Before I touch on the news of the week, and just in case you missed the notice, the PDF version of the May issue of StockInvestor has been posted to our subscriber-only website at msi.morningstar.com.  The cover story touches on some interesting insights I recently uncovered regarding our economic moat ratings and the fundamental performance of our companies. I suggest downloading the issue instead of waiting for your friendly postal service worker.

While earnings season started to wind down this past week, there were still no fewer than six Tortoise and Hare firms disclosing their quarterly earnings. Here is a table that summarizes the results:

The only fair value estimate change that was prompted by this week's results was for Cisco, where we cut by $2 a share and now think the shares are worth $26 apiece. While the demand outlook for Cisco's products from businesses is clearly quite anemic right now, the expectations priced into the stock today are very low, and I think the shares are in buy territory. As always, see the Morningstar Stock Analyst Notes below for more detail.

Beyond earnings, positive news was similarly scarce. The headline story of the day today was the disclosure by JPMorgan Chase JPM that it expects to realize between $2-3 billion in trading losses in the current quarter, thanks to some bad bets on credit instruments. The company has $2.3 trillion in assets, much of it lying with leveraged instruments. As such, there has always been an element of faith in investing in JP that the trading positions were placed well and thoughtfully hedged, but there has never been a way to confirm what was actually under the hood. In other words, a key risk that has always been present came to fruition.

On the other hand, I think today's reaction by the media and the stock market are a big over-reaction. Consider this context: JP had $5.4 billion in earnings in the first quarter alone and ended the quarter with $181.9 billion in common equity. So this set of bad trades cost the firm roughly one half of one quarter's worth of earnings, or a little more than 1% of its equity. There's no way to put a smiley face on the loss, but to have the stock trade off roughly 10% and have some in media call for Jamie Dimon's head... that seems a little overdramatic. Meanwhile, the stock now trades at roughly 0.8 times book value and well below our $51 fair value estimate. As such, I'm glad to continue holding for now.

The other piece of non-earnings headline news came from Abbott Laboratories ABT, which announced it agreed to a $1.6 billion of fines related to its improper (off-label) marketing of psychiatric drug Depakote. This is a sizable fine, representing slightly more than one quarter's worth of earnings and just over 6% of the firm's book value, far larger in relative terms than JP's trading loss. That said, this closes one uncertainty in the Abbott story, and really does not move the needle on our $70 per share fair value estimate. I'm comfortable continuing to hold.

Beyond the Cisco fair value estimate change, there was one more change to our ratings among portfolio holdings this past week. We put our Autodesk ADSK fair value estimate under review while we transfer coverage to a new analyst. I expect it will be a week or so before our fresh look yields a new fair value.

Next week, I will be in Las Vegas at the MoneyShow, making presentations on Tuesday and Thursday. Please do look me up if you are in town.

Regarding earnings, the only two companies I have on my calendar on Autodesk and Wal-Mart WMT, both scheduled for Thursday. I am personally glad that the flow of earnings news is slowing down so I can do less "fast thinking" (reflexively digesting the torrent of news) and more "slow thinking" (contemplating the long-term and how I wish to position the Tortoise and Hare).

Have a great weekend. Kindest regards,

Paul Larson
Equities Strategist
Editor, Morningstar StockInvestor

Now on Twitter: @StockInvestPaul

Disclosure: Paul Larson owns shares of the following stocks mentioned in this e-mail: ABT, ADSK, CME, CSCO, BRK.B, ESRX, ETE, JNJ, JPM, MSFT, PFE, SYY, TAP, VMC, WMT

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Related Links

Earnings Report -- Cisco
http://newsroom.cisco.com/press-release-content?type=webcontent&articleId=850397

Earnings Report -- Energy Transfer Equity
http://news.morningstar.com/all/ViewNews.aspx?article=/BW/20120508007486_univ.xml

Earnings Report -- Express Scripts
http://news.morningstar.com/all/ViewNews.aspx?article=/PR/20120510CG04466_univ.xml

Earnings Report -- Molson Coors
http://news.morningstar.com/all/ViewNews.aspx?article=/BW/20120508005578_univ.xml

Earnings Report -- Sysco
http://news.morningstar.com/all/ViewNews.aspx?article=/GNW/254800_univ.xml

Video -- Berkshire Meeting Underscores Firm's Strength
http://www.morningstar.com/cover/videoCenter.aspx?id=553024&region=us&culture=

Video -- Dividend, Buyback Queries Dominate Start of Berkshire Hathaway Meeting
http://www.morningstar.com/cover/videoCenter.aspx?id=553020&region=us&culture=

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Morningstar Stock Reports and Analyst Notes

JPMorgan Chase JPM     |     Erin Davis

J.P. Morgan announced today in a last-minute conference call that it has taken $2 billion in losses from credit derivative trades out of its chief investment office. J.P. Morgan now estimates that the unit will lose $800 million in the quarter, as opposed to $200 million it had previously estimated, as gains offset some of the losses. CEO Jamie Dimon called the trades "flawed, complex, poorly reviewed." J.P. Morgan also announced that its "value-at-risk" model was inadequate and that it would be going back to an older model. J.P. Morgan said that it could face another $1 billion in losses in the second quarter due to market volatility. While the announcement on its surface is shocking, especially considering J.P. Morgan's stellar reputation when it comes to risk controls, we do not anticipate the losses will be material to J.P. Morgan's long term fair value. We are, however, monitoring the situation closely for signs that this could be an early indication of larger problems at the bank.

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Cisco CSCO     |    Grady Burkett, CFA

Cisco Systems once again turned in results that were slightly ahead of management's guidance, with third-quarter revenue coming in at $11.6 billion and non-GAAP earnings of $0.48 per share. However, management's fourth-quarter revenue and earnings guidance are below what our current model reflects, and we plan to lower our near-term forecasts. We're also trimming our five-year growth assumption for Cisco's collaboration business to reflect our growing concerns over this segment's long-run competitive position. These adjustments will result in about a 10% reduction to our $26 fair value estimate. While Cisco's fourth-quarter outlook represents a moderate setback from a recent series of improving results, we think the firm's overall health is fine, and we maintain our view that Cisco's shares are attractively valued.

Management's fourth-quarter guidance of 2% to 5% year-over-year revenue growth implies no sequential growth at the midpoint, and we now expect full-year revenue will increase 6.3%, to $46 billion. Although this result is in line with management's three-year revenue growth target of 5% to 7% per year through fiscal 2014, we had expected improved execution, a largely refreshed product portfolio, and fairly easy first-half comparisons to drive growth faster. Management cited the challenging spending environment as the primary culprit for next quarter's deceleration, highlighting the fact that issues in southern Europe have expanded, while enterprise orders fell 1% from the year-ago quarter. Although weak demand in Europe is not surprising, the decline in enterprise orders is troubling from a broader IT spending perspective.

Cisco's switches and router segments collectively accounted for $5.8 billion, or 50% of total sales this quarter, and posted combined year-over-year growth of just under 3%. Sales of switches grew 5%, to $3.6 billion, which we believe was largely driven by an ongoing refresh to 10 Gbps port speeds in the data center market segment. The maturation of Cisco's Nexus 7000 platform, combined with what we believe to be poor execution from the firm's primary switch competitors, have temporarily squelched competitive threats within the data center segment, and we expect Cisco's share to remain stable through 2012 within this segment. While investors seems to be increasingly concerned that software-defined networking presents an immediate risk to Cisco's data center switch business, we do not believe that SDN poses a meaningful intermediate-term threat.  SDN is still in its infancy, and Cisco's market dominance should allow it to shape the SDN adoption curve while management fully develops its strategy around this emerging set of technologies.

We do, however, think that the campus, access and aggregation switch segments will come under greater pressure over the next few years, as we expect growing competition from integrated vendors, server virtualization, and a push toward network layer consolidation to accelerate price declines and limit volume growth in these segments. We maintain our view that the overall switch market has matured, and our current forecast of low-single digit revenue growth through 2016 reflects this belief. Although switch growth will likely remain sluggish, we believe Cisco's competitive position in the switch industry is stronger now than it was 18 months ago.

Like its peers, Cisco experienced weak demand from service providers in the third quarter, and the firm's router segment revenue was flat at $2.1 billion, or 19% of sales. North American carrier capital spending is widely expected to improve throughout 2012, and management noted that service provider orders grew 5% year-over-year this quarter. Cisco should benefit over the next few quarters from an ongoing transition to its CRS-3 core router platform, while Cisco's ASR 5000 mobile packet core router system appears to be gaining increasing adoption. Given service providers' ongoing transition to 4G wireless networks, the success of Cisco's mobile packet core platform bodes well for the firm's long-run competitive position in the service provider market segment.  Although Cisco's router segment has recently underperformed our long-term forecast of mid single-digit revenue growth, we are not lowering our five-year forecast just yet, as we believe that the demand environment has been unusually weak over the past three quarters.

The remainder of Cisco's product segments generated solid results overall in the third quarter, growing 9% percent to $3.3 billion, as strong year-over-year growth in data center, wireless and service provider video masked weak results from collaboration. We believe that Cisco's collaboration business is at a competitive disadvantage to Microsoft MSFT, and will face long-run pressure from other low-cost alternatives to video conferencing. We plan to significantly lower our growth forecasts for this segment to reflect this view. Security posted relatively solid results, with 9% year-over-year growth. However, we have grown increasingly concerned that focused vendors such as Checkpoint CHKP and Palo Alto will gain share of customers' network security spend at Cisco's expense, and F5 FFIV is just beginning to aggressively push into the market. While Cisco's recently announced CX security module is designed to be competitive with other vendors' application-aware firewalls, the product is relatively new, and Cisco's historical track record in layer 4-7 is mixed, at best. Network security is a strategically important market for Cisco, and we believe the firm may need to make another acquisition in this area in the near future to maintain its long-term leadership.

Services posted another solid quarter, growing 13%, to $2.5 billion, while generating 65.5% gross margins, 360 basis points above the corporate average. As we've noted before, Cisco's services revenue is recurring in nature, generates high gross margins, and leads to stickier customer relationships. We note that service revenue has generated double-digit year-over-year growth in 22 of the past 27 quarters, with remarkably consistent gross margins over the same time period. Management continues to focus on growing service revenue faster than product revenue, and we model upper single-digit annualized service revenue growth through 2016.

Cash generation was predictably healthy. The firm produced $2.7 billion in free cash flow, and its cash balance, net of debt, increased to $32 billion, or $5.87 per diluted share. Cisco is expected to close on its acquisition of NDS in the second half of calendar 2012, which will consume $5 billion in cash, or just under $1 per share. The company bought back $550 million in stock at an average price of $20.28 per share, and paid out $432 million in dividends. Cisco's shares continue to trade below our fair value estimate, and we would like to see management accelerate share buybacks while its stock is undervalued.

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Express Scripts ESRX     |     Matthew Coffina, CFA

Express Scripts appears on pace to meet our full-year expectations, following the release of first-quarter results. With the Medco acquisition closed, management provided its outlook for full-year earnings per share between $3.36 and $3.66. After accounting for a diluted share count that will come in a little higher than we had expected, our model implies earnings toward the high end of this range. We continue to see Express Scripts as undervalued relative to our $73 fair value estimate.

The first quarter did not include any contribution from Medco because the transaction closed on April 2. Even so, revenue was up 9.4% on a 3.6% increase in adjusted prescription volumes. Branded drug price inflation appears to explain the discrepancy between revenue and volume growth. We can discern no negative impact from the Walgreen WAG dispute, reinforcing our thesis that Express Scripts has a much stronger bargaining position than the retailer.

Management reported spending extra on administrative expenses to ensure a smooth transition for clients following the Medco acquisition. Even so, adjusted EBITDA increased 6.6% from the prior year and adjusted EBITDA per adjusted prescription improved to $3.40 from $3.31. Management projected the full $1 billion in synergies from the merger to be realized in 2014, which is consistent with our model. However, we project ongoing synergies beyond that date from Express Scripts' enhanced bargaining power.

In the first quarter, margins benefited from both increased generic penetration--with the generic dispensing rate hitting 76.5% versus 73.8% last year--and growth in mail-order. Mail-order volumes, up 6%, benefited from excluding Walgreen from the pharmacy network, although it appears the vast majority of these prescriptions are moving to alternative retail pharmacies, most prominently CVS Caremark CVS.

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Sysco SYY     |     Erin Lash, CFA

From our perspective, Sysco's third-quarter results support our take that the leading North American food-service distributor should be well positioned when there is a more consistent, positive cadence to restaurant sales. Although we expect sales volume to remain lumpy in the near term, we believe Sysco's expansive distribution network will enable the firm to remain the dominant player, generating strong cash flows and outsize returns for shareholders over the longer term. In addition, we think the firm will continue building out its geographic footprint as well as its product portfolio by pursuing small bolt-on acquisitions. In our opinion, appropriately priced acquisitions would be a prudent use of capital, as about 70% of the market remains highly fragmented. Results through the first nine months of fiscal 2012 are tracking in line with our outlook, and as a result, our $36 fair value estimate remains in place. At just 13 times our fiscal 2013 earnings per share estimate, the shares are slightly undervalued. In our view, the market's concerns regarding sluggish restaurant traffic and food cost inflation are overdone and are unjustly weighing on Sysco's shares.

Excluding foreign currency movements and acquisitions, third-quarter sales increased 7.1%, (on top of 7.9% growth in the year-ago quarter) primarily because of 5.5% food cost inflation. While food cost inflation declined from 6.3% in the second quarter, this level of inflation is still significant, particularly the double-digit inflation the firm is realizing in the poultry and meat categories. A modest level of food inflation (2%-3%) is ideal for Sysco, but high levels of food costs could pressure the firm and its customers--as it is now. That said, the fact that case volume growth continued in the third quarter (up 2.3% excluding acquisitions after increasing 2.8% in the prior sequential quarter) is encouraging. We look forward to hearing management's thoughts regarding the sustainability of this growth during the conference call.

Higher payroll expenses took a toll on profitability, as the gross margin contracted 80 basis points to 17.8% while the adjusted operating margin fell 30 basis points to 4.6%. In our view, the firm's constant focus on improving its cost structure will enable Sysco to offset volatile input costs. By fiscal 2015, we forecast operating margins of 5.2% (about 10 basis points above the firm's average operating margin over the past three years). Next week we will attend Sysco’s analyst day and hope to garner more details surrounding the firm's business transformation efforts, including the benefits that management believes could be realized as a result of this rollout.

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Molson Coors TAP     |     Tom Mullarkey, CFA

While Molson Coors Brewing Company's first-quarter sales were roughly flat with the prior year, underlying earnings per share grew by 9.3% as improved pricing and favorable sales mix combined with cost savings and a reduced share count. Molson Coors expects to close its $3.5 billion acquisition of StarBev during the second quarter, and likely will suspend share repurchases until the company's debt ratios return to pre-acquisition levels. We continue to believe that the company's beer volumes in Canada, the United Kingdom, and the United States will be soft during 2012. Nonetheless, we believe the company's premium beer brands are well positioned for longer-term growth once the employment situation in North America improves. Consequently, we are maintaining our $55 fair value estimate on the company's shares and believe that the stock, which currently trades at roughly 10.5 times our 2013 EPS estimate, is attractively priced.

The deterioration of profitability in Canada was particularly pronounced, as these operations' underlying pretax income fell 15.4% to $46 million in the quarter, driven by higher pension expense and foreign currency headwinds. Sales to retailers in Canada fell 0.5%, primarily due to weakness in the country's western provinces. While sales per hectoliter grew 5% in local currency, cost of goods sold per hectoliter climbed by 11% as higher pension costs, input cost inflation, and increased contract brewing costs combined to outpace pricing growth. Coors Light Iced T, which launched in Canada in April, appears to be performing according to plan. Should the launch go well, we expect the company's MillerCoors JV to introduce the beverage in the United States either later this summer or during 2013.

The company's MillerCoors JV continues to perform well despite falling volumes in the United States. Underlying net income for MillerCoors increased 16.6% versus the prior year as higher prices, warm weather, and a focus on cost control more than offset higher input costs. While Miller volumes continued to fall during the quarter, Coors Light volumes actually increased and craft beer volumes in the JV's Tenth and Blake division once again grew at a double-digit rate.

Molson Coors' business in the United Kingdom experienced 3.9% decline in sales to retailers as a result of an extra accounting week in 2011 and customer buy-in prior to the company's January 2012 price increase. As a result of volume decline and slightly lower prices, the segment delivered a $1 million underlying pretax loss in the quarter, versus $4.6 million pretax income in the prior year. However, Molson Coors gained a little market share in the quarter, as the company posted stronger results in the on-premise channel. We continue to believe that the largely consolidated retail market and pub sector in England will result in the company's U.K. operations posting operating margins well below what it is capable of earning in Canada and the United States. We expect that following the StarBev acquisition, the company's Carling brand will be more broadly exported into Eastern Europe, thereby improving some of the company's capacity utilization in its U.K. breweries.

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Berkshire Hathaway BRK.B     |     Greggory Warren, CFA

Ahead of its annual meeting this weekend, Berkshire Hathaway released results for the first quarter of 2012 that were much stronger than the results the firm reported in the year-ago period.

For those that may not recall, Berkshire's insurance operations were negatively affected during the first quarter of 2011, with the firm booking an underwriting loss in excess of $800 million following a cornucopia of natural disasters: massive flooding in Australia (compounded by Cyclone Yasi), an earthquake in New Zealand, and an even bigger earthquake and tsunami in Japan. According to Warren Buffett, the first quarter of 2011 was the second-highest period of losses for the reinsurance industry (with Berkshire Hathaway Reinsurance Group booking a $1.4 billion loss, and General Re recording a $300 million loss)--trailing only the third quarter of 2005, which included a number of large hurricanes, including Katrina. Although underwriting profitability was on much better footing in 2011, it remains below historical norms (which was a bit disappointing, in our view, given the milder winter and almost complete lack of catastrophe losses during the quarter). Even so, strong overall results from Burlington Northern Santa Fe, Marmon, and McLane, as well as the inclusion of Lubrizol's results in this year's first quarter, combined to drive a 67% increase in operating earnings during the quarter.

Berkshire also benefited from higher gains on its derivatives portfolio year over year. As a result, net earnings attributable to Berkshire during the fourth quarter of 2011 were $3.2 billion (up 115% from $1.5 billion during the first quarter of 2011). The company's book value per Class A share was $106,588 at the end of the first quarter, a 10% gain year over year and a 7% increase from the fourth quarter of 2011.

Results improved significantly in Berkshire's insurance operations during the first quarter, but they were still short of what we were expecting. Premium growth continues to be muted, given the softness of the market. The earned premium growth the company generated was almost completely attributable to GEICO, where premiums were up 9%, driven mostly by policy growth. Berkshire's competitors in the insurance industry have become increasingly bullish on insurance pricing, with many reporting low- to mid-single-digit price increases, which have boosted premium levels. Berkshire does not seem to be joining this growth to the same extent, as evidenced by its non-GEICO premium levels. We will be interested to hear Warren Buffett's commentary on the pricing market during the annual meeting this weekend.

On the bottom line, aggregate underwriting profits were slightly lower than we had expected, having believed we'd see more robust results given the mild winter and almost complete lack of catastrophe losses during the quarter. Underwriting profits were lower at GEICO, despite higher premium levels, but this was because of a change in accounting practices (with the firm needing to expense more of its advertising costs upfront rather than defer them as it has done in the past). The company also posted a loss at Berkshire Hathaway Reinsurance Group, though it was of a much smaller magnitude than last year's. Investment income also continues to be pressured. With many of the lucrative investments that were made during the financial crisis being put back to Berkshire, the firm is having to reinvest in much lower-yielding investments. We believe this will have an impact as more of the company's book is rolled into new, lower-yielding securities--especially if the interest-rate environment remains depressed.

Unlike its insurance operations, Berkshire's noninsurance businesses were a source of strength during the quarter, reporting a nearly 30% increase in operating earnings year over year. Although these results were distorted somewhat by the timing of the Lubrizol acquisition (which closed in September of last year), that should not detract from the positive things going on in these operations.

Burlington Northern Santa Fe, one of the largest contributors to earnings at Berkshire outside of its insurance operations, saw a more than 15% increase in operating earnings year over year, as increased rail volumes and fuel surcharges led to a more than 10% increase in unadjusted revenues. BNSF's operating expenses also increased at a slower rate than revenues. Despite the sluggish pace of the economic recovery, Marmon, McLane, and Berkshire's other manufacturing, service, and retail operations continue to post solid results. Marmon, in particular, recorded a 7% increase in revenue and a 21% increase in pretax earnings, while McLane posted a 4% increase in its top line year over year, with a 24% increase in pretax earnings. MidAmerican Energy and Berkshire's financial products division remain the only weak links in the firm's noninsurance businesses, with the energy and utility posting flat revenue growth and 7% pretax earnings growth, while the financial products division posted mid-single-digit revenue and pretax earnings growth.

On a separate note, the company closed out the quarter with more than $37 billion in cash on its books (not much higher than what it was carrying at the end of the fourth quarter). We continue to believe this cash hoard will be a point of contention for many shareholders, some of which would like to see the firm institute a dividend (or, at the very least, pay out a special one-time dividend) if more lucrative investment opportunities are not available.

Besides hearing more about Berkshire's plan for a potential dividend longer term, we're interested to see if the topic of share repurchases comes up during the annual meeting this weekend. For those who may not recall, Berkshire announced in late September of last year that it had authorized a share-repurchase program to buy back Class A and B shares at prices no higher than a 10% premium to the firm's book value per share. Although Buffett has been vague about how much cash he would be willing to spend buying back stock, he has noted that repurchases would not be made if they reduced Berkshire's consolidated cash balance below $20 billion. Our take on the whole announcement has been that it has effectively created a floor under Berkshire's stock price, as investors now believe he will buy back shares at prices below 110% of the firm's book value. Based on Friday's closing price of $123,495 for Berkshire's Class A shares, Buffett could potentially think about buying back stock at prices below $117,246.

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Pfizer PFE     |     Damien Conover, CFA

An FDA panel voted to support the approval of Pfizer's tofacitinib for rheumatoid arthritis, or RA, patients, and the FDA will likely make a final decision by August. While we had largely expected a positive vote, we are increasing our probability of tofacitinib's approval to 90% up from 65% based on the favorable panel review. However, we don't expect any changes to our fair value estimate of $27 per share for Pfizer based on the increased likelihood of tofacitinib's approval, as the higher expected sales don't move the needle on our valuation for Pfizer. Overall, we continue to believe Pfizer is undervalued based on underappreciated pipeline drugs and the ability to cut costs ahead of expectations.

While the FDA panel supported the approval of tofacitinib, the exact patient population that could use the drug remains unclear. The panel voted 8 to 2 in favor of approval of the drug, but we believe the entire panel would have voted favorably if the patient population were confined to RA patients who failed two DMARDs including one TNF inhibitor. Further, we believe several panelists who voted for approval would prefer to limit the drug use until after failure of DMARDs including one TNF inhibitor. We expect the FDA will approve tofacitinib in this more defined patient population due to the FDA's risk-averse nature, limited clinical data in terms of duration of tofacitinib use, mixed data on bone efficacy, and some safety concerns over infections and cancer. However, this patient population is still very large given that close 30% of patients on TNF inhibitors don't achieve an ACR20 response rate (low end of efficacy). With the TNF inhibitor market over $12 billion, a significant market exists for drugs that target TNF inhibitor failures. We believe tofacitinib will easily develop into a blockbuster in this market. From a competitor standpoint, we believe the currently marketed TNF inhibitors, including Abbott's ABT Humira, Merck's MRK/JNJ's JNJ Remicade, and Amgen's AMGN Enbrel, will largely maintain market share. However, if tofacitinib's safety and efficacy data holds up over the next two years, we expect the drug will move into usage before TNF inhibitors. By that time, many TNF inhibitors will be facing bigger generic threats (albeit generic biologics, which carry less concern than traditional generics).

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CME Group CME     |     Gaston Ceron

CME Group reported a 42% drop in first-quarter net income, with profits falling to $267 million, or $4.02 a share, from $457 million, or $6.81 a share, in the year-earlier first quarter. First-quarter ROE came in at an annualized 4.95%. Our recently revised fair value estimate remains at $292 per share. The derivatives exchange operator was beset by a weak trading environment, with average daily volume falling by 11%, sending clearing and transaction fees--which make up most of CME's top line--down 10% to $621 million. Overall revenue slid to $775 million from $832 million. While we do expect the trading environment to improve eventually, we do not think it will recuperate sufficiently to make 2012 a strong year. Indeed, we project revenue will slide nearly 6% this year.

We were interested to hear that the CEO transition at CME proceeded more quickly than we had expected, with Phupinder Gill, formerly the company's president, now installed in the CEO role as a replacement for the retiring Craig Donohue. Our take remains that Gill is certainly well qualified to run CME, having been with the company for over 20 years, though the switch at the helm does present some transition-risk issues during a challenging time for CME. Additionally, the company is making an effort to control costs, for instance through a voluntary exit plan for some employees. In the current operating environment, we think it is prudent to manage expenses well. Among other highlights, we note that the pending indexes joint venture with McGraw-Hill MHP is expected to close in the third quarter; at that point we hope to have additional information on its impact on CME.

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Vulcan Materials VMC    |     Elizabeth Collins, CFA

On Friday, a Delaware judge halted Martin Marietta's MLM pursuit of Vulcan Materials for four months, based on the finding that Martin Marietta had violated its nondisclosure agreement with Vulcan Materials in forming its bid and proxy fight. The fourth-month delay extends beyond Vulcan's annual meeting June 1. Martin Marietta had proposed four candidates for the staggered board. Martin Marietta will appeal the ruling. This ruling reduces the likelihood that the deal will be consummated at the proposed exchange ratio (0.5 Martin Marietta share for each Vulcan share) in a timely manner. We are leaving our fair value estimates for both companies unchanged, as they were based on our stand-alone assessments of each company.

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