Pensions December 6, 2011 CFRA ACADEMY: Pensions

CFRA ACADEMY: Pensions December 6, 2011 CFRA ACADEMY: Pensions

December 6, 2011

Pension Plans: Risks to Watch for during the Year-End Reporting Cycle RELATED REPORTS

Previous CFRA Reports on Pensions: KEY TAKEAWAY June 2010 The funded status of corporate pension plans in the United States remains a major area of concern. While the funded July 2009 February 2009 status of these plans did improve in 2010, 95% of plans remained underfunded at year-end and the average funded November 2008 status of all plans was just 78%. Further, CFRA suspects that, given poor equity market performance and declining May 2008 discount rates year-to-date, 10-K filings for 2011 will reveal further deterioration in the funded status of many plans. In this report, we highlight companies that may be at risk due to various pension related issues in an effort to help investors understand how financial results may be impacted in the final quarter of 2011 and into 2012. CONTACTS

SUMMARY Dan Mahoney, CFA, CPA We highlight companies that experienced significant changes in pension funding and pension expense. We also call Phone: (646) 778-4178 attention to situations where a company may be making aggressive assumptions with regards to the estimates used in [email protected]

determining pension funding and expense. Additionally, we look at pension plan asset allocation choices among firms Shelby Dover, CPA and highlight changes in those choices. Lastly we identify companies that may be required to make significant cash Phone: (301) 556-0236 contributions to their plans in 2012. [email protected]  Funded Status – We begin by highlighting the companies with the largest declines in funded status as this is an indicator that pension expense and cash contributions may increase in future periods. Of the sample analyzed, 95% of plans were underfunded at year-end 2010, although approximately 76% of plans reported improvements in their funded status.  Plan Asset Investments – While on average asset allocation choices did not change dramatically in 2010 as compared to 2009, there remain several companies that appear at risk due to unusual or extreme plan asset allocations. Improved disclosure continues to provide further clarity into asset allocation decisions.  Pension Assumptions - We review key estimates for discount rates, expected returns on plan assets, and future compensation increases and flag companies with abnormally high or increasing discount rates and expected returns and abnormally low estimates of future compensation increases. The average discount rate declined approximately 40 bps to 5.4%, average expected return declined to 7.9% in 2010 from 8.1% in 2009, and compensation increases declined on average 6 bps to 3.9%.  Pension Expense – On average, pension expense did not change materially in 2011 versus 2010. However, in our analysis, we identify several companies where changes in pension or OPEB expense had a material impact on growth in operating income (both positively and negatively) in 2011. Additionally, we note those that benefited from pension or OPEB income.  Cash Contributions - Our final analysis looks at the potential cash flow implications of pensions by attempting to flag companies that may be required to make significant cash contributions to their plans in future years relative to the average cash flow from operations generated by the company. Our analysis is based on the Pension Protection Act’s funding requirements for 2011.

CFRA ACADEMY: Pensions December 6, 2011

Introduction

The results of our analysis are organized as follows: Balance Sheet Analysis – Plans Remain Overwhelmingly Underfunded, Pgs. 3–8 o Overall Changes in Funded Status o Understanding Drivers of Change in Funded Status: Increasing Obligations Risky Plan Asset Investment Decisions, Pgs. 9–13 Aggressive Pension Assumptions, Pgs. 13–23 o Discount Rate o Expected Return o Compensation Rate Increase Pension and OPEB Expense/Income Trends – Expect Higher Expense in 2010, Pgs. 24–39 Expected Cash Contributions, Pgs. 40–43

Before we get into the more detailed portion of the report, we feel it’s important to note that the intention of this report is to help clients gain an understanding of companies that may be exposed to pension risk and the magnitude that this exposure could be relative to other firms with pension plans. What we are not attempting to do, however, is to come up with a precise estimate of where pension funding may be at the end of 2011 or exactly what pension expense may be in 2011 and beyond. Pension accounting and measurements of pension obligations involve far too many moving parts and undisclosed inputs to attempt to forecast the future with precision. What we can do, however, is attempt to understand where pension funding and expense are heading directionally and to identify those companies that may be most at risk based on their disclosed policies. Our hope is that clients will come away from this report armed with a better understanding of what drives pension funding and expense and of what questions to ask company management in order to better assess pension risk.

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CFRA ACADEMY: Pensions December 6, 2011

Funded Status at Year-End 2010

CFRA analyzed a sample of 695 plans with a market capitalization of at least $250 million and pension benefit obligations (PBOs) that represented at least 2% of total assets at the end of the most recent fiscal year. Overall, average funding levels (defined as pension plan assets as a percentage of the PBO) improved for our sample to 77.8% in 2010 compared to 74.0% in the prior year. Of the total population, only 24% of plans experienced a decline in funding. However, while plan funding improved, most plans remain underfunded. Specifically, 657, or 95%, of the plans in our sample were underfunded at the end of the most recent fiscal year. In Table 1a we include further detail of overall plan performance based on whether plans are underfunded and overfunded.

Table 1a: Summary of Funded Status in 2010 Funded Status Directional Change in Funded Status Average Change in Funded Status 25% experienced declines in funded status Declined on average by 2.3% 657 underfunded plans (95%) 75% experienced improvements in funded status Improved on average by 5.6%

Funded Status Directional Change in Funded Status Average Change in Funded Status 18% experienced declines in funded status Declined on average by 5.1% 38 overfunded plans (5%) 82% experienced improvements in funded status Improved on average by 10.1%

The following tables highlight companies experiencing significant deterioration in their pension funding levels. First, we rank the 25 companies with the largest percentage overall declines in funded status in Table 1b. This looks at companies with the most significant changes in funded status regardless of the actual funded status. As an example, MXWL had the largest decline in funded status at 18.2% yet remained overfunded at the end of the most recent fiscal year with a funding level of 121.0%. While the deterioration in funded status is notable for all firms in Table 1b, we are less concerned with firms such as MXWL where the plans remain fully funded. Therefore, we focus on the 25 underfunded plans with the largest percentage declines in overall funded status in Table 1c. These plans provide greater concern as they realized a significant decline in funded status and are underfunded. The implications for these plans could be negative for both cash flow via higher contributions and earnings via higher pension expense. At the top of the list is BG, with an overall decline in funded status of 12.3%. This plan was negatively impacted by a divestiture that negatively impacted its funded status. In the case of BG, however, the actual size of the plan is not as significant as certain other firms on this list and this somewhat mitigates our concern. For example, with ABH, the deterioration in funding of $456 million represents 28% of the market capitalization of the Company while the overall underfunding represents 55% of ABH’s market cap. Similarly, at BA, the deterioration in funding of $3,498 million represented 7% of the market capitalization of the Company while the overall underfunding as of year-end 2010 represented 21% of BA’s market cap. Other companies of concern from this table include UAL and BCO.

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CFRA ACADEMY: Pensions December 6, 2011

Table 1b: 25 Companies Experiencing the Largest Declines in Pension Funding % in Most Recent Fiscal Year Mkt. PBO Plan Assets PBO Plan Assets % Funded % Funded Change in Symbol Company Name Value Current Year Current Year Prior Year Prior Year Current Year Prior Year % Funded1 MXWL Maxwell Technologies Inc. $544 $25 $31 $20 $27 121.0% 139.2% -18.2% BG Bunge Ltd. 8,690 568 445 873 791 78.3% 90.6% -12.3% UAL United Continental Holdings Inc. 6,973 3,322 1,871 228 156 56.3% 68.4% -12.1% CPO Corn Products International Inc. 3,531 449 361 207 185 80.4% 89.4% -9.0% MTSC MTS Systems Corp. 577 17 13 16 14 79.0% 87.7% -8.7% CW Curtiss-Wright Corp. 1,478 521 372 444 350 71.4% 78.9% -7.5% SBSI Southside Bancshares Inc. 344 61 53 50 48 88.1% 95.2% -7.0% S Sprint Nextel Corp. 8,055 1,900 1,300 1,600 1,200 68.4% 75.0% -6.6% ABH AbitibiBowater Inc. 1,607 6,302 5,422 5,665 5,241 86.0% 92.5% -6.5% AIMC Altra Holdings Inc. 376 24 13 26 16 55.1% 61.4% -6.3% SHW Sherwin-Williams Co. 8,670 476 700 414 633 147.1% 152.7% -5.6% HL Hecla Mining Co. 1,613 77 70 67 65 91.6% 97.1% -5.5% CMA Comerica Inc. 4,991 1,586 1,464 1,369 1,338 92.3% 97.7% -5.4% VIA.B Viacom Inc. Cl B 25,282 807 464 659 414 57.5% 62.8% -5.3% INTC Intel Corp. 129,122 1,641 1,211 1,220 963 73.8% 78.9% -5.1% ROLL RBC Bearings Inc. 884 22 19 21 19 86.7% 91.8% -5.1% NWE NorthWestern Corp. 1,269 479 428 415 391 89.4% 94.3% -4.8% WGL WGL Holdings Inc. 2,155 774 592 678 550 76.5% 81.1% -4.6% BA Boeing Co. 47,986 59,106 49,252 52,166 45,810 83.3% 87.8% -4.5% LII Lennox International Inc. 1,564 336 245 299 231 72.7% 77.2% -4.5% FSTR L.B. Foster Co. 270 15 11 4 4 76.4% 80.9% -4.4% AGN Allergan Inc. 27,153 774 627 655 560 81.0% 85.5% -4.4% LEG Leggett & Platt Inc. 3,363 264 210 235 197 79.8% 84.2% -4.4% CENX Century Aluminum Co. 983 130 74 114 70 56.6% 61.0% -4.3% NPO EnPro Industries Inc. 690 198 113 220 135 57.4% 61.6% -4.2% 1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Table 1c: 25 Underfunded Companies Experiencing the Largest Declines in Pension Funding % in Most Recent Fiscal Year Mkt. PBO Plan Assets PBO Plan Assets % Funded % Funded Change in Symbol Company Name Value Current Year Current Year Prior Year Prior Year Current Year Prior Year % Funded1 BG Bunge Ltd. 8,690 568 445 873 791 78.3% 90.6% -12.3% UAL United Continental Holdings Inc. 6,973 3,322 1,871 228 156 56.3% 68.4% -12.1% CPO Corn Products International Inc. 3,531 449 361 207 185 80.4% 89.4% -9.0% MTSC MTS Systems Corp. 577 17 13 16 14 79.0% 87.7% -8.7% CW Curtiss-Wright Corp. 1,478 521 372 444 350 71.4% 78.9% -7.5% SBSI Southside Bancshares Inc. 344 61 53 50 48 88.1% 95.2% -7.0% S Sprint Nextel Corp. 8,055 1,900 1,300 1,600 1,200 68.4% 75.0% -6.6% ABH AbitibiBowater Inc. 1,607 6,302 5,422 5,665 5,241 86.0% 92.5% -6.5% AIMC Altra Holdings Inc. 376 24 13 26 16 55.1% 61.4% -6.3% HL Hecla Mining Co. 1,613 77 70 67 65 91.6% 97.1% -5.5% CMA Comerica Inc. 4,991 1,586 1,464 1,369 1,338 92.3% 97.7% -5.4% VIA.B Viacom Inc. Cl B 25,282 807 464 659 414 57.5% 62.8% -5.3% INTC Intel Corp. 129,122 1,641 1,211 1,220 963 73.8% 78.9% -5.1% ROLL RBC Bearings Inc. 884 22 19 21 19 86.7% 91.8% -5.1% NWE NorthWestern Corp. 1,269 479 428 415 391 89.4% 94.3% -4.8% WGL WGL Holdings Inc. 2,155 774 592 678 550 76.5% 81.1% -4.6% BA Boeing Co. 47,986 59,106 49,252 52,166 45,810 83.3% 87.8% -4.5% LII Lennox International Inc. 1,564 336 245 299 231 72.7% 77.2% -4.5% FSTR L.B. Foster Co. 270 15 11 4 4 76.4% 80.9% -4.4% AGN Allergan Inc. 27,153 774 627 655 560 81.0% 85.5% -4.4% LEG Leggett & Platt Inc. 3,363 264 210 235 197 79.8% 84.2% -4.4% CENX Century Aluminum Co. 983 130 74 114 70 56.6% 61.0% -4.3% NPO EnPro Industries Inc. 690 198 113 220 135 57.4% 61.6% -4.2% UGI UGI Corp. 3,175 472 288 429 280 61.0% 65.2% -4.2% BCO Brink's Co. 1,342 1,180 917 1,034 847 77.7% 81.9% -4.2% 1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Assessing Changes in Funded Status While some plans experienced funding declines due to a significant increase in PBOs, others experienced funding declines due to a decrease in plan assets or a smaller increase relative to others. Therefore, we looked at these two factors separately. For companies analyzed in our sample, the overall improvement in funded status was on average driven by improved plan asset performance offset to a lesser degree by an increase in PBOs. On average plan assets improved by 20.1% compared to the average increase in PBOs of 13.3%. Other drivers of changes in funded status include acquisitions, foreign exchange movements, material changes in the benefit plans themselves, and contributions to the plan made by companies. Understanding what factors have driven changes in pension funding in recent years can help to forecast the state of the pension plan in the future.

Increases in PBO Table 1d shows underfunded pension plans with the most significant increases in pension benefit obligations. Nineteen out of the twenty-five companies experienced declines due to acquisitions or mergers, including the top five companies, TGI, UAL, OMG, SWK, and GFF. For example, UAL’s acquisition of Continental Airlines caused its PBO to balloon to $3.2 billion at the end of 2010 from just $228 million at the end of 2009. Interestingly, pension assets acquired totaled only $1.5 billion, which means UAL inherited a plan that was only 49% funded and had a $1.6 billion funding shortfall. The majority of remaining companies on the list saw PBOs increase from actuarial losses. For example, the PBO at INTC increased to $1.6 billion at the end of 2010 from $1.2 billion at the end of 2009 due primarily to actuarial losses of $310 million in 2010 versus actuarial gains of $84 million in 2009. The change in actuarial losses was driven by a decrease in the discount rate from 6.1% in 2009 to 5.8% in 2010 for its U.S. plan and from 5.7% in 2009 to 5.1% in 2010 for its non-U.S. plan.

Decreases in Plan Assets Table 1e shows underfunded plans that experienced declines in plan assets, ranked by the percentage decrease in plan assets. Interestingly, the largest declines in plan assets were not driven by declines in actual returns but by divestitures and settlements. For example, BG not only experienced the largest decline in plan assets, but also the largest decline in funded status, as shown in Table 1c, due to divestitures while declines at both CHD and FOE were due to settlements.

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CFRA ACADEMY: Pensions December 6, 2011

Table 1d: 25 Underfunded Pension Plans Experiencing the Largest % Increase in Benefit Obligations (PBO) Mkt. % Funded % Funded Change in PBO PBO % Change Symbol Company Name Value Current Year Prior Year % Funded1 Current Year Prior Year in PBO1 TGI Triumph Group Inc. 2,747 82.1% 43.7% 38.4% 2,023 17 11,993.0%2 UAL United Continental Holdings Inc. 6,973 56.3% 68.4% -12.1% 3,322 228 1,357.0%3 OMG OM Group Inc. 890 73.1% 38.4% 34.7% 219 27 713.2%2 SWK Stanley Black & Decker Inc. 10,580 73.7% 73.8% -0.2% 2,378 433 449.5%2 GFF Griffon Corp. 623 54.9% 27.8% 27.1% 243 71 240.8%2 FSTR L.B. Foster Co. 270 76.4% 80.9% -4.4% 15 4 232.9%2 CF CF Industries Holdings Inc. 11,419 87.6% 84.6% 2.9% 681 276 146.8%2 URS URS Corp. 2,828 71.7% 57.2% 14.5% 769 333 130.9%2 CPO Corn Products International Inc. 3,531 80.4% 89.4% -9.0% 449 207 116.9%2 UIL UIL Holdings Corp. 1,708 64.7% 62.2% 2.5% 776 372 108.7%2 FTR Frontier Communications Corp. 5,991 78.5% 68.3% 10.1% 1,645 891 84.7%2 KO Coca-Cola Co. 154,133 75.4% 75.9% -0.5% 7,292 3,996 82.5%2 GEN GenOn Energy Inc. 2,253 80.1% 82.5% -2.3% 448 291 54.0%3 ORI Old Republic International Corp. 2,634 69.9% 73.2% -3.3% 425 286 48.8%3 BHI Baker Hughes Inc. 24,650 85.8% 84.6% 1.2% 1,037 702 47.7%2 KFT Kraft Foods Inc. 62,308 84.2% 83.0% 1.2% 15,738 10,712 46.9%2 LFUS Littelfuse Inc. 1,110 95.0% 75.1% 19.9% 104 71 45.4%2 PEP PepsiCo Inc. 97,088 89.8% 84.0% 5.8% 11,993 8,315 44.2%2 NSH NuSTAR GP Holdings LLC 1,312 93.2% 74.2% 19.0% 50 37 37.0% MSG Madison Square Garden Co. 1,917 59.5% 55.7% 3.8% 123 90 36.8% CLF Cliffs Natural Resources Inc. 9,303 71.8% 64.4% 7.4% 1,022 751 36.2%2 INTC Intel Corp. 129,122 73.8% 78.9% -5.1% 1,641 1,220 34.5% EW Edwards Lifesciences Corp. 8,679 57.6% 57.2% 0.3% 79 60 30.9% SHLM A. Schulman Inc. 622 19.8% 15.5% 4.3% 113 86 30.8% BRK.A Berkshire Hathaway Inc. Cl A 192,210 77.8% 72.8% 5.0% 10,598 8,136 30.3%

1. Amounts may not tie due to rounding 2. Increase in PBO due to acquisition 3. Increase in PBO due to merger

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CFRA ACADEMY: Pensions December 6, 2011

Table 1e: Underfunded Pension Plans Experiencing Declines in Plan Assets Mkt. % Funded % Funded Change in Plan Assets Plan Assets % Change Symbol Company Name Value Current Year Prior Year % Funded1 Current Year Prior Year in Plan Assets1 BG Bunge Ltd. 8,690 78.3% 90.6% -12.3% 445 791 -43.7% CHD Church & Dwight Co. 6,382 83.6% 87.7% -4.0% 68 114 -40.3% FOE Ferro Corp. 582 67.4% 70.5% -3.0% 313 381 -17.7% NPO EnPro Industries Inc. 690 57.4% 61.6% -4.2% 113 135 -16.9% AIMC Altra Holdings Inc. 376 55.1% 61.4% -6.3% 13 16 -15.4% LUK Leucadia National Corp. 6,543 69.8% 71.1% -1.3% 145 168 -13.4% VZ Verizon Communications Inc. 104,549 88.4% 89.9% -1.5% 25,814 28,592 -9.7% APOG Apogee Enterprises Inc. 290 35.6% 39.4% -3.8% 5 5 -3.0% MTSC MTS Systems Corp. 577 79.0% 87.7% -8.7% 13 14 -2.5% ITRI Itron Inc. 1,378 10.8% 10.7% 0.0% 8 8 -2.1% MTW Manitowoc Co. 1,211 84.1% 88.1% 4.1% 334 339 -1.5% BWC Babcock & Wilcox Co. 2,677 71.9% 70.5% 1.4% 1,782 1,798 -0.9% ROC Rockwood Holdings Inc. 3,414 38.4% 37.9% 0.6% 260 261 -0.6% CBB Cincinnati Bell Inc. 629 61.6% 64.3% -2.7% 324 325 -0.4% CBE Cooper Industries PLC Cl A 8,784 84.0% 76.5% 7.5% 569 571 -0.4% SPH Suburban Propane Partners L.P. 1,700 88.7% 89.1% -0.4% 140 140 -0.1%

1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Plan Asset Allocation

The actual return and volatility of plan assets are directly related to the asset allocation decisions of a plan’s managers. Accordingly, we reviewed asset allocations for a sample of companies and flagged companies where asset allocations may be concerning.

CFRA analyzed the allocations of all companies with a market capitalization over $250 million and with pension obligations representing greater than either 10% of total assets or 5% of total equity. The total population was 338 companies. As Chart 2a indicates, overall pension asset allocations did not shift significantly between 2009 and 2010. The average portfolio is now invested 55.8% in equities, 36.6% in debt, 0.5% in private investments, 1.1% in real estate, and 5.9% in other as compared to the prior year when assets were invested 55.1% in equities, 37.0% in debt, 0.5% in private investments, 1.2% in real estate, and 6.1% in other.

Disclosure related to asset allocation choices improved in the most recent filings as companies with fiscal years beginning after December 15, 2009 were required to implement new plan asset disclosure requirements issued by the FASB. These rules resulted in expanded asset categories (i.e. beyond equity, debt, real estate, and other) and fair value classifications (i.e. Level I, II, III) of these assets among other changes. The expanded asset categories and fair value classifications revealed that some companies with seemingly conservative investments in debt are actually invested in risky debt classes such as mortgage-backed securities. For example, the Western Union Company (WU) holds 69% of its assets in debt securities. However, we learn in the 2010 10-K filing that of the $197 million invested in debt securities, $117.3 million is in corporate bonds, $57.9 million is in U.S. treasury bonds, $6.8 million is in government agencies, $6.0 million is in asset-backed securities, and $9.0 million is in other bonds. We also got better insight into non-debt and equity classes such as hedge funds, derivatives, open funds, etc. This will allow investors an opportunity to understand these types of investments where previously there was very little disclosure. With that in mind, we highlight the 15 companies with the highest allocations in each category in Tables 2b-2e. Chart 2a: Plan Asset Allocation in 2010 and 2009

Though the new rules provide better transparency, some 2010 2009 Private Private companies no longer identify certain assets as related to Real Estate Investment Investment Real Estate equity, debt, etc., which somewhat hinders our analysis. As 1.1% 0.5% 0.5% 1.2% an example some companies listed mutual funds as a Other Other category and noted that mutual funds incorporated both debt 5.9% 6.1% and equity investments. In these situations, we classified the investments as other.

Debt Debt 36.6% Equity 37.0% Equity 55.8% 55.1%

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CFRA ACADEMY: Pensions December 6, 2011

Equity Allocations While the average percentage allocation to equity remained fairly conservative at 55.8% in 2010, there were certain companies that reported significant allocations in equities. We caution that these high allocations make the plan, and accordingly the Company’s future cash flows and earnings, significantly exposed to movements in equity markets which have been volatile in recent years. Also note that certain plans invest a certain portion of their equity holdings in the stock of their own company, which adds to the risk profile. For example, PRK had $8.4 million of its $85.5 million in plan assets invested in its own shares at December 31, 2010. Year-to-date, PRK’s shares have substantially underperformed the broader market, and, therefore, PRK’s pension funding may deteriorate relative to a company with a more broadly diversified portfolio. While not featured in the chart below, in January 2011 GM contributed 61 million shares of its common stock valued at $2.2 billion to its U.S. hourly and salaried pension plans.

Table 2b: Companies with Highest Equity Allocations

90.0

85.0

80.0

75.0

70.0

65.0 PRK USTR ALJ JNJ SIAL FDML IEP KMX MOG.A VHI RBC TMP TIF CQB FMC

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CFRA ACADEMY: Pensions December 6, 2011

Debt Allocations It is interesting how the new accounting disclosure rules shed light on the risk of seemingly conservative asset allocations in debt securities. As an example, CBS remained heavily invested in debt securities totaling approximately 70% of plan assets in both 2009 and 2010. However, we learn in CBS’ most recent 10- K filing that 8% of these assets are mortgage-backed and asset-backed securities, 12% are invested in government related securities, and the remainder is in corporate bonds and common collective funds. Thus, investors can benefit from the new disclosure rules by taking advantage of additional detail that provides insight into risks within the portfolio. For companies with significant pension plans, these asset allocation choices can have a significant impact on earnings and cash flows.

Table 2c: Companies with Highest Debt Allocations

100.0

90.0

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0 CAS TPL SLE MTW TW IOSP LDR CBS WU STAA DPS IWA SUSQ MTG

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CFRA ACADEMY: Pensions December 6, 2011

Private Investment Allocations For companies with particularly high levels of private equity and hedge fund investments, we caution that these assets may be higher risk and less liquid than other asset classes. Considering the long-term horizon of pension plans, certain types of hedge fund or private equity investments may not be the most prudent investment vehicles especially for the majority of plan assets. Note, however, that private allocations can also include items that have a much different risk/return profile than private equity or hedge fund investments such as long-term annuities and therefore it is important to inspect the details of the filing to get a real understanding.

As noted earlier, new pension disclosures provide better insight into not only the make-up of plan assets but also the changes in some of these hard-to-value assets. For example, 19% of DIS’s plan assets in 2010 were invested in alternative investments—including 9% in diversified investments, 3% in distressed investments, 6% in private equity, and 1% in private capital—up from 16% of DIS’s plan assets in 2009. Additionally, we learned that the portion of alternative investments classified as Level III assets for the purposes of measuring fair value increased from 10.6% in 2009 to 13.3% in 2010. Companies with very high levels of private investment definitely deserve closer investor attention.

Table 2d: Companies with Highest Private Investment Allocations

25.0

20.0

15.0

10.0

5.0

0.0 D SWM DIS C KEI GE DD SON SIGI FTR VHI BMY UPS AOS CCE KEY

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CFRA ACADEMY: Pensions December 6, 2011

Real Estate Allocations We also highlight companies with higher investments in real estate as these assets have different risk characteristics relative to other asset categories such as debt and equity investments. Further, given the recent downturn in this sector and the general lower liquidity of certain real estate investments, additional scrutiny should be placed on companies with significant allocations in this asset class. For example, according to STAA’s filing, the 27% of assets allocated to real estate include both mortgages (13%) and actual real estate holdings (14%). While this is a fairly aggressive allocation, STAA’s plan is not large relative to the assets or equity of the firm.

Table 2e: Companies with Highest Real Estate Allocations

30.0

25.0

20.0

15.0

10.0

5.0

0.0 STAA EMN UNS CVGI ALJ TWIN GTS MOG.A IP GE OC GM TXT CBB

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CFRA ACADEMY: Pensions December 6, 2011

Estimates

Whenever analyzing pension plans, it is imperative to understand that many of the key figures are based on significant estimates and that those estimates can be flawed. Changing estimates for discount rates, future salary increases, and expected returns on plan assets can have a dramatic impact on pension funding and periodic pension expense. While accounting rules are fairly prescriptive related to discount rate selection, even a slight change in the assumed rate can have a material impact on funded status and pension expense. Further, management has more discretion around compensation and expected return assumptions. In this section we look at the three key assumptions and attempt to identify companies with the most aggressive estimates.

Discount Rate The discount rate is perhaps the most important of the estimates used in calculating both pension expense and the pension obligation. Because pension outflows will occur in future years, an appropriate discount rate is essential to determine the present value of those future outflows. When the discount rate decreases, pension obligations increase as future outflows are discounted at a lower rate. In most cases, a lower rate also drives periodic pension expense higher because the higher rate increases the present value of the periodic service cost and results in actuarial losses that are amortized against earnings. The opposite is true when interest rates increase.

We analyzed the discount rates used by 371 companies with market capitalization greater than $250 million to identify (1) companies that may be benefiting from high discount rate assumptions as shown in Table 3a, (2) companies that may be benefiting from an increase in discount rate assumptions as shown in Table 3b, and (3) companies that may be experiencing increased pension expense due to a significant decrease in discount rates as shown in Table 3c. The average discount rate used by all firms decreased in 2010 to 5.39% as compared to 5.84% in 2009 while the median rate decreased to 5.44% in 2010 versus 5.87% in 2009, and only 8 companies from our sample had increases in the discount rate in 2010. As you can see, Teledyne Technologies (TDY) had the highest discount rate at 6.25%. We also note that the only company in Table 3a to increase the discount rate assumption was WWD, with an increase from 5.50% to 5.90%—the second-highest increase of all plans in our sample. All companies highlighted in Tables 3a and 3b are worthy of a follow-up with management to determine why such a high discount rate was chosen relative to other firms, especially given the current interest rate environment.

In Table 3b, we highlight those firms in our sample that have increased their discount rate assumption year-over-year. These firms are perhaps more concerning than those in Table 3a. Given the decrease in benchmark discount rates from 2009 to 2010 and the fact that the average firm in our sample used a lower discount rate, all firms that increased discount rates by a meaningful amount are worthy of added scrutiny.

It is also important to look at companies with low or declining discount rate assumptions. These companies may be experiencing higher pension costs due to the lower discount rate. In Table 3c we identify companies that may be experiencing higher pension expense due to large declines in discount rates. In certain cases, these firms may benefit in 2012 relative to peers should those peers have to lower discount rate assumptions while the companies in Table 3c may be able to hold them flat given the decrease recognized in 2010.

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Table 3a: Top Decile Companies – Highest Discount Rate Assumptions Mkt. Discount Rate Discount Rate Discount Rate Symbol Company Name Value Current Year Prior Year Two Years Prior TDY Teledyne Technologies Inc. 2,118 6.25 6.25 6.00 HRL Hormel Foods Corp. 7,755 6.12 6.28 7.30 WDR Waddell & Reed Financial Inc. (Cl A) 2,360 6.00 6.25 6.75 XEL Xcel Energy Inc. 12,371 6.00 6.75 6.25 UPS United Parcel Service Inc. Cl B 69,509 5.98 6.58 6.75 JNJ Johnson & Johnson 177,383 5.98 6.50 6.50 WWW Wolverine World Wide Inc. 1,791 5.94 6.17 7.25 SYY Sysco Corp. 15,991 5.94 6.15 8.02 D Dominion Resources Inc. (Virginia) 29,257 5.90 6.60 6.60 YUM Yum! Brands Inc. 24,623 5.90 6.30 6.50 PNR Pentair Inc. 3,702 5.90 6.00 6.50 BDX Becton Dickinson & Co. 17,011 5.90 8.00 6.35 WWD Woodward Inc. 2,281 5.90 5.50 6.50 BLC Belo Corp. (Series A) 684 5.89 6.18 6.88 NEU NewMarket Corp. 2,525 5.88 5.88 6.25 CNSL Consolidated Communications Holdings Inc. 550 5.86 6.23 6.12 FOE Ferro Corp. 582 5.85 6.20 6.74 SFD Smithfield Foods Inc. 3,678 5.85 6.00 8.25 SSP E.W. Scripps Co. (Cl A) 456 5.85 5.97 6.25 MLM Martin Marietta Materials Inc. 3,314 5.84 5.90 6.11 DBD Diebold Inc. 2,028 5.83 6.33 6.41 MOD Modine Manufacturing Co. 542 5.83 5.93 N/A NSH NuSTAR GP Holdings LLC 1,312 5.82 6.16 7.13 ASH Ashland Inc. 4,005 5.82 7.81 6.16 ATI Allegheny Technologies Inc. 4,563 5.80 6.20 6.85

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Table 3b: Companies with Increases in the Discount Rate Assumption Mkt. Discount Rate Discount Rate YoY Change Symbol Company Name Value Current Year Prior Year in Discount Rate CRS Carpenter Technology Corp. 2,321 5.50 5.00 0.50 WWD Woodward Inc. 2,281 5.90 5.50 0.40 SLE Sara Lee Corp. 10,426 5.60 5.40 0.20 PH Parker Hannifin Corp. 12,079 5.45 5.30 0.15 EL Estee Lauder Cos. (Cl A) 19,270 5.40 5.30 0.10 TWIN Twin Disc Inc. 326 5.16 5.09 0.07 JOYG Joy Global Inc. 9,109 5.60 5.55 0.05 BGG Briggs & Stratton Corp. 749 5.35 5.30 0.05

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Table 3c: Lowest Decile Companies – Largest Decreases in Discount Rate Assumptions Mkt. Discount Rate Discount Rate YoY Change Symbol Company Name Value Current Year Prior Year in Discount Rate BDX Becton Dickinson & Co. 17,011 5.90 8.00 -2.10 SHLM A. Schulman Inc. 622 4.00 5.40 -1.40 KALU Kaiser Aluminum Corp. 887 5.70 6.70 -1.00 WGL WGL Holdings Inc. 2,155 5.50 6.50 -1.00 ABH AbitibiBowater Inc. 1,607 5.50 6.40 -0.90 UFS Domtar Corp. 3,230 5.50 6.40 -0.90 FLR Fluor Corp. 9,858 5.65 6.50 -0.85 NLC Nalco Holding Co. 5,255 4.65 5.50 -0.85 HE Hawaiian Electric Industries Inc. 2,444 5.68 6.50 -0.82 GPC Genuine Parts Co. 9,124 5.74 6.54 -0.80 MOG.A Moog Inc. Cl A 1,765 5.20 6.00 -0.80 ENR Energizer Holdings Inc. 5,157 4.80 5.60 -0.80 CBT Cabot Corp. 1,898 4.50 5.30 -0.80 AON AON Corp. 16,393 4.85 5.60 -0.75 XEL Xcel Energy Inc. 12,371 6.00 6.75 -0.75 STR Questar Corp. 3,488 5.75 6.50 -0.75 POM Pepco Holdings Inc. 4,451 5.65 6.40 -0.75 JCI Johnson Controls Inc. 22,595 5.50 6.25 -0.75 TEL TE Connectivity Ltd. 15,112 5.10 5.85 -0.75 NWE NorthWestern Corp. 1,269 5.00 5.75 -0.75 EIX Edison International 12,889 5.25 6.00 -0.75 CW Curtiss-Wright Corp. 1,478 5.16 5.89 -0.73

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Expected Return on Plan Assets The use of expected returns is generally considered one of the more concerning issues in pension accounting as it pertains to earnings quality. The expected return on plan assets is simply the assumed long-term rate of return that management expects pension assets will generate. The return selected does not change based on changes in the market unless management deems that changes in the market have impacted long-term return estimates. Moreover, under US GAAP Statement of Financial Accounting Standards No. 87, companies can use a ―market-related asset value as either fair value or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years.‖ Put simply, rather than using the year-end market value of plan assets to determine expected returns, companies can use a value that averages the year-end market values of assets for previous years up to a five- year limit. Thus, the expected return that is used in calculating pension expense does not reflect current returns or the actual market value of plan assets. This can create significant disconnects between pension expense recorded in the income statement and the actual performance of the plan. From an earnings quality standpoint, we look for companies that have increased their expected return rate to a degree that materially benefits the company’s earnings by reducing pension expense. If there does not appear to be a legitimate reason for the increase, we raise concern that management may be boosting earnings by changing the estimate.

In 2010, the average expected rate of return used by firms in our sample declined slightly from 2009. Specifically, the companies in our analysis had an average expected return assumption of 7.93% in 2010 and 8.07% in 2009 while the median was 8.00% in 2010, down from 8.20% in 2009. In 2010, 132 companies decreased the expected return assumption by an average of 44 bps. Of remaining firms, 210 companies did not change this assumption and 32 companies increased this assumption by an average of 17 bps.

To identify companies of concern, we ran two screens. In the first, we screened for companies in the highest decile of expected returns regardless of whether the return used increased, decreased, or stayed the same in 2010. These companies are listed in Table 3d. It is worth noting that the top three companies in this table are related parties and share the same pension plan. Specifically, as of December 2010, Valhi, Inc. owned 50% of the common stock of Kronos. Valhi also owned 83% of NL industries, which owns another 30% of Kronos. 94% of Valhi is owned by Contran Corporation, which is controlled by entities related to Harold C. Simmons. Contran also controls 51.9% of Titanium Metals Corp. The US pension assets of all of these firms are invested in an entity called The Combined Master Retirement Trust (―CMRT‖). According to SEC filings, the CMRT is a collective investment trust sponsored by Contran to permit the collective investment by certain master trusts which fund certain employee benefit plans sponsored by Contran and certain of its affiliates.‖ Mr. Simmons is the sole trustee of the CMRT. Interestingly, while all of these companies use a 10% expected return, the makeup of assets held in the CMRT on those companies’ behalf is different. For example, TIE’s portion of the CMRT was invested 60% in equities and 25% in fixed income securities as of December 2010. However, for KRO, the mix is 83% equity and 16% fixed income. It is puzzling how these two firms could use the same expected return assumption given the differing asset mix.

The next analysis we did was to look at the companies that experienced the most significant increases in the expected return rate from 2009 to 2010. All companies with at least a 10 bps increase are listed in Table 3e. Given that the average rate declined, investors in these companies should discuss the increase with management to get an understanding of why the rate was increased and the impact it had on earnings. Any benefit to earnings growth from a higher rate of return should be considered unsustainable.

When reviewing these companies, an investor should note not only the change in the expected return assumption but also whether that change reflects a chance in investment policy or asset allocation. For example, OMX increased fixed income holdings to 55.7% from 46.7% and decreased equity holdings to 44.3% from 53.3%. Despite this seemingly more conservative allocation, OMX increased its expected return assumption by 70 basis points. Thus, the conservative change in portfolio mix was offset by a more aggressive expected rate of return.

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Table 3d: Top Decile Companies – Expected Rate of Return Assumption Mkt. Expected Return Expected Return Symbol Company Name Value Current Year Prior Year KRO Kronos Worldwide Inc. 2,341 10.00 10.00 TIE Titanium Metals Corp. 2,958 10.00 10.00 VHI Valhi Inc. 6,910 10.00 10.00 GIS General Mills Inc. 25,159 9.53 9.55 NL NL Industries Inc. 675 9.20 9.50 JNJ Johnson & Johnson 177,383 9.00 9.00 NEU NewMarket Corp. 2,525 9.00 9.00 ITT ITT Corp. 8,266 9.00 9.00 B Barnes Group Inc. 1,254 9.00 9.00 LVB Steinway Musical Instruments Inc. 325 9.00 9.00 HON Honeywell International Inc. 40,044 9.00 9.00 ETN Eaton Corp. 15,087 8.95 8.94 K Kellogg Co. 19,827 8.90 8.90 MOG.A Moog Inc. Cl A 1,765 8.90 8.90 LLY Eli Lilly & Co. 44,212 8.80 8.80 BCO Brink's Co. 1,342 8.80 8.80 AON AON Corp. 16,393 8.80 8.70

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Table 3e: Top Decile Companies – Companies with at Least 10bp Increase in Expected Rate of Return Assumptions Mkt. Expected Return Expected Return YoY Change Symbol Company Name Value Current Year Prior Year in Expected Return OMX OfficeMax Inc. 504 8.20 7.50 0.70 TGI Triumph Group Inc. 2,747 8.50 8.00 0.50 GD General Dynamics Corp. 23,743 8.43 8.08 0.35 MTW Manitowoc Co. 1,211 6.10 5.80 0.30 CRL Charles River Laboratories International Inc. 1,617 7.11 6.84 0.27 SHLD Sears Holdings Corp. 8,006 8.00 7.75 0.25 MTX Minerals Technologies Inc. 973 7.40 7.15 0.25 SO Southern Co. 37,205 8.75 8.50 0.25 UVV Universal Corp. 970 8.00 7.75 0.25 CHMT Chemtura Corp. 1,108 8.00 7.75 0.25 UFS Domtar Corp. 3,230 7.00 6.80 0.20 BDC Belden Inc. 1,462 7.50 7.30 0.20 MOD Modine Manufacturing Co. 542 8.10 7.90 0.20 IN Intermec Inc. 451 8.20 8.00 0.20 CYT Cytec Industries Inc. 2,114 7.10 6.90 0.20 TEL TE Connectivity Ltd. 15,112 7.69 7.54 0.15 AON AON Corp. 16,393 8.80 8.70 0.10 SSP E.W. Scripps Co. (Cl A) 456 7.60 7.50 0.10 HNZ H.J. Heinz Co. 17,022 8.20 8.10 0.10 LXK Lexmark International Inc. 2,478 7.50 7.40 0.10

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Rate of Increase in Compensation The amount of pension benefit an employee is owed upon retirement is generally based upon that employee’s average salary, salary upon retirement, or peak salary. In any of these cases, the salary used as a benchmark for future benefits is not known until the date of the employee’s retirement. Thus, in order to appropriately measure future obligations for pension benefits, a company must make an estimate of future salary increases for beneficiaries. These estimates impact both the funding of a plan and the related expense. A lower estimate results in a lower pension obligation and lower periodic pension expense.

In looking for earnings quality red flags, we are generally screening for companies with abnormally low or decreasing estimates for future compensation growth. If a company has estimates that understate actual future salary increases, pension expense and the funded status of the plan will not reflect the actual costs and obligations of the plan. Our analysis looks for earnings quality red flags by screening for companies that show these trends in salary growth estimates. Companies in the lowest decile for future salary increases are listed in Table 3f while the companies with the largest decreases in salary growth rates from 2009 to 2010 are listed in Table 3g. We excluded companies that had ―frozen‖ plans which no longer accrue benefits as compensation growth is no longer a relevant assumption and therefore listed as zero. Notably, ABH has the second-lowest rate of compensation increase in Table 3f and the fourth- largest change in estimate for compensation growth in Table 3g, with a decrease of 1.4%, from 2.3% in 2009 to 0.9% in 2010.

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Table 3f: Lowest Decile Companies – Compensation Increase Assumption

Mkt. Compensation Growth Rate Compensation Growth Rate Symbol Company Name Value Current Year Prior Year LPX Louisiana-Pacific Corp. 918 0.60 0.50 ABH AbitibiBowater Inc. 1,607 0.90 2.30 MAS Masco Corp. 3,343 1.00 2.00 CMCO Columbus McKinnon Corp. 254 2.00 2.00 SVU SUPERVALU Inc. 1,728 2.00 3.00 BMY Bristol-Myers Squibb Co. 55,485 2.39 3.61 HI Hillenbrand Inc. 1,333 2.40 4.00 KNL Knoll Inc. 780 2.50 4.00 CRL Charles River Laboratories International Inc. 1,617 2.50 3.19 SHLM A. Schulman Inc. 622 2.50 2.70 MXWL Maxwell Technologies Inc. 544 2.50 2.50 WSH Willis Group Holdings PLC 7,038 2.60 2.50 XIDE Exide Technologies 382 2.60 2.90 LXK Lexmark International Inc. 2,478 2.60 2.70 UFS Domtar Corp. 3,230 2.70 2.70 NWL Newell Rubbermaid Inc. 3,946 2.70 3.00 CBE Cooper Industries PLC Cl A 8,784 2.70 2.75 CPO Corn Products International Inc. 3,531 2.75 2.75 CBS CBS Corp (Cl B) 17,109 2.80 2.70 KR Kroger Co. 13,890 2.88 2.92 GCI Gannett Co. Inc. 2,829 2.95 2.69

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Table 3g: Top Decile Companies – Change in Estimate for Compensation Growth Mkt. Compensation Growth Rate Compensation Growth Rate Change in Compensation Symbol Company Name Value Current Year Prior Year Growth Rate HI Hillenbrand Inc. 1,333 2.40 4.00 -1.60 KNL Knoll Inc. 780 2.50 4.00 -1.50 MLHR Herman Miller Inc. 1,272 3.00 4.50 -1.50 ABH AbitibiBowater Inc. 1,607 0.90 2.30 -1.40 BMY Bristol-Myers Squibb Co. 55,485 2.39 3.61 -1.22 NLC Nalco Holding Co. 5,255 3.44 4.44 -1.00 MAS Masco Corp. 3,343 1.00 2.00 -1.00 SVU SUPERVALU Inc. 1,728 2.00 3.00 -1.00 JCI Johnson Controls Inc. 22,595 3.20 4.20 -1.00 AWI Armstrong World Industries Inc. 2,596 3.10 4.00 -0.90 MATW Matthews International Corp. Cl A 1,047 3.50 4.25 -0.75 CRL Charles River Laboratories International Inc. 1,617 2.50 3.19 -0.69 GTI GrafTech International Ltd. 2,345 3.02 3.62 -0.60 FLS Flowserve Corp. 4,982 4.25 4.80 -0.55 BLT Blount International Inc. 752 3.00 3.50 -0.50 USG USG Corp. 1,020 3.00 3.50 -0.50 MSEX Middlesex Water Co. 286 3.00 3.50 -0.50 ACW Accuride Corp. 272 3.00 3.50 -0.50 NEU NewMarket Corp. 2,525 3.50 4.00 -0.50 NU Northeast Utilities 6,011 3.50 4.00 -0.50 AWK American Water Works Co. 5,427 3.50 4.00 -0.50 MO Altria Group Inc. 56,565 4.00 4.50 -0.50 DIS Walt Disney Co. 65,647 4.00 4.50 -0.50 SOA Solutia Inc. 1,932 4.00 4.50 -0.50 OI Owens-Illinois Inc. 3,273 4.50 5.00 -0.50 DCI Donaldson Co. Inc. 4,719 4.50 5.00 -0.50

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Pension Expense

In fiscal 2011, both pension expense and OPEB expense remained relatively constant relative to 2010 for the entire population of plans. This follows two years where these expenses increased following the devastating losses plan assets experienced in 2008. For this report we assessed expense trends in defined benefit pension plans and OPEB plans for both the most recent quarter and the latest fiscal year. The bullets below provide more detail on pension and OPEB expense trends.  Pension Expense: o Year-to-Date - For 2011 year-to-date (YTD), 48% of the companies in our sample reported an increase in pension expense relative to the 2010 YTD period. Companies that reported an increase in pension expense experienced an average increase of $13.0 million per company in 2011 with a median increase of $1.3 million Most Recent Quarter – For the 835 companies in the sample, 46% of the group reported higher pension expense and 50% reported a decline in pension expense in the most recent quarter.

 OPEB Expense –44% of the companies in our sample reported an increase in OPEB expense YTD. For those companies reporting an increase, OPEB expense increased on average by $4.1 million with a median of $0.6 million. In the most recent quarter, of the 534 companies in the population, 40% reported an increase in OPEB expense while 49% reported a decrease.

 Pension Income – The number of firms reporting pension and OPEB income increased in 2011 compared to 2010. Specifically, 40 firms or 5% of the companies reported pension income in 2011 versus 36 firms or 4% of the companies reporting pension income in 2010.

While overall trends remain relatively flat, there are several outliers that experienced material changes to Pension and/or OPEB expense in the year-to-date and most recent quarterly periods. The paragraphs that follow provide a discussion of the individual companies benefiting most from lower pension and/or OPEB expense as well as some of the individual companies that have been impacted most severely by higher pension or OPEB expense.

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Companies Benefiting from Lower Pension Expense Sidenote: Increased Use of Mark-to- For this population we looked at companies with operating income growth year-to-date or the most recent Market in Determining Pension quarter that benefited from lower pension and/or OPEB expense. We ranked these companies based on the Expense percentage of operating income growth that stemmed from the lower expense. The rankings are listed in Table 4a and Table 4b for pension expense and Table 4c and Table 4d for OPEB expense. For companies While pension expense for most companies that received a benefit from lower pension expense, the average boost to operating income growth was represents the result of smoothing out the 26.6%. We caution that these companies may experience future earnings pressure should these benefits not impact of actual returns on plan assets and be sustained. changes in discount rates, an increasing number of companies have abandoned Companies making the top rankings in the year-to-date period for declines in both pension and OPEB smoothing and started marking pension expense relative to operating income growth (Tables 4a and 4c) include CCK, GMT, MHS, NI, NST, SJM, expense to market. Essentially what this and VZ. Companies listed in both Table 4b and 4d because in the most recent quarter, these companies means is that a company’s pension expense derived the greatest percent growth in operating income from both lower pension expense and lower OPEB in a given year reflects the actual returns expense include AKS, AWK, HON, NI, NST, POM, SJM, TAP, and VZ. We note that NI, NST, SJM, and VZ are on plan assets as well as any actuarial included in all four tables, as they experienced large percentages of growth from lower pension expense and gains and losses resulting from changes in from lower OPEB expense in both 2011 year-to-date and the most recent quarter. the discount rate. While this change is in many ways preferable as it better reflects the periodic costs of the plan, it will make earnings more volatile as large swings in returns and actuarial gains/losses run through earnings immediately rather than over several years. Investors should understand the impact of these changes on earnings and how the company treats these changes. For example, Honeywell International made this change in 2010 and now reflects all mark-to-market changes in fourth quarter earnings. However, in providing guidance to analysts, management for Honeywell ―excludes the potential for fourth quarter mark-to-market adjustments for pensions. Other companies that have recently chosen to recognize current returns and actuarial gains/losses in current earnings include Verizon, Reynolds American, and AT&T.

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Table 4a: Top 25 Companies Deriving the Greatest % Growth in Operating Income from Lower Pension Expense, 2011 Year-to-Date Pension Pension Operating Operating Mkt. Expense Expense YoY Income Income YoY % of Symbol Company Name Value Current Year Prior Year Change $1 Current Year Prior Year Change $1 Growth1 KCLI Kansas City Life Insurance Company 370.4 0.9 2.1 (1.2) 75.8 75.8 0.0 15000.0% COKE Coca-Cola Bottling Co. Consolidated 524.9 1.4 3.0 (1.6) 47.6 47.5 0.1 1306.6% SFD Smithfield Foods Inc. 3,653.8 14.3 20.5 (6.2) 167.2 166.7 0.5 1240.0% GMT GATX Corp. 1,867.1 (0.4) 0.0 (0.4) 72.6 72.5 0.1 400.0% CMS CMS Energy Corp. 5,225.9 52.0 77.0 (25.0) 513.0 501.0 12.0 208.3% SON Sonoco Products Co. 3,215.6 15.2 24.7 (9.5) 171.8 166.1 5.8 164.5% OMI Owens & Minor Inc. 1,903.5 2.0 3.1 (1.1) 102.0 101.3 0.7 148.8% POM Pepco Holdings, Inc. 4,430.9 29.0 37.0 (8.0) 351.0 343.0 8.0 100.0% HSC Harsco Corporation 1,929.8 7.1 10.0 (3.0) 93.5 90.1 3.4 87.7% MHS Medco Health Solutions, Inc. 21,148.9 (9.0) 21.9 (30.9) 1,221.8 1,186.2 35.6 86.8% CUB Cubic Corporation 1,247.2 0.7 3.2 (2.5) 82.0 79.1 2.9 86.6% CCK Crown Holdings Inc. 5,084.9 49.0 57.0 (8.0) 404.0 394.0 10.0 80.0% NI NiSource Inc. 6,235.0 23.0 40.5 (17.5) 557.2 534.6 22.6 77.4% AET Aetna Inc. 14,310.9 (6.7) 106.9 (113.6) 1,847.1 1,686.1 161.0 70.6% SJM The J. M. Smucker Company 8,979.7 4.2 14.9 (10.7) 180.7 165.2 15.5 69.1% ABD ACCO Brands Corporation 391.4 5.1 6.2 (1.1) 80.7 79.1 1.6 68.7% NST NSTAR 4,673.8 34.3 38.4 (4.1) 246.4 240.0 6.4 64.3% COL Rockwell Collins Inc. 8,404.0 (13.0) 19.0 (32.0) 640.0 587.0 53.0 60.4% IOSP Innospec Inc. 724.8 0.2 5.9 (5.7) 46.3 36.1 10.2 55.9% MTOR Meritor, Inc. 839.7 17.0 23.0 (6.0) 117.0 106.0 11.0 54.5% GM General Motors Company 36,873.3 (274.0) (4.0) (270.0) 3,370.0 2,853.0 517.0 52.2% TAP Molson Coors Brewing Company 7,279.8 10.0 20.7 (10.7) 424.0 402.6 21.4 50.0% MWA Mueller Water Products, Inc. 380.1 6.2 12.3 (6.1) 2.7 (10.6) 13.3 45.9% VZ Verizon Communications Inc. 105,005.2 303.0 2,669.0 (2,366.0) 13,992.0 8,234.0 5,758.0 41.1% WEYS Weyco Group Inc. 259.6 1.5 1.6 (0.2) 7.5 7.1 0.4 36.1%

1. Amounts may not tie due to rounding

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Table 4b: Top 25 Companies Deriving the Greatest % Growth in Operating Income from Lower Pension Expense, Most Recent Quarter OPEB OPEB Operating Operating Mkt. Expense Expense YoY Income Income YoY % of Symbol Company Name Value Current Year Prior Year Change $1 Current Year Prior Year Change $1 Growth1 SFD Smithfield Foods Inc. 3,653.8 14.3 20.5 (6.2) 167.2 166.7 0.5 1240.0% NST NSTAR 4,673.8 16.8 19.1 (2.3) 122.5 121.8 0.7 336.7% Harman International Industries HAR 3,000.5 3.7 4.6 (0.9) 25.8 25.5 0.3 293.8% Inc. GTI GrafTech International Ltd. 2,280.5 0.5 1.3 (0.8) 39.6 39.2 0.3 234.3% TAP Molson Coors Brewing Company 7,279.8 5.2 11.2 (6.0) 298.0 295.1 2.9 206.9% AKS AK Steel Holding Corporation 1,003.5 (0.4) 4.7 (5.1) 68.5 65.6 2.9 175.9% MWA Mueller Water Products, Inc. 380.1 1.3 2.9 (1.6) 13.9 12.5 1.4 114.3% HON Honeywell International Inc. 41,730.2 6.0 185.0 (179.0) 960.0 783.0 177.0 101.1% AET Aetna Inc. 14,310.9 (3.3) 53.5 (56.8) 882.6 824.2 58.4 97.3% VZ Verizon Communications Inc. 105,005.2 (2.0) 847.0 (849.0) 4,647.0 3,747.0 900.0 94.3% POM Pepco Holdings, Inc. 4,430.9 11.0 18.0 (7.0) 202.0 193.0 9.0 77.8% SJM The J. M. Smucker Company 8,979.7 4.2 14.9 (10.7) 180.7 165.2 15.5 69.1% HSC Harsco Corporation 1,929.8 3.2 4.9 (1.8) 64.4 61.9 2.6 68.3% JCI Johnson Controls Inc. 22,079.6 23.0 31.0 (8.0) 456.0 444.0 12.0 66.7% COL Rockwell Collins Inc. 8,404.0 (5.0) 6.0 (11.0) 227.0 207.0 20.0 55.0% American Water Works Company, AWK 5,383.1 12.5 14.9 (2.5) 201.2 196.0 5.2 47.8% Inc. SCG SCANA Corp. 5,495.0 4.3 6.3 (2.0) 142.0 137.0 5.0 40.0% NI NiSource Inc. 6,235.0 11.5 20.3 (8.8) 161.0 138.8 22.2 39.6% XIDE Exide Technologies 352.1 1.2 2.1 (1.0) 13.1 9.9 3.2 30.1% GM General Motors Company 36,873.3 (157.0) 27.0 (184.0) 2,441.0 1,753.0 688.0 26.7% OILT Oiltanking Partners, L.P. 492.3 0.3 0.4 (0.2) 12.9 12.2 0.7 26.6% DENN Denny's Corporation 358.1 0.1 0.2 (0.1) 11.5 11.2 0.3 25.1% ATSG Air Transport Services Group, Inc. 326.8 0.2 0.8 (0.6) 22.8 20.4 2.4 24.3% KALU Kaiser Aluminum Corporation 909.8 (2.2) 0.5 (2.7) 15.4 4.0 11.4 23.7% TNB Thomas & Betts Corp. 2,724.7 2.5 6.0 (3.5) 70.8 56.0 14.8 23.5%

1. Amounts may not tie due to rounding

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Table 4c: Top 25 Companies Deriving the Greatest % Growth in Operating Income from Lower OPEB Expense, 2011 Year-to-Date OPEB OPEB Operating Operating Mkt. Expense Expense YoY Income Income YoY % of Symbol Company Name Value Current Year Prior Year Change $1 Current Year Prior Year Change $1 Growth1 GMT GATX Corp. 1,872 1.0 1.4 (0.4) 72.6 72.5 0.1 400.0% PNM PNM Resources, Inc. 1,610 0.4 1.9 (1.5) 85.1 84.2 0.9 176.0% EE El Paso Electric Co. 1,302 0.3 2.8 (2.5) 72.6 71.1 1.5 167.4% MHS Medco Health Solutions, Inc. 21,153 (30.9) (1.1) (29.8) 1,221.8 1,186.2 35.6 83.7% POM Pepco Holdings, Inc. 4,431 17.0 23.0 (6.0) 351.0 343.0 8.0 75.0% NST NSTAR 4,674 14.9 19.6 (4.7) 246.4 240.0 6.4 73.7% CCK Crown Holdings Inc. 5,091 6.0 13.0 (7.0) 404.0 394.0 10.0 70.0% OGE OGE Energy Corp. 5,121 7.7 14.6 (6.9) 250.1 238.3 11.8 58.5% CENX Century Aluminum Co. 1,051 (14.6) 8.3 (22.9) 73.8 23.2 50.6 45.4% VZ Verizon Communications Inc. 104,920 1,125.0 2,655.0 (1,530.0) 13,992.0 8,234.0 5,758.0 26.6% PEG Public Service Enterprise Group Inc. 17,160 43.0 71.0 (28.0) 1,472.0 1,365.0 107.0 26.2% FDML Federal-Mogul Corp. 1,672 1.0 7.0 (6.0) 89.0 60.0 29.0 20.7% GY GenCorp Inc. 293 0.1 0.3 (0.2) 29.7 28.7 1.0 20.0% PCH Potlatch Corporation 1,292 (0.3) (0.1) (0.2) 34.9 33.8 1.2 19.3% TG Tredegar Corp. 661 0.1 0.3 (0.2) 19.3 18.3 0.9 19.1% NI NiSource Inc. 6,235 14.6 18.7 (4.1) 557.2 534.6 22.6 18.1% SMP Standard Motor Products Inc. 413 (5.6) (3.1) (2.5) 35.7 21.7 14.0 17.5% CLW Clearwater Paper Corporation 795 2.9 4.5 (1.6) 57.3 47.9 9.5 17.0% American Water Works Company, AWK 5,376 10.8 14.8 (4.0) 346.0 322.0 24.0 16.7% Inc. SJM The J. M. Smucker Company 8,977 1.2 3.7 (2.5) 180.7 165.2 15.5 16.4% PFG Principal Financial Group Inc. 7,634 (29.8) 2.6 (32.4) 655.8 414.1 241.7 13.4% TAP Molson Coors Brewing Company 7,282 1.4 4.1 (2.7) 424.0 402.6 21.4 12.6% HON Honeywell International Inc. 41,692 (111.0) 10.0 (121.0) 3,198.0 2,162.0 1,036.0 11.7% Central Vermont Public Service CV 473 0.6 1.1 (0.6) 10.5 5.4 5.1 11.1% Corp. NCR NCR Corp. 3,094 (6.0) (2.0) (4.0) 53.0 13.0 40.0 10.0%

1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Table 4d: Top 25 Companies Deriving the Greatest % Growth in Operating Income from Lower OPEB Expense, Most Recent Quarter OPEB OPEB Operating Operating Expense Expense Income Income Mkt. Current Prior Year YoY Current Prior Year YoY % of Symbol Company Name Value Quarter Quarter Change $1 Quarter Quarter Change $1 Growth1 NST NSTAR 4,674 5.9 10.2 (4.3) 122.5 121.8 0.7 629.6% GTI GrafTech International Ltd. 2,282 0.4 1.1 (0.6) 39.6 39.2 0.3 185.3% LORL Loral Space & Communications, Inc. 1,805 0.6 1.0 (0.4) 23.5 23.1 0.4 105.2% VC Visteon Corp. 2,986 (2.0) 73.0 (75.0) 67.0 (36.0) 103.0 72.8% POM Pepco Holdings, Inc. 4,431 8.0 13.0 (5.0) 202.0 193.0 9.0 55.6% HON Honeywell International Inc. 41,692 (82.0) 16.0 (98.0) 960.0 783.0 177.0 55.4% Central Vermont Public Service CV 473 0.3 0.5 (0.2) 0.7 0.3 0.4 52.5% Corp. TAP Molson Coors Brewing Company 7,282 0.7 2.1 (1.4) 298.0 295.1 2.9 48.3% DLX Deluxe Corp. 1,222 0.1 0.4 (0.3) 64.0 63.2 0.8 40.2% SMP Standard Motor Products Inc. 413 (4.7) (1.5) (3.1) 23.3 15.3 8.0 39.2% American Water Works Company, AWK 5,376 5.4 7.4 (2.0) 201.2 196.0 5.2 38.7% Inc. CENX Century Aluminum Co. 1,051 (7.0) 4.0 (11.1) 36.2 5.9 30.3 36.6% MKC McCormick & Co. Inc. 6,598 0.8 1.4 (0.6) 128.4 126.0 2.4 25.0% FDML Federal-Mogul Corp. 1,672 1.0 7.0 (6.0) 89.0 60.0 29.0 20.7% DTE DTE Energy Co. 8,885 34.0 40.0 (6.0) 288.0 256.0 32.0 18.8% AKS AK Steel Holding Corporation 999 (9.0) (8.5) (0.5) 68.5 65.6 2.9 17.2% SJM The J. M. Smucker Company 8,977 1.2 3.7 (2.5) 180.7 165.2 15.5 16.4% CCK Crown Holdings Inc. 5,091 3.0 7.0 (4.0) 269.0 244.0 25.0 16.0% VZ Verizon Communications Inc. 104,920 375.0 514.0 (139.0) 4,647.0 3,747.0 900.0 15.4% HRL Hormel Foods Corp. 7,835 6.3 7.2 (0.9) 146.8 140.6 6.2 14.9% NI NiSource Inc. 6,235 7.3 10.1 (2.8) 161.0 138.8 22.2 12.6% NCR NCR Corp. 3,094 (3.0) (1.0) (2.0) 47.0 31.0 16.0 12.5% OGE OGE Energy Corp. 5,121 3.8 7.5 (3.7) 182.2 151.5 30.7 12.1% TIE Titanium Metals Corporation 2,778 (2.1) 0.2 (2.3) 46.5 26.7 19.8 11.6% ABT Abbott Laboratories 82,888 21.0 39.0 (18.0) 1,773.5 1,606.0 167.5 10.7%

1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Pension Income Beneficiaries While lower pension expense provides a boost to growth, pension income provides a direct dollar-for-dollar boost to operating income. Pension income generally occurs when expected returns on plan assets exceed the total service cost and interest cost incurred on the plan. With regard to pension income, it’s important to be aware of the impact it is having on a company’s earnings and whether the income and related growth are sustainable. If the income or growth is not sustainable, analysts and investors often overstate the earnings and growth prospects of the company. Thus, it is important to identify firms benefiting from pension income. For our analysis, we assessed the magnitude of the benefit of pension and postretirement income by looking at it as a percentage of total operating income. Table 4e shows the 25 companies with highest year-to-date pension income relative to year-to-date operating income and Table 4f highlights 25 companies with highest pension income relative to operating income in the most recent fiscal quarter. Tables 4g and Table 4h list the 25 companies with the highest percentage of OPEB income as a percentage of operating income for the year-to-date and for the most recent quarter, respectively. We note that AKS is included in all four tables, as AKS experienced pension and OPEB income both in 2011 year-to-date and in the most recent quarter.

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Table 4e: 25 Companies with Highest Pension Income Relative to Operating Income, 2011 Year-to-Date Mkt. Pension Expense Operating Income Symbol Company Name Value Current Year Current Year % of OI1 CTS CTS Corporation 319 (1.7) 10.3 16.3% MWV MeadWestvaco Corporation 4,924 (44.0) 308.0 14.3% KALU Kaiser Aluminum Corporation 910 (4.4) 35.9 12.3% OLN Olin Corp. 1,568 (10.6) 109.3 9.7% CAS AM Castle & Co. 303 (0.6) 6.4 9.3% GM General Motors Company 36,873 (274.0) 3,370.0 8.1% SPR Spirit AeroSystems Holdings Inc 2,712 (8.7) 133.2 6.5% AWI Armstrong World Industries, Inc. 2,365 (7.6) 124.8 6.1% TRW TRW Automotive Holdings Corp. 4,495 (33.0) 736.0 4.5% MSA Mine Safety Appliances Co. 1,245 (2.4) 57.5 4.3% TGI Triumph Group, Inc. 2,817 (3.5) 105.4 3.3% NEE NextEra Energy, Inc. 23,676 (39.0) 1,335.0 2.9% CTL CenturyLink, Inc. 22,173 (21.0) 923.0 2.3% COL Rockwell Collins Inc. 8,404 (13.0) 640.0 2.0% JBT John Bean Technologies Corporation 464 (0.4) 26.7 1.5% BID Sotheby's 2,377 (2.8) 199.2 1.4% HXL Hexcel Corp. 2,431 (1.8) 142.6 1.3% AJG Arthur J Gallagher & Co. 3,440 (0.5) 49.5 1.0% MHS Medco Health Solutions, Inc. 21,149 (9.0) 1,221.8 0.7% SXC SunCoke Energy Inc. 841 (0.2) 25.0 0.7% SSI Stage Stores Inc. 441 (0.1) 15.8 0.7% WRC Warnaco Group Inc. 2,194 (0.7) 122.3 0.6% AKS AK Steel Holding Corporation 1,003 (0.5) 88.0 0.6% GMT GATX Corp. 1,867 (0.4) 72.6 0.6% ESI ITT Educational Services Inc. 1,600 (1.6) 380.5 0.4%

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CFRA ACADEMY: Pensions December 6, 2011

Table 4f: 25 Companies with Highest Pension Income Relative to Operating Income, Most Recent Quarter Mkt. Pension Expense Operating Income Symbol Company Name Value Current Quarter Current Quarter % of OI1 CTS CTS Corporation 319 (0.8) 4.5 18.5% KALU Kaiser Aluminum Corporation 910 (2.2) 15.4 14.3% MWV MeadWestvaco Corporation 4,924 (21.0) 171.0 12.3% AWI Armstrong World Industries, Inc. 2,365 (5.9) 60.1 9.8% SPR Spirit AeroSystems Holdings Inc 2,712 (5.1) 63.6 8.0% OLN Olin Corp. 1,568 (5.0) 70.7 7.1% CAS AM Castle & Co. 303 (0.3) 4.3 6.9% GM General Motors Company 36,873 (157.0) 2,441.0 6.4% TRW TRW Automotive Holdings Corp. 4,495 (17.0) 365.0 4.7% CTL CenturyLink, Inc. 22,173 (20.0) 459.0 4.4% MSA Mine Safety Appliances Co. 1,245 (1.2) 33.0 3.6% TGI Triumph Group, Inc. 2,817 (3.5) 105.4 3.3% FUL HB Fuller Co. 1,089 (0.9) 29.7 2.9% Consolidated Communications CNSL 543 (0.4) 14.7 2.4% Holdings Inc. NEE NextEra Energy, Inc. 23,676 (20.0) 907.0 2.2% COL Rockwell Collins Inc. 8,404 (5.0) 227.0 2.2% HTZ Hertz Global Holdings, Inc. 4,860 (2.9) 219.5 1.3% GMT GATX Corp. 1,867 (0.5) 41.2 1.2% GGC Georgia Gulf Corp. 691 (0.3) 35.5 0.9% BID Sotheby's 2,377 (1.4) 188.5 0.7% WRC Warnaco Group Inc. 2,194 (0.4) 52.6 0.7% ESI ITT Educational Services Inc. 1,600 (0.7) 109.9 0.7% AJG Arthur J Gallagher & Co. 3,440 (0.3) 50.3 0.6% AKS AK Steel Holding Corporation 1,003 (0.4) 68.5 0.6% JBT John Bean Technologies Corporation 464 (0.1) 17.4 0.6%

1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Table 4g: 25 Companies with Highest OPEB Income Relative to Operating Income, 2011 Year-to-Date Mkt. OPEB Expense Operating Income Symbol Company Name Value Current Year Current Year % of OI MWA Mueller Water Products, Inc. 379 (2.8) 2.7 103.7% CENX Century Aluminum Co. 1,051 (14.6) 73.8 19.9% AKS AK Steel Holding Corporation 999 (17.3) 88.0 19.7% SMP Standard Motor Products Inc. 413 (5.6) 35.7 15.6% NCR NCR Corp. 3,094 (6.0) 53.0 11.3% FE FirstEnergy Corp. 19,029 (62.0) 801.0 7.7% ATSG Air Transport Services Group, Inc. 325 (2.2) 31.4 7.0% JCP J. C. Penney Company, Inc. 7,199 (13.0) 242.0 5.4% PFG Principal Financial Group Inc. 7,634 (29.8) 655.8 4.5% POL PolyOne Corporation 1,018 (12.3) 272.8 4.5% OMX OfficeMax Incorporated 437 (1.3) 32.6 3.9% ARII American Railcar Industries, Inc. 512 (0.2) 6.3 3.8% SXC SunCoke Energy Inc. 840 (0.9) 25.7 3.6% HON Honeywell International Inc. 41,692 (111.0) 3,198.0 3.5% DNB Dun & Bradstreet Corp. 3,260 (5.4) 179.0 3.0% KDN Kaydon Corporation 1,009 (0.8) 37.9 2.2% TIE Titanium Metals Corporation 2,778 (1.9) 91.5 2.1% GCI Gannett Co., Inc. 2,728 (2.1) 118.8 1.8% VC Visteon Corp. 2,986 (2.0) 116.0 1.7% MOD Modine Manufacturing Company 493 (0.3) 20.0 1.7% LSI LSI Corporation 3,615 (0.6) 41.0 1.5% SON Sonoco Products Co. 3,212 (2.5) 171.8 1.5% TSO Tesoro Corporation 4,075 (8.0) 638.0 1.3% MTX Mineral Technologies Inc. 998 (0.6) 49.8 1.2% STE Steris Corp. 1,712 (0.5) 46.9 1.0%

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Table 4h: 25 Companies with Highest OPEB Income Relative to Operating Income, Most Recent Quarter Mkt. OPEB Expense Operating Income Symbol Company Name Value Current Year Current Year % of OI MWA Mueller Water Products, Inc. 379 (1.1) 13.9 103.7% CENX Century Aluminum Co. 1,051 (7.0) 36.2 19.9% AKS AK Steel Holding Corporation 999 (9.0) 68.5 19.7% SMP Standard Motor Products Inc. 413 (4.7) 23.3 15.6% NCR NCR Corp. 3,094 (3.0) 47.0 11.3% FE FirstEnergy Corp. 19,029 (33.0) 486.0 7.7% ATSG Air Transport Services Group, Inc. 325 (1.1) 22.8 7.0% JCP J. C. Penney Company, Inc. 7,199 (7.0) 81.0 5.4% PFG Principal Financial Group Inc. 7,634 (15.3) 372.3 4.5% POL PolyOne Corporation 1,018 (4.1) 42.5 4.5% OMX OfficeMax Incorporated 437 (0.8) 4.0 3.9% ARII American Railcar Industries, Inc. 512 (0.1) 8.2 3.8% SXC SunCoke Energy Inc. 840 (0.5) 21.4 3.6% HON Honeywell International Inc. 41,692 (82.0) 960.0 3.5% DNB Dun & Bradstreet Corp. 3,260 (2.7) 89.7 3.0% KDN Kaydon Corporation 1,009 (0.5) 20.4 2.2% TIE Titanium Metals Corporation 2,778 (2.1) 46.5 2.1% GCI Gannett Co., Inc. 2,728 (1.0) 241.8 1.8% VC Visteon Corp. 2,986 (2.0) 67.0 1.7% MOD Modine Manufacturing Company 493 (0.3) 20.0 1.7% LSI LSI Corporation 3,615 (0.3) 30.9 1.5% SON Sonoco Products Co. 3,212 (1.2) 82.2 1.5% TSO Tesoro Corporation 4,075 (4.0) 419.0 1.3% MTX Mineral Technologies Inc. 998 (0.3) 25.1 1.2% STE Steris Corp. 1,712 (0.5) 46.9 1.0%

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CFRA ACADEMY: Pensions December 6, 2011

Companies Impacted by Higher Pension Expense As noted above, 48% of the firms in CFRA’s population reported an increase in pension expense in the year-to-date 2011 period. For companies that experienced increasing expense, operating income would have been 1.7% higher than reported on average if expense remained at prior-year levels. For OPEB, 44% of companies experienced higher expense in the year-to-date period, and operating income would have been 1.0% higher than reported on average if expense remained at prior-year levels. While these figures do not seem that extreme when taken as a whole, there are several companies that were materially impacted by changes in pension expense in 2011.

To analyze those most negatively impacted by higher pension expense we calculated an ―Adjusted Operating Income‖ figure that calculates operating income for the current quarter and year-to-date periods assuming pension/OBEB expense was flat for the period. The population of companies we considered for this analysis reported positive operating income and have a market capitalization greater than $250 million. The top 25 companies where higher pension expense had the most significant drag on reported operating income are shown in Table 4i and Table 4j for pension expense and Table 4k and Table 4l for OPEB expense.

BA is included in both Table 4i and Table 4k, as the company had large operating income adjustments from both higher pension expense and higher OPEB expense in 2011 year-to-date. Similarly, NAV, WY, BA, and UFS are included in both Table 4j and Table 4l, as each company had large operating income adjustments from both higher pension expense and higher OPEB expense in the most recent quarter. We note that BA is included in all four tables, as BA experienced large operating income adjustments from both higher pension expense and higher OPEB expense in both 2011 year-to-date and the most recent quarter.

For those with increasing defined benefit pension expense, we caution these companies may be required to further cut costs in other areas to offset the impact of pension expense on operating results. Reducing pension expense can be difficult because federal ERISA rules impose restrictions on pension plans that protect all benefits earned by employees upon partial or full plan termination of defined benefit plans. While this allows plans to stop granting future benefits by ―freezing‖ plans as many have done, companies may not cut into benefits already earned by employee service. Furthermore, it may be difficult to find areas for future savings as companies likely already made significant cuts to survive the economic downturn of 2008/2009.

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Table 4i: 25 Companies with the Largest Operating Income Adjustments from Higher Pension Expense, 2011 Year-to-Date Pension Pension Operating Adjusted Impact of Mkt. Expense Expense Income Operating Higher Pension Symbol Company Name Value Current Year Prior Year YoY Change $1 Current Year Income Expense1 MWA Mueller Water Products, Inc. 380 6.2 12.3 (6.1) 2.7 (3.4) -179.4% ALG Alamo Group, Inc. 297 287.4 138.0 149.4 23.0 172.5 -86.6% JOE The St. Joe Company 1,244 4.1 2.0 2.1 0.8 2.9 -73.6% ANR Alpha Natural Resources, Inc. 6,458 (3.1) 4.6 (7.8) (6.5) (14.3) -54.5% BLC Belo Corp. 670 30.9 2.6 28.2 57.6 85.9 -32.9% BGG Briggs & Stratton Corp. 737 14.0 (2.9) 16.9 48.2 65.1 -26.0% X United States Steel Corp. 4,052 327.0 207.0 120.0 408.0 528.0 -22.7% BA Boeing Co. 48,890 1,775.0 1,025.0 750.0 4,247.0 4,997.0 -15.0% BCO Brinks Co. 1,269 15.7 5.7 10.0 57.4 67.4 -14.8% NL NL Industries Inc. 696 (0.1) 0.4 (0.5) (3.3) (3.8) -13.5% QUAD Quad/Graphics, Inc. 905 4.3 0.0 4.3 30.0 34.3 -12.5% FSS Federal Signal Corp. 255 2.8 1.7 1.1 7.7 8.8 -12.5% WY Weyerhaeuser Co. 9,331 30.0 (20.0) 50.0 363.0 413.0 -12.1% CMCO Columbus McKinnon Corporation 278 2.8 1.9 0.9 7.2 8.1 -11.3% GY GenCorp Inc. 293 34.7 31.2 3.5 29.7 33.2 -10.5% LMT Lockheed Martin Corporation 24,577 911.0 714.0 197.0 1,836.0 2,033.0 -9.7% SUN Sunoco, Inc. 4,557 45.0 68.0 (23.0) (233.0) (256.0) -9.0% FWLT Foster Wheeler AG 2,376 2.7 (8.7) 11.4 119.4 130.8 -8.7% RRD R.R. Donnelley & Sons Company 3,125 30.4 15.9 14.5 156.9 171.4 -8.5% AWI Armstrong World Industries, Inc. 2,365 (7.6) (18.8) 11.2 124.8 136.0 -8.2% USU USEC Inc. 251 14.9 18.6 (3.7) (41.6) (45.3) -8.2% HVT Haverty Furniture Companies Inc. 260 0.6 0.7 (0.1) (1.3) (1.4) -7.5% GE General Electric Co. 173,422 1,358.0 775.0 583.0 7,697.0 8,280.0 -7.0% SHLD Sears Holdings Corporation 8,315 52.0 76.0 (24.0) (351.0) (375.0) -6.4% RTN Raytheon Co. 15,249 804.0 671.0 133.0 1,997.0 2,130.0 -6.2%

1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Table 4j: 25 Companies with the Largest Operating Income Adjustments from Higher Pension Expense, Most Recent Quarter Pension Pension Expense Expense Operating Adjusted Impact of Mkt. Current Prior Year Income Operating Higher Pension Symbol Company Name Value Quarter Quarter YoY Change $1 Current Quarter Income Expense1 ALG Alamo Group, Inc. 297 140.7 50.0 90.7 13.7 104.4 -86.9% NAV Navistar International Corp. 3,085 59.0 31.0 28.0 30.0 58.0 -48.3% BCO Brinks Co. 1,269 8.3 2.7 5.6 20.4 26.0 -21.5% USU USEC Inc. 251 4.8 9.3 (4.5) (17.0) (21.5) -20.9% X United States Steel Corp. 4,052 110.0 68.0 42.0 199.0 241.0 -17.4% WY Weyerhaeuser Co. 9,331 14.0 (12.0) 26.0 127.0 153.0 -17.0% SKS Saks Incorporated 1,706 0.2 1.0 (0.8) (3.8) (4.6) -16.7% Central Vermont Public Service CV 473 0.8 0.6 0.2 1.2 1.4 -14.7% Corp. RRD R.R. Donnelley & Sons Company 3,125 15.9 8.0 7.9 47.5 55.4 -14.3% BA Boeing Co. 48,890 580.0 338.0 242.0 1,534.0 1,776.0 -13.6% RYL Ryland Group Inc. 588 0.2 1.0 (0.8) (5.0) (5.7) -13.2% EL Estee Lauder Companies Inc. 22,924 23.9 14.4 9.5 64.6 74.1 -12.8% QUAD Quad/Graphics, Inc. 905 2.1 0.0 2.1 15.4 17.5 -12.0% GY GenCorp Inc. 293 11.6 10.4 1.2 9.3 10.5 -11.4% CMCO Columbus McKinnon Corporation 278 2.8 1.9 0.9 7.2 8.1 -11.3% KMPR Kemper Corporation 1,647 4.8 2.5 2.3 19.6 21.9 -10.5% PLL Pall Corp. 6,005 11.8 0.0 11.8 108.3 120.1 -9.8% LNT Alliant Energy Corporation 4,542 14.3 6.8 7.5 72.0 79.5 -9.4% ED Consolidated Edison Inc. 17,157 85.0 44.0 41.0 398.0 439.0 -9.3% LMT Lockheed Martin Corporation 24,577 456.0 357.0 99.0 984.0 1,083.0 -9.1% UFS Domtar Corporation 3,303 44.0 35.0 9.0 94.0 103.0 -8.7% VMC Vulcan Materials Company 3,979 6.6 4.3 2.2 23.5 25.7 -8.7% GE General Electric Co. 173,422 699.0 362.0 337.0 3,888.0 4,225.0 -8.0% SHLD Sears Holdings Corporation 8,315 26.0 41.0 (15.0) (177.0) (192.0) -7.8% F Ford Motor Co. 42,767 374.0 175.0 199.0 2,393.0 2,592.0 -7.7%

1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Table 4k: 25 Companies with the Largest Operating Income Adjustments from Higher OPEB Expense, 2011 Year-to-Date Operating Adjusted Impact of Mkt. OPEB Expense OPEB Expense Income Operating Higher OPEB Symbol Company Name Value Current Year Prior Year YoY Change $1 Current Year Income Expense1 WHR Whirlpool Corp. 3,908 3.0 (53.7) 56.7 451.0 507.7 -11.2% ACW Accuride Corp. 314 2.4 1.3 1.1 11.0 12.1 -9.1% BA Boeing Co. 48,868 625.0 405.0 220.0 4,247.0 4,467.0 -4.9% CNX CONSOL Energy Inc. 10,223 139.5 121.3 18.2 432.8 451.0 -4.0% ALEX Alexander & Baldwin, Inc. 1,742 3.7 2.4 1.3 31.9 33.2 -3.9% TEX Terex Corp. 1,844 0.3 0.4 (0.1) (2.5) (2.6) -3.8% UFS Domtar Corporation 3,297 4.0 (8.0) 12.0 306.0 318.0 -3.8% TGI Triumph Group, Inc. 2,817 4.3 1.1 3.2 105.4 108.6 -3.0% PLOW Douglas Dynamics, Inc. 332 0.3 (0.3) 0.6 19.4 20.0 -2.9% CTL CenturyLink, Inc. 22,143 47.2 20.4 26.8 923.0 949.8 -2.8% Frontier Communications FTR 5,613 18.8 4.5 14.3 495.2 509.5 -2.8% Corporation MSEX Middlesex Water Co. 291 1.4 1.1 0.3 11.5 11.8 -2.7% PNW Pinnacle West Capital Corporation 5,041 21.0 16.0 5.0 234.1 239.1 -2.1% STFC State Auto Financial Corp. 520 5.4 3.1 2.3 115.5 117.8 -2.0% CWT California Water Service Group 775 4.3 3.6 0.7 36.9 37.6 -1.9% CAT Caterpillar Inc. 61,764 160.0 99.0 61.0 3,434.0 3,495.0 -1.7% AVA Avista Corp. 1,438 3.9 1.7 2.2 140.3 142.6 -1.6% HAYN Haynes International Inc. 712 1.4 0.9 0.5 31.4 31.9 -1.5% XIDE Exide Technologies 349 0.4 0.2 0.2 13.1 13.3 -1.5% IHS IHS Inc. 5,507 0.7 (1.5) 2.1 141.2 143.3 -1.5% PGN Progress Energy Inc. 15,443 34.0 21.0 13.0 879.0 892.0 -1.5% COKE Coca-Cola Bottling Co. Consolidated 530 2.1 1.4 0.7 47.6 48.3 -1.4% UFCS United Fire & Casualty Company 456 1.9 1.3 0.6 45.7 46.3 -1.4% CYT Cytec Industries Inc. 2,269 2.0 (0.8) 2.8 207.1 209.9 -1.3% CHG CH Energy Group Inc. 857 5.1 4.4 0.7 50.4 51.1 -1.3%

1. Amounts may not tie due to rounding

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CFRA ACADEMY: Pensions December 6, 2011

Table 4l: 25 Companies with the Largest Operating Income Adjustments from Higher OPEB Expense, Most Recent Quarter OPEB Expense OPEB Expense Operating Adjusted Impact of Mkt. Current Prior Year Income Operating Higher OPEB Symbol Company Name Value Quarter Quarter YoY Change $1 Current Quarter Income Expense1 VC Visteon Corp. 2,985.8 (2.0) 73.0 (75.0) 67.0 (8.0) -937.5% NAV Navistar International Corp. 3,078.5 15.0 4.0 11.0 30.0 41.0 -26.8% UFS Domtar Corporation 3,297.1 2.0 (12.0) 14.0 95.0 109.0 -12.8% KDN Kaydon Corporation 1,008.9 (0.5) (3.3) 2.8 20.4 23.3 -12.1% CNX CONSOL Energy Inc. 10,222.8 76.3 59.3 17.0 138.5 155.4 -10.9% BA Boeing Co. 48,867.7 331.0 125.0 206.0 1,714.0 1,920.0 -10.7% WHR Whirlpool Corp. 3,907.9 (1.0) (27.7) 26.7 223.0 249.7 -10.7% TSO Tesoro Corporation 4,074.8 (4.0) (38.0) 34.0 419.0 453.0 -7.5% CTL CenturyLink, Inc. 22,142.7 38.0 10.2 27.8 459.0 486.8 -5.7% ACW Accuride Corp. 314.0 1.2 0.6 0.6 9.3 9.9 -5.7% WGL WGL Holdings Inc. 2,206.4 5.6 4.8 0.8 15.2 16.0 -4.7% DRC Dresser-Rand Group Inc. 3,838.0 0.0 (1.7) 1.7 37.9 39.6 -4.3% MWA Mueller Water Products, Inc. 378.6 (1.1) (1.7) 0.6 13.9 14.5 -4.1% UFCS United Fire & Casualty Company 456.3 1.1 0.6 0.5 12.7 13.3 -3.9% PLOW Douglas Dynamics, Inc. 332.1 0.2 (0.5) 0.6 17.6 18.2 -3.4% SHLM A. Schulman, Inc. 643.1 0.1 (0.2) 0.3 9.4 9.7 -3.3% AVA Avista Corp. 1,438.0 2.7 0.8 1.9 55.5 57.4 -3.3% TGI Triumph Group, Inc. 2,816.9 4.3 1.1 3.2 105.4 108.6 -3.0% Frontier Communications FTR 5,613.0 9.4 2.3 7.2 238.2 245.4 -2.9% Corporation NC Nacco Industries Inc. 693.1 0.1 (0.8) 0.9 31.1 32.0 -2.8% ALEX Alexander & Baldwin, Inc. 1,742.0 1.9 1.2 0.7 25.5 26.2 -2.7% CYT Cytec Industries Inc. 2,269.1 1.7 (0.2) 1.9 72.0 73.9 -2.6% WY Weyerhaeuser Co. 9,331.3 5.0 2.0 3.0 127.0 130.0 -2.3% MSEX Middlesex Water Co. 290.9 0.7 0.6 0.2 6.7 6.9 -2.3% CHG CH Energy Group Inc. 857.0 2.6 2.2 0.3 16.2 16.5 -2.0%

1. Amounts may not tie due to rounding

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Cash Flow Impact

To determine the estimates of those companies that may be required to make larger than anticipated cash contributions to their pension plans, we calculate plan assets as a percentage of the accumulated benefit obligation, or ABO, rather than the PBO. This is the methodology required under the Pension Protection Act (―PPA‖) of 2006, which was amended with the passage of the Worker, Retiree, and Employer Recovery Act (―WRERA‖) in December 2008.

Our analysis is somewhat flawed related to our calculation of the ABO and asset figures because we include both domestic and foreign plans. While the ABO for foreign plans is important, foreign pension obligations and funding requirements are outside the jurisdiction of the PPA. Therefore, we ideally would exclude the ABO and assets of foreign plans from our analysis. However, many companies do not provide disclosure of the ABO and plan assets segregated between US and foreign plans. Thus, in order to ensure that we are treating all companies consistently, we use the total ABO and total plan assets in our analysis. Additionally, the PPA allows an option for a ―smoothing‖ mechanism for calculating plan assets based on the fair value of plan assets over 24 months with certain ceiling and floor limits. We do not take this method into account due to the complexities in determining which companies would be using this method and whether ceilings and floors come into effect.

The PPA prescribes a 100% funding target for ―well-funded‖ plans, which is up from the pre-PPA target of 90%. However, the PPA’s funding target was phased in over four years. Thus, the funding target was 92% for 2008, 94% for 2009, 96% for 2010, and will be 100% for 2011 and beyond. Based on these targets, we would flag all plans where we estimate that plan assets will fall below 100% of the ABO as of their next fiscal year-end using our assumptions for asset returns. For these plans, the PPA, as amended by the WRERA, requires additional cash contributions to the plan such that the plan assets would reach the funding target (100%) within 7 years. This is on top of the minimum required contribution under the PPA, which is equal to the present value of benefits accrued over the year.

One thing we cannot assess through our screening is ―at-risk‖ plans. Determining ―at-risk‖ plans requires calculating an ―at-risk‖ funding target that requires the company to make a calculation assuming that all employees who are eligible to retire within 10 years elect to retire at the earliest date possible and select the benefits that would create the highest liability. Since we have no insight into any of these inputs, we cannot determine those plans that may be at-risk as defined by the PPA.

Table 5a highlights those companies that we feel could have a significant incremental cash payment to their plans based on our calculations. To determine those companies that could have a significant payment to make, we made the following calculations:

 We adjust plan assets to reflect year-to-date returns on the S&P 500 through October 31, 2011 of approximately negative 0.35%, returns on the Barclay’s Aggregate Bond Fund Index through October 31, 2011 of approximately 6.6%, returns on real estate through October 31, 2011 of approximately 5.0%, and 0% for private investments and other.  Given the year-to-date decrease in the Citigroup Pension Liability Index from a 5.54% discount rate at 12/31/2010 to 4.70% at 10/31/2011, we assume a 10% increase in the ABO from year-end;  We then identified any firms that fell below the target funding level of 100%;  Next, we divided the amount by which funding fell short of the 100% target by 7, which is the amortization period prescribed by the PPA to come up with a minimum incremental cash contribution;  Finally, we rank the top 25 firms by dividing our estimate of the incremental cash contribution by average cash flow from operations (CFFO) over the last three fiscal years.

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Table 5b provides the same analysis as Table 5a, but assumes a flat ABO rather than a 10% increase. We include this analysis because, as our analysis of pension estimates showed, discount rates chosen by management do not always align with movement in the benchmark rate. Moreover, there are factors other than the discount rate that can impact the ABO and could mitigate the impact on the ABO of discount rate movement.

Note that this is a methodology to help identify companies that may be subject to sizable cash contributions to the pension plans. There are far too many undisclosed inputs and nuances in the PPA to actually identify contribution amounts with great certainty. Nevertheless, we feel this is a good way to identify companies where a follow up discussion with management may be in order with regard to possible funding requirements.

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Table 5a: Scenario 1 – Top 25 Companies with Highest Estimated Incremental Cash Payment, Assuming 10% Increase in Accumulated Benefit Obligation Est % Adjusted Adjusted % Incremental 3 Year % Return Plan Funded Plan Adjusted Funded Funded % Funded Funding Cash Average Average Symbol YTD Assets ABO Status1 Assets ABO Status1 Orig1 Adjusted1 Target Shortfall1 Payment1 CFFO CFFO1 AKS 1.9% 2,473 3,514 (1,041) 2,520 3,866 (1,345) 70.4% 65.2% 3,866 1,345 192.2 3.2 6068.8% MSI 1.6% 5,546 7,655 (2,109) 5,633 8,421 (2,788) 72.4% 66.9% 8,421 2,788 398.2 371.3 107.2% UIS 1.5% 5,966 7,222 (1,256) 6,054 7,944 (1,889) 82.6% 76.2% 7,944 1,889 269.9 329.4 81.9% BC 1.6% 740 1,214 (474) 752 1,336 (583) 61.0% 56.3% 1,336 583 83.3 106.3 78.4% NCR 3.3% 4,525 5,445 (920) 4,672 5,990 (1,317) 83.1% 78.0% 5,990 1,317 188.1 312.7 60.2% FOE 1.4% 313 459 (145) 318 505 (187) 68.3% 63.0% 505 187 26.7 64.0 41.7% UAL 0.9% 1,871 2,999 (1,128) 1,888 3,299 (1,411) 62.4% 57.2% 3,299 1,411 201.6 544.7 37.0% CTB 2.1% 928 1,183 (255) 948 1,302 (354) 78.4% 72.8% 1,302 354 50.5 150.7 33.5% FAF 1.7% 263 587 (324) 267 645 (378) 44.8% 41.4% 645 378 54.0 166.5 32.4% AA 2.8% 9,451 11,999 (2,548) 9,711 13,199 (3,488) 78.8% 73.6% 13,199 3,488 498.2 1,620.0 30.8% LVB 0.2% 57 95 (38) 57 104 (48) 59.7% 54.4% 104 48 6.8 22.2 30.7% CRS 0.6% 710 859 (149) 715 945 (230) 82.7% 75.6% 945 230 32.9 108.3 30.4% HAYN 2.8% 145 227 (82) 149 250 (101) 63.9% 59.7% 250 101 14.4 47.4 30.3% IEP 1.0% 710 1,462 (752) 717 1,608 (891) 48.6% 44.6% 1,608 891 127.3 433.0 29.4% LSI 1.5% 869 1,322 (454) 882 1,455 (573) 65.7% 60.6% 1,455 573 81.8 283.2 28.9% TWIN 0.6% 98 124 (27) 98 137 (39) 78.4% 71.8% 137 39 5.5 20.2 27.3% CVGI 2.2% 53 76 (22) 55 83 (29) 70.6% 65.6% 83 29 4.1 15.2 26.9% AOS 1.5% 641 850 (210) 650 935 (285) 75.4% 69.5% 935 285 40.7 162.9 25.0% KCLI 1.7% 117 143 (26) 119 158 (38) 81.8% 75.6% 158 38 5.5 22.7 24.2% ASH 3.0% 3,025 3,851 (826) 3,115 4,236 (1,121) 78.6% 73.5% 4,236 1,121 160.2 674.0 23.8% PNM 1.1% 393 593 (201) 397 653 (256) 66.2% 60.8% 653 256 36.5 154.6 23.6% WPP 1.9% 190 242 (51) 194 266 (72) 78.8% 73.0% 266 72 10.3 43.7 23.5% GFF 2.3% 134 242 (109) 137 267 (130) 55.2% 51.3% 267 130 18.6 82.0 22.6% NP 1.9% 192 240 (48) 196 264 (69) 80.0% 74.0% 264 69 9.8 44.2 22.2% DNB 1.7% 1,278 1,692 (414) 1,300 1,861 (561) 75.5% 69.8% 1,861 561 80.2 375.1 21.4% 1. Amounts may not tie due to rounding

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Table 5b: Scenario 1 - Top 25 Companies with Highest Estimated Incremental Cash Payment, Assuming No Change in Accumulated Benefit Obligation Est % Adjusted Adjusted % Incremental 3 Year % Return Plan Funded Plan Adjusted Funded Funded % Funded Funding Cash Average Average Symbol YTD Assets ABO Status1 Assets ABO Status1 Orig1 Adjusted1 Target Shortfall1 Payment1 CFFO CFFO1 AKS 1.9% 2,473 3,514 (1,041) 2,520 3,514 (994) 70.4% 71.7% 3,514 994 142.0 3.2 4483.5% MSI 1.6% 5,546 7,655 (2,109) 5,633 7,655 (2,022) 72.4% 73.6% 7,655 2,022 288.9 371.3 77.8% BC 1.6% 740 1,214 (474) 752 1,214 (462) 61.0% 62.0% 1,214 462 66.0 106.3 62.1% UIS 1.5% 5,966 7,222 (1,256) 6,054 7,222 (1,167) 82.6% 83.8% 7,222 1,167 166.7 329.4 50.6% NCR 3.3% 4,525 5,445 (920) 4,672 5,445 (773) 83.1% 85.8% 5,445 773 110.4 312.7 35.3% FOE 1.4% 313 459 (145) 318 459 (141) 68.3% 69.3% 459 141 20.1 64.0 31.5% FAF 1.7% 263 587 (324) 267 587 (319) 44.8% 45.6% 587 319 45.6 166.5 27.4% UAL 0.9% 1,871 2,906 (1,035) 1,888 2,906 (1,018) 64.4% 65.0% 2,906 1,018 145.5 544.7 26.7% IEP 1.0% 710 1,462 (752) 717 1,462 (745) 48.6% 49.1% 1,462 745 106.4 433.0 24.6% LVB 0.2% 57 95 (38) 57 95 (38) 59.7% 59.8% 95 38 5.4 22.2 24.6% HAYN 2.8% 145 227 (82) 149 227 (78) 63.9% 65.7% 227 78 11.1 47.4 23.5% CTB 2.1% 928 1,183 (255) 948 1,183 (235) 78.4% 80.1% 1,183 235 33.6 150.7 22.3% LSI 1.5% 869 1,322 (454) 882 1,322 (440) 65.7% 66.7% 1,322 440 62.9 283.2 22.2% AA 2.8% 9,451 11,999 (2,548) 9,711 11,999 (2,288) 78.8% 80.9% 11,999 2,288 326.8 1,620.0 20.2% CVGI 2.2% 53 76 (22) 55 76 (21) 70.6% 72.2% 76 21 3.0 15.2 19.8% CRS 0.6% 710 859 (149) 715 859 (145) 82.7% 83.2% 859 145 20.6 108.3 19.1% TWIN 0.6% 98 124 (27) 98 124 (26) 78.4% 78.9% 124 26 3.7 20.2 18.5% GFF 2.3% 134 242 (109) 137 242 (106) 55.2% 56.4% 242 106 15.1 82.0 18.4% PNM 1.1% 393 593 (201) 397 593 (196) 66.2% 66.9% 593 196 28.1 154.6 18.2% AOS 1.5% 641 850 (210) 650 850 (200) 75.4% 76.5% 850 200 28.6 162.9 17.5% ASH 3.0% 3,025 3,851 (826) 3,115 3,851 (736) 78.6% 80.9% 3,851 736 105.2 674.0 15.6% WPP 1.9% 190 242 (51) 194 242 (48) 78.8% 80.2% 242 48 6.8 43.7 15.6% UIL 1.2% 502 697 (195) 508 697 (189) 72.1% 72.9% 697 189 27.0 174.0 15.5% KCLI 1.7% 117 143 (26) 119 143 (24) 81.8% 83.2% 143 24 3.4 22.7 15.2% POL 0.7% 355 512 (157) 357 512 (154) 69.3% 69.8% 512 154 22.1 147.7 14.9% 1. Amounts may not tie due to rounding

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