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Four Changes Made to the S&P 500 - D.I. Reports Available for 2 of the Additions and 3 of the Deletions

|Includes:AKS, DLTR, MWW, Perrigo Company (PRGO), SUNEQ

S&P announced yesterday that it would make four changes to its benchmark index. Companies that were added included AGL Resources (AGL), BorgWarner (BWA), Perrigo (PRGO), and Dollar Tree (DLTR). Firms being removed were Nicor (NYSE:GAS), AK Steel (AKS), Monster Worldwide (MWW), and MEMC Electronic Materials (WFR). Below are the D.I. Profiles for PRGO, DLTR, AKS, MWW, and WFR. The complete reports are attached.


From our report dated 23-Jun-11: We are changing our rating on PRGO from Medium Risk - Negative Bias to Medium Risk - Positive Bias due to a re-inspection by the FDA indicating acceptable regulatory status. One-time items; acquisition activity; concentrated revenue; and the chairman and CEO positions being held by one person support our opinion of a Medium Risk - Positive Bias rating on PRGO. Since FY06, PRGO has recorded $36 million of restructuring charges and $30 million in write-offs of in-process research and development acquired in various acquisitions. From FY07 to FY09, PRGO recorded $14 million of other asset impairment charges. PRGO reported 11 business acquisitions for $1.1 billion. Goodwill was reported with 7 of the transactions and totaled $426 million. The largest was the May-10 acquisition of PBM Holdings, Inc. for $841 million, of which $332 million was allocated to goodwill. In Jan-11, PRGO announced the pending acquisition of Paddock Laboratories, Inc. for $540 million. The acquisition is expected to close during fiscal 4Q11. Wal-Mart accounted for approximately 23% of PRGO’s net sales in FY10. Joseph Papa has been Chairman since Oct-07 and CEO since Oct-06.


From our report dated 29-Nov-11: Related party transactions support our opinion of a Medium Risk - Positive Bias rating for DLTR. DLTR leases properties for 6 of its stores from partnerships owned by related parties. The total rental payments related to these leases were $500,000 for FY10, FY09, and FY08. Total future commitments under related party leases were $2.5 million as of 29-Jan-11. In a proxy filed 16-May-11, DLTR reported that 2 stores were leased from DMK Associates, a partnership owned by director J. Douglas Perry. Rental payments to DMK Associates, including pass-through of common area maintenance, taxes, insurance and utilities, totaled approximately $201,000 in FY10. One of the 2 store leases with DMK Associates was reported to expire in Nov-11. The other store lease expires in Mar-17.


From our report dated 8-Nov-11: Ongoing litigation; no 4Q11 guidance; related party transactions; and the chairman and CEO positions being held by one person support our opinion of a Medium Risk - Negative Bias rating for AKS. In Aug-09, Consolidation Coal Company filed an action against AKS and Neville Coke. The complaint alleged that AKS tortuously interfered with a supply agreement between Consolidation and Neville. Consolidation seeks monetary damages from AKS in an amount exceeding $30 million and from Neville in an amount exceeding $20 million. AKS agreed to indemnify and defend Neville in this action pursuant to an agreement between the 2 companies. As of its 3Q11 10-Q filed 3-Nov-11, AKS reported that discovery has commenced, but no trial date has yet been set. On 25-Oct-11, AKS declined to provide 4Q11 guidance due to continued uncertainty and volatility with respect to economic conditions in the U.S. and in other markets served by the company. AKS regularly transacts business with its equity investees. In 2010, sales to and purchases from these equity investees totaled $41 million and $16 million, respectively. James Wainscott has been CEO since Oct-03 and Chairman since Jan-06.


From our report dated 25-Aug-11: Turnover in the executive suite and on the board; acquisition activity; patent infringement litigation; lowered guidance; and the chairman and CEO positions being held by one person support our opinion of a Medium Risk - Negative Bias rating for MWW. There have been 3 CEOs, 3 CFOs, 2 principal accounting officers, 2 general counsels, and 9 director departures (including 2 chairmen). MWW has reported 7 acquisitions for approximately $520 million. A total of $549 million was allocated to goodwill as a result of the transactions. The company is a defendant in an ongoing patent infringement suit filed by EIT Holdings. The lawsuit relates to pop-up advertising. In Jul-11, MWW lowered its non-GAAP bookings guidance from $1.19 million - $1.24 million to $1.16 million - $1.21 million. MWW also lowered its non-GAAP revenue guidance from $1.10 million - $1.15 million to $1.07 million - $1.12 million. Sal Iannuzzi was appointed Chairman & CEO in Apr-07.


From our report dated 17-Nov-11: Concentrated revenue; turnover in the executive suite; acquisition activity; lowered guidance; and patent infringement litigation support our opinion of a Medium Risk - Negative Bias rating on WFR. Two unnamed customers accounted for 12.7% and 12.1% of 2010 net sales. There have been 3 CEOs, 4 CFOs, and 4 principal accounting officers. CEO Ahmad Chatila and CFO Mark Murphy were appointed in Mar-09 and Jan-11, respectively. WFR reported 5 acquisitions (all of which involved earn-outs) for $702 million, $457 million of which was allocated to goodwill. The largest acquisition was SunEdison in Nov-09 for $315 million. On 3-Aug-11, the company lowered its 2011 non-GAAP sales guidance from $3.4 billion - $3.7 billion to $3.3 billion - $3.6 billion and its 2011 non-GAAP EPS guidance from $1.00 - $1.30 to $0.80 - $1.00. EPS guidance was lowered again on 2-Nov-11 to $0.16 - $0.36. WFR is involved in a lawsuit filed by Soitec and Commissariat A L'Energie Atomique alleging that certain of the company's silicon-on-insulator technologies infringe on their patents. An initial ruling found that WFR's products did not infringe any patents, but that some R&D efforts infringed one claim. Both parties had filed appeals as of the 10-Q filed 7-Nov-11.