Loading...
HomeMy WebLinkAboutCOC IDANote120910.pdfDisclosures and Analyst Certifications can be found in Appendix A. NEW YORK, NY, MELVILLE, NY PRINCETON, NJ MIAMI, FL BOCA RATON, FL 520 Madison Avenue y New York, New York 10022 y Telephone: 212-409-2000 800-LAD-THAL Member: NYSE, NYSE Amex, FINRA, all other principal exchanges and SIPC IIDDAACCOORRPP ((IIDDAA)) Company Update – Adjusting Estimates, Raising P-T and Maintaining NEUTRAL Highlights • We are reiterating our NEUTRAL rating on IDA shares. Our revised price target of $40 (previously $37 p/s) is based on a 2010/2011/2012 P/E of 14.0x/13.3x/12.7x our revised EPS estimates of $2.86/$3.02/$3.14 (previously $2.79/$3.00/$3.08). • Our revised 2010/2011 estimates are supported by the repairs tax study completed during 2010. At this time, our 2011 estimates exclude the unicap method change announced during 3Q10 that would provide a +$65m net tax benefit (currently 100% reserved pending approval from the US Congress Joint Committee on Taxation likely in 2011). Our 2011 estimates are subject to change following the outcome of the unicap method change and are sensitive to estimations of the effective tax rate. Updated rate base and capitalization assumptions, as well as, anticipated rate relief support our revised “normalized” 2012 estimates (partial-year Langley Gulch in rates) and price target objective. Considering less than 15% total return upside to our price target we reiterate our NEUTRAL rating. • In our opinion, the tax studies previously announced by IDA enhance its liquidity position, help support higher equity ratios, mitigate any significant near-term equity needs (excluding drip program) to fund the $397m Langley Gulch power plant to be operational in mid-2012. Also, the tax savings will ultimately help partially offset the base rate increase expected to be filed in mid-2011 for new rates effective 2012. Due to both tax studies, we believe it is unlikely for IDA to utilize any ADITC in 2010/2011 to support its 9.5% floor based on year-end shareholder equity as outlined in the settlement agreement, thereby, preserving the credits for possible inclusion in the next rate case. • In our opinion, IDA has prudently maintained its dividend at a level enabling it to maintain a solid credit profile during its historically high construction cycle, thereby, minimizing its external financing needs to fund cash uses. As the Langley Gulch capital expenditures near completion, we believe room for dividend growth is available. Current 2010 payout is 42%, below industry averages. We also believe that existing rate structure and other rate mechanisms better insulates IDA from the historical cash/earnings volatility due to changes in fuel costs (primarily hydro) and regulatory lag. IDA is also managing its costs well during a time of slower but still positive regional growth. • Near-term growth supported by $397m Langley Gulch power plant (operational mid- 2012). Longer-term growth supported by proposed transmission projects. • On October 28, 2010, IDA reported 3Q10 financial results. 3Q10 net income totaled $67.1m or $1.39 per diluted share compared to a net income of $54.5m or $1.16 per diluted share in 3Q09 and our estimate of $1.25 per share. • IDA updated and increased its 2010 earnings guidance range from $2.65- $2.80/share to $2.75-$2.90/share. The revised 2010 guidance incorporates the estimated tax benefits from the repairs deduction method change, but does not include any potential benefits that could result from the uniform capitalization method change with the IRS. IDA notes that given current estimates, Idaho Power is likely to exceed its return on equity of 9.5% in the Idaho retail jurisdiction and does not expect the need to amortize additional ADITC for 2010. COMPANY & MARKET DATA Price $37.18 Price Target, Excl Dividends (YE10) $40.00 Prior Target $37.00 52 - Week Range $29.22-$37.34 Mkt. Capitalization (mill) $1,826 Enterprise Value (mill) $2,445 FD Shares Outstanding (mill) 49 Avg. Daily Trading Vol. (000) 218 Book Value per Share (3Q10A) $30.89 Dividend (FY10E) / Yield $1.20 3.2% FY2008A FY2009A FY2010E Revenue (mill) $960 $1,050 $1,068 1Q EPS $0.48 $0.40 $0.34A 2Q EPS $0.35 $0.58 $0.82A 3Q EPS $1.14 $1.16 $1.39A 4Q EPS $0.16 $0.49 EPS $2.17 $2.64 $2.86 Prior EPS $2.79 Consensus EPS $2.74 P/E 17.1x 14.1x 13.0x EV/EBITDA 8.4x 8.5x 9.3x P/FCF 54.0x 54.0x -17.4x ESTIMATES Volum e in Millions 0.0 1.0 2.0 3.0 $20 $25 $30 $35 $40 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 50-day average 200-day average Brian J. Russo, CFA 646-432-6312 brusso@ladenburg.com Power and Utilities Sector Company Update December 9, 2010 NEUTRAL Brian Russo 646.432.6312 IDACORP (IDA) Ladenburg Thalmann & Co. Inc. PAGE - 2 - Investment Conclusion Adjusting Estimates, Raising P-T and Maintaining NEUTRAL We are reiterating our NEUTRAL rating on IDA shares. Our revised price target of $40 (previously $37 p/s) is based on a 2010/2011/2012 P/E of 14.0x/13.3x/12.7x our revised EPS estimates of $2.86/$3.02/$3.14 (previously $2.79/$3.00/$3.08). Our increased 2010/2011 estimates are supported by the repairs tax study completed during 2010. At this time, our 2011 estimates exclude the unicap method change announced during 3Q10. A +$65m net tax benefit related to the unicap method change is currently 100% reserved pending approval from the US Congress Joint Committee on Taxation likely in 2011. Our 2011 estimates are subject to change following the outcome of the unicap method change and are sensitive to estimations of the effective tax rate. Updated rate base and capitalization assumptions, as well as, anticipated rate relief supports our revised “normalized” 2012 estimates. While we believe that the IPUC supports the Staff and the state utilities to be “creative” in crafting rate design to help manage rate increases and that another settlement agreement similar to the January 2010 IPUC order is possible in the upcoming mid-2011 rate case filing, we base our estimates on a more traditional rate structure including: estimated 2012 forward test year rate base of $2.9b (assumes partial year Langley Gulch contribution), earned ROE of 10.4% and equity ratio of 50%. Tax Studies Provide Unique Benefits In terms of the method change for repair items (tax deduction for capitalized repairs on utility assets), IDA recorded a net tax benefit of $32.6m related to the method change and a $14m unrecognized tax liability. IDA also reported the results of its second tax study. Specifically, under uniform capitalization method change (tax deduction for capitalized overhead costs) IDA recorded a method change amount of $65.3m net tax benefit and an unrecognized tax liability of $65.3m due to the pending US Congress Joint Committee on Taxation approval likely during 2011. Both tax studies are treated under flow-through regulatory accounting with repair/unicap method change cash benefits of $33m/$42m. Despite the lower tax rate (and benefits) likely to be used as an offset to a revenue requirement in the next rate case under traditional rate-making, in our opinion, the unique IDA-related benefits of both tax studies include the restoration of the additional amortization of investment tax credits (ADITC) recorded in 1Q10 enabling IDA to utilize $25m in 2011 and future periods. We estimate that the tax study implications and earnings outlook supports at least 9.5% ROE in 2010/2011 and, we do not expect IDA to need any ADITC to support a 9.5% ROE floor in 2010/2011. Importantly, the ADITC balance could possibly be used in IDA’s upcoming rate case to be filed in mid-2011 for new rates effective 2012, thereby, potentially mitigating customer rate increases as it seeks to recover roughly two years of investments, as well as, inclusion of Langley Gulch in base rates. Also, the tax savings and ultimately lower costs to customers can help mitigate the rate shock to the upcoming base rate increase and recovery of Langley Gulch. Lastly, the cash impact will help mitigate 2011 external equity financing needs (excluding DRIP program). Brian Russo 646.432.6312 IDACORP (IDA) Ladenburg Thalmann & Co. Inc. PAGE - 3 - Langley Gulch Drives Near-term Rate Base Growth The Langley Gulch Power Plant is estimated to cost $397m (plus $30m of contingency costs) is currently on-budge/on-time, with expected in-service date of mid-2011. The CCGT has a heat rate of approximately 6750 Btu/Kwh. Excluding Langley Gulch, more than half, or 52%, of IDA total current capacity is hydro-based (1,709 MW). IDA received an IPUC order that entitled Idaho Power assurances of future ratemaking treatment for construction costs and $396.6m of pre-approved costs. IDA will request recovery of costs above the pre-approved levels if needed. Longer-term Growth tied to Proposed Transmission Projects Longer-term rate base growth tied to pending transmission projects. The 500 kV Boardman-Hemmingway line is estimated to cost $600m with construction expected to begin in 2013 and to be in-service in 2015. IDA expects its share of the project to be between 30-50%. The line is designed to improve reliability and relieve existing congestion and allow for the transfer of up to 1,500 MW of additional capacity between Idaho and the Northwest. IDA and Pacificorp are exploring a development joint venture and the BPA is also currently reviewing its participation. The Gateway West line is a joint proposal between Idaho Power and Pacificorp. IDA share of the project is estimated between $300-$500m. Initial phases could be completed by 2014. Dividend Growth Likely to Resume Over Time IDA current annualized dividend of $1.20 p/s translates a 42% payout ratio based on our 2010 estimate of $2.90 and translates to a 38% payout ratio based on our 2012 estimate of $3.14. Considering the below industry payout, the wind-down of Langley Gulch capital expenditures (2012 COD), improved cash flows due to tax studies, higher existing base rates and other mechanisms that mitigate the historical volatility in cash/earnings, as well as, the upcoming general rate case filing, we believe that IDA may reevaluate its common dividend policy over the next 6-12 months. IDA’s current quarterly dividend of $0.30 p/s has remained at that level since it cut its quarterly dividend in late 2003 from the $0.465 p/s. In our opinion, IDA has prudently maintained its dividend at a level that has enhanced its financial flexibility during its historically high construction cycle, thereby, minimizing its external financing needs (as illustrated by no secondary equity offering to finance its baseload generation needs). As the Langley Gulch capital expenditures near completion, we believe room for dividend growth is available. Capital Expenditures Forecasts Ongoing base capital expenditures are estimated at $155-$160m (vs depreciation of $115-$123m) and estimated at $352-$380m during 2011-2012. Total 2010 capital budget is $355-$365m and includes base capital ($155- $160m), Langley Gulch ($138-$140m), other ($39-$40m), AMI ($23-$25m). Total 2011-2012 capital budget is $640-$680m and includes base capital ($352- $380m), Langley Gulch ($175-$180m), other ($90-$95m), AMI ($23-$25m). We expect IDA to finance its base capex and CCGT with internal cash flow, debt and minimal external equity (accomplished by DRIP with $38m issued year-to- date). IDA recently extended its continuous equity program that was set to expire on December 5, 2010 through November 19, 2011. The original program (set up in Brian Russo 646.432.6312 IDACORP (IDA) Ladenburg Thalmann & Co. Inc. PAGE - 4 - December 2008) included 3.0m common shares. Since inception, IDA issued approximately 1.8m shares and has 1.2m shares remaining. 2010 Idaho Rate Settlement Summary and other Constructive Rate Mechanisms Per the January 2010 IPUC order, IDA can earn a minimum ROE of 9.5% (up to 10.5% with 50/50 sharing above 10.5%) and can utilize a specified amount of ADITC per year through 2011 to enhance its ROE based on year-end equity balance. New rates were effective June 1, 2010. The new rate structure allows IDA the opportunity to utilize Accumulated Deferred Investment Tax Credits (ADITC) to help achieve a minimum ROE of 9.5% on year-end equity balance in Idaho jurisdiction and is limited to $25m each year for 2010 and 2011, thereby, supporting earnings growth through 2011 until the next rate filing in mid-2011 for new rates effective 2012. IDA is expected to exceed 9.5% ROE in 2010 and is unlikely to need any ADITC in 2010. Other rate mechanisms in place that have helped to mitigate IDA’s historical cash/earnings volatility and challenges in earning it allowed ROE. The PCA is ID/OR power supply cost deferral mechanism and the 2010 settlement re- established the based level for net power supply costs (PCA). The LGAR is an element of the PCA formula intended to eliminate recovery of power supply expenses related to load growth changes from changing weather conditions and customer use patterns. Also, IDA now utilizes a forward-looking supply forecast that better matches actual fuel costs with estimates, thereby, minimizing over/under recovery balances going forward. The Fixed Cost Adjustment Mechanism (FCA) is a decoupling mechanism designed for residential and customers for recovery of fixed costs. 3Q10 Financial Results and 2010 Updated Guidance On October 28, 2010, IDA reported 3Q10 financial results. 3Q10 net income totaled $67.1m or $1.39 per diluted share compared to a net income of $54.5m or $1.16 per diluted share in 3Q09 and our estimate of $1.25 per share. The YoY changes were primarily attributable to power cost and fixed cost adjustment mechanisms (+$12.1m), reduced sales volumes (-$2.7m), increased transmission revenues (+$1.0m), increased depreciation expense (-$0.3m), decreased life insurance gains (-$0.5), a decrease in income tax expense (+$4.0m), decreased earnings at the holding company, net of tax (-$0.3) and other net decreases, net of tax (-$.7m). IDA updated and increased its 2010 earnings guidance range from $2.65- $2.80/share to $2.75-$2.90/share. The revised 2010 guidance incorporates the estimated tax benefits from the repairs deduction method change, but does not include any potential benefits that could result from the uniform capitalization method change with the IRS (approval likely in 2011). IDA notes that given current estimates, Idaho Power is likely to exceed its return on equity of 9.5% in the Idaho retail jurisdiction and does not expect the need to amortize additional ADITC for 2010. Key drivers of 2010 guidance: O&M expense of approximately $295m-$305m, Capital expenditures of $355m-$365m, hydroelectric generation of 7.0-7.5m MWh (previously 7.0-8.0m MWh), and Non-regulated earnings of $0- $3m. Brian Russo 646.432.6312 IDACORP (IDA) Ladenburg Thalmann & Co. Inc. PAGE - 5 - Table 2: IDA – Financial Summar Year Ending 31 December 2008 2009 2010E 2011E 2012E FINANCIAL SUMMARYEPS 2.1 2.64 2.86 3.02 3.14 P/E ratio 17.05 14.03 12.92 12.25 11.77 EBITDAPS 6.45 6.66 6.28 6.62 8.04 P/EBITDAPS 5.73 5.55 5.89 5.59 4.60 Free CFPS -2.36 0.69 -2.14 -1.85 -1.65P/Free CFPS -15.67 53.69 -17.31 -20.02 -22.43 DPS 1.20 1.20 1.20 1.32 1.45 Dividend yield 3.2% 3.2% 3.2% 3.6% 3.9% BV PS 28.80 29.71 31.78 33.20 34.86 P/BV PS 1.28 1.24 1.16 1.11 1.06 Dilluted Shares Out 45,379 47,182 49,116 49,741 49,791 Enterprise value 2,852,285 3,101,062 3,298,405 3,304,034 3,460,251 EV/Sales 2.97 2.95 3.09 2.87 2.78 EV/EBITDA 9.74 9.87 10.70 10.04 8.65EV/EBIT 14.97 14.12 15.18 14.37 11.99 INCOME STATEMENT (USDm) Revenues 960,414 1,049,800 1,068,440 1,152,655 1,243,646 Gross margin 190,667 203,583 192,450 209,760 277,121 Operating EBITDA 292,753 314,209 308,396 329,184 400,128 Depreciation & Amortization 102,086 110,626 115,946 119,424 123,007 EBIT 190,501 219,547 217,273 229,999 288,681 Interest expense 73,056 72,810 72,940 74,031 88,213 Income tax expense 19,200 22,362 3,739 5,813 44,103 Net income 98,414 124,350 140,594 150,155 156,365Net income per share 2.17 2.64 2.86 3.02 3.14 CASH FLOW (USDm) Cash flow from operations 136,513 284,425 255,096 268,135 277,928 Cash flow from investing (202,824) (242,405) (360,000) (360,000) (360,000) Capital expenditures 243,544 251,937 360,000 360,000 360,000 Cash flow from financing 67,173 2,139 179,061 (14,658) 77,703 Common dividends (54,239) (56,820) (58,939) (65,658) (72,297) Free cash flow (107,031) 32,488 (104,904) (91,865) (82,072) BALANCE SHEET (USDm) Cash and marketable sec 8,828 52,987 127,144 20,621 16,252Total assets 4,022,845 4,238,727 4,677,669 4,772,789 5,003,413 Total debt/lease 1,183,451 1,409,730 1,609,730 1,485,730 1,635,730 Total liabilities 2,715,974 2,905,637 3,065,008 2,910,501 3,001,934 Shareholders' equity 1,306,871 1,401,544 1,561,059 1,651,555 1,735,623 RATIO ANALYSIS Sales growth (%) 9.2% 9.3% 1.8% 7.9% 7.9%Gross margin/sales (%) 19.9% 19.4% 18.0% 18.2% 22.3% EBIT/Assets 4.7% 5.2% 4.6% 4.8% 5.8% CFO/Assets 3.4% 6.7% 5.5% 5.6% 5.6% ROA 2.4% 2.9% 3.0% 3.1% 3.1%ROE 7.5% 8.9% 9.0% 9.1% 9.0% Total debt/total capital 47.5% 50.1% 50.8% 47.4% 48.5% Total debt/EBITDA 4.0 4.5 5.2 4.5 4.1 EBITDA/interest expense 4.0 4.3 4.2 4.4 4.5 FFO/Debt 20.2% 15.8% 18.0% 17.0% RATE BASE AND SEGMENT ANALYSIS1 Im lied Rate Base2 2,861,067.96$ Implied Regulatory Equity Ratio2 50.0% Implied Earned ROE2, 3 10.4% Implied Utility EPS $2.98 Financial, Ida-West, Holdco $0.03 AFUDC $0.12 Consolidated IDA EPS4 $3.13 12010 and 2011 earnings based on previous settlement that enables Idapower to earn an ROE of at last 9.5% on year-end shareholder equity 12012 rate structure pending outcome of mid-2011 general rate case filing 2ROE and Equity ratio calculation based on ID and OR jurisdictional weighted average using previous rate case settlements/agreements 3 2012 average rate based includes partial-year of $397m Langley Gluch with COD expected mid-year 2012. End of year rate base estimated at $3.1b 4Rate base analysis and segment EPS for presentation only and may differ from actual EPS forecasts Source: Ladenburg Thalmann & Co, Inc., Company Reports Brian Russo 646.432.6312 IDACORP (IDA) Ladenburg Thalmann & Co. Inc. PAGE - 6 - APPENDIX A: IMPORTANT RESEARCH DISCLOSURES ANALYST CERTIFICATION I, Brian Russo, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firm’s total revenues, a portion of which is generated by investment banking activities. COMPANY BACKGROUND Headquartered in Boise, Idaho, IDACORP, Inc., (IDA) is a holding company formed in 1998 that is primarily engaged in the generation, transmission, distribution, sale and purchase of energy. IDA serves over 466,000 retail customers across its 24,000sq mile service territory in both Idaho and Oregon, and owns approximately 3,267MW of generating capacity. IDA’s principal operating subsidiary is Idaho Power Company (IPC). The company’s unregulated utilities include IDACORP Financial (IFS) that invests in affordable housing and real estate and Ida-West Energy Company (Ida-West) that operates small hydroelectric generation projects. VALUATION METHODOLOGY We value equities utilizing a multi-faceted approach which includes; sum-of-the-parts, net asset value, discounted cash flow, leading P/E, and EV/EBITDA. RISKS On top of normal economic and market risk factors that impact most all equities, Idacorp (IDA) is uniquely at risk to: Because of IPC’s predominantly hydroelectric generating base and heavy reliance on hydroelectric generation, which can be adversely affected by weather, reduced hydroelectric generation can reduce revenues and increase costs. Continuing declines in stream flows and over-appropriation of water in Idaho may reduce hydroelectric generation and revenues and increase costs. Load growth in IPC’s service territory due to customer growth and demand for energy exposes it to greater market and operational risk as increased reliance on purchased power to meet load requirements could increase costs and reduce earnings and cash flows. IPC’s reliance on coal and natural gas to fuel its generating facilities exposes it to risk of increased market prices, which could increase costs and reduced earnings. Changes in temperature and precipitation can reduce power sales and revenues. Climate change could affect customer demand and hydroelectric generation and lead to restrictions on generation resources. If Idaho Public Utility Commission (IPUC), the Oregon Public Utility Commission (OPUC) or the Federal Energy Regulatory Commission (FERC) grant less rate recovery in rate case filings than IPC needs to cover the costs of providing services, financial results could be adversely impacted and economic expansion may be limited. Conditions that may be imposed in connection with hydroelectric license renewals may require large capital expenditures and reduce earnings and cash flows. The cost of complying with environmental regulations related to air quality, water quality, natural resources and health and safety can increase capital expenditures and operating costs and reduce earnings and cash flows. IDACORP and its subsidiaries are subject to costs and other effects of legal and regulatory proceedings, settlements, investigations and claims, including those that have arisen out of the western energy situation. IPC’s business is subject to substantial governmental regulation and may be adversely affected by increased costs resulting from, or liability under, existing or future regulations or requirements. Increased capital expenditures can significantly affect liquidity. As a holding company, IDACORP does not have its own operating income and must rely on the upstream cash flows from its subsidiaries to pay dividends and make debt payments. A downgrade in IDA’s credit ratings could negatively affect the company’s ability to access capital and increase their cost of borrowing. Adverse results of income tax audits could reduce earnings and cash flows. Employee workforce factors, including the loss or retirement of key personnel, availability of qualified personnel and an aging workforce, could increase costs and reduce earnings. Brian Russo 646.432.6312 IDACORP (IDA) Ladenburg Thalmann & Co. Inc. PAGE - 7 - STOCK RATING DEFINITIONS Buy: The stock’s return is expected to exceed 15% over the next twelve months. Neutral: The stock’s return is expected to be plus or minus 15% over the next twelve months. Sell: The stock’s return is expected to be negative 15% or more over the next twelve months. Investment Ratings are determined by the ranges described above at the time of initiation of coverage, a change in risk, or a change in target price. At other times, the expected returns may fall outside of these ranges because of price movement and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review. RATINGS DISPERSION AND BANKING RELATIONSHIPS (as of 11/30/10) Buy 70% ( 25% are banking clients) Neutral 29% ( 21% are banking clients) Sell 1% ( 0% are banking clients) INVESTMENT RATING AND PRICE TARGET HISTORY Brian Russo 646.432.6312 IDACORP (IDA) Ladenburg Thalmann & Co. Inc. PAGE - 8 - COMPANY SPECIFIC DISCLOSURES: Ladenburg Thalmann & Co. Inc. does not make a market in subject company. Ladenburg Thalmann & Co. Inc. has neither had an investment banking relationship with, nor received investment banking fees from the subject company in the past 12 months. Neither the Analyst, nor members of the Analyst’s household own any securities issued by the subject Company, or other companies mentioned in this report. GENERAL DISCLAIMERS Information and opinions presented in this report have been obtained or derived from sources believed by Ladenburg Thalmann & Co. Inc. to be reliable. The opinions, estimates and projections contained in this report are those of Ladenburg Thalmann as of the date of this report and are subject to change without notice. Ladenburg Thalmann & Co. Inc. 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 such liability arises under specific statutes or regulations applicable to Ladenburg Thalmann & Co. Inc. This report is not to be relied upon in substitution for the exercise of independent judgment. Ladenburg Thalmann & Co. Inc. 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 Ladenburg Thalmann & Co. Inc. is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. Some companies that Ladenburg Thalmann & Co. Inc. follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Ladenburg Thalmann & Co. Inc. research reports may not be suitable for some investors. Investors must make their own determination as to the appropriateness of an investment in any securities referred to herein, based on their specific investment objectives, financial status and risk tolerance. 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. The price, value of and income from any of the securities mentioned in this report can fall as well as rise. The value of securities is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk. Securities recommended, offered or sold by Ladenburg Thalmann & Co. Inc. (1) are not insured by the Federal Deposit Insurance Company; (2) are not deposits or other obligations of any insured depository institution; and (3) are subject to investment risks, including the possible loss of some or all of principal invested. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances; you may be required to pay more money to support these losses. The information 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 any securities mentioned herein. This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or disclosed to another party, without the prior written consent of Ladenburg Thalmann & Co. Inc. Member: NYSE, NYSE Amex, FINRA, all other principal exchanges and SIPC Additional Information Available Upon Request © 2010 - Ladenburg Thalmann & Co. Inc. All Rights Reserved.