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ILLINOIS TOOL WORKS, INC

ILLINOIS TOOL WORKS, INC. RCMP - Initial Analysis April 21 st , 2005 By Alex Poltorak. Overview. General Corporate Information Macroeconomic Analysis Company Strategy Relevant Financials. Corporate Information. Major Business Falls Into 3 Categories: Highly-Engineered Products

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ILLINOIS TOOL WORKS, INC

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  1. ILLINOIS TOOL WORKS, INC RCMP - Initial Analysis April 21st, 2005 By Alex Poltorak

  2. Overview • General Corporate Information • Macroeconomic Analysis • Company Strategy • Relevant Financials

  3. 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

  4. 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 customer’s production process. • Examples: food equipment, construction, automobile markets, etc.

  5. 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.

  6. Corporate InformationRevenue Distribution • Construction • Automotive • Food/Retail • General Industrial • Food/Beverage • Consumer Durable • Other

  7. 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).

  8. Switching gears now to a Macroeconomic Overview of ITW’s environment

  9. 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:

  10. Macroeconomic Overview • The misc. capital goods industry market cap. is $143B (yahoo) and ITW’s individual market cap. is $25.7B. Industry’s largest, $5B more than 2nd Hitachi, Ltd. • 70% of ITW’s revenues come from products which are considered market leading.

  11. 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.

  12. ITW vs S&P 500 (5 year)

  13. Stock Performance (5 year)

  14. Any questions before moving on to the Financial Statistics?

  15. 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)¹:14.94 • PEG Ratio (5 yr expected)±:1.32

  16. 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%

  17. 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%

  18. Any questions about the numbers?

  19. 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.”

  20. 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

  21. 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

  22. The EndThank you for your time

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