ILLINOIS TOOL WORKS, INC

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ILLINOIS TOOL WORKS, INC

• RCMP - Initial Analysis
• April 21st, 2005
• By Alex Poltorak

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Overview

• General Corporate Information
• Macroeconomic Analysis
• Company Strategy
• Relevant Financials

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Corporate Information

• Major Business Falls Into 3 Categories
• Highly-Engineered Products
• Specialty Systems
• Leasing Investments
• Decentralized 650 Business Units
• Customers and Operations in 45 Countries

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Corporate Information

• Highly-Engineered Products used by customers in
  their own products.
• Examples fasteners, non-slip materials, etc.
• Specialty Systems machinery and consumables
  that are used by the customers production
  process.
• Examples food equipment, construction,
  automobile markets, etc.

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Corporate Information

• Leases Investments
• Examples investments in mortgage entities,
  leases of telecommunications, aircraft, air
  traffic control and other equipment, as well as
  properties, affordable housing and a venture
  capital fund.

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Corporate InformationRevenue Distribution

• Construction
• Automotive
• Food/Retail
• General Industrial

• Food/Beverage
• Consumer Durable
• Other

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Corporate Information

• Each business unit is a highly specialized,
  niche market company.
• Example 1 ITW Hi-Cone Manufactures 6-pack
  plastic rings (engineered products)
• Example 2 ROCOL Lubricants Produces bearing
  greases that extend bearing lifetime and cutting
  tool greases to protect parts (consumables).
• Example 3 ITW Gema - manufactures automatic
  manual application equipment for powder paint,
  recovery systems to increase powder application
  efficiency and heating equipment for curing
  powder coat finishes used in the automotive,
  appliance and industrial equipment industries
  (Specialty Systems).

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• Switching gears now to a Macroeconomic Overview
  of ITWs environment

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Macroeconomic Overview

• Capital Goods Sector - diversified over many
  industries (Misc. Capital Goods).
• Industry consists of a mix of regional and
  worldwide companies.
• No overall competitors, individual business unit
  competitors do exist.
• Industry Beta

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Macroeconomic Overview

• The misc. capital goods industry market cap. is
  143B (yahoo) and ITWs individual market cap. is
  25.7B. Industrys largest, 5B more than 2nd
  Hitachi, Ltd.
• 70 of ITWs revenues come from products which
  are considered market leading.

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Macroeconomic Overview

• Industry growth continues
• World production capacity constantly expanding
• Innovation is driving the need for specialized
  products and systems provided by this industry.
  Leading to increased overall demand.

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ITW vs SP 500 (5 year)

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Stock Performance (5 year)

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• Any questions before moving on to the Financial
  Statistics?

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Financial Statistics

• Current Price (4/20/05) 86.04
• 52 week range 83.03 - 96.70
• Market Capitalization 25.15 Billion
• Beta 0.84
• Trailing P/E (ttm, intraday)19.04
• Forward P/E (fye 31-Dec-06)¹14.94
• PEG Ratio (5 yr expected)1.32

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Financial Statistics

• Profitability
• Net Income Avl to Common (ttm) 1.36B
• Diluted EPS (ttm) 4.52
• Profit Margin (ttm) 11.26
• Operating Margin (ttm) 17.25
• Return Ratios
• Return on Assets (ttm)11.67
• Return on Equity (ttm)17.32

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Financial Statistics

• Capital Structure
• Total Debt 1.75B
• Debt Ratio 0.228
• Growth Rates
• Revenue (ttm) 12.10B
• Revenue Growth (lfy)³ 16.90
• Earnings Growth (lfy)³ 30.80

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• Any questions about the numbers?

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Company Strategy

• The 80/20 Philosophy Defined
• 80 percent of a business' sales are derived from
  the 20 percent of its product offering being sold
  to key customers.
• This process is really about simplifying and
  focusing on the key parts of your business.
  Simplicity focuses action, while complexity often
  blurs what is important. In the process of
  simplification, we view all aspects of the
  business on an 80/20 basis. This includes finding
  ways to simplify our product lines, customer and
  supply base, and business processes and systems.
  In the end, 80/20 improves quality, productivity,
  delivery, innovation, market penetration, and
  ultimately, customer satisfaction.

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Company Strategy

• Innovation
• ITW is focused on creating value-added products
  and innovative customer solutions.
• Expanding patent portfolio 16000 patents
  worldwide, 2900 US patents, and 1116 pending US
  applications
• Top 100 US patent issuers yearly

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Company Strategy

• Internal Growth
• Increase Revenues from current Operations
• Increase Operating and Profit Margins
• Add new customers and expand relationships with
  existing customers (value-adding)
• External Growth
• Continue Strategic Acquisitions - 600M-800M
  yearly
• 243 Acquisitions since 1997 - 7.76B in Revenues
• Expanding to new markets

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The EndThank you for your time