EFTA01088149.pdf

UBS Global Equity Research Global UBS Investment Research Aerospace UBS Business Jet Update Sector Comment Cycles Slightly Lower 18 January 2012 • Cycles down 3% y/y, down 1% sequentially We estimate business jet cycles (takeoffs & landings) were 3% lower from the prior year in December. worse compared to flat November on 1% seasonally- adjusted sequential decline along with tougher comp. We estimate cycles are now running 28% higher from the trough in early 2009, although still off 16% from the David E. Strauss prior peak in late 2007 as absolute cycles have been relatively fiat over the past ma Analyst year. Comps get easier in QI. • Long-range down the most on sequential basis Darryl Genovesi By market segment, we estimate long-range aircraft cycles declined the most in Ana st December. down 3% sequentially, while mid-range declined by 1% and short- range came in roughly flat. Overall, through the recovery, short-range aircraft cycles have improved the most, up 31% from the trough in early 2009, with mid- Ryan Thackston up 28% and long-range aircraft cycles up 22%. Of the five major manufacturers, Associate Ana st Dassault cycles declined the most in December, down 3% sequentially, followed by Bombardier/Gulfstream both down 2%, Hawker down 1% and Cessna roughly flat. Please see inside of note for detail by engine/avionics supplier. • See positive risk-rewards While our survey of industry professionals and other key bizjet market indicators we track including flight activity and used pricing have flat lined, we believe North America bizjet has improved off the bottom driven by replacement demand postponed during the downturn. We see positive risk-rewards with the stocks that we think incorporate very little for business jets at current levels including Buy- rated COL/GD/TXT. Chart 1: Seasonally Adjusted Monthly Cycles Chart 2: YoY Absolute Cycle Growth 450.050 400.000 350.050 300.000 250.050 200.050 150.050 100.050 50.000 0 r“:341 `4 `4"4'44MWM$$ susususssususususussts 8 In 8 8 ti • • a o m m 0 ,e) 0 • • :I C o 0 0 0 0 0 0 0 0 0 yfy Cycle Growth — R12M Average Source: FM and UBS estimates Source: FM and UBS estimates This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION 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. EFTA01088149 UBS Business Jet Update 18 January 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 En 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 3% lower from the prior year in December, worse compared to flat November on 1% seasonally- adjusted sequential decline along with tougher comp. Comps get easier in Ql. Chart 3: Seasonally Adjusted Sequential Cycle Growth Chart 4: YoY Absolute Cycle Growth 10% 30% 20% 5% - 10% 0% •10% •20% .5% .30% 868888S8888886.888899== 10% .5),UUS,24A4A4A4A4A4AS,A S 6 g 8 4SS S SS gg AAAAAAAA AA yis, Cycle Growth —R12M Average Source: FM and UBS estimates Sauce: FAA and UBS estimates We estimate charter activity in December was 6% higher from the prior year on a rolling 12-month basis including 4% growth on an absolute (unsmoothed) basis. Meanwhile, non-charter (military, freight and general aviation) was unchanged on a rolling 12-month basis, although 6% lower on an absolute basis. Chart 5: RoMrtg 12 Month Average Blzjet Cycles by User Type and YoY Growth Boling 12 Month Avg Cycles YoY Gareth in R12M Avg Cycles 400.000 15% 10% 300.000 5% 0% 200.000 .5% -10% 100.000 -15% -20% 0 •25% '-?setjaz2.7. S 4dOB=S 11114)I8'2'sra°I Ci ~ td -s -s Ci -3 -3 -3 Cf -3 -3 Chatter Trak All Ober Italic —pry Growth in R12M Cycles Source: FAA and UES estimates UBS 2 EFTA01088150 UBS BusineesJel Update 18 January 2012 Flight Activity by Manufacturer Of the five major manufacturers. Dassault cycles declined the most in December, down 3% on a seasonally-adjusted sequential basis, followed by Bombardier/Gulfstream both down 2%, Hawker down 1% and Cessna roughly flat sequentially. We estimate Cessna aircraft accounted for 38% of all business jet cycles flown over the past 12 months, followed by Bombardier at 22%, Hawker at 17%, Gulfstream at 11% 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 11%. Chart 6: Cycle Distribution by Manufacturer-12 Months Ended December 2011 Cth Dassault 3% 9% Gullstream Cessna 11% Hawker Beechcraft 17% Bombatdier 22% Note: Analysis does not inckide Embraer Legacy 600. which we esarnale make up 1%0l the ',stalled feet. Source: FAA and UES estimates We estimate Cessna cycles in December were 1% higher from the prior year on a rolling I 2-month basis, although 2% 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% 4 44 44 444 4 4 44 44 `-c lz? gggvg vgv gv g g gvg vgnu yty Cycle Growl • Cessna — Rolling 12 Month Average Source: FAA and UES estimates UBS 3 EFTA01088151 UBS Business Jet Update 18 Jarman 2012 We estimate Bombardier cycles in December were 1% higher from the prior year on a rolling 12-month basis, although 5% lower on an absolute basis. Chart 8: YoY Growth In Absolute and Rolling 12-Month Cycles—Bombardier 40% 30% 20% 10% 0% -10% -20% -30% -40% 40 I.- co Cr. 0 01 0 iv 4.1 2`4S g 0 al 0 al 0 O at e 0 .- SgSgSgigS6 ig a - 3 ta - 3 Co Co ta - 30 - 3 C -, C -, C -, C y4 Cycle Growth Bombardier — Boling 12 Month Average Source: FAA and LIES agnates We estimate Hawker Beechcraft cycles in December were 1% lower from the prior year on a rolling 12-month basis and 8% lower on an absolute basis. Chart 9: YoY Growth In Absolute and Rolling 12 Month Cycles—Hawker Beechcraft 1 . 1 1 1 14o4o4o4o4o 19 1 1 1 1 1 1 1‘11111ii ci em en ci iyty Cycle Growth Hawker Beechcraft — Boding 12 Met Average Source: FAA and CBS estimates UBS 4 EFTA01088152 UBS Business Jet Update 18 January 2012 We estimate Gulfstream cycles in December were 3% 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—Gulfstream 40% 30% 20% 10% 0% -10% -30% -40% 4 4' c4 4' g '41 4 4 `4 14 67 ce! o 2 2 := ss a -, a -, -, a-, ssa -, a -, ssa -, sus ssa -, si as -,i a a-, a-, yiy Cycle Growth Gullsteam — y/y Growth in R1251 Cycles Source: FAA and MS agnates We estimate Dassault cycles in December were 1% lower from the prior year on a rolling 12-month basis including a 4% decline on an absolute (unsmoothed) basis. Chart 11: YoY Growth In Absolute and Rolling 12-Month Cycles—Dassault 40% 30% 20% 10% 0% -10% -20% -30% -40% •c5 a `41 o a$$ 2 2 z; g vs g vs vs vs vs vs g vs 252 yry Cycle Growth • Dassaun — yly Growth In RIM Cycles Source: FAA and UES estimates UBS 5 EFTA01088153 UBS Business Jet Update 18 January 2012 Flight Activity by Engine and Avionics Supplier We have also analyzed business jet flight activity by engine and avionics supplier. Of the five major engine suppliers, only Williams cycles increased in December, up 6% on a seasonally-adjusted sequential basis. while Rolls-Royce cycles declined by 2% and GE, Honeywell and Pratt Canada (PWC) cycles all declined by roughly 1% from November. By avionics supplier, we estimate Rockwell Collins avionics cycles declined by 1% on a seasonally-adjusted sequential basis, while Honeywell cycles also declined by 1%. 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 12%, Williams International at 8%, and GE at 7%. We estimate Rockwell Collins avionics accounted for 53% of all business jet cycles over the past 12 months, while Honeywell avionics accounted for 39% of total cycles. Chart 12: Cycle Distribution by Engine Supplier Chart 13: Cycle Distribution by Avionics Supplier Whams GE 8% 7% 8% Rolls.Roy ce A I 12% Honeywell 29% Rockw ea Honeywell Colin 39% 53% PWC 44% Source: FAA and UBS estimates Source: FM and UBS estimates We estimate PWC engine cycles in December were 3% higher from the prior year on a rolling 12-month basis, although 3% lower on an absolute basis. Chart 14: YoY Growth in Absolute and Rolling 12-Month Cycles—PWC Engines 40% 30% 20% 10% 0% 10% 20% a 40% 04g 8$S 8 84 B ri'• 5,A$A$A$A$A$A$A$A$As A o yry Engine Cycle Growth PWC — Rolling 12 Month Average Source: FAA and UES estimates UBS 6 EFTA01088154 UBS Business 4s1Update 18 January 2012 We estimate Rolls-Royce engine cycles in December were 5% higher from the prior year on a rolling I2-month basis, although unchanged 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% $4 $ $4 4 $ $4$$ gAgAgAglg g gAgAgAg gg y/y Engno Cycle Growth • Rolls-Royce —Roping 12 Monti Average Scarce: FAA and UES esernales We estimate Williams International engine cycles in December were 2% 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 Y ga,g4g4g4gAgadi g g g y/y Engine Cycle Growth — Rolling 12 Month Average Source: FAA and UES °senates UBS 7 EFTA01088155 UBS Business Jet Update 18 January 2012 We estimate GE engine cycles in December were 7% lower from the prior year on a rolling 12-month basis including a 15% decline on an absolute basis. Chart 17: YoY Growth In Absolute and Rolling 12-Month Cycles—GE Engines 40% 30% 20% 10% 0^' 'a .10% . /t .20% 30% -40% 1414rei4;1 1III AgAA5,g, g ad,a,A4A 4A a y,y Engine Cycle Growth GE — Rolling 12 Month Average Source: FAA and UBS estimates We estimate Honeywell engine cycles in December were 1% higher from the prior year on a rolling 12-month basis, although 4% lower on an absolute basis. Meanwhile, Honeywell avionics cycles were also 1% higher from the prior year on a rolling 12-month basis, although 3% lower on an absolute basis. Chart 18: Honeywell Engine Cycle Growth Chad 19: Honeywell Avionics Cycle Growth 4 7,?4M4MSSVMS4g ,"7". `P m -? lc eca cttt 22 4; 72 1 . 1t: n 5Thai 5 2,0 2,0 2,0 2,0 2,0 2,0 2,0 yty Engine Cycle Growth tbney w ell — R12M Average yty Avionics Cycle Growth Honey wet — R12M Average Source: FAA and UBS estimates Sauce: FAA aM UBS estimates We estimate Rockwell Collins avionics cycles in December were unchanged from the prior year on a rolling 12-month basis, although 5% lower on an absolute (unsmoothed) basis. UBS 8 EFTA01088156 UBS Business Jet Update 18 January 2012 Chart 20: Rockwell Collins Avionics Cycle Growth 40% 30% 20% 10% 0% -10% -20% 10% -40% 4 451 4 4 4 4 44 4 44 4 44 4 .1 A A,HAUnnnIA 5A 5A 5A yiy Avionics Cycle Growth - Rockwell Collins — Rating 12 Month Average Source: FM aM UBS estimates Flight Activity by Market Segment By market segment. we estimate long-range aircraft cycles declined the most in December, down 3% sequentially, while mid-range declined by 1% and short- range came in roughly flat. Overall, through the recovery, short-range aircraft cycles have improved the most, up 31% from the trough in early 2009, with mid- up 28% and long-range aircraft cycles up 22%. 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 36% and long-range aircraft at 18%. Chart 21: Cycle Distribution by Range Class-12 Months Ended December 2011 Lag Range 15% Short Medum Range Range 53% 32% Rote: Analysis does not include Embraer Legacy 600. Mich we estimate make up 1%ol the nstalled feet. Source: FM and UBS estimates UBS 9 EFTA01088157 NS Business Jel Update 18 January 2012 We estimate short-range aircraft cycles in December were 1% higher from the prior year on a rolling 12-month basis, although 4% lower on an absolute basis. Chart 22: YoY Growth in Absolute and Rolling 12-Month Cyde—Short-Range Aircraft a qbai 412 8254 8 APA4A4A4A4A4AS,A1A4A4A yty Cycle Growth - Sheet Range Rolling 12 Month Average Source: FAA and MS estimates We estimate medium-range aircraft cycles in December were 3% higher from the prior year on a rolling 12-month basis, although 3% lower on an absolute (unsmoothed) basis. Chart 23: YoY Growth in Absolute and Rolling 12 Month Cycles - Med-range Aircraft 40% 30% 20% 10% 04' -10% -20% -30% -40% a a. 8 4 8 4s4 8 8 8 '4; 8 e .= ,A 4A4A4A 4A 4A 4,A 4242 yty Cycle Growth Medium Range — Rolling 12 Monti Average Source: FAA and UES estimates 118810 EFTA01088158 UBS Business Jet Update 18 January 2012 We estimate long-range aircraft cycles in December were 3% higher from the prior year on a rolling 12-month basis, although 1% lower on an absolute (unsmoothed) basis. Chart 24: YoY Growth In Absolute and Rolling 12-Month Cycles—Long-Rave Alraaft 40% 30% 20% 10% 0% 40% 20% 30% 44444444**44444*4“t!;FF, AAIAIAUUUUUIMIMIM y. Cycle Growth Long Range — Rolling 12 Month Average Scarce: FM and UBS estmales UBS11 EFTA01088159 UBS Business Jet Update 18 Januar/ 2012 Table 1: Business Jet Cycle Growth by Make and Model (December 2011) R1261%4:4 Absolute R3U1 R125I Year to Date Total Cycles VoY Growth Growth Growth Growth Short Range Beechat 400 / Hawker 400 XP 8.0% (12.8%) _ (6.6%) (1.5%) (15%) Cita:on XIS 7.9% (1.2%) 0.7% 5.6% 5.6% Wallop Encore 63% (3.0%) (6.6%) (6.6%) Citation Bravo 4.6% (13.2%) (9.8%) (5.1%) (5.1%) Learjet 35 42% (42%) 0.4%) 0.3% 0.3% Learst 45 3.7% 1.5% 2.1% 4.4% 4.4% Dation WI 3.1% f3.3%) (3.5%) 0.2% 0.2% Cita:on CJ3 2.2% 7.8% 8.4% 5.6% 5.6% Learjet 31 1.5% (7.4%) (10.0%) (0.4%) (0.4%) Citation CJ2 1.5% 13.6%) (1.7%) 21% Falcon 20 12% (19.3%) (21.4%) (11.8%) (11.8%) Premier I 1.3% 9,4% 0.6% 0.2%1 (1.2%) Phenom 1007300 1.8% 618% 702% 100.9% 100.9% Citation 0.7% (10.5%) (6.1%) (7.7%) (7.7%) Learjet 25 01% (40.0%)(34.4%) (27.4%) (27.4%) Fabon 10 06% (2.7%) (6.9%) (11.5%) (11.5%) Sabreliner 40 0.6% (22.7% 828.6%) (5.8%) (58%) Citation ILSP 01% (4.3%) (4.5%) 13.3%) (3.3%) AO Sha/ Range Arca!! 53% (3.7%) (20%) 0.9% 0.9% Medium Range Hardier 800XP 7.3% L (8.9ralgr (0.8%) (08%) Cita:on X 39% (1.3%) 4.4% 8.8% 8.8% Clarion Sovereign 3.1% — WNW 7.7% 8.3% 8.3% Eaton 2COD 29% (4.4%) 2.7% 4.9% 4.9% Challenger 300 2.8% ma 61% 10.0% 10.0% Learst 60 24% (8.6%) (2.4%) 01% 0.8% GulhtrownG4lma. 23% Ann 9N 1.3% 1.3% CdatIon II I 8% (13.7%) (6.3%) (5.2%) (52%) (0.7%) (0.7%) atlIstream G100 /G150 1.6% 1.7% (1.4%) 1.0% 1.0% Learjet 55 1.8% Yiestrynd 1124 0.7% (14.7%) (7.6%) (10.5%) (10.5%) A/ ble6vm Range kreraft 32% (13%) arh 2.5% 2.5% Long Range Gullskearn WV/ 6400/G450 4.5% 0.6% 1.7% 5.0% 5.0% Challenge! 604 4.1% (5.2%) p.1%) 0.2% 0.2% Gullstrearn G•V 16500/ G550 15% 3.6% 0.8% 3.5% 3.5% Fakon 9:0 2.1% (2.8%) (0.5%) 1.214 / 1.2% Global Expess 12% 25% 3.1% 6.6% 6.6% Gulldream GIII i G300 iG350 0.7% (17.3%) (8.5%) (5.0%) (5.0%) AO Long Range Airman 15% (1.4%) (0.4%) 2.5% 2.5% Total 100% (3.2%) (11%) 1.7% 1.7% Source: FAA and UBS estimates UBS 12 EFTA01088160 UBS BusinessJet Update 18 January 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 both General Dynamics 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. U13S13 EFTA01088161 UBS BusinessJai Update 18 January 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 Buy 57% 36% Neutral Hold/Neutral 37% 35% Sell Sell 7% 17% UBS Short-Term Rating Rating Category Coverage' IB Serviced Buy Buy less than 1% 0% Sell Sell less than 1% 12% 1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short•Term rating category. 4:Percentage of companies within the Short•Term rating category for which investment banking (IB) services were provided within the past 12 months. Source: UBS. Rating allocations are as of 31 December 2011. UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between •6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event. les EFTA01088162 UBS Business Jet Update 18 January 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•tero (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 4-6% 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 US: David E. Strauss; Darryl Genovesi; Ryan Thackston. Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date General Dynamics Corp.16 = Buy N/A US$71.45 17 Jan 2012 Rockwell Collins Inca' a• 5' 6.4 Ile' 6t. t e. 1R Illa Buy WA US$56.80 17Jan 2012 Textron Inc..°' 7' 111s' lab' 22 Buy N/A US$21.67 17Jan 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. 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. UBS15 EFTA01088163 MS Business Jet UpcleIs 10 January/ 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$) — Price TErpis(USS) Stxk Prte PSE) g Co a a I -5 O I $ S4 aV- s0 $a 4 I I a auf 2 ICI Buf &vial Source: UBS: as of 17 Jan 2012 Rockwell Collins Inc. (US$) — Pete Tirgit(USS) Suck MP aryl =. arc Wain Source: UBS; as of 17 Jan 2012 WS Hi EFTA01088164 UBS BusinessJet Update 18 January 2012 Textron Inc. (US$) — Pete Tag (USE) Sark Pete IUSE) Fp_ g Zt ▪ 4 ▪•e- 4 $ 4 ▪ 4 $ 4 BEESEEESE rti euf Sur Neura lb Riling I Source: UBS; as of 17 Jan 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: Embraer, US$26.73 (17 Jan 2012); Source: UBS. All prices as of local market close. UBS 17 EFTA01088165 UBSBuslnass All Update 1St/Wary 2012 Global Disclaimer This report has been prepared by LIDS Seethes LLC. an ablated UBS AG ues AG. ds subsidianes. branches and athletes are referred le herein as IRS In certain countries. UBS AG is referred le SS VEIS SA. 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UBS dcesnol WIdertake that OweStOrS sal obtain proles. nor mg i intim mill inveatena any inrestmert solG nor swept Oro IleOlty for any ineeStrneM losses enlistment* involve rieks and erreStal 5h0t40 Ciente prudence n makng their initelnent eleCitilOns. The repOn tenon nd tie reinvent' by reciPertS as 8 StbSehte lot the entrees d their can iudfeement PaM PellermanCe is net necessarily a guile to Saxe perlormanco. The value ol any nrostment or income may go Wen as well as up and you may not get bath the lull amour mescal Any opnons wormed in to repa are subject 10 Change striOutnOtiCe an may Oder Or be eOntrtry SO COWS* (opened by Whet titaness antis Or grope el UBS as a anon a using Oitterent MilunWSIS and create Research ad abate. update and cease consago solely at the dscreeon of UBS trrostmant Bank Research Management The analysis contacted heron a based on rumerous assumptions. DIforerd assumptions ccub result in materially deferent results. The analyst(s) response:dofor the preparation ol ma report may interact will eating des& personnel. sales personnel an:lather eOntlehiendera ter the pones. Of getrieftd. ntereitraIng and interpreting market freemen:m.0n IS under no Obrigehtn IO update Or keep current the etarhillen Contained herOM. LOBS rele$ on Internifition beaters to 000801 the tow Of inlOntletiOn contained in One Or more Seed within UBS. int0 Other areas. units. SOWS 018mlates Or IRS The POMPOUS:en Of the enelyte whO prepared this report a datermned excluswdy by research management arid senior management (not incbdng investment banking). Analyst compensaton is not based on investment baiting revenue& hOsever. compensalbn may relate to the revenuesOf UBS twesInent Beni 8S 8 stole. a shahinv.:tenni beano. tiele$ end trading are &pan The sedates described heron may net beetude for sob nab tun:desert a to tartan <stigmas of investors. Options. &maims products and knees are not suitable feral investors. and tradn0 it IIeee inStothenIS IS 0001rdered reky Meng&ge end 8SSetafaked Sertisilde may Involve 8 high degree Cr Mak and may be NSA/ vdeble in restate to axtualbns in eldest rates and other miner cants:rid Pest performance end we:party indicates ol Anne re:Anil. Foreign currency rates d exchange may adverselyaged the value. pbe Or income Or any SeCurty • related instrument mentioned in the 'open. For ',wearies advice. trade execution or other en:tunes. elects should contact their local sales representatve. Nether LIDS nor any of its not env of UBS' Or any Olds larnlefft directors. employees Or agents Sone+ any IOW for wry Ion or deluge insing out ol trio use or all a any peel of the repot Fix trance, instruments admitted to tradng on an EU regulated manor ves AO. es ediliales or subside!** CexclxIng UBS Seounties U.0 etcher IRS Cannel MekeIS LPI eels as a infaltel make,. or Iguelly provider to accordance fah the imerpeetabon of these lel= ri the LSO in the fnancul inhumane a ine issuer save that stem the eerily el leudity provider is carnal out in accordance nth me elelnliOn gleen 10 4 by he lass find regANIOnfi e4 any enter EU jussdalons. such WOrrnaliOn a separately OWOSSO in this research repeal. UBS and Its ciliates and onpbyees may have long or shortpostions fade as pnncipal and buy and sell in reaurrems or dontalives fended herein. Any pnces stated in Ins report are for intonation purpose: only and do not rcpresert valuators for manual seances or other in:Innards. There a no representallon that any transachan Can OF COUld have been erteded at MOSS paces and any pocea 00 not necessarily rebel IRS'S internal 6004 and records Or theCredad MOdelbediedvalieleins end may be based On Celan as:urn:dons. Cheered assurnecns by UBS o any aver source. may paid stbstannty <Waren results. United Kingdom and the test of Europe: Except a: <dhowa spooked herein. the material is communcated by UN Lanted, a subsidiary of UBS AG to persons she are eighth cornterpartes cr professional clients and is only available to such persons. The Monson narrated neon does not apply to. and should not be retied won by. real dents. UBS Lamed is &Whetted end regulated by the Financed Sinker) Authedly (FSA). research Complies ant at FSA reCtukeMentS and laws concertino dradOSuree end these are intCeted On the research where applicable. Feat*: Prepared by UBS Limbed and detrtuted by UBS United and UBS Semites Finance SA. UBS Securikm France SA is regulated by the AUOnte des Mathes Financiers CALIF'. When an analyst of UBS Seaman Franco SA. has coratuled tots repot, the report a also doomed to have tom prepared by IRS Secuttes France S.A. Germany: Prepared by UBS Limited and 04dd:teed by UBS unified and UBS Dente:118rd AO. UBS DettsChland AO ia regulated by Ine BundeMinStell fur FinenidenSleieturppauhieht (EtaFee. Spain: Prepared by UBS tented and dsintutaci by UBS Larded and UBS Seounhas Espatha SV. SA. UBS Sautes Espana SV. SA t towhead by the Carnahan National old lActca63 de Vases ICNIAV). Turkey