1. ILLINOIS TOOL WORKS INC. APRIL 23, 2013 Kaushik Andra, Dan Ballantine, & Keaton J. Cervantes

2. Agenda  Introduction  Macroeconomic Outlook  Industry Overview  Company Overview  Financial Analysis  Valuation  Recommendation

3. Illinois Tool Works Inc.  Founded in 1912, headquartered in Glenview, Illinois  Approximately 60,000 employees  Manufacturer of industrial products and equipment across 40 different operating segments with operations in 58 countries  Decentralized management structure: contains 8 separate business segments that operate independently  Currently listed on RCMP Watch List  Last reviewed in April 2005 Source: Illinois Tool Works 2012 10-K

4. Macroeconomic Outlook  Industry trend to pursue “Southern Strategy” in the United States  Moving operations to right-to-work states  United States becoming more competitive globally  Decrease in energy and input costs  Foreign worker compensation rising, while US wages are stagnant Source: The Wall Street Journal

5. Macroeconomic Outlook  Improving industrial output in the United States  Industrial production nearing 2007-2008 levels Source: The Wall Street Journal

6. Macroeconomic Outlook  After strong increase, shipments abroad are decreasing Source: The Wall Street Journal

7. Global Industrial Machinery Overview  Engine, Turbine, and Related is the largest segment of the global industrial machinery, accounting for 36.5% of total revenue  Asia-Pacific accounts for 36.8% of total revenue  Mitsubishi Heavy is largest player in the industry, generating 6.5% of market value Source: MarketLine

8. Industry Projection Source: MarketLine

9. Industry Forces Analysis  Bargaining Power of Buyers: Moderate  Low switching costs, but typically buyers opting for machinery best suited to their needs  Bargaining Power of Suppliers: Low  Commodity inputs with a large number of industry suppliers  Threat of New Entrants: Low  Highly capital intensive industry  Requires high amounts of specific knowledge  Threat of Substitutes: Moderate  Machines expected to work in heavy duty environment  Degree of Rivalry: High  4 largest players only own 14% of total market share Source: MarketLine

10. Company Overview Source: Illinois Tool Works 2012 Annual Report

11. Company Overview Source: Illinois Tool Works 2012 10-K

12. Current Financial Position Source: Illinois Tool Works 2012 Annual Report

13. Financial Highlights Source: Illinois Tool Works 2012 10-K

14. Business Risks Exchange Rates Ballooning pension costs Low employee morale Divestiture Failures Economic downturn globally Failure to realize 80/20

15. SWOT Analysis Globally diversified revenue base Strong dividend history Multiple end markets and product groups Strengths High number of operating segments and product lines Unproven track record of management team Very uncertain future due to current strategy Weaknesses Divest undesirable business segments to improve margins Efficient operations once 80/20 strategy is realized Opportunities Sensitive to a variety of macroeconomic factors Exposure to currency risk High industry competition Threats

16. Strategy  80/20 plan  Focus on the 20% of business that is responsible for 80% of revenue  Large divestiture planned ahead  Reduce business from 800 to 120 business units  Restructure or end industrial packaging segment  Currently looking at alternatives  Using more discipline when deploying capital in the future Source: Illinois Tool Works Q4 2012 Earnings Presentation, Illinois Tool Works Barclays Investor Conference

17. Management Outlook  Anticipated increase of revenues in 2013 by 3-5%  Anticipated 2013 operating margin of 16.5-16.9%  Focus on executing enterprise strategy of simplifying the business  Improve operating margins to 20% by 2017  Increase future dividends and share buybacks  Looking to divest up to 25% of its remaining revenue base Source: Illinois Tool Works Q4 2012 Earnings Presentation

18. Recent News  Former CEO David Speer passed away in 2012  New CEO named in November 2012  Sold 51% stake in Decorative Surfaces business unit in August 2012  Announced new strategy in August 2012  Q4 2012:  Revenues down 2.3% from Q4 2011, operating income down 5.9% Source: Illinois Tool Works 2012 Annual Report, Q4 2012 Earnings Presentation

19. Current Stock Information MetricValue Current Stock Price $60.50 Trailing P/E9.98 Forward P/E14.21 Dividend Yield 2.51% Market Cap ($ millions) $27,312 Source: Capital IQ, Yahoo Finance

20. Financial Analysis

22. Comparable Companies Source: Capital IQ CompanyRevenues ($ millions) Market Cap ($ millions) Operating Margin Cummins Inc.$17,334$19,84311.2% Danaher Corp.$18,389$43,32417.6% Honeywell International Inc.$37,686$61,08811.4% Ingersoll-Rand Plc$14,035$18,40610.9% Lincoln Electric Holdings Inc.$2,853$3,96013.1% Parker-Hannifin Corporation$13,086$14,28511.5% Stanley Black & Decker$10,191$15,19611.2% Illinois Tool Works Inc.$17,924$29,59215.9%

23. Stock Performance Source: Yahoo Finance

24. Comparable Company Analysis Source: Capital IQ

25. Comparable Company Analysis Source: Capital IQ

26. Discount Rate Source: Yahoo Finance

27. DCF Analysis

29. Decision Drivers  Strengths:  Improved operating margins  Geographically diversified revenue base  GICS diversification  Strong dividend history  Concerns:  Management’s ability to execute restructuring plan  Stagnating sales growth in key segments  Exposure to a number of global macro factors

30. Recommendation  Valuation Summary  Current Stock Price: $60.78 per share  Comparable Companies Valuation: $57.76 per share  DCF Valuation: $46.33 per share  Recommendation: WATCH LIST  Place on RCMP Watch List  Consider reviewing again in 18-36 months after divestiture process is more complete