EFTA01177210.pdf

Global Equity Research Donl UBS Investment Research UBS Business Jet Update Sector Comment Cycles Lower Sequentially 25 May 2012 • Cycles 1% lower sequentially mwrebs.cominvestmentiesearch We estimate business jet cycles (takeoffs & landings) were 1% lower from the prior year in April, better compared to 3% decline in March on easier comp as seasonally-adjusted cycles moved 1% lower sequentially. We estimate cycles are now running 26% higher from trough in early 2009, although still off 18% from David E. Strauss prior peak in late 2007 including relatively flat cycles for past 18 months. Analyst [email protected] • Long- and short-range cycles declined on sequential basis +12127136185 By segment. we estimate long- and short-range aircraft cycles were both 1% lower Darryl Genovesi sequentially in April. while medium-range was roughly flat. Overall, through the Analyst recovery, short-range aircraft cycles have improved the most, up 28% from trough [email protected] in early 2009 with mid-range and long-range both up 23%. Of the five major +12127134016 manufacturers. Dassault cycles decreased the most in April, down 4% sequentially, Matthew Akers followed by Gulfstream down 2% and Cessna down 1%, while Bombardier and Associate Analyst Hawker cycles were roughly flat. Dassault cycles are now 23% below prior peak in mallhevrakers@ibecom 2007 with Bombardier/Cessna/Hawker all 20.21% below and Gulfstream 18% +1.212-713 4881 below, while Embraer cycles have roughly tripled. Please see inside of note for detail by engine/avionics supplier. • See positive risk-rewards We believe North America bizjet is improving driven by replacement demand postponed during the downturn. We still see positive risk-rewards as we don't think stocks incorporate much for bizjets following recent underperformance. We prefer TXT/COL chart 1: Seasonally-Adjusted Monthly Cycles Chart 2: YoY Absolute Cycle Growth 450.000 30% 400.000 20% 350.000 10% 300.000 250.000 0% 200.000 -10% 150.000 40% 100.000 -30% 50.000 04 Ohl 03 M.. yr ttl 0 0 0 00 0 0 1 ai a l 9 a l 9 a l 9 0 9 a l 9 a l 9 a l 9 a l 9 a l --. r. 0 C8 CO C8C8C8 QO C8C8 C8 COC 8C 4S4 S4S SS t3 :7 ='XX yly Cycle Growth A1261 Average Source: FM and UBS eslirnanys Source: FM and UBS eslimaies This report has been prepared by UBS Securities LLC ANALYST CERTIRCATION 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. EFTA01177210 UBS BusinessJet Update 25 May 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 £n 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 1% lower from the prior year in April, better compared to a 3% decline in March on easier comp as seasonally-adjusted cycles moved 1% lower sequentially. Chart 3: Seasonally-Adjusted Sequential Cycle Growth Chart 4: YoY Absolute Cycle Growth 'j• ic n 2'4 t‘i 1.=7 2 ::" '- CL ................. . . 40404040404040404040404 in a 0.1 in in aa in in to n s. co s. cri s. 7 7 yiy Cycle Growth —8121.4 Average Source: FM and CBS estimates Source: FAA and UBS estimates We estimate charter activity in April was 5% higher from the prior year on a rolling 12-month basis including 3% growth on an absolute (unsmoothed) basis. Meanwhile, non-charter (military, freight and general aviation) was I% lower on a rolling 12-month basis, including a 2% decline on an absolute basis. Chart 5: Roling 12-Month Average Blzjet Cycles by User Type and YoY Growth Reding 12 Month Avg Cycles YoY Growth in R12M Avg eyelos 400.000 • 15% • 10% 300.000 5% 0% 200.000 .5% • 40% 100.000 45% 0 I II •20% •25% sq.”88 4“S 8 6-.8 2”° -- "! 484848484848484-84-848484 Charter Trak An Other Traffic — y/y Growth in RIM Cycles Source: FAA and CBS agnates UBS 2 EFTA01177211 UBS Business Jet Update 25 May 2012 Flight Activity by Manufacturer Of the five major manufacturers, Dassault cycles declined the most in April, down 4% sequentially, followed by Gulfstream down 2% and Cessna down 1%, while Bombardier and Hawker cycles were roughly flat. We estimate Cessna aircraft accounted for 37% of all business jet cycles flown over the past 12 months, followed by Bombardier at 21%, Hawker at 17%, Gulfstream at 12% 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 I 1%. Chart 6: Cycle Distribution by Manufacturer-12 Months Ended April 2012 Odle/ Dassault 4% 9% Gultstream 37% 12% Hawker Beechenft 17% Banbardbw 21% Note: Analysis does not iodide Embraer Legacy 600. which we esbmale make up 1% of the Patted fleet. Source: FAA and UBS estimates We estimate Cessna cycles in April were roughly unchanged from the prior year on a rolling 12-month basis, although 1% 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% Goivavg4sostnsaso maknakaka-Fakaka.nkn yty Cycle Growth - Cessna — Poling 12 Morin Average Source: FAA and UES estimates UPS 3 EFTA01177212 UBS Business Jet Update 25 May 2012 We estimate Bombardier cycles in April were roughly unchanged from the prior year on a rolling 12-month basis, although 3% lower on an absolute basis. Chart 8: YoY Growth In Absolute and Rolling 12-lilonth Cycles—Bombardier 30% 20% 10% 0% -10% 20% 30% 40% 4 - 4 - 4V??444)$$$4&4 1M""="7" 4:4 Am8A,8 tata i•ZiAm8A, Zii."6 taM yey Cycle Grow b BombarCier —Roling 12 Month Average Source: FAA and UBS enemies We estimate Hawker Beechcraft cycles in April were 2% lower from the prior year on a rolling 12-month basis, including a 2% decline on an absolute basis. Chart 9: YoY Growth In Absolute and Rolling 12.Month Cycles—Hawker Beechcraft SO% 40% 30% 20% 10% 0% -10% a a a a Q- 8 .2-a Q- 8 Q- 8 Q- 8 Q- 8 Q- 8 Q- 8 .2- a Q- yry Cycle Growth • Hawker Beachcrafl — Acing 12 Month Average Source: FAA aM IBS estimates UBS 4 EFTA01177213 UBS Business Jel Update 25 May 2012 We estimate Gulfstream cycles in April were 1% higher from the prior year on a rolling 12-month basis, although 2% lower on an absolute basis. Chart 10: YoY Growth in Absolute and Rolling 12-Month Cycles—Gulfstreatn 40% 30% 20% 10% 0% 10% 20% 30% 40% m999 99m W9999999999 CM M l" Ul CO CO OO CO Cn OI O C. ,pm. . .04 ct 0 a a .4L2f a a a a a a a 0 ct a a a IL y/Y Cycle Growth • Gultsteam — yiy Growth in R13A Cy des Source: FAA and UBS estimates We estimate Dassault cycles in April were 2% lower from the prior year on a rolling 12-month basis, although 2% higher on an absolute (unsmoothed) basis. Chart 11: YoY Growth In Absolute and Rolling 12-Month Cycles—Dassault 40% 30% 20% 10% 0% -10% 40% GO% .40% 4 F?”$$$M444444$ 2?`" :1 nESQ - amnannnmn y Cycle Growth • Dassault — yly Growth in R12M Cycles Source: FM and UBS estimates UBS 5 EFTA01177214 UBS BusinessJet Update 25 May 2012 Flight Activity by Engine and Avionics Supplier We have also analyzed business jet flight activity by engine and avionics supplier. Cycles declined across four out of five engine manufacturers in April with GE and Rolls-Royce cycles down 3% on a seasonally-adjusted sequential basis, followed by Williams International down 2% and Honeywell down 1%, while Pratt Canada (PWC) cycles were roughly unchanged from March levels. By avionics supplier, we estimate Rockwell Collins avionics cycles were roughly flat on a seasonally-adjusted sequential basis, while Honeywell cycles declined 2%. 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 13%, Williams International at 8%, and GE at 6%. We estimate Rockwell Collins avionics accounted for 52% of all business jet cycles over the past I? months, while Honeywell avionics accounted for 39% of total cycles. Chart 12: Cycle Distribution by Engine Supplier Chart 13: Cycle Distribution by Avionics Supplier Wiliam s GE Cthet 8% 6% 9% Rolls-Royce 4111 1 13% Honeywell 29% HPney wed 39% 44% Source: FAA and UBS estimates Source: FAA and UBS estimates We estimate PWC engine cycles in April were 2% higher from the prior year on a rolling 12-month basis including 1% growth on an absolute (unsmoothed) basis. Chart 14: YoY Growth in Absolute and Roiling 12-Month Cycies—PWC Engines 40% 30% 20% 10% 0% -10% -20% 30% .40% cs.a C•1 M CI in in to 0 r- I .- to CO cr. 0 0 0 N 0 9 0 9 0 9 0 9 0 9 0 9 0 9 0 9 0 O^ . . C8C8C8C8C8C8C8C8C8C8C8C yiy Engine Cycle Growth • PWC — Rolling 12 Month Average Source: FAA and UBS agnates UBS 6 EFTA01177215 UBS BusinessJet Update 25 May 2012 We estimate Rolls-Royce engine cycles in April were 3% higher from the prior year on a rolling 12-month basis, although 2% lower 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% crepz?4.$434 Q Q $$"'- et's li yly Engine Cycle Growl • Rolls•Royea — Rang 12 Month Average Sane: FM aM UES estimates We estimate Williams International engine cycles in April were 1% 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 r?Gtz?"4`444; k8k8 4 O k8k8k8 4 O k8k8 =MI yry Engine Cycle Growl • Maths — Rdling 12 Month Average Saute: FM aM UBS estrides UBS 7 EFTA01177216 MS BusinessJai Update 25 May 2012 We estimate GE engine cycles in April were 9% lower from the prior year on a rolling 12•month basis including a 2% decline on an absolute basis. Chart 17: YoY Growlh in Absolute and Rolling 12-Month Cycles—GE Engines 40% 30% 20% 10% 0% -10% -20% -30% -40% :i444`4'444 .41 ”Mee°4“ y$j yj yy .r: 2 7 — c' ya; Engine Cycle Growth • GE — Rolling 12 Month Average Scarce: FAA and UBS agnates We estimate Honeywell engine cycles in April were 1% lower from the prior year on a rolling 12•month basis including a 3% decline on an absolute basis. Meanwhile. Honeywell avionics cycles were roughly flat from the prior year on a rolling I2-month basis, although 2% lower on an absolute basis. Chart 18: Honeywell Engine Cycle Growth Chart 19: Honeywell Avionics Cycle Growth 40% 30% 20% 10% 0% •10% 20% 30% 40% 5444?444*Mfl4444" 1".1- 7' 6-444g?4M“fl44r - 7" narnatd.H.H.M848484 EgEg.,848.,848.,848.,848.,812- yfy Engine Cycle Growth • Honeywell — R12M Average yly Avionics Cycle Growth • Honeywell — R12M Average Scarce: FM and UBS estvnales Source: FAA and UBS sigmas UBS 8 EFTA01177217 CBS BusinessJet Update 25 May 2012 We estimate Rockwell Collins avionics cycles in April were 1% lower from the prior year on a rolling 12-month basis including a 1% decline on an absolute (unsmoothed) basis. Chart 20: Rockwell Collins Avionics Cycle Growth 40% 30% 20% 10% 0% -10% -20% -30% 40% Thtb' Thtb' Q- 6' 6 O Q .2- .2- O Q- yty Avionics Cycle Growth • Rockwell Collins — Rolling 12 Month Average Source: FAA and UBS agnates Flight Activity by Market Segment By segment, we estimate short and long-range aircraft cycles both decreased 1% sequentially in April, while mid-range cycles were roughly flat. Overall, through the recovery, short-range aircraft cycles have improved the most, up 28% from trough in early 2009 with medium and long-range both up 23%. 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 35% and long-range aircraft at 19%. Chart 21: Cycle Distribution by Range Class-12 Months Ended April 2012 Long !large 15% Shod Range Medum Range 32% Rote: Analysis does not iodide Embrace Legacy 600. which we 'Ornate make up 1% of the Vistaed Beet. Source: FAA and UBS estimates UBS 9 EFTA01177218 UBS Business Jet Update 25 May 2012 We estimate short-range aircraft cycles in April were roughly unchanged from the prior year on a rolling 12-month basis, although 1% lower on an absolute (unsmoothed) basis. Chart 22: YoY Growth in Absolute and Rolling 12-Month Cycle—Short-Range Aircraft 40% 30% 20% 10% 04' .10% 20% 30% -40% 4' 4' 44134444V444'4*444 .”77a.' 4.84.8M8MMM,SM,D yty Cycle Growth • Shod Range —Rolling 12 Meath Average Source: FAA and UBS °senates We estimate medium-range aircraft cycles in April were 1% higher from the prior year on a rolling 12-month basis, although roughly unchanged on an absolute (unsmoothed) basis. Chart 23: YoY Growth in Absolute and Rolling 12-Month Cycles—Med-range Aircraft 40% 30% 20% 10% 0% -10% -20% 30% -40% 444413444444444444$ 77".' 4.84.84.8*84.84.80134-84-8E8k8i yiy Cycle Growth Medium Range — RolIng 12 Month Average Source: FAA and UBS agnates UBS 10 EFTA01177219 UBS Business Jet Update 25 May 2012 We estimate long-range aircraft cycles in April were 1% higher from the prior year on a rolling 12-month basis, although I% lower on an absolute (unsmoothed) basis. Chart 24: YoY Growth In Absolute and Rolling 12-Month Cycles—Long•Range Aircraft 40% 30% 20% 10% 0% .10% .20% .30% .40% O Q- 6' Q- S Q- 6' Q- 6' Q- 6' 6' Q- 6' Qm8 Qm8 Q- 6' Cycle Growth • Long Range - Boling 12 Month Average Source: FAA and UBS agnates UBS 11 EFTA01177220 UBS Business Jet Update 25 May 2012 Table 1: Business Jet Cycle Growth by Make and Model (April 2012) R1211% ol Absolute R3M R121I Year to Date Total Cycles YoY Growth Growth Growth Growth Short Range Beechiel 400/Hawker 400 XP 8.0% (1.6%) 0.6%) (2.4%) (1.4%) Citation XIS 7.8% (4.1%) (1.5%) 2.6% 3.8% Cilalion Encore 6.3% 0.8% 2.9% tassq (4.4%) Citation Bravo 4.5% (3.6%) (5.5%) (6.8%) (5.4%) Leabet 35 4.1% (6.6%)f (5.1%) (1.4%) (0.7%) learfil 45 3.7% (1.3%) 3.4% 4.3% 43% Cilation CJ1 3.1% (1.8%) (1.8%) (1.6%) (0.3%) Cilaton CJ3 23% 4.5% 8.0% 5.9% Leaget 31 1.5% (9.8%) (5.2%) (4.5%) (1.3%) Citation CJ2 1.5% 8.5% 4.8% 1.0% 23% Falcon 20 1.2% 140% (7.2%) (16.9%) (10.8%) Premier I 1.3% 15.3%) (1.8%) 0.2%) (1.4%) Phenom 1031300 20% 293% L 29.7% 64.4% 78.8% Citation ISP 0.7% 18.9%) (12.0%) (9.8%) (7.9%) Learjet 25 0.5% (323C(261%) (28.5%) (25.9%) Falcon 10 0.6% (6.2%) 1.5% (9.0%) Sabreliner 40 0.6% (16.3%) (20.8%) (12.8%) (7.8%) CiIalfron IL SP 0.6% 18.5%) (1.4%) (4.3%) (2.8%) Al Stick/ Range Aircraft 53% 10.9%) f0.2%) (0.2%) 88% Medium Range Hawker 803XP 72% (4.3%r12.3%) (2.9%) (12%) Cileon X 3.9% ILO%) 0.5% 53% 6.6% Citation Sovereign 31% 3.9% - 6.4% 7.7% 7.6% Eaton 2000 2.9% (3.5%) (1.5%) 2.8% 3.7% Challenger 300 2.9% IMMIL 72% 8.5% 92% learfil 60 2.4% (0.6%) (2.8%) 0.1% 03% alustrearnwida. 23% a.6%) (0.2%) 0.6% Citation 111 1,7% (5.2%) (6.4%) 16.1%) 15.3%1 Falcon 50 1.8% Wr 5.4% 2.5% 0.9% Gullsheam G100 /G150 1,6% (4.1%) (5.3%) i1.2%) 0.1% Learjet 55 02% an (132%) (2.5%) (1.6%) Westtend 1124 0.7% (2.2%) 3.9% (5.8%) (7.5%) Ad Mechum Range krcraft 32% (0.4%) 0.1% 1.2% 2.0% Long Range Gullstrearn G4V/ 6400 / G450 4.540. 3- 02% 1.9% 3.0%' Challenger 604 4.1% 0.9% 10.2%) 11.1%) (0.0%) Gullstrearn GA/ / G500 / G550 25% (5.3%) 4.9% Eaton 9:0 2.1% (1.9%) (1.2%) 0.7% 0.7% Global Express 12% (0.6%) 3.7% 4.4a Gullslream Gill 6300 /6350 0.7% (7.7%) (2.6%) (4.4%) (4.2%) AO Long Range Mcrae 16% 0.0%) 1.6% 1.4% 2.3% Total 100% (0.8%) 0.2% 0.5% 1.4% Source: FAA and UBS °sonatas UBS 12 EFTA01177221 UBS Business Jet Update 25 May 2012 ■ Statement of Risk The business jet market is cyclical in nature, largely driven by the general economic environment. Business jet manufacturer? 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 Rockwell Collins 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. Ul3S13 EFTA01177222 MIS Business Jet Update 25May2012 Required Disclosures This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS Investment Research: Global Equity Rating Allocations UBS 12-Month Rating Rating Category Coverage' 1B Serviced Buy Buy 51% 34% Neutral Hold/Neutral 40% 35% Sell Sell 9% 15% UBS Short-Term Rating Rating Category Coverage' IB Serviced Buy Buy less than 1% 25% Sell Sell less than 1% 17% 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 March 2012. 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 14 EFTA01177223 UBS Business Jel Update 25 May 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: Matthew Akers. Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date IS. Rockwell Collins Inc.2.4. et 6b. 7.S. lea COL.N Buy N/A US$50.62 24 May 2012 7.1t Textron Inc.®' lab. 22 TXT.N Buy N/A US$23.78 24 May 2012 Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. 4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided. 6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non•securities services are being, or have been, provided. 7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity. 8. The equity analyst covering this company, a member of his or her team, or one of their household members has a long common stock position in this company. 16. UBS Securities LLC makes a market in the securities and/or ADRs of this company. 18a. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Rockwell Collins Inc. 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. UBS 15 EFTA01177224 UBS Business* Update 25 May 2012 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. Rockwell Collins Inc. (US$) — Price Imam (USS) — Stock Price 0SP Ohlulta 4 1 g A 4 s A44 $ 11 E01 3 c 3 I Bay Buy Pb Rating Source: UBS: as of 24 May 2012 Textron Inc. (US$) — Rice ragri6E45 — Stock Puce (US5) I I I I I I I I I I I I I I I I I I I $ 4 4 $ $ $ $ $ $ 0 0 0 0 " " 4 5 ''P b. ...F 3 4 5 ''P b. 4 m "? 4 '"? kr, .5 _ .:9 _ 5 —p 'c 3_ „3_ 5 '"? 5. .5 3 3 3 :5 3 3 3 :5 3 I I I I I I I I I I I I I I I I I I I Buy Buy MI IMI Neutral l• Pb Rating Source: UBS: as of 24 May 2012 Note: On August 4, 2007 UBS revised its rating system. (See 'UBS Investment Research: Global Equity Rating Definitions' table for details). From September 9, 2006 through August 3, 2007 the UBS ratings and their definitions were: Buy 1 = FSR is > 6% above the MRA, higher degree of predictability: Buy 2 = FSR is > 6% above the MRA, lower degree of predictability; Neutral 1 = FSR is between -6% and 6% of the MRA, higher degree of precictability; 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%. 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ND rectosentaton or warranty. ether tarots a implied. is lambed in rebtot to the accuracy. corrpoteness or reliabilty d the 'Maranon tOntaned n the OOtument (Me Inrathed06). except rah reaped tO InromeriOn eenCerring UeS The Inkenhalan is not Intended 13 00 a cOMelete KfileMenl Or Summary 01 Me Saturates. nekels a develOOMentS rerened di al the nearer* UBS CMOS not unClentike t0 update a keep fumed the Inhumation. Any Opinions Punned n mlS<Meun ', may Change wand ante and may diner or be cetera" to canons expressed by other busness areas ot groups of UBS. Nettling in UM neared Cereal/ft a repreSentabon That any rotatertint fealegy a reeemmendaron is Shade a appropriate to an invesafire l4MMal Onbindlinteft Or dreren coretnute: a paternal recommendation, nrestrrems involve ntks. and investors shoUd exercise prudence and mar own judgement in =lam tier investment &sisals. The franca' indruments deicrbed In the &Current may not be Ogled tot sale in all juiScIteOnS Or 13 Certain CalegateS 01 Invelikre totems. Oenvaive produda and lutist* ere not kraal) ton all Investors. and tracing in 'hese nSeurrenIS S onadered Maw UOrigage and asselbacked securities may Involve 8 nigh degree Oldlik and may be Nphly vdagle In response to IluClualifini in interest rates or other market condeens. Foregn currency rates of <achargt may adversely nod the yam prce or name of any socunly or related ratrueram relared ton the document. For neeseure *Once. 'fleeced's*, or other eneuros. clients shotidcataci their teal sales 'consonant The value ol any investment or rcome may go darn z well as up. and awed= may not gel back the lull amount messed. Put performance a not necessary a gude lo Mune palormance. Nadler UBS nor any of it: directors. orrployees or apart: accepts any katrIty for any loss lincludng investment loss) or damage arcing out of the use dal ot arty d the trionnaccn. Any paces slated in me document are tor mtormabon purposes only and do not represent valuabens br riclindual so: untie: or other frunaal adoements. There is no representation That any transactioncana couldhero been enacted at those prices. and any paces dorm accassanly reflect IJIISS normal books and racords err mammal mode/based valuations and may be based an <Odinants/Mena CillerentaMuYpiOnS by UBS a anyOmer nate may >wo Subdanting different results. Research wit abate. update and cease comrade solely at the discretion el UBS Inwarriere Dark Research Management. The araysis contained in ma docurrient a based on numerous assure ronS Differea arbaurraen road resist h materially Warta ;MUM The andySt(ftl retrentitie Or the prepanliOn Of Ma document may mina wan trading desk airiennel. Sales penalise' and Otrkw Pant ICH Ire woos* 01 gathering. SPAM* and Interpreting mead infOrmatten. UBS relies On iroomeron barters to macs the her ol Itharoalion contained h one or rote areas wenn !SS into other areas. units groups or adzes of UBS. The compensators of me analyst who prepared this documen is determined exclusively by research management are Sena management end inCluelng Inettlenent banking). Malys CeerpenSabrin is not based On investment barrong Wince& hOwitreer. amperealen may Mate to the revenues 01 UBS Imestmenl Bark 89 a whore. 01 whith InveSIMall bating. tare and Kea® We a par For financial instruments admitted to trading on an EU regulated mann: UBS AG. IN allitate: a :Lbsidunes (