EFTA02443877.pdf

UBS Global Equity Research Americas UBS Investment Research Aerospace UBS Business Jet Survey Sector Comment Recovery Stalls 24 March 2010 • Index holds at 50 ww*.ubs comonvestmentreseatch Our March Business Jet Index came in at 50, indicative of a stable market and in line with our prior survey from January following increases in each of our previous eight surveys. While our Index continues to reflect a stable market, our straight up measure of absolute business conditions moved modestly lower this time, the first David E. Strauss decline since March of 2009 and indicative of a slight degradation in market Anato conditions since January. daed strainsktubs Qom .1-212.7136185 • Survey reflects improving customer interest Cristina Fernandez Our survey continues to reflect improving customer interest and a strong I2-month Anaysl outlook, although it is still weighed down by very high used inventory levels. cnsmalemancleziNosoom Pricing in most models is off 30-40% from peak levels, but now appears to be •1.212.713 3321 stabilizing. Overall, our respondents cited an increased willingness to add to their Darryl Genovesi own inventories this time, reflecting increased confidence in near-term Asscoate Anatol pricing/liquidity. Despite improved buyer interest/outlook. we think significant darrytgenovesigubs corn oversupply on the used market, particularly in small/midsize aircraft, will continue •1.212.7134016 to overhang new aircraft orders. Tasneem Azim Assooate Anatest • Prefer GD/COL tasneemiazenVis corn Our Buy rating on GI) reflects an improved defense risk profile and stabilization in .1416-814 3678 our bizjet survey, with particular strength at the high end. Our Neutral rating on TXT reflects concerns over the shape of the recovery at Cessna, given significant oversupply, fractional weakness, and increased competition at the low-mid end (Embraer). Of the suppliers. Buy rated COL is our preferred play on business jets. Chart 1: UBS Business Jet Market Index Chart 2: Overall Business Conditions Score 100 250 10 - 230 210 190 m 170 vse• us, 150 5 130 110 50 70 0 50 0 ct• 2 4 1 ?; t 9 9 *IINIx l 9 2 a/ • z Z a cn UBS Busness Jet Mantel Index — Rol PO MS) ' Simple average stock price performance index Mdides GD(TXT Source UBS Business Jet Survey AI-14 Scums UBS Business Jet Survey 8144 This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 17. 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. EFTA_R1_01519443 EFTA02443877 UBS Business Jet Survey 24 Mach 2010 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 received 150 responses in March. Investment Conclusion Our March Business Jet Index came in at 50, indicative of a stable market and in line with our prior survey from January following increases in each of our previous eight surveys. Our Index measures the change in our respondents' 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 continues to reflect a depressed market, moving modestly lower this time to 3.6 (from 3.7), the first decline since March of 2009 and indicative of a slight degradation in overall market conditions since our prior survey. Our survey continues to reflect improving customer interest and a strong I?- month outlook, although it is still weighed down by very high used inventory levels. Pricing in most models is off 30-40% from peak levels, but now appears to be stabilizing. Overall, our respondents cited an increased willingness to add to their own inventories this time, reflecting increased confidence in near term pricing/liquidity. Despite improved buyer interest/outlook, we think significant oversupply on the used market, particularly in small/midsize aircraft, will continue to overhang new aircraft orders. While not a component of our composite index, our young inventory score remains well below 50, indicating significant oversupply of high-quality young used aircraft. Our Financing score, also not a component of our index, continues to reflect incremental improvement in financing availability. Table 1: UBS Business Jet Survey Results and Comparison to Prior Survey Component Better Same Worse Score Last Tine Change Customer interest 54% 39% 7% 71 76 Pnong 15% 66% 19% 48 45 7% 12 Month Oulfook 61% 35% 4% 79 82 -4% Inventory Levels 2% 6% 92% 5 7 -31% Wdtngness 26% 53% 21% 53 50 6% Composite Index 29% 41% 30% 50 50 0% Young Inventory 8% 25% 67% 20 20 2% Finanong 24% 74% 3% 60 60 0% Business Conditions nla nia nia 3.6 3.7 -1% Source UBS Biomass Jet Survey $43-44 Our Buy rating on GD reflects an improved defense risk profile and stabilization in our bizjet survey, with particular strength at the high end. Our Neutral rating on TXT reflects concerns over the shape of the recovery at Cessna, given significant oversupply, fractional weakness, and increased competition at the low-mid end (Embraer). Among the suppliers, Buy-rated COL is our preferred play on business jets. unS 2 EFTA_R1_01519444 EFTA02443878 UBS Business Jet Survey 24 March 2010 Chart 3: GD and TXT Forward P/E Multiples 4 4 P P 4 4 4 4 Y 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 —vxv Note: Forward PE using ruing 12-month (actual) EPS through June 2009 and UBS eamaies for future periods. TXT PE nib* Mune current period reflects our 2010 estimate. Source: UBS tamales UBS Business Jet Market Index Our UBS Business Jet Index is a proprietary index designed to measure the total "value" of the responses to our survey questions. We have weighted each factor in our index based on our perception of its overall importance to the condition of the new business jet market. Our index is scored on a scale of zero to 100, with 51-100 representing incrementally strengthening market conditions. 50 incrementally stable, and 0-49 incrementally weakening market conditions. Our March Business Jet Index came in at 50, indicative of a stable market and in line with our prior survey from January. Chart 4: UBS Business Jet Market Index 100 S S 'a s ts iaag N NS U ????4444344“MMW;a99s.9a;$;;M:ECM$fl• nASIAIPS1441A&IAIMAIngpmngAnAgni Source: UBS Busmess Jet Surrey 11-44 leS EFTA_R1_01519445 EFTA02443879 UBS Business Jet Survey 24 Mardi 2010 Survey Participant Profile Of the ISO market professionals who responded to our survey, a majority (59%) 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 11% Manufacturer_ 13% Dealenfiroker Financier 59% 17% Note: Other ndudes appraisers, fractional providers. management chartee, FBO and MRO service providers. Source: UBS Business Jel Survey N44 The majority of our participants are located in North America (75%), although most transact a significant proportion of their business with foreign customers. Chart 6: Business Jet Market Survey—Participant Location Chart 7: Proportion of Business Transacted Outside the US Leon America All Nona 3% Middle East 8 Asa 8 Pac5c 9%1 7% Africa 1% Mae than 2% 75% Less than 25% Europe 12% 29% 19% 50-75% North America 21% 75% 25-50% 22% Source: UBS Business Jet Survey N44 Sane: UBS Business Jet Survey N44 Respondents varied fairly uniformly in average transaction size with the majority in the 55-20 million range. Chart 8: Business Jet Market Survey—Average Transaction Size 530M v 6% 50-51A 31% Source: UBS Busness Jet Survey #44 IJBS 4 EFTA_R1_01519446 EFTA02443880 UBS Business Jet Survey 24 Mardi 2010 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 144 responses (six participants did not respond to this question) with scores ranging from zero to eight. Chart 9: Indication of Overall Business Conditions, March 2010 35% - 30% - 25% • I 20% 15% - 12% as 10% • 7% 7% 5% - 3% 3% I. 3% 0% 1% 0% 0% 0 I 2 3 4 5 6 7 8 9 10 Business Condtbons Rank Source: UBS Baseless Jet Surrey #44 Overall, our average business conditions score came in at 3.6. 1% lower compared to our prior survey at 3.7. Chart 10: Overall Business Conditions Score 10 I wm101..e, w w, ',Mania"' *0. 3 I A. 2 2 N ,6wW 0 .0 . Woo 0 oNcm. W - .• WW 40 trini 5 a. O O 202349.111Mr111,95v? ?.”MM211”.1? gA42-42A124 N2AlaN2A131fl'AS A ii -S2A4 Source. UBS Business Jel Stymy #1.44 UBS5 EFTA_R1_01519447 EFTA02443881 UBS Business Jet Survey 24 Medi 2010 This month's decline in overall business conditions was driven by our domestic participants, partially offset by a slight improvement internationally. Chart 11: UBS Business Jet Market Index 10 Dom: 3.5 In0, 4.1 Business Condition Son 5 0 9.4 413143, AH34 t 4 rgirP 1 'Ictigtgan 4 Aiiala34.1244g °4/:r0; 529.1,111HT gakA4gga:.--&.13 ■ Dornessc • Internale:nal Source: UBS Business Jet Storey 4144 Customer Interest In the next question, we asked, "Since our last survey in January, the level of customer interest improved, stayed the same or deteriorated?" Of the 147 responses (three participants did not respond to this question). 54% indicated that customer interest had improved, while 7% indicated that customer interest had deteriorated. The remaining 39% indicated that customer interest had stayed the same. This represents a modest decline from our prior survey, in which 55% indicated that customer interest had improved, 4% indicated customer interest had deteriorated and 41% indicated that customer interest had stayed the same. Chart 12: Indication of Customer Interest, March 2010 Deteriorated 7% Stayed tie named same - 51% 39% Sourer UBS ettsiness Jet Survey 444 UBS 6 EFTA_R1_01519448 EFTA02443882 UBS Business Jet Survey 24 March 2010 Our customer interest score came in at 74, slightly lower from January, but still well above 50, indicating that on average customer interest is improving. Chart 13: UBS Business Jet Survey Score—Customer Interest 100 e2 2 8 2 g 3 c s $ 22 2 I so 2 0 ????M4I4M4W444”,99.79“E3MMe,' , $§”ert nISIA4gAS14444SP4411A4IASiMAS4gA4.14g144 Source: UBS Business Jet Survey 41-44 This slight decline in our customer interest score was driven by our domestic participants, while international customer interest increased this month. Chart 14: Customer Interest, Domestic vs. International 100 ?;44444rrnmirnrn“r4 - 4°,3WM$$$$$$- A4P1144Z 4 csIVAIR144MILIMMAJP,RIAI ODomslic MWmaoral Source: UBS Business Jet Surrey #1.44 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 III responses (39 participants did not respond to this question). 62% indicated they were seeing the strongest interest in large cabin aircraft, with 15% indicating midsize and 23% indicating small cabin. These results are broadly in line with our prior survey, in which 66% indicated they were seeing the strongest interest in large cabin aircraft, 14% indicated midsize and 20% indicated small cabin. UBS7 EFTA_R1_01519449 EFTA02443883 UBS Business Jet Survey 24 March 2010 lo Chart 15: Cabin Class with Most Buyer Interest, March 2010 Small Cabin 23% McBice Cabin - Large Cabin 15% 62% Source: UBS Business Jet Sway #44 Pricing In the next question, we asked, "Since our last survey in January, overall pricing levels increased, stayed the same, or decreased?" Of the 145 responses (five participants did not respond to this question), 15% indicated that pricing levels had increased, while 19% indicated that pricing levels had decreased. The remaining 66% indicated that pricing levels had stayed the same. These results represent an improvement from our prior survey, in which 14% indicated that pricing levels had increased. 24% indicated that pricing levels had decreased, and 62% indicated that pricing levels had stayed the same. Chart 16: Indication of Pricing, March 2010 °encased [ficreased 19% 15% Stayed tee same 66% Source: Source: UBS Business JM Survey 044 UBSS EFTA_R1_015194 50 EFTA02443884 UBS Business Jet Survey 24 Mani 2010 Our pricing score increased 7% this time, the eighth straight increase, and is now nearing the 50 mark, indicating pricing is well on its way to stabilizing following significant declines over the past two years. Chart 17: UBS Business Jet Survey Score—Pricing CIO s Mn ZI 3 18 3 SZ Sam 2 F. 0 Im38.”44-44w34.1”2mtfs99nicia Enc$1.$5'73! T -Moip4PA4A3 n-WAII”qA 44 1.N4AgiN4i414Sii-k isu Source UBS Buwess Jet Survey #1.44 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 107 responses (43 participants did not respond to this question), 75% indicated they were seeing the strongest pricing in large cabin aircraft, with 8% indicating midsize and 17% indicating small cabin. These results are broadly in line with our prior survey, in which 71% indicated they were seeing the strongest pricing in large cabin aircraft, 12% indicated midsize and 17% indicated small cabin. Chart 18: Cabin Class with Strongest Pricing. March 2010 41 Melsee Cabtn 8% Large Cabin 75% Source. U8S Busness Jet Sunray #44 UBS9 EFTA_R1_01519451 EFTA02443885 UBS Business Jet Survey 24 Mach 2010 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 149 responses (one participant did not respond to this question), 61% expect business conditions to improve, while 4% expect business conditions to deteriorate. The remaining 35% expect business conditions to stay the same over the next 12 months. These results represent modest degradation from our previous survey, in which 66% expected business conditions to improve, 3% expected conditions to deteriorate and the remaining 31% expected business conditions to remain relatively unchanged over the following 12 months. Chart 19: 124honth Forward Outlook for Business Conditions, March 2010 Deteriorate Slay tie sane 35% 61% hriPmve Source: UBS Business Jet Survey #44 Our 12-month outlook score came in at 79 this timc, slightly below our prior survey, but still well above 50, indicating that our survey participants expect market conditions to improve over the next 12 months on average. Chart 20: UBS Business Jet Survey Score-12-Month Outlook 100 - ; 0. St 2 2 a a 28 2 2 Mg 2 r-2 12 22 a or. e 0 0 nicti441444WiTi$ 4$4,W4W1§q4§rnml, ” ;AN*Ala-gPili-x441441A41)42A,l'AfigA144442 Source UBS Business Jet Surly #1-44 USS 10 EFTA_R1_01519452 EFTA02443886 UBS Business Jet Survey 24 Uwe 2010 Overall Inventory Levels In the next question, we asked, "How would you characterize current inventory levels?" In this question, we targeted broker/dealers, but in some cases, other participants also responded. The survey participants were asked to select "high", "average", or "low." Of the 128 responses (22 participants did not respond to this question), 2% believe inventory levels are low, while 92% believe inventory levels are high. The remaining 6% believe inventory levels to be at average levels. These results represent modest degradation from our previous survey, in which I% believed inventory levels to be low, 88% believed inventory levels to be high. and the remaining 11% believed inventories to be at average levels. Chart 21: Indication of Inventory Levels, March 2010 Low 2% 1 __Average 6% High 92% Source: UBS Busitess Jet Survey 444 Our inventory score at five continues to reflect extraordinarily high overall inventory levels. Chart 22: UBS Business Jet Survey Score—Inventory Levels 10: 3 so ti~ 4 tr. 10 0 filfiltrpszp9. ”. qm4pc i,92.91!;989my. flla45134.gs4AaP,N4A3144§.315,s411a41,t4g43I-ica 2a Source: UBS Busiass Jet Surrey 0-44 US$ 11 EFTA_R1_01519453 EFTA02443887 UBS Business Jet Survey 24 WO 2010 Young Inventory Levels In the next question, we asked, "Flow 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 126 responses (24 participants did not respond to this question). 8% believe young inventory levels are low, 67% believe young inventory levels arc high, and the remaining 25% believe young inventories to be at average levels. These results are roughly in line with our prior survey. Chad 23: Indication of Young Inventory Levels, March 2010 Low 5% III Average 25% 67% Source: UBS Bessiess Jet Surey #44 While our young inventory score reflects a drawdown from the recent peak, it still reflects a significant oversupply of high-quality. young used aircraft. Chad 24: UBS Business Jet Survey Score—Young Used Inventory Levels 100 91 91 86 90 87 91 90 88 77 Young Inventory Score 50 N 20 0 1111111 11 1 1 iii il ek; . ; .; .;1 1 3 3 4 5i &) 1 ;F. -rt (,; &, 25) 3 g i g Source: UBS Business Jet Survey /11-44 UBS 12 EFTA_R1_01519454 EFTA02443888 UBS Business Jet Survey 24 Meat 2010 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 76 responses (74 participants did not respond to this question), 26% indicated they would be more willing to take on inventory, while 21% indicated they would be less willing to take on inventory. The remaining 53% indicated no change in their willingness to take on inventory. This represents an improvement from our prior survey, in which 25% indicated they would be more willing to take on inventory, 26% indicated they would be less willing to take on inventory and the remaining 49% indicated no change in their willingness to take on inventory. We use this question to validate sentiment in the marketplace with regard to the near-term outlook. Chart 25: Willingness to Increase Inventory Levels, March 2010 Less More wiling 21% 26% Same 53% Source: UBS Bailees Jet Sony X44 While this is the most volatile component of our survey, our willingness score increased 6% this time to 53, indicating respondents are more likely to add to inventories and reflective of increased confidence in near-term pricing/liquidity. Chart 26: UBS Business Jet Survey Score—Willingness to Increase Inventory Levels 100 I 8 aa FF 2 8 85 a a ,.. 2 * SA G A M2 2 sit 8 St 2 so si I 0 ???0p4n9.4 ”m””9999 /9”;$2mEmEpsis. k'ndi A314A4i2P,UA-2-1,t4AgILA4A,MAg4gAillA04A1 Source: UBS Business Jel Survey #1-14 03513 EFTA_R1_01519455 EFTA02443889 UBS Business Jet Survey 24 March 2010 Customer Financing In the next question, we asked, "Since our last survey in January, has the availability of customer financing improved, stayed the same, or deteriorated?" Of the 148 responses (two participants did not respond to this question), 24% indicated that customer financing conditions had improved, while 3% indicated that financing conditions had deteriorated. The remaining 73% indicated that financing conditions had stayed the same. These results are roughly in line with our prior survey. Chart 27: Financing Conditions, March 2010 Unfermented 3% knproved 24% Stayed the 5.111T41 73% Source: UBS Busriess Jet Surrey #44 Our financing score came in at 60 this time, in line with our previous survey and indicating continued incremental improvement in financing availability. Chart 28: UBS Business Jet Survey Score—Financing 100 I2 50 01 53 57 58 60 60 60 0 Source: UBS &mess Jel Survey #44 J15 14 EFTA_R1_01519456 EFTA02443890 1)85 Business Jet Survey 24 Math 2010 Commentary The following are selected comments from business jet professionals. Current Market Conditions ■ Things are getting better, but we are not in a 'V' recovery, not even close. ■ Still too many buyers only interested in buying at wholesale prices. ■ We have seen a strong upturn, back to the levels of 18 months ago. ■ International (Non-US) markets are holding a good level of interest and sales, reflecting an improved economy in some regions, Brazil for example. ■ Flying has picked up 5-10% since this time last year. ■ Best first quarter in years! Prices have been dropping over the last couple of weeks, which probably helps. Business is getting better by the day! ■ Business is improving. ■ The used market is approaching normal levels, although pricing remains highly depressed. Interest & Inquiries ■ Call volume and interest are still rising, with most of our interest coming from overseas. ■ There is activity in the marketplace but it seems to come in spurts. Other dealers have said the same thing to me. Things heat up, some sales take place and then everything goes quiet for a few weeks. ■ We continue to observe a gradual improvement in demand. ■ Interest levels continue to rise, but this has not yet translated into a significant improvement in sales. Pricing ■ Buyers are seeking large discounts on repo purchases. ■ We have been trading corporate jets in the global market since 1977 and this is the worst price collapse we have ever seen. ■ Increasing rumors about heavily discounted new OEM product are negatively impacting pre-owned valuations. ■ Gulfstream products remain the strongest; Challenger 604 and Citation Excel have improved; Citation X and Hawker 400/800 are still declining. ■ Prices continue to erode. ■ Prices arc still low and buyers are looking for bargains, but them are plenty of buyers out there. USS 15 EFTA_R1_01519457 EFTA02443891 UBS Business Jet Survey 241402010 Financing ■ Liquidity has yet to fully return. The banks are hurting their asset value by failing to fund an orderly market again. ■ Dealer floor plan financiers are nearly extinct. ■ As the market works through inventory, credit will become more available. However, we may never sec rates go as low as in the past. ■ Financing is very difficult to find. ■ Banks' client selection and underwriting scrutiny have never been more stringent. ■ While lender scrutiny is relaxing and overall the financing environment appears to be opening up, availability remains depressed. We are still far from the conditions of 2006-07. ■ Still very limited lending. ■ Many banks and finance companies are more focused on reducing repo inventory than supporting buyers with competitive financing. Transactions ■ It is a kind of hit or miss world for most. If the moon, sun and stars align and you have the right buyer, seller and airplane you can make a deal. ■ Younger aircraft are selling, while older aircraft are taking forever to sell. ■ In the last 30 days we have closed four transactions to retail buyers. ■ The market has improved somewhat, but buyers are still a bit hesitant to pull the trigger. International buyers are only slightly more aggressive. ■ We have three aircraft pending sale: one Challenger 601 and two Hawker 800s. All three are for retail customers with financing secured, and all are likely to close within the next 1-3 weeks, but these are VERY cheap compared to the rest of the market and compared to book value. Outlook ■ I do not expect the market to fully recover for at least another 1-2 years. ■ We may be running into a double-dip situation, similar to 1984.85. ■ The traditional corporate flight department is awakening from its long winter nap, which should mean a much stronger 2010-1I than 2009. ■ Until we see hiring resume, production increase, housing starts and sales on a steady incline, consumer spending increase and consumer confidence grow each month we will see more of the same in aircraft sales activity. ■ The two major hurdles are the trade gap and credit availability / rates. OBS 16 EFTA_R1_01519458 EFTA02443892 UBS Business Jet Survey 24 Mart 2010 ■ 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 arc 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 (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. USS 17 EFTA_R1_01519459 EFTA02443893 UBS Business Jet Survey 24 Muth 2010 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 Investment Research: Global Equity Rating Allocations UBS 12-Month Rating Rating Category Coverage' IS Services Buy Buy 48% 40% Neutral Hold/Neutral 40% 35% Sell Sell 13% 26% UBS Short-Tenn Rating Rating Category Coverage IS Services Buy Buy less than 1% 17% Sell Sell less than 1% 67% 1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12month 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 2009. 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. U6S 18 EFTA_R1_01519460 EFTA02443894 UBS Business4st Survey 24 Maids 2010 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 U8S 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.