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 March 31, 1996
--------------------------------------
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 36-1258310
- - -------------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 West Lake Avenue, Glenview, IL 60025-5811
- - -------------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (847) 724-7500
-----------------
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 .
----- ----
The number of shares of registrant's common stock, without par value,
outstanding at April 30, 1996: 122,445,873.
<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
March 31
1996 1995
Operating Revenues $1,136,922 $938,545
Cost of revenues 755,539 618,668
Selling, administrative,
and research and develop-
ment expenses 211,071 185,321
Amortization of goodwill
and other intangible
assets 7,132 6,133
Amortization of retiree
health care 1,742 1,742
---------- --------
Operating Income 161,438 126,681
Interest expense (6,801) (6,155)
Other income 2,118 505
---------- --------
Income Before Income Taxes 156,755 121,031
Income taxes 58,000 46,000
---------- --------
Net Income $ 98,755 $ 75,031
========== ========
Per share of common stock:
Net Income $ .81 $ .66
===== =====
Cash dividends:
Paid $ .17 $ .15
===== =====
Declared $ .17 $ .15
===== =====
Average number of shares of
common stock outstanding
during the period 122,370 114,032
======= =======
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS March 31, 1996 December 31, 1995
Current Assets:
Cash and equivalents $ 118,662 $ 116,600
Trade receivables 801,643 741,327
Inventories 536,237 518,964
Deferred income taxes 93,744 80,005
Prepaid expenses and other
current assets 80,628 75,594
---------- ----------
Total current assets 1,630,914 1,532,490
---------- ----------
Plant and Equipment:
Land 61,317 60,486
Buildings and improvements 398,128 375,352
Machinery and equipment 1,176,825 1,076,950
Equipment leased to others 75,456 75,175
Construction in progress 40,356 32,621
---------- ----------
1,752,082 1,620,584
Accumulated depreciation (1,015,503) (925,643)
---------- ----------
Net plant and equipment 736,579 694,941
---------- ----------
Investments 477,851 504,820
Goodwill 535,222 518,747
Deferred Income Taxes 180,557 118,913
Other Assets 247,259 221,407
---------- ----------
$3,808,382 $3,591,318
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 121,129 $ 176,188
Accounts payable 241,051 221,497
Accrued expenses 453,208 391,702
Cash dividends payable 21,269 20,100
Income taxes payable 75,230 41,445
---------- ----------
Total current liabilities 911,887 850,932
---------- ----------
Non-current Liabilities:
Long-term debt 611,545 615,557
Other 247,175 200,592
---------- ----------
Total non-current liabilities 858,720 816,149
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock 245,994 239,688
Income reinvested in the business 1,784,385 1,673,320
Common stock held in treasury (1,841) (1,866)
Cumulative translation adjustment 9,237 13,095
---------- ----------
Total stockholders' equity 2,037,775 1,924,237
---------- ----------
$3,808,382 $3,591,318
========== ==========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands) Three Months Ended
March 31
1996 1995
Cash Provided by (Used for) Operating Activities:
Net income $ 98,755 $ 75,031
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 43,750 38,400
Change in deferred income taxes (510) (896)
Provision for uncollectible accounts 1,722 1,798
(Gain)loss on sale of plant and equipment (1,202) 982
Income from investments (9,143) (6,610)
Gain on sale of operations and affiliates (3,753) (120)
Other non-cash items, net 205 12,830
-------- --------
Cash provided by operating activities 129,824 121,415
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (8,926) (25,478)
Inventories (1,004) (21,480)
Prepaid expenses and other assets (26,936) (7,201)
Increase (decrease) in--
Accounts payable (3,629) (3,115)
Accrued expenses 8,074 1,286
Income taxes payable 31,339 13,346
Other, net 545 (124)
-------- --------
Net cash provided by operating activities 129,287 78,649
-------- --------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses(excluding cash and
equivalents) and additional interest in affiliates (22,216) (5,892)
Additions to plant and equipment (39,969) (35,715)
Purchase of investments (294) (45)
Proceeds from investments 30,496 8,725
Proceeds from sale of plant and equipment 16,235 2,333
Proceeds from sale of operations and affiliates 7,718 1,344
Other, net 1,797 6,237
-------- --------
Net cash used for investing activities (6,233) (23,013)
-------- --------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (19,641) (17,094)
Issuance of common stock 2,056 2,730
Repayments of short-term debt (56,355) (1,239)
Proceeds from long-term debt 8,853 --
Repayments of long-term debt (57,780) (456)
-------- --------
Net cash used for financing activities (122,867) (16,059)
-------- --------
Effect of Exchange Rate Changes on Cash and Equivalents 1,875 2,268
-------- --------
Cash and Equivalents:
Increase during the period 2,062 41,845
Beginning of period 116,600 76,867
-------- --------
End of period $118,662 $118,712
======== ========
Cash Paid During the Period for Interest $ 1,798 $ 5,538
======== ========
Cash Paid During the Period for Income Taxes $ 16,329 $ 32,383
======== ========
Liabilities Assumed from Acquisitions $118,896 $ 3,200
======== ========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
COMMENTS ON FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at March 31, 1996 and December 31, 1995 were as
follows:
(In Thousands)
March 31, Dec. 31,
1996 1995
Raw material $145,179 $140,302
Work-in-process 87,327 84,981
Finished goods 303,731 293,681
-------- --------
$536,237 $518,964
======== ========
<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
March 31
Operating
Revenues 1996 1995
Domestic $412,542 $328,916
International 212,424 170,813
-------- --------
Total $624,966 $499,729
======== ========
Three months ended March 31
Operating 1996 1995
Income Income Margin Income Margin
Domestic $61,197 14.8 % $53,025 16.1 %
International 23,552 11.1 16,964 9.9
------- -------
Total $84,749 13.6 $69,989 14.0
======= =======
Domestic revenues increased compared with last year primarily due to the
Hobart acquisition (approximately $60.6 million), as well as higher sales in
the fluid and polymer operations. Despite the decline in U.S. car builds for
the quarter, the automotive businesses contributed to the increase in
revenues as a result of increased penetration in the automotive markets. The
construction businesses also added to the revenue growth due to new products
as well as continued strength in the U.S. construction markets. Although the
automotive, fluid and polymer and construction businesses showed both
increased operating income and margins, Hobart's lower margins more than
offset the margin growth in those businesses.
Internationally, revenues and operating income increased mainly due to
acquisitions, primarily related to the European automotive businesses. A
nonrecurring goodwill write-off of $3.7 million in the first quarter of 1995
also contributed to the higher 1996 operating income, and was the primary factor
for the higher margin in 1996. This margin increase was partially offset by
lower margins in the French and German automotive businesses as a result of soft
demand. Revenues, operating income and margins declined in the European and
Australian construction businesses which moderated revenue and operating income
growth.
<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
March 31
Operating
Revenues 1996 1995
Domestic $300,399 $269,298
International 197,652 160,058
-------- --------
Total $498,051 $429,356
======== ========
Three months ended March 31
Operating 1996 1995
Income Income Margin Income Margin
Domestic $54,985 18.3 % $43,715 16.2 %
International 15,352 7.8 6,423 4.0
------- -------
Total $70,337 14.1 $50,138 11.7
======= =======
Domestic revenues increased due largely to acquisitions in the consumer
packaging and finishing systems businesses. Operating income and margins
increased due to new products and lower raw material costs in the Signode
packaging businesses and increased revenues in the specialty industrial
packaging businesses as a result of improved demand in the domestic packaging
markets.
International revenues increased primarily due to acquisitions in the
specialty industrial packaging businesses which also contributed to the
operating income growth. The European finishing systems businesses also
contributed to the revenue growth as they continued to gain market share with
new products. Excluding the impact of acquisitions, the Signode packaging
businesses moderated revenue growth as a result of soft demand in the
European steel, construction and appliance markets. The majority of the 1996
increase in operating income and margins was due to 1995 nonrecurring costs
of $7.6 million, which is primarily related to a write-off of goodwill.
<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
manufacturing businesses, some of the excess cash has been used to make
financial investments. These investments primarily include leveraged and
direct financing leases of equipment, mortgage-related investments,
investments in properties and property developments, and low-income 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
March 31
1996 1995
Operating
revenues $13,905 $9,460
======= ======
Operating
income $ 6,352 $6,554
======= ======
Margin 45.7% 69.3%
In 1996, operating revenues increased primarily due to the commercial
mortgage transaction entered into at year-end 1995 (see Financial Position
section for discussion). Operating income decreased slightly due to a 1995
nonrecurring gain on the sale of equipment under leveraged lease of $4.0
million, mostly offset by income in 1996 related to commercial mortgages.
OPERATING EXPENSES
Cost of revenues as a percentage of revenues increased to 66.5% in the
first three months of 1996 versus 65.9% in the first three months of 1995,
mainly due to lower gross margins for acquired companies. Selling,
administrative, and research and development expenses decreased to 18.6% of
revenues in the first three months of 1996 versus 19.7% in the first three
months of 1995, primarily due to higher 1995 nonrecurring costs of
approximately $11.0 million.
INTEREST EXPENSE
Interest expense increased slightly to $6.8 million in the first three
months of 1996 from $6.2 million in the first three months of 1995,
primarily due to debt assumed in the Hobart acquisition and increased
commercial paper borrowings.
<PAGE>
OTHER INCOME
Other income increased to $2.1 million for the first three months of 1996
from $.5 million in 1995. This increase is primarily due to higher gains
on the sale of operations and the sale of plant and equipment partially
offset by debt prepayment costs in 1996 and higher 1996 currency
translation losses.
NET INCOME
Net income of $98.8 million ($0.81 per share) in the first three months of
1996 was 31.6% higher than the 1995 first quarter net income of $75.0
million ($0.66 per share). Foreign currency fluctuations had no material
impact on revenues or earnings in the first quarter of 1996 versus 1995.
FINANCIAL POSITION
Net working capital at March 31, 1996 and December 31, 1995 is summarized
as follows:
(Dollars in Thousands)
March 31, Dec. 31, Increase/
1996 1995 (Decrease)
Current Assets:
Cash and equivalents $ 118,662 $ 116,600 $ 2,062
Trade receivables 801,643 741,327 60,316
Inventories 536,237 518,964 17,273
Other 174,372 155,599 18,773
---------- ---------- --------
$1,630,914 $1,532,490 $ 98,424
---------- ---------- --------
Current Liabilities:
Short-term debt $ 121,129 $ 176,188 $(55,059)
Accounts payable and
accrued expenses 694,259 613,199 81,060
Other 96,499 61,545 34,954
---------- ---------- --------
$ 911,887 $ 850,932 $ 60,955
---------- ---------- --------
Net Working Capital $ 719,027 $ 681,558 $ 37,469
========== ========== ========
Current Ratio 1.79 1.80
==== ====
The increase in trade receivables in the first quarter of 1996 was primarily
due to first quarter 1996 acquisitions. The decrease in short-term debt was
due to a reduction in commercial paper borrowings during the first quarter of
1996. Accounts payable and accrued expenses increased at March 31, 1996
versus year-end 1995 as a result of overall business growth and 1996
acquisitions.
In the first quarter of 1996, long-term debt of $53.3 million assumed in the
Hobart acquisition was repaid.
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
<PAGE>
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 (currently estimated to be $197,000,000) 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 currently has a fair value of approximately
$679,000,000. 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
$118,000,000. The Company believes that because the swap counterparty 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
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed during the period:
(1) Form 8-K Current Report dated February 21, 1996 which included
Item 5, Item 7 and selected pages of the 1995 Annual Report to
Stockholders.
(2) Form 8-K/A Current Report (Amendment No. 1) dated March 25, 1996
which included Item 5, Item 7 and amended selected pages of the 1995
Annual Report to Stockholders.
<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: May 15, 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 118,662
<SECURITIES> 0
<RECEIVABLES> 801,643
<ALLOWANCES> 0
<INVENTORY> 536,237
<CURRENT-ASSETS> 1,630,914
<PP&E> 1,752,082
<DEPRECIATION> 1,015,503
<TOTAL-ASSETS> 3,808,382
<CURRENT-LIABILITIES> 911,887
<BONDS> 611,545
<COMMON> 245,994
0
0
<OTHER-SE> 1,784,385
<TOTAL-LIABILITY-AND-EQUITY> 3,808,382
<SALES> 1,136,922
<TOTAL-REVENUES> 1,136,922
<CGS> 755,539
<TOTAL-COSTS> 755,539
<OTHER-EXPENSES> 8,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,801
<INCOME-PRETAX> 156,755
<INCOME-TAX> 58,000
<INCOME-CONTINUING> 98,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,755
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
