THE DAY AHEAD

REUTERS NEWS
KEY ECONOMICS EVENTS Import prices for Mar Export prices for Mar Initial claims for w/e 06/04 4 week average for w/e 06/04 Continuing claims for w/e 30/03 ICSC monthly chain for Mar

North American Edition

ET/GMT 0830/1230 0830/1230 0830/1230 0830/1230 0830/1230 TIME:TBA REUTERS POLL -0.5 pct 0.1 pct 365,000 -3.070 mln -PRIOR 1.1 pct 0.8 pct 385,000 354,250 3.063 mln 1.7 pct Labor Department SOURCE

For Thursday, April 11, 2013

Bureau of Labor Statistics

International Council of Shopping Centers

MARKET RECAP
Strong tech shares led stocks higher on Wednesday and the S&P 500 reached a historic high, while Treasuries fell as Fed minutes fueled fears of a tapered bond-purchase program by year-end. The dollar rallied to a fresh four-year high against the yen, edging closer to the key 100-yen mark. Gold fell, while oil rose.
STOCKS DJIA Nasdaq S&P 500 Toronto Russell FTSE Eurofirst Nikkei Hang Seng Close 14802.01 3297.25 1587.71 12534.91 946.00 6387.37 1186.17 13288.13 22034.56 Yield 0.2341 0.7372 Change 128.55 59.40 19.10 50.86 16.66 74.16 20.82 95.78 164.22 % Chng 0.88 1.83 1.22 0.41 1.79 1.17 1.79 0.73 0.75 Yr-high 14826.66 3270.30 1573.89 12904.71 954.00 6533.99 1209.05 13331.39 23944.74 Yr-low 12035.10 2726.68 1266.74 11209.55 729.75 5897.81 1132.73 10398.61 21612.05

COMING UP
A handful of leading U.S. retailers, including Costco, Gap, TJX
and L Brands report March sales, with Wall Street expecting modest gains, largely because of the timing of Easter this year that pushed a lot of business into April. The details companies provide will provide a window into consumer sentiment and shoppers' willingness to spend money in the first real spending occasion since the Christmas holiday season. The monthly report is in transition - TJX and Ross Stores drop out of the monthly sales grind next quarter, shrinking the same-store sales index to 11 companies from about 68 six years ago. For a related Reuters Insider video, click here

Results are due from the No. 3 U.S. drugstore chain Rite Aid,
which unexpectedly turned a profit for the first time in more than five years in the fiscal third quarter. In December, Rite Aid raised its outlook for the fiscal year to a range of a net loss of 5 cents to a profit of 3 cents per share. In September, it had forecast a loss of between 9 cents and 23 cents. Also, expect results from Pier 1 Imports.

TREASURIES 10-year 2-year 5-year 30-year COMMODITIES May crude $ Spot gold (NY/oz) $

Price FOREX 0 /32 Dollar/Yen -6 /32 Sterling/Dollar

Last % Chng 1.3063 99.79 1.5326 1.0144 -0.14 0.78 0.03 -0.19

The judge in the Macy's/J.C. Penney case is expected to decide

whether to block Penney's from selling Martha Stewart-designed home goods under the "JCP Everyday" label. Macy's wants the court to expand a preliminary injunction banning J.C. Penney from selling Martha Stewart-branded goods in categories it claims to have exclusively.

1.8069 -16 /32 Euro/Dollar

3.0070 -45 /32 Dollar/CAD Price 94.55 1558.04 3.4140 291.30 Price 0.74 22.46 7.80 4.40 22.45 24.46 4.18 36.32

$ change 0.35 -26.66 -0.0240 -0.20 $ change 0.12 2.75 0.85 0.34 -3.67 -2.23 -0.37 -3.03

% change 0.37 -1.68 -0.70 -0.07 % change 19.85 13.95 12.23 8.37 -14.04 -8.36 -8.13 -7.70

The U.S. National Transportation Safety Board hosts a two-day

forum to examine the design and performance of lithium-ion batteries in transportation, a comprehensive review sparked by battery failures in January on two of Boeing high-tech 787 Dreamliners. The NTSB is leading the investigation of one of the 787 incidents which prompted regulators to ground the aircraft.

Copper U.S. (front month/lb) $ Reuters/Jefferies CRB Index

Federal Reserve Bank of Philadelphia President Charles Plosser

BIG MOVERS
Suntech Power Adtran Spherix MannKind Titan Machinery Barrick Gold Taomee Holdings First Solar

speaks on monetary policy before the Market News International Economic Seminar in Hong Kong. He's only the second Fed bigwig to speak about winding down the $85 billion a month bond buying program. The key will be whether he changes his opinion given the terrible job numbers in March. Also watch out for any reaction to the Fed's bungled released of its meeting minutes. Also, St. Louis Federal Reserve Bank President Bullard gives opening remarks at a conference sponsored by the Federal Reserve System Community Affairs Officers in Washington.

U.S. Treasury Secretary Jack Lew testifies on the President's fiscal 2014 budget proposal, first before the House Ways and Means Committee, then the Senate Finance Committee.

For The Day Ahead - Canada, click here

The Labor Department releases weekly jobless claims data.

THE DAY AHEAD

For April 11, 2013

MARKET MONITOR
Stocks climbed on Wednesday, with both the Dow and the S&P 500 ending at historic highs as cyclical shares led the way higher for a second straight day. "The path of least resistance for the market remains higher, and despite some mixed economic data, investors are concluding that stocks remain a better place to be than risk-free assets," said Jim McDonald, chief investment strategist at Northern Trust Global Investments. Adtran jumped 13.95 percent. JDS Uniphase added 4.84 percent and Juniper Networks rose 4.72 percent. Facebook jumped 3.69 percent. The Dow was up 0.87 percent, the S&P 500 Index was up 1.22 percent and Nasdaq was up 1.83 percent. Treasury prices slumped after minutes from the Federal Reserve's March policy meeting fueled fears the U.S. central bank might slow or end its bond purchases by year-end. The market sell-off picked up speed after the Treasury sold $21 billion worth of 10-year notes at a high yield of 1.795 percent, slightly higher than the market expected. "We are seeing a bit of a 'risk-on' trade in the market. We are seeing the sell-off partly on the FOMC minutes and partly on the auction set-up," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. Benchmark 10-year Treasuries notes last traded 16/32 lower in price, yielding 1.80 percent. The 30-year bond was down 1-13/32 in price for a yield of 3.00 percent. The dollar rose to a four-year high against the yen, edging closer to the key 100-yen mark after minutes of the U.S. Federal Reserve's March meeting raised expectations it will finish its bond-buying spree by the end of the year. "Once again, the minutes have sounded a slightly more hawkish tone and that's really what's benefiting dollar/yen," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. After breaking technical resistance at 99.73 yen, the 50 percent retracement of the dollar's drop from its June 2007 high of 124.14 yen to a record low of 75.311 yen set in October 2011, the dollar rose to a session high of 99.81 yen. It last traded at 99.78 yen, up 0.77 percent on the day. The euro last traded 0.68 percent higher at 130.41 yen. Against the dollar, the euro was at $1.3065, down 0.12 percent on the day. Crude oil rose as traders exploited the so-called "crack spread," or the differential in pricing between crude oil and the products that come from cracking it open during the refining process. The U.S. government's inventory data arrived after OPEC trimmed its forecast for global demand growth, echoing similarly low demand expectations cited earlier this week by the U.S. Energy Information Administration in its monthly outlook. May crude settled up 0.38 percent at $94.56 a barrel. Click on the chart for full-size image

Gold prices fell after Federal Reserve minutes showed some policymakers expected to slow the pace of bond purchases and to discontinue them by year end. Shortly after, a European Commission report showed Cyprus agreed to sell excess gold reserves to raise around 400 million euros to help finance its part of its bailout. "I think gold was responding to a little bit of both (news items)," said metals trader David Lee at Heraeus Precious Metals Management in New York. Spot gold was off 1.67 percent at $1,558.30 an ounce. April gold futures slid 1.78 percent, to $1,558.40 an ounce.

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For April 11, 2013

TOP NEWS
Obama budget aims to kickstart deficit-reduction talks President Barack Obama proposed a $3.77 trillion budget that combines controversial cuts to social safety net programs with tax increases on the wealthy. Obama's budget for fiscal year 2014would trim the deficit over three years by requiring people making more than $1 million annually to pay more in taxes while enacting spending cuts that would replace the "sequester" reductions that went into place last month. The president said his proposal - particularly the healthcare and pension program cuts painful to his fellow Democrats - meant he had moved in Republicans' direction. "When it comes to deficit reduction, I've already met Republicans more than halfway," Obama said in remarks at the White House. Obama's budget aims to achieve $1.8 trillion in deficit reduction over 10 years. The budget also includes a 10 percent tax credit for small businesses that raise wages or hire new workers. Divided Fed edges closer to consensus on ending bond buying U.S. Federal Reserve officials appeared on course to end their extraordinary bond buying stimulus by year end at a meeting last month, suggesting a weak March jobs report may have taken them by surprise. Meeting on March 19-20, before release of the jobs data, Fed officials took an intellectual deep dive into the risks and benefits of their extraordinary policy stimulus, minutes of the meeting released showed. While they remained sharply divided on how long their bond purchases should last, the minutes nonetheless suggested they were nearing a decision to start winding them down. The minutes revealed an intense discussion and several disagreements among the Fed's 19 policymakers about carrying on with buying $85 billion in Treasury and mortgage bonds per month to stimulate the economy. Delayed tax refunds hurt Family Dollar results Family Dollar Stores said that sales have perked up as spring weather has finally arrived, but reported a weaker-than-expected quarterly profit which it blamed on a delay in shoppers getting their tax refunds. Still, the discount retailer was cautious about its upcoming performance, cutting its annual profit forecast for the second time due to expectations its customers would hold off on discretionary spending. In the second quarter, net income rose to $140.1 million, or $1.21 per share, from $136.4 million, or $1.15 per share, a year earlier. Analysts looked for a profit of $1.22 per share. Sales jumped 17.7 percent to $2.89 billion, meeting Wall Street expectations. For the fiscal year, Family Dollar now sees earnings of $3.73 to $3.93 a share, while analysts, on average, targeted $3.98 a share. Pfizer cancer drug wins special status; shares jump U.S. regulators have granted a "breakthrough therapy" designation to an experimental Pfizer treatment for breast cancer, lifting the company's shares and putting a spotlight on its growing cancer-drug portfolio. Analysts from JPMorgan and Leerink Swann forecast the oral medicine, called palbociclib, could generate annual sales of $5 billion or more if it is approved for use against breast cancer as well as other types of cancer. Pfizer said the U.S. Food and Drug Administration conferred the special status on palbociclib based on impressive results seen in mid-stage trials. The drug is now being tested in a larger Phase III study. Click on the chart for full-size image

GM renews commitment to loss-making European brand Opel General Motors renewed a commitment to its loss-making European brand, pledging to invest 4 billion euros in Opel by the end of 2016 to support new model launches. "As a global automotive company, GM needs a strong presence in Europe - both in design and development as in manufacturing and sales," GM Chief Executive Dan Akerson told reporters at Opel's headquarters in Ruesselsheim. "Opel is key to our success and enjoys the full support of its parent company," he added. Constellation Brands' profit tops Street estimates Constellation Brands reported a higher-than-expected fourthquarter profit, as the company benefited from an acquisition and selling a greater number of more expensive products. In the fourth quarter, Constellation had net income of $81.7 million, or 43 cents per share, down from $103.0 million, or 51 cents per share, a year earlier. Excluding restructuring-related costs and a loss on the write-off of financing costs, earnings were 47 cents per share. On that basis, analysts on average were expecting 45 cents per share. Net sales, which exclude excise taxes, rose to $695.9 million from $628.1 million a year earlier. CarMax profit rises, but used-car sales momentum drops CarMax reported a 13 percent higher fourth-quarter profit, but comparable used-car sales grew at a slower pace than the previous quarter. Comparable used-car sales grew 6 percent, down from 12 percent in the third quarter. Net income rose to $107.2 million, or 46 cents per share, in the quarter, from $95 million, or 41 cents per share, a year earlier. Revenue rose to $2.83 billion from $2.48 billion. Analysts on average expected a profit of 46 cents per share on revenue of $2.73 billion. St. Jude wins European OK for brain implant to treat Dystonia St. Jude Medical said it received European regulatory approval for a brain implant to treat an incurable neurological disorder that can leave its victims wheelchair-bound. It said European regulators approved its Brio, Libra and LibraXP deep brain stimulation systems for managing symptoms of primary and secondary Dystonia.

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For April 11, 2013

TOP NEWS (continued)

W.R. Grace estimates lower profit as customers delay purchases Chemicals maker W.R. Grace estimated quarterly earnings below analysts' expectations and lowered full-year profit forecast after some customers reduced their inventory and some others delayed purchases. The company said it expected to earn $52 million to $53 million, or 68 cents to 69 cents per share, in the first quarter ended March 31. After adjustments, it expected earnings of 80 cents to 81 cents per share. Analysts on average were expecting 88 cents per share. Thermo bids for Life Tech; PE firms finalizing offer Thermo Fisher Scientific made a binding offer for Life Technologies on Tuesday as private equity firms raced to finalize a consortium to take the genetic testing equipment maker private, several people familiar with the matter said. Thermo Fisher met a bid deadline on Tuesday but private equity firms working on a joint bid missed it and were working late into the evening to secure the equity required to support an offer, the people said. Blackstone Group, Carlyle Group and Singapore's state investor Temasek Holdings were in talks with KKR & Co about securing the required equity and finalizing a buyout consortium, the people said.
PIC OF THE DAY

A member of the "red shirt" movement joins her hands in prayer during a gathering near the Democracy Monument, the site of bloody clashes with Thai security forces, in Bangkok, Thailand.

ANALYSTS RECOMMENDATIONS
Company Name Blackstone Group First Solar Icahn Enterprises Northern Trust Pfizer Action BMO raised target price to $26 from $25 on valuation of corporate private equity fund given better-than-expected market performance during the quarter and peer disclosures. Piper Jaffray raised price target to $40 from $28 after the company gave 2013 outlook ahead of expectations. Jefferies started coverage with buy rating, says addition to a diversified set of investments, as a holding company, IEP offers investors an opportunity to access the investment ideas of Carl Icahn. Credit Suisse raised price target to $47 from $40, sees modest signs of encouragement for the trust banks as client risk appetite has begun to improve and asset prices continue to trend higher. Bernstein raised target price to $32 from $30, says with Lipitor generics moving into the background, the companys business has become cleaner and should revert to earnings growth in 2013 vs. a decline in 2012.

THE DAY AHEAD - CANADA

COMING UP
Media and telecom company Cogeco and its main unit
Cogeco Cable will report second-quarter earnings. For Cogeco Cable, the profit is expected to be C$1.11 per share, compared to a profit of 63 Canadian cents a share in the yearago quarter.

For April 11, 2013

MARKET MONITOR
Canada's main stock index extended its gains for a third straight day on Wednesday, hitting a one-week high, as positive trade data from China lifted financial and energy shares and offset weakness in Barrick Gold Corp and other gold shares. The data showed that Chinese imports of key commodities rebounded in March as hopes of a strengthening economy encouraged end-users to ramp up production and cautiously replenish stocks. The Toronto Stock Exchange's S&P/TSX composite index was up 0.41 percent at 12,534.91. Barrick Gold fell 8.65 percent, while Royal Bank of Canada gained 1.99 percent. The Canadian dollar was down 0.20 percent at $1.0143.

Corus Entertainment is scheduled to report second-quarter

results. Analysts expect a profit of 36 Canadian cents per share, compared to a profit of 38 Canadian cents a share in the year-ago quarter.

Network equipment maker Sandvine is likely to post a firstquarter profit on higher orders. Analysts expect the company to earn 1 cent, on revenue of $24.1 million.

Astral Media, which is waiting for regulators to rule on its revised proposal to be acquired by BCE, will report secondquarter earnings. Analysts expect a profit of 70 Canadian cents per share, compared to a profit of 69 Canadian cents a share in the year-ago quarter.

BIG MOVERS GMP Capital Canaccord Financial Romarco Minerals Barrick Gold

Price 6.40 6.80 0.68 24.81

C$ 0.35 0.24 -0.07 -2.35

% Change 5.79 3.66 -9.33 -8.65

TOP NEWS
Chile court suspends Barrick's Pascua-Lama project A Chilean court has temporarily suspended the construction of Barrick Gold Corp's $8.5 billion Pascua-Lama gold and silver mine after indigenous communities said the project was destroying glaciers and harming their water supply. The appeals court in the northern town of Copiapo said it will analyze the communities' complaints of "environmental irregularities" against Barrick's project, which has already been plagued by soaring costs and stiff opposition from environmental groups. The suspension of one of Chile's largest mining projects is the latest in a series of setbacks to key metal and energy projects that threaten to derail a massive pipeline of investment in the world's top copper producer. Israel finance minister opposes Israel Chem sale to Potash Corp Israel's new finance minister Yair Lapid came out against the sale of fertiliser maker Israel Chemicals to Potash Corp, sending shares in ICL and its parent company lower. "Lapid advised his ministry's senior officials he intends to wage a belligerent policy to preserve the natural treasures of the State of Israel," Lapid's spokeswoman said in a statement. Potash Corp is seeking to raise its stake in ICL from 14 percent but Israel's government has a golden share in ICL, giving it a veto right. Small Canadian wireless players hang up on industry group The three companies that entered Canada's wireless market after a 2008 auction of airwaves have pulled out of the industry's main trade group, complaining that it is biased in favor of established competitors that dominate the sector. The trio - Vimpelcom Ltd's Wind Mobile, and privately held Public Mobile and Mobilicity - said that as a result of their withdrawal, the Canadian Wireless Telecommunications Association could no longer claim to speak on behalf of the entire industry. DragonWave amends deal with Nokia Siemens Telecom network equipment maker DragonWave said it amended its deal with Nokia Siemens Networks to reduce operating costs and cut three senior management positions. The company cut 116 jobs in Ottawa and Israel in 2012. According to the renewed deal, Nokia Siemens will make an immediate cash payment of 10.6 million euros to DragonWave, clearing the contingent receivable on the Ottawa-based company's balance sheet.

THE DAY AHEAD

For April 11, 2013

ANALYSIS AND INSIGHT

DEALTALK Intelsat to test investors' love for leverage By Olivia Oran Intelsat Global Holdings S.A. plans to test investors tolerance for financial leverage in a proposed $500 million IPO next week, as the satellite operator tries to take advantage of a stock market rebound that has increased the appetite for new offerings. Luxembourg-based Intelsat, which is owned by European private equity firm BC Partners and Menlo Park, California-based Silverlake Partners, carries a debt load of more than $15.9 billion, giving it a leverage multiple of around 7.8 times. That compares to an average debt to EBITDA multiple of 4 to 5 times for other recent sponsor-backed IPOs like Norwegian Cruise Line Holdings Ltd and Bright Horizons Family Solutions Inc. "It's a sign of the times in the marketplace that you're seeing deals like this come," said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Inc. "People in general are being more receptive to deals with risk, but they need to understand that it's not all about reward, they need to be cautious." The companys debt level is slightly higher than it was after its $16.6 billion buyout in 2008, which ranks as the largest takeover of a PE-owned company by another private equity firm, according to Thomson Reuters data. Intelsat carried $15.3 billion in debt after the deal closed. The companys hefty debt load has resulted in high interest expense which, in turn, caused a string of net losses. Over the last three years, Intelsat has racked up combined net losses of $1.1 billion, according to a company prospectus. Last year, it devoted $1.3 billion, or about half its revenue, to pay down its interest expense. Intelsats growth prospects may also be of concern to investors. Intelsats revenue rose just 3 percent to $2.6 billion in 2012, and the portion of those revenues that come from new business has fallen since 2009. The limit here is definitely being tested," said Dave Stepherson, senior portfolio manager at Hardesty Capital Management in Baltimore. "The cash flow is strong until the economy goes south and the company has no flexibility to meet its debt obligations. To me, the level of debt is bordering on insanity." The company will use the IPO to pay down debt and is also planning a $700 million mandatory convertible bond deal concurrent with its IPO. PUSHED TOO FAR? Intelsat is trying to come to market at a time when a slew of sponsor-backed companies taken private during the buyout boom of 2006 to 2007 are also looking to list. In March, packaged foods maker Pinnacle Foods, backed by Blackstone Group LP, raised $580 million in its IPO. Other private equity-backed companies that have gone public this year include child care operator Bright Horizons Family Solutions Inc, backed by Bain Capital; cruise line operator Norwegian Cruise Line Holdings Ltd, backed by Apollo Global Management LLC and TPG; and communications technology company West Corp, backed by Thomas H. Lee Partners and Quadrangle Group. "Youre seeing some of these more mature companies with less apparent growth that couldnt have gone out a year ago begin to come to market," said Jonathan Crane, a senior managing director at Keybanc Capital Markets. "Now the market is so much stronger that companies that perhaps dont have the growth profile but do have other characteristics can get done today." But that willingness to shoulder debt can be pushed too far. Last month, private equity-backed communication services company West Corp had a weak opening on the Nasdaq during its public debut. West, which priced below its expected range, saw shares open at $19 which was $1 below its IPO price. Since then, shares have rallied slightly to close Tuesday at $20.75. The markets reaction to West, which has a leverage ratio of roughly 5 times, could raise questions about the future of companies like Intelsat, which have even higher leverage. Still, Intelsat and its backers are hoping that the companys high margins and predictability will make its heavy debt load and moderate growth rate tolerable. The company posted EBITDA margins of roughly 77 percent last year and its backlog, or expected future revenue from existing customers, stood at $10.7 billion. This enables Intelsat to have visibility into nearly 80 percent of its revenue each year. The company is selling 21.7 million shares at a range of $21 to $25 per share. It would be valued at $2.4 billion at the midpoint of its range. The IPOs lead underwriters include Goldman Sachs Group Inc, JP Morgan Chase & Co, Morgan Stanley and Bank of America Merrill Lynch. Intelsat could not be reached for comment. How Goldman's dollar-store bet reaped a fortune By Lauren Tara LaCapra and Carrick Mollenkamp Goldman Sachs Group Inc has likely generated around $1.2 billion of revenue over six years from its dealings with discount retailer Dollar General Corp, a Reuters review shows. Just don't expect the investment bank to boast about it. Much of the revenue stems from an equity investment that is lumped into a catchall earnings segment called "Investing and Lending." Goldman created the segment in 2011 to shine some light on how much money it makes from investing its own money, but it still confounds analysts and investors because the bank does not provide details on the performance of individual assets. The segment can have a large impact on Goldman's results in any given quarter. In the fourth quarter, Goldman reported nearly $2 billion in revenue from Investing and Lending, or 21 percent of overall revenue. Analysts expect the area to boost profits again when Goldman reports first-quarter results next week. Forecasts for the segment's revenue differ widely, from $1 billion to $2.2 billion. "When you look at investment banking, it's very easy to break out how they will do quarter to quarter," said Rick Scott, chief investment officer at wealth-management firm L&S Advisors, which has about $25 million invested in Goldman shares. "But when it comes to Investing and Lending, what can you say? You certainly don't have the transparency." The revenue the bank has earned from Dollar General also helps explain why Goldman, perhaps more than rivals, is aggressively looking for ways to continue its principal investing activities without running afoul of regulations such as the Volcker rule, which restricts how much of their own money banks can put at risk. It has lobbied regulators to preserve its merchant banking business and has come up with new structures for investments that are exempt from the rule's provisions. Goldman is not required to provide details on individual investments when it reports earnings, and the bank declined to confirm or deny Reuters' calculations. Unlike many of Goldman's investments, Dollar General is a publicly traded company, which means both the bank and the retailer have to disclose more information. A Reuters review of six years of filings with the U.S. Securities and Exchange Commission offers a rare - albeit limited - window into how Goldman profits from betting its own money. The review shows that Goldman affiliates have nearly quintupled an initial $605 million cash investment in Dollar General, which peddles everything from $1 packs of Snickers bars to $5 packs

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ANALYSIS AND INSIGHT (continued)

of toilet paper. The investment was made as part of a $7.3 billion KKR & Co LP -led buyout in 2007. Goldman has not only helped to turn around the retailer and sell most of its affiliates' holdings at a profit but has also earned money from serving as Dollar General's banker. The broader KKR-led private-equity group - dubbed "Buck Holdings" in a nod to Dollar General's bargain-basement brand - took the retailer public again in November 2009 for $21 a share. Since then, Goldman affiliates have generated roughly $2.5 billion of proceeds from stock sales and $77 million in management fees as private-equity sponsors, the analysis shows. It is impossible from the outside to calculate precisely how much money Goldman itself has made from its Dollar General dealings, because some information is not public. While Goldman earned money from lending to Dollar General, for instance, it is unclear if it held onto that debt or sold it, and whether it booked gains or losses related to such sales. Publicly available information on its Dollar General dealings nevertheless adds up to $1.2 billion in revenue. Goldman earned money on Dollar General stock sales through a private equity fund called GS Capital Partners VI, which invests a mix of client money, employee money and Goldman's own money. The investment bank represents about 25 percent of that fund meaning that for the Dollar General buyout, Goldman contributed about $151 million in capital and has generated about $650 million in revenue from stock sales and management fees. Goldman's share of the fund's remaining stake in Dollar General amounts to about $70.6 million. In addition, Goldman has also received at least $58 million of investment banking and underwriting fees for taking the company private and then public again; $479 million of interest payments and repurchase commissions from making a loan to the company; and $56 million for a derivatives trade pegged to that loan, according to filings. It has also earned fees from clients for managing the private equity fund. "In this transaction, Goldman kind of nailed it they've done it all," said Michael Driscoll, a former Bear Stearns executive who now teaches finance at Adelphi University. UNPREDICTABLE SWINGS Goldman does not run the Investing and Lending segment as a single operation. Businesses whose earnings flow into the segment do not share a common management team, and their investment strategies vary widely. The segment holds standard financial investments like corporate bonds and stocks but has also made a slew of more unusual investments, from a coal mine in Cesar, Colombia, to a 50 percent stake in the crime drama television series "CSI," which it sold in March. Profits from an elite team called the Special Situations Group also flow into Investing and Lending. That group has a history of making big, profitable bets on troubled assets, including a Japanese golf course and the pizza chain Sbarro Inc. Not all investments have been a success. Goldman was a sponsor of the $45 billion buyout of Texas utility TXU, which turned into a terrific flop. Over the long run, Goldman's principal investment has been a big moneymaker, but it also causes unpredictable swings in its fortunes from one year to the next because the bank marks its assets to market. Over the past five years, Investing and Lending has ranged from a pretax loss of $13.5 billion in 2008 to a pretax profit of $4.2 billion in 2010. "Obviously it brings more volatility to earnings, and that causes some investors and regulators and politicians to be concerned," said David Stowell, a former Goldman executive who teaches finance at the Kellogg School of Management. "But, on balance, I think that Goldman has some talented people I know them quite well who run that, and I expect that they are making generally wise decisions." The opacity of the segment has made the job of analysts and investors harder. The only investment Goldman details is an equity stake in the Chinese lender Industrial and Commercial Bank of China Ltd, which is big enough to warrant disclosure. The rest of Investing and Lending revenue goes into three buckets: equities, debt and the vague category "other." In raising estimates for Goldman's first-quarter profits over the past week, analysts have cited Investing and Lending as a big driver. JMP Securities' David Trone said he doubled his estimate for those gains, to $2.2 billion, based on broad market trends, not any specific investments. On a Jan. 16 conference call to discuss fourth-quarter earnings, six analysts asked Chief Financial Officer Harvey Schwartz for clarity on the segment. Schwartz said the "idiosyncratic nature" of different portfolios can affect how they are managed but gave few other details. "In some quarters (the segment) will perform well; in some quarters, we won't perform as well, relative to the marketplace," he said. "But the market will drive that." Adding to confusion are Investing and Lending's expenses, which typically run $2 billion to $3 billion a year, even though Goldman says it has few employees. Dane Holmes, head of investor relations, said in an March interview that those expenses come from paying people as well as from operating expenses of investments like power plants and mines. As for Dollar General, it has grown since its leveraged buyout. It has hired new management, closed 400 unprofitable locations, kept tighter controls on inventory and changed the layout at stores to encourage customers to spend more, turning the company around. Earnings have soared from $138 million in 2006 to $953 million last year, while sales have climbed from $9.2 billion to $16 billion. And the stock is up 137 percent since its relisting. BREAKINGVIEWS Ackman's retail obsession is elusive white whale By Agnes T. Crane Bill Ackman's retail obsession is proving to be an elusive white whale. J.C. Penney is just the latest mishap in the sector for the hedge fund manager. Bets on Borders and Target ended badly. Spurning a major buyout firm's interest in J.C. Penney a few years ago now looks increasingly foolish. Selling wares in hundreds of stores is hard under the best of circumstances. Layer in an industry being rapidly reshaped by the Internet and it takes a certain amount of hubris to even think about pursuing riches in a stodgy outfit like J.C. Penney. But success stories like those of Spain's Amancio Ortega, who has spun billions out of Zara and other Inditex holdings, serve as a beacon for Ackman and others chasing riches of a similar scale. For all the success, though, Ackman keeps coming up short in retail. His $12 billion Pershing Square Capital Management held a big stake in Borders when it went bust and shareholders in Target ignored Ackman's pleas for a shakeup of the companys board, eventually costing the hedge fund boss and his investors a fortune. Even Ackman concedes J.C. Penney is "very close to a disaster" after his handpicked chief executive, Ron Johnson, tried to bring Silicon Chic to the dowdy chain long dependent on discount shoppers. As a result, revenue has plummeted and Johnson was ousted on Monday. Worse, Ackman might have made a bundle for himself, his investors and J.C. Penney shareholders if instead of wielding his

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For April 11, 2013

ANALYSIS AND INSIGHT (continued)

retail harpoon he had taken the company private when the chance presented itself. Ackman disclosed last year that a private equity shop was interested in paying well north of $30 apiece for shares that now fetch less than $14. Being out of the public eye also might have given Johnson's plan more time to take hold. Ackman has proven he can make money oodles of it. His average annual return is over 20 percent. Pershing Square was even up 6 percent in the first quarter. That success has come from successful campaigns at the likes of General Growth Properties, Canadian Pacific Railway and Fortune Brands. Retail has hurt not helped. His investors can only hope that Ackman is done playing Ahab and that Pershing doesn't become the Pequod. CONTEXT NEWS J.C. Penney shares tumbled over 12 percent on April 9, a day after the company brought back former Chief Executive Mike Ullman to replace Ron Johnson. Same-store sales at the retailer are down more than 10 percent so far in the fiscal first quarter that ends in April, Dow Jones reported on April 9, citing unnamed sources. (The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

KEY RESULTS vs. THOMSON REUTERS I/B/E/S ESTIMATES

Company Name Quarter EPS Estimates Year Ago Rev Estimates (mln)

No major companies are scheduled to report. ** Includes companies on S&P 500 index. Estimates may be updated or revised.

The Day Ahead - North American Edition is compiled by Karan Khemani, Benny Thomas and Chandrashekhar Modi in Bangalore; Franklin Paul and Meredith Mazzilli in New York. THE DAY AHEAD - North American Edition is produced by Reuters News For questions or comments about this report, email us at: TheDay.Ahead@thomsonreuters.com Or call us at +91 80 4135 5929 Visit the Thomson Reuters Equities Community Site at: http://customers.reuters.com/community/equities/ For more information about our products: http://thomsonreuters.com/products_services Or send us a sales enquiry at: http://thomsonreuters.com/products_services/financial/contactus/ or call us on North America: +1 800 758 5555 2013 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.