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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Check the appropriate box:
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Commission Only (as permitted by
Rule 14a-6(e)(2))
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Illinois Tool Works Inc.
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(Name of Registrant as Specified in Its Charter)
Illinois Tool Works Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
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0-11.
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ITW LOGO
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE
GLENVIEW, ILLINOIS 60025
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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FRIDAY, MAY 11, 2001
3:00 P.M.
THE NORTHERN TRUST COMPANY
50 SOUTH LASALLE STREET
CHICAGO, ILLINOIS
ITW is holding its 2001 Annual Meeting for the following purposes:
1. To elect ten directors for the upcoming year; and
2. To reapprove the performance factors and award limits under the 1996
Stock Incentive Plan and the Executive Incentive Plan.
The Board of Directors recommends that you vote FOR each of the director
nominees and FOR the reapproval of the performance factors and award limits.
Stockholders of record on March 13, 2001 are entitled to vote.
It is important that your shares are represented at the Annual Meeting
whether or not you plan to attend. To be certain that your shares are
represented, please sign, date and return the enclosed proxy card as soon as
possible or vote by telephone or the Internet by following the instructions on
the proxy card. Whatever method you choose, please vote as soon as possible. You
may revoke your proxy at any time prior to its exercise at the Annual Meeting.
Our Annual Report for 2000 is enclosed.
By Order of the Board of Directors,
Stewart S. Hudnut
Secretary
March 21, 2001
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ILLINOIS TOOL WORKS INC.
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PROXY STATEMENT
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TABLE OF CONTENTS
Page
----
Questions and Answers....................................... 1
Election of Directors....................................... 4
Board of Directors and Its Committees....................... 7
Director Compensation....................................... 8
Ownership of ITW Stock...................................... 9
Section 16(a) Beneficial Ownership Reporting Compliance..... 11
Executive Compensation...................................... 12
Report of the Compensation Committee on Executive
Compensation............................................. 16
Company Performance......................................... 18
Report of the Audit Committee............................... 18
Independent Public Accountants.............................. 20
Reapproval of Performance Factors and Award Limits under the
1996 Stock Incentive Plan and the Executive Incentive
Plan..................................................... 21
Annual Report on Form 10-K.................................. 22
Appendix A -- Charter of the Audit Committee................ A-1
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QUESTIONS AND ANSWERS
Following are questions often asked by stockholders of publicly held
companies. We hope that the answers will assist you in casting your vote.
WHAT AM I VOTING ON?
We are soliciting your vote on:
1. The election of ten directors for the upcoming year; and
2. The reapproval of performance factors and award limits under the 1996
Stock Incentive Plan and the Executive Incentive Plan.
WHO MAY VOTE?
Stockholders at the close of business on March 13, 2001, the record date,
may vote. On that date, there were 303,652,566 shares of ITW common stock
outstanding.
HOW MANY VOTES DO I HAVE?
Each share of ITW common stock that you own entitles you to one vote.
HOW DO I VOTE?
You may vote your shares in one of the following four ways:
1. By mail: complete the proxy card and sign, date and return
it in the enclosed envelope;
2. By telephone: call the toll-free number on the proxy card,
enter the control number on the proxy card and
follow the recorded instructions;
3. By Internet: go to the website listed on the proxy card, enter
the control number on the proxy card and follow
the instructions provided; or
4. In person: attend the Annual Meeting, where ballots will be
provided.
If you hold your shares through a bank or broker that does not offer telephone
or Internet voting, please complete and return your proxy by mail.
HOW DOES DISCRETIONARY VOTING AUTHORITY APPLY?
If you sign, date and return your proxy card, your vote will be cast as
you direct. If you do not indicate how you want to vote, you give authority to
Susan Crown, Phillip B. Rooney and Harold B. Smith to vote on the proposals
discussed in this proxy statement and on any other matter that is properly
raised at the Annual Meeting. In that event, your proxy will be voted FOR the
election of each director nominee, FOR the reapproval of performance factors and
award limits and FOR or AGAINST any other properly raised matter at the
discretion of Ms. Crown and Messrs. Rooney and Smith.
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MAY I REVOKE MY PROXY?
You may revoke your proxy at any time before it is exercised in one of
four ways:
1. Notify ITW's Secretary in writing before the Annual Meeting that you
wish to revoke your proxy.
2. Submit another proxy with a later date.
3. Vote by telephone or Internet after you have given your proxy.
4. Vote in person at the Annual Meeting.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
Your shares are likely registered differently or are in more than one
account. You should sign and return all proxy cards to guarantee that all of
your shares are voted.
WHAT CONSTITUTES A QUORUM?
The presence, in person or by proxy, of the holders of a majority of ITW
shares entitled to vote at the Annual Meeting constitutes a quorum. Your shares
will be considered part of the quorum if you return a signed and dated proxy
card or if you vote by telephone or Internet. Abstentions and broker non-votes
are counted as "shares present" at the meeting for purposes of determining if a
quorum exists. A broker non-vote occurs when a broker submits a proxy that does
not indicate a vote as to a proposal because he or she does not have voting
authority and has not received voting instructions from you.
WHAT VOTE IS REQUIRED TO ELECT THE DIRECTOR NOMINEES?
The ten nominees who receive the highest number of votes will be elected.
If you do not want to vote your shares for a particular nominee, you may
indicate that in the space provided on the proxy card or withhold authority as
prompted during telephone or Internet voting. In the election of directors,
abstentions are not considered shares voted and will not affect the outcome of
the vote.
WHAT VOTE IS REQUIRED TO REAPPROVE THE PERFORMANCE FACTORS AND AWARD LIMITS?
A majority of the shares present or represented by proxy and having the
power to vote at the Annual Meeting must reapprove performance factors and award
limits under the 1996 Stock Incentive Plan and the Executive Incentive Plan. An
abstention will have the effect of a vote against the proposal since it is one
fewer vote for approval, but a broker
non-vote will have no effect.
HOW DO I SUBMIT A STOCKHOLDER PROPOSAL?
You must submit a proposal to be included in our proxy statement for the
May 2002 annual meeting no later than November 21, 2001. Your proposal must be
in writing and must comply with the proxy rules of the Securities and Exchange
Commission (SEC). You also may submit a proposal that you do not want included
in the proxy statement, but that you want to raise at the May 2002 annual
meeting. If you submit that proposal after
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February 4, 2002, then SEC rules permit the individuals named in the proxies
solicited by ITW's Board of Directors for that meeting to exercise discretionary
voting power as to that proposal. You should send your proposal to our Secretary
at our address on the cover of this proxy statement.
HOW DO I NOMINATE A DIRECTOR?
If you wish to nominate an individual for election as director at the May
2002 annual meeting, our Secretary must receive your nomination by December 31,
2001. Our by-laws require that your nomination include: (1) your name and
address; (2) the name, age and home and business addresses of the nominee; (3)
the principal occupation or employment of the nominee; (4) the number of shares
of ITW stock that the nominee beneficially owns; (5) a statement that the
nominee is willing to be nominated and serve as a director; and (6) any other
information regarding the nominee that would be required by the SEC to be
included in a proxy statement had ITW's Board of Directors nominated that
individual. Any nomination that you make must be approved by the Corporate
Governance and Nominating Committee as well as by the Board of Directors.
WHO PAYS TO PREPARE, MAIL AND SOLICIT THE PROXIES?
ITW will pay all of the costs of preparing and mailing the proxy
statement and soliciting these proxies. We will ask brokers, dealers, banks,
voting trustees and other nominees and fiduciaries to forward the proxy
materials and our Annual Report to the beneficial owners of ITW common stock.
Upon request, we will reimburse them for their reasonable expenses. In addition
to mailing proxy materials, our officers, directors and employees may solicit
proxies in person, by telephone or otherwise.
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ELECTION OF DIRECTORS
Stockholders will elect ten directors at the Annual Meeting. The
individuals listed below have been nominated by the Board of Directors as
recommended by the Corporate Governance and Nominating Committee. Each director
will serve until the May 2002 annual meeting, until a qualified successor
director has been elected, or until he or she resigns or is removed by the Board
of Directors.
We will vote your shares as you specify on the enclosed proxy card, by
telephone or by Internet. If you do not specify how you want your shares voted,
we will vote them FOR the election of all the nominees listed below. If
unforeseen circumstances (such as death or disability) make it necessary for the
Board of Directors to substitute another person for any of the nominees, we will
vote your shares FOR that other person. The Board of Directors does not
anticipate that any nominee will be unable to serve. The nominees have provided
the following information about themselves:
W.F. ALDINGER PHOTO WILLIAM F. ALDINGER, 53, has served as the Chairman and
Chief Executive Officer of Household International, Inc., a
consumer finance company, since 1994. He serves on the
boards of Household International, Inc., Household Finance
Company and MasterCard International. Mr. Aldinger has
served as a director of ITW since 1998.
MICHAEL J. BIRCK PHOTO MICHAEL J. BIRCK, 63, has served as the Chairman of Tellabs,
Inc. since September 2000. Mr. Birck founded Tellabs and
served as President and Chief Executive Officer from 1975 to
September 2000. Tellabs designs, manufactures, markets and
services voice and data equipment. He is a director of
Molex, Inc. and Tellabs, Inc. Mr. Birck has served as a
director of ITW since 1996.
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MARVIN D. BRAILSFORD MARVIN D. BRAILSFORD, 62, has been Vice President of
PHOTO Kaiser-Hill Company LLC, a construction and environmental
services company, since 1996. He retired from the United
States Army with the rank of Lieutenant General after 33
years of service. Mr. Brailsford has served as a director of
ITW since 1996.
SUSAN CROWN PHOTO SUSAN CROWN, 42, has been Vice President of Henry Crown and
Company, a business with diversified investments, since
1984. She is a director of Baxter International Inc. and
Northern Trust Corporation and its subsidiary, The Northern
Trust Company. Ms. Crown has served as a director of ITW
since 1994.
H. RICHARD CORWTHER H. RICHARD CROWTHER, 68, was the Vice Chairman of ITW from
PHOTO 1990 to 1995 and Executive Vice President from 1983 through
1989. Mr. Crowther had 36 years of service with ITW prior to
his retirement. He is a director of Actuant Corporation. Mr.
Crowther has served as a director of ITW since 1995.
DON H. DAVIS PHOTO DON H. DAVIS, JR., 61, has been Chairman of the Board of
Rockwell International Corporation, a manufacturer of
aviation electronics and automotive equipment, since 1998
and Chief Executive Officer of Rockwell International
Corporation since 1997. He was President and Chief Operating
Officer from 1995 to 1997. He is a director of Rockwell
International Corporation, Ingram Micro Inc. and Apogent
Technologies Inc. Mr. Davis has served as a director of ITW
since 2000.
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W. JAMES FARRELL PHOTO W. JAMES FARRELL, 58, has been Chairman of ITW since 1996
and Chief Executive Officer since 1995. Mr. Farrell served
as President from 1994 until 1996 and as Executive Vice
President from 1983 until 1994. He has 35 years of service
with ITW. He is a director of Allstate Insurance Company,
Sears, Roebuck & Co., The Quaker Oats Company and the
Federal Reserve Bank of Chicago. Mr. Farrell has served as a
director of ITW since 1995.
ROBERT C. MCCORMACK ROBERT C. MCCORMACK, 61, has been a Partner of Trident
PHOTO Capital LP, a venture capital firm, since 1993. Mr.
McCormack served as Assistant Secretary of the Navy from
1990 to 1993, Deputy Under Secretary of Defense from 1987 to
1990, and as Managing Director of Morgan Stanley & Co.
Incorporated, an investment bank, from 1985 to 1987. He is a
director of DeVry, Inc. and the Northern Trust Corporation
and its subsidiary, The Northern Trust Company. Mr.
McCormack has served as a director of ITW since 1993. He
previously was a director of ITW from 1978 through 1987.
PHILLIP B. ROONEY PHILLIP B. ROONEY, 56, has served as President of
PHOTO ServiceMaster Management Services, a network of quality
service companies, since 2000 and was Vice Chairman of
ServiceMaster Company from 1997 to 2000. Prior to 1997, he
served as President of Waste Management, Inc. He is a
trustee of the Van Kampen Funds. Mr. Rooney has served as a
director of ITW since 1990.
HAROLD B. SMITH PHOTO HAROLD B. SMITH, 67, has been Chairman of the Executive
Committee of ITW since 1982. Mr. Smith is a director of W.W.
Grainger Inc. and Northern Trust Corporation and its
subsidiary, The Northern Trust Company. He is a trustee of
The Northwestern Mutual Life Insurance Company. Mr. Smith
has served as a director of ITW since 1968.
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BOARD OF DIRECTORS AND ITS COMMITTEES
ITW's Board of Directors met five times during 2000. In addition to
meetings of the full Board, directors attended meetings of Board committees. The
Board of Directors has standing audit, compensation, corporate governance and
nominating, and finance committees. Each of the directors attended all of the
meetings of the Board and its committees.
AUDIT COMMITTEE
Meetings in 2000: 3
Members: Susan Crown (Chairman)
William F. Aldinger
Michael J. Birck
Marvin D. Brailsford
H. Richard Crowther
Don H. Davis, Jr.
Function: Reviews and reports to the Board concerning the engagement
of independent public accountants, ITW's internal audit
systems and other matters significantly affecting ITW's
financial status. Additional information on the committee
and its activities is set forth in the "Report of the Audit
Committee" on page 18 and in Appendix A - Charter of the
Audit Committee.
COMPENSATION COMMITTEE
Meetings in 2000: 2
Members: Phillip B. Rooney (Chairman)
William F. Aldinger
Michael J. Birck
Don H. Davis, Jr.
Robert C. McCormack
Function: Administers ITW's compensation plans and approves
compensation levels for executive officers.
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CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
Meetings in 2000: 1
Members: Marvin D. Brailsford (Chairman)
Susan Crown
H. Richard Crowther
Don H. Davis, Jr.
Harold B. Smith
Function: Receives suggestions, evaluates and recommends director
candidates to the Board. Makes recommendations as to Board
committees and Board size. Recommends and monitors corporate
governance policies and procedures.
FINANCE COMMITTEE
Meetings in 2000: 1
Members: Robert C. McCormack (Chairman)
William F. Aldinger
H. Richard Crowther
Phillip B. Rooney
Harold B. Smith
Function: Reviews and evaluates management proposals relating to ITW's
debt and equity financing, dividend policy and payments,
acquisitions and divestitures above $20,000,000,
investments, real estate and other financing and investment
matters.
DIRECTOR COMPENSATION
ANNUAL RETAINER AND ATTENDANCE FEES
For non-officer directors in 2001, the retainer is $35,000, the fee for
each Board or committee meeting is $1,500, and the fee for chairmen is an
additional $900 per meeting chaired. In order to link director compensation with
stockholder interests, non-officer directors have also been given the option of
receiving some or all of their retainer and fees in an equivalent value of ITW
common stock, which he or she can elect to receive immediately or at retirement
or resignation. A director can also defer receipt of all or part of cash fees
until he or she is no longer a director. Deferred cash amounts are credited with
interest at current rates.
RESTRICTED ITW COMMON STOCK
A portion of director compensation includes the periodic grant of
restricted ITW common stock, which directly links another element of director
compensation with stockholder interests. In January 2001, each non-officer
director of ITW received an award of 900 restricted shares. Each new non-officer
director who joins the Board after January 2001 will be granted an award of 300
shares for each full year of service remaining until
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January 2004. Restricted shares vest equally over the years remaining from the
grant date until January 2004 and fully vest upon death or retirement. A
director cannot sell the shares until the earliest of retirement, death or
January 2004. A director who terminates other than for death or retirement prior
to January 2004 will forfeit any unvested restricted shares.
PHANTOM ITW STOCK
To tie a further portion of their compensation to stockholder interests,
non-officer directors of ITW are granted 1,000 units of phantom stock upon
becoming a director. The value of each unit equals the market value of one share
of ITW common stock. Additional units are credited to a director's phantom stock
account in an amount equivalent to cash dividends paid on ITW stock. Accounts
are adjusted for stock dividends, stock splits, combinations or similar changes.
A director is eligible for a cash distribution from his or her account at
retirement or upon approved resignation. When phantom stock is granted,
directors elect to receive the distribution in either a lump sum or in up to ten
annual installments, an election that directors may change at any time until two
years preceding the distribution. Directors receive the value of their phantom
stock account immediately upon a change of control.
OTHER ARRANGEMENTS WITH DIRECTORS
Harold B. Smith has a one-year agreement with ITW to provide consulting
services for a fee of $85,000.
OWNERSHIP OF ITW STOCK
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table shows how much ITW common stock the directors,
nominees, the named executive officers, and all directors, nominees and
executive officers as a group beneficially owned as of December 31, 2000. The
named executive officers are the Chief Executive Officer and the four next most
highly compensated executive officers based on compensation earned during 2000.
Beneficial ownership is a technical term broadly defined by the SEC to
mean more than ownership in the usual sense. In general, beneficial ownership
includes any shares a director or executive officer can vote or transfer and
stock options that are exercisable currently or become exercisable within 60
days. Except as otherwise noted, the stockholders named in this table have sole
voting and investment power for all shares shown as beneficially owned by them.
The number of shares beneficially owned by each non-officer director
includes 900 shares of ITW common stock that were granted in January 2001 under
the Directors' Restricted Stock Plan. The number of the director's phantom stock
units disclosed in the table represents an equivalent number of shares of ITW
common stock. Phantom stock units are not transferable and have no voting
rights. The units are not included in the "percent of class" calculation.
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SHARES OF COMMON STOCK PHANTOM PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK UNITS OF CLASS
------------------------ ---------------------- ----------- --------
Directors and Nominees (other than Executive
Officers)
William F. Aldinger............................. 4,088(1) 1,022 *
Michael J. Birck................................ 11,997 2,086 *
Marvin D. Brailsford............................ 3,370 2,080 *
Susan Crown..................................... 11,600(2) 2,103 *
H. Richard Crowther............................. 339,719(3) 2,261 *
Don H. Davis, Jr................................ 2,569 1,006 *
Robert C. McCormack............................. 14,519,844(4) 2,103 4.8%
Phillip B. Rooney............................... 56,988(5) 2,103 *
Harold B. Smith................................. 38,483,427(6) -- 12.6%
Executive Officers
W. James Farrell................................ 748,615(7) -- *
James M. Ringler................................ 828,505(8) -- *
Frank S. Ptak................................... 307,828(9) -- *
F. Ronald Seager................................ 238,701(10) -- *
David B. Speer.................................. 96,029(11) -- *
Directors, Nominees and Executive Officers as a
Group (24 Persons).............................. 41,829,600(12) 14,764 13.7%
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* Less than 1%
(1) Includes 100 shares owned by Mr. Aldinger's spouse, as to which he
disclaims beneficial ownership.
(2) Includes (a) 2,000 shares owned in a trust as to which Ms. Crown shares
voting and investment power; and (b) 2,000 shares held in trusts of which
Ms. Crown's children are beneficiaries and as to which she disclaims
beneficial ownership.
(3) Includes (a) 261,352 shares held in a revocable living trust as to which
Mr. Crowther shares voting and investment power; (b) 30,107 shares owned by
his spouse as to which Mr. Crowther disclaims beneficial ownership; and (c)
8,000 shares owned by a charitable foundation of which Mr. Crowther is an
officer.
(4) Includes (a) 400 shares owned in a trust as to which Mr. McCormack shares
voting and investment power with The Northern Trust Company; and (b)
14,510,380 shares owned in twelve trusts as to which Messrs. McCormack,
E.B. Smith, Jr., H.B. Smith and The Northern Trust Company are trustees and
share voting and investment power. Mr. McCormack's address is c/o
Secretary, Illinois Tool Works Inc., 3600 West Lake Avenue, Glenview,
Illinois 60025.
(5) Includes 2,021 shares owned by Mr. Rooney's spouse, as to which he
disclaims beneficial ownership.
(6) Includes (a) 21,202,264 shares owned in twelve trusts as to which Mr. Smith
shares voting and investment power with The Northern Trust Company and
others; (b) 2,138,080 shares owned in ten trusts as to which he shares
voting and investment power; (c) 14,510,380 shares owned in twelve trusts
as to which Messrs. McCormack, E.B. Smith, Jr., H.B. Smith and The Northern
Trust Company are trustees and share voting and investment power; and (d)
67,192 shares owned by a charitable foundation of which Mr. Smith is a
director. Mr. Smith's address is c/o Secretary, Illinois Tool Works Inc.,
3600 West Lake Avenue, Glenview, Illinois 60025.
(7) Includes (a) 1,000 shares owned by Mr. Farrell's son as to which he
disclaims beneficial ownership; (b) 7,586 shares owned by Mr. Farrell's
spouse as to which he disclaims beneficial ownership; (c) 31,929 shares
owned in a partnership as to which Mr. Farrell shares voting and investment
power; (d) 6,164 shares owned by a charitable foundation of which Mr.
Farrell is an officer; (e) 6,673 shares allocated to Mr. Farrell's account
in the ITW Savings and Investment Plan; and (f) 675,606 shares covered by
options exercisable within 60 days.
(8) Includes (a) 13,723 shares allocated to Mr. Ringler's account in the
Premark International, Inc. Retirement Savings Plan; and (b) 729,045 shares
covered by options exercisable within 60 days.
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(9) Includes 242,500 shares covered by options exercisable by Mr. Ptak within
60 days.
(10) Includes (a) 1,826 shares owned by Mr. Seager's spouse as to which he
disclaims beneficial ownership; and (b) 205,000 shares covered by options
exercisable within 60 days.
(11) Includes (a) 226 shares owned by Mr. Speer's spouse as to which he
disclaims beneficial ownership; (b) 824 shares allocated to Mr. Speer's
account in the ITW Savings and Investment Plan; and (c) 91,000 shares
covered by options exercisable within 60 days.
(12) Includes 2,560,501 shares covered by options exercisable within 60 days.
OTHER PRINCIPAL STOCKHOLDERS
This table shows, as of December 31, 2000, the only stockholder other
than directors that we know to be a beneficial owner of more than 5% of ITW
common stock. We have a commercial banking relationship with The Northern Trust
Company, which also acts as the trustee under our principal pension plan. The
Northern Trust Company is a wholly owned subsidiary of Northern Trust
Corporation. Susan Crown, Robert C. McCormack and Harold B. Smith, directors of
ITW, are also directors of Northern Trust Corporation and The Northern Trust
Company.
NAME AND ADDRESS AMOUNT OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
The Northern Trust Company.................................. 43,286,912(1) 14.2%
50 South LaSalle Street
Chicago, Illinois 60675
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(1) The Northern Trust Company and its affiliates act as sole fiduciary or
co-fiduciary of trusts and other fiduciary accounts that own an aggregate of
43,286,912 shares. They have sole voting power with respect to 4,996,335
shares and share voting power with respect to 36,813,357 shares. They have
sole investment power with respect to 3,420,425 shares and share investment
power with respect to 37,947,477 shares. In addition, The Northern Trust
Company holds in other accounts, but does not beneficially own, 28,617,363
shares, resulting in aggregate holdings by The Northern Trust Company of
71,904,275 shares, or 23.6%.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that ITW's
executive officers, directors and 10% stockholders file reports of ownership and
changes of ownership of ITW common stock with the SEC and the New York Stock
Exchange. Based on a review of copies of these reports provided to us during
fiscal 2000 and written representations from executive officers and directors,
we believe that all filing requirements were met during 2000.
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EXECUTIVE COMPENSATION
This table summarizes the compensation of the Chief Executive Officer and
the other four most highly compensated executive officers of ITW.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION(3)
---------------------
AWARDS
------ PAYOUTS
ANNUAL COMPENSATION SECURITIES ------- ALL OTHER
NAME AND ----------------------- UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1)(2) OPTIONS PAYOUTS (5)(6)
------------------ ---- --------- ----------- ---------- -------- ------------
W. James Farrell.............. 2000 $899,990 $1,309,500 450,000 -- $ 65,280(7)
Chairman and Chief 1999 696,152 1,350,000 200,000 -- 46,298
Executive Officer 1998 600,000 877,500 100,000 -- 42,935
James M. Ringler.............. 2000 $750,022 $1,091,250 75,000 $ 0 $ 26,339
Vice Chairman 1999 713,221 1,125,000 80,810 843,750(4) 10,843,327(8)
1998 681,250 975,000 129,296 684,694 124,020
Frank S. Ptak................. 2000 $420,004 $ 611,100 230,000 -- $ 30,738
Vice Chairman 1999 339,626 630,000 100,000 -- 15,877
1998 312,312 468,000 60,000 -- 11,826
David B. Speer................ 2000 $270,770 $ 398,063 75,000 -- $ 16,180
Executive Vice President 1999 244,115 358,628 30,000 -- 9,597
1998 214,231 295,350 30,000 -- 7,203
F. Ronald Seager.............. 2000 $270,010 $ 386,775 30,000 -- $ 37,022
Executive Vice President 1999 263,084 390,825 30,000 -- 16,457
1998 244,650 360,000 30,000 -- 10,983
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(1) Actual salary or bonus earned. Includes amounts deferred by the executive
under the Executive Contributory Retirement Income Plan or the Savings and
Investment Plan. In the case of Mr. Ringler, includes amounts deferred by
him in 1998 and 1999 under the Premark International, Inc. Retirement
Savings Plan and the Premark International, Inc. Supplemental Plan.
(2) Amounts awarded under the Executive Incentive Plan are calculated on the
executive's base salary as of December 31 for that year and paid in the
following year. In the case of Mr. Ringler, includes amounts awarded under
the Premark International, Inc. annual incentive plan for 1998 and 1999.
(3) As part of long-term compensation, awards of ITW restricted stock were made
under the Stock Incentive Plan in 1994. At December 31, 2000, the number of
unvested restricted shares and their value was: Mr. Farrell, 3,200 shares
valued at $190,592; Mr. Ptak, 3,200 shares valued at $190,592; and Mr.
Seager, 2,000 shares valued at $119,120.
(4) Change of control long-term incentive payout for Mr. Ringler under the
Premark International, Inc. Long-Term Incentive Plan.
(5) Includes company matching contributions in 2000 to the Executive
Contributory Retirement Income Plan or the Savings and Investment Plan as
follows: Mr. Farrell, $27,000; Mr. Ringler, $22,501; Mr. Ptak, $12,600; Mr.
Speer, $8,123; and Mr. Seager, $8,100. In 1999, Mr. Ringler received a
company match of $11,281 to the Premark International, Inc. Retirement
Savings Plan and was credited with an additional contribution of $140,796 to
the Premark International, Inc. Supplemental Plan.
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(6) Includes interest credited in 2000 on deferred compensation under the
Executive Contributory Retirement Income Plan in excess of 120% of the
Applicable Long-Term Rate as follows: Mr. Farrell, $25,741; Mr. Ringler
$3,838; Mr. Ptak, $18,138; Mr. Speer, $8,057; Mr. Seager, $28,922.
(7) Includes $12,540 representing imputed income on Mr. Farrell's outstanding
home loan made by ITW in 1995. The maximum amount of the loan outstanding
during 2000 was $225,000, which by February 23, 2001 had been reduced to
$95,000. The imputed rate of interest on the loan is 7.34% per annum and the
loan is repayable in annual installments through the year 2003.
(8) Includes aggregate payment, less short-term and long-term payouts, (a) in
lieu of amounts that Mr. Ringler would have been paid under his employment
agreement with Premark; (b) in recognition that ITW does not maintain a
long-term incentive plan similar to the plan maintained by Premark; and (c)
in consideration for his agreement not to compete during his period of
employment with ITW and for a period of two years thereafter.
Stock ownership guidelines established by the Board of Directors require
each executive officer to own a certain number of shares of ITW stock based upon
a multiple of base salary. We loaned money to Mr. Farrell to help him comply
with these guidelines. The initial five-year term of the promissory note
evidencing this loan expired in December 2000 and was renewed for an additional
five-year term at an annual interest rate of 5.91%, secured by 3,200 shares of
ITW stock. As of February 23, 2001, Mr. Farrell repaid the outstanding balance
on the note of $111,823, which was the largest amount that Mr. Farrell had been
indebted to us under this loan since the beginning of 2000.
In the event of a change of control of ITW, each executive officer's
unvested restricted stock and stock options previously granted under the Stock
Incentive Plan fully vest. In addition, executives receive a cash payment under
the Executive Incentive Plan immediately upon a change of control. The amount
paid under the Executive Incentive Plan equals a portion of the maximum awards
payable under the Plan for that year based on the number of days in the year
that have elapsed as of the date of the change of control.
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OPTION GRANTS IN 2000
This table gives information relating to option grants in 2000 to the
Chief Executive Officer and the other four most highly compensated executive
officers of ITW.
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF GRANT DATE
SECURITIES TOTAL OPTIONS VALUE
UNDERLYING GRANTED TO EXERCISE OR ----------------
OPTIONS EMPLOYEES BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) 2000 PER SHARE DATE PRESENT VALUE(2)
---- ---------- ------------- ----------- ---------- ----------------
W. James Farrell............. 450,000 13.8 $55.875 12/15/10 $8,563,500
James M. Ringler............. 75,000 2.3 55.875 12/15/10 1,427,250
Frank S. Ptak................ 230,000 7.1 55.875 12/15/10 4,376,900
David B. Speer............... 75,000 2.3 55.875 12/15/10 1,427,250
F. Ronald Seager............. 30,000 0.9 55.875 12/15/10 570,900
- ---------------
(1) Options become exercisable in four equal annual installments on the
anniversaries of the grant or immediately in the event of retirement,
disability or death. A restorative option right applies to option grants so
long as the option holder is employed by ITW. This means that an option
holder who delivers previously acquired shares of ITW common stock in
payment of an option's exercise price will be granted an additional option,
which is subject to certain restrictions, to purchase the number of shares
equal to the number of delivered shares.
(2) The estimated fair value of each ITW option granted is calculated using the
Black-Scholes option pricing model. The model assumes a 5.4% risk-free
interest rate, 28.4% expected stock volatility, 1.04% dividend yield and 5.7
years expected until exercise.
OPTION EXERCISES IN 2000 AND
YEAR-END 2000 OPTION VALUES
This table provides information regarding the exercise of options during
2000 and options outstanding at the end of the year for the Chief Executive
Officer and the other four most highly compensated executive officers of ITW.
The "value realized" is calculated using the difference between the option
exercise price and the price of ITW common stock on the date of exercise
multiplied by the number of shares acquired upon exercise. The "value of
unexercised in-the-money options at year-end 2000" is calculated using the
difference between the option exercise price and $59.56 (the closing price of
ITW stock on December 29, 2000, the last trading day of the year) multiplied by
the number of shares underlying the option. An option is in-the-money if the
market value of ITW common stock is greater than the option's exercise price.
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES YEAR-END 2000 YEAR-END 2000
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
W. James Farrell..... 14,000 $ 650,566 675,606 755,000 $14,844,882 $3,942,050
James M. Ringler..... 275,309 16,353,139 729,045 75,000 24,716,276 276,375
Frank S. Ptak........ 0 0 242,500 347,500 5,813,550 948,600
David B. Speer....... 0 0 91,000 120,000 1,712,435 333,075
F. Ronald Seager..... 0 0 205,000 75,000 6,168,150 167,250
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RETIREMENT PLANS
ITW's principal defined benefit pension plan covers approximately 25,000
domestic business unit employees, including executive officers. Upon retirement,
participants receive benefits based on years of plan participation and average
monthly compensation for the five highest consecutive years out of the last ten
years of employment. As of January 1, 2001, the plan has been amended to provide
a defined lump sum amount at retirement. Persons age 50 or older with at least
five years of service will receive a benefit that is no less valuable than that
provided under the prior plan formula. Because the Internal Revenue Code imposes
limits on those plan benefits, the Board has established a supplemental plan
that provides for payments to certain executives equal to benefits that would be
paid but for these limitations. The table below shows the maximum estimated
annual benefits to be paid under the pension plan and supplemental plan at age
65 normal retirement to individuals in specified compensation and years of
service categories, based on the plan provisions in effect on December 31, 2000.
Compensation includes salary and bonus shown in the Summary Compensation Table
on page 12.
ESTIMATED ANNUAL NORMAL RETIREMENT BENEFITS(1)
----------------------------------------------------------------------------------------
YEARS OF SERVICE AT NORMAL RETIREMENT(2)
COMPENSATION 10 15 20 25 30 35 40
- ------------ -------- -------- -------- ---------- ---------- ---------- ----------
$ 600,000............ $ 99,000 $148,500 $198,000 $ 247,500 $ 297,000 $ 319,500 $ 342,000
850,000........... 140,250 210,375 280,500 350,625 420,750 452,625 484,500
1,100,000........... 181,500 272,250 363,000 453,750 544,500 585,750 627,000
1,350,000........... 222,756 334,125 445,500 546,875 668,256 718,875 769,500
1,600,000........... 264,000 396,000 528,000 660,000 792,000 852,000 912,000
2,000,000........... 330,000 495,000 660,000 825,000 990,000 1,065,000 1,140,000
2,500,000........... 412,500 618,750 825,000 1,031,250 1,237,500 1,331,250 1,425,000
- ---------------
(1) The actual pension formula in effect excludes an amount equivalent to 0.65%
of Social Security covered compensation times the individual's years of
service up to 30 years. This exclusion is not reflected in the table and,
therefore, the amounts shown are overestimated by relatively small
percentages.
(2) Actual years of participation as of December 31, 2000 for the five most
highly compensated executive officers were as follows: Mr. Farrell, 35.5
years; Mr. Ringler, 11.0 years (10.0 of which were granted as consideration
for his employment by ITW); Mr. Ptak, 25.1 years; Mr. Seager, 20.6 years;
and Mr. Speer, 22.5 years. In addition, Mr. Ringler has an accrued normal
retirement benefit of $101,185 based on his 9.9 years of participation in
Premark's retirement plans.
In addition, under ITW's 1982 Executive Contributory Retirement Income
Plan, annual benefits payable beginning at the normal retirement age of 65 for
15 years are as follows: Mr. Farrell, $113,529 and Mr. Seager, $68,266.
EMPLOYMENT AGREEMENTS
In November 1999, we entered into an employment agreement with James M.
Ringler that expired in November 2000. Under the agreement, Mr. Ringler received
an annual base salary of $750,000 and incentive opportunities comparable to
similarly situated ITW employees. In connection with the employment agreement,
Mr. Ringler entered into a noncompetition agreement that is in effect during the
period of his employment with ITW and for a period of two years thereafter.
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
During 2000, the Compensation Committee of the Board of Directors was
composed of five independent non-employee directors. The Committee administers
ITW's compensation plans, including the Executive Incentive Plan and the Stock
Incentive Plan. The Committee also approves compensation levels for executive
officers. In making its decisions, the Committee considers management's
contribution to ITW's long-term growth. One long-term performance factor that
the Committee considers is ITW's total stockholder return, which is measured by
capital appreciation and reinvested dividends. For the ten years ending December
31, 2000, the compound annual stockholder rate of return was 18.7%. For the same
period, the rate of return on the Standard & Poor's 500 Index was 17.5% and the
rate of return on the Standard & Poor's Diversified Manufacturing Index was
20.7%.
Compensation for executive officers is composed of base salary, a cash
bonus based on performance and stock incentives. The Committee believes that the
stock incentive and cash bonus components align the executive officers'
performance with stockholder interests. The Committee's philosophy is to provide
executives with total compensation above the median for executives of comparable
industrial companies.
BASE SALARY. In establishing base salaries for the Chief Executive
Officer (CEO) and other executive officers, the Committee considers compensation
information of a peer group of comparable industrial companies. This peer group
includes some of the same companies as the S&P Diversified Manufacturing Index
used for the Company Performance graph on page 18. In determining base salary,
the Committee considers the officer's past performance and potential future
performance as well as ITW's net income and the operating income of the business
unit that the executive officer oversees. The Committee's objective is to target
base salaries of the CEO and the other executive officers at the 50th percentile
of the peer group.
BONUS. Executive officers receive annual cash bonuses under the Executive
Incentive Plan based on predetermined financial and non-financial objectives.
Maximum bonus opportunities typically range from 50% to 150% of base salary. The
CEO, Vice Chairmen and certain executive officers can earn half of the maximum
bonus opportunity if ITW's net income is at least 120% of targeted plan. The
other half relates to the individual's performance measured against
predetermined management goals, for example, succession planning, cost reduction
targets, market penetration, acquisition planning and a variety of other
objectives specifically related to individual units' performance. For the
Executive Vice Presidents, one-eighth of the maximum bonus opportunity is based
on ITW's net income, three-eighths is based on the operating income of the
operating units for which the individual is responsible, and the remaining
one-half is based on the individual's performance measured against evaluation
factors similar to the CEO's. For 2000, the average bonus received by executive
officers was approximately 96% of the maximum award. These awards reflected
ITW's fourth straight year of record setting net income and the achievement of
financial and personal objectives by the executive officers.
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STOCK INCENTIVES. The CEO, executive officers and other key employees
participate in ITW's Stock Incentive Plan, principally through the grant of
stock options. The magnitude of a stock option award is based on the executive
officer's performance and the officer's ability to influence ITW's long-term
growth and profitability. Options are priced at fair market value on the date of
grant. The Committee approves these awards and believes that participation in
the Stock Incentive Plan is an effective incentive for executive officers to
create value for stockholders since the ultimate value of a stock option is
directly related to the increase in the market price of ITW's common stock.
The Board of Directors and the Compensation Committee have established
stock ownership guidelines to further their objective of aligning the interests
of executive officers and directors with stockholder interests. These guidelines
apply to elected and appointed corporate officers as well as to non-officer
directors. Recommended stock ownership is stated as a multiple of executive
officers' base salaries and of directors' annual retainers as follows: CEO, five
times; Vice Chairmen and Executive Vice Presidents, three times; Senior Vice
Presidents, two times; Vice Presidents, one time; and non-officer directors,
four times. The Committee recommends that an executive officer or non-officer
director achieve the applicable ownership level within five years.
Executive officers may satisfy stock ownership guidelines through open
market purchases of ITW stock, exercise of stock options, accumulation of stock
in ITW's Savings and Investment Plan, and unexercised vested options (less the
exercise price and applicable taxes). In addition, under the Executive Incentive
Plan, executive officers may elect to take up to half of their annual cash bonus
in ITW common stock. Directors may satisfy stock ownership guidelines through
open market purchases of ITW common stock, vested restricted stock, stock units
included in the directors' phantom stock plan and stock in lieu of cash for
retainer and meeting fees.
Internal Revenue Code Section 162(m) limits the deductibility of
compensation in excess of $1,000,000 paid to each of the CEO and the other four
most highly compensated executive officers. Certain performance based and
deferred compensation is not included in compensation counted for purposes of
the limit. The Committee has attempted to structure ITW's compensation programs
to preserve full deductibility and will continue to assess the impact of Section
162(m) on its compensation practices.
Phillip B. Rooney, Chairman
William F. Aldinger
Michael J. Birck
Don H. Davis, Jr.
Robert C. McCormack
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COMPANY PERFORMANCE
This graph shows a five-year comparison of cumulative total returns for
ITW, the Standard & Poor's (S&P) 500 Composite Index and the S&P Diversified
Manufacturing Index. The graph assumes an investment of $100 on December 31,
1995 and the reinvestment of dividends. Total returns are based on market
capitalization.
[PERFORMANCE GRAPH]
1995 1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------
Illinois Tool Works Inc. $100.00 $136.75 $207.75 $202.19 $237.78 $212.43
S&P 500 $100.00 $122.96 $163.98 $210.84 $255.22 $231.98
S&P Diversified
Manufacturing Index $100.00 $137.81 $164.11 $190.20 $233.82 $278.35
- ------------------------------------------------------------------------------------------------------------
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is composed of six
directors who are independent, as defined in the listing standards of the New
York Stock Exchange. The responsibilities of the Committee are as set forth in
the Charter of the Audit Committee adopted by the Board of Directors, a copy of
which is attached to this proxy statement as Appendix A. These responsibilities
include providing oversight to ITW's financial reporting process through
periodic meetings with ITW's independent public accountants, internal auditors
and management to review accounting, auditing, internal controls and financial
reporting matters. ITW's management is responsible for the preparation and
integrity of the financial reporting information and related systems of internal
controls. The Committee, in carrying out its role, relies on ITW's senior
management, including senior financial management, and ITW's independent public
accountants.
We have reviewed and discussed with senior management the audited
financial statements included in the 2000 Annual Report to Stockholders.
Management has confirmed
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to the Committee that the financial statements have been prepared in conformity
with generally accepted accounting principles.
We have discussed with Arthur Andersen LLP, ITW's independent public
accountants, the matters required to be discussed by the Statement on Auditing
Standards No. 61 (Communications with Audit Committee), under which Arthur
Andersen must provide us with additional information regarding the scope and
results of its audit of ITW's financial statements. This information includes:
(1) Arthur Andersen's responsibility under generally accepted auditing
standards, (2) significant accounting policies, (3) management judgments and
estimates, (4) any significant audit adjustments, (5) any disagreements with
management, and (6) any difficulties encountered in performing the audit.
We have received from Arthur Andersen a letter providing the disclosures
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) with respect to any relationships between
Arthur Andersen and ITW that in its professional judgment may reasonably be
thought to bear on independence. Arthur Andersen has discussed its independence
with us, and has confirmed in the letter that, in its professional judgment, it
is independent of ITW within the meaning of the federal securities laws.
Based on the review and discussions described above, we have recommended
to the Board of Directors that the audited statements included in ITW's 2000
Annual Report to Stockholders be included in ITW's Annual Report on Form 10-K
for the year ended December 31, 2000 filed with the Securities and Exchange
Commission.
Susan Crown, Chairman
William F. Aldinger
Michael J. Birck
Marvin D. Brailsford
H. Richard Crowther
Don H. Davis, Jr.
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INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been ITW's independent public accounting firm
since 1951. During 2000, the Board engaged Arthur Andersen to examine and report
on ITW's financial statements and to review ITW's unaudited quarterly financial
statements. The Board plans to engage Arthur Andersen to act in similar
capacities for 2001. Representatives of Arthur Andersen will be present at the
Annual Meeting and will have the opportunity to make a statement and respond to
questions.
AUDIT FEES
Arthur Andersen billed us approximately $3,529,000 for professional
services in connection with the audit of the annual financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2000.
Arthur Andersen also billed us approximately $107,000 for professional services
in connection with the review of the quarterly financial statements included in
our Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 2000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
In fiscal year 2000, Arthur Andersen did not bill us for or perform any
professional services in connection with operating or supervising the operation
of our information system or managing our local area network. In addition, there
were no fees for professional services in connection with designing or
implementing a hardware or software system that aggregates source data
underlying the financial statements or generates information that is significant
to our financial statements taken as a whole.
ALL OTHER FEES
For fiscal year 2000, the aggregate fees for all other services of Arthur
Andersen were approximately $8,500,000. A significant portion of these fees was
for work that related primarily to tax services that Arthur Andersen performed
globally.
The Audit Committee has determined that the non-audit services of Arthur
Andersen during fiscal year 2000 are compatible with maintaining Arthur
Andersen's independence.
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REAPPROVAL OF PERFORMANCE FACTORS AND AWARD LIMITS UNDER
THE 1996 STOCK INCENTIVE PLAN AND THE EXECUTIVE INCENTIVE PLAN
In 1996, stockholders approved the material terms of performance-based
awards under the 1996 Stock Incentive Plan and the Executive Incentive Plan. We
sought stockholder approval in response to the deductibility limits of Section
162(m) of the Internal Revenue Code. Section 162(m) limits the deductibility of
compensation in excess of $1,000,000 per year paid to the CEO or any of the four
other highest paid executive officers. If, however, compensation is based on
objective goals, the criteria for which has been approved by stockholders, that
compensation is not counted for purposes of the limit. The stockholders must
also have approved the eligibility requirements for and maximum amount of the
compensation.
The effectiveness of the 1996 stockholder approval of the material terms
of these performance goals expires at the Annual Meeting. The Board of Directors
has determined that it is in the best interests of ITW that certain awards paid
under the Stock Incentive Plan and the Executive Incentive Plan be eligible to
qualify as performance-based compensation under Section 162(m) so that they are
exempt from Section 162(m) limits on the deductibility of compensation. As a
result, we are asking you to reapprove the performance criteria under which
certain Stock Incentive Plan awards and Executive Incentive Plan awards will be
made and the maximum amount of those awards. We are not amending and are not
asking you to approve any amendments to the plans.
The Stock Incentive Plan permits grants of incentives in the form of
stock options, stock awards, performance units and stock appreciation rights.
Stock awards and performance unit awards are performance based. The Compensation
Committee administers the plan, approves key employees for participation and
determines the timing and amount of awards. The Committee may grant stock awards
of restricted shares under the plan that vest on the attainment of performance
goals. Similarly, the Committee may grant performance units, which the
participant earns to the extent that performance goals are attained. For stock
awards or performance units intended to qualify as performance-based
compensation under Section 162(m), the maximum award payable in cash to a
participant in any calendar year is $5,000,000, and the maximum number of shares
of ITW stock that may be issued to a participant in any calendar year is
500,000.
The Executive Incentive Plan provides for cash payments based on the
achievement of specific corporate, operating group or individual performance
goals. The Compensation Committee administers the plan and approves key
employees who contribute to ITW's profitability and growth for participation in
the plan. Awards under the plan are based on the extent to which the performance
objectives have been attained and are paid following the release of our audited
financial statements for the applicable fiscal year. The maximum award
qualifying under Section 162(m) payable to any key employee for any calendar
year is $5,000,000.
The Board of Directors recommends that the Compensation Committee be
authorized to base performance objectives under the Stock Incentive Plan and the
Executive Incentive Plan on one or more of the following factors: generation of
free cash, earnings per share,
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revenues, market share, stock price, cash flow, retained earnings, results of
customer satisfaction surveys, aggregate product price and other product price
measures, safety record, acquisition activity, management succession planning,
improved asset management, improved gross margins, increased inventory turns,
product development and liability, research and development integration,
proprietary protections, legal effectiveness, handling Securities and Exchange
Commission or environmental issues, manufacturing efficiencies, system review
and improvement, service reliability and cost management, operating expense
ratios, total stockholder return, return on sales, return on equity, return on
capital, return on assets, return on investment, net income, operating income,
and one or more of these criteria relative to the performance of other
corporations. The Board also recommends that you approve the maximum amount of
the awards that may be granted under the Stock Incentive Plan and the Executive
Incentive Plan as described above. These are the same performance factors and
award limits that the stockholders approved in 1996.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE PERFORMANCE FACTORS AND AWARD LIMITS UNDER THE 1996 STOCK INCENTIVE PLAN
AND THE EXECUTIVE INCENTIVE PLAN.
ANNUAL REPORT ON FORM 10-K
YOU MAY OBTAIN A FREE COPY OF ITW'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 2000, INCLUDING SCHEDULES, THAT WE FILED WITH THE SEC.
TO DO SO, PLEASE WRITE TO: STEWART S. HUDNUT, SECRETARY, AT ILLINOIS TOOL WORKS
INC., 3600 WEST LAKE AVENUE, GLENVIEW, ILLINOIS 60025.
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APPENDIX A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF ILLINOIS TOOL WORKS INC.
STATEMENT OF PURPOSE
The primary purpose of the Audit Committee of the Board of Directors of
Illinois Tool Works Inc. is to assist the Board in fulfilling its oversight
responsibilities. The Committee will monitor the integrity of the financial
statements of the Company, the compliance by the Company with legal and
regulatory requirements, and the independence and performance of the Company's
internal and external auditors.
ORGANIZATION AND MEETINGS
The Committee, a standing committee of the Board, will be composed of
three or more directors and will meet the independence and experience
requirements of the New York Stock Exchange. Members of the Committee, including
its Chairperson, shall be elected by the Board at the annual organizational
meeting of the Board and shall serve until their successors shall have been duly
elected and qualified.
The Committee will have regularly scheduled meetings each year, with
additional meetings to be held as circumstances require. The Committee will keep
minutes of its meetings, and will regularly report to the Board on its
activities, making recommendations as appropriate.
KEY RESPONSIBILITIES
The Committee's job is one of oversight and it is not responsible for
preparing the Company's financial statements, planning the audit of those
financial statements or determining that the Company's financial statements are
complete and accurate in accordance with GAAP. Additionally, the Committee
recognizes that financial management, including the internal audit staff as well
as the outside auditors, have more time, knowledge and detailed information on
the Company than do Committee members; consequently, in carrying out its
oversight responsibilities, the Committee is not providing any expert or special
assurance as to the Company's financial statements or any professional
certification as to the outside auditor's work.
The functions set forth below will be the common recurring activities of
the Committee in carrying out its oversight function. These functions are a
guide which the Committee may diverge from as appropriate given the
circumstances.
INTERNAL CONTROL
- Review ITW's policies and procedures with management and recommend to
the Board any changes considered appropriate.
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- Review the adequacy and effectiveness of ITW's financial and accounting
controls with the independent auditor and the internal auditor, as
appropriate, receiving recommendations for the improvement of such
controls and reviewing whether any such previously approved
recommendations have been implemented.
EXTERNAL CONTROL
- Review and recommend to the Board the independent auditor to be
selected to audit ITW's consolidated financial statements. The
Committee shall also evaluate the performance of the independent
auditor and, where appropriate, recommend to the Board the replacement
of the independent auditor. The independent auditor shall be ultimately
accountable to the Committee and the Board.
- Take action to ensure the objectivity of the independent auditor by
reviewing and discussing with the independent auditor all significant
relationships that the auditor has with the Company and its affiliates,
including: (i) requesting, receiving and reviewing, at least on an
annual basis, a formal written statement delineating all relationships
that may reasonably be thought to bear on the independence of the
independent auditor with respect to the Company in accordance with
professional standards governing such independence; (ii) discussing
with the independent auditor the contents of the statement including
any disclosed relationships or services that may impact the objectivity
and independence of the independent auditor; and (iii) if so determined
by the Committee, recommending that the Board take appropriate action
in response to the independent auditor's report to satisfy itself of
the independence of the independent auditors.
- Meet with the independent auditor and management to review the proposed
audit scope and procedures to be utilized.
- At the conclusion of each annual audit, review and discuss with the
independent auditor such matters related to the conduct of the audit
that are to be communicated to the Committee under generally accepted
auditing standards, including the Statement on Auditing Standards No.
61, as well as any other comments or recommendations made by the
independent auditor.
- Review with the independent auditor any problems or difficulties the
auditor may have encountered in the course of the audit work, including
any restrictions on the scope of activities or access to required
information and any changes required in the planned scope of the
internal audit and the internal audit department responsibilities,
budget and staffing.
INTERNAL AUDIT
- Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditor or management and concur in the appointment,
replacement, reassignment or dismissal of the internal auditor.
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- Review the proposed audit plan of the internal auditor, including the
independence and authority of the internal auditor's reporting
obligations, the adequacy of internal audit resources and the
coordination and completeness of coverage between the internal and
independent auditors.
- Review periodic summaries of significant findings from completed
internal audits and, as appropriate, the status of major audits in
process.
FINANCIAL REPORTING
- Review the Company's consolidated financial statements that will be
contained in the Annual Report to Shareholders with management and the
independent auditor to determine whether they are consistent with
information known to the Committee members, and whether the independent
auditor is satisfied with the disclosure and content of those financial
statements. Based on such review, prepare the report required by the
Securities and Exchange Commission to be included in the Company's
annual proxy statement.
- Discuss with the independent auditor and management their judgments
about the quality and the acceptability of accounting principles used
to prepare the Company's consolidated financial statements. Review the
impact on the annual financial statements of any significant accounting
and reporting issues, including recent professional and regulatory
pronouncements and any newly adopted or proposed changes in accounting
principles that would significantly affect ITW or its consolidated
financial statements.
ETHICAL AND LEGAL COMPLIANCE
- Review and advise the Board with respect to the effectiveness of the
system for monitoring compliance with laws and regulations, including
receiving reports from the General Counsel on the results of
management's review of compliance with ITW's policies and any
investigations by management related to significant fraudulent acts or
irregularities.
- Periodically review with the General Counsel any legal and regulatory
matters that may have a material impact on the Company's financial
statements, compliance policies and any material reports or inquiries
received from regulators or governmental agencies.
- Evaluate whether management is setting the appropriate "tone at the
top" by communicating the importance of ITW's ethical and business
practices standards, including the importance of internal accounting
controls.
OTHER RESPONSIBILITIES AND POWERS
- Meet separately, at least annually, with the chief financial officer,
the internal auditor and the independent auditor to discuss any matters
that the chief financial officer, the auditors or the Committee believe
should be discussed privately.
A-3
29
- The Committee shall have the authority to institute special
investigations and, if appropriate, hire special counsel or experts to
assist in such investigations as needed.
- Review the internal audit policies and procedures in effect for
considering officers' expenses and perquisites.
- Perform such other oversight functions as required by law, the
Company's certificate of incorporation, as amended or restated, the
bylaws of the Company or the Board of Directors.
- Review and discuss the adequacy of the audit committee charter on an
annual basis, or more frequently upon changes to the membership of the
Committee or as otherwise needed and recommend any proposed changes to
the Board.
A-4
30
ILLINOIS TOOL WORKS INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
[ ]
1. Election of Directors - For WITHHOLD FOR ALL
Nominees: 01 - W. F. Aldinger, 02 - M. J. Birck, ALL ALL EXCEPT 2. Reapproval of performance FOR AGAINST ABSTAIN
03 - M. D. Brailsford, 04 - S. Crown, [ ] [ ] [ ] factors and award limits [ ] [ ] [ ]
05 - H. R. Crowther, 06 - D. H. Davis, Jr., under the 1996 Stock Incentive
07 - W. J. Farrell, 08 - R. C. McCormack, Plan and the Executive
09 - P. B. Rooney, 10 - H. B. Smith. Incentive Plan.
-----------------------------------------------
Except for nominee(s) written above. THIS PROXY WILL BE VOTED AS DIRECTED. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2, WHICH
In their discretion, upon such other matters as may IS THE MANNER IN WHICH THIS PROXY WILL BE VOTED IF NO
properly come before the meeting. DIRECTION IS MADE. THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS.
Please sign exactly as your name or names
appear. If jointly held, each owner must sign.
Executors, administrators, trustees, officers, etc.
should give full title as such.
Dated: ____________________________, 2001
___________________________________________
Signature
___________________________________________
Signature
- ------------------------------------------------------------------------------------------------------------------------------------
CONTROL NUMBER /\ FOLD AND DETACH HERE /\
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY
ANNUAL MEETING MAY 11, 2001
[ITW LOGO]
YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Illinois Tool Works Inc. encourages you to take advantage of the convenient
ways to vote your shares. If voting by proxy, you may vote by mail, or choose
one of the two methods described below. Your telephone or Internet vote
authorizes the named proxies to vote your shares in the same manner as if you
marked, signed, and returned your proxy card. To vote by telephone or Internet,
follow these easy steps:
TO VOTE BY PHONE
Call toll free 1-800-215-9653 any time on a touch tone telephone. There is
NO CHARGE to you for the call.
Enter the Control Number provided above.
OPTION #1: To vote as the Board of Directors recommends on the proposals, press
1.
OPTION #2: If you choose to vote on each proposal separately, press 0 and
follow the recorded instructions.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU FOR VOTING.
TO VOTE BY INTERNET
Go to the following website:www.computershare.com/us/proxy
Enter the information requested on your computer screen, including your
Control Number provided above.
Follow the instructions on the screen.
IF YOU VOTE BY TELEPHONE OR INTERNET, DO NOT MAIL BACK THE PROXY CARD.
THANK YOU FOR VOTING!
5615--ILLINOIS TOOL WORKS INC.
31
PROXY PROXY
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE, GLENVIEW, ILLINOIS 60025
ANNUAL MEETING OF STOCKHOLDERS MAY 11, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of Illinois Tool Works Inc. hereby appoints Susan
Crown, Phillip B. Rooney and Harold B. Smith, or any of them, with full power
of substitution, to act as proxies at the Annual Meeting of Stockholders of
ITW to be held in Chicago, Illinois on May 11, 2001 with authority to vote as
directed by this Proxy at the meeting, and any adjournments of the meeting, all
shares of common stock of ITW registered in the name of the undersigned.
IMPORTANT -- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
- --------------------------------------------------------------------------------
[ITW LOGO]
ILLINOIS TOOL WORKS INC.
ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, MAY 11, 2001
3:00 P.M. CENTRAL TIME
THE NORTHERN TRUST COMPANY (6TH FLOOR)
50 SOUTH LASALLE STREET
CHICAGO, ILLINOIS
5615--ILLINOIS TOOL WORKS INC.