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

Filing Date
Filed September 26, 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/A filed September 26, 2003. Cited figures are marked; the original filing is the authoritative source.

Illinois Tool Works (ITW) filed this Form 10-K/A for fiscal 2002 on September 26, 2003, primarily to expand MD&A and footnote disclosures, particularly around its Leasing & Investments segment.

The financial statements were not adjusted or restated. ITW is a diversified industrial manufacturer with roughly 600 operations in 44 countries, organized into four manufacturing segments (Engineered Products North America and International, Specialty Systems North America and International) plus Leasing & Investments. 2002 operating revenues were $9.47 billiona, up about 2% from $9.29 billion in 2001, and operating income rose 15% to $1.51 billion, with the operating margin expanding to 15.9% from 14.1%.

Diluted income from continuing operations was $3.02b per share, up from $2.62 in 2001, though net income fell to $712.6 million ($2.31 per diluted share) after a $221.9 million cumulative accounting charge from adopting SFAS 142 on goodwill. The growth was driven mainly by cost reductions from the company's 80/20 simplification program and the elimination of goodwill amortization, not by revenue growth. Base-business revenues declined about 2% in North America, where industrial production stayed depressed, while international markets improved in the second half of 2002.

The balance sheet strengthened: cash rose to $1.06 billionc, total debt was roughly flat at $1.58 billion, and debt-to-capitalization fell to 19.2% from 20.7%. Free operating cash flow was $1.10 billion, and the company completed the sale of Precor and West Bend in 2002 while planning to sell Florida Tile in 2003. Investors should note the Leasing & Investments segment, which holds mortgage-related assets, equipment leases, and affordable housing investments.

Its results were volatile in 2002, with a $31.6 milliond aircraft lease impairment tied to United Airlines' bankruptcy and $54.1 million of commercial real estate impairments, offset by large swap income. The mortgage transactions carry significant contingent cash flows and FIN 46 consolidation risk in 2003. The filing also notes that Arthur Andersen, which audited 2001 and 2000, could not consent to inclusion of its reports, so investors may be unable to bring Section 11 claims against Andersen on those statements.

02—Key points

Key Highlights

  1. Operating revenues of $9.47 billion in 2002, up 2% from $9.29 billion in 2001, with base-business revenue down about 2%.
  2. Operating income rose 15% to $1.51 billion, and operating margin expanded 180 basis points to 15.9%, driven mainly by cost improvements from the 80/20 program and the end of goodwill amortization.
  3. Diluted EPS from continuing operations was $3.02 (up from $2.62), but net income was $712.6 million ($2.31 per diluted share) after a $221.9 million ($0.72 per share) cumulative-effect charge for goodwill impairment under SFAS 142.
  4. Free operating cash flow was $1.10 billion, and cash and equivalents increased to $1.06 billion, while total debt held roughly flat at $1.58 billion and debt-to-capitalization improved to 19.2%.
  5. Return on average invested capital improved to 15.0% from 13.0%, after a 3.5% decline in invested capital.
  6. Leasing & Investments had volatile results: a $31.6 million aircraft impairment (United Airlines bankruptcy) and $54.1 million of commercial real estate impairments, offset by $116.0 million of net swap income.
  7. Divestiture of the Consumer Products segment: Precor and West Bend were sold in October 2002 for $207.9 million in net proceeds, and Florida Tile is slated for sale in 2003 with a net after-tax gain of only $2.4 million deferred.

03—Questions

Frequently Asked Questions

  1. Why did net income decline in 2002 even though operating income rose 15%?

    The decline came from a $221.9 million after-tax cumulative-effect charge recorded in Q1 2002 when ITW adopted SFAS 142. The charge reflects goodwill impairment across about 40 businesses, measured using discounted cash flows. Income from continuing operations actually rose 16% to $931.8 million.

  2. What is the Leasing & Investments segment and why does it matter to investors?

    The segment holds mortgage-related assets (commercial loans and real estate, with nonrecourse notes and a ten-year swap with an AAA-rated counterparty), equipment leases (aircraft and telecom), affordable housing partnerships, and a venture capital fund. It generated $85.5 million of operating income in 2002, but results swing significantly with impairments and swap mark-to-market adjustments. Its net assets were $360.8 million, and it carries about $770 million of debt.

  3. How much organic growth did ITW achieve in 2002?

    Very little. Revenue grew 2% overall, but acquisitions added about 3% and favorable currency about 1%, offset by a 2% decline in base-business revenue. North American base businesses fell 2% as industrial production stayed weak. Margin gains came from cost reductions and 80/20 restructuring rather than volume growth.

  4. What does this 10-K/A change compared with the original filing?

    The amendment expands MD&A and footnote disclosures, mainly around the Leasing & Investments segment and related investments. The financial statements have not been adjusted or restated, so the reported figures are unchanged from the original filing.

04—Continue

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