itw annual investor day part ii

A Financial PerspectiveA Financial Perspective

Ron KroppNew York City

December 2, 2005

Ron KroppNew York City

December 2, 2005

Ron KroppVP & Controller – Financial Reporting

Ron KroppVP & Controller – Financial Reporting

• Started career with Arthur Andersen• 12 years with ITW– 1993 – Manager, External Reporting– 1998 – Director, Corporate Accounting– 2002 – VP & Controller

• Current areas of responsibility:– External Reporting– Corporate Accounting– Tax Accounting– Country Controllers– Treasury– Internal Audit– Assist with Investor Relations

• Married with five children

• Started career with Arthur Andersen• 12 years with ITW– 1993 – Manager, External Reporting– 1998 – Director, Corporate Accounting– 2002 – VP & Controller

• Current areas of responsibility:– External Reporting– Corporate Accounting– Tax Accounting– Country Controllers– Treasury– Internal Audit– Assist with Investor Relations

• Married with five children

Today’s TopicsToday’s Topics

• Current year update

• Financial reporting issues

• Current year update

• Financial reporting issues

2005 Forecast2005 Forecast

MidMidLowLow HighHigh PointPoint

4th quarter4th quarterBase revenuesBase revenues 2.0%2.0% 4.0%4.0% 3.0%3.0%Income per share-dilutedIncome per share-diluted $1.34$1.34 $1.40$1.40 $1.37$1.37

%F(U) 2004%F(U) 2004 11%11% 16%16% 13%13%

Full yearFull yearBase revenuesBase revenues 4.1%4.1% 4.6%4.6% 4.3%4.3%Income per share-dilutedIncome per share-diluted $5.12$5.12 $5.18$5.18 $5.15$5.15

%F(U) 2004%F(U) 2004 17%17% 18%18% 17%17%

2005 ForecastKey Assumptions2005 ForecastKey Assumptions

• Exchange rates hold at current levels

• Acquired revenues in the $600 to $800 million range

• Restructuring cost of $40 to $60 million

• No further impairment of goodwill or intangibles

• Leasing & Investments income of $95 to $105 million, which is lower than 2004 by $25 to $35 million

• Tax rate of 32.0% for the 4th quarter and the full year

• Exchange rates hold at current levels

• Acquired revenues in the $600 to $800 million range

• Restructuring cost of $40 to $60 million

• No further impairment of goodwill or intangibles

• Leasing & Investments income of $95 to $105 million, which is lower than 2004 by $25 to $35 million

• Tax rate of 32.0% for the 4th quarter and the full year

Income Per ShareIncome Per Share

Income IncomePer Share $ % Per Share $ %

Q1 0.93 0.28 43% 1.06 0.13 14%Q2 1.16 0.24 26% 1.29 0.13 11%Q3 1.09 0.22 25% 1.43 0.34 31%Q4 1.21 0.28 30% 1.37 0.16 13%

Year 4.39 1.02 30% 5.15 0.76 17%

F/(U) 20032004 2005E

F/(U) 2004Income IncomePer Share $ % Per Share $ %

Q1 0.93 0.28 43% 1.06 0.13 14%Q2 1.16 0.24 26% 1.29 0.13 11%Q3 1.09 0.22 25% 1.43 0.34 31%Q4 1.21 0.28 30% 1.37 0.16 13%

Year 4.39 1.02 30% 5.15 0.76 17%

F/(U) 20032004 2005E

F/(U) 2004

Return on Invested CapitalReturn on Invested Capital

+(-) +(-)ROIC 2003 ROIC 2004

Q1 16.6% 3.7% 15.8% -0.8%Q2 20.0% 2.4% 18.9% -1.1%Q3 17.9% 1.6% 20.7% 2.8%Q4 19.2% 1.9% 19.6% 0.4%

Year 18.5% 2.4% 18.8% 0.3%

2004 2005E+(-) +(-)

ROIC 2003 ROIC 2004

Q1 16.6% 3.7% 15.8% -0.8%Q2 20.0% 2.4% 18.9% -1.1%Q3 17.9% 1.6% 20.7% 2.8%Q4 19.2% 1.9% 19.6% 0.4%

Year 18.5% 2.4% 18.8% 0.3%

2004 2005E

High = 20.3% (1997)High = 20.3% (1997)

Free Operating Cash Flow(in millions)

Free Operating Cash Flow(in millions)

Free $+(-) Free $+(-)Cash 2003 Cash 2004

Q1 278.0 101.3 254.3 (23.7) Q2 327.2 109.5 429.9 102.7 Q3 403.3 53.5 506.6 103.3 Q4 326.4 (99.3) 350.0 23.6

Year 1,334.9 165.0 1,540.8 205.9

2004 2005EFree $+(-) Free $+(-)Cash 2003 Cash 2004

Q1 278.0 101.3 254.3 (23.7) Q2 327.2 109.5 429.9 102.7 Q3 403.3 53.5 506.6 103.3 Q4 326.4 (99.3) 350.0 23.6

Year 1,334.9 165.0 1,540.8 205.9

2004 2005E

High = $1,335 (2004)High = $1,335 (2004)

• Leasing and Investments

• Inventory adjustments

• Stock compensation

• Pension and retiree health care

• Leasing and Investments

• Inventory adjustments

• Stock compensation

• Pension and retiree health care

Financial Reporting IssuesFinancial Reporting Issues

Leasing & InvestmentsLeasing & Investments

• ITW has always made opportunistic financial investments

• In mid-1990’s, three commercial mortgage investments were made– Use of excess cash at that time

– All were 10-year deals with similar structures

– Most of upside benefit and downside risk resides with partner

– Non recourse debt was shown “gross” on the balance sheet until deconsolidation in 2003 (adoption of FIN 46)

• Started reporting as a separate segment in 1996

• ITW has always made opportunistic financial investments

• In mid-1990’s, three commercial mortgage investments were made– Use of excess cash at that time

– All were 10-year deals with similar structures

– Most of upside benefit and downside risk resides with partner

– Non recourse debt was shown “gross” on the balance sheet until deconsolidation in 2003 (adoption of FIN 46)

• Started reporting as a separate segment in 1996

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History of Leasing & Investments1994 - 2005

History of Leasing & Investments1994 - 2005

Investments Balance (net of nonrecourse debt)Investments Balance (net of nonrecourse debt) L&I IncomeL&I Income

Begin segment2nd mortgage

deal

3rd mortgagedeal

Telecomleases

1st mortgagedeal ends

(in m

illio

ns)

(in m

illio

ns)

1st mortgagedeal

Leasing & Investments2005

Leasing & Investments2005

Forecast changes for full year midpoint L&I income (in millions):• Jan 2005 – 65• April 2005 – 70• July 2005 – 90• October 2005 - 100

Forecast changes for full year midpoint L&I income (in millions):• Jan 2005 – 65• April 2005 – 70• July 2005 – 90• October 2005 - 100

Investment YTDBalance 3Q05

(in millions) 9/30/2005 Income

Mortgage Investments 417 49 Leases 307 8 Venture Capital 95 8 Other 202 14

1,021 79

Investment YTDBalance 3Q05

(in millions) 9/30/2005 Income

Mortgage Investments 417 49 Leases 307 8 Venture Capital 95 8 Other 202 14

1,021 79

35 mil increase35 mil increase

20 mil mortgage gains on sales20 mil mortgage gains on sales

10 mil venture capital mark-to-market adj10 mil venture capital mark-to-market adj

Leasing & InvestmentsWhat’s Ahead?

Leasing & InvestmentsWhat’s Ahead?

• Mortgage deals will end in Dec 2005, Dec 2006 and Feb 2008

• Estimated cash proceeds of $125+ million from dispositions will be received at end of each mortgage deal

• Income for 2006 is currently estimated to be in a range of $40 to $60 million

• Long-term annual income (i.e. after mortgage deals) estimated to be in a range of $15 to $25 million

• No current plans to grow L&I above that base level

• Strong preference to utilize free operating cash flow for acquisitions and base business growth

• Mortgage deals will end in Dec 2005, Dec 2006 and Feb 2008

• Estimated cash proceeds of $125+ million from dispositions will be received at end of each mortgage deal

• Income for 2006 is currently estimated to be in a range of $40 to $60 million

• Long-term annual income (i.e. after mortgage deals) estimated to be in a range of $15 to $25 million

• No current plans to grow L&I above that base level

• Strong preference to utilize free operating cash flow for acquisitions and base business growth

Inventory AdjustmentsInventory Adjustments

• In 4th quarter 2004, impact of inventory cost adjustments (net of LIFO) was approximately $25 million income

– Related to higher raw material costs in U.S. starting in 2nd quarter 2004

– Split approximately evenly between EP–NA and SS-NA segments

• Operating units generally only adjust inventory cost for changesannually in 4th quarter

– Simple - standard costs same all year

– Consistent with annual plan

– Normally minimal impact as most U.S. inventory is on LIFO method

• Better monitoring of purchase price variances by corporate in 2005

• 2005 impact expected to be smaller than 2004

• In 4th quarter 2004, impact of inventory cost adjustments (net of LIFO) was approximately $25 million income

– Related to higher raw material costs in U.S. starting in 2nd quarter 2004

– Split approximately evenly between EP–NA and SS-NA segments

• Operating units generally only adjust inventory cost for changesannually in 4th quarter

– Simple - standard costs same all year

– Consistent with annual plan

– Normally minimal impact as most U.S. inventory is on LIFO method

• Better monitoring of purchase price variances by corporate in 2005

• 2005 impact expected to be smaller than 2004

Stock CompensationStock Compensation

• Issued restricted stock in 2003 and 2004 instead of options ($33 million 2005 expense)

• ITW began expensing options in 1st quarter 2005 (one year early) - estimated 2005 impact of $26 million

• Using “preferred” binomial valuation model (vs. Black-Scholes)

• Ongoing annual expense expected to be in $50 to $60 million range

• Issued restricted stock in 2003 and 2004 instead of options ($33 million 2005 expense)

• ITW began expensing options in 1st quarter 2005 (one year early) - estimated 2005 impact of $26 million

• Using “preferred” binomial valuation model (vs. Black-Scholes)

• Ongoing annual expense expected to be in $50 to $60 million range

Pension & Retiree Health CareExpense

Pension & Retiree Health CareExpense

20022002 20032003 20042004 2005E2005E

Expense (in millions):Expense (in millions):PensionPension 2929 4646 4646 5353Retiree health careRetiree health care 5050 5050 5757 4545

Key Assumptions:Key Assumptions:Pension:Pension:Discount rateDiscount rate 7.1%7.1% 6.4%6.4% 5.9%5.9% 5.7%5.7%Expected returnsExpected returns 8.0%8.0% 8.0%8.0% 8.0%8.0% 8.0%8.0%Compensation increasesCompensation increases 4.4%4.4% 4.4%4.4% 4.3%4.3% 4.4%4.4%

Retiree health care:Retiree health care:Discount rateDiscount rate 7.3%7.3% 6.6%6.6% 6.0%6.0% 5.8%5.8%Expected returnsExpected returns N/AN/A 7.0%7.0% 7.0%7.0% 7.0%7.0%

Pension & Retiree Health CareFunded Status

Pension & Retiree Health CareFunded Status

(in millions)(in millions) 20022002 20032003 20042004

Pension:Pension:

Plan assetsPlan assets 993993 1,2001,200 1,4921,492Benefit obligationBenefit obligation 1,2371,237 1,4471,447 1,5891,589

% assets to obligation% assets to obligation 80%80% 83%83% 94%94%

Cash contributionsCash contributions 1313 185185 125125

Retiree health care:Retiree health care:

Plan assetsPlan assets -- 3636 6565Benefit obligationBenefit obligation 486486 587587 546546

% assets to obligation% assets to obligation 0%0% 6%6% 12%12%

Cash contributionsCash contributions 6565 6262 6969

Q & AQ & A

A Financial Perspective

Eugene OsterkornNew York CityDecember 2, 2005

A Financial Perspective

Eugene OsterkornNew York CityDecember 2, 2005

Eugene OsterkornVP & Controller, Operations

Eugene OsterkornVP & Controller, Operations

• Started career with Beatrice Foods

• 17 years with ITW – Controller – Signode (4 years)

– Group Controller – Signode North America and Asia (4 years)

– Group Controller – Automotive and industrial plastics (7 years)

• Current areas of responsibilities– Internal reporting

– Group Controllers

– Restructuring expenditures

– Capital expenditures

• Married with one child

• Started career with Beatrice Foods

• 17 years with ITW – Controller – Signode (4 years)

– Group Controller – Signode North America and Asia (4 years)

– Group Controller – Automotive and industrial plastics (7 years)

• Current areas of responsibilities– Internal reporting

– Group Controllers

– Restructuring expenditures

– Capital expenditures

• Married with one child


• How does ITW analyze, control and report 650 business units?

• How does ITW analyze, control and report 650 business units?

ManagementManagement

• Business unit controllers– Focus on operations

• Group controllers– Role

– Operational review

– Reporting responsibilities

• Business unit controllers– Focus on operations

• Group controllers– Role

– Operational review

– Reporting responsibilities

Welding GroupWelding Group

Scott SantiExecutive VP

VP and GMIndustrial Markets

GroupController

AssistantGroup Controller

AssistantGroup Controller

VP and GMTIG

Systems

VP and GMHobart Bros. Co.

Asia/Pacific

Group VPITW Welding Europe

ITW GSE Group

VP and GMGlobal Pipe

Systems

PresidentDistr. BusinessNorth America

VP and GMHobart Bros. Co.

Tubular Wire

Business Units

(3)

Business Units

(4)

Business Units

(5)

Business Units(10)

Business Units

(3)

Business Units(19)

Business Units

(3)

ManagementManagement

• Country controllers– Statutory reporting

• Corporate– Internal audit– Internal financial reporting– External financial reporting

• Complex accounting issues– Record at corporate

• Country controllers– Statutory reporting

• Corporate– Internal audit– Internal financial reporting– External financial reporting

• Complex accounting issues– Record at corporate

ReportingReporting

• Monthly reporting by business unit– Actual P&L results• 24 line items (8)

– Selected data• 11 line items (3)

– P&L outlook

• Monthly reporting by business unit– Actual P&L results• 24 line items (8)

– Selected data• 11 line items (3)

– P&L outlook

ReportingReporting

• Quarterly reporting by business unit– Balance sheet data• 56 main line items– Data by major groups

• Yearly reporting by business unit– Additional selected data• Annual report

• Quarterly reporting by business unit– Balance sheet data• 56 main line items– Data by major groups

• Yearly reporting by business unit– Additional selected data• Annual report

ReportingReporting

• Business units– Computer system• Fits need of particular business• 80/20• Understand, Simplify, act

– Chart of accounts• Maintain account numbers

– Input document• Web based• Corporate – account descriptions

• Business units– Computer system• Fits need of particular business• 80/20• Understand, Simplify, act

– Chart of accounts• Maintain account numbers

– Input document• Web based• Corporate – account descriptions

ReportingReporting

• Acquisitions– Integration

– Group controllers

– External reporting• Beginning balance sheet

• Acquisitions– Integration

– Group controllers

– External reporting• Beginning balance sheet

Analysis/ControlAnalysis/Control

• Preliminary internal reporting package– Group controllers• Data points – business units

– Internal financial reporting• Like businesses

– External financial reporting• Checks and balances

– VP and Controller – Operations

– VP and Controller – External reporting

• Preliminary internal reporting package– Group controllers• Data points – business units

– Internal financial reporting• Like businesses

– External financial reporting• Checks and balances

– VP and Controller – Operations

– VP and Controller – External reporting


• Key measurements– Revenue– Operating income– Variable margin– Total Overhead– Inventory months on hand– Accounts receivable DSO and past-dues– Return on investment

• Key measurements– Revenue– Operating income– Variable margin– Total Overhead– Inventory months on hand– Accounts receivable DSO and past-dues– Return on investment


• Analytics– 80/20– Follow-up on an exception basis– Unit controller response– Group controller involvement

• Procedure/Policy/Reporting manuals– Unit controllers– Internal audit– Statement of principles (code of ethics)– Representation letters

• Analytics– 80/20– Follow-up on an exception basis– Unit controller response– Group controller involvement

• Procedure/Policy/Reporting manuals– Unit controllers– Internal audit– Statement of principles (code of ethics)– Representation letters


• Quarterly financial group meetings– Participants

– Financial policy

– Financial controls

– Analytics

– Best practices

– Culture

• Quarterly financial group meetings– Participants

– Financial policy

– Financial controls

– Analytics

– Best practices

– Culture


• Controller conferences– Review policy/controls

– Expectations of a controller

– Breakout sessions• Specific areas

• Small group setting

– Tone from the top

• Controller conferences– Review policy/controls

– Expectations of a controller

– Breakout sessions• Specific areas

• Small group setting

– Tone from the top

Q & AQ & A

ITW OverviewDavid SpeerNew York CityDecember 2, 2005

ITW OverviewDavid SpeerNew York CityDecember 2, 2005


• ITW Priorities

• Key Growth Components

• Review of Other ITW Businesses

• Q & A

• ITW Priorities

• Key Growth Components

• Review of Other ITW Businesses

• Q & A

ITW PrioritiesITW Priorities

ITW PrioritiesITW Priorities• ITW priorities include continuation of long

standing strengths– Decentralized, close-to-customer business model

– Ongoing implementation of 80/20 business simplification process

– Constant innovation of products leading to new businesses and market opportunities

– New initiatives include:• Continue revenue diversification with strong growth in Asia

Pacific, Eastern Europe and Latin America

• Enhance revenues with accelerated base revenue growth complimented with strong acquisition program

– Continue focus on strong financial performance

• ITW priorities include continuation of long standing strengths– Decentralized, close-to-customer business model

– Ongoing implementation of 80/20 business simplification process

– Constant innovation of products leading to new businesses and market opportunities

– New initiatives include:• Continue revenue diversification with strong growth in Asia

Pacific, Eastern Europe and Latin America

• Enhance revenues with accelerated base revenue growth complimented with strong acquisition program

– Continue focus on strong financial performance

ITW PrioritiesITW PrioritiesDecentralized business model: closer to customerDecentralized business model: closer to customer

CEO

EVP EVP EVP EVP EVP EVP EVP EVP

670 businesses serving customers

in 45 countries

Group Presidents

ITW PrioritiesITW Priorities• 80/20 process an ITW staple for 20+ years

– 80/20 focus results in aligning company assets with key customers and end markets

– Process applicable to existing as well as newly acquired companies

– Process produces generally smaller, tightly focused businesses

– Smaller units result in closer understanding of customers’ needs and better realization of new product innovations and new market opportunities

– ITW’s 80/20 lesson: simplicity results in better focus and superior financial results

• 80/20 process an ITW staple for 20+ years

– 80/20 focus results in aligning company assets with key customers and end markets

– Process applicable to existing as well as newly acquired companies

– Process produces generally smaller, tightly focused businesses

– Smaller units result in closer understanding of customers’ needs and better realization of new product innovations and new market opportunities

– ITW’s 80/20 lesson: simplicity results in better focus and superior financial results

ITW PrioritiesITW Priorities

• With more than 5000 product lines, ITW is a leading innovator of products for diversified end markets – Company ranked 66th in the U.S. with

301 patents issued in 2004– In 2004, ITW applied for 373 new patents

(279 in U.S.; 94 internationally)

• With more than 5000 product lines, ITW is a leading innovator of products for diversified end markets – Company ranked 66th in the U.S. with

301 patents issued in 2004– In 2004, ITW applied for 373 new patents

(279 in U.S.; 94 internationally)

ITW PrioritiesDiversify revenues by Geography


65%

30%

5%

N/A EMEA Asia Pacific/Other

65%

30%

5%


19991999 20042004

58%

30%12%


58%

30%12%




58%

30%12%


58%

30%12%


20042004 20092009

50%

27%

23%


50%

27%

23%


increased China / India contributions)increased China / India contributions)

ITW PrioritiesContinue Strong Track Record

ITW 25-year Revenue/Income

ITW PrioritiesContinue Strong Track Record

ITW 25-year Revenue/Income

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CAGRRevenue ----------------------- 15%EPS ----------------------------- 13%ROIC ---------------------------- 15%

Shareholder Return = 20%

CAGRRevenue ----------------------- 15%EPS ----------------------------- 13%ROIC ---------------------------- 15%

Shareholder Return = 20%

RevenuesRevenues

Op. IncomeOp. Income

Key Growth ComponentsKey Growth Components

Key Growth Components:Base Revenue Growth


• ITW a traditional 4% base revenue growth company

• Plan: enhance base revenue growth to 5%-6% in the next five years– Use 80/20 process to further segment high

potential market segments in select businesses aimed at increasing market penetration rates

– Increase investment in marketing and R&D (new product development) in selected ITW businesses targeting high potential segments

• ITW a traditional 4% base revenue growth company

• Plan: enhance base revenue growth to 5%-6% in the next five years– Use 80/20 process to further segment high

potential market segments in select businesses aimed at increasing market penetration rates

– Increase investment in marketing and R&D (new product development) in selected ITW businesses targeting high potential segments


Ramset T3™ Fastening System


Ramset T3™ Fastening System

• Cordless fastening system used in concrete, hollow block, pan deck and steel materials

• 10 times faster than anchoring and 5 times faster than powder systems

• Interchangeable nosepiece delivers a variety of new fasteners

• Exemplifies ITW’s technology transfer: Ramset T3 system is an offspring of Paslode Impulse tool

• Cordless fastening system used in concrete, hollow block, pan deck and steel materials

• 10 times faster than anchoring and 5 times faster than powder systems

• Interchangeable nosepiece delivers a variety of new fasteners

• Exemplifies ITW’s technology transfer: Ramset T3 system is an offspring of Paslode Impulse tool


High Definition Laminate


High Definition Laminate

• Wilsonart’s High Definition laminate provides a granite-like surface at an attractive price

• DeepStar — first HD series introduction —available in 8 colors and variety of finishes

• Wilsonart’s High Definition laminate provides a granite-like surface at an attractive price

• DeepStar — first HD series introduction —available in 8 colors and variety of finishes


Vulcan Endurance™ Range


Vulcan Endurance™ Range

• Vulcan’s Endurance new generation of range offers casual dining category and other institutions better performance – Range has improved output:

32,000 BTU’s for cook top/35,000 BTU’s for oven resulting in faster cooking cycles

– Lift off grates and removable oven liner making cleaning much easier

– Easy-to-use gas shut off valve powers range down until actual usage resulting in improved safety/cost savings for institutional users (nursing homes and schools)

• Vulcan’s Endurance new generation of range offers casual dining category and other institutions better performance – Range has improved output:

32,000 BTU’s for cook top/35,000 BTU’s for oven resulting in faster cooking cycles

– Lift off grates and removable oven liner making cleaning much easier

– Easy-to-use gas shut off valve powers range down until actual usage resulting in improved safety/cost savings for institutional users (nursing homes and schools)


Signode’s Z-20 Brick Packaging System


Signode’s Z-20 Brick Packaging System

• Signode’s Z-20 modular strapping system increases durability/productivity for bulk packaging applications

• Part of Signode’s family of modular design which separates sealing and tensioning modules each weighing less than 60 lbs.– Compact modules can be changed out

quickly for routine maintenance

– No lifting or special handling equipment needed for changeover

• For Acme Brick in Arkansas, Z-20 has virtually eliminated downtime and provided a 10% increase in productivity with brick packaging

• Signode’s Z-20 modular strapping system increases durability/productivity for bulk packaging applications

• Part of Signode’s family of modular design which separates sealing and tensioning modules each weighing less than 60 lbs.– Compact modules can be changed out

quickly for routine maintenance

– No lifting or special handling equipment needed for changeover

• For Acme Brick in Arkansas, Z-20 has virtually eliminated downtime and provided a 10% increase in productivity with brick packaging

Key Growth Components:Focus on Acquisitions


• ITW plan: continue to execute < $100 million in acquisitions (sourced by business units)– Continue acquisition training for key management

getting more qualified people in the process

– Criteria remains the same: • Strong products and market positions

• Well known brand names

• Identify management talent to implement 80/20 process

• Improve financial metrics (double operating margins in 3 to 5 year period

– Of 21 deals completed year-to-date 19 have been “bottoms up” deals

• ITW plan: continue to execute < $100 million in acquisitions (sourced by business units)– Continue acquisition training for key management

getting more qualified people in the process

– Criteria remains the same: • Strong products and market positions

• Well known brand names

• Identify management talent to implement 80/20 process

• Improve financial metrics (double operating margins in 3 to 5 year period

– Of 21 deals completed year-to-date 19 have been “bottoms up” deals



• Use additional resources to tap into > $100 million acquisition opportunities

– Devote more Senior Management time to working this space

– Focus on identifying new potential growth platforms

– $100 million to $500 million is sweet spot of bigger deals

– Completed three $100 million deals since December 2004

– Not adverse to doing + $500 million deals if product/market fit is good and valuation is reasonable

• Use additional resources to tap into > $100 million acquisition opportunities

– Devote more Senior Management time to working this space

– Focus on identifying new potential growth platforms

– $100 million to $500 million is sweet spot of bigger deals

– Completed three $100 million deals since December 2004

– Not adverse to doing + $500 million deals if product/market fit is good and valuation is reasonable



• Completed in late 2004, Wynn’s Oil develops and markets specialty chemicals/equipment for transportation aftermarket

• $105 million of revenues with 75% of business directed to professional channel and 25% directed to consumers

• Good geographic balance with two thirds of business outside of N/A

• Completed in late 2004, Wynn’s Oil develops and markets specialty chemicals/equipment for transportation aftermarket

• $105 million of revenues with 75% of business directed to professional channel and 25% directed to consumers

• Good geographic balance with two thirds of business outside of N/A



• Completed in January 2005, Permatex manufactures specialty chemical products for transportation aftermarket and industrial repair/maintenance

• $120 million of revenues with 77% of sales in U.S. and 23% in Canada, Mexico and other countries

• ITW’s current transportation aftermarket platform now represents $400 million of revenues

• Completed in January 2005, Permatex manufactures specialty chemical products for transportation aftermarket and industrial repair/maintenance

• $120 million of revenues with 77% of sales in U.S. and 23% in Canada, Mexico and other countries

• ITW’s current transportation aftermarket platform now represents $400 million of revenues



• Completed in October 2005, Instron Corporation is a worldwide supplier of instruments, software and service for testing of materials and structures

• $240 million of revenues with 35% in N/A; 39% in Europe/Middle East and 26% in Asia

• Gives ITW a new industrial testing and instrumentation platform for future growth

• Completed in October 2005, Instron Corporation is a worldwide supplier of instruments, software and service for testing of materials and structures

• $240 million of revenues with 35% in N/A; 39% in Europe/Middle East and 26% in Asia

• Gives ITW a new industrial testing and instrumentation platform for future growth

1997 1998 1999 2000 2001 2002 2003 2004 2005 (YTD)

No. of Deals 28 36 32 45 29 21 28 24 20

AcquiredRevenues $420 $818 $3800 $1000 $556 $195 $347 $624 $580

Business Units 368 412 488 592 614 603 622 650 670

1997 1998 1999 2000 2001 2002 2003 2004 2005 (YTD)

No. of Deals 28 36 32 45 29 21 28 24 20

AcquiredRevenues $420 $818 $3800 $1000 $556 $195 $347 $624 $580

Business Units 368 412 488 592 614 603 622 650 670

($ in millions)($ in millions)



Review of Other ITW Businesses

Review of Other ITW Businesses

ITW Construction ProductsITW Construction Products

• Designer and manufacturer of construction fastening systems for commercial, new housing and remodeling/rehab sectors

• 61 autonomous businesses in 21 countries represent $1.6 billion of revenues

• 2004 revenues: +19%

• 2005 YTD revenues: +8%

• Designer and manufacturer of construction fastening systems for commercial, new housing and remodeling/rehab sectors

• 61 autonomous businesses in 21 countries represent $1.6 billion of revenues

• 2004 revenues: +19%


• A worldwide manufacturer and distributor of decorative surfaces for commercial, new housing and remodeling sectors

• 11 autonomous businesses in 8 countries represent $917 million of revenues

• 2004 revenues: +5%


• A worldwide manufacturer and distributor of decorative surfaces for commercial, new housing and remodeling sectors

• 11 autonomous businesses in 8 countries represent $917 million of revenues



Key U.S. Market Trends:Construction 2006

Key U.S. Market Trends:Construction 2006

• U.S. new housing starts projected to decline by 5% in 2006 (NAHB); Canadian housing starts expected to decline by 4% in 2006.

• U.S. non-residential construction square footage projected to increase by 4% in 2006 (FW Dodge); Canadian non-residential construction projected to increase 3% in 2006

• U.S. home improvement expenditures (building materials) forecast to increase by 4.6% in 2006 (HIRI)

• U.S. new housing starts projected to decline by 5% in 2006 (NAHB); Canadian housing starts expected to decline by 4% in 2006.

• U.S. non-residential construction square footage projected to increase by 4% in 2006 (FW Dodge); Canadian non-residential construction projected to increase 3% in 2006

• U.S. home improvement expenditures (building materials) forecast to increase by 4.6% in 2006 (HIRI)

Key Market Trends:Construction 2006

Key Market Trends:Construction 2006

Europe:

• European residential construction activity forecast to decline slightly (<1%) in 2006 (EuroConstruct)

• European non-residential construction activity projected to increase slightly (+1%) in 2006 (EuroConstruct)

• European building renovation spending forecast to increase by 2.5% in 2006 (EuroConstruct)

Asia Pacific:

• Australia and New Zealand housing starts forecast to be flat in 2006 (BIS Shrapnel).

• Australia non-residential construction activity forecast to increase by 5% in 2006 and in New Zealand by 3% (BIS Shrapnel).

• SE Asia (ASEAN) construction activity expected to be up 2% in 2006; Japan forecast up 2% in 2006; China construction activity expected to increase a further 6% in 2006.

Europe:

• European residential construction activity forecast to decline slightly (<1%) in 2006 (EuroConstruct)

• European non-residential construction activity projected to increase slightly (+1%) in 2006 (EuroConstruct)

• European building renovation spending forecast to increase by 2.5% in 2006 (EuroConstruct)

Asia Pacific:

• Australia and New Zealand housing starts forecast to be flat in 2006 (BIS Shrapnel).

• Australia non-residential construction activity forecast to increase by 5% in 2006 and in New Zealand by 3% (BIS Shrapnel).

• SE Asia (ASEAN) construction activity expected to be up 2% in 2006; Japan forecast up 2% in 2006; China construction activity expected to increase a further 6% in 2006.

Food Equipment Food Equipment

• Designer and manufacturer of commercial food equipment for food service and food retail customers

• 40 businesses in 23 countries represent $1.4 billion of revenues



• Designer and manufacturer of commercial food equipment for food service and food retail customers




Key Market Trends:Food Equipment 2006

Key Market Trends:Food Equipment 2006

• Due to exit of some businesses in Europe, revenue growth for Food Equipment expected to be 2%-4% in 2006

• Food Service (restaurants/institutions) major contributor to growth via new products and focus on casual dining chains

• Parts and Service will continue to show strong top line growth

• Food Retail (supermarkets) will remain under pressure as chains (other than Wal-Mart) struggle with balance sheets

• Due to exit of some businesses in Europe, revenue growth for Food Equipment expected to be 2%-4% in 2006

• Food Service (restaurants/institutions) major contributor to growth via new products and focus on casual dining chains

• Parts and Service will continue to show strong top line growth

• Food Retail (supermarkets) will remain under pressure as chains (other than Wal-Mart) struggle with balance sheets

• Worldwide manufacturer of plastic and steel strapping; stretch films; corner board; and specialty machines for a wide range of industrial packaging applications


• 2004 revenues: +18%


• Worldwide manufacturer of plastic and steel strapping; stretch films; corner board; and specialty machines for a wide range of industrial packaging applications


• 2004 revenues: +18%


Industrial PackagingIndustrial Packaging

Key Market Trends:Industrial Packaging 2006Key Market Trends:Industrial Packaging 2006

• With YTD ’05 industrial production (ex. technology) growth at 2.6%, we expect industrial packaging revenues to increase 4%-5% in 2006

• Continued strong consumable conversion to plastic from steel

– Strong conversion trend continuing in North America

– Conversion trend accelerating internationally but steel still consumable of choice

• Polypropylene strap systems expected to grow due to global launch of new world-class equipment offerings and patented strap products

• With YTD ’05 industrial production (ex. technology) growth at 2.6%, we expect industrial packaging revenues to increase 4%-5% in 2006

• Continued strong consumable conversion to plastic from steel

– Strong conversion trend continuing in North America

– Conversion trend accelerating internationally but steel still consumable of choice

• Polypropylene strap systems expected to grow due to global launch of new world-class equipment offerings and patented strap products

Q & AQ & A

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