financial pacific - jpm settles cdo investigation (third party)

UBS Investment Research

Morning Expresso - United States

Wednesday 22 June 2011

Global Equity Research

Americas

Equity Strategy

Market Comment

22 June 2011

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Morning Expresso

This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 22. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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Morning Expresso - United States 22 June 2011

UBS 2

Morning Meeting Agenda Starbucks Rating: Buy Target: US$41.00 Price: US$36.73 RIC: SBUX.O

Prior: Unchanged Prior: Unchanged Mkt Cap: US$27.5bn BBG: SBUX US

Restaurants Analyst: David Palmer Tel: +1-212-713 9315

The Case to Buy Starbucks No Reason to Wait In our view, Starbucks is one of the best large capitalization growth stories in consumer—particularly since it is coming at a

reasonable price. We believe that investors should buy Starbucks now, rather than wait for fiscal 3Q earnings and fiscal 2012 EPS guidance, for reasons including: 1) potential upside to our same store sales estimate of 5%, and 2) potential upside to con FY12 EPS estimates.

Upside to Fiscal 2012 Consensus EPS Starbucks should provide initial FY12 EPS guidance with F3Q11 EPS (July 27th), and some investors/analysts are concerned that current consensus FY12 EPS is above the likely 15-20% guidance for FY12. Our hunch is that guidance will likely include conservative SSS and K-cup assumptions and the market will soon believe that FY12 can be an EPS upside year. In addition, an improving relationship between coffee prices and inflation should bolster EPS acceleration.

Growth at a Reasonable Price We believe that SBUX is a compelling value play given its growth profile and strong FCF/dividend yields (6% and 1.7% respectively). SBUX is currently trading at 9x EV/EBITDA (CY12E) and 18x our CY12e EPS of $1.98. We are forecasting 20%+ EPS growth for the next two years. In addition, Starbucks’ balance sheet is strong, with over $1B in net cash on hand over the next year, and adjusted debt-to-EBITDAR leverage of under 2x.

Valuation: Buy Rated; $41 PT Our PT is based on VCAM and represents 21x our CY12E EPS of 1.98. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$36.73 on 21 Jun 2011 18:42 EDT

Walgreen Rating: Buy Target: US$51.00 Price: US$43.28 RIC: WAG.N

Prior: Unchanged Prior: Unchanged Mkt Cap: US$40.4bn BBG: WAG US

Retailers, Drug-Based Analyst: Steven Valiquette Tel: +1-203-719 2347

Indepth Analysis of Points of Contention “Behind the Scenes” View of the WAG/ESRX Reimbursement Issues Following the initial WAG press release on PBM retail network participation,

followed by the ESRX ‘response’ press release, we had a chance to speak with PBM industry consultants and some members of company mgmt. We provide an indepth analysis of the primary points of contention on page 2 of this note.

History Suggests WAG Sell-Off is a Good Opporutnity On pages 3-4 of this note, we provide a history of Walgreens use of its fairly aggressive ‘negotiating tactic’ with various payors. The key is that most of the associated uncertainty in WAG stock proved to be an excellent entry point. We believe this WAG/ESRX situation will prove to be a similar opportunity (especially in light of the solid EPS results reported by WAG Tuesday).

Oh Yeah, and WAG Reported Earnings Tuesday Too; Raising EPS In light of the solid F3Q11 EPS results, we are raising our F2011 EPS from $2.61 to $2.64, and raising F2012 from $3.06 to $3.07. This is mainly to reflect excellent gross margin trendlines, and the controlled SG&A spending relative to gross profit growth. The 7%+ organic growth in gross profit growth (plus buybacks) bode well for EPS growth prospects as we head into the heart of the generic wave in F2012.

Valuation: Buy Rating and $51 Price Target on 16x C2012 EPS of $3.20 Our $51 price target equates to 16x P/E and 8x CY2012 EBITDA, which we view as inline with estimated 5-year EBITDA CAGR of 8-9% and EPS CAGR of 16%.

Notes: Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$43.28 on 21 Jun 2011 18:42 EDT

JPMorgan Chase Rating: Buy Target: US$54.00 Price: US$40.48 RIC: JPM.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$161bn BBG: JPM US

Banks, Ex-S&L Analyst: William Tanona, CFA Tel: +1-212-713 2325

JPM settles CDO investigation JPM settles SEC inquiry into CDO-related disclosures Today, JPM announced a $153.6 million settlement with the SEC related to charges that the

bank failed to disclose that securities included in its synthetic “Squared” CDO were selected by an investor shorting the instrument. The settlement included both disgorgement and penalties, with the majority of the settlement being returned to mezzanine investors. Separately, JPM also announced it would reimburse investors $56 million in losses on its “Tahoma” CDO (which was unrelated to the “Squared” CDO).

SEC inquiry behind JPM at lower cost than GS This puts the SEC inquiry at JPM behind them, and at a lower order of magnitude than GS’s $550 million agreement announced last July. SEC investigations into CDO practices at C, MS, and BAC are still pending.

No change to our estimates No change to our estimates, as we believe these inquiries have likely been on-going for some time, and expect that JPM is well reserved against the announced outcome. However, the $153.6 million would represent $0.04 per share (assuming no tax benefit) and the $56 million would be $0.01 per share.

Valuation: Maintain Buy Rating and $54 Price Target Our $54 price target assumes JPM will trade at 1.6x our 1Q12 TBV estimate in 12 months (vs. its 10-year avg. of 2.1x). We expect JPM’s multiple will expand over time as its ROE improves; however, its premium to peers is unlikely to widen.

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UBS 3

Macro Keys

Economist: Maury N. Harris Tel: +1-212-713 2472 What’s the Worst That Could Happen?

The US Treasury continues to expect the US Government to exhaust its ability to borrow on Aug. 2, 2011. After a series of warnings by Treasury Secretary Geithner to Congress earlier this year and the implementation in May of extraordinary measures to push back the deadline, time is running short for a resolution. Congressional negotiators hope to reach a deal ahead of the July 4 holiday. However, the first post-Aug. 2 “deadline” interest payment on a marketable US Treasury security is Aug. 4.

UBS expects the debt ceiling to be raised ahead of the deadline, avoiding a US government default. Even though we expect a resolution of this issue, avoiding a default, we are often asked to examine the “what if” scenario: What if the political impasse continues and the debt ceiling is not raised before the US Treasury runs out of measures to avoid a default? How might such a highly unlikely event come to pass, and what are the possible implications? We stress that if a default occurs, we would expect it to be only a temporarily payment delay to bondholders. Additionally, we would expect owners of affected US Treasury debt to be made whole once the issue is resolved. However, regardless of the outcome for Treasury security-holders, the uncertainty created by the event, coupled with the likely significant resulting market disruption, could have a substantial negative impact on near-term US growth, which may trigger a response from the Federal Reserve.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 22 June 2011

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UBS 4

MACRO AND STRATEGY RESEARCH US Daily Economic Comment

Economist: Maury N. Harris Tel: +1-212-713 2472

Inflation pressures the Fed’s QE FOMC preview The FOMC meeting and announcement (at 12:30pm) will be followed by Fed Chairman Bernanke’s second post-FOMC press

conference (at 2:15pm). Market participants are pondering the relative importance of the recent soft patch versus the recent run-up in core inflation in the Fed’s thought process. We believe the Fed is currently more focused on the inflation half of its dual mandate. This view, coupled with our expectations of a rebound in second-half growth following the “soft patch”, continues to suggest the Fed will move earlier than the consensus expects – we look for the first increase in the Fed funds target rate in January 2012.

Wednesday data preview: Slippage in FHFA home prices (1) In our forecast for the FHFA home price index in April (UBSe -0.4%, consensus -0.2%, after -0.3%), we allow for weakness in distressed home resale prices to continue to filter into the FHFA home price measure. In addition, seasonal factors are unfavorable in April, pulling down the seasonally adjusted price change even as prices likely rise marginally (+0.2% est) on a not seasonally adjusted basis. (2) Architects’ billings will be reported for May. They fell in April, and inquiries slowed. (3) Mortgage applications will also be reported.

Review: Home sales drop on weather, slower distressed sales Existing home sales fell 3.8% to a 4.81M unit annual rate (cons 4.80, UBSE 4.65) in May after a 1.8% drop in April, and single-family sales followed a similar path, (-3.2% after -1.4%). A slower pace of distressed sales plus some impact from Midwest storms and Southern floods appear to have depressed sales. (Sales in the Midwest fell 6.4% and those in the South 5.1%.) Officials from the National Association of Realtors see a 10-15% m/m rebound in initial sales contract signings in May. That bounce will filter into the existing home sales data, based on sales contract closings, in June and July.

Notes:


Valuation & Accounting Briefing

Analyst: Dennis Jullens Tel: +31-20-551 0117

Major changes to IFRS pension accounting IASB issues standard with important changes to IAS 19 Employee Benefits The IASB has published a new IAS 19 Employee Benefits standard,

which improves the recognition and presentation of pensions in financial statements. The standard is mandatory for accounting periods starting on or after 1 January 2013.

Removing ‘corridor method’ for actuarial items is an improvement For actuarial gains and losses (the difference between assumptions and realisations for pension assets and liabilities), IAS 19 currently permits three methods: immediate recognition in equity, immediate recognition in Other Comprehensive Income (OCI), and deferred recognition via the ‘corridor method’. The revised standard requires immediate recognition of actuarial gains and losses in OCI.

Upon transition, actuarial items will be charged to shareholders’ equity Companies that now apply the corridor method will take unrecognised actuarial gains/losses for pensions to equity upon adoption of the amended standard. This will lead to the economic pension position being reflected on the balance sheet, and will cause negative adjustments to shareholder’s equity at PostNL, Lufthansa and Swisscom, given their unrecognised actuarial losses.

Companies will no longer benefit from expected pension return in earnings When it comes to the income statement, the standard abandons the expected return on pension assets, now driven by pension fund asset allocation. Instead, companies will recognise pension income based on the discount rate on the pension liability. Companies that will be impacted most are PostNL, Philips, DSM and Lloyds.

Notes:


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UBS 5

GLOBAL SECTOR RESEARCH

UBS Global I/O®:Global Beverages

Beverage Analyst: Jason DeRise, CFA Tel: +44-20-7568 6724

Global impact from SAB’s bid for Foster’s Input: SABMiller (SAB) makes its initial move for Foster’s (FGL) SAB announced an incomplete, non-binding, non conditional proposal to Foster’s

offering to buy all shares for A$4.90 for cash, which implies a 10.9x 12FYE EV/EBITDA multiple and would move SAB’s net debt to EBITDA to c2x in 13FYE (its first full year of potential consolidation). The offer was rejected by Foster’s. We interpret SAB’s comments to suggest a further bid is likely.

Output: SAB can make the deal EPS accretive, but less easily on EVA At the current bid, we estimate the deal would be EPS accretive by c3% in year 1, which is relatively easy to do in an all cash deal for a business as profitable as Foster’s. However, value accretion is more difficult due to limited direct synergies. At the current bid, SAB covers cost of capital in 6 years without incremental revenue synergies and US$100m in savings (9% ROIC in Y6). For SAB to reach its 4-6 year value creation horizon in an increased bid, we estimate it must double Foster’s sales growth profile and limit its increased bid to a max range of A$5.30-5.50.

A third party bid is unlikely in our view To see a bid higher than A$5.50, we believe another bidder must get involved. However, we believe there is not likely to be an extended bidding process, with SAB showing financial restraint and a low probability on a counter bid (such as from previous press speculated bidders such as Modelo or Molson Coors).

Recommendations: limited upside for FGL, SAB to be weak, Buy Modelo We rate Foster’s Neutral as we expect a max bid of A$5.30-5.50. We rate SAB Neutral, but believe the shares could continue to be weak in the near term if it offers a higher price for Foster’s. Modelo and Molson Coors are Buy rated.

Notes:


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UBS 6

BASIC MATERIALS U.S. Paper & Forest Products

Paper Products Analyst: Gail S. Glazerman, CFA Tel: +1-212-713 3486

May US printing & writing paper stats Weak, but modestly better than April AF&PA released May printing/writing stats after the close. They restated some prior data following completion

of their annual audit. Audit impact was mixed and varied by grade. Overall printing and writing shipments fell 6.8% y/y vs an 8.4% dip in April. Inventories rose a modest 1.5% m/m. Net imports fell 18% m/m.

Grades: uncoated free the strongest, though easy comps help Uncoated free shipments fell 1.1% y/y (-2.4% ytd). This was smallest dip across all 4 grades but came against a much easier comp. UCFS inventories fell 4.4% m/m (more than normal) to the lowest absolute level in any month since 1993. Coated free shipments fell 10.1% (-6.2% ytd). Shipments fell 16% in April. Inventories rose 3.8% m/m. The tonnage increase was in line with normal but ending inventories are highest since mid 2010. Coated groundwood shipments fell 14.8% y/y (-6.8% ytd). Inventories rose a steep 20% m/m-to highest level since summer 2009. Uncoated groundwood shipments fell 11.6% y/y and are off 6.7% ytd. Inventories rose, generally in line with normal trend. But this brought inventories to levels not seen since mid 2009.

Uncoated free appears to have best balance The May data confirms our view that uncoated free is the best positioned printing/writing grade. Uncoated free market balance should improve in coming weeks as the effects of recent/pending closures are felt. We believe coated grades may struggle to implement announced July hikes. While we favor UCFS w/in printing and writing, we still see better prospects in packaging grades. We generally assume stable pricing across all four grades.

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UBS 7

CONSUMERS Carnival Rating: Buy Target: US$44.00 Price: US$37.23 RIC: CCL.N

Prior: Unchanged Prior: US$43.00 Mkt Cap: US$30.0bn BBG: CCL US

Recreational Products & Services Analyst: Robin M. Farley Tel: +1-212-713 2060

Q2 Beats, North America Up Nicely CCL Q2’11 EPS at $0.26, above both UBSe of $0.20 and guid. $0.20-$0.24 Q2’11 EPS of $0.26 vs. UBSe of $0.20 and above Mar guidance of

$0.20-$0.24. Constant FX net yield came in +2.3% (+6.0% as reported) vs. UBSe +2.0% (+5.0% as reported) and in line with guidance of +1.5%-+2.5%. Constant FX net cruise costs ex fuel +2.7% within guided range of +2.0%-+3.0%, on expected inflationary pressures in food costs, crew travel and other hotel costs.

CCL Q2’11 Results Slightly Above Pre-Announcement 2011 guidance now $2.40-2.50 (vs. implied $2.35-2.45 implied from 6/13 release). CCL’s EPS range has moved up +$0.05 from 6/13 due to a 5-6% downward move in fuel prices in the last week. The last 6 weeks of bookings coming in strong with North American and European booking volumes both up YOY with North Am pricing up. European-source pricing likely to be down slightly in H2’11 from re-routed MENA itins adding inventory to the Med.

Read Thru to RCL With RCL constant FX yld guid. lowered to +2-4% in Apr, RCL already ascribing greater disruption to the MidEast & Japan ports than CCL, so we est. CCL & RCL could end year with the same yld growth, including any premium RCL assumes in guidance, getting to similar yld growth as CCL in bottom half of RCL’s range.

Valuation: Target $44 (up from $43) CCL PT based on ~16x (10-year avg) normalized EPS (2012) PV to today. FY’11 & FY’12 est. now $2.50 and $3.15 respectively, from $2.43 and $3.02, previously.




UBS 8

HEALTHCARE Abbott Laboratories Rating: Buy Target: US$59.00 Price: US$52.26 RIC: ABT.N

Prior: Unchanged Prior: Unchanged Mkt Cap: US$80.8bn BBG: ABT US

Medical Supplies Analyst: Rajeev Jashnani, CFA Tel: +1-212-713 9127

Adding a biologic shot on goal ABT adds BT-061, a longer-term CD4 opportunity in immunology BT-061 is currently being developed by Biotest for RA & psoriasis (both ph2);

Biotest sees earliest market entry in ‘16. BT-061 works by activating T-reg cells (upstream of T cells), which Biotest believes may confer better efficacy & safety vs. available drugs, including TNF’s. Based on a cursory review of clinical data, BT-061 has shown a decent efficacy signal but trials have been small (Table 1).

Low risk pipeline addition for ABT ABT sees BT-061 as potentially offering better efficacy relative to TNF's, which will be needed to ensure commercial viability in an increasingly crowded RA market (especially for a new injectable agent). ABT will review ph2b data prior to making a Go-No Go decision to co-fund ph3. Notably, BT-061 may also have utility within ABT's combo biologic technology platform. On terms, milestones may total $395M w/ $85M upfront. ABT/Biotest would co-promote in the Euro big 5 while ABT has exclusive rights in other regions. Royalties were not disclosed.

Thoughts on ABT Most of ABT's key new products are expected to reach the market in 3-4 yrs, leaving the co short on major near-term pipe events (Table 2) That said, improving Humira trends & possible renewed share repo in '12 may provide catalysts. Sentiment may improve if ABT shows another quarter of ~5% organic rev growth.

Valuation - reiterate Buy & $59 DCF-based price target On ’12 estimates, ABT trades at 10.4x EPS & 11% FCF yield. We project 3-yr EPS growth at 8% (excluding share repo).


Par Pharmaceutical Rating: Buy Target: US$39.00 Price: US$32.65 RIC: PRX.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$1.14bn BBG: PRX US

Pharmaceuticals Analyst: Ami Fadia Tel: +1-212-713 3242

Competition on Imitrex Coming Soon What’s new? Sun received FDA approval for generic Imitrex Sun announced today that it has received FDA approval for the generic version of

Imitrex (6mg/0.5mL dose). After being the only generic supplier for Imitrex (6mg/0.5mL and 4mg/0.5ml doses) for over 2 years Par will soon face competition on at least one dose. Sun did not comment on its application for the second dose.

Our takeaways: Decreasing 2011 EPS estimate by $0.03 We would expect Sun to launch the 6mg/0.5mL dose shortly and would not be surprised if approval for the second dose also comes soon. We had previously assumed generic entry for both the doses in 4Q11 and are now moving it up to 3Q11 (See market model in Tables 1-3). This had a $0.03 impact on our 2011 EPS estimate which we are now revising down to $3.07.

Thoughts on the stock: Expect near term pressure on the stock to continue We have been concerned about the downside risk to consensus expectations as we head into the second half of the year and today’s news further increases these concerns. One factor that remains a wild card for 2H is a court decision on Treximet on which Par is FTF, but we remain cautious and have negligible sales for this product in our model for 2011.

Valuation: Maintaining a Buy rating and a price target of $39 Our DCF based PT uses a 10% WACC, 5% intermediate and 2% terminal growth. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$32.65 on 21 Jun 2011 18:12 EST

Luminex Rating: Neutral Target: US$21.00 Price: US$19.64 RIC: LMNX.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$0.82bn BBG: LMNX US

Biotechnology Analyst: Daniel Arias Tel: +1-212-713 2467

LMNX to Acquire EraGen Biosciences Acquisition of molecular Dx company for $34m adds new technology Yesterday afternoon, Luminex announced that the company has entered

into an agreement to acquire EraGen Biosciences, a privately-held molecular diagnostics company, for approximately $34 million in cash – or ~4x 2010 product revenues of $8 million. EraGen offers testing products for infectious disease and genetic analysis applications that should complement LMNX’s multiplex assay capabilities. We view the deal as a strategic positive.

MultiCode chemistry improves PCR capabilities Central to Eragen’s testing technology is the company’s proprietary Multicode assay chemistry, which allows for both real-time PCR & multiplex PCR applications. For LMNX, the acquisition will improve their ability to develop assay products within its diagnostic business, with the potential for new research-related applications in the future. EraGen currently offers the MultiCode-RTx Herpes Simplex Virus (HSV) assay, which is the first FDA-approved PCR test for the HSV detection via vaginal swab specimens.

Deal is expected to be neutral to 2011 non-GAAP EPS LMNX expects the deal to add $5-7 million to FY11 revenues and be neutral to earnings on a non-GAAP basis. We will update our model upon the close of the deal, which is expected within the next several weeks, and anticipate a more detailed look at the company’s strategy during the upcoming (7/25) investor day.

Valuation: Neutral rating; $21 price target Our price target is based on DCF analysis using the UBS VCAM model. Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$19.64 on 21 Jun 2011 19:42 HKT





UBS 9

INDUSTRIALS U.S. Aerospace

Aerospace Analyst: David E. Strauss Tel: +1-212-713 6185

Day Two Orders Update 159 Day 2 orders/commitments for Boeing and Airbus We count 159 Day 2 orders/commitments for large aircraft at Paris including 121 for Airbus

and 38 for Boeing, on top of the 188 announced yesterday. Lease co's remained active including commitments from CIT for 50 A320neos and from GECAS for eight 777s and two 747s. Airbus picked up additional orders/commitments from JetBlue (40 neos, although delivery dates pushed out on eight existing A320s), Garuda (15 A320 classics and 10 neos) and TransAsia (six neos), while Boeing received orders from Norwegian (15 737s), Malaysia (10 737s) and MIAT (two 737s and one 767). In addition to its 737 orders, Norwegian also firmed up its prior commitment for three 787s.

10 orders/commitments for Bombardier/Embraer Bombardier announced a commitment from Korea Air for 10 CS-300s. On bizjet side, VistaJet named Global 8000 launch customer with 10 initial orders.

347 combined Boeing and Airbus orders/commitments so far We count 347 new orders/commitments for Boeing and Airbus aircraft so far at Paris with Airbus at 263 and Boeing at 84. A320neo the biggest winner, accounting for roughly two thirds of total air show orders (232).

Other news Consensus among lease co’s we met with is that narrowbody lease rates have leveled off with 737NG stable, but A320 under pressure due to building supply and neo launch. In other news, PCP announced acquisition of Rollmet and KLAD, following upon Tru-Form deal just last week. While we think the deals are relative small, we believe in aggregate they could be $0.15-0.20 accretive to EPS.

Notes:


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UBS 10

TECHNOLOGY Adobe Systems Rating: Buy Target: US$40.00 Price: US$32.01 RIC: ADBE.O

Prior: Unchanged Prior: Unchanged Mkt Cap: US$16.0bn BBG: ADBE US

Software Analyst: Brent Thill Tel: +1-415-352 4694

FQ2: Beat & Slight Raise; Back on Track Mild Japan impact; mobile strategy starting to work; maintain Buy Q2 beat: rev $1023M/guide 970-1020M/UBSe 1000M; Japan $10M hit vs.

$50M guide (public sector also rebound); op mgn 36.8%/guide 34-36%/UBSe 36%; EPS $0.55/guide 0.47-0.54/UBSe 0.52. Q3 slight rev raise: guide $1-1.05B vs. St. 1.02B. FY11 rev 10% guide reinstated. Def revs up 19% y/y on SaaS bookings >20% y/y (Omniture), support (enterprise), CS5.5. We believe mobile, esp. tablets, is in early stages of driving new demand: Omniture mobile trans. +24% q/q, digital pubs 400+ titles from Q1’s 150, and strong interest in our recent VAR survey.

Conservative expectations; Q4 catalysts Street ests appear low: FY11 rev +8.2% vs. reiterated 10% guide (we raised from 9.0% to 9.7%); 4 cent EPS beat in Q2 to drive higher FY11 consensus EPS. Mgmt’s op mgn guide looks conservative: Q3 34-36% is lower than Q2’s 36.8%; FY11 37% guide implies 2H11 much lower than 2H10 (38.9% Q3, 38.1% Q4); ADBE beat in 1H11 (Q1 38.9% vs. 37-38% guide, Q2 as above). We expect demand to ramp thru Q4 catalysts of early Oct. MAX conf, early Nov. analyst day.

Potential concerns: Europe, CS5.5 tail until CS6 launch Europe was weaker than expected (though still grew fastest y/y) and Q3 is seasonally slow. CS5.5 release helped sustain CS5’s growth, though Photoshop was soft, and unclear if demand can sustain until CS6’s release in 2Q12.

Valuation: inexpensive at P/E 12.6x CY12E, less than 14% 3yr EPS CAGR $40 PT = 15x (was 16x) P/E (29% discount to 21x 22-yr median) on PF EPS est. 5-8 qtrs out. We project 3-yr EPS CAGR 14% CY10-13 and 17% growth in CY11.

Notes:

Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$32.01 on 21 Jun 2011 18:42 EDT Red Hat Inc. Rating: Buy Target: US$54.00 Price: US$43.76 RIC: RHT.N

Prior: Unchanged Prior: Unchanged Mkt Cap: US$8.66bn BBG: RHT US

Software Analyst: Brent Thill Tel: +1-415-352 4694

Expect FQ1 Beat FQ1 Preview With datacenter investments continuing we expect another solid print. RHEL 6 is enabling RHT to address higher-end workloads and we

believe ASPs are benefitting as RHEL 6 is more expensive than RHEL 5 for high-end servers and as a virtualization platform (new pricing effective Q1). RHT remains a top mid-cap pick with 23% upside to our $54 PT.

FQ1 Estimates, Expect Billings Beat 1) Revenue and EPS of $255M/$0.22 slightly ahead of the Street at $253M/$0.22, notably RHT beat FQ4 revenue by $10M (4%) and EPS by $0.02 (ex-tax benefit), 2) billings growth +17% y/y to $243M could be conservative vs. its 23% billings growth in FY11 and strong acceleration in billings in 2H (and material FQ4 beat +31% vs. +17% estimate), and 3) $72M in OCF.

Well Positioned Even in Slowing Economy; Low-Cost IT Vendor With RHEL 6 shipping RHT is well positioned to exploit the creation of new IT projects and the proliferation of virtualization. However should IT spending slow, as the low-cost provider in many of its end-markets RHT is among the best positioned software vendors to withstand that environment. During the recession RHT’s Jboss middleware platform got a lot of traction as the low-cost middleware alternative. Should IT spending slow Jboss attach to RHEL deals could increase and act as a revs catalyst with Jboss providing a ~8x ASP lift to RHEL-only deals.

Valuation: 7.2x FY12e EV/sales and 28.9x FY12e FCF/share. $54 price target = 30x FY13e FCF/share estimate of $1.80. Notes:





UBS 11

UBS Key Calls - US Live Key Call Portfolio

Stock Name RIC Rating Price Target Date of call Current Price Analyst Apple Inc. AAPL.O Buy US$510 02-Jun-11 US$325.3 Maynard Um

Baker Hughes Inc. BHI.N Buy US$95 07-Jun-11 US$70.64 Angie Sedita

Cardinal Health, Inc. CAH.N Buy US$51 18-Jan-11 US$45.07 Steven Valiquette

Celgene Corporation CELG.O Buy US$69 09-Dec-10 US$60.04 Matthew Roden, PhD

Citigroup Inc C.N Buy US$56 03-May-11 US$39.3 William Tanona, CFA

Deere & Co. DE.N Buy US$115 18-Jan-11 US$82.13 Henry Kirn, CFA

Dow Chemical DOW.N Buy US$46.5 21-Mar-11 US$36.08 Andrew Cash

Ford Motor Co. F.N Buy US$22 10-Jan-11 US$13.32 Colin Langan, CFA

General Electric Co. GE.N Buy US$23 10-Jan-11 US$18.81 Jason Feldman

Google Inc. GOOG.O Buy US$765 10-May-10 US$493 Brian Pitz

Joy Global Inc. JOYG.O Buy US$112 28-Feb-11 US$88.06 Henry Kirn, CFA

McDonalds Corp. MCD.N Buy US$93 09-Feb-11 US$82.8 David Palmer

Prudential Financial Inc. PRU.N Buy US$77 19-Apr-10 US$60.92 Andrew Kligerman

Qualcomm Inc. QCOM.O Buy US$70 26-Apr-11 US$54.43 Parag Agarwal

SanDisk Corp. SNDK.O Buy US$62 21-Mar-11 US$42.86 Uche Orji

Source: Reuters, UBS. Prices as at market close on June 21, 2011.


UBS 12

Rating & PT Changes Key Rating and Price Target Changes: US

Company Name Directional Indicator/Rationale Reuters Code Current Share Price

New Rating New PT Prior

Rating Prior PT

Carnival Corp. Reiterate Buy, increase PT CCL.N US$37.23 Buy US$44 Buy US$43



UBS 13

Markets, Events and Newsflow Today’s Company Events

Company Name Event Reuters code Rating PT Notes

None


Today’s Macroeconomic Events: US

Indicator Time (ET) UBS forecast Previous Consensus

Architecture Billings Index (May) 01:01 na na na

FHFA House Prices (Apr)qoq 11:00 na -0.3% na

Mass Layoffs (May) 11:00 na na na

FOMC Announcement 15:15 na 0.25% na

Source: Bloomberg, UBS


UBS 14

Today’s UBS Hosted Corporate Roadshow: Company Event Location

Molex Inc 1X1 meeting hosted by Amitabh Passi United Kingdom

Today’s UBS Hosted Fieldtrip:

Company Event Location

None

Today’s UBS Hosted Conference:

Company Event Location

None


UBS 15

Latest Market Movements: Country/Region Market Latest Price/Last Close 1-day % Change YTD % Change

Americas

United States Dow Jones 12190.0 0.91 5.29

United States S&P 500 1295.5 1.34 3.01

United States Nasdaq 2687.3 2.19 1.30

United States S&P VIX 19.96 -5.65

Europe

Europe FTSE Eurofirst300 1094.5 -0.22 -2.42

Belgium BEL 20 2580.0 -0.03 0.06

Germany DAX 7277.8 -0.11 5.26

France CAC 3871.1 -0.15 1.74

Italy MIB 30 20086.6 -0.08 -0.43

Netherlands AEX 334.6 -0.46 -5.63

Portugal PSI 20 7191.9 -0.11 -5.22

Spain IBEX 10230.6 -0.01 3.77

Switzerland SMI 6147.1 -0.39 -4.49

UK FTSE 100 5740.0 0.82 -2.71

Asia

Hong Kong Hang Seng 21952.5 0.47 -4.70

India BSE Sensex 17573.7 0.08 -14.31

Japan Nikkei 225 9629.4 1.79 -5.86

Source: UBS, Reuters. Indices in Americas as at market close on June 21, 2011. Indices in Europe and Asia as at 04:05 EDT on June 22, 2011

Latest FX Movements: Name Currency Latest Price/Last Close 1-day % Change 1-month % Change YTD % Change

Euro €/$ 1.439 0.80% 1.8% 7.5%

UK £/$ 1.623 0.14% 0.0% 4.0%

Canada CAD/$ 1.028 0.69% 0.1% 2.6%

Switzerland CHF/$ 1.189 0.52% 4.3% 11.1%

China Yuan/$ 0.155 0.12% 0.4% 1.9%

Brazil BRL/$ 0.630 0.61% 2.3% 4.6%

India INR/$ 0.022 0.35% 0.2% -0.3%

Mexico MXN/$ 0.085 0.54% -1.4% 4.5%

Japan $/JPY 0.803 -0.01% -1.8% -1.2%

Australia AUD/$ 1.059 0.14% -0.5% 3.5%

Source: UBS, Reuters. Prices as at market close on June 21, 2011.


UBS 16

Latest Commodity Movements: Name Latest Price 1-day % Change 1-month % Change YTD % Change

Gold ($/oz) 1544.75 0.47 3.62 9.54

Brent Crude spot, $/bbl 111.30 0.40 0.54 19.99

WTI Crude spot, $bbl 93.81 1.37

Natural Gas, $MMBTU 4.33 -0.38 6.91 2.61

Source: UBS, Reuters. Prices as at market close June 21, 2011.


UBS 17

Recent UBS Event

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Expert Access Conference Call

UBS Infrastructure Conference Call Series with HNTB Experts

Topic #2: Tolling US Roadways: A Real Option for DOTs

Host: Steven Fisher - UBS US Engineering & Construction Analyst

Guest Speaker

Mr. Jack Finn

PE, Senior Vice President of HNTB Corporation and Chair of HNTB’s Toll Services Practice

Topics of Discussion:

• Are Americans ready for more toll roads? When is tolling acceptable? • Are people ready to accept tolls on existing interstates and highways? • What are the arguments for and against tolling? • Open-road/all electronic tolling versus traditional cash tolling? • Are more toll roads inevitable? What is standing in the way of more toll roads?

Date & Time: Tuesday, June 21, 2011, 11:00 am ET

Dial-in Details:

Toll Free: 800-954-0585 Toll: 212-231-2928

Code: 21526874

Replay Details: Toll Free: 800-633-8284

Toll: 402-977-9140 Code: 21526874


UBS 18

Recent UBS Event

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Expert Access Conference Call

US Hardline Retail Sector Initiation

Host: Michael Lasser, UBS US Hardline Retail Analyst

Topics of Discussion:

• Taking a Hard Stance for Softer Trends: With the demand environment slowing,

• We recommend being selective

• Initiation on 16 hardline retail companies, 6 Buys, 9 Neutral, 1 Sell

Date & Time:

Thursday, June 16th, 2011, 10:30 AM ET

Dial-in Details: Toll Free: US: 800-935-9319 UK 08005280707

Toll: 212-231-2922 Code: 21528541

Replay Details:

Toll Free: 800-633-8284 Toll: 402-977-9140

Code: 21528541


UBS 19

Forthcoming UBS Event

ab Conference

UBS & NYSSA Frontier Markets Luncheon UBS and The New York Society of Securities Analysts (NYSSA) would like to invite you to a luncheon seminar on Investment Opportunities in Frontier Markets. The lunch is designed for DOR’s, CIO’s, PM’s and Analysts and will also include a small group from NYSSA.

Hosted by: Nicholas Smithie - UBS Global Emerging Markets Strategist

Speakers:

• Marc Ginsberg - Senior VP of APCO Worldwide and Former U.S. Ambassador to Morocco and White House Advisor on the Middle East • Caglar Somek - Portfolio Manager for The Caravel Fund (International) Ltd • Larry Speidell - founding Partner and CIO of Frontier Market Asset Management • Daniel Sternhoff - Senior Managing Director, Emerging Markets and Energy groups, Medley Global Advisors • Christine Tessier - Investment Consultant at Mercer

Date & Time: Tuesday, June 28, 2011

12:00pm – 1:30pm

Location: UBS

1285 Avenue of the Americas New York, NY

RSVP:

Your UBS Sales Representative or Sebastien Leon (212) 713-9359.


UBS 20

Forthcoming UBS Event

ab Conference

Sustainable Innovation and Growth ConferenceA UBS Q-Series® Event In partnership with Accenture

Special Keynote Speaker Professor Michael E. Porter

We are delighted to announce that Professor Michael E. Porter, indisputably the foremost authority on modern competitive strategy, will be joining as our Keynote Speaker at the UBS Q-Series® Event: Sustainable Innovation, Transformation and Growth Conference

Date & Venue: Wednesday, October 19, 2011

Bloomberg Headquarters, 731 Lexington Avenue, 7th Floor New York City

Conference Topics: With leading corporations, consultants, policy experts, analysts, strategists and economists, our panel-based discussions will focus on key questions including:

• What are some examples of how sustainability and resource optimization are driving innovation and growth today?

• How is Technology enabling sustainable competitive advantage across global sectors? • How can Innovation in Energy Efficiency contribute to growth across global sectors? • What sustainability projects are paying off? • Why is the "Political Economy" so integral to sector investment outlooks? • What companies are best positioned to innovate and penetrate the Emerging Market

Opportunity? • How is "Sustainability" defining the future leaders in Healthcare and Consumer Innovation? • What are the opportunities across Infrastructure, Industrials and Real Estate?

Conference information

For further information please contact:

Conference organizer Jen Gray

Tel +1-212-713 3148 [email protected]

http://www.ibb.ubs.com/conferences/americas/sustainableconfstd/index.shtml?WT.mc_id=

mailto:[email protected]


UBS 21

Further Information

Morning Expresso – United States Welcome to the Morning Expresso, an early morning summary of the key ideas and issues presented from UBS for the day ahead. Its contents include:

- key items from UBS’ United States Morning Meeting

- highlighted recommendation and price target changes

- today’s anticipated company, sector and macro-economic catalysts from the US Contextual Diary

- company and client events, conferences and conference calls from UBS

- overnight global market, forex and commodity movements

Morning Expresso is designed to give you all that you ‘need to know’ each morning.

Data presented is accurate as at 06:00 EDT on Wednesday, June 22, 2011.

Contacts & Feedback For further details concerning today’s Morning Expresso – United States note, please visit www.ubs.com/investmentresearch or speak to your UBS contact. This note is not intended to be static and it will evolve over time. Feedback welcomed on email to

[email protected]

Statement of Risk

Forecasting earnings and corporate financial behavior is difficult because it is affected by a wide range of economic, financial, accounting and regulatory trends, as well as changes in tax policy.


UBS 22

Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.


UBS 23

Required Disclosures This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage1 IB Services2

Buy Buy 52% 41%Neutral Hold/Neutral 40% 37%Sell Sell 8% 20%UBS Short-Term Rating Rating Category Coverage3 IB Services4

Buy Buy less than 1% 30%Sell Sell less than 1% 17%

1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. Source: UBS. Rating allocations are as of 31 March 2011. UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition

Buy Buy: Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event.

Sell Sell: Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event.


UBS 24

KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows.


UBS 25

Company Disclosures

Company Name Reuters 12-mo rating Short-term rating Price Price date Abbott Laboratories4, 6a, 6c, 7, 16 ABT.N Buy N/A US$52.26 21 Jun 2011 Adobe Systems Inc.4, 6c, 7, 13, 16 ADBE.O Buy N/A US$32.01 21 Jun 2011 Apple Inc.6c, 7, 16, 18a AAPL.O Buy N/A US$325.30 21 Jun 2011 Baker Hughes Inc.2, 4, 6a, 6b, 6c, 7, 13, 16 BHI.N Buy N/A US$70.64 21 Jun 2011 Cardinal Health, Inc.2, 4, 6a, 6c, 7, 16,

18b, 22 CAH.N Buy N/A US$45.07 21 Jun 2011

Carnival Corp.5b, 6c, 7, 14, 16 CCL.N Buy N/A US$37.23 21 Jun 2011 Celgene Corporation6c, 7, 16 CELG.O Buy N/A US$60.04 21 Jun 2011 Citigroup Inc2, 4, 5b, 6a, 6b, 6c, 7, 16 C.N Buy N/A US$39.30 21 Jun 2011 Deere & Co.16 DE.N Buy N/A US$82.13 21 Jun 2011 Deutsche Lufthansa AG4, 13, 15, 16 LHAG.DE Buy N/A €14.44 21 Jun 2011 Dow Chemical4, 6a, 6b, 6c, 7, 13, 16, 22 DOW.N Buy N/A US$36.08 21 Jun 2011 DSM4, 16, 22 DSMN.AS Neutral N/A €44.81 21 Jun 2011 Ford Motor Co.4, 6a, 6b, 6c, 7, 13, 14, 16, 18c F.N Buy N/A US$13.32 21 Jun 2011

Foster's Group Limited4, 5a, 5b, 13, 16 FGL.AX Neutral N/A A$5.14 21 Jun 2011 General Electric Co.4, 5b, 6a, 6b, 6c, 7, 16, 18e, 22 GE.N Buy N/A US$18.81 21 Jun 2011

Google Inc.2, 4, 5b, 6a, 6b, 6c, 7, 16, 18d GOOG.O Buy N/A US$493.00 21 Jun 2011

Grupo Modelo16, 20 GMODELOC.MX Buy (CBE) N/A P69.98 21 Jun 2011

Joy Global Inc.4, 5b, 6a, 13, 16, 20 JOYG.O Buy (CBE) N/A US$88.06 21 Jun 2011 JPMorgan Chase & Co.4, 5b, 6a, 6b, 6c, 7, 13, 16, 18f, 22 JPM.N Buy N/A US$40.91 21 Jun 2011

Lloyds Banking Group2, 4, 5b, 6a, 12,

14, 16, 22 LLOY.L Buy N/A 47p 21 Jun 2011

Luminex Corp.16 LMNX.O Neutral N/A US$19.64 21 Jun 2011 McDonalds Corp.6b, 7, 13, 16 MCD.N Buy N/A US$82.80 21 Jun 2011 Molson Coors Brewing4, 5b, 6a, 16 TAP.N Buy N/A US$44.91 21 Jun 2011 Par Pharmaceutical Companies Inc.16 PRX.N Buy N/A US$32.65 21 Jun 2011

Philips4, 5b, 6a, 16, 22 PHG.AS Neutral N/A €17.98 21 Jun 2011 PostNL16, 22 PTNL.AS Buy N/A €5.99 21 Jun 2011 Precision Castparts Corp.16 PCP.N Neutral N/A US$156.84 21 Jun 2011 Prudential Financial Inc.2, 4, 6a, 6b, 6c, 7, 16, 22 PRU.N Buy N/A US$60.92 21 Jun 2011

Qualcomm Inc.16 QCOM.O Buy N/A US$54.43 21 Jun 2011 Red Hat Inc.4, 6a, 6b, 6c, 7, 16 RHT.N Buy N/A US$43.75 21 Jun 2011 SABMiller16 SAB.L Neutral N/A 2,103p 21 Jun 2011 SanDisk Corp.13, 16, 20 SNDK.O Buy (CBE) N/A US$42.86 21 Jun 2011 Starbucks Corp.4, 6a, 6b, 6c, 7, 13, 16, 18g SBUX.O Buy N/A US$36.73 21 Jun 2011 Swisscom2, 4, 5b, 15, 16 SCMN.VX Buy N/A CHF384.60 21 Jun 2011 Walgreen Co.16, 18h WAG.N Buy N/A US$43.28 21 Jun 2011

Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of

this company/entity or one of its affiliates within the past 12 months. 4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking

services from this company/entity. 5a. UBS AG, Australia Branch or an affiliate expect to receive or intend to seek compensation for investment banking

services from this company/entity within the next three months.


UBS 26

5b. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.

6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.

6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided.

6c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided.

7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity.

12. Directors or employees of UBS AG, its affiliates or subsidiaries are directors of this company. 13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity

securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end).

14. UBS Limited acts as broker to this company. 15. UBS AG, its affiliates or subsidiaries has issued a warrant the value of which is based on one or more of the financial

instruments of this company. 16. UBS Securities LLC makes a market in the securities and/or ADRs of this company. 18a. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common

stock position in Apple, Inc. 18b. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common

stock position in Cardinal Health, Inc. 18c. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common

stock position in Ford Motor, Co. 18d. A U.S. based global equity strategist, a member of his team, or one of their household members has a long common

stock position in Google, Inc. 18e. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position

in General Electric. 18f. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position

in JPMorgan Chase & Co. 18g. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position

in Starbucks Corp. 18h. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position

in Walgreen Co. 20. Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR

exceeds the MRA by 10% (compared with 6% under the normal rating system). 22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end

(or the prior month`s end if this report is dated less than 10 working days after the most recent month`s end). Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Publishing Administration. Additional Prices: Molex Incorporated, US$25.68 (21 Jun 2011); Source: UBS. All prices as of local market close.


UBS 27

Global Disclaimer This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. In certain countries, UBS AG is referred to as UBS SA. This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to information concerning UBS AG, its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. UBS does not undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by recipients as a substitute for the exercise of their own judgement. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria. Research will initiate, update and cease coverage solely at the discretion of UBS Investment Bank Research Management. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information. UBS is under no obligation to update or keep current the information contained herein. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, groups or affiliates of UBS. The compensation of the analyst who prepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking revenues, however, compensation may relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales and trading are a part. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and other market conditions. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither UBS nor any of its affiliates, nor any of UBS' or any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. 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Malaysia: This material is authorized to be distributed in Malaysia by UBS Securities Malaysia Sdn. Bhd (253825-x).India : Prepared by UBS Securities India Private Ltd. 2/F,2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai (India) 400051. Phone: +912261556000 SEBI Registration Numbers: NSE (Capital Market Segment): INB230951431 , NSE (F&O Segment) INF230951431, BSE (Capital Market Segment) INB010951437. The disclosures contained in research reports produced by UBS Limited shall be governed by and construed in accordance with English law. UBS specifically prohibits the redistribution of this material in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. Images may depict objects or elements which are protected by third party copyright, trademarks and other intellectual property rights. © UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

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