CASH & INVESTMENT QUARTERLY

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1 CASH & INVESTMENT QUARTERLY Key Metrics: + Aggregate Cash Grew 18%: The S&P 5 (ex-financials) cash and marketable securities balance grew 18.% year-over-year to a balance of $1.36 trillion at the end Q3. A major source of growth was Verizon Communications $49 billion debt offering intended to help finance its $13 billion acquisition of Vodafone Group s stake in Verizon Wireless. + Free Cash Flow Grew 11%: Cash flows from operations amounted to $351.3 billion in Q3, which marked an increase of 7.2% year-over-year. Due to a slower growth rate (+2.2%) for fixed capital expenditures, free cash flow to equity increased at a faster rate (+11.5%) year-over-year. Also, due to a low baseline, the sector led the index with free cash flow to equity growth of over 2%. + Other Investing Activities: Other investing activities were also a drain on cash balances in Q3. Cash flows from sales of assets ($22. billion) were up 12.8% year-over-year, but assets acquired from acquisitions (-$32.5 billion) utilized more cash. In addition, companies purchased more investment securities than they sold (-$23.8 billion) for the seventh consecutive quarter. + Net Shareholder Distributions: Shareholder distributions in the form of dividends and net repurchase of stock ($169.6 billion) increased 25.6% year-over-year in Q3. On the other hand, cash inflows from debt issuance were positive ($93.8 billion) for the thirteenth straight quarter. Quarterly Cash & Short-Term Investments S&P 5 (Ex-Financials) Michael Amenta, CFA, Research Analyst mamenta@factset.com Media Questions/Requests media_request@factset.com S&P 5 ex-financials December 19, ,3, 1,2, 1,1, 1,, 9, 8, 15 1 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 Cash & Short-Term Investments (Ex-Financials) 7, 6, 5, Cash to Debt Cash & Investments Quarterly is one part of three reports (Buyback Quarterly and Dividend Quarterly) analyzing cash and discretionary spending within US large-cap companies. The other reports can be found at or within the FactSet Market News application of your FactSet workstation. All data published in this report is available on FactSet. Please contact media_request@factset.com or FACTSET for more information. FactSet.com Copyright 213 FactSet Research Systems Inc. All rights reserved. 1

2 Cash Enters another Period of Accelerated Growth Cash & short-term investment balances ( cash ) in the S&P 5 (ex-financials) rose by 18.% year-overyear and settled at a balance of $1.36 trillion at the end of Q The elevated growth in cash was positively impacted by Verizon Communications $49 billion debt offering intended to help finance its $13 billion acquisition of Vodafone Group s stake in Verizon Wireless. Excluding Verizon, cash grew 14.% year-over-year, which was lower than the final Q2 growth rate (+14.8%). Another major factor for cash growth was large cash inflows from operations. S&P 5 companies generated $351.3 billion in free cash flow in Q3, the second largest amount in at least ten years. This amounted to 7.2% growth year-over-year, and, as a result of slower growth in fixed capital expenditures (+2.2%), free cash flow (operating cash flow less fixed capital expenditures) grew at a higher rate of 11.3%. Free cash flows were also at their second highest quarterly level ($196.8 billion) in Q3. Eight of the nine sectors under consideration grew free cash flow year-over-year, led by the sector (+28%). However, the sector frequently has volatile or low free cash flow, which distorts the growth rate. The sector, on the other hand, grew free cash flow at an impressive 21.4%, despite generating over $32 billion in free cash in the year-ago period. Pfizer ($5.6B), Johnson & Johnson ($5.1B), UnitedHealth Group ($3.B), and Merck ($3.6B) led the sector in the generation of free cash flow. Sector Trends: Sectors with Largest Cash Balances Show Growth The two sectors representing nearly 5% of the aggregate cash balance in the S&P 5 and each showed double-digit, year-over-year growth in cash. In addition, nine of the top eleven companies by growth in cash were in the or sectors. And, with Verizon, the growth in cash from these few companies comprise of more than 6% of the total growth in the S&P 5. In several of these companies, strong free cash flows were supportive of cash growth, as Oracle, Verizon Communications, Apple, Microsoft, and Pfizer each generated more than $4 billion in Q3. Of the two groups, the sector s 9.8% growth was most significant due to the fact that its constituents hold over a third of the cash balance of the entire S&P 5 (ex-financials). Within the sector, Microsoft (+$14B), Apple (+$11.4B), Google (+$1.8B), Intel (+$8.7B), Oracle (+$7.5B), and EMC Corporation (+$5.2B) showed the largest year-over-year growth in Q3. Microsoft s 21.% yearover-year growth was also significant due to its massive cash balance. With $8.7 billion in cash, Microsoft has the second-largest balance of all nonfinancial companies in the S&P 5. However, the sector showed larger percentage-based growth (+23.3%) year-over-year due to similarly condensed growth. Pfizer, Medtronic, and Johnson & Johnson all grew cash by more than $5 billion ($1.7B, $9.9B, and, $5.5B, respectively) year-over-year. On the other end of the spectrum, the sector again experienced the largest dollar-value decline in cash. This was primarily due to Exxon Mobil, as the company showed a $7.5 billion decline in cash and equivalents year-over-year. Though Exxon has generated free cash flow in three of the last four quarters (amounting to $12.7 billion), its significant dividend and regular share repurchase activity have more than utilized cash generated from the business. Net stock purchases and cash dividends paid amounted to $28.6 billion over the trailing year. However, Exxon has twice reduced guidance on share repurchases in 213. The company went from averaging $5 billion per quarter over two years to $4 billion in Q2 and $3 billion for Q On the Q3 earnings call, David Rosenthal, Vice President of Investor Relations, reiterated that the reduction in buybacks was normal given the slowdown in cash inflows from asset sales. Mr. Rosenthal cited that the pace of asset sales has slowed from $1 billion per year over the high buyback period to less than $1 billion through the first three quarters of 213. FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 2

3 Capital Expenditures: Spending Continues to Grow at Slower Rate S&P 5 fixed capital expenditures ( CapEx ) amounted to $155. billion in Q3, an increase of 2.2%. This marks the third consecutive quarter of single-digit, year-over-year growth following a period when growth averaged 18.5% over eleven quarters. Because the sector s CapEx spending represented over a third of the S&P 5 ex-financials total, its diminished spending (-1.6% year-over-year) has had a great impact on the overall growth rate. Chesapeake s prior divestments and strategic shift were again a significant factor in the decline the company s move to bring spending in line with cash flow continues to be compared against periods of higher investment. In addition, Hess has also decreased capital spending following some divestitures, and its desire to strike a balance with cash inflows. On the third quarter earnings call, CFO John Rielly indicated that capital spending in 214 would be in the $5 to $6 billion range, which is down from spending of $8 billion in 212. Capital Expenditures at High Levels Relative to Sales, but Lower Growth Estimates for 214 Despite a moderation in quarterly capital investment, trailing twelve-month fixed capital expenditures grew 6.1% and reached a new high over the ten-year horizon. This helped the trailing twelve-month ratio of CapEx to sales (.68) hit a 13.7% premium to the ratio s ten-year average. Overall, elevated spending has been a product of aggressive investment in the sector over two and a half years, but, even when excluding the sector, capital expenditures levels relative to sales were above the ten-year average (see chart on page 7). Going forward, however, analysts are projecting that the CapEx growth rate will slide, as the projected growth for the next twelve months of 3.9% is short of that of the trailing twelve-month period. In addition, growth for capital expenditures is expected to continue to slow in 214 (+1.6%) due, in part, to negative expected growth rates in the (-3.2%) and (-3.%) sectors. Other Investing Activities: Apple Leads Index in Purchase of Investment Securities Other investing activities were also a drain on cash balances in Q3. Cash flows from sales of assets ($22. billion) were up 12.8% year-over-year, but assets acquired from acquisitions (-$32.5 billion) utilized more cash. In addition, companies purchased more investment securities than they sold (-$23.8 billion) for the seventh consecutive quarter. Apple regained its mantle of engaging in the most net purchases of investment securities (Apple has led the index for nine of the last eleven quarters) by purchasing a net $4.7 billion in investment securities in Q3. Financing Activities: Verizon s Historic Debt Issuance Temporarily Boosts Cash Shareholder distributions in the form of dividends and net repurchase of stock ($169.6 billion) increased 25.6% year-over-year. On the security-level, Apple led the index for capital distributions for the second consecutive quarter. Though its dividend nearly matches that of Exxon Mobil, Apple has been more aggressive with buybacks over the past two quarters. On the other hand, Cash inflows from debt issuance were positive ($93.8 billion) for the thirteenth straight quarter. And, even when excluding Verizon s record debt offering, net cash flows from debt issuance amounted to $45.1 billion, which was the highest level in two years and more than double the ten-year average ($17.8 billion). But this boost in cash will likely be temporary, as Verizon raised the debt to fund a portion of its pending acquisition of Vodafone s stake in Verizon Wireless. FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 3

4 Cash & Short-Term Investments: Within this report, cash, cash & equivalents, and cash & short-term investments are used interchangeably. Also, companies in the Financials sector have been excluded throughout this report. All aforementioned and forthcoming values are in millions, unless otherwise designated. Data is generally organized by adjusted calendar quarters. Adjusted calendar quarters are mapped in three month denominations with 2C capturing data released in May, June, and July. Cash to Debt Ratio Most Recent Quarter Cash to Debt Ratio 1-Year Average S&P (Ex-Fins) Sector Average 1-Year Sector Average Top 1 Companies by Cash and Short-Term Investments (ex-financials and Managed ) Company 1 Year 1 Yr Total Sector Cash (Qtr) Growth Cash to Debt Return General Electric $86,652 (1.1%) 22.3% 27.4% Microsoft Corporation $8, % 56.4% (38.8%) Verizon Communications Telecom $57, % 57.8% 12.6% Google Inc. Class A $56,523 (23.6%) 177.2% 48.4% Cisco Systems, Inc. $48,21 7.1% 297.1% (6.4%) Apple Inc. $4, % 239.1% 9.6% Oracle Corporation $39, % 162.2% 4.8% Ford Motor Company $37, % 34.% 5.5% Pfizer Inc. $33, % 92.1% 22.8% General Motors $29,529 (14.6%) 91.9% 67.1% S&P 5 (Ex-Financials)* - $1,356, % 41.9% 26.7% *Total return provided for S&P 5 is for the entire S&P 5 index (does not exclude the Financials sector). **Note that FactSet Fundamentals has changed the way it recognizes cash at General Electric. Previously, Investment Securities were included in cash and short-term investments. The methodology has since retrospectively changed to only include the Cash & Equivalents line item. FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 4

5 Operating and Free Cash Flows Operating and Free Cash Flow Most Recent Quarter 7, 6, 5, 4, 3, 2, 1, Operating Cash Flow Free Cash Flow Sector Average - OCF Sector Average - FCF Year-over-Year Growth in Quarterly Operating and Free Cash Flow YoY Grow th in OCF YoY Grow th in FCF (%) S&P 5 YoY Grow th in OCF S&P 5 YoY Grow th in FCF FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 5

6 Investing Cash Flows: Quarterly Fixed Capital Expenditures Cash Outflows from Fixed Capital Expenditures Most Recent Quarter -1, -2, -3, -4, -5, Cash & ST Investments 1-Year Average S&P Sector Average 1-Year Sector Average Top 1 Companies by Fixed Capital Expenditures Most Recent Quarter CapEx Qtrly CapEx to Company CapEx (Most Growth Sales (TTM Sector Recent Qtr) (YoY%) basis) 1 Yr Total Return Chevron Corporation $9, % 16.6% 12.9% Exxon Mobil Corporation $9, % 8.9% 11.9% AT&T Inc. Telecom $5, % 16.9% 4.1% Verizon Communications Telecom $4,191 (43.4%) 13.9% 12.6% ConocoPhillips $4, % 25.2% 23.6% Wal-Mart Stores, Inc. $3,44 1.2% 2.8% 14.4% General Electric $2,912 (8.7%) 1.4% 27.4% Intel Corporation $2,866 (16.9%) 19.6% 24.6% Apache Corporation $2,724 (1.8%) 62.% 11.1% General Motors $2, % 6.9% 67.1% S&P 5 (Ex-Financials)* - $154, % 6.8% 26.7% *Total return provided for S&P 5 is for the entire S&P 5 index (does not exclude the Financials sector). FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 6

7 Investing Cash Flows: Fixed Capital Expenditures to Sales Fixed capital expenditures represent funds used to acquire fixed assets other than those associated with acquisitions. This includes, but is not restricted to, additions and investments in property, plant, machinery and equipment. Fixed Capital Expenditures to Sales S&P 5 and ex- (Ten Years, Tailing Twelve Month Basis) '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 CapEx/Sales (TTM) 1-Yr Avg CapEx/Sales (ex-) 1-Yr Avg (ex-) Fixed Capital Expenditures to Sales Trailing Twelve Month Basis Fixed CapEx to Sales (TTM basis) 1-Year Average S&P Sector Average 1-Year Sector Average FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 7

8 Investing Cash Flows: Sales and Acquisitions Disposal of fixed assets represents the amount a company received from the sale or disposal of assets, businesses, property, plant, and equipment. Purchase and sale of investments is a net figure representing proceeds from changes in portfolio investments, short-term investments, marketable securities, or proceeds from maturities of securities. Net assets from acquisitions represent assets acquired through pooling of interests or mergers, excluding capital expenditures of acquired companies. Cash Flows from Investments Ten Years 4, 2, -2, -4, -6, -8, '4 '5 '6 '7 '8 '9 '1 '11 '12 '13-1, Sale of Assets Acquisitions of Business Assets Net Sale of Investments Copyright 212 FactSet Research Systems Inc. All rights reserved. Cash Flows from Investments by Sector Most Recent Quarter 1, 5, -5, -1, Sale of Fixed Assets Net Sale of Investments Acquisition of Businesses/Assets FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 8

9 Financing Cash Flows: Shareholder Distributions Dividends paid represent the total common and preferred dividends paid to shareholders. Net proceeds from the purchase of stock is the proceeds from sale/issuance of stock (sale of treasury shares, proceeds from stock options, etc.) minus funds used to decrease the outstanding share of common or preferred stock (purchase of treasury shares, repurchase or retirement of stock, etc.) Additional analysis on buybacks and dividends can be found within the Buyback Quarterly and Dividend Quarterly reports. Cash Flows from Stock and Dividends Most Recent Quarter -5, -1, -15, -2, -25, -3, -35, -4, Dividends Paid + Net Purch of Stock 1-Year Avg S&P Sector Avg 1-Year Sector Avg Top 1 Companies by Shareholder Distributions Most Recent Quarter Divs & Net Net Stock Company Stock Divs Paid Redemp. Sector Redemp (MRQ) (MRQ) Combined Yield* Apple Inc. $7,484 $2,769 $4, % Exxon Mobil Corporation $5,777 $2,77 $3,7 6.7% Pfizer Inc. $5,344 $1,59 $3, % Johnson & Johnson $4,483 $1,862 $2,621.6% AT&T Inc. Telecom $4,38 $2,395 $1, % Procter & Gamble $3,96 $1,78 $2, % Microsoft Corporation $3,91 $1,916 $1, % General Electric Company $3,836 $1,94 $1, % General Motors Company $3,483 $1,45 $2, % Halliburton Company $3,447 $16 $3, % S&P 5 (Ex-Financials)** - $169,553 $71,644 $98,99 3.4% *Combined yield is the sum of dividend yield and share yield. Share yield is the trailing twelve month percent reduction in shares and operates under the assumption that the price to earnings multiple remains constant (i.e. the percent reduction in shares translates to an equivalent percent increase in EPS, which is assumed to translate to a percent increase in price). **Total return provided for S&P 5 is for the entire S&P 5 index (does not exclude the Financials sector). FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 9

10 Financing Cash Flows: Net Debt Issuance Net debt issued is the measure of aggregate, net funds from issuance (reduction) of debt and increases (decreases) in capitalized lease obligations. Also included are the increase in debt from acquisitions and the decrease in debt from the conversion of debentures into common stock. Change in Debt Most Recent Quarter 52, 16, 12, 8, 4, -4, Cash Flow s from LT Debt Issuance 1-Year Average S&P Sector Average 1-Year Sector Average Top Five Companies by Net Debt Issuance and Reduction Most Recent Quarter Net Debt Company Net Debt Avg Total Issued/Avg 1 Yr Total Sector Issued Debt Debt Return Verizon Communications Inc. Telecom $48,713 $74, % 12.6% Oracle Corporation $5,566 $21, % 4.8% General Motors Company $4,983 $29, % 67.1% Wal-Mart Stores, Inc. $4,347 $59, % 14.4% Constellation Brands Cl A $3,72 $6, % 97.4% Time Warner Cable Inc. ($1,5) $25,862 (5.8%) 42.2% Merck & Co., Inc. ($1,551) $27,366 (5.7%) 13.9% Apache Corporation ($1,847) $11,85 (15.6%) 11.1% Hewlett-Packard Company ($2,377) $23,668 (1.%) 97.9% General Electric Company ($2,861) $387,76 (.7%) 27.4% S&P 5 (ex-financials)* - $93,819 $3,24,67 2.9% 26.7% *Total return provided for S&P 5 is for the entire S&P 5 index (does not exclude the Financials sector). FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 1

11 Financing Cash Flows: Net Debt Issuance and Total Debt Net debt issued is the measure of aggregate, net funds from issuance (reduction) of debt and increases (decreases) in capitalized lease obligations. Also included are the increase in debt from acquisitions and the decrease in debt from the conversion of debentures into common stock. Debt Cash Flows Ten Years , 8, 6, 4, 2, -2, -4, '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 Net Cash Flow s from Borrow ing 1-Year US Treasury Rate Copyright 212 FactSet Research Systems Inc. All rights reserved. Total Debt by Sector Most Recent Quarter 7, 6, 5, 4, 3, 2, 1, Long-Term Debt 1-Year Average S&P Sector Average 1-Year Sector Average FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 11

12 Debt by Type & Liquidity Available FactSet s Debt Capital Structure database uses financials and credit agreements as primary sources to capture revolving credit (balances and availability), term loans, notes/bonds, and other borrowings for each company as of a specific fiscal reporting date. Data is available on 1 debt items for over 2, companies worldwide. Subordinated (incl. Jr. Convertible Sub.) 1% % Collateralized 3% Senior Secured 8% Debt by Type Most Recent Quarter Preferred 1% Other 6% Senior Unsecured 81% Liquidity available measures cash on balance sheet plus the available funds (borrowing base less amount outstanding) from long-term and short-term credit facilities, including commercial paper, short-term and long-term revolvers (both secured and unsecured), and asset-backed facilities. $4, Liquidity Available Current vs. Year-Ago Quarter $35, $3, $25, $2, $15, Cash on Balance Sheet ST Revolvers LT Revolvers $1, $5, $ 213/3C 212/3C FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 12

13 Important Notice CASH & INVESTMENT QUARTERLY December 19, 213 The information contained in this report is provided as is and all representations, warranties, terms and conditions, oral or written, express or implied (by common law, statute or otherwise), in relation to the information are hereby excluded and disclaimed to the fullest extent permitted by law. In particular, FactSet and its affiliates disclaim implied warranties of merchantability and fitness for a particular purpose and make no warranty of accuracy, completeness or reliability of the information. This report is for information purposes and does not constitute a solicitation or an offer to buy or sell any securities mentioned within it. The information in this report is not investment advice. FactSet and its affiliates assume no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this report. About FactSet FactSet (NYSE:FDS) (Nasdaq:FDS) combines integrated financial information, analytical applications, and clientservice to enhance the workflow and productivity of the global investment community. The company, headquartered in Norwalk, Connecticut, was formed in 1978 and now conducts operations along with its affiliates from twenty-four locations worldwide, including Boston, New York, Chicago, San Mateo, London, Amsterdam, Frankfurt, Paris, Milan, Tokyo, Hong Kong, Mumbai, Dubai, and Sydney. About FactSet Fundamentals FactSet Fundamentals gives you access to current, comprehensive, and comparative information on securities worldwide. The comprehensive coverage available includes more than 69, companies from over 7 countries, with 2 years of historical data, and up to 2, data items on each company record. Comprised of annual and interim/quarterly data, detailed historical financial statement content, per share data, calculated ratios, pricing, and textual information, FactSet Fundamentals provides you with the information you need for a global investment perspective. About FactSet Alpha Testing Alpha Testing is FactSet s back testing tool. Alpha Testing lets you test ideas about which quantitative and qualitative factors drive returns. Use our robust and flexible interface to create custom models and communicate results. Alpha Testing is fully integrated into the FactSet workstation. Model scores can be used in real time portfolio contribution or for portfolio construction. FactSet.com Copyright 212 FactSet Research Systems Inc. All rights reserved. 13