EFTA Document EFTA01840639

UBS UBS Investment Research UBS Business Jet Survey Stable Overall, North America Improving • Index at 41, unchanged from \ovember Our latest Business Jet Market Index came in at 41, in line with our prior survey from November as an uptick in small cabin offset slight declines in midlarge. Our straight up measure of absolute business conditions declined 2% to 4.0. Overall, it appears the market has held relatively stable despite continued economic uncertainty. • North America customer interest improving While weak pricing and high levels of inventory remain a drag on the market, our survey continues to indicate that customer interest is improving and participants are optimistic looking out. Our overall customer interest score increased 3% to 55 this time with North America (59), Asia (58) and Latin America (52) reflecting incremental improvement, partially offset by declining interest in the Middle East (44) and Europe (31). Our participants indicated bonus depreciation did not meaningfully impact year end activity. • See positive ilsk-rewards for bizjet stocks While our survey of industry professionals and other key bizjet market indicators have held stable, we believe North America bizjet is improving off the bottom, driven by replacement demand postponed during the downturn. We see positive risk-rewards with the stocks that we think still incorporate little for business jets at current levels including Buy-rated COLJGD/TXT. Global Equity Research Americas Aerospace Sector Comment 2 February 2012 waves ccrruinvestmentresearch Chart 1: UBS Business Jet Market Index Chart 2: Overall Business Conditions Score 100 ; 50 200 iu 1 11./IrnMr - nanglkIna tn :44 0 UBS Business Jet Market Index —' Rel Pte (RHS) 10 David E. Strauss Analyst Pane strausstguts can .1-212-713 6185 Darryl Genovesi Analyst Offs., genovesigute corn .1-212-713 4016 Ryan Thackston Associate Analyst ryan Macaston@ubs corn .1412413 3321 4; fl $7 .' 7 a' ingagtg.tgl 7.73 3. .7 ' Simple average B8BGOTTX3 Mock price performance index 'static. to SSP 500 Sawa: UBS Business Jet Survey Source. UBS Business Jet Survey This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 18. UBS does and seeks to do business with companies covered in its research reports. As a result investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. E FTA_R 1_00225638 EFTA01840639 UN Business Jet Survey 2 February 2012 Business Jet Market Survey Our 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 161 responses. Investment Conclusion Our latest Business Jet Market Index came in at 41, in line with our prior survey from November as an uptick in small cabin offset slight declines in mid/large. Our index measures the change in respondent's views from our prior survey and is not meant to be an absolute measure of business conditions. Our straight up measure of absolute business conditions declined 2% to 4.0. Overall, it appears the market has held relatively stable despite continued economic uncertainty. While weak pricing and high levels of inventory remain a drag on the market, our survey continues to indicate that customer interest is improving and participants arc optimistic looking out. Our 12-month outlook score increased 11% to 66, above the 50 mark, indicating an incrementally more positive outlook. Our customer interest score increased 3% this time to 55, indicating that customer interest was stronger relative to our prior survey. Our willingness score moved 9% higher to 44, although still below 50 indicating continued declines in participants' willingness to take on additional inventory. Improvements in our interest, outlook and willingness scores were offset by declines in inventory and pricing. Our overall inventory score declined 19% to IS. and remains well below 50 reflecting continued oversupply, while our pricing score declined 17% to 33, indicating continued pricing declines. Our young inventory score, not a component of our index, moved 7% lower this time to 40, still indicative of oversupply of high-quality young used aircraft. Our financing score, also not a component of our index, remained above 50. reflecting continued improvement in financing availability. Table 1: UBS Business Jet Survey Results and Comparison to Prior Survey Component Better Same Worse Score Last Time Change Customer Interest 29% 52% 19% 55 53 3% Pnang 3% 60% 37% 33 40 -17% 12 Month Outlook 41% 51% 8% 66 60 11% Inventory Levels 3% 24% 73% 15 19 .19% Willingness 16% 56% 28% 44 41 9% Composite Index 16% 49% 35% 41 41 011/ Young Inventory 17% 47% 36% 40 43 .7% Financing 18% 70% 12% 53 53 0% Business Conditions Na DA Na 4.0 4.1 -2% Source: UBS Bus:less Jet Survey jE,S 2 EFTA_R1_00225639 EFTA01840640 UN Business Jet Survey 2 February 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 weights 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 January Business Jet Market Index came in at 41, in line with our prior survey in November. Chart 3: UBS Business Jet Market Index 100 m t7D S ":' GS 50 7. sn tinz > I 34 i 0 „s • a, co nt;Q• .i ; g41 %ISCG (.2:R ------ " e00000000 0 4 44i 1 4t"r O " ; 1791 k 1 1 1 12" ii ta l l nIA41 1 81A -1 4 2 1 4-21- 2-,,L z Source: UBS Buaiess Jet Sway Market Segment indices By market segment, our large cabin index declined 3% to 42 (from 43) and midsize declined 2% to 41 (from 42), while small cabin increased 2% to 40 (from 39). Chart 4: Market Segment Indices. by Cabin Class g ID t I 1 z 0 0 on 0 0 0 1 N 2 —Survey index Small • klidsde -s- large (4, Son: UBS Busiless Jet &rley 3 EFTA_R1_00225640 EFTA01840641 MS Business Jet Survey 2 Febrility 2012 Survey Participant Profile Of the 161 market professionals who responded to our survey, a majority (60%) 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 Oner 14% Manuthatter 9% Dealer(Broker Financier 17% 60% No Other mcludes appraisers. trammel provides. management. char. 180 and MRO serval providers. Son. UBS Business Jet Survey The majority of our participants are located in North America (74%) with an additional 21% in Europe. Chart 6: Business Jet Market Survey • Participant Location Lain America 2% Middle East & Africa 2% Europe 21% Asia a Pacific 1% MA Mina 74% Son: UBS Business Jel Survey jE,S 4 EFTA_R1_00225641 EFTA01840642 UN Business at Suntey 2 February2012 While the majority of ow survey participants arc 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 MI None 9% 9% More ten 75% 17% 16% 25-50% 18% Less tan 25% 31% Son: UBS Beefless Jet 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 53061+ 7% 11% -il 28% $0-5M 520-30IA 510-2061 26% l 55-1011 28% Source: UBS Business Jet Surrey J665 EFTA_R1_00225642 EFTA01840643 UBS Business Jot Surrey 2 Fettuary 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 seasonality (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 156 responses (five participants did not tespund to this question) with scores ranging from zero to eight. Chart 9: Indication of Overall Business Conditions, January 2012 S to rr 35% 30% 25% 20% 15% 10% 5% 0% 27% 6% 7% 1% 0% 0% 0 1 2 3 4 5 6 7 8 9 10 Business Corttors Rank Son: UBS Bustness Jet Survey Overall, our average business conditions score came in at 4.0, 2% lower from our prior survey in November. Chart 10: Overall Business Conditions 10 5 0 via"leMa !cm,- °num. m-co ' fl e4 ' m —a M.4 . ma6MMm !aavM• 0 Mcsic .6(4 nMMM O a mr-co4Nr-m ei .... 4 !orrie4 c‘i ItiVM1IPIM'si29it91 11rT $I4"'"" ----- -" lag-aPlIg-alAgalltil4s1,Alk4331Mg4klalitiltSgA444,W Source: UBS Buse:less Jet Survey J&S 6 EFTA_R1_00225643 EFTA01840644 MS Business Jet Survey 2 Feteuary 2012 Customer Interest In the next question, we asked, "Since our last survey in November, the level of customer interest improved, stayed the same or deteriorated?" Of the 161 responses (all participants responded to this question), 29% indicated that customer interest had improved, while 19% indicated that customer interest had deteriorated. The remaining 52% indicated that customer interest had stayed the same. This result is stronger than our prior survey, in which 27% indicated that customer interest had improved, 20% indicated customer interest had deteriorated and 53% indicated that customer interest had stayed the same. Chart 11: Indication of Customer Interest, January 2012 Detnorated 19% Improved 7 29% Stayed Me same 52% Source: UBS Business Jet Survey Our customer interest score increased 3% to 55, above the 50 mark indicating incremental improvement. Chart 12: UBS Business Jet Survey Score - Customer Interest 100 Customer Interest Score 50 0 53211-7. S8 82 rFi w, 22 2 3 2)4ggragggngi°44agn 4aggiOngar48i4244844 Some: UM Menses Jet Survey jE,S 7 EFTA_R1_00225644 EFTA01840645 UN Business at Survey 2 February 2012 Customer Interest by Region Our survey indicates that customer interest levels vary by region with North America (59). Asia (58) and Latin America (52) reflecting incremental improvement, while customer interest in the Middle East (44) and Europe (31) appears to be falling oft Chart 13: Customer Interest Score by Region Relative to Prior Survey in November 100 80 60 40 20 0 North America Europe Lain America Made East Asia ■ Proof Survey ■ Current Survey Source: UBS Busness Jet Survey Customer Interest by Cabin Class In the next question. our 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 118 responses (43 participants did not respond to this question). 72% indicated they were seeing the strongest interest in large cabin aircraft, with 14% indicating midsize and 14% indicating small cabin. Compared to our prior survey, this reflects slightly higher interest in the small cabin class relative to midsize. Chart 14: Cabin Class with Most Buyer Interest, January 2012 till ilithl2e Cabin 14% \ Large Cabin 72% Source: UBS Business Jet Survey JE.S EFTA_R1_00225645 EFTA01840646 UN Business Jet Survey 2 Fettuary 2012 Pricing In the next question, we asked, "Since our last survey in November, overall pricing levels increased, stayed the same, or decreased?" Of the 153 responses (eight participants did not respond to this question), 3% indicated that pricing levels had increased, while 37% indicated that pricing levels had decreased. The remaining 60% indicated that pricing levels had stayed the same. These results are weaker than our prior survey in November in which 8% indicated that pricing levels had increased, 28% indicated that pricing levels had decreased, and the remaining 64% indicated that pricing levels had stayed the same. Chart 15: Indication of Pricing, January 2012 Increased 3% Decreased 37% 3 stayed die same 60% Source: UBS Business Jet Survey Our pricing score came in at 33, 17% lower from our prior survey in November. Chart16: UBS Business Jet Survey Score • Pricing 100 o leg gm `2$ 50 is m 2 ASQ A Rra r._CO O. 0 000000 ..... re4 44II414BtIBVBIBrapalpt °444/ 1 91$1 1e . tA,.. . 44t _. 4 "—fl 1 6.-4 6 1 61 6 gc' 4 6 XIM mt-X4 2r-Z8S-2t-Lq, 2 - 2" r 2 —'`‘ 2 2 Son: UBS Business Jet Survey UBS9 EFTA_R1_00225646 EFTA01840647 MS Business JM Survey 2 February 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 122 responses (39 participants did not respond to this question). 89% indicated they were seeing the strongest pricing in large cabin aircraft, with 7% indicating midsize and 4% indicating small cabin. Compared to our prior survey, this reflects slightly stronger pricing in midsize relative to small. Chart 17: Cabin Class with Strongest Pricing, January 2012 Small Cabin 4% Midsize Cabin 7% Large Cabin 89% Source: LISS Business Jet Surrey Bonus Depreciation Impact In the next question, we asked, -On a scale of zero to 10, how much did bonus depreciation positively impact your business in late 2011 (0 - no impact, 10 - very positive impact)?" We received 142 responses (19 participants did not respond to this question) with an average score of 2. Chart 18: Impact on Business from Bonus Depreciation, January 2012 60% 56% 50% 40% 30% 20% 10% 6% 6%. 7% 2% 7% 6% 5% 2% 1% 1% 0% „as 0 1 2 3 4 5 6 7 8 9 10 Source: UBS Busaness Jet Surrey BS 10 EFTA_R1_00225647 EFTA01840648 UBS Business Jot Surrey 2 Fettuary 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 (three participants did not respond to this question), 41% expect business conditions to improve, while 8% expect business conditions to deteriorate. The remaining 51% expect business conditions to stay the same over the next 12 months. These results are stronger than our prior survey in which 34% expected business conditions to improve, 14% expected business conditions to deteriorate and 52% expected business conditions to stay the same. Chart 19: 12-Month Forward Outlook for Business Conditions, January 2012 De'erforale 8% N O Slay tie same / 51% Improve 41% Sane: UBS Business Jet Survey Our I2•month outlook score came in at 66 this time, 11% higher than in our prior survey, indicating that on average our survey participants expect business conditions to improve over the next 12 months. Chart 20: UBS Business Jet Survey Score • 12-Month Outlook 0 In 0 100 0 as 4444 14”*444ritig9191IT/11;;;;::: 11 $ h'-'5X8AVE4g3,ngl_.14',A -4,,J,A4 0, 72-.A4,22 ja2,52 a Source: UBS Bus:less Jet Survey U8511 EFTA_R1_00225648 EFTA01840649 UN Business Jot Sunray 2 February 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 125 responses (36 participants did not respond to this question), 3% believe inventory levels arc low, while 73% believe inventory levels arc high. The remaining 24% believe inventory to be at average levels. These results are weaker than our prior survey in November in which 6% believed inventory levels were low, 73% believed inventory levels were high and the remaining 24% believed inventory to be at average levels. Chart 21: Indication of Inventory Levels, January 2012 Low 3% Average 24% 140 73% Source. UBS Busaness Jet Stymy Our inventory score came in at 15 this time. 19% lower from our prior survey in November. and continues to reflect very high overall inventory levels. Chart 22: UBS Business Jet Survey Score - Inventory Levels S 0 50 0 Axe s s t2 S8SM s S c vfrrf: Cy ^wr WW COm ,r oreu'ror 4o Ii 4agil 4gF4204 5,3g 4cqgt..$4fl ag34 44qg24 4 48 P41 .484 4e Scarp). UBS Business Jet Survey UBS 12 EFTA_R 1_00225649 EFTA01840650 UN Business Jet Survey 2 February 2012 Young Inventory Levels In the next question, we asked, "How would you characterize current inventory levels of relatively young used aircraft?" In this question, we targeted broker/dealers, but in some cases, other participants also responded. The survey participants were asked to select "high", "average", or "low." Of the 124 responses (37 participants did not respond to this question), 17% believe young inventory levels arc low. 36% believe young inventory levels arc high, and the remaining 47% believe young inventories to be at average levels. These results arc weaker than in our prior survey in which 20% believed young inventory levels were low, 33% believed young inventory levels were high and 47% believed young inventories to he at average levels. Chart 23: Indication of Young Inventory Levels. January 2012 Low 17% S Average 47% Source: US$ Fluenen Jet Survey Our young inventory score at 40 continues to reflect oversupply of high-quality, young used aircraft. Chart 24: UBS Business Jet Survey Score • Young Used Inventory Levels e ›- 100 50 0 91 86 90 83 91 90 86 77 64 47 25 12 6 4 4 4 36 35 40 43 40 32 32 14 2o2o v 22 23 23 25 8 9 2 9999 444 4 * 4 $ $ " " —————— " a•nt5, u- 4$$ $$$ n, fr -Agagtsk1;8 1 4 z zo-22 z— 2 < 2 2 Son: UBS Busiless Jet Survey UB5 13 E FTA_R 1_00225650 EFTA01840651 MS Business Jet Sunny 2 February 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 87 responses (74 participants Jid not respond to this question), 16% indicated they would be more willing to take on inventory, while 28% indicated they would be less willing to take on inventory. The remaining 56% indicated no change in their willingness to take on inventory. These results arc better than our prior survey, in which 19% indicated they would be more willing to take on inventory, 37% indicated they would be less willing and 44% indicated no change in their willingness to take on inventory. Chart 25: Willingness to Increase Inventory Levels, January 2012 less wiling 28% More wiping 16% Source: UBS Sunless Jet Surrey Our willingness score increased 9% to 44 this time, although still below 50 indicating that participants are less willing to take on new inventory compared to our prior survey in November. Chart 26: UBS Business Jet Survey Score - Willingness to Increase Inventory Levels 100 5 0 0 M S,..1,3g 3 M :AS two MS c, St; s2e Ge-a .DM • 'P'? v-mir vans veltsvospatpIottvoAistssAtptsrlas4 z-, 2m z -r22 z-• s -• z -ru- zo - 2s' rams ram rt Son: UBS Business Jet Survey UBS 14 EFTA_R1_00225651 EFTA01840652 UN Business Jet Sunny 2 February 2012 Customer Financing In the next question. WC asked, - Since our last survey in November, has the availability of customer financing improved, stayed the same, or deteriorated?" Of the 152 responses (nine participants did not respond to this question), 18% indicated that customer financing conditions had improved, while 12% indicated that financing conditions had deteriorated. The remaining 70% indicated that financing conditions had stayed the same. These results are roughly in line with our prior survey in November. Chart 27: Financing Conditions, January 2012 Deismoraled Improved 12% r 18% Stayed he same 10% Son: UBS Business Jet Survey Our financing score came in at 53 this time, in line with our previous survey and above the 50 mark indicating incremental improvement. Chart 28: UBS Business Jet Survey Score — Financing 100 - 5" 50 - -a LL 1 011111111MM $1 8 8 Source UBS Busesess Jet Surrey US$ 15 EFTA_R1_00225652 EFTA01840653 t■S Business Jet Survey 2 Fettuary 2012 Commentary The following arc selected comments from business jet professionals. Overall Business Conditions ■ A cautious market but trending up. ■ Trading conditions remain difficult, but interest remains good at all levels. ■ Do not anticipate any sort of recovery until 2013. ■ Year end activity was somewhat bolstered by bonus depreciation and some pent up demand. ■ Activity levels improved in November. December and January. ■ Finally seeing some interest in midsize/large cabin segment, but small cabin segment has been slow. ■ Lots of activity in 4Q related to bonus depreciation on new aircraft side. • The worst isn't over. ■ Slowly getting better. ■ Much more activity in last 30 days. ■ Improving market, especially on long range and ultra-long range. ■ Business is pent-up, but remains slow. ■ Activity slowly getting better, but still more sellers than buyers. ■ The momentum is definitely positive for 2012 following a very good 2011. Aircraft Values / Pricing ■ With bonus deprecation gone, the temporary increase in the (after tax) gap between new and late model used is gone. This may lead to strengthening in late model used prices. ■ Near new aircraft still commanding top dollar, while anything older than two years is weaker and seems to have potential to weaken. ■ Prices of large cabin jets are extremely high, but they are not selling as well as they have in the past. ■ After firming during summer 2011, prices took another dip in Q3 and Q4 with a slug of new inventory on the market. • Now entering typically slower Q1 with about average activity for season. Customer Interest ■ Seeing improving interest for newer aircraft. ■ Entry level, light and large cabin aircraft markets are active: midsize and super-midsize remain inactive. UBS 16 EFTA_R1_00225653 EFTA01840654 MS Mamas at Survey 2 February 2012 ■ We're still bumping along the bottom, though late, low-time, large-cabin aircraft remain desirable. ■ New, heavy aircraft models are still strong. ■ Mid-market pricing still very weak as manufacturers continue to give away planes. ■ There has been a notable drop in customer purchase intentions. ■ We have seen incredibly high customer interest since Q4, which seems to be continuing on into this year. ■ We have as many sales on the go at the moment as we had back in the good times, but each sale is hard work and prices are very low. US Market ■ US market showing decent levels of interest, driven by need to get on with aircraft replacement; bonus depreciation is helping. • Seeing a dramatic improvement in U.S. buyers' interests in both new and used aircraft. ■ US buyers are out there, but are looking to acquire aircraft at dealer pricing. International • Western Europe showing very weak levels of buying activity. ■ Emerging market activity continues to be relatively strong. ■ The international venues remain selectively active. ■ BRIC countries still showing strong demand. Financing ■ Although most activity is cash, we have found some interest in financing and even some financing for 25 to 30 year old aircraft. ■ Each bank seems to be offering different finance options, which is opening the doors for some much needed money. ■ Still no real foreign financing. ■ No financing for older aircraft. ■ Continued weak loan demand. ■ Deals taking a considerable amount of time to close, but closing. U6517 EFTA_R1_00225654 EFTA01840655 UN Business Jet Survey 2 February 2012 • 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 arc 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 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. UBS 18 EFTA_R1_00225655 EFTA01840656 UBS Business Jet Survey 2 Febnary 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 Coverages IB Services= Buy Neutral Sell Buy Hold/Neutral Sell 57% 37% 7% 36% 35% 17% UBS Short-Tenn Rating Rating Category Coverage' is services Buy Sell Buy Sell less than 1% less than 1% 0% 12% 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 (18) services were provided within under coverage globally within the Shod-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 December 2011. UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Buy Neutral Sell UBS Short-Tenn 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 19 EFTA_R1_00225656 EFTA01840657 UBS Business hi Survey 2 February 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% 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. Ryan Thackston. Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date General Dynamics Corp. GD.N Buy N/A US$69.71 01 Feb 2012 Rockwell Collins Inc. 2.4. 7' 6.76' 66' r• tit ru COL.N Buy N/A US$59.12 01 Feb 2012 Textron Inc. 6C. 7.13. It M. 77 TXT.N Buy N/A US$25.66 01 Feb 2012 Source: UBS. NI 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, U8S AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months. 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-investment banking securities-related services are being, or have been. provided. 6c. 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. UBS 20 EFTA_R1_00225657 EFTA01840658 UBS &MMUS Jr Sum 2 Febniary 2012 13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company's common equity securities as of last month's end (or the prior month's end if this report is dated less than 10 days after the most recent month's end). 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. 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. General Dynamics Corp. (US$) — Pita Tamil (US$) Stook Rb CUSS) 120- WO- 60" 40- 2r l l l l l i l grl I g iMI 4 1 $ 4 4 4 $ 4 a a a a a a a g a a a g a s a g a s Buy 2 an Neutral Source: as of 01 Feb 2012 Rockwell Collins Inc. (USS) O Buy I Sly No Rahn 0 — Ate Target (USS) Sock Ave (NE4) $ 4 3 § $ 4 4. 3 $ 4 3 0 $ 4 I , , , , , , , , , , , , Source: UBS: as of 01 Feb 2012 UBS 21 EFTA_R1_00225658 EFTA01840659 UBS Business Jet Survey 2 FebnAry 2012 Textron Inc. (US$) — PACO (USS) Sock Ate tIJSS) 0.0 9 &y1 arY SSW No Ratty 4 g i g .g ; 4 .! - - 4 4 oF 4 ? 4 4 4 4 4 & 4 4 3 8 4 I 7 7 7 7 7 7 ? ? ? ? 7 7 7 7 7 7 I I I • I Source: UBS; as of 01 Feb 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 analysts 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$4.72 (01 Feb 2012); Embraer, US$28.64 (01 Feb 2012); Source: UBS. All prices as of local market close. UBS 12 EFTA_R1_00225659 EFTA01840660 UBS Business Jet Survey 2 Febniary 2012 Global Disclaimer This report ha beat prepated b) UBS StdalbMs LLC. an affilate cf UBS AG OSS AG is subtudiartes trenches ard ablates ate stared b bean as UBS In artan contra UBS AG es relined to e> OBS SA This reads for chseibub00 only ender twat orcurnetanea a may te pantted by aParldba ads NONA, in til recoil ~Panel a reaelenlibOn mal any inalarlial attain/ C. risommendation canasta lean a sedate a *0~01,10 a reaped. Mm-dual orcunstances a areal» nesepine ø peranal reammornelabon It is amassed scary Ia inlOnnatton purpotes it does not continu: an ~semen' widen,: b be cone:rued ii a 'catboat a an °slabbery or sell any stoat., a roiatuhl trance, instruments in any Madan. 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OSS South Mine Limited fliedisfrabon No 19,5011140;07) a a member of the JSE Limited Me Scab African Futures recreant, and the Bond Exchange a South aria 005 South Afaca IPryl Lana is an adtreeded F unnsi Senaes Provider Leafs Cl its pasta and pinisical address and a till d na drepes ate iv/6Mb* on request or may M accessed M Yelp wow %lb, co ea United Stale.: Dab toiled lo demerit by order UBS Secureits LLC W by 00$ Financial Salvoes Subsidaieft of OSS AG, or by a caw. subtitles a artiste of UBS AG vat. oat regneos as a US broirdnalet la lion-US affiliatir), to major US ins:redone investors only UBS Securta LLC a U85 Finneral Servers Inc accepts respcnabilly lo< the tornens of a report prepared ly, antra ncet.U5 abate when dabtuted to US persons by UBS Securities LLC or UBS Financial Sonars Pc At Verrisallan bya US pawn ri the parities rearmed in this moon nod bu enedua through U135 Sec-dace LLC a UBS FinannalSoFre A iid citsZ.me am sl and not through a noniUS affiliate Canada: Csinteeed by UBS SeCiatin Canada Inc . subsidiary olt)(45 AG and a ranee May 'Preset- Canadian WO ' , debts & Cip financial co loan and a la of adagios and sere« oficers Na be aerated upon sanest Hong Kong- Pstrbuted by085 Scwouties AY? 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Barbra ((asp bunts, linda) 400051 Phone M112261556000 SOP Replearaton Numbers NSE (Capital I41/tat Soren!, IN8230431431 NSE IFSIO Sayan') INe230051431 BSE (Capital Market Sooment)itt8010951437 The ~an» ~led in research rePoal PrOdad by UBS Leaded ~I be gallined by and ~WSJ n accordancealb Englith law UBS ealaballi ~be. Bse naletribulon dels mama in abloom en pan without the alien peeranayan of U8$ end LABS accepts no sahib Mebane Ice ee sams allied panes m sus respect Images may depict Ø1s a einenu albeit are pratadlibal by mad party coponget radars's; and om« metadua' property rota CUBS ?Old Pe say balsa ard UBS ar. among Me registered and unnignewed iraclaness al UBS rents reserved SUBS UBS 23 EFTA_R1_00225660 EFTA01840661