10-KPeriod: FY2005

ILLINOIS TOOL WORKS INC Annual Report, Year Ended Dec 31, 2005

Filed February 24, 2006For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) operates as a diversified global manufacturer of highly engineered products and specialty systems across five segments: Engineered Products (North America and International) and Specialty Systems (North America and International), along with a Leasing and Investments segment. The company's core strategy revolves around its "80/20 Business Process," aimed at simplifying operations, focusing on key value drivers, and improving financial performance. In 2005, ITW saw strong performance in its continuing manufacturing segments, particularly in construction and automotive markets. The company's global reach is substantial, with operations in 48 countries, and international business contributing approximately 44% of its operating revenues. ITW maintains a robust intellectual property portfolio with numerous patents and trademarks, which it believes are crucial to its market leadership, alongside its engineering and manufacturing capabilities.

Key Highlights

  • 1ITW operates a diversified business model with five segments: Engineered Products (North America and International) and Specialty Systems (North America and International), and Leasing and Investments. The company is organized into approximately 700 operations across 48 countries.
  • 2The core business strategy is the "80/20 Business Process," which focuses on simplifying operations, prioritizing key activities, and improving efficiency and profitability.
  • 3The company's primary end markets are Construction (45% of North America Engineered Products revenue, 39% of International Engineered Products revenue) and Automotive (28% of North America Engineered Products revenue, 28% of International Engineered Products revenue).
  • 4Backlog across manufacturing segments increased from $957,000 in 2004 to $1,107,000 in 2005, indicating growing demand for its products, particularly in the Specialty Systems International segment.
  • 5International operations accounted for approximately 44% of operating revenues in 2005 and 2004, highlighting the company's significant global footprint.
  • 6The company has a strong intellectual property portfolio, owning approximately 3,300 unexpired patents and 1,200 pending patent applications, alongside numerous significant trademarks.
  • 7ITW's "Leasing and Investments" segment, which previously included complex mortgage investments, is being phased out as a reporting segment starting in 2006, with its income to be reported as non-operating investment income. The First Mortgage Transaction was completed in December 2005.

Frequently Asked Questions

ITW's core business strategy is the "80/20 Business Process." This methodology focuses on identifying and prioritizing the critical 20% of activities or products that generate 80% of the value, thereby simplifying operations, reducing complexity, and improving financial performance. This process is applied across various aspects of the business, including product lines, customer bases, and supplier relationships, often resulting in cost reductions and margin improvements.

ITW is highly diversified, operating through five segments: Engineered Products (North America and International) and Specialty Systems (North America and International), along with a Leasing and Investments segment. The principal end markets for its manufacturing segments are Construction, which is a significant contributor across all segments (ranging from 6% to 45% of segment revenue), and Automotive (ranging from 4% to 28% of segment revenue). Other important markets include General Industrial, Food Institutional and Retail, and Food and Beverage.

International operations are a substantial part of ITW's business, contributing approximately 44% of its operating revenues in both 2005 and 2004. The company has a wide global presence with around 700 operations in 48 countries, serving diverse end markets worldwide. These international operations are subject to typical risks associated with global business, such as currency fluctuations and regulatory changes.

ITW has decided to discontinue reporting the 'Leasing and Investments' segment as a separate segment starting in 2006. This decision is driven by the planned run-off of assets within the segment and the company's strategic focus on core manufacturing investments and acquisitions. Income from these activities will be reported as non-operating investment income in future periods. The complex mortgage investment transactions related to this segment were nearing completion, with a significant transaction concluded in December 2005.