EFTA01088167.pdf

Global Equity Research UBS Investment Research UBS Business Jet Survey 0.71-171C7 Stable Overall, North America Improving 2 February 2012 • Index at 41, unchanged from November 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 straight up measure of absolute business conditions declined 2% to 4.0. Overall, it appears the market has held relatively stable despite continued economic David E. Strauss uncertainty. Anatyst • North America customer interest improving While weak pricing and high levels of inventory remain a drag on the market, our Da enovesi survey continues to indicate that customer interest is improving and participants Ana st 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 Ryan Thackston (44) and Europe (31). Our participants indicated bonus depreciation did not Assocete Anahsl meaningfully impact year end activity. • See positive risk-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 COUGD/TXT. Chart 1: UBS Business Jet Market Index Chart 2: Overall Business Conditions Score 8 `4) " co 2 co 2- z z 11.-20M4 4 8 16. 16. SgssSsss" UBS Business Jet Market Index — • Rel Ped (RHS) 1-.12:42.P2.-217.2 • Sonia average BB11GOITXT stock price perbrmance Maar relatma to SSP 500 Source: UBS Business Jet Survey Source: UBS Business Jet Sunrey This report has been prepared by UBS Securities LLC ANALYST CERTIRCAMON AND REQUIRED DISCLOSURES BEGIN ON PAGE 18. UBS does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. EFTA01088167 UBS ButesJet Survey 2 February 2012 Business Jet Market Survey Ow UBS Business Jet Market Survey is designed to provide timely market data supplied directly by industry professionals. We regularly survey a group of US domestic and international broker/dealers, manufacturers, fractional providers, financiers and others, from whom we recently received 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. ow survey continues to indicate that customer interest is improving and participants are 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 15, 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% Pricing 3% 60% 37% 33 40 -17% 12 Month Collodi 41% 51% 6% 66 60 11% Inventory Levels 3% 24% 73% 15 19 -19% w0ingness 16% 56% 28% 44 41 9% Composite Index 16% 49% 35% 41 41 0% Young Inventory 17% 47% 36% 40 43 .7% Financing 18% 70% 12% 53 53 0% Business Conditions nisi Na in 4.0 4.1 -2% Source: UBS Business Jet Survey UBS 2 EFTA01088168 UBS Business Jet Survey 2 Fettuanr 2012 UBS Business Jet Market Index Our UBS Business Jet Market Index is a proprietary index designed to measure the total "value" of the responses to our survey questions. We have weighted each factor in our index based on our perception of its overall importance to the condition of the new business jet market. Our index is scored on a scale of zero to 100, with 51.100 representing incrementally strengthening market conditions, 50 incrementally stable, and 0-49 incrementally weakening market conditions. Our 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 tnEft8 1;3 3 'rirmr Zir 13 `° 1 g ta SS :mg 50 4' 4 1 ANaXl 0 1,4* SS S ” rit tifeYer BBBBSSBS$ Epre"'”e . i° 34 A4g 4S4AggS A2g44Arang, A 2 g 4 SIA214V1A214a1A Source: UBS Business Jel Survey Market Segment Indices By market segment, ow 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 0 0 0 0 0 0 A 2 4 A 2 n A — Survey Index —0— Smal -s-Midsize —M— Large Source: UBS Business Jel Survey UBS 3 EFTA01088169 UBS Business Jet Survey 2 Fel:only 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 Other 14% Manulanser 9% Financier Dealer/Broker 17% 60% Note:Other inckides appraisers. tractional providers. management. charter. FBO and MRO service providers. Sauce: UBS Business Jet Survey The majority of our participants are located in North America (74%) with an additional 21% in Europe. Chad 6: Business Jet Market Survey - Participant Location Lath America Asia & Pacific 2% Middle East & Ahica 1% 2% Europe 21% Source: UBS Business Jet Survey UBS 4 EFTA01088170 UBS Business Jet Survey 2 February 2012 While the majority of our survey participants are located in the U.S.. most transact a significant proportion of their business with foreign customers. Chart 7: Proporlion of Business Transacted Outside the US All None 9% 9% More than 75% a Loss Man 25% 17% 31% 16% 25-50% 18% Source: UBS Business Jel Survey Respondents varied fairly uniformly in average transaction size with the majority in the S5-20 million range. Chart 8: Business Jet Market Survey- Average Transaction Size 53061. 520-X81 50-5M 11% 4)28% $10•20M 26% 65•1OM 28% Source: UBS Business Jel Survey UBS 5 EFTA01088171 UBS Business Jel Survey 2 February 2012 Survey Results Overall Business Conditions In the first question, we asked, "On a scale of zero to 10, how would you characterize overall business conditions after factoring typical seasonality (0 = the worst ever, 5 = normal, 10 = the best ever)?" Note that while our Business Jet Market Index (discussed earlier) indicates incremental change from the prior period, this question is meant to measure the absolute level of business conditions. We received 156 responses (five participants did not respond to this question) with scores ranging from zero to eight. Chart 9: Indication of Overall Business Conditions, January 2012 35% — 33% 30% — 27% s 25% - g 20%— 17% m r1b 15% - -a ke 10% — I 6% 5% 5% 1% El 1% 3% 0% 0% — „ ■ • r la m 0 1 2 3 4 5 6 7 8 9 10 Business Conditions Rank Source: UBS Business Jel Survey Overall, our average business conditions score came in at 4.0, 2% lower from ow prior survey in November. Chart 10: Overall Business Conditions 10 Overall Business Condidons e„"_ -vtriu2-vin rogrcovdrogt vo gtva- „,n NE 5 cloirrio4 Clef Cl 410., SPCC . 0 1 11/11111111111111111111 a44a 4888“844888,,,n ags2s888844s$ss-00-0 1011111111 "'II 44410g44115,241titglIplOWAWWW,8024481A Source: UBS Business Jel Survey UBS 6 EFTA01088172 UBS Business Jet Survey 2 Fetruanr 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 a_ deteriorated and 53% indicated that customer interest had stayed the same. Chart 11: Indication of Customer Interest, January 2012 19% \ - Improved 2936 Slay ad Fe same 5296 Source: UBS Business Jon 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 1 82 . 2 2 22 (49, 2 22 0 4sIa4“8,. 88448 88.5.99.?- ””22”$SSSS`. -:°° 171 °7 t441p244115241tAwIliloltAl2441112gAg8p44181i Source: UBS Business Jon Survey UBS 7 EFTA01088173 UBS Business Jet 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 off. Chart 13: Customer Interest Score by Region Relative to Pilot Survey in November Not America Europe Latin America Middle East Asia ■ Nor Survey ■ Cuuent Survey Source: UBS Business Jet Survey Customer Interest by Cabin Class In the next question, ow participants were asked to indicate the class of aircraft in which they were seeing the most interest from potential buyers. Respondents were asked to choose from Large Cabin, Midsize Cabin or Small Cabin. Of the 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 ow 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 Small Cabo 14% Migetze Cabin 14% Large Cabin 72% Source: UBS Business Jet Survey UBS 8 EFTA01088174 UBS Business Jet Survey 2 February 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 3 Increased 3% Decreased 37% Stayed the same 60% Source: UBS Business Jel Survey Our pricing score came in at 33, 17% lower from our prior survey in November. Chart 16: UBS Business Jet Survey Score - Pricing 100 VI tel.'. v. , "' WSJ ESIF,4 on :,-, SS ffl 77:m" s V .m oo e.rq VV47...fl w 0 7- I" zmm z z rr , rns- zo mm z Z Z Source: UBS Business Jel Survey UBS 9 EFTA01088175 UBS BusinessJet 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 Cabe, 4% Midsize Cabin 7% Large Cabin 89% Source: UBS Business Jel Survey 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 56% 60% - 50% 40% 30% 20% 10% 6% 6% 7% 7% 6% ms 2% i% 1% 0% r ill a M .= SO S All r am, 0 I 2 3 4 5 6 7 8 9 10 Source: UBS Business Jet Survey Ul3S10 EFTA01088176 UBS Business Jet Survey 2 February 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 Oalerloran 8% Improve 41% Slay tie same ,0 51% Smuts: UBS Business Jel Survey Our 12-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 00 gmnnUP gRca 7.3 Aas 50 0 0 1 4IIMMII"Vh c triAMWT $I $II" c " c ---- . , mm, . , mm- . , mm - Scums: UBS Business Jel Survey UBS 11 EFTA01088177 NS Business Jet Survey 2 Fettuanr 2012 Overall Inventory Levels In the next question, we asked, "How would you characterize current inventory levels?" In this question, we targeted broker/dealers. but in some cases, other participants also responded. The survey participants were asked to select "high", "average", or "low." Of the 125 responses (36 participants did not respond to this question), 3% believe inventory levels are low, while 73% believe inventory levels are high. The remaining 24% believe inventory to be at average levels. These results are weaker than our prior survey in November in which 6% believed inventory levels were low, 73% believed inventory levels were high and the remaining 24% believed inventory to be at average levels. Chart 21: Indication of Inventory Levels, January 2012 Low 3% Average 24% Hal 73% Scone: UBS Business Je1 Survey Our inventory score came in at 15 this time, 19% lower from our prior survey in November, and continues to reflect very high overall inventory levels. Chart 22: UBS Business Jet Survey Score - Inventory Levels .. 100 .m o I 50 n11111111111 1111 AcAcq-'14`:Aialmin . 4aza4444:884444:84.4-4-4486:484882s$ssess000mo .2 2441J,24:iligaliga5,11,10111,144411A44;14iigiA411AgA f0 CO CO ,- is_ Of Of Source: UBS Business Jet Survey UBS 12 EFTA01088178 UBS 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 are low, 36% believe young inventory levels are high, and the remaining 47% believe young inventories to be at average levels. These results are 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 be at average levels. Chart 23: Indication of Young Inventory Levels, January 2012 Low Hgh 1 36% Average 47% Saute: UBS Business Jel 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 100 91 91 88 90 87 91 90 gg 77 Young Inventory Scan 64 47 50 32 32 33— S 45 25 20 20 27 22 23 33 25 12 14 6 4 4 4 a 0 qqcc apo c‘o v cs $$$$$$°a • ----- " fi 4,-S cfaz -3u- -8.0.gl-a s ;-.m a- 8 4 53 :4-4 ,-gza A Source: UBS Business Jel Survey UBS 13 EFTA01088179 UBS Business Jet Survey 2 Fetruan. 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 did 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 are 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 More 6:1 119 Less wiling 16% 28% Saute: UBS Business Jel Survey 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 ow prior survey in November. Chart 26: UBS Business Jet Survey Score - Willingness to Increase Inventory Levels 100 - „,2 2, r_ .(7„53 ui I SS — Sra .47) 8, e S S tr sr=rer.er I 50 v., SW., • S g3 0 i II I t•I -3 -82 .-3 -82 .--82mtgp5tv,ftt5avzsasaA.zzaasaA.zsas Source: UBS Business Jel Survey 1113S 10 EFTA01088180 UBS Business Jet Survey 2 February 2012 Customer Financing In the next question, we 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). IS% 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 Deteriorated toprov rid 12% 18% Stayed the same 70% Source: UBS Business Jel 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 63 ea 58 j 53 57 58 60 60 60 60 58 55 54 55 53 1 53 53 E° so — 41 c 32 LL 0 i 1110 4 0$ 4 0$ a a Oa a a a 1 1M11111111 A4 4 fl rn 4 ..rstA4pat , • Sauce: UBS Business Jet Sauey UBS 15 EFTA01088181 UBS ButesJet Survey 2 Febmary 2012 Commentary The following are 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. U13S16 EFTA01088182 UBS BusinessJai Sown 2 Fe!query 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. UBS 17 EFTA01088183 UBS Business Jet Survey 2 Felxuary 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 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. WS 18 EFTA01088184 UBS Business Jet Survey 2 February 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 Coverages 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. UBS 19 EFTA01088185 UBS Business JM 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's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near•term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management. performance record, discount; Sell: Negative on factors such as structure, management. performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/•6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non•US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company. public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report. if any, follows. UBS Securities LLC: David E. Strauss; Darryl Genovesi; Ryan Thackston. Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date General Dynamics Corp." Buy N/A US$69.71 01 Feb 2012 Rockwell Collins Inc?' 4' S' 644 436' " ' 0.1&IN Buy N/A US$59.12 01 Feb 2012 Textron inc.6°' 7' 1" e' llth' 22 Buy N/A US$25.66 01 Feb 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 subsidaries 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 EFTA01088186 OBS Business Jet Survey 2 February 2012 13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company's common equity