1. - 1 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved COMPARATIVE ACCURACY OF FREE CASH FLOW MODEL METHODOLOGIES AND PARAMETERS By Rawley Thomas President LifeCycle Returns, Inc. February 29, 2004 Rawley@LCRT.com

2. - 2 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt KEY VALUE MANAGEMENT OBJECTIVE FUNCTION AND HOW TO MEASURE IT FOR SINGLE COMPANIES AND ACROSS LARGE UNIVERSES (“What Gets Measured Gets Done”) Corporate Managers –Explain Current Stock Price Level

3. - 3 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt AN INTRINSIC VALUE CHART ENABLES US TO VISUALIZE THE MEASUREMENT OF ROBUSTNESS AND ACCURACY OF A DCF MODEL PRICE LEVEL USING ONLY ACTUAL REPORTED FINANCIAL DATA AND THE SAME GLOBAL PARAMETERS ACROSS THE ENTIRE UNIVERSE TO DRIVE A MECHANICAL LIFE CYCLE FORECAST OF CASH FLOWS FOR EACH COMPANY Sources: Financial Statements and Price Data – Simplystocks Calculations - LCRT’s Platform

4. - 4 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt LCRT’S RESEARCH METHODOLOGY CONTRASTS SHARPLY WITH THE TRADITIONAL VALUATION APPROACH Traditional Approach Forecasts 3-10 Years of Cash Flows Applies Perpetuity or Multiple for Terminal Value Discounts to Present (plan valuation) Implicitly assumes the structure and parameters of the terminal valuation are robust and accurate or “plugs” the parameters to explain current price LCRT Methodology Employs only actual data to empirically test robustness and accuracy of valuation models and parameters Extends the best models to use as terminal values in traditional plan valuations

5. - 5 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt ACROSS A UNIVERSE OF 20,000 + COMPANY- YEARS, TRACKING ERROR IMPROVEMENT CHARTS MEASURE THE COMPARATIVE ACCURACY OF: Models Methodologies Parameters Tracking error equals the % absolute difference between the Model Intrinsic Value and the actual stock price at Fiscal Year + 3 Months LOG 2 of % Absolute Model Error versus Actual Price - Fiscal Year +3 Months 1994-2002 63 79 Sources: Financial Statements and Price Data – Simplystocks Calculations - LCRT’s Platform Constant Dollar Gross Investment > $100 Million, Panel Data from 1994-2002 Cumulative % of Universe

6. - 6 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt ADVANTAGES OF THE LCRT TRACKING ERROR IMPROVEMENT CHARTS Don’t depend on the distribution and don’t assume Gaussian Normality Cover the entire universe and all company years without “fudging” outliers with elimination or winsorization Summarize very large amounts of time series and cross sectional data on one simple chart

7. - 7 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt FOR THE FREE CASH FLOW PERPETUITY MODEL, THE GROWTH RATE METHODOLOGY MAKES A SMALL 8%* DIFFERENCE IN ACCURACY LOG 2 of % Absolute Model Error versus Actual Price - Fiscal Year +3 Months 1994-2002 66 71 Cumulative % of Universe Sources: Financial Statements and Price Data – Simplystocks Calculations - LCRT’s Platform Constant Dollar Gross Investment > $100 Million, Panel Data from 1994-2002 * 8% = 100%(71/66 -1) Median 3-year median growth rate in assets for the industry is the most accurate growth rate methodology with a tracking error of 65.7%. 3-year compounded growth rate in assets for the company is the least accurate growth rate methodology with a tracking error or 70.7%.

8. - 8 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt MEDIAN TRACKING ERRORS FOR GROWTH RATE METHODOLOGIES FOLLOW A NARROW 8% RANGE FROM 65.7 TO 70.7 Median 3-Year Median Growth in Assets for Industry Median 1-Year Growth in Assets for Industry Median 3-Year Compound Growth in Assets for Industry Median 3-Year Median Growth in Net Sales for Industry Sustainable Growth Rate on Equity Median 1-Year Growth in Net Sales for Industry Median 3-Year Sustainable Growth Rate on Equity for Industry Median 1-Year Sustainable Growth Rate for Industry Median 3-Year Compounded Growth in Net Sales for Industry Median 3-Year Sustainable Growth Rate on Equity 1-Year Growth in Assets 3-Year Median Growth in Assets 1-Year Growth in Net Sales 3-Year Median Growth in Net Sales 3-Year Compounded Growth in Assets

9. - 9 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt A 5% EQUITY RISK PREMIUM PARAMETER MINIMIZES TRACKING ERRORS FOR 45% OF THE UNIVERSE LOG 2 of % Absolute Model Error versus Actual Price - Fiscal Year +3 Months 1994-2002 65 95 Cumulative % of Universe Sources: Financial Statements and Price Data – Simplystocks Calculations - LCRT’s Platform Constant Dollar Gross Investment > $100 Million, Panel Data from 1994-2002

10. - 10 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt INDUSTRY MEDIAN BETA’S DOMINATE COMPANY LCRT BETA’S, BUT ONLY A 5%* DIFFERENCE EXISTS WITH ALL BETA’S = 1.00 LOG 2 of % Absolute Model Error versus Actual Price - Fiscal Year +3 Months 1994-2002 67 97 Cumulative % of Universe Sources: Financial Statements and Price Data – Simplystocks Calculations - LCRT’s Platform Constant Dollar Gross Investment > $100 Million, Panel Data from 1994-2002 * 5% = 100%(68.9/65.7 -1) The low sensitivity of the tracking error results to employing the median industry beta over beta = 1.00 adds additional empirical evidence against the usefulness of CAPM beta as a measure of risk.

11. - 11 - LIfeCycle Returns, Inc. © 2004 All Rights Reserved Comparative Accuracy of Free Cash Flow Models 2-29-04 Rt THE LOWEST ERRORS OCCUR WITH 1-YEAR TIME PERIODS FOR EXCESS GROWTH 66 85 120 Cumulative % of Universe Sources: Financial Statements and Price Data – Simplystocks Calculations - LCRT’s Platform Constant Dollar Gross Investment > $100 Million, Panel Data from 1994-2002 LOG 2 of % Absolute Model Error versus Actual Price - Fiscal Year +3 Months 1994-2002