Stern Stewart Leadership Institute EVA Seminar for Executives EVA is much more than just a measure of profits.

Used to its fullest, EVA is an integrated framework for financial management and incentive compensation that transforms a company's culture and its performance. Most important, EVA really works. EVA (Economic Value Added) measures the wealth your company creates (or destroys) each year. It is your company's after-tax profit from operations minus a charge for the cost of all capital employed to produce those profits--not just the cost of debt, but the cost of equity as well. But EVA is much more than just a different way of measuring profits. Stern Stewart & Co. developed EVA as the cornerstone of a financial management and incentive compensation system that changes not only how executives view their company, but how they manage it. And independent evidence proves that EVA really does bring dramatic performance improvements. Academic research shows that Stern Stewart's clients have outperformed other companies in their industries by an average of more than 60 percentage points in total returns to shareholders over their first four years on EVA. Now, in a one-day seminar for senior managers, Stern Stewart explains how public and private companies use EVA to measure their progress, motivate their people and increase shareholder wealth. We don't just change numbers. We change behavior. Traditional financial measures--including ROI, EPS, and even cash flow--often mask a company's true performance. EVA allows managers to clearly see whether their returns are greater than the cost of capital, and focuses their efforts on the opportunities with the greatest payoffs. A better measure cannot bring better performance by itself, however. The key to unlocking the power of EVA is to use it as the basis of incentive compensation. When incentives are tied to EVA performance goals, managers consistently turn in better results. That's because the right pay for the right performance motivates managers to think like and act like owners. EVA-- THE REAL KEY TO CREATING WEALTH In Stern Stewart's intensive all-day EVA workshop, you will learn the concepts that helped hundreds of companies around the world achieve superior returns for their shareholders. The one-day session covers the fundamentals of EVA, including:

Economic Value Added--the definition Who uses EVA and why Why EVA is superior to all other financial measures, including EPS, ROI and free cash flow How EVA drives shareholder wealth The four ways to increase EVA The right way to link EVA to incentive compensation How to successfully implement EVA in your company Seminar participants learn how companies are using EVA as the centerpiece of an integrated management system. Case histories illustrate how EVA-guided strategies have time and again resulted in improved performance and higher stock prices. You also will learn how Stern Stewart's special EVA bonus plans not only motivate managers to seek out new ways to create shareholder wealth but also rid the annual planning process of protracted negotiations and gamesmanship. At the seminar's end, you will understand why many of today's most successful investors, analysts and chief executives consider EVA the performance measure and management tool that matters most. And you will know how to employ EVA to motivate management behavior and to create new wealth for shareholders and for every other stakeholder in your corporation. Join us and learn how your company can use EVA to focus its direction, change its business culture and boost its stock price or fair market value. Seminars are offered at various times and locations during the year, and can be customized for your company and management team. For more information, and/or to inquire about a seminar, call 212-261-0600 and ask for Jennifer Kunkel Carey (Senior Vice President, North America), or write to info@sternstewart.com Stern Stewart invented EVA. Who better to show you why it works and how to use it?

MVA Market Value Added Market Value Added measures the difference between the market value of the firm (Debt and Equity) and the amount of Capital invested. Equivalently, MVA equals the present value of future expected EVA. Firms that trade at premiums to invested Capital have positive MVA, while those trading below invested Capital have negative MVA. Stern Stewart & Co. has compiled MVA Rankings to tally wealth creation across the universe of publicly traded firms.

COV Current Operations Value Current Operations Value measures the portion of market value attributed to the existing level of profitability and assets at the firm. It equals the present value of current EVA in perpetuity, plus Capital in place. Alternatively, it can be calculated as NOPAT divided by the WACC. The market value split between COV and FGV is often homogenous within sectors. For example, the COV portion of Market Value tends to be very high in mature markets such as food processing and tobacco, and relatively low in growth markets such as technology.

FGV Future Growth Value Future Growth Value measures the portion of market value attributed to EVA growth. FGV can be driven by market expectations of productivity improvements, organic growth, and value-creating acquisitions. Companies can calibrate their incentive plan to performance targets tied to the annual EVA growth implied by FGV. Furthermore, the FGV component can be a useful tool in benchmarking against the "growth plan" of competitors and evaluating investors' assessment of the wealth creation potential of new strategies and opportunities.

WAI Analysis Services Wealth Added Index To read an article about Wealth Added Index (WAI), click here Stern Stewarts WAI analysis services utilize its proprietary framework to assist companies in measuring performance. Wealth Added is the excess wealth generated above expectations based on the perceived risk of the shares. It is important to recognize that Wealth Added reflects returns for all equity investors, no matter when they bought their shares. WAI = Market Cap - Required Return + Dividends - Shares Issued In this approach, Wealth Added is adjusted for dividends, shares issued, spinoffs, stock splits, and any other transactions to properly account for the economic return to equityholders. Alternatively, Wealth Added can be measured as the total of the daily WAI during the year, where: Daily WAI = (Total Shareholder Return - Required Return) x Opening Market Cap Both approaches produce mathematically identical results, with the second one incorporating equity transactions through daily measurement. Wealth Added is comprehensive. It takes into account the four main components of wealth creation: profitability, prospects, financing, and the required return. This makes it a useful platform for strategic planning, and one that discourages destructive practices such as earnings management and free capital spending. The framework allows managers to match current operating performance and future expectations with financing needs and the required shareholder return. How is my company performing? Until recently, the key market-based metric used to answer that question has been Total Shareholder Return (TSR), equal to share price change plus dividends reinvested. TSR is simple to understand and simple to calculate. However, there are limits to its effectiveness Perhaps most important, TSR does not reflect the relationship between the equity injected into a company, and the returns for shareholders which result. This is because TSR does not take into account any cash invested in the company throughout the period measured. Additionally, TSR does not take into account investor's required rate of return. Those who invest in high-risk enterprises expect a high return to compensate. For a company in one industry or country, TSR may be high simply because of the high risk involved for investors.

RWA Analysis Services Relative Wealth Added To read an article about Relative Wealth Added (RWA), click here Stern Stewarts RWA analysis services utilize its proprietary Relative Wealth Added tool to compare the share price performance of a company over a chosen period against that of a defined group of peers, taking account of new share issues and levels of financial risk. It compares the shareholder value created by the company with the average of its peers. This can either be expressed as in absolute or monetary terms (RWA) or as a percentage of the initial Enterprise Value (%RWA). RWA = Beginning Market Cap x (Adjusted TSR - Peer-group Average Adjusted TSR) % RWA = RWA Enterprise Value The TSR and (effectively) Market Cap are adjusted to include, as a weighted average, the performance of shares issued during the period, and other capital changes. The peer group TSR also includes an adjustment for leverage to make it comparable to the measured company.

The traditional approach to "peer-relative" performance has been to compare a company's TSR against those of its peers. RWA structures this approach by using the performance of the peer set to create a specific benchmark. It also addresses two key weaknesses of TSR. First, TSR does not adjust for financial risk, yet if a company has relatively high debt then shareholders will expect a higher return. Second, TSR looks only at shares that were in issue at the start of the period. If a company issues substantial new equity part of the way through the period then the performance after the equity issue is clearly relevant. Benchmarking against peers separates the performance of the company from overall economic and stockmarket effects, which cannot be influenced by individual managers. So-called "bubbles" are caused by very high, and ultimately unsustainable, expectations of future earnings creating valuations that with hindsight appear excessive. Benchmarking against peers evens this out. Any rise or fall in the share price compared with peers is a company-specific movement. RWA is a natural tool for use in incentive schemes, particularly with the failure of traditional metrics. Companies should consider using both RWA and WAI: RWA for the short term and WAI for the longer term, encouraging executives to outperform their peers over the business cycle, but not lose sight of the cost of equity over the longer term. Maximizing long-term EVA is consistent with improving Wealth Added, and also should be considered as the basis for incentives plans, particularly for employees below board level. RWA is also useful to judge the relative performance of asset managers, investors, equity analysts, and other members of the investment community.