Industrial Machinery (3!17!11)

Current Environment ............................................................................................ 1

Industry Profile .................................................................................................... 15

Industry Trends ................................................................................................... 17

How the Industry Operates ............................................................................... 24

Key Industry Ratios and Statistics................................................................... 30

How to Analyze an Industrial Machinery Company ..................................... 31

Glossary................................................................................................................ 38

Industry References........................................................................................... 39

Comparative Company Analysis ......................................................... Appendix

This issue updates the one dated September 16, 2010. The next update of this Survey is scheduled for September 2011.

Industry Surveys Industrial Machinery Mathew Christy, CFA, Industrial Machinery Analyst

March 17, 2011

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INDUSTRY SURVEYS INDUSTRIAL MACHINERY / MARCH 17, 2011 1

CURRENT ENVIRONMENT

Industrial machinery sector continues to recover

In Standard & Poor’s view, industrial machinery companies likely experienced vastly improved results in 2010, and should continue to experience higher orders, sales, and earnings in 2011. We believe that in 2009, orchestrated worldwide stimulus spending programs and other measures helped free up the capital markets, which in turn led to an improving economic environment and a turn in manufacturing-specific indicators, better measures of industrial activity, and sequentially higher revenue and earnings for industrial companies. In 2010, industrial machinery companies built on this momentum as the economic recovery gained steam, leading to higher sales and earnings for the group. In our opinion, growth for industrial machinery companies is set to continue in 2011, as a continued recovery in the global economy leads to further improvement in order rates, albeit at lower levels than seen in 2010.

As of January 2011, Standard & Poor’s near-term outlook for the industrial machinery universe was neutral. We hold this view despite our belief that the group’s fundamental performance will continue to improve in 2011, and that revenue and earnings will likely build upon the better results in 2010. We base this outlook on our expectation for higher revenues and earnings in 2011, as global demand for machinery continues to increase, and as industrial machinery companies experience higher operating margins. Contributing to these results, in our view, is a continued recovery in the global economy, the release of some pent-up demand, the positive benefits of acquisitions, and greater overall demand as businesses increase their spending following the recent recession, which lasted from December 2007 through June 2009 in the US.

We base our opinion partially on manufacturing indicators that not only have improved from the lows seen in late 2008 and early 2009, but also continued to indicate strong growth throughout 2010. For example, the Purchasing Managers’ Index (PMI) from the Institute for Supply Management (ISM) continues to point to an expansion in manufacturing activity. We also note that the Global PMI, a weighted average measure of manufacturing activity globally, showed growth in manufacturing worldwide in the 12 months through January 2011. In addition, data from the Federal Reserve on US industrial production and capacity utilization, along with order data from the US Census Bureau—all of which bottomed in mid-2009—have shown continual improvement throughout 2010. Lastly, we note that other industrial indicators and surveys turned more positive late in 2009 and remained so through 2010, a trend that we think bodes well for 2011. Some of these indicators and surveys—such as the Electroindustry Business Confidence Index (EBCI) from the National Electrical Manufacturers Association (NEMA), the quarterly Manufacturing Barometer from PricewaterhouseCoopers, and the ISM’s Semiannual Report on Business—all continue to point to an improving manufacturing environment. We discuss some of these indicators in more detail later in this section.

The industrial machinery universe encompasses a wide range of industrial firms that supply the machinery, equipment, parts, and services that other companies use to operate their manufacturing operations. This Survey focuses primarily on three segments: flow control equipment, electrical equipment, and industrial automation. The overall health of the global economy and of manufacturing activity influences demand in each sector, though to varying degrees and at differing times in the business cycle. Below, we review industrial machinery vendor results for the first nine months of 2010. In addition, we discuss the broad macroeconomic factors that have an effect on manufacturing in general and the industrial machinery sector in particular. However, because sector-specific factors also drive demand, we discuss each area separately following our macroeconomic review.

INDUSTRIAL MACHINERY VENDORS ACHIEVED BETTER RESULTS IN 2010

Industrial machinery companies experienced significantly better results in the first nine months of 2010, compared with the same period in 2009, as the global economy improved, demand levels increased, and inventories were restocked. Standard & Poor’s believes that industrial machinery companies posted greater overall revenue and earnings for full-year 2010, and will post higher results in 2011. Our analysis focuses

2 INDUSTRIAL MACHINERY / MARCH 17, 2011 INDUSTRY SURVEYS

on a handful of firms that we examine as a barometer of the overall industrial machinery universe. The nine companies comprise the major US and European players, and include Eaton Corp., ITT Corp., and IDEX Corp. (in the flow control sector); Schneider Electric SA, Emerson Electric Co., and Hubbell Inc. (electrical equipment); and Honeywell International Inc., ABB Ltd., and Rockwell Automation Inc. (industrial automation). As of December 31, 2010, the group had an aggregate market capitalization of $218.7 billion. For individual companies, market cap ranged from $3.2 billion (IDEX Corp.) to $50.9 billion (ABB Ltd.).

Aggregating results from individual companies, these nine firms generated total sales of $103.8 billion in the first nine months of 2010, an increase of 3.6% over the same period in 2009. The group’s aggregate net income of $8.2 billion for the 2010 period was up by 19.6% from 2009—better than the revenue increase for that period. We believe the asymmetrical increase in net income reflects the high degree of operating leverage inherent in the industrial machinery industry and the high-fixed-cost structures of many companies in the sector. Also contributing was the better utilization of manufacturing assets, as volumes improved due to an increase in global economic activity. Of interest in the accompanying table is that the median net income increase of 37.4% was less than the mean gain (80.3%); the discrepancy reflected better-than-average increases at companies such as Eaton Corp., Rockwell Automation, and Schneider Electric.

The group’s median sales increased by 6.5% in the first nine months of 2010, on a combination of higher pricing, increased volumes resulting from an improvement in both global business activity and customer demand, higher levels of business spending, and restocking of depleted inventory levels at distributors and other customers. The median net income increased by 37.4% in the period, reflecting, in our opinion, a recovery in the global economy that has led to increased volume and better pricing, and the group’s high operating leverage. We also believe that an increase in operating capacity utilization contributed to the overall increase in earnings in the first nine months of 2010.

We believe the summary data provide a broad indication that operating performance has recovered following the dramatic decline in sales and net income in 2009, as order rates, volumes, and product pricing improved across the manufacturing economy. In our opinion, this improvement is likely to continue. We estimate that industrial machinery companies increased their sales at a 12% rate in 2010, and that earnings rose more than 30%.

Results in 2011 are likely to build on the strength in 2010 In 2010, revenues and earnings continued the sequential improvement trend that began in late 2009, as the global economy improved. We believe this trend will continue and, in our opinion, industrial machinery companies will post higher results in 2011. We forecast median earnings-per-share (EPS) growth to increase more than 20% in 2011, based on our expectation that revenue will increase by about 12%. We base our

Table B01: MAJOR INDUSTRIAL MACHINERY VENDORS' REVENUES AND NET INCOME

MAJOR INDUSTRIAL MACHINERY VENDORS' REVENUES AND NET INCOME — NINE MONTHS(Ranked by 2010 nine-months sales)

MARKET

CAP* ---------- SALES (MIL. $) ---------- ----- NET INCOME (MIL. $) -----

COMPANY (MIL. $) 2009 2010 % CHG. 2009 2010 % CHG.

Honeywell 41,474 22,836 24,329 6.5 1,455 1,353 (7.0)ABB 50,920 23,034 22,410 (2.7) 2,361 1,861 (21.2)

Schneider Electric 39,508 16,414 16,270 (0.9) 840 1,395 66.1Emerson Electric 43,122 15,500 16,028 3.4 1,266 1,739 37.4Eaton Corp. 17,084 8,742 10,052 15.0 172 649 277.3

ITT 9,567 7,865 7,960 1.2 444 529 19.1Rockwell Automation 10,197 3,143 3,790 20.6 102 388 279.0

Hubbell Inc. 3,584 1,764 1,902 7.8 131 168 28.4IDEX Corp. 3,203 986 1,108 12.3 80 116 43.9

Total 218,660 100,284 103,848 3.6 6,851 8,197 19.6

Mean % change 7.0 80.3Median % change 6.5 37.4

*As of December 31, 2010.Source: Company reports.


revenue growth projection on the assumption that a continued recovery in the global economy and increased end-market demand will lead to higher overall order rates and sales for the group.

In addition to higher sales, we see improved margins leading to further earnings growth in 2011. Margins are likely to increase mainly due to higher operating leverage in 2011, as we think companies will benefit from volume leverage, better coverage of fixed costs, and improved capacity utilization rates. That said, we also believe that higher commodity costs may be a risk to our projection for higher margins.

MANUFACTURING: INDICATORS SUGGEST HIGHER ORDERS AND GREATER DEMAND

We follow a number of proxies, indicators, and metrics to gauge the prospects of the manufacturing sector and the economy as a whole. In the following section, we discuss what we believe are the most important of these measures.

The PMI: continuing strength points to further growth in manufacturing… One of the most important indicators for the industrial machinery sector, in our opinion, is the Purchasing Managers’ Index (PMI), a broad barometer of manufacturing activity, from the Institute for Supply Management (ISM), a provider of both manufacturing and non-manufacturing industry data. The manufacturing PMI is a composite index based on an equal weighing of five major indicators: new orders, production levels, employment, inventories, and supplier deliveries. It and its component measures are also diffusion indexes, which measure the degree to which change is occurring in the underlying data and its dispersion: readings above 50 indicate an expansion, while those below 50 indicate a contraction.

Historically, ISM data (including the PMI, its five components, and other important manufacturing metrics) are cyclical and follow a steady, discernable pattern, with clear peaks and troughs over the business cycle.

(The accompanying “Purchasing Managers’ Index, New Orders, & Order Backlog” chart contains historical ISM data.) Over the last 10 years, a full peak-to-peak cycle has typically lasted two years, but can be as short as six months or as long as three years. Furthermore, it appears that the typical trough-to-peak period (the mid-cycle length) lasts approximately one to two years.

Reviewing the recent history of the PMI, we believe that the manufacturing sector entered into a contraction in December 2007, when the PMI first dipped below the 50 demarcation with a reading of 48.7; this date happened to coincide with the official beginning of the recession in the US and followed a four-year expansion in manufacturing activity. That

month was the PMI index’s first contraction since January 2007 and, at the time, was the lowest the index had been since April 2003, when the reading was 46.1. Although the index rebounded moderately in January 2008, it subsequently resumed its decline. For most of 2008, the PMI index pointed to a slight contraction in manufacturing activity until about September 2008, when the index then began to decline quickly and precipitously, ultimately reaching a new all-time low of 32.5 in December 2008, reflecting the deep contraction that occurred in the US and global economies.

For much of 2009, the PMI continued to show that the manufacturing economy remained mired in a contraction, albeit one where the rate of decline was decelerating. In fact, the PMI showed that the decline in manufacturing activity continued through July 2009, with some of the readings the lowest measured in the last 20 years. We note that during this period, the component measures of the PMI index and other data indexes computed by the ISM—such as new orders, production, employment, pricing, backlog, and customer inventories— were also significantly weak.

Chart H01: PURCHASING MANAGERS INDEX, NEW ORDERS, & ORDER BACKLOG

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PMI New orders Order backlog

Source: Institute for Supply Management.

PURCHASING MANAGERS, NEW ORDERS, & ORDER BACKLOG DIFFUSION INDEXES


Later in 2009, however, manufacturing activity began to improve: the PMI turned positive in August 2009, with a reading of 52.8, up from 49.1 in July and 35.5 in January. The growth in manufacturing was sustained in the last half of 2009, with the PMI remaining above the 50 demarcation for the final months of that year, on budding strength in both the new orders and production indexes. We also note that the customer inventory index began to decline during this time period; this index runs counter to the other ISM indexes (meaning low readings are more positive).

The acceleration in growth that began in mid-2009 continued into early 2010, and the PMI reached a high of 59.6 in April. The rate of growth began to slow later in 2010, however, and the PMI subsequently declined from the April high, settling at a still-strong 55.1 in July. This reading was the lowest registered in 2010 and, in our opinion, it suggests that growth in manufacturing activity decelerated from higher rates earlier in the year. The PMI averaged 58 in the first half of 2010, versus an average of 56 in the last six months of 2010, thus indicating that the pace of growth had slowed. That said, we note that the PMI did finish 2010 with a December reading of 58.5, or 3.4 points better than the July 2010 low.

Although we believe that manufacturing activity is slowing from the robust growth exhibited in the first half of 2010, we continue to think that the recovery that began in the last half of 2009 for the industrial machinery sector will continue. Our belief is based in part on the strength in the component and other ISM manufacturing indexes, the strong results in the PMI indexes in January 2011, as well as based on our analysis of the dynamic relationship between the new orders and customer inventories indexes.

For instance, the PMI’s component measures remained strong throughout 2010 and finished the year on a positive note. The December 2010 production reading of 63 marked the 19th straight month above the 50 demarcation, indicating greater manufacturing production rates through all of 2010. In addition, the production index was at a 60 demarcation or greater for six out of 12 months in 2010. Other measures showing positive trends include the export index, the import index, supplier deliveries, and the employment index—all of which had readings at or above 50 as of December 2010.

Our analysis also suggests that the growth in new orders is likely to continue through at least the first half of 2011. The new order index, which remained strong throughout 2010, averaged 59.4 for the year and finished with a strong reading of 62 in December, up from 59.6 in November and the recent low of 51.6 in September. Although we think that order rates are likely to slow somewhat, we also believe that manufacturing order growth will continue through the first six months of 2011.

Our conviction is based on our analysis of the relationship between the new order and the customer inventory indexes, which have shown a historically strong inverse relationship. Since its inception in January 1997, the customer inventory index has generally moved in an opposite direction to the new order index, meaning that a low reading in the customer inventory index would correlate to a high reading in the new order index. The same relationship is also true of the relative trend in both indexes. Further still, we see that historically, the new order index has shown a degree of persistent growth, meaning it achieved an index demarcation of 50 or above in any six-month period following a customer inventory index level less than or equal to 42.

In December 2010, the customer inventory index stood at 40, a level that suggests continued growth in new orders. We also note that for the first half of 2010 (through July), the customer inventory index had remained at or near all-time lows.

That said, the customer inventory index has increased appreciably from its 2010 low of 32, which it hit twice—in January and May. The index remained predominantly above the 42 demarcation in the second half of 2010 (except in December), averaging 42.4 in the last six months and registering readings above 42 in four of the last six months. We also note that the customer index was sloping upward in the last six months of year. We believe this suggests that new order growth will decelerate, but that growth will remain positive, as the customer inventory index remains near the low end of its historic range.


…and the Global PMI also remains strong… The Global Purchasing Managers’ Index (GPMI) also points to continued expansion in global manufacturing activity. Compiled by Markit Economics, a specialist compiler of business surveys and economic indices, the GPMI is a weighted-average composite index of manufacturing activity globally, based on surveys covering more than 7,500 purchasing mangers in 29 countries. Reflecting the trends in the US-based PMI, the GPMI showed that global manufacturing activity rebounded strongly following the weakness exhibited in late 2008 and early 2009. In addition, the GPMI, like its US counterpart, began to show that global manufacturing activity was again growing in the second half of 2009.

In 2010, the GPMI exhibited fairly strong growth trends, especially in the first six months. The GPMI averaged 55.1 in 2010, better than the 46.8 average in 2009 and the 46.5 average in 2008. This strength was based on component indicators pointing to an improving global environment for manufacturing, including the measure of output, which averaged 57.1 in 2010, and the new order measure, which averaged 56 in 2010. In addition, both of these component measures finished 2010 strongly as output registered a 56.5 reading while new orders was a healthy 55.9.

…though some 2010 PMI components give us pause This is not to say that all the PMI component measures are markedly positive. In fact, some of the component readings, in our opinion, suggest a number of near-term risks. First, we note the continued rise in the pricing index, which finished 2010 with a reading of 72.5. This index also showed that prices increased throughout 2010, when the price index averaged 68.9 versus a 20-year average of 57.7. This suggests to us that component and other input prices are rising, a trend confirmed by the rapid rise in many commodities prices in the second half of 2010. We believe that rising prices in a still-tepid economic recovery may lead to lower margins in 2011.

We also note that the backlog index had been in a steady decline through the second half of 2010 (excluding a one-point uptick in December). The ISM measure of backlogs registered a strong 59.5 in May 2010, but then tracked down consistently through November 2010 (when it read 46). In all, the index was below the 50 demarcation in the last four months of the year.

During this same period, the inventory index (not to be confused with the customer inventory index) tracked up. In May 2010, the inventory index stood at 46.2, a low for the year, but up 3.2 points from the December 2009 reading of 43. The inventory index rose consistently through November, when it peaked at 56.8, up 10.6 points from the May low. The December 2010 inventory index did tick down to 51.8, but remained above the 50 demarcation. The trend in both the backlog and inventory indexes suggests to us that production at manufacturers may be outstripping the intake of new orders and, thus, future production rates may need to be reduced to align production levels with demand in future periods.

The PMI’s first look at 2011 That said, the readings in January 2011 could suggest that our concerns with the late 2010 trends in the backlog and inventory indexes may be unfounded. Specifically, we note the significantly strong reversal in the backlog index, which gained 11 points to 58 in January 2011, the largest one-month increase in the index since it began being tracked in January 1993. In our opinion, this increase is most likely due to strong growth in orders in the month, which registered 67.8 in January 2011, up 5.8 points sequentially, and a slower relative uptake in production, which increased only 0.5 points to 63.5 in January. The inventory index rose to 52.4 in January 2011. Surprisingly, in light of the strong growth in orders, the customer inventories index climbed by 5.5 points sequentially to 45.5 in January 2011, suggesting to us that new orders are likely to decelerate in future periods.

We also note the latest ISM price index increased to 81.5 in January 2011, near all-time highs. Our analysis suggests that the ISM price index and other ISM measures (such as production, new orders, and employment) move in tandem over time. That said, extreme price index measures also presage decelerating index values over the following six months. For instance, the PMI and its components show lower results six months following a price index reading of 80 or greater. Historically, the PMI has fallen an average of seven points and has been lower 93% of the time following such a high price index reading. As for the


component measures, the production index was down an average of eight points and lower 94% of the time following a price index reading of 80 or higher. The same trend is seen in the new order index, which declined an average of eight points and was lower 89% of the time. Lastly, the employment measure was down an average of six points and fell 85% of the time. This analysis does not suggest an outright decline in manufacturing activity, but does indicate that the recent acceleration in growth will likely give way to a slower, more sustainable growth rate.

IMPROVING INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION RATES

The Federal Reserve’s monthly indexes of industrial production, capacity utilization, and total capacity measure the real output, the productive use of total capacity, and the estimate of sustainable potential output, respectively, for the total US economy and a number of sector groups, along with their aggregates, thus providing insights into the overall health of the manufacturing sector and the economy.

To assess the health of the industrial machinery sector, we believe it is important to watch trends in both total industrial production and manufacturing production, as well as changes in machinery sector

production levels. In 2009, production trends in these three groups indicated that real output had declined compared with 2008. The Federal Reserve’s total industrial production index (2007=100) was at 89.6 in December 2009, which indicates that total production was 10.4 percentage points lower than the 2007 average production rate; the index value was also 1.6 percentage points lower in December 2009 than the December 2008 level. The decline in manufacturing in 2009 was similar to results for the overall economy. The December 2009 index value of 87.3 indicates that real output for the group was nearly 13 percentage points below the 2007 average; it also declined nearly 1% versus the December 2008 level of 88.1. In our opinion,

the machinery group fared much worse due to the cyclical nature of the group. The index value for machinery in 2009 was 76.5, nearly 24 percentage points below the 2007 average. In addition, machinery production declined by more than 14% in 2009 when compared with results in 2008.

For 2010, however, production rates for total industrial output, manufacturing, and for the machinery group improved smartly from the lows experienced in 2009, as the economy rebounded and order rates improved. Production rates for total industrial output had improved to 94.9 as of December 2010, an improvement of 5.9% when compared with the year-earlier level. In addition, manufacturing activity gained as the global economy rebounded. As of the end of 2010, the manufacturing production index was 92.9, an improvement of 6.4% versus December 2009. As for machinery, production rates in the group expanded significantly, as the industry emerged from a cyclical trough. As of December 2010, the machinery production index was 88.3, still 12.7 points below the 2007 average, but an increase of 15.4% over 2009 levels.

In addition to production rates, we believe it is important to track the trend in capacity utilization—the productive capacity currently being employed in the production of goods or services as a percent of total available capacity. Capacity utilization is an important metric to watch, as it relates to the prospects for total economic growth and the fundamental outlook of the industrial machinery sector: in our opinion, higher employed capacity suggests the potential for higher future industry pricing, increased levels of business spending, and a potential increase to future capacity to meet burgeoning demand. We note that in the last two recessions there appeared to be a strong correlation between upturns in capacity utilization, industrial machinery revenues and earnings, the official end of each recession, and the share price performance of the related companies and indexes.

Chart H02: CAPACITY UTILIZATION

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MachineryDurable manufacturingAll manufacturing

CAPACITY UTILIZATION

(In percent)

Source: Federal Reserve Board.


Monthly capacity utilization data from the Federal Reserve show that, in the period from 1980 to December 2010, median total capacity utilization was 80.5% of available capacity, ranging from a low of 68.2% (in May 2009) to a high of 85.2% (January 1989). For manufacturing, median capacity utilization was 78.9% of available capacity, ranging from a low of 65.2% (in June 2009) to a high of 85.5% (in January 1989). For the machinery sector, capacity utilization has ranged from a low of 56.4% (in February 1983) to a high of 90.2% (January 1980), while the median capacity utilization was 77% of available capacity.

Manufacturers typically begin to consider adding incremental productive capacity when utilization rates are at or above the 80% threshold. The Federal Reserve’s monthly data indicate that, after bottoming in late 2001, total capacity utilization rates had climbed back above the 80% mark by February 2005 for the first time since November 2000 (with a couple of minor exceptions). From February 2005 through March 2008, total capacity utilization remained consistently above the 80% threshold. In April 2008, however, capacity utilization dipped below the 80% level and subsequently trended down until June 2009, when it bottomed at 68.2%. Capacity utilization rebounded over the following six months; by December 2009, it had increased by a total of 3.4 percentage points to 71.6%. Total capacity utilization continued to improve through 2010, gaining 4.4 percentage points to 76% by December 2010. Although still below the 80% threshold, we think the gain since June 2009 is further confirmation that the prospects for industrial machinery are improving and that as long as the economy continues to recover, so to will capacity utilization rates.

Similar trends are seen in the capacity utilization rates for manufacturing and the machinery sector. Capacity utilization rates for manufacturing reached an intermediate high of 80% in mid-2007, and remained above 75% until August 2008. The index subsequently declined by nearly seven percentage points through the end of 2008, finishing the year at 68.9%. The index continued to decline through June 2009, bottoming at 65.2%, suggesting that nearly 35% of all available manufacturing production capacity was idled at that time. As the economy began to recover, so did manufacturing capacity utilization rates. As of December 2009, capacity utilization had risen to 69.1%. In addition, manufacturing capacity utilization improved further still in 2010, posting slow and steady gains throughout the year.

As for the machinery sector, capacity utilization rates reached an intermediate high of 85.4% in September 2007. The index then dipped below the 80% level in September 2008, reversing the upward trend that began with the recovery following the 2001–02 recession. The index declined through June 2009, when it bottomed at 61.1%, as the severe global recession left nearly 40% of available total capacity idled. However, machinery’s capacity utilization subsequently improved as the economy recovered, and was 65% in December 2009. This upward trend continued in 2010, and the index stood at 76.3% in December 2010.

In our opinion, the recent capacity utilization gains in the economy, manufacturing, and machinery still show there is some productive slack in the machinery sector. That said, we view the positive trend over the last year and a half as encouraging, and believe that capacity utilization rates will continue to improve.

CAPITAL SPENDING LEVELS LIKELY TO IMPROVE IN 2011

In our view, improving capital spending levels are one of the essential requirements for a recovery in the industrial machinery sector. Following overall declines in capital expenditures in 2008 and 2009, and a rebound in spending levels in 2010, we believe that overall capital expenditures will again improve in 2011. This opinion is based on our expectation that the economic recovery that began in mid-2009 will continue through 2011, as end-market demand, capacity utilization rates, and industrial production all continue to improve.

Nondefense capital goods orders (excluding aircraft), reported by the US Department of Commerce, is a good proxy for the broader manufacturing sector and the economy as a whole, in our view, is as it includes larger, durable manufactured equipment, but excludes the volatile aerospace and defense industries. In addition, we believe this broader measure of orders is also a reasonable proxy for capital spending. Hence, it is an important measure to monitor, as it provides insight into the trend of business spending levels over time.

In 2009, the trend in the durable goods data somewhat mirrored changes in the ISM’s PMI, exhibiting deep declines in the first half of the year, but improving sequential results later in 2009. For all of 2009,


nondefense capital goods orders declined 19.8% to $627.8 billion, from $782.4 billion in 2008. In addition, on a rolling 12-month basis, durable goods orders were at a near-term low of $626.3 billion in November 2010, as the effects of the recession depressed order rates.

Nondefense capital goods shipments also declined precipitously in 2009, falling by 16.2% to $655.1 billion in December 2009 from $781.6 billion in the year-ago period. This level also marked the near-term low in

nondefense capital goods shipments.

Although nondefense capital goods orders and shipments declined in 2009, we believe that both orders and shipments began a bottoming process in mid-2009, as monthly results showed sequential improvements. Monthly results also indicated that the year-over-year declines in order and shipments began to decelerate in June 2009.

We note that this improving trend continued into 2010 for both nondefense capital goods orders and shipments. Through December 2010, nondefense capital goods orders increased at a 16.7% rate to $732.5 billion, from $627.8 billion in all of 2009, and gained 16.3% to $65.4 billion in December 2010, versus the $56.3 billion in December 2009.

On a monthly basis, December 2010 marked the tenth straight month that the orders rate increased at a double-digit pace compared with the year-earlier period.

Nondefense capital good shipments exhibited similar results in 2010. For all of 2010, shipments gained 9.1%, increasing to $715 billion from $655.1 billion in the year-ago period. Monthly rates for shipments also showed improvement in 2010. For December 2010, shipments gained 11.7% to $62.8 billion from $56.2 billion in December 2009. We also note that nondefense capital goods shipments increased at rates greater than 10% in seven of the previous eight months.

Although nondefense capital goods orders and shipments exhibited similar trends in 2010, new order growth in 2010 outpaced shipment volume by a significant margin—16.7% versus 9.1%. The ratio of new orders to shipments also sloped up throughout 2010. In December 2010, total new orders over the previous 12 months were 1.02x more than shipment volumes. This compared with new orders rates of 0.96x shipments in December 2009 and 1.0x in December 2008. The increased level in orders over shipments has concurrently led to a rise in unfilled nondefense capital orders in 2010. Following a 12.6% decrease in 2009, unfilled orders rebounded in 2010, gaining 9.3% to $206.7 billion as of December 2010.

We believe that the outsized growth in new orders, relative to shipments, and the increase in unfilled order levels should be viewed in the context of total productive and manufacturing capacity trends. Total productive capacity, as reported by the Federal Reserve, increased on a year-over-year basis through much of 2008 and through the first three months of 2009. It also increased, albeit at less than a 1% pace, through most of 2010. By late 2010, however, total productive capacity in the US exhibited year-over-year declines, falling at a 0.3% pace in December 2010. Manufacturing capacity also declined over the same period, showing year-to-year declines in every month since October 2009. Manufacturers appeared focused on reducing available capacity, most likely due, in our opinion, to the high level of fixed costs in the industry. As of December 2010, available manufacturing capacity was 0.7% lower than in December 2009.

In our view, these statistics show that while new order growth has accelerated and unfilled orders have increased, productive capacity has declined. Including pent-up demand for all sorts of machinery products that has built up since the beginning of the recent recession, we believe this foreshadows further increases in capital spending and some pointed additional productive capacity. This thesis is supported by a number of manufacturing-based surveys, including the ISM’s Semiannual Report on Business (released in December 2010), the PricewaterhouseCoopers Manufacturing Barometer, and the NAM/IndustryWeek third-quarter

Chart H04 NONDEFENSE CAPITAL GOODS, EXCLUDING AIRCRAFT

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manufacturing index. In the latest ISM semiannual report, survey respondents predicted manufacturing-related capital expenditures to rise by 14.5% in 2011. This compares to survey respondents stating that capital expenditures gained 5.9% in 2010, more than the previous estimate of a 2% gain. In the same report, survey respondents stated that production capacity increased at a 7.5% rate in 2010 and would expand by 5.2% in 2011. In addition, the fourth-quarter 2010 PricewaterhouseCoopers manufacturing barometer showed, at least directionally, an increased number of industrial manufacturers planning major new investments: 44% in the fourth quarter of 2010, versus 35% in the year-earlier period.

This is not to say that manufacturers will increase capacity without limit, as it appears that capacity additions will be more pointed and select. For instance, the latest ISM’s Semiannual Report on Business stated that a 7.5% increase in productive capacity was expected in 2011, but that the largest source of this growth would be from additional hours from the current work force. Manufacturers’ investment expectations for the next 12 months, as stated in the latest NAM/IndustryWeek Manufacturing Index (released in the third quarter of 2010), were modest as well: respondents think that investment levels will increase by just 1.9%. It is also our opinion that manufactures are leaning towards making select capacity additions, especially building facilities or making investments closer to centers of growth or imbedded within a customer populace. Greater growth from emerging markets and resource nations suggest that manufacturing capacity will move closer to or expand within these regions. In addition, the rise in commodity prices is another impetus to selected capacity additions.

A PRELUDE TO INFLATION? COMMODITY PRICES ONCE AGAIN INCREASING

Industrial machinery vendors are typically heavy consumers of a number of raw materials and commodities in their production processes. Foremost among these are steel, copper, oil, and natural gas, to name a few.

Prices for all of these raw materials surged from the beginning of the last decade into 2008, due in part to the industrialization of the developing world. However, the global recession that began late in 2007 resulted in weaker demand and lower prices, with prices for oil, natural gas, copper, and steel falling to multi-year lows in the first half of 2009. Since mid-2009, commodity prices have increased significantly due to a rebound in demand and higher inflation expectations, in our opinion, as exemplified by an increase in the break-even inflation rate imbedded in the spread between US Treasury bonds and Treasury Inflation-Protected Securities (TIPS). However, commodity prices tend to be volatile, and can swing significantly on seemingly minor changes in the supply/demand balance or investor sentiment.

Steel. The price of hot rolled sheet steel averaged $634 per ton in 2010, up 29% from the $491 per ton average in 2009, but down 26% from $862 per ton in 2008. That said, the average price per ton of steel is up 17.5% from the $540 per ton average in 2005. For 2010, the price of steel remained range-bound. It traded at a high of $720 per ton in both April and May, but at low of $570 per ton in October. That said, steel prices remained over the average price of $491 per ton in 2009 and the December 2009 price of $550 per ton. We think steel prices exhibited a high degree of volatility in 2010 and note that prices gained $170 per ton from December 2009 to May

Chart H03: KEY COMMODITY PRICES FOR INDUSTRIAL MACHINERY INDUSTRY

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2010. We think this increase occurred on optimism in the economic recovery. We also think this optimism gave way in the summer of 2010, leading to a $150 per ton price decrease through October 2010. Steel prices increase briskly in the last two months of the year, as investors began to anticipate higher inflation and increased levels of demand. Steel finished 2010 at $705 per ton.

Copper. In 2010, copper prices averaged more than $7,600 per metric ton, 43% better than the average in 2009 of $5,314, and 10.5% greater than the average of $6.894 in 2008. In addition, the average copper price in 2010 was more than double the 2005 average of $3,729 per metric ton, according to London Metal Exchange data. Copper prices in 2010 remained relatively range-bound through June. It traded at a high of $7,759 per metric ton in March and a low of $6,484 per metric ton in June. The December 2009 closing price was $7,342 per metric ton. Following the June 2010 low, however, copper prices began a steady march upward and increased each month thereafter. We believe the same dynamics that led to higher steel prices, namely higher investor inflation expectations and increased demand, led to the increase in copper prices in the later half 2010. Copper closed 2010 near a five-year high of $9,650 per metric ton.

Oil. For 2010, the price of West Texas Intermediate (WTI) crude oil averaged $79.75 per barrel, up 29.9% from $61.39 per barrel in 2009, and 41.2% higher than the $56.49 average price in 2005. Through most of 2010, oil prices remained relatively flat versus a December 2009 closing price of $76.05 per barrel. Through August 2010, the price of oil ranged from a high of $84.29 per barrel in April to a low of $71.93 in August. Since August, however, oil prices increased nearly $20 per barrel, closing 2010 at a high of $91.40 per barrel. We believe this largely reflects a combination of increased demand and higher inflation expectation, as evidenced by the rise in the break-even inflation rate imbedded in the spread between US Treasury bonds and Treasury inflation-protected securities.

Natural gas. The average Henry Hub natural gas price of $4.24 per million British thermal units (MMBtu) in 2010 was 8.3% greater than the 2009 price of $3.90 per MMBtu. That said, the 2010 average price is 52.1% lower than 2008’s average natural gas price of $8.80 per MMBtu and 51.8% lower than 2005’s average price of $9 per MMBtu. In addition, natural gas prices in 2010 exhibited what we would characterize as volatile price action, ranging from a high of $5.25 per MMBtu in January to a low of $3.36 per MMBtu in October. Natural gas finished 2010 with a price of $4.22 per MMBtu, versus the year-ago price of $5.32 per MMBtu. We attribute this volatility to a number of factors such as increasing, albeit tepid, demand and consistently high inventory levels, which have remained above the 5-year average through 2010.

Developing economies, supply disruption, monetary policy driving commodity prices Raw material prices exhibited a high degree of volatility over the last few years due to the interactions of waxing and waning supply and demand dynamics. Significant growth from the developing world has led to increased demand for many commodities, while stretched supply chains have led to new pricing dynamics in the commodity markets that were not seen in years past. For instance, China’s need to import much of its coal and steel supplies has put pressure on the supply lines for theses commodities, and their prices have reacted in kind. In addition to short-lived disruptions—such as the 2010–11 floods in Australia that have reduced the available of iron ore, metallurgical coal, and agricultural commodities—the availability of quality commodity supplies (or lack thereof) is a leading dynamic driving changes in commodity prices.

It is also our belief that global monetary policy is a leading cause of volatility in commodity prices. For one, the reduction of interest rates globally has led some speculators into commodities in search of either capital appreciation potential or safety (as in the case of gold). In another instance, we believe that monetary policy in the US may be exerting upward pressure on commodity prices. Since announcing a second round of quantitative easing in August 2010, the rise in the break-even inflation rate imbedded in the spread between US Treasury bonds and Treasury Inflation-Protected Securities has increased significantly. In our thinking, this is a direct reflection of investors’ expectation for future inflation. Second, the balances of global trade are typically reflected in the difference between interest rates and the value of currencies. With short-term rates held at artificially lows levels in the US, the mechanism for global trade balances exerts itself by pushing the value of the dollar lower. Because many commodities are priced in dollars globally, a falling value of the US dollar raises the price of commodities, thus increasing their price volatility.


This is not to say that commodity costs are the only input price likely to rise in 2011; labor and benefit costs could also rise. We cite reports from The Economist, the New York Times, and the Wall Street Journal that note rising labor costs in China. For years, China has been the go-to destination for manufacturers, to secure lower production costs and cheaper labor, a trend that may change if labor costs continue to rise in that country. In addition, legislation in Western nations, such the US healthcare bill slated for full implementation in 2014, may also lead to higher benefit costs. We also note that the December 2010 ISM Semiannual Report on Business stated that manufacturers believe that labor costs are likely to rise by 1.9% in 2011.

Outlook for industrial machinery pricing As we see it, the recent significant rise in commodity and input prices foretells a rise in industry pricing. For instance, the industry surveys we follow all suggest that survey respondents expect higher pricing in 2011. For example, the NAM/IndustryWeek Manufacturing Index released in the third quarter of 2010 indicated that survey respondents expected a 1.2% increase in pricing over the next twelve months. In addition, the fourth-quarter 2010 PricewaterhouseCoopers Manufacturing Barometer included that the number of respondents expecting higher pricing has gone up each quarter in 2010. Both these surveys were compiled before the most recent spike in commodity prices. We also note that the rise in capacity utilization rates in 2010 is likely to presage higher industry pricing power.

For 2011, we believe that industrial machinery companies will experience higher overall product pricing. We base our view on the general rise in commodity and input prices, which, in our opinion, raises the likelihood that companies will increase product prices, a subject that has been discussed on a number of recent quarterly conference calls.

However, the question remains as to the staying power, timing, and degree of the price increases. In theory, the best overall strategy, as it pertains to pricing and commodity costs, is simply to pass through any price increases to the customer. In practice, however, some industrial machinery companies may find the pass-through of commodity costs difficult, depending on the product line, competitive market dynamics, and the company’s distribution model. In addition, the timing of price increases may also become an issue, and may raise the question of whether the products sold have enough elasticity to allow an immediate or near-immediate increase in pricing. Finally, some industrial machinery companies use hedging strategies or supplier/customer relationships to their advantage as it pertains to product pricing. To maintain or increase their pricing power and margins, industrial machinery companies may also consider strategic acquisitions or divestitures in certain businesses.

OUTLOOK AND SECTOR REVIEW

As evidenced by the growth and improvement exhibited in the ISM data and other economic indicators such as industrial production, capacity utilization, and data on nondefense capital goods (excluding aircraft), we believe that the economic environment continues to improve following the deep recession experienced recently, and we see further gains in results for industrial machinery companies. Driving these gains, in our view, will be a combination of higher end-market demand, especially from emerging markets or resource-rich nations. We also note that sector-specific factors influence results in the flow control, electrical equipment, and industrial automation segments. We discuss each segment group in the following sections.

Demand for flow control equipment is improving We think that total orders for the fluid control industry declined in 2009 as demand waned due to the weakness in the global economy. As evidence, we note the decline in machinery and industrial machinery orders and shipments as reported by the US Department of Commerce. According to the Commerce Department, machinery orders fell 27.1% and shipments declined 22.7% in 2009, as compared with 2008. As for industrial machinery, a subset of the machinery group, manufacturers’ new orders declined 32.6% in 2009 versus 2008, while shipments fell 23.7%.

Following 2009’s dismal results, new order and shipment rates for machinery and industrial machinery improved dramatically, which we believe suggests that the demand for flow control equipment has been improving. For instance, machinery orders in 2010 increased by 21% to $317.3 billion. In addition,


machinery shipments improved over the same period, gaining 7.6% to $296.4 billion. As for industrial machinery, new order rates gained 55.6%, totaling $36.5 billion in 2010. Industrial machinery shipments also fared well in 2010, rising 22.8% to $33.5 billion. We believe this improvement is due to increasing end-market demand globally, a trend we expect to continue through 2011.

Electrical equipment industry leaders see softer conditions We follow a number of measures that indicate the health of the electrical equipment industry, and find the durable goods order data from the US Department of Commerce and the Electroindustry Business Confidence Index (EBCI) from the National Electrical Manufacturers Association (NEMA) particularly useful. Using this data, we believe that the electrical equipment industry saw similar declines as other

machinery subsectors.

According to the Department of Commerce, new orders for electrical equipment declined 28.3% in 2009 from 2008, while total shipments declined by 23.8%. However, new orders increased by 26.6% in 2010, ending the year at more than $40.3 billion. In addition, shipments improved over the same period, totaling $37.1 billion in 2010, up 10.2% versus the year-ago period. We also note that the ratio of new orders-to-shipments remained greater than 1.0 since March 2010 and has continually improved since June 2009, which in our view is a signal that demand levels continue to improve.

Another industry-specific indicator is the EBCI survey, which measures electrical manufacturer executives’ opinion of current and future industry conditions across four regions: North America, Latin America, Europe, and Asia. Similar to the PMI, the EBCI is a diffusion index, which means that readings above 50 indicate growth while those below 50 indicate contraction.

Since reaching a bottom in early 2009, the current conditions indexes have all improved off their 2009 lows in all surveyed regions. In January 2011, the current conditions indexes for the four regions indicated growth, with exceptional strength in North America and Asia/Pacific, where these measures stood at 63.6 and 62.5, respectively. As for the Latin American and European indexes, current conditions in these two regions registered a still-healthy 55.9 and 50.0, respectively. As for the future conditions indexes, all regions showed exceptional strength in January 2011, as all measures registered over 75. Of the four regions, North America was strongest, with the future conditions index at 88.6. The future conditions indexes for Asia/Pacific and Europe registered 79.4 and 78.1, respectively, while Latin America stood at 77.8.

Industrial automation demand reflected in lower robotics orders In industrial automation, trends in total capacity utilization and robot orders are significant indicators of the segment’s prospects, in our view. Capacity utilization is important, as high or increasing utilization rates portend higher business spending. In addition, robotic orders can provide insights into near-term industrial automation prospects, primarily as robotics equipment works directly with other pieces of automation equipment. For example, robots perform welding and coating tasks—processes that might be used on production lines in the automotive or chemical industries, both of which use other automation equipment.

We look at trends in robotics orders to help gauge demand levels in the industrial automation sector. According to the Robotic Industries Association (RIA), an industry trade group, global shipments of industrial robots through the first nine months of 2010 were up 34% on a unit basis and up 45% on a dollar value basis versus the year-ago period. On a dollar value basis, $618.4 million in robotic equipment was sold through the first nine months of 2010, and this increase was broad-based. The non-automotive sector constituted the

Chart H05 ELECTROINDUSTRY BUSINESS CONFIDENCE INDEX OF FUTURE CONDITIONS

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*"Future Conditions" defined as expectations for the industry over the next 6 months. A score of 50 or higher indicates conditions favorable to growth. Source: National Electrical Manufacturers Association (NEMA).


largest increase in orders in 2010, with other leading sectors (in order of growth) being semiconductor/ electronics, metals, plastics/rubber, and life sciences/pharmaceuticals. Although these gains were from a low base in 2009, we believe they are representative of a rebound in the demand for industrial machinery and automation equipment.

Along with the increase in robotic equipment, we believe the increase in total capacity utilization rates in 2010 suggests that industrial automation vendors will experience an improving operating environment and increased demand levels in 2010. We also believe that the aging of equipment and reduced spending during and following the recession of 2008–09 has led to pent-up demand. We also think that industrial automation vendors will benefit from continued growth in spending on maintenance, repair, and replacement automation parts.

RISKS TO OUR OUTLOOK

Although we believe that revenues and earnings for the industrial machinery subsector will continue to recover due to a further improvement in the global economic environment, we also believe our outlook is not without risks. The following is a review of some of the more serious risks that may cause us to change our overall outlook.

A rise in commodity prices/inflation. We believe this is a new risk—one that began to emerge in the later months of 2010. Mainly, the risk is a result of the rise in the number of commodity prices. For instance, coal (both thermal and metallurgical), steel, copper, a number of agricultural commodities, oil, and other commodities all rose dramatically in price in the closing months of 2010. We expect this trend to continue as long as demand continues to build, global monetary policy remains easy, and supply issues remain in the forefront. In our opinion, the rise in commodity costs appears to have begun to reverberate through the supply chain, as evidenced by an increase in producer prices globally and the rise in the pricing component of many industrial surveys. In addition, a number of manufacturers and industrial machinery companies have addressed this growing issue on their latest conference calls with the investor community. Although we think many industrial machinery companies will be able to offset rising input costs via hedging programs or price increases, still other companies may experience margin pressures.

Global austerity. We believe that another potential risk to the industrial machinery group is the trend towards global austerity. Austerity measures—deficit-cutting policies enacted by governments that may also coincide with increased taxes—have been discussed or enacted by many nations, and, in the US, regionally (as in California). Many industrial machinery companies sell directly to government agencies, and a reduction in spending levels may hurt sales and profits for the sector. In addition, austerity measures could hurt industrial machinery companies via the potential of lower living standards. Lastly, increased taxes implemented with any deficit-reducing initiatives could not only reduce sales for the sector, but also reduce corporate profitability.

The end of government stimulus programs. On the same line as austerity measures, government-sponsored stimulus programs enacted during the recession of 2008–09 are now beginning to wind down, and with their conclusion may come a slowdown in spending on machinery. For instance, the American Recovery and Reinvestment Act of 2009 allocated up to $787 billion for a host of programs, including energy projects, road repair, transportation projects, and other spending programs that indirectly benefitted industrial machinery companies. Through January 2011, 92% of these funds had been paid out, leaving 8% unallocated. China also enacted its own stimulus programs during the recession, which we believe helped indirectly to boost demand for industrial machinery. Now, however, not only are these programs nearing completion, but Chinese authorities also seem more inclined to slow their economy to control high inflation rates.

Lingering effects of the credit crisis. In the postwar period, economic downturns have typically been caused by one of two events: rising interest rates or overproduction. The recent recession, however, was not typical: it resulted from an overall contraction in the level and availability of credit. Past credit-led economic downturns have led to protracted economic slumps followed by slow and muted recoveries. Examples include the Panic of 1873, the Great Depression, and the “lost decade” in Japan: all were deep economic


downturns followed by muted recoveries, as companies and individuals repaired their respective balance sheets and credit availability was limited. If a similar scenario were to occur now, our outlook may overestimate the prospects for economic growth in general and for the industrial machinery sector in particular. For instance, the sovereign debt crisis that hit Europe in April and May 2010 is likely one of the lingering ramifications from the global credit crisis. In addition, what we view as the bifurcation in industrial markets is another sign of the lingering effects of the credit crisis. By bifurcation, we mean that larger, global companies with access to the credit markets are outperforming smaller, domestically focused manufacturing companies, as growth in the latter group appears muted.


INDUSTRY PROFILE

The business of making factories and facilities run

The industrial machinery industry is large and diverse, providing the equipment, tools, and apparatus occupying the factory floors of manufacturers, enabling them to produce their products and improve their operating efficiency. Such equipment includes products that regulate and measure the flow of fluids and gases used and produced in numerous industries, motors, machinery used in assembly lines, and machinery used in electronics, to name a few. For purposes of this report, Standard & Poor’s focuses on three main sectors: flow control products, electrical equipment and components, and industrial automation equipment.

INDUSTRY SECTORS

This discussion focuses on the larger companies that figure in at least one of the three main industry categories. In addition to these firms, however, a great many others manufacture products and offer services in one or more of these sectors. It is important to note that disaggregating revenues between categories can be difficult. Some, if not most, manufacturers in this group operate in more than one area, and they may combine financial data for the purposes of their business segment reporting.

Flow control Companies in this subsector produce products used to control water, oil, gases, or other fluid-like materials that are needed in the course of industrial production. Products in this segment include valves, pumps, controls, measurement devices, couplings, fittings, adapters, fluid connectors, motors, cylinders, drives, filtration products, mechanical seals, actuators, turbines, fans, blowers, compressors, hydraulic components,

accumulators, and other associated products and services.

Companies in this subsector sell to a diverse group of customers, including power plants, water and wastewater treatment facilities, oil and gas drillers and refiners, and pulp and paper manufacturers, as well as companies in the following industries: chemicals, food, beverages, pharmaceuticals, aerospace, marine, agriculture, construction machinery, textiles, industrial and telecommunications equipment, transportation, medical equipment, mining, mobile equipment, machine tool manufacturers, and other manufacturers.

The major manufacturers in this sector generated about $24.8 billion in sales of

flow control product in the first nine months of 2010, up more than 4% from $23.8 billion in the same period of 2009. Revenue increased due to a combination of improving global demand and some inventory restocking. Total flow control products averaged 42% of total company sales for both periods.

Electrical equipment and components Companies operating in this category make electric motors, heating, ventilation, and air conditioning (HVAC) equipment, water testing equipment, electrical power equipment, circuit protection products, commercial and industrial lighting fixtures and components, along with other related products and services. Specific goods developed and manufactured by the industry include electric motors, circuit breakers,

Table B03 SELECTED FLOW CONTROL MANUFACTURERS REVENUES

SELECTED FLOW CONTROL MANUFACTURERSREVENUES — NINE MONTHS(Ranked by 2010 nine-months flow control sales)

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SALES REVENUES SALES AS % OF

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COMPANY 2009 2010 2009 2010 2009 2010

Eaton** 4,374 5,409 8,741 10,052 50 54Tyco* 5,107 5,138 12,456 12,936 41 40Emerson Electric 4,640 4,680 15,500 16,626 30 28Flowserve 3,166 2,892 3,166 2,892 100 100ITT 2,439 2,599 7,865 7,960 31 33Ebara 2,473 2,429 3,974 3,830 62 63SPX 1,196 1,176 3,527 3,565 34 33Roper 398 442 1,707 1,496 23 30

Total 23,793 24,765 56,936 59,356 42 42

*Flow control revenues also include fire products. **Includes revenue fromthe hydraulic, aerospace, truck, and automotive segments.Source: Company reports.


transformers, generators, electricity meters, relays, panel boards, switchgear, wiring devices, lighting fixtures, outlet boxes, grounding equipment, cable accessories, insulators, compressors, refrigeration systems, temperature control units, thermostats, and HVAC systems.

The companies in this subsector sell into various end markets, including heating, ventilating, and air conditioning manufacturers and service providers, electric utilities, mining companies, architectural firms,

engineering companies, commercial and residential construction markets, aircraft manufacturing, automotive transportation production, medical, general manufacturers, and telecommunications.

We estimate that the major manufacturers in this sector generated $77.7 billion in electrical equipment and related sales during the first nine months of 2010, a decrease of about 2% from $79.3 billion in the similar period in 2009. On average, electrical equipment and related sales comprised 53% of total sales for the major manufacturers in both periods.

Industrial automation The industrial automation category includes a wide variety of products, parts, and manufacturing systems integrated with other types of industrial machinery (such as in automobile assembly lines or food product manufacturing) to add technology-driven improvements and efficiencies to manufacturing processes. A handful of large firms from various points on the globe dominate this concentrated industry.

Manufacturers in this subsector focus on discrete or process control

automation (with the later being subdivided into two categories, continuous and hybrid). These can include industrial automation products, and systems, software, and services focused on controlling and improving manufacturing processes. Specific products in this segment include robots, sensors, drive systems, low-voltage controllers, process automation products, instrument systems, mounted bearings, gear reducers, mechanical drives, pulleys, couplings, clutches, motors, motor brakes, adjustable speed drives, variable-speed and index drives, mechanical power transmission equipment, ultrasonic welding and cleaning equipment, software, conveyor systems, and testing equipment. Customer end markets include automotive, plastics, rubber, machinery, printing, pharmaceutical, consumer, food, and other industries requiring automated manufacturing processes.

The automation industry is characterized by a small number of large competitors that typically cross-sell their automation systems and equipment bundled with other products, such as electrical equipment. Some of the largest firms in this sector produced a combined $272.6 billion in total sales in the first nine months of 2010, or a 1% decline, versus the $276 billion in the same period of 2009.

Table B04 SELECTED ELECTRICAL EQUIPMENT MANUFACTURERS REVENUES

Table B05 SELECTED INDUSTRIAL AUTOMATION VENDORS REVENUES

SELECTED ELECTRICAL EQUIPMENT MANUFACTURERSREVENUES — NINE MONTHS(Ranked by 2010 nine-months electrical equipment sales)

ELECTRICAL

EQUIPMENT TOTAL EQUIPMENT

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General Electric* 57,776 53,484 115,347 109,937 50 49Schneider Electric** 16,414 18,430 16,414 18,430 100 100Emerson Electric 3,924 4,447 15,500 16,626 25 27Hubbell 1,214 1,358 1,764 1,902 93 94

Total 79,327 77,720 149,024 146,895 53 53

*Includes sales of energy and technology infrastructure. **Company changedits segment reporting structure in December 2009.Source: Company reports.

ELECTRICAL

------- (MIL.$) -------

SALES

SELECTED INDUSTRIAL AUTOMATION VENDORSREVENUES — NINE MONTHS(Ranked by 2010 nine-months sales)

TOTAL MARKET

SALES CAPITAL- INDUSTRIAL

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COMPANY 2009 2010 (MIL.$) NICHE

General Electric 115,347 109,937 194,875 Mainly DiscreteSiemens 79,743 77,028 108,673 HybridABB 22,836 24,329 41,474 Mainly ContinuousHoneywell 23,034 22,410 50,920 Mainly ContinuousSchneider 16,414 18,430 39,508 HybridEmerson Electric 15,500 16,626 43,122 Mainly ContinuousRockwell Automation 3,143 3,790 10,197 Hybrid

Total 276,017 272,550 … …

*As of December 31, 2010.Sources: Rockwell Automation; company reports.


INDUSTRY TRENDS

For industrial machinery, demand drivers and business economics can vary from one subsector group to another. Nonetheless, the industry subsectors also share a number of similar trends and themes. This section considers and details these common trends, as well as other developments affecting specific industry subsectors. We start with what we see as new or emergent trends followed by a discussion of trends that we think will continue to affect the industrial machinery sector over the long term.

DEMAND GROWTH LIKELY TO CONTINUE, BUT AT A DECELERATING RATE

In 2010, the demand for industrial machinery improved significantly following what we see as the trough in economic growth that occurred in the second half of 2009. Many factors led to the improvement in demand. For one, the economic stimulus programs enacted in the US, China, Europe, and other countries helped stabilize their economies, leading to greater confidence and an increased willingness for manufacturers and other industrial machinery customers to spend on all sorts of machines. In addition, pent-up demand following the year-and-a-half decline in the world economy that began in the later months of 2007 helped boost demand levels during the back half of 2009 and in 2010. Further still, inventory restocking by distributors and vendors of machinery equipment also helped boost industrial machinery sector results.

For 2011, we believe that industrial machinery equipment demand levels are set to improve again, an opinion based on a number of factors. First, we believe that the economic recovery that began in the second half of 2009 will continue, as growth becomes self-sustaining. In addition, we think that industrial machinery companies will benefit from large exposure to demand growth in international markets, especially from the developing world. We also find positive comments made during December quarterly conference calls with the investor community, stating that industrial machinery companies continue to experience growth in demand for equipment.

Growth in 2011 will remain positive, but at a decelerating rate Our confidence in the belief that demand for industrial machinery will improve in 2011 is also based on an analysis of the manufacturing statistics, such as the ISM’s Purchasing Managers’ Index (PMI) data and the US Commerce Department’s durable goods orders. For instance, our analysis of the PMI data suggests that new order growth persists for six to twelve months following a customer inventory index reading at or below 42, a level that was registered in eight of the last twelve months. In addition, our analysis shows the ratio between nondefense capital goods orders and shipments, as stated by the US Commerce Department, suggests that orders remain positive following an upwardly sloping ratio, which was exhibited in the 2010 data.

That said, we also think our analysis suggests that order growth will decelerate in 2011, when compared with growth in demand in 2010. For instance, extreme levels in the ISM’s new order index, which we define as levels at or above 65, tend to be followed by readings that remain above the 50 demarcation six and twelve months hence, indicating continued growth. However, the ISM’s new order index also tends to decline, on average, by 8 to 10 points following extreme levels. We also have concerns concerning the trend in the customer inventory reading in the later half of 2010. First, the 45.5 reading in the January 2011 customer inventory index suggests, by our analysis of historic trends, that new order growth has a greater probability of slowing in the next six to twelve months. In addition, we note that that the customer inventory index was positively sloped in the final months of 2010, suggesting that order rates are set to slow.

We reach the same overall conclusion via our analysis of the ratio of nondefense capital goods orders to shipments. Our analysis shows that orders remain positive in the subsequent twelve months following a new orders–to-shipments ratio greater than the long-term average and rising, which is the current scenario. However, our analysis also shows that, despite remaining positive, growth in the subsequent twelve months also decelerates following the initial observation.


INFRASTRUCTURE AND ENERGY LIKELY TO BE GROWTH DRIVERS FOR INDUSTRIAL MACHINERY

We think that industrial machinery companies with exposure to infrastructure construction and the energy/resource sector are likely to experience a more aggressive expansion in 2011. Developing countries in Asia, such as China and India, have continued to experience outsized growth in their economies, a trend we expect to continue longer term. In 2010, the Chinese economy expanded by 10.3%, and is now the second-largest economy in the world after the US. The Indian economy grew at an 8.9% pace in the period from April 1 through the end of September 2010. In addition, the Indian government forecasts that the Indian economy will grow by 8.5% for the fiscal year ending March 2011. These growth levels have far exceeded the economic growth achieved in the US and other developed nations in 2010.

This outsized growth has placed a strain on the developing world’s infrastructure, and compelled these nations to embark on multi-year expansion programs. These investments include the buildout of roads, highways, power plants, energy transmission and distribution systems, and manufacturing and industrial facilities. Industrial machinery companies have benefitted and will likely continue to benefit from the developing world’s need to expand the capacity of their infrastructure to meet the needs of the burgeoning economies.

The industrial machinery sector will also likely benefit from the developing need for quality energy supplies. According to 2009 figures estimated by the World Bank, the populations of China and India combined totaled 2.5 billion, or more than 35% of the world’s population. As both these and other developing economies expand, their need for energy will increase at an accelerating rate, directly benefitting companies exposed to energy extraction, mining, drilling, and transportation. That said, we believe that world supplies of energy will become ever more constrained as time progresses due to the declining overall quality of available energy resources and the ability to get to and extract current reserves. This trend will directly benefit industrial machinery companies, as mining and other energy-related firms turn to more sophisticated machines to extract, process, and transport these commodities.

GROWTH IN GREEN

Another potential growth driver for the industrial machinery sector is the growth in green initiatives. Green is a catchall moniker for processes, products, initiatives, and manufacturing philosophies and practices that enable manufacturers to reduce energy or raw material consumption. Growth in green machinery products appears to have grown in recent years, especially for products used in alternative energy sources, such as wind or solar, or for the reduction of energy use by industrial machines, such as Baldor Electric’s Super-E motors.

However, it is our opinion that only time will tell if the growth in green initiatives is just a passing manufacturing fad. For instance, a 2009 IndustryWeek survey of manufacturers indicated that many have yet to adopt green practices, despite increased environmental regulations. This survey indicated that only 35% of respondents had green manufacturing practices and policies in place. However, in another survey conducted by Automation World magazine in February 2010, the adoption rate of green practices appeared higher: 60% of manufacturing respondents in this survey stated that they have formal green initiatives. That said, both survey indicated that the number one reason cited for adopting green practices was the reduction of energy costs, which suggests to us the adoption of green practices does have a limit dictated by the dynamics of cost/benefit analyses.

ACQUISITIONS REMAIN STRATEGIC PRIORITY FOR THE INDUSTRY

Following a dearth of acquisitions in 2009 and a 23% increase in the dollar volume completed in 2010, we believe that the pace of acquisitions will increase in 2011, especially for larger industrial machinery companies. Our opinion is based on a number of factors, including a rising stock market, which we believe leads to both greater confidence in the marketplace and the ability for companies to finance potential acquisitions via equity offerings. In addition, we think that a greater availability of debt financing will make acquisitions a more compelling use of capital in 2011. In addition, large industrial machinery companies have increased balance sheet cash over the last few years, and we think investors will begin to pressure these firms to put that capital to work.


We also continue to believe that consolidation within the industrial machinery subsector will remain a long-term trend. Reasons for this opinion include the fragmented nature of the flow control, electrical, and automation equipment categories; the large number of smaller competitors in the industry; lower overall levels of capacity utilization following the recession of 2008–09; and larger companies’ access to (or ability to generate) capital. Many large participants in these industries consider their operating subsidiaries to be components of a business portfolio that they manage to optimize capital resources and provide the most favorable returns to investors. Such companies often make acquisitions to round out or broaden product lines. In addition, companies may use acquisitions to deepen market penetration rates, or they may also restructure or divest lagging units that do not generate (or are unlikely to provide) adequate rates of return. In some cases, vendors look to become less cyclical and less capital intensive by spinning off undesirable units and acquiring businesses that are more stable and less cyclical.

Due to the fragmented nature of the industrial machinery sector, opportunities remain for larger firms to make smaller acquisitions that allow manufacturers to expand their product lines or sales territories. Companies often use this method to enhance revenue growth or help improve returns. Vendors look for small, bolt-on acquisitions, as well as those that offer entirely new product platforms. Acquisitions, if executed properly, offer a method to deploy excess cash in search of greater returns.

We also note that a number of companies, such as Dover Corp. and Illinois Tool Works, have indicated that the pipeline of potential deals increased in 2010 and that the number of acquisitions is likely to increase in 2011. For instance, the management of Illinois Tool Works, on their fourth-quarter earnings call, stated that their acquisition pipeline remains robust, a notable statement in light of an acceleration in the number of deals that Illinois Tool Works has completed throughout 2010.

We also think that several recent transactions highlight these trends. For example, Emerson Electric Co. acquired Avocent Corp. in January 2010; it also won a bidding war with ABB Ltd. to acquire Chloride Group Plc, an acquisition completed in September 2010. ABB, following the loss of the Chloride bidding war, announced in late 2010 that it intended to acquire Baldor Electric, a deal completed in January 2011.Lastly, 3M accelerated its pace of acquisitions in 2010, purchasing a number of companies including Cogent Inc., Attenti Holdings SA, and Winterthur Technologies AG.

MIXED SIGNALS FROM WASHINGTON

As in years past, the US federal government remained a major initiator of trends for the industrial machinery industry, both positive and negative, in 2010. Following the mid-term elections in November 2010, the Republicans gained control of the House and strengthened their minority position in the Senate; as a result, the political environment for the industrial machinery sector looks to have improved.

The most important event following the November elections was halting the tax rate increase that was set to take effect in January 2011, thus removing a significant uncertainty in the operating environment for the next few years. This tax legislation also included language allowing for immediate depreciation of any new equipment placed into service between September 2010 and September 2011. This bonus depreciation rate will also apply in 2012, but at a 50% rate instead of a 100% rate in 2011. We think this will have a positive intermediate effect on industrial machinery, as customers looking to purchase new equipment would pull forward their budgeted purchases to take advantage of the bonus depreciation. Other positive developments out of Washington that relate to the industrial machinery sector, include the inability of Congress to pass the comprehensive energy bill and the lack of movement on the card check bill. We think both of these measures would have imposed significant increased costs and regulation on the group.

That said, the federal government’s actions and the regulatory overhang remain a significant hindrance for growth in manufacturing and the industrial machinery group. We specifically note the results of the PricewaterhouseCoopers Manufacturing Barometer survey for the fourth quarter of 2010. In this report, survey respondents marked legislative and regulatory pressures as the predominant risk to growth, the fourth straight quarter in which these were cited as a major concern. In our opinion, the concern that regulatory actions will reduce growth is not unreasonable. Although Congress failed to pass the energy bill, the US Environmental Protection Agency has effectively stepped into this gap and moved to regulate carbon


emissions, without regard to the legislative process. In addition, a number of states have already implemented or plan to implement their own carbon-reduction initiatives, which serve to increase costs for businesses. This is despite mixed scientific evidence on the validity of carbon’s role as a pollutant. In addition, the recently passed tax legislation, unless extended, is only set to be effective for two years, creating uncertainty in long-term business decisions.

It is also our belief that the recent actions by the Federal Reserve created significant uncertainty in the operating environment, a trend we expect to continue. For instance, break-even inflation rates imbedded in the spread between Treasury bonds and Treasury Inflation-Protected Securities (TIPS) increased significantly in the months following the announcement of the second round of quantitative easing, marking, in our opinion, a rise in inflation expectations. We believe that this rise in inflation expectations is a major reason for the fall in the value of the dollar in global trade, a rise in bond yields, and the rise in commodity prices. We also believe that recently passed healthcare legislation will likely raise the overall costs for businesses, as tax increases to pay for social programs are implemented in 2011. In addition, this legislation, scheduled to be fully implemented in 2014, appears to do nothing to contain the rising cost of healthcare for businesses, leading many companies to seek short-term exemptions from the mandates of the bill.

GLOBALIZATION, AND ITS POSITIVE ASPECTS, WILL CONTINUE…

It is important for industrial machinery companies to have a global footprint, in our opinion, because it can provide stability through diversity. Growth may be accelerating in one market region, but slowing in another. We witnessed this firsthand in 2008 as strong growth in emerging markets, for example, outpaced growth in the domestic and developed markets. The same occurred in 2010, as companies with a greater focus on the emerging market, resources, or energy has stronger growth relative to competitors, in our opinion. In addition, some of the emerging market economies (notably China and India) grew at a relatively robust pace during the recession of 2008–09 and continued to do so in 2010. These economies will likely also experience stronger-growth long-term, as their economies industrialize and infrastructure is constructed. The developed economies, in contrast, experienced deep recessionary conditions, and had muted economic recoveries in late 2009 and in 2010. Long term, their growth rates are also likely to be lower. Economic growth in many of the emerging markets continues to outpace growth in the developed world.

To capitalize on the long-term growth trend in international and emerging markets, most companies have established manufacturing facilities in such places as Asia, Latin America, and Eastern Europe, effectively moving closer to their customer segments. One important benefit of these efforts is a reduction in manufacturing, transportation, and supply-chain costs while reducing overall prices for customers in both the developed and developing world. In addition, moving production facilities closer to potential customers reduces the time to market and allows companies to learn and to become immersed in the market’s culture. We also note that imbedding manufacturing facilities in these markets can also increase the pace of innovation and enhances a company’s adaptability to changing market dynamics.

Globalization is also creating a greater need for one-stop shopping, whereby customers are marketed differentiated products depending on location, but under the same procurement strategy and budget. Thus, suppliers of industrial machinery have three choices: expand their operating presence internationally into new regions, partner with local companies in order to offer a global suite of products, or acquire direct foreign competitors.

Globalization has benefited the industrial sector in many respects. The opening of new markets has provided the sector new avenues of growth that would have otherwise not been available. In addition, a global workforce has allowed companies to reduce both labor and manufacturing costs along with product prices, thus increasing market competiveness. The opening of global markets also has increased the sector’s availability and number of potential suppliers, which can give the largest vendors a higher degree of purchasing leverage. Besides opening new avenues for growth, globalization has allowed industrial machinery companies to become competitive, via mergers and acquisitions on a global scale.

These positive aspects notwithstanding, globalization also has negative side effects. For instance, the volatile rise in commodity prices since 2000 can be attributed, at least partially in our opinion, to the globalization


in trade and the rise of emerging-market demand. Over the last decade, the Reuters CRB commodity price index has more than tripled, as demand growth in the developed markets remained relatively stable while the developing world rapidly industrialized. In addition, the growth in emerging markets strained supply-and-demand balances in many commodity markets, thus making input prices more volatile than they were historically and making procurement and price forecasting increasingly difficult.

Moreover, as emerging markets industrialize, local suppliers and industrial machinery vendors are taking root. The result is an increase in competition for both domestic and global suppliers, particularly in sectors that are fragmented. In addition, higher energy and other input costs have led many industrial companies to pursue a decentralized manufacturing footprint in order to reduce overall manufacturing and supply chain costs.

We believe these negative aspects of globalization have led to what we see as a counter-trend, which we call on-shoring or localization. On-shoring is the establishment of manufacturing facilities in many locations globally to improve order processing times and increase the level of customer service and customization, while reducing the overall time-to-market, the cost and complexity of supply-chain dynamics, and overall transportation costs. This trend appears to be gaining traction globally and nowhere is it more prevalent than in the US, as some industrial machinery companies (and other manufacturers, for that matter) have began to move previously outsourced operations back to domestic manufacturing facilities. Notably, such large manufacturers as General Electric Co., Caterpillar Inc., Ford Motor Co., and others have implemented or announced plans to bring previously offshore manufacturing back to the US.

…BUT COST CONTAINMENT AND LEAN MANUFACTURING WILL DRIVE EFFICIENCY

Reducing costs and improving operating efficiency have become something of a religion for the industrial machinery sector—customers, distributors, original equipment manufacturers, and suppliers alike. Globalization and the demand for reliable equipment are encouraging suppliers to relocate production to lowest overall cost regions of the world. Locating manufacturing facilities internationally, especially in regions with low operating costs, makes sense for suppliers in numerous ways. By relocating to low-cost regions, suppliers can reduce their production costs and thereby improve their competitiveness and overall margins. In addition, because emerging markets have accounted for, and will likely continue to account for, a growing share of demand, being located in these regions lowers transportation costs, reduces shipping time, increases customer contact capability, and improves aftermarket servicing. This has made supply chain management—which includes everything from inventory procurement, production, and production location, to getting products to market—a very important issue for industrial machinery companies. We also note that many international economies have lower overall corporate tax rates, thus making tax expenses for companies domiciled or operating in these regions lower than for those operating in the US.

Many industrial machinery companies have begun to learn that being bigger isn’t always better. For some, greater size has led to rising costs without commensurate growth in revenues. In an effort to address this problem, suppliers have increasingly turned to the concepts of Six Sigma, lean manufacturing, Kaizen, or other manufacturing/supply-chain management practices. These concepts encourage producers to become more efficient and do more with less by improving their manufacturing processes, reducing their fixed overhead and working capital, shortening their manufacturing time, reducing overall waste in the manufacturing process (such as transporting materials, high inventory levels, wait-times, overproduction, and defects), and improving their product quality and customer satisfaction. Although these manufacturing philosophies have different names and different focuses, they all share the desire to reduce overall manufacturing system waste while increasing the overall value delivered to both the customer and the manufacturer.

INNOVATION, NEW PRODUCT DEVELOPMENT, AND PRODUCT LIFE CYCLES

For industrial equipment manufacturers, research and development (R&D), product innovation, and new product development are the cornerstone of increasingly productive machinery—a trend we foresee continuing over the long term. For example, by building a more powerful electric motor in an existing frame design, the manufacturer can offer products that outperform those of its competitors without adding to customers’


footprint or overhead while providing more output vis-à-vis the energy consumed. The race for better technology has led to shorter product life cycles. Knowing that their peers are developing new features, companies are less willing to rest on the laurels of existing products.

However, innovation can lead to headaches for customers, at least in the short term. Depending on the degree of innovation, suppliers’ sales representatives may need to train customers in the use of the new equipment. Customers also may discover that new, high-tech equipment changes maintenance in unexpected ways, such as increased ownership costs or different repair schedules. For customers that share information with their own customers, any change in information technology may cause downstream problems.

In addition, innovation can take many flavors, be it sustaining or disruptive. Coined by the innovation expert Clayton Christensen, sustaining and disruptive innovations are different in the way they affect the market and the competitive dynamics of the market participants. Sustaining innovations will typically only affect existing market dynamics and can be characterized by new functionality added to an existing product or the introduction of a niche product aimed at the small subsegment of the market. In contrast, disruptive innovations upset existing market dynamics via a new product entrant that may have a lower price point or competes with established competitors via new product dynamics. For example, Dell Computer’s manufacturing process lowered the price of a PC while offering customers customization, which at the time was a different way of competing in computer manufacturing. We believe that most innovations in the industrial machinery sector are sustaining innovations.

TRENDS IN FLOW CONTROL

After peaking in the mid- to late 1990s, the flow control sector suffered through some rough years at the start of the last decade. This was partly due to struggles in heavy industrial equipment industries, which reduced overall demand for industrial machinery products. For example, shipbuilding, the press industry, steel mills, plastics, and automotive manufacturing—typically big customers of flow control products—all experienced weak results into 2003, due in part to an economic recession in the US, and reduced their purchases of flow control equipment accordingly.

In addition, many of these customers moved their manufacturing facilities offshore, while companies that sell flow control products did not react quickly enough to this change. Companies that were faced with old and outdated facilities, but new market dynamics, distribution channels and supply chain realities, saw their sales decline. Meanwhile, younger companies, largely in Asia, developed competitive offerings at attractive prices and encouraged customers to switch suppliers.

Despite these two trends, we believe the industry experienced a better time in the years following 2003, as the global economy improved and the developing world industrialized. However, this resurgence would be short-lived as the deep recession of 2008–09 took hold.

Although the off-shoring trend is unlikely to abate, some customers have found the use of offshore suppliers a liability due to a number of factors, and a counter-trend of “on-shoring” or “localization” appears to be an emergent trend. The issues of off-shoring suppliers has grown increasingly complex in recent years, as cultural and language barriers have made international supply chains unappealing for some customers. In addition, the volatility in energy prices since 2008 highlighted one flaw of off-shoring: a significant increase in energy prices raises the cost of transportation and can result in a higher price that nullifies the cost savings that off-shoring promised.

We believe that demand continues to shift toward hydraulic systems and away from pneumatic systems, due in part to energy costs remaining above long-term averages. Hydraulic systems typically are more efficient than pneumatic systems: hydraulic systems use fluids (instead of air) to transfer energy, and when energy costs rise, manufacturers pay more attention to the energy efficiency of their operations. We also believe that technology adaptations will continue to augment flow control equipment, and that the ability of products to “think,” “talk,” and integrate into existing information and supply-chain systems will remain a point of product differentiation. We think that energy exploration and distribution companies have become a major new customer segment relative to years past.


Electronics should boost sector For flow control manufacturers, outfitting old-technology pumps and valves with the latest innovations can be costly in terms of higher research and development costs, and time to market. However, these innovations ultimately increase industry growth, as new and innovative products can offer customers a better value proposition. Equipment that incorporates electronics, such as diagnostic instruments and sensors, adds value for customers in the form of greater reliability, less downtime, and increased functionality.

Innovation in electronics will yield products that are smarter, smaller, and able to communicate directly through computer controls, thus increasing the number of potential uses for customers. The fields of lasers, electronic miniaturization, and nanotechnology (the miniaturization of technology to the sub-atomic scale) could have a significant impact by increasing the number of industrial applications in which technology can raise productivity. For instance, electronics have enabled flow meters to measure multiple liquids flow rates simultaneously, an important application in the oil and gas industries.

Improved materials open new markets Companies that make pumps, valves, and other flow control equipment have started developing new ceramic materials that better withstand corrosion, pressure, and changes in temperatures, and that preserve formation longer than traditional materials. As a result, water-based machinery (such as water hydraulics) is less prone to leakage and erosion problems. Manufacturers in the meatpacking and pharmaceutical industries have capitalized on these improvements by using water hydraulics in their operations.

In addition, new sealing and sound insulation components have greatly reduced noise levels from motors and pumps. This enables those components to handle the stresses from higher pressure levels, which in turn increases the number of applications in which they can be used.

More conventional materials have been redesigned and combined with technology applications to enhance the product. Two such instances are magnetic and thermal flow meters. Both take generally accepted scientific principles in magnetism and heat-transfer in substances and apply these to the measurement of fluid through pumps and valve without any interference with the fluid itself, thus lower ownership and maintenance costs of the pump.

TRENDS IN THE ELECTRONIC EQUIPMENT MARKET

Following the lower results in 2009 and the improvement in results in 2010, we think that vendors of electrical equipment are likely to experience greater order rates, revenues, and earnings in 2011, as the global economic recovery continues, which leads to both higher overall demand. Electronic equipment companies are a diverse group and their products are used in a broad range of products, industries, and applications. We continue to expect some weakness, especially relative to electronic equipment sold into the early or mid-cycle industries, in the electronic equipment products used in more late-cycle industries, such as commercial construction, where we see some weakness in the first half of 2011. That said, we do think that overall order rates and growth associated with the late-cycle industries will improve later in 2011. In addition, we also see demand growth from a continued need for maintenance and repair-related equipment and services, along with higher spending to replace depreciated equipment.

TRENDS IN AUTOMATION PRODUCTS

Capacity utilization rates in North America were relatively low from 2001 through 2005, driven by weaker demand, the recession of 2001–02, and the movement of production capacity offshore to lower-cost regions. This provided little incentive for manufacturers to build new factories in North America. In addition, this trend permitted companies that needed to expand production to make greater use of existing capacity. However, results for the industrial automation sector improved from 2005 through the first half of 2008, as the economy improved and capacity utilization rates either improved or generally remained above 80%. Yet, the recovery was not to last indefinitely, as the slowing global economy brought about by the contraction in available credit and the worsening of credit quality led to a contraction in industry results. Since 2000, total productive capacity in the US expanded by only 13% or by a compound annual growth rate of 1.2% over the last 10 years.


Over this period, the building of fewer new factories in North America meant fewer projects to automate entire plants and production facilities. Suppliers of industrial automation equipment responded via mergers and acquisitions, and by building plants overseas to capture international capacity growth—typical methods used to generate growth when domestic organic growth lags. Capacity utilization levels improved in 2005 and remained around the important 80% level until March 2008, when utilization rates fell below 80%, followed by an accelerated decline beginning in July 2008. In fact, capacity utilization declined to a five-year low of 68.3% in May 2009, down from 78.4% a year earlier and 72.9% at the end of 2008. However, capacity utilization subsequently recovered from its May 2009 low and stood at 71.6% in December 2009. In addition, capacity utilization rates continued to improve in 2010, and by December 2010, total capacity utilization was 76%. Despite the improvement, this rate remains below the 80% rate that we believe signifies an operating environment where manufacturers begin to add productive capacity, suggesting to us that total capacity growth will remain subpar.

Aftermarket support crucial Recent organic growth has come primarily from the maintenance, repair, and operations (MRO) markets. However, new project growth and some pent-up demand have also led to recent industry growth for automation products. Existing automation systems need servicing and repair at some point. By offering strong aftermarket support, industrial automation vendors generate fairly reliable and stable revenue stream. In addition, by maintaining close relations with an existing customer base, vendors can better sense which aspects of the customer’s operations need improvement, and can make recommendations to fix those problems. Strong aftermarket support can engender good relations between vendor and customer, and reduce the probability that the customer will decide to switch its entire automation system needs to another vendor.

To induce a customer to switch automation suppliers, an automation vendor typically must offer significantly improved technological benefits, cost savings, or both, because the short-term costs of switching can be substantial. Subsequent problems with incompatible equipment or a supplier that goes out of business can mean large and unforeseen costs for the customer.

Given that automation systems can last 20 to 30 years, customers want assurance that aftermarket support will be available and long-term warranties are honored in the future. For these reasons, larger firms that have the size, stability, and breadth of product offerings to win and retain customer business dominate the industrial automation industry.

Wireless and sensors will continue gaining prominence in automation The ability to transmit information in a manufacturing plant by means of wireless systems greatly enhances the information that can be provided by overcoming the physical limitations of wiring the factory floor. Industrial processing and automotive markets could see important benefits from the adoption of both wireless and sensor technologies. In fact, the adoption of these technologies is currently being implemented in many manufacturing processes. That said, the adoption of wireless applications will not occur if the industry adopts them in a haphazard way. New wireless industry standards and new applications are needed to spur industry growth. In addition, the adoption of wireless automation into current manufacturing processes will have to be evaluated in terms of the total cost of implementation, including the price of new systems, workflow disruptions, and user acceptance.

HOW THE INDUSTRY OPERATES

Industrial machinery is the lifeblood of the production and manufacturing processes and is the backbone of most modern machines. For manufacturers in a wide variety of sectors, industrial machinery is the heart of operations that occupy the factory floors and other industrial processes. In commercial enterprises, for example, industrial machinery consists of the refrigeration units needed to keep food from spoiling along the entire value chain from production, transportation, and finally to the grocery store display cases. Other examples include automation products—such as conveyor belts, pumps, valves, robotics, and other industrial machines—used in a high number of manufacturing processes. Still other industrial machinery includes products such as motors, generators, heating and cooling systems, and other electrical equipment.


Producers of industrial machinery are diverse and may offer very different products, including electric motors, pumps, and valves. Increasingly, this equipment is relying on industrial automation systems that involve robotics, sensors, lasers, computer systems & software, and other high-tech advances. However, all of these products have one thing in common: they must use sophisticated technology in order to win and retain customers’ business.

Operating performance in the industrial machinery industry tends to, on average, lag global economic growth to some extent, as the sector’s largest customers prefer to hold off significant increases in capital spending until they are more certain that an economic recovery is gaining steam. However, demand is not entirely cyclical nor is it completely late-cycle, because customers eventually must replace aging equipment. Still other industrial machinery products help customers maintain and repair the current installed base of machinery. In addition, many other products are early-cycle and are sold to customers whose operations gain coincidently with economic growth, such as automotive manufacturers or residential construction. We also note that aftermarket services add a noncyclical component to an industrial machinery provider’s revenue base. Customers that choose to retain older equipment will need maintenance on these machines and will look towards industrial machinery vendors to provide this service.

Customers that choose to retain older equipment must do a cost-benefit analysis over the lifetime of the equipment to determine if the extra maintenance from breakdowns is likely to exceed the cost of buying new equipment or additional capacity. While new equipment is less likely to break down, it also entails a high up-front purchase price. In addition to a cost-benefit analysis, capacity utilization rates and projections of future product demand will drive capacity increases or decreases for industrial machinery vendors. When capacity utilization rates are high (around 80%, we believe) and/or demand growth is anticipated, companies typically will purchase additional machinery and equipment in an effort to expand manufacturing capacity. Conversely, when capacity utilization rates are low and management expects little or no long-term pick-up in demand levels, companies will likely forgo purchases of industrial machinery.

Within this general context, the various categories of the industrial machinery industry, which include flow control products, electrical equipment, and industrial automation, exhibit differences and similarities. Many of the major players in the industrial machinery industry participate in all three of these categories.

FLOW CONTROL PRODUCTS

According to the latest available data from the US Department of Commerce, US manufacturers of fluid power products had shipments of $12.4 billion in 2009, down 23.7% from $16.3 billion in 2008 and 10.5% from $13.9 billion in 2007. According to Commerce Department estimates, the valve market accounted for approximately $3.1 billion (25%) of total fluid power shipments, while the pump market accounted for less than $1.8 billion (14.4%). The balance of shipments came from fittings and assemblies, cylinders, actuators, lubricators, and other miscellaneous fluid handling components and equipment. By market, aerospace-related uses accounted for about $3.9 billion (31.3%) of fluid power product shipments in 2009, down 6.3% from 2008. Non-aerospace products comprised $8.5 billion in shipments, down 29.7% versus 2008. We would expect that fluid control products shipments increased in 2010, as the global economy and industrial activity improved, a trend we see continuing in 2011.

A typical flow control system may have a number of different elements. It could include a hydraulic pump or air compressor to convert mechanical power into fluid power, enabling the user to direct the flow of a liquid. It also may have a motor, which converts the fluid power to mechanical power, and valves, which control the direction, pressure, and rate of flow. Flow control systems may have filters and lubricators to condition the fluid, sealing devices to help contain the fluid, and reservoirs to store the fluid. Finally, such systems have instruments such as pressure switches, gauges, flow meters, sensors, and transducers, to monitor the performance and flow of the fluid power system.

Flow control products are used in a wide variety of applications where water, wastewater, other liquids, gases, or slurry-like materials must be transported. An example is the pumping of oil or other petro-chemicals out of the ground or the distribution of water from reservoirs to residential customers. The energy needed for these applications can be generated in two ways: hydraulic power, where energy is transmitted


and controlled via a pressurized liquid (typically oil or water), or pneumatic power, where energy is transmitted and controlled via pressurized air. Flow control has a wide variety of industrial and commercial applications. The most important are mobile, industrial, and aerospace.

Mobile. This is defined as the transporting, excavating, and lifting of materials for construction, agriculture, marine, or military purposes, among others. Products involved include, but are not limited to, backhoes, graders, tractors, truck brakes and suspensions, spreaders, and highway maintenance vehicles.

Industrial. This sector provides power transmission and motion control products used for industrial machinery. Applications include metalworking equipment, controllers, material handling, and assembly equipment.

Aerospace. Aerospace flow control products are classified as pumps and valves for use in commercial and military aircraft, as well as spacecraft. Products include landing gear, brakes, flight controls, motor controls, and cargo loading equipment.

Pumps and valves The valve and pump markets are both highly fragmented and becoming increasingly global. More than 1,000 small and medium-size companies are in operation in the valve market, with many focused on niche applications, specific geographies or customer segments, or both. Despite its fragmented nature, industry consolidation has been ongoing, a trend that we believe is likely to continue for the foreseeable future, as large global customers in industries such as power production, semiconductor manufacturing, general industrial and manufacturing, and pharmaceuticals prefer to deal with suppliers that can meet their global, supply chain, and pricing needs.

Performance, costs are key In industrial segments, valves are sold to the chemical and petrochemical and other markets, where they are used to control materials flow. Commonly used types are gate valves, globe ball valves, butterfly valves, and plug valves. For these customers, price can be a key consideration in determining which products to purchase, though performance can be equally, if not, more important. Some specialized segments, such as the drilling and gathering of crude oil for the petroleum production and refining industries, often use high-pressure steel valve products.

Because of the vast array of valves used in industrial applications, technological advances and features are paramount. However, despite the highly specialized nature of the valve market, suppliers typically have little pricing power, likely due to the industry’s fragmented state and the commoditization of products.

To counteract buyers’ power, and to succeed in what is a marginally profitable industry, suppliers are increasingly trying to find new ways to create value. One way they are doing this is by venturing deeper into specialized product segments, into specialization by customer type and geography, and by becoming more vertically integrated across their respective supply chains, in order to better control input pricing. Other strategies include interacting more closely with customers in order to better specify performance requirements, more effectively manage the supply chain, and by offering aftermarket support, services, and maintenance for the lifespan of the pumps and valves.

Suppliers are also moving into the manufacturing of specialized products such as innovative pump and valve technologies, including automation, advanced measurement, software, energy saving technologies, wireless devices, and other technologies in conjunction with legacy products.

One such technological innovation in the pump industry is the intelligent pump, or a pump that has the ability to automatically regulate and control flow and pressure. This new class of intelligent pumps can include wireless measurement devices that automate the fluid handling processes while other flow meters also include laser devices that more accurately measure fluid materials. Still other innovative pump technologies include energy saving devices, such as solar power convertibility or the incorporation of magnets and other electronics to produce accurate measurements of fluid flow more efficiently.


In commercial segments, pumps and valves are used to enable the movement of water and wastewater throughout a building or structure. Most buildings require standardized bronze or iron valves; given the commodity-like status of these items, cost is a key criterion for these manufacturers. Examples of commercial systems that use valves include heating, ventilation, and air conditioning (HVAC), and plumbing systems in office buildings, shopping centers, hotels, prisons, and warehouses.

Raw materials Flow control products can incorporate a number of raw materials in their production. The major raw materials costs incurred by manufacturers of these products include steel, copper, other metals, plastic resins, and electronic components. Manufacturers will typically seek to hedge their exposure to spot commodity prices in an inflationary environment (such as existed from about 2000 to 2008) and will do so through a number of methods. These methods include price escalators in customer contracts, changes to product pricing, surcharges, or other hedging programs via the purchase or sale of commodity derivative securities.

Distribution models Distribution within the flow control industry is often a function of how much a particular product or customer segment needs support or necessitates other service offerings. Newer technologies that customers do not yet know how to operate require more product support than well-understood or older technology. The greater the needed support, the greater the importance to a company of using its own direct sales force to ensure that customers get the right information.

For older technology (such as manual valves) that both suppliers and potential customers already understand, a manufacturer may use a nonexclusive distributor network to reduce its costs and lower the product’s cost to the customer. They also may sell directly to other original equipment manufacturers will little or no sales contact. New high-tech offerings, in contrast, likely will require a company to use its own direct sales force to train customers in operation, maintenance, and safety procedures.

ELECTRICAL EQUIPMENT

The electrical equipment category comprises manufacturers of motors, generators, wiring, lighting, and other integral components of electrical devices. According to the US Department of Commerce, electrical equipment manufacturers in the US had product shipments of $37.1 billion in 2010, an increase of 10.2% from $33.6 billion in 2009. More importantly, new order rates in the same period increased 26.6% to nearly $40.3 billion, from $31.8 billion in 2009. We also note that unfilled orders in December 2010 gained 23.3% to $17.2 billion versus the $14 billion in unfilled orders in December 2009. The new orders-to- shipment ratio also improved to 1.20x in December 2010 from 0.97x in same period of 2009.

Each subcategory within the electrical equipment group may offer a wide variety of individual product types, depending on the needs of the customer. For instance, electric power can be converted into mechanical energy by means of an electrical motor that has a rotating shaft. However, within the broader context of electric motors, for example, there are integral horsepower motors, used in industrial and commercial applications; fractional horsepower motors, used in furnaces, air conditioners, pumps in swimming pools and hot tubs, and garage door openers; and hermetic motors, used in air conditioning and refrigeration compressors.

Industry standards and product life cycles The National Electrical Manufacturers Association (NEMA), a nonprofit organization supported by manufacturers of electrical equipment, has fostered innovation and benefited customers by helping to develop a series of technical standards for electrical products. Standardization of industry products—such as designing motors of similar horsepower and speed to fit into the same frame—permits a customer to replace one manufacturer’s product with another’s, and promotes efficiency. Standardization thus spurs competition and ultimately, greater innovation.


Electrical equipment has a given physical lifespan. However, the length of time during which a customer uses that product can depend on the rate of innovation or the cost/benefit analysis of maintaining an older product versus buying a new product requiring maintenance.

Minor technological improvements occur on a regular basis, while major improvements in design or performance might occur once every five to 10 years. When customers are deciding whether to replace their equipment, they will weigh the benefits of continuing with an existing legacy product versus switching to a newer, more innovative product with better features but higher capital costs. However, we note that switching costs are somewhat reduced by standardization.

What do customers want? Customers of electrical equipment want greater power than is available in their current equipment, but in a smaller space, thus yielding higher efficiency, lower raw material and energy costs for the object that encloses the motor, and a reduced “footprint.” Advances in insulation technology have permitted improvements: as a motor generates more power, it also produces more heat; thus, a motor’s capacity to withstand higher temperatures helps manufacturers to meet customers’ requirements.

Raw materials The major raw materials costs incurred by electrical equipment manufacturers are for steel, copper, and, to a lesser extent, aluminum or other metals. Many companies, recognizing the need to buy these commodities on a regular basis, hedge their exposure to spot commodity prices in an inflationary environment. In addition, companies may hedge their commodity purchasing exposure by including language in customer contracts that include surcharges or price escalators in order to compensate for increases in raw materials costs. In addition, electrical equipment manufacturers may hedge their commodity price exposure via the purchase or sale of derivative securities. However, there may be a time lag between the point when such cost increases begin to occur and the surcharges, or price increases, are activated. In addition, it may not be possible to fully hedge against.

Sales channels Manufacturers of electrical equipment sell their goods either under their own brand name or under another company’s brand name (as original equipment manufacturers, or OEMs). Most companies use a combination of direct and indirect sales channels. For larger accounts, companies will typically assign a direct sales agent, while making exclusive or nonexclusive distributors available to serve smaller customers. To distribute goods through third parties, manufacturers establish and support networks of independently owned dealers. Dealers stock sample motors and other devices and maintain inventories for sale. They also are responsible for gathering orders and passing them through to the manufacturer.

Most dealers are affiliated with a single manufacturer. The manufacturer typically supports the dealer’s sales and marketing efforts (with cash payments, marketing strategies and materials, purchase financing, and the like), provides wholesale financing of dealers’ inventory, and offers sales and lease financing to retail customers. Manufacturers also can give discounts, rebates, and other marketing subsidies to stimulate sales when necessary.

Concentration and competition The electrical equipment industry is relatively fragmented, with about a dozen major competitors and a large number of smaller suppliers. For most of the larger companies, electrical equipment is a major segment of their revenue base, complemented by revenues derived from other areas, such as industrial automation, other industrial machinery equipment, robotics, or complimentary services. In the case of large conglomerates such as General Electric Co. or Siemens AG, electrical equipment is a relatively smaller part of their total operations.

While price competition certainly is to be expected, as in any sector, firms also compete based on the depth of their product offerings to customers or product compatibility. Particularly in the case of larger sales or project work that involve an entire manufacturing system, a provider may ensure that the hardware works properly with the customer’s automation technology and may offer technical support after installation in


the event that problems arise. For customers, the more important it is that new equipment operates well with their pre-existing factory footprint, the more value they place on such network issues.

INDUSTRIAL AUTOMATION

Industrial automation refers to the system of controls for factory and manufacturing equipment, including robotics, sensors, and programmable logic controllers (PLCs). By automating certain aspects of manufacturing production and processes, a company can reduce labor costs, improve consistency of product quality, reduce waste, and even run real-time diagnostics to assess plant efficiency, increase product throughput, perform equipment diagnostics, or acquire other informational metrics. In the context of the industrial machinery universe, automation works in concert with the flow control and electrical equipment to reduce manufacturing costs and to squeeze greater production from an existing manufacturing asset base.

The PLC. The most basic element of industrial automation is the PLC: small computers used to automate processes that must be repeated (for example, the welding of car doors to automobile frames on a production line). The user of the PLC creates a logical program that monitors the status of various inputs to the production process, and instructs those inputs to perform needed tasks. As the technology has evolved, the PLC has been used in a variety of broad applications, including motion control and process control.

Sensors. Another element of industrial automation is the sensor. Sensors evaluate the status of the production process, for instance, whether certain conditions have been met. The sensors, using the PLCs, instruct other components what to do next. As an example, in flow control systems, a sensor can determine whether the water level in a tank has reached its maximum; if it has, the sensor can instruct a valve to close to keep the water from rising too high.

Robotics. Finally, we have robots and robotics. Robotics enable components to perform indicated and repetitive tasks, such as physically closing a valve. Depending on the manufacturing process, other kinds of control equipment, including drives, positioners, and actuators, may be involved.

Discrete versus continuous versus hybrid automation The type of industrial automation employed depends on the manufacturing process employed. A production line in which each step occurs progressively, such as in the making of an automobile, is known as discrete automation. Discrete automation involves the assembly of component parts or subsystems used in the construction of another product. For instance, automobiles, computer systems, appliances, and electronics devices are all examples of products that are produced using discrete automation production systems.

In contrast, manufacturing whereby all steps are not taken individually (e.g., in beverage manufacturing) or a continuous stream product employs process control automation. Process control automation can be further subdivided into continuous processes and hybrid processes. In a continuous process, automation ensures that levels, pressure, temperatures, viscosity and flow rates are maintained at desired levels (such as with oil exploration) and that the process runs continuously until the desired output is achieved.

A hybrid process is a combination of discrete and continuous automation. An example would be in the production of carbonated beverages, where specific ingredients are mixed together to create the desired concentrate, before being moved to the bottling station, where they are deposited into the correct can or bottle sizes.

R&D crucial Industrial automation products typically work in conjunction with the broader plant-level and enterprise-level products used across the production process and throughout the entire supply chain. For this reason, customers place increasing importance on product reliability and the ability of their control products to “talk” to other computers throughout the organization and supply chain, sharing information and enabling the company to adjust production in real time. Vendors must continually revamp their automation product lines to yield innovative improvements. Thus, research and development (R&D) is a critical element in the fortunes of industrial automation companies.


Markets and competition Unlike the fragmented flow control and electrical equipment categories, the industrial automation landscape is dominated by a handful of large firms. This is due, at least in part, to the structure of the competitive market and customer needs including short product lifecycles, the high research and development costs associated with ongoing innovation, and the customer’s desire to purchase automation equipment in integrated systems.

The major players in the automation universe come from around the globe. The largest US firms include Emerson Electric Co., Rockwell Automation Inc., and Honeywell International Inc. European-based majors include Siemens, Schneider Electric SA, ABB Ltd., and Invensys plc. Asia-based majors include Yokogawa Electric Corp., Mitsubishi Corp., Fanuc Ltd., and Omron Corp.

KEY INDUSTRY RATIOS AND STATISTICS

Purchasing Managers’ Index. Released monthly by the Institute of Supply Management (ISM), the Purchasing Managers’ Index (PMI) is a composite measure composed of five seasonally adjusted diffusion indexes. The five measures are evenly weighted within the PMI and comprise new orders, production, employment, supplier deliveries, and inventories. Measurements above 50 tend to indicate improving conditions. For the manufacturing sector, the January 2011 PMI was 60.8, the 18th straight month above the 50 demarcation following the downturn in 2009.

Industrial production. This measure, released monthly by the US Federal Reserve Board, indicates real production output and is expressed as a percentage relative to a base year, which currently is 2007. The data are divided into various categories based on industry, industry groups, and market aggregates. For the machinery industry, the December 2010 industrial production measurement was 88.3%, indicating that real output within the group was 11.7% lower than in 2007. That said, the machinery-related production rate was better than the 76.5% in December 2009.

Capacity utilization. Capacity utilization is another measure released monthly by the US Federal Reserve Board and is actual monthly production relative to total production potential; it is expressed as a percentage. Since January 1967, total capacity utilization has averaged 81%. Rising capacity utilization or readings over 80% are usually associated with higher industrial production, increasing demand, and/or may portend higher future prices. As of December 2010, total capacity utilization was 76%, better than the 71.6% in December 2009, while capacity utilization for the machinery industry increased to 76.3% from 65% in the year-ago period.

Manufacturers’ shipments. The US Census Bureau, a data-gathering agency within the US Department of Commerce, tracks manufacturers’ shipments on a monthly basis. It divides these data into various categories, including (but not limited to) farm machinery equipment, construction machinery, and industrial machinery, along with aggregate amounts such as the capital goods or nondefense capital goods excluding aircraft (an important proxy for capital expenditures). Statistics are disseminated 60 days after the close of each month, but are typically revised after the final release. For the machinery segment, aggregate shipments totaled $27.1 billion in December 2010, up 14.6% from $23.6 billion in December 2009. In 2010, aggregate shipments totaled $296.4 billion, an improvement of 7.6% from the comparable year-earlier period.

Order backlog/unfilled orders. For some companies in the industrial machinery universe, the order backlog can be a useful indication of demand levels and expected revenues. However, it may be difficult to compare order backlogs across companies due to different reporting practices; therefore, this measure is most useful as a gauge of order strength relative to a company’s own prior historical backlog data. The US Department of Commerce derives the unfilled orders (backlog) time series from the same data as manufacturers’ shipments. For the machinery segment, unfilled orders increased 23.5% to $109.5 billion in December 2010, from $88.6 billion in December 2009.

Manufacturers’ new orders. The US Department of Commerce derives this time series from the same data as manufacturers’ shipments. For the machinery group, new orders increased a significant 23.6% to $30.3


billion in December 2010, versus $24.5 billion in December 2009. In 2010, aggregate new orders totaled $317.3 billion, an increase of 21% from 2009.

Manufacturers’ inventories. The US Department of Commerce derives this time series from the same data as manufacturers’ shipments. For the machinery segment, inventories increased 6% to $53 billion in December 2010, from $50 billion in December 2009. We think inventory levels remain lean, as the annualized shipments-to-inventories and new orders-to-inventories ratios in December 2010 were higher than in December 2009.

New orders to shipments. We believe that the ratio of new orders to shipments, as provided by the US Department of Commerce, is a useful measure that can provide insight into the demand and capacity utilization trends in the industrial machinery sector. Typically, a ratio greater than 1.0 indicates growing demand, as new orders outpace shipments, while a ratio below 1.0 indicates falling demand. For the machinery group, this indicator remained above 1.0 between 2005 and August 2008, but dropped below 1.0 in September 2008, reflecting, in our opinion, the rapidly deteriorating environment. The ratio remained below 1.0 until September 2009 and improved to 1.04 in December 2009. In December 2010, this indicator increased to 1.07, which, in our opinion, suggests that the operating environment is continuing to improve.

HOW TO ANALYZE AN INDUSTRIAL MACHINERY COMPANY

Industrial machinery companies derive most of their revenue from the manufacture, sale, and servicing of productive equipment used in a variety of industries. Although each category has its own particular nuances, there are many similarities in operations and in performance measures for industry participants.

The sectors covered by this publication typically involve products that are customer-specified to some degree. Many of the products are manufactured in either batch or specific job orders. Customers may order these products in a competitive bidding process or through detailed negotiations for larger product categories. For smaller and lower price point products, customer orders may involve a range of channels, including distributors, resellers, and a direct sales force. Manufacturers may also provide service and support on their equipment and may offer warranties as well. In the section that follows, we consider analytical elements that are common to all of the industrial machinery groups, as well as specific factors for each of the industry categories.

BACKLOG, NEW ORDERS, AND THE BOOK-TO-BILL RATIO

Companies in the industrial machinery universe typically receive orders for products from customers and, depending on product lead times, can generate a backlog. In its most general sense, backlog represents the accumulation of unshipped orders. However, there are different kinds of backlog. Gross orders represent the value of new orders that the firm has received. Net orders represent gross orders minus the value of any cancellations. Backlog is reported in dollars and typically includes orders to be shipped within a year, but sometimes represents long-term orders. It usually is reported on a rolling 12-month basis.

Some orders are firm and funded—the customer has made an initial deposit and is thus obliged to pay the balance upon shipment—and cannot be canceled. Others are unfunded, such as contracts with government bodies that must authorize funds for financing the purchases. The quality of a company’s backlog will be highly dependent on its accounting practices and sales processes.

While an increase in the backlog can be indicative of an upswing in demand, it should not be viewed in isolation; a higher backlog without a corresponding increase in the value of new orders may indicate production problems and longer time to completion. A comparison of new orders to sales (the book-to-bill ratio) can provide insights of the underlying demand trends. A ratio greater than 1.0 may indicate increasing demand and growth in the backlog, while a ratio below one implies falling demand and declining backlogs.

When examining these figures, one should also be keenly aware of how a company calculates its data. When examining orders, it is necessary to know whether the company is disclosing gross, firm, or net orders,


whether backlogs represent firm and funded backlogs, whether the backlog is cancellable, or if the company has increased the backlog’s worth by including the value of options (contracts permitting a customer to buy additional units at a specified price).

INCOME STATEMENT ANALYSIS

Analysis of a company’s income statement provides the data needed to measure operating performance over a specified period. Analysis of longer-term results lets one discern and examine trends in sales and profits over the course of a business cycle.

Sales and revenues Generally accepted accounting principles (GAAP) require that companies recognize a sale when it is realized, or realizable, and earned. For industrial machinery companies, this typically occurs when a product is shipped or a service is rendered. Thus, in the case of flow control, electrical equipment, and automation systems, manufacturers record sales when their products are shipped to independent dealers or to end users, or when the service is performed.

On occasion, manufacturers of large custom-built machinery or equipment will receive long-term contracts to make highly specific equipment. These companies normally record sales on a percentage-of-completion basis, reflecting the portion of the sales contract that they have fulfilled.

Recording revenues when accounting for percentage-of-completion contracts can be tricky because of the inherent flexibility in measuring the mileposts of a contract. Under the percentage-of-completion accounting method, sales and profits recognized on individual contracts or jobs are based on a project’s overall expected profitability. They are also subject to adjustment upon completion of the projects. For example, if a contract were expected to result in X dollars of income, when the job was Y% complete, Y% of X dollars would be recognized as profit. The danger with this kind of accounting is that it recognizes profits before they are realized. If cost overruns occur late in a project, a charge to earnings may be required to reflect the job’s lower actual profit. Thus, relying on conservative profit estimates can increase the likelihood that any adjustment will be a favorable one.

Another caveat is that companies have wider latitude to manage earnings under this type of accounting, by recognizing more or less profit in a given accounting period. In periods when overall profits are higher than expected, a company might recognize a lower profit on individual contracts, which would hold earnings at a desired level. Conversely, when business is slow, profits that had been deferred might be recognized to increase reported earnings. While such an earnings management approach may enable the company to report an orderly earnings increase that meets investors’ expectations, we do not believe that it provides a desirable level of transparency into a company’s financial position or financial performance.

In contrast, manufacturers of large custom-built machinery or equipment could use the completed contract method of revenue recognition, which would recognize revenues and expenses only once the contractual obligations are complete. This method may improve transparency, but it also increase the “lumpiness” of revenues and earnings and, thus, is seldom used in practice.

Gross profit margin ratio The gross profit margin ratio (or gross margin) measures a company’s profitability of sales after the cost of goods sold, but before selling, general, and administrative (SG&A) expenses, research and development costs, interest expense and other overhead expenses. To calculate the gross margin, subtract the cost of goods and services provided from sales, and divide the result by sales. Gross margin is one of the clearest performance measures of a company’s operations because it excludes the impact that a company’s corporate overhead and financial cost structure have on its ultimate profitability.

Gross profit margins can lend important insight into trends in market pricing, product mix, costs of raw materials and labor, and the competitive pricing environment. In addition, they can help the analyst discern the impact of raw materials and labor costs on the business. Tracked over time, gross margins can provide a reliable read on a company’s productivity.


When comparing gross margins across different companies, one must be aware of the different ways to derive gross profits. Some companies may include depreciation expense in cost of goods sold, while others list this expense item separately as operating expense. Other ways in which gross profit margins may differ across firms include the inclusion or exclusion of general expenses, advertising costs, warranty expenses, or one-time expenses.

Research and development expense An expense item that merits close attention is research and development (R&D). Because the industrial machinery universe uses advanced technology to improve the functionality and value proposition of its products for customers, a company’s long-term growth prospects increasingly depend on ongoing innovation.

Typically, a company will target a certain percentage of sales as its R&D budget. Companies with relatively higher spending on R&D are more likely to generate new products that could create sustainable advantages over the competition, potentially leading to higher sales and profitability. Within the industrial machinery segment, companies focusing on automation systems and flow control typically spend more on R&D than those in the electrical equipment industry.

SG&A expense Another overhead cost—selling, general, and administrative (SG&A) expense—can be a function of the company’s distribution strategy. The largest portion of SG&A expense often comes from selling expenses, though SG&A also frequently incorporates other support expenses, such as staff compensation, legal expenses, and occasional bad debt expense.

Companies with large direct sales forces and branch offices throughout the regions they serve are more likely to have higher SG&A expenses. In return, however, they are more likely to have a knowledgeable sales force and greater penetration of their target markets, which could yield improved sales. In contrast, companies that rely more on independent dealers incur lower costs, but with the potential trade-off of a less knowledgeable sales force and/or nonexclusive arrangements, whereby the dealers also sell competing products. Lower SG&A and R&D expenses help increase operating profit margin, especially when gross margin is also higher.

Earnings It is also important to look at a company’s actual GAAP earnings, especially in regard to the company’s sale and expense recognition methods. In our opinion, industrial machinery companies with high quality earnings will experience few one-off events that increase or reduce earnings. In addition, earnings stability is an important consideration. A company that delivers smooth upward earnings growth (without earnings management techniques, as mentioned earlier) will be regarded more favorably than one that delivers erratic returns. Also, considering earnings management techniques, companies that generate earnings that are more cash-based, versus accrual-based earnings, should be viewed more positively.

BALANCE SHEET INDICATORS

A company’s balance sheet provides important information about its financial strength that is not observable from the income statement. While the income statement offers a view of a company’s performance for a certain period (such as the most recent fiscal year, or the most recent quarter), the balance sheet offers a snapshot of a company’s assets, liabilities, and equity at a specific point in time.

Debt-to-capital ratio The debt-to-capital (D/C) ratio indicates the extent to which a company finances its operations and capital expenditures through borrowings that must be paid back in the future. The other financing alternative, equity financing, is generated when a company issues new shares to the public or when a company retains and reinvests earnings. Including such hybrid financing alternatives as preferred debt, the combination of debt, equity, and alternative financing is the sum total of a company’s capital, or financing sources.


The higher the debt-to-capital ratio, the greater the financial leverage that a company is using. While greater leverage typically enables a company to increase sales, operating activity, and return on equity, it also increases the interest expense, thus reducing profitability and increasing the company’s financial risk.

Most companies in the industrial machinery universe use some debt to finance their operations and capital expenditure requirements. However, too much debt can elevate the risk of investing in shares of a company, as a greater proportion of cash that the company generates has to go toward interest payments and bond principal payments, rather than being reinvested in the business for further growth or returned to shareholders in the form of dividends and/or share repurchases. In the industrial machinery universe, most companies aim to achieve a D/C ratio in the 30%–50% range.

Current ratio The current ratio measures the value of current assets (assets that can be turned into cash in less than one year) against the value of current liabilities (payments that the company must make in less than one year). The current ratio, therefore, is a good indicator of a company’s near-term liquidity because it suggests that company’s ability to meet all of its immediate obligations to creditors. Most companies in the industrial machinery universe will have a current ratio of at least 1:1, and preferably much higher.

Accounts receivable and days sales outstanding Accounts receivable are usually short-term (ranging anywhere from a few days up to a year) credit lines that a company extends to customers and represent amounts owed for products sold or services rendered but have yet to be paid. Receivables typically increase along with growth in revenue. In this regard, accounts receivables should be examined relative to revenue.

Days sales outstanding is a measure of the average number of days it takes a company to collect receivables from customers. We believe this measure is useful when tracked over time. A significant increase in days sales outstanding may be indicative of customers’ weakening financial position, relaxation of credit terms, and/or a lower quality of earnings. (Days sales outstanding is calculated as the average receivables balance over a certain period of time divided by sales, multiplied by the number of days in the period.)

Inventory levels and turnover Inventories are comprised of raw materials, work-in-progress, and finished goods that represent assets ready or nearly ready for sale. As with other current assets, inventories will tend to increase at rates similar to revenue growth. Circumstances that may result in inventory growth differing from revenue include an anticipation of higher future demand, increasing raw material costs, the choice of inventory accounting methodologies, slowing customer demand, or overproduction. The inventory turnover ratio (calculated by cost of goods sold divided by the average inventories) can be used to examine inventory levels over time and across different firms. A decline in the inventory turnover ratio may be indicative of excess inventory stemming from weakening demand, overproduction, or both.

Inventory cost accounting methods can also change the analysis of inventory levels and the inventory turnover ratio (and, in turn, the analysis of a company’s cost of goods sold). Industrial machinery companies will typically account for inventory via one of two methods: first-in, first-out (FIFO), or last-in, first-out (LIFO). In periods of rising costs, companies using LIFO accounting will typically report a higher cost of goods sold and lower inventory levels, which can alter the comparative analysis of any ratios using these metrics.

STATEMENT OF CASH FLOWS ANALYSIS

The statement of cash flows serves as a bridge between a company’s income statement and its balance sheet. It provides a level of financial detail that is otherwise not available on other financial statements, and details a company’s sources and uses of cash. The statement of cash flows is broken down into three segments—operating, investing, and financing cash flow. Each provides insight into the operations of an industrial machinery company.


Cash flow from operations Cash flow from operations (CFO) is a measure of the cash coming into the firm from operating sources. For industrial companies, it is typically calculated by adjusting net income for non-cash income and expenses along with any cash-related changes in operating assets. Over time, growth in CFO should approximate net income growth for established companies. Net income growing faster than CFO or negative CFO could indicate earnings management.

CFO can also be a useful gauge of financial stability for an industrial machinery company. Companies that generate large levels of cash tend to be more financially stable, need less external financing, can readily pay down debt, and have more secure dividends.

Capital expenditures and free cash flow Capital expenditures, found in the investing section of the cash flow statement, represent both cash investments in long-term assets, including property, facilities, and equipment, and spending to maintain current assets. In this respect, capital expenditures are important as they represent investments made for growth and spending to maintain current business levels.

All else being equal, companies with larger capital expenditures have lower free cash flow (FCF). As with CFO, companies with greater FCF generally have greater financial flexibility and generally lower financial risk. FCF measures cash available to the firm after cash payments to maintain or continue present levels of growth.

Cash flow for acquisitions Another important item in the investing section of the cash flow statement is expenditures related to acquisitions. This intermittent line item represents the cash outlays used to acquire other companies within a given period. Companies that typically make large or continual acquisitions will generally require higher levels of CFO, FCF, or access to external financing to fund any purchases.

Financing cash flow activities Cash flow from financing activities (CFF) is a measure of the net cash flow between the company and its shareholders, creditors, and other investors. Line items typically incorporated in CFF include dividend payments to shareholders, the issuance and payment of short-term and long-term debt, and issuance and repurchase of common stock. CFF can provide analysts insight into how a company is financing its operations and other activities.

VALUATION METRICS

Several valuation metrics can be used to compare how expensive a company’s equity shares are relative to competitors in its universe. Caution must be exercised in the interpretation of these metrics. A company that appears cheap relative to its peers, for example, may be at certain competitive disadvantages, such as a relative lack of new product innovations, higher debt levels, lack of innovative products or exposure to higher growth markets, or lower profit margins, to name a few reasons. As a result, other investors may place a lower valuation on the shares of such a company.

EV/EBITDA This ratio compares enterprise value (EV) with a company’s earnings before interest, taxes, depreciation, and amortization (EBITDA). EV is the market value of a company’s equity shares and debt financing, less cash. EBITDA is indicative of a firm’s earning power, regardless of capital structure, tax planning, or noncash charges, and can be compared with those of other companies on an apples-to-apples basis.

Industrial machinery companies typically use varying degrees of debt financing and have varying interest expenses. Requirements for new capital spending (which incurs depreciation and amortization expenses) also differ. The EV/EBITDA calculation levels the playing field by adjusting for such variations. Were we to look only at earnings, a company that invests a great deal (thereby incurring high depreciation and amortization expense) would be unfairly penalized relative to a company that invests almost nothing. A company with an EV/EBITDA valuation that is lower than those of its peers is considered less expensive.


Price-to-earnings ratio The price-to-earnings (P/E) ratio compares the market value of one share of a company versus its earnings per share. Typically, the P/E is calculated with the current price against the expected earnings in the following fiscal year (e.g., today’s price versus expected earnings in calendar year 2011).

For the industrial machinery universe, wide swings in the P/E ratio can occur, as the sector goes into and out of favor with the investing public, depending on factors such as interest rates, inflation, or company-specific factors such as demand, the company’s expected growth, or the riskiness. In general, the ratio of price to forward 12-month earnings typically falls in the 12 times to 20 times range. For example, if a company’s stock is trading at $30.00 per share, and investors expect, on average, that the company will earn $2.00 per share in 2011, then the P/E for this company is 30/2.00, or 15.

Price-to-peak earnings ratio The price-to-peak earnings (P/PE) ratio is similar to the price-to-earnings ratio, but differs in that the denominator in the ratio is the highest level of trailing earnings, on a 12-month rolling basis, achieved to date. In this way, the P/PE ratio can be less volatile, and potentially more useful in assessing peer relative valuations. This measure tends to provide a more absolute measure of valuation around turns in the economy and business cycle.

Price-to-sales ratio The price-to-sales (P/S) ratio is a metric calculated by dividing a company’s equity market value by its revenue, with revenue expressed as sales from the last fiscal year, sales from the preceding four quarters, or using the expected revenue in the following fiscal year (e.g., today’s market value versus expected revenue in calendar year 2011).

We believe the P/S ratio should be used sparingly in the valuation of the industrial machinery companies as the measure does have limitations. For instance, the valuation ratio does not take into account the capital or tax structure of companies. We would typically only use a P/S valuation ratio for companies that are experiencing temporarily depressed levels of earnings.

Management efficiency An important way to measure how management is performing and how well it is using the company’s capital is by examining the profitability on various balance sheet items. Investors can look at profitability derived from total assets, or in relation to just the company’s equity base, or they can look at what returns it generates from the amount of capital it invests annually.

Return on assets A company’s return on assets (ROA) measures the net income created during one time period, usually a 12-month span, such as a year, versus the average value of the company’s assets in that particular period. The ROA does not consider any financial leverage used to generate the net income; therefore, it is often considered a more conservative metric.

Return on equity A company’s return on equity (ROE) measures the net income generated in a particular time period, such as a fiscal year, against the average value of the equity in the company during that period. Since it is using only equity, this metric incorporates a company’s use of financial leverage, and by definition is higher than ROA when financial leverage is employed. A company with a higher ROE than its peers likely is generating relatively more income given its level of equity. However, investors should always be alert to the amount of leverage employed to generate the ROE.

Return on invested capital A company’s return on invested capital (ROIC) is one of the most important efficiency metrics for the industrial machinery industry. The ROIC measures the net operating profit after tax during a particular time period, usually 12 months, against the amount of capital the company has invested during that time frame. The higher a company’s ROIC is over its cost of capital, the greater the value that is created through its operations.


Dividend payout ratio The dividend payout ratio compares the dividend per share, which a company returns to its shareholders in cash, with the earnings per share that it generates. For example, a company that pays out 15 cents per share in cash to its shareholders each year, and which generated $1.00 per share of earnings, has a dividend payout ratio of 15%. The company uses the remaining 85% of the earnings (which would be referred to as the retention rate) internally: to fund operations, make new capital investments, or pay down existing debt. The ROE minus the retention rate in percent can suggest a company’s sustainable growth level of shareholders’ equity in the future.


GLOSSARY

AC motor—A motor operating on an AC current. Two general types are induction and synchronous.

Actuator—A device that activates a movement or a process; used to transfer motion from one object to another.

Alternating current (AC)—A current that flows in both directions in an electric circuit.

Compressor—A machine for compressing air or other gases.

Continuous Automation—An automation process that helps manufacturers ensure the temperature, viscosity, flow rate, composition, and other characteristics of a product during the assembly/manufacturing process.

DC motor—A motor operating on DC current, which is often used when variable-speed operation is required.

Direct current (DC)—A current that flows in only one direction in an electric circuit; current can be either continuous or discontinuous, and either constant rate or varying.

Discrete Automation—This process involves the assembly of parts into products that can be measured in units such as automobiles, food products, computers, household appliances, and electronics.

Distributed control system (DCS)—A network of computerized stations whose purpose is the control of an industrial process or plant. A DCS is focused on controlling and monitoring several process variables, such as temperature, pressure, flow, and water level.

Electric motor—A machine that converts electrical power into mechanical power in the form of a rotating shaft.

Flowmeter—A device for monitoring and measuring the flow of a substance (typically fluid or gas).

Fractional horsepower motor—An electric motor with output of less than one horsepower.

Horsepower (hp)—A measure of the rate of work. An electrical device with one hp can lift 33,000 pounds to a height of one foot in one minute.

Hybrid Automation—A manufacturing process that combines the aspects of continuous and discrete automation processes.

Hydraulic pump—A device that increases water pressure and moves a liquid in a specific direction.

Kaizen—The Japanese word for “change for the better,” it is a manufacturing philosophy that focuses on the continual improvement of production processes.

Lean Manufacturing—A manufacturing practice that considers all the expenditures within the production of a product and attempts to reduce or eliminate all the waste within the process.

Pneumatic pump—A device that uses air pressure to move liquid or gas in a specific direction.

Programmable logic controller (PLC)—A computerized device used to control equipment in an industrial facility. The PLC replaces the wires that would otherwise be needed for different pieces of equipment to communicate.

Six Sigma—A set of practices originally developed by Motorola to improve processes by eliminating defects. Popularized by General Electric, this rigorous methodology uses data and statistical analysis to measure and improve a company’s operational performance, practices, and systems; the goal is to reduce defects to less than 3.4 per million.

Valve—A device that controls the flow (typically through pipes) of liquid or gas.


INDUSTRY REFERENCES

PERIODICALS

Assembly Magazine http://www.assemblymag.com Monthly; covers the technology, products, applications, and industry news relevant to product assembly.

Automation World http://www.automationworld.com Monthly; focused on the field of industrial automation.

Control Design Control Magazine http://www.controldesign.com http://www.controlglobal.com Monthly; the first covers the automation, control, and instrumentation needs of original equipment manufacturers (OEMs); the second covers the North American process automation market.

Engineeringtalk http://www.engineeringtalk.com Online publication focused on product design and engineering.

Industrial Automation Insider (IAI) http://www.iainsider.co.uk Monthly newsletter; provides industrial measurement and control systems users with information on the evolution and convergence of systems technologies.

Industrial Equipment News http://www.ien.com Monthly; reviews product technologies in a variety of fields including automation, assembly, e-manufacturing, maintenance and repair operations (MRO), motion control, robotics, sensing, and security.

Industrial Maintenance and Plant Operation http://www.impomag.com Monthly magazine for plant and maintenance managers; reports on important trends, issues, and products in the MRO market.

Industry Week http://www.industryweek.com Monthly; focuses on new manufacturing techniques and machines, information technology, microelectronics, organizational practices within the manufacturing sector, analysis, and trends in global manufacturing.

Machinery Outlook http://www.machineryoutlook.com Monthly; covers the construction, mining, lifting, agriculture, and material handling machinery industries.

Robotics Online http://www.roboticsonline.com Bimonthly; covers robotics and flexible automation.

Supply House Times http://www.supplyht.com Monthly; serves the plumbing, hydronics, and HVAC industries.

TRADE ASSOCIATIONS

American Machine Tool Distributors’ Association http://www.amtda.org Represents US machine tool distributors.

Association of Equipment Manufacturers (AEM) http://www.aem.org Represents manufacturers of agricultural, mining, forestry, utility, and construction equipment, plus suppliers of related products and services. Provides statistics and addresses safety, technical, and public policy issues.

The Institute for Supply Management (ISM) http://www.ism.ws Nonprofit association representing the purchasing and supply management profession; provides statistics on the general manufacturing industry.

National Electrical Manufacturers’ Association (NEMA) http://www.nema.org Established in 1926, NEMA provides a forum for the standardization of electrical equipment and represents industry interests in new and developing technologies.

National Fluid Power Association http://www.nfpa.com Represents companies in the US fluid power industry; promotes advanced knowledge of hydraulic and pneumatic motion control technology.

Valve Manufacturers Association http://www.vma.org Represents the interests of its members (about 100 valve and actuator makers in the US and Canada); a voice for the flow control industry.


RESEARCH FIRMS AND INSTITUTIONS

ARC Advisory Group http://www.arcweb.com Focuses on manufacturing, logistics, and supply chain solutions.

The Freedonia Group Inc. http://www.freedoniagroup.com Market research firm; provides industry research reports and forecasts on a wide variety of industries.

Frost & Sullivan http://www.frost.com Provides market information on more than 30 major industries.

F.W. Dodge http://www.fwdodge.com Provides construction information, statistics, and news.

McIlvaine Co. http://www.mcilvainecompany.com Provides technical information, market reports, sales leads, and market research in the environmental, energy, contamination control, and process industry fields.

GOVERNMENT AGENCIES

Bureau of Labor Statistics (BLS) http://www.bls.gov A division of the US Department of Labor, the BLS is the federal government’s principal fact-finding group in labor economics and statistics.

The Federal Reserve System http://www.federalreserve.gov The Federal Reserve, or the Fed, is the US central bank, an independent government organization that supervises and regulates banks, conducts US monetary policy, and provides services to the US government and the public. It was created by Congress in 1913 with the passage of the Federal Reserve Act.

US Census Bureau http://www.census.gov A division of the US Department of Commerce; collects US population and economic data.

COMPARATIVE COMPANY ANALYSIS — INDUSTRIAL MACHINERY Operating Revenues

Million $ CAGR (%) Index Basis (1999 = 100)Ticker Company Yr. End 2009 2008 2007 2006 2005 2004 1999 10-Yr. 5-Yr. 1-Yr. 2009 2008 2007 2006 2005INDUSTRIAL MACHINERY‡ATU § ACTUANT CORP -CL A AUG 1,239.8 A,C 1,663.9 A 1,458.7 A 1,201.2 A 976.1 A 726.9 1,751.0 A (3.4) 11.3 (25.5) 71 95 83 69 56AIN § ALBANY INTL CORP -CL A DEC 871.0 1,086.5 D 1,093.0 1,019.0 978.7 919.8 778.4 A 1.1 (1.1) (19.8) 112 140 140 131 126BMI § BADGER METER INC DEC 250.3 279.6 234.8 229.8 D 216.7 205.0 150.9 5.2 4.1 (10.5) 166 185 156 152 144B § BARNES GROUP INC DEC 1,034.2 1,362.1 D 1,439.5 1,259.7 A 1,102.2 994.7 622.4 A 5.2 0.8 (24.1) 166 219 231 202 177BGG § BRIGGS & STRATTON JUN 2,092.2 A 2,151.4 2,157.2 2,542.2 2,654.9 A 1,947.4 1,501.7 3.4 1.4 (2.8) 139 143 144 169 177

CIR § CIRCOR INTL INC DEC 642.6 A 793.8 A 665.7 591.7 A 450.5 A 381.8 A 323.1 A 7.1 11.0 (19.0) 199 246 206 183 139CLC § CLARCOR INC NOV 907.7 1,059.6 A 921.2 907.0 874.0 787.7 477.9 A 6.6 2.9 (14.3) 190 222 193 190 183CR † CRANE CO DEC 2,177.5 2,604.3 A 2,619.2 A 2,256.9 A 2,061.2 1,890.3 1,553.7 D 3.4 2.9 (16.4) 140 168 169 145 133DHR [] DANAHER CORP DEC 11,184.9 A 12,697.5 A 11,025.9 A,C 9,596.4 A 7,984.7 A 6,889.3 A 3,197.2 A 13.3 10.2 (11.9) 350 397 345 300 250DCI † DONALDSON CO INC JUL 1,874.7 2,240.1 1,918.8 1,694.3 1,595.7 1,415.0 944.1 7.1 5.8 (16.3) 199 237 203 179 169

DOV [] DOVER CORP DEC 5,775.7 A 7,568.9 A,C 7,226.1 A,C 6,511.6 A,C 6,078.4 A,C 5,488.1 A,C 4,446.4 A,C 2.7 1.0 (23.7) 130 170 163 146 137ETN [] EATON CORP DEC 11,873.0 C 15,376.0 A 13,033.0 A,C 12,370.0 A,C 11,115.0 A 9,817.0 A 8,402.0 A 3.5 3.9 (22.8) 141 183 155 147 132NPO § ENPRO INDUSTRIES INC DEC 803.0 A,C 1,167.8 1,030.0 A 928.4 838.6 826.3 NA NA (0.6) (31.2) ** ** ** ** NAESE § ESCO TECHNOLOGIES INC SEP 619.1 D 623.8 A,C 527.5 A 458.9 429.1 422.1 416.1 4.1 8.0 (0.8) 149 150 127 110 103FLS [] FLOWSERVE CORP DEC 4,365.3 4,473.5 3,762.7 3,061.1 2,695.3 D 2,638.2 D 1,061.3 A 15.2 10.6 (2.4) 411 422 355 288 254

GDI † GARDNER DENVER INC DEC 1,778.1 2,018.3 A 1,868.8 1,669.2 1,214.6 A 739.5 A 323.8 A 18.6 19.2 (11.9) 549 623 577 515 375GGG † GRACO INC DEC 579.2 817.3 A 841.3 816.5 A 731.7 A 605.0 442.5 A 2.7 (0.9) (29.1) 131 185 190 185 165HSC † HARSCO CORP DEC 2,990.6 3,973.6 A 3,688.2 A,C 3,423.3 A 2,766.2 A,C 2,502.1 1,713.7 A 5.7 3.6 (24.7) 175 232 215 200 161IEX † IDEX CORP DEC 1,329.7 1,489.5 1,358.6 1,154.9 D 1,043.3 928.3 655.0 A 7.3 7.5 (10.7) 203 227 207 176 159ITW [] ILLINOIS TOOL WORKS DEC 13,877.1 D 15,869.4 D 16,170.6 D 14,055.0 12,921.8 11,731.4 9,333.2 A 4.0 3.4 (12.6) 149 170 173 151 138

IR [] INGERSOLL-RAND PLC DEC 13,195.3 13,227.4 A 8,763.1 D 11,409.3 A 10,546.9 A 9,393.6 D 7,666.7 A,C 5.6 7.0 (0.2) 172 173 114 149 138JBT § JOHN BEAN TECHNOLOGIES DEC 841.6 A 1,028.1 978.0 D NA NA NA NA NA NA (18.1) ** ** ** ** NAKDN § KAYDON CORP DEC 441.1 522.4 451.4 A 404.0 354.6 D 333.8 A 325.7 3.1 5.7 (15.5) 135 160 139 124 109KMT † KENNAMETAL INC JUN 1,999.9 A,C 2,705.1 2,385.5 A 2,329.6 D 2,304.2 1,971.4 A 1,902.9 0.5 0.3 (26.1) 105 142 125 122 121LECO † LINCOLN ELECTRIC HLDGS INC DEC 1,729.3 2,479.1 A 2,280.8 A 1,971.9 A 1,601.2 A 1,333.7 A 1,086.2 4.8 5.3 (30.2) 159 228 210 182 147

LDL § LYDALL INC DEC 248.9 305.7 D 338.9 326.4 306.5 C 292.4 318.5 D (2.4) (3.2) (18.6) 78 96 106 102 96MLI § MUELLER INDUSTRIES DEC 1,547.2 F 2,559.5 F 2,699.1 A,F 2,513.0 F 1,732.0 D,F 1,380.8 A,F 1,169.8 F 2.8 2.3 (39.5) 132 219 231 215 148NDSN † NORDSON CORP OCT 819.2 1,124.8 A 993.6 A 892.2 D 839.2 793.5 700.5 1.6 0.6 (27.2) 117 161 142 127 120PLL [] PALL CORP JUL 2,329.2 2,571.6 2,249.9 2,016.8 1,902.3 1,770.7 1,147.1 7.3 5.6 (9.4) 203 224 196 176 166PH [] PARKER-HANNIFIN CORP JUN 10,309.0 A 12,145.6 A 10,718.1 A 9,385.9 A,C 8,215.1 A,C 7,106.9 A 4,958.8 A 7.6 7.7 (15.1) 208 245 216 189 166

PNR † PENTAIR INC DEC 2,692.5 3,352.0 A,C 3,398.7 A 3,154.5 A 2,946.6 A 2,278.1 A,C 2,367.8 A 1.3 3.4 (19.7) 114 142 144 133 124RBN § ROBBINS & MYERS INC AUG 640.4 787.2 A 695.4 625.4 604.8 585.8 400.1 A 4.8 1.8 (18.7) 160 197 174 156 151SNA [] SNAP-ON INC DEC 2,420.8 2,934.7 2,904.2 D 2,522.4 A 2,362.2 2,407.2 2,006.1 A,F 1.9 0.1 (17.5) 121 146 145 126 118SPW † SPX CORP DEC 4,850.8 D 5,855.7 D 4,824.6 A,C 4,313.3 D 4,292.2 D 4,372.0 D 2,712.3 6.0 2.1 (17.2) 179 216 178 159 158TKR † TIMKEN CO DEC 3,141.6 D 5,663.7 5,236.0 4,973.4 D 5,168.4 4,513.7 2,495.0 2.3 (7.0) (44.5) 126 227 210 199 207

VMI † VALMONT INDUSTRIES INC DEC 1,786.6 1,907.3 A 1,499.8 A 1,281.3 C 1,108.1 1,031.5 A 614.2 A 11.3 11.6 (6.3) 291 311 244 209 180WTS § WATTS WATER TECHNOLOGIES INC DEC 1,225.9 D 1,459.4 A 1,382.3 A 1,230.8 A 924.3 A 824.6 D 474.5 D 10.0 8.3 (16.0) 258 308 291 259 195

Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.

INDUSTRIAL MACHINERY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies

Net IncomeMillion $ CAGR (%) Index Basis (1999 = 100)

Ticker Company Yr. End 2009 2008 2007 2006 2005 2004 1999 10-Yr. 5-Yr. 1-Yr. 2009 2008 2007 2006 2005INDUSTRIAL MACHINERY‡ATU § ACTUANT CORP -CL A AUG 23.9 122.5 105.0 92.6 71.3 23.9 79.4 (11.3) (0.0) (80.5) 30 154 132 117 90AIN § ALBANY INTL CORP -CL A DEC (22.4) (82.2) 17.8 58.0 71.9 10.4 30.2 NM NM NM (74) (272) 59 192 238BMI § BADGER METER INC DEC 26.8 25.1 18.4 16.6 13.3 9.6 9.7 10.7 22.7 6.8 276 259 190 171 137B § BARNES GROUP INC DEC 39.0 97.1 101.3 73.8 60.9 33.4 28.6 3.1 3.1 (59.8) 136 339 354 258 213BGG § BRIGGS & STRATTON JUN 32.0 22.6 0.1 102.3 116.8 136.1 106.1 (11.3) (25.2) 41.5 30 21 0 96 110

CIR § CIRCOR INTL INC DEC 5.9 (59.0) 37.9 29.3 20.4 11.8 12.5 (7.3) (13.0) NM 47 (472) 303 234 163CLC § CLARCOR INC NOV 71.5 95.7 90.7 82.7 76.4 64.0 35.4 7.3 2.3 (25.2) 202 270 256 234 216CR † CRANE CO DEC 133.9 135.2 (62.3) 165.9 136.0 (105.4) 100.9 2.9 NM (1.0) 133 134 (62) 164 135DHR [] DANAHER CORP DEC 1,151.7 1,317.6 1,214.0 1,122.0 897.8 746.0 261.6 16.0 9.1 (12.6) 440 504 464 429 343DCI † DONALDSON CO INC JUL 131.9 172.0 150.7 132.3 110.6 106.3 62.4 7.8 4.4 (23.3) 211 275 241 212 177

DOV [] DOVER CORP DEC 371.9 694.8 653.3 603.3 474.5 409.1 405.1 (0.9) (1.9) (46.5) 92 172 161 149 117ETN [] EATON CORP DEC 383.0 1,055.0 959.0 912.0 805.0 648.0 617.0 (4.7) (10.0) (63.7) 62 171 155 148 130NPO § ENPRO INDUSTRIES INC DEC (143.6) 53.5 37.7 (158.9) 58.6 33.8 NA NA NM NM ** ** ** ** NAESE § ESCO TECHNOLOGIES INC SEP 49.3 47.4 33.7 31.3 43.5 37.8 50.5 (0.2) 5.4 4.0 98 94 67 62 86FLS [] FLOWSERVE CORP DEC 427.9 442.4 255.8 114.0 46.2 20.2 12.2 42.8 84.2 (3.3) 3,514 3,633 2,100 937 379

GDI † GARDNER DENVER INC DEC (165.2) 166.0 205.1 132.9 67.0 37.1 18.0 NM NM NM (915) 920 1,136 736 371GGG † GRACO INC DEC 49.0 120.9 152.8 149.8 125.9 108.7 59.3 (1.9) (14.7) (59.5) 83 204 258 252 212HSC † HARSCO CORP DEC 133.8 245.6 255.1 196.5 156.8 113.5 90.7 4.0 3.3 (45.5) 148 271 281 217 173IEX † IDEX CORP DEC 113.4 131.4 155.9 133.7 109.8 86.4 54.4 7.6 5.6 (13.7) 208 241 286 246 202ITW [] ILLINOIS TOOL WORKS DEC 969.5 1,583.3 1,826.1 1,717.7 1,494.9 1,339.6 841.1 1.4 (6.3) (38.8) 115 188 217 204 178

IR [] INGERSOLL-RAND PLC DEC 462.9 (2,567.4) 733.1 1,068.3 1,053.1 829.8 544.9 (1.6) (11.0) NM 85 (471) 135 196 193JBT § JOHN BEAN TECHNOLOGIES DEC 32.8 44.1 40.1 NA NA NA NA NA NA (25.6) ** ** ** ** NAKDN § KAYDON CORP DEC 46.0 67.1 77.7 69.5 46.5 38.4 58.8 (2.4) 3.7 (31.5) 78 114 132 118 79KMT † KENNAMETAL INC JUN (102.4) 167.8 176.8 272.3 119.3 73.6 39.1 NM NM NM (262) 429 452 696 305LECO † LINCOLN ELECTRIC HLDGS INC DEC 48.6 212.3 202.7 175.0 122.3 80.6 73.9 (4.1) (9.6) (77.1) 66 287 274 237 165

LDL § LYDALL INC DEC (14.2) (6.1) 9.1 10.2 5.4 (0.5) 13.0 NM NM NM (109) (47) 70 79 42MLI § MUELLER INDUSTRIES DEC 4.7 80.8 115.5 148.9 89.2 79.4 99.3 (26.3) (43.2) (94.2) 5 81 116 150 90NDSN † NORDSON CORP OCT (160.1) 117.5 90.7 97.7 78.3 63.3 47.5 NM NM NM (337) 247 191 206 165PLL [] PALL CORP JUL 195.6 217.3 127.5 145.5 140.8 151.6 51.5 14.3 5.2 (10.0) 380 422 248 282 273PH [] PARKER-HANNIFIN CORP JUN 508.5 949.5 830.0 638.3 548.0 345.8 310.5 5.1 8.0 (46.4) 164 306 267 206 176

PNR † PENTAIR INC DEC 115.5 256.4 210.5 183.8 185.0 137.0 103.3 1.1 (3.4) (54.9) 112 248 204 178 179RBN § ROBBINS & MYERS INC AUG 55.4 87.4 50.7 (19.6) (0.3) 9.8 11.8 16.7 41.5 (36.7) 467 738 428 (165) (2)SNA [] SNAP-ON INC DEC 134.2 236.7 189.2 100.1 92.9 81.7 127.2 0.5 10.4 (43.3) 105 186 149 79 73SPW † SPX CORP DEC 46.4 253.2 300.3 220.5 (19.6) (114.7) 107.5 (8.1) NM (81.7) 43 236 279 205 (18)TKR † TIMKEN CO DEC (61.4) 267.7 219.4 176.4 260.3 135.7 62.6 NM NM NM (98) 427 350 282 416

VMI † VALMONT INDUSTRIES INC DEC 150.6 132.4 94.7 61.5 39.1 26.9 26.4 19.0 41.1 13.7 571 502 359 233 148WTS § WATTS WATER TECHNOLOGIES INC DEC 41.0 47.3 77.6 77.1 55.0 48.7 29.5 3.4 (3.4) (13.3) 139 161 263 262 187

Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available.


Return on Revenues (%) Return on Assets (%) Return on Equity (%)Ticker Company Yr. End 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005

INDUSTRIAL MACHINERY‡ATU § ACTUANT CORP -CL A AUG 1.9 7.4 7.2 7.7 7.3 1.5 7.7 7.7 8.4 10.0 3.5 21.7 24.3 30.5 51.5AIN § ALBANY INTL CORP -CL A DEC NM NM 1.6 5.7 7.3 NM NM 1.3 4.8 6.4 NM NM 3.2 10.8 12.8BMI § BADGER METER INC DEC 10.7 9.0 7.8 7.2 6.1 13.9 14.5 12.7 11.6 9.2 21.0 24.7 22.5 22.8 19.3B § BARNES GROUP INC DEC 3.8 7.1 7.0 5.9 5.5 2.8 6.5 7.0 6.3 6.3 6.2 15.7 17.3 16.1 16.5BGG § BRIGGS & STRATTON JUN 1.5 1.1 0.0 4.0 4.4 1.9 1.2 0.0 5.2 6.4 4.2 2.7 0.0 10.9 13.7

CIR § CIRCOR INTL INC DEC 0.9 NM 5.7 5.0 4.5 1.0 NM 5.9 5.5 4.6 1.7 NM 9.7 8.8 6.7CLC § CLARCOR INC NOV 7.9 9.0 9.8 9.1 8.7 7.4 11.3 12.4 11.8 11.7 10.7 15.8 16.6 16.2 16.8CR † CRANE CO DEC 6.1 5.2 NM 7.4 6.6 4.9 4.8 NM 7.3 6.4 16.5 16.7 NM 19.8 19.2DHR [] DANAHER CORP DEC 10.3 10.4 11.0 11.7 11.2 6.2 7.5 8.0 10.2 10.2 10.7 13.9 15.4 19.1 18.5DCI † DONALDSON CO INC JUL 7.0 7.7 7.9 7.8 6.9 9.2 12.0 12.3 11.8 10.5 18.5 25.2 25.7 24.7 20.6

DOV [] DOVER CORP DEC 6.4 9.2 9.0 9.3 7.8 4.7 8.7 8.3 8.5 7.7 9.4 18.0 16.8 16.9 14.7ETN [] EATON CORP DEC 3.2 6.9 7.4 7.4 7.2 2.3 7.0 7.7 8.4 8.3 5.9 18.4 20.7 23.1 21.8NPO § ENPRO INDUSTRIES INC DEC NM 4.6 3.7 NM 7.0 NM 3.8 2.6 NM 4.8 NM 12.3 8.6 NM 11.5ESE § ESCO TECHNOLOGIES INC SEP 8.0 7.6 6.4 6.8 10.1 5.3 6.3 6.3 6.8 10.5 10.0 10.7 8.5 8.8 13.6FLS [] FLOWSERVE CORP DEC 9.8 9.9 6.8 3.7 1.7 10.3 11.7 8.0 4.2 1.8 27.0 33.3 22.1 12.3 5.4

GDI † GARDNER DENVER INC DEC NM 8.2 11.0 8.0 5.5 NM 7.8 11.2 7.7 4.9 NM 14.1 20.4 17.6 12.6GGG † GRACO INC DEC 8.5 14.8 18.2 18.3 17.2 9.3 21.7 29.2 31.3 30.8 26.0 58.6 53.1 48.4 48.5HSC † HARSCO CORP DEC 4.5 6.2 6.9 5.7 5.7 3.7 6.6 7.1 6.2 5.8 9.3 16.5 18.8 18.4 16.4IEX † IDEX CORP DEC 8.5 8.8 11.5 11.6 10.5 5.3 6.3 8.5 9.2 9.0 9.3 11.3 14.6 14.8 14.3ITW [] ILLINOIS TOOL WORKS DEC 7.0 10.0 11.3 12.2 11.6 6.2 10.3 12.4 13.6 13.1 11.8 18.6 19.9 20.7 19.7

IR [] INGERSOLL-RAND PLC DEC 3.5 NM 8.4 9.4 10.0 2.3 NM 5.5 8.9 9.1 6.7 NM 11.0 19.1 18.3JBT § JOHN BEAN TECHNOLOGIES DEC 3.9 4.3 4.1 NA NA 5.8 7.6 NA NA NA 123.8 42.9 NA NA NAKDN § KAYDON CORP DEC 10.4 12.8 17.2 17.2 13.1 5.8 8.5 10.2 9.9 7.2 6.7 11.6 17.0 17.5 13.9KMT † KENNAMETAL INC JUN NM 6.2 7.4 11.7 5.2 NM 6.2 7.0 12.0 5.9 NM 10.7 12.7 24.0 12.8LECO † LINCOLN ELECTRIC HLDGS INC DEC 2.8 8.6 8.9 8.9 7.6 2.8 12.6 13.3 13.7 11.0 4.7 20.4 20.9 23.3 19.9

LDL § LYDALL INC DEC NM NM 2.7 3.1 1.8 NM NM 3.6 4.2 2.2 NM NM 5.3 6.7 3.8MLI § MUELLER INDUSTRIES DEC 0.3 3.2 4.3 5.9 5.2 0.4 6.1 8.5 12.5 8.6 0.7 11.5 17.8 29.4 23.0NDSN † NORDSON CORP OCT NM 10.4 9.1 10.9 9.3 NM 9.9 8.9 12.1 9.6 NM 21.3 18.9 25.7 21.3PLL [] PALL CORP JUL 8.4 8.4 5.7 7.2 7.4 6.7 7.7 4.8 6.0 6.4 17.4 19.8 11.4 12.5 12.8PH [] PARKER-HANNIFIN CORP JUN 4.9 7.8 7.7 6.8 6.7 5.0 10.1 10.0 8.5 8.3 10.7 19.0 18.5 16.8 17.3

PNR † PENTAIR INC DEC 4.3 7.6 6.2 5.8 6.3 2.9 6.4 5.7 5.6 5.8 5.9 13.5 11.8 11.4 12.3RBN § ROBBINS & MYERS INC AUG 8.6 11.1 7.3 NM NM 6.7 10.4 6.7 NM NM 11.4 19.2 13.5 NM NMSNA [] SNAP-ON INC DEC 5.5 8.1 6.5 4.0 3.9 4.4 8.6 7.0 4.3 4.3 10.8 19.2 16.1 9.8 9.0SPW † SPX CORP DEC 1.0 4.3 6.2 5.1 NM 0.8 4.1 5.1 4.1 NM 2.4 12.6 14.6 10.4 NMTKR † TIMKEN CO DEC NM 4.7 4.2 3.5 5.0 NM 6.0 5.2 4.4 6.6 NM 14.9 12.8 11.9 18.8

VMI † VALMONT INDUSTRIES INC DEC 8.4 6.9 6.3 4.8 3.5 11.5 11.1 9.7 7.3 4.8 21.4 23.3 20.8 16.9 12.5WTS § WATTS WATER TECHNOLOGIES INC DEC 3.3 3.2 5.6 6.3 6.0 2.5 2.8 4.6 5.6 5.4 4.8 5.4 8.9 11.5 10.9

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.


Debt as a % ofCurrent Ratio Debt / Capital Ratio (%) Net Working Capital

Ticker Company Yr. End 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005

INDUSTRIAL MACHINERY‡ATU § ACTUANT CORP -CL A AUG 1.5 1.9 1.7 1.5 1.6 31.6 44.0 48.2 51.6 59.3 311.2 204.0 261.7 364.6 400.3AIN § ALBANY INTL CORP -CL A DEC 2.7 2.6 2.5 2.7 2.6 50.6 53.8 41.4 39.8 21.2 158.1 153.9 122.7 106.4 59.8BMI § BADGER METER INC DEC 3.3 1.7 1.9 1.7 1.8 0.0 4.7 3.3 7.6 16.1 0.0 15.4 8.1 17.6 46.6B § BARNES GROUP INC DEC 2.1 2.5 1.5 1.6 1.5 31.3 43.5 36.1 41.0 37.3 150.6 162.7 217.2 226.5 200.3BGG § BRIGGS & STRATTON JUN 2.9 2.9 2.1 3.0 3.2 28.8 29.2 23.3 26.0 32.7 50.4 56.7 50.9 55.7 63.4

CIR § CIRCOR INTL INC DEC 2.5 2.0 1.9 2.0 1.9 0.4 3.6 4.7 14.5 1.9 0.7 5.8 13.2 42.1 6.0CLC § CLARCOR INC NOV 3.4 3.0 3.3 3.2 2.7 6.7 10.8 2.9 2.7 3.0 16.5 29.0 6.7 6.1 7.9CR † CRANE CO DEC 2.2 1.9 2.1 1.9 2.0 30.3 34.1 30.1 27.8 26.0 68.8 82.6 73.2 93.6 73.3DHR [] DANAHER CORP DEC 1.9 1.5 1.4 1.4 1.3 19.9 20.7 27.2 26.7 14.4 117.5 177.1 295.3 259.0 126.8DCI † DONALDSON CO INC JUL 2.3 1.7 1.5 1.6 1.7 26.7 18.5 16.3 14.6 15.7 67.3 52.4 60.1 49.9 39.0

DOV [] DOVER CORP DEC 2.6 2.1 1.5 1.6 1.6 29.4 31.2 25.4 26.2 26.6 117.5 135.2 168.2 176.8 174.9ETN [] EATON CORP DEC 1.7 1.3 1.3 1.3 1.2 31.4 31.7 32.0 30.2 32.6 182.5 303.8 219.5 177.2 300.0NPO § ENPRO INDUSTRIES INC DEC 2.0 1.7 1.9 2.1 2.0 29.5 30.3 27.7 31.5 24.7 58.5 95.9 78.5 75.1 88.7ESE § ESCO TECHNOLOGIES INC SEP 1.7 1.6 2.2 2.7 4.2 18.0 25.0 0.0 0.0 0.0 112.3 180.1 0.0 0.0 0.0FLS [] FLOWSERVE CORP DEC 1.7 1.5 1.5 1.5 1.5 22.7 28.2 29.1 34.5 43.0 51.8 75.3 85.2 132.9 173.5

GDI † GARDNER DENVER INC DEC 2.2 2.2 2.2 1.8 1.9 22.8 28.2 17.7 29.4 42.2 83.8 110.1 67.8 151.3 199.2GGG † GRACO INC DEC 1.8 2.2 2.0 1.9 1.9 29.2 51.8 29.3 0.0 0.0 101.3 129.1 87.1 0.0 0.0HSC † HARSCO CORP DEC 1.6 1.4 1.5 1.4 1.5 36.6 38.1 36.8 40.9 44.8 215.6 281.3 214.7 269.5 256.9IEX † IDEX CORP DEC 2.4 2.3 3.2 2.2 2.3 21.7 29.5 25.9 24.7 15.0 149.5 191.7 102.4 153.4 80.8ITW [] ILLINOIS TOOL WORKS DEC 2.0 1.2 2.1 2.0 2.1 24.4 13.8 16.4 9.3 11.2 102.7 118.7 58.9 37.2 45.4

IR [] INGERSOLL-RAND PLC DEC 1.2 1.0 2.4 1.1 1.3 26.3 23.7 7.7 14.3 17.0 379.2 NM 16.0 187.7 113.0JBT § JOHN BEAN TECHNOLOGIES DEC 1.3 1.4 1.2 NA NA 67.3 101.5 0.0 NA NA 188.8 199.8 0.0 NA NAKDN § KAYDON CORP DEC 9.3 6.8 7.5 9.6 9.8 0.0 0.0 28.2 31.6 35.7 0.0 0.0 52.6 44.8 50.8KMT † KENNAMETAL INC JUN 2.3 2.2 2.1 2.4 1.9 24.6 15.2 18.7 22.8 26.9 87.9 49.6 68.3 65.6 96.0LECO † LINCOLN ELECTRIC HLDGS INC DEC 3.4 2.9 3.1 2.5 2.3 7.5 8.4 9.5 11.5 19.1 12.1 13.7 17.8 23.2 41.2

LDL § LYDALL INC DEC 2.5 2.6 2.4 2.2 2.4 3.1 3.7 4.1 4.8 15.9 8.6 11.4 13.2 17.6 52.4MLI § MUELLER INDUSTRIES DEC 4.4 3.7 2.8 3.0 2.4 17.5 17.3 26.4 31.9 38.7 25.3 28.7 46.5 59.2 86.5NDSN † NORDSON CORP OCT 2.2 1.0 0.8 1.4 1.2 29.6 11.5 5.3 10.8 24.3 81.6 723.5 NM 49.3 172.5PLL [] PALL CORP JUL 2.2 2.9 1.9 2.6 2.5 33.9 39.4 35.1 35.0 30.7 67.7 68.8 76.4 75.6 72.5PH [] PARKER-HANNIFIN CORP JUN 1.6 1.9 1.8 1.9 2.1 29.2 26.5 18.4 19.6 21.8 164.5 102.1 74.6 72.7 64.7

PNR † PENTAIR INC DEC 2.1 2.1 1.9 1.8 1.7 27.1 30.6 33.4 28.9 30.8 160.7 178.7 218.4 165.4 202.1RBN § ROBBINS & MYERS INC AUG 2.3 2.1 1.5 1.7 1.6 0.1 5.2 6.4 22.9 34.7 0.1 14.1 23.5 88.6 168.8SNA [] SNAP-ON INC DEC 2.3 2.1 1.9 1.6 2.1 40.1 28.9 27.7 31.2 17.7 99.1 89.3 96.9 124.1 39.9SPW † SPX CORP DEC 1.4 1.4 1.2 1.4 1.5 37.6 36.3 38.1 26.3 25.4 172.8 146.6 262.6 102.5 95.2TKR † TIMKEN CO DEC 3.7 2.5 2.3 2.3 1.8 22.9 23.8 22.8 27.0 26.7 31.7 41.7 50.9 51.4 61.8

VMI † VALMONT INDUSTRIES INC DEC 2.8 2.7 2.3 2.3 2.3 16.1 32.9 26.5 31.3 36.6 34.9 70.9 57.3 73.0 95.5WTS § WATTS WATER TECHNOLOGIES INC DEC 2.6 2.7 3.3 3.2 2.4 25.5 32.3 31.8 34.5 34.8 64.6 83.8 67.1 69.8 96.4



Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)Ticker Company Yr. End 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005

INDUSTRIAL MACHINERY‡ATU § ACTUANT CORP -CL A AUG 49 - 17 17 - 6 18 - 12 20 - 12 22 - 15 10 2 2 2 0 0.6 - 0.2 0.3 - 0.1 0.2 - 0.1 0.2 - 0.1 0.0 - 0.0AIN § ALBANY INTL CORP -CL A DEC NM - NM NM - NM 73 - 53 22 - 16 18 - 13 NM NM 72 20 15 9.9 - 2.1 4.5 - 1.2 1.3 - 1.0 1.3 - 0.9 1.2 - 0.8BMI § BADGER METER INC DEC 25 - 12 36 - 10 36 - 18 28 - 16 26 - 13 25 23 26 26 29 2.0 - 1.0 2.3 - 0.6 1.5 - 0.7 1.6 - 0.9 2.2 - 1.1B § BARNES GROUP INC DEC 27 - 11 19 - 5 19 - 10 16 - 10 14 - 9 67 34 29 33 33 6.2 - 2.5 7.3 - 1.8 2.8 - 1.5 3.2 - 2.0 3.5 - 2.3BGG § BRIGGS & STRATTON JUN 36 - 17 49 - 24 NM - NM 20 - 12 19 - 14 120 191 NM 44 30 6.9 - 3.3 7.9 - 3.9 4.2 - 2.6 3.6 - 2.2 2.2 - 1.6

CIR § CIRCOR INTL INC DEC 87 - 50 NM - NM 22 - 14 21 - 13 22 - 16 43 NM 6 8 12 0.9 - 0.5 0.8 - 0.2 0.5 - 0.3 0.6 - 0.4 0.7 - 0.5CLC § CLARCOR INC NOV 24 - 16 24 - 13 24 - 16 23 - 17 22 - 17 26 18 17 17 17 1.6 - 1.1 1.3 - 0.7 1.0 - 0.7 1.0 - 0.7 1.1 - 0.8CR † CRANE CO DEC 14 - 5 20 - 5 NM - NM 17 - 13 17 - 11 35 33 NM 20 20 6.4 - 2.5 7.0 - 1.6 1.9 - 1.3 1.6 - 1.2 1.8 - 1.2DHR [] DANAHER CORP DEC 21 - 13 21 - 11 23 - 18 21 - 15 20 - 17 4 3 3 2 2 0.3 - 0.2 0.3 - 0.1 0.2 - 0.1 0.1 - 0.1 0.1 - 0.1DCI † DONALDSON CO INC JUL 27 - 13 24 - 11 26 - 18 25 - 19 26 - 22 27 19 19 20 18 2.1 - 1.0 1.8 - 0.8 1.1 - 0.7 1.1 - 0.8 0.8 - 0.7

DOV [] DOVER CORP DEC 22 - 11 15 - 6 17 - 14 18 - 14 18 - 15 51 24 24 24 28 4.7 - 2.4 3.8 - 1.6 1.7 - 1.4 1.8 - 1.4 1.9 - 1.6ETN [] EATON CORP DEC 29 - 13 15 - 6 16 - 11 13 - 10 14 - 11 87 30 26 24 23 6.7 - 3.0 5.3 - 2.0 2.4 - 1.7 2.4 - 1.9 2.2 - 1.7NPO § ENPRO INDUSTRIES INC DEC NM - NM 17 - 5 26 - 17 NM - NM 12 - 8 NM 0 0 NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0ESE § ESCO TECHNOLOGIES INC SEP 25 - 15 30 - 14 40 - 23 48 - 34 33 - 19 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0FLS [] FLOWSERVE CORP DEC 14 - 6 19 - 5 23 - 11 30 - 19 48 - 29 14 13 13 0 0 2.5 - 1.0 2.7 - 0.7 1.2 - 0.6 0.0 - 0.0 0.0 - 0.0

GDI † GARDNER DENVER INC DEC NM - NM 18 - 6 12 - 8 16 - 10 19 - 12 NM 0 0 0 0 0.3 - 0.1 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0GGG † GRACO INC DEC 39 - 17 21 - 9 20 - 15 23 - 16 22 - 17 93 37 28 26 28 5.4 - 2.4 4.3 - 1.8 1.8 - 1.4 1.6 - 1.2 1.7 - 1.3HSC † HARSCO CORP DEC 23 - 10 22 - 6 22 - 12 19 - 14 19 - 13 48 27 23 28 32 4.7 - 2.1 4.4 - 1.2 1.9 - 1.1 1.9 - 1.4 2.4 - 1.7IEX † IDEX CORP DEC 23 - 12 25 - 11 23 - 16 21 - 15 21 - 17 34 30 24 23 22 2.9 - 1.5 2.7 - 1.2 1.5 - 1.0 1.5 - 1.1 1.3 - 1.1ITW [] ILLINOIS TOOL WORKS DEC 26 - 13 18 - 9 18 - 14 18 - 14 18 - 15 64 39 30 25 23 4.8 - 2.4 4.1 - 2.1 2.1 - 1.6 1.8 - 1.4 1.6 - 1.3

IR [] INGERSOLL-RAND PLC DEC 26 - 8 NM - NM 22 - 15 15 - 10 14 - 11 34 NM 29 20 18 4.4 - 1.3 6.1 - 1.5 1.9 - 1.3 1.9 - 1.4 1.6 - 1.3JBT § JOHN BEAN TECHNOLOGIES DEC 16 - 7 9 - 4 NA - NA NA - NA NA - NA 24 4 NA NA NA 3.5 - 1.5 1.2 - 0.5 NA - NA NA - NA NA - NAKDN § KAYDON CORP DEC 28 - 17 27 - 9 21 - 14 18 - 13 20 - 16 51 28 19 19 29 3.1 - 1.8 3.1 - 1.0 1.4 - 0.9 1.5 - 1.1 1.8 - 1.4KMT † KENNAMETAL INC JUN NM - NM 18 - 6 20 - 12 10 - 7 17 - 13 NM 21 18 11 21 3.6 - 1.7 3.6 - 1.2 1.5 - 0.9 1.5 - 1.1 1.6 - 1.2LECO † LINCOLN ELECTRIC HLDGS INC DEC 49 - 23 17 - 7 18 - 12 15 - 9 14 - 10 95 20 19 19 25 4.1 - 1.9 3.0 - 1.2 1.5 - 1.1 2.1 - 1.3 2.6 - 1.7

LDL § LYDALL INC DEC NM - NM NM - NM 33 - 16 18 - 13 35 - 22 NM NM 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0MLI § MUELLER INDUSTRIES DEC NM - NM 17 - 7 12 - 9 10 - 7 13 - 10 308 18 13 10 16 2.5 - 1.4 2.5 - 1.1 1.5 - 1.0 1.5 - 1.0 1.6 - 1.2NDSN † NORDSON CORP OCT NM - NM 23 - 7 23 - 16 20 - 13 21 - 13 NM 21 26 23 29 3.6 - 1.1 3.0 - 0.9 1.6 - 1.1 1.7 - 1.2 2.2 - 1.4PLL [] PALL CORP JUL 23 - 11 24 - 12 47 - 32 31 - 22 28 - 22 25 35 34 46 34 2.3 - 1.1 2.9 - 1.4 1.1 - 0.7 2.1 - 1.5 1.5 - 1.2PH [] PARKER-HANNIFIN CORP JUN 19 - 9 15 - 6 18 - 11 16 - 12 17 - 12 32 15 15 17 17 3.6 - 1.7 2.7 - 1.0 1.4 - 0.8 1.4 - 1.0 1.4 - 1.0

PNR † PENTAIR INC DEC 29 - 14 16 - 7 19 - 14 23 - 14 25 - 17 61 26 28 30 28 4.2 - 2.1 3.7 - 1.7 2.0 - 1.5 2.2 - 1.3 1.7 - 1.1RBN § ROBBINS & MYERS INC AUG 16 - 8 22 - 6 26 - 12 NM - NM NM - NM 9 6 8 NM NM 1.2 - 0.6 1.0 - 0.3 0.7 - 0.3 1.1 - 0.5 1.1 - 0.9SNA [] SNAP-ON INC DEC 19 - 9 15 - 7 18 - 14 28 - 21 24 - 19 52 29 34 63 62 5.9 - 2.7 4.3 - 1.9 2.5 - 1.9 3.0 - 2.2 3.3 - 2.6SPW † SPX CORP DEC 69 - 40 30 - 5 20 - 11 16 - 12 NM - NM 106 21 18 26 NM 2.7 - 1.5 3.9 - 0.7 1.7 - 0.9 2.2 - 1.6 2.6 - 2.0TKR † TIMKEN CO DEC NM - NM 14 - 4 17 - 12 19 - 14 12 - 8 NM 25 28 33 21 4.6 - 1.7 6.4 - 1.8 2.4 - 1.7 2.3 - 1.7 2.6 - 1.8

VMI † VALMONT INDUSTRIES INC DEC 15 - 6 24 - 7 27 - 14 25 - 13 22 - 13 10 10 11 15 21 1.5 - 0.6 1.3 - 0.4 0.8 - 0.4 1.1 - 0.6 1.6 - 1.0WTS § WATTS WATER TECHNOLOGIES INC DEC 30 - 14 26 - 13 23 - 13 20 - 12 22 - 15 40 34 20 16 19 2.8 - 1.3 2.6 - 1.3 1.6 - 0.9 1.3 - 0.8 1.2 - 0.9


20052009 2008 2007 2006


Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)Ticker Company Yr. End 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005

INDUSTRIAL MACHINERY‡ATU § ACTUANT CORP -CL A AUG 0.41 2.20 1.91 1.71 1.37 (4.64) (5.41) (6.51) (6.47) (6.63) 20.18 - 7.02 37.15 - 13.69 35.12 - 22.87 33.80 - 21.16 29.50 - 20.41AIN § ALBANY INTL CORP -CL A DEC (0.73) (2.76) 0.60 1.95 2.25 9.70 9.84 13.32 10.85 12.87 23.33 - 4.86 37.80 - 10.55 43.62 - 31.94 43.03 - 30.95 40.39 - 29.35BMI § BADGER METER INC DEC 1.81 1.72 1.29 1.19 0.99 7.61 5.34 5.82 4.54 4.81 44.90 - 22.50 62.74 - 17.58 46.43 - 23.00 33.20 - 19.51 25.63 - 13.06B § BARNES GROUP INC DEC 0.72 1.80 1.90 1.46 1.29 0.14 (1.83) (1.05) (1.44) (0.08) 19.11 - 7.69 34.15 - 8.51 36.89 - 19.76 23.98 - 15.28 18.63 - 11.86BGG § BRIGGS & STRATTON JUN 0.64 0.46 0.00 1.99 2.27 7.00 10.03 10.14 12.50 9.99 23.34 - 11.13 22.75 - 11.20 33.40 - 21.16 40.21 - 24.29 42.20 - 30.83

CIR § CIRCOR INTL INC DEC 0.35 (3.51) 2.31 1.84 1.30 14.55 15.35 12.25 8.92 9.45 30.46 - 17.43 66.65 - 17.67 50.38 - 32.78 38.55 - 24.76 29.20 - 20.88CLC § CLARCOR INC NOV 1.41 1.88 1.80 1.60 1.48 7.19 6.55 7.68 7.21 6.10 34.50 - 23.05 44.25 - 25.03 44.01 - 29.57 36.72 - 26.87 31.98 - 24.60CR † CRANE CO DEC 2.29 2.27 (1.04) 2.72 2.27 0.09 (2.56) (0.16) 1.51 2.06 32.40 - 12.46 46.29 - 10.87 51.16 - 35.27 45.75 - 34.61 37.77 - 25.15DHR [] DANAHER CORP DEC 1.79 2.07 1.95 1.82 1.46 (1.31) (3.02) (4.28) (2.68) (0.37) 38.28 - 23.86 44.10 - 23.60 44.61 - 34.56 37.64 - 27.02 29.20 - 24.16DCI † DONALDSON CO INC JUL 1.69 2.17 1.87 1.59 1.30 5.87 7.21 5.73 5.14 4.77 45.19 - 21.82 52.33 - 23.40 48.40 - 33.60 38.97 - 30.16 33.90 - 28.60

DOV [] DOVER CORP DEC 2.00 3.69 3.24 2.96 2.34 (1.16) (2.23) (2.16) (2.23) (0.77) 43.10 - 21.79 54.57 - 23.39 54.59 - 44.34 51.92 - 40.30 42.11 - 34.11ETN [] EATON CORP DEC 2.31 6.58 6.51 6.07 5.36 (6.61) (8.68) (2.51) 0.70 0.09 67.06 - 30.02 98.14 - 37.69 104.12 - 71.91 79.98 - 62.37 72.69 - 56.65NPO § ENPRO INDUSTRIES INC DEC (7.19) 2.64 1.77 (7.60) 2.83 3.47 3.82 7.37 8.21 16.01 27.11 - 13.36 43.68 - 14.40 46.46 - 29.65 40.08 - 26.30 34.99 - 22.34ESE § ESCO TECHNOLOGIES INC SEP 1.88 1.83 1.30 1.22 1.71 (1.32) (3.79) 7.33 6.72 9.41 46.87 - 29.04 54.06 - 24.84 52.41 - 29.63 58.42 - 41.88 56.22 - 32.57FLS [] FLOWSERVE CORP DEC 7.66 7.82 4.53 2.04 0.83 14.68 7.56 5.42 0.47 (2.67) 108.85 - 43.23 145.45 - 37.18 102.74 - 48.73 61.06 - 39.63 39.75 - 23.69

GDI † GARDNER DENVER INC DEC (3.18) 3.16 3.85 2.54 1.40 3.06 0.92 5.00 (0.39) (3.18) 43.82 - 17.22 57.87 - 17.70 46.09 - 30.37 40.72 - 24.28 26.08 - 16.41GGG † GRACO INC DEC 0.82 2.01 2.35 2.21 1.83 1.30 0.40 2.19 3.20 2.87 32.09 - 14.17 42.20 - 17.31 46.59 - 36.06 50.00 - 35.52 41.10 - 31.00HSC † HARSCO CORP DEC 1.67 2.94 3.03 2.34 1.88 7.76 7.99 7.78 5.30 4.25 37.65 - 16.90 64.75 - 17.55 66.51 - 36.90 44.85 - 33.76 35.28 - 24.93IEX † IDEX CORP DEC 1.41 1.62 1.93 1.68 1.43 (2.39) (3.77) (0.07) (1.30) 1.29 32.85 - 16.67 40.75 - 17.70 44.99 - 30.41 35.65 - 26.00 30.24 - 24.33ITW [] ILLINOIS TOOL WORKS DEC 1.94 3.05 3.31 3.04 2.62 4.43 2.78 6.92 6.94 6.89 51.16 - 25.60 55.59 - 28.50 60.00 - 45.60 53.54 - 41.53 47.32 - 39.25

IR [] INGERSOLL-RAND PLC DEC 1.45 (8.54) 2.52 3.34 3.12 (14.18) (16.23) 11.70 0.21 1.85 37.60 - 11.46 46.84 - 11.75 56.66 - 38.25 49.00 - 34.95 43.96 - 35.13JBT § JOHN BEAN TECHNOLOGIES DEC 1.19 1.60 1.45 NA NA 0.46 (1.96) NA NA NA 19.25 - 8.05 15.18 - 5.85 NA - NA NA - NA NA - NAKDN § KAYDON CORP DEC 1.37 2.27 2.81 2.50 1.67 16.07 15.06 11.10 10.41 7.74 38.96 - 22.72 61.57 - 20.89 58.49 - 38.74 44.33 - 31.53 33.50 - 26.52KMT † KENNAMETAL INC JUN (1.40) 2.18 2.31 3.54 1.62 7.78 11.00 8.34 8.77 4.20 28.29 - 13.16 38.75 - 12.82 45.60 - 28.27 33.69 - 24.85 27.81 - 21.31LECO † LINCOLN ELECTRIC HLDGS INC DEC 1.15 4.98 4.73 4.11 2.93 22.30 21.02 23.12 18.13 13.93 56.71 - 26.32 86.97 - 34.27 86.20 - 58.88 62.91 - 38.20 42.44 - 28.49

LDL § LYDALL INC DEC (0.85) (0.37) 0.56 0.63 0.34 7.63 8.31 8.97 7.95 6.84 6.54 - 1.93 16.45 - 2.82 18.55 - 8.68 11.19 - 8.07 11.90 - 7.61MLI § MUELLER INDUSTRIES DEC 0.13 2.18 3.12 4.04 2.44 16.23 15.39 15.03 11.70 7.39 27.75 - 16.01 36.73 - 15.69 38.94 - 27.15 41.80 - 26.81 32.35 - 24.41NDSN † NORDSON CORP OCT (4.77) 3.48 2.70 2.93 2.19 (0.41) (1.53) (3.19) 2.69 (0.48) 64.83 - 20.30 78.98 - 24.04 61.58 - 44.33 57.81 - 38.70 45.85 - 29.45PLL [] PALL CORP JUL 1.65 1.77 1.04 1.16 1.13 6.57 6.94 6.14 7.13 6.64 37.25 - 18.20 43.19 - 21.61 49.00 - 33.23 35.57 - 25.26 31.52 - 25.21PH [] PARKER-HANNIFIN CORP JUN 3.15 5.64 4.75 3.57 3.07 0.64 8.59 10.69 9.27 8.72 59.36 - 27.69 86.91 - 31.29 86.56 - 50.41 58.67 - 43.44 50.82 - 37.87

PNR † PENTAIR INC DEC 1.19 2.62 2.13 1.84 1.84 (5.71) (7.31) (6.07) (3.37) (4.24) 34.27 - 17.23 41.00 - 18.42 39.67 - 29.35 41.90 - 25.69 46.47 - 30.51RBN § ROBBINS & MYERS INC AUG 1.67 2.53 1.49 (0.65) (0.01) 5.97 6.19 3.94 1.97 (0.72) 26.03 - 13.01 55.09 - 15.15 39.28 - 17.31 23.83 - 9.96 12.44 - 9.94SNA [] SNAP-ON INC DEC 2.33 4.12 3.27 1.72 1.61 4.67 2.90 3.94 0.73 8.63 43.88 - 20.51 62.21 - 27.70 57.81 - 44.58 48.65 - 36.38 38.71 - 30.57SPW † SPX CORP DEC 0.94 4.77 5.47 3.79 (0.28) (8.86) (8.13) (13.27) (2.40) (2.21) 65.23 - 37.63 140.82 - 25.45 110.00 - 60.43 62.49 - 45.39 50.15 - 37.83TKR † TIMKEN CO DEC (0.64) 2.80 2.32 1.89 2.84 12.64 12.81 15.95 12.43 11.92 26.12 - 9.88 38.74 - 10.96 38.78 - 27.43 36.58 - 26.57 32.84 - 22.73

VMI † VALMONT INDUSTRIES INC DEC 5.80 5.13 3.71 2.44 1.61 19.45 13.16 12.96 9.23 6.54 89.30 - 37.49 120.93 - 37.47 99.01 - 50.87 61.19 - 32.85 35.25 - 21.30WTS § WATTS WATER TECHNOLOGIES INC DEC 1.11 1.29 2.01 2.32 1.69 8.26 6.47 10.44 8.74 3.79 32.96 - 15.85 33.00 - 16.67 46.71 - 25.40 45.43 - 28.08 37.55 - 25.80

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. J-This amount includes intangibles that cannot be identified.

The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s.In this regard, Standard & Poor’s Equity Research Services has no access to nonpublic information received by other units of Standard & Poor’s. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.


Industrial Machinery (3!17!11)

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Transcript of Industrial Machinery (3!17!11)