page 24 Management’s Discussion and Analysis 25 Forward-Looking Statements 33 Statement of Income 34 Statement of Income Reinvested in the Business 34 Statement of Comprehensive Income 34 Statement of Financial Position 35 Statement of Cash Flows 36 Report of Independent Public Accountants 37 Notes to Financial Statements 38 Quarterly and Common Stock Data 53 Eleven-Year Financial Summary 54 Financial Table of Contents
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page 24
Management’s Discussion and Analysis 25
Forward-Looking Statements 33
Statement of Income 34
Statement of Income Reinvested in the Business 34
Statement of Comprehensive Income 34
Statement of Financial Position 35
Statement of Cash Flows 36
Report of Independent Public Accountants 37
Notes to Financial Statements 38
Quarterly and Common Stock Data 53
Eleven-Year Financial Summary 54
Financial Table of Contents
page 25
MANAGEMENT’S DISCUSSION AND ANALYSIS
IntroductionIllinois Tool Works Inc. (the “Company” or “ITW”) is a worldwide manufacturer of highly engineered products and specialty systems.
The Company has approximately 600 operations in 43 countries which are aggregated and organized for internal reporting purposes
into the following five continuing segments: Engineered Products—North America; Engineered Products—International; Specialty
Systems—North America; Specialty Systems—International; and Leasing and Investments. These segments are described below.
In November 1999, a wholly owned subsidiary of ITW merged with Premark International, Inc. (“Premark”), a commercial man-
ufacturer of food equipment and laminate products. The merger was accounted for under the pooling-of-interests accounting
method. Accordingly, ITW’s historical financial statements for periods prior to the merger have been restated to include the results
of operations, financial position and cash flows of Premark, as though the companies had been combined during such periods.
In December 2001, the Company’s Board of Directors authorized the divestiture of the Consumer Products segment. These
businesses became part of ITW in 1999 with the Premark merger. The consolidated financial statements for all periods have been
restated to present these businesses as discontinued operations. See the Discontinued Operations section for further information.
Engineered Products—North AmericaBusinesses in this segment are located in North America and manufacture short lead-time plastic and metal components and fas-
teners, and specialty products such as polymers, fluid products and resealable packaging. In 2001, this segment primarily served
the construction (47%), automotive (29%) and general industrial (8%) markets.
Operating revenues declined 7% in 2001 versus 2000 mainly due to lower demand in the construction, automotive, electronics
and consumer durable end markets. The base business revenue decline of 10% was partially offset by revenue increases from acqui-
sitions of 3%. Operating income declined 22% due to lower revenues and higher nonrecurring costs in 2001. Margins declined
310 basis points in 2001 as a result of lower sales and higher nonrecurring costs.
Operating revenues increased 7% in 2000 versus 1999. The base business revenue growth was 4%, with the biggest contrib-
utors being the construction (including the Wilsonart laminate operation), automotive and industrial plastics businesses. Acquisi-
tions also contributed 3% to the 2000 revenue increase. Operating income increased 9% and margins improved 30 basis points,
mainly due to revenue increases and operating efficiencies at the base businesses, primarily the construction, automotive and
industrial plastics operations.
Engineered Products—InternationalBusinesses in this segment are located outside North America and manufacture short lead-time plastic and metal components and
fasteners, and specialty products such as polymers, fluid products and electronic component packaging. In 2001, this segment
primarily served the construction (36%), automotive (32%) and general industrial (16%) markets.
Operating revenues were flat in 2001 versus 2000, as revenue growth from acquisitions of 7% was offset by negative foreign cur-
rency translation of 6%. Base business revenues declined by 1% as higher sales for the construction and automotive businesses
were offset by lower revenues for the electronic component packaging and industrial plastics businesses. Operating income
increased 6% in 2001 primarily due to 2000 asset writedowns related to a laminate business in Europe, partially offset by a decline
in the electronic component packaging and industrial plastics businesses and the effect of currency translation, which reduced
operating income by 6%. Margins increased 60 basis points in 2001 mainly as a result of the 2000 asset writedowns.
In 2000, operating revenues increased 11% versus the prior year mainly due to acquisitions, which increased revenues 23%,
partially offset by reduced revenues of 13% due to currency translation. The base business revenue growth was 1% in 2000. Oper-
ating income increased 14% in 2000, primarily due to the revenue growth and cost reductions in the base businesses, partially
offset by the 2000 asset writedowns. Margins increased 30 basis points in 2000 due to cost reductions, partially offset by the
fourth quarter asset writedowns and the lower margins of acquired businesses. The changes in foreign currency rates in 2000 ver-
sus 1999 reduced operating income by 16%.
page 26
Specialty Systems—North AmericaBusinesses in this segment are located in North America and produce longer lead-time machinery and related consumables, and
specialty equipment for applications such as food service and industrial finishing. In 2001, this segment primarily served the food
retail and service (31%), general industrial (22%), construction (10%), and food and beverage (8%) markets.
In 2001, operating revenues grew 1% versus 2000 due primarily to acquisitions, which increased revenues by 11%. Base busi-
ness revenues decreased 9% as continued slow demand in most end markets negatively impacted the industrial packaging, food
equipment, welding and finishing businesses. Operating income declined 24% and margins fell 430 basis points in 2001 due to
revenue declines, higher nonrecurring costs and the impact of lower margins of acquired businesses.
In 2000, operating revenues increased 6% versus 1999 primarily due to acquisitions, which contributed 4% to the revenue
increase. Base business revenue grew 2% as a result of contributions from the food equipment, industrial packaging and welding
businesses. Operating income increased 4% in 2000 due to the higher revenues, partially offset by higher nonrecurring costs. Mar-
gins declined 20 basis points in 2000, as the improved productivity in the food equipment and welding operations was more than
offset by the lower margins of acquired companies and higher nonrecurring costs.
Specialty Systems—InternationalBusinesses in this segment are located outside North America and manufacture longer lead-time machinery and related consum-
ables, and specialty equipment for applications such as food service and industrial finishing. In 2001, this segment primarily served
the general industrial (27%), food retail and service (22%), and food and beverage (13%) markets.
The Company believes that because the swaps’ counter party is AAA-rated and significant collateral secures the annual cash flow,
its risk of not recovering that portion of its net investment has been significantly reduced. The Company believes that its share of
the disposition proceeds will be sufficient to recover the remainder of its net investment. However, there can be no assurances that
all of the net investment will be recovered.
In connection with the commercial mortgage and several other investment transactions, deferred investment income has been
recorded for the effect of the difference between the book bases of the assets acquired and their tax bases. This deferred invest-
ment income is being amortized to income on a straight-line basis over the lives of the related transactions. The deferred invest-
ment income of $186.5 million at December 31, 2001 will be recognized in income as follows:
In thousands
2002 $ 42,211
2003 42,211
2004 33,315
2005 33,315
2006 22,340
2007 11,188
2008 1,937
$ 186,517
Operating RevenuesTotal operating revenues decreased 2.3% in 2001 versus 2000 primarily as a result of a decline in sales volume in the Company’s
North American base businesses. Operating revenues increased 7.6% in 2000 versus 1999. Overall, the Company believes that
the majority of the changes in operating revenues is due to changes in sales volume rather than changes in sales prices.
Cost of RevenuesCost of revenues as a percent of revenues increased to 66.6% in 2001 from 64.3% in 2000 due to decreased sales volume in the
North American base businesses and lower margins at acquired businesses. Cost of revenues as a percent of revenues decreased
in 2000 from 64.4% in 1999.
Selling, Administrative and R&D ExpensesSelling, administrative and research and development expenses as a percent of revenues increased to 18.2% in 2001 versus 17.9%
in 2000 as a result of lower sales and higher nonrecurring costs. Selling, administrative and research and development expenses
decreased in 2000 from 18.1% in 1999 because of increased revenues and reduced administrative expenses.
Premark Merger-Related CostsIn the fourth quarter of 1999, the Company incurred pretax nonrecurring transaction and compensation costs related to the Premark
merger of $81.0 million (after-tax of $70.8 million or $.23 per diluted share).
Amortization of Goodwill and Other IntangiblesAmortization of goodwill and other intangibles decreased to $104.6 million in 2001 versus $118.9 in 2000. The decline is the result
of lower asset writedowns in 2001 versus 2000, partially offset by higher amortization in 2001 related to more recent acquisitions.
Amortization of goodwill and other intangibles increased in 2000 from $71.5 million in 1999 due to asset writedowns of $30.3
million at certain Premark businesses and increased amortization expense in 2000 related to newer acquisitions.
In 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (“SFAS 142”). The Company is required to adopt SFAS 142 in 2002. Under SFAS 142, the Company
will no longer be required to amortize goodwill and intangible assets with indefinite lives. The estimated pro forma effect of not
amortizing goodwill would have increased diluted income per share from continuing operations by $.23, $.20 and $.16 in 2001,
2000 and 1999, respectively. SFAS 142 also requires that the Company test goodwill and intangibles with indefinite lives at least
annually for impairment, based on the fair value of the related reporting unit. The Company is currently in the process of deter-
mining the 2002 impairment charge as a result of adopting the new standard.
page 29
Interest ExpenseInterest expense decreased to $68.1 million in 2001 versus $70.0 million in 2000 primarily due to the repayment of notes
payable of $225.0 million in 2000. Interest expense increased in 2000 from $64.6 million in 1999 primarily due to higher com-
mercial paper borrowings in 2000 and a full year of interest expense on the 5.75% notes payable, partially offset by lower interest
expense on the notes which were repaid in 2000. Interest costs attributed to the Leasing and Investments segment of $51.7 million in
2001, $58.7 million in 2000 and $57.9 million in 1999 have been classified in the segment’s cost of revenues.
Other Income (Expense)Other income (expense) was an expense of $7.2 million in 2001 versus an expense of $11.5 million in 2000. The decline is pri-
marily due to lower minority interest expense on less-than-100%-owned subsidiaries and lower losses on currency translation, par-
tially offset by higher losses on the sale of plant and equipment in 2001. Other income (expense) was an expense of $11.5 mil-
lion in 2000 versus income of $15.5 million in 1999, primarily due to losses on the sale of plant and equipment and on the sale
of operations in 2000 versus gains in 1999, and higher minority interest expense on less-than-100%-owned subsidiaries in 2000.
Income TaxesThe effective tax rate was 34.8% in 2001, 35.2% in 2000, and 37.7% in 1999. See the Income Taxes note for a reconciliation
of the U.S. federal statutory rate to the effective tax rate. The Company has not recorded additional valuation allowances on the
net deferred income tax assets of $636.7 million at December 31, 2001 and $649.9 million at December 31, 2000 as it expects
to continue to generate significant taxable income in most tax jurisdictions in future years.
Income from Continuing OperationsIncome from continuing operations in 2001 of $802.4 million ($2.62 per diluted share) was 17.2% lower than 2000 income of
$969.5 million ($3.18 per diluted share). Income from continuing operations in 2000 was 16.0% higher than 1999 income of
$835.9 million ($2.74 per diluted share).
The Company is anticipating improved economic trends in 2002, with full year income from continuing operations per diluted
share expected to be higher than 2001.
Foreign CurrencyThe strengthening of the U.S. dollar against foreign currencies resulted in decreased operating revenues of $184 million in 2001,
$289 million in 2000, and $59 million in 1999, and decreased income from continuing operations by approximately 4 cents per
diluted share in 2001, 7 cents per diluted share in 2000, and 1 cent per diluted share in 1999.
Discontinued OperationsIn December 2001, the Company’s Board of Directors authorized the divestiture of the Consumer Products segment. Businesses in
this segment are located primarily in North America and manufacture household products that are used by consumers, including
West Bend small electric appliances, Precor specialty exercise equipment and Florida Tile ceramic tile. The Company intends to
dispose of these businesses through sale transactions in 2002, and does not expect to incur a net loss on the disposal of the seg-
ment. In 2001, these businesses primarily served the consumer durables (68%) and construction (31%) markets.
Dollars in thousands 2001 2000 1999
Operating revenues $405,146 $ 471,930 $ 492,731
Operating income (loss) 13,767 (14,016) 15,326
Margin % 3.4% (3.0%) 3.1%
In 2001, operating revenues decreased 14% primarily due to lower sales volume for the ceramic tile and small appliance busi-
nesses. Operating income increased significantly in 2001 as a result of nonrecurring charges in 2000. Operating margins increased
due to the effect of 2000 nonrecurring costs and improved operating performance for the ceramic tile operation.
Operating revenues declined 4% in 2000, as increased sales of fitness equipment were more than offset by lower sales in the
small appliance and ceramic tile businesses. Operating income and margins were significantly lower in 2000 compared with 1999
due to lower sales and 2000 nonrecurring costs.
Net income (loss) from discontinued operations was income of $3.2 million ($.01 per diluted share) in 2001, a loss of
$11.5 million ($.04 per diluted share) in 2000 and income of $5.2 million ($.02 per diluted share) in 1999.
page 30
Liquidity and Capital ResourcesThe Company’s primary source of liquidity is free operating cash flow. Management continues to believe that such internally gen-
erated cash flow will be adequate to service existing debt and to continue to pay dividends that meet its dividend payout objective
of 25-30% of the last three years’ average net income. In addition, free operating cash flow is expected to be adequate to finance
internal growth, small-to-medium sized acquisitions and additional investments.
Summarized cash flow information for the three years ended December 31, 2001 was as follows:
In thousands 2001 2000 1999
Net cash provided by operating activities $ 1,351,026 $ 1,115,571 $ 1,018,455
Net cash used for investing activities, excluding acquisitions (105,775) (205,689) (104,553)
2007 and thereafter (500,000) (150,000) 97,924 25,242 — — (94,044)
Total (500,000) (150,000) 280,643 269,465 (169,500) (213,597) (217,440)
Estimated fair value (500,391) (157,031) 259,422 268,955 (183,314) (231,851) (238,065)
Carrying value (500,000) (150,000) 174,285 268,955 (169,500) (213,597) (217,440)
As of December 31, 2000:Total estimated cash inflow (outflow) $ (500,000) $ (150,000) $ 308,629 $ 320,502 $ (185,500) $ (244,884) $ (217,440)
Estimated fair value (479,219) (147,188) 289,218 316,620 (192,747) (252,873) (223,823)
Carrying value (500,000) (150,000) 199,578 316,620 (185,500) (244,884) (217,440)
Foreign Currency Risk
The Company operates in the United States and 42 other countries. In general, the Company’s products are primarily manufactured and
sold in the same country. The initial funding for the foreign manufacturing operations was provided primarily through the permanent
investment of equity capital from the U.S. parent company. Therefore, the Company and its subsidiaries do not have significant assets
or liabilities denominated in currencies other than their functional currencies. As such, the Company does not have any significant
derivatives or other financial instruments which are subject to foreign currency risk at December 31, 2001 or 2000.
page 33
Critical Accounting Policies The Company has three accounting policies which it believes are important to the Company’s financial condition and results of oper-
ations, and which require the Company to make estimates about matters that are inherently uncertain.
These critical accounting policies are as follows:
Realizability of Inventories—Inventories are stated at the lower of cost or market. Each of the Company’s 600 operating units per-
form an analysis of the historical sales usage of the individual inventory items on hand and a reserve is recorded to adjust inven-
tory cost to market value based on the following usage criteria:
Usage Classification Criteria Reserve %
Active Quantity on hand is less than prior 6 months’ usage 0%
Slow-moving Some usage in last 12 months, but quantity on hand exceeds 50%
prior 6 months’ usage
Obsolete No usage in the last 12 months 90%
In addition, for the majority of the U.S. operations, the Company has elected to use the last-in, first-out (“LIFO”) method of inven-
tory costing. Generally, this method results in a lower inventory value than the first-in, first-out (“FIFO”) method due to the effect
of inflation.
Collectibility of Accounts Receivable—The Company estimates the allowance for uncollectible accounts based on the greater of a
specific reserve for past due accounts or a reserve calculated based on the historical write-off percentage over the last two years.
In addition, the allowance for uncollectible accounts includes reserves for customer credits and cash discounts, which are also esti-
mated based on past experience.
Depreciation of Plant and Equipment—The Company’s U.S. businesses compute depreciation on an accelerated basis, as follows:
Buildings and improvements 150% declining balance
Machinery and equipment 200% declining balance
The majority of the international businesses compute depreciation on a straight-line basis to conform to their local statutory
accounting rules.
The Company believes that the above critical policies have resulted in past actual results approximating the estimated recorded
amounts in those areas.
FORWARD-LOOKING STATEMENTSThis annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995
including, without limitation, statements regarding the adequacy of internally generated funds, the recoverability of the Company’s
investment in mortgage-related assets, the meeting of dividend payout objectives, the profitable divestiture of the Consumer Products
segment in 2002, Premark’s target operating margins, the availability of additional financing and the Company’s 2002 forecasts.
These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially
from those anticipated, including, without limitation, the risks described herein. Important factors that may influence future results
include (1) a further downturn in the construction, automotive, general industrial, food retail and service, or real estate markets,
(2) further deterioration in global and domestic business and economic conditions, particularly in North America, Europe and
Australia, (3) an interruption in, or reduction in, introducing new products into the Company’s product line, (4) an unfavorable envi-
ronment for making acquisitions or dispositions, domestic and international, including adverse accounting or regulatory require-
ments and market values of candidates, and (5) uncertainties arising from the aftermath of the September 11th tragedy.
page 34
STATEMENT OF INCOMEIllinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31
In thousands except for per share amounts 2001 2000 1999
The Notes to Financial Statements are an integral part of this statement.
page 36
STATEMENT OF CASH FLOWSIllinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31
In thousands 2001 2000 1999
Cash Provided by (Used for) Operating Activities:Net income $ 805,659 $ 957,980 $ 841,112Adjustments to reconcile net income to cash provided by operating activities:
(Income) loss from discontinued operations (3,210) 11,471 (5,217)Depreciation and amortization 386,308 391,565 321,659Change in deferred income taxes 38,612 (16,238) 100,770Provision for uncollectible accounts 21,862 10,198 17,362(Gain) loss on sale of plant and equipment 11,106 7,479 (711)Income from investments (139,842) (151,692) (153,593)Non-cash interest on nonrecourse notes payable 42,885 44,871 46,398(Gain) loss on sale of operations and affiliates 4,389 6,014 (828)Other non-cash items, net (7,479) (7,704) (9,678)
Cash provided by operating activities 1,160,290 1,253,944 1,157,274Change in assets and liabilities:
(Increase) decrease in—Trade receivables 156,794 47,622 (107,292)Inventories 158,502 (13,493) 8,638Prepaid expenses and other assets (18,757) (50,975) (35,675)Net assets of discontinued operations 36,054 31,410 22,853
Increase (decrease) in—Accounts payable (105,758) (69,522) 2,683Accrued expenses and other liabilities (62,401) (94,455) 650Income taxes payable 26,288 11,209 (29,157)
Other, net 14 (169) (1,519)Net cash provided by operating activities 1,351,026 1,115,571 1,018,455
Cash Provided by (Used for) Investing Activities:Acquisition of businesses (excluding cash and
equivalents) and additional interest in affiliates (556,199) (798,838) (805,664)Additions to plant and equipment (256,562) (305,954) (317,069)Purchase of investments (101,329) (14,651) (38,863)Proceeds from investments 210,669 84,102 81,064Proceeds from sale of plant and equipment 20,000 28,595 25,653Proceeds from sale of operations and affiliates 14,015 7,758 8,679Sales (purchases) of short-term investments 3,844 (7,409) 132,986Other, net 3,588 1,870 2,997
Net cash used for investing activities (661,974) (1,004,527) (910,217)Cash Provided by (Used for) Financing Activities:
Cash dividends paid (249,141) (223,009) (183,587)Issuance of common stock 54,699 25,410 21,887Net proceeds (repayments) of short-term debt (351,743) 302,076 (214,465)Proceeds from long-term debt 4,122 1,125 499,681Repayments of long-term debt (16,035) (264,929) (39,381)Repurchase of treasury stock — — (44,995)Other, net 1,330 (493) (15,567)
Net cash provided by (used for) financing activities (556,768) (159,820) 23,573Effect of Exchange Rate Changes on Cash and Equivalents (1,355) (32,882) (8,384)Cash and Equivalents:
Increase (decrease) during the year 130,929 (81,658) 123,427Beginning of year 151,295 232,953 109,526End of year $ 282,224 $ 151,295 $ 232,953
Cash Paid During the Year for Interest $ 79,541 $ 92,062 $ 69,977Cash Paid During the Year for Income Taxes $ 338,864 $ 507,783 $ 414,200Liabilities Assumed from Acquisitions $ 96,963 $ 282,891 $ 278,711
See the Investments note for information regarding noncash transactions. The Notes to Financial Statements are an integral part of this statement.
page 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Illinois Tool Works Inc.:
We have audited the accompanying statements of financial position of Illinois Tool Works Inc. (a Delaware corporation) and Sub-
sidiaries as of December 31, 2001 and 2000, and the related statements of income, income reinvested in the business, cash flows
and comprehensive income for each of the three years in the period ended December 31, 2001. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Premark International, Inc., as of and for the year ended December 31,
1999. Such statements are included in the consolidated financial statements of Illinois Tool Works Inc. and Subsidiaries and rep-
resent 27% of consolidated revenues from continuing operations for the year ended December 31, 1999. The financial statements
of Premark International, Inc. prior to restatement for discontinued operations were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to amounts included for Premark International, Inc., for 1999 is based solely
upon the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors for 1999
provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors for 1999, the financial statements referred to above pres-
ent fairly, in all material respects, the financial position of Illinois Tool Works Inc. and Subsidiaries as of December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United States.
Chicago, Illinois
January 28, 2002
page 38
NOTES TO FINANCIAL STATEMENTS
The Notes to Financial Statements furnish additional information on items in the financial statements. The notes have been arranged
in the same order as the related items appear in the statements.
Illinois Tool Works Inc. (the “Company” or “ITW”) is a worldwide manufacturer of highly engineered products and specialty sys-
tems. The Company primarily serves the construction, automotive, food retail and service, and general industrial markets.
Significant accounting principles and policies of the Company are highlighted in italics. Certain reclassifications of prior years’
data have been made to conform to current year reporting. All prior year amounts and share data in the financial statements and
notes to financial statements have been restated to reflect the anticipated divestiture of the Consumer Products segment (see Dis-
continued Operations note below).
The preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to
financial statements. Actual results could differ from those estimates. The most significant estimates included in the preparation
of the financial statements are related to investments, income taxes, accounts receivable, inventories, pensions, postretirement ben-
efits, product liability and environmental matters.
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, including those
involving environmental, tax, product liability and general liability claims. The Company accrues for such liabilities when it is prob-
able that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to
date, the Company’s estimates of the outcomes of these matters, its experience in contesting, litigating and settling other similar
matters, and any related insurance coverage. The Company does not currently anticipate the amount of any ultimate liability with
respect to these matters will materially affect the Company’s financial position or results of operations.
Consolidation and Translation—The financial statements include the Company and its majority-owned subsidiaries. All significant
intercompany transactions are eliminated from the financial statements. Substantially all of the Company’s foreign subsidiaries have
November 30 fiscal year-ends to facilitate inclusion of their financial statements in the December 31 financial statements.
Foreign subsidiaries’ assets and liabilities are translated to U.S. dollars at end-of-period exchange rates. Revenues and expenses
are translated at average rates for the period. Translation adjustments are not included in income but are reported as a separate
component of stockholders’ equity.
Premark Merger—In November 1999, a wholly owned subsidiary of ITW merged with Premark International, Inc. (“Premark”), a
commercial manufacturer of food equipment and laminate products. Shareholders of Premark received .8081 shares of ITW com-
mon stock in exchange for each share of Premark common stock outstanding. A total of 49,781,665 of ITW common shares were
issued to the former Premark shareholders in connection with the merger.
The merger was accounted for under the pooling-of-interests accounting method and accordingly, ITW’s historical financial state-
ments for periods prior to the merger have been restated to include the results of operations, financial position and cash flows of
Premark, as though the companies had been combined during such periods.
In the fourth quarter of 1999, the Company incurred pretax nonrecurring transaction and compensation costs related to the
Premark merger of $81,020,000 (after-tax of $70,792,000 or $.23 per diluted share).
Discontinued Operations—In December 2001, the Company’s Board of Directors authorized the divestiture of the Consumer Products
segment. The segment is comprised of the following businesses: Precor specialty exercise equipment, West Bend appliances and pre-
mium cookware, and Florida Tile ceramic tile. The consolidated financial statements for all periods have been restated to present
these businesses as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. The Company intends
to dispose of these businesses through sale transactions in 2002, and does not expect to incur a loss on their disposal.
Results of the discontinued operations for the years ended December 31, 2001, 2000 and 1999 were as follows:
In thousands 2001 2000 1999
Operating revenues $ 405,146 $ 471,930 $ 492,731
Operating income $ 13,767 $ (14,016) $ 15,326
Income (loss) before income taxes $ 8,710 $ (17,822) $ 11,772
Income taxes 5,500 (6,351) 6,555
Net income (loss) from discontinued operations $ 3,210 $ (11,471) $ 5,217
The Company has allocated general corporate interest expense to discontinued operations based on proportional net assets excluding
debt. Interest expense allocated to discontinued operations was $1,876,000 in 2001, $2,382,000 in 2000 and $2,945,000 in 1999.
page 39
The net assets of the discontinued operations as of December 31, 2001 and 2000 were as follows:
In thousands 2001 2000
Accounts receivable $ 64,897 $ 71,243
Inventory 71,481 73,651
Accounts payable (14,258) (16,981)
Accrued liabilities (40,686) (43,438)
Other, net 18,747 17,565
Net current assets of discontinued operations $ 100,181 $ 102,040
Net plant and equipment $ 79,730 $ 92,641
Net goodwill and intangibles 68,200 70,634
Other, net (38,201) (22,561)
Net noncurrent assets of discontinued operations $ 109,729 $ 140,714
Acquisitions—Summarized information related to acquisitions during 2001, 2000 and 1999 was as follows:
In thousands except number of acquisitions 2001 2000 1999
Number of acquisitions 29 45 31
Net cash paid $ 556,199 $ 798,838 $ 805,664
Goodwill and other intangibles recorded $ 412,180 $ 635,022 $ 501,766
The acquisitions in these years, individually and in the aggregate, did not materially affect the Company’s results of operations or
financial position.
Operating Revenues are recognized at the time of product shipment. No single customer accounted for more than 10% of consoli-
dated revenues in 2001, 2000 or 1999. Export sales from U.S. operations to third parties were less than 10% of total operating
revenues during those years.
Research and Development Expenses are recorded as expense in the year incurred. These costs were $102,288,000 in 2001,
$106,118,000 in 2000 and $104,882,000 in 1999.
Rental Expense was $92,300,000 in 2001, $85,336,000 in 2000 and $82,601,000 in 1999. Future minimum lease payments
for the years ended December 31 are as follows:
In thousands
2002 $ 75,542
2003 59,010
2004 42,667
2005 28,004
2006 18,897
2007 and future years 33,486
$ 257,606
Advertising Expenses are recorded as expense in the year incurred. These costs were approximately $65,875,000 in 2001,
$75,799,000 in 2000 and $84,364,000 in 1999.
Other Income (Expense) consisted of the following:
In thousands 2001 2000 1999
Interest income $ 16,176 $ 15,783 $ 17,374
Gain (loss) on sale of operations and affiliates (4,389) (6,014) 828
Gain (loss) on sale of plant and equipment (11,106) (7,479) 711
Loss on foreign currency translation (5,282) (8,065) (5,258)
Other, net (2,602) (5,681) 1,812
$ (7,203) $ (11,456) $ 15,467
page 40
Income Taxes—The Company utilizes the liability method of accounting for income taxes. Deferred income taxes are determined
based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the pro-
visions of the enacted tax laws. The components of the provision for income taxes on continuing operations were as shown below:
In thousands 2001 2000 1999
U.S. federal income taxes:
Current $ 245,733 $ 359,108 $ 311,752
Deferred 64,460 30,446 47,684
310,193 389,554 359,436
Foreign income taxes:
Current 115,821 122,241 77,283
Deferred (17,103) (20,460) 11,557
98,718 101,781 88,840
State income taxes:
Current 10,987 26,468 49,163
Deferred 8,502 8,748 7,606
19,489 35,216 56,769
$ 428,400 $ 526,551 $ 505,045
Income from continuing operations before income taxes for domestic and foreign operations was as follows:
In thousands 2001 2000 1999
Domestic $ 922,723 $ 1,243,474 $ 983,224
Foreign 308,126 252,528 357,716
$ 1,230,849 $ 1,496,002 $ 1,340,940
The reconciliation between the U.S. federal statutory tax rate and the effective tax rate was as follows:
2001 2000 1999
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of U.S. federal tax benefit 1.3 2.0 2.8
Nondeductible goodwill amortization 1.5 1.2 1.1
Differences between U.S. federal statutory and foreign tax rates (.6) .4 —
Other, net (2.4) (3.4) (1.2)
Effective tax rate 34.8% 35.2% 37.7%
Deferred U.S. federal income taxes and foreign withholding taxes have not been provided on undistributed earnings of international
subsidiaries of $1,470,000,000 as of December 31, 2001, as the earnings are considered permanently invested. Upon distribu-
tion of these earnings to the U.S. in the form of dividends or otherwise, the Company may be subject to U.S. income taxes and foreign
withholding taxes. The actual U.S. tax cost would depend on income tax laws and circumstances at the time of distribution. Deter-
mination of the related tax liability is not practicable because of the complexities associated with the hypothetical calculation.
The components of deferred income tax assets and liabilities at December 31, 2001 and 2000 were as follows:
Canceled or expired (81,768) 47.09 (163,466) 34.81 (96,141) 42.83
Under option at end of year 13,469,604 49.26 13,324,203 42.01 11,950,643 34.41
Exercisable at year-end 7,609,614 8,228,561 9,100,013
Available for grant at year-end 8,462,906 11,079,149 14,114,802
Weighted average fair value of
options granted during the year $ 21.18 $ 19.03 $ 20.69
The following table summarizes information on stock options outstanding as of December 31, 2001:
Options Outstanding Options Exercisable
Number Weighted Average NumberRange of Outstanding Remaining Weighted Average Exercisable Weighted AverageExercise Prices 2001 Contractual Life Exercise Price 2001 Exercise Price
net of tax 357 624 (1,682) (5,997) 1,174 1,311 3,361 (7,409)
Net income 182,758 219,129 232,776 273,272 199,055 264,085 191,070 201,494
Income per share from
continuing operations:
Basic .60 .73 .77 .93 .65 .87 .62 .69
Diluted .60 .72 .77 .92 .65 .86 .61 .69
Net income per share:
Basic .60 .73 .77 .91 .65 .87 .63 .67
Diluted .60 .72 .76 .90 .65 .87 .62 .66
Prior quarterly periods have been restated to reflect the Consumer Products segment as a discontinued operation.
Common Stock Price and Dividend Data—The common stock of Illinois Tool Works Inc. is listed on the New York Stock Exchange and
the Chicago Stock Exchange. Quarterly market price and dividend data for 2001 and 2000 were as shown below:
Market Price Per Share DividendsDeclared
High Low Per Share
2001Fourth quarter $ 69.40 $ 52.75 $ .22
Third quarter 66.85 49.15 .22
Second quarter 71.99 54.50 .20
First quarter 67.67 54.62 .20
2000Fourth quarter $ 61.75 $ 49.50 $ .20
Third quarter 59.94 51.00 .20
Second quarter 65.38 54.19 .18
First quarter 69.00 51.06 .18
The approximate number of holders of record of common stock as of February 1, 2002, was 15,330. This number does not include
beneficial owners of the Company’s securities held in the name of nominees.
91 92 93 94 95 96 97 98 99 00 01
0.2
0.4
0.6
$0.8
Dividends Declared Per Share(in dollars)
91 92 93 94 95 96 97 98 99 00 01
20
40
60
$80
Market Price at Year-End(in dollars)
page 54
91 92 93 94 95 96 97 98 99 00 01
5
10
15
20%
Operating Income Margin(in percent)
91 92 93 94 95 96 97 98 99 00 01
5
10
15
20%
Return on Average Stockholders’ Equity(in percent)
91 92 93 94 95 96 97 98 99 00 01
1
2
3
$4
Income from Continuing OperationsPer Diluted Share (in dollars)
ELEVEN-YEAR FINANCIAL SUMMARY(a)
Dollars and shares in thousands except per share amounts 2001 2000 1999
Income:Operating revenues $ 9,292,791 9,511,647 8,840,454 Operating income $ 1,306,103 1,577,453 1,390,038 Income from continuing operations before income taxes $ 1,230,849 1,496,002 1,340,940 Income taxes $ 428,400 526,551 505,045 Income from continuing operations $ 802,449 969,451 835,895 Income (loss) from discontinued operations (net of tax) $ 3,210 (11,471) 5,217 Cumulative effect of changes in accounting principles (net of tax) $ — — — Net income $ 805,659 957,980 841,112 Net income per common share—assuming dilution(b):
Income from continuing operations $ 2.62 3.18 2.74 Income (loss) from discontinued operations $ 0.01 (0.04) 0.02 Cumulative effect of changes in accounting principle $ — — — Net income $ 2.63 3.15 2.76
Financial Position:Net working capital $ 1,645,086 1,511,451 1,227,570 Net plant and equipment $ 1,633,690 1,629,883 1,529,455 Total assets $ 9,822,349 9,514,847 8,978,329 Long-term debt $ 1,267,141 1,549,038 1,360,746 Total debt $ 1,580,588 1,974,827 1,914,401 Total invested capital $ 6,549,426 6,415,719 5,584,900Stockholders’ equity $ 6,040,738 5,400,987 4,815,423
Per share—paid $ 0.82 0.74 0.61—declared $ 0.84 0.76 0.65
Plant and equipment additions $ 256,562 305,954 317,069 Depreciation $ 281,723 272,660 250,119 Amortization of goodwill and other intangible assets $ 104,585 118,905 71,540
Financial Ratios:Operating income margin % 14.1 16.6 15.7Return on operating revenues % 8.6 10.2 9.5Return on average stockholders’ equity % 14.0 19.0 18.5Return on average invested capital % 13.1 17.0 16.7Book value per share $ 19.81 17.86 16.02Total debt to total capitalization % 20.7 26.8 28.4Total debt to total capitalization (excluding Leasing and Investments segment) % 11.9 18.6 17.8
Other Data:Market price per share at year-end $ 67.72 59.56 67.56Shares outstanding at December 31 304,926 302,449 300,569 Weighted average shares outstanding 304,112 301,573 300,158 Research and development expenses $ 102,288 106,118 104,882 Employees at December 31 52,000 55,300 52,800
(a) Restated to reflect the Consumer Products segment as a discontinued operation. (b) Includes Premark merger-related costs of $.23 in 1999.
W. James FarrellChairman and Chief Executive Officer
36 Years of Service
Harold B. SmithChairman of the Executive Committee
47 Years of Service
Frank S. PtakVice Chairman
26 Years of Service
James M. RinglerVice Chairman
12 Years of Service
Russell M. FlaumExecutive Vice President
26 Years of Service
David T. FloodExecutive Vice President
23 Years of Service
Philip M. Gresh, Jr.Executive Vice President
12 Years of Service
Thomas J. HansenExecutive Vice President
22 Years of Service
David B. SpeerExecutive Vice President
24 Years of Service
Hugh J. ZentmyerExecutive Vice President
34 Years of Service
Stewart S. HudnutSenior Vice President, General Counsel and Secretary
10 Years of Service
John KarpanSenior Vice President, Human Resources
12 Years of Service
Jon C. KinneySenior Vice President and Chief Financial Officer
29 Years of Service
Allan C. SutherlandSenior Vice President, Leasing and Investments
9 Years of Service
Directors
W. James FarrellChairman and Chief Executive Officer
Illinois Tool Works Inc.
Director since 1995
Harold B. SmithChairman of the Executive Committee
Illinois Tool Works Inc.
Director since 1968
William F. Aldinger IIIChairman and Chief Executive Officer
Household International, Inc.
(financial services)
Director since 1998
Michael J. BirckChairman
Tellabs, Inc. (telecommunications)
Director since 1996
Marvin D. BrailsfordVice President
Kaiser-Hill Company LLC
(construction and environmental services)
Director since 1996
James R. CantalupoPresident and Vice Chairman, Emeritus
McDonald’s Corporation
(restaurant chain)
Director since 2001
Susan CrownVice President
Henry Crown and Company
(diversified investments)
Director since 1994
Don H. Davis, Jr.Chairman and Chief Executive Officer
Rockwell International Corporation
(electronic controls and communications)
Director since 2000
Robert C. McCormackPartner
Trident Capital L.P. (venture capital)
Director since 1993, previously 1978–1987
Phillip B. RooneyExecutive Vice President
Service Master Company
(a network of quality service companies)
Director since 1990
Edward Byron SmithHonorary Director, Director 1938–1993
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htsIllinois Tool Works Inc. (NYSE: ITW) designs and produces an array of highly engineered fasteners and components, equipment and
consumable systems, and specialty products and equipment for customers around the world. A leading diversified manufacturingcompany with 90 years of history, ITW’s 600 decentralized business units in 43 countries employ approximately 52,000 men andwomen who are focused on creating value-added products and innovative customer solutions.
Corporate Information
Transfer Agent and RegistrarComputershare Investor Services, L.L.C.
2 North LaSalle Street
Chicago, IL 60602
888.829.7424
AuditorsArthur Andersen LLP
33 West Monroe Street
Chicago, IL 60603
Common StockCommon stock is listed on the New York Stock Exchange
and Chicago Stock Exchange. Symbol—ITW
Annual MeetingFriday, May 10, 2002, 3:00 p.m.
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
Stock and Dividend ActionEffective with the October 19, 2001 payment, the quar-
terly cash dividend on ITW common stock was increased
10 percent to 22 cents a share. This represents an
increase of 8 cents per share annually. ITW’s annual divi-
dend payment has increased 39 consecutive years, except
during a period of government controls in 1971.
Dividend Reinvestment PlanThe ITW Common Stock Dividend Reinvestment Plan
enables registered shareholders to reinvest the ITW divi-
dends they receive in additional shares of common stock
of the Company at no additional cost. Participation in the
plan is voluntary, and shareholders may join or withdraw at
any time. The plan also allows for additional voluntary
cash investments in any amount from $100 to $10,000
per month. For a brochure and full details of the program,