Longbow Research

6000 Lombardo Center

Suite 650

Independence, OH 44131

Telephone: 216-328-5085

E-mail: elustgarten@longbowresearch.com

www.longbowresearch.com

WHERE ARE WE NOW?

Eli S. Lustgarten, Senior Vice President, Longbow Securities

Eli Lustgarten has been a longtime regular speaker at the Global Forecasting & Marketing Conference, sharing his insights into the current global industrial slowdown and its impact on the general industrial machinery industry and its key components. In addition to providing outlooks on the construction, agricultural, and power generation machinery industries, Eli also presents his own forecast for the machine tool market.

Eli S. Lustgarten is Senior Vice President of Longbow Securities for the Industrial Manufacturing and Technology sector, providing independent research of Industrial markets for the investment community. Eli is also President of ESL Consultants Inc., a consulting firm dedicated to assisting trade associations and their members, as well as individual companies, to understand the global outlook for their end markets. He began his Wall Street career over 3 decades ago at Paine Webber as Managing Director of the Industrial Manufacturing Sector; he was also Managing Director and led the Industrial Manufacturing Group at Schroder (Wertheim) from 1995 until their acquisition in 2000. Most recently, he was the Senior Analyst and Director of Research for research boutique start-ups HC Wainwright and JB Hanauer prior to joining Longbow in 2005. Eli is a six-time Wall Street Journal All Star and was elected as a member of the Institutional Investor All-America Research Team continuously over two decades until his coverage shifted. He has a BSEE degree from the Polytechnic Institute of Brooklyn (New York) and an MSEE from the University of Pennsylvania, as well as an MBA with high distinction from Harvard Business School. In addition, Eli is frequently invited as a guest speaker for various industry trade associations including the National Fluid Power Association (NFPA), Metal (Steel) Service Center Institute (MSCI), Association for (Construction) Equipment Distributors (AED), National Truck Equipment Association (NTEA), and AMT - The Association For Manufacturing Technology. Further, he is a columnist for both the MSCI and AED trade magazines and a frequent guest commentator on both CNBC and Bloomberg.

1

Industrial Outlook: WHERE ARE WE NOW?

AMT GLOBAL FORECASTING AND MARKETING CONFERENCE

OCTOBER 16- 17, 2013

Eli S. Lustgarten

Senior Vice President, Longbow Securities

1

TRANSITIONING FROM A CHALLENGED 2012 TO A MUDDLING THROUGH 2013-14

• Industrial activity peaked globally in the summer of 2012 as global politics froze virtually all major markets.

• Industrial companies reacted by completing major projects underway, while approving very few new programs.

• In response to weakening industrial activity, most global manufacturers opted for inventory liquidation in 2H12 and 1H13 led by the two sectors that overproduced more than any other – trucks and construction equipment.

• March through June 2013 results point to a bottoming of inventory destocking, greater than expected strength in AWP’s, sluggish crane demand and weak mining markets likely through 2014.

2

2

GLOBAL THEMES DICTATE SLOWER ECONOMIES

• U.S. markets have been stronger, Europe weaker than expected but now stabilizing and emerging markets somewhat disappointing but beginning to improve though at rates below recent norms

• Japanese Yen decline will affect competitive positions but U.S. companies will likely fare better than their European counterparts (e.g., KMT vs. Sandvik and TKR vs. SKF) as U.S. markets will have far stronger demand than Europe.

• China’s 2013 growth plans are more muted. Priority is to remake its economy to be domestic demand driven with less reliance on exports and investments in capital-intensive state owned companies. Beijing willing to tolerate slower growth short term to revamp its economy for the future.

3

1H2013: Global Themes Dictate Slow Economies for the Foreseeable Future

• U.S.—1Q13 (1.1%R) and 2Q (2.5%R—revised up from 1.7%) due mostly to trade (exports) and inventories– Slower PCE, inventory build, construction, govt.

– US Gov’t actions have not mattered; we have survived everything from the payroll tax hike to early sequestering

– Record stock market, better jobs and rising rates

• Europe– Recession signaling an end; but economic activity generally weaker than expected

• China– evidence of a turnaround but disappointing to date

• Brazil/LatAm—two steps forward, one step back

• Overall—muddle through remains the theme-- slow global economic growth in 2013

4

3

5 NFIB

Thomson Reuters/University of Michigan

Consumer SentimentAugust 2013 82.1;Vs. July 85.1; June 84.1

Small Business Optimism IndexSEPT 93.9 VS.AUG. 94.1

U.S. Economy Changing Leadership in 2012-2013

• Aftermath of Financial Crisis economy was supported by government and then manufacturing

• Manufacturing inventory liquidation underway in 4Q12 and through 1H2013

• Consumers somewhat picked up slack when industry/exports slowed; U of Michigan consumer sentiment fell to 82.1 in August Vs. 85.1 in July; 84.1 in June; 84.8 in May; 76.4 in April; 78.6,in March 2013; Small Business Optimism Index 93.9 in Sept. 94.1 in Aug;94.1 in July;93.5 in June; 94.4 in May; 92.1 in April;

• Housing revival underway.

• The economy is waiting to grow—just give us some normalcy.

4

7

C&I LOAN DATA SHOWS SLOW BUT CONTINUED LOOSENING OF CREDIT STANDARDS

C&I LOAN DATA – 1990 TO PRESENT

U.S. PMI SUGGESTS A SECOND WIND (Sept.PMI 56.2;August 55.7;July 55.4)

8

5

Stabilizing/Turn in EU, Possible Turn in CHINA; EU SEPT.51.1;CHINA SEPT. 50.2

9

10

PRODUCTIVITY GAINS HAVE BEEN SIGNIFICANT SINCE 2Q09,DRIVING 2009-2012 EARNINGS SURPRISES UNTIL NOW

Productivity is strong coming out of recession

MFG. Productivity Improving while Unit Labor Costs Trend Down

Date Productivity

1983 1Q 5.1%

1991 2Q 5.9%

2002 1Q 7.2%

2009 3Q 12.4%

Date 2Q10* 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13

MFG.Productivity

8.2% 3.0% -1.9% 5.5% 0.5% 6.1% 0.1%R -0.9% 2.1% 3.8% 1.9%

Unit Labor Costs

-3.6 7.5% -0.4% -4.8% -6.6% 1.1%R 0.9%R 1.4% -1.9% -0.5% 2.3%

6

IMPROVED PRODUCTIVITY SEEN IN PROFITABILITY REBOUND

• Corporate earnings have flourished; Increased productivity evident in strong operating margin rebound for most companies, post 2009 restructuring

• Margins for most have approached or exceeded 2008 levels, – In 2009 temporary (zero bonus pay-outs, furloughs, pay reductions, travel

restrictions, eliminate overtime) and structural measures (layoffs, plant consolidations and closings, increased automation ) used to reduce costs

– Structural measures will continue to offset the return of temporary costs savings (about 60% of costs).

– Employee compensation (base wages, healthcare) likely outpaces inflation, hiring will be kept in check

– 2011-2012: Earnings have risen above prior peaks, but incremental margins are now trending downwards.

– 2013-14: Can Margins Hold? Lower Input Costs are helping!

11

12

U.S. ECONOMIC OUTLOOK: Sluggish Recovery Still Underway

REAL GDP SLOW GROWTH

CAPITAL SPENDING TO IMPROVE

2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

YOY 3.1% 2.7% 1.9%R-

0.3%R-

3.1%R 2.5%R 1.8% 2.8% 1.6% 2.3%

4Q/4Q 2.8% 2.4% 2.2% -3.3%-

0.1%R 2.4%R 2.0% 1.9% 2.0% 2.8%

STRUCTURESEQUIPMENT

AND SOFTWAREBUSINESS FIXED

INVESTMENT

2007 14.1%R 3.3%R -1.9%R

2008 6.4%R -4.3%R -7.1%R

2009 -21.2%R -16.0%R -18.8%R

2010 -15.6%R 8.9%R 2.6%R

2011 2.1% 12.7% 7.6%

2012 12.7% 7.6% 7.3%

2013E -1.4% 3.3% 2.4%

2014E 3.9% 3.8% 3.5%

7

13

U.S. ECONOMIC OUTLOOK: (CONT’D)

MANUFACTURING CONTINUING TO RECOVER:

INFLATION PRESSURES FURTHER SUBSIDE:

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

YEAR/YEAR 4.0% 2.5% 2.7% -4.8% -13.8% 5.7% 3.6% 4.2% 2.8% 3.3%

2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

CPI 3.0% 2.7% 2.7% 3.8% -0.3% 1.6% 2.5% 1.7% 1.8% 2.5%

CORE PCE 3.4%R 2.9%R 2.3%R -0.6%R -1.9%R 2.0%R 1.8% 2.0% 2.2% 2.5%

MFG IP 1Q 2Q 3Q 4Q

2008A -2.2% -8.2% -14.0% -21.6%

2009A -23.3% -11.6% 6.4% 5.8%

2010A 7.1% 11.2% 5.2% 2.6%

2011A 6.0% 0.2% 5.1% 5.6%

2012A 8.4% 2.1% 0.1% 2.7%

2013 5.6% (A) 0.1% (E) 2.0% (E) 4.5% (E)

14

SLOW INDUSTRIAL CAPACITY UTILIZATION RECOVERY IN 2010-2013

We have dug a deep hole to climb out of in 2009 Manufacturing Capacity Utilization (75.8 in July;75.9 June; 75.9 May;

75.98 April; 76.2 in MAR 13 vs. 76.5 in FEB) is still below the upper-70s levels of past decade (79-80%); has been flat for over 7 months

Virtually Every Industrial Sector is Currently Over-Capacitized Globally

60.0

65.0

70.0

75.0

80.0

85.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capacity Utilization MFG Capacity Utilization

8

15

THE CONSUMER HAS BEGUN TO LEAD

• CONSUMER SPENDING IS SLUGGISH – However it recovered somewhat since 2Q11 running between 1.5% to 2.4%

through 2Q13; Weak July retail sales: Is consumer running out of steam

PERSONAL CONSUMPTION EXPENDITURES:

2008 2009 2010 2011 2012 2013

1Q -0.8%R -1.5%R +2.7%R +2.1%R +2.4% +2.3%R

2Q -0.1%R -1.9%R +2.9%R +0.7%R +1.5%R 1.8%R

3Q -3.8%R +2.3%R +2.6%R +1.7%R 1.6%R

4Q -5.1%R +0.4%R +3.6%R 2.1%R 1.8%R

Lack Of Confidence In The Economy; Even the FED is concerned • Changing Consumer Spending Patterns

“just drop off the key, Lee, and set yourself free” - Paul Simon Apple up100%; Starbucks 61%, Mercedes 25%; splurge in high-end electrics P&G struggling as consumers cut back name brand shampoo and toothpaste; Two Tier Economy—haves and have-nots!

16

Source: Emerson

MANUFACTURING INPUT COSTS ROSE SIGNIFICANTLY IN 2010-1H2011;NOW BENEIGN

9

17

TWO TYPES OF PRESSURES DRIVING EQUIPMENT PRICES HIGHER

Type I – Manufacturing Input costs increased as commodity prices surge fromstrong global demand and a weak dollar from 2009 to 1H2011 Pricing effect is mostly low to mid single-digit increases Most commodity prices have moderated; including oil

Type II – Regulatory Driven Price Increases New emission regulations for off-road equipment

Interim Tier 4 effective January 2011 for equipment over 174 hp; all other equipmenteffective January 2012

Similar to 2007 Truck emission; but regulations will be phased into the off-road sectorfor multiple years

Final Tier 4 effective January 2014; similar to 2010 truck emission BUT NO PHASE-IN; BIG EQUIPMENT IN 2014 AND ALL EQUIPMENT IN 2015

Energy efficiency regulations e.g. motors Price impact of IT4 regulatory driven changes appear to be low to mid double

digits

THREE MONTHS UNTIL FINAL TIER 4

• JANUARY 2014: 174 to 751 HP; JANUARY 2015: 75 to 173 HP; Final Tier 4 Costs estimates at 60% of IT4.

• Urea (or DEF) is the new fluid in every fleet managers maintenance operation; new fluid will unlikely change maintenance strategies.

• Machine costs will continue to go up but at a lower rate than the double-digit impact of Interim Tier 4. Cost will continue to reflect the investment of builders to meet EPA regulations plus some catch-up for unrecovered costs associated with the IT4/FT4 programs.

• CAT 2014: 0% to 2% General Price Increase; Plus 2% to 6% for Emissions

• TELEMATICS is potentially the magic bullet for Machine Owners.

– Telematics provides cost savings available by adding technology.

– This includes tracking fuel usage, more accurate logistics, closer control of maintenance needs and machine health at lower costs.

18

10

Source: Deere & Co.

19

MIXED GLOBAL ECONOMY IN 2012

• Global economies fell into 3 groups– Surprising strength: U.S., Canada, Germany—but slowing

– Soft landing with bigger downside risks: China, Brazil, India

– Europe currency/sovereign/bank risk feeding recession

• Politics engulf virtually every major region globally in 2H12 and into 2013

– Europe volatility continues, Financial concerns on the rise again, Elections in France and Germany

– China—potential bubble in opaque economy; turmoil, scandal, Politburo changeover amidst economic slowdown

– Brazil—strong currency and government turmoil

– U.S.—elections, F2013 Budget, 2013–Sequestering and massive tax hikes; Debt ceiling FIGHT POSTPONED

20

11

EUROPE: RECESSION MAY BE BOTTOMING

• European ISM PMI was in recession; First sign of life in July with Mfg.PMI at 50.3; August 51.4; Sept. 51.1-only France (49.7) and Greece (48.7) are sluggish

• Austerity programs implemented; low interest rates prevail

• New govt. France (2012); Reelected Germany (Sept. 2013)

• Current weakness likely to linger for the next 12 months though with a positive slope– SHIFTING FROM RESCUE TO RECOVERY

– Sovereign State Problems (PIIGS) existed in 2009/10; MODEST progress made

– UK growth outlook improving; 2013E 1.4% (vs. 1.2%) and 2014E 2.5% (vs. 1.7%)—new OECD and BOE projection

– ALL Now seem to be copying U.S. FED21

CHINA SEEKS TO LIFT DOMESTIC DEMAND AMID QUALITY GROWTH

• China 2012 growth about 7.6%; 1Q12 was 8.1%; 2Q12 7.6%; and 3Q12 7.4%; 4Q 7.9%

• PMI in China was modestly below 50 for third consecutive month at 47.7 on July; August 50.1, and Sept. 50.2 implies a return to moderate growth

• Biggest impact on China is European weakness; Europe is China’s biggest customer

• China priority is to remake its economy: more domestic demand and less on exports and investments in capital-intensive state owned co.’s

• China still biggest market for commodities but without the accelerating growth in demand

22

12

CHINA SEEKS TO LIFT DOMESTIC DEMAND AMID QUALITY GROWTH (CONT’D)

• 2013 growth plans more muted. These specifics revealed in March 2013 when Mr. Li took over as Premier and Xi Jinping became China’s President.

– 3Q12 growth of 7.4% was slowest of the year; modestly better in 4Q at 7.9% (manufacturing and housing); 1Q13 7.7%; 2Q13 7.5%

• China renewed its 2012 goal of 7.5% for 2013 —not precise forecast as China often beats its goal.

– A modest number like 7.5% suggests Beijing willing to tolerate slower growth short term to revamp its economy for the future.

– July trade and other data may give support to GDP forecasts

– July Exports +5.1%(-3.1% June); July Imports 10.9%( -0.7% June)

– Aug. Industrial Prod. 10.4% ( 9.7% July; 8.9% June); July retail sales+13.2% (13.3% June); lower small bus. Taxes, RR spending

• But the priority is “QUALITY GROWTH.”

23

BRAZIL: IS SLOWDOWN ENDING?

• 2012 GDP Grew only 0.9% with 4Q12 growth at 0.6%(vs. 2011 2.7%; 2010 7.5%); Hurt by Euro Debt crisis, High taxes and turmoil in Gov’t policy, political scandals, and currency appreciation.

• 1Q 2013 GDP disappointing 0.55%; Ag drove 2Q13 positive surprise of 1.5% Q/Q and 3.3% Y/Y. Positive but moderating GDP outlook for 2013 (about 2.24%)– World Cup in 2014 (stadiums built, infrastructure

improvements in jeopardy); Olympics in 2016

– BUT, In recent months, over $95B Reals (US $47.5B) in investments postponed including $70B from Petrobas

• Accelerating growth did not happen during 2H12 or first part of 2013; Commodity cycle over: Only AG is booming

24

13

U.S. 4Q12/1H13: GROWTH WAS DIFFICULT

• U.S. benefited from a favorable weather effect in 1Q12; winter 2011-12 4th warmest in history

• Industrial production about Flat after weather driven 1Q12 (8.4R% in 1Q, +2.1R% in 2Q, 0.1R% 3Q, 2.7R% 4Q); all 2012 benefited from big 1Q;

• JAN 13 -0.1%; FEB +0.6%; MAR -0.2%; (1Q13 4.9% YoY); April-0.4%; May +0.3%; June+0.2% (2Q13 -0.8% YoY) ;July -0.4%; Aug 0.7%P--Flat Outlook triggers inventory liquidation.

• 4Q12 GDP revised to 0.1%; 1Q13 at 1.1% and 2Q at 2.5%R –slower PCE, Inventory build and construction; Bright spot is trade—stronger exports

• Industry adopted Wait-and-See attitude 2H12 to1H13 25

2013TAX BILL DOESN’T SOLVE MUCH YET

• Raises taxes by $600B over 10 years; delays across-the-board cuts just by 2 months;

• TAXES—raises top rate to 39.5% for over $400,000 individual/$450,000 couples; AMT indexed to inflation;

• 1-year extension of bonus depreciation, R&D tax credit, and Production Tax credit (PTC);

• Section 179 enhancement 100% $500,000 write-off for new and used equipment

• Social Security payroll tax—2% cut lapses, restoring payroll tax to 6.2%;

• Capital gains tax raised from 15% to 20% on income above $400,000/$450,000; Estate taxes rise from 35% to 40% above $5M exemption.

26

14

OPTIMISM FOR 2H2013-14: Global Role Reversal Underway

• U.S. the best house in a lousy neighborhood; economy on the mend

– Housing bouncing back; home prices on the rise and construction activity picking up; but rates are starting to rise;

– Job growth has somewhat stabilized at what appears to be a revised 200,000 plus per month?

– America enjoying oil boom; natural gas boom also on horizon.

– The fiscal cliff is really a slope; real fight over debt ceiling in fall?

• Euro-zone recession could end in third quarter; Manufacturing PMI rose to 51.4 in August from 50.3 in July, up in all nations except France (49.7) and Greece (48.7).

• Japan economy growing 2% in 2013; 1.2% plus in 2014; inflation targets

• China, India and Brazil growing but at rates well below the norms of 2002-2008. China PMI 50.1 in Aug. (47.7 July); India Mfg. PMI 48.5 in Aug. from 50.1 in July; Brazil 49.4 in Aug. (from 48.5 July; 50.4 in June.)

27

2012-14: SLOW ECONOMY MEANT SLOWER GROWTH FOR INDUSTRIAL MARKETS

• GDP FORECASTS for 2013-14 about 1.6% to 2.5%

• TRANSLATES INTO SLOWER GROWTH FOR INDUSTRIAL DEMAND

28

MARKET million 2011A2012E 2013E

2014E

U.S. AG. T2%/C-5% T9%/C -1% T&C 0% + 5% T,C-10% -0%

NA AUTO PROD 13.1million 15.4m 16.3m 16.5m

TRUCK (Class 8)255K 273K/278.7K 244K/248K 262K/275K

MACHINE TOOLS 66.5% 2.5% -4% to -8%% +5% to +10%

FLUID POWER 21.2% 2.2% -1% to -5%% +5% to 10%

US CONST. EQ.(PROD) L39%/H 37% L+29%/H+24% +5%/(-5%-10%) +12%/-7%

15

A VERY OPTIMISTIC 3 TO 5 YEAR OUTLOOK

• 2012 GDP growth of 2.8%R; Likely weaker in 2013-2014 depending on politics;

• 2H 2013 U.S. Industrial Markets will likely show modest to moderate growth after difficult 1H2013.

• IF WE CAN SURVIVE THE NEXT 12 TO 18 MONTHS, the U.S. potentially has one of the most favorable 3-5 year outlooks.

• U.S. can become a net energy exporter with low cost energy supplies (natural gas); low cost feedstock for industrial products. Needs infrastructure build-out!

• Growth of Energy markets, energy efficiency (motors, lighting led by LED, smart grid).

29

A VERY OPTIMISTIC 3 TO 5 YEAR OUTLOOK (CONTINUED)

• Re-shoring/Near-shoring phenomena is real, enhancing a renaissance of American Manufacturing

– Shortening of global supply chains and Regionalizing manufacturing; America for America; Asia for Asia.

• Most manufacturers ran out of capacity in emerging markets due to strong growth; Recognized supply chains were too long.

• In 2007/08 (ports, freight rates/containers); 2009 deliveries while shutdown; Japan Tsunami/Earthquake; Thailand Flooding.

– Big shift to Mexico and U.S. over next 3 to 5 years as global manufacturing costs equalize in mid–decade; CAT, GE, Appliance Industry are leaders.

– Component suppliers will be the big winners!

• Recovery of construction markets—both housing and non-residential.

30

16

31

Farm Equipment

GOOD U.S. WEATHER TURNS

FARMER BOOM TOWARDS GLOOM

32

THROUGH JUNE 2010, FARM COMMODITY PRICES WERE MODERATING; THEN WEATHER HIT

17

33

Crop May 2010 July 2010 Nov 2010 2010- 2011 2011/2012MAY

Wheat Carryover

997 1093 848 862 768

Price $4.10 -$5.10

$4.20 -$5.00

$5.25 -$5.75

$5.70 $7.25

Corn Carryover

1,818 1,373 827 1128 851

Price $3.20 -$3.80

$3.45 -$4.05

$4.80 -$5.60

$5.18 $5.95-6.25

Soybean Carryover

365 360 185 215 210

Price $8.00 -$9.50

$8.10 -$9.60

$10.70 -$12.20

$11.30 $12.35

2010-2011: USDA CROP OUTLOOK TIGHTENED

2011-12:RISING FARM CASH RECEIPTS BODE WELL FOR FARM EQUIPMENT INDUSTRY

Source: Deere &Co.

34

18

2010-2011 FARM EQUIPMENT MOMENTUMCARRIED OVER INTO 2012

Source: CNH, DE,AG

35

Tractors 2010 2011 Combines 2010 2011

Worldwide 14% + 12% Worldwide 1% +16%

North America

3% +2% North America

9% -5%

<40HP 4% +2%

40 to100HP

-1% +4%

>100HP 18% +2%

EAME/CIS 6% +25% EAME/CIS -17% +39%

Latin America

32% (-2%) Latin America

29% +21%

APAC 18% +12% APAC -8% +22%

2012 MAJOR N.A. DROUGHT CAUSES FARM COMMODITY PRICE SURGE

Crop 2010/11 11/12E 12/13E 12/13E 12/13E

June July SEPT 13

Corn acres (M) 88.2 91.9 95.9 96.4 97.2

Production (bu) 12.5B 12.4B 14.8B 13.0B 10.78B

Yield (bu/acre) 152.8 147.2 166 156 123.4

End stocks (bu) 1,128M 903M 1,881M 1,183M 719M

Price $5.18 $6.20 $4.60 $5.90 $6.90

Soybeans acres 77.4 75.0 73.9 76.1 77.2

Production (bu) 3.33B 3.06B 3.2B 3.05B 3.015B

Yield (bu/acre) 43.5 41.5 43.9 40.5 39.6

End stocks (bu) 215M 170M 140M 130M 125M

Price $11.30 $12.40 $13.00 $14.00 $14.40

36

19

2012-2013:FARMERS REMAINED BULLISH DESPITE DROUGHT

• Drought caused major crop shortfall with poor yields, surging commodity prices and low carryovers

• Farmers were well protected by insurance; 85% of corn crop was insured

• Farm cash receipts surged in 2013 keeping strong momentum on farm equipment sales

• Emission regulations were driving up prices

37

EU 27 FARM ECONOMY WAS AT LEAST STABLE IN 2012;IMPROVING IN 2013

• Cautious sentiment due to EU financial system strains; Northern Europe financial conditions better than South.

• Farm business conditions and mood more positive due to strong crop prices and rising farm income.– Beef, pork, and milk prices remain at attractive levels

• Demand for agricultural machinery expected near flat in 2012 and in 2013; farmer sentiment positive but financial crisis and wet UK weather a problem.– Low levels of used equipment

– Financing continues to be more readily available in the north

• Common Agricultural Policy budget 2014-2020 frozen at 2007-2013 nominal levels eliminating uncertainty.

38

20

RUSSIA OUTLOOK POSITIVE; ELSEWHERE UNCERTAIN, PARTICULARLY ASIA

• C.I.S. Outlook Driven by Russia– Farmer sentiment positive

– Commodity prices favorable

– Financing available in Russia BUT constrained in other CIS countries; import duties on combines in Russia, and CIS

• India—tractor market soft; monsoon deficit will lower grain output; increased liquidity exists in banks.

• China—awaits more clarity in policies; soybean production declining as farmers switch to more corn and rice. Uncertainty due to mixed weather and subsidies outlook

39

Brazilian Ag Production Shows Long-term Growth

40

21

FAVORABLE OUTLOOK FOR FARM EQUIPMENT IN 2013; But 2014?

• 2012 N.A. Demand was up led by larger equipment; ROW is flat to down! Commodity prices to remain at high levels because of drought.

• U.S. farm cash receipts remain at record levels.– Forecast based on average cash receipts of past 2 years; 2011

FCR up 17.7% to about $384.7B (revised).

– 2012E FCR up 4.5% to $402.1B; 2-Yr Avg. up 10.4%

– 2013E FCR may fall to $389.8 B; 2-Yr Avg. up 0.7%

• Latin America outlook more favorable: La Nina?– Brazil’s government policies more favorable; Will Argentina

finally open up in 2013-14.

• European and Russia/CIS market fundamentals improving.

• WEATHER always a factor.41

U.S. FARM CASH RECEIPT HAVE PEAKED

42

22

2012—A GOOD Not Great FARM YEAR;2013—Still OK;BUT 2014?

• Global Farm Equipment Sales flat in 2012 with Drought Impact; U.S. Held Up! 2013 Looks OK.

• Commodity Prices FALLING in 2013: FEAR from Big Plantings in NA in 2012 for corn, soybeans, and big yields, and falling commodity prices erased by severe drought. BUT WEATHER IS GOOD SO FAR IN 2013

43

Region 2012A Tractors Combines

North America +9% -(1%)

40hp+ +10%

EMEA & CIS -(3%) +9%

Latin America +4 +3%

Asia Pacific -(2%) -(19%)

Worldwide FLAT +3%

Source: DE, CNH, WASDE, LBR

U.S. FARM COMMODITY PRICES WEAKENING

44

23

FARMER FINANCIAL STRENGTH IS TERRIFIC

45

2012-2013 SALES OK; 2013-14 FARM OUTLOOK MAY BE BEGINNING TO SOFTEN

• Although high crop prices and comprehensive crop insurance provide a strong support level in 2012 for most farmers in the Corn Belt and surrounding regions, uncertainty pervades at dealers as a result of the U.S.’s worst drought in over 50 years.

• Insurance payments were $10.8B in 2011 and estimated at about $18B-$20B in 2012; 85% Corn Acreage Insured.

• Insurance payments are $7.50 for corn and $15.39 for Soybeans for best insurance; otherwise $5.68 and $12.55.

• Our contacts were concerned about activity in 2H12, but that passed AND THE FARMER KEPT BUYING

46

24

2013: POSITIVE FARM EQUIPMENT OUTLOOK

47

TRACTORS2Q13

TRACTORS2013

COMBINES 2Q13

COMBINE2013

NA 9% 5% 34% 0% TO 10%

OVER 40HP 5% 0% TO 5%

EAME/CIS -(3%) -(5)% 2% -(0% TO 5%)

LA 29% 15% TO 20% 24% 35% TO 40%

APAC 15% 0% TO 10% 23% 20% TO 25%

2013-14 FARM EQUIPMENT OUTLOOK MAY BE SOFTENING

• GLOBAL 2013 flat to up 5%; 2013 Growth stronger outside N.A., up 15% to 20% in Latin America (was up 10% to 15%); EU27 near flat due to ongoing financial crisis and wet UK; good growth in parts of APAC x India and China; some uncertainty in EAME/CIS

• Potential for Big Crops in 2013 placing pressure on commodity prices– Corn currently $4.61 to $5.00 vs. near $7.00 in 2012/13

and $6.22 in 2011-2012

– Wheat at $6.90 Vs. $7.80 in 2012-13 and $7.24 in 2011-12

– Soybeans at $11.75 vs. $14.15 in 2012-13 and $12.50 in 2011-12

48

25

2013-14 FARM EUIPMENT OUTLOOK MAY BE SOFTENING

• Outlook in the U.S. is fairly neutral due to depressed crop prices and uncertainty about ending yields. The next couple months will tell all as we look for this season’s ending yields. Germany, appears to be optimistic for 2H13 due to a healthy amount of rain the past few weeks, expecting a slight y/y improvement. Latin Americaexpects a mid-single digit growth rate much in-line with current trends to the remainder of the year

• The tone of the farm equipment sector has changed. Potential for large crops and slow global growth has caused a cautious approach to farm equipment demand.

• 2014 Farm Equipment sales possibly flat to down 10% in North America

49

50

Power Generation

IN DESPERATE NEED OF A RATIONAL ENERGY POLICY TO SAVE COAL

26

51

AFTER A YEAR OF USAGE RISE..

52

RESERVE MARGINS CONTINUE TO IMPROVE…

27

PLANNED GW ADDITIONS CONTINUE TO SLOW

53

Fuel in MW 2010E 2011P 2012E 2013E 2014E

COAL 8.1 4.6 4.3* 0.3* 0.5*

PETROLEUM 1.2 0.5 0.07 --- ---

NATURAL GAS 9.5 9.5 8.7 6.0 4.3

NUCLEAR --- --- 1.27 --- ---

WIND 5.8 6.8 8.3 2.2 0.3

SOLAR 0.5 0.6 2.7 2.7 1.9

OTHER 0.4 0.2 0.2 0.8 1.2

TOTAL 25.52 22.1 25.2 12.0 8.2

KILLING COAL IN THE U.S.

• EPA imposed de-facto ban on new coal fired power plants over the past 3 years. EPA also doing everything it can to harm existing coal plants (e.g., CSAPR and MATS).

• New Source performance standards for Carbon under Clean Air Act; finding to limit greenhouse emissions; To control CO2, utilities to install speculative technologies.

• EPA Estimate of rule is $0—WHY? EPA assumes U.S. will never complete another coal plant. EVER—EPA admits its myriad of rules has stopped coal plant building.

• EPA New Source Review—whenever a coal plant upgrades anything it must comply with all rules on books. This is a slow kill of even current plants over time.

• Courts have limited EPA for now. 54

28

55

WIND FACES UNCERTAIN GROWTH (AGAIN)

WITH FAVORABLE STATE AND FEDERAL POLICIESU.S. wind sector could be on path for 165GW of installed capacity by 2025Total wind capacity would be 200 GW, or about 5% of U.S. energy sources.

CURRENT POLICIES CREATE UNCERTAINTYProblems include Transmission congestion and falling electrical demandNeed Coordinated NATIONAL Transmission policies and National Renewable Energy Policy/Federal Energy PolicyEPA Run A Muck- emission rules shut down plants, especially coal

CAPACITY ADDITIONS DROPPED: 2009 10,000MW; 2010—5214 MW; 2011- 6,819 MW; 2012 totaled 13,124MW; 8,380 4Q12 to beat PTC expiration; U.S. CAPACITY 60,007 MW. Onshore potential 10.4 million MW; Offshore 4.15Million MW.Production Tax Credit (PTC) extended one year in January covering all construction started in 2013; wind standstill 1H13-now ramping1.6MW 1H13 with 0 in 2Q; 20 RFP and purchase power agreements (PPA)1300MW under construction/8 states; 3600MWsecured PPA reached/11statesSolar uneconomical without subsidies!!!

56

On-Highway Vehicles

STRONG RECOVERY OF 2011 GAVE WAY TO FLAT TO MODEST GROWTH IN 2012-13-14-15

29

MODEST INCREASE IN FREIGHT DEMAND

57

REPLACEMENT MARKET PREVAILS IN TRUCKS FOR 2013-2014

58

30

SLOW RECOVERY IN FREIGHT RATES

59

60

Class 8 Heavy-Duty Diesel Truck Demand:A Return To Normal Levels?

Source: ACT/FTR

2010 154,000

2011 255,000

2012 275,000

2013E 247,000

2014E 265,000

31

Truck Demand in 2012-2015 Moderating (cont.)

• Economic Growth and INDUSTRIAL PRODUCTION ARE KEY DRIVERS of truck demand; Driver shortage is also a key to the level of future demand.

• Slower economic growth of +/- 2% plus in 2013(1.6%E) and 2014 (2.4%E) compared to +/- 3% plus translates into growth of industrial production of around 2.5% to 3.5% MINUS rather than 4% plus; usually means stabilization/modest growth of truck fleets rather than expansion of fleets.

• Truck Manufacturers over-produced in 1H12 at a 310,000 annual rate;

• Inventory liquidation followed with production at a 220,00 annual rate from 2H2012 through 1H2013

• Truck sector demand likely to remain around replacement rate after inventory liquidation is over

61

Regulatory and Structural Changes Can Spur Future Truck/Trailer Demand in 2013-2015

• New regulations such as CSA2010, and HOS (effective mid-2013) could eventually require more trucks on road (about 3%) to service freight to OFFSET reduced hours of work.

• Re-shoring/Near Shoring Effect can sharply increase N.A. Manufacturing

– Global companies are endeavoring to reduce and diversify supply chains after:

• difficulties in 2007-08 (freight rate surged, ports clogged, and containers in shortage); required to take product in 1Q09 that was on the water despite global recession;

• Supply chain disruption from Japanese Tsunami and earthquake; Thailand flooding;

– Running out of capacity in emerging markets

– Moving production back toward end markets— Shortening of supply chains and Regionalization of production with Asia production for Asia and N.A. production to supply N.A.

62

32

NAFTA Truck Production Forecast

SOURCE: FTR; WARD’S AUTOMOTIVE GROUP, LBR FORECASTS

63

Year Class 8 Medium Truck Trailers

2006 376,000 241,000 283,000

2007 212,000 196,000 222,000

2008 205,000 143,000 152,000

2009 118,400 97,700 79,000

2010 154,000 117,900 121,000

2011 255,000 166,800 213,000

2012E 273,000/278,700 188,450 232,500

2013E 242,000-255,000 190,000-200,000 235,000-245,000

2014E 2015E

250,000-280,000260,000-290,000

200,000-225,000215,000-235,000

225,000-250,000200,000-225,000

NEW HEAVY DUTY TRUCK STANDARDS COMING

• First ever Heavy Duty Truck fuel efficiency standards to reduce fuel consumption and greenhouse gases by up to 23% by MY2018; Regulation begins MY2014.

• Trucks divided into three broad groups:– Combination Tractor trailers to reduce fuel consumption and

CO2 gases by up to 23% by model year 2018 starting in MY2014.

– Gas Powered HD trucks and vans to cut fuel consumption and CO2 by 10% (or 15% if run on diesel fuel) by MY2018.

– Vocational/Work Trucks to reduce fuel consumption and CO2 by 9% to 10% by MY2018.

• Could raise average truck cost by $6,200 or more.

64

33

ARE FLEETS MOVING TOWARDS SMALLER TRUCKS

• Companies analyzing whether to step down in class size to cut costs while meeting customer specific needs

– Right-sizing fleets means replacing capacity with smaller vehicles

– Spec to haul diminishing load versus max load throughout the day

• Distributor model maybe shifting over time from long-range driving to shorter range hub and spoke operation

– Panama Canal expansion completion in 2015 means more cargo to East Coast diminishing need for cross country runs.

– ON-shoring phenomenon likely to source regionally

• Movement from Class 8 down may have significant savings

– Lower class vehicle exempt for Federal excise tax of 12.5%

– Lower purchase price, operating costs, lower maintenance, insurance, races and tolls

– Class 6 doesn’t require a commercial license; a bigger driver pool

65

N.A. PRODUCTION WILL RISE LED BY NEW DOMESTICS

Stronger Auto Sales Are Coming in Mid-Decade

66

AUTOMOTIVE

34

IMPLICATION OF CURRENT OUTLOOK: STRONGER AUTO SALES ARE COMING

Current Forecast Sales (M) N.A. Production (M)

2010 11.6 11.9

2011 12.8 13.1

2012 14.5 15.4

2013E 15.4 16.2

2014E 15.8 16.5

67

Collapse of vehicle sales in first half of decade sets up pent-up demand to be filled in second half of decade.Pent up demand comes from vehicle ownership levels, vehicle usage, and vehicle durability.

Source: IHS

CURRENT DECADE SALES SIMILAR TO LAST DECADE

68

YearVehicle Sales

(M)Usage

(Billion miles)

VehicleDurability

(Thousand miles)

1960-69 103.3 9,654 94

1970-79 142.7 14,945 105.2

1980-89 152.5 19,972 132.2

1990-99 167.3 27,352 163.7

2000-2009 188.3 34,040 184.6

2010-2019 188.4 37,698 202.3

North America

35

IMPLICATION OF CURRENT FORECAST ON N.A. PRODUCTION

• Decade over decade vehicle sales will be about flat, however, most of the downside is likely behind us.

• New vehicle sales and production return to prior peak levels by 2016 (over 17M vehicles) with the potential for new record high levels for the second half of the decade.

• Strong currencies and massive onshore investment means most N.A. sales will be produced in N.A.– New Domestics continue to invest heavily and will see more

upside than Detroit, although Detroit should also be positive.

– Mexico will continue to be big winner; U.S. South also has upside potential.

– Canada and U.S. North are potentially vulnerable.

69

SALES, PRODUCTION AND NEW PROGRAM LAUNCHES RISE

70

YearNA Sales

(M)NA Production

NA New Programs

2012 14.5 15.4 20

2013E 15.4 16.2 18

2014E 15.8 16.5 32

2015E 16.2 17.2 28

2016E 16.6 17.8 24

2017E 16.6 17.8 19

2018E 16.4 17.9 25

2019E 16.4 18.0 27

2020E 16.3 18.0 23

Source: IHS

36

Longer-Term Auto Trends Require Increased Investments

• Increased production flexibility, reduced platform count, enhanced exports, 3-crew/3-shifts—very high capacity utilization

• Share of 4 cylinder power plants double from 2005 to 2015 from under 30% to over 60%; 5-6 cylinders go from 45% to under 30%; 8cylinders or more drop from 30% to 10%

• New solutions: charging, VVT/cylinder de-act; Auto and DCT transmissions of increased speed; start/stop and other

• Production expansion focused on Mid-Mexico with Non-Detroit Three and better utilization of Detroit 3 facilities– 2 million increase in NA capacity; 1.4 million increase in

Mexico capacity (new domestics); Canada capacity shrinksSource: IHS

71

72

Construction Equipment

STRONG TAX DRIVEN DEMAND IN 2011 CARRIED THROUGH TO 2012 PEAK;

TOUGH 2013 WITH MODEST RECOVERY TO FOLLOW

37

2010-2011 Demand Strong Globally

73

Construction Equipment 2010 2011E

Light Equipment Worldwide 39% 30%

North America 21% 39%

EMEA/CIS 34% 31%

Latin America 88% 30%

APAC 52% 24%

Heavy Equipment Worldwide 61% 23%

North America 16% 37%

EMEA/CIS 49% 42%

Latin America 96% 21%

APAC 69% 17%

Worldwide Construction Eq. 50% 27%

Source: CAT, CNH, LBR

Construction Equipment Spending has been Far Stronger than Underlying Activity

• While construction expenditures have seen only modest recovery, spending on new construction machinery accelerated in 2010 to 2012 and were far stronger than originally anticipated.

• Gains of 38% in 2011 were driven by several factors spurring more intense buying, particularly in the second half of 2011:

– The more generous 100% bonus depreciation that expired at the end of 2011;

– Price increases for new equipment being driven by two key factors–higher input costs (steel, copper aluminum) raising prices by about 3%-5%; and regulatory driven cost increases such as the implementation of Interim Tier 4 over the next several years, which we believe will ultimately drive up equipment prices by about 12%; these higher prices will likely be phased in about 4% to 5% increments.

– With rising, albeit modestly, construction outlays, the need for normal replacement will occur as most construction equipment fleets have aged (and shrunk), particularly in the rental sector.

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38

2010-2012: CONSTRUCTION EQUIPMENT DEMAND WAS HOT; SPENDING WAS NOT

• The key to the strength in equipment demand is fleet replacement. The level of equipment sales were well below replacement levels even at current levels of construction activity.

– Construction equipment sales fell over 66% from its peak in 2006 to the trough in mid-2009. Most construction equipment fleets have aged and shrunk during the downturn.

– Total private construction expenditures fell 45% peak to trough between 2006 and 2010 and were still down over 40% through 2011.

– We are witnessing a bounce in construction equipment sales back towards a level more consistent with current construction activity depressed as it may be, and still 35% or more below prior level peaks.

• There are two key factors that enhanced construction equipment demand in 2011:

– Ongoing price increases for the foreseeable future driven by rising input costs and the roll-out of new IT4 emission compliant equipment;

– The tax incentive for 2011 allowing 100% write-off of new equipment purchases.

75

CONSTRUCTION EQUIPMENT DEMAND IS HOT; SPENDING IS NOT

• Every time an equipment buyer looks at buying a new piece of equipment, they are likely to see higher prices; a phenomena that accelerated in the second half of 2011 and is carrying THROUGH 2012 as:

– Manufacturers use up emission credits;

– Requirements for IT4 compliant equipment expand from over 174 HP in 2011 to all equipment in 2012;

– Prices in 2012 appeared to be up at least 7% to 10% or more;

– 2012 IT4 Compliant equipment phased in—Deere’s 14-model introduction is 0 in 1Q12; 6 in 2Q12; 5 in 3Q12; and 4 in 4Q12.

• With equipment prices on the rise, the tax benefits of equipment write-offs of 50% (down from 100% that spurred more equipment purchases in 2011) is enough to keep momentum going as domestic economic growth remains on a reasonable growth track.

• Current Bonus depreciation extended for 2013; section 179 enhancement helps small business and used equipment markets!

76

(cont’d)

39

2012 CONSTRUCTION EQUIPMENT DEMAND AT NEAR –TERM PEAK

• GDP OUTLOOK MATTERS!!! In N.A., double-digit volume gain gave way in 2H2012 as U.S. economic growth softened. Significant Inventory liquidation underway since 4Q12!

SOURCE: CNH, DE, CAT, LBR77

Region Light Heavy

Worldwide +8% -(18%)

North America 29% +24%

EMEA & CIS 1% +5%

Latin America 2% -(6%)

Asia-Pacific -(1%) -(32%)

2013 CONSTRUCTION EQUIPMENT OUTLOOK IS STILL SOFT

LIGHT 2Q13 LIGHT 2013 HEAVY 2Q13 HEAVY 2013

WW 4% FLAT -(2%) -(5% TO 10%)

NA 11% 5% -(7%) -(5% TO 10%)

EAME/CIS FLAT -5% -(6%) –(5% TO10%)

LA 10% 5% TO 10% 7% 5% TO 10%

APAC 1% -(0% TO 5%) FLAT -(5%)

Source:CNH,CAT,Deere:LBR)

78

2013 outlook–looks up 5% for light equipment and down 5% to 10% for heavy equipment

40

2014:MODERATE BUT MIXED RECOVERY

• Construction Activity should continue to improve in 2014 driven by further growth in housing and higher spending in private non-residential markets.

• Rental companies are reassessing current relatively flat spending plans to date in 2013 due to continued good utilization rates, improving outlook for construction spending and the implementation of Final Tier 4—big equipment in 2014 and all equipment in 2015.

• We look for double-digit growth in light equipment demand next year; but a 5% to 10% decline in larger equipment led by continued soft mining demand.

• Global demand for CE should improve in Brazil, Europe and China.

79

GENERAL RENTAL TRENDS

Source: TEX

80

41

INDUSTRY AVERAGE AGE BY MAJOR CATEGORYTop 10 Categories

81

RENTAL CO. CAP-EX STRENGTHENED OVER THE SUMMER

82

42

TOTAL FLEET PHYSICAL UTILIZATION

83

Source: Rouse Asset Services

COMMODITY SUPER-CYCLE IS OVER

• Slowing China Growth means end of commodity super-cycle—the combination of accelerating demand and rising prices to support China’s spectacular double-digit GDP growth

• Acceleration fueled by tilt toward heavy industry in 2000

• Rapid pace of industrialization and urbanization led to accelerated demand for copper, iron ore and other commodities

• Commodity system accustomed to excess capacity and weaker demand was not ready

• Result—surging prices; China consuming 40% of world copper at peak in 2011 vs. less than 20% in 2003

84

43

COMMODITY SUPER-CYCLE OVER (Cont’d)

• China Double-Digit GDP growth unsustainable– China can no-longer depend on exports as main driver of

growth—Europe largest destination;

– Rapidly rising wages of 15% to 20% per year

• New China economic policy is domestic consumption

• China still the largest market for commodities, but without the accelerating growth in demand

• Problem: Global production capacity expanded to meet the super-cycle; – copper-prices down 30% form 2011 peak; iron ore down

32%. IHS non-oil commodity index down 27% since 2008 (source: WSJ).

– Rising trade data in July showed up commodity imports

85

COMMODITY SUPER-CYCLE OVER (Cont’d)

• China “chill” created turmoil in investment plans of global mining companies. New CEO’s (BHP Billiton, Rio Tinto, Anglo American etc.) focus on reigning in investments, cutting back projects, consolidating businesses. Focus improved returns to shareholders

• Future mining investments depends on global growth, especially Europe; and how well China manages its transition from exports towards domestic consumption.

• Exporters such as Australia, Brazil South Africa, Russia can no longer count on surging raw material earnings to fund their economic growth and government spending. Now must face economic reforms and tax policies that super-cycle let them avoid.

86

44

MINING CAPITAL EXPENDITURE GLOBALLY WEAK AT LEAST IN 2013-2104

87

Mining CapEx Guidance & ForecastsTicker Company 2009 2010 2011 2012 2013E 2014EBTU Peabody $317 $633 $847 $1,074 $400 $550

CNX CONSOL (coal only) $580 $707 $558 $920 $465 $325

ACI Arch Coal $323 $315 $541 $395 $285 $320

ICO International Coal Group $88 $103

ARLP Alliance Resource Partners $329 $290 $322 $425 $385 $344

ANR Alpha Natural $307 $309 $529 $402 $300 $336

MEE Massey Energy $275 $512

CLD Cloud Peak Energy $120 $92 $143 $104 $65 $127

WLT Walter Energy $96 $157 $415 $392 $150 $243

Total $2,435 $3,118 $3,355 $3,712 $2,050 $2,245

YOY Change ‐5% 28% 8% 11% ‐45% 10%Sources: Company Documents, Thomson Reuters, Longbow Estimates In Millions In Millions In Millions In Millions

Ticker Company 2009 2010 2011 2012 2013E 2014EBHP‐AU BHP Billiton $9,846 $9,939 $14,569 $19,191 $21,072 $13,800

RIO‐LN Rio Tinto $5,000 $4,591 $12,335 $17,418 $13,000 $11,260

VALE VALE $9,013 $12,647 $16,075 $15,777 $15,566 $14,209

FCX Freeport $1,600 $1,412 $2,534 $3,494 $4,400 $7,300

AAL‐LN Anglo American $4,607 $5,280 $6,549 $5,957 $6,750 $5,987

SCCO Southern Copper $439 $409 $613 $1,052 $1,600 $2,100

CLF Cliffs Natural Resouces $116 $267 $881 $1,128 $1,000 $681

XTA‐LN Xstrata $3,568 $6,119 $8,108 $10,037 $7,500 $6,237

1088.HKG Shenhua $4,413 $4,358 $6,575 $8,566 $10,835 $8,019

Total $38,602 $45,022 $68,239 $82,620 $81,723 $69,593

YOY Change ‐19% 17% 52% 21% ‐1% ‐15%Sources: Company Documents, Thomson Reuters, Longbow Estimates In Millions In Millions In Millions In Millions

KEY COAL STATISITICS 2012U.S. COAL PRODUCTION (THOUSAND SHORT TONS)

88

Coal‐Producing

Region and State 3/30/2013 3/23/2013 3/31/2012

% Change 

(YoY) 3/30/2013 3/30/2012

% Change 

(YoY) 3/30/2013 3/31/2012

% Change 

(YoY)

Indiana 703 691 742 (5.2) 9,077 9,569 (5.1) 36,139 37,589 (3.9)

Ohio 543 533 542 0.1 7,039 6,990 0.7 27,597 27,846 (0.9)

Kentucky Total 1,866 1,834 2,034 (8.3) 23,427 26,245 (10.7) 87,740 106,921 (17.9)

    Eastern 1,035 1,017 1,153 (10.3) 12,857 14,893 (13.7) 46,517 65,325 (28.8)

    Western 831 817 881 (5.7) 10,570 11,353 (6.9) 41,224 41,596 (0.9)

West Virginia Total 2,460 2,418 2,540 (3.1) 30,791 32,755 (6.0) 118,090 131,521 (10.2)

    Northern 825 810 878 (6.1) 10,166 11,326 (10.2) 40,208 41,524 (3.2)

    Southern 1,636 1,608 1,662 (1.6) 20,624 21,429 (3.8) 77,882 89,997 (13.5)

Montana 861 756 807 6.6 7,490 9,329 (19.7) 34,757 41,834 (16.9)

New Mexico 269 403 409 (34.2) 5,305 4,786 10.8 22,963 21,599 6.3

North Dakota 501 400 406 23.4 6,969 7,194 (3.1) 27,303 27,669 (1.3)

Oklahoma 17 17 22 (21.6) 211 280 (24.4) 986 1,138 (13.4)

Pennsylvania Total 1,109 1,090 1,144 (3.1) 13,830 14,774 (6.4) 54,872 59,109 (7.2)

    Anthracite 45 45 43 5.7 583 556 5.0 2,389 2,287 4.5

    Bituminous 1,063 1,045 1,101 (3.4) 13,247 14,218 (6.8) 52,482 56,822 (7.6)

Texas 847 658 634 33.5 10,153 9,792 3.7 44,458 44,925 (1.0)

Utah 368 368 297 24.0 3,317 4,561 (27.3) 15,191 19,420 (21.8)

Virginia 348 342 396 (12.1) 4,552 5,104 (10.8) 18,352 21,724 (15.5)

Wyoming 6,804 7,040 6,845 (0.6) 92,764 104,877 (11.5) 388,451 432,890 (10.3)

Appalachian Total 5,924 5,822 6,236 (5.0) 74,672 80,473 (7.2) 288,183 328,864 (12.4)

Interior Total 3,413 3,161 3,196 6.8 42,962 44,104 (2.6) 178,260 172,855 3.1

Western Total 9,328 9,478 9,451 (1.3) 122,648 140,447 (12.7) 523,834 581,433 (9.9)

U.S. Total 18,665 18,461 18,883 (1.2) 240,283 265,024 (9.3) 990,277 1,083,152 (8.6)

Railroad Cars Loaded 114,017 113,970 114,904 (0.8) 1,483,957 1,603,252 (7.4) 6,105,236 6,777,564 (9.9)

(thousand short tons)

Week Ended Year‐To‐Date[1] 52 Weeks Ended

Weekly U.S. Coal Production Overview

45

U.S. COAL PRODUCTION 2010-2013

89

HOUSING OUTLOOK: SOME IMPROVEMENT

• Housing activity remained muted in 2011 but is finally gaining some momentum in 2012 AND 2013.

• Single Family: number of improving markets growing but some homebuilders and buyers still having trouble getting loans.

• Multi-Family: Upturn should last through AT LEAST THROUGH 2013-14.

– Vacancy rate is now at 10 year low; Rents are up;

– Rental demand should grow as more people get jobs;

– Condo market still with large overhang.

90

46

Non-Res Totals ($B, SAAR):Share & 12-month Change

2012:Private +18%; Public ‐3% 7/13 Total Share 7/13‐7/12

Nonresidential (priv. + federal + state/local) $560B 100% ‐1%

Power (incl. oil & gas struc., pipelines) 89 16 6

Educational 80 14 ‐10

Highway and street 78 14 ‐4

Manufacturing 47 8 0

Commercial (retail, warehouse, farm) 47 8 2

Transportation 43 8 11

Healthcare 42 7 ‐1

Office 37 7 ‐2

Sewage and waste disposal 21 4 4

Communication 16 3 ‐13

Lodging 15 3 30

Other (water, public safety; Amusmt; conservation; religious): 8% of total ‐8

91

AIA, NAHB PROJECTS CONTINUING CONSTRUCTION SPENDING GROWTH

• NAHB Housing starts: 2012 783,000 2013E 924,000 (DOWN FROM 970K); 2014E 1.152M)

• Overall non-residential spending up 5.0% in 2013 (was 4.4%), and up 7.2% in 2014—AIA

• Commercial/industrial (8.6%, 10.7%)– Industrial (5.0%, 6.4%)

– Hotels (15.7%, 12.6%); Retail (7.8%, 9.6%)

– Office buildings (7.3%, 11.4%)

• Institutional (1.2%, 4.7%)– Healthcare facilities (4.4%, 4.8%); Education (1.1%, 4.5%)

– Amusement/recreation (1.8%, 5.5%)

– Public safety (-1.7%, 0.8%) Religious (2.6%, 4.9%) Source: NAHB; AIA

*AIA surveys only cover 40% of Non-Residential markets

92

47

SUMMARY OF CONSTRUCTION OUTLOOK 2012-13 AND BEYOND

• Private non-residential to rise 10% to 15%(Vs. 18% in 2012) led by power, pipeline, manufacturing, warehouses, higher education, data centers, hotels, hospitals??; no office or retail

• Public non-residential down -2% to down -5% (Vs. -3% in 2012) with highway, educational 0%, other transportation (-5%); declining Federal Funds.

• Residential up at least 10% to 15% (Vs. 17% in 2012) with Multi-Family strong; single family and remodeling up a bit.

• Total construction up 5% to 10%.

• 2013-18: Total Construction Spending up 6% to 10% or more.

– New Drivers: shale-based oil & gas; Panama Canal Widening; More Elderly and kids. Less housing, retail, public spending.

93

CAN PRODUCTIVITY NEEDS OVERCOME POLITICS

POTENTIAL RECOVERY ON THE HORIZON

94

MACHINE TOOLS

48

PRODUCTIVITY NEEDS WILL DRIVE MACHINE TOOL DEMAND

• Manufacturing employment has been declining for over 60 years, but output has rise at a 3.2% rate due to productivity

• Beginning July 2009, manufacturing output in the US has increased at a 4.7% annual rate and has recovered 82.2% of its drop in output. (Fed Reserve Chicago)

• Manufacturing has only recovered 22% of the jobs lost during the downturn. Politics and Obamacare drive automation spending. (Fed Reserve Chicago)

• Companies started 2013 with up cap-ex budgets that were frozen in mid-year due to stagnant environment

• We expect companies to start 2014 with lower cap-ex budget than last year but at the run rate of 2H2013 suggesting the potential for upside in spending.

95

MACHINE TOOLS; RECOVERY ON THE HORIZON

2006 2007 2008 2009 2010 2011R 2012R 2013E 2014E 2015E

Metal Cutting $3705 $3974 $3888 $1509 $3016 $4967 $5013 $4662 $5035 $5740

% Change 26% 7% -2% 62% 100% 65% 1% -7% 8% 14%

Metal Forming $395 $441 $501 $236 $334 $170 $193 $167 $175 $210

% Change -1% 12% 13% -53% 41% -49% 14% -14% 5% 20%

Total 4100 $4415 $4389 $1745 $3359 $5137 $5207 $4829 $5210 $5950

% Change 23% 8% -1% -60% 92% 53% 1% -7% 8% 14%

96

49

A VERY OPTIMISTIC 3 TO 5 YEAR OUTLOOK

• 2H 2013 U.S. Industrial Markets will likely show modest to moderate growth after sluggish 12 month period..

• IF WE CAN SURVIVE THE NEXT 12 TO 18 MONTHS, the U.S. potentially has one of the most favorable 3-5 year outlooks.

• U.S. can become a net energy exporter with low cost energy supplies (natural gas); low cost feedstock for industrial products.

• Shale—major direct and indirect impact on infrastructure; pipes, pipelines, water, roads, site prep, fracking sand, drills, compressors, pumps tanks, downstream facilities.

• Growth of Energy markets, energy efficiency (motors, lighting led by LED, smart grid).

97

A VERY OPTIMISTIC 3 TO 5 YEAR OUTLOOK (CONTINUED)

• Re-shoring/Near-shoring phenomena is real, enhancing a renaissance of American Manufacturing.

– Shortening of global supply chains and Regionalizing manufacturing; America for America; Asia for Asia.

• Most manufacturers ran out of capacity in emerging markets due to strong growth; Recognized supply chains were too long.

• In 2007/08 (ports, freight rates/containers); 2009 deliveries while shutdown; Japan Tsunami/Earthquake; Thailand Flooding.

– Big shift to Mexico (Gov’t policies matter) and U.S. over next 3 to 5 years as global manufacturing costs equalize in mid-decade; CAT, GE, NCR, Masterlock, Ford, Appliance Industry are leaders.

– Component suppliers will be the big winners!

• Recovery of construction markets—Housing and Nonresidential.

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