ASSET ANALYSIS FOCUS · Hanesbrands Inc. HBI $22.42 14 Heckmann Corporation HEK $6.34 15 ... benefited from improved credit quality and reserve release in its credit card portfolio

BoyarThe Forgotten Forty

ASSET ANALYSIS FOCUS FORGOTTEN FORTY FACT SHEETS

Volume XXXVII, Issue XI & XII – Winter 2011

TABLE OF CONTENTS

Letter to Subscribers ................................................................................................................. i – v

Appendix ...................................................................................................................................... A1

Company Symbol Price Page AMC Networks Inc. AMCX $35.00 1 Bank of America Corporation BAC $5.23 2 The Bank of New York Mellon Corporation BK $18.58 3 Berkshire Hathaway, Inc. BRK-A $113,200.00 4 Broadridge Financial Solutions, Inc. BR $22.10 5 Cablevision Systems Corporation CVC $14.00 6 Campbell Soup Company CPB $32.28 7 Cisco Systems, Inc. CSCO $17.98 8 Comcast Corporation CMCSK $22.99 9 CVS Caremark Corporation CVS $37.04 10 Dell Inc. DELL $15.05 11 Equifax Inc. EFX $37.35 12 Expedia, Inc. EXPE $27.37 13 Hanesbrands Inc. HBI $22.42 14 Heckmann Corporation HEK $6.34 15 H.J. Heinz Company HNZ $52.59 16 International Speedway Corporation ISCA $24.08 17 Interval Leisure Group, Inc. IILG $12.91 18 JPMorgan Chase & Co. JPM $31.51 19 Laboratory Corporation of America Holdings LH $81.40 20 Liberty Interactive Corporation LINTA $15.29 21 The Madison Square Garden Company MSG $28.81 22 Marriott International, Inc. MAR $28.29 23 Meredith Corporation MDP $30.19 24 Microsoft Corporation MSFT $25.59 25 Midas, Inc. MDS $8.63 26 Mohawk Industries, Inc. MHK $52.17 27 Molson Coors Brewing Company TAP $40.74 28 Pall Corporation PLL $56.31 29 The Scotts Miracle-Gro Company SMG $43.47 30 Sysco Corporation SYY $28.90 31 Time Warner Inc. TWX $33.81 32 The Travelers Companies, Inc. TRV $55.97 33 The Walt Disney Company DIS $35.16 34 Waste Management, Inc. WM $31.62 35 Watsco, Inc. WSO $61.85 36 WD-40 Company WDFC $39.33 37 The Western Union Company WU $17.29 38 Whirlpool Corporation WHR $46.76 39 Yahoo! Inc. YHOO $15.02 40

Asset Analysis Focus is not an investment advisory bulletin, recommending the purchase or sale of any security. Rather, it should be used as a guide in aiding the investment community to better understand the intrinsic worth of a corporation. The service is not intended to replace fundamental research, but should be used in conjunction with it. Additional information is available on request. The statistical and other information contained in this circular has been obtained from official reports, current manuals and other sources, which we believe reliable. While we cannot guarantee its entire accuracy or completeness, we believe it may be accepted as substantially correct. Boyar’s Intrinsic Value Research LLC, its officers, directors and employees may at times have a position in any security mentioned herein. Boyar’s Intrinsic Value Research LLC – Copyright 2011.

MMAARRKK AA.. BBOOYYAARR

35 EAST 21ST STREET NEW YORK, NY 10010 (212) 995-8300 FAX: (212) 995-5636

WWW.BOYARVALUE.COM

“Volatility + Leverage = Dynamite” – Howard Marks

Prologue As things turned out, our 2011 Forgotten Forty Issue was the mirror image of the 2010

Forgotten Forty publication. While we erred with our macro calls for 2010, our stock picking proved strong with the 2010 Forgotten Forty posting a return of +20.71% compared with a +11.84% return posted by the S&P 500. Our 2011 macro predictions generally hit the mark, while our stock picking lagged with the 2011 Forgotten Forty declining by (-6.37%) versus the S&P 500 (-2.31%). Below we examine our macro calls that we made back in December 2010 and provide a brief analysis of the performance of the of the 2011 Forgotten Forty.

A Look Back at 2011 (a) Blue-Chip Outperformance – We thought that Blue Chip stocks would finally

outperform their smaller brethren reflecting attractive valuations for large cap stocks and the fact that smaller companies could be vulnerable to higher interest rates (more reliant on bank financing). While interest rates continue to remain stubbornly low, Blue Chips did outperform during 2011, albeit on a relative basis as the Russell 1000 (-2.9%) bested the return of the Russell 2000 (-8.2%). Using the Dow Jones Industrial average as a proxy for large cap stocks, the outperformance was even greater as that index has posted a return of +3.5% over the past year.

(b) Dividend Paying Shares Attractive – We cited a number of factors that could potentially boost the fortunes of dividend paying stocks including robust corporate balance sheets and better clarity/extension of the Bush tax cuts (subsequently extended by two years). Dividend paying stocks have exhibited meaningful outperformance over the past year with the iShares Dow Jones Select Dividend Fund ETF increasing by 3.9% over the past year. In addition, the Dogs of the Dow strategy (purchase the 10 highest yielding stocks in the Dow at year end) looks poised for its second consecutive year of outperformance in 2011 as last year’s “dogs” have increased by 9.5% (YTD through 12/9/11) compared with a return of 5.2% for the Dow Jones Industrial Average.

(c) Third Year Presidential Year Performance – As of this writing, the Dow Jones had increased by 2.1% year-to-date in 2011, suggesting that this year will not break the streak of positive stock market performance in the third year of a presidential term. While we didn’t believe the streak would be broken in 2011 given our favorable view of valuations, we predicted the advance would be moderate.

(d) Bond Bubble – Our expectation that the bond bubble would unravel has proven premature. While we continue to believe that conditions in this market remain frothy (see the “Look Ahead” section), sovereign debt issues have helped keep bond prices propped up, despite concerns about growing budget deficits.

(e) Euro Crisis Continues – Last year we stated, “The 16-nation Euro currency could come under increasing calls for a breakup if the contagion continues to spread.” In addition, we reasoned that the U.S. stock market, which had underperformed since global economic conditions began to improve in 2009, would be a top performer. The U.S. stock market performance in 2011 has placed it in the top quartile of global markets and number one among G8 countries.

(f) China Bubble – We stated that we were beginning to be concerned with China’s overheated economy. The Shanghai Composite index has declined by 21% YTD through 12/14/2011, and although growth/economy has not collapsed, there have been more signs of stress in the world’s largest economy (see our “Look Ahead” Section).

A Closer Look at the Performance of the 2011 Forgotten Forty While the 2011 Forgotten Forty (-6.37%) underperformed the S&P 500 (-2.31%) during

2011 there were a few bright spots, with five stocks posting returns in excess of 20% led by Bristol-Myers with a +28.5% return. From a macro perspective, performance of financial stocks was the biggest detractor, with four financials in the bottom ten, including Ameriprise Financial (-19.5%), JPMorgan Chase & Co. (-24.1%), The Bank of New York Mellon (-36.7%) and Bank of America (-58.3%). While most financials underperformed during 2011, Discover Financial

ii

Services ranked as the second best performer for the year rising by +24.7% as the Company benefited from improved credit quality and reserve release in its credit card portfolio. K-Swiss was the worst performer in the 2011 Forgotten Forty, declining by 77.7% as the Company’s stepped up marketing spending did not translate to robust sales. While the Company’s new shoes were able to garner a number of podium finishes in major triathlon events by their endorsers, the Company’s products failed to capture broader appeal (in a difficult consumer environment) and finished near the back of the pack in stock price performance of specialty retail companies.

The End of an Era Long-time subscribers of Asset Analysis Focus are well aware that we have routinely

featured the shares of Playboy over the years. Sadly (although some subscribers may be happy to put this to bed), the 2012 Forgotten Forty marks the end of Playboy’s long (and sometimes successful) run in the Forgotten Forty, having appeared in our year-end issue in each of the past 26 years. Playboy, which was initially probed by AAF on May 31, 1985, was taken private in January at a price of $6.15 per share. While the shares posted mixed performance over the years, they went out in style by generating a 22.8% return, the fourth best performer of the Forgotten Forty class of 2011.

The Performance of The Forgotten Forty for the Past Ten Years Despite the roll-off of the Forgotten Forty’s strong results in 2001 (+29.23% vs. -3.10%),

historical trailing 10 year performance results of the Forgotten Forty remain strong. Over the last 10 years the Forgotten Forty has demonstrated a compound annual growth rate of +2.68% per year versus +0.59% for the S&P 500.

Date Published Forgotten Forty 1, 2 S&P 500 2011 -6.37% -2.31% 2010 20.71% 11.84% 2009 43.65% 25.29% 2008 -48.19% -39.16% 2007 -6.12% 2.06% 2006 18.68% 13.45% 2005 -1.04% 3.55% 2004 19.70% 12.90% 2003 33.07% 18.09% 2002 -11.80% -20.34%

10-Year CAGR 2.68% 0.59% 1 Equal weighted portfolio exclusive of dividends. S&P 500 also exclusive of dividends. 2 The 2002 through 2010 returns were prepared in-house. The 2002 through 2010 returns exclude dividends and represent the approximate performance of the hypothetical Forgotten Forty from the periods December 18, 2001 through December 16, 2002; December 16, 2002 through December 16, 2003; December 16, 2003 through December 29, 2004; December 29, 2004 through December 27, 2005; December 27, 2005 through December 19, 2006; December 19, 2006 through December 18, 2007; December 18, 2007 through December 18, 2008; December 18, 2008 through December 16, 2009; December 16, 2009 through December 13, 2010; December 13, 2010 through December 14, 2011.

iii

Results of the 2010-2011 Forgotten Forty by Company

SYMBOL Company Price

12/13/2010 Price

12/14/2011 %

Change TOP 10

BMY Bristol-Myers Squibb Company $26.26 $33.74 28.5% DFS Discover Financial Services $19.10 $23.82 24.7%

GRMN Garmin Ltd. $30.51 $37.47 22.8% PLA Playboy Enterprises, Inc. Cl A $5.01 $6.15 22.8% PFE Pfizer Inc. $17.19 $20.86 21.3% MSG Madison Square Garden, Inc. $24.28 $28.81 18.7%

CMCSK Comcast Corporation $20.14 $22.99 14.2% PLL Pall Corporation $49.51 $56.31 13.7% HD The Home Depot, Inc. $34.56 $39.14 13.3%

DELL Dell Inc. $13.36 $15.05 12.7% MIDDLE 20

TWX Time Warner Inc. $31.63 $33.81 6.9% HNZ H.J. Heinz Company $49.85 $52.59 5.5% WEN Wendy's/Arby's Group, Inc. $4.77 $5.00 4.8% CLX The Clorox Company $62.43 $64.97 4.1% TRV The Travelers Companies, Inc. $55.29 $55.97 1.2%

DISCK Discovery Communications, Inc. $36.56 $36.90 0.9% SYY Sysco Corporation $29.42 $28.90 -1.8% BR Broadridge Financial Solutions, Inc. $22.63 $22.10 -2.3%

UPS United Parcel Service, Inc. $72.77 $70.64 -2.9% LH Laboratory Corporation of America Holdings $83.89 $81.40 -3.0%

LINTA Liberty Interactive Corporation $15.76 $15.29 -3.0% WDFC WD-40 Company $40.67 $39.33 -3.3% ISCA International Speedway Corporation $25.41 $24.08 -5.2% DIS The Walt Disney Company $37.13 $35.16 -5.3%

MSFT Microsoft Corporation $27.25 $25.59 -6.1% MDS Midas, Inc. $9.27 $8.63 -6.9% WU The Western Union Company $18.76 $17.37 -7.4% BMS Bemis Company, Inc. $32.58 $28.85 -11.4% MDP Meredith Corporation $35.25 $30.19 -14.4% TAP Molson Coors Brewing Company $49.24 $40.74 -17.3%

BOTTOM 10 AMP Ameriprise Financial, Inc. $55.87 $44.95 -19.5% IILG Interval Leisure Group, Inc. $16.92 $12.91 -23.7% JPM JPMorgan Chase & Co. $41.51 $31.51 -24.1% MAR Marriott International, Inc.1 $41.77 $28.29 -27.8% ELY Callaway Golf Company $7.99 $5.45 -31.8% CVC Cablevision Systems Corporation2 $34.59 $14.00 -34.2% BK The Bank of New York Mellon Corporation $29.33 $18.58 -36.7%

AOL AOL Inc. $25.41 $13.56 -46.6% BAC Bank of America Corporation $12.54 $5.23 -58.3%

KSWS K•Swiss Inc. $12.14 $2.71 -77.7% 1 MAR's “% Change” reflects the performance of Marriott Vacations Worldwide, which was spun off on November 21, 2011. Marriott Shareholders received 1 share of VAC for every 10 shares of Marriott.

2 CVC's “% Change” reflects the performance of AMC Networks, which was spun off on June 30, 2011. Cablevision shareholders received 1 share of AMC for every four shares of CVC.

iv

A Look Ahead (1) A Housing Recovery? – Fundamentals in the U.S. housing market should continue

to be a crucial consideration for overall economic conditions and stock market performance. As discussed in AAF’s Summer 2011 double issue, we observe several reasons to believe that the housing market could be poised for a significant improvement during the coming years. In our view, the oversupply that resulted from past speculative excesses is being gradually worked down. Housing starts have remained at historically depressed levels, helping to curtail new supply. Inventory levels have been gradually declining during recent years, and total existing home inventory decreased to an 8-month supply as of October 2011 (from over 10 months in October 2010). On the demand side, factors such as improved affordability (historically low interest rates, etc.) and pent-up household formation should provide further catalysts for more healthy real estate market fundamentals.

A potential recovery in the housing market would likely have far reaching and favorable ramifications. Our preferred means of participating in such a recovery is to focus on companies that will benefit from an improved housing market, but are not necessarily dependent on a rebound in new home construction. In particular, companies such as Equifax, Mohawk, Watsco, and Whirlpool are well positioned firms that fit these criteria. However, a housing market recovery should also have favorable implications across a wide swath of sectors including banking, cable, and basic materials.

(2) Domestic Natural Gas Boom – The U.S. may be quietly (for the most part) undergoing a natural gas revolution of sorts. Gas production from shale rock formations, once largely undiscovered or uneconomically recoverable, has increased 5-fold over the past 5 years alone and accounted for 23% of all U.S. dry gas production in 2010. All this has occurred despite not only a lack of subsidies, but federal regulatory uncertainty and significant regulatory impediments in several states. Considering we now have access to an estimated 100+ years’ worth of recoverable supply (and growing with new discoveries and improved drilling technology/practices), we may still be in the early innings of a U.S. natural gas boom.

This surge in supply has also produced a remarkable decline in domestic natural gas prices, reaching 60%-plus and counting over the past 5 years. For this reason, as well as uncertain well production curves and marginal costs, it is difficult to gauge shale’s impact on individual E&P companies. However, we would not underestimate the impact shale production can have on the domestic economy including employment gains, new infrastructure development, localized real estate appreciation, and lower overall energy costs. Additionally, large-scale conversion of utilities and transportation vehicles to natural gas power could take hold in the coming years. Longer-term, shale gas (and shale oil) could eventually eliminate the U.S.’s reliance on fossil fuel imports. If domestic gas retains its current relative price advantage, the U.S. could even become a net exporter; several LNG export plant projects are already in the works.

(3) Large Caps and Dividend Paying Stocks Remain Attractive – Historically, U.S. Treasuries have yielded a higher return than stock dividends. However, as a result of the Federal Reserve keeping rates low and the U.S. dollar being viewed as a safe haven for purchases, interest rates are at a multi-generation low. From 1971 until 2011, yields for 10-year U.S. Treasury notes have averaged 7.2%, compared to a paltry 1.9% today. Meanwhile, the S&P 500 and Dow Jones Industrials are yielding 2.1% and 2.7%, respectively. As many savers’ bank accounts are earning next to nothing, they may look to dividend stocks as an alternate source of income. Currently, 22 of the 30 Dow Jones Industrial stocks are yielding 2.5% or better. Also, large cap stocks in general are trading at attractive valuations relative to small cap stocks. The P/E ratio of the S&P 500 is at 14.2x, the DJIA is at 13.0x, while the P/E ratio for the Russell 2000 is at 36.9x.

(4) We Continue to be Wary of Bonds – The reluctance of the Federal Reserve to raise interest rates has increased demand for bonds and bond funds. According to the Investment Company Institute (ICI), money continues to pour into bond funds in 2011, following already record fund flows in 2010. Year to date through 12/7/2011, approximately $132.5 billion flowed into bond funds, while $133.2 billion flowed out of equity funds. However, we believe that investing in bonds is not risk free. The return of a 10 year U.S. Treasury over the last 12 months has been ~25%. Given that interest rates are near zero today, an investor who continues to employ a rearview mirror investing strategy would be challenged to duplicate these returns over the next 12 months. However, there is a real risk that when the economy normalizes, and growth rates and interest rates rise, bond prices will fall and investors will experience negative returns owning bonds. Further, if the U.S. is unable to address its deficit shortfall, domestic interest rates could experience a dramatic spike. We would be extremely hesitant to purchase longer term U.S. treasuries at today’s anemic yield level.

While municipal bonds have posted strong performance this year, we are also wary about this segment of the bond market. During 2010, thirty-three states had pension assets of less than the 80 percent considered adequate to pay benefits while median funding fell to 73.7% from 76.2% in 2009.

v

(5) Euro Crisis Continues – The European sovereign debt crisis continues to escalate heading into 2012. While the European Union has made modest progress in imposing budgetary restrictions and increasing bailout funds, to date these measures have failed to meaningfully reduce sovereign borrowing costs for the PIIGS. Half-baked austerity measures and partial rescue funds could continue to keep Italy and Spain solvent for even a few more years. But absent a robust economic recovery in the interim, the only viable long-term solutions appear to be full fiscal union/Euro bonds, unrestricted ECB monetization or a breakup of the Euro. None of these solutions would be easy for European politicians to swallow, so it is possible only a severe market dislocation can force a decision. Banks may escape forced sovereign debt forgiveness beyond Greek bonds (although those write-downs have yet to be agreed upon either), but in the meantime European banks need to raise €115 billion in capital according to the latest European Banking Authority report. Of course, a contraction in lending activity is the easiest way to strengthen regulatory capital ratios. Given all the negative pressures, Europe will be challenged to avoid at least a mild recession in 2012.

Europe is the U.S.’s largest trading partner and it would be hard to imagine a prolonged European slump not hurting the U.S. economy. Furthermore, and more ominously, a banking crisis in Europe could have contagion effects in the U.S. due to counterparty relationships and exposures. Related to this, European banks may choose to cut back on foreign lending activities. This shrinkage of credit (and money supply) can negatively impact U.S. growth. Nonetheless, we believe the U.S. stock market is positioned for another year of relative outperformance in 2011. We would note that the European Union still accounts for only 18% of U.S. exports; U.S. financials as a whole are better capitalized and less exposed to E.U. sovereign debt than their European peers; as a hard commodity importer, the U.S. will benefit if commodity costs decline; and the U.S. dollar and capital markets could benefit from safe haven inflows. Finally, the aforementioned housing and natural gas factors could provide upside for the U.S. economy.

(6) China Bubble Update – In December 1989 the Nikkei hit 38,915; today it trades at less than 10,000. At that time, the real estate value of the emperor's palace exceeded the value of all the real estate in California. Japan was expected to surpass the U.S. as the leading economic power in the world. A number of the leading business periodicals had cover stories entitled ‘The Rising Sun’. With the benefit of hindsight those headlines should have read ‘The Setting Sun’. Today, the consensus is that China will inevitably surpass the U.S. as the leading economic power in the world. With one billion plus people that may be the case. But do not think there will not be significant bumps along the way. In fact there is a high degree of probability that a real estate bubble is currently unfolding.

As we mentioned in last year’s Forgotten Forty, we believe there is currently a bubble emerging in China. While we stated that bubbles can go on longer than anyone imagines, we highlighted some anecdotal evidence that had us concerned. Our fears have not been calmed during the past year and we are still firmly of the belief that a major real estate bubble is in the processes of unfolding. However we cannot be sure of the timing of when this will occur due to China’s largely government based economy. However, one does not have to look any further than the recent sharp drop in the price of copper and other building related commodities for evidence that such an event might have commenced. After all China was often cited as one the primary reasons for the copper price spike over the past couple of years. Or that according to Credit Suisse & The Financial Times, China’s 80,000 property developers collectively own enough property to build nearly 100 million apartments, and that currently China has the capacity to satisfy housing demand for up to 20 years.

One of the major concerns we had when we warned of a U.S. real estate bubble in our January 2007 short piece of the Merchant Builders was that homes simply had become too expensive. The same issue has now emerged in China. According to the Financial Times, the price of an average apartment in a Chinese city is now about 8-10 times the average annual income of a Chinese citizen, and in some major cities such as Beijing and Shanghai that figure almost reaches 30x. Contrast that to the height of the U.S. real estate bubble when the price-to-income ratio was a comparably modest 5.1x on average nationwide.

(7) Election Year Performance – Certainly, 2012 will likely be an eventful year for several reasons. Among the bigger issues to be resolved is the upcoming presidential election in the U.S. Although trying to predict the outcome of any election can be a fool’s errand, election years have typically been very favorable periods for the stock market regardless of the victor. Since 1928, the S&P 500 has appreciated during 17 of the 21 presidential election years, posting an average annual gain of about 11%. Given the modest gains posted by the Dow during the current year-to-date, which is typically a strong year for market performance, we would not be surprised if performance surprises on the upside during 2012.

(8) Opportunities for the Special Situation Investor on the Rise – 2011 is poised to be the most active year on record for corporate spinoffs. According to data from Bloomberg, corporations announced 145 spinoffs during first half of 2011, the most of any half-year period since Bloomberg began tracking the data. Spinoffs have traditionally been a fertile area for

attractive investment opportunities. AAF subscribers should expect to see a few spinoffs featured in 2012 as we scour the universe for attractive opportunities in this area.

While the spinoffs have historically generated outperformance, don’t neglect the parent company completing the spinoff. Recall, as AAF detailed in its Summer 2007 double issue focused on spinoffs, parent companies of the spinoffs tend to exhibit outperformance as well. There are three parent companies included in the 2012 Forgotten Forty that could benefit, including Marriott (spun off its timeshare business in November 2011), Cablevision (spun off AMC Networks in June 2011) and Expedia, which is expected to complete the spinoff of its faster growing TripAdvisor business by the end of 2011.

A Comment about Risk and Volatility:∗ Volatility is not the same as risk. Investors should be less concerned with moment-to-

moment price changes and much more concerned about the potential permanent loss of capital in any given investment. Traditional measures of volatility like standard deviation are backward looking. Market measures of volatility like the VIX capture current sentiment. Neither measure may be an accurate predictor of future market movements or fundamental risk. In quiet times there is a temptation to add leverage to boost returns. This adds a dimension of risk that cannot be captured in the volatility measures until it is perhaps too late. The combination of volatility and leverage can be deadly. People can err by believing all low volatility investments are low risk. Similarly, a high level of volatility does not automatically create a high risk of a permanent loss.

We welcome your feedback at any time, and wish you a Happy, Healthy and Prosperous New Year.

Sincerely yours, Mark A. Boyar Chief Investment Officer

∗ Partial attribution to Offit Capital Advisors LLC

vi

INVESTMENT RESEARCH SUMMARY PRICED DECEMBER 14, 2011

AMC Networks Inc.

Symbol: AMCXExchange: NasdaqCurrent Price: $35.00Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 72.3Major Shareholders: Dolan Family Group 21%;

71% voting Average Daily Trading Volume (MM): 0.652-Week Price Range: $43.50-$30.28Price/Earnings Ratio: 20.4Stated Book Value Per Share: NA

Balance Sheet Data Catalysts/Highlights

(in millions) 9/30/2011 2010 2009 Cash $ 225 $ 80 $ NA Current Assets 815 566 NA

TOTAL ASSETS $ 2,121 $ 1,853 $ 1,934 Current Liabilities $ 296 $ 336 $ NA Long Term Debt 2,402 1,064 NA Shareholders Equity (1,065) 25 (237)

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 2,121 $ 1,853 $ 1,934

• Affiliate fee and advertising revenues are set to grow in 2012 given recent viewership gains

• Use of excess free cash flow to rapidly delever should boost equity value

• Hidden upside if AMC favorably resolves the VOOM HD lawsuit

• AMC could benefit from cessation of post-spinoff pressure and newfound investor interest in AMC as an independent company

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 1,078 974 894 754 Net Income 118 89 (21) 15 Earnings Per Share 1.71 1.28 (0.30) 0.22 Dividends Per Share NA NA NA NA Price Range NA NA NA NA

INVESTMENT RATIONALE

AMC Networks was spun out from Cablevision on June 30, 2011. AMC comprises Cablevision’s former Rainbow Media Networks subsidiary, including the programming networks AMC, WE tv, IFC, and Sundance Channel. AMC has tremendous long-term growth prospects from both advertising revenue and affiliate fee growth. The flagship AMC channel has had tremendous success expanding viewership through original programming offerings in recent years, with hits including Mad Men (renewed for 5th and 6th seasons), Breaking Bad (24% ratings growth in season 4), and The Walking Dead (top all-time cable drama ratings in season 2). AMC has also introduced new original programming at its other cable networks to boost ratings. These results are evident in AMC’s ad revenues, which increased 11.6% YTD 3Q 2011 following double-digit increases each quarter in 2010. Notably, IFC (limited ads introduced in January 2011) and Sundance (traditionally ad-free) also offer significant long-term ad growth potential.

Outside of the flagship AMC channel, the Company’s other networks remain underpenetrated and should benefit from increased distribution in the coming years including via continued conversion to digital cable. We believe AMC’s current monthly affiliate fees are generally well below market, given the programming and viewership improvements in recent years. There will be some delay in realizing increases as the Company’s licensing agreements are staggered over several years and multi-channel video programming distributors are increasingly sensitive to programming cost inflation. Nonetheless AMC’s affiliate revenues increased 5% YTD in 3Q 2011 and should easily achieve similar growth rates for several years to come.

AMC also has long term upside from its International & Other segment (which also includes IFC Films and litigation expenses related to VOOM HD). The segment is still operating at a loss ($25 million operating deficit YTD), but revenue is up 23% YTD to $86 million and continued original programming success should translate into international licensing revenue; for example, Fox International Channels picked up The Walking Dead for international distribution in October 2011. Digital distribution also offers another incremental revenue source. In October 2011, AMC announced a multiyear agreement (terms undisclosed) with Netflix that will include exclusive digital distribution of The Walking Dead (wholly owned by AMC) and non-exclusive digital rights to select programming across the Company’s networks.

AMC Networks was spun off with $2.4 billion in debt and is leveraged at 5.1x EBITDA, which may be keeping some investors on the sidelines. However, debt was refinanced at more favorable rates and maturity schedules prior to the spinoff. Furthermore, AMC’s business model offers a steady stream of free cash flow ($257 million TTM or 10.1% yield) and AMC retains $184 million of NOL carry-forwards. Free cash flow is primarily being directed toward debt retirement with $100 million in debt already prepaid since the spinoff, so AMC should be able to quickly delever. We would also note that AMC has gone through this cycle before, deleveraging from 10x to 3x between 2006-2010. AMC also continues to increase its investment in programming content, which could restrain free cash flow growth going forward. However, management has historically proved conservative (and generally successful) in its content investment strategies, and lower cost nonfiction/unscripted content (which also typically provide AMC full distribution rights) will be a greater focus going forward.

While AMC shares have been volatile in their short history and are well off their lows, we believe shares still offer meaningful upside. We estimate AMC’s intrinsic value is approximately $47 per share at 11x EV/2013E EBITDA. We also see multiple sources of potential upside to our estimate. AMC may be a prime acquisition target given the large bundling and SG&A synergies a larger network company could provide. Interestingly, Charles Dolan (84) is Chairman and no Dolan family members are officers, suggesting the family may not be wedded to AMC longer term. Recent transaction multiples in the industry have ranged from ~12-17x EBITDA. AMC also retains a 50% interest in a $2.5 billion lawsuit against Dish Network alleging wrongful termination of the VOOM HD programming agreement. While a resolution may take years and it is difficult to handicap the final outcome, preliminary court results appear fairly positive. We view this as potentially meaningful hidden free upside; even a 50% judgment or settlement would equate to roughly $9 per share pretax.

- 1 -


- 2 -

Bank of America Corporation

Symbol: BACExchange: NYSECurrent Price: $5.23Current Yield: 0.8%Current Dividend: $0.04 Shares Outstanding (MM): 10,476Major Shareholders: Insiders own <1%Average Daily Trading Volume (MM): 271.752-Week Price Range: $15.31-$5.03Price/Earnings Ratio: N/MStated Book Value Per Share: $20.80


(in millions) 09/30/11 2010 2009 Cash $ 82,865 $ 108,427 $ 121,339 Total Securities 350,725 338,054 311,441

TOTAL ASSETS 2,219,628 2,264,909 $ 2,230,232

Total Deposits $ 1,041,353 $ 1,010,430 $ 991,611 Long Term Debt 398,965 448,431 438,521 Shareholders Equity 230,252 228,248 231,444

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 2,219,628 $ 2,264,909 $ 2,230,232

• Profit comparisons to benefit from

improved credit trends and cost reduction

• BAC’s capital ratios approaching historically high levels

• Normalized EPS power of at least $2 illustrates underlying strength of core businesses

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 110,220 119,643 72,782 66,833 Net Income (3,595) (2,204) 2,556 14,800 Earnings Per Share (0.37) (0.29) 0.54 3.29 Dividends Per Share 0.04 0.04 2.24 2.40 Price Range 19.86-12.96 18.59-3.14 45.03-11.25 54.05-41.10


Bank of America is the second largest U.S. financial institution, with $2.2 trillion in assets and $950 billion in deposits within the U.S. alone (12% market share). BAC shares continued to underperform in 2011, precipitously declining by 61%. Operating results have been negatively impacted by the extended economic/housing malaise, with core mortgage banking production revenue declining another 50% in 2011 through Q3. Continued interest rate pressures have also produced a hefty 63 bps YOY decline in net interest margin to 2.79% in Q3. However, the real albatross relates to bubble-era liabilities at BAC’s consumer real estate segment, which continues to produce losses of stunning proportion. BAC has recorded a massive $15.3 billion in representations and warranties provisions during 2011, including the proposed $8.6 billion BNY Mellon Settlement which has met vigorous resistance from minority security holders. Additional headline-grabbing legal battles include BAC’s healthy share of a purported $19+ billion settlement related to foreclosure practices. Litigation-related expense (which does not even include actual legal service costs) is already $3.8 billion YTD 3Q 2011 and counting. Unfortunately for BAC, the legacy of Ken Lewis and his disastrous Countrywide/Merrill acquisitions lives on.

In light of these headwinds as well as the approaching implementation of stringent Basel III regulations, BAC has fallen prey to heightened concerns over its capital adequacy. However, management has taken increasingly aggressive steps to tackle these concerns in recent months. BAC is divesting non-core businesses and assets including its Canadian and European credit card businesses, all but 1% of its stake in China Construction Bank, and its correspondent and reverse mortgage businesses. BAC also raised $5.0 billion in capital through the sale of preferred stock to Berkshire Hathaway in September 2011. Most recently, BAC negotiated the conversion of an aggregate $4 billion in outstanding preferred stock into common shares and senior notes, thereby boosting common equity and reducing interest/dividend costs. These moves have helped boost BAC’s tier 1 common capital ratio (under Basel 1 guidelines) to 8.65% as of September 30, with post-3Q actions expected to add an additional 50+ basis points to this figure. Notably, CEO Moynihan recently confirmed his expectations that BAC can reach fully-phased in Basel III capital levels of 6.75% to 7% by the start of 2013.

The greatest risk we see for Bank of America shareholders is a renewed banking crisis and/or exceptionally cautious regulators forcing BAC to raise capital at distressed levels. However, we would note that BAC’s tangible common equity ratio is now its highest in at least 15 years. Outside of the aforementioned issues, BAC’s operating results also continue to show improvement. While a return to mid-teens ROEs should not be expected as we enter a new era in banking characterized by increased regulation and reduced leverage, BAC should still be able to earn its way out of capital issues in any reasonably cooperative environment. We believe BAC’s normalized earnings power is upwards of $2 per share using conservative estimates; BAC’s $1.0 trillion deposit base alone should be capable of generating operating income close to $1 per share in a normalized interest rate environment, and the card services business has posted $4.8 billion in net income ($0.45 per share) YTD 3Q 2011. The Company’s aggressive Project New BAC cost savings plan is also expected to generate $5 billion in annual expense savings by 2014. Additional upside could come from a robust domestic housing/employment recovery or favorable litigation results. Looking on the bright side, NOL carry-forwards from BAC’s recent struggles should also significantly reduce the Company’s cash tax expenditures for many years to come.

While BAC still faces substantial headwinds from unwinding bubble-era assets and settling related litigation, the stock’s current valuation seems to focus much more on near-term risks than long-term rewards. BAC shares currently trade at extremely depressed valuations of 0.25x book value, 0.40x tangible book value, and 2.6x our estimated normalized earnings power. Our $13 estimate of intrinsic value assumes the stock can trade at 1.0x BAC’s current tangible book value. This estimate implies return potential of well over 100% from the current valuation. We believe this estimate could prove to be conservative as operational performance continues to improve, and there is increased visibility regarding the firm’s capital levels. Assuming BAC’s progress satisfies regulatory requirements, some increased return of capital to shareholders would also seem likely during the coming years (an increase to the annual dividend of $0.04 per share would be a likely option).


- 3 -

The Bank of New York Mellon Corporation

Symbol: BKExchange: NYSECurrent Price: $18.58Current Yield: 2.8%Current Dividend: $0.36 Shares Outstanding (MM): 1,216Major Shareholders: Insiders own 1%Average Daily Trading Volume (MM): 10.052-Week Price Range: $32.27-$17.70Price/Earnings Ratio: 8.6xStated Book Value Per Share: $27.79


(in millions) 09/30/11 2010 2009 Cash $ 74,981 $ 22,224 $ 11,094 Total Securities 76,585 66,307 56,049

TOTAL ASSETS $ 322,187 $ 247,259 $ 212,224

Total Deposits $ 210,890 $ 145,339 $ 135,050 Long Term Debt 19,399 16,517 17,234 Shareholders Equity 33,695 32,354 29,003


• Recent CEO change should produce a refocus on core business profitability and cost savings

• Strong capital levels and continued capital generation should allow increased return of capital to shareholders

• Resolution of outstanding litigation battles would remove major stock overhang

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 13,875 7,654 13,573 11,298 Net Income 2,581 (1,083) 1,443 2,058 Earnings Per Share 2.11 (0.93) 1.21 2.35 Dividends Per Share 0.36 0.51 0.96 0.95 Price Range 32.65-24.65 33.62-15.44 49.40-20.49 50.26-38.30


BNY Mellon is the world’s largest investment servicer and 11th largest asset manager. We have long been attracted by BNY Mellon’s primarily fee-based (78% of revenue), asset-light (9.5x assets/equity), high capital generating (24.2% return on tangible equity YTD 3Q 2011) business model. BNY Mellon is also a leader in a consolidated, scale-driven industry that is well positioned to benefit from outsized growth in global financial assets and transactions over the longer term.

Of course, BK has not been immune to the recent negative developments across the global financial markets, and BK shares have declined by (37%) over the past 12 months. Lower capital markets transaction volumes and asset values have negatively impacted BK’s clearing and investment management businesses. Interest rate declines and an influx of short-term deposits onto BK’s balance sheet have also increased money market fund fee waivers and compressed BK’s net interest margin another 38 bps YTD. Nonetheless, BK has posted impressive ~9% organic revenue growth YTD, which we would attribute to the counter-cyclical benefits BK receives in a volatile, de-risking, deleveraging environment (e.g. higher client deposit levels, securities lending volume and pricing/rates, and trading volumes). However, these bright spots have been overshadowed by BK’s continuing struggle to control costs. Noninterest expense increased 20% YTD, driven by a combination of higher employee compensation and benefits, legal and litigation expense, and regulatory costs.

BK shares also continue to suffer headline pressure from legal battles, particularly as defendant in ~$2 billion worth of lawsuits alleging overcharging clients for standing order foreign exchange trades. While the forex suits may ultimately involve substantial settlements, the long-term impact may be overstated. Standing order foreign exchange represents less than 3% of total fee revenue and volume has actually increased over the past two years after implementing adjustments, according to BK management. Client attrition has also been contained to date. Securities lending and trustee lawsuits also pose a meaningful long-term liability for BK, but we believe the Company is fairly reserved with strong capital levels.

Counterparty risk related to Euro Zone issues may pose greater risk to global financial companies in 2012. BK holds a stated $8.1 billion in derivative assets, manages $321 billion in money market funds and is the indemnifying agent for $250 billion in securities lending, so all bets would be off in the extreme scenario of a disorderly European banking collapse without an ECB/Fed backstop. However, BK has managed counterparty and securities risks relatively well in recent years excluding the Reserve Primary Fund incident. BK’s investment securities portfolio holds 87% AA/AAA rated securities, a modest $965 million in direct exposure to the ‘PIIGS’ including zero sovereign bonds, and sits on $461 million in unrealized after-tax gains. The securities lending book is fully collateralized and the derivatives book appears reasonably hedged with only $0.6 billion in net assets and a relatively modest $54 million CVA in 3Q 2011. BK’s Tier 1 capital ratio is 14.0%, its Basel III Tier I common equity ratio is already at the 6.5% year 2016 minimum (before SIFI additions), and BK is earning roughly 25+ bps of Basel III capital per quarter. Barring the most extreme bear scenario, BK looks to be amongst the best-positioned global financials to negotiate a challenging credit environment while continuing to generate significant capital over the next year, and beyond.

Notably, BNY Mellon’s board ousted CEO Robert Kelly on August 31, 2011 due to “differences in approach to managing the Company.” Mr. Kelly (who moved from Mellon to lead BK after the 2006 merger) oversaw years of heavy, largely disappointing M&A activity, an increasingly bloated expense structure, and ultimately negative stock returns. By contrast, his replacement, Gerald Hassell, is a 30+ year Bank of New York veteran who has outlined plans to refocus on the Company’s core business and profitability metrics. BK will aggressively cut costs (targeted savings of $650-$700 million by 2015) and return capital to shareholders, targeting a combined payout ratio of 60%-65% from dividends (20%-25%) and share repurchases (~40%). BK’s common dividend was increased 44% to an annualized $0.52 per share (2.8% yield) in April 2011, and BK repurchased 20.4 million shares (2%) at a cost of $462 million during 3Q11.

BK shares currently trade at only 8.6x TTM EPS , 0.7x stated book value and 1.8x tangible book versus historical averages approximating 2x book value, 4x tangible book and 15x TTM EPS. An eventual normalized interest rate environment could also boost BK’s pre-tax earnings power by roughly $0.80 per share. Notably, Mr. Hassell (50,000 shares) and CFO Todd Gibbons (25,000 shares) also made large open-market purchases at ~$20 per share in September.


- 4 -

Berkshire Hathaway Inc.

Symbol: BRK-AExchange: NYSECurrent Price: $113,200Current Yield: NACurrent Dividend: NA Shares Outstanding (MM): 1.7Major Shareholders: Warren Buffett 23.3%Average Daily Trading Volume (MM): 0.152-Week Price Range: $131,300-$100,000Price/Earnings Ratio: 16.1xBook Value Per Share: $96,868


(in millions) 09/30/11 2010 2009 Total Investments $ 121,792 $ 117,711 $ 123,133

TOTAL ASSETS $ 385,494 $ 372,229 $ 297,119

Long Term Debt $ 60,484 $ 54,892 $ 37,909 Shareholders Equity 159,957 157,318 131,102


• Domestic economic/housing recovery would

boost BRK’s premiere operating assets • Berkshire has $35 billion in cash which

Mr. Buffett can put toward investments • Recent share repurchase authorization

should put a floor under BRK’s share price

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 136,185 112,493 107,786 118,245 Net Income 12,967 8,0855 4,994 13,213 Earnings Per Share 7,928 5,193 3,224 8,548 Dividends Per Share - - - - Price Range 128,730-97,205 108,450-70,050 145,900-74,100 151,650-103,800

INVESTMENT RATIONALE We last profiled perennial value investors’ darling Berkshire Hathaway back in our December 2008 Forgotten Forty

issue. At the time, Class A shares traded under $100,000 and the roiling financial crisis had led panicked investors to question even the viability of this paragon of prudent risk management. Over the subsequent 3 years, Berkshire has undergone a slew of changes that until recently would have seemed practically unfathomable. Despite Mr. Buffett’s long resistance to splits, Berkshire split its Class B shares 50-for-1 in November 2009 (to aid the Burlington Northern acquisition). BRK-B was soon added to the S&P 500 Index, although S&P’s goodwill only lasted a matter of months before the credit rater removed Berkshire’s AAA rating in June 2010. Highly regarded managers Lou Simpson (retirement at age 73) and David Sokol (questionable trading practices) are no longer with the firm, while Mr. Buffett has hired two relatively unknown investment managers (Todd Combs and Ted Weschler) to take over portions of the Company’s equity portfolio. Most recently, Mr. Buffett eschewed his long-held aversion to technology stocks in a big way, spending $11 billion to build a 5.5% stake in IBM. And perhaps most surprisingly, in September 2011 Berkshire’s Board authorized a share repurchase program. The restrictions: price paid will be no higher than a 10% premium to then-current book value, and repurchases cannot reduce Berkshire’s cash and equivalents below $20 billion.

Mr. Buffett also put what he recently described as his ‘loaded elephant gun’ of excess cash to work beyond the IBM investment. In addition to the $26.5 Burlington Northern acquisition in 2010, more recently Berkshire completed the acquisition of Lubrizol for $8.7 billion in September 2011. After selling all of Berkshire’s remaining Bank of America common stock holdings in 4Q 2010, Mr. Buffett also capitalized on BAC’s worsening financial position to strike a preferred stock investment in August 2011. This investment may ultimately rank up alongside Berkshire’s late 2008 preferred investments in GE and Goldman Sachs on the list of top all-time sweetheart deals. Berkshire is investing $5 billion in 6%, 10-year preferred securities, which BAC can call at any time for a hefty 5% premium. The real kicker is Berkshire also receives 10-year warrants to purchase 700 million shares (7%) of BAC at $7.14 per share.

Despite Berkshire’s attractive cash deployment and net earnings of $7.2 billion YTD, shares have declined 6% in 2011 and are still only 16% above our December 2008 AAF write-up. In addition to the impacts of a continued sluggish economy and a challenging insurance environment, we would attribute a substantial portion of Berkshire stock’s weak performance to investors’ preoccupation with the Company’s notional $34.5 billion in written equity index put options. Declines in the underlying indexes produced a GAAP loss of $2.1 billion in 2011 through 3Q and are held on the books as an $8.8 billion liability. However, as Buffett has clearly expressed, the real economic loss will be marginal under any reasonable scenario. Berkshire was fully paid in advance (no counterparty risk), required collateral postings are minimal, the puts are not exercisable before expiration and the weighted average life outstanding is 9.25 years with no contracts expiring before June 2018. Even were all underlying indexes to stay at September 30, 2011 levels through expiration, the undiscounted liability would only be a manageable $6.7 billion. In the meantime, Berkshire earns investment income on the premiums received.

Backing out the aforementioned derivative losses as well as the Company’s $34.8 billion cash position, Berkshire currently trades at only 9.0x TTM pretax income—a steal in our view, considering the premier quality of Berkshire’s operating businesses. Looking forward, the Company is also extremely well positioned to benefit from an improved insurance underwriting/catastrophe reinsurance environment, and from a domestic economic/housing recovery through operating assets such as Burlington Northern, Marmon, McLane, Shaw Industries carpeting, Benjamin Moore paints, Acme Brick, etc. On top of that, you get a $67 billion equity portfolio and $31 billion cash hoard managed by the world’s most successful investor. At the same time, we believe Berkshire shares present the best defensive play in the financial sector. Berkshire has a fortress-like balance sheet, tremendous underwriting discipline, and limited derivatives/counterparty exposure. Should the capital markets seize up in 2012, Berkshire is uniquely well positioned to make advantageous acquisitions or investments a la the BAC/GE/GS preferred deals. Furthermore, in our view the aforementioned stock repurchase authorization practically places a floor on Berkshire stock at 1.1x book value, or ~$96,900 per A share. Backing out the Company’s equity index derivative liabilities (the present value of which approaches zero assuming even modest stock market returns over the next decade), we estimate Berkshire’s intrinsic value is approximately $153,000 per Class A share at 1.5x adjusted 3Q11 book value.


- 5 -

Broadridge Financial Solutions, Inc.

Symbol: BRExchange: NYSECurrent Price: $22.10Current Yield: 2.9%Current Dividend: $0.64Shares Outstanding (MM): 126.7Major Shareholders: Insiders own 4.9%Average Daily Trading Volume (MM): 0.852-Week Price Range: $24.75-$19.18Price/Earnings Ratio: 16.1xStated Book Value Per Share: $6.26


(in millions) 9/30/11 2011 2010 Cash $ 253 $ 242 $ 413 Current Assets 685 751 992

TOTAL ASSETS $ 1,927 $ 1,904 $ 1,794

Current Liabilities $ 294 $ 783 $ 486 Long Term Debt 614 524 324 Shareholders Equity 793 797 807


• Free cash flow reacceleration as recent one

time spending to improve profitability and drive future growth ends in current fiscal year

• Leverage of recent acquisitions to capture further market share in the global securities industry

• Resumption of repurchase activity following recent acquisitions

P&L Analysis

($ in millions except per share items) Fiscal Year Ending June 30 2011 2010 2009 2008 Revenues 2,167 2,209 2,073 2,131 Net Income 172 225 223 188 Earnings Per Share 1.34 1.62 1.58 1.36 Dividends Per Share 0.60 0.56 0.28 0.24 Price Range 24.07-18.96 24.00-15.47 21.44-9.72 23.96-16.29

INVESTMENT RATIONALE Broadridge is a technology services company focused on global capital markets. During FY 2011, Broadridge generated

72% of its revenue from its Investor Communication Solutions segment which provides a wide range of services including generating account statements and distributing and processing proxy information. Broadridge holds a dominant position in the proxy business, providing proxy services to over 85% of the outstanding shares in the U.S. while processing over 600 billion shares in 2011. The Company’s Securities Processing Solutions (SPS) segment (28% of revenue) provides its fixed income trade processing services to 13 of the 20 primary dealers in the U.S and processed approximately 55% of all U.S. fixed income trades translating to ~$4 trillion in trades on average per day in 2011. In addition, the SPS segment also processes 1.5 million equity trades per day in U.S. and Canadian securities. During FY 2011, Broadridge’s client retention was 99%, a testament to the Company’s high service levels and client satisfaction and high customer switching costs.

Broadridge posted disappointing results in FY 2011 as total revenues declined by 1.9% while diluted EPS on a non-GAAP basis fell by 12% to $1.37 a share from $1.56 a share. Results were primarily impacted by a decline in revenue associated with event driven (major prospectus change, etc.) mutual fund proxy fees in the investor communications segment, which declined from all-time high levels ($150 million in FY 2010 vs. $39 million in FY 2011).The decline in event driven revenue had a disproportionate impact on the Company’s profitability as this business generates high incremental margins as the Company is able to leverage its large fixed costs proxy capabilities. While event driven mutual fund revenue tends to repeat, it tends to be lumpy. Nevertheless, the continued increase in the number of mutual fund accounts bodes well for this business longer term.

In our view, Broadridge’s free cash flow is poised for a significant acceleration. In addition to the adverse impact from the lower event driven revenue, Broadridge’s free cash flow has recently been impacted by a number of one-time investments the Company is making to enhance future profitability and drive growth. Recent investments to drive future growth include set up costs associated with a new client (Morgan Stanley Smith Barney - MSSB) pursuant to a long-term agreement and the migration of its IT infrastructure/data center to IBM from ADP. It should be noted that MSSB agreement will begin to positively impact results during the current year (2Q FY 2012) while FY 2012 will represent the last year of the IBM spending ($95 million in total will have been spent on this project), which is expected to save the Company $25 million a year beginning in FY 2013.

Despite Broadridge’s market leading positions, we believe there is plenty of room for future growth. With just $2.2 billion of annual revenues, Broadridge’s total market share is under 10% of the $24 billion addressable market within its Investor Communications (+$14 billion) and SPS (+$10 billion) segments. To bolster its share within this large and growing market, Broadridge has recently deployed nearly $400 million for tuck-in acquisitions that should provide a platform for future growth including Matrix Financial Solutions (mutual fund processing for the defined contribution market), NewRiver (electronic investor disclosure solutions) and ForeField (real time sales, education and client communications solutions) and Paladyne Systems (buy-side technology solutions). Broadridge’s successful track record of integrating acquisitions coupled with its stringent acquisition criteria (+20% internal rate of return hurdle rate) and its commitment to maintain an investment grade credit rating, should give investors comfort that it is deploying capital prudently.

While acquisitions have consumed a large amount of the Company’s excess capital recently, the Company’s strong free cash flow generation since its 2007 spinoff from ADP have also allowed for sizeable returns to shareholders. Broadridge has increased its dividend in each of the past four years (7% boost in FY 2012) with the current annual dividend of $0.64 representing a 2.9% yield. In addition, the Company has been an active repurchaser of its common shares with 25 million shares repurchased over the past 4 years (11% reduction in shares outstanding) including 8.7 million shares or $190 million at an average cost of $21.83 a share in FY 2011. With top management holding a 5% stake in Broadridge, we would expect returns to shareholders to play a meaningful role in future capital allocation decisions.

Broadridge operates an extremely attractive business model with a strong base of recurring revenues (~80%). This attractive business model has allowed the Company to generate over $1 billion in free cash flow between FY 2007 and FY 2011 (~40% of the Company’s current market cap). Broadridge expects to achieve 6-9% annual revenue growth through FY 2014 with operating margins expanding from 13% in FY 2011 to between 17% and 19% by FY 2014. Assuming that the Company is only able to achieve the mid-point of its outlook, we would expect the Company’s earnings power to approach $2.50 a share. With no multiple expansion from current levels, our estimate of the Company’s intrinsic value is $35-$40 a share.


- 6 -

Cablevision Systems Corporation

Symbol: CVCExchange: NYSECurrent Price: $14.00Current Yield: 4.3%Current Dividend: $0.60Shares Outstanding (MM): 284.1Major Shareholders: Dolan Family Group 21%;

71% voting Average Daily Trading Volume (MM): 3.052-Week Price Range: $37.72-$14.00Price/Earnings Ratio: 16.1Stated Book Value Per Share: NA


(in millions) 9/30/2011 2010 2009 Cash $ 189 $ 314 $ 353 Current Assets 1,056 2,055 2,055

TOTAL ASSETS $ 6,740 $ 8,867 $ 9,326 Current Liabilities $ 1,942 $ 2,184 $ 2,070 Long Term Debt 4,977 5,242 5,299 Shareholders Equity (5,543) (6,297) (5,156)


• Moderation in competitive pressures and

programming costs should benefit margins • Strong free cash flow will allow CVC to

reduce leverage from elevated levels • Recent spinoff of MSG and AMC sets up

Cablevision for an eventual sale

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 6,178 5,900 5,481 4,863 Net Income 208 124 (258) (76) Earnings Per Share 0.69 0.42 (0.86) (0.26) Dividends Per Share 0.475 0.40 0.20 NA Price Range 26.17-9.47 33.00-11.00 38.80-23.85 28.80-18.00


Despite investors’ somewhat well-earned mistrust of Cablevision’s controlling Dolan family, in 2011 CVC management continued their more recent trend of shareholder-friendly actions. Cablevision completed the spinoff of its former Rainbow Media Holdings cable networks as AMC Networks on June 30, 2011. Cablevision also continued to increase return of capital to shareholders in 2011, raising the dividend by 20% in May to an annualized $0.60 (4.3% yield) and spending $488 million to repurchase approximately 16 million shares (6% of initial shares outstanding) YTD through 3Q 2011.

CVC shares have plummeted 46% since the AMC spinoff. CVC has faced an increasingly competitive environment in recent quarters as Verizon has aggressively built out and promoted FiOS (likely at a loss) in Cablevision’s markets and targeted CVC with negative attack ads. Combined with an already challenging employment and household formation environment, this has produced video subscriber net losses of approximately 81,000 (2.7%) over the past year and a tepid 1% growth in cable television segment organic revenue YTD. Furthermore, recent increases in sales and marketing costs plus higher programming expense produced a 5% decline in cable television AOCF (ex-Bresnan) in the latest quarter.

Despite these negative headwinds, Cablevision still has some attractive growth drivers. CVC continues to pick up voice and data subscribers, and its leading data product offers attractive long-term pricing power opportunities. CVC continues to make gains in its Optimum Lightpath small and medium business product, with revenue up 9% YTD to $231 million. CVC is also still in the early stages of integrating the December 2010 Bresnan acquisition. Triple play package penetration is up to 50% versus 18% at the close of the acquisition, but plenty of additional room remains as the Company builds out the fiber ring. Bresnan also has additional digital cable penetration opportunities with only 75% penetration of video subs.

Core telecom operating profits also continue to be partially offset by a few of the infamous loss-making Dolan forays that remain within Cablevision’s ‘Other’ segment, including the MSG Varsity and News 12 networks, Newsday, and Clearview Cinemas. Operating loss (which also includes unallocated corporate expenses) totaled a hefty $211 million in 2011 through 3Q. Although we are not optimistic, the divestiture or wind-down of these operations could have a significant bottom-line impact.

We would also partially attribute the recent stock declines to Cablevision’s elevated debt level, which stood at 4.7x EBITDA at the end of 3Q 2011. This creates outsized stock price sensitivity to (enterprise value-based) multiple contraction that the industry has faced in the second half of 2011. However, the same should hold on the upside if/when sentiment improves and as Cablevision deleverages. In October, management suggested CVC’s leverage ratio is at the upper end of their comfort level and free cash flow will be redirected toward debt retirement in the coming quarters. The Company’s free cash flow generation should continue to improve in 2012 as CVC utilizes its $1.4 billion NOLs and capex continues to moderate on reduced consumer premise equipment spending (down 33% YTD). CVC also refinanced a large portion of its debt during 2011 through AMC spinoff related transactions as well as the issuance of $1.0 billion in 10-year, 6.75% notes and a new credit facility in November 2011. More favorable interest rates via the refinancing, as well as the roll off of interest rate swaps in 2012, should provide an additional boost to available free cash flow in 2012.

Cablevision has historically traded at a significant discount to our perception of its intrinsic value. Cablevision offers a “best in class” data product with an enviable footprint concentrated in the New York City metro area. While a more premium multiple may be warranted, nonetheless a 7.5x EV/EBITDA multiple to 2012E results implies approximately 58% upside for CVC shares. We also continue to believe CVC is a prime acquisition target longer term as Chairman Charles Dolan is 84 and the second generation of Dolans has shown little interest in running the cable business.


- 7 -

Campbell Soup Company

Symbol: CPBExchange: NYSECurrent Price: $32.28Current Yield: 3.6%Current Dividend: $1.16Shares Outstanding (MM): 322Major Shareholders: Dorrance Family 42%Average Daily Trading Volume (MM): 2.452-Week Price Range: $35.39-$29.77Price/Earnings Ratio: 13.5xStated Book Value Per Share: $7.67



TOTAL ASSETS $ 6,948 $ 6,862 $ 6,272

Current Liabilities $ 2,033 $ 1,989 $ 2,065 Long Term Debt 2,422 2,427 1,945 Shareholders Equity 1,167 1,096 929


• Any stabilization in U.S. Soup sales offers upside given low expectations.

• Chunky dividend backed by strong free cash flow (9% yield) and should continue to increase

• Sale or spinoff of Global Baking & Snacking or International businesses is possible

P&L Analysis

($ in millions except per share items) Fiscal Year Ending July 31 2011 2010 2009 2008 Revenues 7,719 7,676 7,586 7,998 Net Income 802 844 732 671 Earnings Per Share 2.42 2.42 2.03 1.75 Dividends Per Share 1.145 1.075 1.00 0.88 Price Range 37.59-32.80 37.50-29.81 40.85-24.63 38.59-30.19


Campbell Soup Company is the world’s largest branded soup manufacturer as well as a leading baked snacks and healthy beverages company. CPB shares have underperformed the S&P 500 over the past several years, primarily due to challenges in its U.S. Simple Meals (soup and sauces) segment (36% of Company-wide sales in FY2011). Segment sales declined 10% between FY2009-2011 as the weak macro environment led to extremely competitive price discounting pressures. Nonetheless the soup business remains extremely profitable (24% segment operating margins in FY2011) and we are cautiously optimistic that recent initiatives introduced by new CEO Denise Morrison, who assumed the position in August 2011, can stabilize results. Management is refocusing on driving profitable consumption through increased brand-building advertising and new product innovation rather than volume-focused promotional discounting. To that tune, in 1Q 2012 Campbell rolled back promotions and implemented significant soup price increases while introducing 27 new soup SKUs, including a new line of Slow Kettle branded premium soups. Early results look fairly positive, with U.S. Simple Meals operating earnings increasing 8% to $260 million in 1Q 2012 despite a 3% sales decline.

CPB also owns a collection of other premier brands that may be overshadowed by the recent struggles at the namesake soup business. This includes Pepperidge Farm and Goldfish baked snacks, which have increased retail sales by greater than 25% over the past six years and recorded seven consecutive years of sales and profitability growth; V8 healthy beverages, which recorded a 5.4% retail sales CAGR over the past 5 years; and the Australian/Asia-Pacific Arnott’s business, which increased retail sales by 60% the past 5 years.

CPB still generates approximately 69% of sales from the U.S. versus only 8% from Europe, which should keep CPB relatively protected from Euro Zone issues in 2012. Longer-term, Campbell has plenty of runway for international and emerging markets expansion. Both Pepperidge Farm and V8 remain extremely underpenetrated internationally. In January 2010, Campbell also announced a joint venture with distribution partner Swire Pacific to more aggressively attack the Chinese soup market. While CPB does not yet generate meaningful revenue from China and cultural barriers may be difficult to overcome, the Chinese soup market is an attractive long-term opportunity at more than 20x the size of the U.S. market.

CPB is also a consistent free cash flow generator (9.3% TTM free cash flow yield) and is arguably underleveraged at 1.7x EBITDA. The Company has consistently returned free cash flow to shareholders, including an aggregate $2.0 billion in common dividends and $4.3 billion in share repurchases between FY 2006-2011. This represents 151% of cumulative free cash flow over the period, as CPB has generated additional cash by divesting non-core businesses. Campbell also contributed $428 million over the past 2 years to narrow its pension deficit, which should provide additional free cash flow relief in 2012, as management anticipates a cash contribution of only $55 million. In addition to an attractive dividend yield (3.6%) and reasonable 48% payout ratio, capital deployment could provide some downside protection for CPB shares in 2012 should the macro environment deteriorate.

CPB shares currently trade at approximately 8x EV/TTM EBITDA, well below its large food peers (10x-11x) and its historical average trading multiple of approximately 10x EBITDA. In our view this represents an excessively discounted valuation for a consumer staples company with leading brands that command premium prices. While the domestic soup business has declined over the past two years and faces another challenging fiscal 2012, the business nonetheless remains very profitable, Campbell still holds tremendous market share, and discounting pressure from Progresso and private label should moderate in a normalized macroeconomic environment. Additionally, we would not rule out the possibility that new CEO Morrison eventually considers divesting non-core businesses or splitting up the Company should the stock continue to trade at a discount to its sum-of-the-parts intrinsic value; we believe a spinoff of Campbell’s faster growing Global Baking & Snacking division or its international businesses could unlock significant shareholder value.


- 8 -

Cisco Systems, Inc.

Symbol: CSCOExchange: NASDAQCurrent Price: $17.98Current Yield: 1.3%Current Dividend: $0.24Shares Outstanding (MM): 5,375.9Major Shareholders: Insiders < 1% Average Daily Trading Volume (MM): 57.852-Week Price Range: $22.34-$13.30Price/Earnings Ratio: 15.5xStated Book Value Per Share: $8.78


(in millions) 11/29/11 2011 2010 Cash $ 44,388 $ 44,585 $ 39,861 Current Assets 57,267 57,231 51,421

TOTAL ASSETS $ 86,964 $ 87,095 $ 81,130 Current Liabilities $ 17,461 $ 17,506 $ 19,233 Long Term Debt 16,853 16,822 15,284 Shareholders Equity 47,214 47,259 44,285


• Maintains over 60% market share in routers and

switches • Restructuring efforts on track to achieve

$1 billion in annual cost savings • Generates an enormous amount of free cash

flow (current FCF yield ~10%) • Continues to maintain a strong balance sheet

with ~$44.5 billion of cash and investments (or >$8/share). Approximately $40.5 billion of its cash balance is held in overseas subsidiaries

P&L Analysis ($ in millions except per share items) Fiscal Year Ending

July 30th 2011 2010 2009 2008 Revenues 43,218 40,040 36,117 39,540 Net Income 6.490 7,767 6,134 8,052 Earnings Per Share 1.17 1.33 1.05 1.31 Dividends Per Share 0.12 Nil Nil Nil Price Range 22.34-13.30 27.74-19.00 24.82-13.61 27.72-11.78

INVESTMENT RATIONALE Cisco Systems is the world's leading supplier of computer networking products, systems, and services. The Company's

product line includes routers, switches, remote access devices, protocol translators, Internet services devices, and networking and network management software, all of which link together geographically dispersed local area networks (LANs), wide area networks (WANs), and the Internet itself.

The Company’s durable competitive advantages include significant scale and high customer switching costs. These advantages allowed Cisco to garner over 60% market share in routers and switches. Combined, these businesses represent about 60% of the Company’s total sales. Cisco has leveraged the market position of these businesses with customers and moved into new market areas for growth (such as data centers and telepresence). In the meantime, the Company sits in front of three favorable industry trends: increasing video consumption; virtualization/cloud computing; and collaboration. In total, these trends represent close to a $100 billion market opportunity. In our view, Cisco will be a prime beneficiary of these long-term trends given its market leadership position.

Fiscal 2011 (ended July 30th) was a challenging year for CSCO. As a result of heightened competitive pressures (Juniper and Hewlett-Packard) combined with reduced government spending (which accounts for ~20% of total sales), CSCO’s sales increased by just 6% while operating profit margin declined to 19.6% from 22.8% in fiscal 2010. These results were well below already reduced expectations of 9-12% sales growth and low 20% operating profit margins. In the second half of fiscal 2011, the Company initiated a number of key, targeted restructuring actions to address several areas in its business model intended to (1) simplify and focus the Company’s organization and operating model; (2) align the Company’s cost structures given transitions in the marketplace; and (3) divest or exit underperforming operations. Accordingly, CSCO announced that it intends to reduce its global workforce by 9%, consolidate excess facilities and exit the Flip Video cameras product line. In all, these initiatives are expected to generate $1 billion in annual cost savings. Finally, the Company named its first ever Chief Operating Officer, Gary Moore, to give its ever-optimistic CEO, John Chambers, an operational sidekick to help manage the Company. So far the results of the restructuring have been encouraging. Results for the last 2 quarters (4Q FY11 and 1Q FY12) illustrate a more nimble, focused and aggressive Cisco. Despite what is considered a seasonally weak quarter, product orders grew 13% YoY in 1Q 2012 after increasing by 11% in 4Q 2011. Meanwhile, gross margin continues to hold above 60% despite a negative mix (faster growth businesses have lower gross margin). We also believe the Company’s new switching and routing products, which have higher performance but lower price points, are gaining traction and have helped the Company beat back competition (HP in enterprise and Juniper in service provider). Finally, CSCO indicated that it expects to reach its $1 billion annual cost savings goal by 3Q 2012.

The Company generates an enormous amount of free cash flow (current FCF yield ~10%). Over the last 10 years, the Company has generated cumulatively ~$90 billion in operating cash flow (or about $16 per share) and $72.5 billion in free cash flow (or close to $13 per share). Most of the free cash flow (~$65 billion) has been used to repurchase shares (partly to offset stock option dilution). Since the Company has started repurchasing shares on the open market (since 2002), it has reduced shares outstanding by ~22%. As of 10/29/2011, Cisco has $8.7 billion left on its share repurchase authorization, after increasing it by $10 billion in November 2010. In the spring of 2011, Cisco issued its first-ever quarterly dividend of $0.06/share (current yield 1.3%, in line with the Company’s target of a 1-2% yield). Cisco continues to maintain a strong balance sheet with ~$44.5 billion of cash and investments (or >$8/share). Approximately $40.5 billion of its cash balance is held in overseas subsidiaries, so the Company would be one of the prime beneficiaries of a tax holiday that encourages the repatriation of overseas profits for domestic investment. Cisco is currently trading at its lowest valuation point in over 10 years, at just over 11.2x our 2012E GAAP EPS. At these valuation levels, we believe the Company is being valued as if it is a mature business with slow or no growth prospects. In our view, however, there is still plenty of room for the Company to grow. We believe that management’s reduced sales growth target of 5-7% is conservative given that its core router and switches markets are already growing at a 6%-8% rate. Our intrinsic value for Cisco Systems is ~$36/share, which represents a 100% upside from current levels.


- 9 -

Comcast Corporation

Symbol: CMCSK/CMCSAExchange: NasdaqCurrent Price: $22.99Current Yield: 2.0%Current Dividend: $0.45Shares Outstanding (MM): 2,761

Major Shareholders: Brian Roberts 33% voting Average Daily Trading Volume (MM): 4.752-Week Price Range: $24.98-$19.36Price/Earnings Ratio: 16.5xStated Book Value Per Share: $16.91


(in millions) 9/30/2011 2011 2009 Cash $ 1,806 $ 5,984 $ 671 Current Assets 8,582 8,886 3,223



• Continued growth in the Company’s non-

video cable business including the higher margin broadband and small/medium size business service

• Ongoing value creation from the well-timed acquisition of NBC Universal

• Balance sheet optimization with the potential for a meaningful boost to the Company’s dividend and share repurchase program

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 37,937 35,756 34,423 31,060 Net Income 3,635 3,638 2,547 2,587 Earnings Per Share 1.29 1.26 0.86 0.83 Dividends Per Share 0.378 0.297 0.25 NA Price Range 21.17-14.28 17.35-10.33 22.52-12.10 30.18-17.37

INVESTMENT RATIONALE With uncertainties associated with Comcast’s purchase of a controlling stake in NBC Universal now removed (the deal closed

on January 28, 2011), we believe that investors can now focus on the Company’s attractive investment merits including its robust free cash flow generation, multi decade low valuation, attractive growth opportunities and improving fundamentals at the recently acquired NBCU business. NBCU’s cable networks (USA, Bravo, etc.) account for ~85% of NBCU’s EBITDA, boast an enviable dual revenue stream (advertising and affiliate fees), have minimal capital requirements, generate outsized profitability (+40% EBITDA margins), and throw off a significant amount of free cash flow. Importantly, NBCU was acquired at a favorable price and on attractive terms, with Comcast’s Brian Roberts taking a page out of media mogul Dr. John Malone’s playbook. This was no Mickey Mouse deal! Comcast’s biggest challenge going forward may be deciding whether to forgo an attractive carried interest (pursuant to the terms of the NBCU transaction) by purchasing GE’s NBCU stake early with its excess capital (Comcast’s leverage has migrated to the lower end of its targeted range) or to boost dividends and share buybacks - a high class problem. Our bet - Comcast significantly increases its already robust dividend (2.0% yield) and announces a massive share repurchase in the not too distant future.

Despite misguided concerns among investors that the cable distribution business is dying, Comcast’s core cable operations have posted solid results through the first nine months of 2011 with revenues up 6% and EBITDA advancing by 7%. During 3Q11, Comcast experienced a 13% increase in net subscriber additions for its products (video, data, voice), representing the fourth consecutive quarter of YoY total customer growth. In our view, there are multiple items that could continue to drive growth and boost profitability. While the Company’s video distribution business has matured, initiatives such as TV Everywhere are aimed at preserving, if not growing, future video revenue. Comcast’s operating strategy of providing consumers the ability to access content on multiple devices (tablets, mobile, etc.) could not only help increase customer loyalty, but has the potential to generate additional high margin revenue streams. Comcast’s broadband business continues to demonstrate good growth with revenue up 10% YTD in 2011 as new broadband customer net additions (823,000 YTD 9/30/11 vs. 723,000) remain strong. Comcast has now deployed DOCSIS 3.0 (provides for faster broadband speeds, among other benefits) across its entire footprint, which should continue to aid broadband results for the foreseeable future given consumers’ insatiable demand for ever increasing broadband speeds. Recall, Comcast’s broadband business boasts significantly higher margins than video reflecting the absence of programming expenses. The Company’s Business Services offering (voice and data) targeted to small to medium sized enterprises continues to gain traction and is growing at ~40%-50% rate each quarter with an annual run rate of revenues of nearly $2 billion. To date, the Company has focused its offering on small business, but now has its sights set on medium sized companies. Finally, interactive advertising and a recent entrance into the residential home security business could provide additional future growth opportunities.

In December, Comcast entered into an agreement to sell its wireless spectrum to Verizon. As part of the agreement, Verizon will soon be marketing the services of Comcast’s cable business. In our view, this move by FiOS suggests that the Company is raising the white flag on its lofty ambitions to compete with cable video/broadband distributors by focusing on its wireless business that offers it more attractive returns. Comcast’s spectrum sale further bolsters the Company’s balance sheet and should help accelerate returns to shareholders as Comcast is expected to receive $2.3 billion, approximately 52% more than it paid for the spectrum in 2007.

Comcast continues to return a large amount of its excess capital to shareholders in the form of dividends and repurchases. Through the first 9 months of 2011 Comcast has deployed $1.65 billion to repurchase 73.4 million shares at an average price of $22.48 a share. These repurchases follow on the heels of $4.8 billion of shares purchased over the past three years at an average cost of $18.25 a share. Meanwhile the Company has nearly doubled its dividend over the past three years with the current yield standing at 2.0%. We would not be surprised if these returns to shareholders accelerated given the solid recurring revenue streams at both Comcast’s Cable and NBCU coupled with low consolidated leverage (debt/EBITDA of ~2.2), which stands at the low end of the Company’s targeted level. In our view, there is a disconnect between Comcast’s robust fundamentals and the Company’s current valuation (Comcast’s cable business trades at an implied value of just 5.0-5.5x EBITDA). Applying what we view as conservative multiples to the Company’s cable distribution business (6.5x) and NBCU (10x) our estimate of the Company’s intrinsic value is $36 a share, representing 55% upside from current levels.


- 10-

CVS Caremark Corporation

Symbol: CVSExchange: NYSECurrent Price: $37.04Current Yield: 1.30%Current Dividend: $0.50Shares Outstanding (MM): 1,301.6Major Shareholders: Insiders < 1.0%Average Daily Trading Volume (MM): 10.852-Week Price Range: $39.50-$30.98Price/Earnings Ratio: 14.8xStated Book Value Per Share: $28.80





• The PBM business returned to revenue

growth in 2011, and we would expect profits to grow in 2012

• CVS should be a primary beneficiary from several industry trends including the aging of the baby boomers and the upcoming largest-ever wave of branded drugs coming off patent protection

• Management has been aggressive in returning cash to shareholders

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 96,413 98,729 87,472 76,330 Net Income 3,439 3,708 3,344 2,637 Earnings Per Share 2.50 2.56 2.27 1.92 Dividends Per Share 0.35 0.305 0.258 0.229 Price Range 30.47-23.74 34.22-27.08 37.75-30.58 38.27-27.38


CVS Caremark Corporation (“CVS”, “Caremark”, or the “Company”) is the second largest U.S. pharmacy by stores and sales, and the second largest pharmacy benefit manager (PBM) by annual prescription volume. The Company manages or dispenses close to 20% (about 800 million) of the country’s total annual prescriptions through its own CVS/Pharmacy stores, its network of pharmacies and mail order distribution centers.

Four years after the CVS/Caremark merger, the true benefits of the combination are starting to materialize. At the onset of the merger, the combined Company increased its purchasing scale relative to its suppliers. This is evident in the Retail Pharmacy segment as its operating profit margin now stands at an industry leading 7%, up 200 bps from pre-merger levels. Meanwhile the PBM business, after stumbling out of the gate following the combination, is beginning to experience early signs of a multi-year turnaround. Under the leadership of new President Per Lofberg (who has more than 30 years experience in health care and the PBM industry and is former Chairman of Merck-Medco Managed Care (which later became Medco Health Solutions)), Caremark has refocused the business and is poised for growth and improved profitability. Notably, Caremark recently emerged as the winner for the Aetna business in 2010 securing a 12-year contract. The PBM business returned to revenue growth in 2011, and we would expect profits to grow in 2012 aided, in part, by a recent restructuring initiative that is expected to generate $1.0 billion in cumulative cost savings by 2015. Differentiated offerings such as Maintenance Choice (which allows a patient to pick up a 90 day supply of prescription drugs at either a CVS/Pharmacy store or receive it in the mail for the same price) and Pharmacy Advisor (which provides PBM clients face-to-face counseling with a pharmacist at a CVS retail store) are unique products and are helping the Company regain market share lost over the years.

CVS should be a primary beneficiary from several industry trends, including the aging of the baby boomers and the upcoming largest-ever wave of branded drugs coming off patent protection. As people age, the number of prescription drugs used increases. For example, someone over 65 years old consumes, on average, 30 prescriptions per year, compared to 12 for people between the ages of 19 and 64. In addition, as the boomers reach retirement age, more of them will receive their prescription drug coverage under Medicare plans, making this the fastest growing segment of the PBM industry. In April 2011, Caremark acquired United American’s Part D business and now owns the second largest Medicare Part D business by enrollment. Going forward, industry profitability will be driven by the biggest generic wave in history as an estimated $95 billion of branded drugs will lose their patent protection between 2010 and 2015 including Lipitor on 11/30/2011. Since generic drug prices are typically 30%-50% less than branded drugs, this wave will depress industry sales. It is estimated that a 1% increase in the generic dispense rate results in a 1% decrease in pharmacy spending. However, generic drugs are four to five times more profitable than branded drugs so this will be a huge boon for CVS’s profitability. Finally, CVS should benefit from Walgreen’s contract dispute with Express Scripts. If unresolved by year-end 2011, Walgreen pharmacies will likely leave Express Scripts’ network and millions of patients covered by Express Scripts will need to fill their prescriptions at other drugstores.

Combining Caremark’s PBM business with CVS’ retailing operations has enabled the Company to generate robust free cash flow. Since the merger in 2007, CVS has cumulatively generated over $10.0 billion in free cash flow and returned nearly $11.0 billion to shareholders through share repurchases and dividends. Over the next five years, we expect the Company to generate $20 billion of cumulative free cash flow, representing over 40% of the Company’s current market capitalization. Recently, management has been aggressive in returning cash to shareholders. CVS increased its quarterly dividend 43% in January 2011 and the payout ratio now stands at ~20%. The Company is targeting a payout ratio of 25% to 30% by 2015, implying a 25% CAGR in its dividend. Through the first 9 months of 2011, CVS had repurchased 69.5 million shares at an average cost ~$36 per share. CVS still has ~$3.5 billion remaining on its share repurchase authorizations at the end of 3Q 2011. With the Company’s shares trading at just 7.2x TTM EBITDA (and well below our estimate of the Company’s intrinsic value), we view these share repurchases as an excellent outlet for excess capital. Using a sum of the parts analysis, our estimate of CVS Caremark’s intrinsic value is ~$52 per share, representing 40% upside from current levels.


- 11 -

Dell Inc.

Symbol: DELLExchange: NasdaqCurrent Price: $15.05Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 1,828Major Shareholders: Michael Dell 12.8%Average Daily Trading Volume (MM): 23.552-Week Price Range: $17.60-$12.99Price/Earnings Ratio: 7.0xStated Book Value Per Share: $4.74



TOTAL ASSETS $ 42,043 $ 38,599 $ 33,652

Current Liabilities $ 20,219 $ 19,483 $ 18,960 Long Term Debt 6,430 5,146 3,417 Shareholders Equity 8,663 7,766 5,641


• Investors continue to overlook DELL’s solid

franchise, impressive cash flow generation, and fortress-like balance sheet

• Improved efficiency and strategic shift to software should lead to long-term margin expansion

• Significant repurchase program and investments by Michael Dell underscore DELL’s attractive valuation

P&L Analysis

($ in millions except per share items) Fiscal Year Ending January 29 2011 2010 2009 2008 Revenues 61,494 52,902 61,101 57,420 Net Income 3,128 2,054 2,852 2,583 Earnings Per Share 1.60 1.05 1.41 1.14 Dividends Per Share NA NA NA NA Price Range 17.52-11.34 16.92-7.99 25.63-9.30 30.60-20.06


Dell Incorporated (“DELL” or “the Company”) is a well established provider of personal computers, data center products, and other information technology related services to a wide range of consumers and corporations. It organizes its businesses into 4 global segments: Large Enterprise (29% of sales), Public (29% of sales), Small and Medium Business (24% of sales), and Consumer (18% of sales). The firm also has a diverse geographic profile, with roughly half of total sales derived from markets outside of the United States. Importantly, about 13% of total sales are now derived from the BRIC emerging markets (Brazil, Russia, India, and China). Importantly, founder Michael Dell is actively involved in the firm’s daily operations (he is Chairman and CEO), and he has purchased about $250 million of DELL stock over the past year.

DELL has been going through a transitional phase during recent years, as it re-shapes its strategy in order to achieve a more attractive and profitable long-term business mix. Management has attempted to shift DELL’s focus from hardware products to software solutions, while expanding its target market to include middle market commercial buyers (the largest IT buying sector according to management). As part of its strategy, DELL has completed several acquisitions of varying sizes to help accelerate its transformation. Some of the most significant transactions during recent years have included its 2009 acquisition of Perot Systems (for $3.9 billion), and smaller bolt-on acquisitions such as Compellent Technologies (virtual storage for enterprise and cloud computing) and SecureWorks Incorporated (information security services).

Recent results have reflected progress with the Company’s strategic transition, but this has been somewhat mitigated by demand weakness for some of DELL’s core products. Through the first 3 quarters of this fiscal year, revenue is basically flat. The firm is beginning to realize margin improvement through its more profitable business mix and its focus on operational efficiency. Gross margins and operating margins have both showed marked increases (gross margin is up about 500 basis points, operating margin is up about 250 basis points) through the first 9 months of the fiscal year. Following the most recent quarter, management indicated that revenue growth for the current year would likely be at the low end of its 1%-5% guidance range. However, DELL indicated it is on track to exceed its expectation for operating income growth of 17%-23%. From our perspective, these results demonstrate tangible progress for DELL achieving improved profitability despite a somewhat difficult market backdrop.

In our view, future M&A seems to be a likely development, reflecting DELL’s ongoing transformation strategy. Future transactions will likely focus on areas such as data backup and recovery, and information security. Despite engaging in several acquisitions, DELL has been able to maintain a solid financial position. As of the most recent quarter, DELL held a net cash position of approximately $5.6 billion (over $3.00 per share). Although the firm is undergoing a strategic transition, the Company continues to have a solid franchise that generates a strong and steady stream of cash flow. During recent years, DELL has been generating about $3.5 billion in annual free cash flow (about a 13% free cash flow yield). The Company does not pay a dividend, but it does return cash to shareholders through repurchases. During September, DELL’s board of directors increased its share repurchase authorization by $5 billion (representing 18% of the Company’s current market value).

DELL shares have advanced roughly 11% year to date, but performance has been fairly anemic from a longer term perspective (stock is down about 40% during the past 5 years). Although future financial results will likely remain mixed, we continue to view DELL as a high quality franchise with strong cash flow, improving margins, and a solid balance sheet. In our view, the stock is an attractive value for long-term investors. Our $23 estimate for intrinsic value assumes a 10x multiple for core EPS (toward the low end of DELL’s historical range), and reflects the Company’s net cash balance. This intrinsic value implies upside of over 50% from the stock’s current valuation.


- 12 -

Equifax Inc.

Symbol: EFXExchange: NYSECurrent Price: $37.35Current Yield: 1.7%Current Dividend: $0.64Shares Outstanding (MM): 123.3Major Shareholders: Insiders: 4.6%Average Daily Trading Volume (MM): 0.8652-Week Price Range: $39.81-$28.79Price/Earnings Ratio: 21.0xStated Book Value Per Share: $14.32



TOTAL ASSETS $ 3,513 $ 3,434 $ 3,551 Current Liabilities $ 344 $ 320 $ 492 Long Term Debt 1,036 1,000 1,174 Shareholders Equity 1,766 1,691 1,615


• Continued new product introductions as part of the Company’s Decision 360 initiatives that leverage the Company’s multiple databases

• Outsized returns to shareholders with leverage at just 1.7x (debt/EBITDA) – the low end of EFX’s targeted range

• Improved housing market translating into better economic environment – more credit checks for auto loans, credit cards and mortgages as well as income verification

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 1,860 1,716 1,814 1,708 Net Income 267 234 273 273 Earnings Per Share 1.86 1.70 1.91 1.83 Dividends Per Share 0.28 0.16 0.16 0.16 Price Range 36.63-27.64 31.64-19.63 39.95-19.38 46.30-35.22


Equifax is a leading provider of information solutions, employment and income verifications and human resources business processing outsourcing. During 2010, nearly 90% of the Company’s revenues were derived from services provided to businesses including consumer and business credit intelligence, credit portfolio management, decisioning technology (whether to approve a loan, credit card, etc.), marketing tools and HR related services. Products marketed to individual consumers represented 10% of the Company’s 2010 revenues. The Company’s direct to consumer products allow individuals to make financial decisions, monitor their credit and credit score, and protect their identity. These products are sold on either a transaction or subscription basis and are delivered to customers electronically via the Internet. Equifax operates an extremely attractive business model characterized by repeatable revenues streams, high barriers to entry, minimal capital requirements and high margins thanks to significant operating leverage. In addition, the competitive environment is extremely favorable as there are only two other large-scale global competitors in the consumer credit and information management industry.

Results within Equifax’s U.S Consumer Information Services (USCIS) business segment (40% of 2010 revenue; 63% of operating profit), the largest and most profitable of the Company’s five operating segments, have been negatively impacted by consumer deleveraging and tighter bank lending standards in response to the 2008/2009 credit crisis. Revenues in the segment were 3% lower in 2010 vs. 2008 levels while operating margins contracted by 260 basis points over that same time period. While the challenging economic environment has impacted the segment’s profitability, so have investments the Company is making to drive future growth. As part of the Company’s Decision 360 initiatives, Equifax is investing heavily to link all of its databases (IXI, the Work Number, NCTUE+, credit, etc.) with the goal of gaining further insight on individuals including assessing consumers’ willingness, ability and capacity to pay. Further, Equifax believes that the products developed from these initiatives could have broader appeal and be used by companies outside of its traditional finance and mortgage customer base including the healthcare and insurance industries. As of June 30, 2011 management stated that it is generating revenue from 13 different product offerings that were built leveraging the Company’s multiple data assets. We would also note that the Company’s customers are increasingly relying on the Company’s analytics reflecting the valuable data provided by integrating multiple databases. Importantly, during the third quarter of 2011, 38% of Equifax’s online transaction volume included an analytical component from an Equifax model representing the 8th consecutive quarter of year over year penetration gain for the Company’s analytical solutions.

In our view, Equifax is positioned well in a number of high growth emerging market countries that are poised to experience an expanding middle class that will increasingly make use of financial products and services. At present, the Company has attractive equity interests in credit information businesses within Brazil, Russia and India. Importantly, the Company should be able to boost its equity interests in Brazil and Russia over time, including the potential to ultimately acquire a controlling interest.

The significant operating leverage inherent in the Company’s database business model enables Equifax to generate an enormous amount of free cash flow. While the Company’s capital allocation has balanced share repurchases ($378 million since 2008), debt reduction ($238 million decrease), and acquisitions ($337 million since 2008) since the 2008/2009 credit crisis, we believe that a disproportionate amount of free cash flow going forward will be deployed for share repurchases. It should be noted that the Company’s leverage (debt/EBITDA) has declined meaningfully over the last 3 years and now stands at 1.7x down from 2.3x at the end of 2007. Further, we believe share repurchases represent an excellent use of capital with the shares trading at just 7.7x our 2013E EBITDA.

Equifax’s improved financial position and confidence in its business and growth prospects prompted the Company to significantly increase its quarterly payout. In November 2010, Equifax boosted its quarterly payout by a whopping 4-fold to $0.16 a share from $0.04 a share, representing a 1.7% dividend yield at current prices. The dividend boost was the first increase in the Company’s payout since 2005. Going forward, Equifax stated that it intends to pay out 25% to 35% of its net income in the form of dividends, which should ensure a dividend yield in the 2% range.

Applying a 9.0x multiple (on par with the implied valuation of Madison Dearborn’s recent purchase of a 51% stake in peer TransUnion from the Pritzker Family) to our projection for Equifax’s 2013E EBITDA, our estimate of the Company’s intrinsic value is $50 a share, representing 33% upside from current levels. We would note that our valuation does not assign any value for the Company’s promising emerging market equity interests, which could become a significant value creator for Equifax over time.


- 13 -

Expedia, Inc.

Symbol: EXPEExchange: NASDAQCurrent Price: $27.37Current Yield: 1.0%Current Dividend: $0.28Shares Outstanding (MM): Common: 241.4

Class B: 25.6Major Shareholders: Liberty Interactive:

18% common, 100% Class BAverage Daily Trading Volume (MM): 4.852-Week Price Range: $32.89-$19.61Price/Earnings Ratio: 16.2xStated Book Value Per Share: $11.38


(in millions) 9/30/11 2010 2009 Cash $ 1,472 $ 729 $ 657 Current Assets 2,598 1,702 1,225

TOTAL ASSETS $ 7,677 $ 6,651 $ 5,937 Current Liabilities $ 2,616 $ 1,889 $ 1,835 Long Term Debt 1,645 1,645 895 Shareholders Equity 3,038 2,737 2,750


• Expedia’s competitive advantages have

allowed the Company to maintain steady operating performance regardless of the macroeconomic environment

• The Company is spinning off TripAdvisor to shareholders on December 20th

• Adjusting for TripAdvisor’s valuation, new Expedia is trading at less than 4.0x EBITDA

Fiscal Year Ending December 31

P&L Analysis ($ in millions except per share items)

2010 2009 2008 2007 Revenues 3,348 2,955 2,937 2,665 Net Income 422 300 277 396 Earnings Per Share 1.46 1.03 0.95 0.94 Dividends Per Share 0.28 Nil Nil Nil Price Range 29.64-18.33 27.09-6.39 30.56-6.05 35.04-20.37

INVESTMENT RATIONALE Expedia, Inc. is a leading online travel agency (OTA) for consumers to book reservations for airlines, hotel rooms,

cruise ships and car rentals. Among the Company’s well-known websites are Expedia.com, Hotwire, Hotels.com, Egencia, eLong, Venere and TripAdvisor. The Company operates in three business segments: Leisure (82% of 2010 revenues), TripAdvisor Media Network (14%) and Egencia (4%).

As one of the leading online travel agencies, Expedia has created a network effect which is the source of its competitive advantage. The large number of unique visitors to the Company’s sites creates value to travel suppliers, who are then willing to supply more inventories, better pricing and allow Expedia to bundle products (airfare, hotel and car rental) into packages. This competitive advantage has allowed Expedia to maintain steady operating performance regardless of the macroeconomic environment. Over the last five years, gross bookings have steadily increased at a compound annual growth rate of 11.4% translating into a 10.6% CAGR for revenue and steady EBITA margin in the mid-20% range (EBITDA margin is in the high-20% range). Expedia’s business model tends to hold up well regardless of the macroeconomic environment, reflecting counter-cyclical benefits such as being able to negotiate better room and airline inventory and rates during bad economic times. During better economic times, EXPE benefits from a rising average daily rate (ADR) environment.

Expedia’s steady operating performance produces a substantial amount of free cash flow. Over the last five years, the Company has generated close to $2.7 billion in free cash flow, or $10 per share. The Company has reinvested a portion of this cash in acquisitions to strengthen its competitive position. EXPE’s strong cash generation and solid balance sheet (we project the Company’s year-end gross debt to be approximately 1.6x EBITDA) have allowed the Company to return a significant amount of value to shareholders through dividends and repurchases. Between 2006 and 2010, EXPE spent over $2.2 billion on share repurchases resulting in a ~23% reduction in shares outstanding (from 348 million shares at the beginning of 2006 to approximately 269 million shares currently). Expedia has stated that it is comfortable with gross debt at 2x to 3x EBITDA and would consider raising additional debt if the terms and conditions are right. At 2.5x gross debt/EBITDA, the midpoint of EXPE’s comfort range, we estimate that EXPE could borrow an additional $1.0 billion that could be returned to shareholders in the form of dividends/special dividends and share repurchases. At current prices, we believe that Expedia would be able to retire 38 million shares representing 14% of its outstanding shares. We believe this would be a good use of capital since we view the Company’s shares as particularly undervalued.

On April 7, 2011, the Company announced that it will spin off TripAdvisor to shareholders (expected to occur on December 20th). The TripAdvisor Media Network (TMN) segment provides advertising services to travel suppliers on its websites, which aggregate traveler opinions and unbiased travel articles about cities, hotels, restaurants and activities in a variety of destinations through tripadvisor.com and its localized international versions as well as through its various travel media content properties within the TripAdvisor Network. In addition to the flagship site, TripAdvisor.com, TMN also owns and operates airfarewatchdog.com, bookingbuddy.com, cruisecritic.com, flipkey.com, holidaywatchdog.com, and seatguru.com. Over the last five years, TripAdvisor has been a key revenue and profit growth driver for EXPE posting a 46.3% and 50.3% CAGR in revenues and operating profit, respectively. EXPE has repeatedly stated that it believes TripAdvisor can be a $1 billion revenue business (TTM revenue of $606 million) as advertisers shift their advertising budget from traditional media to the Internet.

Expedia is currently trading at ~6.8x our 2011E EBITDA and ~11.0x our 2011E free cash flow. This valuation is well below its nearest competitor, Priceline, which is trading at ~16.0x consensus 2011E EBITDA and ~21.0x 2011E free cash flow. If we adjust Expedia’s valuation for TripAdvisor, based on a when-issued trading basis, the new Expedia is trading at less than 4.0x EBITDA. However, Mr. Market seems to be enamored with TripAdvisor, valuing it at ~24x EBITDA. Using a sum-of-the-parts analysis to value the Company, we derive an intrinsic value of approximately $42 per share for Expedia, representing over 53% upside from current prices.


- 14 -

Hanesbrands Inc.

Symbol: HBIExchange: NYSECurrent Price: $22.42Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 99.5Major Shareholders: Insiders: 4.6%Average Daily Trading Volume (MM): 1.352-Week Price Range: $33.26-$22.25Price/Earnings Ratio: 8.8xStated Book Value Per Share: $7.54



TOTAL ASSETS $ 4,219 $ 3,790 $ 3,327

Current Liabilities $ 1,038 $ 829 $ 879 Long Term Debt 2,215 2,131 1,959 Shareholders Equity 750 563 335


• HBI should benefit beginning in mid-2012 as high cost cotton is worked through its cost structure

• Ongoing operating improvements reflecting strong pricing power (3 price increases implemented in 2011) and continued benefits from the Company’s new low cost supply chain

• Potential for the initiation of a dividend or major share repurchase program

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 4,327 3,891 4,249 4,475 Net Income 211 51 127 126 Earnings Per Share 2.16 0.54 1.34 1.30 Dividends Per Share NA NA NA NA Price Range 31.45-20.95 26.61-5.14 37.73-8.54 33.73-23.69


Hanesbrands sells a broad range of apparel essentials such as T-shirts, bras, panties, men’s underwear, and activewear. The Company’s major brands including Hanes, Champion, Playtex and Bali, among others, hold either the number one or number two U.S. market position by sales value in most of its product categories. It is worth noting that the vast majority of the Company’s products are not driven by fashion trends, in stark contrast to companies in the broader apparel industry.

Under the Sara Lee umbrella, Hanesbrands had been primarily managed for near term cash generation. Notably, at the time of the Company’s 2006 spinoff Hanesbrands contained an inefficient supply chain with a significant manufacturing presence in high cost labor markets. Subsequent to the Company’s spinoff, Hanesbrands embarked on a multi-year restructuring to bolster its long-term profitability by consolidating its supply chain in three tightly clustered and low cost regions (Caribbean, Central America and Asia). With the heavy lifting now complete, we believe Hanesbands is uniquely positioned to benefit in the form of a significant improvement in profitability. Between 2010 and 2012 Hanesbrands expects to realize ~$50 million a year ($150 million total) in cost savings resulting in a 50-100 basis point improvement in its annual operating margin due to the new supply chain. Despite surging cotton prices (cotton represents ~10%-15% of HBI’s cost of sales) during the early part of 2011, Hanesbrands recently (during 3Q 11) posted its highest quarterly operating margin since the spinoff thanks to this low cost supply chain coupled with the Company’s strong pricing power. In a testament to the strength of the Company’s brands, HBI has implemented three price increases during 2011. Through the first 9 months of 2011, Hanesbrands’ sales have increased by 10% and operating profit has increased by 25% reflecting a 130 bps expansion in operating margins. While cotton prices have subsided markedly from recent highs, the Company’s P&L will still be impacted by elevated cotton costs through mid 2012, but this should set the stage for further operating margin expansion.

International sales represent just 12% of the Company’s total net sales, but this percentage could expand in the coming years given HBI’s presence in faster growing economies (China, India and Brazil) where the apparel essentials category growth is poised to accelerate. By mid-decade, management expects to generate $1 billion in sales outside of the U.S., up from approximately $500 million in 2010 (as an aside, faster growth outside the U.S. should help reduce the Company’s exposure to Wal-Mart and Target, which represented 26% and 17% of HBI’s 2010 total sales, respectively). Hanesbrands currently boasts the number one market share in male underwear in both Brazil and Mexico while the Company’s intimate apparel business is the market share leader in Mexico.

A key component of the Company’s business model is the replenishment nature of its many categories, which help generate strong and consistent cash flows. While a majority of the Company’s cash flow generation to date has been deployed for debt reduction, we would not be surprised if capital returned to shareholders accelerated going forward. Hanesbrands’ leverage (net debt/EBITDA) should decline to approximately 3.1x at year-end 2011, down from ~5.0x at the time of the spinoff. While management has communicated that it is comfortable with leverage at 2x-3x, the Company should achieve this during 2012 positioning the Company well for the initiation of a dividend or a meaningful share repurchase program. Over the past two years Hanesbrands has taken advantage of frothy credit markets and refinanced $1.5 billion (75% of HBI’s total debt) of its debt by converting short term floating rate debt into fixed rate debt with long term maturities. The refinancing prompted Moody’s in early 2011 to upgrade the Company’s credit facility to investment grade (Baa3) from Ba1.

While we believe the Company’s future capital allocation moves will be skewed towards dividends/share repurchases, we would note that Hanesbrands’ improved financial position should also allow for small strategic tuck-in acquisitions. During 2010, Hanesbrands acquired Gear for Sports for ~$225 million. We view the acquisition as an attractive use of capital for a variety of reasons as it leverages the Company’s low cost supply chain, increases the Company’s exposure to the higher margin graphic apparel segment and was immediately accretive to Hanesbrands’ EPS to the tune of ~$0.20 in the first full year.

At current levels, Hanesbrands trades at just 6.7x our estimated 2012 EBITDA. We would note that this represents a discount to the 8.8x EV/EBITDA multiple we estimate that Berkshire Hathaway paid for Fruit of the Loom in 2002. Applying a 9.0x multiple to our estimate of HBI’s 2013 EBITDA, we derive an intrinsic value of $42 a share. While the multiple that we have applied represents a slight premium to the aforementioned transaction, we believe it is appropriate given the Company’s strong brands, free cash flow generating abilities and growth opportunities. Management has a strong incentive in terms of equity ownership to unlock shareholder value as key insiders beneficially own ~5% of the Company’s common stock including a 2.3% stake held by CEO Noll. It should be noted that a disproportionate amount of management’s equity stake is in the form of at the money (average strike price: $22.00-$22.50 a share) stock options.


- 15 -

Heckmann Corporation

Symbol: HEKExchange: NYSECurrent Price: $6.34Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 124.7Major Shareholders: Richard Heckmann 10% Average Daily Trading Volume (MM): 1.552-Week Price Range: $6.58-$4.33Price/Earnings Ratio: NAStated Book Value Per Share: $2.37



TOTAL ASSETS $ 458 $ 401 $ 365 Current Liabilities $ 59 $ 55 $ 41 Long Term Debt 99 32 2 Shareholders Equity 295 303 313

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 458 $ 401 $ 365

• Continued shale oil & gas growth should

drive strong double-digit organic revenue growth

• Eagle Ford and Marcellus shale expansion offer opportunities for new treatment and/or pipeline projects

• Resolution of China Water business and SPAC warrants removes stock overhangs

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 46 36 10 NA Net Income (15) (395) (15) 1 Earnings Per Share (0.14) (3.61) (0.20) 0.03 Dividends Per Share NA NA NA NA Price Range 6.34-3.64 6.31-3.38 10.44-5.35 7.35-7.24

INVESTMENT RATIONALE Domestic shale gas production has increased almost 5-fold over the past 5 years and is projected to more than triple

between 2009-2035, and Heckmann is particularly well-positioned to provide essential water solutions in the burgeoning Marcellus/Utica (largest estimated undeveloped reserves in the U.S.) and Eagle Ford shale plays. Heckmann Corp. has continued to meet or exceed management’s growth forecasts in 2011. Quarterly revenue reached $48 million and adjusted EBITDA reached $11 million in 3Q 2011. The Company’s pro forma organic revenue (including historical performance of recently acquired businesses) grew an impressive 22% sequentially in 3Q 2011 and 99% year-over-year in 2011 through 3Q. Unfortunately, to date Heckmann’s promising top-line growth continues to be tempered by underwhelming gross margins and G&A expense growth. A large portion of HEK’s gross margins (25.0% in 3Q 2011) relates to elevated truck driver costs, which has recently plagued the entire oil and gas industry. Going forward the Company expects to moderate these costs through targeted recruitment programs. Heckmann’s elevated G&A expense rate (19.5% of revenue in 3Q 2011) may also moderate going forward as organic revenue continues to grow and management compensation expense is leveraged.

Heckmann has several visible internal growth opportunities heading into 2012. The 50 mile Haynesville produced water pipeline averaged 30,000 barrels per day in 3Q 2011 versus maximum capacity of 120,000 barrels per day and should continue to increase utilization in 2012, with an additional 22 miles permitted or under construction. A second pipeline access terminal was completed in September and 18 lateral pipeline connections from producers’ drilling fields have already been constructed. Pipeline utilization should help improve gross margins as trucking costs per barrel are reduced. The Company’s repurposed fresh water pipeline in Haynesville was also set to go operational in December 2011. In the burgeoning Eagle Ford shale, HEK recently completed a third disposal well and has permits to drill another 3 wells, in addition to plans for a wastewater treatment/recycling center and longer-term potential for a pipeline. HEK also continues to add wastewater trucks (~300 on order) and pick up market share in Eagle Ford, Barnett, and Marcellus. The Marcellus and adjacent Utica shale regions are still in their infancy in terms of gas production and offer long-term potential for large-scale treatment facilities and pipelines.

Heckmann also resolved two major overhangs subsequent to our initial profile of the Company in May 2011. Approximately 63 million warrants with a $6 strike price tied to the Company’s 2007 SPAC offering were set to expire in November 2011. As HEK shares fluctuated within pennies of the strike price leading up to the warrant expiration, the Company was unable to offer cashless exercise. As a result 8.0 million warrants were exercised, diluting shareholders by 7% but also providing the Company with $48 million in cash proceeds. Secondly, the Company completed the divestiture of its China bottled water business on September 30, 2011. HEK sold 9 of its 25 Chinese subsidiaries to Pacific Water & Drinks (PWD) in exchange for 10% equity in PWD. However the primary value (PWD stake currently of immaterial value) should come from Heckmann’s move to strategically abandon the remaining assets for tax benefits. While the Company will not receive an IRS verdict until next year, the Company should receive net operating loss carry-forwards that may even approach the full cost of the abandoned China acquisitions. This hidden asset is most likely being overlooked by investors.

Although the Company has not executed an acquisition since June 2011, there is little doubt Mr. Heckmann will continue to indulge his acquisitive nature in 2012. In addition to $90 million in cash and equivalents on the balance sheet, HEK obtained a $160 million, 4-year senior secured credit agreement in September 2011, with the capacity for up to $80 million in additional borrowings. Potentially larger-scale acquisitions will likely focus on gaining entry into new shale plays. On the other hand, the Company is increasingly focused on organic growth at this point, and growth-related capex should remain elevated in 2012 as the Company considers building new pipelines and treatment facilities in addition to adding trucks and disposal capacity. Even without factoring in acquisitions and further large-scale investment projects, we project Heckmann’s intrinsic value could approach $9 per share by 2013. While there will continue to be high execution risk going forward, in our view Heckmann’s experienced management team and leading market position offer an attractive opportunity to capitalize on a rapidly growing industry.


- 16 -

H.J. Heinz Company

Symbol: HNZExchange: NYSECurrent Price: $52.59Current Yield: 3.7%Current Dividend: $1.92Shares Outstanding (MM): 323.6Major Shareholders: Directors/Officers 2.3%Average Daily Trading Volume (MM): 2.352-Week Price Range: $54.92-$47.31Price/Earnings Ratio: 17.8xStated Book Value Per Share: $8.92



TOTAL ASSETS $ 12,106 $ 12,231 $ 10,076



• Integration of recent China and Brazil

acquisitions offers incremental growth opportunities

• Productivity initiatives and easing commodity costs could provide margin relief

• Heinz is an attractive acquisition candidate

P&L Analysis

($ in millions except per share items) Fiscal Year Ending April 27 2011 2010 2009 2008 Revenues 10,707 10,495 10,148 10,071 Net Income 1,006 914 923 845 Earnings Per Share 3.06 2.87 2.90 2.63 Dividends Per Share 1.80 1.68 1.66 1.52 Price Range 51.38-40.00 47.84-34.03 53.00-30.51 48.75-41.37


H.J. Heinz Company owns a portfolio of world class iconic brands such as Heinz, Classico, Ore-Ida, Tater Tots, Bagel Bites and Lea & Perrin’s. Heinz derives greater than 70% of total sales from its top 15 brands, and its flagship Heinz Ketchup is now the number one brand in 7 of the world’s top 10 ketchup markets. The Company has delivered 26 consecutive quarters of organic sales growth and Heinz derives 63% of total sales from international operations.

Heinz’s mature North American and European operations have underperformed recently given the challenging consumer environment. The Company has somewhat struggled to pass through high single digit input cost inflation, with tepid consumer response to price increases producing (0.7%) and (2.9%) volume declines in the first 2 quarters of fiscal 2012 and a 180 bps year-over-year decline in 2Q12 adjusted gross profit margin to 35.2%. On the other hand, we believe these pressures represent temporary headwinds that should normalize over the longer term as commodity pressures recede and/or the macro environment reawakens from the current doldrums. Heinz also continues to restructure via its ‘Project Keystone’ productivity initiatives, which management recently announced (much to investors’ dismay) will cost an incremental $55 million in fiscal 2012 above the previous $160 million estimate. Unfortunately Heinz’s cleverly-titled restructuring plans have become more or less an annual cost of business. However, we would note that cash costs are anticipated to be a manageable $150 million in FY 2012 and the Company projects a cumulative $1.3 billion in productivity-related savings over the next 5 years.

While acknowledging mature markets growth pressures may continue, we are particularly attracted by Heinz’s prospects for emerging markets-fueled growth in coming years. The Company’s emerging market sales grew at a 14% CAGR between FY2007-2011, aided by two recent acquisitions: leading Chinese soy sauce/bean curd company Foodstar in November 2010, and an 80% interest in Brazilian ketchup/canned vegetable company Quero in April 2011. These acquisitions have provided Heinz with strong growth platforms in two top emerging markets with great opportunities to accelerate growth through a combination of supply chain/distribution integration, implementation of productivity-enhancing best practices, and increased marketing spending. Notably, the Company’s emerging market footprint is now well diversified across the BRIC countries and Indonesia, which together represent 45% of the world’s population and approximately 70% of Heinz’s emerging market sales. Overall, Heinz’s emerging markets sales continue to grow at impressive double-digit rates heading into 2012, with organic sales increasing by 15.8% (50.3% reported) during 2Q FY 2012 (quarter ended October 26, 2011). Emerging markets accounted for 20% of Heinz’s total sales during 2Q12 and are well on pace to meet management’s goal of +30% share by fiscal 2016.

With shares up a fairly modest 5.5% since last year’s Forgotten Forty, we believe there is still value and upside to H.J. Heinz Company’s share price. Valuing Heinz at 11x FY 2014 estimated EBITDA, we estimate Heinz’s intrinsic value should approach $68 per share. Upside could come from improved developed market results going forward, as we assume only 3% annual organic sales growth while emerging markets are on pace to contribute +2.5% growth per year. Major recent/upcoming product launches including Dip & Squeeze ketchup, TGI Friday’s single-serve meals, and the aseptic baby food line could also provide incremental sales growth. We also continue to believe Heinz is an attractive acquisition candidate for a larger food competitor as it could generate significant cost synergies while providing a leading presence in key emerging countries. Notably, several sizable branded food acquisitions have been transacted since the downturn at average multiples of 13x-14x EBITDA.

In the meantime, Heinz shareholders stand to collect on Heinz’s consistent free cash flow generation. Management has focused on free cash flow maximization in recent years, reducing the cash conversion cycle to 42 days in FY2011 from 75 days in FY2003. Overall, free cash flow increased at an impressive 8% CAGR over the past 5 years to $1.26 billion (11.8% of sales) in fiscal 2011. Heinz in turn has rewarded shareholders by increasing the dividend at a 7.5% CAGR the past 8 years, bringing the annualized payout to a juicy $1.92 per share (3.7% yield).


- 17 -

International Speedway Corporation

Symbol: ISCAExchange: NYSECurrent Price: $24.08Current Yield: 0.75%Current Dividend: $0.18Shares Outstanding (MM): 48.2Major Shareholders: France Family Group 70% Voting Average Daily Trading Volume (MM): 0.1652-Week Price Range: $32.32-$20.08Price/Earnings Ratio: 19.9xStated Book Value Per Share: $24.63



TOTAL ASSETS $ 1,940 $ 1,879 $ 1,880

Current Liabilities $ 138 $ 92 $ 163 Long Term Debt 286 303 269 Shareholders Equity 1,202 1,187 1,169


• ISCA holds a strong competitive position not easily replicated

• Near-term economic concerns are overblown, popularity of NASCAR bodes well for future broadcast agreements

• Upside from casino development not fully appreciated

P&L Analysis

($ in millions except per share items) Fiscal Year Ending November 30 2010 2009 2008 2007 Revenues 645 693 787 817 Net Income 55 91 139 152 Earnings Per Share 1.13 1.87 2.80 2.85 Dividends Per Share 0.16 0.14 0.12 0.10 Price Range 31.12-22.34 30.95-16.49 44.75-20.76 54.78-42.17


International Speedway Corporation (“ISCA” or “the Company”) owns or operates 13 of the nation’s premier motorsports entertainment facilities and generates more than 90% of its sales from National Association for Stock Car Auto Racing (NASCAR) sanctioned racing events. The Company’s venues include Daytona International Speedway, Talladega Superspeedway, and Kansas Superspeedway. ISCA owns 11 of its 13 motorsports facilities as well as the majority of the 13,000 acres of land that surround its facilities. During the most recent fiscal year, the Company derived its sales from four sources: Motorsports Related (65%), Admissions (25%), Food Beverage and Merchandise (8%), and Other (2%).

The Company has been facing a difficult market environment for several years due to the anemic U.S. economy. During the 2007-2010 period, both attendance and average ticket prices declined by nearly 20%. The firm’s customer base has been hard hit by the downturn; about half of its customers are over 45 years old with an annual income of $50,000 or less. Overall costs to attend a NASCAR event can approach $500 per person (ticket, parking, food and drinks, etc). In order to mitigate these challenging conditions, the Company has enacted ticket price reductions, and has begun to offer a single-day purchase option for tickets at some locations (tickets had typically been sold via season packages). In order to broaden its customer base, ISCA is pursing initiatives to attract younger fans, a demographic that is highly valued by potential sponsors and broadcasters.

The challenging industry trends remained apparent when ISCA reported fiscal 3Q-2011 financial results this past October. Total revenue and operating income declined 6% and 5% year over year respectively. Poor attendance trends (admission revenue down 15%) remained an obstacle to profit growth, but management believes comparisons for most of its businesses are beginning to stabilize. Although initiatives to contain costs and emphasize profitable events have yielded some benefits, management expects overall revenue for fiscal 2011 to fall short of the previous guidance of $635 million, and its earnings and operating margin will likely be at the low end of the guidance range (implying a 22% operating margin and EPS of $1.60). However, return of capital to shareholders continues to be a priority for the firm’s board of directors. Following the earnings report, ISCA increased its share repurchase authorization by $80 million. Earlier in the year, the board increased the annual dividend by 12% to $0.18 per share.

A key driver of value for ISCA is the fees it receives from NASCAR media rights. During fiscal 2010, 42% of the firm’s total revenue was derived from fees related to TV and Ancillary Media. In 2005, NASCAR signed an 8-year, $4.5 billion domestic TV agreement with ABC/ESPN, FOX, TNT, and SPEED networks. The contract began in 2007 and expires in 2014. However, the potential terms associated with the next NASCAR contract (after 2014) has become a source of concern for some investors due to declines in event attendance and television ratings during recent years. Although some viewership declines have occurred, NASCAR remains a highly popular sport relative to its competition. NASCAR still enjoys the second highest ratings among all sports (after the NFL). Moreover, it retains high popularity with several attractive demographic groups. In our view, concerns about diminished broadcasting revenue have become overblown, and several cable sports networks would likely view NASCAR as an attractive venue for acquiring viewers and enhancing its overall sports content. Potential bidders could include ESPN, SPEED (owned by Fox), Time Warner, and Comcast. We would also highlight the Company’s joint development of a casino (with Penn National Gaming) adjacent to the Kansas Speedway as a potential contributor to shareholder value. This Hard Rock themed casino is expected to open in 2012, and should yield at least $50 million in EBITDA for ISCA.

Despite the industry’s near-term economic challenges, we continue to view ISCA as a very attractive business from a long-term perspective. ISCA has historically been a strong generator of free cash flow, allowing it to reduce debt, and return capital to shareholders through dividends and share repurchases. Moreover, the firm possesses a valuable portfolio of assets that would be difficult to replicate. Given these characteristics, we believe a 9.0x EBITDA multiple is a reasonable valuation for ISCA’s business, and is consistent with the stock’s historical trading range. Applying this multiple to our 2013 EBITDA estimate (about $235 million), and factoring in the firm’s other assets (mainly consisting of its 50/50 partnership with Penn National Gaming), implies an intrinsic value of approximately $49 per share for ISCA (more than double the current price).


- 18 -

Interval Leisure Group, Inc.

Symbol: IILGExchange: NasdaqCurrent Price: $12.91Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 57.9Major Shareholders: Liberty Media ~30%Average Daily Trading Volume (MM): 0.1752-Week Price Range: $17.63-$10.40Price/Earnings Ratio: 19.3xStated Book Value Per Share: $4.15



TOTAL ASSETS $ 978 $ 978 $ 959

Current Liabilities $ 175 $ 179 $ 174 Long Term Debt 344 358 395 Shareholders Equity 240 221 176


• Optimization of capital structure with Liberty Media Interactive’s split off complete – LINTA is IILG’s largest shareholder and has termed its Interval stake as non-core

• Refinancing high cost debt assumed during 2008 spin off from IAC/InterActiveCorp

• Better economic environment favorably impacting demand for leisure travel

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 409 405 416 364 Net Income 42 38 45 71 Earnings Per Share 0.73 0.67 0.80 1.26 Dividends Per Share NA NA NA NA Price Range 17.54-11.61 13.99-3.19 16.93-4.11 NA

INVESTMENT RATIONALE Interval Leisure Group boasts an attractive fee based and asset light business model. The Company derives the bulk of its

revenues (85% in 2010) from its membership and exchange business where it collects annual membership and transaction-based fees from its 1.8 million members. During the recent downturn, Interval’s subscription based model proved resilient with only modest declines (less than 1%) in revenues during 2009 and 2010 in the core business. The timeshare exchange business is a virtual duopoly and Interval currently commands a ~35% market share. In our view, this attractive industry structure coupled with Interval’s long term (10+ years on average) relationships with its largest resort developer clients including Marriott, Starwood and Hyatt, and multi-year contracts serve as a high barrier to entry.

During the recent downturn, Interval benefited to some extent as attractive inventory became available in the network, which in turn resulted in more transaction revenue. As economic conditions have improved, the Company has experienced some “countercyclical” pressure as timeshare owners have begun traveling again, but preferring to return to their own properties, which does not allow Interval to collect an exchange fee. As a result, average revenue per member has decreased modestly (-0.2%) through the first 9 months of 2011. In our view, recent adverse revenue trends should abate, if not reverse, as the economy continues to recover and timeshare owners look to travel to locations outside of their own resorts. Indeed, during the third quarter of 2011, average revenue per member increased by 2.6% aided in part by a 6.3% increase ($10 per exchange) during mid-2011 in the fee the Company charges per exchange. Exchange fees currently represent ~55% of membership and exchange segment revenue.

We believe that Interval’s free cash flow generation will be positively impacted by refinancing its current high cost debt that was assumed during its 2008 spinoff from IAC/InterActiveCorp (IAC). Beginning in September 2012, Interval will be able to call $300 million of its senior notes that carry a 9.5% coupon and represent 84% of Interval’s current debt load. Assuming cooperative financial markets, Interval should be able to refinance at a markedly lower rate driving a nice boost to free cash flow (~$12 million). In addition to the refinancing opportunity, we believe that results in Interval’s management and rental business (16% of 2010 revenues) should also aid future results. While this segment’s results were adversely impacted during the downturn, prospects for this business are improving due to an 18% improvement in RevPar (Revenue Per Available Room) reflecting increases in average daily rates and occupancy and the inclusion of Trading Places International (TPI), which was acquired in November 2010. The TPI acquisition (TPI is a provider of exchange and leisure services and on site management to over 20 resorts) expands the Company’s fee based/capex light business model and provides an opportunity for Interval to up-sell Interval membership to participants in TPI’s direct to consumer exchange business.

Interval’s “lazy” balance sheet has frustrated investors as the Company’s cash balance now stands at $191 million (as of September 30, 2011) up from ~$100 million at the time of the spinoff, while leverage (net debt/EBITDA) has declined to 1.0x from ~2.0x. Although there were the typical two year spinoff restrictions that prevented radical capital structure changes (share repurchases, dividends, etc.), these limitations lapsed over a year ago. To appease investors, Interval announced a modest $25 million share repurchase authorization in August 2011 and deployed $19.3 million to repurchase 1.6 million shares at an average price of $12 a share in the third quarter. While the recent share repurchases are encouraging, we believe the Company’s balance sheet flexibility presents a significant opportunity to unlock shareholder value. In our view, we would not be surprised to see Interval optimize its underlevered balance sheet by acquiring Liberty Interactive’s (LINTA) ~30% stake in Interval. Given Interval’s currently depressed valuation, we would view the repurchase of LINTA’s Interval stake (an Investment that LINTA it is looking to tax efficiently monetize) as an attractive use of Interval’s excess capital.

The shares of Interval Leisure have declined by over 25% from their 52-week high reached earlier this year (February 14, 2011). In our view, the recent sell-off is presenting investors with an excellent opportunity to own an attractive business that throws off a significant amount of free cash flow (2013E FCF yield: 13%) at a depressed valuation (5.9x 2013E EBITDA). We believe the Company’s valuation is inconsistent with its strong competitive position, robust balance sheet, and high EBITDA margins (+40%) generated by the Company’s core business. Management seems to concur with this view as the Company’s CEO and COO have recently acquired 50,000, and 10,000 shares, respectively at an average cost of ~$10.80 a share. It should be noted that these are the first insider purchases since the Company was spun off in 2008. Applying an 8.5x multiple to our estimate of 2013 EBITDA, and assuming that Interval purchases Liberty’s ~17 million shares over the course of the next two years, our estimate of Interval’s intrinsic value is $26 a share.


- 19 -

JPMorgan Chase & Co.

Symbol: JPMExchange: NYSECurrent Price: $31.51Current Yield: 3.2%Current Dividend: $1.00Shares Outstanding (MM): 3,872Major Shareholders: Insiders own < 1%Average Daily Trading Volume (MM): 46.552-Week Price Range: $48.36-$27.85Price/Earnings Ratio: 6.7xStated Book Value Per Share: $45.93


(in billions) 9/30/11 2010 2009 Cash $ 56.8 $ 27.6 $ 26.2 Goodwill 48.2 48.8 48.4

TOTAL ASSETS $ 2,289.0 $ 2,118.0 $ 2,032.0

Total Deposits $ 1,092.7 $ 930.4 $ 938.4 Long Term Debt 273.7 247.7 266.3 Shareholders Equity 182.3 176.1 165.4

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 2,289.2 $ 2,117.6 $ 2,032.0

• Competitive position bolstered by opportunistic M&A

• Superior capital position, and relatively robust dividend and buyback program

• Substantial EPS power as industry conditions gradually recover

P&L Analysis

($ in billions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 103 100.4 67.3 71.4 Net Income 17.4 11.7 5.6 15.4 Earnings Per Share 3.96 2.25 0.81 4.33 Dividends Per Share 0.20 0.20 1.52 1.48 Price Range 48.20-35.16 47.47-14.96 50.63-19.69 50.63-19.69


JPMorgan (“JPM”, or “the Company”) is a leading financial services firm with $2.3 trillion in assets and a presence in over 60 countries. The Company’s primary lines of business include banking, credit cards, investment banking, asset management, private equity, and transaction processing. Its client base includes a wide range of consumers, small businesses, governments, and corporations. The firm’s Chairman and CEO is Jamie Dimon, a well-regarded financial services executive with several decades of industry experience.

In our view, quality of management is a key differentiating factor within the financial services sector. In the case of JPM, the decision by Dimon and his team to reduce firm exposure to higher risk business (such as subprime mortgages) prior to the economic downturn allowed the firm to put itself into a superior position from both a competitive and financial perspective. The firm’s solid footing has allowed JPM to acquire distressed assets such as Washington Mutual and Bear Stearns during the industry downturn, bolstering its market share position in several key businesses. JPM’s has a strong balance sheet and is well-capitalized, illustrated by a 7.7% tier 1 common ratio during the most recent quarter (under Basel 3 rules). Given the Company’s superior strength, JPM has been among the industry leaders in returning capital to its shareholders. During March of 2011, JPM increased its annual dividend from $0.20 to $1.00 per share (about a 20% payout ratio), and instituted a $15 billion share repurchase program (JPM repurchased $4.4 billion of stock during 3Q11).

Although JPM is in a strong position, it still must deal with the multiple challenges being faced within the industry. The mixed results from 3Q 2011 helped to illustrate some of the difficult conditions faced by JPM and its competitors. Both EPS and revenue for the period were weaker than expected. The Company’s capital markets businesses were particularly hard hit as both fixed income trading revenue and investment banking fees reported sequential declines of over 30%. Management remains cautious about the near-term prospects for its capital markets businesses. On a more positive note, credit quality trends across JPM’s business have been largely favorable, allowing the firm to realize a $110 million reserve release during the quarter. Loan growth trends were also favorable, loans within the commercial bank and credit part portfolios increased 9% and 7% respectively compared to 3Q 2010. Overall non-interest expenses were generally well controlled, and declined 8% from the previous quarter. JPM’s return on equity for the quarter was 9% (down from 12% in 2Q). Management quantified its total net exposure to “Euro 5” (Spain, Italy, Portugal, Greece, and Ireland) as $15.1 billion as of the end of 3Q 2011, via available for sale securities, trading, and lending.

Looking ahead, the firm’s strategic and financial positions should yield significant benefits for shareholders over the long term. Through both organic means and M&A, JPM has built a retail banking presence that holds a #1 share of deposits in markets such as New York and Chicago, its credit card business is the #1 Visa issuer, and the investment bank has been the leading fee generator in the industry for 2 straight years. Additional market share gains should be achievable across JPM’s businesses as its financial strength allows management to capitalize on potential growth opportunities. Assuming conditions in the economy and financial markets begin to normalize during the coming years, JPM’s long term EPS power should be substantial. Assuming a low double-digit ROE (12%) is attainable within 2-3 years, EPS of at least $6.50 should be achievable (over 30% above the consensus EPS expectation for 2012). Given that JPM is targeting a dividend payout of 30% of normalized EPS over the long term, this would imply an annual dividend of about $2.00 per share (double the current dividend).

JPM shares have been relatively resilient during recent years compared to other money center banks. The stock is down 35% over the past 5 years, compared to declines of over 90% for both Bank of America and Citigroup. However, much of the decline for JPM has occurred during 2011, and we regard this pullback as an attractive entry point for long term investors. Assuming the stock can trade at 1.2 times our 2012 estimate of year-end tangible book value, the intrinsic value for JPM could be $44 within the next 12-18 months (implying a total return potential of over 40%). Longer term, intrinsic value could easily exceed $50 if market condition return to a more normalized state. Overall, we view JPM as a high quality means of participating in an eventual improvement in fundamentals within the financial services sector.


- 20 -

Laboratory Corporation of America Holdings

Symbol: LHExchange: NYSECurrent Price: $81.40Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 99.1Major Shareholders: Insiders < 1.0%Average Daily Trading Volume (MM): 1.052-Week Price Range: $100.94-$74.57Price/Earnings Ratio: 16.3xStated Book Value Per Share: $25.66


(in millions) 9/30/11 2010 2009 Cash $ 86 $ 231 $ 149 Current Assets 1,073 1,144 936

TOTAL ASSETS $ 6,053 $ 6,188 $ 4,838 Current Liabilities $ 982 $ 1,121 $ 1,018 Long Term Debt 1,984 2,188 1,394 Shareholders Equity 2,543 2,466 2,106


• Specialty testing now accounts for 40% of total

sales. The Company is targeting to increase this to 45% over the next 3-5 yrs

• Renewed its contract with UnitedHealth for 2 additional years through 2018 with no significant changes in terms and pricing

• Generates strong FCF (~9% FCF yield), which is being used to make selective acquisitions, repay debt and reduce shares outstanding

P&L Analysis (in millions except per share items) Fiscal Year Ending

December 31 2010 2009 2008 2007 Revenues 5,004 4,695 4,505 4,068 Net Income 585 534 513 507 Earnings Per Share 5.55 4.89 4.58 4.18 Dividends Per Share Nil Nil Nil Nil Price Range 89.48-69.49 76.74-53.25 80.77-52.93 82.32-65.13

INVESTMENT RATIONALE Laboratory Corporation of America (LabCorp) is the second largest independent clinical laboratory in the United

States, providing laboratory testing services primarily to physicians, hospitals and managed care organizations. Clinical laboratory testing is an essential and cost effective healthcare tool as lab tests represent 3% of total healthcare costs, but influence 70%-80% of healthcare decisions. With a national infrastructure (consisting of 51 primary labs and 1,700 patient service centers) serving patients in 50 states, we believe LabCorp is a low cost provider of laboratory testing and is well positioned to benefit from political pressures to lower overall healthcare costs. We also believe the Company can capitalize on several secular trends such as the aging of the population that requires more and better tests; continuous scientific advances leading to new test capabilities; and increasing awareness of prevention and wellness. The Company has been steadily shifting its business mix towards specialty tests, such as genomic and esoteric, which are higher priced and higher margin. With the acquisition of Genzyme Genetics in December 2010, specialty testing now accounts for 40% of total sales. The Company is targeting to increase its specialty testing mix to 45% of total sales over the next 3-5 years.

Near term, with the national unemployment rate hovering near 9%, LH faces challenging market conditions as patients delay or forgo doctor visits due to either a lack of health insurance or desire to avoid paying the high deductibles required by their insurance policies. These conditions are compounded by policy uncertainties originating from lawmakers in Washington who are bickering over how to reduce the burgeoning federal deficit. One potential measure that may be taken to help reduce the budget deficit could include drastic cuts in Medicare reimbursement for lab tests or the implementation of copayments. The possibility of a reduction in Medicare reimbursement rates for labs is not new and LH has successfully navigated through prior years’ cuts while maintaining steady operating profit margins. The issue of copayment seems to surface every 2-3 years (last time this occurred was in the Summer of 2009) and, each time, the industry successfully lobbied against it by arguing that copayments will discourage patients from obtaining necessary tests. We don’t believe patients will forgo tests due to copayments since lab tests are ordered by physicians and patients usually follow their advice and these copayments would likely be small amounts (about $6-$12 based on average requisitions of $30-$60). However, we acknowledge that requiring copayments may impose additional administrative expenses, systems burden and risk of higher bad debt expenses for lab companies. Furthermore, collecting copayments is complicated by the fact that lab companies do not deal directly with patients and therefore payments have to be collected by third parties such as at patient service centers or the physician offices. If copayments come to fruition this time, we believe LH can manage this without incurring too much administrative expenses since it has 1,700 patient centers and already maintains strong relationships with a large network of physicians. Furthermore, the Company is already successful with collecting and managing bad debt. The Company’s bad debt expense and collection DSO are 4.5% of sales and 46 days, respectively.

Despite challenging market conditions, LabCorp continues to grow sales, achieve high operating profit margins and generate robust free cash flow. 2011 sales are expected to grow 10%-11%, which include 7%-8% from the Genzyme Genetics acquisition. The integration of Genzyme Genetics proceeded as expected, retaining revenue, realizing cost savings as forecasted and tracking to be slightly accretive to earnings in 2012. Just as importantly, LH renewed its contract with UnitedHealth (its largest client at ~10% of total revenue) for 2 additional years through 2018 with no significant changes in terms and pricing. The Company’s 2011 EBITDA margin is estimated to be ~23%, down nearly 90 bps from 2010’s level. The lower operating margin reflects the recent acquisition of WestCliff that has not been integrated due to regulatory clearance. According to LabCorp management, the inability to properly integrate this acquisition to date has negatively impacted overall company margins by ~180 bps.

We project that LabCorp will generate ~ $750 million in FCF in 2011 (~9% FCF yield), which is nearly on par with 2010’s level. Cash flow generated has been used to reduce debt and repurchase shares. Through the first 9 months of 2011, total debt declined ~$205 million and the Company has repurchased 5.4m shares for ~$478 million, or ~$88.50/share and $256.5m remains on its repurchase authorization. The Company is currently trading at 7.5x our 2011E EBITDA. We believe the Company deserves a premium valuation. Applying a conservative 9.5x multiple to our estimate of the Company’s 2013 EBITDA, we derive a value of ~$137 per share, representing 68% upside from current levels.


- 21 -

Liberty Interactive Corporation

Symbol: LINTAExchange: NASDAQCurrent Price: $15.29Current Yield: NACurrent Dividend: NAShares Outstanding (MM): Series A: 561.2,

Series B: 29.0Major Shareholders: John Malone ~32.5% (voting) Average Daily Trading Volume (MM): 0.752-Week Price Range: $18.65-$12.44Price/Earnings Ratio: 12.6xStated Book Value Per Share: $11.18


(in millions) 9/30/11 2010 2009 Cash $ 896 $ 1,353 $ 884

TOTAL ASSETS $17,025 $26,600 $ 17,343 Long Term Debt $ 6,125 $ 6,549 $ 6,073

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $17,025 $26,600 $ 17,343

• On 9/21/2011, a bondholders’ lawsuit was finally

resolved and allowed LINTA to become an asset backed stock

• Plenty of upside potential, driven by international expansion and sustained growth of eCommerce and mobile platforms

• Management is motivated to unlock value either through share repurchases (potentially up to 50% of shares outstanding) or tax efficiently monetizing its non-core holding assets

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 LINTA Revenues 8,932 8,305 8,079 7,802 LINTA EBITDA 1,679 1,607 1,555 1,684 Dividends Per Share NA NA NA NA Price Range 16.71-10.23 12.22-2.46 19.17-1.97 25.89-17.70


Liberty Interactive derives its value primarily from its wholly owned shopping network QVC, which accounts for ~87% of LINTA’s total revenue and ~96% of EBITDA. Aside from QVC, LINTA owns a collection of other eCommerce businesses including Provide Commerce, Backcountry.com, BUYSEASONS, Bodybuilding.com, Evite, and Gifts.com, among others. LINTA also holds stakes in a number of publicly listed companies including HSN (34%), Expedia/TripAdvisor (25%), Interval Leisure (30%) and LendingTree (30%). Except for HSN, management has identified the rest of the publicly listed companies as non-core assets.

On September 21, 2011, a bondholders’ lawsuit was finally resolved when the Delaware Supreme court upheld a lower court decision that declared LINTA “did not engage in an ‘overall scheme’ to dispose of substantially all its assets via the spilt-off.” This split-off (originally announced in June 2010 but not completed until 9/23/2011) allowed Liberty Interactive to become an asset backed stock (previously it was only a tracking stock) while splitting off Liberty’s Capital and Starz assets into Liberty Media Corporation with two publicly traded tracking stocks.

At the onset of the bondholder litigation, Chairman John Malone stated that it had limited LINTA’s ability to repurchase shares. However, with a lower court victory in April 2011, and as the Company gained confidence in winning the appeal, LINTA repurchased 11.7 million class A shares for $172.9 million, or $14.80 per share, from 8/1-10/30. This marks the Company’s first repurchase since 1Q 2008. Currently, the Company’s remaining repurchase authorization stands at $576 million. At the Company’s shareholder meeting (held on September 7, 2011), John Malone opined, “we’ve been pretty frozen by the split-off interregnum and so you can probably expect a lot more activity by us post split-off. I’m not saying what kind of activity. It could just be stock repurchase but there are a number of things we’d like to pursue.” During its annual analyst and investor presentation in NY in November 2011, LINTA management reiterated its view that the currently under-levered balance sheet is a prime tool to drive future shareholder value growth. While no definite increase in LINTA’s buyback authorization was announced, the Company outlined a potential scenario in which it can significantly shrink the equity base by up to 50% over the next three years by (1) instituting a sustained 2012-2014 buyback program of $700-$800 million per year driven by internally generated free cash flow; (2) reducing its current cash balance from ~$1 billion currently to $500 million; (3) increasing QVC leverage ratio from ~1.0x to 2.5x by the end of 2014; and (4) fully utilizing QVC bank credit facilities of $2.0 billion ($1.5 billion currently unused). In addition, the Company could raise additional capital through the tax efficient monetization of non-core assets such as Expedia/TripAdvisor, Interval, and LendingTree, potentially providing the opportunity to further reduce its capital base.

Operationally, QVC continues to produce solid results despite a challenging macroeconomic environment. YTD consolidated revenue grew 6.3%, with solid contribution from the U.S. (+3%) and Germany (+9.5% in local currency). Not surprisingly, YTD Japan sales declined 1.2% in local currency as QVC-Japan was off the air for 12 days in March 2011 due to the massive earthquake. The Company launched operations in Italy in October 2010 and has seen strong quarter-to-quarter growth, with sales reaching $10 million in the most recent quarter. QVC is currently exploring other international expansion opportunities in France, Spain, Brazil, India and China. Consolidated adjusted OIBDA margin declined 100bps due to expenses incurred for the Italy launch, weaker results out of the U.K. and Japan, and the negative effects of the new agreement with GE Capital Retail Bank (which lowered net credit card operations income for QVC). However, OIBDA margin should improve when Italy achieves scale efficiency and Japan returns to normalized growth.

We think LINTA still has plenty of upside potential, driven by international expansion and sustained growth of eCommerce and mobile platforms. We believe management is motivated to unlock LINTA’s value in the near term, either through share repurchases or tax efficiently monetizing its non-core holding assets. Applying a 9x multiple to our estimate of QVC’s 2013 OIBDA, our estimate of LINTA’s intrinsic value approaches $25 a share. We believe this value is conservative, as we assign no value to the Company’s other assets (online operations and public investments). We estimate the Company’s other assets are worth $5-$10/share, with public investment alone worth ~$5/share.


- 22 -

The Madison Square Garden Company

Symbol: MSGExchange: NYSECurrent Price: $28.81Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 77.2Major Shareholders: Dolan Family Group 20%;

70% voting Average Daily Trading Volume (MM): 0.352-Week Price Range: $29.83-$21.91Price/Earnings Ratio: NAStated Book Value Per Share: $15.85



TOTAL ASSETS $ 2,385 $ 2,198 $ 2,041

Current Liabilities $ 493 $ 346 $ 298 Long Term Debt 0 0 0 Shareholders Equity 1,223 1,171 1,106


• Improved profitability resulting from ongoing renovation of Madison Square Garden that should translate into higher revenues from suites, sponsorship and ancillary items in the coming years

• Further profitability at the Company’s RSNs due to improving on court performance of the NY Knicks (more high margin advertising)


When we attempt to communicate our investment thesis for The Madison Square Garden Company with investors we often hear two names that serve as an impediment for further discussion – Isaiah Thomas and the Dolans. While Knicks fans are still haunted by the tenure of the disgraced Isaiah Thomas who formerly served as the team’s President of Basketball Operations, prospects for the Knicks have improved markedly. Thanks to the recent signings of All Stars Amar’e Stoudemire and Carmelo Anthony, the Knicks made the playoffs in 2010 for the first time since 2004. The recent on-court success has produced a number of benefits including improved profitability at the Company’s cable networks (more high margin advertising dollars) and the ability to command higher ticket prices (Knicks raised season ticket prices by an average of 49% for the 2011/2012 season). Although the Dolan Family name may not resonate well with investors (and certainly not with the fans of the Company’s trophy franchises including the Knickerbockers and Rangers), we believe that their recent actions actually demonstrate a family with a strong commitment to unlocking shareholder value. Cablevision’s (an entity also controlled by the Dolan Family) recent spin offs of MSG and AMC Networks as well as its dividend and share repurchase initiatives have helped reinforce our view of a family looking out for the best interest of its public shareholders.

With the end of the recent NBA work stoppage, we believe that investors can now start focusing on the financial benefits of a renovated MSG arena rather than uncertainties over the Company’s ability to fund the renovation. Despite the Company’s solid financial position including $229 million of cash (as of September 2011), no debt and $375 million of capacity under an untapped revolver, we believe the recent NBA lockout gave many investors pause with the name. The Company recently completed the first phase of its arena transformation project that should significantly enhance profitability by bolstering the revenue streams derived from sporting and entertainment events conducted at “The World’s Most Famous Arena.” When complete, the transformed arena will feature a much improved offering of corporate suites (significantly closer to the action than the current suites) that are being sold pursuant to multiyear contracts with annual escalators. Notably, the arena’s 13 new event level suites, which opened for the 2011/2012 season, carry an annual price tag of ~$1 million (exclusive of food and beverages!) and are fully sold out. The 58 lower level (Madison Level) suites, which will not open until the 2012/2013 season, have been met with great interest with ~75% already under contract. In addition to the new suites, the transformed arena should generate a number of ancillary financial benefits from higher revenues associated with sponsorships/entitlements, merchandise and food and beverage offerings. During 2010, the Company reportedly signed a 10 year, $30 million deal with JPMorgan Chase to become the arena’s first ever marquee sponsor. In addition, MSG also signed a number of long-term signature partner deals during 2010, including Coca-Cola, Anheuser-Busch, and Delta Airlines. While MSG has not disclosed terms on any of these deals, it did note that each of the deals is much larger than the sponsorship category MSG sold previously. Further, the Company believes that it has inventory and availability to support several more signature partners.

We believe the Company’s regional sports networks (RSNs) including MSG and MSG+ are among the crown jewels of the Company’s assets. In our view, RSNs will become increasingly valuable given the TiVo/DVR proof nature of live sporting events. MSG’s RSNs are highly profitable (46% EBITDA margins), serve a large, loyal and passionate fan base of Knicks and Rangers fans, and throw off an enormous amount of free cash flow. During 2010, MSG’s Media segment benefited from a long-term (10-year) affiliate fee agreement (with annual escalators) with Cablevision, which became effective in January 2010. The agreement, which represents ~40% of MSG’s RSN subscribers, bolsters MSG’s affiliate fee revenues and provides a resilient recurring revenue stream. We believe the Media segment’s profitability can continue to increase through a combination of higher advertising revenue at both RSNs and Fuse, and the attainment of higher affiliate fees at Fuse, the Company’s fledgling 24/7 cable channel devoted to music programming that has generated strong ratings.

In our view, the Dolan discount has resurrected itself in the MSG shares, as we believe that many investors are overlooking the Company’s robust free cash flow generation, strong growth prospects and valuable “hidden asset” in the form of air/development rights located above the Madison Square Garden arena. Based upon our sum-of-the-parts valuation, we estimate MSG’s intrinsic value to be $46 a share, representing nearly 60% upside from current levels. Should the gap between MSG’s price and our estimate of the Company’s intrinsic value persist, we believe the two-year spinoff milestone (February 2012) could serve as a significant catalyst for a bid from the Dolans or a third party.


- 23 -

Marriott International, Inc.

Symbol: MARExchange: NYSECurrent Price: $28.29Current Yield: 1.3%Current Dividend: $0.40Shares Outstanding (MM): 335.1Major Shareholders: Insiders own ~17%Average Daily Trading Volume (MM): 4.452-Week Price Range: $42.78-$25.49Price/Earnings Ratio: 46.5xStated Book Value Per Share: $1.28



TOTAL ASSETS $ 8,465 $ 8,983 $ 7,933

Current Liabilities $ 3,100 $ 2,501 $ 2,287 Long Term Debt 2,623 2,691 2,975 Shareholders Equity 430 1,585 1,142


• Spun off its timeshare operations and development business to its shareholders on November 21, 2011

• MAR is poised to benefit from tight hotel supply. The number of U.S. hotel rooms is projected to increase <1% CAGR over the next several years, compared with a long term average of 2.2%

• Reduced shares outstanding by 10% since the beginning of 2011 and could potentially buyback another 10% of current shares outstanding

P&L Analysis


INVESTMENT RATIONALE Marriott operates more than 3,500 hotels and 600,000 rooms in more than 50 countries. The Company’s portfolio of brands

includes Marriott, J.W. Marriott, Ritz Carlton, Courtyard by Marriott, Fairfield Inn & Suites by Marriott, Residence Inn, and Renaissance Hotels. MAR is primarily focused on managing and franchising hotels, with owned and leased hotels comprising approximately 2% of the number of properties in its system (resulting in limited capital requirements). Marriott has an attractive ROE (3 year average ~28%), recurring fee business model, with significant switching costs for the property owners in its network.

MAR spun-off its timeshare operations and development business through a special tax free dividend to its shareholders on November 21, 2011. We view this spin-off favorably as MAR will continue to generate high margin royalty fees from Marriott Vacations, which we estimate to be near $60 million in 2012. Also, MAR is expected to recognize $325 million in cash tax benefits (half recognized in the current period and the other half would be carried forward) from the spin-off. Furthermore, the spin-off will allow the Company to focus on its attractive managed and franchised hotel operations without other corporate distractions. Finally, since Marriott Vacations is more capital intensive, the spin-off should boost Marriott’s operating profit margins and returns on invested capital.

As we detailed in our initial AAF profile of Marriott in our Summer 2009 double issue (focusing on out of favor leisure stocks) as well as in the last two year’s Forgotten Forty, Marriott entered 2010 well positioned to benefit from a cyclical recovery and a shortage of capacity in the lodging industry. 2010 revenue per available room (RevPar) increased 6.3% worldwide on a constant currency basis (4.9% for North America and 9.2% for International). YTD 2011, worldwide RevPar increased 6.7%. 2011 results would have been even better if it weren’t for softness in Washington D.C., Japan and Middle East markets. Of these three markets, the D.C. market had a more meaningful impact on results as it accounts for ~5% of MAR’s domestic system-wide rooms (~100 hotels) and generates ~6% and ~13% of the Company’s worldwide fee revenue and incentive fees, respectively. Although D.C. RevPar is near the 2007 peak level, operating results were impacted by the ongoing budget battle and federal agencies hesitant to book near term group business. However, this market could prove resilient in 2012 due to reelection activities. Japan was slow due to the aftermath of the earthquake and tsunami in March and should revive in 2012 as economic activity in that country continues to gain momentum. The Middle East has been negatively impacted by the unrest in the region. Additionally, during 2008-2010, MAR booked group businesses at lower rates to secure businesses in a challenging environment. While this helped buffer the Company during the downturn, it has had the effect of depressing RevPar growth (relative to the industry) as industry conditions have improved. Fortunately, these bookings are rolling off, and with improving group demand, are being replaced with booking reflecting higher rates. 2012 group bookings are up 7% while 2013 are up 31%, which should provide a nice tailwind going forward.

Despite two years of strong RevPar growth, we believe the Marriott recovery story is still in the early stages, especially in the U.S. (MAR’s largest market w/ 9% share) as it is benefitting from demand outstripping supply (virtual halt in development during the recent economic downturn). The number of U.S. hotel rooms is projected to increase at a <1% CAGR over the next several years, compared with a long term average of 2.2%. If there is just moderate economic growth in 2012, we believe RevPar should increase another 6%. Finally, MAR added a modest amount of rooms during the downturn, enabling it to gain ~400 bps of market share. With industry’s capacity still constrained, this should provide future pricing power and have a favorable impact on MAR’s operating profit margin.

Marriott maintains a strong balance sheet and generates strong amounts of free cash flow, which has allowed Marriott to aggressively return capital to shareholders. YTD 2011, the Company has repurchased 36.5M shares (reducing shares outstanding by 10% since the beginning of 2011) for $1.2B, or $33.56/share. MAR has 12.4M shares remaining on its current buyback authorization. With a 3.0x net leverage target vs. our projected ~2.0x at the end of 2011 combined with its ability to generate significant free cash flow (~$2/share in 2012), we believe the Company could buy back another $1B of shares in 2012, or ~10% of current shares outstanding based on current prices. Also, after returning its annualized common dividend to its pre-crisis annualized level of $0.35/share in 4Q 2010, the Company raised it 14% in May 2011 to $0.40/share. We expect further increases over the next few years. Applying a 12x EV/EBITDA multiple (toward the low end of MAR’s historical 10x-28x trading range and on par with/at a discount to peer trading valuations) to our estimate of 2013 EBITDA of $1.25 billion, we estimate Marriott’s intrinsic value could approach $40/share.


- 24 -

Meredith Corporation

Symbol: MDPExchange: NYSECurrent Price: $30.19Current Yield: 5.1%Current Dividend: $1.53Shares Outstanding (MM): 45.2Major Shareholders: Insiders own ~39%Average Daily Trading Volume (MM): 0.852-Week Price Range: $37.51-$21.10Price/Earnings Ratio: 10.9xStated Book Value Per Share: $17.26



TOTAL ASSETS $ 1,745 $ 1,713 $ 1,727 Current Liabilities $ 372 $ 409 $ 438 Long Term Debt 200 145 250 Shareholders Equity 780 775 688


• MDP is a free cash flow machine, illustrated by

a robust dividend and meaningful stock buyback program

• Its diverse portfolio of media assets has yielded an extensive customer base highly valued by marketers, and not easily replicated by competitors

• Digital channel and licensing agreements provide additional upside not fully appreciated by investors

P&L Analysis

($ in millions except per share items) Fiscal Year Ending June 30 2011 2010 2009 2008 Revenues 1,400 1,388 1,409 1,552 Net Income 132 102 94 149 Earnings Per Share 2.87 2.23 2.03 3.13 Dividends Per Share 0.97 0.91 0.88 0.80 Price Range 37.51-21.10 37.81-23.93 30.08-10.88 62.42-28.29

INVESTMENT RATIONALE Meredith Corporation (“MDP” or “the Company”) is a diversified media firm consisting of both publishing and

broadcasting properties. MDP operates 2 business segments, National Media and Local Media. Within National Media (79% of revenue), the Company’s publishing assets include Better Homes and Gardens, Parents, Family Circle, and Ladies Home Journal. Within Local Media (21% of revenue), MDP owns and operates 12 network-affiliated televisions stations, 1 radio station, and other interactive and video-based formats. Overall, MDP’s media content (about 80 publishing titles and 30 web sites, etc.) is focused on areas such as health, wellness, family, home, and self-improvement. The Company was founded in 1902, and is headquartered in Des Moines, Iowa.

Clearly, sectors such as print media have faced challenges within the marketplace, putting pressure on both growth and profits for traditional media firms. Although the industry environment has become less favorable, MDP has continued to generate solid results, supported by strong competitive and financial positions. It is also worth highlighting that readership trends for magazines (MDP’s core business) have been fairly stable during recent years, performing much better than the newspaper industry. During the 1Q-2012 period, year over year comparisons for MDP’s revenue and EPS were negative, reporting respective declines of 4% and 14% respectively. However, results were negatively impacted by a significant drop-off in political advertising revenue (calendar 2011 is an off-election year). Total EBITDA dropped 17% to about $48 million. Although advertising revenue was under pressure for the period, the firm did report a modest increase in circulation, driven by improvements in subscription and newsstand revenues. Importantly, total readership for Meredith’s magazines was also higher (now at 111 million, largely consisting of adult women), and online subscriptions more than doubled to 400,000. The Company also increased the dividend by 50% to $1.53 per share (translating at a current dividend yield of over 5%), and announced a $100 million share repurchase authorization (about 7% of the current share base).

Looking ahead, MDP is pursuing several strategic initiatives in order to achieve sales and profit growth. Management is focused on both enhancing the quality of content, and improving operational efficiency (supply chain, etc). In addition, distribution of its content is being expanded through digital channels, and growth is being supplemented by the use of licensing agreements. In our view, these initiatives reflect a pro-active management approach that is attempting to adapt to changes in the marketplace. Moreover, MDP’s readership allows the firm to have relationships with roughly 75% of U.S. households, a highly valuable media asset (for marketers, etc.) that cannot be easily replicated. The value associated with this customer base is monetized through MDP’s Integrated Marketing business, a unit that provides customer data to firms such as Ford, Kraft, and Lowe’s. These relationships typically take the form of multi-year contracts, providing a more stable revenue source relative to advertising. We would also highlight MDP’s licensing of the Better Homes & Gardens brand to Wal-Mart as another key means of realizing value from the firm’s media portfolio. The number of Better Homes and Gardens product SKUs now totals approximately 3,000.

Maintaining a strong balance and generating a healthy level of cash flow are drivers of value creation at MDP. As of the most recent quarter, MDP possessed a net debt/capital ratio of 23%. The firm generates approximately $180 million per year in free cash flow (translating to a 13% free cash flow yield). As a matter of Company policy, MDP typically returns at least half of cash generated back to shareholders via repurchases and dividend, while maintaining a net debt/EBITDA ratio under 2.5x. MDP has been a reliable dividend payer throughout its history, and the dividend has increased for 18 consecutive years. Management has also shown a willingness to use its capital to finance small bolt-on acquisitions (no more than 10% of MDP’s market value).

The stock has rebounded nicely during recent months (up over 30% from its October lows), but the stock is still down over 10% during the past year, and has declined over 45% during the past 5 years. Our $38 estimate for MDP’s intrinsic value is derived from a sum-of-parts methodology (high single digit EV/EBITDA multiples for the respective businesses). We continue to view the shares as attractively valued, and our intrinsic value estimate implies total return potential of approximately 30%.


- 25 -

Microsoft Corporation

Symbol: MSFTExchange: NasdaqCurrent Price: $25.59Current Yield: 3.1%Current Dividend: $0.80Shares Outstanding (MM): 8,490Major Shareholders: Insiders own ~11.0%Average Daily Trading Volume (MM): 55.752-Week Price Range: $29.46-$23.65Price/Earnings Ratio: 9.3xStated Book Value Per Share: $7.00



TOTAL ASSETS $ 107,415 $ 108,704 $ 86,113



• Launch of Windows 8 and continued growth from

Xbox should be positive catalysts for earnings and stock performance

• MSFT holds a dominant position within desktop operating systems, producing a strong and steady stream of free cash flow

• Although some M&A is possible, the significant dividend and buyback program remain key drivers of shareholder value

P&L Analysis

($ in millions except per share items) Fiscal Year Ending June 30 2011 2010 2009 2008 Revenues 69,943 62,484 58,437 60,420 Net Income 23,150 18,760 14,569 17,681 Earnings Per Share 2.69 2.10 1.62 1.87 Dividends Per Share 0.64 0.52 0.52 0.44 Price Range 28.82-23.16 31.39-22.39 28.50-14.87 37.50-26.87

INVESTMENT RATIONALE Microsoft Corporation (“MSFT or “the Company”) is the world’s leading provider of software. Through a dominant

share of the desktop operating systems market, the Company has established a very strong financial and competitive position. MSFT has consistently generated strong free cash flow, enabling the firm to fund investments in several other technology segments over the years, while gradually returning more capital to shareholders via dividends and stock repurchase. During fiscal 2011, MSFT generated nearly $70 billion in sales from its 5 operating segments: Microsoft Business (32%), Windows and Windows Live (27%), Servers and Tools (25%), Entertainment and Devices (13%), and Online Services (3%).

MSFT has evolved over the years from a software business focused on supporting PCs, to a much more diversified operator with significant exposure to a wide range of computing platforms. Despite a rapidly changing market landscape, MSFT has preserved its dominant position in operating systems, while establishing a foothold in other important areas such as gaming and online services. Sales growth has remained fairly strong, with revenue increasing at an 11% CAGR from FY 2002 to FY 2011. Although MSFT’s changing business mix has translated to a lower, but still very healthy level of profitability (gross margin has declined from 82% to 78% since 2002), it is important to note that EPS has increased at a 16% CAGR during that same time frame. Although some concern about the long-term predictability of MSFT’s business may be warranted, its impressive market share position and solid balance sheet should remain key competitive advantages. Despite these considerations, MSFT shares have declined over 20% during the past 10 years.

An issue of recent investor concern has been the potential headwinds for MSFT associated with sluggish demand trends for PCs. During the firm’s most recent quarter, business related to consumer PCs was somewhat soft, but overall results were consistent with market expectations. For fiscal 1Q-2012, revenue was $17.4 billion and EPS totaled $0.68, respective increases of 7% and 10% from the year-ago period. The Microsoft Business division was among the primary sources of growth (8% sales growth), reflecting continued demand for the Office 2010 product. Within Server and Tools, revenue was 10% higher, reflecting demand for products such as Windows Server and SQL Server. Solid performance was also achieved within Entertainment and Devices (sales up over 9%), driven by increased shipments for Xbox. Revenue growth for Online Services segment was the most robust (up 19%), but this business continues to be unprofitable (operating loss was $494 million). MSFT’s overall gross margin was 78.3%, down about 2 percentage points. Net cash and investments totaled $45.5 billion ($5.36 per share), up 11% on a sequential basis. During the quarter, the Company returned $2.7 billion in cash to shareholders through dividends and share repurchases.

Return of cash to shareholders has been an increasing theme for MSFT during recent years. The Company’s strong balance sheet and cash flow generation allows ample capacity to both invest in growth opportunities and enhance shareholder returns. The Company generated over $22 billion in free cash cash flow during 2011 alone (free cash flow yield of over 10%). During the past fiscal year, MSFT returned $16.9 billion in cash to investors through buybacks and dividends. The firm recently increased the dividend by 25% to an annual rate of $0.80 (a yield of over 3%), and it is in the process of completing a $40 billion buyback program. However, it is possible that excess cash could potentially be used to finance M&A opportunities (the 2011 purchase of Skype for $8.5 billion in cash is a recent example). We believe increased return of capital to shareholders would be a key positive for long-term shareholder value, and this would be preferable to large expenditures on M&A.

Looking ahead, we believe the outlook for MSFT is more favorable than the stock’s weak performance would imply. Its leading position in consumer and business operating systems should continue to yield healthy cash flow, and significant market share erosion in these segments seems unlikely for the forseeable future. In addition, factors such as continued sales momentum for Xbox, and the launch of the Windows 8 product (expected in 2012) should be catalysts for additional growth. Margins should also benefit from a renewed emphasis on cost control within MSFT; management expects to limit annual operating expense growth to 3%-5% going forward. Although challenges associated with PC demand fundamentals and long-term performance of Skype remain potential concerns, the stock offers a very attractive risk/reward scenario from our perspective. Our estimate of MSFT’s intrinsic value is $40, reflecting MSFT’s current cash and investments and a valuation of 13 times FY 2012 EPS for the underlying business (total return potential of almost 60%).


- 26 -

Midas, Inc.

Symbol: MDSExchange: NYSECurrent Price: $8.63Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 14.4Major Shareholders: Mario Gabelli ~24.4%Average Daily Trading Volume (MM): 0.0452-Week Price Range: $11.85-$6.29Price/Earnings Ratio: NAStated Book Value Per Share: $1.69


(in millions) 10/1/11 2010 2009 Cash $ 0.5 $ 0.6 $ 0.9 Current Assets 43.8 60.2 54.6

TOTAL ASSETS $ 213.4 $ 229.7 $ 228.6 Current Liabilities $ 40.6 $ 70.5 $ 50.3 Long Term Debt 106.7 94.8 105.5 Shareholders Equity 24.3 17.2 29.3

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 213.4 $ 229.7 $ 228.6

• MDS’s lawsuit with its European licensor, a source of a major overhang on the Company’s stock price over the past couple of years, has been resolved

• In August 2011, the Company hired JPMorgan Chase to review possible strategic alternatives

• Midas real estate portfolio is worth ~$105.5 million, or ~$7.30/share

• The stock is trading at an attractive ~15% free cash flow yield

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 192 183 187 179 Net Income <13> 3 8 13 Earnings Per Share <0.97> 0.19 0.56 0.91 Dividends Per Share Nil Nil Nil Nil Price Range 12.50-6.29 11.99-6.03 19.12-6.57 23.73-14.15

INVESTMENT RATIONALE Midas is a franchisor, owner and licensor of Midas, SpeeDee and Midas-SpeeDee co-branded automotive repair and

maintenance shops. In the U.S. and Canada, the Company serves as a franchisor to 1,607 shops and operates 107 stores. In addition, it is a licensor to 833 shops in Mexico, South America, Europe, Australia, Middle East and Caribbean. The Company derives its revenue stream from four sources: franchising and licensing (30% of total sales); real estate (18%); Company-owned stores (36%); and replacement parts sales and product royalties (17%).

After ten consecutive quarters of negative comparable store sales resulting from an inept management team (poor strategic direction and a lack of leadership), sticking to declining businesses (exhaust and brake services) and a challenging 2009 where consumers limited their purchases to bare necessities (like oil changes and essential repairs), comparable stores sales turned positive in 4Q 2009 and have remained positive for eight consecutive quarters. 2010 comp sales increased 3.3% and YTD 2011 comp sales are up 2.5%. New services (such as value-priced oil changes and tire sales) helped contribute to this turnaround. We believe MDS will continue to benefit from favorable industry trends, which include an increasing vehicle age (average age of vehicle ~ 11 years old in 2010 vs. 9 years old in 2000), fewer dealership shops and increasing complexity of newer vehicles (more electronic components).

We continue to be excited by the potential of the new Midas/SpeeDee combination stores. SpeeDee is a quick service, value-priced oil change provider that Midas acquired in April 2008. Since the acquisition, the Company has been converting existing Midas stores into co-branded Midas/Speedee stores. Results for the converted stores have been quite impressive. The Company has experienced a 15%-25% boost in comparative same-store sales for converted stores in the first year and another 5%-10% increase in the second year. At the end of 3Q11, there were 64 co-branded stores, and the Company plans to have 75 by year-end 2011 and expects to co-brand an additional 100 shops during 2012.

Midas’ business model centers on a franchise model. Improving credit markets could not only help jump start the transition of underperforming franchisee stores to new franchisees, but also help reduce the number of Company-owned stores (89 at the end of 3Q11 after refranchising 20 in the first nine months of 2011). Further, there are an additional 63 stores currently not in operation. Historically, stores transitioned to new franchisees have led to much stronger results. Although Midas will likely fall short of its 100 store transition target this year, these transitions will continue into 2012. The Company has a highly leverageable cost structure, so any additional franchisee adds about $0.03 in EPS.

The Company’s lawsuit with its European licensor, the source of major overhang on the Company’s stock price over the past couple of years, was resolved in March 2011. MESA and Norauto Groupe S.A. had claimed that Midas violated the terms of the licensing agreement because it did not develop the Midas System in Europe and South America. The decision from the arbitral tribunal in Geneva ruled in Midas’ favor on the majority of the claims. Notably, the tribunal ruled that the license agreement between Midas and MESA/Norauto remains in effect and the license fee royalty stream will continue as stipulated in the agreement. Disappointingly, the tribunal did award MESA/Norauto $23.4 million related to MESA/Norauto’s claim that Midas failed to improve its IT systems in the European operations, a claim that wasn’t even a point of contention for MESA/Norauto.

In August 2011, Midas hired JP Morgan Chase to review possible strategic alternatives. This review included an evaluation of the Company’s real estate, which has been appraised at $505K/site. With the Company owning 209 sites, this implies Midas’ real estate is worth ~$105.5 million, or ~$7.30/share. In addition, the strategic review process could also lead to alternatives that may help unlock shareholder value including a recapitalization, a sale of the Company to a strategic partner or private equity firm, or accelerating the conversions of Midas stores to cobranded Midas/SpeeDee stores. These conversions require an investment of ~$20,000 (down from >$100,000 initially), but the payback is less than two years.

We continue to be impressed with Midas’ ability to generate meaningful free cash flow, a function of the Company’s asset light (capex well below D&A) business model. Specifically, with normalized free cash flow of roughly $20 million, the stock is trading at an attractive ~15% free cash flow yield. With operating fundamentals in the automotive industry stabilizing, we believe debt paydown could represent a meaningful portion of the Company’s cash flow allocation over the next few years, given the Company’s high leverage ratio (debt/EBITDA ~3.6x). Assuming a no growth scenario and applying a 10x multiple to our 2012E free cash flow, we believe shares are worth about $12, a fairly attractive risk/reward proposition at current levels.


- 27 -

Mohawk Industries, Inc.

Symbol: MHKExchange: NYSECurrent Price: $52.17Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 68.8Major Shareholders: Loberbaum Family ~16%Average Daily Trading Volume (MM): 0.752-Week Price Range: $68.86-$39.93Price/Earnings Ratio: 20.4xStated Book Value Per Share: $49.69



TOTAL ASSETS $ 6,278 $ 6,099 $ 6,391 Current Liabilities $ 1,213 $ 1,049 $ 884 Long Term Debt 1,611 1,654 1,854 Shareholders Equity 3,419 3,272 3,201


• One of the prime beneficiaries of an eventual

recovery in domestic residential housing market

• Maintains a distribution system that is not only difficult for smaller competitors to replicate, but serves as a barrier to entry against new competitors

• Half of the Company’s sales are derived from the replacement and remodeling end markets and another 15%-20% comes from international channels

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 5,319 5,344 6,826 7,586 Net Income 174 106 238 435 Earnings Per Share 2.53 1.53 3.48 6.35 Dividends Per Share Nil Nil Nil Nil Price Range 64.46-41.41 52.97-17.11 83.05-25.80 103.32-74.40


Mohawk Industries, founded in 1878, is the oldest and second largest carpet and rug manufacturer in the U.S. It is also one of the largest manufacturers of ceramic tile, natural stone and hardwood flooring and a leading producer of laminate flooring in the U.S. and Europe. The Company’s well-known brands include Mohawk, Karastan, Bigelow, Dal-Tile, American Olean and UniClic. In carpets and rugs, the Company owns a 25% market share in the U.S., second only to Shaw Industries (31%), which is owned by Berkshire Hathaway. MHK has a 34% share in the ceramic tiles (25% of the Company’s 2010 total sales), five times larger than the next competitor. Looking at all flooring products, MHK is the market share leader with a 22% share, slightly ahead of Shaw Industries’ 21% share. The top ten competitors in the industry combined have an almost 70% share of the flooring market, with the top four players representing over 50% of the market.

As the world’s largest flooring company, MHK is one of the prime beneficiaries of an eventual recovery in the domestic residential housing market. New housing construction is currently near an all time low at a rate of ~630,000 homes per year. Since the overbuilding ended in 2006, there has been a cumulative 2.5 million fewer homes built relative to long term demand. This amount of under-building not only helped offset the accumulated 2.4 million surplus homes built during the housing bubble, but has also left the single family housing market in an under-built state.

Meanwhile, as Mohawk waits for the domestic residential housing end market to turn around, half of the Company’s sales are derived from the replacement and remodeling end markets and another 15%-20% comes from international channels, particularly Mexico, Russia and China. These additional end markets have helped MHK weather the recent housing recession. The tile market in Mexico is similar to the U.S. in size but is growing 5%-6% per year, while the China tile market is 30 times the size of the U.S. and is growing 10%-12% per year. The laminate market in Russia is driven by a rapidly expanding middle class and rising personal income. MHK is well positioned in these markets with their own manufacturing and distribution facilities in both Mexico and Russia, and a strong equity partner in China.

Mohawk maintains various competitive advantages, which helped it outperform the flooring industry through the recent downturn. The Company maintains a distribution system that is not only difficult for smaller competitors to replicate, but serves as a barrier to entry against new competitors. This leading distribution network is a critical factor in maintaining fill-rates, expanding its geographic reach, and generating high customer service levels. MHK’s innovation machine continues to develop products that lead and move the industry to a new level, such as creating a new class of materials in carpeting, easy to install laminate wood floors and unique images in tiles. Finally, as a result of its position as the largest flooring company, Mohawk possesses a scale advantage relative to its smaller competitors, giving it leverage against its suppliers and also, lower unit cost as expenses are amortized over a large sales base.

MHK is focused on generating free cash flow by managing its cost structure, capital expenditures and working capital in order to pay down debt. Over the last 10 years, the Company has generated close to $3.8 billion in free cash flow, or $54 per share, allowing the Company to repay close to $2.0 billion of debt since 2005, or $27 per share. Over the next five years, we project MHK to generate approximately $1.8 billion cumulatively in free cash flow, or about $26 per share. Mohawk currently trades at approximately 7.0x EV/LTM EBITDA, a multiple which we believe is based on a depressed profitability level. We also believe MHK warrants a premium valuation due to its competitive advantages, superior business mix, attractive international growth prospects, well-regarded management team and strong ability to generate robust free cash flow. Nevertheless, assuming no multiple expansion and valuing Mohawk at 7.0x our 2013E EBITDA of $755 million, we derive an intrinsic value of $71 per share for the Company, representing ~36% upside from current price levels.


- 28 -

Molson Coors Brewing Company

Symbol: TAPExchange: NYSECurrent Price: $40.74Current Yield: $3.1%Current Dividend: $1.28Shares Outstanding (MM): 186.2Major Shareholders: Coors/Molson ~88% Voting Average Daily Trading Volume (MM): 1.252-Week Price Range: $51.11-$37.99Price/Earnings Ratio: 12.5xStated Book Value Per Share: $42.64


(in millions) 09/30/11 2010 2009 Cash $ 987 $ 1,218 $ 734 Current Assets 1,998 2,221 1,763

TOTAL ASSETS $ 12,430 $ 12,698 $ 12,021



• Significant efficiency gains via merger

synergies and cost reduction initiatives • Free cash flow remains impressive, stock

buyback and dividends should continue to enhance shareholder value

• Increased market share in emerging markets a key long-term growth driver

P&L Analysis



Molson Coors Brewing Company (“TAP” or “the Company”) was formed in the 2005 merger between Molson of Canada and Coors of the U.S. The firm also consolidated its U.S. brewing operation in 2008 via a joint venture with SAB Miller. The Company is now among the leading players in the world brewing market, with a strong global presence and a diverse portfolio of well established brands. The Company organizes its reportable segments into 4 regions: Canada, United States, United Kingdom, and Molson Coors International, with each segment managed by its own operating team.

Through both M&A and organic means, TAP has built a solid market position within the brewing industry. The Company’s portfolio of 65 brands allows it to reach a wide range of market segments via different beverage styles and price points. TAP has been gradually increasing market share within key markets during recent years. TAP now holds the #2 share positions in Canada (40% share), United States (30% share), and United Kingdom (19% share). In our view, this level of scale is a competitive advantage given the level of operational efficiencies and distribution capabilities that can be realized. Moreover, this level of scale represents a barrier to entry that cannot be easily overcome by new entrants. We believe these considerations, combined with the relative stability of the beverage market, translate to an attractive business model that can generate a healthy and relatively predictable level of cash flow over the long-term.

Cash flow generation and the return of excess cash to shareholders are key drivers of shareholder value at TAP. TAP has been generating roughly $700 million in annual free cash flow during recent years (over a 9% free cash flow yield). The Company utilizes both dividend and share repurchase to return cash to shareholders. The dividend has been growing at a steady rate during recent years (the dividend has doubled since 2007), and now stands at an annual rate of $1.28 per share (3.1% yield). In addition, the board of directors announced a $1.2 billion share repurchase program earlier this year. This translates to over 15% of TAP’s share base, and is expected to be completed within 3 years. TAP has also maintained a solid balance sheet, illustrated by a net debt/capital ratio of roughly 11% during the most recent quarter. Management has also expressed a willingness to pursue M&A opportunities as it looks to expand its market share outside of its current core areas (particularly emerging markets).

Although beer consumption is fairly resilient to economic turbulence, TAP and its competitors are not immune from the challenges associated with the current environment. The industry overall is still very competitive, and issues such as unemployment and commodity costs have been meaningful headwinds for sales growth and margins. TAP’s worldwide beer volumes declined 0.8% on a year over year basis during 3Q-2011, largely a result of high unemployment rates among its customers. To help offset pressures from lower volumes and higher commodity costs, TAP has announced a $200 million cost reduction program. It is important to note that merger synergies and efficiency initiatives have already produced about $900 million in cost savings since 2005. Over the long-term, TAP should be positioned for a substantial increase in earnings power once market conditions reach more normalized levels, and the firm fully capitalizes on its enhanced operating efficiency.

Despite the operational improvement achieved by TAP, share performance has been relatively weak. The stock is down about 19% over the past year, likely reflecting investor concerns about the impact of sluggish sales volumes and higher commodity expenses on near-term results. Our intrinsic value estimate for TAP is $52, implying total return potential of approximately 30%. Our estimate values TAP at 11x on an EV/EBITDA basis (based on 2012 projections), consistent with its historical range and slightly below the typical multiples paid in industry M&A (past deals have been priced in the 12x-16x EV/EBITDA range).We view the stock’s current valuation as attractive for patient, long-term investors. In addition, TAP’s 3.1% dividend yield and share repurchases should limit potential downside going forward.


- 29 -

Pall Corporation

Symbol: PLLExchange: NYSECurrent Price: $56.31Current Yield: 1.2%Current Dividend: $0.70Shares Outstanding (MM): 117.2Major Shareholders: Insiders own < 1%Average Daily Trading Volume (MM): 1.552-Week Price Range: $59.09-$41.00Price/Earnings Ratio: 21.2xStated Book Value Per Share: $13.10



TOTAL ASSETS $ 3,233 $ 3,232 $ 2,999 Current Liabilities $ 724 $ 790 $ 637 Long Term Debt 495 707 783 Shareholders Equity 1,535 1,490 1,182


• Improved profitability resulting from new CEO

joining Pall from IDEX corporation in late 2011 • Continued adoption of single use technologies

by biotech and pharma companies • Potential for optimization of PLL’s balance sheet

with net debt to EBITDA of just 0.3x • Global economic improvement resulting in

increased demand for filtration products/ solutions

P&L Analysis

($ in millions except per share items) Fiscal Year Ending July 31 2011 2010 2009 2008 Revenues 2,741 2,402 2,329 2,572 Net Income 316 241 196 217 Earnings Per Share 2.67 2.03 1.64 1.76 Dividends Per Share 0.69 0.63 0.57 0.62 Price Range 59.50-33.72 41.82-28.69 42.72-18.20 44.55-33.37


Pall Corporation is a broad-based filtration, separation and purification Company. The Company’s proprietary products are used for the removal of solid, liquid and gaseous contaminants from a wide variety of liquids and gases. Uses for the Company’s products include facilitating drug and vaccine discovery and production, providing safe drinking water, filtering blood, and keeping equipment such as manufacturing equipment and airplanes running. We continue to be attracted to Pall’s razor/razor blade business model, which derives ~75% of its revenues from the sales of high margin consumables. Further, the lengthy approval process for a number of the Company’s products helps insulate Pall from competitive threats. For example, it is not uncommon for the Company’s products to undergo a multi-year approval process from regulators (e.g. the FDA) before a particular product is certified for use. Once Pall’s products/systems are approved, it is quite costly to remove Pall as a supplier.

We believe the Company’s Life Sciences segment (63% of operating income) is well positioned for continued growth of the BioPharmaceuticals industry. We view Pall as a significant beneficiary of the growing biotechnology industry where drugs/vaccines are generally 8 to10 times more filtration and separation intensive than traditional pharmaceuticals. By 2014, every one of the top six selling drugs is projected to be a biotech drug compared with just two drugs in the top six just three years ago. Pall has a leading share in the growing market for single use systems that are being increasingly utilized by biopharmaceutical companies in drug development and manufacturing. The Company’s single use technologies are disposable systems that provide customers several advantages including reduced cleaning expenses, lower capital outlays and flexible use of manufacturing floor space. While one may think that disposable systems are not good for the environment, in fact the use of these systems is actually environmentally friendly and more cost effective reflecting reduced cleaning (no water or cleaning chemicals) and energy consumption. Further, the rising standard of living around the globe should translate into increased consumption of pharmaceutical/medical products boosting demand for Pall’s products.

While Pall’s Industrial segment (49% of FY2011 sales; 37% of operating income) was impacted by the recent economic downturn, its prospects are improving. During FY2011, Industrial segment sales increased by 11% on a local currency basis, with growth in all markets including Energy & Water (+8.7%), Aeropower (+11.3%) and Microelectronics (+14.3%). Industrial segment backlog at year-end FY2011 was up by 22% compared with year-ago levels providing investors with some tangible evidence that the strong growth in FY2011 will continue into the current fiscal year. Within the Industrial segment, Pall has exposure to a wide range of end markets and geographies and therefore continued global economic growth bodes well for Pall’s future growth.

Pall has taken steps in recent years to improve its profitability. Operating income margins in the Company’s Life Sciences segment finished FY2011 at 24%, representing an all time high in the segment. Within the Industrial segment, operating income margins are just slightly below peak levels, but should soon surpass pre-recession highs as the global economy continues its recovery. In October, Larry Kingsley became Pall’s new CEO/president, joining the Company from Idex Corp where he served in a similar capacity since 2005. Given Mr. Kingsley’s background, including experience at well run industrial companies such as Danaher, we wouldn’t be surprised if the Company made further strides in improving profitability.

In our view, Pall has the potential to unlock a significant amount of shareholder value by deploying its outsized cash position ($588 million) and underleveraged balance sheet with leverage (net debt/EBITDA) of just 0.3x. There have been a number of recent events that could accelerate returns to shareholders in the not too distant future including the conclusion of an IRS audit that resulted in no penalties and the separation of the Chairman/CEO role following the retirement announcement of Pall’s former CEO Eric Krasnoff in early 2011. While Pall’s new CEO Kingsley has an acquisitive background, his track record suggests bolt on/tuck-in type acquisitions rather than transformational transactions, which should accommodate a balance between acquisitions and returns to shareholders. Further, Pall expanded its repurchase authorization in October 2011 by $250 million on top of $200 million that was already outstanding.

Our estimate of the Company’s intrinsic value is $65 a share, which is derived by applying a 12x multiple to our 2013E EBITDA for the Life Sciences segment and a 10x multiple to our 2013E EBITDA for the Industrial segment. We believe further upside is possible if the Company accelerates share repurchases and/or increases its dividend (1.2% yield).


- 30 -

The Scotts Miracle-Gro Company

Symbol: SMGExchange: NYSECurrent Price: $43.47Current Yield: 2.7%Current Dividend: $1.20Shares Outstanding (MM): 62.9Major Shareholders: Hagedorn Partnership ~30%Average Daily Trading Volume (MM): 0.752-Week Price Range: $60.62-$39.99Price/Earnings Ratio: 17.2xStated Book Value Per Share: $8.90


(in millions) 2011 2010 2009 Cash $ 131 $ 88 $ 72 Current Assets 993 1,118 1,091

TOTAL ASSETS $ 2,052 $ 2,164 $ 2,220 Current Liabilities $ 469 $ 737 $ 757 Long Term Debt 795 632 810 Shareholders Equity 560 765 585


• About 60% of SMG’s total sales come from

products with greater than 50% market share in their respective categories

• Has recently divested non-core businesses to focus on the Global Consumer business and to improve return on invested capital

• Aggressively returning cash to shareholders • Trading at ~45% discount to our estimate of

intrinsic value

P&L Analysis ($ in millions except per share items) Fiscal Year Ending

September 30 2011 2010 2009 2008 Revenues 2,836 3,140 3,142 2,982 Net Income 183 219 151 124 Earnings Per Share 2.76 3.14 2.32 -0.17 Dividends Per Share 0.63 0.50 0.50 0.50 Price Range 60-62-39.99 52.56-37.50 44.25-18.27 46.90-16.12


The Scotts Miracle-Gro Company (“Scotts”) is a leading manufacturer and marketer of consumer branded products for lawn and garden. The U.S. packaged lawn and garden consumable industry is about an $8 billion market, growing at a compound annual growth rate of 3%-5%. Growth is expected to be driven by an aging population, and increasing awareness of gardening as a solution to food safety concerns and high grocery bills. SMG is well positioned to capitalize on these trends, as it is the market leader in the category. Scotts operates in two business segments: Global Consumer and Scotts LawnService. Global Consumer is the largest segment, accounting for 92% of total sales and 95% of total segment operating profit. The Company’s well-regarded brands, which include Scotts, Turf Builder, Miracle-Gro, Liquafeed, Ortho, and Roundup, enjoy strong brand awareness (up to 95%) and high market share (up to 77%). About 60% of its total sales come from products with greater than 50% market share in their respective categories, such as growing media (planting soil), seeds and plant food. In addition, SMG possesses an unrivaled supply chain and the industry’s largest seasonal in-store sales force. The Company has recently divested non-core businesses (such as Smith & Hawken and Global Professional) to focus on the Global Consumer business and to improve return on invested capital.

Fiscal 2011 (ended September 30th) was a disappointing year for SMG as poor spring weather conditions and misfired promotions negatively impacted sales and profitability. According to the National Climatic Data Center, 3/1/2011-5/31/2011 was the tenth wettest three months nationally, with 35 states recording above normal precipitation. In addition, the Ohio Valley and Northeast regions, where SMG maintains high market shares, were among the wettest regions in the nation. This negatively impacted SMG’s fiscal second and third quarter results, which account for 70%-75% of total Company sales. In particular, 3Q fiscal 2011 sales were down 10% YOY. In an attempt to make up for lost sales, SMG ramped up promotional spending. However, this only had the effect of driving higher sales for lower margin merchandises, thereby negatively impacting profitability. 4Q Fiscal 2011 gross profit declined 410 bps YOY to 26.2%. All this was compounded by economically constrained consumers reducing lawn and gardening purchases in the mass merchandise channels. The Company responded by pulling back on 2012 price increases, which will result in lower gross margin due to rising commodity costs. Also, SMG plans to increase media spend by 50% to correct for a shift to promotion from advertising and for underestimated inefficiencies from shifting advertising to regional from national. Finally, after slashing incentive compensation in fiscal 2011 due to falling short of its sales and profitability goals, the Company intends to reinstate incentive compensation in 2012, which will further pressure SG&A margins.

Despite the recent challenges, we believe the Company is well positioned over the long term and will likely be able to return to 4%-6% sales growth. New product launches such as Snap Spreader System (a new spreader system that “takes the mess and guesswork out of lawn care”) and Expand n’ Gro (concentrated planting mix that expands up to three times when water is added) should help the Company regain some pricing leverage going forward. Further, there is also pent-up demand from the recent housing crisis as many banks have postponed maintaining the lawns of foreclosed homes.

Over the last couple of years, SMG has been aggressively returning cash to shareholders. The Company doubled its quarterly dividend to $0.25/share in 4Q fiscal 2010 and increased it another 20% to $0.30/share in 4Q fiscal 2011 translating to a current annual dividend yield of 2.7%. Also, in August 2010, the Board authorized SMG to repurchase $500 million of shares over a four-year period and increased the buyback authorization by an additional $200 million in May 2011. From inception of the program through September 2011, the Company has repurchased 7.4 million shares for $384 million, or ~$52 per share, already completing 55% of the total repurchase plan.

At current levels, Scotts is trading at just 8.5x depressed FY2011 EBITDA, which is well below where other publicly traded branded consumer products companies sell for and also below the multiples paid (~12.5x on average) for precedent industry transactions. Applying a 10.0x EBITDA multiple to our estimated 2014 EBITDA of $516 million, we derive an intrinsic value for SMG of $78 per share, representing nearly 80% upside from current trading levels.


- 31 -

Sysco Corporation

Symbol: SYYExchange: NYSECurrent Price: $28.90Current Yield: 3.7%Current Dividend: $1.08Shares Outstanding (MM): 593.4Major Shareholders: Insiders own < 1%Average Daily Trading Volume (MM): 4.152-Week Price Range: $32.65-$25.47Price/Earnings Ratio: 14.7xStated Book Value Per Share: $7.84





• Completion of major ERP deployment that

should result in operational improvements • Improving domestic economy and

moderate levels of future food cost inflation • Potential for an acceleration in returns to

shareholders following recent investment initiatives

P&L Analysis

($ in millions except per share items) Fiscal Year Ending June 30 2011 2010 (53 weeks) 2009 2008 Revenues 39,323 37,243 36,853 37,522 Net Income 1,152 1,180 1,056 1,106 Earnings Per Share 1.96 1.99 1.77 1.81 Dividends Per Share 1.03 0.99 0.94 0.85 Price Range 32.76-27.13 31.99-21.38 35.00-19.39 35.90-26.45

INVESTMENT RATIONALE Sysco is the global leader in marketing and distributing food products to restaurants, healthcare and educational

facilities, hotels and inns, and other foodservice and hospitality businesses. Each year Sysco delivers more than 1 billion cases of food and related products to more than 400,000 customers in the U.S., Canada and around the world. Sysco’s primary market is the foodservice market in the U.S. and Canada where it holds an industry leading market share of 17% (greater than its next 3 largest competitors combined) in the $220 billion a year foodservice market.

While Sysco’s sales increased by 7.7% in FY 2011, Sysco’s operating income increased by just 1.7% (excluding an extra week in 2010 and a $36 million charge to exit a pension plan). The Company’s profitability was adversely impacted (margins declined 40 bps to 4.9% vs. 5.3%) by elevated levels of inflation in the dairy, meat and seafood product categories in the range of 10% to 12%. While moderate levels of inflation typically bode well for Sysco, the high food cost inflation coupled with a continued sluggish U.S. economy impacted the Company’s profitability, as it was not able to pass along the full cost of the product increases. Sysco’s profitability was also adversely impacted by the Company’s ongoing strategic pricing initiatives where the Company is selectively lowering prices in certain categories in order to increase volumes. While these initiatives are creating a drag on current profitability, Sysco believes these moves will have a positive impact longer term due to higher sales volume and increased market share. Notably, the Company has experienced a meaningful year over year volume growth where this program has been implemented.

Despite the recent headwinds, Sysco has a number of ongoing initiatives that increase future profitability. Through FY 2011, Sysco had incurred 58% of the costs ($525 million of $900 million) associated with its multi-year business transformation project intended to streamline the Company’s processes, reduce costs and improve data availability to help the Company increase market share from existing customers. To achieve its goals, Sysco is deploying an enterprise resource software platform (ERP) that will consolidate many of the Company’s administrative services, currently scattered across Sysco’s ~85 operating companies, into a single center. While the project has been pushed back by 6-12 months, longer term benefits are substantial and should ultimately drive ~100 bps increase in the Company’s operating margins. In addition to the ERP investment, Sysco should benefit from the deployment of Re-Distribution Centers (RDCs) across the country, which should provide the Company significant operating cost savings (reduced aggregate inventory levels etc.). Currently, Sysco has two RDCs in operation (Virginia and Florida) and will begin construction on a third RDC in FY 2012 in Indiana.

In our view Sysco’s ERP investment is masking the Company’s true free cash flow generation. It should be noted that nearly 90% of the expected $900 million of ERP spending will have occurred at the end of the Company’s current fiscal year (FY 2012). Further, FY 2012 also marks the last year that the Company will be making payments ($212 million) as part of a ~$1 billion IRS settlement. Historically, Sysco has returned a meaningful amount of capital to shareholders thanks to its strong free cash flow generation. Between FY 2004 and FY 2009, capital deployed for repurchases averaged $545 million annually compared with an average of $235 million over the past two years. In November 2011, Sysco increased its share repurchase authorization by 20 million shares and stated that it will repurchase the 5.3 million shares that are remaining under its 2010 authorization prior to initiating the new buyback program. Dividends have also played a major role in the Company’s capital allocation decisions with the Company paying a dividend each quarter since 1970 including 43 increases. While recent increases have been moderate (including a 4% increase in November 2011), we would not be surprised if dividend boosts are greater in the coming years as the ERP spending and tax penalty payments cease.

At present, Sysco’s current dividend yield is nearly 180 basis points over ten-year treasuries. In our view, Sysco is well positioned to implement multiple meaningful increases to its dividend over the next 10 years. Further, we believe the shares offer meaningful capital appreciation over that time frame benefiting from a number of factors including a better economic climate, improved profitability from the Company’s multiple productivity initiatives, further market share gains in this large, though still highly fragmented, industry and more moderate levels of food inflation. Applying a 10x multiple (the low end of SYY’s historical range and a discount to precedent industry transactions) to our estimate of the Company’s 2013 EBITDA, we derive a value of $40 a share, providing investors with good income and capital appreciation potential from current levels.


- 32 -

Time Warner Inc.

Symbol: TWXExchange: NYSECurrent Price: $33.81Current Yield: 2.8%Current Dividend: $0.94Shares Outstanding (MM): 1,053Major Shareholders: NAAverage Daily Trading Volume (MM): 8.352-Week Price Range: $38.20-$27.74Price/Earnings Ratio: 12.8xStated Book Value Per Share: $29.53


(in millions) 9/30/2011 2010 2009 Cash $ 3,245 $ 3,663 $ 4,800 Current Assets 12,082 13,138 13.007



• Recent digital distribution agreements will

boost network profitability • Investor recognition of the value of TWX’s

premium original content could produce multiple expansion

• TWX is returning hefty free cash flow to shareholders through higher dividends and repurchases

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 26,888 25,388 26,434 26,211 Net Income 2,571 2,512 (14,649) 4,627 Earnings Per Share 2.25 1.75 (4.27) 1.51 Dividends Per Share .85 0.75 0.75 0.705 Price Range 33.88-26.81 32.94-18.23 50.70-21.75 69.45-48.51

INVESTMENT RATIONALE Time Warner Inc. shares have handily outperformed the broader stock market over the past year, rising 7% since last

year’s Forgotten Forty. Our Time Warner/Netflix pair trade has also produced a 71% return (excluding dividends) since publication in January 2011, although the abrupt collapse at Netflix deserves most of the credit. As we discussed at the time, Time Warner, with its rich library of content rights and the ongoing production of premium original programming through its studios, appears far better positioned to capitalize on the digital media transition than a glorified interface provider like Netflix. Furthermore, Time Warner CEO Jeff Bewkes has been outspoken (‘loudmouthed’ in his own words) in directing the media industry away from short-sighted, value destroying approaches to digital distribution. (Examples of the latter include the Starz/Netflix deal and Hulu’s practically unrestricted free handout of premium content, both of which were more recently reversed.)

For TWX, this has meant retaining rights to its premium content for more profitable distribution through VoD/pay-per-view, its HBO/Cinemax pay-TV channels or ad-supported network television. Mr. Bewkes approached Netflix and its ilk with extreme caution, only selling them largely un-monetized second-tier content until TWX could extract top dollars. Time Warner revealed their first blockbuster deal with Netflix in October 2011, agreeing to sell digital rights to back episodes of The CW (co-owned by CBS) shows in an 8-plus year agreement reportedly worth upwards of $1 billion. The Company also reached a 5 year agreement with Hulu for rights to in-season programming. Additional digital approaches include an extended DVD rental delay window; the rollout of UltraViolet cloud-based electronic content sales (which improve access for consumers while protecting against piracy) through its acquisition of Flixster; TV Everywhere enabling for the Turner Networks; and last but certainly not least, supplementation of HBO with HBO GO mobile streaming. Netflix CEO Reed Hastings recently admitted HBO GO is its most formidable competitor, and we view HBO’s library of premium original programming as a major competitive advantage.

Time Warner’s Networks segment (49% of sales, 78% of total segment EBITDA) continues to benefit from strong growth in its dual revenue streams. Subscription revenues increased by 7% YTD 3Q 2011 to $6.1 billion and advertising revenues increased a whopping 16% to $3.1 billion due in part to additional sports content and continued shift in ad spending from broadcast to cable networks. Segment operating income declined (1%) YTD due to a 29% increase in originals and sports content costs. Much of this reflects the timing of TWX’s 14-year deal for NCAA basketball tournament rights signed in 2010, which came at a hefty price tag, but should provide long-term support for Turner Networks. As discussed in the January 2011 AAF issue, we believe investors are also overlooking the value of TWX’s CNN/Headline News considering its drastic underperformance versus network news rivals in recent years should be an easily correctable problem. Recent lineup changes appear to be hitting the mark, with CNN viewership skyrocketing 30% overall and nearly 50% during primetime in 3Q 2011. We would also note the value of CNN’s websites, which drew 72 million unique visitors in October 2011 according to Dow Jones. By comparison, Yahoo.com drew 81 million unique viewers.

We are encouraged by Time Warner management’s recent focus on cost savings and cash flow. CEO Bewkes recently noted TWX could save upwards of $150 million per year by scaling back its office space and combined cost savings from consolidating shared operating services and relocating data centers could approach $500 million per year. Regarding cash flow, Time Warner produced an excellent 77% free cash flow conversion rate YTD and has generated $2.3 billion in TTM FCF. The Company has prudently moved to realign its capital structure and take advantage of the ultra-low interest rate environment by relevering to 2.3x EBITDA. Moreover, management has aggressively taken advantage of their (and our) perceived discount in TWX’s share price to repurchase shares, spending $3.1 billion to retire 110 million shares (10%) YTD. Time Warner also increased the annualized dividend by nearly 11% in February 2011 to $0.94 per share, offering an attractive 2.8% yield and a modest 35% payout ratio. At current levels, Time Warner is trading for only 7.6x TTM EBITDA. We do not believe this valuation accurately reflects the Company’s valuable content properties. Based on a sum-of-the-parts valuation, we estimate Time Warner’s intrinsic value to be approximately $47 per share. We would also note that TWX trades at only a modest premium to stated book value of $29.53 per share, including approximately $3 per share (stated value) in land and real estate holdings that are an increasingly plausible source of monetization based on recent commentary.


- 33 -

The Travelers Companies, Inc.

Symbol: TRVExchange: NYSECurrent Price: $55.97Current Yield: 2.9%Current Dividend: $1.64 Shares Outstanding (MM): 419Major Shareholders: StateStreet ~5.4%Average Daily Trading Volume (MM): 4.752-Week Price Range: $64.17-$45.97Price/Earnings Ratio: 13.9xBook Value Per Share: $60.98


(in millions) 9/30/11 2010 2009 Investments & Advances $ 73,652 $ 72,722 $ 70,113

TOTAL ASSETS $ 106,933 $ 105,181 $ 109,560 Long Term Debt $ 6,604 $ 6,611 $ 6,527 Shareholders Equity 25,172 25,475 25,415


• Recent weather challenges mask TRV’s true

earnings power • Management continues to aggressively return

capital to enhance shareholder returns • Long-term competitive position supported by

disciplined underwriting, operational efficiency, and strong balance sheet

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 25,112 24,680 24,477 26,017 Net Income 3,216 3,622 2,924 4,601 Earnings Per Share 6.62 6.33 4.79 6.86 Dividends Per Share 1.41 1.26 1.17 1.13 Price Range* 57.44-47.94 54.31-33.52 58.57-28.91 56.99-47.26

INVESTMENT RATIONALE The Travelers Companies, Inc. (“TRV” or “the Company”) is a leading provider of property casualty insurance for

auto, home, and business. The Company had $21.6 billion in net written premiums during 2010, derived from the following areas: business insurance (50%), personal lines (35%), and financial, professional, and international lines (15%). The firm was formed in 2004 as a result of the acquisition of Travelers by the Saint Paul Companies. The Company has earned a well-regarded reputation within the industry due to its underwriting capabilities, operational efficiency, and strong balance sheet.

The most recent quarter was a challenging period for TRV and the industry due to several natural catastrophes that negatively impacted profitability (Hurricane Irene and Tropical Storm Lee). As a result, TRV reported a 61% year over year decline in operating income and a 63% decrease in EPS. The Company’s combined ratio increased nearly 14 percentage points year over year to 104.5%; roughly 10 percentage points of the increase stemmed from catastrophe related costs. Management indicated that overall margins were in line with expectations excluding the impact of weather. However, the firm did report positive comparisons for net written premiums across its business lines, illustrated by a 4% increase in net written premiums. Management indicated that pricing for policy renewals has been generally strong across its business lines, as TRV seeks better pricing and terms to reflect weather challenges and to mitigate the impact of low interest rates. This was partially offset by a 6% drop in net investment income, mainly a result of historically low interest rates. As of the most recent quarter, 93% of TRV’s investment portfolio consisted of fixed maturity and short-term investments. The weighted average credit rating of the fixed maturity portfolio is Aa2 (Standard & Poor’s). As of the most recent quarter, the firm’s bond exposure to “troubled” European countries’ sovereign debt stood at $8 million, and bond exposure to corporations in those countries stood at $16 million. Municipal bonds represent 53% of the current investment portfolio. The total investment portfolio stood at $73.6 billion as of the most recent quarter.

Even with the heightened catastrophes, TRV’s financial position remains solid. TRV’s book value has grown 4% this year, and Standard and Poor’s recently upgraded TRV’s debt and financial strength ratings to A and AA, respectively. TRV’s debt-to-capital stood at 22.7% at the end of 3Q 2011. During the most recent quarter, the firm returned $548 million to shareholders via share repurchase and dividends. Looking ahead, management is targeting another $1 billion in stock buybacks in 4Q 2011. Return of capital to shareholders has been a key aspect of shareholder value creation at TRV for many years. For example, since 2006 TRV has returned about $20 billion in cash to its investors through repurchases and dividends. Dividends have been increased every year through the economic slowdown, and have been paid without interruption for 139 years. In our view, this illustrates a shareholder-friendly mindset that should continue to be a driver of value for long term investors.

In addition to returning cash to its investors, TRV creates value for shareholders by targeting a mid-teens ROE over the long term. For the 5 years prior to the catastrophe-related challenges in 2011, TRV achieved an average ROE of nearly 15%. TRV has maintained superior profitability compared to its competitors by utilizing a disciplined approach to pricing, complemented by strong underwriting and claims settlement capabilities. Moreover, a conservative investment philosophy has allowed the firm to avoid undue risk-taking in search of higher bond yields. These factors, combined with its solid balance sheet, should continue to translate to sustainable competitive advantages for TRV over the long term. Looking ahead, TRV should be positioned for solid profit growth. The recent catastrophes should serve to remove capital and capacity from the property casualty industry, and reduce price competition for underwriting. Recent pricing trends have been favorable across TRV’s businesses, and we expect this trend to continue. These pricing trends will be increasingly crucial to profit growth as low bond yields continue to hamper investment income.

Despite the pressure on some financial services stocks, TRV shares are nearly flat both year-to-date and over the past five years, reflecting the firm’s financial strength, shareholder mindset, and solid operational track record. In our view, the Company’s financial and competitive positions remain strong, suggesting that TRV should continue to be a high quality investment within the insurance sector. Although share performance has remained resilient, we believe the stock has attractive upside during the coming years. Assuming the stock can trade at 1.3 times our 2012 estimate of tangible book value (year-end), the intrinsic value for the shares should be at least $66. After accounting for the stock’s 2.9% dividend yield, total return potential could exceed 20%.


- 34 -

The Walt Disney Company

Symbol: DISExchange: NYSECurrent Price: $35.16Current Yield: 1.6%Current Dividend: $0.60Shares Outstanding (MM): 1,796.5Major Shareholders: Steven P. Jobs Trust ~7.7% Average Daily Trading Volume (MM): 5.152-Week Price Range: $44.34-$28.19Price/Earnings Ratio: 14.0xStated Book Value Per Share: $21.96


(in millions) 2011 2010 2009 Cash $ 3,185 $ 2,722 $ 3,001 Current Assets 13,757 12,225 11,666



• ESPN remains a juggernaut in sports

entertainment and it would be difficult for another network to match

• Despite all its ongoing investments, DIS continues to generate robust FCF and maintains a solid balance sheet

• On November 30th, DIS increased its annual dividend 50% to $0.60/share, its biggest increase in 20 years

P&L Analysis

($ in millions except per share items) Fiscal Year Ending September 30 2011 2010 2009 2008 Revenues 40,893 38,063 36,149 37,843 Net Income 4,807 3,963 3,307 4,427 Earnings Per Share 2.52 2.03 1.76 2.28 Dividends Per Share 0.40 0.35 0.35 0.35 Price Range 44.34-28.19 37.56-25.40 32.95-15.14 35.69-26.30

INVESTMENT RATIONALE Fiscal 2011 (ended September 30) was another solid year for Disney with overall revenue growing 7% and total

segment operating profit up 16% led by Media Networks (sales +9% and EBIT +20%), Park and Resorts (sales +10% and EBIT +18%) and, to a lesser extent, Consumer Products (sales +14% and EBIT +21%). As we noted in previous AAF reports, Media Networks (anchored by ESPN and Disney Channel) represents close to 70% of the Company’s total operating income and derives a disproportionate amount of revenue from the cable networks’ dual revenue stream – affiliate fees and advertising. We continue to believe cable networks remain a very attractive business as they boast high margins, have recurring revenue streams (due to affiliate fee revenues with annual escalators) and generate an enormous amount of free cash flow. ESPN remains a juggernaut in sports entertainment and it would be difficult for another network to match the network’s expensive and lengthy contracts signed with various sports leagues, which are supported by the more than $5 billion of annual affiliate fee revenue ESPN collects from its distributors. In addition, various professional and collegiate sports leagues view ESPN as a valuable partner. In September 2011, ESPN and the NFL announced a long term contract extending the network’s rights for Monday Night Football through 2021. While exact terms were not announced, it is estimated that ESPN will pay an average annual cost of $1.9 billion per year, up from $1.2 billion when the current contract expires in 2013. The new deal also provides more than 500 additional hours of NFL branded programming per season and expanded highlights as well as digital rights for ESPN.com. The digital rights include the ability for paid cable subscribers to watch games on tablet devices such as iPads.

The Company remains disciplined on pricing in the Parks and Resorts business, trading volume for higher profits. Segment revenue growth in 2011 was driven by higher ticket prices, higher per capita spending and contribution from a new cruise ship, The Disney Dream. Despite incurring higher expenses for higher pension and post retirement medical costs, incremental costs related to the launch of a new cruise ship, higher investment spending (upgrades at California Adventure, Fantasyland in Orlando, new initiatives at Walt Disney World, and the Hawaii timeshare resort) and other one-time items (lower royalty from Tokyo Disney), 2011 operating profit margin improved 100 bps, from 12.2% to 13.2%. We note that this level of profitability is still below 2008’s margin of 16.5% and the Company has indicated it expects to see continued margin expansion in 2012. However, total capital expenditures (~75% related to Parks and Resorts) are not only forecasted to remain high (a source of investor angst), but also increase by $500 million to $4 billion in 2012. We view these capital expenditures as necessary in order for the Company to maintain its competitive advantages. The elevated capex reflect the addition of another cruise ship (Disney Fantasy) coming online in April 2011, upgrades at domestic parks, completion of Cars Land at California Adventure, and additional development costs at its new Shanghai property. We believe that annual Parks and Resorts capital expenditures should decline by ~$1 billion or so after 2012.

As for its China endeavors, Disney broke ground in FY 2011 on a full Disney World style park several miles outside of Shanghai that is scheduled to open in 2016. Shanghai Disneyland will cover nearly 1,000 acres and cost ~$3.8 billion in addition to another $0.7 billion to build the hotels, retail, dining and entertainment areas. The development is in partnership with the Shanghai government, which will own 57% of the park. Disney will also own 70% of a joint venture management company that operates the park with the Shanghai government owning the rest.

Despite all its ongoing investments, Disney continues to generate robust levels of free cash flow ($1.90/share in fiscal 2011 and an estimated $1.45/share in fiscal 2012) and maintains a solid balance sheet (net debt/EBITDA ~1.1x), enabling it to continue to return capital to shareholders through dividends and share repurchases. During fiscal 2011, the Company spent $5 billion to repurchase 135 million shares (for an average cost of ~$37 per share). The Company currently has authorization to buy back 305 million additional shares, and we expect management to continue to aggressively repurchase shares. On November 30th, DIS increased its annual dividend 50% to $0.60/share, its biggest increase in 20 years. We believe investors continue to under-appreciate Disney’s brands, collection of marquee assets, and earnings power. Based upon our sum-of-the-parts valuation, our estimate of Disney’s intrinsic value is $50 per share.


Waste Management, Inc.

Symbol: WMExchange: NYSECurrent Price: $31.62Current Yield: 4.3%Current Dividend: $1.36Shares Outstanding (MM): 469Major Shareholders: Insiders own ~1%Average Daily Trading Volume (MM): 5.352-Week Price Range: $39.69-27.75Price/Earnings Ratio: 15.3xStated Book Value Per Share: $13.40


(in millions) 9/30/11 2010 2009 Cash $ 282 $ 539 $ 1,140 Goodwill 6,104 5,726 5,632



• Leading player in a sector with high barriers to entry

• Stable, annuity-like business that allows for substantial dividends and stock repurchase

• Cost reduction and price increases should fuel EPS growth despite a challenging environment

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 12,515 11,791 13,388 13,310 Net Income 953 994 1,087 1,163 Earnings Per Share 1.98 2.01 2.19 2.23 Dividends Per Share 1.26 1.16 1.08 0.96 Price Range 37.25-31.11 34.18-22.10 39.25-24.51 41.19-32.40


Waste Management (“WM,” or “the Company”) is the leading waste disposal firm in North America (one of only two national players). WM provides a full range of waste services including collection, transfer, recycling, and disposal. The Company owns and operates 271 landfills, the largest network of landfills in the industry, and it also owns, develops, and operates waste-to-energy facilities. WM is also North America’s largest provider of recycling services. Its client base includes residential customers, industrial customers, businesses, and municipalities. During the most recent fiscal year, WM generated over $12 billion in revenue, derived from the following: Collection (57%), Landfill (18%), Transfer (9%), Recycling (8%), Waste-to-Energy (6%), and Other (2%).

WM reported third quarter-2011 results that were largely in-line with expectations. EPS totaled $0.62 for the period, up 5% year over year, and consistent with consensus projections. Revenue increased about 9%, but was up only 4% excluding the impact of M&A. In July, WM acquired Oakleaf Global Holdings for $425 million in cash, a firm that provides outsourced waste and recycling services through a network of third party haulers (Oakleaf is expected to generate $80 million in annual EBITDA.). Expenses were generally higher for the quarter, in part a result of the acquisition. However, the Company expects its cost reduction efforts to show increasing benefits during the coming quarters. Free cash flow totaled $372 million, a 12% year over year decrease, mainly reflecting increased capital spending. Volume trends were generally favorable on a sequential basis, and management described the industry pricing environment as relatively stable. Management re-affirmed its 2011 guidance of $2.14 to $2.18 in EPS and $1.25 billion in free cash flow.

WM holds a strong competitive position in an attractive and relatively stable business. WM possesses over 20% share of the solid waste market (#1 position in North America). The industry has high barriers to entry given the capital requirements and regulatory issues associated with much of the waste management business. In our view, this translates to a higher level of long term earnings and cash flow visibility compared to other sectors. The stability and “annuity-like” characteristics of this business have allowed WM to return nearly all of its free cash flow to shareholders over the years. The firm has been paying a substantial dividend since 2004 (now yielding over 4%, with a payout ratio of over 60%), and WM has already completed its $575 million share repurchase program for 2011. We expect return of capital via significant dividends and share repurchase to remain a key driver of WM shareholder value over the long-term. The Company has a net debt-to- capital ratio of 60% (in line with its long term target); the firm’s strong cash flow generation should provide ample capacity to service its debt.

However, the waste management business is not without its challenges. Issues such as the economic downturn and increases in fuel costs have been key issues of concern for WM during recent years. To mitigate these headwinds, management has pursued cost savings initiatives focused on issues such as procurement, routing and logistics, and centralization of back office functions. These efforts yielded about $28 million in savings during the most recent quarter, and management expects these cost savings to accelerate going forward. These efforts, combined with price increases have allowed the firm to maintain profit growth despite a fairly challenging economic environment. Management typically seeks annual price increases that are 50-100 basis points above the Consumer Price Index.

In addition to price increases, WM has targeted several key areas as potential sources of growth. Management has highlighted customer segmentation and strategic bolt-on acquisitions as elements of its growth strategy, while also increasing its exposure to recycling and environmentally friendly technologies. WM’s Wheelabrator Technologies segment will likely be an area of focus (waste-to-energy services). Waste-to-energy is considered a renewable fuel source, and the Company can sell the energy that is generated into the wholesale electricity market. The Company owns or operates 17 waste-to-energy facilities and 5 independent power plants.

WM shares have underperformed during 2011, declining 14% year-to-date. We believe this pullback has created an attractive risk/reward scenario for long-term investors. Moreover, the stock’s 4.3% dividend yield should provide valuation support, and reduce additional downside. Our $41 estimate of intrinsic value implies total return potential of over 30% from current levels. This valuation assumes the stock can trade at an EV/EBITDA multiple of 8.0x (consistent with historical averages), and assumes 2012 EBITDA of roughly $3.5 billion (consistent with general expectations).

- 35


- 36 -

Watsco, Inc.

Symbol: WSOExchange: NYSECurrent Price: $61.85Current Yield: 4.0%Current Dividend: $2.48Shares Outstanding (MM): 30.8Major Shareholders: Insiders 18% voting/

58% EconomicAverage Daily Trading Volume (MM): 0.352-Week Price Range: $72.16-$51.10Price/Earnings Ratio: 23.5xStated Book Value Per Share: $26.16



TOTAL ASSETS $ 1,432 $ 1,237 $ 1,161 Current Liabilities $ 383 $ 266 $ 224 Long Term Debt 0 10 13 Shareholders Equity 1,012 929 895


• Integration of Carrier Enterprise joint ventures

should improve sales and margins • Exercise of 2012 option to increase interest in

Carrier Sunbelt JV should be highly accretive • Upside from pent-up HVAC replacement

demand and/or increased new home construction

P&L Analysis



Watsco is the largest independent heating, ventilation, air conditioning (HVAC) and commercial refrigeration distributor in the U.S. Watsco is uniquely well positioned in an attractive industry featuring fragmented competition (1,300 independent distributors), barriers to entry and local oligopolies (long-term exclusive distribution agreements), an unconsolidated customer base (+100,000 contractors), a fairly stable pass-through pricing model, limited capex requirements, and beneficial regulations supporting the transition to higher-efficiency units.

Watsco’s business provides a recurrent revenue stream from HVAC repair and replacement demand (~75% of revenue). The challenging economic climate has produced unusually high patchwork repair demand, which has boosted Watsco’s sales from higher margin but lower ticket price parts and supplies. However, full replacement cannot be deferred indefinitely and with a record 89 million installed units 10+ years old, Watsco should see increased unitary equipment replacement demand over the coming years. We also view Watsco as an attractive, lower-risk play on an eventual recovery in the domestic housing market. Watsco currently generates 10% or less of revenue from sales related to new construction, versus a historical average of 25%-30%. Industry-wide, unitary air conditioning sales have bottomed close to 50% below peak levels and are running at volumes not experienced since 1993. Any meaningful increase in new construction from the currently depressed levels offers incremental upside for Watsco.

While Watsco has been consolidating the HVAC distribution industry for 20-plus years, the Company still has a relatively modest domestic market share of ~10%. This reflects both the quality of the business/unwillingness of competitors to sell and Watsco management’s conservative acquisition strategy. Watsco has never taken on significant leverage or hired investment bankers to acquire competitors. Rather, Watsco utilizes its balance sheet size and strength as well as established industry relationships to be uniquely positioned to acquire family businesses when the opportunity arises.

In our view Watsco’s market position and strong operational practices are reflected in the recent joint ventures struck with leading HVAC manufacturer Carrier Corp. (a United Technologies subsidiary). WSO agreed to take operational control and 60% economic ownership of Carrier’s sunbelt region distribution centers in 2009, and the partnership was expanded to Carrier Northeast and Carrier Mexico in 2011. The transactions were completed at bargain valuations of 0.2x-0.4x sales. Through vastly expanding the stores’ product lines, cutting operating costs, and better incentivizing management, Watsco has already improved margins at Carrier Enterprise Sunbelt by greater than 400 bps. Continued improvements in Carrier Enterprise operating performance, as well the exercise of options to increase the Company’s stake in Carrier Enterprise Sunbelt to 70% in 2012 and 80% in 2014, could be additional catalysts for Watsco shares going forward.

Longtime Chairman/CEO Albert Nahmad has historically run Watsco with a conservative balance sheet (0.5x leverage at 3Q 2011) and an emphasis on free cash flow. The Company has consistently returned a majority of free cash flow to shareholders via dividends to the tune of a 38% CAGR in the dividend over the past 10 years, including the October 2011 announcement of another 9% increase. This brings Watsco’s dividend to an annualized $2.48 per share, representing an attractive 4.0% yield in the current low interest rate environment. While this represents an elevated payout ratio above 90% of trailing EPS, excess amortization expense plus the stability of WSO’s operating results and underleveraged balance sheet should protect the payout. At the current WSO share price, investors may also be overlooking Watsco’s numerous long-term growth opportunities including pent-up replacement and new construction demand, margin expansion at the Carrier Enterprise joint ventures, additional international expansion opportunities, and accretive acquisitions. Even assuming only a modest uptick in unitary equipment sales and margin expansion well below management’s target, we estimate Watsco’s intrinsic value approximates $75 per share at 9x 2014E EBITDA. Under a more robust recovery scenario, our estimate of Watsco’s intrinsic value could exceed $90 per share at the same target multiple.

Our positive outlook for Watsco is tempered somewhat by corporate governance concerns. Mr. Nahmad is 70 years old and holds a controlling voting interest through class B shares. Board independence leaves much to be desired and we are disappointed by the structure of Mr. Nahmad’s performance-based compensation, which is linked to annual increases in WSO share price and EPS without high-water marks. On the other hand, annual dilutive stock-based compensation has averaged a relatively reasonable ~1% and Mr. Nahmad has historically proved an excellent manager. Succession/control issues associated with dual class shares and aging patriarchs have also occasionally served as catalysts for unlocking shareholder value.


- 37 -

WD-40 Company

Symbol: WDFCExchange: NasdaqCurrent Price: $39.33Current Yield: 2.7%Current Dividend: $1.08Shares Outstanding (MM): 16.7Major Shareholders: Officers/Directors 8%Average Daily Trading Volume (MM): 0.152-Week Price Range: $47.75-$36.52Price/Earnings Ratio: 18.4xStated Book Value Per Share: $12.02


(in millions) 2011 2010 2009 Cash $ 56 $ 76 $ 46

TOTAL ASSETS $ 280 $ 289 $ 263

Long Term Debt $ 11 $ 21 $ 32 Shareholders Equity 201 196 173


• Continued international expansion and

domestic recovery could spur sales growth • Net cash could be returned to shareholders

via large buyback or special dividend • WD-40 is a rational candidate for a

recapitalization or acquisition

P&L Analysis

($ in millions except per share items) Fiscal Year Ending August 31 2011 2010 2009 2008 Revenues 336 322 292 317 Net Income 36 36 26 28 Dividends Per Share 1.08 1.00 1.00 1.00 Price Range 47.97-35.09 37.50-26.23 40.00-21.87 42.70-26.50


International expansion continues to become an increasingly big part of the WD-40 story, with 59% of sales generated outside the U.S. in 4Q fiscal 2011 (FY ended August 31, 2011) including 11% from Asia-Pacific. Organic sales increased 12% in Europe and 24% in Asia-Pacific during fiscal 2011. A more severe economic slowdown in Europe and Asia, as well as possible related currency headwinds, could reduce the international growth rate in 2012. However WD-40 remains underpenetrated in many key international markets and is still migrating (or not yet migrated) to direct sales/distribution. Domestically, in FY11 the Company suffered from a 6% decline in WD-40 product sales due to reduced distribution and promotional opportunities with certain key customers (read: Wal-Mart). However we expect these pressures to moderate or reverse going forward. WD-40 could also benefit from an improvement in the currently depressed domestic housing industry as a large portion of the namesake product’s end use is tied to housing-related tradesmen and home improvement projects. Residential fixed investment has declined by roughly 60% from the prior peak, suggesting strong upside from a recovery. This could include a new home construction rebound or increased remodeling/renovation activity from the workdown of excess home inventory/foreclosures or their conversion of excess home inventory into rental properties.

CEO Garry Ridge recently initiated a strategic refocus on growing the core WD-40 brand with an emphasis on research and development of new products in the core multi-purpose maintenance product category. The Company has taken a measured approach with the new WD-40 ‘Blue Works’ line of industrial-grade specialty maintenance products, utilizing a soft launch in the U.S. via direct sales to targeted end-users. While Blue Works accounted for less than 1% of global sales in 4Q 2011, the Company estimates the penetrable market size is $300-$400 million in the U.S. alone. The Company also launched the first 3 products for a new ‘WD-40 Specialist’ line in September 2011. This product line is geared toward tradesmen and households rather than the industrial segment and is being promoted at Lowe’s stores. Additional product varieties and wider distribution both domestically and abroad are planned for 2012. In our view the Company’s soft launch approach and modest R&D expense ratio of 1.6% in each of the past 2 years make for an attractive low-risk internal growth strategy.

WD-40 continues to maintain a pristine balance sheet, with net cash of $46 million ($2.83 per diluted share) as of August 31, 2011 and no debt following the Company’s final note due in October 2011. In last year’s Forgotten Forty we noted WD-40 was positioned to initiate a sizable share repurchase program in 2011, and potentially another dividend increase or even a special dividend. While the latter two actions did not materialize, WD-40 did spend $41 million to repurchase 1.0 million shares (6%) during fiscal 2011, and we would not be surprised to see repurchases of similar scale next year. We would also note that most of WD-40’s cash remains trapped overseas. If the dysfunctional U.S. Congress actually passes a much-discussed repatriation tax holiday in 2012, this could serve as a catalyst for WD-40 to pay a special dividend and/or undertake a larger share repurchase program. An acquisition is another possible use of cash, but recent management commentary and the coincident increase in share repurchase activity suggest the Company does not see suitable targets.

After declining from all-time highs near $48 earlier in 2011, WD-40 shares currently trade at 10.1x EV/TTM EBITDA or an approximately 16x-17x forward P/E multiple based on management’s fiscal 2012 earnings guidance ($2.28 to $2.40 per share). While shares are at the bottom of WDFC’s historical average trading multiple of 10x-12x EV/TTM EBITDA, in our view WD-40 deserves to trade at a premium multiple to trailing performance given the Company’s rapid international growth, prospects for demand recovery in the U.S., incremental sales growth from new product developments, and the likelihood of moderating input cost pressures. Nonetheless applying an 11x multiple to FY 2013E EV/EBITDA, we estimate WD-40’s intrinsic value at approximately $51 per share. Possible catalysts in 2012 include increased return of cash to shareholders or a recovery in or divestiture of the Company’s homecare and cleaning products portfolio. We would also highlight WD-40’s suitability for a leveraged recapitalization given its unleveraged balance sheet, minimal cap-ex requirements and consistent free cash flow generation; at the current share price, 44% of current shares outstanding could be retired by leveraging the balance sheet to 4x trailing EBITDA. Although referring to acquisitions, CEO Ridge has publicly stated his comfort with 3x-4x leverage and we view the possibility of initiating a recapitalization as downside protection should WD-40 shares decline significantly. Alternatively, WD-40 could be an attractive acquisition candidate for either a larger consumer products company or private equity firm given the aforementioned characteristics and the Company’s modest $589 million enterprise value.


- 38 -

The Western Union Company

Symbol: WUExchange: NYSECurrent Price: $17.29Current Yield: 1.8%Current Dividend: $0.32Shares Outstanding (MM): 627.1Major Shareholders: Insiders < 1.0%Average Daily Trading Volume (MM): 6.452-Week Price Range: $21.99-$14.89Price/Earnings Ratio: 11.6xStated Book Value Per Share: $0.80


(in millions) 9/30/11 2010 2009 Cash $ 2,671 $ 2,157 $ 1,685 Goodwill 2,326 2,152 2,143

TOTAL ASSETS $ 8,820 $ 7,929 $ 7,353 Long Term Debt $ 3,983 $ 3,290 $ 3,049 Shareholders Equity 502 583 354


• Global economic improvement favorably

impacting money transfers • Continued deployment of electronic money

transfer capabilities (e.g. mobile, Internet) • Deployment of the Company’s excess cash

to shareholders in the form of higher dividends and share repurchases

• Opportunity to capture higher share in cross border business to business payments

P&L Analysis


INVESTMENT RATIONALE The Western Union Company is a worldwide leader in the global money transfer business. During 2010, the Company

generated 84% of its revenues from consumer-to-consumer (C2C) money transfer services. The Company has a number of competitive advantages including its vast distribution network with 485,000 locations (as of 9/30/11) in more than 200 countries and territories that is ~2x larger than its nearest competitor Moneygram (256,000 locations). In our view, the Company’s strong brand (in some parts of Africa the Western Union brand is as well known as Coca-Cola) is a meaningful competitive advantage given the importance of a trusted brand name when consumers are sending money to family members for non-discretionary purchases such as food, shelter and clothing. Further, WU spends approximately $40 million a year on its anti-money laundering and regulatory compliance capabilities creating meaningful entry barriers for new entrants. The Company’s global business payments service (14% of 2010 revenue) provides consumers and businesses with flexible and convenient options for making one-time or recurring bill payments, including business-to-business cross-border, cross currency payment transactions.

While today’s mobile/electronic world might suggest that Western Union’s business model will soon go the way of the telegram, we believe these concerns are overblown. Western Union’s target market for C2C money transfer is the underbanked/underserved segment of the population where a physical currency based market is unlikely to disappear anytime soon. During 2010, approximately 95% of the Western Union’s C2C transactions were cash transactions that utilized one of the Company’s physical agent distribution locations. Although cash based transactions are likely to continue to be the dominant form of money transfers, Western Union is investing aggressively to capture a bigger share of electronic money transfer business. At present, the Company has agreements with 19 mobile carriers that support mobile money transfer and 100,000 of the Company’s agent locations are capable of sending cash to a mobile phone. During 3Q11, the Company’s electronic money transfer distribution initiatives (including westernunion.com, account based money transfer, and mobile money transfer) increased by 40% and represented 3% of the Company’s total revenue.

In addition to capturing share of the electronic money transfer industry, we believe the Company has a number of attractive growth opportunities. During 2011, the Company bolstered its Western Union Business Solutions unit (WUBS), a provider of cross border business payment solutions, by acquiring Travelex Global Business Payments for approximately $974 million (~4x revenue; ~10x EBITDA). While the business did not come cheap, the addition of Travelex provides WUBS with immediate scale (Travelex is 3x larger than WUBS), further geographic diversification (now in 16 countries, up from 9) and a better market position to capture share in the $24 billion industry for cross border money transfers among small/mid-sized businesses. WUBS is expected to generate ~$400 million of revenues (8% of WU total vs. 2%) during 2012 and grow at a 10% compound annual growth rate over the next three years. Western Union’s prepaid card business presents a good growth opportunity as the prepaid card industry is expected to reach $202 billion in 2013 up from $42 billion in 2010 (based on card balances). At 9/30/2011, the Company had 1.2 million prepaid cards in force in the U.S. with retail distribution at 13,000 locations. The Company recently signed an agreement with 7-Eleven to make the cards available in 6,000 U.S. locations. While there are a number of competitors in the prepaid industry, Western Union believes that its strong brand, existing relationships with underserved customers, vast global agent network and fee friendly product (no fee with a direct deposit) should help set its product apart from its peers and capture meaningful share in the prepaid market.

Western Union’s attractive business model generates a tremendous amount of free cash flow. Over the past 3 years the Company has generated an average of $1.1 billion in annual free cash flow. Despite the recent acquisition of Travelex, Western Union still has an outsized cash position (~$2 billion) with modest leverage (post transaction net debt/EBITDA: ~1.2x-1.3x). We view Western Union’s management team as shareholder friendly as they have returned a significant amount of excess capital to shareholders in the form of share buybacks. Through the first 9 months of 2011, the Company has repurchased 40 million shares for $800 million at an average price of $19.83 a share, which follows on the heels of $2.3 billion of repurchases during the preceding three years (shares outstanding have declined by ~18%). Despite a recent 14% increase in the Company’s dividend, we continue to believe Western Union will provide shareholders with meaningful dividend increases with a current payout ratio of just 21%. Our estimate of the Company’s intrinsic value is $26 a share and we believe further upside is possible with better than expected results in its electronic, prepaid or business payments growth initiatives.


- 39 -

Whirlpool Corporation

Symbol: WHRExchange: NYSECurrent Price: $46.76Current Yield: 4.3%Current Dividend: $2.00Shares Outstanding (MM): 78.1Major Shareholders: Insiders own ~1%Average Daily Trading Volume (MM): 1.952-Week Price Range: $92.28-$45.88Price/Earnings Ratio: 10.3xStated Book Value Per Share: $55.53


(in millions) 9/30/11 2010 2009 Cash $ 511 $ 1,368 $ 1,380 Goodwill 1,724 1,731 1,729



• Price increases and cost reduction should show

favorable impact on profits during coming quarters

• WHR’s exposure to growing middle class populations in emerging markets not fully appreciated

• Well positioned to capitalize on eventual housing recovery given brands and market share

P&L Analysis



Whirlpool Corporation (“WHR,” or “the Company”) is a well established and recognized Company within the major home appliance and portable appliance markets (#1 share of worldwide appliance market). WHR has built a leading presence in several key product categories, and it has extended its reach to become a global player across the majority of the world’s markets. The Company’s product line consists of laundry appliances, refrigerators, dishwashers, cooking appliances, mixers, and other small household appliances. WHR is composed of 6 brands, each generating at least $1 billion in annual revenue (Whirlpool, Maytag, KitchenAid, Brastemp, Embraco, Consul), and its portfolio includes other significant brands which are more modest contributors (JENN-AIR, Amana, Bauknecht, and Gladiator).

WHR has been dealing with a challenging industry environment, characterized by sluggish demand, increased raw material costs, and narrowing margins. These issues were apparent in the firm’s 3Q11 earnings report as both sales and earnings were below expectations. Shipments were flat or down in most markets, and most raw material costs (steel, resin, etc.) were up 15%-25% year over year. As a result, operating profit declined 42% year over year, translating to an operating margin of 3% (management’s long term objective is an 8% operating margin). In order to mitigate these difficult market conditions, management announced a cost reduction initiative that includes facility closures and a 5,000 reduction in headcount. This is expected to generate $400 million in cost savings by the end of 2014.

Although near-term fundamentals are challenging, we believe WHR has several attractive growth opportunities over the long-term. The most obvious growth driver would be a return to more normalized conditions in the housing market as well as the overall economy in North America (still representing over 50% of Company revenue). In our view, some normalization of housing market conditions is likely to occur during the coming years, as factors such as household formation and reduced construction lead to improved housing market fundamentals. Increased market share and extending WHR’s presence in adjacent product categories represents another meaningful opportunity. An increased share in the kitchen appliance and portable appliance markets represent the most likely sources of growth. Lastly, WHR’s strong presence in emerging markets such as Brazil and India is a significant long-term opportunity. Increased usage of appliances should be a key theme within these markets reflecting emerging middle class populations.

In our view, WHR’s financial position should allow the firm to endure current headwinds and be positioned for future long-term success. As of the most recent quarter, WHR had a net debt: capital ratio of about 30%. The Company paid down $400 million in debt in 2010 alone, and WHR enjoys an investment grade bond rating from all of the major ratings agencies. The Company has been able to maintain significant levels of capital spending throughout the downturn, and the firm is in the process of addressing its underfunded pension (underfunded by $1.5 billion at the end of 2010, a $300 million contribution has been scheduled for 2011). WHR’s dividend has been maintained throughout the downturn, and it was increased 16% earlier this year to an annual payment $2.00 per share (a dividend yield of over 4%).

WHR shares have remained out of favor as investors react to the near-term industry challenges. The stock is down over 40% during 2011 alone and short interest stands at 13%. However, we view this pullback as an opportunity for patient long term investors. Utilizing a 2-3 year time frame with more normalized sales and margin assumptions ($21.5 billion in sales, and a 6% operating margin) implies annual EBITDA of $1.9 billion and free cash flow of $900 million. These assumptions, combined with a historically modest 5.0 EV/EBITDA multiple, produces an intrinsic value of $84 for the stock (implying total return potential of over 80% from current levels). Although this level of upside may require a multi-year time frame, investors will receive an annual dividend of over 4% while they wait. Overall, we regard WHR as an attractive means of participating in an eventual recovery in the U.S. housing market.


- 40 -

Yahoo! Inc.

Symbol: YHOOExchange: NasdaqCurrent Price: $15.02Current Yield: NACurrent Dividend: NAShares Outstanding (MM): 1,260Major Shareholders: Insiders own 10% Average Daily Trading Volume (MM): 29.252-Week Price Range: $18.65-$11.09Price/Earnings Ratio: 15.3xStated Book Value Per Share: $9.89



TOTAL ASSETS $ 14,528 $ 14,928 $ 14,936 Current Liabilities $ 1,202 $ 1,626 $ 1,718 Long Term Debt 0 0 0 Shareholders Equity 12,460 12,558 12,493

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $14,528 $ 14,928 $ 14,936

• Ongoing shift of media advertising budgets

to online reflecting increasing amount of time consumers spend on the Internet

• Operational improvement initiatives from the company’s current strategic review process

• A successful monetization of one or more of YHOO’s valuable minority investments

• Continued deployment of YHOO’s robust balance sheet for share buybacks

P&L Analysis

($ in millions except per share items) Fiscal Year Ending December 31 2010 2009 2008 2007 Revenues 6,325 6,460 7,209 6,969 Net Income 1,232 598 419 639 Earnings Per Share 0.90 0.42 0.29 0.47 Dividends Per Share NA NA NA NA Price Range 19.12-12.94 18.02-10.81 30.25-8.94 34.08-22.27


Yahoo! maintains the second largest (behind Facebook) global audience on the web with ~630 million users and market leading properties such as Yahoo! Mail, Yahoo! Finance and Yahoo! Sports. Yahoo! generates revenues by providing marketing services (primarily display and search advertising) to advertisers across a majority of Yahoo! properties. In our view, Yahoo!’s core operations should benefit in the coming years from the ongoing shift of media advertising budgets to online to reflect the increasing amount of time consumers spend on the Internet. We would concur with most of the commentary directed toward Yahoo from activist investor Dan Loeb. Specifically, we do not think the Company needs a cash infusion, but board/management team with an ability to tax efficiently monetize the Company’s valuable assets and minority investments.

Yahoo! and its board have received a significant amount of (well earned) investor scrutiny during 2011 stemming from the Company’s tardy disclosure that one of the assets (Alipay) within its Alibaba group investment (~40% stake – discussed further below) had been transferred to an entity controlled by Alibaba’s founder Jack Ma. While the Company was ultimately able to receive compensation (upside capped, but minimum guaranteed) for the Alipay asset, the Company’s poor handling of the situation frustrated investors. (Noted hedge fund investor David Einhorn dumped his entire stake in Yahoo! as a result of the fiasco, stating, “This wasn’t what we signed up for.”) The recent governance misstep(s), coupled with sluggish results in the Company’s core U.S. Internet operations, ultimately led to the ouster of the Company’s CEO Carol Bartz in September 2011 and prompted the board to announce that it would undergo a strategic review to position the Company for future growth.

Since announcing the strategic review, rumors have been rampant regarding the fate of Yahoo!’s core business and valuable minority investments. According to recent press reports, there have been multiple parties that have expressed interest in all or part of the Company’s assets. While it is difficult for us to handicap how the strategic review will play out, we would not be surprised if the process sets into motion a credible plan to unlock shareholder value given the Company’s attractive portfolio of assets. In our view, the Company’s poor governance moves overshadow a valuable portfolio of minority investments including Yahoo! Japan (35% stake) and the Alibaba Group. Yahoo! Japan boasts an industry leading search market share (60% share vs. 38% for Google), while Alibaba Group owns a number of valuable ecommerce companies in China including Taobao (a cross between Amazon.com and eBay), which is the largest online retail website in that country. While many analysts apply severe haircuts for these minority investments, we believe that this ignores the potential for some sort of tax-efficient monetization (spin offs and asset exchanges).

Under former CEO Bartz, Yahoo made significant progress reducing the Company’s cost structure. The Company’s 2009 search agreement with Microsoft outsourced the Company’s back end search capabilities and is expected to boost the Company’s operating income by $500 million on an annual basis beginning in 2013. In addition, the agreement should help reduce capex by ~$200 million on an annual basis. Additional moves the Company has made to streamline its operations and boost profitability include the outsourcing of properties (e.g. Yahoo! shopping to PriceGrabber), and the divestiture of underperforming properties such as HotJobs (to Monster).

Yahoo’s strong financial position with cash and L-T marketable securities of $3.6 billion ($2.88 a share) and no debt as of September 30, 2011 has allowed the company to return a significant amount of capital to shareholders. Over the past two years Yahoo has deployed nearly $3 billion in repurchasing approximately 200 million shares at an average cost of ~$14.65 a share, resulting in over a 10% reduction in diluted shares outstanding. In our view, Yahoo! has the opportunity to continue to return capital at this rate, given its strong balance sheet, robust free cash flow generation (FCF averaging $1 billion/yr over past 3 years), recent cost cutting and opportunity to tax efficiently monetize its minority investments.

Applying what we view as a conservative 5.0x multiple to our estimate of the Company’s core Internet operations’ 2012E EBITDA, we estimate the core Yahoo! business to be worth at least $8.50 a share. Taken together with our estimate of the value of the Company’s Asian investments and cash and equivalents (including marketable securities) we estimate Yahoo!’s intrinsic value to be $26 a share, 73% above current levels. We believe a number of factors could drive the shares still higher including Yahoo!’s improving profitability thanks to aggressive cost cuts under CEO Bartz, continued deployment of excess capital ($3.6 billion of cash and no long-term debt) toward share repurchases, and investment in content/platforms to drive future growth.

- A1 -

Appendix

Company Symbol

# of Shares Owned by Clients

of Boyar Asset Management, Inc.*

Analysts Own

SharesAMC Networks Inc. AMCX 14,210 Bank of America Corporation BAC 155,385 The Bank of New York Mellon Corporation BK 83,579 Berkshire Hathaway, Inc. BRK-B 300 Broadridge Financial Solutions, Inc. BR 15,850 Cablevision Systems Corporation CVC 62,300 Campbell Soup Company CPB – Cisco Systems, Inc. CSCO 50,624 Comcast Corporation CMCSK 131,886 CVS Caremark Corporation CVS 12,969 Dell Inc. DELL 41,200 Equifax Inc. EFX 740 Expedia, Inc. EXPE – Hanesbrands Inc. HBI 800 Heckmann Corporation HEK 950 H.J. Heinz Company HNZ 43,472 International Speedway Corporation ISCA 17,500 Interval Leisure Group, Inc. IILG 50,100 JPMorgan Chase & Co. JPM 78,605 Laboratory Corporation of America Holdings LH 560 Liberty Interactive Corporation LINTA – The Madison Square Garden Company MSG 58,880 Marriott International, Inc. MAR 35,992 Meredith Corporation MDP 74,206 Microsoft Corporation MSFT 113,997 Midas, Inc. MDS 313,806** Mohawk Industries, Inc. MHK 300 Molson Coors Brewing Company TAP – Pall Corporation PLL 400 The Scotts Miracle-Gro Company SMG 3,500 Sysco Corporation SYY 40,347 Time Warner Inc. TWX 94,855 The Travelers Companies, Inc. TRV 57,106 The Walt Disney Company DIS 38,968 Waste Management, Inc. WM 6,466 Watsco, Inc. WSO – WD-40 Company WDFC – The Western Union Company WU 68,211 Whirlpool Corporation WHR – Yahoo! Inc. YHOO 51,100 * Share ownership as of 12/13/11. ** Clients of Boyar Asset Management, Inc. own more than 1% of outstanding shares of MDS.

Risks: Risks that the companies profiled may not achieve our estimate of their intrinsic value include but are not limited to difficulties impacting the global economy and financial markets, slowing in capital market activity, significant declines in market values, and the risks associated with the uncertainty involved in the operations of each individual company profiled. Analyst Certification: Asset Analysis Focus certifies that the views expressed in this report accurately reflect the personal views of our analysts about the subject securities and issuers mentioned. We also certify that no part of our analysts’ compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this report.

Documents

ASSET ANALYSIS FOCUS · Hanesbrands Inc. HBI $22.42 14 Heckmann Corporation HEK $6.34 15 ... benefited from improved credit quality and reserve release in its credit card portfolio