portfolio manager's review, february 2009 (by the manual of ideas)

PORTFOLIO MANAGER’S REVIEW Edited by the Research Team of

Copyright Warning: It is a violation of federal copyright law to reproduce all or part of this publication for any purpose without the prior written consent of BeyondProxy LLC. The Copyright Act imposes liability of up to $150,000 per issue for such infringement, and violators will be prosecuted to the full extent of the law. See last page for subscription information, including having multiple copies sent to you. © 2008 by BeyondProxy LLC. All rights reserved.

Dear subscriber,

It is my pleasure to bring you

a new issue of our flagship

quarterly publication. Inside, we

analyze stocks meeting selected

criteria of value. We highlight ten

ideas that deserve closer scrutiny.

Sincerely,

John Mihaljevic

A Quarterly Publication of BeyondProxy LLC www.manualofideas.com February 20, 2009

When asked how he became so successful, Buffett answered: “we read hundreds and hundreds of annual reports every year.”

With

John Mihaljevic, CFA Managing Editor, The Manual of Ideas [email protected]

“If our efforts can further the goals of our members by giving them a discernible edge over other market participants, we have succeeded.”

TOP 10 CANDIDATES FOR INVESTMENT SELECTED BY THE RESEARCH TEAM OF THE MANUAL OF IDEAS

American Express, AmeriCredit, EchoStar, Greenlight Capital Re, Microsoft, Premier Exhibitions, Sears Holdings, SFK Pulp Fund, Sony, Travelzoo

Special Situations Super Investor Favorites Deep Value Magic Formula

Profiled Candidates:

Dr Pepper Snapple EchoStar

EMC KHD Humboldt Wedag

Premier Exhibitions PRIMEDIA

Target Visa

Yahoo!


American Express, Barnes & Noble, Burlington Northern Santa

Fe, Canadian Natural Resources, ConocoPhillips,

Depomed, DISH Network, Eaton, Forest Laboratories,

GeoResources, Helix Energy, Horsehead, Jefferies, Leucadia,

Lorillard, MasterCard, Sonae Capital, St. Joe, UnitedHealth,

URS, USG, WellCare, WellPoint, Winthrop Realty


Japan: Canon, Fujifilm, Hitachi,

Kyocera, Panasonic, Sharp, Sony, TDK

Other: AmeriCredit, Capital Southwest, Cresud, Greenlight Capital Re, Lear, Sears Holdings, SFK Pulp

Fund, Syneron Medical, UTStarcom, Yanzhou Coal

Mining


Dell EarthLink Garmin

MEMC Electronic Materials KBR

Mesabi Trust Microsoft

Net 1 UEPS Technologies Tempur-Pedic International

Travelzoo Versant

Proprietary Idea Funnel: Quantitative and Qualitative Screening, “Signal Value” Metrics, Special Situation Tracking, Multi-dimensional Alerts, etc.

Table of Contents EDITOR’S COMMENTARY............................................................................ 4 SNAPSHOT OF COMPANIES PRESENTED IN THIS ISSUE ...................... 5

IN ALPHABETICAL ORDER ............................................................................................................5 BY MARKET VALUE .....................................................................................................................7 STOCK PRICE PERFORMANCE .....................................................................................................9 P/E MULTIPLES.........................................................................................................................11 HISTORICAL AND PROSPECTIVE EPS .........................................................................................13 LATEST QUARTERLY EPS SURPRISE .........................................................................................15 REVENUE AND EPS GROWTH....................................................................................................17 PERCENTILE RANK WITHIN INDUSTRY.........................................................................................19 SELECTED METRICS..................................................................................................................21 INSIDER OWNERSHIP, OPEN MARKET ACTIVITY ..........................................................................23

TOP 10 CANDIDATES FOR INVESTMENT................................................ 25 AMERICAN EXPRESS (NYSE: AXP) ...........................................................................................26 AMERICREDIT (NYSE: ACF) .....................................................................................................33 ECHOSTAR (NASDAQ: SATS)....................................................................................................39 GREENLIGHT CAPITAL RE (NASDAQ: GLRE) ..............................................................................45 MICROSOFT (NASDAQ: MSFT) ..................................................................................................51 PREMIER EXHIBITIONS (NASDAQ: PRXI) ....................................................................................57 SEARS HOLDINGS (NASDAQ: SHLD)..........................................................................................61 SFK PULP FUND (TORONTO: SFK-UN) .....................................................................................65 SONY (NYSE: SNE) .................................................................................................................67 TRAVELZOO (NASDAQ: TZOO) ..................................................................................................69

CANDIDATES—SPECIAL SITUATIONS .................................................... 73 DR PEPPER SNAPPLE (NYSE: DPS) .........................................................................................74 EMC (NYSE: EMC) .................................................................................................................78 KHD HUMBOLDT WEDAG (NYSE: KHD) ....................................................................................80 PRIMEDIA (NYSE: PRM) ........................................................................................................84 TARGET (NYSE: TGT) ..............................................................................................................86 VISA (NYSE: V) ........................................................................................................................88 YAHOO! (NASDAQ: YHOO)........................................................................................................92

CANDIDATES—SUPER INVESTOR FAVORITES ..................................... 98 BARNES & NOBLE (NYSE: BKS) ...............................................................................................99 BURLINGTON NORTHERN SANTA FE (NYSE: BNI) ....................................................................101 CANADIAN NATURAL RESOURCES (NYSE: CNQ) .....................................................................105 CONOCOPHILLIPS (NYSE: COP).............................................................................................109 DEPOMED (NASDAQ: DEPO)...................................................................................................111 DISH NETWORK (NASDAQ: DISH)...........................................................................................113 EATON (NYSE: ETN)..............................................................................................................115 FOREST LABORATORIES (NYSE: FRX) ....................................................................................117 GEORESOURCES (NASDAQ: GEOI) .........................................................................................119 HELIX ENERGY SOLUTIONS (NYSE: HLX)................................................................................121 HORSEHEAD HOLDING (NASDAQ: ZINC) ..................................................................................123 JEFFERIES GROUP (NYSE: JEF).............................................................................................125 LEUCADIA NATIONAL (NYSE: LUK) .........................................................................................127 LORILLARD (NYSE: LO) ..........................................................................................................131 MASTERCARD (NYSE: MA) ....................................................................................................133 SONAE CAPITAL (LISBON: SONC)............................................................................................137 ST. JOE COMPANY (NYSE: JOE) ............................................................................................139 UNITEDHEALTH GROUP (NYSE: UNH) ....................................................................................141 URS (NYSE: URS) ................................................................................................................145 USG (NYSE: USG)................................................................................................................147 WELLCARE HEALTH PLANS (NYSE: WCG)..............................................................................151 WELLPOINT (NYSE: WLP)......................................................................................................153 WINTHROP REALTY TRUST (NYSE: FUR)................................................................................157

© 2009 by BeyondProxy LLC. All rights reserved. www.manualofideas.com Spring 2009 – of 241

CANDIDATES—DEEP VALUE: JAPAN ................................................... 159 CANON (NYSE: CAJ)..............................................................................................................163 FUJIFILM (NASDAQ: FUJI)........................................................................................................165 HITACHI (NYSE: HIT) .............................................................................................................167 KYOCERA (NYSE: KYO) .........................................................................................................169 PANASONIC (NYSE: PC).........................................................................................................171 SHARP (OTC: SHCAY)...........................................................................................................173 TDK (NYSE: TDK) .................................................................................................................175

CANDIDATES—DEEP VALUE: OTHER................................................... 177 CAPITAL SOUTHWEST (NASDAQ: CSWC).................................................................................178 CRESUD (NASDAQ: CRESY) ...................................................................................................182 LEAR (NYSE: LEA).................................................................................................................184 SYNERON MEDICAL (NASDAQ: ELOS) .....................................................................................186 UTSTARCOM (NASDAQ: UTSI) ................................................................................................190 YANZHOU COAL MINING (NYSE: YZC) ....................................................................................192

CANDIDATES—“MAGIC FORMULA” ...................................................... 194 DELL (NASDAQ: DELL)............................................................................................................195 EARTHLINK (NASDAQ: ELNK)..................................................................................................197 GARMIN (NASDAQ: GRMN) .....................................................................................................199 MEMC ELECTRONIC MATERIALS (NYSE: WFR) ......................................................................204 KBR (NYSE: KBR).................................................................................................................206 MESABI TRUST (NYSE: MSB) .................................................................................................208 NET 1 UEPS TECHNOLOGIES (NASDAQ: UEPS) ......................................................................210 TEMPUR-PEDIC INTERNATIONAL (NYSE: TPX).........................................................................212 VERSANT (NASDAQ: VSNT).....................................................................................................214

PORTFOLIOS WITH “SIGNAL VALUE”................................................... 216 BILL ACKMAN, PERSHING SQUARE...........................................................................................217 BRUCE BERKOWITZ, FAIRHOLME..............................................................................................217 WARREN BUFFETT, BERKSHIRE HATHAWAY .............................................................................217 IAN CUMMING & JOE STEINBERG, LEUCADIA ............................................................................218 DAVID EINHORN, GREENLIGHT.................................................................................................218 BRIAN GAINES, SPRINGHOUSE.................................................................................................218 TOM GAYNER, MARKEL GAYNER..............................................................................................218 GLENN GREENBERG, CHIEFTAIN..............................................................................................219 MASON HAWKINS, SOUTHEASTERN..........................................................................................219 CHRIS HOHN, CHILDREN’S INVESTMENT FUND .........................................................................219 CARL ICAHN, ICAHN PARTNERS................................................................................................219 SETH KLARMAN, BAUPOST ......................................................................................................220 EDDIE LAMPERT, RBS PARTNERS ...........................................................................................220 DAN LOEB, THIRD POINT .........................................................................................................220 STEVE MANDEL, LONE PINE ....................................................................................................221 MOHNISH PABRAI, PABRAI FUNDS............................................................................................221 RICH PZENA, PZENA INVESTMENT MANAGEMENT .....................................................................221 KENNETH SHUBIN STEIN, SPENCER CAPITAL............................................................................222 PREM WATSA, FAIRFAX...........................................................................................................222 MARTY WHITMAN, THIRD AVENUE............................................................................................222

SCREENING FOR ASYMMETRICAL RISK-REWARD PROFILES.......... 223 CONTRARIAN: SHUNNED BY THE MARKET, BUT NOT BY INSIDERS..............................................224 CONTRARIAN: BIGGEST LOSERS ..............................................................................................225 CONTRARIAN: BIGGEST LOSERS (DELEVERAGED) ....................................................................226 CONTRARIAN: BIGGEST LOSERS (DELEVERAGED & PROFITABLE)..............................................227 DEEP VALUE: LOTS OF REVENUE, LOW ENTERPRISE VALUE .....................................................228 DEEP VALUE: NEGLECTED GROSS PROFITEERS.......................................................................229 DEEP VALUE: COMPANIES WITH STRONG, LIQUID BALANCE SHEETS .........................................230 ACTIVIST TARGETS: UNDERPERFORMERS ................................................................................231 ACTIVIST TARGETS: SALE, LIQUIDATION OR RECAP OPPORTUNITIES .........................................232 GREENBLATT’S MAGIC FORMULA, BASED ON TRAILING FINANCIALS...........................................233 GREENBLATT’S MAGIC FORMULA, BASED ON THIS FY ESTIMATES.............................................234 GREENBLATT’S MAGIC FORMULA, BASED ON NEXT FY ESTIMATES............................................235 GREENBLATT’S MAGIC FORMULA, BASED ON 2013 EPS ESTS ..................................................236

HOW CAN AN INVESTOR EXPLAIN LOSING MONEY IN 2008 ............. 237


Editor’s Commentary

We highlight the following ten ideas in this Portfolio Manager’s Review: American Express (NYSE: AXP) is a wide-moat, high-ROE business that

trades at less than 1.5x tangible book value. Bruce Berkowitz and Glenn Greenberg joined Warren Buffett as shareholders in the fourth quarter. Shares have declined another 31% since yearend 2008. While the market’s fear of a liquidity crisis at AXP is palpable, we believe the shares offer an outstanding risk-reward tradeoff.

AmeriCredit (NYSE: ACF) operates in the sub-prime auto lending industry, which has essentially ground to a halt. However, with a strong management team, a valuation of .3x tangible book value, AmeriCredit offers compelling value for long-term investors. Leucadia and Fairholme own half the company.

EchoStar (Nasdaq: SATS) is 50%-owned by satellite industry pioneer Charlie Ergen who has a track record of smart capital allocation. With two-thirds of market value in net cash, and valuable set-top box and satellite assets, Ergen can create value by buying back stock or opportunistically acquiring operating assets.

Greenlight Capital Re (Nasdaq: GLRE) is a tax-efficient investment vehicle run by David Einhorn. Given Einhorn’s sensible investment approach and strong track record, we believe the shares should not trade at a discount to book value.

Microsoft (Nasdaq: MSFT) is a wide-moat business with favorable long-term growth characteristics. The shares appear unjustifiably cheap at approximately ten times headline earnings. The latter do not reflect the valuable MSN.com and Xbox businesses, neither of which contributes meaningfully to earnings at present.

Premier Exhibitions (Nasdaq: PRXI) owns rights to certain assets related to the Titanic shipwreck site. These assets have been appraised at meaningfully more than the enterprise value of the company. Premier also has other operating assets and a fundamentally attractive, high-ROIC business. With 16% shareholder Mark Sellers successful in ousting management, we expect value to be unlocked.

Sears Holdings (Nasdaq: SHLD) appears to trade at an enterprise value below the value of the company’s substantial real estate holdings. The shares have limited fundamental downside even if one ascribes no value to the retail business. We expect Eddie Lampert’s capital allocation skills to benefit shareholders over time.

SFK Pulp Fund (Toronto: SFK-UN) is a Canadian pulp producer that trades at a distressed valuation of .1x tangible book value. The company recently suspended its monthly distribution, putting additional pressure on the shares. Despite the market’s apparent assertion that SFK may become bankrupt, we view the debt load as quite manageable. In addition, SFK has distinct pulp mill assets in Canada and the U.S., some of which could be sold if necessary to stave of bankruptcy. We like the risk-reward in this situation, as SFK has a high likelihood of survival and the ability in good times to throw off free cash flow in excess of recent market value.

Sony (NYSE: SNE) trades at a multi-year low that implies a valuation of .7x tangible book value. This valuation does not reflect the company’s earning power, global brand or competitive strength in businesses ranging from video games to consumer electronics. While we generally find little value among Japan’s low-ROE companies, we find Sony shares too cheap to ignore.

Travelzoo (Nasdaq: TZOO) trades at a price that does not accurately reflect the value of its 12+ million email subscriber base. The company has a strong business proposition even in a weak travel environment, as it helps hospitality companies liquidate unfilled capacity. Heavy insider buying appears to support the view that the shares are grossly mispriced.

Sincerely, John Mihaljevic, CFA and The Manual of Ideas research team

U.S. Equites — Cheapness Snapshot1 % of U.S. stocks trading for less than…

All stocks

MV> $1bn

net net current assets 8% 0% net cash 8% 2% tangible book value 34% 18% 5x trailing EPS 9% 9% 1 As of February 6, 2009.


Snapshot of Companies Presented In This Issue

In Alphabetical Order Recent Market Enterprise LTM LTM Date of FY Price Value Value EBIT / EBIT / Latest End Company / Ticker ($) ($mn) ($mn) EV Capital Quarter Date

American Express / AXP 15.74 18,258 66,258 11% >99% 12/31/08 12/31/09

AmeriCredit / ACF 5.23 689 12,321 5% 0-25% 12/31/08 6/30/09

Barnes & Noble / BKS 17.24 953 1,063 17% 0-25% 10/31/08 1/31/09

Burlington Northern / BNI 66.04 22,414 31,336 12% 0-25% 12/31/08 12/31/09

Canadian Natural / CNQ 34.50 18,661 28,218 14% 0-25% 9/30/08 12/31/08

Canon / CAJ 26.52 32,750 25,258 21% 25-50% 12/31/08 12/31/09

Capital Southwest / CSWC 89.69 336 314 3% >99% 12/31/08 3/31/09

ConocoPhillips / COP 45.67 68,086 89,070 nm nm 12/31/08 12/31/09

Cresud / CRESY 8.15 391 391 4% 0-25% 9/30/08 6/30/09

Dell / DELL 9.12 17,733 11,278 31% >99% 10/31/08 1/31/09

Depomed / DEPO 2.48 127 62 30% 25-50% 9/30/08 12/31/08

DISH Network / DISH 13.58 6,071 10,620 18% 50-99% 9/30/08 12/31/08

Dr Pepper Snapple / DPS 16.60 4,211 7,594 12% 50-99% 9/30/08 12/31/08

EarthLink / ELNK 6.72 728 540 30% >99% 12/31/08 12/31/09

Eaton / ETN 43.80 7,223 10,964 11% 25-50% 12/31/08 12/31/09

EchoStar / SATS 15.17 1,359 756 nm nm 9/30/08 12/31/08

EMC / EMC 12.06 24,276 20,919 8% 50-99% 12/31/08 12/31/09

Forest Labs / FRX 25.84 7,794 5,604 19% 25-50% 12/31/08 3/31/09

Fujifilm / FUJI 19.64 9,600 10,359 12% 0-25% 6/30/08 3/31/09

Garmin / GRMN 17.20 3,484 2,944 32% 50-99% 9/30/08 12/31/08

GeoResources / GEOI 7.44 121 167 23% 25-50% 9/30/08 12/31/08

Helix Energy / HLX 4.78 439 2,367 21% 0-25% 9/30/08 12/31/08

Hitachi / HIT 28.64 9,524 34,353 8% 0-25% 12/31/08 3/31/09

Horsehead / ZINC 4.14 146 66 >99% 25-50% 9/30/08 12/31/08

Jefferies / JEF 12.33 2,013 1,772 nm nm 12/31/08 12/31/09

KBR / KBR 14.97 2,418 1,308 36% >99% 9/30/08 12/31/08

KHD Humboldt Wedag / KHD 9.58 292 -103 nm >99% 9/30/08 12/31/08

Kyocera / KYO 64.00 11,750 6,907 24% 0-25% 6/30/08 3/31/09

Lear / LEA 0.75 58 1,875 nm nm 12/31/08 12/31/09

Leucadia National / LUK 15.66 3,647 5,371 nm nm 9/30/08 12/31/08

[MFI100 ● Top100_browser ● MOI_macros_100.xls, MOI100A]


In Alphabetical Order (continued)

Recent Market Enterprise LTM LTM Date of FY Price Value Value EBIT / EBIT / Latest End Company / Ticker ($) ($mn) ($mn) EV Capital Quarter Date

Lorillard / LO 63.91 10,737 9,546 15% >99% 12/31/08 12/31/09

MasterCard / MA 161.90 20,923 18,801 nm nm 12/31/08 12/31/09

MEMC Electronic Materials / WFR 16.11 3,616 2,511 34% 50-99% 12/31/08 12/31/09

Mesabi Trust / MSB 7.87 103 87 43% >99% 10/31/08 1/31/09

Microsoft / MSFT 19.09 169,721 151,006 14% >99% 12/31/08 6/30/09

Net1 Ueps / UEPS 15.32 853 732 15% >99% 12/31/08 6/30/09

Panasonic / PC 11.58 23,987 19,676 21% 0-25% 12/31/08 3/31/09

Premier Exhibitions / PRXI 1.00 29 23 nm nm 11/30/08 2/28/09

PRIMEDIA / PRM 1.82 80 306 16% >99% 12/31/08 12/31/08

Sears Holdings / SHLD 38.99 4,821 8,130 9% 0-25% 10/31/08 1/31/09

SFK Pulp Fund / SFK-UN.TO C$0.45 C$53 C$221 7% 0-25% 9/30/08 12/31/08

Sharp / SHCAY 8.00 8,807 13,222 0% nm 6/30/08 3/31/09

Sonae Capital / SONC.LS €0.46 €115 €399 nm nm 9/30/08 12/31/08

Sony / SNE 18.50 18,572 17,269 4% 0-25% 12/31/08 3/31/09

St. Joe / JOE 23.48 2,165 2,110 0% >99% 9/30/08 12/31/08

Syneron Medical / ELOS 5.98 172 -25 1% nm 9/30/08 12/31/08

Target / TGT 30.08 22,644 42,019 12% 0-25% 10/31/08 1/31/09

TDK / TDK 40.30 5,200 6,079 3% 0-25% 3/31/08 3/31/09

Tempur-Pedic / TPX 7.60 569 973 14% 25-50% 12/31/08 12/31/09

Travelzoo / TZOO 5.40 77 63 5% 50-99% 12/31/08 12/31/09

UnitedHealth / UNH 28.96 35,204 39,789 13% >99% 12/31/08 12/31/09

URS / URS 34.44 2,876 3,818 9% 25-50% 9/30/08 12/31/08

USG / USG 7.07 701 2,066 nm nm 12/31/08 12/31/09

UTStarcom / UTSI 1.40 177 -154 >99% nm 9/30/08 12/31/08

Versant / VSNT 16.49 62 35 29% >99% 7/31/08 10/31/08

Visa / V 55.95 47,333 44,457 3% >99% 12/31/08 9/30/09

WellCare / WCG 15.57 658 -196 nm >99% 12/31/07 12/31/08

WellPoint / WLP 43.75 22,271 29,457 12% >99% 12/31/08 12/31/09

Winthrop Realty / FUR 9.80 154 364 nm nm 9/30/08 12/31/08

Yahoo! / YHOO 12.84 17,794 14,342 0% 0-25% 12/31/08 12/31/09



By Market Value Recent Market Enterprise LTM LTM Date of FY Price Value Value EBIT / EBIT / Latest End Company / Ticker ($) ($mn) ($mn) EV Capital Quarter Date

Microsoft / MSFT 19.09 169,721 151,006 14% >99% 12/31/08 6/30/09

ConocoPhillips / COP 45.67 68,086 89,070 nm nm 12/31/08 12/31/09

Visa / V 55.95 47,333 44,457 3% >99% 12/31/08 9/30/09

UnitedHealth / UNH 28.96 35,204 39,789 13% >99% 12/31/08 12/31/09

Canon / CAJ 26.52 32,750 25,258 21% 25-50% 12/31/08 12/31/09

EMC / EMC 12.06 24,276 20,919 8% 50-99% 12/31/08 12/31/09

Panasonic / PC 11.58 23,987 19,676 21% 0-25% 12/31/08 3/31/09

Target / TGT 30.08 22,644 42,019 12% 0-25% 10/31/08 1/31/09

Burlington Northern / BNI 66.04 22,414 31,336 12% 0-25% 12/31/08 12/31/09

WellPoint / WLP 43.75 22,271 29,457 12% >99% 12/31/08 12/31/09

MasterCard / MA 161.90 20,923 18,801 nm nm 12/31/08 12/31/09

Canadian Natural / CNQ 34.50 18,661 28,218 14% 0-25% 9/30/08 12/31/08

Sony / SNE 18.50 18,572 17,269 4% 0-25% 12/31/08 3/31/09

American Express / AXP 15.74 18,258 66,258 11% >99% 12/31/08 12/31/09

Yahoo! / YHOO 12.84 17,794 14,342 0% 0-25% 12/31/08 12/31/09

Dell / DELL 9.12 17,733 11,278 31% >99% 10/31/08 1/31/09

Kyocera / KYO 64.00 11,750 6,907 24% 0-25% 6/30/08 3/31/09

Lorillard / LO 63.91 10,737 9,546 15% >99% 12/31/08 12/31/09

Fujifilm / FUJI 19.64 9,600 10,359 12% 0-25% 6/30/08 3/31/09

Hitachi / HIT 28.64 9,524 34,353 8% 0-25% 12/31/08 3/31/09

Sharp / SHCAY 8.00 8,807 13,222 0% nm 6/30/08 3/31/09

Forest Labs / FRX 25.84 7,794 5,604 19% 25-50% 12/31/08 3/31/09

Eaton / ETN 43.80 7,223 10,964 11% 25-50% 12/31/08 12/31/09

DISH Network / DISH 13.58 6,071 10,620 18% 50-99% 9/30/08 12/31/08

TDK / TDK 40.30 5,200 6,079 3% 0-25% 3/31/08 3/31/09

Sears Holdings / SHLD 38.99 4,821 8,130 9% 0-25% 10/31/08 1/31/09

Dr Pepper Snapple / DPS 16.60 4,211 7,594 12% 50-99% 9/30/08 12/31/08

Leucadia National / LUK 15.66 3,647 5,371 nm nm 9/30/08 12/31/08

MEMC Electronic Materials / WFR 16.11 3,616 2,511 34% 50-99% 12/31/08 12/31/09

Garmin / GRMN 17.20 3,484 2,944 32% 50-99% 9/30/08 12/31/08



By Market Value (continued)

Recent Market Enterprise LTM LTM Date of FY Price Value Value EBIT / EBIT / Latest End Company / Ticker ($) ($mn) ($mn) EV Capital Quarter Date

URS / URS 34.44 2,876 3,818 9% 25-50% 9/30/08 12/31/08

KBR / KBR 14.97 2,418 1,308 36% >99% 9/30/08 12/31/08

St. Joe / JOE 23.48 2,165 2,110 0% >99% 9/30/08 12/31/08

Jefferies / JEF 12.33 2,013 1,772 nm nm 12/31/08 12/31/09

EchoStar / SATS 15.17 1,359 756 nm nm 9/30/08 12/31/08

Barnes & Noble / BKS 17.24 953 1,063 17% 0-25% 10/31/08 1/31/09

Net1 Ueps / UEPS 15.32 853 732 15% >99% 12/31/08 6/30/09

EarthLink / ELNK 6.72 728 540 30% >99% 12/31/08 12/31/09

USG / USG 7.07 701 2,066 nm nm 12/31/08 12/31/09

AmeriCredit / ACF 5.23 689 12,321 5% 0-25% 12/31/08 6/30/09

WellCare / WCG 15.57 658 -196 nm >99% 12/31/07 12/31/08

Tempur-Pedic / TPX 7.60 569 973 14% 25-50% 12/31/08 12/31/09

Helix Energy / HLX 4.78 439 2,367 21% 0-25% 9/30/08 12/31/08

Cresud / CRESY 8.15 391 391 4% 0-25% 9/30/08 6/30/09

Capital Southwest / CSWC 89.69 336 314 3% >99% 12/31/08 3/31/09

KHD Humboldt Wedag / KHD 9.58 292 -103 nm >99% 9/30/08 12/31/08

UTStarcom / UTSI 1.40 177 -154 >99% nm 9/30/08 12/31/08

Syneron Medical / ELOS 5.98 172 -25 1% nm 9/30/08 12/31/08

Winthrop Realty / FUR 9.80 154 364 nm nm 9/30/08 12/31/08

Horsehead / ZINC 4.14 146 66 >99% 25-50% 9/30/08 12/31/08

Depomed / DEPO 2.48 127 62 30% 25-50% 9/30/08 12/31/08

GeoResources / GEOI 7.44 121 167 23% 25-50% 9/30/08 12/31/08

Sonae Capital / SONC.LS €0.46 €115 €399 nm nm 9/30/08 12/31/08

Mesabi Trust / MSB 7.87 103 87 43% >99% 10/31/08 1/31/09

PRIMEDIA / PRM 1.82 80 306 16% >99% 12/31/08 12/31/08

Travelzoo / TZOO 5.40 77 63 5% 50-99% 12/31/08 12/31/09

Versant / VSNT 16.49 62 35 29% >99% 7/31/08 10/31/08

Lear / LEA 0.75 58 1,875 nm nm 12/31/08 12/31/09

SFK Pulp Fund / SFK-UN.TO C$0.45 C$53 C$221 7% 0-25% 9/30/08 12/31/08

Premier Exhibitions / PRXI 1.00 29 23 nm nm 11/30/08 2/28/09



Stock Price Performance (sorted by price decline since 12/31/08)

Recent ∆ to 52-Wk Price Performance Price Low High Since Since Since Company / Ticker ($) ($) ($) 12/31/08 12/31/06 12/31/04

Lear / LEA 0.75 -1% >999% -47% -97% -99%

Helix Energy / HLX 4.78 -18% 775% -34% -85% -77%

AmeriCredit / ACF 5.23 -46% 206% -32% -79% -79%

Syneron Medical / ELOS 5.98 -5% 202% -28% -78% -80%

Hitachi / HIT 28.64 -7% 170% -27% -54% -59%

UTStarcom / UTSI 1.40 -4% 324% -24% -84% -94%

SFK Pulp Fund / SFK-UN.TO C$0.45 -11% 431% -22% -89% -94%

Leucadia National / LUK 15.66 -22% 263% -21% -44% -32%

Capital Southwest / CSWC 89.69 -33% 64% -17% -29% 14%

PRIMEDIA / PRM 1.82 -62% 404% -16% -82% -92%

Canon / CAJ 26.52 -9% 107% -16% -53% -27%

URS / URS 34.44 -42% 45% -16% -20% 7%

Sony / SNE 18.50 -2% 183% -15% -57% -53%

American Express / AXP 15.74 -6% 234% -15% -74% -68%

GeoResources / GEOI 7.44 -25% 291% -14% 16% 143%

KHD Humboldt Wedag / KHD 9.58 -32% 274% -14% -52% -4%

Canadian Natural / CNQ 34.50 -23% 217% -14% -35% 61%

Target / TGT 30.08 -15% 98% -13% -47% -42%

Burlington Northern / BNI 66.04 -9% 74% -13% -11% 40%

Jefferies / JEF 12.33 -35% 135% -12% -54% -39%

USG / USG 7.07 -22% 469% -12% -87% -82%

Horsehead / ZINC 4.14 -45% 342% -12% na na

Eaton / ETN 43.80 -14% 124% -12% -42% -39%

ConocoPhillips / COP 45.67 -10% 110% -12% -37% 5%

Fujifilm / FUJI 19.64 -14% 109% -12% -52% -47%

Kyocera / KYO 64.00 -29% 57% -12% -33% -17%

Premier Exhibitions / PRXI 1.00 -44% 635% -12% -84% 18%

Dell / DELL 9.12 -4% 186% -11% -64% -78%

Garmin / GRMN 17.20 -16% 326% -10% -69% -43%

Winthrop Realty / FUR 9.80 -4% 177% -10% -71% -48%



Stock Price Performance (sorted by price decline since 12/31/08) (continued)

Recent ∆ to 52-Wk Price Performance Price Low High Since Since Since Company / Ticker ($) ($) ($) 12/31/08 12/31/06 12/31/04

Mesabi Trust / MSB 7.87 -13% 303% -9% -72% -42%

Cresud / CRESY 8.15 -44% 135% -9% -53% -45%

Panasonic / PC 11.58 -6% 111% -7% -42% -28%

St. Joe / JOE 23.48 -20% 99% -3% -56% -63%

Travelzoo / TZOO 5.40 -31% 146% -3% -82% -94%

Microsoft / MSFT 19.09 -12% 68% -2% -36% -29%

KBR / KBR 14.97 -35% 157% -2% -43% na

EarthLink / ELNK 6.72 -18% 51% -1% -5% -42%

Sears Holdings / SHLD 38.99 -31% 189% 0% -77% -61%

Forest Labs / FRX 25.84 -26% 65% 1% -49% -42%

EchoStar / SATS 15.17 -16% 175% 2% na na

Dr Pepper Snapple / DPS 16.60 -19% 81% 2% na na

WellPoint / WLP 43.75 -37% 74% 4% -44% -24%

Sonae Capital / SONC.LS €0.46 -9% 257% 5% na na

Yahoo! / YHOO 12.84 -30% 135% 5% -50% -66%

Visa / V 55.95 -25% 61% 7% na na

Tempur-Pedic / TPX 7.60 -35% 152% 7% -63% -64%

TDK / TDK 40.30 -34% 87% 8% -50% -46%

UnitedHealth / UNH 28.96 -50% 71% 9% -46% -34%

Versant / VSNT 16.49 -31% 103% 10% 21% 72%

Net1 Ueps / UEPS 15.32 -46% 97% 12% -48% 13%

MEMC Electronic Materials / WFR 16.11 -38% 439% 13% -59% 22%

Sharp / SHCAY 8.00 -34% 146% 13% -54% -52%

MasterCard / MA 161.90 -30% 98% 13% 64% na

Lorillard / LO 63.91 -18% 24% 13% na na

Barnes & Noble / BKS 17.24 -38% 95% 15% -57% -47%

EMC / EMC 12.06 -32% 53% 15% -9% -19%

WellCare / WCG 15.57 -61% 258% 21% -77% -52%

DISH Network / DISH 13.58 -39% 166% 22% -60% -55%

Depomed / DEPO 2.48 -59% 82% 50% -28% -54%



P/E Multiples (sorted by P/E based on estimated EPS for next fiscal year)

Recent Market P/E (A) P/E (Estimated) FY Price Value Last This Next In End Company / Ticker ($) ($mn) FY FY FY 2 Yrs Date

Helix Energy / HLX 4.78 439 1x 2x 2x 2x 12/31/08

PRIMEDIA / PRM 1.82 80 nm 3x 3x na 12/31/08

WellCare / WCG 15.57 658 3x 14x 5x 5x 12/31/08

Garmin / GRMN 17.20 3,484 4x 5x 6x 6x 12/31/08

Premier Exhibitions / PRXI 1.00 29 3x nm 6x na 2/28/09

DISH Network / DISH 13.58 6,071 8x 7x 6x 6x 12/31/08

Net1 Ueps / UEPS 15.32 853 10x 8x 7x na 6/30/09

WellPoint / WLP 43.75 22,271 9x 8x 7x 6x 12/31/09

Forest Labs / FRX 25.84 7,794 8x 8x 7x 7x 3/31/09

Dell / DELL 9.12 17,733 7x 7x 8x 7x 1/31/09

ConocoPhillips / COP 45.67 68,086 nm 11x 8x 5x 12/31/09

KBR / KBR 14.97 2,418 14x 9x 9x 8x 12/31/08

Tempur-Pedic / TPX 7.60 569 10x 10x 9x 8x 12/31/09

UnitedHealth / UNH 28.96 35,204 12x 10x 9x 8x 12/31/09

KHD Humboldt Wedag / KHD 9.58 292 7x 5x 9x 8x 12/31/08

Eaton / ETN 43.80 7,223 7x 11x 10x 8x 12/31/09

American Express / AXP 15.74 18,258 7x 14x 10x 5x 12/31/09

Microsoft / MSFT 19.09 169,721 10x 11x 10x 8x 6/30/09

EarthLink / ELNK 6.72 728 4x 7x 10x 13x 12/31/09

MEMC Electronic Materials / WFR 16.11 3,616 9x 20x 10x 9x 12/31/09

Dr Pepper Snapple / DPS 16.60 4,211 8x 9x 10x 9x 12/31/08

Burlington Northern / BNI 66.04 22,414 11x 12x 10x 9x 12/31/09

Panasonic / PC 11.58 23,987 8x 10x 11x na 3/31/09

Lorillard / LO 63.91 10,737 12x 12x 11x 10x 12/31/09

Target / TGT 30.08 22,644 9x 10x 12x 10x 1/31/09

URS / URS 34.44 2,876 15x 13x 12x 11x 12/31/08

EMC / EMC 12.06 24,276 19x 13x 12x na 12/31/09

MasterCard / MA 161.90 20,923 nm 16x 13x 12x 12/31/09

GeoResources / GEOI 7.44 121 30x 6x 14x 12x 12/31/08

Barnes & Noble / BKS 17.24 953 8x 12x 15x 15x 1/31/09



P/E Multiples (sorted by P/E based on estimated EPS for next fiscal year) (continued)

Recent Market P/E (A) P/E (Estimated) FY Price Value Last This Next In End Company / Ticker ($) ($mn) FY FY FY 2 Yrs Date

Fujifilm / FUJI 19.64 9,600 9x 16x 16x na 3/31/09

Visa / V 55.95 47,333 61x 21x 18x 15x 9/30/09

Syneron Medical / ELOS 5.98 172 30x 8x 19x 8x 12/31/08

Jefferies / JEF 12.33 2,013 nm nm 24x na 12/31/09

Yahoo! / YHOO 12.84 17,794 44x 34x 29x 24x 12/31/09

EchoStar / SATS 15.17 1,359 nm nm 47x 32x 12/31/08

Cresud / CRESY 8.15 391 48x 68x 58x 16x 6/30/09

Sears Holdings / SHLD 38.99 4,821 7x 29x 89x 52x 1/31/09

Kyocera / KYO 64.00 11,750 10x 36x >99x na 3/31/09

St. Joe / JOE 23.48 2,165 >99x nm >99x na 12/31/08

Hitachi / HIT 28.64 9,524 nm na na na 3/31/09

SFK Pulp Fund / SFK-UN.TO C$0.45 C$53 nm na na na 12/31/08

Leucadia National / LUK 15.66 3,647 7x na na na 12/31/08

Capital Southwest / CSWC 89.69 336 nm na na na 3/31/09

Canon / CAJ 26.52 32,750 10x 18x na na 12/31/09

Canadian Natural / CNQ 34.50 18,661 10x na na na 12/31/08

Winthrop Realty / FUR 9.80 154 89x na na na 12/31/08

Mesabi Trust / MSB 7.87 103 6x na na na 1/31/09

Sonae Capital / SONC.LS €0.46 €115 7x na na na 12/31/08

Versant / VSNT 16.49 62 7x na na na 10/31/08

Lear / LEA 0.75 58 nm nm nm nm 12/31/09

AmeriCredit / ACF 5.23 689 nm nm nm 15x 6/30/09

UTStarcom / UTSI 1.40 177 nm nm nm 9x 12/31/08

Sony / SNE 18.50 18,572 5x nm nm na 3/31/09

USG / USG 7.07 701 nm nm nm 19x 12/31/09

Horsehead / ZINC 4.14 146 1x 4x nm nm 12/31/08

Travelzoo / TZOO 5.40 77 nm nm nm na 12/31/09

TDK / TDK 40.30 5,200 7x >99x nm na 3/31/09

Sharp / SHCAY 8.00 8,807 8x nm nm na 3/31/09

Depomed / DEPO 2.48 127 2x nm nm nm 12/31/08



Historical and Prospective EPS (in alphabetical order)

Recent FY EPS (Actual) EPS (Estimated) Price End 2 Yrs Last This Next In Company / Ticker ($) Date Ago FY FY FY 2 Yrs

American Express / AXP 15.74 12/31/09 3.45 2.42 1.11 1.64 3.03

AmeriCredit / ACF 5.23 6/30/09 2.73 (0.60) (0.80) (0.42) 0.35

Barnes & Noble / BKS 17.24 1/31/09 2.17 2.03 1.46 1.12 1.17

Burlington Northern / BNI 66.04 12/31/09 5.10 6.08 5.60 6.50 7.52

Canadian Natural / CNQ 34.50 12/31/08 3.91 3.55 na na na

Canon / CAJ 26.52 12/31/09 4.20 2.74 1.48 na na

Capital Southwest / CSWC 89.69 3/31/09 42.94 (35.74) na na na

ConocoPhillips / COP 45.67 12/31/09 7.22 (11.16) 4.10 6.01 9.07

Cresud / CRESY 8.15 6/30/09 0.46 0.17 0.12 0.14 0.52

Dell / DELL 9.12 1/31/09 1.14 1.31 1.34 1.21 1.35

Depomed / DEPO 2.48 12/31/08 (0.97) 1.05 (0.52) (0.80) (0.40)

DISH Network / DISH 13.58 12/31/08 1.37 1.68 1.99 2.16 2.31

Dr Pepper Snapple / DPS 16.60 12/31/08 2.01 1.96 1.82 1.64 1.77

EarthLink / ELNK 6.72 12/31/09 (0.45) 1.80 0.97 0.69 0.53

Eaton / ETN 43.80 12/31/09 6.38 6.50 4.10 4.61 5.53

EchoStar / SATS 15.17 12/31/08 (0.81) (2.03) (3.00) 0.32 0.47

EMC / EMC 12.06 12/31/09 0.77 0.64 0.91 1.03 na

Forest Labs / FRX 25.84 3/31/09 1.41 3.06 3.44 3.48 3.89

Fujifilm / FUJI 19.64 3/31/09 0.71 2.10 1.20 1.26 na

Garmin / GRMN 17.20 12/31/08 2.35 3.89 3.65 2.97 2.69

GeoResources / GEOI 7.44 12/31/08 0.87 0.25 1.25 0.52 0.60

Helix Energy / HLX 4.78 12/31/08 3.87 3.34 2.70 1.98 2.71

Hitachi / HIT 28.64 3/31/09 (1.07) (1.90) na na na

Horsehead / ZINC 4.14 12/31/08 2.01 2.85 1.17 (0.57) (0.02)

Jefferies / JEF 12.33 12/31/09 0.97 (3.24) (0.10) 0.52 na

KBR / KBR 14.97 12/31/08 0.39 1.08 1.71 1.74 1.81

KHD Humboldt Wedag / KHD 9.58 12/31/08 1.04 1.42 2.12 1.02 1.18

Kyocera / KYO 64.00 3/31/09 5.93 6.24 1.80 0.59 na

Lear / LEA 0.75 12/31/09 3.09 (8.94) (3.34) (0.01) (0.48)

Leucadia National / LUK 15.66 12/31/08 0.60 2.09 na na na



Historical and Prospective EPS (in alphabetical order) (continued)

Recent FY EPS (Actual) EPS (Estimated) Price End 2 Yrs Last This Next In Company / Ticker ($) Date Ago FY FY FY 2 Yrs

Lorillard / LO 63.91 12/31/09 5.16 5.15 5.39 5.73 6.12

MasterCard / MA 161.90 12/31/09 8.00 (1.95) 10.31 12.13 14.05

MEMC Electronic Materials / WFR 16.11 12/31/09 3.56 1.71 0.79 1.60 1.77

Mesabi Trust / MSB 7.87 1/31/09 1.31 1.39 na na na

Microsoft / MSFT 19.09 6/30/09 1.42 1.87 1.77 1.98 2.31

Net1 Ueps / UEPS 15.32 6/30/09 1.11 1.50 2.02 2.32 na

Panasonic / PC 11.58 3/31/09 1.08 1.45 1.19 1.06 na

Premier Exhibitions / PRXI 1.00 2/28/09 0.24 0.37 (0.04) 0.16 na

PRIMEDIA / PRM 1.82 12/31/08 (1.48) (1.26) 0.62 0.63 na

Sears Holdings / SHLD 38.99 1/31/09 9.58 5.70 1.35 0.44 0.75

SFK Pulp Fund / SFK-UN.TO C$0.45 12/31/08 C$0.02 (C$0.11) na na na

Sharp / SHCAY 8.00 3/31/09 0.99 0.96 (0.47) (0.39) na

Sonae Capital / SONC.LS €0.46 12/31/08 €0.02 €0.06 na na na

Sony / SNE 18.50 3/31/09 1.31 3.82 (1.48) (0.30) na

St. Joe / JOE 23.48 12/31/08 0.46 0.15 (0.07) 0.10 na

Syneron Medical / ELOS 5.98 12/31/08 1.12 0.20 0.79 0.31 0.75

Target / TGT 30.08 1/31/09 3.21 3.34 2.89 2.59 3.08

TDK / TDK 40.30 3/31/09 5.77 6.01 0.07 (0.20) na

Tempur-Pedic / TPX 7.60 12/31/09 1.74 0.79 0.73 0.87 0.97

Travelzoo / TZOO 5.40 12/31/09 0.57 (0.29) (0.13) (0.03) na

UnitedHealth / UNH 28.96 12/31/09 3.42 2.40 3.00 3.28 3.57

URS / URS 34.44 12/31/08 2.19 2.35 2.69 2.96 3.23

USG / USG 7.07 12/31/09 0.79 (2.89) (2.54) (1.52) 0.37

UTStarcom / UTSI 1.40 12/31/08 (0.97) (1.62) (1.09) (0.59) 0.16

Versant / VSNT 16.49 10/31/08 1.98 2.48 na na na

Visa / V 55.95 9/30/09 (1.34) 0.91 2.69 3.17 3.75

WellCare / WCG 15.57 12/31/08 2.98 5.16 1.15 2.85 3.07

WellPoint / WLP 43.75 12/31/09 5.56 4.76 5.68 6.21 6.90

Winthrop Realty / FUR 9.80 12/31/08 3.56 0.11 na na na

Yahoo! / YHOO 12.84 12/31/09 0.47 0.29 0.38 0.45 0.53



Latest Quarterly EPS Surprise (sorted by magnitude of surprise)

Recent Market Date of Latest EPS Surprise Price Value Latest Date EPS EPS % Company / Ticker ($) ($mn) Quarter (Actual) (Estimated) Diff.

Horsehead / ZINC 4.14 146 9/30/08 11/6/08 0.27 0.04 >99%

KHD Humboldt Wedag / KHD 9.58 292 9/30/08 11/12/08 0.80 0.55 45%

Forest Labs / FRX 25.84 7,794 12/31/08 1/20/09 1.03 0.76 36%

Yahoo! / YHOO 12.84 17,794 12/31/08 1/27/09 0.17 0.13 31%

URS / URS 34.44 2,876 9/30/08 11/5/08 0.79 0.63 25%

Dell / DELL 9.12 17,733 10/31/08 11/20/08 0.37 0.31 19%

Visa / V 55.95 47,333 12/31/08 2/4/09 0.78 0.66 18%

MasterCard / MA 161.90 20,923 12/31/08 2/5/09 1.87 1.61 16%

Tempur-Pedic / TPX 7.60 569 12/31/08 1/22/09 0.17 0.15 13%

Lorillard / LO 63.91 10,737 12/31/08 2/9/09 1.53 1.37 12%

PRIMEDIA / PRM 1.82 80 12/31/08 11/6/08 0.20 0.18 11%

MEMC Electronic Materials / WFR 16.11 3,616 12/31/08 1/22/09 0.65 0.61 7%

ConocoPhillips / COP 45.67 68,086 12/31/08 1/28/09 1.28 1.21 6%

EMC / EMC 12.06 24,276 12/31/08 1/27/09 0.24 0.23 4%

Eaton / ETN 43.80 7,223 12/31/08 1/26/09 1.08 1.04 4%

Garmin / GRMN 17.20 3,484 9/30/08 10/29/08 0.87 0.84 4%

Burlington Northern / BNI 66.04 22,414 12/31/08 1/21/09 1.79 1.74 3%

KBR / KBR 14.97 2,418 9/30/08 10/31/08 0.44 0.43 2%

Target / TGT 30.08 22,644 10/31/08 11/17/08 0.49 0.48 2%

UnitedHealth / UNH 28.96 35,204 12/31/08 1/22/09 0.78 0.78 0%

Microsoft / MSFT 19.09 169,721 12/31/08 1/22/09 0.47 0.49 -4%

Net1 Ueps / UEPS 15.32 853 12/31/08 2/5/09 0.44 0.46 -4%

American Express / AXP 15.74 18,258 12/31/08 1/26/09 0.21 0.22 -5%

Helix Energy / HLX 4.78 439 9/30/08 10/29/08 0.65 0.70 -7%

WellCare / WCG 15.57 658 12/31/07 1/26/09 1.41 1.57 -10%

GeoResources / GEOI 7.44 121 9/30/08 11/10/08 0.35 0.39 -10%

Dr Pepper Snapple / DPS 16.60 4,211 9/30/08 11/13/08 0.45 0.51 -12%

EarthLink / ELNK 6.72 728 12/31/08 2/5/09 0.25 0.38 -34%

Syneron Medical / ELOS 5.98 172 9/30/08 11/11/08 0.08 0.13 -38%

WellPoint / WLP 43.75 22,271 12/31/08 1/28/09 0.65 1.36 -52%

DISH Network / DISH 13.58 6,071 9/30/08 11/10/08 0.20 0.59 -66%



Latest Quarterly EPS Surprise (sorted by magnitude of surprise) (continued)

Recent Market Date of Latest EPS Surprise Price Value Latest Date EPS EPS % Company / Ticker ($) ($mn) Quarter (Actual) (Estimated) Diff.

Sony / SNE 18.50 18,572 12/31/08 1/29/09 0.11 0.55 -80%

Premier Exhibitions / PRXI 1.00 29 11/30/08 1/6/09 (0.06) 0.04 <-99%

AmeriCredit / ACF 5.23 689 12/31/08 1/29/09 (0.21) (0.27) nm

Barnes & Noble / BKS 17.24 953 10/31/08 11/20/08 (0.18) (0.16) nm

Canadian Natural / CNQ 34.50 18,661 9/30/08 na na na nm

Canon / CAJ 26.52 32,750 12/31/08 1/28/09 0.48 na nm

Capital Southwest / CSWC 89.69 336 12/31/08 na na na nm

Cresud / CRESY 8.15 391 9/30/08 11/11/08 (0.23) na nm

Depomed / DEPO 2.48 127 9/30/08 10/30/08 (0.12) (0.15) nm

EchoStar / SATS 15.17 1,359 9/30/08 11/10/08 (3.43) (0.19) nm

Fujifilm / FUJI 19.64 9,600 6/30/08 7/30/08 0.55 na nm

Hitachi / HIT 28.64 9,524 12/31/08 na na na nm

Jefferies / JEF 12.33 2,013 12/31/08 1/20/09 (2.41) (2.29) nm

Kyocera / KYO 64.00 11,750 6/30/08 7/30/08 1.09 na nm

Lear / LEA 0.75 58 12/31/08 1/29/09 (1.35) (1.21) nm

Leucadia National / LUK 15.66 3,647 9/30/08 na na na nm

Mesabi Trust / MSB 7.87 103 10/31/08 na na na nm

Panasonic / PC 11.58 23,987 12/31/08 2/4/09 (0.32) na nm

Sears Holdings / SHLD 38.99 4,821 10/31/08 12/2/08 (0.90) (0.49) nm

SFK Pulp Fund / SFK-UN.TO C$0.45 C$53 9/30/08 na na na nm

Sharp / SHCAY 8.00 8,807 6/30/08 7/31/08 0.20 na nm

Sonae Capital / SONC.LS €0.46 €115 9/30/08 na na na nm

St. Joe / JOE 23.48 2,165 9/30/08 11/4/08 (0.21) 0.00 nm

TDK / TDK 40.30 5,200 3/31/08 4/28/08 na na nm

Travelzoo / TZOO 5.40 77 12/31/08 2/3/09 (0.01) (0.12) nm

USG / USG 7.07 701 12/31/08 1/28/09 (0.70) (0.48) nm

UTStarcom / UTSI 1.40 177 9/30/08 11/6/08 (0.45) (0.54) nm

Versant / VSNT 16.49 62 7/31/08 na na na nm

Winthrop Realty / FUR 9.80 154 9/30/08 na na na nm



Revenue and EPS Growth (sorted by next FY EPS growth)

Revenue Growth EPS Growth 5-Year Last FY LTM Last FY This FY Next FY LTGR Company / Ticker CAGR (Actual) (Estimated) (Estimated) (Estimated)

MEMC Electronic Materials / WFR 21% 4% 4% -52% -54% >99% 14%

WellCare / WCG 42% 48% 48% 73% -78% >99% 13%

American Express / AXP 10% 1% 1% -30% -54% 48% 10%

ConocoPhillips / COP 19% 27% 27% nm nm 47% 8%

Tempur-Pedic / TPX 14% -16% -16% -55% -8% 19% 13%

Yahoo! / YHOO 35% 3% 3% -38% 31% 18% 15%

Visa / V nm 74% 54% nm >99% 18% 20%

MasterCard / MA 17% 23% 23% nm nm 18% 17%

Cresud / CRESY 18% 47% >99% -63% -29% 17% na

Burlington Northern / BNI 14% 14% 14% 19% -8% 16% 9%

Net1 Ueps / UEPS 28% 13% 2% 35% 35% 15% 18%

EMC / EMC 19% 12% 12% -17% 42% 13% 12%

Eaton / ETN 14% 18% 18% 2% -37% 12% 11%

Microsoft / MSFT 13% 18% 7% 32% -5% 12% 10%

URS / URS 11% 27% 93% 7% 14% 10% 13%

UnitedHealth / UNH 23% 8% 8% -30% 25% 9% 13%

WellPoint / WLP 30% 0% 0% -14% 19% 9% 12%

DISH Network / DISH 18% 13% 8% 23% 18% 9% 6%

Lorillard / LO 5% 6% 6% 0% 5% 6% 8%

Fujifilm / FUJI 3% 2% -8% >99% -43% 5% na

KBR / KBR 11% -1% 22% >99% 58% 2% 11%

PRIMEDIA / PRM -25% 2% -10% nm nm 2% na

Forest Labs / FRX 11% 11% 6% >99% 12% 1% 3%

Dell / DELL 12% 6% 7% 15% 2% -10% 8%

Dr Pepper Snapple / DPS nm 21% -19% -2% -7% -10% 5%

Target / TGT 11% 7% 3% 4% -13% -10% 13%

Panasonic / PC 4% 0% -8% 34% -18% -11% 3%

Garmin / GRMN 47% 79% 42% 66% -6% -19% 13%

Barnes & Noble / BKS 7% 3% -2% -6% -28% -23% na

Helix Energy / HLX 42% 29% 27% -14% -19% -27% 12%



Revenue and EPS Growth (sorted by next FY EPS growth) (continued)

Revenue Growth EPS Growth 5-Year Last FY LTM Last FY This FY Next FY LTGR Company / Ticker CAGR (Actual) (Estimated) (Estimated) (Estimated)

EarthLink / ELNK -7% -21% -21% nm -46% -29% -20%

KHD Humboldt Wedag / KHD 15% 27% 11% 37% 49% -52% na

GeoResources / GEOI 59% >99% >99% -71% >99% -58% na

Syneron Medical / ELOS 27% -18% -18% -82% >99% -61% 14%

Kyocera / KYO 4% 1% -40% 5% -71% -67% -13%

Sears Holdings / SHLD 12% -4% -6% -41% -76% -67% 9%

Horsehead / ZINC 23% 10% -18% 42% -59% nm na

Sony / SNE 3% 7% -9% >99% nm nm na

Premier Exhibitions / PRXI 84% >99% 12% 54% nm nm 15%

AmeriCredit / ACF 21% 9% -7% nm nm nm 13%

Canadian Natural / CNQ 24% 7% 37% -9% nm nm na

Canon / CAJ 5% -9% -11% -35% -46% nm na

Capital Southwest / CSWC 11% -3% 99% nm nm nm na

Depomed / DEPO >99% >99% -52% nm nm nm na

EchoStar / SATS 8% 1% 28% nm nm nm 5%

Hitachi / HIT 7% 10% -32% nm nm nm na

Jefferies / JEF 13% -38% -38% nm nm nm 10%

Lear / LEA -3% -15% -15% nm nm nm 9%

Leucadia National / LUK 37% 34% 14% >99% nm nm na

Mesabi Trust / MSB 30% 6% >99% 6% nm nm na

SFK Pulp Fund / SFK-UN.TO 20% 63% 5% nm nm nm na

Sharp / SHCAY 11% 9% -38% -3% nm nm na

Sonae Capital / SONC.LS na 13% 19% >99% nm nm na

St. Joe / JOE -10% -28% -28% -67% nm nm 15%

TDK / TDK 7% 0% -9% 4% -99% nm -15%

Travelzoo / TZOO 35% 3% 3% nm nm nm na

USG / USG 5% -11% -11% nm nm nm na

UTStarcom / UTSI 20% 0% -7% nm nm nm na

Versant / VSNT 3% 19% 19% 25% nm nm na

Winthrop Realty / FUR 74% -3% -21% -97% nm nm na



Percentile Rank within Industry (sorted by LTM EBIT margin rank)

Market Percentile Rank within Industry Value Revenue Growth EPS Growth LTM EBIT Company / Ticker ($mn) 5-Year LTM LTM Estimated Margin

Mesabi Trust / MSB 103 82 95 95 na 100

Capital Southwest / CSWC 336 48 92 84 na 98

Depomed / DEPO 127 98 4 83 na 95

MEMC Electronic Materials / WFR 3,616 71 46 30 61 89

Net1 Ueps / UEPS 853 80 42 73 78 89

Versant / VSNT 62 23 70 66 na 87

Microsoft / MSFT 169,721 56 52 58 37 86

GeoResources / GEOI 121 93 98 na na 86

Lorillard / LO 10,737 30 49 50 20 85

Canadian Natural / CNQ 18,661 75 81 87 na 83

Forest Labs / FRX 7,794 50 49 79 4 82

Garmin / GRMN 3,484 90 83 67 53 82

Visa / V 47,333 na 86 96 81 80

Helix Energy / HLX 439 89 76 49 46 80

Burlington Northern / BNI 22,414 57 63 50 26 79

EarthLink / ELNK 728 9 13 97 0 76

DISH Network / DISH 6,071 67 52 64 11 75

PRIMEDIA / PRM 80 3 22 21 na 75

Dr Pepper Snapple / DPS 4,211 na 14 38 7 75

Horsehead / ZINC 146 75 15 29 na 75

Tempur-Pedic / TPX 569 58 16 29 56 72

KHD Humboldt Wedag / KHD 292 60 60 69 na 71

American Express / AXP 18,258 47 41 37 37 67

EMC / EMC 24,276 68 61 42 50 67

Cresud / CRESY 391 66 98 26 na 66

Canon / CAJ 32,750 30 21 35 na 66

Kyocera / KYO 11,750 26 6 32 0 65

Eaton / ETN 7,223 57 68 50 40 63

WellCare / WCG 658 89 85 83 56 60

UnitedHealth / UNH 35,204 74 53 37 53 59

Target / TGT 22,644 49 44 49 52 59



Percentile Rank within Industry (sorted by LTM EBIT margin rank) (continued)

Market Percentile Rank within Industry Value Revenue Growth EPS Growth LTM EBIT Company / Ticker ($mn) 5-Year LTM LTM Estimated Margin

WellPoint / WLP 22,271 82 39 44 49 58

Dell / DELL 17,733 50 51 56 23 57

URS / URS 2,876 49 92 50 54 56

Panasonic / PC 23,987 27 24 32 4 55

Fujifilm / FUJI 9,600 23 24 27 na 54

KBR / KBR 2,418 50 73 59 39 54

Barnes & Noble / BKS 953 35 34 41 na 53

Travelzoo / TZOO 77 85 44 14 na 53

Sears Holdings / SHLD 4,821 51 26 25 26 49

TDK / TDK 5,200 37 23 23 0 49

Sony / SNE 18,572 25 22 27 na 47

Yahoo! / YHOO 17,794 85 45 37 62 46

Syneron Medical / ELOS 172 79 14 23 59 45

ConocoPhillips / COP 68,086 68 76 8 22 44

EchoStar / SATS 1,359 40 77 7 7 44

Premier Exhibitions / PRXI 29 97 61 19 63 41

Lear / LEA 58 13 17 5 26 40

UTStarcom / UTSI 177 70 26 79 na 38

AmeriCredit / ACF 689 72 25 13 50 37

MasterCard / MA 20,923 65 73 17 75 35

St. Joe / JOE 2,165 7 10 27 63 31

Hitachi / HIT 9,524 35 8 na na 29

Leucadia National / LUK 3,647 86 64 na na 29

Jefferies / JEF 2,013 54 6 5 31 18

USG / USG 701 29 20 7 na 17

Winthrop Realty / FUR 154 96 13 12 na 13

Sharp / SHCAY 8,807 50 7 30 na 12

SFK Pulp Fund / SFK-UN.TO C$53 na na na na na

Sonae Capital / SONC.LS €115 na na na na na



Selected Metrics (sorted by net cash to market value)

Recent EV / Price / Price LTM Tangible Net Debt / Net Cash / Dividend Company / Ticker ($) Revenue Book Equity MV Yield

UTStarcom / UTSI 1.40 nm 0.3x nm 187% -

KHD Humboldt Wedag / KHD 9.58 nm 0.8x nm 135% -

WellCare / WCG 15.57 nm 1.1x nm 130% -

Syneron Medical / ELOS 5.98 nm 0.7x nm 115% -

Depomed / DEPO 2.48 0.9x 4.0x nm 60% -

Horsehead / ZINC 4.14 0.1x 0.5x nm 55% -

KBR / KBR 14.97 0.1x 1.6x nm 46% 1.3%

EchoStar / SATS 15.17 0.5x 0.5x nm 44% -

Versant / VSNT 16.49 1.4x 2.4x nm 44% -

Kyocera / KYO 64.00 0.5x 0.8x nm 41% -

Dell / DELL 9.12 0.2x 10.6x nm 36% -

MEMC Electronic Materials / WFR 16.11 1.3x 1.7x nm 31% -

Forest Labs / FRX 25.84 1.5x 2.2x nm 28% -

EarthLink / ELNK 6.72 0.6x 3.8x nm 26% -

Canon / CAJ 26.52 0.6x 1.1x nm 23% -

Premier Exhibitions / PRXI 1.00 0.4x 0.9x nm 20% -

Yahoo! / YHOO 12.84 2.0x 2.4x nm 19% -

Travelzoo / TZOO 5.40 0.8x 3.7x nm 19% -

Panasonic / PC 11.58 0.2x 0.8x nm 18% 4.1%

Mesabi Trust / MSB 7.87 4.6x nm nm 16% 5.6%

Garmin / GRMN 17.20 0.9x 1.8x nm 15% 4.4%

Net1 Ueps / UEPS 15.32 2.9x 6.8x nm 14% -

EMC / EMC 12.06 1.4x 4.7x nm 14% -

Jefferies / JEF 12.33 1.1x 1.1x nm 12% 4.1%

Lorillard / LO 63.91 2.3x 16.9x nm 11% 5.8%

Microsoft / MSFT 19.09 2.5x 8.4x nm 11% 2.7%

MasterCard / MA 161.90 3.8x 16.9x nm 10% 0.4%

Sony / SNE 18.50 0.2x 0.7x nm 7% 2.3%

Capital Southwest / CSWC 89.69 46.2x 0.7x nm 6% 0.9%

Visa / V 55.95 7.1x 87.0x nm 6% 0.8%



Selected Metrics (sorted by net cash to market value) (continued)

Recent EV / Price / Price LTM Tangible Net Debt / Net Cash / Dividend Company / Ticker ($) Revenue Book Equity MV Yield

St. Joe / JOE 23.48 5.6x 2.1x nm 3% -

Cresud / CRESY 8.15 8.4x 0.8x 0% 0% 1.5%

Fujifilm / FUJI 19.64 0.3x 0.6x 4% -8% 1.9%

Barnes & Noble / BKS 17.24 0.2x 1.8x 13% -12% 5.8%

UnitedHealth / UNH 28.96 0.5x nm 22% -13% 0.1%

TDK / TDK 40.30 0.6x 0.8x 13% -17% 3.4%

ConocoPhillips / COP 45.67 0.4x 1.1x 23% -31% 4.1%

WellPoint / WLP 43.75 0.5x nm 34% -32% -

URS / URS 34.44 0.7x nm 26% -33% -

GeoResources / GEOI 7.44 4.2x 1.1x 43% -38% -

Burlington Northern / BNI 66.04 1.7x 2.0x 80% -40% 2.4%

Leucadia National / LUK 15.66 4.7x 0.6x 30% -47% -

Sharp / SHCAY 8.00 0.4x 0.8x 35% -50% -

Canadian Natural / CNQ 34.50 3.1x 1.4x 70% -51% 0.9%

Eaton / ETN 43.80 0.7x nm 59% -52% 4.6%

Sears Holdings / SHLD 38.99 0.2x 1.0x 34% -69% -

Tempur-Pedic / TPX 7.60 1.0x nm >99% -71% -

DISH Network / DISH 13.58 1.0x nm nm -75% -

Winthrop Realty / FUR 9.80 7.1x 0.5x 39% -80% 13.3%

Dr Pepper Snapple / DPS 16.60 1.3x nm >99% -80% -

Target / TGT 30.08 0.7x 1.7x >99% -86% 2.1%

USG / USG 7.07 0.4x 0.5x 79% -195% -

Sonae Capital / SONC.LS €0.46 1.3x 0.4x 78% -247% -

Hitachi / HIT 28.64 0.3x 0.7x >99% -261% 2.2%

American Express / AXP 15.74 2.1x 1.5x >99% -263% 4.6%

PRIMEDIA / PRM 1.82 1.0x nm nm -281% 15.4%

SFK Pulp Fund / SFK-UN.TO C$0.45 0.4x 0.1x 33% -316% -

Helix Energy / HLX 4.78 1.3x 0.4x 90% -427% -

AmeriCredit / ACF 5.23 4.8x 0.3x >99% -1689% -

Lear / LEA 0.75 0.1x nm >99% -3138% -



Insider Ownership, Open Market Activity (sorted by # of buys)

Market Recent Last Six Months Value Price YTD Insider Insider Insider Company / Ticker ($mn) ($) Change Ownership Buys Sales

Travelzoo / TZOO 77 5.40 -3% 45% 115 1

PRIMEDIA / PRM 80 1.82 -16% 1% 12 -

Garmin / GRMN 3,484 17.20 -10% 46% 8 -

Yahoo! / YHOO 17,794 12.84 5% 9% 6 1

AmeriCredit / ACF 689 5.23 -32% 3% 6 6

Depomed / DEPO 127 2.48 50% 12% 5 -

Visa / V 47,333 55.95 7% 48% 5 1

GeoResources / GEOI 121 7.44 -14% 44% 4 -

Helix Energy / HLX 439 4.78 -34% 5% 4 1

Lear / LEA 58 0.75 -47% 0% 4 1

Burlington Northern / BNI 22,414 66.04 -13% 0% 4 3

DISH Network / DISH 6,071 13.58 22% 80% 4 3

Mesabi Trust / MSB 103 7.87 -9% 1% 3 -

Dell / DELL 17,733 9.12 -11% 11% 3 1

Leucadia National / LUK 3,647 15.66 -21% 25% 3 4

MEMC Electronic Materials / WFR 3,616 16.11 13% 1% 2 -

Eaton / ETN 7,223 43.80 -12% 1% 2 -

American Express / AXP 18,258 15.74 -15% 1% 2 -

Capital Southwest / CSWC 336 89.69 -17% 20% 1 -

Winthrop Realty / FUR 154 9.80 -10% 26% 1 -

Sonae Capital / SONC.LS €115 €0.46 5% 56% 1 -

Dr Pepper Snapple / DPS 4,211 16.60 2% 1% 1 1

EchoStar / SATS 1,359 15.17 2% 79% 1 3

UnitedHealth / UNH 35,204 28.96 9% 1% 1 3

KHD Humboldt Wedag / KHD 292 9.58 -14% 22% - -

WellCare / WCG 658 15.57 21% 3% - -

Syneron Medical / ELOS 172 5.98 -28% 10% - -

Horsehead / ZINC 146 4.14 -12% 1% - -

KBR / KBR 2,418 14.97 -2% 1% - -

Versant / VSNT 62 16.49 10% 9% - -

Kyocera / KYO 11,750 64.00 -12% 10% - -



Insider Ownership, Open Market Activity (sorted by # of buys) (continued)

Market Recent Last Six Months Value Price YTD Insider Insider Insider Company / Ticker ($mn) ($) Change Ownership Buys Sales

Canon / CAJ 32,750 26.52 -16% 12% - -

Premier Exhibitions / PRXI 29 1.00 -12% 13% - -

Panasonic / PC 23,987 11.58 -7% 10% - -

Jefferies / JEF 2,013 12.33 -12% 17% - -

Lorillard / LO 10,737 63.91 13% 61% - -

Sony / SNE 18,572 18.50 -15% 1% - -

Cresud / CRESY 391 8.15 -9% 39% - -

Fujifilm / FUJI 9,600 19.64 -12% 9% - -

TDK / TDK 5,200 40.30 8% 8% - -

ConocoPhillips / COP 68,086 45.67 -12% 8% - -

Sharp / SHCAY 8,807 8.00 13% 23% - -

Canadian Natural / CNQ 18,661 34.50 -14% 4% - -

USG / USG 701 7.07 -12% 33% - -

Hitachi / HIT 9,524 28.64 -27% 10% - -

SFK Pulp Fund / SFK-UN.TO C$53 C$0.45 -22% 1% - -

St. Joe / JOE 2,165 23.48 -3% 3% - 1

Forest Labs / FRX 7,794 25.84 1% 1% - 2

Net1 Ueps / UEPS 853 15.32 12% 12% - 2

MasterCard / MA 20,923 161.90 13% 37% - 2

WellPoint / WLP 22,271 43.75 4% 0% - 2

Barnes & Noble / BKS 953 17.24 15% 29% - 3

Tempur-Pedic / TPX 569 7.60 7% 8% - 3

UTStarcom / UTSI 177 1.40 -24% 5% - 5

URS / URS 2,876 34.44 -16% 2% - 5

Target / TGT 22,644 30.08 -13% 0% - 5

EMC / EMC 24,276 12.06 15% 0% - 6

Sears Holdings / SHLD 4,821 38.99 0% 55% - 7

EarthLink / ELNK 728 6.72 -1% 8% - 10

Microsoft / MSFT 169,721 19.09 -2% 16% - 18



Top 10 Candidates For Investment

We highlight the following companies:

American Express (NYSE: AXP)

Americredit (NYSE: ACF)

EchoStar (Nasdaq: SATS)

Greenlight Capital Re (Nasdaq: GLRE)

Microsoft (Nasdaq: MSFT)

Premier Exhibitions (Nasdaq: PRXI)

Sears Holdings (Nasdaq: SHLD)

SFK Pulp Fund (Toronto: SFK-UN)

Sony (NYSE: SNE)

Travelzoo (Nasdaq: TZOO)


American Express (NYSE: AXP) New York, NY, 212-640-2000

Financial: Consumer Financial Services, Member of S&P 500 https://www.americanexpress.com

Trading Data Consensus EPS Estimates Valuation Price: $15.74 (as of 2/13/09) Month # of P/E FYE 12/31/08 6.5x 52-week range: $14.72 - $52.63 Latest Ago Ests P/E FYE 12/31/09 14.2x Market value: $18.3 billion This quarter $0.30 $0.48 19 P/E FYE 12/31/10 9.6x Enterprise value: $66.3 billion Next quarter 0.33 0.52 17 P/E FYE 12/31/11 5.2x Shares out: 1,160.0 million FYE 12/31/09 1.11 1.84 20 EV / LTM revenue 2.1x

Ownership Data FYE 12/31/10 1.64 2.26 18 EV / LTM EBITDA n/a Insider ownership: 1% FYE 12/31/11 3.03 3.39 5 EV / LTM EBIT 9.4x Insider buys (last six months): 2 LT EPS growth 10.3% 10.3% 4 P / tangible book 1.5x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 80% Date Actual Estimate LTM EBIT yield 11% # of institutional owners: 1832 1/26/09 $0.21 $0.22 LTM pre-tax ROC n/m

Operating Performance and Financial Position

($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 23,807 19,549 21,897 24,404 27,894 31,540 31,920 31,920 8,415 7,303 Gross profit 18,082 15,632 17,359 19,818 22,943 n/a n/a 25,830 6,978 5,643 EBIT 3,727 3,415 3,831 4,053 5,139 5,694 3,473 7,028 1,158 160 Net income 2,671 2,987 3,445 3,734 3,707 4,012 2,631 2,631 831 172 Diluted EPS 2.01 1.80 2.09 2.43 2.92 3.45 2.42 2.41 0.73 0.21 Cash from ops 4,996 8,500 2,538 9,143 8,045 9,005 8,484 n/a 522 n/a Capex 859 670 888 616 584 832 938 n/a 281 n/a Free cash flow 4,137 7,830 1,650 8,527 7,461 8,173 7,546 n/a 241 n/a Cash & investments 10,288 6,156 7,808 7,126 5,306 11,737 21,000 21,000 8,878 21,000 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 0 0 0 0 1,625 1,712 0 0 0 0 Total assets 157,253 174,547 194,216 113,960 128,329 149,830 126,000 126,000 149,830 126,000 Short-term debt 21,103 19,046 14,316 15,633 15,236 17,762 9,000 9,000 17,762 9,000 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 16,819 20,654 32,676 30,781 42,747 55,285 60,000 60,000 55,285 60,000 Total liabilities 143,392 159,224 178,196 103,411 117,818 138,801 114,000 114,000 138,801 114,000 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 13,861 15,323 16,020 10,549 10,511 11,029 12,000 12,000 11,029 12,000 EBIT/capital employed 27% 23% 31% 41% 45% 54% n/m n/m n/m n/m

Ten-Year Stock Price Performance and Trading Volume Dynamics

Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 02Jan 01Jan 00

$0

$10

$20

$30

$40

$50

$60

$70

c


BUSINESS OVERVIEW Founded in 1850, American Express is a global payments and travel company. It operates in two groups: Global Consumer (67% of revenue) includes proprietary consumer cards, customer service, small-business services, prepaid products, and consumer travel. Sub-segments are U.S. Card Services and International Card Services. Global Business-to-Business (29% of revenue) includes the merchant business, network services, commercial card, and business travel. Sub-segments are Global Commercial Services and Global Network & Merchant Services. AXP became a bank holding company last November. INVESTMENT HIGHLIGHTS

• Premium brand in payments industry, focused on prime customers. Since launching the American Express card in 1958, the company has built a brand that today encompasses 70+ million cardmembers.

• “Spend-centric” business model. AmEx focuses primarily on member spending and secondarily on finance charges. Spending per cardmember is higher than at Visa or Mastercard, enabling AmEx to charge a higher discount rate. This allows AmEx to offer rewards to cardmembers and marketing programs to merchants, which help boost spending.

• Targeting long-term revenue growth in high single digits, EPS growth in mid teens, and ROE in the mid thirties. Management has articulated the goal of growing revenue, net of interest expense, by at least 8%, and EPS by 12%-15%, “on average and over time.” The company targets 33-36% ROE.

• Ken Chenault has been chairman/CEO since 2001. • Improved liquidity by raising $6 billion from new

retail CD program and $3 billion from the Treasury. • Shares trade at 1.5x tangible book, 7x trailing P/E

and 14x forward P/E. INVESTMENT RISKS & CONCERNS

• Operating environment “among the harshest we have seen in decades.” The company has recently fallen well short of its prior forecast of 4-6% EPS growth. Loss reserves have increased to highest level in three years. Nonetheless, the company remained profitable in Q4 and full-year 2008.

• Maintains “cautious” outlook for ‘09 and expects cardmember spending to “remain soft with past-due loans and write-offs rising from current levels.”

MAJOR HOLDERS Insiders 1% │ Berkshire Hathaway 13% │ Davis 7%

SELECTED OPERATING DATA FYE December 31 2005 2006 2007 2008 % of net revenue by type: Discount revenue 51% 52% 53% 53% Net card fees 9% 8% 7% 8% Travel commissions and fees 8% 7% 7% 7% Other commissions and fees 9% 9% 9% 8% Securitization income, net 6% 6% 5% 4% Other revenue 6% 7% 6% 8% Interest income: member lending 15% 18% 22% 22% Interest income: other 5% 5% 5% 4% Interest cost: member lending -4% -5% -6% -4% Interest cost: charge cards etc. -5% -6% -8% -9% % of net revenue by segment: U.S. Card Services 49% 50% 51% 49% International Card Services 17% 16% 16% 17% Global Commercial Services 17% 16% 15% 17% Global Network & Merchant Svcs 13% 13% 14% 14% Corporate & Other 5% 5% 4% 3% Net income margin by segment: U.S. Card Services 16% 17% 13% 6% International Card Services 8% 9% 7% 7% Global Commercial Services 12% 12% 13% 11% Global Network & Merchant Svcs 20% 23% 26% 24% Corporate & Other 2% -11% 36% 22% Total net income margin 14% 14% 15% 10% Returns on segment capital: U.S. Card Services 41% 47% 40% 17% International Card Services 16% 18% 15% 17% Global Commercial Services 28% 26% 25% 15% Global Network & Merchant Svcs 49% 60% 91% 76% % of net revenue by geography: U.S. 69% 69% 70% n/a Europe 13% 13% 13% n/a Asia Pacific 8% 8% 8% n/a Other 10% 10% 9% n/a % of pretax income by geography: U.S. 84% 84% 85% n/a Europe 6% 6% 7% n/a Asia Pacific 3% 3% 3% n/a Other 8% 8% 5% n/a

COMPARABLE PUBLIC COMPANY ANALYSIS

Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

V 56.00 47,330 87.0x 21x 18x Sep-30 MA 161.90 20,920 16.9x 16x 13x Dec-31 DFS 7.00 3,370 .6x n/m 11x Nov-30 AXP 15.70 18,258 1.5x 14x 10x Dec-31

RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE American Express is a quintessential Buffett company—a high-ROIC business with a wide, defensible moat and favorable long-term growth prospects. The ongoing financial crisis has created a rare opportunity to buy this business at 6.5x trailing earnings and 1.5x tangible book value. While it is instructive to contemplate worst-case scenarios for AmEx in the current crisis, we have little doubt the company will survive without material dilution of equity holders. Meanwhile, AmEx’s long-term earning power and competitive advantages have not been impaired. As a result, the shares deserve serious consideration.


…additional insight into AXP: BUSINESS OPERATIONS

• In normal times, up to 70% of earnings available for repurchases and dividends, based on the ROE target of 33-36% and an implied target of ~10% net income growth. According to the formula, reinvestment rate = growth rate / ROE, AmEx needs to reinvest roughly 30% of earnings to achieve the targeted net income growth. Share repurchases at or near recent AXP stock prices should be highly accretive to EPS.

• Divestitures have streamlined business. The company spun off the financial planning and financial services business—now known as Ameriprise (NYSE: AMP)—in 2005. Following the spinoff, American Express increased its targeted ROE from 18-20% to 33-36%. In 2007, the company sold its international banking subsidiary, American Express Bank, to Standard Chartered for $1.1 billion. In 2006-07, American Express sold its merchant-related activities in Russia, Malaysia and Brazil for a total of ~$600 million, opting to sign Global Network Services deals with the acquirers.

• Global Network Services works with ~120 financial institutions globally that issue cards accepted on the AmEx merchant network.

• Won $2.25 billion settlement from Visa, continuing to pursue MasterCard suit. AmEx is alleging illegal actions by MasterCard to block U.S. banks from working with AmEx Global Network Services. Visa settled in 4Q07, generating a $1.1 billion pre-tax gain for AmEx. Visa is also paying up to $70 million per quarter over four years, tied to the performance of AmEx’s U.S. network business.

• Securitization. When the company securitizes cardmember loans, it retains two types of subordinated interests: (1) investments in tranches of the securitization (subordinated securities), accounted for as available-for-sale securities and reported in investments on the balance sheet, with changes in fair value recorded in accumulated other comprehensive income; and (2) an interest-only strip, accounted for at fair value and reported in other assets on the balance sheet, with changes in fair value recorded in net securitization income.

Share of Payments Volume by Operator, 2007 (industry-wide electronic payments volume: $5.0 trillion)

Visa49%

American Express

13%

Discover, JCB, Diners

4%

MasterCard34%

Source: Company, The Manual of Ideas. Share of Payments and Cash Volume by Operator, 2007 (industry-wide payments and cash volume: $7.0 trillion)

MasterCard33%

Visa55%

American Express

9%


3%

Source: Company, The Manual of Ideas. Share of Total Transactions by Operator, 2007 (industry-wide card transactions: 85 billion)

MasterCard32% Visa

59%

American Express

6%


3%

Source: Company, The Manual of Ideas. Share of Payment Cards by Operator, 2007 (industry-wide cards in circulation: 2.7 billion)


4%

American Express

3%

Visa59%

MasterCard34%

Source: Company, The Manual of Ideas.


American Express — Normalized Long-Term Growth Profile, by Line Item Note: The following growth profile does not reflect the impact of the ongoing recession and credit contraction. This profile conforms to the company’s long-term goals pre-crisis. Whether American Express can return to the following growth profile over time remains unclear.

Estimated Growth Rate Factors driving incremental change in growth rate

Nominal GDP: 3%-5%

Payment card spending: 6%-9% Continued adoption of card payments at expense of cash and checks

AmEx card billed business: 8%-10% Market share gains by American Express

Non-interest revenue: 8%-10% Change in merchant discount rate, average annual card fee, and other

Revenue, net of interest cost:* 8%-10% Change in net interest margin

Income before loss provisions: 9%-11% Change in operating expenses as % of revenue

Pre-tax income: 9%-11% Change in loss provisions as % of revenue

Net income: 9%-11% Change in effective tax rate

EPS:* 12%-15% Reduction in shares outstanding due to share repurchases

* Management has articulated goal of growing revenue, net of interest expense, by at least 8%, and EPS by 12%-15% over the long term, "on average and over time."

AXP LIQUIDITY SNAPSHOT – SELECTED SLIDES FROM COMPANY PRESENTATION, FEBRUARY 4, 2009


MOI’s Peek Inside: The American Express “Earnings Machine”

($ in millions,unless stated otherwise) 2006 2007 2008

A Basic cards in force - U.S. 37 41 42B Basic cards in force - int'l 25 29 33C Basic cards in force - total 63 70 75D Card billed business - U.S. $406,800 $459,300 $471,100E Card billed business - int'l $154,700 $188,000 $212,200F Card billed business - total $561,500 $647,300 $683,300G Avg fee per card ($) $32 $32 $34H Avg other comm & fees / card $36 $34 $33I Avg discount rate 2.57% 2.56% 2.55%J Travel sales - Global Corporate $18,500 $20,500 $21,000K Travel sales - U.S. Consumer $2,400 $3,000 $3,113L Travel sales - Int'l Consumer $922 $1,113 $1,267M Travel fees - Global Corporate 8.1% 7.7% 7.8%N Travel fees - U.S. Consumer 8.4% 8.0% 8.2%O Travel fees - Int'l Consumer 8.7% 8.6% 8.1%P Avg cash & investments (b/s) $25,860 $25,431 $30,801

Discount revenue $12,978 $14,596 $15,025 ~ F * IFees charged to merchants with which AXP has entered into card acceptance agreements; may not equal F * I due to payments to third parties unrelated to merchant acceptance

Net card fees $1,994 $2,050 $2,150 ~ F * GFees are recognized over 12-month card membership period, net of deferred direct card acquisition costs and cancellation reserve

Travel commissions and fees $1,778 $1,926 $2,010 = J * M + K * N + L * O

Transaction or mgmt fees for airline or other transactions; commissions on plane tickets, hotels and car rentals, paid by travel suppliers

Other commissions and fees $2,233 $2,417 $2,307 ~ F * H Foreign exchange conversion fees and other card-related assessments

Securitization income, net $1,489 $1,507 $1,070

Non-credit provision components of net gains from securitization activities, excess spread related to securitized cardmember loans, changes in fair value of interest-only strip, and net servicing income

Other revenue $1,689 $1,645 $2,157

Insurance premiums earned from cardmember travel, revenue from contracts with Global Network Services partners including royalties and signing fees, publishing revenue, and other revenue

Interest income, members $4,586 $6,145 $6,159 Assessed using average daily balance method for receivables owned

Interest income, other $1,147 $1,271 $1,042 Relates to performing fixed-income securities held by AmEx; accrued using effective interest method

Interest expense, members ($1,192) ($1,734) ($1,015) Interest incurred to fund cardmember lending

Interest expense, charge card ($1,548) ($2,092) ($2,540) Interest incurred to fund charge card product receivables and general corporate purposes

Net revenue $25,154 $27,731 $28,365

Marketing & member services $6,504 $7,817 $7,361 Costs of rewards programs and protection plans for cardmembers, and advertising costs

Human resources $5,040 $5,438 $6,090Professional services $2,269 $2,283 $2,413Occupancy and equipment $1,384 $1,436 $1,641Communications $434 $461 $466

Other, net* $1,358 $389 $1,123Operating expenses, gains (losses) on sale of assets not classified as discontinued ops, and litigation and insurance costs or settlements

Operating expenses $16,989 $17,824 $19,094

Provisions for lossesCharge card $935 $1,140 $1,363Cardmember lending $1,623 $2,761 $4,231Other $468 $440 $203 Total provisions $3,026 $4,341 $5,797Pre-tax income $5,139 $5,566 $3,474Income tax provision $1,528 $1,518 $670Net income $3,611 $4,048 $2,804

Diluted EPS $2.92 $3.38 $2.42

Diluted shares out 1,238 1,196 1,157* AXP is recognizing up to $280 million of annual gains (and receiving installment payments) related to the Visa settlement over four years.

Income Statement (GAAP, ie, on-book basis; excluding non-recurring items)

Selected Performance Drivers


American Express Company—Income Statement (GAAP Basis), by Segment U.S. Card Services issues card products and services to U.S. consumers and small businesses, and provides consumer travel services. International Card Services issues proprietary consumer and small business cards outside the U.S. Global Commercial Services offers global corporate payment and travel-related products and services to large and mid-sized companies. Global Network & Merchant Services operates a payment card network, which includes proprietary cards and cards issued under network partnership deals. It also signs merchants to accept cards and processes and settles card transactions for those merchants. Corporate & Other includes overhead and auxiliary businesses such as publishing, Travelers Cheques and other prepaid products.

($ millions, FYE FYE FYE FYE Growth unless otherwise specified) 12/31/2005 12/31/2006 12/31/2007 12/31/2008 2007-08 Revenue net of interest expense, by segment U.S. Card Services Discount revenue, net card fees and other $8,451 $9,421 $10,435 $10,357 -1% Cardmember lending finance revenue 2,408 3,434 4,762 4,736 -1% Securitization income, net 1,260 1,489 1,507 1,070 -29% Interest expense (1,145) (1,724) (2,482) (2,166) -13% Total $10,974 $12,620 $14,222 $13,997 -2% International Card Services Discount revenue, net card fees and other $3,210 $3,405 $3,703 $3,758 1% Cardmember lending finance revenue 967 1,146 1,372 1,984 45% Interest expense (457) (586) (744) (961) 29% Total $3,720 $3,965 $4,331 $4,781 10% Global Commercial Services Discount revenue, net card fees and other $4,013 $4,269 $4,747 $5,081 7% Interest expense (294) (369) (478) (385) -19% Total $3,719 $3,900 $4,269 $4,696 10% Global Network & Merchant Services Discount revenue, fees and other $2,681 $3,063 $3,550 $3,875 9% Interest expense 211 281 314 227 -28% Total $2,892 $3,344 $3,864 $4,102 6% Corporate & Other 1,120 1,325 1,045 789 -24% Total revenue net of interest expense $22,425 $25,154 $27,731 $28,365 2% Marketing, promotion, rewards and cardmember services U.S. Card Services $3,831 $4,445 $5,140 $4,837 -6% International Card Services 998 1,109 1,566 1,453 -7% Global Commercial Services 251 307 387 377 -3% Global Network & Merchant Services 604 518 595 553 -7% Total $5,684 $6,379 $7,688 $7,220 -6% Human resources and other operating expenses U.S. Card Services $2,810 $3,227 $3,354 $3,727 11% International Card Services 1,795 1,692 1,836 2,145 17% Global Commercial Services 2,694 2,764 2,975 3,412 15% Global Network & Merchant Services 1,340 1,549 1,665 1,932 16% Corporate & Other 1,516 1,725 630 658 4% Total $10,155 $10,957 $10,460 $11,874 14% Provisions for losses U.S. Card Services $1,658 $1,625 $2,998 $4,389 46% International Card Services 629 852 812 1,030 27% Global Commercial Services 180 113 163 231 42% Global Network & Merchant Services 66 89 44 127 189% Total $2,533 $2,679 $4,017 $5,777 44% Net income from continuing operations U.S. Card Services $1,737 $2,152 $1,823 $792 -57% International Card Services 306 343 291 351 21% Global Commercial Services 429 477 536 494 -8% Global Network & Merchant Services 573 779 1,022 995 -3% Corporate & Other 17 (140) 376 (1) -100% Total $3,062 $3,611 $4,048 $2,631 -35%

Diluted EPS $2.43 $2.92 $3.38 $2.27 -33% Diluted shares outstanding 1,258 1,238 1,196 1,157 -3%


American Express Company—Income Statement (Managed Basis), by Segment “Managed” basis—as opposed to GAAP or “owned” basis—presents the financials as if there had been no off-balance sheet securitizations, i.e., all securitized cardmember loans and related income effects are reflected in the financials. On a managed basis, there is no securitization income, as the managed basis assumes that no securitizations have occurred. The difference between the GAAP and managed-basis income statements of American Express is evident in the accounting for U.S. Card Services discount revenue, cardmember lending revenue, interest expense, and provisions for losses. Other segments show no difference between the GAAP and managed-basis presentations.

($ millions, FYE FYE FYE FYE Growth unless otherwise specified) 12/31/2005 12/31/2006 12/31/2007 12/31/2008 2007-08 Revenue net of interest expense, by segment U.S. Card Services Managed discount revenue, net card fees, other $8,661 $9,620 $10,745 $10,757 0% Managed finance revenue 5,100 6,371 7,892 8,248 5% Managed securitization income, net 0 0 0 0 Managed cardmember lending interest expense (1,884) (2,781) (3,618) (2,996) -17% Total $11,877 $13,210 $15,019 $16,009 7% International Card Services Discount revenue, net card fees and other $3,210 $3,405 $3,703 $3,758 1% Cardmember lending finance revenue 967 1,146 1,372 1,984 45% Interest expense (457) (586) (744) (961) 29% Total $3,720 $3,965 $4,331 $4,781 10% Global Commercial Services Discount revenue, net card fees and other $4,013 $4,269 $4,747 $5,081 7% Interest expense (294) (369) (478) (385) -19% Total $3,719 $3,900 $4,269 $4,696 10% Global Network & Merchant Services Discount revenue, fees and other $2,681 $3,063 $3,550 $3,875 9% Interest expense 211 281 314 227 -28% Total $2,892 $3,344 $3,864 $4,102 6% Corporate & Other 1,120 1,325 1,045 789 -24% Total revenue net of interest expense $23,328 $25,744 $28,528 $30,377 6% Marketing, promotion, rewards and cardmember services U.S. Card Services $3,831 $4,445 $5,140 $4,837 -6% International Card Services 998 1,109 1,566 1,453 -7% Global Commercial Services 251 307 387 377 -3% Global Network & Merchant Services 604 518 595 553 -7% Total $5,684 $6,379 $7,688 $7,220 -6% Human resources and other operating expenses U.S. Card Services $2,810 $3,227 $3,354 $3,727 11% International Card Services 1,795 1,692 1,836 2,145 17% Global Commercial Services 2,694 2,764 2,975 3,412 15% Global Network & Merchant Services 1,340 1,549 1,665 1,932 16% Corporate & Other 1,516 1,725 630 658 4% Total $10,155 $10,957 $10,460 $11,874 14% Provisions for losses U.S. Card Services (managed basis) $2,582 $2,175 $3,869 $6,391 65% International Card Services 629 852 812 1,030 27% Global Commercial Services 180 113 163 231 42% Global Network & Merchant Services 66 89 44 127 189% Total $3,457 $3,229 $4,888 $7,779 59% Net income from continuing operations U.S. Card Services $1,723 $2,178 $1,774 $800 -55% International Card Services 306 343 291 351 21% Global Commercial Services 429 477 536 494 -8% Global Network & Merchant Services 573 779 1,022 995 -3% Corporate & Other 17 (140) 376 (1) -100% Total $3,048 $3,637 $3,999 $2,639 -34%

Diluted EPS $2.42 $2.94 $3.34 $2.28 -32% Diluted shares outstanding 1,258 1,238 1,196 1,157 -3%


AmeriCredit (NYSE: ACF) Fort Worth, TX, 817-302-7000

Financial: Consumer Financial Services, Member of S&P MidCap 400 http://www.americredit.com

Trading Data Consensus EPS Estimates Valuation Price: $5.23 (as of 2/13/09) Month # of P/E FYE 6/30/08 n/m 52-week range: $2.85 - $16.00 Latest Ago Ests P/E FYE 6/30/09 n/m Market value: $689 million This quarter -$0.32 -$0.10 8 P/E FYE 6/30/10 n/m Enterprise value: $12.3 billion Next quarter -0.20 -0.04 8 P/E FYE 6/30/11 14.9x Shares out: 131.7 million FYE 6/30/09 -0.80 -0.38 8 EV / LTM revenue 5.2x

Ownership Data FYE 6/30/10 -0.42 0.21 7 EV / LTM EBITDA 18.0x Insider ownership: 3% FYE 6/30/11 0.35 0.58 3 EV / LTM EBIT 19.3x Insider buys (last six months): 6 LT EPS growth 12.5% 12.5% 2 P / tangible book 0.3x Insider sales (last six months): 6 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 95% Date Actual Estimate LTM EBIT yield 5% # of institutional owners: 384 1/29/09 -$0.21 -$0.27 LTM pre-tax ROC 5%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 6/30/02 6/30/03 6/30/04 6/30/05 6/30/06 6/30/07 6/30/08 12/31/08 12/31/07 12/31/08 Revenue 1,137 981 1,216 1,451 1,811 2,340 2,543 2,369 653 566 Gross profit 0 0 0 0 0 0 0 0 0 0 EBIT 512 35 365 452 485 532 (92) 638 (29) (40) Net income 315 21 227 286 306 360 (69) (139) (19) (26) Diluted EPS 3.50 0.15 1.37 1.73 2.08 2.73 (0.60) (1.23) (0.17) (0.21) Cash from ops (375) 2,176 505 614 961 1,079 1,260 1,259 318 266 Capex 12 41 5 8 6 40 207 29 45 0 Free cash flow (386) 2,135 500 606 956 1,039 1,053 1,230 273 266 Cash & investments 92 317 422 664 513 910 434 167 567 167 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 0 0 0 0 14 208 0 0 213 0 Total assets 4,217 8,108 8,825 10,947 13,068 17,811 16,547 14,153 18,149 14,153 Short-term debt 1,752 5,457 6,099 8,157 10,625 14,481 13,349 11,196 14,848 11,196 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 418 378 366 367 200 950 950 603 950 603 Total liabilities 2,790 6,227 6,700 8,825 11,059 15,736 14,650 12,175 16,172 12,175 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 1,427 1,881 2,125 2,122 2,009 2,075 1,897 1,978 1,977 1,978 EBIT/capital employed 29% 1% 7% 7% 5% 4% -1% 5% n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

c


BUSINESS OVERVIEW AmeriCredit provides auto financing indirectly through U.S. auto dealers on a non-exclusive basis. The company has $15 billion in managed auto receivables. Of the contracts purchased from 18,000 dealers in FY08, 89% were originated by manufacturer-franchised dealers and 81% related to used vehicles. AmeriCredit was founded in 1992. SELECTED OPERATING DATA

FYE June 30 2006 2007 2008 1H09 Branch count 79 65 24 n/a Producing dealers 17,111 19,114 17,872 n/a Origination volume 1 6,208 8,455 6,294 900 Loans securitized 1 5,000 7,660 4,634 1,289 Managed auto receivables (period average): Owned receivables 1 9,993 13,621 16,059 14,045 Serviced receivables 1 1,223 106 7 0 Total portfolio 1 11,217 13,727 16,066 7,114 Net margin - on book 13.2% 11.7% 10.6% 9.6% Return on equity 15.3% 18.8% n/m n/m Delinquent loans as % of total managed receivables (period end): 31 to 60 days 5.1% 4.7% 6.0% 7.8% Greater than 60 days 2.1% 2.1% 2.9% 4.2% In repossession 0.3% 0.3% 0.3% 0.3% Total delinquencies 7.5% 7.1% 9.2% 12.3% Net charge-offs 1 579 643 1,000 591 Charge-offs/ portfolio 2 5.2% 4.7% 6.2% 8.3% Net recoveries 3 48% 49% 45% 39% Loan loss allowance 1, 4 679 820 951 923 Allowance/ receivables 5 5.8% 5.2% 6.3% 7.1%

1 U.S. dollars in millions. 2 Net charge-offs as an annualized percentage of average gross receivables. 3 Net recoveries as a percentage of gross repossession charge-offs. 4 Allowance for loan losses and nonaccretable acquisition fees (on book). 5 Allowance for loan losses and nonaccretable acquisition fees (on book) as a percentage of finance receivables owned. INVESTMENT HIGHLIGHTS

• Conserving liquidity, working to emerge from current crisis with franchise value intact. The revised operating plan calls for funding far fewer originations (less than $1.2 billion, down from $6 billion in FY08). The company increased the minimum credit score required for new loans, closed locations, cut the number of dealers from whom it buys loans, and reduced headcount. It has discontinued originations in Canada and in direct lending, leasing and specialty prime platforms.

• Repurchased six million shares for $128 million in FY08 ($22 per share), 13 million shares for $324 million in FY07 ($24 per share), and 21 million shares for $528 million in FY06 ($25 per share).

• Chairman Clifton Morris (72), CEO Dan Berce (54) and CFO Chris Choate (45) have worked together since before the early-1990s recession.

• Shares trade at .3x tangible book value. INVESTMENT RISKS & CONCERNS

• Adverse impacts on liquidity in FY09, including higher credit enhancement levels in securitizations caused by a reduction in excess spread and, to a lesser extent, credit deterioration in the loan portfolio. Capital market disruptions are making securitizations more expensive. Finally, the company is receiving less cash from securitization trusts due to weaker credit performance.

• Swung to loss in 1H09 due in part to higher loan loss provisions. The company lost $39 million on a pre-tax basis in the six months ended December 31.

• Exposure to consumers with weak credit. The company maintains a “significant share” of the sub-prime auto finance market and has participated in prime and near-prime to a “more limited extent.”

• Tangible book of $2 billion versus tangible assets of $14 billion as of December 31. Net finance receivables amount to $12 billion, while on-balance-sheet securitization notes payable amount to $9 billion (maturity dates range from 2011-2014).

• Other risks include dependence on third parties, as discussed on the next page.


Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

COF 12.10 4,710 .4x 27x 8x Dec-31 CACC 17.90 550 1.6x n/a n/a Dec-31 NICK 2.90 30 .4x n/a n/a Mar-31 CPSS 0.50 10 .1x n/m n/m Dec-31 ACF 5.20 689 .3x n/m n/m Jun-30

MAJOR HOLDERS Insiders 4% │ Leucadia 25% │ Fairholme 24% │ Yacktman 9% │ Columbia Wanger 8% │ Barclays 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year? 1 Provisions for loan losses, recorded in the income statement, affect loan loss allowance, which reduces net finance receivables on balance sheet.

THE BOTTOM LINE As a subprime auto lender, AmeriCredit has been in the proverbial eye of the storm. While the firm has strong management, a strong franchise and disciplined underwriting, it almost bankrupted because of dependence on credit enhancement and financing from third parties, ranging from monoline insurers to securitization markets. Capital infusions by top shareholders Leucadia and Fairholme have given the company more control over its own destiny by shoring up the balance sheet and allowing AmeriCredit to operate with less dependence on third parties. We find the risk-reward enticing.


…additional insight into ACF: BUSINESS OPERATIONS

• AmeriCredit funds the purchased loans in two ways: − Credit facilities: Loans are funded initially using

credit facilities administered by agents on behalf of commercial paper or medium term note conduits. These advances are included in the company’s financial statements and bear interest at commercial paper, LIBOR or prime rates plus specified fees.

− Securitizations: The asset-backed market allows the company to finance originations at high investment-grade rates over the life of the securitization, enabling AmeriCredit to lock in the excess spread on the loans. From 1994 to 2H08, AmeriCredit securitized $57 billion of auto receivables. Securitizations have declined essentially to zero recently, and it is doubtful whether the company will rely on this financing route in the future.

• Economic conditions, interest rates, gas prices. Macro weakness leads to higher delinquencies, defaults, repossessions and losses. Sharply higher gas prices increase the supply of autos sold at auctions, depressing recovery rates, particularly for “gas guzzlers.” Higher interest rates have a negative impact, as the rates charged on the auto loans are limited by competitive and other conditions.

SUPERINVESTOR INSIGHT INTO ACF

• Bruce Berkowitz, interview with Robert Huebscher (www.advisorperspectives.com) on December 24, 2008:

− “We bought ACF because we believed there was significant value in the company through its ability to generate FCF. Then we looked at ways in which we could “kill” the company – i.e., what kinds of mistakes or misfortunes could impair our investment. …we believe that in some of those scenarios – such as in run-off mode – we could get significantly higher value. The tangible book value should start to approximate the liquidation value. But then we look for what is not included in the tangible value, such as the time value of money (e.g., the present value of future insurance premiums) and whether the tangible values are really tangible (e.g., whether their fixed assets are fairly valued on their balance sheet). In the worst case, we will make some pretty good money.”

− “I look at my Board seat as a way to protect our shareholders’ value. It does not affect my relationships with or ability to invest in any other companies. In fact, it expands my knowledge of related industries, from automobile lending to dealerships to insurance. When the time comes to sell our investment, I will leave the Board. I do not accept any compensation, such as fees or restricted stock grants. Only my travel expenses are reimbursed. I will only stay on the Board to help our shareholders.”

CLOSER LOOK AT BUSINESS RISKS • Dependence on monoline insurers. AmeriCredit’s

securitizations have used monoline insurers to achieve triple-A ratings. As insurers have suffered credit rating downgrades, their ability to credit-enhance deals has diminished. As a result, the company is trying to utilize senior subordinated securitization structures for credit enhancement.

• Dependence on credit facilities. As of June 30, AmeriCredit had $5.0 billion of total capacity and $2.0 billion of available capacity under facilities used to buy loans pending securitization. The company was in compliance with all covenants.

• Dependence on securitizations in asset-backed securities market. Current market conditions include increased risk premiums, reduced demand for securities backed by sub-prime collateral, financial stress impacting financial guaranty providers, and a general tightening of credit. AmeriCredit’s dependence on securitizations has been lowered due to recent capital injections by Leucadia and Fairholme.

• Sensitivity of loan loss allowance. AmeriCredit maintains an allowance considered adequate to cover probable credit losses inherent in the company’s finance receivables.1 The allowance is established systematically based on the estimated amount of probable credit losses. Such estimate is affected by factors including the cumulative net credit losses recorded over a so-called loss confirmation period. A 10% and 20% increase in such cumulative losses would increase the loan loss allowance by $95 million and $190 million, as of June 30. Book value would be reduced accordingly.

• Cash flow impact of weak portfolio performance. The company’s agreements with financial guaranty insurers require it to forgo excess cash flows from securitization trusts if the portfolio performance ratios (delinquency, cumulative default and cumulative net loss) on trust receivables exceed specified limits. Some limits were exceeded in FY08, and the company funded the higher credit enhancement requirements. All such requirements were fully funded as of June 30.

• Sales of repossessed automobiles fail to cover loan balances. Proceeds from the sale of vehicles at wholesale auctions and other recoveries usually fail to cover the outstanding loan balance; the resulting deficiency is charged off. Net recoveries were 45% of repossession charge-offs in FY08, down from 49% in FY07 and 48% in FY06.


MOI’s Bird’s-Eye View: The AmeriCredit “Earnings Machine”

Macro conditions (economic growth, gas prices, employment, interest rates) Producing dealers Demand for auto loans; availability and terms of financing Operating expenses Origination volume Loans securitized Net charge-offs Est. recoveries Serviced auto receivables Owned auto receivables Net interest margin Provision for loan losses Servicing income Finance charge income + other income – interest expense Leased vehicles depreciation

PRE-TAX INCOME STRATEGIC AND OPERATIONAL OVERVIEW PROVIDED BY THE COMPANY, FEBRUARY 2009 Source: http://www.americredit.com/investors/Docs/soo.pdf


MOI’s Peek Inside: The AmeriCredit “Earnings Machine”

($mn, unless stated otherwise)

FYE 6/30/07

FYE6/30/08

Selected Performance Drivers A Origination volume $8,455 $6,294 affected by macro conditions, number of producing dealers, etc. B Owned receivables (avg) $13,621 $16,059 C Serviced receivables (avg) $106 $7 D Managed receivables (avg) $13,727 $16,066

} affected by origination volume (row A) E Finance charge % 15.7% 14.8% F Other income % 1.0% 1.0% G Interest expense % -5.0% -5.2%

} net interest margin = E + F + G H Opex as % of receivables 2.9% 2.5% closely watched measure of operating efficiency I Net charge-offs (managed) $643 $1,000 loans that are 120+ days delinquent minus est. net sale proceeds J Recoveries / charge-offs (net) 48.8% 44.8% historical experience influences est. net sale proceeds in row I K Leased vehicles, net $34 $211 balance sheet item (long-term asset)

Income Statement (excluding non-recurring items)

L Finance charge income $2,142 $2,382 = B * E Owned receivables multiplied by finance charge percentage (finance charge income accrual suspended on accounts 61+ days delinquent)

M Other income $136 $160 = B * F Owned receivables multiplied by other income percentage

N Servicing income $9 $1 correlates with C

Fees earned from servicing receivables sold to gain-on-sale Trusts, impairment on credit enhancement assets and accretion related to credit enhancement assets

O Total revenue $2,288 $2,543 = L + M + N

P Operating expenses $398 $398 = D * H Affected by anticipated or targeted growth in origination volume; tracked as % of receivables (row H)

Q Leased vehicles depreciation $1 $36 correlates with K

Depreciation on automobiles leased to consumers; recorded on straight-line basis over lease term; vehicles depreciated to estimated residual value

R Provision for loan losses $728 $1,131 correlates with I

Provision is made to maintain allowance for losses at level adequate to cover probable credit losses; amount of provision influenced by net charge-offs, expected future losses, and recent allowance for losses

S Interest expense $681 $837 = B * G Owned receivables multiplied by interest expense %

T Total expenses $1,808 $2,403 = P + Q + R + S

U Pre-tax income $480 $141

V Income tax provision $155 $35

W Net income $325 $106

X Diluted shares out (mn) 133 129

Y Diluted EPS $2.44 $0.82


EchoStar (Nasdaq: SATS) Englewood, CO, 303-723-1000

Services: Broadcasting & Cable TV http://www.echostar.com

Trading Data Consensus EPS Estimates Valuation Price: $15.17 (as of 2/13/09) Month # of P/E FYE 12/31/07 n/m 52-week range: $12.78 - $41.74 Latest Ago Ests P/E FYE 12/31/08 n/m Market value: $1.4 billion This quarter -$0.17 -$0.17 2 P/E FYE 12/31/09 47.4x Enterprise value: $756 million Next quarter 0.12 0.12 1 P/E FYE 12/31/10 32.3x Shares out: 89.6 million FYE 12/31/08 -3.00 -3.00 2 EV / LTM revenue 0.4x

Ownership Data FYE 12/31/09 0.32 0.31 2 EV / LTM EBITDA 4.5x Insider ownership: 79% FYE 12/31/10 0.47 0.48 2 EV / LTM EBIT n/m Insider buys (last six months): 1 LT EPS growth 5.0% 5.0% 1 P / tangible book 0.5x Insider sales (last six months): 3 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 41% Date Actual Estimate LTM EBIT yield -4% # of institutional owners: 323 11/10/08 -$3.43 -$0.19 LTM pre-tax ROC -4%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 1,038 977 1,720 1,514 1,525 1,544 2,015 404 616 Gross profit 103 90 69 75 85 92 375 26 117 EBIT (9) 2 (41) (33) (38) (86) (33) (9) 2 Net income (97) 4 (43) (45) (34) (85) (300) (7) (308) Diluted EPS (2.32) 0.10 (1.03) (1.07) (0.81) (2.03) (3.91) (0.07) (3.43) Cash from ops n/a n/a (79) (14) (36) (88) (20) (5) 38 Capex n/a n/a 6 18 33 144 172 35 54 Free cash flow n/a n/a (85) (33) (69) (232) (192) (40) (17) Cash & investments n/a n/a n/a 106 324 532 963 531 963 Total current assets n/a n/a n/a 127 348 611 1,584 593 1,584 Intangible assets n/a n/a n/a 13 12 320 437 11 437 Total assets n/a n/a n/a 229 518 1,261 3,926 920 3,926 Short-term debt n/a n/a n/a 0 0 1 52 0 52 Total current liabilities n/a n/a n/a 12 15 50 549 56 549 Long-term debt n/a n/a n/a 0 0 2 309 0 309 Total liabilities n/a n/a n/a 12 15 53 945 56 945 Preferred stock n/a n/a n/a 0 0 0 0 0 0 Common equity n/a n/a n/a 217 502 1,208 2,981 864 2,981 EBIT/capital employed n/a n/a n/a -94% -66% -53% -4% n/m n/m



$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

c


BUSINESS OVERVIEW EchoStar was spun off from DISH Network in early 2008. The company operates a digital set-top box business and is developing a fixed satellite services business using its fleet of owned and leased in-orbit satellites. EchoStar owns most of the real estate it uses. The assets are located primarily in the Western U.S. and include the headquarters in Englewood, CO (476,000 sq ft), engineering offices, digital broadcast centers, and call and data centers. SELECTED OPERATING DATA

FYE December 31 2005 2006 2007 % of revenue by customer: DISH Network 86% 84% 84% Bell ExpressVu 11% 12% 11% Other 3% 3% 6% Revenue growth by customer: DISH Network -16% -1% 0% Bell ExpressVu 38% 8% -12% Other -13% 12% 70% Total revenue growth -12% 1% 1% % of revenue by geography: U.S. 96% 95% 93% Europe 4% 5% 7%

INVESTMENT HIGHLIGHTS

• Post-spinoff EchoStar well-positioned to pursue new customers. Set-top box buyers may have perceived EchoStar as a competitor when it was owned by DISH Network. Some may still hesitate to partner with the company due to Charlie Ergen’s continuing control of both EchoStar and DISH.

• High-ROIC, non capital-intensive set-top box business. Growing market acceptance of HDTV is driving demand for set-top boxes, which account for the vast majority of EchoStar’s revenue.

• Cost-plus deal with top customer DISH Network, with pro forma gross margin of 13% in 2007. This below-market margin may expand over time.

• Potential replacement cycle, as HDTV requires advanced compression and security in set-top boxes.

• Regulatory changes benefit EchoStar: (1) It has entered millions of homes with digital converter devices that help consumers meet a digital broadcast mandate. (2) An FCC mandate that cable providers use removable modules for conditional access security improves EchoStar’s ability to compete.

• Growing international sales of set-top boxes. Global markets offer the “best opportunities” for new customer acquisition. EchoStar sees strong demand for direct-to-home satellite service in countries without extensive cable infrastructure.

• Capable, interested management led by Charlie Ergen (54). Ergen co-founded DISH Network in 1980. He still serves as chairman and CEO of both DISH and EchoStar. Ergen owns 50% of EchoStar.

• $500 million buyback commenced in 3Q08. • Shares trade at .4x EV to trailing revenue and .5x

tangible book value. INVESTMENT RISKS & CONCERNS

• DISH accounted for 84% of revenue in 2007 — concentration risk mitigated by Ergen’s control.

• Set-top box competition from Motorola, Pace and Cisco/SFA. Barriers include long-term deals and the fact that some competitors own the conditional access technology deployed by their customers.

• Fixed satellite services competition from Intelsat, SES Americom and Telesat Canada.

• Tivo case. In January 2008, an appeals court upheld a jury verdict that EchoStar infringed a Tivo patent. The company has appealed to the Supreme Court.

• Does not carry insurance for in-orbit satellites. • Technology obsolesce risks. If viewers become

able to use PCs, TVs or network-based DVRs instead of set-top boxes, sales might decline.

• Dependent on competitiveness of satellite TV versus cable TV and alternatives, at least for now.

• Cross officerships with DISH. EchoStar has a management services deal in place with DISH.


Market Value ($mn)

Enterprise Value ($mn)

EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

CSCO 94,270 71,590 1.8x 4.2x 13x 13x MOT 8,770 5,980 .2x 1.3x n/m 18x SATS 1,360 760 .4x 0.5x n/m 47x

MAJOR HOLDERS There are 42 million Class A shares out (one vote per share) and 48 million Class B shares out (ten votes per share). Charlie Ergen 50% (80% voting power) │ Other insiders 5% │ Harris Associates 5% │ Greenlight 3% │ Blue Ridge 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE With three-quarters of market value in cash, Charlie Ergen at the helm and a $500 million buyback in place, the risk-reward tradeoff is compelling. On the surface, customer concentration is a big risk, as is exposure to cash-strapped U.S. consumers. It is understandable that DISH holders may not be keen on owning SATS, particularly if they never intended to invest in a niche technology/satellite company. However, the shares appear meaningfully undervalued. We value EchoStar at $28-44 per share. We view share buybacks as highly accretive to intrinsic value per share.


…additional insight into SATS: SET-TOP BOX BUSINESS

• This business segment provides set-top boxes for satellite TV service providers. Most of the boxes are sold to DISH, but it also sells set-top boxes to Bell ExpressVu and other international customers. Equipment sales also include Slingboxes. Digital broadcast operations include satellite uplinking/ downlinking, transmission services, signal processing, conditional access management, telemetry, tracking and control, and other services.

• Set-top box business employs 700 engineers, allowing the company to customize infrastructure solutions for customers.

• Advanced set-top box technology. EchoStar’s set-top boxes allow consumers to control and record programming through DVR technology integrated with satellite receivers. Some of the set-top boxes include IPTV functionality, which enables viewers to download movies and other content from the Internet. EchoStar provides a family of digital set-top boxes, including SD (“standard definition”), SD-DVR, HD (“high definition”), and HD-DVR boxes.

• Sling Media’s Slingbox DVR technology, acquired for $342 million in 2007, allows consumers to watch and control TV programming at any time, from any location, using PCs, PDAs, smartphones, and other devices. EchoStar chairman Charlie Ergen was an early investor in Sling Media.

• Outsources manufacturing of set-top boxes, primarily to Sanmina-SCI and Jabil.

• Owns 50% of NagraStar joint venture, the exclusive provider of encryption technology used in EchoStar’s set-top boxes. EchoStar accounts for the NagraStar investment under the equity method.

RECOMMENDED READING

• Value Investors Club write-up dated February 8, 2008, available with free guest registration at http://www.valueinvestorsclub.com

FIXED SATELLITE SERVICES (FSS) BUSINESS • This business segment utilizes EchoStar’s nine

in-orbit satellites, related FCC licenses, seven full-service digital broadcast centers, and leased fiber optic capacity with POPs in 150 cities. The segment leases transponders, primarily to DISH. Former SES Americom CEO Dean Olmstead joined EchoStar as president of the FSS business in January.

• FSS utilizes six owned and two leased in-orbit satellites. EchoStar has five regional broadcast centers that allow it to utilize the spot beam capabilities of its satellites. Programming is received at these centers by fiber or satellite and then “uplinked” to EchoStar’s satellites for transmission to consumers. The company’s transponder capacity is used by applications including broadcasting, government services (including homeland security and emergency response), network services (dedicated private networks for corporations), and satellite transport services for IP-encapsulated programming.

Satellite1 Status Launch

Year Useful Life

(years) Gross BV2

($mn) EchoStar III Owned 1997 12 234 EchoStar IV Owned 1998 n/a 79 EchoStar VI Owned 2000 12 244 EchoStar VIII Owned 2002 12 176 EchoStar IX Owned 2003 12 127 EchoStar XII Owned 2003 10 190 AMC-15 Leased 2004 10 AMC-16 Leased 2005 10 5523

1 In April, the company suspended construction of the owned CMBStar satellite, due to issues relating to certain performance criteria. 2 Gross book value excludes accumulated depreciation. 3 Represents the un-depreciated value of satellites under capital leases.

• Substantial unused satellite capacity. While DISH is a large user of EchoStar satellites, a large portion of the capacity of the AMC-15, AMC-16 and EchoStar IX satellites remains available. The free capacity can be used to provide digital video distribution, satellite-delivered IP, corporate communications, and government services to a broader customer base at attractive profit margins.

• Owns 1.4 GHz band licenses, which DISH acquired in an FCC auction for $57 million in 2007. EchoStar has entered into a deal with TerreStar (Nasdaq: TSTR) as lessee of the spectrum. SATS acquired $100 million of TerreStar notes exchangeable for stock at a price of $5.57 per share.

• Suspended construction of CMBStar satellite in April, due to issues relating to certain performance criteria. While the company is evaluating alternative uses for the satellite, it may ultimately have to take an impairment charge of up to $100 million.


A CLOSER LOOK AT INVESTMENT RISKS • Set-top box competitors include Motorola,

Scientific Atlanta (acquired by Cisco), and Pace. Pace (www.pace.com) is a British company trading on the LSE under ticker symbol PIC. Key barriers to displacing competitors include longstanding customer relationships and the fact that some competitors own the conditional access technology deployed by their customers. EchoStar would have to license this technology from the competitors.

• Fixed satellite services competitors include Intelsat, SES Americom and Telesat Canada. Key barriers to displacing competitors include long-term leases and high switching costs. In addition, Intelsat and SES Americom maintain key North American orbital slots. The company’s fixed satellite services also compete with terrestrial communications alternatives.

• Tivo patent infringement case. In January, the U.S. Court of Appeals upheld a Texas jury verdict that certain EchoStar DVRs infringed a Tivo patent. The company has appealed to the U.S. Supreme Court. If Tivo ultimately prevails, EchoStar could be prohibited from distributing DVRs or be required to modify certain features. The company may also have to pay damages.

• Does not carry insurance for in-orbit satellites, bearing the risk of any failures. In addition, satellites have a limited useful life, with EchoStar satellites having a “minimum” design life of 12 years.

• Highly dependent on DISH Network, which accounted for 84% of revenue in 2007. The concentration risk is mitigated by the fact that Charlie Ergen effectively controls both companies, and that DISH would likely incur large switching costs if it opted for a new provider. EchoStar and DISH have agreed to a two-year supply deal with set prices but no minimum purchase requirement. On the fixed satellite side, DISH has a right to cancel the services on short notice. The companies have no equity stake in each other.

• Technology evolution and obsolescence risks. EchoStar’s success depends on the strength of its set-top boxes versus other boxes and various alternatives. If television viewers become able to use PCs, TVs or network-based DVRs instead of set-top boxes, EchoStar’s sales would decline.

• Dependent on competitiveness of satellite TV versus cable TV and other alternatives. As EchoStar’s current set-top box customers comprise direct-to-home satellite video providers, the company’s sales would suffer if those providers lost market share against alternative programming delivery channels. We note that EchoStar’s growth strategy includes expanding the target market for its set-top boxes to cable TV operators.

• Cross officerships and directorships with DISH. Charlie Ergen serves as chairman and CEO of both companies; the latter also have significant overlap in directors. In addition, Charlie Ergen has voting control and a large economic interest in both companies. EchoStar has a management services agreement in place with DISH. These circumstances not only create conflicts of interest but may also make it more difficult for EchoStar to convince potential customers that it does not compete against them.

• Large contingencies and commitments, including Tivo legal dispute. In January 2008, an appeals court upheld a jury verdict that EchoStar infringed a Tivo patent. The company has appealed to the Supreme Court. A settlement involving a substantial payment by DISH Network and/or EchoStar may be likely in the foreseeable future.

WHY THE SHARES MAY BE MISPRICED

• Growth prospects not evident in historical financials. Revenue was $1.51 billion, $1.53 billion and $1.54 billion in 2005, 2006 and 2007, respectively. While this may give the impression that EchoStar is a stagnant company, it ignores the fact that independence from DISH significantly improves EchoStar’s ability to win new business.

• Historical income statements understate “normalized” profitability. The company’s historical income statements reflect the sale of set-top boxes to DISH at cost, resulting in losses from operations. The 2007 pro forma income statement shown in the company’s 10-K assumes a weighted-average gross margin of 13.1% on sales to DISH. EchoStar appears likely to widen this margin over time, perhaps significantly. Note that Cisco/SFA and Motorola’s set-top box margins are roughly twice the margin EchoStar generates on DISH sales.

• Spin-off was completed with no fanfare effective January 1, 2008, a date when most investors pay little attention to corporate events. The company has had a minimal investor relations effort, perhaps reflecting a desire to keep the share price low given Charlie Ergen’s 50% economic interest in the value created by the $1 billion authorized stock buyback.


WHAT ARE THE SHARES WORTH?

• We value SATS at $28-44 per share, based on the valuation analysis summarized below.

EchoStar — Estimated Value of Common Stock

($ in millions, except per share data)

Fair Value (low estimate)

Fair Value (high estimate)

Market Quotation

Cash and short-term investments $963 $963 Set-top box business 1,000 2,000 SlingMedia 190 380 Satellite business 340 540 Corporate headquarters 100 135 Terrestar investment 0 50 Other assets, including Nagrastar 0 0 Contingent liabilities, including Tivo (100) (100)

EchoStar equity value $2,493 $3,968 $1,330

per share $28 $44 $15 Source: Company filings, The Manual of Ideas estimates.

EchoStar Owns the Following Major Assets:

$963 million of cash and short-term investments Set-top box business that provides equipment primarily to DISH Network. We estimate intrinsic value at $1-$2

billion, based on roughly $100 million of adjusted pre-tax income and strong long-term growth prospects, both from new deals and from higher margins on the DISH business if/when the latter moves toward comparable industry margins.

SlingMedia, an innovative set-top box technology provider EchoStar bought for $380 million in January 2008. Six owned and two leased satellites with estimated tangible book value of $340 million, net of capital leases of

$360 million and net of potential impairments of $300 million.1 500,000 square foot corporate campus in Englewood, Colorado; we estimate the portion leased to DISH

Network to be worth $135 million.2 Terrestar (Nasdaq: TSTR) investment, including 30 million shares, valued at $15 million based on recent

market prices, and $100 million face value of Terrestar notes, which we value at $35 million. Other assets, including additional real estate in Colorado and a 50% stake in Nagrastar, a provider of encryption

technology for set-top boxes, all of which we conservatively value at zero. Offset by contingent liabilities, most significantly an ongoing legal dispute with TiVo (Nasdaq: TIVO), which

we value at negative $100 million, although DISH Network may ultimately assume this liability.

1 Potential impairments consist of $200 million related to AMC-15 and AMC-16 leased satellites and $100 million related to CMBStar. 2 Based on $13.5 million annual lease payment from DISH to EchoStar and 10% assumed cap rate.


Buybacks Would Increase Value Beyond $28-$44 per Share

Repurchases would boost intrinsic value, as the company would trade cash for undervalued shares. The math works as follows:

How many shares can EchoStar repurchase? Assumed

purchase price: $100 million

buyback $250 million


buyback

$10 per share 10 million shares 25 million shares 50 million shares $14 per share 7 million shares 18 million shares 36 million shares $15 per share 7 million shares 17 million shares 33 million shares $20 per share 5 million shares 13 million shares 25 million shares

Source: The Manual of Ideas estimates.

How many shares would be left after the buyback? Assumed




buyback

$10 per share 80 million shares 65 million shares 40 million shares $14 per share 83 million shares 72 million shares 54 million shares $15 per share 83 million shares 73 million shares 57 million shares $20 per share 85 million shares 77 million shares 65 million shares


How much would EchoStar be worth after the buyback? Assumed




buyback

$10 per share $2.4-$3.9 billion $2.2-$3.7 billion $2.0-$3.5 billion $14 per share $2.4-$3.9 billion $2.2-$3.7 billion $2.0-$3.5 billion $15 per share $2.4-$3.9 billion $2.2-$3.7 billion $2.0-$3.5 billion $20 per share $2.4-$3.9 billion $2.2-$3.7 billion $2.0-$3.5 billion


How much would EchoStar be worth per share after the buyback? Assumed




buyback

$10 per share $30-$48 per share $35-$57 per share $50-$87 per share $14 per share $29-$47 per share $31-$52 per share $37-$64 per share $15 per share $29-$46 per share $31-$51 per share $35-$61 per share $20 per share $28-$46 per share $29-$48 per share $31-$53 per share


Most realistic fair value scenario by end of 2009


Greenlight Capital Re (Nasdaq: GLRE) Grand Cayman, Cayman Islands, 345-745-4573

Financial: Insurance (Property & Casualty) http://www.greenlightre.ky

Trading Data Consensus EPS Estimates Valuation Price: $13.05 (as of 2/13/09) Month # of P/E FYE 12/31/07 11.3x 52-week range: $8.67 - $23.85 Latest Ago Ests This FY forward P/E n/a Market value: $473 million This quarter n/a n/a n/a Next FY P/E n/a Enterprise value: $257 million Next quarter n/a n/a n/a Next 2 Yrs FY P/E n/a Shares out: 36.3 million This FY n/a n/a n/a EV / LTM revenue 7.0x

Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA n/a Insider ownership: 33% Next 2 Yrs n/a n/a n/a EV / LTM EBIT n/m Insider buys (last six months): 6 LT EPS growth n/a n/a n/a P / tangible book 0.9x Insider sales (last six months): 3 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 44% Date Actual Estimate LTM EBIT yield 0% # of institutional owners: 170 n/a n/a n/a LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 10 29 86 126 37 26 0 Gross profit 10 29 66 47 (48) 1 0 EBIT 7 26 57 35 0 (2) 0 Net income 7 26 57 35 (61) (2) (118) Diluted EPS 0.32 1.24 2.66 1.15 (1.71) (0.08) (3.29) Cash from ops (157) (32) 55 (274) (15) 35 16 Capex 0 0 0 0 0 0 0 Free cash flow (157) (32) 55 (274) (15) 35 16 Cash & investments 31 7 83 64 216 120 216 Total current assets 0 0 0 0 0 0 0 Intangible assets 0 0 0 0 0 0 0 Total assets 291 328 519 1,094 1,117 1,107 1,117 Short-term debt 0 0 0 0 0 0 0 Total current liabilities 0 0 0 0 0 0 0 Long-term debt 0 0 0 0 0 0 0 Total liabilities 94 96 206 489 598 530 598 Preferred stock 0 0 0 0 0 0 0 Common equity 197 232 312 606 518 576 518 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m


Jan 09Jan 08Jan 00Jan 00Jan 00Jan 00Jan 00Jan 00Jan 00Jan 00$0

$5

$10

$15

$20

$25

$30


BUSINESS OVERVIEW Greenlight Re is a reinsurer whose investment portfolio is managed by David Einhorn’s investment firm. Greenlight Re provides custom-tailored specialty property and casualty reinsurance to the insurance, risk retention group, captive, and financial markets. Established in 2004, Greenlight Re selectively offers customized solutions in markets where capacity and alternatives are limited. The company has a goal of maximizing long-term growth in book value per share. SELECTED OPERATING DATA

($ in millions) FYE December 31 2005 2006 2007

YTD 9/30/08

Gross premiums written by risk category:1 Frequency -- $58 $77 $105 Severity -- 16 50 28 Total -- $74 $127 $134 Gross premiums written by line of business: Property2 -- $68 $59 $10 Casualty3 -- 6 46 67 Specialty4 -- 0 23 57 Gross premiums written by geographic area of risk: U.S. -- $64 $80 $114 Non-U.S. -- 5 3 1 Worldwide5 -- 4 45 19 Selected underwriting ratios (based on GAAP results):6 Loss ratio -- 36% 40% 45% Acquisition cost ratio -- 39% 40% 39% Internal expense ratio -- 34% 12% 14% Combined ratio -- 110% 92% 97% Investment return7 14% 24% 6% -13% Book value per share $11.63 $14.27 $16.57 $14.22 Change (y-y) 14% 23% 16% -10%

1 Retrocessional contracts related to frequency reinsurance had gross ceded premiums of $26 million in 2007 (no retrocessional coverage in 2006). 2 Includes commercial lines and personal lines. 3 Includes General liability, marine, motor liability, and professional liability. 4 Includes health and medical malpractice. 5 Worldwide risk comprises policies that insure risks on a worldwide basis. 6 The composite ratio of frequency and severity business was 94% and 42%, respectively, in 2007 (compared to 97% and 45%, respectively, in 2006). 7 Investment return was -13% in October and +3% in November 2008. 8 Numerator includes assumed proceeds from future exercise of stock options. INVESTMENT HIGHLIGHTS

• David Einhorn is one of the most successful investors of the past decade. Since inception in 1996, Greenlight Capital’s flagship long-short fund has posted annualized net returns of 20+%.*

• Focus on superior returns from both sides of balance sheet. Traditional reinsurers focus primarily on one side of the balance sheet, seeking to grow their underwriting businesses while managing their float portfolio primarily for avoidance of loss or drastic underperformance. This results in most reinsurers making large investments in high-grade fixed-income and other low-yielding securities. Greenlight Re, on the other hand, appears likely to derive at least as much value from its investment activities as it may from underwriting.

• Favorable tax treatment due to Cayman Islands location. Greenlight Re pays income taxes neither in the Cayman Islands nor in the U.S., effectively making it a “pass-through” entity for investors.

* Source: The Manual of Ideas estimates.

• Disciplined, differentiated underwriting strategy. Greenlight Re offers excess of loss and quota share products in the property and casualty market, focusing on customized solutions rather than participating in broadly available opportunities. The company seeks to maximize long-term results rather than manage for interim or GAAP performance. Management is compensated based on multi-year underwriting performance rather than premium volume or short-term results. Greenlight Re seeks to act as lead underwriter for most premiums written.

• Business sourced mostly through reinsurance brokers, providing the company with variable-cost global distribution (commissions are based on gross premiums written). Brokers have no authority to bind the company to any reinsurance contract.

• A- (excellent) financial strength rating from A.M. Best — the 4th-highest of 15 ratings. The outlook is stable. The rating assumes that the investment portfolio may be 100% in equities. Greenlight Re has an unencumbered balance sheet, with book value of $518 million and liabilities of $598 million at Q3-end (includes $370 million of securities sold short in the investment portfolio).

• “Cradle to grave” service philosophy, with reinsurance contracts administered by the same individuals who underwrote the contracts.

• No direct “open-end fund” risk. Greenlight Re’s equity base is committed and cannot be withdrawn, unlike assets in a mutual or hedge fund. As such, Greenlight Re can invest almost exclusively for long-term return maximization. (We note that Einhorn’s hedge fund is open-ended—withdrawals there could pressure Re’s mark-to-market portfolio.)

• Little leverage in investment operations. While Greenlight’s portfolio entails some gross leverage due to short-selling activities, net exposure is typically well below 100% of net equity. The low leverage lowers the long-term risk profile.

• $50 million personal investment by Chairman David Einhorn. Einhorn purchased Class B shares at the IPO price of $19 per share in conjunction with the company’s public offering in May 2007. While Einhorn has certain conflicts of interest in his various roles, the purchase of shares indicates his commitment to the success of Greenlight Re. We also note Einhorn’s strong track record of creating value for his hedge fund investors. Einhorn’s management fee of 1.5% is below the industry “standard” of 2.0%, despite the fact that Einhorn’s superior performance may warrant a higher fee.

• Share repurchase authorized in August. The Board authorized a buyback of two million shares. We view buybacks at multiples of less than 1.5x book value as accretive to intrinsic value per share.

• Shares trade at .9x tangible book value.


INVESTMENT RISKS & CONCERNS • Limited loss experience. While Greenlight Re has

an experienced management team, the company has paid relatively few claims to date, and it is difficult to evaluate the appropriateness of loss reserves.

• Exposure to natural disasters. The maximum aggregate loss exposure to any series of natural peril events was $76 million at yearend 2007.

• Underwriting dependent on A.M. Best rating. Should A.M. Best downgrade the company—either as a result of higher-than-expected losses on policies, or large losses in the fairly concentrated investment portfolio—Greenlight Re may become unable to write new business on favorable terms.

• Needs to maintain letters of credit to write certain business, as the company is licensed and admitted as a reinsurer in the Cayman Islands only. Many banks prefer fixed-income collateral to the company’s non-traditional investment portfolio.

• Risk of Passive Foreign Investment Company treatment. PFIC investors face adverse U.S. tax consequences. Greenlight Re does not believe it is a PFIC, as the determination criteria exclude income derived while conducting an insurance business.

• Competitive industry. Both the reinsurance and investment management industries are highly competitive, and perceived sustainable competitive advantage often proves fleeting. Nonetheless, we believe Greenlight Re enjoys a sustainable advantage on the investment side, and it is likely to do above average on the underwriting side.


Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

BRK.A 88,140 136,540 1.6x 16x 15x Dec-31 TRV 40.40 23,620 1.1x 7x 7x Dec-31 CB 41.50 14,630 1.1x 8x 8x Dec-31 ACE 42.30 14,120 1.0x 6x 5x Dec-31 FFH 325.80 5,970 1.3x n/a n/a Dec-31 PRE 67.60 3,820 1.0x 7x 7x Dec-31 LUK 15.70 3,650 .6x n/a n/a Dec-31 MKL 308.90 3,030 1.5x 14x 13x Dec-31 TRH 36.00 2,390 .7x 6x 5x Dec-31 AIG 0.90 2,290 .0x n/m 6x Dec-31 XL 4.30 1,430 .2x 2x 2x Dec-31 GLRE 13.10 473 .9x n/a n/a Dec-31

MAJOR HOLDERS Chairman David Einhorn 17% │ CEO Len Goldberg 1% │ Other insiders 1% │ Khronos 8% │ Morgan Stanley 7% │ Montpellier 6% │ Royal Capital 4% │ Third Point 2% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Greenlight Re is essentially an investment fund “on steroids”:

• The company’s portfolio is managed by David Einhorn’s Greenlight Capital, a top-notch investment firm in terms of long-term risk-adjusted performance.

• Greenlight Re has a tax-advantaged structure by virtue of its Cayman Islands domicile, making it a pass-through vehicle for U.S. investors.

• The company’s goal is to create value on both sides of the balance sheet. Reinsurance underwriting should add value over time, an aspect that is unique to Greenlight Re as compared to other vehicles managed by Einhorn.

• Greenlight Re investors have the option to sell their shares in the open market at any time, a liquidity benefit not available to hedge fund investors.

• Greenlight Re investors are likely to benefit from price-to-book multiple expansion over the long term, as public market investors come to appreciate Einhorn’s track record. This may allow investors buying at current prices—which are only modestly above book value—to get paid for the discounted present value of Einhorn’s superior investment skills at the time of sale of their shares of Greenlight Re.

• With Einhorn owning 17% of Greenlight Re, he is incentivized to add value over the long term. We also note Einhorn’s track record of both strong investment performance and fair treatment of investors.

Our valuation analysis (included below) suggests fair value of $19-26 per share, based on book value multiples of 1.4x-1.9x. We believe an investment in Greenlight Re at current prices should outperform handily in the long term, and may even be preferable to a direct investment in one of Einhorn’s hedge funds.


GREENLIGHT CAPITAL RE – BOOK VALUE MULTIPLE: WHAT IS “FAIR”? We argue that Greenlight Re deserves to trade at a premium to book value due to the likelihood that Greenlight’s investment portfolio, managed by David Einhorn, will beat the market over time.

As the following table shows, Greenlight Re may deserve a book value multiple of 2.1x, assuming a 12% net investment return for Greenlight versus 8% for the broader market and a 20-year horizon of outperformance. Assuming outperformance over the next ten years only, the fair value multiple drops to 1.4x.

Analysis of Fair Book Value Multiple Assuming 12% Long-Term Investment Return vs. 8% Market Return (1)

Compounding of $1 at Performance Difference Current "Fair" Multiple Selected Rates of Return Future Present of Book Value Based 12% 8% Value Value on Length of Assumed

Year 0 $1.00 $1.00 (8% rate) Future OutperformanceYear 1 1.12 1.08 $0.04 $0.04 1.0x Year 2 1.25 1.17 0.09 0.08 1.1x Year 3 1.40 1.26 0.15 0.12 1.1x Year 4 1.57 1.36 0.21 0.16 1.2x Year 5 1.76 1.47 0.29 0.20 1.2x Year 6 1.97 1.59 0.39 0.24 1.2x Year 7 2.21 1.71 0.50 0.29 1.3x Year 8 2.48 1.85 0.63 0.34 1.3x Year 9 2.77 2.00 0.77 0.39 1.4x

Year 10 3.11 2.16 0.95 0.44 1.4x Year 11 3.48 2.33 1.15 0.49 1.5x Year 12 3.90 2.52 1.38 0.55 1.5x Year 13 4.36 2.72 1.64 0.60 1.6x Year 14 4.89 2.94 1.95 0.66 1.7x Year 15 5.47 3.17 2.30 0.73 1.7x Year 16 6.13 3.43 2.70 0.79 1.8x Year 17 6.87 3.70 3.17 0.86 1.9x Year 18 7.69 4.00 3.69 0.92 1.9x Year 19 8.61 4.32 4.30 1.00 2.0x Year 20 9.65 4.66 4.99 1.07 2.1x

As the following table shows, Greenlight Re may deserve a book value multiple of 3.5x, assuming a 15%

net investment return for Greenlight versus 8% for the broader market and a 20-year horizon of outperformance. It is reasonable to cap the fair value multiple at 2x-3x, as the company may issue stock at higher multiples in

order to “arbitrage” the spread between market value and book value.

Analysis of Fair Book Value Multiple Assuming 15% Long-Term Investment Return vs. 8% Market Return (1) Compounding of $1 at Performance Difference Current "Fair" Multiple Selected Rates of Return Future Present of Book Value Based 15% 8% Value Value on Length of Assumed

Year 0 $1.00 $1.00 (8% rate) Future OutperformanceYear 1 1.15 1.08 $0.07 $0.06 1.1x Year 2 1.32 1.17 0.16 0.13 1.1x Year 3 1.52 1.26 0.26 0.21 1.2x Year 4 1.75 1.36 0.39 0.29 1.3x Year 5 2.01 1.47 0.54 0.37 1.4x Year 6 2.31 1.59 0.73 0.46 1.5x Year 7 2.66 1.71 0.95 0.55 1.6x Year 8 3.06 1.85 1.21 0.65 1.7x Year 9 3.52 2.00 1.52 0.76 1.8x

Year 10 4.05 2.16 1.89 0.87 1.9x Year 11 4.65 2.33 2.32 1.00 2.0x Year 12 5.35 2.52 2.83 1.12 2.1x Year 13 6.15 2.72 3.43 1.26 2.3x Year 14 7.08 2.94 4.14 1.41 2.4x Year 15 8.14 3.17 4.96 1.57 2.6x Year 16 9.36 3.43 5.93 1.73 2.7x Year 17 10.76 3.70 7.06 1.91 2.9x Year 18 12.38 4.00 8.38 2.10 3.1x Year 19 14.23 4.32 9.92 2.30 3.3x Year 20 16.37 4.66 11.71 2.51 3.5x

(1) Analysis assumes that entire book value participates in performance of investment portfolio. Adjusting this assumption downward would also result in a downward adjustment to the current fair multiple of book value.


WHAT ARE THE SHARES WORTH?

• We value GLRE at $19-26 per share, based on fair value multiples of book of 1.4x-1.9x. We believe this to be a conservative range, based on expected long-term investment outperformance.

− At the low end, we assume that outperformance persists for the next 10 years, with net returns of 12% per year versus market returns of 8% per year.

− At the high end, we assume that outperformance persists for the next 10 years, with net returns of 15% per year versus market returns of 8% per year.

• Underwriting: Our value estimate assumes that reinsurance underwriting operations neither create nor impair material shareholder value over time. We believe this to be a conservative assumption.

• Share repurchases: Our value estimate assumes that management does not increase per-share intrinsic value through opportunistic buybacks. We believe this to be a very conservative assumption, as the company has commenced a buyback program.

Greenlight Capital Re — Valuation Summary

Fair Value Range Low High Diluted book value per share at 9/30/08 $14.22 $14.22 10/1/08-1/30/09 investment result -4.7% -4.7% Assumed decline in per-share book value -6.7% -4.7% Est. book value per share at 2/1/09 $13.27 $13.55 Fair value multiple of book value 1.4x 1.9x Estimated per-share value of GLRE $19 $26

Source: Company filings, The Manual of Ideas estimates and analysis. WHY THE SHARES MAY BE MISPRICED

• Investors myopically focused on recent losses. In predictable fashion, the market has abandoned Greenlight Re during a period of weak investment results, ignoring Einhorn’s track record and likely future outperformance. Conceptually, the ideal time to buy into any “closed-end” vehicle managed by a top-notch investor is during a temporary period of underperformance, as the vehicle might be available at a big discount to fair value — this is such a time.

• Investors ignore the fact that recent losses are “good” in the context of S&P 500 performance. Greenlight Re’s investment portfolio declined 18% in 2008, compared to a decline of 37% for the S&P 500 (total return index). While it’s true that the performance of Greenlight’s long/short portfolio might be more appropriately measured against short-term government yields, the point is that Einhorn’s investment skill has enabled Greenlight to outperform major stock market indices in times good and bad. There is no reason to believe this will change. In fact, recent market turmoil has likely taught Einhorn some important lessons and made him a better investor.

NEAR-TERM CATALYSTS • Strong quarter of investment performance may

lead to swift price-to-book revaluation, as investor skittishness about Einhorn might be alleviated. While timing is speculative, Greenlight could turn around results as early as 1Q09.

• Second-largest recent investment loser has high likelihood of turning into winner. Greenlight has suffered large mark-to-market losses from a long/short trade in Porsche and Volkswagen shares. While this trade has been a spectacular failure to date, we have developed high conviction in this position through our own research. As a result, we believe Greenlight will be vindicated—possibly in the next few months—providing a major positive catalyst to investment performance. We note that Greenlight is not at the mercy of margin calls due to a policy of avoiding portfolio leverage.

SELECTED OPERATING DATA AND METRICS

GLRE – Gross Premiums Written, 2Q06-3Q08 The company has succeeded in the goal of making frequency business a large percentage of overall underwriting volume, thereby lowering exposure to catastrophe losses. In addition, as the volatility of underwriting volume suggests, management has been disciplined and opportunistic about the kind of business it has written. The company’s stated goal is not to grow premium volume but to seek out business with favorable risk-return characteristics.

$0mn

$20mn

$40mn

$60mn

$80mn

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

SeverityFrequency

Source: Company, The Manual of Ideas. GLRE – Net Investment Performance, 3Q04-4Q08 Greenlight Re reported positive investment performance in 14 of the 17 quarters since it commenced investment operations in 3Q04. Prior to the 3Q08 record loss of 16%, the largest quarterly investment loss was 4% in 1Q07. Annual data is as follows: +5% in 2004, +14% in 2005, +24% in 2006, +6% in 2007, and -18% in 2008.

-20%

-15%

-10%

-5%

0%

5%

10%

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08



GREENLIGHT CAPITAL RE – SELECTED OPERATING DATA AND DRIVERS

($ in millions, except per share data) FYE December 31, YTD 2005 2006 2007 9/30/07 9/30/08 3Q07 3Q08 Gross premiums written by risk category: (1) Frequency -- $58 $77 $73 $105 $9 $28 Severity -- 16 50 50 28 11 10 Total gross premiums written -- $74 $127 $123 $134 $20 $38 Gross premiums written by line of business: Property (2) -- $68 $59 $57 $10 $16 $8 Casualty (3) -- 6 46 48 67 3 18 Specialty (4) -- 0 23 19 57 0 12 Gross premiums written by geography of risk: U.S. -- $64 $80 $76 $114 $9 $28 Non-U.S. -- 5 3 3 1 0 0 Worldwide (5) -- 4 45 45 19 11 10 Net premiums written by risk category: Frequency -- $58 $51 $45 $92 $9 $29 Severity -- 16 50 50 28 11 10 Total net premiums written -- $74 $101 $95 $120 $20 $39 Selected underwriting ratios (GAAP): (6) Loss ratio -- 36% 40% 41% 45% 37% 52% Acquisition cost ratio -- 39% 40% 40% 39% 44% 43% Internal expense ratio -- 34% 12% 12% 14% 11% 12% Combined ratio -- 110% 92% 93% 97% 91% 106% Selected ratios -- frequency (GAAP): Loss ratio -- 56% 48% 49% 35% 43% 24% Acquisition cost ratio -- 41% 46% 45% 53% 49% 59% Composite ratio -- frequency -- 97% 94% 94% 89% 92% 84% Selected ratios -- severity (GAAP): Loss ratio -- 9% 20% 15% 64% 20% 128% Acquisition cost ratio -- 37% 22% 25% 9% 29% -4% Composite ratio -- severity -- 45% 42% 40% 73% 49% 124% Investment return (7) 14% 24% 6% 1% -13% -1% -16% Net income $26 $57 $35 $6 ($90) ($2) ($118) EPS 1.24 2.66 1.15 0.21 (2.49) (0.06) (3.29) Diluted shares outstanding (avg) 21 21 31 29 36 36 36 Diluted shares outstanding (period end) 22 23 38 36 36 36 36 Cash and equivalents $7 $83 $64 $120 $216 $120 $216 Restricted cash and equivalents 100 155 372 404 400 404 400 Investments in securities 219 244 591 492 389 492 389 Other assets 2 38 68 91 111 91 111 Total assets $328 $519 $1,094 $1,107 $1,117 $1,107 $1,117 Shareholders' equity 232 312 606 576 518 576 518 Equity to assets 71% 60% 55% 52% 46% 52% 46% Diluted book value per share (8) $11.63 $14.27 $16.57 $15.78 $14.22 $15.78 $14.22 Change (y-y) 14% 23% 16% n/a -10% n/a -10% (1) Retrocessional contracts related to frequency reinsurance had gross ceded premiums of $26 million in 2007 (no coverage in 2006). (2) Includes commercial lines and personal lines. (3) Includes General liability, marine, motor liability, and professional liability. (4) Includes health and medical malpractice. (5) Worldwide risk comprises policies that insure risks on a worldwide basis. (6) The composite ratio of frequency and severity business was 94% and 42%, respectively, in 2007 (compared to 97% and 45% in 2006). (7) Subsequent to 3Q08, investment return was -13% in October and +3% in November 2008. (8) Numerator includes assumed proceeds from future exercise of stock options.


Microsoft (Nasdaq: MSFT) Redmond, WA, 425-882-8080

Technology: Software & Programming, Member of S&P 500 http://www.microsoft.com


Ownership Data FYE 6/30/10 1.98 2.20 30 EV / LTM EBITDA n/a Insider ownership: 16% FYE 6/30/11 2.31 2.39 8 EV / LTM EBIT 7.0x Insider buys (last six months): 0 LT EPS growth 10.2% 10.6% 6 P / tangible book 8.4x Insider sales (last six months): 18 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 60% Date Actual Estimate LTM EBIT yield 14% # of institutional owners: 3567 1/22/09 $0.47 $0.49 LTM pre-tax ROC >100%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 6/30/02 6/30/03 6/30/04 6/30/05 6/30/06 6/30/07 6/30/08 12/31/08 12/31/07 12/31/08 Revenue 28,365 32,187 36,835 39,788 44,282 51,122 60,420 61,981 16,367 16,629 Gross profit 22,666 26,128 30,239 33,757 36,632 40,429 48,822 49,846 12,824 12,722 EBIT 3,952 8,395 8,952 14,409 16,064 18,499 22,180 21,454 6,399 5,677 Net income 5,355 7,531 8,168 12,254 12,599 14,065 17,681 17,232 4,707 4,174 Diluted EPS 0.48 0.69 0.75 1.12 1.20 1.42 1.87 1.87 0.50 0.47 Cash from ops 14,509 15,797 14,626 16,605 14,404 17,796 21,612 20,319 4,567 5,782 Capex 770 891 1,109 812 1,578 2,264 3,182 3,597 695 842 Free cash flow 13,739 14,906 13,517 15,793 12,826 15,532 18,430 16,722 3,872 4,940 Cash & investments 38,652 49,048 60,592 37,751 34,161 23,411 23,662 20,715 21,076 20,715 Total current assets 48,576 58,973 70,566 48,737 49,010 40,168 43,242 37,730 37,775 37,730 Intangible assets 1,669 3,512 3,684 3,808 4,405 5,638 14,081 14,305 12,026 14,305 Total assets 67,646 81,732 94,368 70,815 69,597 63,171 72,793 65,786 67,339 65,786 Short-term debt 0 0 0 0 0 0 0 2,000 0 2,000 Total current liabilities 12,744 13,974 14,969 16,877 22,442 23,754 29,886 23,710 22,058 23,710 Long-term debt 0 0 0 0 0 0 0 0 0 0 Total liabilities 15,466 16,820 19,543 22,700 29,493 32,074 36,507 31,308 32,908 31,308 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 52,180 64,912 74,825 48,115 40,104 31,097 36,286 34,478 34,431 34,478 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m >100% n/m n/m



$10

$20

$30

$40

$50

$60

$70


BUSINESS OVERVIEW Microsoft, founded in 1975, is the world’s largest software firm. It operates in five segments: Client (Windows OS), Server and Tools (Windows & SQL Server), Online Services (MSN), Microsoft Business (Office, Project, Visio, Exchange, Live Meeting), and Entertainment and Devices (Xbox, Zune, Windows Mobile, Windows Embedded). SELECTED OPERATING DATA

FYE June 30 2006 2007 2008 1H09 % of revenue by segment: Client 30% 29% 29% 26% Server & Tools 21% 22% 22% 23% Online Services Business 6% 5% 5% 5% Microsoft Business Division 33% 33% 32% 31% Entertainment and Devices 9% 11% 12% 16% Revenue growth by segment: Client 10% 15% 13% -3% Server & Tools 16% 15% 18% 16% Online Services Business -2% 6% 32% 7% Microsoft Business Division 9% 13% 15% 10% Entertainment and Devices 38% 26% 34% -1% ∆ revenue 11% 15% 18% 5% ∆ deferred revenue1 19% 16% 21% 7% EBIT margin by segment: Client 79% 77% 77% 76% Server & Tools 33% 33% 35% 37% Online Services Business 5% -25% -38% -58% Microsoft Business Division 67% 66% 65% 66% Entertainment and Devices -27% -32% 5% 7% Total EBIT margin 37% 36% 37% 38% % of revenue by geography: U.S. 63% 61% 59% n/a Other countries 37% 39% 41% n/a Revenue growth by geography: U.S. 10% 12% 15% n/a Other countries 14% 21% 24% n/a

1 Represents y-y change in period-end deferred (unearned) revenue. Deferred revenue was $13 billion at 2Q09-end, equal to one-fifth of annual revenue. INVESTMENT HIGHLIGHTS

• Parlayed ownership of PC operating systems into leadership in enterprise software, Internet services, and gaming. The company now generates almost as much EBIT from business software as it does from Windows OS. While MSN online services and Xbox are not yet contributing to profitability, they have the potential to become major profit drivers.

• Sales, EBIT, EPS up 18%, 21%, 32% in FY08. Performance drivers included Windows Vista, Office 2007, server software, and Xbox 360.

• Authorized $40 billion repurchase in September; has returned $115 billion to shareholders through buybacks and dividends in the last five years.

• Lowered outlook in January; expects revenue and EPS to fall in 2H09. Management did not provide specific revenue or earnings guidance but set opex target of $27 billion for FY09.

• Cheaper than EBIT-to-EV yield suggests. As MSN and Xbox are still roughly breaking even, their value is not reflected in the EBIT-to-EV yield metric. As a result, investors should value MSN and Xbox based on metrics other than trailing earnings.

• Shares trade at 10% trailing FCF yield, 10x trailing P/E and 11x forward P/E.

INVESTMENT RISKS & CONCERNS

• To lay off 5,000 people as part of $1.5 billion opex reduction and $700 million capex reduction.

• Competitive threats from Google, open source software, SaaS, etc. Microsoft is aggressively trying to win business away from Google and appears to be the front runner on a competitive deal to supply search and advertising on Verizon mobile phones.

• Lower-than-expected demand for Vista, Office or Xbox 360 could significantly slow top-line growth.

• Pursuit of Yahoo may reflect limited high-ROC reinvestment opportunities and concerns regarding Google. Microsoft does not plan to rebid for Yahoo.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

GOOG 112,580 96,730 4.4x 5.0x 17x 15x ORCL 89,420 90,010 3.8x n/m 12x 11x YHOO 17,790 14,340 2.0x 2.4x 34x 29x MSFT 169,720 151,010 2.4x 8.4x 11x 10x

MAJOR HOLDERS Bill Gates 9% │ Steve Ballmer 4% │ Other insiders <1% │ Barclays 4% │ State Street 3% │ Cap Re 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Microsoft is quite possibly the world’s best business, as reflected by the company’s global ubiquity, virtually unassailable market position in operating systems, strong management, and ability to generate enormous profits while employing no capital in the business. While Microsoft is cheap based on 10x estimated FY09 headline EPS, the undervaluation becomes even more apparent if one considers the fact that the company’s balance sheet remains highly deleveraged and that valuable businesses, such as MSN and Xbox, are not yet contributing to headline EPS. We value Microsoft at $36-47 per share, based on the sum-of-the-parts valuation analysis summarized on the next page. Our estimate ascribes no value to the company’s recently announced $40 billion stock repurchase plan, which should be highly accretive to EPS.


…additional insight into MSFT: WHAT ARE THE SHARES WORTH?

• We value Microsoft at $36-47 per share, based on the sum-of-the-parts valuation analysis summarized below. Upside to our value estimate could come from share repurchases and improving profitability of the Xbox and MSN.com businesses.

• Deserves premium valuation due to defensible moat and stability of earnings and free cash flow.

Microsoft — Sum-of-the-Parts Valuation Summary1


Low Value

High Value

Value of excess marketable assets:2 Cash and equivalents $8,346 $8,346 Short-term investments 12,369 12,369 Long-term investments 3,922 3,922 Short-term debt (2,469) (2,469) Net cash and investments $22,168 $22,168 Cash needed to run business3 (2,000) (1,000) Total $20,168 $21,168

Value of Client: LTM EBIT 12,493 12,493 Fair value multiple of LTM EBIT4 8x 9x Total $99,944 $112,437

Value of Business Division: LTM EBIT 12,921 12,921 Fair value multiple of LTM EBIT5 7x 9x Total $90,447 $116,289

Value of Server and Tools: LTM EBIT 22,128 22,128 Fair value multiple of LTM EBIT6 7x 9x Total $154,896 $199,152

Value of Entertainment and Devices: LTM revenue 8,113 8,113 Fair value multiple of LTM revenue7 1x 2x Total $8,113 $16,226

Value of Online Services Business: LTM revenue 3,316 3,316 Fair value multiple of LTM revenue8 2x 4x Total $6,632 $13,264

Value Offset of Corporate Overhead: LTM operating loss (6,947) (6,947) Fair value multiple of LTM loss 8x 9x Total ($55,576) ($62,523) Estimated fair value of MSFT $324,624 $416,013 per share $36 $47

1 Does not include incremental value of $40 billion buyback plan. 2 Based on balance sheet values as of December 31, 2008. 3 Represents MOI estimate. 4 Multiples reflect near-monopoly status and 14% FY08 EBIT growth. 5 Multiples reflect very strong margin profile and 15% FY08 EBIT growth. 6 Multiples reflect strong margin profile and 26% FY08 EBIT growth. 7 Multiples reflect strong Xbox market position and 34% FY08 revenue growth. 8 Multiples reflect large online opportunity and 32% FY08 revenue growth. Source: Company filings, The Manual of Ideas estimates and analysis. WHY THE SHARES MAY BE MISPRICED

• Viewed as unexciting by many technology investors, despite 18% revenue growth in FY08.

• Headline earnings ignore value of Xbox and MSN businesses, making a sum-of-the-parts valuation analysis necessary to judge fair value.

POTENTIAL EPS ACCRETION FROM SHARE REPURCHASES • We estimate EPS accretion of $0.11-$0.13 over

the next twelve months (NTM), assuming $40 billion spent on incremental share repurchases and an average price paid of $26-30 per share.

• Microsoft treasurer George Zinn: “…strong credit quality coupled with investors’ current appetite for high quality paper provides a unique opportunity for the company to establish its first-ever commercial paper program and enhance its capital structure.” (September 22, 2008)

• The following analysis shows EPS accretion sensitivity to various assumptions of repurchase amount and purchase price per share.

Potential NTM Share Repurchases ($ and shares in millions, except per share data)

NTM Repurchase Amount Price paid per share $20,000 $40,000 $60,000

$20.00 1,000 2,000 3,000 $22.00 909 1,818 2,727 $24.00 833 1,667 2,500 $26.00 769 1,538 2,308 $28.00 714 1,429 2,143 $30.00 667 1,333 2,000 $32.00 625 1,250 1,875 $34.00 588 1,176 1,765

NTM Weighted-Average Shares Outstanding1,2 ($ in millions, except per share data)


$20.00 8,880 8,380 7,880 $22.00 8,925 8,471 8,016 $24.00 8,963 8,547 8,130 $26.00 8,995 8,611 8,226 $28.00 9,023 8,666 8,309 $30.00 9,047 8,713 8,380 $32.00 9,068 8,755 8,443 $34.00 9,086 8,792 8,498

1 Based on 9.4 billion diluted shares outstanding currently. 2 Assumes weighted average repurchase date six months from today.

NTM EPS Accretion From Incremental Buybacks3,4 ($ in millions, except per share data)


$20.00 $0.09 $0.20 $0.31 $22.00 $0.08 $0.17 $0.27 $24.00 $0.07 $0.15 $0.24 $26.00 $0.06 $0.13 $0.21 $28.00 $0.06 $0.12 $0.19 $30.00 $0.05 $0.11 $0.17 $32.00 $0.05 $0.10 $0.15 $34.00 $0.04 $0.09 $0.14

3 Assumes 2.0% interest rate and 40% effective tax rate. 4 Assumes NTM net income of $20.0 billion (prior to lost interest income).


MANAGEMENT’S VIEW OF BUSINESS Selected slides from 2Q09 call on January 22:


HISTORICAL RANGE OF P/E MULTIPLES, CY 1986-2009 At less than 10x EPS, Microsoft recently traded at the bottom of its historical P/E trading range.

Source: Company, The Manual of Ideas. REVENUE, PRODUCTIVITY AND PROFIT MARGINS

MSFT – Revenue and EBIT, FY 2000-08 Microsoft has posted steady revenue growth even as operating income has experienced some volatility, particularly in the years following the bursting of the Internet bubble.

$0bn

$25bn

$50bn

$75bn

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

RevenueEBIT

Source: Company, The Manual of Ideas. MSFT – Y-Y Revenue Growth, FY 2001-1H09 The company has posted steady though unspectacular growth this decade, helped by emerging businesses such as Xbox and MSN. Management is guiding for a revenue decline in 2H09.

0%

5%

10%

15%

20%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

1H09


MSFT – Y-Y EPS Growth, FY 2001–1H09 EPS growth has been volatile this decade, driven by major new product releases and investments in emerging businesses. EPS declined 1% y-y in 1H09, and management is guiding for an additional decline in 2H09. The company has quite a bit of latitude in influencing FY09 EPS due to the large size and accretive nature of the share repurchase plan announced in September 2008.

-30%-15%

0%15%30%45%60%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

1H09

Source: Company, The Manual of Ideas. MSFT – EBIT Margin, FY 2000-1H09 After fluctuating significantly during and after the Internet bubble, Microsoft’s operating margins have stabilized in the 35-40% range in recent years. Competitive and economic pressures are exerting downward pressure on margins, while margin expansion in the Xbox and MSN businesses could lead to overall margin expansion.

20%

30%

40%

50%

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

1H09

Source: Company, The Manual of Ideas. MSFT – Revenue by Geography, FY 2002-08 International revenue has grown steadily, both in absolute terms and as a percentage of overall revenue. International revenue grew from $8 billion in FY02 to $24 billion in FY08, a 20% CAGR.

29% 31% 32% 36% 37% 39% 41%

0%

20%

40%

60%

80%

100%

FY02

FY03

FY04

FY05

FY06

FY07

FY08

U.S. Other Countries



SEGMENT #1: CLIENT (29% of FY08 revenue, 77% EBIT margin)

• Comprises Windows OS, including Vista, XP, Media Center, and Tablet PC Edition. The segment leads the ongoing development of Windows and manages relationships with PC makers.

• Key revenue driver is worldwide PC shipments, with OEMs accounting for 80% of revenue.

• Competitors include Unix and Apple’s operating system. Linux is available for free under a general public license, with variants sold by HP, IBM and Sun. Apple has gained share, particularly in the U.S. consumer segment where it has benefited from the enormous success of the iPod and iPhone.

• Released Windows Vista in FY07, with advances in security, digital media, and user interfaces.

SEGMENT #2: SERVER AND TOOLS (22% of FY08 revenue, 35% EBIT margin)

• Includes Windows Server operating system, Microsoft SQL Server, Microsoft Enterprise Services, Visual Studio, System Center products, Forefront security products, and Biz Talk Server.

• Revenue from multi-year licensing deals (45% of revenue), fully packaged product and transactional volume licensing programs (25%), OEM licenses (10%), and services (20%).

• Competitors in server operating systems include (1) vertically integrated computer makers such as HP, IBM, Sun, which sell versions of Unix along with hardware; (2) companies such as Novell and Red Hat, which provide versions of Linux; and (3) server virtualization providers such as VMware.

• Competitors in enterprise-wide computing include (1) companies that provide J2EE-compliant solutions, including IBM and Sun; (2) server application providers such as CA, IBM and Oracle; (3) open source software, including Linux, Apache, MySQL, and PHP; and (4) Java middleware, including JBoss, Geronimo and Spring Framework.

• Other competitors include (1) System Center competitors HP, BMC, CA, and IBM; (2) Forefront competitors McAfee, Symantec and Trend Micro; (3) Adobe, BEA, Borland, IBM, Oracle, Sun, and the Eclipse open source project, which compete against Microsoft products for software developers.

• Released new versions of Windows Server and Visual Studio in FY08; plans to release new version of SQL Server in FY09. Windows Server includes virtualization technologies that compete with VMware’s software offerings.

SEGMENT #3: ONLINE SERVICES BUSINESS (5% of FY08 revenue, -38% EBIT margin)

• Consists of MSN online portals, Live Search, an online advertising platform for web publishers and advertisers, Hotmail email, instant messaging, and AvenueA Razorfish media agency services.

• Revenue primarily from online ads and secondarily from subscriptions and transactions related to paid services, as well as ancillary services.

• Competitors include AOL, Google and Yahoo, whose Internet search and media properties connect users and advertisers. Google leads in online ad revenue related to search and syndication.

• Launched new releases of Windows Live and adCenter in FY08. It also acquired aQuantive, a next-generation advertiser and publisher solution.

SEGMENT #4: BUSINESS (32% of FY08 revenue, 65% EBIT margin)

• Includes Microsoft Office, Project, Visio, SharePoint Server, Exchange Server, Live Meeting, Tellme, and other business software.

• 90%+ of revenue from Office system offerings, with growth driven by new Office features and new offerings in areas such as content management, collaboration, and unified communications.

• 80% of revenue from businesses, 20% from consumers. Businesses buy Office through volume licensing, with revenue driven by the number of workers using Office (not highly correlated with PC shipments). Consumers buy products through OEMs in connection with new PC shipments.

• Competitors to Office system products include Apple, Corel (WordPerfect), Google (Apps), IBM (Smartsuite, Notes, Workplace), Novell, Oracle, Red Hat, and Sun. OpenOffice.org provides a free cross-platform application. Web-based offerings such as AjaxWrite, gOffice, iNetOffice, SimDesk, ThinkFree, and wikiCalc also compete with Office. However, the alternatives generally lack rich functionality and are marketed with low-priced PCs.

• Competitors to business management products (Microsoft Dynamics) include Intuit and Sage in the SMB market, and Oracle and SAP in the enterprise market. These competitors have much greater market share and stronger product offerings than do competitors in the Office market segments.

SEGMENT #5: ENTERTAINMENT AND DEVICES (12% of FY08 revenue, 5% EBIT margin)

• Includes Xbox 360 console and games, Zune, Mediaroom, mice and keyboards, Windows Mobile software, and Windows Embedded device OS.

• Competitors to Xbox video game consoles include Sony’s PlayStation and Nintendo’s Wii. Zune competes with Apple’s iPod. Windows Mobile software Apple, Nokia, Openwave, Palm, Qualcomm, RIM, and Symbian.

• Released Xbox 360 in 2005, while Nintendo and Sony released new versions of their consoles in 2006. The console life cycle averages 5-7 years.


Premier Exhibitions (Nasdaq: PRXI) Atlanta, GA, 404-842-2600

Services: Recreational Activities http://www.prxi.com

Trading Data Consensus EPS Estimates Valuation Price: $1.00 (as of 2/13/09) Month # of P/E FYE 2/29/08 2.7x 52-week range: $0.56 - $7.35 Latest Ago Ests P/E FYE 2/28/09 n/m Market value: $29 million This quarter -$0.08 -$0.05 2 P/E FYE 2/28/10 6.3x Enterprise value: $23 million Next quarter -0.01 -0.01 1 P/E FYE 2/28/11 n/a Shares out: 29.3 million FYE 2/28/09 -0.04 -0.02 3 EV / LTM revenue 0.4x

Ownership Data FYE 2/28/10 0.16 0.15 2 EV / LTM EBITDA 9.0x Insider ownership: 13% FYE 2/28/11 n/a n/a n/a EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth 15.0% 15.0% 1 P / tangible book 0.9x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 40% Date Actual Estimate LTM EBIT yield -10% # of institutional owners: 69 1/6/09 -$0.06 $0.04 LTM pre-tax ROC -12%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 2/28/02 2/28/03 2/29/04 2/28/05 2/28/06 2/28/07 2/29/08 11/30/08 11/30/07 11/30/08 Revenue 3 3 3 7 13 30 62 61 17 14 Gross profit 3 3 3 4 10 22 41 29 12 5 EBIT (7) (1) (1) (2) 3 12 18 (2) 4 (3) Net income (7) (1) (1) (2) 5 7 12 (1) 3 (2) Diluted EPS (0.40) (0.04) (0.06) (0.12) 0.19 0.24 0.37 (0.04) 0.08 (0.06) Cash from ops (0) 3 (1) (0) 2 12 17 (1) 6 (2) Capex 0 1 0 1 2 2 5 13 2 4 Free cash flow (0) 2 (1) (1) 0 9 12 (13) 4 (6) Cash & investments 0 2 1 1 5 17 18 6 25 6 Total current assets 4 3 1 4 10 25 28 23 40 23 Intangible assets 0 0 0 1 4 3 10 12 6 12 Total assets 9 8 7 10 22 35 51 54 55 54 Short-term debt 0 0 0 0 1 0 0 0 0 0 Total current liabilities 2 2 1 3 3 2 4 9 4 9 Long-term debt 0 0 0 0 0 0 0 0 0 0 Total liabilities 2 2 1 3 3 2 4 9 4 9 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 7 7 6 7 20 33 47 45 51 45 EBIT/capital employed -277% -79% -440% -444% 83% >100% >100% -12% n/m n/m



$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

c


BUSINESS OVERVIEW Premier develops touring, museum-quality exhibitions presented in museums, exhibition centers, and other venues. The exhibitions, including Bodies…The Exhibition and Titanic: The Artifact Exhibition, have attracted 20 million visitors. Since 1994, Premier subsidiary RMS Titanic has been Salvor-in-Possession of the wreck of the Titanic, as ordered by a federal district court. RMS has conducted multiple expeditions, recovering 5,500 artifacts. Revenue sources include exhibition ticket sales, merchandise sales, licensing activities, and sponsorship agreements. SELECTED OPERATING DATA

FYE February 28 2006 2007 2008 YTD

11/30/08 % of revenue by theme: Bodies 37% 72% 81% 68% Titanic 63% 28% 19% <32%1 % of revenue by type: Exhibition 94% 96% 96% 85% Merchandise and other 6% 4% 4% 15% % of revenue by geography: U.S. 80% 96% 79% 82% International 20% 4% 21% 18%

1 Titanic accounted for the vast majority of non-Bodies revenue YTD. INVESTMENT HIGHLIGHTS

• Bodies attended by more than five million visitors since FY05, including in New York, Las Vegas, San Diego, Prague, and Sao Paulo. In FY08, Premier presented 15 separate human anatomy exhibitions at 28 venues. The exhibitions include displays of dissected human bodies kept from decaying through a process known as plastination. The 2005 acquisition of Exhibitions International gave Premier multi-year licenses and exhibition rights to multiple human anatomy exhibitions.

• Exclusive right to recover objects from the Titanic due to Salvor-in-Possession status. Public interest in the Titanic story remains strong 96 years after she set sail, and Premier’s Titanic exhibitions have attracted audiences in 60+ venues worldwide. In 1993, Premier acquired Titanic Ventures, which started exploring the Titanic wreck site in 1987.

• New exhibitions in pipeline. The exhibitions will be conducted under long-term licensing deals and may open in late FY09. Sports Immortals will present sports memorabilia consisting of one million artifacts from great athletes. Dialog in the Dark will “provide insight and experience to the paradox of learning to ‘see’ without the use of sight.”

• 16% holder Mark Sellers succeeded in removing former CEO Geller in January. Four individuals chosen by Sellers have been appointed to the Board, with Chris Davino as interim CEO.

• Repurchased $7 million of stock in FY08. • Shares trade at negative trailing FCF yield and

6x forward P/E (trailing GAAP EPS loss reported). INVESTMENT RISKS & CONCERNS

• Performing “well below” expectations, with sharp declines in per-venue gross margin, sharp rise in opex and weak international results from Bodies.

• Disruption due to management turnover. Former CEO Arnie Geller was terminated in January after losing a consent solicitation to Mark Sellers. This change follows the resignations of CEO Eskowitz and legal counsel Wainger in August 2008.

• May not retain Titanic Salvor-in-Possession rights indefinitely. While the U.S. Court of Appeals for the Fourth Circuit in 2006 recognized Premier’s exclusive right to recover objects from the Titanic site, the same court left Premier with non-exclusive rights to photograph and film the wreck site. In order for Premier to maintain Salvor-in-Possession status, it “must maintain a presence over the wreck site as interpreted by the courts.” In addition, an international treaty that does not recognize Premier’s Salvor-in-Possession rights was signed by the U.K. in 2003 and the U.S. in 2004. The treaty has yet to take effect, however, as the U.S. has not enacted implementing legislation.

• Bodies comprised 68% of revenue YTD 11/30/08. The exhibitions have several competitors. In addition, in May 2008, Premier settled an NYAG inquiry into the sourcing of specimens, allowing the company to operate Bodies without interruption.

MAJOR HOLDERS Non-Sellers insiders 3% │ Mark Sellers 16% │ Former CEO Geller 10% │ Tricadia 7% │ Morgan Stanley 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Premier’s revenue has exploded in recent years due to the success of the Bodies exhibitions. The company has misstepped recently, allowing the cost structure to get out of hand. However, with involvement by 16% holder Mark Sellers, Premier should be able to improve execution. While the company may not remain salvor-in-possession of the Titanic wreck site in the long term, it owns 2,000 recovered artifacts, appraised at $46 million but on the books for only $3 million. We value Premier at $1.50-7.50 per share, reflecting earnings uncertainty. At the low end, we ascribe zero value to the company’s ongoing business, zero value to the company’s net cash position of $6 million, and $46 million of value to the Titanic assets.


…additional insight into PRXI: WHAT ARE THE SHARES WORTH?

• We estimate value at $1.50-7.50 per share. • On the low end, we ascribe zero value to the

company’s ongoing business, zero value to the company’s net cash position of $6 million, and $46 million of value to the Titanic assets (equal to appraised value of 2,000 artifacts owned by Premier; includes neither >$100 million appraised value of additional artifacts nor the value of potential future recoveries).

• On the high end, we estimate fair value at 15x normalized earning power of $0.50 per share. While our estimate of earning power is highly subjective, we believe it is reasonably conservative considering the significant unrealized potential of the company’s new exhibitions, including Dialog, Sports Immortals and Star Trek. We note that the company achieved EPS of $0.17 in 2Q08 (quarter ended August 31, 2007) before earnings declined sharply due to poor execution. 2Q08 results were achieved based solely on the Bodies and Titanic exhibitions. With other exhibitions in the pipeline, it is conceivable the company could surpass $0.17 per quarter in the next 1-3 years (assuming strong management execution). As a result, our estimate of normalized EPS may ultimately prove conservative.

• Premier shares are difficult to value given the significant disparity between current earnings and likely earning power. With earnings highly sensitive not only to opex discipline but also to the ramp-up and execution of new exhibitions, it is impossible to project income with any certainty. However, with activist shareholder involvement and asset protection in the form of Titanic artifacts, the downside appears to be reasonably protected. As a result, we find the shares less speculative than might be assumed given the difficulty of projecting EPS.

REVENUE AND MARGIN ANALYSIS

Premier – Revenue, Gross Profit and EBIT, 1Q04-3Q09 Premier scaled up dramatically from “startup mode” in FY04, as the Titanic and Bodies exhibitions came to market. The company lost its cost discipline in 2H08, with gross and operating profits declining dramatically even as revenue remained fairly stable.

-$5mn

$0mn

$5mn

$10mn

$15mn

$20mn

1Q04 1Q05 1Q06 1Q07 1Q08 1Q09

Net Revenue Gross Profit EBIT

Source: Company, The Manual of Ideas. Premier – Y-Y Revenue Growth, 1Q05-3Q09 Premier showed explosive revenue growth without the need for significant capital investment from FY05-08. Revenue has stagnated recently, as some exhibitions have concluded while new ones have yet to ramp up. However, with Dialog, Sports Immortals and Star Trek in the pipeline — and the possibility of improved international execution of Bodies — Premier has a credible path to growth.

-50%

0%

50%

100%

150%

200%

250%

1Q05 1Q06 1Q07 1Q08 1Q09

Source: Company, The Manual of Ideas. Premier – Gross and EBIT margin, 1Q04-3Q09 Gross margins have declined in recent quarters, as the company has shifted to operating more self-run venues (six in FQ2 versus three in the year-ago period). Gross margin has declined below the company’s target for >50%. EBIT margins have deteriorated even more dramatically in recent quarters, reflecting a bloated cost structure, including extremely generous executive pay. The latter is already changing following the firing of former CEO Arnie Geller.

-50%

0%

50%

100%

1Q04 1Q05 1Q06 1Q07 1Q08 1Q09

EBIT Margin Gross Margin



WHY THE SHARES MAY BE MISPRICED • Value of Titanic assets not reflected on balance

sheet. The company’s ownership of 2,000 Titanic artifacts is reflected in a $3 million balance sheet asset even as the collection has been appraised at $46 million. In addition, the company has not reflected any value for additional artifacts that are the subject of litigation (appraised at >$100 million), nor for the potential value of future recoveries from the Titanic shipwreck site. As we approach the 100-year anniversary of the sinking of the Titanic in 2012, these assets may become even more highly prized.

• Loss of investor confidence, due to history of disappointing investor expectations and lavishing excessive pay on senior executives. Investors appear to have “written off” Premier, as the company has repeatedly ratcheted down expectations and failed to execute in line with its potential.

• Messy recent fight for control of the company. Mark Sellers successfully challenged incumbent CEO Arnie Geller for control of Premier. While we view this as a strong positive, investors may be worried that the recent management turnover and legal expense associated with the fight may have further weakened the company.

EXHIBITIONS OVERVIEW Exhibition Timeline Comments Titanic (6 current exhibitions)

Named salvor-in-possession in 1994

2,000 artifacts carried at $3 million but appraised at $46 million; seeking salvage award on 3,500 additional artifacts, appraised at >$100 million; additional value in potential future recoveries

Bodies (11 current exhibitions)

Signed deal for first exhibition in 2004

Accounted for 81% of revenue in FY08

Star Trek (1 current exhibition)

Opened in June in San Diego; looking for second venue

Exclusive rights to present exhibition worldwide; no capital investment required with 50/50 split of profits

Dialog in the Dark (1 current exhibition)

Announced in February; opened August 30 in Atlanta; second location under review

Sold out events in >20 countries in Europe, Asia, South America

Sports Immortals

Signed long-term licensing deal in March 2008; goal is to open at least one new exhibition by the end of FY09

>1 million artifacts from worlds of baseball, football, basketball, hockey, tennis, golf, Olympics

Source: Company, The Manual of Ideas. PREMIER EXHIBITIONS – SNAPSHOT OF TITANIC EXHIBITION ASSETS


Sears Holdings (Nasdaq: SHLD) Hoffman Estates, IL, 847-286-2500

Services: Retail (Department & Discount), Member of S&P 500 http://www.searsholdings.com

Trading Data Consensus EPS Estimates Valuation Price: $38.99 (as of 2/13/09) Month # of P/E FYE 2/2/08 6.8x 52-week range: $26.80 - $112.80 Latest Ago Ests P/E FYE 1/31/09 28.9x Market value: $4.8 billion This quarter $2.68 $2.68 6 P/E FYE 1/31/10 88.6x Enterprise value: $8.1 billion Next quarter -0.79 -0.77 5 P/E FYE 1/31/11 52.0x Shares out: 123.6 million FYE 1/31/09 1.35 1.35 2 EV / LTM revenue 0.2x

Ownership Data FYE 1/31/10 0.44 0.51 7 EV / LTM EBITDA 4.4x Insider ownership: 55% FYE 1/31/11 0.75 0.86 4 EV / LTM EBIT 10.5x Insider buys (last six months): 0 LT EPS growth 9.0% 10.0% 2 P / tangible book 1.0x Insider sales (last six months): 7 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 95% Date Actual Estimate LTM EBIT yield 9% # of institutional owners: 649 12/2/08 -$0.90 -$0.49 LTM pre-tax ROC 6%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 1/30/02 1/29/03 1/28/04 1/26/05 1/28/06 2/3/07 2/2/08 11/1/08 11/3/07 11/1/08 Revenue 34,180 29,352 23,253 19,843 49,455 53,016 50,703 48,564 11,622 10,660 Gross profit 5,987 4,510 5,407 4,901 13,712 15,192 14,065 13,173 3,190 2,854 EBIT (1,963) (2,674) (308) 1,821 2,123 2,529 1,586 771 51 (202) Net income (2,446) (3,219) (628) 1,106 857 1,492 826 289 4 (146) Diluted EPS (4.81) (5.47) (3.12) 11.00 6.17 9.58 5.70 2.08 0.03 (1.16) Cash from ops 879 88 1,312 1,068 2,193 1,428 1,547 863 (792) (962) Capex 1,385 252 112 230 552 508 570 560 127 118 Free cash flow (506) (164) 1,200 838 1,641 920 977 303 (919) (1,080) Cash & investments 1,245 613 2,088 3,435 4,440 3,839 1,622 1,172 1,535 1,172 Total current assets 7,841 6,102 5,811 7,541 15,207 15,267 12,802 14,347 15,370 14,347 Intangible assets 0 0 0 0 5,132 5,129 5,039 4,960 5,061 4,960 Total assets 14,183 11,238 6,074 8,651 30,573 29,906 27,397 27,954 29,780 27,954 Short-term debt 0 0 4 45 748 705 404 2,306 1,379 2,306 Total current liabilities 652 2,120 1,776 2,081 10,350 9,912 9,562 11,674 11,471 11,674 Long-term debt 2,076 1,269 450 366 3,268 2,843 2,606 2,175 2,657 2,175 Total liabilities 10,953 11,539 3,865 4,182 18,962 17,200 16,730 18,084 19,037 18,084 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 3,230 (301) 2,209 4,469 11,611 12,706 10,667 9,870 10,743 9,870 EBIT/capital employed -16% -26% -6% 81% 32% 23% 14% 6% n/m n/m



$50

$100

$150

$200

$250


BUSINESS OVERVIEW Sears Holdings is a broadline retailer with 2,300 full-line and 1,200 specialty stores in the U.S., operating through Kmart and Sears, and 380 full-line and specialty stores in Canada operating through 72%-owned Sears Canada. Seasonality is strongest in Q4, which accounts for 30-33% of revenue. Sears Holdings was formed in 2005 through the merger of Kmart and Sears, each with origins dating to the late 1800s. SELECTED OPERATING DATA


11/1/08 Stores (period end): Kmart 1,416 1,388 1,382 1,378 Sears Domestic – full-line 924 935 935 933 Sears Domestic – specialty 1,128 1,095 1,150 1,198 Sears Canada – full-line 123 123 121 122 Sears Canada – specialty 252 250 259 263 Selected growth rates: Stores – Kmart n/a -2% 0% -1% Stores – Sears Domestic n/a -1% 3% 4% Stores – Sears Canada n/a -1% 2% 2% U.S. same store sales -5% -4% -4% -8% Revenue n/m 7% -4% -6% % of revenue by segment: Kmart 39% 35% 34% 34% Sears Domestic 52% 55% 55% 55% Sears Canada1 9% 10% 11% 12% Gross margin by segment: Kmart 24% 25% 23% 23% Sears Domestic 30% 31% 30% 28% Sears Canada 32% 30% 31% 31% Total gross margin 28% 29% 28% 27% EBIT margin by segment: Kmart 4% 5% 2% -1% Sears Domestic 4% 5% 3% -1% Sears Canada 10% 5% 7% 6% Total EBIT margin 4% 5% 3% 0% D&A as % of revenue 2% 2% 2% 2% Capex as % of revenue 1% 1% 1% 1% Equity to assets (tangible) 26% 31% 25% 21% ∆ diluted shares out (avg) n/m 1% -7% -13%

1 Includes total revenue of Sears Canada (Sears Holdings owns 72%). INVESTMENT HIGHLIGHTS

• Fourth-largest U.S. broadline retailer, with leadership in home appliances. Owned brands include Kenmore, Craftsman, DieHard, Lands’ End, and Joe Boxer. The company is also the exclusive retailer of Martha Stewart Everyday products.

• Controlled by chairman Eddie Lampert, who built a track record at ESL Investments featuring annualized returns of >20% prior to seizing control of Kmart in a bankruptcy reorg process in 2003.

• 55% of company beneficially owned by Lampert and other insiders, with an additional 11% and 7% held by Fairholme and Legg Mason, respectively.

• Large real estate ownership, with carrying value not reflective of fair value. Sears owns ~800 stores with ~100 million in owned square footage.

• Guiding for FQ4 adjusted EPS of $2.44-3.09, with net income of $300-380 million. The company expects to have $600 million of cash domestically and $740 million at Sears Canada as of January 31.

• Repurchased 2.9 million shares at $41 in CQ4; $506 million remained authorized as of January 7.



• Same-store sales fell 8% in CY08, with SSS down 6% at Kmart and down 9% at Sears Domestic (no disclosure of Sears Canada SSS). December SSS fell 7% (-1% at Kmart, -13% at Sears Domestic).

• Market share losses continue despite attempts at changing store formats, rebranding locations, and improving merchandising.

• Inventory of $11 billion versus tangible book of $5 billion at November 1, exposing shareholders to the risk of obsolescence. Some have accused Sears of reluctance to mark down slow-moving inventory.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

WMT 182,520 223,670 .6x 3.6x 14x 13x HD 35,980 46,480 .6x 2.1x 12x 15x LOW 26,160 30,720 .6x 1.5x 12x 14x TGT 22,640 42,020 .6x 1.7x 10x 12x COST 18,530 18,080 .2x 2.1x 16x 14x BBY 12,550 15,280 .3x 6.4x 12x 13x KSS 11,010 13,110 .8x 1.8x 13x 15x JCP 3,500 5,380 .3x 0.7x 6x 121x SHLD 4,820 8,130 .2x 1.0x 29x 89x

MAJOR HOLDERS Chairman Eddie Lampert and affiliates 50% │ Fairholme 10% │ Legg Mason 7% │ State Street 3% │ Clearbridge 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE The value of Sears resides primarily in the owned real estate and chairman Eddie Lampert’s ability to allocate capital. Conservative investors may choose to assess the value of the retail business assuming a liquidation scenario. Even if one adopts a pessimistic view of the retail operation, Sears shares appear meaningfully undervalued. We present an analysis of the company’s retail real estate on the next page—the estimated value ranges are quite impressive and point to the significant latent value inherent in Sears. With Lampert at the helm, the assets will likely be monetized in a value-maximizing way.


…additional insight into SHLD: SUPERINVESTOR INSIGHT INTO SHLD


− “We are not looking at today’s values in the real estate market. We have come to the conclusion that we cannot snap our fingers and sell. If the value from Sears comes from its real estate holdings, then it may take a while to sell those properties.”

− “The value in Sears is in four highly valuable brands, the largest appliance retailer and servicer, and a large automobile repair operation. I am not saying that Sears cannot continue in its current business model. We are coming through the Christmas season and inventory is down, so this may be a good time for them to buy back some shares. Sears has $11 billion in inventory with $4 billion in debt, so there are many ways we can capture the value in our investment.”

• Bruce Berkowitz, conference call with investors in The Fairholme Fund, November 25, 2008:

− “At this price and with the few remaining shares outstanding, Eddie Lampert just has to keep buying stock back and the [short sellers’] game is over… I like the guy… I think his strategy is right, and I believe his strategy isn’t much different than Warren Buffett’s strategy during the Berkshire textile mill initial episode. Time will tell whether or not we’re right—and I’m excited about Sears.”

EXCERPT FROM COMPANY STATEMENT, JANUARY 8, 2009 (edited due to space constraints)

Quarter-to-date gross margin improved slightly y-y as higher margin rates at Kmart were somewhat offset by lower margin at Sears Domestic. We expect that net income for the Q ending January 31, 2009 will be $300-380 million, or $2.44-2.09 per share. Our expectation of Q4 net income and EPS excludes the potential impact, if any, of special items.

For the year ending January 31, the company expects net income of $163-243 million, or $1.27-1.90 per share, which also excludes the potential Q4 impact of special items.

In December, we repaid all borrowings under our revolving credit facility as working capital needs declined as expected (although we do expect to borrow under the revolver again in January due to the seasonal increase in working capital). We expect to end the FY with ~$1.3 billion in cash and equivalents (of which ~$600 million will be domestic and $740 million will be Sears Canada). The expected cash and cash equivalents balance indicated does not give effect to any share repurchase activity after January 7, 2009. In addition, we currently expect to end the fiscal year with ~$8.5 billion of domestic inventory, down from $9.1 billion last year, despite the addition of ~$135 million of Kmart footwear inventory. Kmart began operating its footwear department on January 1, 2009. Prior to that time, the footwear department was operated as a licensed business by another party.

ESTIMATED VALUE OF OWNED REAL ESTATE Sears Holdings owns the following real estate properties as of the end of fiscal year 2007 (February 2, 2008):

• 810 Kmart, Sears Domestic and Sears Canada stores (see detailed analysis below)

• 10 of 40 domestic supply chain distribution centers • Small minority of 573 domestic store warehouses,

customer call centers and service facilities • 200-acre headquarters in Hoffman Estates, Illinois,

consisting of six interconnected office buildings totaling two million gross square feet of office space

• 86,000 square foot building in Troy, Michigan

Ret

ail S

tore

Rea

l Est

ate

Ow

ned

By

Sear

s H

oldi

ngs:

$ in

mill

ions

,O

wne

d St

ores

(1)

Aver

age

Estim

ated

Con

cent

ratio

n of

Ret

ail

Estim

ated

Val

ue o

f Ow

ned

Ret

ail S

pace

exce

pt p

er s

q. ft

. dat

aas

% o

fSt

ore

Ow

ned

Squa

re F

oota

ge B

y St

ate

at V

ario

us A

ssum

ed P

rices

per

Sq.

Foo

t

Num

ber

Stor

esSq

. Ft.

Sq. F

t.C

AFL

PAM

IO

HTX

NY

$25

$50

$75

$100

$150

K

mar

t

Dis

coun

t sto

res

160

12%

92,0

0014

,720

,000

8%7%

7%6%

5%1%

4%$3

68$7

36$1

,104

$1,4

72$2

,208

Sup

er C

ente

rs34

62%

165,

000

5,61

0,00

02%

0%4%

13%

20%

2%2%

140

281

421

561

842

Se

ars

Dom

estic

Full-

line

mal

l sto

res

521

61%

134,

000

69,8

14,0

009%

6%5%

3%5%

7%5%

$1,7

45$3

,491

$5,2

36$6

,981

$10,

472

Ess

entia

ls/G

rand

sto

res

1824

%11

3,00

02,

034,

000

13%

13%

3%4%

3%1%

0%51

102

153

203

305

Spe

cial

ty s

tore

s (2

)61

5%45

,000

2,74

5,00

012

%2%

3%3%

4%8%

3%69

137

206

275

412

S

ears

Can

ada

Full-

line

stor

es (2

) (3)

108%

100,

000

1,00

8,00

0$2

5$5

0$7

6$1

01$1

51

Spe

cial

ty s

tore

s (2

) (3)

11%

40,0

0057

,600

13

46

9

To

tals

806

95,9

88,6

00$2

,400

$4,7

99$7

,199

$9,5

99$1

4,39

8


SEARS HOLDINGS – ADDITIONAL INFORMATION ON STORES


11/1/08 Stores (period end): Kmart 1,416 1,388 1,382 1,378 Sears U.S. – full-line 924 935 935 933 Sears U.S. – specialty 1,128 1,095 1,150 1,198 Sears Canada – full-line 123 123 121 122 Sears Canada – specialty 252 250 259 263 Total stores 3,843 3,791 3,847 3,894 Stores -- detail (period end): Kmart -- discount stores 1,327 Kmart -- Super Centers 55 Total Kmart stores 1,416 1,388 1,382 1,378 Sears U.S. -- broadline stores Full-line stores 866 861 860 858 Essentials/Grand stores 58 74 75 75 Total Sears U.S. broadline stores 924 935 935 933 Sears U.S. -- specialty stores Dealer stores 857 Sears hardware stores 111 Orchard supply hardware stores 85 The Great Indoors stores 16 Outlet stores 62 Lands' End retail stores 15 Other 4 Total Sears U.S. specialty stores 1,128 1,095 1,150 1,198 Total Sears U.S. stores 2,052 2,030 2,085 2,131 Sears Canada Full-line stores 123 123 121 122 Specialty stores Furniture and appliance stores 48 Dealer stores op. independently 163 Appliance and mattress stores 5 Corbeil stores 30 Outlet stores 13 Total specialty stores 252 250 259 263 Total full-line and specialty stores 375 373 380 385 Floor covering stores 37 Catalog pick-up locations 1,826 Travel offices 106 Total Sears Canada locations 2,349

Average store size (period end) (square feet): Kmart -- discount stores 92,000 Kmart -- Super Centers 165,000 Sears U.S. -- broadline stores Full-line stores 134,000 Essentials/Grand stores 113,000 Sears U.S. -- specialty stores Dealer stores 8,800 Sears hardware stores 40,000 Orchard supply hardware stores 40,000 The Great Indoors stores 143,000 Lands' End retail stores 8,300


SFK Pulp Fund (Toronto: SFK-UN) Recent market price: C$ 0.42 per unit OVERVIEW OF UNITS OUTSTANDING

RECENT BALANCE SHEET


BUSINESS OVERVIEW SFK Pulp Fund owns and operates three North American mills that produce pulp, a key input into paper production. SFK is organized as a Canadian flow-through entity known as an unincorporated open-ended trust or income fund. NBSK pulp operations. SFK has produced northern bleached softwood kraft (NBSK) pulp in Quebec for three decades. Production capacity is 375,000 tonnes per year. SFK acquired the mill from Abitibi for $628 million in 2002. RBK pulp operations. SFK acquired two U.S.-based recycled bleached kraft (RBK) pulp mills for $194 million in 2006 (the mills were built for $462 million in mid-1990s). The mills have an annual production capacity of 360,000 tonnes. SELECTED OPERATING DATA

FYE December 31 2005 2006 2007 YTD

9/30/08 NBSK pulp price (avg) 1 645 721 824 880 Change (y-y) 1% 12% 14% 8% % of revenue by segment: NBSK mill 100% 88% 50% 49% RBK mills 0% 12% 50% 51% Revenue growth by segment: NBSK mill -12% 16% -6% 2% RBK mills n/a n/m 555% 9% Total revenue growth -12% 32% 63% 5% EBIT margin by segment: NBSK mill 0% 4% 4% 6% RBK mills n/a 4% 5% 2% Total EBIT margin 0% 4% 4% 4% D&A as % of revenue 13% 10% 8% 7% Capex as % of revenue 4% 3% 3% 3% % of revenue by geography: Canada 42% 44% 19% 11% U.S. 28% 39% 67% 74% Europe 30% 17% 14% 15% Distributable FCF per unit 2 0.25 0.44 0.33 0.24 Distributions per unit 2 0.35 0.15 0.44 0.09 Units out – basic (avg) (mn) 59 61 89 90 Units out – diluted (avg) (mn) 59 61 89 118

1 In U.S. dollars per tonne for NBSK pulp delivered in North America. 2 In Canadian dollars per basic unit. INVESTMENT HIGHLIGHTS

• World-class NBSK pulp mill in Saint-Felicien, Quebec. The mill’s replacement cost is materially higher than the recent enterprise value of SFK. NBSK is a high-quality grade of pulp that commands premium pricing worldwide.

• Commodity provider with sources of competitive advantage: (1) transportation advantages (close to raw materials sources, access to railway network and deepwater port); (2) industry-leading efficiency at Saint-Felicien mill; (3) limited threat to NBSK from Asian producers, as NBSK pulp is available primarily in Canada, Scandinavia and Russia (Canada accounts for 50% of global production).

• SFK’s two RBK mills are unique in North America; there is one other such mill worldwide.

• Shares trade at .1x tangible book value and 7% trailing EBIT to EV yield.


• Post-3Q08 outlook: “Both demand and prices for NBSK pulp continue to face world market downward pressure. As for the RBK pulp, the impact is a similar downward pressure, in light of our market-leading position in the United States.”

• Capital-intensive business. The cost of the input commodities (wood fibre or wastepaper) accounts for 50%+ of operating costs. Other costs include labor, chemicals, maintenance of the mill, energy.

• Weak 2008 performance despite increases in NBSK pulp price. Higher raw material costs, particularly the cost of wastepaper used in the RBK pulp business, and other variable costs hurt results through 3Q08. However, results improved in 3Q08, suggesting a possible turnaround in profitability.

• Profitability highly dependent on market price of pulp and CAD/USD exchange rate. A US$10 drop in the price of NBSK pulp impacts annual earnings per unit by C$0.04. Appreciation of the Canadian dollar versus the U.S. dollar of $0.01 per dollar reduces annual earnings by C$0.03 per unit.

• No downside protection in liquidation scenario, as pulp processing equipment accounts for roughly two-thirds of assets and 100% of equity. Processing equipment would likely have little scrap value in liquidation coincident with industry-wide distress. SFK should therefore only be considered for investment under a going-concern scenario.

MAJOR HOLDERS CEO <1% │ Other insiders <1% │ Fairfax Financial 17% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE SFK Pulp Fund operates a capital-intensive, commodity business. While we typically avoid these types of businesses, we find SFK enticing because the shares have been sold off mercilessly while fundamentals have held up reasonably well and may improve in the future. SFK may be in a position to increase the monthly distribution from C$0.00 to C$0.01-0.02 in the foreseeable future, as the fund has rebuilt its required cash reserve and continues to generate sufficient free cash flow.


Sony (NYSE: SNE) Minato-Ku, TK, Japan, 813-544-8211

Consumer Cyclical: Audio & Video Equipment http://www.sony.net

Trading Data Consensus EPS Estimates Valuation Price: $18.50 (as of 2/13/09) Month # of P/E FYE 3/31/08 4.8x 52-week range: $18.09 - $52.36 Latest Ago Ests P/E FYE 3/31/09 n/m Market value: $18.6 billion This quarter -$2.10 $0.18 2 P/E FYE 3/31/10 n/m Enterprise value: $17.3 billion Next quarter -0.43 0.27 1 P/E FYE 3/31/11 n/a Shares out: 1,003.9 million FYE 3/31/09 -1.48 1.51 2 EV / LTM revenue 0.2x

Ownership Data FYE 3/31/10 -0.30 2.06 2 EV / LTM EBITDA n/a Insider ownership: 1% FYE 3/31/11 n/a n/a n/a EV / LTM EBIT 25.2x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.7x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 13% Date Actual Estimate LTM EBIT yield 4% # of institutional owners: 296 1/29/09 $0.11 $0.55 LTM pre-tax ROC 6%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 82,404 81,266 81,514 77,852 81,668 90,205 96,465 88,716 31,088 23,428 Gross profit 20,447 21,832 21,015 18,234 19,871 20,290 22,303 19,131 7,541 4,977 EBIT 1,263 1,764 896 1,198 2,420 766 3,930 686 2,566 (210) Net income 167 1,258 964 1,781 1,330 1,374 4,017 1,036 2,177 113 Diluted EPS 0.11 1.29 1.01 1.77 1.27 1.31 3.82 0.99 2.07 0.11 Cash from ops 8,020 9,284 6,879 7,035 4,348 6,101 8,239 4,177 4,433 1,186 Capex 4,225 2,993 4,647 4,931 5,029 5,736 5,160 5,413 1,139 1,350 Free cash flow 3,796 6,290 2,232 2,105 (681) 365 3,079 (1,237) 3,294 (164) Cash & investments 9,255 10,420 12,272 13,492 13,484 14,062 16,464 14,322 16,369 14,322 Total current assets 36,288 34,298 36,572 38,669 40,989 49,440 54,474 51,302 60,407 51,302 Intangible assets 5,984 5,967 5,718 5,121 5,503 5,849 6,175 8,703 6,435 8,703 Total assets 89,010 91,019 98,849 103,290 115,346 127,400 136,495 136,605 143,712 136,605 Short-term debt 3,850 1,726 5,165 2,504 3,657 1,038 3,861 5,570 5,177 5,570 Total current liabilities 27,820 26,478 32,428 30,548 34,798 38,622 43,749 46,632 48,703 46,632 Long-term debt 9,119 8,780 8,456 7,383 8,317 10,885 7,928 7,449 8,020 7,449 Total liabilities 63,235 66,217 72,991 72,079 80,508 90,748 98,816 101,856 103,454 101,856 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 25,775 24,802 25,858 31,211 34,838 36,652 37,678 34,749 40,259 34,749 EBIT/capital employed 7% 11% 7% 10% 21% 6% 32% 6% n/m n/m



$20

$40

$60

$80

$100

$120

$140

$160

$180


BUSINESS OVERVIEW Sony operates in five major segments: Electronics provides audio-visual, informational and communicative equipment, instruments and devices. Game provides PlayStation game consoles and software. Pictures produces and distributes film and TV programming. Financial Services represents insurance businesses, leasing and credit financing businesses and a bank business in Japan. Other includes a music business, a network service business, an animation business, and an advertising agency. SELECTED OPERATING DATA

FYE March 31 2006 2007 2008 YTD

12/31/08 % of revenue by segment: Audio 7% 6% 6% 6% Video1 14% 14% 14% 14% Televisions 12% 15% 15% 17% Info and communications 11% 11% 12% 12% Components 11% 10% 10% 9% Semiconductors and other 9% 9% 9% 8% Electronics 64% 66% 67% 65% Game 12% 12% 14% 14% Pictures 10% 12% 10% 8% Financial services and other 14% 11% 10% 12% Revenue growth by segment: Audio -6% -2% 7% -16% Video1 -1% 12% 12% -15% Televisions 1% 32% 11% 0% Info and communications 3% 13% 16% -9% Components 7% 7% -1% -13% Semiconductors and other -11% 14% 5% -15% Electronics -1% 14% 9% -11% Game 31% 6% 25% -13% Pictures 2% 30% -11% -18% Financial services and other 15% -14% -5% 2% Total revenue growth 4% 10% 7% -10% EBIT margin by segment: Electronics 0% 3% 6% 3% Game 1% -24% -10% -4% Pictures 4% 4% 6% 3% Financial services 26% 13% 4% -8% Total EBIT margin 3% 1% 4% 1% D&A as % of revenue 5% 5% 5% 5% Capex as % of revenue 5% 5% 4% 6% % of revenue by geography: Japan 29% 26% 23% 23% U.S. 26% 27% 25% 24% Europe 23% 25% 26% 26% Other 22% 23% 26% 27% ROE 4% 4% 11% 2% Equity as % of total assets 30% 29% 28% 25% ∆ shares outstanding (avg) 7% 0% 0% 0%

1 Includes digital cameras, video cameras, and DVD recorders and players. INVESTMENT HIGHLIGHTS

• Global consumer electronics leader, with one of the world’s most widely recognized brand names.

• Leader in game consoles. PlayStation competes against Microsoft’s Xbox and Nintendo’s Wii.

• Game segment has untapped profit potential. PlayStation is still losing money but could become meaningful positive contributor over time.

• Participates in mobile phone and recorded music businesses through 50-50 joint ventures with Ericsson and Bertelsmann, respectively. Both JVs are accounted for under the equity method.

• Shares trade at 19x trailing P/E (forward loss projected) and .7x tangible book value.


• Guiding for revenue decline of 13% and net loss of ¥150 billion in current fiscal year, substantially lower than management’s prior guidance for revenue to rise 1% and EBIT to decline 58% but to remain positive. Meanwhile, capex is expected to increase 13% and to approximate D&A in FY08.

• Recent results impacted by strong yen, pricing pressure, elevated SG&A, and weak affiliate results.

• Equity affiliates in red. Sony Ericsson and Sony BMG have been losing money since 2Q08. The mobile phone business continues to suffer price declines despite adverse cost trends, offsetting the positive effect of new product introductions.

• Dilution of focus through life insurance and other financial services business. The company may be better off divesting non-core operations and focusing on the core electronics and game segments.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

PC 23,990 19,680 .2x .8x 10x 11x PHG 17,590 18,280 .5x 3.0x 12x n/a SHCAY 8,810 13,220 .4x .8x n/m n/m SNE 18,570 17,270 .2x .7x n/m n/m

MAJOR HOLDERS Non-Japanese holders 50% │ Japanese holders 50% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE We view Sony as one of Japan’s highest-quality enterprises, based on leadership and brand ubiquity in several industries with attractive long-term growth prospects, including consumer electronics, game consoles (PlayStation), motion pictures, recorded music, and mobile phones. With shares trading roughly on par with tangible book value, Sony shares appear quite attractive. We would find the company even more compelling, however, if it took steps to dispose of non-core businesses, including insurance and banking businesses that generate little income but bloat the balance sheet with large liabilities.


Travelzoo (Nasdaq: TZOO) New York, NY, 212-484-4900

Technology: Computer Services http://www.travelzoo.com/select

Trading Data Consensus EPS Estimates Valuation Price: $5.40 (as of 2/13/09) Month # of P/E FYE 12/31/08 n/m 52-week range: $3.72 - $13.26 Latest Ago Ests P/E FYE 12/31/09 n/m Market value: $77 million This quarter -$0.05 -$0.03 2 P/E FYE 12/31/10 n/m Enterprise value: $63 million Next quarter -0.03 -0.01 2 P/E FYE 12/31/11 n/a Shares out: 14.3 million FYE 12/31/09 -0.13 -0.06 2 EV / LTM revenue 0.8x

Ownership Data FYE 12/31/10 -0.03 n/a 2 EV / LTM EBITDA n/a Insider ownership: 45% FYE 12/31/11 n/a n/a n/a EV / LTM EBIT 20.2x Insider buys (last six months): 115 LT EPS growth n/a n/a n/a P / tangible book 3.7x Insider sales (last six months): 1 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 28% Date Actual Estimate LTM EBIT yield 5% # of institutional owners: 71 2/3/09 -$0.01 -$0.12 LTM pre-tax ROC 54%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 10 18 34 51 70 79 81 81 19 20 Gross profit 9 18 33 50 69 78 78 78 19 19 EBIT 1 4 11 15 30 21 3 3 2 1 Net income 1 2 6 8 17 9 (4) (4) 0 (0) Diluted EPS 0.04 0.10 0.33 0.45 1.01 0.57 (0.29) (0.29) 0.00 (0.01) Cash from ops 1 2 5 8 17 10 (3) (3) (0) (1) Capex 0 0 10 0 0 1 4 4 0 1 Free cash flow 1 2 (6) 8 17 9 (7) (7) (1) (1) Cash & investments 1 4 37 44 34 23 14 14 23 14 Total current assets 3 6 43 55 43 36 30 30 36 30 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 3 7 43 56 44 37 36 36 37 36 Short-term debt 0 0 0 0 0 0 0 0 0 0 Total current liabilities 1 3 3 7 7 10 12 12 10 12 Long-term debt 0 0 0 0 0 0 0 0 0 0 Total liabilities 1 3 3 7 7 11 15 15 11 15 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 2 4 40 49 37 26 21 21 26 21 EBIT/capital employed >100% >100% >100% >100% >100% >100% 54% 54% n/m n/m



$0

$20

$40

$60

$80

$100

$120

c


BUSINESS OVERVIEW Travelzoo’s free Internet media properties reach 12 million consumers in the U.S., Europe and Asia. The properties include the Travelzoo website, the Top 20 list of weekly deals, email alerts, and a travel search engine. Travelzoo publishes offers from 900 advertisers, with Travelzoo deal experts reviewing offers to find the best travel deals. SELECTED OPERATING DATA

FYE December 31

2005

2006

2007 2008

Unpaid subscribers by geography (mn) (period end): North America 9.4 10.2 11.0 11.3 Europe 0.3 0.7 1.4 2.2 Asia Pacific -- -- 0.2 1.1 Unpaid subscriber growth by geography (mn) (period end): North America 15% 9% 8% 3% Europe n/m 120% 111% 61% Asia Pacific n/m n/m n/m 417% ∆ total subscribers 19% 12% 16% 16% ∆ total revenue 51% 37% 14% 3% Average subscriber acquisition cost ($): North America 2.66 2.10 3.16 4.031 Europe 1.86 2.17 4.04 4.441 Asia Pacific n/a n/a 2.88 2.981 % of revenue by geography: North America 99% 95% 93% 88% Europe 1% 5% 7% 12% Asia Pacific 0% 0% 0% 1% EBIT margin by geography: North America 32% 47% 40% 30% Europe -148% -49% -89% -82% Asia Pacific n/a n/a n/m n/m Total EBIT margin 29% 43% 26% 4% % of revenue by customer: Travelport 12% 16% 15% 15%1 Expedia <10% 14% 11% 11%1 Sabre 15% <10% <10% <10%1

1 Represents YTD data through September 30, 2008.


• $1.3 billion in newspaper advertising by travel companies is moving to Internet. Travelzoo is well-positioned to benefit from this transition. The company’s revenue increased from $18 million in 2003 to $79 million in 2007, a 34% CAGR.

• Profitable, non-capital-intensive U.S. business. Travelzoo generated EBIT of $21 million in North America in 2008 while employing minimal capital.

• Large global opportunity. Travelzoo is attempting to replicate worldwide the success it has had in the U.S. Travelzoo entered the U.K. in 2005; Canada, Germany and Spain in 2006; Australia, China, France, Hong Kong, Japan, and Taiwan in 2007.

• Founded and managed by Bartel brothers. Chairman Ralph Bartel (42) founded Travelzoo in 1998 and served as CEO until September 2008 when Holger Bartel (41) assumed the role. Previously, Holger oversaw Travelzoo’s operations in North America and worked at McKinsey.

• Repurchased 1 million shares for $20 million in 2007, and 1 million shares for $29 million in 2006. Travelzoo did not repurchase shares in 2008.

• Material insider buying above current price. INVESTMENT RISKS & CONCERNS

• Global expansion may not work. Travelzoo is losing money overseas as it attempts to scale. The company’s model may not succeed abroad.

• North America EBIT margin has declined from 47% in 2006 to 40% in 2007 and 30% in 2008.

• Dependent on ad revenue. Travelzoo may suffer if travel declines due to economic weakness, high oil prices, terrorist threats or other factors.

• High ROIC has attracted new entrants, while Google AdWords has lowered barriers to entry. Sherman’s Travel is the #2 travel deals email distribution company, with four million subscribers.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

MSFT 169,721 151,006 2.4x 8.4x 11x 10x GOOG 112,581 96,736 4.4x 5.0x 17x 15x YHOO 17,794 14,342 2.0x 2.4x 34x 29x PCLN 2,949 2,964 1.6x 18.3x 13x 12x EXPE 2,631 3,116 1.0x n/m 7x 8x OWW 279 796 .9x n/m n/m n/m TZOO 77 63 .8x 3.7x n/m n/m

MAJOR HOLDERS Ralph Bartel 60% │ Holger Bartel 1% │ Other insiders <1% │ JP Morgan 12% │ Dimensional 2% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Travelzoo is a good business run by capable insiders who have loaded up on shares this year. The market values Travelzoo’s international startup operations materially below zero even though the company has a proven model and management knows Europe well (founder Ralph Bartel was educated in Germany and Switzerland). The downside appears limited as the Bartel brothers are heavily incentivized to create shareholder value. If international operations do not achieve desired profitability, management may shut them down and sell the U.S. business to a competitor such as Priceline.com. We value Travelzoo at $18 per share, based on a probability-weighted scenario analysis that includes estimated ranges of annualized EBIT for North America and the rest of the world.


…additional insight into TZOO: WHAT ARE THE SHARES WORTH?

• We value Travelzoo at $18 per share, based on a probability-weighted scenario analysis that includes estimated ranges of annualized EBIT for North America and the rest of the world.

• Normalized EBIT for North America and rest of the world (ROW) are key valuation drivers. As Travelzoo generates strong EBIT in North America while investing heavily in global expansion, we value the company on a sum-of-the-parts basis. Travelzoo is a non-capital-intensive business with few excess assets, and the value of the enterprise depends on profit generation. While Travelzoo’s 12 million-strong subscriber base and brand name may have strategic value to an acquirer, we have not used M&A transaction multiples in our analysis, as such a valuation might be too speculative.

• In North America, our most likely scenario (50% probability) has Travelzoo roughly maintaining normalized EBIT at approximately $20 million per year. We assign a fair value multiple of 10x in such a scenario. If EBIT declines, we anticipate multiple contraction due to likely business model concerns. If EBIT increases, we anticipate multiple expansion due to likely renewed optimism regarding growth. Our analysis conservatively assumes that EBIT deterioration is more likely than EBIT growth.

• In the rest of the world, our most likely scenario (40% probability) has Travelzoo earning normalized EBIT of $10 million, less than half the current North American EBIT run rate. This may be a fairly conservative assumption, as we see little reason why Travelzoo’s international business, particularly in Europe, could not emulate the success achieved in the U.S. We have assigned a 5% probability to the scenario that Travelzoo continues to suffer an annualized operating loss of roughly $20 million internationally. The company is highly likely to take decisive action to eliminate the operating loss even if international growth does not materialize, as the Bartel brothers own ~60% of Travelzoo shares.

WHY THE SHARES MAY BE MISPRICED

• Steady-state EBIT materially understated. Startup losses in Europe and Asia mask continued strong U.S. profitability.

• High taxes lower net income yield. As U.S. income is fully taxed and foreign losses generate no current tax benefit, effective tax rate is temporarily elevated, lowering the after-tax earnings yield.

Estimated Enterprise Value (based on various scenarios of normalized EBIT) ($ in millions)

North America EBIT ROW EV/EBIT $10 $15 $20 $25 $30 EBIT Multiple 5x 8x 10x 11x 12x -$20 5x -$50 $20 $100 $175 $260 -$10 5x $0 $70 $150 $225 $310

$0 n/m $50 $120 $200 $275 $360 $10 10x $150 $220 $300 $375 $460 $20 12x $290 $360 $440 $515 $600

Probability-Weighted Enterprise Value (sum of probability-weighted contributions of scenarios) ($ in millions)

North America EBIT ROW $10 $20 $25 $30 $40 EBIT Probability 6% 25% 50% 15% 4% -$20 5% $0 $0 $3 $1 $1 -$10 10% $0 $2 $8 $3 $1

$0 25% $1 $8 $25 $10 $4 $10 40% $4 $22 $60 $23 $7 $20 20% $3 $18 $44 $15 $5

Probability-weighted enterprise value: $267 million

Estimated Equity Value per Share ($ and shares in millions, except per share data)

Probability-weighted enterprise value $267 Net cash $14

Estimated equity value $281 Shares outstanding 15.5 Estimated equity value per share $18.12

COMMENTS ON BUSINESS MODEL

• Travelzoo employs virtually no capital in running the business. The company has no inventory cost, as its services are entirely web-based. No elaborate infrastructure is required to create the services, resulting in minimal PP&E investment. The only major input is the time and effort of Travelzoo employees, yet the company does not depend on specific employees to maintain current operations (we do believe that the services of the Bartel brothers are crucial to growing value over time). Enterprise value is embedded primarily in the Travelzoo consumer brand, an online distribution channel (including email), and a 12 million-strong subscriber base. With this infrastructure in place, Travelzoo can maintain current operations at low cost, creating a quasi-recurring business model.


• Per-employee performance metrics are quite impressive, as the following table shows. Per-employee results have declined primarily due to the startup of international operations. The company could boost per-employee performance substantially if it opted to maintain rather than grow operations. However, we believe investment in new country-specific Travelzoo websites will earn favorable risk-adjusted returns for shareholders.

($’000) 2005 2006 2007 2008 Revenue per employee 853 915 660 447 N.A. EBIT per employee 269 412 242 116 EBIT per employee 250 391 173 17

• Advertiser-supported model, while highly

profitable, creates perceived and real conflicts of interest. Travelzoo makes money not from the consumers who rely on its media properties, but from travel companies who pay for inclusion in the company’s Top 20 list and other properties. While Travelzoo claims that Top 20 deals are selected exclusively based on merit, there is a perceived and real risk that editorial decisions may be influenced by advertising revenue prospects. Most consumers appear to be unaware that Travelzoo relies heavily on payments for deals included in the Top 20. However, it is conceivable that existing competitors or new entrants could expose this fact over time, perhaps lessening the consumer appeal of Travelzoo’s media properties.

• Top 20 list may be less scalable than it appears. The Travelzoo model appears almost infinitely scalable: once the Top 20 list is created, there is no marginal cost of emailing the list to incremental subscribers (leaving aside the cost of subscriber acquisition). However, the model contains a limit to scalability: Consumers must be able to book the deals presented on the Top 20 list; if too many consumers subscribe, too few may be able to benefit from the deals presented. This may force the company to forgo deals with low capacity in favor of large-scale but potentially less-favorable deals. For example, as the Top 20 list has grown to more than 10 million subscribers in the U.S., the company has been forced to limit small deals on the list. As the deals get bigger in terms of capacity, however, they may become less appealing. This dynamic puts a natural limit on the size of the Top 20 subscriber base in each country. An interesting way in which the company appears to be trying to address this is by customizing the Top 20 list for different types of subscribers (e.g., by residence location or travel preference). This customization happens largely behind the scenes, with users not explicitly asked to state their preferences. Of course, the (potential) existence of customized Top 20 lists means that an aggregate of more than 20 deals are selected each week, which may in turn dilute the quality of deals.

• A corollary of the previous point is that Travelzoo is in a strong position to grow new-country Top 20 lists from a low base. As the company launches new Top 20 lists, it has the luxury of including deals without much regard for capacity. As a result, the quality of the deals in startup countries may be higher than the quality of deals presented in the U.S. This quality advantage may make it easier for Travelzoo to grow by word of mouth in new countries, potentially helping to keep subscriber acquisition costs low. As a result, investors may overestimate the difficulty Travelzoo will encounter in scaling up new markets.

TRAVELZOO – SUBSCRIBERS TO FREE NEWSLETTERS

Subscriber Subscribers ('000) Acquisition At Cost New Lost Q-End

North America Q1 2005 $2.59 659 476 8,329 Q2 2005 $2.62 807 533 8,603 Q3 2005 $3.19 741 423 8,921 Q4 2005 $2.41 729 273 9,377 Q1 2006 $2.54 715 318 9,774 Q2 2006 $2.11 738 533 9,979 Q3 2006 $1.86 492 327 10,143 Q4 2006 $1.56 374 289 10,227 Q1 2007 $2.61 730 346 10,612 Q2 2007 $3.03 552 335 10,829 Q3 2007 $3.92 385 255 10,959 Q4 2007 $3.78 280 243 10,996 Q1 2008 $4.97 297 270 11,022 Q2 2008 $3.39 349 304 11,067 Q3 2008 $3.73 361 292 11,136 Europe Q3 2005 $1.65 128 6 140 Q4 2005 $2.02 175 17 298 Q1 2006 $2.15 144 17 425 Q2 2006 $2.69 129 34 520 Q3 2006 $1.23 127 30 617 Q4 2006 $2.94 69 31 655 Q1 2007 $3.89 159 31 783 Q2 2007 $4.43 206 40 950 Q3 2007 $2.96 332 33 1,249 Q4 2007 $5.85 166 33 1,381 Q1 2008 $3.90 362 45 1,699 Q2 2008 $4.89 226 31 1,894 Q3 2008 $4.52 254 38 2,109 Asia Pacific Q2 2007 $2.46 1 0 1 Q3 2007 $2.23 42 0 43 Q4 2007 $2.90 180 9 214 Q1 2008 $3.12 393 26 582 Q2 2008 $3.37 369 38 913 Q3 2008 $2.46 194 44 1,064



Candidates—Special Situations

We present the following companies:

Dr Pepper Snapple (NYSE: DPS)

EMC (NYSE: EMC)

KHD Humboldt Wedag (NYSE: KHD)

PRIMEDIA (NYSE: PRM)

Target (NYSE: TGT)

Visa (NYSE: V)

Yahoo! (Nasdaq: YHOO)


Dr Pepper Snapple (NYSE: DPS) Plano, TX, 972-673-7000

Consumer Non-Cyclical: Beverages (Non-Alcoholic), Member of S&P 500 http://www.drpeppersnapplegroup.com

Trading Data Consensus EPS Estimates Valuation Price: $16.60 (as of 2/13/09) Month # of P/E FYE 12/31/07 8.5x 52-week range: $13.45 - $30.00 Latest Ago Ests P/E FYE 12/31/08 9.1x Market value: $4.2 billion This quarter $0.37 $0.38 5 P/E FYE 12/31/09 10.1x Enterprise value: $7.6 billion Next quarter 0.31 0.33 4 P/E FYE 12/31/10 9.4x Shares out: 253.7 million FYE 12/31/08 1.82 1.83 6 EV / LTM revenue 1.3x

Ownership Data FYE 12/31/09 1.64 1.69 6 EV / LTM EBITDA 7.2x Insider ownership: 1% FYE 12/31/10 1.77 1.84 5 EV / LTM EBIT 8.1x Insider buys (last six months): 1 LT EPS growth 4.5% 4.5% 2 P / tangible book n/m Insider sales (last six months): 1 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 95% Date Actual Estimate LTM EBIT yield 12% # of institutional owners: 687 11/13/08 $0.45 $0.51 LTM pre-tax ROC 72%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 1/0/00 1/2/05 1/1/06 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 0 3,065 3,205 4,735 5,748 5,770 1,535 1,505 Gross profit 0 2,014 2,085 2,741 3,131 3,134 816 785 EBIT 0 834 906 1,018 1,004 941 288 213 Net income 0 446 477 510 497 447 154 106 Diluted EPS 0.00 1.76 1.92 2.01 1.96 1.76 0.61 0.42 Cash from ops n/a 610 583 581 603 420 469 245 Capex n/a 71 44 158 230 310 43 61 Free cash flow n/a 539 539 423 373 110 426 184 Cash & investments n/a n/a 28 35 67 239 28 239 Total current assets n/a n/a 1,331 1,632 2,739 1,338 1,742 1,338 Intangible assets n/a n/a 5,393 6,831 6,800 6,765 6,824 6,765 Total assets n/a n/a 7,433 9,346 10,528 9,822 9,468 9,822 Short-term debt n/a n/a 404 708 126 35 299 35 Total current liabilities n/a n/a 1,136 1,691 1,135 903 1,350 903 Long-term debt n/a n/a 2,858 3,084 2,912 3,587 3,408 3,587 Total liabilities n/a n/a 5,007 6,096 5,507 6,492 6,154 6,492 Preferred stock n/a n/a 0 0 0 0 0 0 Common equity n/a n/a 2,426 3,250 5,021 3,330 3,314 3,330 EBIT/capital employed n/a n/a >100% 90% 51% 72% n/m n/m



$5

$10

$15

$20

$25

$30

$35


BUSINESS OVERVIEW Dr Pepper Snapple is an integrated brand owner, bottler and distributor of non-alcoholic beverages in North America with a portfolio of flavored (non-cola) carbonated soft drinks (CSDs) and non-carbonated soft drinks (non-CSDs), including ready-to-drink teas, juices, juice drinks and mixers. Brands include Dr Pepper, Snapple, 7up, Mott’s, Sunkist, Hawaiian Punch, A&W, Canada Dry, and Schweppes. The company was spun off from Cadbury in April 2008. DPS has made a series of acquisitions starting in the 1980s, including Dr Pepper/Seven Up in 1995, Snapple in 2000 and DPS’s largest independent bottler in 1999 and 2006/07. SELECTED OPERATING DATA

FYE December 31 2006 2007 2008 % of revenue by segment: Beverage concentrates 25% 21% Finished goods 29% 24% Bottling 38% 49% Mexico and Caribbean 8% 6% Revenue growth by segment: Beverage concentrates 2% 1% Finished goods 0% 3% Bottling 730% 57% Mexico and Caribbean 15% 2% Total revenue growth 48% 21% Pre-tax margin by segment: Beverage concentrates 53% 54% Finished goods 11% 11% Bottling 6% 4% Mexico and Caribbean 25% 24% Corporate and eliminations -7% -5% Total pre-tax margin 17% 14% Selected items as % of revenue: Net income 11% 9% EBITDA 24% 20% D&A 3% 3% Capex 3% 4% ROE 1 18% 12% Equity to total assets (avg) 1 34% 42%

1 The company has negative tangible book value, rendering these ratios meaningless if tangible equity is considered instead of total equity. INVESTMENT HIGHLIGHTS

• #3 North American liquid refreshment beverage business, behind Coca-Cola and Pepsi.

• #1 non-cola CSD company in U.S. Owned non-alcoholic beverage brands are leaders in their categories, with significant consumer awareness and long histories that evoke strong emotional connections with consumers in North America.

• Company-owned distribution covers 2/3 of U.S. • CEO Larry Young (53) has been with the

company’s predecessors since 2006. He served as COO of Pepsi-Cola Bottlers from 1997-2005.

• Growing Snapple in ready-to-drink tea market, with 4Q08 rollout of mainstream flavors/packaging.

Market Volume Mix Retail $ Snapple Share Super Prem. 2% $0.3bn 59% Premium 22% $2.0bn 51% Mainstream 76% $3.5bn “minimal”

Source: Company, MOI.

• Targeting long-term revenue growth of 3-5% and high single-digit EPS growth. Growth drivers include price/mix, premium innovation, distribution gains, and cold drink equipment. Earnings drivers include operating efficiencies, “below-the-line” leverage and abatement of commodity headwinds.

• Applying FCF to debt repayment; considering bolt-on M&A; to maintain investment-grade rating.



• 2009: “challenging year for the industry and for us” • Lost Monster distribution deal in October, which

generated run-rate EBIT of $40 million in 2008. • Owns distribution business, a capital intensive and

lower-return business (accounts for 1/3 of volume). • Competitors include Coca-Cola and Pepsi and

alternatives targeting health-conscious consumers. • Volatility of input costs, which include aluminum

cans, glass bottles, PET bottles, and paperboard. COMPARABLE PUBLIC COMPANY ANALYSIS

Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

KO 101,380 105,710 3.3x 12.7x 14x 13x PEP 81,640 87,590 2.0x 15.9x 14x 14x HANS 3,260 2,990 2.9x 6.7x 20x 17x FIZZ 420 360 .6x 2.9x 18x 18x DPS 4,210 7,590 1.3x n/m 9x 10x

MAJOR HOLDERS Franklin 10% │ Trian 7% │ Pershing Square 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Dr Pepper Snapple owns some of the best carbonated soft drink brands in the U.S. Unlike industry leader Coca-Cola, Dr Pepper Snapple combines a non-capital intensive, highly profitable beverage concentrates business with a capital-intensive, low-margin bottling business. This integrated structure and the fact that the company has existed as a stand-alone public entity for less than a year, may have caused some investor neglect. The shares are cheap based on forward consensus EPS, and the company appears to have several levers for improving performance. However, the balance sheet is leveraged and tangible book value is negative. As a result, any operational missteps would be disproportionately felt by equity holders.


…additional insight into DPS: COMPANY HISTORY1 The history includes the birth of the soft drink in 1783, when Jean Jacob Schweppe perfected the process for carbonating water and created the world’s first carbonated mineral water.

Charles Alderton, a young pharmacist in Waco, Texas, invented Dr Pepper in 1885. It was served at the drug store where Alderton worked and the first Dr Pepper fans asked for a “Waco.” The oldest soft drink in the U.S., it was later named Dr Pepper, according to legend, after Dr. Charles Pepper, a friend of the drug store owner.

Nearly 100 years later, three New York-area health food storeowners created a unique apple soda they named Snapple. They began selling the original Snapple in health clubs in 1973. Throughout the 1970s, the company that owned Snapple was known as The Unadulterated Food Corporation, later becoming Snapple Beverage Corp.

Cadbury Schweppes was formed in 1969 with the merger of Cadbury and Schweppes, and over the ensuing three decades the company amassed the third largest share of the North American beverage market through a series of acquisitions.

In 1982, Cadbury acquired the Duffy-Mott Company (later known as Mott’s), one of the largest apple juice processors in the world. Through the rest of the 1980s, the company added Canada Dry, Sunkist Soda, Crush and Sun Drop.

A&W Brands, which included the signature root beer, as well as Squirt and Vernors, joined the portfolio in 1993.

In 1995, Cadbury purchased Dr Pepper/Seven Up, Inc. The deal brought Dr Pepper and 7UP into the Cadbury family, as well as IBC Root Beer and the Welch’s soft drinks.

In 2000, Cadbury Schweppes acquired Snapple Beverage Group, which included the namesake brand as well as RC Cola, Diet Rite and Stewart’s, among others.

In 2003, the four North American beverage companies under Cadbury Schweppes – Dr Pepper/Seven Up, Inc., Snapple Beverage Corp., Mott’s, and Bebidas Mexico – were unified under a common vision, strategy and management structure to become Cadbury Schweppes Americas Beverages.

The company established its own bottling and distribution network in 2006, when it acquired Dr Pepper/Seven Up Bottling Group, the largest independent bottler in the U.S. Subsequently, it acquired several other major independent bottling and distributing businesses, including All-American Bottling Co., 7UP Bottling Co. of San Francisco, and Southeast-Atlantic Beverage Corp., among others. Adding to its finished goods (juices, teas, mixers) manufacturing footprint, the bottler acquisitions have given DPS control of nearly half of its overall volume and direct access to a substantial majority of the U.S. population. 1 Adopted from company website and edited.

DPS — INDUSTRY POSITIONING AND DIFFERENTIATORS

• CSD industry has traditionally employed a licensing model, with brand owners granting licenses to bottlers. This structure separates brand management and the production of beverage concentrates from the capital-intensive business of producing, bottling and distributing beverages.

• Non-CSDs industry has traditionally seen brand owners producing finished beverages, which are sold to distributors and retailers.

Traditional Structure of CSD and non-CSD Industries

Source: Company.

• U.S. bottling industry consists of four systems: − The Coca-Cola affiliated system includes Coca-Cola

Enterprises and Coca-Cola Bottling, both of which are partially-owned by KO, and independent bottlers. The system primarily makes Coke-branded products. However, Coca-Cola Enterprises is also the #1 bottler of Dr Pepper.

− The PepsiCo affiliated system includes Pepsi Bottling Group, PepsiAmericas and Pepsi Bottling Ventures, which are partially-owned by PepsiCo, and independent bottlers. The system primarily makes Pepsi-branded products. However, Pepsi Bottling Group is also the #3 bottler of Dr Pepper.

− The DPS system consists of DPS’s Bottling Group segment, which is the #1 bottler of DPS products and the #2 Dr Pepper bottler.

− The independent bottler system includes smaller independent bottlers that are not part of the other three systems. The independent system is primarily involved with the bottling of DPS brands.

• CSD industry maturation has prompted brand

owners to diversify into non-CSDs, causing brand owners to produce a larger portion of beverages themselves than they had done in the past.


DPS — BRANDS1

• #1 in flavor category and #2 overall flavored CSD in U.S.

• Distinguished by unique blend of 23 flavors and loyal consumer following

• Flavors include regular, diet and “Soda Fountain Classics” line extensions

• Oldest major soft drink in U.S., introduced in 1885

• A leading ready-to-drink tea in U.S.

• Teas include premium Snapple teas and super premium white, green, red and black teas

• Brand also includes premium juices, juice drinks and recently launched enhanced waters

• Founded in Brooklyn in 1972

• #2 lemon-lime CSD in U.S. • Re-launched in 2006 as the only

major lemon-lime CSD with all-natural flavors and no artificial preservatives

• Flavors include regular, diet and cherry

• The original “Un-Cola,” created in 1929

• #1 apple juice and #1 apple sauce brand in U.S.

• Juice products include apple and other fruit juices, Mott’s Plus and Mott’s for Tots

• Apple sauce products include regular, unsweetened, flavored and organic

• Brand began as a line of apple cider and vinegar offerings in 1842

• #1 orange CSD in U.S. • Flavors include orange, diet and

other fruits • Licensed to us as a soft drink by

the Sunkist Growers Association since 1986

• #1 root beer in U.S. • Flavors include regular and diet

root beer and cream soda • A classic all-American soda first

sold at a veteran’s parade in 1919

• #1 fruit punch brand in U.S. • Brand includes a variety of fruit

flavored and reduced calorie juice drinks

• Developed originally as an ice cream topping known as “Leo’s Hawaiian Punch” in 1934

• #1 ginger ale in U.S. and Canada • Brand includes club soda, tonic

and other mixers • Created in Toronto in 1904 and

introduced in U.S. in 1919

• #2 ginger ale in U.S. and Canada • Brand includes club soda, tonic

and other mixers • First carbonated beverage in the

world, invented in 1783

• #1 grapefruit CSD in U.S. and #2 grapefruit CSD in Mexico

• Flavors include regular, diet and ruby red

• Founded in 1938

• A leading spicy tomato juice brand in U.S., Canada and Mexico

• Key ingredient in Canada’s popular cocktail, the Bloody Caesar

• Created in 1969

• #1 carbonated mineral water brand in Mexico

• Brand includes Flavors, Twist and Naturel

• Mexico’s oldest mineral water, founded in 1928

• #1 portfolio of mixer brands in U.S.

• #1 mixer brand (Mr & Mrs T) in U.S.

• Leading mixers (Margaritaville and Rose’s) in their flavor categories

1 Source: Company, The Manual of Ideas.


EMC (NYSE: EMC) Hopkinton, MA, 508-435-1000

Technology: Computer Storage Devices, Member of S&P 500 http://www.emc.com

Trading Data Consensus EPS Estimates Valuation Price: $12.06 (as of 2/13/09) Month # of P/E FYE 12/31/08 18.8x 52-week range: $8.25 - $18.50 Latest Ago Ests P/E FYE 12/31/09 13.3x Market value: $24.3 billion This quarter $0.18 $0.15 17 P/E FYE 12/31/10 11.7x Enterprise value: $20.9 billion Next quarter 0.20 0.18 17 P/E FYE 12/31/11 n/a Shares out: 2,012.9 million FYE 12/31/09 0.91 0.79 17 EV / LTM revenue 1.4x

Ownership Data FYE 12/31/10 1.03 0.89 14 EV / LTM EBITDA n/a Insider ownership: 0% FYE 12/31/11 n/a n/a n/a EV / LTM EBIT 13.3x Insider buys (last six months): 0 LT EPS growth 12.4% 11.6% 7 P / tangible book 4.7x Insider sales (last six months): 6 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 77% Date Actual Estimate LTM EBIT yield 7% # of institutional owners: 1785 1/27/09 $0.24 $0.23 LTM pre-tax ROC >100%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 5,438 6,237 8,230 9,664 11,155 13,230 14,876 14,876 3,831 4,017 Gross profit 2,057 2,842 4,215 5,193 5,913 7,211 8,222 8,222 2,119 2,226 EBIT (503) 401 1,044 1,481 1,208 1,739 1,569 1,569 552 333 Net income (119) 496 871 1,133 1,228 1,666 1,346 1,346 526 288 Diluted EPS (0.05) 0.22 0.36 0.47 0.54 0.77 0.64 0.65 0.24 0.14 Cash from ops 1,446 1,521 2,102 2,216 2,140 3,127 3,565 3,565 979 1,067 Capex 518 482 538 768 911 931 991 991 266 291 Free cash flow 928 1,039 1,565 1,448 1,229 2,196 2,574 2,574 712 775 Cash & investments 2,551 2,798 2,714 3,938 3,350 6,127 6,807 6,807 6,127 6,807 Total current assets 4,217 4,687 4,831 6,574 6,521 10,053 10,665 10,665 10,053 10,665 Intangible assets 275 3,187 3,784 4,447 7,021 7,472 7,842 7,842 7,472 7,842 Total assets 9,590 14,093 15,423 16,790 18,566 22,285 23,875 23,875 22,285 23,875 Short-term debt 28 7 0 0 0 0 0 0 0 0 Total current liabilities 2,042 2,547 2,949 3,674 3,662 4,408 5,218 5,218 4,408 5,218 Long-term debt 0 130 129 127 3,450 3,450 3,450 3,450 3,450 3,450 Total liabilities 2,364 3,208 3,900 4,725 8,241 9,763 10,833 10,833 9,763 10,833 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 7,226 10,885 11,523 12,065 10,326 12,521 13,042 13,042 12,521 13,042 EBIT/capital employed -39% 36% >100% >100% >100% >100% >100% >100% n/m n/m



$0

$20

$40

$60

$80

$100

$120


BUSINESS OVERVIEW EMC provides data storage hardware, software and services. Information Infrastructure helps customers store and protect electronic data. It consists of three segments: storage, content management and archiving, and RSA Security. Virtual Infrastructure includes EMC’s 84% stake in VMware (NYSE: VMW), the leader in virtualization software. INVESTMENT HIGHLIGHTS

• Leading data storage provider, selling hardware, software and services. While sales of Symmetrix and Clariion boxes have historically driven EMC’s growth, management has emphasized software sales growth in recent years, including via M&A.

• Digital data created and replicated to grow from 173 exabytes in 2006 to 1,773 exabytes by 2011 worldwide,* driving continued demand for storage.

• Well-positioned to benefit from major IT trends via technology assets in information infrastructure, virtualization (VMware) and cloud computing.

• $213 million Iomega acquisition, closed in 2Q08, expands EMC’s reach in consumer and small business markets. EMC remains quite acquisitive, announcing several tuck-in deals during 2008.

• Repurchased $1.5 billion of stock in 2007, $3.7 billion in 2006 and $1.0 billion in 2005.



• Exposed to IT spending cuts by large enterprises, including financial firms such as Goldman Sachs.

• Technology evolution; competitive market. EMC has had to evolve over the years, seeking to grow its software business to offset margin pressure on the hardware side. EMC competes against giants such as IBM and HP as well as data storage startups.

• VMware may be less valuable than its market cap suggests, with threats looming from Microsoft et al.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

IBM 126,070 147,090 1.4x 9.4x 10x 10x HPQ 86,360 93,970 .8x n/m 9x 9x EMC 24,280 20,920 1.4x 4.7x 13x 12x

MAJOR HOLDERS Insiders 1% │ Capital World 9% │ Barclays 4% │ State Street 3% │ Pershing Square 3% │ Greenlight <1% * Source: IDC.

SELECTED OPERATING DATA


9/30/08 % of revenue by type: Hardware 46% 46% 44% 42% Software – EMC 23% 22% 21% 17% Software – VMware 3% 4% 7% 8% Services 27% 28% 29% 33% Revenue growth by type: Hardware 16% 15% 12% 12% Software – EMC1 11% 9% 13% -5% Software – VMware1 61% 72% 83% 39% Services 22% 16% 24% 30% Total revenue growth 17% 15% 19% 16% % of revenue by segment: Storage 91% 86% 80% 78% Content management 5% 6% 6% 5% RSA Security 0% 1% 4% 4% VMware 4% 6% 10% 13% Revenue growth by segment: Storage 15% 9% 10% 12% Content management 22% 42% 13% 8% RSA Security n/a n/a 246% 13% VMware 78% 83% 86% 50% Gross margin by segment: Storage 54% 52% 52% 51% Content management 70% 69% 68% 61% RSA Security n/a 75% 73% 70% VMware 90% 89% 88% 85% Corporate and other -2% -3% -3% -2% Total gross margin 54% 53% 55% 55% EBIT margin by major segment: EMC 17% 17% 17% 16% VMware 34% 28% 24% 26% Corporate and other -2% -5% -4% -5% Special items -1% -2% -0% -1% Total EBIT margin 15% 11% 13% 11% Selected items as % of revenue: D&A 7% 7% 7% 7% Capex 6% 6% 5% 5% Capitalized software 2% 2% 2% 2% Acquisitions, net of cash2 7% 23% 4% 6% % of revenue by geography: U.S. 57% 57% 56% 54% EMEA 28% 29% 30% 31% Asia 11% 10% 11% 11% Americas ex. U.S. 4% 4% 4% 4% Dell as % of revenue 12% 15% 14% 12% ROE 11% 15% Equity to total assets (avg) 63% 56% ∆ shares out (avg) -6% -6%

1 Software license revenue only. Software maintenance is included in services. 2 Net of Cisco’s $150 million investment in VMware in 2007. RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE EMC is a technology juggernaut with one of the best sales forces in the business and defensible leadership in data storage. The acquisition and subsequent IPO of VMware at multiples of EMC’s purchase price attests to the shrewdness of EMC’s management. While we ascribe high probability to EMC maintaining its leadership position, we caution that a large portion of the company’s profits still comes from sales of hardware boxes, which are highly sensitive to corporate IT spending.


KHD Humboldt Wedag (NYSE: KHD) Hong Kong SAR, China, 60-4-683-8286

Capital Goods: Construction & Agricultural Machinery http://www.khdhumboldt.com

Trading Data Consensus EPS Estimates Valuation Price: $9.58 (as of 2/13/09) Month # of P/E FYE 12/31/07 6.7x 52-week range: $6.50 - $35.79 Latest Ago Ests P/E FYE 12/31/08 4.5x Market value: $292 million This quarter $0.27 $0.27 2 P/E FYE 12/31/09 9.4x Enterprise value: -$103 million Next quarter 0.24 0.24 1 P/E FYE 12/31/10 8.1x Shares out: 30.5 million FYE 12/31/08 2.12 2.12 2 EV / LTM revenue n/m

Ownership Data FYE 12/31/09 1.02 1.02 2 EV / LTM EBITDA n/a Insider ownership: 22% FYE 12/31/10 1.18 1.18 1 EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.8x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 40% Date Actual Estimate LTM EBIT yield -83% # of institutional owners: 158 11/12/08 $0.80 $0.55 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 214 284 410 187 384 459 580 638 150 194 Gross profit 66 99 76 31 52 72 86 116 21 37 EBIT 44 47 50 15 31 43 53 86 15 32 Net income 43 51 49 37 25 30 34 70 12 31 Diluted EPS 1.60 1.85 1.79 0.47 1.01 1.04 1.42 2.31 0.64 1.01 Cash from ops 65 21 37 60 67 43 130 114 35 (23) Capex 0 0 0 2 3 3 4 3 (0) 1 Free cash flow 65 21 37 58 65 40 127 111 35 (24) Cash & investments 159 178 165 263 113 243 370 408 285 408 Total current assets 336 422 235 471 462 513 634 709 558 709 Intangible assets 28 16 16 20 0 0 0 0 0 0 Total assets 395 447 405 604 610 748 789 848 717 848 Short-term debt 0 0 9 27 5 6 0 0 0 0 Total current liabilities 42 87 154 253 249 316 396 412 348 412 Long-term debt 98 69 27 14 6 16 14 13 12 13 Total liabilities 149 161 186 334 325 430 482 496 424 496 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 246 285 218 269 285 319 307 352 293 352 EBIT/capital employed 33% 32% 69% n/m 52% >100% n/m n/m n/m n/m



$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

c


BUSINESS OVERVIEW KHD operates in two segments: Industrial Plant Engineering and Equipment Supply provides technologies, equipment, and engineering for cement, coal, and minerals processing. The segment also builds plants that produce clinker, cement, clean coal, and minerals. Resource Property consists of a mining sublease on which the Wabush iron ore mine is situated that commenced in 1956 and expires in 2055. The company spun off Mass Financial, a merchant banking business, in January 2006. KHD completed several other strategic actions subsequent to the Mass Financial spin-off. SELECTED OPERATING DATA

FYE December 31

2005

2006

2007

YTD 9/30/08

∆ revenue 120% 28% 44% 14% ∆ order intake n/a 55% 19% 28% ∆ order backlog (period end) n/a 70% 38% 39% % of revenue by segment: Industrial plant engineering1 100% 100% 100% 100% Iron ore mine royalty2 0% 0% 0% 0% % of pre-tax income by segment: Industrial plant engineering1 84% 95% 93% 85% Iron ore mine royalty2 14% 12% 25% 27% Corporate and other 2% -7% -18% -13% % of industrial plant engineering revenue by customer group: Cement 90% 84% 89% 86% Coal and minerals 10% 16% 11% 14% % of industrial plant engineering revenue by geography: Americas 7% 19% 20% n/a Asia 21% 26% 34% n/a Europe and Russia 23% 18% 21% n/a Middle East 42% 34% 21% n/a Africa and other 6% 4% 4% n/a

1 Includes industrial plant engineering and equipment supply. 2 KHD has a royalty interest in the Wabush iron ore mine. “Income from interest in resource property” is earned from an unincorporated JV operating in Canada. KHD does not report any revenue related to this JV. INVESTMENT HIGHLIGHTS

• Third-largest player with 20% global market share, based on new contracted cement kiln capacity, behind Danish firm FL Smidth (29%) and Chinese firm Sinoma (28%), and ahead of German firm Polysius (part of ThyssenKrupp). Unlike cement manufacturers, KHD is a service provider operating under an asset-light business model.

• Low exposure to U.S., which represented 6% of KHD backlog going into 2008. The Middle East, where cement consumption is growing 10-15%, was 33% of backlog. Asia, where consumption is growing 10%+, accounted for 29% of backlog. Russia and Eastern Europe, where consumption is growing 10-15%, represented 29% of backlog.

• Backlog amounts to 2.3 years of LTM revenue, providing several quarters of visibility.

• Order cancellations manageable so far. Cancelled orders amounted to $51 million and orders postponed by more than one year were $18 million as of December 5. KHD has another $164 million of “contract value at risk, meaning it had verbal indications from customers that contract variations or cancellations are a possibility.” Order backlog at was $1.1 billion as of September 30.

• Holds 471 patents, including innovations in kiln design, pyro processing, calciners, coolers, grinding technologies, and separators and roller presses.

• Chairman Michael Smith (59) has a history of shareholder value creation. Smith’s M&A, corporate finance and global taxation background have benefited investors, as he has created value through various entities over the years, including MFC Bancorp, Mass Financial, Sasamat Capital, Cathay Merchant Group, and Blue Earth Refineries.

• KHD owns non-core assets, including an ore mine royalty interest (LTM income of $27 million); preferred shares of Mass Financial of $86 million; and (3) net cash and equivalents of $395 million.



• Q3 orders down 65% y-y due to “delays in project awards by customers revisiting their financing alternatives in light of credit market dynamics.”

• Tax rate likely to increase over time. Smart tax planning and NOLs have historically kept KHD’s tax rate in a range of 5-10%. Management expects the rate to increase to about 20% going forward.

MAJOR HOLDERS Chairman Smith <1% (may own more through various vehicles) │ CEO Busche <1% │ Peter Kellogg 21% (long-time association with Smith) │ Apis 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE KHD is a rare cyclical magic formula stock we find compelling. The business has existed for more than a century, and KHD is a proven innovator. Growth exploded in recent years, as cement plant engineering services and equipment experienced strong global demand. Chairman Michael Smith has a proven track record of efficient capital allocation. The market is myopically focused on the outlook for cement engineering while completely ignoring KHD’s excess assets. We value KHD at $25-37 per share, based on a sum-of-the-parts valuation analysis that considers the company’s $481 million in net cash, investments and Mass Financial preferred shares; the Wabush iron ore interest; and the core cement engineering business.


…additional insight into KHD: WHAT ARE THE SHARES WORTH?

• We value KHD at $25-37 per share, based on the sum-of-the-parts valuation summarized below.

• In addition to strong upside potential, we note significant downside protection, with estimated excess cash and investments of $331-381 million. Our calculation of excess assets conservatively excludes $100-150 million, which we estimate is needed to run the core cement engineering business.

KHD — Sum-of-the-Parts Valuation Summary


Low Value

High Value

Value of excess net assets:1 Cash and equivalents $373 $373 Short-term cash deposits 27 27 Securities 9 9 Restricted cash 31 31 Preferred shares of Mass Financial 86 86 Long-term debt (13) (13) Pension liability (32) (32) Net cash and investments $481 $481 Cash needed to run business2 (150) (100) Total $331 $381 Value of iron ore interest: LTM earnings to KHD $27 Fair value multiple of LTM earnings 5x Annualized Q3 earnings to KHD $35 Fair value multiple of ann. Q3 earnings 5x Total $133 $175 Value of cement engineering business: LTM pre-tax segment income 85 LTM corporate/other expenses (12) LTM net interest income3 (13) Fair value multiple of LTM pre-tax income 5x Annualized Q3 pre-tax segment income 145 Annualized Q3 corporate/other expenses (11) Annualized Q3 net interest income3 (16) Fair value multiple of ann. Q3 income 5x Total $296 $593 Estimated fair value of KHD $759 $1,148 per share $25 $37

1 Based on balance sheet values as of September 30, 2008. 2 MOI estimate of cash needed to run engineering business; reflects deferred revenue liability, which could become cash-draining amid order slowdown. 3 A portion of net interest income is subtracted from segment income to reflect the separate consideration of excess assets in our valuation analysis. Source: Company filings, The Manual of Ideas estimates and analysis. WHY THE SHARES MAY BE MISPRICED

• Investors not looking beyond current slowdown in cement engineering business. KHD’s earnings report on November 12 spooked investors due to a 65% y-y drop in Q3 order intake and concerns about potential order cancellations. While the Q3 result represents a sharp reversal from earlier strength in orders, investors are myopically focusing on the current woes of cement engineering business, ignoring (1) the long-term earning power of the engineering business, (2) very large excess assets, and (3) the valuable Wabush iron ore interest.

OVERVIEW OF SELECTED OPERATING DATA

KHD – Engineering Revenue and Backlog, 2005-YTD’08 The company has grown cement plant engineering revenue rapidly in recent years, with backlog reaching $1.1 billion as of September 30. While the large backlog bodes well for near-term revenue, KHD saw a sharp decline in Q3 order intake, and management expects that some customers will seek to delay or cancel projects.

$0mn

$200mn

$400mn

$600mn

05 06 07 YTD07

YTD08

$0.0bn$0.2bn$0.4bn$0.6bn$0.8bn$1.0bn$1.2bn

Engineering Revenue (left axis)Backlog (right axis)

Notes: Engineering revenue equals total revenue, as iron ore income is accounted for below the revenue line. Backlog represents period-end backlog. YTD represents period from January 1 through September 30. Source: Company, The Manual of Ideas. KHD – Engineering Income and Margin, 2005-YTD’08 Engineering pre-tax margin has expanded since 2005, causing income growth to outstrip revenue growth over the same time period. Margins may get squeezed going forward, as the company attempts to keep customers from postponing or cancelling projects.

$0mn

$15mn

$30mn

$45mn

$60mn

$75mn

05 06 07 YTD07

YTD08

0%

5%

10%

15%

Engineering Income (left axis)Engineering Margin (right axis)

Notes: Income and margin represent pre-tax segment income and margin; corporate and other expenses are excluded from segment income. YTD represents period from January 1 through September 30. Source: Company, The Manual of Ideas. KHD – Iron Ore Royalty Income, 2005-YTD’08 The company’s income from an interest in the Wabush iron ore mine has grown as iron ore prices have risen, with YTD income reaching $22 million and Q3 income reaching $9 million.

$0mn

$10mn

$20mn

$30mn

05 06 07 YTD07

YTD08

Notes: YTD represents period from January 1 through September 30. Source: Company, The Manual of Ideas.


MANAGEMENT’S VIEW OF BUSINESS Notes from 3Q08 earnings call on November 12:

• Operating environment: “rapidly changing;” expects credit shortage to negatively impact global construction and infrastructure markets; past trend of robust demand growth to “moderate;” customers facing “unprecedented” challenges; some customers have approached KHD to renegotiate contracts; customer capex spending likely to decline; KHD “should expect some projects to be delayed, some projects to be cancelled, and a general decrease in the number of project opportunities”

• Management response to weak environment: changing focus from “business growth” to “sustaining equity” during uncertainty; expects to develop plan to cut costs by yearend (will present plan to shareholders); a key objective is to preserve cash by operating in cash flow-neutral way (“excluding working capital movements”)

• Q3 review: order intake down 65% due to project award delays (55% of orders from Middle East, 23% from Russia and Eastern Europe) – intake weakened progressively throughout Q3; backlog of $1.1 billion at Q3-end (39% from Russia and Eastern Europe, 27% from Asia, 26% from Middle East) – initial assessment is that backlog solidity is “reasonable” (but also “dynamic” and “changing”)

• Outlook: “not in position to confirm” prior guidance for earnings and order intake; “don’t have a feel” for how quickly business may pick up again

• Balance sheet: majority of cash is held in Austrian banks with strong credit ratings (government has announced intention to support banks if necessary); largest portion of cash is denominated in euros; $100 million set aside in dollars for business growth

• M&A strategy: “hesitant” to spend cash • Iron ore: income up due to price increases; mine

output has been relatively consistent in recent years • Investment in Mass Financial preferred shares:

negotiating with Mass to distribute to KHD shareholders a portion or all of KHD’s interest in Mass by way of newly created common shares in Mass; mechanism will likely be conversion of a portion of KHD shares held into shares of Mass

ROYALTY INTEREST IN WABUSH IRON ORE MINE (0% of 2007 revenue, 25% of pre-tax income)

• KHD’s income from Wabush mine correlates closely with iron ore prices. As prices have risen, KHD’s income from its interest in Wabush has increased, from $4 million in 2005 to $6 million in 2006 and $17 million in 2007. For a primer on iron ore supply, demand and pricing drivers, see the April 2008 letter by the chairman and president of Leucadia National (NYSE: LUK): http://tinyurl.com/moi14 (pages 2-4).

• KHD participates in royalty interest in Wabush iron ore mine sublease, which expires in 2055.

• Description of Wabush mine, adopted from Cleveland Cliffs (CLF) 10-K dated February 29: “The mine and concentrator are located in Wabush, Labrador, Canada, and the pellet plant is located in Pointe Noire, Quebec. The Wabush mine has been in operation since 1965. Over the past five years, the mine has produced 3.8-5.2 million tons of iron ore pellets annually. CLF own 27% of Wabush, ArcelorMittal subsidiary Dofasco owns 29% and U.S. Steel Canada owns 45%.” In March, Dofasco sued U.S. Steel Canada and CLF to compel them to complete the sale of their interests to Dofasco.

• Holder of royalty interest receives royalties from an unincorporated JV that operates the mine. The JV pays a royalty that was set in 1987 at a base rate of C$1.685 per ton, with escalations as defined by agreement. In 2005, KHD sued the JV participants for alleged underpayment of royalties.

• Demand for iron ore is driven by raw material requirements of integrated steel producers. Demand for blast furnace steel is cyclical and influenced by macroeconomic factors.

Wabush Iron Ore Mine

2005 2006 2007 Iron ore shipments (mn tons) 4.9 4.1 4.8 Pre-tax income to KHD ($mn) 4.3 6.4 16.6

Major Iron Ore Producers

URL

1Q08 Production (mn tons)

Market Share1

Vale do Rio vale.com 83 42% Rio Tinto riotinto.com 37 19% BHP Billiton bhpbilliton.com 28 14% Kumba kumba.co.za 8 4% LKAB lkab.com 6 3% Others2 -- 36 18%

Source: EconStats, The Manual of Ideas. 1 Represents approximate share of ocean trade in iron ore. 2 Represents estimates.

Iron Ore Prices, 1976-20081 ($ per ton)

$0$20$40$60$80

$100$120$140

1976 1984 1992 2000 2008

Source: EconStats, CVRD, Wall Street Journal, steel producers. 1 Represents Brazil-to-Europe prices. Contracts are generally made in the spring/early summer between iron ore and steel producers. Prices shown are prices arranged at the beginning of May of each year. They represent price of fines, i.e., the most heavily-traded category of iron ore.


PRIMEDIA (NYSE: PRM) Norcross, GA, 678-421-3000

Services: Printing & Publishing http://www.primedia.com

Trading Data Consensus EPS Estimates Valuation Price: $1.82 (as of 2/13/09) Month # of P/E FYE 12/31/07 n/m 52-week range: $0.69 - $9.18 Latest Ago Ests P/E FYE 12/31/08 2.9x Market value: $80 million This quarter $0.21 $0.21 1 P/E FYE 12/31/09 2.9x Enterprise value: $306 million Next quarter n/a n/a n/a P/E FYE 12/31/10 n/a Shares out: 44.2 million FYE 12/31/08 0.62 0.62 1 EV / LTM revenue 1.0x

Ownership Data FYE 12/31/09 0.63 0.63 1 EV / LTM EBITDA 4.7x Insider ownership: 1% FYE 12/31/10 n/a n/a n/a EV / LTM EBIT 6.1x Insider buys (last six months): 12 LT EPS growth n/a n/a n/a P / tangible book n/m Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 95% Date Actual Estimate LTM EBIT yield 16% # of institutional owners: 154 11/6/08 $0.20 $0.18 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 1,378 1,341 974 804 307 308 315 301 80 76 Gross profit 1,048 1,050 760 641 274 278 286 277 73 70 EBIT (651) (39) 104 114 32 34 31 50 2 13 Net income (1,174) (647) (3) 22 565 38 491 15 394 12 Diluted EPS (31.80) (6.84) (2.34) (1.81) (2.31) (1.48) (1.26) 0.53 (0.82) 0.20 Cash from ops (101) 50 63 45 (12) 38 (46) (12) (11) 14 Capex 61 39 40 35 30 27 20 12 4 2 Free cash flow (162) 11 24 10 (43) 11 (66) (24) (15) 12 Cash & investments 34 19 9 13 7 6 15 23 47 23 Total current assets 407 305 288 284 302 323 73 64 94 64 Intangible assets 2,030 1,324 1,179 1,146 995 862 156 154 158 154 Total assets 2,731 1,836 1,636 1,559 1,390 1,254 257 270 282 270 Short-term debt 8 8 22 25 8 6 5 3 5 3 Total current liabilities 628 553 465 437 324 295 73 67 88 67 Long-term debt 1,946 1,728 2,037 2,111 1,457 1,317 248 246 248 246 Total liabilities 2,649 2,395 2,649 2,704 1,961 1,778 401 394 411 394 Preferred stock 685 630 165 0 0 0 0 0 0 0 Common equity (603) (1,189) (1,178) (1,145) (572) (523) (144) (124) (129) (124) EBIT/capital employed n/m n/m n/m n/m n/m 62% 75% n/m n/m n/m



$50

$100

$150

$200

$250


BUSINESS OVERVIEW PRIMEDIA publishes and distributes ad-supported print and online consumer guides for the apartment leasing and new home sale segments of residential real estate. The guides are provided for free to end users. In 2007, it distributed 38 million guides to 60,000 locations through DistribuTech, which also distributes 2,000 third-party publications. PRIMEDIA owns websites associated with its print guides, as well as Rentals.com, the leading paid listings website for residential real estate rentals. The company monetizes visits to the sites through ad formats such as cost per lead, cost per impression, cost per click, cost per action, and flat fees. SELECTED OPERATING DATA


9/30/08 % of revenue by type:1 Advertising – apartments2 71% 67% 66% 68% Advertising – new homes3 11% 15% 16% 14% Distribution4 18% 18% 18% 18% Revenue growth by type:1 Advertising – apartments2 n/a -5% 0% 2% Advertising – new homes3 n/a 36% 10% -18% Distribution4 n/a 0% 3% -4% Total revenue growth 7% 0% 2% -2%

1 Revenue reclassified to exclude Enthusiast Media and Auto Guides. 2 Consists of Apartment Guide, ApartmentGuide.com and Rentals.com. 3 Consists of New Home Guide and NewHomeGuide.com businesses. 4 Consists of PRIMEDIA's distribution arm, DistribuTech. GEOGRAPHIC SCOPE OF PRIMEDIA PRINT PRODUCTS

North-east1

South-east2

Mid-west3

West4 Totals

Apartments 23 21 14 19 77 New homes 6 17 6 5 34 DistribuTech5 6,646 3,956 4,007 5,285 19,894

1 Major markets include Washington, D.C., Philadelphia, Baltimore, Chicago. 2 Major markets include Atlanta, Tampa, Orlando, Miami, Charlotte. 3 Major markets include Dallas-Fort Worth, Houston, Austin, Kansas City. 4 Major markets include Phoenix, Las Vegas, L.A., San Francisco, Denver. 4 Represents number of DistribuTech’s exclusive retail distribution locations. INVESTMENT HIGHLIGHTS

• Completed major divestitures, reduced debt and refocused on Consumer Guides for real estate. The company sold Enthusiast Media to Source Interlink for $1.2 billion in 2007. In July 2008, it discontinued Auto Guides. It now focuses on print and online guides for U.S. residential real estate.

• Apartment Guide business (68% of revenue) continues to grow revenue and customer count. Management sees new growth possibilities in this segment, particularly online. According to CEO Stubbs, “there is a meaningful opportunity … [to] expand our portfolio of product offerings…”

• EBIT of $31 million YTD, up from $18 million in year-ago period, driven by move of HQ from NYC to Atlanta, opex reductions, improved distribution, and exit from two Auto Guide markets.

• New CEO Charles Stubbs (35) joined PRIMEDIA in April 2008 from Yellowpages.com, which he had built into a cohesive brand and Top 30 Internet site.

• Reduced corporate overhead to $12 million run rate, down from $29 million in 2007. The company has moved headquarters from New York to Atlanta.

• Shares trade at negative trailing FCF yield, 3x trailing P/E and 3x forward P/E.


• New Homes (16% of revenue) and DistribuTech (18% of revenue) continue to face pressure from the depression in real estate. New Homes revenue is down 18% YTD, while DistribuTech revenue has declined 4%. The company is “aggressively pursuing operating efficiencies.”

• Weak, albeit improved balance sheet. PRIMEDIA had net debt of $226 million at September 30, down from net debt of $1.2 billion at June 30, 2007. Debt has been reduced by proceeds from the divestiture of Enthusiast Media. PRIMEDIA continues to pay a quarterly dividend of ~$3 million ($0.07 per share).


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

MOVE 270 330 1.3x 4.8x n/m 16x LEDR 40 -20 n/m 0.6x n/m n/m TREE 40 40 .2x 0.6x n/m n/a PRM 80 310 1.0x n/m 3x 3x

MAJOR HOLDERS Insiders 3% │ KKR 59% │ Marathon 10% │ Glenview 8% │ Barclays 4% │ Dimensional 2% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE PRIMEDIA has restructured and strengthened the balance sheet in the midst of a depression in residential real estate, the company’s sole remaining market. New CEO Charles Stubb appears focused on the right priorities — continuing to improve operating efficiency while positioning the company for strong online growth when the real estate market turns. PRIMEDIA finally appears able to handle its financial leverage, even in the current downturn. As a result, value accretion to equity holders could be swift when investors perceive the real estate market to have stabilized. Current macro weakness provides a compelling opportunity for investors to buy a restructured business at a great price.


Target (NYSE: TGT) Minneapolis, MN, 612-304-6073

Services: Retail (Department & Discount), Member of S&P 500 http://www.target.com


Ownership Data FYE 1/31/10 2.59 2.68 20 EV / LTM EBITDA 6.1x Insider ownership: 0% FYE 1/31/11 3.08 3.17 9 EV / LTM EBIT 8.3x Insider buys (last six months): 0 LT EPS growth 12.6% 12.9% 10 P / tangible book 1.7x Insider sales (last six months): 5 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 93% Date Actual Estimate LTM EBIT yield 12% # of institutional owners: 1653 11/17/08 $0.49 $0.48 LTM pre-tax ROC 16%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 2/2/02 2/1/03 1/31/04 1/29/05 1/28/06 2/3/07 2/2/08 11/1/08 11/3/07 11/1/08 Revenue 39,826 37,410 42,025 46,839 52,620 59,490 63,367 65,260 14,835 15,114 Gross profit 12,220 11,283 12,914 14,657 16,917 19,384 20,635 20,142 4,578 4,581 EBIT 2,207 2,227 2,603 3,031 3,860 4,494 4,625 5,091 781 633 Net income 1,368 1,623 1,809 3,198 2,408 2,784 2,849 2,633 483 369 Diluted EPS 1.50 1.50 1.76 2.07 2.71 3.21 3.34 3.27 0.57 0.49 Cash from ops 2,012 3,233 3,733 3,259 4,451 4,862 4,125 4,319 383 26 Capex 3,163 3,040 2,738 3,068 3,388 3,928 4,369 3,778 1,055 871 Free cash flow (1,151) 193 995 191 1,063 934 (244) 541 (672) (845) Cash & investments 499 758 708 2,245 1,648 813 2,450 918 627 918 Total current assets 9,648 11,935 12,952 13,922 14,405 14,706 18,906 20,239 18,334 20,239 Intangible assets 0 0 229 206 183 212 208 0 0 0 Total assets 24,154 28,603 31,416 32,293 34,995 37,349 44,560 47,041 43,289 47,041 Short-term debt 905 975 863 504 753 1,362 1,964 2,849 2,899 2,849 Total current liabilities 7,054 7,523 8,314 8,220 9,588 11,117 11,782 13,496 13,563 13,496 Long-term debt 8,088 10,186 10,155 9,034 9,119 8,675 15,126 17,444 11,239 17,444 Total liabilities 16,294 19,160 20,284 19,264 20,790 21,716 29,253 33,461 27,129 33,461 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 7,860 9,443 11,132 13,029 14,205 15,633 15,307 13,580 16,160 13,580 EBIT/capital employed 13% 12% 13% 15% 18% 19% 16% 16% n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

$80


BUSINESS OVERVIEW Target is a discount retailer of general merchandise and food, operating ~1,700 stores and Target.com. The company also offers branded proprietary and Visa credit cards (sold 47% interest in credit card receivables to JP Morgan in 2Q08). Target employs up to 400,000 people during peak periods. Seasonality: One-third of sales are typically generated in Q4. SELECTED OPERATING DATA


11/1/08 % of revenue by segment: Retail 97% 97% 97% 97% Credit cards 3% 3% 3% 3% Revenue growth by segment: Retail 12% 13% 6% 4% Credit cards 17% 19% 18% 12% ∆ revenue 12% 13% 7% 4% ∆ comparable store sales 6% 5% 3% -2% ∆ stores (period end) 7% 7% 7% 6% ∆ square feet (period end) 8% 8% 8% 7% % of revenue by type: Consumables and commodities 30% 32% 34% n/a Electronics and entertainment 23% 23% 22% n/a Apparel and accessories 22% 22% 22% n/a Home furnishings and other 25% 23% 22% n/a Selected items as % of revenue: EBIT 8% 9% 8% 7% D&A 3% 3% 3% 3% Capex 6% 7% 7% 6% Equity to total assets 41% 42% 34% 29% ∆ diluted shares out (avg) -3% -2% -2% -9%


• Uniquely positioned as fashionable discounter, enabling it to compete successfully against Wal-Mart’s price leadership (by contrast, Kmart has been unable to carve out a defensible competitive niche).

• Significant real estate value, as Target owns the land and buildings associated with the vast majority of its stores and distribution centers. In November 2008, management rejected a proposal from holder Pershing Square to spin off the owned land and facilities management functions into a REIT, citing the complexity of the transaction and its negative impact on the company’s financial flexibility. Pershing expected the transaction to result in revaluation of the real estate, as inflation-protected securities trade at mid teens EBITDA multiples.*

• Target veteran Gregg Steinhafel (53) became CEO in May 2008 and chairman in January 2009, replacing Target “lifer” Bob Ulrich. Steinhafel joined Target’s merchandising division in 1979. Douglas Scovanner (52) has been CFO since 2000.

* Access Pershing presentation at www.manualofideas.com/files/target.pdf

• Repurchased $2.8 billion of stock in first nine months of FY08, $2.5 billion in FY07, $900 million in FY06, and $1.2 billion in FY05.

• Shares trade at 1.7x tangible book value, 9x trailing P/E and 12x forward P/E.


• Directly impacted by weak consumer spending. • December sales up 0.2%, with same store sales

down 4.1%. The SSS decline was within the guided range, reflecting “stronger results in the last two weeks of the month.” 4Q08 sales fell 2.3%, with SSS off 6.6%. 2008 sales rose 2.4%, with SSS down 2.9%. Target ended the year with 1,683 stores.

• Expects “additional pressure” on 4Q08 results from markdowns designed to “gain market share” and produce “very clean inventories.”

• Weak credit card segment metrics, with 4Q08 annualized net write-off rate of 10-11% (9%+ in FY08). FY-end receivables should be up 10% y-y.

• Low-margin, capital-intensive business, with formidable competition from Wal-Mart, Costco, Home Depot, and selected specialty retailers.

• Potentially inefficient capital and business structure, marrying a competitive retail business with ownership and management of real estate. The company may be better off separating these distinct assets into two entities, as suggested by Pershing.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

WMT 182,520 223,670 .6x 3.6x 14x 13x HD 35,980 46,480 .6x 2.1x 12x 15x COST 18,530 18,080 .2x 2.1x 16x 14x SHLD 4,820 8,130 .2x 1.0x 29x 89x JCP 3,500 5,380 .3x .7x 6x 121x TGT 22,640 42,020 .6x 1.7x 10x 12x

MAJOR HOLDERS Insiders 1% │ Pershing Square 10% │ Cap Re 8% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Target is a well-positioned discount retailer suffering from general weakness in U.S. consumer spending. The current challenges notwithstanding, Target appears to have carved out a market position it can defend versus industry juggernaut Wal-Mart. Target also owns valuable real estate, including the vast majority of its stores, associated land and distribution centers. As a result, Target may be seen as an inflation-protected security in disguise. We would become interested in the shares if management changed its position on the Pershing proposal and spun off certain assets into a newly created REIT.


Visa (NYSE: V) San Francisco, CA, 415-932-2100

Financial: Consumer Financial Services http://www.visa.com


Ownership Data FYE 9/30/10 3.17 3.19 22 EV / LTM EBITDA 25.4x Insider ownership: 48% FYE 9/30/11 3.75 3.73 6 EV / LTM EBIT 29.2x Insider buys (last six months): 5 LT EPS growth 19.5% 19.6% 10 P / tangible book 87.0x Insider sales (last six months): 1 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 37% Date Actual Estimate LTM EBIT yield 3% # of institutional owners: 1182 2/4/09 $0.78 $0.66 LTM pre-tax ROC >100%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 9/30/04 9/30/05 9/30/06 9/30/07 9/30/08 12/31/08 12/31/07 12/31/08 Revenue 2,429 2,665 2,948 3,590 6,263 6,514 1,488 1,739 Gross profit 1,711 2,046 2,277 2,869 5,064 5,323 1,205 1,464 EBIT 431 453 730 (1,449) 1,232 1,520 678 966 Net income 210 360 455 (1,076) 804 954 424 574 Diluted EPS 0.27 0.33 0.56 (1.34) 0.91 1.11 0.53 0.68 Cash from ops 433 481 450 505 531 534 182 185 Capex 122 119 102 160 415 412 71 68 Free cash flow 311 361 348 345 116 122 111 117 Cash & investments n/a 817 931 1,022 6,287 2,980 2,427 2,980 Total current assets n/a 1,478 1,594 2,507 11,174 8,089 5,813 8,089 Intangible assets n/a 0 0 0 21,096 21,096 19,938 21,096 Total assets n/a 2,745 2,964 4,390 34,981 31,822 27,742 31,822 Short-term debt n/a 32 32 41 51 51 75 51 Total current liabilities n/a 1,325 1,393 3,282 7,165 4,612 5,179 4,612 Long-term debt n/a 74 41 0 55 53 40 53 Total liabilities n/a 2,620 2,381 4,891 12,704 10,182 11,026 10,182 Preferred stock n/a 0 0 0 0 0 0 0 Common equity n/a 126 583 (501) 22,277 21,640 16,716 21,640 EBIT/capital employed n/a n/m n/m n/m n/m >100% n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100


BUSINESS OVERVIEW Visa operates a global retail electronic payments network and manages one of the most recognized global financial services brands. The company engages in the following activities:

− owns and licenses to customers payment brands, including Visa, Visa Electron, PLUS and Interlink;

− promotes its brands through marketing initiatives and by encouraging usage and merchant acceptance;

− offers platforms that customers use to develop credit, debit and prepaid programs for cardholders;

− provides authorization, clearing and settlement to customers through VisaNet, a processing platform;

− provides value-added services: risk management, debit processing, loyalty, and dispute management;

− enforces rules to ensure efficient functioning of the payments network and the promotion of its brands.

Following reorganization in 2007, Visa U.S.A., Visa Int’l, Visa Canada and Inovant became subsidiaries of Visa Inc. Visa Europe did not become a subsidiary of Visa Inc. but remained owned by its member financial institutions. In October 2008, the company redeemed of 135 million shares of class C stock held by Visa Europe for $2.7 billion. Visa went public in March 2008. Class A shares trade on the NYSE; B and C shares are held by financial institutions. INVESTMENT HIGHLIGHTS

• World’s largest electronic payments network, ahead of MasterCard and American Express, based on branded credit and debit cards in circulation, transaction volume and dollar volume.

• Centralized VisaNet platform provides financial institutions and merchants with wide range of products, transaction processing and value-added services. Financial institutions are Visa’s primary customers; the former are responsible for merchant acquiring and card issuance to consumers.

• Derives revenue from fees based on payments volume, processed transactions, related services.

• Visa, MasterCard and Discover settled litigation in October 2008, with Visa agreeing to pay $1.8 billion (to be funded via dilutive adjustment in conversion ratio of class B shares to class A shares).



• Exposed to downturn in consumer spending. Despite the global recession, consensus estimates still have Visa growing earnings in FY09 and FY10.

• Regulatory scrutiny of interchange fees may increase over time and may negatively affect model.

SELECTED OPERATING DATA FYE September 30 2006 2007 2008 1Q09 % of revenue by type: Service fees 55% 54% 49% 46% Data processing fees 42% 39% 33% 32% International transaction fees 14% 13% 27% 29% Other revenues 9% 8% 9% 9% Volume and support incentives -20% -14% -19% -15% % of revenue by geography: U.S. 90% 92% 59% n/a ROW 10% 8% 41% n/a Selected items as % of revenue: Personnel 23% 20% 19% 16% Network and communications 7% 7% 5% 5% Advertising and marketing 16% 16% 16% 12% Professional and consulting 10% 9% 7% 5% Administrative and other 8% 6% 5% 4% Litigation provision 1% 74% 23% 0% EBIT 26% 36% 45% 56% D&A 5% 4% 4% 3% Capex 3% 4% 7% 4% Return on tangible equity1 n/m n/m n/m n/m Tangible equity to assets (avg) 1 n/m n/m n/m n/m ∆ diluted shares out (avg) n/a 0% 80% 51%

1 Visa has negative tangible book value.

• Open-loop model depends on third-party merchant acquirers and card issuers. While Mastercard has a similar model, American Express operates a closed-loop network that gives it more revenue streams and more control over the functioning of the network.


Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

MA 161.90 20,920 16.9x 16x 13x Dec-31 AXP 15.70 18,260 1.5x 14x 10x Dec-31 DFS 7.00 3,370 0.6x n/m 11x Nov-30 V 56.00 47,333 87.0x 21x 18x Sep-30

MAJOR HOLDERS The company had 449 million class A, 246 million class B and 152 million class C shares as of November 12, 2008. CEO <1% │ Other insiders <1%; Class A shares: Fidelity 10% │ Marsico 8% │ TCI 2% Class B shares: JPM 23% │ BofA 12% │ National City 8% │ Citigroup 6% │ U.S. Bancorp 5% │ Wells Fargo 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Similar to MasterCard, Visa is a non capital-intensive business with a powerful global brand and a sustainable moat. The shares deserve closer attention despite challenging near-term trends. However, any investment should be weighed against the opportunity cost of investing in American Express. While Visa does not face serious credit quality risks as credit is extended by member banks, we believe that longer-term the closed-loop model of American Express may actually be more attractive.


…additional insight into V: SELECTED SLIDES FROM COMPANY PRESENTATIONS, FEBRUARY 4 & 10, 2009

Share of Payments Volume by Operator, 2007 (industry-wide electronic payments volume: $5.0 trillion)

MasterCard34%

Visa49%

American Express

13%


4%

Source: Company, The Manual of Ideas. Share of Payments and Cash Volume by Operator, 2007 (industry-wide payments and cash volume: $7.0 trillion)

MasterCard33%

Visa55%

American Express

9%


3%

Source: Company, The Manual of Ideas. Share of Total Transactions by Operator, 2007 (industry-wide card transactions: 85 billion)

MasterCard32% Visa

59%

American Express

6%


3%


MasterCard32% Visa

59%

American Express

6%


3%



VISA – SELECTED OPERATING MATERICS

Source: Company data.


Yahoo! (Nasdaq: YHOO) Sunnyvale, CA, 408-349-3300

Services: Business Services, Member of S&P 500 http://www.yahoo.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 953 1,625 3,575 5,258 6,426 6,969 7,209 7,209 1,832 1,806 Gross profit 790 1,255 2,232 3,162 3,750 4,131 4,185 4,185 1,130 1,076 EBIT 88 296 689 1,108 941 695 13 13 191 (278) Net income 43 238 840 1,896 751 660 424 424 206 (303) Diluted EPS 0.09 0.18 0.58 1.28 0.52 0.47 0.29 0.28 0.15 (0.22) Cash from ops 302 428 1,090 1,711 1,372 1,919 1,880 1,880 622 321 Capex 52 117 246 409 689 713 746 746 227 196 Free cash flow 251 311 844 1,303 683 1,206 1,134 1,134 395 125 Cash & investments 774 1,310 3,512 2,561 2,601 2,001 3,452 3,452 2,001 3,452 Total current assets 970 1,722 4,091 3,450 3,750 3,238 4,746 4,746 3,238 4,746 Intangible assets 512 2,251 3,032 3,430 3,374 4,614 3,927 3,927 4,614 3,927 Total assets 2,790 5,932 9,178 10,832 11,514 12,230 13,690 13,690 12,230 13,690 Short-term debt 0 0 0 0 0 750 0 0 750 0 Total current liabilities 412 708 1,181 1,204 1,474 2,300 1,705 1,705 2,300 1,705 Long-term debt 0 750 750 750 750 0 0 0 0 0 Total liabilities 528 1,568 2,077 2,265 2,353 2,697 2,447 2,447 2,697 2,447 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 2,262 4,364 7,101 8,566 9,161 9,533 11,242 11,242 9,533 11,242 EBIT/capital employed 57% >100% >100% >100% >100% 91% 1% 1% n/m n/m



$0

$20

$40

$60

$80

$100

$120

$140

c


BUSINESS OVERVIEW Yahoo! is a leading global Internet brand and one of the most trafficked Internet destinations. The company serves users, advertisers, publishers, and developers. Yahoo! was founded by David Filo and Jerry Yang while they were graduate students at Stanford University in 1994. SELECTED OPERATING DATA

FYE December 31 2006 2007 2008 Revenue growth 22% 8% 3% Selected items as % of revenue: Gross profit 58% 59% 58% R&D 13% 16% 17% EBIT 15% 10% 0% D&A 8% 9% 11% Capex 11% 10% 10% % of revenue by geography: U.S. 68% 68% 72% International 32% 32% 28% EBIT margin by geography: U.S. 33% 30% 4% International 22% 22% -9% Corporate -15% -18% 0% Total EBIT margin 15% 10% 0% Return on tangible equity 14% 12% 7% Tangible equity to assets (avg) 70% 68% 70% ∆ diluted shares out (avg) -2% -4% 0%


• Most visited website globally, ahead of Google, YouTube, Live.com, and MSN.com, according to Alexa (as of February 16).

• Second-most visited website in U.S., behind Google and ahead of YouTube, MySpace, and Facebook, according to Alexa (as of February 16).

• Advertising revenue-driven model. Publisher affiliates, such as eBay, WebMD, Cars.com, and Forbes, attract users by providing relevant content, presented on web pages that have space for ads.

• Fee revenue complements ad revenue. Although many of Yahoo!’s user services are free, the company charges for a range of premium services.

• Strategic objectives: become Internet starting point for users; establish Yahoo! as “must buy” for advertisers; deliver platforms that attract developers.

• Carol Bartz became CEO in January 2009, replacing co-founder Jerry Yang, who resigned under shareholder pressure following weak operating performance and botched M&A negotiations with Microsoft. Bartz was previously CEO of Autodesk, where she had spent 14 years.

• $3.2 billion book value of long-term equity stakes includes investments in Alibaba.com (Hong Kong: 1688), the largest online B2B marketplace, and Yahoo Japan (Tokyo: 46890). These investments are accounted for under the equity method.

• Rock-solid balance sheet, with cash of $2.3 billion, short-term investments of $1.2 billion, long-term equity investments of $3.2 billion, and no debt.



• Unclear whether value will be maximized. While Carl Icahn disclosed a 5.5% stake in late 2008 and intends to keep pressuring management, Yahoo! has not committed either to approaching Microsoft or to divesting stakes in Alibaba or Yahoo Japan. The company spent only $79 million buying back stock in 2008, compared to $1.6 billion in 2007.

• Reported operating loss of $278 million in 4Q08, compared to operating profit of $191 million in 4Q07, on a 1% decline in revenue. FCF declined from $330 million in 4Q07 to $219 million in 4Q08. U.S. revenue rose 2% y-y on a GAAP basis in 4Q08 while international revenue declined 10%.

• Guiding for 1Q09 revenue of $1.525-$1.725 billion and non-GAAP operating cash flow of $365-415 million, compared to 1Q08 revenue of $1.818 billion and operating cash flow of $433 million.

• Ad serving technology inferior to that of Google. While Yahoo! serves targeted search ads and integrates its ad offerings into affiliate websites, the company trails Google on most ad-related metrics.

• Former CEO Yang was forced out in November, following his failure to agree on a sale of Yahoo! to Microsoft. The latter had made an unsolicited offer of $31 per share for Yahoo! in February 2008.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

MSFT 169,720 151,010 2.4x 8.4x 11x 10x GOOG 112,580 96,730 4.4x 5.0x 17x 15x YHOO 17,794 14,342 2.0x 2.4x 34x 29x

MAJOR HOLDERS Former CEO Jerry Yang 4% │ Other insiders 6% │ Capital Research 11% │ Carl Icahn 4% │ Barclays 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Yahoo! is the most highly trafficked website globally. The company has a large net cash position and owns equity stakes in publicly held companies Alibaba.com and Yahoo Japan. While shares are quite cheap on a going-concern basis, the risk-reward is enhanced by the potential for strategic transactions, including a sale of the company, divestitures and buybacks.


…additional insight into YHOO: SELECTED SLIDES FROM COMPANY PRESENTATION, JANUARY 27, 2009


YAHOO! – SELECTED NON-GAAP FINANCIAL TABLES


YAHOO! – SEGMENT DATA, 2006-2008


Candidates—Super Investor Favorites


Barnes & Noble (NYSE: BKS)

Burlington Northern Santa Fe (NYSE: BNI)

Canadian Natural Resources (NYSE: CNQ)

ConocoPhillips (NYSE: COP)

Depomed (Nasdaq: DEPO)

Dish Network (Nasdaq: DISH)

Eaton (NYSE: ETN)

Forest Laboratories (NYSE: FRX)

GeoResources (Nasdaq: GEOI)

Helix Energy Solutions (NYSE: HLX)

Horsehead Holding (Nasdaq: ZINC)

Jefferies Group (NYSE: JEF)

Leucadia National (NYSE: LUK)

Lorillard (NYSE: LO)

Mastercard (NYSE: MA)

Sonae Capital (Lisbon: SONC)

St. Joe Company (NYSE: JOE)

UnitedHealth Group (NYSE: UNH)

URS (NYSE: URS)

USG (NYSE: USG)

WellCare Health Plans (NYSE: WCG)

WellPoint (NYSE: WLP)

Winthrop Realty Trust (NYSE: FUR)


Barnes & Noble (NYSE: BKS) New York, NY, 212-633-3300

Services: Retail (Specialty Non-Apparel), Member of S&P MidCap 400 http://www.barnesandnoble.com

Trading Data Consensus EPS Estimates Valuation Price: $17.24 (as of 2/13/09) Month # of P/E FYE 2/2/08 8.5x 52-week range: $10.77 - $33.64 Latest Ago Ests P/E FYE 1/31/09 11.8x Market value: $953 million This quarter $1.48 $1.48 8 P/E FYE 1/31/10 15.4x Enterprise value: $1.1 billion Next quarter -0.18 -0.18 5 P/E FYE 1/31/11 14.7x Shares out: 55.3 million FYE 1/31/09 1.46 1.44 4 EV / LTM revenue 0.2x

Ownership Data FYE 1/31/10 1.12 1.14 8 EV / LTM EBITDA 3.0x Insider ownership: 29% FYE 1/31/11 1.17 1.19 4 EV / LTM EBIT 5.7x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 1.8x Insider sales (last six months): 3 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 70% Date Actual Estimate LTM EBIT yield 17% # of institutional owners: 428 11/20/08 -$0.18 -$0.16 LTM pre-tax ROC 17%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 2/2/02 2/1/03 1/31/04 1/29/05 1/28/06 2/3/07 2/2/08 11/1/08 11/3/07 11/1/08 Revenue 4,870 3,917 4,372 4,874 5,103 5,261 5,411 5,351 1,176 1,123 Gross profit 1,311 1,185 1,312 1,485 1,567 1,638 1,641 1,648 355 336 EBIT 246 176 226 244 252 253 208 185 4 (31) Net income 64 100 152 143 147 151 136 110 4 (18) Diluted EPS 0.94 0.98 1.57 1.68 2.03 2.17 2.03 1.69 0.07 (0.34) Cash from ops 457 543 539 558 500 271 435 352 22 37 Capex 169 185 130 185 187 179 197 214 58 47 Free cash flow 289 358 409 373 313 92 238 138 (37) (10) Cash & investments 108 268 282 536 373 349 361 17 20 17 Total current assets 1,591 1,887 2,186 1,987 1,851 1,922 1,966 1,803 1,922 1,803 Intangible assets 353 439 270 366 358 351 343 336 346 336 Total assets 2,623 2,995 3,812 3,318 3,156 3,197 3,250 3,091 3,195 3,091 Short-term debt 0 0 0 0 0 0 0 0 0 0 Total current liabilities 1,140 1,231 1,432 1,326 1,505 1,490 1,590 1,537 1,631 1,537 Long-term debt 449 300 300 245 0 0 0 127 25 127 Total liabilities 1,735 1,968 2,571 2,153 2,041 2,032 2,175 2,238 2,205 2,238 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 888 1,028 1,241 1,166 1,116 1,165 1,075 854 989 854 EBIT/capital employed 26% 18% 20% 22% 29% 30% 24% 17% n/m n/m



$0

$10

$20

$30

$40

$50

$60


BUSINESS OVERVIEW Barnes & Noble is the largest bricks-and-mortar bookseller in the U.S. with 798 bookstores. 89% of the stores operate under the Barnes & Noble name, with 9% branded B. Dalton. Other assets include BarnesandNoble.com, trade book publisher Sterling Publishing and 74% of seasonal kiosk operator Calendar Club. Store size ranges from 10,000 to 60,000 square feet depending upon market size, with an overall average store size of 26,000 square feet. SELECTED OPERATING DATA

FYE January 31 2006 2007 2008 YTD

11/1/081 Growth metrics of Barnes & Noble stores:2 Stores (period end) 2% 2% 3% 3% Sq. footage (period end) 3% 4% 4% 4% Comparable store sales 3% 0% 2% -5% Store revenue 6% 4% 3% -2% Number of stores by trade name (period end): Barnes & Noble stores3 681 695 713 728 B. Dalton Bookseller stores 118 98 85 71 % of revenue by type: Barnes & Noble stores 85% 86% 86% 88% B. Dalton stores 3% 2% 2% 1% Barnes & Noble.com 9% 8% 9% 9% Other 3% 4% 4% 2% Revenue growth by type: Barnes & Noble stores 6% 4% 3% -2% Barnes & Noble.com 5% -1% 10% 3% Total revenue growth 5% 3% 3% -2% Selected items as % of revenue: Gross profit 31% 31% 30% 30% EBIT ex. pre-opening costs 5% 5% 4% 0% D&A 3% 3% 3% 4% Capex 4% 3% 4% 5% ∆ average diluted shares out -5% -4% -3% -19%

1 Does not include seasonally strong FQ4. 2 Excludes legacy B. Dalton stores. INVESTMENT HIGHLIGHTS

• 17% share of U.S. consumer book market, which is expected to grow from $21 billion in 2006 to $24 billion in 2011, a 2.6% CAGR.* The company has four decades of bookselling experience.

• Focused on gaining share via new stores; expects to open 35-40 new B&N stores in FY08.

• Popular “community store” concept, with typical stores offering a comprehensive title base, a café, a children’s section, a music/DVD department, a magazine section and a calendar of in-store events.

• Less dependent on bestsellers than might be assumed (3-5% of store sales from bestsellers).

• Company-owned publisher Sterling, founded in 1949, is a leading publisher of non-fiction. Imprints include Hearst Books and Union Square Press.

* Source: Veronis Suhler Stevenson Communications Industry Forecast.

• Sourcing greater portion of inventory through own distribution centers, resulting in more direct buying from publishers rather than wholesalers.

• B. Dalton winddown nearly complete, with nearly 900 stores closed since 1989. 85 stores remain, 93% of which have leases expiring in the near future.

• Shares trade at .2x EV to trailing revenue, 10x trailing P/E and 15x forward P/E.


• Holiday B&N store sales down 5%, with SSS down 8%, in line with prior guidance (SSS rose in last two weeks of season). Online comp sales fell 11%. Management maintained FY08 EPS guidance of $1.30-1.60 following the holiday results.

• Price competition. B&N stores sell bestsellers and selected feature titles at 20-30% off publishers’ suggested retail prices. Mass merchandisers such as Wal-Mart and Costco also compete aggressively on price, though their book selection is more limited.

• Less personalization than Amazon.com. Still, each B&N store has 60K-200K unique titles, of which 50K are common across stores. The balance reflects the interests of each store’s customers.**

• Absence of hard asset protection, as the company owns the real estate associated with only one store.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

AMZN 27,110 23,850 1.2x 12.1x 43x 33x BAMM 40 90 .2x 0.4x n/a n/a BGP 30 520 .1x 0.1x n/m n/m BKS 950 1,060 .2x 1.8x 12x 15x

MAJOR HOLDERS Chairman Leonard Riggio 32% │ CEO Stephen Riggio 4% │ Other insiders 1% │ Arnhold & S. Bleichroeder 11% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year? ** The company displays a lack of sophistication on the Internet by referring to its online unit as Barnes & Noble.com. The company should instead label the unit BarnesandNoble.com, a URL customers can actually visit (if you type Barnes&Noble.com into a web browser, you receive an error message).

THE BOTTOM LINE For almost a decade after analysts began doubting Barnes & Noble’s ability to survive in the face of competition from Amazon.com and other online retailers, the company has continued to grow stores, revenue and cash flow. The “community store” concept has kept B&N stores relevant amid Internet-based price competition. However, with companies such as Starbucks more aggressively competing for consumers’ time and pocketbooks, B&N may face increasing challenges. We do not find enough value in Barnes & Noble shares to compensate us for the significant near-term and long-term business risks.


Burlington Northern Santa Fe (NYSE: BNI) Fort Worth, TX, 800-795-2673

Transportation: Railroads, Member of S&P 500 http://www.bnsf.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 8,979 9,413 10,946 12,987 14,985 15,802 18,018 18,018 4,245 4,373 Gross profit 2,587 2,575 2,698 4,038 4,697 4,779 5,309 6,457 1,520 1,647 EBIT 1,656 1,665 1,686 2,927 3,521 3,486 3,912 3,912 950 1,116 Net income 760 816 791 1,534 1,889 1,829 2,115 2,115 517 615 Diluted EPS 2.00 2.09 2.10 4.02 5.11 5.10 6.08 6.09 1.45 1.79 Cash from ops 2,106 2,285 2,377 2,706 3,189 3,492 3,977 3,977 1,027 674 Capex 1,358 1,726 1,527 1,750 2,014 2,248 3,116 3,116 473 1,404 Free cash flow 748 559 850 956 1,175 1,244 861 861 554 (730) Cash & investments 28 18 322 75 375 330 633 633 330 633 Total current assets 791 870 1,615 1,880 2,181 2,181 2,665 2,665 2,181 2,665 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 25,767 26,947 28,925 30,304 31,797 33,583 36,403 36,403 33,583 36,403 Short-term debt 173 244 465 456 473 411 456 456 411 456 Total current liabilities 2,091 2,354 2,716 3,229 3,326 3,235 3,646 3,646 3,235 3,646 Long-term debt 6,641 6,440 6,051 6,698 6,912 7,735 9,099 9,099 7,735 9,099 Total liabilities 17,835 18,452 19,614 20,796 21,269 22,439 25,272 25,272 22,439 25,272 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 7,932 8,495 9,311 9,508 10,528 11,144 11,131 11,131 11,144 11,131 EBIT/capital employed 7% 7% 7% 12% 13% 13% 13% 13% n/m n/m



$0

$20

$40

$60

$80

$100

$120

$140


BUSINESS OVERVIEW Burlington Northern provides freight rail transportation of coal and consumer, industrial and agricultural products. PRIMARY ROUTES*

* Includes trackage rights. Source: Company. INVESTMENT HIGHLIGHTS

• One of North America’s largest rail networks, with 32,000 route miles in 28 states and Canada.

• Balanced revenue base, with four major sources of freight revenue: intermodal, industrial products, coal, and agricultural products.

• Competitive advantage versus trucking. The company’s intermodal transport lags the delivery time of trucking slightly but offers big cost savings.

• Strong intermodal franchise, with one-third of revenue from consumer products transportation, which interfaces with other types of transportation.

• Balanced agri business, with 26% and 8% of segment sales from corn and ethanol, respectively.

• May benefit from higher infrastructure spending under Obama, particularly in industrial products.



• Affected by coal market dynamics. Sharp declines in coal shipments hurt BNI’s revenue and income. While coal is a volatile commodity, it is expected to remain strategic to U.S. electric power generation. The EIA expects coal supply to increase one-third from 2007 to 2030 to more than 1.5 billion tons.

• Industrial franchise exposed to housing slump, as 26% and 37% of segment revenue comes from building and construction products, respectively.

• Nearly one-half of consumer products revenue relates to imports, exposing the company to a potential decline in Americans’ appetite for imports.

MAJOR HOLDERS Insiders 1% │ Berkshire Hathaway 22% │ Cap Re 6% │ Barclays 4% │ State Street 3% │ Fidelity 2%

SELECTED OPERATING DATA FYE December 31 2006 2007 2008 % of revenue by business group: Freight – consumer products 37% 36% 34% Freight – industrial products 24% 23% 22% Freight – coal 19% 21% 22% Freight – agricultural products 16% 17% 19% Other 3% 3% 3% Revenue growth by business group: Freight – consumer products 15% 1% 7% Freight – industrial products 15% 3% 9% Freight – coal 19% 12% 21% Freight – agricultural products 14% 12% 26% ∆ revenue 15% 5% 14% ∆ units 6% -3% -3% ∆ revenue per unit (avg) 9% 9% 18% Selected operating metrics: Locomotives (period end) 6,330 6,400 n/a Freight cars (period end) 85,121 85,338 n/a Track miles of rail laid 854 994 933 Track resurfaced (miles) 12,588 11,687 13,005 Productivity 1 27,092 27,222 27,360 Cars/units ('000) 10,637 10,318 9,994 Revenue ton miles (RTN) (mn) 647,857 657,572 664,384 Freight revenue per '000 RTN $22.45 $23.34 $26.34 Opex ex. D&A as % of revenue: Compensation and benefits 25% 24% 22% Fuel 18% 20% 26% Purchased services 13% 13% 12% Equipment rents 6% 6% 5% Materials and other 6% 7% 6% Total opex ex. D&A 69% 70% 71% D&A as % of revenue 8% 8% 8% Maintenance capex as % of rev. 10% 11% 11% Expansion capex as % of rev. 3% 4% 1% ROE 19% 17% 19% Equity to total assets (avg) 32% 33% 32% Adjusted net debt to total cap.2 52% 52% n/a ∆ diluted shares out (avg) -3% -3% -3%

1 Calculated as thousand gross ton miles divided by avg number of employees. 2 Net debt to cap, adjusted for long-term operating leases and other items. COMPARABLE PUBLIC COMPANY ANALYSIS

Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

UNP 21,890 29,570 1.6x 1.4x 10x 9x NSC 13,820 19,870 1.9x 1.4x 9x 8x CP 4,710 8,370 2.2x 1.0x n/a n/a BNI 22,410 31,330 1.7x 2.0x 12x 10x


THE BOTTOM LINE Burlington Northern is Buffett’s chosen “vehicle” in the railroad industry. The latter has outperformed trucking due to high gas prices, elevated coal and agri commodity prices and greater scrutiny of emissions. The company has posted returns on invested capital of ~10% and returns on equity of 15-20%. While the company may sustain above-average returns for some time, we remain skeptical that capital-intensive railroad businesses will be able to reinvest capital at high rates over the long term. We would become interested in BNI only if price approached tangible book (adjusted for the fair value of real estate).


SELECTED SLIDES FROM PRESENTATION AT BB&T CAPITAL MARKETS CONFERENCE, FEBRUARY 11, 2009 Source: http://www.bnsf.com/investors/presentations/pdf/2009bbt.pdf


Canadian Natural Resources (NYSE: CNQ) Calgary, AB, Canada, 403-517-7345

Energy: Oil & Gas Operations http://www.cnrl.com

Trading Data Consensus EPS Estimates Valuation Price: $34.50 (as of 2/13/09) Month # of P/E FYE 12/31/07 9.7x 52-week range: $26.43 - $109.32 Latest Ago Ests This FY forward P/E n/a Market value: $18.7 billion This quarter n/a n/a n/a Next FY P/E n/a Enterprise value: $28.2 billion Next quarter n/a n/a n/a Next 2 Yrs FY P/E n/a Shares out: 540.9 million This FY n/a n/a n/a EV / LTM revenue 2.4x

Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA 4.6x Insider ownership: 4% Next 2 Yrs n/a n/a n/a EV / LTM EBIT 7.3x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 1.4x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 70% Date Actual Estimate LTM EBIT yield 14% # of institutional owners: 605 n/a n/a n/a LTM pre-tax ROC 14%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 2,613 3,174 4,346 5,971 8,032 8,553 9,174 11,913 2,247 3,267 Gross profit 1,852 2,193 3,136 4,019 5,600 5,763 6,086 8,306 1,505 2,353 EBIT 836 758 1,508 1,641 1,389 2,795 2,083 3,888 806 3,304 Net income 582 496 1,114 1,165 851 2,135 1,927 3,301 576 2,332 Diluted EPS 1.17 0.94 2.01 2.16 1.55 3.91 3.55 5.99 1.07 4.31 Cash from ops 1,553 1,621 2,535 3,035 3,946 3,435 4,787 5,472 1,212 1,380 Capex 1,602 2,099 2,045 3,769 4,393 5,977 5,317 5,938 1,169 1,431 Free cash flow (49) (479) 490 (734) (447) (2,542) (531) (466) 43 (51) Cash & investments 12 25 86 23 15 19 17 12 17 12 Total current assets 431 638 703 987 1,687 1,842 1,794 1,789 1,685 1,789 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 7,437 10,989 12,045 15,113 17,976 27,278 29,708 32,764 29,023 32,764 Short-term debt 13 20 151 160 0 0 0 0 0 0 Total current liabilities 436 649 1,119 1,524 3,147 2,526 2,931 2,697 2,363 2,697 Long-term debt 2,196 3,351 2,261 2,910 2,732 9,084 8,999 9,569 8,790 9,569 Total liabilities 4,254 6,985 7,105 9,088 11,200 18,484 18,750 19,186 18,681 19,186 Preferred stock 97 104 0 0 0 0 0 0 0 0 Common equity 3,085 3,901 4,941 6,025 6,776 8,794 10,958 13,577 10,342 13,577 EBIT/capital employed 12% 9% 14% 13% 10% 14% 8% 14% n/m n/m



$0

$20

$40

$60

$80

$100

$120


BUSINESS OVERVIEW Canadian Natural Resources is a senior producer of crude oil, NGL, natural gas and bitumen, operating in western Canada, the North Sea and Offshore West Africa. Natural gas is the largest single commodity sold (~45% of production). Light/ medium oil and NGLs (23% of production) are located in the North Sea and West Africa. Heavy crude oil in Alberta and Saskatchewan accounts for one-quarter of production. Other heavy crude oil (6% of production) is at Pelican Lake in north Alberta and has medium crude netback characteristics. In 2006, the company paid $4.6 billion for Anadarko Canada, which operates natural gas-weighted assets with a long reserve life, located in western Canada. SELECTED OPERATING DATA


9/30/08 ∆ production of oil & NGLs 11% 6% 0% -3% ∆ production of natural gas 4% 4% 12% -10% ∆ corporate pricing of oil 23% 14% 3% 74% ∆ corporate pricing of gas 32% -22% 2% 26% ∆ revenue 35% 5% 8% 46% ∆ revenue net of royalties 35% 6% 7% 44% % of revenue by segment: North America 80% 78% 81% 83% North Sea 15% 14% 13% 11% Offshore West Africa 4% 8% 6% 6% Midstream 1% 1% 1% 0% Selected items as % of revenue: Production expense 15% 17% 17% 13% Transportation expense 12% 12% 13% 12% DD&A expense 18% 21% 23% 15% Capex, net of dispositions 44% 103% 51% 41% Capex, ex. Horizon Project 30% 75% 24% 19% Cash from ops (non-GAAP)1 45% 42% 49% 40% Netback ($/boe): Sales price 48.77 47.92 49.05 76.73 Royalties 6.82 5.89 6.26 11.22 Production expense 8.21 9.14 9.75 11.70 Netback 33.74 32.89 33.04 53.81 Pricing2 – oil, NGLs (C$/bbl) 47 54 55 95 Pricing2 – gas (C$/mcf) 8.57 6.72 6.85 8.83

1 Represents GAAP net income adjusted for non-cash items before working capital adjustments. Cash from ops, as defined by the company, equals net income plus the following items: DD&A, asset retirement obligation accretion, stock-based comp, unrealized hedging loss, unrealized forex loss, deferred petroleum revenue tax expense, and future income tax expense. 2 Represents corporate average price before hedges. INVESTMENT HIGHLIGHTS

• Owns oil sands leases in Alberta; commenced phase one of Horizon project in 2005. Phase one production began in 3Q08 and is expected to ramp up to 110,000 bbl/d of synthetic light crude oil (SCO). Phases two and three target production expansion to 232,000 bbl/d of SCO by 2013. The three phases should deliver 37 years of production.

• Oil sands leases near Fort McMurray, Alberta contain 6 billion barrels of potentially recoverable bitumen using existing technologies.

• Canadian Natural seeks large ownership stakes, operates the properties and attempts to dominate the local land position and operating infrastructure.

• Multi-year organic growth prospects due to 13 million net acres of core undeveloped land base.

• Forecasts 2008 pre-royalty production of ~1,500 mmcf/d natural gas and ~315,000 bbl/d crude/NGL.

• Long-standing management with strong track record and reputation for shareholder orientation.

• Shares trade at 1.4x tangible book value and 6x trailing P/E (no EPS estimates available).


• Highly sensitive to price of oil. Results depend directly on market prices of oil and gas. Production costs in Canada’s oil sands are generally higher than in other oil regions, resulting in greater operating leverage for oil sands producers. Should oil prices return to past lows, the viability of oil sands-based production might be called into question.

• Subject to government royalties. Canada regulates oil sands producers. Alberta recently revised its royalty regulations, resulting in higher royalties payable by the company. It appears that the royalty mechanism in general dilutes shareholders’ upside in the scenario of sharply higher oil and gas prices.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

ECA 32,780 40,240 1.4x 1.6x n/a n/a IMO 27,540 26,060 1.0x 3.9x n/a n/a SU 18,460 22,670 1.0x 1.6x n/a n/a PCZ 11,190 12,980 .6x 0.9x n/a n/a CNQ 18,660 28,220 2.4x 1.4x n/a n/a

MAJOR HOLDERS Employees 10% │ Fidelity 11% │ Capital World 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Canadian Natural enjoys a solid operating base in Canadian oil sands, putting it in a position to grow production without acquiring additional assets. The company generates strong operating cash flow and is investing heavily in new production (Horizon and other projects). With capable and shareholder-friendly management in place, Canadian Natural is a logic choice among oil sands companies. Obviously, the Canadian Natural’s destiny is inextricably intertwined with the future demand for and price of oil and gas. Investors with a bullish view on those commodities should seriously consider the shares.


…additional insight into CNQ: SELECTED COMPANY SLIDES, FEBRUARY 2009

SUPERINVESTOR INSIGHT INTO CNQ • Bruce Berkowitz, interview with Kiplinger’s

Personal Finance magazine in January 2009: − “Earlier this decade, when oil and gas prices were

much lower and people were very down on the sector, we found a few companies that we thought did exceptionally well in almost all price environments. We focused on Canadian Natural Resources. It wasn’t well known in the U.S., but it was run by a man named Murray Edwards, who is a human computer.”

− Question: “You’ve cut back on that position, haven’t you?” Answer: “Yes. When the stock approached $100 a share and people started saying oil had to go to $200 a barrel, we dramatically cut that position. But lately we’re seeing some energy stocks at levels that assume oil prices of $35 a barrel, and so, in a very short period of time, we’ve reversed course again on energy stocks.”

• Bruce Berkowitz, Semi-Annual Report of The Fairholme Fund for period ended May 31, 2008:

− “…as energy stocks surged this year, we took profits in Canadian Natural Resources, reducing our position … Oil and gas prices have multiplied since our initial purchases and are now high enough to increase supply and slow demand. Alternative sources such as solar and wind are booming while sales of SUVs and other gas hogs have plunged.”

• Bruce Berkowitz, Annual Report of The Fairholme Fund for period ended November 30, 2007:

− “Energy continues to be a substantial component of the Fund with Canadian Natural Resources the second largest Fund investment [15% of assets]. Notwithstanding the province of Alberta’s proposed royalty increases, the company has a unique ability to materially increase production without acquisition in today’s high price/high cost environment. Canadian Natural remains undervalued in a world where most reserves are subject to significant political risk and long term-demand threatens to outrun supply.”

• Bruce Berkowitz, interview with Consuelo Mack in August 2007:

− “…whether it’s Warren Buffett at Berkshire Hathaway, or the management team that created Canadian Natural… these are people with great paper trails, have their family net worth on the line with these companies.”

− “The company is gushing cash, tremendous amounts of cash. They have the people, the plan, the assets to triple production over the next 15 years without buying another asset. Oil—we’re not making it any more. It’s a depleting asset. You can’t recycle it. The cheap stuff is going. Demand from Asia, from America, from the Middle East—global demand for energy is increasing. Demand is growing faster than supply. Get a good management team… I can't see how they’ll do badly.”


CANADIAN NATURAL RESOURCES (NYSE: CNQ)


ConocoPhillips (NYSE: COP) Houston, TX, 281-293-1000

Energy: Oil & Gas - Integrated, Member of S&P 500 http://www.conocophillips.com

Trading Data Consensus EPS Estimates Valuation Price: $45.67 (as of 2/13/09) Month # of P/E FYE 12/31/08 n/m 52-week range: $41.27 - $95.96 Latest Ago Ests P/E FYE 12/31/09 11.1x Market value: $68.1 billion This quarter $0.73 $1.17 11 P/E FYE 12/31/10 7.6x Enterprise value: $89.1 billion Next quarter 0.97 1.25 10 P/E FYE 12/31/11 5.0x Shares out: 1,490.8 million FYE 12/31/09 4.10 6.35 14 EV / LTM revenue 0.4x

Ownership Data FYE 12/31/10 6.01 7.50 9 EV / LTM EBITDA 13.6x Insider ownership: 8% FYE 12/31/11 9.07 10.20 7 EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth 8.1% 8.4% 3 P / tangible book 1.1x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 78% Date Actual Estimate LTM EBIT yield -3% # of institutional owners: 2644 1/28/09 $1.28 $1.21 LTM pre-tax ROC -3%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 57,201 105,097 136,916 183,364 188,523 194,495 246,182 246,182 54,298 44,904 Gross profit 14,680 30,478 39,362 49,877 59,211 60,383 65,701 45,064 16,252 11,926 EBIT 2,141 8,309 14,369 23,547 28,333 23,272 (3,593) (2,471) 7,324 (30,404) Net income (295) 4,735 8,129 13,529 15,550 11,891 (16,998) (16,998) 4,371 (31,764) Diluted EPS 0.72 3.35 5.79 9.63 9.66 7.22 (11.16) (11.86) 2.71 (21.37) Cash from ops 4,978 9,356 11,959 17,628 21,516 24,550 22,658 22,658 6,920 3,122 Capex 4,388 6,169 9,496 11,620 15,596 11,791 19,099 19,099 3,884 8,564 Free cash flow 590 3,187 2,463 6,008 5,920 12,759 3,559 3,559 3,036 (5,442) Cash & investments 142 307 490 1,387 2,214 817 1,456 1,116 1,379 1,116 Total current assets 6,498 10,903 11,192 15,021 19,612 25,066 24,735 28,326 23,639 28,326 Intangible assets 3,142 15,563 16,169 16,086 16,439 32,439 30,232 30,085 30,273 30,085 Total assets 35,217 76,836 82,455 92,861 106,999 164,781 177,757 184,607 173,427 184,607 Short-term debt 44 849 1,440 632 1,758 4,043 1,398 387 405 387 Total current liabilities 4,821 12,816 14,011 15,586 21,359 26,431 26,882 29,510 24,078 29,510 Long-term debt 9,260 19,267 16,340 14,370 10,758 23,091 20,289 21,713 21,471 21,713 Total liabilities 20,877 47,319 48,089 50,138 54,268 82,135 88,774 91,731 86,494 91,731 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 14,340 29,517 34,366 42,723 52,731 82,646 88,983 92,876 86,933 92,876 EBIT/capital employed 9% 25% 33% 49% 56% 33% -4% -3% n/m n/m



$0

$20

$40

$60

$80

$100

$120


BUSINESS OVERVIEW ConocoPhillips operates in six integrated segments: E&P explores for and produces oil, gas and NGLs. Midstream processes natural gas and fractionates NGLs. It consists of a 50/50 JV with Duke (on books for $1 billion). R&M refines and markets oil and petroleum products, with interests in 17 refineries, 12 of which are in the U.S. Lukoil represents 20% stake (170 million shares) in Lukoil (London SE: LKOD), the Russian oil and gas producer (on books for $11 billion; recent market value: $5 billion). Chemicals consists of a 50% JV (on books for $2 billion). Emerging comprises investments outside normal operations. ConocoPhillips acquired Burlington Resources for $34 billion (cash of $18 billion and 270 million shares) in 2006. INVESTMENT HIGHLIGHTS

• Sixth-largest in proved reserves (on BOE basis) among non-government-controlled firms globally. The company is also a large U.S. producer of NGLs.

• Second-largest U.S. refining capacity, fifth-largest among non-government-controlled firms globally. The company’s 50%-owned affiliate CPChem is a top ten producer of various types of chemicals.

• Markets gas and other fuels via 8,750 outlets under Conoco, Phillips 66 or 76 brands in U.S.

• Chairman and CEO James Mulva (61) has led the company since the Conoco-Phillips merger in 2002.

• Shares trade at 5% trailing FCF yield and 11x forward P/E (trailing GAAP EPS loss reported).


• Commodity producer, dependent on market prices.• Exposure to global political risks, as 63% of

production and 59% of reserves are outside the U.S. COMPARABLE PUBLIC COMPANY ANALYSIS

Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

XOM 371,160 342,990 .7x 3.0x 15x 11x CVX 141,680 137,660 .5x 1.7x 13x 9x BP 136,900 168,650 .5x 1.9x 10x 7x COP 68,090 89,070 .4x 1.1x 11x 8x


SELECTED OPERATING DATA FYE December 31 2006 2007 2008 % of revenue by segment: E&P 27% 25% n/a Midstream 2% 2% n/a R&M 69% 69% n/a Lukoil1 0% 0% n/a Chemicals 0% 0% n/a Emerging 0% 0% n/a Corporate and other 0% 0% n/a Total sales and operating revenue 97% 96% 98% Equity in earnings of affiliates 2% 3% 2% Other income 0% 1% 0% % of net income by segment: E&P 63% 39% 79% Midstream 3% 4% -3% R&M 29% 50% -14% Lukoil 9% 15% 32% Chemicals 3% 3% -1% Emerging 0% 0% 0% Corporate and other -8% -11% 6% Selected items as % of revenue: EBIT 16% 13% -1% DD&A, impairments and other2 4% 7% 5% Capex and investments, net -8% -4% -7% Net income 8% 6% -7% Selected growth rates – consolidated operations: Revenue 2% 2% 28% Production – crude oil 9% -10% n/a Production – natural gas 52% 2% n/a Production – NGLs 49% 14% n/a Sales price – crude oil (avg) 21% 11% n/a Sales price – natural gas (avg) -2% 1% n/a Sales price – NGLs (avg) 8% 14% n/a Production cost – BOE (avg) 25% 28% n/a Standardized DCF measure -4% 30% n/a Selected growth rates – equity affiliates (Lukoil and others): Equity in earnings of affiliates 21% 21% -16% Production – crude oil 34% 2% n/a Production – natural gas 242% 3% n/a Sales price – crude oil (avg) 13% 15% n/a Sales price – natural gas (avg) 24% 77% n/a Production cost – BOE (avg) 16% 20% n/a Standardized DCF measure -25% 61% n/a Proved reserves – developed and undeveloped:3 Crude oil (mn of barrels) 5,890 5,502 n/a NGLs (mn of barrels) 806 818 n/a Natural gas (bn of cubic ft) 26,835 25,438 n/a Standardized DCF measure ($bn)4 $64 $87 n/a % in U.S. – Alaska5 18% 17% n/a % in U.S. – Lower 485 23% 18% n/a % in Canada5 10% 9% n/a % in Europe5 15% 15% n/a % in Asia Pacific5 13% 13% n/a % from Russia and others5,6 22% 27% n/a

1 Accounted for under the equity method. 2 Includes dry hole costs and expropriation ($4.6 billion expropriated in 2007). 3 Includes look-through net reserves of equity affiliates. 4 Computed using year-end prices and costs and 10% discount rate. 5 Represents Manual of Ideas estimate; assumes that net reserves associated with equity affiliates are located in the Middle East, Africa and Russia. 6 Includes Russia, Middle East and Africa. MAJOR HOLDERS Insiders <1% │ Berkshire Hathaway 5% │ Barclays 4%

THE BOTTOM LINE ConocoPhillips offers a cheap way of buying into oil and gas reserves. Investors with inflation concerns or a bullish outlook on oil prices should weigh an investment in ConocoPhillips versus alternatives such as Canadian Natural (CNQ) and Harvest Natural (HNR). That said, we do not believe the company can sustain above-average returns on capital in the long term.


Depomed (Nasdaq: DEPO) Menlo Park, CA, 650-462-5900

Health Care: Biotechnology & Drugs http://www.depomedinc.com

Trading Data Consensus EPS Estimates Valuation Price: $2.48 (as of 2/13/09) Month # of P/E FYE 12/31/07 2.4x 52-week range: $1.01 - $4.52 Latest Ago Ests P/E FYE 12/31/08 n/m Market value: $127 million This quarter -$0.26 -$0.26 1 P/E FYE 12/31/09 n/m Enterprise value: $62 million Next quarter -0.24 -0.24 1 P/E FYE 12/31/10 n/m Shares out: 51.0 million FYE 12/31/08 -0.52 -0.52 1 EV / LTM revenue 2.0x

Ownership Data FYE 12/31/09 -0.80 -0.80 1 EV / LTM EBITDA n/a Insider ownership: 12% FYE 12/31/10 -0.40 -0.40 1 EV / LTM EBIT 3.3x Insider buys (last six months): 5 LT EPS growth n/a n/a n/a P / tangible book 4.0x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 60% Date Actual Estimate LTM EBIT yield 30% # of institutional owners: 172 10/30/08 -$0.12 -$0.15 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 4 2 1 0 4 10 66 31 53 14 Gross profit 0 0 0 0 4 8 63 26 52 12 EBIT (14) (10) (29) (26) (26) (42) 48 19 44 (1) Net income (18) (14) (30) (27) (25) (40) 49 20 44 (1) Diluted EPS (1.72) (0.92) (1.23) (0.78) (0.64) (0.97) 1.05 0.41 0.92 (0.01) Cash from ops (12) (4) (33) (23) 29 (28) 15 31 10 9 Capex 1 1 1 3 1 1 0 0 0 0 Free cash flow (14) (5) (34) (26) 28 (29) 15 30 10 9 Cash & investments 5 20 44 18 59 32 54 85 30 85 Total current assets 6 21 45 19 63 48 63 96 38 96 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 9 23 48 23 66 53 81 97 56 97 Short-term debt 1 0 0 0 0 0 0 3 0 3 Total current liabilities 5 9 4 4 8 22 14 16 15 16 Long-term debt 6 9 10 10 0 0 0 7 0 7 Total liabilities 10 18 13 15 60 80 35 54 37 54 Preferred stock 12 12 12 12 12 12 12 12 12 12 Common equity (14) (6) 23 (4) (5) (39) 34 31 8 31 EBIT/capital employed n/m n/m n/m -8767% n/m n/m n/m n/m n/m n/m



$2

$4

$6

$8

$10

$12

$14

$16


BUSINESS OVERVIEW Depomed is a specialty pharma company with two approved products on the market and other product candidates in the pipeline. GLUMETZA is approved for use in adults with type 2 diabetes and promoted by Santarus in the U.S. ProQuin XR is approved in the U.S. for the once-daily treatment of uncomplicated urinary tract infections and is being marketed by Watson Pharma. Product candidate Gabapentin GR is currently in clinical development for the treatment of neuropathic pain and menopausal hot flashes. DRUG PIPELINE OVERVIEW

Preclinical Ph. 1 Ph. 2 Ph. 3 Marketed GLUMETZA1 U.S. / Canada Proquin XR2 U.S. Gabapentin GR3 Phase 3 ongoing Gabapentin GR4 Phase 3 ongoing Omeprazole GR5 Levodopa6 Proof of concept Undisclosed7 1 For Type 2 diabetes. Canadian rights held by Biovail. 2 For uncomplicated urinary tract infections. Sold in U.S. and Europe. 3 For postherpetic neuralgia. 4 For menopausal hot flashes. 6 For Parkinson’s disease. 5 For nighttime acid breakthrough. 7 Two undisclosed compounds.


• Differentiated drug delivery technology. The company utilizes proprietary AcuForm delivery technology to improve existing oral medications, allowing for extended, controlled release of medications to the upper gastrointestinal tract. Benefits include convenience of once-daily administration, improved treatment tolerability and enhanced compliance and efficacy.

• Litigation-tested IP. DepoMed’s AcuForm patents expire in 2016-21, with numerous applications pending. The company has won two separate settlements amounting to a total of $28 million.

• Superior development model. AcuForm provides new chemical entity (NCE)-like differentiation to existing pharmaceuticals (KCEs). Development timeframes and costs range from 4-6 years and $20-$40 million vs. 8+ years and $1+ billion for NCEs.

• GLUMETZA targets large market. Metformin for diabetes is 5th most prescribed U.S. drug with 49 million transcriptions. Depomed has so far targeted only 13K out of 73K Metformin prescribers.

• Strong cash position. Depomed had net cash of $76 million as of September 30, 2008, providing ample liquidity to pursue pipeline development.

• Shares trade at 24% trailing FCF yield and 6x trailing P/E (forward loss projected).

INVESTMENT RISKS & CONCERNS • Losing money in recurring operations. Depomed

has appeared as cheap on an earnings basis due to non-recurring gains. The company expects to continue to post adjusted operating losses in the foreseeable future.

• Failed Phase 3 trial for Gabapentin GR. Depomed announced in July 2007 that the drug candidate failed to meet the primary efficacy endpoint in a trial for postherpetic neuralgia (PHN).

• New GLUMETZA partner yet to be identified. A promotion agreement with King Pharmaceuticals was terminated in October 2007, following a strategic shift by King. Depomed has yet to identify a new marketing partner for GLUMETZA.

• Limited in-house sales and marketing resources. The company has engaged a contract sales organization to promote GLUMETZA on a temporary basis, as Depomed has no sales force and limited marketing and sales staff.

• Dependent on Watson Pharma for ProQuin XR. Depomed depends on Watson to successfully promote the drug. The company’s prior marketing partner for ProQuin XR, Esprit Pharma, was unable to successfully commercialize the drug.

• Should not be on “Magic Formula” list. Depomed became an MF selection due to one-time items. It has recorded $42 million of termination fees and litigation settlement proceeds over the past year.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

BMY 42,930 41,750 2.0x 6.2x 11x 10x TEVA 35,910 37,320 3.5x 8.0x 16x 15x DEPO 130 70 2.2x 4.1x n/m n/m

MAJOR HOLDERS CEO Smith <1% │ Other insiders 5% │ Third Point 15% │ Tang 10% │ JP Morgan 10% │ Biovail 10% │ Polygon 6% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Depomed’s reported profitability depends entirely on one-time gains. While Depomed’s two approved drugs and drug pipeline may have significant embedded value, we have no basis on which to make such a judgment. As a result, we pass.


DISH Network (Nasdaq: DISH) Englewood, CO, 303-723-1000

Services: Broadcasting & Cable TV http://www.dishnetwork.com


Ownership Data FYE 12/31/09 2.16 2.32 17 EV / LTM EBITDA 3.5x Insider ownership: 80% FYE 12/31/10 2.31 2.42 11 EV / LTM EBIT 5.5x Insider buys (last six months): 4 LT EPS growth 5.7% 7.3% 3 P / tangible book n/m Insider sales (last six months): 3 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 42% Date Actual Estimate LTM EBIT yield 18% # of institutional owners: 608 11/10/08 $0.20 $0.59 LTM pre-tax ROC >100%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 4,001 4,821 5,739 7,159 8,447 9,819 11,090 11,587 2,794 2,937 Gross profit 1,438 1,884 2,251 2,677 3,797 4,439 5,008 5,070 1,267 1,195 EBIT 212 (238) 708 703 1,167 1,217 1,573 1,939 397 418 Net income (216) (415) 225 215 1,515 608 756 861 200 92 Diluted EPS (0.45) (0.86) 0.46 0.46 3.22 1.37 1.68 1.89 0.44 0.20 Cash from ops 490 67 576 1,001 1,774 2,279 2,617 2,546 707 484 Capex 638 436 322 981 1,541 1,396 1,542 1,259 330 316 Free cash flow (148) (369) 254 21 233 883 1,075 1,287 377 168 Cash & investments 2,828 2,687 3,973 1,156 1,181 3,033 2,788 1,433 2,802 1,433 Total current assets 3,512 3,214 4,573 2,113 2,397 4,600 4,245 2,857 4,270 2,857 Intangible assets 696 696 725 980 975 946 1,321 685 915 685 Total assets 6,520 6,261 7,585 6,029 7,410 9,769 10,087 7,177 9,746 7,177 Short-term debt 15 388 1,438 34 37 1,039 1,551 1,008 48 1,008 Total current liabilities 1,488 1,990 2,972 2,072 2,150 3,592 4,225 4,175 2,725 4,175 Long-term debt 5,707 5,359 5,499 5,758 5,899 5,929 4,575 4,973 6,086 4,973 Total liabilities 7,298 7,437 8,618 8,108 8,277 9,988 9,447 9,307 9,286 9,307 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity (778) (1,176) (1,033) (2,078) (867) (219) 640 (2,130) 460 (2,130) EBIT/capital employed 19% -24% 77% 56% 56% 45% 56% >100% n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

$80


BUSINESS OVERVIEW DISH Network provides satellite television in the U.S., offering hundreds of channels, digital video recording and HDTV. The company began subscription TV services in 1996 and had 14 million subscribers at yearend 2007. DISH utilizes a satellite fleet that enables it to offer 2,700 video and audio channels, including local programming. On January 1, 2008, DISH spun off technology and certain infrastructure assets into EchoStar Corporation (SATS). SELECTED OPERATING DATA

FYE December 31

2005

2006

2007

YTD 9/30/08

Selected growth rates: Subscriber revenue 19% 17% 13% 8% ARPU 6% 8% 5% 6% Subscribers (average) 13% 10% 7% 3% Subscribers (period end) 10% 9% 5% 1% Subscriber acq. cost (SAC) 13% -1% -4% 10% Selected items as % of subscriber revenue: Subscriber gross profit 49% 49% 49% 49% SAC 19% 17% 15% 14% EBIT 15% 13% 15% 18% D&A 10% 12% 12% 9% Capex 19% 15% 14% 10% FCF 3% 9% 11% 11% DISH Network subscriber data (mn, except if stated otherwise): Subscribers (period end) 12.0 13.1 13.8 13.8 Subscribers (average) 11.5 12.6 13.4 13.8 Gross additions 3.4 3.5 3.4 2.3 Net additions 1.1 1.1 0.7 0.0 Monthly churn 1.65% 1.64% 1.70% 1.86% Monthly ARPU ($) 58 63 66 69 SAC ($) 693 686 656 715 SAC / ARPU (months) 11.9 10.9 10.0 10.4


• Positioned as low-cost provider of multi-channel pay TV services, competitive on price and programming versus cable television providers and DirecTV. Subscriber growth is driven by equipment subsidies and promotional pricing on programming.

• Utilizes twelve satellites in geostationary orbit, five of which are owned by DISH, six are leased from EchoStar and one is leased from a third party.

• Purchased 700 MHz spectrum for $712 million in an FCC auction in March 2008. The acquired spectrum covers 76% of the U.S. population.

• Chairman and CEO Charlie Ergen (54) is a well-respected satellite entrepreneur who has led DISH since co-founding it with James DeFranco in 1980. DeFranco (55) serves as EVP of marketing and sales. CFO Bernard Han (43) joined in 2006 from Northwest Airlines, where he had served as CFO.

• DeFranco bought 800K shares at $10 each in Nov. • Shares trade at .9x EV to trailing revenue, 7x

trailing P/E and 6x forward P/E.

INVESTMENT RISKS & CONCERNS • Lost 10,000 subscribers in Q3 due to “weak

economic conditions, aggressive promotional offerings by our competition, our relative discipline in the amount of discounted programming or equipment we currently offer, the heavy marketing of HD service by our competition, the growth of fiber-based pay TV providers, signal theft and other forms of fraud, and operational inefficiencies.”

• Opex grew faster than revenue in Q3, as SAC and retention costs rose. Increased upgrades are likely to continue at least through 1H09.

• AT&T deal terminated on January 31. AT&T accounted for 17% of gross subscriber additions YTD 9/30/08. The one million subscribers acquired through AT&T may churn faster than others.

• Competition from DirecTV and cable. • Net debt of $4.3 billion, purchase obligations of

$1.5 billion, satellite obligations of $924 million. LIQUIDITY SNAPSHOT1

Balance sheet items ($mn) 12/31/07 9/30/08 Cash and ST investments ST $2,788 $1,537 LT cash and investments LT 173 176 Capital leases, mortgages, notes ST (50) (12) 3% convertible note due 2010/11 ST (525) (25) 5 3/4% senior notes due 20081 ST (1,000) (972) 6 3/8% senior notes due 2011 LT (1,000) (1,000) 6 5/8% senior notes due 2014 LT (1,000) (1,000) 7 1/8% senior notes due 2016 LT (1,500) (1,500) 7% senior notes due 2013 LT (500) (500) 7 3/4% senior notes due 2015 LT (0) (750) Capital leases, mortgages, notes LT (550) (223) Net cash and investments ($3,165) ($4,268)

1 Redeemed $972 million of notes on October 1. COMPARABLE PUBLIC COMPANY ANALYSIS

Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

DTV 24,410 28,240 1.4x n/m 14x 11x DISH 6,070 10,620 .9x n/m 7x 6x

MAJOR HOLDERS Class A (209 million out): CEO Ergen 50% │ Other insiders 8% │ Fairholme 10% │ Barclays 8% │ Dodge 6%; Class B (238 million out): CEO Ergen 87% │ Other insiders 11% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE While DISH continues to generate strong free cash flow, the weak economy has negatively affected gross subscriber additions and boosted churn. We find the company’s balance sheet a bit precarious given the difficulty of predicting consumer spending. We can see a scenario in which equity value continues to erode due to claims by creditors.


Eaton (NYSE: ETN) Cleveland, OH, 216-523-5000

Technology: Electronic Instruments & Controls, Member of S&P 500 http://www.eaton.com


Ownership Data FYE 12/31/10 4.61 5.13 16 EV / LTM EBITDA n/a Insider ownership: 1% FYE 12/31/11 5.53 7.24 6 EV / LTM EBIT 8.7x Insider buys (last six months): 2 LT EPS growth 11.0% 9.0% 2 P / tangible book n/m Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 82% Date Actual Estimate LTM EBIT yield 11% # of institutional owners: 1139 1/26/09 $1.08 $1.04 LTM pre-tax ROC 31%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 7,209 8,061 9,712 10,874 12,232 13,033 15,376 15,376 3,374 3,487 Gross profit 1,937 2,164 2,710 3,044 3,283 3,651 4,185 4,185 946 861 EBIT 517 590 868 1,019 1,029 1,177 1,255 1,255 288 163 Net income 281 386 648 805 950 994 1,058 1,058 256 163 Diluted EPS 1.96 2.56 4.07 5.08 5.87 6.38 6.50 6.51 1.67 0.98 Cash from ops 765 900 874 838 1,135 1,431 1,161 n/a 428 n/a Capex 295 228 273 330 363 360 354 n/a 126 n/a Free cash flow 470 672 601 508 772 1,071 807 n/a 302 n/a Cash & investments 428 865 296 336 785 646 530 530 646 530 Total current assets 2,457 3,093 3,182 3,578 4,408 4,767 4,795 4,795 4,767 4,795 Intangible assets 2,420 2,636 3,077 3,765 4,003 5,539 7,750 7,750 5,539 7,750 Total assets 7,138 8,223 9,075 10,218 11,417 13,430 16,655 16,655 13,430 16,655 Short-term debt 201 302 39 634 812 985 1,081 1,081 985 1,081 Total current liabilities 1,734 2,126 2,267 2,968 3,290 3,659 3,745 3,745 3,659 3,745 Long-term debt 1,887 1,651 1,734 1,830 1,774 2,432 3,190 3,190 2,432 3,190 Total liabilities 4,836 5,106 5,469 6,440 7,311 8,258 10,338 10,338 8,258 10,338 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 2,302 3,117 3,606 3,778 4,106 5,172 6,317 6,317 5,172 6,317 EBIT/capital employed 21% 24% 33% 35% 32% 33% 31% 31% n/m n/m



$0

$20

$40

$60

$80

$100

$120


BUSINESS OVERVIEW Eaton is a power management company that provides electrical systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems; and truck and automotive drivetrain and powertrain systems. Eaton targets the following markets: The electrical segment targets construction, commercial, government, institutional, and telecom customers. The hydraulics segment targets OEMs and after-market customers of off-highway and industrial equipment as well as equipment used in oil and gas, fine chemicals, mining, metal forming, and food and beverage applications. The aerospace segment targets manufacturers of commercial and military aircraft and related after-market customers. The truck and automotive segments target OEMs and after-market customers of trucks and passenger cars. SELECTED OPERATING DATA

FYE December 31 2006 2007 2008 % of revenue by segment: 1 Electrical 34% 37% Fluid power 2 33% 34% Truck 21% 16% Automotive 13% 13% Revenue growth by segment: 1 Electrical 11% 14% Fluid power 2 23% 12% Truck 10% -15% Automotive -3% 7% Total revenue growth 12% 7% Pre-tax margin by segment: Electrical 11% 12% Fluid power 2 11% 12% Truck 18% 17% Automotive 8% 13% Corporate -4% -5% Total pre-tax margin 8% 8% D&A as % of revenue 4% 4% Capex as % of revenue 3% 3% ROE 24% 21% Equity to total assets (avg) 36% 39% % of revenue by geography: U.S. and Canada 67% 64% Europe 18% 19% Latin America 8% 9% Asia/Pacific 7% 8% ∆ diluted shares out (avg) -1% -2%

1 Includes acquisitions. 2 Includes hydraulics and aerospace. INVESTMENT HIGHLIGHTS

• Leader in electrical systems and components for power management, with 60,000+ employees.

• On track to meet goals for 2010 (outlined in 2006), including 10% sales growth, 15% income growth, 9% FCF to sales, and 15% ROIC.

• Targeting sales of $18+ billion in 2010. The company’s goal of 10% sales growth consists of 4% growth from acquisitions, 4% from end market growth and 2% from relative outperformance.

• Strategy: (1) grow aftermarket and services, (2) expand in higher-growth regions, (3) boost new product sales to $1.5 billion by 2010.

• Alexander Cutler (56) became chairman and CEO in 2000. He joined Cutler-Hammer in 1975, which was subsequently acquired by Eaton.



• Exposed to downturn in end markets, including construction, aerospace, industrial, and automotive.

• Highly acquisitive. Eaton spent $4+ billion on more than a dozen deals in two years, including acquisitions in Canada, the Czech Republic, France, Germany, India, Spain, and Taiwan. The deals include the $2.3 billion purchase of Germany-based Moeller Group in April 2008 (sales of $1.5 billion).

• Vulnerable to supply shortages and input price inflation. Key raw materials include iron, steel, copper, nickel, aluminum, brass, silver, olybdenum, titanium, vanadium, rubber, and plastic.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

LMT 30,820 32,400 .8x n/m 11x 10x HON 24,310 30,620 .8x n/m 11x 10x RTN 19,350 19,400 .8x n/m 10x 9x JCI 8,120 12,530 .3x 7.0x 30x 9x ITT 7,850 9,030 .8x n/m 12x 12x PH 6,540 9,180 .7x 14.2x 10x 11x MGA 3,440 1,730 .1x 0.5x n/a n/a ETN 7,220 10,960 .7x n/m 11x 10x

MAJOR HOLDERS CEO Cutler 1% │ Other insiders 1% │ Lord Abbett 7% │ Fidelity 6% │ Barclays 5% │ MFS 4% │ Chieftain 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Eaton has executed well, transforming itself from a vehicle component manufacturer to a leader in power management. The company has grown organically and through M&A and has tapped into global growth. While returns on capital employed have been impressive, we doubt their sustainability in a global recession. The company has a leveraged balance sheet, with $10 billion in total liabilities and no tangible book value, putting equity holders at significant risk in a downside scenario.


Forest Laboratories (NYSE: FRX) New York, NY, 212-421-7850

Health Care: Biotechnology & Drugs, Member of S&P 500 http://www.frx.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 1,602 2,246 2,680 3,160 2,962 3,442 3,836 3,948 998 998 Gross profit 1,231 1,741 2,072 2,472 2,311 2,696 3,036 3,129 785 791 EBIT 470 821 937 1,185 870 709 1,210 1,050 391 222 Net income 338 622 736 839 709 454 968 848 302 188 Diluted EPS 0.91 1.66 1.95 2.25 2.08 1.41 3.06 2.76 0.96 0.62 Cash from ops 427 728 628 871 561 888 1,192 1,067 355 282 Capex 68 124 134 109 56 30 450 44 6 14 Free cash flow 359 605 494 763 505 858 742 1,023 349 268 Cash & investments 612 1,442 1,793 1,619 1,027 1,353 1,777 2,190 1,757 2,190 Total current assets 1,195 2,255 2,916 2,708 2,207 2,423 2,908 3,293 2,865 3,293 Intangible assets 280 294 290 278 227 172 543 497 186 497 Total assets 1,952 2,918 3,863 3,705 3,120 3,653 4,525 4,905 4,282 4,905 Short-term debt 0 0 0 0 0 0 0 0 0 0 Total current liabilities 325 564 605 564 421 628 611 604 565 604 Long-term debt 0 0 0 0 0 0 0 0 0 0 Total liabilities 327 566 607 573 422 629 810 863 758 863 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 1,625 2,352 3,256 3,132 2,698 3,025 3,715 4,042 3,525 4,042 EBIT/capital employed >100% >100% >100% >100% 86% 73% >100% >100% n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

$80

$90


BUSINESS OVERVIEW Forest Labs provides branded and generic prescription and non-prescription drugs. The company’s central nervous system (CNS) franchise accounted for 90% of revenue in FY08. The company markets products through an in-house salesforce numbering 2,700 people (52% of workforce). SELECTED OPERATING DATA

FYE March 31 2006 2007 2008 1H09 % of revenue by therapeutic class: CNS1 86% 88% 90% 90% Cardiovascular, other 14% 12% 10% 10% Revenue growth by therapeutic class: CNS1 -8% 16% 12% 9% Cardiovascular, other -14% -1% -6% -3% Total revenue growth -8% 14% 10% 8% % of revenue by major line item: Lexapro 67% 66% 65% 64% Namenda 18% 21% 24% 26% Contract revenue 4% 6% 6% 6% All other 11% 8% 5% 5% % of revenue by customer:2 McKesson 35% 37% 38% n/a Cardinal Health 26% 27% 30% n/a AmeriSource Bergen 20% 13% 15% n/a Other 19% 23% 17% n/a % of revenue by geography: U.S. 98% 98% 98% n/a U.K. and Ireland 2% 2% 2% n/a

1 Central nervous system franchise; includes Lexapro, Celexa, and Namenda. 2 The named major customers act as wholesale distributors. INVESTMENT HIGHLIGHTS

• Key products: Lexapro (65% of revenue), a selective serotonin reuptake inhibitor for major depression and generalized anxiety disorder; Namenda (24% of revenue), an N-methyl-D-aspartate antagonist for moderate to severe Alzheimer’s disease; and Bystolic (since January 2008), a novel beta-blocker for hypertension.

• Bystolic received FDA approval in December 2007 and is being marketed for the treatment of hypertension. Bystolic is a novel beta-1 selective beta-blocker. It has received five years of marketing exclusivity under Hatch-Waxman.

• Late-stage pipeline has two compounds under FDA review: milnacipran for the treatment of fibromyalgia and Lexapro for the additional indication in the treatment of adolescent depression. The company has also reported positive clinical results for three other late-stage pipeline products.

• Guiding for FY09 adjusted EPS of $3.30-3.40 (excluding charge related to termination of AZOR co-promotion), compared to FY08 adjusted EPS of $3.55. The company expects to spend $100 million in development milestones in FY09.

• Chairman and CEO Howard Solomon (80) has been a director since 1964 and CEO since 1977. President and COO Lawrence Olanoff (56) has been with the company for more than a dozen years.

• Share repurchases. The company bought back 8.9 million shares for $356 million in FY08, and 10.1 million shares for $332 million so far in FY09.

• Shares trade at 1.4x EV to trailing revenue, 9x trailing P/E and 7x forward P/E.


• Dependent Lexapro and Namenda (66% and 24% of FY08 revenue, respectively). A Lexapro-related patent was upheld in 2007 by a Court of Appeals, and the company is pursuing an infringement suit against a generic maker seeking FDA approval of a generic alternative to Lexapro. Forest Labs is also suing multiple manufacturers who are seeking FDA approval to market generic versions of Namenda.

• Pipeline “is currently dependent on the licensing and acquisition of new product opportunities.”

• FDA approval of milnacipran delayed. Contrary to management expectations, the FDA has not yet acted on the NDA for milnacipran. The company still expects favorable action “in the near future.”


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

PFE 98,310 87,870 1.8x 3.7x 7x 6x NVS 96,780 98,030 2.3x 3.3x 11x 10x GSK 90,740 105,580 3.0x n/m 10x 9x SNY 82,020 84,290 2.3x 44.5x 8x 7x MRK 60,780 60,870 2.6x 3.5x 9x 8x LLY 40,280 38,770 1.9x 3.5x 9x 8x NVO 32,490 31,120 3.9x 5.8x 18x 14x FRX 7,790 5,600 1.4x 2.2x 8x 7x

MAJOR HOLDERS CEO Solomon 2% │ Other insiders <1% │ Wellington 14% │ Clearbridge 8% │ Barclays 7% │ Fairholme 7% │ State Street 4% │ LSV 2% │ RenTech 2% │ Capital Guardian 1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Forest Labs has a strong central nervous system franchise, powered by patented drugs Lexapro and Namenda. While Lexapro is by far the larger product based on revenue, the success of Namenda has driven recent growth. Lexapro remains crucial, however, with generic challenges being fought by the company in courts. The shares offer an enticing risk-reward tradeoff.


GeoResources (Nasdaq: GEOI) Houston, TX, 281-537-9920

Energy: Oil & Gas Operations http://www.georesourcesinc.com

Trading Data Consensus EPS Estimates Valuation Price: $7.44 (as of 2/13/09) Month # of P/E FYE 12/31/07 29.8x 52-week range: $5.61 - $29.08 Latest Ago Ests P/E FYE 12/31/08 6.0x Market value: $121 million This quarter $0.11 $0.11 3 P/E FYE 12/31/09 14.3x Enterprise value: $167 million Next quarter 0.06 0.13 3 P/E FYE 12/31/10 12.4x Shares out: 16.2 million FYE 12/31/08 1.25 1.25 2 EV / LTM revenue 1.8x

Ownership Data FYE 12/31/09 0.52 0.64 3 EV / LTM EBITDA 3.1x Insider ownership: 44% FYE 12/31/10 0.60 0.69 1 EV / LTM EBIT 4.3x Insider buys (last six months): 4 LT EPS growth n/a n/a n/a P / tangible book 1.1x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 20% Date Actual Estimate LTM EBIT yield 23% # of institutional owners: 136 11/10/08 $0.35 $0.39 LTM pre-tax ROC 33%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 4 4 5 6 7 17 40 95 9 24 Gross profit 1 1 2 3 4 0 0 0 0 0 EBIT 0 0 1 1 2 4 8 39 2 10 Net income 0 0 1 1 2 4 3 20 1 6 Diluted EPS 0.01 0.02 0.13 0.30 0.50 0.87 0.25 1.29 0.10 0.35 Cash from ops 1 1 1 2 3 9 21 49 4 12 Capex 2 2 1 2 1 15 110 141 2 10 Free cash flow (1) (1) 0 1 1 (6) (89) (92) 2 2 Cash & investments 0 0 0 1 2 6 24 26 17 26 Total current assets 1 1 2 2 3 18 54 57 43 57 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 8 9 12 13 15 51 240 254 127 254 Short-term debt 0 0 1 1 1 2 7 0 0 0 Total current liabilities 1 1 2 2 2 20 47 58 34 58 Long-term debt 1 2 2 1 0 5 111 72 0 72 Total liabilities 3 3 6 6 5 27 172 149 43 149 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 6 6 6 7 9 24 68 106 84 106 EBIT/capital employed 1% 3% 6% 13% 21% 24% 8% 33% n/m n/m



$0

$5

$10

$15

$20

$25

$30

$35


BUSINESS OVERVIEW GeoResources explores for oil and gas in Texas, Louisiana, Oklahoma, North Dakota, Montana, and Colorado. The company completed a reverse merger in 2007 by issuing 11 million shares to the owners of Southern Bay Oil & Gas. In October 2007, GeoResources acquired AROC Energy for $105 million, adding U.S.-based oil and gas properties. INVESTMENT HIGHLIGHTS

• 2007 strategic deals transformed GeoResources from regional player to national exploration and production enterprise. The AROC acquisition effectively doubled reserves and production.

• 20 million BOE of proved reserves (72% proved developed; 55% oil), with daily production of 3,355 BOE. Net acreage is 208,000, with three-quarters of reserves and production located in the southern U.S.

• Strategy: (1) acquire properties with producing reserves; (2) pursue exploration projects and boost direct participation; (3) maintain modest overhead; and (4) rationalize assets through divestitures.

• Shares trade at 6x trailing and 14x forward P/E. INVESTMENT RISKS & CONCERNS

• Able to sustain positive FCF amid weak pricing? CEO Lodzinski stated in November, “we can remain cash flow positive and fulfill all of our current lease obligations, without incremental borrowings, even with prices below $50 per Bbl.”

• How will $62 million of capex budgeted for 2008-09 be funded? The company stated in November that it “should be able to continue its capital budget out of discretionary cash flow, even if Nymex prices drop to $50.00 per Bbl and $5.00 per Mcf.”

• Intends to “actively pursue” M&A, applying the following, rather superficial, criteria: (1) ability of small caps to “gain recognition and favor in the public markets;” (2) “share appreciation potential;” (3) “shareholder liquidity;” and (4) “capital formation and cost of capital to effect growth.”

• Acquired oil and gas properties from officers and key employees for $1 million in July 2007.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

DVN 23,370 28,550 1.9x 2.0x 17x 8x BEXP 110 340 2.8x 0.4x 7x n/m AXAS 60 250 2.6x 1.0x n/m 6x GEOI 120 170 1.8x 1.1x 6x 14x

SELECTED OPERATING DATA – GAAP1

FYE December 31 2006 2007 YTD

9/30/08 % of revenue by type: Oil and gas revenue 83% 91% 92% Other2 17% 9% 8% Production data (total period): Gas production (MMcf) 577 1,648 2,251 Oil production (MBbls) 184 392 553 Oil equivalent production (MBOE) 280 667 928 Realized prices for oil and gas sold (average): Natural gas (per Mcf) $6.83 $6.19 $8.82 Crude oil (per Bbl) $55 $67 $90 Selected growth rates: Gas – proved reserves -23% 607% n/a Gas – production 3% 186% 155% Gas – price, average realized 0% -9% 41% Oil – proved reserves 34% 505% n/a Oil – production 20% 113% 156% Oil – price, average realized 14% 23% 53% Oil and gas revenue n/a 161% 283% Total revenue n/a 139% 260% Selected items as % of revenue: Pre-tax income 25% 20% 38% EBIT 27% 25% 43% DD&A 20% 19% 15% Capex3 86% 269% 29%

1 Reflects purchase accounting treatment of Southern Bay merger (April 2007) and AROC Energy acquisition (October 2007). 2005 results are not shown due to lack of meaningful comparability and lack of availability of most data. 2 Consists of partnership management fees, property operating income, gain on sale of equipment, partnership income, interest, and other. 3 The company spent $110 million on oil and gas capex in 2007 and expects to spend $62 million in capex in the 24 months ending December 31, 2009. SELECTED OPERATING DATA – PRO FORMA1

FYE December 31 2006 2007 YTD

9/30/07 YTD

9/30/08 Revenue $70 $70 $51 $76 Pre-tax income 18 11 7 29 Net income 10 5 3 18 EPS $0.71 $0.35 $0.21 $1.14 Weighted average shares 14.6 14.7 14.6 15.6

1 Presents results as if Southern Bay merger (April 2007) and AROC Energy acquisition (October 2007) had occurred on January 1, 2006. MAJOR HOLDERS CEO Lodzinski and director Vlasic jointly 20% │ Lodzinski solely 4% │ Vlasic solely 9% │ EVP Collis Chandler 10% │ Other insiders 3% │ Wachovia 13% │ Waterstone 3% │ Bridgeway 1% │ Oberweis 1% │ Leucadia <1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE GeoResources transformed itself into a national oil and gas enterprise via two strategic deals in 2007. Reserves remain relatively small at 20 million BOE, and we worry about the company’s lack of a track record in lower-price environments. GeoResources’ best attribute may be its U.S. domicile, eliminating the political risk to which oil and gas investors are frequently exposed. However, when shares of Harvest Natural (HNR) are available at or near net cash, thereby valuing Harvest’s Venezuelan operations at close to zero, we find the opportunity cost of investing in GeoResources to be too high.


Helix Energy Solutions (NYSE: HLX) Houston, TX, 281-618-0400

Energy: Oil Well Services & Equipment, Member of S&P MidCap 400 http://www.helixesg.com

Trading Data Consensus EPS Estimates Valuation Price: $4.78 (as of 2/13/09) Month # of P/E FYE 12/31/07 1.4x 52-week range: $3.91 - $41.81 Latest Ago Ests P/E FYE 12/31/08 1.8x Market value: $439 million This quarter $0.35 $0.35 8 P/E FYE 12/31/09 2.4x Enterprise value: $2.4 billion Next quarter 0.36 0.40 5 P/E FYE 12/31/10 1.8x Shares out: 91.8 million FYE 12/31/08 2.70 2.71 8 EV / LTM revenue 1.1x

Ownership Data FYE 12/31/09 1.98 2.17 7 EV / LTM EBITDA n/a Insider ownership: 5% FYE 12/31/10 2.71 2.86 5 EV / LTM EBIT 4.7x Insider buys (last six months): 4 LT EPS growth 12.0% 12.0% 1 P / tangible book 0.4x Insider sales (last six months): 1 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 87% Date Actual Estimate LTM EBIT yield 21% # of institutional owners: 565 10/29/08 $0.65 $0.70 LTM pre-tax ROC 15%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 227 303 396 543 800 1,367 1,767 2,108 461 616 Gross profit 67 54 92 172 283 515 514 584 166 201 EBIT 46 21 56 123 222 399 413 500 145 150 Net income 29 12 33 80 150 344 317 346 83 61 Diluted EPS 0.44 0.17 0.44 1.05 1.86 3.87 3.34 3.65 0.88 0.65 Cash from ops 89 67 87 227 242 514 416 475 157 149 Capex 151 162 93 50 362 469 944 988 253 174 Free cash flow (62) (95) (6) 177 (119) 45 (527) (513) (96) (25) Cash & investments 37 0 6 91 91 497 91 36 50 36 Total current assets 113 116 131 254 372 924 727 761 613 761 Intangible assets 15 80 82 84 123 850 1,119 1,077 835 1,077 Total assets 494 840 883 1,039 1,661 4,290 5,452 5,820 4,546 5,820 Short-term debt 2 4 16 10 7 26 75 94 26 94 Total current liabilities 65 102 104 141 252 613 679 651 590 651 Long-term debt 98 224 207 139 441 1,455 1,726 1,815 1,445 1,815 Total liabilities 268 503 477 499 977 2,709 3,551 3,692 2,760 3,692 Preferred stock 0 0 25 55 55 55 55 55 55 55 Common equity 226 338 381 485 629 1,526 1,847 2,073 1,731 2,073 EBIT/capital employed 13% 4% 9% 19% 28% 27% 15% 15% n/m n/m



$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50


BUSINESS OVERVIEW Helix is an offshore energy firm that provides reservoir development and other contracting services to the energy market and its own oil and gas properties. Two segments: Contracting Services utilizes vessels and offshore equipment to deliver services that reduce finding and development costs and cover the lifecycle of an offshore oil and gas field. Oil and Gas engages in prospect generation, exploration, development and production activities primarily in the Gulf of Mexico, North Sea, Asia/Pacific, and Middle East; standardized measure (2007 after-tax PV-10): $2.8 billion. INVESTMENT HIGHLIGHTS

• Global services contractor offering offshore field development services. Helix’s services and methodologies help maximize production economics, particularly from marginal fields, i.e., reservoirs that are no longer wanted by major operators or are too small to be material to them.

• Strategically focused on deepwater, with new vessels to “significantly expand capacity” in 2009. In oil and gas, Helix expanded its deepwater focus via the Remington acquisition in 2006.

• Integration of contracting services operations and reservoir ownership may add value, as it creates additional backlog for the company’s services and enables better utilization of new assets.

• 2009 objectives: deliver new assets into the fleet; reduce debt; drill with partners on a promoted basis; bring on newly developed deepwater production.

• Guiding for flat adjusted EBITDAX of $800 million in 2008. EBITDAX reflects Helix’s equity investments and Cal Dive minority interest.

• 1H09 contracting services visibility “good,” with shelf contracting boosted by hurricane repair work.

• Shares trade at .4x tangible book value, 1x trailing P/E and 2x forward P/E.


• Hurricane Ike hurt Gulf of Mexico production, temporarily cutting it by 70% in late October.

• Debt covenant issues due to depressed oil and gas prices. Helix has $1.9 billion of net debt, compared to $1.0 billion of tangible book.

• Forced to reduce planned capex by 50% in 2009, with no new vessel additions anticipated.

• May be forced to monetize 58% of Cal Dive, but wants to remain a “rational investor.”

• May have to sell or spin off oil and gas business. Such a move may create value by deleveraging the balance sheet and refocusing the business.



9/30/08 % of revenue by segment: Contracting services 40% 34% 37% 39% Shelf contracting 27% 36% 33% 33% Oil and gas 33% 30% 30% 28% Revenue growth by segment: Contracting services 66% 48% 46% 44% Shelf contracting 76% 128% 22% 29% Oil and gas 13% 56% 36% 20% ∆ revenue 47% 71% 29% 27% ∆ oil & gas production -21% 47% 33% -13% ∆ oil & gas realized prices 42% 8% 2% 41% ∆ proved oil reserves 41% 144% 9% n/a ∆ proved gas reserves1 156% 134% 38% n/a EBIT margin by segment: Contracting services 13% 19% 18% 17% Shelf contracting 26% 36% 29% 18% Oil and gas 45% 31% 21% 50% Total EBIT margin 28% 29% 23% 28% DD&A as % of revenue2 14% 14% 23% 15% Capex as % of revenue 59% 36% 54% 45% Return on capital by segment (EBIT to average assets): Contracting services 6% 9% 10% 9% Shelf contracting 27% 51% 21% 9% Oil and gas 35% 10% 5% 9% Utilization rate of vessels by category:3 Subsea construction vessels 86% 86% 90% 96% Well operations 84% 81% 71% 62% Remotely operated vehicles 70% 76% 76% 70% Shelf contracting 65% 84% 65% 54% Tangible equity / tang. assets 34% 28% 20% 21% ∆ diluted shares out (avg) 4% 9% 7% -1%

1 Includes proved reserves of natural gas liquids. 2 Includes asset impairment charge of $74 million in 2007 (4% of revenue). 3 Calculated by dividing the number of days the vessels in each category generated revenues by the number of calendar days in the applicable period. As of September 30, 2008, the company had 10 subsea construction vessels, two well operations vessels, 47 ROVs, and 30 shelf contracting vessels. COMPARABLE PUBLIC COMPANY ANALYSIS

Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

OII 1,790 2,070 1.1x 2.1x 9x 9x GLBL 430 410 .4x 0.6x n/m 7x HLX 440 2,370 1.1x 0.4x 2x 2x

MAJOR HOLDERS CEO 4% │ Other insiders 1% │ Greenlight 6% │ Robeco 5% │ Fidelity 5% │ JP Morgan 4% │ Barclays 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Helix is an extremely cheap but distressed oil and gas producer and contracting services provider. Depressed energy prices have exposed it to covenant issues, making it a speculative equity investment. However, despite the non-negligible possibility of permanent capital loss, the risk-reward tradeoff is interesting. The company retains a few options that would delever the balance sheet and enhance value, including a sale of a 58% interest in Cal Dive and a sale of the oil and gas business.


Horsehead Holding (Nasdaq: ZINC) Monaco, PA, 724-774-1020

Basic Materials: Metal Mining http://www.horsehead.net

Trading Data Consensus EPS Estimates Valuation Price: $4.14 (as of 2/13/09) Month # of P/E FYE 12/31/07 1.5x 52-week range: $2.26 - $18.31 Latest Ago Ests P/E FYE 12/31/08 3.5x Market value: $146 million This quarter $0.09 $0.08 5 P/E FYE 12/31/09 n/m Enterprise value: $66 million Next quarter -0.17 -0.16 4 P/E FYE 12/31/10 n/m Shares out: 35.3 million FYE 12/31/08 1.17 1.20 3 EV / LTM revenue 0.1x

Ownership Data FYE 12/31/09 -0.57 -0.62 5 EV / LTM EBITDA 0.7x Insider ownership: 1% FYE 12/31/10 -0.02 -0.35 2 EV / LTM EBIT 0.8x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.5x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 93% Date Actual Estimate LTM EBIT yield 119% # of institutional owners: 185 11/6/08 $0.27 $0.04 LTM pre-tax ROC 43%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 191 185 216 274 496 546 473 134 109 Gross profit (4) (10) 17 30 136 172 108 43 22 EBIT (36) (91) 1 14 96 146 78 37 14 Net income (75) (89) (2) 3 55 91 50 24 9 Diluted EPS (2.20) (2.62) (0.06) 0.12 2.01 2.85 1.43 0.73 0.27 Cash from ops n/a n/a (8) 1 16 103 45 34 21 Capex n/a n/a 4 9 14 45 45 11 9 Free cash flow n/a n/a (12) (8) 1 57 0 23 11 Cash & investments n/a n/a n/a 1 1 76 81 77 81 Total current assets n/a n/a n/a 70 138 210 228 210 228 Intangible assets n/a n/a n/a 0 0 0 0 0 0 Total assets n/a n/a n/a 133 206 315 351 297 351 Short-term debt n/a n/a n/a 24 22 0 0 0 0 Total current liabilities n/a n/a n/a 66 79 60 60 56 60 Long-term debt n/a n/a n/a 45 58 0 0 0 0 Total liabilities n/a n/a n/a 129 156 73 71 74 71 Preferred stock n/a n/a n/a 0 0 0 0 0 0 Common equity n/a n/a n/a 4 50 242 280 222 280 EBIT/capital employed n/a n/a n/a 16% 84% 93% 43% n/m n/m



$0

$5

$10

$15

$20

$25

$30


BUSINESS OVERVIEW Horsehead is a U.S. producer of specialty zinc and zinc-based products used in the galvanizing of fabricated steel and as components in rubber tires, alkaline batteries, paint, chemicals and pharmaceuticals. It has operated for 150 years. SELECTED OPERATING DATA


9/30/08 % of revenue by type: Zinc material and other goods 83% 90% 92% 89% EAF dust service fees 17% 10% 8% 11% Revenue growth by type: Zinc material and other goods 32% 96% 12% -20% EAF dust service fees 6% 8% -11% 20% ∆ revenue 27% 81% 10% -17% ∆ average LME zinc price 31% 137% -1% -39% Gross margin (ex. D&A) by type: Zinc material and other goods -5% 21% 27% 14% EAF dust service fees 91% 85% 86% 74% Total gross margin 11% 27% 32% 21% Selected items as % of revenue: EBIT 5% 19% 27% 15% D&A 3% 2% 2% 3% Capex 3% 3% 8% 8% % of production costs by type: Purchased feedstock n/a 68% 44% 32% Conversion n/a 32% 56% 68% ∆ diluted shares out (avg)1 30% 4% 17% 15%

1 Increases in shares outstanding relate to equity offerings, including the following three capital raises in 2006-07: (i) 16 million shares at $13 each for net proceeds of $188 million in November 2006; (ii) 14 million shares at $13.50 each for net proceeds of $249 million in April 2007; and (iii) 5 million shares at $18 each for net proceeds of $75 million in August 2007). INVESTMENT HIGHLIGHTS

• Top U.S. zinc producer. The company is the largest North American refiner of zinc oxide, the value-added zinc-based product from which it generates most sales, and Prime Western zinc metal, the grade of zinc metal in which it specializes.

• Largest recycler of electric arc furnace (EAF) dust in North America. EAF is a hazardous waste produced in steel mini-mill manufacturing. The company’s four recycling facilities generate service fees from mini-mills for recycling their EAF dust.

• Utilizes nearly 100% recycled zinc in production, including zinc recovered from EAF dust recycling. The conversion of recycled zinc into finished products generally results in lower feed costs than at smelters that rely on zinc concentrates.

• Chairman and CEO James Hensler (52) joined in 2004 after 20+years in the metals industry, including as GM the Huntington Alloys business at Special Metals. CFO Robert Scherich (47) also joined the company in 2004, from Valley National Gases, where he had spent eight years as CFO.

Horsehead — Sources of Zinc Feedstock1

Zinc Feedstock

% of Total

Feedstock2

% of Operating

Costs3

LME Cor-

relation

Discount to LME Price

EAF dust 56% 9% 4 no 89% 4 Top dross 8% 8% yes 17% Bottom dross 8% 8% yes 26% Skims 26% 26% yes 37% Zinc concentrate 2% 2% yes 44%

1 2006 figures. Source: Horsehead IPO prospectus, August 10, 2007. 2 On a tons-of-zinc contained basis. 3 Cost of sales less depreciation and cost of brokered metal purchases. 4 Net of EAF dust service fees.

• Shares trade at 3x trailing P/E. Analysts expect the company to post a loss going forward.


• Commodity producer dependent on zinc market price. Zinc prices fell from 2000-04 due to Chinese exports and consumption declines, but began to recover in 2004 amid higher Chinese demand and lower production due to closed or idled capacity. Zinc prices hit a high of $2.08 per pound in late 2006, but recently traded at $0.50 per pound.*

• Recession is negatively affecting consumption of PW zinc metal and zinc oxide in North America.

• Unit input costs affected by zinc prices, volumes and energy costs. One-third of recent production costs have been driven by the cost of raw materials (feedstock), while two-thirds have been conversion-related. Two-thirds of the feedstock relates to acquired and recycled EAF dust, the cost of which does not correlate with the market price of zinc.

• Competitive entry into EAF dust recycling due to high zinc prices in recent years likely to hurt price realization. In 2Q08, Steel Dust Recycling started up the Waelz kiln facility in Alabama. ZincOx broke ground for a plant in Ohio in June 2008.

• Staggered Board with three classes of directors lessens shareholders’ ability to influence the Board.

MAJOR HOLDERS CEO Hensler 1% │ Other insiders <1% │ Wellington 13% │ Fidelity 8% │ Donald Smith 7% │ Aegis 6% │ Pabrai 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year? * View zinc prices at http://www.metalprices.com/FreeSite/metals/zn/zn.asp

THE BOTTOM LINE Horsehead is a commodity business expected to lose money in 2009. With $80 million of cash and no debt, the market values the enterprise at less than $100 million, a small price tag for the largest U.S. zinc producer. Horsehead generated LTM EBIT of $78 million and LTM net income of $50 million, making the shares an interesting risk-reward proposition: If metals prices recover, Horsehead will mint money; if prices stay low, the company’s assets provide meaningful downside protection.


Jefferies Group (NYSE: JEF) New York, NY, 212-284-2550

Financial: Investment Services, Member of S&P MidCap 400 http://www.jefferies.com

Trading Data Consensus EPS Estimates Valuation Price: $12.33 (as of 2/13/09) Month # of P/E FYE 12/31/08 n/m 52-week range: $7.97 - $29.00 Latest Ago Ests P/E FYE 12/31/09 n/m Market value: $2.0 billion This quarter -$0.10 -$0.03 5 P/E FYE 12/31/10 23.7x Enterprise value: $1.8 billion Next quarter -0.05 0.00 4 P/E FYE 12/31/11 n/a Shares out: 163.2 million FYE 12/31/09 -0.10 0.23 5 EV / LTM revenue 1.1x

Ownership Data FYE 12/31/10 0.52 0.35 5 EV / LTM EBITDA n/a Insider ownership: 17% FYE 12/31/11 n/a n/a n/a EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth 10.0% 10.0% 1 P / tangible book 1.1x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 81% Date Actual Estimate LTM EBIT yield -54% # of institutional owners: 413 1/20/09 -$2.41 -$2.29 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 755 927 1,199 1,498 1,963 2,719 1,677 1,677 662 243 Gross profit 620 781 1,005 1,158 1,395 1,496 947 947 328 129 EBIT 104 145 227 268 349 246 (954) (954) (42) (737) Net income 63 84 131 157 206 145 (539) (539) (24) (443) Diluted EPS 0.57 0.71 1.03 1.16 1.41 0.97 (3.24) (3.04) (0.17) (2.41) Cash from ops 147 (126) 222 (276) 213 (270) (430) n/a 617 n/a Capex 17 17 16 17 27 39 77 n/a 27 n/a Free cash flow 131 (143) 206 (293) 186 (309) (507) n/a 591 n/a Cash & investments 343 329 291 838 885 1,021 1,557 2,146 1,135 2,146 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 35 55 101 135 221 257 344 352 331 352 Total assets 5,345 6,899 10,992 13,825 12,781 17,826 29,794 23,991 31,602 23,991 Short-term debt 50 12 0 70 0 100 280 16 400 16 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 154 453 443 789 780 1,294 1,889 1,889 1,890 1,889 Total liabilities 4,779 6,270 10,154 12,786 11,494 16,244 28,032 21,804 29,772 21,804 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 566 629 838 1,039 1,287 1,581 1,762 2,187 1,831 2,187 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m n/m n/m n/m



$0

$5

$10

$15

$20

$25

$30

$35

$40


BUSINESS OVERVIEW Jefferies is a 2,500-person full-service investment bank and institutional securities firm. Its primary operating subsidiary was founded in 1962. Jefferies operates in two segments: Capital Markets includes trading and investment banking. It provides the research, sales, trading and origination effort for various fixed income, equity and advisory products. Asset Management is primarily comprised of activities related to the company’s private investment funds. SELECTED OPERATING DATA

FYE December 31 2005 2006 2007 2008 % of revenue, net of interest expense, by type: Commissions 20% 19% 23% 44% Principal transactions 29% 32% 25% 8% I-banking -- capital markets 18% 16% 25% I-banking – advisory 23% 21% 23% 42%

Asset management income 7% 8% 2% -5% Interest 25% 36% 75% 74% Interest expense -24% -35% -73% -65% Other 2% 2% 2% 3% Growth of revenue, net of interest expense, by type: Commissions -5% 14% 27% 25% Principal transactions -2% 34% -17% -79% I-banking -- capital markets 29% 4% 68% I-banking – advisory 51% 13% 17% -43%

Asset management income 1% 34% -79% n/m Interest 126% 74% 122% -36% Interest expense 109% 72% 128% -43% Total revenue, net of interest 14% 21% 8% 18% % of revenue by geography: U.S. and Americas 95% 92% 87% n/a Europe 4% 8% 12% n/a Asia and Middle East 1% 0% 1% n/a % of trading and other revenue by asset class: Equity 71% 69% 78% 88% Fixed income and commodities 29% 31% 22% 12% Selected items as % of revenue, net of interest expense: Compensation and benefits 56% 54% 60% 150% Other non-interest expenses 22% 22% 24% 44% Pre-tax income 22% 24% 16% -94% Net income 13% 14% 9% -53% Return on equity 12% 12% 7% <0% Fixed charge coverage ratio1 5.5x 4.5x 3.0x n/m AUM (period end) 4,031 5,282 5,775 n/a Change (y-y) 23% 31% 9% n/a

1 Computed by dividing (a) pre-tax income from continuing operations plus fixed charges by (b) fixed charges. Fixed charges consist of interest expense on long-term debt and the portion of operating lease rental expense representative of the interest factor (deemed to be one-third of operating lease rentals). INVESTMENT HIGHLIGHTS

• Integrated, full-service brokerage firm, yet not part of Wall Street’s “bulge bracket” firms. The company has 2,100 employees (down from 2,600) in 25 cities in the U.S., Europe, India, and China.

• Strategically focused on mid-sized growth companies, both in trading and investment banking. A stated priority is to increase share of sales and trading of securities in which the company deals.

• 40%-owned by employees and 30%-owned by “strategic partner” Leucadia, improving alignment of interests between firm and holders.

• Diversified revenue; grew i-banking franchise across industry verticals. Sales and trading was 78% of revenue in 2000 and 49% in 2007.

• First-class equity-linked franchise. Jefferies is a top trader in the secondary convertibles market.

• Grown via M&A, including Putnam Lovell (July 2007), European M&A advisory LongAcre (June 2007) and technology i-bank Broadview (2003).

• Shares trade at 1.1x tangible book value. The company is expected to post a loss this year.


• Scarcity of deals likely to impact results until equity and debt markets stabilize.

• Claims “strong and liquid capital position,” despite $2 billion of equity vs. $22 billion of total liabilities. While this represents a lower leverage ratio than that of many competitors, it is quite high in absolute terms in a period of industry distress. Jefferies maintains investment-grade credit ratings.

• Future regulation could make brokerage firm models fundamentally less attractive.

• Exposed to counterparty credit risks in normal course of operations, including in derivatives deals.


Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

RJF 19.50 2,390 1.3x 11x 10x Sep-30 SF 36.40 930 2.1x 16x 13x Dec-31 KBW 16.80 560 1.3x 32x 14x Dec-31 PJC 29.10 550 .9x n/m 25x Dec-31 TWPG 3.40 110 .5x n/m 340x Dec-31 JMP 4.70 90 .8x n/m 14x Dec-31 COWN 5.40 80 .5x n/m n/m Dec-31 JEF 12.30 2,013 1.1x n/m 24x Dec-31

MAJOR HOLDERS Insiders 11% │ Leucadia 39% │ Advisory Research 6% │ Barclays 4% │ Fairholme 4% │ Bamco 3% │ West Oak 1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Jefferies has executed well over the past decade, growing into a national player in sales and trading, equity research and investment banking. The company has managed to avoid severe distress, although results have certainly suffered and are likely to remain weak for some time to come. While we view Jefferies as a survivor, we do not find the shares compelling.


Leucadia National (NYSE: LUK) New York, NY, 212-460-1900

Conglomerates: Conglomerates, Member of S&P 500 http://www.leucadia.com


Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA -100.2x Insider ownership: 25% Next 2 Yrs n/a n/a n/a EV / LTM EBIT n/m Insider buys (last six months): 3 LT EPS growth n/a n/a n/a P / tangible book 0.6x Insider sales (last six months): 4 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 66% Date Actual Estimate LTM EBIT yield -2% # of institutional owners: 726 n/a n/a n/a LTM pre-tax ROC -18%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 374 235 314 380 690 863 1,155 1,197 331 252 Gross profit 337 201 213 335 408 476 401 275 116 24 EBIT 73 (39) (8) 107 135 134 (57) (106) (11) (109) Net income (8) 162 97 146 1,636 189 484 626 4 90 Diluted EPS 0.38 0.92 0.55 0.90 5.34 0.60 2.09 2.54 0.01 0.36 Cash from ops 109 99 (23) 68 321 92 (18) (53) (64) (50) Capex 52 38 154 120 162 111 135 212 45 52 Free cash flow 57 61 (177) (52) 159 (19) (154) (265) (109) (102) Cash & investments 1,080 1,044 929 1,362 1,711 1,191 1,440 497 1,572 497 Total current assets 1,904 1,638 1,350 2,060 2,229 1,366 1,720 901 1,875 901 Intangible assets 0 0 0 2 85 59 80 74 78 74 Total assets 2,469 2,542 4,397 4,800 5,261 5,304 8,127 8,409 7,318 8,409 Short-term debt 0 0 24 65 176 185 132 176 192 176 Total current liabilities 892 649 657 659 474 327 460 449 479 449 Long-term debt 252 233 1,155 1,067 987 975 2,004 2,045 1,989 2,045 Total liabilities 1,274 1,007 2,263 2,542 1,599 1,411 2,556 2,581 2,578 2,581 Preferred stock 0 48 0 0 0 0 0 0 0 0 Common equity 1,196 1,487 2,134 2,259 3,662 3,893 5,571 5,828 4,739 5,828 EBIT/capital employed 78% -38% -1% 13% 32% 37% -16% -18% n/m n/m



$0

$10

$20

$30

$40

$50

$60


BUSINESS OVERVIEW Leucadia pursues a value-oriented, long-term investment approach. Leucadia owns controlling stakes in firms engaged in manufacturing, telecom, property management, gaming, real estate, medical products, and wineries. Leucadia also has investments accounted for under the equity method. SELECTED STRATEGIC INVESTMENTS

Company – Business Overview Comments STi Prepaid – International prepaid phone cards

Acquired for $122 million in March 2007

ResortQuest – vacation property management

Acquired for $12 million in June 2007

Idaho Timber – lumber manufacturing Acquired in May 2005

Conwed Plastics – plastic netting production n/a

Premier Entertainment Biloxi – Hard Rock Hotel & Casino Biloxi

Damaged by Katrina; opened in June 2007

Sangart – medical product R&D Acquired in 2005 Pine Ridge – winery in Napa n/a Archery Summit – winery in Willamette Valley n/a

Jefferies High Yield Holdings – brokerage JV with Jefferies Acquired in April 2007

Goober Drilling (50%, debt) – land-based contract drilling

Investment includes $171 million loan

Cobre Las Cruces (30% stake) – copper mining in Spain

Sold 70% for 12% of Inmet in 2005.

Fortescue (Australia: FMG) – iron ore mining (equity & debt)

$452 million total cash investment / 2006-07


• Chairman Ian Cumming and president Joe Steinberg have one of the best track records in the investment business, compounding Leucadia’s equity and share price at 22% and 26% per year from 1979-2007.

• Equity has grown from a deficit of $8 million in 1978 (prior to current management), to equity of $6 billion at yearend 2007. This increase occurred despite an $812 million dividend in 1999.

• NOL of $5.4 billion at yearend 2007. • Shares trade at .6x tangible book (ex. tax assets).


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

BRK.A 136,540 140,730 1.3x 1.6x 16x 15x FFH 5,970 6,720 .8x 1.3x n/a n/a MKL 3,030 3,030 1.6x 1.5x 14x 13x GLRE 470 250 6.8x 0.9x n/a n/a LUK 3,650 5,370 4.5x 0.6x n/a n/a



9/30/08 Revenue growth 82% 25% 34% 5% % of revenue by segment: Idaho Timber 35% 40% 25% 21% Conwed Plastics 14% 12% 9% 9% Telecommunications 0% 0% 31% 37% Property management 0% 0% 7% 13% Gaming entertainment 0% 0% 3% 10% Other 13% 15% 6% 6% Corporate 39% 33% 18% 4% Pre-tax margin, before equity in income of associated firms: Idaho Timber 3% 3% 3% 2% Conwed Plastics 15% 17% 17% 15% Telecommunications n/m n/m 5% 3% Property management n/m n/m -8% 7% Gaming entertainment n/m n/m -24% 5% Other 11% 7% -82% -124% Corporate 15% 11% -3% -17% Total 19% 16% -5% -19% Selected items as % of total assets (period end): Long-term investments 18% 27% 32% 25% Investment in associated firms 7% 14% 15% 31% Deferred tax asset (gross) 23% 21% 21% 19% Other long-term assets 10% 13% 13% 15% Debt 22% 21% 24% 26% Other liabilities 10% 7% 12% 4% Shareholders' equity 68% 71% 63% 69%


• 4Q08 market price declines in associated firms to flow through income statement. We expect Leucadia to record large mark-to-market losses in income related to associated companies, including large unrealized losses on AmeriCredit and Jefferies investments.

• 4Q08 tax asset writedown? In 2007, the company recognized a $543 million benefit from a valuation allowance reversal, apparently due to strong market value gains in Fortescue etc. Leucadia may have to write off a portion of nearly $1.6 billion in deferred tax assets due to large unrealized recent losses.

• Concentrated investment portfolio, with significant mark-to-market volatility and illiquidity.

MAJOR HOLDERS Joe Steinberg 13% │ Ian Cumming 12% │ Fairholme 8% │ Horizon 3% │ Wintergreen <1% │ Pabrai <1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Leucadia’s portfolio is going through perhaps the most difficult period since present management took over in the late 1970s. Book value is likely to decline sharply from the value reported as of September 30, 2008, due to unrealized investment losses and a potential writedown of deferred tax assets. While Leucadia should still deliver above-average performance in the long term, we find better value in other investment vehicles, including Greenlight Capital Re and Berkshire-Hathaway.


…additional insight into LUK: SUPERINVESTOR INSIGHT INTO LEUCADIA

• Bruce Berkowitz, interview with Robert Huebscher (www.advisorperspectives.com) on December 24, 2008: − “We place a significant amount of weight on the past record of management, along with analyzing holdings on a

quarterly and annual basis. Mostly, this represents the style of investing where we respect the people running the company. We have studied Leucadia and their management over a 20 year period. There are no surprises.”

− “Their management is honest, decent, and does not have an oversized ego. They have a better track record than Berkshire Hathaway and they take their fiduciary roles very seriously. Moreover, whereas Berkshire Hathaway is built to last for a very long time horizon, Leucadia has value even over shorter time periods. When the CEO, Ian Cumming, and the president, Joseph Steinberg, retire, they'll probably give all the money to their shareholders and call it a day.”

PERFORMANCE TRACK RECORD, 1978-2007


Leucadia National—Disaggregated Balance Sheet The following table presents Leucadia’s balance sheet in a way that we find economically useful. The following disaggregated balance sheet contains detail on the company’s major investments and presents tax assets and liabilities separately rather than as a net amount.


9/30/08

Assets Short-term assets: Cash and equivalents 287 457 162 Short-term investments 904 983 335 Receivables 70 134 182 Other current assets 105 146 222 Total current assets 1,366 1,720 901 Long-term assets: Long-term investments: Fortescue – cost (1) 246 246 Fortescue – unrealized gain (1) 1,578 780 Inmet – cost (2) 78 78 Inmet – unrealized gain (2) (3) 0 183 AmeriCredit – cost (4) 70 0 AmeriCredit – unrealized gain (4) (5) 1 0 Other long-term investments 802 823 Total long-term investments 1,466 2,777 2,110 Investments in associated firms: AmeriCredit – cost (4) 0 0 405 AmeriCredit – unrealized gain (4) (5) 0 0 (74) Other investments in associated firms 773 1,363 2,257 Total in associated firms – cost 1,420 Total in associated firms – unrealized gain 1,169 Total investment in associated firms 773 1,363 2,589 Deferred tax assets: ...related to NOL 1,900 1,973 ...related to securities valuation reserves 47 40 ...related to other items 105 94 ...reduced by valuation allowance (912) (300) Total deferred tax asset 1,140 1,808 Other long-term assets: PP&E 234 513 527 Intangibles 59 80 74 Other 427 561 637 Tax asset adjustment (13) (24) Total other long-term assets 707 1,129 1,238 Total disaggregated assets 5,452 8,796 6,838

Reconciliation to GAAP: Reduction in total deferred tax asset (161) (694) Tax asset adjustment offset 13 24 Total adjustments (148) (669) Total GAAP assets 5,304 8,127


Lorillard (NYSE: LO) Greensboro, NC, 877-703-0386

Consumer Non-Cyclical: Tobacco, Member of S&P 500 http://www.lorillard.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 3,256 3,348 3,568 3,755 3,969 4,204 4,204 956 1,088 Gross profit 1,363 1,382 1,454 1,595 1,662 1,776 1,775 421 494 EBIT 903 1,001 1,084 1,241 1,274 1,415 1,414 280 414 Net income 582 642 706 826 898 887 886 213 258 Diluted EPS 3.35 3.69 4.06 4.75 5.16 5.15 5.16 1.22 1.53 Cash from ops n/a n/a 0 820 778 882 n/a 166 n/a Capex n/a n/a 0 31 30 51 n/a 9 n/a Free cash flow n/a n/a 0 789 748 831 n/a 157 n/a Cash & investments n/a n/a n/a 1,527 1,210 1,191 1,191 1,210 1,191 Total current assets n/a n/a n/a 2,115 2,103 1,962 1,962 2,103 1,962 Intangible assets n/a n/a n/a 0 0 0 0 0 0 Total assets n/a n/a n/a 2,759 2,600 2,322 2,322 2,600 2,322 Short-term debt n/a n/a n/a 0 0 0 0 0 0 Total current liabilities n/a n/a n/a 1,151 1,188 1,273 1,273 1,188 1,273 Long-term debt n/a n/a n/a 0 0 0 0 0 0 Total liabilities n/a n/a n/a 1,464 1,587 1,687 1,687 1,587 1,687 Preferred stock n/a n/a n/a 0 0 0 0 0 0 Common equity n/a n/a n/a 1,295 1,013 635 635 1,013 635 EBIT/capital employed n/a n/a n/a n/m n/m n/m n/m n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

$80

$90


BUSINESS OVERVIEW Lorillard is the third-largest cigarette maker and the oldest continuously operating tobacco firm in the U.S. Lorillard’s flagship brand, Newport, is a menthol-flavored premium cigarette brand and the top selling menthol and second largest selling cigarette in the U.S. Lorillard manufactures all of its products at its Greensboro, NC facility. Lorillard was founded in 1760 and separated from Loews in June 2008. SELECTED OPERATING METRICS

FYE December 31 2005 2006 2007 2008 Unit volume (bn) 35.2 36.1 35.8 37.0 Market share… …of total U.S. market 9.2% 9.6% 10.0% 11.0% …of premium segment 12.3% 12.7% 13.0% n/a …of menthol segment 31.5% 32.2% 32.9% 34.3%


• Strong U.S. market position. Newport (94% of Lorillard’s volume and sales) is the #1 menthol and #2 overall brand cigarette in the $50 billion U.S. market (behind Philip Morris and RAI). The “Newport pleasure” theme has existed for 35 years.

• Gaining share in mature, competitive industry. Newport has grown to 33% of menthol cigarettes in the U.S., while menthol’s share of cigarettes shipped has grown from 26% to 28% over five years. In addition, the premium segment has grown from 68% to 73% of cigarettes, while Lorillard has captured a larger portion of the premium segment.

• Modest growth despite declining industry trend. Lorillard projects annual revenue growth of 3-4% in 2009-12, despite 3-4% industry unit declines.

• Industry-leading profitability. Lorillard generates more than $36 of operating income per 1,000 units shipped, better than any of its U.S. competitors.

• Still under-represented in Western U.S. Newport has 17% share of the menthol segment in 23 Western states, trailing Marlboro Menthol (23%), Kool/ Salem (21%) and Discount Menthol (24%).

• High-margin business; strong FCF generation, with LTM FCF of $850 million. The company expects to maintain operating margins in the 32-33% range over the next few years.

• Repurchased 5.9 million shares for $400 million ($68 per share) from July through October.

• Seasoned management team. Lorillard executives have been with the company for a long time and appear focused on long-term shareholder value.

• Shares trade at 12x trailing and 12x forward P/E.

INVESTMENT RISKS & CONCERNS • Significant and uncertain legal liabilities.

Lorillard is a defendant in thousands of lawsuits. Provisions have been recorded in cases with estimable liability only, with large contingent exposures. Lorillard already pays $1+ billion per year in settlement costs that reduce gross profit.

• Stated long-term goals may prove unrealistic. Management aims for long-term revenue growth of 3-4%, EPS growth of 5-7%, and a dividend yield of ~5%, resulting in a targeted annual equity return of 10-12%. This assumes continuing market share gains and accretive stock repurchases.

• No international exposure. Lorillard sold the international rights to its brands in 1977.

• Possibility of regulatory action on menthol. Some public health agencies have expressed concerns that mentholated cigarettes may pose greater health risks than other cigarettes, as smokers tend to inhale more deeply. A menthol ban appears unlikely, however.

• Move to greater taxation may curtail demand. Federal and state excise taxes have trended higher over the years. In April 2008, New York State almost doubled the excise tax per pack to $2.75.

• Lack of reinvestment opportunities. The U.S. tobacco industry faces a declining long-term trend, and Lorillard is unlikely to find ways to reinvest capital at high rates. The company is returning most free cash flow via share repurchases and dividends.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

PM 72,810 83,240 1.3x n/m 11x 10x BTI 52,030 62,550 3.8x n/m 14x 11x ITYBY 25,910 32,710 1.8x n/m n/a n/a RAI 11,010 12,900 1.5x n/m 8x 8x LO 10,740 9,550 2.3x 16.9x 12x 11x

MAJOR HOLDERS Insiders <1% │ Franklin 3% │ NWQ 2% │ Lone Pine 2% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Lorillard lacks a key attribute of a compelling magic formula selection — an ability to reinvest at least some FCF at the high ROIC that landed it on the list in the first place. As a domestic-only tobacco maker, Lorillard operates in a slowly but steadily declining market. This puts it in cash harvest mode despite the modest growth exhibited by Newport in recent years.


MasterCard (NYSE: MA) Purchase, NY, 914-249-2000

Services: Business Services, Member of S&P 500 http://www.mastercard.com

Trading Data Consensus EPS Estimates Valuation Price: $161.90 (as of 2/13/09) Month # of P/E FYE 12/31/08 n/m 52-week range: $113.05 - $320.30 Latest Ago Ests P/E FYE 12/31/09 15.7x Market value: $20.9 billion This quarter $2.63 $2.79 20 P/E FYE 12/31/10 13.3x Enterprise value: $18.8 billion Next quarter 2.44 2.52 18 P/E FYE 12/31/11 11.5x Shares out: 129.2 million FYE 12/31/09 10.31 10.32 21 EV / LTM revenue 3.8x

Ownership Data FYE 12/31/10 12.13 12.08 20 EV / LTM EBITDA -44.5x Insider ownership: 37% FYE 12/31/11 14.05 13.91 5 EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth 16.9% 17.6% 10 P / tangible book 16.9x Insider sales (last six months): 2 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 76% Date Actual Estimate LTM EBIT yield -3% # of institutional owners: 1303 2/5/09 $1.87 $1.61 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 1,892 2,231 2,593 2,938 3,326 4,068 4,992 4,992 1,073 1,225 Gross profit 0 0 0 0 0 0 0 0 0 0 EBIT 142 (602) 347 393 230 1,108 (535) (535) 172 462 Net income 116 (386) 238 267 50 1,086 (254) (254) 304 239 Diluted EPS 1.35 (3.91) 1.76 1.98 0.37 8.00 (1.95) (2.02) 2.26 1.84 Cash from ops 310 190 344 273 650 770 413 413 52 (517) Capex 101 150 78 82 95 156 170 170 45 48 Free cash flow 209 41 266 191 556 614 243 243 7 (565) Cash & investments 872 911 1,138 1,282 2,484 2,970 2,247 2,292 2,970 2,292 Total current assets 1,456 1,610 1,903 2,228 3,577 4,592 4,312 4,312 4,592 4,312 Intangible assets 439 516 547 471 488 560 692 692 560 692 Total assets 2,261 2,901 3,265 3,701 5,083 6,260 6,476 6,476 6,260 6,476 Short-term debt 0 0 0 0 0 80 149 149 80 149 Total current liabilities 930 1,189 1,301 1,557 1,812 2,363 2,991 2,991 2,363 2,991 Long-term debt 80 230 230 230 230 150 19 19 150 19 Total liabilities 1,238 2,202 2,290 2,531 2,718 3,233 4,548 4,548 3,233 4,548 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 1,023 699 975 1,169 2,364 3,027 1,927 1,927 3,027 1,927 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m n/m n/m n/m



$50

$100

$150

$200

$250

$300

$350


BUSINESS OVERVIEW MasterCard is a global electronic payments leader with 25,000 issuer clients. Brands: MasterCard, Maestro, Cirrus. SELECTED OPERATING DATA

FYE December 31 2006 2007 2008 % of revenue by type: Net operations fees 73% 74% n/a Net assessments 27% 26% n/a Revenue growth by type: Net operations fees 25% 24% n/a Net assessments -10% 19% n/a ∆ revenue 13% 22% 23% ∆ processed transactions 18% 16% 12% ∆ gross dollar volume (GDV) 16% 18% 11% ∆ GDV (local currency) 15% 14% 11% Impact of currency exchange rates on growth of… …revenue 1% 3% 3% …opex 1% 2% 2% % of net operations fees by type: Authorization, settlement, switch 48% 46% n/a Currency conversion, cross border 26% 29% n/a Acceptance development fees 9% 9% n/a Warning bulletin fees 3% 2% n/a Connectivity 3% 3% n/a Consulting and research fees 3% 3% n/a Other operations fees 18% 18% n/a Rebates -11% -11% n/a Net assessments by type: Gross assessments 200% 193% n/a Rebates and incentives -100% -93% n/a Selected items as % of revenue: G&A 45% 43% 38% Advertising and marketing 32% 27% 20% Litigation settlement charges 13% 1% 50% EBIT 7% 27% -11% D&A 3% 2% 2% Capex 2% 2% 2% Capitalized software 1% 2% 2% % of GDV by geography: U.S. and Canada 52% 49% 46% Latin America 7% 7% 7% Europe 27% 29% 31% Asia/Pacific 13% 14% 14% South Asia, Middle East, Africa 2% 2% 2% % of GDV by card type: MasterCard credit and charge 73% 72% 71% MasterCard debit 27% 28% 29% Equity ownership / voting power (period end) (%/%): Public investors (Class A) 49/83 57/85 66/86 Principal or affiliate members (Class B) 41/0 33/0 24/0 Foundation (Class A) 10/17 10/15 10/14


• #2 global payment card brand behind Visa, with $2.3 trillion in gross dollar volume and 19 billion transactions processed in 2007.

• Three-tiered business model, with revenue from developing and marketing payment solutions as franchisor, processing payment transactions and providing consulting and information services.

• Generates revenue from transaction processing and other payment-related services (operations fees) and based on the dollar volume of activity on the cards that carry the company’s brands (assessments).

• Does not issue cards or extend credit, thereby avoiding the specter of large credit-related losses.

• Strategy: further penetrate customer base; expand in select geographies and higher-growth segments, such as premium/affluent and contactless cards, commercial payments, and debit; enhance merchant relationships; pursue payment processing business.

• Shares trade at 16x forward P/E (trailing GAAP EPS loss reported).


• Weak consumer spending to impact fees due to slowdown in transactions and lower dollar volumes. According to management on February 5, “The economic environment remains challenging, with businesses, governments and consumers around the world rethinking how finances are managed.”

• Open-loop model depends on third-party merchant acquirers and card issuers. While Visa has a similar model, American Express operates a closed-loop network that gives it additional revenue streams and more control over the functioning of the network.

• Heightened regulatory scrutiny of interchange fees. While MasterCard does not directly generate revenue from interchange, if card issuers’ fees are reduced over time, they may put pressure on the company to reduce operations fees and assessments.


Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

V 56.00 47,330 87.0x 21x 18x Sep-30 AXP 15.70 18,260 1.5x 14x 10x Dec-31 DFS 7.00 3,370 .6x n/m 11x Nov-30 MA 161.90 20,923 16.9x 16x 13x Dec-31

MAJOR HOLDERS Insiders <1% │ MasterCard Foundation 10% │ Marsico 9% │ Cap Re 3% │ Lone Pine 2% │ Farallon <1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE MasterCard is a high-ROIC business with a great brand and a sustainable competitive moat. The shares deserve closer attention despite challenging near-term trends. However, any investment should be weighed against the opportunity cost of investing in American Express. While MasterCard does not face serious credit quality risks as credit is extended by member banks, we believe that longer-term the closed-loop model of American Express may actually be more attractive.


…additional insight into MA: 2009 OUTLOOK, PROVIDED BY COMPANY ON FEBRUARY 5, 2009

• Thoughts for 2009: – Net revenue growth will likely be lower than

longer-term objective range – Operating expenses will be essentially flat over

2008 levels • Assumptions:

– Constant foreign exchange – Effective Tax Rate = 35% – Continue to monitor economic environment

Share of Payments and Cash Volume by Operator, 2007 (industry-wide payments and cash volume: $7.0 trillion)

MasterCard33%


3%American Express

9%

Visa55%


Share of Total Transactions by Operator, 2007 (industry-wide card transactions: 85 billion)

MasterCard32%


3%American Express

6%

Visa59%


MasterCard34%

Visa59%

American Express

3%


4%


MASTERCARD – ADJUSTED NET INCOME, 2007-2008 The company recorded a large legal settlement charge in 2008. Diluted EPS excluding special items was $9.45 in 2008.

(a) Litigation settlements. (b) Gain from the termination of a customer business agreement. (c) Other income related to a settlement agreement to discontinue the company's sponsorship of the 2010 and 2014 World Cups.


MASTERCARD – SELECTED OPERATING MATERICS1



Sonae Capital (Lisbon: SONC) Recent market price: € 0.46 per share Shares outstanding: 250 million OVERVIEW – SELECTED SLIDES FROM COMPANY PRESENTATION, SEPTEMBER 2008


BUSINESS OVERVIEW Sonae Capital operates in two segments: Sonae Turismo comprises (1) the development, management and sale of high-quality resorts and residential properties; (2) asset management services related to land and other real estate; and (3) tourism operations, including ownership and management of hotels and health clubs. Spred comprises (1) new businesses; (2) joint ventures with specialized partners; and (3) marketable investments. Sonae Capital was spun off from Sonae in December 2007 and went public on Euronext Lisbon in January 2008. SONAE TURISMO—OVERVIEW OF OPERATIONS

(1) Resort and residential development:

Troiaresort, peninsula near Lisbon; opened in Sep. 2008

7,430 beds in hotels, apt’s, villas; marina; golf; meeting facilities

€403mn project (€230mn already invested)

54% of apartments and 25% of villas were pre-sold

Efanor, Greater Porto; construction commenced in February 2008

700 "up-market" apartments, school, etc.

€170mn total investment

Sales price: €2,640 per sq. meter (~$380 per sq. foot)

(2) Asset Management:

Existing assets Boavista complex (next to Hotel Porto Palacio)

Projects under development – construction phase

130,000 square-meter business park in Maia

Projects under development – design and licensing phase

Residential projects in Lisbon, Porto, Lagos, and Maia

Real estate rented out or for sale Several plots of land, which may be developed or sold

(3) Tourism Operations: Boavista complex, Porto

Five-star, 251-room Hotel Porto Palacio, member of “Leading Hotels of the World”

Aqualuz, Lagos Four-star, 163-suite hotel (refurbished in 2007)

Troiaresort 3 four-star hotels, 232 suites (refurb. in 2008) Fitness 10 health clubs with 29,000 members

1 Source: Company, The Manual of Ideas. INVESTMENT HIGHLIGHTS

• Chairman and CEO Belmiro de Azevedo joined Sonae Capital’s former parent in 1965 and built it into one of Portugal’s most valuable companies.

• Troiaresort partially opened for business in September 2008, with cash flow likely to ramp up significantly in the summer of 2009.

• Refocusing business on (1) development of tourism and residential resorts (Sonae Turismo), and (2) venture capital and JVs (Spread). The company sold its stake in Contacto for €82 million and completed other non-core asset dispositions in 2008.



9/30/08 Turnover (€ mn) 266 267 302 164 Turnover growth n/a 0% 13% 19% EBITDA margin 9% 3% 5% -3% EBIT margin 7% 0% 3% -9% Equity to total assets 57% 41% 48% 40% Net debt to equity 3% 62% 44% 78%

VALUATION SNAPSHOT

(€ in millions, Company MOI Estimate SONC.LS except per share data) Estimate Low High Price Troia n/a 500 800 193 Resorts and residential 2121 150 212 106 Other assets n/a 200 400 100 Enterprise fair value n/a 850 1,412 399 Net debt (284) (284) (284) (284) Estimated equity value n/a 566 1,128 115 per SONC.LS share n/a 2.30 4.50 0.46

1 Based on appraisal disclosed in company presentation, September 2008.

• Shares trade at .3x book value. INVESTMENT RISKS & CONCERNS

• Asset-rich but cash-poor business with nearly €300 million of net debt. While the value of the operating assets and real estate exceeds net debt by an estimated 2x-4x, the debt weighs heavily on the company in the current credit environment.

• Controlled by CEO. While Belmiro de Azevedo appears to treat shareholders fairly, his goals and timeframe may differ from those of investors.


Market Value ($mn)

Enterpr. Value ($mn)

EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

JOE 2,170 2,110 6.9x 2.1x n/m 235x MTN 800 1,190 1.0x 1.7x 19x 33x IRS 200 480 1.5x 0.4x n/a n/a MLP 80 190 2.2x 0.7x n/a n/a SONC.LS €115 €399 1.3x 0.4x n/a n/a

MAJOR HOLDERS CEO 56% │ Mohnish Pabrai 7% │ Other 2%+ holders 9% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Sonae Capital owns a unique portfolio of tourism-related and residential real estate assets in Portugal, situated along the Atlantic coast, in the capital city of Lisbon and in other cities. We estimate the fair value of the enterprise at €850 million to €1.4 billion, implying equity value of €2.30-4.50 per share. With one of Portugal’s most successful businessmen at the helm and the recent opening of the Troiaresort, Sonae should be able to ramp up cash flow and reduce debt over time.


St. Joe Company (NYSE: JOE) Jacksonville, FL, 904-301-4200

Services: Real Estate Operations http://www.joe.com

Trading Data Consensus EPS Estimates Valuation Price: $23.48 (as of 2/13/09) Month # of P/E FYE 12/31/07 156.5x 52-week range: $18.80 - $46.82 Latest Ago Ests P/E FYE 12/31/08 n/m Market value: $2.2 billion This quarter $0.00 -$0.03 3 P/E FYE 12/31/09 234.8x Enterprise value: $2.1 billion Next quarter 0.00 0.00 2 P/E FYE 12/31/10 n/a Shares out: 92.2 million FYE 12/31/08 -0.07 -0.12 2 EV / LTM revenue 6.9x

Ownership Data FYE 12/31/09 0.10 0.10 3 EV / LTM EBITDA 67.8x Insider ownership: 3% FYE 12/31/10 n/a n/a n/a EV / LTM EBIT 248.2x Insider buys (last six months): 0 LT EPS growth 15.0% 11.5% 1 P / tangible book 2.1x Insider sales (last six months): 1 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 95% Date Actual Estimate LTM EBIT yield 0% # of institutional owners: 448 11/4/08 -$0.21 $0.00 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 567 626 679 838 718 524 377 305 77 33 Gross profit 192 239 262 282 292 214 166 160 41 5 EBIT 77 108 140 138 167 62 23 9 (5) (24) Net income 70 174 76 90 127 51 39 26 (7) (19) Diluted EPS 0.70 1.85 1.09 1.09 1.42 0.46 0.15 (0.01) (0.10) (0.21) Cash from ops 101 106 137 128 192 (144) (209) 56 (105) 66 Capex 15 17 7 10 20 14 6 2 (0) 0 Free cash flow 86 90 130 118 172 (158) (215) 54 (105) 66 Cash & investments 41 73 57 95 203 37 24 106 12 106 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 143 55 87 99 83 68 21 21 22 21 Total assets 1,341 1,170 1,276 1,404 1,592 1,560 1,264 1,327 1,285 1,327 Short-term debt 0 0 0 0 0 0 0 0 0 0 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 498 321 382 421 554 627 541 51 541 51 Total liabilities 823 690 788 908 1,103 1,099 784 284 811 284 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 518 480 487 495 489 461 480 1,043 474 1,043 EBIT/capital employed >100% n/m n/m n/m n/m n/m >100% n/m n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

$80

$90


BUSINESS OVERVIEW St. Joe develops residential, commercial and industrial real estate and sells rural land in Florida. The company also has timber interests. It operates in four segments: Residential Real Estate sells developed home-sites and parcels of entitled and undeveloped land. Commercial R.E. sells developed and undeveloped land. Rural Land sells parcels of the company’s timberlands. Forestry produces and sells pine pulpwood and timber. SELECTED OPERATING DATA


9/30/08 % of revenue by type: Real estate sales 90% 87% 82% 74% Rental revenues 1% 1% 1% 0% Timber sales 3% 5% 7% 9% Other revenues1 6% 7% 10% 16% % of revenue by segment: Residential real estate 78% 68% 43% 28% Commercial real estate 9% 10% 8% 1% Rural land sales 10% 17% 43% 61% Forestry 3% 5% 7% 9% Revenue growth by segment: Residential real estate -10% -36% -55% -46% Commercial real estate -41% -21% -44% -83% Rural land sales 1% 31% 79% 1% Forestry -38% 11% 6% 3% Total revenue growth -14% -27% -28% -23% Pre-tax income margin by segment: Residential real estate 26% 7% -27% -29% Commercial real estate 33% 46% 52% 58% Rural land sales 73% 81% 62% 57% Forestry 18% 22% 1% 12% Other -8% -14% -14% -35% Total pre-tax income margin 23% 10% 5% -6% % of total assets by segment:2 Residential real estate 42% 54% 71% 66% Commercial real estate 32% 25% 6% 5% Rural land sales 2% 2% 1% 1% Forestry 9% 10% 7% 5% Corporate 14% 10% 15% 23%

1 Primarily revenue from club operations and brokerage fees. 2 Excludes $8 million and $6 million of assets held for sale as of yearend 2007 and September 30, 2008, respectively. INVESTMENT HIGHLIGHTS

• Largest private landowner in Florida and one of few companies with ability to do large-scale real estate development. St. Joe operates primarily in Northwest Florida and owns 700,000 acres, 44% of which are within ten miles of the Gulf of Mexico. According St. Joe, the cost basis in most of the land is “very low.” The carrying value of operating and development property is $250 million and $700 million, respectively, as of September 30.*

* St. Joe also lists $8 million of investment property and $31 million of total accumulated depreciation, resulting in net real estate of $930 million.

• Strategy: secure land-use entitlements to reposition timberland for other uses, improve infrastructure, develop community amenities, and undertake strategic land planning (e.g., creative parceling).

• Exited homebuilding in 2006-07 to focus on development. St. Joe is divesting non-core assets, reducing capex and using strategic partners (e.g., new management agreements for golf courses, two marinas, WaterColor, SummerCamp, WaterSound).

• Panama City Airport project broke ground in 2007. While it has run into resistance from various groups, the airport appears likely to open in 2010.

• 46,200 residential units, 14 million commercial square feet in entitlements pipeline as of yearend 2007, in addition to 633 acres zoned for commercial uses. These entitlements are on 45,000 acres.

• Wm. Britton Greene became CEO in May 2008 after serving as COO. Former CEO Peter Rummell retained his position as chairman.

• Issued $580 million of equity at $35 per share in 2008, paying off most debt. To meet liquidity needs, St. Joe had previously sold its office buildings for $378 million and >100K acres of rural land to boost liquidity in 2007. Dividends were stopped in 4Q07.

• Shares trade at 2.1x tangible book. St Joe reported a trailing GAAP loss.


• Florida has experienced “dramatic slowdown” in residential real estate since mid-2005, with market conditions materially impacting St. Joe’s sales.

• Questions regarding land quality. David Einhorn pointed out in 2007 that after taxes and selling expenses, St. Joe might capture only one-half of the gross sales price per acre. Einhorn also argued that some of the land is swamp land and that tourists want to be “on the ocean” rather than “within ten miles” of it. Einhorn also argued that investors had failed to discount their assumptions to the present.

MAJOR HOLDERS Insiders 3% │ Janus 17% │ Fairholme 15% │ Marsico 14% │ T Rowe 13% │ Third Avenue 11% │ Artisan 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE St. Joe bulls focus on the company’s ownership of 700,000 acres of Florida land, implying an attractive enterprise valuation per acre. However, large tracts of St. Joe’s land have sold for as little as $2,000 per acre, and it is unclear what the average selling price of the remaining land might be. Northwest Florida is clearly less attractive as a tourist destination than other parts of Florida, and an airport may not change this dynamic. St. Joe is a great inflation hedge, but that may be about it.


UnitedHealth Group (NYSE: UNH) Minnetonka, MN, 952-936-1300

Financial: Insurance (Accident & Health), Member of S&P 500 http://www.unitedhealthgroup.com/ma…


Ownership Data FYE 12/31/10 3.28 3.29 15 EV / LTM EBITDA 6.4x Insider ownership: 1% FYE 12/31/11 3.57 3.64 6 EV / LTM EBIT 7.6x Insider buys (last six months): 1 LT EPS growth 12.8% 12.8% 3 P / tangible book n/m Insider sales (last six months): 3 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 86% Date Actual Estimate LTM EBIT yield 13% # of institutional owners: 1679 1/22/09 $0.78 $0.78 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 25,020 28,823 38,217 46,425 71,542 75,431 81,186 81,186 18,705 20,454 Gross profit 6,828 8,109 10,305 12,667 17,635 19,228 19,347 19,347 4,943 5,024 EBIT 2,186 2,935 3,858 5,080 6,984 7,849 5,263 5,263 2,038 1,279 Net income 1,352 1,825 2,411 3,083 4,159 4,654 2,977 2,977 1,216 726 Diluted EPS 1.06 1.48 1.83 2.31 2.97 3.42 2.40 2.40 0.92 0.60 Cash from ops 2,423 3,003 3,923 4,083 6,526 5,877 4,238 4,238 1,070 1,601 Capex 419 352 356 509 728 871 791 791 185 193 Free cash flow 2,004 2,651 3,567 3,574 5,798 5,006 3,447 3,447 885 1,408 Cash & investments 1,831 2,748 4,505 6,011 10,940 9,619 8,209 8,209 9,619 8,209 Total current assets 5,174 6,120 8,241 10,547 16,044 15,544 14,990 14,990 15,544 14,990 Intangible assets 3,485 3,689 10,675 18,258 18,726 18,591 22,417 22,417 18,591 22,417 Total assets 14,164 17,634 27,879 41,288 48,320 50,899 55,815 55,815 50,899 55,815 Short-term debt 811 229 673 3,261 1,483 1,946 1,456 1,456 1,946 1,456 Total current liabilities 8,379 8,768 11,329 16,653 18,497 18,492 19,761 19,761 18,492 19,761 Long-term debt 950 1,750 3,350 3,834 5,973 9,063 11,338 11,338 9,063 11,338 Total liabilities 9,736 12,506 17,162 23,473 27,510 30,836 35,035 35,035 30,836 35,035 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 4,428 5,128 10,717 17,815 20,810 20,063 20,780 20,780 20,063 20,780 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m n/m n/m n/m



$10

$20

$30

$40

$50

$60

$70


BUSINESS OVERVIEW UnitedHealth provides managed health care, serving 70 million Americans. The company works with 560,000 health care professionals and 4,800 hospitals. UnitedHealth manages $100 billion in aggregate health care spending and derives revenue from risk-based products, service fees and product sales. The company operates in four segments: Health Care Services provides health benefit plans and services and includes UnitedHealthcare (including the former Uniprise), Ovations and AmeriChoice. OptumHealth provides health, financial and ancillary benefit services to help consumers navigate the health care system. Ingenix provides database management, software and services to hospitals, physicians, payers, and other entities. Prescription Solutions provides integrated pharmacy benefit management services through retail network pharmacies. SELECTED OPERATING DATA

FYE December 31 2006 2007 2008 ‘09E1 % of revenue by segment: Health care services 88% 79% 80% 79% OptumHealth 6% 5% 5% 5% Ingenix 1% 1% 2% 2% Prescription solutions 5% 15% 13% 13% Revenue growth by segment: Health care services 54% 5% 7% 4% OptumHealth 39% 13% 6% 0% Ingenix 20% 36% 19% 16% Prescription solutions n/m 224% -5% 6% Total revenue growth 54% 5% 8% 4% EBIT margin by segment:2 Health care services 9% 9% 7% 6% OptumHealth 33% 35% 14% 13% Ingenix 27% 31% 15% 16% Prescription solutions 21% 32% 3% 3% Total EBIT margin 10% 11% 6% 7% D&A as % of revenue 1% 1% 1% 1% Capex as % of revenue 1% 1% 1% 1% Net margin 6% 6% 4% 4% Medical care ratio3 81% 81% 82% 83% Operating cost ratio4 14% 14% 16% 15% Return on tangible equity (avg) 507% 262% n/m n/m Tangible equity to assets (avg) 3% 6% 0% n/m

1 Based on guidance provided during investor conference in December 2008. 2 Excludes Section 409A charge of $176 million, recorded in 1Q07. Calculated as a percentage of revenue excluding investment income. 3 Represents UnitedHealth Group medical care costs as % of revenue. 4 Represents operating costs as a percentage of total revenue. INVESTMENT HIGHLIGHTS

• $2 trillion U.S. health and well-being market, expected to grow to $4 trillion by 2015.*

• Assuming health industry growth of 6-8%, the company expects “solid mid single-digit yields on our risk-based businesses, which provide the largest portion of our total revenues.”

* Source: Company presentation, December 2008.

• Positioned as advocate of evidence-based care, transparent information exchange and a technologically-enhanced transaction infrastructure.

• Five-year outlook: Expects 6-9% organic revenue growth, supplemented by “occasional” M&A. Two-thirds of EPS growth should come from operating earnings, with rest from “application of capital.”

• Guiding for ‘09 EPS of $2.90-3.15 (+21-31% y-y). • Repurchased $2.7 billion of stock in 2008 and

$11.5 billion from 2005-07. • Shares trade at .5x EV to trailing revenue, 12x

trailing P/E and 10x forward P/E. INVESTMENT RISKS & CONCERNS

• Impact of push for universal health coverage unclear. It’s impossible to predict how future legislation may affect HMOs’ enrollment numbers and the profitability of their business models.

• Recession may impact enrollment in employer group plans and non-employer individual plans and cause more employees to opt out of employer group plans. Employers may stop offering certain health benefits or offer employee-funded coverage options.

• Efficiency may decline, although management claimed recently that it would “anticipate improving our operating cost ratio by 20 to 40 basis points per year, which would include productivity gains as well as the leverage effect of increased scale.”

• Long-term EPS growth goal of 13-16% appears overly aggressive even in a normal economy.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

WLP 22,270 29,460 .5x n/m 8x 7x AET 14,810 18,070 n/a 4.2x 8x 7x CI 5,790 7,120 n/a 3.2x 5x 5x WCG 660 -190 n/m 1.1x 14x 5x UNH 35,200 39,790 .5x n/m 10x 9x

MAJOR HOLDERS Insiders 2% │ Wellington 8% │ Clearbridge 3% │ Capital World 3% │ Davis 2% │ GMO 2% │ Fairholme 1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE UnitedHealth enjoys large scale advantages in managed health care. The company generates strong free cash flow, trades at a high FCF yield and has consistently repurchased stock. Nonetheless, we are a bit wary of non-capital intensive businesses that generate large amounts of cash and are partly at the mercy of government regulation. We can’t find convincing reasons why the company should continue to enjoy huge returns on capital in the long term, other than due to regulator inertia.


…additional insight into UNH: SUPERINVESTOR INSIGHT INTO UNH

• Bruce Berkowitz, interview with Advisor Perspectives on December 24, 2008:

− “If HMOs like UnitedHealth, WellPoint, WellCare, and others cannot provide these services, then who will? The only thing government can do is to cut a check. Those that are providing these services now will be the ones providing it in the future.”

− “These businesses are very much like our insurance businesses. They can make a mistake in pricing a policy, but in six months they will have the opportunity to adjust those policies. They may lose some members but overall retention rates will be quite high.”

• Mohnish Pabrai, according to presentation at Columbia Business School in May 2008:

− “Good Business; High ROE; Tangible Book…: $1” − “Mature; Low-growth business; $75+Billion Rev.” − “Strong history of buybacks.” − “Current Price: $38. Not too attractive.”

SELECTED SLIDES FROM COMPANY PRESENTATION, FEBRUARY 10, 2009


URS (NYSE: URS) San Francisco, CA, 415-774-2700

Capital Goods: Construction Services, Member of S&P MidCap 400 http://www.urscorp.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 10/31/02 10/31/03 10/31/04 12/31/04 12/30/05 12/29/06 12/28/07 9/26/08 9/28/07 9/26/08 Revenue 2,428 3,187 3,382 567 3,890 4,223 5,383 9,117 1,268 2,588 Gross profit 938 1,181 1,241 198 230 245 288 432 78 139 EBIT 91 97 162 9 174 219 263 359 70 143 Net income 48 57 62 1 83 113 132 201 39 66 Diluted EPS 2.06 1.79 1.53 0.03 1.72 2.19 2.35 2.50 0.73 0.79 Cash from ops 68 166 96 15 200 165 312 426 124 64 Capex 53 18 19 2 23 29 42 82 9 17 Free cash flow 15 148 77 13 177 136 270 344 115 47 Cash & investments 10 36 69 108 102 90 257 222 141 222 Total current assets 988 960 1,059 1,100 1,273 1,374 2,588 2,629 1,488 2,629 Intangible assets 1,016 1,016 1,013 1,012 992 993 3,713 3,678 1,010 3,678 Total assets 2,229 2,188 2,269 2,308 2,469 2,581 6,930 6,984 2,721 6,984 Short-term debt 30 54 102 119 22 23 34 44 19 44 Total current liabilities 515 505 572 579 699 786 1,682 1,662 827 1,662 Long-term debt 972 789 502 509 298 150 1,289 1,119 73 1,119 Total liabilities 1,595 1,423 1,202 1,226 1,125 1,074 3,451 3,354 1,064 3,354 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 634 765 1,067 1,082 1,345 1,507 3,479 3,630 1,657 3,630 EBIT/capital employed 14% 15% 25% 1% 26% 33% 30% 39% n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

c


BUSINESS OVERVIEW URS provides program management, planning, design, engineering, construction, operations, and decommissioning services. It operates in three divisions: The URS Division provides project-related services to governments and private clients. The EG&G Division provides project-related services to U.S. government agencies, primarily the DOD and DHS. The Washington Division, formed via the acquisition of Washington Group in November 2007, provides project-related services to governments and private clients. SELECTED OPERATING DATA


9/30/08 % of revenue by division: URS 65% 66% 63% 34% EG&G 35% 34% 28% 23% Washington 0% 0% 8% 42% Revenue growth by division: URS 12% 10% 22% 9% EG&G 21% 6% 6% 60% Washington n/m n/m n/m >999% ∆ revenue 15% 9% 27% 102% ∆ book of business 14% 8% 142% 10% EBIT margin by division: URS 8% 7% 6% 7% EG&G 5% 5% 5% 6% Washington n/m n/m 4% 5% Corporate and other -2% -1% -1% -1% Total EBIT margin 4% 5% 5% 5% Capex as % of revenue 1% 1% 1% 1% D&A as % of revenue 1% 1% 1% 1% % of revenue by geography: U.S. 90% 91% 90% 91% International 10% 9% 10% 9% % of revenue from U.S. Army 20% 20% 18% 17%


• Top-tier engineering, construction and technical services firm with strong positions in power sector, military outsourcing, nuclear waste management, dynamic infrastructure, and oil and gas markets.

• Federal sector (35% of revenue) to exhibit slow but steady growth, based on projected DOD and DOE budgets. Enhanced scale and reach improve URS’s ability to win large, bundled DOD contracts.

• Infrastructure business (18% of revenue) could benefit from need to update aging infrastructure.

• Acquisitions have boosted growth, propelling URS from $100 million in revenue in 1990 to $9.8 billion in 2008E. Major acquisitions include Washington Group in 2007 (construction, DOE, power), EG&G in 2002 (federal O&M) and Dames & Moore in 1999 (PM/CM, transit, private sector).


Revenue by Sector, 2008E

Federal35%

Industrial and commercial

28%

Pow er19%

Infrastructure18%

Source: Company estimates, The Manual of Ideas. INVESTMENT RISKS & CONCERNS

• Realization of book of business may be delayed. The company accounts for all contract awards that may eventually be recognized as revenue as the “book of business,” which includes backlog, designations, option years and indefinite delivery contracts (IDCs). The backlog consists of signed contracts, including task orders issued under IDCs. As of September 26, 2008, the book of business was $33 billion, including backlog of $18 billion.

• No tangible book, with $1.2 billion of debt, $222 million of cash, retirement obligations of $138 million, and self-insurance reserves of $102 million. URS took on substantial debt to complete the November 2007 acquisition of Washington Group.

• 41% and 21% of revenue from federal government and state and local governments, respectively, in 2007. This dependence may actually be a positive as government spending is increasing.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

ABB 30,910 25,470 .7x 3.9x 8x 9x FLR 7,630 5,560 .3x 2.8x 12x 11x ACM 2,680 2,830 .5x 6.6x 15x 13x KBR 2,420 1,310 .1x 1.6x 9x 9x URS 2,876 3,818 .4x n/m 13x 12x

MAJOR HOLDERS Insiders 2% │ Fidelity 7% │ Greenlight 6% │ Capital World 5% │ Mac Per Wolf 5% │ Lord Abbett 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE URS derives more than 60% of revenue from the government, providing some stability in the current difficult economic environment. Nonetheless, the shares are not cheap enough to warrant serious consideration.


USG (NYSE: USG) Chicago, IL, 312-436-4000

Capital Goods: Construction - Raw Materials http://www.usg.com

Trading Data Consensus EPS Estimates Valuation Price: $7.07 (as of 2/13/09) Month # of P/E FYE 12/31/08 n/m 52-week range: $5.50 - $40.25 Latest Ago Ests P/E FYE 12/31/09 n/m Market value: $701 million This quarter -$0.73 -$0.44 13 P/E FYE 12/31/10 n/m Enterprise value: $2.1 billion Next quarter -0.63 -0.36 13 P/E FYE 12/31/11 19.1x Shares out: 99.2 million FYE 12/31/09 -2.54 -1.40 13 EV / LTM revenue 0.4x

Ownership Data FYE 12/31/10 -1.52 -0.41 8 EV / LTM EBITDA -7.2x Insider ownership: 33% FYE 12/31/11 0.37 n/a 2 EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.5x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 60% Date Actual Estimate LTM EBIT yield -14% # of institutional owners: 373 1/28/09 -$0.70 -$0.48 LTM pre-tax ROC -9%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 3,468 3,666 4,509 5,139 5,810 5,202 4,608 4,608 1,200 981 Gross profit 584 545 837 1,102 1,370 601 192 192 61 6 EBIT 258 210 508 (2,354) 985 167 (286) (286) (49) (155) Net income 43 121 312 (1,436) 288 77 (286) (371) (32) (172) Diluted EPS 3.21 3.18 5.61 (25.29) 4.33 0.79 (2.89) (2.89) (0.32) (1.73) Cash from ops 237 442 237 428 506 (3,703) 1,307 n/a 59 n/a Capex 109 100 111 138 198 393 460 n/a 119 n/a Free cash flow 128 342 126 290 308 (4,096) 847 n/a (60) n/a Cash & investments 699 764 894 1,170 565 297 471 471 297 471 Total current assets 1,377 1,498 1,790 2,179 2,707 1,284 1,494 1,494 1,284 1,494 Intangible assets 30 40 44 66 162 226 226 226 226 226 Total assets 3,636 3,799 4,278 6,142 5,365 4,654 4,896 4,896 4,654 4,896 Short-term debt 0 1 1 0 1,065 0 194 194 0 194 Total current liabilities 438 414 570 600 1,764 567 756 756 567 756 Long-term debt 2 1 0 0 1,439 1,238 1,642 1,642 1,238 1,642 Total liabilities 3,101 3,110 3,254 6,444 3,831 2,428 3,169 3,169 2,428 3,169 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 535 689 1,024 (302) 1,534 2,226 1,727 1,727 2,226 1,727 EBIT/capital employed 13% 10% 24% -104% 33% 5% -9% -9% n/m n/m



$0

$20

$40

$60

$80

$100

$120

$140


BUSINESS OVERVIEW USG provides building materials for residential, new nonresidential, and repair and remodel construction. USG products are also used in industrial processes. The company operates in three segments: North American Gypsum, Building Products Distribution and Worldwide Ceilings. Sales are highest from spring through the middle of fall. USG emerged from a five-year Chapter 11 process in 2Q06. The company raised $1.7 billion in a rights offering in 3Q06. Berkshire backstopped the offering, buying seven million shares at $40 per share. In March 2007, USG completed an offering of nine million shares at $48.60 per share. INVESTMENT HIGHLIGHTS

• U.S Gypsum is #1 producer of gypsum wallboard in U.S., accounting for 30% of gypsum wallboard sales in 2007. CGC is the largest manufacturer of gypsum wallboard in eastern Canada. USG Mexico is the top maker of gypsum wallboard in Mexico.

• L&W Supply (Building Products Distribution segment) is the leading specialty building products distribution business in the U.S., accounting for 13% of all gypsum wallboard distribution in 2007.

• Worldwide Ceilings is leader in interior ceiling products used in commercial applications.

• Berkshire and Fairfax bought $400 million of 10% converts in late 2008 ($11.40 conversion).

• Asbestos liabilities transferred to outside trust, accompanied by $4 billion payment in 2006. Future claims must be brought against the trust.

• Shares trade at .4x EV to trailing revenue (forward loss projected).


• Cyclical business, particularly sensitive to North American housing and construction markets. Prices are impacted by excess wallboard capacity.

• Vulnerable to raw materials price increases. USG uses gypsum, wastepaper, mineral fiber, steel, perlite, starch, and high pressure laminates.

• $1.4 billion of net debt and $764 million of long-term liabilities, incl. asset retirement obligations.

• Outlook as of January 28: Housing market “is expected to remain very weak throughout 2009…” USG expects U.S. industry demand for gypsum wallboard to decline in 2009. “If industry capacity is not reduced further, utilization rates in 2009 are expected to remain below 60 percent.”

SELECTED OPERATING DATA FYE December 31 2005 2006 2007 2008 % of revenue by segment: North American Gypsum 63% 62% 55% 51% Building Products Distribution 40% 43% 44% 43% Worldwide Ceilings 14% 13% 16% 18% Eliminations -16% -18% -14% -13% Revenue growth by segment: North American Gypsum 17% 12% -22% -17% Building Products Distribution 18% 21% -8% -13% Worldwide Ceilings 3% 7% 8% 4% Total revenue growth 14% 13% -10% -11% EBIT margin by segment: North American Gypsum -77% 23% 3% -10% Building Products Distribution 7% 8% 5% -2% Worldwide Ceilings 9% 10% 9% 9% Corporate and other 12% 13% 14% 16% Total EBIT margin -46% 17% 3% -6% DD&A as % of revenue1 2% 2% 3% 4%1 Capex as % of revenue1 4% 7% 9% 6%1 % of revenue by geography: U.S. 90% 90% 88% n/a Canada 8% 8% 8% n/a Other foreign 6% 7% 9% n/a Geographic transfers -5% -4% -5% n/a Selected U.S. Gypsum metrics:1 Revenue ($mn) 2,881 3,215 2,417 1,5181 Rev. as % of N.A. Gypsum 89% 89% 85% 82%1 Sheetrock ASP ($/'000 sq.ft) 144 181 135 1101 ∆ Sheetrock ASP n/a 25% -25% -22%1 ∆ manufacturing costs n/a "up" 9% 11%1 Utilization 96% 92% 78% n/a1 Shipments (bn sq. ft) 11 11 9 61 ∆ shipments n/a -4% -17% -17%1 ∆ gypsum industry shipments n/a -3% -15% -17%1 Building Products Distribution metrics: L&W Supply locations 192 220 247 198 ∆ L&W Supply locations n/a 15% 12% -10% Tangible equity to assets n/a 26% 45% 32% Home Depot as % of revenue 11% 11% 11% n/a

1 2008 data represents data for the nine months ended September 30, 2008, as full-year data was not available as of the publication date. MAJOR HOLDERS* CEO <1% │ Other insiders 1% │ Berkshire Hathaway 17% │ Gebr. Knauf 15% │ Keybank 5%│ T Rowe 4% * Not adjusted for potential conversion of $400 million of notes issued to Berkshire Hathaway and Fairfax Financial in November 2008. RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE USG holds market-leading positions in gypsum wallboard across North America, putting the company in a position to benefit from an eventual rebound in the housing and construction markets. In the near term, however, USG remains vulnerable to continued weakness in the company’s key end markets. Should housing market conditions deteriorate further, USG may be unable to satisfy its financial obligations, potentially leading to permanent capital loss for equity holders. While the shares trade at a large discount to tangible book value, we believe the potential reward of owning the equity may not justify the risks. Investors may consider evaluating the company’s debt securities for investment, as Berkshire and Fairfax have done.


…additional insight into USG: SELECTED SLIDES FROM COMPANY PRESENTATION, JANUARY 28, 2009

SELECTED SLIDES FROM COMPANY PRESENTATION, SEPTEMBER 18, 2008


USG / NORTH AMERICAN GYPSUM SEGMENT / U.S. GYPSUM – SELECTED METRICS



WellCare Health Plans (NYSE: WCG) Tampa, FL, 813-290-6200

Financial: Insurance (Accident & Health), Member of S&P MidCap 400 http://www.wellcare.com

Trading Data Consensus EPS Estimates Valuation Price: $15.57 (as of 2/13/09) Month # of P/E FYE 12/31/07 3.0x 52-week range: $6.12 - $55.73 Latest Ago Ests P/E FYE 12/31/08 13.5x Market value: $658 million This quarter -$0.30 -$0.24 7 P/E FYE 12/31/09 5.5x Enterprise value: -$196 million Next quarter 0.16 0.08 7 P/E FYE 12/31/10 5.1x Shares out: 42.2 million FYE 12/31/08 1.15 1.15 7 EV / LTM revenue n/m

Ownership Data FYE 12/31/09 2.85 3.08 9 EV / LTM EBITDA n/m Insider ownership: 3% FYE 12/31/10 3.07 3.61 8 EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth 13.3% 10.3% 3 P / tangible book 1.1x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 90% Date Actual Estimate LTM EBIT yield -193% # of institutional owners: 429 1/26/09 $1.41 $1.57 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/07 12/31/06 12/31/07 Revenue 750 922 1,046 1,382 1,865 3,636 5,391 5,391 1,049 1,399 Gross profit 113 145 185 259 360 729 1,177 1,177 258 323 EBIT 21 37 41 69 78 201 378 378 83 91 Net income 21 30 18 42 47 121 216 216 50 59 Diluted EPS 0.94 1.32 0.60 1.34 1.21 2.98 5.16 5.15 1.21 1.41 Cash from ops 38 67 123 49 81 508 278 278 179 (90) Capex 2 2 3 9 29 32 23 23 9 9 Free cash flow 36 65 120 40 53 476 255 255 169 (99) Cash & investments n/a 147 237 398 422 965 1,008 1,008 965 1,008 Total current assets n/a 0 0 0 0 0 0 0 0 0 Intangible assets n/a 134 171 206 207 208 206 206 208 206 Total assets n/a 410 497 803 896 1,664 2,083 2,083 1,664 2,083 Short-term debt n/a 72 48 2 27 2 155 155 2 155 Total current liabilities n/a 0 0 0 0 0 0 0 0 0 Long-term debt n/a 85 88 182 156 154 0 0 154 0 Total liabilities n/a 335 398 502 536 1,127 1,275 1,275 1,127 1,275 Preferred stock n/a 0 0 0 0 0 0 0 0 0 Common equity n/a 75 100 302 361 537 808 808 537 808 EBIT/capital employed n/a n/m n/m n/m n/m n/m n/m n/m n/m n/m



$20

$40

$60

$80

$100

$120

$140


BUSINESS OVERVIEW WellCare provides managed care services exclusively for government-sponsored healthcare programs, focusing on Medicaid and Medicare. The company offers health plans for families, children, the aged, blind and disabled, and prescription drug plans, serving 2.5+ million members. SELECTED OPERATING DATA—RESTATED1,2

FYE December 31 2005 2006 2007 % of revenue by type: Medicaid 72% 52% 50% Medicare 27% 46% 48% Premium revenue 99% 99% 98% Investment and other income 1% 1% 2% Revenue growth by type: Medicaid 29% 42% 41% Medicare 51% 233% 56% Premium revenue growth 34% 94% 48% Investment and other income 296% 193% 72% Total revenue growth 35% 95% 48% Medical benefit ratio (MBR) 82% 81% 82% Gross margin by segment: Medicaid 19% 18% 21% Medicare 18% 20% 21% Selected items as % of revenue: SG&A 14% 14% 14% Pre-tax income 4% 6% 7% Net income 3% 3% 4% D&A 0% 0% 0% Capex 2% 1% 0% % of Medicaid revenue by state: Florida 65% 46% 34% Georgia <10% 26% 40% Tangible equity to assets 22% 23% 32% ∆ shares out (period end) 2% 4% 2%

1 According to a WellCare 8-K dated July 21, 2008, the company needed to restate financials for 2004, 2005, 2006 and 1H07. WellCare filed Form 10-K for the year ended December 31, 2007 on January 28, 2009. 2 WellCare has not yet released financial statements for 2008. INVESTMENT HIGHLIGHTS

• Dedicated to government-sponsored healthcare programs, with a focus on Medicaid and Medicare. WellCare was formed in 2002 when it acquired its Florida, New York and Connecticut health plans.

• Bruce Berkowitz in April 2008: “I have only one nightmare… I wake up and see the headline, ‘UnitedHealth buys WellCare for $75/share.’” Mohnish Pabrai echoed this sentiment in late 2008, estimating intrinsic value at $93-108 per share.

• Growth apparently not impacted by DOJ and Florida AG investigations, with Medicare Advantage enrollment continuing to grow after the raiding of WellCare headquarters in October 2007.

• Charles Berg joined as executive chairman in January 2008. He was previously CEO of Oxford, which he turned around and sold to UnitedHealth.

• Heath Schiesser became CEO in January 2008. He was previously SVP of marketing and sales. He has a large options package struck at $40 per share.

• Thomas Tran joined as CFO in July 2008. He was previously CFO of CareGuide and Uniprise.

• Rex Adams joined as COO in September 2008. He was previously CEO of AT&T East.

• Shares trade at 5x forward earnings. INVESTMENT RISKS & CONCERNS

• Federal and state agencies searched WellCare headquarters in Tampa, Florida in October 2007. The DOJ and Florida AG appear focused on WellCare’s behavioral health refunds to the Florida Medicaid agency. The company is at risk of a fine that might range from $100-500 million.

• Executive turnover in January 2008, with WellCare firing chairman and CEO Farha, CFO Behrens and general counsel Bereday.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

UNH 35,200 39,790 .5x n/m 10x 9x WLP 22,270 29,460 .5x n/m 8x 7x CVH 2,410 2,850 .2x 12.7x 9x 7x AGP 1,510 970 .2x 2.7x 11x 11x CNC 940 720 .2x 2.9x 11x 10x WCG 660 n/a n/m n/a 14x 5x

MAJOR HOLDERS CEO Schiesser 1% │ Chairman Berg 1% │ Other insiders 1% │ Fairholme 20% │ RenTech 7% │ TimesSquare 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE We find WellCare quite compelling despite the ongoing investigation into the company’s Florida Medicaid business and a recent accounting restatement. Even under a pessimistic settlement scenario, the company should emerge with equity value significantly above the recent market price. In addition, a potential settlement provides a tangible near-term catalyst that may result in revaluation of the shares. Longer term, WellCare may find itself the target of a larger player, such as UnitedHealth or WellPoint. As a result, the shares deserve close attention.


WellPoint (NYSE: WLP) Indianapolis, IN, 317-532-6000

Financial: Insurance (Accident & Health), Member of S&P 500 http://www.wellpoint.com


Ownership Data FYE 12/31/10 6.21 6.34 16 EV / LTM EBITDA 7.6x Insider ownership: 0% FYE 12/31/11 6.90 7.37 6 EV / LTM EBIT 8.2x Insider buys (last six months): 0 LT EPS growth 12.3% 12.3% 8 P / tangible book n/m Insider sales (last six months): 2 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 83% Date Actual Estimate LTM EBIT yield 12% # of institutional owners: 1501 1/28/09 $0.65 $1.36 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 13,292 16,781 20,708 44,614 57,039 61,168 61,251 61,251 15,570 15,070 Gross profit 3,446 4,488 5,332 11,628 14,433 14,698 13,040 13,040 3,643 3,028 EBIT 901 1,343 1,586 4,117 5,318 5,706 3,592 3,592 1,448 624 Net income 549 774 960 2,464 3,095 3,345 2,491 2,491 859 331 Diluted EPS 2.25 2.73 3.05 3.94 4.82 5.56 4.76 4.76 1.51 0.65 Cash from ops 994 1,159 1,079 3,136 4,044 4,345 2,535 2,535 1,104 497 Capex 123 111 137 162 194 322 346 346 111 110 Free cash flow 871 1,048 942 2,974 3,850 4,023 2,190 2,190 994 388 Cash & investments 695 465 1,457 2,740 2,602 2,768 2,184 2,184 2,768 2,184 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 3,760 3,677 18,230 23,156 22,780 22,656 22,289 22,289 22,656 22,289 Total assets 12,439 13,415 39,738 51,287 51,575 52,060 48,403 48,403 52,060 48,403 Short-term debt 358 0 819 1,871 1,426 875 1,537 1,537 875 1,537 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 1,659 1,663 4,290 6,325 6,493 9,024 7,834 7,834 9,024 7,834 Total liabilities 7,077 7,415 20,279 26,294 26,999 29,070 26,972 26,972 29,070 26,972 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 5,362 6,000 19,459 24,993 24,576 22,990 21,432 21,432 22,990 21,432 EBIT/capital employed >100% >100% >100% >100% >100% n/m n/m n/m n/m n/m



$10

$20

$30

$40

$50

$60

$70

$80

$90

$100


BUSINESS OVERVIEW WellPoint offers network-based managed health care plans to employer, individual, Medicaid and senior markets. Plans include PPOs, HMOs and point-of-service plans; traditional indemnity plans and consumer-driven health plans; hospital only and limited benefit products. The company also provides services to self-funded customers as well as specialty and other services, including life and disability insurance benefits and pharmacy benefit management. WellPoint is a licensee of the Blue Cross and Blue Shield Association of independent health benefit plans. The company also serves customers under the UniCare brand. INVESTMENT HIGHLIGHTS

• Largest Medicare Parts A & B claims-processor in U.S., with 35 million total members and growing specialty and health solutions businesses.

• Participates in Blue Cross Blue Shield (includes 80% of U.S. physicians and 95% of hospitals). BCBS licensees benefit from network discounts.

• Diverse membership base, with presence in more than a dozen U.S. states, including California (25-30% market share), Connecticut (45-50% share), Indiana (~45% share), and Virginia (40-45% share).

• Conservative reserving, with days in claims payable relatively consistent at 45-50 days.1

• Aims to grow specialty products, including behavioral health (24 million members), dental (9 million, life (6 million), and vision (3 million).

• 46 million uninsured Americans—growth opportunity? WellPoint enrolled 350-400K individuals with no previous coverage in 2008.

• Guiding for single-digit GAAP EPS growth in 2009. WellPoint expects to win 40 national accounts and add 400K net new national members in 2009.

• Repurchased $3.0 billion of stock in the first nine months of 2008 and $11 billion from 2005-07.



• Regulatory risks. Health care consumes a higher percentage of GDP in the U.S. than in many other Western countries. It is impossible to predict how regulatory changes may impact the company.

• Recession may impact enrollment and the level of benefits provided by employers. The company is also seeing an impact on its investment portfolio and terms available in the commercial paper market.

1 Days in claims payable = medical claims payable / (benefit expense in quarter / days in quarter)

SELECTED OPERATING DATA FYE December 31 2006 2007 2008 ‘09E % of revenue by type: Premiums 91% 91% n/a n/a Administrative fees and other 7% 7% n/a n/a Total operating revenue 98% 98% n/a n/a Net investment income, gains 2% 2% n/a n/a Revenue growth by type: Premiums 28%1 7% n/a n/a Administrative fees and other 29% 2% n/a n/a Net investment income, gains 39% 15% n/a n/a ∆ revenue 28% 7% n/a n/a ∆ medical members2 1% 2% n/a n/a Selected items as % of revenue: Benefit expense 74% 75% n/a n/a Pre-tax income 9% 9% n/a n/a D&A 0% 0% n/a n/a Stock-based comp, net 1% 1% n/a n/a Capex 0% 0% n/a n/a Medical members2 (mn) 34 35 n/a n/a % of medical members by funding arrangement2 (mn): Self-funded 49% 51% n/a n/a Fully insured 51% 49% n/a n/a % of medical members by customer type2 (mn): Local group 49% 48% n/a n/a National accounts 18% 18% n/a n/a BlueCard 13% 13% n/a n/a Other3 20% 21% n/a n/a Tangible equity to assets (avg) 6% 4% n/a n/a ∆ diluted shares out (avg) 3% -6% n/a n/a

1 Premiums increased 12% on an “organic” basis, driven by rate increases, addition of New York state prescription drug contract and new enrollment in Medicare Part D products. The remainder of the increase was due to the $6.5 billion acquisition of WellChoice, which was completed on December 31, 2005. 2 Based on period-end data. 3 Includes individual, senior, state sponsored, and FEP accounts. COMPARABLE PUBLIC COMPANY ANALYSIS

Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

UNH 35,200 39,790 .5x n/m 10x 9x CVH 2,410 2,850 .2x 12.7x 9x 7x AGP 1,510 970 .2x 2.7x 11x 11x CNC 940 720 .2x 2.9x 11x 10x WCG 660 n/a n/m n/a 14x 5x WLP 22,270 29,460 .5x n/m 8x 7x

MAJOR HOLDERS Insiders <1% │ Dodge & Cox 8% │ T Rowe 5% │ Barclays 4% │ Fairholme 2% │ Berkshire <1% │ Pzena <1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE WellPoint enjoys exceptional business economics, generating several billion dollars of net income while employing virtually no capital. This is perhaps the strongest argument for investing in the company—but also its greatest long-term weakness. It is quite unclear whether WellPoint can maintain multi-billion dollar free cash flows with little capital investment. With regulators looking for ways to take costs out of the system, margin pressure on WellPoint may be ratcheted up over time.


…additional insight into WLP: BUSINESS MODEL—KEY LEVERS OF EPS GROWTH

• Revenue growth: price hikes in excess of cost increases, organic membership gains, new products

• Operating cost improvement: “optimize” cost of care, lower per-member administrative costs, increase efficiency

• Capital management: high-return reinvestment, efficient capital structure, share repurchases

SUPERINVESTOR INSIGHT INTO WLP


− “If HMOs like UnitedHealth, WellPoint, WellCare, and others cannot provide these services, then who will? The only thing government can do is to cut a check. Those that are providing these services now will be the ones providing it in the future.”

− “These businesses are very much like our insurance businesses. They can make a mistake in pricing a policy, but in six months they will have the opportunity to adjust those policies. They may lose some members but overall retention rates will be quite high.”

• Mohnish Pabrai, according to presentation at Columbia Business School in May 2008:

− “Good Business; High ROE; Tangible Book…: $0” − “Mature; Low-growth business; $60+Billion Rev.” − “Strong history of buybacks.” − “IV ~$34B at end of 2009.”

INVESTMENT PORTFOLIO BREAKDOWN

12/31/07 12/31/08 Government and Gov't-sponsored 4% State and municipal (tax exempt) 19% Corporate 28% Mortgage-backed 27% Fixed maturity securities 79% Equity securities 10% Cash and equivalents1 11% Total portfolio investments ($mn) 19,959 Unrealized gain/(loss) as % of cost 2%


WLP – SG&A as % of Revenue, 2000-08

14.6%

12%

14%

16%

18%

20%

22%

00 01 02 03 04 05 06 07 08E


SELECTED SLIDES FROM COMPANY PRESENTATION, FEBRUARY 9, 2009


INDUSTRY-RELATED CHARTS

Healthcare Spending as % of GDP, 1960-2005

Source: Congressional Budget Office. Healthcare Spending as % of GDP, 2007-2082E

Source: Congressional Budget Office. Sources of Growth in Spending on Medicare and Medicaid, 2007-2082E

Source: Congressional Budget Office.

Healthcare Expenses Paid Out of Pocket, 1975-2015E

Source: Congressional Budget Office. Peter Orszag — Indicting The Healthcare Industry?

Source: Congressional Budget Office. The above slide was included in a presentation by CBO Director Peter Orszag in September 2008. Relationship Between Quality of Care and Medicare Spending, by State, 2004

Source: Congressional Budget Office. U.S. Health Insurance Market Share of Top 10 Plans (based on membership), 1995-2008

27%

56%

0%

25%

50%

75%

1995 2008

Source: Congressional Budget Office.


Winthrop Realty Trust (NYSE: FUR) Boston, MA, 617-570-4614

Services: Real Estate Operations http://www.winthropreit.com


Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA 36.8x Insider ownership: 26% Next 2 Yrs n/a n/a n/a EV / LTM EBIT n/m Insider buys (last six months): 1 LT EPS growth n/a n/a n/a P / tangible book 0.5x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 52% Date Actual Estimate LTM EBIT yield -1% # of institutional owners: 162 n/a n/a n/a LTM pre-tax ROC -2%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 31 3 2 6 31 53 51 44 12 11 Gross profit 14 2 2 5 29 47 43 33 10 9 EBIT (15) (5) (7) 2 23 46 2 (3) 5 2 Net income 13 (7) (8) 20 22 43 2 (37) 5 2 Diluted EPS 1.84 (1.07) (1.40) (0.02) 2.49 3.56 0.11 (2.66) 0.34 0.14 Cash from ops (5) (1) (4) 4 16 28 22 23 6 5 Capex 1 1 1 64 68 39 10 1 1 (2) Free cash flow (6) (2) (5) (60) (52) (11) 13 22 5 7 Cash & investments 3 4 15 83 19 90 37 180 55 180 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 0 0 0 7 37 36 32 28 34 28 Total assets 186 172 147 290 659 852 745 736 772 736 Short-term debt 0 0 0 0 138 112 75 70 84 70 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 55 54 42 161 205 263 237 234 238 234 Total liabilities 64 64 50 170 399 428 355 333 347 333 Preferred stock 23 23 23 23 123 100 98 86 99 86 Common equity 99 85 74 97 137 324 292 317 326 317 EBIT/capital employed -25% -10% -13% 8% 14% 16% 1% -2% n/m n/m



$5

$10

$15

$20

$25

$30

$35

$40


BUSINESS OVERVIEW Winthrop Realty Trust operates in three segments: Operating Properties includes the trust’s wholly and partially owned operating properties. Loan Assets and Loan Securities includes the trust’s activities related to senior and mezzanine real estate loans. REIT Equity Interests includes the trust’s activities related to the ownership of securities in public real estate companies. The trust issued 5 million shares at $5.25 per share in a rights offering and 20 million shares at $6 in a public sale in 2006. SELECTED OPERATING DATA


9/30/08 Selected operating data ($mn): Segment EBITDA1 $45 $89 $51 $15 Segment EBIT 38 77 38 6 Segment EBT 23 55 18 (6) Corporate items 1 (9) (16) (10) Net income to common 22 43 2 (15) % of EBITDA by segment (excl. corporate items): Operating properties 54% 36% 60% 159% Loan assets and securities 18% 24% 50% -66% REIT equity interests 28% 40% -10% 7% % of total assets by segment: Operating properties2 37% 32% 39% 40% real estate – office (TX, FL) 13% n/a real estate – office (IL, IN) 9% n/a real estate – office (PA, NY) 6% n/a real estate – retail 3% n/a real estate – other 5% n/a Loan assets and securities 41% 43% 43% 28% REIT equity interests 16% 12% 10% 0% Other assets3 6% 13% 8% 32% % of total assets by source of capital: Liabilities 58% 60% 55% Loans and mortgage loans 31% 32% 41% Repurchase agreements 13% 10% 0% convertible preferred stock 12% 13% 12% other liabilities 3% 4% 3% Minority interest 4% 1% 1% Shareholders’ equity 38% 39% 43%

1 Referred to by the company as “net operating income”. Segment EBITDA excludes corporate items and includes earnings from investments. 2 Includes real estate and non-real estate assets. 3 Includes cash and equivalents. INVESTMENT HIGHLIGHTS

• Fertile ground for new deals? According to management, the “adverse market conditions have… begun to provide the company with investment opportunities which demonstrate risk adjusted returns at levels which we have not observed since early 2000, and which we are actively but selectively pursuing.”

• Announced repurchase plan in September 2008, pursuant to which the company is permitted to buy up to five million shares.

• Shares trade at .5x tangible book value (no EPS estimates available).


• Management post-3Q08 (November 6): “In view of the worsening economic environment and the erosion of real estate equity values which transpired over the past 15 months, we continued to focus our efforts primarily on increasing our corporate liquidity and delevering our balance sheet.”

• $304 million of debt, offset by $219 million of cash. The company recently extended its credit line with KeyBank through December 2010, subject to one, one-year extension right. The line provides for a maximum initial borrowing of $35 million, subject to increase to $75 million. At December 16, the company had no amounts outstanding on the line.


Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

KIM 10.40 2,820 .7x 18x 18x Dec-31 REG 29.30 2,050 1.3x 22x 23x Dec-31 ARE 50.30 1,600 1.2x 19x 17x Dec-31 CLI 19.60 1,300 .9x 20x 33x Dec-31 OFC 25.10 1,290 1.5x 33x 27x Dec-31 WRI 13.60 1,180 .8x 8x 8x Dec-31 BDN 5.90 520 .3x 31x n/m Dec-31 DDR 3.40 410 .2x 4x 5x Dec-31 AKR 10.50 350 1.5x 11x 16x Dec-31 PEI 4.70 180 .3x n/m n/m Dec-31 RPT 5.10 90 .3x n/a n/a Dec-31 FUR 9.80 154 .5x n/a n/a Dec-31

MAJOR HOLDERS CEO Ashner 17% │ Other insiders 10% │ North Run 5% │ Fairholme 11% │ Wellington 3% │ Raffles 1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Based in Boston, Winthrop Realty is a REIT that owns and operates office and other properties in several U.S. states. While the company operates in a difficult environment, it has significantly improved the balance sheet since yearend 2007. Cash rose from $43 million on December 31, 2007 to $219 million on September 30, 2008, even as total debt declined slightly, from $312 million on December 31, 2007 to $304 million on September 30, 2008. CEO Michael Ashner spent $240K buying shares in the open market at $12 per share in January. We view Winthrop as an attractive REIT candidate for investment.


Candidates—Deep Value: Japan

As we scouted for “deep value” opportunities to include in this report, we quickly realized that a number of major Japanese corporations were quite cheap on an earnings basis and even cheaper when underlying net asset values are considered. We are presenting eight Japanese public companies in this special section.

We have chosen the following stocks based on low multiples of price to tangible book value and some overlap in their businesses. We passed on a number of rather cheap Japanese auto makers, as the latter are dealing with a unique set of issues globally, and we felt that addressing such issues was beyond the scope of this report. As a result, we analyze the following companies:

Canon (CAJ)

Fujifilm (FUJI)

Hitachi (HIT)

Kyocera (KYO)

Panasonic (PC)

Sharp (SHCAY)

Sony (SNE)

TDK (TDK)

Japanese stocks are widely viewed as low-ROE businesses with little management focus on shareholder value, and we find this reputation to be largely deserved. We do note, however, that some firms appear to be warming up to the idea of share repurchases, albeit in limited magnitude. We also note that a few firms do appear focused on improving returns on equity.

We choose Sony as our top pick among the eight contenders, with Canon and Panasonic also deserving a closer look.

Sony (NYSE: SNE) stands in a league of its own in terms of global brand recognition and brand preference. Our analysis shows it trades meaningfully below the sum of the value of its parts.

Canon (NYSE: CAJ) is interesting due to best-in-class returns on equity among large Japanese companies.

Panasonic (NYSE: PC), formerly known as Matsushita Electric, derives value both from a branded global consumer electronics business and significant non-core assets.


Major Japanese Public Companies – Overview

Tang. LTM Shares Price MV EV Book Rev. Empl. per Company Ticker ($) ($bn) ($bn) ($bn) ($bn) ('000) ADR Industry

Basic Materials Kubota KUB 27.21 7 11 7 13 25 5.0 Iron & Steel Kobe Steel KBSTY 6.60 4 12 6 50 34 5.0 Iron & Steel Furukawa Electric FUWAY 39.00 3 7 2 25 40 10.0 Metal Mining

Capital Goods Mitsui & Co. MITSY 209.33 19 50 20 66 44 20.0 Misc. Capital Goods Hitachi HIT 28.64 10 34 13 118 359 10.0 Misc. Capital Goods Komatsu KMTUY 43.53 11 16 8 31 41 4.0 Construction & Agri Machinery

Consumer Cyclical Toyota Motor TM 65.45 103 208 119 256 322 2.0 Auto & Truck Manufacturers Honda Motor HMC 24.02 44 86 47 123 186 1.0 Auto & Truck Manufacturers Panasonic PC 11.58 24 20 30 92 307 1.0 Audio & Video Equipment Sony SNE 18.50 19 17 26 89 179 1.0 Audio & Video Equipment Nissan Motor NSANY 5.95 12 60 30 217 158 2.0 Auto & Truck Manufacturers Bridgestone BRDCY 26.80 10 18 14 75 137 2.0 Tires Fujifilm FUJI 19.64 10 10 15 28 78 1.0 Photography Sharp SHCAY 8.00 9 13 11 34 56 1.0 Audio & Video Equipment Sanyo SANYY 7.30 3 5 3 20 93 5.0 Audio & Video Equipment Kawasaki Heavy KWHIY 7.05 3 6 3 29 32 4.0 Recreational Products Makita MKTAY 20.84 3 2 3 4 11 1.0 Appliances & Tools Wacoal WACLY 59.91 2 1 2 2 14 5.0 Apparel/Accessories

Consumer Non-Cyclical Kirin Holdings KNBWY 10.27 10 16 5 49 34 1.0 Beverages (Alcoholic) Shiseido SSDOY 15.61 6 6 3 15 29 1.0 Personal & Household Products Q.P. Corp. QPCPY 24.15 2 2 2 10 10 2.0 Food Processing

Financial Mitsubishi UFJ MTU 5.06 59 n/m 64 47 78 1.0 Money Center Banks Mizuho Financial MFG 4.43 25 n/m 0 0 49 2.0 Regional Banks Tokio Marine TKOMY 22.85 18 n/m 14 70 27 1.0 Insurance (Property & Casualty) Nomura NMR 5.10 10 n/m 15 7 26 1.0 Investment Services

Healthcare Eisai ESALY 34.03 10 13 0 17 11 1.0 Biotechnology & Drugs

Services NTT DoCoMo DCM 16.12 68 69 41 50 23 0.0 Communications Services Nippon Telegraph NTT 22.64 60 105 63 115 208 0.0 Communications Services ORIX IX 15.16 3 59 13 12 20 0.5 Rental & Leasing Daiei DAIEY 8.70 2 2 2 25 10 n/a Retail (Department & Discount)

Technology Canon CAJ 26.52 33 25 30 45 167 1.0 Computer Peripherals Softbank SFTBF 15.00 16 39 (9) 59 21 n/a Computer Services Kyocera KYO 64.00 12 7 14 17 65 1.0 Semiconductors Fujitsu FJTSY 19.22 8 14 7 110 174 5.0 Computer Services Ricoh RICOY 59.10 9 15 7 23 110 5.0 Office Equipment Nidec NJ 11.33 6 7 3 7 95 0.3 Electronic Instruments & Controls TDK TDK 40.30 5 6 7 9 74 1.0 Electronic Instruments & Controls Trend Micro TMICY 29.40 4 3 1 2 4 1.0 Software & Programming Konami KNM 15.96 2 2 1 3 6 1.0 Software & Programming Advantest ATE 15.12 3 1 2 1 4 1.0 Semiconductors

[Japanese ADRs ● Deep Value Browser 1 ● dvbrowser1_data.xls, dvbrowser1.xls]


Major Japanese Public Companies – Overview

Price/ EV/ Revenue/ Net Net ∆ MV EV Tang. LTM Employee Pre-Tax Assets/ Sh. Out Company Ticker ($bn) ($bn) Book Revenue ($'000) ROC MV (y-y)

Basic Materials Kubota KUB 7 11 1.0x .9x 506 18% 5% -1% Kobe Steel KBSTY 4 12 .7x .2x 1,451 33% n/m -3% Furukawa Electric FUWAY 3 7 1.5x .3x 632 14% n/m -1%

Capital Goods Mitsui & Co. MITSY 19 50 1.0x .8x 1,491 15% n/m 4% Hitachi HIT 10 34 .7x .3x 328 6% n/m -0% Komatsu KMTUY 11 16 1.3x .5x 756 36% n/m 0%

Consumer Cyclical Toyota Motor TM 103 208 .9x .8x 796 5% n/m -1% Honda Motor HMC 44 86 .9x .7x 658 -60% n/m -1% Panasonic PC 24 20 .8x .2x 298 20% n/m -3% Sony SNE 19 17 .7x .2x 495 4% n/m 0% Nissan Motor NSANY 12 60 .4x .3x 1,371 8% n/m -0% Bridgestone BRDCY 10 18 .8x .2x 546 22% n/m 0% Fujifilm FUJI 10 10 .6x .4x 363 8% 26% -0% Sharp SHCAY 9 13 .8x .4x 614 0% n/m 0% Sanyo SANYY 3 5 .9x .2x 213 8% n/m -0% Kawasaki Heavy KWHIY 3 6 1.0x .2x 915 12% n/m 6% Makita MKTAY 3 2 1.0x .6x 330 25% 71% 0% Wacoal WACLY 2 1 1.0x .7x 135 8% 30% -1%

Consumer Non-Cyclical Kirin Holdings KNBWY 10 16 1.9x .3x 1,418 27% n/m -0% Shiseido SSDOY 6 6 1.8x .4x 531 40% 9% -1% Q.P. Corp. QPCPY 2 2 1.2x .2x 1,087 18% n/m -0%

Financial Mitsubishi UFJ MTU 59 n/m .9x n/m 606 n/m n/m 3% Mizuho Financial MFG 25 n/m n/m n/m n/a n/m n/m -1% Tokio Marine TKOMY 18 n/m 1.3x n/m 2,538 n/m n/m -2% Nomura NMR 10 n/m .6x n/m 266 n/m n/m 0%

Healthcare Eisai ESALY 10 13 25.2x .8x 1,565 28% n/m -0%

Services NTT DoCoMo DCM 68 69 1.7x 1.4x 2,203 29% n/m -2% Nippon Telegraph NTT 60 105 1.0x .9x 552 13% n/m -0% ORIX IX 3 59 .2x 4.9x 601 10% n/m 1% Daiei DAIEY 2 2 .8x .1x 2,407 3% n/m -0%

Technology Canon CAJ 33 25 1.1x .6x 267 27% 26% -3% Softbank SFTBF 16 39 n/m .7x 2,811 48% n/m 1% Kyocera KYO 12 7 .8x .4x 263 18% 48% 1% Fujitsu FJTSY 8 14 1.2x .1x 635 12% n/m -0% Ricoh RICOY 9 15 1.3x .6x 213 18% n/m -0% Nidec NJ 6 7 2.5x .9x 79 22% n/m 0% TDK TDK 5 6 .8x .7x 117 4% 3% -2% Trend Micro TMICY 4 3 3.7x 1.2x 606 >100% 18% -1% Konami KNM 2 2 1.6x .7x 574 39% 6% 0% Advantest ATE 3 1 1.1x 1.1x 289 -18% 62% -3%

[Japanese ADRs ● Deep Value Browser 1 ● dvbrowser1_data.xls, dvbrowser1.xls]


Why “Japan Inc.” Has Long Way To Go — Corporate Governance at Sharp Corporation Sharp presents the following “system” as evidence of its commitment to “improving the speed and quality of managerial decisions.” Note that the company even has a “One-of-a-kind Product Strategy Committee.” We are not quite sure that “one-of-a-kind” products are best conceived by committee.

Source: Sharp Corporation, Corporate Governance System (as of June 24, 2008), Annual Report for FY07, p. 31.


Canon (NYSE: CAJ) Ohta-ku, TK, Japan, 81-3-375-2111

Technology: Computer Peripherals http://www.canon.com

Trading Data Consensus EPS Estimates Valuation Price: $26.52 (as of 2/13/09) Month # of P/E FYE 12/31/08 9.7x 52-week range: $24.04 - $54.99 Latest Ago Ests P/E FYE 12/31/09 17.9x Market value: $32.7 billion This quarter n/a n/a n/a P/E FYE 12/31/10 n/a Enterprise value: $25.3 billion Next quarter n/a n/a n/a P/E FYE 12/31/11 n/a Shares out: 1,234.9 million FYE 12/31/09 1.48 1.49 1 EV / LTM revenue 0.6x

Ownership Data FYE 12/31/10 n/a n/a n/a EV / LTM EBITDA n/a Insider ownership: 12% FYE 12/31/11 n/a n/a n/a EV / LTM EBIT 4.7x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 1.1x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 5% Date Actual Estimate LTM EBIT yield 21% # of institutional owners: 293 1/28/09 $0.48 n/a LTM pre-tax ROC 27%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 32,737 35,609 38,613 41,802 46,284 49,898 45,587 44,519 14,072 11,076 Gross profit 15,589 17,915 19,077 20,254 22,943 25,019 21,579 21,162 6,804 4,692 EBIT 3,857 5,060 6,055 6,492 7,873 8,425 5,524 5,394 2,155 399 Net income 2,124 3,070 3,823 4,277 5,070 5,437 3,442 3,442 1,424 129 Diluted EPS 1.59 2.31 2.87 3.21 3.81 4.20 2.74 2.67 1.13 0.11 Cash from ops 4,999 5,185 6,252 6,744 7,741 9,345 6,867 6,866 3,080 2,018 Capex 2,213 2,339 2,858 4,399 4,731 5,281 4,768 4,768 1,233 950 Free cash flow 2,786 2,846 3,394 2,345 3,011 4,064 2,099 2,099 1,847 1,068 Cash & investments 5,885 7,701 9,902 11,192 12,984 10,745 7,648 7,648 10,745 7,648 Total current assets 18,984 21,499 24,854 27,375 30,980 29,048 22,991 22,991 29,048 22,991 Intangible assets 0 0 0 0 0 1,253 1,327 0 0 0 Total assets 32,766 35,432 39,940 45,023 50,350 50,246 44,204 44,204 50,246 44,204 Short-term debt 1,444 968 679 252 348 394 62 62 204 62 Total current liabilities 8,928 9,212 10,947 12,010 12,953 13,993 10,511 10,511 13,993 10,511 Long-term debt 906 660 319 302 176 97 94 94 97 94 Total liabilities 15,040 14,660 15,334 16,021 17,095 17,707 14,588 14,588 17,707 14,588 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 17,726 20,772 24,606 29,002 33,255 32,539 29,616 29,616 32,539 29,616 EBIT/capital employed 26% 34% 40% 40% 43% 43% 28% 27% n/m n/m



$10

$20

$30

$40

$50

$60

$70


BUSINESS OVERVIEW Canon provides branded digital multifunction devices, copying machines, printers, cameras, steppers, and aligners. The company sells through subsidiaries, each of which has localized marketing and distribution responsibility. Canon entered the business machines field in the late 1950s utilizing photographic and optical products technology. The company introduced electronic calculators in 1964 and has since expanded into other technology-driven office products. Seasonality is strongest during the Q4 holiday season. Corporate demand in Japan peaks in Q1. SELECTED OPERATING DATA

FYE December 31 2006 2007 2008 % of revenue by segment: Office imaging products 29% 29% 27% Computer peripherals 34% 34% 36% Business information products 3% 2% 2% Total business machines 65% 66% 65% Cameras 25% 26% 25% Optical and other products 10% 9% 10% Revenue growth by segment: Office imaging products 3% 9% -13% Computer peripherals 12% 10% -5% Business information products 3% 0% -20% Total business machines 8% 9% -9% Cameras 19% 11% -10% Optical and other products 14% -7% 0% Total revenue growth 11% 8% -9% EBIT margin by segment: Business machines 22% 22% 20% Cameras 26% 27% 18% Optical and other products 10% 5% -11% Corporate and eliminations -5% -5% -5% Total EBIT margin 17% 17% 12% D&A as % of revenue 7% 8% 8% Capex as % of revenue 10% 10% 10% R&D as % of revenue 7% 8% 9% Net margin 11% 11% 8% % of revenue by geography: Japan 22% 21% 21% Americas 31% 30% 28% Europe 32% 33% 33% Other 15% 16% 18% ROE 16% 17% 11% Equity to total assets (avg) 65% 65% 66% ∆ shares out (period end) 12% 0% 0%


• Leader in monochrome multifunction devices (MFDs) and copiers, including personal-use machines. Canon also has a strong position in laser and inkjet printers and scanners. Most laser printer sales are on an OEM basis. HP accounts for roughly 20% ($8 billion) of the company’s annual revenue.

• Canon is both incumbent and innovator in shifts from copying machines to digital MFDs, and from monochrome to color products.

• Market for digital SLR cameras continues to grow. The market for compact digital cameras is also growing amid intense price competition.

• Strategy: develop high-value products based on advanced technology. Even so, Canon could curtail basic research in favor of product-oriented R&D.

• Repurchased 14 million shares for ¥50 billion (~$520 million) in November 2008. The company had spent $4 billion on buybacks during 2007.



• Canon still makes most products in Japan, a high-cost base of production. Canon has guided for revenue to decline 15% and EBIT to decline 68% in CY09. Yen appreciation has pressured results.

• Demand for digital MFDs and laser printers to remain subdued. The market for steppers, used in semiconductor production, is expected to stagnate.

• Products launched in past two years account for two-thirds of revenue, suggesting relatively high dependence on the success of new products. This is particularly noteworthy in the cameras segment, which depends on fickle consumer preferences.

• Camera business more competitive in digital era. Since the demise of analog cameras, new entrants have emerged, including electronics makers and other specialized firms. This has shortened product cycles and boosted price and feature competition.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

HPQ 86,360 93,970 .8x n/m 9x 9x RICOY 8,580 14,970 .6x 1.3x 13x 20x XRX 5,570 13,370 .8x 2.3x 7x 6x CAJ 32,750 25,260 .6x 1.1x 18x n/a

MAJOR HOLDERS Insiders <1% │ Dai-Ichi Mutual Life 7%│ Moxley 5% │ Japan Trustee Services 5% │ JP Morgan 2% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Canon scores highly among Japanese companies, as it exhibits a similarly low valuation while achieving superior returns on capital, with deleveraged returns on equity in the mid teens. We laud the company’s repurchases of stock, which amounted to ¥550 billion in 2007-08. However, the company operates in consumer and corporate markets that are highly competitive, new feature-driven and economically sensitive. As a result, we do not see large upside to Canon’s recent returns on equity.


Fujifilm (Nasdaq: FUJI) Minato-ku, TK, Japan, 877-248-4237

Consumer Cyclical: Photography http://www.fujifilmholdings.com

Trading Data Consensus EPS Estimates Valuation Price: $19.64 (as of 2/13/09) Month # of P/E FYE 3/31/08 9.4x 52-week range: $16.93 - $40.96 Latest Ago Ests P/E FYE 3/31/09 16.4x Market value: $9.6 billion This quarter n/a n/a n/a P/E FYE 3/31/10 15.6x Enterprise value: $10.4 billion Next quarter n/a n/a n/a P/E FYE 3/31/11 n/a Shares out: 488.8 million FYE 3/31/09 1.20 1.20 1 EV / LTM revenue 0.4x

Ownership Data FYE 3/31/10 1.26 1.26 1 EV / LTM EBITDA n/a Insider ownership: 9% FYE 3/31/11 n/a n/a n/a EV / LTM EBIT 8.6x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.6x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 6% Date Actual Estimate LTM EBIT yield 12% # of institutional owners: 87 7/30/08 $0.55 n/a LTM pre-tax ROC 8%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 26,109 27,246 27,910 27,482 29,006 30,256 30,956 28,419 7,931 6,151 Gross profit 10,873 11,235 11,558 11,055 11,675 12,442 12,549 11,110 3,284 2,285 EBIT 1,751 1,558 2,006 1,785 766 969 2,245 1,211 754 14 Net income 884 528 895 919 403 375 1,136 326 427 (173) Diluted EPS 1.72 1.03 1.74 1.79 0.79 0.71 2.10 0.59 0.79 (0.35) Cash from ops 2,699 3,253 3,560 2,385 2,964 3,233 3,242 2,497 404 (146) Capex 2,014 1,742 2,147 2,000 2,215 2,099 2,032 2,006 433 369 Free cash flow 684 1,512 1,413 385 749 1,133 1,210 491 (29) (515) Cash & investments 4,331 4,815 5,390 3,848 3,136 4,711 3,761 2,867 4,664 2,867 Total current assets 15,106 15,540 16,209 14,933 14,924 17,238 16,441 14,911 18,044 14,911 Intangible assets 2,705 2,816 2,723 3,008 3,113 3,450 4,550 4,400 3,399 4,400 Total assets 32,038 32,168 32,877 32,441 32,920 36,091 35,518 32,006 36,698 32,006 Short-term debt 2,036 1,736 1,558 1,344 1,078 1,153 1,237 855 1,812 855 Total current liabilities 7,838 7,746 8,178 7,982 7,861 8,496 8,206 6,341 8,907 6,341 Long-term debt 1,495 1,353 1,270 1,044 808 2,914 2,786 2,771 2,668 2,771 Total liabilities 13,574 13,893 13,849 12,335 11,570 14,599 14,615 12,449 14,665 12,449 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 18,464 18,275 19,028 20,107 21,351 21,492 20,903 19,558 22,033 19,558 EBIT/capital employed 14% 12% 17% 15% 6% 7% 16% 8% n/m n/m



$10

$20

$30

$40

$50

$60


BUSINESS OVERVIEW Fujifilm operates in three segments: Imaging Solutions includes color films, digital cameras, photofinishing equipment and services, and color paper. Information Solutions includes medical systems, graphic arts equipment and materials, flat panel display materials, recording media, optical devices, and inkjet materials. Document Solutions includes office copy machines, printers, production systems, paper, consumables, and office services. SELECTED OPERATING DATA

FYE March 31 2006 2007 2008 YTD

12/31/08 % of revenue by segment: Imaging solutions 26% 22% 19% 18% Information solutions 33% 37% 39% 39% Document solutions 41% 41% 42% 44% Revenue growth by segment: Imaging solutions -7% -12% -10% -24% Information solutions 14% 17% 8% -10% Document solutions 8% 5% 4% -5% Total revenue growth 6% 4% 2% -11% EBIT margin by segment: Imaging solutions -11% -7% 0% -2% Information solutions 9% 9% 11% 5% Document solutions 6% 5% 7% 7% Total EBIT margin 3% 4% 7% 4% D&A as % of revenue 8% 8% 8% 8% Capex as % of revenue 7% 6% 6% 6% R&D as % of revenue 7% 6% 7% 8% Net margin 1% 1% 4% 2% % of revenue by type: Sales 86% 86% 86% 85% Rentals 14% 14% 14% 15% Gross margin by type: Sales 38% 38% 37% 36% Rentals 57% 58% 60% 58% Total gross margin 40% 41% 41% 39% % of revenue by geography: Japan 62% 60% 58% 45% Asia Pacific 9% 10% 12% 21% Americas 17% 18% 18% 19% Europe 12% 12% 12% 15% ROE 2% 2% 5% 2% Equity to total assets (avg) 63% 62% 59% 60% ∆ shares out (period end) 0% 0% -1% 0%


• Downsized photosensitive materials businesses from 19,000 to 8,800 people in four years, while focusing on growth segments: medical equipment, graphic systems, document solutions, optical devices, and flat panel display (FPD) materials.

• Expects to repurchase ¥35 billion ($370 million) of stock in the year ending March 31st, following a ¥34 billion buyback in the previous fiscal year.

• Shares trade at .6x tangible book value, 16x forward P/E and .6x tangible book value.


• Guiding for revenue decline of 15% and EBIT decline of 86% in current fiscal year.

• Imaging solutions business in decline, primarily due to near-obsolesce of color films and “harsh” price competition in color paper market. Fujifilm is consolidating facilities and reducing personnel to try to transform imaging business into cash cow.

• Recent Document Solutions margin expansion at risk? Segment margin expanded in FY08 and so far in FY09, but a downtrend in domestic demand and slowdown in export sales may erode margin again.

• Panel makers’ manufacturing adjustments impacting FPD materials business (part of info solutions segment). Fujifilm views this as a core business and is increasing supply of WV film for which demand is expected to rise. The company is also expanding its share of film for laptops.

• Competition, slowdown in endoscope business (part of info solutions). In response, Fujifilm has taken control of the business from Fujinon.

• Lower demand for medical use films affecting medical systems business (part of info solutions). The company is shifting from a film-centered portfolio to equipment and network products.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

CAJ 32,750 25,260 .6x 1.1x 18x n/a RICOY 8,580 14,970 .6x 1.3x 13x 20x EK 1,090 250 .0x 17.9x n/m n/m FUJI 9,600 10,360 .4x .6x 16x 16x

MAJOR HOLDERS Insiders <1% │ Japan Trustee Services 6% │ Master Trust Bank of Japan 5% │ State Street 4% │ Nippon Life 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Fujifilm made good strides in the fiscal year ended March 31st in terms of growing the business and expanding profit margins amid continuing secular challenges to the company’s photosensitive materials businesses. However, performance has suffered in the first nine months of the current fiscal year due to deteriorating business conditions. We are concerned that the combination of a more difficult operating environment and the continuing decline of film-related products will overwhelm management’s ability to create meaningful shareholder value. While Fujifilm could take aggressive steps to boost its lagging revenue-per-employee metric (<$400,000 per year), we doubt that management will move forward with sufficient urge.


Hitachi (NYSE: HIT) Chiyoda-ku, TK, Japan, 650-244-7900

Capital Goods: Misc. Capital Goods http://www.hitachi.co.jp

Trading Data Consensus EPS Estimates Valuation Price: $28.64 (as of 2/13/09) Month # of P/E FYE 3/31/08 n/m 52-week range: $26.54 - $77.33 Latest Ago Ests This FY forward P/E n/a Market value: $9.5 billion This quarter n/a n/a n/a Next FY P/E n/a Enterprise value: $34.4 billion Next quarter n/a n/a n/a Next 2 Yrs FY P/E n/a Shares out: 332.5 million This FY n/a n/a n/a EV / LTM revenue 0.3x

Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA n/a Insider ownership: 10% Next 2 Yrs n/a n/a n/a EV / LTM EBIT 12.0x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.7x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 6% Date Actual Estimate LTM EBIT yield 8% # of institutional owners: 103 n/a n/a n/a LTM pre-tax ROC 7%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 86,922 89,075 93,867 98,157 102,917 111,433 122,076 117,548 29,436 24,581 Gross profit 19,675 21,217 20,903 22,463 22,585 23,482 26,631 26,227 6,367 5,217 EBIT (4,911) 1,571 1,415 2,381 2,438 1,833 2,608 2,868 847 (320) Net income (5,261) 303 173 560 406 (357) (632) (4,371) 136 (4,035) Diluted EPS (15.76) 0.89 0.52 1.65 1.18 (1.07) (1.90) (13.59) 0.40 (12.14) Cash from ops 5,251 7,030 6,595 6,148 7,512 6,688 8,610 5,605 266 (1,307) Capex 9,512 8,513 8,809 10,586 10,559 11,562 10,513 10,979 1,154 2,089 Free cash flow (4,261) (1,483) (2,214) (4,438) (3,047) (4,874) (1,902) (5,374) (888) (3,396) Cash & investments 18,874 15,791 15,159 15,028 13,840 8,702 8,246 6,082 6,357 6,082 Total current assets 59,887 56,472 56,760 58,053 59,945 59,089 58,737 57,249 61,003 57,249 Intangible assets 957 4,294 4,297 4,783 4,686 4,730 4,271 5,593 0 5,593 Total assets 107,820 110,688 104,282 105,869 108,968 115,743 114,509 106,937 118,509 106,937 Short-term debt 14,057 15,227 13,604 13,552 11,626 13,950 12,789 18,154 14,213 18,154 Total current liabilities 42,247 43,552 42,528 44,197 44,815 50,754 51,682 52,997 53,134 52,997 Long-term debt 19,554 16,443 14,289 14,343 15,424 16,200 15,458 12,757 16,396 12,757 Total liabilities 82,765 90,536 80,707 80,774 81,699 89,180 90,907 88,335 92,359 88,335 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 25,055 20,151 23,576 25,095 27,269 26,562 23,603 18,603 26,151 18,603 EBIT/capital employed -12% 4% 4% 6% 6% 4% 6% 7% n/m n/m



$20

$40

$60

$80

$100

$120

$140

$160

$180


BUSINESS OVERVIEW Hitachi is a conglomerate that operates in seven segments: Information and Telecommunication Systems includes hard disk drives, servers, software, ATMs, and IT services. Electronic Devices includes LCDs, semi cap equipment, test and measurement equipment, and medical equipment. Power & Industrial includes nuclear, thermal and hydro-electric power plants, industrial machinery, and auto parts. Digital Media & Consumer includes optical disk drives, plasma and LCD TVs, mobile phones, and refrigerators. High Functional Materials & Components includes wires and cables, copper products, chemical products, and resins. Logistics, Services & Others includes general trading, logistics and property management. Financial includes leasing, loan guarantees and insurance. INVESTMENT HIGHLIGHTS

• One of world’s largest providers of electronic and electrical products, ranging from electricity generation systems to HDDs and medical systems.

• Intends to grow nuclear power systems business globally via a strategic partnership with GE.

• Large real estate holdings (difficult to value). • Shares trade at .7x tangible book value and .3x

EV to trailing revenue. INVESTMENT RISKS & CONCERNS

• Guiding for revenue decline of 11% to ¥10,020 billion, EBIT decline of 88% to ¥40 billion and net loss of ¥700 billion in current fiscal year.

• Unwieldy conglomerate, with businesses ranging from disk arrays that compete with EMC to industrial machinery that competes with Caterpillar.

• Low-margin, low-ROIC business, with EBIT margins is the low to mid single digits. None of the company’s segments posts high returns on capital.

• Realignment to include “exiting certain businesses that share fewer synergies with targeted businesses or have poor prospects for higher efficiency.”


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

IBM 126,070 147,090 1.4x 9.4x 10x 10x PC 23,990 19,680 .2x .8x 10x 11x FJTSY 7,950 13,820 .1x 1.2x n/a n/a HIT 9,520 34,350 .3x .7x n/a n/a

MAJOR HOLDERS Insiders <1% │ NATS CUMCO 9% │ State Street 8% │ Master Trust Bank of Japan 6% │ Dodge & Cox 4%


FYE March 31 2006 2007 2008 YTD

12/31/08 % of revenue by segment: Info and telecom systems 25% 24% 25% 25% Electronic devices 13% 13% 12% 12% Power and industrial 30% 29% 32% 32% Digital media, consumer 14% 15% 13% 13% High functional materials 17% 18% 17% 17% Logistics and services 13% 12% 11% 11% Financial services 5% 5% 4% 4% Eliminations, corporate -16% -15% -13% -13% Revenue growth by segment: Info and telecom systems 4% 5% 12% 0% Electronic devices -9% 7% 0% -4% Power and industrial 12% 8% 18% -1% Digital media, consumer 2% 15% 0% -12% High functional materials 6% 12% 4% -8% Logistics and services -3% 0% 5% -14% Financial services -2% -3% -11% -17% Total revenue growth 5% 8% 10% -5% EBIT margin by segment: Info and telecom systems 3.6% 2.4% 4.2% 5.9% Electronic devices 1.7% 3.6% 4.2% 3.6% Power and industrial 3.3% 1.2% 3.9% 1.6% Digital media, consumer -2.7% -3.9% -7.3% -4.2% High functional materials 6.9% 7.4% 7.5% 5.3% Logistics and services 1.6% 1.7% 2.2% 2.0% Financial services 6.8% 4.7% 5.7% 3.5% Eliminations, corporate -0.7% -0.8% -0.4% -0.7% Total EBIT margin 2.7% 1.8% 3.1% 2.4% Selected items as % of revenue: Special items1 -0.4% -0.4% -1.0% 0.0% D&A 4.8% 4.6% 4.8% 4.8% Capex 10.1% 10.2% 8.6% 6.8% R&D 4.3% 4.0% 3.8% 4.1% Net income (reported) 0.4% -0.3% -0.5% -4.7% EBIT to average assets by segment: Info and telecom systems 5% 3% 6% n/a Electronic devices 2% 5% 7% n/a Power and industrial 4% 1% 5% n/a Digital media, consumer -5% -6% -12% n/a High functional materials 8% 9% 9% n/a Logistics and services 2% 2% 3% n/a Financial services 2% 1% 1% n/a Total EBIT to avg assets 3% 2% 3% n/a % of revenue by geography: Japan 71% 68% 66% 57% Asia 12% 14% 16% 20% North America 10% 10% 9% 9% Europe and other 7% 8% 9% 14% ROE (reported) 2% -1% -3% -18% Equity to total assets (avg) 24% 24% 22% 19% ∆ diluted share out (avg) 2% -3% 0% 0%

1 Includes restructuring charges, impairment losses and losses on disposals. RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Hitachi is in need of radical restructuring. The conglomerate operates in competitive, low-margin and low-ROC businesses that are highly exposed to economic weakness. The company’s balance sheet is weak, necessitating urgent action to protect shareholder value. We are unsure whether management shares this sense of urgency. As a result, we would avoid the shares.


Kyocera (NYSE: KYO) Kyoto-shi, KY, Japan, 858-576-2600

Technology: Semiconductors http://www.kyocera.co.jp

Trading Data Consensus EPS Estimates Valuation Price: $64.00 (as of 2/13/09) Month # of P/E FYE 3/31/08 10.3x 52-week range: $45.41 - $100.78 Latest Ago Ests P/E FYE 3/31/09 35.6x Market value: $11.8 billion This quarter n/a n/a n/a P/E FYE 3/31/10 108.5x Enterprise value: $6.9 billion Next quarter n/a n/a n/a P/E FYE 3/31/11 n/a Shares out: 183.6 million FYE 3/31/09 1.80 1.79 1 EV / LTM revenue 0.4x

Ownership Data FYE 3/31/10 0.59 0.58 1 EV / LTM EBITDA n/a Insider ownership: 10% FYE 3/31/11 n/a n/a n/a EV / LTM EBIT 4.2x Insider buys (last six months): 0 LT EPS growth -12.9% -12.9% 1 P / tangible book 0.8x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 4% Date Actual Estimate LTM EBIT yield 24% # of institutional owners: 77 7/30/08 $1.09 n/a LTM pre-tax ROC 27%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 11,412 11,801 12,584 13,024 12,945 14,163 14,235 17,169 10,658 2,690 Gross profit 2,641 3,017 3,095 3,592 3,734 4,230 4,486 5,092 3,321 714 EBIT 505 831 1,191 1,112 1,061 1,490 1,681 1,663 1,215 44 Net income 352 454 751 506 769 1,175 1,183 1,251 921 127 Diluted EPS 1.97 2.57 4.02 2.70 3.89 5.93 6.24 6.61 4.86 0.68 Cash from ops 1,555 1,773 690 1,605 1,887 1,651 2,172 1,717 346 25 Capex 769 520 649 708 1,125 805 863 1,057 201 190 Free cash flow 786 1,254 41 897 762 846 1,309 661 145 (165) Cash & investments 3,219 3,452 4,026 3,812 4,288 5,468 6,564 5,081 5,985 5,081 Total current assets 9,959 9,513 10,299 9,879 10,156 11,544 12,335 10,730 12,174 10,730 Intangible assets 518 450 462 485 690 635 768 1,089 832 1,089 Total assets 18,151 18,036 19,798 19,255 21,306 23,501 21,805 20,586 23,331 20,586 Short-term debt 1,316 1,523 1,427 1,220 1,183 233 118 182 202 182 Total current liabilities 3,961 4,474 4,155 3,799 4,177 3,378 3,328 2,815 3,151 2,815 Long-term debt 1,068 670 779 370 368 80 92 57 100 57 Total liabilities 6,685 6,966 7,071 6,295 7,087 6,794 5,798 5,136 6,284 5,136 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 11,466 11,069 12,727 12,960 14,220 16,707 16,008 15,450 17,047 15,450 EBIT/capital employed 7% 13% 19% 18% 17% 25% 29% 27% n/m n/m



$50

$100

$150

$200

$250

$300


BUSINESS OVERVIEW Kyocera operates in seven technology-driven segments: Fine Ceramic Parts provides communications components, sapphire substrates, and automotive and other components. Semiconductor Parts provides various types of ceramic packages and wireless communication device packages, Applied Ceramic Products provides solar power generating systems, solar cells and modules, and cutting tools. Electronic Devices provides ceramic/tantalum capacitors, timing devices, RF modules, connectors, and printheads. Telecommunications Equipment provides CDMA mobile phone handsets and personal handy phone (PHS) products. Information Equipment provides Ecosys printers, copying machines and multifunctional peripherals. Other includes telecom engineering, management consulting, chemical materials, electrical insulators, optical components, and hotel, real estate and insurance agent businesses. INVESTMENT HIGHLIGHTS

• Growing solar market benefits solar cells and modules business. Kyocera is investing heavily in this business, as it represents the only major growth driver at this time. The company has ~300 MW of production capacity and expects to boost capacity by roughly 100 MW per year through 2012. Kyocera aims to improve conversion efficiency from 16.5% to 18.5% over the same period.

• Shares trade at .8x tangible book value, 10x trailing P/E and .8x tangible book value.


• Guidance revised down to a revenue decline of 13% and net income of ¥20 billion in current FY. Yen appreciation, price competition (e.g., ceramic capacitor prices are down >20% in FY09) and elevated input costs have pressured margins.

• Recent profit decline due to demand slowdown, pricing pressure in electronic components and lower sales of digital multifunctional peripherals (MFPs). The company reduced guidance in late October.

• “Severe” business environment for components used in high-end mobile phones due to weakening global handset demand. The company has also been hurt by a “protracted upgrade cycle” for handsets resulting from an ineffective go-to-market strategy.

• Telecom equipment business has struggled with declining sales and low margins. Management hopes that the April 2008 acquisition of Sanyo’s mobile phone business and restructuring initiatives will improve the outlook for this segment.


FYE March 31 2006 2007 2008 YTD

12/31/08 % of revenue by segment: Semiconductor parts 11% 12% 12% 13% Applied ceramic products 10% 10% 12% 14% Electronic device 22% 22% 23% 21% Fine ceramic parts and other 6% 6% 6% 6% Total components 49% 51% 53% 53% Telecom equipment 19% 20% 17% 19% Information equipment 21% 21% 21% 19% Total equipment 42% 41% 39% 38% Eliminations and other 9% 8% 9% 9% Revenue growth by selected segment: Semiconductor parts 6% 13% 1% 0% Applied ceramic products 25% 12% 14% 13% Electronic device -1% 10% 3% -16% Total components growth 4% 12% 4% -6% Telecom equipment -9% 10% -12% 1% Information equipment 3% 8% 3% -15% Total equipment growth -7% 8% -6% -8% Total revenue growth 0% 9% 1% -7% EBIT margin by selected segment: Semiconductor parts 13% 15% 13% 10% Applied ceramic products 19% 17% 22% 23% Electronic device 10% 16% 12% 3% Total components margin 13% 16% 15% 10% Telecom equipment -1% 0% 3% -6% Information equipment 11% 13% 14% 8% Total equipment margin 4% 6% 9% 1% Total EBIT margin 9% 11% 12% 9% D&A as % of revenue 6% 6% 7% 6% Capex as % of revenue 8% 5% 7% 6% R&D as % of revenue 5% 5% 5% 7% Net income margin 6% 8% 8% 6% ROE 6% 8% 7% 4% Equity to total assets (avg) 67% 69% 72% 75% % of revenue by geography: Japan 40% 39% 39% 41% Rest of world 60% 61% 61% 59%


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

IBM 126,070 147,090 1.4x 9.4x 10x 10x TDK 5,200 6,080 .7x .8x 576x n/m KYO 11,750 6,910 .4x .8x 36x 108x

MAJOR HOLDERS Insiders <1% │ State Street 9% │ Master Trust Bank of Japan 6% │ Japan Trustee Services 5% │ Dodge & Cox 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Kyocera’s businesses face a variety of headwinds, including price declines and elevated labor and materials input costs. The only credible growth and profit driver at present is the solar business, which comprises less than 10% of revenue. As a result, we do not expect Kyocera’s results to impress — or its returns on equity — to grow meaningfully in the near future.


Panasonic (NYSE: PC) Kadoma, Japan, 81-6-690-1121

Consumer Cyclical: Audio & Video Equipment http://www.panasonic.net

Trading Data Consensus EPS Estimates Valuation Price: $11.58 (as of 2/13/09) Month # of P/E FYE 3/31/08 8.0x 52-week range: $10.91 - $24.38 Latest Ago Ests P/E FYE 3/31/09 9.7x Market value: $24.0 billion This quarter n/a n/a n/a P/E FYE 3/31/10 10.9x Enterprise value: $19.7 billion Next quarter n/a n/a n/a P/E FYE 3/31/11 n/a Shares out: 2,071.4 million FYE 3/31/09 1.19 1.18 1 EV / LTM revenue 0.2x

Ownership Data FYE 3/31/10 1.06 1.04 1 EV / LTM EBITDA n/a Insider ownership: 10% FYE 3/31/11 n/a n/a n/a EV / LTM EBIT 4.7x Insider buys (last six months): 0 LT EPS growth 2.5% 2.5% 1 P / tangible book 0.8x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 6% Date Actual Estimate LTM EBIT yield 21% # of institutional owners: 135 2/4/09 -$0.32 n/a LTM pre-tax ROC 20%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 76,919 80,484 81,333 94,750 96,714 99,040 98,613 91,586 25,494 20,442 Gross profit 19,157 22,597 23,560 27,593 29,783 29,509 29,269 26,567 7,659 5,553 EBIT (2,164) 1,376 2,126 3,355 3,961 4,997 5,649 4,226 1,798 287 Net income (4,652) (212) 458 636 1,679 2,362 3,065 1,380 1,252 (686) Diluted EPS (2.24) (0.09) 0.20 0.28 0.76 1.08 1.45 0.65 0.59 (0.33) Cash from ops 1,228 7,593 5,319 5,202 6,257 5,791 4,052 3,733 707 (134) Capex 3,720 2,682 2,996 3,830 3,879 4,473 4,553 5,450 1,040 1,363 Free cash flow (2,492) 4,912 2,323 1,373 2,378 1,318 (501) (1,717) (333) (1,497) Cash & investments 16,000 17,009 15,742 14,424 18,868 16,912 14,488 8,879 13,985 8,879 Total current assets 43,570 43,345 41,048 43,827 47,916 45,657 41,311 34,677 42,467 34,677 Intangible assets 1,674 5,279 5,350 6,127 5,625 5,382 6,076 5,961 0 5,961 Total assets 84,472 85,192 80,879 87,608 86,605 85,869 80,940 71,668 81,678 71,668 Short-term debt 6,402 4,300 3,998 4,923 4,417 2,988 2,103 1,796 1,424 1,796 Total current liabilities 28,207 27,955 27,943 30,761 31,371 29,814 27,847 23,969 27,485 23,969 Long-term debt 7,701 6,396 5,009 5,188 2,871 2,466 2,527 2,772 1,893 2,772 Total liabilities 49,156 50,631 43,347 49,069 45,420 43,280 40,247 35,640 38,803 35,640 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 35,316 34,561 37,531 38,539 41,186 42,590 40,693 36,028 42,874 36,028 EBIT/capital employed -10% 7% 14% 19% 19% 25% 28% 20% n/m n/m



$5

$10

$15

$20

$25

$30

$35


BUSINESS OVERVIEW Panasonic, formerly known as Matsushita Electric, makes electronic and electric products for consumer, business and industrial uses. The company operates in five segments: AVC Networks comprises two businesses: Video and Audio Equipment includes plasma and LCD TVs, DVD recorders and players, camcorders, and digital cameras. Information and Communications Equipment includes PCs, optical disc drives, copiers, printers, telephones, and mobile phones. Home Appliances includes refrigerators, air conditioners, washing machines, clothes dryers, and vacuum cleaners. Components and Devices includes semiconductors, general components, electric motors, and batteries. MEW and PanaHome includes lighting fixtures, wiring devices, personal-care and health enhancing products. Other includes electronic-components-mounting machines, industrial robots, welding equipment, and bicycles. INVESTMENT HIGHLIGHTS

• Renamed company Panasonic (from Matsushita Electric) in order to focus strategic efforts around the flagship brand. Panasonic is a global consumer electronics leader, spanning TVs, DVDs and PCs.

• Improvement initiatives: (1) dispose of non-core businesses (sold JVC to Kenwood and Sparx, distribution centers to Prologis); (2) speed structural reforms (review manufacturing sites, cut fixed costs); (3) reduce inventories; and (4) curb capex.

• Valuable real estate. Panasonic’s real estate holdings are difficult to value precisely but are likely worth a large percentage of enterprise value.

• To pay at ¥400+ billion ($4 billion) for majority of Sanyo and spend ¥100 billion in capex to create energy business, including rechargeable batteries and solar products (deal announced in December; to be financed by cash and debt). Various synergies should boost EBIT by ¥80 billion in 2013.

• Shares trade at 18x trailing P/E, 11x forward P/E and .8x tangible book value.


• Lowered guidance in November and again in February. Management now expects revenue of ¥7,750 billion, EBIT of ¥60 billion and a net loss of ¥380 billion for the current fiscal year.

• Price declines in flat-panel TV “very severe.” The company expected 20% decline for FY09 at the beginning of the FY, but now estimates it at 30%.

• Exposed to yen appreciation, raw materials prices.


FYE March 31 2006 2007 2008 YTD

12/31/08 % of revenue by product category: AVC networks 41% 41% 44% 46% Home appliances 13% 13% 14% 15% Components and devices 12% 12% 13% 12% PEW and PanaHome 18% 19% 19% 20% Other and JVC 15% 14% 10% 8% Revenue growth by product category: AVC networks 4% 2% 6% -7% Home appliances 2% 2% 6% -4% Components and devices -2% 4% 2% -14% PEW and PanaHome 1% 8% 2% -4% Total revenue growth1 20% 2% 3% -9% EBIT margin by segment: AVC networks 5.2% 5.8% 6.3% 3.4% Home appliances 6.3% 6.9% 6.7% 7.0% Components and devices 7.5% 8.9% 9.1% 7.1% PEW and PanaHome 4.6% 4.6% 5.6% 3.8% Total EBIT margin 4.7% 5.0% 5.7% 4.1% Selected items as % of revenue: R&D 6.3% 6.3% 6.1% 6.4% Net income 1.7% 2.4% 3.1% 1.1% D&A 3.1% 3.1% 3.1% 4.0% Capex 3.9% 4.6% 5.0% 5.7% FCF 11.0% -0.4% 4.5% -0.6% ROE 4% 6% 7% 2% Equity to total assets 48% 50% 50% 50% ∆ diluted shares out (avg) -3% -2% -3% -2% % of revenue by geography: Japan 52% 51% 50% 50% Rest of world 48% 49% 50% 50%

1 Excludes JVC. Panasonic’s stake in JVC decreased from 52% to 37% in August 2007, with JVC now accounted for under the equity method. COMPARABLE PUBLIC COMPANY ANALYSIS

Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

SNE 18,570 17,270 .2x .7x n/m n/m PHG 17,590 18,280 .5x 3.0x 12x n/a SHCAY 8,810 13,220 .4x .8x n/m n/m FJTSY 7,950 13,820 .1x 1.2x n/a n/a PC 23,990 19,680 .2x .8x 10x 11x

MAJOR HOLDERS Insiders <1% │ Moxley 8% │ Master Trust Bank of Japan 5% │ Japan Trustee Services 4% │ State Street 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? 1 MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year? 1 Proposed Sanyo deal would weaken balance sheet by adding debt.

THE BOTTOM LINE Panasonic is a classic value stock due to tangible asset protection, including large real estate assets. The company has a strong brand in consumer electronics, a competitive, capital-intensive business. While Panasonic trades materially below intrinsic value, investors need to scrutinize the company’s likely rate of future compounding of intrinsic value. We would need to see the company’s prospective returns on equity increase before considering it a compelling long-term investment.


Sharp (OTC: SHCAY) Abeno-ku, OS, Japan, 81-6-662-1221

Consumer Cyclical: Audio & Video Equipment http://sharp-world.com

Trading Data Consensus EPS Estimates Valuation Price: $8.00 (as of 2/13/09) Month # of P/E FYE 3/31/08 8.3x 52-week range: $5.25 - $19.70 Latest Ago Ests P/E FYE 3/31/09 n/m Market value: $8.8 billion This quarter n/a n/a n/a P/E FYE 3/31/10 n/m Enterprise value: $13.2 billion Next quarter n/a n/a n/a P/E FYE 3/31/11 n/a Shares out: 1,100.9 million FYE 3/31/09 -0.47 -0.48 1 EV / LTM revenue 0.4x

Ownership Data FYE 3/31/10 -0.39 -0.39 1 EV / LTM EBITDA n/a Insider ownership: 23% FYE 3/31/11 n/a n/a n/a EV / LTM EBIT 562.6x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.8x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: n/a Date Actual Estimate LTM EBIT yield 0% # of institutional owners: 6 7/31/08 $0.20 n/a LTM pre-tax ROC 0%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 19,897 22,097 24,900 28,017 30,854 34,502 37,701 34,287 10,162 25,344 Gross profit 5,109 5,442 6,003 6,400 6,971 7,867 8,329 6,791 2,173 4,652 EBIT 800 1,091 1,324 1,666 1,780 1,984 2,010 24 570 (561) Net income 125 357 666 843 973 1,122 1,124 813 327 (417) Diluted EPS 0.11 0.32 0.60 0.77 0.89 0.99 0.96 (0.11) 0.28 (0.38) Cash from ops 1,534 2,973 2,754 2,429 2,911 3,497 3,589 2,721 54 (191) Capex 2,143 1,894 2,020 2,983 2,568 3,249 4,003 3,243 997 936 Free cash flow (609) 1,079 733 (554) 344 247 (414) (522) (942) (1,127) Cash & investments 3,937 4,223 4,081 4,325 4,151 4,763 4,316 3,621 4,179 3,621 Total current assets 11,958 12,250 12,665 14,568 15,387 18,524 18,120 16,753 19,529 16,753 Intangible assets 0 427 449 414 529 670 1,038 1,005 842 1,005 Total assets 21,697 22,115 23,719 26,309 28,242 32,748 33,900 31,961 35,636 31,961 Short-term debt 3,531 2,638 2,312 3,905 2,973 2,514 3,402 4,108 1,892 4,108 Total current liabilities 8,973 9,028 10,480 13,011 13,182 15,358 15,789 15,038 17,610 15,038 Long-term debt 2,215 2,710 2,273 1,434 2,400 3,748 3,879 3,928 3,874 3,928 Total liabilities 11,473 12,164 13,311 15,230 16,120 19,698 20,315 19,502 22,066 19,502 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 10,224 9,951 10,408 11,079 12,122 13,051 13,585 12,458 13,570 12,458 EBIT/capital employed 8% 12% 15% 17% 17% 17% 16% 0% n/m n/m



$20

$40

$60

$80

$100

$120

$140

$160


BUSINESS OVERVIEW Sharp is an electronics manufacturer focused on consumer and information products, including LCD TVs and mobile phones, and on electronic components, including LCDs and solar cells. The company was founded in 1912. SELECTED OPERATING DATA

FYE March 31 2006 2007 2008 YTD

12/31/08 % of revenue by segment: AV and comms equipment 39% 44% 47% 46% Home appliances 8% 8% 7% 7% Information equipment 15% 14% 13% 12% Consumer / info products 62% 66% 67% 65% LSIs 5% 5% 5% 6% LCDs 23% 20% 20% 21% Other electronic components 10% 9% 8% 8% Electronic components 38% 34% 33% 35% Revenue growth by segment: AV and comms equipment 12% 27% 16% -15% Home appliances 6% 6% 5% -10% Information equipment 1% 4% 0% -13% Consumer / info products 8% 19% 11% -14% LSIs 3% 8% 12% 31% LCDs 16% -1% 9% 2% Other electronic components 11% 1% -3% -22% Electronic components 13% 1% 6% -2% Total revenue growth 10% 12% 9% -10% EBIT margin by major segment: Consumer / info products 4% 4% 3% 0% Electronic components 10% 10% 9% 4% Total EBIT margin 6% 6% 5% 2% D&A as % of revenue 7% 7% 8% 10% Capex as % of revenue 8% 9% 9% 9% R&D as % of revenue 6% 6% 6% n/a Net margin 3% 3% 3% -2% ROE 8% 9% 8% -3% Equity to total assets (avg) 43% 41% 40% 39% % of revenue by geography: Japan 50% 49% 47% n/a Americas 16% 19% 18% n/a Europe 17% 17% 17% n/a China 8% 10% 12% n/a Other 9% 6% 6% n/a ∆ shares out (period end) 0% 0% 1% 0%


• Consumer/Information Products business (two-thirds of revenue) — focused on growing LCD color TV sales. Sharp recently introduced premium TV models, streamlined overseas production and launched mobile phones in China.

− Strong recent sales of Blu-ray Disc recorders; weak sales of mobile phones. LCD TVs units are up but sales have declined due to pricing pressure.

− Electronic Components business (one-third of revenue) — focused on growing LCD business. The company is also installing a new production line for thin-film solar cells at the Katsuragi Plant and pursuing energy alliances in Japan and Italy.

− Strong recent sales of large-size LCD panels for TVs and solar cells. Sales of other electronic devices, including CCD/CMOS imagers, are down.

• Strong intellectual property portfolio, with 17,500 patents in Japan and 21,500 overseas.

• Shares trade at .4x enterprise value to trailing revenue and .8x tangible book value.


• Guiding for revenue decline of 15% and net loss of ¥100 billion in current fiscal year, sharply lower than prior company guidance. Management expects margin compression due primarily to “intense” price competition and yen appreciation.

• Recent results pressured by sluggish sales of mobile phones and related components, yen appreciation and price declines in LCD panels.

• Expects global electronics competition to “get more aggressive in the growth areas.” Sharp is responding by introducing new models, such as LCD TVs with built-in Blu-ray Disc recorders. The company is also increasing solar cell production. Cost reduction seems to be a secondary objective.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

PC 23,990 19,680 .2x .8x 10x 11x SNE 18,570 17,270 .2x .7x n/m n/m PHG 17,590 18,280 .5x 3.0x 12x n/a SHCAY 8,810 13,220 .4x .8x n/m n/m

MAJOR HOLDERS Insiders <1% │ Nippon Life 5% │ Meiji Yasuda Life 4% │ Mizuho 4% │ Bank of Tokyo 4% │ State Street 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE While Sharp has posted respectable growth in recent years and while recent results have suffered slightly less than those of some competitors, we find the company’s challenges emblematic of the structural problems plaguing “Japan Inc.” The company existed for almost a century and today has a bloated management structure and entrenched bureaucracy. Given the competitive and global nature of the company’s products, we have little conviction that Sharp can compete effectively over time. As a result, the company may be relegated to earning low rates of return in production-oriented businesses in which the investment of tangible capital into capacity expansion is more important to success than is intellectual property.


TDK (NYSE: TDK) Chuo-ku, TK, Japan, 516-535-2600

Technology: Electronic Instruments & Controls http://www.tdk.co.jp

Trading Data Consensus EPS Estimates Valuation Price: $40.30 (as of 2/13/09) Month # of P/E FYE 3/31/08 6.7x 52-week range: $26.71 - $75.26 Latest Ago Ests P/E FYE 3/31/09 575.7x Market value: $5.2 billion This quarter n/a n/a n/a P/E FYE 3/31/10 n/m Enterprise value: $6.1 billion Next quarter n/a n/a n/a P/E FYE 3/31/11 n/a Shares out: 129.0 million FYE 3/31/09 0.07 0.07 1 EV / LTM revenue 0.7x

Ownership Data FYE 3/31/10 -0.20 -0.21 1 EV / LTM EBITDA n/a Insider ownership: 8% FYE 3/31/11 n/a n/a n/a EV / LTM EBIT 30.0x Insider buys (last six months): 0 LT EPS growth -14.8% -14.8% 1 P / tangible book 0.8x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 4% Date Actual Estimate LTM EBIT yield 3% # of institutional owners: 64 4/28/08 n/a n/a LTM pre-tax ROC 4%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 6,224 6,598 7,154 7,176 8,674 9,404 9,450 8,657 2,458 2,092 Gross profit 1,155 1,585 1,957 1,893 2,284 2,610 2,517 1,952 702 408 EBIT (477) 224 609 662 721 967 998 202 312 (165) Net income (281) 131 459 363 481 765 780 138 237 (156) Diluted EPS (2.12) 1.12 3.57 3.05 3.66 5.77 6.01 1.11 1.84 (1.21) Cash from ops 453 1,134 1,254 1,023 968 1,587 1,303 1,111 294 61 Capex 641 448 485 666 806 768 920 1,225 225 208 Free cash flow (188) 686 768 358 161 819 383 (114) 69 (147) Cash & investments 1,372 1,861 2,482 2,761 2,608 3,287 1,868 1,933 2,169 1,933 Total current assets 4,355 4,592 5,190 5,570 6,183 6,713 5,049 5,618 5,900 5,618 Intangible assets 205 333 273 245 534 530 1,018 0 0 0 Total assets 8,181 8,153 8,403 8,814 10,074 10,792 10,205 12,395 10,718 12,395 Short-term debt 599 642 658 679 994 931 934 2,735 26 2,735 Total current liabilities 1,204 1,146 1,257 1,428 1,850 1,806 1,767 4,443 1,924 4,443 Long-term debt 5 1 0 1 4 6 2 78 3 78 Total liabilities 1,811 2,110 2,117 1,843 2,412 2,472 2,389 5,463 2,480 5,463 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 6,370 6,042 6,286 6,971 7,663 8,320 7,817 6,932 8,239 6,932 EBIT/capital employed -9% 4% 13% 15% 15% 18% 19% 4% n/m n/m



$20

$40

$60

$80

$100

$120

$140

$160

$180


BUSINESS OVERVIEW TDK provides recording media and devices, ferrite products, and various components. It operates in two major segments: Electronic Materials and Components comprises four product sectors: (i) electronic materials (capacitors and ferrite cores and magnets), (ii) electronic devices (inductive devices and high-frequency components), (iii) recording devices (HDD heads), and (iv) other electronic components. Recording Media has three product categories: audiotapes and videotapes, optical media, and other products. SELECTED OPERATING DATA

FYE March 31 2006 2007 2008 YTD

12/31/08 % of revenue by segment: Electronic materials 23% 23% 23% 21% Electronic devices 19% 23% 24% 23% Recording devices 40% 35% 39% 35% Other electronic products 5% 7% 9% n/a Electronic products 86% 88% 94% n/a Recording media 14% 12% 6% n/a Revenue growth by segment: Electronic materials 3% 10% 0% -19% Electronic devices 33% 28% 5% -13% Recording devices 35% -4% 10% -16% Other electronic products 87% 55% 31% n/a Electronic products 26% 10% 8% n/a Recording media -5% -4% -53% n/a Total revenue growth 21% 8% 0% -11% EBIT margin by segment: Electronic products 11% 11% 9% n/a Recording media -13% -2% 23% n/a EBIT margin (reported) 8% 9% 10% 2% Special items as % of rev.1 -1% 0% 2% -1% D&A as % of revenue 7% 8% 8% 10% Capex as % of revenue 9% 8% 10% 15% R&D as % of revenue 6% 6% 7% 7% Gross margin 26% 28% 27% 21% % of revenue by geography: Japan 34% 34% 33% 29% Asia Pacific 50% 49% 54% 54% Americas 10% 10% 9% 8% Europe 7% 7% 5% 8% ROE 7% 10% 10% -0% Equity to total assets 76% 77% 77% 56% ∆ shares outstanding (avg) 0% 0% -2% n/a

1 Includes restructuring costs of ¥7 billion and ¥500 million in FY06 and FY07, respectively; and ¥15 billion gain on sale of Imation in FY08. INVESTMENT HIGHLIGHTS

• Founded in 1935 to commercialize ferrite, a magnetic material. TDK’s growth has centered on ferrite, which is used in electronic equipment.

• Sold recording media assets to Imation in 2007, while retaining related R&D, production and OEM business. Recording media sales had been declining steadily to a shift toward electronic products.

• 50%+ of sales from Asian countries ex. Japan, giving TDK a stake in Asian economic growth.

• Improvement initiatives: (1) consolidate locations, (2) dispose of unprofitable businesses, (3) reduce headcount, (4) pursue synergies from acquisitions of Densei-Lambda, HDD head assets of Alps, and Thai suspension manufacturer Magnecomp.

• Reducing capex by 17% in current FY to ¥70 billion, to be used for upgrading and expansion of production facilities aimed at growing revenue.

• Has 36 factories in Japan and 28 overseas, 73% of which (based on floor space) are owned by TDK.

• Repurchased ¥39 billion of stock in FY ended March 2008 (no material buybacks since then).

• Shares trade at 36x trailing P/E, .7x EV to trailing revenue and .8x tangible book value.


• Guiding for revenue decline of 15% and negative EBIT of ¥38 billion in FY09.

• Weak recent results due to yen appreciation and lower sales driven by price declines in HDD heads and capacitors, offset partly by cost reductions and a more favorable product mix (energy device sales).

• Exposed to raw materials price increases. A key production input is magnetic powder of iron oxide.

• Global supply chain, with manufacturing and assembly in various countries, including China. This exposes TDK to potential force majeure disruptions.

• Competes in technology industries experiencing rapid change. Many competitors are Asian firms, with currency exchange affecting competitiveness.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

PC 23,990 19,680 .2x .8x 10x 11x SNE 18,570 17,270 .2x .7x n/m n/m PHG 17,590 18,280 .5x 3.0x 12x n/a EPCYY 1,720 1,790 1.0x 2.2x n/a n/a TDK 5,200 6,080 .7x .8x 576x n/m

MAJOR HOLDERS Insiders <1% │ Master Trust Bank of Japan 9% │ Japan Trustee Services 9% │ Panasonic 5% │ Tradewinds 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE We welcome TDK’s improvement initiatives in the face of tough market conditions. With shares trading at .7x tangible book and .5x EV/revenue, TDK deserves a closer look. The company repurchased shares in the year ended March 2008 and may do so again in the foreseeable future. We view buybacks as meaningfully accretive to intrinsic value per share.


Candidates—Deep Value: Other


Capital Southwest (Nasdaq: CSWC)

Cresud (Nasdaq: CRESY)

Lear (NYSE: LEA)

Syneron (Nasdaq: ELOS)

UTStarcom (Nasdaq: UTSI)

Yanzhou Coal Mining (NYSE: YZC)


Capital Southwest (Nasdaq: CSWC) Dallas, TX, 972-233-8242

Financial: Misc. Financial Services http://www.capitalsouthwest.com

Trading Data Consensus EPS Estimates Valuation Price: $89.69 (as of 2/13/09) Month # of P/E FYE 3/31/08 n/m 52-week range: $60.52 - $146.81 Latest Ago Ests This FY forward P/E n/a Market value: $336 million This quarter n/a n/a n/a Next FY P/E n/a Enterprise value: $314 million Next quarter n/a n/a n/a Next 2 Yrs FY P/E n/a Shares out: 3.7 million This FY n/a n/a n/a EV / LTM revenue 22.3x

Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA n/a Insider ownership: 20% Next 2 Yrs n/a n/a n/a EV / LTM EBIT 29.3x Insider buys (last six months): 1 LT EPS growth n/a n/a n/a P / tangible book 0.7x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 44% Date Actual Estimate LTM EBIT yield 3% # of institutional owners: 175 n/a n/a n/a LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 3/31/02 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08 12/31/08 12/31/07 12/31/08 Revenue 4 4 5 5 5 7 7 14 3 10 Gross profit 3 4 4 5 4 7 0 0 0 0 EBIT 2 3 3 3 2 4 4 11 2 10 Net income 26 (42) 86 20 142 167 (139) (34) (64) (47) Diluted EPS 6.71 (10.90) 22.16 5.21 36.84 42.94 (35.74) (9.60) (16.32) (12.53) Cash from ops 0 3 9 5 18 47 (5) 19 2 23 Capex 0 0 0 0 0 0 0 0 0 0 Free cash flow 0 3 9 5 18 47 (5) 19 2 23 Cash & investments 2 5 10 5 12 39 31 22 32 22 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 357 299 424 434 569 730 587 486 546 486 Short-term debt 9 23 21 13 8 0 0 0 0 0 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 5 0 0 0 0 0 0 0 0 0 Total liabilities 107 92 133 132 11 4 3 8 4 8 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 251 207 291 303 558 726 584 478 542 478 EBIT/capital employed 30% 20% 19% 27% >100% n/m n/m n/m n/m n/m



$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200


BUSINESS OVERVIEW Capital Southwest is a business development company. It invests long-term capital in expansion financings, MBOs, recaps, industry consolidations, and early-stage financings in a broad range of industries. SELECTED OPERATING DATA

($ in millions) FYE March 31 2006 2007 2008

YTD 12/31/08

Investments at market or fair value: Companies >25% owned 298 527 410 349 Companies 5-25% owned 92 76 55 63 Companies <5% owned 160 78 83 44 Investments 550 681 548 456 Cash 12 39 31 22 Other assets 7 10 8 8 Total assets 569 730 587 486 Liabilities 173 4 3 8 Shareholders' equity 397 726 584 478

PORTFOLIO SNAPSHOT

Company

Market or Fair Value1

Portfolio Allocation

1 Rectorseal $127 million 26% 2 Encore Wire (WIRE) $77 million 16% 3 Lifemark $71 million 14% 4 Alamo Group (ALG) $43 million 9% 5 Whitmore Manufacturing $37 million 8% 6 Palm Harbor (PHHM) $33 million 7% 7 Media Recovery $28 million 6% 8 Heelys (HLYS) $18 million 4% 9 Hologic (HOLX) $9 million 2%

10 Other Investments $48 million 10% 1 As of yearend 2008 (privately held firms) and February 6 (public companies). INVESTMENT HIGHLIGHTS

• Long-term investment approach that combines growth and value criteria. The portfolio is tax-efficient, as it experiences little turnover.

• Typically acquires equity positions of significant influence or control and provides managerial assistance to investee companies.

• Concentrated portfolio, with top 12 holdings accounting for roughly 90% of total assets.

• Qualifies for conduit tax treatment as a regulated investment company, eliminating the double taxation penalty associated with most corporations.

• Permanent capital vehicle, with exiting investors selling their shares in the open market rather than redeeming capital. This allows the company to maintain a long-term investment strategy without the perverse incentives facing open-ended funds.

• Former chairman Bill Thomas built the company over four decades, amassing an impressive track record of annual returns estimated to be in the mid teens. Thomas passed away in September 2008.

• Shares trade at .7x tangible book value. INVESTMENT RISKS & CONCERNS

• Illiquid investment portfolio due to the company’s large ownership stakes in most investees. If the company tried to liquidate the portfolio in a short time frame, it would suffer material impairment.

• Difficult to appraise portfolio from ground up, as little public information is available on some of the company’s investments (~90% of portfolio consists of “Level 3” securities). As a result, investors must rely partly on management’s judgment and the Board’s appraisal of the value of certain holdings.

• Long term-oriented to a fault. The company has appeared slothful at times, failing to sell out of investments that became dramatically overvalued. For example, the early-stage investment in Heelys (Nasdaq: HLYS) performed magnificently as momentum investors put a high multiple on faddish earnings. Capital Southwest failed to sell, only to see Heelys stock decline from $40 to $2 per share.

• Employs seven people, suggesting dependence on a limited number of decision makers. It is unclear how well the company will deploy capital following the death of long-time chairman Bill Thomas.

• Competitors for deals include private equity funds, VC firms, corporations, and SBICs. While Capital Southwest differentiates itself through a long-term, hands-on approach, it does not have the name recognition of many other investment firms.

MAJOR HOLDERS CEO Gary Martin 5% │ Former CEO Bill Thomas (deceased) 17% │ First Manhattan 6% │ Third Avenue 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Capital Southwest is a conservative investment firm. Over the past few decades, Capital Southwest’s portfolio has beaten the market while exhibiting below-average risk of permanent loss. The firm has picked winners and held onto them for a long time—sometimes for decades—thereby minimizing the drag of capital gains taxes. Capital Southwest owns large stakes in investee companies and typically controls corporate decision making, enabling it to extract maximum value for shareholders. The company has a reputation for conservatively stating—or even understating—the value of its portfolio. With shares trading at a historically wide discount to stated value, they offer strong downside protection and appreciation potential.


Capital Southwest — Overview of Investments and Fair Value per Share 1

(sorted by dollar value of portfolio holdings)

Company Business Key Data as of February 6, 2009

The Rectorseal Corporation Houston, Texas

Specialty chemicals for plumbing, HVAC, electrical, construction, industrial, oil field and automotive applications; smoke containment systems for building fires; also owns 20% of The Whitmore Manufacturing Company

Ownership: 100% Cost: $0 million Value: $127 million

Encore Wire Corporation (Nasdaq: WIRE) McKinney, Texas

Electric wire and cable for residential, commercial and industrial use


Lifemark Group Hayward, California

Cemeteries, mausoleums and mortuaries located in northern California


Alamo Group (NYSE: ALG) Seguin, Texas

Tractor-mounted mowing and mobile excavation equipment for governmental, industrial and agricultural markets; street-sweeping equipment for municipalities


The Whitmore Manufacturing Company Rockwall, Texas

Specialized mining, railroad and industrial lubricants; coatings for automobiles and primary metals; fluid contamination control devices


Palm Harbor Homes (Nasdaq: PHHM) Dallas, Texas

Integrated manufacturing, retailing, financing and insuring of manufactured housing and modular homes


Media Recovery Dallas, Texas

Computer datacenter and office automation supplies and accessories; impact, tilt monitoring and temperature sensing devices to detect mishandling shipments; dunnage for protecting shipments


Heelys (Nasdaq: HLYS) Carrollton, Texas

Heelys stealth skate shoes, equipment and apparel sold through sporting goods chains, department stores and footwear retailers


Hologic (Nasdaq: HOLX) Bedford, Massachusetts

Medical instruments including bone densitometers, mammography devices and digital radiography systems

Ownership: <1% Cost: $0 million Value: $9 million

Other Investments Cost: $39 million Value: $48 million

Total Investments Cost: $88 million Value: $491 million

Other Net Assets $22 million

Total Fair Value $512 million

Shares Outstanding 3.7 million

Estimated Fair Value: $137 per Share

Source: Company, The Manual of Ideas analysis. 1 Public company investments valued based on market prices as of February 6, 2009. Private company investments valued based on fair value estimates by Capital Southwest as of December 31, 2008.


Capital Southwest — Discount to Net Asset Value per Share, 1998-2009

5%

15%

25%

35%

45%3/

31/9

8

3/31

/99

3/31

/00

3/31

/01

3/31

/02

3/31

/03

3/31

/04

3/31

/05

3/31

/06

3/31

/07

3/31

/08

2/6/

09

Source: Company, The Manual of Ideas analysis.

Capital Southwest — Performance History per Share, 1998-2008

Source: Company.

36% NAV discount as of Feb. 6 (stock price: $87.69)


Cresud (Nasdaq: CRESY) Ciudad Autonoma de Buenos Aire, Argentina, 541-328-7808

Consumer Non-Cyclical: Crops

Trading Data Consensus EPS Estimates Valuation Price: $8.15 (as of 2/13/09) Month # of P/E FYE 6/30/08 47.9x 52-week range: $4.55 - $19.14 Latest Ago Ests P/E FYE 6/30/09 67.9x Market value: $391 million This quarter n/a n/a n/a P/E FYE 6/30/10 58.2x Enterprise value: $391 million Next quarter n/a n/a n/a P/E FYE 6/30/11 15.7x Shares out: 48.0 million FYE 6/30/09 0.12 0.51 1 EV / LTM revenue 2.6x

Ownership Data FYE 6/30/10 0.14 0.92 1 EV / LTM EBITDA n/a Insider ownership: 39% FYE 6/30/11 0.52 0.52 1 EV / LTM EBIT 25.5x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.8x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 39% Date Actual Estimate LTM EBIT yield 4% # of institutional owners: 89 11/11/08 -$0.23 n/a LTM pre-tax ROC 24%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 6/30/02 6/30/03 6/30/04 6/30/05 6/30/06 6/30/07 6/30/08 12/31/08 12/31/07 12/31/08 Revenue 23 21 20 22 32 32 47 151 9 103 Gross profit 11 6 7 1 4 4 6 61 2 54 EBIT 5 8 5 10 3 11 13 15 9 12 Net income (45) 13 1 25 8 14 7 6 8 14 Diluted EPS (3.74) 0.55 0.07 0.97 0.44 0.46 0.17 0.08 0.24 0.30 Cash from ops 8 3 (0) (3) (6) (16) (26) (36) (4) (12) Capex 0 0 4 7 16 8 8 50 2 39 Free cash flow 8 3 (5) (10) (22) (25) (34) (86) (6) (51) Cash & investments 13 7 4 21 9 25 153 0 2 0 Total current assets 32 17 21 44 27 62 211 318 51 318 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 109 163 186 213 250 307 594 1,566 342 1,566 Short-term debt 2 0 2 3 19 35 56 0 66 0 Total current liabilities 10 4 8 19 29 48 75 299 80 299 Long-term debt 0 40 36 33 28 7 0 0 0 0 Total liabilities 17 51 52 63 70 71 88 1,085 98 1,085 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 93 112 133 150 180 237 506 481 244 481 EBIT/capital employed 41% 88% 53% 97% 27% 47% 32% 24% n/m n/m



$0

$5

$10

$15

$20

$25

$30


BUSINESS OVERVIEW Cresud is an agricultural company and a large land owner in Argentina. It engages in crop and milk production and cattle raising. Cresud buys, develops and sells properties with agricultural prospects and/or value appreciation potential. SELECTED OPERATING DATA

FYE June 30 2006 2007 2008 % of gross income from production by type (non-GAAP): Crops 39% 75% 80% Beef cattle 27% 16% 10% Milk 34% 9% 9% Growth of gross income from production by type (non-GAAP): Crops -75% 781% 69% Beef cattle -44% 164% 5% Milk 50% 19% 70% Total growth -56% 355% 59% Growth of production volume by product line: Crops -29% 64% 13% Beef cattle -8% 1% -11% Milk 100% 14% 25% Corn as % of crop production 30% 46% 47% Corn production growth -52% 156% 16% Use of owned and leased lands (period end): Total lands ('000 hectares) 606 668 676 Crops 7% 8% 9% Beef cattle 21% 17% 18% Milk 0% 0% 1% Sheep 0% 13% 13% Land reserves 69% 59% 57% Owned lands leased to others 2% 2% 1% ∆ shareholders' equity 1 44% 51% 64% Equity to total assets 1 73% 80% 77% ∆ diluted ADSs out (avg) -4% 13% 27%

1 As of period end. INVESTMENT HIGHLIGHTS

• One of the largest land owners in Argentina, with 18 owned farms covering 1.1 million acres (444K hectares) as of June 30. See land use in table above.

• Owns 50.2% of IRSA (NYSE: IRS), one of Argentina’s top real estate firms, with activities in residential properties, office buildings, shopping malls, and hotels. IRSA owns 12% of Banco Hipotecario, 63% of Alto Palermo (Nasdaq: APSA).

• Opportunistic land seller. Proceeds from land sales from FY04-FY08 amounted to 103 million pesos versus book value of 29 million pesos.

• Expanded into Brazilian agriculture in 2005; owns 8% of BrasilAgro following an equity raise.

• Built up large net cash position via $____ million rights offering in March 2008. Leucadia purchase stock in the rights offering at $16 per ADS.

• Aggressive repurchases under program covering 30 million shares or 6% of shares outstanding.

• Shares trade at .8 tangible book value and 68x forward earnings.

INVESTMENT RISKS & CONCERNS • Controlled by chairman Eduardo Elsztain who

owns one-third of Cresud, and indirectly owns one-third of IRSA and two-thirds of Alto Palermo.

• CEO Alejandro Elsztain is Eduardo Elsztain’s brother. Alejandro is also CEO of Alto Palermo.

• Other governance issues include payment of “management fee” of 10% of net income to Consultores, which is 85%-owned by Eduardo Elsztain and 15%-owned by director Saúl Zang.

• 50+% ownership of IRSA exposes Cresud to Argentinian commercial and residential property market. The IRSA investment represented 35% of Cresud’s balance sheet assets at the end of FY08.

• Expropriation—highly unlikely, but a perceived risk nonetheless. While expropriation cannot be ruled out, such a measure appears unrealistic. During the financial crisis of 2002, Argentina had limited the payment of dividends to non-residents, but it never moved toward expropriation.

• Taxes lower export revenue. In 2007, Argentina raised the tax on soybean exports from 27.5% to 35%, the tax on wheat exports from 20% to 28%, and the tax on corn exports from 20% to 25%.

• Dependent on weather and prices of agricultural commodities, such as the price of cereals, oilseeds and by-products. Commodity prices are affected both by global and regional factors and are outside the company’s control. Weather and disease affect Cresud’s production of crops and beef cattle.

• 61% of FY08 revenue from top ten customers, with 46% from Cargill, Mastellone and Arre Beef (Mastellone buys Cresud’s entire milk production).

• Leucadia-style investment not available to all investors. While Leucadia’s stake in Cresud adds credibility to the company, we note that Leucadia not only holds ADSs but also has an interest in Eduardo Elsztain’s personal investment vehicle.

MAJOR HOLDERS Insiders __% │ RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE If you can stomach Argentinian political risk, Cresud represents a compelling real estate and agriculture-related investment. The company has a rock-solid balance sheet with a large net cash position, owing to a rights offering at $16 per ADS last March. The company owns 50+% of NYSE-listed Argentinian real estate firm IRSA. If net cash and investments are subtracted from market value, investors receive Cresud’s 1.1 million acres of owned prime agricultural land virtually for free.


Lear (NYSE: LEA) Southfield, MI, 248-447-1500

Consumer Cyclical: Auto & Truck Parts http://www.lear.com

Trading Data Consensus EPS Estimates Valuation Price: $0.75 (as of 2/13/09) Month # of P/E FYE 12/31/08 n/m 52-week range: $0.74 - $34.57 Latest Ago Ests P/E FYE 12/31/09 n/m Market value: $58 million This quarter -$1.48 -$1.12 9 P/E FYE 12/31/10 n/m Enterprise value: $1.9 billion Next quarter -0.87 -0.66 9 P/E FYE 12/31/11 n/m Shares out: 77.2 million FYE 12/31/09 -3.34 -2.52 12 EV / LTM revenue 0.1x

Ownership Data FYE 12/31/10 -0.01 0.65 11 EV / LTM EBITDA -4.5x Insider ownership: 0% FYE 12/31/11 -0.48 2.40 2 EV / LTM EBIT n/m Insider buys (last six months): 4 LT EPS growth 9.0% 9.0% 2 P / tangible book n/m Insider sales (last six months): 1 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 95% Date Actual Estimate LTM EBIT yield -22% # of institutional owners: 434 1/29/09 -$1.35 -$1.21 LTM pre-tax ROC -40%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 14,425 15,747 16,960 17,089 17,839 15,995 13,571 13,571 3,859 2,600 Gross profit 1,260 1,346 1,402 736 928 1,149 744 744 233 58 EBIT 481 534 564 (1,129) (653) 331 (604) (414) 45 (692) Net income 13 381 422 (1,382) (708) 242 (690) (690) 27 (688) Diluted EPS 4.47 5.31 5.65 (20.57) (10.35) 3.09 (8.94) (8.94) 0.34 (8.90) Cash from ops 830 545 586 676 561 285 467 n/a 157 n/a Capex 267 273 376 429 568 348 202 n/a 88 n/a Free cash flow 563 273 211 247 (8) (62) 265 n/a 69 n/a Cash & investments 88 92 169 585 197 503 601 523 602 523 Total current assets 2,367 2,508 3,375 4,372 3,846 3,890 3,718 3,643 4,006 3,643 Intangible assets 3,140 2,860 2,940 3,090 1,983 2,039 2,093 2,052 2,039 2,052 Total assets 7,579 7,483 8,571 9,944 8,288 7,851 7,800 7,655 7,945 7,655 Short-term debt 193 41 21 668 33 65 110 43 116 43 Total current liabilities 3,183 3,045 3,582 4,648 4,107 3,887 3,604 3,469 3,837 3,469 Long-term debt 2,294 2,133 2,057 1,867 2,243 2,435 2,345 2,297 2,352 2,297 Total liabilities 6,020 5,821 6,314 7,214 7,177 7,249 6,710 6,524 7,012 6,524 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 1,559 1,662 2,258 2,730 1,111 602 1,091 1,132 933 1,132 EBIT/capital employed 48% 50% 44% -69% -43% 30% -59% -40% n/m n/m



$0

$10

$20

$30

$40

$50

$60

$70

$80


BUSINESS OVERVIEW Lear supplies automotive parts in two segments: Seating includes seat systems and components. Electrical and electronic includes electrical distribution systems and electronic products, primarily wire harnesses; junction boxes terminals and connectors, electronic control modules, and in-vehicle audio and entertainment systems. Lear has 91,000 employees at 215 facilities in 35 countries. In 2006/07, Lear divested its interior segment. Lear also contributed its European and North American interior businesses to joint ventures with WL Ross and Franklin Mutual in exchange for minority equity stakes. SELECTED OPERATING DATA

FYE December 31

2005

2006

2007 2008

% of revenue by segment: Seating 65% 65% 76% n/a Electrical and electronic 17% 17% 19% n/a Interior1 18% 18% 4% n/a Revenue growth by selected segment: Seating -2% 5% 5% n/a Electrical and electronic 10% 1% 3% n/a Total revenue growth 1% 4% -10% -15% EBIT margin by segment: Seating 3% 5% 6% n/a Electrical and electronic 6% 3% 1% n/a Interior1 -6% -6% 1% n/a Total EBIT margin2 1% 2% 4% 2% % of revenue by geography: U.S. 37% 37% 28% Canada 8% 8% 7% } 36% Germany 12% 11% 15% n/a Mexico 9% 10% 10% n/a Other countries 34% 34% 40% n/a

1 Divested European and North American interior businesses in October 2006 and March 2007, respectively, in transactions involving WL Ross and Franklin. 2 Includes unallocated corporate expenses. INVESTMENT HIGHLIGHTS

• #2 globally in seating systems, generating sales of more than $12 billion (~80% of revenue) in a $50 billion market. Lear is #2 in North America and #3 in Europe, and is a leader in China and India.

• Electrical distribution systems revenue of more than $2 billion. The company is #3 in North America and #4 in Europe in wire harnesses.

• Electronic products revenue of $900 million. Lear is a leader in junction box technology and a niche player in electronic modules, wireless products, premium audio/video and tire pressure monitoring.

• New operating structure aligns Lear with global strategies of major customers and allows it to access lowest-cost manufacturing and sourcing options.

• Shares trade at .1x EV to trailing revenue. Lear is expected to lose money this year.

INVESTMENT RISKS & CONCERNS • Year-end net debt of $2 billion, putting Lear on

verge of bankruptcy in current environment. • Conditions “extremely challenging,” with 2008

industry production at the lowest level in more than a decade. In North America, production was down 26% in Q4, with Lear’s top fifteen platforms down 26%. European industry production was down 29%, with Lear’s top five customers down 31%. Buying patterns are shifting away from SUVs. Financial distress is rising within the supply chain.

• 49% of revenue from GM and Ford, with “classic” Ford and GM accounting for 42% of revenue, and Saab, Volvo, Jaguar and Land Rover generating 7% of revenue. In addition to the usual risks of customer concentration, Lear also faces risks relating to GM and Ford’s financial distress.

• Weak electrical and electronic business (~20% of revenue). Non-GAAP segment margin declined from 7.4% in 2005 to 3.6% in 2007, driven by “fierce” global competition. Lear is restructuring this segment, with the goal of achieving a low-cost global footprint, capitalizing on new technologies, and developing system integration capabilities.

• Prices of key raw materials, including hot-rolled steel, copper, crude oil, and foam chemicals, are still elevated. (Lear lowered exposure to resins and supplier issues with divestiture of interior business.)


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

JCI 8,120 12,530 .3x 7.0x 30x 9x MGA 3,440 1,730 .1x 0.5x n/a n/a DAN 70 1,220 .1x 0.1x n/m n/m VC 20 1,450 .1x n/m n/m n/m LEA 60 1,880 .1x n/m n/m n/m

MAJOR HOLDERS CEO Rossiter <1% │ Other insiders 1% │ Pzena 7% │ Franklin 5% │ Elm Ridge 4% │ D.E. Shaw 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE While Lear has one of the strongest auto parts franchises in the world, it has struggled mightily with large exposure to financially troubled North American auto makers. Lear has the strategy and execution in place that could enable it to survive the auto industry downturn. However, it’s doubtful that current equity holders will survive with their ownership intact.


Syneron Medical (Nasdaq: ELOS) Yokneam Illit, Israel, 972-4-909-6200

Health Care: Medical Equipment & Supplies http://www.syneron.com

Trading Data Consensus EPS Estimates Valuation Price: $5.98 (as of 2/13/09) Month # of P/E FYE 12/31/08 29.9x 52-week range: $5.66 - $18.04 Latest Ago Ests P/E FYE 12/31/08 7.6x Market value: $172 million This quarter $0.05 $0.10 6 P/E FYE 12/31/09 19.3x Enterprise value: -$25 million Next quarter 0.06 0.08 5 P/E FYE 12/31/10 8.0x Shares out: 28.7 million FYE 12/31/08 0.79 0.85 5 EV / LTM revenue n/m

Ownership Data FYE 12/31/09 0.31 0.64 6 EV / LTM EBITDA n/a Insider ownership: 10% FYE 12/31/10 0.75 1.05 2 EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth 14.0% 14.0% 2 P / tangible book 0.7x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 64% Date Actual Estimate LTM EBIT yield 1% # of institutional owners: 133 11/11/08 $0.08 $0.13 LTM pre-tax ROC -1%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 12 35 58 87 117 141 115 115 38 14 Gross profit 10 31 51 76 99 114 85 85 30 8 EBIT 2 8 26 39 35 25 (0) (0) 9 (16) Net income 2 9 27 41 40 31 6 6 4 (16) Diluted EPS 0.10 0.42 1.14 1.48 1.44 1.12 0.20 0.20 0.16 (0.58) Cash from ops 2 14 23 31 37 48 20 20 21 (1) Capex 0 0 1 1 1 2 1 1 1 0 Free cash flow 2 14 22 30 36 46 19 19 21 (1) Cash & investments 4 18 94 133 103 168 197 197 168 197 Total current assets 8 25 107 166 153 222 246 246 222 246 Intangible assets 0 0 0 0 1 5 7 7 5 7 Total assets 9 27 110 170 225 269 281 281 269 281 Short-term debt 0 0 0 0 0 0 0 0 0 0 Total current liabilities 3 10 12 21 26 33 34 34 33 34 Long-term debt 0 0 0 0 0 0 0 0 0 0 Total liabilities 4 14 15 25 31 39 39 39 39 39 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 5 13 94 145 194 231 243 243 231 243 EBIT/capital employed >100% n/m n/m >100% >100% 98% -1% -1% n/m n/m



$5

$10

$15

$20

$25

$30

$35

$40

$45

$50


BUSINESS OVERVIEW Syneron provides aesthetic medical products based on proprietary Electro-Optical Synergy (Elos) technology, which uses electrical and optical energy. The products are sold to physicians and target non-invasive procedures, including hair removal, wrinkle reduction, treatment of superficial vascular and pigmented lesions, and treatment of leg veins. Syneron has an installed base of 10,000 products. SELECTED OPERATING DATA


9/30/083 % of revenue by geography:2 North America 62% 57% 57% 52% Other 38% 43% 43% 48% Revenue growth by geography: North America 67% 22% 21% -7% Europe 30% 53% 20% 4% Total revenue growth 51% 34% 21% -2% % of revenue by type: Product 93% 94% 91% n/a Service1 7% 6% 9% n/a

1 Service revenue should increase over time as the installed base grows. 2 In 2007, 57% of revenue came from North America, 23% from Europe, 16% from Asia Pacific, and 4% from Israel and other countries. 3 While the company reported 4Q08 results on February 12, it has not yet provided geographical and segment data. INVESTMENT HIGHLIGHTS

• 20% global share in aesthetic medical products, a market with favorable long-term trends. Syneron focuses on the growth segments of aesthetic medicine of body shaping and skin rejuvenation.

• Innovative Elos technology. Approaches that rely solely on optical energy limit the safety and efficacy of many procedures due to limited skin penetration and unwanted epidermal absorption. Elos makes it easier to target the tissue to be treated, and boosts safety through tracking of skin temperature.

• Positive acceptance of minimally invasive LipoLite laser-assisted lipolysis product, which was launched in February. Syneron delivered the first units in Q2, with volume shipments in Q3.

• Adding recurring revenue stream to equipment sales business model. The LipoLite Energy Access Program (LEAP) charges physicians a subscription fee for laser-assisted lipolysis treatment.

• Doron Gerstel (48) and Fabian Tenenbaum (34) became CEO and CFO, respectively, in 2007. Gerstel was previously president of Syneron N.A. and Operations VP at Lumenis (formerly ESC Medical, founded by Syneron chairman Eckhouse).

• Signed development and supply deal with P&G in 2007, with goal of commercializing home-use devices and topical skin compositions.

• Repurchased $9 million of stock in 2007-08. • $217 million of net cash and liquid investments. • Shares trade at 19x forward P/E and .7x tangible

book value. INVESTMENT RISKS & CONCERNS

• Revenue down 63% in 4Q08. The aesthetic sector was “impacted by an acute drop in both doctors’ confidence and credit availability.”

• Cut 20% of workforce in 4Q08 and closed offices in Canada, Europe and Chicago. Syneron expects to save 20% on opex in 2009 compared to 2008.

• Gross margin in high 70s, roughly 20 points above industry average, may not be sustained. Competitors include public companies Candela, Cutera, Cynosure, Thermage, and Palomar Medical, and private companies Lumenis Sciton, Reliant Technologies, UltraShape, and Alma Lasers.

• Subject to regulation. Before a new device can be marketed in U.S., it must receive 510(k) clearance, which lasts 3-12 months. Syneron must also comply with the FDA’s Quality System Regulation, which covers aspects of bringing products to market.

• CEO Gerstel, CFO Tenenbaum own <1% of Syneron, while chairman Eckhouse owns 9%.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

PMTI 160 40 .5x 1.1x 90x 23x CYNO 100 30 .2x .7x 15x 10x CUTR 90 -10 n/m .8x n/m 43x CLZR 10 -20 n/m .1x n/m n/m ELOS 170 -30 n/m .7x 8x 19x

MAJOR HOLDERS Chairman Eckhouse 9% │ CEO, CFO and other insiders <1% │ Baupost 11% │ Brandywine 6% │ RenTech 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Syneron offers products in the growing market for aesthetic medical procedures. While the recent drop-off in revenue has been severe, investors may be ignoring the company’s long-term earning power, including recurring revenue opportunities related to the LipoLite Energy Access Program and a potentially meaningful partnership with P&G. We value Syneron at $11-13 per share, based on a sum-of-the-parts analysis that considers the company’s $217 million in net cash and investments and values the aesthetic products business based on a range of 1x trailing revenue to 6x estimated normalized EBIT.


…additional insight into ELOS: WHAT ARE THE SHARES WORTH?

• We value Syneron at $11-13 per share, based on the sum-of-the-parts analysis presented below.

• Upside may come from share repurchases and higher earning power than estimated. Earnings upside could come from the LipoLite Energy Access Program and the partnership with P&G.

• Downside appears protected due to $8 per share in net cash and liquid investments. While markets can be irrational, a profitable, high-ROIC business should not trade at a negative enterprise value.

Syneron — Sum-of-the-Parts Valuation Overview


Low Value

High Value

Value of excess liquid assets:1 Cash and equivalents $72 $72 Short-term marketable securities 124 124 Long-term marketable securities 20 20 Net cash and investments $217 $217 Cash needed to run business2 (20) (10) Total $197 $207 Value of aesthetic products business: LTM revenue 115 Fair value multiple of LTM revenue 1x Estimate of normalized EBIT 25 Fair value multiple of normalized EBIT 6x Total $115 $150 Estimated fair value of ELOS $312 $357 per share $11 $13

1 Based on balance sheet values as of September 30, 2008. 2 Represents MOI estimate. Source: Company filings, The Manual of Ideas estimates and analysis. WHY THE SHARES MAY BE MISPRICED

• Near-term business momentum has been negative, giving investors little to get excited about. While most investors may agree that Syneron is undervalued at a market value roughly equal to net cash and investments, few investors consider a strong balance sheet sufficient reason to invest. Syneron shares may remain undervalued until the company gives investors reason to like the business again. Catalyst could include adoption of the LipoLite Energy Access Program or positive news related to the partnership with P&G.

• Low-conviction selling? Some value funds may have followed highly respected Baupost Group into Syneron without developing a level of conviction that would help them stick with the company through a period of weak fundamentals.

• Adopted “poison pill” in November 2008, a move that both signals the Board’s concern about a potential hostile takeover bid and antagonizes shareholders who may want the company to operate under threat of a takeover, thereby putting more pressure on the incumbent Board to perform.

REVENUE AND MARGIN ANALYSIS

ELOS – Revenue, Gross Profit and EBIT, 2001-08 Syneron posted explosive growth until recently, with revenue increasing from virtually zero in 2001 to more than $140 million in 2007, driven by rapid adoption of proprietary Elos aesthetic medical products. The company showed strong operating leverage in the first half of the decade, but EBIT has evaporated since 2006.

$0mn

$50mn

$100mn

$150mn

01 02 03 04 05 06 07 08

Revenue Gross Profit EBIT

Source: Company, The Manual of Ideas. ELOS – Y-Y Revenue Growth, 2002-08 The company grew revenue more than twenty-fold in 2002 and doubled it again in 2003. While growth has steadily decelerated over the past six years, it remained quite strong until recently. Revenue declined 18% in 2008, with Q3 revenue down 63% due to doctors increasingly postponing capital equipment purchases.

-20%

0%

20%

40%

60%

80%

100%02 03 04 05 06 07 08

Source: Company, The Manual of Ideas. ELOS – Gross and EBIT Margin, 2001-08 The value of Syneron’s proprietary technology is evident in the high gross margins the company has posted since ramping up sales in 2001. Gross margin declined to 74% in 2008 and 55% in 4Q08.

0%

20%

40%

60%

80%

100%

01 02 03 04 05 06 07 08

EBIT Margin Gross Margin



SYNERON – PRODUCT LINEUP

SYNERON – IMPACT OF STOCK-BASED COMPENSATION ON INCOME, 2007-2008


UTStarcom (Nasdaq: UTSI) Alameda, CA, 510-864-8800

Services: Communications Services http://www.utstar.com

Trading Data Consensus EPS Estimates Valuation Price: $1.40 (as of 2/13/09) Month # of P/E FYE 12/31/07 n/m 52-week range: $1.35 - $5.94 Latest Ago Ests P/E FYE 12/31/08 n/m Market value: $177 million This quarter -$0.53 -$0.53 2 P/E FYE 12/31/09 n/m Enterprise value: -$154 million Next quarter -0.23 -0.23 2 P/E FYE 12/31/10 8.8x Shares out: 126.2 million FYE 12/31/08 -1.09 -1.09 2 EV / LTM revenue n/m

Ownership Data FYE 12/31/09 -0.59 -0.60 2 EV / LTM EBITDA n/m Insider ownership: 5% FYE 12/31/10 0.16 0.15 1 EV / LTM EBIT n/m Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 0.3x Insider sales (last six months): 5 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 60% Date Actual Estimate LTM EBIT yield 100% # of institutional owners: 270 11/6/08 -$0.45 -$0.54 LTM pre-tax ROC -46%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 627 982 1,941 2,579 2,871 2,459 2,467 2,206 647 181 Gross profit 225 346 616 570 436 386 322 333 64 57 EBIT 77 146 252 17 (425) (138) (212) (154) (52) (39) Net income 57 108 210 51 (533) (117) (196) (94) (55) (56) Diluted EPS 0.52 0.94 1.70 0.38 (4.55) (0.97) (1.62) (0.76) (0.46) (0.45) Cash from ops 40 179 45 (95) 218 66 (218) (57) (44) (92) Capex 31 75 126 140 65 27 28 18 7 2 Free cash flow 9 103 (80) (235) 153 39 (246) (74) (51) (94) Cash & investments 407 339 426 699 659 671 503 331 644 331 Total current assets 897 1,107 1,833 2,680 2,002 1,845 1,493 984 1,730 984 Intangible assets 39 50 144 279 78 60 25 5 47 5 Total assets 1,006 1,306 2,263 3,348 2,551 2,383 1,985 1,441 2,199 1,441 Short-term debt 58 0 0 351 199 103 323 0 415 0 Total current liabilities 305 539 959 1,577 1,168 1,045 1,103 664 1,233 664 Long-term debt 12 0 411 411 275 275 0 0 0 0 Total liabilities 324 539 1,375 1,992 1,725 1,609 1,367 902 1,498 902 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 682 766 888 1,356 827 774 618 539 701 539 EBIT/capital employed 27% 48% 53% 2% -52% -26% -49% -46% n/m n/m



$10

$20

$30

$40

$50

$60

$70

$80

$90

$100


BUSINESS OVERVIEW UTStarcom restructured in 4Q07; it operates in six segments: Broadband Infrastructure provides broadband products. Multimedia Communications develops and markets IPTV solutions and wireless infrastructure technologies. The Personal Communications Division (PCD) distributes mobile handsets outside of China. Handsets focuses on the PAS handset market in China. Services supports the Broadband Infrastructure and Multimedia Communications product lines. Other includes mobile solutions focused on the IPCDMA market, and custom solutions. INVESTMENT HIGHLIGHTS

• Focused on IPTV equipment business in countries such as India and China. The company’s customers have one million subscribers deployed on UTStarcom’s IPTV solution (contracted business covers another three million subscribers).

• Divested low-margin PCD business in July 2008 while preserving book value and bolstering the balance sheet with a $207 million cash infusion.

• Repaid $375 million of convertible and other debt in past nine months. The company had no debt and $330 million of cash as of September 30.

• Peter Blackmore became CEO in July 2008, while scandal-tainted Hong Lu became executive chairman. Blackmore joined as COO in July 2007. He was previously EVP of sales at Unisys.

• Targeting revenue growth, margin improvement and monetization of non-core assets in 2009.

• $400+ million NOL, expiring from 2010-2027. • Shares trade at .3x tangible book value. The

company is expected to lose money this year. INVESTMENT RISKS & CONCERNS

• Checkered recent history, including accounting restatements, a major decline in business in China and an investigation against former CEO Hong Lu. UTStarcom has lost investor credibility and while new CEO Peter Blackmore is taking positive action, it may take some time for credibility to be restored.

• Turnaround that has not yet “turned.” The company has yet to show that it can be profitable at a significantly reduced scale of operations.

• UTStarcom is at scale disadvantage versus most other companies who compete for carrier customers.

MAJOR HOLDERS CEO <1% │ Other insiders 6% │ Softbank 12% │ Barclays 6% │ Chou Associates 4% │ RenTech 3%



9/30/08 % of revenue by segment: Broadband infrastructure 16% 8% 6% 7% Multimedia communications 16% 17% 12% 14% PCD2 48% 54% 67% 63% Handsets 16% 16% 10% 12% Services 2% 2% 2% 3% Other 2% 1% 2% 2% Revenue growth by selected segment: Broadband infrastructure n/a -55% -22% -12% Multimedia communications n/a -10% -28% 3% Handsets n/a -16% -41% -13% Services n/a -1% 3% 7% Total revenue growth 11% -14% 0% -16% Gross margin by selected segment: Broadband infrastructure 31% -1% 4% 7% Multimedia communications 26% 45% 33% 47% Handsets 12% 30% 33% 23% Services 44% 19% 28% 29% Total gross margin 15% 16% 13% 17% EBIT margin by segment: Broadband infrastructure n/a -18% -15% -13% Multimedia communications n/a 31% 12% 25% PCD2 n/a 0% 4% 6% Handsets n/a 17% 11% -2% Services n/a 11% 22% 20% Corporate and other n/a -13% -13% -14% Total EBIT margin -16% -6% -9% -7% Selected items as % of revenue: D&A 3% 3% 2% 2% Capex 2% 1% 1% 1% Stock-based compensation 0% 1% 1% 1% Special income (expense)1 -7% 0% 2% 3% % of revenue by geography: U.S. 46% 55% 67% 65% China 30% 32% 23% 23% Japan and other 23% 13% 10% 12% % of revenue by customer: Verizon Wireless 12% 14% 22% 24% T-Mobile USA <10% 11% 15% <10% Sprint Spectrum <10% <10% 13% 13% Government of China 22% 23% 17% <10% Equity to total assets (avg) 35% 32% 32% 34% ∆ diluted shares out (avg) -8% 3% 0% 2%

1 Includes non-cash items only (asset sale gains, special charges, in-process R&D). Does not include inventory reserves and deferred tax asset changes. 2 The company sold the PCD operations in July 2008 to AIG Global Investment Group for $233 million, roughly equal to the segment’s net book value. RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? 1 FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year? 1 CEO Peter Blackmore is doing an admirable job in a difficult turnaround situation, but we do not welcome chairman Hong Lu’s involvement with the company, as he has been tainted by a probe into improper trading.

THE BOTTOM LINE UTStarcom has made major strides since mid-2007 under Peter Blackmore, successfully repaying all debt and maintaining a liquid balance sheet while selling off non-core assets. The company has yet to prove that it is viable as a going concern. If successful in turning the IPTV business into a driver of growth and profitability, however, UTStarcom shares would have multi-bagger upside. As a result, we find the risk-reward quite attractive and would give the company serious consideration.


Yanzhou Coal Mining (NYSE: YZC) Zoucheng, SD, China, 86-537-538-231

Energy: Coal http://www.yanzhoucoal.com.cn


Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA n/a Insider ownership: 53% Next 2 Yrs n/a n/a n/a EV / LTM EBIT 1.8x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 1.0x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 2% Date Actual Estimate LTM EBIT yield 55% # of institutional owners: 74 n/a n/a n/a LTM pre-tax ROC 65%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 6/30/08 9/30/06 6/30/08 Revenue 712 928 1,015 1,544 1,682 1,753 2,126 2,886 421 1,778 Gross profit 301 437 466 880 909 849 1,055 1,567 196 991 EBIT 208 273 297 688 649 548 667 1,139 100 776 Net income 179 194 219 477 421 346 472 1,175 65 571 Diluted EPS 0.40 0.42 0.48 1.00 0.86 0.70 0.96 1.68 0.13 1.16 Cash from ops 235 327 394 645 575 550 666 (11) (70) (102) Capex 99 310 198 114 192 458 407 (114) 78 (328) Free cash flow 136 17 196 531 383 92 259 102 (148) 226 Cash & investments 172 239 296 762 1,053 863 835 1,364 948 1,364 Total current assets 469 558 645 1,215 1,599 1,441 1,447 2,014 1,634 2,014 Intangible assets 4 13 22 33 45 88 96 204 44 204 Total assets 1,633 1,887 2,031 2,677 3,103 3,425 3,824 4,453 3,211 4,453 Short-term debt 17 15 29 29 49 31 31 78 29 78 Total current liabilities 299 243 346 372 501 559 599 807 552 807 Long-term debt 0 175 58 29 0 48 38 36 0 36 Total liabilities 310 428 413 411 531 661 697 898 587 898 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 1,323 1,459 1,618 2,267 2,573 2,764 3,127 3,555 2,624 3,555 EBIT/capital employed 18% 21% 21% 50% 46% 33% 35% 65% n/m n/m



$5

$10

$15

$20

$25


BUSINESS OVERVIEW Yanzhou Coal engages in coal mining and transportation. The coal mining segment comprises the underground mining, preparation and sale of coal. The coal railway transportation segment comprises the provision of railway transportation services. The A shares are listed in Shanghai, the H shares in Hong Kong and the ADSs on the NYSE (1 ADS per 50 H shares). SELECTED OPERATING DATA


9/30/08 % of revenue by segment: Coal mining 99% 99% 99% 90% Coal railway transportation 1% 1% 1% 1% Selected growth rates: Revenue 4% 4% 17% 75% Net sales of coal 10% 4% 21% n/a Coal volumes -15% 7% 1% 5% Selected items as % of revenue: EBIT 36% 29% 30% 46% Net income 23% 18% 21% n/a D&A 8% 8% 8% 11% Capex 11% 24% 18% n/a Acquisition of mining rights 0% 0% 0% n/a Other investments and M&A -1% 4% 6% n/a ROE 17% 13% 16% 26% Equity to total assets (avg) 84% 82% 81% 81% ∆ shares out (period end) 60% 0% 0% 0% % of coal sales by geography: Eastern China 70% 72% 84% n/a Southern and other China 4% 7% 7% n/a Outside of China 26% 21% 9% n/a % of coal sales by industry: Power plant 38% 37% 27% n/a Metallurgical mills 16% 12% 12% n/a Fuel trading companies 40% 34% 28% n/a Construction and other 6% 17% 33% n/a % of coal sales by type: “Clean” coal 64% 68% 67% n/a Screened raw coal 31% 27% 29% n/a Mixed coal and others 6% 5% 4% n/a Coal mining data (mn tonnes, unless otherwise specified): Reserves 1,968 1,999 2,084 n/a Raw coal production capacity 23 24 27 n/a Coal prep. input capacity 23 23 22 n/a Raw coal production 35 36 36 27 Coalfield area (sq. km) 447 467 610 n/a


• Largest coal producer in Eastern China, with annual production of 36 million tonnes of raw coal.

• Operates six coal mines in Shandong Province, which commenced production from 1973-2000. The mines have in-place proven and probable reserves of 1.9 billion tonnes. Not included in this estimate are the reserves of Yancoal Australia (50 million tonnes), Shanxi Nenghua (29 million tonnes) and Zhaolou Coal Mine (106 million tones).

• Introduced equipment capable of comprehensive mechanized caving process designed to extract coal from medium to thick coal seams.

• Location of mines enhances competitiveness due the rapid economic growth of Eastern China, the insufficient supply of coal produced in the Eastern China region and the substantial costs involved in transporting coal from other major coal-producing provinces such as Shaanxi Province, Shanxi Province and Inner Mongolia Autonomous Region.

• Shares trade at 1.0x tangible book value and 4x trailing P/E (no EPS estimates available).

Market Share of Raw Coal Production in China, 2007 (Chinese raw coal production: 3 billion tonnes) The Chinese coal industry is highly fragmented, with the top ten players accounting for only 28% of total production.

Others72%

Shenhua9%

China Coal4% Datong

3%Shanxi

3%

Lu’an1%

Huainan1%

Yangquan1%

Yanzhou2%

Heilongjiang2%

Xiamei2%

Source: Company, The Manual of Ideas. INVESTMENT RISKS & CONCERNS

• Commodity producer exposed to slowdown in China. Demand for coal is primarily affected by the economic development and coal demand by power generation, chemical, metallurgy and construction materials industries. The average selling price of the company’s coal was RMB 350, RMB 342 and RMB 409 per tonne in 2005, 2006 and 2007.

• Dependent on major customers, including Huadian Power, which accounts for 12% of sales.


THE BOTTOM LINE As the largest coal producer in Eastern China, Yanzhou Coal is strategically located in a region with significant and rising coal demand—though the recent downturn in China’s economy will undoubtedly have a dampening effect on coal demand in the near term. The shares trade sharply below tangible book value and deserve consideration.


Candidates—“Magic Formula”


Dell (Nasdaq: DELL)

EarthLink (Nasdaq: ELNK)

Garmin (Nasdaq: GRMN)

KBR (NYSE: KBR)

MEMC Electronic Materials (NYSE: WFR)

Mesabi Trust (NYSE: MSB)

Net 1 UEPS Technologies (Nasdaq: UEPS)

Tempur-Pedic International (NYSE: TPX)

Versant (Nasdaq: VSNT)


Dell (Nasdaq: DELL) Round Rock, TX, 512-338-4400

Technology: Computer Hardware, Member of S&P 500 http://www.dell.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 2/1/02 1/31/03 1/30/04 1/28/05 2/3/06 2/2/07 2/1/08 10/31/08 11/2/07 10/31/08 Revenue 31,168 35,404 41,444 49,121 55,788 57,420 61,133 63,662 15,646 15,162 Gross profit 5,507 6,349 7,552 9,018 9,891 9,516 11,671 11,639 2,888 2,853 EBIT 1,789 2,844 3,544 4,206 4,382 3,070 3,440 3,509 829 1,015 Net income 1,246 2,122 2,645 3,018 3,602 2,583 2,947 2,806 766 727 Diluted EPS 0.46 0.80 1.01 1.18 1.47 1.14 1.31 1.37 0.34 0.37 Cash from ops 3,797 3,538 3,670 5,821 4,751 3,969 3,949 2,362 998 (86) Capex 303 305 965 515 747 896 831 596 172 137 Free cash flow 3,494 3,233 2,705 5,306 4,004 3,073 3,118 1,766 826 (223) Cash & investments 3,914 4,638 5,152 9,807 9,070 10,298 7,972 8,572 12,605 8,572 Total current assets 7,877 8,924 10,633 16,897 17,794 19,939 19,880 21,534 24,348 21,534 Intangible assets 0 0 0 0 0 155 2,428 2,493 273 2,493 Total assets 13,535 15,470 19,311 23,215 23,252 25,635 27,561 27,817 30,380 27,817 Short-term debt 0 0 0 0 65 188 225 266 266 266 Total current liabilities 7,519 8,933 10,896 14,136 16,173 17,791 18,526 16,421 18,331 16,421 Long-term debt 520 506 505 505 625 569 362 1,851 392 1,851 Total liabilities 8,841 10,597 13,031 16,730 19,205 21,196 23,732 23,658 23,435 23,658 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 4,694 4,873 6,280 6,485 4,047 4,439 3,829 4,159 6,945 4,159 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m n/m n/m n/m



$10

$20

$30

$40

$50

$60

$70


BUSINESS OVERVIEW Dell is the #1 supplier of PCs in the U.S. and the #2 supplier globally, behind HP. Product categories include desktop PCs, servers, networking, software, mobility, peripherals, and storage. The company was founded in 1984 by Michael Dell. SELECTED OPERATING DATA

FYE February 1 2006 2007 2008

YTD10/31/08

% of revenue by product group: Desktop PCs 39% 35% 32% 29% Mobility 26% 27% 29% 31% Software and peripherals 15% 16% 16% 17% Servers and networking 10% 10% 11% 10% Enhanced services 8% 9% 9% 9% Storage 3% 4% 4% 4% Revenue growth by product group: Desktop PCs 2% -8% -1% -7% Mobility 20% 8% 13% 16% Software and peripherals 26% 8% 10% 12% Servers and networking 12% 7% 12% 1% Enhanced services 35% 20% 5% 11% Storage 38% 21% 8% 8% Total revenue growth 14% 3% 6% 6% % of revenue by segment: Americas — Business 51% 51% 51% 47% Americas — Consumer 14% 12% 10% n/a EMEA 23% 24% 25% n/a Asia Pacific and Japan 12% 13% 14% n/a EBIT margin by segment: Americas — Business 10.4% 8.1% 8.2% 9.1% Americas — Consumer 5.7% 1.9% -0.9% n/a EMEA 6.8% 4.3% 6.6% n/a Asia Pacific and Japan 8.0% 4.5% 5.5% n/a Total EBIT margin 7.9% 5.3% 5.6% 6.3%


• Continues to gain market share. Dell grew unit volumes in the high teens in 1H09, roughly 1.5x the industry growth rate. While growth slowed in 3Q09, management expects continued market share gains.

• Turnaround progressing; more work remains. In Q3, the company attained its goal of reducing headcount by 8,900. COGS are still too high, with management focused on reducing product costs as more efficiently produced products come to market.

• Pursuing five key growth initiatives: enterprise, notebook, consumer, SMB, and emerging countries. Dell’s growth is outpacing the industry in each area.

• Focused on growing higher-margin services (~10% of revenue), both organically and through digestible acquisitions; a large combination, such as HP/EPS, appears unlikely. Dell uses the client business as an “anchor tenant,” allowing it to win incremental services business over time.

• Maintains strong cash cycle dynamics (-29 days), though retail presence has increased inventory.

• Michael Dell returned as CEO in January 2007. • Strong balance sheet, with $7 billion of net cash. • Bought $2.5 billion of stock in 1H09. Michael Dell

has purchased ~$200 million in recent months. • Shares trade at .2 EV to trailing revenue, 7x


• Weakness in most geographies. Enterprise, servers and storage remain resilient while “client” has weakened. Dell is a year into a three-year, $3 billion cost reduction program, with most reductions tied to new products (7 introduced so far, 17 remaining).

• Consumer EBIT margin less than 1%, vs. 5-6% at HP (might include some printing). Dell believes it can achieve “reasonable” profitability. Retail is not yet profitable, with Dell present in 15,000 stores. The company likely needs more scale in retail.

• Direct model evolving as Dell enters stores and notebooks gain share (consumers like to “touch” before buying). Warranty is a high-margin business in which Dell’s attach rate is below average.

• European margins have not met expectations, but margins may bounce back in next two quarters.

• EMC partnership may be impacted by Dell’s purchase of EqualLogic, though Dell management remains “committed” to both offerings.

• CTO Kevin Kettler left in January after 13 years with Dell; a marketing VP left in November.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

IBM 126,070 147,090 1.4x 9.4x 10x 10x HPQ 86,360 93,970 .8x n/m 9x 9x CAJ 32,750 25,260 .6x 1.1x 18x n/a SNE 18,570 17,270 .2x 0.7x n/m n/m DELL 17,730 11,280 .2x 10.6x 7x 8x

MAJOR HOLDERS CEO Michael Dell 11% │ Other insiders <1% │ Southeastern 7% │ Chieftain 1% │ Fairfax 1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Dell is a global technology products leader with capable, properly incentivized management. The company is addressing challenges in the consumer business amid slowing growth and greater competition. Some have questioned Dell’s direct model, and the company has felt a need to partner with retailers to expand distribution. Nonetheless, we like the company’s long-term focus (no quarterly guidance), strong FCF generation, share buybacks, insider buying, and cost leadership.


EarthLink (Nasdaq: ELNK) Atlanta, GA, 404-815-0770

Technology: Computer Services http://www.earthlink.net


Ownership Data FYE 12/31/10 0.69 0.71 3 EV / LTM EBITDA 3.0x Insider ownership: 8% FYE 12/31/11 0.53 0.56 1 EV / LTM EBIT 3.3x Insider buys (last six months): 0 LT EPS growth -19.9% n/a 1 P / tangible book 3.8x Insider sales (last six months): 10 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 95% Date Actual Estimate LTM EBIT yield 30% # of institutional owners: 477 2/5/09 $0.25 $0.38 LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 1,357 1,402 1,382 1,290 1,301 1,216 956 956 282 216 Gross profit 813 883 951 923 878 788 595 597 179 133 EBIT (161) (67) 111 165 96 48 165 165 20 (24) Net income (168) (67) 111 143 5 (135) 190 190 (10) 27 Diluted EPS (1.11) (0.42) 0.70 1.02 0.19 (0.45) 1.80 1.78 0.19 0.25 Cash from ops 47 19 102 188 189 115 89 n/a 34 n/a Capex 110 54 40 32 41 48 61 n/a 12 n/a Free cash flow (63) (35) 61 156 148 68 28 n/a 22 n/a Cash & investments 555 491 439 473 381 373 267 447 304 447 Total current assets 640 584 501 530 445 457 337 498 383 498 Intangible assets 264 239 157 125 117 262 249 223 256 223 Total assets 1,183 1,024 827 806 749 968 735 823 843 823 Short-term debt 12 3 1 0 0 0 0 0 0 0 Total current liabilities 329 318 267 247 212 231 188 132 236 132 Long-term debt 2 1 0 0 0 259 259 259 259 259 Total liabilities 332 331 283 258 227 509 474 411 518 411 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 851 692 544 548 522 459 262 412 325 412 EBIT/capital employed -4591% n/m n/m n/m n/m n/m n/m n/m n/m n/m



$5

$10

$15

$20

$25

$30


BUSINESS OVERVIEW EarthLink is a U.S. Internet service provider (ISP) operating in two segments: Consumer Services provides Internet access and value-added services to individuals. Business Services provides Internet access and value-added services to businesses and communications carriers. SELECTED OPERATING DATA

FYE December 31 2005 2006 2007 2008 % of revenue by type of service: Access 94% 91% 89% 89% Value-added services 6% 9% 11% 11% % of revenue by segment: Consumer services 95% 88% 84% 82% Business services 5% 12% 16% 18% Revenue growth by segment: Consumer services n/a -7% -10% -24% Business services n/a 130% 18% -8% Total revenue growth -7% 1% -7% -21% EBIT margin by segment: Consumer services 15% 14% 19% 40% Business services 68% 14% 7% 13% Corporate and other -5% -6% -13% -18% Total EBIT margin 13% 7% 4% 17% Subscriber growth (period end): Dial-up consumers -8% -8% -20% -33% Broadband consumers 17% 14% -42% -15% Businesses 10% 39% -13% -16% Total subscriber growth -1% 0% -27% -28% Consumer subscribers1 (mn) 5.2 5.1 4.3 3.1 Consumer monthly ARPU ($) 20 19 20 21 Consumer net churn2 4.6% 4.6% 5.1% 4.4% Business subscribers1 (mn) 0.2 0.2 0.2 0.2 Business monthly ARPU ($) 38 64 77 82 Business net churn2 2.6% 2.8% 2.6% 2.8% ∆ diluted shares out (avg) -11% -7% -7% -10%

1 Represents period-average subscribers. 2 Churn rate for 2007 excludes impact of loss of Embarq-related subscribers. INVESTMENT HIGHLIGHTS

• Reduced back-office costs and new subscriber marketing due to declining sales and changes in the Internet access industry. EarthLink now focuses on maximizing income from more tenured subscribers.

• Aims to retain subscribers and grow business services through New Edge, a CLEC that provides secure managed data networks and dedicated Internet access. EarthLink acquired New Edge for $109 million and 1.7 million shares in 2006.

• Beat 2008 guidance after raising it last July and October, driven by better-than-expected passive subscriber additions, lower churn and reduced opex. Adjusted EBITDA was $309 million in 2008, up 66% from 2007, even as revenue declined 21%.

• 2009 guidance calls for adjusted EBITDA of $210-225 million (down 27-32%), FCF of $190-215 million, income from continuing operations of $75-95 million, and capex of $10-20 million.

• Founder Sky Dayton retired from Board in October. Rolla Huff (51) joined EarthLink as CEO in June 2007. He was previously CEO of Mpower.

• Has “flexibility to pursue strategic alternatives,” due to termination of convert hedge in September.

• Solid balance sheet, with $276 million of net cash. • Large NOL, with $678 million of federal and $291

million of state loss carryforwards at yearend 2007. • Repurchased 3.8 million shares for $32 million in

the first nine months of 2008. • Shares trade at 3.8x tangible book value, 4x


• Business in runoff? Revenue has declined, and management appears focused on maximizing cash flow from existing subscribers while keeping reinvestment modest. The company has returned cash to shareholders through large buybacks.

• Internet access a commodity. While EarthLink provides value-added services, commoditized dial-up and broadband Internet access account for close to 90% of revenue. Declining consumer access pricing reflects the commodity nature of the service.

• Stopped investing in Helio in 2007, after investing $210 million. Helio, a JV with SK Telecom, is a U.S. MVNO. EarthLink owns 31% of Helio.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

MSFT 169,720 151,010 2.4x 8.4x 11x 10x T 142,550 215,750 1.7x n/m 12x 11x VZ 83,980 125,640 1.3x n/m 12x 11x YHOO 17,790 14,340 2.0x 2.4x 34x 29x S 8,060 26,580 .7x n/m 40x n/m Q 6,130 19,210 1.4x n/m 11x 12x LVLT 1,450 7,260 1.7x n/m n/m n/m ELNK 730 540 .6x 3.9x 7x 10x

MAJOR HOLDERS CEO Huff 1% │ Other insiders 2% │ Steel Partners 11% │ Coghill 9% │ RenTech 7% │ Artisan 6% │ Sterling 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE EarthLink is a “cash cow” offering commoditized Internet access to consumers and businesses. Management has made a strategic decision to cut backend costs and marketing expenses in order to maximize FCF generated by existing customers. The shares deserve a look, but investors should make conservative assumptions about future ARPU and churn.


Garmin (Nasdaq: GRMN) Camana Bay, Cayman Islands, 345-640-9050

Technology: Scientific & Technical Instruments http://www.garmin.com


Ownership Data FYE 12/31/09 2.97 3.11 21 EV / LTM EBITDA n/a Insider ownership: 46% FYE 12/31/10 2.69 2.62 4 EV / LTM EBIT 3.1x Insider buys (last six months): 8 LT EPS growth 12.8% 13.5% 8 P / tangible book 1.8x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 27% Date Actual Estimate LTM EBIT yield 32% # of institutional owners: 422 10/29/08 $0.87 $0.84 LTM pre-tax ROC 88%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/29/01 12/28/02 12/27/03 12/25/04 12/31/05 12/30/06 12/29/07 9/27/08 9/29/07 9/27/08 Revenue 369 465 573 763 1,028 1,774 3,180 3,663 729 870 Gross profit 198 255 331 411 535 882 1,463 1,632 342 386 EBIT 131 177 227 271 338 555 907 939 214 214 Net income 113 143 179 206 311 514 855 882 194 171 Diluted EPS 0.52 0.66 0.82 0.94 1.43 2.35 3.89 4.08 0.88 0.82 Cash from ops 130 162 174 209 247 362 682 639 134 233 Capex 27 12 33 78 27 93 157 143 18 34 Free cash flow 103 150 141 131 220 269 525 496 116 199 Cash & investments 234 330 327 314 367 410 745 540 762 540 Total current assets 360 473 540 637 801 1,169 2,333 2,037 1,858 2,037 Intangible assets 17 25 42 50 36 68 196 214 164 214 Total assets 539 706 857 1,117 1,362 1,897 3,292 3,015 2,646 3,015 Short-term debt 4 0 0 0 0 0 0 0 0 0 Total current liabilities 56 81 104 176 196 338 802 697 568 697 Long-term debt 28 20 0 0 0 0 0 0 1 0 Total liabilities 85 103 107 182 205 339 941 876 660 876 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 454 603 750 936 1,157 1,558 2,351 2,140 1,985 2,140 EBIT/capital employed 91% >100% >100% >100% 92% >100% 99% 88% n/m n/m



$20

$40

$60

$80

$100

$120

$140


BUSINESS OVERVIEW Garmin provides navigation devices and applications enabled by GPS technology. Products serve auto, mobile, wireless, outdoor recreation, marine, aviation, and OEM applications. No customer accounts for 10% or more of revenue. SELECTED OPERATING DATA

FYE December 31

2005

2006

2007

YTD 9/30/08

Revenue by segment: Auto / mobile 39% 61% 74% 70% Outdoor / fitness 23% 16% 11% 13% Aviation 22% 13% 9% 10% Marine 15% 9% 6% 7% Revenue by geography: North America 64% 62% 65% 64% Europe 31% 33% 30% 31% Asia 5% 5% 5% 4% Units shipped (mn) 3.0 5.4 12.3 10.6

Change (y-y) 31% 78% 128% 55% Revenue per unit ($) 339 329 259 231

Change (y-y) 3% -3% -21% -20% INVESTMENT HIGHLIGHTS

• Leader in personal navigation devices (PNDs), with 55% market share in North America and 20% share in Europe (#2 behind TomTom). Industry shipments have slowed sharply after growing 100% in the U.S. and 40% in Europe earlier this year.

• Deals with auto makers and car rental firms have boosted Garmin’s market presence. The company has deals with Ford, Honda, and Volvo, as well as National Car Rental and Alamo Car Rental.

• Acquisitions of European distributors have doubled Garmin’s European share since early 2007.

• Planned nüvifone launch in 2009. The nüvifone is a mobile device that seeks to integrate the navigation and communication experience.

• Leading-edge proprietary technology, protected by more than 330 U.S. patents and 190 U.S. patent applications pending; and more than 40 foreign patents and 32 foreign patent applications pending.

• Units, revenue, and EBIT up 55%, 25% and 5%, respectively, YTD. Growth continues to be driven primarily by the auto/mobile and outdoor/fitness segments, while the marine segment has lagged.

• Guiding for 2008 revenue of $3.6 billion (+13%), down from prior guidance of $3.9 billion (+23%), with EPS of $3.78 (excluding forex translation).

• Repurchased $625 million of stock YTD. • Shares trade at .8x EV to trailing revenue, 4x

trailing P/E and 6x forward P/E.

INVESTMENT RISKS & CONCERNS • ASP declines have approximated 25% recently

and are expected to do so through yearend 2008. Offsetting the declines are unit volume increases, component cost reductions, and greater efficiency. Inflation could make lower costs tough to sustain.

• Marine and aviation segments have slowed due to higher fuel prices and economic weakness.

• $8 billion Nokia acquisition of Navteq, which supplies digital map data for vehicle navigation and location-based services to Garmin under a deal that runs through 2019. Garmin renewed the Navteq deal in late 2007 and abandoned a proposal to buy Navteq competitor Tele Atlas. Nokia competes with Garmin, calling into question the long-term viability of Garmin’s Navteq partnership.

• €3 billion TomTom acquisition of Tele Atlas. Top Garmin competitor TomTom took control of Tele Atlas in June 2008. This deal puts both major providers of digital map data—Navteq and Tele Atlas—into the hands of Garmin competitors.

• Dependence on Global Positioning System (GPS). GPS is a satellite-based navigation and positioning system consisting of a constellation of orbiting satellites operated by the U.S. Department of Defense. The DoD does not currently charge for access to the satellite signals, but it is conceivable the government could decide to do so in the future.

COMPARABLE PUBLIC COMPANY ANALYSIS1

Market Value ($mn)

EV ($mn)

EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

NOK 45,840 42,790 .7x 9.4x 11x 9x RIMM 27,460 25,790 2.7x 6.6x n/a n/a MOT 8,770 5,980 .2x 1.3x n/m 18x TOM2.AS €472 €1,700 1.1x n/m n/a n/a GRMN 3,480 2,940 .8x 1.8x 5x 6x

1 TomTom and privately-held Magellan, Mio, Navigon are closest comps. MAJOR HOLDERS CEO Min Kao 20% │ Other insiders 26% │ Cap World 4% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Garmin is the worldwide leader in personal navigation devices, ahead of Dutch provider TomTom, which has a leveraged balance sheet and is struggling. Garmin continues to grow revenue, and while unit growth has slowed, the market for personal navigation devices continues to benefit from consumer adoption. Profits have stagnated due to rapid ASP erosion; however, price declines appear likely to moderate, enabling the company to continue reasonably strong performance even in a weak economic environment. We believe the stock has been “orphaned” as momentum investors have fled. We value Garmin at $31-50 per share, based on a range of 10x estimated 2009 earnings to 8x estimated normalized EBIT.


…additional insight into GRMN: WHAT ARE THE SHARES WORTH?

• We value Garmin at $31-50 per share, based on the valuation analysis summarized below. The wide range of fair value reflects (1) the difficulty of balancing the potential earnings impact of the current slowdown and the continued positive long-term growth outlook for personal navigation devices; and (2) the virtually impossible task of predicting the multiple of earnings Garmin will deserve in the future. We reflect this dual challenge in fairly conservative assumptions.

Garmin — Valuation Summary


Low Value

High Value

Value of excess marketable assets:1 Cash and equivalents $522 $522 Marketable securities 18 18 Long-term marketable securities 309 309 Net cash and investments $849 $849 Cash needed to run business2 (200) (100) Total $649 $749 Value of core business: 2009 estimated EPS ex. interest income 2.80 Fair value multiple of 2009E adjusted EPS 10x Estimated EBIT power in 2-3 years 1,200 Fair value multiple of EBIT power 8x Total $5,824 $9,600 Estimated fair value of GRMN $6,473 $10,349 per share $31 $50

1 Based on balance sheet values as of September 27, 2008. 2 Represents MOI estimate. Source: Company filings, The Manual of Ideas estimates and analysis. WHY THE SHARES MAY BE MISPRICED

• Turnover in “style” of shareholder base. While only a year ago Garmin was a favorite “momentum stock,” it now attracts investors who are both comfortable with a projected earnings decline and willing to own a business experiencing rapid technological change. In other words, the shares may not have found a natural “home” yet, but we believe they are now moving into the sweetspot of “magic formula” and low P/E investors.

SHIPMENT VOLUME AND ASP TRENDS • Unit shipments grew 128% in 2007 on a 21%

decline in ASPs. Unit growth slowed to 55% in the first nine months of 2008, while ASPs eroded 20%.

Garmin—Unit Shipments and ASPs, 2000-08 YTD

0mn units2mn units4mn units6mn units8mn units

10mn units12mn units14mn units

00 01 02 03 04 05 06 07 ytd$0 per unit

$100 per unit

$200 per unit

$300 per unit

$400 per unit

Unit Shipments Revenue per Unit

Note: YTD data is for the nine months ended September 30, 2008. Source: Company, The Manual of Ideas. Garmin—Unit Growth and ASP Changes, 2001-08 YTD

0%20%40%60%80%

100%120%140%

01 02 03 04 05 06 07 ytd-30%

-20%-10%

0%

10%20%

30%

Unit Grow th (left axis) ASP Change (right axis)

Note: YTD data is for the nine months ended September 30, 2008. Source: Company, The Manual of Ideas.


GARMIN-ASUS MOBILE PHONE ALLIANCE Notes from announcement and conference call, February 4:

• Garmin and ASUSTeK Computer (TAIEX: 2357) teamed up to design, manufacture and distribute co-branded location-centric mobile phones. The form is a contractual alliance with profit sharing, not an independent corporate entity.

• Garmin brings navigation expertise to the alliance, while ASUS provides smartphone design and development. ASUS, which generated $8 billion of revenue in 2008, provides PC components as well as complete solutions, including notebooks, desktops, smart phones, and PDAs.

• The companies have already begun joint development of mobile phones, to be branded Garmin-Asus nüvifone. Garmin expects to bring to market Garmin-Asus nüvifone models in 2009. The original Garmin nüvifone, announced in 2008, will be re-branded as the Garmin-Asus nüvifone G60. This phone is expected to be delivered in 1H09.

• Garmin-Asus nüvifones will be location-based services (LBS)-centric devices. They are expected to offer the same turn-by-turn, voice-prompted navigation of high-end Garmin portable navigation devices (PND). Whether this will cannibalize PND sales remains to be seen. It appears likely that each nüvifone will contribute less gross profit to Garmin than does each PND unit.

Market Opportunity for “Smart” Phones

• North America: An estimated 20 million integrated-GPS smart phones shipped in 2008. The number is expected to rise to an annualized rate of 57 million units within three years (amounting to 85% of all mobile phones expected to be shipped annually in North America within three years).1

• EMEA: An estimated 32 million integrated-GPS smart phones shipped in 2008. The number is expected to rise to 54 million in 2009.1

• Global handset shipments are expected to drop 4-5% in 2009, but GPS-enabled phone shipments are expected to rise 6% to 240 million units.2

• Smart phone shipments in North America and Western Europe are projected to grow from 88 million in 2009 to 125 million in 2011.3

Smart Phone Shipments By Region, 2008-20113

(units in millions) 2008 2009 2010 2011 CAGR ’08-‘11

North America 37 46 56 66 21% Latin America 6 8 9 11 20% Western Europe 36 42 50 59 18% Eastern Europe 12 14 17 22 21% Asia Pacific 59 64 78 93 17% M.E., Africa 12 15 18 24 n/m Total 162 188 228 274 19% Growth 32% 16% 21% 20%

1 Canalys, “Mobile Navigation Analysis Worldwide,” December 2008. 2 ABI Research, “GPS-enabled Handsets,” January 2009. 3 Oppenheimer & Co., “2009 Handset Forecast,” November 23 2008.

GARMIN VERSUS TOMTOM – PND UNIT SHIPMENTS 2004 2005 2006 2007 2008 PND unit sales (mn): Garmin 2.3 3.0 5.4 12.3 n/a TomTom 0.2 1.7 4.7 9.6 ~12.0 Relative market shares: Garmin 90% 64% 54% 56% n/a TomTom 10% 36% 46% 44% n/a

Source: Garmin, TomTom, The Manual of Ideas. TOP COMPETITOR TOMTOM – SNAPSHOT

• TomTom is #1 PND supplier in Europe (46% market share in 4Q08) and #2 globally. It derives more than three-quarters of revenue from Europe, with the rest primarily from North America (24% market share). TomTom was founded in 1991, went public in 2005, and has ~3,500 employees today.

• 2002-07: revenue up from €8 million to €1.7 billion, net income up from €1 million to €317 million.

• Lowered 2008 revenue and EBITDA margin guidance in January, from €1.80 billion to €1.67 billion and from 20-24% to 19-20%, respectively.

• Guiding for 2008 PND market size of 17 million units in Europe and 17 million units in North America, down from TomTom’s previous market guidance for 18 million units in each market (which had been reduced from 20 million in each market). TomTom expects to comprise 12 million of the estimated 34 million units sold globally.

• Acquired mapping firm Tele Atlas for €3 billion in August 2008, creating a strategic challenge for Garmin, which relies on mapping data provided by Navteq (acquired by Nokia for $8 billion).

• Cut 7% of non-Tele Atlas workforce, or 115 people, in January. Cost cutting measures at Tele Atlas are expected to save €35 million per year.

• Weak balance sheet, with negative tangible book. TomTom reduced net debt from €1.32 billion at the end of 3Q08 to €1.11 billion at the end of 4Q08. The company is in compliance with debt covenants.

TomTom Stock Performance Since IPO (Amsterdam Stock Exchange: TOM2.AS)

€ 0€ 10€ 20€ 30€ 40€ 50€ 60€ 70€ 80

May-05 Apr-06 Mar-07 Feb-08 Jan-09

Source: TomTom, The Manual of Ideas.

CONFERENCE CALL ALERT: TomTom Q4 2008 Earnings February 24, 2009 Webcast: http://investors.tomtom.com


MANAGEMENT’S VIEW OF BUSINESS Notes from 3Q08 earnings call on October 29:

• Business environment: “the reason we had to drop our numbers from our earlier guidance was October; we definitely saw a slowdown;” in PND market, Europe has slowed “more dramatically” than U.S.; PND remains “hot category— it will still be one of the pushes for the holiday season when you look at shelf space and number of SKUs;” “very strong promotional emphasis for PNDs for the holidays”

• Q3 review: 19% revenue growth on 43% shipment growth and 17% ASP decline; “solid” growth in automotive and outdoor fitness; gross margin eroded 260 bps y-y, but “exceeded our earlier expectations as ASP declines moderated and price reductions were largely offset by lower product cost;” gross margin eroded 150 bps sequentially but would have been “nearly flat” excluding currency; EPS down 2% assuming constant currency rates

• Q3 review—automotive and mobile: 21% revenue growth, driven by “strong” unit growth and “moderating” price declines; Garmin has top three PNDs and seven of top ten PNDs in the U.S.

• Q3 review—outdoor fitness: 35% revenue growth, helped by market share gains

• Q3 review—aviation: +9%, “as shipments to OEM offset weakness in portable and retrofit markets”

• Q3 review—marine: 8% revenue decline, as higher fuel prices have weakened marine industry; gaining share in OEM and dealer-installed markets

• Q3 review—by geography: 29% North American revenue growth, 9% European revenue growth, 21% Asian revenue decline; Asia down due to “timing of several sales programs… we do continue to expect healthy double-digit growth in our APAC markets”

• 2008 guidance: revised down – “some markets are slowing,” “weaker international currencies add additional pressure on our revenues and margins;” expect revenue of $3.6 billion (+13%), 24% EBIT margin and EPS of $3.78 (flat y-y) including gain on TeleAtlas shares (based on 19% tax rate)

• 2009 outlook: market will be “different, with higher penetration rates as we go into the year, but still unit growth and less ASP decline;” ASP may erode less due to (1) already low prices and (2) already thin margins realized by competitors, leaving limited room for price cuts; U.S. PND unit growth: “not prepared to give 2009 guidance, but… do not see any reason why we shouldn’t see at least 20% unit growth;” PND margin may see “slight reduction… should still see [PND] margins of about 30%”

• ASP dynamics: -17% in Q3; ASP stable or up y-y in outdoor fitness, aviation and marine; PND ASP decline continues “in line with our earlier forecast”

• Inventory: to fall $150 million in Q4; at Q3-end, inventory was “more lean as retailers look to reduce their… exposure and delay cash expenditures”

• nüvifone: on track for 1H09 launch; signed deals “with some key carriers” (including carrier subsidies); breadth and depth of LBS capabilities are “superior to any other device on the market;” expects to be competitive versus Apple and RIM in features and pricing; gross margin should be 30-35%; one million units shipped in first twelve months after release would be “acceptable”

• PND market size and growth: U.S. and Europe are 20 million units each, with 60% growth in North America and 20% in Europe; while growth is down, “the PND market is still growing at a healthy pace in comparison to other categories;” at Q3-end, North American penetration is in mid teens while Europe is above 20%; mix of new to replacement sales is 80%/20% (replacement sales expected to increase as market matures); average life of PND device is 3-5 years (likely to come down with price)

• Garmin PND market share: grew to 54% in North America and >20% in Europe in Q3

• Share repurchases: bought back 14.7 million shares for $624 million YTD; authorized additional $300 million on October 29

• Miscellaneous: employs 1,700+ engineers globally

CONFERENCE CALL ALERT: Garmin Q4 2008 Earnings February 25, 2009, 11am ET Phone: 706-643-9558 Webcast: www.garmin.com


MEMC Electronic Materials (NYSE: WFR) St. Peters, MO, 636-474-5000

Technology: Semiconductors, Member of S&P 500 http://www.memc.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 687 781 1,028 1,107 1,541 1,922 2,005 2,005 536 426 Gross profit 174 233 370 367 689 1,001 1,005 1,005 294 193 EBIT 65 143 199 257 558 850 858 858 255 169 Net income (22) 117 226 249 369 826 390 390 376 73 Diluted EPS (0.17) 0.53 1.02 1.10 1.61 3.56 1.71 1.71 1.62 0.33 Cash from ops 76 99 258 321 528 917 641 641 239 123 Capex 22 67 146 163 148 276 303 303 103 61 Free cash flow 54 31 112 158 379 641 337 337 135 62 Cash & investments 166 131 92 154 586 1,316 1,137 1,137 1,316 1,137 Total current assets 364 365 409 436 900 1,590 1,459 1,459 1,590 1,459 Intangible assets 4 0 0 0 0 0 0 0 0 0 Total assets 632 727 1,028 1,148 1,766 2,887 2,940 2,940 2,887 2,940 Short-term debt 124 72 43 18 5 5 6 6 5 6 Total current liabilities 286 244 254 225 258 444 473 473 444 473 Long-term debt 161 59 116 35 29 26 26 26 26 26 Total liabilities 656 533 585 437 599 852 855 855 852 855 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity (25) 194 443 711 1,167 2,035 2,085 2,085 2,035 2,085 EBIT/capital employed 29% 52% 45% 46% 90% >100% >100% >100% n/m n/m



$20

$40

$60

$80

$100

$120


BUSINESS OVERVIEW MEMC provides silicon wafers for semiconductor and solar applications. It has global R&D and manufacturing facilities. Customers include semi device and solar cell makers. MEMC sells wafers from 100-300mm and intermediate products such as polysilicon and silane gas. The company has 200+ U.S. and 450+ foreign patents. Samsung and Yingli Green Energy each accounted for 10%+ of revenue in 2007. Texas Pacific Group acquired the company from E.ON in 2001 and sold its stake in several transactions through 2007. SELECTED OPERATING DATA

FYE December 31 2005 2006 2007 2008 Change in wafer ASPs -3% 10% -41% n/a % of revenue by product type: Wafers 90% 81% 78% n/a Excess polysilicon raw material 10% 19% 22% n/a % of revenue by geography: U.S. 31% 34% 24% n/a China 3% 14% 21% n/a Korea 17% 12% 16% n/a Taiwan 20% 18% 17% n/a Other 29% 22% 22% n/a


• 18% CAGR in silicon wafer shipments from 1990-2007, driven by growth in semiconductor units and solar megawatts. The wafer market is expected to grow from $10 billion (80/20 semi/solar split) in 2005 to $32 billion (45/55) in 2010. Semi devices and solar cells are made from wafers.

• Capital-intensive business. MEMC operates several production facilities with 8,000MT of targeted annual polysilicon capacity. Net PP&E was $976 million as of September 30. Capex was $276 million in 2007 and $303 million in 2008.

• Wafer volume drives revenue growth, with volume increases driven by new wafers and higher shipments of existing wafers. Prices declined 41% in 2007 due to a mix shift, with new 156mm wafers depressing the average price, while existing wafers and intermediate products realized higher prices.

• Strong balance sheet, with $1.3 billion of net cash and investments as of September 30.

• Repurchased four million shares for $270 million since May 2007 on total authorization of $1 billion.


MAJOR HOLDERS Insiders <1% │ Fidelity 12% │ Cap Re 4% │ Greenlight 3% │ Gardner Lewis 2% │ Artisan 1% │ Principled 1%

INVESTMENT RISKS & CONCERNS • 1Q09 outlook: “End market weakness and low

order visibility across both semiconductor and solar applications continues… This environment is exacerbated by continued inventory reductions at semiconductor customers, the combination of which is resulting in a significant sequential reduction in semiconductor wafer demand which is, in turn, leading to the diversion of some polysilicon output from semiconductor to solar markets. This is having the effect of reducing pricing for polysilicon and wafers in the solar market.” 1Q09 revenue “could decline by as much as 50%” from 4Q08. “The reduced pricing and significantly lower factory utilization assumed in this view, the latter of which would result in significant underutilization charges, could result in gross margins declining” to ~20%.

• Q4 revenue of $426 million (down 21% y-y) missed previously lowered guidance of $475-525 million. Q4 gross margin was 45%, also below guidance and down from 55% in 4Q07.

• Nabeel Gareeb resigned as CEO last October after six years with MEMC. Former Cypress EVP Ahmad Chatila is set to become CEO on March 2.

• Unanticipated events can affect production. In 2Q08, a premature failure of a heat-exchanger at the Merano, Italy facility reduced polysilicon output by 5%, causing 2Q08 results to miss guidance.

• Competitors include Shin-Etsu Handotai, SUMCO, Siltronic, BP Solar, Evergreen Solar, Kyocera, REC Group, Sanyo, Sharp, and SolarWorld.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

FSLR 11,710 11,150 11.0x 8.7x 37x 21x BRCM 8,850 6,950 1.5x 3.9x 60x 25x MRVL 5,020 4,200 1.3x 3.4x 11x 46x SPWRA 3,000 3,220 2.2x 3.8x 14x 10x STP 1,460 2,710 1.4x 1.6x 11x 14x WFR 3,620 2,520 1.3x 1.7x 20x 10x


THE BOTTOM LINE MEMC is a technology company tapping into long-term semiconductor industry growth and global adoption of solar cells. Shares have declined as the outlook for semi cap equipment makers has deteriorated and management has slashed guidance (the CEO resigned in late October). We believe momentum-oriented investors have overreacted to the slowdown in growth. While semi cap equipment is highly cyclical, solar represents a secular growth opportunity, one the market is ignoring. The shares are too cheap to ignore on a normalized earnings basis, in our view.


KBR (NYSE: KBR) Houston, TX, 713-753-3011

Capital Goods: Construction Services, Member of S&P MidCap 400 http://www.kbr.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 9/30/08 9/30/07 9/30/08 Revenue 4,795 5,125 8,863 11,906 9,291 8,805 8,745 10,584 2,177 3,018 Gross profit 64 (93) 14 (265) 433 372 520 766 167 199 EBIT 26 (182) (64) (357) 385 152 294 470 102 144 Net income (8) (92) (133) (303) 240 168 302 302 63 85 Diluted EPS (0.13) (0.94) (1.04) (2.31) 1.36 0.39 1.08 1.58 0.35 0.44 Cash from ops 0 n/a (899) (61) 527 931 248 77 (222) 285 Capex 0 n/a 63 74 76 57 43 38 9 11 Free cash flow 0 n/a (962) (135) 451 874 205 39 (231) 274 Cash & investments n/a n/a n/a 234 394 1,410 1,861 1,110 1,795 1,110 Total current assets n/a n/a n/a 3,732 3,510 3,898 4,056 3,659 4,020 3,659 Intangible assets n/a n/a n/a 288 285 251 251 753 251 753 Total assets n/a n/a n/a 5,487 5,182 5,414 5,203 5,323 5,177 5,323 Short-term debt n/a n/a n/a 18 16 0 0 0 0 0 Total current liabilities n/a n/a n/a 2,967 2,566 2,983 2,623 2,630 2,609 2,630 Long-term debt n/a n/a n/a 42 792 0 0 0 0 0 Total liabilities n/a n/a n/a 4,675 3,926 3,620 2,936 3,046 3,058 3,046 Preferred stock n/a n/a n/a 0 0 0 0 0 0 0 Common equity n/a n/a n/a 812 1,256 1,794 2,267 2,277 2,119 2,277 EBIT/capital employed n/a n/a n/a -35% 38% 42% n/m >100% n/m n/m



$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50


BUSINESS OVERVIEW KBR is an engineering, construction and services company supporting the energy, petrochemicals, government, and civil infrastructure sectors. It operates in four segments, with few projects typically accounting for a large portion of revenue. Government and Infrastructure (G&I) supports the military mission cycle. In civil infrastructure, it operates in waste and water treatment, transportation, and facilities maintenance, providing program management and other services. Upstream constructs energy and petrochemical projects, including technically complex projects in remote locations. Expertise includes LNG and GTL gas monetization facilities, refineries, oil and gas production facilities, and pipelines. Services provides construction and industrial services. Other includes Downstream, Technology, and Ventures. Halliburton (NYSE: HAL) sold stock in KBR for $17 per share in an IPO in November 2006, and divested its entire stake in April 2007. KBR sold its 51% interest in European naval dockyard DML for $345 million in June 2007. SELECTED OPERATING DATA

FYE December 31

2005

2006

2007

YTD 9/30/08

Revenue growth -17% -5% -1% 29% % of revenue by segment: G&I1 79% 74% 70% 63% Upstream 12% 19% 22% 23% Services 3% 4% 4% 9% Other 6% 3% 5% 5% EBIT margin by segment: G&I1 4% 5% 5% 5% Upstream 9% 2% 10% 11% Services 14% 14% 17% 7% Other 22% -12% 4% 12% Unallocated -3% -3% -2% -2% Total EBIT margin 3% 2% 4% 5% % of revenue by geography: U.S. 14% 15% 11% n/a Iraq and Kuwait 59% 52% 50% n/a Other 28% 33% 39% n/a % of G&I revenue by sub-segment: U.S. Gov’t – Middle East 81% 81% 78% 79% U.S. Gov’t – Americas 14% 13% 12% 9% International operations 5% 6% 10% 12% % of upstream revenue by sub-segment: Gas monetization 34% 60% 74% 78% Offshore 47% 23% 18% 18% Other 19% 18% 8% 4%

1 Government and infrastructure. INVESTMENT HIGHLIGHTS

• “Go to” contractor for U.S. government, other large buyers of engineering and construction services. KBR has proven expertise in executing large-scale projects in far-flung places.

• Q3-end backlog of $15 billion, up 27% y-y, provides several quarters of visibility.

• $550 million BE&K acquisition grows Services. The July deal re-establishes KBR as a domestic contractor and maintenance services provider. The integration is “going extremely well,” with “strong contributions” in new awards and financial results.

• Management has expressed optimism in KBR’s ability to execute and deliver positive results.

• CEO Bill Utt (51) joined KBR in 2006 after six years as CEO of SUEZ Energy N.A. CFO Kevin DeNicola joined KBR in June 2008 from Lyondell Chemical, where spent six years as CFO.



• 50% of revenue from Iraq and Kuwait in 2007. The rate of spending in those regions has decreased already, partly due to a new competitively bid, multiple service provider LogCAP IV contract, which replaced the previous LogCAP III contract.

• U.S. government was 62% of revenue in 2007. U.S. agencies may alter their contract award criteria. KBR may be suspended or barred from contracting with U.S. agencies due to potential consequences of ongoing investigations into the company’s conduct.

• Dependent on capex by oil and gas companies in Upstream, Services, and Other business units.

• Formal SEC investigation and DOJ criminal investigation into “improper payments” that may have been made to government officials in Nigeria.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

FLR 7,630 5,560 .3x 2.8x 12x 11x JEC 4,970 4,220 .4x 3.5x 11x 11x SAI 4,050 4,360 .4x 6.6x 18x 16x URS 2,880 3,820 .4x n/m 13x 12x KBR 2,420 1,310 .1x 1.6x 9x 9x

MAJOR HOLDERS CEO Utt <1% │ Other insiders <1% │ Capital World 12% │ Barclays 4% │ Neuberger 3% │ D.E. Shaw 3% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE KBR has benefited hugely from the U.S. presence in Iraq, with 50% of 2007 revenue derived from Iraq and Kuwait. As a result, it is impossible to predict a reasonable EPS range over the next few years. A sharp drop in revenue from Iraq could have a disproportionate impact on earnings. The current valuation does not adequately compensate for this risk.


Mesabi Trust (NYSE: MSB) New York, NY, 615-835-2749

Financial: Misc. Financial Services


Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA n/a Insider ownership: 1% Next 2 Yrs n/a n/a n/a EV / LTM EBIT 2.3x Insider buys (last six months): 3 LT EPS growth n/a n/a n/a P / tangible book n/m Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 35% Date Actual Estimate LTM EBIT yield 43% # of institutional owners: 55 n/a n/a n/a LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 1/31/02 1/31/03 1/31/04 1/31/05 1/31/06 1/31/07 1/31/08 10/31/08 10/31/07 10/31/08 Revenue 4 5 7 14 22 18 19 38 7 12 Gross profit 0 0 0 0 0 0 0 0 0 0 EBIT 4 5 7 13 21 17 18 38 7 12 Net income 4 5 7 13 21 17 18 38 7 12 Diluted EPS 0.28 0.36 0.52 0.99 1.58 1.31 1.39 2.87 0.50 0.89 Cash from ops 4 5 7 10 20 21 18 38 6 17 Capex 0 0 0 0 0 0 0 0 0 0 Free cash flow 4 5 7 10 20 21 18 38 6 17 Cash & investments 1 3 0 4 6 4 7 17 7 17 Total current assets 0 0 0 0 0 0 0 0 0 0 Intangible assets 0 0 0 0 0 0 0 0 0 0 Total assets 2 4 5 8 11 5 9 19 9 19 Short-term debt 0 0 0 0 0 0 0 0 0 0 Total current liabilities 0 0 0 0 0 0 0 0 0 0 Long-term debt 0 0 0 0 0 0 0 0 0 0 Total liabilities 2 4 5 8 11 5 9 19 9 19 Preferred stock 0 0 0 0 0 0 0 0 0 0 Common equity 0 0 0 0 0 0 0 0 0 0 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m n/m n/m n/m



$5

$10

$15

$20

$25

$30

$35


BUSINESS OVERVIEW Mesabi, formed in 1961, derives leasehold royalty income from outsourced iron ore mining. The trust has interests in leases and the Mesabi Land Trust. Trustee activities are limited to collecting income, paying expenses, distributing income to unitholders, and protecting the assets held. The trust has no employees but engages consultants to monitor the amount and sale price of iron ore products shipped from Silver Bay, Minnesota, based on information provided by CCI/Northshore (NYSE: CLF), the lessee/ operator of the Mesabi lands. Royalties payable to the trust by CCI are based on the amount and price of iron ore shipped. The trust is organized as a pass-through vehicle for income tax purposes. The trust is likely to terminate in several decades based on a formula specified in the trust agreement. SELECTED OPERATING DATA

FYE January 31 2006 2007 2008 YTD

10/31/08 Selected growth rates: Revenue 59% -17% 5% 151% Net income per unit 60% -17% 6% 156% Distributions per unit 99% 5% -16% 184% % of revenue by type: Royalties – amended leases 98% 97% 97% 100% Royalties – Peters Lease 2% 2% 3% 0% Trust expenses / revenue 4% 4% 3% 2% Net income / revenue 96% 96% 97% 98% Distributions / net income 97% 122% 97% 73%


• Royalty income and distributions to unitholders driven by (1) shipment volume of iron ore pellets, (2) pricing of iron ore sales, and (3) the percentage of iron ore pellet shipments from Mesabi Trust lands rather than from other Northshore lands.

• Shipment volume of iron ore pellets varies based on customer delivery schedules, iron ore industry conditions, and weather on the Great Lakes.

• Prices under contracts between CCI and its customers are subject to adjustment based on multiple price and inflation index factors.

• Majority of income derived from base overriding royalties, which roughly range from 2.5% of gross proceeds for the first one million tons of iron ore shipped annually, to 6% of gross proceeds for shipments in excess of 4 million tons.

• Other income sources are royalty bonuses, fee royalties, and minimum advance royalties. Bonuses are earned when iron ore is sold at prices above a threshold price. Fee royalties are relatively minor and relate to the Peters Lease. Minimum advance royalties are payable regardless of volume.

• Mesabi is overseen by four trustees: an SVP of corporate trust services at U.S. Bank, a mining geologist, a lawyer, and a private investor.

• Distributes income to shareholders on quarterly basis, driven by iron ore royalties received.

• Shares trade at 3x trailing earnings (no EPS estimates available).


• “Significantly lower shipments of iron ore pellets” in 4Q08. Prices realized were up 40% y-y in 4Q08. However, shipments of iron ore pellets fell 82% to 238,240 gross tons in 4Q08.

• Does not operate iron ore mines and has little control over CCI’s activities. Northshore has power to decide capex and production levels. The trust relies on data provided by CCI in order to determine royalties in any given period.

• CCI decides portion of operations on Mesabi lands versus government or other lands. If CCI opted to produce more on lands other than Mesabi lands, royalties would likely decrease. In CY07, 88% of CCI’s Northshore production was on Mesabi lands, down from 91% in CY06.

• CCI derives 80%+ of North American iron ore revenue from five customers. In some cases, CCI is the sole supplier of iron ore pellets to its customers. As sales volume depends on customer requirements, it can fluctuate wildly.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

BHP 119,320 121,850 1.9x 3.1x 15x 15x RIO 84,980 98,640 2.6x 2.2x 6x 9x RTP 41,370 79,950 1.5x 725.8x 4x 6x CLF 3,150 3,190 .9x 2.0x 5x 7x MSB 100 80 2.1x n/m n/a n/a

MAJOR HOLDERS Insiders <1% │ Hodges 4% │ Skylands 2% │ Tontine <1% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? n/a FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Mesabi Trust is a limited-purpose pass-through vehicle with an economic interest in iron ore mining operations. The trust has no employees and is a passive recipient of royalty income driven by iron ore prices and volumes shipped by Cleveland-Cliffs (NYSE: CLF), the lessee/operator of the Mesabi lands. The trust distributes virtually all income, providing unitholders with an attractive current yield. However, given Mesabi’s unmitigated exposure to iron ore prices and third party-run operations, an investment should only be considered by investors with a favorable outlook regarding iron ore prices.


Net 1 UEPS Technologies (Nasdaq: UEPS) Johannesburg, South Africa, 27-11-343-2000

Technology: Computer Services http://www.net1ueps.co.za

Trading Data Consensus EPS Estimates Valuation Price: $15.32 (as of 2/13/09) Month # of P/E FYE 6/30/08 10.2x 52-week range: $8.21 - $30.20 Latest Ago Ests P/E FYE 6/30/09 7.6x Market value: $853 million This quarter $0.46 $0.45 2 P/E FYE 6/30/10 6.6x Enterprise value: $732 million Next quarter 0.49 0.46 2 P/E FYE 6/30/11 n/a Shares out: 55.7 million FYE 6/30/09 2.02 1.90 3 EV / LTM revenue 2.9x

Ownership Data FYE 6/30/10 2.32 2.12 3 EV / LTM EBITDA 6.1x Insider ownership: 12% FYE 6/30/11 n/a n/a n/a EV / LTM EBIT 6.9x Insider buys (last six months): 0 LT EPS growth 18.0% 18.0% 1 P / tangible book 6.8x Insider sales (last six months): 2 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 65% Date Actual Estimate LTM EBIT yield 15% # of institutional owners: 316 2/5/09 $0.44 $0.46 LTM pre-tax ROC >100%


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 6/30/02 6/30/03 6/30/04 6/30/05 6/30/06 6/30/07 6/30/08 12/31/08 12/31/07 12/31/08 Revenue 52 75 131 176 196 224 254 255 69 61 Gross profit 38 49 92 126 146 170 187 186 48 44 EBIT 13 19 36 71 90 97 110 106 28 23 Net income 9 13 13 45 59 64 87 102 20 28 Diluted EPS 0.27 0.37 0.38 0.80 1.03 1.11 1.50 1.79 0.35 0.49 Cash from ops 12 18 42 38 76 66 119 107 (16) 46 Capex 2 7 3 3 2 4 4 6 1 1 Free cash flow 10 11 39 35 74 62 115 101 (17) 45 Cash & investments n/a 54 80 108 190 172 273 125 201 125 Total current assets n/a 79 117 151 241 248 346 222 296 222 Intangible assets n/a 12 26 23 20 118 99 186 118 186 Total assets n/a 98 153 182 270 376 454 418 424 418 Short-term debt n/a 0 0 0 0 0 0 0 0 0 Total current liabilities n/a 20 48 34 43 55 77 65 50 65 Long-term debt n/a 0 0 0 0 4 4 4 4 4 Total liabilities n/a 28 57 45 61 95 114 106 95 106 Preferred stock n/a 0 0 0 0 0 0 0 0 0 Common equity n/a 71 96 137 209 281 340 312 329 312 EBIT/capital employed n/a >100% >100% >100% >100% >100% >100% >100% n/m n/m


Jan 09Jan 08Jan 07Jan 06Jan 05Dec 03Dec 02Dec 01Dec 00Jan 00$0

$10

$20

$30

$40

$50

$60

$70


BUSINESS OVERVIEW Net 1 provides a proprietary universal electronic payment system (UEPS) to the underbanked in developing economies. It operates in four segments, primarily in South Africa: The transaction-based activities segment earns fee income from a state welfare distribution service in South Africa, and transaction processing for retailers, utilities and banks. The smart card accounts segment derives revenue from a fixed monthly fee for the provision of smart card accounts. The financial services segment provides short-term loans on a principal basis and life insurance on an agency basis. It generates interest income and initiation and services fees. The hardware, software and technology segment derives revenue from sales of hardware, SIM cards, cryptography, SIM card licenses, and hardware rentals to merchants. SELECTED OPERATING DATA

FYE June 30 2006 2007 2008 1H09 % of revenue by segment: Transaction processing 60% 62% 60% 57% Smart card accounts 18% 15% 14% 12% Financial services 8% 5% 3% 2% Technology sales 14% 17% 22% 29% Revenue growth by segment: Transaction processing 13% 19% 10% -6% Smart card accounts 4% -5% 4% -19% Financial services -20% -30% -27% -26% Technology sales 52% 47% 44% 37% Total revenue growth 11% 14% 13% 0% EBIT margin by segment: Transaction processing 52% 57% 55% 54% Smart card accounts 45% 45% 45% 45% Financial services 43% 30% 23% -39% Technology sales 63% 16% 21% 26% Corporate -6% -3% -2% -4% Total EBIT margin 46% 43% 43% 39% Total net income margin1 30% 28% 34% 42%

1 Includes foreign exchange gains and losses and other transitory items. INVESTMENT HIGHLIGHTS

• UEPS could enable four billion people with limited bank access to transact electronically. Four million out of 18 million unbanked South Africans receive welfare on Net 1 smart cards.

• UEPS uses smart cards that operate in real-time but offline, unlike prevalent systems that require immediate network access. UEPS users can transact in remote areas when a portable smart card reader is available. UEPS can also be used for banking, health care, money transfers, voting, and ID.

• CEO Serge Belamant (54) and CFO Herman Kotze (38) have been with the company or predecessors since 1989 and 2000, respectively.

• Selected by Central Bank of Ghana as country’s common electronic payment platform. Net 1 also provides a customized banking and payment system to a government-affiliated consortium in Iraq.

• Expanding into Namibia and Botswana through JVs that operate smart card-based systems; and into Colombia and Vietnam to operate virtual top-up solutions for mobile prepaid airtime vending.

• BGS acquisition accelerates entry into Russia. Net 1 acquired 80% of BGS for €72 million and 40K shares in August. BGS’ largest customer and 20%-owner is Sberbank, the largest bank in Russia.

• Guiding for 15% adjusted EPS growth in FY09. • Authorized $50 million buyback last November. • Shares trade at 2.9x EV to trailing revenue, 9x


• Two-thirds of revenue affected by recent South African tender. The South African Social Security Agency conducted a tender for the distribution of welfare grants. Net 1 filed proposals in May 2007. In November 2008, SASSA terminated the tender process without any awards. As a result, Net 1 retained contracts with five provincial governments through March 31, 2009 – and probably beyond. However, the long-term outcome remains unclear.


Price ($)

Market Value ($mn)

Price to Tangible

Book

This FY P/E

Next FY P/E

FY End Date

V 56.00 47,330 87.0x 21x 18x Sep-30 MA 161.90 20,920 16.9x 16x 13x Dec-31 DFS 7.00 3,370 .6x n/m 11x Nov-30 GPN 35.30 2,830 23.9x 16x 15x May-31 TSS 13.20 2,600 5.6x 10x 10x Dec-31 UEPS 15.30 853 6.8x 8x 7x Jun-30

MAJOR HOLDERS CEO Belamant 4% │ Other insiders 1% │ Brait S.A. 16% │ General Atlantic 11% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Net 1 has developed an electronic payment solution for the underbanked in developing countries. The company’s system addresses the needs of four billion people, an enormous addressable market. While Net 1 faces the long-term risk of losing government-related revenue in South Africa (two-thirds of revenue), a competitive bidding process was terminated in early November, with Net 1 retaining all contracts on existing terms. Revenue and earnings continue to grow despite global macro weakness. We value the company at $20-30 per share, based on a range of 10x trailing EBIT to 15x forward EPS.


Tempur-Pedic International (NYSE: TPX) Lexington, KY, 800-878-8889

Consumer Cyclical: Furniture & Fixtures http://www.tempurpedic.com




($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/08 12/31/07 12/31/08 Revenue 298 479 685 837 945 1,107 928 928 289 189 Gross profit 150 255 361 424 461 535 401 401 141 81 EBIT 40 83 146 186 199 244 134 134 68 25 Net income 17 38 75 99 112 142 59 59 40 1 Diluted EPS 2.14 0.39 0.73 0.97 1.28 1.74 0.79 0.78 0.52 0.01 Cash from ops 35 47 77 102 166 126 198 198 (4) 30 Capex 11 33 39 87 38 17 11 11 8 3 Free cash flow 24 14 38 15 128 109 187 187 (12) 27 Cash & investments 13 14 28 18 16 33 15 15 33 15 Total current assets 101 145 214 228 238 327 197 197 327 197 Intangible assets 250 289 277 274 269 267 259 259 267 259 Total assets 449 620 640 702 726 806 647 647 806 647 Short-term debt 14 11 9 31 20 0 0 0 0 0 Total current liabilities 70 91 99 121 132 127 115 115 127 115 Long-term debt 182 366 281 314 342 602 419 419 602 419 Total liabilities 297 498 426 476 512 758 574 574 758 574 Preferred stock 148 0 0 0 0 0 0 0 0 0 Common equity 3 123 214 226 213 48 72 72 48 72 EBIT/capital employed 33% 58% 73% 68% 62% 70% 43% 43% n/m n/m



$0

$5

$10

$15

$20

$25

$30

$35

$40


BUSINESS OVERVIEW Tempur-Pedic provides premium branded mattresses and pillows in two segments: Domestic consists of two U.S. factories and a distribution subsidiary. International consists of a factory in Denmark and distribution subs. SELECTED OPERATING DATA

FYE December 31 2005 2006 2007 2008 % of revenue by geography: Domestic 64% 66% 66% 62% International 36% 34% 34% 38% Revenue growth by geography: Domestic 25% 16% 17% -21% International 18% 8% 18% -6% Total revenue growth 22% 13% 17% -16% EBIT margin by geography: Domestic 18% 19% 19% n/a International 32% 29% 29% n/a Total EBIT margin 23% 22% 22% 14% Revenue growth by channel:1,2 Retail 31% 19% 21% -15% Direct 4% -17% -7% -40% Healthcare -2% -2% 12% -7% Third party -1% 12% 3% -7% Revenue growth by product:3 Mattresses 31% 15% 18% -18% Pillows -9% 0% 12% -17% Other 27% 16% 18% -9% U.S. door count4 n/a 6,050 6,350 n/a International door count5 n/a 4,450 4,990 n/a

1 Products are sold through four distribution channels in each geographic segment: retail (furniture, specialty, and department stores), direct (direct response and Internet), healthcare (chiropractors, medical retailers, hospitals), and third-party distributors in countries with no owned subsidiaries. 2 In 2007, the company derived 83% of revenue from the retail channel, 7% from direct, 5% from healthcare, and 5% from third-party distribution. 3 In 2007, the company derived 69% of revenue from mattresses, 13% from pillows, and 18% from other products (foundations, adjustable beds, etc.). 4 The company plans to increase door count to 7,000-8,000 "over time"; the total available market is estimated at 10,000 stores. 5 The company has identified 7,000 international stores as appropriate targets. INVESTMENT HIGHLIGHTS

• $13 billion global mattress market, with 22 million mattress unit sold in the U.S., and a similar number of mattresses sold outside the U.S., in 2007.1 In addition, domestic pillow sales were $1.1 billion, with roughly equivalent international sales.

• Leader in growing specialty mattress category, which comprises non-innerspring mattresses, including foam mattresses, airbeds, and waterbeds.

• Comfort and health advantages over standard bedding products. The company uses temperature-sensitive material that has a high density and conforms to the body to reduce neck and back pain. The company holds 70 U.S. and foreign patents.

1 Source: Tempur-Pedic, International Sleep Products Association (ISPA).

• Thomas Bryant (60) became CEO in 2006 after five years with Tempur-Pedic. He was previously CEO of Stairmaster. Other senior executives joined the company in the past two to five years.

• Commencing “most extensive new product launch” in company history, with new and upgraded products slated for launch globally.

• “Executed well” in 4Q08, cutting costs and improving the balance sheet by repatriating cash.

• Shares trade at 1x EV to trailing revenue, 10x trailing P/E and 10x forward P/E.


• Guiding for revenue decline of 15-17% and EPS to range from down 11% to up 14% in 2009, with estimated revenue of $770-790 million and EPS of $0.70-0.90, “assuming unit volumes will not improve from the Q4 rate coupled with a modest benefit from seasonality and price increases.”

• Net debt of $404 million at yearend 2008. The company has eliminated dividends and cut opex and working capital. It expects to “remain in compliance with the covenants in our credit facility.”

• Exposed to cost of chemicals and proprietary additives. While input prices have softened recently, a reversal would pressure margins.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

ETH 320 460 .5x 1.1x 17x 13x ZZ 110 870 .6x n/m 15x 4x SCSS 10 60 .1x .7x n/m n/m TPX 570 970 1.0x n/m 10x 9x

MAJOR HOLDERS CEO Bryant 1% │ Other insiders 2% │ Invesco 20% │ Fidelity 7% │ Kayne Anderson 6% │ Karsch 6% │ Friedman Fleischer 6% │ Munder 5% │ Franklin 5% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Tempur-Pedic is a wide-moat business with strong brand equity, pricing power, industry-leading cost structure, high returns on capital, and favorable long-term growth prospects. We believe investors underestimate the variability of the company’s cost structure and the company’s ability to service its debt in a difficult market environment. The discretionary nature of Tempur-Pedic’s high-ticket products makes the stock an easily conceptualized short. The high short interest could, however, result in explosive stock price upside once the market refocuses on the company’s significant normalized earnings power.


Versant (Nasdaq: VSNT) Fremont, CA, 510-789-1500

Technology: Software & Programming http://www.versant.com

Trading Data Consensus EPS Estimates Valuation Price: $16.49 (as of 2/13/09) Month # of P/E FYE 10/31/08 6.6x 52-week range: $11.35 - $33.48 Latest Ago Ests This FY Forward P/E n/a Market value: $62 million This quarter n/a n/a n/a Next FY P/E n/a Enterprise value: $35 million Next quarter n/a n/a n/a Next 2 Yrs FY P/E n/a Shares out: 3.8 million This FY n/a n/a n/a EV / LTM revenue 1.4x

Ownership Data Next FY n/a n/a n/a EV / LTM EBITDA 3.5x Insider ownership: 9% Next 2 Yrs n/a n/a n/a EV / LTM EBIT 3.5x Insider buys (last six months): 0 LT EPS growth n/a n/a n/a P / tangible book 2.4x Insider sales (last six months): 0 Latest Quarterly EPS Surprise Greenblatt Criteria Institutional ownership: 36% Date Actual Estimate LTM EBIT yield 29% # of institutional owners: 53 n/a n/a n/a LTM pre-tax ROC n/m


($ millions, except Fiscal Years Ended LTME FQE FQE per share data) 10/31/02 10/31/03 10/31/04 10/31/05 10/31/06 10/31/07 10/31/08 10/31/08 10/31/07 10/31/08 Revenue 20 22 18 16 17 21 25 25 6 6 Gross profit 14 14 14 12 14 19 23 23 5 6 EBIT (4) (3) (8) (16) 4 8 10 10 2 2 Net income (3) (2) (12) (15) 4 8 10 9 2 2 Diluted EPS (2.76) (1.75) (3.33) (4.23) 1.01 1.98 2.48 2.48 0.54 0.59 Cash from ops 1 (1) (7) 0 4 10 9 9 4 2 Capex 0 0 0 0 0 1 0 0 0 0 Free cash flow 1 (2) (7) 0 3 10 9 8 4 2 Cash & investments 4 3 3 4 8 19 27 27 19 27 Total current assets 10 8 10 7 12 22 30 30 22 30 Intangible assets 0 1 22 8 8 8 7 7 8 7 Total assets 12 11 33 16 20 31 39 39 31 39 Short-term debt 0 1 0 0 0 0 0 0 0 0 Total current liabilities 7 7 8 6 6 7 5 5 7 5 Long-term debt 0 0 0 0 0 0 0 0 0 0 Total liabilities 8 8 10 7 7 7 5 5 7 5 Preferred stock 5 8 0 0 0 0 0 0 0 0 Common equity (1) (5) 23 9 14 23 33 33 23 33 EBIT/capital employed n/m n/m n/m n/m n/m n/m n/m n/m n/m n/m



$0

$50

$100

$150

$200

$250


BUSINESS OVERVIEW Versant, founded in 1988, provides object-oriented data management software that companies use to solve complex data management and integration problems. The software is used in strategic distributed applications, including network modeling and management, fault diagnosis, fraud prevention, service activation and assurance, and customer billing and scheduling. Management is based in the U.S. and Germany, while R&D activities are conducted in Germany and India. The company targets the telecom, technology, defense, financial, transportation, and health care industries. It sells two types of perpetual licenses: Development licenses, sold on a per seat basis, authorize a customer to develop an application that uses Versant software. Deployment licenses permit a customer to deploy an application it has developed under a development license. End-users typically buy deployment licenses based on the number of CPUs. VARs and distributors purchase development licenses on a per seat basis. In exchange for royalties, VARs are authorized to sublicense deployment copies of Versant software. SELECTED OPERATING DATA

FYE October 31 2005 2006 2007

YTD 7/31/08

% of revenue by type: License 56% 51% 60% 64% Maintenance 40% 40% 39% 35% Prof. services 4% 9% 1% 1% Revenue growth by type: License -9% -4% 50% 32% Maintenance -7% 7% 22% 12% Prof. services -50% 153% -84% 7% Total growth -11% 6% 26% 24% Gross margin by type:1 License 97% 96% 99% 98% Maintenance 77% 79% 82% 84% Prof. services -42% 34% 54% 65% Total GM 83% 83% 92% 93% % of revenue by geography: North America 34% 37% 46% 32% Europe 64% 61% 50% 54% Asia 2% 3% 4% 14% ∆ in shares out2 14% 1% 3% 2%

1 Gross profit excludes intangibles amortization, which amounted to $237K in each of the nine months ended July 31, 2007 and July 31, 2008. 2 Represents y-y change in average diluted shares outstanding. INVESTMENT HIGHLIGHTS

• Object-oriented database management software has advantages over relational databases in meeting the data requirements of companies who use very large, changing bodies of complex data.

• Versant Object Database (VOD) cuts customers’ hardware costs and speeds development. VOD sales account for almost all license revenue. Versant also sells FastObjects software, added in 2004 via a merger with CEO Witte’s former company.

• Large recurring revenue stream, high switching costs. We estimate that two-thirds of revenue is of a recurring nature. Versant is deeply embedded into customer applications, making it difficult to switch.

• Highly capable Jochen Witte (47) became CEO in 2005. Previously, he headed Versant’s European operations and co-founded a firm that merged with Versant in 2004. Since taking the helm, Witte has cut costs and focused on the database business. Financial results have improved dramatically.

• Strong balance sheet; large NOLs. Versant had $27 million of net cash as of July 31. It had federal, state, and German NOLs of $80 million, $16 million, and $41 million as of October 31, 2007.

• Shares trade at 14% trailing FCF yield and 7x trailing P/E (no EPS estimates available).


• Impact of weak economy, dollar appreciation. According to CEO Witte, “achieving our future goals will become more challenging.”

• Competition from relational database companies including Oracle, CA, Sybase, IBM, and Microsoft. Versant also competes against object database firms such as Progress Software and Objectivity.

• Small but growing object-oriented database market. The $70 million market size limits the explosiveness of Versant’s growth potential.

• Low insider ownership—particularly noteworthy given Versant’s small market capitalization.


Market Value ($mn)


EV / Rev.

Price to T. Book

This FY P/E

Next FY P/E

ORCL 89,420 90,010 3.8x n/m 12x 11x CA 9,680 9,430 2.2x n/m 12x 11x BMC 5,480 4,830 2.6x n/m 13x 12x SY 2,320 2,160 1.9x 24.8x 13x 12x PRGS 690 570 1.1x 5.0x 9x 8x VSNT 60 30 1.2x 2.3x n/a n/a

MAJOR HOLDERS CEO Jochen Witte 2% │ Other insiders 2% │ RenTech 8% RATINGS VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year?

THE BOTTOM LINE Versant is a well-managed, growing company with strong niche products in the database software market. We do not expect the company’s growth to fall off a cliff in the foreseeable future. As a result, we view the shares as meaningfully undervalued at only 6x trailing EPS (even less on cash-adjusted basis).


Portfolios With “Signal Value” Revealing the Top Ideas of Top Investors

“Signal value” as opposed to “noise.” We present the

holdings of some of the world’s top investors. We look for

investors who have amassed impressive track records over

long periods of time. We choose these investors carefully

to avoid the noise inherent in most 13F-HR filings.

Top investors included in this section:

• William Ackman, Pershing Square

• Bruce Berkowitz, Fairholme

• Warren Buffett, Berkshire Hathaway

• Ian Cumming & Joe Steinberg, Leucadia

• David Einhorn, Greenlight

• Glenn Greenberg, Chieftain

• Brian Gaines, Springhouse

• Tom Gayner, Markel Gayner

• Mason Hawkins, Southeastern

• Chris Hohn, Children’s Investment Fund

• Carl Icahn, Icahn

• Seth Klarman, Baupost

• Eddie Lampert, RBS (ESL)

• Dan Loeb, Third Point

• Steve Mandel, Lone Pine

• Mohnish Pabrai, Pabrai Funds

• Rich Pzena, Pzena Investment

• Kenneth Shubin Stein, Spencer

• Prem Watsa, Fairfax

• Marty Whitman, Third Avenue

Missing your favorite Super Investor? Let us know at [email protected].

MOI Signal Rank answers the question, “What are this

investor’s top ten ideas right now?” Rather than simply

presenting each investor’s largest holdings as of the recently

filed quarter end, the MOI’s proprietary methodology ranks

the companies in each investor’s portfolio based on the

investor’s current level of conviction in each holding, as

judged by the MOI.

Our proprietary methodology takes into account

a number of variables, including the size of a position in an

investor’s portfolio, the size of a position relative to the

market value of the corresponding company, the most recent

quarterly change in the number of shares owned, and the

change in the stock price of a position since the most recent

quarterly filing date.

For example, an investor might have the most

conviction in a position that is only the tenth-largest

position in such investor’s portfolio. This might be the case

if an investor invests in a small company, resulting in a

holding that is simply too small to rank highly based on size

alone. On the other hand, such a holding might represent

19.9% of the shares outstanding of the subject company,

suggesting a high level of conviction. Our estimate of the

conviction level would rise further if the subject company

has a 20% poison-pill threshold, thereby suggesting that the

investor has bought as much of the subject company as is

practically feasible.


Bill Ackman, Pershing Square MOI Market Price ($) Shares Owned Holdings

Signal Value Latest Filing ∆ Since Latest ∆ Since as % of Rank Company Ticker ($mn) Date Date Filing Filing 9/30/08 Co. Fund

1 General Growth Properties GGP 171 0.55 1.29 -57% 22,901,194 new position 7% 1% 2 Visa V 25,114 55.95 52.45 7% 7,135,608 >+100% 2% 15% 3 Target TGT 22,644 30.08 34.53 -13% 26,754,804 +36% 4% 38% 4 Alexander’s ALX 889 174.97 254.90 -31% 8,205 new position 0% 0% 5 EMC EMC 24,611 12.06 10.47 15% 58,619,033 no change 3% 25% 6 Borders Group BGP 33 0.54 0.40 35% 10,597,880 no change 18% 0% 7 Greenlight Capital Re GLRE 392 13.05 12.99 0% 250,000 no change 1% 0% 8 Wendy's/Arby's Group WEN 2,490 5.30 4.94 7% 47,044,509 -15% 10% 10% 9 Sears Holdings SHLD 4,821 38.99 38.87 0% 302,936 -40% 0% 0%

10 Dr Pepper Snapple DPS 4,211 16.60 16.25 2% 10,824,220 -51% 4% 7%

Bruce Berkowitz, Fairholme MOI Market Price ($) Shares Owned Holdings


1 AmeriCredit ACF 689 5.23 7.64 -32% 32,307,322 +53% 25% 3% 2 Hertz Global Holdings HTZ 1,644 5.09 5.07 0% 34,200,829 >+100% 11% 2% 3 St Joe JOE 2,165 23.48 24.05 -2% 15,614,431 +42% 17% 5% 4 Spirit Aerosystems SPR 1,365 13.23 10.17 30% 15,693,989 >+100% 15% 2% 5 Forest Laboratories FRX 7,794 25.84 25.47 1% 20,437,332 +13% 7% 7% 6 WellPoint WLP 22,271 43.75 42.13 4% 12,016,057 +2% 2% 7% 7 Northrop Grumman NOC 15,440 47.19 45.04 5% 8,972,778 >+100% 3% 6% 8 Canadian Natural CNQ 18,664 34.50 39.98 -14% 10,699,795 +54% 2% 6% 9 Leucadia National LUK 3,647 15.66 19.80 -21% 17,968,944 +16% 8% 5%

Warren Buffett, Berkshire Hathaway MOI Market Price ($) Shares Owned Holdings


1 USG USG 701 7.07 8.04 -12% 43,387,981 >+100% 44% 0% 2 Burlington Northern BNI 22,401 66.04 75.71 -13% 76,777,029 +19% 22% 8% 3 American Express AXP 18,258 15.74 18.55 -15% 151,610,700 no change 13% 4% 4 Constellation Energy CEG 5,007 25.14 25.09 0% 19,897,322 new position 10% 1% 5 Nalco Holding NLC 1,613 11.72 11.54 2% 8,739,100 new position 6% 0% 6 Comdisco Holding CDCO 29 7.25 7.80 -7% 1,538,377 no change 38% 0% 7 Coca-Cola KO 101,449 43.85 45.27 -3% 200,000,000 no change 9% 13% 8 Wesco Financial WSC 2,122 298.00 287.90 4% 5,703,087 no change 80% 2% 9 Washington Post WPO 3,349 414.75 390.25 6% 1,727,765 no change 21% 1%

10 Moody’s MCO 5,612 23.87 20.09 19% 48,000,000 no change 20% 1%


Ian Cumming & Joe Steinberg, Leucadia MOI Market Price ($) Shares Owned Holdings


1 AmeriCredit ACF 689 5.23 7.64 -32% 32,715,440 no change 25% 26% 2 Capital Southwest CSWC 336 89.69 108.16 -17% 19,776 no change 1% 0% 3 Jefferies Group JEF 2,016 12.33 14.06 -12% 48,585,385 no change 30% 70% 4 Cresud CRESY 409 8.15 8.95 -9% 3,364,174 no change 7% 3% 5 International Assets IAAC 73 8.13 8.58 -5% 1,384,985 no change 15% 1%

David Einhorn, Greenlight MOI Market Price ($) Shares Owned Holdings


1 Allegheny Energy AYE 4,781 28.22 33.86 -17% 4,472,654 new position 3% 8% 2 CommScope CTV 993 14.11 15.54 -9% 7,000,000 new position 10% 5% 3 SPDR Gold Trust GLD 29,366 92.55 86.52 7% 3,695,090 new position 1% 16% 4 URS URS 2,876 34.44 40.77 -16% 4,652,833 +8% 6% 9% 5 Guaranty Financial Group GFG 110 1.01 2.61 -61% 8,317,242 >+100% 8% 1% 6 Fifth Street Finance FSC 157 6.93 7.55 -8% 2,259,492 +2% 10% 1% 7 Gold Miners ETF GDX 3,222 35.68 33.88 5% 3,200,000 new position 4% 5% 8 MI Developments MIM 342 7.40 7.46 -1% 5,387,535 no change 12% 2% 9 CF Industries CF 3,109 54.68 49.16 11% 1,812,938 new position 3% 4%

10 MEMC Electronic Materials WFR 3,616 16.11 14.28 13% 7,287,698 new position 3% 5%

Brian Gaines, Springhouse MOI Market Price ($) Shares Owned Holdings


1 ModusLink Global MLNK 102 2.24 2.89 -22% 1,210,013 new position 3% 6% 2 Coventry Health CVH 2,410 16.18 14.88 9% 237,927 new position 0% 7% 3 UnitedHealth UNH 35,204 28.96 26.60 9% 93,000 new position 0% 5% 4 Penson Worldwide PNSN 157 6.25 7.62 -18% 163,614 new position 1% 2% 5 Market Leader LEDR 39 1.61 1.70 -5% 166,680 new position 1% 1% 6 PRG-Schultz PRGX 95 4.26 4.08 4% 225,330 new position 1% 2% 7 Tree.com TREE 37 3.91 2.60 50% 200,802 +26% 2% 1%

Tom Gayner, Markel Gayner MOI Market Price ($) Shares Owned Holdings


1 Berkshire Hathaway BRK/A 93,517 88,140.00 96,600.00 -9% 898 no change 0% 8% 2 Fairfax Financial FFH 5,490 325.81 313.41 4% 279,459 no change 2% 8% 3 Brookfield Asset Mgmt BAM 8,988 15.70 15.27 3% 3,104,839 +41% 1% 4% 4 Walt Disney DIS 34,379 18.52 22.69 -18% 1,482,775 >+100% 0% 3% 5 Brown-Forman BF/B 4,167 44.20 51.49 -14% 70,965 new position 0% 0% 6 Covanta CVA 2,930 18.99 21.96 -14% 23,992 new position 0% 0% 7 ConocoPhillips COP 68,086 45.67 51.80 -12% 10,000 new position 0% 0% 8 Leucadia National LUK 3,647 15.66 19.80 -21% 212,900 +54% 0% 0% 9 Bank of America BAC 35,415 5.57 14.08 -60% 709,887 no change 0% 1%

10 Aflac AFL 9,560 20.51 45.84 -55% 105,000 no change 0% 0%


Glenn Greenberg, Chieftain MOI Market Price ($) Shares Owned Holdings


1 American Express AXP 18,258 15.74 18.55 -15% 7,923,790 new position 1% 6% 2 Rockwell Collins COL 5,875 37.16 39.09 -5% 1,548,200 new position 1% 2% 3 Precision Castparts PCP 9,406 67.22 59.48 13% 1,985,050 new position 1% 5% 4 Crosstex Energy XTEX 197 4.38 4.37 0% 3,112,076 +7% 7% 1%

Mason Hawkins, Southeastern MOI Market Price ($) Shares Owned Holdings


1 Cemex CX 6,574 8.09 9.14 -11% 97,198,558 +22% 12% 5% 2 DineEquity DIN 133 7.62 11.56 -34% 3,217,500 no change 18% 0% 3 Ingersoll-Rand IR 5,544 17.39 17.35 0% 35,478,348 +40% 11% 4% 4 Fair Isaac FIC 598 12.25 16.86 -27% 7,178,400 no change 15% 1% 5 Chesapeake Energy CHK 11,178 18.60 16.17 15% 65,278,353 +59% 11% 6% 6 TW Telecom TWTC 1,288 8.73 8.47 3% 15,330,678 +29% 10% 1% 7 Yum! Brands YUM 13,479 29.14 31.50 -7% 31,824,166 no change 7% 6% 8 Liberty Entertainment LMDIA 9,411 19.09 17.48 9% 114,040,792 +17% 23% 11% 9 Dillard’s DDS 310 4.46 3.97 12% 9,202,748 no change 13% 0%

10 Marriott International MAR 5,216 14.94 19.45 -23% 25,485,685 +88% 7% 3%

Chris Hohn, Children’s Investment Fund MOI Market Price ($) Shares Owned Holdings


1 Visa V 25,114 55.95 52.45 7% 11,236,522 +72% 3% 32% 2 CSX CSX 11,526 29.22 32.47 -10% 17,796,998 no change 5% 31%

Carl Icahn, Icahn Partners MOI Market Price ($) Shares Owned Holdings


1 Yahoo! YHOO 17,818 12.84 12.20 5% 15,113,025 +10% 1% 7% 2 American Railcar ARII 223 10.46 10.53 -1% 6,526,980 no change 31% 3% 3 Icahn Enterprises IEP 2,452 34.78 26.45 31% 68,644,590 +7% 97% 70% 4 Guaranty Financial GFG 110 1.01 2.61 -61% 3,823,308 no change 4% 0% 5 Lions Gate LGF 499 4.31 5.50 -22% 2,447,146 +14% 2% 1% 6 Federal Mogul FDML 696 7.00 4.23 65% 75,241,924 no change 76% 12% 7 Cyberonics CYBX 396 14.50 16.57 -12% 502,152 no change 2% 0%


Seth Klarman, Baupost MOI Market Price ($) Shares Owned Holdings


1 Facet Biotech FACT 159 6.66 6.08 10% 3,985,567 new position 17% 2% 2 News NWS/A 11,799 6.50 9.09 -28% 16,942,972 +1% 1% 13% 3 Exterran Holdings EXH 1,467 22.67 21.30 6% 4,928,925 +70% 8% 9% 4 RHI Entertainment RHIE 53 3.94 4.59 -14% 4,463,534 +28% 33% 2% 5 Syneron Medical ELOS 172 5.98 8.34 -28% 3,086,619 no change 11% 2% 6 BreitBurn Energy BBEP 375 7.13 7.05 1% 8,157,439 +32% 15% 5% 7 PDL BioPharma PDLI 754 6.31 6.18 2% 14,363,749 +4% 12% 7% 8 Theravance THRX 873 16.65 12.39 34% 9,033,741 +44% 17% 9% 9 News Corp. NWS 5,773 7.23 9.58 -25% 5,390,600 >+100% 1% 4%

10 Domtar UFS 527 1.07 1.67 -36% 33,452,199 +50% 7% 5%

Eddie Lampert, RBS Partners MOI Market Price ($) Shares Owned Holdings


1 Capital One COF 4,713 12.11 31.89 -62% 9,875,523 no change 3% 4% 2 Genworth Financial GNW 1,009 2.33 2.83 -18% 11,524,359 new position 3% 0% 3 AutoZone AZO 7,855 136.70 139.47 -2% 23,370,297 +2% 41% 42% 4 Sears Holdings SHLD 4,821 38.99 38.87 0% 66,024,366 no change 53% 33% 5 Home Depot HD 35,978 21.22 23.02 -8% 19,715,300 no change 1% 6% 6 AutoNation AN 1,889 10.68 9.88 8% 79,721,834 +3% 45% 10% 7 CIT Group CIT 1,104 2.84 4.54 -37% 15,406,937 >+100% 4% 1% 8 HSN HSNI 259 4.60 7.27 -37% 21,187 new position 0% 0% 9 Citigroup C 19,021 3.49 6.71 -48% 19,083,800 no change 0% 2%

10 Hartford Financial HIG 4,052 12.46 16.42 -24% 750,000 +36% 0% 0%

Dan Loeb, Third Point MOI Market Price ($) Shares Owned Holdings


1 SPDR Gold Trust GLD 29,366 92.55 86.52 7% 900,000 new position 0% 5% 2 Potash POT 25,405 86.06 73.22 18% 600,000 new position 0% 3% 3 PHH PHH 595 10.96 12.73 -14% 5,210,000 >+100% 10% 4% 4 Liberty Acquisition LIA 1,132 8.75 8.29 6% 6,914,000 +26% 5% 3% 5 EXCO Resources XCO 2,362 11.20 9.06 24% 7,191,475 +7% 3% 4% 6 BioFuel Energy BIOF 6 0.41 0.35 17% 5,578,800 no change 36% 0% 7 Guaranty Financial GFG 110 1.01 2.61 -61% 4,399,047 new position 4% 1% 8 Nabi Biopharmaceuticals NABI 222 4.28 3.35 28% 6,890,000 no change 13% 1% 9 Trian Acquisition TUX 1,058 9.20 8.91 3% 2,750,000 >+100% 2% 1%

10 Depomed DEPO 127 2.48 1.65 50% 7,050,000 no change 14% 1%


Steve Mandel, Lone Pine MOI Market Price ($) Shares Owned Holdings


1 JPMorgan Chase JPM 92,163 24.69 31.53 -22% 12,339,623 new position 0% 6% 2 MasterCard MA 15,929 161.90 142.93 13% 2,921,408 >+100% 3% 7% 3 Visa V 25,114 55.95 52.45 7% 8,435,552 +81% 2% 7% 4 America Movil AMX 31,090 29.53 30.99 -5% 24,007,275 +33% 2% 12% 5 Union Pacific UNP 21,894 43.51 47.80 -9% 6,885,633 new position 1% 5% 6 Qualcomm QCOM 58,852 35.68 35.83 0% 20,270,480 +13% 1% 12% 7 Monsanto MON 43,463 79.41 70.35 13% 4,230,159 new position 1% 5% 8 Google GOOG 85,677 357.68 307.65 16% 844,016 new position 0% 4% 9 Las Vegas Sands LVS 2,157 3.36 5.93 -43% 18,677,261 new position 3% 2%

10 Coach COH 4,485 13.97 20.77 -33% 6,172,333 new position 2% 2%

Mohnish Pabrai, Pabrai Funds MOI Market Price ($) Shares Owned Holdings


1 Leucadia National LUK 3,647 15.66 19.80 -21% 774,672 new position 0% 11% 2 Teck Cominco TCK 1,915 4.01 4.92 -18% 977,301 new position 0% 3% 3 Horsehead Holding ZINC 146 4.14 4.70 -12% 1,749,634 new position 5% 6% 4 Cresud CRESY 409 8.15 8.95 -9% 643,408 new position 1% 4% 5 Goldman Sachs GS 44,539 96.45 84.39 14% 110,864 new position 0% 7% 6 Harvest Natural HNR 146 4.43 4.30 3% 5,712,701 no change 17% 18% 7 Potash POT 25,405 86.06 73.22 18% 157,110 new position 0% 8% 8 Ternium TX 1,900 9.48 8.57 11% 1,778,944 no change 1% 11% 9 Berkshire Hathaway BRK/A 93,517 88,140.00 96,600.00 -9% 16 no change 0% 1%

Rich Pzena, Pzena Investment Management MOI Market Price ($) Shares Owned Holdings


1 JC Penney JCP 3,504 15.77 19.70 -20% 16,126,673 +53% 7% 4% 2 Northrop Grumman NOC 15,440 47.19 45.04 5% 7,060,807 +16% 2% 4% 3 Spherion SFN 78 1.52 2.21 -31% 3,077,957 +88% 6% 0% 4 Webster Financial WBS 204 3.85 13.78 -72% 345,350 new position 1% 0% 5 Bank of America BAC 35,415 5.57 14.08 -60% 17,688,908 +6% 0% 3% 6 Skechers U.S.A. SKX 244 7.32 12.82 -43% 744,301 new position 2% 0% 7 PNC Financial PNC 12,068 28.20 49.00 -42% 6,500 new position 0% 0% 8 Protective Life PL 424 6.07 14.35 -58% 366,950 +35% 1% 0% 9 American Equity AEL 297 5.59 7.00 -20% 3,411,713 +10% 6% 0%

10 MetLife MET 21,268 26.80 34.86 -23% 356,932 >+100% 0% 0%


Kenneth Shubin Stein, Spencer Capital MOI Market Price ($) Shares Owned Holdings


1 Berkshire Hathaway BRK/A 93,517 88,140.00 96,600.00 -9% 48 new position 0% 9% 2 Wendy’s / Arby’s WEN 2,490 5.30 4.94 7% 1,198,502 new position 0% 11% 3 Crosstex Energy XTXI 147 3.18 3.90 -18% 1,025,893 >+100% 2% 7% 4 Leucadia National LUK 3,647 15.66 19.80 -21% 70,000 new position 0% 3% 5 Huntsman HUN 682 2.91 3.44 -15% 400,000 new position 0% 3% 6 Atlas America ATLS 553 14.08 14.85 -5% 74,634 new position 0% 2% 7 Mastech Holdings MHH 6 1.59 2.38 -33% 10,000 new position 0% 0% 8 Winthrop Realty Trust FUR 154 9.80 10.84 -10% 47,192 new position 0% 1% 9 AnnTaylor Stores ANN 371 6.50 5.77 13% 65,848 new position 0% 1%

10 dELiA*s DLIA 58 1.87 2.20 -15% 471,367 +14% 2% 2%

Prem Watsa, Fairfax MOI Market Price ($) Shares Owned Holdings


1 Kraft Foods KFT 37,022 25.20 26.85 -6% 10,949,871 new position 1% 6% 2 Wells Fargo WFC 66,643 15.76 29.48 -47% 3,515,100 new position 0% 2% 3 International Coal ICO 276 1.80 2.30 -22% 30,139,400 +43% 20% 1% 4 Dell DELL 17,733 9.12 10.24 -11% 26,544,900 +62% 1% 5% 5 General Electric GE 120,374 11.44 16.20 -29% 12,085,000 new position 0% 4% 6 Johnson & Johnson JNJ 158,428 57.10 59.83 -5% 7,691,800 +30% 0% 9% 7 Pfizer PFE 107,273 14.58 17.71 -18% 17,932,100 +1% 0% 6% 8 Intel INTC 77,201 13.88 14.66 -5% 16,000,000 new position 0% 5% 9 Magna International MGA 3,419 30.56 29.93 2% 5,298,776 new position 5% 3%

10 Overstock.com OSTK 239 10.51 10.78 -3% 3,388,774 no change 15% 1%

Marty Whitman, Third Avenue MOI Market Price ($) Shares Owned Holdings


1 Bel Fuse BELFB 123 13.29 21.20 -37% 1,139,158 +1% 12% 0% 2 Thomas Properties TPGI 42 1.78 2.59 -31% 2,629,749 +3% 11% 0% 3 Forest City Enterprises FCE/A 465 5.77 6.70 -14% 23,918,093 +18% 30% 3% 4 Cross Country Healthcare CCRN 242 7.85 8.79 -11% 5,295,619 +22% 17% 1% 5 Pioneer Drilling PDC 235 4.70 5.57 -16% 6,423,592 +10% 13% 1% 6 Electro Scientific ESIO 163 6.01 6.79 -11% 4,096,558 +11% 15% 1% 7 POSCO PKX 23,073 66.16 75.25 -12% 4,352,794 +2% 1% 7% 8 Bristow Group BRS 703 24.17 26.79 -10% 2,947,797 +4% 10% 2% 9 Skyline SKY 155 18.49 19.99 -8% 1,608,240 +6% 19% 1%

10 Stanley Furniture STLY 80 7.75 7.90 -2% 2,199,238 +16% 21% 0%


Screening For Asymmetrical Risk-Reward Profiles CONTRARIAN

“Shunned by the market, but not by insiders” Companies close to 52-week lows, with consistent insider buying

“Biggest losers” Companies whose stock prices have declined most over 1+ years

“Biggest losers (deleveraged)” Companies with no net debt and large stock price decline over 1+ years

“Biggest losers (deleveraged, likely profitable)”

Companies with no net debt, positive next FY EPS, and large price drop

DEEP VALUE

“Lots of revenue, but little enterprise value” Companies that trade at low multiples of net revenue

“Neglected gross profiteers” Companies that trade at low multiples of gross profit

“Companies with strong, liquid balance sheets”

Companies with at least 50% of market value in net cash

ACTIVIST TARGETS

“Underperformers” Companies underperforming their peers on a variety of metrics

“Sale, liquidation or recap opportunities”

Companies that may unlock value through a corporate event

MAGIC FORMULA: “Good businesses at good prices”…

…based on LTM EBIT Companies with high ROC, trading at high EBIT-to-EV yield

…based on this FY EPS estimates Companies with high ROC, trading at high forward EPS yield

…based on next FY EPS estimates Companies with high ROC, trading at high forward EPS yield

…based on 2013 EPS estimates

Companies with high ROC, trading at high forward EPS yield


Contrarian: Shunned by the Market, But Not by Insiders Screening criteria: ► Persistent insider buying in past six months ► No insider selling ► Price within 10% of 52-week low ► Market value more than $100 million │ Sorted by: Number of insider purchases

∆ to EV/ Est P/E Insiders Price 52-Wk MV EV LTM This Next P/ % # Company Ticker ($) High ($mn) ($mn) Rev. FY FY Book Own. Buys 1 Blackrock Kelso Capital Corp BKCC 5.60 156% 310 740 5.2x 3x 4x .5x 3% 27 2 German American Bancorp., In GABC 10.98 36% 121 197 2.9x 10x 10x 1.2x 6% 27 3 Hersha Hospitality Trust HT 2.30 353% 111 822 3.1x na na .3x 10% 24 4 Crusader Energy Group Inc. KRU 0.60 1162% 119 329 4.2x 7x nm .3x 14% 21 5 Adaptec, Inc. ADPT 2.51 69% 306 -64 nm 42x nm .7x 1% 20 6 MSC Software Corp. MSCS 5.78 140% 262 114 .4x nm 29x .8x 1% 20 7 Isilon Systems, Inc. ISLN 2.52 142% 161 127 1.1x nm nm 2.3x 61% 19 8 Hercules Offshore, Inc. HERO 2.83 1295% 249 1,208 1.1x 20x 11x .3x 4% 18 9 Delta Petroleum Corp. DPTR 4.00 609% 413 1,217 5.3x nm nm .3x 3% 14

10 Central Securities Corp. CET 14.00 98% 297 288 23.8x na na .8x 0% 13 11 Ladenburg Thalmann Financial LTS 0.71 265% 122 146 1.1x na na 2.0x 38% 13 12 Revlon, Inc. REV 3.71 300% 190 1,467 1.1x 5x 4x nm 61% 13 13 Avid Technology, Inc. AVID 10.31 190% 383 235 .3x 37x 21x .7x 19% 12 14 Colonial BancGroup, Inc. CNB 0.59 2271% 119 1,755 1.5x nm nm .1x 6% 11 15 Oriental Financial Group Inc OFG 4.87 427% 118 3,973 11.9x nm 2x .7x 2% 11 16 GenTek Inc. GETI 14.09 135% 145 375 .6x na na 1.0x 11% 9 17 Warren Resources, Inc. WRES 1.75 776% 103 169 1.5x 2x nm .3x 7% 9 18 Hercules Technology Growth C HTGC 4.99 149% 165 410 5.4x 4x 4x .4x 3% 8 19 Kansas City Life Insurance C KCLI 29.00 100% 333 333 .8x na na .6x 69% 7 20 Dow Chemical Company, The DOW 9.53 356% 8,804 18,360 .3x 16x 12x .7x 1% 6 21 First BanCorp. FBP 4.95 183% 458 3,402 3.0x 22x 10x .5x 10% 6 22 Gannett Co., Inc. GCI 4.19 686% 956 4,741 .7x 2x 2x .1x 1% 6 23 Methode Electronics Inc. MEI 4.77 186% 181 128 .2x 95x nm .5x 3% 6 24 Stoneleigh Partners SOC 7.90 1% 269 43 nm na na .9x 9% 6 25 Washington Federal Inc. WFSL 12.70 116% 1,118 1,853 2.6x 16x 11x .8x 1% 6 26 Encore Capital Group, Inc. ECPG 4.95 187% 114 415 1.6x 5x 5x .6x 38% 5 27 Great Plains Energy GXP 15.51 77% 1,850 5,125 3.1x 10x 11x .7x 1% 5 28 LaSalle Hotel Properties LHO 6.00 474% 246 1,208 1.8x 30x nm .2x 1% 5 29 ModusLink Global Solutions, MLNK 2.24 590% 102 -19 nm na na .2x 1% 5 30 RPC, Inc. RES 6.49 191% 637 808 .9x 41x 24x 1.4x 70% 5 31 TECO Energy, Inc. TE 11.26 95% 2,396 5,839 1.7x 10x 9x 1.2x 1% 5 32 Alexander & Baldwin, Inc. AXB 22.05 143% 912 1,364 .7x 11x 10x .8x 2% 4 33 Barrett Business Services BBSI 9.49 99% 101 50 .2x 9x 8x .9x 21% 4 34 Bemis Company, Inc. BMS 20.88 42% 2,082 2,720 .7x 13x 12x 1.6x 2% 4 35 FedEx Corporation FDX 51.81 92% 16,128 16,593 .4x 13x 12x 1.0x 7% 4 36 Investors Bancorp, Inc. ISBC 8.51 90% 928 2,948 8.7x nm 22x 1.2x 62% 4 37 Monster Worldwide, Inc. MWW 8.16 262% 1,044 876 .7x 91x 23x .9x 5% 4 38 Tailwind Financial Inc. TNF 8.00 1% 125 22 9.7x na na 1.0x 20% 4 39 Tyco Electronics Ltd. TEL 13.85 191% 6,344 8,818 .6x 23x 12x .6x 1% 4 40 Avery Dennison Corporation AVY 22.75 142% 2,239 4,343 .6x 14x 9x 1.3x 8% 3 41 Cogdell Spencer Inc. CSA 6.88 190% 121 535 2.1x nm nm .5x 26% 3 42 Discover Financial Services DFS 7.01 183% 3,365 -5,071 nm nm 11x .6x 0% 3 43 Dyax Corp. DYAX 2.09 156% 132 109 3.6x nm nm nm 13% 3 44 Ladish Co., Inc. LDSH 9.85 300% 157 271 .6x 7x 5x .7x 1% 3 45 Micrus Endovascular MEND 7.43 115% 117 105 1.4x nm na 2.9x 0% 3 46 American Express Company AXP 15.74 234% 18,258 66,258 2.1x 14x 10x 1.5x 1% 2 47 Black Hills Corporation BKH 21.48 85% 826 1,783 2.3x 11x 11x .7x 1% 2 48 Devon Energy Corporation DVN 52.64 142% 23,372 28,552 1.9x 17x 8x 1.4x 0% 2 49 Ethan Allen Interiors Inc. ETH 11.08 207% 319 457 .5x 17x 13x .9x 10% 2 50 Green Bankshares, Inc. GRNB 8.29 204% 109 94 .5x nm 9x .3x 9% 2

[MOI ● MOI - 1,2,4,5,6 ● MOIA]


Contrarian: Biggest Losers Screening criteria: ► At least one analyst estimate of this year’s EPS and next year’s EPS ► Market value more than $100 million │ Sorted by: Largest price decline since yearend 2007 1

Recent Price/ Next Price MV EV Cumulative Price Performance Since… Tang. FY Company / Ticker ($) ($mn) ($mn) 12/31/08 12/31/07 12/29/06 12/31/02 Book P/E

1 General Growth / GGP 0.55 148 24,775 -57% -99% -99% -97% .1x 2x 2 American International / AIG 0.85 2,286 208,366 -46% -99% -99% -99% .0x 5x 3 Fannie Mae / FNM 0.60 646 821,042 -21% -98% -99% -99% nm nm 4 Freddie Mac / FRE 0.61 395 750,633 -16% -98% -99% -99% nm nm 5 Las Vegas Sands Corp / LVS 3.36 1,194 10,269 -43% -97% -96% na .5x 28x 6 Sirius XM Radio Inc. / SIRI 0.10 369 3,382 -17% -97% -97% na nm nm 7 Crocs, Inc. / CROX 1.24 103 66 0% -97% -94% na .4x nm 8 iStar Financial Inc. / SFI 1.13 148 12,429 -49% -96% -98% -96% .1x nm 9 Colonial BancGroup, / CNB 0.59 119 1,755 -71% -96% -98% -95% .1x nm

10 Ambac Financial Grou / ABK 1.24 356 2,160 -5% -95% -99% -98% nm nm 11 Allied Capital Corpo / ALD 1.26 225 2,154 -53% -94% -96% -94% .1x 2x 12 DryShips Inc. / DRYS 4.76 300 2,870 -55% -94% -74% na .2x 2x 13 MGM MIRAGE / MGM 5.24 1,449 14,487 -62% -94% -91% -68% .4x 6x 14 American Capital Ltd / ACAS 2.25 482 4,704 -31% -93% -95% -90% .1x 1x 15 Citizens Republic Ba / CRBC 1.01 127 2,116 -66% -93% -96% -96% .2x nm 16 Century Aluminum Com / CENX 3.84 188 463 -62% -93% -91% -48% .1x nm 17 Maguire Properties, / MPG 2.10 101 4,958 44% -93% -95% na 1.1x nm 18 National Financial P / NFP 3.31 131 386 9% -93% -92% na nm 1x 19 First Marblehead Cor / FMD 1.20 119 290 -7% -92% -98% na .2x nm 20 Fifth Third Bancorp / FITB 2.00 1,155 7,519 -76% -92% -95% -97% .1x 3x 21 Infineon Technologie / IFX 0.94 705 1,017 -33% -92% -93% -87% .4x nm 22 SiRF Technology Hold / SIRF 2.04 128 13 59% -92% -92% na 1.0x nm 23 MoneyGram Internatio / MGI 1.29 107 1,799 26% -92% -96% na nm 16x 24 Crosstex Energy, Inc / XTXI 3.18 147 1,384 -18% -91% -90% na nm nm 25 XL Capital Ltd. / XL 4.31 1,426 (995) 16% -91% -94% -94% .2x 2x 26 ATP Oil & Gas Corpor / ATPG 4.34 156 1,630 -26% -91% -89% 7% .4x 5x 27 Orient-Express Hotel / OEH 5.04 305 1,086 -34% -91% -89% -63% .4x 17x 28 Chemtura Corporation / CEM 0.69 167 1,156 -51% -91% -93% -88% >9.9x 4x 29 Developers Diversifi / DDR 3.44 414 6,849 -30% -91% -95% -84% .2x 5x 30 Thomson SA (ADR) / TMS 1.26 340 2,001 -7% -91% -94% -93% nm nm 31 South Financial Grou / TSFG 1.42 106 792 -67% -91% -95% -93% .1x nm 32 Genworth Financial, / GNW 2.33 1,009 2,530 -18% -91% -93% na .2x 1x 33 Saks Incorporated / SKS 1.92 273 902 -56% -91% -89% -84% .2x nm 34 Evergreen Solar, Inc / ESLR 1.66 274 470 -48% -90% -78% 29% .5x 5x 35 Textron Inc. / TXT 6.89 1,661 3,699 -50% -90% -85% -68% .7x 4x 36 ION Geophysical Corp / IO 1.55 154 506 -55% -90% -89% -64% 4.9x 9x 37 Macquarie Infrastruc / MIC 3.99 179 1,724 6% -90% -89% na nm 2x 38 Rite Aid Corporation / RAD 0.28 241 6,728 -10% -90% -95% -89% nm nm 39 FCStone Group, Inc. / FCSX 4.62 129 32 4% -90% na na .6x 4x 40 General Motors Corpo / GM 2.50 1,526 30,401 -22% -90% -92% -93% nm nm 41 Belo Corp. / BLC 1.41 144 1,231 -10% -90% -90% -92% nm 2x 42 Manitowoc Company, I / MTW 4.98 649 3,129 -42% -90% -83% -22% nm 5x 43 KKR Financial Holdin / KFN 1.46 220 12,018 -8% -90% -95% na .1x 1x 44 First Industrial Rea / FR 3.62 160 2,144 -52% -90% -92% -87% .2x nm 45 Sealy Corporation / ZZ 1.18 108 865 -53% -89% -92% na nm 4x 46 THQ Inc. / THQI 3.00 201 83 -28% -89% -91% -66% .6x 50x 47 Aracruz Celulose SA / ARA 7.96 820 3,228 -29% -89% -87% -57% .5x 7x 48 Gannett Co., Inc. / GCI 4.19 956 4,741 -48% -89% -93% -94% nm 2x 49 Pacific Sunwear of C / PSUN 1.53 101 139 -4% -89% -92% -87% .3x nm 50 Fortress Investment / FIG 1.76 716 1,207 76% -89% na na 4.3x 5x

[Industry Browser ● Price Performance ● macros_screens.xls, MOI_screen_01] 1 All price performance numbers exclude dividends.


Contrarian: Biggest Losers (Deleveraged) Screening criteria: ► Positive net cash ► At least one analyst estimate of this year’s EPS and next year’s EPS ► Market value more than $100 million │ Sorted by: Largest price decline since yearend 2007 1


1 Crocs, Inc. / CROX 1.24 103 66 0% -97% -94% na .4x nm 2 SiRF Technology Hold / SIRF 2.04 128 13 59% -92% -92% na 1.0x nm 3 XL Capital Ltd. / XL 4.31 1,426 (995) 16% -91% -94% -94% .2x 2x 4 FCStone Group, Inc. / FCSX 4.62 129 32 4% -90% na na .6x 4x 5 THQ Inc. / THQI 3.00 201 83 -28% -89% -91% -66% .6x 50x 6 JA Solar Holdings Co / JASO 2.66 447 394 -39% -89% na na .7x 7x 7 PMI Group, Inc., The / PMI 1.56 127 (54) -20% -88% -97% -95% .1x nm 8 Citigroup Inc. / C 3.49 19,021 (109,189) -48% -88% -94% -90% .8x 8x 9 Boston Private Finan / BPFH 3.31 211 (669) -52% -88% -88% -83% .3x 12x

10 Focus Media Holding / FMCN 7.57 980 599 -17% -87% -77% na 1.4x 5x 11 Lululemon Athletica / LULU 6.46 451 399 -19% -86% na na 3.4x 13x 12 TomoTherapy Incorpor / TOMO 2.67 134 (21) 12% -86% na na .6x nm 13 China Sunergy Co., L / CSUN 2.36 105 102 -40% -86% na na .5x 15x 14 Affymetrix, Inc. / AFFX 3.32 233 185 11% -86% -86% -85% 1.0x nm 15 GFI Group Inc. / GFIG 3.49 413 279 -1% -85% -78% na 1.8x 6x 16 Global Sources Ltd. / GSOL 4.73 221 38 -13% -83% -68% 56% 1.2x 8x 17 Principal Financial / PFG 11.64 3,018 2,478 -48% -83% -80% -61% .7x 3x 18 Hansen Medical, Inc. / HNSN 5.17 130 108 -28% -83% -55% na 2.7x nm 19 WuXi PharmaTech (Cay / WX 5.07 333 295 -37% -83% na na 1.9x 9x 20 Comverge, Inc. / COMV 5.55 122 94 13% -82% na na 2.9x nm 21 Calamos Asset Manage / CLMS 5.26 103 (274) -29% -82% -80% na .6x 10x 22 Garmin Ltd. / GRMN 17.20 3,484 2,944 -10% -82% -69% 17% 1.8x 6x 23 Global Industries, L / GLBL 3.80 426 410 9% -82% -71% -9% .6x 7x 24 Chicago Bridge & Iro / CBI 10.83 1,032 990 8% -82% -60% 43% nm 5x 25 MEMC Electronic Mate / WFR 16.11 3,616 2,511 13% -82% -59% 113% 1.7x 10x 26 Gushan Environmental / GU 1.71 143 (35) -7% -82% na na .4x 3x 27 Eastman Kodak Compan / EK 4.05 1,086 244 -38% -81% -84% -88% >9.9x nm 28 Ciena Corporation / CIEN 6.37 577 458 -5% -81% -77% -82% 1.3x 16x 29 Opnext, Inc. / OPXT 1.76 160 5 1% -80% na na .5x nm 30 Aruba Networks, Inc. / ARUN 2.99 251 143 17% -80% na na 2.3x 23x 31 RTI International Me / RTI 13.87 319 275 -3% -80% -82% 37% .6x 9x 32 BE Aerospace, Inc. / BEAV 10.73 1,067 899 40% -80% -58% 195% .8x 5x 33 ANADIGICS, Inc. / ANAD 2.38 150 49 61% -79% -73% -8% .6x nm 34 Biodel Inc / BIOD 4.94 117 36 2% -79% na na 1.5x nm 35 United Community Ban / UCBI 3.37 162 101 -75% -78% -89% -79% .3x nm 36 MercadoLibre, Inc. / MELI 16.05 711 699 -2% -78% na na >9.9x 30x 37 Pharmaxis Ltd. (ADR) / PXSL 11.70 152 88 -6% -78% -66% na 2.1x nm 38 BGC Partners, Inc. / BGCP 2.46 199 (13) -11% -78% -72% -85% .9x 6x 39 AirMedia Group Inc. / AMCN 4.90 327 149 2% -78% na na 1.2x 7x 40 Dawson Geophysical C / DWSN 15.73 123 107 -12% -78% -57% 171% .6x 9x 41 McDermott Internatio / MDR 13.06 2,977 2,151 32% -78% -49% 795% 2.1x 8x 42 NxStage Medical, Inc / NXTM 3.37 157 154 26% -78% -60% na 2.8x nm 43 TechTarget Inc / TTGT 3.33 138 83 -23% -77% na na 1.6x 14x 44 Sonus Networks, Inc. / SONS 1.32 360 42 -16% -77% -80% na .7x nm 45 EnerNOC, Inc. / ENOC 11.12 225 172 49% -77% na na 2.5x nm 46 Blackstone Group L.P / BX 5.03 1,336 1,043 -23% -77% na na 1.3x 8x 47 China Nepstar Chain / NPD 4.02 429 122 -20% -77% na na 1.0x 15x 48 China Digital TV Hol / STV 6.41 367 97 -24% -76% na na 1.3x 10x 49 Orbotech Ltd. / ORBK 4.19 140 (21) 4% -76% -84% -70% .4x nm 50 Haynes International / HAYN 16.76 201 198 -32% -76% -69% na .6x 8x

[Industry Browser - D ● Price Performance ● macros_screens.xls, MOI_screen_01] 1 All price performance numbers exclude dividends.


Contrarian: Biggest Losers (Deleveraged & Profitable) Screening criteria: ► Positive net cash ► Positive consensus EPS estimate for next FY ► At least one analyst estimate of this year’s EPS and next year’s EPS ► Market value more than $100 million │ Sorted by: Largest price decline since yearend 2007 1


1 XL Capital Ltd. / XL 4.31 1,426 (995) 16% -91% -94% -94% .2x 2x 2 FCStone Group, Inc. / FCSX 4.62 129 32 4% -90% na na .6x 4x 3 THQ Inc. / THQI 3.00 201 83 -28% -89% -91% -66% .6x 50x 4 JA Solar Holdings Co / JASO 2.66 447 394 -39% -89% na na .7x 7x 5 Citigroup Inc. / C 3.49 19,021 (109,189) -48% -88% -94% -90% .8x 8x 6 Boston Private Finan / BPFH 3.31 211 (669) -52% -88% -88% -83% .3x 12x 7 Focus Media Holding / FMCN 7.57 980 599 -17% -87% -77% na 1.4x 5x 8 Lululemon Athletica / LULU 6.46 451 399 -19% -86% na na 3.4x 13x 9 China Sunergy Co., L / CSUN 2.36 105 102 -40% -86% na na .5x 15x

10 GFI Group Inc. / GFIG 3.49 413 279 -1% -85% -78% na 1.8x 6x 11 Global Sources Ltd. / GSOL 4.73 221 38 -13% -83% -68% 56% 1.2x 8x 12 Principal Financial / PFG 11.64 3,018 2,478 -48% -83% -80% -61% .7x 3x 13 WuXi PharmaTech (Cay / WX 5.07 333 295 -37% -83% na na 1.9x 9x 14 Calamos Asset Manage / CLMS 5.26 103 (274) -29% -82% -80% na .6x 10x 15 Garmin Ltd. / GRMN 17.20 3,484 2,944 -10% -82% -69% 17% 1.8x 6x 16 Global Industries, L / GLBL 3.80 426 410 9% -82% -71% -9% .6x 7x 17 Chicago Bridge & Iro / CBI 10.83 1,032 990 8% -82% -60% 43% nm 5x 18 MEMC Electronic Mate / WFR 16.11 3,616 2,511 13% -82% -59% 113% 1.7x 10x 19 Gushan Environmental / GU 1.71 143 (35) -7% -82% na na .4x 3x 20 Ciena Corporation / CIEN 6.37 577 458 -5% -81% -77% -82% 1.3x 16x 21 Aruba Networks, Inc. / ARUN 2.99 251 143 17% -80% na na 2.3x 23x 22 RTI International Me / RTI 13.87 319 275 -3% -80% -82% 37% .6x 9x 23 BE Aerospace, Inc. / BEAV 10.73 1,067 899 40% -80% -58% 195% .8x 5x 24 MercadoLibre, Inc. / MELI 16.05 711 699 -2% -78% na na >9.9x 30x 25 BGC Partners, Inc. / BGCP 2.46 199 (13) -11% -78% -72% -85% .9x 6x 26 AirMedia Group Inc. / AMCN 4.90 327 149 2% -78% na na 1.2x 7x 27 Dawson Geophysical C / DWSN 15.73 123 107 -12% -78% -57% 171% .6x 9x 28 McDermott Internatio / MDR 13.06 2,977 2,151 32% -78% -49% 795% 2.1x 8x 29 TechTarget Inc / TTGT 3.33 138 83 -23% -77% na na 1.6x 14x 30 Blackstone Group L.P / BX 5.03 1,336 1,043 -23% -77% na na 1.3x 8x 31 China Nepstar Chain / NPD 4.02 429 122 -20% -77% na na 1.0x 15x 32 China Digital TV Hol / STV 6.41 367 97 -24% -76% na na 1.3x 10x 33 Haynes International / HAYN 16.76 201 198 -32% -76% -69% na .6x 8x 34 Motorola, Inc. / MOT 3.87 8,771 5,976 -13% -76% -81% -55% 1.3x 18x 35 J. Crew Group, Inc. / JCG 11.67 729 715 -4% -76% -70% na 3.1x 22x 36 Lincoln National Cor / LNC 14.18 3,632 3,251 -25% -76% -79% -55% .9x 3x 37 Thomas Weisel Partne / TWPG 3.35 108 20 -29% -76% -84% na .5x >99x 38 NVIDIA Corporation / NVDA 8.31 4,463 3,158 3% -76% -66% 116% 2.3x 38x 39 Zions Bancorporation / ZION 11.42 1,317 2,028 -53% -76% -86% -71% .4x 7x 40 National Bank of Gre / NBG 3.28 8,098 (2,116) -14% -75% -63% 69% 1.5x 6x 41 NetSuite Inc. / N 9.70 590 467 15% -75% na na 7.2x 69x 42 Cadence Design Syste / CDNS 4.23 1,084 1,012 16% -75% -76% -64% >9.9x 42x 43 WABCO Holdings Inc. / WBC 12.48 873 730 -21% -75% na na 4.0x 11x 44 Sigma Designs, Inc. / SIGM 13.80 364 232 45% -75% -46% na 1.3x 17x 45 Winnebago Industries / WGO 5.28 154 119 -12% -75% -84% -73% .9x 41x 46 Monster Worldwide, I / MWW 8.16 1,044 876 -33% -75% -83% -28% >9.9x 23x 47 Advisory Board Compa / ABCO 16.19 251 218 -27% -75% -70% -46% 3.6x 16x 48 Perficient, Inc. / PRFT 3.98 129 113 -17% -75% -76% 298% 2.2x 8x 49 VASCO Data Security / VDSI 7.20 269 218 -30% -74% -39% 642% 3.5x 12x 50 COMSCORE, Inc. / SCOR 8.54 249 178 -33% -74% na na 2.9x 16x

[Industry Browser – D,P ● Price Performance ● macros_screens.xls, MOI_screen_01] 1 All price performance numbers exclude dividends.


Deep Value: Lots of Revenue, Low Enterprise Value Screening criteria: ► Enterprise value to trailing revenue less than 0.5x ► Market value does not exceed revenue ► Market value more than $500 million │ Sorted by: Enterprise value to revenue

EV/ P/E P/ Insiders Price ∆ to 52-Wk MV EV LTM Next Tang. # # Company Ticker ($) Low High ($mn) ($mn) Rev. FY Book Buys Sells 1 W.R. Grace & Co. GRA 7.07 -58% 324% 510 40 .01x na nm 7 - 2 Eastman Kodak Company EK 4.05 -2% 385% 1,086 244 .03x nm 17.8x - - 3 Tech Data Corporation TECD 19.63 -28% 93% 982 1,027 .04x 9x .6x - - 4 World Fuel Services Corporat INT 31.06 -56% 27% 909 867 .04x 10x 2.3x - 8 5 Ingram Micro Inc. IM 12.67 -32% 58% 2,089 1,739 .05x 10x .8x 1 1 6 Celestica Inc. (USA) CLS 3.98 -19% 148% 912 416 .05x na .7x - - 7 Winn-Dixie Stores, Inc. WINN 9.22 -4% 111% 501 391 .05x 231x .9x 1 5 8 Molina Healthcare, Inc. MOH 21.72 -26% 96% 581 203 .07x 9x 1.8x 3 11 9 Magna International Inc. (US MGA 30.56 -25% 168% 3,441 1,729 .07x na .5x - -

10 AmerisourceBergen Corp. ABC 37.35 -29% 19% 5,688 6,403 .09x 11x nm - 2 11 Flextronics International Lt FLEX 2.75 -55% 308% 2,226 3,603 .11x 7x 1.3x - 2 12 Humana Inc. HUM 42.75 -48% 70% 7,217 3,205 .11x 7x 2.9x 5 3 13 Sunoco, Inc. SUN 36.93 -42% 83% 4,316 6,239 .12x 9x 1.5x 2 3 14 Health Net, Inc. HNT 17.40 -58% 180% 1,804 1,816 .12x 8x 2.0x - - 15 Manpower Inc. MAN 32.27 -30% 119% 2,516 2,595 .12x 14x 2.3x 2 - 16 McKesson Corporation MCK 45.38 -38% 35% 12,427 13,047 .12x 11x 6.9x - 9 17 KBR, Inc. KBR 14.97 -35% 157% 2,418 1,308 .12x 9x 1.6x - - 18 SYNNEX Corporation SNX 16.47 -48% 66% 540 961 .12x 6x 1.0x 1 29 19 Tesoro Corporation TSO 18.53 -64% 128% 2,566 3,924 .13x 13x .9x - 10 20 Universal American Corporati UAM 10.46 -39% 84% 708 593 .13x 7x 1.3x - 2 21 Valero Energy Corporation VLO 24.07 -42% 162% 12,421 16,129 .14x 6x .8x - 2 22 AXA (ADR) AXA 15.29 -10% 162% 31,509 21,270 .14x 5x .9x - - 23 AK Steel Holding Corporation AKS 9.11 -43% 702% 1,006 1,076 .14x 5x 1.0x 7 5 24 Perini Corporation PCR 22.29 -48% 101% 1,122 783 .15x 8x 3.2x 4 2 25 Benchmark Electronics, Inc. BHE 11.54 -24% 73% 751 404 .16x 11x .7x 2 - 26 Administaff, Inc. ASF 20.91 -36% 52% 526 274 .16x 13x 2.6x - 19 27 Jabil Circuit, Inc. JBL 6.10 -22% 208% 1,304 2,054 .16x 6x .9x 2 1 28 Foot Locker, Inc. FL 7.54 -52% 141% 1,168 896 .17x 15x .6x 1 2 29 BJ's Wholesale Club, Inc. BJ 28.74 -2% 54% 1,690 1,651 .17x 12x 1.7x - - 30 Sears Holdings Corporation SHLD 38.99 -31% 189% 4,821 8,130 .17x 89x 1.0x - 7 31 Bunge Limited BG 51.77 -47% 147% 6,297 8,876 .17x 7x .9x - - 32 Chicago Bridge & Iron Compan CBI 10.83 -53% 360% 1,032 990 .17x 5x nm - - 33 Kindred Healthcare, Inc. KND 15.30 -47% 117% 595 711 .17x 11x .8x 3 1 34 Cardinal Health, Inc. CAH 38.10 -27% 63% 13,731 16,815 .18x 10x 7.1x - - 35 Dell Inc. DELL 9.12 -4% 186% 17,733 11,278 .18x 8x 10.6x 3 1 36 EMCOR Group, Inc. EME 21.02 -47% 72% 1,376 1,236 .18x 9x 8.3x 1 4 37 CVR Energy, Inc. CVI 6.31 -66% 390% 544 984 .18x 6x 1.1x 1 - 38 Nash-Finch Company NAFC 40.39 -24% 18% 517 834 .18x 10x 5.7x - - 39 General Motors Corporation GM 2.50 -32% 970% 1,526 30,401 .18x nm nm - - 40 Steelcase Inc. SCS 4.45 -6% 245% 595 630 .18x 15x 1.1x 1 1 41 Sun Microsystems, Inc. JAVA 5.14 -49% 251% 3,828 2,447 .18x 64x 2.7x - 2 42 Arrow Electronics, Inc. ARW 19.07 -38% 89% 2,275 3,101 .19x 9x 1.4x - 4 43 Terex Corporation TEX 9.67 -11% 689% 909 1,860 .19x 5x .7x 58 3 44 Infineon Technologies AG (AD IFX 0.94 -18% 1079% 705 1,017 .19x nm .4x - - 45 Sony Corporation (ADR) SNE 18.50 -2% 183% 18,572 17,269 .19x nm .7x - - 46 Western Refining, Inc. WNR 13.78 -67% 87% 942 2,254 .20x 10x 2.1x - - 47 Motorola, Inc. MOT 3.87 -22% 199% 8,771 5,976 .20x 18x 1.3x 2 - 48 Barnes & Noble, Inc. BKS 17.24 -38% 95% 953 1,063 .20x 15x 1.8x - 3 49 Avnet, Inc. AVT 20.11 -41% 81% 3,038 3,588 .20x 9x 1.3x 3 4 50 Arkansas Best Corporation ABFS 22.86 -15% 97% 572 370 .20x 16x 1.0x - -

[MOI05 ● MOI - 1,2,4,5,6 ● MOIE]


Deep Value: Neglected Gross Profiteers Screening criteria: ► Enterprise value not more than trailing gross profit ► Market value not more than 2x gross profit ► Market value more than $200 million │ Sorted by: Enterprise value to gross profit

EV/ EV/ EV/ P/E P/ Price ∆ to 52-Wk MV EV LTM LTM LTM Next Tang. Company Ticker ($) Low High ($mn) ($mn) Rev. GP EBIT FY Book 1 RealNetworks, Inc. RNWK 2.75 -1% 177% 371 12 .02x .0x nm nm 1.0x 2 W.R. Grace & Co. GRA 7.07 -58% 324% 510 40 .01x .0x 0x na nm 3 Eastman Kodak Company EK 4.05 -2% 385% 1,086 244 .03x .1x nm nm 17.8x 4 Kindred Healthcare, Inc. KND 15.30 -47% 117% 595 711 .17x .2x 7x 11x .8x 5 Winn-Dixie Stores, Inc. WINN 9.22 -4% 111% 501 391 .05x .2x 8x 231x .9x 6 Sonus Networks, Inc. SONS 1.32 -14% 262% 360 42 .13x .2x nm nm .7x 7 Office Depot, Inc. ODP 1.70 -15% 769% 467 1,013 .07x .2x 10x 170x .3x 8 AnnTaylor Stores Corp. ANN 6.50 -42% 350% 371 299 .13x .3x 5x nm .7x 9 Stewart Information Services STC 16.90 -67% 96% 307 443 .26x .3x nm nm .7x

10 Novell, Inc. NOVL 3.41 -27% 123% 1,171 229 .24x .3x 48x 11x 2.6x 11 Skechers USA, Inc. SKX 7.32 -6% 244% 338 203 .14x .3x 2x 23x .5x 12 Global Sources Ltd. (Bermuda GSOL 4.73 -13% 257% 221 38 .19x .3x 2x 8x 1.2x 13 Kelly Services, Inc. KELYA 10.30 -14% 125% 358 355 .06x .4x nm 28x .7x 14 Blockbuster Inc. BBI 1.25 -42% 194% 241 1,150 .21x .4x 9x 4x nm 15 Molina Healthcare, Inc. MOH 21.72 -26% 96% 581 203 .07x .4x 2x 9x 1.8x 16 Sun Microsystems, Inc. JAVA 5.14 -49% 251% 3,828 2,447 .18x .4x nm 64x 2.7x 17 Heidrick & Struggles Interna HSII 16.33 -9% 133% 267 84 .13x .4x 1x 21x 1.4x 18 Phoenix Companies, Inc., The PNX 1.75 -39% 699% 200 355 .15x .4x nm 2x .2x 19 AllianceBernstein Holding LP AB 15.22 -25% 347% 1,375 1,375 .39x .5x 1x 7x .9x 20 Silicon Image, Inc. SIMG 3.49 -26% 120% 259 74 .27x .5x nm 58x 1.1x 21 Blyth, Inc. BTH 24.35 -45% 265% 217 292 .26x .5x nm 8x 1.1x 22 Finish Line, Inc., The FINL 4.40 -48% 183% 241 186 .15x .5x nm 10x .6x 23 Great Atlantic & Pacific Tea GAP 6.15 -50% 383% 355 1,390 .15x .5x nm nm nm 24 Ameriprise Financial, Inc. AMP 20.46 -43% 175% 4,432 2,469 .35x .5x nm 6x .7x 25 CDI Corp. CDI 11.38 -31% 154% 215 139 .12x .5x 3x 24x .8x 26 Alvarion Ltd. (USA) ALVR 3.31 -23% 176% 209 68 .24x .5x nm 13x 1.3x 27 THQ Inc. THQI 3.00 -18% 680% 201 83 .10x .5x nm 50x .6x 28 Genesco Inc. GCO 14.91 -30% 160% 287 412 .26x .5x 2x 8x 1.1x 29 ArcelorMittal (ADR) MT 25.99 -41% 303% 36,947 63,436 .51x .5x 5x 8x .9x 30 MSC Software Corp. MSCS 5.78 -7% 140% 262 114 .44x .5x nm 29x 1.9x 31 Magna International Inc. (US MGA 30.56 -25% 168% 3,441 1,729 .07x .5x 3x na .5x 32 Coldwater Creek Inc. CWTR 2.95 -69% 182% 269 210 .19x .6x nm nm .9x 33 Atlas Air Worldwide Holdings AAWW 15.87 -43% 319% 345 553 .32x .6x 6x 4x .6x 34 HSN, Inc. HSNI 4.60 -70% 260% 259 591 .20x .6x nm 3x nm 35 OmniVision Technologies, Inc OVTI 7.08 -42% 179% 354 110 .15x .6x 3x nm .7x 36 First American Corporation FAF 26.02 -45% 154% 2,416 2,626 .39x .6x 34x 11x nm 37 Allianz SE (ADR) AZ 8.18 -32% 160% 37,002 27,547 .23x .6x 2x 6x 1.1x 38 Liz Claiborne, Inc. LIZ 2.52 -42% 707% 239 1,162 .28x .6x nm 5x .5x 39 Steelcase Inc. SCS 4.45 -6% 245% 595 630 .18x .6x 4x 15x 1.1x 40 Avid Technology, Inc. AVID 10.31 -8% 190% 383 235 .28x .6x nm 21x 1.7x 41 Alcatel-Lucent (ADR) ALU 1.69 -2% 354% 3,819 4,460 .20x .6x nm 9x nm 42 Jo-Ann Stores, Inc. JAS 14.12 -27% 91% 365 546 .29x .6x 10x 15x .8x 43 TrueBlue, Inc. TBI 8.31 -33% 111% 360 252 .18x .6x 97x 14x 1.3x 44 Humana Inc. HUM 42.75 -48% 70% 7,217 3,205 .11x .6x 3x 7x 2.9x 45 Foot Locker, Inc. FL 7.54 -52% 141% 1,168 896 .17x .6x 9x 15x .6x 46 Chico's FAS, Inc. CHS 4.39 -61% 144% 778 522 .32x .6x nm nm 1.0x 47 Sears Holdings Corporation SHLD 38.99 -31% 189% 4,821 8,130 .17x .6x 11x 89x 1.0x 48 Men's Wearhouse, Inc., The MW 10.99 -24% 152% 569 556 .27x .6x 5x 15x .7x 49 Jones Apparel Group, Inc. JNY 3.44 -32% 543% 287 731 .20x .6x nm 6x .7x 50 Manpower Inc. MAN 32.27 -30% 119% 2,516 2,595 .12x .6x 5x 14x 2.3x

[MOI06 ● MOI - 1,2,4,5,6 ● MOIF]


Deep Value: Companies with Strong, Liquid Balance Sheets Screening criteria: ► Net cash at least 50% of market value ► At least as much insider buying as selling in past six months ► Price to tangible book less than 1.5x ► Market value more than $100 million │ Sorted by: Number of insider purchases; price to tangible book

EV/ P/E P/ Insiders Price ∆ to 52-Wk MV EV LTM Next Tang. # # Company Ticker ($) Low High ($mn) ($mn) Rev. FY Book Buys Sells 1 SiRF Technology Holdings Inc SIRF 2.04 -61% 294% 128 13 .1x nm 1.0x 21 - 2 Adaptec, Inc. ADPT 2.51 -8% 69% 306 -64 nm nm .8x 20 - 3 Adolor Corporation ADLR 2.47 -49% 147% 114 -32 nm nm 1.1x 16 - 4 ActivIdentity Corp. ACTI 2.27 -53% 50% 104 25 .4x nm 1.2x 13 - 5 Enstar Group Ltd. ESGR 49.61 -17% 172% 661 -1,562 nm 5x 1.3x 12 1 6 Harvest Natural Resources, I HNR 4.43 -26% 199% 146 28 2.5x 7x .5x 8 - 7 Calamos Asset Management, In CLMS 5.26 -52% 356% 103 -274 nm 10x .6x 7 - 8 OraSure Technologies, Inc. OSUR 3.07 -30% 154% 141 67 .9x 24x 1.3x 7 1 9 Ixia XXIA 5.68 -20% 65% 360 157 .9x 33x 1.5x 7 5

10 International Rectifier Corp IRF 13.90 -33% 85% 1,004 493 .6x nm .9x 6 - 11 Stoneleigh Partners Acquisit SOC 7.90 -8% 1% 269 43 nm na 1.2x 6 - 12 ModusLink Global Solutions, MLNK 2.24 -2% 590% 102 -19 nm na .3x 5 - 13 Tailwind Financial Inc. TNF 8.00 -7% 1% 125 22 9.7x na 1.3x 4 - 14 QLT Inc. (USA) QLTI 1.98 -15% 110% 148 -8 nm na .5x 3 - 15 Discover Financial Services DFS 7.01 -6% 183% 3,365 Nm nm 11x .6x 3 - 16 Cynosure, Inc. CYNO 8.17 -19% 221% 104 30 .2x 10x .7x 3 3 17 Novatel Wireless, Inc. NVTL 6.34 -56% 123% 192 56 .1x nm 1.0x 3 - 18 Interactive Brokers Group, I IBKR 15.35 -17% 133% 623 nm nm 7x 1.2x 3 - 19 Biodel Inc BIOD 4.94 -67% 290% 117 36 nm nm 1.5x 3 1 20 Thomas Weisel Partners Group TWPG 3.35 -22% 198% 108 20 .1x 335x .5x 2 1 21 JPMorgan Chase & Co. JPM 24.69 -28% 105% 92,163 Nm nm 8x 1.3x 2 1 22 BlackRock Real Asset Trust BCF 7.35 -33% 165% 417 -134 nm na .8x 1 - 23 Tecumseh Products Company TECUA 7.38 -3% 412% 136 62 .1x na .2x - - 24 Hutchison Telecom Intl. Limi HTX 3.55 -17% 548% 1,133 -2,230 nm na .2x - - 25 Qiao Xing Mobile Communicati QXM 2.36 -34% 236% 112 -127 nm na .3x - - 26 Orbotech Ltd. ORBK 4.19 -31% 356% 140 -21 nm nm .4x - - 27 Satyam Computer Services Lim SAY 1.91 -59% 1462% 643 -406 nm na .4x - - 28 Sierra Wireless, Inc. (USA) SWIR 3.98 -1% 432% 123 42 .1x na .4x - - 29 Gushan Environmental Energy GU 1.71 -12% 950% 143 -35 nm 3x .4x - - 30 Actions Semiconductor Co., L ACTS 1.45 -8% 173% 123 -143 nm na .4x - - 31 AEGON N.V. (ADR) AEG 5.01 -37% 236% 8,199 -3,373 nm 8x .5x - - 32 Acorn International, Inc. (A ATV 3.75 -69% 178% 108 -59 nm na .5x - - 33 Opnext, Inc. OPXT 1.76 -27% 304% 160 5 .0x nm .5x - - 34 United States Natural Gas Fu UNG 18.32 -2% 249% 575 -171 nm na .5x - - 35 HORSEHEAD HOLDING. ZINC 4.14 -45% 342% 146 66 .1x nm .5x - - 36 O2Micro International Limite OIIM 2.83 -37% 245% 104 0 nm nm .6x - - 37 Seanergy Maritime Holdings C SHIP 4.60 -32% 118% 132 -102 nm na .6x - - 38 FCStone Group, Inc. FCSX 4.62 -59% 997% 129 32 .1x 4x .6x - - 39 Rackable Systems, Inc. RACK 4.43 -19% 227% 132 -40 nm nm .6x - - 40 Gilat Satellite Networks Ltd GILT 3.43 -37% 227% 137 36 .1x 11x .6x - - 41 Penson Worldwide, Inc. PNSN 6.25 -25% 210% 157 -2,487 nm 6x .6x - - 42 Noah Education Holdings Ltd. NED 2.84 -35% 199% 114 -39 nm 7x .6x - - 43 Nam Tai Electronics, Inc. NTE 4.25 0% 214% 190 -38 nm na .6x - - 44 Flagstone Reinsurance Holdin FSR 8.24 -12% 66% 698 315 .6x na .7x - - 45 Celestica Inc. (USA) CLS 3.98 -19% 148% 912 416 .1x na .7x - - 46 Tongjitang Chinese Medicines TCM 3.20 -38% 183% 108 48 .6x 25x .7x - - 47 OmniVision Technologies, Inc OVTI 7.08 -42% 179% 354 110 .1x nm .7x - - 48 Zapata Corporation ZAP 6.13 -19% 19% 118 -36 nm na .7x - - 49 Syneron Medical Ltd. ELOS 5.98 -5% 202% 172 -25 nm 19x .7x - - 50 Sonus Networks, Inc. SONS 1.32 -14% 262% 360 42 .1x nm .7x - -

[MOI02 ● MOI - 1,2,4,5,6 ● MOIB]


Activist Targets: Underperformers Screening criteria: ► Bottom-50% rank in EBIT margin, ROE and asset turnover; LTM rank lower than rank two years ago ► Stock price lower than two and five years ago ► Insider ownership less than 20% ► Market value more than $100 million │ Sorted by: Market value

Price Percentile Rank vs. Industry Peers Change vs. EBIT Marg. ROE Asset Turn. Price MV EV 2 Yrs 5 Yrs 2 Yrs 2 Yrs 2 Yrs Company Ticker ($) ($mn) ($mn) Ago Ago LTM Ago LTM Ago LTM Ago

1 Time Warner Inc. TWX 8.67 31,108 64,409 -47% -55% 15 72 25 45 32 36 2 Freeport-McMoRan Co FCX 30.51 11,522 21,708 -70% -20% 11 83 13 84 37 53 3 Alcoa Inc. AA 7.48 5,986 15,857 -80% -76% 29 69 43 68 47 57 4 Weyerhaeuser Compan WY 26.12 5,519 9,104 -65% -61% 24 31 27 50 32 40 5 Southwest Airlines LUV 7.29 5,396 7,254 -40% -55% 31 53 46 51 42 53 6 Mylan Inc. MYL 11.80 3,596 8,637 -16% -33% 30 78 17 69 32 44 7 Constellation Brand STZ 15.01 3,284 7,885 -37% -35% 35 64 23 52 32 49 8 Newfield Exploratio NFX 21.80 2,883 5,072 -59% -26% 22 80 31 61 27 36 9 Micron Technology, MU 3.73 2,849 4,687 -49% -70% 23 28 21 28 32 40

10 D.R. Horton, Inc. DHI 8.96 2,838 4,386 -32% -70% 13 25 9 24 47 62 11 SanDisk Corporation SNDK 10.72 2,423 2,209 -68% -57% 17 50 18 39 37 44 12 Jefferies Group, In JEF 12.33 2,013 1,772 -47% -39% 18 55 23 52 7 32 13 Charles River Labor CRL 27.85 1,885 2,217 -58% -39% 24 71 22 49 37 44 14 Tellabs, Inc. TLAB 3.95 1,564 412 -40% -54% 18 36 20 35 42 44 15 AMB Property Corpor AMB 14.61 1,439 5,401 -75% -64% 19 80 46 60 7 17 16 Intersil Corporatio ISIL 11.33 1,392 1,079 -54% -32% 10 73 17 42 32 36 17 Novellus Systems, I NVLS 13.81 1,349 991 -50% -50% 22 70 33 59 42 53 18 Fifth Third Bancorp FITB 2.00 1,155 7,519 -92% -96% 31 84 25 55 0 17 19 Marshall & Ilsley C MI 4.22 1,120 13,423 -84% -88% 37 82 32 69 0 17 20 CIT Group Inc. CIT 2.84 1,104 59,192 -88% -94% 15 65 11 29 7 17 21 Cadence Design Syst CDNS 4.23 1,084 1,012 -75% -69% 9 73 8 65 27 40 22 International Recti IRF 13.90 1,004 493 -59% -69% 30 56 26 41 37 44 23 Gannett Co., Inc. GCI 4.19 956 4,741 -89% -95% 12 75 17 60 37 44 24 Integrated Device T IDTI 5.67 934 632 -50% -51% 21 30 26 30 32 40 25 Teradyne, Inc. TER 4.84 819 619 -53% -72% 40 41 34 42 47 53 26 FormFactor, Inc. FORM 16.06 788 265 -51% -41% 16 73 30 53 27 49 27 Redwood Trust, Inc. RWT 13.86 785 7,367 -60% -78% 5 68 1 60 7 17 28 JDS Uniphase Corpor JDSU 3.56 783 480 -73% -86% 18 25 18 29 42 44 29 MDS Inc. (USA) MDZ 6.36 764 926 -67% -55% 10 25 22 86 37 40 30 PNM Resources, Inc. PNM 8.50 735 2,955 -60% -66% 25 49 28 40 27 36 31 AmeriCredit Corp. ACF 5.23 689 12,321 -59% -79% 37 75 33 69 7 32 32 Fannie Mae FNM 0.60 646 821,042 -98% -99% 17 57 4 55 0 17 33 Vishay Intertechnol VSH 3.37 629 662 -70% -78% 17 52 14 38 47 49 34 ValueClick, Inc. VCLK 7.13 619 530 -67% -47% 13 71 23 55 47 57 35 ACI Worldwide Inc ACIW 17.01 594 575 -11% -14% 49 68 38 76 47 57 36 Piper Jaffray Compa PJC 29.10 550 578 -37% -39% 12 47 26 36 22 36 37 Post Properties, In PPS 11.66 515 1,554 -67% -67% 16 73 35 71 7 17 38 Electronics For Ima EFII 9.68 499 310 -57% -44% 13 32 36 38 42 44 39 Pinnacle Entertainm PNK 7.29 437 1,229 -69% -63% 24 59 35 61 32 49 40 Sonus Networks, Inc SONS 1.32 360 42 -77% -77% 42 53 38 81 37 44 41 Zoran Corporation ZRAN 6.71 343 -15 -70% -42% 19 34 20 53 42 53 42 Lundin Mining Corpo LMC 0.68 332 526 -93% -75% 16 84 26 58 22 36 43 RF Micro Devices, I RFMD 1.24 327 670 -78% -82% 13 60 12 59 37 66 44 Atlas Pipeline Part APL 6.90 317 1,995 -84% -84% 31 51 23 40 32 49 45 Brooks Automation, BRKS 4.67 298 186 -65% -73% 17 46 19 70 42 53 46 Orthofix Internatio OFIX 17.12 293 561 -70% -56% 19 52 14 36 47 49 47 Exar Corporation EXAR 6.77 291 49 -15% -52% 6 27 14 35 27 32 48 Applied Micro Circu AMCC 4.38 287 98 -50% -74% 10 23 14 28 37 40 49 Affymetrix, Inc. AFFX 3.32 233 185 -86% -91% 17 36 17 35 32 40 50 DURECT Corporation DRRX 2.80 230 180 -56% -15% 8 11 9 12 32 36

[MOI03 ● MOI – 3 ● MOIC]


Activist Targets: Sale, Liquidation or Recap Opportunities Screening criteria: ► Tangible book at least 50% of market value ► Current assets minus total liabilities at least 50% of market value ► Positive net cash ► Insider ownership less than 20% ► Market value more than $100 million │ Sorted by: Market value

Net Net Current Net P/ Assets Cash EV/ P/E

Price MV EV Tang. as % as % LTM Next Company Ticker ($) ($mn) ($mn) Book of MV of MV Rev. FY 1 Magna International Inc. (US MGA 30.56 3,441 1,729 .5x 62% 50% .1x na 2 Ingram Micro Inc. IM 12.67 2,089 1,739 .8x 113% 17% .0x 10x 3 Tellabs, Inc. TLAB 3.95 1,564 412 .9x 81% 74% .2x 21x 4 Foot Locker, Inc. FL 7.54 1,168 896 .6x 88% 23% .2x 15x 5 FormFactor, Inc. FORM 16.06 788 265 1.1x 72% 66% 1.3x nm 6 MKS Instruments, Inc. MKSI 15.89 781 521 1.5x 55% 33% .8x 99x 7 Benchmark Electronics, Inc. BHE 11.54 751 404 .7x 104% 46% .2x 11x 8 Cymer, Inc. CYMI 21.02 622 480 1.2x 55% 23% 1.0x nm 9 OM Group, Inc. OMG 20.04 611 492 .8x 81% 19% .3x 19x

10 Men's Wearhouse, Inc., The MW 10.99 569 556 .7x 51% 2% .3x 15x 11 Harmonic Inc. HLIT 5.88 559 232 1.7x 57% 59% .6x 13x 12 Verigy Ltd. VRGY 9.30 542 202 1.2x 54% 63% .3x nm 13 Electronics For Imaging, Inc EFII 9.68 499 310 1.2x 52% 38% .6x 15x 14 Emulex Corporation ELX 5.97 493 208 1.2x 66% 58% .5x 14x 15 ViroPharma Incorporated VPHM 6.23 490 72 1.1x 85% 85% .3x 8x 16 ScanSource, Inc. SCSC 18.53 489 458 1.3x 67% 6% .2x 11x 17 Plantronics, Inc. PLT 9.76 475 292 1.0x 76% 39% .4x 35x 18 JAKKS Pacific, Inc. JAKK 17.05 469 374 1.4x 59% 20% .4x 6x 19 Coherent, Inc. COHR 17.83 434 234 .9x 71% 46% .4x 15x 20 Analogic Corporation ALOG 30.72 407 245 1.1x 66% 40% .6x 15x 21 NetGear, Inc. NTGR 10.88 384 182 1.1x 84% 53% .2x 12x 22 TriQuint Semiconductor TQNT 2.57 375 289 .7x 54% 23% .5x na 23 Fred's, Inc. FRED 9.29 371 368 1.0x 63% 1% .2x 12x 24 Park Electrochemical Corp. PKE 17.95 367 153 1.3x 59% 58% .7x 16x 25 Sigma Designs, Inc. SIGM 13.80 364 232 1.3x 52% 36% 1.0x 17x 26 Ixia XXIA 5.68 360 157 1.5x 57% 56% .9x 33x 27 Sonus Networks, Inc. SONS 1.32 360 42 .7x 86% 88% .1x nm 28 OmniVision Technologies, Inc OVTI 7.08 354 110 .7x 79% 69% .1x nm 29 Imation Corp. IMN 9.21 347 251 .6x 115% 28% .1x 14x 30 Zoran Corporation ZRAN 6.71 343 -15 .7x 102% 104% nm nm 31 SonoSite, Inc. SONO 19.61 334 200 1.6x 57% 40% .8x 20x 32 RTI International Metals, In RTI 13.87 319 275 .6x 79% 14% .5x 9x 33 Adaptec, Inc. ADPT 2.51 306 -64 .8x 121% 121% nm nm 34 Brooks Automation, Inc.(USA) BRKS 4.67 298 186 .9x 58% 38% .4x nm 35 Exar Corporation EXAR 6.77 291 49 1.0x 83% 83% .4x nm 36 Applied Micro Circuits Corpo AMCC 4.38 287 98 1.1x 76% 66% .4x nm 37 Omnicell, Inc. OMCL 9.02 282 162 1.4x 53% 43% .6x 23x 38 Ultratech, Inc. UTEK 11.96 281 129 1.5x 63% 54% 1.0x 20x 39 Maxygen, Inc. MAXY 7.48 278 72 1.4x 69% 74% .7x nm 40 Actel Corporation ACTL 10.47 270 131 1.2x 58% 51% .6x 15x 41 L.B. Foster Company FSTR 26.24 269 181 1.2x 64% 33% .4x 12x 42 Superior Industries Internat SUP 10.04 268 157 .5x 66% 41% .2x nm 43 Mellanox Technologies, Ltd. MLNX 8.44 267 88 1.3x 72% 67% .8x 15x 44 Silicon Image, Inc. SIMG 3.49 259 74 1.1x 69% 72% .3x 58x 45 FARO Technologies, Inc. FARO 14.91 248 143 1.3x 63% 42% .7x 21x 46 Cirrus Logic, Inc. CRUS 3.70 241 130 1.6x 53% 46% .7x 37x 47 Finish Line, Inc., The FINL 4.40 241 186 .6x 75% 23% .1x 10x 48 Cohu, Inc. COHU 10.18 237 148 1.3x 59% 37% .7x na 49 InfoSpace, Inc. INSP 6.44 223 31 1.0x 81% 86% .2x 644x 50 Nabi Biopharmaceuticals NABI 4.28 222 104 1.8x 55% 53% nm nm

[MOI04 ● MOI – 1,2,4,5,6 ● MOID]


Greenblatt’s Magic Formula, based on Trailing Financials Screening criteria: ► Market value more than $100 million ► ADRs and banks excluded │ Sorted by: Equal-weighted average of two rankings: (1) LTM return on capital employed (“good business”), and (2) LTM EBIT-to-EV yield (“good price”)

LTM Insiders to EBIT/ Price 52-Wk MV EV EBIT/ Capital Tax # # Company Ticker ($) High ($mn) ($mn) EV Empl. Rate Buys Sells 1 Heidrick & Struggles Interna HSII 16.33 133% 267 84 82% 1559% 43% - - 2 Molina Healthcare, Inc. MOH 21.72 96% 581 203 55% 1333% 40% 3 11 3 KBR, Inc. KBR 14.97 157% 2,418 1,308 36% 5875% 38% - - 4 CTC Media, Inc. CTCM 3.65 770% 555 626 41% 290% 29% - - 5 Terra Industries Inc. TRA 24.62 134% 2,515 2,005 40% 229% 28% 1 10 6 EarthLink, Inc. ELNK 6.72 51% 728 540 30% 242% nm - 10 7 CF Industries Holdings, Inc. CF 54.68 216% 2,647 2,026 57% 147% 36% 6 15 8 Ituran Location and Control ITRN 8.17 69% 192 140 55% 148% 30% - - 9 Wright Express Corporation WXS 13.51 157% 517 514 38% 168% 35% 5 2

10 McDermott International MDR 13.06 414% 2,977 2,151 29% 241% 22% 8 - 11 Hackett Group, Inc., The HCKT 2.59 157% 102 76 25% 406% 2% - - 12 Capital One Financial Corp. COF 12.11 424% 4,713 8,627 24% 470% 85% 1 5 13 VAALCO Energy, Inc. EGY 8.11 11% 472 374 33% 164% 63% - - 14 HLTH Corporation HLTH 11.68 9% 2,167 1,152 43% 131% 3% - 5 15 Herbalife Ltd. HLF 20.69 147% 1,321 1,497 24% 342% 30% 10 1 16 Energen Corporation EGN 31.39 153% 2,251 2,824 20% 3470% 37% - 2 17 Korn/Ferry International KFY 10.37 98% 464 262 33% 125% 36% 1 - 18 Bare Escentuals, Inc. BARE 3.68 713% 337 558 32% 126% 39% 1 - 19 CNA Surety Corporation SUR 17.36 32% 767 789 20% 1362% 31% 1 - 20 SEI Investments Company SEIC 13.50 100% 2,573 2,181 23% 250% 38% 1 25 21 MetLife, Inc. MET 26.80 144% 21,268 37,353 21% 482% 31% 5 - 22 Coach, Inc. COH 13.97 169% 4,485 4,088 27% 151% 34% 5 1 23 Pre-Paid Legal Services, Inc PPD 32.79 61% 381 413 24% 188% 43% - 14 24 China-Biotics Inc. CHBT 8.00 63% 137 94 20% 613% 22% - 2 25 True Religion Apparel, Inc. TRLG 10.56 201% 258 203 32% 106% 38% - 3 26 Martha Stewart Living Omnime MSO 2.53 295% 139 89 30% 113% 3% - 7 27 Solutia Inc. SOA 4.25 324% 401 1,767 85% 81% 17% 19 - 28 AmSurg Corp. AMSG 19.55 48% 615 784 27% 130% 39% - 9 29 Innophos Holdings, Inc. IPHS 14.93 178% 314 571 52% 78% 23% - 23 30 Terra Nitrogen Company, L.P. TNH 125.26 37% 2,341 2,268 18% 1540% nm - - 31 Perini Corporation PCR 22.29 101% 1,122 783 21% 223% 38% 4 2 32 Georgia Power Company GPW 24.06 5% 223 7,801 21% 215% 33% - - 33 Maxygen, Inc. MAXY 7.48 27% 278 72 35% 83% nm - - 34 Garmin Ltd. GRMN 17.20 326% 3,484 2,944 32% 85% 17% 8 - 35 OpenTV Corp. OPTV 1.12 88% 156 60 24% 129% 1% - 2 36 World Acceptance Corp. WRLD 18.51 148% 299 582 18% 785% 38% 1 5 37 Darling International Inc. DAR 5.16 240% 422 419 33% 83% 38% 1 2 38 Chart Industries, Inc. GTLS 7.99 597% 227 321 39% 78% 29% 3 4 39 Herman Miller, Inc. MLHR 11.78 185% 632 835 29% 93% 34% - 1 40 San Juan Basin Royalty Trust SJT 17.96 163% 837 816 17% 4325% nm - - 41 MEMC Electronic Materials, I WFR 16.11 439% 3,616 2,511 34% 79% 33% 2 - 42 Take-Two Interactive Softwar TTWO 7.78 259% 604 394 29% 87% 13% - 4 43 Torchmark Corporation TMK 27.49 140% 2,338 3,318 20% 207% 32% 3 3 44 NutriSystem Inc. NTRI 13.78 78% 408 350 28% 87% 36% - 23 45 America's Car-Mart, Inc. CRMT 10.54 119% 124 162 20% 178% 36% 1 9 46 EMCOR Group, Inc. EME 21.02 72% 1,376 1,236 23% 111% 39% 1 4 47 American Oriental Bioenginee AOB 4.81 155% 376 283 25% 94% 20% - - 48 Global Cash Access Holdings, GCA 2.59 203% 215 452 16% 4103% 41% 6 1 49 Federal-Mogul Corporation FDML 7.00 203% 704 2,830 70% 61% 20% 2 - 50 Gentiva Health Services, Inc GTIV 27.16 10% 783 982 20% 147% 15% - -

[MOI07 ● Expanded Greenblatt View ● MOIG]


Greenblatt’s Magic Formula, based on This FY Estimates Screening criteria: ► Market value more than $100 million ► ADRs and banks excluded │ Sorted by: Equal-weighted average of two rankings: (1) This FY estimated return on tangible equity (“good business”), and (2) This FY estimated earnings yield (“good price”)

LTM Insiders to EBIT/ Price 52-Wk MV EV EBIT/ Capital Tax # # Company Ticker ($) High ($mn) ($mn) EV Empl. Rate Buys Sells 1 Heidrick & Struggles Interna HSII 16.33 133% 267 84 82% 1559% 43% - - 2 Molina Healthcare, Inc. MOH 21.72 96% 581 203 55% 1333% 40% 3 11 3 KBR, Inc. KBR 14.97 157% 2,418 1,308 36% 5875% 38% - - 4 Terra Industries Inc. TRA 24.62 134% 2,515 2,005 40% 229% 28% 1 10 5 CF Industries Holdings, Inc. CF 54.68 216% 2,647 2,026 57% 147% 36% 6 15 6 Ituran Location and Control ITRN 8.17 69% 192 140 55% 148% 30% - - 7 EarthLink, Inc. ELNK 6.72 51% 728 540 30% 242% nm - 10 8 HLTH Corporation HLTH 11.68 9% 2,167 1,152 43% 131% 3% - 5 9 VAALCO Energy, Inc. EGY 8.11 11% 472 374 33% 164% 63% - -

10 McDermott International MDR 13.06 414% 2,977 2,151 29% 241% 22% 8 - 11 Hackett Group, Inc., The HCKT 2.59 157% 102 76 25% 406% 2% - - 12 Korn/Ferry International KFY 10.37 98% 464 262 33% 125% 36% 1 - 13 Capital One Financial Corp. COF 12.11 424% 4,713 8,627 24% 470% 85% 1 5 14 Solutia Inc. SOA 4.25 324% 401 1,767 85% 81% 17% 19 - 15 True Religion Apparel, Inc. TRLG 10.56 201% 258 203 32% 106% 38% - 3 16 Martha Stewart Living Omnime MSO 2.53 295% 139 89 30% 113% 3% - 7 17 Coach, Inc. COH 13.97 169% 4,485 4,088 27% 151% 34% 5 1 18 SEI Investments Company SEIC 13.50 100% 2,573 2,181 23% 250% 38% 1 25 19 Innophos Holdings, Inc. IPHS 14.93 178% 314 571 52% 78% 23% - 23 20 Energen Corporation EGN 31.39 153% 2,251 2,824 20% 3470% 37% - 2 21 MetLife, Inc. MET 26.80 144% 21,268 37,353 21% 482% 31% 5 - 22 CNA Surety Corporation SUR 17.36 32% 767 789 20% 1362% 31% 1 - 23 Garmin Ltd. GRMN 17.20 326% 3,484 2,944 32% 85% 17% 8 - 24 Darling International Inc. DAR 5.16 240% 422 419 33% 83% 38% 1 2 25 Chart Industries, Inc. GTLS 7.99 597% 227 321 39% 78% 29% 3 4 26 Herman Miller, Inc. MLHR 11.78 185% 632 835 29% 93% 34% - 1 27 MEMC Electronic Materials, I WFR 16.11 439% 3,616 2,511 34% 79% 33% 2 - 28 China-Biotics Inc. CHBT 8.00 63% 137 94 20% 613% 22% - 2 29 Take-Two Interactive Softwar TTWO 7.78 259% 604 394 29% 87% 13% - 4 30 OpenTV Corp. OPTV 1.12 88% 156 60 24% 129% 1% - 2 31 NutriSystem Inc. NTRI 13.78 78% 408 350 28% 87% 36% - 23 32 Perini Corporation PCR 22.29 101% 1,122 783 21% 223% 38% 4 2 33 Federal-Mogul Corporation FDML 7.00 203% 704 2,830 70% 61% 20% 2 - 34 American Oriental Bioenginee AOB 4.81 155% 376 283 25% 94% 20% - - 35 EMCOR Group, Inc. EME 21.02 72% 1,376 1,236 23% 111% 39% 1 4 36 Torchmark Corporation TMK 27.49 140% 2,338 3,318 20% 207% 32% 3 3 37 Volcom, Inc. VLCM 8.71 232% 212 139 41% 61% 36% - 6 38 World Acceptance Corp. WRLD 18.51 148% 299 582 18% 785% 38% 1 5 39 America's Car-Mart, Inc. CRMT 10.54 119% 124 162 20% 178% 36% 1 9 40 Cal-Maine Foods, Inc. CALM 23.73 106% 565 656 30% 67% 35% - 13 41 National-Oilwell Varco, Inc. NOV 28.43 226% 11,865 11,196 26% 81% 34% 7 - 42 Graham Corporation GHM 9.97 451% 101 56 47% 55% 33% 1 2 43 San Juan Basin Royalty Trust SJT 17.96 163% 837 816 17% 4325% nm - - 44 Fuqi International, Inc. FUQI 4.77 151% 105 71 42% 54% 15% - - 45 Guess?, Inc. GES 16.66 171% 1,569 1,393 26% 71% 37% - 11 46 Genesco Inc. GCO 14.91 160% 287 412 61% 51% 43% - 2 47 Humana Inc. HUM 42.75 70% 7,217 3,205 33% 54% 35% 5 3 48 Chevron Corporation CVX 69.73 50% 141,677 137,655 31% 55% 44% - - 49 Obagi Medical Products, Inc. OMPI 6.63 174% 150 126 20% 108% 41% - 1 50 Dynamex, Inc. DDMX 11.89 173% 116 106 23% 75% 40% 12 -

[MOI08 ● Expanded Greenblatt View ● MOIG, MOIH, m. sort]


Greenblatt’s Magic Formula, based on Next FY Estimates Screening criteria: ► Market value more than $100 million ► ADRs and banks excluded │ Sorted by: Equal-weighted average of two rankings: (1) Next FY estimated return on tangible equity (“good business”), and (2) Next FY estimated earnings yield (“good price”)

Next FY EPS / Insiders to Tangible Price Price 52-Wk MV EV Book per # # Company Ticker ($) High ($mn) ($mn) Share Buys Sells 1 Chemtura Corporation CEM 0.69 1177% 167 1,156 2182% 26% 5 - 2 Continental Airlines, Inc. CAL 13.01 136% 1,439 4,451 193% 41% - - 3 Solutia Inc. SOA 4.25 324% 401 1,767 1495% 22% 19 - 4 Chart Industries, Inc. GTLS 7.99 597% 227 321 22434% 20% 3 4 5 James River Coal Company JRCC 15.90 295% 436 570 115% 24% 23 - 6 Cash America International, CSH 17.52 179% 515 924 223% 20% - 1 7 China Security & Surveillanc CSR 5.51 295% 253 344 70% 39% 4 - 8 Walter Industries, Inc. WLT 21.45 422% 1,166 2,743 69% 30% 9 - 9 PDL BioPharma Inc. PDLI 6.31 89% 754 733 232% 18% - -

10 Alliance Holdings GP, L.P. AHGP 17.37 78% 1,040 1,252 95% 22% - - 11 Avocent Corporation AVCT 13.12 92% 588 631 1728% 16% - 2 12 GT Solar International, Inc. SOLR 5.13 231% 733 639 587% 16% - - 13 Pacer International, Inc. PACR 4.95 409% 173 227 64% 26% 1 2 14 Steel Dynamics, Inc. STLD 12.73 221% 2,313 4,947 167% 17% 12 18 15 Bucyrus International, Inc. BUCY 15.10 426% 1,130 1,584 69% 23% 4 - 16 Ashland Inc. ASH 7.72 659% 569 2,815 75% 21% 7 3 17 Exide Technologies XIDE 3.45 470% 260 799 44% 48% 3 - 18 Fortress Investment Group LL FIG 1.76 809% 716 1,207 83% 19% - - 19 MV Oil Trust MVO 10.60 178% 122 122 61% 22% - - 20 General Steel Holdings, Inc. GSI 2.97 462% 107 429 52% 24% - - 21 Joy Global Inc. JOYG 21.03 328% 2,148 2,514 160% 16% - - 22 Heartland Payment Systems, I HPY 8.44 291% 318 424 1076% 15% 2 30 23 CIGNA Corporation CI 21.30 130% 5,788 7,115 64% 20% 1 10 24 GrafTech International Ltd. GTI 9.26 202% 1,102 1,233 50% 23% 1 - 25 Amtrust Financial Services, AFSI 8.21 113% 493 652 44% 26% - - 26 Quiksilver, Inc. ZQK 1.57 580% 200 1,208 41% 32% 3 1 27 Coventry Health Care, Inc. CVH 16.18 241% 2,410 2,852 186% 15% 9 - 28 Net1 Ueps Technologies In UEPS 15.32 97% 853 732 103% 15% - 2 29 Belden Inc. BDC 14.18 206% 659 1,022 106% 15% 16 9 30 Superior Energy Services, In SPN 15.92 263% 1,234 1,818 45% 21% 3 2 31 Dynamic Materials Corporatio BOOM 12.20 401% 155 207 139% 14% - 1 32 AFLAC Incorporated AFL 20.51 235% 9,570 11,291 37% 26% 4 4 33 SLM Corporation SLM 8.69 188% 4,062 160,823 42% 21% 9 1 34 Innospec Inc. IOSP 4.73 446% 112 188 35% 28% - 3 35 Pfizer Inc. PFE 14.58 57% 98,312 87,867 60% 16% - - 36 China Information Security T CPBY 3.56 124% 168 147 44% 20% - - 37 Ship Finance International L SFL 11.40 189% 829 3,137 34% 28% - - 38 Mosaic Company, The MOS 42.88 281% 19,055 17,657 53% 17% 5 1 39 General Cable Corporation BGC 18.55 304% 960 2,128 49% 17% 7 - 40 A-Power Energy Generation Sy APWR 5.11 524% 167 107 35% 24% - - 41 Cal-Maine Foods, Inc. CALM 23.73 106% 565 656 40% 20% - 13 42 Atwood Oceanics, Inc. ATW 17.35 266% 1,114 1,267 33% 27% - - 43 Cracker Barrel Old Country S CBRL 18.71 108% 419 1,226 62% 15% - - 44 Dell Inc. DELL 9.12 186% 17,733 11,278 141% 13% 3 1 45 Ness Technologies, Inc. NSTC 3.68 253% 146 176 37% 21% 1 2 46 JDA Software Group, Inc. JDAS 11.24 87% 350 367 79% 14% - 10 47 Diamond Offshore Drilling, I DO 63.41 133% 8,814 8,581 45% 17% - - 48 Sepracor Inc. SEPR 16.86 47% 1,836 1,602 54% 16% 1 - 49 Snap-on Incorporated SNA 28.46 119% 1,635 2,034 129% 13% 1 2 50 CONSOL Energy Inc. CNX 31.53 278% 5,693 6,603 58% 15% - 1

[MOI09 ● Expanded Greenblatt View ● MOII]


Greenblatt’s Magic Formula, based on 2013 EPS Ests Screening criteria: ► Market value more than $100 million ► ADRs and banks excluded │ Sorted by: Equal-weighted average of two rankings: (1) Next FY estimated return on tangible equity (“good business”), and (2) Next FY estimated earnings yield (“good price”)

5-Year EPS Est / Insiders to Tangible Price Price 52Wk MV EV Book per # # Company Ticker ($) High ($mn) ($mn) Share Buys Sells 1 GT Solar International, Inc. SOLR 5.13 231% 733 639 1971% 54% - - 2 Walter Industries, Inc. WLT 21.45 422% 1,166 2,743 444% 191% 9 - 3 Chart Industries, Inc. GTLS 7.99 597% 227 321 40239% 35% 3 4 4 Continental Airlines, Inc. CAL 13.01 136% 1,439 4,451 278% 59% - - 5 PDL BioPharma Inc. PDLI 6.31 89% 754 733 465% 36% - - 6 Massey Energy Company MEE 15.42 521% 1,313 2,132 152% 120% 4 - 7 Chemtura Corporation CEM 0.69 1177% 167 1,156 2182% 26% 5 - 8 Heartland Payment Systems HPY 8.44 291% 318 424 1886% 26% 2 30 9 Cash America International CSH 17.52 179% 515 924 313% 28% - 1

10 Avocent Corporation AVCT 13.12 92% 588 631 2471% 24% - 2 11 CONSOL Energy Inc. CNX 31.53 278% 5,693 6,603 134% 35% - 1 12 Sohu.com Inc. SOHU 47.39 93% 1,826 1,512 169% 30% - - 13 Solutia Inc. SOA 4.25 324% 401 1,767 1495% 22% 19 - 14 China Information Security CPBY 3.56 124% 168 147 106% 47% - - 15 Bucyrus International, Inc. BUCY 15.10 426% 1,130 1,584 104% 35% 4 - 16 A-Power Energy Generation APWR 5.11 524% 167 107 85% 60% - - 17 Net1 Ueps Technologies UEPS 15.32 97% 853 732 169% 25% - 2 18 Fortress Investment Group FIG 1.76 809% 716 1,207 117% 27% - - 19 Pacer International, Inc. PACR 4.95 409% 173 227 85% 34% 1 2 20 Ashland Inc. ASH 7.72 659% 569 2,815 100% 28% 7 3 21 Steel Dynamics, Inc. STLD 12.73 221% 2,313 4,947 208% 21% 12 18 22 AirTran Holdings, Inc. AAI 4.33 106% 508 1,331 70% 49% 1 1 23 Atwood Oceanics, Inc. ATW 17.35 266% 1,114 1,267 67% 55% - - 24 Bally Technologies Inc. BYI 21.63 109% 1,181 1,398 149% 22% - - 25 Dynamic Materials Corporatio BOOM 12.20 401% 155 207 200% 21% - 1 26 China Security & Surveillanc CSR 5.51 295% 253 344 70% 39% 4 - 27 James River Coal Company JRCC 15.90 295% 436 570 115% 24% 23 - 28 Joy Global Inc. JOYG 21.03 328% 2,148 2,514 205% 20% - - 29 Coventry Health Care, Inc. CVH 16.18 241% 2,410 2,852 247% 19% 9 - 30 Diamond Offshore Drilling DO 63.41 133% 8,814 8,581 77% 29% - - 31 Fuqi International, Inc. FUQI 4.77 151% 105 71 61% 71% - - 32 GrafTech International Ltd. GTI 9.26 202% 1,102 1,233 71% 32% 1 - 33 American Apparel Inc. APP 2.30 452% 163 266 63% 49% - - 34 Hackett Group, Inc. HCKT 2.59 157% 102 76 90% 26% - - 35 Smith Micro Software, Inc. SMSI 5.34 71% 167 136 84% 26% - 1 36 Quiksilver, Inc. ZQK 1.57 580% 200 1,208 62% 48% 3 1 37 China-Biotics Inc. CHBT 8.00 63% 137 94 73% 28% - 2 38 China Fire & Security Group CFSG 7.45 74% 206 184 79% 27% - - 39 CIGNA Corporation CI 21.30 130% 5,788 7,115 84% 26% 1 10 40 Peabody Energy Corporation BTU 28.25 214% 7,532 10,239 72% 28% 2 - 41 Foundation Coal Holdings FCL 18.92 374% 843 1,401 91% 24% 1 1 42 Amtrust Financial Services, AFSI 8.21 113% 493 652 62% 36% - - 43 Esterline Technologies ESL 38.09 65% 1,131 1,372 139% 20% - - 44 Alpha Natural Resources, Inc ANR 22.53 430% 1,589 1,452 65% 28% - 1 45 T-3 Energy Services, Inc. TTES 12.92 556% 162 192 64% 29% - - 46 Deckers Outdoor Corporation DECK 54.67 168% 715 647 66% 27% 1 - 47 Sepracor Inc. SEPR 16.86 47% 1,836 1,602 82% 24% 1 - 48 SLM Corporation SLM 8.69 188% 4,062 160,823 61% 31% 9 1 49 Alliance Holdings GP AHGP 17.37 78% 1,040 1,252 95% 22% - - 50 Symmetry Medical SMA 6.57 235% 235 374 101% 21% 1 1

[MOI09 ● Expanded Greenblatt View ● MOIJ]


OPINION

How Can an Investor Explain Losing Money In 2008 By Nadav Manham “People give themselves away… They make certain kinds of comments… It’s the very things they talk about. There are a lot of clues in the things they think are important.”

—Warren Buffett

Most professional money managers, even the best known superinvestors of today, lost money in 2008. Those who “invest in investors” find themselves having to choose whether to redeem their capital, remain invested, or even add to funds. The task is more difficult than it appears, especially for old-fashioned value investors who seek long-term outperformance with little risk of permanent capital loss. On the one hand, “If they lost a lot of money last year, kick them out!” is not always the best course to follow, for investing is an unusual game in that today’s losses can often (but not always) set the stage for tomorrow’s gains. Value investing legends like Charles Munger and William Ruane suffered large losses in the 1973-1974 bear market, as did Benjamin Graham himself during the Great Depression. Those who stayed the course with these managers were more than rewarded, while those who kicked them out ended up kicking themselves. On the other hand, rushing to invest with those few managers who actually made money in 2008 can also be a false guide. Most of the great Wall Street prophets of earlier ages, those who “called” this crash or that, later faded into obscurity. More cynically, some take advantage of their new status as prophets to multiply their assets under management to levels that must penalize future results (for their investors, not themselves).

Ideally, the value hedge fund limited partner

evaluates his investor simply by stepping into his shoes and evaluating his current portfolio for its expected return and the all-important margin of safety. Just as a hedge fund manager strives to understand the companies in which he invests as well as their executives do, so too can the LP strive to understand his money manager’s investments as well as the manager himself. The LP can also perform a post-mortem on results achieved so far and try to figure out how that record was achieved, which is more important as a guide to the future than the record itself. However, the real world of the investor in investors, especially those in value-oriented and smaller funds, often falls short of this ideal. Many if not most of these investors are not professional investors themselves and therefore lack the expertise to perform this evaluation. Even those who invest in hedge funds for a living often lack access to the information required to fully step into

their managers’ shoes, their protests to the contrary notwithstanding. How then to proceed?

An alternative, perhaps the only alternative for the

non-expert LP, is to revisit the character and investing principles of the money manager. Sometimes character flaws are easy to spot after a year of large losses—a manager prevents investors from withdrawing while continuing to charge fees on that “hostage” capital, or he abandons a losing fund only to start up another without any compensation to the old investors—but often they are more subtle, and reveal themselves only in how a manager chooses to communicate with his investors. Ours is a quantitative field, so this kind of qualitative evaluation is not emphasized. But as the above quote from Warren Buffett shows, people unwittingly reveal themselves in how they communicate. Qualities of intellectual honesty, consistency of principles, and “truth in advertising” shine through, and give the non-expert LP a kind of scorecard to follow when judging investment managers. Conversely, money managers themselves should take great care in how they communicate, as they can be judged by their words, by both expert and non-expert investors, especially during difficult periods like the present one.

As an example: Hedge fund managers who espouse a

value philosophy often claim to adhere to the following three principles:

1) I invest to maximize long-term results. 2) I don’t believe it’s possible to “time the market”

in the short-term. 3) I should make money every year, therefore I

should apologize when I don’t. Each principle in and of itself is admirable, and all are

the kinds of things LPs like and probably demand to hear, but a closer look reveals that, for value investors at least, any two principles can be true only at the expense of weakening the third one. A value investor who wants to maximize long-term returns and doesn’t think he can time the market must accept the probability of short-term losses as the unavoidable price of doing so. David Swensen of Yale has been almost alone among endowment investors in making the obvious point that no portfolio with a multi-generational time horizon should concern itself with avoiding occasional losing years. An investor who eschews market timing and also wants to make money every year can do so, but only at the expense of avoiding equity-like assets like stocks in favor of safer bond-like instruments. And finally, there is nothing shameful or even impossible about trying to invest for the long-term while also trying to make money every year, but those who do so should admit that they do try to see around corners and “time the market.” Even the decision to hold cash instead of equities is a kind of market timing


call, although it’s impolite to admit it. With the exception of those, like Buffett and Seth Klarman, whose pools of capital are large enough that when they say “I hold cash because I can’t find anything else to buy” they really mean it, investors who hold a combination of cash and equities could simply take the cash and use it to buy more of what they already own. That they choose not to is not necessarily wrong, nor is it something to hide, but it should be called what it is: something very close to market timing, a bet that tomorrow’s universe of opportunities will be better than today’s. Most great value investors avoid sitting too heavily on this three-legged stool of logic (some still do, but they’ve probably earned the right), and instead openly acknowledge the tradeoffs inherent in trying to achieve all three goals in an uncertain world.

Another example of intellectual dishonesty and less-

than-truthful advertising: If you are a long-term investor in a hedge fund, and your manager boasts loudly of having preserved your capital during the difficult last months of 2008, whatever comfort you take should be tempered by the knowledge that such heroics come at a price. Your manager either believes himself capable of calling the bottom, which is fine as long as he admits it (which he likely doesn’t, or in fact claims is impossible) or perhaps he has chosen to forgo investing in undervalued opportunities for fear of losing money in the short term, in which case he’s not serving your interests as a long-term investor. Contrast this with the candor of Jeremy Grantham in a recent Fortune interview, who with the wisdom of King Solomon admitted that the only way out of this problem is to somehow split the baby:

“How bad will you feel if you put in your cash

reserves and the market continues to go down? You’re going to feel awful. And how will you feel if you don’t buy in the cheapest market for 20 years and it runs away and leaves you? Horrible. You have to step your way through so that the regret, which is going to be huge anyway, is about neutral.”

Another example: The common “apology” for poor

2008 performance, preceded by the inevitable “We’re seeing great opportunities in XYZ” from previous years’ communications. Any money manager who accepted exposure to equities going into 2008 presumably believed that at prices then prevailing such exposure promised long-term outperformance. In 2008, however, all forms of equity—that is, of ownership of enterprise—were punished, even those whose long-run intrinsic value has not changed much if at all. If you’re in the business of owning businesses, as most value investors are, you had nowhere to hide in 2008. That’s a risk inherent in ownership. If your money manager apologizes for it, does he also apologize for what he wrote in 2007? Does he take it back?

Here’s another one, a particular pet peeve of mine:

When a manager writes, “We feel awful about 2008, but the good news is we’ve never seen better buying opportunities [so please stick around!].” This kind of advertising should make an LP wary, even if strictly speaking it’s true. If a money manager does not endorse market timing (and most don’t), he shouldn’t ask his investors to engage in money manager timing either. The manager who can only promise a good spring after a terrible winter sets himself too low a task—his job is to outperform in all seasons. Either he can do that or he can’t. Those who advertise their ability to achieve high highs only after low lows (the implication that you end up where you started) should consider a career in roller coaster design, not money management.

Finally, perhaps the most popular recent example of

“principle drift” I’ve seen among professional value investors. Most value investors swear by the notion of staying within their circle of competence. Most, until recently, have also disdained macroeconomic forecasting, many with great pleasure. Therefore it’s ironic to see so many “going Soros” for the first time by filling their investor letters with bold macro pronouncements on currencies, metals, the next six months, what the Fed should do, etc., like atheists who suddenly get religion when they find themselves in foxholes. Some say “I have to in today’s market,” and some will no doubt succeed at this new kind of investing, but experience suggests that it’s both difficult and dangerous for value investors to change their stripes, even if the environment seemingly cries out for them to do so.

It’s also easy to forget in these dark times that today

is not the first time the macro environment has looked bleak, and that such turmoil does not require an investor to become an expert in macro predictions. Both Benjamin Graham and John Maynard Keynes thought long and hard and brilliantly about the economy during the Great Depression, but as theorists only. As investors they avoided any attempts to profit from macro forecasting, with good results. The 1973-1974 bear market kicked off an unprecedented period of political and macro instability: Post-Watergate malaise, post-gold standard fears of paper money, oil shocks, stagflation, a 20% federal funds rate, etc. If ever there was a time you “needed” to have a macro view it was then. But that period turned out to be the best time to forget all that and invest in the straight-ahead Graham and Dodd style. From 1975 through 1982, when the economic environment finally calmed down a little, Berkshire Hathaway’s worst annual gain in book value was 19.3%. Tweedy, Browne averaged over 25% per year, Sequoia over 30%. And Walter Schloss, who probably couldn’t even spell “macroeconomic,” returned 37.5% in that period of turmoil. The best modern value investors are aware of this paradox of investing history, and don’t try to seduce their


LPs with their economic brilliance at the expense of value investing principles. Seth Klarman said it best: “We worry top-down, but we invest bottom-up.”

I don’t mean to judge too harshly those money

managers who I find guilty of flawed communication, although I’d point out that those with the best long-term performance records almost never make these errors. Many would protest that it’s almost a job requirement to communicate this way, or else investors will desert them. They may be right, but there is a lesson in the exceptions I’ve cited—Buffett, Grantham, Klarman, and Swensen. They all happen to live and work away from Wall Street, which is probably not a coincidence. They also happen to be geniuses at what they do, with credibility that only comes with decades of superior performance.

But they have another thing in common: By a

combination of deliberate choice and the credibility won over years, they’ve taken great care to have “bosses” who share fully their investment goals and principles, true partners whose behavior contributes its fair share to their performance. Therefore, money managers, consider the unexpected upside of being truly honest with your existing and potential investors, even if it drives some away. It’s impolite to say so, but there is such a thing as a bad limited partner, one who makes his manager’s life much more difficult and takes him away from the ideal of being able to manage outside money as if it were his own. Not only that, but the money manager who accepts bad LPs punishes not only himself, but also his good LPs, who bear much of the costs. Eventually, everyone gets the investors they deserve. It works the other way too, so make sure your investors deserve you too. Nadav Manham is the president of Elera Advisors LLC, an investment advisory firm in New York. He publishes “The Investor’s Consigliere,” a blog focused on investment manager selection with an emphasis on value investors. He can be reached at [email protected].


About the MOI © 2008 by BeyondProxy LLC. All rights reserved. All content is protected by U.S. and international copyright laws and is the property of BeyondProxy and any third-party providers of such content. The U.S. Copyright Act imposes liability of up to $150,000 for each act of willful infringement of a copyright. The Manual of Ideas is published quarterly by BeyondProxy. Subscribers may download content to their computer and store and print materials for their individual use only. Any other reproduction, transmission, display or editing of the content by any means, mechanical or electronic, without the prior written permission of BeyondProxy is strictly prohibited. Terms of use: Use of this newsletter and its content is governed by the Terms of Use described in detail at www.manualofideas.com. See a summary of key terms below. Contact information: For all customer service, subscription or other inquiries, please visit www.manualofideas.com, or contact us at BeyondProxy, P.O. Box 1375, New York, NY 10150; telephone: 212-308-1989. Editor-in-chief: John Mihaljevic. Annual subscription price: $999. General Publication Information and Terms of Use The Manual of Ideas is published by BeyondProxy. Use of this newsletter and its content is governed by the Terms of Use described in detail at www.manualofideas.com/terms.html. For your convenience, a summary of certain key policies, disclosures and disclaimers is reproduced below. This summary is meant in no way to limit or otherwise circumscribe the full scope and effect of the complete Terms of Use. No Investment Advice This newsletter is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This newsletter is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. It does not constitute a

general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in this newsletter will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in this newsletter may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Disclaimers There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this newsletter. BeyondProxy will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this newsletter, caused in whole or in part by its negligence in compiling, interpreting, reporting or delivering the content in this newsletter. Related Persons BeyondProxy’s officers, directors, employees and/or principals (collectively “Related Persons”) may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated in this newsletter. John Mihaljevic, Chairman of BeyondProxy, is also a principal of Mihaljevic Capital Management LLC (“MCM”), which serves as the general partner of a private investment partnership. MCM may purchase or sell securities and financial instruments discussed in this newsletter on behalf of the investment partnership or other accounts it manages. It is the policy of MCM and all Related Persons to allow a full trading day to elapse after the publication of this newsletter before purchases or sales of any securities or financial instruments discussed herein are made. Compensation BeyondProxy receives compensation in connection with the publication of this newsletter only in the form of subscription fees charged to subscribers and reproduction or re-dissemination fees charged to subscribers or others interested in the newsletter content.

WE’VE BEEN CALLED MANY THINGS.

BUT WE’RE NOT COMPLAINING.

“INVALUABLE.” “IMPRESSIVE.” “INCREDIBLE.” “TREASURE TROVE.” “WINNER.”

The Manual of Ideas research team is gratified to have won high praise for our investment idea generation process and analytical work.

“We do similar work ourselves.”

—GLENN GREENBERG, FOUNDER AND MANAGING DIRECTOR, CHIEFTAIN CAPITAL MANAGEMENT, INC.

“I highly recommend MOI — the thoroughness of the product coupled with the quality

of the content makes it an invaluable tool for the serious investor.” —TIM DAVIS, MANAGING DIRECTOR, BLUESTEM ASSET MANAGEMENT, LLC

“This is the best institutional-quality equity research to come along in a long time. It not only unearths companies with compelling risk-reward profiles but also analyzes them with a clear understanding of business economics and competitive dynamics.” —PAVEL SAVOR, ASSISTANT PROFESSOR OF FINANCE, THE WHARTON SCHOOL OF

THE UNIVERSITY OF PENNSYLVANIA

FIND OUT WHAT THE BUZZ IS ABOUT.*

WWW.MANUALOFIDEAS.COM

* Portfolio Manager’s Review is accepting new subscribers by referral only.

Email us at [email protected] if you wish to subscribe (include the name of your referrer). Alternatively, you may join the waiting list by visiting our website.

portfolio manager's review, february 2009 (by the manual of ideas)

Documents