What was the impact of the new accounting standard SFAS 142 on ITW's financial results?

ITW adopted SFAS 142 effective January 1, 2002. This resulted in the discontinuation of amortization for goodwill and indefinite-lived intangible assets. In the first quarter of 2002, the company recorded a one-time, after-tax goodwill impairment charge of $221.9 million ($0.72 per diluted share) as a cumulative effect of a change in accounting principle. This charge reduced net income but did not affect operating income or cash flows from operations.

How is the divestiture of the Consumer Products segment progressing, and what is its financial impact?

ITW has made significant progress in divesting its Consumer Products segment. The sales of Precor and West Bend were completed on October 31, 2002. An agreement for the sale of Florida Tile is being negotiated and is expected to close in the fourth quarter of 2002. The company does not anticipate a net loss on the disposal of this segment. The financial results of these businesses are presented as discontinued operations.

What drove the revenue and operating income growth in the third quarter and year-to-date?

Revenue growth was driven by a combination of base business increases, acquisitions, and favorable currency fluctuations, particularly in the Engineered Products - International segment. Operating income improvements were achieved through increased revenues in certain segments, strong cost control measures across various businesses, and benefits from favorable foreign currency translation. Specific segments like Specialty Systems - North America saw margin expansion due to cost reductions.

How has ITW's liquidity and debt position changed?

ITW's liquidity has significantly improved, with cash and equivalents increasing to $720.4 million as of September 30, 2002, from $282.2 million at year-end 2001. The company generated strong operating cash flow of $944.1 million for the nine months ended September 30, 2002. Total debt remained relatively stable, decreasing slightly to $1.61 billion from $1.58 billion, with total debt to capitalization declining to 19.8% from 20.7%.

ITW 10-Q Quarterly Report Q3 FY2002 — Revenue, Net Income, EPS

Summary

Illinois Tool Works Inc. (ITW) reported a solid third quarter and nine-month performance for 2002, demonstrating revenue growth and improved profitability, particularly in its international operations and Specialty Systems segments. The company's strategic focus on cost control and operational efficiencies is evident, as reflected in margin expansion across several key segments. The divestiture of the Consumer Products segment is progressing, with the sale of Precor and West Bend completed, and Florida Tile expected to close soon, which will streamline ITW's portfolio. Financially, ITW experienced a significant increase in cash and equivalents, alongside robust operating cash flow. The adoption of SFAS 142 led to a substantial one-time goodwill impairment charge in the first quarter, impacting net income but not operating performance. Despite some market softness in specific sectors like commercial construction and certain industrial businesses, the company's diversified business model and international presence continue to drive resilient performance. Investors should note the positive outlook indicated by the free operating cash flow and the strategic repositioning through divestitures.

Key Highlights

1Total operating revenues increased to $2.40 billion for Q3 2002 and $7.04 billion year-to-date, up from $2.30 billion and $7.01 billion in the prior year periods, respectively.
2Income from continuing operations rose to $244.3 million ($0.80 basic EPS) for Q3 2002 and $703.9 million ($2.30 basic EPS) for the nine months, compared to $197.9 million ($0.65 basic EPS) and $614.7 million ($2.02 basic EPS) in 2001.
3The company adopted SFAS 142, leading to a $221.9 million after-tax goodwill impairment charge in Q1 2002, which impacted net income but not ongoing operations.
4Divestiture of the Consumer Products segment is substantially complete, with Precor and West Bend sold, and Florida Tile expected to close in Q4 2002.
5Operating income margins showed improvement in several segments, notably Engineered Products - International (up 320 bps in Q3) and Specialty Systems - North America (up 340 bps in Q3).
6Free operating cash flow was strong, reaching $800.9 million for the nine months ended September 30, 2002, up from $795.5 million in the same period of 2001.
7Cash and equivalents significantly increased to $720.4 million as of September 30, 2002, from $282.2 million at the end of 2001, indicating improved liquidity.

ILLINOIS TOOL WORKS INC Quarterly Report for Q3 Ended Sep 30, 2002

Summary

Key Highlights

Frequently Asked Questions