GLENVIEW, IL — Illinois Tool Works Inc. (ITW) reported that its diluted net income per share increased 17 percent in the 2005 fourth quarter. Diluted net income per share of $1.42 compared to $1.21 in the 2004 fourth quarter. In addition, the company’s revenues increased 8 percent, operating income grew 11 percent and net income rose 12 percent.

The strong increase in earnings occurred even as base revenues slowed to 3.6 percent growth in the fourth quarter, with nearly all of that increase coming from stronger end market demand in North America. In addition, a reduction in the company’s fourth quarter tax rate to 30 percent accounted for an incremental four cents of diluted earnings per share compared to the previous forecast.

For the 2005 fourth quarter, operating revenues were $3.294 billion compared to $3.052 billion for the year earlier period. Operating income increased to $595.2 million from $535.2 million in the prior year period. Net income was $400.6 million versus $358.1 million a year ago. The company’s fourth quarter operating margins of 18.1 percent were 60 basis points higher than the year earlier period.

For full-year 2005, diluted net income per share of $5.20 was 18 percent higher than diluted net income per share of $4.39 for the comparable period. Full-year diluted per share earnings also benefited 4 cents from the prior forecast based on a full-year tax rate reduction to 31.5 percent from 32 percent. In this same period, revenues grew 10 percent to $12.922 billion from $11.731 billion and operating income increased 10 percent to $2.259 billion from $2.057 billion. Base revenues increased 4.4 percent for the full year. Net income of $1.495 billion was 12 percent higher than the $1.339 billion for full-year 2004. Operating margins of 17.5 percent for full-year 2005 were at prior year levels even as margins improved for the second consecutive quarter. Operating margins declined in the first and second quarters of 2005 as a result of rapid rises in raw material costs and the timing of the company’s price increase programs.

The company’s free operating cash flow continued to be strong in the 2005 fourth quarter at $408.9 million. This free cash was utilized by the company to fund five acquisitions representing $292.3 million of annualized revenues during the quarter. For the full-year, the company completed 22 acquisitions which accounted for $584 million of annualized revenues. Based on a robust pipeline of potential deals, the company is forecasting $800 million to $1 billion of annualized acquisition revenues for full-year 2006.

“We’re very pleased with our strong financial performance in both the fourth quarter and full year, including our North American core business growth and overall quality of earnings,” said President and CEO David Speer. “We’re also encouraged by what we believe will be reasonable end market activity in 2006 and an improving acquisition environment.”

Looking ahead, the company believes that while its end markets will remain relatively stable in 2006, the contribution from Leasing and Investments will diminish substantially in the upcoming year. The cmpany is forecasting base revenues to grow in a range of 3.2 percent to 5.2 percent and operating income (excluding Leasing and Investments) to increase between 9.4 percent and 13.0 percent for full-year 2006. In addition, base revenues are expected to grow in a range of 2.7 percent to 4.7 percent for the first quarter. The cmpany also anticipates that non-operating investment income (the former Leasing and Investments segment) will be lower by $75 million to $85 million for the full- year. As a result, the cmpany is forecasting an earnings range of $5.60 to $5.78 for the full year, and an earnings range of $1.12 to $1.18 for the first quarter.

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