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  • 1. Welcome to ITW’s Annual Investor Meeting New York City New York City December 1, 2006 December 1, 2006
  • 2. Today’s Agenda 7:45 – 8:30 a.m. Breakfast buffet 7:45 – 8:30 a.m. Breakfast buffet 8:30 – 8:40 a.m. David Speer 8:30 – 8:40 a.m. David Speer Chairman and Chief Executive Officer Chairman and Chief Executive Officer Welcome and overview Welcome and overview 8:40 – 9:40 a.m. Tom Hansen 8:40 – 9:40 a.m. Tom Hansen Vice Chairman Vice Chairman Asia: A Growing Opportunity for ITW Asia: A Growing Opportunity for ITW 9:40 – 10:30 a.m. Ron Kropp 9:40 – 10:30 a.m. Ron Kropp Chief Financial Officer Chief Financial Officer Capital Structure and other Financial Topics Capital Structure and other Financial Topics 10:30 – 10:45 a.m. Break 10:30 – 10:45 a.m. Break 10:45 – 12:15 p.m. David Speer Eugene Osterkorn 10:45 – 12:15 p.m. David Speer Eugene Osterkorn Chairman and and Vice President, Chairman and and Vice President, Chief Executive Officer Controller Operations Chief Executive Officer Controller Operations ITW Overview/General Q&A ITW Overview/General Q&A 12:30 p.m. Lunch 12:30 p.m. Lunch Meeting Concludes Meeting Concludes
  • 3. ITW Forward – Looking Statements ITW Forward – Looking Statements This meeting contains forward-looking statements within the meaning of the This meeting contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding end market and business conditions as well as statements regarding end market and business conditions as well as associated base revenue assumptions. These statements are subject to associated base revenue assumptions. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may results to differ materially from those anticipated. Important risks that may influence future results include (1) a downturn in the construction, influence future results include (1) a downturn in the construction, automotive, general industrial, food institutional and retail, or real estate automotive, general industrial, food institutional and retail, or real estate markets, (2) deterioration in business and economic conditions, particularly in markets, (2) deterioration in business and economic conditions, particularly in North America, the European Community or Asia/Pacific, (3) the unfavorable North America, the European Community or Asia/Pacific, (3) the unfavorable impact of foreign currency fluctuations and costs of raw materials, (4) an impact of foreign currency fluctuations and costs of raw materials, (4) an interruption in, or reduction in, introducing new products into the Company’s interruption in, or reduction in, introducing new products into the Company’s product lines and (5) an unfavorable environment for making acquisitions, product lines and (5) an unfavorable environment for making acquisitions, domestic and international, including adverse accounting or regulatory domestic and international, including adverse accounting or regulatory requirements and market values of candidates, and (6) unfavorable tax law requirements and market values of candidates, and (6) unfavorable tax law changes and tax authority rulings. The risks covered here are not all inclusive changes and tax authority rulings. The risks covered here are not all inclusive and given these and other possible risks and uncertainties, investors should and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of not place undue reliance on forward-looking statements as a prediction of actual results. actual results.
  • 4. Asia: A Growing Opportunity for ITW Tom Hansen Tom Hansen Vice Chairman Vice Chairman New York City New York City December 1, 2006 December 1, 2006
  • 5. Today’s Topics • ITW’s Asian business • ITW’s Asian business profile and progress profile and progress • Corporate/Tech Center • Corporate/Tech Center Asia development Asia development and support and support • Major business • Major business unit initiatives unit initiatives • Q&A • Q&A
  • 6. ITW’s Asian Business Profile
  • 7. ITW’s Asian Business Profile • In 2000, ITW’s Asian revenues were • In 2000, ITW’s Asian revenues were approximately $370 million approximately $370 million • Half of those revenues came from Japan and • Half of those revenues came from Japan and South Korea South Korea • ITW had only 48 businesses in Asia in 2000 • ITW had only 48 businesses in Asia in 2000 – China and India represented less than $100 million – China and India represented less than $100 million of revenues of revenues
  • 8. ITW’s Asian Business Profile Today our business footprint has expanded significantly… Today our business footprint has expanded significantly… ITW currently has 88 business units in 9 Asian countries ITW currently has 88 business units in 9 Asian countries Country No. of Units Country No. of Units China 29 China 29 Japan 11 Japan 11 Singapore 10 Singapore 10 $815 million $815 million Malaysia 9 Malaysia 9 2006 est. revenue 2006 est. revenue India 7 India 7 South Korea 7 South Korea 7 Taiwan 7 Taiwan 7 Thailand 6 Thailand 6 Philippines 2 Philippines 2 Revenue growth in 2005-2006: +23% Revenue growth in 2005-2006: +23%
  • 9. ITW Asian Business Profile Were staying close to our Asian customers Were staying close to our Asian customers Exported to the region Exported to the region 9% 9% 91% of what we sell 91% of what we sell in Asia is produced in Asia is produced in Asia in Asia $815mm estimated 2006 revenue $815mm estimated 2006 revenue
  • 10. ITW’s Asian Business Profile ITW’s Asian Growth Outlook ITW’s Asian Growth Outlook • Asian base revenue growth expected to accelerate • Asian base revenue growth expected to accelerate from approximately 13% (2000-2005) to more than from approximately 13% (2000-2005) to more than 20% (2005-2010), and… 20% (2005-2010), and… • At the same time current ITW units not in the • At the same time current ITW units not in the region will set up business, and… region will set up business, and… • Our acquisition activity will expand as our • Our acquisition activity will expand as our businesses respond to opportunities in the region businesses respond to opportunities in the region • ITW targeting $4 billion of revenues in Asia/Pacific • ITW targeting $4 billion of revenues in Asia/Pacific (includes Australia/New Zealand) by 2010 (includes Australia/New Zealand) by 2010 – This would represent more than 20% of – This would represent more than 20% of ITW’s total revenues ITW’s total revenues
  • 11. Corporate/Tech Center Asia Development and Support
  • 12. Corporate/Tech Center – Asian Support • We have established an Asian support team • We have established an Asian support team at our tech center at our tech center • The current support activities include: • The current support activities include: – Technical support – both from the US and a greater – Technical support – both from the US and a greater local presence local presence – Assisting Asian units to enhance their in-house – Assisting Asian units to enhance their in-house technology technology – Helping to improve operational excellence – best – Helping to improve operational excellence – best practice sharing practice sharing – Assisting Asian businesses in adopting the “ITW – Assisting Asian businesses in adopting the “ITW Toolbox” – local workshops Toolbox” – local workshops
  • 13. ITW’s Major Asian Business Unit Initiatives • ITW is building on the • ITW is building on the expertise of its business expertise of its business units in North America and units in North America and Europe…and bringing new Europe…and bringing new businesses, products and businesses, products and technologies to rapidly technologies to rapidly growing Asian markets growing Asian markets
  • 14. ITW’s Major Asian Business Unit Initiatives • Welding products • Welding products • Wilsonart & construction • Wilsonart & construction • Industrial packaging • Industrial packaging • Testing and measurement • Testing and measurement • Automotive components and fasteners • Automotive components and fasteners • Electronic packaging and components • Electronic packaging and components • Printing, consumer packaging and decorating • Printing, consumer packaging and decorating
  • 15. Welding Group – Asia
  • 16. Welding Group – Asia • Two core segments: • Two core segments: – Welding products – Welding products – Aircraft ground support equipment – Aircraft ground support equipment
  • 17. Welding Products – Asia • Active selling presence (export) in the • Active selling presence (export) in the region for over 40 years region for over 40 years • Manufacturing presence in the region since 2000 • Manufacturing presence in the region since 2000 • Current employment of 1000+ in Asia, • Current employment of 1000+ in Asia, 700 in China 700 in China
  • 18. Welding Products – Asia • Products currently produced in the region: • Products currently produced in the region: – Welding Filler Metals (China/Taiwan) – Welding Filler Metals (China/Taiwan) – Welding Power Sources (China) – Welding Power Sources (China)
  • 19. Welding Products/Ground Support Asia Going Forward Going Forward •• Continued end-market specific penetration focus: Continued end-market specific penetration focus: – Shipbuilding – Shipbuilding – Offshore Platform Fabrication – Offshore Platform Fabrication – Energy Infrastructure – Energy Infrastructure – Oil/Gas Refining/Transportation – Oil/Gas Refining/Transportation – Construction – Construction – Aviation/Airports – Aviation/Airports •• An industry focus (rather than geography) where core An industry focus (rather than geography) where core customer needs and/or global competitive dynamics (i.e. customer needs and/or global competitive dynamics (i.e. weld quality, weld integrity, etc.) will drive the need for more weld quality, weld integrity, etc.) will drive the need for more advanced welding processes and technologies advanced welding processes and technologies •• Expect base revenue CAGR of +20% in Expect base revenue CAGR of +20% in 2005-2010 timeframe 2005-2010 timeframe
  • 20. Aircraft Ground Support Equipment Asia • Focus is on China • Focus is on China – China expects to spend $17.4 billion – China expects to spend $17.4 billion (US) over the next five years to build 42 (US) over the next five years to build 42 new airports new airports – Commercial airline fleet expected to – Commercial airline fleet expected to grow from 863 to 1,580 during that time grow from 863 to 1,580 during that time – Local presence (sales office) since – Local presence (sales office) since 1994 and dominant share position in 1994 and dominant share position in our core product categories positions our core product categories positions us well going forward us well going forward
  • 21. Wilsonart and Construction Products
  • 22. Wilsonart and Construction Products • We have been producing and selling in the • We have been producing and selling in the region for many years at a relatively modest level region for many years at a relatively modest level via our construction tools and fasteners via our construction tools and fasteners • In 1999, the Premark acquisition gave us a strong • In 1999, the Premark acquisition gave us a strong footprint in China/Asia via the Wilsonart high footprint in China/Asia via the Wilsonart high pressure laminate business pressure laminate business • We believe the ongoing maturation of the Asian • We believe the ongoing maturation of the Asian economy plays to our “productivity enhancing” economy plays to our “productivity enhancing” strengths strengths
  • 23. Wilsonart and Construction Products • These ITW businesses will benefit from • These ITW businesses will benefit from the regions growth the regions growth Will fuel demand for Will fuel demand for – Continued commercial – Continued commercial – Wilsonart Laminate – Wilsonart Laminate construction construction – Buildex, Ramset, – Buildex, Ramset, – The building of schools, – The building of schools, Redhead Fasteners Redhead Fasteners universities and hospitals universities and hospitals and tools and tools
  • 24. Wilsonart and Construction Products • We can supply these products from • We can supply these products from our Asian businesses: our Asian businesses: – Wilsonart Shanghai – Wilsonart Shanghai – Buildex Shanghai – Buildex Shanghai – Ramset/RedHead Hong Kong – Ramset/RedHead Hong Kong
  • 25. Wilsonart and Construction Products • We expect to grow 10% annually in • We expect to grow 10% annually in 2005-2010 given our renewed focus 2005-2010 given our renewed focus – Developing new premium laminates for local – Developing new premium laminates for local market needs market needs – Management is in the process of implementing new – Management is in the process of implementing new product/channel strategies product/channel strategies – Will result in greater use of ITW’s productivity – Will result in greater use of ITW’s productivity enhancing products enhancing products
  • 26. Industrial Packaging Businesses
  • 27. Industrial Packaging Businesses • Two core segments: • Two core segments: – Signode equipment and consumables – Signode equipment and consumables – Associated industrial packaging products (film, – Associated industrial packaging products (film, paper-based protection products) paper-based protection products)
  • 28. Industrial Packaging Businesses Key Products Key Products
  • 29. Industrial Packaging Businesses • A well established presence in Asia: • A well established presence in Asia: Manufacturing Sales/Service Manufacturing Sales/Service South Korea South Korea South Korea South Korea China Japan China Japan India India India Taiwan India Taiwan Singapore Singapore Malaysia Malaysia Philippines Philippines China China South Korea South Korea
  • 30. Industrial Packaging Businesses • Target Market Segments: • Target Market Segments: Primary Steel Mills Food & Beverage Primary Steel Mills Food & Beverage Aluminum Mills Beverage Containers Aluminum Mills Beverage Containers Synthetic Fibers Textiles Synthetic Fibers Textiles Tobacco Appliances Tobacco Appliances • We’re gaining traction and expect base revenue • We’re gaining traction and expect base revenue CAGR of +15% in 2005-2010; up from +7% in CAGR of +15% in 2005-2010; up from +7% in 2000-2005 2000-2005
  • 31. Testing and Measurement
  • 32. Testing and Measurement • Instron (an October 2005 acquisition) and Buehler • Instron (an October 2005 acquisition) and Buehler (a September 2006 acquisition) are the basis for (a September 2006 acquisition) are the basis for our growing new testing and measurement our growing new testing and measurement platform platform • These businesses represent more than • These businesses represent more than $300 million of revenues $300 million of revenues • Focus will be on further expanding the Instron • Focus will be on further expanding the Instron and Buehler brands into Asia where they currently and Buehler brands into Asia where they currently do 25% of their business do 25% of their business
  • 33. Testing and Measurement Automotive Automotive Textile, Plastics, Rubber Textile, Plastics, Rubber Biomedical Biomedical Metals Metals
  • 34. Testing and Measurement • Our instrumentation products are exported to the • Our instrumentation products are exported to the region and supported by a well established region and supported by a well established Sales/Service in: Sales/Service in: South Korea South Korea China China Thailand Thailand Singapore Singapore Japan Japan Taiwan Taiwan
  • 35. Testing and Measurement • As manufacturing continues to expand in the • As manufacturing continues to expand in the region, demand for Testing and Measurement region, demand for Testing and Measurement equipment will grow! equipment will grow! • We anticipate a CAGR of 13% from 2005-2010 • We anticipate a CAGR of 13% from 2005-2010 • Great brands and quality products are demanded • Great brands and quality products are demanded – Asians want the best! – Asians want the best!
  • 36. Automotive Components and Fasteners
  • 37. Automotive Components and Fasteners The Current Situation The Current Situation • The South Korean and Japanese markets are • The South Korean and Japanese markets are fairly mature fairly mature • While China, India and elsewhere are developing • While China, India and elsewhere are developing and lack scale for the OEM’s and Tier 1’s and lack scale for the OEM’s and Tier 1’s – China will build 5.7 million vehicles in 2006 – across 60 – China will build 5.7 million vehicles in 2006 – across 60 models and 46 automakers models and 46 automakers – India will build 1.5 million vehicles spread among 19 – India will build 1.5 million vehicles spread among 19 automakers automakers • Unit volumes will need to increase so profitable • Unit volumes will need to increase so profitable scale can be achieved. scale can be achieved. • Consolidation is inevitable! • Consolidation is inevitable!
  • 38. Automotive Components and Fasteners •• 6 locations in China, India, Korea and Japan 6 locations in China, India, Korea and Japan •• Currently-modest revenue base Currently-modest revenue base •• Leveraging existing relationships/supplier status Leveraging existing relationships/supplier status in NA and Europe to grow in Asia in NA and Europe to grow in Asia •• Supporting current customer efforts in Asia from Supporting current customer efforts in Asia from shared facilities until sufficient volume justifies shared facilities until sufficient volume justifies dedicated facilities dedicated facilities
  • 39. Automotive Components and Fasteners Window Lift Components Window Lift Components Current products include: Current products include: Interior Components Interior Components Fuel Doors and Housings Fuel Doors and Housings Powertrain Powertrain Components Components
  • 40. Automotive Components and Fasteners Current products include: Current products include: – Proprietary fasteners – Proprietary fasteners Airbag Fasteners Airbag Fasteners Align-Rite® // PCAC® Align-Rite® PCAC® Ergo Tuflok™ Ergo Tuflok™ 2K Screw Grommet 2K Screw Grommet Riblok™ Riblok™ 2K Routing Clips 2K Routing Clips BosScrew® BosScrew® Wire Routing Wire Routing Sealed Pin and Sealed Pin and Products Products Grommet Grommet 2K Hole Plugs 2K Hole Plugs
  • 41. Automotive Components and Fasteners Now Until 2010 Now Until 2010 • Key Asian Initiatives to reach hundreds of millions in • Key Asian Initiatives to reach hundreds of millions in revenue by 2010: revenue by 2010: – Use our global reach to secure strategic supplier status with – Use our global reach to secure strategic supplier status with GM, Ford, VW, Peugeot, Toyota, Nissan/Renault, Hyundai GM, Ford, VW, Peugeot, Toyota, Nissan/Renault, Hyundai and others and others – Plans to establish additional operations in Beijing, Shanghai – Plans to establish additional operations in Beijing, Shanghai and Hong Kong to support the domestic Chinese market and Hong Kong to support the domestic Chinese market – Use entry level products to penetrate domestic OEM’s and – Use entry level products to penetrate domestic OEM’s and Tiers. As OEM consolidation accelerates and model volumes Tiers. As OEM consolidation accelerates and model volumes grow and the vehicles become more sophisticated, convert grow and the vehicles become more sophisticated, convert to higher value added ITW solutions to higher value added ITW solutions – Grow through strategic acquisitions: several deals in the – Grow through strategic acquisitions: several deals in the pipeline for 2007 pipeline for 2007
  • 42. Electronic Packaging and Components
  • 43. Electronic Packaging and Components • We began manufacturing in the region over • We began manufacturing in the region over 25 years ago – current revenue in excess of 25 years ago – current revenue in excess of $100 million $100 million • Organic growth will be significantly • Organic growth will be significantly enhanced given the strong acquisition enhanced given the strong acquisition pipeline pipeline • Two areas of focus: • Two areas of focus: – Expanding existing packaging businesses – Expanding existing packaging businesses – Building out newer electronic component – Building out newer electronic component businesses businesses
  • 44. Electronic Packaging Products I.C. Injection Molded Trays I.C. Shipping Tubes I.C. Injection Molded Trays I.C. Shipping Tubes Thermoformed Trays Tape And Reel Thermoformed Trays Tape And Reel
  • 45. Electronic Component Products Fastening Systems for computer components Fastening Systems for computer components LCD Displays LCD Displays LED Displays LED Displays Switches // Surge Protection Switches Surge Protection Static Bars Static Bars
  • 46. Electronic Packaging and Component Units 10 Facilities in 6 Countries: 10 Facilities in 6 Countries: Malaysia Malaysia Philippines Philippines China China Japan Japan Taiwan Taiwan Thailand Thailand
  • 47. Electronic Packaging and Components • Planned CAGR growth of 10% for 2005-2010 • Planned CAGR growth of 10% for 2005-2010 • Organic growth will be significantly • Organic growth will be significantly enhanced given a strong acquisition enhanced given a strong acquisition pipeline pipeline – We’re seeing some interesting opportunities in – We’re seeing some interesting opportunities in electronic packaging and fastening electronic packaging and fastening
  • 48. Printing, Consumer Packaging and Decorating
  • 49. Printing, Consumer Packaging and Decorating • Initial push into Asia was with Hi-Cone selling can • Initial push into Asia was with Hi-Cone selling can multi-packaging carriers into Japan and China multi-packaging carriers into Japan and China • Hi-Cone followed Coke, Pepsi and various beer • Hi-Cone followed Coke, Pepsi and various beer marketers into other parts of Asia and continue to marketers into other parts of Asia and continue to pursue this market pursue this market • Today, multi-packaging is • Today, multi-packaging is a minor part of beverage a minor part of beverage packaging but the growth packaging but the growth will come as convenience will come as convenience increases increases
  • 50. Printing, Consumer Packaging and Decorating • In 1999 we acquired the Foils and • In 1999 we acquired the Foils and Thermal Transfer Ribbon (TTR) Thermal Transfer Ribbon (TTR) businesses in South Korea businesses in South Korea • The strategic objective was to • The strategic objective was to enhance our worldwide offering of enhance our worldwide offering of foils, establish a TTR business and foils, establish a TTR business and eventually provide a growth platform eventually provide a growth platform for future expansion into China for future expansion into China • We anticipate that future growth in • We anticipate that future growth in these businesses will focus on China these businesses will focus on China and the surrounding region and the surrounding region
  • 51. Printing, Consumer Packaging and Decorating •• In 2004 we acquired Chris Kay, In 2004 we acquired Chris Kay, a heat transfer manufacturer for a heat transfer manufacturer for applications to garments, applications to garments, especially soccer jerseys and especially soccer jerseys and other athletic wear other athletic wear •• Chris Kay has an established Chris Kay has an established plant in China, strategically plant in China, strategically allied with Umbro, and others allied with Umbro, and others like Adidas, Puma, and Nike like Adidas, Puma, and Nike •• In last summer’s World Cup, In last summer’s World Cup, ITW products were represented ITW products were represented on every player’s uniform and, on every player’s uniform and, more importantly, on the replica more importantly, on the replica jerseys that were pervasive in jerseys that were pervasive in the stands the stands
  • 52. Printing, Consumer Packaging and Decorating • In 2006 we expanded • In 2006 we expanded the Chris Kay heat the Chris Kay heat transfer plant to transfer plant to establish production establish production of our Pro-Mark heat of our Pro-Mark heat transfer decals for transfer decals for golf shafts golf shafts • This strategically • This strategically aligned us with the aligned us with the manufacturers of manufacturers of graphic shafts in graphic shafts in China and has been a China and has been a good growth good growth opportunity opportunity
  • 53. Printing, Consumer Packaging and Decorating • Strategic objectives remain: • Strategic objectives remain: – Follow volume to Asia as major marketers relocate – Follow volume to Asia as major marketers relocate to the region to the region – Growth through strategic acquisition in end markets and – Growth through strategic acquisition in end markets and products with which we are familiar products with which we are familiar • We expect base business growth to accelerate to • We expect base business growth to accelerate to a CAGR of 18% in 2005-2010 a CAGR of 18% in 2005-2010
  • 54. Asia: A Growing Opportunity for ITW
  • 55. Asia: A Growing Opportunity for ITW Summary Summary •• We have a long and substantial presence in the region We have a long and substantial presence in the region •• The region’s growth fundamentals now favor growth of The region’s growth fundamentals now favor growth of ITW’s business-to-business product offering ITW’s business-to-business product offering •• And there is a corporate mandate to expand our And there is a corporate mandate to expand our businesses’ organic participation in Asia businesses’ organic participation in Asia •• Our acquisition pipeline is increasing with Asian Centric Our acquisition pipeline is increasing with Asian Centric Opportunities Opportunities The bottom line is that our growth in Asia will exceed The bottom line is that our growth in Asia will exceed growth elsewhere! growth elsewhere!
  • 56. Capital Structure and Other Financial Topics Ron Kropp Ron Kropp New York New York December 1, 2006 December 1, 2006
  • 57. Today’s Financial Topics • 2006 forecast • 2006 forecast • Capital structure • Capital structure • Leasing and investments • Leasing and investments • New accounting standards • New accounting standards
  • 58. 2006 Forecast As of October 18 As of October 18 Mid Mid High Point Low Low High Point 4th Quarter 4th Quarter Base Revenues 3.1% 5.1% 4.1% Base Revenues 3.1% 5.1% 4.1% Income Per Share-Diluted $0.77 $0.81 $0.79 Income Per Share-Diluted $0.77 $0.81 $0.79 %F(U) 2005 8% 14% 11% %F(U) 2005 8% 14% 11% Full Year Full Year Base Revenues 4.0% 4.6% 4.3% Base Revenues 4.0% 4.6% 4.3% Income Per Share-Diluted $3.01 $3.05 $3.03 Income Per Share-Diluted $3.01 $3.05 $3.03 %F(U) 2005 16% 17% 17% %F(U) 2005 16% 17% 17%
  • 59. 2006 Forecast As of October 18 As of October 18 Key Assumptions Key Assumptions • Exchange rates hold at current levels • Exchange rates hold at current levels • Acquired revenues in the $1.1 billion to $1.4 billion range • Acquired revenues in the $1.1 billion to $1.4 billion range • Share repurchases of $350 million to $450 million • Share repurchases of $350 million to $450 million for the year for the year • Restructuring cost of $25 to $30 million • Restructuring cost of $25 to $30 million • No further impairment of goodwill/intangibles • No further impairment of goodwill/intangibles • Nonoperating investment income of $75 to $85 million, • Nonoperating investment income of $75 to $85 million, which is lower than 2005 by $45 to $55 million which is lower than 2005 by $45 to $55 million • Tax rate of 30.5% for the 4th quarter and the full year • Tax rate of 30.5% for the 4th quarter and the full year
  • 60. Capital Structure
  • 61. Capital Structure History History •• ITW has always generated strong operating cash flow ITW has always generated strong operating cash flow •• Operating cash flow has been used for: Operating cash flow has been used for: – Capital expenditures – Capital expenditures – Dividends – Dividends – Acquisitions – Acquisitions – Investments – Investments – Share repurchases – Share repurchases •• Due to recession, cash build-up of almost $2 billion on Due to recession, cash build-up of almost $2 billion on balance sheet by year-end 2003 balance sheet by year-end 2003 •• First-ever share repurchase program completed during 2004 First-ever share repurchase program completed during 2004 and 2005 and 2005 – $2.8 billion spent for 31 million shares – $2.8 billion spent for 31 million shares
  • 62. Capital Structure Uses of Free Cash Flow Uses of Free Cash Flow 1996 - 2005 1996 - 2005 8% 8% 26% 26% 46% 46% 20% 20% Acquisitions Dividends Share Repurchases Investments Acquisitions Dividends Share Repurchases Investments
  • 63. Capital Structure Cash and Debt 1995-2005 Cash and Debt 1995-2005 35% 3,500.0 35% 3,500.0 30% 30% ee e arrehas 25% a has 25% 2,500.0 2,500.0 hc hc S rr S puu rre p 20% 20% e 15% 1,500.0 Mortgage debt 15% 1,500.0 Mortgage debt deconsolidation 10% deconsolidation 10% 5% 500.0 5% 500.0 0% 0% -5% (500.0) -5% (500.0) -10% -10% -15% (1,500.0) -15% (1,500.0) -20% -20% -25% (2,500.0) -25% (2,500.0) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Debt Cash Debt-to-capital % Debt Cash Debt-to-capital %
  • 64. Capital Structure Current Status Current Status • Reviewed capital structure under various • Reviewed capital structure under various forecast scenarios with Board in 1st half of 2006 forecast scenarios with Board in 1st half of 2006 • Conclusions: • Conclusions: – Free operating cash flow will continue to be strong – Free operating cash flow will continue to be strong – Even at “normal” acquisition levels, cash would build- – Even at “normal” acquisition levels, cash would build- up on the balance sheet without share repurchase up on the balance sheet without share repurchase program program – If acquisitions slow, cash build-up would be greater – If acquisitions slow, cash build-up would be greater – Ample debt capacity available for “larger” acquisitions – Ample debt capacity available for “larger” acquisitions – More flexible capital structure needed going forward – More flexible capital structure needed going forward
  • 65. Capital Structure Current Status Current Status • Capital structure actions taken in August 2006: • Capital structure actions taken in August 2006: – More aggressive dividend guideline – More aggressive dividend guideline •• 25-35% of trailing two years net income 25-35% of trailing two years net income •• Previous was 25-30% of trailing three years Previous was 25-30% of trailing three years – Current dividend rate increase of 27% – Current dividend rate increase of 27% – Authorized new repurchase program for 35 million – Authorized new repurchase program for 35 million shares over an unspecified time period shares over an unspecified time period
  • 66. Capital Structure Going Forward Going Forward • Share repurchase activity will be based on free • Share repurchase activity will be based on free operating cash flow and acquisition levels operating cash flow and acquisition levels • Assumption for cash used for annual share • Assumption for cash used for annual share repurchases will be provided as part of forecasts repurchases will be provided as part of forecasts – $350 to $450 million for 2006 – $350 to $450 million for 2006 • If acquisition activity increases, repurchase activity • If acquisition activity increases, repurchase activity would slow (and vice versa) would slow (and vice versa) • Long-term target debt-to-capital ratio of 20-25%, • Long-term target debt-to-capital ratio of 20-25%, absent any “large” acquisitions absent any “large” acquisitions – Ample debt capacity would still exist for larger acquisitions – Ample debt capacity would still exist for larger acquisitions – Debt-to-capital ratio was 15% at end of 3rd quarter – Debt-to-capital ratio was 15% at end of 3rd quarter
  • 67. Leasing and Investments
  • 68. Leasing and Investments History History • ITW has always made opportunistic financial • ITW has always made opportunistic financial investments investments • In mid-1990’s, three commercial mortgage • In mid-1990’s, three commercial mortgage investments were made investments were made – Use of excess cash flow at that time – Use of excess cash flow at that time – All were 10-year deals with similar structures – All were 10-year deals with similar structures – Most of upside benefit and downside risk resides – Most of upside benefit and downside risk resides with partner with partner – Non recourse debt was shown “gross” on the balance – Non recourse debt was shown “gross” on the balance sheet until deconsolidation in 2003 (adoption of FIN 46) sheet until deconsolidation in 2003 (adoption of FIN 46) – Overall return on investment will be higher than expected – Overall return on investment will be higher than expected • Started reporting as a separate segment in 1996 • Started reporting as a separate segment in 1996
  • 69. Leasing and Investments Current Status Current Status •• Operating segment discontinued in 1st quarter of 2006 Operating segment discontinued in 1st quarter of 2006 – Utilize free operating cash flow for core manufacturing – Utilize free operating cash flow for core manufacturing investments rather than make additional financial investments investments rather than make additional financial investments – Commercial mortgage transactions ending in 2005, 2006 and – Commercial mortgage transactions ending in 2005, 2006 and February 2008 (approximately 2/3 of segment’s income) February 2008 (approximately 2/3 of segment’s income) – Planned run-off of other assets in portfolio (leases, venture – Planned run-off of other assets in portfolio (leases, venture capital fund) capital fund) •• Income statement presentation Income statement presentation – Income presented as “nonoperating investment income” – Income presented as “nonoperating investment income” – Related interest expense now included in “interest expense” – Related interest expense now included in “interest expense” – Prior years reclassified to reflect current year presentation – Prior years reclassified to reflect current year presentation – Increase in estimated 2006 ITW operating income – Increase in estimated 2006 ITW operating income •• Without reclass of L&I = +12% Without reclass of L&I = +12% •• With reclass of L&I = +15% With reclass of L&I = +15% •• Ongoing income run rate of $15 to $20 million Ongoing income run rate of $15 to $20 million
  • 70. Leasing and Investments 1994 – 2007E 1994 – 2007E (in millions) (in millions) $1,000 $160 $1,000 $160 $140 $140 $800 $800 $120 $120 Investment Income $100 Investment Income Investments $100 Investments $600 $600 $80 $80 $400 $400 $60 $60 $40 $40 $200 $200 $20 $20 $0 $0 $0 $0 06 E 07 E 4 5 6 7 8 9 0 1 2 3 4 5 6E 7E 94 95 96 97 98 99 00 01 02 03 04 05 19 9 19 9 19 9 19 9 19 9 19 9 20 0 20 0 20 0 20 0 20 0 20 0 19 19 19 19 19 19 20 20 20 20 20 20 20 0 20 0 20 20 Investments Balance (net of nonrecourse debt) Investment Income Investments Balance (net of nonrecourse debt) Investment Income (net of nonrecourse interest) (net of nonrecourse interest)
  • 71. New Accounting Standards
  • 72. New Accounting Standards • FIN 48 – accounting for uncertainty in • FIN 48 – accounting for uncertainty in income taxes income taxes • SFAS 158 – employers’ accounting for • SFAS 158 – employers’ accounting for defined benefit pension and other defined benefit pension and other postretirement plans postretirement plans
  • 73. Fin 48 – Income Tax Uncertainties • Effective for 1st quarter 2007 • Effective for 1st quarter 2007 • Establishes new criteria for recognizing and • Establishes new criteria for recognizing and measuring uncertain tax positions measuring uncertain tax positions • Any change to existing tax reserves as a result of • Any change to existing tax reserves as a result of adopting new rule would be an adjustment to adopting new rule would be an adjustment to retained earnings retained earnings • New disclosures re: tax reserves required • New disclosures re: tax reserves required
  • 74. SFAS 158 – Pension and Other Postretirement Benefits •• Effective for 4th quarter 2006 Effective for 4th quarter 2006 •• Phase II of FASB project on pension accounting Phase of FASB project on pension accounting •• Requires actual “funded status” of pension and retiree health Requires actual “funded status” of pension and retiree health care assets/liabilities to be recorded on the balance sheet, with care assets/liabilities to be recorded on the balance sheet, with the offset to equity the offset to equity •• Difference between “funded status” and current booked Difference between “funded status” and current booked asset/liability is due to smoothing of assumption changes for asset/liability is due to smoothing of assumption changes for expense purposes expense purposes – Changes in discount rates – Changes in discount rates – Changes to plan design – Changes to plan design – Actual asset returns versus return assumptions – Actual asset returns versus return assumptions •• No change to pension or retiree health care expense versus No change to pension or retiree health care expense versus current accounting current accounting
  • 75. SFAS 158 – Pension and Other Postretirement Benefits • Example – based on ITW’s status as of 12/31/05 • Example – based on ITW’s status as of 12/31/05 Retiree (in millions) (in millions) Pension HC Total 1,774 104 1,878 Plan assets Plan assets (1,880) (606) (2,486) Plan liabilities Plan liabilities (106) (502) (608) Funded status Funded status 243 (301) (58) Amount on books Amount on books (349) (201) (550) Pretax equity adjustment Pretax equity adjustment (227) (131) (358) After-tax equity adjustment After-tax equity adjustment
  • 76. Q&A
  • 77. Break
  • 78. ITW Overview David Speer David Speer Eugene Osterkorn Eugene Osterkorn New York City New York City December 1, 2006 December 1, 2006
  • 79. Today’s Topics • Evolving Revenue Diversification • Evolving Revenue Diversification • A Look at the Future: • A Look at the Future: Growth Via Base Revenues and Growth Via Base Revenues and Acquisitions Acquisitions • Review of Key ITW Businesses • Review of Key ITW Businesses • Conclusions From Today’s Meeting • Conclusions From Today’s Meeting • Q&A • Q&A
  • 80. Evolving Revenue Diversification • ITW’s revenue mix is often misunderstood…we • ITW’s revenue mix is often misunderstood…we are much more than North American housing and are much more than North American housing and Big 3 automotive Big 3 automotive • ITW’s revenue mix has changed significantly • ITW’s revenue mix has changed significantly since 1997 and will continue to evolve going since 1997 and will continue to evolve going forward forward • ITW’s end market and geographic revenue mix • ITW’s end market and geographic revenue mix have become more diversified over the years have become more diversified over the years
  • 81. Evolving Revenue Diversification: ITW Revenues by End Markets ITW Revenues by End Markets General Industrial General Industrial 15% 15% Automotive OEM Automotive OEM Automotive OEM 23% Automotive OEM 23% Food Institutional/Service Food Institutional/Service 11% 11% General Industrial General Industrial Commercial Construction Commercial Construction Commercial Construction 11% Commercial Construction 11% 21% 21% Residential Construction Residential Construction Food & Beverage Food & Beverage 10% 10% Renovation Construction Renovation Construction 10% Consumer Durables 10% Consumer Durables 8% 8% MRO/Metals MRO/Metals 9% 8% Residential Construction 9% 8% Residential Construction Consumer Durables Consumer Durables 6% 7% 6% 7% Food & Beverage Revnovation Construction Food & Beverage Revnovation Construction 6% 6% 7% 7% 3% Auto Aftermarket 3% Auto Aftermarket Other Other 6% 6% 4% Other 4% Other 22% 22% 13% 13% 1997 2006 (F) 1997 2006 (F)
  • 82. Evolving Revenue Diversification: ITW Revenues by Geography ITW Revenues by Geography 50% 50% 59% North America 59% North America 67% 67% Europe Europe 29% 29% 30% 30% Asia/Pacific Asia/Pacific 26% 26% 21% 21% 11% 11% 7% 7% 1997 2006 (F) 2010 (F) 1997 2006 (F) 2010 (F)
  • 83. A Look at the Future
  • 84. A Look at the Future ITW Growth Goals ITW Growth Goals • Revenue growth rate of 10% - 13% CAGR over • Revenue growth rate of 10% - 13% CAGR over next five years consisting of: next five years consisting of: – Base revenue growth of 5% -- 6% CAGR – Base revenue growth of 5% 6% CAGR – Acquired revenues of 5% -- 7% CAGR – Acquired revenues of 5% 7% CAGR • Earnings growth rate of 13% - 15% CAGR • Earnings growth rate of 13% - 15% CAGR • After-tax ROIC range of 16% - 18% • After-tax ROIC range of 16% - 18% • 1,000+ business units with 12 to 15 EVP’s and groups • 1,000+ business units with 12 to 15 EVP’s and groups • 50% of the revenues in North America and • 50% of the revenues in North America and 50% of revenues from International units 50% of revenues from International units
  • 85. A Look at the Future Base Revenue Growth Base Revenue Growth • We have established a goal of increasing our base • We have established a goal of increasing our base revenue growth rate over the next 5 years to 5%-6% revenue growth rate over the next 5 years to 5%-6% CAGR from the historic 4% rate CAGR from the historic 4% rate • Three key factors which impact our base business • Three key factors which impact our base business growth rate: growth rate: – identifying and targeting solid growth opportunities within – identifying and targeting solid growth opportunities within our current customer and end markets (new products are our current customer and end markets (new products are core to this) core to this) – growing in new geographic markets...i.e. India, China, etc. – growing in new geographic markets...i.e. India, China, etc. with our existing products and technologies with our existing products and technologies – the type and size of acquisitions we complete, especially – the type and size of acquisitions we complete, especially those targeted with above average growth prospects those targeted with above average growth prospects
  • 86. A Look at the Future Growth Through Acquisitions Eugene Osterkorn VP Controller-Operations VP Controller-Operations
  • 87. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions • Acquisition training for key management • Acquisition training for key management getting more qualified people into the process getting more qualified people into the process • More than 150 managers trained in the last • More than 150 managers trained in the last 15 months 15 months – Managers selected for training have proven track record – Managers selected for training have proven track record – Specific training in ITW’s acquisition process conducted by – Specific training in ITW’s acquisition process conducted by ITW management with significant acquisition experience ITW management with significant acquisition experience – Average training class size 20 to 25 people – Average training class size 20 to 25 people – All phases of acquisitions discussed from prospecting – All phases of acquisitions discussed from prospecting phase through successful integration phase through successful integration • Trained managers have specific targets and goals as • Trained managers have specific targets and goals as well as dedicated time to be successful well as dedicated time to be successful
  • 88. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions • Two types of ITW acquisitions: • Two types of ITW acquisitions: – Majority of deals are generated by business – Majority of deals are generated by business units generally in our existing market units generally in our existing market spaces: typically < $100 million in revenues spaces: typically < $100 million in revenues – Remaining deals are generally sourced by – Remaining deals are generally sourced by corporate management and are diversifying corporate management and are diversifying in nature…new platform opportunities: in nature…new platform opportunities: typically > $100 million in revenues typically > $100 million in revenues
  • 89. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions • Execute < $100 million acquisitions • Execute < $100 million acquisitions sourced by business units sourced by business units • The deal criteria remains the same: • The deal criteria remains the same: – Strong products and market positions – Strong products and market positions – Well known brand names – Well known brand names – Retain key management at acquired companies – Retain key management at acquired companies – Utilize management talent to implement – Utilize management talent to implement 80/20 process 80/20 process – Improve financial metrics (double operating – Improve financial metrics (double operating margins in three to five year period) margins in three to five year period)
  • 90. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions • You find it…you buy it…you own it…you run it! • You find it…you buy it…you own it…you run it! – Substantial corporate support from individuals who – Substantial corporate support from individuals who have been a part of many acquisitions have been a part of many acquisitions – Due diligence process covers all important aspects: – Due diligence process covers all important aspects: •• Internal audit Internal audit •• Financial reporting Financial reporting •• Tax planning/compliance Tax planning/compliance •• Legal Legal •• Human resources Human resources •• Environmental Environmental •• Patent Patent
  • 91. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions •• Completed in November 2006, Completed in November 2006, Ark-Les provides design and Ark-Les provides design and manufacturing of customized manufacturing of customized electromechanical and electronic electromechanical and electronic switching solutions for the switching solutions for the appliance OEM markets appliance OEM markets •• $90 million in revenue with more $90 million in revenue with more than 75% of manufacturing in than 75% of manufacturing in Mexico and China Mexico and China •• Complements existing Global Complements existing Global Appliance group businesses Appliance group businesses while providing immediate while providing immediate manufacturing capabilities in manufacturing capabilities in Switches, Sensors, & Controls Switches, Sensors, & Controls China China
  • 92. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions •• Completed in September Completed in September 2006, Buehler is a supplier 2006, Buehler is a supplier of materials preparation and of materials preparation and analysis instruments as well analysis instruments as well as associated software as associated software related to materials related to materials hardness and hardness and microstructure testing microstructure testing •• With 2006 estimated With 2006 estimated revenues of $60 million, revenues of $60 million, Buehler supports growth of Buehler supports growth of the test and measurement the test and measurement platform initiated in October platform initiated in October 2005 with the acquisition of 2005 with the acquisition of Instron Instron •• More than 50% of revenues More than 50% of revenues outside the US, with 40% outside the US, with 40% emanating from Europe emanating from Europe
  • 93. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions • Use additional resources to tap into • Use additional resources to tap into > $100 million acquisition opportunities > $100 million acquisition opportunities – Devote more Senior Management time to – Devote more Senior Management time to working this space working this space – Focus on identifying new potential growth platforms – Focus on identifying new potential growth platforms – $100 million to $500 million is sweet spot of – $100 million to $500 million is sweet spot of bigger deals bigger deals – Completed five $100+ million deals since – Completed five $100+ million deals since December 2004 December 2004 – Not adverse to doing $500+ million acquisitions if – Not adverse to doing $500+ million acquisitions if product/market fit is good and valuation is reasonable product/market fit is good and valuation is reasonable
  • 94. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions •• Completed in July 2006, Completed in July 2006, Kester, Inc. provides high Kester, Inc. provides high performance solder and performance solder and related materials for related materials for electronics and electronics and microelectronics assembly microelectronics assembly suppliers suppliers •• With 2006 estimated With 2006 estimated revenues of $175 million, revenues of $175 million, potential platform potential platform opportunity for ITW opportunity for ITW •• More than 40% of revenues More than 40% of revenues emanate from Asia; emanate from Asia; remainder from North remainder from North America, Europe and South America, Europe and South America America
  • 95. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions •• To be completed in To be completed in December 2006, Speedline December 2006, Speedline Technologies is a leading Technologies is a leading global producer of global producer of manufacturing equipment, manufacturing equipment, software and related software and related services used in surface services used in surface mount technology assembly mount technology assembly of printed circuit boards of printed circuit boards •• $175 million in revenues with $175 million in revenues with 65% of revenues in Asia; 65% of revenues in Asia; remainder in North America remainder in North America •• Complements our previously Complements our previously acquired Kester acquired Kester business…platform now business…platform now totals $350 million of totals $350 million of revenues revenues
  • 96. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions • Overview of 2006 acquisitions: • Overview of 2006 acquisitions: – Of 46 acquisitions completed year-to-date, – Of 46 acquisitions completed year-to-date, 39 deals were generated by business units 39 deals were generated by business units – On average, ITW has paid approximately – On average, ITW has paid approximately 1.1X revenues for deals 1.1X revenues for deals – 24 of transactions U.S. based; 22 deals international – 24 of transactions U.S. based; 22 deals international – Acquisitions complement existing business units and – Acquisitions complement existing business units and several potential new growth platforms several potential new growth platforms
  • 97. A Look at the Future Growth Through Acquisitions Growth Through Acquisitions Acquisition Revenue by Geography Acquisition Revenue by Geography 54% 54% North America North America Europe Europe 26% 26% Asia/Pacific Asia/Pacific 20% 20% 2006 (Year To Date) 2006 (Year To Date)
  • 98. A Look at Future Growth Growth Through Acquisitions Growth Through Acquisitions 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (YTD) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (YTD) 28 36 32 45 29 21 28 24 22 46 No. of Deals 28 36 32 45 29 21 28 24 22 46 No. of Deals Acquired Acquired $420 $818 $3800 $1000 $556 $195 $347 $624 $584 $1409 Revenues $420 $818 $3800 $1000 $556 $195 $347 $624 $584 $1409 Revenues ($ in millions) ($ in millions) Avg Size Acq. $15 $23 $119 $22 $19 $9 $12 $26 $27 $31 Avg Size Acq. $15 $23 $119 $22 $19 $9 $12 $26 $27 $31 # Business # Business 368 412 488 592 614 603 622 650 700 700+ Units 368 412 488 592 614 603 622 650 700 700+ Units Summary: 311 acquisitions $9.8 billion acquired revenues Summary: 311 acquisitions $9.8 billion acquired revenues Average acquisition size $31 million ($21 million ex. Premark) Average acquisition size $31 million ($21 million ex. Premark)
  • 99. Base Revenues and Acquisitions: Key Ingredients to Our Strong Track Record Key Ingredients to Our Strong Track Record ITW 25-year Revenue/Income ITW 25-year Revenue/Income $15,000 $2,500 $15,000 $2,500 CAGR CAGR Revenue ----------------------- 15% Revenue ----------------------- 15% EPS ----------------------------- 14% $12,000 $2,000 EPS ----------------------------- 14% $12,000 $2,000 ROIC ---------------------------- 15% ROIC ---------------------------- 15% Shareholder Return = 19% Shareholder Return = 19% $9,000 $1,500 $9,000 $1,500 Revenues Revenues $6,000 $1,000 $6,000 $1,000 Op. Income Op. Income $3,000 $500 $3,000 $500 $0 $0 $0 $0 20 4 20 5 20 2 20 3 20 9 20 0 20 1 19 6 19 7 19 8 19 5 19 3 19 1 19 4 19 2 19 5 19 8 19 9 19 0 19 6 19 7 19 4 19 2 19 3 19 20 20 20 20 20 20 20 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 06 03 04 05 02 00 01 97 98 99 96 95 93 94 89 90 91 92 86 87 88 83 84 85 82 06 0 0 0 0 0 0 9 9 9 9 9 9 9 8 9 9 9 8 8 8 8 8 8 8 ((F F))
  • 100. Review of Key ITW Businesses
  • 101. ITW Construction Products 14% 14% Percent of total Percent of total ITW revenues ITW revenues Engineered Products Engineered Products
  • 102. ITW Construction Products • Designer and manufacturer of • Designer and manufacturer of construction fastening systems construction fastening systems for commercial, new housing for commercial, new housing and remodeling/rehab sectors and remodeling/rehab sectors • 77 autonomous businesses • 77 autonomous businesses in 23 countries represent in 23 countries represent $2.0 billion of revenues $2.0 billion of revenues • 2005 revenues: +7% • 2005 revenues: +7% • 2006 YTD revenues: +12% • 2006 YTD revenues: +12%
  • 103. ITW Construction Products Worldwide Revenues 2006 (F) Worldwide Revenues 2006 (F) 40% 40% Residential Residential 52% 52% International International Renovation Renovation 30% 30% North America North America 48% 48% Commercial Commercial 30% 30% By End Markets By Geography By End Markets By Geography
  • 104. ITW Construction Products New Product Development New Product Development • ITW SPIT (France) • ITW SPIT (France) launched the SPIT launched the SPIT 328, an innovative 328, an innovative battery-powered battery-powered hammer/drill tool hammer/drill tool • Serves electricians, • Serves electricians, plumbers, carpenters, plumbers, carpenters, ironworkers and ironworkers and drywall installers drywall installers • Generated • Generated approximately $10 approximately $10 million of sales in million of sales in 2006 2006
  • 105. ITW Construction Products 2006 Fourth Quarter Trends 2006 Fourth Quarter Trends • North American new housing starts • North American new housing starts expected to decline 25% - 30% in Q4; expected to decline 25% - 30% in Q4; Dodge construction data showed new Dodge construction data showed new housing starts down 29% in October housing starts down 29% in October • Renovation spending expected to be flat • Renovation spending expected to be flat to slightly down in Q4 to slightly down in Q4 • Commercial construction activity to be up • Commercial construction activity to be up 3% - 5% in Q4 3% - 5% in Q4 • We face a big headwind from new housing • We face a big headwind from new housing sector this quarter! sector this quarter!
  • 106. ITW Construction Products 2007 Growth Assumptions 2007 Growth Assumptions • Worldwide base revenues expected to • Worldwide base revenues expected to grow 2% - 3% in 2007 grow 2% - 3% in 2007 • North America • North America – Residential: new housing starts projected to decline – Residential: new housing starts projected to decline 7% -- 9% in 2007, with better performance in second half 7% 9% in 2007, with better performance in second half of the year of the year – Renovation: HIRI projects renovation activity to decline – Renovation: HIRI projects renovation activity to decline 1% -- 2% in 2007; longer-term renovation outlook 1% 2% in 2007; longer-term renovation outlook through 2011 expected to grow at a rate of nearly 5% through 2011 expected to grow at a rate of nearly 5% – Commercial construction: square footage projected to – Commercial construction: square footage projected to grow 2% in 2007, with retail and healthcare building grow 2% in 2007, with retail and healthcare building expected to decline 7% -- 8% in the year expected to decline 7% 8% in the year
  • 107. ITW Construction Products 2007 Growth Assumptions (cont.) 2007 Growth Assumptions (cont.) International International •• Europe Europe – European commercial construction activity projected to – European commercial construction activity projected to grow 3% in 2007 grow 3% in 2007 – European residential construction activity forecasted – European residential construction activity forecasted increase 1% in 2007 increase 1% in 2007 – European renovation activity expected to grow 2% in 2007 – European renovation activity expected to grow 2% in 2007 •• Asia/Pacific Asia/Pacific – Australia and New Zealand housing starts forecasted to – Australia and New Zealand housing starts forecasted to decline 3% in 2007 decline 3% in 2007 – Australia and New Zealand commercial construction activity – Australia and New Zealand commercial construction activity (square meters) forecasted to grow 6% in 2007 (square meters) forecasted to grow 6% in 2007 – Australia and New Zealand renovation activity ($’s) expected – Australia and New Zealand renovation activity ($’s) expected to grow 4% in 2007 to grow 4% in 2007 – Southeast Asia construction activity: +3% – Southeast Asia construction activity: +3% – China: +6% to +7% – China: +6% to +7%
  • 108. Wilsonart International 7% 7% Percent of total Percent of total ITW revenues ITW revenues Engineered Products Engineered Products
  • 109. • A worldwide manufacturer and distributor • A worldwide manufacturer and distributor of decorative surfaces for commercial, new of decorative surfaces for commercial, new housing and remodeling sectors housing and remodeling sectors • 12 businesses in 8 countries represent • 12 businesses in 8 countries represent $1.0 billion of revenues $1.0 billion of revenues • 2005 revenues: flat • 2005 revenues: flat • 2006 YTD revenues: +5% • 2006 YTD revenues: +5%
  • 110. Wilsonart International Worldwide Revenues 2006 (F) Worldwide Revenues 2006 (F) 56% North America 56% North America Commercial Commercial 76% 76% Renovation Renovation International 29% International 29% Residential Residential 24% 24% 15% 15% By Geography By End Markets By Geography By End Markets
  • 111. Wilsonart International New Product Development New Product Development • Wilsonart continued the • Wilsonart continued the successful rollout of it’s successful rollout of it’s high definition product line high definition product line with Bella HD laminate with Bella HD laminate • This product line extension • This product line extension (now has 16 designs (now has 16 designs available) simulates available) simulates granite…but at a lower granite…but at a lower price than natural granite price than natural granite and a higher price than and a higher price than traditional laminate traditional laminate • High definition laminate in • High definition laminate in total expected to contribute total expected to contribute more than $20 million to more than $20 million to Wilsonart’s 2006 revenues Wilsonart’s 2006 revenues
  • 112. Wilsonart International 2007 Growth Assumptions 2007 Growth Assumptions • Worldwide base revenues expected to grow • Worldwide base revenues expected to grow 2% - 4% in 2007 2% - 4% in 2007 • Commercial construction activity supports • Commercial construction activity supports growth in Wilsonart North America in 2007 growth in Wilsonart North America in 2007 notably in the office and retail sectors notably in the office and retail sectors • International growth driven by commercial and • International growth driven by commercial and institutional demand for specialty high-pressure institutional demand for specialty high-pressure laminate products both in Asia and Europe laminate products both in Asia and Europe • International acquisitions in late 2006 (Polyrey • International acquisitions in late 2006 (Polyrey acquisition finalized today) and 2007 add to acquisition finalized today) and 2007 add to longer-term base revenue growth longer-term base revenue growth
  • 113. Industrial Packaging 16% 16% Percent of total Percent of total ITW revenues ITW revenues Specialty Systems Specialty Systems
  • 114. Industrial Packaging • Worldwide manufacturer of plastic and steel • Worldwide manufacturer of plastic and steel strapping and associated equipment; stretch strapping and associated equipment; stretch films; corner board; and specialty machines films; corner board; and specialty machines for a wide range of industrial packaging for a wide range of industrial packaging applications applications • 98 businesses in 45 countries represent $2.2 • 98 businesses in 45 countries represent $2.2 billion of revenues billion of revenues • 2005 revenues: +7% • 2005 revenues: +7% • 2006 YTD revenues: +3% • 2006 YTD revenues: +3%
  • 115. Industrial Packaging Worldwide Revenues 2006 (F) Worldwide Revenues 2006 (F) Metals Metals 27% 27% General Industrial General Industrial 52% 52% North America North America Building Materials Building Materials 20% 20% Food/Beverage Food/Beverage 18% 18% Corrugated/Paper Corrugated/Paper International 13% Retail/Wholesale International 13% Retail/Wholesale 48% 48% 10% Other 10% Other 8% 8% 4% 4% By End Markets By Geography By End Markets By Geography
  • 116. Industrial Packaging New Product Development New Product Development •• Signode’s HBX strapping Signode’s HBX strapping machine features high- machine features high- speed applications for end speed applications for end markets such as markets such as meat/poultry, meat/poultry, pharmaceutical and pharmaceutical and doors/windows doors/windows •• HBX’s advantages include HBX’s advantages include unmatched simplicity (40% unmatched simplicity (40% fewer parts) and patented fewer parts) and patented “jamless” technologies “jamless” technologies •• Estimating revenues of Estimating revenues of $6 million in 2007 $6 million in 2007 Signode HBX Strapping Machine Signode HBX Strapping Machine
  • 117. Industrial Packaging 2006 Fourth Quarter Trends 2006 Fourth Quarter Trends •• Signode North America facing difficult housing and Signode North America facing difficult housing and other end markets other end markets – Steel Production -14% last 3 months – Steel Production -14% last 3 months – Lumber: -17% in October – Lumber: -17% in October – Brick and block: -18% in October – Brick and block: -18% in October – Beverage shipments: -- 4% last 2 months – Beverage shipments: 4% last 2 months •• Expecting continued weakness in residential categories and Expecting continued weakness in residential categories and moderating growth in North American industrial production moderating growth in North American industrial production in Q4 in Q4 •• European weakness in metals categories as consolidation European weakness in metals categories as consolidation impacts results impacts results
  • 118. Industrial Packaging 2007 Growth Assumptions 2007 Growth Assumptions • Worldwide base revenues expected to • Worldwide base revenues expected to grow 3% - 5% in 2007 grow 3% - 5% in 2007 – Weakness persists in North America as – Weakness persists in North America as residential construction and other industrial residential construction and other industrial end markets struggle…modest second half end markets struggle…modest second half recovery recovery – Expect stronger performance in – Expect stronger performance in international end markets: Europe and Asia international end markets: Europe and Asia drive base revenue growth drive base revenue growth
  • 119. Welding Products Businesses 14% 14% Percent of total Percent of total ITW revenues ITW revenues Specialty Systems Specialty Systems
  • 120. Welding Products Businesses • Designer and manufacturer of arc • Designer and manufacturer of arc welding equipment, consumables, and welding equipment, consumables, and accessories for a wide array of accessories for a wide array of industrial and commercial applications industrial and commercial applications • 47 businesses in 15 different countries • 47 businesses in 15 different countries represent $1.7 billion of revenues represent $1.7 billion of revenues • 2005 revenues: +18% • 2005 revenues: +18% • 2006 YTD revenues: +25% • 2006 YTD revenues: +25% TIEN TAI
  • 121. Welding Products Businesses Worldwide Revenues 2006 (F) Worldwide Revenues 2006 (F) Manufacturing 28% Manufacturing 28% Energy Energy North America MRO North America MRO 12% 12% 77% 77% Fabrication Fabrication 11% 11% Ground Power Ground Power 11% 11% Construction Construction 7% 7% Shipbuilding Shipbuilding 6% 6% 6% 6% Other International Other International 23% 23% 19% 19% By Geography By End Markets By Geography By End Markets
  • 122. Welding Products Businesses New Product Development New Product Development • Miller Spectrum • Miller Spectrum 375 X-Treme plasma 375 X-Treme plasma cutter launched cutter launched midyear 2006 midyear 2006 • Highly portable system • Highly portable system serves maintenance, serves maintenance, light construction and light construction and HVAC markets HVAC markets • Generated $5 million • Generated $5 million of revenues thus of revenues thus far in 2006 far in 2006
  • 123. Welding Products Businesses 2006 Fourth Quarter Trends 2006 Fourth Quarter Trends • Demand for welding equipment and • Demand for welding equipment and consumables remains fairly strong in all consumables remains fairly strong in all major regions, but year-on-year percentage major regions, but year-on-year percentage growth in North America is moderating growth in North America is moderating • We expect base revenues to grow • We expect base revenues to grow 12% to 15% for Q4 12% to 15% for Q4 • Overall, still strong welding growth but • Overall, still strong welding growth but down from 20%+ base revenue performance down from 20%+ base revenue performance in 2005 and the first half of 2006 in 2005 and the first half of 2006
  • 124. Welding Products Businesses 2007 Growth Assumptions 2007 Growth Assumptions •• Worldwide base revenues expected to grow Worldwide base revenues expected to grow 6% -- 7% in 2007 6% 7% in 2007 •• Continued strong underlying demand growth Continued strong underlying demand growth and penetration gains in Asia and penetration gains in Asia – Energy related infrastructure – Energy related infrastructure – Shipbuilding – Shipbuilding – Significant additional consumable capacity – Significant additional consumable capacity comes on line comes on line •• Moderate to good overall demand in Moderate to good overall demand in North America North America – But we expect slowing rate of growth in – But we expect slowing rate of growth in manufacturing CAPEX spending manufacturing CAPEX spending
  • 125. Food Equipment 11% 11% Percent of total Percent of total ITW revenues ITW revenues Specialty Systems Specialty Systems
  • 126. Food Equipment • Designer and manufacturer of • Designer and manufacturer of commercial food equipment commercial food equipment for food service and food retail for food service and food retail customers customers • 43 businesses in 23 countries • 43 businesses in 23 countries represent $1.5 billion of represent $1.5 billion of revenues revenues • 2005 revenues: +4% • 2005 revenues: +4% • 2006 YTD revenues: +3% • 2006 YTD revenues: +3%
  • 127. Food Equipment Worldwide Revenues 2006 (F) Worldwide Revenues 2006 (F) Food Food 53% 53% North America Institutional/ North America Institutional/ 67% Restaurant 67% Restaurant Service Service 32% 32% International International 33% 33% Food Retail Food Retail 15% 15% By Geography By End Markets By Geography By End Markets
  • 128. Food Equipment New Product Development New Product Development • Vulcan’s newly-introduced Power • Vulcan’s newly-introduced Power Steam system is the result of Steam system is the result of extensive input from chefs, extensive input from chefs, school food directors and school food directors and restaurant owners targeting restaurant owners targeting faster cooking times, enhanced faster cooking times, enhanced safety characteristics and safety characteristics and simplicity of use simplicity of use • Today, Vulcan’s new generation • Today, Vulcan’s new generation of steam cookers are being used of steam cookers are being used by restaurants, schools, by restaurants, schools, hospitals, military commissaries hospitals, military commissaries and hotels and hotels • The new system provides • The new system provides enhanced productivity with up enhanced productivity with up to 20% faster cooking cycles to 20% faster cooking cycles
  • 129. Food Equipment 2006 Fourth Quarter Trends 2006 Fourth Quarter Trends • Base revenues expected to grow 5% in North • Base revenues expected to grow 5% in North America and remain flat internationally America and remain flat internationally • North American growth driven by • North American growth driven by institutional/restaurant category and increased institutional/restaurant category and increased service demand service demand • International comparison contains approximately • International comparison contains approximately 3% of discontinued products and business 3% of discontinued products and business • Price increases in the quarter could pull forward • Price increases in the quarter could pull forward some sales from the 2007 first quarter some sales from the 2007 first quarter
  • 130. Food Equipment 2007 Growth Assumptions 2007 Growth Assumptions • Worldwide base revenues expected to • Worldwide base revenues expected to grow 3% - 4% in 2007 grow 3% - 4% in 2007 • North American growth expected to come • North American growth expected to come from institutions (healthcare, K-12 school from institutions (healthcare, K-12 school food service, colleges and universities, food service, colleges and universities, and hotels/casinos) and hotels/casinos) • Focusing on acquisition opportunities • Focusing on acquisition opportunities particularly in Europe particularly in Europe • Growth in Asia fueled by continued • Growth in Asia fueled by continued penetration of China market and new penetration of China market and new product introductions product introductions
  • 131. ITW Global Automotive 11% 11% Percent of total Percent of total ITW revenues ITW revenues Engineered Products Segment Engineered Products Segment
  • 132. ITW Global Automotive • Designer and manufacturer of metal and • Designer and manufacturer of metal and plastic fasteners and components for the plastic fasteners and components for the automotive industry automotive industry • 60 businesses in 17 countries represents • 60 businesses in 17 countries represents $1.5 billion of revenues $1.5 billion of revenues • 2005 revenues: +2% • 2005 revenues: +2% • 2006 YTD revenues: flat • 2006 YTD revenues: flat
  • 133. ITW Global Automotive Worldwide Revenues 2006 (F) Worldwide Revenues 2006 (F) Tiers Tiers 55% 55% 56% North America 56% North America International International & N.A. New & N.A. New Domestics Domestics OEMs OEMs 28% International 28% International 45% 45% Big 3 Big 3 16% 16% By End Markets By Geography By End Markets By Geography
  • 134. ITW Global Automotive New Product Development New Product Development •• Deltar-IPAC Deltar-IPAC penetration with new penetration with new domestics continue domestics continue to grow in 2006 to grow in 2006 •• New products New products In-Mold Decorated In-Mold Decorated Door Handle Assembly featured on the Door Handle Assembly featured on the Toyota Tundra truck Toyota Tundra truck Interior Assist Interior Assist include interior door Grip Assemblies include interior door Grip Assemblies Fuel Door & Housing Fuel Door & Housing handles, assist grips Assembly handles, assist grips Assembly and fuel door and fuel door assemblies assemblies •• Added nearly $25 Added nearly $25 more per vehicle in more per vehicle in the 2007 Tundra the 2007 Tundra versus the 2006 versus the 2006 model model
  • 135. ITW Global Automotive 2006 Fourth Quarter Trends 2006 Fourth Quarter Trends • North American auto builds defined • North American auto builds defined by Big 3 production declines by Big 3 production declines – Production expected to fall 13% in Q4 after similar – Production expected to fall 13% in Q4 after similar decline in Q3 decline in Q3 • New domestics projected to increase their • New domestics projected to increase their production 3% in Q4 production 3% in Q4 • International auto builds to be down • International auto builds to be down 2% - 4% due to European OEM’s: Renault, 2% - 4% due to European OEM’s: Renault, Peugeot and GM Group Peugeot and GM Group
  • 136. ITW Global Automotive 2007 Growth Assumptions 2007 Growth Assumptions • Worldwide base revenues expected to • Worldwide base revenues expected to grow 2% - 3% in 2007 grow 2% - 3% in 2007 • North America • North America – Big 3 builds expected to decline – Big 3 builds expected to decline 2% - 3% in 2007 2% - 3% in 2007 – New domestics production expected to – New domestics production expected to grow 7% - 9% in 2007 grow 7% - 9% in 2007 • International • International – International OEM builds: flat to +2% in 2007 – International OEM builds: flat to +2% in 2007
  • 137. Conclusions From Today’s Meeting
  • 138. Conclusions From Today’s Meeting • Our growth in Asia is expanding and • Our growth in Asia is expanding and consistent with how we build a footprint consistent with how we build a footprint in this rapid growth area of the world in this rapid growth area of the world • ITW’s capital structure is more flexible • ITW’s capital structure is more flexible and dynamic than in the past and dynamic than in the past • ITW’s portfolio of revenues are more • ITW’s portfolio of revenues are more diversified today by end market and diversified today by end market and geography than in the past geography than in the past • Driving higher base revenue growth and • Driving higher base revenue growth and accelerating acquisition activity continue accelerating acquisition activity continue to be a strategic focus to be a strategic focus
  • 139. Q&A
  • 140. Welcome to ITW’s Annual Investor Meeting New York City New York City December 1, 2006 December 1, 2006

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