What caused the significant net loss in the first quarter of 2002?

The primary driver of the net loss was a $221.9 million after-tax charge, recognized as a cumulative effect of a change in accounting principle. This charge resulted from the adoption of SFAS 142, which requires companies to test goodwill and certain intangible assets for impairment. ITW recorded this impairment based on its initial testing under the new standard.

How did the company's core operations perform, excluding the accounting change?

Excluding the goodwill impairment charge, income from continuing operations increased by 6.6% to $194.4 million, or $0.63 per diluted share. This indicates that the underlying business operations were performing positively, despite a slight decrease in overall revenues.

What is the status of the Consumer Products segment?

The company's Board of Directors authorized the divestiture of the Consumer Products segment in December 2001. This segment, comprising businesses like Precor, West Bend, and Florida Tile, is now presented as discontinued operations. ITW intends to sell these businesses in 2002 and does not expect to incur a net loss on the disposal.

What impact is foreign currency having on ITW's results?

The strengthening U.S. dollar against foreign currencies negatively impacted ITW's reported results. For the first quarter of 2002, it decreased operating revenues by approximately $31 million and reduced income from continuing operations by about $0.01 per diluted share. The company also noted impacts on operating income for its international segments.

ITW 10-Q Quarterly Report Q1 FY2002 — Revenue, Net Income, EPS

Summary

Illinois Tool Works Inc. (ITW) reported a net loss of $23.4 million for the first quarter of 2002, a significant decline from a net income of $182.8 million in the prior year period. This loss was largely driven by a substantial $221.9 million ($0.72 per diluted share) cumulative effect of a change in accounting principle related to the adoption of SFAS 142, which requires the impairment testing of goodwill and other intangible assets. Excluding this one-time charge, income from continuing operations was $194.4 million, a slight increase of 6.6% over the prior year. The company's revenues also saw a decrease of approximately 4% to $2.2 billion, impacted by weakening demand in several industrial sectors and unfavorable foreign currency exchange rates. Despite the reported net loss, the company demonstrated operational strength with positive free operating cash flow of $239 million, an increase from the prior year. Management is actively managing costs and inventory levels. A key strategic move during the quarter was the initiation of the divestiture of its Consumer Products segment, which has been presented as discontinued operations. The company also engaged in opportunistic investments, including significant leveraged leasing transactions in Germany. Looking ahead, ITW faces risks related to economic downturns in key markets and currency fluctuations.

Key Highlights

1Reported a net loss of $23.4 million for Q1 2002, primarily due to a $221.9 million goodwill impairment charge related to SFAS 142 adoption.
2Income from continuing operations grew 6.6% year-over-year to $194.4 million, with diluted EPS of $0.63.
3Total operating revenues decreased by 4.0% to $2.2 billion, impacted by weaker industrial demand and foreign currency headwinds.
4Generated strong free operating cash flow of $282.9 million, an increase from $235.0 million in the prior year.
5Initiated the divestiture of its Consumer Products segment, which is now presented as discontinued operations.
6Adopted SFAS 142, ceasing amortization of goodwill and indefinite-lived intangibles and incurring a significant impairment charge.
7Announced a subsequent event on April 26, 2002, of issuing $250 million in preferred debt securities.

ILLINOIS TOOL WORKS INC Quarterly Report for Q1 Ended Mar 31, 2002

Summary

Key Highlights

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