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

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

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

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

Corporate Information Leases & Investments 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. 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.

Corporate Information Revenue Distribution nConstruction nAutomotive nFood/Retail nGeneral Industrial nConstruction nAutomotive nFood/Retail nGeneral Industrial nFood/Beverage nConsumer Durable nOther nFood/Beverage nConsumer Durable nOther

Corporate Information Each ‘business unit’ is a highly specialized, niche market company. Each ‘business unit’ is a highly specialized, niche market company. Example 1: ITW Hi-Cone – Manufactures 6-pack plastic rings (engineered products) 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 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). 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).

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

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

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 2 nd Hitachi, Ltd. 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 2 nd Hitachi, Ltd. 70% of ITW’s revenues come from products which are considered market leading. 70% of ITW’s revenues come from products which are considered market leading.

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

ITW vs S&P 500 (5 year)

Stock Performance (5 year)

Any questions before moving on to the Financial Statistics?

Financial Statistics Current Price (4/20/05): $86.04 Current Price (4/20/05): $ week range: $ $ week range: $ $96.70 Market Capitalization: $25.15 Billion Market Capitalization: $25.15 Billion Beta: 0.84 Beta: 0.84 Trailing P/E (ttm, intraday):19.04 Trailing P/E (ttm, intraday):19.04 Forward P/E (fye 31-Dec-06)¹:14.94 Forward P/E (fye 31-Dec-06)¹:14.94 PEG Ratio (5 yr expected)±:1.32 PEG Ratio (5 yr expected)±:1.32

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

Financial Statistics Capital Structure Capital Structure Total Debt: $1.75B Total Debt: $1.75B Debt Ratio: Debt Ratio: Growth Rates Growth Rates Revenue (ttm): $12.10B Revenue (ttm): $12.10B Revenue Growth (lfy)³: 16.90% Revenue Growth (lfy)³: 16.90% Earnings Growth (lfy)³: 30.80% Earnings Growth (lfy)³: 30.80%

Any questions about the numbers?

Company Strategy The 80/20 Philosophy Defined: 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. 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.” “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.”

Company Strategy Innovation: Innovation: ITW is “focused on creating value-added products and innovative customer solutions.” ITW is “focused on creating value-added products and innovative customer solutions.” Expanding patent portfolio – patents worldwide, 2900 US patents, and 1116 pending US applications Expanding patent portfolio – patents worldwide, 2900 US patents, and 1116 pending US applications Top 100 US patent issuers yearly Top 100 US patent issuers yearly

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

The End Thank you for your time