EARNINGS LETTER

4th Quarter, 2019

The relentless speed of the spread of coronavirus for which our and the world’s remarkably creative medical researchers have yet to produce an effective vaccine is frightening. They predictably have drawn political leaders in North America, Europe and Asia to fund multiple scientific efforts to find an effective vaccine to treat the virus which sickens mainly older people. Youths are spared, although they can be carriers. The far-reaching mitigation efforts are daunting. To lessen the danger of contagion, politicians are closing schools, restaurants, gyms, museums and theatres, banning professional sporting events and urging businesses to allow employees to work from home. All this is unfortunate, and much worse as our national election is about to begin. That means that we as investors must consider the possible changes the election might bring. We were surprised by the outcome of the last presidential election, and that was far from our first electoral surprise.

In addition to the far-reaching ravages investors have suffered from the market drop caused by the coronavirus, it’s worse for those who suffered from an unprecedented decline in the price of their oil stocks, notably Exxon. It is the largest producer of oil in the Permian Basin in West Texas. The price of West Texas Intermediate Crude has dropped from over $61 a barrel, its recent high in early February to $28 as we write. The decline has been augmented by sizeable Russian sales supposedly directed against the Saudis but in fact targeting U.S. shale oil producers in the Permian Basin.

As we write, our stock market, as measured by the S&P, is down 29.4% from its high on February 19th which was only 26 days ago!

CME

CME’s revenue of $1.1 billion in the fourth quarter and $4.9 billion for the full year were down 8% and up 13%, respectively, from the prior year. Adjusted earnings of $1.52 and $6.80 per share for the quarter and year, respectively, were down 14% and flat compared to the prior year. CME continues to successfully integrate the NEX businesses, introduce new products and drive usage in international markets. Average daily volume in the fourth quarter of 16.9 million contracts was down from a very strong prior year, while the average daily volume of 19.2 million contracts for the year was in line with the previous year’s record volume. During the quarter, non-U.S. average daily volume rose 10% to a record 4.9 million contracts with Europe, Middle East and Africa up 5%, Asia Pacific up 13% and Latin America up 18%. During the year, CME secured $64 million in run rate expense synergies by consolidating its New York, Hong Kong and Tokyo offices and combining back office systems which support finance and HR. London and Singapore office consolidations will occur this year. The migration of NEX’s fixed income and foreign exchange trading platforms to Globex are on track for the fourth quarter of 2020 and 2021.

CME continues its long-standing track record of introducing new products that meet its customers’ needs. New products launched since 2010 generated over $310 million in revenue in 2019 and average daily volume of 2.1 million contracts. CME declared dividends of $2 billion in 2019, including the annual variable dividend of $894 million. CME increased its quarterly dividend 13% in February to 85¢ per share. Reflecting recent market gyrations caused by the coronavirus outbreak, CME reported an all-time high monthly average daily trading volume of 30.1 million contracts for February, a 58% increase from February 2019. The total return on CME’s stock is minus 26% since the beginning of the year.

Visa

Visa’s fiscal first quarter constant currency revenue and earnings per share growth of 11% and 14%, respectively, to $6.1 billion and $1.46 were driven by Visa’s expanding network and the growing use of digital payments. Reported revenue growth was reduced by one percentage point from a stronger U.S. Dollar and two percentage points by the lowest currency volatility in over five years, which dampened the growth of international fee revenue derived from currency spreads. Payments volume of $2.4 trillion rose 8% with higher growth rates in economies where cash and checks are still used in most transactions, including 22% in Central Europe, Middle East and Africa and 17% in Latin America and Caribbean where cash and check payments still comprise 74% and 65%, respectively, of consumer spending. To drive digital payments in these regions, Visa works with local governments who understand the economic benefit of electronic payments. The company also partners with financial technology companies who embed Visa payment credentials on mobile phones and enable merchants to accept mobile payments. The total return on Visa’s stock is minus 19% since January 1.

Visa’s management presented its growth strategy at its February 11 Investor Day in San Francisco. With $18 trillion, or twice Visa’s annual payments volume, of global consumer payments occurring in cash or check, Visa has ample opportunity to grow by displacing cash in consumer transactions. Outside of consumer spending, however, are $185 trillion of business payments, government disbursements and person-to-person remittances. Visa Direct and Earthport, which Visa acquired in 2019, help address some of the $65 trillion in high volume, low value transactions, such as peer-to-peer, insurance claim payouts, and gig economy pay, by enabling consumers and businesses to instantly receive funds on their debit cards or in their bank accounts. 57 million Americans, or 35% of the U.S. workforce, take part in the gig economy as independent contractors. Visa Direct volume has grown 80% annually since 2016. It now has 130 million active users that generated 2 billion transactions in 2019. To address some of the $120 trillion in less frequent but higher value money movements, Visa is launching B2B Connect this quarter. B2B Connect will provide speed, visibility and cost efficiency for large cross border business-to-business (B2B) payments by multi-national corporations, such as Airbus paying GE for airplane engines, which currently pass through a web of financial intermediaries. Revenue from non-consumer payments and Visa’s value-added services such as consulting and data analytics account for 23% of Visa’s revenue and has grown 17% annually since 2017, more than the 10% annual growth achieved in consumer payments over the same period.

Automatic Data Processing

Revenue of $3.7 billion for ADP’s fiscal second quarter rose 6% over the prior year on an organic constant currency basis, while adjusted earnings of $1.52 per share rose 13%. Employer Services revenue rose 4% and the number of employees on existing client payrolls increased 2.2%. New business bookings increased 3% as some larger multinational companies delayed their purchase decisions; however, the overall new business pipeline remains strong and ADP expects 6-7% new business bookings growth for the full year. PEO Services revenue increased 9% as average worksite employees increased 6% to 579,000. The company reported strong double-digit new business bookings growth in its PEO. Interest income on client funds grew 7% to $137.7 million benefitting from growth in average client funds balances of 6% to $25.1 billion. Growth in the client funds balances was driven by new clients, higher wages and growth in the number of employees at existing clients.

ADP continues to invest in new product development and in its sales organization, while reducing expenses through lower procurement costs and workforce optimization that reduces management layers. The company now has 30-40 clients live on its Next Gen payroll platform, 10 clients on its Next Gen Human Capital Management platform and 140,000 clients on its Next Gen Tax platform. These new platforms are easier to use and will drive further efficiency by lowering back office costs. These products and many others were highlighted at the company’s Innovation Day on February 10th at its Innovation Lab in New York City. During the quarter, ADP increased its annual dividend 15% to $3.64 per share, marking the 45th consecutive year of increase. ADP is one of only thirty companies in the S&P 500 to have increased its dividend every year for 45 years or more. The total return on ADP’s stock is minus 28% since January 1.

Microsoft

Microsoft’s fiscal second quarter revenue of $36.9 billion increased 14% over the year ago period driven by strong growth in its cloud, subscription and Windows businesses. Revenue of $12.5 billion from Microsoft’s Commercial Cloud, which includes corporate software subscriptions and computing delivered on Microsoft’s Azure infrastructure, rose 39%. Within Commercial Cloud, revenue from Office 365 Commercial, Microsoft’s subscription-based productivity software suite for businesses, increased 27% as Microsoft added new customers, converted existing users from licensed installations and signed up more users at higher pricing tiers that offer more services. Azure revenue jumped 62% from enterprises choosing Microsoft to host and run more of their data and applications in Microsoft’s cloud. Business customers are making longer commitments to Microsoft’s products and services, thus increasing the visibility of future revenue. As of December 31, 2019, commercial bookings totaled $90 billion, up 30% from a year earlier, with 50% to be earned beyond 2020.

Sales of high-end Windows operating systems rose 26% during the quarter, driven by corporate and consumer demand for Microsoft’s enhanced security tools and Microsoft’s decision to stop supporting a decade-old version of Windows because of inadequate security. More than two-thirds of Windows PCs now run the latest version, Windows 10. Precautions taken in response to the coronavirus are slowing the installation of Windows operating systems by Chinese manufacturers in the current quarter. Disciplined expense management and growth in Microsoft’s high margin software businesses drove a remarkable six percentage point increase in company operating margin to 37.6% and a 35% increase in operating income to $13.9 billion. Earnings per share surged 40% to $1.51. The total return on Microsoft’s stock is minus 14% year-to-date.

Costco

Costco’s revenue in its fiscal 2020 second quarter ending February 16, 2020 increased 10.4% to $39.1 billion. With no new warehouses opened during the quarter, the impressive growth was driven by sales at locations open for more than one year which rose 8.9%. Members spent 2.9% more on their average visit and visited 5.9% more frequently than during the same period a year ago. Some of the increase in spending came from a higher percentage of Costco’s cardholders becoming executive members who typically spend more than Gold Star members. Executive memberships rose 8.5% to 21.7 million and total cardholders surpassed 100 million for the first time, rising 4.8% to 100.9 million. Executive members pay $120 per year and receive 2% rewards up to $1,000 annually on qualifying Costco purchases and additional savings on travel and other services. Membership fee income rose 6% to $816 million, or 64% of operating income, in the quarter. Higher sales volume increased Costco’s return on its fixed costs, including selling, general and administrative

expenses which dropped from 10.00% to 9.78% of sales. This 22-basis point improvement added $84 million to Costco’s operating income and helped offset a 31-basis point decline in gross margin caused by start-up expenses in Costco’s new state-of-the-art chicken processing plant and faster growth in lower gross margin areas such as gas sales and e-commerce. Earnings per share of $2.10 rose 4.5% in the quarter and increased 7.0% to $4.00 in Costco’s fiscal first half year. The total return on Costco’s stock is minus 4% since January 1.

Subsequent to its fiscal second quarter end, Costco experienced a rapid increase in shopper traffic in the four weeks ending March 1 related to coronavirus concerns. February sales rose 13.8% to $12.2 billion with the number of member visits up 9.2% as many consumers sought to stock up on dry grocery items, cleaning supplies, sanitizers, water and paper goods. Daily deliveries and Costco’s large orders and strong long-term relationships with its suppliers have helped Costco meet the surge in demand better than smaller retailers.

Alphabet

Alphabet’s fourth quarter revenue of $46.1 billion rose 17% driven by Google Search, YouTube and Google Cloud. Earnings per share increased 20% to $15.35. For the year, Alphabet’s revenue rose 18% from $136.8 billion to $161.9 billion and earnings per share increased 12% to $49.16. For a sense of the size of this revenue growth, the $25 billion increase was $2 billion more than Visa’s 2019 revenue. Sundar Pichai, Google’s CEO since 2015, became Alphabet’s CEO in December 2019 and provided increased financial transparency to investors in his first quarterly report as the company’s CEO. Revenue generated by YouTube, which was started in 2005 and was acquired by Google in 2006 for $1.65 billion, reached an annual rate of $18 billion, comprised of $3 billion in revenue from YouTube Music and TV subscribers and $15.1 billion from ad placements. YouTube ad revenue accounts for 11% of Google’s ad revenue and rose 36% in 2019.

By adding to its direct sales force, expanding its partner network and investing in engineering talent, Google Cloud has won more business helping enterprises modernize their technology. Most of Alphabet’s 20,000 new employees in 2019 were hired for Cloud sales and engineering roles. During the year, Google trained 750,000 outside developers on its cloud tools, increasing the number of Google certified developers by 350%. The number of third-party businesses who sell Google Cloud Platform to their customers nearly tripled in 2019 and brought Google 13 times more new customers than in 2018. This organizational expansion, led by Google Cloud CEO Thomas Kurian, who joined the firm in November 2018, propelled Cloud revenue up 53% to $8.9 billion in 2019, up from growth of 43% in 2018.

Google’s investments in artificial intelligence and continual enhancements to Search make Google Search the most widely used internet search provider. Google’s BERT (Bidirectional Encoder Representations from Transformers), released in October 2019, uses natural language processing for more nuanced queries that depend on context. The new search algorithm evaluates words before and after keywords to discern context, rather than in the order they are written. BERT now impacts 10% of all Google searches and is available in 70 languages. Revenue from Google Search and related tools such as Gmail and Google Maps accounted for 61% of Alphabet’s 2019 revenue and rose 15% to $98.1 billion. Alphabet’s stock price has declined 19% since January 1.

IDEXX Laboratories

IDEXX Laboratories’ fourth quarter revenue of $605 million grew 10% in constant currencies over the fourth quarter of 2018. Revenue from Companion Animal Group Diagnostics (CAG) recurring revenue (in-clinic instrument consumables, reference lab services and rapid assays) rose 11%. Full year revenue of $2.41 billion rose 10% with CAG Diagnostics recurring revenue growing 12%. Unfavorable foreign exchange rates had no impact on revenue during the fourth quarter and reduced full year revenue growth in U.S. dollars by one percentage point. Earnings per share of $1.04 for the quarter and $4.89 for the year grew 17% and 21%, respectively. Earnings growth excludes a 14¢ per share charge for the payment of former CEO Jonathan Ayers’ stock compensation.

IDEXX continues to invest in software for veterinary practices to help them manage the increasing amount of data generated by their practices. Veterinary software, services and diagnostic imaging systems had revenue of $158 million in 2019, up 7% over 2018. Placements of IDEXX’s cloud-based and on-premise practice information management systems (PIMS) rose 63% during the year. Vets who already use the company’s in-clinic instruments find that using IDEXX’s PIMS improves staff productivity, fully updates their patient records and captures more charges. The number of subscriptions to IDEXX’s Web PACS, which automatically stores digital X-ray images in a PIMS, rose 23% and has an installed base of more than 4,500 practices. The latest cloud-based software update uses artificial intelligence to automatically correct image orientation and sorts the images by body part. These adjustments reduce the time it takes to read X-rays by as much as 25%. IDEXX Laboratories’ stock price has fallen 14% since January 1.

Ecolab, Inc.

Ecolab’s fourth quarter revenue of $3.88 billion rose 1% over the fourth quarter of 2018, excluding the impacts of foreign currency translation and acquisitions and divestitures. Revenue rose 3% without the Upstream energy business ChampionX where revenue declined 6% to $579 million. It now operates as a stand-alone business with its own enterprise resource planning system and supply chain. Ecolab plans to spin out this business by the end of the second quarter and to combine it with Apergy, a publicly traded energy services company that was spun out of Dover Corporation in May 2018.

Global Industrial, with fourth quarter sales of $1.47 billion, is Ecolab’s largest segment and accounted for 35% of sales. These businesses were the first to shift the focus of the sales force from achieving price increases to winning new business. With a combination of price increases and new business wins, Water and Food & Beverage delivered 5% revenue growth during the quarter and the smaller Life Sciences business achieved revenue growth of 13%. Food & Beverage has the most mature global corporate account organization which sells cleaning and sanitizing, water treatment and pest elimination services to their customers. Revenue growth from corporate account wins and share gains more than offset flat growth in the industry. Ecolab has expanded the sales and service teams of Life Sciences which resulted in business wins and price increases in cleaning and disinfection programs for both pharmaceutical and personal care companies with strong growth in Europe. Global Institutional revenue of $1.33 billion rose 2% over the same period a year ago. Strong revenue growth of 7% in Specialty, which serves quick service restaurants and food retail, was offset by a 5% decline in Healthcare sales which fell because of a voluntary recall of several infection prevention products in Europe. Ecolab used its expertise to identify and decontaminate the plant which is now operating at 80% of capacity. Sales of the company’s Other businesses which includes Pest Elimination rose 4% to $277 million.

Increased price realization and lower raw material costs lifted gross profit 5% to $1.62 billion and gross margin 1.2 percentage points to 42.4%. Operating margin increased 0.6 percentage points to 17.7% as the company invested in its Global Institutional and Pest Elimination businesses. Earnings per share for the quarter were $1.66, up 8% over the same period a year ago and exclude special charges and gains and one-time tax items. Full year revenue and earnings per share rose 2% and 11% to $14.9 billion and $5.82, respectively. The total return on Ecolab’s stock since the beginning of the year is minus 14%.

Mettler-Toledo

Mettler-Toledo’s fourth quarter and full year revenue of $844 million and $3.0 billion rose 4% and 5% in local currencies, respectively, over the same periods a year ago. Unfavorable foreign currency rates reduced sales reported in U.S. dollars by one percentage point for the quarter and three percentage points for the year. Laboratory sales rose 7% and Industrial sales rose 2% with Core Industrial sales up 4% and Product Inspection sales unchanged.

The good Core Industrial sales growth builds on 13% sales growth in the fourth quarter last year. The underlying market demand for these products remains good enough and the company’s sales and marketing initiatives enable it to gain market share. Mettler’s new products help customers improve their productivity and streamline data management. InVision uses machine learning, camera recognition and weighing sensors to identify parts in milliseconds. It can determine whether the small plastic bags that contain nuts and bolts to assemble a product are filled correctly. The company expects customers to achieve productivity improvements of up to 30% with this evolutionary product. Mettler uses this system to prepare kits for product assembly and is pleased with the productivity improvements it has achieved to date. Mettler’s Product Inspection business sales grow fastest with global projects from large food manufacturers, who have not yet returned to full investment mode. Mettler wins most of these projects because it is the only company that can service the equipment in all the countries in which the food companies operate.

Price realization, along with productivity and material costs initiatives, lifted gross margin by 0.6 percentage points to 59%. Selling, general and administrative expense rose 3% to $207 million with investments in the field force, growth initiatives and higher variable compensation only partly offset by costs savings in slower-growing businesses. Operating income rose 7% to $256 million and include a $3.5 million impact from unfavorable foreign currency and a $2.5 million headwind from tariffs. The operating margin expanded 1.1 percentage points to 30.4% Earnings per share for the quarter of $7.78 were 14% higher than earnings of $6.85 a year ago. Earnings per share for the full year of $22.77 rose 12%. Mettler-Toledo’s stock price has fallen 21% since the beginning of the year. As soon as the company learned of the coronavirus outbreak in China it cancelled its Annual Sales Force meeting and all non-essential travel there. The company also rolled out a broad training program for the sales force and indirect channel partners to improve their effectiveness in telesales. Mettler reduced its first quarter sales growth forecast in local currency by two percentage points to flat to 1% growth with sales in China expected to be down mid- to high-single digits because of lost sales days. They expect revenue growth to recover later in the year. The company’s stock price has been volatile and moves with news about China.

Varian Medical Systems

Varian Medical Systems’ fiscal first quarter revenue of $829 million rose 12% over the same period a year ago. Organic revenue growth was 8% with acquisitions accounting for five percentage points of growth. Unfavorable foreign currency translation reduced revenue growth in U.S. dollars by one percentage point. Earnings per share grew 10% to $1.16 with spending on R&D up 10% to $67 million as the company continues to invest in software and new initiatives. Selling, general and administrative costs rose 22% to $167 million because of an $11 million investment in infrastructure for CTSI, its newly acquired business that provides treatment plans and other pre-treatment services to radiation oncology clinics, and in sales and distribution capacity for interventional oncology. Interventional oncology is a minimally invasive technique that uses thermal energy (heat or cold) to kill tumor cells or places beads in a tumor’s blood vessels to either block the blood flow or to deliver drugs directly to the tumor.

Revenue from software and services rose 13% and 22% to $148 million and $321 million, respectively. These businesses with recurring revenue and high margins accounted for 56% of Varian’s revenue during the quarter. Varian’s unique software customers grew 8% to about 5,600 sites with over 100,000 users. The company has over 2,600 orders for RapidPlan, its treatment planning software that uses machine learning to adapt model plans to a plan for a specific patient. It has installed over 1,600 licenses at 700 locations. Varian will use the treatment plans that CTSI generates for its clients as data to improve the plans created by RapidPlan. Varian’s expertise in treatment planning will also support the interventional oncology business where plans are required to determine where to place the catheters that deliver the localized treatment. Varian’s stock price is down 27% since the beginning of the year.

On March 9, 2020, Varian announced that its fiscal second quarter revenue will be $800 to $825 million, or growth of 3% to 6%, about $80 million lower than originally forecast because of delays in radiation system installations and software acceptance in countries most affected by the coronavirus. Most of the delay has taken place in China where radiation therapy is an inpatient procedure. It is an outpatient procedure in all other countries. All the beds and medical staff have been treating patients with COVID-19. Varian sales representatives spoke with each customer in China to confirm that none have cancelled their orders.

Johnson & Johnson

Johnson & Johnson’s fourth quarter revenue of $20.7 billion rose 2.6% in constant currencies over the fourth quarter of 2018. Full year sales of $82.1 billion grew 2.8%. Unfavorable foreign exchange rates reduced sales reported in U.S. dollars to 1.7% for the quarter and 0.6% for the year. Earnings per share for the quarter declined 3% to $1.88 and rose 8.8% to $8.68 for the year. They exclude amortization of purchased intangible assets, litigation expense and transaction costs associated with recent purchases.

The Pharmaceuticals business posted another strong quarter with sales of $10.5 billion, 4.4% higher than the same period a year ago. The business achieved this growth despite a 16% decline in worldwide sales of Remicade (immunology) to $1.0 billion and a 13% decline in sales of Zytiga (prostate cancer) to $677 million. Oncology sales remained strong with revenue growth of 11% to $2.72 billion with sales of Darzalex (multiple myeloma) and Imbruvica (blood-based cancers) rising 44% and 27%, respectively, to $830 million and $875 million. Sales of J&J’s Immunology drugs Stelara and Tremfya performed well during the quarter. Stelara sales grew 19% to $1.7 billion. Most of the growth came from treating Crohn’s disease where it gained six percentage points of market share over the same period a year ago. Sales of Tremfya, J&J’s newest immunology drug that treats psoriasis, rose 55% to $270 million and captured 8.3% of the competitive U.S. psoriasis market. Increased patient starts and long-term use lifted the revenue of the company’s long-acting antipsychotic drugs 15% to $871 million.

Medical Devices’ fourth quarter sales of $6.63 billion rose 2.7% over the same period a year ago. Acquisitions and divestitures accounted for 2.5 percentage points of the growth. The contact lens business delivered 2.6% revenue growth or 5% adjusted for purchases in Japan before the imposition of higher consumption taxes. Orthopaedics revenue rose 1.2% to $2.27 billion with 4% revenue growth in Hips and 1.4% revenue growth in Knees, where sales declined in 2018. The Interventional business continues to deliver strong results with quarterly revenue of $774 million, up 13%. Surgery sales fell 4.4% to $2.44 billion. Fourth quarter Consumer sales of $3.6 billion grew 2.1% or 1.4% excluding the impact of acquisitions and divestitures. Revenue from OTC medicines grew 5% globally and 8% in the U.S. OTC and Beauty now account for 66% of Consumer’s sales. J&J now manages this division for profitability and is investing in its Tylenol and Motrin brands in OTC and in Aveeno and Neutrogena in Skin Health. Consumer is reducing the number of SKUs by 10% this year, primarily in Baby Care and Beauty products sold outside of the U.S. The total return on Johnson & Johnson’s stock is minus 12% since the beginning of the year.

Wabtec

Wabtec realized $448 million in cash from operations during the fourth quarter of last year on sales of $2.4 billion. The cash generation is over 1½ times the $277 million produced a year ago and lifted adjusted earnings up to $4.17 per share for the year. The company’s twelve-month backlog as of December 31 was $12.6 billion. In reviewing its sales and earnings forecast for this year, management stated that 2020 sales would rise 6% to $8.76 billion and earnings per share would reach $4.50 or possibly $4.80.

Wabtec’s management intended to discuss the new Wabtec at a meeting for investors in New York on March 10. It was changed to an on-line report with 82 slides used by the company’s senior management and its division managers. They clearly cited the goals of the businesses they were responsible for running in a way that showed that thought had been given to ensuring that the descriptions of the business reinforced management’s stated goals. In discussing the outlook for the year, Rafael Santana, Wabtec’s new President and CEO, emphasized his commitment to using technology and innovation to achieve continuous operational improvement through lean operations yielding increased cash flow. Wabtec’s stock price was as high as $80 a share when it reported its earnings on February 18, the day before the S&P peaked at 3,386! The S&P is at 2,386 as we write and Wabtec is $48.08, a 40% decline. Wabtec’s stock price is down 38% since the beginning of the year.

We think that the change of Wabtec’s much anticipated analyst meeting to a series of online presentations because of the danger of the coronavirus exposure to attendees deprived the analysts from seeing and communicating directly with the managers, many of whom were new. None of their determination and enthusiasm came through. The Wabtec company being introduced to investors at the meeting is distinctly different from the old Wabtec they knew. Instead, it is a vastly more profitable business which includes the dominant North American locomotive manufacturer with long-term maintenance contracts and with the railroads dependent upon the operational efficiencies of the locomotives that Wabtec manufacturers and services. The quality of this business strengthens Wabtec’s business relationships with all its North American, European, Asian and South American customers.

Air Lease Corporation

Air Lease’s fourth quarter and full year revenue of $549 million and $2.0 billion rose 22% and 20%, respectively, from the prior year despite delivery delays of Boeing MAX aircraft which are on order. Adjusted earnings of $1.92 per share for the quarter and $6.91 for the full year increased 16% and 12%, respectively. During the quarter, the company delivered 12 new aircraft to customers and sold 11 older aircraft, resulting in a total of 292 owned aircraft at year-end, leased to 106 airlines in 59 countries. The average age of aircraft in its fleet is 3.5 years, with an average remaining lease term of 7.2 years representing $14.1 billion of minimum rental payments.

Air Lease’s strong balance sheet enables it to work with its airline customers who are severely impacted by the coronavirus outbreak. The company is positioned to do some temporary lease payment deferrals, and to make purchase offers for aircraft from stressed customers, which can then be placed with other customers who are short of capacity as a result of the Boeing MAX grounding. The total return on Air Lease’s stock is minus 58%.

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Capital Counsel’s investment strategy combines disciplined fundamental analysis with patient execution. We hope this letter helps you understand that stock selection is at the core of our investment strategy. We seek to invest in profitable well-managed companies that generate recurring free cash flow. These companies should possess strong balance sheets and earn attractive rates of return on shareholders’ capital. We know the companies and their proven execution focused managers well. They deal with problems openly and effectively, and have incentives aligned with shareholders. We evaluate the company, as an informed private buyer might, to determine the value of the business based upon its ability to generate free cash flow. We manage concentrated portfolios which have provided our clients with good long-term results. The financial strength of the companies held in client portfolios has lessened the drop experienced when markets decline.

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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2019 – 3rd Quarter EARNINGS LETTER