chapter  7
+((&2120,&62) 35,9$7,6$7,21 &DVHVWXG\RI $XVWUDOLDQ WHOHFRPPXQLFDWLRQV
$OODQ%URZQ
Pages 32

EHQHILFLDOHLWKHUHFRQRPLFDOO\RUVRFLDOO\$FRPSDULVRQRI DUDQJHRI HFRQRPLF LQGLFDWRUV LQ WHOHFRPPXQLFDWLRQV FDUULHG RXW LQ $XVWUDOLD E\ WKH %XUHDX RI ,QGXVWU\(FRQRPLFV%,(IRXQGWKDWWKH86ZKHUHWKHLQGXVWU\LVHQWLUHO\ SULYDWHO\RZQHGKDGWKH ORZHVWSULFHGIL[HGFKDUJHVIRUEXVLQHVVFXVWRPHUVEXW WKDW ,FHODQG RSHUDWLQJ XQGHU D VWDWH WHOHFRPPXQLFDWLRQV PRQRSRO\ KDG WKH ZRUOG·VORZHVWSULFHVIRUDQDWLRQDOEDVNHWRI FDOOFKDUJHV6LPLODUO\WKH86ZDVWRS RI WKH OHDJXH WDEOH IRU PXOWLIDFWRU SURGXFWLYLW\ EXW DQRWKHU VWDWH PRQRSRO\ 6ZLW]HUODQGZDVWKHLQWHUQDWLRQDOOHDGHULQWHUPVRI ERWK¶UHYHQXHSHUHPSOR\HH· DQG¶UHYHQXHSHUOLQH·7KHSRLQWLVWKDWLQWHOHFRPPXQLFDWLRQVWKHUHLVQRDSSDUHQW DVVRFLDWLRQEHWZHHQWKHW\SHRI RZQHUVKLSDQGHFRQRPLFSHUIRUPDQFH

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

3ULYDWLVDWLRQDQGHFRQRPLFHIILFLHQF\

3URSHUW\ULJKWVDQGSXEOLFFKRLFHWKHRULHV

7UDGLWLRQDOQHRFODVVLFDOHFRQRPLFWKHRU\LVJHQHUDOO\VLOHQWLQUHODWLRQWRWKH UHODWLYHHIILFLHQF\RI SULYDWHO\RZQHGILUPVDQGSXEOLFHQWHUSULVHV$OOILUPV LUUHVSHFWLYH RI RZQHUVKLS DUH DVVXPHG WR PD[LPLVH SURILWV DQG KHQFH SURGXFWLYH HIILFLHQF\ $OORFDWLYH HIILFLHQF\ LV GHWHUPLQHG E\ WKH H[WHQW RI

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¶LQHIILFLHQW· DQG WKXV LQYROYH*%(V LQ FRVWVQRWXVXDOO\ LQFXUUHGE\ SULYDWH ILUPV 7KH UDWLRQDO UHVSRQVH RI SXEOLF VHFWRU PDQDJHUV LV WR HQGHDYRXU WRPD[LPLVH D ZHLJKWHG DYHUDJH RI WKRVH REMHFWLYHV ZLWK ZKLFK WKH\ DUH FRQIURQWHG7KH SXUVXLW RI SURILWZLOO XVXDOO\ EH RQH EXW QRW WKH VROHREMHFWLYHRI *%(V+DVNHODQG6]\PDQVNL 7KH SURSHUW\ ULJKWV OLWHUDWXUH VXJJHVWV WKDW EHFDXVH RI LQIRUPDWLRQ

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

FKRLFH WKHRULHV ZKLFK FODLP WKDW VWDWH HQWHUSULVHPDQDJHUV SXUVXH QRW WKH ¶SXEOLF LQWHUHVW·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

IDFH YDOXH KRZHYHU ,Q ODUJH SULYDWH ILUPV ZLWK ZLGHO\ GLVSHUVHG HTXLW\ KROGLQJVWKHUHLVOLNHO\WREHDSULQFLSDO²DJHQWSUREOHPZLWKPDQDJHUVODUJHO\ IUHHRI HIIHFWLYHPRQLWRULQJE\VKDUHKROGHUV7KLVZLOOFUHDWHFRQGLWLRQVIRU VXERSWLPDO SURGXFWLYH HIILFLHQF\ LQ WKH IRUP RI PDQDJHULDO VODFN ¶; LQHIILFLHQF\· HVSHFLDOO\ ZKHUH SURGXFW PDUNHWV DUH QRW KLJKO\ FRPSHWLWLYH /HLEHQVWHLQ&DSLWDOPDUNHWVDOVRKDYHGHILFLHQFLHVDVDFKHFNRQWKH

SHUIRUPDQFHRI ODUJHSULYDWHFRUSRUDWLRQV/DUJHILUPVFDQVXVWDLQDJUHDWHU IDOO LQ WKHLU SHUIRUPDQFH LQGLFDWRUV WKDQ VPDOOHU ILUPV EHIRUH EHFRPLQJ FDQGLGDWHV IRU WDNHRYHU DQG PRVW YHU\ ODUJH ILUPV DUH SUDFWLFDOO\ LPPXQH IURPKRVWLOHWDNHRYHU0D\HUDQG0HDGRZFURIW'RPEHUJHUDQG3LJJRWW %LVKRSDQG.D\,QSULQFLSOHDODUJHILUPFDQJREDQNUXSWEXWLQ SUDFWLFH LI LW LVVXEMHFWWRUHJXODWLRQDQGLWV LQVROYHQF\LVOLNHO\WRGLVUXSWD NH\LQGXVWU\LWLVOLNHO\WREHVDYHGE\IDYRXUDEOHSULFHUHJXODWLRQZKLFKZLOO HQVXUH WKDW LW HDUQV VXIILFLHQW UHYHQXHV WR FRYHU LWV ILQDQFH DQG LQYHVWPHQW QHHGV%LVKRSHWDO $QRWKHUVKRUWFRPLQJRI WKHSURSHUW\ULJKWVDQGSXEOLFFKRLFHWKHRULHV

LV WKDW WKH\ DUH ODUJHO\ VWDWLF DQG KROG RXW OLWWOH SURVSHFW IRU LPSURYHG HFRQRPLF SHUIRUPDQFH E\ SXEOLF VHFWRU RUJDQLVDWLRQV 3DUW RI WKH UHVSRQVHE\JRYHUQPHQWVLQPDQ\FRXQWULHVWRWKHSURSHUW\ULJKWVSXEOLF FKRLFH DQDO\VLV KRZHYHU KDV EHHQ D FRPSUHKHQVLYH DWWHPSW WR UHIRUP WKHLU SXEOLF VHFWRUV LQFOXGLQJ WKHLU *%(V ¶&RUSRUDWLVDWLRQ·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

(PSLULFDOHYLGHQFH

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

UHVWULFWHG E\ JRYHUQPHQW UHJXODWLRQ WKH ,$& IRXQG WKH HYLGHQFH WR EH LQFRQFOXVLYH,$&9RO$SSHQGL[+ 9LQLQJ DQG %RDUGPDQ SRLQW RXW WKDW RQH SUREOHPZLWK WKH

HPSLULFDO VWXGLHV FRQGXFWHG XS WR WKH ODWH V ZDV WKDW PRVW ZHUH FRQFHUQHG ZLWK ¶VRPHZKDW LGLRV\QFUDWLF·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¶UREXVWHYLGHQFH· WKH\XVHGWKHWHUPLQERWKVWXGLHV WKDW SXEOLFO\ RZQHG HQWHUSULVHV ZHUH OHVV SURILWDEOH DQG OHVV HIILFLHQW WKDQ SULYDWHFRUSRUDWLRQV 7KH VWXGLHV SULRU WR WKRVH RI 9LQLQJ DQG %RDUGPDQ GLG QRW DWWHPSW WR

PHDVXUHRU WRFRQWURO IRU WKHDFKLHYHPHQWRI VRFLRSROLWLFDOJRDOV &62V ZKLFKPD\KDYHEHHQLPSRVHGRQSXEOLFVHFWRUHQWHUSULVHV,I *%(VEXWQRW WKHLU SULYDWHO\ RZQHG FRPSHWLWRUV DUH FKDUJHGZLWK&62V WKH\ZLOO EH DW D UHODWLYHGLVDGYDQWDJHLQWHUPVRI SURGXFWLYHHIILFLHQF\9LQLQJDQG%RDUGPDQ DOVR GLG QRW FRQWURO IRU &62V LQ WKHLU VWXGLHV EXW DVVXPHG WKDW*%(V LQ FRPSHWLWLYHPDUNHWVZRXOGQRWKDYHVLJQLILFDQWQRQHFRQRPLFREMHFWLYHV 9LQLQJDQG%RDUGPDQXVHGSURILWDELOLW\DVDSUR[\IRUDOORFDWLYHHIILFLHQF\

7KH\MXVWLILHGWKLVRQWKHEDVLVWKDWWKHLUVDPSOHILUPVZHUHDOORSHUDWLQJLQ FRPSHWLWLYH PDUNHWV DQG WKDW WKHUHIRUH ¶ QRUPDWLYHO\ DSSURSULDWH GHYLDWLRQV IURP SURILW PD[LPL]DWLRQ ZLOO EH PLQLPDO·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

7KHUHDUHWZRRWKHUOLPLWDWLRQVRI WKH9LQLQJDQG%RDUGPDQVWXGLHVDV LQGLFDWRUVRI WKHUHODWLYHHIILFLHQF\RI SXEOLFDQGSULYDWHILUPV7KHILUVW LV WKDW WKH\ DGRSW OHVV WKDQRSWLPDOSUR[LHV IRUSURGXFWLYH HIILFLHQF\ ,Q DQRWKHU SDSHU 9LQLQJ DFNQRZOHGJHV WKDW WKH ¶PRVW WHFKQLFDO O\ VRSKLVWLFDWHG· PHDVXUH RI SURGXFWLYH HIILFLHQF\ LV WRWDO IDFWRU SURGXFWLYLW\ 7)3ZKLFKPHDVXUHV ERWK ODERXU DQG FDSLWDO SURGXFWLYLW\ 9LQLQJ 1HYHUWKHOHVV SUHVXPDEO\ IRU DQDO\WLFDO FRQYHQLHQFH 9LQLQJ DQG %RDUGPDQ DGRSW DV SUR[LHV IRU SURGXFWLYH HIILFLHQF\ WKH LQIHULRU PHDVXUHV RI VDOHV SHU HPSOR\HH DQG VDOHV SHU DVVHW ZKLFK WKH\ GHVFULEH DV ¶WZR PHDVXUHV WKDW UHODWH WR DVSHFWV RI ;HIILFLHQF\· %RDUGPDQDQG9LQLQJ 7KHRWKHU OLPLWDWLRQ LV WKDW WKH\ DUHEDVHGRQGDWD IRUDQG

ZKHQ WKH FXUUHQW ZRUOGZLGH HPSKDVLV RQ SXEOLF VHFWRU UHIRUPZDV DW D YHU\ HDUO\ VWDJH 7KXV WKH IXOO HIIHFW RI FRUSRUDWLVDWLRQ ZKLFK FDQ EH H[SHFWHGWRHQKDQFHWKHSURGXFWLYHHIILFLHQF\RI SXEOLFVHFWRUUHODWLYHWR SULYDWH VHFWRU ILUPV LVXQOLNHO\ WRKDYHEHHQFDSWXUHGE\ WKH9LQLQJDQG %RDUGPDQ VWXGLHV 7KH $XVWUDO LDQ (FRQRPLF 3ODQQLQJ $GYLVRU\ &RPPLVVLRQ IRUPHUO\ WKH (FRQRPLF 3ODQQLQJ $GYLVRU\ &RXQFLO KDV IRXQGWKDWRYHUWKHILIWHHQ\HDUSHULRGWR²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

FRXQWULHVDQGWKLUW\WZRLQGXVWULHVDOOVL[W\RQHFRPSDQLHVEHLQJIXOO\RU SDUWO\ SULYDWLVHG EHWZHHQ DQG EXW PRVW EHWZHHQ DQG 7KHVWXG\FRPSDUHVWKHSHUIRUPDQFHRI HDFKRI WKHVDPSOHILUPV IRU WKH WKUHH\HDUSHULRG LPPHGLDWHO\SULRU WR LWVSULYDWLVDWLRQZLWK WKDW IRU WKH WKUHH \HDUV LPPHGLDWHO\ DIWHU SULYDWLVDWLRQ 7KHPDLQ ILQGLQJ RI WKH VWXG\ LV WKDW ¶ DIWHU EHLQJ SULYDWL]HG ILUPV LQFUHDVH UHDO VDOHV EHFRPH PRUH SURILWDEOH LQFUHDVH WKHLU FDSLWDO LQYHVWPHQW VSHQGLQJ LPSURYH WKHLU RSHUDWLQJ HIILFLHQF\ DQG LQFUHDVH WKHLU ZRUN IRUFHV· 0HJJLQVRQHWDO /LNH9LQLQJ DQG%RDUGPDQ0HJJLQVRQ HW DO HPSOR\ D VXERSWLPDOSUR[\

IRU HYDOXDWLQJ SURGXFWLYH HIILFLHQF\ QDPHO\ VDOHV LQFRPH SHU HPSOR\HH +RZHYHU WKH 0HJJLQVRQ VWXG\ KDV DQ DGGLWLRQDO IXQGDPHQWDO GHIHFW ,Q HYDOXDWLQJ FKDQJHV LQ WKH SHUIRUPDQFH RI WKH VDPSOH ILUPV ZKHQ WKH\ DUH UHORFDWHGIURPWKHSXEOLFWRWKHSULYDWHVHFWRULWIDLOVWRVHSDUDWHWKHHIIHFWV RI SULYDWLVDWLRQ IURPRWKHU FKDQJHV WKDWPD\ KDYH EHHQ LPSRVHG XSRQ WKH

RSHUDWLRQV RI WKH ILUPV GXULQJ HLWKHU WKH WKUHH \HDUV SULRU RU WKUHH \HDUV IROORZLQJSULYDWLVDWLRQ,QWKHZRUGVRI WKHDXWKRUV

2XU GDWD GR QRW DOORZ XV WR SUHFLVHO\ GRFXPHQW WKH FDXVHV RI WKHVH SHUIRUPDQFH LPSURYHPHQWV DIWHU GLYHVWLWXUH WKH YHU\ SHUYDVLYHQHVVRI WKHVHLPSURYHPHQWVDQGWKHIDFWWKDWPRVWVKDUH VDOHV GLG QRW UDLVH FDVK IRU WKH ILUP VXJJHVW WKDW SULYDWL]DWLRQ LWVHOI ²WKHLQYROYHPHQWRI SULYDWHLQYHVWRUVLQDILUP·VRZQHUVKLS VWUXFWXUH ² FULWLFDOO\ LPSDFWV D ILUP·V RSHUDWLQJ DQG ILQDQFLDO SHUIRUPDQFH

0HJJLQVRQHWDO $OO RI WKH PHDVXUHG LPSURYHPHQWV LQ WKH VDPSOH ILUPV· RSHUDWLRQV DUH

WKXVDWWULEXWHGVROHO\WRWKHSULYDWLVDWLRQSURFHVV,PSOLFLWLQWKLVDSSURDFKLV WKHDVVXPSWLRQWKDWHQWHUSULVHVFDQQRWLPSURYHWKHLUHFRQRPLFSHUIRUPDQFH ZKLOH WKH\RSHUDWHXQGHUJRYHUQPHQWRZQHUVKLS7KLV DVVXPSWLRQQRWRQO\ SUHHPSWV WKH FHQWUDO LVVXH EXW DV WKH (FRQRPLF 3ODQQLQJ $GYLVRU\ &RPPLVVLRQVWXGLHVVKRZLVXQUHDOLVWLF 7KH FRQFOXVLRQV RI D:RUOG %DQN VWXG\ *DODO HW DO DUH VLPLODUO\

IODZHG 7KLV VWXG\ HPSOR\V D VRSKLVWLFDWHG WHFKQLTXH WR DQDO\VH WKH SRVW SULYDWLVDWLRQSHUIRUPDQFHRI WZHOYHFRPSDQLHVSULYDWLVHGEHWZHHQDQG PRVWO\ DLUOLQHV DQG UHJXODWHG XWLOLWLHV LQFOXGLQJ WHOHFRPPXQLFDWLRQV FRUSRUDWLRQVLQWKH8.&KLOH0DOD\VLDDQG0H[LFR,QHDFKFDVHLWHVWLPDWHV WKHVRFLDOYDOXHRI WKHHQWHUSULVHXQGHUSULYDWHRZQHUVKLSZKLFKLWFRPSDUHV ZLWKDQHVWLPDWHRI LWVVRFLDOYDOXHXQGHUWKHFRXQWHUIDFWXDOVFHQDULRRI ZKDW LW ZRXOG KDYH EHHQ XQGHU FRQWLQXHG JRYHUQPHQW RZQHUVKLS 7KH VWXG\ FRQFOXGHV WKDW SULYDWLVDWLRQ UHVXOWHG LQ QHW ZHOIDUH JDLQV LQ HOHYHQ RI WKH WZHOYHFDVHVDQGRQDYHUDJHWKHYDOXHRI WKHJDLQVZDVHTXDOWRSHUFHQW RI DILUP·VSUHSULYDWLVDWLRQVDOHVUHYHQXH 7KH DXWKRUV DFNQRZOHGJH WKDW WKHLUPHWKRGRORJ\ QHFHVVLWDWHV VXEMHFWLYH

MXGJHPHQWVUHJDUGLQJWKHFRXQWHUIDFWXDORXWFRPHV+RZHYHUOLNH0HJJLQVRQ HW DO WKH\ DUH WRR HDJHU WR DWWULEXWH WKH SRVWSULYDWLVDWLRQ JDLQV WR SULYDWLVDWLRQLWVHOI)RUH[DPSOHLQHVWLPDWLQJSRVWSULYDWLVDWLRQZHOIDUHJDLQV IRU%ULWLVK7HOHFRPWKH\WDNHDFFRXQWRI WKHODERXULPSURYHPHQWVUHVXOWLQJ IURP WKH FRPSDQ\ VLJQLILFDQWO\ UHGXFLQJ LWV ZRUN IRUFH EXW IRU WKH FRXQWHUIDFWXDOFDVHRI FRQWLQXHGRSHUDWLRQDVD*%(WKH\¶ DVVXPHWKDW QRFRUUHVSRQGLQJZRUNIRUFHUHGXFWLRQZRXOGKDYHWDNHQSODFH·SVHH DOVR¶3URGXFWLYHHIILFLHQF\·VHFWLRQEHORZ$QGLQWKHFDVHRI 0H[LFRWKH DXWKRUV QRWH WKDW SULYDWLVDWLRQ ZDV SDUW RI D PXFK ZLGHU FRPSUHKHQVLYH SURJUDPPHRI HFRQRPLF UHIRUP EXW SURFHHG WR FUHGLW WKH EHQHILWV RI WKH ZKROHSROLF\SDFNDJHHQWLUHO\WRSULYDWLVDWLRQ¶RXUFRQWHQWLRQLVWKDW WKH GLYHVWLWXUH SURJUDPZDV VR LQWHJUDWHG LQWR WKH RYHUDOO UHIRUP WKDW LW LV ULVN\DWEHVWWRWU\WRVHSDUDWHWKHHIIHFWVRI GLYHVWLWXUHIURPWKRVHRI RWKHU HFRQRPLF UHIRUPV· S 7KH FRQFOXVLRQV RI WKH *DODO VWXG\ FDQQRW

WKHUHIRUH EH DFFHSWHG DV D UHOLDEOH LQGLFDWLRQ RI WKH ZHOIDUH HIIHFWV RI SULYDWLVDWLRQ 5HFHQW DQDO\VLV RI SXEOLF DQG SULYDWH HQWHUSULVHV LQ WKH 8. KDV

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

ZKLFKZHUHLQWKHSXEOLFVHFWRULQWKHVVL[RI ZKLFKZHUHSULYDWLVHG LQ WKH V 7KH\ PHDVXUHG ODERXU SURGXFWLYLW\ DQG WRWDO IDFWRU SURGXFWLYLW\ IRU HDFK HQWHUSULVH DQG FRPSDUHG WKH SHUIRUPDQFH IRU WKH VZLWKWKDWRI WKHV7KH\IRXQGWKDWSURGXFWLYLW\JURZWKIRUDOO QLQH HQWHUSULVHVZDV KLJKHU LQ WKH V WKDQ LQ WKH V 7KH KLJKHVW XSWXUQ LQ SURGXFWLYLW\ SHUIRUPDQFH ZDV E\ %ULW LVK 6WHHO ZKLFK ZDV SULYDWLVHG LQEXW WKHQH[W WKUHHKLJKHVW LQFUHDVHVZHUHUHFRUGHGE\ HQWHUSULVHVZKLFKUHPDLQHGXQGHUVWDWHRZQHUVKLS7KH\FRQFOXGHWKDW¶ WKHFKDQJHVLQWKHUHJXODWLRQRI HQWHUSULVHVLQSXEOLFRZQHUVKLSKDVKDG DQLPSDFWXSRQSHUIRUPDQFHZKLFKLVGLVWLQFWIURPWKDWUHVXOWLQJIURPRU DQWLFLSDWLQJFKDQJHVLQRZQHUVKLS·%LVKRSDQG7KRPSVRQ $OWKRXJKDGHWDLOHGH[DPLQDWLRQRI WKHODUJHQXPEHURI HPSLULFDOVWXGLHV

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

HFRQRPLFFDVHDJDLQVWSULYDWLVDWLRQ²SURYLGHGWKDWWKHVDOHJHQHUDWHVVXIILFLHQW QHW SURFHHGV VHH EHORZ:KHUH KRZHYHU D*%( IDFHV OLWWOH SURGXFWPDUNHW FRPSHWLWLRQ²IRUH[DPSOHEHFDXVHRI WKHSUHVHQFHRI QDWXUDOPRQRSRO\²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¶DVDJHQHUDOUXOHZKHUHSULYDWL]DWLRQDQG OLEHUDOL]DWLRQFRPHLQWRFRQIOLFWWKHODWWHUVKRXOGEHSUHIHUUHGVLQFHSULYDWL]DWLRQ FDQPRUHUHDGLO\IROORZOLEHUDOL]DWLRQWKDQYLFHYHUVD·

3ULYDWLVDWLRQDQGSXEOLFILQDQFHV

%XGJHWGHILFLWVDQGWKH36%5

,QWKHSXEOLFGHEDWHSULYDWLVDWLRQLVIUHTXHQWO\VXSSRUWHGRQWKHJURXQGVWKDW WKHVDOHRI D*%(ZLOOLPSURYHWKHJRYHUQPHQW·VILQDQFLDOSRVLWLRQLQWHUPV RI UHGXFLQJ WKH VL]HRI LWV EXGJHW GHILFLW RU LQFUHDVLQJ LWV EXGJHW VXUSOXV

DQGWKHSXEOLFVHFWRUERUURZLQJUHTXLUHPHQW36%5)RUH[DPSOH LQ .LP%HD]OH\WKHWKHQ$XVWUDOLDQ0LQLVWHUIRU)LQDQFHQRPLQDWHGWKHVHJRDOV DV SULQFLSDO UHDVRQV IRU WKH /DERU JRYHUQPHQW·V GLVSRVDO RI SXEOLF DVVHWV %HD]OH\7KLVDUJXPHQWLVTXHVWLRQDEOHKRZHYHU 7KHUHLVQRLQKHUHQWPDFURHFRQRPLFYLUWXHLQORZHUEXGJHWGHILFLWV7KH\

PD\ZHOO EHGHVLUDEOH WRGDPSHQ DQRYHUKHDWHG HFRQRP\RU LI LQSUHYLRXV \HDUV VODFN ILQDQFLDO PDQDJHPHQW KDV UHVXOWHG LQ SXEOLF H[SHQGLWXUHV RXWSDFLQJUHYHQXHV+RZHYHUORZHUEXGJHWGHILFLWVZLOOH[DFHUEDWHHFRQRPLF SUREOHPVGXULQJEXVLQHVVGRZQWXUQV*HQHUDOO\JRYHUQPHQWVVKRXOGDLPWR EDODQFHWKHLUEXGJHWVRYHUWKHFRXUVHRI WKHEXVLQHVVF\FOHDQGSUHVHUYHWKH IOH[LELOLW\ WR SXUVXH FRXQWHUF\FOLFDO ILVFDO SROLF\ DV HFRQRPLF FRQGLWLRQV ZDUUDQW ,Q UHODWLRQ WR ERUURZLQJV JRYHUQPHQWV DUH LQ D GLIIHUHQW SRVLWLRQ WR

SULYDWHILUPVZKHQGHEWEHFRPHVGXHIRUUHSD\PHQW7KHSULYDWLVDWLRQRI D *%(E\DJRYHUQPHQWLVHVVHQWLDOO\WKHFRQYHUVLRQRI DUHDODVVHWLQWRFDVK :KLOHDSULYDWHILUPPD\EHIRUFHGWRGLVSRVHRI VRPHRI LWVDVVHWVLI LWIDFHV D OLTXLGLW\ SUREOHP JRYHUQPHQWV KDYH FRQVLGHUDEO\ PRUH GLVFUHWLRQ LQ UHODWLRQ WR SXEOLF ERUURZLQJV 7KH\ FDQ HLWKHU UHILQDQFH SXEOLF GHEW DV LW EHFRPHVGXHIRUUHSD\PHQW²WKDWLVWRVHOOQHZERQGVDQGXVHWKHSURFHHGV WRSD\RII WKHKROGHUVRI PDWXULQJERQGV²RULQFUHDVHWD[DWLRQWRREWDLQWKH IXQGV UHTXLUHG 0RUHRYHU EHFDXVH RI WKHLU WD[LQJ SRZHU WKH ULVN RI JRYHUQPHQWVEHLQJXQDEOH WRUHSD\ WKHLUERUURZLQJV LVYHU\PXFK OHVV WKDQ WKDWRI SULYDWHILUPV7KLV LVQRW WR LPSO\ WKDW WKHSXEOLFGHEW LV LUUHOHYDQW *RYHUQPHQWVPD\KDYHODUJHDPRXQWVRI GHEWEHFRPLQJGXHIRUUHILQDQFLQJ DW WKH RQH WLPH RU PD\ IDFH SROLWLFDO GLIILFXOWLHV LQ LQFUHDVLQJ WD[DWLRQ )RUV\WK $ UHODWHG LVVXH FRQFHUQV WKH IXQGV UHTXLUHGE\*%(V WR HQDEOH WKHP WR

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

DFFRXQWLQJSUREOHPVDULVHLQUHFRUGLQJWKHWUDQVDFWLRQZKLFKREVFXUHLWVQHW HIIHFW XSRQ SXEOLF ILQDQFHV 3ULYDWLVDWLRQ LQYROYHV WKH GLVSRVDO E\ JRYHUQPHQW RI D FDSLWDO DVVHW ZKHUHDV JRYHUQPHQW EXGJHWV DQG WKH 36%5 LQFOXGH ERWK FXUUHQW DQG FDSLWDO WUDQVDFWLRQV 7KH DFFRXQWLQJ FRQYHQWLRQV DGRSWHGE\SULYDWHILUPVGLIIHUIURPWKRVHJHQHUDOO\XVHGE\JRYHUQPHQWVLQ WKDW SULYDWH ILUPV PDNH D FOHDU VHSDUDWLRQ EHWZHHQ FXUUHQW DQG FDSLWDO WUDQVDFWLRQV7KHVDOHRI DQDVVHWE\DSULYDWHILUPIRUOHVVWKDQLWVERRNYDOXH ZLOOVKRZXSLQWKHILUP·VDFFRXQWVDVDFDSLWDOORVVDQGWKXVUHGXFHWKHILUP·V

QHWZRUWKZKLOHDVDOHIRUPRUHWKDQERRNYDOXHZLOOSURGXFHDFDSLWDOJDLQDQG LQFUHDVHWKHILUP·VQHWZRUWK7KHDPRXQWRI WKHFDSLWDOORVVRUJDLQUHFRUGHG RQVDOHZLOOEHGHWHUPLQHGE\WKHPHWKRGRI DVVHWYDOXDWLRQDGRSWHG LQ WKH ILUP·V DFFRXQWV %HFDXVH QHLWKHU WKH JRYHUQPHQW EXGJHW QRU WKH 36%5 UHFRUGVWKHYDOXHRI *%(VKRZHYHUWKH\FDQQRWUHYHDODQHTXLYDOHQWHIIHFW XSRQWKHQHWZRUWKRI WKHSXEOLFVHFWRUZKHQWKH\DUHSULYDWLVHG&KDQJHVWR WKH EXGJHW RXWFRPH DQGRU WKH 36%5 WKHUHIRUH GR QRW SURYLGH DQ DSSURSULDWH PHDVXUH RI WKH FRQVHTXHQFH RI SULYDWLVDWLRQ IRU WKH SXEOLF VHFWRU %HFDXVH WKH QHW EXGJHW RXWFRPH LQ DQ\ \HDU PHDVXUHV WKH GLIIHUHQFH

EHWZHHQJRYHUQPHQWH[SHQGLWXUHDQG UHYHQXH WKHFKDQJH LQ WKHGHILFLW RU VXUSOXV IURP RQH \HDU WR WKH QH[W LV XVXDOO\ UHJDUGHG DV DQ LQGLFDWLRQ RI ZKHWKHU WKH JRYHUQPHQW·V GHPDQG PDQDJHPHQW SROLF\ KDV EHFRPH PRUH H[SDQVLRQDU\ RU FRQWUDFWLRQDU\ ,I EXGJHW UHYHQXH LQFOXGHV SURFHHGV IURP DVVHWVDOHVKRZHYHUFKDQJHVLQWKHQHWEXGJHWRXWFRPHQRORQJHUUHIOHFWWKH ILVFDOVWDQFHRI WKHJRYHUQPHQWDQGQHHGWREHDGMXVWHGDFFRUGLQJO\

3RVWSULYDWLVDWLRQSURILWDELOLW\

:LWKWKHVDOHRI DQ\*%(WKHJRYHUQPHQWGLVSRVHVRI LWVHQWLWOHPHQWWRWKH IXWXUHIORZRI SURILWVRI WKHHQWHUSULVH7KHJRYHUQPHQWEXGJHWZLOOUHFRUG WKHSURFHHGV IURP WKHSULYDWLVDWLRQ LQ WKH\HDURI VDOH DQG LQ IXWXUH \HDUV EXGJHWUHYHQXHVZLOOQRORQJHULQFOXGHWKHGLYLGHQGSUHYLRXVO\UHFHLYHGIURP WKH*%(7RWKHH[WHQWWKDWWKHSURFHHGVDUHGLUHFWHGWRZDUGVWKHUHWLUHPHQW RI JRYHUQPHQWGHEWKRZHYHUIXWXUH\HDUV·EXGJHWRXWOD\VZLOOEHUHGXFHGE\ VDYLQJV LQSXEOLFGHEW LQWHUHVW,I DQ\SDUWRI WKHSULYDWLVDWLRQSURFHHGVDUH XVHG IRU FXUUHQW H[SHQGLWXUH UDWKHU WKDQ UHWLUHPHQWRI GHEW WKHUHZLOO EH D ORZHUOHYHORI VDYLQJVLQSXEOLFGHEWLQWHUHVWDQGDFRUUHVSRQGLQJUHGXFWLRQ LQWKHQHWZRUWKRI WKHSXEOLFVHFWRU7KLVSUDFWLFHKDVEHHQOLNHQHGWR¶VHOOLQJ WKHIDPLO\VLOYHUWRSD\IRUWKHJURFHULHV· &RQVLGHUDVLWXDWLRQZKHUH WKHSULYDWLVDWLRQRI D*%(GRHVQRWDIIHFW LWV

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· EXGJHW UHYHQXHV DQG H[SHQGLWXUHV +HPPLQJ DQG 0DQVRRU )RU WKLV RXWFRPH WR RFFXU KRZHYHU WKHUH ZRXOG QHHG WR EH QR XQGHUSULFLQJ RI VKDUHV DQG QR WUDQVDFWLRQFRVWVZKLFKERWKUHGXFHQHWVDOHSURFHHGVUHFHLYHGE\DYHQGRU

JRYHUQPHQW DQG HURGH SXEOLF VHFWRU QHW ZRUWK %XW DOO SULYDWLVDWLRQV ZLOO LQYROYHWUDQVDFWLRQFRVWVDQGDOPRVWDOOZLOOEHXQGHUSULFHGVHHEHORZ,I D FRUSRUDWLRQGRHVQRW LPSURYH LWV HFRQRPLFSHUIRUPDQFHZKHQ LW LV VROG WR WKHSULYDWHVHFWRUWKHUHIRUHLWVSULYDWLVDWLRQFDQEHH[SHFWHGWRUHGXFHWKHQHW ZRUWKRI WKHSXEOLFVHFWRU $VVXPHQRZWKDW WKHSURILWDELOLW\RI WKHHQWHUSULVH LVJUHDWHUIROORZLQJ

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·V SURGXFWV 9LFNHUVDQG<DUURZ)RUV\WK $SDUW IURP WKH HIIHFWV RI XQGHUSULFLQJ DQG WUDQVDFWLRQ FRVWV WKH VDOH

SURFHHGVIURPSULYDWLVDWLRQDUHOLNHO\WRIDOOVKRUWRI WKHSUHVHQWYDOXHRI WKH ILUP·V SURILWV %HFDXVH SULYDWH FRPSDQLHV SD\ KLJKHU UDWHV RI LQWHUHVW RQ ERUURZLQJV WKDQ JRYHUQPHQWV WKH SUHVHQW YDOXH RI IXWXUH SURILWV WR EH GHULYHG IURP D SULYDWLVHG *%( ZLOO EH ZRUWK OHVV WR SRWHQWLDO SULYDWH SXUFKDVHUV WKDQ WR LWVJRYHUQPHQWRZQHU ,QRWKHUZRUGV WKHGLVFRXQWUDWH XVHGE\SULYDWH LQYHVWRUV LQHYDOXDWLQJ WKHH[SHFWHG IORZRI UHWXUQV IURPD SULYDWLVHG *%( ZLOO EH KLJKHU WKDQ WKH JRYHUQPHQW·V RSSRUWXQLW\ FRVW RI IXQGV ,W IROORZV WKDW RWKHU WKLQJV EHLQJ HTXDO WKH SULYDWLVDWLRQ RI D SURILWDEOH*%(DQGWKHXVHRI WKHSURFHHGVWRUHGXFHJRYHUQPHQWGHEWZLOO FDXVHD UHGXFWLRQ LQ WKHQHWZRUWKRI WKHSXEOLF VHFWRU :DONHU ,QKLV DQDO\VLVRI VHYHUDOSULYDWLVDWLRQVLQ$XVWUDOLDWKH8QLWHG.LQJGRPDQG1HZ =HDODQG4XLJJLQ FRQFOXGHG WKDW WKH ORVV LQSXEOLF VHFWRUQHWZRUWK

ZDV JUHDWHU WKDQ WKH SULYDWLVDWLRQ SURFHHGV UHFHLYHG E\ WKH YHQGRU JRYHUQPHQWV

8QGHUSULFLQJ

7RSURYLGHDQ LQFHQWLYH IRU LQYHVWRUV WKH LVVXHSULFHRI VKDUHV LQSXEOLF IORDWV LV JHQHUDOO\ VHW DW D OHYHO VRPHZKDW EHORZ WKH SULFH DWZKLFK WKH\ DUHH[SHFWHG WR WUDGHZKHQ OLVWHGRQ WKHVWRFNH[FKDQJH6RPH LQYHVWRUV ZLOO HQJDJH LQ ¶VWDJJLQJ· WKDW LV WKH\ ZLOO VHOO WKHLU VKDUHV LPPHGLDWHO\ WKH\ DUH OLVWHG ZLWK WKH YLHZ RI UHDOLVLQJ D TXLFN FDSLWDO JDLQ ,Q VRPH FDVHV KRZHYHU WKH PDUNHW SULFH RI WKH VKDUHV XSRQ OLVWLQJ ZLOO EH OHVV WKDQWKHLVVXHSULFHFDXVLQJWKH¶VWDJV·WRORVHPRQH\DQGRWKHULQYHVWRUV WRLQFXUDWOHDVWVKRUWWHUP¶SDSHU·ORVVHV7KHYDOXDWLRQRI DQHZO\OLVWHG FRPSDQ\LVGLIILFXOWDQGVXEMHFWWRXQSUHGLFWDEOHLQIOXHQFHVDQGLQYHVWRUV ZLOO VHHN D SUHPLXP IRU ULVN WDNLQJ LQ DQ XQFHUWDLQ HQYLURQPHQW ,Q DGGLWLRQ WKH SULFH RI D QHZ LVVXH PD\ EH IXUWKHU GLVFRXQWHG WR PDNH DOORZDQFH IRU DSRVVLEOHGRZQZDUGPRYHPHQW LQ WKHRYHUDOO OHYHORI WKH VWRFNPDUNHW EHWZHHQ WKH DQQRXQFHPHQWRI WKH LVVXHSULFH DQG FORVHRI DSSOLFDWLRQV 7KHUH DUH UHDVRQV KRZHYHU ZK\ XQGHUSULFLQJ PD\ EH JUHDWHU IRU

SULYDWLVDWLRQVWKDQIRUVWDQGDUGSULYDWHFRPSDQ\IORDWV%HFDXVHLWZLOOVXIIHU SROLWLFDOHPEDUUDVVPHQWLI DSSOLFDWLRQVIDOOVKRUWRI WKHDYDLODEOHQXPEHURI VKDUHVDQGRU LI LQGLYLGXDO LQYHVWRUVRU ILQDQFLDO LQVWLWXWLRQVVXVWDLQFDSLWDO ORVVHV D JRYHUQPHQW ZLOO KDYH DQ LQFHQWLYH IRU HDFK SULYDWLVDWLRQ WR EH ¶VXFFHVVIXO· 9LFNHUV DQG <DUURZ +DPLOWRQ $Q XQVXFFHVVIXO RXWFRPHZLOO FDXVH DGGHG GLIILFXOWLHV IRU DQ\ SODQQHG IXWXUH SULYDWLVDWLRQV 7KHJRYHUQPHQWPD\DOVRXQGHUSULFHVKDUHVWRHQFRXUDJHVXEVFULSWLRQVIURP WKRVHZKRGRQRWXVXDOO\LQYHVWLQVKDUHV¶PXPVDQGGDGV·DQGPD\RIIHUD VSHFLDO GLVFRXQW WR FRPSDQ\ HPSOR\HHV ,I D *%( LV WR EH VXEMHFW WR UHJXODWLRQIROORZLQJSULYDWLVDWLRQWKHUHPD\DOVREHD¶VRYHUHLJQULVNSUREOHP· ZKHUHE\ XQFHUWDLQW\ FRQFHUQLQJ WKH HIIHFWV RI UHJXODWLRQ XSRQ WKH IXWXUH SURILWVRI WKHHQWHUSULVHPD\LQFUHDVHWKHSUHPLXPGHPDQGHGE\VXEVFULEHUV 4XLJJLQ 7KH 8. H[SHULHQFH GXULQJ WKH V VXJJHVWV WKDW WKH SHUFHQWDJH

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¶FRQVWUDLQHGRSHQSULFLQJ·PHWKRGWRGHWHUPLQHWKHVDOHSULFH RI VKDUHV8QGHUWKLVSURFHGXUHWKHJRYHUQPHQWDQQRXQFHVDSULFHUDQJHIRU WKH VKDUHV ² D PLQLPXP ¶IORRU· DQG PD[LPXP ¶FDS· LVVXH SULFH ² DQG ILQDQFLDOLQYHVWRUVELGRYHUDQXPEHURI GD\VRQWKHEDVLVRI ERWKSULFHDQG YROXPH$VDOORWPHQWVRI VKDUHV WR ILQDQFLDO LQYHVWRUVDUHEDVHGXSRQ WKHLU ELGGLQJ EHKDYLRXU WKH\ KDYH DQ LQFHQWLYH WR ELG XS WKH VKDUH SULFH 7KH JRYHUQPHQWGHWHUPLQHV WKH VKDUHSULFH IRU LQVWLWXWLRQDO DQG UHWDLO LQYHVWRUV IROORZLQJDQGRQWKHEDVLVRIWKHRXWFRPHRI WKHDXFWLRQSURFHVV :KHUHWKHUHDUHVSHFLDOGLIILFXOWLHVLQYDOXLQJDQHQWHUSULVH²IRUH[DPSOH

LI WKHUHDUHQRRWKHUFRPSDQLHVLQWKHVDPHLQGXVWU\OLVWHGRQWKHGRPHVWLF VWRFNH[FKDQJH²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

UHQWVHHNLQJDFWLYLW\E\SURVSHFWLYHSXUFKDVHUVRI VKDUHVLQDSULYDWLVHGILUP ,IWKHUHLVDVWURQJSRVVLELOLW\WKDWWKHVDOHSULFHRID*%(LVOHVVWKDQLWVUHDO YDOXH²WKDWLVWKHLVVXHSULFHRI VKDUHVLVOHVVWKDQWKHLUVXEVHTXHQWPDUNHW SULFH ²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

SULYDWLVDWLRQ LVVXHV DOVR LQYROYHV D UHGLVWULEXWLRQ RI ZHDOWK LQ IDYRXU RI VXFFHVVIXO DSSOLFDQWV IRU VKDUHV DW WKH H[SHQVH RI WD[SD\HUV JHQHUDOO\ )RUV\WK 7UDQVDFWLRQFRVWVLQYROYHGZLWKDSULYDWLVDWLRQE\SXEOLFIORDWZLOOLQFOXGH

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¶WUDGHVDOH·WKDWLVDGLUHFWVDOHRI DQHQWHUSULVHWRDSULYDWHHQWLW\ RU FRQVRUWLXP RI LQWHUHVWV ZLOO XVXDOO\ LQYROYH FRQVLGHUDEOH VDYLQJV LQ WUDQVDFWLRQ FRVWV$ WUDGH VDOH WR VD\ D IRUHLJQ LQYHVWRU VHHNLQJ D VWUDWHJLF DGYDQWDJHIURPLQYHVWPHQWLQDSULYDWLVHGILUPPD\DOVRSURGXFHDKLJKHUVDOH SULFHWKDQDSXEOLFIORDW ,Q VXPPDU\ WKH LPSOLFDWLRQV RI SULYDWLVDWLRQ DUH FRPSOH[ DQG GHSHQG

XSRQ D QXPEHU RI IDFWRUV LQFOXGLQJ ZKHWKHU RU QRW WKH HQWHUSULVH ZLOO EH PRUH SURILWDEOH XQGHU SULYDWH WKDQ FRQWLQXHG SXEOLF RZQHUVKLS DQG WKH DPRXQWRI XQGHUSULFLQJDQGWUDQVDFWLRQFRVWV3ULYDWLVDWLRQZLOOLQFUHDVHWKH QHW ZRUWK RI WKH SXEOLF VHFWRU DQG WKH HFRQRP\ JHQHUDOO\ RQO\ LI SRVW SULYDWLVDWLRQSURILWVDUHJUHDWHU WKDQWKH\ZRXOGKDYHEHHQXQGHUFRQWLQXHG SXEOLF RZQHUVKLS DQG LI WKH LQFUHDVHG SURILWDELOLW\ LV D UHVXOW RI LPSURYHG SURGXFWLYH HIILFLHQF\ ,I WKH LQFUHDVH LQ SURILWV UHVXOWV IURP WKH SULYDWLVHG ILUPFKDUJLQJKLJKHUSULFHVDOORFDWLYHHIILFLHQF\LQWKHHFRQRP\JHQHUDOO\ZLOO GHFOLQH8QGHUSULFLQJ DQG WUDQVDFWLRQ FRVWVZLOO UHGXFH WKHSURFHHGV WR WKH JRYHUQPHQW IURP SULYDWLVDWLRQ 8QGHUSULFLQJ LV OLNHO\ WR LQFUHDVH SURSRUWLRQDOO\ZLWK WKH VL]H RI D SXEOLF IORDW UHVWULFWLRQV RQ HOLJLELOLW\ IRU VKDUHVDQGWKHSHUFHLYHGVRYHUHLJQULVNIDFLQJWKHSULYDWLVHGILUPEXWZLOOEH PLQLPLVHG E\ WKH XVH RI D WHQGHU SURFHVV DQGRU WKH VDOH RI VKDUHV LQ WUDQFKHV7KHUHZLOOEHDGLUHFW ORVVRI QDWLRQDOZHDOWK WR WKHH[WHQWRI WKH SUHPLXPRQVKDUHVVROGWRIRUHLJQLQYHVWRUV

$XVWUDOLDQWHOHFRPPXQLFDWLRQVLQGXVWU\

,QGXVWU\UHIRUPDQGUHJXODWLRQ

7HOHFRPPXQLFDWLRQV LQ$XVWUDOLD KDV EHHQ VXEMHFW WR D VHULHV RI UHIRUP PHDVXUHV RYHU WKH SDVW WZR GHFDGHV ,Q WKH $XVWUDO LDQ 7HOHFRPPXQLFDWLRQV&RPPLVVLRQ7HOHFRPZDVHVWDEOLVKHGDVDVHSDUDWH VWDWXWRU\DXWKRULW\ WRWDNHRYHU WKHWHOHFRPPXQLFDWLRQVIXQFWLRQVRI WKH IRUPHU 3RVWPDVWHU*HQHUDO·V'HSDUWPHQW 7KLV ZDV DFFRPSDQLHG E\ WKH UHOD[DWLRQ RI JRYHUQPHQW FRQWURO RYHU GD\WRGD\ GHFLVLRQ PDNLQJ DQG WKH JUDGXDO VKLIW WR PDQDJHPHQW RI DFFRXQWDELOLW\ IRU SHUIRUPDQFH LQ

DFFRUGDQFH ZLWK VSHFLILFDO O\ GHILQHG REMHFWLYHV ,Q WKH HDUO\ V FRPSHWLWLRQZDV LQWURGXFHGE\WKH OLFHQVLQJRI ¶VHUYLFHSURYLGHUV·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¶VXVWDLQDEOHFRPSHWLWLRQ·LQWKHLQGXVWU\ZKLFKKDV UHTXLUHGWKHLPSRVLWLRQRI UHVWUDLQWVRQ7HOVWUDLQWKHH[HUFLVHRI LWVPDUNHW SRZHU $XVWHOKDVGHFODUHG7HOVWUD WREHGRPLQDQW LQ DOOPDMRU VHJPHQWVRI WKH

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

,Q$XJXVW2SWXVFODLPHGWRDFFRXQWIRUSHUFHQWRI WKH67'DQG ,''PDUNHWVPHDVXUHGE\PLQXWHVRI WUDIILFDQGDQGSHUFHQWRI WKH PRELOH DQDORJXH DQG PRELOH GLJLWDO PDUNHWV UHVSHFWLYHO\ 2SWXV &RPPXQLFDWLRQV %HFDXVH RI 7HOVWUD·V RZQHUVKLS RI WKH &$1 KRZHYHU2SWXVKDVEHHQFRQVWUDLQHGIURPFRPSHWLQJLQWKHORFDOFDOOPDUNHW ZKLFKSURYLGHVRYHUD WKLUGRI 7HOVWUD·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

SULFHVWREHGHWHUPLQHGE\PDUNHWIRUFHVVXEMHFWRQO\WRJHQHUDOFRPSHWLWLRQ DQGFRQVXPHUSURWHFWLRQVDIHJXDUGV,QWHOHFRPPXQLFDWLRQVKRZHYHUWKHUH DUHVHYHUHOLPLWVWRWKHQXPEHURI JHQHUDOFDUULHUVZKLFKDVLQJOHPDUNHWFDQ VXSSRUW1RWZLWKVWDQGLQJ WKH UHPRYDO RI UHJXODWRU\ EDUULHUV WR HQWU\ IURP -XO\ WKHUHIRUH LWPD\ZHOO EH WKDW WKH FXUUHQW UHJXODWHG GXRSRO\ZLOO EHFRPHDSHUPDQHQWIHDWXUHRI WKH$XVWUDOLDQWHOHFRPPXQLFDWLRQV LQGXVWU\

%URZQ 3URSRVHG QHZ DUUDQJHPHQWV IDFLOLWDWLQJ DFFHVV WR 7HOVWUD·V QHWZRUNDQGORZHUVHUYLFHSURYLGHULQWHUFRQQHFWLRQFKDUJHVKRZHYHUVKRXOG HQVXUH VWURQJHU FRPSHWLWLRQ WR WKH JHQHUDO FDUULHUV IURP VHUYLFH SURYLGHUV IURP-XO\ 7DEOHSURYLGHVGDWDRQWKHWHOHFRPPXQLFDWLRQVPDUNHWLQ$XVWUDOLDIRU

WKH IRXU ILQDQFLDO \HDUV WR ² ,W VKRZV WKDW 7HOVWUD DFFRXQWHG IRU D VXEVWDQWLDOSHUFHQWRI WKHPDUNHWLQ²EXWWKLVZDVSHUFHQW GRZQRQWKUHH\HDUVHDUOLHU2I WKLVORVVLQPDUNHWVKDUHPRVWZDVSLFNHGXS E\2SWXVDQGWKHUHVWE\VHUYLFHSURYLGHUV$OWKRXJK7HOVWUD·VPDUNHWVKDUH GHFOLQHGRYHU WKH WKUHH \HDUV LWV WRWDO UHYHQXH LQFUHDVHG VLJQLILFDQWO\ E\ SHU FHQW LQ QRPLQDO WHUPV E\ YLUWXH RI JURZWK LQ WKH WRWDO PDUNHW RI DSSUR[LPDWHO\ELOOLRQSHUFHQW

7HOVWUD&RUSRUDWLRQ/LPLWHG

¶&RUSRUDWLVDWLRQ·KDVEHHQH[WHQVLYHO\DGRSWHGE\WKHQDWLRQDOFDUULHUVLQFHWKH PLGVZKHQJRYHUQPHQWFRQFHUQVKLIWHGIURPWKHGD\WRGD\GHFLVLRQVRI WKHFRPSDQ\WRPRQLWRULQJLWVSHUIRUPDQFH,QWHUQDOO\7HOVWUDLVRUJDQLVHGLQWR VHSDUDWHO\DFFRXQWDEOHEXVLQHVVXQLWVDQGIURP²KDVEHHQIXOO\VXEMHFWWR WKH SULQFLSOHV RI ¶FRPSHWLWLYH QHXWUDOLW\· IRU*%(V LQFOXGLQJ WKH SD\PHQW RI VWDWH DQG ORFDO JRYHUQPHQW WD[HV DQG FKDUJHV FXVWRPV GXWLHV FRUSRUDWH WD[HV DQGGLYLGHQGV WR WKH&RPPRQZHDOWKJRYHUQPHQW7KH ILQDQFLDO UHVXOWVRI WKH QDWLRQDOFDUULHUIRUWKHILYHILQDQFLDO\HDUVWR²DUHVHWRXWLQ7DEOH7KH ²UHVXOWVLQFOXGHWKRVHIRUERWK7HOHFRPDQG27&DVVLQJOHHQWLWLHVXSWR WKHLUPHUJHURQ)HEUXDU\7HOVWUD·V WRWDO UHYHQXHILJXUHVGLIIHUEHWZHHQ 7DEOHVDQGGXHWRWKHH[FOXVLRQIURP7DEOHRI LQWHUFRQQHFWLRQFKDUJHV SDLG WR7HOVWUD ,Q WKH IDFH RI LQFUHDVHG FRPSHWLWLRQ 7HOVWUD·V WRWDO UHYHQXHV

JUHZVWHDGLO\RYHUWKHIRXU\HDUVIURPWRELOOLRQLQQRPLQDOGROODUV ZKLOH DIWHUWD[ SURILW LQFUHDVHG VXEVWDQWLDOO\ IURP WR ELOOLRQ 7KH GLYLGHQGSDLGWRWKHJRYHUQPHQWDVVROHVKDUHKROGHULQFUHDVHGIURPELOOLRQ LQ ² UHSUHVHQWLQJ SHU FHQW RI QHW SURILW DQG FRLQFLGLQJZLWK WKH JRYHUQPHQWFRQYHUWLQJELOOLRQRI &RPPRQZHDOWKORDQVIURPGHEWWRHTXLW\ WRELOOLRQLQ²SHUFHQWRI QHWSURILW7KHEDVLFILQDQFLDOUDWLRV ² UHWXUQ RQ DVVHWV UHWXUQ RQ LQYHVWPHQW DQG UHWXUQ RQ HTXLW\ ² DOO LQFUHDVHG VXEVWDQWLDOO\EHWZHHQ²DQG² 7KHQDWLRQDOFDUULHULVDOHDGLQJSHUIRUPHUDPRQJ$XVWUDOLDQ*%(VLQWHUPV

RI SURGXFWLYLW\JURZWK)RUWKHSHULRGWR7HOVWUDWR7HOHFRP DQG27&FRPELQHGDFKLHYHGDQDYHUDJHDQQXDOJURZWKLQ7)3RI SHUFHQW DQGIRUWRSHUFHQW%,(7DEOH$S,WLVOLNHO\WKDW RQH IDFWRU DIIHFWLQJ WKH H[WHQWRI WKHVH LPSURYHPHQWV LV WKDW7HOHFRPVWDUWHG IURPDSDUWLFXODUO\ ORZ OHYHORI SURGXFWLYLW\ LQ6WDIILQJ OHYHOVKDYHEHHQ SURJUHVVLYHO\UHGXFHGZLWKRXWLQYROXQWDU\UHWUHQFKPHQWVVLQFHZKHQWKH\ UHDFKHGDSHDNIRU7HOHFRPDQG27&FRPELQHGRI DOPRVWVHH7DEOH (PSOR\PHQWZDVUHGXFHGE\LQ²DORQHDQGE\-XQH 7HOVWUD·VWRWDOIXOOWLPHVWDIILQJOHYHOVWRRGDWDURXQG7KHVKDUSMXPSRI LQ²ZDVGXHPDLQO\WRUDSLGJURZWKLQPRELOHVDOHVDQGDGGLWLRQDO VWDII HPSOR\HG RQ 7HOVWUD·V FDEOH UROORXW 6LJQLILFDQW SURGXFWLYLW\ JDLQV E\ 7HOVWUD KDYH DOVR EHHQ UHIOHFWHG LQ WKH QXPEHU RI OLQHV SHU HPSOR\HH· ZKLFK LQFUHDVHGEHWZHHQDQGE\SHUFHQW IURP WR %,( 7DEOHS $VLPSUHVVLYHDVWKHVHUHVXOWVDUH7HOVWUD·VSURGXFWLYLW\SHUIRUPDQFHODJVZHOO

EHKLQG ZRUOG EHVW SUDFWLFH 7KH PRVW UHFHQW LQWHUQDWLRQDO FRPSDULVRQ SODFHV $XVWUDOLDHLJKWKRXWRI HOHYHQFRPSDUDEOHFRXQWULHVLQWHUPVRI 7)3DQGWZHQW\ VL[WKRXWRI WKLUW\IRUOLQHVSHUHPSOR\HHDSRVLWLRQXQFKDQJHGIURP,Q IDFW$XVWUDOLDKDV OHVV WKDQKDOI WKHQXPEHURI OLQHVSHUHPSOR\HHDV WKH WZR OHDGLQJ FRXQWULHV 6RXWK .RUHD DQG ,WDO\ %,( 7DEOH S [LY S $OWKRXJK WKHUH DUH GLIILFXOWLHV LQYROYHG ZLWK LQWHUQDWLRQDO FRPSDULVRQV DQG $XVWUDOLDSHUIRUPHGEHWWHULQWHUPVRI FDSLWDOWKDQODERXUSURGXFWLYLW\WKH%,( VWXG\FRQFOXGHVWKDW

VRPHFRQFHUQPXVWUHPDLQDVWRWKHUDWHRI FKDQJHUHODWLYHWR RXU LQWHUQDWLRQDOFRXQWHUSDUWVDQGFRPSHWLWRUVDQGWKHGLVWDQFH EHWZHHQ $XVWUDOLD·V UHFHQW SXEOLF WHOHFRPPXQLFDWLRQV LQIUDVWUXFWXUH RSHUDWLQJ SHUIRUPDQFH DQG LQWHUQDWLRQDO EHVW SUDFWLFH 7KH FOHDU PHVVDJH LV WKDW ODERXU SURGXFWLYLW\ LQ WHOHFRPPXQLFDWLRQV LQ $XVWUDOLD UHPDLQHG ORZ E\ LQWHUQDWLRQDO VWDQGDUGVXSWRDQGLQFOXGLQJ²

,QWKHVDPHVWXG\$XVWUDOLDUDWHGVRPHZKDWEHWWHU LQFRPSDULVRQV LQWKH

SULFHV RI FDOOV$XVWUDOLDQ SULFHV FRPSDUHG UHODWLYHO\ IDYRXUDEO\ IRUPRELOH DQG LQWHUQDWLRQDO FDOO FKDUJHV EXWZHUHKLJKHU WKDQ WKH2(&'DYHUDJH IRU

WKHFRVWVWREXVLQHVVRI ORFDODQG67'FDOOVDQGIL[HGFKDUJHV:KHQDOOFDOO DQGVHUYLFHFKDUJHVDUHFRPELQHG LQDFRPSRVLWHEXVLQHVVEDVNHW$XVWUDOLD UDQNV VOLJKWO\ EHWWHU WKDQ DYHUDJH DW HOHYHQWK RXW RI WZHQW\IRXU 2(&' FRXQWULHV7KLV UDQNLQJKRZHYHUKDV UHPDLQHGXQFKDQJHGVLQFH %,( [LLL

7KHLVVXHVRI SULYDWLVDWLRQ

2SWLRQV

7KHIXQGDPHQWDORSWLRQVLQYROYHGZLWKDQ\SURSRVHGSULYDWLVDWLRQDUHWR SULYDWLVHRUQRWWRSULYDWLVH$GHFLVLRQWRSULYDWLVHRSHQVXSDQHZUDQJH RI RSWLRQVFRQFHUQLQJWKHGLVSRVDORI VKDUHVLQWKHHQWHUSULVH7KHPDLQ RSWLRQV DYDLODEOH WR WKH $XVWUDO LDQ JRYHUQPHQW LQ UHODWLRQ WR WKH SULYDWLVDWLRQRI 7HOVWUDDUHVHWRXWLQ7DEOH 7KH ILUVW FRQFHUQV WKH SHUFHQWDJH RI HTXLW\ WR EH VROG E\ WKH

JRYHUQPHQWWRSULYDWHVKDUHKROGHUV7KHVDOHRI DOOVKDUHVZLOOHVVHQWLDOO\ WUDQVIHU7HOVWUDRXWRI JRYHUQPHQWFRQWURODOWKRXJKWKHFRPSDQ\ZRXOG UHPDLQVXEMHFWWRUHJXODWLRQ:LWKDWRWDOVHOORIIKRZHYHULWLVSRVVLEOH IRU WKH JRYHUQPHQW WR UHWDLQ WKH RZQHUVKLS RI RQH VSHFLDO VKDUH LQ WKH FRPSDQ\ JLYLQJ LW VSHFLILHG YHWR ULJKWV UHJDUGLQJ RSHUDWLRQ DQGRU WKH FRPSRVLWLRQRI RZQHUVKLS7KH8.DQG0DOD\VLDQJRYHUQPHQWVHDFKKROG D VRFDO OHG ¶JROGHQ VKDUH· LQ WKHLU SULYDWLVHG WHOHFRPPXQLFDWLRQV FRUSRUDWLRQVDQGWKH1HZ=HDODQGJRYHUQPHQWPDLQWDLQVD¶NLZLVKDUH·LQ 7HOHFRP1HZ=HDODQG 0XVWDID$OWHUQDWLYHO\RYHUSHUFHQWRI 7HOVWUD·V HTXLW\ FRXOG EH VROG ZLWK WKH JRYHUQPHQW KROGLQJ D PLQRULW\ LQWHUHVW RU LW FRXOG GHFLGH WR GLVSRVH RI D PLQRULW\ HTXLW\ LQWHUHVW DQG PDLQWDLQ D PDMRULW\ VKDUHKROGLQJ ,I WKH JRYHUQPHQW VROG D PLQRULW\ LQWHUHVW LQ D ILUVW WUDQFKH LW ZRXOG WKHQ KDYH WKH RSWLRQ WR VHOO IXUWKHU WUDQFKHV WKXV PRYLQJ IURP PDMRULW\ WR PLQRULW\ RZQHUVKLS DQG VXEVHTXHQWO\WRWKHGLVSRVDORI LWVHQWLUHVKDUHKROGLQJ

7KHVHFRQGVHWRI RSWLRQVLQYROYHVWKHW\SHVRI LQYHVWRUVWRDOORZLQD SULYDWLVHG 7HOVWUD 7KH JRYHUQPHQW·V FKRLFH RI LQYHVWRUV DQG WKH PD[LPXP HTXLW\ KROGLQJ DOORZHG WR HDFK FDWHJRU\ LV OLNHO\ WR DIIHFW WKH FRQWURO RI WKH SULYDWLVHG ILUP )RU H[DPSOH LI D IRUHLJQ WHOHFRPPXQLFDWLRQVFRPSDQ\ZHUHWRKROGWKHODUJHVWVLQJOHVKDUHKROGLQJ LWPLJKW EH LQ D SRVLWLRQ WR H[HUFLVH HIIHFWLYH FRQWURO ZKHUHDV D ZLGHO\ GLVSHUVHG VKDUHKROGLQJ ZRXOG EH OLNHO\ WR OHDYH FRQWURO LQ WKH KDQGV RI 7HOVWUD·VPDQDJHPHQW 7KHGHFLVLRQUHJDUGLQJWKHW\SHVRI LQYHVWRUVZLOOODUJHO\GHWHUPLQHWKH

PHWKRG WR EH DGRSWHG IRU WKH VDOH RI VKDUHV $ WUDGH VDOH ZRXOG EH IDYRXUHG IRU WKH VDOH RI D VL]HDEOH VKDUHKROGLQJ WR D VLQJOH HQWLW\ RU FRQVRUWLXPZKHUHDVDSXEOLFRIIHULQJLVPRUHVXLWDEOHIRUWKHGLVSRVDORI UHODWLYHO\ VPDOO LQGLYLGXDO VKDUHKROGLQJV WR LQVWLWXWLRQDO DQGRU SULYDWH LQYHVWRUV

:KDWLV7HOVWUDZRUWK"

3UHGLFWLQJ WKH DFKLHYDEOH SULYDWLVDWLRQ YDOXH RI 7HOVWUD LV D SRSXODU DFWLYLW\ LQ $XVWUDOLDQ ILQDQFLDO DQG SROLWLFDO FLUFOHV 7KH DYHUDJH SULFH HDUQLQJV UDWLR IRU DOO FRPSDQLHV OLVWHGRQ WKH$XVWUDOLDQ6WRFN([FKDQJH $6;GXULQJ -XQHZDV DQG IRUDOO LQGXVWULDO FRPSDQLHV 7KH SULFHHDUQLQJV UDWLR DW HQG -XQH IRU 7HOHFRP1HZ=HDODQG D SULYDWLVHG WHOHFRPPXQLFDWLRQV FRPSDQ\ ZKLFK DOVR KDV D GRPLQDQW SRVLWLRQ LQ LWVPDUNHWZDV $SSO\LQJ WKHVH SULFHHDUQLQJV UDWLRV WR 7HOVWUD·V ² DIWHUWD[SURILW SODFHV DPDUNHW FDSLWDOLVHG YDOXHRQ WKH FRPSDQ\RI EHWZHHQDQGELOOLRQ ,WVKRXOGEHHPSKDVLVHGWKDWWKHHVWLPDWHRI WKHPDUNHWYDOXHRI 7HOVWUD

E\ WKLV PHWKRG LV D URXJK DSSUR[LPDWLRQ RQO\ DQG LV OLNHO\ WR YDU\ VLJQLILFDQWO\RYHUWLPH(DFKILQDQFLDO\HDUSURGXFHVDGLIIHUHQWSURILWUHVXOW DVDQHZEDVHIRUFDOFXODWLRQDQGHDFKPRQWKSURYLGHVDGLIIHUHQWPXOWLSOLHU LQ WKH IRUP RI D QHZ SULFHHDUQLQJV UDWLR GHSHQGLQJ XSRQ VWRFN PDUNHW IOXFWXDWLRQV 0RUHRYHU H[SHFWDWLRQV UHJDUGLQJ 7HOVWUD·V IXWXUH SURILWDELOLW\ PD\EHDIIHFWHGE\WKHSURVSHFWRI SULYDWLVDWLRQ)RUH[DPSOHWKHFRPSDQ\ PLJKW EH FRQVLGHUHG WR EH DEOH WR DFKLHYH JUHDWHU FRVW VDYLQJV DV D SULYDWH WKDQDVDSXEOLFHQWHUSULVHVHHEHORZ 7KHYDOXHRI FRPSDQLHV LQ LQGXVWULHVVXEMHFW WRGHWDLOHGSULFHUHJXODWLRQ

ZLOOEHVLJQLILFDQWO\LQIOXHQFHGE\WKHHIIHFWRI UHJXODWLRQXSRQWKHLUHDUQLQJV DQG SURILWV DQG DVVHVVPHQWV RI WKH OLNHO\ IXWXUH EHKDYLRXU RI UHJXODWRUV 6LPLODUO\PRYHPHQWV LQ WKH VKDUHSULFHV IRU OLVWHG FRUSRUDWLRQVZLOO ODUJHO\ UHIOHFW WKH PDUNHW·V UHVSRQVH WR UHJXODWRU\ GHFLVLRQV DQG DQQRXQFHPHQWV UDWKHUWKDQFKDQJHVLQWKH¶LQWULQVLFYDOXH·RI WKHLUDVVHWV%LVKRSHWDO )RUWKHSULYDWLVDWLRQRI 7HOVWUDWKHUHIRUHDNH\GHWHUPLQDQWRI LWVUHDOLVDEOH YDOXH ZLOO EH H[SHFWDWLRQV FRQFHUQLQJ WKH IRUP DQG HIIHFW RI WKH IXWXUH UHJXODWLRQ RI LWV SULFLQJ DQG WKH H[WHQW DQG QDWXUH RI FRPSHWLWLRQ LQ WKH

WHOHFRPPXQLFDWLRQVPDUNHW0RUHOLEHUDOUHJXODWLRQZRXOGHQKDQFHSRWHQWLDO SURILWV DQG YDOXDWLRQ RI WKH FRUSRUDWLRQ ZKLOH PRUH UHVWULFWLYH UHJXODWLRQ ZRXOGUHGXFHLWVYDOXH

6DYLQJVLQSXEOLFGHEWLQWHUHVW

,W ZDV H[SODLQHG HDUOLHU WKDW WKH HIIHFW RI DQ\ SULYDWLVDWLRQ XSRQ SXEOLF ILQDQFHV ZDV EHVW FRQVLGHUHG LQ WHUPV RI LWV FRQVHTXHQFHV IRU WKH QHW ZRUWK RI WKH SXEOLF VHFWRU ,I DOO SURFHHGV IURP WKH SULYDWLVDWLRQ RI D *%(ZHUH GLUHFWHG WRZDUGV WKH UHWLUHPHQW RI SXEOLF GHEW IXWXUH \HDUV·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

DVFHUWDLQWKHPLQLPXPQHWVDOHSURFHHGVQHFHVVDU\ WRDYRLGD ORVV WRWKH SXEOLFVHFWRU:KHQWKHSXEOLFGHEW LVUHGXFHGWKHSXEOLFVHFWRU LVVDYHG WKHHTXLYDOHQWRI WKHUHDO LQWHUHVWUDWHRQJRYHUQPHQWERQGVZKLFKRYHU UHFHQW\HDUV LQ$XVWUDOLDKDVDYHUDJHGDURXQGSHUFHQW 4XLJJLQ ,I WKLVUDWHLVDSSOLHGWR7HOVWUD·V²DIWHUWD[SURILWVRI ELOOLRQLW LVIRXQGWKDWWKHUHTXLUHGPLQLPXPQHWVDOHSURFHHGVQHFHVVDU\WRDYRLGD ORVVRI SXEOLFVHFWRUQHWZRUWKLVDURXQGELOOLRQELOOLRQï 7KLV LV ELOOLRQ PRUH WKDQ WKH KLJKHU OLPLW RI WKH UDQJH IRU WKH HVWLPDWHGPDUNHWYDOXHEDVHGRQSULFHHDUQLQJVUDWLRV ,WZDVVHHQDERYHWKDW7HOVWUD·VDIWHUWD[SURILWVLQFUHDVHGVXEVWDQWLDOO\

LQ WKH IRXU \HDUV WR ² IURP WR ELOOLRQ 7KH FRPSDQ\ REYLRXVO\ FDQQRW PDLQWDLQ WKLV UDWH RI SURILW LPSURYHPHQW DQG WKH WHOHFRPPXQLFDWLRQV PDUNHW LV EHFRPLQJ PRUH FRPSHWLW LYH 8QGHU FRQWLQXHG SXEOLF RZQHUVKLS KRZHYHU 7HOVWUD·V SURILWDELOLW\ IRU DW OHDVW WKH ² ILQDQFLDO \HDU VHHPVPRUH OLNHO\ WR ULVH WKDQ WR IDOO ,Q WKLV FDVH WKH ELO O LRQ YDOXDWLRQ EDVHG RQ ² SURILWV ZLO O EH DQ XQGHUHVWLPDWH RI WKH UHTXLUHG PLQLPXP QHW VDOH SURFHHGV QHFHVVDU\ WR DYRLGDORVVWRSXEOLFVHFWRUQHWZRUWK 7KHDQDO\VLVKHUHLVVXEMHFWWRSRVVLEOHFKDQJHVWRJRYHUQPHQWWD[DWLRQ

UHYHQXHV DIWHU SULYDWLVDWLRQ ,I WKH FRPSDQ\·V SURILWDELO LW\ LV KLJKHU IROORZLQJ SULYDWLVDWLRQ WKDQ LW ZRXOG KDYH EHHQ XQGHU FRQWLQXHG SXEOLF RZQHUVKLSDQGLI WKHSURSRUWLRQRI LWVSURILWVRQZKLFKLWLVOLDEOHWRSD\ WD[DWLRQ LV XQFKDQJHG WKDW LV QR JUHDWHU WD[ PLQLPLVDWLRQ SXEOLF ILQDQFHV ZLOO EHQHILW IURP KLJKHU WD[DWLRQ UHYHQXHV DV D GLUHFW UHVXOW RI SULYDWLVDWLRQ 7KHVH LQFUHDVHG UHYHQXHV ZRXOG WKHQ QHHG WR EH RIIVHW DJDLQVWDQ\ORVVRI SXEOLFVHFWRUQHWZRUWK

'HSHQGLQJ XSRQ LWV SRVWSULYDWLVDWLRQ SURILWDELOLW\ SHUIRUPDQFH WKHUHIRUH WKH YDOXH WR WKH SXEOLF VHFWRU RI 7HOVWUD UHPDLQLQJ XQGHU JRYHUQPHQW RZQHUVKLS PD\ EH LQ H[FHVV RI WKH HVWLPDWHG ² ELOOLRQ PDUNHWYDOXHRI WKHFRPSDQ\)XUWKHUPRUHWKHQHWVDOHSURFHHGVUHFHLYHGE\ WKHJRYHUQPHQWZLOOEH OHVV WKDQ WKLVDPRXQWE\ WKH WRWDORI ¶XQGHUSULFLQJ· DQG WUDQVDFWLRQ FRVWV VHHEHORZ)RU WKH VDOHRI WKH FRPSDQ\ WRJHQHUDWH RYHUDOO HFRQRPLF EHQHILWV WKH LPSURYHPHQWV LQ SURGXFWLYH HIILFLHQF\ VXEVHTXHQWWRDQGDVDGLUHFWFRQVHTXHQFHRISULYDWLVDWLRQZRXOGQHHGWREH VXIILFLHQWWRRXWZHLJKWKLVORVV

8QGHUSULFLQJDQGWUDQVDFWLRQFRVWV

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·VVL]H LWVSULYDWLVDWLRQZRXOGSODFHKHDY\GHPDQGVRQ

WKHFDSDFLW\RI WKH$XVWUDOLDQFDSLWDOPDUNHW7KHWRWDODPRXQWRI QHZHTXLW\ UDLVHGLQ$XVWUDOLDYDULHVFRQVLGHUDEO\IURP\HDUWR\HDUDQGDYHUDJHGDURXQG ELOOLRQRYHU WKHSHULRG² WR² 0F,QWRVK ,W LV FOHDU WKHUHIRUHWKDWLI 7HOVWUDLVSULYDWLVHGLWVKRXOGEHGRQHLQWUDQFKHV7KHVDOH RI DOOJRYHUQPHQWHTXLW\ LQ WKHFRUSRUDWLRQ LQ VD\ WKUHH WUDQFKHVRI HTXDO VL]H ZRXOG LQYROYH LQGLYLGXDO WUDQFKHV RI DURXQG ² ELOOLRQ ² HDFK VHYHUDO WLPHV WKDW RI WKH 4DQWDV :RROZRUWKV DQG &RPPRQZHDOWK %DQN IORDWV2I FRXUVHWKHDYHUDJHVL]HRI DVPDOOHUQXPEHURI WUDQFKHVZRXOGEH JUHDWHUDQGVPDOOHUIRUDJUHDWHUQXPEHURI WUDQFKHVDQGWUDQFKHVQHHGQRW EHRI HTXDOVL]H 7KHILYH$XVWUDOLDQIHGHUDOJRYHUQPHQWSULYDWLVDWLRQVVLQFHDQGWKH

VKDUHSUHPLXPRQHDFKLVVXHDUHVHWRXWLQ7DEOH7KHFDOFXODWLRQRI WKH VKDUHSUHPLXPIROORZVWKHPHWKRGXVHGE\-HQNLQVRQDQG0D\HUDQG LVPHDVXUHGDVWKHGLIIHUHQFHEHWZHHQWKHLVVXHSULFHDQGWKHVWRFNH[FKDQJH

OLVWHGSULFHDW WKHHQGRI ILYHGD\V·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

GHWHUPLQHGE\WKHHYHQWXDOPDUNHWSULFHXSRQOLVWLQJDQGFDQQRWEHH[DFWO\ SUHVFULEHG E\ WKH YHQGRU 1HYHUWKHOHVV FRQVLGHULQJ WKH UHVXOWV RI UHFHQW SULYDWLVDWLRQV DQG WDNLQJ DFFRXQW RI WKH VL]H RI 7HOVWUD LWPD\ EH WKDW DQ DQWLFLSDWHG SUHPLXP RI SHU FHQW RU PRUH ZLOO EH UHTXLUHG IRU WKH ¶VXFFHVVIXO·VDOHRI WKHILUVWWUDQFKHRI VKDUHVLQWKHFRPSDQ\7KHLVVXHSULFH RI VKDUHVLQVXEVHTXHQWWUDQFKHVFRXOGWKHQEHVHWDWDPRUHPRGHVWGLVFRXQW WRWKHLUSUHYDLOLQJPDUNHWSULFH 7UDQVDFWLRQ FRVWV UHGXFH WKHSURFHHGV UHFHLYHGE\ WKH JRYHUQPHQW IURP

DQ\ SULYDWLVDWLRQ )RU ² WUDQVDFWLRQ FRVWV IRU$XVWUDOLDQ SXEOLF IORDWV DYHUDJHGSHUFHQWRI WKHWRWDODPRXQWUDLVHG7KHDYHUDJHIRUWKHIORDWRI LQGXVWULDOFRPSDQLHVZDVSHUFHQWDQGWKHIORDWRI 4DQWDVZKLFKZDVQRW XQGHUZULWWHQ FRVW SHU FHQW RI JURVV SURFHHGV 0F,QWRVK 7UDQVDFWLRQFRVWVIRUWKHILUVWWUDQFKHRI 7HOVWUDZRXOGEHOLNHO\WREHDERXW WKHVDPHSHUFHQWDJHDVWKDWIRU4DQWDVEXWKLJKHULI LWZHUHXQGHUZULWWHQ ZLWKDORZHUOHYHORI FRVWVIRUVXEVHTXHQWWUDQFKHV

)RUHLJQLQYHVWPHQW

7KH LVVXH RI IRUHLJQ LQYHVWPHQW SUHVHQWV D GLOHPPD LQ UHODWLRQ WR WKH SULYDWLVDWLRQRI 7HOVWUD,PSRVLQJUHVWULFWLRQVRQWKHOHYHORI IRUHLJQRZQHUVKLS QDUURZV WKH VRXUFH RI SRWHQWLDO LQYHVWDEOH IXQGV DQG LV OLNHO\ WR UHGXFH WKH DFKLHYDEOHVDOHSURFHHGV$OWHUQDWLYHO\DWUDGHVDOHRI DVL]HDEOHHTXLW\KROGLQJ

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

LQWHUHVWV REWDLQLQJ D FRQWUROOLQJ RU VL]HDEOH HTXLW\ LQWHUHVW LQ7HOVWUD DV WKLV PD\EHFRQVWUXHGDVDORVVRI VRYHUHLJQW\RYHUDPDMRUQDWLRQDODVVHW&RQWURO RI 7HOVWUDE\DIRUHLJQWHOHFRPPXQLFDWLRQVFRPSDQ\PD\DOVRFUHDWHDFRQIOLFW EHWZHHQ LWV RZQ LQWHUHVWV DQG WKDW RI 7HOVWUD·V HVSHFLDOO\ LQ UHODWLRQ WR WHQGHULQJIRUFRQWUDFWVLQ$VLDDQGHOVHZKHUH6KLUHV7KHSUHPLXPRQ VKDUHV VROG RIIVKRUH UHSUHVHQWV D GLUHFW WUDQVIHU RI SXEOLF ZHDOWK WR IRUHLJQ LQYHVWRUV 2YHUVHDV SDUWLFLSDWLRQ LQ WKH SULYDWLVDWLRQ RI 7HOVWUD DOVR KDV WKH XVXDOLPSOLFDWLRQVIRUWKHFRXQWU\·VH[WHUQDODFFRXQWZLWKDQLPPHGLDWHLQIORZ RI IXQGVVHWDJDLQVWWKHRXWIORZRI GLYLGHQGSD\PHQWVRQHTXLW\REOLJDWLQVLQ IXWXUH\HDUV

3URGXFWLYHHIILFLHQF\

,W ZDV QRWHG HDUOLHU WKDW DOWKRXJK 7HOVWUD KDV DFKLHYHG VXEVWDQWLDO SURGXFWLYLW\JDLQVVLQFHLWFRQWLQXHVWRUDQNSRRUO\LQFRPSDULVRQZLWK LWV RYHUVHDV FRXQWHUSDUWV HVSHFLDOO\ LQ WHUPV RI ODERXU SURGXFWLYLW\ 7KLV VXJJHVWV WKDW WKHUH LV VFRSH IRU IXUWKHU UHGXFWLRQV LQ HPSOR\PHQW ZLWKLQ 7HOVWUD 6SHFLILF FRPSDULVRQV ZLWK %ULWLVK 7HOHFRP DQG 7HOHFRP 1HZ =HDODQG

IXUWKHU VXJJHVW WKH SRVVLELOLW\ RI VLJQLILFDQW ODERXU SURGXFWLYLW\ JDLQV E\ 7HOVWUD7DEOHVHWVRXW7HOVWUD·VVWDIILQJ OHYHOV IRU WKHILIWHHQ\HDUV IURP ² WR ² WRJHWKHUZLWK WKRVH RI %ULWLVK7HOHFRP %7ZKLFKZDV SULYDWLVHG LQ 1RYHPEHU DQG 7HOHFRP 1HZ =HDODQG 7HOHFRP 1= SULYDWLVHG LQ6HSWHPEHU 6WDII QXPEHUV IRU7HOVWUD UHDFKHG DSHDN LQ DQGKDYHVLQFHGHFOLQHGFRQVLGHUDEO\%\FRPSDULQJVWDIILQJ OHYHOV IRU WKHWKUHHFRUSRUDWLRQVIURPWRKRZHYHULWFDQEHVHHQWKDWZKLOH WKH UHGXFWLRQ IRU 7HOVWUD ZDV SHU FHQW IURP WR WKH UHGXFWLRQRYHU WKH VDPHSHULRG IRU%7ZDVSHU FHQW IURP WR DQGIRU7HOHFRP1=DPDVVLYHSHUFHQWIURPWR ,QWHUQDWLRQDO FRPSDULVRQV VKRXOG DOZD\V EH WUHDWHG ZLWK FDXWLRQ

1HYHUWKHOHVVLWLVFOHDUWKDWWKHWZRSULYDWLVHGFRPSDQLHVKDYHUHGXFHGWKHLU VWDIILQJ OHYHOV E\ D PXFK JUHDWRU H[WHQW WKHQ 7HOVWUD 0RUH VLJQLILFDQWO\ 7HOHFRP1=LQWKHIRXU\HDUVSULRUWRLWVSULYDWLVDWLRQ²UHGXFHGLWV VWDIILQJE\SHUFHQWIURPWRDJUHDWHUSURSRUWLRQWKDQ

WKHWRWDOUHGXFWLRQRI SHUFHQWIRU7HOVWUDLQWKHQLQH\HDUVIURPLWVSHDN LQWR 7HOVWUDDQQRXQFHGLQ6HSWHPEHUWKDWZLWKLQWKUHH\HDUVLWVVWDII OHYHOV

ZHUHWREHUHGXFHGE\²DERXWSHUFHQWRI WKH-XQHOHYHO:KLOH LW LVSRVVLEOH WKDW VWDII QXPEHUVPD\EH FXW IXUWKHUXQGHUSULYDWHRZQHUVKLS UHVXOWLQJ LQ LQFUHDVHG FRVW VDYLQJV WKH VFRSH IRU WKLV KDV EHHQ VXEVWDQWLDOO\ UHGXFHG 7KH JUHDWHU WKH VWDII UHGXFWLRQV PDGH ZKLOH 7HOVWUD UHPDLQV JRYHUQPHQW RZQHG WKH VPDOOHU WKH FRVW HIILFLHQFLHV DYDLODEOH IURP SULYDWLVDWLRQ

$OORFDWLYHHIILFLHQF\

:KLOHVDYLQJV LQVWDIILQJFRVWVZLOO LQFUHDVH WKHVFRSHIRUSULFHUHGXFWLRQV WKH H[WHQW WR ZKLFK WKH EHQHILWV IURP VXFK FRVW HIILFLHQFLHV DUH SDVVHG RQ WR FRQVXPHUVLVQRWFOHDU$VLQGLFDWHGHDUOLHUWKHSULFLQJRI 7HOVWUD·VFDOODQGRWKHU VHUYLFHVLVVXEMHFWWRGHWDLOHGUHJXODWLRQDQGSULFHUHJXODWLRQZLOOFRQWLQXHXQGHU SULYDWLVDWLRQ)RUDVORQJDV7HOVWUDLVFRQVLGHUHGE\WKHUHJXODWRU\DXWKRULW\WREH GRPLQDQW LQWKHQRQPRELOHFDOOPDUNHWV LWZLOOFRQWLQXHWREHUHVWUDLQHGLQ LWV SULFLQJEHKDYLRXUHVSHFLDOO\LQUHODWLRQWRORQJGLVWDQFHFDOOV7KHZKROHWKUXVW RI WKHJRYHUQPHQW·VSROLF\RI VXVWDLQDEOHFRPSHWLWLRQLQWHOHFRPPXQLFDWLRQVLV

WROLPLWVKRUWWHUPEHQHILWVWRFRQVXPHUVIRUWKHSXUSRVHRI DFKLHYLQJDPRUH FRPSHWLWLYHLQGXVWU\ LQWKHPHGLXPWRORQJWHUP%URZQ,I WKHSUHVHQW UHVWUDLQWVRQ7HOVWUD·VSULFLQJUHPDLQLQSODFHLWVFRPSHWLWRUVFDQEHH[SHFWHGWR FRQWLQXH WR LQFUHDVH WKHLU PDUNHW VKDUHV ZKLOH PRVW RI WKH EHQHILWV RI LPSURYHPHQWVLQSURGXFWLYHHIILFLHQF\DFKLHYHGE\DSULYDWLVHG7HOVWUDDUHOLNHO\ WRIORZWKURXJKWRLWVVKDUHKROGHUVLQLQFUHDVHGSURILWVUDWKHUWKDQWRFRQVXPHUV E\ZD\RI ORZHUSULFHV (YHQ LI LQ WKH IXWXUH7HOVWUD LV GHFODUHG WREHQR ORQJHUGRPLQDQW DQG WKH

LQGXVWU\DFKLHYHVDKLJKHUOHYHORI FRPSHWLWLRQDPRQJFDUULHUVSULFHUHJXODWLRQ ZLOO FRQWLQXH WR WDNH DFFRXQW RI WKH FRVW WR FDUULHUV RI WKHLU SDVW DQG IXWXUH LQYHVWPHQW1LJKWLQJDOH5HFHQWHVWLPDWHVRI WKHFRPELQHGFRVWWR7HOVWUD DQG2SWXVRI WKHLUFDEOHUROORXWVDUHDURXQGELOOLRQRYHUSHUFHQWRI WRWDO ²LQGXVWU\UHYHQXHVZKLFKXOWLPDWHO\ZLOOEHERUQHE\WHOHFRPPXQLFDWLRQ FRQVXPHUV8QGHUFXUUHQWSROLF\WKHUHIRUHDOORFDWLYHHIILFLHQF\LQWKHLQGXVWU\ ZLOO EH GHWHUPLQHG ODUJHO\ E\ UHJXODWLRQ DQG SULFHV ZLOO UHPDLQ ZHOO DERYH PDUJLQDOFRVW²ZKHWKHURUQRW7HOVWUDLVSULYDWLVHG

7HOHFRPPXQLFDWLRQVLQGXVWU\SROLF\

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·VQHZVKDUHKROGHUVXQGHUSULYDWLVDWLRQ 7KHUH LV JHQHUDO DJUHHPHQW DPRQJ HFRQRPLVWV WKDW WKH PDUNHW LQ ZKLFK D

*%(RSHUDWHV VKRXOGEHPDGH DV FRPSHWLWLYH DVSRVVLEOHEHIRUHSULYDWLVDWLRQ 7KHGDQJHURI SUHPDWXUHVDOHLVWKDWLWZLOOJHQHUDWHSUHVVXUHVWRWLOWWKHSOD\LQJ ILHOGEDFNLQ7HOVWUD·VIDYRXUWRRVRRQHVSHFLDOO\LI GLVDSSRLQWLQJILQDQFLDOUHVXOWV DQGWKHVKDUHSULFHXQGHUSULYDWLVDWLRQFDXVHGLVDIIHFWLRQDPRQJLWVODUJHQXPEHU RI VKDUHKROGHUVPRVWRI ZKRPZLOODOVREHYRWHUV $QRWKHU SUREOHP ZLWK SULYDWLVDWLRQ EHIRUH WKH WHOHFRPPXQLFDWLRQV PDUNHW

DWWDLQV RSWLPDO HIILFLHQF\ LV WKDW LW GHQLHV WKH JRYHUQPHQW WKH RSSRUWXQLW\ WR PDNHVWUXFWXUDOFKDQJHVWR7HOVWUD²IRUH[DPSOHE\EUHDNLQJXSWKHFRUSRUDWLRQ LQWR VPDOOHU XQLWV ² ZKLFK PD\ EHWWHU SURPRWH LQGXVWU\ FRPSHWLWLRQ 7KH VHSDUDWLRQ RI QHWZRUN SURYLVLRQ IURP VHUYLFH SURYLVLRQ LV UHFHLYLQJ VHULRXV H[DPLQDWLRQLQWKH8.6RORPRQDQG:DONHUDQGKDVEHHQFDQYDVVHGIRU $XVWUDOLD6WRNHV7KHSULYDWLVDWLRQRI 7HOVWUDZRXOGHQWUHQFKWKHH[LVWLQJ VLWXDWLRQRI JUHDWO\XQHYHQFRPSHWLWLRQ LQ$XVWUDOLDQ WHOHFRPPXQLFDWLRQVZLWK 7HOVWUDWKHGRPLQDQWSOD\HU

&RQFOXVLRQV

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

WKHJRYHUQPHQW·VEXGJHWSRVLWLRQLQWKH\HDURI VDOH8VLQJDQ\SDUWRI WKHSURFHHGV IURPSULYDWLVDWLRQWRILQDQFHFXUUHQWH[SHQGLWXUHRUWRUHGXFHWD[DWLRQKRZHYHUZLOO WHQGWRLQFUHDVHWKHJRYHUQPHQW·VUHYHQXHQHHGVLQIXWXUH\HDUV 3ULYDWLVDWLRQZLOOUHGXFHWKHQHWZRUWKRI WKHSXEOLFVHFWRULI WKHQHWSURFHHGV

DFFUXLQJIURPWKHVDOHDUHOHVVWKDQZKDWWKHYDOXHRI WKH*%(ZRXOGEHLI LWZHUH UHWDLQHGXQGHUSXEOLFRZQHUVKLS%\HVWLPDWLQJWKHPDUNHWYDOXHRI 7HOVWUDEDVHGRQLWV ²DIWHUWD[SURILWVDQGFRPSDULQJLWZLWKWKHQHWVDOHSURFHHGVUHTXLUHGWR JHQHUDWHVLPLODUVDYLQJVLQSXEOLFGHEWLQWHUHVWLWLVFRQFOXGHGWKDWWKHSULYDWLVDWLRQRI 7HOVWUDPD\UHVXOWLQDORVVWRWKHSXEOLFVHFWRUGHSHQGLQJXSRQLWVSURILWDELOLW\ SHUIRUPDQFHSRVWSULYDWLVDWLRQ)RULWVVDOHWR\LHOGQHWHFRQRPLFEHQHILWVIRUWKH HFRQRP\7HOVWUDZRXOGQHHGWRDFKLHYHVL]HDEOHLPSURYHPHQWVLQSURGXFWLYHHIILFLHQF\ XQGHUSULYDWLVDWLRQWKDWDUHQRWDYDLODEOHWRLWXQGHUFRQWLQXHGSXEOLFRZQHUVKLS 7KHKLJKYDOXHRI 7HOVWUDLQFRPSDULVRQZLWKWKHDEVRUSWLYHFDSDFLW\RI WKH

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

SURSRVLWLRQRI SULYDWLVLQJ7HOVWUDSHUVH7KHHFRQRPLFLVVXHVDUHFRPSOH[DQG SULYDWLVDWLRQLQYROYHVSRWHQWLDOEHQHILWVDVZHOODVFRVWV7KHEDODQFHRI EHQHILWVDQG FRVWVRI SULYDWLVLQJ7HOVWUDGHSHQGVFUXFLDOO\RQWKHWLPLQJRI WKHSURSRVHGVDOHDQGWKH WHUPVDQGFRQGLWLRQVRQZKLFKLWPLJKWSURFHHGHVSHFLDOO\LQUHODWLRQWRLQGXVWU\ UHJXODWLRQWKHOHYHORI IRUHLJQRZQHUVKLSDQGWKHDFKLHYDEOHQHWVDOHSURFHHGV

3RVWVFULSW

7KLVFKDSWHUZDVZULWWHQSULRUWR'HFHPEHUZKHQWKH$XVWUDOLDQSDUOLDPHQW ZLWKDQHZO\HOHFWHG/LEHUDO²1DWLRQDOSDUW\FRDOLWLRQJRYHUQPHQWLQRIILFHSDVVHG OHJLVODWLRQSURYLGLQJIRUWKHSDUWLDOSULYDWLVDWLRQRI 7HOVWUD2QHWKLUGRI WKH

&RPPRQZHDOWK·VHTXLW\LQWKHFRUSRUDWLRQLVWREHVROGE\SXEOLFIORDWLQ1RYHPEHU 7KHLVVXHSULFHIRU7HOVWUDVKDUHVLV\HWWREHDQQRXQFHG7RWDOIRUHLJQ LQYHVWPHQWLVWREHOLPLWHGWRSHUFHQWRI WKHRQHWKLUGLQWHUHVWWREHVROGWKDWLV WRSHUFHQWRI WRWDO7HOVWUDHTXLW\DQGVKDUHKROGLQJVE\LQGLYLGXDOIRUHLJQ LQYHVWRUVDUHWREHOLPLWHGWRSHUFHQWRI WKHRQHWKLUGSHUFHQW7KH0LQLVWHU RI &RPPXQLFDWLRQVKDVVWDWHGWKDWKHFRQVLGHUVWKHIXOOSULYDWLVDWLRQRI 7HOVWUDWREH ¶LQHYLWDEOH·DQG¶KLJKO\GHVLUDEOH·/HZLV,WLVOLNHO\WKDWWKHJRYHUQPHQWZLOO PRYHWRZDUGVWKDWHQGVKRXOGLWEHUHWXUQHGWRRIILFHDWWKHQH[WJHQHUDOHOHFWLRQ VFKHGXOHGIRUHDUO\

5HIHUHQFHV