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Insights from a Customer

Dennis Kunka Category Manager Unformed Steel

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Discussion Outline
Caterpillar

Caterpillar Growth
Caterpillar and Steel Global Competitiveness

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Did you know Caterpillar

Caterpillar Overview

is the worlds largest manufacturer of construction and mining equipment. makes over 300 models of machines. is the worlds 2nd largest manufacturing of locomotives. owns a rail services company. makes diesel engines from 10 hp to 21,760 hp (worlds largest medium speed producer) is the worlds largest remanufacturing. owns an industrial turbine company (Solar Turbines). provides 3rd party logistics services to many well known companies. celebrated its 100th anniversary for trade marking Caterpillar

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Caterpillar Overview

Grow

Seed

The Caterpillar Business Model

Harvest

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Caterpillar Performance
C-SHIP UNITS Spending unprecedented capital in 2011 and for the foreseeable future on capacity increases across all product lines

Growth out to 2015 Growth in 2 years

66% growth in 4 years

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

5-YEAR PLAN

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Global growth drivers

Industry
Commodities Energy Infrastructure Transportation

Societal
Urbanization Growing Middle Class

Economic
Low Inflation Low Interest Rates Past Under-investment

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What will 7.6 billion people need in 2020?


World Population Forecast
8.0 7.5
Billions

7.0 6.5 6.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Food Water Energy Housing Health Care Education Communications Employment Waste Disposal Transportation Security

Source: U.S. Census Bureau International Data Base


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Investments in Growth
USA
Capacity expansion for mining trucks in Illinois New lower powertrain facility in North Carolina Expansion of Building Construction Products facility in North Carolina New engineering design center in South Dakota New excavator facility in Texas New Progress Rail facility to manufacture locomotives in Indiana New parts distribution center in Washington and California Expansion of remanufacturing facility to support mining in North Dakota Capacity expansion of work tools facility in Kansas Capacity expansion of undercarriage components and assemblies in Illinois New mini excavator and small track-type tractor facility in North America Capacity expansion for large track-type tractors in Illinois Capacity expansion for mining trucks in India Significant increase in excavator capacity in Xuzhou, China New facility for small wheel loaders and backhoe loaders in Brazil New mini excavator facility in Wujiang, China New logistics center in Suzhou, China New facility to produce 3500 series engines in Tianjin, China New parts distribution center in Dubai New remanufacturing facility in Singapore New facility for underground mining articulated trucks and loaders in Thailand New facility for medium track-type tractors in Thailand Progress Rail locomotive manufacturing and assembly operation in Brazil New facility for undercarriage components and track assemblies in Xuzhou, China New proving ground and large wheel loader facility in Tongzhou, China Expansion of Tosno, Russia facility to produce off-highway trucks New mining truck facility in Batam, Indonesia Capacity expansion for excavators in Cileungsi, Indonesia Electro-Motive Diesel Bucyrus MWM Offer to Acquire ERA Mining Machinery Ltd.

Critical to be prepared for improving demand

International

Acquisitions

Source: Caterpillar Press Releases, 2010-11


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Capacity expansion North America


Washington parts distribution center Reman for mining expansion in North Dakota Engineering design in South Dakota Ohio parts distribution center Mining, Undercarriage, Large TTT expansion in Illinois BCP expansion in NC Lower powertrain facility in NC

California parts distribution center Excavator facility in Texas Work Tools expansion in Kansas Locomotive facility in Indiana

Mini Excavator and Small TTT facility in North America

Source: Caterpillar press releases


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US Global Competitiveness - Why be globally competitive?

5%

95%
10

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Capacity expansion Asia

3500 Series diesel engine facility SEM 3X expansion

OHT in Russia

CXL 4X expansion

Dubai parts distribution center

Chennai 4X QC Truck expansion


200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0

Asia Machine Unit Capacity

Suzhou 3X expansion
Underground mining and medium TTT in Thailand Reman in Singapore Excavators and mining trucks in Indonesia

Mini-excavator facility in China

20 10

20 11

20 12

20 13

20 14

Source: Caterpillar press releases


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Bucyrus Acquisition is now Complete$8.8B

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Bucyrus - Global Locations

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Bucyrus/Caterpillar Combined Mining Product Offering


Surface Discontinuous
Crushers Large Wheel Conveyors Loaders Tractors/ Dozers Trucks Hydraulic Shovels Rope Shovels Drag-lines OP Drills

Underground Continuous Discontinuous


LW Support

Continuous (coal)
LW AFCs LW Continuous Shuttle Shearer Miner Cars

Bucket Wheel UG LHDs UG Drills Surface, Highwall

Caterpillar

NPI

Cat

Bucyrus

Cat

Bucyrus

Joy Global

Joy Global

Joy Global

Overlap

Caterpillar / Bucyrus

Caterpillar / Bucyrus

Liebherr

Komatsu

Hitachi Atlas Atlas Atlas

Sandvik Thyssen Krupp FAM Tenova

Sandvik

Sandvik

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Caterpillar & Steel


Flat Rolled: Plate, Sheet

Bar: Track Links, Crankshafts, Gears

Special Sections: Ripper Shanks, Cutting Edges, Track Shoes

Tubing: Hydraulic cylinders, ROPS

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Steel Use: Track-Type Tractors


Sheet: Body Panels

Bar

Plate

Frame ROPS Blade, Ripper

Rolled Sections

Engine Components Gears Shafts Undercarriage: Links, bushings, pins, rollers GET: Ripper Tips, End bits

Structural members Shoes Edges

How much of the tractor is steel?


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Steel Use: Track-Type Tractors

Fluids Nonferrous, 1% 2% Iron, 6% 1%

D11T
Total Mass: 134,180 kg (148 tons) Steel: 119,854 kg (132 tons)
Steel, 90%

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Steel Usage Summary


Wire
Special Sections Tubing Wire Rod Bar

Sheet/ Strip Mill

Discrete Plate

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Steel comes into Caterpillar in several ways:


Purchases that are transacted by a Cat facility for direct consumption. Purchases that are transacted, then drop shipped and re-billed to a Cat Tier 1 supplier. Processors of steel, distributors, or other indirect purchases of steel for Tier 1 suppliers.

Direct Steel Purchases

Steel Distribution

Caterpillar GP

Caterpillar GP

Steel Mill

Tier 2 Mill Tier I Processor

Fabricator (STF/SDP)

Caterpillar Facility

Fabricator (STF/SDP)

Caterpillar Facility

We ask that steel mills stay engaged with us for both processes
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Caterpillar & Global Business

Global footprint Importance of global competitiveness HEX business

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Global Footprint - Caterpillar Approved Steel Mills & Service Centers

Caterpillar Mfg Center

Approved Steel Mill & Service Center

Steel does not always travel well. Supply chain efficiency is important
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Changing Markets Hydraulic Excavators

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Changing Competition Hydraulic Excavators

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Global Competitiveness What can we do? From a steel consumers view point?

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Risk Mitigation
Iron Ore Scrap NA, EU, China

Variability in raw materials and steel pricing difficult for manufacturers Create a portfolio of steel supply that reduces risk Collaboration is imperative Supply Chain Technical Commercial
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Collaboration: Steel Supply Chain Opportunities Think Beyond Steel Selling Price
CUSTOMER DEMAND Tier One Suppliers

STEEL MILL

Tier One
Suppliers

VARIOUS CUSTOMERS

Buffer

Scrap

VARIATION

FRAGMENTED DEMAND MANAGEMENT

LONG LEAD TIMES POOR DELIVERY PERFORMANCE

IRREGULAR ORDERING PATTERNS

PROTECTIVE BUFFER INVENTORIES SCRAP LOSS

MEASUREMENTS TIER 1 DEMAND VS. FORECAST STEEL MILL LEAD TIMES TRANSPORTATION LEAD TIME NUMBER OF STEEL SIZE/GRADE COMBINATIONS SUPPLY CHAIN INVENTORIES

Visibility Better Scheduling - Inventory Reduction Pull Strategy

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Summary
Cat is positioned well for the future as it relates to global markets. In addition to growth and acquisitions, maintaining a competitive edge is key.

Global competition is fierce. Must differentiate.


Mitigate risk, material cost reduction, and supplier collaboration.

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Questions

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