Annual Report

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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pn7J5VDdIOxPBmUyTMYF/8/eIph30k/wWfHFyIhPHLp7My/h6dch/eGbK+S/ToCj wcxYghWWLMNrd+sNo1O7Ug== 0000950137-03-001256.txt : 20030304 0000950137-03-001256.hdr.sgml : 20030304 20030304090124 ACCESSION NUMBER: 0000950137-03-001256 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS TOOL WORKS INC CENTRAL INDEX KEY: 0000049826 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 361258310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04797 FILM NUMBER: 03590372 BUSINESS ADDRESS: STREET 1: 3600 W LAKE AVE CITY: GLENVIEW STATE: IL ZIP: 60025-5811 BUSINESS PHONE: 8476574106 MAIL ADDRESS: STREET 1: 3600 WEST LAKE AVENUE CITY: GLENVIEW STATE: IL ZIP: 60025-5811 10-K 1 c75093e10vk.htm ANNUAL REPORT Annual Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K


[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2002
		OR
[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4797

ILLINOIS TOOL WORKS INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		36-1258310 (I.R.S. Employer Identification No.)

3600 W. Lake Avenue, Glenview, Illinois (Address of Principal Executive Offices)		60025-5811 (Zip Code)

Registrant’s telephone number, including area code: (847) 724-7500

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock		New York Stock Exchange Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes X No

The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 2003, was approximately $14,600,000,000, based on the New York Stock Exchange closing sales price as of February 28, 2003.

Shares of Common Stock outstanding at February 28, 2003 — 307,418,859.

Documents Incorporated by Reference


2002 Annual Report to Stockholders		Parts I, II, IV
2003 Proxy Statement for Annual Meeting of Stockholders to be held on May 9, 2003		Parts II and III

TABLE OF CONTENTS


PART I
	ITEM 1. Business
	ITEM 2. Properties
	ITEM 3. Legal Proceedings
	ITEM 4. Submission of Matters to a Vote of Security Holders
PART II
	ITEM 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
	ITEM 6. Selected Financial Data
	ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
	ITEM 8. Financial Statements and Supplementary Data
	ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	ITEM 10. Directors and Executive Officers of the Registrant
	ITEM 11. Executive Compensation
	ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	ITEM 13. Certain Relationships and Related Transactions
PART IV
	ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
CERTIFICATION
CERTIFICATION
EXHIBIT INDEX
ANNUAL REPORT on FORM 10-K 2002
By-laws of Illinois Tool Works Inc.
Amendment to the ITW 1996 Stock Incentive Plan
The Company's 2002 Annual Report to Stockholders
Subsidiaries and Affiliates of the Company
Consent of Deloitte & Touche LLP
Powers of Attorney
Certification

PART I

ITEM 1. Business

General

Illinois Tool Works Inc. (the “Company” or “ITW”) was founded in 1912 and incorporated in 1915. The Company is a worldwide manufacturer of highly engineered products and specialty systems.

The Company has approximately 600 operations in 44 countries which are aggregated and organized for internal reporting purposes into the following five segments:

Engineered Products — North America: Businesses in this segment are located in North America and manufacture a variety of short lead-time plastic and metal components and fasteners, as well as specialty products for a diverse customer base. These commercially oriented, value-added products become part of the customers’ products and typically are manufactured and delivered in a period of time of less than 30 days. In the plastic and metal components and fasteners category, product examples include cordless nailing systems for new housing and renovation projects, plastic interior door handles for automobiles and light trucks, and plastic shelving supports for household appliances. In the specialty products category, product examples include reclosable packaging for consumer food applications, specialty swabs and wipes for clean room usage, and specialty adhesives for household purposes.

Engineered Products — International: Businesses in this segment are located outside North America and manufacture a variety of short lead-time plastic and metal components and fasteners, as well as specialty products for a diverse customer base. These commercially oriented, value-added products become part of the customers’ products and typically are manufactured and delivered in a period of time of less than 30 days. In the plastic and metal components and fastener category, products are similar to those made in North America and serve the construction, automotive and general industrial sectors. In the specialty products category, a product example includes electronic component packaging trays used for the storage, shipment and manufacturing insertion of electronic components and microchips.

Specialty Systems — North America: Businesses in this segment are located in North America and design and manufacture longer lead-time machinery and related consumables, as well as specialty equipment for a diverse customer base. These commercially oriented value-added products become part of the customers’ production process and typically are manufactured and delivered in a period of time of more than 30 days. In the machinery and related consumables category, examples of products include industrial packaging equipment and plastic and steel strap for the bundling and shipment of a variety products for customers in numerous end markets, welding equipment and consumables for a variety of end market users, and equipment and consumables that multi-pack cans and bottles for the food and beverage industry. In the specialty equipment category, product examples include commercial food equipment such as dishwashers, refrigerators and specialty scales for use by restaurants and supermarkets, and paint spray equipment for a variety of general industrial applications.

Specialty Systems — International: Businesses in this segment are located outside North America and design and manufacture longer lead-time machinery and related consumables, as well as specialty equipment for a diverse customer base. These commercially oriented, value-added products become part of the customers’ production process and typically are manufactured and delivered in a period of time of more than 30 days. In the machinery and related consumables category, products are similar to those made in North America and include numerous equipment and consumables for use by the customers serving the general industrial and food and beverage sectors. In the specialty equipment category, products are used by food equipment and paint spray equipment customers.

Leasing & Investments: Businesses in this segment make opportunistic investments in mortgage-related assets, leveraged and direct financing leases of telecommunications, aircraft and other equipment, properties and property developments, affordable housing and a venture capital fund. As a result of the Company’s strong

cash flow, the Company has historically had excess funds to make opportunistic investments that meet the Company’s desired financial returns. The Company’s significant investments are described below:

1) Mortgage investments — In 1995, 1996 and 1997, the Company invested a total of $300 million in three separate mortgage investments. Although it acquired commercial mortgage loans and real estate and issued nonrecourse notes payable in these transactions, the Company also entered into swap and related agreements with the seller of the assets to mitigate its real estate and credit risks relative to the mortgage loans and real estate and eliminate its interest rate risk relative to the nonrecourse notes payable. As a result of these transactions, the Company will receive cash of approximately $26 million per year and a portion of the disposition proceeds in the tenth year of each transaction, by which time all of the assets are expected to be sold. In addition, the swap counterparty will repay the principal and interest on the Company’s nonrecourse notes payable. See the Leasing & Investments section of the Management’s Discussion & Analysis on pages 22 through 25 of the Company’s 2002 Annual Report to Stockholders for further discussion of these mortgage investments.

2) Leases of equipment — The Company has entered into numerous leases of equipment used in the telecommunications and transportation industries. These leases are accounted for as leveraged or direct financing leases. See the Investments note on pages 42 through 44 of the Company’s Annual Report to Stockholders for further discussion of these leases.

3) Affordable housing limited partnerships — The Company has entered into several affordable housing limited partnerships primarily to receive tax benefits in the form of tax credits and tax deductions from operating losses. See the Investments note on pages 42 through 44 of the Company’s Annual Report to Stockholders for further discussion of these investments.

A key element of the Company’s business strategy is its continuous 80/20 simplification process. The basic concept of this 80/20 process is to focus on what’s most important (the 20% of the items which account for 80% of the value) and spend less time and resources on the less important (the 80% of the items which account for 20% of the value). The Company’s operations use this 80/20 process to simply and focus on the keys parts of their business, and reduce complexity that may disguise what is truly important. Each of the Company’s 600 operations utilize the 80/20 process in all aspects of their business. Common applications of the 80/20 process include:

• Simplifying manufactured product lines by reducing the number of products offered by combining the features of similar products, outsourcing products or eliminating products.

• Simplifying the customer base by focusing on the 80/20 customers and finding different ways to serve the 20/80 customers.

• Simplifying the supplier base by partnering with key 80/20 suppliers and reducing the number of 20/80 suppliers.

• Designing business processes and systems around the key 80/20 activities.

The result of the application of this 80/20 simplification process is that the Company’s operating and financial performance is improved. These 80/20 efforts often result in restructuring projects that reduce costs and improve margins.

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 common stock in exchange for each share of Premark common stock outstanding. A total of 49,781,665 of ITW common stock 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. 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 were acquired by ITW in 1999 as part of the Premark merger. Subsequent to the Premark merger, the Company determined that the consumer characteristics of the businesses in the Consumer Products segment were not a good long-term fit with the Company’s other industrial-focused businesses. Businesses in this segment are located primarily in North America and manufacture household products that are used by consumers, including Precor specialty exercise equipment, West Bend small appliances and premium cookware, and Florida Tile ceramic tile. On October 31, 2002 the sales of Precor and West Bend were completed, resulting in net cash proceeds of $207.9 million. The Company is actively marketing and intends to dispose of Florida Tile through a sale transaction in 2003. The Company’s estimated net gain on disposal of the segment is as follows:


							After-
In thousands	Pretax			Tax			Tax

Realized gains on 2002 sales of Precor and West Bend	$	146,240		$	51,604		$	94,636
Estimated loss on 2003 sale of Florida Tile recorded in 2002		(123,874	)		(31,636	)		(92,238	)

Estimated net gain on disposal of the segment	$	22,366		$	19,968		$	2,398

The estimated after tax net gain of $2.4 million on the segment has been deferred at December 31, 2002 pending the completion of the sale of Florida Tile in 2003.

During the five-year period ending December 31, 2002, the Company acquired and disposed of numerous other operations which did not materially impact consolidated results.

Current Year Developments

Refer to pages 20 through 31, Management’s Discussion and Analysis, in the Company’s 2002 Annual Report to Stockholders.

Financial Information about Segments and Markets

Segment and geographic data are included on pages 20 through 28 and 52 through 54 of the Company’s 2002 Annual Report to Stockholders.

The principal markets served by the Company’s four continuing manufacturing segments are as follows:



	% of 2002 Operating Revenues by
	Manufacturing Segment

	Engineered			Engineered			Specialty			Specialty
	Products-			Products-			Systems-			Systems-
	North			Inter-			North			Inter-
End Markets Served	America			national			America			national

Construction		45	%		37	%		10	%		5	%
Automotive		32			31			5			3
General Industrial		9			12			22			26
Food Retail and Service		—			—			29			21
Consumer Durables		4			7			3			2
Electronics		3			7			1			2
Food and Beverage		2			—			9			15
Industrial Capital Goods		2			1			5			5
Paper Products		—			—			3			4
Other		3			5			13			17

		100	%		100	%		100	%		100	%

Operating results of the segments are described on pages 20 through 28 and 52 through 54 of the Company’s 2002 Annual Report to Stockholders.

The Company’s manufacturing businesses primarily distribute their products directly to industrial manufacturers and through independent distributors.

Backlog

Backlog generally is not considered a significant factor in the Company’s businesses as relatively short delivery periods and rapid inventory turnover are characteristic of most of its products. Backlog by continuing manufacturing segment as of December 31, 2002 and 2001 is summarized as follows:



	Backlog in Thousands of Dollars

	Engineered				Specialty
	Products-		Engineered		Systems-		Specialty
	North		Products-		North		Systems-
	America		International		America		International		Total

2002	$	240,000	$	150,000	$	174,000	$	108,000	$	672,000
2001	$	250,000	$	148,000	$	212,000	$	121,000	$	731,000

Backlog orders scheduled for shipment beyond calendar year 2003 were not material in any manufacturing segment as of December 31, 2002.

The information set forth below is applicable to all industry segments of the Company unless otherwise noted:

Competition

The Company’s global competitive environment is complex because of the wide diversity of products the Company manufactures and the many markets it serves. Depending on the product or market, the Company may compete with a few other companies or with many others.

The Company is a leading producer of plastic and metal components and fasteners; laminate products; polymers and fluid products; welding products; packaging machinery and related consumables; food service equipment; and industrial finishing equipment.

Raw Materials

The Company uses raw materials of various types, primarily metals, plastics and paper that are available from numerous commercial sources. The availability of materials and energy has not resulted in any significant business interruptions or other major problems, nor are any such problems anticipated.

Research and Development

The Company’s growth has resulted from developing new and improved products, broadening the application of established products, continuing efforts to improve and develop new methods, processes and equipment, and from acquisitions. Many new products are designed to reduce customers’ costs by eliminating steps in their manufacturing processes, reducing the number of parts in an assembly, or by improving the quality of customers’ assembled products. Typically, the development of such products is accomplished by working closely with customers on specific applications. Identifiable research and development costs are set forth on page 38 of the Company’s 2002 Annual Report to Stockholders.

The Company owns approximately 2,400 unexpired United States patents covering articles, methods and machines. Many counterparts of these patents have also been obtained in various foreign countries. In addition, the Company has approximately 900 applications for patents pending in the United States Patent Office, but there is no assurance that any patent will be issued. The Company maintains an active patent department for the administration of patents and processing of patent applications.

The Company believes that many of its patents are valuable and important. Nevertheless, the Company credits its leadership in the markets it serves to engineering capability; manufacturing techniques, skills and efficiency; marketing and sales promotion; and service and delivery of quality products to its customers. The

expiration of any one of the Company’s patents would not have a material effect on the Company’s results of operations or financial position.

Trademarks

Many of the Company’s products are sold under various owned or licensed trademarks, which are important to the Company. Among the most significant are: ITW, Apex, Bernard, Buildex, Chemtronics, Corex, Deltar, Devcon, DeVilbiss, Dymon, Dynatec, Fastex, Foster, Hi-Cone, Hobart, Keps, LPS, Magna, Magnaflux, Miller, Mima, Minigrip, Paktron, Paslode, Ramset, Ransburg, Red Head, Rocol, Shakeproof, Signode, Stero, Teks, Tempil, Tenax, Texwipe, Traulsen, Tri-Mark, Vulcan, Wilsonart and Zip-Pak.

Environmental

The Company believes that its plants and equipment are in substantial compliance with applicable environmental regulations. Additional measures to maintain compliance are not expected to materially affect the Company’s capital expenditures, competitive position, financial position or results of operations.

Various legislative and administrative regulations concerning environmental issues have become effective or are under consideration in many parts of the world relating to manufacturing processes, and the sale or use of certain products. To date, such developments have not had a substantial adverse impact on the Company’s sales or earnings. The Company has made considerable efforts to develop and sell environmentally compatible products resulting in new and expanding marketing opportunities.

Employees

The Company employed approximately 48,700 persons as of December 31, 2002 and considers its employee relations to be excellent.

International

The Company’s international operations include subsidiaries, joint ventures and licensees in 43 countries on six continents. These operations serve such markets as construction, automotive, food retail and service, general industrial, and others on a worldwide basis. The Company’s international operations contributed approximately 37% of operating revenues in 2002 and in 2001.

Refer to pages 20 through 31 and 52 through 54 in the Company’s 2002 Annual Report to Stockholders for additional information on international activities. International operations are subject to certain risks inherent in conducting business in foreign countries, including price controls, exchange controls, limitations on participation in local enterprises, nationalization, expropriation and other governmental action, and changes in currency exchange rates.

Forward-looking Statements

This annual report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding availability of raw materials and energy, the cost of compliance with environmental regulations, the adequacy of internally generated funds, the recoverability of the Company’s investment in mortgage-related assets, the meeting of dividend payout objectives, the divestiture of the Florida Tile business in 2003, Premark’s target operating margins, payments under guarantees, the availability of additional financing and the Company’s 2003 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 downturn in the construction, automotive, general industrial, food retail and service, or real estate markets, (2) deterioration in global and domestic business and economic conditions, particularly in North America, the European Community and Australia, (3) the unfavorable impact of foreign currency fluctuations, (4) an interruption in, or reduction in, introducing new products into the Company’s product lines, (5) a continuing unfavorable environment for

making acquisitions or dispositions, domestic and international, including adverse accounting or regulatory requirements and market values of candidates, and (6) unfavorable tax law changes and tax authority rulings.

Executive Officers

Executive Officers of the Company as of February 28, 2003:


Name	Office	Age

Robert T. Callahan	Senior Vice President, Human Resources		61
W. James Farrell	Chairman and Chief Executive Officer		60
Russell M. Flaum	Executive Vice President		52
David T. Flood	Executive Vice President		51
Philip M. Gresh, Jr.	Executive Vice President		54
Thomas J. Hansen	Executive Vice President		54
Stewart S. Hudnut	Senior Vice President, General Counsel and Secretary		63
Jon C. Kinney	Senior Vice President and Chief Financial Officer		60
Frank S. Ptak	Vice Chairman		59
James M. Ringler	Vice Chairman		57
David B. Speer	Executive Vice President		51
Allan C. Sutherland	Senior Vice President, Leasing and Investments		39
Hugh J. Zentmeyer	Executive Vice President		56

The executive officers of the Company serve at the pleasure of the Board of Directors. Except for Messrs. Callahan, Flood, Gresh, and Ringler, each of the foregoing officers has been employed by the Company in various elected executive capacities for more than five years. Mr. Callahan was elected Senior Vice President in 2002. He joined the Company in 1976 and has served the Company in various human resource capacities over the last 26 years. Mr. Flood was elected Executive Vice President in 2000. He joined the Company in 1993 and has held various management positions within the polymers, fluids and machined components businesses and previously worked for the company from 1976 to 1991. Mr. Gresh was elected Executive Vice President in 2000. He joined the Company in 1989 and has held various sales, marketing and general management positions with the consumer packaging businesses. Mr. Ringler was elected Vice Chairman in 1999. He joined Premark in 1990 where he served as President and Chief Operating Officer until May 1996. He served as Premark’s Chief Executive Officer and President from May 1996 to October 1997, after which he served as Chairman of the Board, Chief Executive Officer and President until Premark’s merger with the Company in November 1999.

Internet Information

Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the Company’s website (www.itw.com) as soon as reasonably practicable after the Company electronically files the material with, or furnishes it to, the Securities and Exchange Commission.

ITEM 2. Properties

As of December 31, 2002 the Company operated the following plants and office facilities, excluding regional sales offices and warehouse facilities:



	Number		Floor Space
	of
	Properties		Owned		Leased		Total


			(In millions of square feet)
Engineered Products — North America		150		8.1		3.6		11.7
Engineered Products — International		106		4.9		1.8		6.7
Specialty Systems — North America		142		8.6		3.3		11.9
Specialty Systems — International		116		6.6		2.2		8.8
Leasing and Investments		25		2.0		0.5		2.5
Corporate		9		1.5		0.0		1.5

		548		31.4		11.7		43.1

The principal plants outside of the U.S. are in Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Malaysia, Mexico, the Netherlands, Spain, Switzerland and the United Kingdom.

The Company’s properties are primarily of steel, brick or concrete construction and are maintained in good operating condition. Productive capacity, in general, currently exceeds operating levels. Capacity levels are somewhat flexible based on the number of shifts operated and on the number of overtime hours worked. The Company adds productive capacity from time to time as required by increased demand. Additions to capacity can be made within a reasonable period of time due to the nature of the businesses.

ITEM 3. Legal Proceedings

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

Not applicable.

PART II

ITEM 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

This information is incorporated by reference to page 55 of the Company’s 2002 Annual Report to Stockholders. Information regarding the securities authorized for issuance under equity compensation plans is incorporated by reference to the information under the caption “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders.

ITEM 6. Selected Financial Data


		2002		2001		2000		1999		1998


		In thousands (except per share amounts)
Operating revenues		$	9,467,740		9,292,791		9,511,647		8,840,454		7,898,285
Income from continuing operations		$	931,810		802,449		969,451		835,895		801,895
Income from continuing operations per common share:
	Basic	$	3.04		2.64		3.21		2.78		2.67
	Diluted	$	3.02		2.62		3.18		2.74		2.63
Total assets at year-end		$	10,623,101		9,822,349		9,514,847		8,978,329		8,133,424
Long-term debt at year-end		$	1,460,381		1,267,141		1,549,038		1,360,746		1,208,046
Cash dividends declared per common share		$	.90		.84		.76		.65		.53

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Refer to pages 44 through 46 of the Company’s 2002 Annual Report to Stockholders for discussion of the effect of the change in accounting principle.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This information is incorporated by reference to pages 20 through 31 of the Company’s 2002 Annual Report to Stockholders.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

This information is incorporated by reference to pages 30 and 31 of the Company’s 2002 Annual Report to Stockholders.

ITEM 8. Financial Statements and Supplementary Data

The financial statements and reports thereon of Deloitte & Touche LLP dated January 27, 2003, and Arthur Andersen LLP dated January 28, 2002, as found on pages 32 through 54 and the supplementary data found on page 55 of the Company’s 2002 Annual Report to Stockholders, are incorporated by reference.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On May 10, 2002, the Company filed a Form 8-K confirming the dismissal of the Company’s independent auditors, Arthur Andersen LLP, and the engagement of the services of Deloitte & Touche LLP as its new independent auditors.

PART III

ITEM 10. Directors and Executive Officers of the Registrant

Information regarding the Directors of the Company is incorporated by reference to the information under the caption “Election of Directors” in the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders.

Information regarding the Executive Officers of the Company can be found in Part I of this Annual Report on Form 10-K on page 6.

Information regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference to the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders.

ITEM 11. Executive Compensation

This information is incorporated by reference to the information under the caption “Executive Compensation,” “Director Compensation,” “Company Performance” and “Report of the Compensation Committee on Executive Compensation” in the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders.


ITEM 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

This information is incorporated by reference to the information under the caption “Ownership of ITW Stock” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders.

ITEM 13. Certain Relationships and Related Transactions

Additional information is incorporated by reference to the information under the captions “Director Compensation,” “Executive Compensation” and “Ownership of ITW Stock” in the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders.

PART IV

ITEM 14. Controls and Procedures

Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-K, the Company’s Chairman and Chief Executive Officer and Senior Vice President and Chief Financial Officer believe the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective in timely alerting the Company’s management to material information required to be included in this Form 10-K and other Exchange Act filings.

There were no significant changes in the Company’s internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation and there were no significant deficiencies or material weaknesses which required corrective actions.

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) Financial Statements

The financial statements and reports thereon of Deloitte & Touche LLP dated January 27, 2003 and Arthur Andersen LLP dated January 28, 2002 as found on pages 32 through 54 and the supplementary data found on page 55 of the Company’s 2002 Annual Report to Stockholders, are incorporated by reference.

(2) Financial Statement Schedules

None.

(3) Exhibits

(i) See the Exhibit Index on pages 14 and 15 of this Form 10-K.

(ii) Pursuant to Regulation S-K, Item 601(b)(4)(iii), the Company has not filed with Exhibit 4 any debt instruments for which the total amount of securities authorized thereunder are less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis as of December 31, 2002, with the

exception of the agreements related to the 5 3/4% and 6 7/8% Notes, which are filed with Exhibit 4. The Company agrees to furnish a copy of the agreements related to the debt instruments which have not been filed with Exhibit 4 to the Securities and Exchange Commission upon request.


	(b) Reports on Form 8-K

No reports on Form 8-K have been filed during the three months ended December 31, 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 3rd day of March 2003.

ILLINOIS TOOL WORKS INC.

By /s/ W. JAMES FARRELL

W. James Farrell

Chairman and Chief

Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on this 3rd day of March 2003.


Signatures		Title


/s/ W. JAMES FARRELL W. James Farrell		Director, Chairman and Chief Executive Officer, (Principal Executive Officer)

/s/ JON C. KINNEY Jon C. Kinney		Senior Vice President and Chief Financial Officer, (Principal Accounting and Financial Officer)

WILLIAM F. ALDINGER		Director

MICHAEL J. BIRCK		Director

MARVIN D. BRAILSFORD		Director

JAMES R. CANTALUPO		Director

SUSAN CROWN		Director

DON H. DAVIS, JR		Director

ROBERT C. MCCORMACK		Director

PHILLIP B. ROONEY		Director

HAROLD B. SMITH		Director
		By /s/ W. JAMES FARRELL (W. James Farrell, as Attorney-in-Fact)

Original powers of attorney authorizing W. James Farrell to sign this Annual Report on Form 10-K and amendments thereto on behalf of the above-named directors of the registrant have been filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K (Exhibit 24).

CERTIFICATION

Statement Under Oath of Principal Executive Officer

Regarding Facts and Circumstances Relating to Exchange Act Filings

I, W. James Farrell, Chairman and Chief Executive Officer, certify that:

      1. I have reviewed this annual report on Form 10-K of Illinois Tool Works Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

      3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

      c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: March 3, 2003

/s/ W. JAMES FARRELL

W. James Farrell,

Chairman and Chief Executive Officer

CERTIFICATION

Statement Under Oath of Principal Financial Officer

Regarding Facts and Circumstances Relating to Exchange Act Filings

I, Jon C. Kinney, Senior Vice President and Chief Financial Officer, certify that:

Dated: March 3, 2003

/s/ JON C. KINNEY

Jon C. Kinney, Senior Vice President

and Chief Financial Officer

EXHIBIT INDEX

ANNUAL REPORT on FORM 10-K

2002


Exhibit
Number			Description

	3(a)	—	Restated Certificate of Incorporation of Illinois Tool Works Inc., as amended, filed as Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (Commission File No. 1-4797) and incorporated herein by reference.
	3(b)	—	By-laws of Illinois Tool Works Inc., as amended
	4(a)	—	Indenture, dated as of November 1, 1986, between Illinois Tool Works Inc. and The First National Bank of Chicago, as Trustee, filed as Exhibit 4 to the Company’s Registration Statement on Form S-3 (Registration Statement No. 33-5780) filed with the Securities and Exchange Commission on May 14, 1986 and incorporated herein by reference.
	4(b)	—	First Supplemental Indenture, dated as of May 1, 1990 between Illinois Tool Works Inc. and Harris Trust and Savings Bank, as Trustee, filed as Exhibit 4-3 to the Company’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 33-5780) filed with the Securities and Exchange Commission on May 8, 1990 and incorporated herein by reference.
	4(c)	—	Form of 5 3/4% Notes due March 1, 2009, filed as Exhibit 4 to the Company’s Current Report on Form 8-K dated February 24, 1999 and incorporated herein by reference.
	4(d)	—	Form of Indenture (Revised) in connection with Premark International, Inc.’s Form S-3 Registration Statement No. 33-35137 and Form S-3 Registration Statement No. 333-62105 (Exhibit 4.2 to the Premark International, Inc.’s Annual Report on Form 10-K for the year ended December 28, 1996.)
	10(a)	—	Illinois Tool Works Inc. 1996 Stock Incentive Plan dated February 16, 1996, as amended on December 12, 1997 and October 29, 1999, filed as Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999 (Commission File No. 1-4797) and incorporated herein by reference.
	10(b)	—	Amendment to the Illinois Tool Works Inc. 1996 Stock Incentive Plan dated January 2, 2003.
	10(c)	—	Illinois Tool Works Inc. 1982 Executive Contributory Retirement Income Plan adopted December 13, 1982, filed as Exhibit 10(c) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-4797) and incorporated herein by reference.
	10(d)	—	Illinois Tool Works Inc. 1985 Executive Contributory Retirement Income Plan adopted December 1985, filed as Exhibit 10(d) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-4797) and incorporated herein by reference.
	10(e)	—	Amendment to the Illinois Tool Works Inc. 1985 Executive Contributory Retirement Income Plan dated May 1, 1996, filed as Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-4797) and incorporated herein by reference.
	10(f)	—	Illinois Tool Works Inc. Executive Incentive Plan adopted February 16, 1996, filed as Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-4797) and incorporated herein by reference.
	10(g)	—	ITW Nonqualified Pension Benefits Plan, effective January 1, 2002, filed as Exhibit 10(a) to the Company’s Annual Report on Form 10-Q for the quarterly period ended September 30, 2002 (Commission File No. 1-4797) and incorporated herein by reference.
	10(h)	—	Illinois Tool Works Inc. Non-officer Directors’ Restricted Stock Program, as amended, filed as Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 (Commission File No. 1-4797) and incorporated herein by reference.


Exhibit
Number			Description

	10(i)	—	Illinois Tool Works Inc. Outside Directors’ Deferred Fee Plan dated December 12, 1980, filed as Exhibit 10(h) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Commission File No. 1-4797) and incorporated herein by reference.
	10(j)	—	Illinois Tool Works Inc. Phantom Stock Plan for Non-officer Directors, filed as Exhibit 10(e) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-4797) and incorporated herein by reference.
	10(k)	—	Illinois Tool Works Inc. Executive Contributory Retirement Income Plan effective January 1, 1999, filed as Exhibit 10(k) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (Commission File No. 1-4797) and incorporated herein by reference.
	10(l)	—	Underwriting Agreement dated February 19, 1999, related to the 5 3/4% Notes due March 1, 2009, filed as Exhibit 1 to the Company’s Current Report on Form 8-K dated February 24, 1999 and incorporated herein by reference.
	10(m)	—	Illinois Tool Works Inc. Non-officer Directors’ Fee Conversion Plan adopted February 19, 1999, as amended December 15, 2000, filed as Exhibit 10(l) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (Commission File No. 1-4797) and incorporated herein by reference.
	10(n)	—	Premark International, Inc. 1994 Incentive Plan, as amended and restated effective May 5, 1999, filed as Exhibit 10.14 to the Company’s Registration Statement on Form S-4 (Registration Statement No. 333-88801) filed with the Securities and Exchange Commission on October 12, 1999 and incorporated herein by reference.
	10(o)	—	Premark International, Inc. Supplemental Plan, as amended and restated effective January 1, 1999, filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-4 (Registration Statement No. 333-88801) filed with the Securities and Exchange Commission on October 12, 1999 and incorporated herein by reference.
	10(p)	—	Letter of Understanding dated November 11, 1999, by and between James M. Ringler and Illinois Tool Works Inc. filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 11, 1999 (Commission File No. 1-4797) and incorporated herein by reference.
	10(q)	—	Executive Noncompetition Agreement dated November 11, 1999, by and between James M. Ringler and Illinois Tool Works Inc. filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 11, 1999 (Commission File No. 1-4797) and incorporated herein by reference.
	10(r)	—	Agreement and Plan of Merger dated as of September 9, 1999 among Premark International, Inc., Illinois Tool Works Inc. and CS Merger Sub Inc., filed as Annex A to the Company’s Registration Statement on Form S-4 (Registration Statement No. 333-88801) filed with the Securities and Exchange Commission on October 12, 1999 and incorporated herein by reference.
	13	—	The Company’s 2002 Annual Report to Stockholders, pages 20 - 55.
	21	—	Subsidiaries and Affiliates of the Company.
	23	—	Consent of Deloitte & Touche LLP.
	24	—	Powers of Attorney.
	99(a)	—	Description of the capital stock of Illinois Tool Works Inc., filed as Exhibit 99 to the Company’s Quarterly Report of Form 10-Q for the quarterly period ended March 31, 1997 (Commission File No. 1-4797) and incorporated herein by reference.
	99(b)	—	Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

EX-3.(B) 3 c75093exv3wxby.htm BY-LAWS OF ILLINOIS TOOL WORKS INC. By-laws of Illinois Tool Works Inc.

Exhibit 3(b)

BY-LAWS
OF
ILLINOIS TOOL WORKS INC.

ARTICLE I

Offices

SECTION 1. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.

SECTION 2. Other Offices. The corporation may also have offices in Chicago, Illinois, and offices at such other places as the Board of Directors or officers may from time to time determine.

ARTICLE II

Stockholders

SECTION 1. Annual Meeting. The annual meeting of the stockholders shall be in the month of April or May of each year. The place, date and time of the meeting shall be fixed by the Board of Directors and stated in the notice of the meeting.

SECTION 2. Special Meetings. Special meetings of the stockholders may be called by the chairman or by a majority of the Board of Directors.

SECTION 3. Place of Meeting. The Board of Directors may designate any place, either within or without Delaware, as the place of meeting for any meeting of the stockholders (annual or special) called by the Board of Directors. If a special meeting is otherwise called, the place of meeting shall be in Chicago, Illinois as designated in the notice.

SECTION 4. Notice of Meetings. Written or printed notice stating the place, day and hour of the meeting shall be delivered either personally or by mail, by or at the direction of the chairman or persons calling the meeting to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mails in a sealed envelope addressed to the stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid.

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SECTION 5. Voting of Shares by Certain Holders. Shares of stock standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine.

Shares of stock standing in the name of a deceased person may be voted by his administrator or executor, either in person or by proxy. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon.

Shares of stock standing in the name of a receiver may be voted by such receiver, and shares of stock held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.

SECTION 6. Fixing of Record Date. Unless any statute requires otherwise, for the purpose of determining (a) stockholders entitled to notice of or to vote at any meeting of stockholders, or (b) stockholders entitled to receive payment of any dividend, or (c) stockholders, with respect to any lawful action, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty days and, in case of a meeting of stockholders, not less than ten days. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 7. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the Certificate of Incorporation or by these by-laws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented. No notice other than an announcement at the meeting need be given unless the adjournment is for more than thirty days or a new record date is to be fixed for the adjourned meeting. At such adjourned meeting at

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which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation or of these by-laws, a different vote is required in which case such express provision shall govern and control the decision of such question.

SECTION 8. Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. Proxies shall be valid only with respect to the meeting or meetings and any adjournment thereof, for which they are given.

SECTION 9. Voting. Each stockholder shall have one vote in person or by proxy for each share of stock having voting power registered in his name on the books of the corporation at the record date.

SECTION 10. Stockholder Nominations for Directors. Any stockholder entitled to vote in the election of directors may nominate one or more persons for election as directors, provided written notice of such stockholder’s nomination has been received by the Secretary of the Company not later than (i) the close of business on the last business day of December prior to the annual meeting of stockholders in April or May, or (ii) the close of business on the tenth day following the date on which notice of a special meeting of stockholders is first given to stockholders for an election of directors to be held at such meeting.

Such notice must contain: (a) the name and address of the stockholder who intends to make the nomination; (b) the name, age, and business and residential addresses of each person to be nominated; (c) the principal occupation or employment of each nominee; (d) the number of shares of capital stock of the corporation beneficially owned by each nominee; (e) a statement that the nominee is willing to be nominated and serve as a director; and (f) such other information regarding each nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the Board of Directors nominated such nominee.

Nothing in this Section shall preclude the Board of Directors or the Nominating Committee either from making nominations for the election of directors or from excluding the person nominated by a stockholder from the slate of directors presented to the meeting.

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SECTION 11. Election of Directors. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at a meeting of stockholders and entitled to voted on the election of directors.

ARTICLE III

Directors

SECTION 1. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors.

SECTION 2. Number, Tenure and Qualifications. The number of Directors of the corporation is established at ten. Each Director shall hold office for the term for which such Director is elected or until a successor shall have been chosen and shall have qualified or until such Director’s earlier death, resignation, retirement, disqualification or removal.

SECTION 3. Regular Meeting. A regular meeting of the Board of Directors shall be held without other notice than this by-law, immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place, either within or without Delaware, for the holding of additional regular meetings without other notice than such resolution.

SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the chairman or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without Delaware, as the place for holding any special meeting of the Board of Directors called by them.

SECTION 5. Notice. Notice of any special meeting shall be given at least two days previously thereto by written notice delivered personally, by mail or telegram, to each Director at his business address or at such other address as he shall have previously requested in writing. If mailed, such notice shall be deemed to be delivered two days after being deposited in the United States mails in a sealed envelope so addressed, with postage thereon prepaid. If notice is given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, unless otherwise required by law.

SECTION 6. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, provided that if less than a majority of the Directors are present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without

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further notice. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless a greater number is required by the Certificate of Incorporation or these by-laws.

SECTION 7. Interested Directors. Except as may otherwise be provided in the Certificate of Incorporation, no contract or transaction between the corporation and one or more of its Directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers are Directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:

(a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or

(b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by the vote of the stockholders; or

(c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders.

Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

SECTION 8. Vacancies. If vacancies occur in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Director or Directors or otherwise, or if any new Directorship is created by any increase in the authorized number of Directors, a majority of the Directors then in office, though less than a quorum, may choose a successor or successors, or fill the newly created Directorship and the Directors so chosen shall hold office until the next annual election of Directors and until their successors shall be duly elected and qualified, unless sooner displaced.

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SECTION 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the corporation.

(a) The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member, at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

(b) Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate two or more Directors to constitute an Executive Committee and one or more Directors as alternates thereof. Subject to the limitations provided in these by-laws and such further limitation as might be required by law or by the Certificate of Incorporation or by further resolution of the Board of Directors, the Executive Committee may, during intervals between meetings of the Board of Directors, exercise the powers of the Board of Directors in the management of the business and affairs of the corporation (including the corporation’s dealings with its foreign subsidiaries, affiliates, and licensees) and may authorize the seal of the corporation to be affixed to all papers which may require it. The Committee shall not be empowered to take action with respect to: issuing bonds, debentures; increasing or reducing the capital of the corporation; authorizing commitments and expenditures in excess of the total amount or amounts provided in the capital budgets approved or otherwise authorized by the Board of Directors; borrowing of monies, except within limits expressly approved by the Board of Directors;

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electing officers; fixing the compensation of officers; establishment of stock option plans, profit sharing or similar types of compensation plans, filling vacancies or newly-created directorships on the Board of Directors; removing officers or directors of the corporation; dissolution, or any other action specifically reserved to the Board of Directors including all matters requiring the approval of stockholders. The Committee may also from time to time formulate and recommend to the Board for approval general policies regarding management of the business and affairs of the corporation. The designation of the Committee and the delegation thereto of authority shall not operate to relieve the Board of Directors or any member thereof of any responsibility imposed upon it or him by operation of law. The secretary of the corporation (or in his absence a person designated by the Executive Committee) shall act as secretary at all meetings of the Executive Committee. A majority of the Committee, from time to time, shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at a meeting in which a quorum is present shall be the act of the Committee, provided that in the absence or disqualification of any member of the Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Regular meetings of the Committee may be held without notice at such times and at such places as shall be fixed by resolution adopted by a majority of the Committee. Special meetings may be called by any member of the Committee on twenty-four hours’ prior written or telegraphic notice.

(c) Compensation Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate not less than two Directors to constitute a Compensation Committee and one or more directors as alternate members thereof, none of whom shall be employees of the corporation. In the absence or disqualification of any member of the Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member, provided that the majority of the Committee, as then constituted, shall not be employees of the corporation. The Compensation Committee shall review and determine from time to time the salaries and other compensation of all elected officers of the corporation and shall submit to the Board of Directors such reports in such form and at such time as the Board of Directors may request.

(d) Audit Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate three or more Directors who are not employees of the corporation to constitute an Audit Committee and one or more Directors who are not employees of the

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corporation as alternate members thereof. The Board of Directors shall adopt a charter setting forth the duties of the Audit Committee. Among other things, the Committee shall review the selection and qualifications of the independent public accountants employed from time to time to audit the financial statements of the corporation and the scope and adequacy of their audits. The Committee shall also consider recommendations made by such independent public accountants. The Committee may also make such review of the internal financial audits of the corporation as it considers desirable and shall report to the Board any additions or changes which it deems advisable. In the absence or disqualification of any member of the Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors who is not an employee of the corporation to act at the meeting in the place of any such absent or disqualified member.

(e) Employee Benefits Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate three (3) or more individuals, any or all of whom may be non-director employees of the Company, to constitute an Employee Benefits Committee. The Committee shall select, retain or remove the investment managers, advisors, consultants and persons otherwise employed by the Company as named fiduciaries under the Company’s employee benefit plans, which actions it shall report to the Board of Directors. The Committee shall review the performance of the trustee or trustees, investment managers, advisors and consultants under said plans with respect to the investment of plan assets. The Committee shall be responsible for the administration of the Company’s employee benefit plans and, in fulfilling that responsibility, may delegate to others, whether Company employees or otherwise, specific assignments in administering the plans.

(f) Corporate Governance and Nominating Committee, The Board of Directors, by resolution adopted by a majority vote of the whole Board, may designate two or more Directors to constitute a Corporate Governance and Nominating Committee. This Committee shall recommend criteria for Board membership, establish procedures for the receipt and evaluation of suggestions of candidates, and make recommendations to the Board concerning nominees for Board membership. The Committee may recommend to the Board policies and procedures relating to corporate governance and monitor such policies and procedures when established. The Committee may also make recommendations to the Board concerning the number of Directors to serve on the Board and may establish standards for evaluation of the performance of the Directors in order to make recommendations with regard thereto.

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(g) Finance Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate two or more directors to constitute a Finance Committee and one or more directors as alternate members thereof. The duties and responsibilities of the Finance Committee shall be to review, upon the request of the Chairman or the President, management’s proposals with respect to: the corporation’s debt and equity financing; recommendations to the Board with respect to dividend policy and payments; acquisitions and divestitures exceeding the standing authority management has by virtue of the resolution dated December 10, 1993, or its successors; recommendations to the Board concerning the corporation’s investment portfolio; the corporation’s real estate investments; and other financing and investment matters.

SECTION 10. Consent in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee thereof, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee.

SECTION 11. Compensation. Directors who are also full time employees of the corporation shall not receive any compensation for their services as Directors but they may be reimbursed for reasonable expenses of attendance. By resolution of the Board of Directors, all other Directors may receive, as compensation for their services any combination of: an annual fee; a fee for each meeting attended; shares of stock; or other forms of compensation; together with reimbursement of expenses of attendance, if any, at each regular or special meeting of the Board of Directors or any committee of the Board of Directors; provided, that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor.

SECTION 12. Meeting by Conference Telephone. Unless otherwise restricted by the Certificate of Incorporation, members of the Board of Directors or any committee designated by such Board may participate in a meeting of such Board or committee by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant hereto shall constitute presence in person at such meeting. Unless otherwise required by law, no notice shall be required if a quorum of the Board or any committee is participating.

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ARTICLE IV

Officers

SECTION 1. Number. The officers of the corporation shall be a chairman, one or several vice chairmen, one or several executive vice presidents or vice presidents (the number thereof to be determined by the Board of Directors), one or several of the vice presidents may be designated “senior vice president” by the Board of Directors, and one of whom may be elected as chief financial officer of the corporation, a treasurer, a controller, a secretary, and other such officers as may be elected in accordance with the provisions of this article. Any two or more offices may be held by the same person.

SECTION 2. Election and Term of Office. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.

SECTION 3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.

SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

SECTION 5. Chairman. The chairman shall be the chief executive officer of the corporation and shall have general supervision over all of the affairs of the corporation and shall determine and administer the policies of the corporation as established by the Board of Directors or by the Executive Committee. The chairman shall: (i) provide leadership to the Board in reviewing and advising upon matters which exert major influence on the manner in which the corporation’s business is conducted; (ii) preside at all meetings of the stockholders and of the Board of Directors; (iii) in the absence of the chairman of the Executive Committee, preside at all meetings of the Executive Committee; and (iv) perform such other duties as may be conferred by law or assigned by the Board of Directors. The chairman may sign, with the secretary or other proper officer of the corporation thereunto authorized by the Board of Directors, stock certificates of the corporation, any deeds, mortgages, bonds, contracts, or other instruments, except in cases where the signing or execution thereof shall be expressly delegated by the Board of Directors or by these by-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. The chairman may also execute proxies on behalf of the corporation with respect to the

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voting of any shares of stock owned by the corporation; have the power to appoint agents or employees as in the chairman’s judgment may be necessary or appropriate for the transaction of the business of the corporation; and in general shall perform all duties incident to the office of chairman.

SECTION 6. Vice Chairman. The vice chairman shall assist the chairman in supervising the affairs of the corporation, with special responsibility for integrating acquired businesses into the corporation. In the absence of the chairman, the vice chairman shall preside at all meetings of the stockholders and the Board of Directors. In the event of the absence or disability of the chairman, the vice chairman shall assume all of the duties and responsibilities of that office. The vice chairman may sign any deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing is required to be by some other officer or agent of the corporation. The vice chairman shall perform such other duties as may be designated by the chairman or the Board of Directors.

SECTION 7. Executive Vice President(s). The executive vice president or executive vice presidents (if elected by the Board of Directors) shall perform such duties not inconsistent with these by-laws as may be assigned to him or them by the chairman or the Board of Directors. In the event of absence or disability of the chairman, and vice chairman and chairman of the Executive Committee, the executive vice president (or in the event there be more than one, the executive vice president determined in the order of election) shall assume all the duties and responsibilities of the office of the chairman.

SECTION 8. Chief Financial Officer. The chief financial officer (if elected by the Board of Directors) shall have general supervision over the financial affairs of the corporation.

SECTION 9. The Vice President(s). The Board of Directors may designate any vice president as a senior vice president. In the event of absence or disability of the chairman and vice chairman, the chairman of the Executive Committee and all executive vice presidents, the senior vice presidents) or the vice president(s) in the order of election, shall assume all the duties and responsibilities of the office of the chairman. Any senior vice president or any vice president may sign, with the secretary or an assistant secretary, stock certificates of the corporation; and shall perform such other duties as from time to time may be assigned to him by the chairman or by the Board of Directors. In general, the vice president (or vice presidents, including the senior vice president or senior vice presidents) shall perform such duties not inconsistent with these by-laws as may be assigned to him (or them) by the chairman, the executive vice presidents or by the Board of Directors.

SECTION 10. The Treasurer. If required by the Board of Directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation;

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receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article VI of these by-laws; (b) in general perform all duties incident to the office of treasurer and such other duties not inconsistent with these by-laws as from time to time may be assigned to him by the Board of Directors, or by the chairman, or any vice president designated for such purpose by the chairman.

SECTION 11. The Secretary. The secretary shall: (a) keep the minutes of the stockholders’ and the Board of Directors’ meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all stock certificates prior to the issue thereof and to all documents, the execution of which on behalf of the corporation under its seal is required; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) sign with a vice president, or the chairman, stock certificates of the corporation, the issue of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; (g) act as secretary at all meetings of the Executive Committee; and (h) in general perform all duties incident to the office of secretary and such other duties not inconsistent with these by-laws as from time to time may be assigned to him by the chairman or by the Board of Directors.

SECTION 12. The Controller. The controller shall provide guidance and evaluation with respect to the corporation’s accounting and related functions, control and procedures systems, budget programs, and coordinate same on a divisional and overall corporate level. The controller shall report to such officer or officers of the corporation and perform such other duties incident to the office of controller as may be prescribed from time to time by the chairman, chief financial officer, or by the Board of Directors.

SECTION 13. Assistant Treasurers and Assistant Secretaries. The chairman may appoint one or more assistant treasurers and one or more assistant secretaries who shall serve as such until removed by the chairman or the Board of Directors. The assistant treasurers may be required to give bonds for the faithful discharge of their duties in such sums and with such sureties as the chairman shall determine. The assistant treasurers and assistant secretaries, in general, shall perform such duties as shall be assigned to them by the treasurer or the secretary, respectively, or by the chairman, but shall not be considered to be officers of the corporation solely by reason of such appointments or titles.

SECTION 14. Appointive Presidents and Vice Presidents. The chairman may from time to time designate employees of the corporation who are managing one

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or several groups, divisions, or other operations of the corporation as “President”, “Vice President”, or similar title, which employees shall not be considered to be officers of the corporation solely by reason of such appointments or titles. The chairman shall report such appointments to the Compensation Committee at least annually.

SECTION 15. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors on a monthly basis and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the corporation.

ARTICLE V

Indemnification of Officers, Directors
Employees and Agents

SECTION 1. Non-Derivative Actions and Criminal Prosecutions. To the extent permitted by applicable law from time to time in effect, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

SECTION 2. Derivative Actions. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in

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good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

SECTION 3. Right to Indemnification. To the extent that a Director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified by the corporation against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

SECTION 4. Where No Adjudication. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable and a quorum of disinterested Directors so directs, by independent legal counsel (compensated by the corporation) in a written opinion, or (iii) by the stockholders.

SECTION 5. Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this Article.

SECTION 6. Non-exclusive. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

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SECTION 7. Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article or of applicable law.

ARTICLE VI

Contracts, Loans, Checks and Deposits

SECTION 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of any on behalf of the corporation, and such authority may be general or confined to specific instances.

SECTION 2. Loans. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

SECTION 3. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

SECTION 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the Board of Directors may select.

ARTICLE VII

Stock Certificates

SECTION 1. Stock Certificates. Certificates representing shares of stock of the corporation shall be in such form as may be determined by the Board of Directors,

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shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder’s name and number of shares and shall be signed by the chairman, the chairman of the Executive Committee, or a vice president and the treasurer or an assistant treasurer or the secretary or an assistant secretary, and shall be sealed with the seal of the corporation. If a stock certificate is countersigned (a) by a transfer agent other than the corporation or its employee, or (b) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

SECTION 2. Lost Certificates. The Board of Directors may from time to time make such provision as it deems appropriate for the replacement of lost, stolen or destroyed stock certificates, including the requirement to furnish an affidavit and an indemnity.

SECTION 3. Transfers of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a stock certificate duly endorsed or accompanied by proper evidence of succession, assignment of authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon the books of the corporation. The person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation.

SECTION 4. Transfer Agents and Registrars. The Board of Directors may appoint one or more transfer agents and registrars and may thereafter require all stock certificates to bear the signature of a transfer agent and registrar.

SECTION 5. Rules of Transfer. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of stock certificates of the corporation.

ARTICLE VIII

Fiscal Year

The fiscal year of the corporation shall begin on the first day of January in each year and end on the thirty-first of December in each year.

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ARTICLE IX

Dividends

The Board of Directors may from time to time, declare, and the corporation may pay, dividends on its outstanding shares of stock in the manner and upon the terms and conditions provided by law and its Certificate of Incorporation.

ARTICLE X

Seal

The Board of Directors shall provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words “Corporate Seal, Delaware”.

ARTICLE XI

Waiver of Notice

Whenever any notice whatever is required to be given under the provisions of these by-laws or under the provisions of the Certificate of Incorporation or under the provisions of The General Corporation Law of Delaware, waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of any person at a meeting for which any notice whatever is required to be given under the provisions of these by-laws, the Certificate of Incorporation or The General Corporation Law of Delaware shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

-17- EX-10.(B) 4 c75093exv10wxby.htm AMENDMENT TO THE ITW 1996 STOCK INCENTIVE PLAN Amendment to the ITW 1996 Stock Incentive Plan

Exhibit 10(b)

AMENDMENT TO THE
ILLINOIS TOOL WORKS INC. 1996 STOCK INCENTIVE PLAN

In connection with the grant of Restricted Shares effective January 2, 2003, pursuant to the Illinois Tool Works Inc. 1996 Stock Incentive Plan, Section 9(b) of the Plan is amended to add the following sentence:

“Notwithstanding the foregoing, the Restricted Shares granted January 2, 2003, shall not become fully vested upon termination of employment by reason of Retirement, Disability or death.”

EX-13 5 c75093exv13.htm THE COMPANY'S 2002 ANNUAL REPORT TO STOCKHOLDERS The Company's 2002 Annual Report to Stockholders

MANAGEMENT’S DISCUSSION AND ANALYSIS

Introduction

Illinois 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 44 countries which are aggregated and organized for internal reporting purposes into the following five segments: Engineered Products—North America; Engineered Products—International; Specialty Systems—North America; Specialty Systems—International; and Leasing and Investments. These segments are described below.

Due to the large number of diverse businesses and the Company’s highly decentralized operating style, the Company does not require its business units to provide detailed information on operating results. Instead, the Company’s corporate management collects data on a few key measurements: operating revenues, operating income, operating margins, overhead costs, number of months on hand in inventory, past due receivables, return on invested capital and cash flow. These key measurements are monitored by management and significant changes in current trends and variances from forecasts are discussed with operating unit management. The results of each segment are analyzed by identifying the effects of changes in the results of the base businesses, newly acquired companies, currency translation and restructuring costs on the operating revenues and operating income of each segment. Base businesses are those businesses which have been included in the Company 46;s results of operations for more than a year.

A key element of the Company’s business strategy is its continuous 80/20 simplification process. The basic concept of this 80/20 process is to focus on what is most important (the 20% of the items which account for 80% of the value) and to spend less time and resources on the less important (the 80% of the items which account for 20% of the value). The Company’s operations use this 80/20 process to simplify and focus on the key parts of their business, and reduce complexity that may disguise what is truly important. Each of the Company’s 600 operations utilize the 80/20 process in all aspects of their business. Common applications of the 80/20 process include:

Engineered Products—North America

Businesses in this segment are located in North America and manufacture a variety of short lead-time plastic and metal components and fasteners, as well as specialty products for a diverse customer base. These commercially oriented, value-added products become part of the customers’ products and typically are manufactured and delivered in a period of time of less than 30 days. In the plastic and metal components and fasteners category, product examples include cordless nailing systems for new housing and renovation projects, plastic interior door handles for automobiles and light trucks, and plastic shelving supports for household appliances. In the specialty products category, product examples include reclosable packaging for consumer food applications, specialty swabs and wipes for clean room usage, and specialty adhesives for household purposes. In 2002, this segment primarily served the construction (45%), automotive (32%) and general industrial ( 9%) markets.


Dollars in thousands	2002			2001			2000

Operating revenues	$	3,042,070		$	2,974,104		$	3,184,033
Operating income		533,459			495,661			626,625
Margin %		17.5	%		16.7	%		19.7	%

Operating revenues increased 2% in 2002 versus 2001 mainly due to a 1% increase in base business revenues and a 2% increase due to revenues of acquired companies. The base business revenue increase is primarily due to higher demand in automotive end markets, mostly offset by declines in revenues in the industrial products and construction businesses. Operating income increased 8% in 2002 due to a 3% improvement in base business income, a 3% increase as a result of lower restructuring costs in 2002 and a 2% increase related to acquired businesses. Of the 3% improvement in the base business, 2% was due to higher revenues and 1% related to cost improvements. Margins increased 80 basis points in 2002 as a result of the base business improvement and lower restructuring costs.

Operating revenues decreased 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 acquisitions of 3%. Operating income declined 21% mainly due to a 20% decline in base business income and a 2% decrease related to higher restructuring costs. Margins declined 300 basis points in 2001 as a result of lower sales and higher restructuring costs.

Engineered Products—International

Businesses in this segment are located outside North America and manufacture a variety of short lead-time plastic and metal components and fasteners, as well as specialty products for a diverse customer base. These commercially oriented, value-added products become part of the customers’ products and typically are manufactured and delivered in a period of time of less than 30 days. In the plastic and metal components and fastener category, products are similar to those made in North America and serve the construction, automotive and general industrial sectors. In the specialty products category, a product example includes electronic component packaging trays used for the storage, shipment and manufacturing insertion of electronic components and microchips. In 2002, this segment primarily served the construction (37%), automotive (31%), and general industrial (12%) markets.


Dollars in thousands	2002			2001			2000

Operating revenues	$	1,566,387		$	1,471,559		$	1,466,982
Operating income		212,824			179,508			167,881
Margin %		13.6	%		12.2	%		11.4	%

Operating revenues increased 6% in 2002 versus 2001, primarily due to increases from acquired businesses of 2% and the favorable effect of foreign currency translation of 3%, partially offset by decreases related to divestitures of 1%. Base business revenues increased by 2% due to increases in the construction, industrial plastics and fluid product businesses. Operating income increased 19% in 2002, primarily due to a 10% increase in base business income, a 4% increase from currency translation, a 2% increase due to lower restructuring costs and a 1% increase related to income from acquired businesses. Of the 10% increase in base business income, 6% was attributable to revenue growth and 4% related to cost improvements, despite higher pension expense and a fixed asset writedown in the Asian laminate business of $5 million. Margins increased 140 basis points in 2002 mainly due to the improved cost structure.

Operating revenues were flat in 2001 versus 2000 as revenue growth from acquisitions of 7% was mostly offset by unfavorable currency translation of 6%. Base business revenues declined by 1% as higher revenues for the construction and automotive businesses were more than offset by lower revenues in the electrical component packaging and industrial products businesses. Operating income increased 7% in 2001 primarily due to writedowns of goodwill and intangible assets related to a laminate business in Europe in 2000, partially offset by declines in base business income related to reduced revenues and 5% lower income due to unfavorable currency translation. Margins increased 80 basis points in 2001 mainly as a result of the 2000 goodwill and intangible writedowns. See Goodwill and Intangible Assets note for additional discussion of the 2000 goodwill and intangible writedowns.

Specialty Systems—North America

Businesses in this segment are located in North America and design and manufacture longer lead-time machinery and related consumables, as well as specialty equipment for a diverse customer base. These commercially oriented value-added products become part of the customers’ production process and typically are manufactured and delivered in a period of time of more than 30 days. In the machinery and related consumables category, examples of products include industrial packaging equipment and plastic and steel strap for the bundling and shipment of a variety of products for customers in numerous end markets, welding equipment and consumables for a variety of end market users, and equipment and consumables that multi-pack cans and bottles for the food and beverage industry. In the specialty equipment category, product examples include commercial food equipment such as dishwashers, refrigerators and specialty scales for use by restaurants and supermarkets, and paint spray equipment for a variety of general industrial applications. In 2002, this segment primarily served the food retail and service (29%), general industrial (22%), construction (10%), and food and beverage (9%) markets.


Dollars in thousands	2002			2001			2000

Operating revenues	$	3,353,719		$	3,396,320		$	3,351,568
Operating income		509,299			451,236			580,923
Margin %		15.2	%		13.3	%		17.3	%

In 2002, operating revenues declined 1% versus 2001 as revenue increases from acquired companies of 3% were more than offset by base business declines of 4%. In the base businesses, slower end market demand in the food equipment, industrial packaging, marking and decorating and ground support equipment businesses was modestly offset by growth in the welding equipment businesses. Operating income increased 13% in 2002 due to a 13% base business income improvement and a 2% increase related to acquired businesses, partially offset by lower income of 2% due to higher restructuring costs. In the base business, income was higher by 25% due to reductions in costs, but was down 12% due to revenue declines. Restructuring in this segment represented approximately 45% of the total company restructuring costs incurred over the last two years and the benefits of these 80/20 efforts can be seen in lower operating expenses. Margins increased 190 basis points as a result of the reduced costs.

In 2001, operating revenues grew 1% versus 2000. Increased revenues from acquisitions of 11% were partially offset by a 9% decrease in base business revenues, as slow demand in most end markets negatively impacted the industrial packaging, food equipment, welding and finishing businesses. Operating income declined 22% primarily due to base business declines of 24% and increased restructuring costs that decreased income by 1%, partially offset by a 4% increase related to income from acquired companies. Margins fell 400 basis points due to lower margins of acquired companies and higher restructuring costs.

Specialty Systems—International

Businesses in this segment are located outside North America and design and manufacture longer lead-time machinery and related consumables, as well as specialty equipment for a diverse customer base. These commercially oriented, value-added products become part of the customers’ production process and typically are manufactured and delivered in a period of time of more than 30 days. In the machinery and related consumables category, products are similar to those made in North America and include numerous equipment and consumables for use by customers serving the general industrial and food and beverage sectors. In the specialty equipment category, products are used by food equipment and paint spray equipment customers. In 2002, this segment primarily served the general industrial (26%), food retail and service (21%), and food and beverage (15%) markets.


Dollars in thousands	2002			2001			2000

Operating revenues	$	1,693,042		$	1,668,895		$	1,741,629
Operating income		164,656			183,441			189,279
Margin %		9.7	%		11.0	%		10.9	%

In 2002, operating revenues increased by 1% mainly due to a positive 3% impact of both currency fluctuation and acquisition-related revenues, offset by a revenue decline of 4% in the base businesses, primarily related to the industrial packaging, food equipment, consumer packaging and decorating businesses. Operating income decreased 10% in 2002 primarily as a result of a 13% decline in base business income and a 3% decrease due to higher restructuring expenses, softened by a 1% increase from acquisition-related income and a 4% increase due to favorable currency translation. The 13% decline in base business income was due entirely to revenue declines as cost improvements in this segment were offset by goodwill impairment charges of approximately $7 million related to industrial packaging businesses in Australia and Asia, an asset writedown of $2.5 million at a European industrial packaging unit and higher pension expense. Margins declined 130 basis po ints as a result of the above one-time charges and the lower margins of acquired businesses.

In 2001, operating revenues decreased 4% due mainly to the effect of currency fluctuations, which reduced revenues by 6%. Acquisition related revenue growth of 6% was partially offset by revenue decreases of 1% due to divestitures. Base business revenue declined 3% primarily related to the food equipment and industrial packaging operations. Operating income decreased 3% due to an 8% base business income decline and a 6% decrease due to unfavorable currency translation, partially offset by a 5% increase in acquisition-related income and lower restructuring expense which increased income by 6%. Margins increased by 10 basis points.

Leasing and Investments

Businesses in this segment make opportunistic investments in mortgage-related assets, leveraged and direct financing leases of telecommunications, aircraft and other equipment, properties and property developments, affordable housing and a venture capital fund. See the Investments note for a detailed discussion of the accounting policies for the various investments in this segment.


In thousands	2002		2001		2000

Operating revenues	$	181,570	$	149,691	$	154,278
Operating income		85,533		79,398		83,898

Operating income (loss) by investment for the years ended December 31, 2002, 2001 and 2000 was as follows:


In thousands	2002			2001			2000

Mortgage investments	$	83,357		$	59,192		$	64,716
Leases of equipment		(6,658	)		3,873			2,855
Property developments		6,583			7,096			6,522
Properties held for sale		5,532			2,979			1,296
Venture capital limited partnership		(3,588	)		(1,158	)		—
Other		307			7,416			8,509

	$	85,533		$	79,398		$	83,898

Income from mortgage investments increased 41% in 2002, primarily as a result of favorable swap mark-to-market adjustments related to the decrease in market interest rates. Income from leases of $3.9 million in 2001 decreased to a loss of $6.7 million in 2002 due mainly to an impairment charge of $31.6 million related to aircraft leases, partially offset by income from new telecommunications leases of $15.8 million. Income related to properties held for sale increased significantly due to a gain on the sale of a Chicago-area property of $7.4 million in 2002 versus a gain on the sale of a former manufacturing facility in Connecticut of $3.9 million in 2001. Operating losses from the venture capital limited partnership increased in 2002 due to a $2.5 million writedown related to one of the partnership’s investments. Operating income from other investments decreased primarily due to lower allocated interest income related to affordable housing investments.

Operating revenues and income declined in 2001 versus 2000, as gains on sales of 17 mortgage-related assets were $1.6 million in 2001 versus gains on sales of 11 mortgage-related assets of $7.5 million in 2000. In addition, start-up losses related to the new venture capital limited partnership investment reduced operating income.

The net assets attributed to the Leasing and Investments segment at December 31, 2002 and 2001 are summarized by investment as follows:


In thousands	2002		2001

Mortgage investments	$	252,518	$	156,857
Leases of equipment		60,965		18,291
Properties held for sale		19,000		19,309
Property developments		12,624		16,269
Affordable housing limited partnerships		4,123		2,183
Other, net		11,558		35,157

	$	360,788	$	248,066

Mortgage Investments

The Company’s net assets related to mortgage investments as of December 31, 2002 and 2001 were as follows:


In thousands		2002			2001

Mortgage-related assets:
	Commercial mortgage loans	$	80,204		$	202,348
	Commercial real estate		643,611			588,778
	Net swap receivables		158,940			133,762
	Receivable from mortgage servicer		75,498			34,179
	Annuity contract		7,824			7,159
	U.S. Treasury security		6,800			6,254
Deferred tax assets			126,047			114,261
Nonrecourse notes payable			(569,472	)		(600,537	)
Allocated general corporate debt			(61,924	)		(87,212	)
Deferred investment income			(120,518	)		(151,243	)
Preferred stock of subsidiaries			(60,000	)		(60,000	)
Other, net			(34,492	)		(30,892	)

		$	252,518		$	156,857

In 1995, 1996 and 1997, the Company acquired pools of mortgage-related assets in exchange for aggregate nonrecourse notes payable of $739.7 million, preferred stock of subsidiaries of $60 million and cash of $240 million. The mortgage-related assets acquired in these transactions relate to office buildings, apartment buildings and shopping malls located throughout the United States and include five variable-rate balloon loans and 40 properties at December 31, 2002. Included in these mortgage-related assets at December 31, 2002 are three loans which are currently paying interest at less than the contractual rate and eight properties which resulted from foreclosed mortgages. In conjunction with these transactions, the Company simultaneously entered into ten-year swap agreements and other related agreements whereby a third party receives the portion of the interest and net operating cash flow from the mortgage-related assets in excess of $ 26 million per year and a portion of the proceeds from the disposition of the mortgage-related assets and principal repayments, in exchange for the third party making the contractual principal and interest payments on the Company’s nonrecourse notes payable. In addition, in the event that the pools of mortgage-related assets do not generate interest and net operating cash flow of $26 million a year, the Company has a right to receive the balance from the cash flow generated by three separate pools of mortgage-related assets (owned by third parties in which the Company has minimal interests) which have a total fair value of approximately $1.8 billion at December 31, 2002.

The Company entered into the swaps and other related agreements in order to reduce its real estate, credit and interest rate risks relative to its net mortgage investments. The swap counter party has assumed the majority of the real estate and credit risk related to the commercial mortgage loans and real estate, and has assumed all of the interest rate risk related to the nonrecourse notes payable.

A summary of the estimated future cash flows for the commercial mortgage transactions as of December 31, 2002 is shown below:


					Cash Received from
					(Paid to) Swap			Cash Paid to Swap
		Gross			Counter Party			Counter Party			ITW’s
		Estimated Cash			Under Swap			Under Servicing			Share of
In thousands		Inflows (Outflows)			Agreements			Agreements			Cash Flows

Mortgage loans and real estate:
	Annual operating cash flows-
	2003	$	50,669		$	(24,669	)	$	—		$	26,000
	2004		61,276			(35,276	)		—			26,000
	2005		72,965			(51,465	)		—			21,500
	2006		46,099			(38,099	)		—			8,000
	2007		23,326			(19,326	)		—			4,000
	2008		2,834			(2,834	)		—			—

	Total	$	257,169		$	(171,669	)	$	—		$	85,500

	Disposition proceeds-
	2005	$	351,473		$	(111,325	)	$	(100,157	)	$	139,991
	2006		309,772			(98,674	)		(69,121	)		141,977
	2007		—			—			—			—
	2008		278,827			(53,566	)		(58,954	)		166,307

	Total	$	940,072		$	(263,565	)	$	(228,232	)	$	448,275

Debt service of nonrecourse notes payable:
	2003	$	(79,437	)	$	79,437		$	—		$	—
	2004		(76,659	)		76,659			—			—
	2005		(217,791	)		217,791			—			—
	2006		(226,791	)		226,791			—			—
	2007		(45,568	)		45,568			—			—
	2008		(55,007	)		55,007			—			—

	Total	$	(701,253	)	$	701,253		$	—		$	—

Cash flow from net mortgage investments		$	495,988		$	266,019		$	(228,232	)	$	533,775

All of the estimates of the annual operating cash flows and disposition proceeds above were provided by the swap counter party, who is also the servicer of the mortgage loans and real estate.

As shown below, the amount of cash flows which is greater than the Company’s net mortgage investment at December 31, 2002 will be recorded as income during the remaining term of the transactions:


In thousands

ITW’s estimated share of cash flows		$	533,775

Net mortgage investments at December 31, 2002:
	Mortgage-related assets	$	972,877
	Nonrecourse notes payable		(569,472	)

			403,405

	Future income expected to be recorded	$	130,370

The Company believes that because the swaps’ counter party is AAA-rated, there is minimal risk that the Company’s nonrecourse notes payable will not be repaid by the swap counter party. In addition, because significant assets back the total annual cash flow, the Company believes its risk of not receiving the $85.5 million is also minimal.

Under the terms of the servicing agreements, the swap counter party, upon sale of the mortgage loans and real estate, is entitled to receive most of the disposition proceeds in excess of specified levels. Currently, the projected disposition proceeds exceed the levels specified. Furthermore, the disposition value of certain properties has been guaranteed by the swap counter party to be at least equal to their original cost. As such, modest fluctuations in the market values of the mortgage loans and real estate are expected to largely impact the swap counter party rather than ITW.

To illustrate how the Company’s risk related to the disposition proceeds has been significantly mitigated, the effects of decreases in the estimated disposition proceeds at December 31, 2002 is shown below:


	Disposition proceeds

			Swap				Future
			Counter				ITW
	ITW’s		Party’s				Income to be
In thousands	Share		Share		Total		Recognized

Current estimate	$	448,275	$	491,797	$	940,072	$	130,370
10% reduction in disposition proceeds		435,698		410,367		846,065		117,793
20% reduction in disposition proceeds		427,291		324,767		752,058		109,386
30% reduction in disposition proceeds		411,320		246,730		658,050		93,415

If the swap counter party is unable to sell all of the commercial loans and real estate by the end of the tenth year for each transaction, the Company will begin receiving all of the annual operating cash flow from the remaining assets. Accordingly, the Company believes that it is unlikely that the assets will not be sold within the ten-year term of each transaction.

Leases of Equipment

The Company’s net assets related to investments in leases of equipment at December 31, 2002 and 2001 were as follows:


In thousands		2002			2001

Investments in leases:
	Aircraft	$	47,315		$	74,198
	Railcars		575			655
	Telecommunications		162,187			—
	Manufacturing equipment		7,053			8,011
Deferred tax liabilities			(14,619	)		(23,445	)
Allocated general corporate debt			(141,516	)		(41,088	)
Other, net			(30	)		(40	)

		$	60,965		$	18,291

In 2001, the Company entered into a leveraged lease of a Boeing 777 aircraft with United Airlines. The Company’s cash investment in this leverage lease was $29.2 million. In 2002, an impairment charge of $31.6 million was recorded related to the Company’s investments in aircraft leased to United Airlines, which declared bankruptcy in December 2002.

In 2002, the Company entered into leveraged leasing transactions related to mobile telecommunications equipment with two major European telecommunications companies. The Company’s cash investment in these leveraged leases was $144.7 million.

Deferred Investment Income

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 investment income is being amortized to income on a straight-line basis over the lives of the related transactions. The deferred investment income of $144.3 million at December 31, 2002 will be recognized in income as follows:


In thousands

2003	$	42,211
2004		33,315
2005		33,315
2006		22,340
2007		11,188
2008		1,939

	$	144,308

Change in Accounting Standard

In 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities—an interpretation of ARB No. 51 (“FIN 46”). The Company is required to adopt FIN 46 in the third quarter of 2003. FIN 46 requires consolidation of entities in which the Company does not have a majority voting interest but is deemed to have a controlling interest. The Company is in the process of reviewing its investments to determine if any of them would be impacted by the adoption of FIN 46. It is reasonably possible that the Company’s mortgage-related investments would be deconsolidated, and the property developments and affordable housing limited partnerships would be consolidated as a result of the adoption of FIN 46.

Operating Revenues

Operating revenues increased 1.9% in 2002 and decreased 2.3% in 2001 as compared with 2001 and 2000, respectively, as follows:


Increase/(decrease) related to:		2002			2001

	Base business		(1.8	)%		(7.3	)%
	Acquisition-related		2.5			7.3
	Translation		1.0			(2.0	)
	Other		0.2			(0.3	)

Net change from prior year			1.9	%		(2.3	)%

Overall, the Company believes that the majority of the changes in base operating revenues are due to changes in sales volume rather than changes in sales prices.

Operating Income

Operating income increased 15.3% in 2002 and decreased 17.2% in 2001 as compared with 2001 and 2000, respectively, as follows:


Increase/(decrease) related to:		2002			2001

	Base business		5.2	%		(18.8	)%
	Acquisition-related		2.3			3.8
	Translation		1.1			(1.4	)
	Goodwill and indefinite-lived intangible amortization		6.4			—
	Other		0.3			(0.8	)

Net change from prior year			15.3	%		(17.2	)%

The significant improvement in base business operating income was primarily the result of 80/20 simplification efforts across all segments. Included in the change in base business for 2002 is an increase in pension expense of $43.4 million. This change is mainly due to a decrease in the expected return on plan assets assumption for the Company’s primary pension plans. Pension expense in 2003 is expected to increase $15 million, primarily as a result of the decrease in the discount rate assumption. The elimination of the amortization of goodwill and indefinite-lived intangibles also had a significant impact on the increase in operating income as discussed below.

Amortization and Impairment of Goodwill and Intangible Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Under SFAS 142, the Company no longer amortizes goodwill and intangibles that have indefinite lives. SFAS 142 also requires that the Company assess goodwill and intangibles with indefinite lives for impairment at least annually, based on the fair value of the related reporting unit or intangible asset. On an on-going basis, the Company expects to perform its annual impairment assessment in the first quarter of each year.

As the first step in the SFAS 142 implementation process, the Company assigned its recorded goodwill and intangibles to approximately 300 of its reporting units. Then, the fair value of each reporting unit was compared to its carrying value. Fair values were determined by discounting estimated future cash flows.

Based on the Company’s initial impairment testing, goodwill was reduced by $254.6 million and intangible assets were reduced by $8.2 million and a net after-tax impairment charge of $221.9 million ($0.72 per diluted share) was recognized as a cumulative effect of change in accounting principle in the first quarter of 2002. The impairment charge was related to approximately 40 businesses and primarily resulted from evaluating impairment under SFAS 142 based on discounted cash flows, instead of using undiscounted cash flows as required by the previous accounting standard.

In addition to the cumulative effect of the change in accounting principle, goodwill and intangible expense for the years ended December 31, 2002, 2001 and 2000 was as follows:


In thousands		2002		2001		2000

Goodwill:
	Amortization	$	—	$	80,077	$	68,113
	Impairment		7,877		—		18,520
Intangibles:
	Amortization		20,056		24,508		20,492
	Impairment		—		—		11,780

Total		$	27,933	$	104,585	$	118,905

In the fourth quarter of 2002, an impairment charge of $7.9 million was recognized to reduce to estimated fair value the carrying value of goodwill related to five businesses. The impairment charge primarily related to the goodwill of industrial packaging businesses in Australia and Asia which was tested for impairment because actual 2002 results were lower than previously forecasted results.

Interest Expense

Interest expense increased slightly to $68.5 million in 2002 versus $68.1 million in 2001 primarily as a result of interest expense on the $250.0 million preferred debt securities issued in 2002 offset by lower commercial paper borrowings. Interest expense decreased in 2001 from $70.0 million in 2000 primarily due to the repayment of notes payable of $225.0 million in 2000. Interest costs attributed to the Leasing and Investments segment of $43.3 million in 2002, $51.7 million in 2001 and $58.7 million in 2000 have been classified in the segment’s cost of revenues.

Other Expense

Other expense was $3.8 million in 2002 versus $7.2 million in 2001. The decline is primarily due to lower losses on the sale of plant and equipment and higher interest income, partially offset by higher losses on currency translation in 2002. Other expense decreased in 2001 from $11.5 million in 2000, primarily due to lower minority interest expense on less-than-100%-owned subsidiaries and lower losses on currency translation, partially offset by higher losses on the sale of plant and equipment in 2001.

Income Taxes

The effective tax rate was 35.0% in 2002, 34.8% in 2001 and 35.2% in 2000. 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 $759.4 million at December 31, 2002 and $636.7 million at December 31, 2001 as it expects to continue to generate significant taxable income in most tax jurisdictions in future years.

Income from Continuing Operations

Income from continuing operations in 2002 of $931.8 million ($3.02 per diluted share) was 16.1% higher than 2001 income of $802.4 million ($2.62 per diluted share). Income from continuing operations in 2001 was 17.2% lower than 2000 income of $969.5 million ($3.18 per diluted share).

The Company is anticipating full year 2003 income from continuing operations to be between $3.02 to $3.42 per diluted share.

Foreign Currency

The weakening of the U.S. dollar against foreign currencies increased operating revenues by $92 million in 2002 and increased income from continuing operations by approximately 3 cents per diluted share in 2002. The strengthening of the U.S. dollar against foreign currencies decreased operating revenues by $184 million in 2001 and $289 million in 2000, and decreased income from continuing operations by approximately 4 cents per diluted share in 2001 and 7 cents per diluted share in 2000.

Discontinued Operations

In December 2001, the Company’s Board of Directors authorized the divestiture of the Consumer Products segment. These businesses were acquired by ITW in 1999 as part of the Company’s merger with Premark International Inc. (“Premark”). Subsequent to the Premark merger, the Company determined that the consumer characteristics of the businesses in the Consumer Products segment were not a good long-term fit with the Company’s other industrial-focused businesses. Businesses in this segment are located primarily in North America and manufacture household products that are used by consumers, including Precor specialty exercise equipment, West Bend small appliances and premium cookware, and Florida Tile ceramic tile. On October 31, 2002 the sales of Precor and West Bend were completed, resulting in net cash proceeds of $207.9 million. The Company is actively marketing and intends to dispose of Florida Tile through a sale transaction in 2003. The Company’s est imated net gain on disposal of the segment is as follows:


In thousands	Pretax			Tax			After-Tax

Realized gains on 2002 sales of Precor and West Bend	$	146,240		$	51,604		$	94,636
Estimated loss on 2003 sale of Florida Tile recorded in 2002		(123,874	)		(31,636	)		(92,238	)

Estimated net gain on disposal of the segment	$	22,366		$	19,968		$	2,398

The estimated after tax net gain of $2.4 million on the segment has been deferred at December 31, 2002 pending the completion of the sale of Florida Tile in 2003.

Results of the discontinued operations for the years ended December 31, 2002, 2001 and 2000 were as follows:


Dollars in thousands	2002			2001			2000

Operating revenues	$	344,419		$	405,146		$	471,930
Operating income (loss)		10,804			13,767			(14,016	)
Margin %		3.1	%		3.4	%		(3.0	%)

In 2002, operating revenues decreased 15% due to the divestiture of the West Bend and Precor businesses in the fourth quarter of 2002. Operating income and margins decreased mainly due to lower income in the West Bend and Precor businesses.

In 2001, operating revenues decreased 14% primarily due to lower sales volume for the Florida Tile and West Bend businesses. Operating income increased significantly in 2001 as a result of higher restructuring charges in 2000. Operating margins increased due to the effect of 2000 restructuring costs and improved operating performance for Florida Tile.

Net income or loss from discontinued operations was income of $2.7 million ($.01 per diluted share) in 2002, income of $3.2 million ($.01 per diluted share) in 2001, and a loss of $11.5 million ($.04 per diluted share) in 2000.

Liquidity and Capital Resources

Cash Flow

The Company’s primary source of liquidity is free operating cash flow. Management continues to believe that such internally generated 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.

The Company uses free operating cash flow to measure normal cash flow generated by its operations which is available for dividends, acquisitions, debt repayment and additional investments. Free operating cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies.

Summarized cash flow information for the three years ended December 31, 2002, 2001 and 2000 was as follows:


In thousands	2002			2001			2000

Net cash provided by operating activities	$	1,288,756		$	1,351,026		$	1,115,571
Proceeds from investments		77,780			210,669			84,102
Additions to plant and equipment		(271,424	)		(256,562	)		(305,954	)

Free operating cash flow	$	1,095,112		$	1,305,133		$	893,719

Acquisitions	$	(188,234	)	$	(556,199	)	$	(798,838	)
Cash dividends paid		(272,319	)		(249,141	)		(223,009	)
Purchase of investments		(194,741	)		(101,329	)		(14,651	)
Proceeds from sale of operations and affiliates		211,075			14,015			7,758
Net proceeds (repayments) of debt		(3,495	)		(363,656	)		38,272
Other		128,065			82,106			15,091

Net increase (decrease) in cash and equivalents	$	775,463		$	130,929		$	(81,658	)

Return on Invested Capital

The Company uses return on average invested capital (“ROIC”) to measure the effectiveness of the operations’ use of invested capital to generate profits. ROIC for the three years ended December 31, 2002, 2001 and 2000 was as follows:


Dollars in thousands	2002			2001			2000

Operating income after taxes	$	978,751		$	848,967		$	1,025,344

Total debt	$	1,581,985		$	1,580,588		$	1,974,827
Less: Leasing and investments debt		(770,099	)		(706,903	)		(808,800	)
Less: Cash and equivalents		(1,057,687	)		(282,224	)		(151,295	)

Adjusted net debt		(245,801	)		591,461			1,014,732
Total stockholders’ equity		6,649,071			6,040,738			5,400,987

Invested capital	$	6,403,270		$	6,632,199		$	6,415,719

Average invested capital	$	6,517,735		$	6,523,959		$	6,000,310

Return on average invested capital		15.0	%		13.0	%		17.1	%

The 200 basis point increase in ROIC in 2002 versus 2001 was due primarily to a 15.3% increase in after-tax operating income, mainly as a result of increases in base business income. Also contributing to the higher 2002 ROIC was a 3.5% decrease in invested capital.

In 2001, ROIC decreased 410 basis points compared with 2000 due to a 17.2% decline in after-tax operating income, which was related to decreases in base business revenues. Also contributing to the lower 2001 ROIC was a 3.4% increase in invested capital, mainly due to acquisitions of $556.2 million. The impact of acquisitions was partially offset by lower capital expenditures and reduced working capital related to base businesses.

Working Capital

Net working capital at December 31, 2002 and 2001 is summarized as follows:


						Increase
Dollars in thousands		2002		2001		(Decrease)

Current Assets:
	Cash and equivalents	$	1,057,687	$	282,224	$	775,463
	Trade receivables		1,500,031		1,450,029		50,002
	Inventories		962,746		994,156		(31,410	)
	Net current assets of discontinued operations		4,044		100,181		(96,137	)
	Other		354,301		336,654		17,647

			3,878,809		3,163,244		715,565

Current Liabilities:
	Short-term debt		121,604		313,447		(191,843	)
	Accounts payable and accrued expenses		1,250,647		1,162,459		88,188
	Other		194,911		100,006		94,905

			1,567,162		1,575,912		(8,750	)

Net Working Capital		$	2,311,647	$	1,587,332	$	724,315

	Current Ratio		2.48		2.01

The increase in cash and equivalents is the result of less cash paid for acquisitions and proceeds from the sale of the Precor and West Bend businesses. Net current assets of discontinued operations decreased as a result of the sale of Precor and West Bend in October 2002. Short-term debt decreased due to the repayment of commercial paper and foreign borrowings. Accounts payable and accrued expenses increased primarily as a result of the effects of foreign currency translation and increases from acquired businesses.

Debt

Total debt at December 31, 2002 and 2001 was as follows:


							Increase
Dollars in thousands	2002			2001			(Decrease)

Short-term debt	$	121,604		$	313,447		$	(191,843	)
Long-term debt		1,460,381			1,267,141			193,240

Total debt	$	1,581,985		$	1,580,588		$	1,397

Total debt to total capitalization		19.2	%		20.7	%

Total debt to total capitalization (excluding Leasing and Investments segment)		11.4	%		13.1	%

In 2002, a subsidiary of the Company issued $250 million of 6.55% preferred debt securities due December 31, 2011 at 99.849% of face value. The proceeds have been used for general corporate purposes. Free operating cash flow was used to pay off commercial paper and reduce foreign borrowings.

The Company has additional debt capacity to fund larger acquisitions. As of December 31, 2002, the Company has unused capacity of $900 million under its current U.S. debt facilities. In addition, the Company believes that based on its current free operating cash flow and debt-to-capitalization ratios, it could readily obtain additional financing if needed.

Contractual Obligations

The Company’s contractual cash obligations as of December 31, 2002 were as follows:


											2008 and
In thousands	2003		2004		2005		2006		2007		Future Years

Total debt excluding nonrecourse notes payable	$	79,999	$	22,239	$	3,964	$	2,424	$	1,028	$	902,859
Minimum lease payments		84,517		66,187		46,874		30,136		23,479		38,808
Affordable housing capital obligations		51,926		14,194		27,173		13,629		13,703		44,700
Maximum venture capital contribution		50,000		24,024		—		—		—		—
Preferred stock of subsidiaries		—		—		—		—		—		60,000

Total contractual cash obligations	$	266,442	$	126,644	$	78,011	$	46,189	$	38,210	$	1,046,367

The Company has provided guarantees related to the debt of certain unconsolidated affiliates of $32 million at December 31, 2002. In the event one of these affiliates defaults on its debt, the Company would be liable for the debt repayment. At December 31, 2002, the Company had open stand-by letters of credit of $67 million, substantially all of which expire in 2003. The Company had no other material off-balance sheet commitments at December 31, 2002.

Stockholders’ Equity

The changes to stockholders’ equity during 2002 were as follows:


In thousands

Total stockholders’ equity, December 31, 2001	$	6,040,738
Income from continuing operations		931,810
Income from discontinued operations		2,672
Cumulative effect of change in accounting principle		(221,890	)
Cash dividends declared		(275,750	)
Exercise of stock options, including tax benefits		71,942
Minimum pension liability		(35,595	)
Currency translation adjustments		135,144

Total stockholders’ equity, December 31, 2002	$	6,649,071

Market Risk

Interest Rate Risk

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s long-term debt and certain mortgage-related investments.

The Company has no cash flow exposure on its long-term obligations related to changes in market interest rates, other than $100 million of debt which has been hedged by the interest rate swap discussed below. The Company primarily enters into long-term debt obligations for general corporate purposes, including the funding of capital expenditures and acquisitions. In December 2002, the Company entered into an interest rate swap with a notional value of $100 million to hedge a portion of the fixed rate debt. Under the terms of the interest rate swap, the Company receives interest at a fixed rate of 5.75% and pays interest at a variable rate of LIBOR plus 1.96%. The maturity date of the interest rate swap is March 1, 2009. The carrying value of the notes has been adjusted to reflect the fair value of the interest rate swap.

The Company has also issued nonrecourse notes in connection with the three commercial mortgage transactions. The holders of these notes have recourse only against certain mortgage-related assets.

The mortgage-related assets acquired in the commercial mortgage transactions include 5 and 10 subperforming, variable-rate balloon loans at December 31, 2002 and 2001, respectively. The fair value of these commercial mortgage loans fluctuates as market interest rates change. The Company has entered into swap and other related agreements to reduce its credit and interest rate risks relative to the commercial mortgage loans and other mortgage-related assets. See the Leasing and Investments section for additional details regarding the net swap receivables.

The following table presents the Company’s financial instruments for which fair value is subject to changing market interest rates:


											Mortgage-Related Assets
		General Corporate Debt									and Related Nonrecourse Notes

					6.55%
		5.75%			Preferred Debt			6.875%
		Notes Due			Securities Due			Notes Due			Commercial
		March 1,			December 31,			November 15,			Mortgage		Net Swap			Nonrecourse
In thousands		2009			2011			2008			Loans		Receivables			Notes

As of December 31, 2002:
Estimated cash inflow (outflow) by year of principal maturity—
	2003	$	—		$	—		$	—		$	—	$	54,767		$	(41,605	)
	2004		—			—			—			—		41,383			(41,605	)
	2005		—			—			—			21,649		(45,156	)		(184,070	)
	2006		—			—			—			—		20,897			(208,148	)
	2007		—			—			—			—		14,043			(40,770	)
	2008 and thereafter		(500,000	)		(250,000	)		(150,000	)		84,023		10,748			(53,274	)
	Total		(500,000	)		(250,000	)		(150,000	)		105,672		96,682			(569,472	)
Estimated fair value			(544,300	)		(297,400	)		(172,545	)		83,601		158,940			(634,308	)
Carrying value			(501,008	)		(249,642	)		(149,892	)		80,204		158,940			(569,472	)
As of December 31, 2001:
Total estimated cash inflow (outflow)		$	(500,000	)	$	—		$	(150,000	)	$	280,643	$	89,964		$	(600,537	)
Estimated fair value			(500,391	)		—			(157,031	)		259,422		133,762			(653,230	)
Carrying value			(499,734	)		—			(149,874	)		202,348		133,762			(600,537	)

Foreign Currency Risk

The Company operates in the United States and 43 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, 2002 or 2001.

Critical Accounting Policies

The Company has four accounting policies which it believes are important to the Company’s financial condition and results of operations, 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 perform an analysis of the historical sales usage of the individual inventory items on hand and a reserve is recorded to adjust inventory cost to market value based on the following usage criteria:

In addition, for the majority of the U.S. operations, the Company has elected to use the last-in, first-out (“LIFO”) method of inventory costing. Generally, this method results in a lower inventory value than the first-in, first-out (“FIFO”) method due to the effects 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 estimated 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.

Income Taxes—The Company provides deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws. The Company’s tax balances are based on management’s interpretation of the tax regulations and rulings of over 40 taxing jurisdictions. Income tax expense recognized by the Company also reflects its best estimates and assumptions regarding, among other things, the level of future taxable income and effect of the Company’s various tax planning strategies. Future tax authority rulings and changes in tax laws, changes in projected levels of taxable income, and future tax planning strategies could affect the actual effective tax rate and tax balances recorded by the Company.

The Company believes that the above critical policies have resulted in past actual results approximating the estimated recorded amounts in those areas.

FORWARD-LOOKING STATEMENTS

This 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 divestiture of the Florida Tile business in 2003, Premark’s target operating margins, payments under guarantees, the availability of additional financing and the Company’s 2003 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 downturn in the construction, automotive, general industrial, food retail and service, or real estate markets, (2) deterioration in global and domestic business and economic conditions, particularly in North America, the European Community and Australia, (3) the unfavorable impact of foreign currency fluctuations, (4) an interruption in, or reduction in, introducing new products into the Company’s product lines, (5) a continuing unfavorable environment for making acquisitions or dispositions, domestic and international, including adverse accounting or regulatory requirements and market values of candidates and (6) unfavorable tax law changes and tax authority rulings.

REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Illinois Tool Works Inc.:

We have audited the accompanying statement of financial position of Illinois Tool Works Inc. and Subsidiaries (“the Company”) as of December 31, 2002, and the related statements of income, income reinvested in the business, cash flows and comprehensive income for the year then ended. 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 audit. The financial statements of the Company as of and for the years ending December 31, 2001 and 2000, prior to the addition of the transitional disclosures described in the Goodwill and Intangible Assets note to the financial statements, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated January 28, 2002.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material 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 audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Illinois Tool Works Inc. and Subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in the Goodwill and Intangible Assets note to the financial statements, the Company changed its method of accounting for goodwill and other intangible assets in 2002.

As discussed above, the financial statements of Illinois Tool Works Inc. and Subsidiaries as of December 31, 2001 and 2000, and for the years then ended were audited by other auditors who have ceased operations. As described in the Goodwill and Intangible Assets note, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in the Goodwill and Intangible Assets note related to 2001 and 2000 included (i) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill and intangible assets tha t are no longer being amortized, as a result of initially applying SFAS No. 142 (including any related tax effects) to the Company’s underlying records obtained from management, and (ii) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings per share amounts. In our opinion, the transitional disclosures for 2001 and 2000 in the Goodwill and Intangible Assets note are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 financial statements taken as a whole.

Deloitte and Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
January 27, 2003

The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP. In fiscal 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). As discussed in the Goodwill and Intangible Assets note to the financial statements, the Company has presented transitional disclosures for 2001 and 2000 required by SFAS No. 142. The Arthur Andersen LLP report does not extend to these transitional disclosures. These disclosures are reported on by Deloitte & Touche LLP as stated in their report appearing on the previous page.

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 Subsidiaries 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 represent 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 audit ed 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 material 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 present 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.

ARTHUR ANDERSON LLP
Chicago, Illinois
January 28, 2002

STATEMENT OF INCOME

Illinois Tool Works Inc. and Subsidiaries


		For the Years Ended December 31

In thousands except for per share amounts		2002			2001			2000

Operating Revenues		$	9,467,740		$	9,292,791		$	9,511,647
	Cost of revenues		6,213,791			6,191,253			6,111,392
	Selling, administrative, and research and development expenses		1,720,245			1,690,850			1,703,897
	Amortization and impairment of goodwill and other intangible assets		27,933			104,585			118,905

Operating Income			1,505,771			1,306,103			1,577,453
	Interest expense		(68,455	)		(68,051	)		(69,995	)
	Other expense		(3,756	)		(7,203	)		(11,456	)

Income from Continuing Operations Before Income Taxes			1,433,560			1,230,849			1,496,002
	Income taxes		501,750			428,400			526,551
Income from Continuing Operations			931,810			802,449			969,451
Income (Loss) from Discontinued Operations			2,672			3,210			(11,471	)
Cumulative Effect of Change in Accounting Principle			(221,890	)		—			—

Net Income		$	712,592		$	805,659		$	957,980

Income Per Share from Continuing Operations:
	Basic	$	3.04		$	2.64		$	3.21

	Diluted	$	3.02		$	2.62		$	3.18

Income (Loss) Per Share from Discontinued Operations:
	Basic	$	0.01		$	0.01		$	(0.04	)

	Diluted	$	0.01		$	0.01		$	(0.04	)

Cumulative Effect Per Share of Change in Accounting Principle:
	Basic	$	(0.72	)	$	—		$	—

	Diluted	$	(0.72	)	$	—		$	—

Net Income Per Share:
	Basic	$	2.33		$	2.65		$	3.18

	Diluted	$	2.31		$	2.63		$	3.15

STATEMENT OF INCOME REINVESTED IN THE BUSINESS

Illinois Tool Works Inc. and Subsidiaries


	For the Years Ended December 31

In thousands	2002			2001			2000

Beginning balance	$	5,765,421		$	5,214,098		$	4,485,515
Net income		712,592			805,659			957,980
Cash dividends declared		(275,750	)		(255,735	)		(229,397	)
Adjustment to prior pooling-of-interests transaction		—			1,399			—

Ending balance	$	6,202,263		$	5,765,421		$	5,214,098

STATEMENT OF COMPREHENSIVE INCOME

Illinois Tool Works Inc. and Subsidiaries


		For the Years Ended December 31

In thousands		2002			2001			2000

Net Income		$	712,592		$	805,659		$	957,980
Other comprehensive income:
	Foreign currency translation adjustments		135,144			(3,213	)		(210,185	)
	Minimum pension liability adjustments		(53,467	)		—			—
	Income tax related to minimum pension liability adjustments		17,872			—			—

Comprehensive income		$	812,141		$	802,446		$	747,795

The Notes to Financial Statements are an integral part of these statements.

STATEMENT OF FINANCIAL POSITION

Illinois Tool Works Inc. and Subsidiaries


			December 31

In thousands except shares			2002			2001

Assets
Current Assets:
	Cash and equivalents		$	1,057,687		$	282,224
	Trade receivables			1,500,031			1,450,029
	Inventories			962,746			994,156
	Deferred income taxes			217,738			197,428
	Prepaid expenses and other current assets			136,563			139,226
	Net current assets of discontinued operations			4,044			100,181

		Total current assets		3,878,809			3,163,244

Plant and Equipment:
	Land			119,749			114,649
	Buildings and improvements			1,041,680			960,232
	Machinery and equipment			2,817,006			2,800,341
	Equipment leased to others			135,508			123,422
	Construction in progress			91,714			105,316

				4,205,657			4,103,960
	Accumulated depreciation			(2,574,408	)		(2,470,270	)

		Net plant and equipment		1,631,249			1,633,690

Investments				1,392,410			1,278,285
Goodwill				2,394,519			2,516,813
Intangible Assets				230,291			221,881
Deferred Income Taxes				541,625			439,278
Other Assets				506,552			459,429
Net Noncurrent Assets of Discontinued Operations				47,646			109,729

			$	10,623,101		$	9,822,349

Liabilities and Stockholders’ Equity
Current Liabilities:
	Short-term debt		$	121,604		$	313,447
	Accounts payable			416,958			367,249
	Accrued expenses			833,689			795,210
	Cash dividends payable			70,514			67,084
	Income taxes payable			124,397			32,922

		Total current liabilities		1,567,162			1,575,912

Noncurrent Liabilities:
	Long-term debt			1,460,381			1,267,141
	Other			946,487			938,558

		Total noncurrent liabilities		2,406,868			2,205,699

Stockholders’ Equity:
	Common stock:
		Issued—306,825,627 shares in 2002 and 305,169,742 shares in 2001		3,068			3,052
	Additional paid-in-capital			747,778			675,856
	Income reinvested in the business			6,202,263			5,765,421
	Common stock held in treasury			(1,662	)		(1,666	)
	Accumulated other comprehensive income			(302,376	)		(401,925	)

		Total stockholders’ equity		6,649,071			6,040,738

			$	10,623,101		$	9,822,349

The Notes to Financial Statements are an integral part of this statement.

STATEMENT OF CASH FLOWS

Illinois Tool Works Inc. and Subsidiaries


				For the Years Ended December 31

In thousands				2002			2001			2000

Cash Provided by (Used for) Operating Activities:
	Net income			$	712,592		$	805,659		$	957,980
	Adjustments to reconcile net income to cash provided by operating activities:
		(Income) loss from discontinued operations			(2,672	)		(3,210	)		11,471
		Cumulative effect of change in accounting principle			221,890			—			—
		Depreciation and amortization and impairment of goodwill and intangible assets			305,752			386,308			391,565
		Change in deferred income taxes			(60,471	)		38,612			(16,238	)
		Provision for uncollectible accounts			21,696			21,862			10,198
		Loss on sale of plant and equipment			6,146			11,106			7,479
		Income from investments			(147,024	)		(139,842	)		(151,692	)
		Non-cash interest on nonrecourse notes payable			39,629			42,885			44,871
		Loss on sale of operations and affiliates			4,777			4,389			6,014
		Other non-cash items, net			1,853			(7,479	)		(7,704	)
Change in assets and liabilities:
	(Increase) decrease in—
		Trade receivables			8,058			156,794			47,622
		Inventories			71,844			158,502			(13,493	)
		Prepaid expenses and other assets			10,981			(18,757	)		(50,975	)
		Net assets of discontinued operations			1,433			36,054			31,410
	Increase (decrease) in—
		Accounts payable			14,455			(105,758	)		(69,522	)
		Accrued expenses and other liabilities			(9,649	)		(62,401	)		(94,455	)
		Income taxes payable			87,422			26,288			11,209
	Other, net				44			14			(169	)

			Net cash provided by operating activities		1,288,756			1,351,026			1,115,571

Cash Provided by (Used for) Investing Activities:
	Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates				(188,234	)		(556,199	)		(798,838	)
	Additions to plant and equipment				(271,424	)		(256,562	)		(305,954	)
	Purchase of investments				(194,741	)		(101,329	)		(14,651	)
	Proceeds from investments				77,780			210,669			84,102
	Proceeds from sale of plant and equipment				29,208			20,000			28,595
	Proceeds from sale of operations and affiliates				211,075			14,015			7,758
	Other, net				3,079			7,432			(5,539	)

			Net cash used for investing activities		(333,257	)		(661,974	)		(1,004,527	)

Cash Provided by (Used for) Financing Activities:
	Cash dividends paid				(272,319	)		(249,141	)		(223,009	)
	Issuance of common stock				44,381			54,699			25,410
	Net proceeds (repayments) of short-term debt				(231,214	)		(351,743	)		302,076
	Proceeds from long-term debt				258,426			4,122			1,125
	Repayments of long-term debt				(30,707	)		(16,035	)		(264,929	)
	Other, net				2,790			1,330			(493	)

			Net cash used for financing activities		(228,643	)		(556,768	)		(159,820	)

Effect of Exchange Rate Changes on Cash and Equivalents					48,607			(1,355	)		(32,882	)

Cash and Equivalents:
	Increase (decrease) during the year				775,463			130,929			(81,658	)
	Beginning of year				282,224			151,295			232,953

	End of year			$	1,057,687		$	282,224		$	151,295

Cash Paid During the Year for Interest				$	73,284		$	79,541		$	92,062

Cash Paid During the Year for Income Taxes				$	474,954		$	338,864		$	507,783

Liabilities Assumed from Acquisitions				$	34,267		$	96,963		$	282,891

The Notes to Financial Statements are an integral part of this statement. See the Investments note for information regarding noncash transactions.

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 systems. The Company primarily serves the construction, automotive, food retail and service, and general industrial markets.

Significant accounting principles and policies of the Company are in italics. Certain reclassifications of prior years’ data have been made to conform to current year reporting.

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 and product liability matters. Other significant estimates relate to accounts receivable, inventories, pensions, plant and equipment, product warranties, postretirement benefits 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 probable 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, liquidity or future 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 outside North America have November 30 fiscal year-ends to facilitate inclusion of their financial statements in the December 31 consolidated 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 reported as a separate component of stockholders’ equity.

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 premium 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. On October 31, 2002 the sales of Precor and West Bend were completed, resulting in cash proceeds of $207,928,000. The Company is actively marketing and intends to dispose of Florida Tile through a sale transaction in 2003. The Company’s estimated net gain on disposal of the segment is as follows:


In thousands	Pretax			Tax			After-Tax

Realized gains on 2002 sales of Precor and West Bend	$	146,240		$	51,604		$	94,636
Estimated loss on 2003 sale of Florida Tile recorded in 2002		(123,874	)		(31,636	)		(92,238	)

Estimated net gain on disposal of the segment	$	22,366		$	19,968		$	2,398

The estimated net gain of $2,398,000 on the segment has been deferred at December 31, 2002 pending the completion of the sale of Florida Tile in 2003.

Results of the discontinued operations for the years ended December 31, 2002, 2001 and 2000 were as follows:


In thousands		2002		2001		2000

Operating revenues		$	344,419	$	405,146	$	471,930

Operating income		$	10,804	$	13,767	$	(14,016	)

Income (loss) before income taxes		$	10,768	$	8,710	$	(17,822	)
	Income taxes		8,096		5,500		(6,351	)

Net income (loss) from discontinued operations		$	2,672	$	3,210	$	(11,471	)

The net assets of the discontinued operations as of December 31, 2002 and 2001 were as follows:


In thousands	2002			2001

Accounts receivable	$	17,299		$	64,897
Inventory		44,286			71,481
Accounts payable		(4,919	)		(14,258	)
Deferred gain on divestiture		(2,398	)		—
Accrued liabilities		(58,491	)		(40,686	)
Other, net		8,267			18,747

Net current assets of discontinued operations	$	4,044		$	100,181

Net property, plant and equipment	$	41,497		$	79,730
Net goodwill and intangibles		—			68,200
Deferred income tax assets (liabilities)		32,083			(11,618	)
Other assets		262			1,606
Noncurrent liabilities		(26,196	)		(28,189	)

Net noncurrent assets of discontinued operations	$	47,646		$	109,729

Acquisitions—Summarized information related to acquisitions during 2002, 2001 and 2000 was as follows:


In thousands except number of acquisitions	2002		2001		2000

Number of acquisitions		21		29		45
Net cash paid	$	188,234	$	556,199	$	798,838
Goodwill and intangible assets recorded	$	131,707	$	422,523	$	634,739

The acquisitions in these years, individually and in the aggregate, did not materially affect the Company’s results of operations or financial position.

In November 1999, a wholly owned subsidiary of ITW merged with Premark International, Inc. (“Premark”), a commercial manufacturer of food equipment and laminate products. The merger was accounted for under the pooling-of-interests accounting method and 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.

Operating Revenues are recognized when legal title and the risks of ownership are transferred to the customer, which is generally at the time of product shipment. Operating revenues for the Leasing and Investments segment include income from mortgage-related investments, leases and other investments that is recognized based on the applicable accounting method for each type of investment. See the Investments note for the detailed accounting policies related to the Company’s significant investments.

No single customer accounted for more than 10% of consolidated revenues in 2002, 2001 or 2000. 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 $101,344,000 in 2002, $102,288,000 in 2001 and $106,118,000 in 2000.

Rental Expense was $94,395,000 in 2002, $96,143,000 in 2001 and $85,336,000 in 2000. Future minimum lease payments for the years ended December 31 are as follows:


In thousands

2003	$	84,517
2004		66,187
2005		46,874
2006		30,136
2007		23,479
2008 and future years		38,808

	$	290,001

Advertising Expenses are recorded as expense in the year incurred. These costs were $69,557,000 in 2002, $67,345,000 in 2001 and $75,799,000 in 2000.

Interest Expense related to debt has been recorded in the statement of income as follows:


In thousands	2002		2001		2000

Cost of revenues	$	43,333	$	51,682	$	58,695
Interest expense		68,455		68,051		69,995
Income (loss) from discontinued operations		1,578		1,921		2,382

	$	113,366	$	121,654	$	131,072

The interest expense recorded as cost of revenues relates to the Leasing and Investments segment and includes interest expense related to both the direct debt of the segment and general corporate debt allocated to the segment based on the after-tax cash flows of the investments. The allocation of interest expense from general corporate debt to the segment was $3,704,000, $8,797,000 and $13,824,000 in 2002, 2001 and 2000, respectively.

General corporate interest expense has been allocated to discontinued operations based on proportional net assets excluding debt and was $1,536,000, $1,876,000 and $2,382,000 in 2002, 2001 and 2000, respectively.

Other Income (Expense) consisted of the following:


In thousands	2002			2001			2000

Interest income	$	17,574		$	16,176		$	15,783
Loss on sale of operations and affiliates		(4,777	)		(4,389	)		(6,014	)
Loss on sale of plant and equipment		(6,146	)		(11,106	)		(7,479	)
Loss on foreign currency translation		(9,070	)		(5,282	)		(8,065	)
Other, net		(1,337	)		(2,602	)		(5,681	)

	$	(3,756	)	$	(7,203	)	$	(11,456	)

The interest income above relates to general corporate short-term investments. Interest income related to the investments of the Leasing & Investments segment are included in the operating income of that segment.

Income Taxes—The Company utilizes the asset and 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 provisions of the enacted tax laws. The components of the provision for income taxes on continuing operations were as shown below:


In thousands		2002			2001			2000

U.S. federal income taxes:
	Current	$	334,329		$	245,733		$	359,108
	Deferred		62,084			64,460			30,446

			396,413			310,193			389,554

Foreign income taxes:
	Current		153,949			115,821			122,241
	Deferred		(67,721	)		(17,103	)		(20,460	)

			86,228			98,718			101,781

State income taxes:
	Current		15,617			10,987			26,468
	Deferred		3,492			8,502			8,748
			19,109			19,489			35,216

		$	501,750		$	428,400		$	526,551

Income from continuing operations before income taxes for domestic and foreign operations was as follows:


In thousands	2002		2001		2000

Domestic	$	1,185,606	$	922,723	$	1,243,474
Foreign		247,954		308,126		252,528

	$	1,433,560	$	1,230,849	$	1,496,002

The reconciliation between the U.S. federal statutory tax rate and the effective tax rate was as follows:


	2002			2001			2000

U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of U.S. federal tax benefit		1.1			1.3			2.0
Nondeductible goodwill amortization and impairment		0.1			1.5			1.2
Differences between U.S. federal statutory and foreign tax rates		0.3			(0.6	)		0.4
Other, net		(1.5	)		(2.4	)		(3.4	)

Effective tax rate		35.0	%		34.8	%		35.2	%

Deferred U.S. federal income taxes and foreign withholding taxes have not been provided on undistributed earnings of international subsidiaries of $4,500,000,000 as of December 31, 2002, as the earnings are considered permanently invested. Upon distribution of these earnings to the United States 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. Determination 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, 2002 and 2001 were as follows:


	2002						2001

In thousands	Asset			Liability			Asset			Liability

Acquisition asset basis differences	$	122,961		$	(39,927	)	$	58,400		$	(25,571	)
Inventory reserves, capitalized tax cost and LIFO inventory		40,815			(19,560	)		57,115			(19,286	)
Investments		175,201			(32,203	)		216,625			(51,049	)
Plant and equipment		17,215			(55,580	)		21,722			(50,125	)
Accrued expenses and reserves		220,016			—			128,611			—
Employee benefit accruals		196,306			—			203,469			—
Foreign tax credit carryforwards		—			—			35,438			—
Net operating loss carryforwards		106,655			—			69,942			—
Allowances for uncollectible accounts		14,584			—			13,290			—
Prepaid pension assets		—			(23,864	)		—			(42,189	)
Other		93,072			(22,794	)		50,360			(15,278	)

Gross deferred income tax assets (liabilities)		986,825			(193,928	)		854,972			(203,498	)
Valuation allowances		(33,534	)		—			(14,768	)		—

Total deferred income tax assets (liabilities)	$	953,291		$	(193,928	)	$	840,204		$	(203,498	)

The valuation allowances recorded at December 31, 2002 and 2001 relate primarily to net operating loss carryforwards. No additional valuation allowances have been recorded on the net deferred income tax assets of $759,363,000 and $636,706,000 at December 31, 2002 and 2001, respectively, as the Company expects to continue to generate significant taxable income in most tax jurisdictions in future years.

At December 31, 2002, the Company had net operating loss carryforwards available to offset future taxable income in the United States and certain foreign jurisdictions, which expire as follows:


In thousands	Gross Net Operating Loss Carryforwards

2003	$	2,082
2004		878
2005		3,740
2006		35,886
2007		3,941
2008		750
2009		2,498
2010		2,976
2011		1,965
2012		3,801
2013		—
2014		2,654
2015		3,983
2016		—
2017		—
2018		—
2019		—
2020		11,419
2021		7,502
Do not expire		157,514

	$	241,589

Income from Continuing Operations Per Share is computed by dividing income from continuing operations by the weighted average number of shares outstanding for the period. Income from continuing operations per diluted share is computed by dividing income from continuing operations by the weighted average number of shares assuming dilution. Dilutive shares reflect the potential additional shares that would be outstanding if the dilutive stock options outstanding were exercised during the period. The computation of income from continuing operations per share was as follows:


In thousands except per share amounts		2002		2001		2000

Income from continuing operations		$	931,810	$	802,449	$	969,451

Income from continuing operations per share—Basic:
	Weighted average common shares		306,157		304,112		301,573

	Income from continuing operations per share—Basic	$	3.04	$	2.64	$	3.21

Income from continuing operations per share—Diluted:
	Weighted average common shares		306,157		304,112		301,573
	Effect of dilutive stock options		1,888		2,194		2,841

	Weighted average common shares assuming dilution		308,045		306,306		304,414

	Income from continuing operations per share—Diluted	$	3.02	$	2.62	$	3.18

Options that had exercise prices greater than the average market price of the common shares were not included in the computation of diluted income from continuing operations. The year-to-date weighted average antidilutive options outstanding as of December 31, 2002, 2001 and 2000 were as follows:


	2002		2001		2000

Weighted average shares issuable under antidilutive options		915		1,319,190		1,359,262
Weighted average exercise price per share	$	68.13	$	65.50	$	65.49

The majority of these options will expire in 2009.

Cash and Equivalents included interest-bearing deposits of $874,659,000 at December 31, 2002, and $95,305,000 at December 31, 2001. Interest-bearing deposits have maturities of 90 days or less and are stated at cost, which approximates market.

Trade Receivables were net of allowances for uncollectible accounts. The changes in the allowances for uncollectible accounts during 2002, 2001, and 2000 were as follows:


In thousands	2002			2001			2000

Beginning balance	$	(61,065	)	$	(52,274	)	$	(50,860	)
Provision charged to expense		(21,696	)		(21,862	)		(10,198	)
Write-offs, net of recoveries		21,996			19,443			16,899
Acquisitions and divestitures		(3,437	)		(6,322	)		(7,345	)
Other		(1,956	)		(50	)		(770	)

Ending balance	$	(66,158	)	$	(61,065	)	$	(52,274	)

Inventories at December 31, 2002 and 2001 were as follows:


In thousands	2002		2001

Raw material	$	275,902	$	287,067
Work-in-process		98,678		101,418
Finished goods		588,166		605,671

	$	962,746	$	994,156

Inventories are stated at the lower of cost or market and include material, labor and factory overhead. The last-in, first-out (“LIFO”) method is used to determine the cost of the inventories of a majority of the U.S. operations. Inventories priced at LIFO were 38% and 36% of total inventories as of December 31, 2002 and 2001, respectively. The first-in, first-out (“FIFO”) method is used for all other inventories. Under the FIFO method, which approximates current cost, total inventories would have been approximately $92,613,000 and $95,457,000 higher than reported at December 31, 2002 and 2001, respectively.

Plant and Equipment are stated at cost less accumulated depreciation. Renewals and improvements that increase the useful life of plant and equipment are capitalized. Maintenance and repairs are charged to expense as incurred.

Depreciation was $277,819,000 in 2002 compared with $281,723,000 in 2001 and $272,660,000 in 2000 and was reflected primarily in cost of revenues. Depreciation of plant and equipment for financial reporting purposes is computed principally on an accelerated basis.

The range of useful lives used to depreciate plant and equipment is as follows:


Buildings and improvements		10–50 years
Machinery and equipment		3–20 years
Equipment leased to others		Term of lease

Investments as of December 31, 2002 and 2001 consisted of the following:


In thousands	2002			2001

Mortgage-related assets	$	972,877		$	972,480
Leveraged, direct financing and sales-type leases of equipment		217,130			82,864
Affordable housing limited partnerships		116,623			129,714
Prepaid forward contract		24,554			23,398
Venture capital limited partnership		21,724			13,071
Property developments		20,039			32,352
Properties held for sale		19,505			19,921
Other		(42	)		4,485

	$	1,392,410		$	1,278,285

The components of the investment in mortgage-related assets at December 31, 2002 and 2001 were as shown below:


In thousands	2002		2001

Commercial mortgage loans	$	80,204	$	202,348
Commercial real estate		643,611		588,778
Net swap receivables		158,940		133,762
Receivable from mortgage servicer		75,498		34,179
Annuity contract		7,824		7,159
U.S. Treasury security		6,800		6,254

	$	972,877	$	972,480

In 1995, 1996 and 1997, the Company acquired pools of mortgage-related assets in exchange for aggregate nonrecourse notes payable of $739,705,000, preferred stock of subsidiaries of $60,000,000 and cash of $240,000,000. The mortgage-related assets acquired in these transactions relate to office buildings, apartment buildings and shopping malls located throughout the United States and include five and ten variable-rate balloon loans at December 31, 2002 and 2001, respectively, and 40 and 41 properties at December 31, 2002 and 2001, respectively. Included in these mortgage-related assets at December 31, 2002 are three loans which are currently paying interest at less than the contractual rate and eight properties which are foreclosed mortgages. In conjunction with these transactions, the Company simultaneously entered into ten-year swap agreements and other related agreements whereby a third party receives the portion of the interest and net operat ing cash flow from the mortgage-related assets in excess of $26,000,000 per year and a portion of the proceeds from the disposition of the mortgage-related assets and principal repayments, in exchange for the third party making the contractual principal and interest payments on the Company’s nonrecourse notes payable. In addition, in the event that the pools of mortgage-related assets do not generate interest and net operating cash flow of $26,000,000 a year, the Company has a right to receive the balance from the cash flow generated by three separate pools of mortgage-related assets (owned by third parties in which the Company has minimal interests) which have a total fair value of approximately $1,800,000,000 at December 31, 2002. The Company entered into the swaps and other related agreements in order to reduce its real estate, credit and interest rate risks relative to the mortgage-related assets and related nonrecourse notes payable.

The Company expects to recover its net investment in the mortgage-related assets of $403,405,000 at December 31, 2002, (net of the related nonrecourse notes payable) through its expected net cash flow of $26,000,000 per year for the remainder of the ten-year periods and its estimated $448,275,000 share of the total proceeds from disposition of the mortgage-related assets and principal repayments. The swap counter party is contractually obligated to manage and sell the commercial mortgage loans and real estate and has provided the Company with the estimated disposition amounts.

Interest income is recorded on the commercial mortgage loans based on the effective yield determined at the inception of the commercial mortgage transactions. The Company evaluates whether the commercial mortgage loans have been impaired by reviewing the discounted estimated future cash flows of the loans versus the carrying value of the loans. If the carrying value exceeds the discounted cash flows, an impairment loss is recorded through the operating income of the Leasing and Investments segment. Interest income is recognized on impaired mortgage loans based on the original effective yield of the loans. Loans that are foreclosed are transferred to commercial real estate at carrying value. At December 31, 2002 and 2001, the Company’s gross investment in impaired mortgage loans (before impairment loss allowances) was $101,648,000 and $79,456,000, respectively. Substantially all of the mortgage loans at December 31, 2002 mature in 2004.

The changes to the impairment loss allowances during 2002, 2001 and 2000 were as follows:


In thousands	2002			2001			2000

Beginning balance	$	(11,993	)	$	(4,577	)	$	(10,134	)
Provision charged to expense		(21,895	)		(7,652	)		(291	)
Recoveries		—			236			4,286
Sales and foreclosures		8,956			—			1,562

Ending balance	$	(24,932	)	$	(11,993	)	$	(4,577	)

The estimated fair value of the commercial mortgage loans, based on discounted future cash flows, exceeds the carrying value at December 31, 2002 and 2001 by $3,397,000 and $57,074,000, respectively.

Commercial real estate is recorded at cost and depreciated on a straight-line basis over an estimated useful life of 39 years. At least annually, the real estate assets are evaluated for impairment by comparing estimated future undiscounted cash flows to the carrying values. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recorded equal to the difference between the estimated fair value and the carrying value of the impaired asset. Gains and losses are recorded on the sale of the real estate assets through the operating income of the Leasing and Investments segment based on the proceeds of the sale compared with the carrying value of the asset sold.

The net swap receivables are recorded at fair value, based on the estimated future cash flows discounted at current market interest rates. All estimated future cash flows are provided by the swap counter party, who also is the servicer of the mortgage loans and real estate. Market interest rates for the swap inflows are based on the current market yield of a bond of the swap counter party. Discount rates for the swap outflows are based on an estimate of risk-adjusted rates for real estate assets. Any adjustments to the carrying value of the net swap receivables due to changes in expected future cash flows, discount rates or interest rates are recorded through the operating income of the Leasing and Investment segment.

The components of the investment in leveraged, direct financing and sales-type leases at December 31, 2002 and 2001 were as shown below:


In thousands	2002			2001

Gross lease contracts receivable, net of nonrecourse debt service	$	114,330		$	62,992
Estimated residual value of leased assets		196,656			47,822
Unearned income		(93,856	)		(27,950	)

Investment in leveraged, direct financing and sales-type leases		217,130			82,864
Deferred income taxes related to leveraged and direct financing leases		(8,613	)		(22,616	)

Net investment in leveraged, direct financing and sales-type leases	$	208,517		$	60,248

The investment in leveraged, direct financing and sales-type leases relates to the following types of equipment at December 31, 2002 and 2001:


In thousands	2002		2001

Aircraft	$	47,315	$	74,198
Railcars		575		655
Telecommunications		162,187		—
Manufacturing		7,053		8,011

Investment in leveraged, direct financing and sales-type leases	$	217,130	$	82,864

In 2001, the Company entered into a leveraged lease of a Boeing 777 aircraft with United Airlines. The Company’s cash investment in this leveraged lease was $29,198,000.

The components of the income from leveraged, direct financing and sales-type leases for the years ended December 31, 2002, 2001 and 2000 were as shown below:


In thousands	2002			2001			2000

Lease income before income taxes	$	26,731		$	3,941		$	3,695
Impairment on aircraft leases		(31,565	)		—			—
Investment tax credits recognized		(548	)		430			652
Income tax expense		2,258			(1,471	)		(1,124	)

	$	(3,124	)	$	2,900		$	3,223

Unearned income is recognized as lease income over the life of the lease based on the effective yield of the lease. The residual values of leased assets are estimated at the inception of the lease based on market appraisals and reviewed for impairment at least annually. In 2002, an impairment charge of $31,565,000 was recorded related to the Company’s investments in aircraft leased to United Airlines, which declared bankruptcy in December 2002.

The Company has entered into several affordable housing limited partnerships primarily to receive tax benefits in the form of tax credits and tax deductions from operating losses. These affordable housing investments are accounted for using the effective yield method, in which the investment is amortized to income tax expense as the tax benefits are received. The tax credits are credited to income tax expense as they are allocated to the Company.

The Company’s investment in the prepaid forward contract was initially recorded at cost. Interest income is being accrued for this contract based on the effective yield of the contract.

The Company entered into a venture capital limited partnership in 2001, which will invest in late stage venture capital opportunities. The Company has committed to total capital contributions to this partnership of $100,000,000 over a five-year period. The Company has a 25% limited partnership interest and accounts for this investment using the equity method, whereby the Company recognizes its proportionate share of the partnerships’ income or loss.

The Company invests in property developments with a residential construction developer through partnerships in which the Company has a 50% interest. These partnership investments are accounted for using the equity method, in which the Company’s share of the partnerships’ income is recorded as an increase to the investments.

Cash flows related to investments during 2002, 2001 and 2000 were as follows:


In thousands		2002			2001			2000

Cash used to purchase investments—
	Leveraged leases of equipment	$	(152,253	)	$	(29,198	)	$	—
	Affordable housing limited partnerships		(29,065	)		(48,088	)		(379	)
	Venture capital limited partnership		(11,872	)		(14,104	)		—
	Property developments		(1,402	)		(9,727	)		(14,146	)
	Other		(149	)		(212	)		(126	)

		$	(194,741	)	$	(101,329	)	$	(14,651	)

Cash proceeds from investments—
	Commercial mortgage transactions	$	26,467		$	26,934		$	26,934
	Leases of equipment		16,755			14,385			13,907
	Properties held for sale		13,609			8,940			11,474
	Property developments		20,810			31,097			29,302
	Affordable housing limited partnerships		—			126,760			—
	Other		139			2,553			2,485

		$	77,780		$	210,669		$	84,102

The Company’s only material noncash transactions during 2002, 2001 and 2000 relate to the payment of the debt service on the Company’s nonrecourse notes payable by the mortgage swap counter party, as follows:


In thousands		2002		2001		2000

Payments by mortgage swap counter party—
	Principal	$	31,066	$	47,286	$	25,320
	Interest		40,201		43,539		45,392

		$	71,267	$	90,825	$	70,712

Non-cash interest expense		$	39,629	$	42,885	$	44,871

Goodwill and Intangible Assets—Goodwill represents the excess cost over fair value of the net assets of purchased businesses. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Under SFAS 142, the Company no longer amortizes goodwill and intangibles that have indefinite lives. SFAS 142 also requires that the Company assess goodwill and intangibles with indefinite lives for impairment at least annually, based on the fair value of the related reporting unit or intangible asset. On an ongoing basis, the Company expects to perform its annual impairment assessment in the first quarter of each year.

Based on the Company’s initial impairment testing, goodwill was reduced by $254,582,000 and intangible assets were reduced by $8,234,000 and a net after-tax impairment charge of $221,890,000 ($0.72 per diluted share) was recognized as a cumulative effect of change in accounting principle in the first quarter of 2002. The impairment charge was related to approximately 40 businesses and primarily resulted from evaluating impairment under SFAS 142 based on discounted cash flows, instead of using undiscounted cash flows as required by the previous accounting standard.

Goodwill expense was $7,877,000 in 2002, $80,077,000 in 2001 and $86,633,000 in 2000. The goodwill expense in 2002 related to an impairment charge recorded in the fourth quarter, primarily related to the goodwill of industrial packaging businesses in Australia and Asia which was tested for impairment because actual 2002 results were lower than previously forecasted results. Included in goodwill expense for 2000 are impairment charges of $18,520,000, primarily related to a laminate business in Europe that was acquired by Premark in 1998. Due mainly to price deterioration and increased competition in the UK market, this laminate business failed to achieve the operating results previously forecasted.

The changes in the carrying amount of goodwill by segment for the year ended December 31, 2002 were as follows:


	Engineered			Engineered			Specialty			Specialty
	Products			Products			Systems			Systems
In thousands	North America			International			North America			International			Total

Beginning balance	$	574,962		$	424,223		$	853,557		$	664,071		$	2,516,813
Acquisitions		18,086			23,910			37,804			32,085			111,885
Impairment write-offs		(51,002	)		(19,030	)		(85,977	)		(106,450	)		(262,459	)
Foreign currency translation		(456	)		12,373			(85	)		16,448			28,280

Ending balance	$	541,590		$	441,476		$	805,299		$	606,154		$	2,394,519

Intangible assets as of December 31, 2002 and December 31, 2001 were as follows:


		December 31, 2002							December 31, 2001

				Accumulated							Accumulated
In thousands		Cost		Amortization			Net		Cost		Amortization			Net

Amortizable Intangibles:
	Trademarks and brands	$	10,075	$	(2,453	)	$	7,622	$	9,339	$	(1,685	)	$	7,654
	Customer lists and relationships		18,971		(4,771	)		14,200		28,371		(2,848	)		25,523
	Patents		86,318		(40,060	)		46,258		74,971		(34,762	)		40,209
	Noncompete agreements		67,261		(29,843	)		37,418		63,203		(21,742	)		41,461
	Other		57,588		(29,556	)		28,032		50,239		(25,648	)		24,591
Indefinite-lived Intangibles:
	Trademarks and brands		96,761		—			96,761		82,443		—			82,443

Total intangible assets		$	336,974	$	(106,683	)	$	230,291	$	308,566	$	(86,685	)	$	221,881

Intangible assets are being amortized primarily on a straight-line basis over their estimated useful lives of three to 17 years. Intangible expense was $20,056,000 in 2002, $24,508,000 in 2001 and $32,272,000 in 2000. Included in intangible expense in 2000 are impairment charges of $11,780,000 related to the European laminate business. Intangible amortization expense related to amortizable intangible assets under SFAS 142 would have been $21,443,000 in 2001 and $17,520,000 in 2000.

The estimated amortization expense of intangible assets for the years ending December 31 is as follows:


In thousands

2003	$	19,041
2004		18,449
2005		17,423
2006		15,979
2007		12,848

A transitional reconciliation of the previously reported 2001 and 2000 statement of income information to pro forma amounts that reflect the elimination of amortization of goodwill and indefinite-lived intangible assets is presented below:


	2001						2000

			Per Share		Per Share					Per Share			Per Share
In thousands except per share amounts	Amount		Basic		Diluted		Amount			Basic			Diluted

Income from continuing operations, as reported	$	802,449	$	2.64	$	2.62	$	969,451		$	3.21		$	3.18
Amortization of goodwill and indefinite-lived intangible assets		71,531		0.24		0.23		61,918			0.21			0.20

Pro forma income from continuing operations		873,980		2.87		2.85		1,031,369			3.42			3.39

Income (loss) from discontinued operations, as reported		3,210		0.01		0.01		(11,471	)		(0.04	)		(0.04	)
Amortization of goodwill and indefinite-lived intangible assets		2,372		0.01		0.01		2,475			0.01			0.01

Pro forma income (loss) from discontinued operations		5,582		0.02		0.02		(8,996	)		(0.03	)		(0.03	)

Pro forma net income	$	879,562	$	2.89	$	2.87	$	1,022,373		$	3.39		$	3.36

Other Assets as of December 31, 2002 and 2001 consisted of the following:


In thousands	2002		2001

Cash surrender value of life insurance policies	$	193,802	$	172,468
Prepaid pension assets		163,077		146,728
Investment in unconsolidated affiliates		54,342		41,802
Other		95,331		98,431

	$	506,552	$	459,429

Retirement Plans and Postretirement Benefits—Summarized information regarding the Company’s significant defined benefit pension and postretirement health care and life insurance benefit plans related to both continuing and discontinued operations was as follows:


		Pension									Other Postretirement Benefits

In thousands		2002			2001			2000			2002			2001		2000

Components of net periodic benefit cost:
	Service cost	$	58,222		$	57,841		$	43,981		$	15,902		$	13,982	$	10,628
	Interest cost		78,695			73,924			73,060			29,868			27,808		25,254
	Expected return on plan assets		(104,945	)		(137,374	)		(123,505	)		—			—		—
	Amortization of prior service (benefit) cost		(4,030	)		(4,125	)		(1,896	)		6,675			6,675		4,563
	Amortization of actuarial (gain) loss		741			(4,041	)		(2,555	)		536			—		(199	)
	Amortization of transition amount		(899	)		(986	)		(6,692	)		—			—		—
	Settlement/curtailment (gain) loss		819			—			—			(3,272	)		—		—

	Net periodic benefit cost (income)	$	28,603		$	(14,761	)	$	(17,607	)	$	49,709		$	48,465	$	40,246


		Pension						Other Postretirement Benefits

In thousands		2002			2001			2002			2001

Change in benefit obligation as of September 30:
	Benefit obligation at beginning of period	$	1,157,332		$	1,094,025		$	426,514		$	384,035
	Service cost		58,222			57,841			15,902			13,982
	Interest cost		78,695			73,924			29,868			27,808
	Plan participant contributions		2,125			1,541			12,274			7,053
	Amendments		22,654			2,826			(4,837	)		—
	Actuarial (gain) loss		(26,968	)		27,699			45,478			28,007
	Benefits paid		(93,039	)		(91,123	)		(43,851	)		(34,371	)
	Liabilities (to) from other plans		16,803			(8,832	)		4,393			—
	Foreign currency translation		21,524			(569	)		—			—

	Benefit obligation at end of period	$	1,237,348		$	1,157,332		$	485,741		$	426,514

Change in plan assets as of September 30:
	Fair value of plan assets at beginning of period	$	1,157,403		$	1,508,828		$	—		$	—
	Actual return on plan assets		(112,291	)		(258,629	)		—			—
	Company contributions		12,917			10,836			31,577			27,318
	Plan participant contributions		2,125			1,541			12,274			7,053
	Benefits paid		(93,039	)		(91,123	)		(43,851	)		(34,371	)
	Assets (to) from other plans		12,025			(12,174	)		—			—
	Foreign currency translation		13,569			(1,876	)		—			—

	Fair value of plan assets at end of period	$	992,709		$	1,157,403		$	—		$	—

	Funded status	$	(244,639	)	$	71		$	(485,741	)	$	(426,514	)
	Unrecognized net actuarial loss		313,203			118,032			61,854			16,912
	Unrecognized prior service (benefit) cost		(16,196	)		(41,457	)		70,263			78,503
	Unrecognized net transition amount		(1,390	)		(2,242	)		—			—
	Contributions after measurement date		1,012			929			39,742			6,713
	Other immaterial plans		(13,667	)		(17,950	)		—			(4,392	)

	Net amount recognized	$	38,323		$	57,383		$	(313,882	)	$	(328,778	)

Amounts recognized in the statement of financial position consist of:
	Prepaid benefit cost	$	135,997		$	146,728		$	—		$	—
	Accrued benefit liability		(178,221	)		(89,345	)		(294,755	)		(308,022	)
	Intangible asset for minimum pension liability		27,080			—			—			—
	Net assets of discontinued operations		—			—			(19,127	)		(20,756	)
	Accumulated other comprehensive loss for minimum pension liability		53,467			—			—			—

	Net amount recognized	$	38,323		$	57,383		$	(313,882	)	$	(328,778	)

Plans with accumulated benefit obligation in excess of plan assets as of September 30:
	Projected benefit obligation	$	372,936		$	198,028

	Accumulated benefit obligation	$	328,970		$	190,935

	Fair value of plan assets	$	175,631		$	84,135

The Company generally funds its pension plans to the extent such contributions are tax deductible. As of December 31, 2002, the Company’s principal domestic pension plan is funded to the maximum allowed under U.S. tax law. In 2002, the Company funded its principal postretirement health plan to the maximum extent allowed under U.S. tax law.

The weighted average assumptions used in the valuation of pension and other postretirement benefits were as follows:


	Pension									Other Postretirement Benefits

	2002			2001			2000			2002			2001			2000

Discount rate		6.44	%		7.05	%		7.19	%		6.60	%		7.25	%		7.50	%
Expected return on plan assets		8.06	%		10.51	%		10.55	%		—			—			—
Rate of compensation increases		4.43	%		4.09	%		4.05	%		—			—			—
Current health care cost trend rate		—			—			—			11.00	%		12.00	%		5.00	%
Ultimate health care cost trend rate in 2008		—			—			—			5.00	%		5.00	%		5.00	%

Assumed health care cost trend rates have an effect on the amounts reported for the other post-retirement benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:


	1-Percentage-Point Increase			1-Percentage-Point Decrease

Effect on total of service and interest cost components		3.05	%		(2.68	%)
Effect on postretirement benefit obligation		3.40	%		(3.03	%)

In addition to the above pension benefits, the Company sponsors defined contribution retirement plans covering the majority of domestic employees. The Company’s contributions to these plans were $25,029,000 in 2002, $24,811,000 in 2001 and $26,236,000 in 2000.

Short-Term Debt as of December 31, 2002 and 2001 consisted of the following:


In thousands	2002		2001

Bank overdrafts	$	63,700	$	59,016
Commercial paper		—		82,898
Australian facilities		—		56,065
United Kingdom facilities		—		52,447
Current maturities of long-term debt		48,627		43,434
Other borrowings by foreign subsidiaries		9,277		19,587

	$	121,604	$	313,447

Commercial paper was issued at a discount and generally matured 30 to 90 days from the date of issuance. The weighted average interest rate on commercial paper was 1.8% at December 31, 2001.

As of December 31, 2002, the Company had a short-term credit facility in Australia with maximum available borrowings of Australian $60,000,000. No amounts were outstanding under this facility at year-end 2002. In 2001, the weighted average interest rate on Australian facilities was 4.6%.

As of December 31, 2002, the Company had a short-term credit facility in the United Kingdom with maximum available borrowings of 10,000,000 British Pounds. No amounts were outstanding under this facility at year-end 2002. In 2001, the weighted average interest rate on UK facilities was 4.3%.

The weighted average interest rate on other foreign borrowings was 3.4% at December 31, 2002 and 3.7% at December 31, 2001. In 2002, the Company entered into a $400,000,000 Line of Credit Agreement with a termination date of June 20, 2003. No amounts were outstanding under this facility at year-end 2002.

During 2001, the Company issued extendible commercial notes (“ECNs”). ECNs are unsecured notes issued at a discount. The notes may be issued with a maximum initial maturity date of 90 days, but may be extended to a final maturity date of 390 days at the Company’s discretion. The Company’s maximum ECN available borrowings are $150,000,000. At December 31, 2002 and 2001, there were no ECNs outstanding.

Accrued Expenses as of December 31, 2002 and 2001 consisted of accruals for:


In thousands	2002		2001

Compensation and employee benefits	$	279,088	$	253,875
Warranties		58,861		55,493
Affordable housing capital obligations		51,926		57,754
Current portion of deferred investment income		42,211		42,211
Other		401,603		385,877

	$	833,689	$	795,210

The changes in accrued warranties during 2002 and 2001 were as follows:


In thousands	2002			2001

Beginning balance	$	55,493		$	46,470
Charges		(31,561	)		(32,393	)
Provisions charged to expense		34,929			41,416

Ending balance	$	58,861		$	55,493

Long-Term Debt at December 31, 2002 and 2001 consisted of the following:


In thousands	2002			2001

6.875% notes due November 15, 2008	$	149,892		$	149,874
5.75% notes due March 1, 2009		501,008			499,734
6.55% preferred debt securities due December 31, 2011		249,642			—
6.59% nonrecourse note due semiannually through December 31, 2005		153,500			169,500
7.00% nonrecourse note due semiannually through November 30, 2006		199,619			213,597
6.44% nonrecourse note due semiannually through February 29, 2008		216,353			217,440
Other borrowings		38,994			60,430

		1,509,008			1,310,575
Current maturities		(48,627	)		(43,434	)

	$	1,460,381		$	1,267,141

In 1998, the Company issued $150,000,000 of 6.875% notes due November 15, 2008 at 99.228% of face value. The effective interest rate of the notes is 6.9%. The quoted market price of the notes exceeded the carrying value by approximately $22,653,000 at December 31, 2002 and $7,157,000 at December 31, 2001.

In 1999, the Company issued $500,000,000 of 5.75% redeemable notes due March 1, 2009, at 99.281% of face value. The effective rate of the notes is 5.8%. The quoted market price of the notes exceeded the carrying value by approximately $43,292,000 at December 31, 2002 and $657,000 at December 31, 2001. In December 2002, the Company entered into an interest rate swap with a notional value of $100,000,000 to hedge a portion of the fixed rate debt. Under the terms of the swap, the Company receives interest at a fixed rate of 5.75% and pays interest at a variable rate of LIBOR plus 1.96%. At December 31, 2002, the variable interest rate under the swap was 3.37%. The maturity date of the interest rate swap is March 1, 2009. The carrying value of the notes has been adjusted to reflect the fair value of the interest rate swap.

In 2002, a subsidiary of the Company issued $250,000,000 of 6.55% preferred debt securities due December 31, 2011 at 99.849% of face value. The effective interest rate of the preferred debt securities is 6.74%. The estimated fair value of the securities exceeded the carrying value by approximately $47,758,000 at December 31, 2002.

In connection with the commercial mortgage transactions, the Company issued a $256,000,000, 6.28% nonrecourse note at face value in 1995, a $266,265,000, 7.0% nonrecourse note at face value in 1996 and a $217,440,000, 6.44% nonrecourse note at face value in 1997. In 1997, the Company refinanced the 6.28% nonrecourse note with a 6.59% nonrecourse note with similar terms. The holders of these notes only have recourse against the commercial mortgage loans, commercial real estate and net swap receivables, which are included in investments. The estimated fair value of the three nonrecourse notes, based on discounted cash flows, exceeded the carrying value by $64,836,000 at December 31, 2002, and $52,693,000 at December 31, 2001.

In 1992, the Company entered into a $300,000,000 revolving credit facility (RCF). Since 1992, the Company amended the RCF to increase the maximum available borrowings to $350,000,000 and extend the termination date to September 30, 2003. The amended RCF provides for borrowings under a number of options and may be reduced or canceled at the Company’s option. There were no amounts outstanding under the RCF as of December 31, 2002 or 2001.

At December 31, 2002, the Company was in compliance with its most restrictive financial covenants as follows:


Dollars in thousands	Per Debt Covenants			Actual as of December 31, 2002

Maximum total debt to total capitalization percentage		50	%		19	%
Minimum consolidated tangible net worth	$	2,400,000		$	6,915,852

Other debt outstanding at December 31, 2002, bears interest at rates ranging from 0.5% to 14.5%, with maturities through the year 2016.

Scheduled maturities of long-term debt for the years ended December 31 are as follows:


In thousands

2004	$	63,844
2005		188,034
2006		210,572
2007		41,798
2008 and future years		956,133

	$	1,460,381

In connection with forming joint ventures, the Company has provided debt guarantees of $32,000,000 and $21,000,000 at December 31, 2002 and 2001, respectively. The Company has not recorded any liabilities related to these guarantees at December 31, 2002 or 2001 as it is not probable that the Company will be required to make any payments under the terms of the guarantees.

At December 31, 2002, the Company had open stand-by letters of credit of $67,000,000, substantially all of which expire in 2003. At December 31, 2001, the Company had open stand-by letters of credit of $79,000,000, substantially all of which expired in 2002.

Other Noncurrent Liabilities at December 31, 2002 and 2001 consisted of the following:


In thousands	2002		2001

Postretirement benefit obligation	$	294,755	$	308,022
Pension		178,221		89,345
Affordable housing capital obligations		113,399		153,020
Deferred investment income		102,097		144,308
Preferred stock of subsidiaries		60,000		60,000
Other		198,015		183,863

	$	946,487	$	938,558

In connection with the commercial mortgage and several other investment transactions, the Company has recorded deferred investment income for the effect of the difference between the book bases of the assets acquired and their tax bases. This deferred investment income is being amortized to revenue of the Leasing and Investments segment on a straight-line basis over the lives of the related transactions. The portion of the deferred investment income that will be amortized in the next year has been classified as current in accrued expenses.

In 2001, the Company committed to two new affordable housing limited partnership investments. In connection with the formation and financing of these limited partnerships, the affordable housing limited partnerships borrowed the full amount of funds necessary for their affordable housing projects from a third party financial institution. The excess cash of $126,760,000 was distributed to the Company in 2001 and will be repaid to the limited partnerships via capital contributions as the limited partnerships require the funds for their affordable housing projects.

The Company’s capital contributions to all of the affordable housing limited partnerships are expected to be paid as follows:


In thousands

2004	$	14,194
2005		27,173
2006		13,629
2007		13,703
2008 and future years		44,700

	$	113,399

Other than the capital contributions above, the Company has no future obligations, guarantees or commitments to the affordable housing limited partnerships.

Preferred Stock, without par value, of which 300,000 shares are authorized, is issuable in series. The Board of Directors is authorized to fix by resolution the designation and characteristics of each series of preferred stock. The Company has no present commitments to issue its preferred stock.

Common Stock, with a par value of $.01, Additional Paid-In-Capital and Common Stock Held in Treasury transactions during 2002, 2001 and 2000 are shown below:


							Additional
		Common Stock					Paid-In-Capital			Common Stock Held in Treasury

In thousands except shares		Shares			Amount		Amount			Shares			Amount

Balance, December 31, 1999			300,829,216		$	3,008	$	517,210			(260,536	)	$	(1,783	)
During 2000—
	Shares issued for stock options		1,710,146			17		27,990			(2,354	)		138
	Shares surrendered on exercise of stock options		(47,015	)		—		(2,753	)		2,354			(138	)
	Tax benefits related to stock options exercised		—			—		29,391			—			—
	Shares issued for acquisitions		213,897			2		12,363			—			—
	Shares issued for restricted stock grants		2,850			—		156			—			—

Balance, December 31, 2000			302,709,094			3,027		584,357			(260,536	)		(1,783	)

During 2001—
	Shares issued for stock options		2,483,531			25		56,089			—			—
	Shares surrendered on exercise of stock options		(22,689	)		—		(1,414	)		—			—
	Tax benefits related to stock options exercised		—			—		36,347			—			—
	Escrow shares returned from prior acquisitions		(194	)		—		—			—			—
	Shares issued for restricted stock grants		—			—		477			17,200			117

Balance, December 31, 2001			305,169,742			3,052		675,856			(243,336	)		(1,666	)

During 2002—
	Shares issued for stock options		1,687,489			16		46,594			(2,380	)		(162	)
	Shares surrendered on exercise of stock options		(31,604	)		—		(2,229	)		2,380			162
	Tax benefits related to stock options exercised		—			—		27,328			—			—
	Shares issued for restricted stock grants		—			—		229			600			4

Balance, December 31, 2002			306,825,627		$	3,068	$	747,778			(242,736	)	$	(1,662	)

Authorized, December 31, 2002			350,000,000

Cash Dividends declared were $.90 per share in 2002, $.84 per share in 2001 and $.76 per share in 2000. Cash dividends paid were $.89 per share in 2002, $.82 per share in 2001 and $.74 per share in 2000.

Comprehensive Income—Comprehensive Income is defined as the changes in equity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s components of other comprehensive income are foreign currency translation adjustments and minimum pension liability.

Stock Options have been issued to officers and other management employees under ITW’s 1996 Stock Incentive Plan and Premark’s 1994 Incentive Plan. The stock options generally vest over a four-year period. At December 31, 2002, 20,276,625 shares of ITW common stock were reserved for issuance under these plans. Option prices are 100% of the common stock fair market value on the date of grant. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), allows the recognition of compensation cost related to employee stock options. The Company has elected to continue to apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which does not require that compensation cost be recognized. The pro forma net income effect of applying SFAS 123 was as follows:


In thousands except per share amounts		2002		2001		2000

Net Income:
	As reported	$	712,592	$	805,659	$	957,980
	Pro forma		687,393		785,781		947,098
Net income per basic share:
	As reported	$	2.33	$	2.65	$	3.18
	Pro forma		2.25		2.58		3.14
Net income per diluted share:
	As reported	$	2.31	$	2.63	$	3.15
	Pro forma		2.23		2.57		3.11

The estimated fair value of the options granted by ITW is calculated using the Black-Scholes option-pricing model. The following summarizes the assumptions used in the model:


	2002			2001			2000

Risk-free interest rate		4.1	%		5.2	%		5.4	%
Expected stock volatility		28.4	%		28.9	%		28.4	%
Dividend yield		1.05	%		1.02	%		1.04	%
Expected years until exercise		5.7			5.7			5.7

Stock option activity during 2002, 2001 and 2000 is summarized as follows:


		2002					2001					2000

		Number			Weighted Average		Number			Weighted Average		Number			Weighted Average
		of Shares			Exercise Price		of Shares			Exercise Price		of Shares			Exercise Price

Under option at beginning of year			13,469,604		$	49.26		13,324,203		$	42.01		11,950,643		$	34.41
	Granted		357,580			65.70		2,710,700			62.25		3,248,479			55.88
	Exercised		(1,689,869	)		27.69		(2,483,531	)		22.70		(1,711,453	)		15.90
	Canceled or expired		(30,396	)		56.71		(81,768	)		47.09		(163,466	)		34.81

Under option at end of year			12,106,919			52.74		13,469,604			49.26		13,324,203			42.01

Exercisable at year-end			7,995,212					7,609,614					8,228,561
Available for grant at year-end			8,196,706					8,462,906					11,079,149
Weighted average fair value of options granted during the year					$	20.47				$	21.18				$	19.03

The following table summarizes information on stock options outstanding as of December 31, 2002:


	Options Outstanding					Options Exercisable

	Number		Weighted Average	Number
Range of	Outstanding		Remaining	Weighted Average		Exercisable		Weighted Average
Exercise Prices	2002		Contractual Life	Exercise Price		2002		Exercise Price

$5.85–18.87		755,177	2.02 years	$	17.46		755,177	$	17.46
19.80–33.38		1,189,493	3.03 years		30.57		1,189,493		30.57
34.59–46.59		880,220	5.65 years		41.19		880,220		41.19
54.03–68.10		9,282,029	7.67 years		59.55		5,170,322		58.80

		12,106,919	6.72 years		52.74		7,995,212		48.75

On January 2, 2003, the Company granted 792,158 shares of restricted stock to domestic officers and other management employees. This grant was made in lieu of the normal 2002 stock option grant. Annual compensation expense of $17,517,000 related to this grant will be recorded over the three-year vesting period.

Segment Information—Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, requires that segment information be reported based on the way the segments are organized within the Company for making operating decisions and assessing performance.

The Company has approximately 600 operations in 44 countries, which are aggregated and organized for internal reporting purposes into the following five segments:

Engineered Products—North America: Businesses in this segment are located in North America and manufacture a variety of short lead-time plastic and metal components and fasteners, as well as specialty products for a diverse customer base. These commercially oriented, value-added products become part of the customers’ products and typically are manufactured and delivered in a period of time of less than 30 days. In the plastic and metal components and fasteners category, product examples include cordless nailing systems for new housing and renovation projects, plastic interior door handles for automobiles and light trucks, and plastic shelving supports for household appliances. In the specialty products category, product examples include reclosable packaging for consumer food applications, specialty swabs and wipes for clean room usage, and specialty adhesives for household purposes.

Engineered Products—International: Businesses in this segment are located outside North America and manufacture a variety of short lead-time plastic and metal components and fasteners, as well as specialty products for a diverse customer base. These commercially oriented, value-added products become part of the customers’ products and typically are manufactured and delivered in a period of time of less than 30 days. In the plastic and metal components and fastener category, products are similar to those made in North America and serve the construction, automotive and general industrial sectors. In the specialty products category, a product example includes electronic component packaging trays used for the storage, shipment and manufacturing insertion of electronic components and microchips.

Specialty Systems—North America: Businesses in this segment are located in North America and design and manufacture longer lead-time machinery and related consumables, as well as specialty equipment for a diverse customer base. These commercially oriented value-added products become part of the customers’ production process and typically are manufactured and delivered in a period of time of more than 30 days. In the machinery and related consumables category, examples of products include industrial packaging equipment and plastic and steel strap for the bundling and shipment of a variety products for customers in numerous end markets, welding equipment and consumables for a variety of end market users, and equipment and consumables that multi-pack cans and bottles for the food and beverage industry. In the specialty equipment category, product examples include commercial food equipment such as dishwashers, refrigerators and specialty scales for use by restaurants and s upermarkets, and paint spray equipment for a variety of general industrial applications.

Specialty Systems—International: Businesses in this segment are located outside North America and design and manufacture longer lead-time machinery and related consumables as well as specialty equipment for a diverse customer base. These commercially oriented, value-added products become part of the customers’ production process and typically are manufactured and delivered in a period of time of more than 30 days. In the machinery and related consumables category, products are similar to those made in North America and include numerous equipment and consumables for use by the customers serving the general industrial and food and beverage sectors. In the specialty equipment category, products are used by food equipment and paint spray equipment customers.

Leasing & Investments: Businesses that make opportunistic investments in mortgage-related assets, leveraged and direct financing leases of telecommunications, aircraft and other equipment, properties and property developments, affordable housing and a venture capital fund.

Segment information for 2002, 2001 and 2000 was as follows:


In thousands		2002			2001			2000

Operating Revenues:
	Engineered Products—North America	$	3,042,070		$	2,974,104		$	3,184,033
	Engineered Products—International		1,566,387			1,471,559			1,466,982
	Specialty Systems—North America		3,353,719			3,396,320			3,351,568
	Specialty Systems—International		1,693,042			1,668,895			1,741,629
	Leasing & Investments		181,570			149,691			154,278
	Intersegment revenues		(369,048	)		(367,778	)		(386,843	)

		$	9,467,740		$	9,292,791		$	9,511,647

Operating Income:
	Engineered Products—North America	$	533,459		$	495,661		$	626,625
	Engineered Products—International		212,824			179,508			167,881
	Specialty Systems—North America		509,299			451,236			580,923
	Specialty Systems—International		164,656			183,441			189,279
	Leasing & Investments		85,533			79,398			83,898
	Amortization of goodwill and indefinite-lived intangible assets		—			(83,141	)		(71,153	)

		$	1,505,771		$	1,306,103		$	1,577,453

Depreciation and Amortization:
	Engineered Products—North America	$	102,788		$	125,202		$	118,068
	Engineered Products—International		57,080			74,081			99,182
	Specialty Systems—North America		90,820			120,389			105,978
	Specialty Systems—International		54,355			65,873			67,325
	Leasing & Investments		709			763			1,012

		$	305,752		$	386,308		$	391,565

Plant & Equipment Additions:
	Engineered Products—North America	$	82,619		$	74,325		$	110,435
	Engineered Products—International		63,786			57,775			68,700
	Specialty Systems—North America		71,233			73,479			75,423
	Specialty Systems—International		53,751			50,983			51,396
	Leasing & Investments		35			—			—

		$	271,424		$	256,562		$	305,954

Identifiable Assets:
	Engineered Products—North America	$	1,787,984		$	1,806,626		$	1,791,948
	Engineered Products—International		1,471,043			1,411,905			1,444,270
	Specialty Systems—North America		2,171,129			2,419,368			2,339,084
	Specialty Systems—International		1,647,230			1,564,176			1,535,945
	Leasing & Investments		1,536,067			1,444,236			1,408,984
	Corporate		1,957,958			966,128			751,862
	Net assets of discontinued operations		51,690			209,910			242,754

		$	10,623,101		$	9,822,349		$	9,514,847

Segment operating income was restated for 2001 and 2000 to exclude amortization of goodwill and indefinite-lived intangible assets.

Identifiable assets by segment are those assets that are specifically used in that segment. Corporate assets are principally cash and equivalents and other general corporate assets.

Enterprise-wide information for 2002, 2001 and 2000 was as follows:


In thousands			2002		2001		2000

Operating Revenues by Product Line:
	Engineered Products—North America—
		Fasteners & Components	$	2,403,948	$	2,345,481	$	2,526,342
		Specialty Products		638,122		628,623		657,691

			$	3,042,070	$	2,974,104	$	3,184,033

Engineered Products—International—
		Fasteners & Components	$	1,364,274	$	1,284,127	$	1,263,281
		Specialty Products		202,113		187,432		203,701

			$	1,566,387	$	1,471,559	$	1,466,982

Specialty Systems—North America—
		Equipment & Consumables	$	1,915,271	$	1,858,223	$	1,757,099
		Specialty Equipment		1,438,448		1,538,097		1,594,469

			$	3,353,719	$	3,396,320	$	3,351,568

Specialty Systems—International—
		Equipment & Consumables	$	1,079,018	$	1,056,008	$	1,064,577
		Specialty Equipment		614,024		612,887		677,052

			$	1,693,042	$	1,668,895	$	1,741,629

Operating Revenues by Geographic Region:
	United States		$	5,941,602	$	5,880,762	$	6,051,750
	Europe			2,421,747		2,350,008		2,392,235
	Australia			357,348		329,300		302,902
	Asia			333,939		322,971		371,554
	Other			413,104		409,750		393,206

			$	9,467,740	$	9,292,791	$	9,511,647

Total noncurrent assets excluding deferred tax assets and financial instruments were $5,361,000,000 and $5,515,000,000 at December 31, 2002 and 2001, respectively. Of these amounts, approximately 61% and 63% was attributed to U.S. operations for 2002 and 2001, respectively. The remaining amounts were attributed to the Company’s foreign operations, with no single country accounting for a significant portion.

QUARTERLY AND COMMON STOCK DATA

Quarterly Financial Data (Unaudited)


		Three Months Ended

		March 31					June 30					September 30				December 31

In thousands except per share amounts		2002			2001		2002		2001			2002		2001		2002			2001

Operating revenues		$	2,204,654		$	2,295,840	$	2,434,625	$	2,417,502		$	2,401,038	$	2,301,168	$	2,427,423		$	2,278,281
Cost of revenues			1,475,119			1,537,365		1,576,003		1,595,250			1,561,548		1,527,862		1,601,121			1,530,776
Operating income			309,899			296,273		429,008		379,872			396,936		324,649		369,928			305,309
Income from continuing operations			194,372			182,401		265,245		234,458			244,260		197,881		227,933			187,709
Income (loss) from discontinued operations			4,075			357		2,266		(1,682	)		1,276		1,174		(4,945	)		3,361
Cumulative effect of change in accounting principle			(221,890	)		—		—		—			—		—		—			—
Net income (loss)			(23,443	)		182,758		267,511		232,776			245,536		199,055		222,988			191,070
Income per share from continuing operations:
	Basic		.64			.60		.87		.77			.80		.65		.74			.62
	Diluted		.63			.60		.86		.77			.79		.65		.74			.61
Net income (loss) per share:
	Basic		(.08	)		.60		.87		.77			.80		.65		.73			.63
	Diluted		(.08	)		.60		.87		.76			.80		.65		.72			.62

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 2002 and 2001 were as shown below:


	Market Price Per Share				Dividends
					Declared
	High		Low		Per Share

2002
Fourth quarter	$	69.73	$	55.03	$	.23
Third quarter		69.95		56.01		.23
Second quarter		76.54		66.21		.22
First quarter		77.80		63.52		.22
2001
Fourth 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

The approximate number of holders of record of common stock as of February 1, 2003, was 13,067. This number does not include beneficial owners of the Company’s securities held in the name of nominees.

55 EX-21 6 c75093exv21.htm SUBSIDIARIES AND AFFILIATES OF THE COMPANY Subsidiaries and Affiliates of the Company

Exhibit 21

ILLINOIS TOOL WORKS INC.
Subsidiaries and Affiliates
December 2002


	Percent
Company	Ownership			Jurisdiction

1245267 Ontario Limited		100.00	%	Ontario
2945-5649 Quebec, Inc.		100.00	%	Quebec
A 3 Sud S.r.l		100.00	%	Italy
A.J. Gerrard LLC		100.00	%	Delaware
Aardee Seals Limited		100.00	%	United Kingdom
Accu-Lube Manufacturing GmbH		50.10	%	Germany
ACI Kardam Manufacturing Limited		100.00	%	Ontario
Acme Flooring Limited		100.00	%	United Kingdom
Alubec Industries, Inc.		100.00	%	Quebec
Asbury Place Venture		50.00	%	Illinois
AXA Power ApS		100.00	%	Denmark
Azon Pty. Limited		100.00	%	Australia
B.C. Immo S.C.I		100.00	%	France
B.C.H. S.A.S		100.00	%	France
Berrington (UK)		100.00	%	United Kingdom
BILCME L.L.C		100.00	%	Delaware
Binks Limited		100.00	%	United Kingdom
Buell Industries, Inc.		100.00	%	Delaware
Burseryds Bruk AB		100.00	%	Sweden
Capital Ventures (Australasia) Sarl		100.00	%	Luxembourg
Carbim Duo-Fast do Brazil, Ltda.		50.00	%	Brazil
Cema Maschinenfabrik GmbH		100.00	%	Germany
Champs Investment E.U.R.L		100.00	%	France
Cofiva s.r.l		100.00	%	Italy
Comercializadora West Bend S.A. de C.V.		100.00	%	Mexico
COMET S.A.S. Compagnie de Materiel et d’Equipements Techniques		100.00	%	France
Compagnie Hobart S.A.S		100.00	%	France
Corporacion Coral S.A. de C.V.		100.00	%	Mexico
CS (Australasia) Limited		100.00	%	Bermuda
CS (Australia) Pty. Ltd.		100.00	%	Australia
CS (Europe) Holdings Ltd.		100.00	%	Bermuda
CS (Finance) Europe S.a.r.l. (NEWCO)		100.00	%	Luxembourg
CS Capital I L.L.C		100.00	%	Delaware
CS Financing I L.L.C		100.00	%	Delaware
CS Leasing GmbH		100.00	%	Germany
CS Packaging Corporation Ltd.		100.00	%	British Virgin Island
CS PMI Holdings Inc.		100.00	%	Delaware


	Percent
Company	Ownership			Jurisdiction

CS PMI Inc.		100.00	%	Delaware
CSE Germany GmbH & Co. KG		100.00	%	Germany
Cumberland Leasing Co.		100.00	%	Illinois
Cyclone Industries Pty. Ltd.		100.00	%	Australia
Dacro B.V		100.00	%	Netherlands
D’Arnaud B.V		100.00	%	Netherlands
Decorative Sleeves (Holdings) Limited		100.00	%	United Kingdom
Decorative Sleeves Limited		100.00	%	United Kingdom
Devcon Limited		100.00	%	Ireland
DeVilbiss Equipamentos Para Pintura Industrial Ltda.		100.00	%	Brazil
DeVilbiss Europa Unterstuetzungskasse GmbH		100.00	%	Germany
DeVilbiss Ransburg de Mexico S.A. de C. V		100.00	%	Mexico
Dexion Srl		100.00	%	Italy
Diagraph Corporation Sdn. Bhd		100.00	%	Malaysia
Diagraph Europe Limited		100.00	%	United Kingdom
Diagraph Mexico, S.A. de C.V.		100.00	%	Mexico
Duo-Fast (Singapore) Pte. Ltd.		50.00	%	Singapore
Duo-Fast (U.K.) Limited		100.00	%	United Kingdom
Duo-Fast Corporation		100.00	%	Illinois
Duo-Fast CR, s.r.o		100.00	%	Czech Republic
Duo-Fast Distribucion Centro, S.A.		100.00	%	Spain
Duo-Fast Korea Co. Ltd.		49.00	%	Korea
Duo-Fast Polska Sp. Z.o.o		100.00	%	Poland
Electrocal Designs, Inc.		100.00	%	Delaware
Electrodos de Centroamérica S.A.		25.00	%	Guatemala
Elga AB		100.00	%	Sweden
Elga Deutschland Schweisstechnik GmbH		100.00	%	Germany
Elga Skandinavian AS		100.00	%	Norway
Elga Welding Consumables		100.00	%	United Kingdom
Elga Welding European B.V		100.00	%	Netherlands
Elga-Hitsaus Oy		100.00	%	Finland
Elleyse Financing SNC		100.00	%	France
Eltex-Elektrostatik-GmbH		100.00	%	Germany
Endra B.V		100.00	%	Netherlands
Envases Multipac, S.A. de C.V.		49.00	%	Mexico
Envopak Finance Limited		100.00	%	United Kingdom
Envopak Group Limited		100.00	%	United Kingdom
Envopak Holdings Limited		100.00	%	United Kingdom
Epirez Australia Pty. Ltd.		100.00	%	Australia
Equipment Technique Service S.A.R.L		100.00	%	France
ERG Components Limited		100.00	%	United Kingdom
ERG Industrial Corporation Limited		100.00	%	United Kingdom
Eurotec Refrigerazione S.r.l		100.00	%	Italy
Eurotec s.r.l		100.00	%	Italy
Florida Tile Industries, Inc.		100.00	%	Florida


	Percent
Company	Ownership			Jurisdiction

Foster Canada Inc.		100.00	%	Canada
Foster Refrigerator (U.K.)		100.00	%	United Kingdom
Foster Refrigerator (UK) Management Services Limited		100.00	%	United Kingdom
Foster Refrigerator France S.A.S		100.00	%	France
Fox Meadow Venture		100.00	%	Illinois
Gaylord Industries (Europe) Limited		100.00	%	United Kingdom
Genious Development S.A.R.L		100.00	%	France
Gerrard Signode Pty. Limited		100.00	%	Australia
Glenbase Venture		100.00	%	Illinois
Glenbase Venture II		100.00	%	Illinois
H. Böhl GmbH		100.00	%	Germany
H.A. Springer Far East Private Limited		100.00	%	Singapore
Heger GmbH European Diamond Tools		100.00	%	Germany
Heistrap Industriesysteme GmbH		100.00	%	Germany
Hinsdale Meadows Venture		50.00	%	Illinois
Hobart (Japan) K.K		100.00	%	Japan
Hobart Andina S.A.		100.00	%	Columbia
Hobart Argentina S.A.		100.00	%	Argentina
Hobart Brothers (International) AG		100.00	%	Switzerland
Hobart Brothers Company		100.00	%	Ohio
Hobart Brothers International Limitada		100.00	%	Chile
Hobart Canada Corp.		100.00	%	Canada
Hobart Corporation		100.00	%	Delaware
Hobart Dayton Mexicana S.A. de C.V.		100.00	%	Mexico
Hobart do Brasil Ltd.		100.00	%	Brazil
Hobart Equipment Leasing		100.00	%	United Kingdom
Hobart Food Equipment Co. Ltd.		100.00	%	China
Hobart Food Equipment Pty. Ltd.		100.00	%	Australia
Hobart Foster (South Africa) Pty. Ltd.		100.00	%	South Africa
Hobart Foster Belgium B.V.B.A		100.00	%	Belgium
Hobart Foster Holland B.V		100.00	%	Netherlands
Hobart Foster International GmbH		100.00	%	Germany
Hobart Foster Scandinavia A/S		100.00	%	Denmark
Hobart Foster Techniek B.V		100.00	%	Netherlands
Hobart G.m.b.H		100.00	%	Germany
Hobart Holdings, Inc.		100.00	%	Delaware
Hobart Institute of Welding Technology		100.00	%	Ohio
Hobart International (Singapore) Pte. Ltd.		100.00	%	Singapore
Hobart International (South Asia), Inc.		100.00	%	Delaware
Hobart Korea Co. Ltd.		100.00	%	Korea
Hobart Manufacturing Co. Pty. Ltd.		100.00	%	Australia
Hobart Manufacturing Company Limited, The		100.00	%	Canada
Hobart Manufacturing Company, The		100.00	%	United Kingdom
Hobart Sales & Service, Inc.		100.00	%	Ohio
Hôpital Services Systemes S.A.S		100.00	%	France


	Percent
Company	Ownership			Jurisdiction

Hylec Components Limited		33.00	%	United Kingdom
I.T.W. Inc.		100.00	%	Illinois
ICBIL L.L.C		100.00	%	Delaware
Ideal Stencil Machine and Tape Co.		100.00	%	Illinois
Illinois Tool Works (ITW) Nederland B.V		100.00	%	Netherlands
Illinois Tool Works FSC Inc.		100.00	%	Barbados
Immobiliere — Services — Industries — Isis SNC		100.00	%	France
IMSA ITW, S.A. de C.V.		50.00	%	Mexico
IMSA Paslode, S.A. de C.V.		50.00	%	Mexico
IMSA Signode, S.A. de C.V.		50.00	%	Mexico
Industrias Regard		10.00	%	Spain
Inmobillaria Cit., S.A. de C.F		49.00	%	Mexico
International Leasing Company		100.00	%	Delaware
Interstrap B.V		100.00	%	Netherlands
ITW (Deutschland) GmbH		100.00	%	Germany
ITW (EU) Holdings Ltd.		100.00	%	Bermuda
ITW Administration GmbH		100.00	%	Germany
ITW AFC Pty. Limited		100.00	%	Australia
ITW Aircraft Investments Inc.		100.00	%	Delaware
ITW Ampang Industries Philippines, Inc.		100.00	%	Philippines
ITW Angleboard AB		100.00	%	Sweden
ITW Angleboard Denmark ApS		100.00	%	Denmark
ITW Asia (Private) Limited		100.00	%	Singapore
ITW Australia Pty. Ltd.		100.00	%	Australia
ITW Austria Vertriebs GmbH		100.00	%	Austria
ITW Automotive Italia s.r.l		100.00	%	Italy
ITW Automotive Products GmbH & Co. K.G		100.00	%	Germany
ITW Automotive Products Verwaltungs GmbH		100.00	%	Germany
ITW Bailly Comte S.A.S		100.00	%	France
ITW Befestigungssysteme GmbH		100.00	%	Germany
ITW Belgium S.p.r.l		100.00	%	Belgium
ITW Bevestigingssystemen B.V		100.00	%	Netherlands
ITW Binks Corporation		100.00	%	Delaware
ITW Brazilian Nominee L.L.C		100.00	%	Delaware
ITW Canada		100.00	%	Ontario
ITW Canada Holdings Company (NEWCO)		100.00	%	Nova Scotia
ITW Canada Management Company/Compagnie Gestion ITW Canada		100.00	%	Nova Scotia
ITW Canguru Rotulos Ltda.		50.00	%	Brazil
ITW Cayman		100.00	%	Cayman Islands
ITW Chemical Products Ltda		100.00	%	Brazil
ITW Chemical Products Scandinavia ApS		100.00	%	Denmark
ITW Chemische Produkte GmbH		100.00	%	Germany
ITW China Components Inc.		100.00	%	Delaware


	Percent
Company	Ownership			Jurisdiction

ITW Construction Products (Suzhou) Co. Ltd.		100.00	%	China
ITW Construction Products ApS		100.00	%	Denmark
ITW Construction Products B.V		100.00	%	Netherlands
ITW Construction Products Espana S.A.		100.00	%	Spain
ITW Construction Products Italy s.r.l		100.00	%	Italy
ITW CPM S.A.S		100.00	%	France
ITW Cupids Financing Trust I		100.00	%	Delaware
ITW Cupids LLC		100.00	%	Delaware
ITW Cupids, L.P.		100.00	%	Delaware
ITW de Argentina S.A.		100.00	%	Argentina
ITW de France S.A.S		100.00	%	France
ITW Decorating Swiss AG		100.00	%	Switzerland
ITW DelFast do Brasil Ltda.		100.00	%	Brazil
ITW Delfast India Private Limited		96.24	%	India
ITW Devcon Industriel Products GmbH		100.00	%	Germany
ITW do Brazil Industrial e Comercial Ltda.		100.00	%	Brazil
ITW Domestic Finance Company		100.00	%	Delaware
ITW Domestic Finance II Inc.		100.00	%	Delaware
ITW Domestic Holdings Inc.		100.00	%	Delaware
ITW Domestic Leasing I Inc.		100.00	%	Delaware
ITW Domestic Leasing II Inc.		100.00	%	Delaware
ITW D-Tech Holdings GmbH		100.00	%	Germany
ITW Dynatec (Hong Kong) Limited		50.00	%	Hong Kong
ITW Dynatec G.m.b.H		100.00	%	Germany
ITW Dynatec Kabushiki Kaisha		100.00	%	Japan
ITW Dynatec Singapore Pte. Ltd.		50.00	%	Singapore
ITW Dynatec Thailand Ltd.		20.00	%	Thailand
ITW Electronic Component Manufacturing Company d.o.o		100.00	%	Slovenia
ITW Electronic Components Packaging Systems, S. de R.L. de C.V.		100.00	%	Mexico
ITW Electronic Components Pte. Ltd.		100.00	%	Singapore
ITW Electronic Components/Products (Shanghai) Company Limited		100.00	%	China
ITW Electronic Packaging (Malta) Ltd.		100.00	%	Malta
ITW Espana S.A.		100.00	%	Spain
ITW etilab GmbH		100.00	%	Germany
ITW Europe — Servicos Internacionais, Sociedade Unipessoal, Lda		100.00	%	Madeira
ITW Fastex de Argentina S.A.		100.00	%	Argentina
ITW Fastex France S.A.S		100.00	%	France
ITW Fastex Italia s.r.l		100.00	%	Italy
ITW Finance II L.L.C		100.00	%	Delaware
ITW Finishing L.L.C		100.00	%	Delaware
ITW Foils B.V		100.00	%	Netherlands
ITW Foils S.A.S		100.00	%	France
ITW Foils Srl		100.00	%	Italy
ITW Food Equipment Group Europe S.A.S		100.00	%	France
ITW Food Equipment Group L.L.C		100.00	%	Delaware


	Percent
Company	Ownership			Jurisdiction

ITW Gema AG		100.00	%	Switzerland
ITW Gema s.r.l		100.00	%	Italy
ITW Gunther GmbH		100.00	%	Germany
ITW Gunther S.A.S		100.00	%	France
ITW Haugk GmbH		100.00	%	Germany
ITW Henschel GmbH		100.00	%	Germany
ITW Holding France S.A.S		100.00	%	France
ITW Holdings Pty. Ltd.		100.00	%	Australia
ITW Holdings UK		100.00	%	United Kingdom
ITW Hospitality Products Pty. Limited		100.00	%	Australia
ITW Imaden Industria e Comercio Ltda.		100.00	%	Brazil
ITW Industrial Components s.r.l		100.00	%	Italy
ITW Industry Co., Ltd.		100.00	%	Japan
ITW International Finance S.A.S		100.00	%	France
ITW International Holdings Inc.		100.00	%	Delaware
ITW Investments, Inc.		100.00	%	Delaware
ITW Ireland		100.00	%	Ireland
ITW Ireland Holdings		100.00	%	Ireland
ITW Italy Finance Srl		100.00	%	Italy
ITW Italy Holding S.r.l		100.00	%	Italy
ITW Leasing L.L.C		100.00	%	Delaware
ITW Limited		100.00	%	United Kingdom
ITW Litec France S.A.S		100.00	%	France
ITW Ltd. Storbritannien Filal Sverige		100.00	%	Sweden
ITW Madeira — Servicos de Consultadoria, Sociedade Unipessoal, Lda		100.00	%	Madeira
ITW Meritex (Singapore) Pte. Ltd.		100.00	%	Singapore
ITW Meritex Sdn. Bhd		100.00	%	Malaysia
ITW Mexico Holding Inc.		100.00	%	Delaware
ITW Mima Films L.L.C		100.00	%	Delaware
ITW Mima Holdings L.L.C		100.00	%	Delaware
ITW Mima Service S.A.S		100.00	%	France
ITW Mima Systems S.A.S		100.00	%	France
ITW Morlock GmbH		100.00	%	Germany
ITW Mortgage Investments I, Inc.		100.00	%	Delaware
ITW Mortgage Investments II, Inc.		100.00	%	Delaware
ITW Mortgage Investments III, Inc.		100.00	%	Delaware
ITW Mortgage Investments IV, Inc.		100.00	%	Delaware
ITW New Zealand Limited		100.00	%	New Zealand
ITW Nominees Limited		100.00	%	New Zealand
ITW Oberflaechentechnik GmbH & Co. K.G		100.00	%	Germany
ITW Operations Australia Pty. Ltd.		100.00	%	Australia
ITW P&F Holdings Pty. Ltd.		100.00	%	Australia
ITW Packaging (Malaysia) Sdn Bhd		100.00	%	Malaysia
ITW Packaging (Shanghai) Limited		100.00	%	China
ITW Paris E.U.R.L		100.00	%	France


	Percent
Company	Ownership			Jurisdiction

ITW Participations S.a.r.l		100.00	%	Luxembourg
ITW Philippines, Inc.		100.00	%	Philippines
ITW PMI Investments, Inc.		100.00	%	Delaware
ITW Polska Sp. z.o.o		100.00	%	Poland
ITW Poly Mex, S.A. de C.V.		100.00	%	Mexico
ITW Poly Recycling GmbH		100.00	%	Switzerland
ITW Polymers & Fluids Pty. Ltd.		100.00	%	Australia
ITW Produits Chimiques S.A.S		100.00	%	France
ITW Pronovia Plus s.r.o		100.00	%	Czech Republic
ITW Pronovia s.r.o		100.00	%	Czech Republic
ITW Residuals III L.L.C		100.00	%	Delaware
ITW Residuals IV L.L.C		100.00	%	Delaware
ITW Richmond Sdn. Bhd		100.00	%	Malaysia
ITW Rivex S.A.		100.00	%	France
ITW Scanimed S.A.S		100.00	%	France
ITW Service Inc.		100.00	%	Korea
ITW Shippers S.p.r.l		100.00	%	Belgium
ITW Siewer GmbH		100.00	%	Germany
ITW Siewer Jarmutechnikai Bt		100.00	%	Hungary
ITW Siewer Vagyonkezelo Kft		100.00	%	Hungary
ITW Signode Australasia Pty. Limited		100.00	%	Australia
ITW Signode Belgium B.V.B.A		100.00	%	Belgium
ITW Signode Holding GmbH		100.00	%	Germany
ITW Signode India Limited		96.51	%	India
ITW Signode Singapore Pte. Ltd.		50.00	%	Singapore
ITW Singapore (Pte) Ltd.		100.00	%	Singapore
ITW SMPI S.A.S		100.00	%	France
ITW South Africa L.L.C		100.00	%	Delaware
ITW SP Europe S.a.r.l		100.00	%	Luxembourg
ITW Specialty Film Co. Ltd.		100.00	%	Korea
ITW Strapping Co. I, S.A. de C.V.		100.00	%	Mexico
ITW Strapping Co. II, S.A. de C.V.		100.00	%	Mexico
ITW Stretch Packaging Systems L.L.C		100.00	%	Delaware
ITW Superannuation Fund 2 Pty. Ltd.		100.00	%	Australia
ITW Superannuation Fund Pty. Ltd.		100.00	%	Australia
ITW Surfaces & Finitions S.A.S		100.00	%	France
ITW Sverige AB		100.00	%	Sweden
ITW Switches Asia Ltd.		100.00	%	Taiwan
ITW T-Mobile 2002-1		100.00	%	Delaware
ITW T-Mobile 2002-2		100.00	%	Delaware
ITW Universal L.L.C		100.00	%	Delaware
ITW Welding Products Asia Pacific Private Limited		100.00	%	Singapore
ITW Welding Products Group S.A. de C.V.		100.00	%	Mexico
ITW Welding Products Italy Srl		100.00	%	Italy
ITW Welding S.A.S		100.00	%	France


	Percent
Company	Ownership			Jurisdiction

James Glen Pty. Ltd.		100.00	%	Australia
Japan Polymark Co. Ltd.		34.00	%	Japan
Japit Inc.		19.00	%	Japan
Jemco de Mexico, S.A. de C.V.		100.00	%	Mexico
KC Metal Products Pty. Ltd.		100.00	%	Australia
Kormag Industries e Comercio Ltda.		40.00	%	Brazil
Krieger Heisspragefolien GmbH		100.00	%	Germany
Labels & Data Systems (U.K.) Limited		100.00	%	United Kingdom
Liljendals Bruk AB		100.00	%	Finland
Lombard Pressings Limited		100.00	%	United Kingdom
Loveshaw Corporation, The		100.00	%	Delaware
LSPS Inc.		100.00	%	Delaware
Lys Comet S.A.S		100.00	%	France
Lys Fusion Poland Sp. z.o.o		100.00	%	Poland
Magna Industrial Co. Limited		100.00	%	Hong Kong
Malborough Liners Limited		100.00	%	United Kingdom
Manufacturing Avancee S.A.		100.00	%	Morocco
Maquilas y Componentes Industriaies, I S.A. de C.V.		100.00	%	Mexico
Mazel (1980) Limited		100.00	%	United Kingdom
MBM France S.A.S		100.00	%	France
Metales Industrializados S.A. de C.V.		100.00	%	Mexico
Metalflex d.o.o		100.00	%	Slovenia
Miller Electric Mfg. Co.		100.00	%	Wisconsin
Miller Insurance Ltd.		100.00	%	Bermuda
Mima Films L.L.C		100.00	%	Delaware
Mima Films S.a.r.l		100.00	%	Luxembourg
Mima Films SCA		100.00	%	Belgium
Morgan Polimer Seals, S. de R.L. de C.V.		75.00	%	Mexico
Morgan Polymers Seals, L.L.C		75.00	%	California
Mortgage Ally Inc.		100.00	%	Delaware
New West Products, Inc.		100.00	%	California
Nifco Hi-Cone Leasing Limited		100.00	%	Japan
Nordic SAS		100.00	%	France
Noza Holdings Pty. Ltd.		100.00	%	Australia
Odesign, Inc.		100.00	%	Illinois
Orgapack GmbH		100.00	%	Switzerland
Orgapack SARL		100.00	%	France
Oy M. Haloila AB		100.00	%	Finland
P.B. Sherman (London) Limited		100.00	%	United Kingdom
Packaging Leasing Systems Inc.		51.00	%	Delaware
Pack-Band Hagen GmbH		65.00	%	Germany
PanCon GmbH		100.00	%	Germany
Paslode/Duo Fast France S.A.S		100.00	%	France
Pennsylvania Pulp & Paper Company (d/b/a International Holographic Paper, Inc.)		100.00	%	Pennsylvania


	Percent
Company	Ownership			Jurisdiction

PMI FEG Holland B.V		100.00	%	Netherlands
PMI Food Equipment (Hong Kong) Ltd.		100.00	%	Hong Kong
PMI Food Equipment Group (Malaysia), Inc.		100.00	%	Delaware
PMI Food Equipment Group Canada Inc.		100.00	%	Ontario
PMI Food Equipment Group France S.A.S		100.00	%	France
Polimeros Morgan, S. de R.L. de C.V.		75.00	%	Mexico
Polymark (U.K.) Limited		100.00	%	United Kingdom
Polymark Corporation		100.00	%	Delaware
Polymark Export Limited		100.00	%	United Kingdom
Precor Sportgerate G.m.b.H		100.00	%	Germany
Premark FEG Beteiligungsgesellschaft m.b.H		100.00	%	Germany
Premark FEG G.m.b.H. & Co. KG		100.00	%	Germany
Premark FEG L.L.C		100.00	%	Delaware
Premark Finance Limited		100.00	%	United Kingdom
Premark FT Holdings, Inc.		100.00	%	Delaware
Premark HII Holdings, Inc.		100.00	%	Ohio
Premark Holdings		100.00	%	United Kingdom
Premark International Holdings B.V		100.00	%	Netherlands
Premark International, Inc.		100.00	%	Delaware
Premark N.V		100.00	%	Netherland Antilles
Premark RWP Holdings, Inc.		100.00	%	Delaware
Premark WB Holdings, Inc.		100.00	%	Delaware
Quimica TF, S.A. de C.V.		100.00	%	Mexico
R.H. Phillips & Son (Engineers) Limited		40.00	%	United Kingdom
Ramset Fasteners		100.00	%	United Kingdom
Ramset Fasteners (Aust) Pty. Ltd.		100.00	%	Australia
Ramset Fasteners (Hong Kong) Ltd.		100.00	%	Hong Kong
Ramset Fasteners (S.E. Asia) Pte. Ltd.		100.00	%	Singapore
Ramset Philippines Inc.		100.00	%	Philippines
Ransburg Industrial Finishing K.K		100.00	%	Japan
Ransburg Manufacturing Corporation		100.00	%	Indiana
Resopal G.m.b.H		100.00	%	Germany
Resopal-Unterstutzungseinrichtung GmbH in Grob-Umstadt		100.00	%	Germany
Rivex Limited		100.00	%	United Kingdom
Rocol Far East Limited		100.00	%	Hong Kong
Rocol France S.A.		100.00	%	France
Rocol Group Limited		100.00	%	United Kingdom
Rocol Korea Limited		100.00	%	Korea
Rocol Limited		100.00	%	United Kingdom
Rocol Site Safety Systems Limited		100.00	%	United Kingdom
Sam Jung Signode Inc.		100.00	%	Korea
Sarsfield N.V		100.00	%	Netherland Antilles
Scanilec B.V		100.00	%	Netherlands
Scybele S.A.S		100.00	%	France
SEINE Investments EURL		100.00	%	France


	Percent
Company	Ownership			Jurisdiction

Servicios de Ingenieria Aguascallentes, S. de R.L. de C.V.		100.00	%	Mexico
Servicios de Reynosa, S.A. de C.V.		100.00	%	Mexico
SG Invest Holdings GmbH		100.00	%	Germany
Shanghai ITW Plastic & Metal Company Limited		93.00	%	China
Sherman Allied Products Limited		100.00	%	United Kingdom
Sherman Treaters (North America) Inc.		100.00	%	Ontario
Sherman Treaters Holdings Limited		100.00	%	United Kingdom
Sherman Treaters Limited		100.00	%	United Kingdom
Siddons Ramset Holdings Pty. Limited		100.00	%	Australia
Siewer Automotiv s.r.o		100.00	%	Czech Republic
Signode (Thailand) Limited		100.00	%	Thailand
Signode B.V		100.00	%	Netherlands
Signode Bernpak GmbH		100.00	%	Germany
Signode Brasileria Ltda.		100.00	%	Brazil
Signode France S.A.S		100.00	%	France
Signode Hong Kong Limited		100.00	%	Hong Kong
Signode Ireland Limited		50.00	%	United Kingdom
Signode Kabushiki Kaisha		100.00	%	Japan
Signode Manufacturing (Thailand) Limited		100.00	%	Thailand
Signode Packaging Systems Limited		20.00	%	East Africa
Signode PGP Limited		100.00	%	United Kingdom
Signode Singapore Investments Pte. Ltd.		100.00	%	Singapore
Signode Singapore Pte. Ltd.		100.00	%	Singapore
Signode System GmbH		100.00	%	Germany
Sima Industri A/S		100.00	%	Denmark
Simco (Nederland) B.V		100.00	%	Netherlands
Simco Japan, Inc.		100.00	%	Japan
Smart Home Products Pty. Ltd.		100.00	%	Australia
Snoddis Tesmar Limited		100.00	%	Australia
Société Civile Immobilière des Baquets		100.00	%	France
Société Civile Immobilière Rousseau Ivry		100.00	%	France
Societe de Rectification et de Decolletage SARL (SRD Sarl)		100.00	%	France
Solutions Group Transaction Subsidiary Inc.		100.00	%	Delaware
South Common Venture		100.00	%	Illinois
Spiroid Inc.		100.00	%	Delaware
SPIT S.A.S. (Societe de Prospection et d’Inventions Techniques S.A.S.)		100.00	%	France
SPL Group Limited		100.00	%	Australia
Sraennik Pty Ltd		100.00	%	Australia
Stahl, S.A. de C.V.		50.00	%	Mexico
Strapex (Canada) Corporation		100.00	%	Nova Scotia
Strapex ApS		100.00	%	Denmark
Strapex Embalagem L.d.a		100.00	%	Portugal
Strapex GmbH		100.00	%	Austria
Strapex GmbH		100.00	%	Switzerland
Strapex GmbH		100.00	%	Germany


	Percent
Company	Ownership			Jurisdiction

Strapex Holding GmbH		100.00	%	Switzerland
Strapex Nederland B.V		100.00	%	Netherlands
Strapex S.A.S		100.00	%	France
Strapex S.p.r.l		100.00	%	Belgium
Strapex s.r.l		100.00	%	Italy
Strapex U.K. Limited		100.00	%	United Kingdom
Surfmill Limited		100.00	%	United Kingdom
Synertech GmbH		40.00	%	Germany
Tamanaco Holding B.V		100.00	%	Netherlands
Ten Plus GmbH		100.00	%	Germany
Ten Plus S.A.S		100.00	%	France
Texwipe Philippines, Inc.		100.00	%	Philippines
Thermal Transfer Media Ltd.		100.00	%	United Kingdom
Tien Tai Eletrode Co., Ltd.		39.61	%	Taiwan
Toolmatic B.V		100.00	%	Netherlands
Toolmatic B.V.B.A		100.00	%	Belgium
Tranosliw		100.00	%	United Kingdom
Trilectron Europe Limited		100.00	%	United Kingdom
Unipac Corporation		100.00	%	Ontario
Unipac Limited		100.00	%	United Kingdom
Unipac, Inc.		100.00	%	Delaware
Val’ Outillage S.A.S		100.00	%	France
Valeron Strength Films B.V.B.A		100.00	%	Belgium
Valeron Strength Films UK Limited		100.00	%	United Kingdom
Varybond Chemie AG		100.00	%	Switzerland
Varybond Chemie GmbH		100.00	%	Germany
Varybond Chemie Holding AG		100.00	%	Liechtenstein
Varybond Chemie-Gesellschaft mbH		100.00	%	Austria
Veneta Decalcogomme s.r.l		100.00	%	Italy
Victor Ridder GmbH & Co. KG		100.00	%	Germany
Vulcan-Hart Canada Corp.		100.00	%	Canada
Wavebest Limited		100.00	%	United Kingdom
Welding Industries Ltd.		100.00	%	Australia
West Bend de Mexico S.A. de C.V.		100.00	%	Mexico
Wilsonart (Shanghai) Co. Ltd.		100.00	%	China
Wilsonart (Thailand) Co. Ltd.		75.00	%	Thailand
Wilsonart Holdings Limited		100.00	%	United Kingdom
Wilsonart Hong Kong Ltd.		100.00	%	Hong Kong
Wilsonart International Holdings, Inc.		100.00	%	Delaware
Wilsonart International, Inc.		100.00	%	Delaware
Wilsonart Limited		100.00	%	United Kingdom
Wilsonart South Africa (Pty.) Ltd.		100.00	%	South Africa
Wilsonart Taiwan Corp. Ltd.		100.00	%	Taiwan
Wolf Catering Equipment (UK) Limited		100.00	%	United Kingdom

EX-23.A 7 c75093exv23wa.htm CONSENT OF DELOITTE & TOUCHE LLP Consent of Deloitte & Touche LLP

Exhibit 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in the previously filed Registration Statements of Illinois Tool Works Inc. on Form S-8 (File No.’s 333-22035, 333-37068, 333-75767 and 333-69542), Form S-4 (File No.’s 333-02671, 333-25471 and 333-88801) and Form S-3 (Files No.’s 33-5780 and 333-70691) and Premark International, Inc.’s previously filed Registration Statements on Form S-3 (File No.’s 33-35137 and 333-62105) of our report dated January 27, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph as to Illinois Tool Works Inc.’s change in its method of accounting for goodwill and intangible assets, and our audit procedures of the 2001 and 2000 transitional disclosures in the Goodwill and Intangible Assets note required by the change) appearing in this Annual Report on
Form 10-K of Illinois Tool Works Inc. for the year ended December 31, 2002.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
March 3, 2003

EX-24 8 c75093exv24.htm POWERS OF ATTORNEY Powers of Attorney

Exhibit 24

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell and Stewart S. Hudnut, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for her or him and in his or her name, place and stead, in any and all capacities, to sign the Company’s Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 16th day of January, 2003.

/s/ William F. Aldinger

William F. Aldinger

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February, 2003.

/s/ Michael J. Birck

Michael J. Birck

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 28th day of January, 2003.

/s/ Marvin D. Brailsford

Marvin D. Brailsford

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 16th day of January, 2003.

/s/ James R. Cantalupo

James R. Cantalupo

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of January, 2003.

/s/ Susan Crown

Susan Crown

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of January, 2003.

/s/ Don H. Davis, Jr.

Don H. Davis, Jr.

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of January, 2003.

/s/ Robert C. McCormack

Robert C. McCormack

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of January, 2003.

/s/ Harold B. Smith

Harold B. Smith

ILLINOIS TOOL WORKS INC.

Form 10-K Annual Report

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 16th day of January, 2003.

/s/ Phillip B. Rooney

Phillip B. Rooney

EX-99.(B) 9 c75093exv99wxby.htm CERTIFICATION Certification

Exhibit 99(b)

CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

The following statement is being made to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.1349), which carries with it certain criminal penalties in the event of a knowing or willful misrepresentation.

Each of the undersigned hereby certifies that the Annual Report on Form 10-K for the period ended December 31, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the registrant.


Dated:	March 3, 2003	/s/ W. James Farrell W. James Farrell Chairman and Chief Executive Officer



Dated:	March 3, 2003	/s/ Jon C. Kinney Jon C. Kinney, Senior Vice President and Chief Financial Officer

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Usage Classification

Criteria

Reserve %

Quantity on hand is less than prior 6 months’ usage

Slow-moving

Some usage in last 12 months, but quantity on hand exceeds prior 6 months’ usage

No usage in the last 12 months


	1)	Mortgage investments — In 1995, 1996 and 1997, the Company invested a total of $300 million in three separate mortgage investments. Although it acquired commercial mortgage loans and real estate and issued nonrecourse notes payable in these transactions, the Company also entered into swap and related agreements with the seller of the assets to mitigate its real estate and credit risks relative to the mortgage loans and real estate and eliminate its interest rate risk relative to the nonrecourse notes payable. As a result of these transactions, the Company will receive cash of approximately $26 million per year and a portion of the disposition proceeds in the tenth year of each transaction, by which time all of the assets are expected to be sold. In addition, the swap counterparty will repay the principal and interest on the Company’s nonrecourse notes payable. See the Leasing & Investments section of the Management’s Discussion & Analysis on pages 22 through 25 of the Company’s 2002 Annual Report to Stockholders for further discussion of these mortgage investments.

	2)	Leases of equipment — The Company has entered into numerous leases of equipment used in the telecommunications and transportation industries. These leases are accounted for as leveraged or direct financing leases. See the Investments note on pages 42 through 44 of the Company’s Annual Report to Stockholders for further discussion of these leases.

	3)	Affordable housing limited partnerships — The Company has entered into several affordable housing limited partnerships primarily to receive tax benefits in the form of tax credits and tax deductions from operating losses. See the Investments note on pages 42 through 44 of the Company’s Annual Report to Stockholders for further discussion of these investments.


	•	Simplifying manufactured product lines by reducing the number of products offered by combining the features of similar products, outsourcing products or eliminating products.

	•	Simplifying the customer base by focusing on the 80/20 customers and finding different ways to serve the 20/80 customers.

	•	Simplifying the supplier base by partnering with key 80/20 suppliers and reducing the number of 20/80 suppliers.

	•	Designing business processes and systems around the key 80/20 activities.


	1. I have reviewed this annual report on Form 10-K of Illinois Tool Works Inc.;

	2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	/s/ W. JAMES FARRELL

	W. James Farrell,
	Chairman and Chief Executive Officer


	/s/ JON C. KINNEY

	Jon C. Kinney, Senior Vice President
	and Chief Financial Officer