1. THEORETICAL RELATIONSHIP BETWEEN MARKET VALUE, ROIC, AND GROWTH WACC = 8% *Assumes a competitive advantage period of 10 years, after which ROIC = WACC is assumed Market value/capital ratio* Revenue growth Percent ROIC Percent 15 12 9 6

2. EMPIRICAL RELATIONSHIP BETWEEN MARKET VALUE, ROIC, AND GROWTH Sample of 563 North American companies *Defined as market value of operations divided by invested capital including goodwill **ROIC based on invested capital including goodwill Revenue growth 1993-2003 CAGR Percent <15 12-15 9-12 6-9 0-6 Market value/capital ratio, 2003* ROIC Percent

3. P-value 2 Percent REGRESSIONS OF MARKET-VALUE-TO-CAPITAL WITH ROIC AND GROWTH *Defined as market value of operations divided by invested capital including goodwill **P-value represents the probability that the tested relationship does not hold, with a P-value of 5% used as the threshold of statistical significance 0-6 6-9 9-12 12-15 >15 MV/IC* 93 146 124 61 139 Growth 0.25 0.76 3.22 2.14 7.99 0.52 0.82 2.83 1.43 3.18 60 41 1 16 0 ROIC cohort Percent Dependent variable Number of observations R 2 Percent Number of observations Dependent variable 4619.321.50563MVI/C*Full sample Variable 1 Slope 1 t-Stat 1 P-value 1 ** Percent ROIC Variable 2 Slope 2 t-Stat 2 Growth2.03.40 P-value 1 ** Percent Variable 1 Slope 1 t-Stat 1

4. VALUE OF COMMODITY CHEMICAL COMPANIES DRIVEN BY ROIC AND GROWTH *June 2002 (based on Invested Capital 2001) Source: T. Augat, E. Bartels, and F. Budde, “Multiple Choice for the Chemicals Industry,” McKinsey on Finance, Number 8 (Summer 2003), pp. 1-7 Market value/Capital ratio, 2002* Below averageAbove average ROIC Sales growth 1.51.6 1.30.5 Below average Above average

5. DCF VALUATION CLOSE TO ACTUAL MARKET VALUE Source: Annual reports; IBES; Bloomberg; McKinsey analysis DCF results relative to market value of equity Index Electric utilities Pharmaceuticals Consumer goods Oil majors ELEENRWEASSEZYUNNSRGYPGKFTLORLY PFEGSKJNJNVSMRKXOMBPRD/SCCVXTOT EON

6. CHANGE IN EXPECTATIONS IS KEY DRIVER OF TOTAL RETURN TO SHAREHOLDERS *Expectations measure is based on change in analyst consensus EPS forecast for running fiscal year (FY 0), the following fiscal year (FY 1) and change in analyst consensus 5-year growth expectation (LTG) **Scaled based on actual revenues ***P-value represents the probability that the tested relationship does not hold, with p-value of 5% used as the threshold of statistical significance Source:Datastream; Compustat; IBES; Bloomberg; McKinsey analysis S&P 500 companies, 1993-2003 Coefficient Expectations measure* Change in cash flow Actual cash flow** Change in economic profit Actual economic profit** Adjusted R 2 Percent P-value*** Percent 0 0 0 0 0.32 0.15 0.08 0.49 t-Statistic LTG01.918.6 13.5 3.0 5.1 6.9 00.3310.5FY 1 00.154.7FY 0

7. LONG-TERM PERFORMANCE EXPECTATIONS DRIVE SHARE PRICE Source:Datastream; IBES; McKinsey analysis Abnormal return on 137 announcements of fiscal year earnings for 2002 by U.S. companies percent Lower Higher Change in expected EPS for 2004 – “change in long term expectations” Actual EPS 2002 relative to expected EPS for 2002 –“short-term surprise” 2.33.6 (4.1)1.0 Negative Positive

8. MARKET REACTION TO PHARMACEUTICAL PRODUCT ANNOUNCEMENTS Source:Datastream; Factiva; McKinsey analysis Abnormal returns percent, 1998-2003 Lilly-Zovant AstraZeneca-Nexium Lilly-Evista Wyeth-Enbrel Wyeth-Protonix Abbott-Humira Pfizer-Zeldox NovoNordisk- Ragaglitazar Schering-Angeliq NovoNordisk- Levormeloxifene BMS-Vanlev 2 AstraZeneca-Iressa BMS-Vanlev 1 Development successes (e.g., approvals) Development setbacks (e.g., withdrawals) Announcement return -1/+1 day Announcement return -3/+3 days

9. NO CLEAR IMPACT OF U.S. GAAP RECONCILIATIONS Source: SEC filings; Datastream; Bloomberg; McKinsey analysis Average cumulative abnormal return (CAR) index Positive earnings impact (n = 16) Negative earnings impact (n = 34) CAR t-Stat (0.5%) (1.54) 1.7% 14.63 CAR t-Stat -1/+1 Day relative to announcement 110 108 106 104 102 100 98 96 94 92 90

10. NO CONSISTENT MARKET REACTION TO SFAS-142 GOODWILL ANNOUNCEMENT Source: Datastream; McKinsey analysis Abnormal return on announcement date Percent Summary statistics n = 54 R 2 = 0.0% Slope = (0.01) t-Stat = (0.15) P-value = 88.5% Goodwill amortization as percent of year end equity market value, 2001 10 20 30 40 50 0

11. Average Time Warner CAR t-Stat 0.1% 0.3 -1/+1 Day relative to announcement MARKET REACTION AT ANNOUNCEMENT OF GOODWILL IMPAIRMENT Source: SEC filings; Datastream; Bloomberg; McKinsey analysis Cumulative abnormal return (CAR) index, n = 54 105 100 95 90 85 75 70 65 110 80

12. Impact of option expense on pre-tax income Percent* VOLUNTARY OPTION EXPENSING HAS NO IMPACT ON SHARE PRICE *Defined as the absolute value of option expense divided by the pre-tax earnings before option expense Source:SEC Filings; Datastream; Bloomberg; McKinsey analysis Abnormal return on announcement date Percent Abnormal return Summary statistics n = 120 R 2 = 0.4% Slope = 0.01 t-Stat = 0.7 P-value = 47.1% 0 10 20 30 40

13. EFFECT OF INVENTORY ACCOUNTING CHANGE ON SHARE VALUE Source: S. Sunder, “Relationship Between Accounting Changes and Stock Prices: Problems of Measurement and Some Empirical Evidence,” Empirical Research in Accounting: Selected Studies, 1973 Cumulative abnormal return Percent 110 firms switching to LIFO 22 firms switching from LIFO 0.125 0.075 -0.025 -0.075 -0.125 -12 -7 -2 3813 0.125 0.075 0.025 -0.025 -0.075 -0.125 -12-7 -2 3 813 0.025

14. ESTIMATING FUNDAMENTAL MARKET VALUATION LEVELS *12-month forward-looking price-to-earnings ratio Source:IBES; McKinsey Actual P/E* Predicted P/E*