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Agco Corporation (AGCO) Analyst: David Meehan Date: 2/16/2015 Domicile: U.S. Price: USD 48.50/Share Value: USD 76/Share Upside: 54% Market Cap: USD 4,423 mln Float: 92% Enterprise Value: $4,853 mln Holders: Insiders 8%, Institutions 88% REASONS TO OWN

1. Agco is a 20% return on operating capital business (ex-goodwill) and has greatly improved its competitive position the past 10 years under current management.

2. Cash flow generative: Agco repurchased 8% of shares outstanding in 2014 and has both the initiative and ability to buy back another $500 million, or 11% of current shares outstanding by year-end 2016.

3. Oligopoly market with rational competitors in Deere and CNH. Agco is the #3 player worldwide with strong positions in LATAM, Europe, and Asia.

4. Its dealer network creates a competitive advantage versus new entrants. Greater scale supports more dealers, which improve service offerings and customer relationships.

5. Excellent Management Team: CEO Martin Richenhagen has focused on integrating historical acquisitions since he took office in 2004. Management is currently focused on increasing modularization (same parts across different products) and turning a profit in Asia. These self-help initiatives will help increase margins closer to Deere and CNH.

6. High quality finance book characteristics provide a consistent cash flow stream. BUSINESS OVERVIEW Agco is the third largest manufacturer of agriculture equipment in the world behind John Deere and CNH Industrial. Agco is based in the United States, but roughly 74% of sales and 70% of profits are generated outside of North America. Agco sells its products through 3,100 independent dealers in 140 countries. Sales are dominated by tractors (60.0%) but are complemented by replacement parts (12.5%), other machinery (9.3%), grain storage and protein production (7.0%), combines (6.0%), and application equipment (4.8%). Martin Richenhagen, CEO, joined the company in 2004 and has successfully focused on increasing ROCE by integrating assets and generating manufacturing efficiencies. Agco began in 1990 with the acquisition of the former agriculture equipment business of Allis-Chalmers. Over 20 acquisitions followed before Richenhagen joined the company in 2004. Richenhagen put a stop to this strategy and has acquired only one company of size during his tenure, buying GSI Corp for $930 million in 2011. BRANDS Agco operates through five major brands, which include: Challenger, Fendt, Massey Ferguson, Valtra, and GSI.

An assortment of products are sold under the Massey Ferguson brand including tractors, combines, hay & forage, planting and seeding, tillage and several other attachments. Agco also holds a 23% interest in TAFE in India, which manufactures Massey Ferguson branded tractors under a license agreement.

Fendt is primarily a European tractor and combine brand with sales also in the United States.

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Challenger was acquired in 2002 from Caterpillar and sells tractors, combines, hay, seeding and tillage equipment.

Valtra is a European and Brazilian tractor brand that Agco acquired two months before Richenhagen was hired in 2004. It also sells tractors in China and Australia.

GSI comprises 7% of AGCO sales. GSI is a grain storage and protein production equipment business that was acquired in 2011. The majority of sales are in the U.S., but it is expanding globally. See the M&A section for more information.

GEOGRAPHY Europe, Africa, Middle East (EMEA) (53% Sales, 59% EBIT, 9.7% OPM) Europe is by far the largest market for Agco. It has 1,100 dealers and competes against CLAAS, CNH, Deere and SAME. I have been unable to find market share data for CNH or Agco, but CNH claims it is first in tractor sales, second in combines, and third in hay and forage equipment. Agco is most likely the second largest player. I have read in the press that Agco has 25 to 35% market share, but I have been unable to confirm. In tractors, Deere has a 20% market share in the EU-28, the same share it has had since it began reporting such data in 2004. The industry data includes low, mid, and high horsepower tractors, but Deere does not break it out, so it could have gained share in the high horsepower segment while losing share in the lower horsepower segment. In the combine market, Deere has slipped from 20% market share in 2004 to 16% in 2013. Since 2004, industry unit growth for both tractors and combines has been very low, if nonexistent. Future growth will likely come from Eastern Europe as well as Ukraine and Russia, where tractors versus arable land is 1/8 of that in the United States. Obviously, with the outlook for Ukraine’s and Russia’s economies being dismal, this is a long term opportunity, but could be viewed as providing long-term optionality. Although unit growth is low, equipment manufacturers have been able to increase prices. See appendix for more information. LATAM/South America (17% Sales, 16% EBIT, 8.1% OPM) In Brazil and Argentina, Agco sells through 340 independent dealers. Massey Ferguson reportedly has 60% market share in South America and Brazil, but I have been unable to confirm. Agco holds the number-one position in sales and is trying to stave off both CNH and Deere. In Brazil, Agco sells through mostly exclusive dealers. In Argentina and the rest of South America, Agco sells through distributors. Brazil is an attractive market because it has grown quickly and will likely grow faster than the U.S. and Europe in the future. From 2004 to 2013 tractor unit sales grew 9.5%. Larger farms and increasing arable land have helped drive that growth. Note, the Brazilian Real (BRL) was down 10% vs the USD in 2014 and is down another 7% YTD. The depreciation will hurt Agco’s translational results in the short term. The BRL is now 75% below the OECD’s estimate of PPP and could prove to be another source of upside for Agco’s USD consolidated results if the currency reverts to parity over time. North America (25% Sales, 26% EBIT, 9.1% OPM) Agco is the third-best seller in North America behind Deere at number one and CNH at number two. Agco sells through 1,300 dealers, out of which 500 are for GSI (grain storage and protein production). Under the umbrella of price leadership by Deere, Agco has been able to maintain profitability while reducing and thereby optimizing its dealer network from independent non-exclusive dealers to independent exclusive dealers. In 2005, Agco had approximately 1,500 agriculture dealers in the United States and has whittled the network down to 800 today. The initiative has helped Agco increase profitability in North America and will continue to help its service offering. Some estimate that Agco has a 10% market share in the U.S. tractor market, but I have been unable to confirm.

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Asia Pacific (5% Sales, -2% EBIT, -2% OPM) In 2011, Agco purchased Dafeng, a Chinese manufacturer of rice, soybean, corn and grain harvesting equipment for an enterprise value of $27 million. Dafeng operates through 200 dealers, which are now used by Agco. In 2014, Agco completed a factory to manufacture 50 to 120 horsepower tractors for the local and global markets. Over the next three years, Agco will be transitioning the assembly of low horsepower tractors from other countries to that plant. In total, it hopes to improve operating margins on these low horsepower tractors by 5 to 7%. This is significant because the sale of low horsepower tractors total $1 billion globally. As Chinese farms slowly consolidate to larger farms, Agco expects the demand for the low horsepower equipment to increase. FINANCE BOOK Agco owns a 49% interest in a JV with Rabobank dating back to the early 1990s. Rabobank funds the loans and Agco books its share of the profits using the equity method. The JV provides financing for about 50% of retail sales. The portfolio is $9.5 billion and write-offs have historically averaged less than 50bps. Agco provides no guarantees to the JV. The JV uses term-matched funding with liquidity guaranteed to maturity. Most of the financing is in developed markets, so I expect low single digit growth. I value the finance book at 13x earnings to equal $650 million. Ideally, Agco would have a 100% captive finance book (like Deere) to provide more control over terms and conditions, in addition to providing more income, but to date the relationship has been working. COMPETITORS Deere, CNH and Agco account for more than 50% of total global agriculture equipment sales and the vast majority of high horsepower equipment. CLAAS, a private tractor manufacturer with about 75% of its sales in Europe, is another competitor. Kubota is a large Japanese company with a presence in the low horsepower tractor market and has ambitions to enter the high horsepower tractor market. Other competitors are much smaller and include: Same Deutz Farr Group, Argo Group, Buhler Industries, and Bucher Industries (only attachments). See comp page for more information. Deere has a superior business to Agco and CNH because of its greater scale (especially in the U.S.), single brand, and exclusive independent dealer network. By global revenue, Deere is 1.7x the size of CNH, 2.7x Agco, and 6.3x CLAAS. Generally, Deere is the price leader in high horsepower tractors and combines and its advantage allows it to earn the highest operating margins. From 2007 to 2013, Deere averaged 12.7% agriculture operating margins versus CNH (8.7%) and Agco (7.8%). CNH Industrial is also a strong competitor. It operates through the Case IH, New Holland, and Steyr brands. CNH is globally diversified with 44% of sales in the U.S. (versus 60% at Deere), EMEA (30%), LATAM (15%), and APAC (10%). CNH Industrial is the product of a merger in 2013 between CNH Global and Fiat Industrial, which already owned 90% of CNH Global. Sergio Marchionne, the well regarded auto executive, is Chairman of CNH Industrial. The CEO is Rich Tobin, an executive who has worked under Marchionne for many years. I interviewed Tobin in 2011 when he was CFO of CNH Global. He was very confident, and I thought highly of him as he was profit and return focused. The European operations of CLAAS are about half of the size of Agco’s European operations. By staying local and focusing only on tractors, CLAAS has been able to maintain operating margins of 7.3% from 2007 to 2013. In Europe, Agco is superior vs CLAAS for its scale and wider product offering to support dealer profitability.

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Kubota is a Japanese company that has previously focused on low horsepower, combines, attachments, and construction equipment. Kubota has a new focus on larger agriculture products and has the potential to be a threat to Agco. COST STRUCTURE On average, 75 to 80% of the wholesale cost of equipment is the cost of materials. Approximately 10% of the cost is direct labor, with the remaining 10% coming from maintenance, utilities and overhead. Needless to say, Agco operates in a high fixed cost business where profits are driven by scale and volumes. M&A In November 2011, Agco acquired GSI, a grain storage and protein production equipment business for an enterprise value of $930 million from Centerbridge Partners. AGCO paid 11.5x current year EV/EBITA and believed it would grow sales 7% cagr through 2016 to equal $1.0 billion in sales. Sales by geography were: North America (71%), South America (9%), Asia (11%), and Europe, Africa and Middle East (9%). The business earned a 13% operating margin in 2011 and Agco forecasted that it would generate 15% margins. In 2011, Agco had $377 million in net operating loss carry forwards (NOLs) in the United States that would begin to expire in 2015. The stated rationale for the acquisition was that the business benefited from the same end-market and would improve AGCO’s scale in North America. Because GSI products are outside of Agco’s core business, I think AGCO likely bought GSI because it was a quick way to use NOLs in addition to capitalizing on a favorable growth profile. Through 2014, GSI sales have increased 6.7% cagr and now total $850 million. Although margins for the business are not disclosed, the acquisition appears to be value enhancing. MANAGEMENT Martin Richenhagen joined the company in March 2004 as CEO and became chairman of the board in 2006. He has excelled by integrating the 20 acquisitions that preceded him and driving efficiencies in distribution and manufacturing. The GSI acquisition smells a little like empire building because it was not in Agco’s core business, but it has proved worthwhile. Richenhagen plans to stay on at least three more years until he is 65. BALANCE SHEET The balance sheet is conservative. Net debt-to-EBITDA is less than 1x my 2015 EBITDA estimate. The next maturity is a $240 million 4.5% senior note due in 2016, to be followed by a $380 million credit facility maturing in 2019 at libor +1-2%. WHY IS THE STOCK CHEAP? The stock is likely cheap because of the uncertainty of how deep and how long the global downturn in the agriculture equipment market will last. Farmers are coming off of several strong years of crop prices and cash receipts on a gross and net basis. Even though their balance sheets are stronger than they have ever been, they can delay purchasing new equipment if they have young fleets. Moreover, the United States Department of Agriculture estimates 2014 U.S. farm gross and net receipts were down 5%, and 32%, respectively. And, all the manufacturers are expecting another down year for unit sales in 2015. Forecasts Revenue One could drive a combine through the difference between Deere’s and Agco’s 2015 North American market outlook. Deere forecasts the North American market down 25 to 30%, while Agco forecasts down 5 to 10%. Part of the gap could be explained by the difference between sales of only high horsepower units versus both low and high horsepower units if Deere’s definition excludes low horsepower. CNH forecasts a flat year for units

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under 140 horse power segment but down 15 to 20% for units exceeding 140 horsepower. I am forecasting Agco North American revenue down 12% in 2015, flat in 2016 and back to 2013 levels by 2019. Deere, Agco and CNH are all forecasting EMEA down 5 to 10% in 2015. I forecast down 8% organic, flat in 2016 and again back to 2013 peak by 2019. The Euro is down 6% YTD, which I incorporate on top of the organic decline. For South America, all three manufacturers are forecasting down 10% this year. The BRL/USD has since weakened 7% YTD, so I am forecasting down 17% in 2015 and the back to 12% above 2013 levels by 2019. The sales level in 2019 implies 4.5% cagr from 2014 through 2019, in-line with Deere’s forecast for Brazil of 4.5% growth through 2020. I also apply an FX kicker of halfway back to PPP by terminal year. Margins I have consolidated margins this year falling to 5.4%, staying flat next year and then increasing with sales growth to 7.9% in normality by terminal year. The greatest improvement will come from Asia as it emerges from losses as the new plant in China scales to profitability. In 2012, Agco targeted 10% consolidated operating margins, and while that level of profitability is achievable, I believe it to be a peak number. With trough margins near 5.5% and peak of 10%, 7.9% is a fair estimate for a through-cycle “normal” margin. On a geographic basis, this implies pre-corporate expense margins of: North America (9%), South America (9%), EMEA (9.5%), and Asia (10%). Manufacturing plants are located in the United States, Mexico, Brazil, Argentina, Finland, France, Italy, Germany, China, and Malaysia. It appears most FX exposure is translational, although Richenhagen said Agco imports parts from Europe into its Minnesota plant, which will help the North American segment this year.

Use of Cash Agco initiated a dividend in 2012 and currently has a 15% POR. Management completed a $500 million buy back in 2014 and initiated another $500 million program running through 2016. Management is maintaining flexibility by keeping the POR low and by saying they will adjust the buyback based on the stock price. I assume Agco purchases $250 million per year at current levels. Capex Agco increased capex in 2012 and 2013 to meet tier IV engine emission standards and expand capacity. Beyond Agco’s guidance of $325 mln for 2015, I am growing capex at 4.5% cagr to equal 3.6% of sales, which is above historical averages. I have not seen capacity utilization numbers from Agco, but I do know it will cost money to maintain market share versus larger competitors looking for growth. Working capital management appears responsive to market conditions. Agco cut production in 2014 by 15% and 20% in Q4 to maintain reasonable inventory levels. I cut working capital-to-sales in 2015 to 8.5% of sales as inventory comes down, and then increase it to the historical average of 9% by terminal year. Bull Case

1. Downturn is short and shallow and Agco continues to increase manufacturing and dealer efficiencies with greater volumes. Margins increase toward previous goal of 10%.

2. Stock stays low or even falls more over the next 18 months, allowing more shares to be repurchased before the market rebounds.

3. The Asian market heats up and the Asian operations turn a profit faster than expected. Bear Case

1. Agriculture downturn is deeper and lasts longer than expected. Unit sales of tractors and combines were down in 2014 and are expected to decline even further in 2015. Crop prices stay low and the farmers

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forgo upgrades for several more years. (This would lead to increases in high margin parts sales to offset some of the lost profits.)

2. Deere and CNH lower prices in South America and Europe to gain market share and erode the profit base of Agco.

3. Regulations cause crop prices and farm income to dramatically decline, which is a risk in every market (e.g. the ethanol mandate, subsidies, financing regulations).

4. Reputational risk, especially if Agco fails to protect farmer’s data. Valuation Within two years, Agco will return 11% of the market cap to shareholders if it completes the buyback at current prices. With dividends of 1% a year, it will return 13% to shareholders while still increasing cash by $400 million, or $4.60/share. I price AGCO at 9.5x EBIT and 7.9% terminal margins, implying 4% FCF perpetuity growth. Fair value is 75/share with 55% upside.

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Company AGCO (Ticker: AGCO) (Last Actual) est. est. est. est. est.

Anlayst: David Meehan 2014 2015 2016 2017 2018 2019

Date: 2/13/15 Multiples

Currency: USD Enterprise Value 4,803 4,294 4,095 3,906 3,620 3,337

Local/USD 1.0 EV / EBITA 6.5 9.4 8.5 6.4 4.9 3.9

EV / EBITDA 4.9 6.1 5.6 4.5 3.6 3.0

Price 48.5 Net debt / EBITDA 0.7 0.7 0.7 0.4 0.0 -0.2

Diluted Shares 91.2 Price / Tangible Book 1.9 1.8 1.7 1.5 1.3 1.2

Market Capitalization 4,423 FCF/ EV 4% 13% 7% 7% 10% 11%

Net liabilities/(assets) 380 EPS 4.43 3.01 3.57 4.58 5.60 6.52

Enterprise Value 4,803 P / E 10.9 16.1 13.6 10.6 8.7 7.4

Target Price 75 (Normal)

Upside 54% Sales 9,724 8,405 8,405 8,990 9,667 10,743

% Change -13.6% 0.0% 7.0% 7.5% 11.1%

Discount Rate 8.7% EBITDA 973 701 733 868 1,004 1,127

% of Sales 10.0% 8.3% 8.7% 9.7% 10.4% 10.5%

EBITA 734 454 479 606 735 849

% of Sales 7.5% 5.4% 5.7% 6.7% 7.6% 7.9%

Tax Rate 37% Taxes -256 -168 -177 -224 -272 -314

NOPAT 478 286 302 382 463 535

Less: Working Capital Addition -219 327 0 -95 -61 -97

Less: Buybacks -500 -250 -250 0 0 0

Less: Capital Expenditures -302 -325 -319 -333 -348 -387

Add: Depreciation Amortization 280 286 293 300 308 316

Net Cash Flow (261) 325 25 255 362 367

Years 0.8 1.8 2.8 3.8 4.8

PV Factor 0.9 0.9 0.8 0.7 0.7

PV of Net Cash Flow 304.0 21.6 201.6 263.5 246.0

Nominal EBITA Multiple 9.5 EBITA Multiple 9.5

Tax Rate 37% Sum of PVof Cash Flows 1,037

Normal POR (NCF/EBITA) 69% Present Value of Terminal Value 5,404

NOPAT Multiple 21.97 Net (debt)/cash (728)

Discount Rate (WACC) 9% (Minority Interest) (33) valued at book value. Lost money in 2012 and 2013.

Implied FCF Growth Rate 4.1% Finance Book 650 12x earnings of 50 million.

(Dividends Paid) 0

Long Term Investments 0

pensions (269)

Equity Value 6,061 Price Upside

Terminal, diluted shares 81

Per Share Value 75 48.5 54%

Free Cash Flow

Net Income 404 259 290 372 455 530

Depreciation Amortization 280 286 293 300 308 316

non cash -27 0 0 0 0 0

change in working capital -219 327 0 -95 -61 -97

Operating Cash Flow 438 873 583 577 702 749

Capital Expenditures (302) (325) (319) (333) (348) (387)

Free Cash Flow to Equity 137 548 264 244 354 362

Interest Expense 58 29 27 27 25 22

Interest Expense After Tax 38 18 36 17 16 14

Free Cash Flow to the Firm 175 566 300 261 370 376 Avg

FCF % of EBITA 24% 125% 63% 43% 50% 44% 58%

FCF % of NOPAT 37% 198% 99% 68% 80% 70% 92%

Net Debt /(Cash) 728 472 502 313 27 -256

Net Adjustments 348 348 348 348 348 348

Shares 91.2 86.0 81.3 81.3 81.3 81.3

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HISTORICALS 2014 2013 2012 2011 2010 2009

Sales 9,724 10,787 9,962 8,773 6,897 6,630

% Change -10% 8% 14% 27% 4%

EBITDA 973 1,160 946 783 501 398

% of Sales 10% 11% 9% 9% 7% 6%

EBITA 734 949 765 631 347 251

% of Sales 8% 9% 8% 7% 5% 4%

NOPAT 478 643 589 603 215 158

Free Cash Flow

Net Income 404 597 522 583 221 136

Depreciation Amortization 280 259 230 174 154 148

non cash -27 45 4 -110 19 -15

change in working capital -219 -105 -90 80 44 84

Operating Cash Flow 438 797 666 726 439 352

Capital Expenditures -302 -392 -341 -300 -167 -215

Free Cash Flow to Equity 137 405 326 426 272 136

Interest Expense 58 58 58 30 33 43

Interest Expense After Tax 38 39 44 29 21 27

Free Cash Flow to the Firm 175 445 370 454 292 164 Avg

FCF % of EBITA 24% 47% 48% 72% 84% 65% 57%

FCF % of NOPAT 37% 69% 63% 75% 136% 103% 80%

Net Debt /(Cash) 728 203 505 745 -277 -6

Capex % Revenue 3% 4% 3% 3% 2% 3%

Capex % Depreciation 108% 151% 148% 173% 108% 146%

Capex % PP&E 20% 24% 24% 25% 14% 23%

2014 Normal

Equity ROR 10.0% 80.2% 80%

After tax Debt ROR 3.5% 19.8% 20%

WACC 8.7%

Debt Differential -4.5%

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est. est. est. est. est.

USD, mlns 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenue

North America 1,283.0 1,488.1 1,794.3 1,442.7 1,489.3 1,771 2,584 2,758 2,414 2,124 2,124 2,294 2,478 2,676

South America 657.0 1,090.6 1,496.5 1,167.1 1,753.3 1,872 1,856 2,040 1,663 1,381 1,381 1,519 1,701 2,245

Europe/Africa/Middle East 3,334.4 4,067.1 4,905.4 3,782.1 3,422.9 4,847 5,074 5,482 5,159 4,436 4,436 4,658 4,891 5,136

Asia Pacific 159.6 182.3 228.4 238.5 231.1 284 448 508 488 463 463 519 597 686

Total Sales 5,434 6,828 8,425 6,630 6,897 8,773 9,962 10,787 9,724 8,405 8,405 8,990 9,667 10,743

Revenue Growth

North America -20.2% 16.0% 20.6% -19.6% 3.2% 18.9% 46.0% 6.7% -12.5% -12.0% 0.0% 8.0% 8.0% 8.0%

South America 1.3% 66.0% 37.2% -22.0% 50.2% 6.7% -0.8% 9.9% -18.4% -17.0% 0.0% 10.0% 12.0% 32.0%

Europe/Africa/Middle East 11.6% 22.0% 20.6% -22.9% -9.5% 41.6% 4.7% 8.0% -5.9% -14.0% 0.0% 5.0% 5.0% 5.0%

Asia Pacific -22.0% 14.2% 25.3% 4.4% -3.1% 22.8% 57.9% 13.3% -4.0% -5.0% 0.0% 12.0% 15.0% 15.0%

Total Sales -0.3% 25.7% 23.4% -21.3% 4.0% 27.2% 13.6% 8.3% -9.9% -13.6% 0.0% 7.0% 7.5% 11.1%

Change due to FX

North America 0.7% 1.0% -0.8% -2.1% 1.9% 0.9% -0.7% -0.3% -0.9% 0.0% 0.0% 0.0% 0.0% 0.0%

South America 6.9% 15.5% 7.0% -4.1% 14.0% 4.7% -15.8% -11.9% -8.8% -7.0% 0.0% 0.0% 0.0% 20.0% kicker

Europe/Africa/Middle East 1.9% 10.3% 4.5% -6.0% -4.8% 6.4% -7.4% 2.3% -0.7% -6.0% 0.0% 0.0% 0.0% 0.0%

Asia Pacific 0.4% 10.9% 0.8% -4.2% 3.4% 13.1% -2.8% -2.1% -2.6% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Sales 2.1% 8.7% 3.6% -4.8% 0.3% 5.0% -7.7% -1.2% -2.4% 0.0% 0.0% 0.0% 0.0% 0.0%

cagr

Organic Revenue Growth - Company provided 07-'14

North America -20.9% 15.0% 21.4% -17.5% 1.3% 18.0% 19.8% 7.0% -11.5% -12.0% 0.0% 8.0% 8.0% 8.0% 5.7%

South America -5.6% 50.5% 30.2% -17.9% 36.3% 2.1% 10.3% 21.8% -9.6% -10.0% 0.0% 10.0% 12.0% 12.0% 13.3%

Europe/Africa/Middle East 9.6% 11.7% 16.2% -16.9% -4.7% 35.2% 9.9% 5.8% -5.2% -8.0% 0.0% 5.0% 5.0% 5.0% 5.5%

Asia Pacific -22.5% 3.3% 24.5% 8.6% -6.5% 9.8% 23.2% 15.4% -1.4% -5.0% 0.0% 12.0% 15.0% 15.0% 9.1%

Total Sales -2.4% 16.9% 19.8% -16.5% 3.7% 22.2% 12.4% 9.5% -7.5% -13.6% 0.0% 7.0% 7.5% 11.1% 6.8%

% of Rev

North America 24% 22% 21% 22% 22% 20% 26% 26% 25% 25% 25% 26% 26% 25%

South America 12% 16% 18% 18% 25% 21% 19% 19% 17% 16% 16% 17% 18% 21%

Europe/Africa/Middle East 61% 60% 58% 57% 50% 55% 51% 51% 53% 53% 53% 52% 51% 48%

Asia Pacific 3% 3% 3% 4% 3% 3% 5% 5% 5% 6% 6% 6% 6% 6%

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

Segment Income, after depreciation, before corp. overhead

North America (38) (36) 9 22 50 91 260 326 219 127 138 184 223 241

South America 45 101 134 65 162 143 162 213 134 90 90 121 153 202

Europe/Africa/Middle East 279 398 517 222 196 487 475 558 500 355 355 396 440 488

Asia Pacific 20 20 28 21 26 24 10 1 (12) - 14 31 54 69

Segment Income 307 484 688 330 433 745 907 1,097 842 572 597 732 870 999

Corporate Expenses (45) (48) (72) (71) (73) (91) (107) (116) (118) (101) (101) (108) (116) (129)

Stock Compensation (4) (25) (32) (8) (13) (23) (35) (33) 10 (17) (17) (18) (19) (21)

EBITA 258 410 584 251 347 631 765 949 734 454 479 606 735 849

EBITA from P&L 410 584 251 347 631 765 949 734 454 479 606 735 849

Segment Margins 07-'14 11-'14

North America -2.9% -2.4% 0.5% 1.5% 3.3% 5.1% 10.1% 11.8% 9.1% 6.0% 6.5% 8.0% 9.0% 9.0% 4.9% 9.0%

South America 6.9% 9.3% 9.0% 5.5% 9.2% 7.6% 8.7% 10.4% 8.1% 6.5% 6.5% 8.0% 9.0% 9.0% 8.5% 8.7%

Europe/Africa/Middle East 8.4% 9.8% 10.5% 5.9% 5.7% 10.0% 9.4% 10.2% 9.7% 8.0% 8.0% 8.5% 9.0% 9.5% 8.9% 9.8%

Asia Pacific 12.7% 10.9% 12.4% 8.9% 11.1% 8.4% 2.3% 0.1% -2.4% 0.0% 3.0% 6.0% 9.0% 10.0% 6.5% 2.1%

Segment Income 5.7% 7.1% 8.2% 5.0% 6.3% 8.5% 9.1% 10.2% 8.7% 6.8% 7.1% 8.1% 9.0% 9.3% 7.9% 9.1%

Corporate Expenses -0.8% -0.7% -0.9% -1.1% -1.1% -1.0% -1.1% -1.1% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% -1.0% -1.1%

Stock Compensation -0.1% -0.4% -0.4% -0.1% -0.2% -0.3% -0.3% -0.3% 0.1% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2%

EBITA 4.8% 6.0% 6.9% 3.8% 5.0% 7.2% 7.7% 8.8% 7.5% 5.4% 5.7% 6.7% 7.6% 7.9% 6.6% 7.8%

% of Profit

North America -12.3% -7.4% 1.2% 6.6% 11.4% 12.2% 28.7% 29.7% 26.0% 22.3% 23.1% 25.1% 25.6% 24.1%

South America 14.7% 21.0% 19.5% 19.6% 37.4% 19.2% 17.8% 19.4% 15.9% 15.7% 15.0% 16.6% 17.6% 20.2%

Europe/Africa/Middle East 91.0% 82.3% 75.1% 67.4% 45.2% 65.4% 52.4% 50.9% 59.4% 62.0% 59.5% 54.1% 50.6% 48.8%

Asia Pacific 6.6% 4.1% 4.1% 6.4% 5.9% 3.2% 1.1% 0.0% -1.4% 0.0% 2.3% 4.3% 6.2% 6.9%

Segment Income 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Tractors 5,779 5,882 6,491

Replacement Parts 1,275 1,286 1,349

Other Machinery 723 963 1,001

Grain Storage and Protein Production systems 38 728 771 851

Combines 610 638 652

Application Equipment 345 462 521

Total Sales 8,770 9,959 10,785

10

est. est. est. est. est.

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenue 6,828 8,425 6,630 6,897 8,773 9,962 10,787 9,724 8,405 8,405 8,990 9,667 10,743 Growth 23.4% -21.3% 4.0% 27.2% 13.6% 8.3% -9.9% -13.6% 0.0% 7.0% 7.5% 11.1%

Cost of Revenue (5,637) (6,925) (5,558) (5,638) (6,997) (7,839) (8,396) (7,657)

Gross Profit 1,191 1,500 1,073 1,259 1,776 2,123 2,391 2,066 % of Rev 17.4% 17.8% 16.2% 18.3% 20.2% 21.3% 22.2% 21.3%

SG&A (626) (721) (630) (692) (869) (1,041) (1,089) (995)

% of Rev -9.2% -8.6% -9.5% -10.0% -9.9% -10.5% -10.1% -10.2%

Engineering & Research (155) (195) (192) (220) (276) (317) (353) (337)

% of Rev -2.3% -2.3% -2.9% -3.2% -3.1% -3.2% -3.3% -3.5%

EBITDA 544 731 398 501 783 946 1,160 973 701 733 868 1,004 1,127

Depreciation (134) (147) (148) (154) (152) (181) (212) (239) (247) (254) (262) (269) (278)

% of Rev -2% -2% -2% -2% -2% -2% -2% -2% -2% -2% -2% -2% -2%

EBITA 410 584 251 347 631 765 949 734 454 479 606 735 849 % of sales 6.0% 6.9% 3.8% 5.0% 7.2% 7.7% 8.8% 7.5% 5.4% 5.7% 6.7% 7.6% 7.9%

(Interest Expense)/income (24) (33) (43) (33) (30) (58) (58) (58) (29) (27) (27) (25) (22)

JV w/ Rabobank, equity method 30 39 38 50 49 54 48 53 54 55 56 57 58

Amortization of Intangibles (18) (19) (18) (18) (22) (49) (48) (41) (40) (39) (38) (38) (38)

(other expenses)/income (41) (20) (35) (20) (19) (57) (40) (96) (60) (40) (40) (40) (40)

Pre-tax Income 358 551 192 325 609 654 851 592 379 429 557 689 807

Taxes (111) (165) (57) (104) (25) (138) (259) (188) (120) (138) (185) (234) (277)

Tax Rate -34.0% -32.2% -36.7% -38.0% -4.4% -23.0% -32.2% -34.8% -37% -37% -37% -37% -37%

Minority Interest (income)/loss 0 0 0 0 (2) 6 5 6 0 0 0 0 0

Net Income 246 386 136 221 583 522 597 404 259 290 372 455 530

EPS 2.55 3.95 1.44 2.29 5.94 5.30 6.01 4.43 3.01 3.57 4.58 5.60 6.52

Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.44 0.48 0.54 0.69 0.84 0.98 payout % 0.0 0.0 0.0 0.0 0.0% 0.0% 6.7% 9.9% 15.9% 15.0% 15.0% 15.0% 15.0%

Diluted Shares Outstanding 96.6 97.7 94.1 96.4 98.1 98.6 99.4 91.2 86.0 81.3 81.3 81.3 81.3

1.1% -3.7% 2.4% 1.8% 0.5% 0.8% -8.2% -5.7% -5.5% 0.0% 0.0% 0.0%

Balance Sheet

Cash 582 546 653 720 724 781 1,047 364 620 590 779 1,065 1,347

Short-term debt 403 0 193 0 60 251 312 94

Long-term debt 294 625 454 443 1,410 1,035 938 998

Total debt 697 625 647 443 1,470 1,286 1,250 1,092 1,092 1,092 1,092 1,092 1,092

net debt / (cash) 114 79 (6) (277) 745 505 203 728 472 502 313 27 (256)

Minority Interest 0 6 8 1 36 33 35 48 48 48 48 48 48

PP&E 753 811 943 1,223 1,223 1,406 1,602 1,530 1,530 1,530 1,530 1,530 1,530

Goodwill, gross 666 666 666 666 1,195 1,195 1,195 1,195 1,195 1,195 1,195 1,195 1,195

Goodwill, net 666 587 634 633 1,195 1,192 1,179 1,193 1,193 1,193 1,193 1,193 1,193

Assets 4,788 4,955 5,062 5,437 7,257 7,722 8,439 7,396 7,364 7,360 7,676 8,063 8,514

Equity 2,043 2,020 2,401 2,659 3,031 3,482 4,045 3,497 3,465 3,461 3,777 4,164 4,615

Tangible Equity 1,377 1,433 1,767 2,027 1,837 2,289 2,866 2,304 2,272 2,269 2,585 2,971 3,422

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est. est. est. est. est.

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Cash Flow Items

Amortization of Intangibles 18 19 18 18 22 49 48 41 40 39 38 38 38

Depreciation 116 127 130 136 152 181 212 239 247 254 262 269 278

Depreciation and Amortization 134 147 148 154 174 230 259 280 286 293 300 308 316

Other Non Cash 27 47 (15) 19 (110) 4 45 (27) 0 0 0 0 0

Working Capital 0 0 0 0 1,457 1,491 1,705 1,924 1,597 1,597 1,691 1,752 1,849

% of Revenue 0.0% 0.0% 0.0% 0.0% 16.6% 15.0% 15.8% 19.8% 19.0% 19.0% 18.8% 18.1% 17.2%

Working Capital, adjusted 459 481 611 488 793 961 970 1,042 714 714 809 870 967

% of Revenue 6.7% 5.7% 9.2% 7.1% 9.0% 9.6% 9.0% 10.7% 8.5% 8.5% 9.0% 9.0% 9.0%

Working Capital (use)/ source 98 (288) 84 44 80 (90) (105) (219) 327 0 (95) (61) (97)

(Capital Expenditures) (141) (251) (215) (167) (300) (341) (392) (302) (325) (319) (333) (348) (387)

% of Revenue -2.1% -3.0% -3.2% -2.4% -3.4% -3.4% -3.6% -3.1% -3.9% -3.8% -3.7% -3.6% -3.6%

(Dividends) 0 0 0 0 0 0 (39) (41) (41) (44) (56) (68) (79)

New Equity 8 0 0 1 0 (18) (1) (500) (250) (250) 0 0 0

New Debt (121) 37 (61) (99) 689 (223) (59) (102) 0 0 0 0 0

(Acquire) (86) 1 (17) (82) (1,018) (3) (10) (130) 0 0 0 0 0

Divest 6 5 3 1 2 1 3 3 0 0 0 0 0

Minority Interest 0 0 1 0 (2) (1) (3) (6) 0 0 0 0 0

Investments / Loans to Affiliates 0 0 0 (25) (35) (20) 0 (4) 0 0 0 0 0

Sale of Interest in Affiliates 0 0 0 0 (8) (16) (10) 0 0 0 0 0 0

Liquidity Management (3) (33) 37 0 0 0 0 0 0 0 0 0 0

Asset Management 0 0 0 0 0 0 0 0 0 0 0 0 0

Foreign Exchange 14 (116) 47 12 (29) 7 (16) (27) 0 0 0 0 0

Other 0 (3) (5) (12) (6) 3 (6) (13) 0 0 0 0 0

Working Capital

Current Assets (minus cash) 2,139 2,459 2,136 2,401 2,938 3,173 3,470 3,164

Current Liabilities (minus debt) 1,681 1,978 1,525 1,913 2,145 2,213 2,500 2,123

Current Assets 2,722 3,005 2,789 3,121 3,663 3,955 4,517 3,528

Current Liabilities 2,083 1,979 1,718 1,913 2,206 2,464 2,812 2,217

Current Assets/Current Liabilities, adj. 1.3 1.2 1.4 1.3 1.4 1.4 1.4 1.5

Inventory 1,134 1,390 1,187 1,234 1,560 1,703 2,016 1,750

days 73.4 66.5 84.6 78.4 72.9 76.0 80.8 89.8

Accounts Receivable 766 816 732 909 994 925 941 964

days 41.0 34.3 42.6 43.4 39.6 35.2 31.6 35.7

Accounts Payable 827 1,027 644 683 937 888 960 670

days 53.6 48.9 54.9 43.0 42.2 42.5 40.2 38.9

Trade Working Capital 1,074 1,178 1,275 1,459 1,617 1,739 1,996 2,044

% of sales 15.7% 14.0% 19.2% 21.2% 18.4% 17.5% 18.5% 21.0%

Trade W/C Days 61 52 72 79 70 69 72 87

days 9 (20) (6) 9 2 (4) (14)

Fixed Asset Turnover 9.1 10.4 7.0 5.6 7.2 7.1 6.7 6.4

PP&E/Depreciation 5.6 5.5 6.4 7.9 8.0 7.8 7.6 6.4

Returns

ROE 12% 19% 6% 9% 20% 16% 16% 11% 7% 8% 10% 11% 12%

ROA 5% 8% 3% 4% 9% 7% 7% 5% 4% 4% 5% 6% 6%

ROCE 14% 20% 7% 9% 19% 17% 17% 13% 8% 9% 11% 13% 14%

ROCE, Operating (no goodwill) 22% 31% 10% 13% 30% 25% 25% 19% 13% 13% 16% 19% 21%

Net Debt/EBITDA 0.2 0.1 (0.0) (0.6) 1.0 0.5 0.2 0.7 0.7 0.7 0.4 0.0 (0.2)

Net Debt/EBITA 0.3 0.1 (0.0) (0.8) 1.2 0.7 0.2 1.0 1.0 1.0 0.5 0.0 (0.3)

EBITA/ Interest Expense 17.0 17.6 5.8 10.4 20.9 13.3 16.4 12.6 15.6 18.0 22.6 29.4 38.4

Interest Income 26 34 22 31 29 20 21 16 4 6 6 8 11

% of cash 4.5% 6.3% 3.4% 4.3% 4.0% 2.6% 2.0% 1.5% 1.0% 1.0% 1.0% 1.0% 1.0%

Interest Expense (50.5) (67.4) (65.7) (64.0) (59.0) (77.7) (78.8) (54.6) (32.8) (32.8) (32.8) (32.8) (32.8)

% of debt 0.0% 0.0% 0.0% 0.0% 0.0% -6.0% -6.3% -5.0% -3.00% -3.00% -3.00% -3.00% -3.00%

Net Interest (expense)/income (24.1) (33.2) (43.3) (33.3) (30.2) (57.6) (58.0) (38.9) (29.1) (26.6) (26.9) (25.0) (22.1)

Buyback

Price 48.0 52.8 58.1 63.9 70.3

Total Amount (250) (250) 0 0 0

Number of shares, implied (5.2) (4.7) 0.0 0.0 0.0

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