KeyBank Report

Industrial Sector Research

The Industrial Cycle: Monthly Update on Key End Markets

May 2010

Steve Barger Jeffrey D. Hammond Anthony Kure Matt J. Summerville(216) 689-0210 (216) 689-0236 (216) 689-0339 (216) 689-0282

[email protected] [email protected] [email protected] [email protected]

Joe Box Joshua C. Pokrzywinski Joseph K. Radigan

(216) 689-0283 (216) 689-0351 (216) [email protected] [email protected] [email protected]

Important disclosures for the companiesmentioned in this report can be found at

https://key.bluematrix.com/bluematrix/Disclosure.

KeyBanc Capital Markets Inc.,Member NYSE/FINRA/SIPC

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC Equity Research

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May 2010

Contents EXECUTIVE SUMMARY......................................................................................................................................3 SECTION 1. END MARKET AND MACROECONOMIC DATA..........................................................................4 SECTION 2. CALENDAR, COMMODITIES AND CURRENCY..........................................................................7 SECTION 3. END MARKET DISCUSSIONS ....................................................................................................11

COMMERCIAL AEROSPACE.......................................................................................................................................... 11 AGRICULTURE ................................................................................................................................................................ 13 AUTOMOTIVE .................................................................................................................................................................. 14 CONSTRUCTION (NON-RESIDENTIAL)......................................................................................................................... 15 CONSTRUCTION (RESIDENTIAL).................................................................................................................................. 17 CONSTRUCTION EQUIPMENT ...................................................................................................................................... 19 GENERAL INDUSTRIAL .................................................................................................................................................. 20 OIL & GAS ........................................................................................................................................................................ 22 SEMICONDUCTOR.......................................................................................................................................................... 23 MEDIUM/HEAVY-DUTY TRUCK...................................................................................................................................... 24

SECTION 4. MONTHLY ORDERS....................................................................................................................28 SECTION 5. END MARKET AND GEOGRAPHIC BREAKDOWNS BY COMPANY.......................................32 Reg A/C Certification The research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressed in this research report accurately reflect the research analyst's personal views about any and all of the subject securities or issuers; and (2) no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this research report. Rating System: BUY - The security is expected to outperform the market over the next six to 12 months; investors should consider adding the security to their holdings opportunistically, subject to their overall diversification requirements. HOLD - The security is expected to perform in line with general market indices over the next six to 12 months; no buy or sell action is recommended at this time. UNDERWEIGHT - The security is expected to underperform the market over the next six to 12 months; investors should reduce their holdings opportunistically. The information contained in this report is based on sources considered to be reliable but is not represented to be complete and its accuracy is not guaranteed. The opinions expressed reflect the judgment of the author as of the date of publication and are subject to change without notice. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Our company policy prohibits research analysts and members of their families from owning securities of any company followed by that analyst, unless otherwise disclosed. Our officers, directors, shareholders and other employees, and members of their families may have positions in these securities and may, as principal or agent, buy and sell such securities before, after or concurrently with the publication of this report. In some instances, such investments may be inconsistent with the opinions expressed herein. One or more of our employees, other than the research analyst responsible for the preparation of this report, may be a member of the Board of Directors of any company referred to in this report. The research analyst responsible for the preparation of this report is compensated based on various factors, including the analyst’s productivity, the quality of the analyst’s research and stock recommendations, ratings from investor clients, competitive factors and overall Firm revenues, which include revenues derived from, among other business activities, the Firm’s performance of investment banking services. In accordance with industry practices, our analysts are prohibited from soliciting investment banking business for our Firm. Investors should assume that we are seeking or will seek investment banking or other business relationships with the company described in this report.


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May 2010

The Industrial Cycle: Monthly Update on Key End Markets MAY 2010

Steve Barger: (216) 689-0210 — [email protected] Jeffrey D. Hammond: (216) 689-0236 — [email protected] Anthony Kure: (216) 689-0339 — [email protected] Matt J. Summerville: (216) 689-0282 — [email protected]

Joe Box: (216) 689-0283 — [email protected] Joshua Pokrzywinski: (216) 689-0351 — [email protected] Joseph K. Radigan: (216) 689-0355 — [email protected]

EXECUTIVE SUMMARY Industrial End Market Monthly – Macro Trends and Quarterly Earnings Solidify an Early Recovery Is Underway; 1Q10 Earnings Reports Dampened by Rosy Investor Expectations; Expanding Valuations Warrant Additional Stock Selection; Recommend Low Visibility Names with Improving Leading Indicators and Favorable Valuation, Strong Execution/Acquisition Stories and Names with Positive Geographic Exposure When Good Is Just Not Good Enough While many of our industrial names experienced a solid EPS rebound in 1Q10, when quarterly results came to light, investors did not necessarily share the love. For our names that have reported through May 6, the median earnings surprise relative to consensus was +13%. In most other situations, we would expect for this earnings delta to be favorably received by investors. However, given the rally that transpired from early February through late April (Dow up 11.1% from February 8 through April 30), we believe stock valuations appropriately discounted the strong 1Q10 earnings recovery and the expectation for a more favorable management outlook. Generally speaking, we found that not only was an earnings beat needed, but also a healthy guidance increase and/or management commentary that suggested a more rapid earnings recovery than previously expected. For stocks like IDEX Corporation (IEX-NYSE), Lennox International Inc. (LII-NYSE), Oshkosh Corporation (OSK-NYSE) and Westinghouse Air Brake Technologies Corporation (WAB-NYSE), even a beat and positive commentary was not enough to get a positive reaction in the shares. Optimistic on the Recovery Prospects, Realistic About Several Headwinds In our view, there are a number of headwinds that could slow the pace of earnings recovery. That uncertainty could be one of the factors driving management teams to err on the conservative side when providing forward-looking guidance. These headwinds include rising raw material input costs and a strengthening U.S. dollar. While we do not believe these headwinds will derail the recovery story, we believe some companies with significant raw material exposure and/or U.S. dollar exposure may lag other industrial names. With respect to raw materials, the pace of several key manufacturing inputs has experienced considerable upside since respective troughs in early 2009 (late 2008 for crude/copper). Specifically, copper spot pricing increased 5.8% per month since its trough. That considerably outpaces the 1.5% monthly rate of growth during the early expansion phase in 2002-2003. Similarly, crude oil and hot-rolled steel are up a respective 5.0% and 2.0% per month over the last 15-month period, relative to a respective 1.9% and 1.6% monthly CAGR for the 2002-2003 cycle. With respect to the U.S. dollar relative to the Euro, firms will be going from roughly a 6% tailwind in 1Q10 to a 2% headwind in 2Q10 (based on the average through April 2010). While we reiterate our view that these factors are not likely to derail the economic recovery, their addition to forward guidance could lower optimistic Street expectations for some companies. Highlighted Names Given our optimistic view on macro prospects in conjunction with some valuation-related concerns, our top picks remain names that are trading at a deep discount to normalized or out year earnings, including Terex Corporation (TEX-NYSE; BUY, $30 price target), Trinity Industries, Inc. (TRN-NYSE; BUY, $28 price target) and Federal Signal Corporation (FSS-NYSE; BUY, $11 price target). We also continue to recommend higher quality, less cyclical multi-industry names possessing execution track records, exposures to markets with secular growth prospects, solid FCF generation through a cycle (not just being able to temporarily generate substantial FCF during a downturn due to temporary working capital reductions) and strong balance sheets that largely self-fund their respective acquisition strategies. Along these lines, we remain favorably disposed toward AMETEK, Inc. (AME-NYSE; BUY, $50 price target), Danaher Corporation (DHR-NYSE; BUY, $96 price target), ITT Corporation (ITT-NYSE; BUY $62 price target), Roper Industries, Inc. (ROP-NYSE; BUY, $69 price target) and Westinghouse Air Brake Technologies Corporation (WAB-NYSE; BUY, $54 price target). As a result of the significant leverage to positive international fundamentals, we are also favorable on Bucyrus International, Inc. (BUCY-NASDAQ; BUY, $82 price target). Additionally, we are positive on Regal-Beloit Corporation (RBC-NYSE; BUY, $83 price target) based on a strong operating culture and leverage to an HVAC recovery (as well as secular trends toward high efficiency). Also, as volumes stabilize and attention shifts toward names that have internal catalysts, we are favorably biased toward Ingersoll-Rand plc (IR-NYSE; BUY, $45 price target). Industrial Group Stock Performance Scorecard. For the month of April, our group of recommended stocks posted a 7.7% gain, as compared to the 1.5%, 4.2% and 5.6% returns for the S&P 500, S&P Midcap Index and the Russell 2000, respectively. Our recommended names outperformed their peer group, the S&P Industrials, which increased 5.2% for the month. The recommended names that performed the best in March were TriMas Corporation (TRS-NYSE; BUY, $13 price target; +58%) and Applied Industrial Technologies, Inc. (AIT-NYSE; HOLD; +24%).


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May 2010

SECTION 1. END MARKET AND MACROECONOMIC DATA

CHART 1. TRACKING THE END MARKET CYCLES – WHERE DO WE STAND TODAY?

Auto motive

Steel

Power Generation

Non- Res . Con struction

Militar y/DefenseHeavy Truck

Ag Equ ipment

Res id ential Cons truction

Comm’l Aerospace (OE M)

Accelerating Growth

Pea k Growth

Decelerat ing Growth

Decelera ting Decli ne

Co mm’l Aerospace (Aftermkt)

Chemicals

Gener al Indus tr ial

Oil & Gas

C onstructio n Machinery (Heavy)

Water / Wastewater

Mining Equipment

Cons truction Machiner y (Light)

Semicon ductor Equipment

Accelerati ng Decl ine

¦ Non-Cyclical

¦ Early-Cycle

¦ Mid-Cycle

¦ Late-Cycle

Trough Decline

Accelerating Decline to T ro ugh:

Chemicals

Troug h to Decelerating Decline:Commer cial Aerosp ace OEM


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May 2010

TABLE 1. END MARKET AND MACROECONOMIC DATA Macroeconomic 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 Leading Economic Indicators Index: 1996=100 - - 86.3 84.7 88.9 93.4 100.0 102.7 104.0 103.7 101.5 98.4 100.4 103.3 105.9 102.0 107.7 108.1 109.6 105.9 Leading Economic Indicators (%, YOY Chg) - - 196.5% -0.1% 4.9% 5.1% 7.1% 2.7% 1.3% -0.4% -2.1% -4.3% -2.2% 2.1% 6.5% 0.5% 9.0% 10.0% 11.7% 7.6% Industrial Production Index: 1997=100 94.9 99.3 103.5 99.9 100.0 100.6 104.7 108.0 112.1 111.4 109.1 99.1 96.4 98.0 99.6 98.3 101.2 101.5 101.6 99.6 Industrial Production (%, YOY Chg) 4.2% 5.1% 2.1% -5.3% 2.3% 1.5% 4.3% 3.0% 2.7% -0.1% -6.9% -11.6% -13.4% -9.9% -4.6% -4.6% 1.0% 2.2% 4.0% 0.5% Capacity Utilization (%) 82.7% 81.9% 81.8% 76.3% 75.1% 75.7% 78.6% 80.2% 81.7% 81.5% 78.0% 70.4% 68.7% 70.0% 71.4% 70.1% 72.7% 73.0% 73.2% 71.4% ISM PMI Index Index 50.2 54.6 51.7 43.9 52.4 53.3 60.5 55.5 53.9 51.1 45.6 35.9 42.6 51.5 54.7 46.2 58.4 56.5 59.6 54.7 ISM PMI New Orders Index Index 51.8 57.9 52.0 46.2 56.6 57.7 63.5 57.4 55.4 54.5 42.2 35.8 49.2 60.3 61.2 51.6 65.9 59.5 61.5 61.2 Unemployment Rate (%, SA) 4.5% 4.2% 4.0% 4.8% 5.8% 6.0% 5.5% 5.1% 4.6% 4.6% 5.8% 8.1% 9.3% 9.6% 10.1% 9.3% 9.7% 9.7% 9.7% 10.1% Employment Overtime (NSA, hours) 4.5 4.7 4.0 3.8 4.2 4.5 4.5 4.5 4.2 4.0 3.0 2.1 2.9 3.0 2.7 2.7 2.8 2.8 2.9 2.7 Fed Funds Target Rate (%) 4.75% 5.50% 6.50% 1.75% 1.25% 1.00% 2.25% 4.25% 5.25% 4.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% Consumer Price Index (SA, 1982-1984=100) 163.0 166.6 172.2 177.0 179.9 184.0 188.9 195.3 201.6 207.4 215.3 212.6 213.3 215.2 216.8 214.5 217.6 217.6 217.7 216.8 Consumer Price Index (%, YOY Chg) 1.5% 2.2% 3.4% 2.8% 1.6% 2.3% 2.7% 3.4% 3.2% 2.9% 3.8% -0.1% -1.0% -1.7% 1.4% -0.4% 0.2% 0.0% 0.1% 2.0% Durable Goods Orders ($ bil., NSA) 2,138 2,254 2,322 2,097 2,073 2,060 2,192 2,390 2,560 2,595 2,459 480 484 500 506 1,970 177 179 177 506 Durable Goods Orders (%, YOY Chg) 3.5% 9.5% -4.6% -10.6% -0.9% 6.8% 6.4% 14.1% 2.9% 1.0% -23.1% -26.6% -25.7% -18.7% -1.3% -1.3% 11.1% 10.1% 11.6% -1.3% Inventory/Sales (Ratio) 1.43 1.40 1.41 1.43 1.38 1.35 1.30 1.28 1.27 1.27 1.30 1.45 1.41 1.33 1.28 1.37 1.27 1.27 NA 1.28 U of M Consumer Sentiment Index: 1967=100 104.6 105.8 107.6 89.2 89.6 87.6 95.5 88.6 87.3 85.6 63.8 58.3 68.2 68.4 70.2 66.3 74.4 73.6 73.6 70.2 Italian Business Confidence Index: 2000=100 90.3 89.7 100.0 89.3 90.1 88.0 89.5 88.3 95.8 94.3 82.8 64.3 68.5 74.1 79.9 71.7 83.0 84.0 84.4 79.9 German Business Climate Index: 2000=100 97.7 95.7 100.0 92.2 89.6 91.8 95.5 95.6 105.5 106.2 96.8 82.6 84.7 89.8 93.5 87.7 95.9 95.3 98.2 93.5 Euro Manufacturing PMI Index - - - - 49.8 49.3 53.1 51.2 56.4 54.3 46.5 33.9 40.0 47.9 51.2 43.3 52.4 54.2 56.6 51.2

Aerospace 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 Rev. Pass. Miles, Domestic (units) 427.6 446.6 474.6 446.3 436.0 439.1 474.5 487.0 485.8 488.3 480.0 104.8 117.9 121.4 108.5 452.6 33.8 31.1 39.8 104.7 Rev. Pass. Miles, Domestic (%, YOY Chg) 2.3% 4.4% 6.3% -6.0% -2.3% 0.7% 8.1% 2.6% -0.2% 0.5% -1.7% -9.6% -8.0% -3.9% -0.9% -5.7% 0.9% -2.7% 1.2% -0.1% Avail. Seat Miles, Domestic (units) 604.8 644.8 662.4 642.2 614.1 598.6 630.4 624.1 608.1 604.4 594.1 135.0 140.9 142.9 133.8 552.6 44.5 39.7 47.3 131.5 Avail. Seat Miles, Domestic (%, YOY Chg) 0.8% 6.6% 2.7% -3.0% -4.4% -2.5% 5.3% -1.0% -2.6% -0.6% -1.7% 153.8% 168.1% 213.2% 187.6% -7.0% -1.8% -5.0% -1.3% 174.4% Load Factor, Domestic (%) 70.7% 69.3% 71.7% 69.5% 71.0% 73.3% 75.3% 78.0% 79.9% 80.8% 80.8% 77.6% 83.7% 85.0% 81.1% 81.9% 76.0% 78.2% 84.3% 79.6% Rev. Pass. Miles, Int'l (units) 160.2 169.3 183.1 170.2 165.0 156.0 180.1 196.3 206.8 219.2 227.0 47.5 55.7 61.5 50.6 215.2 17.0 14.1 18.1 49.2 Rev. Pass. Miles, Int'l (%, YOY Chg) 1.6% 5.7% 8.1% -7.0% -3.1% -5.5% 15.5% 9.0% 5.4% 6.0% 3.5% -10.2% -6.8% -2.0% -2.1% -5.2% 1.3% 2.9% 6.3% 3.6% Avail. Seat Miles, Int'l (units) 219.8 227.2 240.5 233.4 215.6 203.3 227.2 246.3 257.9 271.8 285.4 65.5 70.5 73.3 62.3 271.6 21.9 19.0 22.3 63.1 Avail. Seat Miles, Int'l (%, YOY Chg) 3.4% 3.3% 5.9% -3.0% -7.6% -5.7% 11.7% 8.4% 4.7% 5.4% 5.0% 177.3% 178.2% -3.9% -7.1% -4.8% -4.1% -5.5% -1.4% -3.6% Load Factor, Int'l (%) 72.9% 74.5% 76.1% 72.9% 76.5% 76.7% 79.3% 79.7% 80.2% 80.7% 79.5% 72.6% 79.0% 83.9% 81.1% 79.3% 77.8% 74.4% 81.2% 78.0% New Orders Aero Equip ($, NSA, bil.) 124.4 125.9 162.0 116.3 115.5 100.9 119.5 197.6 203.7 233.5 182.6 28.5 27.7 34.6 30.8 121.6 14.3 15.3 8.8 30.8 New Orders Aero Equip (%, AR, YOY Chg) 0.2% 1.2% 28.7% -28.2% -0.6% -12.7% 18.5% 65.2% 3.1% 14.6% -21.8% -51.0% -41.0% -21.8% -7.3% -33.4% 86.1% 74.1% -26.7% 8.4% Boeing Orders (units) 630 370 608 329 251 250 277 1,031 1,058 1,425 668 (5) 26 66 55 142 10 47 43 55 Airbus Orders (units) 642 406 468 375 300 284 370 1,111 818 1,458 777 3 65 55 148 271 11 - 49 148 Boeing Deliveries (units) 564 622 491 527 381 281 285 290 398 441 375 121 125 113 122 481 28 37 43 122 Airbus Deliveries (units) 227 299 308 325 303 305 320 378 425 453 483 116 138 104 140 498 29 38 55 140

Automotive 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 North American Auto Production (units, 000s) 15,551 17,035 17,166 15,483 16,370 15,874 15,754 15,753 15,252 15,021 12,579 1,678 1,773 2,346 2,761 8,557 NA NA NA 2,895 North American Auto Production (%, YOY Chg) -0.5% 13.2% 0.3% -10.4% 5.7% -3.0% -0.8% 0.0% -3.2% -1.5% -16.3% -51.9% -49.0% -20.9% 3.3% -32.0% NA NA NA 72.5%

Agriculture 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 2-4 WD Trac. & Comb. Sales (units, 000s) 147.1 144.9 158.6 172.2 172.4 207.8 235.1 233.3 223.5 225.6 203.4 32.0 56.7 42.3 33.9 165.0 9.3 8.6 15.1 33.9 2-4 WD Trac. & Comb. Sales (%, AR, YOY Chg) 6.5% -1.5% 9.4% 8.6% 0.1% 20.5% 13.2% -0.8% -4.2% 1.0% -9.9% -18.7% -21.3% -16.1% -18.1% -18.9% 4.5% -6.2% 7.4% 5.9%

Construction 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 Housing Starts (units, SAAR, 000s) 1,617 1,641 1,569 1,603 1,607 1,848 1,956 2,068 1,811 1,343 903 528 540 587 559 553 609 616 626 559 Housing Starts (%, YOY Chg) 9.7% 1.5% -4.4% 2.2% 0.2% 15.0% 5.9% 5.8% -12.4% -25.8% -32.7% -49.9% -47.3% -33.0% -15.4% -16.2% 24.8% 7.3% 20.2% 5.9% Existing Home Sales (units, SAAR, mil.) 4.49 4.63 4.61 4.72 5.00 5.43 5.91 6.18 5.71 4.96 4.34 4.13 4.25 4.65 5.23 4.57 4.43 4.36 4.68 5.23 Existing Home Sales (%, YOY Chg) 13.1% 3.0% -0.4% 2.5% 5.8% 8.6% 9.0% 4.5% -7.7% -13.1% -12.4% -5.3% -1.8% 4.8% 23.6% 7.9% 8.6% 4.1% 13.3% 26.6% 30-Year Fixed Mortgage Rate (%) 6.95% 7.43% 8.06% 6.97% 6.54% 5.82% 5.84% 5.87% 6.41% 6.34% 6.04% 5.06% 5.03% 5.16% 4.92% 5.04% 5.03% 4.99% 4.97% 4.92% Non-Residential Construction (1996$, SAAR, bil.) 236.8 249.4 275.0 274.2 238.4 229.3 238.1 256.7 298.3 356.8 410.8 398.9 394.1 359.6 325.4 369.5 305.5 301.1 299.0 325.4 Non-Residential Construction (%, SAAR, YOY Chg) 10.9% 5.3% 10.3% -0.3% -13.0% -3.8% 3.8% 7.8% 16.2% 19.6% 15.1% 1.5% -5.2% -14.4% -21.5% -10.1% -22.7% -24.8% -25.5% -18.4% Construction Put In Place (1996$, SAAR, bil.) 705.6 768.6 832.2 863.6 872.9 920.1 1,021.2 1,130.6 1,170.2 1,138.2 1,075.1 970.5 958.3 923.4 898.2 937.6 863.5 845.5 847.3 898.2 Construction Put In Place (%, SAAR, YOY Chg) 7.6% 8.9% 8.3% 3.8% 1.1% 5.4% 11.0% 10.7% 3.5% -2.7% -5.5% -10.5% -11.9% -14.7% -14.2% -10.4% -11.4% -12.9% -12.3% -7.5% F.W. Dodge Index Index 100 102 105 118 127 139 132 108 90 83 82 84 90 90 89 92 92 90


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TABLE 2. END MARKET AND MACROECONOMIC DATA (CONTINUED) Oil & Gas 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 Baker & Hughes US Rig Count (units) 653 798 1,097 901 837 1,114 1,246 1,470 1,718 1,811 1,782 1,105 895 1,009 1,172 1,172 1,267 1,350 1,419 1,172 Baker & Hughes US Rig Count (%, YOY Chg) -35.4% 22.2% 37.5% -17.9% -7.1% 33.1% 11.8% 18.0% 16.9% 5.4% -1.6% -38.5% -52.9% -49.9% -34.2% -34.2% -18.4% 2.3% 28.4% 6.1% Baker & Hughes Canada Rig Count (units) 248 385 410 264 348 417 440 575 456 360 361 196 125 208 313 313 459 564 386 313 Baker & Hughes Canada Rig Count (%, YOY Chg) -49.0% 55.2% 6.5% -35.6% 31.8% 19.8% 5.5% 30.7% -20.7% -21.1% 0.3% -52.0% -53.0% -52.2% -13.3% -13.3% 21.8% 36.6% 96.9% 59.7% Baker & Hughes Int'l Rig Count (units) 671 574 705 752 753 803 869 891 951 1,036 1,078 1,012 967 986 1,024 1,024 1,047 1,068 1,074 1,024 Baker & Hughes Int'l Rig Count (%, YOY Chg) -18.1% -14.5% 22.8% 6.7% 0.1% 6.6% 8.2% 2.5% 6.7% 8.9% 4.1% -4.0% -12.3% -11.0% -5.0% -5.0% 0.3% 4.7% 6.1% 1.2%

Semiconductor 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 Semi Billings: WW (units, 000s) 125,680 145,330 200,590 147,170 138,360 162,430 210,470 225,530 245,910 255,030 256,120 44,192 49,575 57,862 66,903 218,531 22,318 22,042 23,060 66,903 Semi Billings: WW (%, YOY Chg) -8.2% 15.6% 38.0% -26.6% -6.0% 17.4% 29.6% 7.2% 9.0% 3.7% 0.4% -29.7% -23.3% -14.7% 10.2% 259.9% 45.5% 56.2% 56.4% 51.4% Semi Billings: Americas (units, 000s) 41,590 46,340 62,500 39,205 31,200 31,770 38,920 40,120 44,930 42,480 39,320 7,585 8,338 9,790 11,367 37,080 3,748 3,616 3,817 11,367 Semi Billings: Americas (%, YOY Chg) -8.7% 11.4% 34.9% -37.3% -20.4% 1.8% 22.5% 3.1% 12.0% -5.5% -7.4% -24.7% -19.7% -0.9% 26.4% 312.5% 47.3% 48.2% 46.8% 49.9% Semi Billings: Europe (units, 000s) 29,310 31,340 41,630 31,755 27,460 34,820 38,890 39,590 39,630 40,950 39,750 6,573 6,564 7,340 8,758 29,235 2,930 2,879 3,084 8,758 Semi Billings: Europe (%, YOY Chg) 1.7% 6.9% 32.8% -23.7% -13.5% 26.8% 11.7% 1.8% 0.1% 3.3% -2.9% -34.9% -35.6% -28.9% -4.2% 219.9% 29.0% 36.4% 40.8% 33.2% Semi Billings: Japan (units, 000s) 26,070 31,740 45,800 35,360 29,820 37,810 45,440 44,340 46,480 48,490 49,470 8,541 8,311 10,199 11,186 38,238 3,474 3,435 3,593 11,186 Semi Billings: Japan (%, YOY Chg) -19.7% 21.7% 44.3% -22.8% -15.7% 26.8% 20.2% -2.4% 4.8% 4.3% 2.0% -30.6% -33.7% -19.1% -7.1% 217.6% 7.5% 23.6% 42.0% 31.0% Semi Billings: Asia Pacific (units, 000s) 28,710 35,920 50,660 40,830 49,870 61,070 87,200 101,500 105,880 123,100 127,540 21,492 26,363 30,533 35,591 113,979 12,167 12,111 12,566 35,591 Semi Billings: Asia Pacific (%, YOY Chg) -4.4% 25.1% 41.0% -19.4% 22.1% 22.5% 42.8% 16.4% 4.3% 16.3% 3.6% -29.2% -16.4% -12.9% 16.5% 273.0% 66.8% 78.6% 69.4% 65.6%

Sources: Airbus, Airline Transport Association, Baker Hughes, Baseline, Bloomberg, Boeing Company, Equipment Manufacturers Institute, ACT Research, Association for Manufacturing Technology, SEMI, Infrastructure


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May 2010

SECTION 2. CALENDAR, COMMODITIES AND CURRENCY

UPCOMING EVENTS: MAY 3, 2010 – JUNE 11, 2010

MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY May 3, 2010 May 4, 2010 May 5, 2010 May 6, 2010 May 7, 2010

8:30 a.m. Initial Claims 8:30 a.m. Unemployment Rate

8:30 a.m. Non-farm Payrolls

May 10, 2010 May 11, 2010 May 12, 2010 May 13, 2010 May 14, 2010

8:30 a.m. Initial Claims 8:30 a.m. Retail Sales

9:15 a.m. Capacity Utilization

9:15 a.m. Industrial Production

9:55 a.m. Michigan Sentiment

10:00 a.m. Business Inventories


8:30 a.m. Building Permits 8:30 a.m. CPI 8:30 a.m. Initial Claims

8:30 a.m. Housing Starts 10:00 a.m. Leading Indicators

8:30 a.m. PPI 10:00 a.m. Philadelphia Fed.


10:00 a.m. Existing Home Sales 10:00 a.m. Consumer Confidence 8:30 a.m. Durable Orders 8:30 a.m. Continuing Claims 8:30 a.m. Personal Spending

10:00 a.m. New Home Sales 8:30 a.m. Initial Claims 9:45 a.m. Chicago PMI

May 31, 2010 June 1, 2010 June 2, 2010 June 3, 2010 June 4, 2010

10:00 a.m. Construction Spending 2:00 p.m. Auto Sales 8:30 a.m. Initial Claims 8:30 a.m. Non-farm Payrolls

10:00 a.m. ISM Index 10:00 a.m. Factory Orders 8:30 a.m. Unemployment Rate

June 7, 2010 June 8, 2010 June 9, 2010 June 10, 2010 June 11, 2010

9:15 a.m. Capacity Utilization 2:00 p.m. Fed’s Beige Book 8:30 a.m. Initial Claims 8:30 a.m. Retail Sales

9:15 a.m. Industrial Production 9:55 a.m. Michigan Sentiment

10:00 a.m. Business Inventories


Page 8 of 53

May 2010

TABLE 3. COMMODITY PRICES (2000 to Present)

Energy 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 1Q10 Apr-10 Crude Oil ($ per barrel) 29.7 25.2 26.6 30.8 41.6 57.3 67.0 74.9 98.6 45.4 62.4 70.0 77.9 63.9 78.8 86.2 Crude Oil (%, YOY Chg) -15.1% 5.2% 16.1% 34.9% 37.7% 16.9% 11.9% 5.9% -53.9% -50.8% -38.3% 40.0% -35.2% 73.6% 68.5% Natural Gas ($ per MMBtu) 4.57 3.56 3.43 5.59 5.98 9.00 6.68 6.99 8.79 4.13 3.63 3.01 4.79 3.89 4.64 3.94 Natural Gas (%, YOY Chg) -22.2% -3.6% 62.9% 7.0% 50.5% -25.8% 4.7% 23.8% -54.2% -69.3% -63.4% -21.4% -55.7% 12.3% 21.3%

Base Metals 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 1Q10 Apr-10 Nickel ($ per pound) 4.2 2.9 3.3 4.9 6.7 7.1 11.9 17.6 10.1 5.2 6.7 8.9 8.9 7.4 10.7 12.9 Nickel (%, YOY Chg) -30.9% 13.1% 49.0% 37.4% 6.4% 67.4% 47.5% -24.2% -63.6% -42.7% -1.4% 56.7% -27.0% 108.0% 120.0% Copper ($ per pound) 0.85 0.74 0.74 0.86 1.40 1.77 3.16 3.35 3.20 1.65 2.23 2.83 3.16 2.47 3.34 3.40 Copper (%, YOY Chg) -13.3% 0.1% 16.4% 63.1% 26.3% 78.9% 5.9% -2.6% -55.8% -43.3% -17.4% 83.5% -22.9% 102.2% 61.7% Aluminum ($ per pound) 0.75 0.70 0.65 0.70 0.86 0.93 1.24 1.26 1.19 0.60 0.67 0.85 0.93 0.76 0.97 0.99 Aluminum (%, YOY Chg) -7.3% -5.8% 7.1% 22.6% 8.0% 33.8% 1.4% 2.4% -56.2% -51.4% -30.1% 17.8% -35.9% 61.3% 52.7% Tungsten ($ per short ton) 60 90 64 63 86 224 266 257 253 221 178 165 170 184 175 178 Tungsten (%, YOY Chg) 48.6% -28.6% -1.9% 36.3% 161.1% 19.0% -3.4% 0.0% -12.5% -29.4% -34.7% -32.7% -27.3% -20.8% -13.4%

Various 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 1Q10 Apr-10 Steel (Hot Rolled) ($ per ton) 294 231 323 288 592 540 581 530 853 495 398 534 538 491 615 720 Steel (Hot Rolled) (%, YOY Chg) -21.3% 39.7% -10.8% 105.4% -8.8% 7.6% -8.9% 61.9% -23.4% -62.6% -48.5% -18.8% -42.4% 24.2% 86.5% Steel (Cold Rolled) ($ per ton) 405 318 424 384 680 635 672 609 941 577 487 567 648 570 707 830 Steel (Cold Rolled) (%, YOY Chg) -21.5% 33.3% -9.2% 76.9% -6.7% 5.9% -9.4% 55.1% -21.7% -58.0% -49.2% -13.7% -39.4% 22.5% 72.9% Gold (London PM) ($ per troy ounce) 277 271 313 368 410 449 613 704 880 929 931 963 1101 981 1101 1179 Gold (London PM) (%, YOY Chg) -2.2% 15.5% 17.4% 11.6% 9.4% 36.5% 14.9% 9.7% -1.4% 4.0% 9.7% 36.8% 11.4% 18.4% 33.5%

Agricultural 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 4Q09 2009 1Q10 Apr-10 Corn ($ per bushel) 1.87 1.89 2.17 2.27 2.38 1.90 2.49 3.53 4.92 3.59 3.81 3.27 3.69 3.59 3.39 3.50 Corn (%, YOY Chg) 0.7% 15.2% 4.5% 4.7% -20.2% 31.3% 41.7% 27.7% -29.1% -36.6% -35.2% 3.6% -27.0% -5.7% -8.2% Soybean ($ per bushel) 4.81 4.43 5.10 6.35 7.29 5.91 5.72 8.40 11.94 9.18 11.58 10.48 10.10 10.34 9.26 9.68 Soybean (%, YOY Chg) -7.9% 15.2% 24.5% 14.8% -19.0% -3.2% 47.0% 13.0% -27.6% -16.5% -14.1% 11.8% -13.5% 0.8% -7.5% Wheat ($ per bushel) 2.33 2.61 3.26 3.45 3.60 3.24 3.88 6.12 6.03 4.53 4.85 3.22 3.81 4.10 4.09 4.16 Wheat (%, YOY Chg) 12.0% 24.7% 5.9% 4.3% -9.9% 19.8% 57.6% -25.9% -46.5% -19.4% -40.4% -10.1% -32.0% -9.6% -10.2%

Sources: Baseline, Bloomberg

TABLE 4. FOREIGN CURRENCY VALUATION Foreign Exchange 2003 2004 2005 2006 2007 1Q08 2Q08 3Q08 4Q08 2008 1Q09 Apr-09 May-09 Jun-09 2Q09 3Q09 4Q09 2009 Jan-10 Feb-10 Mar-10 1Q10 Apr-10 US $ per Euro $1.235 $1.244 $1.248 $1.256 $1.370 $1.500 $1.562 $1.504 $1.316 $1.469 $1.316 $1.322 $1.365 $1.400 $1.361 $1.431 $1.476 $1.395 $1.427 $1.368 $1.357 $1.382 $1.342

(%, Qtr-Qtr Chg) - - - - - 3.6% 4.1% -3.7% -12.5% - -10.4% - - - 3.4% 5.1% 3.1% - - - - -1.0% - (%, YOY Chg) 10.7% 0.3% 0.7% 9.1% 14.4% 15.8% 9.4% -9.1% 7.2% -12.2% -16.0% -12.2% -10.0% -12.8% -4.9% 12.1% -5.0% 7.1% 7.0% 4.1% 5.0% 1.5%

US $ per UK Pound $1.632 $1.832 $1.819 $1.839 $2.002 $1.979 $1.971 $1.894 $1.568 $1.851 $1.438 $1.466 $1.541 $1.636 $1.542 $1.641 $1.632 $1.568 $1.616 $1.562 $1.506 $1.558 $1.533 (%, Qtr-Qtr Chg) - - - 1.1% - -3.2% -0.4% -3.9% -17.2% - -22.3% - - - 7.2% 6.4% -0.5% - - - - -0.6% - (%, YOY Chg) 12.2% -0.7% 1.1% 8.8% 1.2% -0.8% -6.3% -23.3% -7.5% -27.3% -26.0% -21.6% -16.8% -21.7% -13.4% 4.1% -15.3% 10.5% 8.3% 6.3% 8.3% 4.6%

US $ per Brazilian Real $0.325 $0.342 $0.413 $0.460 $0.516 $0.576 $0.604 $0.600 $0.440 $0.556 $0.433 $0.451 $0.483 $0.511 $0.481 $0.536 $0.575 $0.501 $0.561 $0.543 $0.560 $0.555 $0.569 (%, Qtr-Qtr Chg) - - - - - 2.8% 4.9% -0.7% -26.7% - -22.1% - - - 11.1% 11.4% 7.3% - - - - 10.8% - (%, YOY Chg) -5.0% 5.1% 20.7% 11.6% 12.0% 21.3% 19.7% 14.9% -21.5% 7.8% -24.8% -23.8% -19.8% -17.3% -20.4% -10.7% 30.7% -9.9% 28.8% 26.3% 29.7% 28.2% 26.2%

Yen per US $ 115.94 108.08 109.89 116.27 117.73 105.05 104.57 107.56 95.84 97.12 93.83 98.47 96.64 96.91 97.27 93.49 89.86 93.66 91.13 90.14 90.71 90.65 93.45 (%, Qtr-Qtr Chg) - - 1.7% 5.8% - -7.2% -0.5% 2.9% -10.9% - -3.4% - - - 3.7% -3.9% -3.9% - - - - -3.2% - (%, YOY Chg) -6.8% 1.7% 5.8% 1.3% -11.9% -13.4% -8.6% -15.3% -17.5% -10.7% -4.1% -7.4% -9.4% -7.0% -13.1% -6.2% -3.6% 0.8% -3.0% -7.3% -3.4% -5.1%

Source: United States Federal Reserve


Page 9 of 53

May 2010

COMMODITIES

CHART 2. COPPER ($/lb)

$ -

$1

$2

$3

$4

$5

Ja n -0 6 J an -07 Ja n -0 8 J an -0 9 Ja n -1 0


CHART 3. INDIAN IRON ORE

SPOT PRICES 63% Fe ($/ton)

$ 5 0

$1 0 0

$1 5 0

$2 0 0

J a n -07 A u g -0 7 M ar-0 8 N o v -0 8 Ju n -09 Ja n -1 0


CHART 4. GOLD ($/troy oz.)

$400

$600

$800

$1,000

$1,200

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10


Copper futures closed April at $3.40/lb, below the prior month close of $3.60, though 61.7% above the April 2009 close of $2.10/lb. According to the International Copper Study Group (ICSG), “there is much uncertainty imposed by the rate of economic recovery in many of the major copper consuming regions…the projected copper semi-manufacture growth rate for China (the substitution of refined copper for scrap copper)…and the potential release or further accumulation of inventories in China.” Although many have speculated that China would aggressively curb its copper imports, March import activity in China was very robust at 456.2 thousand tons/month, up 42% sequentially from 322.3 thousand tons and up 22% vs. the prior year. Also interestingly, copper exchange inventories, after increasing from the trough of 258,575 metric tons (MT) in July 2009, appear to have peaked at 554,775 MT in February 2010 and have since moderated to 492,700 MT as of May 7. Iron ore spot rates have continued their upward momentum into May, with Indian iron ore pricing at $185.5/ton, up 197% from the prior year, which coincidentally is the trough of the market; year-to-date, Indian iron ore is up 51%. As we have mentioned in prior write-ups, the primary driver for the upside has been a recovery in global steel production, stemming first from emerging economies (China) and secondarily from a recovery in production among developed nations. Global steel production was 90,365,000 MT for March, up 31% over the prior year and up 11% from February. As a result of growing demand and strong spot pricing, a number of producers have announced recent mine expansions, or greenfields. The largest iron ore miner, VALE, recently agreed to a $2.5 billion stake in a Guinea mine with the expectation to invest about $5 billion, with expansion starting in 2012 and ramping to roughly $50 million tons by 2014. Similarly, Rio Tinto recently announced a $401 million expansion of a Canadian iron ore mine. On a monthly closing basis, gold notched a new high in April, closing the month at $1,179 per troy oz, up 33.5% from the prior year and up 5.7% from March. We believe the surge in gold is being driven by increasing U.S. dollar and Euro concerns, in conjunction with greater inflation expectations. We surmise that these potential headwinds are resulting in a rotation into gold from the aforementioned currencies. According to Dennis Gartman, “What we’re seeing is money quietly moving away from Euros as a reservable asset on the part of larger central banks and to other potential reservable assets such as gold.”


Page 10 of 53

May 2010

CURRENCIES Pound The U.K. pound traded sideways for most of April, closing the month at $1.53 vs. the U.S. dollar, amid uncertainty surrounding the general election in early May and indications pointing to the possibility of a hung parliament for the first time since 1974. With a climbing budget deficit and no clear direction for fiscal policy until the post-election dust settles, the currency remained range bound near the $1.50 mark. While the U.K. has lagged the United States in terms of economic recovery, signs continue to mount that a gradual recovery is starting to gain traction. The U.K. PMI increased to 58.0 in April, which was its highest reading since 1994, with encouraging growth trends in new orders, backlogs and employment. In addition, according to a recent survey from the Confederation for British Industry, future expectations for retail sales reached a five-month high in April. While the pound has been somewhat resilient in recent months, it could continue to see downside pressure in the wake of the election results, as well as collateral impact from the falling Euro and flight to the safety of the U.S. dollar amid European debt concerns, in our view.

CHART 5. U.S. DOLLAR PER POUND

$1.35$1.45$1.55$1.65$1.75$1.85$1.95$2.05$2.15$2.25

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

US

D$/

Po

un

d

Source: U.S. Federal Reserve


Page 11 of 53

May 2010

SECTION 3. END MARKET DISCUSSIONS

COMMERCIAL AEROSPACE

CHART 6. COMMERCIAL AEROSPACE ORDERS (Boeing and Airbus Monthly Orders)

0

5 0 0

1 , 0 0 0

1 , 5 0 0

2 , 0 0 0

2 , 5 0 0

3 , 0 0 0

3 , 5 0 0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Ord

ers

(Co

mm

erci

al A

ircr

aft )

A i r b u s B o e i n g T o t a l

Sources: Boeing and Airbus; Airbus orders not available 1990-1994

As we have written in past editions, sentiment in the aerospace channel appears to be improving, despite limited year-to-date order activity. We concur with KeyBanc Capital Markets Inc.’s Metal & Mining Analyst, Mark Parr, who recently updated his aerospace thesis (below). While the focus is on specialty material manufacturers with aerospace exposure, we believe it can be extrapolated to other aerospace suppliers.

The resumption of the global aerospace up-cycle is re-gaining traction via the recent production uptick of select Boeing and Airbus commercial aircraft platforms. Via recent due diligence, we expect 1Q10 results and 2Q10 outlooks to point to increasing sequential progress in late cycle end market momentum, particularly aerospace, following a multi-quarter lull in activity. We view 2010 as a transition year and expect a stronger recovery to manifest in 2011-2013 as inventory excesses are purged and production of newer airframe technologies accelerate. We are aware that respective shares have begun to appreciate in recognition of a positive inflection in the aerospace cycle following the slowdown that emerged in 4Q08. That said, our positive long-term view as the companies begin the movement into a more earnings driven upside is reinforced via: 1) a leveraged correlation between average annual global air travel growth and GDP growth; 2) Boeing’s and Airbus's deep and geographically diversified backlogs; 3) increased specialty metals consumption in newer platforms; and 4) the fact it is becoming more expensive for the consumer to drive relative to increased affordability of air travel.

Aerospace sentiment has turned, and we believe demand recovery will follow. Boeing recently pulled forward builds for the 777 and 747-8, while Airbus announced a production increase for its 320 single-aisle family of planes. This, in concert with the initial test flight of the B-787 in December, may not manifest in a vast change in specialty metals consumption in the near term; however, we believe these actions mark a change in sentiment given many supply chain participants had awaited incremental production cutbacks or further delays. We now sense jet engine demand is improving following a multi-quarter de-stocking campaign as OEs for single-aisles are taking delivery of material and aftermarket fundamentals appear to be recovering. We expect growth for airframe components and fasteners to lag jet engine demand recovery by a couple quarters due to inventory corrections at aircraft manufacturers following the 2H08-4Q09 lull in activity, with the airframe demand being relatively more stable given LTAs. – Mark Parr, KBCM’s Senior Metals & Mining Analyst

CHART 7. ESTIMATED OEM AEROSPACE BACKLOG

0

5 0 0

1 , 0 0 0

1 , 5 0 0

2 , 0 0 0

2 , 5 0 0

3 , 0 0 0

3 , 5 0 0

4 , 0 0 0

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

YT

D

(C

om

me

rcia

l A

irc

raft

)

A i r b u s B o e i n g

Sources: Boeing, Airbus and KeyBanc Capital Markets Inc. estimates


Page 12 of 53

May 2010

TABLE 5. FUEL COST (Average)

Fuel Cost Oil Price ¢ Per gallon YOY % $ Per barrel YOY % 1999 53.0 19.3 2000 80.6 52.1% 30.3 57.4% 2001 77.3 -2.8% 26.0 -14.3% 2002 71.3 -8.2% 26.1 0.5% 2003 84.8 19.3% 31.1 19.1% 2004 114.7 35.3% 41.4 33.4% Jan. 2005 129.3 34.4% 46.8 36.7% Feb. 2005 133.1 36.1% 48.0 38.1% Mar. 2005 144.8 47.0% 54.3 47.7% Apr. 2005 158.3 57.0% 53.0 44.6% May 2005 154.6 42.8% 49.8 23.7% Jun. 2005 157.3 45.1% 56.3 48.0% July 2005 163.4 47.7% 58.7 44.3% Aug. 2005 173.3 47.5% 65.0 44.6% Sep. 2005 191.4 53.1% 65.6 42.7% Oct. 2005 214.5 54.2% 62.4 17.4% Nov. 2005 191.2 36.1% 58.3 20.3% Dec. 2005 173.8 33.7% 59.4 37.1% Jan. 2006 180.4 39.5% 65.5 39.8% Feb. 2006 183.6 37.9% 61.6 28.5% Mar. 2006 184.0 27.1% 62.9 15.8% Apr. 2006 192.7 21.7% 69.7 31.4% May 2006 206.2 33.4% 71.1 34.1% June 2006 209.0 32.9% 71.5 27.1% July 2006 211.3 29.3% 74.6 27.1% Aug. 2006 214.5 23.8% 74.4 14.6% Sept. 2006 204.7 7.0% 63.9 (2.6%) Oct. 2006 191.8 -10.6% 58.9 (5.6%) Nov. 2006 184.2 -3.6% 59.4 1.9% Dec. 2006 188.7 8.6% 62.0 4.4% Jan. 2007 170.9 -5.3% 54.6 -16.7% Feb. 2007 179.1 -2.5% 59.3 -3.8% Mar. 2007 188.3 2.3% 60.6 -3.7% Apr. 2007 205.2 6.5% 64.0 -8.2% May 2007 208.1 0.9% 63.5 -10.8% June 2007 212.4 1.6% 67.5 -5.6% July 2007 216.9 2.7% 74.2 -0.6% Aug. 2007 211.7 -1.3% 72.4 -2.7% Sep. 2007 228.2 11.5% 79.9 25.1% Oct. 2007 240.3 25.3% 86.2 46.4% Nov. 2007 271.8 47.5% 94.6 59.4% Dec. 2007 216.4 14.7% 91.7 47.9% Jan. 2008 261.6 53.1% 93.0 70.3% Feb. 2008 259.1 44.7% 95.4 60.9% Mar. 2008 290.3 54.2% 105.6 74.3% Apr. 2008 301.8 47.1% 112.6 76.0% May. 2008 323.7 55.6% 125.4 97.6% June. 2008 347.3 63.5% 133.9 98.5% July. 2008 383.6 76.9% 133.44 79.9% Aug. 2008 355.0 67.7% 116.73 61.3% Sept. 2008 342.8 50.2% 103.9 30.0% Oct. 2008 334.1 39.0% 76.65 -11.1% Nov. 2008 255.4 -6.0% 57.62 -39.1% Dec. 2008 206.4 -4.6% 41.02 -55.3% Jan. 2009 175.7 -32.8% 41.74 -55.1% Feb. 2009 184.5 -28.8% 39.16 -58.9% Mar. 2009 165.3 -43.1% 47.98 -54.5% Apr. 2009 174.2 -42.3% 49.79 -55.8% May. 2009 173.1 -46.5% 59.16 -52.8% June. 2009 187.5 -46.0% 69.68 -48.0% July. 2009 190.1 -50.4% 64.09 -52.0% Aug. 2009 201.6 -43.2% 71.06 -39.1% Sept. 2009 200.9 -41.4% 69.46 -33.1% Oct. 2009 199.8 -40.2% 75.82 -1.1% Nov. 2009 212.8 -16.7% 78.08 35.5% Dec. 2009 212.5 3.0% 74.30 81.1% Jan. 2010 220.2 25.3% 78.22 87.4% Feb. 2010 216.4 17.3% 76.42 95.1% Mar. 2010 81.24 69.3% Apr. 2010 84.48 69.7%

Source: Air Transport Association

CHART 8. AVERAGE JET FUEL PRICE (PAID) PER GALLON

120¢

145¢

170¢

195¢

220¢

245¢

270¢

295¢

320¢

345¢

370¢

395¢

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Apr 2009 - Mar 2010Apr 2008 - Mar 2009


CHART 9. AVERAGE PRICES ($/BARREL): CRUDE OIL (SPOT) AND JET FUEL (PAID)

10¢

60¢

110¢

160¢

210¢

260¢

310¢

360¢

410¢

460¢

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jet

Fu

el P

rice

(¢

Per

gal

lon

)

$0

$20

$40

$60

$80

$100

$120

$140

$160

Cru

de

Oil

Pri

ce (

$ P

er B

arre

l)

Jet Fuel Crude Oil


TABLE 6. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE AEROSPACE MARKET EXPOSURE

Company Ticker Commercial Commercial Military Military Name Symbol (OE) (Aftermarket) (OE) (Aftermarket) AMETEK, Inc. AME 6% 6% 5% 5% Barnes Group Inc. B 13% 7% 4% 2% CLARCOR Inc. CLC 1% 1% 1% 1% Crane Co. CR 8% 5% 1% 1% Danaher Corporation DHR 1% 2% 0% 0% Donaldson Company DCI 1% 2% 1% 2% Eaton Corporation ETN 4% 3% 3% 2% ITT Industries ITT 1% 1% 5% 0% Kaydon KDN 3% 2% 6% 3% Kennametal KMT 9% 0% 0% 0% Parker-Hannifin PH 6% 5% 5% 3% RBC Bearings ROLL 17% 15% 10% 11% Roper Industries ROP 1% 0% 0% 0%

Sources: Company reports and KeyBanc Capital Markets Inc. estimates


Page 13 of 53

May 2010

AGRICULTURE

CHART 10. TRACTOR & COMBINE SALES

-4 0 %

-3 0 %

-2 0 %

-1 0 %

0 %

1 0 %

2 0 %

3 0 %

4 0 %

5 0 %1

99

8

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

YO

Y P

erc

en

t C

ha

ng

e

M a r + 7 . 4 %

Source: Association of Equipment Manufacturers (AEM)

At its investor day, CNH Global provided a detailed outlook for the agricultural equipment market by region and product category through 2014. It expected that the global agricultural equipment should be “flat to up 5%” in 2010. According to CNH’s breakdown, the greatest driver of future demand is strength from Latin America, followed by an elevated level of combine volume in the United States, as well as growth in high horsepower tractors in the Rest of World region. Specifically, Latin American industry volumes for tractors and combines are expected to lead the way with a respective growth rate of 10-15% and 20-25%, respectively. U.S. combines are expected to increase 0-5% in 2010 and activity for high horsepower tractors in Rest of World are expected to increase 0-5%. The weakest category/region is combine harvesters in Western Europe, which are expected to decline 25-30% in 2010. On its call, CNH specifically noted “production on the agriculture side is moving up above retail’s in preparation of what we believe the market is going to look like going forward… principally, the [positive] change is based on rest of world demand, Brazil and Latin America and an amount of high horsepower tractors in the United States.” Relative to agricultural equipment sales in the United States for March, volumes expanded 7.4% relative to the prior year; total sales came in at 15,057 units vs. 14,017 units in March 2009. By specific category, compact tractors (<40 hp) increased 16.4% to 7,467 units from 6,417 units in the prior year (year-to-date up 5.7%). Utility tractor (40 hp and <100hp) sales declined 8.6% in March to 3,839 units from 4,198 in 2009 (year-to-date down 11.1%). Row crop tractors (>100 hp) reported a 5.5% increase from the previous year with March unit sales of 2,571 tractors vs. 2,431 in the previous year (year-to-date up 14.8%). Four-wheel drive tractor volumes increased 46.5% in March to 558 from 381 in 2009 (year-to-date up 31.9%). Finally, the largest category by equipment size, combines, expanded 6.5% from the previous year to 622 units from 584 in March 2009 (year-to-date up 3.1%).

TABLE 7. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE AGRICULTURE MARKET EXPOSURE

Company Ticker Percent of Company Ticker Percent of Name Symbol Total Sales Name Symbol Total Sales Altra Holdings Inc. AIMC 21% Harsco Corporation HSC 9% AMETEK, Inc. AME 1% ITT Industries ITT 1% Applied Industrial Technologies AIT 5% Kennametal Inc. KMT 9% Barnes Group Inc. B 13% Lincoln Electric Holdings LECO 10% CLARCOR Inc. CLC 17% Parker-Hannifin PH 13% Crane Co. CR 4% Pentair, Inc. PNR 4% Donaldson Company DCI 13% Roper Industries ROP 3% Eaton Corporation ETN 5% Terex Corporation TEX 1% Franklin Electric FELE 35% Note: Includes Agriculture, Construction and Other Mobile Equipment. Sources: Company reports and KeyBanc Capital Markets Inc. estimates


Page 14 of 53

May 2010

AUTOMOTIVE

TABLE 8. NORTH AMERICAN LIGHT VEHICLE PRODUCTION AND FORECAST

North American Quarterly Production Cars Light Trucks Total Light Vehicle MD & HD Truck Total Vehicle

Quarter YOY YOY YOY YOY YOYEnding Units % Chg Units % Chg Units % Chg Units % Chg Units % ChgMar-06 1,864,181 14% 2,265,093 -3% 4,129,274 4% 157,906 15% 4,287,180 5%Jun-06 1,783,790 5% 2,329,849 -4% 4,113,639 -1% 160,700 4% 4,274,339 0%Sep-06 1,551,918 1% 1,847,404 -16% 3,399,322 -9% 157,900 14% 3,557,222 -8%Dec-06 1,660,950 0% 1,948,424 -14% 3,609,374 -8% 149,046 13% 3,758,420 -7%Mar-07 1,664,788 -11% 2,147,543 -5% 3,812,331 -8% 126,601 -20% 3,938,932 -8%Jun-07 1,693,256 -5% 2,345,750 1% 4,039,006 -2% 102,586 -36% 4,141,592 -3%Sep-07 1,531,066 -1% 1,995,769 8% 3,526,835 4% 87,507 -45% 3,614,342 2%Dec-07 1,586,388 -4% 2,056,484 6% 3,642,872 1% 88,607 -41% 3,731,479 -1%Mar-08 1,577,571 -5% 1,908,369 -11% 3,485,940 -9% 89,118 -30% 3,575,058 -9%Jun-08 1,603,803 -5% 1,849,874 -21% 3,453,903 -14% 96,977 -5% 3,550,880 -14%Sep-08 1,607,890 5% 1,358,115 -32% 2,966,005 -16% 82,958 -5% 3,048,963 -16%Dec-08 1,399,989 -12% 1,273,158 -38% 2,673,147 -27% 74,220 -16% 2,747,367 -26%Mar-09 750,197 -52% 928,821 -51% 1,679,018 -52% 53,601 -40% 1,732,619 -52%Jun-09 885,044 -45% 887,788 -52% 1,772,832 -49% 43,360 -55% 1,816,192 -49%Sep-09 1,095,376 -32% 1,250,189 -8% 2,345,565 -21% 46,898 -43% 2,392,463 -22%Dec-09 1,281,007 -8% 1,479,804 16% 2,760,811 3% 58,880 -21% 2,819,691 3%Mar 10 1,299,808 73% 1,594,971 72% 2,894,779 72% 58,065 8% 2,952,844 70%Jun 10E 1,329,230 50% 1,636,933 84% 2,966,163 67% 53,692 24% 3,019,855 66%Sep 10E 1,250,735 14% 1,583,631 27% 2,834,366 21% 54,082 15% 2,888,448 21%Dec 10E 1,277,888 0% 1,631,490 10% 2,909,378 5% 68,144 16% 2,977,522 6%

Annual Production Cars Light Trucks Total Light Vehicle MD & HD Truck Total Vehicle

Year YOY YOY YOY YOY YOYEnding Units % Chg Units % Chg Units % Chg Units % Chg Units % Chg2001 7,154,687 -13% 8,326,389 -7% 15,481,076 -10% 333,259 -33% 15,814,335 -10%2002 7,347,916 3% 9,020,615 8% 16,368,531 6% 348,055 4% 16,716,586 6%2003 6,624,692 -10% 9,249,150 3% 15,873,842 -3% 341,037 -2% 16,214,879 -3%2004 6,346,968 -4% 9,406,423 2% 15,753,391 -1% 470,861 38% 16,224,252 0%2005 6,523,591 3% 9,228,740 -2% 15,752,331 0% 563,692 20% 16,316,023 1%2006 6,860,839 5% 8,390,770 -9% 15,251,609 -3% 625,552 11% 15,877,161 -3%2007 6,475,498 -6% 8,545,546 2% 15,021,044 -2% 405,301 -35% 15,426,345 -3%2008 6,189,479 -4% 6,389,516 -25% 12,578,995 -16% 343,273 -15% 12,922,268 -16%2009 4,011,624 -35% 4,546,602 -29% 8,558,226 -32% 202,739 -41% 8,760,965 -32%2010E 5,157,661 29% 6,447,024 42% 11,604,686 36% 233,983 15% 11,838,669 35%2011E 5,837,908 13% 6,862,004 6% 12,699,912 9% 358,566 53% 13,058,478 10%

Sources: Ward's AutoInfoBank; KeyBanc Capital Markets Inc. estimates

The U.S. light vehicle SAAR registered 11.2 million units, up 20% year-over-year but a little light of expectations (11.5 million) and below last month’s 11.8 million SAAR. Despite the sequential decline, the April results were largely viewed as a positive given the reduced level of incentives during the month. In March, the industry recorded its highest selling rate in 18 months (excluding the August 2009 “Cash for Clunkers” spike) driven by industry incentives, led by Toyota (i.e., 0% financing, two-year maintenance package and limited cash rebates) as it looked to recover from negative press over quality concerns, and followed to some extent by other manufacturers. Although Toyota actually increased its incentives in April (to an average of $2,500 per vehicle), total industry incentives declined to about $2,650 per vehicle (a decrease of $150 sequentially and $400 year-over-year), which suggests strengthening underlying demand. Most of the large auto manufacturers reiterated their expectation for moderate growth in the industry for the remainder of 2010. Notable U.S. sales results in March included GM (+7% year-over-year), Ford (+25%), Toyota (+24%), Honda (+13%), Chrysler (+25%) and Nissan (+35%). As of the end of the 1Q, we estimate that total North American vehicle production in 2010 will increase 35%, with car production up 29% and light truck production up 42%.

TABLE 9. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE AUTOMOTIVE MARKET EXPOSURE

Company Ticker Percent of Company Ticker Percent of Name Symbol Total Sales Name Symbol Total Sales Actuant Corporation ATU 9% IDEX Corporation IDEX 4% Altra Holdings Inc. AIMC 6% ITT Industries ITT 14% Applied Industrial Technologies AIT 5% Kennametal KMT 14% Barnes Group Inc. B 16% Lincoln Electric Holdings LECO 20% CLARCOR Inc. CLC 4% Nordson Corporation NDSN 4% Danaher Corporation DHR 5% Parker-Hannifin PH 8% Eaton Corporation ETN 17% Roper Industries ROP 6% Graco Inc. GGG 7% WABCO Holdings Inc. WBC 5% Note: Includes Automotive Components, Automotive Manufacturing (Factory Floor) and Automotive Service. Sources: Company reports and KeyBanc Capital Markets Inc. estimates


Page 15 of 53

May 2010

CONSTRUCTION (NON-RESIDENTIAL)

CHART 11. NON-RESIDENTIAL CONSTRUCTION

1 7 5

2 0 0

2 2 5

2 5 0

2 7 5

3 0 0

3 2 5

3 5 0

3 7 5

4 0 0

4 2 5

4 5 0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

- 2 0 %

- 1 5 %

- 1 0 %

- 5 %

0 %

5 %

1 0 %

1 5 %

2 0 %

2 5 %

3 0 %

Y / Y % P r i v N o n r e s C o n s t

$ in

Bill

ion

sY

OY

Percen

t Ch

ang

e

Source: U.S. Department of Commerce

We continue to look for signs that bad will turn to less bad in the non-residential construction marketplace, and while spending rose modestly from February levels (total non-residential up 0.8% month-over-month, down approximately 17% year-over-year), a definitive change in the trend is elusive. Many players in the market suggest that we are reaching a bottom, but near-term challenges [persisting weakness in North American and European light commercial markets, cited by Ingersoll-Rand, Harsco Corporation (HSC-NYSE) and others] dictate that calling the bottom will require seeing the turn. Commercial-related verticals remain the most challenged, even as comparisons ease. Lodging (-60% year-over-year, -5% month-over-month), office (-34% year-over-year, -1% month-over-month) and the catch-all commercial segment (-37% year-over-year, -2% month-over-month) all retreated from February levels, despite easier comparisons – a repeat of February’s disappointment. Bifurcating public vs. private spending, results continue to vary, with the most recent month showing support for public (+2.3%), with a 0.7% decline in private spend. Given the inconsistent results there, it is difficult to ascribe the challenges to a particular market or vertical. That said, deep municipal and state budget crises will likely temper public spending as private markets begin to bounce. If any non-residential market has adopted a soft landing, it is the institutional markets. While health care and educational both continue to feel the pressure (both running down mid-teens year-over-year), Dodge results (healthy starts activity) and spending figures suggest an inflection point (particularly in health care). Compared to February, health care rose 3.4%, while educational declined 1.6%. Standing relatively firm at high levels, Power (-1%, -2% year-over-year), Transportation (+10, +22% year-over-year) and Highway & Street (+2%, -1% year-over-year) continue to outpace overall construction spending levels. Unfortunately, these collectively only make up roughly 30% of spending and are offset by some much larger declines. Among those, manufacturing appears to be finding footing early despite rolling over late, increasing about 5% vs. February (down 28% year-over-year) As seen in the chart below, non-residential construction and lagged ABI appear to be falling into lockstep again. We are encouraged that this could be signaling a bottom in the market, but given that we have been fooled before (and recently, at that), it appears premature to ascribe too much to the trend.

CHART 12. VALUE OF PUBLIC CONSTRUCTION

1 0 0

1 3 0

1 6 0

1 9 0

2 2 0

2 5 0

2 8 0

3 1 0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

- 2 0 %

- 1 0 %

0 %

1 0 %

2 0 %

Y / Y % T o t a l P u b l i c C o n s t

$ in

Bill

ion

sY

OY

Percen

t Ch

ang

e

Source: U.S. Department of Commerce


Page 16 of 53

May 2010

CHART 13. ABI 3-MONTH MOVING AVERAGE LAGGED 8 MONTHS VS. PRIVATE NON-RESIDENTIAL CONSTRUCTION SPENDING

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Feb

-97

Aug

-97

Feb

-98

Aug

-98

Feb

-99

Aug

-99

Feb

-00

Aug

-00

Feb

-01

Aug

-01

Feb

-02

Aug

-02

Feb

-03

Aug

-03

Feb

-04

Aug

-04

Feb

-05

Aug

-05

Feb

-06

Aug

-06

Feb

-07

Aug

-07

Feb

-08

Aug

-08

Feb

-09

Aug

-09

Feb

-10

Aug

-10E

34

36

38

40

42

44

46

48

50

52

54

56

58

60

62

64

66

Private Non - Residential Const.Spend % Chg.ABI Index 3 mth MA

% changes year over year

Last 3 Months: December-09: 45.4, January-10: 42.5, February-10: 44.8

Sources: U.S. Census Bureau, Construction Spending put in place, The American Institute of Architects Architectural Billings Index, KeyBanc Capital Markets Inc. estimates

TABLE 10. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE COMMERCIAL CONSTRUCTION MARKET EXPOSURE

Company Ticker Percent of Company Ticker Percent of Name Symbol Total Sales Name Symbol Total Sales Actuant Corporation ATU 9% ITT Industries ITT 6% AMETEK, Inc. AME 7% Ingersoll-Rand IR 55% A.O. Smith Corporation AOS 24% Lennox International LII 23% Baldor Electric Co. BEZ 2% Lincoln Electric Holdings LECO 10% Crane Co. CR 9% Oshkosh Truck Corporation OSK 35% Danaher Corporation DHR 2% Parker-Hannifin PH 4% Donaldson Co. DCI 8% Pentair, Inc. PNR 16% Eaton Corporation ETN 29% Regal-Beloit Corporation RBC 16% Generac Holdings Inc. GNRC 38% Terex Corporation TEX 56% Graco Inc. GGG 10% Watsco Inc. WSO 17% Harsco Corporation HSC 34% Watts Water Technologies WTS 55% Sources: Company reports and KeyBanc Capital Markets Inc.

Non-res spending is here


Page 17 of 53

May 2010

CONSTRUCTION (RESIDENTIAL)

CHART 14. HOUSING STARTS VS. 30-YEAR MORTGAGE RATE

4 0 0

7 0 0

1 , 0 0 0

1 , 3 0 0

1 , 6 0 0

1 , 9 0 0

2 , 2 0 0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

4 %

5 %

6 %

7 %

8 %

9 %

1 0 %

1 1 %

H o u s i n g s t a r t s

Un

its

SA

AR

, Th

ou

sa

nd

s

3 0 y e a r m o r tg a g e r a t e

30-Yr. M

ortg

age - P

ercent

Sources: U.S. Department of Commerce and Fannie Mae

CHART 15. EXISTING HOME SALES

2

3

4

5

6

7

8

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

- 2 5 %

- 1 5 %

- 5 %

5 %

1 5 %

2 5 %

YO

Y P

erce

nt

Ch

ang

e

Y O Y % E x i s t i n g O n e F a m i l y H o m e S a l e s

SA

AR

, mill

ion

s

Sources: The National Association of Realtors and Fannie Mae

While housing was a leader in the last economic cycle and played a role in the downturn, it does not appear that it will take up the same mantle for this cycle. That said, data in the most recent month points to a steady improvement in the various housing data, even as stimulus exits the system. We view the interest rate dynamic as an additional form of stimulus given the savings over the course of a 30-year mortgage vs. historical averages (around 100 bps lower vs. last cycle, which already had historically low rates). All in all, the fact that new construction continues to improve as the window for housing tax credits closes and mortgage rates are holding steady (despite the end of Fed mortgage purchases) gives us confidence that the direction of the recovery is sustainable, even if the pace is less reliable. In the interest of being balanced, we do not expect a smooth recovery and acknowledge that a bet on the consumer and a bet on housing are different. Home prices remain near trough levels and well off their possible purchase prices/home equity loan valuations of two to three years ago, limiting the real (from a home equity loan) or perceived (from the general “feeling” of having accumulated value) consumer wealth. As such, we would expect consumers to buy name-brand peanut butter and replace a broken air conditioner before looking at high end cabinetry in a new home. During March, permit and start activity rose nicely from February levels, with permits up approximately 7.5% sequentially and starts up roughly 2% vs. the prior month. While the tax credit does not require occupancy until June 30 and near-term activity could still come from spec homes underway as of the April 30 cutoff for contract signing, we believe builders have been very selective with respect to speculative building. Existing home sales gained a little momentum in March, inching up 7% from a challenged February and 13% vs. last year. As we reach easy comparisons, the improvement year-over-year should be taken with a grain of salt given the unsustainable levels at the trough.


Page 18 of 53

May 2010

TABLE 11. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE RESIDENTIAL CONSTRUCTION MARKET EXPOSURE

Company Ticker Percent of Company Ticker Percent of Name Symbol Total Sales Name Symbol Total Sales A.O. Smith Corporation AOS 53% Ingersoll-Rand IR 15% Actuant Corporation ATU 14% Lennox International LII 63% Eaton Corporation ETN 6% Parker-Hannifin PH 3% Franklin Electric FELE 25% Pentair, Inc. PNR 12% Generac Holdings Inc. GNRC 60% Regal-Beloit Corporation RBC 33% Graco Inc. GGG 37% Terex Corporation TEX 8% Harsco Corporation HSC 3% Watsco Inc. WSO 83% ITT Industries ITT 6% Watts Water Technologies WTS 45%



Page 19 of 53

May 2010

CONSTRUCTION EQUIPMENT

CHART 16. CATERPILLAR NORTH AMERICAN DEALER SALES

-7 0

-5 0

-3 0

-1 0

1 0

3 0

5 0

7 0

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

YO

Y P

erc

en

t C

ha

ng

e

M a r -2 1 %

Source: CAT Website

After a tumultuous three to four years, order appears to have been restored to the construction equipment markets. While this provided no EPS benefit to manufacturers in 1Q10, early cycle leading indicators appear to be turning the corner, suggesting a pick-up in demand over the next few quarters. These factors include used equipment prices (highlighted in last month’s write-up), stabilizing time utilization rates at the rental firms and improved sentiment. Given the typical trajectory of a recovery, we would expect compact equipment to accelerate first, followed by a heavy equipment recovery (including aerials and telehandlers) 12-18 months later. This is best evidenced by two recent earning reports from CNH Global (CNH) and United Rentals (URI). Given the magnitude of URI’s equipment fleet and its buying power, we believe more optimistic commentary from management could translate into near-term purchases. URI specifically stated, “We're starting to see some positive indicators; the turn in the industry, as far as our cycle is concerned, was always not a question of if, it was more a question of when… we expect to see an increasing number of local markets begin to recover as we move through the balance of the year. It's not going to be an upward trajectory; it's going to remain choppy. A broader recovery will begin in the back half of 2010 and take hold in 2011.” URI also noted it plans to grow its fleet in areas that support its customer growth. Specifically, “We're buying high-capacity reach forklifts, we're buying light towers, compressors, excavators and a host of gen rent and earthmoving products that help us focus on the earlier stage activity that we're starting to see. We're skewing our buy away from aerial products except for very specific categories that continue to see good demand.” Reinforcing URI’s comments, CNH noted that light construction equipment in North America was down 4% in 1Q10, whereas heavy equipment was off by 16% from the prior year. With demand expected to slowly improve in 2H10, CNH estimates full-year 2010 light equipment will be up 0-5%, while heavy equipment could be lower by 0-5%.


Page 20 of 53

May 2010

GENERAL INDUSTRIAL

CHART 17. INSTITUTE OF SUPPLY MANAGEMENT (ISM) PURCHASING MANAGERS’ INDEX (PMI)

2 0

3 0

4 0

5 0

6 0

7 0

8 0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Mo

nth

ly In

dex

P M I In d e x N e w O r d e r s Source: Institute of Supply Management

The ISM's PMI for April was 60.4%, 80 basis points above the March reading of 59.6% and 40 basis points above the consensus estimate of 60.0%, indicating continuing growth in the manufacturing sector. The improvement in the index continued from the previous month as the pace of growth rebounded to its fastest rate since June 2004. It was the ninth consecutive month of manufacturing expansion as new orders, production and the employment index all rose during the month, which continues to represent an encouraging trend for the sustainability of the current recovery. The threshold for manufacturing growth is a reading of 50.0%. We note that 17 of the 18 industry segments reported growth in April, consistent with the March reading. The April results correspond to a 5.6% increase in annualized GDP for the broader U.S. economy, which has now been above the threshold that is correlated to growth (which for the ISM is a reading of 42%) for 12 consecutive months. The New Orders Index of 65.7% in April increased 420 basis points sequentially and has now been above 60% for five of the last six months. New orders have remained above the growth threshold (which is 50.2%) for 10 consecutive months. The customers’ inventory index fell to 33.0%, 600 basis points lower than February, and has now been below 50% for 12 months, which suggests that the respondents feel their customers’ inventories are “too low.” Production increased 580 basis points to 66.9% in April from 61.1% last month and has exceeded the 51% threshold that is consistent with expanding Industrial Production for 11 months in a row. Order backlog declined by 50 basis points sequentially to 57.5% in April from 58.0% last month, which represents the fourth month of contraction. The Price Index increased 300 basis points to 78.0% in April from 75.0% last month, remaining above the threshold that is consistent with pricing increases (49.3%) over the long term for the 10th consecutive month.

CHART 18. CAPACITY UTILIZATION

6 8 %

7 1 %

7 4 %

7 7 %

8 0 %

8 3 %

8 6 %

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Mo

nth

ly U

tiliz

atio

n L

evel

Source: Federal Reserve


Page 21 of 53

May 2010

Seasonally adjusted capacity utilization, which measures the percentage of plants in use, increased 20 basis points to 73.2% in March. It was the ninth consecutive monthly increase and was slightly below the consensus expectation of 73.3%. Capacity utilization remains well below its long-term (1972-2009) average of 80.6%, though it was 370 basis points higher year-over-year in March. Manufacturing utilization, which comprises about 80% of the index, increased 60 basis points to 70.0%, including a 90 basis point sequential increase in durable manufacturing utilization and a 50 basis point increase in non-durable good manufacturing to 64.1% and 77.3%, respectively. Mining utilization rates increased 100 basis points to 90.2% of capacity in March, while capacity utilization in the Utilities segment decreased to 78.6% sequentially from 84.1% sequentially.

CHART 19. INDUSTRIAL PRODUCTION INDEX (1997=100, SA, Year-Over-Year Percent Change)

- 1 8 %

- 1 5 %

- 1 2 %

- 9 %

- 6 %

- 3 %

0 %

3 %

6 %

9 %

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

YO

Y P

erce

nt

Ch

ang

e


Industrial production increased in March for the ninth consecutive month, though it fell short of expectations following an upward revision for February. The Federal Reserve reported a 0.1% sequential increase in IP for February, which was below the consensus forecast of 0.7%, while February results were revised to 0.3% growth vs. the original report of 0.1%. With respect to the three major industry groups, Manufacturing, which comprises 79% of the index, increased 0.9%, while Mining grew 2.3% in the month and warmer spring weather resulted in lower heating demand and resulted in a 6.4% drop in production from Utilities for the month. Both durable and non-durable manufacturing posted sequential gains (0.9% and 0.5%, respectively), though adverse weather likely depressed manufacturing in February. Production gains were broad-based across most industry groups, with the largest increases related to petroleum and coal products (+3.0%), motor vehicles and parts (+2.2%) and furniture and related products (+2.2%). Total industrial production was up 4.0% year-over-year in March.

TABLE 12. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE GENERAL INDUSTRIAL MARKET EXPOSURE

Company Ticker Percent of Company Ticker Percent of Name Symbol Total Sales Name Symbol Total Sales Actuant Corporation ATU 25% Gardner Denver Inc. GDI 23% Altra Holdings Inc. AIMC 35% Graco Inc. GGG 37% AMETEK, Inc. AME 16% Harsco Corporation HSC 15% Applied Industrial Technologies AIT 25% ITT Industries ITT 9% A.O. Smith Corporation AOS 23% Ingersoll-Rand IR 14% Baldor Electric Co. BEZ 91% Kaydon Corporation KDN 70% Barnes Group Inc. B 28% Kennametal Inc. KMT 35% Colfax Corporation CFX 44% Lincoln Electric Holdings LECO 25% CLARCOR Inc. CLC 33% Nordson Corporation NDSN 10% Crane Co. CR 16% Parker-Hannifin PH 18% Danaher Corporation DHR 26% Pentair, Inc. PNR 21% Donaldson Co. DCI 30% Regal-Beloit Corporation RBC 30% Eaton Corporation ETN 6% Robbins & Myers RBN 7% Federal Signal FSS 20% Roper Industries ROP 11% Franklin Electric FELE 25%



Page 22 of 53

May 2010

OIL & GAS

CHART 20. NORTH AMERICAN AND INTERNATIONAL RIG COUNTS

5 0 0

7 0 0

9 0 0

1 1 0 0

1 3 0 0

1 5 0 0

1 7 0 0

1 9 0 0

2 1 0 0

2 3 0 0

2 5 0 0

2 7 0 0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Act

ive

Rig

s

N o rt h A m e ric a In te rn a t io n a l

Source: Baker Hughes

Global rig count continued its path upward in March, stopping at 2,879 (up 25% year-over-year, down modestly sequentially on Canada seasonality). In the United States, which does not face the same seasonal patterns, count was up 5% sequentially. As we parse through the data, we are increasingly focused on two dynamics, which, amid the recovery, have delineated the drivers of production increases. First, while vertical rig count is up nicely off the trough (approximately 50%), the gap vs. peak levels is still very wide (roughly 50% of peak). That said, horizontal drilling is up 100% vs. the trough and currently stands at all-time highs. Similarly, the mix of oil vs. gas drilling has trended upward since mid-2009 and is now at levels not seen since the late 1990s (had trended about 20%, currently around 35% of the mix). Looking at the data above and coupled with comments from the recent Helmrich and Payne (HP-NYSE), we come to several conclusions. It appears that much of the gas production in the market is being made above spot rates and most operators are hedged through at least 1H10. As hedged operators move closer to spot rates on gas, rig count will likely retrench, particularly in conventional drilling, starting in the 2H. Second, shale plays appear to be changing the rig landscape as we turn from a cycle where “any asset will do” to requiring specialized rigs to tackle the formations. In this regard, new build activity appears to have perked up modestly, but is still soft. For those exposed to shales and more oil vs. gas, trends should remain positive. On the commodity price front, natural gas remains under pressure during this “shoulder” season in demand (between summer and winter), and currently stands around $4/MMBtu. While the demand side (absent weather) appears to be firming as industrial metrics improve, we do not anticipate a meaningful increase in supply given the recent BP oil spill in the Gulf, which will surely have regulatory consequences.

TABLE 13. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE OIL & GAS MARKET EXPOSURE

Company Ticker Percent of Company Ticker Percent of Name Symbol Total Sales Name Symbol Total Sales Actuant Corporation ATU 8% Harsco Corporation HSC 3% Altra Holdings Inc. AIMC 8% IDEX Corporation IEX 8% AMETEK, Inc. AME 20% Kaydon Corporation KDN 4% Circor International, Inc. CIR 65% Kennametal Inc. KMT 14% CLARCOR Inc. CLC 3% Lincoln Electric Holdings LECO 22% Crane Co. CR 10% Parker-Hannifin PH 7% Danaher Corporation* DHR 11% RBC Bearings ROLL 3% Franklin Electric FELE 15% Robbins & Myers RBN 31% Gardner Denver Inc. GDI 23% Roper Industries ROP 24%

*Retail Petroleum. Sources: Company reports and KeyBanc Capital Markets Inc. estimates


Page 23 of 53

May 2010

SEMICONDUCTOR

CHART 21. SEMICONDUCTOR BOOKINGS VS. BILLINGS

$ 0

$ 5 0 0

$ 1 , 0 0 0

$ 1 , 5 0 0

$ 2 , 0 0 0

$ 2 , 5 0 0

$ 3 , 0 0 0

$ 3 , 5 0 0

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

$ in

Mill

ion

s

B o o k i n g s B i l l i n g s

J a n 2 0 1 0 B o o k - t o - B i l l = 1 . 2 3F e b 2 0 1 0 B o o k - t o - B i l l = 1 . 2 3M a r 2 0 1 0 B o o k - t o - B i l l = 1 . 1 9

Source: Semiconductor Equipment and Materials International (SEMI)

The North American-based semiconductor equipment book-to bill-ratio (rolling three-month average) receded in March, but is still near late 2007 levels, which indicates steady industry growth is likely going forward. According to industry trade group Semiconductor Equipment and Materials International (SEMI), the preliminary March ratio is 1.19, down from the final February result of 1.23 (which was revised upward from the preliminary report of 1.22 last month and equivalent the final January ratio). The ratio has remained above 1.0 (indicating that more orders were received than product billed) for nine consecutive months. The three-month average bookings in March increased 3% on a sequential basis (423% higher year-over-year), while billings increased 6% sequentially (147% higher year-over-year). According to SEMI’s annual forecast, worldwide sales of new semiconductor manufacturing equipment are expected to grow 53% in 2010 to $24.5 billion, following successive declines of 31% and 46% in 2008 and 2009, respectively. Also, the SIA reported that global semiconductor sales (rolling three-month average) increased 58% year-over-year (+5% sequentially) in March to $23 billion. For 1Q10, global sales also increased 58% to $69 billion compared to $44 billion in 1Q09, which represented the trough on the current cycle. SIA President George Scalise recently noted that “healthy demand from major end markets, coupled with restocking to normal inventory levels, contributed to 1Q growth.” While the growth rate is expected to moderate vs. increasingly difficult comps through the course of the year, the SIA remains “cautiously optimistic that global sales will show double-digit growth in 2010.”

CHART 22. WORLDWIDE SEMICONDUCTOR SALES

- 6 0 %

- 4 0 %

- 2 0 %

0 %

2 0 %

4 0 %

6 0 %

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

YO

Y P

erce

nt

Ch

ang

e

Source: Semiconductor Industry Association (SIA)

TABLE 14. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE SEMICONDUCTOR MARKET EXPOSURE

Company Name Ticker Percent Total Sales Company Name Ticker Percent Total Sales AMETEK, Inc. AME 2% ITT Industries ITT 4% Barnes Group Inc. B 1% Nordson Corporation NDSN 18% Danaher Corporation DHR 6% Parker-Hannifin PH 8% Donaldson Co. DCI 6% Roper Industries ROP 6%



Page 24 of 53

May 2010

MEDIUM/HEAVY-DUTY TRUCK

CHART 23. CLASS 8 TRUCK BUILDS & BACKLOG (Three-Month Rolling Average)

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 01

99

0

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

8 B u i ld 8 B a c k lo g

N A F TA C la s s 8 B u ild2 0 0 3 - 1 7 6 ,6 6 82 0 0 4 - 2 6 2 ,6 1 72 0 0 5 - 3 4 1 ,2 8 72 0 0 6 - 3 7 7 ,7 4 42 0 0 7 - 2 1 2 ,8 4 42 0 0 8 - 2 0 5 ,2 5 5

Un

its

(Bu

ilds,

th

ou

san

ds)

Un

its

(Bac

klo

g, t

ho

usa

nd

s)

Sources: America’s Commercial Transportation Research Co. (A.C.T.) and KeyBanc Capital Markets Inc. estimates

It appears there are plenty of reasons to be optimistic on the heavy truck cycle. While March/April orders usually see a spike around the new model year availability (more detail below), we believe the pace of the recovery is consistent with abating overcapacity and an improving pricing environment (as well as a general improvement in freight volume). Moreover, the problematic credit environment for truckers appears to be improving as well, with key players such as GE Capital getting back in the game. In the interest of gauging stock reactions, it is difficult to gauge if it was priced in terms of recovery pace, but expectations for a 2H10 acceleration in truck demand appear grounded. Around temporary noise in order intake about the change in model years is common in the April/May time frame, one source of surprise from our perspective is the number pre-mandate engines available in the marketplace, which appear to be pushing out as far as the 2Q. Moreover, given carriers’ ability to purchase 2010 model year equipment with 2009 engines, we believe the EPA 2010 disruption continues to obscure the month-to-month results. As stated above, however, fundamentals are moving in the right direction, even if near-term results are somewhat volatile. While the industry tends to move quickly, we believe the base case should focus on a return to replacement levels in 2011, with a release of the pent-up demand a 2012 story. We view replacement at something near 200,000 units, plus 15,000-20,000 per point of GDP growth. As it pertains to the most recent month’s activity, March net orders came in at 12,600 units, a solid move upward from February’s 8,300 and better than historical trends following EPA mandates. That said, we believe March included a large order and, consistent with past years, included a small bump (likely to persist in April) related to the model year changeover. Based on the current month’s order intake, we believe the OEM build plan (calling for about 32,500 builds in the 2Q), with a 22% air ball as of March on the 2Q production vs. orders, could see some minor risk (1,000-2,000 units). Looking at the freight market, recent readings of the ATA Tonnage Index grew by 0.4% vs. the prior month (+8% year-over-year) and is now at a 16-month high. Commentary from the ATA’s economist points to modest channel fill, but generally attributes the freight recovery to an overall macro improvement. The ATA also believes supply/demand balance for equipment is improving, which is consistent with broader market feedback.


Page 25 of 53

May 2010

CHART 24. CLASS 8 NET ORDERS

-15,000

-5,000

5,000

15,000

25,000

35,000

45,000

55,000

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Un

its

(O

rde

rs)

-400%

-300%

-200%

-100%

0%

100%

200%

300%

YO

Y P

erc

en

t C

ha

ng

e

8 Net Orders YOY

Sources: America’s Commercial Transportation Research Co. (A.C.T.) and KeyBanc Capital Markets Inc. estimates

CHART 25. CLASS 5-7 TRUCK BUILDS & BACKLOG

(Three-Month Rolling Average)

0

5

10

15

20

25

30

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Un

its

(Bu

ild

s, t

ho

usa

nd

s)

0

20

40

60

80

100

120

Un

its

(Bac

klo

g,

tho

usa

nd

s)

5-7 Build 5-7 Backlog

NAFTA Class 5-7 Build

2003 - 194,0272004 - 240,4622005 - 251,1682006 - 263.4032007 - 207 511

Source: America’s Commercial Transportation Research Co. (A.C.T.)

CHART 26. TRUCK TONNAGE INDEX

(Rolling 12-Month Year-Over-Year % Change)

-1 5 %

-1 0 %

-5 %

0 %

5 %

1 0 %

1 5 %

2 0 %

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Ad

just

ed T

ruck

To

nn

age

YO

Y P

erce

nt

Ch

ang

e

3 0

3 5

4 0

4 5

5 0

5 5

6 0

6 5

7 0

7 5

ISM

's P

urc

has

ing

Man

ager

's In

dex

IS M P M I A d j. T ruc k T o nna g e

Source: American Trucking Association (ATA)

TABLE 15. KEYBANC CAPITAL MARKETS INDUSTRIAL UNIVERSE MEDIUM/HEAVY-DUTY TRUCK MARKET EXPOSURE

Company Ticker Percent of Company Ticker Percent of Name Symbol Total Sales Name Symbol Total Sales Actuant Corporation ATU 10% Federal Signal FSS 20% AMETEK, Inc. AME 3% Gardner Denver Inc. GDI 14% Barnes Group Inc. B 2% Ingersoll-Rand IR 12% CLARCOR Inc. CLC 25% Kennametal Inc. KMT 4% Crane Co. CR 4% Lincoln Electric Holdings LECO 10% Danaher Corporation DHR 1% RBC Bearings ROLL 12% Donaldson Co. DCI 25% Parker-Hannifin PH 8% Eaton Corporation ETN 22% WABCO Holdings Inc. WBC 96%



Page 26 of 53

May 2010

CHART 27. UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT

50

60

70

80

90

100

110

120

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Mo

nth

ly In

de

x

Source: University of Michigan

CHART 28. FEDERAL FUNDS TARGET RATE

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09


CHART 29. U.S. UNEMPLOYMENT RATE

3

4

5

6

7

8

9

10

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

Percent

-1700

-1500

-1300

-1100

-900

-700

-500

-300

-100

100

300

500

700

Number of jobs created, 000s

Change in Payrolls Unemployment Rate

Source: Bureau of Labor Statistics

Despite a solid start to earnings season, consumer confidence drifted lower in April. The confidence index declined to 72.2 (from 73.6) and generally remains range-bound in the low to mid 70s. The outlook index, which many view as an indicator of future spending conditions, also edged down and appears similarly stuck in the upper 60s over the past six months (currently 66.5 vs. 67.9 in March) The present situation Index declined to 81.0 (from 82.4), but has generally trended upward as the recovery has materialized. Inflationary expectations increased modestly as consumers are anticipating a 2.9% rate of inflation over the next year, up 0.2% from the March reading. With unemployment remaining at elevated levels and inflationary pressures as measured by the Personal Consumption Expenditure (PCE) index relatively muted, it appears the pressure to raise the federal funds has not fully set in. According to an article produced by Bloomberg, “The Fed has said the stable inflation expectations, high unemployment and subdued inflation trends warrant continued low rates. Even after two quarters of growth, economists in a Bloomberg survey predict the jobless rate will remain elevated, with the median forecast at 9.6% for 2010 and 9% for 2011. They estimate inflation will be 1.3% this year and 1.45% in 2011.” For now, rates are likely to remain exceptionally low. We believe a greater resurgence in the consumer is needed to be evident in order to provide the Fed with enough confidence that the market has recovered and is now ready to absorb tighter monetary policy. A combination of a general improvement in employment trends and contribution of Census workers drove a solid positive employment reading in April. Of the 290,000 additions to non-farm payrolls, Federal employees made up 66,000 of the increase. Temporary and administrative service workers made up a substantial portion of the increase as well (approximately 60,000), which we believe serves as a leading indicator of an improvement in permanent hiring trends. Manufacturing jobs rose more modestly than the service side, but added a healthy 65,000 all the same. Overall, the unemployment rate inched up to 9.9% (from 9.7%).


Page 27 of 53

May 2010

CHART 30. CONSUMER PRICE INDEX (CPI)

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

YO

Y P

erce

nt

Ch

ang

e

Core CPI (ex. food and energy)

CPI - Overall

Source: Bureau of Labor Statistics

CHART 31. INVENTORY-TO-SALES RATIO

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

YO

Y%

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Inv

en

tory

/Sa

les

Ra

tio

YOY% Change Inventory/Sales

Source: U.S. Census Bureau

CHART 32. DURABLE GOODS ORDERS

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

YO

Y%

Durable Goods Non-Defense Capital Goods

Source: U.S. Census Bureau

Consumer prices were up nominally in March, with core levels essentially flat vs. the prior month (+1.2% year-over-year). Concerns over rising input costs for industrial companies have yet to filter down to the consumer level for the time being. Among the major verticals, food, vehicles and medical commodities were up modestly, while offsetting weakness in energy commodities (namely gasoline, -0.8% sequentially) and apparel (-0.1%) negated the overall impact. Given a sustained period of low interest rates and what appears to be an improving landscape for consumer lending, core inflation is trending lower than we would like. According to the U.S. Census Bureau’s latest data, business inventories were up 0.5% sequentially in February (-6.7% year-over-year), while sales increased 0.3% sequentially (+6.8% year-over-year). As a result, the closely-watched ratio of inventories-to-sales remained at 1.27 in February, unchanged vs. the revised January reading. For February, the inventory/sales ratio was 1.29 for manufacturers, 1.36 for retailers and 1.16 for wholesalers, all of which were unchanged from January (the January results for manufacturers and retailers were revised slightly in the current release). Total business sales increased sequentially for the eighth time in the last nine months, posting a 0.3% increase from January as increases in retailer (+0.2%) and wholesaler (+0.8%) sales offset a slight sequential decline in manufacturer sales (-0.1%). Meanwhile, inventories increased slightly across the board in retail (+0.1%), wholesale (+0.1%) and manufacturing (+0.3%) channels on a sequential basis in February. Durable goods orders decreased in March for the first time in four months. The Commerce Department reported a 1.3% sequential decline in March orders compared to the consensus expectation of 0.1% growth. Excluding the volatile transportation series, new orders increased 2.8%. Transportation equipment orders declined 12.9% due to a significant drop in non-defense aircraft and parts (-67.1%) following significant growth the prior two months. Defense aircraft and parts (+2.0%) and motor vehicles and parts (+2.5%) both posted sequential gains in March. The remaining segments exhibited broad based order growth in March, including positive trends in machinery (+8.0%), primary metals (+3.5%), and computers and related products (+12.9%). Outside of transportation, the only segment that reported an order decline was fabricated metal products (-1.2%). Orders for non-defense capital goods excluding aircraft (+4.0%), often viewed as an indicator of business spending, increased for the second month in a row and have now increased in four of the last five months. Meanwhile, shipments of manufactured durable goods increased 1.2% ($2.2 billion) after two straight declines, while inventories increased for the third consecutive month in March (0.2% or $0.5 billion), following a positive revision to 0.5% growth in February.


Page 28 of 53

May 2010

SECTION 4. MONTHLY ORDERS

TABLE 16. EMERSON MONTHLY ORDERS (Trailing Three-Month Average Year-Over-Year Percent Change)

Industrial Automation Climate Technologies Network Power Appliance & Tools Process Management Total % of 2008 Sales 19% 15% 25% 15% 26% 100% Jan-06 +5-10 +10-15 20+ +5 +10 +10-15 Feb-06 +5-10 +10-15 20+ +0-5 +15-20 +10-15 Mar-06 +10 +5 20+ +5 +15-20 +10-15 Apr-06 +5-10 +5-10 20+ +0-5 +10 +10-15 May-06 +10-15 +10-15 20+ +5-10 +15 +10-15 Jun-06 +10-15 20+ 20+ +5-10 +15-20 +15-20 Jul-06 +15 20+ +15-20 +5-10 20+ +15-20 Aug-06 +10-15 +10 +10-15 +5-10 +20 +10-15 Sep-06 +10-15 -5-10 +5-10 +0-5 +15-20 +5-10 Oct-06 +10-15 -10-15 +5-10 +0-5 +10-15 +5 Nov-06 +15 -10-15 +10-15 +0-5 +10 +5-10 Dec-06 +15 -5-10 +10-15 +0-5 +15-20 +5-10 Jan-07 +10-15 -5-0 +5-10 +0-5 +15 +5-10 Feb-07 +15 +0-5 0 +0-5 +15 +5-10 Mar-07 +10-15 +5-10 +5 +0-5 +10-15 +5-10 Apr-07 +10-15 +10-15 +5-10 +0-5 +10-15 +10 May-07 +10 +10-15 +10-15 0 +15-20 +10 Jun-07 +10 +5 +10-15 -5-0 +10 +5-10 Jul-07 +10 -5-0 +20 -5-0 +15 +5-10 Aug-07 +10-15 -5-0 +15-20 0 +10-15 +5-10 Sep-07 +10 +0-5 +20 -5-0 20+ +10-15 Oct-07 +10-15 +5-10 +20 -5-0 +15-20 +10-15 Nov-07 +10-15 +10-15 +15-20 -5-0 +20 +10-15 Dec-07 +15-20 +15 +10-15 -5-0 +15 +10-15 Jan-08 +10-15 +5-10 +15-20 -5 +10-15 +10 Feb-08 +10-15 +0-5 +15-20 -5-10 +15 +10 Mar-08 +15-20 +0-5 +15-20 -5-0 20+ +10-15 Apr-08 20+ +0-5 +15-20 -5-0 +15-20 +10-15 May-08 +15-20 +0-5 +10-15 -5-0 +10-15 +10 Jun-08 20+ +5-10 +5-10 -5-0 +15 +10-15 Jul-08 +15-20 +10-15 +0-5 -5-0 +15-20 +10 Aug-08 +10-15 +10-15 +0-5 -5-0 +10-15 +5-10 Sep-08 +5-10 +5-10 +0-5 -5 +0-5 +0-5 Oct-08 -5-0 -5 -5 -15-10 -5 -10-5 Nov-08 -15 -10-5 -15-10 -20-15 -15-10 -15-10 Dec-08 -25-20 -20-15 -15 -25 -10-5 -20-15 Jan-09 -30-25 -25-20 -25-20 -30-25 -15-10 -25-20 Feb-09 >-30 -30-25 -20-15 -25 -20-15 -25-20 Mar-09 >-30 -30 -25-20 -30-25 -30-25 -30-25 Apr-09 >-30 -30-25 -25-20 -30-25 -25 -30-25 May-09 >-30 -25-20 -20 -25-20 -20-15 -25 Jun-09 >-30 -20 -25-20 -30-25 -25-20 -30-25 Jul-09 >-30 -15-10 -20-15 -25 -25-20 -25 Aug-09 >-30 -15-10 -20-15 -25 -25-20 -25-20 Sep-09 >-30 -5-0 -15 -25-20 -15-10 -20-15 Oct-09 -30-25 +5 -15-10 -20 -10-5 -15-10 Nov-09 -20 +5-10 -5-0 -10 -5-0 -10-5 Dec-09 -15-10 +15-20 +0-5 -5-0 -15-10 -5-0 Jan-10 -5-0 20+ +10-15 +0-5 -10-5 +0-5 Feb-10 +5 20+ +5-10 +0-5 -10-5 +5-10 Mar-10 +10-15 20+ +10 +0-5 +10 +10-15

Source: Company reports

CHART 33. W. W. GRAINGER MONTHLY ORDERS

-2 0 %

-1 5 %

-1 0 %

-5 %

0 %

5 %

1 0 %

1 5 %

2 0 %

2 5 %

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Pe

rce

nt

Ch

an

ge

YO

Y

M a r+ 1 0 %



Page 29 of 53

May 2010

TABLE 17. CATERPILLAR MONTHLY TURBINE SALES

Reciprocating & Turbine Engines (Total)

Truck & Bus

Electric Power

Industrial

Marine

Petroleum

Jan-07 +14% +22% +17% +26% +23% -1% Feb-07 -2% -26% +13% +12% +18% -7% Mar-07 -7% -66% +17% +1% +28% +26% Apr-07 -8% -70% +14% -5% +17% +36% May-07 -5% -65% +15% +4% +19% +31% Jun-07 -6% -64% +15% +1% +16% +29% Jul-07 -6% -67% +19% +10% +15% +26% Aug-07 -3% -69% +29% +19% +16% +27% Sep-07 -1% -69% +34% +14% +15% +33% Oct-07 -5% -73% +32% +10% +13% +31% Nov-07 -6% -76% +23% +5% +24% +28% Dec-07 -8% -77% +21% +6% +17% +19% Jan-08 +1% -69% +18% +8% +30% +31% Feb-08 +10% -52% +20% +13% +13% +39% Mar-08 +16% +14% +11% +12% +1% +31% Apr-08 +23% +46% +33% +20% -5% +19% May-08 +22% +31% +32% +10% 0% +24% Jun-08 +28% +28% +34% +19% +1% +35% Jul-08 +18% +15% +21% +14% +1% +24% Aug-08 +8% +4% +9% +8% -9% +13% Sep-08 +3% -3% +15% +2% +11% -7% Oct-08 +6% +1% +15% -1% +18% flat Nov-08 +8% -8% +19% -2% +28% -1% Dec-08 +6% -30% +3% -7% +35% +13% Jan-09 +1% -55% +1% -19% +13% +16% Feb-09 -1% -56% +1% -25% +19% +13% Mar-09 -2% -62% +15% -30% +12% +13% Apr-09 -9% -69% -12% -32% +48% +7% May-09 -21% -75% -25% -37% +20% -5% Jun-09 -32% -75% -33% -43% +15% -25% Jul-09 -33% -72% -29% -46% +1% -28% Aug-09 -27% -69% -21% -47% +13% -25% Sep-09 -27% -68% -26% -49% -8% -13% Oct-09 -30% -63% -27% -49% -25% -19% Nov-09 -36% -48% -35% -47% -35% -29% Dec-09 -36% -16% -27% -44% -29% -46% Jan-10 -33% NM -27% -22% -18% -46% Feb-10 -33% NM -26% -15% -23% -47% Mar-10 -30% NM -28% -1% -22% -44%


TABLE 18. CATERPILLAR MONTHLY RETAIL MACHINE SALES

(Three-Month Rolling Average)

Asia/Pacific EAME L. America Total Int'l N. America Worldwide Jan-07 +21% +27% +0% +20% -9% +4% Feb-07 +10% +32% +1% +19% -10% +3% Mar-07 +20% +43% +25% +32% -15% +6% Apr-07 +16% +32% +29% +27% -14% +4% May-07 +23% +35% +15% +27% -13% +4% Jun-07 +12% +27% -1% +17% -13% -1% Jul-07 +16% +32% -5% +19% -14% +1% Aug-07 +10% +27% 0% +17% -9% +3% Sep-07 +16% +26% +3% +19% -12% +3% Oct-07 +16% +25% +21% +22% -14% +3.5% Nov-07 +23% +31% +49% +32% -15% +9% Dec-07 +19% +24% +70% +30% -13% +9% Jan-08 +16% +21% +50% +25% -13% +7% Feb-08 +11% +18% +43% +20% -15% +4% Mar-08 +10% +14% +14% +13% -20% -1% Apr-08 +19% +21% +15% +19% -18% +2.2% May-08 +24% +9% +11% +13% -17% -1% Jun-08 +31% +12% +23% +18% -15% +2% Jul-08 +28% Flat +18% +9% -13% -1% Aug-08 +32% -2% +23% +10% -18% -3% Sep-08 +32% -4% +34% +11% -13% +1% Oct-08 +16% -9% +35% +5% -12% -2% Nov-08 +5% -15% +18% -3% -11% -6% Dec-08 -13% -20% +11% -12% -21% -15% Jan-09 -15% -27% +4% -17% -30% -22% Feb-09 -8% -37% -2% -22% -35% -27% Mar-09 -13% -44% -6% -28% -41% -33% Apr-09 -21% -47% -9% -32% -51% -39% May-09 -30% -46% -12% -35% -57% -43% Jun-09 -27% -51% -23% -38% -59% -47% Jul-09 -30% -50% -28% -40% -59% -48% Aug-09 -33% -50% -37% -42% -57% -48% Sep-09 -40% -55% -41% -47% -60% -52% Oct-09 -36% -53% -41% -45% -58% -50% Nov-09 -31% -53% -27% -40% -54% -45% Dec-09 -12% -41% -24% -28% -46% -35% Jan-10 +1% -35% -15% -19% -40% -27% Feb-10 -2% -22% -20% -15% -30% -20% Mar-10 +11% -18% -15% -7% -21% -11% Source: Company reports


Page 30 of 53

May 2010

TABLE 19. PARKER-HANNIFIN QUARTERLY ORDERS Industrial

No America Industrial

International

Aerospace Climate &

Ind'l Controls Total PH

Sep-93 17% 3% -24% Dec-93 15% 15% -17% Mar-94 17% 12% -6% Jun-94 19% 18% -9% Sep-94 16% 29% 24% Dec-94 15% 35% 24% Mar-95 15% 26% 16% Jun-95 12% 18% 29% Sep-95 3% 12% 20% Dec-95 6% 2% 14% Mar-96 1% 0% 11% Jun-96 3% 1% 6% Sep-96 6% 4% 3% Dec-96 4% 3% 15% Mar-97 13% 7% 25% Jun-97 15% 19% 27% Sep-97 15% 19% 25% Dec-97 18% 14% 20% Mar-98 11% 15% 13% Jun-98 8% 11% 9% Sep-98 1% 5% 11% Dec-98 -8% -1% -4% Mar-99 -5% -6% 6% Jun-99 3% 7% 4% Sep-99 8% 3% -5% Dec-99 21% 10% 6% Mar-00 13% 12% -5% Jun-00 11% 19% -1% Sep-00 12% 21% 10% Dec-00 -8% 18% 13% Mar-01 -18% 3% 19% Jun-01 -20% 0% 24% Sep-01 -26% -7% 9% -11% 0% Dec-01 -19% -11% -6% -10% -1% Mar-02 -2% -1% -15% 8% -2% Jun-02 2% -1% -29% 10% -3% Sep-02 6% 2% -24% 3% 0% Dec-02 6% 9% -11% 2% 9% Mar-03 -5% 4% -5% -2% 15% Jun-03 -7% -1% 14% -7% 20% Sep-03 -2% 1% 11% -11% 15% Dec-03 12% 8% -9% 3% 11% Mar-04 21% 17% 1% 3% 7% Jun-04 26% 20% 15% 5% 2% Sep-04 17% 15% 19% 1% 7% Dec-04 10% 10% 25% -5% 10% Mar-05 5% 9% 12% -3% 9% Jun-05 2% 0% 7% -3% 14% Sep-05 8% 3% 8% 11% 7% Dec-05 9% 8% 13% 21% 10% Mar-06 9% 9% 23% 16% 11% Jun-06 8% 13% 15% 22% 12% Sep-06 5% 14% 18% 6% 9% Dec-06 -1% 13% 10% -2% 5% Mar-07 -2% 11% 2% -4% 2% Jun-07 -3% 14% 8% -6% 3% Sep-07 0% 19% 12% -13% 7% Dec-07 4% 16% 19% -6% 10% Mar-08 2% 11% 28% -1% 9% Jun-08 4% 8% 23% -7% 8% Sep-08 2% -2% 9% 5% 1% Dec-08 -18% -28% 2% -28% -20% Mar-09 -35% -41% -12% -36% -34% Jun-09 -40% -43% -22% -31% -38% Sep-09 -27% -25% -23% -17% -25% Dec-09 -3% 0% -27% 6% -7% Mar-10 30% 42% -22% 38% 23%



Page 31 of 53

May 2010

CHART 34. KENNAMETAL MONTHLY ORDER RATE (Three-Month Rolling Average Year-Over-Year Percent Change)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%Ju

n-00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

YO

Y P

erce

nt

Ch

ang

e

March +11%



Page 32 of 53

May 2010

SECTION 5. END MARKET AND GEOGRAPHIC BREAKDOWNS BY COMPANY

TABLE 20. END MARKET BREAKDOWN

End Market AIMC AIT AOS AME ATU B BEZ BRC CFX CIR CLC CR DCI DHR ETN FELE FSS GDI GGG GNRC HSC IEX IR ITT KAMN KDN KMT LECO LII NDSN OSK PH PNR RBC RBN ROLL ROP TEX WBC WSO WTS

Aerospace (Commercial) 12% 15% 5% 2% 17% 2% 4% 8% 4% 12% 3% 9% 10% 31%

Aerospace (Military) 9% 7% 7% 3% 8% 3% 5% 24% 12% 9% 21%

Automotive 7% 3% 6% 17% 2% 4% 3% 11% 15% 4% 13% 4% 8% 3% 5%

Basic Materials 9% 32% 5% 5% 5% 46% 12% 20%

Chemical Processing 8% 4% 9% 5% 12% 24%

Construction (Non-Residential) 28% 2% 12% 2% 2% 5% 16% 6% 1% 28% 12% 38% 42% 34% 6% 12% 2% 23% 32% 4% 16% 9% 56% 3% 55%

Construction (Residential) 72% 10% 7% 36% 23% 60% 12% 2% 60% 8% 3% 30% 34% 7% 89% 45%

Consumer-Related 14% 2% 22% 7% 13% 2% 8% 8% 65% 9% 4%

Defense 2% 7% 6% 47% 30%

Semiconductor/Electronics 7% 2% 7% 8% 21% 8% 9% 4% 2%

Fire & Rescue (Municipal) 56% 21% 15%

Food & Beverage 5% 8% 2% 2% 2% 5% 2%

General Industrial 33% 26% 27% 23% 91% 45% 44% 30% 8% 26% 27% 20% 14% 28% 50% 34% 4% 64% 70% 29% 42% 7% 18% 21% 41% 17% 6%

Industrial Process/Control 9% 8% 11% 14% 28%

Marine 2% 24% 3%

Machine Tools 8% 18% 8% 5%

Medical/Pharmaceutical 3% 2% 2% 27% 8% 19% 3% 2% 23% 7%

Medium/Heavy Truck 2% 8% 11% 22% 2% 20% 1% 13% 30% 9% 9% 5% 15% 8% 12% 95%

Mobile/Agriculture 13% 7% 8% 16% 6% 25% 8% 26% 7% 3% 15% 4% 24% 13% 2% 1% 1%

Oil & Gas 10% 20% 18% 15% 65% 12% 3% 10% 24% 24% 5% 10% 12% 22% 7% 3% 33% 3% 15%

Other 4% 4% 11% 8% 12% 8% 13% 6% 3% 8% 9% 7% 9% 6%

Power Generation 2% 7% 4% 2% 4% 11% 4% 16% 10% 4% 2% 6% 10%

Refrigeration (Commercial) 4% 8% 17% 3% 2% 8%

Research 10% 13%

Water Treatment/Wastewater (Municipal) 5% 10% 14% 3% 11% 18% 10% 7% 17%

Total Sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%100%



Page 33 of 53

May 2010

TABLE 21. GEOGRAPHIC BREAKDOWN

Geography AIMC AIT AME AOS ATU B BEZ BRC CFX CLC CR DCI DHR ETN FELE FSS GDI GGG GNRC HSC IEX IR ITT KAMN KDN KMT LECO LII NDSN OSK PH PNR RBC RBN ROLL ROP TEX WBC WSO WTS

United States 88% 50% 80% 61% 82% 24% 62% 49% 52% 63% 70% 32% 96% 55% 70% 65% 70% 40% 89% 59% 37% Canada 11% 6% 8% 3% 6% 3% 4% 4% 4% 6% Mexico 1% North America 70% 100% 50% 86% 50% 61% 90% 46% 24% 73% 62% 43% 49% 55% 63% 76% 35% 59% 100% 33% 55% 66% 61% 91% 70% 50% 66% 83% 38% 80% 61% 69% 74% 50% 89% 65% 37% 7% 98% 63%

Germany 6% United Kingdom 7% Eastern Europe 5% 5% Europe 22% 16% 41% 3% 29% 48% 12% 21% 32% 31% 24% 23% 39% 26% 51% 25% 19% 28% 5% 30% 19% 11% 37% 15% 26% 20% 6% 27% 18% 36% 76% 33%

China 4% 4% Asia/Pacific* 8% 15% 7% 4% 25% 16% 21% 13% 12% 16% 15% 5% 10% 12% 7% 6% 25% 7% 7% 17% 14% 9% 12% 4%

Latin/South America 3% 6% 9% 4% 6% 7% 6% 4%

Other/International 19% 7% 9% 39% 6% 15% 17% 4% 7% 37% 1% 6% 5% 3% 3% 4% 4% 30% 20% 15% 5% 3% 9% 11% 8% 28% 5% 2%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

*Asia/Pacific includes Japan. Sources: Company reports and KeyBanc Capital Markets Inc. estimates


Page 34 of 53

May 2010

CHART 35. AIMC END MARKET BREAKDOWN

Defense2%

Food & Beverage5%

General Industrial33%

Industrial Process/Control9%

Machine Tools8%

Mobile/Agriculture13%

Oil & Gas10%

Other4%

Automotive7%

Basic Materials 9%


CHART 36. AIMC GEOGRAPHIC BREAKDOWN

North America70%

Europe22%

Asia/Pacific8%


CHART 37. AIT END MARKET BREAKDOWN

Automotive4%

Basic Materials 34%

Food & Beverage7%


Machine Tools21%



CHART 38. AIT GEOGRAPHIC BREAKDOWN

United States88%

Canada9%

Mexico3%



Page 35 of 53

May 2010

CHART 39. AME END MARKET BREAKDOWN

Aerospace (Commercial)12%

Aerospace (Military)9%

Chemical Processing 8%

Construction (Commercial)2%

Consumer-Related14%

Defense7%

Semiconductor/Electronics7%

Food & Beverage2%

Medium/Heavy Truck2%

Oil & Gas20%

Power Generation7%

Research10%


CHART 40. AME GEOGRAPHIC BREAKDOWN

United States50%

Europe16%

Asia/Pacific15%

Other/International19%


CHART 41. AOS END MARKET BREAKDOWN


Construction (Residential)72%


CHART 42. AOS GEOGRAPHIC BREAKDOWN

North America86%

Asia/Pacific7%




Page 36 of 53

May 2010

CHART 43. ATU END MARKET BREAKDOWN

Automotive6%




Oil & Gas18%

Other11%

Construction (Non-Residential)12%

Consumer-Related2%

Marine2%

Power Generation4%


CHART 44. ATU GEOGRAPHIC BREAKDOWN

North America54%

Europe39%

Asia/Pacific7%


CHART 45. B END MARKET BREAKDOWN



Automotive17%

Basic Materials 5%





Other8%

Power Generation2%



CHART 46. B GEOGRAPHIC BREAKDOWN

United States61%




Page 37 of 53

May 2010

CHART 47. BEZ END MARKET BREAKDOWN

Food & Beverage2%

Basic Materials 5%




CHART 48. BEZ GEOGRAPHIC BREAKDOWN

United States82%

Canada8%

Europe3%

Asia/Pacific4%

Latin/South America

3%


CHART 49. BRC END MARKET BREAKDOWN

2%

Other 12%

Power Generation4%

General Industrial 45%

Consumer 22%

Medical/Pharmaceutical 3%

Semiconductor/Electronics 7%

Construction5%


CHART 50. BRC GEOGRAPHIC BREAKDOWN

North America46%

Europe29%

Asia/Pacific25%



Page 38 of 53

May 2010

CHART 51. CFX END MARKET BREAKDOWN


Marine24%

Oil & Gas15%

Power Generation11%

Defense6%


CHART 52. CFX GEOGRAPHIC BREAKDOWN

North America24%

Europe48%

Asia/Pacific16%

Latin/South America6%



CHART 53. CLC END MARKET BREAKDOWN




Consumer-Related7%

Oil & Gas12%

Aerospace (Commercial)

2%

Aerospace(Military)

2%

Automotive4%

Food & Beverage2%

Medical/Pharmaceutical2%


CHART 54. CLC GEOGRAPHIC BREAKDOWN

North America73%

Europe12%




Page 39 of 53

May 2010

CHART 55. CR END MARKET BREAKDOWN

Oil & Gas3%

Power Generation16%

Water Treatment/Wastewater (Municipal)

5%


Medical/Pharmaceutical2% General Industrial

8%



Other8%





CHART 56. CR GEOGRAPHIC BREAKDOWN

North America62%

Europe21%



CHART 57. DCI END MARKET BREAKDOWN




Power Generation10% Construction (Non-

Residential)6%



Semiconductor/Electronics

8%


CHART 58. DCI GEOGRAPHIC BREAKDOWN

Europe30%

North America49%

Other2%

Asia Pacific19%



Page 40 of 53

May 2010

CHART 59. DHR END MARKET BREAKDOWN




Oil & Gas10%

Power Generation4%


Consumer-Related13%


10%


Automotive3%


CHART 60. DHR GEOGRAPHIC BREAKDOWN

North America49%

Europe31%

Asia/Pacific13%



CHART 61. ETN END MARKET BREAKDOWN



Automotive13%







CHART 62. ETN GEOGRAPHIC BREAKDOWN

United States61%

Canada3%

Europe19%

Asia/Pacific8%




Page 41 of 53

May 2010

CHART 63. FELE END MARKET BREAKDOWN



Oil & Gas24%


14%


CHART 64. FELE GEOGRAPHIC BREAKDOWN

United States63%

International37%


CHART 65. FSS END MARKET BREAKDOWN

Fire & Rescue (Municipal)56%




CHART 66. FSS GEOGRAPHIC BREAKDOWN

United States75%

Europe25%



Page 42 of 53

May 2010

CHART 67. GDI END MARKET BREAKDOWN



Oil & Gas22%

Other11%




Food & Beverage5%


4%


CHART 68. GDI GEOGRAPHIC BREAKDOWN

North America44%

Europe35%

Asia/Pacific13%




CHART 69. GGG END MARKET BREAKDOWN

Automotive15%





CHART 70. GGG GEOGRAPHIC BREAKDOWN

Europe26%

Asia/Pacific15%

The Americas59%



Page 43 of 53

May 2010

CHART 71. GNRC END MARKET BREAKDOWN



Consumer-Related2%


CHART 72. GNRC GEOGRAPHIC BREAKDOWN

United States96%

Canada4%


CHART 73. HSC END MARKET BREAKDOWN

Basic Materials 46%



Oil & Gas5%


CHART 74. HSC GEOGRAPHIC BREAKDOWN

North America33%

Europe51%

Asia/Pacific5%





Page 44 of 53

May 2010

CHART 75. IEX END MARKET BREAKDOWN

Fire & Rescue (Municipal)21%Medical/Pharmaceutical

24%

Oil & Gas11%


3%


Consumer-Related14%


Other9%

Food & Beverage4%

. Sources: Company reports and KeyBanc Capital Markets Inc. estimates

CHART 77. IR END MARKET BREAKDOWN





Refrigeration (Commercial)8%



CHART 76. IEX GEOGRAPHIC BREAKDOWN

North America55%

Europe25%

Asia/Pacific10%




CHART 78. IR GEOGRAPHIC BREAKDOWN

North America68%

Europe18%

Asia/Pacific11%




Page 45 of 53

May 2010

CHART 79. ITT END MARKET BREAKDOWN

Defense49%



Other3%


19%


Automotive4%


CHART 81. KAMN END MARKET BREAKDOWN





CHART 80. ITT GEOGRAPHIC BREAKDOWN

North America61%

Europe28%

Asia/Pacific7%



CHART 82. KAMN GEOGRAPHIC BREAKDOWN

North America91%

Europe5%




Page 46 of 53

May 2010

CHART 83. KDN END MARKET BREAKDOWN





CHART 85. KMT END MARKET BREAKDOWN


Automotive13%



Machine Tools8%



Oil & Gas12%

Other8%


CHART 84. KDN GEOGRAPHIC BREAKDOWN

United States70%



CHART 86. KMT GEOGRAPHIC BREAKDOWN

North America50%

Europe30%




Page 47 of 53

May 2010

CHART 87. LECO END MARKET BREAKDOWN

General Industrial42%Mobile/Agriculture

24%

Oil & Gas22%

Consumer-Related8%




CHART 89. LII END MARKET BREAKDOWN





CHART 88. LECO GEOGRAPHIC BREAKDOWN


Europe19%

North America66%


CHART 90. LII GEOGRAPHIC BREAKDOWN

North America83%

Europe11%

Asia/Pacific6%



Page 48 of 53

May 2010

CHART 91. NDSN END MARKET BREAKDOWN

Automotive4%

Consumer-Related65%





CHART 93. OSK END MARKET BREAKDOWN



Defense30%

Fire & Rescue (Municipal)15%



CHART 92. NDSN GEOGRAPHIC BREAKDOWN

North America38%

Europe37%

Asia/Pacific25%


CHART 94. OSK GEOGRAPHIC BREAKDOWN

North America80%

Europe15%




Page 49 of 53

May 2010

CHART 95. PH END MARKET BREAKDOWN



Automotive8%





Machine Tools5%




Oil & Gas7%

Power Generation2%



CHART 97. PNR END MARKET BREAKDOWN



Oil & Gas3%

Other9%

Water Treatment/Wastewater

(Municipal)10%


Semiconductor/Electronics

9%

Construction (Non-Residential)

16%


CHART 96. PH GEOGRAPHIC BREAKDOWN

North America61%

Europe26%

Asia/Pacific7%



CHART 98. PNR GEOGRAPHIC BREAKDOWN

United States65%

Canada4%

Europe20%

Asia/Pacific7%




Page 50 of 53

May 2010

CHART 99. RBC END MARKET BREAKDOWN


Consumer-Related9%


Other7%

Construction (Non-Residential)

9%


CHART 101. RBN END MARKET BREAKDOWN



Oil & Gas35%

Other9%


7%


CHART 100. RBC GEOGRAPHIC BREAKDOWN

United States70%

Canada4%

Europe6%

Asia/Pacific17%



CHART 102. RBN GEOGRAPHIC BREAKDOWN

North America50%

Europe27%

Asia/Pacific14%




Page 51 of 53

May 2010

CHART 103. ROLL END MARKET BREAKDOWN



Basic Materials 12%




Oil & Gas3%


CHART 105. ROP END MARKET BREAKDOWN




Oil & Gas15%

Power Generation6%

Research13%


17%General Industrial

6%

Automotive3%




CHART 104. ROLL GEOGRAPHIC BREAKDOWN

North America89%



CHART 106. ROP GEOGRAPHIC BREAKDOWN

North America65%

Europe18%

Asia/Pacific9%




Page 52 of 53

May 2010

CHART 107. TEX END MARKET BREAKDOWN

Power Generation20%

Other56%




Basic Materials 10%


CHART 109. WBC END MARKET BREAKDOWN

Automotive5%



CHART 108. TEX GEOGRAPHIC BREAKDOWN

North America36%

Europe36%



CHART 110. WBC GEOGRAPHIC BREAKDOWN

North America7%

Europe76%

Asia/Pacific12%




Page 53 of 53

May 2010

CHART 111. WSO END MARKET BREAKDOWN


Residential Construction89%

Commercial Construction3%


CHART 113. WTS END MARKET BREAKDOWN

Construction (Commercial)

55%

Construction (Residential)

45%


CHART 112. WSO GEOGRAPHIC BREAKDOWN

North America100%


CHART 114. WTS GEOGRAPHIC BREAKDOWN

North America63%

Europe33%

Asia/Pacific4%


Documents

KeyBank Report