Profitable Growth, Strong Returns

Profitable Growth, Strong Returns ISI Industrial Conference March 6, 2012 100 YEARS STRONG

ITW Forward - Looking Statements The remarks made and information presented by ITW at this meeting contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding operating income, operating margins, total and organic revenue growth, earnings per share, end market conditions, free operating cash flow, return on invested capital and the Company s related forecasts. Forward-looking statements may be identified by the use of words such as believe, expect, plans, intends, strategy, prospects, estimate, project, target, anticipate, guidance, forecast and other similar words, and are subject to certain risks, uncertainties, and other factors which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company s expectations include those that are detailed in ITW s Form 10-K for 2011. 2

Today s Topics ITW Operating Structure 2011 Review / 2012 Forecast Profitable Growth with Strong Returns Q&A 3

ITW Operating Structure Key Segments Long-term operational strategy and capital allocation driven by CEO, two vice chairmen and eight executive vice presidents Transportation Power Systems & Electronics Industrial Packaging Food Equipment Construction Products Polymers & Fluids Decorative Surfaces All Other/ Test & Measurement 35+ major businesses managed by group presidents who drive ITW Toolbox (including 80/20 process) throughout organization Executed at local level by general managers who are close to customers and end markets 4

2011 Full Year Highlights Generated record total revenues of $17.8 billion o Organic revenues grew 7.5% Delivered record $2.0 billion of income from continuing operations o 41% diluted EPS growth Produced total company operating margins of 15.4%: +80 basis points Delivered ROIC of 16.8% (after tax) Generated $1.6 billion of free operating cash flow Returned $1.6 billion to shareholders via dividends and share repurchases 5

ITW Financial Forecast Full Year 2012(F) vs. 2011 Total Revenues: Organic Revenues: Diluted EPS: Free Operating Cash Flow: 5% to 8% growth 3% to 5% growth $4.02 to $4.26 midpoint of $4.14 = 10% EPS growth* $1.9 to $2.1 billion * Excludes the 2011 impact of the Australian tax case. 6

Driving Profitable Growth Organic Growth by Segment Segment 2010 Organic Growth 2011 Organic Growth 2012(F) Organic Growth Transportation 18% 10% 4% to 6% Power Systems & Electronics 19% 13% 5% to 7% Industrial Packaging 14% 8% 2% to 4% Food Equipment flat 3% 3% to 5% Construction Products 4% 3% 3% to 5% Polymers & Fluids 6% 5% 3% to 5% Decorative Surfaces 2% 7% 3% to 5% All Other 10% 7% 3% to 5% Total Company 10% 8% 3% to 5% 7

Profitable Growth with Strong Returns Profitable growth with strong returns generate consistent economic profit (returns in excess of cost of capital) and free operating cash flow Three drivers of ITW s economic profit and long-term shareholder value: o Growth o Margin Improvement o Returns on invested capital significantly above our cost of capital 8

$ in millions 2,500 Strong Cash Flow Generation Net Income vs. Free Operating Cash Flow 2001 2011 Average FOCF % of Net Income: 116% 2,000 Strong generator of cash flow even in recessionary periods 1,500 1,000 500 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Net income FOCF Source: 2011 ITW Annual Report; Certain reclassifications of prior years data have been made to conform with current year reporting, including discontinued operations. Fiscal years 2010 and 2009 have been restated for the elimination of the one month reporting lag for the Company s international operations outside of North America. 9

Capital Structure Overview Strong balance sheet o Debt/capital = 28.5% at Dec 31, 2011 o Debt/EBITDA = 1.2x at Dec 31, 2011* o Issued new long-term debt of $1.0 billion in August 2011 at attractive rates o Credit line of $2.5 billion backstops commercial paper program o Cash of $1.2 billion at Dec 31, 2011 (mostly non-u.s.) Capital allocation o 63% returned to shareholders over last five years via dividends and share repurchases Uses of free cash flow & debt (2007 2011) 37% 37% 26% Dividends Acquisitions Net Share Repurchases *Debt/EBITDA calculated as total debt divided by EBITDA; EBITDA calculated as operating income before depreciation and amortization & impairment of goodwill and other intangible assets on a trailing twelve month basis. Chart Source: 2011, 2010 and 2009 ITW Form 10-K 10

Capital Allocation Strategy Priorities 1. Organic Investments Investments that enhance internal growth and margin improvement opportunities, e.g.: Expansion into growing emerging markets Capital expenditures for growing businesses R&D investments to develop new innovative products Restructuring programs that achieve long-term cost savings 2. Dividends Dividend payout guideline of 30-45% of the average of the last two years free operating cash flow Current dividend yield of approximately 3% 3. External Investments Excess capital allocated to external investment alternatives based on best risk-adjusted returns Share Repurchases May 2011 $4 billion authorization ($3.9 billion remaining at Dec 2011) Repurchased $950 million of shares in 2011 Acquisitions Strong fit with ITW growth strategies Strong margin profile with improvement potential Long-term ROIC significantly above the cost of capital 11

Driving Profitable Growth Comparative Revenues by Geography 66% 48% North America EMEA Asia Pacific/Other 26% 8% 33% 19% 2001 2011 12

Driving Profitable Growth Emerging Markets: 21% of 2011 Revenues 1% 4% 9% 12% 95% 79% 2001 2011 BRIC (Brazil, Russia, India, China) Other Emerging Markets * (Asia, Latin America, and Eastern Europe) Rest of World * Other Emerging Markets excludes BRIC, Japan and Australia/NZ 13

Acquisitions Executing value enhancing acquisitions increases shareholder value o Focused on platforms/segments which have higher long-term growth potential o Significant operating margin performance improvement at acquired companies via 80/20 o Revenue growth and margin improvement at acquired companies contribute to ITW earnings growth/higher ROIC For ITW, acquisitions must both fit with key segment and platform growth strategies and deliver returns at or above company average (within 3 to 5 years) We take a disciplined approach to acquisition valuation o Only acquire when probability of achieving targeted returns on a risk adjusted basis is high 2011 acquired revenues: $867 million (annualized) 14

18.0% Acquisition Operating Margins 1 st Year of Acquisition 16.0% 14.0% Reported margins distort acquisition performance because of amortization and other non-cash purchase accounting items 16.2% 12.0% 10.0% 10.0% 11.2% 8.0% 8.1% 6.0% 5.0% 6.4% 6.9% 4.0% 2.0% 3.1% 3.7% 0.0% -0.1% -2.0% 2007 2008 2009 2010 2011 Acq OI % as reported Acq OI % excluding amortization Note: Operating margin excluding amortization is calculated as operating income before amortization and other non-cash purchase accounting adjustments at constant currency, divided by total revenue. 15

Operating Margins Continued focus on achieving high operating margins 80/20 simplification process focuses efforts and investment on most profitable businesses, and results in: o Higher growth and more profitable 80/20 products and customers o Lower costs by eliminating activities related to 20/80 activities o Lean and efficient manufacturing processes and back offices Continuously focused on margin improvement opportunities o Improving the margins of acquired businesses o Further improvement of the base businesses o Further leveraging enterprise-wide spend Have primarily focused on leveraging indirect spend categories Recently engaged a consultant to help us assess opportunities to enhance sourcing benefits, including direct materials 16

18% Operating Margins: ITW vs. Peer Group Operating margins have consistently been above peer group 16% 14% 12% 10% 8% ITW US-Based Diversified Industrials Versus Peer Group 6% ITW Peer Group 07 11 Average 14.2% 10.7% +3.5% 4% 2007 2008 2009 2010 2011 1) Source: 2011 ITW Annual Report; Peer group data is from S&P Capital IQ as of 16 Feb 2012 and includes: Cooper, Danaher, Dover, Eaton, Emerson, Honeywell, 3M, Ingersoll Rand, Parker Hannifin, Textron, Tyco, United Technologies. 2) Operating margin is calculated as earnings before taxes plus net interest expense and total other non-operating expenses, divided by total revenue. 17

Historical ROIC: ITW vs. Peer Group Consistently generate higher returns than peer group 18% 16% 14% 12% 10% 5-yr Average ITW US-Based Diversified Industrials Versus Peer Group 15.4% 14.1% +1.3% ITW Peer Group 2007 2008 2009 2010 2011 1) Source: 2011 and 2010 ITW Annual Report; 2010 and prior numbers not restated for discontinued operations or the elimination of the one month reporting lag. 2) Peer group data is from S&P Capital IQ as of 17 Feb 2012 and includes: Cooper, Danaher, Dover, Eaton, Emerson, Honeywell, 3M, Ingersoll Rand, Parker Hannifin, Textron, Tyco, United Technologies. 18

Profitable Growth with Strong Returns Strong cash flow generation and balance sheet capacity provide ample opportunity for both investments and returning capital to shareholders We target investments that will generate both good growth and strong returns well in excess of our cost of capital over the long-term Organic investments are focused on innovation and emerging markets, which drive growth at high returns For ITW, acquisitions must both fit with key segment and platform growth strategies and deliver returns at or above our company average (within three to five years) 19

ITW 25 Year Revenue/Operating Income Consistent strategy has yielded long-term results $ millions $ millions 3,000 18,000 2,500 2,000 1,500 1,000 500 - CAGR Revenue: 12% CAGR Net Income: 14% CAGR Shareholder Return: 13% Average ROIC: 14% 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000-1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Revenue Operating Income Source: 2011 ITW Annual Report; 2010 and prior numbers are not restated for discontinued operations or the elimination of the one month reporting lag. 20

Q & A 100 YEARS STRONG PROFITABLE GROWTH, STRONG RETURNS 21