David Zion - The Official Web Site of the Financial

1

Accounting Issues and Analyst Research

David Zion, CFA, CPAAccounting [email protected](212) 538-4837

Date: January 2009

2

Anything Remotely Related to Accounting Written research

Pension Pressure . . . On Balance Sheets, Earnings and Cash Flows

Goodwill Impairments, Goodwill Going Bad

Focusing on Fair Value, Mark-to-Market Accounting

Derivatives Emerging from the Shadows, FAS 161 Increases Transparency

In Search Of . . . Other-Than-Temporary Impairments, More Write-Downs to Come?

Impairments, Not All Write-Offs Are Created Equal

Buyer Beware…Changing the Rules on M&A Accounting Again

Changing the Rules on Converts, Again, Earnings Weaker, Balance Sheets Healthier

The Magic of Pension Accounting, Part IV

Peeking Behind the Tax Curtain, FIN 48 Reveals Tax Risk

Accounting consultant

Customized product

3

In Theory Investor’s Focus is on Future…

$$ Cash is king $$ $$ Show me the money $$

Risks – Sustainability of cash flow

Claims on cash flow

Growth of cash flow…Many Use Earnings as a Shortcut

4

What’s the Big Deal? Who Cares? It’s Just Accounting

A new accounting rule does not change the economics of a business, actual cash flows don’t change

However

It does take a different picture of the economics

If that picture provides investors with new insights about the sustainability, growth, risk, and potential claims on future cash flows, valuations could change

Don’t forget that the economics of a business can change if a company changes its behavior in response to a new accounting rule

Biggest Impact is Change in Behavior

5

Accounting Tells A Story

Problem: The reported results may not always reflect the underlying economics of the business

Lots of questions to ask…

What is quality of earnings and cash flows? In other words are they sustainable and generated by the core business?

Is the smooth consistent earnings stream, really smooth and consistent?

Why are the “nonrecurring” items, recurring?

Do acquisitions, transactions make business/economic sense?

How complex is capital structure? (If its complicated, why?)

How much of the capital structure is off-balance sheet?

Are there any significant commitments, contingencies, related party transactions? etc. etc. etc. etc. etc.

Challenge is Figuring Out Whether it’s Fiction

6

…More Questions

What are significant estimates, assumptions management makes in financial statements? How do they match up vs. peer group, historical, your own assumptions?

How did changes in assumptions impact financial statements and results? What is driving the results is it improved performance or changes in management assumptions?

How do important accounting policies match up vs. peer group? (Aggressive/Conservative) Are you comparing apples and oranges?

Has the company had to restate results, investigated by SEC or change auditors?

Does the company provide Plain English disclosure? Does it go above and beyond required disclosures? etc. etc. etc. etc. etc.

7

Impairments

8

Write-Offs, Write-Downs, Impairments

Do you know what a write-off is?

Economic impairment may not result in immediate accounting impairment

Could take time

Lots of management judgment

Could change expectations Doesn’t affect current period cash flows…it does reflect

management’s expectations of future cash flows…if that changes investor’s expectations it could change stock prices

Market Should Be Way Ahead of Accountants on Impairments, Right?

9

Goodwill Going Bad

Don’t Ignore Goodwill Impairment Charges

S&P 1500 – 500 companies market cap less than book

402 companies, estimated goodwill impairment, $469 billion

US$ in millions

A B C D = B - C E = A - D F = C - E

Company Ticker Market Cap1 Book Value Goodwill

Estimated Fair Value of

Net Assets

Market Implied

Fair Value of Goodwill

Market Implied

Goodwill Impairment

Announced Impairment

Bank of America Corp. BAC $ 70,648 $ 161,039 $ 81,756 $ 79,283 $ - $ (81,756) $ NA

Citigroup Inc. C 36,566 126,062 39,662 86,400 - (39,662) NA

JPMorgan Chase & Co. JPM 117,681 145,843 46,121 99,722 17,959 (28,162) NA

Time Warner Inc. TWX 36,090 59,936 42,450 17,486 18,604 (23,846) 25,000

ConocoPhillips COP 77,224 92,876 29,224 63,652 13,572 (15,652) 25,550

Capital One Financial COF 12,490 25,612 12,816 12,796 - (12,816) 811

Regions Financial Corp. RF 5,508 19,705 11,529 8,176 - (11,529) 6,000

American Int'l. Group AIG 4,223 71,182 10,334 60,848 - (10,334) NA

SunTrust Banks STI 10,460 17,956 7,063 10,893 - (7,063) NA

Freeport-McMoran Cp & Gld FCX 9,385 20,027 6,048 13,979 - (6,048) 6,000 1Per Compustat as of December 31, 2008.

Note: Amounts may not recalculate due to rounding.

Source: Company data, Credit Suisse estimates

10

Deferred Tax Assets, Need a Valuation Allowance?

Now 69 Companies Deferred Tax Assets > 50% of Market Cap

Highest Ratio of Deferred Tax Assets to Market Cap in the S&P 1500US$ in millions

Company TickerGross Deferred

Tax Assets1

Valuation Allowance1

Net Deferred Tax Assets1 Market Cap2

Net Deferred Tax Assets / Market Cap

General Motors Corp. GM $ 58,346 $ (6,523) $ 51,823 $ 14,088 368%

Ford Motor Co. F 30,701 (7,180) 23,521 13,725 171%

Tronox Inc. TRX.B 204 (7) 197 198 99%

Mesa Air Group Inc. MESA 88 (1) 87 89 98%

Frontier Airlines Holdings FRNT 143 (5) 139 193 72%

Cincinnati Bell Inc. CBB 910 (151) 759 1,179 64%

Radio One Inc. ROIAK 125 (2) 123 210 59%

Spectrum Brands Inc. SPC 463 (307) 155 282 55%

Alaska Air Group Inc. ALK 504 - 504 1,008 50%

Georgia Gulf Corp. GGC 121 (8) 113 228 50%

Fremont General Corp. FMT 160 (35) 125 279 45%

KB Home KBH 733 - 733 1,935 38%

Caraustar Industries Inc. CSAR 51 (17) 34 91 38%

Hovnanian Entrprs Inc -Cl A HOV 392 (266) 126 342 37%

Standard Motor Prods SMP 82 (28) 54 150 36%

1From the most recent annual filings as of January 17, 2008.2Market cap as of December 31, 2007.Note: Amounts may not recalculate due to rounding.Source: Company data, Credit Suisse estimates.

11

Accounting for Investments in Debt & Equity Securities

Economically Similar Investments Accounted for Differently (Based on Intent) = Earnings Management, Patchwork Balance Sheet, Lack of Comparability

Source: Credit Suisse Accounting & Tax Research

Method Criteria Balance Sheet Income Statement

Trading / Fair Value Option (FAS 159)

Securities held for a short period (active buying and selling), or any security where fair value option is applied

Fair value Changes in fair value along with interest/dividend income

Available-for-Sale

Any securities not classified in another category

Fair value with changes in fair value reported in other comprehensive income (equity)

Realized gains and losses, interest/dividend income and other-than-temporary impairments

Held-to-Maturity

Intent and ability to hold security until maturity

Amortized cost Realized gains and losses, interest income and other-than-temporary impairments

Cost Ownership interests that are less than 20% where equity securities do not have a readily observable fair value

Historical Cost Realized gains and losses, dividend income and other-than-temporary impairments

Equity Ownership interests between 20% and 50% or investor can otherwise exercise "significant influence"

Cost, adjusted for investor’s share of investee's earnings/losses and dividends

Realized gains and losses, investor’s share of investee’s earnings/losses and other-than-temporary impairments

12

Unrealized Losses on Investments in Debt & Equity Securities (Financial Sector) at 12/31/07

What the heck is other-than-temporary?

Note: Amounts may not recalculate due to rounding.Source: Company data, Credit Suisse.

Less than 12 months 12 months or more Total

Industry Fair ValueUnrealize

d LossFair

ValueUnrealize

d LossFair

ValueUnrealized Loss

Insurance $ 572,148 $

(28,536)$

219,818 $

(11,613)$ 791,965

$ (40,148)

Thrifts & Mortgage Finance

235,851

(13,220)

331,157

(8,131)

567,008

(21,352)

Diversified Financial Services

80,886

(1,724)

195,012

(4,881)

275,898

(6,605)

Capital Markets

79,054

(3,227)

81,117

(2,703)

160,171 (5,930)

Commercial Banks

80,834

(2,911)

104,677

(2,535)

185,510 (5,446)

Consumer Finance

3,144

(124)

7,596

(108)

10,740 (233)

Real Estate Investment Trusts

-

-

-

-

-

-

Real Estate Management & Development

-

-

-

-

-

-

Total$

1,051,917$

(49,741)$

939,376$

(29,972)$1,991,2

93

$ (79,713

)

US$ in millions

13

Impact of an Other than Temporary Impairment Charge

Why does anyone care about Other-Than-Temporary Impairments?

Source: Credit Suisse Accounting & Tax Research

Income Statement

Balance Sheet

Shareholders' Equity

Category Earnings Assets AOCIRetained Earnings

Total Equity (Book Value)

Available-for-Sale ⇩ No Change ⇧ ⇩ No Change

Held-to-Maturity ⇩ ⇩ No Change ⇩ ⇩Equity ⇩ ⇩ No Change ⇩ ⇩Cost ⇩ ⇩ No Change ⇩ ⇩

Freddie Mac: “…the fair value of these investments has declined and may be further adversely affected by additional ratings downgrades or market events. These factors could negatively affect our core capital and results of operations, if we were to conclude that other-than-temporary impairments occurred.”

14

Fair Value Accounting, aka Mark-to-Market

15

FAS 157, Fair Value Accounting

What Did it Change?

New disclosures (level 1, 2, 3)

Not very much, actually…

Defines Fair Value as an Exit Price:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Subtle clarifications

Fair value is an exit price (could have been exit or entry before)

Must use “market participant” assumptions (i.e. not the company’s)– Even if you think market is undervaluing the asset

The accounting is not the problem, its reflecting an economic reality: Asset values are falling.

Real problem = overexposure to certain assets, poor risk management, mispriced risks, lots of leverage and asset-liability mismatch

Has Been Blamed for Everything from Credit Crisis to Global Warming

16

Fair Value Hierarchy

How Reliable Are the Fair Value Measurements

Source: Financial Accounting Standards Board, Credit Suisse, Company Data.

Level 1 Level 2 Level 3

Reliability Most reliable Less reliable Least reliable

FAS 157 Definition

Quoted prices in active markets for identical assets or liabilities

Inputs other than Level 1 quoted prices that are observable for the asset or liability either directly or indirectly, includes:Quoted prices for similar assets or liabilities.Quoted prices in markets that are not active.Inputs other than quoted prices that are observable (e.g., yield curves, volatilities, prepayment speeds, credit risks, default rates, etc.)Inputs that are derived from or corroborated by observable market data by correlation or other means (e.g., implied volatilities)

Unobservable inputs for the asset or liability. Company’s assumptions about market participant assumptions (i.e., assumptions-squared).

In other words

Mark-to-Market Mark-to-Market / Mark-to-Model Mark-to-Model

Examples U.S. government and agency securities, foreign government debt, listed equities, money market securities

High grade and high-yield corporate bonds, mortgage backed securities, corporate bank and bridge loans, loan commitments, less liquid listed equities, municipal bonds, physical commodities, over-the-counter derivatives such as interest rate swaps

Distressed debt, private equity, real estate, “exotic” derivatives, illiquid mortgage-backed securities

17

How Much of the Balance Sheet is at Fair Value?

Exhibit 1: Sector Breakdown: Assets and Liabilities at Fair Value, S&P 5002 Q1 2008 US$ in millions

Assets Liabilities

Sector Fair Value

Assets1 % of Total

Sector Assets Fair Value Liabilities1

% of Total Sector Liabilities

Consumer Discretionary $ 74,034 7% $ 7,010 1%

Consumer Staples 4,428 1% 3,052 1%

Energy 17,211 1% 27,996 4%

Financials 9,003,380 44% 2,544,163 13%

Health Care 165,297 19% 23,046 5%

Industrials 75,462 5% 9,353 1%

Information Technology 72,715 16% 2,525 1%

Materials 5,743 2% 2,462 1%

Telecommunications 5,853 1% 316 0%

Utilities 61,664 8% 21,346 4%

Total $ 9,485,787 $ 2,641,269 1Adjusted for netting 2Includes only November & December fiscal year end companies

Source: Company data, Credit Suisse estimates.

Exhibit 1: Financial Sector Industry Groups—Assets and Liabilities at Fair Value, Q1 2008 US$ in millions

Assets Liabilities

Industry Fair Value

Assets1 % of Total

Industry Assets Fair Value Liabilities1

% of Total Industry Liabilities

Capital Markets $ 2,488,608 48% $ 1,464,124 30%

Commercial Banks 596,543 20% 56,397 2%

Consumer Finance 51,877 11% 1,979 1%

Diversified Financial Services 2,064,129 36% 831,103 16%

Insurance 2,648,722 71% 143,472 4%

Real Estate Investment Trusts 843 1% 167 0%

Thrifts & Mortgage Finance 1,152,657 50% 46,919 2%

Total $ 9,003,380 $ 2,544,163 1Adjusted for netting.


18

What’s on the Balance Sheet at Fair Value?

US$ in millions

Level 1 Level 2 Level 3 Total % of Total

Securities: Cash, Cash Equivalents & ST inv. $ 98,736 $ 134,263 $ 7,081 $ 240,080 3% Equities 278,800 101,364 46,737 426,901 5% US, foreign gov. debt, & agency securities 117,466 243,314 3,500 364,280 4% Fixed income securities (corp debt, ARS, etc.)1 210,126 1,808,437 169,600 2,188,162 23% Mutual Funds 2,106 - - 2,106 0% Private Equity, Venture Capital 301 341 18,445 19,087 0% Asset-backed Securities & Structured Products2 270 728,139 320,508 1,048,916 11% Unknown Securities3 431,653 1,581,896 260,427 2,273,976 24%

Total Securities 1,139,458 4,597,753 826,298 6,563,508 69% Derivative Assets 17,143 750,529 73,227 840,899 9% Loans:

Residential mortgages (not commercial) - 69,958 22,090 92,049 1% Other Mortgages (e.g. commercial) - 60,850 84,670 145,520 2%

Total Loans - 130,808 106,760 237,569 3% Real Estate - 30 1,025 1,055 0% Separate Accounts (insurance co's) 478,536 307,778 33,183 819,497 9% Assets under Reverse Repurchase agreements 50,672 412,717 90 463,479 5% Nuclear decommissioning trust 11,939 8,626 2,008 22,574 0% Other Assets 131,946 304,130 101,051 537,127 6%

Total Gross Assets $ 1,829,764 $ 6,512,371 $ 1,143,652 $ 9,485,787 100%

1 Could include some amount of asset-backed securities and structured products. 2 Includes mortgage-backed and asset-backed securities, retained interests and mortgage servicing rights. 3 No details given, includes securities from other categories, including asset-backed and structured products. 4Adjusted for netting. 5Includes only November & December fiscal year end companies.



19

Level 3 Assets > Book Value

Level 3 Gets All the Attention

US$ in millions

Company Ticker Level 3 Assets1 Book Value Level 3 Assets

as a % of Book Value

Federal Home Loan Mtg. FRE $ 156,708 $ 16,024 978%

MBIA Inc. MBI 7,335 2,060 356%

Countrywide Financial Corp. CFC 42,313 13,155 322%

Bear Stearns Cos. BSC 31,721 11,896 267%

Goldman Sachs Group GS 87,186 42,629 205%

Morgan Stanley MS 66,587 33,280 200%

Lehman Bros. LEH 42,508 24,832 171%

American Capital Strategies Ltd ACAS 9,622 5,719 168%

Fannie Mae FNM 62,637 38,836 161%

Principal Financial Group PFG 9,296 6,842 136%

First Horizon National FHN 2,718 2,112 129%

Citigroup Inc. C 155,886 128,219 122%

Prudential Financial PRU 26,747 22,697 118%

Allstate Corp. ALL 22,969 20,303 113%

Merrill Lynch MER 40,956 36,542 112%

Hartford Financial Svc.Gp. HIG 19,356 17,836 109% 1Adjusted for netting


20

Questions to Ask

What significant risks are companies exposed to in each level?

How are risks managed?

How much is hedged? How is it hedged? What is counterparty risk?

For Levels 2 and 3 what are key assumptions?

How have assumptions changed? What impact did changes have on financial statements?

Can company provide a sensitivity analysis?

Still Looking for Answers, More Transparency Could Boost Confidence

21

Derivatives

22

Derivatives Notional 29% CAGR vs. Derivatives Accounting 24% CAGR

1,000 + Pages of Derivatives Accounting Guidance

Note: The composition of the ISDA survey changed over time, it first started to include credit derivatives and equity derivatives in 2001-2002.Source: International Swaps & Derivatives Association, Financial Accounting Standards Board and Credit Suisse Accounting & Tax Research

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

No

tio

nal

Am

ou

nt

0

200

400

600

800

1000

1200

# o

f P

ages

Total Notional Amount of Derivative Contracts Outstanding Total Pages in Derivatives Accounting

US$ in trillions

23

Large Derivative Exposures…

Derivatives Emerging from the Shadows with FAS 161 Companies have to tell you three things each quarter:

1. How and why they use derivatives (speculation or risk management)? What risks are they hedging? What new risks have they exposed themselves to? What is volume of derivative activity?

2. How derivatives and hedged items are accounted for.

3. How derivatives and hedged items impact balance sheet, earnings and cash flows (future cash flows, not current period)

…Weak Derivative Disclosures

24

Exposure to Derivatives

Use the Fair Value Disclosures to Find Exposure to Derivatives

US$ in millions

Gross Derivative Net Derivative Net as a % of Gross

Sector Assets Liabilities Assets Liabilities Assets Liabilities

Consumer Discretionary 9,635 5,690 9,635 5,690 100% 100%

Consumer Staples 757 1,416 694 1,340 92% 95%

Energy 14,411 25,477 13,105 24,003 91% 94%

Financials 4,748,579 4,557,478 787,694 674,110 17% 15%

Health Care $ 4,528 $ 6,622 $ 4,528 $ 6,622 100% 100%

Industrials 13,149 10,868 9,326 7,023 71% 65%

Information Technology 2,299 2,921 1,337 1,959 58% 67%

Materials 1,308 1,790 1,308 1,790 100% 100%

Telecommunications 35 145 35 145 100% 100%

Utilities 49,887 50,973 13,237 15,033 27% 30%

Total $ 4,844,589 $ 4,663,381 $ 840,899 $ 737,717 17% 16% 1Includes only November & December fiscal year end companies.


25

Pensions

26

The Unknown Spooks Investors

No Surprise That We Have Been Inundated with Questions

Defined Benefit Pension Plans

Confusing accounting – FAS No. 87

Complicated funding requirements

Separate set of assumptions and calculations

Mysterious economics

Obligation with unknown cash flows

Unique obligation, where employees are the creditors, may not be most efficient way to raise capital

Recipe for Confusion

27

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08E '09E '10E '11E

70%

80%

90%

100%

110%

120%

130%

Per

cen

t F

un

ded

Historical Evenly Funded Forecast

Pension Plans Losing Ground

Estimated $420 Billion Deterioration in Health of Plans During 2008

Estimated $362 billion in underfunding

Aggregate Funded Status for S&P 500 Defined Benefit Pension Plans

28

Pension Pain

Pension Pressure

Underfunding more than 10% of market cap for 70 companies

Book value could drop by more than 10% for 108 companies

Earnings headwind for 274 companies from higher pension costs

Too Much Focus on Earnings Impact of Plans, Waste of Time

Depends upon fair value or calculated value

Focus on Three Things

1. Pension claim, underfunding

2. Future costs, new pension liabilities

3. Risk Asset/Liability mismatch Liquidity, funding needs Mispricing, incorrect assumptions, etc.

29

The Magic of Pension Accounting

Made plans appear healthier than they really were

Made plans appear less volatile (almost risk free)

Allowed companies to go on long pension funding holidays

Turned plans into profit centers

Made it very easy to make pension promises

Accounting and Funding Rules Appeared to Protect Companies from their Pension Plans

That’s No Help When Pension Promises Come Due

30

Is it a Pension Plan or an Operating Company?

Assets would increase by > 10% for 158 companies

US$ in millions

A B C = A + B D = B / A

Company

Ticker

Total Assets 2006

Adjustment 2006

Adjusted Assets 2006

% Change

Unisys Corp. UIS $ 4,038 $ 6,730 $ 10,768 167%

Pactiv Corp. PTV 2,758 3,665 6,423 133%

NCR Corp. NCR 5,227 4,831 10,058 92%

Lockheed Martin Corp. LMT 28,231 25,500 53,731 90%

Boeing Company BA 51,794 44,401 96,195 86%

International Bus. Machines IBM 103,234 79,977 183,211 77%

United States Steel Corp. X 10,586 7,186 17,772 68%

Allegheny Technologies Inc ATI 3,282 2,222 5,504 68%

Northrop Grumman Corp. NOC 32,009 21,407 53,416 67%

Du Pont (E.I.) DD 31,777 20,869 52,646 66%

Rockwell Collins COL 3,278 2,152 5,430 66%

ITT Corporation ITT 7,430 4,809 12,239 65%

3M Company MMM 21,294 13,635 34,929 64%

Eastman Kodak EK 14,320 8,662 22,982 60%

Hercules, Inc. HPC 2,809 1,599 4,407 57%

Marsh & McLennan MMC 18,137 9,665 27,802 53%

Honeywell Int'l Inc. HON 30,941 15,893 46,834 51%

General Motors GM 186,192 95,588 281,780 51%

Raytheon Co. (New) RTN 25,491 12,927 38,418 51%


31

The Largest Liability

Put the Pension Obligation on Balance Sheet and it Would be the Largest Liability for 103 Companies

US$ in millions

A B C = B / A

Company

Ticker Largest Liability Description

Largest Liability Amount 2006

PBO 2006 %

NCR Corp. NCR Accounts payable $ 534 $ 5,336 999%

Lockheed Martin Corp. LMT Long-term debt, net 4,405 28,525 648%

FedEx Corporation FDX Accounts payable 1,908 12,153 637%

International Bus. Machines IBM Long-term debt 13,780 85,952 624%

Rockwell Collins COL Retirement Benefits 421 2,423 576%

ITT Corporation ITT Accounts payable 929 5,174 557%

Northrop Grumman Corp. NOC Long-term debt, net of current portion 3,992 21,484 538%

Tektronix Inc. TEK Accounts payable and accrued liabilities 133 703 527%

Pactiv Corp. PTV Long-term debt 771 3,991 518%


Debt Largest Liability for 222 Companies

32

Earnings More Volatile Than It Appears

…It Only Highlights the Volatility that Already Exists

2 3

12

58

103

32

53

45

66

0

20

40

60

80

100

120

< (15%) (25%) - (10%) (10%) - (5%) (5%) - (0)% 0% - 5% 5% - 10% 10% - 25% 25% - 50% > 50%

% Change in Earnings Volatility

Nu

mb

er

of

Co

mp

an

ies

More VolatileLess Volatile

Accounting Change Would Not Create the Volatility…

33

Adjusting Operating Income

Operating Income is Not All Operating

US$ in millions

Largest % and $ Drop in Cumulative Operating Income (1999-2006) after Adjusting for the Pension Plan

Adjusted Operating Income = Reported Operating Income + Pension Cost – Service Cost

On the other hand, we found 168 companies where operating income would increase.

Largest Cumulative % Decrease Largest Cumulative $ Decrease

Company

Ticker

Reported Operating

Income 1999–2006

Adjusted Operating

Income 1999–2006

% Decrease

Company

Ticker

Reported Operating

Income 1999v2006

Adjusted Operating

Income 1999–2006

$ Decrease Unisys Corp. UIS $ 2,611 $ 1,767 (32%) General Electric GE $ 254,857 $ 239,916 $ (14,941)

MeadWestvaco Corporation MWV 2,897 1,978 (32%) International Bus. Machines IBM 85,466 72,886 (12,580)

Pactiv Corp. PTV 3,207 2,346 (27%) Verizon Communications VZ 110,608 99,300 (11,308)

NCR Corp. NCR 2,192 1,671 (24%) AT&T Inc. T 71,946 61,972 (9,974)

Northrop Grumman Corp. NOC 12,751 9,940 (22%) Boeing Company BA 25,934 20,811 (5,123)

Boeing Company BA 25,934 20,811 (20%) Prudential Financial PRU 21,700 18,384 (3,316)

Qwest Communications Intl Q 13,192 10,651 (19%) Northrop Grumman Corp. NOC 12,751 9,940 (2,811)

Lockheed Martin Corp. LMT 17,069 14,294 (16%) Lockheed Martin Corp. LMT 17,069 14,294 (2,775)

Consolidated Edison ED 11,758 9,901 (16%) Qwest Communications Intl Q 13,192 10,651 (2,541)

Prudential Financial PRU 21,700 18,384 (15%) Du Pont (E.I.) DD 24,687 22,781 (1,906)

Note: Amounts may not recalculate due to rounding. Source: Company data, Credit Suisse estimates.

34

Changing Behavior

Changes in…

Pension Accounting

Funding Rules

Health of Plans

Spark Changes in Corporate Behavior…

The Deep Freeze

Getting out of the Pension Business

Changing Asset Allocations (Liability Driven Investing, LDI)

35

The End Result?

Pension Risks Unlikely to Stay Where They Are, Shifted to:

Workers

Others

Insurance Companies

Investment Banks?

Asset Managers, etc.

If companies continue taking risks in their pension plans, large asset-liability mismatch

Do the companies have any expertise managing those risks?

Are investors willing to pay for companies to take on those risks?

36

Passing the Buck

Source: From The Wall Street Journal—Permission, Cartoon Features Syndicate

"Well, we used to give our employees the benefit of the doubt. But we're dropping that benefit, too.""Well, we used to give our employees the benefit of the doubt. But we're dropping that benefit, too."

37

Options

38

Employee Stock Options = Deferred Compensation

Employee stock options are a form of deferred compensation and represent a cost

Company is giving its employees something of value in return for their service

Factor into valuation analysis in two ways:

1.Old Stuff. Outstanding employee stock options represent an economic liability. Need to measure how much of a claim the option holders have on your stake in the company

2.New Stuff. Future option grants are a cost of doing business. Need to measure how much of the shareholders’ stake management plans to give away to its employees with future option grants

Focus on the Economics of Employee Stock Option Plans

39

$391 Billion Off Balance Sheet Option Liability


Health Care Providers & Services

6%Communications Equipment

6%

Software5%

Computers & Peripherals7%

Capital Markets9%

Semiconductors & Semiconductor Equipment

9%

Pharmaceuticals4%

Oil & Gas4%

Commercial Banks4%

Other Industries46%

$391 billion fair value = $228 billion intrinsic value + $163 billion time value

28 billion options Give employees the right to buy $964 billion worth of stock or 8.1% of total market

cap

40

Options Are Like Onions, They Have Layers

US$ in millions

First Layer Second Layer Third Layer Fourth Layer

Calculation: A = B + C B C D = C /Op. Inc E = G + H + I F = E / C G H I

Company

Ticker

YoY Increase/

(Decrease) in FV of

of Options Granted

Estimated Increase/

(Decrease) in FV of Option

Grant Due to Change in # of Options

Granted

Estimated Decrease

in FV of Option

Grant Due to Change in Option

Price

% of Operating

Income

Estimated Increase/


Grant Due to Other Factors

(Assumptions, etc.)

% of Estimated Decrease in FV

of Option Grant Due to Change in Option

Price Explained by Other Factors

Estimated Decrease in

FV of Option Grant Due

to Change in Volatility

Assumption

Estimated Increase/


Grant Due to Change in

Expected Life Assumption

Unexplained Increase/

(Decrease) In FV of Option Grant1

PMC-Sierra Inc. PMCS $ (51) $ 5 $ (56) (157%) $ (11) 19% $ (26) $ 9 $ 6

MedImmune Inc. MEDI (11) 1 (12) (100%) (16) 140% (15) (1) (0)

Novell Inc. NOVL (60) (27) (33) (75%) (4) 12% (18) 5 8

Chiron Corp. CHIR (59) 5 (64) (69%) (34) 54% (35) (13) 13

Analog Devices ADI (221) 0 (221) (40%) (159) 72% (173) (20) 34

Broadcom Corporation BRCM (24) 149 (173) (35%) (155) 89% (118) (65) 28

Micron Technology MU (103) (47) (56) (26%) (45) 80% (34) (14) 3

Agilent Technologies A (273) (206) (67) (22%) (26) 39% (40) (21) 35

QLogic Corp. QLGC (16) 23 (38) (17%) (3) 8% (7) - 4

Symbol Technologies SBL 33 47 (14) (14%) (1) 10% (26) 4 21

KLA-Tencor Corp. KLAC 32 97 (65) (11%) (2) 3% (27) 2 23

Intuit, Inc. INTU (77) (23) (54) (10%) (68) 125% (44) (6) (18)

Estimated Drop in FV of Options Due to Drop in Option Price > 10% of Operating Income

41

The Impact of Changing Volatility on Operating Income

US$ in millions

Company

Ticker

Estimated Reduction in Fair Value of

Options Granted Due to a Drop in Volatility

Operating Income

2005

Estimated Reduction in FV of Options Granted/

Operating Income

MedImmune Inc. MEDI $ (15) $ 12 (131.5%)

PMC-Sierra Inc. PMCS (26) 35 (72.9%)

Novell Inc. NOVL (18) 45 (39.5%)

Chiron Corp. CHIR (35) 92 (37.6%)

Analog Devices ADI (173) 547 (31.6%)

Symbol Technologies SBL (26) 97 (27.3%)

Broadcom Corporation1 BRCM (118) 488 (24.2%)

Micron Technology MU (34) 216 (16.0%)

Agilent Technologies A (40) 304 (13.0%)

Verisign Inc. VRSN (29) 225 (12.8%) 1Split adjusted. Source: Company data, Credit Suisse estimates.

Decline in Fair Value of Options Granted due to a Drop in Volatility > 10% of Operating Income

42

Leases

43

Off Balance Sheet Lease Liability

$396 Billion Operating Lease Liability for the S&P 500

FASB and IASB working on lease accounting

Could result in a major overhaul, including bringing off balance sheet operating leases on balance sheet

Capital Markets4%

Multiline Retail4%

Diversified Financial Services

4%

Media4%

Food & Staples Retailing12%

Commercial Banks5%

Oil Gas & Consumable Fuels6%

Specialty Retail10%

Hotels Restaurants & Leisure

4%Insurance

3%

Other44%

44

Bringing Operating Leases on Balance Sheet

Liabilities More Than Double

If it’s not a liability, what do you make of it? (A hat? A broach? A pterodactyl?)

Whether it shows up on balance sheet today depends on how lease is structured

Capital vs Operating, 4 Criteria (transfer ownership, bargain purchase option, lease term > 75% of economic life, PV of min lease > 90% of fair value of leased asset)

Company

Ticker

Total Liabilities

Estimated Off Balance Sheet

Operating Lease Liability

Adjusted Liabilities

% Increase

Whole Foods Market WFMI $ 524 $ 1,957 $ 2,481 374%

Walgreen Co. WAG 5,719 15,239 20,958 266%

Bed Bath & Beyond BBBY 996 2,235 3,231 224%

Circuit City Group CC 1,702 3,533 5,235 208%

Starbucks Corp. SBUX 1,423 2,450 3,874 172%

CVS Corp. CVS 6,952 11,108 18,060 160%

Kohl's Corp. KSS 3,013 4,141 7,153 137%

Staples Inc. SPLS 2,956 3,814 6,770 129%

Coach, Inc. COH 314 358 672 114%

TJX Companies Inc. TJX 3,422 3,866 7,288 113%

Big Lots, Inc. BLI 658 725 1,384 110%

Analytically bring on balance sheet, investors should already be adjusting

US$ in millions

45

Off-Balance-Sheet

46

Off-Balance-Sheet Activity

Look for companies to try and explain

What they are doing off balance sheet

Why they are doing it

What risks are involved

Ask yourself some questions:

Do the transactions make sense?

Do they have a valid business purpose?

Should you bring them on balance sheet analytically?

Is it just another fancy form of financing?

Have you factored risks into your analysis?

Have you run scenarios in your model using different assumptions?

47

Off Balance Sheet Risks

How have you factored this stuff into your model?

48

Off Balance Sheet Club

$1.5 Trillion Off Balance Sheet Assets, $2.3 Trillion Off Balance Sheet Liabilities

Four off balance sheet risks, pensions, OPEB, options, and operating leases…there are plenty more

Assets Liabilities

Sector

On B/S Assets

Off B/S Assets

Off B/S as a % of On B/S

On B/S Liabilities

Off B/S Liabilities

Off B/S as a % of On B/S

Consumer Discretionary $ 1,852,824 $ 302,846 16% $ 1,334,822 $ 464,652 35%

Consumer Staples 712,509 119,175 17% 458,509 165,639 36%

Energy 850,451 65,209 8% 452,405 101,367 22%

Financials 16,143,649 167,670 1% 14,900,988 271,318 2%

Health Care 849,733 61,033 7% 453,001 138,712 31%

Industrials 1,561,965 282,036 18% 1,132,829 386,305 34%

Information Technology 838,512 159,704 19% 408,672 312,956 77%

Materials 349,681 85,660 24% 223,899 109,396 49%

Telecommunication Services 532,580 128,178 24% 348,034 175,890 51%

Utilities 786,267 104,559 13% 602,136 132,168 22%

Totals $ 24,478,172 $ 1,476,070 6% $ 20,315,296 $ 2,258,402 11%

Maybe balance sheets aren’t as healthy as they initially appear

US$ in millions

49

Taxes

50

Corporate Taxes – A Giant Black Box

The hardest thing in the world to understand is the income tax.

Albert Einstein

Multiple corporate entities

Taxed in multiple jurisdictions (state, local, federal, international)

Example: GE files over 6,500 tax returns in 250 global taxing jurisdictions

Multiple sources of tax law (legislation, statutes, case law, etc.)

Taxes are one of the larger costs a company will incur

Accounting for income taxes: One of the most complicated and least understood areas in accounting

Asking for Trouble

51

TaxesIs the tax rate sustainable?

How much of the EPS growth was attributable to lower tax rate?

How much of the cash flow growth was attributable to paying less in taxes?

How do cash taxes compare to book taxes?

When will they become a cash tax payer?

How should I value their NOLs? When do they expire?

Will the deferred tax liabilities ever come due?

Is the company being audited?

What is the amount of undistributed foreign earnings?

Will the company need to set up a deferred tax valuation allowance? etc. etc. etc.

One of the most complicated and least understood areas of accounting.

52

Now There’s Only Death

FIN 48, Accounting for Uncertainty in Income Taxes

Uncertain tax position = Company takes a position on its tax return (typically to reduce the tax bill) uncertain whether the IRS or some other tax authority will accept

What’s really got the companies worried is the new disclosures

First time disclosing tax reserves. Is it a roadmap for the IRS? More like a compass.

Potential Impacts of FIN 48

More volatile effective tax rates = More volatile earnings

Reduced ability to manage earnings

Companies paying more in taxes

– Increased risk of IRS audit and

– Less aggressive applications of the tax code

May uncover tax risks you were unaware of

53

Peeking behind the Tax Curtain

$141 Billion in Unrecognized Tax Benefits (i.e., Tax Reserve)

Automobiles, 3%

Other, 36%

Commercial Banks, 6%

Industrial Conglomerates, 5%

Electric Utilities, 4%Media, 4%

Insurance, 4%

Oil Gas & Consumable Fuels, 6%

Diversif ied Telecommunication

Services, 7%

Diversif ied Financial Services, 8%

Pharmaceuticals, 13%

Aerospace & Defense, 3%

Risk: Payment of back taxes, penalties & interest

54

FIN 48 Reveals Tax Risk

Are you willing to pay for companies to take on this type of risk?

Company Ticker

Unrecognized Tax Benefit /

Cash Tax Paid

Unrecognized Tax Benefit / Market Cap


Cash Flow from Ops.


Total Liabilities Z-Score

PMC-Sierra Inc.1,2 PMCS 27 8% 1,344% 29% 7.1

Altera Corp.1 ALTR 260 2% 40% 23% 5.5

General Motors1 GM 3 15% 236% 1% 2.6

Merck & Co. MRK 4 6% 87% 27% 2.5

Allied Waste Industries1 AW 25 13% 76% 6% 2.4

Entergy Corp. ETR 41 9% 83% 9% 2.3

Fluor Corp. (New)1 FLR 5 4% 331% 11% 1.9

Yahoo Inc. YHOO 16 2% 63% 26% 1.8

PerkinElmer PKI 3 5% 103% 18% 1.8

Black & Decker Corp. BDK 4 7% 79% 11% 1.6

1Not clear whether unrecognized tax benefit includes related accrued interest and penalties. Accrued interest and penalties were $32.6 million for PMC Sierra Inc, $22.7 million for Altera Corp, $285.9 million for General Motors, $187 million for Allied Waste, and $64 million for Fluor Corp. 2For companies where trailing five-year average cash taxes paid was a negative number (i.e., a refund), we used the most recent cash taxes paid. For PMC Sierra, the five-year average cash taxes paid was ($8.2 million), therefore, for this ratio, we used cash taxes paid of $4.7 million in 2006.


Tax Risk Report Card

Investors uncovering tax risks could affect valuations:

Estimates of future cash flows (how sustainable is tax rate?)

Higher required return (increased tax risk could increase cost of capital)

55

Other Stuff

56

Pro Forma EPS, Cash EPS, Non-GAAP or…

Source: From The Wall Street Journal—Permission, Cartoon Features Syndicate

57

Why does Pro Forma EPS always seem to be higher than GAAP EPS?

Pro forma or cash earnings – spread vs. GAAP – What adjustments are being made? Do the adjustments make any sense? (don’t be afraid to challenge the convention, just because “everyone” does it doesn’t mean its right)

GAAP net income $ 1,773 $ 1,874 $ 6,038 $ 5,403Employee share-based compensation expense 268 237 767 709Payroll tax on stock option exercises 1 9 20 26Compensation expense related to acquisit ions and investments (1) 286 16 359 64In-process research and development — 1 3 7Amortization of purchased intangible assets 174 133 529 406

Total adjustments to GAAP income before provision for income taxes 729 396 1,678 1,212

Income tax effect (193 ) (159 ) (526 ) (449 )Effect of retroactive tax legislation (2) — — — (60 )

Total adjustments to GAAP provision for income taxes (193 ) (159 ) (526 ) (509 )

Non-GAAP net income $ 2,309 $ 2,111 $ 7,190 $ 6,106

Diluted net income per share:

GAAP $ 0.29 $ 0.3 $ 0.97 $ 0.86

Non-GAAP $ 0.38 $ 0.34 $ 1.16 $ 0.98

Shares used in diluted net income per share calculation:

GAAP 6,069 6,244 6,202 6,255

Non-GAAP 6,052 6,233 6,192 6,241

April 28,

2007

April 26,

2008

Three Months Ended Nine Months Ended

April 26,

2008

April 28,

2007

58

Accounting Motivated Transactions

Accelerated vesting of options

Six month & 1 day option repricings

Structuring a lease in just the right way to get preferred accounting treatment

Restructuring off-balance-sheet transactions to keep them off-balance-sheet

Finding a replacement for co-co’s, etc. etc. etc.

Is management focused on the economics of the business or the accounting?

Is the company incurring an economic cost to reduce an accounting cost, or to paint a prettier accounting picture?

Is there an economic reason for the transaction?

Be on the look out for overly complex transactions

59

Disclosures

60

DisclosureDisclosure Appendix

Important Global DisclosuresI, David Zion, CFA, CPA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities.

Analysts’ stock ratings are defined as follows***:

Outperform (O): The stock’s total return is expected to exceed the industry average* by at least 10-15% (or more, depending on perceived risk) over the next 12 months.

Neutral (N): The stock’s total return is expected to be in line with the industry average* (range of 10%) over the next 12 months.

Underperform (U)**: The stock’s total return is expected to underperform the industry average* by 10-15% or more over the next 12 months.

*The industry average refers to the average total return of the relevant country or regional index (except with respect to Europe, where stock ratings are relative to the analyst’s industry coverage universe).

**In an effort to achieve a more balanced distribution of stock ratings, the Firm has requested that analysts maintain at least 15% of their rated coverage universe as Underperform. This guideline is subject to change depending on several factors, including general market conditions.

***For Australian and New Zealand stocks a 7.5% threshold replaces the 10% level in all three rating definitions, with a required equity return overlay applied.

Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

61

DisclosureAnalysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**:

Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.

Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.

Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.

*An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector.

**The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months.

Credit Suisse’s distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Outperform/Buy* 45% (56% banking clients)

Neutral/Hold* 41% (56% banking clients)

Underperform/Sell* 12% (47% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Important Regional Disclosures

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that.

CS may have issued a Trade Alert regarding this security. Trade Alerts are short term trading opportunities identified by an analyst on the basis of market events and catalysts, while stock ratings reflect an analyst's investment recommendations based on expected total return over a 12-month period relative to the relevant coverage universe. Because Trade Alerts and stock ratings reflect different assumptions and analytical methods, Trade Alerts may differ directionally from the analyst's stock rating.

The author(s) of this report maintains a CS Model Portfolio that he/she regularly adjusts. The security or securities discussed in this report may be a component of the CS Model Portfolio and subject to such adjustments (which, given the composition of the CS Model Portfolio as a whole, may differ from the recommendation in this report, as well as opportunities or strategies identified in Trading Alerts concerning the same security). The CS Model Portfolio and important disclosures about it are available at www.credit-suisse.com/ti.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.

62

DisclaimersThis report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse, the Swiss bank, or its subsidiaries or its affiliates (“CS”) to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.

The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. CS does not offer advice on the tax consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change.

CS believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources CS believes are reliable, but CS makes no representations as to their accuracy or completeness. Additional information is available upon request. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, a trading call regarding this security. Trading calls are short term trading opportunities based on market events and catalysts, while stock ratings reflect investment recommendations based on expected total return over a 12-month period as defined in the disclosure section. Because trading calls and stock ratings reflect different assumptions and analytical methods, trading calls may differ directionally from the stock rating. In addition, CS may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. CS is involved in many businesses that relate to companies mentioned in this report. These businesses include specialized trading, risk arbitrage, market making, and other proprietary trading.

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgement at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR’s, the values of which are influenced by currency volatility, effectively assume this risk.

Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase.

Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed.

This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or CS’s website shall be at your own risk.

This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the United Kingdom by The Financial Services Authority (“FSA”). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States by Credit Suisse Securities (USA) LLC ; in Switzerland by Credit Suisse; in Canada by Credit Suisse Securities (Canada), Inc..; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A.; in Japan by Credit Suisse Securities (Japan) Limited, Financial Instrument Dealers, Director of Kanto Local Finance Bureau (Financial Instruments) Number 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan; elsewhere in Asia/Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited , Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse Singapore Branch, Credit Suisse Securities (India) Private Limited, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse Taipei Branch, PT Credit Suisse Securities Indonesia, and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse Taipei Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn. Bhd., to whom they should direct any queries on +603 2723 2020.

In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S.

Please note that this report was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report.

Any Nielsen Media Research material contained in this report represents Nielsen Media Research's estimates and does not represent facts. NMR has neither reviewed nor approved this report and/or any of the statements made herein.

Copyright 2008 CREDIT SUISSE and/or its affiliates. All rights reserved.

Documents

David Zion - The Official Web Site of the Financial