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ILLINOIS TOOL WORKS INC Annual Report, Year Ended Dec 31, 2002

Filing Date
Filed March 4, 2003
Period End
December 31, 2002
Security
ITW
In the record · 2016–202610-K1110-Q338-K86

ITW filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 86 current reports (8-K) between 2016 and 2026.

  1. FY2017 annual report10-K · Feb ’18Feb ’18
  2. Leadership change8-K · Feb ’21Feb ’21
  3. Leadership change8-K · Feb ’23Feb ’23
  4. Material agreement8-K · Feb ’25Feb ’25

01—Abstract

Summary

Summary of the 10-K filed March 4, 2003. Cited figures are marked; the original filing is the authoritative source.

Illinois Tool Works (ITW) closed 2002 with operating revenues of $9.47 billiona, up 1.9% year over year, and income from continuing operations of $931.8 million ($3.02 diluted EPS), up 16.1% from $802.4 million in 2001.

The improvement was driven mainly by base-business operating income gains from the company's 80/20 simplification process, which lifted base business operating income by 5.2%, and by the elimination of goodwill amortization under SFAS 142. Reported net income of $712.6 millionb was lower because of a $221.9 million after-tax cumulative-effect charge for goodwill impairment. Return on average invested capital rose to 15.0% from 13.0%.

The balance sheet strengthened materially. Cash and equivalents rose to $1.06 billionc from $282 million, free operating cash flow was $1.10 billion, and the debt-to-capitalization ratio fell to 19.2% from 20.7%. Management guided 2003 income from continuing operations to $3.02 to $3.42 per diluted share.

The company also plans to divest Florida Tile in 2003, and it carries a sizable Leasing & Investments portfolio, including mortgage investments with an expected future income of about $130 milliond, which adds some complexity to the earnings picture. Key risks include exposure to construction, automotive, and general industrial end markets, uneven global demand, and the pending FIN 46 consolidation rules, which could deconsolidate the mortgage investments and consolidate property developments and affordable housing partnerships. The company changed auditors from Arthur Andersen to Deloitte & Touche in 2002, and reported no material legal proceedings.

02—Key points

Key Highlights

  1. Operating revenues of $9.47B in 2002, up 1.9%; base business revenues declined 1.8%, with growth driven by acquisitions (+2.5%) and currency (+1.0%).
  2. Income from continuing operations rose 16.1% to $931.8M ($3.02 diluted EPS), helped by 80/20 cost initiatives and the end of goodwill amortization.
  3. Reported net income fell to $712.6M due to a $221.9M after-tax goodwill impairment charge from adopting SFAS 142 (-$0.72 per share).
  4. ROIC improved to 15.0% from 13.0%, and total debt-to-capitalization fell to 19.2% from 20.7%.
  5. Free operating cash flow of $1.10B and cash on hand of $1.06B, up from $282M a year earlier, provide substantial financial flexibility.
  6. 2003 guidance of $3.02 to $3.42 per diluted share; the Florida Tile divestiture is expected in 2003 with an estimated $2.4M after-tax gain deferred.
  7. Leasing & Investments segment carries mortgage investments with about $130M of expected future income; FIN 46 adoption in Q3 2003 may deconsolidate these and consolidate other partnerships.

03—Questions

Frequently Asked Questions

  1. How did ITW perform in 2002 compared with 2001?

    Operating revenues rose 1.9% to $9.47 billion. Income from continuing operations increased 16.1% to $931.8 million, or $3.02 per diluted share, while net income declined to $712.6 million because of a $221.9 million cumulative-effect charge for goodwill impairment under SFAS 142.

  2. What drove the improvement in operating income?

    Base business operating income increased 5.2%, primarily from 80/20 simplification efforts across all segments. Elimination of goodwill and indefinite-lived intangible amortization, which was $71.5M pre-tax in 2001 and is no longer recorded, also contributed about 6.4 percentage points to the change in operating income.

  3. What is the outlook for 2003?

    Management expects 2003 income from continuing operations of $3.02 to $3.42 per diluted share. Pension expense is expected to rise about $15 million, and the Florida Tile sale is planned for 2003.

  4. What are the main risks for investors?

    Key risks include a downturn in construction, automotive, general industrial, food service, or real estate markets; weaker global economic conditions; currency fluctuations; difficulty making acquisitions or dispositions; and unfavorable tax changes. The Leasing & Investments portfolio also faces FIN 46 consolidation effects and mortgage-related credit exposure, although the swap counterparty bears most of the real estate and credit risk.

  5. Is ITW's balance sheet and liquidity position strong?

    Yes. Cash rose to $1.06 billion, net working capital increased to $2.31 billion, and the current ratio improved to 2.48. Total debt was $1.58 billion, the company had $900 million of unused U.S. debt capacity, and covenant compliance was comfortable, with debt at 19% of total capitalization against a 50% maximum.

04—Continue

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