FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4797
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ILLINOIS TOOL WORKS INC.
___________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 36-1258310
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 West Lake Avenue, Glenview, IL 60025-5811
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (847) 724-7500
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Former address:
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(Former name, former address and former fiscal year,
if changed since last report.)
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 .
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The number of shares of registrant's common stock, without par value,
outstanding at October 31, 1996: 123,854,150.
<PAGE>
Part I - Financial Information
Item 1
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
FINANCIAL STATEMENTS
The unaudited financial statements included herein have been prepared by
Illinois Tool Works Inc. and Subsidiaries (the "Company"). In the
opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement
of the results for interim periods. It is suggested that these
financial statements be read in conjunction with the financial
statements and comments on financial statements included in the
Company's Annual Report on Form 10-K/A. Certain reclassifications of
prior years' data have been made to conform with current year reporting.
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME
(UNAUDITED)
(In Thousands Except for
Per Share Amounts)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Operating Revenues $1,238,261 $1,050,123 $3,699,983 $3,084,326
Cost of revenues 817,658 690,594 2,444,353 2,016,366
Selling, administrative,
and research and develop-
ment expenses 212,525 183,577 653,025 573,716
Amortization of goodwill
and other intangible
assets 7,605 6,086 22,218 18,242
Amortization of retiree
health care 1,742 1,742 5,226 5,226
---------- ---------- ---------- ----------
Operating Income 198,731 168,124 575,161 470,776
Interest expense (5,375) (8,190) (20,251) (22,183)
Other income 1,686 1,332 3,862 5,052
---------- ---------- ---------- ----------
Income Before Income Taxes 195,042 161,266 558,772 453,645
Income taxes 72,200 61,250 206,800 172,350
---------- ---------- ---------- ----------
Net Income $ 122,842 $ 100,016 $ 351,972 $ 281,295
========== ========== ========== ==========
Per share of common stock:
Net Income $ .99 $ .85 $2.84 $2.40
===== ===== ===== =====
Cash dividends:
Paid $ .17 $ .15 $ .51 $ .45
===== ===== ===== =====
Declared $ .19 $ .17 $ .53 $ .47
===== ===== ===== =====
Average number of shares of
common stock outstanding
during the period 123,805 117,508 123,752 117,396
======= ======= ======= =======
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS September 30, 1996 December 31, 1995
------------------ -----------------
Current Assets:
Cash and equivalents $ 162,727 $ 116,600
Trade receivables 837,337 741,327
Inventories 541,060 518,964
Deferred income taxes 121,511 80,005
Prepaid expenses and other
current assets 84,548 75,594
---------- ----------
Total current assets 1,747,183 1,532,490
---------- ----------
Plant and Equipment:
Land 61,494 60,486
Buildings and improvements 416,697 375,352
Machinery and equipment 1,219,321 1,076,950
Equipment leased to others 92,603 75,175
Construction in progress 54,602 32,621
---------- ----------
1,844,717 1,620,584
Accumulated depreciation (1,080,755) (925,643)
---------- ----------
Net plant and equipment 763,962 694,941
Investments 482,669 504,820
Goodwill 609,060 518,747
Deferred Income Taxes 160,595 118,913
Other Assets 293,135 221,407
---------- ----------
$4,056,604 $3,591,318
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 137,419 $ 176,188
Accounts payable 243,686 221,497
Accrued expenses 508,740 391,702
Cash dividends payable 23,075 20,100
Income taxes payable 26,706 41,445
---------- ----------
Total current liabilities 939,626 850,932
---------- ----------
Non-current Liabilities:
Long-term debt 597,630 615,557
Other 240,654 200,592
---------- ----------
Total non-current liabilities 838,284 816,149
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock 269,208 239,688
Income reinvested in the business 1,994,657 1,673,320
Common stock held in treasury (1,841) (1,866)
Cumulative translation adjustment 16,670 13,095
---------- ----------
Total stockholders' equity 2,278,694 1,924,237
---------- ----------
$4,056,604 $3,591,318
========== ==========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands) Nine Months Ended
September 30
------------------
1996 1995
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Cash Provided by (Used for) Operating Activities:
Net income $351,972 $281,295
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 135,230 112,736
Change in deferred income taxes (5,226) (12,122)
Provision for uncollectible accounts 5,166 5,393
(Gain)loss on sale of plant and equipment (573) 156
Income from investments (40,701) (14,957)
Gain on sale of operations and affiliates (5,587) (496)
Other non-cash items, net (600) 11,605
-------- --------
Cash provided by operating activities 439,681 383,610
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (20,227) (40,167)
Inventories 32,534 (30,096)
Prepaid expenses and other assets (39,197) 7,940
Increase (decrease) in--
Accounts payable (18,596) (24,973)
Accrued expenses 48,727 21,982
Income taxes payable (18,823) (33,608)
Other, net 1,958 4,536
-------- --------
Net cash provided by operating activities 426,057 289,224
-------- --------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses(excluding cash and
equivalents) and additional interest in affiliates (101,146) (146,598)
Additions to plant and equipment (117,391) (106,760)
Purchase of investments (10,855) (44,328)
Proceeds from investments 46,253 20,685
Proceeds from sale of plant and equipment 20,662 9,978
Proceeds from sale of operations and affiliates 13,922 2,254
Other, net (8,021) 1,907
-------- --------
Net cash used for investing activities (156,576) (262,862)
-------- --------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (61,953) (51,799)
Issuance of common stock 4,035 6,453
Net (repayments)proceeds from short-term debt (74,700) 47,936
Proceeds from long-term debt 8,891 105
Repayments of long-term debt (100,980) (1,361)
Other, net 2,767 (5,846)
-------- --------
Net cash used for financing activities (221,940) (4,512)
-------- --------
Effect of Exchange Rate Changes on Cash and Equivalents (1,414) 3,503
-------- --------
Cash and Equivalents:
Increase during the period 46,127 25,353
Beginning of period 116,600 76,867
-------- --------
End of period $162,727 $102,220
======== ========
Cash Paid During the Period for Interest $ 33,090 $ 21,783
======== ========
Cash Paid During the Period for Income Taxes $208,689 $213,693
======== ========
Liabilities Assumed from Acquisitions $233,881 $144,546
======== ========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
COMMENTS ON FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at September 30, 1996 and December 31, 1995 were as
follows:
(In Thousands)
Sept. 30, Dec. 31,
1996 1995
--------- --------
Raw material $164,702 $140,302
Work-in-process 79,299 84,981
Finished goods 297,059 293,681
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$541,060 $518,964
======== ========
(2) LONG-TERM DEBT
In May 1996, the Company amended its existing revolving credit facility
(RCF) to increase the maximum available borrowings to $350,000,000 and to
extend the commitment termination date to May 30, 2001. The amended
RCF provides for borrowings under a number of options and may be
reduced or canceled at any time at the Company's option. There were no
amounts outstanding under this facility at September 30, 1996.
The amended RCF contains financial covenants establishing a maximum
total debt to capitalization percentage and a minimum consolidated net
worth. The Company was in compliance with these covenants at
September 30, 1996.
<PAGE>
Item 2 - Management's Discussion and Analysis
ENGINEERED COMPONENTS SEGMENT
Businesses in this segment manufacture short lead-time plastic and metal
components, fasteners and assemblies; industrial fluids and adhesives;
fastening tools; and welding products. This segment primarily serves the
construction, automotive and general industrial markets.
(Dollars in Thousands)
Three months ended Nine months ended
September 30 September 30
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Operating
Revenues 1996 1995 1996 1995
- --------- -------- -------- ---------- ----------
Domestic $459,938 $331,983 $1,394,519 $1,024,973
International 207,381 178,061 654,340 546,286
-------- -------- ---------- ----------
Total $667,319 $510,044 $2,048,859 $1,571,259
======== ======== ========== ==========
Three months ended September 30 Nine months ended September 30
--------------------------------- --------------------------------
Operating 1996 1995 1996 1995
Income Income Margin Income Margin Income Margin Income Margin
- -------------------------------------------------------------------------------
Domestic $ 74,828 16.3% $55,355 16.7% $215,817 15.5% $167,654 16.4%
International 21,070 10.2 25,783 14.5 79,069 12.1 72,646 13.3
-------- ------- -------- --------
Total $ 95,898 14.4 $81,138 15.9 $294,886 14.4 $240,300 15.3
======== ======= ======== ========
For both the three month and nine month periods, acquisitions (primarily Hobart
Brothers and Medalist Industries) largely contributed to domestic revenue
growth, along with increased penetration in the automotive markets by the
automotive businesses and new product introductions in the construction
businesses. Operating income for the three month period increased primarily
due to higher revenues without a corresponding increase in costs in the
automotive and industrial components businesses, while acquisitions also
contributed to the operating income growth for the nine month period. Margins
declined in both the three month and nine month periods as a result of lower
margins at acquired businesses, partially offset in the year-to-date period
by margin increases in the automotive and construction businesses.
International revenues increased primarily due to acquisitions in the European
automotive businesses for both the three month and nine month periods.
Operating income and margins decreased in the three month period primarily due
to nonrecurring costs of $4.5 million in the European construction businesses.
For the year-to-date period, margins were lower due to soft demand in the
European and Australian construction businesses and the German automotive
market and price decreases in the French automotive markets. A nonrecurring
goodwill write-off of $3.7 million in the first quarter of 1995 contributed to
the 1996 year-to-date operating income increase.
<PAGE>
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT
Businesses in this segment manufacture longer lead-time systems and related
consumables for consumer and industrial packaging; marking, labeling and
identification systems; industrial spray coating equipment and systems; and
quality assurance equipment and systems. The largest markets served by this
segment are general industrial, food and beverage and industrial capital goods.
(Dollars in Thousands)
Three months ended Nine months ended
September 30 September 30
------------------ ----------------------
Operating
Revenues 1996 1995 1996 1995
-------- -------- ---------- ----------
Domestic $319,272 $300,206 $ 952,515 $ 892,900
International 228,956 234,884 647,766 600,773
-------- -------- ---------- ----------
Total $548,228 $535,090 $1,600,281 $1,493,673
======== ======== ========== ==========
Three months ended September 30 Nine months ended September 30
Operating 1996 1995 1996 1995
Income Income Margin Income Margin Income Margin Income Margin
- -------------------------------------------------------------------------------
Domestic $ 67,450 21.1% $55,150 18.4% $191,072 20.1% $156,647 17.5%
International 29,375 12.8 28,450 12.1 69,660 10.8 59,658 9.9
-------- ------- -------- --------
Total $ 96,825 17.7 $83,600 15.6 $260,732 16.3 $216,305 14.5
======== ======= ======== ========
For the three month period, domestic revenues slightly increased primarily due
to acquisitions in the consumer and specialty packaging groups and improved de-
mand in the Signode packaging and finishing systems businesses. For the nine
month period, domestic revenues increased primarily due to acquisitions in the
consumer and specialty packaging businesses as well as continuing strong demand
for specialty industrial packaging and quality measurement products. Operating
income and margins increased in the third quarter primarily due to lower raw
material costs for the Signode and consumer packaging operations. Year-to-date
operating income and margins grew as a result of increased revenues in the
specialty industrial packaging businesses and lower operating costs in the
quality measurement and Signode packaging businesses.
International revenues for the three month period decreased primarily due to
the negative impact of foreign currency translation as a result of the stronger
U.S. dollar. The revenue growth in the third quarter for the Signode and
specialty industrial packaging businesses, due primarily to acquisitions, was
offset by revenue declines in the finishing systems and the existing Signode
packaging businesses. Acquisitions in the specialty industrial packaging
businesses and the Signode packaging operations contributed to the majority of
the revenue growth in the year-to-date period. Operating income and margins
increased for the third quarter largely due to improved results in the specialty
industrial packaging businesses. For the nine month period, the majority of
the increase in operating income and margins was due to lower nonrecurring costs
of $6.1 million in 1996.
<PAGE>
LEASING AND INVESTMENTS SEGMENT
The Company has historically had strong cash flows from its manufacturing
operations. Although most of this cash has been reinvested in the manufactur-
ing businesses, both through investments in capital equipment and through
acquisitions, some of the excess cash has traditionally been used to make fi-
nancial investments. These investments primarily include leveraged and direct
financing leases of equipment, mortgage-related investments, investments in
properties and property developments, and affordable housing investments.
In 1996, due to the increased significance of these investments, the Company's
leasing and investments business began reporting as a separate segment.
Accordingly, certain reclassifications of amounts in the 1995 statement of
income have been made. For the Leasing and Investments segment, operating
revenues and operating income for the year ended December 31, 1995 were $25.9
million and $18.8 million, respectively, and identifiable assets at December 31,
1995 were $604.5 million.
(Dollars in Thousands)
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Operating
revenues $22,714 $4,989 $50,843 $19,394
======= ====== ======= =======
Operating
income $ 6,008 $3,386 $19,543 $14,171
======= ====== ======= =======
Margin 26.5% 67.9% 38.4% 73.1%
For the three month and nine month periods, revenues and operating income
increased primarily due to the commercial mortgage transaction entered into at
year-end 1995 (see Financial Position section for discussion). Year-to-date
operating income in 1995 included a nonrecurring gain on the sale of equipment
under leveraged lease of $4.0 million. Margins declined for both the third
quarter and the nine month period ended September 30, 1996 from the comparable
periods in 1995 as a result of lower margins for the commercial mortgage
transaction versus the transactions in the prior year. The 1996 year-to-date
margins are more indicative of the segment's performance.
OPERATING EXPENSES
Cost of revenues as a percentage of revenues increased to 66.1% in the first
nine months of 1996 versus 65.4% in the first nine months of 1995, mainly due
to lower gross margins for acquired companies. Selling, administrative and
research and development expenses decreased to 17.6% of revenues in the first
nine months of 1996 versus 18.6% in the nine month period ended September 30,
1995, due in part to higher 1995 nonrecurring costs of approximately $9.4
million.
INTEREST EXPENSE
Interest expense decreased slightly to $20.3 million in the first nine months of
1996 from $22.2 million in the same period of 1995, primarily due to a lower
amount of debt outstanding attributed to the Company's manufacturing operations.
Interest cost of $18.4 million attributed to the leasing and investment
business has been classified as cost of revenues.
<PAGE>
OTHER INCOME
Other income decreased to $3.9 million for the first nine months of 1996 from
$5.1 million in 1995. This decrease is primarily due to debt prepayment costs
related to acquired companies in 1996 and higher 1996 currency translation
losses, partially offset by higher gains on the sale of operations and the sale
of plant and equipment.
NET INCOME
Net income of $352.0 million ($2.84 per share) in the first nine months of 1996
was 25.1% higher than the 1995 net income for the same period of $281.3 million
($2.40 per share). Foreign currency fluctuations had no material impact on
consolidated revenues or earnings in the first nine months of 1996 versus 1995.
FINANCIAL POSITION
Net working capital at September 30, 1996 and December 31, 1995 is summarized as
follows:
(Dollars in Thousands)
Sept. 30, Dec. 31, Increase/
1996 1995 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 162,727 $ 116,600 $ 46,127
Trade receivables 837,337 741,327 96,010
Inventories 541,060 518,964 22,096
Other 206,059 155,599 50,460
---------- ---------- --------
$1,747,183 $1,532,490 $214,693
---------- ---------- --------
Current Liabilities:
Short-term debt $ 137,419 $ 176,188 $(38,769)
Accounts payable and
accrued expenses 752,426 613,199 139,227
Other 49,781 61,545 (11,764)
---------- ---------- --------
$ 939,626 $ 850,932 $ 88,694
---------- ---------- --------
Net Working Capital $ 807,557 $ 681,558 $125,999
========== ========== ========
Current Ratio 1.86 1.80
=========== ==========
The increase in trade receivables in the first nine months of 1996 was primarily
due to 1996 acquisitions and higher revenues in the third quarter of 1996 versus
the fourth quarter of 1995. Short-term debt decreased in the first nine months
of 1996 as a result of cash flow generated from operations. Accounts payable and
accrued expenses increased at September 30, 1996 versus year-end 1995 as a
result of overall business growth and 1996 acquisitions.
In the first nine months of 1996, long-term debt of $92.0 million assumed in
acquisitions was repaid.
<PAGE>
In December 1995, the Company acquired a pool of mortgage-related assets in
exchange for a nonrecourse note payable of $256,000,000, preferred stock of a
subsidiary of $20,000,000 and cash of $80,000,000. The mortgage-related assets
relate to commercial real estate located throughout the U.S. and include 26
subperforming, variable rate, balloon loans and five foreclosed properties. In
conjunction with this transaction, the Company simultaneously entered into a
ten-year swap agreement and other related agreements whereby the Company will
pay a third party the portion of the interest and net operating cash flow from
the mortgage-related assets in excess of $9,000,000 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 payments to the Company equal
to the contractual principal and interest payments on the nonrecourse note
payable. In addition, in the event that the pool of mortgage-related assets
does not generate income of $9,000,000 a year, the Company has a collateral
right against the cash flow generated by a separate pool of mortgage-related
assets (owned by a third party in which the Company has a minimal interest)
which has a fair value of approximately $726,000,000 at September 30, 1996.
The Company entered into the swap and other related agreements in order to
reduce its credit and interest rate risks relative to the mortgage-related
assets.
The Company expects to recover its net investment in the mortgage-related
assets and net swap receivable of $100,000,000 (net of the related nonrecourse
note payable) through its expected net cash flow of $9,000,000 per year for ten
years and its estimated share of the proceeds from disposition of the mortgage-
related assets and principal repayments of an additional $114,000,000.
The Company believes that because the swap counter party is Aaa-rated and that
significant collateral secures the net annual cash flow of $9,000,000, its risk
of not recovering that portion of its $100,000,000 net investment has been
significantly mitigated. The Company currently believes that the disposition
proceeds will be sufficient to recover the remainder of its net investment.
However, there can be no assurances that all of the net investment will be
recovered.
<PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit Index
(1) Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOIS TOOL WORKS INC.
Dated: November 14, 1996 By: /s/ Michael W. Gregg
------------------ ---------------------------------------
Michael W. Gregg, Senior Vice President
and Controller, Accounting
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains financial information extracted from the Statement of
Income (Unaudited) and the Statement of Financial Position (Unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 162,727
<SECURITIES> 0
<RECEIVABLES> 837,337
<ALLOWANCES> 0
<INVENTORY> 541,060
<CURRENT-ASSETS> 1,747,183
<PP&E> 1,844,717
<DEPRECIATION> 1,080,755
<TOTAL-ASSETS> 4,056,604
<CURRENT-LIABILITIES> 939,626
<BONDS> 597,630
<COMMON> 269,208
0
0
<OTHER-SE> 1,994,657
<TOTAL-LIABILITY-AND-EQUITY> 4,056,604
<SALES> 3,699,983
<TOTAL-REVENUES> 3,699,983
<CGS> 2,444,353
<TOTAL-COSTS> 2,444,353
<OTHER-EXPENSES> 27,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,251
<INCOME-PRETAX> 558,772
<INCOME-TAX> 206,800
<INCOME-CONTINUING> 351,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 351,972
<EPS-PRIMARY> 2.84
<EPS-DILUTED> 2.84
</TABLE>
