interest tax shield later in this report). Deleveraging balance sheets may also be spurred by a continued environmwnt of rising interest. Leverage for S&P non-Financials has steadily been ticking up over the last few years, and, if we exclude the cash-rich Technology sector, leverage is approaching all-time highs (Chart 9). Table 9: S&P 500 valuations: October 2004 vs. today Chart 8: Average Annual Return of Russell 1000 Top Quintiles by factor Metric 40/31/2004 Today (12/31/16) (1986-present) Fwd P/E 15.6 16.9 16% Trailing P/E 16.7 22.0 13.5% Median Fwd P/E 16.2 173 14% “ PIB 28 29 11.7% EV/EBITDA 11.6 117 12% PIS 15 20 , 10.0% EViSales 22 23 in Source: FactSet, S&P, BofA Merrill Lynch US Equity & US Quant Strategy 8% Benchmark High Share Repurchase INEXPENSIVE Companies with High Share Repurchase Note: valuation factor used to determine inexpensive companies is FCF/P Source: FactSet, BofA Merrill Lynch US Equity & US Quant Strategy Exhibit 1: BofAML Global Fund Manager Survey (January 2017): What Chart 9: Net Debt/EBITDA for the S&P 500 ex Financials (and excluding would you most like to see companies do with cash flow? Energy and Tech) ao 3.5 7 =] \\, 3.0 r a e MN, af A fa | ' MA Vv Aj R \ = | i dl M. ie | My 25 c , N 40 . ba ba v\ \, ' j d ‘ 0 20 v- mo el . ! - } . A — =_——— — be ee NS --=« a a) = ) \ \A aa 15 f ai \ f 1 ae prs ce ee ee ee eee eee ee Pe ee ee 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 = herene capil ped in ee sain liek eee S&P 500 ex Financials o==ss= S&P 500 ex Fins. & Energy — Improve balance sheets (repay ditt, top up company persion plan) --- Avg. = S&P 500 ex Fins. & Tech Source: BofA Merrill Lynch Global Fund Manager Survey (17 January 2017) Source: FactSet, BofA Merrill Lynch US Equity & US Quant Strategy Potential EPS impacts $8-9 (6-7%) hit to GAAP EPS from the mandatory tax on accumulated overseas profit We estimate that a tax of accumulated overseas profits of $1.2tn would result in a cash tax impact of $100-120bn (which may be a