Your SlideShare is downloading. ×
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
12 06 10-10 02 18 am
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

12 06 10-10 02 18 am

647

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
647
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. ab Global Equity Research Americas Software UBS Investment Research 12-month rating Neutral Adobe Systems Inc. Unchanged 12m price target US$30.00 Unchanged VAR Survey: No Check Engine Light, But No Price US$29.14 Turbos Spooling Either RIC: ADBE.O BBG: ADBE US 5 December 2010 Some stabilization, though FQ1 guide a question mark Results of our proprietary global survey of 50 resellers were unexciting, with areas Trading data of concern stabilizing though lacking positive momentum. This seems consistent 52-wk range US$37.86-25.60 with undemanding Q4 guidance (flat to slightly down vs. historical up seasonality), Market cap. US$15.1bn low teens P/E valuation, and our Neutral rating. We did not detect any signs of Shares o/s 519m (COM) rebound in education or Japan, though our sample is limited. There appeared to be Free float 100% no boost from Acrobat X’s launch. We see no major product catalyst until CS6, Avg. daily volume (000) 13,137 which we expect out in fall ’11, with stock unlikely to anticipate until C2Q11. Avg. daily value (m) US$372.4 Survey highlights: no excitement in what should be seasonally strong FQ4 Balance sheet data 11/10E PROs: VARs beat sequential growth quota on avg. by healthy 1.1% spread; macro concerns fading; stabilizing end-customer demand; healthy FQ1 expectations; no Shareholders equity US$5.37bn negative impact from Apple. CONs: flat monthly linearity; less interest in pricey P/BV (UBS) 2.7x CS5 Master Collection; no notable product strength in CS 5 or Acrobat X. Net Cash (debt) US$1.30bn FQ4-Nov. earnings preview: expect in-line to UBS, in upper-end of guide Forecast returns We est. revs $990M (+31% y/y, flat q/q) vs. guid. $950-1,000M, Street $988M; PF Forecast price appreciation +3.0% EPS $0.52 vs. guid. $0.48-0.54, St. $0.52; PF op mgn 37.7% vs. guid. 37-38%. We Forecast dividend yield 0.0% expect little contribution from Day acquis. (closed late Oct.; ~$50M annual revs). Forecast stock return +3.0% Market return assumption 5.5% Valuation Forecast excess return -2.5% Stock trades today at 13.7x our CY11 EPS estimate. Our $30 PT = 13x P/E (~40% discount to 20-yr 22x median) on our PF EPS estimate 5-8 qtrs out. EPS (UBS, US$) 11/10E 11/09 UBS Cons. Actual Q1 0.40 0.40 0.45 Q2 0.44 0.44 0.35 Q3 0.54 0.54 0.35 Highlights (US$k) 11/08 11/09 11/10E 11/11E 11/12E Q4E 0.52 0.52 0.39 Revenues 3,579,889 2,945,853 3,782,078 4,150,131 4,772,659 11/10E 1.90 1.90 EBIT (UBS) 1,435,386 1,034,946 1,381,539 1,548,770 1,812,357 11/11E 2.12 2.12 Net Income (UBS) 1,135,714 814,670 999,243 1,112,731 1,293,541 EPS (UBS, US$) 2.07 1.54 1.90 2.12 2.42 Performance (US$) Net DPS (UBS, US$) 0.00 0.00 0.00 0.00 0.00 60.0 Stock Price (US$) Rel. S & P 500 120 50.0 100 Profitability & Valuation 5-yr hist av. 11/09 11/10E 11/11E 11/12E 40.0 80 EBIT margin % - 35.1 36.5 37.3 38.0 30.0 60 ROIC (EBIT) % - 32.8 36.2 39.9 46.1 20.0 40 EV/EBITDA (core) x - 9.7 8.2 6.9 5.5 10.0 20 PE (UBS) x - 17.8 15.4 13.7 12.0 0.0 0 10/07 01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 10/10 Net dividend yield % - 0.0 0.0 0.0 0.0 Price Target (US$) (LHS) Stock Price (US$) (LHS) Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill-related charges and other adjustments for Rel. S & P 500 (RHS) abnormal and economic items at the analysts judgement. Source: UBS Valuations: based on an average share price that year, (E): based on a share price of US$29.14 on 03 Dec 2010 19:38 EST www.ubs.com/investmentresearch Brent Thill John Byun Analyst Associate Analyst brent.thill@ubs.com john.byun@ubs.com +1-415-352 4694 +1 415 352 4695 This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 12. 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.
  • 2. Adobe Systems Inc. 5 December 2010Results of Proprietary Global Reseller SurveyWe recently completed our quarterly survey of 50 value-added resellers (VARs).Interviews were held between November 8 and December 1. The VAR sampleincluded 25 resellers in the U.S., 20 in Europe (France, Germany, UK), and 5 inAPAC (Japan, Korea, India, Australia). We believe the survey data hasdirectional and qualitative value. However, given the relatively small samplesize and the declining mix of channel revenues within total Adobe sales, wecaution against quantitatively extrapolating survey metrics to overall Adobefinancials. Profile of VARs in the sample – This quarter’s sample included a healthy 22% mix of VARs that claim annual Adobe sales of $10M+.Table 1: VAR sample: grouped by annual Adobe product sales (% of resellers) <$1M $1M-$5M $5M-$10M $10M-$50M >$50M DK or N/A 28% 34% 12% 14% 8% 4%Source: Datamonitor and UBS FQ4 sales: healthy results – Our VAR sample expects q/q growth of 5.0% vs. an average goal of 3.9%. On average, VARs beat their quotas/targets by a spread of 1.1%, second highest in our history of surveys. In addition, 24% of VARs beat quotas (3rd highest), 60% met (slightly above historical median), and 16% missed (near historical low). We are modeling -0.7% growth in our Adobe model (ex-OMTR).Table 2: FQ4 sales results for VAR sampleFQ4 sales results by VARs (% q/q growth)avg. target 3.9%avg. achieved 5.0%avg. spread 1.1% % of VARs: above target 24% in-line 60% below target 16% no data 0%Source: Datamonitor and UBS. FQ4 linearity flat vs. typical uptrend – Unlike typical quarters where monthly linearity trends up in the third month, linearity was roughly flat across all three months. However, the net balance of VARs reporting strong or very strong sales vs. those noting weak or very weak sales was neutral (it is often negative early in the quarter). UBS 2
  • 3. Adobe Systems Inc. 5 December 2010Table 3: FQ4 sales linearity (% of VARs) Very weak Weak Fair or OK Strong Very strong September 4% 24% 52% 20% 0% October 2% 22% 52% 24% 0% November 10 2% 22% 52% 24% 0%Source: Datamonitor and UBS. Sales by product line: lacklustre CS5 and Acrobat – Looking at FQ4 sales by product, all products had net negative ratios of VARs reporting strong or very strong sales vs. weak or very weak sales. While this ratio is typically negative in our surveys, they tend to turn positive during product cycles. CS turned to a negative 6% ratio after being positive in the prior 4 surveys. Acrobat’s ratio worsened q/q despite the in-quarter launch of Acrobat X. Note that unlike in past CS cycles, there was no interim dot release for CS 5 to replace Acrobat 9 with the new X in any CS suites. One VAR commented that this is getting customers upset and causing cancelled orders.Table 4: FQ4 sales performance by product line (% of VARs – net of strong/very strongvs. weak/very weak) Nov. Aug. Nov. (% of resellers) 10 10 May 10 Feb. 10 09Photoshop CS -10% -8% -20% 6% -12%Creative Suite (all editions) -6% 12% 4% 14% 26%Acrobat Professional & 3D -14% -8% -18% -8% -20%Acrobat Standard -12% 2% -42% -8% -34%Macromedia Dreamweaver -22% -26% -40% -44% -40%Macromedia Flash Professional -22% -14% -54% -40% -26%Premiere Pro -22% -26% -50% -36% -30%Photoshop Elements -12% -10% -42% -6% -18%Macromedia Flex (& Flex Builder) -26% -26% -72% -50% -42%Source: Datamonitor and UBS. CS5 sales by edition: Design Premium stays #1, but Master Collection loses steam – As in last quarter, CS5 Design Premium was the best seller ($1,899 list price), followed by CS5 Design Standard ($1,299). However, the super-premium SKU Master Collection ($2,599) dropped from third to fourth place. The flagship Photoshop product fell from third to fifth place (list prices $699-$999). UBS 3
  • 4. Adobe Systems Inc. 5 December 2010Table 5: CS5 sales - ranking by product (1 is best) survey date: Nov. 10 Aug. 10 May 10 wtd avg. rank wtd avg. rank wtd avg. rank CS Design Premium 2.3 3.2 2.9 CS Design Standard 3.2 3.3 3.1 CS Web Premium 3.4 4.2 4.4 CS Web Standard CS Production Premium 4.4 4.4 4.7 CS Master Collection 4.2 4.0 3.6 Photoshop CS (Standard & Extended) 4.4 4.0 3.6 Dreamweaver CS Any other CS point product, individually (e.g., InDesign, 6.1 5.0 4.4 Illustrator, Flash Pro, etc.)Source: Datamonitor and UBS. Continued evidence of CS5 pent-up demand – Somewhat divergent with the lack of very strong CS5 sales, VARs continue to report a high level of pent-up demand – 90% of VARs vs. 92% last quarter and 96% in the prior two quarters. The portion of VARs noting the level of pent-up demand as “high” was flat with last quarter at 26%.Table 6: Level of pent-up demand for CS5 (% of VARs) survey date High Medium Low None Nov. 10 26% 48% 16% 10% Aug. 10 26% 42% 24% 8% May 10 42% 36% 18% 4% Feb. 10 28% 46% 22% 4%Source: Datamonitor and UBS. Positive impact from PC refresh, hiring trend of designers & developers, and increasing popularity of smartphones (even iPhone) and tablets – When asked whether these drivers were helping or hurting sales of Adobe products, 34-42% of VARs reported a positive impact, 52-56% no impact, and only 4-10% a negative impact. Regarding the popularity of iPhone/iPad, 34% of VARs saw a benefit and only 10% saw it as negative. Even when creating content for iPhone/iPad, designers & developers typically use Adobe tools to edit photos, drawings, and layouts. UBS 4
  • 5. Adobe Systems Inc. 5 December 2010Table 7: Helping or hurting sale of Adobe software? (% of VARs) Helping No Impact Hurting PC refresh 42% 52% 6% hiring trends 40% 56% 4% iPhone/Pad popularity 34% 56% 10% Android s/phone popularity 38% 56% 6% non-iPad tablet popularity 40% 54% 6%Source: Datamonitor and UBS. Optimistic about next quarter’s (FQ1-Feb.) growth – Our sample of VARs expect to grow sales by 5.2% in FQ1 ending February ‘11; a low 8% expect a sequential drop; 24% expect double digit growth. The group expects CS5 sales to rise 3.6% sequentially. In our Adobe model, we estimate FQ1 overall sales up 1.0% (ex-OMTR) and Creative Solutions segment down 2.0% q/q, which appear conservative.Table 8: FQ1 sales expectations – all Adobe products (% q/q growth; % of VARs) -20% to - -10% to 0% to +10% to wtd avg >-20% 10% 0% 0% +10% +20% >+20% 5.2% 0% 4% 4% 40% 28% 16% 8%Source: Datamonitor and UBS.Table 9: FQ1 sales expectations – Creative Suite only (% q/q growth; % of VARs) -20% to - -10% to 0% to +10% to wtd avg >-20% 10% 0% 0% +10% +20% >+20% 3.6% 0% 6% 2% 44% 30% 14% 4%Source: Datamonitor and UBS. FY11 sales outlook – Our VAR sample expects to grow Adobe product sales on average by 5.7% in FY10, similar to a view of 5.5% last quarter. 36% of VARs expect to grow by single-digits and 26% expect to hit double- digit growth. VARs’ annual forecasts tend to undershoot Adobe’s actual growth. We are modeling 8.1% organic growth in our Adobe model (excluding Omniture).Table 10: FY11 sales growth expectations for VAR sample survey -20% to - -10% to 0% to +10% to date wtd avg >-20% 10% 0% 0% +10% +20% >+20% Nov. 10 5.7% 0% 6% 2% 30% 36% 20% 6% Aug. 10 5.5% 4% 2% 4% 24% 46% 10% 10%Source: Datamonitor and UBS. UBS 5
  • 6. Adobe Systems Inc. 5 December 2010 Macroeconomic concerns continue to fade – When asked about macro issues such as energy/commodity prices, interest rates, and economic growth rates (and related spend on advertising/ marketing), 40% of VARs said they are not concerned. This is inline with the 34-46% range in the prior 4 quarterly surveys, and significantly better than the 16-20% levels of Nov ’08 – May ’09. Notably, the % of VARs that are “very concerned” improved to 18% from 30% last quarter and 20-22% in the prior 2 quarters.Table 11: Concerns about the economy (% of VARs) survey date yes-very yes-somewhat no Nov. 10 18% 42% 40% Aug. 10 30% 24% 46% May 10 20% 46% 34% Feb. 10 22% 38% 40% Nov. 09 30% 36% 34%Source: Datamonitor and UBS. Adobe customers in less pain – We asked VARs whether their customers are slowing or stopping the purchase of Adobe software because projects are getting cancelled and/or they are laying off designers/developers. Only 30% of VARs noted seeing such patterns, which is down from 36-46% in the prior 4 quarters and significantly improved from the 50-60%+ levels in 1H09.Table 12: Are customers slowing or stopping purchase of Adobe software due toproject cancellations and/or staff layoffs? (% of VARs) survey date Yes No Nov. 10 30% 70% Aug. 10 46% 54% May 10 36% 64% Feb. 10 40% 60% Nov. 09 42% 58%Source: Datamonitor and UBS. Healthy hiring plans over next 6 months – On average, resellers expect to increase sales headcount by 3.5%. This continues the healthy levels of 3.1- 3.8% in the previous four quarters, which are significantly better than the 0.2-2.2% levels of Nov. ’07 – May ’09. 42% of VARs expect to add headcount, while only 4% expect to shrink. UBS 6
  • 7. Adobe Systems Inc. 5 December 2010Table 13: 6 month hiring plans (% of VARs) – Weighted Average History Nov. Aug. Nov. wtd avg sum 10 10 May 10 Feb. 10 09 sales rep/engineer hiring plans for next 6 months 3.5% 3.6% 3.8% 3.1% 3.3%Source: Datamonitor and UBS.Table 14: 6 month hiring plans (% of VARs) – Response Distribution -20% to - -10% to 0% to +10% to wtd avg >-20% 10% 0% 0% +10% +20% >+20% 3.5% 0% 2% 2% 54% 30% 6% 6%Source: Datamonitor and UBS. Level of promotions/discounting looks normal – 72% of VARs are seeing the usual level of discounting. Only 16% saw more aggressive than usual discounting, which is near the lowest in seven quarters since Feb. ’09.Table 15: Promotional/discounting environment (% of VARs) More aggressive than survey date usual Usual level Less than usual Nov. 10 16% 72% 12% Aug. 10 14% 64% 22% May 10 26% 56% 18% Feb. 10 22% 46% 32% Nov. 09 30% 52% 18%Source: Datamonitor and UBS. Still winning against the competition – In general, Adobe’s products continue to win share from the competition, with 28-38% of VARs noting share gains against various competitors. Only 6-12% reported seeing any share loss.Table 16: Competitive market share gains & losses (% of VARs) Gaining share No change Losing share Quark Xpress (vs. InDesign, Creative Suite) 34% 56% 10% Apple Aperture (vs. Photoshop) 32% 58% 10% Microsoft Expression product family (vs. CS product family) 38% 54% 8% Nuance/ScanSoft PDF Converter (vs. Acrobat) 30% 58% 12% video editing sw vendors (vs. Premiere Pro, Production Studio) 28% 66% 6%Source: Datamonitor and UBS. UBS 7
  • 8. Adobe Systems Inc. 5 December 2010Table 17: Adobe P&L ModelFiscal year ending November 30 2010 Est Est Est(1,000s of $, except per-share data) 2009 1QA 2QA 3QA 4QE 2010 2011 2012 Year 2/10 5/10 8/10 11/10 Year Year YearRevenue:Creative Solutions 1,702,100 432,000 532,700 549,700 544,203 2,058,603 2,221,213 2,611,719Knowledge Worker Solutions 557,600 165,900 156,000 162,600 162,600 647,100 711,630 815,043Enterprise & Developer Solutions 300,900 79,900 76,700 94,200 96,084 346,884 387,132 431,939Platform 181,000 46,600 45,400 40,700 40,700 173,400 168,953 183,565Print & Publishing 177,953 46,600 48,735 52,119 49,437 196,891 211,405 195,304Omniture 26,300 87,700 83,500 91,000 97,000 359,200 449,798 535,089Total revenues $2,945,853 $858,700 $943,035 $990,319 $990,024 $3,782,078 $4,150,131 $4,772,659Direct costs $233,103 $70,686 $88,322 $80,710 $84,152 $323,870 $352,761 $405,676Gross profit $2,712,750 $788,014 $854,713 $909,609 $905,872 $3,458,208 $3,797,370 $4,366,983Gross margin 92.1% 91.8% 90.6% 91.9% 91.5% 91.4% 91.5% 91.5%Operating expenses:Research and development $490,641 $146,740 $144,718 $150,096 $150,596 $592,150 $642,384 $726,384Sales and marketing 922,603 272,594 296,976 282,119 299,977 1,151,666 1,253,308 1,431,533General and administrative 264,560 79,346 78,553 92,477 82,477 332,853 352,908 396,708Operating Income $1,034,946 $289,334 $334,466 $384,917 $372,822 $1,381,539 $1,548,770 $1,812,357Operating margin 35.1% 33.7% 35.5% 38.9% 37.7% 36.5% 37.3% 38.0%Interest and other income 27,973 -7,084 -22,389 -8,788 -16,000 -54,261 -65,129 -64,329Income before taxes $1,062,919 $282,250 $312,077 $376,129 $356,822 $1,327,278 $1,483,641 $1,748,028Taxes 248,249 70,564 77,899 92,151 87,421 328,035 370,910 454,487Tax rate 23.4% 25.0% 25.0% 24.5% 24.5% 24.7% 25.0% 26.0%Net income (loss) $814,670 $211,687 $234,178 $283,978 $269,400 $999,243 $1,112,731 $1,293,541Net margin 27.7% 24.7% 24.8% 28.7% 27.2% 26.4% 26.8% 27.1%Diluted EPS ex. amort $1.54 $0.40 $0.44 $0.54 $0.52 $1.90 $2.12 $2.42GAAP EPS + stock comp expense $0.73 $0.24 $0.28 $0.44 $0.39 $1.35 $1.53 $1.89Shares used in diluted net income 530,610 532,645 533,259 523,179 517,792 526,719 524,554 534,283% of RevenueResearch and development expenses 16.7% 17.1% 15.3% 15.2% 15.2% 15.7% 15.5% 15.2%Sales and marketing expenses 31.3% 31.7% 31.5% 28.5% 30.3% 30.5% 30.2% 30.0%General and administrative expenses 9.0% 9.2% 8.3% 9.3% 8.3% 8.8% 8.5% 8.3%Yr-Yr ChangesCreative Solutions -17.9% -6.2% 29.4% 37.3% 26.8% 20.9% 7.9% 17.6%Knowledge Worker Solutions -26.4% 10.7% 13.2% 17.7% 23.4% 16.1% 10.0% 14.5%Enterprise & Developer Solutions -1.8% 3.6% 6.7% 31.0% 20.1% 15.3% 11.6% 11.6%Platform -21.8% -10.9% 23.4% -9.4% -13.4% -4.2% -2.6% 8.6%Print & Publishing -15.8% 0.5% 4.9% 23.5% 15.3% 10.6% 7.4% -7.6%Omniture 25.2% 19.0%Total revenues -17.7% 9.2% 33.8% 42.0% 30.7% 28.4% 9.7% 15.0% core revs ex-OMTR -18.4% -2.0% 22.0% 28.9% 22.2% 17.2% 8.1% 14.5%Diluted EPS ex. amort -25.8% -11.4% 25.3% 55.1% 33.9% 23.6% 11.8% 14.1%Qtr-to-Qtr ChangesCreative Solutions 0.6% 23.3% 3.2% -1.0%Knowledge Worker Solutions 25.9% -6.0% 4.2% 0.0%Enterprise & Developer Solutions -0.1% -4.0% 22.8% 2.0%Platform -0.9% -2.6% -10.4% 0.0%Print & Publishing 8.7% 4.6% 6.9% -5.1%Omniture -4.8% 9.0% 6.6%Total revenues 13.4% 9.8% 5.0% 0.0%Source: Company reports and UBS estimates UBS 8
  • 9. Adobe Systems Inc. 5 December 2010Table 18: Adobe Operating Metrics(revenues in thousands) 2009 2010 2008 1QA 2QA 3QA 4QA 2009 1QA 2QA 3QA Year 2/09 5/09 8/09 11/09 Year 2/10 5/10 8/10Revenues by GeographyAmericas $1,632,900 $326,100 $317,800 $354,600 $384,200 $1,382,700 $408,400 $455,200 $502,500Europe, Middle East and Africa 1,229,200 277,500 215,200 196,200 240,000 928,900 275,400 277,400 290,900Asia 717,789 182,790 171,673 146,707 133,083 634,253 174,900 210,435 196,919Total $3,579,889 $786,390 $704,673 $697,507 $757,283 $2,945,853 $858,700 $943,035 $990,319 % of RevenueAmericas 46% 41% 45% 51% 51% 47% 48% 48% 51%Europe, Middle East and Africa 34% 35% 31% 28% 32% 32% 32% 29% 29%Asia 20% 23% 24% 21% 18% 22% 20% 22% 20% Yr-Yr % ChangeAmericas 8.2% -17.8% -17.2% -17.5% -9.1% -15.3% 25.2% 43.2% 41.7%Europe, Middle East and Africa 19.8% -14.3% -27.0% -33.7% -23.7% -24.4% -0.8% 28.9% 48.3%Asia 15.3% 7.7% -17.7% -9.2% -25.2% -11.6% -4.3% 22.6% 34.2% Qtr-to-Qtr % ChangeAmericas -22.8% -2.5% 11.6% 8.3% 6.3% 11.5% 10.4%Europe, Middle East and Africa -11.8% -22.5% -8.8% 22.3% 14.8% 0.7% 4.9%Asia 2.7% -6.1% -14.5% -9.3% 31.4% 20.3% -6.4%Employees 7,544 7,173 7,437 7,564 8,660 8,660 8,355 8,541 8,715 revenue per employee (annualized) 474,535 438,528 379,009 368,856 349,784 340,168 411,107 441,651 454,535Enterprise (LiveCycle) Server license deals (over $50K in si 606 104 124 139 159 526 149 124 173OmnitureUser transactions (trillions) 1.23 1.26 1.26Enterprise customer retention rate 95% 93% 93%SiteCatalyst % of OMTR rev 59% 57% 56%Balance Sheet & Cash FlowCash, equivalents, & s-t investments $2,019,202 $2,383,694 $2,664,185 $2,556,461 $1,904,473 $1,904,473 $2,672,384 $2,644,722 $2,578,274Deferred revenue 275,320 225,286 213,315 218,194 318,293 318,293 359,743 404,343 420,915DSO - all receivables 34 34 36 49 37 42 44DSO - trade receivables only 35 34 37 49 40 42 45Significant Product Launches PhotoshopDigital Imaging & Video CS 5 CS 4.0 foreignCreative Professional CS 5.0 languagesIntelligent Document (fka ePaper)Source: Company reports and UBS estimates UBS 9
  • 10. Adobe Systems Inc. Income statement (US$k) - - - 11/08 11/09 11/10E % ch 11/11E % ch 11/12E % ch Revenues - - - 3,579,889 2,945,853 3,782,078 28.4 4,150,131 9.7 4,772,659 15.0 Operating expenses (ex depn) - - - (1,871,930) (1,628,484) (2,099,314) 28.9 (2,239,174) 6.7 (2,570,791) 14.8 EBITDA (UBS) - - - 1,707,959 1,317,369 1,682,764 27.7 1,910,958 13.6 2,201,868 15.2 Depreciation - - - (272,573) (282,423) (301,225) 6.7 (362,188) 20.2 (389,510) 7.5 Operating income (EBIT, UBS) - - - 1,435,386 1,034,946 1,381,539 33.5 1,548,770 12.1 1,812,357 17.0 Other income & associates - - - 0 0 0 - 0 - 0 - Net interest - - - 33,828 27,973 (54,261) - (65,129) 20.0 (64,329) -1.2 Abnormal items (pre-tax) - - - 0 0 0 - 0 - 0 - Profit before tax - - - 1,469,214 1,062,919 1,327,278 24.9 1,483,641 11.8 1,748,028 17.8 Tax - - - (333,500) (248,249) (328,035) 32.1 (370,910) 13.1 (454,487) 22.5 Profit after tax - - - 1,135,714 814,670 999,243 22.7 1,112,731 11.4 1,293,541 16.2 Abnormal items (post-tax) - - - (263,900) (428,163) (290,702) -32.1 (311,264) 7.1 (283,264) -9.0 Minorities / pref dividends - - - 0 0 0 - 0 - 0 - Net income (local GAAP) - - - 871,814 386,507 708,541 83.3 801,467 13.1 1,010,277 26.1 Net Income (UBS) - - - 1,135,714 814,670 999,243 22.7 1,112,731 11.4 1,293,541 16.2 Tax rate (%) - - - 23 23 25 5.8 25 1.2 26 4.0 Pre-abnormal tax rate (%) - - - 23 23 25 5.8 25 1.2 26 4.0 Per share (US$) - - - 11/08 11/09 11/10E % ch 11/11E % ch 11/12E % ch EPS (local GAAP) - - - 1.59 0.73 1.35 84.7 1.53 13.6 1.89 23.8 EPS (UBS) - - - 2.07 1.54 1.90 23.6 2.12 11.8 2.42 14.1 Net DPS - - - 0.00 0.00 0.00 - 0.00 - 0.00 - Cash EPS - - - 2.61 2.09 2.51 19.9 2.88 14.8 3.22 12.0 BVPS - - - 8.29 9.33 10.61 13.7 12.21 15.1 14.28 17.0 Balance sheet (US$k) - - - 11/08 11/09 11/10E % ch 11/11E % ch 11/12E % ch Cash and equivalents - - - 2,019,202 1,904,473 2,816,807 47.9 3,709,056 31.7 4,862,631 31.1 Other current assets - - - 715,901 569,151 732,956 28.8 833,802 13.8 985,310 18.2 Total current assets - - - 2,735,103 2,473,624 3,549,763 43.5 4,542,858 28.0 5,847,942 28.7 Net tangible fixed assets - - - 313,037 388,132 442,140 13.9 472,582 6.9 513,620 8.7 Net intangible fixed assets - - - 2,349,690 4,021,977 3,903,029 -3.0 3,903,029 0.0 3,903,029 0.0 Investments / other assets - - - 423,768 398,504 389,665 -2.2 409,665 5.1 429,665 4.9 Total assets - - - 5,821,598 7,282,237 8,284,597 13.8 9,328,134 12.6 10,694,255 14.6 Trade payables & other ST liabilities - - - 793,955 881,270 1,067,497 21.1 1,162,672 8.9 1,320,495 13.6 Short term debt - - - 0 0 0 - 0 - 0 - Total current liabilities - - - 793,955 881,270 1,067,497 21.1 1,162,672 8.9 1,320,495 13.6 Long term debt - - - 350,000 1,000,000 1,515,752 51.6 1,515,752 0.0 1,515,752 0.0 Other long term liabilities - - - 267,289 510,399 335,979 -34.2 342,979 2.1 349,979 2.0 Total liabilities - - - 1,411,244 2,391,669 2,919,228 22.1 3,021,403 3.5 3,186,226 5.5 Equity & minority interests - - - 4,410,354 4,890,568 5,365,369 9.7 6,306,731 17.5 7,508,029 19.0 Total liabilities & equity - - - 5,821,598 7,282,237 8,284,597 13.8 9,328,134 12.6 10,694,255 14.6 Cash flow (US$k) - - - 11/08 11/09 11/10E % ch 11/11E % ch 11/12E % ch Net income - - - 871,814 386,507 708,541 83.3 801,467 13.1 1,010,277 26.1 Depreciation - - - 272,573 282,423 301,225 6.7 362,188 20.2 389,510 7.5 Net change in working capital - - - (143,487) 282,378 (254,198) - (5,671) -97.8 6,315 - Other (operating) - - - 279,353 166,463 379,925 128.2 73,364 -80.7 105,364 43.6 Net cash from operations - - - 1,280,253 1,117,771 1,135,493 1.6 1,231,347 8.4 1,511,466 22.7 Capital expenditure - - - (111,792) (119,592) (126,660) 5.9 (139,098) 9.8 (157,891) 13.5 Net (acquisitions) / disposals - - - 0 0 0 - 0 - 0 - Other changes in investments - - - (192,460) (1,377,504) (874,226) - 0 - 0 - Cash from investing activities - - - (304,252) (1,497,096) (1,000,886) -33.1 (139,098) -86.1 (157,891) 13.5 Increase/(decrease) in debt - - - 350,000 636,125 481,218 - 0 - 0 - Share issues / (repurchases) - - - (1,371,567) (158,467) (560,208) - (200,000) - (200,000) - Dividends paid - - - 0 0 0 - 0 - 0 - Other cash from financing - - - 0 0 0 - 0 - 0 - Cash from financing activities - - - (1,021,567) 477,658 (78,990) - (200,000) 153.2 (200,000) 0.0 Cash flow chge in cash & equivalents - - - (45,566) 98,333 55,617 - 892,249 - 1,153,575 - FX / non cash items - - - - (213,062) 856,717 - 0 - 0 - Bal sheet chge in cash & equivalents - - - - (114,729) 912,334 - 892,249 - 1,153,575 - Core EBITDA - - - 1,707,959 1,317,369 1,682,764 27.7 1,910,958 13.6 2,201,868 15.2 Maintenance capital expenditure - - - (111,792) (119,592) (126,660) 5.9 (139,098) 9.8 (157,891) 13.5 Maintenance net working capital - - - 0 0 0 - 0 - 0 - Operating free cash flow, pre-tax - - - 1,596,167 1,197,777 1,556,104 29.9 1,771,859 13.9 2,043,977 15.4Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill-related charges and other adjustments for abnormal and economic items at the analysts judgement. Note: For some companies, the data represents an extract of the fullcompany accounts. UBS 10
  • 11. Global Equity ResearchAmericasSoftware Adobe Systems Inc.12-month rating Neutral12m price target US$30.00 Valuation (x) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12E P/E (local GAAP) - 23.4 37.5 21.7 19.1 15.4 P/E (UBS) - 17.9 17.8 15.4 13.7 12.0 P/CEPS - 14.2 13.1 11.6 10.1 9.0 Net dividend yield (%) - 0.0 0.0 0.0 0.0 0.0Company profile P/BV - 4.5 2.9 2.7 2.4 2.0Based in San Jose, CA, Adobe is the leading provider of professional- EV/revenue (core) - 5.1 4.4 3.7 3.2 2.5quality software for the design, development, editing, and EV/EBITDA (core) - 10.6 9.7 8.2 6.9 5.5management of images (photos & drawings), videos, printed material EV/EBIT (core) - 12.6 12.4 10.0 8.5 6.7(books, magazines, annual reports, marketing brochures), web sites, EV/OpFCF (core) - 11.4 10.7 8.9 7.4 5.9and rich internet applications for PCs and mobile devices. Its flagship EV/op. invested capital - - 4.1 3.6 3.4 3.1products include Photoshop, Creative Suite, Flash, and Acrobat/PDF.In addition, the LiveCycle product family enables enterprises to Enterprise value (US$k) 11/08 11/09 11/10E 11/11E 11/12Eautomate processes and forms, such as mortgage applications. Average market cap 20,194,29 14,333,55 15,115,21 15,115,21 15,115,21Adobe had FY09 revenues of $2.9bn and PF operating margin of + minority interests 0 0 0 0 035%. + average net debt (cash) (1,831,528 (1,286,838 (1,102,764 (1,747,180 (2,770,092 + pension obligations and other ) 0 ) 0 ) 0 ) 0 ) 0 - non-core asset value (207,239) (207,239) (207,239) (207,239) (207,239) Core enterprise value 18,155,52 12,839,47 13,805,20 13,160,79 12,137,87 Growth (%) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12EValue (EV/OpFCF & P/E) Revenue - - -17.7 28.4 9.7 15.0 12.0x 20.0x EBITDA (UBS) - - -22.9 27.7 13.6 15.2 10.0x EBIT (UBS) - - -27.9 33.5 12.1 17.0 8.0x 15.0x EPS (UBS) - - -26.2 24.0 12.7 14.1 6.0x 10.0x Cash EPS - - -19.9 19.9 14.8 12.0 4.0x Net DPS - - - - - - 2.0x 5.0x BVPS - - 12.5 13.7 15.1 17.0 0.0x 0.0x 11/08 11/09 11/10 11/11E 11/12E Margins (%) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12E EV/OpFCF (LHS) P/E (RHS) EBITDA / revenue - 47.7 44.7 44.5 46.0 46.1 EBIT / revenue - 40.1 35.1 36.5 37.3 38.0 Net profit (UBS) / revenue - 31.7 27.7 26.4 26.8 27.1Profitability 41.00% 50.0% Return on capital (%) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12E 40.00% 45.0% EBIT ROIC (UBS) - - 32.8 36.2 39.9 46.1 39.00% 40.0% ROIC post tax - - 25.1 27.2 29.9 34.1 38.00% Net ROE - - 17.5 19.5 19.1 18.7 37.00% 35.0% 36.00% 30.0% Coverage ratios (x) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12E 35.00% 34.00% 25.0% EBIT / net interest - - - 25.5 23.8 28.2 11/08 11/09 11/10(E) 11/11(E) 11/12(E) Dividend cover (UBS EPS) - - - - - - EBIT margin (LHS) ROIC (RHS) Div. payout ratio (%, UBS EPS) - - - - - - Net debt / EBITDA - NM NM NM NM NMROE v Price to book value Efficiency ratios (x) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12E 19.50% 4.5x Revenue / op. invested capital - - 0.9 1.0 1.1 1.2 4.0x 19.00% Revenue / fixed assets - - 0.8 0.9 1.0 1.1 3.5x 18.50% Revenue / net working capital - - NM NM NM NM 3.0x 18.00% 2.5x Investment ratios (x) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12E 17.50% 2.0x OpFCF / EBIT - 1.1 1.2 1.1 1.1 1.1 17.00% 1.5x Capex / revenue (%) - 3.1 4.1 3.3 3.4 3.3 11/08 11/09 11/10(E) 11/11(E) 11/12(E) ROE (LHS) Price to book value (RHS) Capex / depreciation - 0.4 0.4 0.4 0.4 0.4 Capital structure (%) 5Yr Avg 11/08 11/09 11/10E 11/11E 11/12EGrowth (UBS EPS) Net debt / total equity - (37.8) (18.5) (24.2) (34.8) (44.6) Net debt / (net debt + equity) - (60.9) (22.7) (32.0) (53.3) (80.4) 5000000 30.0% Net debt (core) / EV - (10.1) (10.0) (8.0) (13.3) (22.8) 4500000 20.0% Source: Company accounts, UBS estimates. (UBS) valuations are stated before goodwill-related charges and other adjustments for abnormal and economic 4000000 10.0% items at the analysts judgement. 3500000 0.0% Valuations: based on an average share price that year, (E): based on a share price of US$29.14 on 03 Dec 2010 19:38 EST Market cap(E) may include 3000000 -10.0% forecast share issues/buybacks. 2500000 -20.0% 2000000 -30.0% 11/08 11/09 11/10(E) 11/11(E) 11/12(E) Brent Thill John Byun Revenue (LHS) UBS EPS Growth (RHS) Analyst Associate Analyst brent.thill@ubs.com john.byun@ubs.com +1-415-352 4694 +1 415 352 4695 UBS 11
  • 12. Adobe Systems Inc. 5 December 2010 Adobe Systems Inc.Based in San Jose, CA, Adobe is the leading provider of professional-qualitysoftware for the design, development, editing, and management of images(photos & drawings), videos, printed material (books, magazines, annual reports,marketing brochures), web sites, and rich internet applications for PCs andmobile devices. Its flagship products include Photoshop, Creative Suite, Flash,and Acrobat/PDF. In addition, the LiveCycle product family enables enterprisesto automate processes and forms, such as mortgage applications. Adobe hadFY09 revenues of $2.9bn and PF operating margin of 35%. Statement of RiskUpside risks: Faster than expected macroeconomic recovery, including:—Rapid rebound in advertising/marketing spend;—Increased hiring of designers/developers. CS5 product cycle more powerful than expected, due to:—Fast economic recovery;—Pent-up demand as many users held off on CS4;—Potential boost from release of Windows 7 and Mac OS X Snow Leopard O/Sreleases. Omniture acquisition: accelerated revenue growth and/or greater than expectedexpense synergies.Downside risks: Very slow economic rebound and resumption of ad/marketing spend. CS5 product cycle weaker than expected due to still sluggish economy. Omniture acquisition: (1) integration challenges; (2) disruption to Adobe’score business due to diverted management attention; (3) investor disappointmentwith retreat in PF op margin and slow progression in returning to prior levels. Analyst CertificationEach research analyst primarily responsible for the content of this researchreport, in whole or in part, certifies that with respect to each security or issuerthat the analyst covered in this report: (1) all of the views expressed accuratelyreflect his or her personal views about those securities or issuers; and (2) no partof his or her compensation was, is, or will be, directly or indirectly, related tothe specific recommendations or views expressed by that research analyst in theresearch report. UBS 12
  • 13. Adobe Systems Inc. 5 December 2010Required DisclosuresThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches andaffiliates 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 isnot 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 SecuritiesRegulatory Commission.UBS Investment Research: Global Equity Rating Allocations 1 2 UBS 12-Month Rating Rating Category Coverage IB Services Buy Buy 51% 37% Neutral Hold/Neutral 40% 33% Sell Sell 9% 22% 3 4 UBS Short-Term Rating Rating Category Coverage IB Services Buy Buy less than 1% 20% Sell Sell less than 1% 0%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 withinthe 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 providedwithin the past 12 months.Source: UBS. Rating allocations are as of 30 September 2010.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: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event. UBS 13
  • 14. Adobe Systems Inc. 5 December 2010KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not aforecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stocks price target and/or rating aresubject 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 anychange in the fundamental view or investment case.Equity Price Targets have an investment horizon of 12 months.EXCEPTIONS AND SPECIAL CASESUK 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 ReviewCommittee (IRC). Factors considered by the IRC include the stocks volatility and the credit spread of the respective companysdebt. 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 notregistered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained inthe NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by aresearch analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any,follows.UBS Securities LLC: Brent Thill; John Byun.Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date 4, 6, 7, 13, 16 Adobe Systems Inc. ADBE.O Neutral N/A US$29.14 03 Dec 2010Source: UBS. All prices as of local market close.Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricingdate4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.6. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided.7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity.13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end).16. UBS Securities LLC makes a market in the securities and/or ADRs of this company.Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. UBS 14
  • 15. Adobe Systems Inc. 5 December 2010Adobe Systems Inc. (US$) Price Target (US$) Stock Price (US$) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 01-Jan-06 01-Jan-07 01-Jan-08 01-Jan-09 01-Jan-10 01-Oct-05 01-Apr-06 01-Jul-06 01-Oct-06 01-Apr-07 01-Jul-07 01-Oct-07 01-Apr-08 01-Jul-08 01-Oct-08 01-Apr-09 01-Jul-09 01-Oct-09 01-Apr-10 01-Jul-10 01-Oct-10 Buy 1 Buy Neutral Sell No RatingSource: UBS; as of 03 Dec 2010Note: On August 4, 2007 UBS revised its rating system. (See UBS Investment Research: Global Equity Rating Definitions tablefor details). From September 9, 2006 through August 3, 2007 the UBS ratings and their definitions were: Buy 1 = FSR is > 6%above the MRA, higher degree of predictability; Buy 2 = FSR is > 6% above the MRA, lower degree of predictability; Neutral 1 =FSR is between -6% and 6% of the MRA, higher degree of predictability; Neutral 2 = FSR is between -6% and 6% of the MRA,lower degree of predictability; Reduce 1 = FSR is > 6% below the MRA, higher degree of predictability; Reduce 2 = FSR is > 6%below the MRA, lower degree of predictability. The predictability level indicates an analysts conviction in the FSR. Apredictability level of 1 means that the analysts estimate of FSR is in the middle of a narrower, or smaller, range of possibilities.A predictability level of 2 means that the analysts estimate of FSR is in the middle of a broader, or larger, range of possibilities.From October 13, 2003 through September 8, 2006 the percentage band criteria used in the rating system was 10%. UBS 15
  • 16. Adobe Systems Inc. 5 December 2010Global DisclaimerThis 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 isreferred 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 orrecommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for informationpurposes, 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. Norepresentation 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 informationconcerning 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 notundertake 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 shouldexercise 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 notnecessarily 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 thisreport 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 otherconstituencies 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 relieson 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 whoprepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment bankingrevenues, 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, andtrading 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 ratesand 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 securityor 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 itsaffiliates, 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. For financialinstruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC and/or UBS Capital Markets LP) acts as a market maker orliquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider is carried out inaccordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this research report. UBS and its affiliates andemployees may have long or short positions, trade as principal and buy and sell in instruments or derivatives identified herein.Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transactioncan or could have been effected at those prices and any prices do not necessarily reflect UBSs internal books and records or theoretical model-based valuations and may be based on certainassumptions. Different assumptions, by UBS or any other source, may yield substantially different results.United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is communicated by UBS Limited, a subsidiary of UBS AG, to persons who are eligiblecounterparties or professional clients and is only available to such persons. The information contained herein does not apply to, and should not be relied upon by, retail clients. UBS Limited isauthorised and regulated by the Financial Services Authority (FSA). UBS research complies with all the FSA requirements and laws concerning disclosures and these are indicated on theresearch where applicable. France: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities France SA. UBS Securities France S.A. is regulated by the Autorité desMarchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this report, the report is also deemed to have been prepared by UBS Securities France S.A.Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht(BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities España SV, SA. UBS Securities España SV, SA is regulated by the Comisión Nacional delMercado de Valores (CNMV). Turkey: Prepared by UBS Menkul Degerler AS on behalf of and distributed by UBS Limited. Russia: Prepared and distributed by UBS Securities CJSC.Switzerland: Distributed by UBS AG to persons who are institutional investors only. Italy: Prepared by UBS Limited and distributed by UBS Limited and UBS Italia Sim S.p.A.. UBS Italia SimS.p.A. is regulated by the Bank of Italy and by the Commissione Nazionale per le Società e la Borsa (CONSOB). Where an analyst of UBS Italia Sim S.p.A. has contributed to this report, thereport is also deemed to have been prepared by UBS Italia Sim S.p.A.. South Africa: UBS South Africa (Pty) Limited (Registration No. 1995/011140/07) is a member of the JSE Limited, theSouth African Futures Exchange and the Bond Exchange of South Africa. UBS South Africa (Pty) Limited is an authorised Financial Services Provider. Details of its postal and physical addressand a list of its directors are available on request or may be accessed at http:www.ubs.co.za. United States: Distributed to US persons by either UBS Securities LLC or by UBS FinancialServices Inc., subsidiaries of UBS AG; or by a group, subsidiary or affiliate of UBS AG that is not registered as a US broker-dealer (a non-US affiliate), to major US institutional investors only.UBS Securities LLC or UBS Financial Services Inc. accepts responsibility for the content of a report prepared by another non-US affiliate when distributed to US persons by UBS Securities LLCor UBS Financial Services Inc. All transactions by a US person in the securities mentioned in this report must be effected through UBS Securities LLC or UBS Financial Services Inc., and notthrough a non-US affiliate. Canada: Distributed by UBS Securities Canada Inc., a subsidiary of UBS AG and a member of the principal Canadian stock exchanges & CIPF. A statement of itsfinancial condition and a list of its directors and senior officers will be provided upon request. Hong Kong: Distributed by UBS Securities Asia Limited. Singapore: Distributed by UBS SecuritiesPte. Ltd [mica (p) 039/11/2009 and Co. Reg. No.: 198500648C] or UBS AG, Singapore Branch. Please contact UBS Securities Pte Ltd, an exempt financial advisor under the SingaporeFinancial Advisers Act (Cap. 110); or UBS AG Singapore branch, an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110) and a wholesale bank licensed under theSingapore Banking Act (Cap. 19) regulated by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with, the analysis or report. The recipient of thisreport represent and warrant that they are accredited and institutional investors as defined in the Securities and Futures Act (Cap. 289). Japan: Distributed by UBS Securities Japan Ltd toinstitutional investors only. Where this report has been prepared by UBS Securities Japan Ltd, UBS Securities Japan Ltd is the author, publisher and distributor of the report. Australia:Distributed by UBS AG (Holder of Australian Financial Services License No. 231087) and UBS Securities Australia Ltd (Holder of Australian Financial Services License No. 231098) only toWholesale clients as defined by s761G of the Corporations Act 2001. New Zealand: Distributed by UBS New Zealand Ltd. An investment adviser and investment broker disclosure statementis available on request and free of charge by writing to PO Box 45, Auckland, NZ. Dubai: The research prepared and distributed by UBS AG Dubai Branch, is intended for Professional Clientsonly and is not for further distribution within the United Arab Emirates. Korea: Distributed in Korea by UBS Securities Pte. Ltd., Seoul Branch. This report may have been edited or contributedto from time to time by affiliates of UBS Securities Pte. Ltd., Seoul Branch. Malaysia: This material is authorized to be distributed in Malaysia by UBS Securities Malaysia Sdn. Bhd (253825-x).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 thisrespect. Images may depict objects or elements which are protected by third party copyright, trademarks and other intellectual property rights. © UBS 2010. The key symbol and UBS areamong the registered and unregistered trademarks of UBS. All rights reserved.ab UBS 16

×