INDUSTRIAL

					                            Heard in the Midwest – Most Interesting Anecdotes of the Week

                                                                 5-29-09

The following tickers are included in comments this week:
        Industrial: ITT, ROK, BA
        Retail/Consumer: BBY, SYX, ODP
        Technology: AAPL*, T, BRCD*, CSCO*, AVT, TECD*, DELL*, IBM, EMR, HPQ, RIMM*, NOK, PALM*, T, STAR*, PWAV*
        Healthcare: CI, AET, UNH, GM, MOH, WLP, HNT
        Financials:

INDUSTRIAL
ITT Corporation (ITT), Electronic Systems & Radar Systems and Force Protection Systems, as well as other contractors are each being
awarded an ID/IQ contract for the Navy’s Integrated Topside Program. Each contractor will provide efforts that lead to the integration and
management of radio frequency sensor and communications functions into future platforms. The ordering ceiling for each contract is
between $50 and $800 million.

According to one of contacts, the Purell facility in North Carolina was gearing up for a reduced operating schedule, but since H1N1, it has
ramped up production and added more lines. The facility uses Allen Bradley controls (ROK).

An industry contact suggests the Hong Kong Disney expansion work has been put on hold. At the moment, the only Asian theme-park
work other than sourcing is in Singapore. Our contact is hopeful that Disney will continue with plans to build a park in Shanghai. (Our
contact uses mostly ROK controls in theme-parks.).

Aerospace/Airline/Transports
Carbon dioxide emissions standards are coming, according to a senior Federal Aviation Administration( FAA) official, who indicates that
the FAA is trying to determine the right metric for measuring them. CO2 standards, under proposed legislation that requires the US
Environmental Protection Agency to set them for new aircraft and engines by 2012, are being looked at carefully because of potential
intended and unintended consequences on new aircraft regulations according to this official.

 “ Green “ engine development is one of the factors driving development of new generation composite aircraft, according to an aerospace
consultant who is concerned that “ green “ requirements will increase aircraft development costs and potentially pinch aerospace margins
if customers are unable to absorb the added costs.

Boeing Capital Corp., BA’s finance unit, plans to lend roughly $1 billion in 2009 to customers, according to a senior BCC official, who
sees a modest funding gap of $0 to $5 billion for the $68 billion global commercial aircraft market this year. Financially stressed banks in
the United States and Europe are beginning to lend as government assistance programs kick in, according to this official, who notes that
in Europe, banks are being divided into good banks and bad banks and airline assets are going with the good banks.

A trade war is brewing between the United States and European Union over legislation passed by the House which requires Federal
Aviation Administration inspectors to inspect any European maintenance facility handling U.S. flag airlines at least twice a year to ensure
that foreign entities conducting repair work on U.S. aircraft adhere to U.S. safety standards and regulations. There are 400 European
facilities maintaining American aircraft and over 1,200 maintenance shops in the United States providing service to foreign airlines,
including European ones. The EU froze the enactment of an air safety accord signed last summer with the United States as a result of
the proposed legislation and has threatened “tit for tat” legislation by the EU if the Senate does not remove this provision from the
reauthorization bill.

RETAIL/CONSUMER
Best Buy (BBY) recently partnered with Fuse Capital to launch a strategic equity investment fund to finance digital media startups. This is
BBY's second investment fund, following the launch of Best Buy Capital last year.

Systemax (SYX), owner of the TigerDirect and CompUSA brands, recently relaunched the Circuit City e-commerce website at
www.circuitcity.com. SYX purchased the Circuit City brand, website, customer lists and other intangible assets for $14 million plus a
percentage of revenue generated over a 30-month period.
Best Buy (BBY) recently began selling patio furniture, fire pits, grills, and outdoor heaters on its website. While most of the items can only
be purchased online, BBY is carrying some of the products at a small number of stores in California. BBY is also testing the sale of
musical instruments, exercise equipment, electric scooters, and pool tables in other selected locations.

Office Depot (ODP) recently extended its offer of free resume copying and faxing through the end of 2009. Customers can make up to
25 single-sided copies of their resume, as well as send faxes to up five different domestic numbers. The offer was originally scheduled
to expire on May 30th.

In the three major golf equipment segments (woods, balls, and irons) that we closely follow, we are currently seeing industry sales
contractions in the low teens versus the mid-to-high teens declines that we saw during the first quarter. When we factor in the net
market share gains by Callaway (ELY), we believe their U.S. sales are down closer to 10%, better than we previously expected.

We believe industry sales woods are down in the mid-teens in the second quarter versus high-teens declines during the first quarter,
but that ELY is doing meaningfully better as the result of substantial market share gains within the category.

In recent months, we have seen increasing promotional activity in the woods segment, and although this has historically been a sign of
bad things to come, we actually believe these promotions have helped spur demand in the channel and help to clear out inventory.
With the purchase of any of ELY’s new 2009 drivers, customers receive a fairway wood and/or hybrid for just $1. Since the initiation of
this promotion, TaylorMade, Adams, and Cleveland have all followed suit with similar promotions. This new promotion has driven
incremental sales for Callaway’s new drivers: the Big Bertha Diablo, the FT-9, and the FT-IQ. Though Callaway was relegated to
second-year sales of key products in 2008, the company has a deep roster of new and compelling products in 2009, especially in the
woods category.

Although industry golf ball sales have stayed relatively constant (year-over-year declines in the low-teens), ELY has lost market share
in recent months given the fact that its premium Tour ix ball is in its second year while Titleist has a newly updated/upgraded ProV1
currently on the market.

ELY continues to lead the way in the irons segment on the strength of the X-22 Irons released last fall. Like the X-20 irons and the X-
18’s before them, the X-22’s have quickly ascended to the number one iron set in golf. We believe overall irons sales are down in the
high-teens while Callaway irons sales are doing substantially better.

The Small Business Administration (SBA) announced a pilot program yesterday to provide floorplan financing up to $2 million for
manufactured housing, automotive, recreational vehicle, boat, and other large-ticket retail dealers. The program runs from July 2009 to
Sept 2010, and the SBA has the discretion to extend it.

TECHNOLOGY
Enterprise Hardware
Key points from our recent discussions with Asia Motherboard ODM supply chain contacts:
       Contacts in Asia suggest motherboard shipments for 2Q09 are expected to be “flattish,” in line with previous expectations.
       Geographies: Contacts say North American demand weak, Europe weaker.
       Inventories: At ~3 weeks, normal levels on conservative builds.
       3Q09 visibility limited. Contacts expect shipments to be up ~10% Q/Q as OEMs and channel prepare for Back-to-School.

AAPL launched its 2009 Education promotion for college students. As we expected, the best iPod college students can qualify for with a
qualifying Mac is an 8GB iPod Touch (~$229 MSRP). Students can get less expensive iPods if they want, but can’t get three Shuffles for
the price of an iPod Touch. Therefore, we expect students to go for the Touch. Our analysis of the education discounts suggests Apple
did NOT increase them versus two months ago. This suggests Apple is not getting more aggressive with students for Back-to-School. We
continue to believe AAPL will get more aggressive in the K-12 and Higher Ed institutional market (selling to schools and colleges direct).

Psystar filed for bankruptcy protection in the state of Florida recently, which is likely to delay its legal battle with AAPL over the
company’s unauthorized Mac clones. In July 2008, AAPL sued Psystar on copyright infringement grounds because the company was
using a “hacked” version of OS X. Psystar countersued claiming AAPL is violating anti-trust laws through its Mac OSX end user license
agreement, which prevents the installation of OSX on non-AAPL hardware.

NC papers suggest state lawmakers are considering a multi-million dollar tax break in the hopes of incenting AAPL to locate a large east
coast server farm in the state. While the name of the company attached to a tax break proposal remains a secret, speculation is that
AAPL is the company in question and press reports suggest the investment by AAPL could reach ~$1 billion. These reports suggest the
tax break could be worth ~$45 million based on a ~$1 billion investment in the next ~9 years.

An executive from T confirmed the company is considering discounted monthly data plans for the iPhone. The minimum plan for iPhone
users is ~$70/month, which includes unlimited Web access and a specific amount of voice calls. The cheaper rates, if offered, would
have limits on the amount of data that can be transferred. The T executive dismissed the possibility of an iPhone with no data plan as T
makes the bulk of its operating income from selling add-on services.

BRCD is getting ready to launch a new channel partner program, the Alliance Partner Network. This is the first revamp since BRCD
acquired Foundry Networks last July. BRCD hopes the new programs will better position itself versus CSCO. The two-tiered program will
have four partner levels: distributor, elite, premier and select, each of which has specific requirements and benefits. Benefits include 2%
in Market Development Funds (MDF) for elite and premier members, free education for elite members, and demo equipment. BRCD will
work with three key distributors: AVT, TECD and Westcon.

DELL has hired an M&A executive away from IBM. As expected, IBM has initiated legal proceedings against this executive to prevent the
move. Press reports suggest this executive oversaw mergers and acquisitions at IBM, adding fuel to rumors that DELL is looking to make
more acquisitions. On the 1Q10 EPS call, DELL’s founder and CEO mentioned “inorganic growth” a number of times as well. DELL has
not provided details about this new executive’s role at the company.

EMC announced plans to acquire Configuresoft, a developer of server configuration, change and compliance management software.
EMC already OEMs technology from Configuresoft, and acquired the company for strategic reasons. Terms were not disclosed.

HPQ’s new hire from EMC has been cleared to work for HPQ, but not with the storage division. The new executive will serve as
executive vice president of enterprise servers and networking. Another HPQ executive will manage the storage division…for now. HPQ
said this arrangement will continue “until the order is lifted,” which suggests parts of the non-compete will be in effect for the foreseeable
future.




Communications
European Smartphone Survey - UK Sales Reps:
      For the month of May, RIMM continued to be the best selling vendor. Its share of the mentions jumped to 40% from 33% last
       month and was above its average of 35%.The company had the two top selling Smartphones, the Curve 8900 and Bold, and
       was the best selling vendor at all of the retail outlets that we surveyed.

        The 8900 saw its share of the market increase 400 bps to 24% from 20% last month. A couple of the reps we spoke to
         mentioned that they have seen an uptick in demand for the device on pay-as-you-go plans, something we haven’t heard since
         its launch. Pay-as-you-go plans were initially devised as a means for customers with poor credit to purchase cell phone service.
         However, over the past few months, pay-as-you-go has become a popular way of instilling discipline to a customer’s monthly
         bill.

        The steadfast Bold moved up into the #2 spot as its share of the responses increased slightly to 14% from 13% last month.
         Lastly,

        The Pearl and Pearl Flip managed to gather close to 2% of the mentions this month after failing to get mentioned last month.
         These devices were also popular on the pay-as-you-go plans.
        NOK saw its share of the mentions slip slightly to 24% from 25% last month but remained as the second best selling vendor.
         The 5800 XpressMusic continued to be Nokia’s best selling Smartphone and was the third best seller overall.

        The 5800 gathered 12% of the mentions, on par with last month’s results. The N79, E71 and E75 each garnered 3% of the
         mentions this month. The E75 appeared in our survey for the first time and is Nokia’s new messaging device that features a
         slide out full QWERTY keyboard, 3.2 megapixel camera, GPS, and other services.
        Over the past few months, NOK management has commented that it would launch new products in the Smartphone category in
         an attempt to gain back share. We view it as a positive that Nokia had the most Smartphone devices mentioned in our survey
         with 6, up from 5 last month. The company plans to launch seven new Smartphones in 2Q09, including its 2009 flagship device,
         the N97. The N97 is expected to begin shipping in June and will feature a touch-screen and full QWERTY keyboard.

        Our contacts in Asia informed us that LG’s CEO, while presenting at a conference in Korea, commented that the company’s
         2Q09 shipments are tracking ahead of plan. The strength is being driven by high end sales in North America and parts of
         Europe. We feel these comments bode well for other Smartphone manufacturers as these devices continue to gain in
         popularity.
On Tuesday, NOK officially opened its Ovi Store (Nokia’s Application Store). In the first 24 hours, the Ovi Store had registered users from
131 countries. Nokia users can access the store from more than 50 of the company’s devices. AT&T’s (T) Chief Marketing Officer stated
that the Ovi Store will be available on AT&T’s Nokia devices later this year.
NOK’s CFO, Rick Simonson, reiterated and backed prior guidance that total industry mobile device shipments will be flat to slightly up
sequentially. Additionally, he stated that the company will continue to cut costs even if the economy improves.
NOK launched the 6730 classic that will begin shipping exclusively to Vodafone in June. The device runs on S60 operating system and
features Vodafone’s Music Client and GPS navigation.
President of Verizon Wireless, Lowell McAdam, may have slipped up at a conference this week when he stated that he expects VZ to
begin selling the second generation Blackberry Storm, Blackberry Tour, PALM Pre, a “cousin” to the Palm Pre, and some Android
devices all in the next six months or so. Not soon thereafter, Sprint released a statement stating that it has exclusive U.S. rights to sell
the Palm Pre until the end of 2009.
T’s CEO, Randall Stephenson, thinks that U.S. wireless networks aren’t prepared for the current and upcoming surge in Smartphone
demand. He also mentioned that there has already been preliminary signs that networks are being “choked”. We feel this bodes well for
companies such as STAR and PWAV.

O2 beat out its U.K. rivals to exclusively carry the PALM Pre.
HEALTHCARE
According to a study published by the University of San Diego and Health Affairs, the number of uninsured Americans is expected to
increase by an additional 7 million to a total of 52 million in 2010.

CI CFO Mike Bell has resigned after being in the position since 2002. He will be replaced by Annmarie Hagan who previously served as
CI's Chief Accounting Officer. We believe the company has been planning a transition of management since June 2008 when it named
David Cordani as COO and we believe this change does not reflect any new operational shortfalls. The company also reaffirmed its
current guidance.

There has been speculation that AET and UNH are among the companies that could be possible replacements for GM if it is removed
from the Dow Jones Industrial Average.

It is estimated that health insurance premiums are $1,000 a year higher for families and $370 year higher for individuals due to cost-
shifting to cover the uninsured.

At least six states (CT, MA, NY, RI, SC, VT) are considering eliminating or reducing financing for some Medicare Part D beneficiaries
who are affected by the "doughnut hole" gap in coverage.

Some of the initial gains in expanding care and improving affordability in the Massachusetts health reform program have partially eroded
in the second year of the program. A study by Blue Cross and Blue Shield of Massachusetts and the Commonwealth Fund had found
that by 2H08, some unmet needs for health care had returned to 2006 levels. This is possibly due to an increased demand in health
services by newly covered individuals and doctors offices or clinics not accepting any new patients or patients with certain types of health
coverage. The difficulties in finding care were more common among low-income adults, which researchers believed was attributed to
lower provider reimbursement rates under public programs and a limited set of providers under the four subsidized state plans.

The CBO has stated that a mandate requiring all U.S. residents to purchase health coverage would not be considered a new form of
federal taxation as long as no government entity was responsible for collecting their premiums and people could choose from a wide
variety of private plans.

California Governor Arnold Schwarzenegger (R-CA) has proposed $1.2 billion in Medi-Cal spending reductions and dropping the state's
Healthy Families program to partially make up for the state’s budget shortfalls. This would be negative for MOH, WLP, HNT, UNH, and
Kaiser

FINANCIALS
The head of commercial lending for a community bank expects to go through a stress test when repaying the TARP; however, loss rates
used for the test may be lower than what was used in the SCAP test for large banks given lower historical loss rates and a conservative
risk profile.



This is for informational purposes only and is not a recommendation to buy or sell any security mentioned. This information is deemed
reliable but is not guaranteed by FTN Equity Capital Markets Corp. All data is subject to change without notice. Additional information is
available on request.

				
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