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North America Equity Research

08 June 2009

Accounting Issues
J.P. Morgan Pension Risk Ratios and the Mysterious
Mechanics of Pension Yield Curves

• J.P. Morgan short-term and long-term pension risk ratios for U.S. Accounting & Valuation - US
companies. We calculate short-term and long-term pension risk ratios for a AC
Dane Mott, CPA, CFA
universe of more than 3,200 U.S. companies. Tables 6 and 8 of this report list (1-212) 622-1443
companies with outlier short-term and long-term pension risk ratios and market dane.mott@jpmorgan.com
caps over $50 million as of June 5, 2009. We last published our pension risk J.P. Morgan Securities Inc.
ratios on October 13, 2008. In Appendices I and II, we present the stock
performance of October 13th outliers through June 5, 2009. The average stock Accounting & Valuation - Europe
performance of the October 13, 2008 short-term risk ratio outliers was -19% Sarah Deans
and the average stock performance of the October 13, 2008 long-term risk ratio (44-20) 7325-1775
sarah.deans@jpmorgan.com
outliers was -24%. These results compare to an average return of -4% for the
entire universe over that period. J.P. Morgan Securities Ltd.

• Shedding light on pension yield curves. Pension yield curve selection


decisions can have a material impact on the size of projected benefit obligations.
We have mixed feelings about the use of pension yield curves. On one hand, we
believe yield curve-based discount rates are conceptually superior to more
simplistic discount rate methodologies such as the use of a single rate based off
of a potentially non-representative benchmark such as the Moody’s Aa Index.
Where we have problems with yield curves is in the diversity in practice related
to how pension service providers go about creating these curves. In our view,
this is a glaring area where the SEC or FASB need to provide clear guidance
about what they deem to be the best-practice methodology. Absent some
minimum standards as to how these yield curves are to be constructed, we fear
that competitive forces will result in more and more yield curves being created
off of increasingly smaller subsections of upper-yielding segments of the
investment grade bond universe and more and more companies may see benefits
to applying these higher yield curves even when such a curve may not be
appropriate for their plans.

• Clients can find data for all the companies in this report’s universe at
morganmarkets.com as part of our Excel-based Pension Risk Evaluator tool.

• See our October 30, 2008 Accounting Issues for a detailed summary of the
pension funding rules under ERISA and Pension Protection Act. The piece
contains numerous examples to explain the mechanics of the funding rules.

• Our 2009 J.P. Morgan U.S. Pension and OPEB Forecast Model can be used to
perform funded status, earnings impact, and directional funding need analysis on
specific names. Interested clients should request a copy.

See page 30 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan 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. Customers of J.P. Morgan in the United States can receive independent, third-party research on the company or companies
covered in this report, at no cost to them, where such research is available. Customers can access this independent research at
www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research.
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

The Big Picture


The Plans of the Companies in the S&P 500
When we discuss pensions with clients, we often begin the conversation with a look
at the information presented in Table 1 which we think is helpful in explaining the
macro pension environment. The first section of this table shows the aggregate
funded status and employer contributions of defined benefit pension plans of
companies in the S&P 500 between yearend 1996 and yearend 2008. The bottom half
of the table tracks the changes in the S&P 500 Index (our proxy for equity returns)
and the Moody Aa Index (our proxy for pension discount rates). While we think the
Moody’s Aa Index is a helpful indicator to review to get a broad, directional sense of
movements in discount rates, note that later in this report we explain why the
Moody’s Aa Index can be a somewhat inarticulate measure of pension discount rates.

Table 1: Pension Plan Performance of the Companies in the S&P 500, 1996-2008 (US$ in billions)
Aggregate Funded Status of Defined Benefit Pension Plans of the Companies in the S&P 500 Index:

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Fair Value of Plan Assets 641 773 869 1,014 1,042 940 862 1,046 1,172 1,297 1,469 1,531 1,138
Projected Benefit Obligation 595 684 790 794 861 942 1,067 1,205 1,332 1,448 1,511 1,468 1,450
Over (Under) Funded Amount 46 88 79 220 181 (1) (205) (159) (160) (151) (42) 63 (312)

Overfunded/(Underfunded) Percentage 8% 13% 10% 28% 21% 0% -19% -13% -12% -10% -3% 4% -22%

Employer Contributions N/A N/A 9 10 14 15 45 69 55 57 48 36 41

December Year-End Trends of the S&P 500 Index and Moody's Aa Index:

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Current
S&P 500 Index at December 31 741 970 1,229 1,469 1,320 1,148 880 1,112 1,212 1,248 1,418 1,468 903.25 940.09
YOY Change 230 259 240 (149) (172) (268) 232 100 36 170 50 (565) 37
YOY % Change 31% 27% 20% -10% -13% -23% 26% 9% 3% 14% 4% -38% 4%

YOY Trend Movement of S&P 500 Index

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Current
Moody's Aa Index at December 31 7.47 6.94 6.65 7.90 7.41 7.08 6.52 6.01 5.66 5.41 5.46 5.80 5.54 6.32
YOY Basis-Point Change (0.53) (0.29) 1.25 (0.49) (0.33) (0.56) (0.51) (0.35) (0.25) 0.05 0.34 (0.26) 0.78

YOY Trend Movement of Moody's Aa Index

Note: S&P 500 constituency as of 5/19/09. Current S&P 500 Index figure is as of 6/05/09, and current Moody's Aa Index figure is as of 6/04/09.
Source: Company reports, Compustat, FactSet, Moody’s, Standard and Poor’s, and J.P. Morgan.

As shown in Table 1, yearend 2008 draws a striking resemblance to the situation


pension plans were in at yearend 2002. During the tech bubble of the late 1990s, the
funded status of the aggregate pension plans of the S&P 500 companies rose
dramatically due to three consecutive years of 20%+ equity returns and a large rise in
interest rates in 1999. Funding peaked in 1999, but then began a sharp decline
between 2000 and 2002. The period between 2000 and 2002 brought about what is
often described as a “perfect storm” for pension plans: equity returns collapsed at the
same time as interest rates fell. During this period, pension portfolios were severely
damaged by losses in equity portfolios and projected benefit obligations rose due to
declining interest rates translating to lower discount rates which resulted in higher net
present values for pension obligations.

2
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

In the United States, there is mandatory funding for pension plans1. The Pension
Protection Act of 2006 (2006 Act) and the Employee Retirement Income Security
Act of 1974 (ERISA) establish the pension funding requirements. In addition,
pension plans make pension insurance payments to a government entity called the
Pension Benefit Guarantee Corporation (PBGC), which provides an insurance-like
function for pension plan beneficiaries similar to the role of FDIC for bank deposits.
An unfortunate aspect of these rules is that companies typically must make these
mandatory contributions during economic downturns, usually when their pension
plans are most underfunded. Mandatory funding rules require that most companies
fill funding deficits over a seven-year period. However, note that airlines fund their
plans over longer periods due to special accommodations made for the industry in the
Pension Protection Act. For more on pension funding rules, request a copy of our
October 30, 2008 report, Pension Tension: U.S. Pension Funding Rules Explained.

Beginning in 2002, companies began making much larger contributions to their


pension plans in response to funding requirements. Between 2002 and 2007,
S&P 500 companies injected $310 billion into their pension plans. Many of these
contributions were mandatory contributions in compliance with funding rules under
ERISA. After six years of large pension contributions, S&P 500 companies were at a
4% overfunded status in aggregate at the end of fiscal 2007. Ultimately, a fully
funded plan is a positive for a company because it implies that there should be
minimal need for plan funding in the immediate future.

As the 2008 funded status of S&P 500 constituent plans show in Table 1, it took only
one year of asset deterioration to undo all of the progress companies made to
improve their funded status between yearend 2002 and yearend 2007. Predicting how
much cash and stock funding companies will need to contribute to close their funding
gaps is very difficult. Future gains or losses on plan assets and changes in discount
rates from changes in the interest rate environment will likely play a significant role.
If we assume discount rates and asset performance replicate the post-2002
environment, it would seem that contributions of at least $310 billion over the next
five to seven years could be a starting point for an estimate of the cash funding
needs. Given that the plans will be working themselves out of a 2008 GAAP deficit
of $312 billion rather than a smaller 2002 GAAP deficit of $205 billion, it would
appear that it is very possible that the funding contributions could very easily be
much larger than the “back of the envelope” estimate based on contributions since
2002. Either way, we expect cash contributions to steadily increase over the next
several years.

1
Note that, unlike pension plans, other post-retirement benefit plans (OPEBs) such as retiree
medical plans are not required to be funded and most companies fund these obligations on a
pay-as-you-go basis where funding in any given year equals the payments made to plan
beneficiaries during that year. While OPEB issues are significant at some companies, these
issues are outside of the scope of this report.

3
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Today, companies are only required to give an estimate of plan contributions for the
upcoming year in 10Ks. To date, the best voluntary disclosure we have seen from
any company regarding future pension contributions was that of Honeywell (HON)
which provided the following statement in the M,D,&A of its 2008 10K filed on
February 13, 2009:

Assuming that actual plan returns are consistent with our expected plan return of
9 percent in 2009, interest rates remain constant, and there are no additional
changes to U.S. pension funding legislation, we expect that we would be
required to make contributions to our U.S. pension plans of approximately $360,
$700, $1,000 and $800 million in 2010, 2011, 2012 and 2013, respectively, to
satisfy minimum statutory funding requirements.

More disclosures along the lines of those provided by Honeywell by the universe of
companies with pension plans would be very helpful. Without enhanced disclosures,
investors will continue to make estimates based on limited levels of public disclosure
of funding information. We believe that poor levels of information in this area create
unnecessary modeling risk for analysts. Ideally, companies would provide users with
sensitivity analyses showing their potential funding amounts in different asset return
and discount rate scenarios for the next five to seven years.

The Plans of the U.S. Universe


While analyzing the plans of the companies in the S&P 500 provides a good
benchmark for analyzing the performance of pension plans of the largest companies
in the United States, we find it helpful to define our universe more broadly given
many of the companies where pension issues could be the most severe are outside of
the index.

We started with a universe of all the companies in the Russell 3,000 as of May 19,
2009. In addition, we screened the FactSet U.S. universe using Compustat and
Bloomberg and added any public companies disclosing pension obligations
regardless of whether they were qualified or non-qualified pension plans. In total, our
universe includes 3,204 companies (1,447 of these companies have defined benefit
pension plans). If all of these plans were aggregated into a single plan, it would have
$1.338 trillion in plan assets, a projected benefit obligation of $1.730 trillion, and a
23% underfunded status of $393 billion (the 23% underfunded status is comparable
to the 22% underfunded status of the S&P 500 companies at yearend). Between 1998
and 2008, these companies have injected $465 billion into their pensions in the form
of contributions ($361 billion of those contributions have come since the beginning
of 2002).

We calculated the funded status (plan assets minus projected benefit obligations) for
each of the 1,447 companies in our universe with pension plans. In Table 2, we
present a distribution of these results. While in aggregate the plans of the universe
were underfunded by 23%, the average funded status was -32% and the mode
(excluding the companies that only have unfunded non-qualified plans) and median
funded status were both -34%.

4
# of Compani

0
10
20
30
40
50
60
70
80
90
100
110
120
130
-100%
Sarah Deans

-99% to -98%
(1-212) 622-1443

-97% to -96%
(44-20) 7325-1775

-95% to -94%
Dane Mott, CPA, CFA

-93% to -92%
dane.mott@jpmorgan.com

-91% to -90%
sarah.deans@jpmorgan.com

-89% to -88%
-87% to -86%
-85% to -84%
-83% to -82%
-81% to -80%
-79% to -78%
-77% to -76%
-75% to -74%
-73% to -72%
-71% to -70%
-69% to -68%
08 June 2009

-67% to -66%
-65% to -64%

Source: Company reports, Bloomberg, Compustat, FactSet, and J.P. Morgan estimates.
-63% to -62%
-61% to -60%
-59% to -58%
-57% to -56%
North America Equity Research

-55% to -54%
-53% to -52%
-51% to -50%
-49% to -48%
-47% to -46%
-45% to -44%
-43% to -42%
-41% to -40%
-39% to -38%
-37% to -36%
Table 2. Distribution of Most Recently Disclosed Funded Status Percentages Across the U.S. Universe

-35% to -34%
-33% to -32%
-31% to -30%
-29% to -28%
-27% to -26%
-25% to -24%
-23% to -22%
-21% to -20%

Pension Funding Percentage and Percent of Companies in Distribution at Each Range


-19% to -18%
-17% to -16%
-15% to -14%
-13% to -12%
-11% to -10%
-9% to -8%
-7% to -6%
-5% to -4%
-3% to -2%
-1% to 0%
1% to 2%
3% to 4%
5% to 6%
7% to 8%
9% to 10%
11% to 15%
16% to 20%
21% to 25%
26% to 30%
31% to 35%
36% to 40%
≥ 41%
8% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 0% 1% 1% 0% 1% 2% 1% 2% 3% 2% 3% 3% 5% 5% 4% 6% 4% 4% 5% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2% 1% 2% 1% 1% 1% 1% 0% 0% 1% 0% 0% 1% 0% 0% 0%

5
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Pension Risk Ratios


Given mandatory funding rules, one central issue for investors to focus on is a
company’s ability to meet funding requirements. While it can be difficult to estimate
the amount of a company’s specific funding requirements, it is rather easy to identify
companies with the highest probability of having difficulty meeting funding
requirements.

For a number of years we have been publishing pension risk ratios for a large
universe of companies. In this section we update those ratios.

Methodology
Our short-term and long-term pension risk ratios are shown in Table 3. Investors
should keep in mind that these ratios only take single-employer defined benefit
pension plans2 into consideration.

Table 3: J.P. Morgan Pension Risk Ratios

PBO - PLAN ASSETS


J.P. MORGAN SHORT-TERM PENSION RISK RATIO =
CURRENT MARKET CAPITALIZATION

PBO
J.P. MORGAN LONG-TERM PENSION RISK RATIO =
CURRENT MARKET CAPITALIZATION

Source: J.P. Morgan.

The short-term pension risk ratio identifies companies that might find it challenging
to meet the obligations associated with the current underfunding levels of their plans.

The long-term pension-risk ratio identifies companies that have the most significant
defined-benefit exposure regardless of their current funding levels.

With our risk ratios, the larger the ratio, the greater the firm’s relative pension risk.
The larger the obligations relative to the size of the company, the more susceptible
the company is to associated problems arising from defined benefit volatility.
Companies with the highest of these ratios may be in situations where “the tail wags
the dog.” For companies with pension exposure so large that it is nearly as large as or
larger than the value of its operating business units, the most important variables in
the company’s performance in a given year might be pension asset performance and
changes in discount rates.

2
For example, these ratios and the analysis in this report do not take into consideration multi-
employer pension plans. A multi-employer pension plan is a plan covering workers of more
than one employer. Often, multi-employer pension plans are set up under collective bargaining
agreements made between unions and companies. The disclosure requirements for multi-
employer plans under U.S. GAAP are minimal. Companies must disclose the amount of
contributions made for each income-statement year presented in the financials. Contributions
are recorded as pension cost.

6
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Given that pension plans are like a series of bond obligations that are continuously
being marked to market and are typically ineffectively hedged with volatile assets,
we believe the size of the obligations relative to the market value of the company’s
equity represents the best simple and commonly available measure of long-term
defined benefit risk exposure.

We last published pension risk ratio analysis for the U.S. pension universe on
October 13, 2008. In Appendices I and II, we present the stock performance of
October 13th outliers through June 5, 2009. The average stock performance of the
October 13, 2008 short-term risk ratio outliers was -19% and the average stock
performance of the October 13, 2008 long-term risk ratio outliers was -24%. These
results compare to an average return of -4% for the entire universe over that period3.
A number of these companies have entered bankruptcy over the past eight months.

Special Considerations
Note that while market cap figures are current, pension data is from most recent 10K
disclosures and is somewhat static. In Table 4, we present the returns of the S&P 500
Index since the last measurement dates as a proxy for potential equity return
performance over the undisclosed period. We discuss asset allocations later in this
report. At yearend 2008, the average equity allocation on plan assets for companies
in our universe was 51%.

Table 4: Pension Plan Performance of the Companies in the S&P 500, 1996-2008 (US$ in billions)
Last Pension S&P 500 Index 06/05/09 Performance
Measurement Beginning of S&P 500 over the
Date the Period Index Period
4/30/2008 1,385.59 940.09 -32%
5/31/2008 1,400.38 940.09 -33%
6/30/2008 1,280.00 940.09 -27%
7/31/2008 1,267.38 940.09 -26%
8/31/2008 1,296.50 940.09 -27%
9/30/2008 1,166.36 940.09 -19%
10/31/2008 968.75 940.09 -3%
11/30/2008 896.24 940.09 5%
12/31/2008 903.25 940.09 4%
1/30/2009 825.88 940.09 14%
2/27/2009 735.09 940.09 28%
3/31/2009 797.87 940.09 18%
Source: Bloomberg and J.P. Morgan estimates.

Another fact to consider is that companies aggregate their defined-benefit pension


plans for purposes of disclosing their funded status in footnotes. If a company has
one or more overfunded plan(s), the excess assets in these plans are offsetting the
excess obligations in other plans for accounting purposes. Note that it is very
difficult in practice for a company to use the assets of one plan to settle the
obligations of another plan.

3
All average returns were calculated excluding stocks in the universe with market caps under
$50 million since the published tables in the October 13, 2008 report excluded companies
below that market cap level.

7
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

It is also important to recognize that some companies have foreign pension plans.
These plans are not under the funding rules of ERISA and the Pension Protection Act
of 2006. The funding rules for these plans will vary from country to country and add
an additional level of unpredictability to the cash flow analysis of plans.

Also note that there are qualified and non-qualified pension plan classifications. Most
non-qualified plans are typically completely unfunded for tax reasons. Whenever
possible, we have included non-qualified plans in the calculation of the obligations.
While we understand why they are unfunded, the strategic reason for not funding the
plan does not change the fact that these plans represent obligations that eventually
will need to be funded (just not under the accelerated time table required for qualified
plans under ERISA and the Pension Protection Act). The same principle applies
regardless of qualified or non-qualified status—as the obligation gets larger relative
to the size of the company’s operating business, funding becomes more difficult to
accomplish.

Lastly, when analyzing the pension risk of aerospace and defense companies, it is
important to keep in mind that this industry represents a special situation. The U.S.
government, under its Cost Accounting Standards, considers pension funding to be
an allowable cost. Pension funding is reimbursed in many government contracts,
either directly for cost-plus contracts or as forecasted in a fixed-price contract.
Therefore, in a sense, the government is taking on a portion of the companies’
employee benefit risk and employee benefit liability. Given that U.S. GAAP
financial statements do not provide disclosure as to how much of these companies’
pension obligations are government-related and reimbursable, it is difficult to assign
an accurate pension-risk ratio to these companies. The same issue exists for utility
companies to some extent since many can pass on funding costs to utility customers
through higher rates.

Short-Term Pension Risk Ratio Analysis


Table 5 shows the distribution of short-term pension risk ratios among the 1,447
companies in our universe with pension plans. As this distribution shows, at least
when we are concerned about ability to fund, we should focus our attention on a
relatively small portion of the universe. From our perspective, immediate funding
issues are most critical for the 4% of companies (64) in the universe with short-term
pension risk ratios of 1.00 or higher. For these companies, pension obligations are at
least equal to the company’s most recent market capitalization. If we extend our
outlier scope further to the 0.50 short-term risk ratio threshold, 7% (108 companies)
of the universe meet these criteria.

In Table 6, we present 112 companies with market caps of $50 million or greater and
short-term pension risk ratios of 0.25 or greater.

Long-Term Pension Risk Ratio Analysis


Table 7 shows the distribution of long-term pension risk ratios among the 1,447
companies in our universe with pension plans. If, like with the short-term risk ratio,
we focus on the portion of the universe with a ratio of 1.00 or larger, we find 169
companies representing 12% of the universe meet these criteria.

In Table 8, we present 89 companies with market caps of $50 million or greater and
long-term pension risk ratios of 1.00 or greater.

8
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 5. Distribution of Short-Term Pension Risk Ratios Among Companies in the U.S. Universe with Pension Plans
200

175

150

125
# of Compani

100

75

50

25

0.51 to 0.55
0.56 to 0.6
0.61 to 0.65
0.66 to 0.7
0.71 to 0.75
0.76 to 0.8
0.81 to 0.85
0.86 to 0.9
0.91 to 0.95
0.96 to 1
≤ -.01

≥ 1.01
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
0.11
0.12
0.13
0.14
0.15
0.16
0.17
0.18
0.19
0.20
0.21
0.22
0.23
0.24
0.25
0.26
0.27
0.28
0.29
0.30
0.31
0.32
0.33
0.34
0.35
0.36
0.37
0.38
0.39
0.40
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
0.49
0.50
-

5%13%14%11% 8% 6% 4% 3% 3% 3% 2% 3% 2% 1% 2% 1% 1% 1% 1% 1% 1% 0% 0% 0% 0% 1% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 4%

Short-term Pension Risk Ratio and the % of Total Universe

Source: Company reports, Bloomberg, Compustat, FactSet, and J.P. Morgan estimates.

9
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 6. U.S. Companies with Market Capitalizations on June 5, 2009 Greater than $50 Million and Short-Term Pension Risk Ratios of 0.25 or Greater
Pension Risk Ratios Most Recently Disclosed Aggregate Debt and Equity Ratings
Pension J.P. Short
Most Recent Market Short-term Long-term Projected Most Ave. Equity Total # of Morgan Interest 2009 Expected
Fiscal Capitalization Pension Pension Pension Plan Benefit Funded % Recent Total Composite Analyst Equity J.P. Morgan Equity Equity (% of Pension
Yearend on Risk Ratio Risk Ratio Assets Obligations Status Funded Debt Debt Rating Rating Analysts Analyst Rating float) Contribution
Ticker Company Name 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/09
MEG Media General Inc 12/2008 63.6 3.28 6.57 209.0 417.6 (208.5) -50% 730 N/A 2.000 4 23.5 16.7
AMR AMR Corp 12/2008 1,405.9 2.97 7.74 6,714.0 10,884.0 (4,170.0) -38% 10,311 CCC+ 3.583 12 Baker Jamie OW 10.7 N/A
LEA Lear Corp 12/2008 91.5 2.78 8.51 523.8 778.5 (254.7) -33% 3,523 D 2.500 12 Patel Himanshu N 7.8 50.0
DAN Dana Holding Corp 12/2008 131.1 2.52 16.33 1,811.0 2,141.0 (330.0) -15% 1,228 B- 3.000 2 Patel Himanshu N 1.8 13.0
UIS Unisys Corp 12/2008 596.2 2.23 10.50 4,929.6 6,261.2 (1,331.6) -21% 1,060 C 3.000 4 0.7 90.0
YRCW YRC Worldwide Inc 12/2008 165.2 2.18 5.82 601.5 961.8 (360.3) -37% 1,232 CCC- 2.400 10 Wadewitz Thomas N 22.2 13.8
SR Standard Register Co/The 12/2008 113.8 2.10 4.10 228.0 466.4 (238.4) -51% 42 N/A 3.000 2 10.0 25.0
ATSG Air Transport Services Group Inc 12/2008 139.1 1.92 4.55 366.6 633.8 (267.2) -42% 455 N/A 3.000 1 0.1 36.4
AXL American Axle & Manufacturing Holdings I 12/2008 142.0 1.79 3.98 310.7 565.2 (254.5) -45% 1,095 CCC 2.750 8 Patel Himanshu N 15.1 20.0
SSP EW Scripps Co 12/2008 112.6 1.65 4.25 292.1 478.0 (185.9) -39% 73 N/A 3.333 6 Quadrani Alexia N 6.9 3.3
DAL Delta Air Lines Inc 12/2008 5,509.6 1.57 2.89 7,295.0 15,929.0 (8,634.0) -54% 16,596 B 4.889 9 Baker Jamie OW 4.3 275.0
PNX Phoenix Cos Inc/The 12/2008 238.1 1.29 2.79 357.8 665.5 (307.7) -46% 452 B+ 2.600 5 Bhullar Jamminder UW 4.4 N/A
CAL Continental Airlines Inc 12/2008 1,292.1 1.10 1.92 1,057.0 2,482.0 (1,425.0) -57% 5,938 B- 3.583 12 Baker Jamie OW 13.9 125.0
BC Brunswick Corp/DE 12/2008 423.2 1.02 2.57 655.5 1,088.0 (432.5) -40% 731 B- 2.778 9 10.6 3.9
BLC Belo Corp 12/2008 191.7 1.00 2.58 302.9 495.4 (192.5) -39% 1,078 BB- 3.750 4 Meltz Michael N 2.0 N/A
FOE Ferro Corp 12/2008 182.6 0.95 2.77 332.1 505.6 (173.5) -34% 665 CCC+ 3.857 7 7.0 20.2
NYT New York Times Co/The 12/2008 928.6 0.94 2.01 994.8 1,865.4 (870.6) -47% 1,281 B 2.143 7 Quadrani Alexia N 13.3 N/A
XRM Xerium Technologies Inc 12/2008 71.8 0.94 1.59 47.1 114.4 (67.3) -59% 609 B- 2.333 3 1.4 8.7
GT Goodyear Tire & Rubber Co/The 12/2008 2,954.8 0.93 2.43 4,430.0 7,178.0 (2,748.0) -38% 5,526 B+ 3.667 9 Patel Himanshu OW 6.3 400.0
GCI Gannett Co Inc 12/2008 985.5 0.90 3.11 2,168.6 3,060.3 (891.7) -29% 4,295 BB 3.667 9 Quadrani Alexia N 21.7 14.1
BONT Bon-Ton Stores Inc 1/2009 84.6 0.86 2.20 113.7 186.4 (72.7) -39% 1,192 B- 3.000 2 16.4 6.4
MGI MoneyGram International Inc 12/2008 130.4 0.86 1.59 95.6 207.5 (111.9) -54% 979 B+ 4.000 4 0.8 3.0
ALK Alaska Air Group Inc 12/2008 570.5 0.84 1.98 650.0 1,130.9 (480.9) -43% 1,784 B 3.600 10 Baker Jamie OW 6.1 50.5
SOA Solutia Inc 12/2008 570.5 0.83 1.93 629.0 1,101.0 (472.0) -43% 1,349 B 5.000 2 3.6 42.0
REV Revlon Inc (Cl A) 12/2008 274.1 0.79 2.04 342.3 560.1 (217.8) -39% 1,292 N/A 3.000 2 2.9 26.0
BZ Boise Inc 12/2008 188.5 0.79 2.10 248.1 396.7 (148.6) -37% 1,044 BB- 5.000 1 3.5 4.1
HDNG Hardinge Inc 12/2008 60.4 0.78 3.02 135.3 182.4 (47.1) -26% 12 N/A 2.000 2 0.4 5.9
POL PolyOne Corp 12/2008 302.1 0.76 1.66 271.9 501.2 (229.3) -46% 450 B- 3.500 8 4.0 10.6
FDML Federal Mogul Corp 12/2008 1,002.0 0.74 1.32 580.9 1,320.2 (739.3) -56% 2,866 B+ 5.000 2 0.4 25.3
AKS AK Steel Holding Corp 12/2008 1,802.0 0.73 1.95 2,201.6 3,517.5 (1,315.9) -37% 610 BB- 3.000 12 Gambardella Michael OW 5.4 155.0
TEN Tenneco Inc 12/2008 344.0 0.72 1.77 361.0 610.0 (249.0) -41% 1,587 B- 3.500 8 Patel Himanshu N 3.8 24.0
CRD.B Crawford & Co 12/2008 263.4 0.70 2.04 354.5 537.7 (183.3) -34% 193 BB- 5.000 2 10.1 15.1
NCR NCR Corp 12/2008 1,762.0 0.68 2.76 3,675.0 4,872.0 (1,197.0) -25% 308 BBB- 3.571 7 Coster Paul N 2.7 120.0
FBN Furniture Brands International Inc 12/2008 202.3 0.68 2.08 284.4 421.7 (137.3) -33% 145 N/A 2.333 3 7.7 N/A
OMX OfficeMax Inc 12/2008 649.2 0.67 1.97 841.2 1,276.2 (435.0) -34% 1,812 B 3.333 12 Horvers Christopher N 3.0 6.7
F Ford Motor Co 12/2008 18,273.9 0.65 3.54 52,863.0 64,743.0 (11,880.0) -18% 145,586 CCC 2.857 14 Patel Himanshu N 4.9 1,500.0
TSTY Tasty Baking Co 12/2008 53.1 0.59 1.52 49.4 80.5 (31.1) -39% 74 N/A 5.000 1 0.1 3.2
JRN Journal Communications Inc 12/2008 81.2 0.58 1.70 90.8 138.1 (47.3) -34% 216 N/A 3.000 4 3.0 0.3
GRA WR Grace & Co 12/2008 1,032.6 0.57 1.34 786.5 1,379.8 (593.3) -43% 13 N/A 1.000 1 5.0 51.0
HA Hawaiian Holdings Inc 12/2008 293.6 0.53 1.08 160.5 316.7 (156.2) -49% 253 N/A 4.750 4 2.6 2.6
AIG American International Group Inc 12/2008 4,412.9 0.53 1.32 3,498.0 5,825.0 (2,327.0) -40% 190,672 BBB+ 3.000 10 Bhullar Jamminder - 9.6 600.0
IP International Paper Co 12/2008 6,317.2 0.51 1.49 6,194.0 9,443.0 (3,249.0) -34% 11,495 BBB 3.571 14 Shank Hueston Claudia N 3.3 24.0
NP Neenah Paper Inc 12/2008 140.5 0.51 1.52 142.9 214.2 (71.3) -33% 341 B+ 3.500 2 3.4 10.7
TXT Textron Inc 12/2008 3,002.6 0.50 1.69 3,574.0 5,088.0 (1,514.0) -30% 10,829 BB+ 3.308 13 Tusa, Jr Stephen OW 7.1 55.0
HUN Huntsman Corp 12/2008 1,473.9 0.49 1.81 1,940.0 2,663.0 (723.0) -27% 3,779 B 2.714 7 Zekauskas Jeffrey N 4.6 143.0
X United States Steel Corp 12/2008 4,133.5 0.48 2.32 7,587.0 9,572.0 (1,985.0) -21% 3,124 BB+ 3.000 15 Gambardella Michael OW 13.5 N/A
TVL LIN TV Corp 12/2008 103.3 0.47 1.07 61.5 110.2 (48.7) -44% 686 B 3.500 4 9.1 0.4
FNM Federal National Mortgage Association 12/2008 806.4 0.47 1.19 579.0 959.0 (380.0) -40% 854,013 AAA 2.000 2 5.2 6.0
WHR Whirlpool Corp 12/2008 3,245.6 0.47 1.20 2,368.0 3,889.0 (1,521.0) -39% 3,033 BBB- 2.667 6 Rehaut Michael UW 12.7 93.0
TKR Timken Co 12/2008 1,810.1 0.47 1.44 1,757.8 2,600.9 (843.1) -32% 630 BBB- 4.333 6 1.6 90.0
ARM ArvinMeritor Inc 9/2008 249.8 0.46 6.62 1,539.0 1,654.0 (115.0) -7% 1,517 CCC 2.714 7 Patel Himanshu N 4.3 28.0
MLP Maui Land & Pineapple Co Inc 12/2008 65.7 0.43 0.91 31.7 59.7 (28.0) -47% 90 N/A 1.000 1 9.4 2.5
CTB Cooper Tire & Rubber Co 12/2008 631.4 0.43 1.58 725.9 994.5 (268.6) -27% 632 B 3.286 7 Patel Himanshu OW 13.6 50.0
KAMN Kaman Corp 12/2008 444.8 0.42 1.18 334.1 523.0 (188.9) -36% 107 BBB- 4.000 7 2.4 16.6
FRP Fairpoint Communications Inc 12/2008 90.4 0.42 2.46 184.3 222.4 (38.1) -17% 2,518 CCC+ 2.667 6 5.4 -
ABD ACCO Brands Corp 12/2008 183.3 0.42 1.94 277.6 354.8 (77.2) -22% 740 B+ 2.200 5 1.8 15.2
PTV Pactiv Corp 12/2008 2,876.7 0.42 1.29 2,506.0 3,707.0 (1,201.0) -32% 1,345 BBB 4.273 11 Shank Hueston Claudia OW 1.9 N/A
WLB Westmoreland Coal Co 12/2008 95.2 0.41 0.84 40.8 80.0 (39.2) -49% 262 N/A N/A - 3.9 11.3
FFG FBL Financial Group Inc 12/2008 253.9 0.41 1.09 172.7 275.6 (102.9) -37% 371 N/A 3.000 2 10.2 9.0
LVB Steinway Musical Instruments 12/2008 93.4 0.40 0.88 44.8 82.6 (37.8) -46% 177 B 4.500 2 3.2 2.2
TLB Talbots Inc 1/2009 270.2 0.40 0.67 73.1 180.6 (107.5) -60% 477 N/A 3.222 9 Tunick Brian N 31.2 9.7
GPK Graphic Packaging Holding Co 12/2008 818.8 0.39 0.99 489.0 812.1 (323.1) -40% 3,227 B 3.000 1 4.9 67.0
XIDE Exide Technologies 3/2008 509.5 0.38 1.26 450.5 643.2 (192.7) -30% 687 B 3.500 4 3.9 41.8
IPSU Imperial Sugar Co 9/2008 146.3 0.38 1.31 136.0 191.0 (54.9) -29% 30 N/A 3.000 2 3.8 9.0
CBM Cambrex Corp 12/2008 118.9 0.37 0.68 37.3 80.9 (43.6) -54% 127 N/A 3.667 3 1.7 1.2

Source: Company reports, Compustat, FactSet, Bloomberg, Moody’s, Fitch, Standard and Poor’s, and J.P. Morgan estimates.

10
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 6. U.S. Companies with Market Capitalizations on June 5, 2009 Greater than $50 Million and Short-Term Pension Risk Ratios of 0.25 or Greater (Continued)
Pension Risk Ratios Most Recently Disclosed Aggregate Debt and Equity Ratings
Pension J.P. Short
Most Recent Market Short-term Long-term Projected Most Ave. Equity Total # of Morgan Interest 2009 Expected
Fiscal Capitalization Pension Pension Pension Plan Benefit Funded % Recent Total Composite Analyst Equity J.P. Morgan Equity Equity (% of Pension
Yearend on Risk Ratio Risk Ratio Assets Obligations Status Funded Debt Debt Rating Rating Analysts Analyst Rating float) Contribution
Ticker Company Name 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/09
ED Consolidated Edison Inc 12/2008 9,747.0 0.36 0.96 5,836.0 9,383.0 (3,547.0) -38% 10,699 A- 2.857 14 Smith Andrew UW 4.8 290.0
LMT Lockheed Martin Corp 12/2008 32,860.8 0.36 0.93 18,539.0 30,421.0 (11,882.0) -39% 3,805 A- 4.217 23 Nadol Joseph N 1.0 -
CNW Con-way Inc 12/2008 1,504.9 0.36 0.85 745.0 1,283.5 (538.5) -42% 933 BBB- 3.571 14 Wadewitz Thomas N 10.8 23.8
GRB Gerber Scientific Inc 4/2008 81.8 0.36 1.36 82.2 111.2 (29.1) -26% 75 N/A 3.000 3 1.5 6.6
LSR Life Sciences Research Inc 12/2008 96.9 0.35 1.31 93.2 127.0 (33.9) -27% 74 N/A 5.000 1 1.4 3.9
KRO Kronos Worldwide Inc 12/2008 361.8 0.35 1.08 263.8 389.4 (125.6) -32% 657 N/A N/A - 13.9 18.0
BNE Bowne & Co Inc 12/2008 184.9 0.34 0.76 76.9 140.4 (63.5) -45% 116 B 3.000 2 3.3 7.9
IEP Icahn Enterprises LP 12/2008 2,172.2 0.34 0.61 581.0 1,320.0 (739.0) -56% 5,688 BBB- N/A - N/A 25.0
CMS CMS Energy Corp 12/2008 2,660.4 0.34 0.61 724.0 1,619.0 (895.0) -55% 6,968 BB+ 4.667 12 Smith Andrew OW 11.4 300.0
USU USEC Inc 12/2008 684.2 0.33 1.14 558.8 782.8 (224.0) -29% 575 B- 3.500 4 19.1 23.6
BPOP Popular Inc 12/2008 750.2 0.32 0.84 389.6 627.7 (238.1) -38% 6,311 BBB- 2.200 5 8.1 N/A
GETI GenTek Inc 12/2008 244.6 0.32 0.93 150.1 227.4 (77.3) -34% 213 B+ 3.000 1 2.6 4.0
CFX Colfax Corp 12/2008 385.4 0.31 0.81 192.9 313.3 (120.5) -38% 96 N/A 4.143 7 2.8 3.2
CLW Clearwater Paper Corp 12/2008 295.1 0.31 0.85 159.1 250.4 (91.2) -36% 140 BB- 3.000 1 2.5 N/A
BDK Black & Decker Corp 12/2008 1,924.0 0.31 0.80 950.0 1,543.7 (593.7) -38% 1,724 BBB 2.818 11 Rehaut Michael N 7.1 45.0
RTN Raytheon Co 12/2008 17,737.9 0.31 0.92 10,907.0 16,361.0 (5,454.0) -33% 2,297 A- 4.200 20 Nadol Joseph OW 1.9 1,110.0
LDSH Ladish Co Inc 12/2008 225.3 0.30 0.91 136.5 204.0 (67.6) -33% 108 N/A 4.333 6 5.8 8.3
R Ryder System Inc 12/2008 1,685.1 0.30 0.88 975.5 1,477.5 (501.9) -34% 2,847 BBB+ 3.286 7 5.7 100.0
SHS Sauer-Danfoss Inc 12/2008 285.3 0.30 0.77 135.6 220.5 (84.9) -39% 552 N/A 3.667 3 3.7 N/A
CE Celanese Corp 12/2008 3,040.9 0.30 1.01 2,170.0 3,073.0 (903.0) -29% 3,469 N/A 4.455 11 2.3 40.0
M Macy's Inc 1/2009 5,410.7 0.30 0.56 1,438.0 3,043.0 (1,605.0) -53% 8,854 BB+ 3.667 18 Grom Charles N 6.6 370.0
WBC WABCO Holdings Inc 12/2008 1,075.2 0.30 0.40 110.6 428.6 (318.0) -74% 173 N/A 4.250 4 Tusa, Jr Stephen N 1.2 N/A
CI Cigna Corp 12/2008 6,294.2 0.29 0.65 2,248.0 4,101.0 (1,853.0) -45% 2,463 BBB 4.053 19 Rex John N 2.0 -
ROC Rockwood Holdings Inc 12/2008 1,269.7 0.29 0.47 228.7 600.4 (371.7) -62% 2,586 N/A 4.250 8 Kueck Silke OW 2.9 9.5
BCO Brink's Co/The 12/2008 1,298.1 0.29 0.74 588.0 965.6 (377.6) -39% 232 BBB 4.444 9 1.8 13.6
JBT John Bean Technologies Corp 12/2008 396.1 0.29 0.64 139.1 252.9 (113.8) -45% 165 N/A 4.250 4 1.2 16.5
CYT Cytec Industries Inc 12/2008 1,032.7 0.29 0.83 563.9 859.2 (295.3) -34% 832 BBB 3.286 7 5.3 37.5
MXM Maxxam Inc 12/2008 56.5 0.28 0.59 17.5 33.6 (16.1) -48% 212 N/A N/A - 4.2 0.3
LDL Lydall Inc 12/2008 62.0 0.28 0.70 25.9 43.3 (17.4) -40% 7 N/A N/A - 1.6 0.9
ARJ Arch Chemicals Inc 12/2008 727.3 0.28 0.78 366.0 569.6 (203.6) -36% 374 N/A 4.000 6 4.9 N/A
AIN Albany International Corp 12/2008 433.6 0.28 0.76 207.9 328.6 (120.7) -37% 552 N/A 3.750 4 5.6 8.1
CBB Cincinnati Bell Inc 12/2008 627.4 0.28 0.75 300.5 473.7 (173.2) -37% 1,985 B+ 3.200 10 7.1 6.0
AOS AO Smith Corp 12/2008 959.1 0.27 0.82 519.1 782.8 (263.7) -34% 352 N/A 3.000 7 9.9 35.0
AA Alcoa Inc 12/2008 10,415.0 0.27 1.03 7,908.0 10,765.0 (2,857.0) -27% 10,205 BBB- 3.118 17 Gambardella Michael OW 7.2 140.0
FRE Federal Home Loan Mortgage Corp 12/2008 492.6 0.27 1.18 446.0 581.0 (135.0) -23% 909,511 AAA 2.000 2 10.3 N/A
NAV Navistar International Corp 10/2008 2,859.2 0.27 1.06 2,268.0 3,031.0 (763.0) -25% 5,405 BB- 4.455 11 Duignan Ann OW 1.8 44.0
GAP Great Atlantic & Pacific Tea Co 2/2009 259.5 0.26 1.57 339.6 408.1 (68.6) -17% 1,438 B 3.889 9 21.0 7.0
CBS CBS Corp 12/2008 5,995.1 0.26 0.82 3,354.4 4,905.8 (1,551.4) -32% 7,131 BBB- 3.462 26 Meltz Michael OW 5.5 50.0
CVO Cenveo Inc 12/2008 272.5 0.25 0.62 98.2 167.7 (69.5) -41% 1,261 B+ 4.000 3 6.5 N/A
DRCO Dynamics Research Corp 12/2008 88.5 0.25 0.79 47.1 69.7 (22.6) -32% 36 N/A 3.000 5 0.1 N/A
CAT Caterpillar Inc 12/2008 22,877.0 0.25 0.64 8,920.0 14,712.0 (5,792.0) -39% 34,891 A 3.182 22 Duignan Ann OW 6.4 1,000.0
SVU SUPERVALU Inc 2/2009 3,621.0 0.25 0.53 1,008.0 1,922.0 (914.0) -48% 8,484 BB- 3.429 14 Grom Charles N 4.7 74.0
UIL UIL Holdings Corp 12/2008 540.8 0.25 0.64 211.7 348.1 (136.4) -39% 790 BBB- 4.333 6 4.8 6.0
SURW SureWest Communications 12/2008 125.0 0.25 0.95 87.1 118.6 (31.5) -27% 240 N/A 3.400 5 1.1 -
XRX Xerox Corp 12/2008 6,269.7 0.25 1.35 6,923.0 8,495.0 (1,572.0) -19% 8,547 BBB 3.889 9 Moskowitz Mark N 1.2 108.0
VLCY Voyager Learning Co 12/2008 67.2 0.25 0.25 - 16.8 (16.8) -100% 0 N/A N/A - N/A 6.6
VSH Vishay Intertechnology Inc 12/2008 1,173.5 0.25 0.43 210.7 500.3 (289.7) -58% 362 BB- 4.667 6 0.7 36.7

Universe: The universe includes all companies in the Russell 3000 as of May 19, 2009. In addition, we screened the larger FactSet U.S. common stock universe and added companies with projected benefit obligations that are not in the Russell 3000 universe to our universe.
Note: Screens are based on data from database services. While we have taken efforts to verify the quality of the data, databases can and often do have errors that we may not have been able to correct.

The following footnotes relate to datasets above:


(a) Market Cap is FactSet Compustat Market Cap as of market close on Friday, June 5, 2009.
(b) J.P. Morgan Short-term Pension Risk Ratio = Most Recently Disclosed Pension Projected Benefit Obligation - Pension Plan Assets / Current Market Cap
J.P. Morgan Long-term Pension Risk Ratio = Most Recently Disclosed Projected Benefit Obligation / Current Market Cap
Ratios are intended to isolate companies in the universe with the most dramatic pension exposure relative to their market capitalizations.
(c) Pension plan assets, projected benefit obligations, and most recent total debt, and 2009 expected pension contributions are primarily from Compustat. Short interest is from FactSet.
FactSet Compustat figures were compared against Bloomberg figures. Discrepencies between the two sources were compared.
(d) Debt and equity ratings and analyst information are as of market close on Friday, June 5, 2009. Aggregate debt and equity ratings and analyst information and are from Bloomberg. J.P. Morgan analyst information is internally sourced. We arrived at our composite debt rating by averaging
the debt ratings of Fitch's, Moody's, and S&P's ratings. Their comparable debt rating scales are in the Excel-based tool that accompanies this report.
The average equity analyst rating and number of equity analysts covering the stock are Bloomberg computations. Bloomberg converts analyst ratings to buy (5), hold (3), and sell (1) and then computes an average.
(e) Additional data is provided for these companies beyond the information displayed here in the Excel-based tool accompanying this report.

Source: Company reports, Compustat, FactSet, Bloomberg, Moody’s, Fitch, Standard and Poor’s, and J.P. Morgan estimates.

11
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 7. Distribution of Long-Term Pension Risk Ratios Among Companies in the U.S. Universe with Pension Plans
100

90

80

70
# of Compani

60

50

40

30

20

10

0.51 to 0.55
0.56 to 0.60
0.61 to 0.65
0.66 to 0.70
0.71 to 0.75
0.76 to 0.80
0.81 to 0.85
0.86 to 0.90
0.91 to 0.95
0.96 to 1.00
1.01 to 2.00
2.01 to 3.00
3.01 to 4.00
4.01 to 5.00
5.01 to 6.00
6.01 to 7.00
7.01 to 8.00
8.01 to 9.00
9.01 to 10.00
≥ 10.01
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
0.11
0.12
0.13
0.14
0.15
0.16
0.17
0.18
0.19
0.20
0.21
0.22
0.23
0.24
0.25
0.26
0.27
0.28
0.29
0.30
0.31
0.32
0.33
0.34
0.35
0.36
0.37
0.38
0.39
0.40
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
0.49
0.50
-

5% 7%5% 5% 4%3% 3% 4% 3%3% 3% 2%2% 2% 2% 2%2% 1% 1% 2%2% 1% 1%1% 1% 1% 1%1% 1% 1%1% 0% 1% 1%1% 1% 1%0% 0% 1% 1%0% 1% 0%0% 0% 0% 0%0% 0% 0%1% 1% 1% 1%1% 1% 1% 0%0% 0% 5%2% 1% 0% 0%0% 0% 0%0% 3%

Long-term Pension Risk Ratio and the % of Total Universe

Source: Company reports, Bloomberg, Compustat, FactSet, and J.P. Morgan estimates.

12
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 8. U.S. Companies with Market Capitalizations on June 5, 2009 Greater than $50 Million and Long-Term Pension Risk Ratios of 1.00 or Greater
Pension Risk Ratios Most Recently Disclosed Aggregate Debt and Equity Ratings (f)
Pension J.P. Short
Most Recent Market Short-term Long-term Projected Most Ave. Equity Total # of Morgan Interest 2009 Expected
Fiscal Capitalization Pension Pension Pension Plan Benefit Funded % Recent Total Composite Analyst Equity J.P. Morgan Equity Equity (% of Pension
Yearend on Risk Ratio Risk Ratio Assets Obligations Status Funded Debt Debt Rating Rating Analysts Analyst Rating float) Contribution
Ticker Company Name 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/09
DAN Dana Holding Corp 12/2008 131.1 2.52 16.33 1,811.0 2,141.0 (330.0) -15% 1,228 B- 3.000 2 Patel Himanshu N 1.8 13.0
GY GenCorp Inc 11/2008 127.0 (0.48) 11.66 1,543.3 1,481.7 61.6 4% 440 CCC+ 2.333 3 8.4 -
WAMUQ Washington Mutual Inc 12/2007 162.0 (3.14) 10.66 2,235.0 1,727.0 508.0 29% 89,242 N/A N/A - N/A 80.0
UIS Unisys Corp 12/2008 596.2 2.23 10.50 4,929.6 6,261.2 (1,331.6) -21% 1,060 C 3.000 4 0.7 90.0
EK Eastman Kodak Co 12/2008 726.3 0.22 10.49 7,459.0 7,619.0 (160.0) -2% 1,306 B- 1.000 5 13.2 130.0
LEA Lear Corp 12/2008 91.5 2.78 8.51 523.8 778.5 (254.7) -33% 3,523 D 2.500 12 Patel Himanshu N 7.8 50.0
AMR AMR Corp 12/2008 1,405.9 2.97 7.74 6,714.0 10,884.0 (4,170.0) -38% 10,311 CCC+ 3.583 12 Baker Jamie OW 10.7 N/A
ARM ArvinMeritor Inc 9/2008 249.8 0.46 6.62 1,539.0 1,654.0 (115.0) -7% 1,517 CCC 2.714 7 Patel Himanshu N 4.3 28.0
MEG Media General Inc 12/2008 63.6 3.28 6.57 209.0 417.6 (208.5) -50% 730 N/A 2.000 4 23.5 16.7
YRCW YRC Worldwide Inc 12/2008 165.2 2.18 5.82 601.5 961.8 (360.3) -37% 1,232 CCC- 2.400 10 Wadewitz Thomas N 22.2 13.8
TRW TRW Automotive Holdings Corp 12/2008 940.4 0.00 5.72 5,375.0 5,376.0 (1.0) 0% 2,958 B 3.222 9 Patel Himanshu N 2.5 85.0
ATSG Air Transport Services Group Inc 12/2008 139.1 1.92 4.55 366.6 633.8 (267.2) -42% 455 N/A 3.000 1 0.1 36.4
SSP EW Scripps Co 12/2008 112.6 1.65 4.25 292.1 478.0 (185.9) -39% 73 N/A 3.333 6 Quadrani Alexia N 6.9 3.3
SR Standard Register Co/The 12/2008 113.8 2.10 4.10 228.0 466.4 (238.4) -51% 42 N/A 3.000 2 10.0 25.0
AXL American Axle & Manufacturing Holdings I 12/2008 142.0 1.79 3.98 310.7 565.2 (254.5) -45% 1,095 CCC 2.750 8 Patel Himanshu N 15.1 20.0
F Ford Motor Co 12/2008 18,273.9 0.65 3.54 52,863.0 64,743.0 (11,880.0) -18% 145,586 CCC 2.857 14 Patel Himanshu N 4.9 1,500.0
ES EnergySolutions Inc 12/2008 717.9 (0.13) 3.30 2,459.8 2,366.3 93.5 4% 557 N/A 4.167 12 Levine Scott OW 1.9 49.9
GCI Gannett Co Inc 12/2008 985.5 0.90 3.11 2,168.6 3,060.3 (891.7) -29% 4,295 BB 3.667 9 Quadrani Alexia N 21.7 14.1
HDNG Hardinge Inc 12/2008 60.4 0.78 3.02 135.3 182.4 (47.1) -26% 12 N/A 2.000 2 0.4 5.9
DAL Delta Air Lines Inc 12/2008 5,509.6 1.57 2.89 7,295.0 15,929.0 (8,634.0) -54% 16,596 B 4.889 9 Baker Jamie OW 4.3 275.0
PNX Phoenix Cos Inc/The 12/2008 238.1 1.29 2.79 357.8 665.5 (307.7) -46% 452 B+ 2.600 5 Bhullar Jamminder UW 4.4 N/A
FOE Ferro Corp 12/2008 182.6 0.95 2.77 332.1 505.6 (173.5) -34% 665 CCC+ 3.857 7 7.0 20.2
NCR NCR Corp 12/2008 1,762.0 0.68 2.76 3,675.0 4,872.0 (1,197.0) -25% 308 BBB- 3.571 7 Coster Paul N 2.7 120.0
BLC Belo Corp 12/2008 191.7 1.00 2.58 302.9 495.4 (192.5) -39% 1,078 BB- 3.750 4 Meltz Michael N 2.0 N/A
BC Brunswick Corp/DE 12/2008 423.2 1.02 2.57 655.5 1,088.0 (432.5) -40% 731 B- 2.778 9 10.6 3.9
FRP Fairpoint Communications Inc 12/2008 90.4 0.42 2.46 184.3 222.4 (38.1) -17% 2,518 CCC+ 2.667 6 5.4 -
GT Goodyear Tire & Rubber Co/The 12/2008 2,954.8 0.93 2.43 4,430.0 7,178.0 (2,748.0) -38% 5,526 B+ 3.667 9 Patel Himanshu OW 6.3 400.0
X United States Steel Corp 12/2008 4,133.5 0.48 2.32 7,587.0 9,572.0 (1,985.0) -21% 3,124 BB+ 3.000 15 Gambardella Michael OW 13.5 N/A
IOSP Innospec Inc 12/2008 256.4 0.05 2.23 557.4 571.2 (13.8) -2% 73 N/A 5.000 2 Zekauskas Jeffrey OW 1.7 5.8
BONT Bon-Ton Stores Inc 1/2009 84.6 0.86 2.20 113.7 186.4 (72.7) -39% 1,192 B- 3.000 2 16.4 6.4
BZ Boise Inc 12/2008 188.5 0.79 2.10 248.1 396.7 (148.6) -37% 1,044 BB- 5.000 1 3.5 4.1
SCX LS Starrett Co (Cl A) 6/2008 52.4 (0.59) 2.09 140.8 109.8 31.0 28% 21 N/A N/A - 0.2 0.6
FBN Furniture Brands International Inc 12/2008 202.3 0.68 2.08 284.4 421.7 (137.3) -33% 145 N/A 2.333 3 7.7 N/A
REV Revlon Inc (Cl A) 12/2008 274.1 0.79 2.04 342.3 560.1 (217.8) -39% 1,292 N/A 3.000 2 2.9 26.0
CRD.B Crawford & Co 12/2008 263.4 0.70 2.04 354.5 537.7 (183.3) -34% 193 BB- 5.000 2 10.1 15.1
NYT New York Times Co/The 12/2008 928.6 0.94 2.01 994.8 1,865.4 (870.6) -47% 1,281 B 2.143 7 Quadrani Alexia N 13.3 N/A
ALK Alaska Air Group Inc 12/2008 570.5 0.84 1.98 650.0 1,130.9 (480.9) -43% 1,784 B 3.600 10 Baker Jamie OW 6.1 50.5
OMX OfficeMax Inc 12/2008 649.2 0.67 1.97 841.2 1,276.2 (435.0) -34% 1,812 B 3.333 12 Horvers Christopher N 3.0 6.7
AKS AK Steel Holding Corp 12/2008 1,802.0 0.73 1.95 2,201.6 3,517.5 (1,315.9) -37% 610 BB- 3.000 12 Gambardella Michael OW 5.4 155.0
ABD ACCO Brands Corp 12/2008 183.3 0.42 1.94 277.6 354.8 (77.2) -22% 740 B+ 2.200 5 1.8 15.2
SOA Solutia Inc 12/2008 570.5 0.83 1.93 629.0 1,101.0 (472.0) -43% 1,349 B 5.000 2 3.6 42.0
CAL Continental Airlines Inc 12/2008 1,292.1 1.10 1.92 1,057.0 2,482.0 (1,425.0) -57% 5,938 B- 3.583 12 Baker Jamie OW 13.9 125.0
AWI Armstrong World Industries Inc 12/2008 1,146.8 0.20 1.82 1,857.7 2,084.9 (227.2) -11% 494 BB 3.500 4 4.9 21.6
HUN Huntsman Corp 12/2008 1,473.9 0.49 1.81 1,940.0 2,663.0 (723.0) -27% 3,779 B 2.714 7 Zekauskas Jeffrey N 4.6 143.0
TEN Tenneco Inc 12/2008 344.0 0.72 1.77 361.0 610.0 (249.0) -41% 1,587 B- 3.500 8 Patel Himanshu N 3.8 24.0
SXI Standex International Corp 6/2008 131.6 0.05 1.72 220.8 227.0 (6.2) -3% 110 N/A 3.000 1 1.6 -
JRN Journal Communications Inc 12/2008 81.2 0.58 1.70 90.8 138.1 (47.3) -34% 216 N/A 3.000 4 3.0 0.3
TXT Textron Inc 12/2008 3,002.6 0.50 1.69 3,574.0 5,088.0 (1,514.0) -30% 10,829 BB+ 3.308 13 Tusa, Jr Stephen OW 7.1 55.0
OMN OMNOVA Solutions Inc 11/2008 120.5 0.11 1.68 189.4 202.2 (12.8) -6% 174 B 4.000 4 0.1 -
POL PolyOne Corp 12/2008 302.1 0.76 1.66 271.9 501.2 (229.3) -46% 450 B- 3.500 8 4.0 10.6
OLN Olin Corp 12/2008 1,055.5 0.06 1.61 1,642.3 1,700.5 (58.2) -3% 253 BB+ 4.143 7 4.6 -
XRM Xerium Technologies Inc 12/2008 71.8 0.94 1.59 47.1 114.4 (67.3) -59% 609 B- 2.333 3 1.4 8.7
MGI MoneyGram International Inc 12/2008 130.4 0.86 1.59 95.6 207.5 (111.9) -54% 979 B+ 4.000 4 0.8 3.0
CTB Cooper Tire & Rubber Co 12/2008 631.4 0.43 1.58 725.9 994.5 (268.6) -27% 632 B 3.286 7 Patel Himanshu OW 13.6 50.0
GAP Great Atlantic & Pacific Tea Co 2/2009 259.5 0.26 1.57 339.6 408.1 (68.6) -17% 1,438 B 3.889 9 21.0 7.0
NP Neenah Paper Inc 12/2008 140.5 0.51 1.52 142.9 214.2 (71.3) -33% 341 B+ 3.500 2 3.4 10.7
MOD Modine Manufacturing Co 3/2008 149.4 0.24 1.52 190.8 227.3 (36.4) -16% 249 N/A 2.333 3 2.0 N/A
TSTY Tasty Baking Co 12/2008 53.1 0.59 1.52 49.4 80.5 (31.1) -39% 74 N/A 5.000 1 0.1 3.2
IP International Paper Co 12/2008 6,317.2 0.51 1.49 6,194.0 9,443.0 (3,249.0) -34% 11,495 BBB 3.571 14 Shank Hueston Claudia N 3.3 24.0
TWIN Twin Disc Inc 6/2008 82.8 0.13 1.48 111.9 122.5 (10.6) -9% 58 N/A 3.000 3 1.9 0.3
TKR Timken Co 12/2008 1,810.1 0.47 1.44 1,757.8 2,600.9 (843.1) -32% 630 BBB- 4.333 6 1.6 90.0
UFS Domtar Corp 12/2008 788.8 0.10 1.42 1,045.0 1,121.0 (76.0) -7% 2,265 BB 3.625 16 Shank Hueston Claudia OW 3.6 45.0
NOC Northrop Grumman Corp 12/2008 15,642.8 0.23 1.42 18,501.0 22,147.0 (3,646.0) -16% 3,941 BBB+ 3.762 21 Nadol Joseph OW 0.9 626.0
BA Boeing Co 12/2008 35,262.6 0.24 1.39 40,597.0 49,017.0 (8,420.0) -17% 9,272 A+ 3.370 27 Nadol Joseph N 2.7 500.0
GRB Gerber Scientific Inc 4/2008 81.8 0.36 1.36 82.2 111.2 (29.1) -26% 75 N/A 3.000 3 1.5 6.6

Source: Company reports, Compustat, FactSet, Bloomberg, Moody’s, Fitch, Standard and Poor’s, and J.P. Morgan estimates.

13
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 8. U.S. Companies with Market Capitalizations on June 5, 2009 Greater than $50 Million and Long-Term Pension Risk Ratios of 1.00 or Greater (Continued)
Pension Risk Ratios Most Recently Disclosed Aggregate Debt and Equity Ratings (f)
Pension J.P. Short
Most Recent Market Short-term Long-term Projected Most Ave. Equity Total # of Morgan Interest 2009 Expected
Fiscal Capitalization Pension Pension Pension Plan Benefit Funded % Recent Total Composite Analyst Equity J.P. Morgan Equity Equity (% of Pension
Yearend on Risk Ratio Risk Ratio Assets Obligations Status Funded Debt Debt Rating Rating Analysts Analyst Rating float) Contribution
Ticker Company Name 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/2009 6/5/09
XRX Xerox Corp 12/2008 6,269.7 0.25 1.35 6,923.0 8,495.0 (1,572.0) -19% 8,547 BBB 3.889 9 Moskowitz Mark N 1.2 108.0
GRA WR Grace & Co 12/2008 1,032.6 0.57 1.34 786.5 1,379.8 (593.3) -43% 13 N/A 1.000 1 5.0 51.0
AIG American International Group Inc 12/2008 4,412.9 0.53 1.32 3,498.0 5,825.0 (2,327.0) -40% 190,672 BBB+ 3.000 10 Bhullar Jamminder - 9.6 600.0
FDML Federal Mogul Corp 12/2008 1,002.0 0.74 1.32 580.9 1,320.2 (739.3) -56% 2,866 B+ 5.000 2 0.4 25.3
LSR Life Sciences Research Inc 12/2008 96.9 0.35 1.31 93.2 127.0 (33.9) -27% 74 N/A 5.000 1 1.4 3.9
IPSU Imperial Sugar Co 9/2008 146.3 0.38 1.31 136.0 191.0 (54.9) -29% 30 N/A 3.000 2 3.8 9.0
PTV Pactiv Corp 12/2008 2,876.7 0.42 1.29 2,506.0 3,707.0 (1,201.0) -32% 1,345 BBB 4.273 11 Shank Hueston Claudia OW 1.9 N/A
XIDE Exide Technologies 3/2008 509.5 0.38 1.26 450.5 643.2 (192.7) -30% 687 B 3.500 4 3.9 41.8
WHR Whirlpool Corp 12/2008 3,245.6 0.47 1.20 2,368.0 3,889.0 (1,521.0) -39% 3,033 BBB- 2.667 6 Rehaut Michael UW 12.7 93.0
FNM Federal National Mortgage Association 12/2008 806.4 0.47 1.19 579.0 959.0 (380.0) -40% 854,013 AAA 2.000 2 5.2 6.0
FRE Federal Home Loan Mortgage Corp 12/2008 492.6 0.27 1.18 446.0 581.0 (135.0) -23% 909,511 AAA 2.000 2 10.3 N/A
KAMN Kaman Corp 12/2008 444.8 0.42 1.18 334.1 523.0 (188.9) -36% 107 BBB- 4.000 7 2.4 16.6
TECUA Tecumseh Products Co 12/2008 172.6 (0.35) 1.16 262.0 200.9 61.1 30% 38 N/A 4.000 2 6.0 0.2
USU USEC Inc 12/2008 684.2 0.33 1.14 558.8 782.8 (224.0) -29% 575 B- 3.500 4 19.1 23.6
Q Qwest Communications International Inc 12/2008 7,203.9 0.11 1.11 7,217.0 7,995.0 (778.0) -10% 13,342 BB 3.500 20 McCormack Michael OW 4.4 N/A
FFG FBL Financial Group Inc 12/2008 253.9 0.41 1.09 172.7 275.6 (102.9) -37% 371 N/A 3.000 2 10.2 9.0
HA Hawaiian Holdings Inc 12/2008 293.6 0.53 1.08 160.5 316.7 (156.2) -49% 253 N/A 4.750 4 2.6 2.6
KRO Kronos Worldwide Inc 12/2008 361.8 0.35 1.08 263.8 389.4 (125.6) -32% 657 N/A N/A - 13.9 18.0
BGG Briggs & Stratton Corp 6/2008 849.3 (0.06) 1.07 964.1 912.0 52.1 6% 490 BB- 2.200 5 22.1 -
TVL LIN TV Corp 12/2008 103.3 0.47 1.07 61.5 110.2 (48.7) -44% 686 B 3.500 4 9.1 0.4
NAV Navistar International Corp 10/2008 2,859.2 0.27 1.06 2,268.0 3,031.0 (763.0) -25% 5,405 BB- 4.455 11 Duignan Ann OW 1.8 44.0
AA Alcoa Inc 12/2008 10,415.0 0.27 1.03 7,908.0 10,765.0 (2,857.0) -27% 10,205 BBB- 3.118 17 Gambardella Michael OW 7.2 140.0
CE Celanese Corp 12/2008 3,040.9 0.30 1.01 2,170.0 3,073.0 (903.0) -29% 3,469 N/A 4.455 11 2.3 40.0
CTS CTS Corp 12/2008 205.2 (0.04) 1.00 213.4 206.0 7.4 4% 86 N/A 3.667 3 1.9 1.7

Universe: The universe includes all companies in the Russell 3000 as of May 19, 2009. In addition, we screened the larger FactSet U.S. common stock universe and added companies with projected benefit obligations that are not in the Russell 3000 universe to our universe.
Note: Screens are based on data from database services. While we have taken efforts to verify the quality of the data, databases can and often do have errors that we may not have been able to correct.

The following footnotes relate to datasets above:


(a) Market Cap is FactSet Compustat Market Cap as of market close on Friday, June 5, 2009.
(b) J.P. Morgan Short-term Pension Risk Ratio = Most Recently Disclosed Pension Projected Benefit Obligation - Pension Plan Assets / Current Market Cap
J.P. Morgan Long-term Pension Risk Ratio = Most Recently Disclosed Projected Benefit Obligation / Current Market Cap
Ratios are intended to isolate companies in the universe with the most dramatic pension exposure relative to their market capitalizations.
(c) Pension plan assets, projected benefit obligations, and most recent total debt, and 2009 expected pension contributions are primarily from Compustat. Short interest is from FactSet.
FactSet Compustat figures were compared against Bloomberg figures. Discrepencies between the two sources were compared.
(d) Debt and equity ratings and analyst information are as of market close on Friday, June 5, 2009. Aggregate debt and equity ratings and analyst information and are from Bloomberg. J.P. Morgan analyst information is internally sourced. We arrived at our composite debt rating by averaging
the debt ratings of Fitch's, Moody's, and S&P's ratings. Their comparable debt rating scales are in the Excel-based tool that accompanies this report.
The average equity analyst rating and number of equity analysts covering the stock are Bloomberg computations. Bloomberg converts analyst ratings to buy (5), hold (3), and sell (1) and then computes an average.
(e) Additional data is provided for these companies beyond the information displayed here in the Excel-based tool accompanying this report.

Source: Company reports, Compustat, FactSet, Bloomberg, Moody’s, Fitch, Standard and Poor’s, and J.P. Morgan estimates.

14
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Discount Rates
We isolated companies in the U.S. pension universe with disclosed measurement
dates between December 26, 2008 and January 3, 2009. In Table 9, we present the
distribution of discount rates for the 962 companies meeting these criteria and
disclosed a single discount rate assumption as opposed to a range of discount rates.
In a 1993 letter to the FASB’s Emerging Issues Task Force, the U.S. Securities and
Exchange staff stated that the discount rate used to value pension obligations should
reflect the current level of interest rates on high-quality bonds, such as those
receiving a rating of Aa or higher from Moody’s Investor Service that match the
maturity of the retirement benefit obligation.

Table 9. Distribution of Discount Rate Assumptions for Portion of U.S. Company Universe with Measurement Dates between December 26,
2008 and January 3, 2009

350
325
300
275
250
225
# of Companies

200
175
150
125
100
75
50
25
0
3.01% to 3.25%

3.26% to 3.50%

3.51% to 3.75%

3.76% to 4.00%

4.01% to 4.25%

4.26% to 4.50%

4.51% to 4.75%

4.76% to 5.00%

5.01% to 5.25%

5.26% to 5.50%

5.51% to 5.75%

5.76% to 6.00%

6.01% to 6.25%

6.26% to 6.50%

6.51% to 6.75%

6.76% to 7.00%

7.01% to 7.25%

7.26% to 7.50%

7.51% to 7.75%

7.76% to 8.00%

8.01% to 8.25%

8.26% to 8.50%

8.51% to 8.75%

8.76% to 9.00%
≤3.00%

≥9.01%
1% 0% 0% 0% 0% 0% 0% 0% 1% 1% 2% 8% 19% 34% 20% 7% 5% 1% 1% 0% 0% 0% 0% 0% 0% 0%

PBO Discount Rate

Source: Company reports, Compustat, FactSet, and J.P. Morgan estimates.

The Moody’s Aa Index rate was 5.54% at December 31, 2008 (5.62% annualized4).
The mean discount rate used by companies in our universe was 6.16% for December
yearend companies. Of the 962 companies reviewed, 895 companies (93%) used
discount rate assumptions higher than the annualized Moody’s Aa Index rate on
December 31. One natural question is how can there be such a large dispersion of

4
The Moody’s index, like most fixed-income yields, is quoted on a “bond-equivalent” basis.
In other words, a yield of 5.54% actually implies coupons of 2.77% payable semi-annually. In
order to convert to an “effective annual yield,” which is appropriate for discounting pension
obligations, we take (1+.0554/2) ^ 2 - 1, to get 5.62%.

15
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

discount rates when all companies, regardless of their individual debt ratings, are to
use discount rates that are comparable to investment grade bond rates.

A large portion of companies with pension plans use pension yield curves produced
by various pension service providers to set their pension discount rates. As shown in
Table 10, the average and median discount rate used by our U.S. pension universe
tended to track very closely with the Moody’s Aa Index up until October 2007. The
behavior prior to November 2007 is consistent with the historical relationships we
have seen in past studies—that is, the mean discount rates used by U.S. companies
were usually within 25 to 50 basis points of the Moody’s Aa Index rate. The
relationship between the Moody’s Aa Index and pension yield curves substantially
widened beginning in November 2007.

Table 10. Mean and Median Discount Rates by Measurement Date for Companies in the U.S. Universe Compared to the Moody’s Aa Index

7.5

7.25

6.75
Discoun

6.5

6.25

5.75

5.5

5.25

61 8 21 192 44 31 862 21 15 37 15 12 56 9 21 173 41 26 915 21 14 36 15 15 61 9 21 72 21 6 962 33 8 9

Measurement Date and # of Companies Utilizing Measurement Date within 10 Days of that Date

Moody's Aa Mean Median

Source: Company reports, Compustat, FactSet, and J.P. Morgan estimates.

16
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Another central reason for the dispersion between the Moody’s Aa Index and pension
yield curves can be traced to the constituencies of their universes. For example, the
Moody’s Aa Index is a small universe of bonds and, as far as we know, does not
contain or contains very few instruments issued by companies in the financial sector.
There is nothing in accounting guidance on the computation of discount rates that
indicates that financial sector bonds must be excluded from the universe. The
financial sector represents a significant percentage of the universe of investment
grade bonds, and not surprisingly, the yields of bonds issued by financial sector
constituents widened in 2008. At December 31, 2008, companies in the financial
sector represented approximately 85% of the Aa environment. Given that the
financial sector represents such a substantial portion of the investment grade
universe, it would appear that most yield curve providers would find it difficult not to
include financial sector bonds in their yield curves at some substantial level.
Therefore, when the wider yields for bonds from the financial sector are included, it
is not surprising that the curves would generate results that are higher than a curve
excluding the higher-yielding financial sector. This difference in how universes are
defined, coupled with the divergence in yield between financial and non-financial
issues, is a key reason for the disparity between pension discount rates created using
yield curves and the Moody’s Aa Index.

Discount Rates Based on Pension Yield Curves


There are a variety of pension yield curves created by various pension plan service
providers. In addition, it appears that some companies go about creating their own
yield curves. It is important to note that there can be a large dispersion in rates along
these various curves. In an ideal world, all companies would use the same yield curve
when measuring their U.S. pension plans because such a curve would enhance
comparability between plans and across companies. Such is the situation for funding
purposes under the Pension Protection Act where the government releases the
applicable monthly discount rates that are to be used by U.S. pension plans to
measure their funding obligations (though the government does offer plan sponsors a
limited number of choices between smoothed and market discount rates so even
funding discount rates are not universally calculated on an apples-to-apples basis). In
time, we hope that a yield curve will emerge as the standard for U.S. GAAP purposes
either from the government or another provider. Any standard yield curve should be
fully transparent about how its universe is constituted, the specific bonds contained
within its universe, and describe the statistical method used to plot the curve. Ideally,
this information would be provided on the curve provider’s website and would be
open to public review. The use of one universal yield curve would remove a
substantial level of risk from pension analysis, since analysts currently spend time
questioning the validity of discount rate assumptions. While a single, robust standard
U.S. GAAP yield curve may or may not materialize, in the immediate future there is
an urgent need in our view for the various yield curve providers to develop uniform
practices to reduce the enormous range of discount rates that may be permissible for
companies under their alternative frameworks.

In reviewing company disclosures, some of the yield curves we have seen mentioned
include:

• The AON Yield Curve;


• The Citigroup Pension Discount Curve;

17
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

• The Citigroup Pension Above Median Discount Curve;


• The Hewitt Bond Universe Yield Curve;
• The Hewitt Top Quartile Yield Curve;
• The Hewitt Above Median Yield Curve;
• The Mercer Yield Curve;
• The Ryan ALM, Inc. Curve;
• The Ryan ALM 45/95 curve; and
• The Towers Perrin cash flow matching bond model.

The underlying concept of a pension yield curve is straightforward. Information on


Aa (or, sometimes, higher-rated) bonds across a full range of maturities are compiled
to create a universe. The pension service providers then assign spot rates to various
maturities to build a yield curve. At times there will be a wide range of yields for
bonds at the same maturity points (some bonds might be mispriced or misrated),
therefore, some yield curve providers will make refinement to their universe to
correct for exposure to these issues. For example, based on our review of disclosures,
at least one provider only includes bonds within the 10th to 90th percentiles of their
universe in their yield curve calculations. When calculating a yield curve, a provider
also may want to consider other filtering criteria to remove outliers. For example, a
yield curve provider would likely want to remove callable bonds or bonds below a
minimum issuance size. In addition, given that most bonds have coupons and the
yield curve is intended to reflect zero-coupon rates, methods such as the bootstrap
method are necessary to convert coupon-bond yields into zero-coupon yields. It
should also be noted that after a universe has been set, in some cases no bonds will
exist at particular maturities, so spot rates will be assigned to those time periods
based on interpolation or extrapolation of information available for shorter- and
longer-duration bonds. In setting the yield curve, some providers will apply a
regression curve to the bond data.

Despite all of these complex underlying calculations, companies typically disclose


one discount rate assumption in their pension footnote. When a pension yield curve
is used, the process of arriving at that single discount rate disclosure can be
somewhat involved. First, estimates are made about when benefit cash flows
(expected benefit payments) are likely to occur in the future. The timing and amount
of the estimated future cash flows are then matched against spot rates from the
pension discount rate curve to determine an overall net present value. The “effective
discount rate” is the single rate that produces the same net present value of benefits
produced using the full curve spot rates. This discount rate can be conceptualized as
the rate of return from a portfolio of zero-coupon, investment grade debt securities
that would provide the needed future cash flows at the appropriate times to pay
pension obligations when they become due if the portfolio was theoretically
purchased at the pension measurement date.

There are numerous other reasons for the differences between service provider-
produced pension yield curves. For example, some bonds might only be rated Aa or
higher by one of the major rating services or might be on watch by one or more of
the rating agencies for a potential downgrade. Should such a bond be included in the
universe? Different yield curve providers will likely come to different conclusions.

18
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Another issue is that some pension yield curve providers offer multiple yield curves.
In reviewing disclosures, the most often cited example is Citigroup which has the
Citigroup Pension Discount Curve and the Citigroup Pension Above Median
Discount Curve. The Citigroup Pension Above Median Discount Curve universe
only includes bonds with yields above the median bond yield of the bonds from the
Citigroup Pension Discount Curve universe in calculating its yield curve. The
implication of creating a curve only using the 50% of the bonds with the highest
yields for the above the median curve is that if we had two identical pension plans
and one used the Citigroup Pension Above Median Discount Curve and the other
used the Citigroup Pension Discount Curve, the plan using the Citigroup Pension
Above Median Discount Curve would have a lower disclosed projected benefit
obligation than the identical plan that used the Citigroup Pension Discount Curve
because the Citigroup Pension Above Median Discount Curve will always be higher
than its Citigroup Pension Discount Curve. It would seem to us that the larger the
plan, the more questionable the decision to use an above the median curve since there
may not be enough cash flow generated by the bonds in the above the median
universe to theoretically replicate the expected future cash flows of the pension plan.
Another issue is that the aggregate cash flows for all the pension plans referencing
the bond universe to set rates is likely larger than the referenced bond universe by
several multiples, so if plans actually were participating in these markets and buying
bonds to match with expected cash flows, these supply and demand characteristics
could potentially change the yields on this bond universe in a dramatic manner. This
raises concerns as to the overall conceptual validity of curves based on narrow
subsections of the universe.

Admittedly, we have mixed feelings about the use of pension yield curves. On one
hand, we believe yield curve-based discount rates are conceptually superior to more
simplistic discount rate methodologies such as the use of a single rate based off of a
potentially non-representative benchmark such as the Moody’s Aa Index. Where we
have problems with yield curves is in the diversity in practice related to how pension
service providers go about creating these curves. In our view, this is a glaring area
where the SEC or FASB need to provide clear guidance about what they deem to be
the best-practice methodology. Absent some minimum standards as to how these
yield curves are to be constructed, we fear that competitive forces will result in more
and more yield curves being created off of increasingly smaller subsections of upper-
yielding segments of the investment grade bond universe and more and more
companies may see benefits to applying these higher yield curves even when such a
curve may not be appropriate for their plans. In our view, a yield curve should be
objective and standardized. Much like FAS 157 provides guidance as to when a
valuation should be considered a Level 1, Level 2, or Level 3 valuation, we feel it is
necessary to define if and when it is appropriate to move from a broad-universe curve
to a universe-subsection curve. Otherwise, relative comparisons between companies
will have reduced meaning and some level of comparability will be destroyed. One
trend that we have noticed in recent disclosures is that it has been very common for
companies to switch from one yield curve to another yield curve from year to year.
This seems inappropriate, in our opinion, unless there are good arguments for
switching and companies are prepared to articulate those reasons in disclosures to
investors. If companies are not using comparable yield curves, analysts cannot
compare the size of U.S. GAAP pension obligations across firms on an apples-to-
apples basis.

19
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Other Complications Related to Yield Curve-Based


Discount Rates
The demographic characteristics of pension plan participants can vary by sector,
industry, company, and plan. Further, some pension plans may have been established
many decades ago, while others could have been established more recently. Some
companies may have made efforts to curtail or eliminate their pension plans going
forward, while other companies may currently have no intention to move away from
these plans. All of these factors influence the stream of future expected cash flows to
be paid out to retirees and ultimately have an impact on the expected duration of the
overall pension liability. A plan that was closed long ago to new participants would
likely have a shorter duration of pension liabilities than a new plan at a company
with a young employee base. These factors and others impact the timing and amount
of future cash flows and ultimately play a significant role in the process of assigning
an appropriate overall discount rate based on a yield curve. When yield curves are
very steep, we would expect to see greater differences in discount rates when we
compare plans with short durations to plans with long durations. When yield curves
are relatively flat, the weighted-average discount rates between such companies
should be more similar.

An additional factor that contributes to the wide range of discount rates we see
disclosed by companies is the presence of international pension plans. While some
companies disaggregate their plans into U.S. and non-U.S. plans in their footnote
disclosure, others do not. The implication is that the discount rates presented by
companies are not always exclusively based on U.S. interest rates. Blended rates
reduce discount rate comparability. It should also be noted that the discount rate
setting process in foreign countries is likely to be more subjective than in the United
States since there are fewer bonds available for inclusion in an investment grade
bond universe in less mature fixed income markets—this reality introduces much
more judgment into the process for setting foreign discount rates.

Discount Rates for Funding Purposes


As mentioned earlier, it is important to note that the yield curve comparability issue
is primarily a GAAP issue. For funding purposes, the funding yield curve and
segment rates are published at http://www.irs.gov/retirement/article/0,,id=
123231,00.html. The modified yield curve consists of three segments: less than five
years; five to 20 years; and more than 20 years.

The Treasury Department is responsible for determining the appropriate interest rate
for each segment, based on “the average, for the 24-month period ending with the
month preceding such month, of monthly yields on investment grade corporate bonds
with varying maturities and that are in the top three quality levels available.”
Alternatively, companies are permitted to forgo the use of the 24-month average and
use the actual corporate bond yield curve for the most recent month to compute their
minimum required contribution. A company can revoke this election only with the
consent of the Secretary of Treasury. Companies may also elect a stability period
where they may choose a yield curve up to five months prior to the valuation date.

For more detailed discussion of pension funding rules, see our October 30, 2008
piece, “Pension Tension: U.S. Pension Funding Rules Explained.”

20
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Expected Return on Plan Assets


In Table 11, we show the mean, median, and mode expected return on plan assets for
our universe. All three measures have stayed relatively stable over the past three
years.

Table 11. Mean, Median, and Mode Statistics for Expected Return on Plan Assets Assumptions of
U.S. Companies’ Universe, 2006-2008
2008 2007 2006
Mean 7.68 7.73 7.77
Median 8.00 8.00 8.00
Mode 8.00 8.00 8.00
Source: Company reports, Compustat, FactSet, and J.P. Morgan estimates.

In Table 12, we present the distribution of 2008 expected return on plan asset
assumptions for companies in our universe.

Table 12. Distribution of 2008 Expected Return on Plan Asset Assumptions of U.S. Companies’ Universe

300
275
250
225
200
# of Companies

175
150
125
100
75
50
25
0
5.01% to 6.00%

6.01% to 6.25%

6.26% to 6.50%

6.51% to 6.75%

6.76% to 7.00%

7.01% to 7.25%

7.26% to 7.50%

7.51% to 7.75%

7.76% to 8.00%

8.01% to 8.25%

8.26% to 8.50%

8.51% to 8.75%

8.76% to 9.00%
≤5%

≥9.01

6.3% 3.8% 0.9% 2.4% 1.7% 5.3% 2.3% 8.4% 4.7% 24.1% 10.2% 19.6% 4.8% 5.2% 0.4%

Ex pected Return on Plan Assets and % of Population in Each Ex pected Return Range

Source: Company reports, Compustat, FactSet, and J.P. Morgan estimates.

21
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Asset Allocations
In Table13, we present the aggregate asset allocations for our U.S. pension universe
for 2007 and 2008. Equity allocations decreased 8% from 2007’s average allocation
of 59% to 2008’s average allocation of 51%. The average fixed income allocation
rose 7% from 33% in 2007 to 40% in 2008.

Table 13. Aggregate Pension Asset Allocations for U.S. Company Universe
Asset Class % Allocation 2008 2007 Change
Equities 51% 59% -8%
Fixed Income 40% 33% 7%
Real Estate 1% 1% 0%
Other 8% 6% 1%
Total 100.0% 100.0% 0.0%
Source: Company reports, Compustat, FactSet, and J.P. Morgan estimates.

Given the poor equity performance of pension plans during 2008 and the effort of
some companies to strategically rebalance their plans in the face of economic
uncertainty, it is not surprising that there was a substantial change in asset allocations
from 2007 to 2008. We also would assume that a large reason for this change is
explained by plans choosing not to rebalance after the poor performance of 2008;
thus, an equity allocation that may have represented 60% or 65% of plan assets might
now only represent 45% if steps have not been taken to rebalance asset allocations.

The 2008 asset allocation and expected return assumptions disclosed by companies
yield an interesting relationship. While the mean equity allocation assumption across
the universe plunged 8% versus the mean 2007 assumption, the mean long-term
expected return on plan assets decreased by only 5 basis points across the universe
versus the mean 2007 assumption. The implication is that we would expect to either
see asset allocations in future periods restored more along the lines of the 2007 mean
assumptions, or expected return assumptions should start to be adjusted down in
future periods.

In Table 14, we present the distribution of disclosed equity allocations across our
universe5. In 2007, only 17% of the companies in our universe disclosed an equity
allocation of 50% or less. At yearend 2008, 39% of the companies in our universe
disclosed an equity allocation of 50% or less—an increase of 22% of the universe.

In Table 15, we present the distribution of disclosed fixed income allocations across
our universe6. In 2007, only 7% of the companies in our universe disclosed a fixed
income allocation of 50% or greater. At yearend 2008, 19% of the companies in our
universe disclosed an equity allocation of 50% or more—an increase of 12% of the
universe.

5
To measure the year-over-year changes in asset allocations appropriately, we only included
the 1,095 companies in which asset allocations were available for both 2007 and 2008 in our
universe for Tables 14 and 15.
6
To measure the year-over-year changes in asset allocations appropriately, we only included
the 1,095 companies in which asset allocations were available for both 2007 and 2008 in our
universe for Tables 14 and 15.

22
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

To the extent a company’s pension plan obligations are small relative to its operating
businesses and any potential funding needs can easily be met with excess free cash
flow, we have no real opinion on their asset allocation. Theory would suggest that
over the long term equities should outperform other asset classes and this can reduce
the cash funding needs to plans over the long term. Such companies would seem to
be in a position to take on the low or moderate amount of asset-liability mismatch
risk associated with high equity allocations.

To the extent the size of the pension plans is large relative to the size of a company’s
operating businesses, we believe it is most appropriate for it to employ liability-
driven investing (LDI) strategies7. The 2008 performance of pension plans
underscores this point. Companies with high short-term and long-term pension risk
ratios are likely to find it difficult to meet their funding requirements when there are
extreme negative market movements. These companies’ managements may find that
their performance as business operators may be of secondary importance because the
most important factors in evaluating their stocks may be the performance of their
pension plan assets and the directional movement of the discount rate environment.

7
In a liability-driven investing strategy, the obligation becomes the benchmark portfolio that
the investment manager is attempting to meet rather than some unrelated asset class
benchmark such as the S&P 500.

23
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 14. Distribution of Equity Allocations of U.S. Companies’ Pension Plans

2008 2007

225

200

175

150
# of Companies

125

100

75

50

25

0
6% to 10%

11% to 15%

16% to 20%

21% to 25%

26% to 30%

31% to 35%

36% to 40%

41% to 45%

46% to 50%

51% to 55%

56% to 60%

61% to 65%

66% to 70%

71% to 75%

76% to 80%

81% to 85%

86% to 90%

91% to 95%

96% to 100%
≤5%

% Equity Allocation

Distribution of Equity Allocations Cumulative Distribution of Equity


Across Universe Allocations Across Universe
Equity Allocation 2008 2007 Change 2008 2007 Change
≤5% 3.5% 2.5% 1.0% 3.5% 2.5% 1.0%
6% to 10% 1.4% 0.5% 0.8% 4.8% 3.0% 1.8%
11% to 15% 0.8% 0.7% 0.1% 5.7% 3.7% 1.9%
16% to 20% 0.9% 0.5% 0.5% 6.6% 4.2% 2.4%
21% to 25% 1.5% 0.9% 0.5% 8.0% 5.1% 2.9%
26% to 30% 1.8% 0.8% 1.0% 9.9% 5.9% 3.9%
31% to 35% 3.1% 1.3% 1.8% 13.0% 7.2% 5.8%
36% to 40% 5.8% 1.7% 4.1% 18.8% 8.9% 9.9%
41% to 45% 8.0% 3.1% 4.9% 26.8% 12.1% 14.8%
46% to 50% 12.1% 4.5% 7.6% 38.9% 16.5% 22.4%
51% to 55% 15.1% 7.4% 7.7% 54.0% 23.9% 30.0%
56% to 60% 16.5% 19.1% -2.6% 70.5% 43.0% 27.5%
61% to 65% 13.6% 19.0% -5.4% 84.1% 62.0% 22.1%
66% to 70% 9.8% 18.9% -9.1% 93.9% 80.9% 13.0%
71% to 75% 2.7% 11.0% -8.2% 96.6% 91.9% 4.7%
76% to 80% 1.8% 4.2% -2.4% 98.4% 96.1% 2.4%
81% to 85% 0.5% 1.6% -1.2% 98.9% 97.7% 1.2%
86% to 90% 0.0% 0.4% -0.4% 98.9% 98.1% 0.8%
91% to 95% 0.4% 0.4% 0.0% 99.3% 98.4% 0.8%
96% to 100% 0.7% 1.6% -0.8% 100.0% 100.0% 0.0%
100.0% 100.0%
Source: Company reports, Compustat, FactSet, and J.P. Morgan estimates.

24
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Table 15. Distribution of Debt Allocations of U.S. Companies’ Pension Plans

2008 2007

250

225

200

175
# of Companies

150

125

100

75

50

25

0
6% to 10%

11% to 15%

16% to 20%

21% to 25%

26% to 30%

31% to 35%

36% to 40%

41% to 45%

46% to 50%

51% to 55%

56% to 60%

61% to 65%

66% to 70%

71% to 75%

76% to 80%

81% to 85%

86% to 90%

91% to 95%

96% to 100%
≤5%

% Debt Allocation

Distribution of Debt Allocations Cumulative Distribution of Debt


Across Universe Allocations Across Universe
Debt Allocation 2008 2007 Change 2008 2007 Change
≤5% 4.2% 4.7% -0.5% 4.2% 4.7% -0.5%
6% to 10% 0.9% 1.7% -0.8% 5.1% 6.4% -1.3%
11% to 15% 1.4% 1.9% -0.5% 6.5% 8.3% -1.8%
16% to 20% 3.0% 5.6% -2.6% 9.5% 13.9% -4.4%
21% to 25% 5.2% 10.1% -4.9% 14.7% 24.0% -9.3%
26% to 30% 12.1% 22.0% -9.9% 26.8% 46.0% -19.2%
31% to 35% 14.4% 18.4% -3.9% 41.3% 64.4% -23.1%
36% to 40% 15.0% 16.2% -1.2% 56.3% 80.5% -24.3%
41% to 45% 13.4% 7.8% 5.7% 69.7% 88.3% -18.6%
46% to 50% 11.1% 4.5% 6.7% 80.8% 92.8% -12.0%
51% to 55% 6.9% 1.8% 5.1% 87.8% 94.6% -6.8%
56% to 60% 3.7% 1.1% 2.6% 91.4% 95.7% -4.3%
61% to 65% 2.9% 0.8% 2.1% 94.3% 96.5% -2.2%
66% to 70% 0.7% 0.5% 0.3% 95.1% 97.0% -1.9%
71% to 75% 0.8% 0.5% 0.3% 95.9% 97.5% -1.6%
76% to 80% 0.6% 0.3% 0.4% 96.5% 97.8% -1.3%
81% to 85% 0.3% 0.2% 0.1% 96.8% 98.0% -1.2%
86% to 90% 0.6% 0.3% 0.4% 97.4% 98.3% -0.8%
91% to 95% 0.5% 0.2% 0.3% 97.9% 98.4% -0.5%
96% to 100% 2.1% 1.6% 0.5% 100.0% 100.0% 0.0%
100.0% 100.0%
Source: Company reports, Compustat, FactSet, and J.P. Morgan estimates.

25
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Excel-Based Pension Risk Evaluator

An Excel-based tool, the J.P. Morgan Pension Risk Evaluator accompanies this
report. We provide company-specific data on all 3,200-plus companies in the report
universe. With this tool, the following data points are among those that can be
reviewed for all companies in the universe:

• Fiscal yearend;
• Pension measurement date;
• Market capitalization on 6/5/2009;
• Short-term pension risk ratio;
• Long-term pension risk ratio;
• 2008 pension plan assets, PBO, and funded status;
• Most recent total debt;
• Composite debt rating;
• Average equity analyst rating and total number of equity analysts covering the
stock;
• Short interest (% of float);
• Contribution information;
• Asset allocation information;
• PBO pension discount rate information;
• Rate of return on plan assets; and
• GICS sector, industry group, industry, and subindustry information.

Clients of J.P. Morgan wishing to be added to our email distribution lists should
contact Dane Mott to be added to the U.S. list or Sarah Deans to be added to our
European list. You can also subscribe to our lists at morganmarkets.com.

26
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Appendix I
Table 16: Stock Performance of Highest Published Short-Term Risk Ratios in October 13, 2008 Report for Companies with Market Capitalizations Above $50 Million
Market Cap Pension Risk Ratios Market Cap Pension Risk Ratios
10/10/08 Short-TermLong-Term Stock 10/10/08 Short-TermLong-Term Stock
Market Pension Pension Performance Market Pension Pension Performance
Cap Risk Risk 10/13/2008 to Cap Risk Risk 10/13/2008 to
Ticker Company Name (in $ mlns) Ratio Ratio 6/5/2009 Ticker Company Name (in $ mlns) Ratio Ratio 6/5/2009
ABH AbitibiBowater Inc $ 85 6.59 75.63 -92% DFZ R.G. Barry Corp. (g) $ 67 0.19 0.57 8%
VC Visteon Corp $ 144 3.08 16.90 -91% DDS Dillard's Inc $ 624 0.18 0.18 1%
NWA Northwest Airlines Corp $ 1,621 1.77 5.66 N/A ARJ Arch Chemicals Inc $ 636 0.18 1.06 5%
DAL Delta Air Lines Inc $ 1,720 1.45 4.29 3% FED FirstFed Financial Corp $ 92 0.18 0.18 -95%
HAYZ Hayes Lemmerz International Inc $ 141 1.03 2.33 -98% NLC Nalco Holding Co $ 1,826 0.17 0.45 16%
LBY Libbey Inc $ 75 0.94 4.36 -71% RT Ruby Tuesday Inc $ 179 0.17 0.22 129%
RHD RH Donnelley Corp $ 65 0.89 4.65 -94% SHLM Schulman A Inc $ 395 0.17 0.21 3%
AMR AMR Corp $ 1,675 0.81 6.24 -43% CKP Checkpoint Systems Inc $ 506 0.17 0.17 11%
SR Standard Register Co/The $ 185 0.73 2.60 -49% DECC D&E Communications Inc. $ 83 0.16 0.83 76%
SPC Spectrum Brands Inc $ 64 0.71 1.87 -84% NYT New York Times Co/The $ 1,750 0.16 1.04 -48%
F Ford Motor Co $ 4,704 0.69 15.19 166% VRS Verso Paper Corp $ 63 0.16 0.26 -23%
SSCC Smurfit-Stone Container Corp $ 627 0.65 5.63 -96% CVO Cenveo Inc $ 261 0.15 0.66 -5%
AKS AK Steel Holding Corp $ 1,294 0.60 2.87 25% WHR Whirlpool Corp $ 4,773 0.15 0.83 -37%
FA Fairchild Corp. $ 60 0.59 2.92 -99% BSET Bassett Furniture Industries Inc. $ 79 0.15 0.15 -64%
GRA WR Grace & Co $ 615 0.59 2.35 30% ASYT Asyst Technologies Inc $ 63 0.15 0.30 -95%
MNI McClatchy Co $ 310 0.55 4.99 -77% AES AES Corp/The $ 5,804 0.15 0.84 9%
TEN Tenneco Inc $ 273 0.54 2.48 52% CRD.B Crawford & Co $ 554 0.15 1.14 -65%
XIDE Exide Technologies $ 388 0.50 1.66 -3% CE Celanese Corp $ 2,745 0.14 1.19 4%
MEG Media General Inc $ 204 0.49 2.00 -76% BNE Bowne & Co Inc $ 170 0.14 0.85 -1%
FDML Federal Mogul Corp $ 829 0.49 1.63 6% LVB Steinway Musical Instruments $ 189 0.14 0.49 -55%
MGI MoneyGram International Inc. $ 132 0.48 1.51 30% FAF First American Corp $ 1,993 0.13 0.28 -8%
GT Goodyear Tire & Rubber Co/The $ 3,046 0.48 2.64 1% HA Hawaiian Holdings Inc $ 265 0.13 1.13 -4%
SOA Solutia Inc $ 573 0.47 2.22 -39% FOE Ferro Corp $ 679 0.13 0.80 -77%
DAN Dana Holding Corp $ 334 0.46 7.12 -65% APFC American Pacific Corp. $ 89 0.13 0.47 -42%
PNX Phoenix Cos Inc/The $ 372 0.45 1.80 -68% BLL Ball Corp $ 2,973 0.13 0.49 26%
CAL Continental Airlines Inc $ 1,202 0.45 1.96 -17% PNW Pinnacle West Capital Corp $ 3,072 0.13 0.56 -5%
MAG MagneTek Inc. (g) $ 86 0.44 2.00 -49% LSR Life Sciences Research Inc $ 333 0.13 0.60 -74%
AXL American Axle & Manufacturing Holdings I $ 188 0.42 3.17 -4% CBS CBS Corp $ 6,804 0.13 0.75 4%
IPSU Imperial Sugar Co $ 137 0.42 1.46 -2% HAYN Haynes International Inc $ 314 0.13 0.59 -4%
CEM Chemtura Corp $ 596 0.39 2.19 -85% AIG American International Group Inc $ 6,426 0.13 0.76 -33%
NP Neenah Paper Inc $ 164 0.39 2.49 -22% TEX Terex Corp $ 1,890 0.13 0.25 -35%
YRCW YRC Worldwide Inc $ 365 0.38 2.92 -53% FBN Furniture Brands International Inc $ 402 0.12 1.07 -50%
ALK Alaska Air Group Inc $ 516 0.35 2.12 -28% THC Tenet Healthcare Corp $ 1,915 0.12 0.12 -25%
WLB Westmoreland Coal Co $ 69 0.35 1.09 14% KWR Quaker Chemical Corp $ 186 0.12 0.62 -27%
ROC Rockwood Holdings Inc $ 1,023 0.34 0.49 -1% TWIN Twin Disc Inc (g) $ 88 0.12 1.40 -34%
IFC Irwin Financial Corp. $ 59 0.32 0.88 -76% AIN Albany International Corp $ 573 0.12 0.67 -30%
LORL Loral Space & Communications Inc $ 267 0.31 1.38 125% SWX Southwest Gas Corp $ 1,061 0.12 0.51 -16%
XRM Xerium Technologies Inc $ 204 0.31 0.65 -67% LDSH Ladish Co Inc $ 195 0.12 1.05 2%
CFX Colfax Corp $ 391 0.30 1.03 -10% ADCT ADC Telecommunications Inc $ 612 0.12 0.12 32%
GPK Graphic Packaging Holding Co $ 428 0.30 1.73 29% SWM Schweitzer-Mauduit International Inc $ 233 0.12 0.66 37%
CVGI Commercial Vehicle Group Inc $ 55 0.30 1.43 -35% UFS Domtar Corp $ 1,273 0.12 1.36 -49%
LEA Lear Corp $ 564 0.28 1.57 -79% MOD Modine Manufacturing Co $ 321 0.11 0.71 -54%
CMS CMS Energy Corp $ 2,066 0.28 0.80 21% TLB Talbots Inc $ 514 0.11 0.32 -50%
SSP EW Scripps Co $ 266 0.26 1.97 -54% TVL LIN TV Corp $ 169 0.11 0.62 -51%
CBM Cambrex Corp $ 119 0.26 0.68 -29% UTL Unitil Corp. $ 136 0.11 0.49 -8%
ARM ArvinMeritor Inc $ 692 0.26 2.65 -61% GR Goodrich Corp $ 3,981 0.10 0.90 58%
VSH Vishay Intertechnology Inc $ 906 0.26 0.59 19% UAUA UAL Corp $ 673 0.10 0.35 -28%
OMX OfficeMax Inc $ 440 0.24 2.93 31% HAR Harman International Industries Inc (g) $ 1,275 0.10 0.10 -6%
GRB Gerber Scientific Inc $ 125 0.23 0.89 -36% CQB Chiquita Brands International Inc $ 525 0.10 0.16 -25%
KEM Kemet Corp $ 65 0.22 0.44 -51% CTB Cooper Tire & Rubber Co $ 429 0.10 2.56 56%
PPC Pilgrim's Pride Corp $ 264 0.22 0.74 36% HTZ Hertz Global Holdings Inc $ 1,610 0.10 0.40 26%
AOI Alliance One International Inc $ 289 0.22 0.51 61% SMP Standard Motor Products Inc. $ 68 0.10 0.15 43%
KRO Kronos Worldwide Inc. $ 602 0.22 0.76 -39% AWK American Water Works Co Inc $ 2,989 0.10 0.31 -7%
GFF Griffon Corp $ 192 0.21 0.34 35% NC NACCO Industries Inc $ 522 0.10 0.56 -52%
POL PolyOne Corp $ 409 0.21 1.19 -32% FNM Federal National Mortgage Association $ 1,081 0.10 0.83 -38%
WBC WABCO Holdings Inc $ 1,581 0.21 0.31 -28% STL Sterling Bancorp/NY $ 203 0.10 0.24 -26%
BRS Bristow Group Inc $ 642 0.21 0.80 34% SFD Smithfield Foods Inc $ 1,864 0.10 0.55 -22%
FMXL Foamex International Inc. $ 67 0.21 2.18 -97% AA Alcoa Inc $ 9,972 0.10 1.16 -18%
M Macy's Inc $ 4,819 0.20 0.68 18% CSC Computer Sciences Corp $ 4,642 0.10 0.96 35%
TWMC Trans World Entertainment Corp. $ 74 0.19 0.19 -55% AVERAGE -19%

Source: Company reports, FactSet, and J.P. Morgan estimates.

27
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com

Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

Appendix II
Table 17: Stock Performance of Highest Published Long-Term Risk Ratios in October 13, 2008 Report for Companies with Market Capitalizations Above $50 Million
Market Cap Pension Risk Ratios Market Cap Pension Risk Ratios
10/10/08 Short-Term Long-Term Stock 10/10/08 Short-Term Long-Term Stock
Market Pension Pension Performance Market Pension Pension Performance
Cap Risk Risk 10/13/2008 to Cap Risk Risk 10/13/2008 to
Ticker Company Name (in $ mlns) Ratio Ratio 6/5/2009 Ticker Company Name (in $ mlns) Ratio Ratio 6/5/2009
ABH AbitibiBowater Inc $ 85 6.59 75.63 -92% XIDE Exide Technologies $ 388 0.50 1.66 -3%
GM General Motors Corp $ 2,695 (3.10) 40.46 -87% FDML Federal Mogul Corp $ 829 0.49 1.63 6%
LEHMQ Lehman Brothers Holdings Inc. $ 69 (3.43) 22.66 -54% CCK Crown Holdings Inc $ 2,936 (0.07) 1.61 14%
VC Visteon Corp $ 144 3.08 16.90 -91% AWI Armstrong World Industries Inc $ 1,333 (0.36) 1.59 -19%
F Ford Motor Co $ 4,704 0.69 15.19 166% LEA Lear Corp $ 564 0.28 1.57 -79%
WAMUQ Washington Mutual Inc. $ 147 (3.46) 11.78 15% OLN Olin Corp $ 1,102 (0.08) 1.56 -15%
UIS Unisys Corp $ 644 (0.35) 10.84 -17% GGC Georgia Gulf Corp. $ 76 (0.31) 1.55 -68%
DAN Dana Holding Corp $ 334 0.46 7.12 -65% MGI MoneyGram International Inc. $ 132 0.48 1.51 30%
TRW TRW Automotive Holdings Corp $ 1,073 (0.87) 7.06 -5% BC Brunswick Corp/DE $ 711 0.08 1.51 -43%
GY GenCorp Inc $ 257 (0.35) 6.31 -59% XRX Xerox Corp $ 7,004 0.09 1.49 -15%
AMR AMR Corp $ 1,675 0.81 6.24 -43% IPSU Imperial Sugar Co $ 137 0.42 1.46 -2%
NWA Northwest Airlines Corp $ 1,621 1.77 5.66 N/A BA Boeing Co $ 31,608 (0.15) 1.45 14%
SSCC Smurfit-Stone Container Corp $ 627 0.65 5.63 -96% CVGI Commercial Vehicle Group Inc $ 55 0.30 1.43 -35%
AHC AH Belo Corp $ 81 (0.03) 5.58 -64% SCX L.S. Starrett Co. (Cl A) (g) $ 78 (0.40) 1.40 -32%
IOSP Innospec Inc $ 164 (0.21) 5.21 40% TWIN Twin Disc Inc (g) $ 88 0.12 1.40 -34%
MNI McClatchy Co $ 310 0.55 4.99 -77% LORL Loral Space & Communications Inc $ 267 0.31 1.38 125%
IAR Idearc Inc $ 115 (1.41) 4.81 -94% BGG Briggs & Stratton Corp (g) $ 668 (0.08) 1.36 22%
RHD RH Donnelley Corp $ 65 0.89 4.65 -94% UFS Domtar Corp $ 1,273 0.12 1.36 -49%
LBY Libbey Inc $ 75 0.94 4.36 -71% NOC Northrop Grumman Corp $ 16,301 (0.05) 1.35 12%
DAL Delta Air Lines Inc $ 1,720 1.45 4.29 3% TECUA Tecumseh Products Co $ 299 (0.72) 1.34 -49%
KYCN Keystone Consolidated Industries Inc. $ 91 (6.01) 4.07 -59% LEE Lee Enterprises Inc/IA $ 127 (0.07) 1.33 -67%
ES EnergySolutions Inc $ 861 0.05 4.01 -18% TKR Timken Co $ 2,033 0.07 1.32 -16%
OMN OMNOVA Solutions Inc. $ 60 (0.12) 3.49 96% PTV Pactiv Corp $ 3,004 (0.00) 1.30 -14%
CC Circuit City Stores Inc $ 72 (1.07) 3.36 -96% GAP Great Atlantic & Pacific Tea Co $ 368 (0.02) 1.25 -21%
AXL American Axle & Manufacturing Holdings I $ 188 0.42 3.17 -4% TXT Textron Inc $ 4,546 0.04 1.24 -40%
OMX OfficeMax Inc $ 440 0.24 2.93 31% LFG LandAmerica Financial Group Inc $ 199 0.01 1.22 -100%
YRCW YRC Worldwide Inc $ 365 0.38 2.92 -53% BLC Belo Corp $ 373 (0.01) 1.21 -43%
FA Fairchild Corp. $ 60 0.59 2.92 -99% POL PolyOne Corp $ 409 0.21 1.19 -32%
AKS AK Steel Holding Corp $ 1,294 0.60 2.87 25% CE Celanese Corp $ 2,745 0.14 1.19 4%
ARM ArvinMeritor Inc $ 692 0.26 2.65 -61% AA Alcoa Inc $ 9,972 0.10 1.16 -18%
GT Goodyear Tire & Rubber Co/The $ 3,046 0.48 2.64 1% GCI Gannett Co Inc $ 3,050 0.05 1.15 -63%
SR Standard Register Co/The $ 185 0.73 2.60 -49% CRD.B Crawford & Co $ 554 0.15 1.14 -65%
CTB Cooper Tire & Rubber Co $ 429 0.10 2.56 56% HA Hawaiian Holdings Inc $ 265 0.13 1.13 -4%
EK Eastman Kodak Co $ 3,658 (0.42) 2.52 -78% NCC National City Corp $ 1,635 (0.12) 1.13 N/A
NP Neenah Paper Inc $ 164 0.39 2.49 -22% WLB Westmoreland Coal Co $ 69 0.35 1.09 14%
TEN Tenneco Inc $ 273 0.54 2.48 52% HUN Huntsman Corp $ 2,719 0.06 1.07 -51%
GRA WR Grace & Co $ 615 0.59 2.35 30% HPC Hercules Inc $ 1,712 0.09 1.07 N/A
HAYZ Hayes Lemmerz International Inc $ 141 1.03 2.33 -98% FBN Furniture Brands International Inc $ 402 0.12 1.07 -50%
SOA Solutia Inc $ 573 0.47 2.22 -39% IP International Paper Co $ 8,381 0.03 1.07 -29%
CEM Chemtura Corp $ 596 0.39 2.19 -85% ARJ Arch Chemicals Inc $ 636 0.18 1.06 5%
FMXL Foamex International Inc. $ 67 0.21 2.18 -97% OI Owens-Illinois Inc $ 3,612 (0.07) 1.06 24%
ALK Alaska Air Group Inc $ 516 0.35 2.12 -28% ATI Allegheny Technologies Inc $ 2,069 (0.10) 1.06 51%
Q Qwest Communications International Inc $ 3,978 (0.41) 2.07 61% LDSH Ladish Co Inc $ 195 0.12 1.05 2%
MEG Media General Inc $ 204 0.49 2.00 -76% NYT New York Times Co/The $ 1,750 0.16 1.04 -48%
MAG MagneTek Inc. (g) $ 86 0.44 2.00 -49% ASH Ashland Inc $ 1,501 0.04 1.04 5%
SSP EW Scripps Co $ 266 0.26 1.97 -54% CFX Colfax Corp $ 391 0.30 1.03 -10%
CAL Continental Airlines Inc $ 1,202 0.45 1.96 -17% GLT Glatfelter $ 368 (0.63) 1.02 6%
X United States Steel Corp $ 5,454 (0.04) 1.95 -28% GETI GenTek Inc $ 227 0.05 1.01 1%
USU USEC Inc $ 383 (0.11) 1.93 50% CBB Cincinnati Bell Inc $ 476 0.04 1.00 27%
SPC Spectrum Brands Inc $ 64 0.71 1.87 -84% AVERAGE -24%
NCR NCR Corp $ 2,856 (0.11) 1.83 -29%
PNX Phoenix Cos Inc/The $ 372 0.45 1.80 -68%
ABD ACCO Brands Corp $ 247 (0.08) 1.79 -33%
NAV Navistar International Corp. $ 2,163 0.09 1.74 32%
GPK Graphic Packaging Holding Co $ 428 0.30 1.73 29%

Source: Company reports, FactSet, and J.P. Morgan estimates.

28
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

29
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

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30
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

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31
Dane Mott, CPA, CFA North America Equity Research
(1-212) 622-1443 08 June 2009
dane.mott@jpmorgan.com
Sarah Deans
(44-20) 7325-1775
sarah.deans@jpmorgan.com

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32