Global Equity Research

Global Equity Research UBS Investment Research UBS Business Jet Survey Index Declines Along with Weaker Macro • Index at 43, down 13% Our latest Business Jet Market Index came in at 43. down 13% and reversing most of the improvement seen in ow prior survey from March. All three of our market segment indices moved lower with large cabin down the most. Our straight up measure of absolute business conditions came in at 4.2, 6% below recent peak at 4.5 in March. • Customer interest improvement slows Four out of five component scores moved lower with declines in our customer interest and outlook scores driving the majority of the drop in our index, partially offset by continued inventory improvement. While lower from our prior survey. interest and outlook scores remain above 50. indicating incremental improvement. • North America remains relatively strong Our overall customer interest score moved 19% lower to 56 with lower scores across all regions. Customer interest continues to improve the most in North America (64) followed by Latin America (60) and Asia (59) while deteriorating in the Middle East (48) and Europe (30). • See positive risk-rewards for stocks Despite weakness in our survey, we continue to believe North American bizjet market 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 at current levels including Buy rated TXT/COLJGD. A-ric-cas Sector Comment 30 May 2012 weercubscominvestmentresearch Chart 1: UBS Business Jet Market Index Chart 2: Overall Business Conditions Score t 100 0 50 David E. Strauss Anatyst [email protected] +1212.7136185 Darryl Genovesi Analyst [email protected] +1212.7134016 Matthew Akers Associate Analyst [email protected] +1212.7134881 250 10 200 150 45-. 4 4 4 4 4 4 4 4 4 V V " UBS Business Jet market Index — • Rai Port IRKS) SSSfl S! !. M411 114 tie I • Srnple average BSDIG0ITXT sloth price pedonnance ilex ratite to SAP 500 Source: UBS Business Jet Survey Source: UBS Business Jet Survey This report has been prepared by UBS Securities LLC ANALYST CERTIRCAllON AND REQUIRED DISCLOSURES BEGIN ON PAGE 18. 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. EFTA01177187 UBS ButesJet Survey 30 May 2012 Business Jet Market Survey Ow UBS Business Jet Market Survey is designed to provide timely market data supplied directly by industry professionals. We regularly survey a group of US domestic and international broker/dealers, manufacturers, fractional providers, financiers and others, from whom we recently received 162 responses. Investment Conclusion Our latest Business Jet Market Index came in at 43, 13% lower than ow prior survey in March on slowing incremental improvement in customer interest/outlook along with still weak pricing. The decline in our Index reverses the improvement seen in March with all three of our market segment indices lower with large cabin down the most. Ow straight up measure of absolute business conditions came in at 4.2, 6% below recent peak at 4.5 in March. Four out of five component scores moved lower with large declines in our customer interest and outlook scores driving the majority of the drop in ow index, partially offset by continued inventory improvement. While lower from ow prior survey, ow interest and outlook scores remain above 50, indicating incremental improvement. Our customer interest score moved 19% lower to 56, slightly above 50 still indicating improving customer interest. Our young inventory score, not a component of our index, moved 2% higher this time to 43, still indicative of oversupply of high•quality young used aircraft. Our financing score, also not a component of our index, moved 9% lower, but remains above 50 reflecting improved financing availability. Table 1: UBS Business Jet Survey Results and Comparison to Prior Survey Component Better Same Worse Score Last Time Change Customer Interest 27% 58% 15% 56 70 -19% Pricing 7% 60% 33% 37 42 -12% 12 Month Outlook 43% 46% 11% 66 75 -12% Inventory Lewis 3% 34% 63% 20 18 13% Wilingness 19% 49% 32% 44 51 14% Composite Index 17% 51% 32% 43 49 •13% Young kweraory 21% 44% 35% 43 42 2% Financng 19% 72% 9% 55 61 -9% Business Conditions nta Ma tea 0.2 4.5 4% Source: UBS Business Jel Survey UBS 2 EFTA01177188 UBS Business Jet Survey 30 May 2012 UBS Business Jet Market Index Our UBS Business Jet Market Index is a proprietary index designed to measure the total "value" of the responses to our survey questions. We have weighted each factor in our index based on our perception of its overall importance to the condition of the new business jet market. Our index is scored on a scale of zero to 100, with 51.100 representing incrementally strengthening market conditions, 50 incrementally stable, and 0-49 incrementally weakening market conditions. Our May Business Jet Market Index came in at 43, 13% lower than our prior survey in March. Chart 3: UBS Business Jet Market Index 100 3 ! M 8 -- I 'cl3 ? ..7,—„W IF;;:—, - 1 11011 1 1111 3 111 1- 4 11/ "1511111111ffill C 0 III t . . 444$404W4WW46714467c443.4c4c4c0VihrogWe 2e22.” 2 m =- 2- 2- at 2 satmassatassats*zsepa-sssn's*stflt§aii.m =-O li m8g k -0)=---0)=--0)=-- 0)=-.- -(O=O-- (O --c z'- - -m Smuts: UBS Business Jel Survey Market Segment Indices All three of our market segment indices declined with our small cabin index decreasing 12% to 43 (from 49), midsize decreasing 13% to 44 (from 51) and large cabin decreasing 17% to 40 (from 48). Chart 4: Market Segment indices, by Cabin Class 60 50 40 30 20 10 -Survey Wes —0— Small -A- Midsize —0— I-010 z A 0 0 0 0 0 2 2 4 2 2 <V CM 0 2 2 Source: UBS Business Jel Survey UBS 3 EFTA01177189 UBS Business Jar Survey 30 May 2012 Survey Participant Profile Of the 162 market professionals who responded to our survey, a majority (62%) are broker/dealers. Brokers/dealers are involved in the purchase and sale of both new (direct from manufacturer) and used aircraft, often purchasing on spec. Chart 5: Business Jet Market Survey- Participant Role Other 10% Manufacturer 9% Financier Dealearolter 19% 62% Note: Other inctides appraisers. Tractional providers. management. charter. FBO and MRO service providers. Sauce: UBS Business Jet Survey The majority of our participants are located in North America (72%) with an additional 19% in Europe. Chart 6: Business Jet Market Survey - Participant Location Nan Amiga Middle Eas1 & Mica 72% % Europe 19% Asia & Pacifc 2% Lath America 4% 0 Source: UBS Business Jet Survey MIS 4 EFTA01177190 UBS Butes Jet Survey 30 May 2012 Z5-50% 16% While the majority of our survey participants are located in the U.S.. most transact a significant proportion of their business with foreign customers. Chart 7: Proportion of Business Transacted Outside the US None 9% Less tan 25% 31% Source: UBS Business Jel Survey Respondents varied fairly uniformly in average transaction size with the majority in the S5-20 million range. Chart 8: Business Jet Market Survey • Average Transaction Size 630M+ 5% $2031:14 603M S10•2061 32% 5510M 21% Source: UBS Business Jel Survey UBSs EFTA01177191 UBS Business Jet Survey 30 May 2012 Survey Results Overall Business Conditions In the first question, we asked, "On a scale of zero to 10, how would you characterize overall business conditions after factoring typical seasonally (0 = the worst ever, 5 = normal, 10 = the best ever)?" Note that while our Business Jet Market Index (discussed earlier) indicates incremental change from the prior period, this question is meant to measure the absolute level of business conditions. We received 160 responses (two participants did not respond to this question) with scores ranging from zero to eight. Chart 9: Indication of Overall Business Conditions, Play 2012 35% - 5% - 0% 4% 2% 1% 29% 26% 16% 14% 6% I I 1% la m 0% 0% 0 1 2 3 4 5 6 7 8 9 10 Business ConOibons Rank Source: UBS Business Jel Survey Overall, our average business conditions score came in at 4.2, 6% lower from ow prior survey in March. Chart 10: Overall Business Conditions Overall Business Conditions 10 " cop ca - coNNioN ANA coca N i a - No NI COCO Mon o 0" 0 1 1 11 tn e e" - ^ 1- 0.4 . " 4=I :3 = l1 ; ;II vv I agg8888W4SS'Sgaggs,glos,SSSS eaSSSO:SS aricac c ------ """ nat a k1S 8 t a X4 aN A X•548 A4E 4 a li30)0 2"ag 44 1gaaS R OSank "coz-.22 (nz-.22coz-.22-.corts. -“nz0-.22 coz-222 z-222 z-222 Scarce: UBS Business Jel Survey UBS 6 EFTA01177192 UBS Business Jet Survey 30 May 2012 Customer Interest In the next question, we asked, "Since our last survey in March, the level of customer interest improved, stayed the same or deteriorated?" Of the 162 responses (all participants responded to this question), 27% indicated that customer interest had improved, while 15% indicated that customer interest had deteriorated. The remaining 58% indicated that customer interest had stayed the same. This result is worse than our prior survey, in which 48% indicated that customer interest had improved, 8% indicated customer interest had deteriorated and 44% indicated that customer interest had stayed the same. Chart 11: Indication of Customer Interest, May 2012 Detenoraied 15% Improved 27% Stayed IP.e same 58% Scum: UBS Business Jon Survey Our customer interest score decreased 19% to 56, but remained above the 50 mark indicating incremental improvement. Chart 12: UBS Business Jet Survey Score - Customer Interest 100 O ca 50 0 e $,0(0 mm m,mmg m Cm 2 2 r 2„, .'5:*.8424) 22WS."4:t8C3roj ra ra ra co 2; 2 2r4841$88$°"=1"'T'al . .. 77cdc''"' =itatiaCa,tateziAtAzdtaflattaS4.14.ASSA.tatozatte-aFi'a Source: UBS Business Jai Survey UBS 7 EFTA01177193 UBS Business Jel Survey 30 May 2012 North America Europe Customer Interest by Region Our overall customer interest score moved 19% lower to 56 including declines across all regions. Customer interest continues to improve the most in North America (64) followed by Latin America (60) and Asia (59), while deteriorating in the Middle East (48) and Europe (30). Chart 13: Customer Interest Score by Region and Comparison to Prior Survey 53 66 59 Latin America Middle East Asia ■ Nor Survey ■ Current Survey Source: UBS Business Jet Survey Customer Interest by Cabin Class In the next question, ow participants were asked to indicate the class of aircraft in which they were seeing the most interest from potential buyers. Respondents were asked to choose from large Cabin, Midsize Cabin or Small Cabin. Of the 123 responses (39 participants did not respond to this question), 69% indicated they were seeing the strongest interest in large cabin aircraft, with 17% indicating midsize and 14% indicating small cabin. Compared to our prior survey, this reflects slightly more interest in large cabin relative to small. Chart 14: Cabin Class with Most Buyer Interest, May 2012 Midsize Cabin 17% Small Cabin 14% • Large Cabe Source: UBS Business Jet Survey UBS 8 EFTA01177194 UBS Business Jet Survey 30 May 2012 Pricing In the next question, we asked, "Since our last survey in March, overall pricing levels increased, stayed the same, or decreased?' Of the 145 responses (17 participants did not respond to this question), 7% indicated that pricing levels had increased, while 33% indicated that pricing levels had decreased. The remaining 60% indicated that pricing levels had stayed the same. These results are weaker from our prior survey in March in which 9% indicated that pricing levels had increased, 25% indicated that pricing levels had decreased, and the remaining 66% indicated that pricing levels had stayed the same. Chart 15: indication of Pricing, May 2012 Increased I 7% Decreased 33% AI/Stayed1hp same 60% Source: UBS Business Jon Survey Our pricing score came in at 37, 12% lower from our prior survey in March. Chart 16: UBS Business Jet Survey Score- Pricing r 100 0 E coco ffi Cul VG A th RZ; An°44 A ;71A 44g *48 $484484W 1WiriM444440$S!s Saea aacc MPWA14200241A1A1.0-inAAWAIAgrajAWEijAn C4 CV Source: UBS Business Jet Survey UBS 9 EFTA01177195 UBS BusinessJai Survey 30 May 2012 Pricing by Cabin Class In the next question, our participants were asked to indicate the cabin class of aircraft in which they were seeing the strongest pricing. Respondents were asked to choose from Large Cabin, Midsize Cabin or Small Cabin. Of the 125 responses (37 participants did not respond to this question), 82% indicated they were seeing the strongest pricing in large cabin aircraft, with 9% indicating midsize and 9% indicating small cabin. Compared to our prior survey, this reflects stronger pricing for small cabin relative to large and midsize. Chart 17: Cabin Class with Strongest Pricing, May 2012 Small Cabin 9% Midsize Cabei 9% 1111 Large Cabin 92% Source: UBS Business Jon Survey U13S10 EFTA01177196 UBS Business Jet Survey 30 May 2012 12-Month Outlook In the next question, we asked, "Over the next 12 months, do you expect overall business conditions to improve, stay the same or deteriorate'?" Of the 158 responses (4 participants did not respond to this question), 43% expect business conditions to improve, while 11% expect business conditions to deteriorate. The remaining 46% expect business conditions to stay the same over the next 12 months. These results are weaker than our prior survey in which 56% expected business conditions to improve, 6% expected business conditions to deteriorate and 38% expected business conditions to stay the same. Chart 18: 12-Month Forward Outlook for Business Conditions, May 2012 Detenorale 11% Sty he same 46% Improve 43% Source: UBS Business Jel Survey Our 12-month outlook score came in at 66 this time, 12% lower than in our prior survey, although still well above 50 indicating that on average our survey participants expect business conditions to improve over the next 12 months. Chart 19: UBS Business Jet Survey Score -12-Month Outlook 0 100 0 ...,,m co av, RRUM gann , _I ,, 0 I I Ilii) 111111' ''1:3 r Ill i: 1111111 1 Iii Jiiiiiii . p„..„,,,, il lil 7 ,, o,, I SSS SSS Soc c? ac cp S8Sc e2c08$88$'===== al ----- `-""" 6. a t% a. zi •L b.> all a. 2 , a ;..-a — Et, a ir_,E A-s• me cfr wom m.,mm wz,mm ,8=,=.- z,mm Source: UBS Business Jel Survey UBS11 EFTA01177197 UBS Business Jet Survey 30 May 2012 Overall Inventory Levels In the next question, we asked, "How would you characterize current inventory levels?" In this question, we targeted broker/dealers, but in some cases, other participants also responded. The survey participants were asked to select "high", "average", or "low." Of the 122 responses (40 participants did not respond to this question), 3% believe inventory levels are low, while 63% believe inventory levels are high. The remaining 34% believe inventory to be at average levels. These results are slightly better than our prior survey in March in which 3% believed inventory levels were low, 67% believed inventory levels were high and the remaining 30% believed inventory to be at average levels. Chart 20: Indication of Inventory Levels, May 2012 Law 3% Mgh 63% I Average - 34% Sauce: UBS Business Jet Sway Our inventory score came in at 20 this time, 13% higher from our prior survey in March. but continues to reflect high overall inventory levels. Chart 21: UBS Business Jet Survey Score - Inventory Levels 0 `O 50 - 0 0 1101111111111J assosoosssss6-676-6-6-6-sss8s s88"=m`="- ----- -""- , a. s a s,-a a. a a 6. 6 6. a .1 = a s--a ata. a a•-a 'a 3a a 4• - 3 040M w-,040., we w0040M0.2 . 000°M - M-300a.aM-3 . oCa M-300M,M Wriaa NZ - .2MCOZ - )MM - 3NZ3LL - /WZO - )Ma NZ -3 .Wa iii Ill j mm mg likrmemewn'mmm m gala ,-.,-,,,,_ Scarce: UBS Business Jet Survey UBS 12 EFTA01177198 UBS Business Jet Survey 30 May 2012 Young Inventory Levels In the next question, we asked, "How would you characterize current inventory levels of relatively young used aircraft?" In this question, we targeted broker/dealers, but in some cases, other participants also responded. The survey participants were asked to select "high", "average", or "low." Of the 124 responses (38 participants did not respond to this question), 21% believe young inventory levels are low, 35% believe young inventory levels are high, and the remaining 44% believe young inventories to be at average levels. These results are slightly better than our prior survey in which 20% believed young inventory levels were low, 36% believed young inventory levels were high and 44% believed young inventories to be at average levels. Chart 22: Indication of Young Inventory Levels, May2012 Average 44% Scarce: UBS Business Jel Survey Our young inventory score at 43 continues to reflect oversupply of high•quality, young used aircraft. Chart 23: UBS Business Jet Survey Score - Young Used Inventory Levels Young Inventory Score 100 -191 88 90 87 91 90 P8 50 - 0 77 64 47 25 12 8 6 4 4 4 14 2° 2° 27 22 23 23 25 32 32 35 K 43 4O-42At coo 8N-88r- 8 8 8 " 4 • • ir: • • • 4/"1 t 5'ArR4gl Ag4 4 4 A 8 g44; a 255- z " fl z "mm" z 5 mm Source: UBS Business Jel Survey UBS 13 EFTA01177199 UBS BusinessJet Survey 30 May 2012 Willingness to Increase Inventories In the next question, we asked, "Over the next month, will you be more or less willing to increase your inventory?" In this question, we again targeted broker/dealers, but in some cases, other participants also responded. The survey participants were asked to select "more willing", "same", or "less willing." Of the 88 responses (74 participants did not respond to this question), 19% indicated they would be more willing to take on inventory, while 32% indicated they would be less willing to take on inventory. The remaining 49% indicated no change in their willingness to take on inventory. These results are weaker than ow prior survey, in which 25% indicated they would be more willing to take on inventory, 22% indicated they would be less willing and 53% indicated no change in their willingness to take on inventory. Chart 24: Willingness to Increase Inventory Levels, May 2012 More warp Less wiling 19% 32% Same 49% Scurce: UBS Business Jel Survey Our willingness score decreased 14% to 44 this time, below the 50 mark indicating that participants are less willing to take on additional inventory compared to our prior survey in March. Chart 25: UBS Business Jet Survey Score - Willingness to Increase Inventory Levels 100 2 5° IIIIIIIIIIIIIIIIIIIIC64111►i11 88a:328228ss ,ss-88688882222rnssa:ssa:°°°°°`:° 4104k41010040W1010),WIMAPIAgpging Scurce: UBS Business Jel Survey UBS 14 EFTA01177200 UBS ButesJet Survey 30 May 2012 Customer Financing In the next question, we asked, "Since our last survey in March. has the availability of customer financing improved, stayed the same, or deteriorated?" Of the 149 responses (13 participants did not respond to this question), 19% indicated that customer financing conditions had improved, while 9% indicated that financing conditions had deteriorated. The remaining 72% indicated that financing conditions had stayed the same. These results are weaker than our prior survey, in which 25% indicated financing conditions had improved, 4% indicated financing conditions had deteriorated and 71% indicated no change in financing conditions. Chart 26: Financing Conditions, May 2012 Deteriorated Improved 9% 19% Stayed Ire same 72% Source: UBS Business Jet Survey Our financing score came in at 55 this time, 9% below our previous survey but above the 50 mark indicating incremental improvement. Chart 27: UBS Business Jet Survey Score - Financing 100 57 58 60 60 60 60 58 55 M 55 63 63 58 61 53 53 50 53 53 55 se 41 0 E$$ 41 "a77a7 77 . a a a =. 6 a g; mu's t 8 t• Scums: UBS Business Jet Survey UBS 15 EFTA01177201 UBS ButesJet Survey 3D May 2012 Commentary The following are selected comments from business jet professionals. Overall Business Conditions ■ Mixed signals in the market. Recovery is even slower than forecast. ■ The Hawker Beechcraft bankruptcy is not good for our industry. ■ Markets stable to slightly improving. ■ Although inventory is high by historical standards, more than half is older equipment that may in fact be already "retired". ■ Really no change — we're just bumping along the bottom. ■ It seems like the turboprop market is gaining some momentum. Maybe it will eventually give the low end jet market some momentum. ■ Expect the resale market to remain soft into 2013. Aircraft Values / Pricing ■ Older jets have seen their values plummet, but on the flip side that represents amazing value to buyers in that segment. Good airplanes, priced right are selling. ■ Older aircraft continue to decrease in value. Near new aircraft are in strong demand and have the highest prices. ■ Pricing remains flat in most markets as interest has increased but demand is still very price sensitive. ■ Buyers are very focused on operating cost and future investments. ■ Extremely low prices are very attractive. We expect 8-10 year old large cabin aircraft on average will cost 50% more in 5 years time. Customer Interest ■ Slight improvement in buyer interest and willingness to complete a transaction. ■ Difficult trading conditions despite interest levels. ■ No buyers. ■ Things are a little quieter in the last two months. ■ Buyer interest is up and people seem more willing to jump into the market. ■ I have noticed pull back in willingness to buy. Buyer activity was much stronger in February and March versus now. Regional Trends ■ The dire economic situation in Europe has caused sales on that continent to suffer, while continued uncertainty in the US and the upcoming election all add to an attitude of extreme caution by would-be buyers. U13S16 EFTA01177202 UBS Business Jet Survey 30 May 2012 ■ Europe continues to be very unstable. ■ Markets seem to be flattening on a global level with good support, but no real growth currently. ■ With the financial situation in France and Southern Europe, Europe seems to be waiting to see what will (eventually) happen. Sub continent Asia still seeing strong customer interest from serious buyers. ■ US market continues to strengthen. Europe is very weak. ■ Fear of impact of Euro zone crisis. ■ Uncertainty in Europe and election year has kept optimism tepid. Financing ■ We are being visited by more banks seeking aircraft finance business; many regional banks seem to have an appetite for it. However, when we delve into what kind of business they are hoping to garner, it's really the A•paper or top quality notes they want to write. ■ Lenders don't want anything to do with older airplanes and it's not worth their time to get involved with deals less than about three million dollars. They are ignoring a huge portion of the market which only serves to depress values of those airplanes. ■ Even though there are more financial institutions in the mix, the overall availability of financing has not improved. ■ I find financing to still be a big problem. ■ Statement of Risk The business jet market is cyclical in nature, largely driven by the general economic environment. Business jet manufacturers' 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 General Dynamics, Textron and Rockwell Collins 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. UB.517 EFTA01177203 UBS Business Jet Survey 30 May 2012 ■ 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: (1) 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. U13318 EFTA01177204 UBS Business Jet Survey 30 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 www.ubs.com/disclosures. 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 Servicesa Buy Neutral Sell Buy Hold/Neutral Sell 51% 40% 9% 34% 35% 15% UBS Short-Term Rating Rating Category Coverages IB Services] 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 MFtA. 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 19 EFTA01177205 UBS Business Jet Survey 30 May2012 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 General Dynamics Corp." GD.N Buy N/A US$64.35 29 May 2012 Rockwell Collins Inc.2. 4' 646 6617' 8' IS' le, COL.N Buy WA US$50.39 29 May 2012 Textron Inc.®' 7' IS. 146' 22 TXT.N Buy N/A US$24.19 29 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. UBS 20 EFTA01177206 UBS Business Jel Survey 30 May 2012 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. 22. UBS AG, its affiliates or subsidiaries held other significant finandal 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. General Dynamics Corp. (US$) — Nee Taigei LUSO — Sloth Rte (LIM 9 9 7; 2 2 1 9 2 4- 4 $ • 3 4 3• $ 3 4 1 s I ▪ I 9,4 2 C SiMM.= No Rain? 4 4 Source: UBS; as of 29 May 2012 Rockwell Collins Inc. (US$) — a I Buy 1 54 No Raing 4 4 3 3 5 4 a a a a a a — Pete Tarsal kUSS) —• SW( Pete NW I I I I I I I I I I O 4 1 O a ▪g s •I •I I I I 0 0 0 • N Source: UBS; as of 29 May 2012 U8S21 EFTA01177207 UBS Business Jet Sunray 30 May 2012 Textron Inc. (US$) — Nee Targm MSS) Sloth Pete On) 80.0- 40D- 20r 0.01 I I I I $ 3 S 0 Buy 1 en Neutral *Rani° 0 0 • I I I I I I 0 0 0 0 • a • a Source: UBS; as of 29 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 predictability; 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%. Additional Prices: Bombardier Inc., C$3.95 (29 May 2012); Embraer. US$29.08 (29 May 2012); Source: UBS. All prices as of local market close. UBS 22 EFTA01177208 UBS Business 31)I Survey 30 May 2012 Global Disclaimer Tim document nas been prepared by UM Secants US. anabatea UBS AG. UBS AG. Bs tuba:lanes. branches andabates are retorted to herein as UBS. TIm docurrom is fa destratrion only as may be permuted by law. Ilona dialed to. or trended for disIntuton to or use by. any person a crazy Aro is a cilium se resident ol or bcaed in any . leallihr. tale. Ceantry Or Other juil80104Cri where such dimbution. pletation. maiaablay or use roue be antrery IC law or regulaban a watt *dad LIES 13 any f edilliatiOn Or learning reptiferfient wital Huth Misdalon. It Is obtained whir for information purposes: it 4 net an tielialanlent nor is it 8 &Aqaba Cr an One; to buy Or Sett any financial inalnimencs or to particpate ri any parecular cadre strategy. No representaten or warranty. ether adios: a meted. is myna in reiabon to the accuracy. corndeteness or rettabilty of the inlormalion COntaned n the dOCument dine trireme:en). MPhil wth reaped to IndireriOn CON:erring IRS The InOrmaten a 001 'Mended 13 be a anat. VAIOMent Or Surrenary 01 the Stevan. merkelli a dm Moments 'Maned to h the document IRS does not undertake to update or keep inert the Inlormation. Any opinions Opened n thiSOOCument may Change withal fleece and may diner or be contrary to cedars expossed by mar bosoms areas a groups of UBS. Nothing in the dOCumert CalitituteS a repreSentaMn that arty efftiStrnaill errakey or reCanmendatOn is laitaMe a at pi00010 to an investor'. 110140.4i OrCuMaanCeti Of Mhenvile commute: a personal rocatmendaton. trivestrams involve nsks. and investors shoUd exercise prudence and tier own judgement in =bre her investment demons. The frontal instruments desCrbed in the document may not be Might° tor saki in all javisdclans On 13 Certain Calitarleti 01 Investors OplOnS. 4tOraliv0 1:100u05 and IuIt.es are not *tabs ter all investors. and tracing in Mae narrument$ a considered 6Ww. klongage and 8thel.baduid securities may Involve 8 hen el.gree 01 risk and may be Nghly oda* in response 10 thatelkinli in interest rates or other market tend:tons. Foreign currency rates of co-charge may adepts,* anal the value. ace or income of any security a related nstrunent referred ton the doerront. For nroseant adnce. trade *recto:in or other @Nunes. Menu shoo-idcontact their local sales representalue The value of any investment or roomer may go than as wall as up, and investors may not gel back the lull amount reneged. Pat performance s not necessary a suds to hare performance. Nether UBS ref any el ass dreclors. employees or ageet: accepts any eateryfor any loss tricludng wee-dram loss) or damage arcing out al Me use dal a any et the Infonnaecn. Are antes slated in thus document aro for mformabon purposes only and do not represent vauabons for narndual saunas or other fronoal so-ammonia. Thero is no representemn that any transaction can a cot/Shan been obeyed at those prices. and any pnces donol necessanly reflect UllSs menial books and records or theancal modetbased valuations and may be based on Mean aSSorphOnia PROM SavalOnti by UBS Or any 0140 Sawa May 'gee SubStantiagt dillOrant Research wit mate. update and cease =crap* solely at the discretion of UBS Inyesswent Bark Research Management. The andyss Conned in Ins doctrant is based on numerous reffitimptiOnS Oftener eaurManS (Pula rtrion h materially Waren( Mate The analyegil reSpOniatie la the prepanlion of his Cf00.00001 may ntaral wth trading desk parunnel. sales perSOnnel anal Mt* pant ICH the purpose or gathering. seeking and 'Meowing market inaornmen. UBS relies on inlowelen banter, 10 Caner the few 01 interrelation Contained h One or rote areas wenn UBS into other areas. units groups or alarms of UBS. The compensamon of the analyst who prepared ths document is determined exclusively by research management and Sena management (nth Ethan() inweethent bankhg}. Mays) MerpenilabOn is not bailed a investment banking ffireenuai. hatred. 00mpenS0100 may relille 00 the revenue, 01 UBS ImeStMent Bark 89 a whole. 01 whiCh invOSIMal Wang. 86*8 and Cake are a part For financial instruments adorned to trading on an EU regained mania IRS AG. its dilates a saisidones (to-eluding LIDS Seamier LLC) acts as a market maker or lquicity pander fin accordance with trio Interpretation of Mese *MIS in the UN) in the AMMO& Instruments of the *fiver Rive that where the &Canty a aultlity gralder 4 Carried Oct n fiCCOrdenee wth the adman girth to it by the laws and regularms ol any other EU turtsdielons. such infonraeon is separately disclosed n dos etc wad For financial instruments admitted to Wadng on a non' EV regulatedmarket UBS day act assn./kat make save Mal where this activity is caned fel in the US in accordance MU) Me deintion Mien 0 a by the reeved haws and remJalas. such ettivry wit be atibtaiRr taffeta in OW, CIOCrment UBS may have issued a venal the value Of viNdi is bided a CO) a nffire alba finental inIONMentli Werra 10 in the davant UBS and is allows and employees may have long or short posibas, trade as pnrcpal and buy and set in instrwants or dermatthas tenoned bacon: such transactors a positions may be inconsistent with the opnons co-pressed in gas document. United Kingdom and the real or Europe: Except as amerce speeded harem this rnatenal is dart:tad by UBS Untied to persons who are enable catantorparnes a prolesuond clients. LIES Larded is aithcoscd rd regulated by the Financial Service: Aathcray (FSA). Prate: Prepared by UM Limited and &Inbreed by Les lamed ad LIDS Seaman France SA. UBS SIONIVOS Fraf 00 SA. is regutite0 by the AutOrle des Martha Fnanc*s (AMP) Where an Saha 01 UM SatrifeS France SA has Contributed tO Me dOCinall. the 000.0kent iS ate darned to have been prepared by LIDS Saone: France S A Germany: Prepared by WS Lintel aid destributed by UBS Limited and UBS Deutschland AG. MS Ocuschland AG is regulated by the Bundthaffiralt kir Finatereneleisluntheutuchl (BaFn). Spain: Prepared by UBS Lifted and Offitributed by IRS tented and MS Securities Ewers SV. SA. UBS SOCurneS Eeparia SV. SA IS regulated by the CturisOn National de: Premed) de Vaiores ICNMV). Tway: Papered by IRS LbNwl Deader AS On beat d and dialdbOad by UBS Limited NO iniconanon in Oa actinant is provided for the purpose d altering. marketing and sale by airy means of any capital market instruments and sauces in the Reptile el Turkey. Therelore. Inc document may not to considered as an eta made or to be made to resident:tithe Ftopuble ol Turkey UBS AG is not hawed by the Turketh Captal Market Board under the prensons of the Capital Merkel Law Clew NO. 2499). ACCCOIngly. neMer this docarneM nor any Other COMM) Material ISM to tie InsliumenWeerreee may be tillind n 03nilea00 wilk profiting any capital market stases to personswain the Repaid et Tality withers the pner approval of the Canal Market Board. However. ace:tang to mule 15141 (a) ol the Decree No. 32. Wire is no restriction On the shindabe a Sae Of the fl anged WOO by readentS a the Raul:ft Cr Turkey. Poland: Chalrteled by IRS Limited (600ka 2 OgrantiOna OCOOMedzialMadel Oddal w PC409. Russia: Prepared and Patabiced by UBS Securities CJSC. Swittertand: Collittne0 by UBS AO 10 parser* whO are Madera inflated Only Italy: Prepared by UBS Limbed and dial:vied by Les Limited and IRS Iola Sin $.p.A LIDS Rata Sim S.p.A. is regulated by the Bank of Italy and by the Comma:sane Nacional., per le Seam e la Borsa (CONSOBI. Where an anatyst of UBS Cala Sin S.p.A. hat coma:tea to this charmed the document is also deemed to have been prepared by LDS Iola Sim S pA. South Africa: Colntusrad by LIDS South Alnca (Ply) Urged, an authonsed user ol the JSE and an authonsed Finanoal Services Provider. Israel: LIDS Unwed and its affiliates incorporated oulslde Israel are not lemma under the Investment Advice Law. This matenal is bong isstod only to ardor is directed only al arsons who are Sophsticated lova:fors within the meaning of Ito frith Socuntws Law. and this Meted& null nOl OP rated or eated Win by any MOE persons. Willa UBS Untied holds insurance la in White& it OOPS 401 told the same raunthee that would be ;Mika tor 8n investment adritor or invailMent marketer urger the **nem Investment Mete Law Regulatens. Saudi Arabia: The <Waren' has teen issued by IRS AO larder any Mils StbadiaRte. archesor affiliates,. a attic company tinned by shares, incorporated in Svdzerland vah is registered offices at Aoschermastatt 1. C14.4051 Basel and Banholstrasse 45. C*11001 lurch. Tim pi:Mahan has teen approved by LIDS Saudi Arabia (a subsidiary of UBS AGE a foreign closed pint stock company ricorporated nib laredom of Saudi Naba under commercial retina Meter 1010257812 having its registered oMoe at Tatars Minas. PO. Box 75724. Riyadh 11586. Skean) Of Saudi Araffia UBS Saud Aran iS WthOreed and regtrated by Me Capital Markel Author*/ to conduct acumen business under license norear 08113.37. USW Stales: Ostibuted to US persons by ether UBS Secants US or by LIDS Financial Services Inc. evbekkries MUDS AS or by a group. sfrosdary of &Male or IRS AO that S not registered as a US brtaerdeder (a 110n-US ritilltal•110 Maar US irrabadal Manilas Only. UBS SawilieS LLC Or UBS Financial Sences Inc accepts rerianailty for the eaten ol e docunient Petered by Sather 43n.US enure when cl striailed 10 IS persons by IRS Sean*. LLC of UBS Financial Services Inc. Al tramacbons by a US prison., the socumies martaled in this document rust be elected Prove, LOOS Socumes LLC or LOBS Financial Serous Inc.. and sal Haute) a nOn4JS ahliale. Canada: Orvabuted by 03S Securities Canada Inc.. a registered investment dealer in Canada and a Member-C8fthditin Inflater Priftectlon Fund. or by another MIMI* of LOBS AG the is registered to coned business in Canada or c otherwise exempt born regstration. Hag Kong: tranowied by IRS Sedates Asia Lydia. Singapore: Offilrbated by UBS Sautes Pie. Lin (moo fpl 016+112011 and Co. Reg. Na.: 19856060C) or UM AG. Singapore Branch. Please contact UBS Secretes Pte. Lel, an exempt financial shwa.' under the Singapore Financial Addled Act (Cap 110): a IRS AO. Singapore Branch. an event enerdeJ adviser Wrier the Sappho Finardal Wars Ad (Ca 110) and a wholesale beck Hansa deer the Singapore Banking Ad let. 19) regulated by the Monetary Authority ol Singapore. in respell Of any matters arising from Or h comedian wt. Ike analyse or 00Curnern The recipients ol ths document ropeant and warrant that they are accreetal and institutional sweaters as deined in too Saadi*: and Fines Act (Cap- 289j. Japan: eizinbuted by LIDS SeasisesJapan Co.. Ltd. to inzumenal rnestors trey. Where tee document has bean prepared by UBS Socunnos Japan Ca.. Lid. LIES Screams Japan Co_ Lid. is the author, p.blisher and ttsIntutor ol the docwom. Australia: Datroard ty LBS AG Maker GI Australian Financial Services License No. 2310071 ander UBS Scrounbes Australia LId 'Hadar of Aictralan Financial Services License No. 231090E The Carnahan en the. document has been prepared *shout tahng into account any inveslore ate:arms. Santa etuaban or now:. and investor: shard, tehre Wing on the Interned:in. consider the <100.0OrdtfineSS CI Ike Inkirmater having regard IC heir objectives. Inane/al Oaten end needs, fl the InkirrnalOn contained n this darment relate* 10 the mot:sten. Or ent0ACi?J liCoAsOon oh a particular financial pocket by a 'Retail' client as delined by section 7610 01 the Corporations NI 20)1 where a Fraud Cffidtrbse Steamed would be required, the retail dent should coffin and consider the Product Or:cloaca Statement relating to the product before rndang any doo-son abcut whether to acute the pocket New Zealand: Distributed by UBS New Zealand Ltd. The Wooden and recommendations in his pablcalion are provided for general idonweilen meows ody. To the eilenl that any Suck infarrebon Or recommendations cOnsttole finanCial Sava. hey de not bra into SOCOunt any person's partrulai trance/ OuatiOn a goals. We recommend that leCpentS seek mime :mare Se tear circumstances from thew Inancial adrria. Oubal: The march prepared and dandea by UBS AG Dubai Branch is intended Ice Prolossenal Clem. only and is not for further darrtmen WHO the tinted Nab Emirates Kan: DelrbiAed in Korea by UM Searles Fla. Ltd.. Saul SIAM. The document may have been edam' or contrbuted to from awe to toe by affilices of LIBS Sedates Re. Ltd.. Seoul &SOM. Maloyals: ThiS malarial a authorized to be clstremed in Matadi& by LIES Secmities Malaysia Sdn. aid (253825a). India: Prepared by LOBS Scones Inda Pnvate Ltd 2f. 2 North Avenue. Maker Manly. Sandra Kuria Comdex. Banda 'East). Mortar tartar 400051. Pnone: .912261556000 SEM Registration Numbers: 115E (Capital Market Segrram: MO230951431. NSE (F60 Segment) PO23066101. BSE (Capital Marvel Segment) INEI010951437. The dscbsures contaned in research documents palmed by LIBS Lorded Mali to governed by. nd construed in accordance wth Erighsh law. Les aecificalty prates the ft:darn:man el this cloctroonl in whole or in pail wtlioul the sande., peemisswn ol UBS and LOBS accepts no Badly wlialsoeycf for she zoom el and parties in MS reseed Images may depict ',heels a elemervIS wadi are protected by Mid mutt cooyriant trademark% and Other irWleCIWif pdperry rights O UBS 200. The key argot end LOBS are arnOng tie regMered and miregstered traderferkS OIL/BS Al f ighle *Served UBS UBS23 EFTA01177209