DeMarche Update on Uses of Cash & Subsequent Returns on Share Prices June 6, 2012 W. Mark Meierhoffer Practice Leader and Senior Consultant Windy City Summit

DeMarche Takeaway Provide an Understanding of the Alternatives Companies Use to Deploy Their Cash and Borrowing Capacity – What Have Been the Total Returns for Each Strategy? 2

DeMarche Topics Covered Overview of DeMarche Associates Update on General Stock Market Environment Study Background and Definitions Study Results General Conclusions 3

DeMarche DeMarche Associates Defined Benefit Plan/Endowment/Foundation Consulting Tactical Asset Allocation Policy Investment Policy Development Investment Manager Selection Performance Measurement Investment Management Global Tactical Asset Allocation Fund Specialty Index Funds Corporate Finance/Investor Relations P/E Valuation and Analysis Dividend Policy Review Treasury Buyback Analysis 4 Products and Services

DeMarche 5 Update on General Market Environment

DeMarche 6 Data as of 3/31/12

DeMarche 7 Source: (Top) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. Price to Book is price divided by book value per share. Data post-1992 include intangibles and are provided by Standard & Poor’s. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next twelve months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next twelve months. PEG Ratio is calculated as NTM P/E divided by NTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next twelve months divided by price. All consensus analyst estimates are provided by FactSet. (Bottom left) Q-Ratio based on data from the Federal Reserve, table B.102. *1Q12 is an estimate provided by J.P. Morgan Asset Management as of 3/31/12. (Bottom right) Standard & Poor’s, Moody’s, FactSet, J.P. Morgan Asset Management. Data are as of 3/31/12.

DeMarche 8 Source: (Top left) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. (Top right) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. Earnings estimates are for calendar years and taken at quarter end dates throughout the year. (Bottom) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. Data are as of 3/31/12.

DeMarche 9 The Genesis of DeMarche Research Absence of Academic or Practitioner Studies –Long-term Time Frame –Multi-Cap & Style Differentiated –Multiple Use of Cash Strategies –Segregated by Economic Sector & Industry

DeMarche 10 Uses of Cash Study Definitions and Background Date of Study: 1990 – 2011 (22 years) 4,000+ Stocks Subsequent Annualized Returns Analyzed (For 1, 3, and 5 Years) Minimum Liquidity Requirement

DeMarche Uses of Cash Study METRICS: Distributing to Shareholders 1.Dividend Policy (Primarily Increases) 2.Stock Buybacks (Average Annual Repurchases Over Past 5 Years) 11

DeMarche 12 METRICS: Reinvesting in the Business 3. Mergers and Acquisitions (M&A) (Cash M&A / Assets Over Past 5 Years) 4.Research and Development (R&D) (Total 5-Year R&D / Total Sales) 5. Capital Expenditures (CapEx) (Total 5-Year CapEx / Assets) Uses of Cash Study

DeMarche 13 Uses of Cash Study Other Metrics Included Does Leverage Deter Returns? What about P/E? Does Free Cash Flow Matter?

DeMarche 14 Uses of Cash Study Cap Size Ranges Large Cap: ≥ $20 Billion $2 Billion ≤ Mid Cap < $20 Billion $600 Million ≤ Small < $2 Billion Micro: < $600 Million

DeMarche Uses of Cash Study Number of Observations by Cap Size Large-Cap3,400 Mid-Cap15,500 Small-Cap16,500 Micro-Cap36,200 TOTAL71,600 15

DeMarche 16 DeMarche Style Factors

DeMarche Study Findings

DeMarche 18 Total Universe of Stocks6.68% Large Cap Stocks7.61% Mid Cap Stocks8.15% Small Cap Stocks7.68% Micro Cap Stocks5.16% Value Stocks7.50% Growth Stocks5.80% Review of Total Returns by Cap Size & Style Three-Year Annualized Returns ( )

DeMarche All Stocks Uses of Cash Return Rankings 19  USES OF CASH  RETURN RANKS  1-Year3-Year5-Year Dividend Increases111 Buybacks222 M&A333 CAPEX455 R&D544

DeMarche 20 12% 10% 8% 6% 4% 2% 0% Cap Ex R & D Dividend Increases BuybacksM & A 8.30 * Median 3-Year Return For All Stocks: 6.68% All Stocks Three-Year Annualized Return Spreads (1990 – 2011)

DeMarche 21 “Drill-Down” on Buybacks By Cap Size & Style By Sector Effect of Leverage on Buyback Programs

DeMarche (est)$437 bb 2010 $299 bb 2009$260 bb Source: Standard and Poor's Share Buyback Background

DeMarche Treasury Stock Buybacks by Cap Size and Style Three-Year Annualized Returns ( ) CompaniesPremium (Discount) By Sizewith BuybacksAll Stocksto Index Returns All Stocks6.73 %6.68 %0.05 % 23

DeMarche 24 Treasury Stock Buybacks by Cap Size and Style Three-Year Annualized Returns ( ) CompaniesCap SizePremium (Discount) By Sizewith BuybacksIndexto Index Returns Large CAP Mid CAP Small CAP Micro CAP

DeMarche 25 Treasury Stock Buybacks by Cap Size and Style Three-Year Annualized Returns ( ) CompaniesPremium (Discount) By Sizewith BuybacksStyle Indexto Index Returns Growth5.96 %5.80 %0.16 % Value

DeMarche 26 Stock Buybacks Three-Year Annualized Return (10 Economic Sectors) Information Technology Consumer Discretionary Materials Health Care Industrials Consumer Staples Telecommunication Services Energy Utilities Financials 10.08%10.25% 9.90%10.12% 8.90% 9.94% 8.11% 7.11% 8.04% 7.88% 7.59%7.25% 6.90%4.72% 6.41% 5.91% 4.53% 4.20% 3.12% 2.23% 6.73% - 3 Year Returns All Stocks with Repurchases * Median 3-Year Return For All Stocks: 6.68% Premium Discount Withto BuybacksSectorSector Returns

DeMarche 27 * Median 3-Year Return For All Stocks: 6.68% Largest Buybacks

DeMarche 28 “Drill-Down” on Dividends By Cap Size & Investment Style By Sector Stratify by P/E Summary of Various Dividend Strategies

DeMarche , , , Dividend Background Source: Standard and Poor's InitiationsTerminations & Increases& Decreases

DeMarche 30 Dividend Increases by Cap Size and Style Three-Year Annualized Returns ( ) IncreasingStableDecreasing DividendsDividendsDividends Median8.30%6.89%7.64% Returns Median 3-Year Return for All Stocks – 6.68%

DeMarche Dividend Increases by Cap Size and Style Three-Year Annualized Returns ( ) Companies withPremium (Discount) By SizeDividend IncreasesAll Stocksto Index Returns All Stocks8.30 %6.68 %1.62 % 31

DeMarche Dividend Increases by Cap Size and Style Three-Year Annualized Returns ( ) Companies withCap SizePremium (Discount) By SizeDividend IncreasesIndexto Index Returns Large CAP8.38 %7.61 %1.24 % Mid CAP Small CAP Micro CAP

DeMarche Dividend Increases by Cap Size and Style Three-Year Annualized Returns ( ) Companies withCap SizePremium (Discount) By SizeDividend IncreasesIndexto Index Returns Growth8.55 %5.80 %2.75 % Value

DeMarche 34 12% 10% 8% 6% 4% 2% 0% 0 – 10% 11 – 25%> 25% * Median 3-Year Return For All Stocks: 6.68% Level of Dividend Increases Three-Year Annualized Returns (1990 – 2011) 8.25% 8.47% 8.31%

DeMarche 35 Dividend Increases (By Economic Sector) Three-Year Annualized Return (10 Sectors) Consumer Discretionary Information Technology Materials All Stocks (w/Dividend Increases) Consumer Staples Industrials Telecommunication Services Health Care Utilities Financials Energy 12.07%9.94% 10.74%10.25% 10.22%10.12% 9.67%4.72% 8.82%7.11% 8.62%7.25% 8.20%7.88% 7.30%5.91% 5.71%2.23% 5.55%4.20% 8.30% WithPremium (Discount) Dividendto IncreasesSectorSector Returns * Median 3-Year Return For All Stocks: 6.68%

DeMarche 36 Does Free Cash Flow Make a Difference? Free Cash Flow

DeMarche 37 * Median 3-Year Return For All Stocks: 6.68%

DeMarche 38 Does Debt Matter?

DeMarche 39 * Median 3-Year Return For All Stocks: 6.68%

DeMarche 40 Conclusions In General (When Ranking 4,000+ Stocks) Increasing dividends is the best use of cash Maintaining dividends is the second best use of cash Buybacks are the third best use of cash M&A in number four spot CapEx and R/D rank in the bottom

DeMarche 41 Conclusions Returns depend upon Company’s “DNA” –Mid-Cap:Best Performer by size –Value:Best Performer by style –Dividend increases had largest positive effect on Growth Stocks and Micro-Cap Stocks –Buybacks had largest positive effect on Growth Stocks and Large-Cap Stocks

DeMarche 42 Conclusions Higher Free Cash Flow equates to better total returns Higher Leverage does not appear to negatively impact returns We are not advocating one use of cash strategy over any other - Need to balance between reinvesting in the business and rewarding shareholders

DeMarche 43 DeMarche Associates