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Illinois Tool Works Inc. Business Information, Profile, and History

itw company smith products

3600 West Lake Avenue
Glenview
Illinois
60026-1215
U.S.A.

Company Perspectives

Founded in 1912, ITW's recipe for success has been consistent: value added products and outstanding service win the day with customers. We place a high premium on the development of highly engineered products and systems, most of which are developed in tandem with our customers. And we continue to ensure that our customers receive timely, cost-effective service for the innovative products we provide.

History of Illinois Tool Works Inc.

In 1912 four Smith brothers advertised for experienced manufacturing workers to help them set up a new business producing metal-cutting tools to serve expanding midwestern industry. With the backing of their wealthy and influential father, Byron Laflin Smith, the brothers formed what would later be called Illinois Tool Works Inc. The Chicago-based company prospered. Under Smith family management through much of its history--the family still owned about 16 percent of the company in the early 2000s--Illinois Tool Works became known as a company with conservative management and innovative products that made big profits on small items. By the 1990s the company was somewhat changed with management placing a greater emphasis on acquisitions, even if it meant going into debt. ITW, as the company is generally called, operates approximately 700 decentralized businesses in 48 countries that manufacture a wide variety of highly engineered products and specialty systems. Approximately 44 percent of revenues are generated outside the United States.

Early History

In 1857, just 20 years after the city of Chicago was incorporated, Byron Laflin Smith's father set up Merchants' Loan & Trust to help fledgling businesses get off the ground, becoming the first Chicago resident to own a Chicago banking institution. The city's population was approximately trebling each decade as railroads and the Great Lakes made it a transportation and manufacturing center. As the city grew, the corresponding real estate boom made rich men richer. The elder Smith took advantage of all these opportunities to make his family one of the wealthiest and most influential in the Midwest.

After graduating from the University of Chicago, Byron Smith went to work for his father at Merchants' Loan & Trust. Working in the family business did not last long, however. When he was 25 years old, Smith struck out on his own, founding the Northern Trust Company in 1879, which was to become one of the city's premier banking institutions.

A successful man in his own right by the early years of the 20th century, Smith saw other opportunities in the growing city. Through his business connections, Smith realized that there was an increasing need for large-scale production of machine tools for the growing transportation and communication industries. These emerging industries needed more parts than small machine shops could provide, and Smith thought he and his sons Solomon, Harold C., Walter, and Bruce were just the men to fill the need.

In 1912 the Smiths placed an advertisement for experienced manufacturing workers. They chose Frank W. England, Paul B. Goddard, Oscar T. Hogg, and Carl G. Olson to help get Illinois Tool Works off the ground, and Harold and Walter Smith managed the new company. Solomon Smith continued to work at Northern Trust--he succeeded his father as president when Byron died two years later--and Bruce went to work in New York.

In 1915, the same year that the company was incorporated, Harold C. Smith became president of Illinois Tool Works, and Walter and Solomon Smith continued to serve on the board of directors. Harold built on the company's initial success in selling tools to manufacturers and soon expanded the company's product line into truck transmissions, pumps, compressors, and automobile steering assemblies. While investing heavily in modern plants and equipment, Smith insisted on the conservative financial approach that ITW became known for, maintaining cash reserves and eschewing debt. Under Smith, ITW also became known for producing high-quality products. Smith's strategy served the growing company well when World War I broke out; the war years boosted company profits handsomely.

Expansion into Fasteners

In 1923 ITW engineered a new product that brought it into a different industry niche. The Shakeproof fastener, the first twisted-tooth lock washer, was to lead ITW into the profitable area of industrial fasteners. Shakeproof became a separate operating division offering a full line of related items, including preassembled washers and screws and thread-cutting screws. Each item in the Shakeproof division's product line sold for an average of less than one cent apiece, but ITW took the leadership position in the industry and its sales volume produced strong profits.

Harold C. Smith died in 1936. He had built ITW into an industry leader in metal-cutting tools, manufacturing components, and industrial fasteners. Smith had been an industry leader as well, serving as director of both the Illinois Manufacturers Association and the National Association of Manufacturers. After Smith's death, his son, Harold Byron Smith, became president of ITW. The oldest of four boys, Harold B. Smith had joined the company in 1931. Harold B. Smith followed his father's successful, conservative management practices, but he introduced some innovations as well. Smith emphasized research and development, encouraging engineers to develop new products, even outside of ITW's traditional product areas. He also decentralized the company, setting up separate divisions to pursue specific markets. This philosophy, followed by Smith's successors, meant forming individual operating units that concentrate only on their own product niche.

Under Harold B. Smith, ITW became known as a problem solver. Its salesforce developed new products to answer customers' specific needs, even when customers had not requested a solution, a practice that led to increased sales.

World War II, like World War I, produced a boom for the company, which by this time manufactured components for almost every type of equipment needed for the war effort. Even the wartime labor shortage could not prevent ITW from increasing its cash reserves.

Continuing Growth

Smith put some of the company's wartime profit into research and development, leading directly to expansion in the 1950s. One new and profitable area was plastic and combination metal-plastic fasteners. The company already had extensive expertise in the fastener industry with its Shakeproof division. Successful plastics manufacture and marketing led to the formation of another new operating unit, Fastex, in 1955.

Another area of expansion after the war, based in part on ITW's experience with plastics, was into the production of electrical controls and instruments. ITW's Licon division was formed in 1959 to produce electric switches and electromechanical products. ITW became a leader in miniaturizing these components. Its solid-state switches and preassembled switch panels brought the company into the computer and defense industries in addition to increasing sales in its traditional industrial base.

It was clear by this time that Illinois Tool Works was outgrowing its name; it no longer manufactured just tools. Smith set up a separate Illinois Tools division during the 1950s to concentrate on the original cutting-tool business and the company's initials, ITW, became the more frequently used, although unofficial, name for the business as a whole.

ITW's special expertise in gears led to two other developments during the 1950s. The company set up the Illinois Tools Division Gear School in 1958 to train engineers, especially those of customer firms, in the intricacies of gearing. ITW's development of the Spiroid right-angle gear led Smith to found the Spiroid operating unit in 1959 to produce specialty gearing for defense and general industries.

Introduction of Plastic Six-Pack Holders

A new opportunity emerged from ITW research and development in the early 1960s. Company engineers had been looking for less bulky, lower-cost packaging than the traditional cardboard boxing used for six-packs of beverages. Metal holders cut both the fingers of the customers and, occasionally, the cans they were meant to hold. ITW's increasing familiarity with plastics led to the invention of a flexible plastic collar to hold the cans. This simple patented invention generated substantial savings for beverage makers, from 40 percent to 60 percent according to ITW estimates. It led to the formation of another new operating unit, Hi-Cone, in 1962. In the decades since, plastic drink packaging has virtually replaced cardboard packaging for six-packs. The six-pack holder became one of ITW's most important moneymakers, and earnings from the Hi-Cone division offset fluctuations in profits from the company's products that served heavy industry.

In 1970 Harold B. Smith stepped down from the chairmanship of ITW. By this time ITW was an internationally recognized name. The Smith family's emphasis on decentralized operation meant that many of the company's production facilities were near large overseas customers, often under the control of local subsidiaries in the country where they were located. ITW components supplied heavy industries, the food and beverage industries, and the packaging industries in West Germany, Belgium, Australia, Spain, Italy, France, Great Britain, and New Zealand. The company's performance, however, suffered from the inflation that plagued the economy of the 1970s.

With Harold B. Smith's retirement, the first non-Smith, Silas S. Cathcart, became the chairman of ITW. Smith's son, Harold B. Smith, Jr., served as president and chief operating officer from 1972 through 1981, and Smith family members continued to serve on the board of directors. Under this leadership, the 1970s saw some new developments despite the sluggish economy. Most notable was ITW's entry into the adhesives industry with the 1975 purchase of Devcon Corporation. Devcon was a leader in specialty chemicals and manufactured adhesives and sealants.

Acquisitions at Center Stage

When John D. Nichols took over as CEO in 1982, he was determined to keep ITW growing by investing more cash into the development of new product lines and in acquisitions, while cutting costs elsewhere to maintain profitability. He kept production costs low, for example, by developing what he termed "focus factories," where a single product was produced in a highly automated setting.

Nichols expanded ITW's industrial tools and systems businesses by purchasing Heartland Components, a maker of customized replacement industrial parts, in 1982; Southern Gage, a manufacturer of industrial gages, and N.A. Woodworth, a maker of tool-holding equipment, in 1984; and Magnaflux, a maker of nondestructive testing equipment and supplies, in 1985. Nichols formed a separate operating unit for automotive controls in 1983, and a division for producing equipment for offshore geophysical exploration, Linac, in 1984.

In 1986 Nichols made another significant acquisition when he purchased closely held Signode Industries, Inc., for $524 million. The Glenview, Illinois, manufacturer of plastic and steel strapping for bundling items, sketch film, and industrial tape fit in well with ITW's own plastics line. Nichols followed company tradition by breaking Signode down into smaller units, and within a year and a half over 20 new products had been developed as a result of the acquisition, which nearly doubled ITW's revenues. Also in 1986, Cathcart retired as chairman, with Nichols replacing him, while retaining the position of CEO.

Under Nichols, ITW acquired 27 companies in related product lines in the 1980s, whereas only three firms had been purchased before Nichols's tenure. These acquisitions meant that company debt reached higher levels than in the past, but these levels were not out of line with other industrial firms. More importantly, revenues surpassed the $2 billion mark for the first time in 1989 and earnings continued to increase steadily, reaching $182.4 million that year.

Acquisitions continued to fuel spectacular growth in the 1990s for ITW, growth that was only partially slowed by the recession of the early years of the decade. The largest of 15 acquisitions in 1990 was that of the $200 million revenue DeVilbiss spray painting equipment business of Eagle Industries Inc., which built on the prior year's purchase of Ransburg Corporation, also a maker of spray painting equipment. In 1993 ITW added the Miller Group Ltd., a maker of arc welding equipment which had $250 million in revenues. As usual, Miller's operations were soon broken apart, with seven separate units emerging.

The years 1995 and 1996 were transitional ones for ITW, as Nichols handpicked a successor and then stepped aside. W. James Farrell, a 30-year ITW veteran who had served as president, moved into the CEO position in September 1995, replacing the retiring Nichols as chairman in May 1996. During his 14 years as CEO, Nichols oversaw an amazing period of growth, from $450 million in revenues in 1981 to $4.18 billion in 1995 when earnings reached $387.6 million. Revenues were growing at a rate of about 20 percent per year, and profits were increasing even faster-40 percent in 1995 alone. Through Nichols's aggressive acquisition program and his commitment to a decentralized organizational structure, ITW boasted of 365 separate operating units by 1996. During his tenure, Nichols also increased the company's presence outside the United States such that by 1996 about 35 percent of revenues were derived overseas, primarily from European operations.

The Farrell-led ITW essentially picked up where Nichols left off. The company made 19 acquisitions in 1996, including Hobart Brothers Company, a maker of welding products, and the Australian-based Azon Limited, a manufacturer of strapping and other industrial products. The possibility that Farrell would be even more aggressive than Nichols was raised in late 1995 when ITW made its first hostile takeover bid in the company's history, a $134 million offer for fastener maker Elco Industries Inc., a venture that failed after ITW was outbid for Elco by Textron Inc.

One hallmark of the Farrell era of leadership was the greater prominence given to an ITW management philosophy known as 80/20. Managers of the numerous company units were encouraged to focus most of their efforts on the 20 percent of their customers who accounted for 80 percent of their business. ITW viewed this approach as a way to spark improvements in numerous areas, including product quality, productivity, market share, and customer satisfaction.

In the meantime, the acquisition pace picked up under Farrell in the late 1990s, as ITW completed 30 deals in 1997, 46 in 1998, and 31 in 1999. The vast majority of these were smaller purchases of companies with annual sales of less than $50 million. However, in November 1999 the company completed the biggest acquisition in its history, a $3.4 billion deal for Premark International, Inc. of Deerfield, Illinois. Premark, one-time parent of the Tupperware food-storage product business, produced commercial food equipment for restaurants, hotels, and hospitals under the Hobart, Vulcan, Traulsen, and Wittco brands and the Wilsonart line of decorative laminates for countertops, furniture, and flooring. These were the two main Premark product lines that ITW sought to add for the long haul, and they represented annual revenues of approximately $2.5 billion. Broken apart into more than two dozen smaller autonomous businesses, they also helped increase the number of ITW units to nearly 600 by the end of 2000. Premark was involved as well in the production of consumer products, including West Bend appliances, Precor fitness equipment, and Florida Tile ceramic tiles. These operations fell outside ITW's traditional industrial focus, and they were earmarked for divestiture in December 2001. Consequently, Precor and West Bend were sold in October 2002, and Florida Tile followed in November 2003.

A New Century

The economic downturn of the early 2000s interrupted Illinois Tool Works' consistent pattern of growth. Profits fell in both 2001 and 2002, while revenues dropped 2 percent in 2001 before rebounding slightly the following year. As the economy rebounded, ITW resumed its growth trajectory in 2003 when revenues surpassed the $10 billion mark for the first time, and net income surged past $1 billion, also a record. The pace of acquisitions slowed during this period because ITW management felt that business owners were placing excessively high price tags on their companies considering the state of the economy. After spending some $800 million to complete 45 acquisitions in 2000, ITW completed 29 deals for a total of $556 million in 2001 and then 21 deals for just $188 million and 28 deals for $204 million in 2002 and 2003, respectively.

In 2004 the profit figure of $1.34 billion and the revenue total of $11.73 billion both represented sharp jumps from the preceding year. This stellar year was the last with Farrell at the helm, as the executive stepped down from the CEO spot in August 2005. Succeeding him was 27-year company veteran David Speer, who had been an executive vice-president since 1995. Speer became chairman as well in August 2006 upon Farrell's retirement.

Under Speer's guidance, Illinois Tool Works remained on its acquisition-led growth track. During 2005 the company purchased 22 companies for a net total of more than $625 million. While most of these acquisitions continued to be of companies with annual sales of between $30 million and $50 million, two larger purchases were completed that year. In the spring ITW bought Permatex, Inc., a Hartford, Connecticut-based maker of sealants, adhesives, and other products for the automotive aftermarket and industrial markets with annual sales of $125 million. ITW paid about $240 million in the fall for Instron Corporation, a Norwood, Massachusetts, manufacturer of materials and structural testing machinery and software. In February 2006 ITW acquired Alpine Engineered Products, Inc., a manufacturer of metal connectors, design software, and related machinery for the design and assembly of trusses for the residential and commercial construction markets. Based in Pompano Beach, Florida, Alpine had 2005 revenues of $201 million.

The ongoing dealmaking brought the number of ITW business units to around 700 by early 2006. Moving forward, Illinois Tool Works planned to continue its expansion through acquisitions, joint ventures, and organic moves into new markets. Speer aimed to boost the share of overall revenues generated overseas from the 2005 level of 44 percent to 50 percent. The Asia-Pacific region was identified as the area with the greatest growth potential. While about 10 percent of revenues originated in that region in 2005, ITW envisioned boosting that figure to 25 percent by 2009.

Principal Subsidiaries

Acme Packaging Corporation; Alpine Engineered Products, Inc.; The DeVilbiss Company Limited (U.K.); Elga AB (Sweden); Foster Refrigerator (U.K.); Hobart Brothers Company; Hobart Corporation; Instron Corporation; ITW Bailly Comte S.A.S. (France); James Briggs (U.K.); Krafft, S.L. (Spain); Mertiex Technology (Suzhou) Co. Ltd. (China); Miller Electric Mfg. Co.; Novadan AS (Norway); Orgapack GmbH (Switzerland); Permatex, Inc.; Pryda (Malaysia) Sdn Bhd; Resopal G.m.b.H. (Germany); Rocol (U.K.); SPIT S.A.S. (France); Strapex GmbH (Switzerland); Tien Tai Electrode Co., Ltd. (Taiwan; 98.73%); Truswal Systems Corporation; Unipac Corporation (Canada); Wilsonart International, Inc.

Principal Operating Units

DeVilbiss; Fibre Glass-Evercoat; Ispra (Italy); ITW Angleboard; ITW Brands; ITW Buildex; ITW CIP; ITW Deltar; ITW Devcon; ITW Drawform; ITW Fastex; ITW Foils; ITW Gema; ITW Hi-Cone; ITW TekFast; ITW Ramset/Red Head; ITW Shakeproof Assembly Components; ITW Stretch Packaging Systems; ITW TACC; ITW Texwipe; Minigrip/Zip-Pak; Paslode; Signode Packaging Systems; Simco; Valeron Strength Films; Vulcan-Hart; Wynn's.

Principal Competitors

General Electric Company; Cooper Industries, Ltd.; Eaton Corporation; The Marmon Group, Inc.; Dover Corporation; Enodis plc.

Chronology

  • Key Dates
  • 1912 Byron Laflin Smith and sons form Illinois Tool Works to begin producing machine tools.
  • 1915 Company is incorporated.
  • 1923 Company enters the industrial fastener market.
  • 1936 Harold Byron Smith becomes president of ITW and later introduces the firm's trademark decentralized structure.
  • 1955 Fastex, a unit focused on plastic products, is formed.
  • 1962 ITW forms Hi-Cone, specializing in plastic drink packaging.
  • 1975 Company enters adhesives industry through purchase of Devcon Corporation.
  • 1986 Signode Industries, Inc., is acquired.
  • 1999 Acquisition of Premark International, Inc. brings to the fold Hobart, Vulcan, Traulsen, and Wittco commercial food equipment and Wilsonart decorative laminates.
  • 2003 Revenues surpass $10 billion, while profits surge past $1 billion.
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