EARNINGS REPORT

2nd Quarter, 2011

The second quarter earnings of all the companies you own were good and, in several instances, surpassed the gains achieved during the first quarter. The ability of your companies’ managers to sustain the improved operating cash flow margins attained after revenues recovered from the abrupt drop experienced during the recession proves that the prudent managerial controls they put in practice then are paying off. None of your companies’ managers expected an improving economy would help them achieve their goals. None expect any improvement soon but that is not deterring any from investing cautiously to lower costs by sometimes moving to lower cost jurisdictions or improving management of inventories, customer communication and deliveries. Many are profiting from investing in their information systems and introductions of complementary or additive products or services. Several companies have expanded their product or service offerings through acquisitions of businesses that the owners are willing to sell at a reasonable valuation after their higher hopes were dashed during the downturn. Opportunities of this sort are likely to persist for a while. A few of your companies have taken advantage of historically low interest rates to issue debt to finance acquisitions or buy back stock. None of your companies are highly leveraged. Over half your companies repurchased stock during the quarter which had no discernible effect on their stock price. During the most recent stock market decline from the beginning of July onward, your stocks collectively declined slightly more than the 10% drop recorded by the S&P. Since the beginning of the year, the S&P 500 has declined 4%. We have begun strengthening your portfolios by cutting some positions to provide funds for purchase of the stocks of companies we know well which have come down to our valuation.

C.H. Robinson Worldwide Inc.

CH Robinson’s quarterly net revenues of $417.9 million rose 15% while total revenues, which includes the cost of third party transportation, rose 10% to $2.7 billion. Earnings of 67¢ per share rose 14% from the same period a year earlier. Despite these strong results, Robinson’s stock price is down 13% from the beginning of the year. The company’s core trucking business delivered net revenue growth of 21% to $314.3 million after gaining a similar amount in the previous quarter. Truckload volumes increased just 3.5%, less than half the pace in the previous quarter. This volume, however, came with a 6% increase in prices passed through to customers, excluding fuel cost adjustments, while Robinson’s cost to secure the trucks increased just 4%. In addition, LTL (less-than-truckload) revenues rose 28% on a 14% increase in shipments. Robinson’s net revenues from Intermodal, Ocean and Air rose 15%, 13% and 2% while Sourcing fresh fruits and vegetables declined 14%. Wal-Mart’s transition to in-house sourcing for certain fruits and vegetables reduced volumes and hurt margins.

Robinson spends more than $50 million a year on information technology and has developed internally its core operating systems. Its new $20 million data center supports its global network and enables its branch office employees to more readily provide shippers with a range of transportation choices. This results in shippers relying more upon Robinson for their trucking needs. This ongoing investment differentiates Robinson and expands its competitive advantage. During the past 10 years, its compound annual growth of net revenues and per share earnings were 13% and 19% respectively.

Donaldson Inc.

Donaldson’s fiscal fourth quarter and full year sales rose 21% to $625 million and 22% to $2.3 billion respectively from the same periods a year ago. Earnings of 84¢ per share and $2.87 per share rose 29% and 37% respectively from the same periods a year ago. Foreign currency translation provided a benefit of $40.3 million or 2.8% of sales growth for the quarter and $49.8 million or 2.7% for the fiscal year. The benefit to earnings was $4.0 million or nearly 7.7% for the quarter and $6.1 million or 3.6% for the year. Excellent execution of the company’s growth strategy was visible across its business units. Engine filter sales of $398 million rose 26% during the fiscal fourth quarter. Sales to original equipment manufacturers of off-road equipment and on-highway trucks rose 35% and 59% respectively. The strong growth in the first fit business comes from higher customer build rates and greater market share for new Tier IV off road engine platforms which meet more stringent emission standards required by the EPA. Replacement filter growth of 20% remains strong as a result of high equipment utilization, investments in distribution in emerging markets and more proprietary PowerCore filtration equipment in use in the field requiring a Donaldson replacement filter. Industrial filters sales of $139 million rose 23% during the fiscal fourth quarter on strong demand for new filtration systems and replacement filters. Gas turbine filters declined 3% during the quarter while disk drive and membrane sales rose 10%. Donaldson’s stock price remains unchanged since the beginning of the year.

SGS

SGS’ first half revenues of 2.3 billion Swiss francs rose 13% from the prior year on a constant currency basis. Three-quarters of the growth was organic while one-quarter represents the contribution during the period from the nine small acquisitions completed. On a reported basis revenues were flat with a year ago as a result of the strong Swiss franc. Earnings per share rose 5.3% on a constant currency basis and declined 9% on a reported basis due to currency translation. Each of the company’s ten business units generated organic revenue growth in local currencies. The Minerals businesses generated the strongest organic revenue growth of 24%. Its metallurgical and geochemical testing facilities are now operating near full capacity and lab expansions are underway to meet customer demand. Three new on-site labs were opened during the period with an additional eight slated to open before year-end. Its Environmental, Industrial and Consumer Testing businesses generated organic local currency sales growth of 15%, 11% and 8% respectively. By geography, organic local currency growth was 7% in Europe, Africa and Middle East, 11% in Asia/Pacific and 15% in the Americas. SGS ADR price is down 1% since the beginning of the year.

Mettler-Toledo International Inc.

Mettler-Toledo reported second quarter sales of $561.1 million, 11% growth in local currencies over the same period a year ago. A weak U.S. dollar and a high Swiss franc/Euro exchange rate contributed an additional 9% growth to revenues. Earnings rose 25% to $1.87 per share. Revenues rose 9% in the Americas and Europe and 17% in Asia. Industrial sales rose 21% with strong growth from all product lines and geographies. The core business, industrial weighing solutions, continues to benefit from new plant openings and expansions in emerging markets. Industrial facilities in the U.S. and Europe are also purchasing systems at 2008 pre-crisis levels. Mettler-Toledo’s gross margin rose 0.2% to 52.8%. Unfavorable exchange rates reduced gross margin by 1.7% and offset most of the improvement from higher prices and operating leverage. The company has realized price increases averaging 1.7% this year by using the Spinnaker system to equip the sales force with information to convince customers of the business value of its products and to monitor any discounts they offer their customers. These tools allow the company to fine tune price increases by identifying the market segments and regions where they have more pricing power and those where they have less. Mettler-Toledo’s stock price is up 3% since the beginning of the year.

CME Group Inc.

CME’s revenues and earnings of $838.3 million and $4.38 per share rose 3% and 7% respectively from the same quarter a year ago. Average daily volume of 13.5 million contracts was flat with the same period a year ago. In July average daily volume of 12.7 million was up 17% from the same period a year ago and in August the year-over-year increase was 46% to 17.1 million contracts. This brings year-to-date average daily contract volume growth to 14%. CME’s stock price, surprisingly, has declined 16% since the beginning of the year as investors and traders sell financial stocks. Investors fear regulatory restrictions constraining customers’ ability to utilize CME’s futures and clearing services. They ignore the strong underlying fundamentals at the CME where average daily volumes have grown at a compound annual growth rate of 15% for 40 years. Open interest, an indication of the number of positions which are rolled over each quarter resulting in recurring revenue, reached an all time high of 103 million contracts in August which also marked the 24th straight month of year-over-year increases.

CME’s continued investment in its core Globex electronic trading platform now enables access from over 150 countries trading nearly 24 hours per day. Transactions which occur outside of U.S. trading hours now comprise 16% of total volume. CME has continued to improve the execution speed while enhancing functionality which enables more customers to access its deep liquidity pools across its diverse product range. CME will launch early next year a co-location service which enables customers to place servers within CME’s data center to ensure the fastest possible execution times. At capacity, this service will generate $100 million in annual recurring highly profitable revenues.

Express Scripts Inc.

On July 21, 2011 Express Scripts announced its plan to acquire Medco Health Systems, one of its largest competitors, for $29.1 billion, $28.80 in cash and 0.81 shares of its stock. Express Scripts competes with 40 pharmacy benefit managers. Seven of them fill more than 150 million prescriptions annually; 12 PBMs serve more than 5 million members each; and at least 10 PBMs serve Fortune 50 companies. United Healthcare’s PBM Optum Rx will become one of Express Scripts’ largest competitors when its membership increases 67% after the addition of 10 million members that Medco managed for the past 10 years. The companies expect the transaction to close in the first half of 2012 in spite of the Federal Trade Commission’s request for more information received on September 2, 2011. There is no break-up fee if the companies do not receive regulatory approval. Express Scripts has a long track-record of successful acquisitions and consulted extensively with the FTC before proceeding with its offer. Express Scripts was willing to pay $26 billion to acquire Caremark, a large competitor ultimately acquired by CVS in 2007. This is a much better deal.

On June 23, Walgreens announced that it was withdrawing from Express Scripts’ pharmacy network on January 1, 2012 because the companies could not agree on new contract terms. Express Scripts always expects intense negotiations with its suppliers and refused to accept the high cost of their services. Walgreens published a white paper describing the benefits of keeping its stores in a plan’s pharmacy network. It also presents four options for Express Scripts’ clients to keep Walgreens in their network. Express Scripts filed a suit against Walgreens in the U.S. District Court for Northern Illinois, Eastern Division on September 7, 2011 to force Walgreens to stop soliciting its customers and their members. Uncertainty about the company’s chances of closing the Medco acquisition along with the distraction of Walgreen’s public campaign to take business from Express Scripts has sent the stock price down 23% since the beginning of the year. Investors have ignored the company’s second quarter earnings per share growth of 18% to 66¢ per share.

Varian Medical Systems Inc.

Varian Medical Systems delivered solid fiscal third quarter results. Revenues and earnings rose 12% over the third quarter of 2010 to $649.4 million and 83¢ per share respectively. Favorable foreign exchange rates contributed 3% to revenue growth. Oncology Systems’ revenues rose 12% to $513 million and orders rose 9% to $553 million. Orders rose 19% in Asia with strong sales in China driven mainly by orders for the most advanced radiation therapy systems from the country’s leading cancer centers. Shantou University Medical Center announced the installation the first TrueBeam system in China on June 30, 2011. Although orders in North America and Europe (in local currency) were unchanged from a year ago, clinics placed orders for more than 60 TrueBeam systems during the quarter bringing the total to almost 300 systems since its launch in April 2010. In Scotland Varian was awarded an order for 10 radiation systems including 8 TrueBeams which will replace aging systems in the country’s five radiotherapy systems. The University of Colorado ordered three TrueBeams, two will replace competitors’ systems and one will be used in a new radiosurgery suite.

Service teams have worked diligently to streamline the installation process for the TrueBeam and reduced the installation time to four weeks by the end of the quarter, the same amount of time it takes to install the company’s less complex radiation therapy systems. Varian’s service business continues to grow as its Service team convinces more clients to sign service agreements when they order the company’s sophisticated systems. Revenues for the Oncology Systems’ service business were $154 million during the quarter, an increase of 16%. Service now accounts for 30% of Oncology Systems’ revenues. Varian’s stock price is down 23% since the beginning of the year. Investors are projecting slow Oncology Systems order growth in the U.S. and Europe out several years because of uncertainty about the impact of entitlement reform in the U.S. and austerity budgets in Europe on hospital capital budgets.

IDEXX Laboratories Corp.

IDEXX Laboratories’ second quarter organic sales growth rose 8% to $317.9 million and earnings grew 34% to 83¢ per share over the same period a year ago while growth in patient visits to vets remained flat for the third quarter in a row. Placements of hematology instruments rose 70% during the quarter with most of this growth coming from 284 ProCyte Dx installations. Over 30% of the ProCytes were placed at new accounts and 90% of them went to clinics that either purchased or have a high throughput Catalyst Dx chemistry analyzer. While running a complete blood count with a chemistry panel is good medicine, the modest increase in chemistry consumables used by clinics that added a ProCyte instrument to an existing Catalyst suggests that a slow hematology instrument may have kept vets with large practices from running more tests in house. Quarterly sales of instrument consumables rose 10% to $66.2 million, twice the growth rate of a year ago. Increased use of IDEXX Reference Labs has not cannibalized its in-house testing business. As more practices deliver test results to patients during the visit, they often order specialized test panels from IDEXX Labs’ reference labs to provide a more precise diagnosis. The company’s Real Time Care Protocols, which are available to 9,500 practices, provide incentives for vets to order larger test panels whether they are run in-house or sent out. Reference Lab’s revenues grew 10% during the quarter to $99.1 million as a result of increased sales of specialized tests, new customers and higher testing volumes. The company spends six times as much as its next competitor on R&D to develop new tests. These tests, such as CardioPet-BNP which tests for heart disease in dogs and cats, along with innovative instruments like the ProCyte Dx deliver new prospects to the company’s effective commercial sales force. IDEXX Labs’ stock price is up 8% since the beginning of the year.

Teradata Corp.

Teradata’s second quarter revenues of $581 million rose 18% from the prior year excluding a 6% benefit from currency translation. Its adjusted earnings per share of 60¢, which exclude non-recurring and certain non-cash items, rose 30% from a year ago. Software and hardware product revenue of $269 million rose 16% while consulting and maintenance services rose 25% and 13% respectively to $177 million and $135 million during the quarter. Teradata’s consultative sales team brought in the highest number of new customer additions during the first half of the year than in any one of the previous ten as companies prepare to utilize the growing volume and complexity of data for competitive advantage. During the first half of the year, the number of customers with petabyte data warehouses doubled to 20 (a petabyte is 1,000 terabytes or a quadrillion bytes). Its largest customer, eBay, significantly expanded its data warehouse during the quarter bringing its capacity to 37 petabytes. Other upgrades and expansions during the quarter came from Caterpillar, Netflix, Super Gros (Denmark’s largest wholesaler) and Lloyd’s amongst many others. Teradata now plans to add 30 more sales territories during the second half of the year after adding 30 during the first half bringing the total number to 550. This is a notable investment because the eighteen month average sales cycle imposes significant upfront costs. Management’s decision to continue with this pace of expansion is evidence of their confidence that their execution and customer demand will remain strong. Teradata’s stock price has declined 7% since August 1, similar to the decline in the S&P.

Cenovus Energy Inc.

Cenovus’ second quarter operating earnings surged to 52¢ per share compared to 19¢ during the first quarter and 28¢ in last year’s second quarter. The earnings strength results from higher margins attained by Cenovus’ two refineries in Borger, Texas and Wood River, Illinois owned 50-50 with Conoco, which is the operator. Refining margins are the difference between the cost of crude and the revenues realized from the refined products produced. During the past quarter, the margin was two and one half times higher than a year ago. Higher refining margins generated 80% of the rise in Cenovus’ second quarter operating cash flow to $1.24 per share from 71¢ in the quarter a year ago. The higher cash flow from the refineries come just as the $3.8 billion capital investment, shared 50% by each owner, to upgrade and increase the refineries’ capacity to process heavy crudes is 98% complete. This investment makes the processing of Canadian bitumen based crude more profitable. Currently, refining margins have widened even further. Its cause is a lack of pipeline capacity from oil storage facilities in Cushing, Oklahoma to refineries on the Gulf coast. Margins likely will remain high for mid-continent refineries until pipelines such as the extension proposed in the Keystone XL application are completed two or more years from now.

In the meantime, the cash flow from the refineries has encouraged Cenovus and its 50% partner Conoco to accelerate planned incremental bitumen production expansions at Christina Lake approved by the Alberta Energy Resources Conservation Board. Construction at Christina Lake’s Phase D, which will produce 40,000 barrels a day when fully operational is now 60% completed just after production began at Phase C where the planned production also is 40,000 barrels a day. After steaming started in May, it now is producing 2,400 barrels a day and will increase steadily. Importantly, Cenovus’ steam-assisted gravity drainage process, SAGD, recycles 95% of the water used to heat the bitumen. All the water used is brackish. Scheduled maintenance during the second quarter reduced combined bitumen production from Cenovus’ Foster Creek and Christina Lake properties 1% during the quarter to 58,000 barrels a day. From our standpoint as shareholders, the improved cash flow from refining is important because it’s an impetus to accelerate development of Cenovus’ bitumen production. That increases the value of the company’s reserves and thereby adds to shareholder value. Cenovus’ stock price is up 4% since the beginning of the year.

Gen-Probe Incorporated

Gen-Probe reported second quarter revenues of $135.9 million down 2% from the second quarter of 2010. Earnings fell 9.5% to 47¢ per share excluding one-time charges in both periods. Clinical product sales rose 18% to $87.5 million as usage of the company’s Aptima test for chlamydia and gonorrhea continued to rise in the faster-growing European market. It also took share in the U.S. from tests offered by Roche and Becton Dickinson based on the quality of Gen-Probe’s customer support, the superior accuracy of the test and the value that the fully automated TIGRIS instrument offers high volume clinical labs. A $12.5 million decline in blood screening sales during the quarter offset the growth in Clinical Diagnostics. Sales of TIGRIS instruments to blood screening labs were $2 million this quarter compared to $7 million last year when Novartis installed a large number of instruments in France. While assay sales to Novartis’ customers increased slightly during the quarter, inventory adjustments reduced Gen-Probe’s assay shipments. Gen-Probe expects to ship more instruments to Novartis in the fourth quarter because of on-going clinical trials with three of the largest labs in China and other new business wins outside of the U.S. and major European markets. The European launch of PANTHER, Gen-Probe’s fully-automated instrument for low and medium volume labs is going well. In addition to upgrading long-standing accounts that use Gen-Probe’s semi-automated instrument, about 60% of the placements have replaced competitors’ instruments. Gen-Probe places its instruments in clinical labs in exchange for guaranteed levels of assay use over three to five years. The company received Canadian approval for PANTHER on August 22, 2011 and expects to receive FDA approval in the next three to four months. Gen-Probe’s stock price is up 4% since the beginning of the year.

Techne Corp.

Organic growth of 6.4% and 5.9% lifted Techne’s fourth quarter and fiscal year 2011 revenues to $78.0 million and $290.0 million respectively. Boston Biochem and Tocris added only $4.7 million in sales during these periods. Fourth quarter earnings rose 20% to 83¢ and full year earnings rose 9.5% to $3.09 over the same periods last year. The earnings exclude costs associated with the recent acquisitions this year and a tax benefit of $4.7 million taken last year. R&D Systems, Techne’s biotechnology business, reported 2011 fiscal year sales of $270 million and accounts for 93% of the company’s revenues. With a gross margin of 80% and an operating margin above 60%, this business generates most of the company’s operating cash flow. Operating cash flow in 2011 was $127.0 million, 111% of net earnings of $114.7 million. Capital expenses were $3.6 million with $2.6 million invested in lab, manufacturing and computer equipment. The rest was used to renovate its buildings in Minneapolis, China and Europe. R&D Systems introduced 1,646 new products during the year. It now offers over 20,000 products to life science researchers with the addition of 2,900 products from Tocris and 800 products from Boston Biochem.

Techne’s hematology business, which sells FDA-approved products used to calibrate hematology instruments in clinical laboratories, accounted for 7% of the company’s 2011 revenues with sales of $19.9 million. This business operates with a 47% gross margin and an operating margin of 37%. It also requires very little capital investment to maintain its operations. Techne invested $149,000 in this business during fiscal year 2011. Techne’s stock price is up 11% since the beginning of the year.

Sigma Aldrich Corp.

Sigma Aldrich’s second quarter revenues of $637 million rose 6% organically over the second quarter of 2010. Acquisitions added 1% and favorable foreign currency rates added 8% to reported revenue growth in U.S. dollars. Earnings per share increased 15% to 93¢. Research Chemicals’ revenues grew 4% with three recent acquisitions contributing 1% to revenue growth. Cerilliant and RTC broadened Sigma’s offering of chemical standards for food safety and environmental testing, increasing Analytical Chemistry sales by 12% during the quarter. On May 23, the company strengthened its business in China, India and Brazil with the acquisition of Vetec Quimica, the largest domestic manufacturer and distributor of research chemicals in Brazil. This acquisition doubles Sigma’s market share in Brazil, adds more than 3,000 products and about 300 employees. Vetec’s high quality facility provides a platform to build a local supply chain for Latin America with manufacturing, quality control, packaging and distribution. Sigma just completed a 57,000 square foot expansion of its Bangalore facility which includes packaging operations for the first time. This facility can now repackage larger quantities of chemicals sourced locally to better serve research scientists in the local and regional markets. Revenues rose 20% in China, India and Brazil during the quarter. The Vetec acquisition increased sales growth in these markets by 7%. Strong sales of cell culture media to make biologic drugs and electronic chemicals used to make LED semiconductors lifted sales of Sigma Aldrich Fine Chemicals 10% to $154 million. Growth in these areas offset weak demand for custom chemicals from the pharmaceutical industry. Sigma Aldrich’s stock price is down 9% since mid-May while the S&P declined a similar amount.

Stryker Corp.

Stryker’s second quarter sales were $2.0 billion, an increase of 11.9% in constant currency over the second quarter of 2010. Sales growth from existing businesses was 6%. Earnings rose 11% to 90¢ per share, excluding one-time charges associated with the three acquisitions completed during the first half of the year. Reconstructive Implants’ revenues grew 2% with 4% growth in hips and trauma and extremities offset by weak performance in knees. Demand for Stryker’s new hip implants that replace metal-on-metal implants is so strong that it pushed the launch of the Accolade 2 hip into 2012. Knee replacement surgeries have declined more than hip replacements because younger people who contribute to the cost of their surgery continue to delay having the procedure. MedSurg revenues rose 12% during the quarter to $773 million. U.S. sales of stretchers and acute care hospital beds rose 47% because of deliberate changes Stryker made to the Medical business during the downturn in 2008-09. The company switched the focus of the hospital bed sales force from sales to new hospitals to replacing beds in existing hospitals. The highly-motivated sales force now sells beds based more on return on investment and the hospitals are realizing these efficiencies. The 2010 acquisition of Gaymar Industries, a manufacturer of hospital bed surfaces that keep patients from getting bed sores, added a disposable product to their list of capital products. Neurotechnology and Spine reported sales of $553 million, 7% organic growth based on the strength of the interventional spine business. Stryker’s stock price has fallen 8% since the beginning of the year. Investors have sold shares because of fears about the continuation of industry-wide decline in hip and knee replacements and the impact of tight hospital capital budgets.

Intel

During this year’s third quarter, Intel’s revenues reached $13 billion – a new record and 21% higher than last year’s second quarter which included one less week. The year-to-year rise in net income was only 2%, although per share earnings rose 6% to 54¢ because share repurchases reduced the share count. During the quarter Intel spent $2 billion to buy 93.3 million shares at an average price of $21.45. Although Intel’s quarterly PC sales were 11% higher than sales in the year-ago quarter, operating profit fell 1.5% due to weak consumer demand in mature markets such as the U.S., Western Europe and Japan. Strong emerging market demand is driving sales of Intel’s PC processors and especially those with the most functionality and speed. China, where sales grew 14% in the past quarter, is poised to surpass the U.S. in 2012 as the number one market for Intel PC processors. Brazil is likely to vault to number three. Intel’s Data Center Group sales increased 15% during the quarter and operating profit rose 13% propelled by demand created by the proliferation of internet connected devices and cloud computing. Intel currently has begun manufacturing its new Ivy Bridge 22 nanometer Tri-Gate processors which offer designers the flexibility of cutting power consumption by half while keeping the same processing speed as Intel’s current Sandy Bridge processors, the world’s fastest or maintaining the same power consumption to up the processing speed by 37%. High volume production is scheduled to ship before year-end. Also before year-end, Intel plans to ship its first processors co-developed with McAfee offering enhanced software security combined with Intel-designed security instructions wired into the processors. Intel’s stock price is up 2% since the beginning of the year. The stock yields over 4%.

Exxon Mobil Corp.

Exxon’s second quarter earnings of $2.18 per share, 36% above the amount earned during the comparable year ago quarter, had little effect on the company’s stock price. The determining factor was and is the oil price, which is not unusual but this year more than most, it seems to set the direction and the amplitude of the fluctuations. Since the July 28 earnings announcement, the oil price has fallen 8%. Exxon’s stock price dropped 9%. From the start of the year oil has declined 2%, while the increase in Exxon stock is 1%.

Exxon’s results for the quarter nonetheless were good and meaningful. The acquisition of XTO has increased Exxon’s U.S. natural gas volumes by 27% and contributed significantly to a 67% increase in U.S. earnings from oil and gas production. Those earnings are still only one-sixth of Exxon’s total earnings from production throughout the world. High U.S. volumes of natural gas and liquids helped lift Exxon’s U.S. refining results which uncharacteristically were more profitable during the quarter than its refineries in Europe and Asia. Exxon did not benefit appreciably from the low mid-continent prices for crude because its refinery in Joliet, Illinois was closed for over a month for maintenance. The successful integration of XTO and retention of most of its skilled employees encouraged Exxon to acquire leaseholds on 317,000 acres in Western Pennsylvania, making Exxon the largest leaseholder in the Marcellus shale formation with a total land position of over 700,000 acres. On August 30 Exxon and Russia announced at a ceremony attended by Putin, an agreement between Exxon and Rosneft which permits Exxon to earn a 33% interest in Rosneft’s acreage in the Kara Sea in the Arctic above Siberia and in the deeper waters of the Black Sea by funding and managing $3.2 billion of jointly conducted exploration and development. The agreement specifies that Exxon will offer Rosneft participation in its development of deep water prospects in the Gulf of Mexico and in the tight oil fields of Texas. Exxon’s success in Russia managing the exploration, development and production from a reservoir seven miles offshore Sakhalin Island results from its determination to only participate in ventures where the Russians need Exxon’s technology and expertise. Rex Tillerson, Exxon’s Chairman, negotiated the Sakhalin Island joint venture fifteen years ago. Production began on schedule in 2006 ten years later.

Automatic Data Processing

ADP’s fiscal fourth quarter and full year revenues rose 14.5% to $2.5 billion and 10.7% to $9.9 billion respectively from the same periods a year ago while earnings of 48¢ per share and $2.52 per share rose 14% and 6% respectively. Net income of $1.25 billion during the fiscal year were used along with excess cash to return $1.4 billion to shareholders through dividends and share repurchases which generated a 3% dividend yield and reduced shares outstanding by 3%. In addition, ADP strengthened and extended its operations by acquiring for $775 million complementary businesses with $450 million in annual revenues. ADP remains one of only four U.S. non-financial companies with a AAA credit rating from the major rating agencies. ADP’s stock price is up 9% since the beginning of the year.

ADP’s Employer Services revenues rose 9% during the quarter with two-thirds of its growth organic. Its U.S. core payroll business rose 4% as the number of employees on existing clients’ payrolls were up 2.6%. Add-on products and services sold to the payroll base rose 13% during the quarter as businesses continue to rely on ADP to navigate ever more complex regulatory and tax changes. Client retention reached a record high above 91% for the fiscal year and the company achieved its new business sales goal of $1.1 billion in annualized recurring revenue. Interest earned on client funds balances declined just 2.6% to $135.7 million as a 50 basis point decline in average yield to 2.9% from the same period a year ago was largely offset by a 13% increase in average client funds balances to $16.3 billion.

Patterson Companies Inc.

We sold Patterson’s stock after the company reported discouraging fiscal first quarter results, unchanged from a year ago but up 6% when adjusted to exclude the effect attributable to an extra week included in last year’s comparable quarter. Operating income fell 7.9% below the amount earned a year ago. The repurchase of 4.9 million shares during the quarter enabled the company to report earnings of 45¢ per share, equal to the year-ago amount, before a three cent per share charge this year for the cost attributable to the company’s Employee Stock Ownership Plan. Management’s comments on a less than 2% increase in dental consumable revenues after adjusting for the extra week confirms that dental patient traffic which had risen perceptibly, has slowed. Dentists continue to defer equipment purchases as they have over the past thirty-six months. Promotional financing and the software upgrade for the CEREC chairside tooth restorative system resulted in a disappointing 4% increase in sales. Patterson’s medical rehabilitation business is hobbled by regulatory uncertainty in the U.S. and fiscal austerity in the U.K. Our average sale price of $26.60 is 13% below Patterson’s stock price at the beginning of the year.

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.

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2011 – 3rd Quarter EARNINGS LETTER 2011 – 1st Quarter EARNINGS REPORT