4th Quarter, 2006

The mostly good, and in several instances excellent, fourth quarter earnings reported by your companies confirms that even managers with proven skills in implementing plans are experiencing greater difficulty maintaining their companies’ growth rates. The companies best equipped to prosper at this stage of our economic expansion, which is not fragile, are those whose managers are accustomed to clearly explaining to those responsible for performing the work how achieving regularly measurable objectives is recognized as a contribution toward realizing the company’s overall goals. Businesses managed in this straightforward way offer the best rewards and greatest safety when growth becomes harder.

The seven-month uninterrupted rise in US stock prices abruptly ended on February 27, with an intraday decline of over 500 points in the Dow Jones Industrial Average. News accounts of the sell off compared the drop to past declines of far greater magnitude. Commentators frequently predicted dire consequences from a spate of further selling. The 4% loss on the day is important because it ruined the chart patterns for many stocks, including some of the market leaders and those in leading market sectors. Traders had gained confidence in using charts, often called technical analysis, to predict the next price moves during the long upturn. The reliance on these tools was reinforced by availability on trading desks of computerized charts and instant analytics. The presumption underlying these forms of computer analyses of price patterns is the old trader’s rule: “the trend is your friend” and that appears interrupted even though the 10% decline that technicians designate a “bull market correction” has yet to arrive. The decline in the S&P since selling in Shanghai supposedly ignited the sell-off here is nothing when measured against the stock market decline in August 1998 triggered by the Long Term Capital Management debacle or the Crash in 1987, neither of which had lasting consequences for long-term investors holding shares of sound companies.

State Street Corporation

State Street’s good fourth quarter earnings of 86¢ per share, 16% higher than last year’s quarter, were soon eclipsed by the company’s February 5th announcement of its agreement to buy Investors Financial Services in exchange for 62 million State Street shares. Investors, with assets under custody of $2.2 trillion, is headquartered in Boston. At year-end, State Street’s assets under custody exceeded $11.8 trillion. State Street’s management, whose attention to costs delivered operating leverage for the ninth consecutive quarter, knows Investors operations and many of its personnel well. It characterizes the operating tasks following the acquisition as a consolidation, not an integration. The acquisition will strengthen State Street’s position as the leading mutual fund custodian and fund administrator. After the closing, it will provide custody for 38% of industry assets and administrative services for 85% of these fund customers. More importantly, the acquisition makes State Street the leading hedge fund administrator, serving funds managing nearly a quarter of the industry’s $1.4 trillion assets. Investors also brings proven competence in serving $60 billion of private equity fund assets, a growing business State Street has not entered.

Investors elected to sell because expense growth over the past three years has surpassed its enviable 18% annualized revenue growth and it faced even more daunting cost escalations to serve its customers’ planned expansions in Europe where State Street is the leading custodian. In 2006, State Street derived 39% of its revenues and 51% of operating profits from servicing non-US assets. Its more profitable international business is growing at two and a half times the rate of its domestic business. Investors services only 10% of the assets of its 500 biggest customers, which include 12 of the largest global investment advisers. In its announcement, State Street’s management forecast that the acquisition would reduce projected 2007 earnings by 14¢ to $3.70 per share and estimated no impetus to earnings from the acquisition until 2009. As part of its due diligence, State Street conferred with Investors’ large customers to determine their inclination to stay and their interest in turning to State Street to further their expansion in Europe. We think the opportunity for State Street to secure additional international business from Investors’ customers will enable earnings to grow sooner and faster than the company’s published estimates. Through March 14, State Street’s stock price is down 6%. Half the decline relates directly to worries about bank exposure to sub-prime mortgages. State Street has none. The comparable return for the S&P 500 is -2.2%.

Express Scripts, Inc.

Express Scripts’ disciplined management of its proxy fight for Caremark Rx has bolstered investor confidence in both the management and in the long-term outlook for the pharmacy benefit management business. Express Scripts’ stock price is up 13% since the beginning of the year and has leapt 35% from its low of $59.99 on November 1, the day CVS and Caremark announced their “merger of equals.” CVS has raised its offer for Caremark three times since Express Scripts launched its unsolicited bid on December 18. Express Scripts’ stock price rose 4.6% on March 12 when the company announced that it would not raise its bid for Caremark without performing due diligence. Caremark announced today that its shareholders have approved its deal with CVS. We expect Express Scripts to begin repurchasing $1 billion of its shares promptly.

Express Scripts reported record fourth quarter and 2006 earnings per share of $1.02 and $3.29, 32% and 27% increases over the same periods a year ago. Fourth quarter gross profit per claim rose 26% to $3.19, while EBITDA per claim rose 35% to $2.06. Generic utilization reached 59.7% in the quarter and 57.6% for the year. The formulary program to increase the use of generic statins saved Express Scripts’ clients $100 million in 2006.

Chicago Mercantile Exchange

During the fourth quarter, average daily volume of futures and options traded at the Chicago Mercantile Exchange rose 29% to 5.3 million contracts with 75% executed electronically. Revenues and earnings increased 26% and 34% respectively to $281 million and $2.91 per share. For the full year revenues and earnings rose 22% and 32% respectively to $1.1 billion and $11.60 per share. More than 1.3 billion contracts traded during 2006, up 28% representing $824 trillion underlying value. For the year volume growth was 25% or more in each of CME’s product lines. The volume of NYMEX energy contracts executed on CME Globex averaged 370,000 in the fourth quarter, more than double the third quarter level. In the first two months of 2007 NYMEX on Globex volumes surged to 595,000 contracts per day.

CME will launch FX MarketSpace during the next month. FX MarketSpace, a joint venture with Reuters, brings transparency, anonymity and central counterparty clearing to the $2 trillion a day over the counter foreign exchange market. $4.7 million in start-up costs were expensed during the fourth quarter. CME shares are up 10% through March 14.

Automatic Data Processing

The spin-off of ADP’s Brokerage services group is scheduled to occur on March 30. The new company has been renamed Broadridge Financial Solutions, Inc. ADP shareholders of record on March 23 will receive one share of Broadridge for every four shares of ADP. The Brokerage business reported fourth quarter revenues of $404 million, up 10%, and operating profit of $57 million, up 4%.

ADP’s fiscal second quarter revenues rose 14% to $2.3 billion and its earnings rose 16% to 51¢ per share. The Employer Services division contributed the bulk of the year over year growth as basic payroll revenues increased 9% and add-on services such as benefits administration rose 19%. New business sales increased 11% in the US and 13% worldwide. These bookings will generate incremental revenues during the next year. Growth in the number of employees on each client’s payroll decelerated slightly to 1.7%, from 2.5% in the third quarter. Management noted some re-acceleration to 2.0% in January. The average tax filing float balance exceeded $13 billion, up 9%. ADP’s Dealer Services business, which is being retained, reported revenue and profit growth of 19% and 22% respectively. During the quarter, ADP repurchased 5.1 million of its shares for $245 million, bringing the year-to-date total to 18.1 million shares at a cost of $855 million, an average per share price $47. ADP shares are down 2% since January 1.

C.H. Robinson Worldwide Inc.

CH Robinson’s fourth quarter gross profits and earnings rose 18% and 24% respectively to $278.5 million and 41¢ per share. These strong results came despite a slowdown in growth of the total value of transportation services provided to $1.6 billion, up 4% from a year ago. Lower overall pricing and a year over year decline in fuel prices together accounted for a reduction of about 5%. During the quarter, the truck gross profit margin expanded as market demand for trucking capacity slowed. This is what is supposed to happen. Robinson’s management continued to execute and demonstrate the value of their business model. Robinson’s sourcing, global forwarding and transaction services businesses rose 7%, 21% and 7% respectively. In December Robinson established a presence in India through the acquisition of Triune, a third party logistics provider with 160 employees in 19 branch offices. For the full year 2006, Robinson’s gross profits and earnings rose 23% and 32% respectively to $1.1 billion and $1.53. The total value of transportation services provided rose 15% to $6.5 billion. Robinson’s stock leapt on the report and are up 15% year-to-date.

Donaldson Company, Inc.

Donaldson’s fiscal second quarter results exceeded their good fiscal first quarter as revenues and earnings per share rose 18% and 19% respectively. During the quarter Engine Products’ sales and profit increased 12% and 11% respectively. US sales were up 4% while international sales rose 22%. After-market products sales growth of 16% was twice as strong as sales to off-road and on-highway original equipment manufacturers. Industrial Product sales and earnings growth were 27% and 31% respectively. Notably, gas turbine filter sales rose 53%. Donaldson’s strong results reflect healthy demand in non-residential construction, oil and gas and mining end markets along with continued high equipment utilization levels. Sales to Europe and Asia were particularly strong. During the first half of Donaldson’s fiscal year, the company repurchased 1.8 million shares at an average price of $34 per share. Donaldson shares are up 2% year-to-date.


Amdocs’ stock price fell 10% on January 11 when the company reduced its 2007 earnings and revenue forecasts by 2% because several major projects with their Tier 1 telecom customers are moving forward more slowly than expected. Amdocs’ backlog increased 2% during the quarter, confirming slightly slower growth rather than any loss of business to competitors. Projects with AT&T, for example, have been slowed by delays in closing its BellSouth acquisition. These large companies remain highly satisfied with Amdocs’ software and services. The migration of Sprint’s 26 million subscribers to the Amdocs’ managed SprintNextel billing platform remains on track. The success of this project has increased the company’s chances of winning significant new business from SprintNextel in the future.

Amdocs reported decent fiscal first quarter 2007 results with revenues of $691 million, up 18% over the same period last year. Earnings per share rose 9% to 39¢ over the same period. Operating margins were impacted by the first full quarter of Cramer whose margins as a stand alone business were lower than Amdocs’. The company continues to win new business with 13 wins during the quarter. These wins included decisions by existing customers in Asia and Europe to upgrade to Amdocs 7, the company’s recently launched software platform that integrates new capabilities such as support for broadband billing, network and digital content management. Amdocs operating support systems (OSS) business which includes Cramer, reported deals with several new customers as well. In spite of a good long-term outlook, Amdocs’ stock price has declined 10% since the beginning of the year.

NeuStar, Inc.

NeuStar’s fourth quarter revenues and earnings rose 45% and 33% respectively. Revenues and earnings for 2006 increased 37% and 31% respectively to $333 million and 94¢ per share. Transactions under its contracts to provide telephone number portability services in the US totaled 62.2 million in the fourth quarter, up 39%, and 234.4 million for the year, up 37%. During 2006 57% of transactions were from wireless customers while 43% were from wireline, where over a third came from VOIP (voice over internet protocol) customers. Overall 9% of transactions were generated from industry consolidation. Network operators continue to rely on NeuStar’s directories to upgrade their technology architectures to deliver increased functionality to their customers. This long term trend continues to drive transaction based revenues for NeuStar.

During 2006, NeuStar expanded its service offerings through acquisitions of UltraDNS and Followap. UltraDNS expands the company’s domain name services capabilities, generating $15.6 million in revenues since April. Through UltraDNS, NeuStar is involved in efficiently routing 26% of US Internet traffic. Followap, acquired in the fourth quarter, positions NeuStar to benefit from the growth of next generation mobile instant messaging in Europe where Vodafone is its largest customer. Neustar shares have declined 7% year-to-date.

Western Union

Western Union reported fourth quarter revenue of $1.2 billion, up 10%, and earnings per share of 28¢. For 2006, the company reported earnings of $1.19 per share on 12% revenue growth to $4.5 billion. The Western Union agent network reached 295,000 locations at year-end and its global share of the cross-border remittance market grew to 17.4%. During 2006, 85% of the nearly 150 million consumer-to-consumer money transfers involved an agent outside the US. During the fourth quarter money transfer transaction growth was 16% comprised of International transaction growth of 23%, US to Mexico growth of 11% and a decline in domestic transactions of 7%. Consumer-to-business transactions rose 20%. Western Union’s share price has declined 5% since the start of the year.

Johnson & Johnson

Johnson & Johnson reported fourth quarter and full year revenues of $13.7 billion and $53.3 billion, operational increases of 6.2% and 5.3% respectively. Earnings per share rose 15.7% for the quarter to 81¢ and 10.9% for 2006 to $3.76. These figures do not include in-process research and development charges associated with the acquisition of Pfizer Healthcare which closed during the quarter. Fourth quarter revenues for the pharmaceutical business increased 6.6% to $6.0 billion. The Medical Devices and Diagnostics division posted revenues of $5.2 billion, an increase of 4.8%.

J&J’s Consumer division turned in the strongest performance of the three with revenues of $2.5 billion, an increase of 8.2%. The company’s scientific knowledge facilitated the incorporation of natural ingredients into Skin Care and Baby Care products. These product lines delivered quarterly sales growth of 11% and 13% respectively. The acquisition of Pfizer Healthcare adds major brands such as Lubriderm to Skin Care, Neosporin to Wound Care and Desitin to Baby Care. The addition of Listerine makes J&J’s oral care franchise the world’s fourth largest. Pfizer’s science-based product development approach also fits well with J&J’s. This acquisition further balances the company’s portfolio of businesses with 20% of sales from Consumer, 40% from Pharmaceuticals and 40% from Medical Devices and Diagnostics. J&J’s stock price has fallen 8% since the beginning of the year. A new label for Procrit has reduced expectations for growth in new indications for this drug and concern about the long-term safety of drug eluting stents has dampened investor enthusiasm for this well-run company.

Varian Medical Systems, Inc.

Varian Medical Systems reported fiscal first quarter 2007 revenues of $388 million and earnings per share of 37¢, increases of 16% and 23% over the first quarter of 2006. North American Oncology Systems’ orders rose 19% during the quarter as radiation oncology clinics ordered new equipment capable of performing Image Guided Radiation Therapy (IGRT), the most advanced treatment available. At the end of the quarter over 400 installations of the on-board imager were complete or in progress leaving more than 90% of the installed base of radiation sources that can be upgraded or replaced during the next several years. Orders for the Trilogy radiation source constituted about 30% of the orders for high energy radiation sources. Its speed and versatility allow doctors to perform the full range of radiation therapy treatments for cancer patients and offer neurosurgeons a lower cost option for adding radiosurgery to their practices. An oncologist at UC San Diego reported that he treats 45 patients a day with a mix of radiation therapy and radiosurgery. The uptake of IGRT technology is following the classic adoption pattern where North American practices adopt it first, followed by international clinics a few years later. International Oncology Systems orders were down 16% during the quarter because of the timing of government tenders for the equipment and weaker performance in Asia. The company’s stock price is unchanged since January 1.

Walgreen Company

Strong sales of generic drugs and success attracting new pharmacy customers among senior citizens with Medicare Part D drug plans drove Walgreen’s first fiscal quarter revenues up 16.6% to $12.7 billion. Sales in stores open more than one year rose 9.7% with pharmacy sales rising 11.9% and front-end drugstore sales up 5.8%. Earnings per share for the quarter rose an impressive 24.9% to 43¢ over the first fiscal quarter of 2006. Gross margins reached a record 28.3% in the quarter, benefiting from the recent patent expirations of Zocor and Zoloft, a leading anti-depressant drug. Strong working capital management has lifted free cash flow for the last 12 months to almost $1.4 billion after $1.4 billion in capital expenditures to support opening new stores. Walgreen completed its $1 billion share buy back program this quarter, 18 months ahead of schedule. In spite of this strong performance, Walgreen’s stock price is down 3% since the beginning of the year.

Stryker Corporation

Stryker finished 2006 with strong performance from its U.S. Orthopaedics business and its global endoscopy business with net sales up 17% and 27% respectively in the fourth quarter. While U.S. sales of hip implants rose only 5% during the quarter, sales in Stryker’s other four implants businesses posted gains above 20%. Sales of knee implants were up 20% during the quarter and 16% during the year on the continued strength of the Triathlon knee. Market acceptance of the new endoscopy visualization system which includes a camera, enhanced light source and high definition monitor sent U.S. sales up 26% and international sales up 30% during the quarter. These results surpassed Stryker’s high expectations for this product. Weaker performance in the international implants businesses offset some of these gains. Stryker’s fourth quarter sales increased 12.6% to $1.5 billion and earnings per share rose 19.6% to 55¢. 2006 revenues rose 11% to $5.4 billion and earnings per share rose 21% to $2.02. Stryker’s success in delivering 20% earnings per share growth in 2006 and meeting its objectives for growth in its businesses has pushed the share price up 17% since the beginning of the year.

Patterson Companies, Inc.

Patterson Companies reported fiscal third quarter revenues of $709.5 million and earnings per share of 43¢, increases of 4% and 8% over the same period last year. On a comparable basis, excluding Accubite’s telemarketing business which was sold, sales for the quarter rose 6%. Dental sales rose 3% during the quarter with 7% growth in consumables and 13% growth in technical service parts and labor, software support and artificial teeth offset by a slowdown in sales of basic dental equipment. Patterson’s sales force did not sell the extra chair or set of hand pieces to its clients during the quarter. Patterson expects CEREC sales to accelerate during the first half of fiscal 2008 with the launch of new software that simplifies the process to produce crowns. This software will also significantly reduce the time required to train dentists to use the system and should spur sales of this $100,000 system. The veterinary business posted sales of $94.3 million, a 17% increase over the same period last year with strong sales of consumables and robust sales of equipment and the IntraVet practice management software. Patterson Medical delivered organic growth of 8% as the first four branch offices produced incremental revenue. As the selling experience of the 62 new sales representatives increases, Patterson expects Medical’s gross margins to improve as they sell less on price. The opening of a new distribution center in Pennsylvania that services all three businesses will also reduce operating expenses. Patterson’s stock is down 7% since the beginning of the year.

Merck & Company, Inc.

Merck’s fourth quarter and 2006 revenues increased 6% and 3% respectively over the same periods last year despite the patent expiration of its largest selling drug Zocor in June. The company reported earnings per share of 50¢ for the quarter and $2.52 for the year excluding the impact of the Sirna Therapeutics acquisition and restructuring charges. Sales of Merck’s vaccines rose 69% during the year to $1.9 billion led by Gardasil sales of $235 million, Merck’s HPV vaccine that was launched in June. Januvia, Merck’s new diabetes drug, is off to a strong start with sales of $42 million in the quarter. New prescription share among endocrinologists has already surpassed those of two existing classes of diabetes drugs. The company also closed 29 deals during the quarter including the acquisition of Sirna Therapeutics for $1.1 billion in cash. Sirna Therapeutics uses short interfering strands of RNA to determine the effect of silencing specific genes in organisms. Merck performs over 600,000 assays per year on over 22,000 human genes using this technology to identify potential targets for diseases like Alzheimers. The company’s stock price is down 1% since the beginning of the year.

PepsiCo, Inc.

Strong performance of Frito Lay North America and PepsiCo International led to 11% and 13% increases in PepsiCo’s fourth quarter and 2006 earnings per share to 72¢ and $3.00 respectively. These figures are adjusted for one-time tax items and restructuring charges. Revenues for the quarter and the year rose 3% and 7% respectively to $10.8 billion and $35.1 billion. The re-launch of the Doritos brand and double-digit volume growth of Sun Chips helped push net revenues for Frito Lay up 7% and operating profit up 8% during the quarter. PepsiCo now fries Lay’s and Ruffle’s potato chips in 100% sunflower oil which eliminates trans-fats and reduces saturated fat by 50% in these products. PepsiCo International posted broad-based growth during the quarter with core snack and beverage volumes up 10% and 9% respectively. PepsiCo’s portfolio approach cushioned it against weaker performance in the North American beverage business where revenues and operating profits declined slightly. Cooler weather in September and October along with high trade inventories at the end of the third quarter reduced demand for Gatorade during the quarter. Start up costs for a new Gatorade bottling plant also reduced the division’s operating margins. PepsiCo’s stock price is flat since the beginning of the year.

Harte-Hanks, Inc.

Harte-Hanks capped a disappointing year by reporting weak fourth quarter results. Total revenues of $313.2 million during the fourth quarter gained 4.1% while net income declined 4.1%. Earnings per share of 39¢ were one cent higher as share repurchases reduced shares outstanding by 6.8%. The Direct Marketing results improved from the third quarter with revenues up 5.4% and operating income up 9.4%. However, the Shopper profit deterioration accelerated this quarter to a year over year decline of 15.3%, on a meager 1.8% revenue increase. Apparently, management took little, if any, action to rein in operating expenses which declined by just $1 million from the third quarter while revenues dropped $4.8 million. Remarkably, Harte-Hanks shares remain unchanged this year. We took advantage of this opportunity to sell at a good price. We are confident we shall have better opportunities to redeploy the proceeds in shares of good companies at good prices.

Intuit Inc.

Intuit’s fiscal second quarter revenues rose 3% to $763 million while earnings declined 6% to 45¢ per share. The results reflected expected shifts in the timing of Quickbooks and ProTax product launches which moved about $45 million in revenue from the second quarter to the first and third quarters compared to a year ago. At the end of the quarter deferred revenue stood at $295 million, 15% higher than a year ago. Payroll and Payments revenues rose 15% to $138 million while Consumer Tax revenues increased 18% to $226 million. The strong growth in Consumer Tax comes despite a shift by many consumers to file later in the season using Turbo Tax Online. Intuit used $205 million to repurchase 6.7 million shares during the quarter at an average price of $31 per share.

On February 6, Intuit completed its acquisition of Digital Insight, a leading provider of online banking and bill payment services for $1.33 billion in cash. The combined companies will serve 25 million consumers, 5,000 financial institutions and 7 million small businesses. Inexplicably, Intuit’s stock price has fallen 8% this year. We find little solace in noting that competitors H&R Block and Microsoft are down 8% and 9% respectively.

Rockwell Automation

Rockwell Automation’s fiscal first quarter earnings were 80¢ per share without including earnings from its Power Systems Division, which it sold to Baldor Electric for $1.8 billion on January 31. Removing the Power Systems sales and profits from the calculation of earnings for quarterly comparison with last year’s results yields a 17.6% year to year earnings increase on 7% higher sales. The percentage gains are higher if Power Systems results are included. In discussing the quarterly results management expressed dissatisfaction with a decline in revenue growth to 6% and operating margin slippage of 1 ½% to 27% in its Architecture and Software division, its most profitable and fastest growing business. Architecture in the division’s name refers to the bridges Rockwell builds to link the information on its automation systems to the other information systems customers use to run their businesses. This is a distinct differentiating advantage. Management’s comments focused on the need to sustain realization of 4% annual productivity improvements to maintain operating margins while expensing the costs of software modifications to accommodate specific industry applications. It also stated that it has dispatched proven sales managers to train its Chinese sales force to sell solutions to customers. Sales in China slipped to below 5% growth during the quarter, as automation systems ordered by multinationals and readily identifiable local customers became operational. Rockwell’s business in Europe, Latin America and for oil and gas customers worldwide is robust. Sales in the US to customers other than the moribund automotive sector rose more than 5%. Rockwell’s stock is down 1% this year, which is unsurprising since uncertainties occasioned by a thoroughly explained sale for a profitable business comprising over 15% of any company arouses more fears than it allays. On February 7, Rockwell’s Board authorized the re-purchase of $1 billion of the company’s shares. When completed, it will reduce the shares outstanding by 9%.

EnCana Corp

EnCana reported fourth quarter earnings of 84¢ per share, 6% below the 89¢ it earned in the quarter a year ago, when despite losses incurred on contracts intended to hedge natural gas price fluctuations, it realized a windfall from higher natural gas prices caused by hurricane interruptions of gas deliveries from wells in the Gulf of Mexico. Gas sales volumes rose 3% during the quarter, as planned. A 13% increase in operating costs, half the increase earlier in the year, indicated that efforts to contain costs were beginning to yield results although the full realization will not occur until later this year when EnCana’s drilling contractors receive delivery of automated fit-for-purpose rigs. During 2006, EnCana replaced 152% of its natural gas production by reserve additions. Consummation in January of its oil sands-heavy oil refining joint venture with Conoco Phillips transfers 35% of EnCana’s proved oil reserves to the joint venture, which is forecast to contribute $550 million of pre-tax cash flow net to EnCana’s interest this year. Since December, when EnCana’s stock price dropped to the mid-40’s following release of the details of its joint venture with Conoco, its stock has traded in a narrow range above 44. It’s up 2% this year.


Exxon Mobil’s fourth quarter earnings of $1.69 per share is precisely the same per share earnings number reported for all of 2002! This simple comparison is remarkable evidence of Exxon’s ability to increase shareholder returns during a period when its business benefited from a tripling of oil prices. The company, however, used half its free cash flow during the four year period to retire 15% of its outstanding shares and increase its quarterly dividend by 40%, while adding 3% annually to its proven reserves. This year its stock price has fallen 7%, slightly less than the price declines registered by other major international oil company stocks.

At its March analyst meeting, Exxon discussed its equal participation with Saudi owned Aramco, Petro China, and Fujian Province in the ownership of the first refining and petrochemical complex containing foreign ownership approved by the People’s Republic of China. When completed, it will process 240,000 barrels of crude oil a day through a fully integrated refining and chemical complex. Exxon, the world’s largest refiner, with 40 refineries worldwide has integrated 90% of its petrochemical capacity with its refineries, making it the technical leader and low cost producer. It consistently earns the industry’s highest return on invested capital. We point to this joint venture in a prosaic but intensively technical business, because we think in a world where expropriation of resource-based investments is increasingly commonplace, a proven ability to plan and efficiently implement engineering based processes is an increasingly important profit-generating asset for multinational corporations. Know-how and a determination to find solutions to daunting technical problems differentiates Exxon from its competitors and from every national oil company.

Client portfolio holdings may change, and stocks of companies noted may or may not be held by one or more client portfolios from time to time. Investors should not consider references to individual securities as an endorsement or recommendation to purchase or sell such securities. Transactions in such securities may be made which seemingly contradict the references to them for a variety of reasons, including but not limited to, liquidity to meet redemptions or overall client portfolio rebalancing. Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate.