based on fixed exchange rates set at the beginning of 2013, while segment profit for 2012 is based on fixed exchange rates set at the beginning of 2012.  The difference in actual exchange rates compared with fixed exchange rates is included in corporate items and eliminations and is not reflected in segment profit.

2013 Outlook

2013 Economic Outlook
Our expectation for world economic growth is about the same as the outlook included with our year-end 2012 financial results.  We anticipate overall world economic growth of about 2.5 percent—a small improvement from 2.3 percent in 2012. 

Purchasing manager indicators improved in the first quarter, and industrial production increased in the majority of countries.  Both indicate that world economic growth is benefiting from monetary easing that started 19 months ago.

Central banks continued easing in the first quarter, and we expect the world economy will continue to improve in 2013. 

Key points related to this outlook include:

• The modest recovery in the world economy since the financial crisis has failed to address high unemployment.  The number of unemployed in the world is up about 17 percent since 2007, and central banks are gradually switching their policy focus from inflation to growth and unemployment.  We believe this trend will continue throughout 2013.
• Most central banks reduced interest rates over the past 19 months, and average short-term interest rates in the world are near lows reached during the financial crisis.  We expect further rate cuts in coming months.
• With interest rates at or near record lows in many countries, some central banks injected more funds (quantitative easing) into financial systems to promote lending and economic growth.  With both Japan and the United States following aggressive quantitative easing policies, we expect other countries will eventually implement similar policies.
• Unprecedented central bank easing has raised concerns about potential inflation problems.  Central banks that raised interest rates to address inflation concerns have returned to lower rates as most economies have not shown an ability to support higher interest rates or reduced liquidity.
• Inflation has shown few signs of becoming a problem, particularly in developed economies.  After nearly five years of near record low interest rates, average inflation in the world is near a 40-year low.  We believe that high unemployment and modest economic growth will keep inflation under control at least through this year.
• Demand for most metals and thermal coal increased last year, despite 2012 being the weakest year for economic growth in the current recovery and with industrial production in over half the world's economies below 2008 peaks. 
• Economic growth in 2013 should improve demand for most commodities, and we expect most prices will average slightly higher in 2013 than in 2012.  We expect copper prices to average more than $3.25 per pound in 2013 and iron ore about $135 per ton.  Iron ore is benefiting from an increase in steel production in China.
• U.S. natural gas prices averaged over 40 percent higher in the first quarter than a year earlier, reducing its attractiveness in generating electricity.  As a result, we expect Central Appalachian coal prices should increase from $63 per ton in 2012 to $65 in 2013.  We expect average Australian thermal coal prices in 2013 to be close to last year's $96 per metric ton.  World coal production will likely increase slightly, with growth occurring in Asia.
• Last year, Australian mining companies increased capital expenditures more than 50 percent while their profits declined 33 percent.  This imbalance, which we believe occurred in other countries as well, has prompted mining companies to reduce capital spending.  We expect this adjustment will continue throughout 2013.

Developed Countries:

• Developed economies recovered slowly from the financial crisis.  Combined economic output in these countries is about even with the 2008 peak, representing nearly five years with no economic growth.  Industrial production in the majority of these countries is below pre-recession peaks, and unemployment is up more than 40 percent.
• As a result, we expect interest rates in developed countries will remain at record lows throughout 2013, and that central banks will inject more liquidity into financial systems.  Growth in developed countries should gradually accelerate throughout the year, improving to about 1.5 percent for the full year.
• We anticipate the U.S. Federal Reserve Board will maintain short-term interest rates near zero for the fifth consecutive year and expand its balance sheet at least another 30 percent.  Consumer inflation averaged only 1.4 percent annually from 2008 to 2012 and is unlikely to develop into a problem this year.  Overall, our expectations for U.S. economic growth are about the same as our previous outlook.  We continue to expect growth of at least 2.5 percent in 2013.
• Housing starts in the United States averaged a 969 thousand-unit-annual rate in the first quarter of this year, the highest rate since 2008.  We expect further improvement, with 2013 starts of about 1.1 million units.  Housing affordability is near a record high, home prices are recovering, and the number of unsold new homes is near a 50-year low.
• Nonresidential construction in the United States improved in 2012, and we expect further increases this year.  Positives include lower vacancy rates, higher property prices and some improvement in state and local government spending.
• Coal production in the United States declined 8 percent in the first quarter of 2013, but prices were within 5 percent of last year.  Electric utilities generated more electricity and appeared to be allocating a higher fuel share to coal.  We expect that some improvement in utilities coal burn and continued high coal exports should result in coal production down about 1 percent for the full-year 2013.
• We believe that economic policies in the Eurozone have not changed enough to address record high unemployment, a 20-year low in construction and over a year of declining output.  We expect the Eurozone economy will decline close to 0.5 percent this year.
• We expect the rest of Europe will have modest growth, allowing marginal growth for all of Europe in 2013.  Construction, however, is likely to decline.
• The Bank of Japan announced a target of a 45-percent increase in the monetary base by the end of this year, up from 20-percent growth in March.  This aggressive program appears to be improving confidence.  We expect about 1-percent growth in the Japanese economy.  Construction orders, which are already increasing, should be up compared with last year.

Developing Countries:

• Developing countries cut interest rates in early 2013, and we expect further cuts this year will bring average rates close to lows reached during the financial crisis.  We expect lower interest rates will improve economic growth to over 5 percent in 2013.
• Total credit advanced by the financial sector in China increased by a record amount in the first quarter, purchasing manager surveys improved, and infrastructure investment was up about 20 percent.  Inflation has remained below target, which will likely allow the government to continue pro-growth policies throughout this year. 
• As a result, we expect the Chinese economy will grow more than 8 percent this year, up from 7.8 percent last year.  Construction activity is increasing, and we expect it will be up for the year.  Imports of most key commodities increased in the early months of the year, and further growth is expected.
• Most other Asian countries also eased economic policies, and combined economic growth is expected to improve this year.  Better growth should benefit construction.
• Inflation in most Latin American countries is within their central banks' target ranges, which should allow central banks to keep interest rates low.  We expect regional economic growth will improve to over 3.5 percent in 2013, benefiting from a recovery in Brazil and slightly higher commodity prices.  Growth in construction has outpaced that in the overall Latin American economy in each year of the current recovery, a trend that we expect will continue in 2013.
• We expect economic growth in both Africa/Middle East and CIS will be over 3.5 percent in 2013, close to growth rates achieved in 2012.  Most countries maintained policy stances close to those adopted in the financial crisis, and we do not expect any major policy changes during the rest of this year.

Risks

• We believe that most countries tightened economic policies too early in the recovery from the financial crisis.  As a result, world economic growth slowed in 2011 and again in 2012, resulting in the worst recovery in decades.  Most countries have since reversed some of this tightening, but economies have been slower to respond than in 2009.  Our concern is that central banks will again tighten policies prematurely as better economic growth emerges, particularly as some face criticism about the measures taken to deal with the slow economic growth.
• Eurozone leaders have shown almost no inclination to adopt more pro-growth economic policies.  Without policy changes, we believe the current downturn, already five quarters long, may last throughout 2013.

Sales and Revenues Outlook
We expect 2013 sales and revenues to be in a range of $57 to $61 billion.  The previous outlook was a range of $60 to $68 billion.  

The primary reason for the decline in the outlook is lower mining-related sales in our Resource Industries segment.   Over the past quarter, orders for mining equipment have been depressed and far below the first quarter of 2012.  As a result, our expectations for mining-related sales in 2013 have been reduced substantially, and our revised outlook reflects a sales decline of about 50 percent from 2012 for traditional Cat machines used in mining and a decline of about 15 percent for sales of machines from our Bucyrus acquisition. 

Expectations for Construction Industries and Power Systems are similar to the previous outlook, and overall aftermarket parts sales are similar to the previous outlook and close to 2012 levels.

2013 Profit Outlook
Profit is expected to be about $7.00 per share at the middle of the sales and revenues outlook range.  The previous outlook for 2013 was a range of $7.00 to $9.00 per share.  The lower profit expectation for 2013 is primarily a result of the decline in expected sales and revenues.

We have also lowered our expectations for 2013 capital expenditures.  Capital expenditures are now expected to be below $3 billion in 2013, down from $3.4 billion in 2012.

NON-GAAP FINANCIAL MEASURES
The following definition is provided for "non-GAAP financial measures" in connection with Regulation G issued by the Securities and Exchange Commission.  This non-GAAP financial measure has no standardized meaning prescribed by U.S. GAAP and therefore is unlikely to be comparable to the calculation of similar measures for other companies.  Management does not intend this item to be considered in isolation or substituted for the related GAAP measure.

Machinery and Power Systems
Caterpillar defines Machinery and Power Systems as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries with Financial Products accounted for on the equity basis.  Machinery and Power Systems information relates to the design, manufacture and marketing of our products.  Financial Products information relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.  The nature of these businesses is different, especially with regard to the financial position and cash flow items.  Caterpillar management utilizes this presentation internally to highlight these differences.  We also believe this presentation will assist readers in understanding our business.  Pages 23-26 reconcile Machinery and Power Systems with Financial Products on the equity basis to Caterpillar Inc. consolidated financial information.