EARNINGS REPORT

1st Quarter, 2012

Your companies’ good first quarter results had a negligible effect on their stock prices. Preoccupation with predictions of financial chaos from a gaggle of commentators, economists and politicians diverted attention from our companies’ results. Happily their prosaic profitability lacks the headline appeal of the perils of Greece or the solvency problems of Spanish banks. Pontificating about the need for full financial backing from all member countries, which means Germany, for the European Central Bank’s aid to profligate countries and wobbly banks has not turned attention to how, despite all these worries, everyone complacently continues using the euro in everyday commerce.

We found some initial insight in a paper published by Thomas Mayer for Deutsche Bank which led Lauren to the work of Hans-Werner Sinn. He explained how the European Central Bank’s settlement system accrues debits and credits among the seventeen euro member countries’ central banks without requiring any payment to settle the accounts. Our Federal Reserve System comprising twelve Federal Reserve District Banks requires an annual April settlement payment among all the banks to eliminate all outstanding balances, debit or credit through delivery of marketable securities specified for that purpose. Interest also must be paid by the debtors on the credit balances held by the District Banks.

The ECB’s Trans-European Automated Real-Time Gross Settlement Express Transfer, or Target, has no provision requiring settlement among the member country central banks! This results in the financially strong countries, say Germany, accruing increasingly large Target credit balances while the weaker members’ debit balances steadily grow. The significance of this is evident from glancing at the figures which show that the German credit balance of €302.6 billion at the end of January 2011 had grown to €644.6 billion by the end of April 2012. During that time period, Italy went from a credit balance of €27.7 billion to a debit of €279.4 billion. In the same time period, Spain’s debit rose from €51.5 billion to €302.8 billion! The forbearance given to member countries by not draining liquidity from countries with Target debit balances becomes evident from the arithmetic. The balances account for 45% of the total rescue funds of €1,058 billion provided through mid-January 2012.

Lack of any provision to require settlement of outstanding balances allows for them to grow without any restraint from Europe’s politicians whose predecessors like them did not understand that financial settlement systems require payment not just accounting. Now with swollen target credit and debit balances, allowing the departure of a debtor country requires a surprising and politically unacceptable payment. Any payment in response to a creditor demand for payment prior to a planned exit from the euro is unimaginable. We think about this because the managers of our companies tell us that their businesses are doing well with no impetus from the overall economy. We should profit under these conditions unless our financial system is hit with another liquidity crisis which might occur if the euro comes apart. That seems too costly which ought to encourage Europe’s politicians to save the crisis for their successors which, of course, is okay with us. Our stock market as measured by the S&P 500 is up 4.6% since the beginning of the year.

C.H. Robinson Worldwide Inc.

CH Robinson reported good first quarter results but its stock price declined 17% since the beginning of the year because investors fear that higher purchased transportation costs will not be passed through to its customers quickly enough for it to maintain double-digit earnings growth. During the quarter, Robinson’s total revenues, net revenues and earnings rose 7.9%, 6.3% and 10.2% respectively to $2.6 billion, $415 million and 65¢ per share. Robinson’s core trucking business which generates three-quarters of net revenues rose 7% from the same period a year ago on an 8% increase in truckload volumes. Robinson’s variable incentive plans which reward employees based upon branch profit kept the increase in operating expenses to 5% during the quarter despite a 9% increase in headcount from a year ago. Additional employees were added to secure the stronger volume growth Robinson is picking up from its customers. During the quarter, excluding the increase in fuel costs, Robinson passed along a 1% price increase to its customers while overall transportation costs increased 2%.

Robinson strengthens its long-term customer relationships by providing pricing commitments for about one-half of its truckload volume. Since it secures transportation from truckers in the spot market, Robinson absorbs higher transportation costs before it passes these costs on to its customers. Its net revenue margin contracts during this period which usually lasts about two quarters. During the first three weeks of the second quarter, Robinson’s truckload volume growth accelerated to 10% above the prior year level. The market for trucking services began tightening in March leading to higher transportation costs for Robinson. During the first three weeks of April its net revenue rose 1%. What is important to us as long-term investors is that Robinson’s customers turn to it first with additional volumes. This is happening. During the past decade, Robinson has invested $600 million in its information technology platform which provides its customers with better, more reliable information. This enables Robinson to get paid more for specialized transportation management and logistics services. These fees rose 24% during the first quarter to $17.5 million.

Donaldson Inc.

Donaldson delivered another quarter of strong results with organic sales of $647 million, up 11% and earnings of 46¢ per share, up 18%. Engine filter sales of $407 million rose 10% led by strong sales to original equipment manufacturers. Sales to on-road OEM’s rose 36% as North American Class 8 heavy truck builds rose 44% from the same period a year ago. Sales to off-road makers of mining, agricultural and construction equipment rose 11% to $100 million. Caterpillar continues to account for 10% of Donaldson’s total revenues. The growth rate of replacement filters for engines slowed during the quarter to 4% as customers became more cautious about inventory levels. These sales generate one-half of engine filter sales. Industrial filters sales rose 13% overall to $240 million led by a 15% increase in gas turbine products to $51 million. Orders from Donaldson’s primary customers, GE and Siemens, indicate that this is the beginning of a two to three year upcycle for the gas turbine business. Other industrial filters, including Torit dust collectors, rose 8% to $136 million. Sales growth was strongest in its Americas region which rose 15%, while Asia Pacific and Europe rose 9% and 6% respectively.

Our meeting with management at our offices last week confirmed that Donaldson is increasing R&D to achieve improved product differentiation which enables it to gain market share in both air filters and increasingly in liquid filters which comprise 18% of company revenues. Donaldson’s continued intense focus on operating efficiency has resulted in its operating margin reaching a record 15.2% during the quarter, up from 14.0% a year ago. For the first nine months of Donaldson’s fiscal year, its operating margin of 14.4% was 90 basis points above the same period a year ago. This has led to operating income growth nearly two times that of revenue growth during the period. Donaldson’s stock split two-for-one on March 23. Donaldson’s stock price is up 3% year-to-date.

Mettler-Toledo International Inc.

Mettler Toledo’s first quarter sales of $535.4 million grew 8% in local currencies over the same period a year ago. Unfavorable Swiss franc/euro exchange rates reduced sales growth in U.S. dollars by 1%. The company’s focus on execution held growth in operating expenses to half of the quarter’s sales growth which helped the company deliver quarterly earnings growth of 14% to $1.62 per share. Mettler-Toledo reported 8% and 5% organic sales growth in both the laboratory and industrial businesses on top of double-digit year-over-year sales growth in the first quarter of 2011. These businesses account for 90% of the company’s revenues.

Hiring sales representatives in emerging markets accounted for about half of the increase in operating expense during the quarter. Mettler-Toledo currently has sales and service organizations in 35 countries. They expect to take market share steadily from five to ten competitors in each product category in each country because these regional companies do not have the revenues to support large service organizations or to implement Spinnaker, Mettler-Toledo’s data-driven sales and marketing program. The company uses data from Spinnaker to target individual customers with solutions to their specific problems and to capture more service contracts. Although Mettler-Toledo repairs many broken instruments, only about 25% of its installed base is under service contract. The company also uses Spinnaker to improve the productivity of its sales forces in emerging markets. By providing the local Chinese sales force with tools and training to achieve price increases, Mettler-Toledo achieved a major victory in this notoriously price sensitive market with a 3% price increase across all product categories in 2011. Mettler-Toledo’s stock price is up 8% since the beginning of the year.

SGS

SGS’ stock price is up 9% since the beginning of the year. SGS does not report results for the first or third quarter, but all indications point to continued double digit revenue growth. During the first five months of the year, SGS completed seven tuck-in acquisitions in the U.S., South America, the U.K. and South Africa. The most significant of these is its $37 million acquisition of CIMM (Center of Investigative Mining and Metallurgy) in Chile. Previously 100% owned by the Chilean Government, CIMM complements SGS’ existing Chilean geology, mining and metallurgical testing operations and generates $65 million in annual revenue. It also provides the technical knowledge and capability to expand further in Peru, Brazil, Columbia and Argentina.

Express Scripts Inc.

Express Scripts completed its $29 billion acquisition of Medco Health Solutions on April 2, 2012 without any restrictions from the Federal Trade Commission. Express Scripts will fill 1.4 billion prescriptions this year, making it the largest U.S. pharmacy benefit manager with 30% market share. The company’s first quarter gross profits and earnings per share, excluding transaction costs associated with the acquisition, rose 11% over the first quarter of 2011 to $832 million and 68¢ respectively. Total prescriptions filled rose 3.6% to 193 million from new business won in the second half of 2011. Utilization rates remained flat during the quarter. Home delivery prescriptions increased 6% to 14 million. Many members switched their prescriptions to home delivery as a result of their conversations with the company’s customer service representatives as part of a campaign to find alternatives to Walgreen’s drug stores. The campaign to reach every member who filled prescriptions at a Walgreen’s pharmacy ensured that the company’s clients experienced almost no member dissatisfaction on January 1 when Express Scripts’ dropped Walgreen’s from its retail pharmacy network. The success of this initiative has encouraged clients to evaluate Express Scripts’ narrow retail pharmacy networks as a new tool to control drug costs. Express Scripts’ stock has risen 18% since the beginning of the year.

Varian Medical Systems Inc.

Varian Medical Systems’ second fiscal quarter revenues rose 11% to $720 million, while earnings grew 12% to 96¢ per share. Oncology systems’ second quarter orders were up 9% with North American orders up 14% and international orders up 4%. North American orders benefitted from the receipt of two large orders, including a $12 million order for several TrueBeam systems from Montreal General Hospital. On April 25, 2012, the company announced a new partnership with Siemens. Siemens’ engineers will develop software interfaces for its installed base of 2,000 instruments so that they can connect to Varian’s ARIA Oncology Information System. In the past, a clinic that used Siemens’ information systems could not install Varian machines. Siemens also will distribute Varian’s radiation therapy systems with its industry-leading diagnostic imaging systems and Varian will distribute Siemens’ diagnostic systems with its radiation systems. In addition to giving Varian the first chance to replace the existing Siemens’ installed base, the distribution agreement with Siemens’ imaging business allows Varian to enter many emerging markets without developing its own sales force.

Varian has identified three long-term growth opportunities for Oncology Systems which comprises 75% of its annual revenues: Offer a steady stream of new technologies to expedite replacements in developed markets; increase sales in emerging markets where there is a need for more radiation therapy equipment; and grow the service business. Of Varian’s global installed base of 6,800 radiation therapy systems, 5,600 are high energy and half of these systems are more than 7 years old. TrueBeam is Varian’s most advanced high energy system and the most successful new product in the company’s history with 490 orders since its launch in April 2010. If clinics replaced 40% of their high energy machines, they would need 2,240 TrueBeams. Varian has decided to enter emerging markets because they are growing at twice the rate of developed markets and the availability of radiation oncology treatments is sparse. In the U.S. there are over 75 radiation systems per million people over 64 years old. In Brazil and South Africa, there are at most 30 machines per million people and 20 machines per million people in China and India. While Varian expects margins to decline somewhat as sales to emerging markets rise, these new systems offer significant opportunities for sales of upgrades and service contracts. Varian’s service business currently accounts for 30% of Oncology Systems’ revenues and is growing 10 – 15% per year. Hospitals sign multi-year service contracts because they can no longer repair these complex systems. Service contracts provide recurring revenue which smoothes out the lumpiness of the company’s capital equipment sales. The service business is also very profitable because it does not consume additional selling or research and development resources.

Varian Medical Systems’ stock price has dropped 11% since the beginning of the year. It fell 9% on April 26, 2012, the day after the company announced its second fiscal quarter earnings. Unexpectedly strong sales of radiation systems in emerging markets and a 40% decline in high-margin sales in Japan reduced the company’s gross margin for the quarter by 3.3 percentage points. The company forecasts that sales to emerging markets will reduce Oncology Systems’ fiscal year 2012 gross margins by one percentage point. Investors sold the stock because they assume that the company’s commitment to its long-term strategy will permanently lower its profitability.

IDEXX Laboratories Corp.

Companion animal veterinarians around the globe continue to invest in IDEXX Laboratories’ in-clinic instruments and reference lab services to improve the medical outcomes of their patients and the profitability of their practices. Warm winter weather in the U.S. contributed to 5% growth in patient visits and 7% growth in revenues for 500 vet practices that use the company’s practice management software. First quarter sales of $323 million increased 10% organically over the first quarter of 2011, while earnings of 71¢ per share rose 16%. Placements of chemistry and hematology instruments in vet clinics increased 20% and 25% respectively. Larger clinics opted for high-throughput Catalyst and Procyte instruments while smaller clinics installed refurbished VetTests and LaserCytes. More than 35% of Catalyst and ProCyte instrument placements were to new or competitive accounts. Placements in clinics in Asia-Pacific rose 30% during the quarter and include the first ProCyte placements in Japan, ahead of the expected launch schedule. Consumable sales grew 9% organically as high-throughput instruments make up a larger percentage of the installed base. Reference Lab revenues of $102 million increased 14% during the quarter. Recent acquisitions, which include a large lab in Manhattan, contributed 4% to the revenue growth. Increased test volumes in labs open at least one year contributed 3% to revenue growth during the quarter. IDEXX Laboratories’ stock price is up 10% since the beginning of the year.

Teradata Corp.

Teradata’s stock price is up 42% since the beginning of the year as institutional investors become more aware of the company’s strong customer relationships and entrenched market position for products and services which enable its customers to gain insight from the vast quantities of data being accumulated from more and more sources. During the quarter, revenues of $613 million rose 21% while operating earnings of 60¢ per share rose 25% from the same period a year ago. Teradata’s enterprise data warehouse and analytics product revenue, which includes both software and hardware, rose 31% during the quarter to $308 million. Consulting services and maintenance revenues rose 14% and 11% to $165 million and $140 million respectively. In constant currencies the Americas region, which generates 63% of revenues rose 27%, Europe, the Middle East and Africa contributing 22% of revenues rose 13% and Asia Pacific’s 15% of revenue rose 18%.

During the quarter, new customer wins included Blue Cross Blue Shield of Tennessee, Cars.com, Liverpool (Mexico’s largest department store retailer), EADS France, a major airline in Japan and a leading auto manufacturer in India. Upgrades and expansions from existing customers included Supervalu, Southwest Airlines, Cincinnati Bell, Comcast, CBS, Unilever, Wellpoint, DHL and Telstra. Several existing customers are adding new complementary products from recently acquired Aster Data to garner insights from “big data” which is massive quantities of unstructured data. In the case of Supervalu, the Aster Data appliance will deliver fast responses to queries of its complex data sets spanning eight years of data. A large U.S. telecommunications company added an Aster Data appliance to analyze click-stream data in order to better target advertising to mobile subscribers and to more rapidly identify potential customer churn.

Intel

Intel’s first quarter revenues of $12.9 billion were the same as those in the year ago quarter. The absence of revenue growth resulted in an 8.3% year-to-year decline in net income. Fully diluted earnings per share were 53¢ on 8% fewer shares outstanding than the 56¢ per share reported for last year’s first quarter. Intel’s 64% manufacturing gross margin during the quarter compares to 61.4% a year ago and attests to its skill in achieving economies of scale while minimizing defects as it increased production volumes simultaneously in three new factories. Starting fabrication in one factory of newly designed microprocessors with hitherto unattainable 22 nanometer geometries and then faultlessly ramping production quickly is an exceptionally rare achievement. To do it all at once in three separate locations is inconceivable unless the manufacturing discipline to copy every step exactly is ingrained in the manufacturing teams as it is only at Intel. In the current quarter, Intel’s gross margin will decline 2 percentage points as the depreciation cost for new equipment rises as production escalates. A 15% increase in depreciation expense above last year’s quarter along with a 25% rise in research and development expense more than offset the benefit of strong manufacturing margins during the first quarter. A significant but temporary contribution to the quarterly earnings decline was an absence of any growth in Intel’s Data Center Group’s revenues because many customers deferred purchasing while awaiting the release of new faster and more energy efficient servers powered by the new 22 nanometer microprocessors. These microprocessors deliver 80% faster computational speed while consuming 50% less power than existing servers powered by 32 nanometer Intel microprocessors, heretofore the world’s fastest. In comments on the quarterly earnings, Intel’s management stated that they expect internet traffic will triple by 2015 and noted that China has become the second largest server market in the world. The U.S. remains first. During the current quarter, Intel customers, notably in China, are launching smartphones based on Intel’s new mobile processor. In the U.S., Intel’s $200 million advertising campaign for the Ultrabook soon should become evident. On May 7, Intel raised its quarterly dividend to 22.5¢ per share, a 90¢ annual rate which provides a 3.5% yield. Intel’s stock price has risen 8% since the beginning of the year.

CME Group Inc.

CME’s first quarter revenues and earnings declined 7% and 8% respectively to $775 million and $4.02 per share from the same period a year ago. Average daily volume was 12.3 million contracts, down 11% from the same period a year ago and up 5% from the previous quarter. Lower volatility in the financial markets reduced trading volumes in interest rates, equity index and foreign exchange contracts. These financial contracts generate 40% of company revenue. Commodity-based contract volumes which also generate 40% of revenue declined 1% from the same period a year ago. Market data, exchange access and other fees which generate the remaining 20% of CME revenue rose 9% as a result of market data price increases and the successful launch of co-location services whereby customers can locate their servers closer to the CME Globex data center to cut execution speeds by as much as one millisecond or 25%! The co-location services offering launched on January 29 with 100 customers. CME is forecasting $40 to $45 million in revenues this year from this service and expects it to grow to $100 million in recurring annual revenues in three to five years. Concerns about counter-party risk have led to record volume for CME’s over-the-counter clearing services. During the quarter, the notional value of interest rate swaps and credit default swaps cleared surged from near zero a year ago to $211 billion and $72 billion respectively from a hundred different customers, notably PIMCO. CME’s stock price has risen 11% year-to-date. On May 24, CME declared a five-for-one stock split to be paid on July 20 to shareholders of record on July 10.

Cenovus Energy Inc.

Cenovus’ first quarter per share operating earnings and cash flow of 45¢ and $1.19 were 61% and 31% higher than the comparable year ago results. Cenovus’ 50% share of the bitumen produced from Foster Creek and Christina Lake rose to 82,000 barrels per day, 10% above fourth quarter volumes and 22% above the volume produced in last year’s quarter. The net price received per barrel after royalties, transportation and diluent costs was $10 higher than during the year ago quarter and $2 higher than during the fourth quarter. The operating cost per barrel at Christina Lake is $15.33 which will decline toward Foster Creek’s cost per barrel of $12.85 as operating adjustments deliver efficiencies. The construction of Phase D at Christina Lake is 75% complete and heightens the probability of production from this 40,000 barrel per day addition will begin as scheduled, before year-end. At the end of May, Cenovus received approval from the Alberta Energy Resources Board to proceed with its partner Conoco Phillips to develop the bitumen deposit at Narrows Lake which is situated a few miles to the north of Christina Lake. The production capacity approved is 130,000 barrels a day. Preparation work on the initial phase will begin this fall. During the quarter, the dewatering pilot program to test the cost and effectiveness of the method chosen to remove water covering the bitumen deposit at Telephone Lake was completed. That allows for a better assessment of the cost of development and improves the probability of Cenovus enlisting a good joint venture partner to share the development cost. Foster Creek and Christina Lake produced almost 40% of Cenovus’ operating cash flow of $1.085 billion during the quarter while its two mid-continent heavy oil refineries contributed 25%. Refining margins at these upgraded facilities surprisingly are higher now than during the past quarter. Cenovus stock price is down 5% since the beginning of the year. All of the decline has occurred since the start of a precipitous 20% drop in oil prices on May 2.

National Oilwell Varco

National Oilwell Varco’s (NOV) first quarter revenues and earnings of $4.3 billion and $606 million or $1.42 per share were respectively 37% and 47% higher than the comparable results in last year’s quarter. Rig technology, which generates 62% of the company’s revenues and earns a 25% operating margin, increased its backlog to $10.4 billion, of which 84% is for equipping offshore rigs. Half of the backlog is scheduled for delivery this year with 86% of the rigs destined for international markets. Delivery of orders in backlog booked in 2010 when prices were lower will crimp rig technology margins by about 1% in the next two quarters. First quarter sales of NOV’s Petroleum Services and Supplies business which obtains 63% of its revenues from drillers in the U.S. and Canada by supplying and replenishing drill pipe, casing, tubing, drilling mud, pumps and drilling bits rose to $1.7 billion, 34.7% above the sales achieved during the year ago quarter. This business benefits from rising demand from drillers in the liquid rich shales such as the Bakken and Eagle Ford as well as those continuing to drill the less oily shales. Apprehension about the persistence of the shale boom and resumption of offshore drilling in the Gulf of Mexico along with the slump in oil prices has driven NOV’s stock price down 11% since its strong earnings report on April 25. It’s unchanged since the beginning of the year.

Techne Corp.

Increased sales to U.S. pharmaceutical and biotech companies, as well as to scientists in Japan, Korea and other countries in the Pacific Rim contributed to Techne’s third fiscal quarter revenue growth of 9.6% to $83.6 million over the same period a year ago. Earnings, excluding inventory mark-ups associated with its acquisitions in April 2011 and other one-time items, rose 5% to 87¢ per share. Biotechnology revenues rose 10% to $78.2 million with organic growth of 1.5% for the quarter. Sales to U.S. companies, which account for 28% of sales, rose 5.6% organically during the quarter. Sales to the Pacific Rim of $7 million or 9% of sales rose 7.8%. Sales to scientists in China continue to grow at 20% year-over-year, but from a small base of about $300,000. This growth was partially offset by a 5.4% decline in sales to U.S. academic customers to $8.6 million. Sales to the company’s European customers remained unchanged year-over-year.

Tocris and Boston Biochem continue to perform well. They contributed $6.6 million to the quarter’s sales at the company’s high operating and net margins of 58% and 39.7% respectively. Meetings of scientists from Tocris and their counterparts in Minneapolis reinforced their common approach to research and their commitment to stay at the forefront of their fields. These discussions also generated many ideas for new products which will accelerate the company’s future growth. Techne generated $89.3 million in cash from operations during the first nine months of the fiscal year, or 38% of sales. Capital expenditures to date have been $4.9 million. Techne has returned cash to investors of $30.7 million in cash dividends and share repurchases of $29.7 million. Techne’s stock price is down 3% since the beginning of the year.

Sigma Aldrich Corp.

Strong sales in emerging markets contributed to Sigma Aldrich’s 3% organic revenue growth over the same period a year ago. First quarter sales increased 5% to $665 million with a 4% contribution to growth from acquisitions partly offset by a 2% foreign currency translation loss. Earnings of 99¢ per share rose 5% excluding one-time items from both periods. North American sales rose 1% with 4% organic growth in the research business offset by lower growth in SAFC, the company’s fine chemicals business. Sales in SAFC’s bioscience business were down because customers made large purchases of cell-based media in the first quarter of 2011 in advance of the consolidation of several manufacturing facilities. European sales rose 2% during the quarter with strong sales from the U.K. and Nordic countries offsetting weaker sales in other parts of Europe. Sales in China, India and Brazil grew 13% organically and now account for 23% of the company’s sales. Sigma opened its 20 acre facility in Wuxi, China in March. It offers analytical services, performs quality control and packages products for local Chinese markets. The company can now sell competitively-priced products with the Sigma quality guarantee in markets where they could not compete before. The expanded distribution center in Bangalore, India has significantly improved service levels for contract research organizations, local companies and research scientists who are benefitting from increased government funding. Year-over-year sales in India grew over 20% during the quarter. Margins for products in these markets are as good or better than those for products sold in North America and Europe. Sigma-Aldrich’s stock price has risen 12% since the beginning of the year.

Automatic Data Processing

During ADP’s fiscal third quarter revenues of $2.9 billion rose 7% while earnings of 92¢ per share rose 8% from the same period a year ago. ADP’s TotalSource PEO generated 15% sales growth to $511 million on an 11% increase in employees paid to 260,000. TotalSource combines ADP’s payroll, benefits, human resources and third-party healthcare product offerings into a single money saving solution. ADP’s core Employer Services business generated 7% revenue growth to $2.1 billion as the number of employees on existing U.S. client payrolls rose 3.3% during the quarter, a pick up from the 2.8% increase during the previous quarter. Client retention improved during the quarter by 10 basis points and new business sales, an important indicator of future revenue growth rose 12% from the same period a year ago. Interest received from client funds balances continued its quarterly decline as the yield of the investment portfolio continues to decline. During the quarter a 40 basis point decline in average interest yield to 2.5% was partially offset by a 5% increase in average funds balances to $20.6 billion leading to a $15.3 million or 10% decline in interest received. At the company’s May 24 Financial Analyst Conference, Chris Reidy, ADP’s CFO, provided details about the negative impact that lower market interest rates has on interest income received from its growing client funds balances. ADP has no plans, however, to alter its client’s funds investment strategy focused on the safety, soundness and liquidity of the investment instruments its purchases.

ADP’s CEO of the past six months, Carlos Rodriguez, is placing a greater emphasis on developing and delivering cloud-based internet enabled new products which provide its customers with more functional easier to use solutions. ADP has found that these customers are more likely to purchase additional products and services from the company. In addition cloud-based services reduce customer service costs, thus generating improved profit growth. Management is focused on delivering 12% total shareholder return through profit growth, share repurchases and its current 3% annual dividend yield. ADP’s stock price is down 2% year-to-date.

Exxon Mobil Corp.

Exxon’s first quarter earnings of $2.00 per share were 7% lower than the $2.14 it earned during the year ago quarter when the number of shares outstanding were 5.4% higher. Quarterly production of oil and natural gas in the U.S. were unchanged from a year ago, but the average price realized for natural gas was 31% lower. That low price offset a 14% higher average oil price, all of which yielded a 21% drop in operating earnings from U.S. production. Non-U.S. oil and gas earnings declined 8% because production sharing payments to host governments and asset sales lowered volumes 9% while higher development expenses in West Africa, Iraq and Papua New Guinea absorbed the benefit of 13% higher oil and gas prices than last year. The gas price realized outside the U.S. was three and one half times higher than the U.S. price of $2.72 per mcf during the quarter. The U.S gas price is depressed compared to a $14.50 gas price based on the oil energy equivalent basis, so the $9.77 price per mcf outside North America seems reasonable. The shale gas boom has driven the U.S. gas price down near to or occasionally below the cost of production. Exxon, through its $41 billion acquisition of XTO, is the owner of North America’s largest proven natural gas reserves; it is the continent’s biggest producer. The promising return expected when the agreement to buy XTO was announced in mid-December 2009 has not been realized. Then the gas price was above $5.50 per mcf. The unanticipated low return realized on Exxon’s investment in natural gas production in the U.S. and Canada where it knew how to deal with technical and political problems makes us wary of the company’s immense $3.2 billion commitment to a joint venture with Rosneft. The technical solutions have yet to be devised to economically access oil and gas bearing strata beneath the Black Sea and the Kara Sea in the arctic north of Siberia. Rex Tillerson, Exxon’s CEO, differs from his predecessor in choosing to commit large amounts of Exxon’s financial and technical resources to develop oil and gas reserves in places where political intimidation persists. Exxon’s decision to raise its quarterly dividend 21% to 57¢ per share is welcome and intended to keep income starved shareholders content. Exxon’s share price is down 5% since the start of the year.

Gen-Probe Incorporated

On April 30, 2012, Hologic announced its plan to acquire Gen-Probe for $82.75 per share, a 20% premium to its stock price. This acquisition strengthens Hologics’s women’s health business and accelerates market penetration of Gen-Probe’s products outside of the U.S. Hologic has a direct sales force in each country in Europe, a direct sales force of 500 people in China and training, applications and support services in about 150 countries. Its physician sales team in the U.S. will expedite the growth of Gen-Probe’s new assays for Trichomonas, and Human Papilloma Virus by increasing the awareness of obstetrician-gynecologists of these high quality tests. The May 8, 2012 FDA approval of Gen-Probe’s PANTHER instrument strengthens the company’s growth prospects as well. Carl Hull, Gen-Probe’s CEO, will run Hologic’s diagnostics business which will account for about half of total sales in the combined company. In addition to acquiring a well-run, growing molecular diagnostics business, Hologic expects to reduce annual operating costs by $75 million within the next three years, primarily by moving all molecular diagnostics research and manufacturing to San Diego and ending clinical trials of Hologic’s existing molecular diagnostic assays in development. We expect this deal to close. We sold your stock in early May at a small discount to the acquisition price and captured a 37% stock price rise since 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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2012 – 2nd Quarter EARNINGS REPORT 2011 – 4th Quarter EARNINGS LETTER