Illinois Tool Works

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Illinois Tool Works
"A TRADITION OF EXCELLENCE"
TICKER ITW TRADED ON NYSE
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Analyst's MONICA FERREIRA MUHAMMAD SATTAR ROSHNI
FIFADRA SHAZIA MANZAR PRATIK SHAH
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MISSION STATEMENT
"To Provide Customers With Their Highest Levels
of Quality And Performance"
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OUTLINE

• 2. FREE CASH FLOWS AND COST OF EQUITY
• FREE CASH FLOW TO EQUITY
• DISCOUNTED CASH FLOW
• 3. MARKET EFFICIENCY
• SPECIFIC NEWS
• NON-SPECIFIC NEWS

• 1. BACKGROUND
• ANALYSIS
• HISTORY AND PRODUCTS
• BORD OF DIRECTORS
• HOLDING PERIOD RETURN (HPR)
• FINANCIAL RATIOS

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OUTLINE

• RISK ANALYSIS
• STOCK BETA
• UNLEVERED BETA
• COST OF EQUITY
• COST OF CAPITAL
• OPTIMAL CAPITAL STRUCTURE
• WACC
• CAPITAL STRUCUTURE

• CONCLUSION
• RECOMMENDATIONS

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ITW'S HISTORY

• ITW was founded in 1912 at Glenview, Illinois
  during WWI
• Byron L. Smith with four men formed a company to
  manufacture and sell metal cutting tools
• The company expanded to include truck
  transmission, pumps and other requirements for
  Americas World War I effort.
• 1940 ITWS contribution during WWII included
  representation on the war production board and
  development of a new time saving wafer cutter to
  riffle heavy artillery barrels

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Illinois Tool Works Board
Michael Birck Director
W James Farrell CEO
William Aldinger Director
Susan Crown Director
Robert McCormack Director
Marwin Braislford Director
Don H. Davis, Jr Director
Robert Morris Director
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A DIFFERENTIATED
OPERATING STRATEGY

• Decentralized, close to customer Business Model
• 80/20 business process touches everything
• Dedicated focus on margin improvement
• Proven track record for integrating value-added
  acquisitions
• Constant innovation of products and broadening of
  end markets

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SUPER COOL FACTS
Global Presence in 6 continents and 44 countries
Imagine being on a world tour every month as a
business trip
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Acquisitions Are Undertaken To Add Value Rather
Than Manage The Portfolio
1997 1998 1999 2000 2001 2002 2003 2004 No.
of Deals 28 36 32 45 29 21 28 24 Acquired Revenu
es 420 818 3,800 1,000 556 195 347 624
Business Units 368 412 488 592 614 603 622 650

( in millions)
Global presence in 44 countries on 6 continents
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70 of ITWs 11.7 billion in 2004 operating
revenues came from products where it holds a
leading market position
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ITW'S PRODUCTS AND PROCESS

• Specialty Systems (40) machinery and
  consumables that are part of others production
  processes
• Engineered Components (40) highly engineered
  components which are part of others products
• Leasing and Investing Segment (20)

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(No Transcript)
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SPECIALTY SYSTEM SEGMENT

• Designs and Manufactures machinery and related
  consumable that includes
• Industrial Packaging Equipment
• Welding Equipment Metal Consumable
• Paper Plastic Products
• Commercial Food Equipment, which includes
  Dishwashers, Refrigerators, ovens and specialty
  scales
• 40 businesses in 23 countries represent 1.4
  billion of revenues

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ENGINEERED PRODUCTS

• Manufactures various plastic and metal components
  such as
• Metal Plastic Fasteners
• Components for Industrial Machines
• Manual and Power Operating Chocking Equipment

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Leasing Investment

• Makes investments Primary in
• Mortgage Entities
• Leases of Telecommunications,
• Aircraft, air traffic control,
• Other Equipment and Properties

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GROWTH RATES
WEAKNESS in growth rate percentages
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SALES PRICE RATIO
WEAKNESS in sale price ratios
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PROFIT MARGINS
STRENGTH in profit margins percentages
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FINANCIAL CONDITION
STRENGTH in financial condition
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INVESTMENT RETURN
EXCELLENT INVESTMENTS RETURNS
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MANAGMENT EFFICIENCY
FAIR
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FINANCIAL RATIOS CONCLUSION
Based on ITW ratios, overall, we concluded
this company has strength!
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25 Year Revenue / Income
CAGR Revenue ----------------------- 15 EPS
----------------------------- 13 ROIC
---------------------------- 15 Shareholder
Return 20
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HOLDING PERIOD RETURN
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FREE CASH FLOW TO EQUITY
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DISCOUNTED CASH FLOW
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MARKET EFFICIENCY
COMPANY RELATED NEWS

Illinois Tool Warns, Shares Fall
Beg 83.22 End 80.24 Volume4.16 M
WEAK FORM
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MARKET EFFICIENCY
FED RAISES RATES AGAIN
3/22 3/31 High 93.00 low 88.49
WEAK FORM
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RISK ANALYSIS
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COST OF CAPITAL OPTIMAL CAPITAL STRUCTURE
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CAPITAL STRUCTURE
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Summary of Pros N Cons

• Positive FCFE
• Stable and low capital structure
• Stock Under priced
• Strong Financials
• Low Beta
• Good Management

• Unpredictable growth rates
• Poor Price ratios

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5 Year Price Index
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Buy, Sell, or Hold?
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CONCLUSION

• Based on our analysis and analyst
  recommendations we suggest a

BUY
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END