8-KLeadership ChangesExhibits & Filings

ILLINOIS TOOL WORKS INC 8-K Report, Executive Changes (Nov 5, 2009)

Filed November 5, 2009For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) filed an 8-K on November 4, 2009, primarily to disclose an amendment to its 1993 Executive Contributory Retirement Income Plan (ECRIP). Effective January 1, 2010, the company will discontinue the practice of crediting executive deferrals and company matching contributions at 130% of the Moody's Corporate Bond Yield Average under all circumstances. Instead, all new deferrals and contributions after this date will be subject to a 100% of the Moody's Rate, regardless of the reason for termination (retirement, death, disability, or other termination). This change impacts how future deferred compensation for certain executives will grow. While deferrals made and contributions earned before January 1, 2010, will retain their original interest rate terms (130% of Moody's Rate upon retirement, death, or disability), new contributions will have a lower potential return. Investors should note this adjustment to the executive compensation and retirement benefit structure, which reduces the potential upside on future deferred compensation growth for a select group of employees.

Key Highlights

  • 1Amendment to the Executive Contributory Retirement Income Plan (ECRIP) approved by the Board of Directors.
  • 2Effective January 1, 2010, the ECRIP will change its interest crediting rate for new deferrals and company contributions.
  • 3Future deferrals and matching contributions will accrue interest at 100% of the Moody's Corporate Bond Yield Average in all termination scenarios.
  • 4Previously, a higher rate (130% of Moody's Rate) applied for retirement, death, or disability terminations.
  • 5This change reduces the potential growth rate on future deferred compensation for executives.
  • 6Deferrals and contributions made before January 1, 2010, will continue to be governed by the existing 130% Moody's Rate provision for retirement, death, or disability.
  • 7The filing includes the amended and restated ECRIP as an exhibit, effective January 1, 2010.

Frequently Asked Questions

The primary change is that effective January 1, 2010, all new executive deferrals and company matching contributions under the ECRIP will accrue interest at 100% of the Moody's Corporate Bond Yield Average, regardless of the circumstances of employment termination (retirement, death, disability, or other). Previously, a higher rate of 130% of the Moody's Rate applied if the executive met certain retirement, death, or disability criteria.

Executives who made deferrals or earned company contributions prior to January 1, 2010, will still be entitled to the original interest crediting terms. Specifically, these pre-2010 amounts will continue to earn interest at 130% of the Moody's Corporate Bond Yield Average if the executive reaches retirement eligibility or their employment ends due to death or disability.

The Moody's Corporate Bond Yield Average is a benchmark interest rate that reflects the average yield on corporate bonds as reported by Moody's Investors Service. It serves as the base rate for calculating interest on deferred compensation and company contributions under the ECRIP. The plan adjusts this base rate (either 100% or 130%) to determine the actual interest earned by the executives on their deferred compensation.

While this change affects the calculation of deferred compensation liabilities, which are reported on ITW's financial statements, the immediate impact on reported earnings is likely minimal. The main effect is on the future growth rate of these liabilities and the potential cost of the executive compensation program going forward. The actual cash outflow related to these deferred compensation plans will occur upon the specified triggers (retirement, termination, etc.) in future periods.