1. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 1of27 2015 METALWORKING CAPITAL SPENDING SURVEY AND FORECAST PRESENTED BY: Steve Kline © 2014 Gardner Business Media, Inc. All Rights Reservedwww.gardnerresearch.com

2. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 2of27 ECONOMIC CYCLE OF CAPITAL SPENDING Most important economic data for forecasting capital spending globally Arrows show the lead/lag relationships between data points Scale shows the time relationship between data points

3. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 3of27 GLOBAL MACHINE TOOL CONSUMPTION/PRODUCTION Metalcutting and metal forming machines Data based on top 25 reporting countries to Gardner’s WMTS Accounts for roughly 95% of global machine tool market World consumption to grow 3.9% in 2015, which is down from 6.6% in 2014 Production almost always changes at same rate as consumption

4. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 4of27 REGIONAL MACHINE TOOL CONSUMPTION North America up 24.4% Europe up 1.3% Asia down 1.3% South America down 18.4% 2015 global increase in consumption centered in North America US up 30% Mexico up 10% Canada up 10%

5. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 5of27 TOP 5 MACHINE TOOL CONSUMING COUNTRIES US #1 for first time since 2000; first time above $10.5 billion since WW2 China on the decline since 2011 Germany down but still historically strong Japan moderate growth but still relatively weak South Korea second strongest year ever

6. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 6of27 CHINA 2014 flat 2015 down 10% Money supply growth slowing and rate of growth near two decade lows Industrial production growth slowing and slowest growth in more than a decade

7. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 7of27 GERMANY 2014 up 12% 2015 down 8% Money supply growth about average but slowing significantly Capacity utilization growing faster but looking to peak Industrial production growing but likely has peaked

8. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 8of27 JAPAN 2014 up 40% 2015 up 6% Money supply growing at a steadily accelerating rate but has peaked Capacity utilization growing at historically strong rate but has peaked Industrial production growing at fastest rates in almost five years but peaking

9. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 9of27 SOUTH KOREA 2014 up 13% 2015 up 2% Money supply growing significantly but has peaked Capacity growing at a very slow rate and should grow even slower Industrial production growing at a minimal rate

10. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 10of27 MEXICO 2014 down 8% 2015 up 10% Money supply growing at an accelerating rate and should continue Capacity utilization contracting, but at a slower rate Industrial production growing marginally faster than previous year

11. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 11of27 THE CAPITAL SPENDING SURVEY Survey forecasts planned spending for machine types, industries, regions, and plant sizes Survey goes to plants that subscribe to Modern Machine Shop, Production Machining, Moldmaking Technology, and Automotive Design & Production Machine tool survey sent to 28,000 facilities Tooling/workholding survey sent to 10,000 facilities Forecasts are created by projecting reported results across plant size

12. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 12of27 FORECAST ACCURACY Machine tool survey average error of 13% (ex. 2002, 2009) Tooling/workholding survey error rate almost double Unit forecast closer than survey in five of the last seven years

13. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 13of27 U.S. MACHINE TOOL CONSUMPTION Capital Spending Survey 2015 projection is $8.8 billion 3 rd highest year since 1980 Increase of 37% from 2014 14 times consumption has increased more than 37% Average increase is 30%

14. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 14of27 U.S. TOOLING/WORKHOLDING CONSUMPTION Capital Spending Survey 2015 projection is $4.8 billion Highest year since at least 2002 Increase of 7% from 2014

15. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 15of27 MONETARY BASE LEADS MACHINE TOOL CONSUMPTION Assuming QE ends in October Since 2009 monetary base is growing faster than historic average typically Monetary base leads machine tool consumption by 24 months

16. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 16of27 BACKLOGS LEAD CAPACITY UTILIZATION Backlogs lead capacity utilization by 7 months Capacity utilization should reach 80% for first time since June 2000 Capacity utilization could average more than 80% for 2015 for first time since 1998

17. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 17of27 CAPACITY UTILIZATION LEADS MACHINE TOOL CONSUMPTION Capacity utilization leads machine tool consumption by 10 months Every time capacity utilization grows faster than 4% machine tool consumption increases at least 16%

18. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 18of27 MACHINE TOOL DEMAND CURVE 60% of the time consumption is above $8 billion when capacity utilization is above 80% 2015 would be 7 th year of over consumption 4 years with more over consumption than forecast for 2015

19. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 19of27 METALWORKING BUSINESS INDEX LEADS MACHINE TOOL CONSUMPTION Business index leads machine tool consumption by 10 months Business index likely to peak in the next couple of months

20. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 20of27 DURABLE GOODS PRODUCTION LEADS MACHINE TOOL CONSUMPTION Durable goods production continues to set record highs Production should accelerate through 2014 and decelerate in 1H 2015 Production leads machine tool consumption by 15 months

21. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 21of27 MOTIVATION TO BUY A MACHINE Increase capacity at or above levels from mid 2000s Reduce costs has steadily fallen since 1993 Process flexibility has stabilized

22. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 22of27 MAJOR METALCUTTING EQUIPMENT TYPES Trends Turning over milling Smaller over larger Vertical over horizontal Additive is an indication of interest Interest in ancillary, special, or dedicated machines is high Equipment Type201020112012201320142015 Machining Centers1,680.12,694.72,796.63,065.63,147.03,226.1 Turning Centers647.81,230.31,317.2801.71,128.91,582.1 Lathes503.01,550.61,675.91,171.2968.71,475.8 Grinding131.8254.3458.8391.3455.6697.0 Additive44.047.737.0267.4 EDM58.160.4106.792.5133.3204.6 Screw Machines115.855.978.586.2151.8182.0 Other Metalworking613.9556.5702.2804.8434.91,187.0 Total3,750.66,402.77,180.06,460.96,457.28,822.0

23. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 23of27 MAJOR TOOLING TYPES Trends in tooling reflective of trends in machine types Turning over milling Other tools such as saws and taps Equipment Type201020112012201320142015 Milling Tools330.0473.8492.4422.01,049.9737.3 Drills247.9345.5403.7352.1572.0671.7 Stationary Tool Inserts529.7666.6726.8607.7267.4475.8 Turning Tools146.3184.2167.3234.2205.9324.2 Rotary Tool Inserts516.9629.8552.4475.6268.6309.6 Grinding Wheels & Others Abrasives157.1121.781.6119.2171.4161.4 Toolholders133.4214.1235.1259.0240.4146.9 Tool Presetters42.033.051.3 Other Tooling293.5385.4427.3475.6429.8580.7 Total2,354.83,021.13,086.62,987.43,238.43,458.9

24. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 24of27 MAJOR WORKHOLDING TYPES Increase in automated systems/transfer lines and decrease in flexible fixtures since 2012 Chucks and other turning down the last two years Equipment Type201020112012201320142015 Milling/Drilling687.3797.31,001.91,063.5819.7879.7 Turning347.7505.7499.6658.0290.2211.0 Grinding86.484.285.0122.758.539.1 EDM13.017.620.950.932.022.6 Other130.481.3160.6230.3124.7100.3 Total1,264.81,486.11,768.02,125.41,325.11,252.7

25. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 25of27 TOP INDUSTRIES – MACHINE TOOLS Die/Mold 2015 – $932.5 Up more than 50% Dropped from top industries HVAC Petrochemical Processors Industry201020112012201320142015 Metalcutting Job Shops1,139.92,063.31,835.51,803.12,233.42,469.7 Machinery/Equipment209.41,016.0810.4591.7713.01,216.3 Automotive210.0544.4785.91,172.1561.1759.3 Pumps/Valves/Plumbing Products307.3174.6991.4209.4364.4688.3 Forming/Fabricating (non-auto)421.2491.5581.9504.5244.4493.6 Industrial Motors/Hydraulics/ Mechanical Comp.140.1397.6335.234.4146.6461.2 Electronics/Computers/ Telecommunications157.3379.3421.1202.1383.4351.4 Other Manufacturing149.171.5124.7369.7137.7333.1 Custom Processors6.024.4116.2327.9 Aerospace346.0802.5494.8538.6167.4307.4 Primary Metals0.72.3280.0230.0290.2 Non-Manufacturing120.4298.3242.6 Medical35.4155.3228.1113.0264.1207.4 Oil/Gas-Field/Mining Machinery319.958.442.3139.7235.1165.8 Off-Road/Construction Machinery104.646.8202.6101.7122.8163.3 Hardware36.312.330.453.27.388.4 Plastic/Rubber Product1.526.325.077.3

26. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 26of27 CONCERNS Sub-prime lending is driving automotive Large aerospace orders that are notoriously cancelled The end of QE? – Rising interest rates – Rising dollar – Falling stock market China real estate bubble European (global?) bond bubble

27. 2015 METALWORKING CAPITAL SPENDING SURVEY & FORECAST www.gardnerresearch.com © 2014 Gardner Business Media, Inc. All Rights Reserved 27of27 ADDITIONAL INFORMATION To receive my monthly email update on metalworking send me an email – skline2@gardnerweb.com Check out all of our market research at www.gardnerweb.com (coming soon www.gardnerresearch.com)www.gardnerweb.com www.gardnerresearch.com Check out my blog at www.gardnerweb.com/economics/blogwww.gardnerweb.com/economics/blog