Honeywell WACC L PDF

3/1/2013
IME
Honeywell International
Ticker: HON Recommendation: Buy
Current Price: $69.80 Implied Price: $75.43
Investment Thesis
Honeywell is an innovative company that continues to pioneer cutting edge
Key Statistics technology and services that allows them to perform in a challenging
52 Week Price Range macroeconomic environment.
52.21 Honeywell is well immersed and positioned in emerging markets that will
play a key role in the long term growth of this company.
50-Day M oving Average 68.58
Honeywell has focused on growing organically in present economic
conditions by expanding margins and increasing efficiency, which will most
Estimated Beta 1.272 likely place them in position to realize huge financial growth as the
economy turns around
Dividend Yield 1.64
M arket Capitalization 54.78 Seven-Year Stock Chart
3-Year Revenue CAGR 7 $80.00 25,000,000
Trading Statistics $70.00

Diluted Shares Outstanding 790 20,000,000
$60.00
Average Volume (3-M onth) 3322746
$50.00
Institutional Ownership 80.60% 15,000,000
Insider Ownership 0.09% $40.00
EV/EBITDA (LTM ) 13.4 10,000,000

$30.00
Margins and Ratios
$20.00
Gross M argin (LTM ) 33% 5,000,000
EBITDA M argin (LTM ) 14% $10.00
Net M argin (LTM ) 8% $0.00 0

Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Ebit M argin 11%
Volume Adjusted Close 50-Day Avg 200-Day Avg
Matthew Stephenson
mstephen@uoregon.edu
1 University of Oregon Investment Group
University of Oregon Investment Group 3/1/2013
Business Overview
History
Honeywell can trace its origins back to 1885 with the invention of the Coal
Flapper by Albert Butz. The invention was a revolutionary device that allowed
consumers to control the temperature of their furnace. The success of this
invention led W.R Sweatt to found the Minneapolis Heat Regulatory Company.
Meanwhile, an engineer named Mark Honeywell had been developing and
perfecting Heat Generators, and he founded the Honeywell Heating Specialty
Company. The merger between these two companies in 1927 sparked enormous
growth and profitably for this newly created merger and they decided to
combine the two names and be known as the Honeywell Regulatory Co. Since
then Honeywells acquisitions and inorganic divestures have diversified its
business into fields such as avionics, oil gas and chemicals, automotive systems,
and of course climate control solutions. Today Honeywell International is
globally diversified fortune 100 company and is based out of Morristown, New
Jersey. They employ over 132,000 employees and operate in over 100 different
countries. Honeywell divides its businesses into four different segments.
Aerospace
Honeywell Internationals Aerospace segment accounts for approximately 32

percent of its consolidated net sales. Aerospace is the number one manufacturer
and supplier of aircraft engines, avionics, and other related products
technologies and services. Aerospace sells its products and services as original
equipment or (OE)s to major aviation companies such as Boeing and Airbus as
well as many foreign domestic airports. The United States government is a
major customer for their aviation and space products. Revenue in this segment is
driven by the global demand for air travel, new aircraft production, United
States and Foreign government spending on defense and space, as well as the
demand for services maintenance and spare parts for aging aircraft, and the
ability for Honeywell to innovate and develop state of the art technology and
products
Automation and Control Solutions (ACS)

The Automation and Control Solutions or (ACS) segment is the largest and most
profitable segment of Honeywells Segments accounting for approximately 42
percent of its revenue. ACS provides products and services that make homes,
buildings, and infrastructure comfortable, safe, and efficient. Some of the
products and services they provide are, heating ventilating and cooling or
(HVAC) systems, temperature and climate solutions, security, fire and gas
detection and numerous other products. Revenue in this segment is derived by
new building growth in developed and developing countries, demand for energy
efficient climate control and security systems as well as upgrades and retrofits
on existing equipment.
Performance Materials and Technologies (PMT)
Performance Materials and technologies is the third largest of Honeywells

business segments and it is responsible for about 16 percent of their revenues.
This segment delivers and manufactures high quality chemicals and materials
that are involved with refining, petrochemical, automotive, healthcare,
agriculture, and packaging processes. PMT also provides process technology
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such as petroleum refining, gas processing, petrochemical, renewable energy
and other industries.
Transportation Systems
Transportation Systems is the smallest of Honeywells operations, accounting

for approximately 10 percent of their net sales. Transportation systems provide
products and materials that improve the performance and efficiency of cars,
trucks, and commercial vehicles through cutting edge technology, world class
brands and global solutions. Some of these products include turbochargers and
thermal systems, friction materials, and brake hard parts. These products are
sold as original equipment directly to big name car manufacturers such as
BMW, Ford, Dailmer and many others.
Strategic Positioning
Honeywell International constantly seeks for ways to position themselves to
grow in the constantly changing macroeconomic environment. Honeywell is
known for growing their company through acquisitions and mergers, and that
has played a huge role in the development and diversification of this company.
While waiting for the right acquisition or merger deal, Honeywell continually
tries to increase margins and increase growth organically whether it is through
capital expenditures or developing more efficient processes. Organic growth has
been a major focus of Honeywell recently due to the present economic
conditions. Research and Development is a very important part of Honeywells
business plan. Innovating and delivering revolutionary products and services
have been and will always be an imperative factor of success for this company.
Most of the sales in Honeywells business model is based on the ability to fight
and win contracts for their different segments. Attaining and renewing these
contracts are a very important part of Honeywells success.
Business Growth Strategies

Honeywell International has a history of meeting and exceeding growth
expectations in both stable and challenging macroeconomic environments.
Their growth strategies for 2013 and on go as follows.
Aerospace
Honeywell International expects to see significant growth in their aerospace
segment upwards of 3 percent. This is due to countless factors that contribute to
the overall condition of the global aerospace industry. Honeywell is seeing
record backlogs for new aircraft and replacement part orders every year. There is
a very strong demand in North America for commercial airliners and business
jets and Honeywell is constantly securing contracts with major airports, aircraft
manufacturers to supply these new fleets with their avionics and services. In the
next 5 years 30 percent of Honeywells clients plan on replacing their existing
aircrafts with more modern fleets. This is a positive catalyst for growth in this
segment because there is a bigger demand for larger airplanes. This means more
parts and avionics for Honeywell to provide to these companies. Through 2016
Honeywell is projecting to realize 195 billion new jet sales in the American
market. This is due to the increase in global flight hours throughout the United
States as well as the world. Honeywell is forecasting to see the most growth in
developing countries specifically China. Honeywell is significantly increasing
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their capital expenditures and are currently working with the two biggest aircraft
manufactures in China to provide new fleets of aircraft. With the United States
being a major customer, and the recent defense budget cut, aerospace expects to
take a considerable hit. However, with the new era of drone and aircraft warfare,
it is uncertain how hard this budget cut will hit Honeywells operations. Never
the less, they plan on partially offsetting this headwind by continuing to expand
margins, and organically growing this segment.

Honeywell internationals largest segment is expected to see huge future growth.
Their recent 600 million dollar acquisition with Intermec expects to see
significant long term positive growth for this division. Their Automated and
Controls Solutions is a one stop shop, which makes it extremely attractive for
contracts with new buildings. Security, climate control, and safety are all in
Honeywells portfolio which gives it an advantage against its competitors. With
energy costs rising, Honeywells HVAC and climate control solutions are
becoming extremely attractive because of how energy efficient and cost
effective they are. Honeywell is projecting most of their growth to come from
emerging markets. According to the Mackenzie Study, through 2020, it is
projected that 350 million Chinese will move into urban areas and over 50,000
new sky scrapers will be built to accommodate the rapidly growing population
and Honeywell will be on the front end of that growth. India is also projected to
see similar growth rates in the next few decades. Obamas political stance on
green renewable energy is also a positive factor with tax incentives and other
legislation that will benefit this segment greatly. Honeywell is seeing strong
demand for their products in the North American market. With the housing
market starting to turn around and business confidence going up, their
automation and control solutions are expected to grow immensely in the North
American market due to the attractiveness of their business model and the
efficiency of their products. Honeywell is successfully expanding margins in
this segment. In fiscal 2012 they expanded margins by 70 basis points and they
are projecting to more than double that in the next few years.

Performance Materials and Technology is looking to become more efficient and
in turn expanding margins. Sales continue to rise in this segment and Honeywell
plans on make strategic acquisitions to increase their capacity of production.
Capital expenditures are also another way Honeywell is planning on increasing
their sales. They are seeing a consistent demand for their chemicals; resigns and
gases believe the increase in capacity will be very beneficial for this segment.
Just recently they were selected by Chinas Shandong Yangmei Hengtong
Chemicals to convert methanol from coal into key plastics. With China being
the number one producer of coal in the world, this contract was a huge win for
the PMT division and they are expected to see huge growth starting in 2014 for
this segment. Emerging markets are playing a huge part in future long term
growth. Honeywells UOP program is one of the best in the business and it is
constantly pursued when a company needs chemical processing done. New
contracts and agreements are constantly being attained by Honeywells PMT
division because of the quality and effectiveness of their products and processes.
I believe strongly this trend will continue for a very long time into the future.
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Transportation systems see the most cyclical growth out of all the segments due
to the overall condition of the automotive market. New car sales in Europe have
substantially affected sales in this segment and they will continue to do so until
that market turns around. Positive growth is being realized in North American
car sales as well as Chinese new car sales. This industry is largely dependent on
the economic environment so to counteract these negative effects, Honeywell
will continue to try and increase margins and productivity. The biggest catalyst
within this segment has to deal with the turbochargers that Honeywell
manufactures. Turbochargers are becoming increasingly attractive because of
the high prices of gas and the growing awareness of carbon dioxide emissions,
turbochargers provide and cleaner more efficient environmentally conscious
alternative. Honeywell projects that turbo chargers will be on over 36 million
sold globally in 2017. Developed nations often have the lowest rate of
turbochargers per vehicle, therefor in the eyes of this industry; the United States
is viewed as a developing nation. In the United States the number of
turbochargers is expected to more than triple into 2017 to 4 million compared to
1.3 million. In India the same trend is expected to follow increasing from
900,000,000 to more than three million. Honeywell projects to see 25 percent
market penetration through 2017 in China and in Europe more than 85 percent
of new vehicles sold will have these turbo chargers. The margins on these turbo
chargers are higher than most of their other products and capital expenditures
are expected to increase significantly to continue to expand these margins.
Honeywell being the number one supplier of turbochargers in the world has
strong market share and as the automotive market starts to turn around and new
car sales begin to rise, I think the transportation segment will continue to prosper
and contribute to Honeywells overall sales growth.
Industry
Aerospace
The Aerospace industry has very cyclical growth in developed nations and is
often reflective of how the overall economic condition. Honeywells function in
this industry is to provide cockpit controls and other avionic products that go
into aircrafts and airports. High free cash flows are important in this segment
because contracts are often awarded to the company that has the most cutting
edge and cost efficient products. Much like the automotive industry, high
growth in this industry is nearly impossible with a challenging environment.
Nickel and Titanium are the main input costs of this segment and through set
pricing and capital expenditures. Honeywell has successfully been able to
control the price fluctuations of these commodities.

The Automation and Controls Solutions segment has a very specific part of the
infrastructure and building process. Its job is to help with climate regulation,
security and safety of the building all while staying energy efficient. Success in
this industry is largely dependent on the ability of each company to go out and
win building contracts. There is extreme competition for these contracts and
they are always awarded to the company that has the newest and most cost
effective technology. Technological innovation and product development are
key aspects of this industry. Growth in this industry is very cyclical in developed
countries and dependent on the housing market. A healthy housing market
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increases the number of new homes being built as well as overall business
confidence and thus greatly increases sales in the industry. With energy
becoming increasingly more expensive consumers are looking for ways to
decrease their operating costs. Buildings are the largest source of energy
consumption in the world and companies that offer energy efficient solutions in
this industry are more likely to prosper.
Performance Materials provides chemical processing, refinement and many

other products that they then sell to other businesses to either use as a final
product or another material in production. This industry has generally been
relatively stable, but recently this biggest risk seems originate with the eco
friendliness of these products. Government litigation may inhibit certain
products from being used because of their environmental impact, and this has an
adverse effect on growth and sales in this industry. Input costs such as cumene,
fluorspar, R240 and many other raw materials are usually wildly available and
the prices dont fluctuate too much.
Transportation Systems operates as an original equipment manufacturer to car
manufactures such as Ford Motor Company and Daimler. Being diversified in
this industry as an OEM is tremendously difficult due to the competiveness of
the businesses. Companies within this industry often specialize in a few products
so that they can focus and dominate that aspect of the industry. When you
specialize within a certain product it is easier to be successful and grow. Input
costs such as nickel and steel are readily available though some price fluctuation
occurs. Honeywell counters these fluctuations by signing pricing contracts and
increasing margins and efficiency. The transportation systems segment is the
most cyclical in growth out the four segments. New car sales are very important
to the growth within this industry and if the economy is down consequently new
car sales are too.
Macro factors
Honeywell, like most companies, are affected by the condition of the
macroeconomic environment, however they pride themselves in being known as
a company that performs in good times as bad times. Never the less there are
certain economic conditions that affect Honeywells business to some degree.
The aerospace, Automation and Control Solutions and especially Transportation
Systems are all negatively affected by unfavorable economic conditions due to
the influence it has on the housing market, new car sales, and business
confidence. Global economic uncertainty also has a negative consequence on
foreign exchange currency rates. Government spending and litigation may
negatively affect sales, business operations and products produced.
Competition
Honeywell competes with numerous foreign and domestic corporations and
companies. Competition with Honeywell is almost always direct because their
products are extremely specific. Competitors vary throughout their different
segments. Aerospace faces opposition from General Electric, United
Technologies and many others. These companies compete for contracts with
aircraft manufacturers and airports to supply their avionic products and services.
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The Automation and Controls Systems is by far the most ruthless segment in
terms of succeeding. Each company in this Industry competes for thousands of
contracts a year. These contracts are often dependent on quality, energy
efficiency, price, and managerial expertise. The major players in this industry
are large multinational corporations such as Siemens, General Electric, Johnson
Controls and many others. Performance materials and technologies faces
competition from large domestic and foreign businesses. This industry is relies
heavily on quality and efficiency. The higher grades and quality of materials
produced are what determines prosperity. Honeywell goes up against BASF and
DSM. In the Transportation Systems segment, competition is often very specific
to your product. For example Honeywells major competitor in this segment is
BorgWarner, nut they also face completion from many other firms like Johnson
Controls. Success in this industry is based off performance, efficiency, and
pricing.
Management and Employee Relations

David M Cote has served as chairman and chief executive officer to Honeywell
International since July of 2002. Before joining Honeywell, Mr. Cote served as
chairman, president, and chief executive officer of TRW Inc. Before that he
served as senior vice president for General Electric and also president and chief
executive officer of GE Appliances. He is also a director of JPMorgan Chase &
Co. The board of directors for Honeywell International consists of 11 executives
who have or have had extensive managerial positions with some of the biggest
companies and corporations around the world.
Management Guidance
Management guidance historically has been very close to accurate. The
Information they disseminate at their end of the year March conference call is
very close to their results for that fiscal year. Honeywell International has a great
reputation for providing accurate and useful information to its investors. For
Fiscal 2013Honeywell has given conservative guidance that I think is not only
feasible but very beatable. They are projecting sales growth across the all four
segments as well as substantial margin expansion. Their focus is to continue to
grow the company organically through increasing capital expenditures and
expanding margins and reducing cost of goods sold.
Recent News
F-35 Flights May Resume Within Week of Tracking Down Fault 2/25/13
One of the parts that Honeywell manufactured for an F-35 fighter jet
malfunctioned during a test flight which produced a little smoke in the cockpit.
The part was sent back to Honeywell for testing and test flights are expected to
continue in about a week. This news although not a huge deal, may still cause
the stock price to drop a few points.
Honeywell Aerospace Selected For Australia's First Precision Landing

System at Sydney Airport 2/15/13
Honeywell's SmartPath has been selected by Air services Australia as the
country's first Ground-Based Augmentation System (GBAS) to improve
operational efficiency and decrease air traffic noise at Sydney Airport. This deal
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was a huge contract for Honeywell that will result in millions of dollars in sales
in the aerospace segment.
Honeywell Signs $2.8 Billion Lifetime Contract with Embraer to Provide

Avionics for Second Generation of E-Jets 2/20/13
This was another huge contract secured by Honeywell International, this deal
not only increases revenues for Honeywell, but it is also great marketing and
advertising for their avionics. This positive news should cause the stock price
caused the stock price to rise by a few points.
Catalysts
Upside
Future Growth in emerging markets especially China.
Future building and Automotive markets rehabilitation and growth
The global switch to energy efficient alternatives specifically with
automobiles.
Downside
Worsening economic conditions and the affect it has across the board
for Honeywells business segments
Comparable Analysis
.Johnson Controls Inc. (JCI) 30%
Johnson Controls is a globally diversified technology and industrial leader. JCI
engages in building efficiency, automotive experience, and power solutions
businesses worldwide. Its Building Efficiency segment designs, produces,
markets, and installs integrated heating, ventilating, and air conditioning
systems, as well as building management systems, controls, and security and
mechanical equipment. The companys Automotive Experience segment designs
and manufactures interior products and systems for passenger cars and light
trucks, including vans, pick-up trucks, and sport/crossover utility vehicles
serving original equipment manufacturers. Johnson Controls Inc.s Power
Solutions segment produces lead-acid automotive batteries, as well as offers
absorbent glass mat and lithium-ion battery technologies for hybrid and electric
vehicles. I chose Johnson Controls as a comparable to Honeywell because first
and foremost, they are a direct competitor that has a similar product line and
operates in the same geographical locations. Their similar EV/Ebitda and P/E
multiples made them an ideal comparable for my analysis. I gave them a 30%
weighting because I thought they were the second best comparable.
United Technologies (UTX) - 50%

United Technologies Corporation provides technology products and services to
the building systems and aerospace industries worldwide. Its Otis segment
designs, manufactures, sells, and installs a range of passenger and freight
elevators, escalators, and moving walkways; modernization products to upgrade
elevators and escalators; and maintenance and repair services. The companys
UTC Climate, Controls, & Security segment provides heating, ventilating, air
conditioning, and refrigeration solutions, such as controls for residential,
commercial, industrial, and transportation applications. Its Pratt & Whitney
UOIG 8
segment supplies aircraft engines for commercial, military, business jet, and
general aviation markets, as well as provides fleet management services for
commercial engines; spare parts; and maintenance, repair, and overhaul services.
The companys UTC Aerospace Systems segment supplies aerospace products.
Its Sikorsky segment manufactures military and commercial helicopters, as well
as provides aftermarket helicopter and aircraft parts and services. United
Technologies was in my mind the best comparable company to Honeywell.
Their similar business model and geographical operations expose both
companies to similar risks and growth potential. Their similar EV/Ebitda and
P/E multiples combined with my previous statements are the reason I gave them
a 50% weighting..
Illinois Tool Works (ITW) 10%

Illinois Tool Works Inc. manufactures and sells a range of industrial products
and equipment worldwide. Its Transportation segment offers plastic and metal
components, fasteners, and assemblies. The companys Power Systems &
Electronics segment provides arc welding equipment; metal arc welding
consumables and related accessories ext. Its Industrial Packaging segment offers
steel and plastic strapping and related tools and equipment; plastic stretch film
and related equipment; and paper and plastic products that protect goods in
transit. The companys Food Equipment segment provides ware washing,
cooking, refrigeration, and food processing equipment. Its Construction
Products segment offers anchors, fasteners, and related tools. The companys
Polymers & Fluids segment provides adhesives; chemical fluids; epoxy and
resin-based coating products; and hand wipes and cleaners. I liked Illinois Tool
Works because of their multiples as well as their similar betas. The company is
not a direct competitor and their market cap and global position is much
different form Honeywell which is why I gave them a 10% weighting.
BorgWarner (BWA) 10%

BorgWarner Inc. manufactures and sells engineered automotive systems and
components primarily for powertrain applications worldwide. The companys
Engine segment offers turbochargers, timing devices and chain products,
emissions systems, thermal systems, diesel cold start, gasoline ignition
technology, and cabin heaters. The company sells its products to original
equipment manufacturers of light vehicles, including passenger cars, sport utility
vehicles, vans, and light trucks; commercial vehicles, such as medium duty and
heavy duty trucks, and buses; and off-highway vehicles, as well as to tier one
vehicle systems suppliers and the aftermarket for light, commercial, and off-
highway vehicles. I chose BorgWarner because they are a direct competitor to
Honeywells smallest biggest segment. Their similar P/E and Ev/Ebitda led me
to the conclusion to give them also a 10% weighting.
Other Companies considered include GE, IR, and CAT
Discounted Cash Flow Analysis

Revenue Model-
Revenue model was determined and projected by numerous economic factors
and conditions. The growth in emerging markets played an important role for
how I projected revenue. With China Using Honeywells UOP program to make
petro chemicals, I projected a conservative estimate with the growth in the
performance Materials and Technologies Segment. I projected transportation
systems to grow consistently in the future because of the global switch to more
UOIG 9
energy efficient vehicles and the position that Honeywell is in to penetrate that
new market. For Automated Control Solutions and Aerospace, I pretty much
projected it as a percentage of revenue and also used my own assumptions to
accurately depict what I think the future of Honeywell will look like.
Cost of Goods Sold-

Cost of goods sold I projected as a percentage of revenue with flat to declining
growth because I believe as the company continues to expand and become more
efficient, the cogs will stay relatively stable.
Sales Generals and Administrative Expenses-

I projected SG&A as a percentage of revenue, and am expecting it to increase
slightly as Honeywell expands its operations.
Depreciation and Amortization-

Depreciation and Amortization were projected as a percentage of revenue while
keeping in mind historical averages and estimates.
Net Working Cap-

Net Working Cap was projected by days outstanding as well as percentage of
revenue.
Capital Expenditures and Acquisitions-

I projected Capital expenditures as a percentage of revenue and forecasted to
increase gradually then eventually stabilize. With Honeywells history of
acquisitions, I ended up take an average for the last 6 years and projected that
number out for the next 6 years.
Beta SD Weighting Tax rate-

Honeywell gave guidance to their projected tax rate for fiscal 2013 and 2014. I
Hamada 5 Year Monthly 1.34 16.00% used that guidance as well as my own assumptions to calculate the tax rate for
those years. I then took a historical average for the past 4 years and projected it
Vasicek 5 Year Monthly 1.34 16.00% out to the next 4 years.
Vasicek 1 Year Weekly 1.22 17.00% Beta-

I calculated Beta using a Hamada 5 year monthly, 1 year weekly, and 3 year
Hamada 1 year Weekly 1.22 17.00% daily, as well as a Vasicek 5 year monthly, 1 year weekly, and three year weekly
Vasicek 3 Year Weekly 1.26 17.00% all regressed against the S&P 500. I gave them all fairly equal weightings and
derived a beta of 1.272 which I believe is a very accurate indicator of the
Hamada 3 Year Daily 1.26 17.00% companys risk.
Honeywell International Beta 1.272

Recommendation
I recommend a buy for the Tall Firs and Svigals portfolio. After weighting my
comparables analysis and discounted cash flow equally, I came to a price target
of $75.43 which gives me an undervaluation of about 8.7%. Due to the many
catalysts and tailwinds Honeywell has in store for the future, I believe they will
continue to outperform in any economic environment.
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Appendix 1 Comparables Analysis
Comparables Analysis HON JCI UTX ITW BWA
Honeywell Johnson United Illinois Tool
($ in millions) International Controls Technologies Works BorgWarner
Stock Characteristics Max Min Median Weight Avg. 30.00% 50.00% 10.00% 10.00%
Current Price $89.41 $31.67 $68.00 $67.81 $69.80 $31.67 $89.41 $61.62 $74.38
Beta 1.49 1.06 0.00 1.23 1.24 1.43 1.06 1.18 1.49
Size
Short-Term Debt 1,624.0 243.4 603.0 #NAME? 1,101.0 747.0 1,624.0 459.0 243.4
Long-Term Debt 21,597.0 823.8 4,955.0 12,936.1 6,395.0 5,321.0 21,597.0 4,589.0 823.8
Cash and Cash Equivalent 5,265.0 265.0 1,750.2 2,856.5 5,265.0 265.0 4,854.0 2,779.0 721.4
Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Diluted Basic Shares 906.6 121.4 580.9 719.3 791.9 688.6 906.6 473.2 121.4
Market Capitalization 81,956.8 8,601.3 24,745.0 51,122.0 54,708.4 21,672.5 81,956.8 27,817.5 8,601.3
Enterprise Value 100,819.1 9,437.3 29,871.7 62,989.0 57,745.6 28,306.8 100,819.1 31,436.6 9,437.3
Growth Expectations
% Revenue Growth 2013E 12.7% -2.1% 3.4% 7.4% 4.5% 2.6% 12.7% -2.1% 4.2%
% Revenue Growth 2014E 13.1% 4.1% 5.9% 6.4% 5.3% 6.1% 5.7% 4.1% 13.1%
% EBITDA Growth 2013E 18.0% 2.6% 7.7% 12.8% 14.5% 9.9% 18.0% 2.6% 5.5%
% EBITDA Growth 2014E 15.1% 5.4% 11.8% 11.6% 5.4% 12.9% 10.7% 8.2% 15.1%
% EPS Growth 2013E 14.0% 0.0% 6.1% 8.2% 10.4% 0.0% 14.0% 5.3% 7.0%
% EPS Growth 2014E 19.3% 11.0% 16.8% 16.1% 11.0% 18.8% 14.8% 11.4% 19.3%
Profitability Margins
Gross Margin 158.22% 15.10% 25.33% 25.08% 158.22% 15.10% 29.26% 37.76% 21.40%
EBIT Margin 95.58% 5.59% 13.04% 11.66% 95.58% 5.59% 14.29% 16.64% 11.79%
EBITDA Margin 107.92% 7.74% 16.35% 14.33% 107.92% 7.74% 16.76% 20.39% 15.94%
Net Margin 59.97% 4.13% 8.42% 7.44% 59.97% 4.13% 8.52% 11.13% 8.32%
Credit Metrics
Interest Expense $879.14 $26.44 $236.54 $538.44 $338.04 $244.57 $879.14 $228.52 $26.44
Debt/EV 0.23 0.11 0.19 0.21 0.13 0.21 0.23 0.16 0.11
Leverage Ratio 2.13 0.89 1.62 1.84 1.06 1.82 2.13 1.41 0.89
Interest Coverage Ratio 45.11 12.40 14.64 16.36 20.91 13.61 12.40 15.66 45.11
Operating Results
Revenue $65,059.98 $6,550.00 $30,297.10 $47,946.77 $6,550.00 $43,046.07 $65,059.98 $17,548.12 $7,481.47
Gross Profit $17,278.00 $1,600.88 $6,562.62 $11,411.31 $10,363.50 $6,498.48 $17,278.00 $6,626.77 $1,600.88
EBIT $9,295.06 $881.77 $2,663.43 $5,749.70 $6,260.57 $2,406.56 $9,295.06 $2,920.29 $881.77
EBITDA $10,904.32 $1,192.55 $3,454.02 $6,928.18 $7,068.94 $3,329.82 $10,904.32 $3,578.23 $1,192.55
Net Income $5,541.10 $622.34 $1,864.41 $3,560.90 $3,928.31 $1,776.18 $5,541.10 $1,952.64 $622.34
Capital Expenditures $2,277.00 -$5,622.17 $111.18 -$2,630.76 $2,277.00 -$41.70 -$5,622.17 $1,664.25 $264.05
Multiples
EV/Revenue 8.82x 0.66x 1.41x 1.28x 8.82x 0.66x 1.55x 1.79x 1.26x
EV/Gross Profit 5.90x 4.36x 5.29x 5.29x 5.57x 4.36x 5.84x 4.74x 5.90x
EV/EBIT 11.76x 9.22x 10.81x 11.10x 9.22x 11.76x 10.85x 10.76x 10.70x
EV/EBITDA 9.25x 7.91x 8.64x 8.84x 8.17x 8.50x 9.25x 8.79x 7.91x
EV/(EBITDA-Capex) 16.42x 6.10x 9.28x 8.23x 12.05x 8.40x 6.10x 16.42x 10.16x
Market Cap/Net Income = P/E 14.79x 12.20x 14.03x 13.86x 13.93x 12.20x 14.79x 14.25x 13.82x
Multiple Implied Price Weight

EV/Revenue $7.75 0.00%
EV/Gross Profit $66.39 0.00%
EV/EBIT $84.93 40.00%
EV/EBITDA $76.12 50.00%
EV/(EBITDA-Capex) $46.97 10.00%
Market Cap/Net Income = P/E $40.82 0.00%
Price Target $76.73
Current Price 69.80 UOIG 11
Undervalued 9.93%
Appendix 2 Discounted Cash Flows Analysis
Discounted Cash Flow Analysis Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
($ in millions) 2009A 2010A 2011A 2012A 03/31/2013E 06/30/2013E 09/30/2013E 12/31/2013E 2013E 03/31/2014E 06/30/2014E 09/30/2014E 12/31/2014E 2014E 2015E 2016E 2017E 2018E
Total Revenue 29951.0 32350.0 36528.0 37665.0 9602.0 9802.0 9898.0 10159.0 39461.0 10219.0 10389.8 10638.8 11119.2 42366.8 45626.1 49676.3 53808.6 58204.7
% YoY Growth -22.05% 7.42% 11.44% 3.11% 1.73% 2.41% 3.71% 4.37% 3.06% 5.30% 5.61% 7.90% 11.20% 7.54% 7.66% 7.87% 7.12% 7.11%
Cost of Goods Sold 20487.0 22506.0 26075.0 27948.0 7095.0 7093.7 7215.7 7307.4 28711.7 7474.2 7568.9 7772.6 8062.4 30878.2 32450.3 35549.3 39044.5 42164.5
% Revenue 68.40% 69.57% 71.38% 74.20% 73.88% 72.36% 72.89% 71.92% 72.76% 73.13% 72.84% 73.05% 72.50% 72.51% 71.12% 71.56% 72.56% 72.44%
Gross Profit 9464.0 9844.0 10453.0 9717.0 2507.0 2708.3 2682.3 2851.6 10749.3 2744.9 2820.9 2866.2 3056.8 11488.7 13175.8 14126.9 14764.1 16040.2
Gross Margin 31.6% 30.4% 28.6% 25.8% 26.1% 27.6% 27.1% 28.1% 27.2% 26.9% 27.2% 26.9% 27.5% 27.1% 28.9% 28.4% 27.4% 27.6%
Selling General and Administrative Expense 5604.0 6143.0 7100.0 5218.0 1068.7 1198.8 1154.1 1159.1 4580.8 1220.1 1283.1 1333.0 1386.5 5222.7 5713.4 6304.9 6463.4 7113.6
% Revenue 18.71% 18.99% 19.44% 13.85% 11.12% 12.22% 11.65% 11.40% 11.61% 11.93% 12.34% 12.52% 12.46% 12.33% 12.52% 12.69% 12.01% 12.22%
Depreciation and Amortization 957.0 987.0 957.0 926.0 119.9 126.3 133.0 139.0 900.0 280.0 260.0 240.0 250.0 1030.0 1090.0 1112.0 1098.0 1148.0
% Revenue 3.20% 3.05% 2.62% 2.46% 1.25% 1.29% 1.34% 1.37% 2.28% 2.74% 2.50% 2.26% 2.25% 2.43% 2.39% 2.24% 2.04% 1.97%
Nonoperating Expense 58.0 (36.0) 11.0 40.0 7.7 9.8 11.9 10.1 39.6 9.2 13.5 10.6 12.1 45.3 55.8 45.7 44.0 6.8
% Revenue 0.19% -0.11% 0.03% 0.11% 0.07% 0.09% 0.11% 0.09% 0.10% 0.08% 0.12% 0.09% 0.10% 0.11% 0.12% 0.09% 0.08% 0.01%
Earnings Before Interest & Taxes 3802.0 3737.0 3342.0 4459.0 1430.6 1499.6 1516.3 1682.4 6128.9 1515.5 1524.3 1522.6 1658.2 6220.7 7406.7 7776.3 8256.6 8919.8
% Revenue 12.7% 11.6% 9.1% 11.8% 14.9% 15.3% 15.3% 16.6% 15.5% 14.8% 14.7% 14.3% 14.9% 14.7% 16.2% 15.7% 15.3% 15.3%
Interest Expense 459.0 386.0 488.0 344.0 79.7 80.4 82.2 83.3 325.6 83.8 83.1 86.1 86.6 339.6 343.2 358.7 372.3 408.4
% Revenue 1.53% 1.19% 1.34% .91% .82% .81% .82% .81% .83% .81% .79% .80% .77% .80% .75% .72% .69% .70%
Unsual Expense 540.0 538.0 675.0 358.0 131.6 139.2 131.7 129.0 531.5 132.8 140.2 141.4 145.5 560.0 603.3 641.8 700.5 746.0
% Revenue 1.80% 1.66% 1.85% .95% 1.36% 1.41% 1.32% 1.26% 1.35% 1.29% 1.34% 1.32% 1.30% 1.32% 1.32% 1.29% 1.30% 1.28%
Earnings Before Taxes 2803.0 2813.0 2179.0 4115.0 1219.3 1280.0 1302.5 1470.1 5271.9 1298.9 1301.0 1295.1 1426.0 5321.0 6460.2 6775.8 7183.8 7765.3
% Revenue 9.36% 8.70% 5.97% 10.93% 12.70% 13.06% 13.16% 14.47% 13.36% 12.71% 12.52% 12.17% 12.83% 12.56% 14.16% 13.64% 13.35% 13.34%
Less Taxes (Benefits) 789.0 808.0 417.0 944.0 307.3 338.3 334.9 383.7 1364.1 335.9 336.4 334.9 368.8 1376.0 1705.0 1788.3 1896.0 2049.4
Tax Rate 26.73% 28.71% 18.69% 24.36% 25.20% 26.43% 25.71% 26.10% 26.30% 25.86% 25.86% 25.86% 25.86% 25.86% 26.39% 26.39% 26.39% 26.39%
Net Income 2014.0 2005.0 1762.0 3171.0 912.0 941.7 967.6 1086.4 3907.8 963.0 964.6 960.2 1057.3 3945.0 4755.2 4987.5 5287.9 5715.9
Net Margin 6.7% 6.2% 4.8% 8.4% 9.5% 9.6% 9.8% 10.7% 9.9% 9.4% 9.3% 9.0% 9.5% 9.3% 10.4% 10.0% 9.8% 9.8%
Add Back: Depreciation and Amortization 957.0 987.0 957.0 926.0 119.9 126.3 133.0 139.0 900.0 280.0 260.0 240.0 250.0 1030.0 1090.0 1112.0 1098.0 1148.0
Add Back: Interest Expense*(1-Tax Rate) 336.3 275.2 396.8 260.2 59.6 59.1 61.0 61.5 240.0 62.1 61.6 63.8 64.2 251.8 252.6 264.0 274.0 300.6
Operating Cash Flow 3307.3 3267.2 3115.8 4357.2 1091.5 1127.2 1161.7 1286.9 5047.7 1305.2 1286.2 1264.0 1371.5 5226.8 6097.9 6363.5 6659.9 7164.5
% Revenue 11.0% 10.1% 8.5% 11.6% 11.4% 11.5% 11.7% 12.7% 12.8% 12.8% 12.4% 11.9% 12.3% 12.3% 13.4% 12.8% 12.4% 12.3%
Current Assets 13936.0 15011.0 17598.0 17598.0 17654.4 17755.4 18340.0 18889.6 18889.6 19113.6 19110.8 19653.9 20641.2 19113.6 19110.8 19653.9 20641.2 20641.2
% Revenue 46.53% 46.40% 48.18% 46.72% 183.86% 181.14% 185.29% 185.94% 47.87% 187.04% 183.94% 184.74% 185.64% 45.11% 41.89% 39.56% 38.36% 35.46%
Current Liabilities 10804.0 11717.0 13045.0 13045.0 12468.3 12824.0 12910.0 13585.6 13985.3 13481.9 13364.3 13727.1 14369.0 13481.9 13364.3 13727.1 14369.0 14942.0
% Revenue 36.07% 36.22% 35.71% 34.63% 129.85% 130.83% 130.43% 133.73% 35.44% 131.93% 128.63% 129.03% 129.23% 31.82% 29.29% 27.63% 26.70% 25.67%
Net Working Capital 3132.0 3294.0 4553.0 4553.0 5186.1 4931.4 5430.1 5304.0 4904.3 5631.7 5746.6 5926.8 6272.2 5631.7 5746.6 5926.8 6272.2 6280.0
% Revenue 10.5% 10.2% 12.5% 12.1% 54.0% 50.3% 54.9% 52.2% 12.4% 55.1% 55.3% 55.7% 56.4% 13.3% 12.6% 11.9% 11.7% 10.8%
Change in Working Capital 1815.0 505.0 1259.0 0.0 450.0 (254.7) 498.6 (126.1) 351.3 727.4 114.9 180.3 345.4 727.4 114.9 180.3 345.4 7.8
Capital Expenditures 609.0 651.0 798.0 884.0 275.0 282.0 294.0 299.0 1150.0 291.0 296.0 298.0 307.0 1192.0 1198.0 1197.0 1200.0 1199.0
% Revenue 2.03% 2.01% 2.18% 2.35% 2.86% 2.88% 2.97% 2.94% 2.91% 2.85% 2.85% 2.80% 2.76% 2.81% 2.63% 2.41% 2.23% 2.06%
Acquisitions 468.0 1303.0 973.0 442.0 0.0 0.0 0.0 0.0 1000.0 0.0 0.0 0.0 0.0 1000.0 1000.0 1000.0 1000.0 1000.0
% Revenue 1.56% 4.03% 2.66% 1.17% 0.00% 0.00% 0.00% 0.00% 2.53% 0.00% 0.00% 0.00% 0.00% 2.36% 2.19% 2.01% 1.86% 1.72%
Unlevered Free Cash Flow 2230.3 808.2 85.8 3031.2 366.5 1099.8 369.0 1114.0 2546.4 286.8 875.3 785.7 719.1 2307.4 3785.0 3986.3 4114.5 4957.8
Discounted Free Cash Flow 358.1 1050.0 344.2 1015.3 255.4 761.6 668.0 597.4 2865.9 2751.0 2588.0 2842.3
0.25 0.5 0.75 1 1.25 1.5 1.75 2 3 4 5 6
1.25 1.50 1.75 2.00 3.00 4.00 5.00 6.00
EBITDA 4759.0 4724.0 4299.0 5385.0 1550.5 1625.9 1649.3 1821.4 7028.9 1795.5 1784.3 1762.6 1908.2 7250.7 8496.7 8888.3 9354.6 10067.8
EBITDA Margin 16% 15% 12% 14% 16% 17% 17% 18% 18% 18% 17% 17% 17% 17% 19% 18% 17% 17%
EBITDA Growth -1% -9% 25% -71% 5% 1% 10% 286% -74% -1% -1% 8% 280% 17% 5% 5% 8%
Discounted Free Cash Flow Assumptions Considerations

Tax Rate 26.39% Terminal Growth Rate 3.00%
Risk Free Rate 1.70% Terminal Value 101,571
Beta 1.27 PV of Terminal Value 36,627
Market Risk Premium 7.00% Sum of PV Free Cash Flows 29,419
% Equity 88.03% Firm Value 66,046
% Debt 11.97% Total Debt 7,496
Cost of Debt 4.33% Cash & Cash Equivalents 5,265
CAPM 10.60% Market Capitalization 58,550
WACC 9.72% Fully Diluted Shares 790
Implied Price $ 74.13
Current Price $ 69.80 UOIG 12
Undervalued 6.21%
Appendix 3 Revenue Model
Revenue Model Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Aerosopace 10763.0 10683.0 11475.0 12040.0 3001.0 3100.0 3156.0 3152.0 12409.0 3160.1 3273.9 3405.3 3505.0 13344.3 14366.5 15497.1 16600.5 17780.8
% Growth (14.92%) (.75%) 6.90% 4.92% 1.73% 2.41% 3.71% 4.37% 3.06% 5.30% 5.61% 7.90% 11.20% 7.54% 7.66% 7.87% 7.12% 7.11%
% of Total Revenue 35.94% 33.02% 31.41% 31.97% 31.25% 31.63% 31.89% 31.03% 31.45% 30.92% 31.51% 32.01% 31.52% 31.50% 31.49% 31.20% 30.85% 30.55%
Automation/Control 12611.0 13749.0 15535.0 15880.0 3883.0 4101.0 4208.0 4399.0 16591.0 4149.4 4311.4 4452.9 4704.7 17618.4 18730.1 20340.9 22073.9 23910.5
% Growth (10.04%) 8.28% 11.50% 2.22% 2.51% 3.51% 6.32% 5.44% 4.48% 6.86% 5.13% 5.82% 6.95% 6.19% 6.31% 8.60% 8.52% 8.32%
% of Total Revenue 42.11% 42.50% 42.53% 42.16% 40.44% 41.84% 42.51% 43.30% 42.04% 40.60% 41.50% 41.86% 42.31% 41.59% 41.05% 40.95% 41.02% 41.08%
Materials/Technologies 4144.0 4726.0 5659.0 6184.0 1782.0 1699.0 1626.0 1701.0 6808.0 1896.6 1846.3 1798.8 1918.7 7460.5 8186.4 8973.9 9800.4 10693.2
% Growth (21.31%) 12.31% 16.49% 9.28% 10.34% 9.90% 10.01% 10.10% 10.09% 6.43% 8.67% 10.63% 12.80% 9.58% 9.73% 9.62% 9.21% 9.11%
% of Total Revenue 13.84% 14.61% 15.49% 16.42% 18.56% 17.33% 16.43% 16.74% 17.25% 18.56% 17.77% 16.91% 17.26% 17.61% 17.94% 18.06% 18.21% 18.37%
Transportation Systems 2433.0 3192.0 3859.0 3561.0 936.0 902.0 908.0 907.0 3653.0 1013.0 958.2 981.7 990.7 3943.7 4343.2 4864.3 5333.8 5820.2
% Growth (47.36%) 23.78% 17.28% (7.72%) (1.89%) 1.00% 1.22% 7.46% 2.58% 8.23% 6.23% 8.12% 9.23% 7.96% 10.13% 12.00% 9.65% 9.12%
% of Total Revenue 8.12% 9.87% 10.56% 9.45% 9.75% 9.20% 9.17% 8.93% 9.26% 9.91% 9.22% 9.23% 8.91% 9.31% 9.52% 9.79% 9.91% 10.00%
Total Revenue 29951.0 32350.0 36528.0 37665.0 9602.0 9802.0 9898.0 10159.0 39461.0 10219.0 10389.8 10638.8 11119.2 42366.8 45626.1 49676.3 53808.6 58204.7
% Growth (18.07%) 8.01% 12.91% 3.11% 3.17% 3.89% 5.95% 6.03% 4.77% 6.43% 6.00% 7.48% 9.45% 7.36% 7.69% 8.88% 8.32% 8.17%
Appendix 4 Working Capital Model
Days in Year 365 365 365 366 90 91 92 92 365 90 91 92 92 365 366 365 365 365
Working Capital Model Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Total Revenue $29,951.00 $32,350.00 $36,528.00 $37,665.00 $9,602.00 $9,802.00 $9,898.00 $10,159.00 $39,461.00 $10,219.04 $10,389.79 $10,638.80 $11,119.20 $42,366.83 $45,626.12 $49,676.26 $53,808.61 $58,204.71
Current Assets
Accounts Receivable 6,274.0 7,068.0 7,228.0 7,429.0 7,423.3 7,450.5 7,820.4 8,026.6 8,026.6 8,074.0 8,001.1 8,512.0 8,785.2 8,785.2 10,038.7 10,433.0 10,762.7 12,224.0
Days Sales Outstanding A/R 76.5 79.7 72.2 72.0 282.2 277.4 288.4 288.4 74.2 288.4 281.1 292.0 288.4 75.7 80.3 76.7 73.0 76.7
% of Revenue 20.95% 21.85% 19.79% 19.72% 77.30% 76.00% 79.00% 79.00% 20.34% 79.00% 77.00% 80.00% 79.00% 20.74% 22.00% 21.00% 20.00% 21.00%
Inventory 3,446.0 3,958.0 4,264.0 4,235.0 4,446.7 4,480.5 4,395.7 4,420.2 4,420.2 4,579.1 4,541.3 4,554.4 4,659.9 4,659.9 5,065.5 5,564.7 5,866.1 6,403.5
Days Inventory Outstanding 42.0 44.7 42.6 41.0 169.0 166.8 162.1 158.8 40.9 163.6 159.5 156.3 153.0 40.1 40.5 40.9 39.8 40.2
% of Revenue 11.51% 12.23% 11.67% 11.24% 46.30% 45.70% 44.40% 43.50% 11.20% 44.80% 43.70% 42.80% 41.90% 11.00% 11.10% 11.20% 10.90% 11.00%
Other Assets 2,801.0 3,108.0 4,182.0 4,634.0 4,621.5 4,696.2 4,796.6 4,999.2 4,999.2 5,039.0 5,029.7 5,054.4 5,482.8 5,482.8 5,841.1 6,508.6 7,211.4 8,033.3
Days COGS Outstanding 34.1 35.1 41.8 44.9 175.7 174.9 176.9 179.6 46.2 180.0 176.7 173.4 180.0 47.2 46.7 47.8 48.9 50.4
% of Revenue 9.35% 9.61% 11.45% 12.30% 48.12% 47.90% 48.45% 49.20% 12.67% 49.30% 48.40% 47.50% 49.30% 12.94% 12.80% 13.10% 13.40% 13.80%
Other Assets 1,415.0 877.0 460.0 1,300.0 1,162.8 1,128.2 1,327.3 1,443.6 1,443.6 1,421.4 1,538.7 1,533.0 1,713.4 1,713.4 1,780.4 2,087.4 2,368.6 2,387.4
Days COGS Outstanding 17.2 9.9 4.6 12.6 44.2 42.0 48.9 51.9 13.4 50.8 54.1 52.6 56.2 14.8 14.2 15.3 16.1 15.0
% of Revenue 4.72% 2.71% 1.26% 3.45% 12.10% 11.50% 13.40% 14.20% 3.66% 13.90% 14.80% 14.40% 15.40% 4.04% 3.90% 4.20% 4.40% 4.10%
Total Current Assets 13,936.0 15,011.0 16,134.0 17,598.0 17,654.4 17,755.4 18,340.0 18,889.6 18,889.6 19,113.6 19,110.8 19,653.9 20,641.2 20,641.2 22,725.8 24,593.8 26,208.8 29,048.2
% of Revenue 46.53% 46.40% 44.17% 46.72% 183.86% 181.14% 185.29% 185.94% 47.87% 187.04% 183.94% 184.74% 185.64% 48.72% 49.81% 49.51% 48.71% 49.91%
Long Term Assets
Net PP&E Beginning 4,934.0 4,847.0 4,840.0 4,804.0 5,001.0 5,023.0 5,431.3 5,001.0 5,439.8 5,250.0 5,821.0 6,377.0 6,915.0 7,023.0 7,001.0 7,200.0 7,310.0 7,386.0
Capital Expenditures 609.00 651.00 798.00 884.00 275.00 282.00 294.00 299.00 1,150.00 291.00 296.00 298.00 307.00 1,192.00 1,198.00 1,197.00 1,200.00 1,199.00
Acquisitions 468.0 1,303.0 973.0 442.0 - - - - 1,000.0 - - - - 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0
Depreciation and Amortization 957.00 987.00 957.00 926.00 119.91 126.32 133.00 139.80 900.00 280.00 260.00 240.00 250.00 1,030.00 1,090.00 1,112.00 1,098.00 1,148.00
Net PP&E Ending 4,847.0 4,840.0 4,804.0 5,001.0 5,023.0 5,431.3 5,001.0 5,439.8 5,250.0 5,821.0 6,377.0 6,915.0 7,023.0 7,001.0 7,200.0 7,310.0 7,386.0 77,356.0
Total Current Assets & Net PP&E 18,783.0 19,851.0 20,938.0 22,599.0 22,677.4 23,186.7 23,341.0 24,329.4 24,139.6 24,934.6 25,487.8 26,568.9 27,664.2 27,642.2 29,925.8 31,903.8 33,594.8 106,404.2
% of Revenue 16.18% 14.96% 13.15% 13.28% 52.31% 55.41% 50.53% 53.55% 13.30% 56.96% 61.38% 65.00% 63.16% 16.52% 15.78% 14.72% 13.73% 132.90%
Current Liabilities
Accounts Payable 3,633.0 4,344.0 4,783.0 4,736.0 4,667.6 4,676.6 4,732.2 5,009.4 5,009.4 4,947.0 4,905.0 5,192.7 5,404.9 5,404.9 5,658.6 6,508.6 7,265.2 7,509.4
Days Payable Outstanding 44.3 49.0 47.8 45.9 177.4 174.1 174.5 180.0 46.3 176.7 172.3 178.2 177.4 46.6 45.3 47.8 49.3 47.1
% of Revenue 12.13% 13.43% 13.09% 12.57% 48.60% 47.70% 47.80% 49.30% 12.69% 48.40% 47.20% 48.80% 48.60% 12.76% 12.40% 13.10% 13.50% 12.90%
Income Taxes Payable 455.0 466.0 318.0 460.0 - - - - 399.7 - - - - 573.0 598.7 706.4 722.0 757.7
Days Taxes Outstanding 5.5 5.3 3.2 4.5 - - - - 3.7 - - - - 4.9 4.8 5.2 4.9 4.8
% of Revenue 1.52% 1.44% 0.87% 1.22% 0.00% 0.00% 0.00% 0.00% 1.01% 0.00% 0.00% 0.00% 0.00% 1.35% 1.31% 1.42% 1.34% 1.30%
Current Portion of Long Term Debt 1,018.0 523.0 15.0 625.0 684.7 677.3 664.2 691.8 691.8 747.0 707.5 745.7 723.7 723.7 685.4 845.5 754.3 932.3
% of Revenue 3.40% 1.62% 0.04% 1.66% 7.12% 6.90% 6.70% 6.80% 1.75% 7.30% 6.80% 7.00% 6.50% 1.71% 1.50% 1.70% 1.40% 1.60%
Other Liabilities 5,698.0 6,018.0 6,545.0 7,208.0 7,116.1 7,470.1 7,513.6 7,884.4 7,884.4 7,787.9 7,751.8 7,788.6 8,240.3 8,240.3 8,806.8 9,240.8 9,848.0 11,118.1
% of Revenue 19.02% 18.60% 17.92% 19.14% 74.10% 76.20% 75.90% 77.60% 19.98% 76.20% 74.60% 73.20% 74.10% 19.45% 19.30% 18.60% 18.30% 19.10%
Total Current Liabilities 10,804.0 11,351.0 11,661.0 13,029.0 12,468.3 12,824.0 12,910.0 13,585.6 13,985.3 13,481.9 13,364.3 13,727.1 14,369.0 14,942.0 15,749.6 17,301.3 18,589.5 20,317.4
% of Revenue 36.07% 35.09% 31.92% 34.59% 129.85% 130.83% 130.43% 133.73% 35.44% 131.93% 128.63% 129.03% 129.23% 35.27% 34.52% 34.83% 34.55% 34.91%
% of Accounts Receivable Quick 85%

% of Inventory Quick 65%
Current Ratio 1.289892632 1.322438552 1.383586313 1.350679254 1.41594068 1.384544592 1.420608549 1.39041372 1.350678095 1.41772193 1.429993849 1.43176143 1.436510962 1.381427669 1.442947456 1.421499312 1.409871254 1.42971481
UOIG 13
Appendix 5 Discounted Cash Flows Analysis Assumptions
Discounted Free Cash Flow Assumptions Considerations
Considerations
Tax Rate 26.39% Terminal Growth Rate 3.00%
Risk Free Rate 1.70% Terminal Value 101,571 Avg. Industry Debt / Equity 40.50%
Beta 1.27 PV of Terminal Value 36,627 Avg. Industry Tax Rate 23.98%
Market Risk Premium 7.00% Sum of PV Free Cash Flows 29,419 Current Reinvestment Rate 10.13%
% Equity 88.03% Firm Value 66,046 Reinvestment Rate in Year 2018E 24.49%
% Debt 11.97% Total Debt 7,496 Implied Return on Capital in Perpetuity 12.25%
Cost of Debt 4.33% Cash & Cash Equivalents 5,265 Terminal Value as a % of Total 55.5%
CAPM 10.60% Market Capitalization 58,550 Implied 2014E EBITDA Multiple 9.1x
WACC 9.72% Fully Diluted Shares 790 Implied Multiple in Year 2018E 3.6x
Implied Price $ 74.13 Free Cash Flow Growth Rate in Year 2018E 17%
Current Price $ 69.80
Undervalued 6.21%
UOIG 14
Appendix 7- Other Technical Information Considered
Comparables Analysis HON JCI UTX ITW BWA
Honeywell Johnson United Illinois Tool
($ in millions) International Controls Inc. Technologies Works BorgWarner
Stock Characteristics Max Min Median Weight Avg. 30.00% 50.00% 10.00% 10.00%
Current Price $89.41 $31.67 $68.00 $67.81 $69.80 $31.67 $89.41 $61.62 $74.38
Beta 1.49 1.06 1.31 1.23 1.24 1.43 1.06 1.18 1.49
Size
Short-Term Debt 1,624.0 243.4 603.0 1,106.3 1,101.0 747.0 1,624.0 459.0 243.4
Long-Term Debt 21,597.0 823.8 4,955.0 12,936.1 6,395.0 5,321.0 21,597.0 4,589.0 823.8
Cash and Cash Equivalent 602.0 (4,854.0) (1,497.0) (2,545.8) (4,643.0) 602.0 (4,854.0) (2,279.0) (715.0)
Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Diluted Basic Shares 916.6 115.6 567.5 720.2 789.8 684.0 916.6 451.0 115.6
Market Capitalization 81,956.8 8,601.3 24,726.5 51,116.3 55,127.3 21,662.3 81,956.8 27,790.6 8,601.3
Enterprise Value 110,031.8 10,383.5 31,201.0 67,749.5 67,266.3 27,275.3 110,031.8 35,126.6 10,383.5
Growth Expectations
% Revenue Growth 2013E 12.74% -2.10% 3.38% 7.36% 4.5% 2.6% 12.7% -2.1% 4.2%
% Revenue Growth 2014E 13.08% 4.06% 5.87% 6.37% 5.3% 6.1% 5.7% 4.1% 13.1%
% EBITDA Growth 2013E 18.01% 2.63% 7.72% 12.80% 14.5% 9.9% 18.0% 2.6% 5.5%
% EBITDA Growth 2014E 15.10% 5.41% 11.80% 11.55% 5.4% 12.9% 10.7% 8.2% 15.1%
% EPS Growth 2013E 13.99% 0.00% 6.12% 8.22% 10.4% 0.0% 14.0% 5.3% 7.0%
% EPS Growth 2014E 19.26% 11.02% 16.81% 16.10% 11.0% 18.8% 14.8% 11.4% 19.3%
Profitability Margins
Gross Margin 36.09% 16.70% 28.47% 27.35% 33% 17% 33% 36% 24%
EBIT Margin 21.30% 4.30% 11.92% 10.97% 11% 4% 13% 21% 11%
EBITDA Margin 22.90% 5.49% 15.25% 13.21% 14% 5% 16% 23% 15%
Net Margin 13.92% 3.01% 7.68% 7.19% 8% 3% 8% 14% 7%
Credit Metrics
Interest Expense $893.00 $14.00 $129.80 $476.66 $363.00 $14.00 $893.00 $214.00 $45.60
Debt/EV 0.22 0.10 0.18 0.20 0.11 0.22 0.21 0.14 0.10
Leverage Ratio 2.63 0.99 1.91 2.31 1.45 2.63 2.59 1.23 0.99
Interest Coverage Ratio 164.64 10.04 21.36 58.69 14.21 164.64 10.04 19.18 23.55
Operating Results
Revenue $57,677.0 $7,178.0 $29,942.0 $43,936.7 $37,672.0 $41,960.0 $57,677.0 $17,924.0 $7,178.0
Gross Profit $18,802.0 $1,747.0 $6,738.5 $12,325.0 $12,576.0 $7,008.0 $18,802.0 $6,469.0 $1,747.0
EBIT $7,444.0 $785.1 $2,811.0 $4,723.7 $4,233.0 $1,805.0 $7,444.0 $3,817.0 $785.1
EBITDA $8,968.0 $1,073.7 $3,205.0 $5,693.4 $5,159.0 $2,305.0 $8,968.0 $4,105.0 $1,073.7
Net Income $4,840.0 $500.9 $1,878.5 $3,098.2 $2,926.0 $1,262.0 $4,840.0 $2,495.0 $500.9
Capital Expenditures $2,277.0 ($5,622.2) $111.2 ($2,630.8) $2,277.00 -$41.70 -$5,622.17 $1,664.25 $264.05
Multiples
EV/Revenue 1.96x 0.65x 1.68x 1.49x 1.79x 0.65x 1.91x 1.96x 1.45x
EV/Gross Profit 5.94x 3.89x 5.64x 5.23x 5.35x 3.89x 5.85x 5.43x 5.94x
EV/EBIT 15.89x 9.20x 14.00x 14.17x 15.89x 15.11x 14.78x 9.20x 13.23x
EV/EBITDA 13.04x 8.56x 10.75x 11.51x 13.04x 11.83x 12.27x 8.56x 9.67x
EV/(EBITDA-Capex) 23.34x 7.54x 12.22x 9.98x 23.34x 11.62x 7.54x 14.39x 12.82x
Market Cap/Net Income = P/E 18.84x 11.14x 17.05x 16.45x 18.84x 17.17x 16.93x 11.14x 17.17x
Multiple Implied Price Weight

EV/Revenue 55.68 Weighting %
EV/Gross Profit 67.92 0.00%
EV/EBIT 60.56 40.00%
EV/EBITDA $71.56 50.00%
EV/(EBITDA-Capex) 89.81 10.00%
Market Cap/Net Income = P/E $36.97 Weighting %
Price Target $68.98
Current Price 69.80
Overvalued (1.17%)
UOIG 15
One -Ye ar Stock Chart
$80.00 14000000
$70.00
12000000
$60.00
10000000
$50.00
8000000
$40.00
6000000
$30.00
4000000
$20.00
$10.00 2000000
$0.00 0
Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13
Volume Adjusted Close 50-Day Avg 200-Day Avg
10 - Year T- Bill LIBOR 3 Month Rate

10 - Year T-Bill LIBOR
1.70% 0.31%
BV
Amount Percent of Total Leverage Market as of Percent of Current
LIBOR FLOOR Rate Long-Term Debt Outstanding Debt thru Issue Prices 02/26/2013 Total Debt Yield YTW
0.00% 9.07% Allied Signal Inc. $51.0 0.00770742 0.0098856 161.8% $82.5 1.07% 5.6% 4.42%
0.00% 6.63% Hneywell Inc. 216.0 0.032643192 0.0517542 128.1% $276.8 3.58% 5.2% 4.13%
0.00% 5.40% Honeywell Interantional Inc. 400.0 0.060450355 0.1292886 113.6% $454.2 5.87% 4.8% 0.91%
0.00% 5.30% Honeywell Interantional Inc. 900.0 0.136013299 0.7204885 119.1% $1,071.5 13.84% 4.5% 1.37%
0.00% 5.00% Honeywell Interantional Inc. 900.0 0.136013299 1.0112425 118.1% $1,063.1 13.73% 4.2% 1.79%
Total Long-Term Debt $6,617.0 1 $7,740.7
Current Yield Yield To Worst

Implied Cost of Debt 4.33% 2.37%
UOIG 16
Appendix 8 Sources
Sec Fillings (HON,JCI,UTX,BWA,ITW)
Honeywell International investor relations
Honeywell International Conference Calls
Honeywell International quarterly and full year earnings call
Yahoo Finance
Bloomberg
Morningstar
Fact set
Forbes
Investopedia
UOIG 17

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3/1/2013

Current Price: $69.80 Implied Price: $75.43

M arket Capitalization 54.78 Seven-Year Stock Chart

3-Year Revenue CAGR 7 $80.00 25,000,000

Trading Statistics $70.00

Insider Ownership 0.09% $40.00

EV/EBITDA (LTM ) 13.4 10,000,000

EBITDA M argin (LTM ) 14% $10.00

Net M argin (LTM ) 8% $0.00 0

Honeywell Internationals Aerospace segment accounts for approximately 32

Automation and Control Solutions (ACS)

Performance Materials and Technologies (PMT)

Performance Materials and technologies is the third largest of Honeywells

Transportation Systems is the smallest of Honeywells operations, accounting

Business Growth Strategies

Automation and Control Solutions (ACS)

Performance Materials and Technologies (PMT)

Automation and Control Solutions (ACS)

Performance Materials and Technologies (PMT)

Performance Materials provides chemical processing, refinement and many

Management and Employee Relations

Honeywell Aerospace Selected For Australia's First Precision Landing

Honeywell Signs $2.8 Billion Lifetime Contract with Embraer to Provide

United Technologies (UTX) - 50%

Illinois Tool Works (ITW) 10%

BorgWarner (BWA) 10%

Other Companies considered include GE, IR, and CAT

Discounted Cash Flow Analysis

Cost of Goods Sold-

Sales Generals and Administrative Expenses-

Depreciation and Amortization-

Net Working Cap-

Capital Expenditures and Acquisitions-

Beta SD Weighting Tax rate-

Vasicek 1 Year Weekly 1.22 17.00% Beta-

Honeywell International Beta 1.272

Multiple Implied Price Weight

Discounted Free Cash Flow Assumptions Considerations

Appendix 4 Working Capital Model

Working Capital Model Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

% of Accounts Receivable Quick 85%

Multiple Implied Price Weight

One -Ye ar Stock Chart

Volume Adjusted Close 50-Day Avg 200-Day Avg

10 - Year T- Bill LIBOR 3 Month Rate

Total Long-Term Debt $6,617.0 1 $7,740.7

Current Yield Yield To Worst

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