Automotive Markets Report

Industrial ResearchMarch 2012

Global Auto & Truck MarketsCruisin’

Road Map to the Auto & Truck Markets

DAVID LEIKER, CFASenior [email protected]

JOE VRUWINKResearch [email protected]

JARED PLOTZResearch [email protected]

Please Refer to Appendix – Important Disclosures and Analyst Certification

10R.9

Table of Contents

Automotive Market Commentary ...................................................................................................................................................... 1

Commercial Vehicle Market Commentary ......................................................................................................................................... 20

Company Recommendations ........................................................................................................................................................ 30

Auto Supplier Performance - Relative to S&P 500 Baird Daily Commercial Vehicle Index – Relative to S&P 500 Source: FactSet, Baird estimates

All stock prices are as of Friday, February 24, 2012 unless otherwise noted.

Aug Sep Oct Nov Dec Jan Feb70

80

90

100

110

Source: FactSet Prices

Six-Month PerformanceIndexed Price Performance Price (Indexed to 100)

Baird Auto CoverageS&P 500

4/10 7/10 10/10 1/11 4/11 7/11 10/11 1/1280

100

120

140

160

180


Two-Year PerformanceIndexed Price Performance Price (Indexed to 100)

Baird Auto CoverageS&P 500

Aug Sep Oct Nov Dec Jan Feb70

80

90

100

110


Six-Month PerformanceIndexed Price Performance Price (Indexed to 100)

Baird Truck OEM/Supplier CoverageS&P 500

4/10 7/10 10/10 1/11 4/11 7/11 10/11 1/12100

125

150

175

200


Two-Year PerformanceIndexed Price Performance Price (Indexed to 100)

Baird Truck OEM/Supplier CoverageS&P 500

Automotive Markets

Robert W. Baird & Co. Global Auto & Truck Markets – March 2012 Page 1

Recent Trends - Automotive

Q1 Automotive Macro Assumptions

Source: Ward’s Automotive, FactSet, Baird estimates *Data through January **Sales distorted due to Chinese Lunar New Year

Regional Auto Sales – Quarterly Change

Source: ACEA, JD Power, JAMA, KAMA, Ward’s, Baird estimates.

US Light Vehicle Sales (SAAR)

Source: Ward’s, Baird estimates. US Inventory – Excess/Shortage (by Month)

Source: Ward’s, Baird estimates.

Developed Markets Still Below Peak Demand

Source: Ward’s, ACEA, JAMA, KAMA, Baird estimates

European Auto Sales (In Units)

Source: ACEA, Baird estimates.

Change in NA Production Schedules


RWB Est. Actual*US LV Sales 2% 11% Domestic Brands (2%) 7% Foreign Brands 5% 15% Dom. Mkt. Share 42.9% 44.0% Annualized (in millions) 13.0 14.1NA Production Schedules:GM 2% 8% Ford 8% 3% Chrysler (4%) 18% Domestic OEMs 3% 9% Toyota 1% 18% Honda 5% 11% Nissan 5% 10% Others 24% 24% Foreign OEMs 10% 17% Total 6% 12% Annualized 13.6 14.5Vehicle MixCar Mix 6% 22% Truck Mix 6% 6% West Europe Sales (5%) (8%)European Build 0% (1%)Rest of World Sales China Sales (5%) (24%)**Rest of World Build 0% ‐ Currency (vs. US $) Euro (5%) (1%) Pound ‐ (1%) Yuan ‐ 4% Real ‐ (6%)Dollar Index ‐ 1%

Q1‐2012 (Y/Y Chg)

(40%)

0%

40%

80%

North America Western Europe China Global

2008 2009 2010 2011E 2012E

Q1-12E

Q1-12E Q1-12E

Q1-12E

0

4

8

12

16

Q1‐08 Q3‐08 Q1‐09 Q3‐09 Q1‐10 Q3‐10 Q1‐11 Q3‐11 2012E

Retail Fleet C4C

(SAAR in millions)2008A SAAR = 13.2 million

2009A SAAR = 10.4 million



2012E SAAR = 13.5 million

(600)

0

600

1,200

1,800

0

1,000

2,000

3,000

Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11

Excess Shortage 3 Month Average (left)

Excess Inventory

0%

25%

50%

75%

100%

125%

0

5,000

10,000

15,000

20,000

25,000

US Mexico Canada North America

Japan Korea Asia Germany France UK Italy Spain Western Europe

Series1 % of 2000‐2008 Peak

Above Last‐Cycle Peak

Below Last‐Cycle

0

2

4

6

Q1‐08 Q3‐08 Q1‐09 Q3‐09 Q1‐10 Q3‐10 Q1‐11 Q3‐11 2012E

(units in millions)

2008A QTRAVG= 3.8 million

2009A QTR AVG = 4.0 million

2010A QTR AVG= 3.9 million

2011A QTR AVG= 3.8 million

2012EQTR AVG= 3.6 million

8

11

14

17

20

Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12

Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q1 Estimate

(in millions)

Current Q1 estimate

Current Q1 Production Schedule

Automotive Markets


Stock Performance - Auto 2011 Performance

Source: FactSet, Baird estimates 2012 First-QTD Performance

Source: FactSet, Baird estimates

Auto Supplier Index – Relative Performance

Source: FactSet, Baird estimates.

Baird Supplier Index – “Up” Cycles vs. S&P 500


Auto Supplier Recovery – Stocks vs. 2011 Earnings


Auto Supplier Index – QTR Relative Performance

Source: FactSet, Baird estimates. “Typical” Absolute Cycle Performance


Auto Suppliers – Change in 2012/13 Estimates


‐60% ‐45% ‐30% ‐15% 0%

STRT

MEI

MGA

ALV

DAN

TEN

Average

AXL

Median

SUP

JCI

HAR

S&P Industrials

BWA

S&P 500

GNTX

‐15% 0% 15% 30% 45%

GNTX

JCI

S&P 500

S&P Industrials

SUP

STRT

MEI

Average

Median

AXL

ALV

BWA

TEN

HAR

DAN

MGA

0

50

100

150

200

Dec-70 Dec-75 Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-05 Dec-10

Recession/Soft Landing OEM Suppliers vs. S&P 500

Dec-1970 = 100

Average UpCycle +129%Average Down Cycle ‐61%

0

100

200

300

400

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Oct-90 to Jan-94

Dec-74 to Aug-78

Jun-82 to Aug-87

Dec-00 to Dec-04

Current Cycle Return

Months

0%

50%

100%

150%

200%

0% 50% 100% 150% 200%

ALV

GNTX

BWA

JCI

SNA

S&P 500

MEI

STRTHAR

% Peak Earnings

%Peak

Stock Price

Stock Recovery Less Than Earnings

Stock Recovery GreaterThan Earnings

‐80%

‐40%

0%

40%

80%

1990 1993 1996 1999 2002 2005 2008 2011

0

200

400

600

800

0 5 10 15 20 25 30 35 40 45 50 55 60

Total Price Appreciation

Appreciation from Valuation

Appreciation from Earnings

Expected Appreciation to 2013-

2014

0

50

100

150

200

Jan‐09 Jul‐09 Jan‐10 Jul‐10 Jan‐11 Jul‐11 Jan‐122012E 2013E

Down 2% YTD

Down 3% YTD

Automotive Markets


Macro Environment - Auto U.S. Dollar Index – Daily

Source: FactSet, Baird estimates Baird Commodities Index

Source: LME, PPI, Baird estimates Commodity Prices – Y/Y Change

Source: LME, PPI, NYMEX, Baird estimates

ECRI Leading Index – Smoothed Annualized Chg.

Source: ECRI, Baird estimates US Private Non-Farm Payrolls – 3 Month Avg. Chg.

Source: BLS, Baird estimates.

US Personal Income –Y/Y Change

Source: BEA, Baird estimates.

Industrial Production – Germany vs. EU (y/y chg)

Source: Ecowin, Baird estimates. Consumer Confidence – US and Europe

Source: Univ. of Michigan, Ecowin, Baird estimates.

German ifo Business Climate Index - Monthly

Source: IFO, Baird estimates.

0

40

80

120

160

Dec‐87 Dec‐90 Dec‐93 Dec‐96 Dec‐99 Dec‐02 Dec‐05 Dec‐08 Dec‐11

Recession/Soft Landing Dollar Index

Y/Y % Chg‐Q4Euro ‐1%Pound ‐1% Yen +7%

(40%)

0%

40%

80%

120%

160%

200%

240%

280%

50

100

150

200

250

Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

Index Value; Dec-99 = 100 Y/Y % Change

(30%) (15%) 0% 15% 30%

FoamFabricated Products

Plastics/ResinsChemicals

Nat. GasLight Crude

Iron OreNickel

Steel Mill ProductsAluminum

ZincAluminum Alloy

High Grade AluminumAluminum NASAAC

CopperLead

Metals

Other

Energy

0

50

100

150

200

(20)

(10)

0

10

20

Dec-66 Dec-71 Dec-76 Dec-81 Dec-86 Dec-91 Dec-96 Dec-01 Dec-06 Dec-11

Recession/Soft Landing ECRI Leading Index (4 Wk Ann. Growth)

(800)

(400)

0

400

800


Recession/Soft Landing Payrolls (3-Mo Average)

(5%)

0%

5%

10%

15%


Recession/Soft Landing Personal Income

‐25.0%

‐12.5%

0.0%

12.5%

25.0%

Dec‐92 Dec‐95 Dec‐98 Dec‐01 Dec‐04 Dec‐07 Dec‐10

German Industrial Production (Y/Y Chg) EU Industrial Production (Y/Y Chg)

-40

-20

0

20

40

25

50

75

100

125


Michigan Consumer Expectations (L) EU Consumer Confidence (R)

80

90

100

110

120

Dec‐90 Dec‐94 Dec‐98 Dec‐02 Dec‐06 Dec‐10

IFO Business Index

Automotive Markets


Cyclical Recovery - Automotive The greatest excess returns from this group are those seen during a cyclical recovery in end-market demand. Cyclical Demand Recovery: We are looking for global vehicle demand to grow at a 4-5% annual pace through 2014 with stronger demand in NA and Asia than Europe. Organic Revenue Growth: The average auto supplier is expected to grow revenue at a 4-5% annual rate over this period driven by increasing vehicle content—safety, fuel economy, comfort. Margin Recovery: Using “normal” contribution margins augmented by down-sizing and cost cutting, we look for EBITDA margins to move back to levels seen in 2002-04. Cyclical EPS Growth: The combination of 8-10% revenue growth (4-5% end-market growth and 4-5% organic growth) combined with margin improvement drives 17-20% annualized EPS growth through 2014. Normal Valuation: We look for enterprise value-to-EBITDA valuations to move back to the midpoint of past cycles. This represents an average multiple around 6.2x EBITDA. Potential Stock Performance: The combination of EPS growth and mid-cycle valuations drives significant upside potential in stock prices from current levels. The chart to the right highlights the stocks ranked by potential upside. Note these represent annualized returns through 2014 with an assumption that market return is in the 10-11% range.

Global Recovery in Demand – 2010-2014E

Source: ACEA, JAMA, JD Power, KAMA, Ward’s, Baird estimates.

Cyclical Recovery in Quarterly EBITDA Margins

Source: Company reports, FactSet, Baird estimates.

Enterprise Value to EBITDA Multiple


Organic Revenue Growth – “Net” New Business

Source: Company reports, FactSet, Baird estimates. Up Cycle EPS Growth

Source: Company reports, FactSet, Baird estimates. Potential Stock Performance (3-Year CAGR)


(units in 000s) 2010 2014E CAGRNorth America 11,975 15,200 6%Europe 18,600 20,272 2%Asia 27,363 33,890 5%

Total 57,938 69,362 5%

Represents estimated light vehicle production.

0%

5%

10%

15%

20%

Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12E Dec-14E

Median

RWB Estimate

Assumes normal contribution margins

0

4

8

12

16

Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10Recession/Soft Landing High / Low LTM Multiple

33rd Percentile (<5.5x)

67th Percentile (>6.6x)

0%

4%

8%

12%

16%

Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

New Business Growth (Quarter) New Business Growth (LTM) (Calendar Year Ending)

RWBEstimate

-200%

-100%

0%

100%

200%

OEM Suppliers S&P 500

Q1E 2012

1998 20022000 2004

(year-over-year)

2006 2008 2010 2012E

21% annual EPS growth2010‐2014

0%

15%

30%

45%

60%

S&P 500 MEI ALV SNA HAR BWA STRT Average GNTX JCI TOWR

Automotive Markets


US Automotive Demand US Trend Demand: There are three broad drivers of trend demand for light vehicles in the US: 1) replacement demand, the number of vehicles scrapped each year; 2) household growth, the number of new drivers entering the population; and 3) vehicle penetration, the number of vehicles per household. Adding up these three drivers results in US trend demand of about 15 million units today as shown in the “Trend Demand” chart to the right. The period from 1997 through 2008 saw actual vehicle sales exceed trend demand by a cumulative of 15 million vehicles. We are modeling that actual sales remain below trend demand through 2013 with a cumulative “under selling” of trend by about 15 million vehicles. Vehicle Scrap Rates: The US scraps about 5% of the vehicles on the road each year representing about 12 million units. The scrap rate has declined over time due to vehicles lasting longer. Household Growth: The number of new households formed in the US total about one million units per year. With constant vehicles per household, this represents an incremental 2-3 million units of trend demand. Vehicle Penetration: The US has 2.2 vehicles per household. The under-selling of trend demand through 2013 should bring this to 1.8-1.9 vehicles per household seen in the early 1990s.

Components of Trend Demand

Source: Polk, Census Bureau, Ward’s, Baird estimates. Vehicle Scrap Rates

Source: Polk, Ward’s, Baird estimates. Vehicle Penetration

Source: Census Bureau, Ward’s, Baird estimates.

US Auto Sales – Trend Demand

Source: Polk, Census Bureau, Ward’s, Baird estimates.

Household Growth

Source: Census Bureau, Baird estimates.

Median Age of Vehicle Population

Source: BEA, Polk, Baird estimates.

0

4,000

8,000

12,000

16,000

Scrap

Population

Penetration

Total

Replacement Demand (82%)

Vehicle Penetration (<1%)

Household Growth (18%)

Trend Demand: 15.3 Million

0

4,000

8,000

12,000

16,000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010E

Vehicles Scrapped (in Units) Scrappage (As a % of Fleet)

(Units Scrapped In 000s) (Percentage of Fleet)

10%

5%

0%

Scrapped vehicles represent 85% of sales from 13 years prior

1.0

1.4

1.8

2.2

2.6

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013E

Recession/Soft Landing Vehicles per Household

(Vehicles per Household)

0

5,000

10,000

15,000

20,000

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013E

Scrap New Households Penetration US LV Sales

(Units in 000s)EstimatesTrend Demand: 15.3 Million

Scrap

Household Growth

Penetratio

Trend

Baby Boomer Driver Growth

15 million units above trend

15 million units below trend

0

600

1,200

1,800

2,400

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013E

Household Growth - Three-Year Average

(Household Growth In 000s)

Estimates

Represents 1.5‐2.0 million new vehicles per year

0.0

2.5

5.0

7.5

10.0

0

75,000

150,000

225,000

300,000

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013E

Vehicle Population (L) Car Median Age (R) Truck Median Age (R)

(Vehicle Population in 000s) (Median Age)

Automotive Markets


Supply of Credit Auto Loans and Leases: Financial institutions have demonstrated an increase in the amount of credit extended for loans and leases in recent months. ABS Market Still Constrained: The amount of loans securitized, while much improved from a year ago, remains well below the levels seen at the market’s peak in 2004-06. Credit Standards Remain Tight: The Federal Reserve’s Senior Loan Officer survey continues to show the credit standards remain relatively tight for consumer loans. This is improving, but still exhibits a market of tight credit. Lending Terms Are Attractive Interest Rates: The interest rate on

typical auto loans has fallen back to previous levels after a quick spike upward a year ago.

Loan-To-Value: The average loan-to-value for loans extended has moved into the 85-90% range, relatively low compared to the past two decades.

Loan Maturities: The average loan maturity has fallen modestly and not rebounded to previous levels. Today, the average car loan is 60-65 months, down from approaching 70 months 18 months ago.

Weekly Bank Loans – Commercial vs. Consumer

Source: Federal Reserve, Baird estimates Change in Auto Loans / Leases – Y/Y Change

Source: Federal Reserve, Baird estimates. Loan-To-Value Ratios

Source: Federal Reserve, Experian Automotive, Baird estimates.

ABS Securitization - Better but Still Weak

Source: Federal Reserve, SIFMA, Baird estimates.

Interest Rates on New Auto Loans

Source: Federal Reserve, Baird estimates.

Loan Maturities


0

500,000

1,000,000

1,500,000

2,000,000


Commercial Loans Consumer Loans

(inmillions of dollars)

FAS 166 Accounting Rule

(50%)

(25%)

0%

25%

50%

Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

Owned Assets - YoY Chg Securitized Assets - YoY Chg.

Motor Vehicle Loans/Leases - Owned and Securitized Assets

80%

85%

90%

95%

100%

Dec-71 Dec-75 Dec-79 Dec-83 Dec-87 Dec-91 Dec-95 Dec-99 Dec-03 Dec-07 Dec-11Loan-to-Value Ratio

*Data source changedfrom Federal Reserve to Experian Automotive in February 2011

0

200

400

600

800

1990 1995 2000 2005 2010

Auto Other

(billions)

2011 ABS Issuance:$68b auto$57b other

0%

5%

10%

15%

20%


Interest Rate

30

40

50

60

70

Dec-71 Dec-75 Dec-79 Dec-83 Dec-87 Dec-91 Dec-95 Dec-99 Dec-03 Dec-07Loan Term

Automotive Markets


Demand for Credit Credit Demand Improving: Consumer demand for credit has rebounded in recent months: Senior Loan Officer Survey: The

Federal Reserve survey of lenders indicates a significant increase in consumers’ willingness to borrow.

Consumer Confidence: While confidence measures have improved in recent weeks, the overall trend remains at the low end of a range seen over the last several years.

Employment: Employment remains a weak spot in the recovery story, though nonfarm payrolls have generally improved over recent months.

Personal Income: The U.S. has now

witnessed 16 straight months of personal income growth, reversing the 15 straight months of personal income declines seen in 2008-2009.

Household Debt Is Improving: Household debt has declined to 90% of GDP, down from the 98% observed in 2009. Moving this back to 65% of GDP, as seen in the early 1990s, represents financing for about 15 million vehicles. Going back to the 1960-70s level represents another 10 million vehicles. Savings Rate Is Declining: Following increased consumer saving patterns during the downturn, the savings rate has declined to approximately 5%.

Senior Loan Officer Survey – Weak Demand

Source: Federal Reserve, Baird estimates. Hiring as a Percent of Total Employment

Source: BLS, Baird estimates. Household Debt to GDP and Disposable Income


Consumer Confidence - Weekly

Source: ABC, Rasmussen, Economy.com, Baird estimates.

Personal Income Growth


Personal Savings Rate


(60)

(40)

(20)

0

20

40


Increased Willingness to Make Loans Strong Demand for Consumer Loans

Willingness

Demand

0

20

40

60

80

100

120

140

160

180

200

0.0

1.5

3.0

4.5

6.0

Dec‐00 Dec‐01 Dec‐02 Dec‐03 Dec‐04 Dec‐05 Dec‐06 Dec‐07 Dec‐08 Dec‐09 Dec‐10 Dec‐11

Recession/Soft Landing Hires as a % of Total Employment

(in percent)

0%

50%

100%

150%

Dec-51 Dec-56 Dec-61 Dec-66 Dec-71 Dec-76 Dec-81 Dec-86 Dec-91 Dec-96 Dec-01 Dec-06 Dec-11

Recession/Soft Landing Household Debt as % of GDP Household Debt as % of Disposable Income

0

40

80

120

160

-60

-40

-20

0

20

Dec-05Jun-06Dec-06Jun-07Dec-07Jun-08Dec-08Jun-09Dec-09Jun-10Dec-10Jun-11Dec-11Jun-12ABC (L) Rasmussen (R)

(10%)

(5%)

0%

5%

10%


Recession/Soft Landing Personal Income Growth Ex‐Gov't Transfer Payments

0

4

8

12

16


Recession/Soft Landing Personal Savings Rate 1966-1992 Average

Automotive Markets


International Markets Sales Growth – By Region (Thr. Dec.)

Source: Ward’s, ACEA, JADA, KAMA, Baird Estimates

Global Market Share (Through Dec.)

Source: Ward’s, ACEA, JADA, KAMA, Baird Estimates

LTM Sales – Global


LTM Sales – Western Europe

Source: ACEA, Baird estimates. LTM Sales –China

Source: JD Power, Baird estimates.

LTM Sales – North America


LTM Sales – Asia (Japan, Korea, China)

Source: JAMA, JD Power, KAMA, Baird estimates. Global Sales Rank – 2011


(000s) 2009 2010 2011 % ChgNorth America

US 10,402 11,555 12,734 10%Canada 1,459 1,555 1,582 2%Mexico 753 819 895 9%Total 12,614 13,928 15,212 9%

Western EuropeGermany 3,980 3,113 3,407 9%UK 2,183 2,253 2,201 -2%France 2,672 2,667 2,631 -1%Other 7,224 7,284 6,975 -6%Total 16,059 15,318 15,214 -1%

AsiaJapan 4,627 4,943 4,200 -15%China 10,587 14,195 15,137 7%Korea 1,328 1,395 1,409 1%Total 16,542 20,533 20,745 1%

Global Total 45,214 49,778 51,171 3%

2009 2010 2011 % ChgNorth America OEMs

GM 10% 10% 8% -14%Ford 8% 8% 8% 4%Chrysler 3% 3% 3% 21%Total 20% 20% 19% -2%

Japanese OEMsToyota 11% 11% 9% -16%Honda 6% 6% 5% -15%Nissan 6% 6% 6% 4%Total 22% 23% 20% -10%

European OEMs (6 largest) 19% 18% 18% 5%

Others 38% 38% 42% 15%

Total 100% 100% 100% 2%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

30,000

40,000

50,000

60,000

70,000


YOY Change LTM Sales

(in thousands)Estimates

-20%

0%

20%

40%

60%

80%

100%

120%

140%

10,000

12,000

14,000

16,000

18,000



(in thousands)Estimates

0

6,000

12,000

18,000

24,000


China Auto Sales (L, monthly)

Estimates(in thousands)

-40%

0%

40%

80%

120%

160%

200%

240%

280%

5,000

9,000

13,000

17,000

21,000



(in thousands)

Estimates

-20%

0%

20%

40%

60%

80%

100%

120%

140%

4,000

10,000

16,000

22,000

28,000



(in thousands)

Estimates

0

2,000

4,000

6,000

8,000(in thousands)

+17%

+12%

(16%)(14%) +4%

+4%

(15%) (4%)+13%

(7%)(7%)

+21% (13)%+13%

‐‐‐ 2011 % Change ‐‐‐Global: +3%

Automotive Markets


US Market Share (Through Dec.)

Source: Ward’s Auto, Baird estimates Europe Market Share (Through Jan.)

Source: ACEA, Baird estimates

US and European Sales – Segment Performance

Source: Ward’s, Baird estimates. Through December 2011.

US Auto Sales – 2011 YTD Change (By OEM)

Source: Ward’s, Baird estimates. Through December 2011. US LV Sales – 2011 YTD Change (Top Platforms)


EU Auto Sales–2011 YTD Change (By Country)

Source: ACEA, Baird estimates. Through December 2011.

EU Auto Sales – 2011 YTD Change (By OEM)

Source: ACEA, Baird estimates. Through December 2011.

European Auto Build–2012 YTD Change (By OEM)

Source: JD Power, Baird estimates. Through January 2012.

2008 2009 2010 2011North American OEMs GM 22.4% 19.8% 19.1% 19.7% Ford 15.1% 15.9% 16.5% 16.6% Chrysler 11.0% 8.9% 9.3% 10.5%Total 48.5% 44.7% 45.0% 46.8%

Asian OEMs Toyota 16.8% 17.0% 15.3% 12.9% Honda 10.8% 11.1% 10.7% 9.0% Nissan 7.2% 7.4% 7.9% 8.2% Hyundai/Kia 5.1% 7.1% 7.7% 8.9% Other 4.9% 5.4% 5.0% 4.9%Total 44.9% 48.1% 46.5% 43.9%

European OEMs VW 2.4% 2.8% 3.3% 3.5% BMW 2.3% 2.3% 2.3% 2.4% Mercedes 1.9% 2.0% 2.0% 2.1% Other - - 0.9% 1.3%Total 6.5% 7.1% 8.5% 9.3%

Total Market 100.0% 100.0% 100.0% 100.0%

2009 2010 2011 2012 YTD

European OEMs

Volkswagen 20.9% 21.0% 22.9% 23.6%

PSA 13.3% 13.5% 12.7% 12.7%

Renault 9.0% 10.1% 9.3% 8.1%

Fiat 8.8% 7.8% 7.0% 7.1%

BMW 5.1% 5.7% 6.2% 5.5%

Daimler 4.9% 5.1% 5.1% 5.1%Total 62.0% 63.0% 63.3% 62.2%

NA OEMs 19.6% 17.0% 16.6% 15.5%

Asian OEMs 16.6% 16.1% 16.3% 17.3%

Other 1.7% 3.9% 3.8% 4.9%

Total 100.0% 100.0% 100.0% 100.0%

‐20% ‐10% 0% 10% 20%

Small

Lower‐Medium

Upper‐Medium

Executive

‐30% ‐15% 0% 15% 30%

Total Small Cars

Total Middle Cars

Total Large Cars

Total Luxury Cars

Total Cross Utilities

Total Sport Utilities

Total Vans

Total Pickups

Comm. Chassis

(20%) 0% 20% 40% 60%

Saab SpykerSuzuki

PorscheTata Motors

Zhejiang GeelyMitsubishi

MazdaSubaru

DaimlerBMW

VolkswagenNissan

Hyundai GroupHonda

ChryslerToyota

FordGeneral Motors

NA OEMsForeign OEMs

GRAND TOTAL

‐20% 0% 20% 40% 60%

GMT 900 (Silverado, Seirra, Tahoe)

Camry 6 (Camry, Highlander, RX)

Ford CD3 (Fusion, Edge, MKX/Z)

Toyota NCV (Corolla)

Ford P415 (F‐Series)

Nissan D (Altima, Maxima)

Civic 8 (Civic, CRV)

GM TE (Equinox, Terrian, SRX)

Honda UV (Accord, TL, TSX, Crosstour)

Hyundai YF (Optima, Sonata)

Total U.S.

GM Epsilon 2 (Lacrosse, Malibu, Regal)

Hyundai JM 2 (Elantra, Sportage)

Ford U204 (Escape)

GM Lambda (Acadia, Enclave, Traverse)

GM Delta 2 (Cruze)

Renault‐Nissan C (Rogue, Sentra)

Chrysler DS (Ram Pickup)

Chrysler JS (Avenger, Journey)

Chrysler RT (Caravan, Town & Country)

VW A6 (Golf, GTI, Jetta)

Ranked by size

‐40% ‐20% 0% 20% 40%

Iceland

Luxembourg

Ireland

Greece

Finland

Norway

Portugal

Denmark

Sweden

Total WEU

Switzerland

Austria

Netherlands

Belgium

Spain

Italy

U.K.

France

GermanyRankedby size

‐40% ‐20% 0% 20% 40%

Mitsubishi

Mazda

Honda

Suzuki

Kia

Hyundai

Nissan

Other

Total WEU

Toyota

Daimler

BMW

Fiat

Ford

GM

Renault

PSA

VW Rankedby size

‐40% ‐20% 0% 20% 40%

Toyota

Hyundai/Kia

Fiat/Chrysler

Daimler

Ford

Total Europe

BMW

GM/Opel

PSA

Renault/Nissan

Volkswagen Ranked by size

Automotive Markets


Share Trends - Auto

US Passenger Car Share – 6 Month Moving Average

*German Luxury includes BMW, Mercedes-Benz, and Audi Source: Ward’s, Baird estimates.

EU Passenger Car Share – 6 Mo. Moving Average

*German Luxury includes BMW, Mercedes-Benz, and Audi Source: ACEA, Baird estimates.

China Passenger Car Share – 6 Mo. Moving Average

*German luxury includes BMW, Mercedes-Benz, and Audi Source: JD Power, Baird estimates

US Light Truck Share – 6 Month Moving Average

*Light trucks account for appx. 51% of the Light Vehicle Market Source: ACEA, Baird estimates.

EU Light Truck Share – 6 Mo. Moving Average

*Light trucks account for appx. 10% of the Light Vehicle market Source: ACEA, Baird estimates.

China Light Truck Share – 6 Mo. Moving Average

*Light trucks account for appx. 29% of the Light Vehicle market Source: JD Power, Baird estimates

0%

8%

16%

24%

32%


Ford GM Honda Hyundai Nissan Toyota German Luxury*

0%

7%

14%

21%

28%


Fiat Ford GM PSA Renault Volkswagen German Luxury*

0%

5%

10%

15%

20%


Volkswagen General Motors Hyundai Toyota Chery Renault/Nissan German Luxury*

0%

8%

16%

24%

32%


Chrysler Ford GM Honda Nissan Toyota

0%

6%

12%

18%

24%


Daimler Fiat Ford PSA Renault Volkswagen

0%

7%

14%

21%

28%

Dec‐07 Dec‐08 Dec‐09 Dec‐10 Dec‐11

SAIC Chang'an Beiqi Foton Dongfeng Brilliance Jianghuai

Automotive Markets


Share Trends - Auto

US Car/Truck Mix – 6 Month Moving Average


EU Car/Truck Mix – 6 Mo. Moving Average


China Car/Truck Mix – 6 Mo. Moving Average

Source: JD Power, Baird estimates

US Domestic/Foreign Mix – 6 Mo. Moving Average


EU Domestic/Foreign Mix – 6 Mo. Moving Average


China Domestic/Foreign Mix – 6 Mo. Moving Avg.

Source: JD Power, Baird estimates

0.00

2.00

4.00

6.00

8.00

0%

20%

40%

60%

80%


Cars Trucks Gas Prices (R, $/Gal)

0%

25%

50%

75%

100%


Cars Trucks

0%

20%

40%

60%

80%


Cars Trucks

0%

20%

40%

60%

80%


Domestic Foreign

0%

20%

40%

60%

80%


Domestic Foreign

0%

20%

40%

60%

80%

Dec‐07 Dec‐08 Dec‐09 Dec‐10 Dec‐11

Domestic Foreign

Automotive Markets


Secular Trends - Automotive Developed Markets: The markets in the US, Europe and Japan are well established, mature markets that are increasingly moving toward a replacement market. Population and household growth in the US does offer some incremental growth. Emerging Markets: The fastest-growing auto demand is found in emerging markets where rapidly improving GDP per capita is providing consumers the opportunity to own a car. China is on track to outsell the US, becoming the largest auto/truck market in the world. Safety Penetration: Safety standards across the world are rising. New test processes in Europe and the US will make it more difficult for vehicles to attain a 5-star crash test rating. To maintain this level of rating will require additional safety content in the vehicle. The safety content in emerging markets is limited to seat belts, maybe. China appears to be moving toward European-type safety standards that will drive safety content higher. Rising Content: The amount of content in a vehicle, essentially tracked by average price over time, is driven higher by: 1) increased active and safety content; 2) increased regulation (emissions, fuel economy); and 3) creature comforts (entertainment, electronics, trim level).

Developed Markets Are Mature – LTM Sales

Source: ACEA, JAMA, Ward’s, Baird estimates.

Emerging Markets – By Country (BRIC)

Source: Ward’s, Baird estimates. Safety Content Penetration

Source: Autoliv

Emerging Market Demand Growing – LTM Sales

Source: Ward’s, Baird estimates. Vehicle Penetration & Per Capita GDP (2009)

Source: BEA, OECD, ACEA, JAMA, JD Power, Ward’s, Baird estimates. Growing Demand for Content – US Average Price

Source: Department of Commerce, Baird estimates.

10,000

20,000

30,000

40,000

50,000


LTM US, Western Europe, Japan Auto Sales (L, monthly)

(in thousands)

4,000

8,000

12,000

16,000

1980 1985 1990 1995 2000 2005 2010

Brazil India China Russia

(passenger car production in 000s)

7,000

14,000

21,000

28,000

1994 1997 2000 2003 2006 2009Series1

(in 000s)

0

10,000

20,000

30,000

40,000

50,000

0 15 30 45 60

(Sales per 1,000 population)

(GDP Per Capita in $)

US

ChinaIndia

BrazilRussia

Japan

UK

France Germany

KoreaChina:2009 to 2016E

$0

$10,000

$20,000

$30,000

$40,000


Light Trucks

Cars

Automotive Markets


China Performance - Auto Chinese OEM Market Share

Source: JD Power, Baird estimates Through January 2012. Brand Market Share

Source: JD Power, Baird estimates Through January 2012.

Annual Sales and Change

Source: JD Power, Baird Estimates. Through January 2012.

Monthly Sales – YOY Change

Source: JD Power, Baird Estimates. Through January 2012. Number of Vehicles On the Road

Source: China National Bureau of Statistics, Baird estimates

2011 YTD Sales – By Brand

*Listed brands represent 56% of light vehicle sales Source: JD Power, Baird Estimates. Through December 2011.

2011 YTD Sales – By Chinese OEM

*Listed OEMs represent 91% of total sales Source: JD Power, Baird Estimates. Through December 2011.

2011 YTD Performance – By Segment

Source: JD Power, Baird Estimates. Through December 2011.

2010 2011 2012 YTD % ChgSAIC 17% 18% 23% -5%DFM 15% 16% 17% -14%FAW 15% 14% 13% -34%BAIC 9% 9% 7% -28%Chang'an 9% 8% 7% -35%Guangzhou 5% 5% 3% -41%Chery 5% 4% 3% -54%BYD 4% 3% 3% -42%JAC 3% 3% 2% -48%Geely 3% 3% 3% -16%Brilliance 3% 3% 3% 6%Great Wall 2% 2% 2% -33%Total 80% 79% 79% -24%

Import 4% 6% 7% -3%

Others 16% 15% 14% -32%

Total 100% 100% 100% -24%

2010 2011 2012 YTD % ChgVW 14% 15% 17% -13%GM 8% 9% 11% -7%Hyundai 8% 8% 9% -12%Toyota 6% 6% 5% -31%Renault-Nissan 5% 6% 6% -13%Honda 5% 4% 3% -43%PSA 3% 3% 3% -17%Suzuki 2% 2% 2% -17%Ford 2% 2% 2% -42%Total 52% 55% 58% -18%

Chinese OEMs 34% 31% 28% -36%

*Others 14% 15% 14% -18%

Total 100% 100% 100% -24%

0%

50%

100%

150%

200%

250%

300%

‐10,000

‐5,000

0

5,000

10,000

15,000

20,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

Units % Change

(in thousands)

‐100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

(400,000)

0

400,000

800,000

1,200,000

1,600,000


Monthly Sales YOY Change LTM Average

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

20000

40000

60000

80000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

China Private Vehicle Growth and Share ‐ 2000 to 2009

Private Total Private Growth Private Share

(Units in Thousands)

Source: China National Bureau Of Statistics

‐50% ‐25% 0% 25% 50%

Mitsubishi

Mazda

BMW

Suzuki

Ford

PSA

Total Industry

Honda

Renault‐Nissan

Toyota

Hyundai

GM

VWRankedby size

‐50% ‐25% 0% 25% 50%

Great Wall

JAC

Brilliance

Geely

BYD

Chery

Total Industry

Guangzhou

Chang'an

BAIC

FAW

DFM

SAICRankedby size

‐50% ‐25% 0% 25% 50%

Compact Car

Sub‐Compact Car

SUV

Midsize Car

Light Truck

Mini Car

Luxury Car

MPV/Minivan

Mini Truck

Sporty Car

Fullsize Car

Ranked by size

77,000 RMB, $11,700

45,000 RMB, $6,800

130,000 RMB, $19,700

236,000 RMB, $35,800

450,000 RMB, $68,300

196,000 RMB, $29,800

(ASP in yuan)

Automotive Markets


Fuel Economy / Emissions Fuel Economy Standards: All markets are pursuing stricter fuel economy and emission standards. Gasoline Prices: The US consumer reacted to higher gas prices in 2008 by shifting new vehicle purchases to those with higher fuel economy; lower gas prices reversed this trend this past year. Gasoline prices in the US (Canada and China) remain well below global gas prices. The primary variance is the level of taxation in each market. The countries with tax policy boosting the spread between gasoline and diesel also see the highest penetration rate of diesel-powered vehicles. US Fuel Economy: Fuel economy in Europe today is roughly where the US market needs to be in 2016. The difference comes from: Vehicle Mix (two-thirds): Nearly 50%

of the European market is made up of small/compact cars; this is only 20% of the US market.

About 40% of US market is made up of SUVs, vans, pickups; this is less than 10% of the European market.

Powertrain (one-third): More-efficient

diesel vehicles capture about 50% of the European market; diesel cars barely exist in the US.

European OEMs use advances in technology to deliver higher fuel economy while maintaining performance; Americans boosted performance while maintaining fuel economy.

Global Fuel Economy Standards (List by Region)

Source: BorgWarner company presentation. Selected Gas Prices

*China represents total cost Source: IEA,China NDRC, Baird estimates (As of October 2011)

US Versus European Segment Mix (2009)

Source: ACEA, Ward’s, Baird estimates.

U.S. Retail Gasoline Prices – National Average

Source: EIA, Baird estimates. Premium for Gasoline Versus Diesel

Source: IEA,China NDRC, Baird estimates (As of October 2011) Engine Power Versus Fuel Economy

Source: NHTSA, Ward’s, Baird estimates.

0.00

2.50

5.00

7.50

10.00

Fran

ce

Ger

man

y

Italy

Spai

n

UK

Japa

n

Can

ada

US

Chi

na

Ex-Tax Tax

($ per gallon - gasoline)

European Market United States MarketMarket Market Equivalent Model

Segment Share European Model Share American Asian EuropeanMinicar 7.9% Fiat Panda N/A None None Smart forTw oSmall Car 24.5% Peugeot 207 2.8% Chevrolet Aveo Honda Fit Mini CooperCompact Car 21.3% VW Golf 16.4% Dodge Caliber Honda Civic VW GolfMid/Full-Size Car 8.4% VW Passat 25.0% Ford Fusion Hyundai Sonata VW PassatLuxury 16.6% BMW 3-Series 7.8% Cadillac CTS Lexus ES Audi A4

Total Car 78.7% 52.0%

Minivan 11.6% Citroen Picasso 2.8% Dodge Caravan Honda Odyssey VW RoutanSUV/CUV 7.2% Toyota RAV4 31.0% Ford Explorer Toyota 4Runner VW TouaregVan 1.4% Citroen Berlingo 1.4% Ford Econoline None NonePickup 0.0% None 12.8% Ford F-150 Toyota Tundra None

Total Light Truck 20.2% 48.0%

0

1

2

3

4

5


U.S. Retail Gas Price ($/gal) NYMEX Gasoline Futures ($/gal)

($/gallon)

-1.00

0.00

1.00

2.00

3.00

Fran

ce

Ger

man

y

Italy

Spai

n

UK

Japa

n

Can

ada

US

Chi

na

Spread

77% 44% 51% 69% 44% <1% <5% <5%(diesel penetration)

($ per gallon)

1975 1980 1985 1990 1995 2000 2005

Fuel Economy HP/Displacement Horsepower Weight

Horsepower/DisplacementUS: 67 hp / L

Europe: 67 hp / LMiles per Gallon

US: 28 mpgEurope: 37 mpg

WeightUS: 4200 lb

Europe: 2800 lb

HorsepowerUS: 223 hp

Europe: 117 hp

Automotive Markets


Electrification of the Vehicle Vehicle Types Micro/Mild Hybrid ICE + start-stop system Hybrid Electric ICE + electric-motor assist Plug-in Electric Electric-motor drive w/ICE Electric Vehicle Full electric vehicle w/battery Fuel Cell Electric Vehicle Any of the above w/fuel cell Companies with Exposure

Improve Existing Engine BWA TEN MGA PCAR NAV MOD AXL CTB CMI DAI DAN ETN GT HON PH TRW VOLVY WBC

Alternative Fuels FSYS CLNE WPRT RTK SYNM CAP

Power Storage JCI PPO MXWL HEV AONE VLNC EFL XIDE

Infrastructure / Smart Grid ENOC COMV ECTY

Electric Motors and Drivetrain QTWW AZD ETN ARM BWA MGA UQM HEV RZ RMYI ENA

Power Electronics JCI MGA UQM ETN ARM LEA MEI

Electronic Components BWA MOD JCI MEI MGA ARM SRI DAN LEA

Secular Demand Drivers Fuel Efficiency and Carbon Emissions Energy independence Greenhouse gas reduction Technology enables development Improve internal combustion engine (ICE) Improve combustion Downsize engines Alternative Fuels Vehicle mix Enable electrification Power storage Electric motors Power electronics Electric infrastructure Electronic components Money funds development Government loans and grants Private sector capital Government tax credits Industry Challenges Driving range on battery charge Cost of energy storage - $1000/kW today Charging infrastructure – smart grid needed Size of carbon footprint – source of electricity Raw materials – lithium and rare-earth elements Redesign vehicle systems and components Consumer education – manage expectations Legacy costs – engine plants Safety – vehicle size, electricity and pedestrian Electrified Vehicle Sales – Annually (US)


Payback Analysis – PEV Versus ICE Using Today’s Economics


Sensitivity Analysis

Source: Baird estimates.

Expected Electric Vehicle Availability in 2011


0

100,000

200,000

300,000

400,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2011 Share of New Electric Vehicle Sales:Hybrid Electric: 96.5%Plug‐in/Electric: 3.5%

ICEVehicle cost $17,069 $25,069All Electric Range -- 30Miles per gallon 29 50Gasoline Cost $1,552 $243Electricity Cost -- $274Annual Energy Cost $1,552 $517Annual Savings -- $1,035Payback period (undiscounted) -- 7.73Payback period (discounted) -- 9.44

PHEV, 30-mile range

$2.00 $3.00 $4.00 $5.00$250 6.68 3.86 2.72 2.10$500 13.36 7.73 5.44 4.19$750 20.04 11.59 8.16 6.29

$1,000 26.72 15.46 10.88 8.39

= 3-5 year target - 8-year payback= Today= Self sustainable - 2-year payback

Price per Gallon of Gasoline

Ba

tte

ry

Co

st

pe

r k

Wh

Electrified Vehicles (# for Sale in 2011)OEM Total HEV PHEV EV

General Motors 9 8 1Toyota 9 7 1 1Ford 7 4 1 2Volkswagen 5 5Honda 4 4Hyundai 4 3 1BMW 3 2 1Nissan 3 2 1Chrysler/Fiat 2 1 1Daimler 2 1 1Fisker 1 1BYD 1 1Coda 1 1Tesla 1 1Total 52 37 5 10

Automotive Markets


New Vehicle Launches New Vehicle Debuts – Detroit Auto Show

Source: Automotive News, Baird estimates

OEM Positioning in North America

Source: Ward’s Automotive, Baird estimates

2010 Product Offering Momentum: Criteria Top Ranked Style Ford, BMW Interiors Ford, Daimler, BMW Powertrain Ford, Toyota Technology BMW, Daimler Electrification Strategy Toyota 2010 Market Share Trends: OEM LTM Share % of 10-Year Peak Hyundai 8% 100% Nissan 8% 100% VW 3% 99% Daimler 2% 98% Honda 11% 95%

Expected Plug-in Hybrid Vehicle Launches

Expected Electric Vehicle Launches

0

20

40

60

80

2004 2005 2006 2007 2008 2009 2010 2011

New/Redesign Concept

GM

Ford

Chrysler

Toyota

NissanHonda

Mazda

Hyundai

VWBMWDaimler

0%

5%

10%

15%

20%

0 15 30 45 60

Product Position (Style, Interiors, Powertrain, Technology, Electrification, Max Score = 55)

Mar

ketS

hare

(20

11)

North American New and Replacement Vehicles - Model Year 2011

Chrysler BMW HondaFiat 500 (N) BMW 5-Series Honda CR-Z (N)Jeep Grand Cherokee BMW X1 (N) Honda Odyssey

BMW X3Ford Mini Countryman (N) HyundaiFord Explorer Hyundai Equus (N)Ford Fiesta (N) Daimler Hyundai SonataLincoln MKX Mercedes-Benz SLS AMG (N) Kia Cadenza (N)

Kia OptimaGeneral Motors Volkswagen Kia SorentoBuick Regal (N) Audi A8 Kia SportageCadillac CTS Coupe (N) Audi Q3 (N)Chevrolet Cruze (N) Volkswagen Touareg MazdaChevrolet Volt (N) Mazda MAZDA2 (N)

VolvoVolvo S60 Mitsubishi

Mitsubishi Outlander Sport (N)

NissanInfiniti M37Infiniti M56Infiniti QX56Nissan Juke (N)Nissan Leaf (N)Nissan NV2500 (N)

ToyotaLexus CT 200h (N)Lexus LFA (N)Scion iQ (n)Scion tC Toyota Sienna

(N) signifies all-new vehicle to North American market. Unmarked vehicles are replacements

North American OEMs European OEMs Asian OEMs

Earlier 2011 2012 2013

GM BYD Auto Fisker General MotorsChevrolet Volt BYD F3DM Fisker NINA Cadillac Converj

Chevrolet YukonFisker FordFisker Karma Ford Escape General Motors

Ford Fusion (tentativeHonda Accord (tentativFord Lincoln MKZ (tentative)Ford Explorer Ford C-Max Energi

GM Geely 2014Opel Ampera Volvo 70 Series

NoneHyundai General MotorsHyundai Blue-Will Cadillac SRX

Cadillac XTSToyotaLexus LF-ch MitsubishiToyota Prius-V Small Car (unnamed)

ToyotaToyota Prius

Source: Ward's Auto, Company reports, Robert W. Baird & Co. estimates

European New and Replacement Vehicles - Model Years 2011-2012

North American OEMs European OEMs Asian OEMs

Chrysler Aston Martin Hyundai/KiaChrysler Delta* Aston Martin Cygent (N) Hyundai i40 (N)Chrysler Ypsilon* Hyundai Veloster (N)

BMW Kia Picanto (N)Ford BMW 1-Series (N)Ford B-max (N) BMW 6-Series MazdaFord Focus Mazda5

Daimler Mazda CX-5GM Mercedes-Benz B-ClassChevrolet Aveo Mercedes-Benz M-Class NissanChevrolet Cruze (N) Mercedes-Benz ML Nissan Micra (N)Chevy MailbuChevrolet Orlando (N) Fiat SsangYong

Fiat 612 SsangYong XUT-1 (N)

Opel SubaruOpel Astra Subaru XV (N)Opel Zafira

Tata MotorsPSA Land Rover Evoque (N)Citroen C4Citroen DS4 (N) ToyotaPeugeot 508 (N) Lexus CT 200hPeugeot iOn (N)

VolkswagenAudi A6Audi Q3 (N)Audi RS3Bentley ContinentalLamborghini V12Volkswagen PassatVW Up N)

OtherLotus Elise S

(N) signifies a new vehicle introduction. Unmarked vehicles are replacements

Earlier 2011 2012 2013

Daimler BMW Daimler BMWSmart fortwo BMW ActiveE Mercedes B-Class BMW i3(limited leasing)

BYD Honda DaimlerFord BYD E6 Honda Fit EV Mercedes SLS AMGFord Transit Connect

Chrysler Nissan HyundaiNissan Dodge Circuit Infiniti EV Hyundai Fuel Cell VehicleNissan Leaf

Fiat Tesla VolkswagenTesla Fiat 500 EV Tesla Model S Volkswagen Golf EVTesla Roadster

Ford Toyota 2014Ford Focus Toyota (unnamed)

Toyota RAV4 TeslaMitsubishi Tesla mid-size sedanMitsubishi i-MiEV Volkswagen

Audi e-tron VolkswagenTh!nk Volkswagen Jetta EVTh!nk City Wheego

Wheego pick-upCoda (unnamed)Coda Sedan

WheegoWheego LiFeWheego sedan (unnamed)

Source: Ward's Auto, Company reports, Robert W. Baird & Co. estimates

Automotive Markets


Valuation - Automotive

S&P Industries – Short Interest (Days to Cover)


Price to LTM EPS

Source: Company reports, FactSet, Baird estimates. Enterprise Value to LTM Sales

Source: Company reports, FactSet, Baird estimates

Auto Suppliers – Short Interest


Enterprise Value to LTM EBITDA

Source: Company reports, FactSet, Baird estimates. Price to Book Value


0 2 4 6 8 10

Diversified FinancialsInsurance

EnergyUtilities

TransportationPharma/Biotech/Life Sciences

Food Beverage & TobaccoBaird Commercial Vehicle Coverage

MaterialsSoftware & Services

Baird Auto Supplier CoverageConsumer Durables & Apparel

Semis & Semi EquipmentHousehold & Personal Products

MedianTelecommunication Services

Capital GoodsMedia

RetailingTechnology Hardware & Equipment

Real EstateHealthcare Equip/Services

Consumer ServicesAutomobiles & Components

Commercial & Professional ServicesFood & Staples Retailing

Banks

Short Interest - Days to Cover

0

10

20

30

40


Recession/Soft Landing P/E

Last Cycle: 16.2X

2012E

0.0

0.4

0.8

1.2

1.6


Recession/Soft Landing EV/Sales

0 2 4 6 8 10

STRT

JCI

TRW

HAR

ALV

MGA

TEN

DAN

Group

GNTX

AXL

SUP

BWA

MEI

0

4

8

12

16


Recession/Soft Landing EV/EBITDA

1990s: +/- 8.0x

2012E

0

1

2

3

4


Recession/Soft Landing P/Book

Automotive Markets


Stock Overview - Automotive

Insider Trades


Short Interest


Estimate Changes


Insider Trades (Last 3 months)

Source: FactSet, Baird estimates (as of February 23) Short Interest (Last 3 months)

Source: FactSet, Baird estimates (as of February 23)

Estimate Changes (Last 3 months)


80

40

0

40

80

Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11

Sales Purchases Net

Number of Sales

Number of Purchases

2.0%

1.0%

0.0%

1.0%

2.0%

Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11

Decrease Increase 3 Month Average (Net Change)

Decrease In Short Interest

Increase in Short Interest

600

300

0

300

600

Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11

Upward Revisions Downward Revisions 4 Week Average

Number of Downward Revisions

Number of Upward Revisions

-10 -5 0 5 10

SUP

GNTX

BWA

TEN

JCI

DLPH

ALV

LEA

ARGN

STRT

SYPR

TRW

VC

AXL

MEI

DAN

TOWR

HAR

(number of transactions )

PurchasesSales

(4.0%) (2.0%) 0.0% 2.0% 4.0%

AXL

LEA

SUP

MEI

TEN

ACW

TOWR

DAN

SYPR

JCI

STRT

GNTX

DLPH

HAR

VC

TRW

BWA

ALV

ARGN(basis point change)

-40% -20% 0% 20% 40%

MEI

LEA

JCI

GNTX

TRW

SUP

TEN

ALV

MGA

AXL

HAR

BWA

STRT

(% change)

Automotive Markets


Business Model - Automotive

Revenue Surprise – Last Four Quarters

Source: FactSet, Baird estimates (current as of Q4-11) Return on Capital

Source: Company reports, Baird estimates (current as of Q4-11) Revenue Growth – Peak-to-Peak (2012E)

Source: Company reports, Baird estimates

EPS Surprise – Last Four Quarters

Source: FactSet, Baird estimates (current as of Q4-11)

Pension and Healthcare - % of Assets (FY2011)

Source: Company reports, Baird estimates. *FY2010 EPS Growth – Peak-to-Peak (2012E)


‐10%

0%

10%

20%

30%

ALV BWA GNTX HAR JCI MGA MEI STRT SUP TEN TRW Group

Average Last Quarter

0%

15%

30%

45%

60%

ALV BWA GNTX HAR JCI MEI STRT SNA Group

Last Quarter (LTM basis) 2012E

0%

5%

10%

15%

20%

ALV BWA GNTX HAR JCI MEI STRT Average

Peak to Peak Growth Cal. 2012E Revenue Growth

‐50%

‐25%

0%

25%

50%

ALV BWA GNTX HAR JCI MGA MEI STRT SUP TEN TRW Group


0% 3% 5% 8% 10%

GNTX

MEI

ALV

JCI

BWA

STRT

HAR

TOWR*

DLPH

OPEB Pension

‐15%

0%

15%

30%

45%

ALV BWA GNTX HAR JCI MEI STRT Average

Peak to Peak Growth Cal. 2012E EPS Growth

Commercial Vehicle Markets


Recent Trends - Truck Q1 Truck Macro Assumptions

Source: ACT Research, Baird estimates *Data through January

Global Truck Demand – Quarterly Change

Source: ACT Research, ACEA, JD Power, Baird estimates.

NA Commercial Truck Orders – (SAAR)

Source: ACT Research, Baird estimates. NA Commercial Truck Production (SAAR)

Source: ACT Research, Baird estimates.

Developed Markets Still Below Peak Demand

Source: ACT Research, ACEA, JD Power, Baird estimates.

European Truck Registrations – Monthly (In Units)

Source: ACEA, Baird estimates. China Truck Production

Source: JD Power, Robert W. Baird & Co. estimates

RWB Est. Actual*North America Build:Medium 11% 5% Heavy 38% 58% Total 26% 36% EU CV Registatations ‐5% 4% North AmericaProduction Schedules:Medium ‐ ‐Heavy ‐ ‐ Total ‐ ‐China Production:Light ‐ (24%)Medium ‐ (13%)Heavy ‐ (54%) Total (18%) (31%)

Q1‐2012 (Y/Y Chg)

Production Schedules

Q1‐2012 (Y/Y Chg)

‐100%

‐50%

0%

50%

100%

North America Orders Western Europe Registrations Asia Production

2008 2009 2010 2011 2012E

Q1-12E

Q1-12E

Q1-12E

0

150,000

300,000

450,000

600,000

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Recession/Soft Landing Class 8 Net Orders Class 5-7 Net Orders

(annualized - units)EPA Regulation Effective Dates

0

150

300

450

600

Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11Recession/Soft Landing Class 5-7 Class 8

Annualized units, in 000s

0%

25%

50%

75%

100%

125%

0

100,000

200,000

300,000

400,000

500,000

US Mexico Canada Export North America

Germany France UK Italy Spain Western Europe

SAAR % of 2000‐2008 Peak

Above Prior‐Cycle Peak

Below Prior‐Cycle Peak

15

30

45

60

Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

(in thousands)

Western EuropeWestern and Eastern Europe

Emission Change

0

40,000

80,000

120,000

160,000

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

Heavy Trucks/Buses Medium Trucks/Buses



Stock Performance - Truck 2011 Performance

Source: FactSet, Baird estimates 2012 First-QTD Performance


Commercial Vehicle Index - Relative Performance


Baird CV Index – “Up” Cycles vs. S&P 500

Source: FactSet, Baird estimates. Truck Supplier Recovery - Stocks vs. 2011 Earnings


CV Index – Quarterly Relative Performance


Baird CV Index (Rel Perf) vs. Net Orders/Build


Commercial Vehicle – Change in 2012/13 Estimates

Source: FactSet, Robert W. Baird & Co. estimates

‐80% ‐40% 0% 40% 80%

MTOR

SRI

CVGI

OSK

MOD

Volvo

PCAR

NAV

Median

WNC

DAN

WBC

Average

MAN

CMI

S&P 1500 Truck

S&P 500

ETN

‐20% 0% 20% 40% 60%

MOD

S&P 500

NAV

OSK

SRI

ETN

PCAR

S&P 1500 Truck

MAN

Median

Volvo

Average

DAN

CMI

WNC

WBC

CVGI

MTOR

0

50

100

150

200


Average Up Cycle +85%Average Down Cycle ‐63%

0

100

200

300

400

0 4 8 12 16 20 24 28 32 36 40 44 48

Dec‐80 Nov‐90 Sep‐00 Feb‐09 Expected Performance

(Months from trough)

(cyclical trough = 100)

Current Cycle

0%

50%

100%

150%

200%

0% 50% 100% 150% 200%

MODMTOR

S&P 500

VOLV.B

WBC

PCARSRI NAV

CVGI

% Peak Earnings

%Peak

Stock Price

Stock Recovery Less Than Earnings

Stock Recovery GreaterThan Earnings

‐100%

‐50%

0%

50%

100%

150%

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

0

25

50

75

100

0.00

0.50

1.00

1.50

2.00

2.50


Recession/Soft Landing Emission Changes Net Orders/Build Relative Index

0

50

100

150

200

Jan‐09 Jul‐09 Jan‐10 Jul‐10 Jan‐11 Jul‐11 Jan‐12

2012E 2013E

Flat YTD

Up 1% YTD



Macro Environment - Truck

US Freight Activity

Source: ATA, BTS, Baird estimates.

US and European Industrial Production - Change

Source: Federal Reserve, Ecowin, Baird estimates. US On-Highway Emission Standards

Source: Company reports, Baird estimates.

Euro Zone PMI

Source: Markit Economics, Baird estimates. US and Europe Real GDP – Change

Source: Univ. of Michigan, Ecowin, Baird estimates. European Emission Standards

Source: Company reports, Baird estimates.

-30%

0%

30%

60%

90%

0

30

60

90

120

Dec-72 Dec-77 Dec-82 Dec-87 Dec-92 Dec-97 Dec-02 Dec-07

Y/Y Chg ATA Index TSI Freight Index

‐8%

‐4%

0%

4%

8%


U.S. Industrial Production (Q/Q) Eurozone Industrial Production (Q/Q)

0.00

1.00

2.00

3.00

4.00

5.00

0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20

NOx(g/bhp

‐hr)

Particulate Matter (g/bhp‐hr)

1994

1998

2000/2004

2007

2010

U.S. EPA Off‐roadStandards2011 (hp>751): 3.5g NOx/0.10g PM2015 (hp>751): 3.5g NOx/0.04g PM

2011 (hp 174‐751): 2.0g NOx/.02g PM2014 (hp 174‐751): 0.04g NOx/0.02g PM

20

30

40

50

60

Dec‐97 Dec‐99 Dec‐01 Dec‐03 Dec‐05 Dec‐07 Dec‐09 Dec‐11Recession Eurozone PMI

‐6

‐3

0

3

6

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E2013E2014E

U.S. Real GDP (y/y % chg) Eurozone Real GDP (y/y % chg)

0.00

1.00

2.00

3.00

4.00

5.00

0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20

NOx(g/bhp‐hr)

Particulate Matter (g/bhp‐hr)

Euro II (1996)

Euro III (1999)

Euro VI (2005)

EuroV (2008)

Euro VI (2013)



Cyclical Recovery - Truck

Global Recovery in Demand – 2010-2014E

Source: ACEA, JAMA, JD Power, KAMA, Ward’s, Baird estimates. Cyclical Recovery in Quarterly EBITDA Margins


Enterprise Value to EBITDA Multiple


Organic Revenue Growth – “Net” New Business

Source: Company reports, FactSet, Baird estimates. Up Cycle EPS Growth


Potential Stock Performance (3-Year CAGR)


(units in 000s) 2010 2014E CAGRNorth America 270 520 18%Europe 375 600 12%Asia 2,003 2,466 5%

Total 2,648 3,586 8%

Represents estimated commercial vehicle production.

0%

5%

10%

15%

20%

Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12E Dec-14E

Median

RWB Estimate

Assumes normal contribution margins

0

4

8

12

16

Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10

Recession/Soft Landing High / Low LTM Multiple

33rd Percentile (<5.9x)

67th Percentile (>6.7x)

-4%

0%

4%

8%

12%

Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

New Business Growth (Quarter) New Business Growth (LTM0 (Calendar Year Ending)

RWBEstimate

-200%

-100%

0%

100%

200%

Truck Suppliers S&P 500

Q1E 2012

1998 20022000 2004

(year-over-year)

2006 2008 2010 2012E

43% annual EPS growth2010‐2014

0%

15%

30%

45%

60%

S&P 500 WBC PCAR VOLV.B Average CVGI MOD MTOR NAV



US / European Truck Markets

Source: ACT Research, Baird estimates Through December 2011.

Source: ACEA, Baird estimates Through December 2011.

US and European Sales – Segment Performance


NA Cl. 8 Sales – 2011 YTD Change

Source: ACT Research, Baird estimates. Through December 2011.

N.A. Class 5-7 Truck Sales – 2011 YTD Change

Source: ACT Research, Baird estimates. Through December 2011.

EU CV Registrations – 2011 YTD Chg (By Country)

Source: ACEA, Baird estimates. Through December 2011. EU CV Registrations – 2011 YTD Chg (By OEM)

Source: ACEA, Baird estimates. Through December 2011. EU CV Build versus Registrations - Quarterly

Source: JD Power, Baird estimates. Through Q4-11.

North America Class 8 Share - By Brand2009 2010 2011 YTD

Freightliner 26.0% 31.1% 29.2%Western Star 1.6% 2.0% 2.0%Sterling 3.1% 0.4% 0.0%Daimler 30.7% 33.5% 31.2%

International 27.5% 23.3% 21.4%

Kenworth 14.4% 15.2% 17.6%Peterbilt 10.7% 9.9% 11.4%PACCAR 25.0% 25.1% 29.0%

Volv o 6.9% 8.2% 10.1%Mack 7.9% 7.9% 7.2%Volvo Truck 14.8% 16.1% 17.4%

Others 2.0% 2.1% 1.0%

Total Class 8 100.0% 100.0% 100.0%

Europe Heavy Truck Share - By OEM

2009 2010 2011 YTD

DAF 12.8% 13.9% 12.4%

Daimler 22.2% 22.0% 21.1%

Fiat 10.2% 9.2% 7.8%

MAN 16.2% 15.8% 16.4%

Renault 9.1% 8.8% 9.2%

Scania 12.7% 12.9% 13.1%

Volv o 12.9% 13.8% 14.9%

Others 3.8% 3.6% 3.0%

Total Heavy Truck 100.0% 100.0% 97.9%

‐30% ‐15% 0% 15% 30%

Medium Truck

Medium Bus and Coach

Heavy Truck

Heavy Bus and Coach

0% 25% 50% 75% 100%

Western Star

Mack

Peterbilt

Volvo

Total N.A.

Kenworth

International

Freightliner Ranked By Size

0% 25% 50% 75% 100%

Peterbilt

Kenworth

Freightliner

Total N.A.

Others

Ford

International RankedBy Size

0% 20% 40% 60% 80%

POLAND

SPAIN

ITALY

TOTAL EUROPE (EU+EFTA)

UNITED KINGDOM

FRANCE

GERMANY Rankedby size

0% 20% 40% 60% 80%

Renault

Scania

Volvo

Total

MAN

Daimler

Others Rankedby size

0

80

160

240

320

Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12E

Build Registrations

(000s)



Market Structure

Source: ACT Research. (as of December 2011)

Source: ACT Research. (as of December 2011)

North American Class 8 Truck - Market Participants

Source: ACT Research, Baird estimates. (as of December 2010) North American Class 8 Truck - Share Trends

Source: ACT Research, Baird estimates. (as of December 2011)

North American Class 5-7 Truck - Share Trends

Source: ACT Research, Baird estimates. (as of December 2011)

European Truck - Market Participants

Source: ACEA, Baird estimates. (as of December 2010) European Truck - Share Trends

Source: ACEA, Baird estimates (as of December 2011).

North American Class 8 Engine - Share Trends

Source: Ward’s, Baird estimates. (as of December 2011)

North America Class 8 Vehicle ShareTruck Type 2009 2010 2011

Tractor Sleeper 41.1% 44.4% 49.2% Day Cab 29.1% 27.4% 26.6%Total 70.1% 71.8% 75.9%

Straight Truck Sleeper 0.3% 0.5% 0.7% Day Cab 29.5% 27.6% 23.5%Total 29.9% 28.2% 24.1%

Total Class 8 100.0% 100.0% 100.0%

North America Class 5-7 Vehicle ShareTruck Type 2009 2010 2011Truck 64.6% 65.2% 74.2%Bus 29.3% 22.8% 16.9%RV 4.7% 10.2% 7.3%Step Van 1.5% 1.8% 1.6%Total Class 5-7 100.0% 100.0% 100.0%

North America Build for Export - Y/Y Change2009 2010 2011

Class 8 -77% 117% 96%Class 5-7 -59% 101% 3%Total -76% 115% 85%

North America Exports - Share of Production2009 2010 2011

Class 8 6% 9% 11%Class 5-7 1% 2% 1%Total 4% 6% 8%

Mexico Build - Y/Y Change2009 2010 2011

Class 8 -76% 214% 27%Class 5-7 -55% 53% 14%Total -68% 129% 22%

Mexico Build - Share of Production2009 2010 2011

Class 8 4% 8% 6%Class 5-7 6% 6% 5%Total 5% 7% 6%

Freightliner

SterlingWestern Star

International

Kenworth

Peterbilt

Volvo

MackOther

Volvo

PACCAR

Daimler

Navistar

0%

10%

20%

30%

40%


Daimler Navistar PACCAR Volvo Other

0%

10%

20%

30%

40%


Daimler Navistar PACCAR Volvo Ford GM Other

DAF

Daimler

FiatMAN

Renault

Scania

Volvo

Others

0%

8%

16%

24%

32%

Dec‐02 Dec‐03 Dec‐04 Dec‐05 Dec‐06 Dec‐07 Dec‐08 Dec‐09 Dec‐10 Dec‐11

Scania DAF Fiat Daimler Volvo/Renault

0%

15%

30%

45%

60%


Cat Cummins Detroit Diesel/Mercedes Navistar Volvo PACCAR



Market Structure Global Commercial Vehicle Market – (In Units)

Source: ACEA, ACT Research, JD Power, Ward’s, Baird estimates. OEM Revenue Exposure – Baird Covered Suppliers

Source: Company reports, Baird estimates China Commercial Vehicle Production

Source: JD Power, Baird estimates.

Global Commercial Vehicle Market – (In Dollars)

Source: ACEA, ACT Research, JD Power, Ward’s, Baird estimates. Regional Rev. Exposure – Baird Covered Suppliers

Source: Company reports, Baird estimates China Heavy Truck - Market Participants¹²

¹A joint venture between JAC and Navistar is pending approval. ²PACCAR has sales offices in China (parts/engines) and a JV with a Taiwanese company for trucks. Source: JD Power, Baird estimates.

North America

Europe

Japan

Korea

China

India

BrazilRussia

0%

15%

30%

45%

60%

Commercial Vehicle Group Meritor Modine Manufacturing WABCO

Daimler Navistar PACCAR Volvo

0

400

800

1,200

1,600

1998 2000 2002 2004 2006 2008 2010

MD Truck MD Bus HD Truck HD Bus

(units in thousands)

North America

Europe

JapanKorea

China

India

BrazilRussia

0%

25%

50%

75%

100%

Commercial Vehicle Group

Meritor Modine Manufacturing WABCO

North America Europe Rest of World

Dongfeng (Renault)

FAW (Volvo)

CNHTC (MAN)

Shaanxi (MAN)

Beiqi (Daimler)

Baotou North Benz

(Daimler)

SAIC-IVECO (Fiat)

Others (26)(indicates relationships with Eastern OEMs)



Valuation - Truck

S&P Industries– Short Interest (Days to Cover)

Source: FactSet, Baird estimates. Price to LTM EPS

Source: Company reports, FactSet, Baird estimates. Enterprise Value to LTM Sales

Source: Company reports, FactSet, Baird estimates

Truck Suppliers – Short Interest

Source: Company reports, FactSet, Baird estimates. Enterprise Value to LTM EBITDA

Source: Company reports, FactSet, Baird estimates. Price to Book Value


0 2 4 6 8 10

Diversified FinancialsInsurance

EnergyUtilities

TransportationPharma/Biotech/Life Sciences

Food Beverage & TobaccoBaird Commercial Vehicle Coverage

MaterialsSoftware & Services

Baird Auto Supplier CoverageConsumer Durables & Apparel

Semis & Semi EquipmentHousehold & Personal Products

MedianTelecommunication Services

Capital GoodsMedia

RetailingTechnology Hardware & Equipment

Real EstateHealthcare Equip/Services

Consumer ServicesAutomobiles & Components

Commercial & Professional ServicesFood & Staples Retailing

Banks

Short Interest - Days to Cover

0

10

20

30

40


Recession/Soft Landing P/E

Median Last Cycle

0.0

0.4

0.8

1.2

1.6


Recession/Soft Landing EV/Sales

MedianLast Cycle

0 2 4 6 8 10

WBC

NAV

MTOR

PCAR

Group

MOD

SRI

CVGI

0

4

8

12

16


Recession/Soft Landing EV/EBITDA

2012E

0

1

2

3

4


Recession/Soft Landing P/Book



Stock Overview - Truck

Insider Trades


Short Interest

Source: FactSet, Baird estimates Estimate Changes


Insider Trades (Last 3 months)


Short Interest (last 3 months)

Source: FactSet, Baird estimates (as of February 23) Estimate Changes (last 3 months)


80

40

0

40

80

Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11

Sales Purchases Net

Number of Sales

Number of Purchases

2.0%

1.0%

0.0%

1.0%

2.0%

Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11

Decrease Increase 3 Month Average (Net Change)

Decrease In Short Interest

Increase in Short Interest

600

300

0

300

600

Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11

Upward Revisions Downward Revisions 4 Week Average

Number of Downward Revisions

Number of Upward Revisions

-10 -5 0 5 10

MTOR

WBC

PCAR

NAV

SRI

ACW

MOD

SNA

CVGI

(number of transactions )

PurchasesSales

(6.0%) (3.0%) 0.0% 3.0% 6.0%

MTOR

MOD

NAV

CVGI

SRI

WBC

PCAR

(basis point change)

-60% -30% 0% 30% 60%

MOD

MTOR

NAV

WBC

SRI

PCAR

CVGI

(% change)



Business Model - Truck

Revenue Surprise – Last Four Quarters

Source: FactSet, Baird estimates (current as of Q4-11)

Return on Capital

Source: Company reports, Baird estimates (current as of Q4-11)

Revenue Growth – Peak-to-Peak (2012E)


EPS Surprise – Last Four Quarters

Source: FactSet, Baird estimates (current as of Q4-11) Pension and Healthcare – % of Assets (FY2011)

Source: Company reports, Baird estimates. *FY2010 EPS Growth – Peak-to-Peak (2012E)

Source: Company reports, Baird estimate

‐10%

0%

10%

20%

30%

MTOR CVGI CMI ETN MOD NAV PCAR SRI VOLV.B WBC Group


0%

15%

30%

45%

60%

MTOR CVGI MOD NAV PCAR WBC VOLV.B Group

Last Quarter (LTM basis) 2012E

‐10%

0%

10%

20%

30%

MTOR CVGI MOD NAV PCAR WBC Average

Peak to Peak Growth Cal. 2012E Revenue Growth

‐50%

‐25%

0%

25%

50%

MTOR CVGI CMI ETN MOD NAV PCAR SRI VOLV.B WBC Group


0% 6% 12% 18% 24%

PCAR

MOD

CVGI*

NAV

MTOR

WBC

OPEB Pension

‐15%

0%

15%

30%

45%

60%

ARM CVGI MOD NAV PCAR SRI WBC Average

Peak to Peak Growth Cal. 2012E EPS Growth

Autoliv


Autoliv (ALV - $68.21 – Outperform / Higher Risk) Target Price: $68 (5.9x 2014E EBITDA discounted by 20% - Median Valuation of Last Cycle Range) Current View Passive Safety Leadership: Autoliv is a global leader in the passive

safety market (airbags, seatbelts), with a global market share exceeding 35% in 2011 (more than 50% higher than the nearest competitors). The biggest passive safety growth opportunity is in emerging markets, where average content is approximately 25% below the global average and as much as 45% below that of developed markets. In developed markets, passive safety growth is driven by ever-tightening safety standards.

Active Safety Investments: Bolstering the company’s strong passive safety market position, the company is investing in active safety (e.g. driver information, crash detection, crash avoidance, and crash mitigation using image/radar/infra red/sonar sensors). Over the next three years, the active safety market is expected to grow 40% annually to $1.1 billion, eventually reaching $4-5 billion by 2020. The company recently launched an integrated radar/image sensor for BMW for several active-safety applications. Management has noted penetration of the developing active safety market is better than the company’s passive safety share, while also generating higher return on capital.

Strong Cash Flow: We expect Autoliv to generate average annual free cash flow of nearly $700 million over the next five years. We expect management to use free cash flow to pay dividends and fund investments and acquisitions to strengthen the company’s position in active safety. In the past, the company has also repurchased shares.

Valuation: The stock recently traded near 5.3x LTM EBITDA, below the 5.9x median valuation of the last cycle.

Key Risks: 1) light vehicle demand in Europe and China; 2) rising commodity prices; 3) pricing pressure; 4) foreign currency; 5) the automotive market; 6) major customers; 7) emerging markets; 8) costs associated with new business and new technologies; and 9) ongoing antitrust investigations.

Price Target. Our $68 price target is based on 5.9 times our 2014 estimate of EBITDA discounted by 20%, the median of the historical range.

Company Description Autoliv, Inc., headquartered in Stockholm, Sweden, develops and manufactures integrated safety systems including airbags, seat belts, safety electronics, infrared night vision systems, steering wheels, anti-whiplash systems, seat components and child seats. Autoliv was the 20th largest North American and 23rd largest global supplier to automotive OEMs in 2010, as ranked by Automotive News. The company was founded in 1956, and employs approximately 48,000 people in approximately 80 wholly-owned or joint venture facilities located in 29 countries. The company estimates it accounts for one-third of global restraint systems.

Stock Chart

Source: FactSet Revenue Profile – FY December 2011

Source: Company filings, Robert W. Baird & Co. estimates

'02 '03 '04 '05 '06 '07 '08 '09 '10 '110

2.5

5

7.5

10

0

25

50

75

100NTM Estimated EPS (Left) Price

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1105

10

15

20NTM Forward P/E

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1101

2

3

4Price to Book

By Geography By End Market By Customer

North America29%

Europe38%

Japan11%

(China 11%)

RoW22% GM 14%

Ford 10%

Chrysler/Fiat 6%

2

VW 9%PSA 5%BMW 5%

Daimler 5%

Volvo 3%

Toyota 5%

Honda 4%

Hyundai/Kia 9%

Other 12%

NA OEMs28%

EU OEMs41%

Asian OEMs18%

Automotive100%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Autoliv Inc. (ALV $68.21)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Outperform

12-Month Target Price (5.9x 2014E EBITDA, Median Valuation of Last Cycle Range, Discounted by 20%): $68Last Cycle Range (2000-08) is 3.0-7.5x LTM EBITDA. Median is 5.9x.

Current Multiple = 5.3x LTM EBITDA (25th percentile), 4.9x 2012E and 4.3x 2013E.(in $ Millions)

Lt. Vehicle Build Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income Fully Diluted EPS First Avg.Year (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg Call* Shares

Dec-94 15,268 - - - - - - - - - - - - - - - - - - - - - - - - - Dec-95 14,915 -2.3% - - - - - - - - - - - - - - - - - - - - - - - - Dec-96 15,083 1.1% 3,204.4 - 680.5 21.2% - 552.6 17.2% - 345.6 10.8% - 300.5 9.4% - 41.9% 173.8 5.4% - $1.69 - - - - 102.9Dec-97 15,635 3.7% 3,256.8 1.6% 719.8 22.1% 5.8% 563.7 17.3% 2.0% 356.0 10.9% 3.0% 317.5 9.7% 5.7% 40.8% 184.9 5.7% 6.4% $1.81 7.0% - - - 102.3Dec-98 15,551 -0.5% 3,488.7 7.1% 747.5 21.4% 3.8% 582.1 16.7% 3.3% 354.1 10.1% -0.5% 312.5 9.0% -1.6% 39.6% 188.3 5.4% 1.8% $1.84 1.9% - - - 102.2Dec-99 17,035 9.5% 3,812.2 9.3% 806.8 21.2% 7.9% 622.0 16.3% 6.9% 368.6 9.7% 4.1% 329.7 8.6% 5.5% 40.0% 199.9 5.2% 6.2% $1.95 6.0% - - - 102.3Dec-00 17,166 0.8% 4,116.1 8.0% 786.1 19.1% -2.6% 608.6 14.8% -2.2% 339.5 8.2% -7.9% 290.6 7.1% -11.9% 40.3% 168.7 4.1% -15.6% $1.67 -14.4% - - - 100.9Dec-01 15,483 -9.8% 3,991.0 -3.0% 700.9 17.6% -10.8% 519.4 13.0% -14.7% 239.0 6.0% -29.6% 182.1 4.6% -37.3% 43.0% 94.7 2.4% -43.9% $0.97 -42.2% $1.49 - - 97.9Dec-02 16,369 5.7% 4,443.4 11.3% 810.8 18.2% 15.7% 579.3 13.0% 11.5% 330.8 7.4% 38.4% 286.7 6.5% 57.4% 33.0% 180.5 4.1% 90.6% - - $1.84 23.4% - 98.0Dec-03 15,874 -3.0% 5,300.8 19.3% 1,010.2 19.1% 24.6% 687.6 13.0% 18.7% 408.8 7.7% 23.6% 379.0 7.1% 32.2% 31.5% 251.2 4.7% 39.2% - - $2.63 42.9% - 95.4Dec-04 15,754 -0.8% 6,143.9 15.9% 1,221.2 19.9% 20.9% 811.4 13.2% 18.0% 513.1 8.4% 25.5% 484.5 7.9% 27.8% 32.1% 320.0 5.2% 27.4% - - $3.40 29.0% - 94.2Dec-05 15,753 0.0% 6,204.9 1.0% 1,268.0 20.4% 3.8% 821.6 13.2% 1.3% 512.7 8.3% -0.1% 482.0 7.8% -0.5% 35.9% 292.6 4.7% -8.6% - - $3.26 -4.1% - 89.8Dec-06 15,252 -3.2% 6,189.2 -0.3% 1,265.2 20.4% -0.2% 822.6 13.3% 0.1% 520.0 8.4% 1.4% 481.4 7.8% -0.1% 31.0% 312.2 5.0% 6.7% - - $3.78 16.2% - 82.5Dec-07 15,022 -1.5% 6,770.2 9.4% 1,330.6 19.7% 5.2% 853.2 12.6% 3.7% 532.4 7.9% 2.4% 476.6 7.0% -1.0% 31.9% 316.7 4.7% 1.5% - - $4.04 6.9% - 78.3Dec-08 12,579 -16.3% 6,474.4 -4.4% 1,131.2 17.5% -15.0% 726.0 11.2% -14.9% 379.1 5.9% -28.8% 321.3 5.0% -32.6% 30.9% 214.4 3.3% -32.3% - - $2.98 -26.4% 3.00 72.1Dec-09 8,558 -32.0% 5,122.0 -20.9% 853.2 16.7% -24.6% 517.2 10.1% -28.8% 202.2 3.9% -46.7% 138.8 2.7% -56.8% 19.3% 109.4 2.1% -49.0% - - $1.26 -57.5% 0.18 82.6Dec-10 11,910 39.2% 7,171.7 40.0% 1,592.1 22.2% 86.6% 1,150.9 16.0% 122.5% 869.2 12.1% + 805.5 11.2% + 26.1% 590.6 8.2% + - - $6.40 + 5.85 92.2

Q1 3,350 16.0% 2,108.9 22.5% 466.0 22.1% 21.5% 320.2 15.2% 19.1% 254.8 12.1% 30.4% 239.8 11.4% 33.8% 23.9% 181.5 8.6% 43.5% - - $1.93 38.7% 1.75 94.0Q2 3,100 0.5% 2,061.9 14.4% 421.6 20.4% 2.3% 271.4 13.2% -9.1% 205.4 10.0% -10.3% 185.0 9.0% -10.2% 21.2% 145.0 7.0% -1.0% - - $1.54 -3.8% 1.29 94.2Q3 3,172 6.5% 2,017.6 15.9% 411.2 20.4% 10.0% 271.4 13.5% 0.1% 204.9 10.2% 1.4% 192.6 9.5% 1.6% 27.8% 138.4 6.9% -1.2% - - $1.48 -2.0% 1.43 93.5Q4 3,421 15.5% 2,044.7 7.2% 429.0 21.0% 1.5% 294.4 14.4% -5.8% 224.0 11.0% -7.7% 210.8 10.3% -8.7% 24.3% 159.6 7.8% -10.1% - - $1.70 -10.3% 1.62 93.9

Dec-11 13,043 9.5% 8,233.1 14.8% 1,727.8 21.0% 8.5% 1,157.4 14.1% 0.6% 889.1 10.8% 2.3% 828.2 10.1% 2.8% 24.3% 624.5 7.6% 5.7% - - $6.67 4.2% 6.61 93.6

Q1E 3,564 6.4% 2,174.6 3.1% 451.7 20.8% -3.1% 288.7 13.3% -9.8% 218.7 10.1% -14.2% 206.0 9.5% -14.1% 27.0% 149.3 6.9% -17.8% - - $1.59 -17.8% 1.68 94.0Q2E 3,490 12.6% 2,223.2 7.8% 474.5 21.3% 12.5% 302.1 13.6% 11.3% 232.1 10.4% 13.0% 221.7 10.0% 19.8% 27.0% 161.0 7.2% 11.0% - - $1.68 9.2% 1.65 95.8Q3E 3,307 4.3% 2,072.8 2.7% 449.7 21.7% 9.4% 288.9 13.9% 6.4% 218.9 10.6% 6.8% 209.5 10.1% 8.8% 27.0% 152.2 7.3% 9.9% - - $1.59 7.3% 1.43 95.8Q4E 3,240 -5.3% 2,151.6 5.2% 463.0 21.5% 7.9% 302.4 14.1% 2.7% 232.4 10.8% 3.7% 223.6 10.4% 6.1% 27.0% 162.7 7.6% 2.0% - - $1.70 -0.1% 1.66 95.8

Dec-12E 13,600 4.3% 8,622.1 4.7% 1,838.8 21.3% 6.4% 1,182.0 13.7% 2.1% 902.0 10.5% 1.5% 860.8 10.0% 3.9% 27.0% 625.2 7.3% 0.1% - - $6.56 -1.7% 6.46 95.3Feb-01 Guidance: Q1: Revenue up 2% (+5% organic) (euro = $1.28), operating margin of 10.0%; 2012: Revenue up 4% (up 7% organic), operating margin of 10.0-11.0%

Q1E 3,585 0.6% 2,236.4 2.8% 467.1 20.9% 3.4% 302.5 13.5% 4.8% 230.0 10.3% 5.2% 221.9 9.9% 7.7% 27.0% 160.7 7.2% 7.6% - - $1.68 5.6% - 95.8Q2E 3,598 3.1% 2,304.9 3.7% 494.9 21.5% 4.3% 316.4 13.7% 4.7% 243.9 10.6% 5.1% 237.2 10.3% 7.0% 27.0% 172.2 7.5% 7.0% - - $1.80 7.0% - 95.8Q3E 3,539 7.0% 2,199.3 6.1% 481.3 21.9% 7.0% 313.9 14.3% 8.7% 241.4 11.0% 10.3% 235.8 10.7% 12.5% 27.0% 171.2 7.8% 12.5% - - $1.79 12.5% - 95.8Q4E 3,678 13.5% 2,303.6 7.1% 501.0 21.7% 8.2% 324.9 14.1% 7.5% 252.4 11.0% 8.6% 247.4 10.7% 10.6% 27.0% 180.0 7.8% 10.6% - - $1.88 10.6% - 95.8

Dec-13E 14,400 5.9% 9,044.2 4.9% 1,944.4 21.5% 5.7% 1,257.7 13.9% 6.4% 967.7 10.7% 7.3% 942.3 10.4% 9.5% 27.0% 684.1 7.6% 9.4% - - $7.14 8.9% 7.06 95.8

Dec-14E 15,200 5.6% 9,549.4 5.6% 2,070.7 21.7% 6.5% 1,349.7 14.1% 7.3% 1,049.7 11.0% 8.5% 1,040.1 10.9% 10.4% 27.0% 754.9 7.9% 10.3% - - $7.88 10.3% - 95.8Dec-15E 15,500 2.0% 9,969.2 4.4% 2,175.6 21.8% 5.1% 1,426.2 14.3% 5.7% 1,116.2 11.2% 6.3% 1,124.4 11.3% 8.1% 27.0% 815.7 8.2% 8.1% - - $8.51 8.1% - 95.8

*Assumed contribution margin for 2011-15 is in the range of 20-25% 2014E represents trend EPS with stock price of: $95 (15% CAGR)*As of February 1.

EPS Sensitivity Target Price Sensitivity New Business Growth* Shares Outstanding (Dec-11)Year Downside Base Upside Percentile Multiple Downside Base Upside Rev Change Basic Shares 89.72010 $5.20 $6.40 $7.35 25th 5.3 $31 $36 $40 2008 400 6% Options (Diluted) 0.62011 $4.45 $6.67 $8.55 Median 5.9 $34 $40 $44 2009 300 5% Convertible Securities 3.6

75th 6.5 $37 $43 $48 2010 125 2% Diluted Shares 93.92010 Macro Assumptions 2011 200 3% Management Owns: < 1%

Downside Base Upside Upside/Downside to Target Price 2012 300 4% Headquartered: Stockholm, SwedenNA 10,700 11,910 13,100 Percentile Downside Base Upside 2013 300 3%EU 4% 14% 24% 25th -52% -45% -38% 2011-13 800 3%

ROW 15% 25% 35% Median -48% -38% -32% * Revenue growth with flat NA build ex-price of -2.5%. Euro/$ $61,798.12 ####### $61,798.12 75th -43% -34% -26%

Source for all models: Company reports, Robert W. Baird & Co. estimates© 2012 | Please refer to Appendix - Important Disclosures and Analyst Certification.

BorgWarner


BorgWarner (BWA - $82.43 – Neutral / Average Risk) Target Price: $90 (10.2x 2014E EBITDA plus calendar 2014 equity income less minority interest at 19x earnings per share discounted by 27.5% - Median Valuation of Current-Cycle Range) Current View “Green” Growth Prospects. The company is exposed to “green” secular

trends toward increased fuel economy and reduced emissions worldwide. Products such as turbochargers (diesel and, more recently, gasoline engines), timing chain systems (traditional and variable cam timing systems), diesel engine technologies, 4WD/AWD systems, and new transmission technologies (dual-clutch transmission) are all capable of improving fuel economy and/or reducing emissions.

Strong New Business Growth. The new business pipeline (11-12% annual revenue growth, +/- production and currency) is filled with orders for new, higher-ROIC products that should further diversify the customer base and geographic exposure. Recent comments from management have indicated that this growth can be maintained well beyond the current three-year backlog.

Diversified Revenue Mix. Sales in North America to North American-based OEMs are only 18% of total revenue. North America as a whole accounts for less than one-third of total sales, while Europe is the company's largest geographic region at approximately half of revenue.

Key Risk Factors. 1) Raw material and commodity costs; 2) slowing European end markets; 3) truck (SUV, pickup) demand in North America; 4) slowing penetration of diesel engines; 5) increasing competition in turbochargers (Continental, Cummins, Bosch); 6) foreign currency; 7) major customers, programs, and product groups; 8) the commercial vehicle market; 9) the automotive market; 10) new business launches; 11) new technology; and 12) post-retirement liabilities.

Target Price. Our $90 target price is based on 10.2x our estimate of calendar 2014 EBITDA, the median percentile of the current-cycle range, plus per-share equity income net of minority interest valued at 19.0x earnings.

Company Description BorgWarner Inc., headquartered in Auburn Hills, MI, was incorporated in 1987 and is a leading global supplier of highly engineered systems and components primarily for automotive powertrain applications (turbochargers, timing chains, and cooling systems) and drivetrain applications (four-wheel-drive, all-wheel-drive and transmission) for light vehicles. BorgWarner was the 31st largest North American supplier and 31st largest global supplier in 2010, according to Automotive News. BorgWarner Inc. employs approximately 19,250 people and has 60 operations in 19 countries.

Stock Chart



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North America24%

Europe56%

(China 6%)

Asia20%

Automotive 78%

Commercial Vehicles 16%

Aftermarket 6%

Ford 11%

GM 4%

Chrysler 3%

VW/Audi 15%

Renault/Nissan 5%

Daimler 6%BMW 3%Toyota 5%

Hyundai/Kia 4%

Commercial Vehicle 9%

Other 29%

China 6%NAOEMs 18%

EU OEMs 32%

Asia OEMs 9%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 BorgWarner (BWA $82.43)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Neutral

12-Month Target Price (10.2x 2014E EBITDA, Median Valuation of Current-Cycle (2009-Present) Range, plus cal-2014E eq inc less min int at 19.0x earnings per share, Discounted by 27.5%): $90Current Cycle (2009-Present) Range is 5.1-19.2x LTM EBITDA. Median is 10.2x.


Lt. Vehicle Build Revenues Gross Profit** EBITDA Operating Income Pretax Income Tax Net Income Fully Diluted EPS GAAP First AvgYear (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg EPS Call* Shs.

Dec-93 13,843 11.0% 985.4 -6.0% 216.1 21.9% -26.3% 132.6 13.5% -7.7% 65.0 6.6% -56.6% 57.2 5.8% -47.6% 42.5% 32.8 3.3% -71.7% $0.35 - - - - 93.1Dec-94 15,268 10.3% 1,223.4 24.2% 275.0 22.5% 27.3% 182.9 15.0% 37.9% 112.4 9.2% 72.9% 109.1 8.9% 90.7% 39.7% 64.4 5.3% 96.3% $0.69 95.2% - - $1.38 - 93.7Dec-95 14,915 -2.3% 1,329.1 8.6% 284.2 21.4% 3.3% 186.4 14.0% 1.9% 108.8 8.2% -3.2% 113.2 8.5% 3.8% 32.7% 74.2 5.6% 15.2% $0.79 14.5% - - $1.58 - 94.2Dec-96 15,083 1.1% 1,540.1 15.9% 334.6 21.7% 17.7% 211.9 13.8% 13.7% 127.1 8.3% 16.8% 118.8 7.7% 4.9% 33.2% 76.8 5.0% 3.5% $0.81 3.5% - - $0.89 - 94.3Dec-97 15,635 3.7% 1,767.0 14.7% 406.7 23.0% 21.5% 274.7 15.5% 29.6% 172.5 9.8% 35.7% 161.1 9.1% 35.6% 34.0% 103.2 5.8% 34.4% $1.07 31.9% - - $2.16 - 95.6

Dec-98 15,551 -0.5% 1,836.8 4.0% 415.8 22.6% 2.2% 269.3 14.7% -2.0% 159.5 8.7% -7.5% 142.8 7.8% -11.4% 32.2% 94.7 5.2% -8.2% $1.00 -6.6% - - $2.00 - 95.0Dec-99 17,035 9.5% 2,458.6 33.9% 592.4 24.1% 42.5% 389.2 15.8% 44.5% 243.4 9.9% 52.6% 208.2 8.5% 45.8% 35.9% 132.2 5.4% 39.6% $1.26 25.6% - - $2.54 - 104.8Dec-00 17,166 0.8% 2,645.9 7.6% 667.6 25.2% 12.7% 423.5 16.0% 8.8% 253.1 9.6% 4.0% 214.3 8.1% 2.9% 36.8% 132.8 5.0% 0.5% $1.25 -0.8% $1.54 - $1.77 - 106.1Dec-01 15,483 -9.8% 2,351.5 -11.1% 573.3 24.4% -14.1% 339.0 14.4% -20.0% 169.3 7.2% -33.1% 138.4 5.9% -35.4% 35.5% 85.4 3.6% -35.7% $0.81 -35.6% $1.08 -29.8% $1.26 - 105.9Dec-02 16,369 5.7% 2,731.1 16.1% 684.0 25.0% 19.3% 388.7 14.2% 14.7% 251.4 9.2% 48.5% 233.9 8.6% 69.0% 33.0% 149.9 5.5% 75.5% - - $1.39 29.4% $2.79 - 107.5Dec-03 15,874 -3.0% 3,069.2 12.4% 747.9 24.4% 9.3% 431.5 14.1% 11.0% 270.1 8.8% 7.4% 256.7 8.4% 9.7% 28.5% 174.9 5.7% 16.7% - - $1.60 14.8% $1.60 - 109.2Dec-04 15,754 -0.8% 3,525.3 14.9% 828.3 23.5% 10.8% 486.8 13.8% 12.8% 309.1 8.8% 14.4% 308.6 8.8% 20.2% 30.0% 206.9 5.9% 18.3% - - $1.83 14.3% $2.03 - 113.0Dec-05 15,753 0.0% 4,293.8 21.8% 1,105.8 25.8% 33.5% 620.6 14.5% 27.5% 375.3 8.7% 21.4% 366.4 8.5% 18.7% 26.2% 248.4 5.8% 20.1% - - $2.16 18.2% $2.00 - 114.8Dec-06 15,252 -3.2% 4,585.4 6.8% 1,111.9 24.2% 0.6% 613.3 13.4% -1.2% 356.8 7.8% -4.9% 352.5 7.7% -3.8% 26.5% 232.8 5.1% -6.3% - - $2.01 -7.2% $2.01 - 116.0Dec-07 15,022 -1.5% 5,328.6 16.2% 1,228.5 23.1% 10.5% 705.8 13.2% 15.1% 441.2 8.3% 23.7% 446.8 8.4% 26.8% 27.2% 297.3 5.6% 27.7% - - $2.52 25.7% $2.49 - 117.8Dec-08 12,579 -16.3% 5,264.0 -1.2% 1,153.4 21.9% -6.1% 620.9 11.8% -12.0% 330.8 6.3% -25.0% 330.4 6.3% -26.1% 24.8% 232.2 4.4% -21.9% - - $1.97 -22.0% ($0.31) - 117.1Dec-09 8,558 -32.0% 3,962.0 -24.7% 821.7 20.7% -28.8% 339.0 8.6% -45.4% 78.1 2.0% -76.4% 49.5 1.2% - -11.7% 45.9 1.2% -80.3% - - $0.40 -79.9% $0.23 $0.16 116.9Dec-10 11,910 39.2% 5,652.8 42.7% 1,346.2 23.8% 63.8% 777.5 13.8% 129.4% 524.6 9.3% + 498.2 8.8% + 21.6% 371.7 6.6% + - - $3.02 + $3.08 $2.91 129.6

Q1 3,350 16.0% 1,730.4 34.5% 410.6 23.7% 35.9% 247.1 14.3% 45.2% 179.3 10.4% 68.2% 170.3 9.8% 66.5% 24.0% 124.5 7.2% 58.0% - - $1.00 54.0% $1.00 $0.96 130.2Q2 3,100 0.5% 1,818.8 27.9% 429.4 23.6% 26.3% 271.7 14.9% 34.4% 199.4 11.0% 44.9% 188.2 10.3% 40.4% 20.6% 144.1 7.9% 50.6% - - $1.12 43.9% $1.12 $0.99 128.1Q3 3,172 6.5% 1,791.8 27.0% 420.8 23.5% 24.7% 268.8 15.0% 43.7% 198.8 11.1% 61.6% 193.1 10.8% 66.9% 24.0% 141.6 7.9% 65.6% - - $1.15 62.3% $1.15 $1.04 127.9Q4 3,421 15.5% 1,773.7 15.7% 432.6 24.4% 17.9% 285.5 16.1% 30.9% 212.6 12.0% 35.1% 206.9 11.7% 41.5% 26.9% 146.1 8.2% 30.8% - - $1.19 32.3% $1.19 $1.17 127.6

Dec-11 13,043 9.5% 7,114.7 25.9% 1,693.4 23.8% 25.8% 1,073.1 15.1% 38.0% 790.1 11.1% 50.6% 758.5 10.7% 52.2% 24.0% 556.3 7.8% 49.7% - - $4.45 47.6% $4.46 $4.44 128.4

Q1E 3,564 6.4% 1,936.6 11.9% 464.8 24.0% 13.2% 298.2 15.4% 20.7% 224.7 11.6% 25.3% 220.1 11.4% 29.3% 24.5% 161.1 8.3% 29.4% - - $1.30 30.3% $1.30 $1.21 127.6Q2E 3,490 12.6% 1,962.3 7.9% 473.4 24.1% 10.2% 305.6 15.6% 12.5% 231.2 11.8% 15.9% 228.7 11.7% 21.5% 24.5% 167.1 8.5% 16.0% - - $1.34 19.5% $1.34 $1.31 127.6Q3E 3,307 4.3% 1,919.3 7.1% 459.8 24.0% 9.3% 290.0 15.1% 7.9% 217.0 11.3% 9.2% 218.3 11.4% 13.0% 24.5% 159.4 8.3% 12.6% - - $1.28 11.7% $1.28 $1.30 127.6Q4E 3,240 -5.3% 2,014.4 13.6% 494.0 24.5% 14.2% 316.7 15.7% 10.9% 240.5 11.9% 13.1% 241.7 12.0% 16.8% 24.5% 177.0 8.8% 21.1% - - $1.42 19.6% $1.42 $1.43 127.6

Dec-12E 13,600 4.3% 7,832.6 10.1% 1,892.0 24.2% 11.7% 1,210.5 15.5% 12.8% 913.4 11.7% 15.6% 908.8 11.6% 19.8% 24.5% 664.6 8.5% 19.5% - - $5.35 20.2% $5.35 $5.34 127.6January 10 Guidance: 2012 = Revenue +10-12% (+14-16% ex-FX), Operating Margin 11.5% or better, EPS $5.35-5.65

Q1E 3,585 0.6% 2,159.5 11.5% 520.5 24.1% 12.0% 330.4 15.3% 10.8% 251.5 11.6% 11.9% 253.9 11.8% 15.3% 25.0% 184.8 8.6% 14.7% - - $1.48 14.3% $1.48 - 127.6Q2E 3,598 3.1% 2,196.0 11.9% 531.8 24.2% 12.3% 338.6 15.4% 10.8% 258.4 11.8% 11.8% 263.4 12.0% 15.1% 25.0% 191.4 8.7% 14.5% - - $1.53 14.1% $1.53 - 127.6Q3E 3,539 7.0% 2,186.1 13.9% 526.5 24.1% 14.5% 334.2 15.3% 15.2% 254.3 11.6% 17.2% 263.7 12.1% 20.8% 25.0% 191.9 8.8% 20.3% - - $1.54 19.8% $1.54 - 127.6Q4E 3,678 13.5% 2,302.3 14.3% 566.0 24.6% 14.6% 363.4 15.8% 14.7% 279.7 12.1% 16.3% 289.1 12.6% 19.6% 25.0% 210.8 9.2% 19.1% - - $1.69 18.6% $1.69 - 127.6

Dec-13E 14,400 5.9% 8,843.8 12.9% 2,144.8 24.3% 13.4% 1,366.5 15.5% 12.9% 1,043.9 11.8% 14.3% 1,070.0 12.1% 17.7% 25.0% 778.8 8.8% 17.2% - - $6.24 16.7% $6.24 - 127.6

Dec-14E 15,200 5.6% 9,853.3 11.4% 2,397.2 24.3% 11.8% 1,520.2 15.4% 11.2% 1,174.1 11.9% 12.5% 1,231.0 12.5% 15.0% 25.0% 897.2 9.1% 15.2% - - $7.17 14.9% $7.17 - 127.6Dec-15E 15,500 2.0% 10,761.4 9.2% 2,624.2 24.4% 9.5% 1,655.6 15.4% 8.9% 1,291.2 12.0% 10.0% 1,386.5 12.9% 12.6% 25.0% 1,011.2 9.4% 12.7% - - $8.06 12.5% $8.06 - 127.6

*Assumed contribution margin for 2011-2015 is 24-26% 2014E represents trend EPS with stock price of: $136 (22% CAGR)* Excludes pretax loss on sale of transmission business of $61.5 million or $0.75 a share. *As of February 14.

** Gross Profit = Sales - COGS (excludes Depreciation and Amortization) New Business Growth* Shares Outstanding (Dec-11)Year Rev Chg Basic Shares 109.2

Company Guidance 2008 650 12% Options (Diluted) 1.6Q2 2011 2009 450 9% Convertible Securities 16.8

NA Production NA +9% 2010 570 14% Diluted Shares 127.6EU Production NA +2% 2011 750 13% Insiders Own: 3.8%

2012 833 12% Headquartered: Auburn Hills, MichiganRevenue NA +19-23% Inc. Haldex acq 2013 833 11%EBIT Margin NA 10.5% At least 10.5% 2011-13 2,417 12%EPS NA $3.85-4.15 * Revenue growth with flat NA build (ex-price of -2%).


Comment

Commercial Vehicle Group


Commercial Vehicle Group (CVGI - $13.00 – Outperform / Higher Risk) Target Price: $19 (6.5x 2014E EBITDA, Discounted by 20% - Median of Last Cycle Range) Current View Cyclical Recovery in North America: The North American commercial

vehicle market represents approximately 40% of the company’s revenue and is expected to grow at a 5-10% CAGR through 2014.

International Expansion: The company has recently taken steps to accelerate international expansion, investing in China and Mexico; recent wins in China with XCMG, John Deere, and Beiqi Foton have verified this strategy. Collectively, these awards represent approximately $40 million of annualized revenue when fully launched.

New Business Wins and Acquisitions: During 2007-2010, the company won numerous new business awards with both new and existing customers. Several of these awards were with foreign customers, offering the opportunity to penetrate fast-growing emerging markets. These awards/acquisitions should become more meaningful as volume rebounds, resulting in a larger, more profitable company. A meaningful portion of this business will begin to launch during 2012 ($45 million, or 6% net new business growth).

Valuation: The stock recently traded near 7.3x LTM EBITDA, elevated due to still-recovering EBITDA, above the historical median (6.5x) and peer-group average (6.0x).

Key Risks: 1) the pace of volume recovery in the North American commercial vehicle market; 2) mix issues (lower-contented Mexico and export trucks); 3) international expansion risks; 4) sustaining working capital management improvements; 5) acquisition integration risk; 6) rising raw material costs; 7) historical losses; and 8) major customers.

Target Price. Our $19 target price is based on the stock trading at 6.5 times our 2014 estimate of EBITDA, the median of the historical range.

Company Description Commercial Vehicle Group, Inc. manufactures seat systems, interior trim systems (instrument and door panels, headliners, flooring), vision safety systems (exterior mirrors, windshield wipers, switches and controls), cab structures, and wire harnesses. In addition to the North American medium- and heavy-duty truck market (40% of 2010 revenue), Commercial Vehicle Group also supplies the following markets: construction equipment (23%), marine and RV, agriculture, military, and bus (23%), and the commercial vehicle aftermarket (14%). The company employs approximately 5,430 people at 37 facilities worldwide.

Stock Chart

Source: FactSet

Revenue Profile – FY December 2010


'02 '03 '04 '05 '06 '07 '08 '09 '10 '11-2

0

2

4

6

0

10

20

30


'02 '03 '04 '05 '06 '07 '08 '09 '10 '11010

20

30

40NTM Forward P/E

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1106

12

18

24Price to Book


United States85%

Europe7%

(China7%)

Rest of World8% NA Cl. 8

40%

NA Cl. 5‐74%Europe Truck

4%Construction

15%

Other8%

Aftermarket14%

Bus/Agriculture5%

Military10%

Global Truck 48%

International 16%

PACCAR 14%

Volvo 10%

Freightliner 9%

OshkoshTruck 8%

Caterpillar 7%

Komatsu 2%Deere 2%

Other 32%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Commercial Vehicle Group, Inc. (CVGI $13.00)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Outperform

12-Month Target Price (6.5x 2014E EBITDA, Median Valuation of Last Cycle Range, Discounted by 20%): $19Last Cycle Range (2004-08) is 4.4-14.4x LTM EBITDA. Median is 6.5x.

Current Multiple = 7.3x LTM EBITDA (60th percentile), 5.8x 2012E and 4.5x 2013E.(in $ Thousands)

Hvy-Truck Bld Med-Truck Bld Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income Fully Diluted EPS (GAAP) Pro First Avg.Year (000) Chg (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg Forma Call* Shares

Dec-98 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dec-99 333 - - - 196,994 - 18,477 9.4% - 10,779 5.5% - 1,279 0.6% - (1,291) -0.7% - 35.0% (839) -0.4% - - - - - - - - Dec-00 252 -24.2% 220 - 244,963 24.4% 36,880 15.1% 99.6% 24,770 10.1% - 15,311 6.3% 1097.1% (3,416) -1.4% 164.7% -26.9% (4,334) -1.8% 416.9% - - - - - - 2,568

Dec-00PF 252 - 219 - 397,000 - - - - 39,000 9.8% - - - - - - - - - - - - - - - - - 9,337Dec-01 146 -42.1% 185 -15.7% 271,226 10.7% 41,633 15.3% 12.9% 33,196 12.2% - 19,417 7.2% 26.8% 3,057 1.1% -189.5% 165.9% (2,015) -0.7% -53.5% - - - - - - 13,893Dec-02 181 24.1% 194 4.6% 298,679 10.1% 49,496 16.6% 18.9% 34,103 11.4% - 25,543 8.6% 31.6% (40,244) -13.5% -1416.5% -13.0% (45,480) -15.2% 2157.1% ($3.25) - - - - - 13,990

Dec-03 182 0.4% 188 -2.8% 287,579 -3.7% 49,694 17.3% 0.4% 36,159 12.6% 6.0% 27,673 9.6% 8.3% 9,258 3.2% -123.0% 56.9% 3,992 1.4% -108.8% - - $0.29 + $0.43 - 13,779Dec-04 269 47.9% 225 19.5% 380,446 32.3% 70,749 18.6% 42.4% 50,116 13.2% 38.6% 42,139 11.1% 52.3% 23,930 6.3% 158.5% 27.1% 17,449 4.6% 337.1% - - $1.12 + $1.44 - 15,635Dec-05 341 26.9% 245 8.6% 754,481 98.3% 134,450 17.8% 90.0% 101,927 13.5% 103.4% 89,886 11.9% 113.3% 78,549 10.4% 228.2% 37.1% 49,411 6.5% 183.2% - - $2.51 124.5% - - 19,718Dec-06 376 10.2% 275 12.3% 922,644 22.3% 148,038 16.0% 10.1% 111,071 12.0% 9.0% 96,088 10.4% 6.9% 83,995 9.1% 6.9% 32.3% 56,887 6.2% 15.1% - - $2.63 5.0% - - 21,619Dec-07 212 -43.7% 206 -24.9% 696,786 -24.5% 76,641 11.0% -48.2% 36,140 5.2% -67.5% 19,715 2.8% -79.5% (4,836) -0.7% -105.8% 32.8% (3,251) -0.5% -105.7% - - ($0.15) -105.8% - 0.19 21,439Dec-08 206 -3.1% 158 -23.3% 763,489 9.6% 74,205 9.7% -3.2% 30,503 4.0% -15.6% 11,441 1.5% -42.0% (13,197) -1.7% 172.9% 38.0% (8,187) -1.1% - - - ($0.38) - - - 21,579Dec-09 118 -42.4% 98 -38.2% 458,569 -39.9% 9,657 2.1% -87.0% (25,201) -5.5% - (41,868) -9.1% - (60,872) -13.3% - 5.5% (57,510) -12.5% - - - ($2.64) - - (2.54) 21,809Dec-10 154 30.2% 118 20.7% 597,779 30.4% 74,797 12.5% + 28,693 4.8% + 16,956 2.8% + 4,662 0.8% + -39.1% 6,487 1.1% + - - $0.23 + - 0.17 27,026

Q1 52 48.2% 40 46.1% 182,509 24.7% 24,716 13.5% 46.3% 11,113 6.1% + 8,212 4.5% + 4,129 2.3% + 20.6% 3,277 1.8% + - - $0.12 + - 0.19 28,186Q2 61 72.0% 45 58.4% 206,776 45.3% 27,676 13.4% 55.9% 14,621 7.1% + 11,421 5.5% + 6,265 3.0% + 15.7% 5,279 2.6% + - - $0.19 + - 0.23 27,767Q3 68 69.9% 42 39.8% 216,909 43.7% 29,822 13.7% 50.1% 16,912 7.8% + 13,612 6.3% + 8,215 3.8% + 10.2% 7,376 3.4% + - - $0.26 + - 0.21 28,152Q4 75 71.0% 41 24.3% 225,828 42.9% 33,378 14.8% 64.5% 19,956 8.8% + 16,157 7.2% + 10,524 4.7% + 4.0% 10,091 4.5% + - - $0.36 + - 0.25 28,195

Dec-11 255 65.5% 167 41.3% 832,022 39.2% 115,592 13.9% 54.5% 62,602 7.5% + 49,402 5.9% + 29,133 3.5% + 10.6% 26,023 3.1% + - - $0.93 + - 0.79 28,075

Q1E 71 36.9% 44 11.2% 232,696 27.5% 34,137 14.7% 38.1% 20,408 8.8% 83.6% 16,583 7.1% + 11,333 4.9% + 20.0% 9,051 3.9% + - - $0.32 176.1% - 0.29 28,195Q2E 72 19.1% 45 0.4% 242,442 17.2% 36,673 15.1% 32.5% 23,527 9.7% 60.9% 19,702 8.1% 72.5% 14,471 6.0% + 20.0% 11,562 4.8% + - - $0.41 115.7% - 0.30 28,195Q3E 69 0.4% 45 6.4% 229,014 5.6% 33,431 14.6% 12.1% 19,851 8.7% 17.4% 16,026 7.0% 17.7% 10,815 4.7% + 20.0% 8,637 3.8% + - - $0.31 16.9% - 0.27 28,195Q4E 73 -2.5% 41 2.2% 239,392 6.0% 36,137 15.1% 8.3% 23,444 9.8% 17.5% 19,619 8.2% 21.4% 14,428 6.0% + 20.0% 11,527 4.8% + - - $0.41 14.2% - 0.29 28,195

Dec-12E 285 11.6% 175 5.0% 943,544 13.4% 140,378 14.9% 21.4% 87,229 9.2% 39.3% 71,929 7.6% 45.6% 51,047 5.4% 75.2% 20.0% 40,778 4.3% 56.7% - - $1.45 56.1% - 1.16 28,195

Q1E 71 0.1% 46 5.4% 249,059 7.0% 38,555 15.5% 12.9% 25,720 10.3% 26.0% 21,370 8.6% 28.9% 16,179 6.5% + 36.0% 10,339 4.2% + - - $0.37 14.2% - - 28,195Q2E 75 4.6% 50 10.2% 264,924 9.3% 41,731 15.8% 13.8% 27,801 10.5% 18.2% 23,451 8.9% 19.0% 18,260 6.9% 26.2% 36.0% 11,671 4.4% 0.9% - - $0.41 0.9% - - 28,195Q3E 74 7.1% 43 -3.4% 249,625 9.0% 38,068 15.3% 13.9% 25,194 10.1% 26.9% 20,844 8.4% 30.1% 15,653 6.3% 44.7% 36.0% 10,002 4.0% 15.8% - - $0.35 15.8% - - 28,195Q4E 75 2.6% 46 10.8% 257,397 7.5% 41,178 16.0% 14.0% 27,768 10.8% 18.4% 23,418 9.1% 19.4% 18,227 7.1% 26.3% 36.0% 11,650 4.5% 1.1% - - $0.41 1.1% - - 28,195

Dec-13E 295 3.6% 185 5.7% 1,021,005 8.2% 159,533 15.6% 13.6% 106,484 10.4% 22.1% 89,084 8.7% 23.8% 68,320 6.7% 33.8% 36.0% 43,662 4.3% 7.1% - - $1.55 7.1% - 1.48 28,195

Dec-14E 315 6.8% 205 10.8% 1,122,190 9.9% 182,805 16.3% 14.6% 128,408 11.4% 20.6% 109,908 9.8% 23.4% 89,145 7.9% 30.5% 36.0% 56,986 5.1% 30.5% - - $2.02 30.5% - - 28,195Dec-15E 315 0.0% 205 0.0% 1,180,556 5.2% 195,938 16.6% 7.2% 140,138 11.9% 9.1% 121,638 10.3% 10.7% 100,875 8.5% 13.2% 36.0% 64,490 5.5% 13.2% - - $2.29 13.2% - - 28,195

*Assumed contribution margin for 2011-2015 is in the range of 17-25%. 2014E represents trend EPS with stock price of: $27 (30% CAGR)*As of February 14.

EPS Sensitivity Target Price Sensitivity New Business Growth* Shares Outstanding (Dec-11)Year Downside Base Upside Percentile Multiple Downside Base Upside Year Rev. Change Basic Shares 28,0882010 $0.15 $0.23 $0.50 25th 5.7 #VALUE! $10 #VALUE! 2008 35 5% Options (Diluted) 1072011 $0.65 $0.93 $1.30 Median 6.5 #VALUE! $11 #VALUE! 2009 35 5% Convertible Securities 0

75th 8.9 #VALUE! $16 #VALUE! 2010 22 5% Diluted Shares 28,1952010 Macro Assumptions 2011 18 3% Mgt Owns: 15%

Downside Base Upside Upside/Downside to Target Price 2012 46 6% Headquartered: New Albany, OhioClass 8 139 154 170 Percentile Downside Base Upside 2013 45 5%

Class 5-7 106 118 130 25th #VALUE! -26% #VALUE! 2011-13 109 4%Const/Ag -19% -9% +1% Median #VALUE! -15% #VALUE! * Revenue growth with flat production (ex-2% price).

Euro/$ $1.33 $1.33 $1.33 75th #VALUE! 20% #VALUE!

Source for all models: company reports, Robert W. Baird & Co. estimates.© 2012 | Please refer to Appendix - Important Disclosures and Analyst Certification.

Delphi Automotive


Delphi Automotive (DLPH - $32.00 as of March 1 – Outperform / Higher Risk) Target Price: $32 (5.1x 2014E EBITDA, Discounted by 25% - Median Percentile of 1999-2005 Trading Range) Current View Repositioned business model. Since filing for bankruptcy, Delphi has

dramatically reformed its business model by divesting or exiting non-core businesses and product lines, rationalizing global headcount, and diversifying exposure to customers, end markets, and geographies.

Secular growth opportunities. Delphi’s strategic decision in 2006 to focus on market-relevant products in which the company held technical and competitive advantages has resulted in a leading portfolio of products aimed at the most significant secular opportunities in the automotive space: fuel efficiency, safety, connectivity, and growth in emerging markets.

Cyclical end-market recovery. As of December 2010, North America and Europe accounted for 75% of Delphi’s overall revenues. Collectively, these markets are expected to grow 3% annually through 2014, with growth driven by a replacing of an aged fleet and return to “trend” levels of demand (the level expected based on scrappage and population growth).

Strong free cash flow and balance sheet. Near double-digit top-line growth over the next several years, coupled with margin expansion as the company leverages this higher volume, positions Delphi to generate substantial free cash flow. We estimate free cash flow could average $1.0 billion annually through 2014, representing 25-30% annual growth.

Key risks. Key risks include: 1) the cyclicality of the global automotive and commercial vehicle industries; 2) the rate and length of growth in emerging markets; 3) changes in technology and the necessary investments needed to remain competitive; 4) future stock sales (only 7% of shares are currently trading); 5) ongoing antitrust investigations by the European Commission and U.S. Department of Justice; 6) foreign exchange risk; and 7) raw material inflation, particularly copper.

Target Price. Our $32 price target is based on 5.1 times our estimate of 2014 EBITDA, the median percentile valuation of the 1999-2005 time frame.

Company Description Delphi Automotive PLC, incorporated in Jersey with world operations headquartered in Troy, Michigan, is a leading global supplier and manufacturer of electrical and electronic, powertrain, safety and thermal technology for the global automotive and commercial vehicle industries. The company is well positioned to help OEM customers meet increasing government regulations and consumer demands for improved fuel economy, safety, and connectivity with products such as gasoline and diesel engine management systems, HVAC modules, passive safety electronics, active safety systems, and infotainment.

Stock Chart



Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb0

3

6

9

12

0

10

20

30



North America32%

Europe45%

Asia15%

South America7%

Automotive 84%

Commercial Vehicle 8%

Aftermarket 8% GM 19%

Ford 7%

Volkswagen 9%

Daimler 7%

PSA 5%Renault 5%Fiat 3%

Shanghai GM 4%Toyota 3%

Hyundai 2%

Other Automotive 26%

Volvo/Geely 2%

MD/HD Truck OEMs 8%

NA OEMs 26%

"Major" EU OEMs 28%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Delphi Automotive (DLPH $32.00)David Leiker, CFA (414) 298-7535 [email protected] March 1, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] 12-Mo. Target Price (5.1x 2014E EBITDA, Median Valuation of 1999-2005 Range, Discounted by 25%) = $32

Rating: OutperformPrior Trading Range as Public Company (1999-2005) is -16.3-26.7x LTM EBITDA. Median is 5.1x.


Lt. Vehicle Build Revenues Gross Profit EBITDA* Operating Income Pretax Income Tax Net Income GAAP First AvgYear (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg EPS Call* Shs.

Dec-93 13,843 29,327 3,573 12.2% 2,540 8.7% 1,763 6.0% 1,226 4.2% 25.0% 948 3.2% 2.04 - - 465Dec-94 15,268 10.3% 31,044 5.9% 3,963 12.8% 10.9% 2,806 9.0% 10.5% 2,084 6.7% 18.2% 1,837 5.9% 49.8% 35.1% 975 3.1% 2.8% 2.10 2.8% - - 465Dec-95 14,915 -2.3% 31,661 2.0% 4,277 13.5% 7.9% 2,911 9.2% 3.7% 2,138 6.8% 2.6% 1,899 6.0% 3.4% 33.6% 1,307 4.1% 34.1% 2.81 34.1% - - 465Dec-96 15,083 1.1% 31,032 -2.0% 3,728 12.0% -12.8% 2,283 7.4% -21.6% 1,520 4.9% -28.9% 1,055 3.4% -44.4% 24.5% 853 2.7% -34.7% 1.83 -34.7% - - 465Dec-97 15,635 3.7% 31,447 1.3% 3,737 11.9% 0.2% 2,322 7.4% 1.7% 352 1.1% -76.8% 232 0.7% -78.0% 19.0% 215 0.7% -74.8% 0.46 -74.8% - - 465

Dec-98PF 15,551 -0.5% 28,479 -9.4% 2,592 9.1% -30.6% 992 3.5% -57.3% (110) -0.4% -131.1% (154) -0.5% -166.4% 85.0% (23) -0.1% -110.7% (0.04) -108.8% (0.20) 565Dec-99 17,035 9.5% 29,192 2.5% 4,158 14.2% 60.4% 2,539 8.7% 155.8% 1,682 5.8% -1635.0% 1,721 5.9% -1217.1% 37.1% 1,083 3.7% -4790.0% 1.91 -4783.5% 1.95 - 566Dec-00 17,166 0.8% 29,139 -0.2% 4,395 15.1% 5.7% 2,680 9.2% 5.6% 1,744 6.0% 3.7% 1,718 5.9% -0.2% 36.4% 1,094 3.8% 0.9% 1.93 1.1% 1.88 - 564Dec-01 15,483 -9.8% 26,088 -10.5% 3,010 11.5% -31.5% 1,540 5.9% -42.5% 518 2.0% -70.3% 344 1.3% -79.9% 36.0% 220 0.8% -79.8% 0.39 -79.8% (0.66) - 564Dec-02 16,367 5.7% 27,427 5.1% 3,450 12.6% 14.6% 1,940 7.1% 26.0% 952 3.5% 83.8% 793 2.9% 130.2% 34.8% 517 1.9% 134.5% 0.92 134.3% 0.61 - 565

On June 30, 2005 Delphi restated annual results for 2002 and quarterly results for 2003-2004. Prior results were not restatedDec-02 16,367 5.7% 27,641 6.0% 3,334 12.1% 10.8% 1,865 6.7% 21.1% 863 3.1% 66.6% 707 2.6% 105.2% 29.3% 468 1.7% 112.3% 0.83 113.0% 0.57 - 562

Dec-03 15,873 -3.0% 28,077 2.4% 3,359 12.0% -2.6% 1,763 6.3% -9.1% 705 2.5% -25.9% 582 2.1% -26.6% 27.5% 377 1.3% -27.1% 0.67 -26.5% (0.02) - 560Dec-04 15,752 -0.8% 28,622 1.9% 2,908 10.2% -13.4% 1,309 4.6% -25.8% 119 0.4% -83.1% (35) -0.1% -106.0% 616.7% 181 0.6% -52.0% 0.32 -52.7% (8.47) 0.23 562Dec-05 15,751 0.0% 26,974 -5.8% 1,246 4.6% -57.2% (788) -2.9% - (2,171) -8.0% -1924.4% (2,371) -8.8% 6674.3% -2.3% (2,340) -8.7% -1394.0% (4.18) -1410.9% (4.45) (1.99) 560

Results after October 2005 reflect Delphi Corporation in Chapter 11 bankruptcyDec-06 15,252 -3.2% 26,392 -2.2% 976 3.7% -21.7% (3,779) -14.3% 379.6% (4,858) -18.4% 123.8% (5,294) -20.1% 123.3% -2.6% (5,467) -20.7% 133.6% (9.74) 133.1% (9.74) - 560Dec-07 15,022 -1.5% 22,283 -15.6% 1,217 5.5% 24.7% (1,031) -4.6% -72.7% (1,945) -8.7% -60.0% (2,767) -12.4% -47.7% 18.9% (2,308) -10.4% -57.8% (4.10) -57.9% (4.10) 562Dec-08 12,579 -16.3% 18,060 -19.0% 992 5.5% -18.5% (654) -3.6% -36.6% (1,481) -8.2% -23.9% 3,250 18.0% -217.5% 5.1% 3,056 16.9% -232.4% 5.60 -236.4% 5.60 546

Delphi emerges from bankruptcy August 19, 2009. Dec-09 8,558 -32.0% 11,758 -34.9% 544 4.6% -45.2% (425) -3.6% -35.0% (1,104) -9.4% -25.5% 9,074 77.2% 179.2% -3.7% 9,369 79.7% 206.6% 16.50 194.8% 16.50 568

Results after 2009 include depreciation expense in cost of sales and SG&A expense.Q1 2,887 71.9% 3,410 41.6% 562 16.5% + 423 12.4% + 324 9.5% -162.3% 320 9.4% -34.6% 26.6% 215 6.3% -59.9% 0.32 -65.5% 0.32 - 677Q2 3,084 73.9% 3,446 24.2% 543 15.8% + 404 11.7% + 297 8.6% -183.2% 295 8.6% -154.7% 21.0% 214 6.2% -122.0% 0.32 -131.0% 0.32 - 677Q3 2,978 26.9% 3,308 4.9% 502 15.2% 175.8% 311 9.4% + 206 6.2% -187.9% 206 6.2% -107.3% 30.2% 127 3.8% -102.9% 0.19 -104.1% 0.19 - 679Q4 2,962 7.3% 3,652 6.8% 441 12.1% 17.9% 223 6.1% + 113 3.1% 1515.7% 140 3.8% -98.8% 35.1% 75 2.1% -94.7% 0.11 -99.5% 0.11 - 679

Dec-10 11,910 39.2% 13,816 17.5% 2,048 14.8% 276.5% 1,361 9.8% + 940 6.8% -185.1% 960 7.0% -89.4% 26.9% 631 4.6% - 0.93 -94.4% 0.93 678

Q1 3,350 16.0% 3,997 17.2% 644 16.1% 14.6% 529 13.2% 25.1% 412 10.3% 27.2% 426 10.7% 33.1% 27.2% 291 7.3% 38.6% 0.43 35.0% 0.43 - 679Q2 3,100 0.5% 4,213 22.3% 695 16.5% 28.0% 544 12.9% 34.7% 428 10.2% 44.1% 389 9.2% 31.9% 18.8% 298 7.1% 24.3% 0.88 179.2% 0.88 - 338Q3 3,172 6.5% 3,931 18.8% 637 16.2% 26.9% 516 13.1% 66.1% 393 10.0% 91.1% 372 9.5% 80.9% 23.4% 266 6.8% 129.1% 0.79 323.6% 0.79 - 337Q4 3,421 15.5% 3,900 6.8% 679 17.4% 54.0% 530 13.6% 137.6% 411 10.5% 263.4% 341 8.7% 144.1% 8.5% 290 7.4% 1422.6% 0.88 697.6% 0.88 0.56 328

Dec-11 13,043 9.5% 16,041 16.1% 2,655 16.6% 29.6% 2,119 13.2% 55.7% 1,644 10.2% 74.9% 1,528 9.5% 59.1% 20.0% 1,145 7.1% 81.5% 2.98 220.6% 2.98 419

Q1E 3,564 6.4% 4,127 3.2% 684 16.6% 6.2% 557 13.5% 5.3% 432 10.5% 4.9% 411 10.0% -3.5% 19.0% 313 7.6% 11.9% 0.95 122.5% 0.95 0.92 328Q2E 3,490 12.6% 4,304 2.2% 715 16.6% 2.9% 572 13.3% 5.1% 447 10.4% 4.4% 425 9.9% 9.4% 19.0% 326 7.6% -8.8% 0.99 12.5% 0.99 0.98 328Q3E 3,307 4.3% 3,886 -1.1% 632 16.3% -0.7% 510 13.1% -1.1% 385 9.9% -2.0% 360 9.3% -3.2% 19.0% 272 7.0% 8.6% 0.83 4.9% 0.83 0.86 328Q4E 3,240 -5.3% 3,928 0.7% 677 17.2% -0.3% 540 13.7% 1.8% 415 10.6% 0.9% 385 9.8% 13.0% 19.0% 289 7.4% 313.6% 0.88 -0.3% 0.88 0.81 328

Dec-12E 13,600 4.3% 16,244 1.3% 2,708 16.7% 2.0% 2,179 13.4% 2.8% 1,679 10.3% 2.1% 1,582 9.7% 3.5% 19.0% 1,200 7.4% 4.8% 3.65 22.5% 3.65 3.50 328Q1 Guidance: Revenue $4.0-$4.1 billion, EPS $0.83-$0.96. 2012 Guidance: Revenue $16.2-$16.5 billion, EPS $3.44-$3.69

Dec-13E 14,400 5.9% 17,545 8.0% 3,019 17.2% 11.5% 2,498 14.2% 14.6% 1,928 11.0% 14.8% 1,842 10.5% 16.4% 19.0% 1,394 7.9% 16.2% 4.25 16.2% 4.25 328Dec-14E 15,200 5.6% 18,914 7.8% 3,327 17.6% 10.2% 2,760 14.6% 10.5% 2,160 11.4% 12.0% 2,081 11.0% 13.0% 19.0% 1,568 8.3% 12.5% 4.78 12.5% 4.78 328Dec-15E 15,500 2.0% 19,870 5.1% 3,542 17.8% 6.5% 3,014 15.2% 9.2% 2,414 12.1% 11.8% 2,343 11.8% 12.6% 20.0% 1,741 8.8% 11.1% 5.31 11.1% 5.31 328

*Gross margin contribution is in the range of 20-30% during 2011-2015 2014E represents trend EPS with stock price of: $49 (26% CAGR)*EBITDA = Operating Income (incl. Restructuring) + D&A *As of January 26.

Shares Outstanding (Dec-11) NA 32% General Motors (NA, Int'l) 12% Electrical/Electronic Architecture 41% Basic Shares 328Europe 45% Ford 7% Powertrain Systems 31% Options (Diluted) 0Asia 16% Total Detroit 3 19% Electronics/Safety 18% Convertible Securities 0South America 7% Foreign Auto 65% Thermal Systems 11% Diluted Shares 328Total 100% Total Auto 84% Total 100% Insiders Own <1%

MD/HD Truck 8% Major (>5%) Equity Shareholders: 45% Aftermarket 8% Headquartered: Troy, MichiganTotal 100%


F.D. EPS (Oper.)

Revenue Mix - Product (2011)Revenue Mix - End Market (2011)Revenue Mix - Geography (2011)

Gentex


Gentex (GNTX - $27.64 as of Feb. 28 – Outperform / Average Risk) Target Price: $35 (14.5x 2014E EBITDA, Discounted by 15% - Median Percentile of "Steady Growth" Phase from 2000-2004) Current View Secular Revenue Growth: We expect Gentex to grow revenue at a 15-

20% annual rate for the next several years, driven by the cyclical recovery in global light vehicle production (4-5% annual growth through 2015) and 10-15% organic growth above end market growth.

Incremental Revenue Drivers: We expect Gentex to grow revenue 10-15% above end market growth, driven by increasing vehicle penetration (low- and mid-priced vehicles, exterior mirrors, underpenetrated OEMs,) and increasing content (embedded technology interfaces, Rear Camera Display, SmartBeam, emerging potential for driver assistance features).

Upward Pressure on Margins: As revenue grows at a 15-20% rate, we expect the company to generate a 35-40% incremental contribution margin on fixed costs leverage, productivity gains, and value-added value-engineering activities.

Near-term, contribution margin is under pressure from increased costs associated with capacity expansions at existing facilities.

Attractive Valuation: Gentex recently traded near 12.2x LTM EBITDA, below the 14.6x median of the “steady growth” period during 2000-2004. We continue to believe that the shares will see an upward revaluation over the next several years, as revenue and earnings growth accelerate. Upside could be as high as the 15.1x multiple reached during the “rapid growth” period during 1994-1999.

Key Risks: 1) timing the pace and slope of end-market recovery; 2) adoption of auto-dimming mirrors and advanced features, especially Rear Camera Display; 3) a shift in mix between large and small vehicles; 4) raw material and component costs, primarily purchased electronics components; 5) costs associated with bringing concepts to market and winning new business; 6) major customers and vehicle programs; 7) modeling risk; 8) the automotive and competitive environment; and 9) premium valuation.

Target Price. Our $35 price target is based on 14.5 times our estimate of 2014 EBITDA, the median percentile valuation of the 2000-2004 time frame.

Company Description Gentex Corporation was founded in 1974 to manufacture residential smoke detectors. In 1982, the company introduced an automatic rear view mirror that was the first commercially successful glare-control product offered as an alternative to the conventional prism mirror. Today, Gentex operates out of five facilities in Zealand, Michigan (four automotive); automotive sales/engineering offices in Livonia, Michigan; China, France, Germany, Japan, South Korea, Sweden, and the United Kingdom; and four regional U.S. sales offices for the Fire Protection Group.

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United States33%

Germany25%

Japan8%

Other International*

34%

Automotive 98%

Fire Protection 2%

GM 12%

Ford 9%

Chrysler 5%

VW/Audi 15%

Daimler 11%BMW 9%

Toyota 12%

Hyundai/Kia 11%

Other OEMs 16% NA OEMs 29%

EU OEMs 31%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Gentex Corporation (GNTX $27.64)David Leiker, CFA (414) 298-7535 [email protected] February 28, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings Model

Jared Plotz (414) 298-7351 [email protected] Rating: Outperform12-Month Target Price (14.5x 2014E EBITDA, 50th Percentile Valuation of 2000-2004 Range, Discounted by 15%): $35

Last Cycle Range is 9.0-27.6x LTM EBITDA. Median is 14.6x.(in $ Thousands) Current Multiple = 12.2x LTM EBITDA (25th percentile), 11.4x 2012E and 9.9x 2013E.

Lt. Vehicle Build Revenue Gross Profit EBITDA Operating Income Pretax Income Tax Net Income F.D. EPS First Avg.Year (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Call* Shares

Dec-93 13,843 - 63,664 - 25,212 39.6% - 17,895 28.1% - 13,854 21.8% - 14,746 23.2% - 33.2% 9,845 15.5% - $0.07 - - 136,900Dec-94 15,268 10.3% 98,762 55.1% 38,442 38.9% 52.5% 25,955 26.3% 45.0% 22,971 23.3% 65.8% 24,669 25.0% 67.3% 33.3% 16,465 16.7% 167.2% $0.12 67.1% - 137,000Dec-95 14,915 -2.3% 111,566 13.0% 43,799 39.3% 13.9% 28,164 25.2% 8.5% 24,962 22.4% 8.7% 27,931 25.0% 13.2% 32.4% 18,895 16.9% 14.8% $0.14 14.6% - 137,162Dec-96 15,085 1.1% 148,708 33.3% 55,125 37.1% 25.9% 39,759 26.7% 41.2% 35,840 24.1% 43.6% 39,482 26.6% 41.4% 32.5% 26,663 17.9% 41.1% $0.19 36.3% - 142,049Dec-97 15,635 3.6% 186,328 25.3% 67,387 36.2% 22.2% 53,900 28.9% 35.6% 47,482 25.5% 32.5% 52,190 28.0% 32.2% 32.5% 35,231 18.9% 32.1% $0.24 30.4% - 143,939Dec-98 15,551 -0.5% 222,292 19.3% 90,391 40.7% 34.1% 74,866 33.7% 38.9% 67,343 30.3% 41.8% 74,663 33.6% 43.1% 32.6% 50,307 22.6% 42.8% $0.34 39.6% - 147,210Dec-99 17,035 9.5% 262,155 17.9% 113,335 43.2% 25.4% 95,179 36.3% 27.1% 85,522 32.6% 27.0% 96,216 36.7% 28.9% 32.6% 64,864 24.7% 28.9% $0.43 26.3% - 149,927Dec-00 17,166 0.8% 297,421 13.5% 124,953 42.0% 10.3% 101,746 34.2% 6.9% 90,412 30.4% 5.7% 104,524 35.1% 8.6% 32.5% 70,545 23.7% 8.8% $0.47 8.3% - 150,958Dec-01 15,484 -9.8% 310,305 4.3% 122,003 39.3% -2.4% 97,260 31.3% -4.4% 82,060 26.4% -9.2% 96,617 31.1% -7.6% 32.5% 65,216 21.0% -7.6% $0.43 -7.9% - 151,526Dec-02 16,369 5.7% 395,268 27.4% 159,647 40.4% 30.9% 133,829 33.9% 37.6% 115,200 29.1% 40.4% 127,072 32.1% 31.5% 32.5% 85,771 21.7% 31.5% $0.56 30.1% - 153,199Dec-03 15,874 -3.0% 469,019 18.7% 196,501 41.9% 23.1% 167,001 35.6% 24.8% 146,575 31.3% 27.2% 158,164 33.7% 24.5% 32.5% 106,761 22.8% 24.5% $0.69 23.3% - 154,715Dec-04 15,754 -0.8% 505,667 7.8% 207,745 41.1% 5.7% 171,842 34.0% 2.9% 150,066 29.7% 2.4% 165,732 32.8% 4.8% 32.0% 112,655 22.3% 5.5% $0.72 4.2% - 156,669Dec-05 15,753 0.0% 536,484 6.1% 198,641 37.0% -4.4% 160,119 29.8% -6.8% 136,296 25.4% -9.2% 159,895 29.8% -3.5% 31.5% 109,527 20.4% -2.8% $0.70 -3.1% - 157,210Dec-06 15,252 -3.2% 572,268 6.7% 199,104 34.8% 0.2% 154,210 26.9% -3.7% 126,447 22.1% -7.2% 158,973 27.8% -0.6% 31.6% 108,744 19.0% -0.7% $0.73 5.0% - 148,646Dec-07 15,022 -1.5% 653,932 14.3% 227,698 34.8% 14.4% 178,895 27.4% 16.0% 146,460 22.4% 15.8% 179,740 27.5% 13.1% 32.1% 122,131 18.7% 12.3% $0.85 15.9% - 144,059Dec-08 12,579 -16.3% 623,800 -4.6% 203,127 32.6% -10.8% 148,505 23.8% -17.0% 112,614 18.1% -23.1% 92,185 14.8% -48.7% 32.7% 62,078 10.0% -49.2% $0.44 -48.1% - 141,119Dec-09 8,558 -32.0% 544,523 -12.7% 177,555 32.6% -12.6% 132,983 24.4% -10.5% 94,618 17.4% -16.0% 96,352 17.7% 4.5% 32.9% 64,636 11.9% 4.1% $0.47 6.7% 0.32 137,659Dec-10 11,910 39.2% 816,264 49.9% 295,690 36.2% 66.5% 229,591 28.1% 72.6% 190,971 23.4% 101.8% 203,439 24.9% 111.1% 32.3% 137,733 16.9% 113.1% $0.98 108.5% 0.97 140,712

Q1 3,350 16.0% 250,946 35.1% 90,317 36.0% 31.7% 70,691 28.2% 30.2% 60,091 23.9% 34.7% 63,455 25.3% 33.1% 33.3% 42,333 16.9% 30.4% $0.29 26.4% 0.29 143,986Q2 3,100 0.5% 243,031 20.6% 85,625 35.2% 15.9% 63,947 26.3% 9.0% 53,247 21.9% 9.1% 57,748 23.8% 14.7% 33.4% 38,472 15.8% 13.0% $0.27 10.1% 0.27 144,197Q3 3,172 6.5% 269,468 30.3% 95,285 35.4% 29.2% 74,247 27.6% 30.2% 62,247 23.1% 32.5% 64,499 23.9% 28.6% 32.7% 43,397 16.1% 26.6% $0.30 23.3% 0.28 144,315Q4 3,421 15.5% 260,347 17.2% 90,354 34.7% 13.7% 66,408 25.5% 11.4% 55,783 21.4% 10.2% 58,730 22.6% 6.3% 31.1% 40,466 15.5% 9.6% $0.28 7.6% 0.30 144,806

Dec-11 13,043 9.5% 1,023,792 25.4% 361,581 35.3% 22.3% 275,293 26.9% 19.9% 231,368 22.6% 21.2% 244,432 23.9% 20.2% 32.6% 164,668 16.1% 19.6% $1.14 16.6% 1.16 144,326

Q1E 3,564 6.4% 300,745 19.8% 104,416 34.7% 15.6% 78,455 26.1% 11.0% 67,955 22.6% 13.1% 70,505 23.4% 11.1% 33.0% 47,239 15.7% 11.6% $0.33 11.0% 0.34 144,806Q2E 3,490 12.6% 292,429 20.3% 101,108 34.6% 18.1% 72,551 24.8% 13.5% 62,051 21.2% 16.5% 64,609 22.1% 11.9% 33.0% 43,288 14.8% 12.5% $0.30 12.0% 0.34 144,806Q3E 3,307 4.3% 309,315 14.8% 106,972 34.6% 12.3% 77,619 25.1% 4.5% 67,119 21.7% 7.8% 69,683 22.5% 8.0% 33.0% 46,688 15.1% 7.6% $0.32 7.2% 0.36 144,806Q4E 3,240 -5.3% 305,790 17.5% 106,262 34.8% 17.6% 75,051 24.5% 13.0% 64,551 21.1% 15.7% 67,123 22.0% 14.3% 33.0% 44,972 14.7% 11.1% $0.31 11.1% 0.37 144,806

Dec-12E 13,600 4.3% 1,208,279 18.0% 418,758 34.7% 15.8% 303,676 25.1% 10.3% 261,676 21.7% 13.1% 271,921 22.5% 11.2% 33.0% 182,187 15.1% 10.6% $1.26 10.3% 1.39 144,806

Jan. 31 Guidance: Q1 revenue +15-20%, gross margin "in the same range" as Q4 (34.7%). Q1E 3,585 0.6% 347,277 15.5% 121,865 35.1% 16.7% 90,276 26.0% 15.1% 78,776 22.7% 15.9% 81,548 23.5% 15.7% 33.0% 54,637 15.7% 15.7% $0.38 15.7% - 144,806Q2E 3,598 3.1% 339,041 15.9% 118,587 35.0% 17.3% 83,932 24.8% 15.7% 72,432 21.4% 16.7% 75,210 22.2% 16.4% 33.0% 50,391 14.9% 16.4% $0.35 16.4% - 144,806Q3E 3,539 7.0% 352,766 14.0% 123,266 34.9% 15.2% 87,669 24.9% 12.9% 76,169 21.6% 13.5% 78,954 22.4% 13.3% 33.0% 52,899 15.0% 13.3% $0.37 13.3% - 144,806Q4E 3,678 13.5% 352,691 15.3% 123,850 35.1% 16.6% 86,047 24.4% 14.7% 74,547 21.1% 15.5% 77,339 21.9% 15.2% 33.0% 51,817 14.7% 15.2% $0.36 15.2% - 144,806

Dec-13E 14,400 5.9% 1,391,774 15.2% 487,569 35.0% 16.4% 347,924 25.0% 14.6% 301,924 21.7% 15.4% 313,052 22.5% 15.1% 33.0% 209,745 15.1% 15.1% $1.45 15.1% 144,806

Dec-14E 15,200 5.6% 1,613,136 15.9% 576,114 35.7% 18.2% 409,263 25.4% 17.6% 361,263 22.4% 19.7% 373,353 23.1% 19.3% 33.0% 250,147 15.5% 19.3% $1.73 19.3% - 144,806Dec-15E 15,500 2.0% 1,857,122 15.1% 673,708 36.3% 16.9% 476,630 25.7% 16.5% 426,630 23.0% 18.1% 439,770 23.7% 17.8% 33.0% 294,646 15.9% 17.8% $2.03 17.8% - 144,806

Assumed contribution margin for 2011-15 is in the range of 35% 2014E represents trend EPS with stock price of: $45 (20% CAGR)EPS estimates include $0.04 of FAS-12R expense annually in 2006, 2007, and 2008. * As of January 31.

New Business Growth* Shares Outstanding (Dec-11)EPS Sensitivity Target Price Sensitivity Year Total % Basic Shares 143,133

Year Downside Base Upside Percentile Multiple Downside Base Upside 2008 $68,000 11% Options (Diluted) 1,6732010 $0.90 $0.98 $1.35 25th 12.3 $15 $17 $19 2009 $56,000 9% Convertible Securities 02011 $1.05 $1.14 $1.40 Median 14.5 $17 $20 $22 2010 $183,000 35% Diluted Shares 144,806

75th 17.7 $21 $24 $26 2011 $182,000 23% Insiders Own: 3% 2010 Macro Assumptions 2012 $166,000 17% Headquartered: Zeeland, MI

Downside Base Upside Upside/Downside to Target Price 2013 $144,000 12%

NA 10,700 11,910 13,100 Percentile Downside Base Upside 2011-13 $492,000 17%EU 5% 15% 25% 25th -46% -38% -33% * Revenue growth with flat NA build (ex-price of -3%).

ROW 17% 27% 37% Median -37% -28% -22%Euro/$ $1.40 $1.40 $1.40 75th -25% -14% -6%


Harman International


Harman International (HAR - $49.95 – Neutral / Higher Risk) Target Price: $49 (7.8x Cal-2014E EBITDA, Discounted by 30% - 50th Percentile Valuation of 1998-2003 range) Current View Revenue Growth Opportunities. The company is a leader in next-

generation technology for in-vehicle entertainment, evidenced by recent orders from Toyota, Fiat/Chrysler, and “entry-level” BMWs. Building on this leadership, management is targeting growth in: 1) incremental infotainment features and content; 2) mid-level infotainment systems; 3) emerging markets; and 4) professional video, where the company currently has no offering for the market.

Key Near-Term Issues. Our key near-term issue is the timing of “old” business running off and “new” business launching, with a high risk of a hiccup in margin over the next few quarters.

Margin Recovery. After arriving in July 2007, CEO Dinesh Paliwal launched an ambitious restructuring program, called STEP Change, during the first quarter of fiscal 2009 (September). The program targeted $400 million of sustainable, annualized cost savings, relative to the fiscal 2008 baseline, by the end of fiscal 2011, and achieved its goal by the end of its third quarter.

Business Model Strengths. The key strengths of the business model include: 1) strong and well-recognized brand names, including JBL, Harman Kardon, Mark Levinson, Lexicon, Infinity, and Revel; 2) a leading position in automotive branded audio, with an estimated 45% global market share; 3) a leading position in the global professional audio market; and 4) a strong balance sheet, currently in a net cash position, and good cash flow.

Key Risks. 1) new vehicle demand in Europe, 2) costs associated with new business launches, 3) volatile/weak results from the Consumer business, 4) softer-than-expected organic growth, 5) lower-than-expected STEP change savings, 6) the automotive market, 7) major customers and vehicle programs, and 8) technology adoption.

Target Price. Our $49 price target is based on 7.8x estimated calendar 2014 EBITDA, the 50th percentile valuation of 1998-2003 range.

Company Description Harman International Industries, Inc. is a leading supplier of high-fidelity audio products and electronics systems for the consumer and professional end markets. In the consumer segment, Harman sells audio and integrated multimedia systems, loudspeakers and electronics for home audio systems under several brand names including JBL, Harman Kardon, Mark Levinson, Lexicon, Infinity and Revel. In the automotive segment the company provides infotainment and branded audio systems to OEMs worldwide, though primarily to European luxury vehicle OEMs. Harman employs approximately 10,100 people throughout North America and Europe.

Stock Chart

Source: FactSet Revenue Profile – FY June 2011


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BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Harman International Industries Inc. (HAR $49.95)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings Model

Jared Plotz (414) 298-7351 [email protected] Rating: Neutral12-Month Target Price (7.8x Cal-2014E EBITDA, 50th Percentile Valuation of 1998-2003 Range, discounted at 30%): $49

Valuation Range (1994-2003) is 5.3-18.4x LTM EBITDA. Median is 11.8x.Current Multiple = 7.4x LTM EBITDA (39th percentile), 6.0x 2012E and 4.7x 2013E.

(in $ thousands)NA Lt. Veh. Build Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income F.D. EPS GAAP EPS First Avg.

Year (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg $ Chg Call* Shares

Jun-91 11,384 - - - - - - - - - - - - - - - - - - - - - - - - - Jun-92 12,225 7.4% 604,454 - 164,622 27.2% - 50,982 8.4% - 27,547 4.6% - 5,893 1.0% - 40.8% 3,487 0.6% - $0.09 - - - - 37,484Jun-93 13,265 8.5% 664,913 10.0% 190,563 28.7% 15.8% 65,628 9.9% 28.7% 41,255 6.2% 49.8% 18,570 2.8% 215.1% 39.4% 11,246 1.7% 222.5% $0.23 144.4% - - - 45,468Jun-94 14,600 10.1% 862,147 29.7% 269,162 31.2% 41.2% 99,136 11.5% 51.1% 65,584 7.6% 59.0% 41,938 4.9% 125.8% 38.7% 25,664 3.0% 128.2% $0.45 96.6% - - - 56,169Jun-95 15,247 4.4% 1,170,224 35.7% 364,081 31.1% 35.3% 132,919 11.4% 34.1% 87,175 7.4% 32.9% 60,883 5.2% 45.2% 32.3% 41,161 3.5% 60.4% $0.63 41.8% - - - 63,921Jun-96 14,825 -2.8% 1,361,595 16.4% 408,125 30.0% 12.1% 157,390 11.6% 18.4% 105,378 7.7% 20.9% 75,024 5.5% 23.2% 31.7% 50,506 3.7% 22.7% $0.77 20.9% - - - 65,896Jun-97 15,260 2.9% 1,474,094 8.3% 420,480 28.5% 3.0% 156,159 10.6% -0.8% 101,973 6.9% -3.2% 77,901 5.3% 3.8% 29.5% 54,832 3.7% 8.6% $0.73 -5.3% - - - 75,576Jun-98 15,529 1.8% 1,513,255 2.7% 406,026 26.8% -3.4% 162,839 10.8% 4.3% 100,325 6.6% -1.6% 75,707 5.0% -2.8% 28.9% 53,826 3.6% -1.8% $0.71 -1.6% - - - 75,376Jun-99 16,387 5.5% 1,500,135 -0.9% 397,735 26.5% -2.0% 171,807 11.5% 5.5% 105,027 7.0% 4.7% 80,811 5.4% 6.7% 28.7% 57,587 3.8% 7.0% $0.80 11.8% - - - 72,244Jun-00 17,527 7.0% 1,677,939 11.9% 469,336 28.0% 18.0% 186,340 11.1% 8.5% 121,722 7.3% 15.9% 102,829 6.1% 27.2% 29.1% 72,838 4.3% 26.5% $1.03 29.6% - - - 70,571Jun-01 15,993 -8.8% 1,716,547 2.3% 461,835 26.9% -1.6% 174,729 10.2% -6.2% 107,528 6.3% -11.7% 81,399 4.7% -20.8% 28.8% 57,914 3.4% -20.5% $0.87 -16.2% - - - 66,826Jun-02 15,950 -0.3% 1,826,188 6.4% 499,871 27.4% 8.2% 189,605 10.4% 8.5% 111,521 6.1% 3.7% 88,477 4.8% 8.7% 28.3% 63,413 3.5% 9.5% $0.94 8.1% $1.02 - - 67,681Jun-03 16,049 0.6% 2,228,519 22.0% 660,672 29.6% 32.2% 255,439 11.5% 34.7% 166,894 7.5% 49.7% 142,471 6.4% 61.0% 26.0% 105,428 4.7% 66.3% - - $1.55 52.4% - 68,070Jun-04 15,882 -1.0% 2,711,374 21.7% 888,592 32.8% 34.5% 360,497 13.3% 41.1% 254,465 9.4% 52.5% 227,520 8.4% 59.7% 30.6% 157,883 5.8% 49.8% - - $2.27 46.7% - 69,487Jun-05 15,525 -2.2% 3,030,889 11.8% 1,031,702 34.0% 16.1% 469,646 15.5% 30.3% 350,981 11.6% 37.9% 335,337 11.1% 47.4% 30.6% 232,848 7.7% 47.5% - - $3.31 45.7% - 70,315Jun-06 15,902 2.4% 3,247,897 7.2% 1,152,570 35.5% 11.7% 527,190 16.2% 12.3% 397,241 12.2% 13.2% 376,187 11.6% 12.2% 32.4% 255,295 7.9% 9.6% - - $3.75 13.2% - 68,130Jun-07 14,860 -6.6% 3,551,144 9.3% 1,211,206 34.1% 5.1% 517,349 14.6% -1.9% 390,187 11.0% -1.8% 386,005 10.9% 2.6% 30.3% 270,863 7.6% 6.1% - - $4.07 8.7% - 66,470Jun-08 14,111 -5.0% 4,111,983 15.8% 1,109,406 27.0% -8.4% 338,113 8.2% -34.6% 185,771 4.5% -52.4% 171,754 4.2% -55.5% 20.0% 137,844 3.4% -49.1% - - $2.22 -45.5% - 62,031Jun-09 9,091 -35.6% 2,891,022 -29.7% 683,359 23.6% -38.4% 72,963 2.5% -78.4% (74,494) -2.6% -140.1% (84,916) -2.9% -149.4% 34.4% (56,416) -2.0% -140.9% - - ($0.96) -143.1% (1.02) 58,858Jun-10 11,077 21.8% 3,394,050 17.4% 912,787 26.9% 33.6% 259,351 7.6% + 124,351 3.7% + 87,766 2.6% + 16.1% 68,306 2.0% + - - $0.97 + 0.95 70,772

Results after 2010 reflect Harman's new reporting segments Cal-2010 = $1.76Q1 2,978 26.9% 837,000 10.6% 223,600 26.7% 11.8% 67,998 8.1% 65.7% 39,841 4.8% + 32,168 3.8% + 21.6% 25,215 3.0% + - - $0.35 + 0.32 71,094Q2 2,962 7.3% 955,000 1.9% 270,763 28.4% 3.5% 103,329 10.8% 23.4% 72,900 7.6% 38.4% 64,731 6.8% 50.1% 13.0% 56,331 5.9% 98.8% - - $0.79 98.6% 0.53 71,629Q3 3,350 16.0% 948,000 11.7% 250,144 26.4% 10.1% 79,341 8.4% 14.8% 47,002 5.0% 28.7% 56,460 6.0% 93.8% 23.2% 43,377 4.6% 94.4% - - $0.60 92.6% 0.44 71,924Q4 3,100 0.5% 1,031,000 21.1% 246,950 24.0% 10.4% 66,782 6.5% 3.7% 34,443 3.3% 15.9% 27,507 2.7% 31.6% 12.3% 24,133 2.3% 13.6% - - $0.34 13.2% 0.44 71,970

Jun-11 12,390 11.8% 3,771,000 11.1% 991,457 26.3% 8.6% 317,450 8.4% 22.4% 194,186 5.1% 56.2% 180,866 4.8% 106.1% 17.6% 149,056 4.0% 118.2% - - $2.10 117.2% 2.19 71,109Contribution Margin: 5.4% (second-half of fiscal 2011) Cal-2011 = $2.46

Q1 3,172 6.5% 1,051,000 25.6% 289,344 27.5% 29.4% 103,405 9.8% 52.1% 75,905 7.2% 90.5% 65,249 6.2% 102.8% 23.6% 49,839 4.7% 97.7% - - $0.69 95.5% 0.52 71,882Q2 3,421 15.5% 1,127,000 18.0% 305,802 27.1% 12.9% 123,762 11.0% 19.8% 96,262 8.5% 32.0% 82,888 7.4% 28.0% 27.8% 59,814 5.3% 6.2% - - $0.83 4.4% 0.73 72,299

Q3E 3,564 6.4% 1,045,454 10.3% 276,728 26.5% 10.6% 96,183 9.2% 21.2% 68,683 6.6% 46.1% 62,465 6.0% 10.6% 25.0% 46,849 4.5% 8.0% - - $0.65 7.4% 0.65 72,299Q4E 3,490 12.6% 1,114,903 8.1% 287,277 25.8% 16.3% 98,486 8.8% 47.5% 70,986 6.4% 106.1% 64,111 5.8% 133.1% 25.0% 48,083 4.3% 99.2% - - $0.67 96.0% 0.69 72,299

Jun-12E 13,647 10.1% 4,338,358 15.0% 1,159,151 26.7% 16.9% 421,835 9.7% 32.9% 311,835 7.2% 60.6% 274,713 6.3% 51.9% 25.5% 204,585 4.7% 37.3% - - $2.83 35.2% 2.81 72,195Contribution Margin: 20.7% October 21 Guidance: Fiscal 2012 Rev $4.2-4.4 billion, EPS $2.75-3.00. Cal-2012 = $3.32

Q1E 3,307 4.3% 1,087,939 3.5% 308,344 28.3% 6.6% 121,356 11.2% 17.4% 96,106 8.8% 26.6% 89,005 8.2% 36.4% 28.0% 64,084 5.9% 28.6% - - $0.90 29.7% 0.75 71,283Q2E 3,240 -5.3% 1,160,758 3.0% 323,868 27.9% 5.9% 143,587 12.4% 16.0% 117,337 10.1% 21.9% 109,510 9.4% 32.1% 28.0% 78,847 6.8% 31.8% - - $1.11 33.7% 1.11 71,283Q3E 3,585 0.6% 1,127,609 7.9% 313,090 27.8% 13.1% 123,967 11.0% 28.9% 97,717 8.7% 42.3% 89,163 7.9% 42.7% 28.0% 64,197 5.7% 37.0% - - $0.90 39.0% 0.86 71,283Q4E 3,598 3.1% 1,201,709 7.8% 326,000 27.1% 13.5% 128,732 10.7% 30.7% 102,482 8.5% 44.4% 93,202 7.8% 45.4% 28.0% 67,105 5.6% 39.6% - - $0.94 41.6% 0.84 71,283

Jun-13E 13,729 0.6% 4,578,016 5.5% 1,271,301 27.8% 9.7% 518,642 11.3% 22.9% 413,642 9.0% 32.6% 380,880 8.3% 38.6% 28.0% 274,234 6.0% 34.0% - - $3.85 35.8% 3.73 71,283Contribution Margin: 42.5% October 21 Guidance: Fiscal 2013 Rev $4.55-4.80 billion, EPS $3.75-4.00. Cal-2013 = $4.27

Jun-14E 14,977 9.1% 4,991,079 9.0% 1,405,546 28.2% 10.6% 600,572 12.0% 15.8% 505,572 10.1% 22.2% 476,322 9.5% 25.1% 29.0% 338,189 6.8% 23.3% - - $4.74 23.3% - 71,283Jun-15E 15,098 0.8% 5,297,290 6.1% 1,505,065 28.4% 7.1% 655,345 12.4% 9.1% 560,345 10.6% 10.8% 544,721 10.3% 14.4% 29.0% 386,752 7.3% 14.4% - - $5.43 14.4% - 71,283

Mid-Term Target (Fiscal 2013, updated October 2011): 2014E represents trend EPS with stock price of: $82 (23% CAGR)4,675,000 $3.75-4.00

*As of February 7.EPS Sensitivity Target Price Sensitivity New Business Growth* Shares Outstanding (Dec-11)

Year Downside Base Upside Multiple Downside Base Upside Fiscal Rev. Change Basic Shares 71,463Cal-2010 $1.60 $1.76 $3.45 25th 6.7 $25 $27 $29 2008 350,000 14% Options (Diluted) 836Cal-2011 $2.15 $2.46 $4.80 Median 7.8 $28 $31 $33 2009 105,000 4% Convertible Securities 0

75th 10.6 $36 $40 $43 2010 90,000 4% Diluted Shares 72,2992010 Macro Assumptions 2011 189,000 6% Insiders Own: 1.1%

Downside Base Upside Upside/Downside to Target Price 2012 358,000 9% Headquartered: Stamford, CTNA 10,700 11,900 13,100 Percentile Downside Base Upside 2013 297,000 7% EU 5% 15% 25% 25th -46% -42% -37% 2011-13 844,000 7%

ROW 23% 33% 43% Median -39% -33% -29% * Revenue growth with flat NA build.Euro/$ $1.23 $1.33 $1.43 75th -22% -13% -7%


Johnson Controls


Johnson Controls (JCI - $33.19 – Outperform / Lower Risk) Target Price: $53 (10.5x Cal-2014E EBITDA, Discounted by 15% - Median Valuation of the S&P Industrials over the last cycle) Current View Power Solutions: In addition to a modest cyclical recovery in aftermarket volumes, the

company’s revenue growth should benefit from secular opportunities such as penetration of AGM batteries (“start-stop” hybrids) and traditional lead-acid volume in China and emerging markets. Margin expansion opportunities come from increasing sales of higher-margin AGM batteries, vertical integration, and capacity expansion in China.

Building Efficiency: Traditional non-residential end markets have begun to rebound, with the company’s backlog registering 8% year-over-year growth to an all-time high $5.3 billion during the most recent December quarter. While segment margin is expected to be challenged during the upcoming quarter – largely a function of weaker residential HVAC demand – we believe the second half will represent solid margin improvement and bring full-year results closer to management’s original October guidance (for 50 basis points of margin improvement).

Automotive Experience: We expect global light vehicle production to increase 4-5% annually over the next four years, with Johnson Controls outpacing the market due to meaningful China exposure, increasing interior content (electronic features/functionality, interior refinement and “creature comforts”). The main near-term driver of margin recovery will be improvement in Europe, currently near 1-2% EBIT margin versus the 7-8% margin in the company’s North America/Asia automotive businesses. Additional margin expansion opportunities arise from operating leverage as light vehicle production rebounds, higher-margin new business launches, and vertical integration.

Capital Reinvestment: Johnson Controls has a strong balance sheet and we expect the company to generate significant cash flow over the next several years. Management has historically deployed free cash flow to fund acquisitions, which the company views as new platforms to support continued growth. Assuming free cash flow is used towards acquisitions that generate a 15% return on capital adds $1.00 per share to our mid-term earnings estimates; presently, our model applies free cash flow to debt reduction and acquisitions would provide upside to our target price.

Valuation: The stock recently traded near 10.1x LTM EBITDA, below the 10.5x median valuation of the S&P 500 Industrials during the last cycle. We believe the stock should move near the 10.5x median valuation given financial performance/metrics that compares favorably to other S&P 500 Industrials.

Key Risks: 1) uncertainty regarding the pace and trajectory of the recovery in global light vehicle production, particularly in Europe and China; 2) the pace and recovery of residential and non-residential new construction markets (about 5-10% of total sales); 3) the automotive and new construction environment; 4) major customers; 5) automotive new business; 6) raw material prices; 7) acquisitions; and 8) post-retirement liabilities.

Price Target. Our $53 price target is based on the stock trading at 10.5 times our estimate of calendar 2014 EBITDA, the median valuation of the S&P 500 Industrials, plus per-share equity income net of minority interest valued at 12.0x earnings.

Company Description Headquartered in Milwaukee, Wisconsin, Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, Johnson Controls is a major supplier of seating and interior systems, electronics, lead-acid batteries, and advanced lithium-ion batteries for hybrid and electric vehicle applications. For non-residential facilities, JCI provides building control systems and services, energy management and integrated facility management. Johnson Controls was the 2nd largest North American supplier and the 7th largest global supplier to automotive OEMs in 2010, as ranked by Automotive News.

Stock Chart

Source: FactSet Revenue and Earnings Profile – FY September 2011


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BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Johnson Controls, Inc. (JCI $33.19)David Leiker, CFA w (414) 298-7535 w [email protected] February 24, 2012Joe Vruwink w (414) 298-5934 w [email protected] Summary Earnings ModelJared Plotz w (414) 298-7351 w [email protected] Rating: Outperform

12-Month Target Price (10.5x cal-2014E EBITDA, median valuation of S&P Industrials, plus cal-2014E equity income less minority interest at 12.0x earnings per share, discounted by 15%): $53Last Cycle Range (2000-08) is 3.9-11.8x LTM EBITDA. Median is 7.0x.

Current Multiple = 10.1x LTM EBITDA (92nd percentile), 8.7x 2012E and 6.9x 2013E.(in $ Millions)

Lt. Veh. Build Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income Fully Diluted EPS GAAP First AvgYear (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg EPS Call* Shs

Sep-95 - 6,870.5 11.1% 1,108.5 16.1% 16.9% 653.7 9.5% 18.5% 365.2 5.3% 5977.1% 326.4 4.8% 22.6% 43.0% 165.2 2.4% 19.8% $0.30 - - 532.8

RESULTS ABOVE THIS LINE HAVE NOT BEEN RESTATED TO GIVE EFFECT FOR THE SALE OF PCD

Sep-95pf 15,106 - 7,400.7 7.7% 1,164.7 15.7% 5.1% 683.6 9.2% 4.6% 395.1 5.3% 8.2% 338.3 4.6% 3.6% 42.3% 158.6 2.1% -4.0% $0.30 1.4% - 534.6Sep-96pf 15,140 0.2% 9,210.0 24.4% 1,331.7 14.5% 14.3% 741.4 8.0% 8.5% 478.9 5.2% 21.2% 421.5 4.6% 24.6% 40.8% 213.2 2.3% 34.4% $0.41 33.7% - 539.4Sep-97 15,244 0.7% 11,145.4 21.0% 1,665.8 14.9% 25.1% 958.0 8.6% 29.2% 603.1 5.4% 25.9% 501.6 4.5% 19.0% 42.5% 255.2 2.3% 19.7% $0.47 17.2% - 544.5Sep-98 15,431 1.2% 12,586.8 12.9% 1,810.6 14.4% 8.7% 1,048.2 8.3% 9.4% 664.0 5.3% 10.1% 556.9 4.4% 11.0% 41.5% 294.0 2.3% 15.2% $0.55 16.0% - 549.8Sep-99 16,900 9.5% 16,139.4 28.2% 2,323.9 14.4% 28.3% 1,300.5 8.1% 24.1% 854.9 5.3% 28.8% 715.3 4.4% 28.4% 40.5% 377.9 2.3% 28.5% $0.69 25.1% - 553.4Sep-00 17,483 3.4% 17,154.6 6.3% 2,594.5 15.1% 11.6% 1,493.3 8.7% 14.8% 1,031.5 6.0% 20.7% 922.2 5.4% 28.9% 37.6% 522.0 3.0% 38.1% $0.85 23.1% $0.96 - - 551.4Sep-01 15,615 -10.7% 18,427.2 7.4% 2,604.0 14.1% 0.4% 1,547.8 8.4% 3.6% 1,031.9 5.6% 0.0% 915.5 5.0% -0.7% 37.5% 517.9 2.8% -0.8% $0.85 0.5% $0.97 1.0% $0.85 - 545.3Sep-02 16,325 4.5% 20,103.4 9.1% 2,846.9 14.2% 9.3% 1,638.8 8.2% 5.9% 1,122.0 5.6% 8.7% 1,006.0 5.0% 9.9% 34.6% 592.8 2.9% 14.5% - - $1.08 11.5% $1.05 - 554.2Sep-03 15,856 -2.9% 22,646.0 12.6% 3,220.2 14.2% 13.1% 1,719.6 7.6% 4.9% 1,161.6 5.1% 3.5% 1,057.5 4.7% 5.1% 31.0% 675.8 3.0% 14.0% - - $1.22 13.5% $1.20 - 557.5

Results below this line are restated to adjust for discontinued operations (World Services and Engine Controls sold March 30, 2005) Cal-2003 $1.21Sep-04 15,858 0.0% 25,363.4 12.0% 3,390.1 13.4% 5.3% 1,833.7 7.2% 6.6% 1,217.1 4.8% 4.8% 1,135.0 4.5% 7.3% 28.0% 738.4 2.9% 9.3% - - $1.27 4.4% $0.83 - 577.8Sep-05 15,623 -1.5% 27,883.2 9.9% 3,531.2 12.7% 4.2% 1,944.3 7.0% 6.0% 1,312.4 4.7% 7.8% 1,240.9 4.5% 9.3% 26.1% 861.6 3.1% 16.7% - - $1.49 16.8% $1.52 - 578.3

Results include the impact of York International, acquired on December 9, 2005. Cal-2005 $1.50Sep-06 15,566 -0.4% 32,235.0 15.6% 4,429.0 13.7% 25.4% 2,154.0 6.7% 10.8% 1,463.0 4.5% 11.5% 1,299.0 4.0% 4.7% 19.8% 1,000.1 3.1% 16.1% - - $1.70 14.0% $1.75 - 589.4Sep-07 14,987 -3.7% 34,624.0 7.4% 5,076.0 14.7% 14.6% 2,527.0 7.3% 17.3% 1,795.0 5.2% 22.7% 1,607.0 4.6% 23.7% 21.0% 1,257.1 3.6% 25.7% - - $2.10 23.8% $2.29 - 598.7Sep-08 13,550 -9.6% 38,062.0 9.9% 5,526.0 14.5% 8.9% 2,744.0 7.2% 8.6% 1,961.0 5.2% 9.2% 1,819.0 4.8% 13.2% 21.0% 1,402.0 3.7% 11.5% - - $2.33 11.0% $2.33 - 601.3Sep-09 8,471 -37.5% 28,503.8 -25.1% 3,764.0 13.2% -31.9% 1,299.0 4.6% -52.7% 554.0 1.9% -71.7% 396.0 1.4% -78.2% 22.5% 320.0 1.1% -77.2% - - $0.50 -78.7% $0.50 $0.47 644.1Sep-10 11,709 38.2% 34,308.0 20.4% 5,300.0 15.4% 40.8% 2,391.0 7.0% 84.1% 1,700.0 5.0% 206.9% 1,745.0 5.1% 340.7% 17.9% 1,357.0 4.0% 324.1% - - $1.99 300.5% $1.99 $2.00 682.1

Contribution margin: 20% Cal-2010 $2.11Q1 2,962 7.3% 9,613.1 14.3% 1,414.0 14.7% 14.4% 636.0 6.6% 19.3% 467.0 4.9% 32.3% 498.0 5.2% 34.2% 19.1% 375.0 3.9% 30.2% - - $0.55 26.8% $0.55 $0.52 687.9Q2 3,350 16.0% 10,144.0 22.0% 1,474.0 14.5% 20.5% 683.3 6.7% 23.8% 496.0 4.9% 31.9% 511.0 5.0% 33.1% 17.6% 390.0 3.8% 33.6% - - $0.56 31.9% $0.56 $0.56 691.0Q3 3,100 0.5% 10,364.2 21.3% 1,550.0 15.0% 15.8% 678.0 6.5% 10.8% 485.0 4.7% 9.2% 498.0 4.8% 9.0% 17.9% 386.0 3.7% 5.2% - - $0.56 4.0% $0.56 $0.54 691.2Q4 3,172 6.5% 10,788.3 19.3% 1,738.0 16.1% 15.7% 794.0 7.4% 14.4% 610.0 5.7% 15.7% 675.0 6.3% 26.6% 18.3% 516.8 4.8% 26.0% - - $0.75 24.6% $0.75 $0.78 680.0

Sep-11 12,584 7.5% 40,909.7 19.2% 6,176.0 15.1% 16.5% 2,791.3 6.8% 16.7% 2,058.0 5.0% 21.1% 2,182.0 5.3% 25.0% 18.2% 1,667.8 4.1% 22.9% - - $2.42 21.4% $2.42 $2.44 690.6Contribution margin: 5% Cal-2011 $2.47

Q1 3,421 15.5% 10,417.2 8.4% 1,532.0 14.7% 8.3% 674.0 6.5% 6.0% 478.0 4.6% 2.4% 549.0 5.3% 10.2% 18.9% 410.0 3.9% 9.3% - - $0.60 10.0% $0.60 $0.62 689.0Q2E 3,564 6.4% 10,640.5 4.9% 1,535.6 14.4% 4.2% 652.2 6.1% -4.6% 459.2 4.3% -7.4% 489.8 4.6% -4.1% 19.0% 358.0 3.4% -8.2% - - $0.52 -8.0% $0.52 $0.70 689.3Q3E 3,490 12.6% 10,861.7 4.8% 1,695.0 15.6% 9.4% 841.2 7.7% 24.1% 648.2 6.0% 33.6% 687.7 6.3% 38.1% 19.0% 522.6 4.8% 35.4% - - $0.76 35.7% $0.76 $0.75 689.3Q4E 3,307 4.3% 11,034.8 2.3% 1,800.6 16.3% 3.6% 896.9 8.1% 13.0% 703.9 6.4% 15.4% 756.2 6.9% 12.0% 19.0% 568.7 5.2% 10.0% - - $0.83 10.3% $0.83 $0.88 689.3

Sep-12E 13,782 9.5% 42,954.2 5.0% 6,563.2 15.3% 6.3% 3,064.3 7.1% 9.8% 2,289.3 5.3% 11.2% 2,482.7 5.8% 13.8% 19.0% 1,859.3 4.3% 11.5% - - $2.70 11.7% $2.70 $2.93 689.2Contribution margin: 11% Jan. 19 Guidance: 2012 EPS=$2.70-2.85; Revenue=$43.5 billion. Q2 EPS=$0.52-0.54. Cal-2012 $2.82

Q1E 3,240 -5.3% 10,677.1 2.5% 1,598.9 15.0% 4.4% 814.0 7.6% 20.8% 607.7 5.7% 27.1% 669.3 6.3% 21.9% 20.0% 491.7 4.6% 19.9% - - $0.71 18.9% $0.71 $0.81 689.3Q2E 3,585 0.6% 11,225.2 5.5% 1,662.6 14.8% 8.3% 828.9 7.4% 27.1% 622.6 5.5% 35.6% 669.3 6.0% 36.6% 20.0% 487.0 4.3% 36.0% - - $0.71 36.0% $0.71 $0.84 689.3Q3E 3,598 3.1% 11,534.1 6.2% 1,829.4 15.9% 7.9% 965.5 8.4% 14.8% 759.3 6.6% 17.1% 816.5 7.1% 18.7% 20.0% 610.1 5.3% 16.8% - - $0.89 16.8% $0.89 $0.90 689.3Q4E 3,539 7.0% 11,910.7 7.9% 1,975.8 16.6% 9.7% 1,132.7 9.5% 26.3% 926.5 7.8% 31.6% 998.6 8.4% 32.1% 20.0% 744.2 6.2% 30.9% - - $1.08 30.9% $1.08 $1.02 689.3

Sep-13E 13,961 1.3% 45,347.2 5.6% 7,066.7 15.6% 7.7% 3,741.1 8.2% 22.1% 2,916.1 6.4% 27.4% 3,153.7 7.0% 27.0% 20.0% 2,333.0 5.1% 25.5% - - $3.38 25.5% $3.38 $3.52 689.3Cal-2013 $3.51

Sep-14E 15,154 8.5% 49,279.0 8.7% 7,878.1 16.0% 11.5% 4,430.8 9.0% 18.4% 3,555.8 7.2% 21.9% 3,837.3 7.8% 21.7% 22.5% 2,745.9 5.6% 17.7% - - $3.98 17.7% $3.98 - 689.3Sep-15E 15,417 1.7% 52,043.2 5.6% 8,372.8 16.1% 6.3% 4,897.7 9.4% 10.5% 3,972.7 7.6% 11.7% 4,301.2 8.3% 12.1% 22.5% 3,082.6 5.9% 12.3% - - $4.47 12.3% $4.47 - 689.3

* Assumed gross contribution margin for 2011-2015 is in the range of 16-20% 2014E represents trend EPS with stock price of: $69 (35% CAGR)*As of January 18.

New Business Growth* Shares Outstanding (Dec-11) Year $ % Basic Shares 679.82009 900 5% Options (Diluted) 5.62010 450 4% Equity Units 3.72011 853 5% Diluted Shares 689.12012 710 4% Insiders Own: 0.4% 2013 1,065 5% Headquartered: Milwaukee, Wisconsin2014 1,207 5%

2012-14 2,982 5%* Revenue growth with flat NA build (excludes 2% price downs in NA)* Excludes revenue in unconsolidated joint ventures


Meritor


Meritor (MTOR - $7.73 – Outperform / Higher Risk) Target Price: $12 (5.9x Cal-2014E EBITDA, Discounted by 30% - Median Valuation of Last Cycle Range)

Current View Near-Term Headwinds: Revenues look to be flat sequentially as South

America and Europe see declines in truck volumes. However, pricing actions and manufacturing rationalization undertaken by the company should aid in margin improvement sequentially (~100 bps of adjusted EBITDA margin).

Secular Business Model Improvement: Over the past five years, Meritor has transformed itself into a pure-play commercial vehicle supplier, with a globally-diversified footprint, lean cost structure, and improved product portfolio.

Cyclical Truck Volumes: The company has a diversified exposure to global on-highway truck markets, with North America, Europe, and South America each accounting for roughly one third of Truck segment revenues. While Europe and South America are expected to have flat/down volumes during 2012, North America should continue to offer solid end-market growth.

Balance Sheet Deleveraging: As end markets recover, financial performance improves and cash flow increases, we expect net debt to decline to under 2.0x EBITDA from current levels of 4.0x EBITDA (through 2014).

Valuation: The stock recently traded near 6.3x LTM EBITDA, a premium to the historical median (5.9x).

Key Risks: 1) exposure to steel (though the company has pass-through agreements covering 85% of purchases); 2) a slower-than-expected recovery in North American volumes; 3) weakness in European commercial vehicle volumes, particularly at Volvo; 4) a potential slowdown in emerging markets such China, Brazil, and India; 5) lumpiness in military awards, the near-term timing in FMTV volumes, and the associated modeling risk.

Target Price. Our $12 target price is based on 5.9x our estimate of calendar 2014 EBITDA, the median of the last cycle range, plus per-share equity income net of minority interest valued at 8.0x earnings.

Company Description Meritor, Inc., headquartered in Troy Michigan, is a global supplier of axles, undercarriages, drivelines, and brakes and braking systems to commercial truck OEMs (56% of fiscal 2011 revenue), to trailer OEMs and the global commercial vehicle aftermarket (22% of fiscal 2011 revenue), and to military and specialty vehicle OEMs, off-highway equipment manufacturers in China, and commercial truck OEMs in India (22% of fiscal 2011 revenue. Meritor employs approximately 14,100 people in 19 countries worldwide.

Stock Chart

Source: FactSet Revenue Profile – FY September 2011

Source: Company filings, Robert W. Baird & Co. estimate

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BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Meritor, Inc. (MTOR $7.73)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Outperform

12-Month Target Price (5.9x cal-2014E EBITDA, median valuation of last cycle range, plus cal-2014E equity inc less min int at 7.0x earnings per share, discounted by 30%): $12Last Cycle Range (2000-08) is 3.6-11.4x LTM EBITDA. Median is 5.9x.

(in $ Millions) Current Multiple = 6.3x LTM EBITDA (60th percentile), 5.4x 2012E and 4.6x 2013E.NA Cl. 8 Build Revenues Gross Profit ARM CVS EBITDA1 Operating Income Pretax Income Tax Net Income Fully Diluted EPS GAAP First Avg.

Year (000) Chg $ Chg $ % Chg $ % $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg EPS** Call* Shares

Sep-94 - - - - - - - - - - - - - - - - - - - - - - - - Sep-95 - - - - - - - - - - - - - - - - - - - - - - - - - - Sep-96 15,140 - 5,319 - - - - - - 308 5.8% - - - - - 144 2.7% - $1.85 - - - - - 77.8Sep-97 15,244 0.7% 5,644 6.1% - - - - - 348 6.2% 13.0% - - - - 172 3.0% 19.4% $2.30 24.2% - - - - 74.8Sep-98 258 -98.3% 6,268 11.1% 881 14.1% - - - 444 7.1% 27.6% 394 6.3% - 37.8% 236 3.8% 37.2% $3.11 35.2% - - 2.84 - 75.9Sep-99 318 23.3% 7,491 19.5% 1,052 14.0% 19.4% - - 531 7.1% 19.6% 461 6.2% 17.0% 38.0% 279 3.7% 18.2% $3.65 17.5% - - 3.75 - 76.4Sep-00 295 -7.5% 7,722 3.1% 1,050 13.6% -0.2% - - 515 6.7% -3.0% 413 5.3% -10.4% 37.3% 254 3.3% -9.0% $3.57 -2.3% - - 4.12 - 71.2Sep-01 154 -47.7% 6,805 -11.9% 733 10.8% -30.2% 119 5.4% 279 4.1% -45.8% 148 2.2% -64.3% 33.8% 91 1.3% -64.1% $1.38 -61.4% $1.68 - 0.53 1.36 66.2

Sep-02 174 12.9% 6,883 1.1% 752 10.9% 2.6% 168 7.5% 352 5.1% 26.2% 244 3.5% 65.4% 32.0% 155 2.3% 70.1% - - $2.31 37.4% 2.22 2.30 67.2

Results below are restated to reflect divestiture of Light Vehicle Aftermarket and Roll Coater businesses. Cal-2002 = $2.33Sep-03 172 -1.0% 6,723 -2.3% 591 8.8% -21.4% 180 7.4% 231 3.4% -34.4% 135 2.0% -44.7% 30.3% 89 1.3% -42.5% - - $1.32 -43.0% 1.48 - 67.7Sep-04 242 40.8% 8,033 19.5% 667 8.3% 12.9% 264 8.2% 264 3.3% 14.3% 167 2.1% 23.7% 22.7% 120 1.5% 34.7% - - $1.75 32.7% 1.85 - 68.8Sep-05 338 39.3% 8,903 10.8% 637 7.1% -4.6% 314 7.7% 249 2.8% -5.6% 154 1.7% -7.8% 25.3% 112 1.3% -6.7% - - $1.60 -8.5% 0.50 - 70.1Sep-06 364 7.9% 9,150 2.8% 631 6.9% -0.9% 321 7.5% 251 2.7% 0.8% 163 1.8% 5.8% 20.2% 118 1.3% 5.4% - - $1.69 5.8% (2.55) - 69.8

Q1-07 results are restated to reflect divestiture of Emissions Technology business. Cal-2006 = $1.70Sep-07 260 -28.6% 6,466 -29.3% 499 7.7% -21.0% 208 4.9% 125 1.9% -50.4% 56 0.9% -65.9% 5.4% 38 0.6% -68.1% - - $0.53 -68.5% (0.43) - 70.5Sep-08 206 -20.9% 7,167 10.8% 653 9.1% 31.0% 347 7.2% 226 3.2% 81.4% 178 2.5% 220.1% 26.1% 117 1.6% 210.1% - - $1.60 199.5% (1.26) - 72.1Sep-09 130 -37.0% 4,517 -37.0% 321 7.1% -50.8% 173 5.6% 18 0.4% -92.0% (55) -1.2% -130.9% -69.1% (103) -2.3% -188.3% - - ($1.42) -188.9% (14.90) (1.24) 72.6Sep-10 146 12.5% 4,584 1.5% 500 10.9% 55.8% 248 6.9% 148 3.2% - 101 2.2% -283.6% 61.8% 25 0.5% + - - $0.29 + 0.29 0.21 87.2Pro forma: 3,590 419 11.7% 248 6.9% 130 3.6% 75 2.1% 76.5% 4 0.05 Cal-2010 = $0.22

Q1 44 24.1% 971 -15.3% 104 10.7% -9.6% 62 6.4% 32 3.3% 6.7% 18 1.9% + 113.3% (6) -0.7% + - - ($0.07) + (0.07) 0.01 93.3Q2 52 48.2% 1,192 -1.2% 118 9.9% -4.8% 81 6.8% 47 3.9% 34.3% 38 3.2% + 50.0% 14 1.2% + - - $0.14 + 0.01 0.11 96.9Q3 61 72.0% 1,287 0.9% 134 10.4% -7.6% 102 7.9% 61 4.7% 35.6% 60 4.7% + 50.0% 25 1.9% + - - $0.26 + 0.26 0.29 96.8Q4 68 69.9% 1,217 27.3% 118 9.7% 1.7% 97 8.0% 52 4.3% 36.8% 49 4.0% + 16.3% 38 3.1% + - - $0.40 + 0.40 0.25 96.8

Sep-11 224 53.8% 4,667 1.8% 474 10.2% -5.2% 342 7.3% 192 4.1% - 165 3.5% + 46.9% 71 1.5% + - - $0.74 + 0.74 0.60 96.0Results after Q3-2010 exclude the Light Vehicle Systems business; Results after Q3-11 exclude the European Trailer business. Cal-2011 = $0.91

Q1 75 71.0% 1,159 19.4% 106 9.1% 1.9% 79 6.8% 41 3.5% 28.1% 35 3.0% 94.4% 57.1% 11 0.9% + - - $0.12 + 0.12 0.20 94.5Q2E 71 36.9% 1,160 -2.6% 117 10.1% -1.0% 91 7.8% 51 4.4% 7.8% 46 4.0% 21.3% 50.4% 18 1.6% + - - $0.19 + 0.19 0.30 94.5Q3E 72 19.1% 1,296 0.7% 142 11.0% 5.9% 115 8.8% 73 5.7% 20.1% 70 5.4% 16.4% 32.4% 42 3.3% 69.8% - - $0.45 73.9% 0.45 0.42 94.5Q4E 69 0.4% 1,181 -3.0% 128 10.8% 8.1% 103 8.7% 65 5.5% 25.0% 58 4.9% 18.1% 31.9% 37 3.1% -3.8% - - $0.39 -1.5% 0.39 0.39 94.5

Sep-12E 287 27.9% 4,796 2.8% 492 10.3% 3.9% 387 8.1% 230 4.8% 19.7% 209 4.4% 26.5% 40.4% 108 2.3% 52.9% - - $1.15 55.2% 1.15 1.22 94.5Fiscal 2012 Guidance: ~$4,800 $105-135 Cal-2012 = $1.28

Q1E 73 -2.5% 1,189 2.6% 124 10.4% 16.9% 89 7.5% 55 4.6% 34.2% 47 3.9% 33.0% 39.9% 24 2.0% 114.1% - - $0.25 114.1% 0.25 0.41 94.5Q2E 71 0.1% 1,235 6.4% 132 10.7% 12.8% 99 8.0% 60 4.9% 18.6% 56 4.5% 21.9% 34.4% 32 2.6% 75.6% - - $0.34 75.6% 0.34 0.56 94.5Q3E 75 4.6% 1,386 7.0% 160 11.5% 12.7% 120 8.7% 80 5.7% 8.7% 77 5.6% 10.9% 28.0% 51 3.7% 19.6% - - $0.54 19.6% 0.54 0.58 94.5Q4E 74 7.1% 1,268 7.3% 145 11.4% 13.6% 108 8.5% 71 5.6% 9.9% 66 5.2% - 30.2% 43 3.4% - - - $0.46 16.9% 0.46 0.49 94.5

Sep-13E 293 2.2% 5,078 5.9% 561 11.0% 13.9% 417 8.2% 266 5.2% 15.8% 246 4.8% 17.7% 32.3% 149 2.9% 37.6% - - $1.58 37.6% 1.58 1.76 94.5Cal-2013 = $1.66

Sep-14E 307 4.9% 5,323 4.8% 610 11.5% 8.8% 459 8.6% 301 5.7% 13.1% 286 5.4% 16.4% 29.1% 185 3.5% 23.7% - - $1.95 23.7% 1.95 - 94.5Sep-15E 316 2.8% 5,524 3.8% 650 11.8% 6.6% 491 8.9% 330 6.0% 9.5% 318 5.8% 11.2% 27.1% 212 3.8% 15.0% - - $2.25 15.0% 2.25 - 94.5

*Assumed contribution margin for 2012-2015 is in the range of 20-25% 2014E represents trend EPS with stock price of: $20 (49% CAGR)1) Adjusted net income + minority interest expense + income tax expense + interest expense + D&A - loss on sale of receivables - LVS segment EBITDA (after 2007) or LVS segment EBIT and D&A (prior to 2007) - LVA EBIT and D&A (prior to 2003) *As of February 2.

EPS Sensitivity Target Price Sensitivity ** GAAP EPS ex-accounting change. Year Downside Base Downside

Cal-2011 #DIV/0! $0.91 New Business Growth* Shares Outstanding (Sep-11)Cal-2012 #DIV/0! $1.28 Revenue Mix Fiscal $ Chg Basic Shares 96.8

North South 2008 100 4% Options (Diluted) 0.02011 Macro Assumptions Fiscal 2011 America Europe America Asia Total 2009 75 3% Convertible Securities 0.0

Downside Base Commercial Truck 41% 32% 27% 0% 56% 2010 75 5% Diluted Shares 96.8Cl 8 Build 236 256 Industrial 41% 0% 0% 59% 22% 2011 80 4% Insiders Own: 5%

Cl 5-7 Build 130 167 Aftermkt/Trailer 74% 18% 4% 4% 22% 2012 85 3% Headquartered: Troy, MichiganTrailer Build +61% +71% Total 48% 22% 16% 14% 100% 2013 125 4% EU CV Build +6% +16% 2011-13 290 4%

ROW CV Build -16% -6% * Commercial Truck revenue growthEuro/$ with flat production (ex-price of -2%).


8.2-8.6% (exit Q4 ~9.0%) $1.08-1.39

Methode Electronics


Methode Electronics (MEI - $9.74 – Neutral / Average Risk) Target Price: $9 (6.6x Cal-2014E EBITDA, Discounted by 20% - Median Valuation of Last Cycle Range) Current View Volatile Earnings: Methode has missed earnings expectations the past

two quarters due to high launch costs, new product development costs and supplier issues. These costs should continue in coming quarters, limiting earnings visibility.

Weak Near-term Revenue Opportunity: Near-term outlook lacks a revenue catalyst, with the Ford center stack award not launching until 2013. Weakening end-market demand outside the EU, particularly in Europe (which represents roughly one-third of total revenues) likely to be a headwind in 2012.

Margin Contraction: EBIT margins are running at about one-half the level seen last year (2.6% in FQ2-12 vs. 5.6% in FQ2-11), without any meaningful margin improvement expected over the next two quarters.

Valuation: The stock recently traded near 7.2x estimated CY12 EBITDA, a premium to the historical median (6.6x) and to the peer-group average (5.4x).

Key Risks: 1) exposure to the automotive industry, particularly to two large customers (Ford and GM) that account for approximately 60% of total Automotive revenue (32% of consolidated revenue); 2) volatile and lumpy results in the company’s non-automotive businesses; 3) modeling uncertainty as legacy Delphi/Ford business finished rolling off in the October 2010 quarter; 4) acquisition integration risk; 5) execution risk as new business is launched; and 6) non-automotive businesses and end markets.

Target Price. Our $9 price target is based on the stock trading at 6.6 times our estimate of calendar 2014 EBITDA, the median percentile of the last cycle range.

Company Description Methode Electronics manufactures electronic component devices for original equipment manufacturers in several industries. Methode's automotive segment is the company's largest product group, accounting for approximately 53% of sales. Products include full-engineered center stacks as well as sensors, connectors and switches (ergonomic and hidden) on steering columns, steering wheels, instrument panels and seats (occupant detection). Non-automotive products (47% of sales) include PC cards, copper interconnect devices, fiber optic connectors, field-effect switches, and remote control HMIs. Methode employs 2,743 people in 23 plants worldwide.

Stock Chart

Source: FactSet Revenue Profile – FY April 2011


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BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Methode Electronics, Inc. (MEI $9.74)David Leiker, CFA (414) 298-7535 [email protected] Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Neutral

12-Mo. Target Price (6.6x Cal-2014E EBITDA, Median Valuation of 2000-2008 Range, Discounted at 20%): $9Last Cycle Range (2000-08) is 2.3-11.4x LTM EBITDA. Median is 6.6x.

(in $ Thousands) Current Multiple = 10.9x LTM EBITDA (99th percentile), 8.5x 2012E and 5.7x 2013E.Lt. Vehicle Build Prod. Rev. Tooling Total Revenue Gross Profit EBITDA Operating Income Pretax Income Tax Net Income F.D. EPS First Avg.

Year (000) Chg $ Chg $ $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Call* Shares

Apr-93Apr-94Apr-95 15,342 - - - 261,140 69,557 26.6% 47,561 18.2% 36,953 14.2% 40,685 15.6% 36.0% 26,025 10.0% $0.75 - 34,671Apr-96 14,707 -4.1% - - - 293,053 12.2% 80,353 27.4% 15.5% 57,852 19.7% 21.6% 45,735 15.6% 23.8% 50,679 17.3% 24.6% 36.5% 32,196 11.0% 23.7% $0.92 22.7% - 34,967Apr-97 15,378 4.6% - - - 322,127 9.9% 89,924 27.9% 11.9% 67,830 21.1% 17.2% 53,162 16.5% 16.2% 59,326 18.4% 17.1% 36.4% 37,726 11.7% 17.2% $1.07 16.7% - 35,114Apr-98 15,682 2.0% - - - 355,142 10.2% 92,617 26.1% 3.0% 67,003 18.9% -1.2% 49,376 13.9% -7.1% 53,993 15.2% -9.0% 34.9% 35,123 9.9% -6.9% $1.00 -7.3% - 35,262Apr-99 15,923 1.5% - - - 357,272 0.6% 87,066 24.4% -6.0% 60,523 16.9% -9.7% 42,788 12.0% -13.3% 47,486 13.3% -12.1% 35.0% 30,857 8.6% -12.1% $0.87 -12.7% - 35,425

Results prior to April-00 are Robert W. Baird estimates for the "New" Methode.Apr-00 17,281 8.5% - - - 356,771 -0.1% 83,665 23.5% -3.9% 52,462 14.7% -13.3% 36,192 10.1% -15.4% 41,135 11.5% -13.4% 33.6% 27,098 7.6% -12.2% $0.76 -12.4% - 35,544Apr-01 16,334 -5.5% - - - 359,710 0.8% 67,928 18.9% -18.8% 39,400 11.0% -24.9% 21,792 6.1% -39.8% 26,942 7.5% -34.5% 30.5% 18,604 5.2% -31.3% $0.52 -31.8% 0.88 35,796Apr-02 15,871 -2.8% - - - 319,659 -11.1% 58,298 18.2% -14.2% 36,436 11.4% -7.5% 18,970 5.9% -12.9% 23,258 7.3% -13.7% 30.0% 16,279 5.1% -12.5% $0.45 -13.0% 0.44 36,028

As of Q1-2003, our model reflects the adoption of FAS-142, adding about $0.02 to EPS. Cal-01 $0.41Apr-03 16,266 2.5% 359,348 - 3,709 363,057 13.6% 70,131 19.3% 20.3% 48,749 13.4% 33.8% 31,468 8.7% 65.9% 31,380 8.6% 34.9% 33.4% 20,895 5.8% 28.4% $0.57 27.1% 0.57 36,390Apr-04 15,908 -2.2% 347,557 -3.3% 11,309 358,866 -1.2% 71,066 19.8% 1.3% 52,464 14.6% 7.6% 30,084 8.4% -4.4% 31,781 8.9% 1.3% 32.4% 21,481 6.0% 2.8% $0.60 3.6% 0.55 36,102Apr-05 15,521 -2.4% 375,545 8.1% 17,181 392,726 9.4% 86,108 21.9% 21.2% 57,646 14.7% 9.9% 34,923 8.9% 16.1% 37,447 9.5% 17.8% 34.5% 24,533 6.2% 14.2% $0.68 14.0% - 36,154Apr-06 15,777 1.6% 412,096 9.7% 9,519 421,615 7.4% 85,204 20.2% -1.0% 53,298 12.6% -7.5% 29,647 7.0% -15.1% 32,369 7.7% -13.6% 47.3% 17,049 4.0% -30.5% $0.47 -31.1% - 36,456Apr-07 14,984 -5.0% 444,898 8.0% 3,530 448,427 6.4% 86,485 19.3% 1.5% 56,038 12.5% 5.1% 31,218 7.0% 5.3% 35,775 8.0% 10.5% 27.4% 25,983 5.8% 52.4% $0.71 51.7% - 36,628Apr-08 14,597 -2.6% 551,073 23.9% - 551,073 22.9% 117,559 18.2% 35.9% 78,092 14.2% 39.4% 48,524 8.8% 55.4% 49,477 9.0% 38.3% 19.7% 39,754 7.2% 53.0% $1.06 49.6% - 37,451Apr-09 10,271 -29.6% 425,644 -22.8% - 425,644 -22.8% 43,870 8.7% -62.7% 18,903 4.4% -75.8% (20,534) -4.8% -142.3% (16,429) -3.9% -133.2% -21.0% (19,875) -4.7% -150.0% ($0.51) -147.6% - 37,098Apr-10 10,069 -2.0% 373,136 -12.3% - 373,136 -12.3% 67,657 18.1% 54.2% 31,520 8.4% 66.7% 8,729 2.3% + 7,816 2.1% + -76.3% 13,654 3.7% + $0.37 + (0.02) 36,778

(Includes $8 million, or $0.15 of restructuring) Cal-09 ($0.58)Q1 2,921 72.6% 98,585 9.8% - 98,585 9.8% 18,756 19.0% 22.9% 9,089 9.2% 41.5% 4,661 4.7% + 4,672 4.7% + 13.7% 4,065 4.1% + $0.11 + 0.10 37,290Q2 3,284 18.3% 106,614 8.2% - 106,614 8.2% 22,562 21.2% 28.5% 10,670 10.0% 17.4% 5,969 5.6% + 278 0.3% + 276.3% (513) -0.5% + ($0.01) + 0.06 37,058Q3 2,853 9.0% 101,263 13.6% - 101,263 13.6% 18,595 18.4% 36.3% 7,066 7.0% + 2,599 2.6% + 4,312 4.3% + -34.8% 5,883 5.8% + $0.16 + 0.10 37,408Q4 3,299 10.5% 117,838 23.1% - 117,838 23.1% 24,317 20.6% 14.7% 10,824 9.2% -8.2% 5,514 4.7% + 5,199 4.4% + -9.4% 5,910 5.0% + $0.16 + 0.11 38,128

Apr-11 12,357 22.7% 424,300 13.7% - 424,300 13.7% 84,230 19.9% 24.5% 37,649 8.9% 19.4% 18,743 4.4% + 14,461 3.4% + -4.0% 15,345 3.6% + $0.41 + 0.30 37,471(Includes $4.8 million, or $0.13 of Delphi legal fees) Cal-10 $0.69

Q1 2,962 1.4% 109,604 11.2% - 109,604 11.2% 19,980 18.2% 6.5% 6,794 6.2% -25.3% 2,218 2.0% -52.4% 1,457 1.3% -68.8% 1.5% 1,494 1.4% -63.2% $0.04 -64.1% 0.10 38,128Q2 3,612 10.0% 115,095 8.0% - 115,095 8.0% 20,123 17.5% -10.8% 6,787 5.9% -36.4% 3,045 2.6% -49.0% 2,445 2.1% + 90.8% 311 0.3% + $0.01 + 0.05 37,520

Q3E 3,128 9.6% 108,605 7.3% - 108,605 7.3% 18,684 17.2% 0.5% 7,549 7.0% 6.8% 1,851 1.7% -28.8% 1,141 1.1% -73.5% 50.0% 570 0.5% -90.3% $0.02 -90.3% 0.03 37,520Q4E 3,595 9.0% 123,963 5.2% - 123,963 5.2% 22,964 18.5% -5.6% 10,315 8.3% -4.7% 4,617 3.7% -16.3% 3,904 3.1% -24.9% 40.0% 2,342 1.9% -60.4% $0.06 -59.7% 0.08 37,520

Apr-12E 13,298 7.6% 457,267 7.8% - 457,267 7.8% 81,751 17.9% -2.9% 31,445 6.9% -16.5% 11,731 2.6% -37.4% 8,946 2.0% -38.1% 48.9% 4,717 1.0% -69.3% $0.13 -69.4% 0.16 37,672Fiscal 2012 Guidance: Revenue $450-465 million, EPS $0.13-0.21 Cal-11 $0.22

Q1E 3,262 10.1% 124,442 13.5% - 124,442 13.5% 24,295 19.5% 21.6% 10,288 8.3% 51.4% 5,380 4.3% 142.5% 5,682 4.6% 290.0% 20.0% 4,545 3.7% 204.2% $0.12 209.2% 0.12 37,520Q2E 3,694 2.3% 132,844 15.4% - 132,844 15.4% 25,521 19.2% 26.8% 10,835 8.2% 59.6% 5,926 4.5% 94.6% 6,244 4.7% 155.4% 20.0% 4,996 3.8% 1507.7% $0.13 1507.7% 0.13 37,520Q3E 3,104 -0.8% 121,732 12.1% - 121,732 12.1% 22,976 18.9% 23.0% 9,929 8.2% 31.5% 5,020 4.1% 171.3% 5,354 4.4% 369.3% 20.0% 4,283 3.5% 650.9% $0.11 650.9% 0.13 37,520Q4E 3,618 0.6% 142,864 15.2% - 142,864 15.2% 28,902 20.2% 25.9% 13,810 9.7% 33.9% 8,901 6.2% 92.8% 9,251 6.5% 137.0% 20.0% 7,400 5.2% 216.0% $0.20 216.0% 0.21 37,520

Apr-13E 13,678 2.9% 521,883 14.1% - 521,883 14.1% 101,693 19.5% 24.4% 44,862 8.6% 42.7% 25,227 4.8% 115.0% 26,531 5.1% 196.6% 20.0% 21,225 4.1% 349.9% $0.57 351.8% 0.58 37,520Fiscal 2013 Guidance: Revenue $495-525 million, EPS $0.52-0.67 Cal-12 $0.43

Apr-14E 14,834 8.4% 638,804 22.4% - 638,804 22.4% 133,734 20.9% 31.5% 63,687 10.0% 42.0% 44,302 6.9% 75.6% 46,131 7.2% 73.9% 22.0% 35,982 5.6% 69.5% $0.96 69.5% - 37,520Apr-15E 15,326 3.3% 673,830 5.5% - 673,830 5.5% 142,755 21.2% 6.7% 67,803 10.1% 6.5% 48,418 7.2% 9.3% 51,549 7.7% 11.7% 22.0% 40,208 6.0% 11.7% $1.07 11.7% - 37,520

*Assumed contribution margin for 2013-2015 is in the range of 25-35%. 2014E represents trend EPS with stock price of: $14 (10% CAGR)*As of January 29.

EPS Sensitivity Target Price Sensitivity New Business Growth (Auto)*Year Downside Base Upside Percentile Multiple Downside Base Upside Year Fisc-Rev Chg. Basic Shares 37,310

Cal-2010 #VALUE! $0.69 #VALUE! 25th 5.1 $4 $4 $5 2009 20,000 6% Options (Diluted) 210Cal-2011 $0.00 $0.22 $0.40 50th 6.6 $5 $5 $6 2010 20,000 8% Convertible Securities 0

75th 7.9 $5 $6 $7 2011 15,000 8% Total 37,5202010 Macro Assumptions 2012 14,000 6% Insiders Own 4%

Downside Base Upside Upside/Downside to Target Price 2013 27,000 10% Headquartered: Chicago, IllinoisNA LV 10,800 12,043 13,200 Percentile Downside Base Upside 2014 90,000 30%EU LV 5% 15% 25% 25th -60% -60% -50% 2012-14 131,000 16%

Int'connect 5% 10% 15% Median -50% -50% -40% * Automotive revenue growth with flat NA build (ex-price of -2%).Power -1% 4% 9% 75th -50% -40% -30%Euro/$ - - -


February 24, 2012

Shares Outstanding (Sep-11)

Modine Manufacturing


Modine Manufacturing (MOD - $9.64 – Outperform / Higher Risk) Target Price: $16 (6.6x 2014E EBITDA, Discounted by 25% - 25th Percentile of Last Cycle Range) Current View Valuation: The stock trades at 4.8x 2011 EBITDA, a discount to both the

7.7x median valuation over the last cycle and the 6.0x median valuation of a peer group of commercial vehicle companies. Closing this gap represents $3-4 per share of equity value.

Secular Business Model Improvement: Modine enters the cyclical recovery with a restructured global footprint, streamlined operations, and an improved product portfolio. Recent technology investments have the company positioned to capitalize on trends toward energy efficiency and reduced emissions.

Strong Balance Sheet: The company’s balance sheet is the strongest since the early 2000s, with net debt slightly above 1.0x LTM EBITDA. We expect the company to generate average annual cash flow in excess of $60 million over the next four years, to be used to reduce financial leverage and pursue growth opportunities, and potentially pay a dividend.

Key Risks: 1) execution risk; 2) a delayed and/or more muted recovery in global vehicular end markets; 3) rising raw material costs; 4) modeling risk related to an unpredictable tax rate; 5) risks associated with global vehicular end markets; 6) major customers/programs; 7) the roll-off of the BMW module business; and 8) post-retirement liabilities.

Target Price. Our $16 target price is based on the shares trading at 6.6x our estimate of 2014 EBITDA, the 25th percentile of the last cycle range.

Company Description Modine Manufacturing Co., headquartered in Racine, Wisconsin, is a global supplier of thermal management systems and components for several end markets, including automotive, commercial vehicle, industrial, and building markets. Modine manufactures heat-transfer products and systems including radiators, air, fuel and oil coolers, condensers and heaters, as well as air conditioning systems, and engine cooling modules. Modine employs approximately 6,800 people in 27 manufacturing facilities located in 14 countries.

Stock Chart

Source: FactSet Revenue Profile – FY March 2011


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BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Modine Manufacturing Company (MOD $9.64)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Outperform

12-Month Target Price (6.6x 2014E EBITDA, 25th Percentile of Last Cycle Range, Discounted by 25%): $16Last Cycle Range (2000-08) is 3.9-12.2x LTM EBITDA. Median is 7.7x.

Current Multiple = 4.8x LTM EBITDA (3rd percentile), 4.0x 2012E and 3.2x 2013E.(in $ thousands)

NA LV Build Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income F.D. EPS Cash EPS (Oper) GAAP FC-Comp First Avg.Year (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg $ Chg EPS EPS^ Call* Shares

Mar-92 11,905 - 526,580 - 150,609 28.6% - 70,942 13.5% - 44,094 8.4% - 41,357 7.9% - - 26,719 5.1% - $0.89 - - - $0.93 - - 29,992Mar-93 12,985 9.1% 570,839 8.4% 167,181 29.3% 11.0% 84,368 14.8% 18.9% 58,820 10.3% 33.4% 55,389 9.7% 33.9% 37.7% 34,487 6.0% 29.1% $1.14 28.3% - - $1.12 - - 30,164Mar-94 14,241 9.7% 669,553 17.3% 202,978 30.3% 21.4% 104,355 15.6% 23.7% 76,239 11.4% 29.6% 73,026 10.9% 31.8% 41.0% 43,091 6.4% 24.9% $1.41 23.4% - - $1.41 - - 30,534Mar-95 15,421 8.3% 913,010 36.4% 268,257 29.4% 32.2% 146,538 16.0% 40.4% 112,054 12.3% 47.0% 108,827 11.9% 49.0% 37.1% 68,442 7.5% 58.8% $2.24 58.8% - - $2.24 - - 30,534Mar-96 14,528 -5.8% 990,493 8.5% 255,373 25.8% -4.8% 133,931 13.5% -8.6% 94,291 9.5% -15.9% 94,140 9.5% -13.5% 38.1% 58,299 5.9% -14.8% $1.92 -14.5% - - $2.02 - - 30,416Mar-97 15,349 5.7% 999,046 0.9% 277,997 27.8% 8.9% 142,372 14.3% 6.3% 100,868 10.1% 7.0% 97,783 9.8% 3.9% 34.8% 63,763 6.4% 9.4% $2.10 9.4% - - $2.10 - - 30,420Mar-98 15,704 2.3% 1,040,418 4.1% 300,799 28.9% 8.2% 159,243 15.3% 11.8% 117,476 11.3% 16.5% 115,972 11.1% 18.6% 37.5% 72,471 7.0% 13.7% $2.39 13.9% - - $2.39 - - 30,349Mar-99 15,853 0.9% 1,111,447 6.8% 309,927 27.9% 3.0% 157,475 14.2% -1.1% 113,291 10.2% -3.6% 110,413 9.9% -4.8% 37.2% 69,343 6.2% -4.3% $2.31 -3.2% - - $2.46 - - 30,015Mar-00 17,343 9.4% 1,139,269 2.5% 317,490 27.9% 2.4% 149,418 13.1% -5.1% 99,038 8.7% -12.6% 95,331 8.4% -13.7% 31.4% 65,403 5.7% -5.7% $2.20 -4.7% - - $2.20 - - 29,713Mar-01 16,425 -5.3% 1,065,395 -6.5% 278,704 26.2% -12.2% 113,609 10.7% -24.0% 61,701 5.8% -37.7% 61,365 5.8% -35.6% 43.2% 34,886 3.3% -46.7% $1.18 -46.2% - - $1.62 - - 29,444

Results prior to Mar-02 are not restated for "pooling of interest" acquisition of Thermacore.Mar-02 15,635 -4.8% 1,074,760 0.9% 265,699 24.7% -4.7% 108,275 10.1% -4.7% 44,767 4.2% -27.4% 46,181 4.3% -24.7% 37.2% 29,007 2.7% -16.9% $0.87 -26.7% $1.01 - $0.70 - - 33,407Mar-03 16,458 5.3% 1,092,652 1.7% 274,971 25.2% 3.5% 108,325 9.9% 0.0% 53,515 4.9% 19.5% 57,271 5.2% 24.0% 37.3% 35,924 3.3% 23.8% - - $1.06 5.8% $1.02 - - 33,759Mar-04 15,861 -3.6% 1,199,799 9.8% 289,398 24.1% 5.2% 111,389 9.3% 2.8% 49,968 4.2% -6.6% 61,713 5.1% 7.8% 36.4% 39,271 3.3% 9.3% - - $1.15 8.3% $1.19 - - 34,073

Results below are restated for spin-off of Aftermarket business. Cal-03 = $1.06Mar-03 16,458 - 862,989 - 184,913 21.4% - 102,381 11.9% - 51,571 6.0% - 51,898 6.0% - 35.7% 33,388 3.9% - - - $0.99 - - - - 33,758Mar-04 15,861 -3.6% 980,675 13.6% 211,517 21.6% 14.4% 114,740 11.7% 12.1% 57,319 5.8% 11.1% 57,467 5.9% 0.3% 38.2% 35,493 3.6% 6.3% - - $1.04 5.3% - - - 34,073Mar-05 15,565 -1.9% 1,342,416 36.9% 279,840 20.8% 32.3% 164,943 12.3% 43.8% 96,449 7.2% 68.3% 97,917 7.3% 70.4% 37.0% 61,686 4.6% 73.8% - - $1.79 71.9% $1.79 - - 34,446Mar-06 15,926 2.3% 1,628,900 21.3% 309,605 19.0% 10.6% 160,814 9.9% -2.5% 89,125 5.5% -7.6% 90,539 5.6% -7.5% 32.9% 60,751 3.7% -1.5% - - $1.78 -0.7% $1.78 $1.78 1.66 34,149Mar-07 14,935 -6.2% 1,759,969 8.0% 281,966 16.0% -8.9% 110,827 6.3% -31.1% 39,723 2.3% -55.4% 36,387 2.1% -59.8% -8.2% 39,362 2.2% -35.2% - - $1.22 -31.4% $1.22 $1.22 1.60 32,246

Q1-Q3 results for fiscal 2008/2009 restated to correct foreign ops' reporting lag; Q4 results for fiscal 2008/2009 restated to correct foreign ops' reporting lag and Korean ops in disc. ops. Cal-06 = $1.78Mar-08 14,695 -1.6% 1,801,072 2.3% 263,203 14.6% -6.7% 98,082 5.4% -11.5% 17,131 1.0% -56.9% 22,160 1.2% -39.1% 2.4% 21,625 1.2% -45.1% - - $0.67 -44.8% ($1.32) $0.67 0.95 32,093Mar-09 10,772 -26.7% 1,552,960 -13.8% 198,799 12.8% -24.5% 47,654 3.1% -51.4% (24,048) -1.5% - (40,222) -2.6% - -20.5% (48,461) -3.1% - - - ($1.51) - ($1.51) ($1.51) (2.76) 32,098Mar-10 9,766 -9.3% 1,047,069 -32.6% 170,209 16.3% -14.4% 71,288 6.8% 49.6% 6,838 0.7% + (10,466) -1.0% + -93.9% (20,298) -1.9% + - - ($0.52) + ($0.52) ($0.52) (0.30) 39,402

Cal-09 = ($1.13)Q1 3,084 73.9% 345,169 47.3% 58,674 17.0% 63.6% 31,403 9.1% 173.6% 16,825 4.9% - 9,119 2.6% - 40.7% 5,404 1.6% - - - $0.12 - $0.12 $0.07 (0.08) 46,487Q2 2,978 26.9% 345,902 38.5% 57,627 16.7% 36.0% 24,916 7.2% 16.5% 11,169 3.2% - (6,750) -2.0% - -74.3% (11,762) -3.4% - - - ($0.26) - ($0.26) $0.20 0.04 46,067Q3 2,962 7.3% 360,043 31.6% 57,095 15.9% 19.7% 24,046 6.7% 10.5% 9,878 2.7% - 7,455 2.1% - 22.0% 5,818 1.6% - - - $0.12 - $0.12 $0.12 0.07 46,982Q4 3,350 16.0% 396,758 37.1% 60,075 15.1% 35.7% 21,824 5.5% 30.9% 7,825 2.0% + 13,474 3.4% + 9.4% 12,206 3.1% + - - $0.26 + $0.26 $0.26 0.16 47,055

Mar-11 12,373 26.7% 1,447,871 38.3% 233,471 16.1% 37.2% 102,189 7.1% 43.3% 45,697 3.2% - 15,598 1.1% - 74.6% 3,966 0.3% - - - $0.09 - $0.09 $0.65 0.37 46,648Cal-10 = ($0.27)

Q1 3,100 0.5% 417,864 21.1% 69,431 16.6% 18.3% 34,945 8.4% 11.3% 19,993 4.8% 18.8% 17,145 4.1% 88.0% 23.5% 13,116 3.1% 142.7% - - $0.28 140.2% $0.28 $0.28 0.23 46,980Q2 3,172 6.5% 397,290 14.9% 62,019 15.6% 7.6% 27,793 7.0% 11.5% 11,944 3.0% 6.9% 3,150 0.8% + 67.0% 1,038 0.3% + - - $0.02 + $0.02 $0.02 0.25 46,858Q3 3,421 15.5% 373,282 3.7% 59,743 16.0% 4.6% 30,434 8.2% 26.6% 16,220 4.3% 64.2% 11,660 3.1% 56.4% 31.0% 7,932 2.1% 36.3% - - $0.17 + $0.17 $0.17 0.28 46,828

Q4E 3,564 6.4% 383,827 -3.3% 61,609 16.1% 2.6% 35,721 9.3% 63.7% 18,237 4.8% 133.1% 15,292 4.0% 13.5% 25.0% 11,359 3.0% -6.9% - - $0.24 + $0.24 $0.24 0.26 46,828Mar-12E 13,257 7.1% 1,572,262 8.6% 252,802 16.1% 8.3% 128,894 8.2% 26.1% 66,394 4.2% 45.3% 47,247 3.0% 202.9% 28.7% 33,665 2.1% 748.8% - - $0.72 + $0.72 $0.72 0.83 46,874

Feb. 3: Fiscal 2012 = Revenue up 8-10% with EBIT margin of 4.1-4.5% and EPS of $0.70-0.75 Cal-11 = $0.73Q1E 3,490 12.6% 399,902 -4.3% 65,856 16.5% -5.1% 37,317 9.3% 6.8% 21,067 5.3% 5.4% 18,356 4.6% 7.1% 30.0% 12,739 3.2% -2.9% - - $0.27 -2.6% $0.27 $0.27 0.32 46,828Q2E 3,307 4.3% 385,638 -2.9% 62,662 16.2% 1.0% 34,564 9.0% 24.4% 18,314 4.7% 53.3% 15,836 4.1% 402.7% 30.0% 10,975 2.8% 957.3% - - $0.23 958.0% $0.23 $0.23 0.25 46,828Q3E 3,240 -5.3% 374,369 0.3% 60,680 16.2% 1.6% 34,206 9.1% 12.4% 17,956 4.8% 10.7% 15,711 4.2% 34.7% 30.0% 10,888 2.9% 37.3% - - $0.23 37.3% $0.23 $0.23 0.31 46,828Q4E 3,585 0.6% 405,721 5.7% 67,740 16.7% 10.0% 37,332 9.2% 4.5% 21,082 5.2% 15.6% 19,070 4.7% 24.7% 30.0% 13,239 3.3% 16.5% - - $0.28 16.5% $0.28 $0.28 0.38 46,828

Mar-13E 13,621 2.7% 1,565,631 -0.4% 256,938 16.4% 1.6% 143,419 9.2% 11.3% 78,419 5.0% 18.1% 68,973 4.4% 46.0% 30.0% 48,721 3.1% 44.7% - - $1.04 44.9% $1.04 $1.04 1.25 46,828Cal-12 = $0.98

Mar-14E 14,742 8.2% 1,705,248 8.9% 295,333 17.3% 14.9% 167,278 9.8% 16.6% 99,778 5.9% 27.2% 92,778 5.4% 34.5% 30.0% 65,385 3.8% 34.2% - - $1.40 34.2% $1.40 $1.40 - 46,828Mar-15E 15,241 3.4% 1,806,918 6.0% 320,751 17.8% 8.6% 181,040 10.0% 8.2% 113,540 6.3% 13.8% 108,754 6.0% 17.2% 30.0% 76,568 4.2% 17.1% - - $1.64 17.1% $1.64 $1.64 - 46,828

Mid-Term Targets: 18.0-20.0% 6.5-8.5% 2014E represents trend EPS with stock price of: $25 (40% CAGR)* As of February 3.

Excludes non-operating costs, charges and gains.^ Includes/excludes special items consistent with First Call consensus New Business Growth* Shares Outstanding (Dec-11)

Year Rev. Change Basic Shares 46,533EPS Sensitivity Target Price Sensitivity 2008 75,000 4% Options (Diluted) 295

Year Downside Base Upside Percentile Multiple Downside Base Upside 2009 40,000 2% Convertible Securities 02010 $0.00 10th 5.8 $7 $9 $11 2010 50,000 3% Diluted Shares 46,8282011 $0.73 $1.30 25th 6.6 $8 $10 $12 2011 50,000 5% Insiders / ESOP Own: 10%

Median 7.7 $9 $12 $14 2012 10,000 1% 2010 Macro Assumptions 2013 50,000 3% Headquartered: Racine, Wisconsin

Downside Base Upside Upside/Downside to Target Price 2011-13 110,000 3% NA LV 10,700 11,910 13,100 Percentile Downside Base Upside * Revenue growth with flat NA build ex-price of -2%. NA CV 0 0 0 25th -30% -10% 10%EU LV 5% 15% 25% Median -20% 0% 20%EU CV 26% 36% 46% 75th -10% 20% 40%Asia CV 39% 49% 59%HVAC -12% -2% 8%Euro/$ $1.39 $1.39 $1.39


Navistar International


Navistar International (NAV - $43.31 – Outperform / Higher Risk) Target Price: $62 (6.6x 2014E EBITDA, Discounted by 30% - Median of Last Cycle Range) Current View Delivering on Promises: Navistar has consistently delivered promised

performance over the past 12 months, certifying both a 13-liter and 15-liter engine as EPA 2010 compliant (with credits), producing military revenue at or above the high-end of the sustainable range, and meeting or exceeding earnings guidance and analyst expectations.

Valuation: The stock recently traded near 6.0x calendar 2011 EBITDA, a discount to the 6.6x median valuation over the last cycle and a significant discount to a peer group of global commercial vehicle OEMs.

Cyclical Recovery in North America: The North American commercial vehicle market represents approximately 60% of revenue and is expected to grow at a 5-10% CAGR through 2014.

We also expect the company to benefit from improving North American commercial vehicle aftermarket volumes.

Secular Business Model Improvement: The company has taken significant action during the recession to reduce its cost structure, expand its product lineup into new markets, expand its geographic reach outside or North America, and implement a differentiated engine strategy. Collectively, these actions are expected to result in a larger, more profitable Navistar during the current cyclical recovery.

Key Risks: 1) cyclical end markets; 2) emissions regulations; 3) fuel economy/CO2 regulations; 4) near-term engine transition; 5) major customers; 6) credit markets/availability; 7) loan portfolio performance; 8) raw material prices; 9) post-retirement liabilities; 10) union labor agreements; and 11) modeling risk.

Target Price. Our $62 target price is based on the stock trading at 6.6x our estimate of 2014 EBITDA, the median percentile of the last cycle range.

Company Description Navistar, based in Lisle, Illinois, is a major manufacturer of medium- and heavy-duty commercial trucks, buses, and military vehicles in North America. The company also produces engines for both its own vehicles and external customers in North and South America and has an in-house financing operation for retail and wholesale customers. In 2010, Navistar was the largest North American medium-duty truck and school bus OEM, third-largest North American heavy-duty truck OEM, and 10th-largest US defense contractor.

Stock Chart

Source: FactSet Revenue Profile – FY October 2011


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By Geography By End Market

North America84%

South America 9%

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Total Truck: 69%Engine: 15%

Parts: 14%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Navistar International Corp. (NAV $43.31)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Outperform

12-Month Target Price (6.6x 2014E EBITDA, Median Valuation of Last Cycle Range, Discounted at 30%): $62Last Cycle (1999-2008) Range is 3.1-11.2x LTM EBITDA. Median is 6.6x.


Class 8 Build Class 5-7 Build Revenues Gross Profit EBITDA (Mfg. Co.) Operating Income Pretax Income Tax Net Income Fully Diluted EPS GAAP First AvgYear (000) Chg (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg EPS Call* Shs.

Oct-93 181 72.5% 115 -12.8% 4,526 22.3% 607 13.4% 32.8% 144 3.2% - 75 1.7% - 68 1.5% - 39.6% 13 0.3% - - - $0.37 - $0.37 - 34.9Oct-94 222 22.2% 132 14.6% 5,178 14.4% 684 13.2% 12.7% 242 4.7% 68.1% 174 3.4% 132.0% 158 3.1% 132.4% 35.4% 74 1.4% 471.5% - - $0.94 153.8% $0.94 - 74.6Oct-95 250 12.7% 149 12.8% 6,168 19.1% 888 14.4% 29.8% 368 6.0% 52.1% 293 4.8% 68.4% 262 4.2% 65.8% 37.4% 135 2.2% 83.7% - - $1.77 88.8% $1.77 - 74.3Oct-96 201 -19.5% 160 7.7% 5,550 -10.0% 732 13.2% -17.6% 192 3.5% -47.8% 102 1.8% -65.2% 105 1.9% -59.9% 38.1% 36 0.6% -73.3% - - $0.44 -75.2% $0.44 - 73.8Oct-97 213 6.2% 194 21.4% 6,191 11.5% 917 14.8% 25.3% 344 5.6% 79.2% 247 4.0% 142.2% 242 3.9% 130.5% 38.0% 121 2.0% 236.1% - - $1.59 264.0% $1.59 - 73.6Oct-98 261 22.2% 219 12.7% 7,678 24.0% 1,214 15.8% 32.4% 581 7.6% 68.9% 458 6.0% 85.4% 410 5.3% 69.4% 27.1% 288 3.8% 138.0% - - $4.12 158.8% $4.12 - 70.0Oct-99 323 24.0% 274 25.2% 8,375 9.1% 1,549 18.5% 27.6% 745 8.9% 28.2% 619 7.4% 35.2% 591 7.1% 44.1% 8.0% 544 6.5% 88.9% - - $8.17 98.1% $8.17 - 66.4Oct-00 279 -13.8% 247 -10.0% 8,128 -2.9% 1,402 17.2% -9.5% 695 8.6% -6.7% 555 6.8% -10.3% 239 2.9% -59.6% 27.2% 174 2.1% -68.0% - - $2.74 -66.5% $2.74 - 61.5Oct-01 153 -45.1% 201 -18.7% 6,419 -21.0% 871 13.6% -37.9% 136 2.1% -80.4% (14) -0.2% -102.5% (33) -0.5% -113.8% 72.7% (9) -0.1% -105.2% - - ($0.15) -105.5% ($0.15) - 59.5Oct-02 179 17.2% 200 -0.5% 6,504 1.3% 750 11.5% -13.9% (29) -0.4% - (184) -2.8% - (227) -3.5% - 40.9% (134) -2.1% - - - ($2.23) - ($7.88) - 60.3Oct-03 173 -3.6% 189 -5.2% 7,049 8.4% 868 12.3% 15.7% 149 2.1% - (90) -1.3% - (45) -0.6% - 68.9% (14) -0.2% - - - ($0.20) - ($0.20) - 68.7Oct-04 250 44.8% 231 21.9% 9,474 34.4% 1,363 14.4% 57.0% 571 6.0% 283.2% 315 3.3% - 311 3.3% - 20.6% 247 2.6% - - - $3.08 - $3.08 - 80.1

Results above this line not adjusted for restatementsOct-05 340 35.9% 258 11.8% 11,827 24.8% 1,577 13.3% 15.7% 484 4.1% -15.2% 190 1.6% -39.7% 145 1.2% -53.4% 4.1% 139 1.2% -43.7% - - $1.90 -38.3% $1.90 - 76.3Oct-06 369 8.4% 266 3.2% 13,878 17.3% 2,175 15.7% 37.9% 805 5.8% 66.3% 488 3.5% 156.8% 395 2.8% 172.4% 23.8% 301 2.2% 116.5% - - $4.12 116.5% $4.12 - 74.5Oct-07 242 -34.4% 220 -17.5% 11,910 -14.2% 1,779 14.9% -18.2% 357 3.0% -55.7% 45 0.4% -90.8% (73) -0.6% -118.5% -64.4% (120) -1.0% -139.9% - - ($1.70) -141.2% ($1.70) - 70.3Oct-08 206 -14.8% 165 -25.0% 14,399 20.9% 2,469 17.1% 38.8% 1,113 7.7% 211.8% 780 5.4% - 586 4.1% - 9.7% 529 3.7% - - - $7.23 - $1.82 - 73.2Oct-09 123 -40.4% 99 -39.7% 11,300 -21.5% 1,898 16.8% -23.1% 537 4.8% -51.7% 247 2.2% -68.3% 264 2.3% -54.9% 12.9% 205 1.8% -61.2% - - $2.84 -60.7% $4.20 $2.91 71.5

Fiscal 2009 Actual: US/Canada Class 6-8 182k Cal-09 2.40Oct-10 148 20.6% 115 16.0% 11,922 5.5% 2,204 18.5% 16.1% 708 5.9% 31.8% 447 3.7% 80.9% 290 2.4% 10.0% 7.7% 224 1.9% 9.0% - - $3.05 7.2% $3.02 $3.06 73.1

Fiscal 2010 Actual: US/Canada Class 6-8 191k Cal-10 2.95Q1 45 31.2% 32 16.8% 2,693 -2.4% 491 18.2% -1.0% 130 4.8% -14.5% 60 2.2% -25.9% 24 0.9% -37.5% 0.0% 12 0.4% -27.7% - - $0.16 -31.4% $0.16 $0.24 75.9Q2 53 53.3% 44 65.1% 3,298 22.7% 595 18.0% 18.7% 198 6.0% 88.2% 127 3.8% + 96 2.9% + 1.6% 80 2.4% + - - $1.02 + $1.02 $1.17 78.6Q3 62 72.9% 39 37.1% 3,490 10.5% 559 16.0% -13.6% 188 5.4% -29.9% 115 3.3% -43.4% 77 2.2% -54.2% 8.4% 61 1.8% -55.4% - - $0.79 -57.2% $0.79 $1.42 76.8Q4 74 73.0% 45 39.6% 4,277 29.0% 820 19.2% 46.5% 409 9.6% 123.7% 337 7.9% 190.8% 313 7.3% + 14.7% 247 5.8% + - - $3.37 + $3.37 $3.05 73.2

Oct-11 235 58.8% 161 39.9% 13,758 15.4% 2,465 17.9% 11.8% 925 6.7% 30.6% 639 4.6% 43.0% 510 3.7% + 10.6% 400 2.9% 79.0% - - $5.28 + $5.34 $5.45 76.1Fiscal 2011 Actual: US/Canada Class 6-8 262k Cal-11 5.01

Q1E 67 48.0% 38 18.7% 2,928 8.7% 502 17.2% 2.3% 99 3.4% -23.7% 24 0.8% -59.6% 4 0.1% + 30.0% (12) -0.4% + - - ($0.17) + ($0.17) ($0.10) 70.0Q2E 71 32.5% 45 1.5% 3,614 9.6% 646 17.9% 8.7% 225 6.2% 13.7% 150 4.1% 18.2% 126 3.5% 31.8% 30.0% 71 2.0% -10.9% - - $1.02 0.1% $1.02 $1.16 70.0Q3E 69 12.1% 45 15.5% 4,014 15.0% 738 18.4% 31.9% 324 8.1% 72.3% 249 6.2% 116.5% 225 5.6% 192.8% 30.0% 147 3.6% 139.9% - - $2.07 163.3% $2.07 $1.50 70.8Q4E 76 1.6% 45 -0.2% 4,524 5.8% 870 19.2% 6.0% 393 8.7% -4.0% 318 7.0% -5.7% 300 6.6% -4.1% 30.0% 186 4.1% -24.7% - - $2.59 -23.2% $2.59 $2.93 71.8

Oct-12E 283 20.2% 174 7.5% 15,080 9.6% 2,756 18.3% 11.8% 1,041 6.9% 12.5% 741 4.9% 15.9% 655 4.3% 28.6% 30.0% 392 2.6% -2.0% - - $5.60 6.1% $5.51 $5.48 70.0Fiscal 2012 Guidance: US/Canada Class 6-8 275-310k Fiscal 2012 Guidance (updated Feb. 1): Revenue $15.0-$16.0 billion, adjusted manufacturing profit $1.00-$1.15 billion, adjusted EPS $5.00-$5.75 Cal-12 6.65

Q1E 71 7.1% 40 5.9% 3,191 9.0% 555 17.4% 10.5% 207 6.5% 108.5% 132 4.1% 444.0% 118 3.7% 3230.3% 30.0% 68 2.1% -670.7% - - $0.97 -670.7% $0.97 $0.63 70.0Q2E 77 8.9% 48 6.3% 3,960 9.6% 716 18.1% 10.7% 248 6.3% 10.6% 173 4.4% 15.9% 159 4.0% 26.3% 30.0% 95 2.4% 32.5% - - $1.35 32.5% $1.35 $1.50 70.0Q3E 72 4.3% 48 6.1% 4,339 8.1% 803 18.5% 8.8% 334 7.7% 3.2% 259 6.0% 4.1% 250 5.8% 10.7% 30.0% 163 3.8% 11.5% - - $2.33 12.9% $2.33 $2.05 70.0Q4E 76 0.1% 47 4.3% 4,827 6.7% 930 19.3% 7.0% 413 8.6% 5.1% 338 7.0% 6.3% 331 6.9% 10.4% 30.0% 208 4.3% 11.7% - - $2.97 14.6% $2.97 $3.28 70.0

Oct-13E 297 5.0% 183 5.6% 16,317 8.2% 3,003 18.4% 9.0% 1,202 7.4% 15.5% 902 5.5% 21.8% 858 5.3% 31.0% 30.0% 534 3.3% 36.2% - - $7.63 36.2% $7.63 $7.49 70.0Cal-13 7.71

Oct-14E 309 4.2% 201 9.8% 17,579 7.7% 3,256 18.5% 8.4% 1,297 7.4% 7.9% 997 5.7% 10.5% 977 5.6% 13.8% 30.0% 617 3.5% 15.6% - - $8.82 15.6% $8.82 - 70.0Oct-15E 318 3.0% 207 2.6% 18,594 5.8% 3,462 18.6% 6.4% 1,386 7.5% 6.8% 1,086 5.8% 8.9% 1,092 5.9% 11.8% 30.0% 698 3.8% 13.1% - - $9.97 13.1% $9.97 - 70.0

Assumed contribution margin for 2011-2015 in the range of 20-25% 2014E represents trend EPS with stock price of: $114 (34% CAGR)* As of February 8.

EPS Sensitivity Target Price Sensitivity Organic Growth / Share Shares Outstanding (Oct-11) Year Downside Base Upside Percentile Multiple Downside Base Upside Year $ % Basic Shares 72,500

Cal-2010 $1.55 $2.95 $5.35 25th 4.9 $18 $27 $30 2008 (100) -1% Options (Diluted) 700Cal-2011 $2.70 $5.01 $9.05 Median 6.6 $28 $40 $43 2009 200 1% Convertible Securities 0

75th 9.0 $41 $58 $62 2010 (300) -3% Diluted Shares 73,2002010 Macro Assumptions 2011 (300) -3% Insiders Own: 9.2%

Downside Base Upside Upside/Downside to Target Price 2012 300 2% Headquartered: Lisle, IllinoisNA HD 140 159 170 Percentile Downside Base Upside 2013 200 1%

NA MD 110 120 130 25th -61% -42% -35% 2011-13 200 0%ROW CV 18% 28% 38% Median -39% -14% -7%Military -28% -18% -8% 75th -11% 25% 34%Engine -54% -44% -34%Euro/$ $1.40 $1.40 $1.40


PACCAR


PACCAR (PCAR - $45.84 – Outperform / Average Risk) Target Price: $54 (8.3x 2014E EBITDA, Discounted by 20% - Median Valuation of Last Cycle Range) Current View Pull Back on Margin Concerns Creates Buying Opportunity. Investors

quickly discounted PACCAR’s strong Q4-2011 performance on comments gross margin performance would be “flat to slightly down” in 2012 versus 2011. While Europe is a headwind, we believe PACCAR has the ability to deliver solid incremental margins on the back of strong N.A. truck demand and aftermarket parts.

Cyclical Recovery in Europe, North America: The European and North American commercial vehicle markets represent more than 80% of the company’s revenue. In 2012, we expect North America Class 8 production to increase roughly 12%.

Outgrowing End Markets: Historically, PACCAR has outgrown its end markets by 5-7 percentage points over the course of a cyclical recovery, via market share gains and acquisitions/international expansion. We expect this trend to continue, driven by market share gains (DAF vocational trucks, North America medium-duty) and organic growth internationally (primarily South America).

Secular Margin Expansion: Historically, PACCAR has grown margins by 100-200 basis points over the course of a cyclical recovery. We expect this trend to continue due to an improved cost structure, engine in-sourcing in North America, higher parts revenue, and Financial Services growth.

Valuation: The stock recently traded near 7.7x LTM EBITDA, a discount to the company’s median valuation over the last cycle and a slight premium to a peer group of global commercial vehicle OEMs.

Key Risks: 1) Cyclical end markets, 2) commodity prices, 3) credit markets and credit availability, 4) loan portfolio performance, 5) post-retirement liabilities, 6) foreign exchange, 7) premium market position, 8) the EPA 2010 emissions regulation and GHG emissions/fuel economy regulations, and 9) major shareholders.

Target Price. Our $54 target price is based on 8.3x our estimate of 2014 EBITDA, the median percentile of the valuation range over the last cycle.

Company Description PACCAR Inc., headquartered in Bellevue, WA, was incorporated in 1924. The company can trace its roots back to the Seattle Car Manufacturing Company, formed in 1905. PACCAR is a leader in the design and manufacture of medium- and heavy-duty trucks marketed under the Kenworth, Peterbilt, and DAF nameplates. The company's trucks are used for both over-the-road and off-highway hauling of freight and other goods. In addition, PACCAR provides financing and leasing to its customers and dealers through its wholly-owned finance subsidiaries. The company employs approximately 17,700 and has 12 manufacturing/assembly facilities in seven countries

Stock Chart



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Europe31%

RoW15%

Heavy Truck 70%

Medium Truck 8%

Aftermarket Parts 16%

Financial Services 6%

Commercial Truck 80%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 PACCAR Inc. (PCAR $45.84)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Outperform

12-Month Target Price (8.3x 2014E EBITDA, Median Valuation of Last Cycle Range, Discounted at 20%): $54Last Cycle (1999-2008) Range is 5.1-14.5x LTM EBITDA. Median is 8.3x.

Current Multiple = 7.7x LTM EBITDA (32nd percentile), 6.9x 2012E and 6.0x 2013E.(in $ Millions)

Class 8 Build Class 5-7 Build Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income F.D. EPS GAAP First AvgYear (000) Chg (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg EPS Call* Shs.

Dec-93 188 34.5% 119 12.3% 3,390.5 30.5% 471.0 13.9% 32.2% 195.6 5.8% 98.0% 162.5 4.8% 132.5% 219.8 6.5% 95.2% 35.3% 142.2 4.2% 65.0% $0.36 65.0% $0.36 - 393.9Dec-94 228 21.3% 134 12.4% 4,294.2 26.7% 636.2 14.8% 35.1% 298.8 7.0% 52.8% 257.7 6.0% 58.6% 320.1 7.5% 45.6% 36.1% 204.5 4.8% 43.8% $0.52 43.8% $0.52 - 393.9Dec-95 248 8.8% 146 8.5% 4,590.7 6.9% 677.0 14.7% 6.4% 351.5 7.7% 17.6% 305.4 6.7% 18.5% 399.6 8.7% 24.8% 36.7% 252.8 5.5% 23.6% $0.64 23.6% $0.64 - 393.9Dec-96 194 -21.5% 165 13.2% 4,331.8 -5.6% 641.5 14.8% -5.2% 273.7 6.3% -22.1% 218.7 5.0% -28.4% 312.9 7.2% -21.7% 35.8% 201.0 4.6% -20.5% $0.51 -20.5% $0.51 - 393.9Dec-97 224 15.2% 199 20.7% 6,479.4 49.6% 1,014.1 15.7% 58.1% 468.9 7.2% 71.3% 394.6 6.1% 80.4% 534.7 8.3% 70.9% 35.6% 344.6 5.3% 71.4% $0.87 70.6% $0.87 - 395.9Dec-98 267 19.1% 230 15.4% 7,577.7 17.0% 1,265.7 16.7% 24.8% 658.1 8.7% 40.3% 566.4 7.5% 43.5% 653.1 8.6% 22.1% 36.2% 416.8 5.5% 21.0% $1.05 20.2% $1.05 - 398.5Dec-99 333 24.7% 279 21.5% 8,648.2 14.1% 1,490.8 17.2% 17.8% 890.5 10.3% 35.3% 783.3 9.1% 38.3% 923.2 10.7% 41.4% 36.8% 583.6 6.7% 40.0% $1.46 40.0% $1.46 - 398.6Dec-00 252 -24.2% 231 -17.2% 7,437.0 -14.0% 1,042.2 14.0% -30.1% 643.2 8.6% -27.8% 544.4 7.3% -30.5% 665.1 8.9% -28.0% 33.6% 441.8 5.9% -24.3% $1.14 -22.3% $1.14 - 388.3Dec-01 146 -42.1% 197 -14.8% 5,641.7 -24.1% 636.6 11.3% -38.9% 303.0 5.4% -52.9% 195.5 3.5% -64.1% 255.3 4.5% -61.6% 32.0% 173.6 3.1% -60.7% $0.45 -60.8% $0.45 - 389.5Dec-02 181 24.1% 202 2.8% 6,786.0 20.3% 894.8 13.2% 40.6% 602.3 8.9% 98.8% 484.3 7.1% 147.7% 574.1 8.5% 124.9% 35.2% 372.0 5.5% 114.3% $0.95 112.4% $0.95 - 392.9Dec-03 182 0.4% 197 -2.7% 7,721.1 13.8% 1,070.2 13.9% 19.6% 760.2 9.8% 26.2% 644.1 8.3% 33.0% 805.5 10.4% 40.3% 34.6% 526.5 6.8% 41.5% $1.33 40.3% $1.33 - 396.2Dec-04 269 48.0% 235 19.6% 10,833.7 40.3% 1,668.3 15.4% 55.9% 1,296.7 12.0% 70.6% 1,174.7 10.8% 82.4% 1,368.2 12.6% 69.9% 33.7% 906.8 8.4% 72.2% $2.29 72.6% $2.29 - 395.4Dec-05 339 26.0% 253 7.6% 13,298.4 22.8% 2,075.7 15.6% 24.4% 1,661.3 12.5% 28.1% 1,528.0 11.5% 30.1% 1,773.6 13.3% 29.6% 36.1% 1,133.2 8.5% 25.0% $2.92 27.1% $2.92 - 388.7Dec-06 376 11.0% 275 8.6% 15,503.3 16.6% 2,466.7 15.9% 18.8% 2,009.7 13.0% 21.0% 1,846.3 11.9% 20.8% 2,175.3 14.0% 22.6% 31.2% 1,496.0 9.6% 32.0% $3.97 36.0% $3.97 - 377.2Dec-07 212 -43.6% 206 -24.9% 14,030.4 -9.5% 2,113.1 15.1% -14.3% 1,562.6 11.1% -22.2% 1,366.2 9.7% -26.0% 1,764.3 12.6% -18.9% 30.4% 1,227.3 8.7% -18.0% $3.29 -17.1% $3.29 - 373.3Dec-08 205 -3.4% 158 -23.6% 13,709.6 -2.3% 1,972.7 14.4% -6.6% 1,387.2 10.1% -11.2% 1,160.7 8.5% -15.0% 1,464.0 10.7% -17.0% 30.5% 1,017.9 7.4% -17.1% $2.78 -15.4% $2.78 - 365.9Dec-09 118 -42.3% 98 -38.0% 7,076.7 -48.4% 593.3 8.4% -69.9% 233.7 3.3% -83.2% 45.7 0.6% -96.1% 175.0 2.5% -88.0% 35.8% 112.3 1.6% -89.0% $0.31 -88.9% $0.31 $0.23 364.7Dec-10 154 30.2% 118 20.6% 9,324.9 31.8% 1,126.3 12.1% 89.8% 684.9 7.3% 193.1% 495.0 5.3% + 660.3 7.1% + 30.7% 457.6 4.9% + $1.25 + $1.25 $1.25 366.1

Q1 52 48.2% 40 46.1% 3,042.6 53.3% 410.3 13.5% 89.5% 279.1 9.2% 141.2% 232.0 7.6% + 286.3 9.4% 198.2% 32.5% 193.3 6.4% 183.0% $0.53 181.6% $0.53 $0.49 367.2Q2 61 72.0% 45 58.4% 3,702.7 66.4% 471.6 12.7% 74.7% 335.6 9.1% 110.0% 285.5 7.7% 150.0% 353.2 9.5% 137.7% 32.1% 239.7 6.5% 140.7% $0.65 139.9% $0.65 $0.69 367.2Q3 68 69.9% 42 40.7% 3,993.0 73.3% 509.0 12.7% 78.6% 375.1 9.4% 109.2% 325.9 8.2% 149.2% 394.7 9.9% 123.2% 28.7% 281.6 7.1% 134.9% $0.77 136.1% $0.77 $0.70 364.2Q4 75 71.0% 41 24.3% 4,587.6 63.2% 593.2 12.9% 67.1% 449.7 9.8% 95.4% 399.6 8.7% 119.1% 472.7 10.3% 97.9% 30.7% 327.7 7.1% 93.0% $0.91 97.2% $0.91 $0.79 359.1

Dec-11 255 65.5% 167 41.5% 15,325.9 64.4% 1,984.1 12.9% 76.2% 1,439.5 9.4% 110.2% 1,243.0 8.1% 151.1% 1,506.9 9.8% 128.2% 30.8% 1,042.3 6.8% 127.8% $2.86 128.8% $2.86 $2.62 364.4

Q1E 71 36.9% 44 11.2% 3,833.8 26.0% 489.0 12.8% 19.2% 346.0 9.0% 24.0% 293.5 7.7% 26.5% 356.7 9.3% 24.6% 30.0% 249.7 6.5% 29.2% $0.70 32.1% $0.70 $0.73 359.1Q2E 72 19.1% 45 0.4% 4,142.8 11.9% 534.4 12.9% 13.3% 379.7 9.2% 13.2% 327.2 7.9% 14.6% 405.7 9.8% 14.9% 30.0% 284.0 6.9% 18.5% $0.79 21.2% $0.79 $0.82 359.1Q3E 69 0.4% 45 6.4% 4,189.3 4.9% 540.3 12.9% 6.1% 387.5 9.2% 3.3% 335.0 8.0% 2.8% 419.7 10.0% 6.3% 30.0% 293.8 7.0% 4.3% $0.82 5.8% $0.82 $0.85 359.1Q4E 73 -2.5% 41 2.2% 4,645.0 1.3% 603.7 13.0% 1.8% 433.2 9.3% -3.7% 380.7 8.2% -4.7% 477.4 10.3% 1.0% 30.0% 334.2 7.2% 2.0% $0.93 2.0% $0.93 $0.92 359.1

Dec-12E 285 11.6% 175 5.0% 16,811.0 9.7% 2,167.4 12.9% 9.2% 1,546.5 9.2% 7.4% 1,336.5 8.0% 7.5% 1,659.4 9.9% 10.1% 30.0% 1,161.6 6.9% 11.4% $3.23 13.1% $3.23 $3.35 359.1Gross margin "flat-to-down versus 2011, depending on Europe"

Q1E 71 0.1% 46 5.4% 4,096.6 6.9% 535.0 13.1% 9.4% 375.4 9.2% 8.5% 317.9 7.8% 8.3% 385.9 9.4% 8.2% 30.0% 270.1 6.6% 8.2% $0.75 8.2% $0.75 - 359.1Q2E 75 4.6% 50 10.2% 4,499.1 8.6% 596.7 13.3% 11.7% 433.8 9.6% 14.2% 376.3 8.4% 15.0% 456.5 10.1% 12.5% 30.0% 319.5 7.1% 12.5% $0.89 12.5% $0.89 - 359.1Q3E 74 7.1% 43 -3.4% 4,614.6 10.2% 614.7 13.3% 13.8% 436.9 9.5% 12.7% 379.4 8.2% 13.2% 462.8 10.0% 10.3% 30.0% 323.9 7.0% 10.3% $0.90 10.3% $0.90 - 359.1Q4E 75 2.6% 46 10.8% 4,938.2 6.3% 655.0 13.3% 8.5% 480.4 9.7% 10.9% 422.9 8.6% 11.1% 515.7 10.4% 8.0% 30.0% 361.0 7.3% 8.0% $1.01 8.0% $1.01 - 359.1

Dec-13E 295 3.6% 185 5.7% 18,148.5 8.0% 2,401.5 13.2% 10.8% 1,726.4 9.5% 11.6% 1,496.4 8.2% 12.0% 1,820.8 10.0% 9.7% 30.0% 1,274.6 7.0% 9.7% $3.55 9.7% $3.55 - 359.1

Dec-14E 315 6.8% 205 10.8% 19,776.1 9.0% 2,694.4 13.6% 12.2% 1,987.0 10.0% 15.1% 1,737.0 8.8% 16.1% 2,168.3 11.0% 19.1% 30.0% 1,517.8 7.7% 19.1% $4.23 19.1% $4.23 - 359.1Dec-15E 315 0.0% 205 0.0% 20,719.5 4.8% 2,864.2 13.8% 6.3% 2,151.8 10.4% 8.3% 1,881.8 9.1% 8.3% 2,418.7 11.7% 11.5% 30.0% 1,693.1 8.2% 11.5% $4.71 11.5% $4.71 - 359.1

Assumed contribution margin for 2011-2015 is in the range of 15-20% 2014E represents trend EPS with stock price of: $76 (22% CAGR)* As of January 31.

New Business Growth Shares Outstanding (Dec-11)

EPS Sensitivity Target Price Sensitivity Rev Chg Basic Shares 358.3Year Downside Base Upside Percentile Multiple Downside Base Upside 2008 650 5% Options (Diluted) 0.82010 $1.90 $1.25 $3.15 25th 7.4 $25 $28 $31 2009 300 2% Convertible Securities 0.02011 $2.20 $2.86 $3.45 Median 8.3 $28 $32 $35 2010 300 4% Diluted Shares 359.1

75th 9.9 $33 $38 $42 2011 600 6% Insiders Own: 7.0% 2010 Macro Assumptions 2012 600 4% Headquartered: Bellevue, Washington

Downside Base Upside Upside/Downside to Target Price 2013 300 2%

NA 140 154 170 Percentile Downside Base Upside 2011-13 1,500 4%EU 32% 42% 52% 25th -43% -37% -30%

ROW 37% 47% 57% Median -37% -28% -21%Parts 6% 16% 26% 75th -25% -14% -5%

Euro/$ $1.40 $1.40 $1.40

Source for all models: Company Reports, Robert W. Baird & Co. estimates.© 2012 | Please refer to Appendix - Important Disclosures and Analyst Certification.

Snap-On


Snap-on (SNA - $60.73 – Outperform / Lower Risk) Target Price: $74 (8.8x 2014E EBITDA - Median Valuation of Last Cycle Range) Current View Revenue Growth. Snap-on has reported strong organic growth during

2011, offsetting headwinds from continued weakness in Southern Europe and a run off of Defense business. Long term, end-market demand for auto repair tools, equipment and information is estimated to be 3-4% with incremental 2-4% from: o New products and productivity solutions such as wheel imaging

aligners, innovative power tools, and advanced diagnostic/information products that are increasingly software-related

o Expansion into emerging markets o Selective expansion in North America and Europe o Expansion into "mission critical" industrial end markets such as

aerospace, mining, government/military, and vocational markets o Expansion into adjacent repair markets such as

construction/agricultural equipment and commercial trucks. EBIT Margin. Snap-on management has also successfully improved

profitability through intense focus on execution, cost reduction and streamlining operations. During the downturn, management was able to hold EBIT margins above 9% with current run rate back to pre-recession levels. The company believes it can boost EBIT margin (ex-Snap-on Credit) by another 300-400 basis points through growing volume, continuous improvement activities and business mix.

Business Model Strengths. The key strengths of the business model include: 1) fantastic brands (Snap-on, Bahco; Snap-on named best in five categories in Frost & Sullivan survey of automotive repair technicians); 2) strong distribution system; 3) broad product offering to supply everything needed to repair vehicles (tools, equipment, diagnostic products, information systems); and 4) significant free cash flow.

Key Risk Factors. 1) Modest economic sensitivity, though the US auto repair tool market is just 30% of sales; 2) dealer business depends on automotive repair spending; 3) weakness versus our assumptions for annual end-market performance in the base business; and 4) limited intra-quarter visibility into performance.

Price Target. Our $74 price target is based on the shares trading at 8.8x our estimate of expected 2014 EBITDA, the median of the last cycle range.

Company Description Headquartered in Kenosha, Wisconsin, Snap-on Incorporated is a leading global developer, manufacturer and marketer of tool, equipment and diagnostic solutions for professional technicians, automotive service centers and OEMs, and commercial and industrial tool users worldwide. Snap-on has evolved from the leading hand-tool provider for the technician to the company with the most complete set of capabilities in the automotive service industry.

Stock Chart



'02 '03 '04 '05 '06 '07 '08 '09 '10 '110

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'02 '03 '04 '05 '06 '07 '08 '09 '10 '1106

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24NTM Forward P/E

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1101

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4Price to Book

Revenue by Segment Revenue by Geography Revenue by End Markets

Snap-on Tools Group35%

Commercial & Industrial Group34%

Financial Services

4%

Repair Systems & Information

Group27%

United States59%

Europe25%

Asia8%

Rest of WorldU.S. 26%

International 10%

Commercial (auto repair equipment)

12%

Industrial (aerospace, military,

China) 24%

Diagnostics 9%

OEM/Dealer Service 9%

Equipment 9%

Snap‐on Tools

Commercial & Industrial

Repair Systems & Information

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Snap-on Incorporated (SNA $60.73)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Outperform

12-Month Target Price (8.8x 2014E EBITDA, Median Percentile of Last Cycle Range, Discounted by 15%): $74Last Cycle Range (2000-08) is 4.4-11.5x LTM EBITDA. Median is 8.8x.

Current Multiple = 7.5x LTM EBITDA (28th percentile), 0.0x 2011E and 7.1x 2012E.(in Thousands)

Revenues EBITDA Op. Inc. (Inc. SOC) Pretax Income Tax Net Income Fully Diluted Operating EPS GAAP First AvgYear $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg Ex-FS* Chg FS % EPS Call* Shs.

Dec-93 1,132,010 15.1% 595,728 52.6% 16.9% 179,064 15.8% - 146,933 13.0% - 136,491 12.1% 24.6% 37.1% 85,812 7.6% 30.1% $1.34 29.3% - - $0.74 - 44.8% - - 63,857Dec-94 1,194,296 5.5% 608,837 51.0% 2.2% 188,566 15.8% 5.3% 158,934 13.3% 8.2% 153,669 12.9% 12.6% 36.0% 98,314 8.2% 14.6% $1.53 14.0% - - $0.93 25.2% 39.3% $1.53 - 64,188Dec-95 1,292,125 8.2% 663,491 51.3% 9.0% 220,178 17.0% 16.8% 188,644 14.6% 18.7% 179,889 13.9% 17.1% 37.0% 113,330 8.8% 15.3% $1.84 20.4% - - $1.20 28.9% 35.1% $1.84 - 61,510Dec-96 1,485,279 14.9% 750,784 50.5% 13.2% 252,405 17.0% 14.6% 220,526 14.8% 16.9% 208,653 14.0% 16.0% 37.0% 131,451 8.9% 16.0% $2.13 15.4% - - $1.47 23.0% 30.8% $2.13 - 61,768Dec-97 1,672,215 12.6% 843,828 50.5% 12.4% 303,914 18.2% 20.4% 265,537 15.9% 20.4% 238,676 14.3% 14.4% 37.0% 150,366 9.0% 14.4% $2.44 14.6% - - $1.70 15.8% 30.1% $2.44 - 61,637Dec-98 1,772,637 6.0% 823,876 46.5% -2.4% 228,983 12.9% -24.7% 183,998 10.4% -30.7% 160,703 9.1% -32.7% 36.0% 102,874 5.8% -31.6% $1.72 -29.5% - - $1.01 (40.5%) 41.0% ($0.08) - 59,784Dec-99 1,945,621 9.8% 918,785 47.2% 11.5% 316,468 16.3% 38.2% 261,103 13.4% 41.9% 238,981 12.3% 48.7% 36.0% 152,948 7.9% 48.7% $2.60 50.9% - - $1.94 91.2% 25.3% $2.16 - 58,898Dec-00 2,175,700 11.8% 1,006,276 46.3% 9.5% 334,752 15.4% 5.8% 268,552 12.3% 2.9% 231,175 10.6% -3.3% 36.0% 147,896 6.8% -3.3% $2.53 -2.7% $2.73 - $2.11 8.8% 16.5% $2.10 - 58,561Dec-01 2,095,700 -3.7% 963,100 46.0% -4.3% 275,000 13.1% -17.8% 207,000 9.9% -22.9% 168,000 8.0% -27.3% 36.5% 106,700 5.1% -27.9% $1.84 -27.3% $2.03 -25.4% $1.64 (22.1%) 19.2% $0.37 - 58,125Dec-02 2,109,100 0.6% 964,900 45.7% 0.2% 250,000 11.9% -9.1% 198,300 9.4% -4.2% 161,200 7.6% -4.0% 36.0% 103,200 4.9% -3.3% - - $1.76 -13.4% $1.35 (17.9%) 23.3% $1.76 - 58,675Dec-03 2,233,200 5.9% 978,000 43.8% 1.4% 223,700 10.0% -10.5% 163,400 7.3% -17.6% 130,000 5.8% -19.4% 35.0% 84,525 3.8% -18.1% - - $1.45 -17.8% $0.96 (28.9%) 33.7% $1.35 - 58,350Dec-04 2,329,100 4.3% 1,009,300 43.3% 3.2% 202,800 8.7% -9.3% 142,300 6.1% -12.9% 120,400 5.2% -7.4% 35.0% 78,200 3.4% -7.5% - - $1.34 -7.6% $0.96 (0.1%) 28.3% $1.40 - 58,425Dec-05 2,308,600 -0.9% 1,019,900 44.2% 1.1% 217,050 9.4% 7.0% 168,000 7.3% 18.1% 148,000 6.4% 22.9% 37.2% 92,900 4.0% 18.8% - - $1.59 18.7% $1.42 48.0% 10.6% $1.59 - 58,475Dec-06 2,473,400 7.1% 1,085,900 43.9% 6.5% 251,400 10.2% 15.8% 202,900 8.2% 20.8% 184,900 7.5% 24.9% 32.7% 124,500 5.0% 34.0% - - $2.11 32.8% $1.96 38.1% 7.0% $1.71 - 59,000

Pro Forma 2,663,100 204,400 7.7% 100,100 $2.22 (ex-litigation charge and tax benefit)Dec-07 2,845,200 15.0% 1,268,600 44.6% 16.8% 401,500 14.1% 59.7% 325,800 11.5% 60.6% 285,200 10.0% 54.2% 32.4% 190,200 6.7% 52.8% - - $3.25 53.8% $2.99 52.3% 8.0% $3.25 - 58,600Dec-08 2,853,300 0.3% 1,284,600 45.0% 1.3% 460,800 16.1% 14.8% 388,800 13.6% 19.3% 357,800 12.5% 25.5% 32.9% 236,700 8.3% 24.4% - - $4.07 25.5% $3.64 21.9% 10.6% $4.07 $4.10 58,125Dec-09 2,362,500 -17.2% 1,057,600 44.8% -17.7% 325,300 13.8% -29.4% 250,700 10.6% -35.5% 205,300 8.7% -42.6% 30.5% 134,200 5.7% -43.3% - - $2.32 -43.0% $2.11 (42.1%) 9.1% $2.32 $2.09 57,850Dec-10 2,619,200 10.9% 1,211,100 46.2% 14.5% 404,100 15.4% 24.2% 331,400 12.7% 32.2% 277,400 10.6% 35.1% 31.6% 186,500 7.1% 39.0% - - $3.19 37.6% $3.02 43.3% 5.3% $3.19 $3.11 58,425

Q1 693,700 11.6% 330,600 47.7% 15.0% 118,100 17.0% 33.9% 99,800 14.4% 42.6% 84,300 12.2% 49.7% 32.3% 56,200 8.1% 52.7% - - $0.96 51.7% $0.81 25.0% 15.1% $0.96 $0.86 58,700Q2 726,700 12.2% 342,200 47.1% 12.6% 134,600 18.5% 36.0% 116,300 16.0% 44.1% 100,900 13.9% 51.3% 32.6% 66,900 9.2% 47.7% - - $1.14 46.4% $0.94 23.8% 17.6% $1.14 $1.08 58,800Q3 697,200 6.8% 329,300 47.2% 9.3% 133,900 19.2% 31.5% 115,100 16.5% 37.4% 98,300 14.1% 38.5% 31.0% 67,800 9.7% 45.8% - - $1.16 45.1% $0.91 23.2% 21.2% $1.16 $1.03 58,700Q4 736,600 5.7% 335,800 45.6% 5.4% 145,100 19.7% 26.1% 125,900 17.1% 29.9% 111,400 15.1% 33.6% 32.5% 74,300 10.1% 28.3% - - $1.27 28.3% $1.01 15.8% 20.1% $1.27 $1.18 58,700

Dec-11 2,854,200 9.0% 1,337,900 46.9% 10.5% 531,700 18.6% 31.6% 457,100 16.0% 37.9% 394,900 13.8% 42.4% 32.1% 265,200 9.3% 42.2% - - $4.52 41.5% $3.67 21.5% 18.7% $4.52 $4.29 58,725

Q1E 716,419 3.3% 340,396 47.5% 3.0% 139,666 19.5% 18.3% 121,166 16.9% 21.4% 107,896 15.1% 28.0% 33.5% 70,951 9.9% 26.2% - - $1.21 26.2% $0.93 14.7% 22.8% $1.21 $1.14 58,700Q2E 727,951 0.2% 335,935 46.1% -1.8% 136,136 18.7% 1.1% 117,636 16.2% 1.1% 104,597 14.4% 3.7% 33.5% 68,757 9.4% 2.8% - - $1.17 3.0% $0.88 (5.9%) 24.7% $1.17 $1.30 58,700Q3E 706,520 1.3% 332,925 47.1% 1.1% 141,443 20.0% 5.6% 122,943 17.4% 6.8% 110,135 15.6% 12.0% 33.5% 72,440 10.3% 6.8% - - $1.23 6.8% $0.95 4.1% 23.2% $1.23 $1.17 58,700Q4E 752,444 2.2% 342,859 45.6% 2.1% 152,282 20.2% 4.9% 133,782 17.8% 6.3% 121,205 16.1% 8.8% 33.5% 79,801 10.6% 7.4% - - $1.36 7.4% $1.09 7.3% 20.2% $1.36 $1.33 58,700

Dec-12E 2,903,335 1.7% 1,352,115 46.6% 1.1% 569,527 19.6% 7.1% 495,527 17.1% 8.4% 443,833 15.3% 12.4% 33.5% 291,949 10.1% 10.1% - - $4.97 10.1% $3.85 4.7% 22.6% $4.97 $4.92 58,700February 2 Guidance: None.

Q1E 753,717 5.2% 359,045 47.6% 5.5% 149,006 19.8% 6.7% 130,506 17.3% 7.7% 118,052 15.7% 9.4% 33.5% 77,705 10.3% 9.5% - - $1.32 9.5% $1.01 8.2% 23.7% $1.32 $1.24 58,700Q2E 765,838 5.2% 361,878 47.3% 7.7% 156,999 20.5% 15.3% 138,499 18.1% 17.7% 126,169 16.5% 20.6% 33.5% 83,102 10.9% 20.9% - - $1.42 20.9% $1.08 22.9% 23.5% $1.42 $1.40 58,700Q3E 743,326 5.2% 351,328 47.3% 5.5% 153,584 20.7% 8.6% 135,084 18.2% 9.9% 122,877 16.5% 11.6% 33.5% 80,913 10.9% 11.7% - - $1.38 11.7% $1.05 10.7% 23.9% $1.38 $1.24 58,700Q4E 791,696 5.2% 362,484 45.8% 5.7% 163,390 20.6% 7.3% 144,890 18.3% 8.3% 132,807 16.8% 9.6% 33.5% 87,517 11.1% 9.7% - - $1.49 9.7% $1.18 8.3% 21.1% $1.49 $1.42 58,700

Dec-13E 3,054,577 5.2% 1,434,736 47.0% 6.1% 622,978 20.4% 9.4% 548,978 18.0% 10.8% 499,906 16.4% 12.6% 33.5% 329,237 10.8% 12.8% - - $5.61 12.8% $4.32 12.2% 23.0% $5.61 $5.45 58,700

Dec-14E 3,209,631 5.1% 1,512,263 47.1% 5.4% 663,933 20.7% 6.6% 589,933 18.4% 7.5% 543,282 16.9% 8.7% 33.5% 358,083 11.2% 8.8% - - $6.10 8.8% $4.68 8.4% 23.3% $6.10 - 58,700Dec-15E 3,363,329 4.8% 1,589,112 47.2% 5.1% 711,971 21.2% 7.2% 637,971 19.0% 8.1% 594,420 17.7% 9.4% 33.5% 392,089 11.7% 9.5% - - $6.68 9.5% $5.15 10.0% 22.9% $6.68 - 58,700

* Assumed contribution margin for 2011-2015 is in the range of 45-50% 2014E represents trend EPS with stock price of: $93 (19% CAGR)Operating EPS = GAAP EPS less FASB-recognized restructuring costs, asset write-downs, asset gains/losses and out-of-period items. *As of Feb. 2.* Adjusted to exclude the earnings of the Financial Services segment (before interest expense). Shares Outstanding (Dec-11)

EPS Sensitivity Target Price Sensitivity Basic Shares 58,200Year Downside Base Upside Percentile Multiple Downside Base Upside Options (Diluted) 5002010 $2.70 $3.19 $3.60 25th 7.5 $57 $62 $67 Convertible Securities 02011 $3.50 $4.52 $5.50 Median 8.8 $68 $74 $80 Diluted Shares 58,700

75th 10.1 $78 $86 $92 Insiders Own: 1% 2010 Macro Assumptions Headquartered: Kenosha, Wisconsin

Downside Base Upside Upside/Downside to Target PriceDealer 6% 11% 16% Percentile Downside Base Upside

C&I 12% 17% 22% 25th -3% 7% 15%D&I 4% 9% 14% Median 16% 27% 37%Euro 1.33 1.33 1.33 75th 35% 47% 59%


Gross Profit

STRATTEC Security


STRATTEC Security (STRT - $23.07 – Neutral / Higher Risk) Target Price: $25 (4.3x 2014E EBITDA, Discounted by 27.5% - 25th Percentile of Last Cycle Valuation Range) Current View Delphi Power Products Acquisition. We view the acquisition of Delphi

Power Products as a positive. It offers access to a new customer in Hyundai and expands the company's product offering into areas (sliding doors, liftgates, trunk lids, and latches/strikers) complementary to the existing suite of vehicle access technologies.

Investment in New Technologies. The company continues to invest in new technology and looks to gain content by adding electronic content to the head of the key and provide backup systems for keyless vehicle operation.

Market Share Gains. After losing the business several years ago, the company has recently taken back significant business on several car platforms at GM.

Business Model Strengths. 1) Leading market share position with Chrysler, Ford, and General Motors; 2) strong financial position with no debt and $14 million of cash ($4.00 per share); and 3) membership in the VAST alliance, which provides exposure to the Chinese market.

Key Risk Factors. 1) Exposure to the North American OEMs in North America, which we estimate represent close to two-thirds of revenue; 2) de-contenting, as OEMs have removed locks from passenger doors, truck lids, and lift gates; and 3) rising raw material costs, primarily zinc and brass.

Target Price. Our $25 target price is 4.3x our estimate of 2014 EBITDA, the 25th percentile of last cycle range.

Company Description Headquartered in Milwaukee, Wisconsin, STRATTEC SECURITY CORPORATION designs, develops, manufactures, and markets mechanical locks, electro-mechanical locks, and related access control products and sliding doors, lift gates, and trunk lids for major global automotive manufacturers with operations in the United States, Mexico, and Canada. STRATTEC also supplies products for the heavy truck, recreational vehicle, marine, and industrial markets, as well as precision die castings for the transportation, security and recreational products industries. The company has been the world's largest manufacturer of automotive locks and keys since the late 1920's and currently maintains a dominant share of the North American market for these products.

Stock Chart

Source: FactSet Revenue Profile – FY June 2011


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32NTM Forward P/E

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1101

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U.S.60%

Foreign (export sales)40%

Automotive 90%

Aftermarket 10%

GM 25%

Ford 10%

Chrysler 31%

Other 34%

NAOEMs 67%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 STRATTEC Security Corporation (STRT $23.07)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings ModelJared Plotz (414) 298-7351 [email protected] Rating: Neutral

12-Month Target Price (4.3x 2014E EBITDA, 25th Percentile of Last Cycle Valuation Range, Discounted by 27.5%) $25Last Cycle (2000-08) Range is 2.6-17.6x LTM EBITDA. Median is 5.2x.

Current Multiple = 2.5x LTM EBITDA (0th percentile), 2.1x 2012E and 1.7x 2013E.(in $ Thousands)

Lt. Vehicle Build Dollar Content Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income F.D. EPS First AvgYear (000) Chg $ Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Call* Shs

Jun-91 11,372 7.02 79,870 11,166 14.0% - - - 5,248 - - 4,370 5.5% 39.4% 2,650 3.3% - Jun-92 12,233 7.6% 6.91 -1.7% 84,497 5.8% 14,757 17.5% 32.2% - - - 7,793 - - 4,732 5.6% 8.3% 39.3% 2,872 3.4% 8.4% - Jun-93 13,269 -2.9% 6.18 -2.9% 82,005 -2.9% 13,449 16.4% -8.9% - - - 5,682 - - 1,617 2.0% -65.8% 40.8% 957 1.2% -66.7% - Jun-94 14,600 10.0% 6.65 7.6% 97,077 18.4% 23,248 23.9% 72.9% - - - 14,333 - - 13,151 13.5% 713.3% 40.5% 7,821 8.1% 717.2% $1.35 - 5,785

Jun-94PF 14,600 6.65 97,077 23,800 24.5% - - - 12,700 - - 11,400 11.7% 40.4% 6,800 7.0% $1.18 - 5,785

Jun-95 15,249 4.4% 7.24 8.9% 110,372 13.7% 27,893 25.3% 20.0% 14,048 - - 14,048 - - 11,133 10.1% -15.3% 41.8% 6,476 5.9% -17.2% $1.12 -17.2% - 5,785Jun-96 14,828 -2.8% 9.42 30.2% 139,745 26.6% 29,231 20.9% 4.8% 16,560 11.9% - 12,599 9.0% - 12,544 9.0% 12.7% 38.5% 7,714 5.5% 19.1% $1.33 19.1% - 5,785Jun-97 15,260 2.9% 10.42 10.6% 159,054 13.8% 33,319 20.9% 14.0% 21,274 13.4% 28.5% 15,635 9.8% 24.1% 15,550 9.8% 24.0% 36.8% 9,820 6.2% 27.3% $1.70 27.3% - 5,785Jun-98 15,530 1.8% 12.03 15.4% 186,805 17.4% 39,940 21.4% 19.9% 27,791 14.9% 30.6% 21,015 11.2% 34.4% 21,420 11.5% 37.7% 37.0% 13,489 7.2% 37.4% $2.30 35.5% - 5,863Jun-99 16,387 5.5% 12.36 2.8% 202,625 8.5% 46,804 23.1% 17.2% 33,720 16.6% 21.3% 26,613 13.1% 26.6% 27,506 13.6% 28.4% 38.1% 17,015 8.4% 26.1% $2.94 27.7% - 5,791Jun-00 17,527 7.0% 12.83 3.7% 224,817 11.0% 49,495 22.0% 5.7% 36,817 16.4% 9.2% 29,241 13.0% 9.9% 30,349 13.5% 10.3% 39.0% 18,513 8.2% 8.8% $3.65 24.1% - 5,079Jun-01 15,994 -8.7% 12.69 -1.1% 202,973 -9.7% 40,527 20.0% -18.1% 29,015 14.3% -21.2% 21,076 10.4% -27.9% 21,126 10.4% -30.4% 37.0% 13,305 6.6% -28.1% $3.02 -17.1% - 4,406Jun-02 15,949 -0.3% 13.00 2.4% 207,286 2.1% 43,916 21.2% 8.4% 32,474 15.7% 11.9% 24,272 11.7% 15.2% 24,768 11.9% 17.2% 37.0% 15,604 7.5% 17.3% $3.73 23.5% - 4,185Jun-03 16,049 0.6% 12.26 -5.6% 196,827 -5.0% 45,359 23.0% 3.3% 33,600 17.1% 3.5% 25,746 13.1% 6.1% 25,959 13.2% 4.8% 37.0% 16,354 8.3% 4.8% $4.24 13.8% - 3,855Jun-04 15,882 -1.0% 12.32 0.4% 195,646 -0.6% 47,487 24.3% 4.7% 34,567 17.7% 2.9% 26,863 13.7% 4.3% 27,651 14.1% 6.5% 37.5% 17,282 8.8% 5.7% $4.49 5.8% - 3,850Jun-05 15,526 -2.2% 12.26 -0.5% 190,314 -2.7% 42,696 22.4% -10.1% 29,233 15.4% -15.4% 22,008 11.6% -18.1% 23,497 12.3% -15.0% 36.5% 14,924 7.8% -13.6% $3.91 -12.9% - 3,818Jun-06 15,902 2.4% 11.39 -7.0% 181,197 -4.8% 36,085 19.9% -15.5% 21,173 11.7% -27.6% 14,018 7.7% -36.3% 17,541 9.7% -25.3% 34.7% 11,457 6.3% -23.2% $3.08 -21.2% - 3,720Jun-07 14,860 -6.6% 11.29 -1.0% 167,707 -7.4% 26,494 15.8% -26.6% 13,293 7.9% -37.2% 6,305 3.8% -55.0% 10,706 6.4% -39.0% 33.8% 7,087 4.2% -38.1% $1.99 -35.3% - 3,555Jun-08 14,111 -5.0% 11.31 0.2% 159,642 -4.8% 25,551 16.0% -3.6% 8,419 5.3% -36.7% 1,589 1.0% -74.8% 4,482 2.8% -58.1% 27.3% 3,257 2.0% -54.0% $0.93 -53.2% - 3,494Jun-09 9,091 -35.6% 13.76 21.6% 125,097 -21.6% 13,217 10.6% -48.3% (6,523) -5.2% -177.5% (12,763) -10.2% - (10,346) -8.3% - 40.6% (6,145) -4.9% - ($1.87) - ($2.04) 3,284Jun-10 11,077 21.8% 18.77 36.4% 207,964 66.2% 33,042 15.9% 150.0% 11,569 5.6% + 4,426 2.1% + 5,607 2.7% + 29.7% 3,421 1.6% + $1.04 - $1.07 3,281

Cal-2010E = 1.30$ Q1 2,978 26.9% 20.10 14.5% 59,849 45.3% 10,153 17.0% 49.4% 3,626 6.1% 41.1% 1,988 3.3% 142.7% 2,581 4.3% 103.2% 31.0% 1,418 2.4% 50.4% $0.43 49.1% $0.08 3,299Q2 2,962 7.3% 20.67 8.6% 61,212 16.5% 9,973 16.3% 30.3% 3,244 5.3% 3.7% 1,655 2.7% 27.2% 2,073 3.4% 32.3% 16.0% 1,247 2.0% 47.7% $0.37 45.2% $0.48 3,329Q3 3,350 16.0% 19.60 7.0% 65,650 24.1% 9,119 13.9% 2.9% 2,843 4.3% -5.2% 1,166 1.8% -6.0% 1,004 1.5% -27.1% 26.1% 55 0.1% -93.0% $0.02 -93.1% $0.52 3,339Q4 3,100 0.5% 23.94 20.3% 74,222 21.0% 12,918 17.4% 32.8% 5,626 7.6% 95.8% 3,911 5.3% 267.2% 4,472 6.0% 221.0% 25.6% 2,698 3.6% 216.3% $0.81 213.4% $0.37 3,326

Jun-11 12,390 11.8% 21.06 12.2% 260,933 25.5% 42,163 16.2% 27.6% 15,339 5.9% 32.6% 8,720 3.3% 97.0% 10,130 3.9% 80.7% 25.1% 5,418 2.1% 58.4% $1.63 56.3% $1.89 3,323Cal-2011E = 1.68$

Q1 3,172 6.5% 20.93 4.1% 66,377 10.9% 11,504 17.3% 13.3% 4,948 7.5% 36.5% 3,296 5.0% 65.8% 2,294 3.5% -11.1% 14.0% 1,282 1.9% -9.6% $0.39 -10.3% $0.58 3,326Q2 3,421 15.5% 19.26 -6.8% 65,886 7.6% 11,240 17.1% 12.7% 4,940 7.5% 52.3% 3,261 4.9% 97.0% 3,564 5.4% 71.9% 35.4% 1,548 2.3% 24.1% $0.47 24.1% $0.46 3,329

Q3E 3,564 6.4% 19.03 -2.9% 67,822 3.3% 11,462 16.9% 25.7% 4,819 7.1% 69.5% 2,984 4.4% 155.9% 2,929 4.3% 191.7% 32.0% 1,236 1.8% + $0.37 + $0.37 3,329Q4E 3,490 12.6% 22.11 -7.7% 77,149 3.9% 13,503 17.5% 4.5% 6,080 7.9% 8.1% 4,246 5.5% 8.6% 4,295 5.6% -4.0% 32.0% 2,292 3.0% -15.0% $0.69 -15.1% $0.62 3,329

Jun-12E 13,647 10.1% 20.31 -3.5% 277,233 6.2% 47,709 17.2% 13.2% 20,787 7.5% 35.5% 13,787 5.0% 58.1% 13,082 4.7% 29.1% 29.8% 6,358 2.3% 17.4% $1.91 17.2% $1.90 3,328Cal-2012E = 1.76$

Q1E 3,307 4.3% 20.50 -2.0% 67,789 2.1% 11,822 17.4% 2.8% 4,884 7.2% -1.3% 3,009 4.4% -8.7% 3,408 5.0% 48.6% 35.0% 1,524 2.2% 18.9% $0.46 18.8% $0.47 3,329Q2E 3,240 -5.3% 18.60 -3.4% 60,251 -8.6% 9,972 16.6% -11.3% 3,834 6.4% -22.4% 1,959 3.3% -39.9% 2,382 4.0% -33.2% 35.0% 792 1.3% -48.8% $0.24 -48.8% $0.41 3,329Q3E 3,585 0.6% 18.92 -0.6% 67,817 0.0% 11,461 16.9% 0.0% 4,520 6.7% -6.2% 2,645 3.9% -11.4% 3,092 4.6% 5.6% 35.0% 1,254 1.8% 1.5% $0.38 1.5% $0.42 3,329Q4E 3,598 3.1% 21.96 -0.7% 79,007 2.4% 13,921 17.6% 3.1% 5,723 7.2% -5.9% 3,848 4.9% -9.4% 4,320 5.5% 0.6% 35.0% 2,180 2.8% -4.9% $0.65 -4.9% $0.64 3,329

Jun-13E 13,729 0.6% 20.02 -1.4% 274,864 -0.9% 47,176 17.2% -1.1% 18,961 6.9% -8.8% 11,461 4.2% -16.9% 13,202 4.8% 0.9% 35.0% 5,750 2.1% -9.6% $1.73 -9.6% $2.06 3,329Cal-2013E = 1.90$

Jun-14E 15,116 10.1% 19.41 -3.1% 293,385 6.7% 50,880 17.3% 7.9% 20,154 6.9% 6.3% 12,154 4.1% 6.0% 14,203 4.8% 7.6% 35.0% 6,401 2.2% 11.3% $1.92 11.3% - 3,329Jun-15E 15,321 1.4% 18.85 -2.9% 288,769 -1.6% 49,957 17.3% -1.8% 20,407 7.1% 1.3% 11,907 4.1% -2.0% 14,293 4.9% 0.6% 35.0% 6,459 2.2% 0.9% $1.94 0.9% - 3,329

* Assumed contribution margin for 2011-2015 is in range of 20-25% 2014E represents trend EPS with stock price of: $40 (26% CAGR)* As of January 26.

New Business Growth*EPS Sensitivity (Calendar Year) Target Price Sensitivity Fiscal Year $ % Shares Outstanding (Dec-11)

Year Downside Base Upside Percentile Multiple Downside Base Upside 2008 $8,000 5% Basic Shares 3,2882010 $0.60 $1.30 $2.80 25% 4.3 $12 $15 $19 2009 $4,500 3% Options (Diluted) 412011 $1.20 $1.68 $3.80 Median 5.2 $13 $17 $22 2010 $5,000 4% Convertible Securities 0

75% 6.3 $15 $20 $25 2011 $5,000 2% Diluted Shares 3,3292012 $2,500 1% Insiders Own: 3%

2010 Macro Assumptions Upside/Downside to Target Price 2013 $2,500 1% Headquartered: Milwaukee, WisconsinDownside Base Upside Percentile Downside Base Upside 2011-13 $10,000 1%

NA Build 10,700 11,910 13,100 25th -43% -29% -10% * Revenue growth with flat NA build (ex-price of -1.5%). Median -39% -20% 4%

75th -29% -6% 18%


Tower International


Tower International (TOWR - $13.15 – Outperform / Speculative Risk) Target Price: $17 (4.1x 2014E EBITDA, Discounted by 45% - Median Percentile of the Post-IPO Trading Range) Current View Valuation: Following its initial public offering in October 2010, the stock

recently traded near 3.6x LTM EBITDA, a 20-30% discount to the supplier group and a ~40% discount to the predecessor company’s historical median valuation. Every one-half multiple point adds $5-6 to our target prices, meaning that closing this valuation gap could add $10-15 to our target price.

Improved Business Model: “New” Tower’s business model is significantly improved versus the predecessor company. New management, brought in by Cerberus, immediately made significant operating improvements and exited unprofitable/low-margin contracts. Exposure to the North American OEMs in North America and to frame-based SUVs and pickups has fallen dramatically, while emerging markets now represent nearly one-fifth of revenue.

Free Cash Flow: From 2013-2015, we expect the company to generate average annual free cash flow over $50 million. Free cash flow will be used primarily for deleveraging, but also small acquisitions and capacity expansion to serve growing emerging markets.

Key Risks: 1) the cyclicality and competitive dynamics of the global automotive industry, 2) elevated financial leverage, 3) high fixed costs and operating leverage, 4) major customers and programs/platforms, 5) rising commodity prices (primarily steel), 6) post-retirement liabilities, 7) foreign exchange rate volatility, 8) investment in solar and other non-automotive revenue opportunities, 9) the company relationship with its majority shareholder Cerberus, 10) modeling risk, 11) net losses, and 12) below-average organic (net new business) revenue growth.

Target Price. Our $17 target price is 4.1x our estimate of 2014 EBITDA, the median percentile of the post-IPO valuation range.

Company Description Tower International, Inc., headquartered in Livonia, Michigan, is a leading global supplier and manufacturer of engineered structural metal components and assemblies for the global automotive industry. Products include body-structure stampings, frame and chassis structures, and complex welded assemblies. The company employs approximately 7,900 associates in 30 manufacturing and product development facilities worldwide. In 2010, Tower ranked as the 61st largest North American automotive supplier and the 71st largest global automotive supplier. Tower International, Inc. emerged from bankruptcy protection as Tower Automotive, LLC on July 31, 2007. Cerberus Capital Management acquired substantially all of the assets and assumed certain liabilities of the predecessor company, Tower Automotive, Inc. from Chapter XI bankruptcy protection. The predecessor company filed for Chapter XI bankruptcy protection on February 2, 2005.

Stock Chart



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Europe40%

North America29%

Korea12%

South America10%

China9%

Automotive 100%

VW 17%

Fiat 13%

Ford 13%

Hyundai / Kia 10%

Volvo 10%

Nissan 6%

Daimler 5%

Chrysler 5%

Toyota 5%

BMW 5%

Chery 3%Honda 3%

Opel 1%Other 5%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 Tower International, Inc. (TOWR $13.15)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings Model

Jared Plotz (414) 298-7351 [email protected] Rating: Outperform12-Month Target Price (4.1x 2014E EBITDA, Median Percentile of Post-IPO Range, Discounted by 45%): $17

Post-IPO Range (2010-Present) is 4.4-2.9x LTM EBITDA. Median is 4.1x.Current Multiple = 3.6x LTM EBITDA (28th percentile), 3.7x 2012E and 2.8x 2013E.

(in $ Thousands)Lt. Vehicle Build Revenues Gross Profit EBITDA Adjusted EBITDA(1) Operating Income Pretax Income Tax Net Income Fully Diluted EPS GAAP First F.D.

Year (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg Cash Chg Cont.^ EPS Call* Shares

Dec-93PF 13,843 -82.9% 195,321 141.6% 34,020 17.4% NM 17,226 8.8% NM 17,226 8.8% NM 16,652 8.5% NM 42.4% 9,594 4.9% NM 0.42 NM - - - 0.37 - 23,400Dec-94PF 15,268 10.3% 222,390 13.9% 37,594 16.9% 10.5% 23,639 10.6% 37.2% 19,501 8.8% 13.2% 18,414 8.3% 10.6% 39.5% 11,136 5.0% 16.1% 0.48 15.8% - - - 0.43 - 23,400

Dec-95 14,909 -2.4% 222,801 0.2% 41,819 18.8% 11.2% 28,469 12.8% 20.4% 21,920 9.8% 12.4% 20,121 9.0% 9.3% 40.0% 12,071 5.4% 8.4% 0.52 8.3% - - - 0.52 - 23,394Dec-96 15,085 1.2% 399,925 79.5% 61,635 15.4% 47.4% 52,194 13.1% 83.3% 39,440 9.9% 79.9% 34,337 8.6% 70.7% 39.9% 20,637 5.2% 71.0% 0.78 48.2% - - - 0.77 - 26,830Dec-97 15,635 3.6% 1,235,829 209.0% 176,916 14.3% 187.0% 157,476 12.7% 201.7% 109,510 8.9% 177.7% 80,741 6.5% 135.1% 40.0% 48,671 3.9% 135.8% 1.14 46.9% - - - 1.09 - 45,202Dec-98 15,551 -0.5% 1,836,479 48.6% 274,312 14.9% 55.1% 263,043 14.3% 67.0% 175,671 9.6% 60.4% 135,353 7.4% 67.6% 40.0% 88,040 4.8% 80.9% 1.68 47.0% - - - 1.68 - 59,709Dec-99 17,035 9.5% 2,170,003 18.2% 346,900 16.0% 26.5% 336,758 15.5% 28.0% 225,147 10.4% 28.2% 187,166 8.6% 38.3% 40.0% 117,088 5.4% 33.0% 2.10 25.2% - - - 2.10 - 63,974Dec-00 17,166 0.8% 2,531,953 16.7% 371,594 14.7% 7.1% 357,879 14.1% 6.3% 213,074 8.4% -5.4% 148,363 5.9% -20.7% 39.8% 101,369 4.0% -13.4% 1.85 -11.7% - - - 0.28 - 63,254Dec-01 15,483 -9.8% 2,467,433 -2.5% 277,185 11.2% -25.4% 272,908 11.1% -23.7% 113,178 4.6% -46.9% 39,413 1.6% -73.4% 29.4% 31,315 1.3% -69.1% 0.69 -62.9% 1.03 - - (5.87) - 45,579Dec-02 16,367 5.7% 2,754,464 11.6% 298,887 10.9% 7.8% 291,763 10.6% 6.9% 150,904 5.5% 33.3% 83,995 3.0% 113.1% 35.0% 56,508 2.1% 80.5% - - 0.99 -4.0% - 0.26 - 57,329Dec-03 15,873 -3.0% 2,815,749 2.2% 256,225 9.1% -14.3% 251,923 8.9% -13.7% 100,725 3.6% -33.3% 8,421 0.3% -90.0% 34.6% 7,994 0.3% -85.9% - - 0.14 -85.7% - (2.05) - 56,707Dec-04 15,752 -0.8% 3,178,724 12.9% 225,683 7.1% -11.9% 236,687 7.4% -6.0% 84,531 2.7% -16.1% (57,447) -1.8% -782.2% 33.5% (30,615) -1.0% -483.0% - - (0.53) + (0.53) (0.31) (0.19) 58,077Dec-05 15,751 0.0% 3,283,653 3.3% 180,800 5.5% -19.9% 209,764 6.4% -11.4% 31,077 0.9% -63.2% (361,241) -11.0% + -4.6% (365,520) -11.1% + - - (6.23) + (6.23) (6.28) 0.25 58,645Dec-06 15,252 -3.2% 2,539,443 -22.7% 150,158 5.9% -16.9% 187,848 7.4% -10.4% 19,383 0.8% -37.6% (212,675) -8.4% + -5.5% (206,118) -8.1% + - - (3.51) + (3.51) (3.51) 0.45 58,659Dec-07 15,022 -1.5% 2,541,559 0.1% 245,191 9.6% 63.3% 261,508 10.3% 39.2% 109,708 4.3% + (76,257) -3.0% + -33.2% (90,503) -3.6% +

Financial Results for 2007 reflect the successor company for the five months ended December 31, 2007 and predecessor company for the seven months ended July 31, 2007Dec-08 12,579 -16.3% 2,171,700 -14.6% 183,500 8.4% -25.2% 212,100 9.8% -18.9% 212,900 9.8% - 41,800 1.9% -61.9% (26,300) -1.2% + -63.5% (64,600) -3.0% + - - Dec-09 8,558 -32.0% 1,634,362 -24.7% 97,611 6.0% -46.8% 124,465 7.6% -41.3% 125,000 7.6% -41.3% (23,165) -1.4% -155.4% (55,891) -3.4% - 2.0% (79,861) -4.9% - - - (6.41) - - (6.41) - 12,468Dec-10 11,910 39.2% 1,997,058 22.2% 210,582 10.5% 115.7% 183,025 9.2% 47.0% 190,200 9.5% 52.2% 68,357 3.4% + (3,294) -0.2% + NMF (32,962) -1.7% + - - (2.36) + - (3.43) (1.60) 13,987

Q1 3,350 16.0% 599,635 25.2% 69,570 11.6% 30.7% 65,602 10.9% 31.8% 65,700 11.0% 29.6% 35,455 5.9% 81.9% 19,878 3.3% + 34.0% 11,382 1.9% + - - 0.57 + - 0.57 0.09 19,890Q2 3,100 0.5% 602,718 20.1% 58,699 9.7% 5.7% 55,390 9.2% 8.2% 55,600 9.2% 7.5% 23,829 4.0% 4.7% 6,775 1.1% -20.6% 61.4% 1,394 0.2% + - - 0.07 + - 0.07 0.08 19,102Q3 3,172 6.5% 588,991 24.1% 59,656 10.1% 32.9% 48,806 8.3% 45.9% 48,900 8.3% 25.1% 20,999 3.6% + 4,539 0.8% + 63.7% 566 0.1% + - - 0.03 + - 0.03 (0.20) 19,563Q4 3,421 15.5% 614,745 13.5% 68,187 11.1% 19.8% 57,363 9.3% 18.0% 57,400 9.3% 17.9% 32,300 5.3% 60.0% 15,754 2.6% + 20.5% 11,446 1.9% + - - 0.57 + - 0.33 0.16 20,221

Dec-11 13,043 9.5% 2,406,088 20.5% 256,112 10.6% 21.6% 227,161 9.4% 24.1% 227,600 9.5% 19.7% 112,583 4.7% 64.7% 46,946 2.0% + 36.3% 24,788 1.0% + - - 1.26 + - 1.26 0.62 19,694Our 2011 EPS estimate excludes $18.7 million ($0.97 per share) of incentive compensation expense.

Q1E 3,564 6.4% 584,542 -2.5% 59,069 10.1% -15.1% 48,633 8.3% -25.9% 48,600 8.3% -26.0% 19,883 3.4% -43.9% 2,683 0.5% -86.5% 55.9% (566) -0.1% - - - (0.03) -104.9% - (0.03) 0.34 20,221Q2E 3,490 12.6% 590,077 -2.1% 60,551 10.3% 3.2% 55,066 9.3% -0.6% 55,100 9.3% -0.9% 26,316 4.5% 10.4% 9,068 1.5% + 33.1% 4,769 0.8% + - - 0.24 223.2% - 0.24 0.35 20,221Q3E 3,307 4.3% 566,439 -3.8% 57,506 10.2% -3.6% 48,247 8.5% -1.1% 48,200 8.5% -1.4% 19,497 3.4% -7.2% 2,200 0.4% + 68.2% (400) -0.1% + - - (0.02) -168.3% - (0.02) 0.03 20,221Q4E 3,240 -5.3% 601,051 -2.2% 66,187 11.0% -2.9% 56,481 9.4% -1.5% 56,500 9.4% -1.6% 27,731 4.6% -14.1% 10,385 1.7% -34.1% 38.5% 5,257 0.9% -54.1% - - 0.26 -54.1% - 0.26 0.28 20,221

Dec-12E 13,600 4.3% 2,342,107 -2.7% 243,314 10.4% -5.0% 208,427 8.9% -8.2% 208,400 8.9% -8.4% 93,427 4.0% -17.0% 24,336 1.0% -48.2% 41.1% 9,061 0.4% -63.4% - - 0.45 -64.4% - 0.45 0.95 20,2212012 Guidance (Feb 2012): 2,300,000 205,000 8.9% Our 2012 EPS estimate excludes $5.5 million ($0.29 per share) of incentive compensation expense.

Q1E 3,585 0.6% 645,104 10.4% 71,044 11.0% 20.3% 58,647 9.1% 20.6% 58,600 9.1% 20.6% 31,147 4.8% 56.7% 13,958 2.2% 420.2% 30.0% 7,886 1.2% + - - 0.39 + - 0.39 0.64 20,221Q2E 3,598 3.1% 654,022 10.8% 76,375 11.7% 26.1% 63,442 9.7% 15.2% 63,400 9.7% 15.1% 35,942 5.5% 36.6% 18,910 2.9% 108.5% 30.0% 11,840 1.8% 148.3% - - 0.59 148.3% - 0.59 0.59 20,221Q3E 3,539 7.0% 644,414 13.8% 74,430 11.6% 29.4% 62,074 9.6% 28.7% 62,100 9.6% 28.8% 34,574 5.4% 77.3% 17,698 2.7% 704.5% 30.0% 11,207 1.7% + - - 0.55 + - 0.55 0.17 20,221Q4E 3,678 13.5% 687,890 14.4% 84,941 12.3% 28.3% 69,977 10.2% 23.9% 70,000 10.2% 23.9% 42,477 6.2% 53.2% 25,758 3.7% 148.0% 30.0% 16,817 2.4% + - - 0.83 219.9% - 0.83 0.53 20,221

Dec-13E 14,400 5.9% 2,631,429 12.4% 306,790 11.7% 26.1% 254,141 9.7% 21.9% 254,100 9.7% 21.9% 144,141 5.5% 54.3% 76,324 2.9% 213.6% 30.0% 47,749 1.8% 427.0% - - 2.36 427.0% - 2.36 1.86 20,221Our 2013 EPS estimate includes $5.0 million ($0.25 per share) of restructuring expense.

Dec-14E 15,200 5.6% 2,724,803 3.5% 324,990 11.9% 5.9% 266,501 9.8% 4.9% 266,500 9.8% 4.9% 161,501 5.9% 12.0% 96,091 3.5% 25.9% 30.0% 61,215 2.2% 28.2% - - 3.03 28.2% - 3.03 - 20,221Dec-15E 15,500 2.0% 2,797,738 2.7% 339,212 12.1% 4.4% 276,348 9.9% 3.7% 276,400 9.9% 3.7% 171,348 6.1% 6.1% 108,599 3.9% 13.0% 30.0% 69,548 2.5% 13.6% - - 3.44 13.6% - 3.44 - 20,221

*Assumed contribution margin for 2012-2015 is in the range of 20-30% 2014E represents trend EPS with stock price of: $35 (40% CAGR)"Old Tower Automotive" filed for Chapter XI bankruptcy on February 2, 2005; the current company emerged from bankruptcy on July 31, 2007 when Cerberus purchased certain assets of "Old Tower Automotive" *As of February 16. 1) As defined and reported by the company to exclude items such as restructuring, receivables factoring charges, acquisition costs, and certain incentive compensation. Shares Outstanding (Dec-11)

EPS Sensitivity Target Price Sensitivity New Business Growth* Basic Shares 19,683Year Downside Base Upside Percentile Multiple Downside Base Upside Revenue Chg Options (Diluted) 5382010 ($5.05) ($2.36) $0.32 0th 2.9 $3 $6 $9 2010 0 0% Convertible Securities 02011 ($2.22) $1.26 $4.94 10th 3.2 $4 $8 $10 2011 115,000 6% Diluted Shares 20,221

25th 3.5 $5 $9 $12 2012 0 0% Cerberus Owns: 65% 2010 Macro Assumptions 2013 200,000 9% Management Owns: 3% Downside Base Upside Upside/Downside to Target Price 2011-2013 315,000 5% Headquartered: Livonia, Michigan

NA 10,700 11,910 13,100 Percentile Downside Base Upside * Revenue growth with flat NA build (ex-price of 1.3%).EU 5% 15% 25% 25th -78% -57% -35%

ROW 17% 27% 37% Median -71% -43% -28%Euro/$ $1.40 $1.40 $1.40 75th -64% -35% -14%


AB Volvo


AB Volvo (VOLV.B - SEK 94.60 – Outperform / Average Risk) Target Price: SEK 107 (8.2x Cal-2014E EBITDA, Discounted by 25% - Median Valuation of Last Cycle Range) Current View Margin Performance: Volvo has shown the ability to generate strong

incremental profitability on the rising truck/construction volumes seen recently. Both Truck and Construction Equipment operating margins are currently running at/near record levels.

Valuation: The stock recently traded near 7.2x estimated 2011 EBITDA, a discount to the 8.2x median valuation over the last cycle and nearly a full multiple point discount to a peer group of global commercial vehicle OEMs.

Major End Markets: The European and North American commercial truck/bus and construction equipment markets represent just over 50% of revenue. The company expects 14% growth in North America truck volumes and 11% growth in global construction equipment demand in 2012.

Margin Expansion: We expect Volvo to achieve higher profit margins over the next capital goods cycle than over previous cycles, after reducing structural costs by SEK 21 billion during the recession.

Product Line Expansion: Volvo’s primary strategy to outperform end markets is to expand its product lineup into unfilled areas, typically organically but occasionally via acquisition.

Key Risks: 1) cyclical end markets; 2) foreign exchange; 3) commodity risk; 4) credit markets/availability; 5) residual value risk; 6) union labor agreements; 7) government emissions/fuel efficiency regulations; 8) dual-class share structure; 9) major shareholders (Renault SA); 10) modeling risk; and 11) post-retirement liabilities.

Target Price. Our SEK 107 target price is based on the shares trading at 8.2x our estimate of 2014 EBITDA, the median percentile over the last cycle.

Company Description The Volvo Group, headquartered in Gothenborg, Sweden, is a leading global manufacturer of commercial trucks, construction and road building equipment, commercial buses, marine and industrial engines, and aircraft engine components with a meaningful presence in nearly every major geographic market worldwide. The Group also offers various financial services solutions to its customers via Volvo Financial Services. The Group can trace its roots back to 1915, with the first Volvo car produced in 1927 (a business that was divested in 1999), and has grown both organically and via acquisitions over the years to focus on providing a broad array of commercial transportation solutions in all regions of the world.

Stock Chart

Source: FactSet Revenue Profile – December 2011


'02 '03 '04 '05 '06 '07 '08 '09 '10 '110

3

6

9

12

0

40

80

120


'02 '03 '04 '05 '06 '07 '08 '09 '10 '11010

20

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40NTM Forward P/E

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1101

2

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4Price to Book


Europe37%

North America18%

(China 6%)

Asia Pacific23%

South America11%

Other6%

Commercial Truck65%

Construction21%

Bus7%

Penta3%

Aero2%

Finance2%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 AB Volvo (VOLV.B-OME David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012Joe Vruwink (414) 298-5934 [email protected] Summary Earnings Model

Jared Plotz (414) 298-7351 [email protected] Rating: Outperform12-Month Target Price (8.2x Cal-2014E EBITDA - Median Valuation of Last Cycle Range - Discounted by 25%): SEK 107

Last Cycle Range (2000-08) is 4.6-14.7x LTM EBITDA. Median is 8.2x.Current Multiple = 7.2x LTM EBITDA (35th percentile), 7.0x 2012E And 5.8x 2013E.

(in SEK millions) - Note: 1 U.S. Dollar Equals Approximately 6.7 SEK as of February 03, 2012Truck & Bus Production Revenue Gross Profit EBITDA (Industrial Group) Op. Income (Industrial Group) Op. Income (Volvo Group) Pre-Tax Income Tax Net Income Full-Diluted EPS* First Average

Year EU T&B Chg. NA Cl. 8 Chg. SEK Chg. SEK % Chg. SEK % Chg. SEK % Chg. SEK % Chg. SEK % Chg. Rate SEK % Chg. SEK Chg. Call* Shares

1995 248 - 171,511 - 13,172 7.7% - 13,048 7.6% - 28.7% 9,262 5.4% - 4.01 - 2,3111996 194 (21.5%) 156,060 (9.0%) 34,811 22.3% - 13,031 8.3% (1.1%) 14,203 9.1% 8.9% 12.8% 12,477 8.0% 34.7% 5.36 33.8% 2,3271997 224 15.2% 183,625 17.7% 44,635 24.3% 28.2% 12,515 6.8% (4.0%) 13,176 7.2% (7.2%) 20.5% 10,359 5.6% (17.0%) 4.58 (14.6%) 2,2631998 267 19.1% 212,936 16.0% 49,060 23.0% 9.9% 13,980 6.6% 11.7% 13,950 6.6% 5.9% 21.1% 8,638 4.1% (16.6%) 3.91 (14.5%) 2,208

Results prior to 1999 include Volvo Cars.1999 333 24.7% 116,635 (45.2%) 25,518 21.9% (48.0%) 7,463 6.4% (46.6%) 7,901 6.8% (43.4%) 28.7% 32,222 27.6% 273.0% 14.60 273.0% 2,208

Adjusted EPS for 1999, excluding non-recurring gain on the sale of Volvo Cars: 2.502000 252 (24.2%) 120,392 3.2% 23,261 19.3% (8.8%) 9,042 7.5% - 5,169 4.3% - 6,668 5.5% (10.7%) 6,246 5.2% (20.9%) 24.2% 4,709 3.9% (85.4%) 2.23 (84.7%) 2,1082001 146 (42.1%) 180,615 50.0% 31,138 17.2% 33.9% 6,046 3.3% (33.1%) (1,001) (0.6%) (119.4%) (676) (0.4%) (110.1%) (1,866) (1.0%) (129.9%) 17.5% (1,467) (0.8%) (131.2%) (0.69) (131.1%) 2,1122002 181 24.1% 177,080 (2.0%) 31,627 17.9% 1.6% 10,110 5.7% 67.2% 2,347 1.3% (334.5%) 2,837 1.6% (519.7%) 2,013 1.1% (207.9%) 29.3% 1,393 0.8% (195.0%) 0.66 (195.6%) 2,0972003 182 0.4% 174,768 (1.3%) 33,512 19.2% 6.0% 8,801 5.0% (12.9%) 1,578 0.9% (32.8%) 2,504 1.4% (11.7%) 1,657 0.9% (17.7%) 80.5% 298 0.2% (78.6%) 0.14 (78.6%) 2,0972004 269 48.0% 201,478 15.3% 43,718 21.7% 30.5% 19,807 9.8% 125.1% 13,314 6.6% 743.7% 14,679 7.3% 486.2% 13,036 6.5% 686.7% 24.0% 9,867 4.9% 3211.1% 4.71 3212.9% 2,0962005 297 - 339 26.0% 222,275 10.3% 50,368 22.7% 15.2% 23,010 10.4% 16.2% 16,118 7.3% 21.1% 18,151 8.2% 23.7% 18,014 8.1% 38.2% 27.2% 13,062 5.9% 32.4% 6.45 36.9% 2,0262006 348 17.1% 376 11.0% 249,020 12.0% 56,620 22.7% 12.4% 28,384 11.4% 23.4% 18,713 7.5% 16.1% 20,399 8.2% 12.4% 20,299 8.2% 12.7% 19.6% 16,268 6.5% 24.5% 8.04 24.7% 2,0242007 356 2.4% 212 (43.6%) 276,815 11.2% 62,635 22.6% 10.6% 30,306 10.9% 6.8% 20,583 7.4% 10.0% 22,231 8.0% 9.0% 21,557 7.8% 6.2% 30.3% 14,932 5.4% (8.2%) 7.37 (8.3%) 2,0262008 372 4.5% 206 (3.2%) 294,932 6.5% 62,685 21.3% 0.1% 25,482 8.6% (15.9%) 14,454 4.9% (29.8%) 15,851 5.4% (28.7%) 14,010 4.8% (35.0%) 28.5% 9,942 3.4% (33.4%) 4.91 (33.4%) 5.86 2,0272009 278 (25.5%) 118 (42.4%) 208,489 (29.3%) 28,909 13.9% (53.9%) (3,951) (1.9%) (115.5%) (16,333) (7.8%) (213.0%) (17,013) (8.2%) (207.3%) (20,575) (9.9%) (246.9%) 28.6% (14,720) (7.1%) (248.1%) (7.26) (248.0%) (6.67) 2,0272010 290 4.5% 154 30.2% 257,376 23.4% 59,895 23.3% 107.2% 29,170 11.3% + 17,833 6.9% + 18,000 7.0% + 15,513 6.0% + 27.7% 10,865 4.2% + 5.36 + 5.74 2,027

Q1 82 34.7% 51 47.0% 69,956 23.9% 17,475 25.0% 35.7% 9,001 12.9% 61.7% 6,343 9.1% 127.8% 6,522 9.3% 133.0% 5,847 8.4% 162.4% 28.5% 4,085 5.8% 143.0% 2.01 143.0% 1.89 2,027Q2 88 22.6% 61 72.0% 77,286 15.8% 18,668 24.2% 19.3% 9,698 12.5% 27.3% 7,398 9.6% 55.4% 7,648 9.9% 60.4% 7,249 9.4% 59.6% 27.7% 5,117 6.6% 62.7% 2.52 62.7% 2.42 2,027Q3 84 12.1% 68 69.9% 71,559 15.0% 16,420 22.9% 8.0% 8,507 11.9% 9.1% 5,523 7.7% 13.5% 5,774 8.1% 17.5% 5,443 7.6% 28.0% 28.4% 3,827 5.3% 36.4% 1.89 36.4% 1.93 2,027Q4 91 10.0% 75 71.0% 84,788 17.8% 19,510 23.0% 20.8% 9,593 11.3% 17.2% 6,693 7.9% 23.5% 6,955 8.2% 26.0% 6,390 7.5% 42.2% 24.9% 4,722 5.6% 46.1% 2.33 46.0% 2.31 2,027

2011 345 18.9% 255 65.5% 303,588 18.0% 72,073 23.7% 20.3% 36,799 12.1% 26.2% 25,957 8.6% 45.6% 26,898 8.9% 49.4% 24,929 8.2% 60.7% 27.3% 17,751 5.8% 63.4% 8.76 63.3% 8.95 2,027

Q1E 78 (5.0%) 71 38.1% 73,456 5.0% 16,575 22.6% (5.1%) 7,514 10.2% (16.5%) 4,764 6.5% (24.9%) 5,302 7.2% (18.7%) 4,811 6.5% (17.7%) 30.0% 3,353 4.6% (17.9%) 1.65 (17.9%) 1.90 2,027Q2E 75 (15.0%) 72 19.1% 81,146 5.0% 18,704 23.0% 0.2% 9,019 11.1% (7.0%) 6,269 7.7% (15.3%) 6,789 8.4% (11.2%) 6,329 7.8% (12.7%) 30.0% 4,416 5.4% (13.7%) 2.18 (13.7%) 2.20 2,027Q3E 67 (20.0%) 69 0.4% 72,827 1.8% 16,674 22.9% 1.5% 7,856 10.8% (7.7%) 5,106 7.0% (7.5%) 5,646 7.8% (2.2%) 5,218 7.2% (4.1%) 30.0% 3,638 5.0% (5.0%) 1.79 (5.0%) 1.79 2,027Q4E 91 0.0% 73 (2.5%) 86,534 2.1% 19,946 23.1% 2.2% 9,378 10.8% (2.2%) 6,628 7.7% (1.0%) 7,144 8.3% 2.7% 6,747 7.8% 5.6% 30.0% 4,708 5.4% (0.3%) 2.32 (0.3%) 2.08 2,027

2012E 311 (9.9%) 285 11.6% 313,963 3.4% 71,899 22.9% (0.2%) 33,768 10.8% (8.2%) 22,768 7.3% (12.3%) 24,881 7.9% (7.5%) 23,106 7.4% (7.3%) 30.0% 16,114 5.1% (9.2%) 7.95 (9.2%) 7.93 2,027

Q1E 80 2.5% 71 0.1% 79,164 7.8% 18,059 22.8% 9.0% 8,489 10.7% 13.0% 5,739 7.2% 20.5% 6,326 8.0% 19.3% 5,981 7.6% 24.3% 30.0% 4,171 5.3% 24.4% 2.06 24.4% - 2,027Q2E 77 2.5% 75 4.6% 87,862 8.3% 20,450 23.3% 9.3% 10,111 11.5% 12.1% 7,361 8.4% 17.4% 7,940 9.0% 17.0% 7,646 8.7% 20.8% 30.0% 5,338 6.1% 20.9% 2.63 20.9% - 2,027Q3E 69 2.5% 74 7.1% 80,025 9.9% 18,545 23.2% 11.2% 9,086 11.4% 15.7% 6,336 7.9% 24.1% 6,937 8.7% 22.9% 6,694 8.4% 28.3% 30.0% 4,671 5.8% 28.4% 2.30 28.4% - 2,027Q4E 93 2.5% 77 5.5% 91,272 5.5% 21,178 23.2% 6.2% 10,625 11.6% 13.3% 7,875 8.6% 18.8% 8,461 9.3% 18.4% 8,270 9.1% 22.6% 30.0% 5,774 6.3% 22.6% 2.85 22.6% - 2,027

2013E 319 2.5% 295 3.6% 338,323 7.8% 78,233 23.1% 8.8% 38,311 11.3% 13.5% 27,311 8.1% 20.0% 29,665 8.8% 19.2% 28,591 8.5% 23.7% 30.0% 19,954 5.9% 23.8% 9.84 23.8% 9.62 2,027

2014E 334 5.0% 315 6.8% 361,775 6.9% 84,096 23.2% 7.5% 40,728 11.3% 6.3% 29,728 8.2% 8.9% 32,144 8.9% 8.4% 31,771 8.8% 11.1% 30.0% 22,179 6.1% 11.2% 10.94 11.2% - 2,0272015E 334 0.0% 315 0.0% 378,528 4.6% 88,284 23.3% 5.0% 43,854 11.6% 7.7% 32,354 8.5% 8.8% 34,796 9.2% 8.3% 35,125 9.3% 10.6% 30.0% 24,527 6.5% 10.6% 12.10 10.6% - 2,027

Assumed contribution margin for 2013-2015 is in the range of 25-30%2014E represents trend EPS with stock price of: SEK 164 (22% CAGR)

Industrial Group: includes Volvo Truck, Volvo Construction Equipment, Volvo Bus, Volvo Penta, and Volvo Aero *As of February 3.Volvo Group: includes the Industrial Group as well as Volvo Financial Services Shares Votes Shares Outstanding (Dec-11)

EPS Sensitivity Target Price Sensitivity As of December 2011 # % # % Basic Shares 2,027Year Downside Base Upside Percentile Multiple Downside Base Upside Class A 1 Vote 643 31.7% 643 82.3% Options (Diluted) 0

2010 3.20 5.36 7.50 25th 6.6 41 50 56 Class B 1/10 of 1 Vote 1,385 68.3% 138 17.7% Diluted Shares 2,0272011 6.30 8.76 11.20 Median 8.2 54 65 71 Total 2,027 100.0% 781 100.0% Insider Ownership1: 7%

75th 9.7 65 78 86 Headquartered: Gothenburg, Sweden2011 Macro Assumptions 1) Consists of 5.5% Volvo; management

Downside Base Upside Upside/Downside to Target Price owns <1%NA CV 256 285 313 Percentile Downside Base UpsideEU CV 280 311 342 25th (56.5%) (47.0%) (41.3%) RoW CV (5.9%) 4.1% 14.1% Median (43.5%) (31.6%) (24.5%) CE (0.0%) 10.0% 20.0% 75th (31.3%) (17.2%) (8.8%) Bus 0.0% 10.0% 20.0%Penta (5.0%) 5.0% 15.0%Aero (7.5%) 2.5% 12.5%


SEK 94.60)

WABCO Holdings


WABCO Holdings (WBC - $60.72 – Outperform / Higher Risk) Target Price: $69 (8.0 x Cal-2014E EBITDA, Discounted by 15% - Median Valuation of Commercial Vehicle Peers over Last Cycle) Current View Earnings Momentum: WABCO has significant earnings momentum,

beating analyst expectations each of the last eight quarters. We expect this momentum to continue into 2012, as the North American truck market continues recovery and the company increases content growth globally.

Strong Content Growth Story: WABCO has perhaps the best content growth story among commercial vehicle suppliers, capitalizing on secular trends toward increased safety and fuel efficiency with its product portfolio of braking technology, air management systems, and electronics capabilities. Content growth potential is largest in emerging markets, which represent more than 20% of revenue.

Strong Cash Flow: We expect average free cash flow of more than $350 million annually through 2015, which we expect will fund acquisitions, dividends, or repurchases.

Key Risks: 1) the cyclicality of European/North American commercial vehicle markets; 2) contractual price reductions; 3) major customers; 4) costs to develop new technologies, enter new markets; 5) foreign exchange; 6) rising commodity prices; and 7) post-retirement liabilities.

Target Price. Our $69 target price is based on the shares trading at 8.0x our estimate of 2014 EBITDA, the median percentile over the last cycle of a comparable group of commercial vehicle suppliers.

Company Description WABCO Holdings Inc., headquartered in Brussels, Belgium, is a leading provider of air management and electronic technologies, supplying advanced braking, stability, suspension, transmission control, and air compressing and processing systems for the world's leading commercial truck, trailer, bus, and passenger car manufacturers. The company's products improve vehicle performance and safety and reduce overall vehicle operating costs. WABCO was founded in 1869 as the Westinghouse Air Brake Company, purchased by American Standard Companies Inc. in 1968, and separated and spun off to shareholders in July 2007.

Stock Chart

Source: FactSet Revenue Profile– December 2011


'02 '03 '04 '05 '06 '07 '08 '09 '10 '110

2

4

6

8

0

20

40

60


'02 '03 '04 '05 '06 '07 '08 '09 '10 '11010

20

30

40NTM Forward P/E

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1105

10

15

20Price to Book

By Geography By End Market By Customer (estimated)

North America 9%

Europe 62%

(China 6%)

(India 7%)

Asia Pacific 18%

South America 7%

Rest of World 6%

Truck and Bus 64%

Aftermarket 23%

Trailer 9%

Automotive 4%

Daimler 12%

Volvo 11%

Other truck bus 41%

Aftermarket Distributors

23%

Trailer Manufacturers

9%

Auto OEMs 4%

BAIRD 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202 WABCO Holdings, Inc. (WBC $60.72)David Leiker, CFA (414) 298-7535 [email protected] February 24, 2012

Joe Vruwink (414) 298-5934 [email protected] Rating: Outperform

Jared Plotz (414) 298-7351 [email protected] Summary Earnings Model12-Month Target Price (8.0x Cal-2014E EBITDA, Median Valuation of Peer Group Last Cycle Range, Discounted by 15%): $69

Last Cycle Range (2000-08) is 1.7-11.2x LTM EBITDA. Median is 7.3x.

Current Multiple = 7.9x LTM EBITDA (58th percentile), 7.3x 2012E And 5.6x 2013E.

($ in millions)EU CV Build NA CV Build NA LV Build Revenues Gross Profit EBITDA Operating Income Pretax Income Tax Net Income Fully Diluted EPS GAAP First Avg

Year (000) Chg (000) Chg (000) Chg $ Chg $ % Chg $ % Chg $ % Chg $ % Chg Rate $ % Chg $ Chg EPS Call* Shs

Dec-92 730.0 - Dec-93 563.0 (22.9%)Dec-94 759.0 34.8%Dec-95 998.0 31.5%Dec-96 916.0 (8.2%)Dec-97 952.0 3.9%Dec-98 1,106.0 16.2%Dec-99 1,098.0 (0.7%)Dec-00 - - 483 - 17,166 - 1,069.0 (2.6%) - - - - - - - - - - - Dec-01 - - 343 - 15,483 (9.8%) 960.0 (10.2%) - - - - - - - - - - - -

Results prior to 2002 reflect the company's performance as an operating segment of American StandardDec-02 - - 383 11.9% 16,367 5.7% 1,057.0 10.1% 289.4 27.4% - - - - 96.4 9.1% - 112.3 10.6% - 27.2% 81.7 7.7% - 1.18 - 69.0Dec-03 - - 378 (1.3%) 15,873 (3.0%) 1,358.0 28.5% 385.7 28.4% 33.3% - - - 145.9 10.7% 51.3% 148.7 10.9% 32.4% 24.6% 112.1 8.3% 37.2% 1.62 37.2% 69.0Dec 04 - - 504 33.2% 15,752 (0.8%) 1,724.0 27.0% 471.4 27.3% 22.2% 262.2 15.2% - 192.5 11.2% 31.9% 214.6 12.4% 44.3% 10.8% 191.4 11.1% 70.7% 2.77 70.7% 69.0Dec-05 552 - 592 17.4% 15,751 (0.0%) 1,831.0 6.2% 518.5 28.3% 10.0% 288.0 15.7% 9.8% 211.5 11.6% 9.9% 232.7 12.7% 8.4% 37.6% 145.3 7.9% (24.1%) 2.11 (24.1%) 69.0Dec-06 577 - 651 - 15,252 (3.2%) 2,015.2 10.1% 553.1 27.4% 6.7% 315.3 15.6% 9.5% 233.5 11.6% 10.4% 234.3 11.6% 0.7% 36.4% 148.9 7.4% 2.5% 2.16 2.5% 69.0

2006 Performance EPS = $2.07Dec-07 704 22.1% 418 (35.8%) 15,022 (1.5%) 2,415.8 19.9% 652.4 27.0% 18.0% 373.5 15.5% 18.5% 281.2 11.6% 20.4% 276.4 11.4% 18.0% 24.7% 208.2 8.6% 39.8% 3.01 39.4% 69.3Dec-08 714 1.4% 364 (13.0%) 12,579 (16.3%) 2,588.0 7.1% 704.7 27.2% 8.0% 395.9 15.3% 6.0% 301.6 11.7% 7.3% 305.1 11.8% 10.4% 19.2% 246.6 9.5% 18.4% 3.73 24.0% 3.34 3.76 65.9Dec-09 281 (60.7%) 216 (40.6%) 8,558 (32.0%) 1,491.6 (42.4%) 365.9 24.5% (48.1%) 128.9 8.6% (67.4%) 39.2 2.6% (87.0%) 45.5 3.1% (85.1%) 32.3% 25.7 1.7% (89.6%) 0.40 (89.3%) 0.27 0.33 64.5Dec-10 399 42.1% 272 25.9% 11,910 39.2% 2,175.9 45.9% 620.4 28.5% 69.6% 318.6 14.6% 147.1% 236.5 10.9% + 237.1 10.9% + 14.7% 190.2 8.7% + 2.86 + 2.72 2.73 66.5

Q1 116 60.0% 91 47.3% 3,350 16.0% 678.2 38.1% 197.7 29.2% 40.7% 112.3 16.6% 69.1% 92.2 13.6% 102.2% 94.7 14.0% 111.4% 14.3% 77.6 11.4% 131.0% 1.12 120.1% 1.66 0.93 69.0Q2 126 30.0% 105 65.9% 3,100 0.5% 737.7 44.0% 218.2 29.6% 45.5% 121.1 16.4% 57.9% 101.9 13.8% 81.3% 101.4 13.7% 90.6% 13.8% 86.1 11.7% 107.5% 1.23 95.6% 1.23 1.09 70.1Q3 123 26.0% 110 57.0% 3,172 6.5% 706.3 29.6% 205.2 29.1% 36.1% 115.0 16.3% 46.2% 95.8 13.6% 66.0% 97.8 13.8% 63.0% 13.1% 81.9 11.6% 73.9% 1.19 68.4% 1.19 1.14 68.7Q4 137 3.0% 115 51.1% 3,421 15.5% 672.0 7.1% 189.5 28.2% 5.8% 110.6 16.5% 14.3% 91.1 13.6% 18.3% 93.2 13.9% 17.8% 9.9% 80.7 12.0% 18.7% 1.21 20.1% 1.21 1.17 66.8

Dec-11 501 25.5% 422 55.0% 13,043 9.5% 2,794.2 28.4% 810.6 29.0% 30.7% 459.0 16.4% 44.1% 381.0 13.6% 61.1% 387.1 13.9% 63.3% 12.8% 326.3 11.7% 71.6% 4.75 66.2% 4.75 4.71 68.6

Q1E 116 0.0% 115 25.8% 3,564 6.4% 642.4 (5.3%) 177.0 27.5% (10.5%) 104.7 16.3% (6.7%) 81.9 12.7% (11.2%) 86.0 13.4% (9.2%) 16.5% 68.2 10.6% (12.1%) 1.04 (7.5%) 1.04 1.11 65.5Q2E 113 (10.0%) 117 11.2% 3,490 12.6% 702.7 (4.7%) 204.5 29.1% (6.3%) 120.5 17.1% (0.5%) 97.7 13.9% (4.2%) 100.2 14.3% (1.2%) 16.5% 82.3 11.7% (4.4%) 1.26 2.3% 1.26 1.19 65.5Q3E 110 (10.0%) 113 2.7% 3,307 4.3% 689.0 (2.5%) 198.5 28.8% (3.3%) 115.9 16.8% 0.8% 93.1 13.5% (2.8%) 95.6 13.9% (2.3%) 16.5% 76.7 11.1% (6.3%) 1.17 (1.8%) 1.17 1.16 65.5Q4E 130 (5.0%) 115 (0.9%) 3,240 (5.3%) 688.6 2.5% 196.6 28.6% 3.7% 116.9 17.0% 5.7% 94.0 13.7% 3.2% 96.7 14.0% 3.8% 16.5% 77.2 11.2% (4.3%) 1.18 (2.4%) 1.18 1.21 65.5

Dec-12E 469 (6.3%) 460 9.0% 13,600 4.3% 2,722.7 (2.6%) 776.5 28.5% (4.2%) 458.0 16.8% (0.2%) 366.6 13.5% (3.8%) 378.4 13.9% (2.2%) 16.5% 304.4 11.2% (6.7%) 4.65 (2.2%) 4.65 4.66 65.5RWB est. up 1.4% in local currency. February 2: 2012 Guidance: Revenue down 2% to up 3% in local currency, performance operating margin 12.8-13.8%; EPS $4.30-4.80

Q1E 122 5.0% 117 2.1% 3,585 0.6% 731.2 13.8% 203.6 27.8% 15.1% 124.0 17.0% 18.4% 96.5 13.2% 17.8% 101.4 13.9% 17.9% 16.5% 80.8 11.0% 18.5% 1.23 18.5% 1.23 - 65.5Q2E 119 5.0% 125 6.8% 3,598 3.1% 797.4 13.5% 232.9 29.2% 13.9% 144.4 18.1% 19.8% 116.9 14.7% 19.7% 120.4 15.1% 20.2% 16.5% 99.1 12.4% 20.4% 1.51 20.4% 1.51 - 65.5Q3E 121 10.0% 117 3.0% 3,539 7.0% 796.7 15.6% 230.8 29.0% 16.3% 140.8 17.7% 21.4% 113.3 14.2% 21.7% 116.7 14.6% 22.1% 16.5% 94.1 11.8% 22.7% 1.44 22.7% 1.44 - 65.5Q4E 130 0.0% 121 5.6% 3,678 13.5% 770.5 11.9% 221.2 28.7% 12.5% 137.3 17.8% 17.5% 109.8 14.3% 16.8% 113.6 14.7% 17.5% 16.5% 91.1 11.8% 18.0% 1.39 18.0% 1.39 - 65.5

Dec-13E 491 4.8% 480 4.4% 14,400 5.9% 3,095.7 13.7% 888.5 28.7% 14.4% 546.5 17.7% 19.3% 436.5 14.1% 19.0% 452.1 14.6% 19.5% 16.5% 365.0 11.8% 19.9% 5.57 19.9% 5.57 5.67 65.5

Dec-14E 506 2.9% 520 8.3% 15,200 5.6% 3,465.6 12.0% 999.4 28.8% 12.5% 631.4 18.2% 15.5% 506.4 14.6% 16.0% 527.1 15.2% 16.6% 16.5% 426.8 12.3% 16.9% 6.52 16.9% 6.52 - 65.5Dec-15E 506 0.0% 520 0.0% 15,500 2.0% 3,836.5 10.7% 1,110.7 29.0% 11.1% 688.9 18.0% 9.1% 563.9 14.7% 11.4% 588.8 15.3% 11.7% 16.5% 477.4 12.4% 11.8% 7.29 11.8% 7.29 - 65.5

2014E represents trend EPS with stock price of: $92 (20% CAGR)*As of February 2.

EPS Sensitivity Target Price Sensitivity New Business Growth*Year Downside Base Upside Percentile Multiple Downside Base Upside Year $ % Basic Shares 65.32010 #VALUE! $2.86 #VALUE! 25th 6.5 $28 $33 $34 2008 $200 8% Dilutive Securities 1.52011 $3.80 $4.75 $5.75 Median 8.0 $33 $39 $41 2009 $225 9% Diluted Shares 66.8

75th 9.5 $38 $45 $48 2010 $40 3% Insiders Own: <1%2011 Macro Assumptions 2011 $218 10% Headquartered: Brussels, Belgium

Downside Base Upside Upside/Downside to Target Price 2012 $140 5%EU CV 15% 25% 35% Percentile Downside Base Upside 2013 $218 8%NA CV 380 422 464 25th -50% -41% -38% 2011-13 $575 8%

ROW CV (15%) (5%) 5% Median -41% -29% -26% * Revenue growth with flat build (ex-price of -2%). Aftmkt (1%) 9% 19% 75th -32% -18% -14%Trailer 191 212 233NA LV 11,700 13,043 14,300$/Euro $1.30 $1.30 $1.30

Source for all models: Company reports, Robert W. Baird & Co. estimates.© 2012 | Please refer to Appendix - Important Disclosures and Analyst Certification.

Shares Outstanding (Dec-11)

Appendix – Important Disclosures and Analyst Certification

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Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months.

Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H - Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market dynamics, high leverage, extreme price volatility and unknown competitive challenges.

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The senior research analyst(s) certifies that the views expressed in this research report and/or financial model accurately reflect such senior analyst's personal views about the subject securities or issuers and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report.

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Copyright 2012 Robert W. Baird & Co. Incorporated

Other Disclosures

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Contacts

Research M&A and Investment Banking Baird Capital Partners

North America United Kingdom

David Leiker, CFA Steven G. Booth John Fordham Andrew BrickmanDirector Head of Investment Banking Chairman, Baird International Partner

414.298.7535 414.298.7661 011.44.207.667.8438 312.609.4702

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

Joe Vruwink Thomas W. Lacy Nick Sealy Research Analyst Managing Director Managing Director,

414.298.5934 414.298.7648 Co-Head, European Investment Banking

[email protected] [email protected] +44 (0) 20 7667 8370 [email protected]

Jared Plotz Adam W. Czaia Lance R. LangeResearch Analyst Director Managing Director414.298.7351 414.298.7358 414.765.7079

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

Germany Asia

Joachim Beickler Anthony SiuManaging Director Managing Director

011.49.69.13.01.49.51 011.86.21.6182.0980

[email protected] [email protected]

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Managing Director

011.49.69.13.01.49.49

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Robert W. Baird & Co. www.rwbaird.com 800.RW.BAIRD

Equity Capital Markets and Private Equity Office Locations

U.S. Offices Atlanta One Buckhead Plaza 3060 Peachtree Road Suite 1815 Atlanta, GA 30305 888.792.9478 Boston One Post Office Square Suite 3617 Boston, MA 02109 888.661.5431 Charlotte 4725 Piedmont Row Drive Piedmont Town Center Two Suite 750 Charlotte, NC 28210 704.553.6600 Chicago 227 West Monroe Street Suite 2100 Chicago, IL 60606 800.799.5770 Milwaukee 777 East Wisconsin Avenue Milwaukee, WI 53202 888.224.7326 Nashville 2525 West End Avenue Suite 1000 Nashville, TN 37203 888.454.4981 Palo Alto 1661 Page Mill Road Suite A Palo Alto, CA 94304 650.858.3800

San Francisco 101 California Street Suite 2450 San Francisco, CA 94111 866.715.4024 555 California Street Suite 1350 San Francisco, CA 94104 415.627.3270 St. Louis 8000 Maryland Avenue Suite 500 St. Louis, MO 63105 888.792.7634 Stamford 100 First Stamford Place 3rd Floor Stamford, CT 06902 800.380.3247 Tampa 401 East Jackson Street Suite 2900 Tampa, FL 33602 888.238.2672 Washington, D.C. Pinnacle Tower North 1751 Pinnacle Drive Suite 1100 McLean, VA 22102 888.853.2753

International Locations* Frankfurt Neue Mainzer Strasse 28 60311 Frankfurt Germany 011.49.69.13.01.49.0 Hong Kong Suite 3304, 33/F Bank of America Tower No.12 Harcourt Road Central, Hong Kong 011.852.2827.8822

London Mint House 77 Mansell Street London E1 8AF UK 011.44.207.488.1212 Shanghai Rm 42-022, 42/F, Hang Seng Bank Tower No.1000 Lujiazui Ring Road Pudong Shanghai 200120, China 011.86.21.6182.0980

*Baird and its operating affiliates have offices in the United States, Europe and Asia. Robert W. Baird & Co. Incorporated. Member SIPC. Robert W. Baird Ltd. and Baird Capital Partners Europe are authorized and regulated in the UK by the Financial Services Authority. ©2012 Robert W. Baird & Co. Incorporated.

Automotive Markets Report

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Transcript of Automotive Markets Report