What is The Manual of Ideas? by BeyondProxy LLC

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Value-oriented Equity Investment Ideas for Sophisticated Investors

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The Manual of Ideas

Good ideas are the lifeblood of the investment business and the exclusive focus of The Manual of Ideas. Authored by investment professionals, who have grown up on the teachings of Graham, Buffett and Greenblatt, and have studied under or worked with luminaries such as Yale Chief Investment Officer David Swensen and Economics Nobel Laureate James Tobin, The Manual of Ideas delivers timely, differentiated investment ideas. In a market flooded with data and opinion, we deliver clarity.

January 2010: Best Ideas for 2010 BUSINESS OVERVIEW

BreitBurn owns oil and natural gas reserves in the U.S. BreitBurn was formed as a master limited partnership (MLP) and went public in 2006. The majority of current reserves were acquired from Quicksilver Resources (KWK) in 2007.

SELECTED OPERATING DATA 1

INVESTMENT HIGHLIGHTS

Onshore U.S.-based oil and natural gas producer with a total of 102 million boe * of proved reserves at year-end 2008. ** Natural gas represents 75% of proved reserves, which are mainly located in Michigan’s Antrim Shale (70% of proved reserves). 15+ years of reserve life based on proved reserves at yearend 2008 and 2008 production level. 92% of reserves are developed, meaning reserves can be recovered from existing wells with minor capex. Hedges provide cash flow visibility through 2013. 89% and 85% of expected oil and gas production in 2010 is hedged at average prices of $81/bbl and $8/Mcf, respectively. Similar prices are hedged on volumes representing roughly 75%, 65% and 50% of production in 2011, 2012 and 2013, respectively. ~ 20% FCF yield on equity based on $168 million of net cash from operations (annualized from 3Q09) and $32 million of maintenance capex. Given existing hedges, relative stability of cash generation appears reasonable assumption for next four years. Management has started hedging into 2014 as well. Reinstatement of MLP distributions likely with continued FCF generation and reducing debt level. BreitBurn has reduced net debt by $160+ million since yearend 2008 to $574 million at 10/31/09, or 3.1x the midpoint of 2009 adj. EBITDA guidance. Borrowing base confirmed at $732 million in October 2009, with next evaluation in April. BreitBurn’s credit facility, which expires in November 2011, is provided by 18 banks. $13 EV to boe of proved reserves. This compares to an average realized sales price of $54 per boe and estimated all-in cash costs of $26 per boe in 3Q09.

INVESTMENT RISKS & CONCERNS

Lawsuit by 40% shareholder Quicksilver claims BreitBurn “made false and misleading statements to induce Quicksilver to acquire units” in their 2007 deal. Quicksilver recently dropped claims against individual BreitBurn directors but not the MLP.

Barrels per oil equivalent (six thousand cubic feet to one barrel of oil).

FYE December 31 2006 n/m revenue 2 n/m production n/m realized price 3 n/m proved developed reserves n/m proved reserves Proved developed reserves (period-end): Natural gas (Bcf) 4 Oil/liquids (Mbbls) 27,786 Total (Mboe)` 28,484 After-tax NPV @ 10% ($mn) 4 312 Selected average production data: Natural gas (MMcf) 273 Oil/liquids (Mboe) 1,595 Total (Mboe) 1,640 Realized average sales prices ($ per ...): 3 Natural gas (…Mcf) 4.90 Oil/liquids (…boe) 55.98 Total (...boe) 55.24 Selected expenses ($ per boe): Lease operating 5 17.66 DD&A 5.19 Revenue ($mn) 2 133 Selected items as % of revenue: EBIT 38% Net income 1% DD&A 10% Capex 29% Net cash from operations ($mn) 46 Tangible equity / assets (avg) 77% ��hares out (avg) n/m

February 2010: The Superinvestor Issue

2007 -44% 84% 1% 351% 363%

2008 970% 126% 7% -25% -27%

YTD 9/30/09 -54% -5% -13% n/a n/a

457 52,103 128,344 1,912

434 23,346 95,643 592

n/a n/a n/a n/a

4,134 2,330 3,019

22,384 3,078 6,809

15,826 2,247 4,885

7.36 58.93 55.69

8.24 71.51 59.49

7.45 65.08 53.96

19.60 9.75 75

20.55 26.42 802

20.16 16.66 167

-74% -80% 39% 31% 60 73% 48%

54% 47% 22% 16% 227 66% 82%

-29% -41% 49% 11% 184 59% -16%

Where stated, 2006 data refers to owned assets at BreitBurn’s formation. 2 Includes realized and unrealized gains/losses on derivative instruments. 3 Includes realized gains/losses on derivative instruments. 4 Based on SEC guidelines (from production of proved reserves with period-end prices held constant), and not accounting for hedges. 5 Excludes SG&A.

Borrowing base at discretion of lenders, based on their valuation of reserves and internal criteria. A decline in oil prices may reduce borrowing capacity.

Selected Brand Value Rankings Exclusive Interview with Aaron Edelheit We recently had the pleasure of interviewing Aaron Edelheit of Sabre Value Asset Management, a valueoriented investment firm founded in 1998. The firm manages the Sabre Value Fund and two distressed real estate funds. Edelheit graduated with a B.B.A. in finance from the University of Georgia in 1996. He is a philanthropist and serves on the board of directors of the Moishe House Foundation. Edelheit maintains an Aaron Edelheit online blog at aaronedelheit.com, which we have found Sabre Value educational and thought-provoking. Since June 1998, Edelheit has reported a compounded annual net return in excess of 12%.

The Manual of Ideas: Value investors come in many different stripes. How does your approach differ from some other value-oriented strategies?

“I’m looking for spin-offs, companies restructuring, turnarounds and special situations, such as a company with two divisions, in which the poor division is masking the other division that is very attractive.”

MAJOR HOLDERS RATINGS

VALUE Intrinsic value materially higher than market value? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends? EXPLOSIVENESS 5%+ probability of 5x upside in one year? **

Reserve total reflects sale of Permian assets. Reserves may be about 140 million boe at yearend 2009 based on new SEC average price rules.

July 2010: The Downside Protection Issue

What differentiates BreitBurn from other oil and gas producers is better visibility into future cash generation as a result of the company’s commodity price hedging program. As the hedges are struck at attractive prices, BreitBurn should be able to generate about $135 million of annual FCF through 2013/14. That amounts to close to 100% of market value over five years. At a minimum, the capacity to quickly de-lever significantly removes downside risk, while increasing the likelihood of a reinstatement of distributions, which traditionally represent one of the core benefits of the tax-efficient MLP structure. It Wematerial found itvalue difficult to select Top 5shareholders investment to ideas month, as several appears unlikely that litigation will lead to any transfer fromour smaller 40%this shareholder other companies in this reportofoffer very interesting risk-reward tradeoffs. We have Quicksilver. In fact, all shareholders may benefit from closer scrutiny management to ensure intrinsic value is realized. slotted those companies into our “Next 5 ideas with strong downside protection.” They are EchoStar (SATS; $19.50; MV $1.7 billion), Gravity (GRVY; $1.55; MV © 2009-2010 by BeyondProxy LLC. All rights reserved. www.manualofideas.com January 21, 2010 – Page 9 of 124 $43 million), Harvest Natural Resources (HNR; $8.45; MV $280 million), Penn Millers (PMIC; $12.10; MV $57 million), and Seahawk Drilling (HAWK; $10; MV $118 million). Set-top box and satellite company EchoStar trades at a material discount to tangible book value, with well over one-half of market value in net cash and investments; it has improving business performance and is run by one of the most accomplished entrepreneurs in the industry, Charlie Ergen, who owns one-half of the equity. Korean Internet gaming company Gravity trades for less than net cash, is profitable and cash generative and should release a long-awaited new game within the next six to twelve months. Oil and gas firm Harvest trades at a lowly price based on proved reserves in Venezuela, a country that strikes fear into investors but appears unlikely to stand in the way of value creation for Harvest shareholders. Penn Millers is a leader in the attractive agribusiness insurance niche, yet trades at a material discount to tangible book value, owing to an ownership change quirk typical in demutualizations. Gulf of Mexico jackup driller Seahawk has seen demand for its drilling platforms decline along with natural gas prices, but the shares have slumped to a level that might be below the price shareholders could realize in a liquidation that would see the rigs sold for scrap steel. Finally, we are happy to bring you an exclusive interview with topperforming small cap value fund manager Scott Barbee of the Aegis Value Fund (AVALX), a mutual fund that has handily outperformed the Russell 2000 Value Index since the fund’s inception in 1998. Scott has been through two very tough periods for value investors while at the helm of Aegis — the tech stock “melt-up” in 1998-2000 and the market collapse of late 2008 and early 2009. His insights into surviving and thriving as a Graham-and-Dodd-style investor are perhaps not so much unique as they are a reminder that investors do better when they refuse to be swayed by the prevailing market psychology and instead follow their own path with discipline and conviction. Sincerely,

www.manualofideas.com

“Signal value” as opposed to “noise.” We present the holdings of some of the world’s top investors. We look for investors who have amassed impressive track records over long periods of time. We choose these investors carefully to avoid the noise inherent in most 13F-HR filings. MOI Signal Rank answers the question, “What are this investor’s top ten ideas right now?” Rather than simply presenting each investor’s largest holdings as of the recently filed quarter end, the MOI’s proprietary methodology ranks the companies in each investor’s portfolio based on the investor’s current level of conviction in each holding, as judged by the MOI. Our proprietary methodology takes into account a number of variables, including the size of a position in an investor’s portfolio, the size of a position relative to the market value of the corresponding company, the most recent quarterly change in the number of shares owned, and the change in the stock price of a position since the most recent quarterly filing date. For example, an investor might have the most conviction in a position that is only the tenth-largest position in such investor’s portfolio. This might be the case if an investor invests in a small company, resulting in a holding that is simply too small to rank highly based on size alone. On the other hand, such a holding might represent 19.9% of the shares outstanding of the subject company, suggesting a high level of conviction. Our estimate of the conviction level would rise further if the subject company has a 20% poison-pill threshold, thereby suggesting that the investor has bought as much of the subject company as is practically feasible.

John Mihaljevic, CFA and The Manual of Ideas research team

Aaron Edelheit: I focus on small to medium sized companies that most investors have never heard of. My goal is to find companies that are very attractive, but aren’t being followed closely due to their size, lack of analyst coverage or neglect. I look for change inside of those companies that investors are not seeing and that will make the company much more valuable. Specifically, I’m looking for spin-offs, companies restructuring, turnarounds and special situations, such as a company with two divisions, in which the poor division is masking the other division that is very attractive. And I take very concentrated positions, am patient and do not use leverage.

MOI: You have at times put in writing your thesis on your favorite ideas, both long and short. Let’s take a look at some of what you’ve written and extract lessons that may help us become better investors. In April 2009, when Sprott Resource (Toronto: SCP), an investment firm controlled by respected Canadian investor Eric Sprott, traded at C$2.65 per share, you wrote, “What if I told you there was a company out there that was predominantly sitting in cash, gold and silver bullion with no debt, whose tangible book value is approximately C$3.50 per share, with little expenses, that was selling for C$2.65 per share? Better yet, what if I told you that it is run by one of the best resource investors around, who has a proven record for making investors money and has increased book value from $1.50 to over $3.50 in two years?” Many investors reading your argument might have said, “Yes, I see that SCP is undervalued on a sum-of-the-parts basis, but what is the catalyst to unlocking value? Can’t the discount persist indefinitely?” Eight months later, SCP traded at more than C$4 per share, with additional upside looking likely due to value creation in the interim. When dealing with investment vehicles such as SCP, how do you decide what discount to net asset value is sufficiently compelling, and how do you avoid the entitiesTop that investors do trade atincluded wide discounts NAV for a long time? in this to section:

Insiders 1% | Quicksilver Resources 40% | Baupost 16%

THE BOTTOM LINE

March 2010: The Brand Value Issue

Bill Ackman, Pershing Square Lee Ainsle, Maverick Chuck Akre, Akre Capital February 18, 2010 – Page 28 of 144 Zeke Ashton, Centaur Capital Brian Bares, Bares Capital Bruce Berkowitz, Fairholme Richard Breeden, Breeden Capital Tom Brown, Second Curve Warren Buffett, Berkshire Hathaway Francis Chou, Chou Associates Chase Coleman, Tiger Global James Crichton, Scout Ian Cumming and Joe Steinberg, Leucadia Boykin Curry, Eagle David Einhorn, Greenlight Phil Falcone, Harbinger Alan Fournier, Pennant Glenn Fuhrman and John Phelan, MSD Capital Jeffrey Gates, Gates Capital Tom Gayner, Markel Gayner Kian Ghazi, Hawkshaw Ed Gilhuly and Scott Stuart, Sageview Glenn Greenberg, Brave Warrior John Griffin, Blue Ridge Howard Guberman, Gruss Andreas Halvorsen, Viking Global Mason Hawkins, Southeastern Lance Helfert and Paul Orfalea, West Coast Chris Hohn, Children’s Investment Fund Carl Icahn, Icahn Rehan Jaffer, H Partners Seth Klarman, Baupost John Kleinheinz, Kleinheinz Capital Eddie Lampert, ESL Investments Dan Loeb, Third Point Steve Mandel, Lone Pine Sandy Nairn, Edinburgh Partners Mohnish Pabrai, Pabrai Funds John Paulson, Paulson & Co. Boone Pickens, BP Capital Mark Rachesky, MHR Lisa Rapuano, Lane Five Larry Robbins, Glenview Bob Rodriguez and Steven Romick, First Pacific Wilbur Ross, WL Ross Chris Shumway, Shumway Capital David Tepper, Appaloosa Peter Thiel, Clarium Prem Watsa, Fairfax Wally Weitz, Weitz Funds David Winters, Wintergreen

Top 100 by Interbrand Interbrand Current Year Rank Ago 1 1 2 2 3 3 4 4 5 5 6 8 7 10 8 6 9 7 10 9 11 12 12 11 13 14 14 17 15 13 16 16 17 18 18 20 19 21 20 24 21 22 22 15 23 26 24 23 25 28 26 29 27 31 28 35 29 25 30 33 31 30 32 27 33 36 34 39 35 32 36 19 37 37 38 38 39 40 40 44 41 45 42 43 43 58 44 51 45 47 46 46 47 48 48 56 49 49 50 62

explanation of brand valuation methodology: http://bit.ly/99Jm6c

Brand Finance Current Year Rank Ago 3 2 4 3 5 4 6 6 21 13 18 12 2 5 10 10 28 25 19 18 9 9 39 52 117 94 60 42 29 26 270 210 149 128 46 35 23 28 20 27 94 146 50 50 31 21 49 39 198 63 33 22 104 102 52 34 16 19 44 32 8 7 126 110 98 71 75 67 36 54 57 69 38 89 120 55 315 277 93 117 42 79 32 37 154 135 166 171 35 66 51 53 212 -

Brand

Ticker

Country of Origin

Sector

Coca-Cola IBM Microsoft GE Nokia McDonald's Google Toyota Intel Disney HP Mercedes-Benz Gillette Cisco BMW Louis Vuitton Marlboro Honda Samsung Apple H&M American Express Pepsi Oracle Nescafé Nike SAP IKEA Sony Budweiser UPS HSBC Canon Kellogg's Dell Citi JP Morgan Goldman Sachs Nintendo Thomson Reuters Gucci Philips Amazon.com

KO IBM MSFT GE NOK MCD GOOG TM INTC DIS HPQ DAI PG CSCO Frankfurt: BMW LVMUY PM HMC London: SMSN AAPL Stockholm: H&M B AXP PEP ORCL NSRGY NKE SAP Privately held SNE BUD UPS HBC CAJ K DELL C JPM GS NTDOY TRI GUCG PHG AMZN Paris: OR ACN EBAY SI HNZ F Madrid: ITX

United States United States United States United States Finland United States United States Japan United States United States United States Germany United States United States Germany France United States Japan Republic of Korea United States Sweden United States United States United States Switzerland United States Germany Sweden Japan United States United States United Kingdom Japan United States United States United States United States United States Japan Canada Italy Netherlands United States France United States United States Germany United States United States Spain

Beverages Computer Services Computer Software Diversified Consumer Electronics Restaurants Internet Services Automotive Computer Hardware Media Computer Hardware Automotive Personal Care Computer Services Automotive Luxury Tobacco Automotive Consumer Electronics Computer Hardware Apparel Financial Services Beverages Computer Software Beverages Sporting Goods Computer Software Home Furnishings Consumer Electronics Alcohol Transportation Financial Services Computer Hardware Food Computer Hardware Financial Services Financial Services Financial Services Consumer Electronics Media Luxury Diversified Internet Services Personal Care Computer Services Internet Services Diversified Food Automotive Apparel

Interbrand Brand Value ($bn) y-y 69 3% 60 2% 57 -4% 48 -10% 35 -3% 32 4% 32 25% 31 -8% 31 -2% 28 -3% 24 2% 24 -7% 23 4% 22 3% 22 -7% 21 -2% 19 -11% 18 -7% 18 -1% 15 12% 15 11% 15 -32% 14 3% 14 -1% 13 2% 13 4% 12 -1% 12 10% 12 -12% 12 3% 12 -8% 11 -20% 10 -4% 10 7% 10 -12% 10 -49% 10 -11% 9 -10% 9 5% 8 1% 8 -1% 8 -2% 8 22% 8 3% 8 -3% 7 -8% 7 -8% 7 9% 7 -11% 7 14%

Brand Finance Brand Value ($bn) y-y 35 6% 34 7% 34 9% 32 20% 20 -2% 20 1% 36 24% 27 24% 17 19% 20 20% 27 15% 14 41% 7 4% 11 6% 17 22% 3 5% 6 7% 13 14% 19 40% 20 45% 8 81% 13 28% 16 6% 13 15% 4 -52% 16 8% 8 24% 13 9% 21 27% 13 11% 28 12% 6 8% 8 2% 10 19% 14 46% 12 45% 14 106% 7 -32% 3 16% 8 49% 13 79% 16 41% 6 11% 5 28% 15 79% 13 29% 4 -

September 2010: The European Value Issue L'Oréal Accenture eBay Siemens Heinz Ford Zara

Top 5 European Investment Ideas Lavendon (London: LVD)

Rental Equipment © 2009-2010 by BeyondProxy LLC. All rights reserved. Trading Data Price: £0.52 (as of 9/24/10) 52-week range: £0.43 - £1.86 Market value: £86.7 million Enterprise value: £254.4 billion Shares out: 164.4 million

Latest n/a n/a n/a

This quarter Next quarter FYE 12/31/10

Ownership Data

www.lavendongroup.com March 25, 2010 – Page 84 of 116 Valuation

Leicestershire, UK, 44-1455558874 www.manualofideas.com Consensus EPS Estimates

FYE 12/31/11

Insider ownership: <1%

FYE 12/30/12

Insider buys (last six months): >1

LT growth

Insider sales (last six months): 0 Institutional ownership: n/a

EPS Surprise n/a

Month Ago n/a n/a n/a

# of Ests n/a n/a n/a

P/E FYE 12/31/09 P/E FYE 12/31/10 P/E FYE 12/31/11 P/E FYE 12/31/12 EV/ LTM revenue

n/a n/a n/a n/a 1.2x

n/a

EV/ LTM EBIT

21x

n/a

P / tangible book

1.0x

n/a

Actual n/a

Estimate n/a

Greenblatt Criteria LTM EBIT yield LTM pre-tax ROC

5% 4%

Operating Performance and Financial Position (£ millions, except per share data) Revenue Gross profit Operating income Net income Diluted EPS Shares out (avg) Cash from ops Capex Free cash flow Cash & investments Total current assets Intangible assets Total assets Short-term debt Current liabilities Long-term debt Total liabilities Common equity

12/31/04 108 36 (9) (13) n/m 37 24 2 22 8 34 1 202 16 33 81 127 75

12/31/05 100 41 7 1 0.02 37 25 8 17 8 32 1 177 14 32 56 99 78

Fiscal Years Ended 12/31/06 12/31/07 125 186 55 87 13 26 7 15 0.18 0.42 38 42 30 49 36 50 (6) (1) 10 17 44 69 3 10 268 426 25 41 67 119 84 161 174 306 94 119

12/31/08 260 110 39 17 0.35 46 54 59 (5) 15 80 15 571 55 116 265 423 148

LTME 6/30/10 219 80 12 (7) n/m 105 49 16 33 6 68 6 414 46 89 127 244 170

12/31/09 227 87 (25) (43) n/m 56 56 13 43 76 135 7 514 44 98 214 340 174

6ME 6/30/09 114 43 (31) (37) n/m 47 20 5 15 10 72 9 466 52 99 231 360 105

6ME 6/30/10 106 36 6 (0) n/m 164 13 8 5 6 68 6 414 46 89 127 244 170

Ten-Year Stock Price Performance and Trading Volume Dynamics

800p 700p 600p 500p 400p 300p 200p 100p 0p Sep 03

Sep 04

Sep 05

Sep 06

Sep 07

Sep 08

Sep 09

Sep 10

How do we do it? We have developed

The result is a set of clear, concise and

a proprietary idea funnel that utilizes

actionable investment ideas designed

quantitative and qualitative screening

to help you outperform. Each month,

techniques to focus our research team on

our research team brings you 20+

companies meeting various criteria for

pre-qualified equity ideas, and selects the

potential outperformance. We also â&#x20AC;&#x153;combâ&#x20AC;?

3-5 stocks that are the most compelling

through areas of the market ripe for investor

on the basis of value versus price. Our top

misperception and neglect. We then apply

ideas exhibit a particularly large disparity

an analytical framework grounded in deep

between price and value, giving you a large

understanding of business economics,

margin of safety. The greater the latter, the

competitive dynamics and security analysis.

lower the risk of permanent loss and the

Finally, we estimate the gap between market

higher the likelihood of outperformance.

price and intrinsic value and render a judgment on the existence of catalysts to

The following pages provide an overview of

closing such gap.

the key features included in our reports.

April 2010: Graham-Style Investing

May 2010: The Superinvestor Issue Bruce Berkowitz, Fairholme

MAXYGEN â&#x20AC;&#x201C; BALANCE SHEET ANALYSIS ($ in millions, except as specified)

12/31/09

9/30/09

6/30/09

3/31/09

12/31/08

9/30/08

6/30/08

3/31/08

126 34 14 -

153 50 10 -

154 49 4 -

146 55 9 -

155 52 4 -

172 41 2 -

80 42 0 -

78 55 1 -

Bruce Berkowitz, manager of The Fairholme Fund, has been one of the most successful value-oriented investors of the past decade. From inception on December 29, 1999 through December 31, 2009, The Fairholme Fund delivered a cumulative return, net of expenses, of 253%, versus a return of -9%, before expenses, for the S&P 500 Index. This translates into annualized performance of 13.4% and -0.9% for The Fairholme Fund and the S&P 500 Index, respectively.

Assets Cash Short-term investments Accounts receivable Inventory Other current assets Total current assets PP&E Goodwill and other intangibles Long-term investments

176 2 -

214 2 -

207 2 -

211 2 -

216 3 -

124 3 0

137 3 12 0

177

216

210

213

214

218

127

152

Other long-term assets Total assets

MOI Signal Rankâ&#x201E;˘ â&#x20AC;&#x201C; Top Current Ideas of Fairholme

1 2 3 4 5 6 7 8 9 10

Liabilities and Shareholders' Equity Accounts payable Short-term debt

1 -

6 -

1 -

2 -

1 -

2 -

Other current liabilities

Total current liabilities Long-term debt

21 -

15 -

13 -

16 -

11 -

10 -

Other long-term liabilities

152

190

193

198

195

198

116

142

160 160 176 21 8x 8x 176 26 150 152 152 86% <0% (3)

203 203 214 21 10x 10x 214 26 188 190 190 88% <0% (8)

202 202 207 15 14x 14x 207 17 191 193 193 92% <0% (8)

201 201 211 13 16x 16x 211 16 196 198 198 93% <0% (0)

207 207 211 16 13x 13x 211 19 192 195 195 91% <0% (9)

213 213 216 16 13x 13x 216 20 195 198 198 91% <0% (11)

123 123 124 11 11x 11x 124 11 113 116 116 91% <0% (6)

134 134 137 10 13x 13x 137 10 127 142 12 130 93% <0% (4)

Total liabilities Preferred stock Shareholders' equity Shares out (avg) (mn)

3 -

4 -

1 2 3 4 5 6 7 8 9 10

3% -1% -1% -2% 0% -1% 121% n/m 427% 8% H1 2010 273,091 56,617 216,474 91,145 122,275 192,790 3,737 17,928 (174) 40,449 40,080 100,747 17,317 22,763 37,904

Q2 2010, BY ASSET CONCENTRATION GROUP

Number of institutions reporting Total assets ($ in billions) Total deposits ($ in billions) Bank net income ($ in millions)

All Banks 7,830 13,221 9,141 21,597

Credit Card Banks 20 719 272 2,582

4.7 1.0 3.8 1.8 3.0 1.2 .6 1.0 .7 5.9 2.6 82.3 56.5

12.6 1.4 11.2 2.9 4.1 6.4 1.3 2.2 1.4 8.7 11.6 64.9 30.8

3.5 .7 2.7 2.2 2.8 .4 .9 1.4 1.0 11.1 1.8 68.5 61.3

5.3 1.4 4.0 .7 2.7 .5 1.0 1.2 1.0 9.2 .7 114.1 61.3

4.9 1.2 3.8 1.4 3.1 1.3 .2 .4 .2 1.9 2.0 99.5 63.6

4.5 1.4 3.1 1.0 2.1 .7 .7 1.1 .7 6.6 1.1 102.8 53.1

5.8 1.3 4.5 2.0 2.7 1.6 1.3 2.0 1.3 12.0 2.2 93.4 42.5

0 57 45

0 0 0

0 8 1

0 46 42

0 0 0

(.1) 1.2 1.3 2.6 .5 .4

(.7) 3.3 3.2 10.8 3.9 4.2

(.5) 1.0 .7 3.1 .6 .7

.8 1.3 1.4 .6 .2 .2

(.2) 1.2 1.4 2.1 .3 .2

.6 .9 1.2 1.3 .3 .1

.6 3.0 1.4 2.8 1.9 1.1

Performance Ratios (annualized, %) Yield on earning assets Large variability Cost of funding earning assets in NIM, but Net interest margin everyone is Noninterest income to assets doing okay Noninterest expense to assets Loan and lease loss provision to assets Net operating income to assets Pretax return on assets Return on assets Return on equity Net charge-offs to loans and leases Loan and lease loss provision to net charge-offs Efficiency ratio Structural Changes New Charters Banks absorbed in M&A Failed Institutions Prior Second Quarters Return on assets (%)

Prima facie evidence of regulatorsâ&#x20AC;&#x2122; intention to help existing banks rather than allow new entrants to benefit from Fed/FDIC policies

Net charge-offs to loans & leases (%)

2009 2007 2005 2009 2007 2005

Shares Owned Recent from ('000) Dec. 31 25,468 new 14,341 33% 39,310 new 227,461 6% 4,831 12% 6 52% 75,816 75% 20,302 0% 30,222 28% 26,799 0%

Holdings as % of Co. Fund* 4% 9% 14% 1% <1% 6% <1% 8% 23% <1% <1% 7% 6% 6% 8% 4% 1% 5% 29% 7%

Consumer Lenders 83 97 81 304

Excludes various â&#x20AC;&#x153;Otherâ&#x20AC;? categories. Credit-card lenders: institutions whose credit-card loans plus securitized receivables exceed 50% of total assets plus securitized receivables. International banks: banks with assets greater than $10 billion and more than 25% of total assets in foreign offices. Agricultural banks: banks whose agricultural production loans plus real estate loans secured by farmland exceed 25% of their total loans and leases. Commercial lenders: institutions whose commercial and industrial loans, plus real estate construction and development loans, plus loans secured by commercial real estate properties exceed 25%

Roughly Flat y-y

Price Recent from Mar. 31 ($) 108.34 0% 39.72 16% 3.98 -2% 29.53 -9% 45.75 -2% 114,150 -6% 12.24 23% 16.34 -8% 8.26 5% 21.96 -8%

Shares Owned Recent from ('000) Dec. 31 14,714 -2% 25,468 new 227,461 6% 26,799 0% 15,799 -1% 6 52% 56,179 -5% 39,310 new 75,816 75% 28,204 -20%

Holdings as % of Co. Fund* 13% 15% 4% 9% <1% 8% 29% 7% 9% 7% <1% 7% 14% 6% <1% 6% 6% 6% 21% 6%

Sold Out Positions

AIG / AIG Bank of America / BAC

Bristol Myers Squibb / BMY Coca-Cola / KO Forest Labs / FRX Marshall & Ilsley / MI Penn West Energy / PWE

Sector Weightings

Portfolio size

P/E (Est.) This Next FY FY 12x 9x n/m 45x 16x 9x 12x 9x 16x 15x 20x 19x n/m 31x n/a n/a 14x 13x n/m n/m

Price/ Tang. Book >9.9x n/m 1.7x 1.0x 1.3x 1.9x 1.3x 1.3x n/m 3.1x

P/E (Est.) This Next FY FY 39x 35x 12x 9x 12x 9x n/m n/m 8x 9x 20x 19x 27x 16x 16x 9x n/m 31x 17x 16x

Price/ Tang. Book 2.8x >9.9x 1.0x 3.1x 2.0x 1.9x n/m 1.7x 1.3x 1.3x

77%

Median market value

$7.7 billion

Average market value

$34 billion 13x

Median P / tangible book

1.8x

Magic Formula (all companies) Magic Formula (largest 1000 companies) S&P 500

Magic Formula Performance vs. S&P 500, 1999-2009 * (in %) â&#x20AC;&#x2122;99 â&#x20AC;&#x2122;00 â&#x20AC;&#x2122;01 â&#x20AC;&#x2122;02 â&#x20AC;&#x2122;03 â&#x20AC;&#x2122;04 â&#x20AC;&#x2122;05 â&#x20AC;&#x2122;06 â&#x20AC;&#x2122;07 â&#x20AC;&#x2122;08 â&#x20AC;&#x2122;09 avg MF 16 9 36 -21 52 28 22 13 15 -36 46 14.5 S&P 15 -9 -12 -22 29 11 5 16 6 -37 19 -0.2 * MF data represents performance of Formula Investing Model Portfolio, net of fees. 1999 data is from October 1, 1999 to December 31, 1999. 2009 data is through September 30, 2009. Average is 1999-2009 CAGR. Source: Formula Investing, www.formulainvesting.com

WHY WE LIKE MAGIC FORMULA INVESTING

Move To 52-Week Low High

www.manualofideas.com MV EV EV/ ($mn) ($mn) Sales

ďż˝

Next FY EPS Yield

EBIT/ Capital Employed

Tax Rate

ITT Educational GT Solar Bridgepoint Edu. Career Education Apollo Group

ESI SOLR BPI CECO APOL

61.92 7.21 15.31 19.46 35.36

-19% -36% -17% -16% -2%

97% 39% 80% 84% 89%

1,976 1,088 800 1,581 5,226

1,864 843 570 1,141 4,526

1.2x 1.1x .9x .5x .9x

18% 17% 17% 15% 13%

1547% infinite infinite 14847% 711%

39% 37% 42% 34% 46%

>9.9x 6.4x 4.0x 4.5x 5.9x

0% 0% 1% 0% 4%

3/1 13 / 13 7/7 7/5 17 / 13

6 7 8 9 10

Metropolitan Health Nephros * Amedisys Lihua International America's Car-Mart

MDF NEP AMED LIWA CRMT

4.20 6.94 28.45 11.41 25.26

-56% -60% -20% -36% -19%

8% 67% 126% 14% 19%

170 205 826 333 275

129 163 891 242 319

.4x 1.6x .5x .8x .9x

13% 18% 12% 16% 12%

1422% 129% 298% 124% 218%

38% 23% 39% 25% 36%

3.1x 2.3x >9.9x 2.4x 1.5x

3% 0% 1% 0% 7%

8/3 -/6/3 -/3/2

11 12 13 14 15

Endo Pharma * Power-One ePlus Forest Labs Kulicke and Soffa

ENDP PWER PLUS FRX KLIC

35.63 8.99 23.89 32.48 6.19

-46% -66% -35% -26% -31%

7% 45% 9% 5% 55%

4,119 959 197 9,277 436

3,686 823 170 5,834 353

2.3x 1.0x .2x 1.4x .5x

12% 14% 11% 13% 20%

293% 155% infinite 158% 96%

25% 42% 38% 29% n/m

9.9x 4.3x 1.1x 2.1x 1.7x

0% 2% 9% 1% 2%

4/1 9/2 11 / 6 7/8 9 / 12

16 17 18 19 20

DeVry Microsoft USA Mobility Dell Lincoln Educational

DV MSFT USMO DELL LINC

44.53 25.69 16.46 13.90 15.19

-18% -12% -40% -18% -36%

67% 23% 7% 26% 86%

3,120 219,791 363 27,022 337

2,666 186,283 221 19,635 360

1.3x 2.8x .9x .3x .6x

11% 10% 11% 10% 14%

392% infinite 265% infinite 110%

33% 25% 31% 24% 41%

6.1x 6.6x 2.1x >9.9x 3.1x

10% 11% 1% 0% 3%

18 / 3 14 / 11 5/4 12 / 8 4/7

21 22 23 24 25

Hewlett-Packard Veeco Instruments GameStop China Electric Motor Gilead Sciences

HPQ VECO GME CELM GILD

42.49 42.45 20.12 5.42 38.08

-12% -40% -15% -23% -17%

29% 28% 29% 82% 30%

96,356 1,694 3,046 119 30,916

101,679 1,362 3,113 83 32,060

.8x 1.7x .3x .8x 4.0x

12% 12% 14% 22% 11%

143% 162% 97% 72% 192%

20% 4% 35% 27% 27%

>9.9x 3.6x 4.0x 1.8x 7.5x

0% 1% 3% 2% 0%

4/4 6/7 4/5 7/7/4

26 27 28 29 30

Teradyne SinoCoking Coal * Mindspeed Tech China Valves Kirkland's

TER SCOK MSPD CVVT KIRK

11.86 8.58 6.34 8.93 10.79

-28% -59% -44% -21% -2%

13% 526% 76% 66% 135%

2,151 179 204 327 215

1,603 207 174 320 156

1.0x 2.9x 1.0x 2.5x .4x

11% 20% 11% 17% 14%

127% 70% 137% 72% 80%

7% 9% 2% 21% 32%

2.3x 2.4x 3.9x 3.1x 2.1x

0% 0% 2% 0% 14%

7/-/11 / 10 -/9/2

31 32 33 34 35

Aeropostale Cephalon Corinthian Colleges Integrated Silicon * QKL Stores

ARO CEPH COCO ISSI QKLS

26.14 64.68 4.75 7.36 3.84

-27% -17% -18% -45% -5%

23% 13% 307% 89% 85%

2,417 4,866 401 193 114

2,119 4,686 552 106 55

.9x 1.8x .3x .4x .2x

11% 13% 11% 16% 11%

137% 87% 115% 70% 106%

40% 28% 39% 3% n/m

4.9x >9.9x 3.4x 1.1x 1.4x

0% 1% 0% 0% 0%

-/2 -/1 7/3 -/1 -/-

36 37 38 39 40

* D.R. Horton Lam Research * Medicis Pharma Gulf Resources PMC-Sierra

DHI LRCX MRX GFRE PMCS

10.48 46.51 27.19 10.53 7.48

-10% -31% -23% -40% -8%

47% 5% 14% 42% 30%

3,342 5,720 1,648 365 1,731

4,204 4,807 1,168 291 1,554

1.0x 1.8x 1.7x 1.9x 2.5x

10% 11% 9% 16% 9%

infinite 112% infinite 67% infinite

n/m 16% 41% 27% 22%

1.3x 3.5x 3.3x 2.0x 3.5x

0% 0% 0% 0% 1%

2/2 5/8 -/-/16 / 8

41 42 43 44 45

* Cisco Systems * Amtech Systems Exceed Company * Primoris Services SanDisk

CSCO ASYS EDS PRIM SNDK

19.61 17.50 8.92 8.64 39.98

-1% -67% -31% -35% -52%

41% 18% 17% 4% 26%

109,521 161 175 413 9,375

85,874 105 100 403 8,159

2.1x .9x .3x .6x 1.7x

9% 12% 24% 11% 9%

3384% 81% 56% 96% 338%

18% 39% 6% 39% 22%

4.4x 2.1x .9x 4.6x 1.8x

0% 2% 0% 40% 0%

12 / 12 7/7 -/5/1 12 / 6

Company website

SEC

Proxy

Price Charts

Simple. The MFI screen ranks companies based on only two variables: â&#x20AC;&#x153;cheapnessâ&#x20AC;? (pre-tax unlevered earnings yield) and â&#x20AC;&#x153;goodnessâ&#x20AC;? (return on capital employed). The two rankings are given equal weight in the final compilation of the MFI Top 100. This simple process stands in stark contrast to most quantitative screening methods, which rely on multiple variables and are difficult to replicate.

Screening criteria: V > $100 million Enterprise value to MV < 1.5

Investors have a hard time turning off their emotional biases. Even a quick peek at the list of candidates generated by the MFI screen â&#x20AC;&#x201C; available at www.magicformulainvesting.com â&#x20AC;&#x201C; is likely to make an investorâ&#x20AC;&#x2122;s stomach churn. Many companies on the list are either in out-offavor industries or have major company-specific issues, such as regulatory scrutiny, accounting problems, executive turnover, or deteriorating operating momentum. While many investors may agree conceptually that buying good companies when they are out of favor is a path to long-term outperformance, a much smaller number would actually be willing to follow such a strategy. As a quantitative method, the MFI screen is perfectly sanguine about picking a headhunting firm during a recession or a laser eye surgery provider when the media is calling into question the safety of laser eye surgery. Professional investors legitimately want to use the MFI list as a starting point from which to do Investment Ideas for Sophisticated Investors further research and ultimately make a subjective

Value-oriented Equity

PriceMay to 24, 2010 Insiders â&#x20AC;&#x201C; Page 9 of 118 Tangible % Buys/ Book Own. Sells

1 2 3 4 5

* New additions are highlighted.

Advocated by superinvestor Joel Greenblatt. Greenblatt invented MFI as a do-it-yourself version of the approach he has espoused while amassing one of the most impressive investment track records of all time. While reliable data on Greenblattâ&#x20AC;&#x2122;s complete track record is not available, some estimates put his annualized returns over the past couple of decades at well north of 20%. From 1985-1994, Greenblatt managed the Gotham Partners hedge fund, reporting annualized returns of 50% (after expenses, before performance fees). Gotham returned all outside capital in January 1995.

â&#x20AC;&#x153;Institutional imperativeâ&#x20AC;? makes adherence to MFI difficult. Institutional managers care not only about investment risk but, perhaps more acutely, about career risk. Many managers cannot afford to follow a winning strategy if it involves enduring long stretches of relative underperformance. It is much safer from a career standpoint to be â&#x20AC;&#x153;wrongâ&#x20AC;? when everyone else is losing money than to be â&#x20AC;&#x153;wrongâ&#x20AC;? when everyone is making money. During the 1988-2004 period studied by Greenblatt, MFI handily outperformed the S&P 500, yet the strategy experienced two non-overlapping three-year periods of underperformance. While most fund managers may be able to endure a quarter or a year of underperformance, they may be left with few investors after a two- or three-year period of subpar results. It is therefore extremely difficult to stick with MFI when the going gets tough.

December 2010: 2010 Losers, 2011 Winners?

â&#x20AC;&#x153;Magic Formula,â&#x20AC;? based on Next Yearâ&#x20AC;&#x2122;s EPS Estimates

Based on equity holdings disclosed in 13F-HR filings with the SEC. Excludes Companies with highcertain returns on capital employed, tradingsecurities. at high earnings yields (based on next FY EPS estimates) portfolio cash, leverage, non-U.S. holdings, and non-equity

CAGR, 1988-2004 31% 23% 12%

Source: Joel Greenblatt, The Little Book That Beats the Market.

Makes sense. Few investors would prefer a bad business to a good one, and few would purposely ignore the price they pay for a stock. MFI seeks out good companies that are available at good prices. The result is a list of businesses that offer both a high earnings yield and a relatively high probability that capital reinvested in the business will generate high returns. It makes intuitive sense that such stocks should outperform.

WHY MAGIC FORMULA CONTINUES TO WORK

Magic Formula Performance vs. S&P 500, 1988-2004

Services Financial Value-oriented Equity Investment Ideas for Sophisticated Investors 36% 55%

15x

Median P/E (next FY)

Magic Formula investing (MFI) is based on a simple yet powerful way of searching for undervalued stocks. According to Joel Greenblattâ&#x20AC;&#x2122;s The Little Book That Beats The Market, portfolios of stocks selected quantitatively based on MFI criteria have handily outperformed the S&P 500 over the past couple of decades.

November 2010: The Superinvestor Issue

Median P/E (this FY)

Background on â&#x20AC;&#x153;Magic Formulaâ&#x20AC;? Investing

Pfizer / PFE United Rentals / URI WellPoint / WLP White Mountains / WTM

Capital Other Goods 4% 5%

$11 billion

Top 10 as % of portfolio

October 2010: Value Opportunities in Banks?

Source: Federal Deposit Insurance Corporation, The Manual of Ideas.

Market Value ($mn) 12,441 26,501 115,340 2,737 7,787 188,390 5,040 163,938 9,850 2,955

Company / Ticker Sears Holdings / SHLD AIG / AIG Citigroup / C St. Joe / JOE Humana / HUM Berkshire Hathaway / BRK.A Hertz / HTZ Bank of America / BAC Regions Financial / RF AmeriCredit / ACF

Portfolio Metrics

-2% 0% -2% 72% -16% n/a -3% 2% -2% 71% -18% n/a -3% 2% -2% 71% -10% n/a -3% 0% -2% 70% -10% n/a 1% -3% -3% 74% -8% n/a Value-oriented Equity Investment Ideas for Sophisticated Investors -3% 2% -2% 72% -11% n/a -53% 163% 94% 350% -64% n/a n/m n/m n/m n/m n/m n/a -39% 29% -36% -33% -18% n/a 1775% -96% -17% 70% 64% n/a H1 2009 % Change Q2 2010 Q2 2009 % Change 279,906 (2) 135,182 137,832 (2) 81,498 (31) 27,648 38,786 (29) www.manualofideas.com April 21, 2010 â&#x20AC;&#x201C; Page 38 of 120 198,409 9 107,534 99,047 9 128,197 (29) 40,303 67,370 (40) 136,630 (11) 60,865 68,419 (11) 196,686 (2) 97,930 99,449 (2) 839 Declining 346 2,148 (927) n/m 4,900 provisions 266are 10,307 315 n/m (3,655) helping n/m (232) (3,624) n/m boost 2,440 reportedn/m (4,221) n/m income 21,775 2,022 n/m 21,597 (4,376) n/m 86,723 16 48,959 49,173 (0) 13,374 30 12,934 6,139 111 (11,352) n/m 8,662 (10,515) n/m 5,682 567 20,487 (161) n/m

Asset Concentration Groups * InterAgriComMortnational cultural mercial gage Banks Banks Lenders Lenders 4 1,579 4,265 745 3,059 189 4,358 795 1,981 155 3,323 530 7,737 489 2,271 1,287

Company / Ticker AIG / AIG RSC Holdings / RRR Bank of America / BAC Citigroup / C Winthrop Realty / FUR Berkshire Hathaway / BRK.A Regions Financial / RF Leucadia National / LUK Comcast / CMCSA St. Joe / JOE

Price Recent from Mar. 31 ($) 39.72 16% 8.49 7% 16.34 -8% 3.98 -2% 12.29 2% 114,150 -6% 8.26 5% 23.34 -6% 17.60 -7% 29.53 -9%

New Positions

Balance Sheet Trends (sequential) -18% total assets -20% shareholders' equity -20% tangible shareholders' equity -21% tangible book per share -21% net cash and investments -20% net net current assets 48% accounts receivable n/m inventory AGGREGATE INCOME DATA -79% accounts payable -58% capital employed ($ in millions) Total interest income Total interest expense ÂŠ 2009-2010 by BeyondProxy LLC. All rights reserved. Net interest income Provision for loan and lease losses Total noninterest income Total noninterest expense Securities gains (losses) Applicable income taxes Extraordinary gains, net Total net income (includes minority interests) Bank net income Net charge-offs Cash dividends Retained earnings Net operating income

Market Value ($mn) 26,501 878 163,938 115,340 260 188,390 9,850 5,679 49,661 2,737

Top Holdings of Fairholme â&#x20AC;&#x201C; By Dollar Value

Selected Values and Ratios Cash and investments Debt Net cash and investments Current assets Current liabilities Current ratio Acid-test ratio Current assets Total liabilities and preferred NET NET current assets Shareholders' equity Goodwill and other intangibles Tangible book value Tangible book to tangible assets Net debt to tangible equity Capital employed

June 2010: The â&#x20AC;&#x153;Magic Formulaâ&#x20AC;? Issue

30, 2010 â&#x20AC;&#x201C; Page 104 of 120 â&#x20AC;&#x153;If our effortswww.manualofideas.com can further the goals of our members by giving themJune a discernible edge over other market participants, we have succeeded.â&#x20AC;?

Investing In The Tradition of Graham, Buffett, Klarman

HOLIDAY ISSUE

Year III, Volume XI December 27, 2010 When asked how he became so successful, Buffett answered: â&#x20AC;&#x153;We read hundreds and hundreds of annual reports every year.â&#x20AC;?

2010 LOSERS, 2011 WINNERS? Drilling down on the stock price losers of 2010

Top Five Ideas In This Report Compton Petroleum

(Toronto: CMT, OTC: CMZPF) â&#x20AC;Ś. 32

17 companies profiled by MOI research team Proprietary selection of Top 5 candidates for investment

Corinthian Colleges

Plus: Superinvestor holdings update

(Nasdaq: COCO) â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś 36

Global Cash Access

(NYSE: GCA) â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś.. 52

Penson Worldwide

(Nasdaq: PNSN) â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś. 64

Plus: Favorite stock screens for value investors

Plus: Exclusive interview with Vitaliy Katsenelson

Winn-Dixie Stores

(Nasdaq: WINN) â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś. 80

Also Inside Editorial Commentary â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś. 4 Superinvestor Update â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś. 8 Vitaliy Katsenelson Interview â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś 9 Stock Price Losers of 2010 â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś14 Micro-Cap Underperformers â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś.19 Favorite Value Screens â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś. 88 This Monthâ&#x20AC;&#x2122;s Top Web Links â&#x20AC;Śâ&#x20AC;Śâ&#x20AC;Ś 98

About The Manual of Ideas Our goal is to bring you investment ideas that are compelling on the basis of value versus price. In our quest for value, we analyze the top holdings of top fund managers. We also use a proprietary methodology to identify stocks that are not widely followed by institutional investors. Our research team has extensive experience in industry and security analysis, equity valuation, and investment management. We bring a â&#x20AC;&#x153;buy sideâ&#x20AC;? mindset to the idea generation process, cutting across industries and market capitalization ranges in our search for compelling

HAPPY HOLIDAYS!

Companies mentioned in this issue include Request Aegean Marine Petrol, AgFeed Industries, Agilysys, Allied Irish Banks, your FREE copy* of Alphatec, Amedisys, American Apparel, American Caresource, esource, Katsenelsonâ&#x20AC;&#x2122;s American Dairy, Apollo Group, A-Power Energy, Arena Pharma, The Little Book Aviat Networks, Bank of Ireland, Barnes & Noble, BPZ Resources, esources, of Brooklyn Federal, Builders FirstSource, Cano Petroleum, Charming rming Sideways Shoppes, Markets Cincinnati Bell, Community Bankers, Compton Petroleum, oleum, Comstock Resources, Consolidated Water, Email your wish to Corinthian Colleges, Cowen Group, Crimson Exploration, n, Cybex, support@ Dean Foods, Diamond Offshore, Doral Financial, Energy Conversion, manualofideas.com Farmers Capital, First BanCorp, Flagstar Bancorp, FreeSeas, FuelCell Energy, General Maritime, Global Cash Access, GMX Resources, GSE SE Systems, Systems H&R Block, Hercules Offshore, Hutchinson Technology, Jackson Hewitt Tax, Majesco, National Bank of Greece, Navigant Consulting, Navios Maritime, Net1 UEPS, NGAS Resources, OceanFreight, Omega Navigation, Orchids Paper, Penson Worldwide, Petroleo Brasileiro, PremierWest Bancorp, PrimeEnergy, Princeton Review, QKL Stores, Quantum Fuel Systems, RELM Wireless, Revlon, Salem Communications, Santarus, Seanergy Maritime, Sharps Compliance, SmartHeat, Sterling Construction, SUPERVALU, TORM A/S, Unisys, Vermillion, Willbros Group, Wilmington Trust, Winn-Dixie Stores, Yadkin Valley Financial, YRC Worldwide, and more. (analyzed companies are underlined) * A FREE book is available to members who receive The Manual of Ideas in the mail each month.

Key company financials

Ensco (ESV) – Blue Ridge , Eagle , Greenlight , Icahn  Energy: Oil Well Services & Equipment

Dallas, TX, 214-397-3000

Trading Data

enscointernational.com

Consensus EPS Estimates

Price: $41.51 (as of 8/20/10) 52-week range: $33.33 - $52.32 Market value: $5.9 billion Enterprise value: $5.0 billion Shares out: 143.0 million Ownership Data

Valuation

This quarter Next quarter FYE 12/31/10

Latest $0.90 0.80 3.63

Month Ago $0.97 0.88 3.76

# of Ests 33 31 36

P/E FYE 12/31/09 P/E FYE 12/31/10 P/E FYE 12/31/11 P/E FYE 12/30/12 EV/ LTM revenue

FYE 12/31/11

4.27

4.31

EV/ LTM EBIT

Insider ownership: <1%

FYE 12/30/12

4.95

5.03

P / tangible book

Insider buys (last six months): 0

LT growth

7.7%

Insider sales (last six months): 7 Institutional ownership: 88%

EPS Surprise 7/21/10

Actual $0.82

8x 11x 10x 8x 2.8x 7x 1.1x

Greenblatt Criteria

Estimate $0.81

LTM EBIT yield LTM pre-tax ROC

14% 15%

Operating Performance and Financial Position ($ millions, except per share data) Revenue Gross profit Operating income Net income Diluted EPS Shares out (avg) Cash from operations Capex Free cash flow Cash & investments Total current assets Intangible assets Total assets Short-term debt Total current liabilities Long-term debt Total liabilities Preferred stock Common equity EBIT/capital employed

See which funds are buyers or sellers

12/31/03 742 322 180 108 0.69 150 287 186 102 354 543 343 3,183 23 187 550 1,102 0 2,081 8%

12/31/04 731 324 157 93 0.62 151 256 305 (49) 267 494 341 3,322 23 216 527 1,140 0 2,182 7%

Fiscal Years Ended 12/31/05 12/31/06 12/31/07 1,034 1,770 2,058 580 1,205 1,414 395 989 1,177 285 770 992 1.77 4.85 6.54 152 152 147 358 947 1,247 477 528 519 (119) 419 728 269 566 630 578 987 1,129 336 336 336 3,618 4,334 4,969 17 167 19 231 385 504 475 309 291 1,078 1,118 1,217 0 0 0 2,540 3,216 3,752 15% 33% 36%

12/31/08 2,394 1,642 1,401 1,151 8.13 142 1,161 772 389 790 1,401 336 5,830 17 428 274 1,153 0 4,677 38%

12/31/09 1,946 1,220 951 779 5.52 140 1,239 861 378 1,141 1,653 336 6,747 17 485 257 1,248 0 5,499 22%

LTME 6/30/10 1,773 999 706 671 4.21 141 1,047 729 318 1,237 1,688 336 6,921 17 416 249 1,153 0 5,768 15%

FQE 6/30/09 497 326 264 198 1.55 140 253 285 (33) 882 1,537 336 6,349 17 455 266 1,228 0 5,122 n/m

FQE 6/30/10 406 199 125 125 0.81 141 210 169 41 1,237 1,688 336 6,921 17 416 249 1,153 0 5,768 n/m

Get consensus estimates and relevant financial ratios

Ten-Year Stock Price Performance and Trading Volume Dynamics

Get multi-year historical financials

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August 27, 2010 – Page 82 of 175

Investment case one-pager

BUSINESS OVERVIEW

Ensco provides offshore contract oil drilling services.

SELECTED OPERATING DATA

INVESTMENT HIGHLIGHTS •

•

Owns second-largest fleet of shallow-water jackup rigs worldwide with 40 rigs at June 30. Ensco also owns eight ultra-deepwater semisubmersibles (four of which under construction) and one barge. Value of shallow-water business alone may exceed recent market value. The business, which generated $0.6 billion of trailing EBIT, has significant earning power (2008 EBIT: $1.4 billion). $3.1+ billion value of eight deepwater rigs at cost including four rigs under construction (only $1.0 billion of capex remains at 6/30). 1H10 annualized EBIT of $280 million could more than double as the four rigs enter service in 2H10 through 2012. $1.0 billion of net cash as of June 30. Excess cash allows for additional return of capital beyond the dividend increase in April (especially as Ensco’s bid for Scorpion Offshore is no longer proceeding). Normalized earning power minimally affected by GOM spill. Even if drilling restrictions continue, Ensco’s shallow water business, global ops, and ability to redeploy deepwater rigs give it flexibility. Downside protected given $1.0 billion of net cash, FCF generation, and market value roughly in line with tangible book. Ensco sold three jack-up rigs for $142 million (~50% above book value) in 1H10.

Cut through the noise with key value drivers • and risks •

INVESTMENT RISKS & CONCERNS •

• •

Average dayrate decreased 20% y-y in 1H10, including an 18% decline in 2Q10. Even so, rig utilization fell to 76% in 1H10 from 79% in 1H09. As rig demand is tied to oil prices, Ensco’s profitability could suffer further if oil prices decline. Dependent on contract wins, as backlog fell 26% to $2.6 billion at June 30. While this still represents ~1.5x of annual revenue, visibility remains limited. Industry rig supply/demand. Ensco is exposed to competitive pressure arising from rising rig supply.

Get the investment COMPARABLE PUBLIC COMPANY ANALYSIS P/ This thesis in a few MV EV EV / Tang. FY ($mn) ($mn) Rev. Book P/E sentences RIG 16,270 24,810 2.3x 1.3x 7x DO NE NBR PDE ESV

8,210 8,060 4,710 4,050 5,940

8,930 7,730 7,530 4,920 4,970

2.6x 2.3x 2.3x 3.5x 2.8x

2.2x 1.1x .9x .9x 1.1x

8x 7x 18x 15x 11x

Next FY P/E 6x 8x 7x 11x 8x 10x

FYE December 31 ∆ revenue ∆ average day rate ∆ backlog Revenue ($bn) % of revenue by segment: Deepwater Shallow water – Asia Pacific Shallow water – Europe/Africa Shallow water – North/South America Revenue growth by segment:2 Deepwater Shallow water – Asia Pacific Shallow water – Europe/Africa Shallow water – North/South America EBIT margin by segment: Deepwater Shallow water – Asia Pacific Shallow water – Europe/Africa Shallow water – North/South America Corporate Total EBIT margin Rig utilization by segment:3 Deepwater Shallow water – Asia Pacific Shallow water – Europe/Africa Shallow water – North/South America Total rig utilization Average day rates by segment ($000s):4 Deepwater Shallow water – Asia Pacific Shallow water – Europe/Africa Shallow water – North/South America Total average day rate Selected items as % of revenue: Gross profit Net income D&A Capex Backlog ($bn) Return on tangible equity Tangible equity to assets ∆ shares out (avg)

2007 18% 24% 22% 2.1

2008 16% 9% 4% 2.4

2009 -19% 4% -27% 1.9

1H101 -14% -20% -26% 0.8

4% 44% 33% 20%

4% 44% 34% 19%

n/a n/a n/a n/a

16% 15% 20% 13%

201% -31% -29% -12%

271% -26% -57% -8%

48% 62% 63% 54% -3% 57%

52% 62% 64% 55% -2% 59%

49% 53% 55% 47% -3% 49%

56% 39% 24% 41% -5% 37%

97% 99% 93% 77% 91%

95% 95% 96% 97% 96%

85% 70% 77% 67% 72%

95% 72% 66% 86% 76%

199 131 199 107 143

335 153 221 98 155

425 143 199 120 162

407 117 133 85 135

69% 47% 9% 25% 3.9 31% 73% -4%

69% 48% 9% 32% 4.0 30% 77% -3%

63% 40% 12% 44% 3.0 16% 80% -1%

54% 32% 14% 40% 2.6 11% 81% 0%

13% 30% Dig with 37% deeper 30% 29% 19% 20% 21% segmental analysis

Based on continuing operations (excludes three rigs sold in March/April ‘10). 2007 y-y revenue growth is not available due to different segment reporting. Derived by dividing days under contract by total days in the period. 4 Derived by dividing contract drilling revenue by the number of contract days. 2 3

MAJOR HOLDERS

RATINGS

VALUE Intrinsic value materially higher than market value? DOWNSIDE PROTECTION Low risk of permanent loss? MANAGEMENT Capable and properly incentivized? FINANCIAL STRENGTH Solid balance sheet? MOAT Able to sustain high returns on invested capital? EARNINGS MOMENTUM Fundamentals improving? MACRO Poised to benefit from economic and secular trends?

      

THE BOTTOM LINE

The BP/Transocean oil spill in April and resulting six-month drilling moratorium in the Gulf of Mexico caused material share price declines of contract drillers such as Ensco. This represents an opportunity as Ensco’s long-term earning power should remain unaffected. Trading near tangible book despite cash-generative operations and $1.0 billion of net cash, shares appear undervalued based on Ensco’s shallow-water business alone, without giving any value to its significant deepwater assets. © 2008-2010 by BeyondProxy LLC. All rights reserved.

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August 27, 2010 – Page 83 of 175

Company operating drivers

AMERICAN EXPRESS â&#x20AC;&#x201C; EARNINGS DRIVERS AND LINE ITEMS ($ in millions, unless stated otherwise)

A B C D E F G H I J K L M N O

2006 2007 2008 2009 Selected Performance Drivers Basic cards in force - U.S. (mn) 37 41 42 38 Basic cards in force - int'l (mn) 25 29 33 34 Basic cards in force - total (mn) 63 70 75 73 Card billed business - U.S. $406,800 $459,300 $471,100 $423,700 Card billed business - int'l $154,700 $188,000 $212,200 $196,100 Card billed business - total $561,500 $647,300 $683,300 $619,800 Avg fee per card ($) $32 $32 $34 $36 Avg other comm & fees / card ($) $36 $34 $31 $25 Avg discount rate (%) 2.57% 2.56% 2.55% 2.54% Travel sales - Global Corporate $18,500 $20,500 $21,000 $14,600 Travel sales - U.S. Consumer $2,400 $3,000 $3,113 $2,561 Travel sales - Int'l Consumer $922 $1,113 $1,267 $985 Travel fees - Global Corporate 8.1% 7.7% 7.8% 8.8% Travel fees - U.S. Consumer 8.4% 8.0% 8.2% 8.4% Travel fees - Int'l Consumer 8.7% 8.6% 8.1% 8.6% Income Statement (GAAP, ie, on-book basis; excluding non-recurring items)

Understand key operating drivers

2010 38 37 75 $479,300 $234,000 $713,300 $38 $27 2.55% $17,500 $3,116 $1,126 8.2% 8.2% 8.0%

Get detailed revenue and expense build-ups

Discount revenue

$12,978

$14,596

$15,025

$13,389

$15,111

~F*I

Net card fees

$1,994

$1,919

$2,150

$2,151

$2,102

~C* G

Travel commissions and fees

$1,778

$1,926

$2,010

$1,594

$1,779

Other commissions and fees

$2,233

$2,417

$2,307

$1,778

$2,031

Securitization income, net

$1,489

$1,507

$1,070

$400

Other revenue

$1,689

$1,751

$2,157

$2,087

$1,927

Interest income, members

$4,586

$6,351

$6,159

$4,468

$6,783

Interest income, other

$1,147

$1,073

$1,042

$863

$509

Interest expense, members

($1,192)

($1,297)

($1,015)

($462)

($549)

Interest expense, charge card

($1,548)

($2,684)

($2,540)

($1,745)

($1,874)

$25,154

$27,559

$28,365

$24,523

$27,819

Marketing & member services

$6,504

$7,817

$7,361

$6,467

$8,644

Human resources Professional services Occupancy and equipment Communications

$5,040 $2,269 $1,384 $434

$5,438 $2,280 $1,436 $461

$6,090 $2,413 $1,641 $466

$5,080 $2,408 $1,619 $414

$5,566 $2,806 $1,562 $383

Other, net

$1,358

$330

$1,015

$381

$687

Operating expenses Provisions for losses Charge card Cardmember lending Other Total provisions Pre-tax income Income tax provision Net income

$16,989

$17,762

$18,986

$16,369

$19,648

$935 $1,623 $468 $3,026 $5,139 $1,528 $3,611

$1,140 $2,761 $202 $4,103 $5,694 $1,568 $4,126

$1,363 $4,231 $204 $5,798 $3,581 $710 $2,871

$857 $4,266 $190 $5,313 $2,841 $704 $2,137

$595 $1,527 $85 $2,207 $5,964 $1,907 $4,057

Net income to common holders

$3,611

$4,100

$2,856

$1,809

$4,006

$2.92

$3.44

$2.47

$1.54

$3.35

Net revenue

Diluted EPS to common

Source: Company filings, The Manual of Ideas analysis.

=J* M +K* N +L* O ~C* H

Fees charged to merchants with which AXP has entered into card acceptance agreements; may not equal F * I due to payments to third parties unrelated to merchant acceptance Fees are recognized over 12-month membership period; may not equal C * G due to deferred direct card acquisition costs and cancellation reserves Transaction or management fees for airline or other transactions; commissions on plane tickets, hotels and car rentals, paid by travel suppliers Foreign exchange conversion fees and other cardrelated assessments The adoption of new GAAP on January 1, 2010 resulted in accounting for both securitized and non-securitized loans in the financial statements. As a result, there is no securitization income in 2010. Insurance premiums earned from cardmember travel, revenue from contracts with Global Network Services partners including royalties and signing fees, publishing revenue, and other revenue Assessed using average daily balance method for receivables owned Relates to performing fixed-income securities held by AmEx; accrued using effective interest method Interest incurred to fund cardmember lending Interest incurred to fund charge card product receivables and general corporate purposes

See whatâ&#x20AC;&#x2122;s behind each line item

Costs of rewards programs and protection plans for cardmembers, and advertising costs

Operating expenses, gains (losses) on sale of assets not classified as discontinued ops, and litigation and insurance costs or settlements

2010 net income to common deducts share awards and other items from net income

Equity valuation analysis

Value-oriented Equity Investment Ideas for Sophisticated Investors

…additional insight into KKR: OUR ESTIMATE OF THE EQUITY FAIR VALUE RANGE ($ in billions) Valuation methodology1 Value of asset management business (100% economics): Value of management/monitoring fees: Fee-paying assets under management (AUM) as of 9/30/2010 Estimated annual management/monitoring fees as a % of AUM Implied annual revenue Estimated normalized EBIT margin Normalized EBIT Fair value multiple (~90% of AUM contractually "locked-in" for 10-18 years) Estimated value of management/monitoring fees (A) Value of future carried interest: Estimated at-cost capital with carry rights (incl. unfunded commitments; excl. own funds) Estimated annual gross rate of return Implied dollar gain on which to apply carried interest (no hurdle rates in PE funds) Carried interest percentage (generally 20%) Implied gross carried interest Less carried interest allocated to KKR executives (typically 40%) Net carried interest Fair value multiple Estimated value of future carried interest (B) Estimated value of asset management business (100%): (A) + (B)

Benefit from logical valuation build-ups

Value of principal investing business (100% economics): Partners’ capital of principal activities segment (incl. capital markets portion) Fair value multiple Estimated value of principal investing business (100%) Value of capital markets advisory business (100% economics): Estimated normalized annual fees ($mn; 3Q10 annualized transaction fees are ~$160 million) Estimated normalized EBIT margin Normalized EBIT ($mn) Fair value multiple Estimated value of capital markets advisory business (100%) Estimated total value of KKR activities (100%) KKR & CO. L.P. % share of total economics Estimated total value attributable to KKR & CO. L.P. (30%) Less: KKR & Co. L.P. portion of consolidated net cash/(debt) (as of 9/30/2010)2 Estimated fair value of the equity of KKR & CO. L.P.3 Selected implied ratios: Fair value of the equity to tangible book Estimated value of mgmt fees and advisory business/1H10 annualized fee-related EBIT Estimated value of future carried interest/1H10 annualized net carried interest

Conservative Base Case Aggressive Sum-of-the-parts (see below for detailed assumptions)

$42.7 0.75% $0.3 30% $0.1 10.0x $1.0

$42.7 1.00% $0.4 35% $0.1 12.0x $1.8

$42.7 1.25% $0.5 40% $0.2 14.0x $3.0

$39.3 10% $3.9 20% 0.8 (0.3) 0.5 3.0x $1.4 $2.4

$39.3 15% $5.9 20% 1.2 (0.5) 0.7 4.0x $2.8 $4.6

$4.5 1.00x $4.5

$4.5 1.25x $5.6

$4.5 1.50x $6.8

$150

$200

$300

50% $75 8.0x $0.6

60% $120 10.0x $1.2

70% $210 12.0x $2.5

$7.5 30% $2.2 (0.1) $2.1 billion $10 per unit

$11.4 30% $3.4 (0.1) $3.3 billion $16 per unit

$17.0 30% $5.1 (0.1) $4.9 billion $24 per unit

1.9x 5x 3x

3.0x 10x 6x

4.5x 18x 9x

$39.3

20% Get equity fair value $7.9 estimates based on 20% 1.6 different scenarios (0.6) 0.9 5.0x $4.7 $7.7

Financials are based on total KKR figures including amounts attributable to the 70% economic interest held by KKR executives. As a result, our estimated value attributable to KKR & Co. L.P. adjusts for this in the lower part of the valuation table. Excludes restricted cash and cash held at consolidated entities. In addition, excludes cash within principal investing business as that is accounted for in the valuation of that segment. 3 Based on 205 million units outstanding (excludes 4.2 million units from the exchange of KKR Holdings' units into KKR & Co. L.P. units in November 2010. Any exchanged units proportionally increase KKR & Co. L.P.'s interests in KKR economics). Source: Company filings, Manual of Ideas analysis, assumptions and estimates. 2

Cross-check estimates with implied valuation ratios

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November 26, 2010 – Page 98 of 167

“Superinvestor” holdings Value-oriented Value-oriented Equity Equity Investment Investment Ideas Ideas for for Sophisticated Sophisticated Investors Investors

Greenlight (David Einhorn) David David Einhorn Einhorn is is the the founder founder of of Greenlight Greenlight Capital, Capital, aa value-oriented, value-oriented, research-driven research-driven investment investment firm firm with with aa market-beating market-beating long-term long-term track track record. record. From From inception inception in in May May 1996 1996 through through yearend yearend 2009, 2009, Greenlight Greenlight Capital Capital has has returned, returned, net net of of fees fees and and expenses, expenses, 1,397% 1,397% cumulatively cumulatively or or 22% 22% annualized. annualized. He He is is also also author author of of Fooling Fooling Some Some of of the the People People All All of of the the Time. Time. MOI MOI Signal Signal Rank™ Rank™ –– Top Top Current Current Ideas Ideas of of Greenlight Greenlight

11 22 33 44 55 66 77 88 99 10 10

Company Company // Ticker Ticker Apple Apple // AAPL AAPL CareFusion CareFusion // CFN CFN Ensco Ensco // ESV ESV BioFuel BioFuel Energy Energy // BIOF BIOF Pfizer Pfizer // PFE PFE CIT CIT Group Group // CIT CIT Einstein Einstein Noah Noah // BAGL BAGL MI MI Developments Developments // MIM MIM Broadridge Broadridge Financial Financial // BR BR Aspen Aspen Insurance Insurance // AHL AHL

Price Price

Shares Shares Owned Owned

Market Market Value Value ($mn) ($mn)

Recent Recent ($) ($)

∆∆ from from Sep. Sep. 30 30

Recent Recent ('000) ('000)

∆∆ from from Jun. Jun. 30 30

281,366 281,366 5,239 5,239 7,120 7,120 62 62 134,547 134,547 8,320 8,320 212 212 777 777 2,648 2,648 2,251 2,251

306.73 306.73 23.50 23.50 49.79 49.79 1.91 1.91 16.80 16.80 41.55 41.55 12.77 12.77 16.63 16.63 21.18 21.18 29.35 29.35

8% 8% -9% -9% 11% 11% -4% -4% -2% -2% 2% 2% 20% 20% 51% 51% -7% -7% -3% -3%

838 838 13,375 13,375 9,012 9,012 7,542 7,542 23,154 23,154 10,590 10,590 10,733 10,733 5,655 5,655 2,650 2,650 4,140 4,140

>100% >100% 53% 53% 22% 22% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% new new 0% 0%

Holdings Holdings as as % % of of Co. Co. <1% <1% 6% 6% 6% 6% 23% 23% <1% <1% 5% 5% 65% 65% 12% 12% 2% 2% 5% 5%

Fund* Fund* 6% 6% 7% 7% 11% 11% <1% <1% 9% 9% 10% 10% 3% 3% 2% 2% 1% 1% 3% 3%

P/E P/E (Est.) (Est.) This This FY FY

Next Next FY FY

Price/ Price/ Tang. Tang. Book Book

16x 16x 14x 14x 14x 14x n/a n/a 8x 8x 16x 16x 17x 17x n/a n/a 13x 13x 10x 10x

14x 14x 13x 13x 12x 12x n/a n/a 7x 7x 15x 15x 15x 15x n/a n/a 12x 12x 8x 8x

6.0x 6.0x 6.0x 6.0x 1.3x 1.3x 1.1x 1.1x n/m n/m 1.0x 1.0x >9.9x >9.9x .5x .5x >9.9x >9.9x .7x .7x

Top Top Holdings Holdings of of Greenlight Greenlight –– By By Dollar Dollar Value Value

11 22 33 44 55 66 77 88 99 10 10

Company Company // Ticker Ticker Ensco Ensco // ESV ESV CIT CIT Group Group // CIT CIT Pfizer Pfizer // PFE PFE CareFusion CareFusion // CFN CFN Apple Apple // AAPL AAPL Cardinal Cardinal Health Health // CAH CAH Microsoft Microsoft // MSFT MSFT NCR NCR // NCR NCR Xerox Xerox // XRX XRX Gold Gold Miners Miners ETF ETF // GDX GDX

Price Price

Shares Shares Owned Owned

Market Market Value Value ($mn) ($mn)

Recent Recent ($) ($)

∆∆ from from Sep. Sep. 30 30

Recent Recent ('000) ('000)

∆∆ from from Jun. Jun. 30 30

7,120 7,120 8,320 8,320 134,547 134,547 5,239 5,239 281,366 281,366 12,632 12,632 219,791 219,791 2,289 2,289 16,203 16,203 7,605 7,605

49.79 49.79 41.55 41.55 16.80 16.80 23.50 23.50 306.73 306.73 36.20 36.20 25.69 25.69 14.38 14.38 11.68 11.68 59.30 59.30

11% 11% 2% 2% -2% -2% -9% -9% 8% 8% 10% 10% 5% 5% 6% 6% 13% 13% 6% 6%

9,012 9,012 10,590 10,590 23,154 23,154 13,375 13,375 838 838 6,551 6,551 7,660 7,660 11,469 11,469 13,500 13,500 2,583 2,583

22% 22% 0% 0% 0% 0% 53% 53% >100% >100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Holdings Holdings as as % % of of Co. Co. 6% 6% 5% 5% <1% <1% 6% 6% <1% <1% 2% 2% <1% <1% 7% 7% <1% <1% 2% 2%

New New Positions Positions

Sold Sold Out Out Positions Positions

Broadridge Broadridge Financial Financial // BR BR Ingram Ingram Micro Micro // IM IM Verigy Verigy // VRGY VRGY

EMC EMC // EMC EMC Lockheed Lockheed Martin Martin // LMT LMT

Portfolio Portfolio Metrics Metrics

Portfolio Portfolio size size Top Top 10 10 as as % % of of portfolio portfolio

Sector Sector Weightings Weightings $4.2 $4.2 billion billion

Median Median market market value value

$2.9 $2.9 billion billion

Average Average market market value value

$18 $18 billion billion

Median Median P/E P/E (this (this FY) FY)

14x 14x

Median Median P/E P/E (next (next FY) FY)

12x 12x

Median Median PP // tangible tangible book book

1.4x 1.4x

Technology Technology 20% 20%

Based Based on on equity equity holdings holdings disclosed disclosed in in 13F-HR 13F-HR filings filings with with the the SEC. SEC. Excludes Excludes portfolio portfolio cash, cash, leverage, leverage, certain certain non-U.S. non-U.S. holdings, holdings, and and non-equity non-equity securities. securities.

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Next Next FY FY

Price/ Price/ Tang. Tang. Book Book

14x 14x 16x 16x 8x 8x 14x 14x 16x 16x 14x 14x 10x 10x 10x 10x 13x 13x n/a n/a

12x 12x 15x 15x 7x 7x 13x 13x 14x 14x 13x 13x 10x 10x 9x 9x 11x 11x n/a n/a

1.3x 1.3x 1.0x 1.0x n/m n/m 6.0x 6.0x 6.0x 6.0x 5.4x 5.4x 6.6x 6.6x 3.4x 3.4x n/m n/m 1.0x 1.0x

Other Other 26% 26%

65% 65%

Fund* Fund* 11% 11% 10% 10% 9% 9% 7% 7% 6% 6% 6% 6% 5% 5% 4% 4% 4% 4% 4% 4%

P/E P/E (Est.) (Est.) This This FY FY

Financial Financial 27% 27%

Health Health Care Care 27% 27%

November November26, 26,2010 2010––Page Page32 32ofof167 167

Proprietary “Signal Rank” methodology A regular report feature is our quarterly

each investor’s largest holdings as

coverage of “superinvestor” portfolio

of the recently filed quarter end, our

holdings based on 13F-HR filings of 50+

proprietary methodology ranks the

hedge fund and other investment managers

companies in each investor’s portfolio

with superior long-term track records. By

based on the investor’s current level of

following their moves, we complement our

conviction in each holding, as judged by

other idea generation activities and ensure

The Manual of Ideas.

that you don’t miss out on compelling opportunities, even if they were not

Signal Rank takes into account a number

originally sourced by us.

of variables, including the size of a position in an investor’s portfolio, the size of a

To assist our research team in prioritizing

position relative to the market value of the

our evaluation of companies owned by

corresponding company, the most recent

superinvestors, we have developed Signal

quarterly change in the number of shares

Rank . Signal Rank answers the question,

owned, and the change in the stock price of

“What are this investor’s top ten ideas

a position since the most recent quarterly

right now?” Rather than simply presenting

filing date.

List of profiled “superinvestors” • • • • • • • • • • • • • • • • • • •

Bill Ackman, Pershing Square Lee Ainsle, Maverick Chuck Akre, Akre Capital Zeke Ashton, Centaur Capital Brian Bares, Bares Capital Bruce Berkowitz, Fairholme Richard Breeden, Breeden Capital Tom Brown, Second Curve Warren Buffett, Berkshire Hathaway Francis Chou, Chou Associates Chase Coleman, Tiger Global NEW Todd Combs, Castle Point James Crichton, Scout Ian Cumming and Joe Steinberg, Leucadia Boykin Curry, Eagle David Einhorn, Greenlight Phil Falcone, Harbinger Alan Fournier, Pennant Glenn Fuhrman and John Phelan, MSD Capital

• • • • • • • • • • • • • • • • • • •

Includes funds who reveal holdings exclusively to us

Jeffrey Gates, Gates Capital Tom Gayner, Markel Gayner Kian Ghazi, Hawkshaw Ed Gilhuly and Scott Stuart, Sageview Glenn Greenberg, Brave Warrior John Griffin, Blue Ridge Howard Guberman, Gruss Andreas Halvorsen, Viking Global Mason Hawkins, Southeastern Lance Helfert and Paul Orfalea, West Coast Chris Hohn, Children’s Investment Fund Carl Icahn, Icahn Rehan Jaffer, H Partners Seth Klarman, Baupost John Kleinheinz, Kleinheinz Capital Eddie Lampert, ESL Investments NEW Quincy Lee, Teton Capital Dan Loeb, Third Point Steve Mandel, Lone Pine

•

Sandy Nairn, Edinburgh Partners

•

Mohnish Pabrai, Pabrai Funds

•

John Paulson, Paulson & Co.

•

Boone Pickens, BP Capital

•

Mark Rachesky, MHR

•

Lisa Rapuano, Lane Five

•

Larry Robbins, Glenview

•

Bob Rodriguez and Steven Romick, First Pacific

•

Wilbur Ross, WL Ross

•

NEW Ken Shubin Stein, Spencer

•

Chris Shumway, Shumway Capital

•

David Tepper, Appaloosa

•

Peter Thiel, Clarium

•

Prem Watsa, Fairfax

•

Wally Weitz, Weitz Funds

•

David Winters, Wintergreen

Industry insights In our quest for value, we routinely

our recommendations on several U.S.

scrutinize industries that have fallen out

thrift conversions highlighted in our

of favor. Even when analyzing broader

October 2010 report on banks as well as

industry trends, however, we do not lose

our negative views on several U.S.-listed

our focus on idea-generation. As such,

for-profit education companies featured

industry analysis serves to complement

in our July 2009 issue.

company-specific ideas. Examples are

Do For-Profit Institutions Spend Too Little per Student? The following table appears to support assertions made by Jim Chanos in his presentation at the recent Ira Sohn conference. How might a pro-regulation Department of Education look at the comparison of per-student spending highlighted here?

Insights into the for-profit education Per-Student Expenses of Postsecondary Institutions, 1999-00 through 2006-07 industry Percentage Distribution Expenses per Student 2006-07 of Total Expenses (in constant 2007–08 dollars) Expenses (July 2009 report) ($millions) 1999–2000 2003–04 2005–06 2006–07 1999–2000 2003–04 2005–06 2006–07 1

Public institutions

$238,829

Instruction Research Public service Academic support Student services Institutional support Operation and maintenance of plant Depreciation Scholarships/fellowships2 Auxiliary enterprises Hospitals InOther thisopex section, we present Non-operating expenses

—

100.0

—

$25,246

$25,667

$26,062

67,188 23,894 10,148 16,307 11,378 19,962

— — — — — —

27.7 10.4 4.4 6.6 4.6 8.2

27.8 10.2 4.3 6.8 4.7 8.2

28.1 10.0 4.2 6.8 4.8 8.4

— — — — — —

6,989 2,636 1,106 1,676 1,161 2,074

7,136 2,612 1,104 1,733 1,205 2,099

7,332 2,607 1,107 1,779 1,242 2,178

15,807

—

6.1

6.7

6.6

4.4 4.0 7.7 9.0 the3.6 state 3.3

4.4 3.8 7.6 9.1 3.1 the 3.3

10,772 8,956 18,502 22,111 5,374 selected 8,430

— — — — — statistics —

— 1,553Investment 1,713Ideas for1,725 Value-oriented Equity Sophisticated Investors 4.5 — 1,108 1,141 1,176 3.8 — 1,006 976 977 7.7 — 1,934 1,962 2,019 9.3 — 2,274 2,344 2,413 2.3 — 900 793 586 banking sector. 3.5 — 831 848 920

Banking Crisis: Where We Are, Where We Are Headed on

Summary Statistics on FDIC-Insured Banks Private not-for-profit

124,558

100.0

Instruction Research Public service Academic support Student services Institutional support Auxiliary enterprises Net grant aid to students2 Hospitals Independent operations Other

41,223 13,704 2,037 10,882 9,591 16,831 12,451 728 10,400 4,680 2,029

32.3 10.4 1.8 8.1 7.1 13.1 10.3 1.5 9.1 3.4 3.0

32.5 11.5 1.9 8.4 7.2 13.4 10.1 1.1 8.0 4.0 1.9

32.9 11.3 1.7 8.7 7.7 13.4 10.1 0.6 8.3 3.6 1.7

Private for-profit

12,152

100.0

30.5 0.6 53.1 3.8 0.7 11.4

25.6 0.1 62.4 3.4 0.8 7.8

25.3 0.1 64.3 2.7 0.7 6.9

QUARTERLY NET INCOME

Instruction Research and public service Student services and support Auxiliary enterprises NET INTEREST MARGIN Net grant aid to students 2 Other 1

2,884 6 7,760 333 BANK 68 1,101

SIZE

U.S.

100.0

39,705

42,364

42,721

33.1 11.0 1.6 8.7 7.7 13.5 10.0 0.6 8.3 3.8 1.6

12,812 4,128 713 3,207 2,802 5,214 4,088 582 3,623 1,356 1,180

13,771 4,889 801 3,557 3,064 5,666 4,268 447 3,401 1,715 785

14,067 4,843 710 3,736 3,279 5,730 4,294 259 3,527 1,537 739

100.0

12,505

12,948

12,061

23.7 3,810 3,312 0.1 80 15 63.9 6,638 8,075 2.7 469 439 NONCURRENT LOANS AND 0.6 85 99 9.1 1,423 1,007

3,811 3,359 5,894 4,360 255 3,642 1,639 710 13,357

3,056 3,170 10 7 7,761 8,529 327 366 NET CHARGE-OFFS 79 75 828 1,210

Enrollment of full-time students plus the full-time equivalent of the part-time students. Excludes discounts and allowances. Note: Full-time-equivalent (FTE) enrollment includes full-time students plus the full-time equivalent of the part-time students.

Analysis of the U.S. 43,619 banking industry 14,436 4,799 (October 2010 report) 713

BANKS REPORTING EARNINGS GAINS

Value-oriented stock screens Each month, we present favorite stock

the investment ideas covered in these

screens for value investors. These

reports include special situations such

include screens to uncover Ben Graham-

as spinoffs and activist targets as well

style “net-nets,” Joel Greenblatt’s

as underfollowed companies (no analyst

“magic formula” stocks and other value

coverage, small-and micro-cap stocks).

candidates. Reports that fall outside our

Based on our differentiated coverage, our

quarterly “superinvestor” coverage may

subscribers can usually point to several

focus on stocks pre-qualified through

winning ideas per year that they would

these screens and our other, more

not have considered had it not been for

qualitative filtering processes. Many of

our work. Value-oriented Equity Investment Ideas for Sophisticated Investors

Activist Targets: Potential Sales, Liquidations or Recaps Companies that may unlock value through a corporate event

▼ Move To 52-Week Low High

MV ($mn)

EV ($mn)

Price to Tangible Book

Net Cash (% of MV)

NCAV (% of MV)

EV/ Sales

Next FY P/E

Insiders % Buys/ Own. Sells

Company

Ticker

Price ($)

1 2 3 4 5

Qiao Xing Mobile Qiao Xing Universal Fuqi International Volt Information Audiovox

QXM XING FUQI VOL VOXX

3.76 1.78 6.18 6.50 6.58

-45% -24% -27% -5% -8%

38% 61% 271% 108% 48%

198 164 171 136 151

(120) (258) 46 107 92

.5x .3x .6x .5x .6x

160% 257% 73% 21% 39%

199% 198% 164% 147% 140%

n/m n/m .1x .0x .2x

4x -

0% 0% 0% 0% 9%

-/-/-/1/1 10 / 10

9 10

* RINO International Crexus Investment Opnext Imation PennyMac Mortgage

RINO CXS OPXT IMN PMT

6.07 12.61 1.37 9.40 17.59

-6% -7% -2% -15% -12%

479% 15% 101% 34% 5%

174 229 123 364 296

139 (46) 81 107 (111)

.6x .8x .6x .6x .9x

20% 120% 35% 71% 137%

136% 119% 117% 115% 110%

.6x n/m .3x .1x n/m

4x 10x n/m 49x 7x

0% 0% 0% 0% 0%

1/2/-/3/1/1

11 12 13 14 15

Zoran Colony Financial * Pebblebrook Hotel Movado Ingram Micro

ZRAN CLNY PEB MOV IM

6.96 19.15 18.33 11.40 17.92

-14% -14% -8% -24% -18%

77% 10% 22% 28% 5%

350 280 731 282 2,810

(22) 3 28 237 2,408

.8x 1.0x 1.1x .8x .9x

106% 99% 96% 16% 14%

101% 99% 95% 94% 93%

n/m .1x 1.2x .6x .1x

n/m 11x 68x 76x 8x

1% 0% 0% 0% 0%

3/1/1/1/1 5/4

16 17 18 19 20

Sprott Physical Gold West Marine PC Connection Exceed Company Cynosure

PHYS WMAR PCCC EDS CYNO

11.88 9.22 7.96 8.92 9.99

-19% -26% -28% -31% -12%

8% 48% 12% 17% 41%

821 208 211 175 126

88 171 174 100 36

1.1x .9x 1.1x .9x 1.0x

89% 18% 18% 43% 72%

89% 88% 88% 87% 83%

n/m .3x .1x .3x .5x

10x 9x 4x n/m

0% 22% 2% 0% 0%

-/8/4 1/3 -/-/-

21 22 23 24 25

Benchmark Electron. QLT Tech Data FormFactor Nam Tai Electronics

BHE QLTI TECD FORM NTE

16.60 5.94 44.01 9.45 6.33

-16% -39% -21% -27% -36%

37% 12% 11% 140% 7%

1,011 304 2,051 475 284

676 105 1,530 103 65

1.0x .8x 1.1x 1.1x .9x

33% 65% 25% 78% 77%

83% 82% 81% 81% 79%

.3x 2.3x .1x .6x .1x

11x 10x n/m 16x

1% 1% 1% 0% 0%

2/2 3/10 / 12 5/2 -/-

26 27 28 29 30

Tuesday Morning Maxygen Callaway Golf * InfoSpace * Flexsteel Industries

TUES MAXY ELY INSP FLXS

5.10 6.25 7.69 7.71 16.82

-59% -18% -25% -14% -52%

73% 15% 33% 58% 1%

219 188 495 279 113

219 35 384 51 108

.9x 1.3x .9x 1.3x .9x

0% 81% 22% 82% 4%

76% 76% 76% 75% 75%

.3x .8x .4x .2x .3x

n/m 33x 48x 8x

2% 1% 0% 3% 4%

6/2 4/7/1 2/8 6/-

31 32 33 34 35

* AMAG Pharma Cypress Bioscience Cogo Group Ascent Media TomoTherapy

AMAG CYPB COGO ASCMA TOMO

13.85 4.06 7.71 27.64 3.46

-1% -49% -27% -20% -25%

279% 55% 6% 11% 28%

293 157 272 395 187

19 51 211 116 47

1.1x 1.3x 1.4x .7x 1.1x

94% 67% 22% 71% 75%

74% 73% 73% 73% 72%

.3x 1.7x .6x .3x .2x

n/m n/m 8x n/m n/m

0% 0% 0% 0% 7%

4/3 1/-/-/14 / 5

Hurco

HURC

19.72

-30%

127

1.2x

36%

71%

.9x

26x

3/-

Favorite value screens 6 7 included in each report 8

Exclusive interviews We frequently conduct interviews with professional fund managers and present these exclusively as part of our reports. This exchange of ideas is aimed at developing and honing the amorphous quality of investment judgment. The Q&A therefore focuses on the investment philosophy and thought processes of the respective investment manager.

• • • • • • • • • • • • • • • • • • • •

Aaron Edelheit Adam Steiner Allan Mecham Brian Bares Brian Gaines Ciccio Azzolini Don Fitzgerald Guy Spier Igor Lotsvin Kenneth Shubin Stein Max Otte Michael van Biema Ori Eyal Paul Sonkin Scott Barbee Thomas Gayner Toby Carlisle Vitaliy Katsenelson Zeke Ashton and many more…

“One of the things we really like

“The playing field for longer term

about Sears is they have a diverse

investing is getting less crowded.

group of assets. They have brands....

Fewer people are able to think

They have a white goods home

about the long term and I believe

service business...

that creates an opportunity.”

They have land…and they have

— Tom Gayner, Chief Investment

capital resources...”

Officer, Markel Corporation

— Ken Shubin Stein, Founder, Spencer Capital Management “Medtronic fits my criteria perfectly. It is a very high-quality company that has grown earnings at about 14% a year over the last ten years. It has a strong balance sheet [and] a high return on capital, it trades at nine to ten times earnings… It has a very strong pipeline of products…” — Vitaliy Katsenelson, Chief Investment Officer, Investment Management Associates

“A checklist pulls us away from the kinds of actions that we would take if we were in either fight-or-flight or greed modes.” — Guy Spier, CEO, Aquamarine Capital Management “You have to find a style of investing that fits with your personality. I’m cheap and paranoid, so value investing works well for me.” — Paul Sonkin, Portfolio Manager, The Hummingbird Value Funds

Monthly editorial commentary Each report features a timely editorial

may be available in the wider market.

commentary, which pulls together key

A key differentiator of our editorials is the

observations and conclusions drawn from

“buy side” mindset we bring to the idea

our value-oriented research process.

generation process. Rather than evaluating

The narrative highlights our top ideas,

investments within narrow industry or size

providing additional clues as to why a

classifications, we cut across sectors, market

particular stock may be attractive in the

capitalization ranges and geographies to

context of all the other opportunities our

present you with the most compelling ideas based on value versus price.

research team has analyzed or that

Value-oriented Equity Investment Ideas for Sophisticated Investors

Editorial Commentary Our task this month has seemed quite daunting at times: We set out to rummage through the wreckage of the banking sector in search of investment opportunities for value-oriented investors. While doing so, we were mindful that many of the latter have viewed banks with suspicion, branding them as “black boxes” whose asset quality is impossible to ascertain. In a time of weak real estate prices and unusual strains on consumers, asset quality has become perhaps more important than ever.

Clear, incisive, and often provocative analysis

While the “black box” critique of banks has merit, we did not simply want to dismiss the beaten-down sector and move on. After all, the following superinvestors have found apparent value in banks: David Tepper in Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), Royal Bank of Scotland (RBS), Fifth Third Bancorp (FITB), and SunTrust Banks (STI); John Griffin and Steve Mandel in JPMorgan Chase (JPM); Glenn Greenberg in U.S. Bancorp (USB); Francis Chou in BAC; Eddie Lampert in Capital One (COF); Bruce Berkowitz in C and BAC; Phil Falcone and Bill Ackman in C; John Paulson in BAC, C, JPM, COF, and STI; Tom Brown in Synovus (SNV) and several other banks; Mason Hawkins in Bank of NY Mellon (BK); and Prem Watsa and Warren Buffett in WFC and USB. All of these positions are among the top ten largest holdings of each investor, suggesting meaningful commitments to the sector by these investment managers. Our research effort has yielded five potential ways of approaching the banking sector in search of compelling investment ideas: 1.

Too-big-to-fail “national champions” that remain historically cheap;

Strong institutions poised to benefit from the weakness of others;

Troubled banks with the most upside in a survival scenario, as gauged primarily by equity market value to total assets;

Banks that may outperform in an inflationary scenario due to relatively large long-term, fixed-rate liabilities; and

All-but-forgotten thrift conversions, with shareholder value yet to be unlocked in a second-step conversion.

The following is a snapshot of companies highlighted this month, along with classification by above category:

Top 5 Investment Ideas in This Report Barclays / BCS London, United Kingdom Deutsche Bank / DB Frankfurt, Germany Mitsubishi UFJ / MTU Tokyo, Japan Roma Financial / ROMA Robbinsville, New Jersey Waterstone Financial / WSBF Wauwatosa, Wisconsin

“National Champion”

“Strong Get Stronger”

Low MV to Assets



 

Inflation Beneficiary

Thrift Conversion

 



 



Performance Review In this section, we review the performance of ideas featured as “top ideas” in past issues of The Manual of Ideas. Since inception in November 2008, the Manual of Ideas’ top ideas have delivered an average total return of +45% versus +23% for the S&P 500 Index ETF, based on a one-year holding period after each publication date. *

The Manual of Ideas’ monthly top ideas from inception in November 2008 through May 2010 Stock Price

Stock Total Return

S&P 500 Total Return

Featured

On Featured

From Featured Date To

Date 1

Date

1 Year Later 2

1 Year Later 3

Company

Ticker

American Eagle Outfitters

NYSE: AEO

11/27/2008

$9.88

57%

26%

Garmin

Nasdaq: GRMN 11/27/2008

$17.02

87%

26%

KHD Humboldt Wedag (delisted on 3/31/10) NYSE: KHD

11/27/2008

$9.10

50%

26%

MEMC Electronic Materials

NYSE: WFR

11/27/2008

$15.50

-22%

26%

Microsoft

Nasdaq: MSFT

11/27/2008

$20.49

45%

26%

Net 1 UEPS Technologies

Nasdaq: UEPS

11/27/2008

$10.15

84%

26%

Premier Exhibitions

Nasdaq: PRXI

11/27/2008

$0.69

68%

26%

Syneron Medical

Nasdaq: ELOS

11/27/2008

$6.77

48%

26%

Tempur-Pedic International

NYSE: TPX

11/27/2008

$6.95

209%

26%

Travelzoo

Nasdaq: TZOO

11/27/2008

$6.54

117%

26%

American Express

NYSE: AXP

2/20/2009

$12.97

207%

48%

AmeriCredit (acquired on 10/1/2010)

NYSE: ACF

2/20/2009

$3.88

475%

48%

EchoStar

Nasdaq: SATS

2/20/2009

$16.01

22%

48%

Greenlight Capital Re

Nasdaq: GLRE

2/20/2009

$13.12

88%

48%

Microsoft

Nasdaq: MSFT

2/20/2009

$18.00

63%

48%

Premier Exhibitions

Nasdaq: PRXI

2/20/2009

$0.90

48%

Sears Holdings

Nasdaq: SHLD

2/20/2009

$38.03

150%

48%

Fibrek (formerly SFK Pulp Fund)

Toronto: FBK

2/20/2009

C$0.41

220%

48%

Sony

Tokyo: 6758

2/20/2009

¥1,588

96%

48%

Travelzoo

Nasdaq: TZOO

2/20/2009

$4.97

127%

48%

Actions Semiconductor

Nasdaq: ACTS

4/27/2009

$1.73

37%

41%

Ascent Media

Nasdaq: ASCMA 4/27/2009

$24.60

20%

41%

Comverse Technology

OTC: CMVT

4/27/2009

$6.99

29%

41%

Harvest Natural Resources

NYSE: HNR

4/27/2009

$4.43

95%

41%

K-Swiss

Nasdaq: KSWS

4/27/2009

$9.58

40%

41%

EchoStar

Nasdaq: SATS

5/28/2009

$15.73

34%

22%

EMC

NYSE: EMC

5/28/2009

$11.76

58%

22%

Republic Airways

Nasdaq: RJET

5/28/2009

$5.78

22%

Ticketmaster (acquired on 1/25/2010)

Nasdaq: TKTM

5/28/2009

$7.30

112%

23%

WellCare Health Plans

NYSE: WCG

5/28/2009

$19.24

42%

22%

Apartment Investment & Management

NYSE: AIV

6/19/2009

$9.09

149%

24%

MI Developments

Toronto: MIM.A

6/19/2009

C$9.12

53%

24%

Playboy Enterprises (acquired on 3/4/2011)

NYSE: PLA

6/19/2009

$2.73

38%

24%

Steinway Musical Instruments

NYSE: LVB

6/19/2009

$10.97

67%

24%

Syms

Nasdaq: SYMS

6/19/2009

$6.90

24%

McGraw-Hill Companies

NYSE: MHP

7/31/2009

$31.35

13%

Princeton Review

Nasdaq: REVU

7/31/2009

$5.42

-54%

13%

Sotheby’s

NYSE: BID

7/31/2009

$15.07

81%

13%

Contango Oil & Gas

NYSE: MCF

8/21/2009

$46.31

-7%

Exterran Holdings

NYSE: EXH

8/21/2009

$17.84

20%

Pfizer

NYSE: PFE

8/21/2009

$16.64

-0%

GigaMedia

Nasdaq: GIGM

9/29/2009

$5.31

-61%

10%

Pervasive Software

Nasdaq: PVSW

9/29/2009

$5.15

-5%

10%

Raytheon

NYSE: RTN

9/29/2009

$48.30

-3%

10%

AstraZeneca

London: AZN

10/27/2009

£28.30

20%

13%

Diageo

London: DGE

10/27/2009

£9.59

24%

13%

InterContinental Hotels

London: IHG

10/27/2009

£7.86

57%

13%

OMV

Vienna: OMV

10/27/2009

€29.03

-4%

13%

The Manual of Ideas’ monthly top ideas from inception in November 2008 through May 2010 - continued Stock Price

Stock Total Return

S&P 500 Total Return

Featured

On Featured

From Featured Date To

Date 1

Date

1 Year Later 2

1 Year Later 3

Company

Ticker

Royal Wessanen

Amsterdam: WES 10/27/2009

€4.14

-35%

13%

ADP

Nasdaq: ADP

11/20/2009

$43.45

12%

ATP Oil & Gas

Nasdaq: ATPG

11/20/2009

$15.93

-7%

12%

CapitalSource

NYSE: CSE

11/20/2009

$3.78

76%

12%

Lockheed Martin

NYSE: LMT

11/20/2009

$76.10

-5%

12%

MVC Capital

NYSE: MVC

11/20/2009

$9.96

37%

12%

Contango Oil & Gas

Amex: MCF

12/31/2009

$47.01

23%

15%

Imation

NYSE: IMN

12/31/2009

$8.72

18%

15%

Lodgian (acquired on 4/19/2010)

Amex: LGN

12/31/2009

$1.40

79%

Stewart Information Services

NYSE: STC

12/31/2009

$11.28

15%

VASCO Data Security

Nasdaq: VDSI

12/31/2009

$6.28

29%

15%

BreitBurn Energy Partners

Nasdaq: BBEP

1/21/2010

$13.36

72%

17%

Contango Oil & Gas

Amex: MCF

1/21/2010

$52.23

11%

17%

EchoStar

Nasdaq: SATS

1/21/2010

$19.32

39%

17%

Gravity

Nasdaq: GRVY

1/21/2010

$1.72

20%

17%

Lockheed Martin

NYSE: LMT

1/21/2010

$76.98

17%

Premier Exhibitions

Nasdaq: PRXI

1/21/2010

$1.35

18%

17%

Seaspan

NYSE: SSW

1/21/2010

$10.74

34%

17%

Stewart Information Services

NYSE: STC

1/21/2010

$10.97

17%

Syms

Nasdaq: SYMS

1/21/2010

$8.15

-16%

17%

Take-Two Interactive

Nasdaq: TTWO

1/21/2010

$9.37

30%

17%

Fair Isaac

NYSE: FICO

2/18/2010

$22.41

27%

23%

Hyatt Hotels

NYSE: H

2/18/2010

$30.00

55%

23%

Investors Title Company

Nasdaq: ITIC

2/18/2010

$35.40

-8%

23%

Republic Airways

Nasdaq: RJET

2/18/2010

$5.53

20%

23%

Vodafone

London: VOD

2/18/2010

£1.42

34%

23%

Nokia

Helsinki: NOK1V 3/25/2010

€11.53

-48%

15%

Playboy Enterprises (acquired on 3/4/2011)

NYSE: PLA

3/25/2010

$3.72

65%

15%

Sony

Tokyo: 6758

3/25/2010

¥3,470

-23%

15%

Time Warner

NYSE: TWX

3/25/2010

$31.23

16%

15%

Toyota Motor

Tokyo: 7203

3/25/2010

¥3,705

-10%

15%

Gravity

Nasdaq: GRVY

4/21/2010

$2.16

-17%

13%

I.D. Systems

Nasdaq: IDSY

4/21/2010

$3.07

52%

13%

LookSmart

Nasdaq: LOOK

4/21/2010

$1.15

64%

13%

Market Leader

Nasdaq: LEDR

4/21/2010

$2.16

13%

Maxygen

Nasdaq: MAXY

4/21/2010

$7.05

13%

Baxter International 4

NYSE: BAX

5/24/2010

$41.82

45%

28%

CapitalSource 4

NYSE: CSE

5/24/2010

$4.36

42%

28%

DirecTV 4

NYSE: DTV

5/24/2010

$36.78

38%

28%

Sealed Air 4

NYSE: SEE

5/24/2010

$20.58

29%

28%

Take-Two Interactive 4

Nasdaq: TTWO

5/24/2010

$10.82

48%

28%

45%

23%

Average Performance Since Inception (1-Year Holding Period) 5

ased on the publishing date of The Manual of Ideas report which features the company as a “top idea.” Please note that prior to April 2009, The B Manual of Ideas publishing schedule was quarterly (starting with the inaugural report in November 2008). 2 Total return includes share price performance and dividends, if any, for the respective one year holding period. Share price performance is calculated based on closing share prices as of the respective featured date and the related one year anniversary date (except for share prices for Playboy, Lodgian and Ticketmaster, which are based on their respective acquisition prices; the related S&P 500 prices are as of the date the respective acquisition was completed). 3 S&P 500 figures are based on the investable SPDR S&P 500 (NYSE: SPY). The figures relating to the respective returns for Playboy, Lodgian, and Ticketmaster reflect different holding periods (see related discussion in footnote #2). 4 The stock total return and related S&P 500 total return figures are based on closing prices as of May 12, 2011. 5 The performance figures exclude top ideas since June 2010 as their one year performance data is not available as of the publishing date. 1

* Disclaimer: Nothing in this brochure should be construed as an investment recommendation. Past performance is no guarantee of future performance. Please visit www.manualofideas.com/terms.html for all terms governing your use of The Manual of Ideas content.

THE MANUAL OF IDEAS IDEAS-DRIVEN – delivers 20+ equity investment ideas to you every month VALUE-ORIENTED – guided by principles of Graham, Buffett, Klarman INDEPENDENT – not tainted by investment banking relationships “BUY-SIDE” FOCUSED – highlights key investment drivers and risks, not noise WRITTEN BY TRAINED INVESTMENT PROFESSIONALS – not journalists BASED ON PRIMARY SOURCES – relies on regulatory filings, not databases AGNOSTIC ON SIZE, SECTOR, GEOGRAPHY – filters stocks by risk-reward

The Manual of Ideas Team

“John - and the team at

Our research team has extensive experience in equity analysis and investment management. The team is led by brothers John and Oliver Mihaljevic, who are both

Manual of Ideas - are really extraordinary. Amazing

Yale graduates and have studied under Yale Endowment chief investment officer

product/service.”

David Swensen. They each have more than ten years of direct investing experience.

— Shai Dardashti, Managing

While the research team includes contributors from around the world, John and

Partner, Dardashti Capital

Oliver are directly involved in idea generation, analysis and writing for each report.

Management

John Mihaljevic, CFA, is a Managing Editor at The

Oliver Mihaljevic is a Managing Editor at The Manual

Manual of Ideas and has also served as principal of

of Ideas. Prior to joining the company in 2009, Oliver has

investment firm Mihaljevic Capital Management since

worked as an investment analyst for U.S.-based hedge fund

2005. He is a member of Value Investors Club, an

Steel Partners since 2005. Previous roles included portfolio

exclusive community of top money managers, and has

manager at a Germany-based private equity investment

won the Club’s prize for best investment idea. John is a

firm as well as equity research analyst for Credit Suisse

trained capital allocator, having studied under Yale chief

First Boston in New York. Oliver holds a BA in Economics

investment officer David Swensen and served as research

from Yale. He resides in London, United Kingdom.

assistant to Nobel laureate James Tobin. John holds a BA in Economics, summa cum laude, from Yale and is a CFA charterholder. He resides in Zurich, Switzerland.

For more information and to subscribe, visit manualofideas.com