UBS Investment Research

UBS Investment Research UBS Business Jet Update Cycles Lower Sequentially • Cycles 1% lower sequentially We estimate business jet cycles (takeoffs & landings) were 1% lower from the prior year in April, better compared to 3% decline in March on easier comp as seasonally-adjusted cycles moved 1% lower sequentially. We estimate cycles are now running 26% higher from trough in early 2009. although still off 18% from prior peak in late 2007 including relatively flat cycles for past 18 months. • Long- and short-range cycles declined on sequential basis By segment. we estimate long- and short-range aircraft cycles were both 1% lower sequentially in April. while medium-range was roughly flat. Overall, through the recovery, short-range aircraft cycles have improved the most, up 28% from trough in early 2009 with mid-range and long-range both up 23%. Of the five major manufacturers. Dassault cycles decreased the most in April, down 4% sequentially, followed by Gulfstream down 2% and Cessna down 1%, while Bombardier and Hawker cycles were roughly flat. Dassault cycles are now 23% below prior peak in 2007 with Bombardier/Cessna/Hawker all 20.21% below and Gulfstream 18% below, while Embraer cycles have roughly tripled. Please see inside of note for detail by engine/avionics supplier. • See positive risk-rewards We believe North America bizjet is improving driven by replacement demand postponed during the downturn. We still see positive risk-rewards as we don't think stocks incorporate much for bizjets following recent underperformance. We prefer TXT/COL. Chart 1: Seasonally-Adjusted Monthly Cycles 450.000 400.000 350.000 300.000 250.000 200.000 150.000 100.000 50.000 0 4S4 S4S SS `•:" :7 =' XX Source: FM and UBS estimales Global Equity Research Gob& Aerospace Sector Comment • Chart 2: YoY Absolute Cycle Growth 30% 20% 10% 0% -10% 40% -30% 25 May 2012 David E. Strauss Ana1O1 Darryl Genovesi Ma s1 Matthew Akers Assccete Ana s1 ... .-cmcmcnmsguittitoconnoommmaa... ..-cm 0 9 09 0 9 . 0 9 09 0 909 0 9 . 7 . 7 . ‹8‹8‹8‹8‹8‹8‹8‹8‹8‹8‹8‹ yry Cycle Growth — WM Average Source: FM and UBS eshmales This report has been prepared by UBS Securities LLC ANALYST CERTIRCAllON AND REQUIRED DISCLOSURES BEGIN ON PAGE 13. UBS does and seeks to do business with companies covered in its research reports. Asa 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. EFTA01088132 UBS BusinessJet Update 25 May 2012 Business Jet Flight Activity We track business jet flight activity as a leading indicator of the business jet aftermarket and as a gauge of general market conditions. Specifically, we are monitoring monthly business jet cycles (total takeoffs and landings) at domestic and international airports as reported by the FAA, including all flights of US origin and/or US destination coordinated through FAA Terminal Services, as well as additional domestic and international flight activity recorded to the database by FAA £n Route and Oceanic Services. Roughly 84% of the flights we track are US domestic flights with 16% international. We estimate business jet cycles (takeoffs & landings) were 1% lower from the prior year in April, better compared to a 3% decline in March on easier comp as seasonally-adjusted cycles moved 1% lower sequentially. Chart 3: Seasonally-Adjusted Sequential Cycle Growth 0.1 a in to n co cri in a in in a in s. s. s. 7 7 Source: FM and CBS estimates Chart 4: YoY Absolute Cycle Growth 'j• ci n 2'4 t‘i 1.=7 2 ::" '- CL ................. . . 40404040404040404040404 yiy Cycle Growth —8121.4 Average Source: FAA and UBS estimates We estimate charter activity in April was 5% higher from the prior year on a rolling 12-month basis including 3% growth on an absolute (unsmoothed) basis. Meanwhile, non-charter (military, freight and general aviation) was I% lower on a rolling 12-month basis, including a 2% decline on an absolute basis. Chart 5: Roling 12-Month Average Blzjet Cycles by User Type and YoY Growth Reding 12 Month Avg Cycles 400.000 300.000 200.000 100.000 0 I I I • 15% • 10% 5% 0% .5% • 40% 45% •20% •25% sq.”88 4“S 8 6-.8 2”° -- "! 484848484848484-84-848484 Charter Trak An Other Traffic — y/y Growth in RIM Cycles YoY Growth in R12M Avg eyelos Source: FAA and CBS agnates UBS 2 EFTA01088133 UBS Business Jet Update 25 May 2012 Flight Activity by Manufacturer Of the five major manufacturers, Dassault cycles declined the most in April, down 4% sequentially, followed by Gulfstream down 2% and Cessna down 1%, while Bombardier and Hawker cycles were roughly flat. We estimate Cessna aircraft accounted for 37% of all business jet cycles flown over the past 12 months, followed by Bombardier at 21%, Hawker at 17%, Gulfstream at 12% and Dassault at 9%. Comparatively, we estimate Cessna aircraft make up 33% of the installed fleet, followed by Bombardier at 22%. Hawker Beechcraft at 13%. Gulfstream at 12%. and Dassault at I 1%. Chart 6: Cycle Distribution by Manufacturer-12 Months Ended April 2012 Odle/ Dassault 9% Gultstream 12% Hawker Beechenft 17% 4% 21% Banbardbw 37% Note: Analysis does not iodide Embraer Legacy 600. which we esbmale make up 1% of the Patted fleet. Source: FAA and UBS estimates We estimate Cessna cycles in April were roughly unchanged from the prior year on a rolling 12-month basis, although 1% lower on an absolute (unsmoothed) basis. Chart 7: YoY Growth in Absolute and Rolling 12-Month Cycles—Cessna 40% 30% 20% 10% 0% •10% -20% 30% -40% Goivavg4sostnsaso maknakaka-Fakaka.nkn yty Cycle Growth - Cessna — Poling 12 Morin Average Source: FAA and UES estimates UPS 3 EFTA01088134 UBS Business Jet Update 25 May 2012 We estimate Bombardier cycles in April were roughly unchanged from the prior year on a rolling 12-month basis, although 3% lower on an absolute basis. Chart 8: YoY Growth In Absolute and Rolling 12-lilonth Cycles—Bombardier 30% 20% 10% 0% -10% 20% 30% 40% -4 -44V??444)$$$4&4 1M""="7" 4:4 Am8A,8 tata i•ZiAm8A, Zii."6 taM yey Cycle Grow b BombarCier —Roling 12 Month Average Source: FAA and UBS enemies We estimate Hawker Beechcraft cycles in April were 2% lower from the prior year on a rolling 12-month basis, including a 2% decline on an absolute basis. Chart 9: YoY Growth In Absolute and Rolling 12.Month Cycles—Hawker Beechcraft SO% 40% 30% 20% 10% 0% -10% a a a a Q- 8 .2-a Q-8 Q- 8 Q- 8 Q- 8 Q-8 Q-8 .2- a Q- yry Cycle Growth • Hawker Beachcrafl — Acing 12 Month Average Source: FAA aM IBS estimates UBS 4 EFTA01088135 UBS Business Jel Update 25 May 2012 We estimate Gulfstream cycles in April were 1% higher from the prior year on a rolling 12-month basis, although 2% lower on an absolute basis. Chart 10: YoY Growth in Absolute and Rolling 12-Month Cycles—Gulfstreatn 40% 30% 20% 10% 0% 10% 20% 30% 40% CM M l" Ul CO CO OO CO Cn OI O C. ,pm. .04 m 9 9 9 9 9 m W 9 9 9 9 9 9 9 9 9 9 . ct 0 a a .4L 2f a a a a a a a 0 ct a a a IL y/Y Cycle Growth • Gultsteam — yiy Growth in R13A Cy des Source: FAA and UBS estimates We estimate Dassault cycles in April were 2% lower from the prior year on a rolling 12-month basis, although 2% higher on an absolute (unsmoothed) basis. Chart 11: YoY Growth In Absolute and Rolling 12-Month Cycles—Dassault 40% 30% 20% 10% 0% -10% 40% GO% .40% 4 F?”$$$M444444$ 2?`" :1 nESQ - amnannnmn y Cycle Growth • Dassault — yly Growth in R12M Cycles Source: FM and UBS estimates UBS 5 EFTA01088136 UBS BusinessJet Update 25 May 2012 Flight Activity by Engine and Avionics Supplier We have also analyzed business jet flight activity by engine and avionics supplier. Cycles declined across four out of five engine manufacturers in April with GE and Rolls-Royce cycles down 3% on a seasonally-adjusted sequential basis, followed by Williams International down 2% and Honeywell down 1%, while Pratt Canada (PWC) cycles were roughly unchanged from March levels. By avionics supplier, we estimate Rockwell Collins avionics cycles were roughly flat on a seasonally-adjusted sequential basis, while Honeywell cycles declined 2%. We estimate PWC engines accounted for 44% of all business jet cycles over the past 12 months, followed by Honeywell at 29%, Rolls-Royce at 13%, Williams International at 8%, and GE at 6%. We estimate Rockwell Collins avionics accounted for 52% of all business jet cycles over the past I? months, while Honeywell avionics accounted for 39% of total cycles. Chart 12: Cycle Distribution by Engine Supplier Chart 13: Cycle Distribution by Avionics Supplier Wiliam s GE 8% 6% 4111 1 Rolls-Royce 13% 44% Honeywell 29% Source: FAA and UBS estimates Cthet 9% HPney wed 39% Source: FAA and UBS estimates We estimate PWC engine cycles in April were 2% higher from the prior year on a rolling 12-month basis including 1% growth on an absolute (unsmoothed) basis. Chart 14: YoY Growth in Absolute and Roiling 12-Month Cycies—PWC Engines 40% 30% 20% 10% 0% -10% -20% 30% .40% cs.a C•1 M CI in in to 0 r- I.- to CO cr. 0 0 0 N 9 0 9 0 9 0 9 0 0 9 0 9 0 9 0 9 0 O^ . . C8C8C8C8C8C8C8C8C8C8C8C yiy Engine Cycle Growth • PWC — Rolling 12 Month Average Source: FAA and UBS agnates UBS 6 EFTA01088137 UBS BusinessJet Update 25 May 2012 We estimate Rolls-Royce engine cycles in April were 3% higher from the prior year on a rolling 12-month basis, although 2% lower on an absolute (unsmoothed) basis. Chart 15: YoY Growth in Absolute and Rolling 12-Month Cycles—RR Engines 40% 30% 20% 10% 0% •10% •20% .30% .40% crepz?4.$434 Q Q $$"'- et's li yly Engine Cycle Growl • Rolls•Royea — Rang 12 Month Average Sane: FM aM UES estimates We estimate Williams International engine cycles in April were 1% higher from the prior year on a rolling 12-month basis, including I% growth on an absolute (unsmoothed) basis. Chart 16: YoY Growth in Absolute and Rolling 12-Month Cycles—Williams Engines r?Gtz?"4`444; k8k8 4 O k8k8k8 4 O k8k8 =MI yry Engine Cycle Growl • Maths — Rdling 12 Month Average Saute: FM aM UBS estrides UBS 7 EFTA01088138 MS BusinessJai Update 25 May 2012 5444?444*Mfl4444" 1".1-7' narnatd.H.H.M848484 We estimate GE engine cycles in April were 9% lower from the prior year on a rolling 12•month basis including a 2% decline on an absolute basis. Chart 17: YoY Growlh in Absolute and Rolling 12-Month Cycles—GE Engines 40% 30% 20% 10% 0% -10% -20% -30% -40% :i444`4'444 .41 ”Mee°4“ .r: 2 7 — c' y$j yj yy ya; Engine Cycle Growth • GE — Rolling 12 Month Average Scarce: FAA and UBS agnates We estimate Honeywell engine cycles in April were 1% lower from the prior year on a rolling 12•month basis including a 3% decline on an absolute basis. Meanwhile. Honeywell avionics cycles were roughly flat from the prior year on a rolling I2-month basis, although 2% lower on an absolute basis. Chart 18: Honeywell Engine Cycle Growth Chart 19: Honeywell Avionics Cycle Growth 40% 30% 20% 10% 0% •10% 20% 30% 40% 6-444g?4M“fl44r - 7" EgEg.,848.,848.,848.,848.,812- yfy Engine Cycle Growth • Honeywell — R12M Average yly Avionics Cycle Growth • Honeywell — R12M Average Scarce: FM and UBS estvnales Source: FAA and UBS sigmas UBS 8 EFTA01088139 CBS BusinessJet Update 25 May 2012 We estimate Rockwell Collins avionics cycles in April were 1% lower from the prior year on a rolling 12-month basis including a 1% decline on an absolute (unsmoothed) basis. Chart 20: Rockwell Collins Avionics Cycle Growth 40% 30% 20% 10% 0% -10% -20% -30% 40% Thtb' Thtb' Q- 6' 6 O Q .2- .2- O Q- yty Avionics Cycle Growth • Rockwell Collins — Rolling 12 Month Average Source: FAA and UBS agnates Flight Activity by Market Segment By segment, we estimate short and long-range aircraft cycles both decreased 1% sequentially in April, while mid-range cycles were roughly flat. Overall, through the recovery, short-range aircraft cycles have improved the most, up 28% from trough in early 2009 with medium and long-range both up 23%. We estimate short-range aircraft (defined here as those aircraft with less than 2,000 nmi range) have accounted for 53% of all business jet cycles over the past 12 months, followed by medium-range aircraft at 32% and long-range aircraft (those with greater than 3,500 nmi range) at 15%. Comparatively, we estimate short-range aircraft make up 46% of the installed business jet fleet, followed by medium at 35% and long-range aircraft at 19%. Chart 21: Cycle Distribution by Range Class-12 Months Ended April 2012 Long !large 15% Medum Range 32% Shod Range Rote: Analysis does not iodide Embrace Legacy 600. which we 'Ornate make up 1% of the Vistaed Beet. Source: FAA and UBS estimates UBS 9 EFTA01088140 UBS Business Jet Update 25 May 2012 We estimate short-range aircraft cycles in April were roughly unchanged from the prior year on a rolling 12-month basis, although 1% lower on an absolute (unsmoothed) basis. Chart 22: YoY Growth in Absolute and Rolling 12-Month Cycle—Short-Range Aircraft 40% 30% 20% 10% 04' .10% 20% 30% -40% 4' 4' 44134444V444'4*444 .”77a.' 4.84.8M8MMM,SM,D yty Cycle Growth • Shod Range —Rolling 12 Meath Average Source: FAA and UBS °senates We estimate medium-range aircraft cycles in April were 1% higher from the prior year on a rolling 12-month basis, although roughly unchanged on an absolute (unsmoothed) basis. Chart 23: YoY Growth in Absolute and Rolling 12-Month Cycles—Med-range Aircraft 40% 30% 20% 10% 0% -10% -20% 30% -40% 444413444444444444$ 77".' 4.84.84.8*84.84.80134-84-8E8k8i yiy Cycle Growth Medium Range — RolIng 12 Month Average Source: FAA and UBS agnates UBS 10 EFTA01088141 UBS Business Jet Update 25 May 2012 We estimate long-range aircraft cycles in April were 1% higher from the prior year on a rolling 12-month basis, although I% lower on an absolute (unsmoothed) basis. Chart 24: YoY Growth In Absolute and Rolling 12-Month Cycles—Long•Range Aircraft 40% 30% 20% 10% 0% .10% .20% .30% .40% O Q- 6' Q- S Q- 6' Q- 6' Q- 6' 6' Q- 6' Qm8 Qm8 Q- 6' Cycle Growth • Long Range - Boling 12 Month Average Source: FAA and UBS agnates UBS 11 EFTA01088142 UBS Business Jet Update 25 May 2012 Table 1: Business Jet Cycle Growth by Make and Model (April 2012) R1211% ol Absolute R3M R121I Year to Date Total Cycles YoY Growth Growth Growth Growth Short Range Beechiel 400/Hawker 400 XP 8.0% (1.6%) 0.6%) (2.4%) (1.4%) Citation XIS 7.8% (4.1%) (1.5%) 2.6% 3.8% Cilalion Encore 6.3% 0.8% 2.9% tassq (4.4%) Citation Bravo 4.5% (3.6%) (5.5%) (6.8%) (5.4%) Leabet 35 4.1% (6.6%)f (5.1%) (1.4%) (0.7%) learfil 45 3.7% (1.3%) 3.4% 4.3% 43% Cilation CJ1 3.1% (1.8%) (1.8%) (1.6%) (0.3%) Cilaton CJ3 23% 4.5% 8.0% 5.9% Leaget 31 1.5% (9.8%) (5.2%) (4.5%) (1.3%) Citation CJ2 1.5% 8.5% 4.8% 1.0% 23% Falcon 20 1.2% 140% (7.2%) (16.9%) (10.8%) Premier I 1.3% 15.3%) (1.8%) 0.2%) (1.4%) Phenom 1031300 20% 293% L 29.7% 64.4% 78.8% Citation ISP 0.7% 18.9%) (12.0%) (9.8%) (7.9%) Learjet 25 0.5% (323C(261%) (28.5%) (25.9%) Falcon 10 0.6% (6.2%) 1.5% (9.0%) Sabreliner 40 0.6% (16.3%) (20.8%) (12.8%) (7.8%) CiIalfron IL SP 0.6% 18.5%) (1.4%) (4.3%) (2.8%) Al Stick/ Range Aircraft 53% 10.9%) f0.2%) (0.2%) 88% Medium Range Hawker 803XP 72% (4.3%r12.3%) (2.9%) (12%) Cileon X 3.9% ILO%) 0.5% 53% 6.6% Citation Sovereign 31% 3.9% - 6.4% 7.7% 7.6% Eaton 2000 2.9% (3.5%) (1.5%) 2.8% 3.7% Challenger 300 2.9% IMMIL 72% 8.5% 92% learfil 60 2.4% (0.6%) (2.8%) 0.1% 03% alustrearnwida. 23% a.6%) (0.2%) 0.6% Citation 111 1,7% (5.2%) (6.4%) 16.1%) 15.3%1 Falcon 50 1.8% Wr 5.4% 2.5% 0.9% Gullsheam G100 /G150 1,6% (4.1%) (5.3%) i1.2%) 0.1% Learjet 55 02% an (132%) (2.5%) (1.6%) Westtend 1124 0.7% (2.2%) 3.9% (5.8%) (7.5%) Ad Mechum Range krcraft 32% (0.4%) 0.1% 1.2% 2.0% Long Range Gullstrearn G4V/ 6400 / G450 4.540. 3- 02% 1.9% 3.0%' Challenger 604 4.1% 0.9% 10.2%) 11.1%) (0.0%) Gullstrearn GA/ / G500 / G550 25% (5.3%) 4.9% Eaton 9:0 2.1% (1.9%) (1.2%) 0.7% 0.7% Global Express 12% (0.6%) 3.7% 4.4a Gullslream Gill 6300 /6350 0.7% (7.7%) (2.6%) (4.4%) (4.2%) AO Long Range Mcrae 16% 0.0%) 1.6% 1.4% 2.3% Total 100% (0.8%) 0.2% 0.5% 1.4% Source: FAA and UBS °sonatas UBS 12 EFTA01088143 UBS Business Jet Update 25 May 2012 ■ Statement of Risk The business jet market is cyclical in nature, largely driven by the general economic environment. Business jet manufacturer? earnings and cash flow are dependent on end-user demand, availability of customer financing, program execution and inventory management. Our estimates, ratings and price targets for both Rockwell Collins and Textron are subject to additional risks including poor program execution and government funding related to their defense and security businesses. Additionally, Textron faces liquidity risks related to it its asset based lending businesses. ■ Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (I) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Ul3S13 EFTA01088144 UBS Business Jet Update ZS May 2012 Required Disclosures This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS Investment Research: Global Equity Rating Allocations UBS 12-Month Rating Rating Category Coverage' IB Serviced Buy Neutral Sell Buy Hold/Neutral Sell 51% 40% 9% 34% 35% 15% UBS Short-Term Rating Rating Category Coverages IB Serviced Buy Sell Buy Sell less than 1% less than 1% 25% 17% 1:Percentage of companies 2:Percentage of companies the past 12 months. 3:Percentage of companies 4:Percentage of companies within the past 12 months. under coverage globally within the 12-month rating category. within the 12-month rating category for which investment banking (IB) services were provided within under coverage globally within the Short•Term rating category. within the Short•Term rating category for which investment banking (IB) services were provided Source: UBS. Rating allocations are as of 31 March 2012. UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Buy Neutral Sell UBS Short-Term Rating Definition FSR is > 6% above the MRA. FSR is between •6% and 6% of the MRA. FSR is > 6% below the MRA. Definition Buy: Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event. Buy Sell UBS 14 EFTA01088145 UBS Business anode* 251Aay 2012 KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of. the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst. indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near•term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management. performance record, discount; Sell: Negative on factors such as structure, management. performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/•6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non•US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report. if any, follows. UBS Securities LLC: David E. Strauss: Darryl Genovesi: Matthew Akers. Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date Rockwell Collins Inc.1 4." en. 7.8' le' 111$ Buy N/A US$50.62 24 May 2012 Textron Inc.at 7. It lab. 22 Buy N/A US$23.78 24 May 2012 Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. 4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC• and investment banking services are being, or have been, provided. 6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC• and non•securities services are being, or have been, provided. 7. Within the past 12 months• UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity. 8. The equity analyst covering this company, a member of his or her team, or one of their household members has a long common stock position in this company. 16. UBS Securities LLC makes a market in the securities and/or ADRs of this company. 18a. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Rockwell Collins Inc. 18b. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Textron Inc. UBS 15 EFTA01088146 UBS Business* Update 25 May 2012 22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month's end (or the prior month's end if this report is dated less than 10 working days after the most recent month's end). Unless otherwise indicated. please refer to the Valuation and Risk sections within the body of this report. Rockwell Collins Inc. (US$) — Price Imam (USS) — Stock Price 0SP 3 c Bay Buy Pb Rating E01 Ohlulta 4 1 3 I g A 4 s A44 $ 11 Source: UBS: as of 24 May 2012 Textron Inc. (US$) Buy Buy Neutral Pb Rating — Rice ragri6E45 — Stock Puce (US5) I I I I I I I I I I I I I I I I I I I $ 4 4 $ $ $ $ $ $ 0 0 0 0 " " 4 ''P 5 b. ...F 3 4 ''P 5 b. m 4 "? 4 kr, .:9 5 3 „3 5 5. '"? .5 _ _ —p 'c _ _ I I I I I '"? .5 3 3 3 :5 3 3 3 :5 3 I I I I I I I I I I I I I I MI IMI l• Source: UBS: as of 24 May 2012 Note: On August 4, 2007 UBS revised its rating system. (See 'UBS Investment Research: Global Equity Rating Definitions' table for details). From September 9, 2006 through August 3, 2007 the UBS ratings and their definitions were: Buy 1 = FSR is > 6% above the MRA, higher degree of predictability: Buy 2 = FSR is > 6% above the MRA, lower degree of predictability; Neutral 1 = FSR is between -6% and 6% of the MRA, higher degree of precictability; Neutral 2 = FSR is between -6% and 6% of the MRA, lower degree of predictability; Reduce 1 = FSR is > 6% below the MRA, higher degree of predictability: Reduce 2 = FSR is > 6% below the MRA, lower degree of predictability. The predictability level indicates an analyst's conviction in the FSR. A predictability level of '1' means that the analyst's estimate of FSR is in the middle of a narrower, or smaller, range of possibilities. A predictability level of '2' means that the analyst's estimate of FSR is in the middle of a broader, or larger, range of possibilities. From October 13, 2003 through September 8, 2006 the percentage band criteria used in the rating system was 10%. 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Irv/Malty or use would be (emery to law or regulation or would olubjen UBS 10 any nyGeliatbn or rearming redireinent vomit suds misdrifon. it is publehed rotor ror 'Somali:on proposes: li as net an arkeneement nor is il a adkilation a 8/1 olle, to buy Or sell any thancial instruments a 10 parbcpate ei any parocular badro somogy. roa representaton or warranty. other mottos a 'noted. is crowded in rowan to the accuracy. completeness or readily et the inloematon comanod in this document (The Information). euxapt Mr, respect to ink/merlon concerning IRS The Information is not intended 10 00 a Complete statement oo summary 01 he linurnes. blekett a arelOOMente /tinned to h the document UBS does not undertake to update a keep anew the loton alba. Any opinions opressed n Mt document may dunge withal noose and may dins or be cortray to Damara oppressed by other bosoms areas or groups of UBS. Nothing n the 00Current Cenalunta a remesentabon MN any netoStneni Vreagy a recemenendaton is sinade a appropriate to an investor's indMOyal Mournmafices 01 otherwise commute: a personal recommendaton. imestrnams muds nsks, and investors shoUd exorcist pudenco and Mar own tagoment in makrg Mer investment damsons. The franca' instruments descrbed In the document may not be eligible la Sale in all Misdcbons or to certain categories or investors (Mona derkative products and laves are not tunable sor all investors. and tradng in these nu/wrens is considered May. Mortgage and assort:racked ~sties may involve a ngn degree Of rek and may be Nally ridable in lesoonse to nuclualions in interest rates or other make' tonnen:. Forego, currency tales of oxchartz may adversely affect no value. price or memo of any socumy or related nattenn referred lo n the clocirreel. For amstrrient pinto. trade execute, or aver ensures. clients shouldcontact their kcal sates reprezentatria The rake of any investment or ,come nay go Goan z well as up. and ormostoes may not get back to lull amount masted. Pat parlor:ran:0 is not neaten:1y a pia lo future polormance. Netter UBS no any of n: drains. onolones or agert: accqx: any kattlty for any loss includin årwestrnen loss) or damage arcing on Et tie use dal er arty el Me Ytmetan. Any pins stated in nu documert are lean informabon purposes only and do not roposoni vahobons for mdrndual so: untie: or other fmnpal truituments. llaro is no ransercace that any transactioncana coo-Whine been etterled al thoseit/mos. and any antes donet necessanly reflect LIBSS ntemal b00115 and records or neonatal modetband valuabans and may bo based on certain anterphons CORM« assurpans by UBS a any Othee aura? May 'eld saliantialy dhow* results. Rosoarch weil abate. update and cease cortna eddy at the discrebon of UBS Invostneni Dark Rosoarch lAanagoment The an dysa contain:donna docerroni es based on numerous assumptions Dirlerefie assunxacins odd resist n materially dfrevert Nab The analyst*, responet/e tor the ompanmon or vis doom OM may nasal win trading desk peoltnnel. sales personas and ism pant lot the propose or gathering. $00bing and interpret-nu market irronnacen. UBS relies on kromston barriers to wad me fern of infaMailiOn contained h one or mac areas worm UBS into other areas. units, groups or abates of UBS. The compensatian of the analyst who prepared ths dammed us eccormred exclusiney by rosoarch management ere ana management (nol «arcing knelonent bankirm). Allya compensation is not based on Investment basing riflemen. ',avower. compensaton may rode to the revenue. 01 UBS investment Bark as a nhere.ol stall Invesimcni basing. tales and trading are a part For financial instruments adwned lo trading on an EU rephed motet. UBS AG. its Willars er sabsidune: (excluding UBS Secunbes LLC) acts as a market maker oe lqueley manta ion accordance v/on the inieepretabon or these aeons in ma UK) in Me financial antrumems el Ike gurus save Mal were the linhtly °liquidity provider is manta cm n accordance wen the mention girat to it by the laws and regulator's ol any other EU prestatbans. such mkr asen is scparaidy disclosed n its docenceni. Foe Manat instruments admitted to tradng ona non. EV regulatedmakes UBS may act as a Market make save teal where ate activity is canted out in the US in Wand/Mar asch ibe ~bongiven fo it by the retevart lows and temialas. suck acthvy wit be speciacaly cadosed in Its <burnout UBS may nave issued a tuardral the vats Of whrds isbided CO One a MON 01 me financial instruments eaten«) lo n the Oxvnent UBS and is attliates all orrpbycos may have lag or short posobans. trade as pnrcoal and buy and sol in insmnianis or demand anirbod heron: such vansamoru a patens may be inconsistent wth the gned expressed in dos doCurenl. United lUngdern and the real el Europe: Except as enenne spooled hereon This rraeonal is distrixdocl by UBS Untied lo persons who ro slabb couxorpames a prolesuond clients. UBS Larded is eJlhaned and ropated by the Financial Sane: Authority (FSA). France: Prepared by UBS Limited and daIntuled by UeS Lammed and UBS Sonoma.: France SA. UBS Sagan France SA. is reguteed by the AtolOral des Mattal. FalinCidS (NIP) Where an analyst 01 UBS SeCtiltea Fia09 SA. has tentacled to Ol. dawnwil. Me document IS also deemed to have been prepared by UBS Saone: France S A Germany: Prepared by UM Lorted and clottibuted by UBS United and UBS Deutschland AG. UDS Deutschland AG es regulated by the Bundefastall lur Finazderepleehinzaulben (BaFn). Spain: Prepared by UBS Linled and diStributed by UBS tinted and MS SeCuMieti E80aA0 SV. SA. UBS SOCureefil Espana SV. SA is refplated by the Corrieon Nakano del Mercado de valpres (CNMV). Torbay: Prepared by IRS Scrawl Caged« AS on bean 01 and difåtrihteci by UBS Limned NO inlamabon to ths maroon' is prooded for the purpose et ottering. marketing and :SO by any means of any capital market instruments and services n the Replett et Tuley. Therefore. this dooiment may not be considered as an cilia made or to be made to residents d tho Republic ol Turkey. UBS AG is rot barnsed by the Turlosh Captal Markot Board under the pronsons ol Me Capital PISAN Law KIM NO. 2499). Acemlnely. neither this document no any other casing material mated TO Me insiNnsentatenttee may 08 alined 0 connection WM Whiting any capdai market servas to persons wain tho RepJalc el Tatty mhos Ihe pray approval el the Capital Markel Board. Howe er. according to ande IS IN Cr) ol the Decree No. 32, Mae is no restriction on the [medusa a sale Of Me securities abroad by residents or the Republic 01 Turkey. Parad: Deirbuled by UM Ladled (*OM 2 ograncona osomedziamoado)Oddbei w PO809. Rash,: Prepared and dietni~ by .la ettaities CJSC. : Crsintvled by UM AO to persons who are inaliMeenal investors only. Hey: Prepared by UBS Limbed and cssinanee by UPS Lormegjog tes hala Sim Me UBS Yla Sin is regulated by the Banked Italy and by me Commessicne Nangna per lo Sonata e la Rasa (CONSUL% Where an analyst ot UBS Yla Sim =. Kt cenettos toots cboJmert. Me document is also deemed to havo been prepared by UeS Sala 9m=. South Ahica: NMI:mod by UBS Spurn Alma (Pin United. an automata user ol the JSE and an autoonsed Fånanoal Sane, Provider. beat UBS untod and its athletes incorporated ouisdo Israel are not Icensod wider the Investrrotni Advice Law. Ths maenal is bong issued only to antor is directed only al reasons ono are Sophsicased Investors within the meanng of Ito Wadi Secunties Law. and its mammal must not be rated or acted upon by any ocher persons. Whilst UBS Limited holds insurance la its acmes. It does not bold me Mime ~ence that trodd be reguIred ler an InveStirent Seder Of InvealM00% marketer under 0,0 relevant investment Advice Law Regulations. Saudi Arabia: The 00Cument has ban issued by MS AG (tinder any 01118 oluteldianee. tnrchos or abate« a puttee oarrpany timed by shares. incorporated in 9rdzerland van is registered offices at Aoschoructslatt 1. CH.4051 Basel and Bahrholstrasse 45. Cattail lurch. Thu pialcabcri has been approved by UDS Saudi Arabia (a subsidiary el AG). a foreign closed pint stock corrpany ncorporand on to torgdom el Saud. Naba undo' commeroal Higbee( Nether 1010257812 raving its registered office a Teaser Towers. Box 75724. RO O do 11568. Kingdom 01 Saudi Arabia. UBS Saud Arabia syMo is reed and monied by Me 4, Captal Markel Amory to tondan secunbes business under leans* meter 113-37. (MEad Stales: Debbuled to US parsons by ether UBS Spangles US or by UBS Financial Services Inc. rubekharies of UBS AN or by a group. aesdary a 'may or IRS AO Mat is not registered as a US brCaercteater (8 'non-US affiledele)10 major US haribinnal investors Orly. UBS Sautes LIC Or UBS Financial Seaces Inc accepts r(ypont barytor the cement of a *Payment prepared by walks nonrUS ellaie omen dstrtmled a US persons by UBS Secure.. LIC er UBS Financial Sconces Inc. Al tramacions by a US passa n the wanks matared in ma document mat be effected ticouen UDS Serumos LLC a !JOS Financial Sonnets ire., and rot ilyousb a non US ettliale. Canada: Deebuled by UBS Season Canada Inc.. a rag:rimed mvestrnaM dealer ir Canada and a Merrter-Canadafi kwestor Protection Fund. Or by anOlha Meal* of UBS AG Mul es registered to contact busrem in Canada of a otherwise exempt born reosiraloon. Hong Kong: tistreuted by ues Sections Asia unreel Singapore: asirttned by UBS Secuntes Pie. Lie. Inca gal Steal/grill and Co. Peg. Na,: 1995COC46C) or UBS AG. Singapore Branch. Pease contact UBS Samna Pre. Ltd.. an exempt financial atInser under do Singapore Financial Advisers Act (Cap mg): a MKS AO. Singapore Branch. an export% nnerlad 8.0Mer Voter the Sneaale Finad(41 Advises Ad (CV 1 lb) and a wholesale been licensed under the Singapore Bankng At iCeo. 19) regulated by the Monetary Aullergy 01 5/nflare. in 1010001 01 any matters Wiling born Or in connetion wilt Ire anaVas or aldanen. The recipient ol the docurrent ropeseni and warrant ma' they are accredred and insinubonal arestors as defied In me Socunbes and Finer. Ace (Cap. 289j. Japan: Distributed by UBS SconesJapan Co.. Ltd, to institutional err:odor: ay. smote this crammer* has been prepared by UDS SWUM*: Japan Ca.. Lb- UBS Scrounties Japan Co.. Ltd. is the author. pOdisher and dsIntelor ol um doctor:rm. Ausindia: Distributed ty USS AG Molder al Australian Financial Sontes License No. 23I087) andra UDS Secunbes Australa Ud lliakter of Australan Frontal Services License No. 231090). The Inlormairan in this document has teen prepared without tying into account any onvesiora oteximes. Amnon' sotuanan or mods, and investors shoUd tetra artlag on the information. consider the appropriateness of the Inlormatfok having regard 10 mal, otialkee. Mandel teulan and needs tt the irronnyion conta-ned in this do:tenant relates to the acetisetn. or cotenteå actsiscon ol a oracular Ananias, waist by a 'Retail' diem as defined by section 7610 01 ma Capardions Ad 200t where a Product Discrostoe Statement would be reguirod, the retail elm: should awn and consider to Product Disclosure Statement relating to the produce taboo malung any dopsen about whether to argue me product Wet Zealand: *subvert by UBS Her. Zealand lat The information and recommendations in Mt publcalion are provided 10r general intormean gypsies only. To Me ardent that any such Intansabon m recommendations onstrute mandat ante. they do 001 tek0 into aCCOuni any person's partsular amuck, 'amnion a goats. We recommend mit eeCtienta sen mate speak to thou circumstances from their Innekel advisor. Dubai: Ton research pawed and dantatod by MS AG Dubai Branch is impeded fry Prolessonal Cams only and is net ler amber (ettunion worm me Lived Arab Emirates Korea: DSIntated in Korea by UM Saurian Re. Ltd.. Seoul Branch. FM document ray Nye been acted or COntrbuled 10 ram lime to hire by ales' or UBS Smarter Re. Ltd.. Seoul WAN. laalayda: This material is euthatzed to be cis:rayed in Malaysia by UBS Securities Malaysia Sdn. BM (253825v). India: Prepared by UBS &Kunio: Intia Pnvato Ltd 2,f. 2 Kern Avenue. Maker Maly. Sandia Kuta Complex. Banda (East. Marta itchal 400051. Phone: .912261556000 SERI Rogistrabon Munters: USE (Canal Market Scranenti:IND23O951431. SSE (FAO Seeman) NF230951431. BSE (Capial Moat Searnmi) PO3O1O951437. The dadda es cortomed on research documents produced by ULM Owned sad be governed by and construed in accordance with Ength taw. LISS specehcally protases the rodeo-Oxon ol This doarrant in same or n pan armour me ~non permission ol UBS arid UBS access no Badly ~toady for the aceso of and pathos in tis respect Images may alplera Objects a marmots oat are dotes,* by Mid Party corinkalhl Oedema% and Olher ir‘edeOlUe PrOarlY rbSts, 0 UBS 2012. The key Onto' and UBS are amCmg the registrid and tong Pieced trademarks el UBS. Al dots reserved *UBS Lest EFTA01088148