The document discusses recent trends in the US economy and financial markets. It notes that bond yields and stock price-to-earnings ratios remain exceptionally low, leaving shares undervalued. Profits are strong due to rising labor productivity and improved manufacturing capacity utilization. However, share prices are far below their fair discounted present value of likely future earnings due to high risk being priced into the markets. The economic outlook assumes continued weak employment growth and productivity increases keeping real GDP around 2% annually. Fiscal stimulus in the US will be cut substantially in 2013, adding headwinds to growth.

1. Lead or Be Led by Fear T HE PARTHENON G ROUP
Boston • London • Mumbai • San Francisco
Roger Brinner
Partner & Chief Economist
The Parthenon Group
March 2011

2. Conventional Wisdom Ignorance T HE P ARTHENON G ROUP
2

3. Yields on Bonds and Stocks Remain
Exceptionally Low, Leaving Shares Undervalued T HE P ARTHENON G ROUP
12 12
10.6
Treasury Bond Yield
10 10
E/P Ratio
8.3
Earnings-Price Ratio
8 7.5 7.7 8
Bond Yield
7.1
6.7
6 5.6 5.6 6
4.7 4.5 4.5
4 4
3.0 2.8
2.1
2 2
0 0
60's 70's 80's 90's 00's 2010 2011 q4
Source: Global Insight; Parthenon Analysis 3

4. Stocks Have a Huge Long-Run Advantage
Over All Other Asset Classes T HE P ARTHENON G ROUP
4

5. Profits are Strong Due to Rising Labor
Productivity and Improved Capacity Utilization T HE P ARTHENON G ROUP
16% Pre-Tax Profit Share of GDP 125%
Labor Productivity (Real
15 Output per Hour) 120
14 Manuf. Capac. Utilization (%)
115
Profit Drivers (2005=100)
13
Profit Share of GDP
110
12
105
11
100
10
95
9
8 90
7 85
history forecast
6 80
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
Source: Global Insight; Parthenon Analysis 5

6. Share Prices Are Far Below the Fair Value
Measured as the Discounted Present Value
of Likely Future Earnings T HE P ARTHENON G ROUP
Underlying and Realized Value of the S&P 500
Price Difference vs. Fair Value Markets are pricing in
unprecedented risk
and slow growth
6

7. The Impact of Risk on Current Share Prices T HE P ARTHENON G ROUP
Fair Market
Valuation
45% Key Action Steps
Under-
Valuation • Cut your deal … large investment(s) or
acquisitions(s) … NOW
– Low interest rates
Current
Valuation – Low P/E ratios
• Absent the above, raise dividend or repurchase
your shares
– Dividend increases impact share price
more positively than share repurchases
– Cost of Debt < Cost of Equity
7

8. Economic Outlook T HE P ARTHENON G ROUP
Core Assumptions
Productivity growth keeps employment growth weak given real GDP growth near 2%
Greek Crisis ends without collapse of Euro but with mild Euro-area recession; $US
improves
Congress “kicks can down the road”: Super Committee dismally fails, and Congress
extends payroll tax cut and unemployment benefits. But significant US fiscal restraint
begins in 2013 or 2014
Fed keeps both short- and long-term interest rates at record lows, as inflation remains
under control
Oil firms up as Iranian tensions rise; otherwise, oil prices recede with global growth
deceleration, weak natural gas prices, and stronger $US
Consumers’ dismay/disgust with Washington antics fades but remains weak and bleeds
strength from 2012
Housing recovery begins, driven by cheap mortgages, demographics, and modest job
growth
8

9. The “Great Recession” and a Weak Recovery
Imply Meager Employment Growth in the US T HE P ARTHENON G ROUP
Real GDP, Employment, and Productivity (Real GDP per Employee) Relative to Peak
Performance Relative to Beginning of Recession
112 1980-84 Cycle 106% Real GDP Current Cycle
111 Real GDP 105 Payroll Employment
110 Payroll Employment Real GDP per Employee
109
104
Real GDP per Employee Trend Productivity
Performance Relative to Beginning of Recession
108 103
Trend Productivity
107 102 GDP
106 Recession
101
105
104 GDP 100
Recession
103 99
102 98
101
100
97
99 96
98 95
97
94
96
95 93
94 92 2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
1980Q1
1980Q3
1981Q1
1981Q3
1982Q1
1982Q3
1983Q1
1983Q3
1984Q1
1984Q3
As in the last major business cycle, productivity first surged above trend and then
fell back, creating job growth even with decelerating GDP growth
Source: Parthenon Analysis; Bureau of Economic Analysis; Bureau of Labor Statistics 9

10. Economic Headwinds from Fiscal Contraction T HE P ARTHENON G ROUP
Fiscal Stimulus Will be Cut by 3-4% of GDP in 2013 Compared to 2010
“Total Deficits” reflect both policy changes and “Cyclically Adjusted Deficits”
the business cycle adjust for revenues lost and higher
unemployment benefits due to the recession
history forecast history forecast
Adjusted Deficit (-) as Percent of GDP
0 0
Italy
World
China
Deficit (-) as Percent of GDP
Advanced Euro Area
-2 -2 economies
-2 Canada
Euro Area
-3 Canada -3 United Kingdom
-4 -4 -4 Spain
-4 -4 United States
-5
UK -5
-6 -6 US -6
-6 -6
-7
India Japan
-8 -8
Japan
-10 -10
-12 -12
-14 -14
2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013
Source: International Monetary Fund (IMF)
10

11. National Government Debt Burdens T HE P ARTHENON G ROUP
Don’t Bet Against the US (and the US Dollar):
The US Has Less Government Debt Than Either Europe or Japan
150
150
131 United States (Net)
Government Debt as % of GDP
Euro Area
Japan (Net)
98
100 93 Italy
88
85
France
75
70 United Kingdom
Germany
53
50 Spain
India
Brazil
0
2008 2011 2013
Source: International Monetary Fund (IMF)
11

12. Due to Weak, Slow, Misguided Policy
Actions, the European Recessions Were
Deeper and Will Be Longer T HE P ARTHENON G ROUP
Real GDP Growth, 2007 Q1–2012 Q1 est.
5%
U.S.
4
3
Percent Change Versus a Year Ago
Euro Big 4
2
1 Eurozone
0
UK
-1
-2
-3
-4
-5
-6
-7
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
Source: Oxford Economics; Bureau of Economic Analysis 12

13. “BRICK” Growth Cycles in Parallel,
But from Higher Path T HE P ARTHENON G ROUP
Real GDP Growth, 2007 Q1–2012Q1
14% BRIC
12
Brazil
10
8 India
6
Percent Change Versus a Year Ago
4 China
2
South Korea
0
-2 U.S.
-4
-6
-8
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
Source: Oxford Economics; Bureau of Economic Analysis; Global Insight 13

14. Demographics: The primary driver of new
house sales over the long-run. T HE P ARTHENON G ROUP
Easy credit drove sales far above historic norms during the mid-00s….
New home sales
(adjusted to include estimated owner-
constructed units)
Adult population growth
Adjusted to reflect 1.8 adults 18-85
per household
Source: Census Bureau, Parthenon analysis. 14

15. House Prices & Affordability T HE P ARTHENON G ROUP
Prices stabilizing, with affordability at record levels.
50%
260 240 Carrying cost assumes 80%
loan-to-value mortgage, at
230 45 prevailing income levels and
Share of Typical Household Income
250 mortgage rates.
Median Existing Home Sales Price
Median New Home Sale Price
220 40
240
(thousands)
210
35 new
house
230 200
30
190
220
25
180
210
existing
20 house
170
200 160 15
2005
2006
2007
2008
2009
2010
2011
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
Source: Census Bureau, Nat’l Ass’n of Realtors, Bureau of Economic Analysis, Federal Reserve, Parthenon analysis. 15

16. The Plural of “Anecdote” Is Not Data! T HE P ARTHENON G ROUP
The Deficit!
• Class Warfare
• Federal Deficit
16

17. Class Warfare:
The Facts About Pay and Inflation-Adjusted Pay T HE P ARTHENON G ROUP
• Claims that “real pay” has fallen are simply false.
• Even if benefits are ignored, base pay has outstripped the headline
consumer price index (CPI)
• Benefits should be included because health costs are in the CPI
• Moreover, the CPI is biased by assuming consumers cannot adjust to
changing prices; a preferred mathematical formulation (the “perfect” or
chain-weighted CPI) shows less price inflation hence higher real
compensation
1.35 Wages+Benefits
4.0 Benefits /Correct CPI
3.8 1.30
3.6
3.4 Wages and benefits
1.25
3.2
3.0 1.20
Wages only
2.8
2.6 CPI 1.15
2.4 Correct ("Perfect" )
CPI 1.10 Wage/CPI
2.2
2.0 1.05
1.8
1.6 1.00
1.4
1.2 0.95
1.0
0.90
0.8
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
17

18. Household Incomes, Post-Federal Income Tax
(Adjusted for Consumer Price Inflation) T HE P ARTHENON G ROUP
Lowest Second Middle Fourth Highest All
Quintile Quintile Quintile Quintile Quintile Quintiles Top 10% Top 5% Top 1%
peak-to-peak annual growth
79-89 0.1% 0.2% 0.7% 1.3% 2.7% 1.7% 3.3% 3.7% 5.2%
89-99 2.5% 2.3% 1.7% 1.9% 3.0% 2.5% 3.4% 4.0% 5.2%
99-07 0.5% 1.2% 1.4% 1.4% 2.7% 1.8% 3.2% 3.8% 4.8%
2.25 “Middle Class” Top Quintile (1st) • The “Middle Class” is
doing fine: real income
Top Quintile (1st) rising much as in prior
2.00
Second Quintile decades
Third Quintile
1.75 Fourth Quintile • The lowest quintile also
Bottom Quintile (5th) sees rising
All Households Second Quintile income, although at a
1.50 Third Quintile
Fourth Quintile low pace, but this
Bottom Quintile (5th) “income” doesn’t
1.25 include some welfare
and other benefits
1.00 • The growth margin of
the top 10% is the same
as in the past:
0.75
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
education, skill, effort, h
eritage matter
18

19. Reagan & Bush Income Tax Changes Were
Highly Progressive, Not Regressive as Accused T HE P ARTHENON G ROUP
Effective Federal Income Tax Burdens
Income Percentile
24 ($ average 2005 income pre-tax)
21 Top 0.01 %-tile ($35.5 mill.)
18 %-tiles 99.9 - 99.98 ($4.7 mill.)
%-tiles 99.5 - 99.8 ($1.2 mill.)
15
%-tiles 99.0 - 99.4 ($588k)
12
%-tiles 96-98 ($270k)
9
%-tiles 91-95 ($162k)
6
%-tiles 81-90 ($121k)
3 Fourth Quintile ($85k)
0 Middle Quintile ($59k)
-3 Second Quintile ($37k)
-6 Lowest Quintile ($16k)
-9
Average '75-'86 Current Law
According to • Moved the Bottom 2 Quintiles (40% of All Households) from Tax Payers to Credit Recipients
the Nonpartisan • Cut Middle Quintile Burden by 60%
Congressional • Slightly Reduced Effective Tax Rates on Top 2 Quintiles
Budget Office and IRS, • Reduced Tax Rates on Very Highest 1/1000 of Households by Far Less than the Tax Savings
Republican Tax Reforms: for Any of the Bottom 3 Quintiles
Source: Parthenon Analysis; Bureau of Economic Analysis; Congressional Budget Office 19

20. Reagan & Bush Income Tax Changes Removed
23% of Households From Income taxation T HE P ARTHENON G ROUP
IRS Returns with Zero or Negative Taxes (%)
50%
40
30
20
10
0
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Reagan’s Tax Reagan’s Tax Clinton’s Bush’s Jobs &
Reform Act of Reform Act of Budget Act of Growth Act of
1982 1986 1993 2003
Source Internal Revenue Service 20

21. Understanding the Facts, Developing an
Informed Point of View, and Making Decisions
in an Uncertain Economic Environment T HE P ARTHENON G ROUP
THE FACTS
1) Equity markets are priced for high risk and a zero-growth future
2) The cost of debt is at record low levels for high-quality borrowers
IMPLIED VIEW OF WALL STREET: PARTHENON’S “PROPER PESSIMISM”:
MARKETS ARE PROPERLY VALUED MARKETS ARE UNDERVALUED BY 40-50%
POINT OF VIEW A major recession devours Europe, “Proper Pessimism” is most
and spills heavily over to US and the realistic: low but positive global
rest-of-world, implying flat revenues revenue growth and flat profits
and sharply falling profits for years without a new global recession
PLANNING AND • Businesses that have a strong balance sheet and good margins can:
- Borrow cheaply to buy market share and exposure to BRIC countries
DECISIONS
- Reset hurdle rates lower to evaluate (internal or external) investment opportunities
- Explore relevant adjacencies (adjacent markets, participating in other areas of a value chain, etc.)
- Consider a stock buyback
• Businesses that are vulnerable should:
- “Hunker down” and address fundamentals
- Prepare for the macroeconomic recovery, positioning for growth
21

22. Parthenon Background and Contact Information T HE P ARTHENON G ROUP
About The Parthenon Group
The Parthenon Group is a leading advisory firm focused on strategy consulting with offices in Boston, London, Mumbai, and San
Francisco. Since its inception in 1991, the firm has embraced a unique approach to strategic advisory services built on long-term
client relationships, a willingness to share risk, an entrepreneurial spirit, and customized insights. This unique approach has
established the firm as the strategic advisor of choice for CEOs and business leaders of Global 1000 corporations, high-potential
growth companies, private equity firms, educational institutions, and healthcare organizations.
Roger Brinner, PhD
Partner and Chief Economist
rogerb@parthenon.com
617.478.4690
Executive Assistant:
Elise Tjernagel
etjernagel@parthenon.com
617.478.4626
22

23. Appendix T HE P ARTHENON G ROUP
23

24. U.S. Housing Remains Crippled,
but a Massive Eventual Recovery Is Inevitable T HE P ARTHENON G ROUP
• Almost 350,000 units are demolished per year (0.3% of our 116 million stock of
dwellings) and our household growth is 1.6+ million, implying annual demand
for 2 million new units constructed
Net New Dwellings Added
3.0 Household Growth
Excess construction
Adult Population Growth/1.8 versus household
formation
2.4
Annual Change (Millions)
2.2
Housing Starts+Manuf. Homes Inadequate
2.2 construction versus
2.1 2.1 2.1
2.0
2.1
2.0 2.0 household formation
2.0 1.9
1.9 1.9
1.8
1.7
1.7 1.7
1.7 1.7
1.6
1.6
1.5 1.5
1.5
1.4 1.4 1.4
1.4
1.4 1.4 1.4
1.3 1.3 1.3
1.3 1.3
1.2
1.2 1.1
1.1
1.0 1.0 1.0 1.0 1.0
1.0 1.0
0.9
0.8
0.8
0.6
0.6
0.5 0.5 0.5
0.0
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: Parthenon Analysis; Global Insight 24

25. Economic Outlook T HE P ARTHENON G ROUP
February 2012 Outlook Novem
Growth rates (unless noted) 2011 2012 2013
Real GDP and Productivity Growth Real GDP 1.7 2.2 1.6
Payroll Employment 1.2 0.4 0.1
GDP per Employee 0.5 1.8 1.5
Unemployment Rate (%) 9.0 8.5 8.7
Greek Crisis Real GDP - Major Trd. Partners 1.7 1.0 1.6
Total Exports, $2005 6.8 4.6 3.8
Fiscal Restraint Federal Deficit (-, $billion)) -1187 -1039 -753
change -148 -286
Federal Reserve Policy, Inflation
and Oil Prices Federal Funds Rate (%) 0.1 0.1 0.5
10-Yr. T-Note Yield (%) 2.8 2.1 2.2
CPI 3.1 1.2 1.1
Core CPI (excludes food and energy) 1.7 1.8 1.2
Avg. Price-Imported Crude 102.8 95.5 96.4
(year % ch.) 35.4 -7.1 1
Consumers Real Consumer Spending 2.2 2.1 2.1
Real Disposable Income, 2005$ 0.9 1.2 0.1
Consumer Sentiment Index 67 72 75
Housing Recovery Single-Family Starts (million) 0.43 0.56 0.68
(year % ch.) -9 30 22
Profits and Real Equipment
Spending After-Tax Profits (US Official Statistics) 5.7 7.0 14.3
S&P 500 Operating Earnings 15.7 4.8 4.6
Equip. Investment, 2005$ 10.3 6.7 4.0
25

26. 2016
2016 136
136
Share Prices Are Far Below the Fair Value17 PE Multiple
2016 xx 17 PE Multiple
2016 2,305
2,305 1,738
1,738
Measured as the Discounted Present Value sum
sum 2,222
2,222
of Likely Future Earnings S&PT 500on 11/29
S&P500 P ARTHENON1,197
HE
on 11/29 1,197
G ROUP
implied discount versus fair value
implied discount versus fair value 46%
46%
** 5.8% discount rate== 1.55% 5 Year Treasury + 4.25% Equity Risk Premium
5.8% discount rate 1.55% 5 Year Treasury + 4.25% Equity Risk Premium
Apprent Market Calculation Today: No EPS
Apprent Market Calculation Today: No EPS
Fair Value Today Growth and 5% Higher Risk Premium
Growth and 5% Higher Risk Premium
Discounted Discounted
Discounted
Present Present
Present
Value @ Value @
Value @
EPS (S&P 500) 5.8%* EPS (S&P 500)
EPS (S&P 500) 10.8%**
10.8%**
2011 91 2011
2011 91
91
2012 92 2012
2012 91
91
sum 2012-2016 577 483 sum 2012-2016
sum 2012-2016 455
455 326
326
2016 136 2016
2016 91
91
2016 x 17 PE Multiple 2,305 1,738 2016 xx17 PE Multiple
2016 17 PE Multiple 1,547
1,547 867
867
sum 2,222 sum
sum 1,194
1,194
S&P 500 on 11/29 1,197 S&P 500 on 11/29
S&P 500 on 11/29 1,197
1,197
implied discount versus fair value 46% implied discount versus "fair" value
implied discount versus "fair" value 0%
0%
* 5.8% discount rate = 1.55% 5 Year Treasury + 4.25% Equity Risk Premium ** 10.8% discount rate== 1.55% 5 Year Treasury + 9.25% Equity Risk Premium
10.8% discount rate 1.55% 5 Year Treasury + 9.25% Equity Risk Premium
Apprent Market Calculation Today: No EPS
Growth and 5% Higher Risk Premium
Discounted
Present
Value @ 26

27. European Productivity is Abysmal, Well Below
2007 Peaks 9 Quarters Into Recovery T HE P ARTHENON G ROUP
EU “Big 4” Real GDP, Employment, and Productivity Relative to Peak in Current Cycle
Germany UK
106% 106%
105 Real GDP per Employee 105 Real GDP per Employee
104 Real GDP 104 Real GDP
103 103
Payroll Employment Payroll Employment
102 102
101 101
100 100
99 99
98 98
97 97
96 96
95 95
94 94
93 93
92 92
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
France Italy
106% 106%
105 Real GDP per Employee 105 Real GDP per Employee
104 Real GDP 104 Real GDP
103 103
Payroll Employment Payroll Employment
102 102
101 101
100 100
99 99
98 98
97 97
96 96
95 95
94 94
93 93
92 92
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
Source: Parthenon Analysis; Bureau of Economic Analysis; Bureau of Labor Statistics 27