While Making Strides, Claas Still Seeks NA Brand Identity Decision

Vol. 13, Issue 1

News, Information & Analysis for the Ag Equipment Marketer May 15, 2006 While Making Strides, Claas Still Seeks NA Brand Identity Claas, the Harsewinkel, Germany- as well. Gains in the U.S. market large- confused the market a bit,”says Russ based manufacturer of farm equip- ly came from sales of its Caterpillar- Green, executive vice president and ment and Europe’s largest manufac- branded Lexion combines.And this is general manager, Claas-Lexion Div.“But turer of harvesting equipment, is gain- where the Claas brand becomes hazy. we need them (Cat dealers) to have ing momentum in its attempts to In the U.S., 95% of Lexion com- stellar products at their disposal to establish a significant presence in the bines are sold through Cat Challenger meet the needs of the customer.The U.S. ag industry.With the construction dealers. But many Cat dealers also han- tractors do that, but the combine has of its $25 million assembly plant in dle Challenger combines and other caused some confusion.” Omaha, Neb. in 2001, and a distribu- farm equipment through Cat’s part- Despite this, Claas continues to tion and service facility in Columbus, nership with AGCO, diluting Claas’ improve its U.S. market position as it Ind., Claas is starting to make waves in efforts to firmly establish the Lexion experienced a 37.6% increase in ’05 North America. brand and creating a level of confu- sales revenues from its Omaha-based In 2005, Claas set a record for its sion for potential customers. company. worldwide sales of farm equipment as When Challenger rolled out its Green also says that the Claas- it neared the $2.5 billion mark for the new 680B model combine and MT900 Jaguar line of forage equipment is first time.At the same time, as report- tractor line earlier this year, it was making significant gains in the U.S. ed in Ag Industry Watch (Jan. 2006), clearly challenging the Lexion VIII markets. Jaguar claims 50% market Claas reported a “substantial improve- combines and the “Caterpillar” situa- share worldwide and 40% in North ment”in North American sales in 2005 tion became even cloudier. “Yes,it has America after 7 years.The company is Continued on page 2

Decision to Drop Implements Leaves Gehl’s Ag Dealers in a Quandary In the wake of its decision to drop In a report in Country Today of ers. Some people are looking to production of farm implements, Gehl Eau Claire, Wis., Jim Massey inter- upgrade their current Gehl stuff to Co.’s ag dealers are finding themselves viewed several Gehl dealers and the new Gehl equipment that we in a quandary trying to fill customer found them to be generally disgrun- have on hand. Unfortunately, a lot of needs and fill gaping holes in their tled with the way the company han- stuff that was on order or on the lot is product lines. dled the decision to exit the farm selling fast.” Gehl is best known for forage har- implement business. Vanderloop is one of many imple- vesters, mixer-feeder mills, disc mow- Scott Vanderloop of Vanderloop ment dealers dealing with Gehl's deci- ers, manure spreaders, windrow merg- Equipment in Marathon,Wis., says “We sion to shut down its agricultural equip- ers and other related equipment. get probably 10 calls a day from farm- ment line. The move likely will affect Continued on page 3 DROPPING AG IMPLEMENTS DROPS GEHL’S FIRST-QUARTER PROFITS Gehl Co., West Bend, Wis., reports that it lost $2.7 million dur- lion expansion of its Yankton, S.D., facility for producing tele- ing the first quarter despite a 12.2% increase in sales to a handlers. The expansion is in response to the continuing new record high as the firm assumed a $8.9 million after-tax strength of telehandler markets and Gehl’s strong perform- charge to exit the agricultural implement business. ance in those markets. Sales in the 2006 first quarter soared to $122.1 million. A year The project includes a $2.2 million, 30,000-square foot ago, it earned $4.9 million from narrower sales of $108.9 million. expansion of the facility as well as $4.3 million in further tech- Nonetheless, the company remains optimistic for 2006 full- nological production enhancements to include increased laser year performance. Gehl projects that it will earn $485-$495 cutting, robotics and an entirely new paint system. When com- million from continuing operations for all of this year. pleted in January of 2007, telehandler production capacity will The company also announced that it is planning a $6.5 mil- be 50% greater than today.

The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. Continued from page 1 also making a push with its Cougar only its second year of marketing the U.S. market for forage harvesting brand of mowers, offering the largest Claas-branded line. equipment, the firm’s investment in unit available with a 45-foot width that Green indicates that Claas has no its state-of-the-art facility built 5 years fold down to 10 feet for transport. firm plans to introduce a tractor to ago in Omaha should blunt the skep- the North American market — yet. ticism. Ag Industry Watch editors Tractors on the Horizon? “We think the tractor market here is toured the facility in April. On another front, Claas may also cluttered but we haven’t crossed it off The 160,000 square-foot plant have designs of getting into the tractor yet; it isn’t off the radar as of yet,”he and assembly complex includes a end of the North American ag equip- says. One stumbling block is the 40,000 square foot office, showroom ment business.With its acquisition of a Deere engine, which it would replace and theatre area. Built on a 180-acre controlling interest in Renault upon entering with a tractor stateside. site on the outskirts of the city, there Agriculture 3 years ago, Claas has is enough room to easily double the become the market leader in France for State-of-the-Art Facility size of the current facility. farm machinery.The company’s tractor If there was any doubt about the Following European and Japanese sales in Germany grew 35% last year in Claas commitment to move into the models of establishing a U.S. presence, the facility is for assembly operations CLAAS: A 93-YEAR HISTORY only with little or no manufacturing capability.Combine sub-assemblies are The CLAAS group (Claas KGaA) was founded in 1913 by August Claas, the com- shipped from the Harsewinkel company is still primarily owned today by his son, Dr. Helmut Claas. They are the only plex for final assembly in Nebraska two chief executives in its 93-year history of the firm. with unspecified North American con- Currently Claas employs 8,000 people worldwide, an increase of 2,000 employees during the last 2 years since its Renault tractor acquisition. Claas does business tent. About 90% of the assembly is in 180 nations with 15 operations worldwide, including a new facility in Russia pat- completed in Germany,with finishing terned after the Omaha plant. operations completed in Omaha. The company claims to be the worldwide market leader in the manufacture According to Claas, parts can be and sales of self-propelled forage harvesters, stating that every 1 of 2 forage har- shipped from Germany anywhere in vesters is a Claas product. the world in 24 hours.

New Holland Switches Some Combine Production from U.S. to Belgium European farmers buying a New 2004, with even higher demand in Freeman says he welcomes CR Holland CR combine for the 2006 har- Germany and Great Britain.” production start-up at Zedelgem: “It vest will,for the first time,get a machine British grain farmers are the largest takes 8 weeks for a combine to reach built in Belgium rather than the U.S. users of big combines; big rotaries now the U.K. from Grand Island and that Adding the two-model high out- account for more than 40% of the mar- puts a lot of pressure on dealers to put rotary combine line-up to the ket. Major restructuring in the farming complete pre-delivery inspections and product portfolio at CNH Global’s sector has seen growers take on more install combines on-farm as harvest- Zedelgem factory will ease a capacity acres, either by purchasing land or ing season approached,”he explains. squeeze at the Grand Island, Neb. farming neighboring land on contract, “A shorter supply line should ease plant, where the CR combines will and driving down labor and other that pressure,” Freeman adds. “But it continue to be made for North operating costs by swapping out two will also be easier to accommodate American and other markets, while or even three harvesters for one higher late changes to specification, channel shortening the supply line to capacity machine. customer feedback direct to the engi- European customers. According to Paul Freeman, CNH neering group; and to take more “It also makes sense to build this rotary combine specialist, the CR mod- potential customers to see the combine in Europe because of the els represent 40% of New Holland Zedelgem factory.” clear growth in demand for this size combine sales in Britain with the top- Production is scheduled to rise to of machine,”says Xavier Autonell, New performance CR980 model being its 1,300 units this year, says plant man- Holland marketing. “Sales of high- best-seller.Typically, this machine will ager Zbigniew Pokorski, along with capacity rotary combines across tackle 2,500-3.000 acres of grain yield- increased volumes of components to Europe have grown from around 11% ing 8-10 ton/acre during a 6-7 week CNH’s Grand Island, Zedelgem and through the late-1990s to 23% in harvest season. Curitiba, Brazil combine plants.

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2 Ag Industry Watch/May/2006 Continued from page 1 the bottom line of many dealers. is really going to hurt us (to not be able “With lead times, having to pur- “It's going to affect us big time,” to sell it),”says Aschliman.“We are hoping chase components and steel, and the says Dave Schellinger,sales manager of that somebody we do business with will production schedule, it would be Farmers', Inc. in Allenton,Wis.“The red buy out that line of equipment.” impossible for anyone to gear up and paint — the agricultural part of what “With the exit of Gehl, John make another 100 choppers for us,” they've discontinued — was a very, Deere and New Holland are going to he said.“They just can't do it.And in very important part of our business. be a little bit happier,”Vanderloop another month or less we're going to We're trying to align ourselves with says. He admits that he was surprised start needing them.” some other manufacturers to fill some Gehl did not “spin off” its agricultural of that product line, but we're not equipment line to another company, Not a Surprise for Some going to be able to fill it all.” rather than simply discontinuing the Chuck Endres, salesman for Mid- implements altogether. State Power & Equipment in Timing Hurts Dealers “All of their agricultural stuff was Columbus, Wis., says Mid-State own- Schellinger says he wasn't totally pretty highly developed equipment ers could “smell this coming,” and surprised by the Gehl announcement on the upper edge of the market,” began phasing out the Gehl equip- but didn't think it would happen according to Vanderloop.“But I know ment line. when it did. the population of those machines was “We knew it was coming, so we “I could see it coming,” he says. declining year after year. It was a busi- held back,”says Endres.The discontin- “They were in a declining market.If they ness decision (to stop manufacturing uation of Gehl equipment likely will were going to make the decision,I wish the equipment).” affect dealers who have used equip- they would have made it 4-5 months ago Schellinger said Farmers' Inc. also ment on their lots.“The resale of that so we would have had time to react for sells Case IH haying equipment, and used equipment dropped 20-30% this upcoming season, instead of at the that brand will more than likely see (since the announcement),” he says. midnight hour,so to speak.” an increase in sales this year. But Case “The good Gehl dealers who were “Gehl has always been known as IH and other equipment companies really selling a lot of product are going some of the heavier-built equipment,so it won't be able to totally fill Gehl's void. to be devastated.”

Feterl Grain Handling Vietnam Considers Equipment Unit Announces Layoffs Purchase Program Program Feterl Manufacturing, Salem, S.D., initiated temporary layoffs on April 27. In the statement, the company report- The Industry Ministry in Vietnam will submit an installment ed that its grain-handling unit is under performing; payment program to support the purchase of farm equipment although its other two units (Feterl Crane Service Bodies by the country’s farmers.At a meeting in Hanoi on April 17, the and Feterl/PUG Utility Vehicles) remained on track.The ministry said that 27 provinces support purchase of farm company said that it made the decision to conserve cash machines by providing farmers with soft loans. However, the flow by curtailing the manufacture of excess grain han- policy isn’t meeting needs to purchase equipment to increase dling equipment inventory.The firm attributed the situ- ag production.The new policy aims to promote mechanization ation to reduced floor plan terms, current dealer inven- and increase productivity in rural areas.The ministry proposed tory levels and a perception of a soft farm market, which the policy on support for farm machine purchases be com- it says stems from high costs for fuel, fertilizer and chem- bined with its poverty reduction program. icals and dramatic increase in steel prices.

FARM MACHINERY TICKER (AS OF 5/11/2006) 5/11/06 4/12/06 1-Year 1-Year P/E Avg. Market Mfr. Symbol Price Price High Low Ratio Volume Cap.

AGCO AG $27.06 $22.46 $28.69 $14.60 90.20 1.82 M 2.45 B Alamo ALG $21.60 $21.06 $24.85 $18.04 18.95 10,200 210.60 M Art’s Way ARTW $8.45 $5.90 $9.19 $4.50 17.98 24,700 16.67 M Caterpillar CAT $79.62 $77.84 $82.03 $44.27 17.97 4.91 M 53.03 B CNH CNH $29.49 $26.98 $30.50 $15.79 35.96 193,300 6.94 B Deere DE $88.62 $84.05 $91.98 $56.99 14.89 2.00 M 20.79 B Gehl GEHL $33.30 $38.74 $40.73 $18.10 16.60 180,800 400.65 M Kubota KUB $57.63 $55.40 $60.60 $25.57 14.19 18,500 1498 B

Ag Industry Watch/May/2006 3 Despite Profit Slide, AGCO's First Quarter Tops Analyst Expectations As Duluth, Ga.-based AGCO, Analysts are expecting revenue of with the largest increase in the utility- announced a 19.5% drop in profits $5.4 billion for 2006. The company's type tractor segment. The company during its first quarter on May 1, its shares rose $3.32, or 14%, to $26.99 also reports that industry-wide sales in stocks soared because the results beat after the announcement on May 1.As of North America of combines during the Wall Street's forecast. May 11,AGCO shares stood at $27.06. first 3 months of 2006 expanded by The company earned $17.3 mil- “Our first quarter results were 13% vs. 1 year ago. lion, or 19 cents a share, in the quar- impacted by our actions to reduce The South American market, ter, compared with $21.5 million, or seasonal working capital require- where AGCO is particularly strong, 23 cents a share, a year ago.Adjusted ments, particularly in North America,” was a different matter.The company earnings, which exclude restructuring says Martin Richenhagen, president says industry-wide sales in South charges and other items, also totaled and CEO.“As evidenced by our cash America of farm tractors and com- 19 cents a share. Analysts polled by flow results, we reduced our seasonal bines during the 2006 first quarter Thomson First Call were expecting build of working capital by over $130 decreased by 12% and 36%, respec- earnings of 11 cents a share. million in 2006 compared to the first tively.Sales in Brazil for the first quar- First-quarter revenue fell 6.9% to quarter of 2005. ter fell 1% for farm tractors and 40% $1.17 billion, hurt by lower seasonal “Production levels in the first for combines. increases in dealer inventories in quarter decreased 18% from the first North America, weaker market condi- quarter of last year.The balance sheet Optimistic Outlook for '06 tions in South America and the focus put pressure on net sales and While reporting the profit falloff Asia/Pacific region, and unfavorable margins, especially in North America,” during the first quarter, AGCO pre- currency movements. Still, the top line adds Richenhagen. dicted 2006 earnings would rise 10% beat analysts' estimate of $1.14 bil- AGCO said its cash on hand at the on slightly lower sales, compared with lion. Excluding the impact of foreign end of March was reduced sharply to a $31.6 million profit a year earlier. exchange rates, net sales fell 4%, as $52.3 million from $220.6 million last The firm plans to improve its working significant weakness in the Americas December 31,while its inventory valua- capital utilization this year with high- was partly offset by improved tion rose to $1.26 billion versus $1.06 er operating margins and reduced demand in Europe. billion.Its long-term debt was increased interest expense. The company expects its 2006 to $889.8 million compared with The company sees lower earnings net sales to be slightly below 2005 $841.8 million during the same periods. and revenue during the first-half of levels, based on lower industry ‘06 due to actions to reduce seasonal demand, planned dealer inventory Overall Sales Down 7% increases inventories. reductions and currency translation. Much of AGCO's nearly 20% profit AGCO still sees worldwide indus- AGCO said actions to reduce seasonal drop resulted from a 7% decrease in try demand for farm machinery dur- increases in dealer and company worldwide equipment sales during the ing 2006 “modestly” below ‘05 levels, inventories will continue to result in period compared with a year earlier. as demand in North America is lower year-over-year sales and earn- However,its farm tractor sales dur- expected to remain strong during the ings for the first half of 2006. ing the first quarter rose by nearly 5%, same period.

Farm Equipment Industry AGCO SALES Notes & Newsmakers BY REGION 1Q 2005 1Q 2006 The J.C. Watts Companies announced the purchase of Mustang Equipment, an independent equipment dealership with stores in Total Revenue (millions of dollars) San Antonio and Marble Falls, Texas. The purchase establishes the – North America $393 $321 – South America 152 141 J.C.Watts Companies as the first African American owned John Deere – EAME 666 675 dealerships in the U.S.Watts is a former U.S. Congressmen from the – Asia Pacific 46 33 state of Oklahoma. Operating Profit (millions of dollars) DuraTech Industries, Jamestown, N.D., announced the follow- – North America $3 $(5) ing promotions: Jay Grotrian to president of the company; Bob – South America 13 11 Strahm to vice president of Sales;Aaron Johnson to vice president of – EAME 45 51 Engineering. DuraTech Industries is now in its 40th year of busi- – Asia Pacific 8 4 ness, and manufactures the Haybuster agricultural product line. Operating Margin ECHO, Inc., Lake Zurich, Ill., acquired TerraMarc Industries, the – North America 0.7% –1.7% manufacturer of Bear Cat chippers and chipper/shredders, Lockwood – South America 8.2% 7.9% potato planting and harvesting implements, and Crary agricultural – EAME 6.8% 7.6% equipment. Located in West Fargo N.D., the company will operate as – Asia Pacific 16.5% 11.3% a subsidiary of ECHO, Inc. under the name Crary Industries, Inc.The EAME — Europe, Africa, Middle East company's 2005 sales were in excess of $35 million. Source: Foresight Research Solutions

4 Ag Industry Watch/May/2006 However, reduced North Europe during 2006 is seen dropping AGCO says demand in South American farm income projections below 2005 levels due to continuing America also is expected to decline may impact demand for the 2006-full impact of last year’s drought in as a result of the strong Brazilian Real year, the company adds. Southern Europe and changes in sub- on exports of commodities and high Farm machinery demand in sidy programs. farm debt levels.

IS ETHANOL PUBLICITY HELPING OR HURTING AGCO? The push that ethanol is getting from the mainstream media up all of 3% from the beginning of this year (and down about lately not only makes for a good story, but the hype is also 12% from the start of 1998).” pushing up shares of the “Big 3” ag equipment makers. Farmer are stubborn and conservative, Simpson asserts. According to Stephen Simpson, financial analyst for MSNBC “Your average farmer is going to be far more concerned with and better known as the “Motley Fool,” the recent run-up in the reality of those interest payments today on a new tractor stocks of Deere, AGCO and CNH Global have been impressive than the potential that ethanol might increase crop demand — 45%, 52% and 70% respectively. and prices at some point. “Unfortunately,” he says, “reality doesn't always move at the “I'm not trying to crush the spirits of the ethanol crowd. pace of buy orders. Take the case of AGCO. For the recently Rather, I just think those folks expecting instant gratification completed quarter, the farm machinery company announced need a reality check.” that sales were down 7% (about 4% without currency impacts) In AGCO’s case, nearly 60% of its sales come from Europe and adjusted net income per share was down about 21%, and dealer inventories are high. The process of working those while income from continuing operations dropped 17%. down is possibly going to keep a lid on financial performance “What's wrong? Are the farmers of the U.S. in cahoots with for this year, according to the analyst. those evil hedge funds and trying to short ethanol into oblivion?” “On the other hand,” Simpson points out, “this might be as “No,” says Simpson. “What is happening is called reality (as bad as it gets. Adjusting the dealer inventory situation will be opposed to hype, promise and potential). Farmers are seeing painful, but shouldn't be permanent, likewise for the concerns higher interest rates, higher fuel and fertilizer prices, and uncer- about demand in Brazil. And if ethanol really does get moving tainty in farm subsidies. What's more, for all the talk about in the U.S., this will ultimately lead to higher prices, more plant- ethanol as the great American hope, the spot price of corn is ed acres and more demand for equipment.”

Cancelled Tractor Orders Drops Buhler’s Earning by 7.6% The cancellation of a large tractor were advised, with little notice, that is showing encouraging signs of order to the export market and the tractor orders were going to be sig- improvement, which was validated in relentless strength of the Canadian nificantly delayed. In essence ‘can- part by dealer channel checks we dollar are cited as the major causes celled.’As this inventory was already recently made. Shortline product sales for a precipitous drop in earnings by built, this not only caused our sales to also remain healthy and the interna- Buhler Industries, the makers of the fall below expectations, but also tional market still represents a legiti- Versatile-branded farm tractors. resulted in continuing high inventory mate and sizable growth.” In announcing financial results levels. As such, our export markets In the wake of its falling profits, for the fiscal second quarter period have proven to be more unpre- Buhler said it would place restrictions on April 26, the Winnipeg, Manitoba- dictable than anticipated.We will take on its research and development spend- based firm reported its earnings end- a more cautious approach as we move ing to conserve cash for the rest of fis- ing last March 31 plunged by more forward in growing our business in cal 2006 ending on September 30 . than one-half to $1.9 million these very important markets.” “Projects will be prioritized to (Canadian) on a 7.6% drop in rev- Buhler said sales in the period fell prevent a negative impact on our enue.The rising value of the Canadian to $59.1 million (Canadian). A year business,” it added.The firm noted it dollar continued to adversely affect ago, it earned a wider $4.1 million already has spent $2 million on R&D its revenue stream. from higher turnover of $64 million. projects.The company also said that it Buhler warned there is no “quick During the first half of fiscal 2006, is scrutinizing its sales and adminis- fix”to a halt in the erosion of its prof- Buhler’s profit fell to $3.6 million tration costs to conserve more cash it margin.“We will work to implement from narrower sales of $98.5 million. for the balance of fiscal ‘06. changes and improve our results in This compares to a year-ago gain of Despite its falling profits, the com- due course,”it added. $5.7 million from higher revenue of pany intends to increase payment of In addition to the adverse impact $109.8 million. the annual dividend for fiscal 2006. of the currency exchange, “We also Ben Cherniavsky, analyst for Buhler paid a fiscal 2005 dividend of experienced the cancellation of a sig- Raymond James Equity Research – $0.15 (Canadian) per common share nificant number of tractor orders from Canada, says,“Despite the disappoint- to its stockholders. export markets. As stated in our first ing results, we are not quite ready to The company is predicting its quarter report, the company began the turn outright bearish on Buhler as we gross profit margin for all of fiscal second quarter with an unprecedent- remain confident in management’s 2006 would come in at 18-20% vs. ed high order book for many of its ability to navigate through the com- 18.3% in fiscal 2005. During the first products, including tractors,”it added. pany’s various challenges. We also half of fiscal 2006, gross margins rose “During the second quarter, we note that Buhler’s U.S. tractor business to 19.9%.

Ag Industry Watch/May/2006 5 CNH First Quarter Profits Rise on 5.3% Sales Gain On May 2, CNH Global, N.V., reported CNH Global said gross margins of 2006, up 2% from the first quarter its earnings during the first quarter of generated by its equipment opera- of 2005. this year rose on a 5.3% gain in sales tions increased during 2006’s first Ag equipment gross margin as major markets for its vehicles con- quarter to 16.5%, a 2% increase from increased in both dollars and as a per- tinued to expand, strong customer last year. Its farm machinery produc- cent of net sales compared to the prior response to the company’s new brand tion rose by 23% over retail during year’s first quarter. The improvement focus and higher margins. the first quarter of 2006 from a year was more than accounted for by posi- The Lake Forest, Ill.-based equip- ago and output of construction tive net pricing which was higher than ment maker reports that it earned $43 machinery also increased 13% over currency and economics cost changes. million during the first 3 months of the retail during the period. year on higher sales of $3.16 billion.A Tractors Up, Combines Down year ago, it netted a narrower $15 mil- Ag Equipment Sales Up 2% CNH is projecting worldwide lion from a turnover of $3 billion. The company reports that agri- industry unit retail sales of agricultur- “Our results show that CNH’s cultural equipment net sales were $2 al tractors for the full year 2006 will renewed focus on customers and billion for the first quarter, essentially be slightly higher than in 2005. dealers, through its new global brand at the same level as the prior year, but Industry unit retail sales of under-40 structure implemented last year, is up 2% excluding currency variations. hp tractors in North America are gaining traction,” says Harold Excluding currency variations, expected to be down 5-10% from the Boyanovsky,CNH president and chief sales in North America are up 7% and high levels of 2005. executive officer.“Our global brands sales in rest-of-world markets were up Sales of over-40 hp tractors in organization — Case IH and New 14%, while sales in Western Europe North America are expected to Holland in agricultural equipment and declined by 4%. Sales in Latin America remain about the same level as in Case and New Holland Construction declined by 18% as the market for 2005. Ag tractor markets in Western in construction equipment — is mak- combines continued to decline more Europe and Latin America could be ing an impact in the marketplace.We than anticipated. down as much as 5%, but tractor now expect our net sales of equip- Total retail unit sales of CNH’s agri- industry unit retail sales in rest-of- ment for the full year will rise by cultural tractors and combines world markets are now expected to about 5-10%. increased by 11% compared to the first be up 10-15%. “We are particularly pleased by the quarter last year.First quarter 2006 pro- Worldwide industry unit retail 2 percentage point improvement in duction of agricultural tractors and sales of combine may be down about our equipment operations’ gross mar- combines was higher than retail, fol- 10%, with North America down gin,”Boyanovsky said.“We are on track lowing the company’s normal seasonal about 5% and Western Europe and for another year of improved results.” pattern to increase company and deal- rest-of-world Markets down 5-10%. CNH Global says the value of its er inventories in anticipation of the Industry sales in Latin America could finished goods inventories (fully- spring selling season. be down 30-35%, continuing the assembled vehicles, etc.) rose to $1.87 Equipment operations’ gross mar- decline which started in the fourth billion at the end of the 2006 first gin for agricultural and construction quarter of 2004. quarter vs. $1.78 billion at the end of equipment was $488 million in the last year.Overall debt generated by its first quarter of 2006, compared to equipment operations was slashed in $409 million in the first quarter of last FIRM PROJECTS RISING half to $621 million at the end of last year. As a percent of net sales, gross TRACTOR SALES March from $1.55 billion one year ago. margin was 16.5% for the first quarter In an April 19 research report, Zacks Equity Research reported that the CNH OPERATIONS 2005 VS. 2006 sharp rise in farm income — resulting 2005 2006 from higher agricultural prices — should lead to accelerated purchases 1Q-A Total-A 1Q-A Total-E of farm tractors. Revenue (million of dollars) The statement was made in a rec- – Ag Equipment $1,931 $7,843 $1,935 $7,985 ommendation on CNH Global stocks, – Const. Equipment 892 3,963 1,015 4,540 in which the firm upgraded CNH from Total 2,823 11,806 2,950 12,525 sell to hold. It reported that the recent stock price advance has factored in Operating Profit (million of dollars) the improving NA agricultural equip- – Ag Equipment $73 $340 $79 $364 ment market. – Const. Equipment 26 265 75 362 “Regrettably, Latin America and Total 99 605 154 726 Europe continue to struggle with slug- Operating Margin gish demand conditions. Even though – Ag Equipment 3.8% 4.3% 4.1% 4.6% we expect a gradual EPS recovery in – Const. Equipment 2.9% 6.7% 7.4% 8.0% late 2006, the stock remains expen- sive relative to peers. We recommend Total 3.5% 5.1% 5.2% 5.8% investors hold shares of CNH.” A = actual; E = estimated • Source: Foresight Research Solutions

6 Ag Industry Watch/May/2006 APRIL U.S. UNIT RETAIL SALES April Sales Dip March April April Percent YTD YTD Percent Equipment 2006 Field Ends 2-Month 2006 2005 Change 2006 2005 Change Inventory Expansion Farm Wheel Tractors-2WD U.S. sales of farm tractors and self- propelled combines ended a 2-month Under 40 HP 14,684 15,246 –3.7 37,107 36,722 1.0 75,155 expansion after declining by 4.8% in April, according to data from the 40-100 HP 7,947 7,820 1.6 22,987 22,177 3.7 35,165 Assn. of Equipment Manufacturers. 2,249 2,764 –18.6 6,991 7,947 –12.0 6,341 Sales of farm tractors and self-pro- 100 HP Plus pelled combines in Canada also fell Total-2WD 24,880 25,830 –3.7 67,085 66,846 0.4 116,661 in April for the first time this year, slipping by 7.7%. Total-4WD 352 657 –46.4 1,185 1,413 –16.1 921 Baird analyst Robert McCarthy, highlighted the importance of sales Total Tractors 25,232 26,487 –4.7 68,27068,259 0.0 117,582 during April in his summary of SP Combines 414 461 –10.2 1,420 1,378 3.0 1,336 monthly results: ♦ North American sales of 100-hp and larger row crop tractors declined on a year-to-date basis in April, leaving sales APRIL CANADIAN UNIT RETAIL SALES 7% below 2005 levels.April is the sea- March April April Percent YTD YTD Percent sonally most important month for Equipment 2006 Field 2006 2005 Change 2006 2005 Change row-crop tractor sales, contributing Inventory an average of 14% of annual sales. ♦ North American sales of 4-WD trac- Farm Wheel tors dropped 41% in April following a Tractors-2WD 15% increase in March, and are down Under 40 HP 943 909 3.7 1,970 1,759 12.0 5,386 13% for ’06 so far.April is the seasonally most important month for 4-WD 40-100 HP 650 791 –17.8 1,924 1,745 10.3 3,106 tractors sales, averaging 18% of annual sales. 100 HP Plus 493 524 –5.9 1,201 1,099 9.3 1,692 ♦ April retail sales of combines fell Total-2WD 2,086 2,224 –6.2 5,095 4,603 10.7 10,184 12% compared to the same period a year ago, but remain up 2% for the Total-4WD 141 176 –19.9 274 264 3.8 281 year. However, the January-April period is a typically seasonally weak peri- Total Tractors 2,227 2,400 –7.2 5,369 4,867 10.3 10,465 od for combine sales, accounting for only 20% of average annual sales. SP Combines 95 117 –18.8 265 281 –5.7 460 ♦ Mid-range (40-100 hp) tractor sales were flat in April and up 4% for the 2006 year. Demand for mid-range tractors U.S. UNIT RETAIL SALES OF 5 year is relatively less dependent on agri- 2-4 WHEEL DRIVE TRACTORS & COMBINES average cultural end markets. 30,000 ♦ March U.S. farm equipment dealer 28,000 inventories increased sequentially on a days-sales basis. Mid-range tractor 26,000 inventories remained 10% above 24,000 prior-year levels, while row-crop and 22,000 4-WD tractor inventories were 1% and 24%, respectively, below prior- 20,000 year levels. 18,000 McCarthy concludes that, “In 16,000 contrast to strong March sales, industry retail sales of large farm tractors 14,000 declined significantly in April — the 12,000 seasonally most important month — 10,000 bringing year-to-date equipment sales 8,000 back in line with consensus industry forecasts for ‘06, which generally 6,000 called for 5-10% declines.” JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC —Assn.of Equipment Manufacturers Ag Industry Watch/May/2006 7 Kverneland to Close German Plant to Reduce Vineyard Operations Plans to close a manufacturing plant will be further downsized and the Financial restructuring of the in Germany,downsize vineyard equip- company’s 50% interest in the Bobard Norway-based group centers on a rene- ment operations in France and raise straddle tractor operation in France gotiated 5-year multi-currency revolv- new credit and investment funds are will be sold to the partner shareholder. ing credit facility worth the equivalent Kverneland’s latest moves in restruc- Kverneland says these changes of $142 million, a $47.5 million over- turing its global business. will cost nearly $25 million, approxi- draft facility and a 3 million share The world’s biggest farm imple- rights issue, underwritten by the insti- ment manufacturer is striving to tutional investors that are the group’s 5 reduce costs and stop a slide in prof- biggest shareholders.The shares, which itability that saw a loss equivalent to “These changes will are due to join Kverneland’s current $14 million in 2004 following a mod- listing on the Oslo stock exchange, are est $5.2 million profit on group rev- cost nearly $25 million expected to raise almost $30 million enues worth $600 million the year . . . A similar sum for in new capital. before. The latest changes affect its restructuring was Kverneland hopes to make grass equipment and vineyard equip- charged in 2004.” inroads into new markets by estab- ment divisions. lishing a representative office in In Germany,Kverneland will close Beijing and a sales and marketing the Gottmadingen facility, which man- operation in Moscow. It has also ufactures hay tools sold under the mately $20 million of which was signed a distribution agreement in Vicon name and by SDF Group under charged off in 2005.A similar sum for Turkey with Uzel Group, the country’s the Deutz-Fahr brand. About 225 restructuring was charged to the 2004 biggest farm tractor and equipment employees will be affected. accounts. Starting in ’06, the moves manufacturer, which claims $550 mil- Commercial and product man- are expected to yield annual savings lion sales from its domestic and agement, as well as R&D activities, of around $11.5 million. export sales. will remain but manufacture and assembly will be transferred to group factories in Geldrop near Amsterdam, KVERNELAND PLANS NEW PLANT IN RUSSIA Netherlands, and Kerteminde in TO BUILD CONSERVATION-TILL EQUIPMENT Denmark, home of the Taarup range of grass harvesting machinery. The Kverneland Group announced on April 24 plans to start up an assembly plant In the vineyard equipment divi- in Russia to manufacture conservation-tillage products. Production will initially be high-capacity air seeders for markets in Russia and the CIS. Test production is sion (which Kverneland says has been planned to begin in the fourth quarter of 2006. hit by a 35% drop in world demand The plant will be located in Lipetsk, approximately 450 km south east of Moscow. for grape harvesters over the past 5 The Lipetsk region has significant steelmaking capabilities and other manufacturing years) the Gregoire harvester business capacity. The region is also located inside the fertile black soil belt, which offers in southwest France acquired in 2000 strong potential for the sale of farm.

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