Eric HatchChristina Haubrock

Melissa Hickey

November 24, 2009

Industrials Sector Recap Recommendation GE - Sell GD - Buy

SIM PORTFOLIO 10/31/2009

Quantity Security Unit Cost

Market Price

Unrealized Gain/(Loss)

Unit Inc.

Est. Ann. Income

5,080 Emerson Electric

34.67 37.75 $ 15,671

1.32 $ 6,705.60

2,900 First Solar Inc. 128.32

121.93 $ (18,534)

- $ -

30,700 General Electric 25.75 14.26 $ (352,881)

0.40 $ 12,280.00

25,100 Oshkosh Truck 33.17 31.26 $ (47,841)

- $ -

31,100 UTI Worldwide 12.54 12.47 $ (2,074)

0.06 $ 1,866.00

SIM PORTFOLIO 10/31/2009

Security

% of Assets

Eq. shares out

Market Cap

($ Mill) Beta

Emerson Electric Co. 1.06% 751.59 28,372.50 0.09

First Solar Inc. 1.96% 85.11 10,377.20 1.45

General Electric Co. 2.43% 10,626.84 151,538.70 1.19

Oshkosh Truck Corp. 4.36% 89.39 2,794.50 1.88

UTI Worldwide Inc. 2.15% 100.26 1,250.30 1.22

*prices as of Friday 11/20/2009 close

SIM OWNED COMPANIESCompany Ticker Upside

Emerson Electric Co. EMR 17.2% 

First Solar Inc. FSLR 21.18%

General Electric Co. GE 6.9% 

Oshkosh Truck Corp. OSK 15.00%

UTI Worldwide Inc. UTIW 16.60%

Currently overweight by 188 BP

INDUSTRIALS SECTOR SHOULD MAINTAIN THE CURRENT LEVEL OF 188 BASIS POINTS

OVERWEIGHT

Positives:FINANCIAL Sector ratios indicate that the sector is undervaluedECONOMIC Improving global economic recovery Increasingly global in scope Favorable impact anticipated from the infrastructure spending

Risks: Slower economic recovery than anticipated Lag time associated with the Industrials Sector

*prices as of Friday 11/20/2009 close

SELL 100 BPSOSHKOSH CORP

(OSK)

Current Price*: $37.97Target Price:

$43.57Upside: +14.7%

BUY 343 BPSGENERAL DYNAMICS

(GD)

Current Price*: $66.40Target Price:

$102.07Upside: +54.64%

SELL 243 BPSGENERAL ELECTRIC

(GE)

Current Price*: $15.76Target Price:

$16.85Upside: +5.7%

Operating in 5 broad business segments Energy, Technology, Media, Capital Finance,

Consumer & Industrial Goods $182.5B in revenue (as of FY08)

$129.3B from US & Europe (71% of total sales)

Pending sale of NBC Universal GE Capital

Which regulatory authorities oversee this segment

$340B Temporary Liquidity Guarantee Program 25% of program used to cover debt issued

by GE Capital

Current Price $15.76Implied equity value/share

$16.24Upside to DCF 3.0%

General Electric (GE)

Analyst: Eric Hatch Terminal Discount Rate = 10.5%11/24/2009 Terminal FCF Growth = 4.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 153,723 151,360 153,914 162,687 171,960 181,762 192,122 203,073 214,648 226,883 239,816 % Grow th -1.5% 1.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%

EBT 11,203 13,622 17,700 18,709 19,775 20,903 22,094 23,353 24,685 26,092 27,579 EBT Margin 7.3% 9.0% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5%

Interest - - - - - - - - - - - Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 695 2,588 3,363 3,555 3,757 3,971 4,198 4,437 4,690 4,957 5,240 Tax Rate 6.2% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0%

Net Income 10,508 11,034 14,337 15,154 16,018 16,931 17,896 18,916 19,994 21,134 22,339 % Grow th 5.0% 29.9% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%

Add Depreciation/Amort 10,524 10,595 10,004 10,249 11,177 11,815 12,488 13,200 13,952 14,747 15,588 % of Sales 6.8% 7.0% 6.5% 6.3% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%

Plus/(minus) Changes WC (3,689) (3,633) (3,694) (3,904) (4,127) (4,362) (4,611) (4,874) (5,152) (5,445) (5,756)

% of Sales -2.4% -2.4% -2.4% -2.4% -2.4% -2.4% -2.4% -2.4% -2.4% -2.4% -2.4%

Subtract Cap Ex (7,744) (9,680) (10,004) (10,249) (11,177) (11,815) (12,488) (13,200) (13,952) (14,747) (15,588) Capex % of sales -5.0% -6.4% -6.5% -6.3% -6.5% -6.5% -6.5% -6.5% -6.5% -6.5% -6.5%

Free Cash Flow 9,598 8,317 10,643 11,250 11,891 12,569 13,285 14,043 14,843 15,689 16,583 % Grow th -13.4% 28.0% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%

Shares Outstanding 10,650.0

Current Price 15.76$ Implied equity value/share 16.24$ Upside/(Downside) to DCF 3.0%

Debt 523,762 Cash 48,187 Cash/share 4.52

Sensitivity Results Range: $13.96 - $19.84

Final Average Target Price for GE:90% DCF weight and 10% Multiples = $16.85 (+5.7%)

Multiples Valuation

    Target MultiplesTarget Price Current

Price/Forward E 16.3 $ 16.89 18.1P/S   2.2 $ 31.27 1.1P/B   3.2 $ 31.46 1.4P/EBITDA  3.88 $ 14.86 3.88

    Average Target Price $ 23.62  

STOCK INFORMATION Sector (S&P):

Industrials Industry (S&P): Aerospace

Defense Market Cap: 25.64B Shares Outstanding: 385.8M Avg Daily Volume: 2.3M YTD Return: 11.23% 52 Week Range: $35.28 -$68.84 Dividend Yield: $1.52 Beta: 1.26

General Dynamics serves the U.S. government and commercial; and international defense and commercial customers in North America, Europe, the Middle East, South America, Africa, and the Asia/Pacific.

Focus on high quality and cost conscious

General Dynamics was founded in 1899 and is based in Falls Church, Virginia.

Aerospace Designs, manufactures and provides

services for mid-size, large cabin and ultra-long range business aircraft.

Combat Systems Supplies land and amphibious combat

machines and systems, including armored vehicles, power trains, turrets, munitions and gun systems.

Marine Systems Designs and builds submarines, surface combatants,

auxiliary ships and large commercial vessels. Information Systems and Technology

Expertise lies in specialized data acquisition and processing, in advanced electronics, and in battlespace information networks and management systems.

Strengths Diversity of business Diversity of customers Successful Acquisitions Top line growth

Weakness Jet demand in weak economy

Government Outlays for Defense ProcurementCorrelation: .74

Growth - Proven

GD has shown sizeable growth trend and will continue to grow with acquisitions

Profitability - StrongOperating margins range from 8.3%-12.6%over the last 10 years. A push to focus on supply chain will ensure sustainability of a 12% margin.

Financial Health - Strong

Ratios indicate financial strength, liquidity. It is important to note GD is currently carrying a $1.6M cash cushion and a debt/equity of .31

General Dynamics (GD)

Analyst: Melissa Hickey Terminal Discount Rate = 10.5%

11/22/2009 Terminal FCF Growth = 4.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 32,054 34,619 36,869 39,450 41,817 43,907 45,883 47,719 49,627 51,612 53,677

% Growth 8.0% 6.5% 7.0% 6.0% 5.0% 4.5% 4.0% 4.0% 4.0% 4.0%

EBT 3,714 4,021 4,291 4,537 5,018 5,269 5,506 5,726 5,955 6,193 6,441

EBT Margin 11.6% 11.6% 11.6% 11.5% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%

Interest (135) (135) (135) (144) (153) (161) (168) (175) (182) (189) (197)

Interest % of Sales -0.4% -0.4% -0.4% -0.4% -0.4% -0.4% -0.4% -0.4% -0.4% -0.4% -0.4%

Taxes 1,151 1,247 1,330 1,669 1,849 1,941 2,028 2,110 2,194 2,282 2,373

Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0%

Net Income 2,562 2,775 2,961 2,723 3,016 3,167 3,310 3,442 3,580 3,723 3,872

% Growth 8.3% 6.7% -8.0% 10.8% 5.0% 4.5% 4.0% 4.0% 4.0% 4.0%

Add Depreciation/Amort 344 242 184 197 209 220 229 239 248 258 268

% of Sales 1.1% 0.7% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Plus/(minus) Changes WC (33) (201) (214) (130) (138) (145) (151) (157) (164) (170) (177)

% of Sales -0.1% -0.6% -0.6% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3%

Subtract Cap Ex 512 555 592 197 209 220 229 239 248 258 268

Capex % of sales 1.6% 1.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

                       

Free Cash Flow 2,362 2,261 2,339 2,593 2,878 3,022 3,158 3,284 3,416 3,552 3,695

% Growth -4.3% 3.5% 10.8% 11.0% 5.0% 4.5% 4.0% 4.0% 4.0% 4.0%

Current Price $66.47 Implied equity value/share

$101.45Upside to DCF 52.6%

Sensitivity Matrix - Discount RateChange Discount Rate Growth Rate NPV of Cash Flows Terminal Value NPV of terminal value Implied equity value/share

-1.00% 9.50% 4.00% $18,198 $69,861 28190 $120.24

-0.75% 9.75% 4.00% $17,983 $66,823 26356 $114.93

-0.50% 10.00% 4.00% $17,772 $64,039 24690 $110.06

-0.25% 10.25% 4.00% $17,565 $61,478 23170 $105.59

  10.50% 4.00% $17,361 $59,113 21780 $101.45

0.25% 10.75% 4.00% $17,161 $56,924 20505 $97.63

0.50% 11.00% 4.00% $16,964 $54,891 19332 $94.08

0.75% 11.25% 4.00% $16,770 $52,998 18250 $90.77

1.00% 11.50% 4.00% $16,580 $51,231 17250 $87.69

2.00% 12.50% 4.00% $15,851 $45,204 13920 $77.17

3.00% 13.50% 4.00% $15,169 $40,446 11400 $68.87

Sensitivity Matrix - Growth RateChange Discount Rate Growth Rate NPV of Cash Flows Terminal Value NPV of terminal value Implied equity value/share

-1.00% 10.50% 2.00% $17,361 $44,335 16335 $87.34

-0.75% 10.50% 2.50% $17,361 $47,337 17441 $90.21

-0.50% 10.50% 3.00% $17,361 $50,739 18695 $93.46

-0.25% 10.50% 3.50% $17,361 $54,627 20127 $97.17

  10.50% 4.00% $17,361 $59,113 21780 $101.45

0.25% 10.50% 4.50% $17,361 $64,347 23709 $106.45

0.50% 10.50% 5.00% $17,361 $70,533 25988 $112.36

0.75% 10.50% 5.50% $17,361 $77,955 28723 $119.45

1.00% 10.50% 6.00% $17,361 $87,028 32065 $128.11

2.00% 10.50% 6.50% $17,361 $98,368 36244 $138.94

3.00% 10.50% 7.00% $17,361 $112,948 41616 $152.87

Discount Rate Sensitivity Results:

$68.87 – $120.24

Growth Rate Sensitivity Results:

$87.34 - $152.87

Absolute Valuation

High Low Median Current#Your Target

Multiple

Target E, S, B,

etc/Share

Target Price

P/Forward E 19.7 6.5 15.4 10.4 15.4 7.19 $ 109.32

P/S 1.8 .6 1.2 .8 1.2 89.73 $ 107.68

P/B 4.8 1.6 3.2 2.2 3.2 30.21 $ 96.68

P/EBITDA 13.42 3.93 9.67 6.14 9.67 10.83 $ 108.15

P/CF 18.2 5.5 14.0 8.7 14.0 7.64 $ 108.49

Average Target Price for Multiples Valuation: $106.06

Final Average Target Price for GD:75% DCF weight and 25% Multiples = $102.17 (+53.71%)

BUY 343 BASIS POINTS OF GD

Positives:FINANCIAL Ratios indicate that the stock is undervalued Proof of success via acquisitions

ECONOMIC Improving global economic recovery Relationship with Defense Department

Risks: Aerospace may never rise to pre-economic meltdown levels Unpredictable defense spending

GENERAL DYNAMICS (GD)

Current Price*: $66.47Target Price: $102.17Upside: +53.71%Recommendation: BUY

*price as of Friday 11/20/2009 close

*prices as of Friday 11/20/2009 close

SELL 100 BPSOSHKOSH CORP

(OSK)

Current Price*: $37.97Target Price:

$43.57Upside: +14.7%

BUY 343 BPSGENERAL DYNAMICS

(GD)

Current Price*: $66.40Target Price:

$102.07Upside: +54.64%

SELL 243 BPSGENERAL ELECTRIC

(GE)

Current Price*: $15.76Target Price:

$16.85Upside: +5.7%

Homer’s reaction to GE’s upside. Doh!!

Homer’s reaction to General Dynamic’s upside. Wow!!