EARNINGS LETTER

3rd Quarter, 2011

The third quarter earnings of all your companies were good, and in several instances, strong enough to encourage management to express confidence in their businesses’ ability to sustain their growth rate during the coming months. The results and comments, however, exerted little influence on your companies’ stock prices. All were swept down and up by macroeconomic fears manifested in the shrinkage of short-term interbank funding in continental European financial markets. You may recall that in mid-August we moved funds invested in State Street’s Prime Money Market fund into a fund holding U.S. Treasury Bills offering principal security and a negligible return. Subsequently, so many other investors likewise decided that a zero rate on cash balances is preferable to whatever might be earned on overnight repos or certificates of deposit from suspect European banks. That drained the short-term dollar liquidity available to European financial institutions from U.S. mutual funds. The imminent possibility that a major European bank might lack sufficient dollars to meet its obligations impelled the Fed to coordinate activation on November 30 of dollar swap lines with the European Central Bank and the central banks of England, Canada, Japan and Switzerland. The amount available at a reduced interest rate of 50 basis points is unlimited. At the height of the liquidity crisis in the fall of 2008, the Fed had loaned $600 billion to central banks through its swap lines.

Reactivation of the swap lines has allayed fears of a shocking European bank failure but leaves unaddressed the excessive European country debt choking their banks and endangering their solvency. The schemes proposed by European politicians and technocrats to address the infectious insolvencies threatening the ECB and the Euro seem to ignore the cost imposed on the citizenry of the over-indebted countries. Other proposals to create some sort of supranational buyer of the excess debt call to mind Nouriel Roubini’s article in the November 29 Financial Times where he stated that if a sizeable buyer appeared for Italy’s debt, all $1.9 trillion of the country’s debt would be offered for sale. The lack of resolution of this ongoing financial mess helps assure us that we will have opportunities to buy shares of good companies we know and understand at our valuation.

C.H. Robinson Worldwide Inc.

Robinson’s third quarter total revenues and net revenues of $2.69 billion and $423 million rose 11.3% and 10.6% respectively from the same period a year ago while earnings of 70¢ per share were up 13%. Despite these good results, Robinson’s stock price is down 15% from the beginning of the year. Truckload volume growth of 4% during the third quarter was slightly ahead of the second quarter increase of 3.5% from the prior year. Price increases excluding the impact of changes in fuel costs added 4% to revenue growth during the quarter. Robinson’s cost for third party transportation rose 3% excluding the impact of fuel costs. Less-than-truckload net revenues rose 28% on an increase in total shipments of 15%. Net revenues from Ocean rose 5%, while Air declined 13%. Industry-wide demand for Ocean and Air freight has weakened and Robinson’s customer volumes declined during the quarter. Robinson continues to invest in its global freight forwarding system in order to improve its processes and seamlessly link its trucking, air and ocean systems into its customers operations. This also will provide an integrated platform upon which future acquisitions can more easily be integrated. Robinson’s Intermodal net revenues rose 15% during the quarter. Robinson is investing $7.5 million in 500 intermodal containers to provide its customers with the access to rail shipping they require.

During October, truckload volume growth was up 6.5% from a year ago indicating Robinson’s execution at its branch offices remains strong. Net revenue growth of 6%, however, indicates that it is more difficult to achieve price increases as a result of the current balanced trucking environment where capacity is more readily available. This means Robinson needs to generate more volume growth and control costs in the fourth quarter to achieve double-digit earnings growth.

Donaldson Inc.

Donaldson reported another strong quarter. Its fiscal first quarter sales of $608 million rose 13% while record earnings of 90¢ per share surged 32% above of the same period a year ago. Foreign currency translation boosted reported sales and earnings growth by 2.5% each. Donaldson’s stock price is up 15% since the beginning of the year to $67. During the quarter, management opportunistically took advantage of a lower stock price to repurchase nearly 2% of its shares outstanding at an average price of $53.50 per share.

Donaldson’s order trends remain solid as build rates for new trucks and off-road equipment remain strong and replacement filters are needed for more equipment and because of higher utilization. During the quarter the company added 58 new distributors located primarily in emerging markets and increased market share. Agriculture, mining and construction industries strengthened through the quarter. Donaldson’s Engine filter sales of $393.7 million rose 18%, driven by increases of 47% and 30% of on-road and off-road original equipment sales respectively. Replacement filter sales of $226.9 million rose 12%. Industrial filter sales of $214.6 million rose 6% from the prior year as continued strong demand for Torit dust collectors was offset by flat gas turbine filter sales and a decline in disk drive filter sales caused by the impact on its disk drive manufacturing customers of the flooding in Thailand. While Donaldson’s Thai disk drive manufacturing facility is dry, its customers’ facilities to the north are under water. These filters comprise 5% of Donaldson’s total sales and are expected to contract by 40% in coming quarters before recovering as customers shift manufacturing equipment to other facilities.

Donaldson is still planning to spend $100 million in capital expenditures this fiscal year but is monitoring business conditions at key customers closely and has already slowed headcount additions during the quarter from its planned level. Additional manufacturing capacity and tooling for new products are needed to meet current customer demand and one-quarter of the cap ex is focused on initiatives to lower ongoing manufacturing and operating costs as part of Donaldson’s continuous improvement initiatives.

SGS

Since the beginning of the year SGS’ ADR price is up 1%. The Swiss Franc is up 2% relative to the dollar during the period. Based upon the ordinary and special dividend paid earlier this year, SGS provides a dividend yield of 4%. It will report its second half and full year 2011 results on January 17th. We anticipate double-digit revenue growth in constant currencies and good profitability. The company has announced five small acquisitions thus far in the second half of 2011 with combined revenues of more than $100 million.

Mettler-Toledo International Inc.

Mettler-Toledo had an excellent third quarter with all geographies and almost all product lines contributing to quarterly sales of $601.1 million, an increase of 15% in local currencies. Better than expected sales in Europe and in the Industrial business contributed to the strong performance. Earnings were $1.98 per share, an 18% increase over the third quarter of 2010. Management is watching for market weaknesses, but has not yet seen signs that a downturn is imminent. Mettler-Toledo continues to invest in R&D to develop new products and in its marketing programs to gain market share. New products must increase market share, accelerate the product replacement cycle or improve gross margins. Products less than two years old account for about 25% of sales. Mettler-Toledo recently launched FlowIR™, a compact unit capable of monitoring very low concentrations of chemicals in a flow reactor. Chemists developing manufacturing processes for new drugs monitor the amounts of starting material, intermediate and the final products using this instrument. It complements the company’s existing products designed to monitor reactions in batch reactors. The company sells its products to individual scientists and engineers, and thus has hundreds of thousands of customers and about 6 million contacts in its customer database. A detailed analysis of 5,000 customer sites in the pharmaceutical industry showed that labs doing the same work use different Mettler-Toledo products. Identifying what each customer might want based on detailed information about their industry, workplace and applications allows the sales force to have a specific conversation about each customer’s work and how Mettler-Toledo’s products can help them do it better. These data-driven marketing programs allow the company to gain a little market share each year. Mettler-Toledo’s stock price is up 5% since the beginning of the year.

CME Group Inc.

Revenues of $874 million and operating income of $572 million rose 19% and 29% respectively during CME’s third quarter. Operating expenses rose just 4% from the prior year as management placed a renewed focus on expense control. Earnings of $4.74 per share surged 30% from a year ago. Average daily volume of futures and options traded at CME rose 27% to 14.7 million contracts at an average rate per contract of 77.9¢. Eighty-five percent of the contracts were traded electronically. Interest rates, equities and metals contracts rose 30%, 44% and 77% respectively while energy, foreign exchange and agricultural contracts increased 1%, 14% and 10% respectively.

These good results were overshadowed by the Halloween MF Global bankruptcy filing and reports of missing funds in MF’s customer accounts. MF was a large futures clearing merchant whose customers maintained open positions and collateral at CME Clearing and other clearing organizations. At the time of the bankruptcy filing CME Clearing held substantial excess margin collateral and has been working with the CFTC and the bankruptcy Trustee to get the customer accounts, open positions and collateral moved to other brokers. Reports of missing customer funds were not from accounts at CME Clearing. CME has offered a $550 million guarantee to the bankruptcy trustee in order to accelerate the transfer of 75% of the $5.5 billion in customer segregated assets. CME has completed the transfer of $1.45 billion in collateral from 15,000 customer accounts and is confident that it will not incur any loss from the guarantee. Shares of CME are down 10% since the MF bankruptcy announcement and are down 21% for the year despite this year’s double-digit revenue and earnings growth and a 2.2% dividend yield. Its decline is in-line with the S&P Financial sector composite decline of 22%.

Express Scripts Inc.

Express Scripts’ third quarter earnings of 74¢ per share rose 23% above those for the same period last year, excluding transaction related costs in both periods. Operating earnings per claim were $3.72, an increase of 13% as a more efficient supply chain, productivity improvements and a two percentage point increase in generic usage to 74.3% offset a 2% decline in U.S. claims. A decision to accelerate several projects that would have been carried out in 2012 to free up resources for the integration of Medco also increased operating costs during the quarter. A team of information technology managers from both companies is currently evaluating both IT platforms to determine which company’s components, such as adjudication system or call center software, to use in the IT platform of the combined company. Express Scripts reported a strong 2011 selling season winning three new clients with over one million members each and keeping more than 97% of its current clients. In addition to $4 billion of bank loan commitments on November 14, the company announced the sale of $4.1 billion of Senior Notes to finance the $11.1 billion cash portion of the Medco transaction. Express Scripts will raise the remaining $3 billion in the debt markets before the transaction closes next spring. Express Scripts’ stock is down 14% since the beginning of the year because investors remain unsure that the FTC will approve the merger.

Varian Medical Systems Inc.

Varian Medical Systems’ steady introduction of improvements to its radiation oncology equipment, software and service businesses contributed to Oncology Systems’ 9% order growth for the quarter to $717 million over the fiscal fourth quarter of 2010. Orders for the fiscal year grew 8% to $2.2 billion with 5% growth in North America and 11% growth in international markets. Orders for Varian’s service business grew 15% to $650 million and accounted for almost 30% of the year’s orders. This recurring-revenue generating business has grown with the company’s installed base of 6,200 radiation sources and 3,300 installations of its Eclipse treatment planning software. Varian has about 2,000 people serving radiation oncology clinics in 100 countries where they help with installations, field service, training and tech support. The Contact Center, Varian’s global help desk employs Ph.D. medical physicists and other experienced specialists to provide a high level of clinical expertise. The Center receives over 400,000 customer contacts each year through phone calls, remote service calls and emails and supports its customers in 15 languages.

Varian is investing in its treatment planning software to reduce the time it takes to create a plan for different radiation treatments. In the past five years, Varian has reduced treatment delivery times from 15 to 30 minutes to 1 to 4 minutes. By adding automated planning tools, the company expects to achieve the same result for treatment planning. Varian released an add-on to Eclipse at the annual radiation oncology meeting in October that provides pre-contoured anatomical images made by experts for a wide range of tumor types. Users can modify these plans and can add their own for future reference. This tool allows clinicians in developing markets to see how experts approach cases similar to the ones they are doing and thus learn on the job.

Fourth quarter and fiscal year 2011 revenues grew 10% to $719 million and $2.6 billion respectively over the same periods last year. Earnings for the quarter were 85¢ per share and $3.44 per share for the year, increases of 9% and 16% respectively. Varian’s stock price is down 9% since the beginning of the year having rebounded from a 25% decline as of the beginning of October. Recurring worries that government funding for radiation oncology clinics in Europe will dry up weigh on the stock price.

IDEXX Laboratories Corp.

IDEXX Laboratories’ in-clinic diagnostic instruments and consumables posted 9% organic growth to $99.7 million during the third quarter as more companion animal vets realize that they must take active measures to increase their practice revenues in this slowly growing economy. Europe delivered the strongest revenue growth during the quarter and the successful controlled launch of Catalyst Dx in Japan bodes well for future growth there. Japanese vets are the most quality conscious instrument users in the world. Vets that employ Cornerstone, IDEXX Labs’ practice management software, along with instruments and services that allow them to present the results of blood tests and X-rays to the patient during the visit are increasing their revenue 2% to 4% faster than other practices in the U.S. Of the 400 clinics that IDEXX Labs monitors through Cornerstone, 27% are growing at 5% so far this year and 12% reported 10% or more revenue growth. These vets achieve these growth rates by improving the effectiveness of their practices in addition to practicing better medicine by increasing the number of tests they run on a sample. IDEXX Labs’ Catalyst Dx and ProCyte instruments enable a technician to perform a full battery tests that used to be sent to a reference lab in less time than it takes to prepare the sample to send there. The company has also modified its incentive program so that a vet who runs a complete chemistry and hematology panel (45 tests) instead of a standard 22 test chemistry panel receives rebates that pay for the monthly lease and maintenance of the instruments. With 10,700 vet practices around the world using SmartService, the company’s internet-based link to a clinic’s instruments, IDEXX Labs tracks test usage and performs routine maintenance before the technicians even notice a problem.

IDEXX Labs continues to develop novel information technologies. The most recent is the iVision mobile app for iPad and Android tablets. The app allows vets to access digital x-rays taken minutes before and to manipulate them to best present the results. Staff can order more images from the tablet and can email them to the company’s consulting radiology service for an expert interpretation. The full integration of this program with practice management system software ensures that the images become part of the pet’s electronic medical record and the patient is billed. The company’s third quarter sales grew 8% organically to $301 million over the same period a year ago. Earnings were 66¢ per share, an increase of 13%. IDEXX Labs’ stock price is up 5% since January 1.

Teradata Corp.

Teradata delivered strong third quarter results. Sales of $602 million rose 23% or 19% in constant currency from a year ago. Adjusted earnings of 59¢ per share rose 28% from the same period a year ago. The acquisitions earlier this year of Aprimo and Aster Data added 3% to revenue growth during the quarter. Teradata’s software and hardware product revenue rose 18% to $287 million from a year ago. Maintenance revenue of $139 million rose 21% and consulting revenue rose 34% to $176 million. By geography, the Americas which generates 62% of total revenues rose 28%, followed by Europe, Middle East and Africa which accounts for 22% of revenue and rose 22% and Asia-Pacific Japan’s 16% of revenue which rose 7%. During the quarter, Teradata added five new Fortune 500 customers including a top five global oil and gas company, a top five U.S. insurance company, one of Canada’s largest banks, France’s largest bank Credit Agricole and China’s electrical conglomerate Chang Hung Electric company which plans to integrate data from more than 200 subsidiaries. Last month more than 3,600 people attended Teradata’s annual customer conference in San Diego, an increase of 20% from the prior year. These existing and prospective customers attend in order to gain insight into Teradata’s product development pipeline and to talk to other customers to learn how they are using Teradata’s enterprise data warehouse and analytics systems to drive growth. Deferred revenue of $353 million as of September 30 is up by one-third from a year earlier. Teradata continues to expand its sales and servicing teams to meet strong customer demand. Teradata’s stock price has declined 3% from the beginning of August and has risen 6% from the beginning of September.

Cenovus Energy Inc.

Cenovus’ third quarter operating earnings and cash flow of 40¢ and $1.05 per share were respectively 90% and 55% higher than the comparable results in the year-ago quarter. These results constitute an early payback on well-managed investments and help fund the company’s planned increases in heavy oil production from its existing acreage in manageable increments already approved by the Alberta Energy Resources Board. During the quarter, oil production at Christina Lake increased 25% as production began in August at Phase C ahead of schedule and below budget. Steady production increases at Phase C will lift Christina Lake’s production rate 50% during the current quarter with another 50% increase scheduled by the middle of next year, bringing production up to over 30,000 barrels a day. The company continues to apply technologies it has pioneered and made more efficient to increase production from its developed acreage at Foster Creek, where its output rose 12% to 56,000 barrels a day. Cenovus is expanding its existing production facility, which is situated on .6 of a square mile at Foster Creek, to implement three approved phased expansions of 35,000 barrels a day that are scheduled to start producing in 2014. During the quarter, Cenovus’ capital investment in Christina Lake and Foster Creek was $229 million. Its proven bitumen reserves on these two properties exceed 1.1 billion barrels.

Later this month or early in the new year, Cenovus plans to report on its discussions with possible joint venture partners for development of its oilsands acreage at Telephone Lake, which is north of Christina Lake. Its preferred partner would be one like its existing joint venture partner, Conoco Phillips, who is experienced at refining and marketing heavy oil. The third quarter cash flow from Cenovus’ 50% share in the mid-continent refineries operated by Conoco Phillips at Wood River, Illinois and Borger, Texas amounted to $238 million. Cash flow in the fourth quarter is expected to surpass the third quarter amount. These refineries benefit from the discounted price refiners pay for Western Canadian Select heavy crudes which cannot be transported south of the Cushing oil terminal in the northeast corner of Oklahoma because pipeline capacity to the refineries on the Gulf Coast is inadequate. These refineries are equipped to handle heavy crudes that once were imported from Mexico and Venezuela. Cenovus’ stock price is down 2% since the beginning of the year. Cenovus stock provides a current dividend yield of 2.4%.

Gen-Probe Incorporated

On October 20, 2011 the FDA approved Gen-Probe’s molecular diagnostic test for the human papilloma virus (HPV) to run on TIGRIS, the company’s fully-automated high-throughput instrument. Gen-Probe’s HPV test differs from other tests currently on the market because it tests for persistent HPV infections that cause the pre-cancerous changes in cervical tissue detected by PAP smears. While this test is as sensitive as competitors’ tests, it reduces false positive results by 25% and thus lowers the number of biopsies performed on healthy women. In addition to being a better assay, it improves the workflow of the large clinical labs that currently perform most of the HPV tests in the U.S. The assay uses the same sample as Gen-Probe’s other women’s health tests and thus can be run at the same time on the same machine. Competitors’ tests require manual sample preparation and run on different instruments. Gen-Probe expects to gain share of the $400 million global market for HPV testing as its well-respected U.S. sales force of 45 representatives markets this product to the users of 200 TIGRIS instruments.

Gen-Probe’s third quarter sales of $139 million and earnings of 54¢ per share increased 5% and 6% respectively over the third quarter of 2010. Clinical Diagnostics sales were $87 million, up 16% with 1% growth from favorable currency exchange rates. Sales outside of the U.S. grew 30% during the quarter, twice the growth rate of the market because of Gen-Probe’s growing commercial infrastructure in Europe and the placement of 40 to 50 PANTHER instruments in clinical labs there. PANTHER, Gen-Probe’s second fully automated molecular diagnostic instrument, runs 250 to 300 samples in an 8 hour shift and 450 to 500 samples overnight with less than one hour of hands on set-up time. The company expects to receive FDA approval for PANTHER during the first half of 2012. Gen-Probe’s stock price is up 6% since the beginning of the year.

Techne Corp.

Techne’s fiscal first quarter sales of $77.6 million and earnings of 78¢ per share grew 14.2% and 10% over the same period a year ago. Earnings include a 2¢ per share loss from foreign exchange transactions. Organic sales grew 3.2% from increased product volumes. Sales from recent acquisitions and a weaker U.S. dollar contributed 8.2% and 2.8% respectively to the quarter’s revenue growth. R&D Systems sales of biotechnology products to U.S. pharmaceutical and biotech companies rose 9.3% while sales to U.S academic labs and to European customers fell 2.5% and 0.7% in constant currency. Techne generated free cash flow of $33.3 million, 114% of its net income of $29.1 million. Techne’s stock price is up 1% since the beginning of the year because investors fear a prolonged decline in spending by academic life science researchers in the U.S.

Sigma Aldrich Corp.

Sigma Aldrich’s investment in serving the faster growing segments of chemistry and life science research added two percentage points of organic revenue growth to the core chemical and biology research product businesses. Sigma reported third quarter sales of $626 million, 4% organic growth over the same period last year. Revenues from acquisitions added 2% and favorable foreign exchange rates added 5% to the quarter’s revenue growth. North America and Europe delivered 3% and 2% organic revenue growth respectively, while revenues from China, India and Brazil grew 25%. Earnings per share rose 15% to 96¢. Research Biotech posted 6% organic revenue growth as a result of the strong growth in products based on zinc finger nuclease technology licensed from Sangamo BioSciences in 2007. These engineered proteins allow scientists to modify any gene in any cell. Sigma has significantly broadened its product offering based on this technology from a service that produced customized proteins for scientists at large pharma companies. Researchers can purchase proteins that allow them to knockout every gene in the human, mouse or rat genome or can buy genetically modified rats that are more susceptible to cancer or have schizophrenia. SAFC, Sigma’s fine chemicals division, recently launched genetically modified cell lines that reduce the time it takes to develop manufacturing processes for new biologic drugs. The company has increased its manufacturing capacity for zinc finger nucleases to meet growing demand and to increase access to these unique products by lowering their prices. Improved search capability and product pages on the web site based on customer feedback as well as the introduction of product pages in Chinese increased individual visits to the web site to 11.8 million for the quarter, an increase of 22%. eCommerce research sales remained steady at 50% of total sales. Sigma’s stock price is down 5% since May 2011.

Stryker Corp.

Stryker’s stock price is down 11% since the beginning of the year. The markets for reconstructive joints, especially knee and spine implants remain weak. MedSurg markets remained solid during the third quarter because hospitals have access to credit. The company reported third quarter sales of $2.0 billion, an increase of 12% in local currencies over the third quarter of last year. Organic growth of 4%, which included a 6% increase in unit volumes and sales of more expensive products was partly offset by a 2% decline in prices. Acquisitions accounted for 8% of the quarter’s revenues. Earnings rose 14% to 91¢ per share over the same period a year ago. Reconstructive products’ revenues grew 4% with the strong acceptance of new hip products generating above-market growth of 5%. Sales of trauma products also grew 5%. MedSurg revenues grew 10% with strong growth from the bed and stretcher and instrument reprocessing businesses offsetting slower growth in instruments and endoscopy. The Neurovascular business reported 43% revenue growth with almost all of that coming from the recently acquired stroke prevention device business. Weak spine implant sales offset gains from the interventional spine business.

Stryker delivered double-digit earnings growth while investing in programs to integrate acquisitions and in R&D to develop new products. R&D spending rose 23% during the quarter to $122 million or 6% of sales. Lonny Carpenter, who became head of Global Operations at the beginning of the year, has also begun to streamline the company’s IT infrastructure, procurement, vendor lists and manufacturing operations. As part of this effort, on November 10, Stryker announced a 5% reduction of its global workforce with a focus on reorganizing the Reconstructive Joint business to meet the needs of a changing market and to prepare for the 2.3% U.S. excise tax the firm will pay beginning in 2013. The company expects this initiative to reduce pre-tax operating costs by over $100 million beginning in 2013.

Intel

For the sixth successive quarter, Intel achieved during its third quarter ending September 25 record quarterly revenues, net income, and earnings per share. Revenues reached $14.2 billion, a 28% year-to-year increase. Net income rose 17% and earnings per share rose 25% to 65¢ per share helped by a stock repurchase program reducing the shares outstanding. Intel’s stock price is up 17% since the beginning of the year. Its dividend provides a current yield of 3.4%. Management has reiterated its intent to use 40% of the company’s free cash flow for dividend payments. The company spent $4 billion in the quarter buying 186 million shares at $21.50. In September, Intel took advantage of the low rates provided by Fed intervention in the bond market to sell $5 billion of notes in three tranches: five, ten and twenty years. The average rate is 3.37%. The money will be used to buy back stock.

Intel’s PC revenues were 22% higher than in the year-ago quarter as notebook PCs and emerging market sales achieved strong double digit growth. Sales growth of 12 % in China made it the world’s number one PC market. Sales of servers to enterprise data centers and centers providing cloud computing rose 15% year-to-year even though the launch early next year of Intel’s new Sandy Bridge based servers postponed some purchases. Advance orders for these new servers from customers is 20 times the pre-introduction order for Intel’s last server upgrade. The company once again expressed optimism about expected consumer demand for new Sandy Bridge powered “Ultrabook” PC’s which are being launched now. They are thin and light with instant on capability, enhanced security and longer battery life. They are priced to sell at less than $1,000 and will supplant most netbook sales. Intel’s sales of low cost Atom chips for netbooks and cellphones unsurprisingly dropped by a third during the quarter as the company was caught in the hiatus between the cancellation of its agreement with Nokia and the launch of Google’s Atom powered Android phones. Intel’s manufacturing prowess conditions its management to adjust quickly to market conditions. Its two-year engineering and product cycle of pushing technical boundaries to manufacturer devices using a common architecture that provides improved performance while functioning together with prior generations makes them know that the company’s speed at implementing innovations on a massive scale gives them opportunities to correct product misjudgments quickly. The Ultrabook’s functions are different from those performed on a tablet, but it’s an excellent timely product which positions Intel to contend for a presence among the next generation of tablets.

Exxon Mobil Corp.

Although Exxon Mobil’s third quarter earnings of $2.13 per share announced on October 27 were 48% higher than the earnings during last year’s third quarter, the stock price declined along with the overall stock market before recovering. Exxon’s stock price is up 9% since the beginning of the year. Higher production sharing payments principally to the Nigerian government during the quarter, along with the sale for $1.4 billion to Apache of the North Sea production acquired though the Mobil merger resulted in production of oil and gas falling 4% below the year-ago level. Natural gas, two-thirds of which is produced in the U.S. and Qatar, constituted just under 50% of Exxon’s total production. Despite Exxon’s worldwide investments in onshore and offshore oil and gas bearing acreage, half the company’s 24 billion barrels of oil and gas equivalent proven reserves are located in North America where the company holds mineral leases on six million acres between northern Canada and south Texas. Oil and natural gas bearing tight sands and shale formations, containing 8.2 million barrels of proven oil and gas equivalent reserves, underlie five million of Exxon’s leased acres, although exploratory drilling on much of the acreage has just begun. Exxon has drilled only a small portion of the 410,000 acres it holds in the Bakken shale formation in North Dakota and it has barely begun drilling on its 700,000 acres in the Marcellus shale underlying much of western Pennsylvania. Exxon’s oilsands deposits in Alberta’s Athabasca region, which are scheduled to commence production next year, contain 2.1 billion barrels of recoverable bitumen. Exxon’s decision to develop its vast unconventional oil and gas acreage in the U.S. and Canada brings its industry leading safety commitment to prod the industry to protect the self-interest of all by adopting and implementing procedures and practices to assure measurable and documented ground water protection and careful prevention of contamination from the water produced with the oil or natural gas after the formation has been fracked. The availability of cheap and abundant shale gas, notably in the Haynesville shale in east Texas and Louisiana where Exxon holds 240,000 acres, has spurred Exxon to build a new synthetic, high-performance lubricant basestock plant at its integrated refining and chemical complex in Baytown, Texas. The plant will have the capacity to produce 50,000 tons of high viscosity lubricants annually. The need for energy efficiency and improved equipment reliability drives demand for new lubricants.

Automatic Data Processing

ADP’s fiscal first quarter revenues of $2.5 billion and earnings of 61¢ per share rose 13% and 9% respectively from the same period a year ago. ADP’s organic revenue growth of 10% was driven by strong sales of new technologically innovative Internet and cloud-based payroll and human resources management solutions and an increase of 2.7% in the number of employees on its existing client’s payrolls in the U.S. Interest earned on funds held for clients declined 4% to $121.9 million as a 50 basis point decline in the average interest yield to 3.2% was partially offset by a 10% increase in client funds balances to $15.2 billion. The zero interest rate policy of the Fed will continue to be a drag on ADP’s otherwise strong financial performance. During the quarter, the company repurchased 1% of its outstanding shares at an average price of $48.11 per share. ADP’s Employer services, PEO services and Dealer services divisions all reported strong results with revenue up 9%, 17% and 18% respectively to $1.75 billion, $401 million and $408 million respectively. ADP continues to invest in product innovation and its sales and service capability in order to drive organic revenue growth. Small business services, major accounts and GlobalView, the company’s integrated global SAP compatible HR and payroll solution, each achieved double-digit sales growth during the quarter. ADP shares are up 11% this year and provide a 3.1% dividend yield. Last month ADP activated its succession plan naming President and Chief Operating Officer Carlos Rodriguez to succeed Gary Butler as CEO. Gary is 65 and retired after 37 years at ADP. Carlos has been with ADP since 1999 and has excelled while running several of the company’s businesses.

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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