GEARS Global Equity Analytics & Research Service, L.L.C. Global Equity Analytics & Research Service, L.L.C.

Share Price is highly correlated with Comparable Fundamentals Share Price is highly correlated with Comparable Fundamentals

Share Price is 75% correlated with sales growth.

Share Price is 74% correlated with the operating margin. (EBITDA)

Acquisitions cause frequent distortions in the as-reported accounting record.

How to distinguish Fundamentals Change from Structural Change in Corporate Financial Statements How to distinguish Fundamentals Change from Structural Change in Corporate Financial Statements Measures change in the total company including M&A Measures change in fundamentals - produces comparable delta for each period Measures change in fundamentals - produces comparable delta for each period Comparable Revenue (for prior period): As reported Revenue: $ in thousands $525 $3262 $2737 Measures change in the structure of the company $ Q2 $3779 $ Q3 $3992 $ Q1 $4315 $ Q2 $7041 $ Q4 $4051

Building the Strictly Comparable Dynamic DuPont Model Building the Strictly Comparable Dynamic DuPont Model 2001 Q2 – comparable delta for 2001 Q1 = annual comparable DuPont Model for trailing year 2001 Q Q3 – comparable delta for 2001 Q2 = annual comparable DuPont Model for trailing year 2001 Q Q4 – comparable delta for 2001 Q3 = annual comparable DuPont Model for trailing year 2001 Q Q4DuPont Model from most Recent Annual Financial Statement 2001 Q4 + comparable delta for 2002 Q1 = annual comparable DuPont Model for trailing year 2002 Q Q1 + comparable delta for 2002 Q2 = annual comparable DuPont Model for trailing year 2002 Q2

GEARS comparable data produces an accurate measure of changing fundamentals and higher correlation with share price. GEARS

Number of Russell 1000 Companies with Long-Term Share Price Correlation of 60% or Greater Accounting Data – As Reported Accounting Data - Comparable Gross Margin EBITD Margin Revenue Growth Taxes Inventory Turns Receivables Free Cash Flow In every fundamental metric, correlation improves with comparable data

Like the new lens on the Hubble Telescope, the picture becomes clearer. Accounting Data-As Reported 477 Accounting Data-Comparable GEARS Number of Russell 1000 Companies With Long-term Share Price Correlation of _____________ With at Least One DuPont Model Variable 60% or Greater

Number of Russell 1000 Companies With Long-term Share Price Correlation of _____________ With at Least One DuPont Model Variable Accounting Data-As Reported Accounting Data-Comparable GEARS Like the new lens on the Hubble Telescope, the picture becomes clearer. 80% or Greater

Pfizer Fundamentals Peak Gross Margin high Gross Margin high Lower Sales Growth Lower Sales Growth Higher Receivables Higher Receivables SG&A Expenses low & up SG&A Expenses low & up EBITDA Margin down EBITDA Margin down Free Cash Flow Margin down Free Cash Flow Margin down Gross Margin high Gross Margin high Lower Sales Growth Lower Sales Growth Higher Receivables Higher Receivables SG&A Expenses low & up SG&A Expenses low & up EBITDA Margin down EBITDA Margin down Free Cash Flow Margin down Free Cash Flow Margin down

Pfizer First evidence of: Gross Margin up Gross Margin up Inventories down Inventories down Sales Growth low & up Sales Growth low & up Receivables down Receivables down SG&A Expenses high SG&A Expenses high Fundamentals Trough

Gross Margin high Gross Margin high Lower Sales Growth Lower Sales Growth Higher Receivables Higher Receivables SG&A Expenses low & up SG&A Expenses low & up EBITDA Margin down EBITDA Margin down Free Cash Flow Margin down Free Cash Flow Margin down Gross Margin high Gross Margin high Lower Sales Growth Lower Sales Growth Higher Receivables Higher Receivables SG&A Expenses low & up SG&A Expenses low & up EBITDA Margin down EBITDA Margin down Free Cash Flow Margin down Free Cash Flow Margin down Pfizer CurrentFundamentalsPeak

Intel First evidence of: Gross Margin low & up Gross Margin low & up Inventories down Inventories down Sales Growth low & up Sales Growth low & up Receivables down Receivables down SG&A Expenses high SG&A Expenses high EBITDA Margin low & up EBITDA Margin low & up Fundamentals Trough

Intel First evidence of: Gross Margin high & down Gross Margin high & down Inventories up Inventories up Sales Growth high & down Sales Growth high & down SG&A Expenses low SG&A Expenses low EBITDA Margin high & down EBITDA Margin high & down First evidence of: Gross Margin high & down Gross Margin high & down Inventories up Inventories up Sales Growth high & down Sales Growth high & down SG&A Expenses low SG&A Expenses low EBITDA Margin high & down EBITDA Margin high & down Fundamentals Peak

Intel Gross margin up Gross margin up Higher sales growth Higher sales growth High SG&A expenses High SG&A expenses EBITDA margin up EBITDA margin up Free cash flow margin up Free cash flow margin up CurrentFundamentalsTrough

Intel Strong top line Strong top line SG&A expenses down SG&A expenses down Net CapX down Net CapX down Investing Cycle Peak

Intel Strong top line Strong top line SG&A expenses high SG&A expenses high Net CapX down Net CapX down Investing Cycle Peak

Worldcom Strong top line Strong top line SG&A expenses down SG&A expenses down Net CapX down Net CapX down Investing Cycle Peak

Sales growth low & down Sales growth low & down Receivables up Receivables up SG&A expenses low & up SG&A expenses low & up EBITDA margin down EBITDA margin down Worldcom Investing Cycle Peak Investing cycle peak

sales growth down sales growth down Receivables up Receivables up Gross margin falling Gross margin falling Lower SG&A producing stronger bottom line Lower SG&A producing stronger bottom line Schering Deteriorating earnings quality

Schering Gross margin down Gross margin down Low Sales growth Low Sales growth Higher receivables Higher receivables SG&A expenses low & up SG&A expenses low & up EBITDA Margin down EBITDA Margin down Free cash flow margin down Free cash flow margin down Current Falling Earnings Growth

Sales growth low and down Sales growth low and down Falling gross margin Falling gross margin Lower SG&A producing stronger bottom line Lower SG&A producing stronger bottom line Microsoft Current Deteriorating earnings quality

Dow Jones Index Reliable and comparable micro data allows for reliable and comparable macro data.

Sales growth tells a timing story. Dow Jones Index

Margins tell a direction story. Dow Jones Index

Index Share Price Correlation With Macro Fundamental Factors Dow Jones US Total Market Index Gross Margin 6278 EBITD Margin 2655 Revenue Growth Last twenty years-as reported Last twenty years-comparable since first quarter 1999 Using comparable data makes the macro picture clearer.

GEARS Products in Development Consistently Defined, strictly comparable, time- series composite variables are customized to power: The DuPont Model The DuPont Model Earnings Quality Models Earnings Quality Models Discounted Cash Flow Models Discounted Cash Flow Models Investment Valued Added Models Investment Valued Added Models Financial Condition Models Financial Condition Models Data-to-Text document creation software Macro Corporate accounting data and associated analysis in text

Analyst’s Forecasting Spreadsheet GEARS 5 years of consistently defined, strictly comparable, quarterly data points For DuPont Model Variables Revenue Growth Revenue Growth Gross Margin Gross Margin SG&A Expenses SG&A Expenses Interest Expense Interest Expense Taxes Taxes Asset Turnover Asset Turnover Assets/Equity Assets/Equity Return On Common Equity Return On Common Equity Earnings per share Earnings per share Receivables Receivables Inventories Inventories Correlations with share price Correlations with share price Inter variable correlations Inter variable correlations Summary Statistics Summary Statistics Pattern based Forecast Pattern based Forecast

The macro interpolates the intervening quarters and calculates quarterly ROE, EPS and long term growth rates. The macro interpolates the intervening quarters and calculates quarterly ROE, EPS and long term growth rates. GEARS Forecasting Macro Allows an analyst to make two-point estimates for revenue growth and EBITDA margins. Allows an analyst to make two-point estimates for revenue growth and EBITDA margins.

GEARS Global Equity Analytics & Research Service, L.L.C. Global Equity Analytics & Research Service, L.L.C.