1Omega Advisors, Inc. November 28, 2007 Leon G. Cooperman Chairman and CEO Omega Advisors, Inc. A Case Study In Financial Brilliance Teledyne, Inc. Dr. Henry E. Singleton 2Omega Advisors, Inc. Exhibit 2 3Omega Advisors, Inc. Exhibit 3 Buffett considers that Henry Singleton of Teledyne has the best operating and capital deployment record in American Business. When I asked if he did not consider Tom Murphy of Capital Cities to be equally outstanding, Buffett smiled and said, “Well, Murph plays a simpler game, ” but added that part of the great business ability is to get into simple games. Singleton’s return on assets, calculated in the way that Buffett likes to do it (Inventory plus fixed assets), is unique. All four major industry groups in Teledyne are in fully competitive areas; none has a spec ial protected niche; and yet all four earn 50 percent on assets. The company earns $250 million after tax, with very conservative accounting. Singleton bought 130 businesses for “Chinese paper,” as it used to be called, when his stock was riding high. Then when the market, and his stock, fell he reversed field and the last eight years hasn’t acquir ed a single company; on the contrary, by buying his stock back he has shrunk his capital from 40 million shares to 12 million. According to Buffett, if one took the top 100 business school graduates and made a composite of their triumphs, their record would not be as good as that of Singleton, who incidentally was trained as a sc ientist, not an MBA. The failure of business schools to study men like Singleton is a crime, he says. Instead, they insist on holding up as models executives cut from a McKinsey & Company cookie cutter. Excerpt from Pages 24 & 25 of The Money Masters Author: John Train, Publisher: Harper & Row, Published: 1980 4Omega Advisors, Inc. Exhibit 4 Net Income Shareholders ' Year Sales Net Income Per Share Assets Equity 1986 $3,241.4 $238.3 $20.35 $2,744.2 $1,636.6 1985 3,256.2 546.4 46.66 2,775.4 1,577.4 1984 3,494.3 574.3 37.69 2,790.7 1,159.3 1983 2,979.0 304.6 14.87 3,852.2 2,641.2 1982 2,863.8 269.6 13.05 3,290.7 2,111.1 1981 3,237.6 421.9 20.43 2,904.5 1,723.2 1980 2,926.4 352.4 15.62 2,575.9 1,410.2 1979 2,705.6 379.6 15.02 2,050.8 1,288.6 1978 2,441.6 254.4 9.63 1,588.2 890.3 1977 2,209.7 201.3 7.53 1,443.1 702.2 1976 1,937.6 137.6 4.78 1,228.5 516.1 1975 1,715.0 101.7 2.57 1,136.5 489.3 1974 1,700.0 31.5 0.55 1,108.9 477.8 1973 1,455.5 66.0 1.01 1,227.4 532.8 1972 1,216.0 59.3 0.67 1,127.8 484.0 1971 1,101.9 57.4 0.62 1,064.8 606.1 1970 1,216.4 61.9 0.69 952.6 576.3 1969 1,294.8 58.1 0.68 938.1 502.0 1968 806.7 40.3 0.56 602.4 316.5 1967 451.1 21.3 0.38 336.7 152.6 1966 256.8 12.0 0.29 170.4 90.2 1965 86.5 3.4 0.16 66.5 34.8 1964 38.2 1.4 0.10 35.0 13.7 1963 31.9 0.7 0.06 23.9 8.6 1962 10.4 0.2 0.02 10.8 3.5 1961 4.5 0.1 0.01 3.7 2.5 In millions except per share amounts. As reported in the Company's annual reports, adjusted for stock dividends and splits. Years 1967 through 1982 w ere restated for certain accounting changes. Teledyne, Inc. Historical Summary
5Omega Advisors, Inc. Exhibit 5 The Strategic Positioning of Teledyne Strategy One – Growth Through Acquisition – 1961-1969 Strategy Two – Intensively Manage Your Business – 1970-1981 Strategy Three – Repurchase Your Undervalued Equity – 1972-1984 Strategy Four – Stocks Preferable to Bonds for the Taxable Investor – 1976-1982 Strategy Five – Simplify the Corporate Structure and Focus Management – 1986-1992 6Omega Advisors, Inc. Exhibit 6 10-Year 3-Year 10-Year 3-Year 10-Year 3-Year EBIT margins(a) 13.5% 20.5% 11.9% 11.3% 1.13X 1.81X Return on assets 18.1 24.5 14.5 14.6 1.25 1.68 Return on equity 19.3 25.9 14.2 15.3 1.36 1.69 Sustainable growth(b) 32.1 34.9 9.6 10.3 3.34 3.39 Book value growth 32.7 35.0 8.8 9.3 3.72 3.76 EPS growth 50.0 26.0 10.8 7.5 4.63 3.47 Leverage 1.91X 1.64X 1.86X 1.90X 1.03X 0.86X (a) EBIT is earnings before interest and taxes. (b) ROE times retention rate. Comparison of Selected Financial Characteristics (Data through 1981) Teledyne, Inc. S&P 400 Teledyne Relative to S&P 400 7Omega Advisors, Inc. Exhibit 7 Share Price Shares * Shares ** Shares Outstanding Shares Tendered Announcement On Prior Day Tender Price Premium Offered Tendered Prior to Tender As A Percent Date ($) ($) (%) (Millions) (Millions) (Millions) Of Outstanding 9/14/72 $16.375 $20 Cash 22% 1 8.9 31.9 27.9% 12/13/73 10.875 14 Cash + 50 cents 28.7 4 1.6 23.2 6.9 Broker Fee 5/31/74 10.75 20 p.a. 10% deb. 26 1 3.9 22.2 17.6 OID 67.75% =13.55 12/4/74 7.875 16 p.a. 10% deb. 40 1 1.9 18.3 10.4 OID 68.875% =11.02 4/30/75 12.25 18 Cash 47 1 3.6 18.4 19.6 2/6/76 32 40 Cash + 25 1 2.5 13.6 18.4 25 cents Broker Fee 5/2/80 95.125 160 p.a. 10% deb. 36 1 3.0 13.9 21.6 OID 80.875% =129.40 5/9/84 155.75 200 Cash 28 5 8.7 20.3 42.9 * Alw ays had right to accept more ** All shares tendered accepted Teledyne Self-Tender Offers 1972-1984 8Omega Advisors, Inc. Exhibit 8 848382 81 80 79 787776 75 74 73 72 16 14 12 10 8 6 4 16 14 12 10 8 6 4 Daily Data from 1972 to 1984 % % Source: FRB, and Omega Advisors, Inc. 10-Year Treasury-Note Yield 7.52 7.68 10.24 10-Yr Treausury-Note Yield 9Omega Advisors, Inc. Exhibit 9 10Omega Advisors, Inc. Exhibit 10 Let’s Take a Closer Look at the 5/1984 Tender 5/9/84 close $155 ¾ x 20.3mm shares = $3.16 B Market Cap Buyback = 8.7mm shares x $200 = $1.74 B New Shares Outstanding = 11.6mm (42.9% reduction) 90 Days Later Stock Price $300 x 11.6mm shares = $3.48 B Market Cap So despite having $1.74 B less assets, the company’s market cap rose by $320mm! In that period, the overall market was largely unchanged. I would also note that Dr. Singleton used cash in the offer and not debt. He avoided getting caught with high cost fixed rate paper at a time when interest rates were set to decline.
11Omega Advisors, Inc. Exhibit 11 “There are tremendous values in the stock market, but in buying stocks, not entire companies. Buying com panies tends to raise the purchase price too high. Don’t be misled by the fe w shares trading at a low multiple of 6 or 7. If you try to acquire those companies the multiple is more like 12 or 14. And their management will say, ‘If you don’t pay it, someone else will.’ And they are right. Someone else does. So it’s no acquisitions for us while they are overpriced. I won’t pay 15 times earnings. That would mean I’d only be making a return of 6 or 7 percent. I can do that in T-bills. We don’t have to make any major acquisitions. We have other things we are busy doing. As for the stocks we picked to invest in, the purpose is to make as good a return as we can. We don’t have any other intentions. We do not view them as future acquisitions. Buying and selling companies is not our bag. Those who don’t believe me are free to do so, but they will be as wrong in the future as they have been about other things concerning Teledyne in the past.” February 20, 1978 Issue of Forbes Magazine Quote of Dr. Henry Singleton 12Omega Advisors, Inc. Exhibit 12 13Omega Advisors, Inc. Exhibit 13 Company % Ownership* Aetna Life & Casualty 5.0 Brockway Glass 21.7 Colt Industries 7.7 Connecticut General 5.3 Crown Cork & Seal 8.3 Curtiss-Wright 28.5 Eltra Inc. 8.0 Federal Paper Board 7.0 GAF 8.0 International Harvester 10.9 Kidde, Inc. 20.6 Litton Industries 22.2 Ultimately got to 28% National Can 18.3 Reichold Chemical 22.0 Rexnord 5.5 Sem Tech 22.4 Travelers 5.3 US Fidelity & Guaranty 7.7 * Fortune, 1/16/78 and Company Filings Stocks Are More Attractive Than Bonds 14Omega Advisors, Inc. Stock Repurchase Value Creative or Value Destructive? Presentation to the Value Investing Congress November 28, 2007 Leon G. Cooperman Chairman and CEO Omega Advisors, Inc. 15Omega Advisors, Inc. Answer YES! Exhibit 15 16Omega Advisors, Inc. Warren Buffett on Stock Repurchase •One usage of retained earnings we often greet with special enthusiasm when practiced by companies in which we have an investment inte rest is repurchase of their own shares. The reasoning is simple: if a fine business is selling in the market place for far less than intrinsic value, what more certain or more profitable utilization of capital can there be than significant enlargement of the interests of all owners at that bargain price? Source: 1980 Berkshire Hathaway Annual Report •The companies in which we have our largest investments have all engaged in significant stock repurchases at times when wide discrepancies existed between price and value. As shareholders, we find this encouraging and rewarding …By making repurchases when a company’s market value is well below its business value, management clearly demonstrates that it is given to actions that enhance the wealth of shareholders, rather than to actions that expand management’s domain but that do nothing for (or even harm) shareholders. Seeing this, shareholders and potential shareholders increase their estimates of future returns from the business. •A manager who consistently turns his back on repurchases, when these clearly are in the interests of owners, reveals more than he knows of his motivations. No matter how often or how eloquently he mouths some public relations-inspired phrase such as “maximizing shareholder wealth” (this season’s favorite), the market correctly discounts assets lodged with him. His heart is not listening to his mouth—and, after a while, neither will the market. Source: 1984 Berkshire Hathaway Annual Report Exhibit 16
17Omega Advisors, Inc. Exhibit 17 Market Operating Buyback Dividend Value Earnings Dividends Buybacks over & Buyback $ Bill $ Bill $ Bill $ Bill Dividend 12M Yield 06/30/2007 $13,349.73 $214.19 $59.44 $157.76 2.65 5.43% 0.58 pp 03/31/2007 12,706.32 200.23 58.32 117.70 2.02 5.34% 0.66 12/31/2006 12,728.86 197.35 61.76 105.18 1.70 5.15% 0.52 09/30/2006 12,019.85 207.22 54.78 109.81 2.00 5.39% 0.50 06/30/2006 11,496.84 198.67 54.46 116.66 2.14 5.34% 0.27 03/31/2006 11,659.69 186.85 53.25 100.18 1.88 4.92% 0.35 12/31/2005 11,254.54 182.03 54.83 104.28 1.90 4.90% 0.41 09/30/2005 11,082.59 169.92 48.99 81.47 1.66 4.58% 0.37 06/30/2005 10,890.01 177.52 49.03 81.42 1.66 4.31% 0.15 03/31/2005 10,819.81 164.97 48.99 82.05 1.68 3.92% -0.37 12/31/2004 11,288.60 167.20 49.68 66.42 1.34 3.35% -0.82 09/30/2004 10,397.80 157.47 45.54 45.68 1.00 3.34% -0.96 06/30/2004 10,623.42 158.12 43.43 42.46 0.98 3.11% -1.49 03/31/2004 10,461.32 147.42 42.36 42.92 1.01 2.97% -1.05 12/31/2003 10,285.83 137.65 46.76 38.53 0.82 2.84% -1.45 09/30/2003 9,207.69 133.22 39.96 34.13 0.85 3.00% -1.23 06/30/2003 9,001.01 119.34 37.74 28.36 0.75 3.04% -0.58 03/31/2003 7,826.70 115.16 36.19 30.03 0.83 3.53% -0.39 12/31/2002 8,107.41 110.03 39.22 30.62 0.78 3.39% -0.62 09/30/2002 7,518.37 107.07 35.97 35.18 0.98 3.65% -0.61 06/30/2002 9,090.53 106.90 38.11 30.98 0.81 3.03% -2.07 03/31/2002 10,501.89 99.31 34.51 30.47 0.88 2.61% -2.47 12/31/2001 10,463.39 90.59 36.27 32.75 0.90 2.62% -2.15 09/30/2001 9,436.72 83.04 37.53 34.63 0.92 2.91% -2.07 06/30/2001 11,027.29 81.24 34.58 33.62 0.97 2.44% -2.83 03/31/2001 10,384.68 96.03 33.83 31.21 0.92 2.63% -2.42 Average 3.76% -0.76 pp Source: Standard & Poor's Index Services, FRB, and Omega Advisors, Inc. S&P 500 Comb. Yield le ss 10-yr T-Note Yield 18Omega Advisors, Inc. Exhibit 18 Observed Types of Buybacks Type 1: No opinion on valuati on, but management’s attempt to merely offset option dilution to avoid shareholder flack over option creep. Type 2: Very nefarious conduct on the part of management where companies actively buy back stock to accommodate executives happy to exercise options and sell their stock back to the company at better prices than they would have otherwise received. Type 3: Management has no opinio n on valuation, but is simply returning money to shareholders via repurchase as opposed to a dividend. The reasoning goes as follows: dividends are forever whereas if corporate circumstances change, they can always suspend the buyback program. When I hear that, I remind managements that with th e average stock yielding 2%, for every share a corporation buys back, they are buy ing back 50 years of dividends in one shot. In our view, if a reasonable dividend turns out to be mistake, the corporate purchase program would turn out to be a disaster. Type 4: The last type of repurchase program is the one that we like and the one that Warren Buffett obviously identified with when he made his comments in the early ’80’s. That type of program is where managements have correctly identified a mispricing of their equity and by retiring shares they are going to leverage returns to the long-term equ ity holder. Regrettably, all too few managements have shown an astuteness in identifying such valuation.
19Omega Advisors, Inc. Exhibit 19 20072006200520042003 40 35 30 25 20 40 35 30 25 20 $ $ 20072006200520042003 20 0 -20 -40 -60 -80 20 0 -20 -40 -60 -80 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Microsoft Corporation 6.5B 3.4B 8B 19.2B 27.5B ShsOut: 10.7B 9.4B Microsoft Corporation (MSFT) 50-day Moving Average 200-day Moving Average MSFT Price Performance Relative to S&P 500 in Percentage Points Since October 2002 20Omega Advisors, Inc. 2007200620052004200320022001200019991998 9080 70 60 50 40 30 20 10 9080 70 60 50 40 30 20 10 $ $ 2007200620052004200320022001200019991998 200 150 100 50 0 -50 -100 200 150 100 50 0 -50 -100 Monthly Data from August 1997 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Intel Corporation 6.7B 4.6B 4B 4B 4B 4B 7.5B 10.6B 4.5B Intel Corporation 60-day Moving Average 200-day Moving Average Intel Price Performance Relative to S&P 500 in Percentage Points Since October 2002 21Omega Advisors, Inc. 20072006200520042003 35 30 25 20 15 10 5 35 30 25 20 15 10 5 $ $ 20072006200520042003 200 150 100 50 0 -50 200 150 100 50 0 -50 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Cisco Systems 6B 9B 10B 8.3B 7.7B Cisco Systems (CSCO) 50-day Moving Average 200-day Moving Average CSCO Price Performance Relative to S&P 500 in Percentage Points Since October 2002 22Omega Advisors, Inc. 20072006200520042003 100 90 80 70 60 50 40 30 100 90 80 70 60 50 40 30 $ $ 20072006200520042003 100 50 0 -50 -100 -150 100 50 0 -50 -100 -150 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Lexmark International, Inc. 5Mm 281Mm 1,070Mm 871Mm 165Mm Lexmark International (LXK) 50-day Moving Average 200-day Moving Average LXK Price Performance Relative to S&P 500 in Percentage Points Since October 2002 23Omega Advisors, Inc. 20072006200520042003 50 40 30 20 10 0 50 40 30 20 10 0 $ $ 20072006200520042003 250 200 150 100 50 0 -50 -100 250 200 150 100 50 0 -50 -100 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Countrywide Financial Corporation 1.5B 0.8B Countrywide Financial (CFC) 50-day Moving Average 200-day Moving Average CFC Price Performance Relative to S&P 500 in Percentage Points Since October 2002 24Omega Advisors, Inc. 20072006200520042003 40 35 30 25 20 15 40 35 30 25 20 15 $ $ 20072006200520042003 60 40 20 0 -20 -40 -60 -80 60 40 20 0 -20 -40 -60 -80 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Masco Corporation 827Mm 943Mm 986Mm 854Mm 640Mm Masco Corporation (MAS) 50-day Moving Average 200-day Moving Average MAS Price Performance Relative to S&P 500 in Percentage Points Since October 2002
25Omega Advisors, Inc. 20072006200520042003 50 40 30 20 10 0 50 40 30 20 10 0 $ $ 20072006200520042003 400 300 200 100 0 -100 400 300 200 100 0 -100 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Pulte Homes 15Mm 143Mm 122Mm 5Mm Pulte Homes (PHM) 50-day Moving Average 200-day Moving Average PHM Price Performance Relative to S&P 500 in Percentage Points Since October 2002 26Omega Advisors, Inc. 20072006200520042003 70 60 50 40 30 20 10 70 60 50 40 30 20 10 $ $ 20072006200520042003 150 100 50 0 -50 -100 -150 150 100 50 0 -50 -100 -150 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Lennar Corporation 114m 289Mm 323Mm 3Mm Lennar Corporation (LEN) 50-day Moving Average 200-day Moving Average LEN Price Performance Relative to S&P 500 in Percentage Points Since October 2002 27Omega Advisors, Inc. 20072006200520042003 35 30 25 20 15 10 5 0 35 30 25 20 15 10 5 0 $ $ 20072006200520042003 200 150 100 50 0 -50 -100 -150 200 150 100 50 0 -50 -100 -150 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Circuit City Stores 84Mm 260Mm 338Mm 237Mm 47Mm Circuit City Stores (CC) 50-day Moving Average 200-day Moving Average CC Price Performance Relative to S&P 500 in Percentage Points Since October 2002 28Omega Advisors, Inc. 20072006200520042003 50 40 30 20 10 0 50 40 30 20 10 0 $ $ 20072006200520042003 500 400 300 200 100 0 -100 500 400 300 200 100 0 -100 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Chico's FAS 200Mm @$30 Chico's FAS (CHS) 50-day Moving Average 200-day Moving Average CHS Price Performance Relative to S&P 500 in Percentage Points Since October 2002 29Omega Advisors, Inc. 20072006200520042003 45 40 35 30 25 20 15 10 45 40 35 30 25 20 15 10 $ $ 20072006200520042003 150 100 50 0 -50 -100 150 100 50 0 -50 -100 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. The Timberland Company 104Mm 132Mm 181Mm 121Mm 14Mm Timberland (TBL) 50-day Moving Average 200-day Moving Average TBL Price Performance Relative to S&P 500 in Percentage Points Since October 2002 30Omega Advisors, Inc. 20072006200520042003 50 45 40 35 30 25 20 50 45 40 35 30 25 20 $ $ 20072006200520042003 30 20 10 0 -10 -20 -30 -40 30 20 10 0 -10 -20 -30 -40 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. CenturyTel, Inc. 802Mm 339Mm401Mm 552Mm CenturyTel (CTL) 50-day Moving Average 200-day Moving Average CTL Price Performance Relative to S&P 500 in Percentage Points Since October 2002
31Omega Advisors, Inc. 20072006200520042003 140 122 104 86 69 51 33 15 140 122 104 86 69 51 33 15 $ $ 20072006200520042003 500 400 300 200 100 0 -100 500 400 300 200 100 0 -100 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Transocean Inc. 400Mm 2,601Mm 400Mm Transocean Inc. (RIG) 50-day Moving Average 200-day Moving Average RIG Price Performance Relative to S&P 500 in Percentage Points Since October 2002 32Omega Advisors, Inc. 20072006200520042003 120 103 85 68 50 33 15 120 103 85 68 50 33 15 $ $ 20072006200520042003 500 400 300 200 100 0 -100 500 400 300 200 100 0 -100 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Schlumberger Limited 320Mm 612Mm 1,068Mm 798Mm Schlumberger Ltd (SLB) 50-day Moving Average 200-day Moving Average SLB Price Performance Relative to S&P 500 in Percentage Points Since October 2002 33Omega Advisors, Inc. 20072006200520042003 60 50 40 30 20 10 60 50 40 30 20 10 $ $ 20072006200520042003 250 200 150 100 50 0 -50 250 200 150 100 50 0 -50 Weekly Data from October 2002 to 11/16/07 PP PP Source: FactSet, and Omega Advisors, Inc. Loews Corporation 509Mm 672Mm Loews Corporation (LTR) 50-day Moving Average 200-day Moving Average LTR Price Performance Relative to S&P 500 in Percentage Points Since October 2002 34Omega Advisors, Inc. 35Omega Advisors, Inc. 36Omega Advisors, Inc. 37Omega Advisors, Inc. Exhibit 37 Considerations for Determining Whether Stock Repurchase Makes Sense 1. Are we buying back stock at a discount to private market or merger market value? 2. Do we have a growing business that will be worth more over time—e.g. what does our five year budget produce in the way of a present value of the income flow? Are we at a sufficient discount to that derived value—e.g. 15-20%? 3. What does the buyback add to our cash flow and earnings per share? 4. Since we live in an uncertain world, our advocacy is not to buy back so much stock as to radically change the risk profile of the corporation.