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 June 30, 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:
________________________________________________________________________________
(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 July 31, 1996: 123,785,225.
<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 Six Months Ended
June 30 June 30
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Operating Revenues $1,324,800 $1,095,658 $2,461,722 $2,034,203
Cost of revenues 871,156 707,104 1,626,695 1,325,772
Selling, administrative,
and research and develop-
ment expenses 229,429 204,819 440,500 390,140
Amortization of goodwill
and other intangible
assets 7,481 6,023 14,613 12,156
Amortization of retiree
health care 1,742 1,742 3,484 3,484
---------- ---------- ---------- ----------
Operating Income 214,992 175,970 376,430 302,651
Interest expense (8,075) (7,839) (14,876) (13,993)
Other income 58 3,217 2,176 3,721
---------- ---------- ---------- ----------
Income Before Income Taxes 206,975 171,348 363,730 292,379
Income taxes 76,600 65,100 134,600 111,100
---------- ---------- ---------- ----------
Net Income $ 130,375 $ 106,248 $ 229,130 $ 181,279
========== ========== ========== ==========
Per Share of Common Stock:
Net income $1.05 $ .91 $1.85 $1.55
===== ===== ===== =====
Cash dividends:
Paid $ .17 $ .15 $ .34 $ .30
===== ===== ===== =====
Declared $ .17 $ .15 $ .34 $ .30
===== ===== ===== =====
Average number of shares of
common stock outstanding
during the period 123,764 117,214 123,726 117,147
======= ======= ======= =======
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS June 30, 1996 December 31, 1995
- ------ ------------- -----------------
Current Assets:
Cash and equivalents $ 137,199 $ 116,600
Trade receivables 852,573 741,327
Inventories 548,360 518,964
Deferred income taxes 100,802 80,005
Prepaid expenses and other
current assets 87,412 75,594
---------- ----------
Total current assets 1,726,346 1,532,490
---------- ----------
Plant and Equipment:
Land 61,445 60,486
Buildings and improvements 403,105 375,352
Machinery and equipment 1,200,508 1,076,950
Equipment leased to others 90,768 75,175
Construction in progress 45,679 32,621
---------- ----------
1,801,505 1,620,584
Accumulated depreciation (1,053,407) (925,643)
---------- ----------
Net plant and equipment 748,098 694,941
---------- ----------
Investments 486,639 504,820
Goodwill 556,090 518,747
Deferred Income Taxes 176,379 118,913
Other Assets 325,318 221,407
---------- ----------
$4,018,870 $3,591,318
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Short-term debt $ 203,218 $ 176,188
Accounts payable 232,629 221,497
Accrued expenses 506,354 391,702
Cash dividends payable 21,043 20,100
Income taxes payable 28,376 41,445
---------- ----------
Total current liabilities 991,620 850,932
---------- ----------
Non-current Liabilities:
Long-term debt 616,815 615,557
Other 242,440 200,592
---------- ----------
Total non-current liabilities 859,255 816,149
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock 267,861 239,688
Income reinvested in the business 1,895,343 1,673,320
Common stock held in treasury (1,841) (1,866)
Cumulative translation adjustment 6,632 13,095
---------- ----------
Total stockholders' equity 2,167,995 1,924,237
---------- ----------
$4,018,870 $3,591,318
========== ==========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands) Six Months Ended
June 30
1996 1995
Cash Provided by (Used for) Operating Activities:
Net income $229,130 $181,279
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 90,820 78,864
Change in deferred income taxes (23) (3,269)
Provision for uncollectible accounts 3,444 3,596
(Gain)loss on sale of plant and equipment (1,171) (328)
Income from investment properties (27,079) (10,988)
Gain on sale of operations and affiliates (4,856) (502)
Other non-cash items, net 552 12,717
-------- --------
Cash provided by operating activities 290,817 261,369
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (44,836) (51,055)
Inventories 14,157 (36,885)
Prepaid expenses and other assets (35,693) 1,035
Increase (decrease) in--
Accounts payable (25,312) (4,302)
Accrued expenses 44,208 11,714
Income taxes payable (16,286) (27,369)
Other, net (1,195) 8,551
-------- --------
Net cash provided by operating activities 225,860 163,058
-------- --------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses(excluding cash and
equivalents) and additional interest in affiliates (85,340) (131,902)
Additions to plant and equipment (79,487) (73,025)
Purchase of investments (4,647) (2,791)
Proceeds from investments 39,283 13,074
Proceeds from sale of plant and equipment 17,242 6,033
Proceeds from sale of operations and affiliates 12,913 1,736
Other, net (8,536) (5,678)
-------- --------
Net cash used for investing activities (108,572) (192,553)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (40,910) (34,211)
Issuance of common stock 2,688 4,402
Net proceeds from short-term debt 18,803 57,983
Proceeds from long-term debt 8,875 85
Repayments of long-term debt (86,970) (1,690)
Other, net 2,885 (5,039)
-------- --------
Net cash (used for) provided by
financing activities (94,629) 21,530
-------- --------
Effect of Exchange Rate Changes on Cash and Equivalents (2,060) 5,022
-------- --------
Cash and Equivalents:
Increase (decrease)during the period 20,599 (2,943)
Beginning of period 116,600 76,867
-------- --------
End of period $137,199 $ 73,924
======== ========
Cash Paid During the Period for Interest $ 18,521 $ 13,968
======== ========
Cash Paid During the Period for Income Taxes $139,526 $132,927
======== ========
Liabilities Assumed from Acquisitions $203,459 $112,634
======== ========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
COMMENTS ON FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at June 30, 1996 and December 31, 1995 were as follows:
(In Thousands)
June 30, Dec. 31,
1996 1995
-------- --------
Raw material $155,531 $140,302
Work-in-process 82,429 84,981
Finished goods 310,400 293,681
-------- --------
$548,360 $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
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 June 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 June 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 Six months ended
June 30 June 30
------------------ ----------------------
Operating
Revenues 1996 1995 1996 1995
- --------- -------- -------- ---------- ----------
Domestic $522,039 $364,074 $ 934,581 $ 692,990
International 234,535 197,412 446,959 368,225
-------- -------- ---------- ----------
Total $756,574 $561,486 $1,381,540 $1,061,215
======== ======== ========== ==========
Three months ended June 30 Six months ended June 30
------------------------------- --------------------------------
Operating 1996 1995 1996 1995
Income Income Margin Income Margin Income Margin Income Margin
-------- ------ ------- ------ -------- ------ -------- ------
Domestic $ 79,792 15.3% $59,274 16.3% $140,989 15.1% $112,299 16.2%
International 34,447 14.7 29,899 15.1 57,999 13.0 46,863 12.7
-------- ------- -------- --------
Total $114,239 15.1 $89,173 15.9 $198,988 14.4 $159,162 15.0
======== ======= ======== ========
Acquisitions 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 for both the three
month and six month periods. Operating income for the three month period
increased primarily due to higher revenues without a corresponding increase in
costs in the automotive and construction businesses, while acquisitions also
contributed to the operating income growth for the six month period. Margins
declined in both the three month and six month periods due to lower margins at
acquired businesses (primarily Hobart Brothers and Medalist Industries),
partially offset in the year-to-date period by margin increases in the
automotive and construction businesses.
For the three month and six month periods, international revenues and operating
income increased primarily due to acquisitions in the European automotive
businesses. For the three month period, margins were lower due to soft demand in
the construction businesses 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 growth and margin
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 Six months ended
June 30 June 30
------------------ ----------------------
Operating
Revenues 1996 1995 1996 1995
- --------- -------- -------- --------- ----------
Domestic $332,844 $323,396 $ 633,243 $ 592,694
International 221,158 205,831 418,810 365,889
-------- -------- ---------- ----------
Total $554,002 $529,227 $1,052,053 $ 958,583
======== ======== ========== ==========
Three months ended June 30 Six months ended June 30
------------------------------- -------------------------------
Operating 1996 1995 1996 1995
Income Income Margin Income Margin Income Margin Income Margin
-------- ------ ------- ------ -------- ------ ------- ------
Domestic $68,637 20.6% $57,782 17.9% $123,622 19.5% $101,497 17.1%
International 24,933 11.3 24,785 12.0 40,285 9.6 31,208 8.5
-------- ------- -------- --------
Total $93,570 16.9 $82,567 15.6 $163,907 15.6 $132,705 13.8
======== ======= ======== ========
Domestic revenues increased for the three month period primarily due to
higher sales in the quality measurement businesses. For the six month
period, domestic revenues increased primarily due to acquisitions in the
consumer packaging and finishing systems businesses as well as revenue growth in
the Specialty Industrial Packaging and Quality Measurement Group. For both the
three month and six month periods, operating income and margins increased due to
new products and lower raw material costs in the Signode packaging businesses,
increased revenues in the specialty industrial packaging businesses as a result
of improved demand in the domestic packaging markets, and lower operating costs
in the quality measurement businesses.
International revenues and operating income in the three month and six month
periods increased primarily due to acquisitions in the specialty industrial
packaging businesses and to a lesser degree the Signode packaging operations.
The European finishing systems businesses also contributed to the growth as they
continued to introduce new products. For the second quarter of
1996, operating income was flat and margins declined as a result of
restructuring costs and a continuing soft demand in the European steel,
construction and appliance markets served by the European specialty industrial
packaging businesses. The above margin declines were partially offset by
improved margins for the Signode packaging, consumer packaging and finishing
systems operations. For the six month period, the majority of the 1996 increase
in operating income and margins was due to 1995 nonrecurring costs of $9.6
million, which 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, both through investments in capital equipment and through
acquisitions, 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 Six months ended
June 30 June 30
------------------ ------------------
1996 1995 1996 1995
------- ------ ------- -------
Operating
revenues $14,224 $4,945 $28,129 $14,405
======= ====== ======= =======
Operating
income $ 7,183 $4,231 $13,535 $10,785
======= ====== ======= =======
Margin 50.5% 85.6% 48.1% 74.9%
For the three month and six 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 second
quarter and the first half of 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
half of 1996 versus 65.2% in the first six months of 1995, mainly due to lower
gross margins for acquired companies. Selling, administrative and research and
development expenses decreased to 17.9% of revenues in the first half of 1996
versus 19.2% in the first half of 1995, primarily due to higher 1995
nonrecurring costs of approximately $14.0 million.
INTEREST EXPENSE
Interest expense increased slightly to $14.9 million in the first half of 1996
from $14.0 million in the first half of 1995, primarily due to debt assumed in
acquisitions and increased commercial paper borrowings.
<PAGE>
OTHER INCOME
Other income decreased to $2.2 million for the first half of 1996 from $3.7
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 $229.1 million ($1.85 per share) in the first half of 1996 was
26.4% higher than the 1995 first half net income of $181.3 million ($1.55 per
share). Foreign currency fluctuations had no material impact on revenues or
earnings in the first half of 1996 versus 1995.
FINANCIAL POSITION
Net working capital at June 30, 1996 and December 31, 1995 is summarized as
follows:
(Dollars in Thousands)
June 30, Dec. 31, Increase/
1996 1995 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 137,199 $ 116,600 $ 20,599
Trade receivables 852,573 741,327 111,246
Inventories 548,360 518,964 29,396
Other 188,214 155,599 32,615
---------- ---------- --------
$1,726,346 $1,532,490 $193,856
---------- ---------- --------
Current Liabilities:
Short-term debt $ 203,218 $ 176,188 $ 27,030
Accounts payable and
accrued expenses 738,983 613,199 125,784
Other 49,419 61,545 (12,126)
---------- ---------- --------
$ 991,620 $ 850,932 $140,688
---------- ---------- --------
Net Working Capital $ 734,726 $ 681,558 $ 53,168
========== ========== ========
Current Ratio 1.74 1.80
========== ==========
The increase in trade receivables in the first half of 1996 was primarily due to
1996 acquisitions and higher revenues in the second quarter of 1996 versus the
fourth quarter of 1995. Accounts payable and accrued expenses increased at June
30, 1996 versus year-end 1995 as a result of overall business growth and 1996
acquisitions.
In the first half of 1996, long-term debt of $80.7 million assumed in
acquisitions 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
<PAGE>
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
(estimated to be $197,000,000 at December 31, 1995) 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 $749,000,000 at June 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 $118,000,000. 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 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 3, 1996. Approval
was granted for certain provisions of the Company's Executive Incentive Plan, by
a vote of 101,201,491 shares in favor (with 5,439,267 votes against, 1,081,995
votes withheld, and 306,893 non-votes). In addition, approval was granted for
the Company's 1996 Stock Incentive Plan by a vote of 102,036,538
shares in favor (with 5,226,863 votes against, 755,914 votes withheld, and
10,331 non-votes).
The following members were elected to the Company's Board of Directors to hold
office for the ensuing year:
Nominees In favor Withheld
- ----------------- ----------- --------
J. W. Becton, Jr. 107,904,759 124,887
S. Crown 107,922,067 107,579
H. R. Crowther 107,932,967 96,679
W. J. Farrell 107,929,821 99,825
L. R. Flury 107,929,707 99,939
R. M. Jones 107,907,824 121,822
G. D. Kennedy 107,904,215 125,431
R. H. Leet 107,910,947 118,699
R. C. McCormack 107,933,588 96,058
P. B. Rooney 107,933,230 96,416
H. B. Smith 107,933,345 96,301
O. J. Wade 107,931,425 98,221
C. A. H. Waller 107,924,534 105,112
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit Index
(1) Pursuant to Regulation S-K, Item 601(b)(4)(iii), the Company has
not filed with Exhibit 4 any instrument with respect to the new
amended revolving credit facility as the total amount of securities
authorized thereunder does not exceed 10% of the total assets of
the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of the amended instrument to the
Securities and Exchange Commission upon request.
(2) Exhibit No. Description
10(a) Illinois Tool Works Inc. Executive Incentive Plan
10(b) Illinois Tool Works Inc. 1996 Stock Incentive
Plan
10(c) Amendment to the Illinois Tool Works Inc. 1985
Executive Contributory Retirement Income Plan
10(d) Amendment to the Illinois Tool Works Inc. 1993
Executive Contributory Retirement Income Plan
10(e) Illinois Tool Works Inc. Phantom Stock Plan for
Non-Officer Directors
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K/A Current Report (Amendment No. 2) dated April 30, 1996 which
included Item 5, Item 7 and amended selected pages of the 1995 Annual
Report to Stockholders was filed during the period.
<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: August 13, 1996 By: /s/ Michael W. Gregg
_____________________________________________
Michael W. Gregg, Senior Vice President and
Controller, Accounting
(Principal Accounting Officer)
<PAGE>
ILLINOIS TOOL WORKS INC.
EXECUTIVE INCENTIVE PLAN
Adopted by the Board of Directors on
February 16, 1996
<PAGE>
ILLINOIS TOOL WORKS INC.
EXECUTIVE INCENTIVE PLAN
SECTION 1 PURPOSE
The purpose of the Plan is to provide key employees with a meaningful
annual incentive opportunity geared to the achievement of specific
corporate, operating group or individual performance goals.
SECTION 2 DEFINITIONS
Board: The Board of Directors of the Company
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation Committee of the Board or such other committee
appointed by the Board to administer the Plan. To the extent required to
comply with Code Section 162(m) and related regulations, each Committee
member shall qualify as an "outside director" as defined therein.
Company: Illinois Tool Works Inc., a Delaware corporation, and any success
or thereto.
Corporate Change: Any of the following: (i) the dissolution of the Company;
(ii) the merger, consolidation, or reorganization of the Company with any
other corporation after which the holders of the Company's common stock
immediately prior to the effective date thereof hold less than 70% of the
outstanding common stock of the surviving or resulting entity; (iii) the
sale of all or substantially all of the assets of the Company to any person
or entity other than a wholly owned subsidiary; (iv) any person or group of
persons acting in concert, other than descendants of Byron L. Smith and
trusts for the benefit of such descendants, or entity becoming the
beneficial owner, directly or indirectly, of more than 30% of the Company's
outstanding common stock; or (v) the individuals who, as of the close of
the most recent annual meeting of the Company's stockholders, are members
of the Board (the "Existing Directors") ceasing for any reason to
constitute more than 50% of the Board; provided, however, that if the
election, or nomination for election, by the Company's stockholders of any
new director was approved by a vote of at least 50% of the Existing
Directors, such new director shall be considered an Existing Director;
provided further, however, that no individual shall be considered an
Existing Director if such individual initially assumed office as a result
of either an actual or threatened "Election Contest" (as described in Rule
14a-11 under the Securities Exchange Act of 1934) or other actual or
threatened solicitation of proxies by or on behalf of anyone other than the
Board (a "Proxy Contest"), including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest.
Disabled: Eligible for Social Security disability benefits or disability
benefits under the Company's long-term disability plan. An employee shall
not be considered Disabled unless the Committee determines that the
Disability arose prior to termination of employment.
<PAGE>
O Factor: Performance goals and objectives for individual key employees
determined pursuant to Section 4.
O Factor Award: An award to be paid to a Participant pursuant to Section
6.
P Factor: Performance goals and objectives for the Company as a whole or
any of its business units determined pursuant to Section 5.
P Factor Award: An award to be paid to a Participant pursuant to
Section6.
Participant: A key employee of the Company approved by the Committee to
participate in the Plan.
Plan: The Illinois Tool Works Inc. Executive Incentive Plan, as amended
from time to time.
Qualifying O Factor: An objective performance goal based on one or more of
the following: generation of free cash, earnings per share, revenues,
market share, stock price, cash flow, retained earnings, results of
customer satisfaction surveys, aggregate product price and other product
price measures, safety record, acquisition activity, management succession
planning, improved asset management, improved gross margins, increased
inventory turns, product development and liability, research and
development integration, proprietary protections, legal effectiveness,
handling SEC or environmental issues, manufacturing efficiencies, system
review and improvement, service reliability and cost management, and one or
more of these criteria relative to the performance of other corporations.
Qualifying O Factor Award: An O Factor Award intended to qualify as
performance based compensation under Code Section 162(m).
Qualifying P Factor: An objective performance goal based on one or more of
the following: operating expense ratios, total stockholder return, return
on sales, return on equity, return on capital, return on assets, return on
investment, net income, operating income, and one or more of these criteria
relative to the performance of other corporations.
Qualifying P Factor Award: An P Factor Award intended to qualify as
performance based compensation under Code Section 162(m).
Retirement: Voluntary termination of employment while eligible for
retirement as defined by the Company's tax-qualified defined benefit
retirement plan.
SECTION 3 ADMINISTRATION
The Plan shall be administered by the Committee in accordance with rules
that it may establish from time to time. The determination of the Committee
as to any disputed question arising under the Plan shall be conclusive upon
all persons.
<PAGE>
SECTION 4 O FACTOR AWARDS
On or before March 31 of each fiscal year, the Committee may establish in
writing O Factors (including Qualifying O Factors) for each Participant and
a formula to determine the percentage of the maximum Qualifying or
non-Qualifying O Factor Award payable to the Participant based upon the
degree of attainment of the O Factors. O Factors shall measure a
Participant's management effectiveness for the applicable fiscal year.
SECTION 5 P FACTOR AWARDS
On or before March 31 of each fiscal year, the Committee may establish in
writing P Factors (including Qualifying P Factors) for each Participant and
a formula to determine the percentage of the maximum Qualifying or
non-Qualifying P Factor Award payable to the Participant based upon the
degree of attainment of the P Factors. P Factors shall measure business
performance for the applicable fiscal year.
SECTION 6 ADJUSTMENTS AND AWARD PAYMENTS
(a) Adjustments. Qualifying O or P Factors may not be adjusted after
they have been established for any fiscal year by the Committee.
The Committee may adjust any other O or P Factor, provided that no
adjustment may be based upon the failure, or the expected failure,
to attain or exceed a Qualifying O or P Factor. A non-Qualifying O
or P Factor or related Award may not be dependent on any
Qualifying O or P Factor or related Award.
(b) Payment of O or P Factor Awards. An O or P Factor Award is
payable in cash to a
Participant based upon the degree of achievement of the related O
or P Factors during the applicable fiscal year,
as certified in writing by the Committee following the release
of the Company's audited financial statements for the applicable
fiscal year. With the approval of the Committee, a Participant
who is covered by the stock ownership guidelines adopted by the
Board, as amended from time to time, may elect to receive up to
50% of an Award in Common Stock under the Company's 1996 Stock
Incentive Plan, and a Participant also may defer payment of an
Award under rules established by the Committee. Any O or P
Factor Award may be adjusted by the Committee; provided, that
the Committee may not adjust upward any Qualifying O or P Factor
Award. The maximum individual Qualifying O Factor Award or
Qualifying P Factor Award payable to any Participant is $2,500,000
for any calendar year.
SECTION 7 TERMINATION OF EMPLOYMENT OR PARTICIPATION
(a) Termination of Employment Due to Death, Disability or Retirement.
If a Participant's employment is terminated by reason of death,
Disability or Retirement, the Participant, or the Participant's
estate, shall receive an O Factor Award and/or a P Factor Award,
determined as if the Participant had remained employed for the
entire fiscal year, prorated for the number of days during the
fiscal year that have elapsed as of the Participant's termination,
and subject to the first sentence of Section 6(b).
<PAGE>
(b) Termination of Employment for Other Reasons. If a Participant's
employment is terminated for a reason not specified in Section
7(a), the Participant's rights to any O and P Factor Awards for
such fiscal year will be forfeited. However, the Committee may pay
prorated O and P Factor Awards for the portion of the fiscal year
that the Participant was employed by the Company, except in the
event of termination for cause as determined by the Committee.
(c) Termination of Participation. The Committee may terminate any
Participant's rights to an O or P Factor Award at any time prior
to the applicable payment date; provided, that the Committee may
not, within the 90-day period prior to the date of a Corporate
Change or at any time on or after such date, terminate or adjust
any Participant's participation with respect to the current fiscal
year.
SECTION 8 CORPORATE CHANGE
In the event of a Corporate Change, the maximum O Factor and P Factor
Awards for the fiscal year then in progress, prorated for the number of
days in the fiscal year that have elapsed as of the date of the Corporate
Change, shall be paid immediately in cash. Any adjustment or termination of
a Participant's participation in the Plan that occurs at any time on or
after the 90th day preceding a Corporate Change shall be of no effect.
SECTION 9 GENERAL PROVISIONS
(a) Withholding Taxes. The Company shall have the right to deduct any
Federal, state or local taxes applicable to payments under the
Plan.
(b) Nontransferability. No right or interest of any Participant in
this Plan shall be assignable or transferable, or subject to any
lien, directly, by operation of law or otherwise, including
execution, levy, garnishment, attachment, pledge or bankruptcy.
(c) Amendment or Termination. Except as provided in Sections 7(c) and
8, the Board may terminate or amend the Plan at any time provided,
that, without the approval of stockholders, no amendment may be
made which (i) increases the maximum Qualifying O or P Factor
Award, (ii) modifies the Plan's eligibility requirements, (iii)
changes the criteria upon which Qualifying O Factors or Qualifying
P Factors may be based, or (iv) changes this Section 9(c).
<PAGE>
ILLINOIS TOOL WORKS INC.
1996 STOCK INCENTIVE PLAN
Adopted by the Board of Directors on
February 16, 1996
<PAGE>
TABLE OF CONTENTS
Section 1. Purpose 1
Section 2. Definitions 1
Section 3. Administration 3
Section 4. Common Stock Subject to Plan 3
Section 5. Options 3
Section 6. Stock Awards 4
Section 7. Performance Units 4
Section 8. Stock Appreciation Rights 5
Section 9. Termination of Employment 6
Section 10. Adjustment Provisions 7
Section 11. Term 7
Section 12. Corporate Change 7
Section 13. General Provisions 7
Section 14. Amendment or Discontinuance of the Plan 8
<PAGE>
ILLINOIS TOOL WORKS INC.
1996 STOCK INCENTIVE PLAN
SECTION 1 PURPOSE
The purpose of the Plan is to encourage Key Employees to have a greater
financial investment in the Company through ownership of its Common Stock.
The Plan is an amendment and restatement of the 1979 Stock Incentive Plan
(the "1979 Plan"). The terms of the Plan will apply to all outstanding
Incentives granted under the 1979 Plan, including those pertaining to a
Corporate Change and termination of employment as described below, unless
the Committee determines otherwise. No additional Incentives will be
granted under the 1979 Plan.
SECTION 2 DEFINITIONS
Board: The Board of Directors of the Company.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation Committee of the Board or such other
committee as shall be appointed by the Board to administer the Plan
pursuant to Section 3.
Common Stock: The Common Stock, without par value, of the Company or
such other class of shares or other securities as may be applicable
pursuant to the provisions of Section 10.
Company: Illinois Tool Works Inc., a Delaware corporation, and any
successor thereto.
Corporate Change: Any of the following: (i) the dissolution of the
Company; (ii) the merger, consolidation, or reorganization of the Company with
any other corporation after which the holders of Common Stock immediately prior
to the effective date thereof hold less than 70% of the outstanding common stock
of the surviving or resulting entity; (iii) the sale of all or substantially all
of the assets of the Company to any person or entity other than a wholly owned
subsidiary; (iv) any person or group of persons acting in concert, other than
descendants of Byron L. Smith and trusts for the benefit of such descendants, or
entity becomes the beneficial owner, directly or indirectly, of more than 30% of
the outstanding Common Stock; or (v) the individuals who, as of the close of the
most recent annual meeting of the Company's stockholders, are members of the
Board (the "Existing Directors") cease for any reason to constitute more than
50% of the Board; provided, however, that if the election, or nomination for
election, by the Company's stockholders of any new director was approved by a
vote of at least 50% of the Existing Directors, such new director shall be
considered an Existing Director; provided further, however, that no individual
shall be considered an Existing Director if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 under the Securities Exchange Act of 1934) or other
actual or threatened solicitation of proxies by or on behalf of anyone other
than the Board (a "Proxy Contest"), including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest.
Covered Employee: A Key Employee who is or is expected to be a "covered
employee" within the meaning of Code Section 162(m) and the related regulations
for the year in which an Incentive is taxable to such employee and for whom the
Committee intends that such Incentive qualify as performance-based compensation
under Code Section 162(m).
Disabled: Eligible for Social Security disability benefits or
disability benefits under the Company's long-term disability plan. A Key
Employee shall not be considered Disabled unless the Committee determines that
the Disability arose prior to such employee's termination date.
<PAGE>
Fair Market Value: The average of the highest and lowest price at which
Common Stock was traded on the relevant date, as reported in the "NYSE-Composite
Transactions" section of the Midwest Edition of the Wall Street Journal, or, if
no sales of Common Stock were reported for that date, on the most recent
preceding date on which Common Stock was traded.
Incentive Stock Option: As defined in Code Section 422.
Incentives: Options (including Incentive Stock Options), Stock Awards,
Performance Units and Stock Appreciation Rights.
Key Employee: An employee of the Company approved by the Committee for
participation in the Plan on the basis of his or her ability to contribute
significantly to the growth and profitability of the Company.
Option: An option to purchase shares of Common Stock granted to a Key
Employee pursuant to Section 5.
Performance Unit: A unit representing a cash sum or one or more shares
of Common Stock that is granted to a Key Employee pursuant to Section 7.
Plan: The Illinois Tool Works Inc. 1996 Stock Incentive Plan, as
amended from time to time.
Restricted Shares: Shares of Common Stock issued subject to
restrictions pursuant to Section 6(b).
Retirement: Termination of employment while eligible for retirement
as defined by the Company's tax-qualified defined benefit retirement plan.
Stock Appreciation Right or Right: An award granted to a Key
Employee pursuant to Section 8.
Stock Award: An award of Common Stock granted to a Key Employee
pursuant to Section 6.
Stock Ownership Guidelines: The stock ownership guidelines adopted
by the Board, as amended from time to time.
SECTION 3 ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee. To the
extent required to comply with Rule 16b-3 under the Securities Exchange Act of
1934, each member of the Committee shall qualify as a "disinterested person" as
defined therein. To the extent required to comply with Code Section 162(m) and
the related regulations, each member of the Committee shall qualify as an
"outside director" as defined therein.
(b) Authority of the Committee. The Committee shall have the authority
to approve Key Employees for participation; to construe and interpret the Plan;
to establish, amend or waive rules and regulations for its administration; and
to accelerate the exercisability of any Incentive or the termination of any
restriction under any Incentive. Incentives may be subject to such provisions as
the Committee shall deem advisable, and may be amended by the Committee from
time to time; provided that no such amendment may adversely affect the rights of
the holder of an Incentive without such holder's consent, and no amendment, as
it applies to any Covered Employee, shall be made that would cause an Incentive
granted to such Covered Employee to fail to satisfy the performance-based
compensation exemption under Code Section 162(m) and the related regulations.
<PAGE>
SECTION 4 COMMON STOCK SUBJECT TO PLAN
Subject to Section 10, the aggregate shares of Common Stock that may be
issued under the Plan, including Common Stock authorized but not issued or
reserved for issuance under the 1979 Plan, shall not exceed 10,000,000. In the
event of a lapse, expiration, termination, forfeiture or cancellation of any
Incentive granted under the Plan or the 1979 Plan without the issuance of shares
or payment of cash, the Common Stock subject to or reserved for such Incentive
may be used again for a new Incentive hereunder; provided that in no event may
the number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or surrendered
to pay withholding taxes pursuant to Section 13(e) or withheld or surrendered in
full or partial payment of the exercise price of an Option pursuant to Section
5(e) shall be added to the aggregate shares of Common Stock available for
issuance.
SECTION 5 OPTIONS
(a) Price. The exercise price per share of an Option shall be
not less than the Fair Market Value on the grant date.
(b) Limitations. The exercise price of Incentive Stock Options
exercisable for the first time by a Key Employee during any calendar year shall
not exceed $100,000. Options for more than 500,000 shares of Common Stock may
not be granted in any calendar year to any Key Employee. No Incentive Stock
Options may be granted after April 30, 2006.
(c) Required Period of Employment. The Committee may condition
the exercisability of any Option on the completion of a minimum period of
employment.
(d) Duration. Each Option shall expire at such time as the Committee
may determine at the time of grant, provided that Incentive Stock Options must
expire not later than ten years from the grant date.
(e) Payment. The exercise price of an Option shall be paid in full at
the time of exercise in cash, through the surrender or withholding of Common
Stock having a Fair Market Value equal to the exercise price or by a combination
of the foregoing.
(f) Grant of Restorative Options. The Committee shall grant to any
Key Employee a Restorative Option to purchase additional shares of Common
Stock equal to the number of shares delivered by the Key Employee in payment
of the exercise price of an Option. The terms of a restorative Option
shall be identical to the terms of the exercised Option, except that the
exercise price shall be not less than the Fair Market Value on the grant date.
SECTION 6 STOCK AWARDS
(a) Grant of Stock Awards. Stock Awards may be made on terms and
conditions fixed by the Committee. Stock Awards may be in the form of Restricted
Shares authorized pursuant to Section 6(b). Officers who are covered by the
Stock Ownership Guidelines may elect to receive up to 50% of their Executive
Incentive Plan awards in shares of Common Stock. The recipient of Common Stock
pursuant to a Stock Award shall be a stockholder of the Company with respect
thereto, fully entitled to receive dividends, vote and exercise all other rights
of a stockholder except to the extent otherwise provided in the Stock Award.
Stock Awards (including Restricted Share awards) for more than 500,000 shares of
Common Stock may not be granted in any calendar year to any Key Employee.
(b) Restricted Shares. Restricted Shares may not be sold by the
holder, or subject to execution, attachment or similar process, until the lapse
of the applicable restriction period or satisfaction of other conditions
specified by the
<PAGE>
Committee. If the Committee intends the Restricted Shares granted to any Covered
Employee to satisfy the performance-based compensation exemption under Code
Section 162(m) ("Qualifying Restricted Shares"), the extent to which the
Qualifying Restricted Shares will vest shall be based on the attainment of
performance goals established in writing prior to commencement of the
performance period by the Committee from the list in Section 7(a). The level of
attainment of such performance goals and the corresponding number of vested
Qualifying Restricted Shares shall be certified by the Committee in writing
pursuant to Code Section 162(m) and the related regulations.
<PAGE>
SECTION 7 PERFORMANCE UNITS
(a) Value of Performance Units. Prior to the commencement of the
performance period, the Committee shall establish in writing an initial target
value or number of shares of Common Stock for the Performance Units to be
granted to a Key Employee, the duration of the performance period, and the
specific performance goals to be attained, including performance levels at which
various percentages of Performance Units will be earned and, for Covered
Employees, the minimum level of attainment to be met to earn any portion of the
Performance Units. If the Committee intends the Performance Units granted to any
Covered Employee to satisfy the performance-based compensation exemption under
Code Section 162(m) ("Qualifying Performance Units"), the performance goals
shall be based on one or more of the following objective criteria: generation of
free cash, earnings per share, revenues, market share, stock price, cash flow,
retained earnings, results of customer satisfaction surveys, aggregate product
price and other product price measures, safety record, acquisition activity,
management succession planning, improved asset management, improved gross
margins, increased inventory turns, product development and liability, research
and development integration, proprietary protections, legal effectiveness,
handling SEC or environmental issues, manufacturing efficiencies, system review
and improvement, service reliability and cost management, operating expense
ratios, total stockholder return, return on sales, return on equity, return on
capital, return on assets, return on investment, net income, operating income,
and the attainment of one or more performance goals relative to the performance
of other corporations.
(b) Payment of Performance Units. After the end of a performance
period, the Committee shall certify in writing the extent to which performance
goals have been met and shall compute the payout to be received by each Key
Employee. With respect to Qualifying Performance Units, for any calendar year,
the maximum amount payable in cash to any Covered Employee shall be $5,000,000,
and the aggregate shares of Common Stock that may be issued to any Covered
Employee is 500,000. The Committee may not adjust upward the amount payable to
any Covered Employee with respect to Qualifying Performance Units.
SECTION 8 STOCK APPRECIATION RIGHTS
(a) Grant of Stock Appreciation Rights. Stock Appreciation Rights
may be granted in connection with an Option (at the time of the
grant or at any time thereafter) or may be granted independently.
Stock Appreciation Rights for more than 500,000 shares of Common
Stock may not be granted to any Key Employee in any calendar year.
(b) Value of Stock Appreciation Rights. The holder of a Stock
Appreciation Right granted in connection with an Option, upon surrender of the
Option, will receive cash or shares of Common Stock equal in value to the lesser
of (i) the excess of the Fair Market Value on the exercise date over the
Option's exercise price or (ii) the exercise price of the Option that is
surrendered, multiplied by the number of shares covered by such Option. The
holder of a Stock Appreciation Right granted independent of an Option, upon
exercise, will receive cash or shares of Common Stock equal in value to the
lesser of (i) the excess of the Fair Market Value on the exercise date over the
Fair Market Value on the grant date or (ii) the Fair Market Value on the grant
date, multiplied by the number of shares covered by the Right.
SECTION 9 TERMINATION OF EMPLOYMENT
(a) Forfeiture of Incentives Upon Termination of Employment. All
unvested Incentives shall be forfeited upon termination of employment unless the
terms of the Incentive or Section 9(b) provide otherwise. The Committee, in its
sole discretion, may waive this automatic forfeiture provision at any time for
any Incentive.
(b) Termination Due to Retirement, Disability or Death. Upon death
while employed or termination by reason of Retirement or Disability, all
unvested Incentives shall become fully vested and, if applicable, payable to the
Key Employee or to the Key Employee's estate in the event of death to the extent
provided in Section 9(c)(ii). Notwithstanding the foregoing, the Committee may
deem an Incentive to be immediately forfeited if, following termination by
reason of Retirement or Disability, the holder competes with the Company or
engages in conduct that,
<PAGE>
in the opinion of the Committee, adversely affects the Company.
(c) Treatment of Incentives Following Termination.
(i) Options and Stock Appreciation Rights.
(A) Termination Due to Retirement, Disability or Death.
Upon termination of employment by reason of
Retirement or Disability, Options shall be exercisable not
later than the earlier of five years after the termination
date or the expiration of the term of the Options.
Options held by a Key Employee who dies while employed
by the Company or after terminating by reason of
Retirement or Disability shall be exercisable by the
Key Employee's estate not later than the
earliest of two years after the date of death, five
years after the date of termination due to Retirement or
Disability or the expiration of the term of the Options.
(B) Termination for Other Reasons. Upon termination
of employment for any reason other than death,
Retirement or Disability, Options vested prior to such
termination may be exercised by a Key Employee during the
three-month period commencing on the date of termination,
but not later than the expiration of the term of the Options.
If a Key Employee dies during such post-employment period,
such Key Employee's estate may exercise the Options (to
the extent such Options were vested and exercisable prior
to death), but not later than the earlier of two years after
the date of death or the expiration of the term of the
Options.
(C) Stock Appreciation Rights. Sections 9(c)(i)(A) and
(B) shall apply in the same manner to Stock Appreciation
Rights.
(ii) Performance Units. If a Key Employee dies while employed,
terminates by reason of Retirement or Disability, or
otherwise terminates without forfeiting unvested Incentives
pursuant to Section 9(a), the Key Employee or such Key
Employee's estate in the event of death shall receive a
prorated payment of the Performance Units based
on the number of full months of service during the
applicable performance period, adjusted based on the
achievement of performance goals during the performance
period. Payment shall be made at the time payments would
have been made had the Key Employee not died or
terminated.
SECTION 10 ADJUSTMENT PROVISIONS
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that have not been issued under
outstanding Incentives, and (c) the appropriate Fair Market Value and other
price determinations applicable to Incentives.
SECTION 11 TERM
The Plan shall be deemed adopted and shall become effective on the date
it is approved by the stockholders of the Company and shall continue until
terminated by the Board or no Common Stock remains available for issuance under
Section 4, whichever occurs first.
SECTION 12 CORPORATE CHANGE
In the event of a Corporate Change, all Incentives shall vest in each
Key Employee, and the maximum value of all Performance Units shall be
immediately payable in cash, prorated for the number of days in the applicable
performance period that have elapsed as of the date of the Corporate Change.
<PAGE>
SECTION 13 GENERAL PROVISIONS
(a) Employment. Nothing in the Plan or in any related instrument
shall confer upon any employee any right to continue in the employ of the
Company or shall affect the right of the Company to terminate the
employment of any employee with or without cause.
(b) Legality of Issuance of Shares. No Common Stock shall be issued
pursuant to an Incentive unless and until all legal requirements applicable to
such issuance have been satisfied.
(c) Ownership of Common Stock Allocated to Plan. No employee
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such employee, shall have any right, title or interest
in or to any Common Stock allocated or reserved for purposes of the Plan or
subject to any Incentive except as to shares of Common Stock, if any, as shall
have been issued to such employee.
(d) Governing Law. The Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of
Illinois.
(e) Withholding of Taxes. The Company may withhold, or allow an
Incentive holder to remit to the Company, any Federal, state or local taxes
applicable to any grant, exercise, vesting, distribution or other event giving
rise to income tax liability with respect to an Incentive. An Incentive holder
may elect to surrender previously acquired Common Stock or to have the Company
withhold Common Stock that would otherwise have been issued pursuant to the
exercise of an Option or in connection with any other Incentive, the number of
shares of such withheld or surrendered Common Stock to be sufficient to satisfy
all or a portion of the income tax liability that arises upon the exercise,
vesting, distribution or other event giving rise to income tax liability with
respect to an Incentive.
(f) Non-transferability; Exceptions. Except as provided in this
Section 13(f), no Incentive may be assigned or subjected to any encumbrance,
pledge or charge of any nature. Under such rules and procedures as the
Committee may establish, the holder of an Incentive may transfer such
Incentive to members of the holder's immediate family (i.e., children,
grandchildren and spouse) or to one or more trusts for the benefit of such
family members or to partnerships in which such family members are the
only partners, provided that (i) the agreement, if any, with respect
to such Incentives, expressly so permits or is amended to so permit, (ii)
the holder does not receive any consideration for such transfer, and (iii)
the holder provides such documentation or information concerning any such
transfer or transferee as the Committee may reasonably request.
Any Incentives held by any transferees shall be subject to the same
terms and conditions that applied immediately prior to their transfer. The
Committee may also amend the agreements applicable to any outstanding Incentives
to permit such transfers. Any Incentive not granted pursuant to any agreement
expressly permitting its transfer or amended expressly to permit its transfer
shall not be transferable.
Such transfer rights shall in no event apply to any Incentive Stock Option.
SECTION 14 AMENDMENT OR DISCONTINUANCE OF THE PLAN
(a) Amendment or Discontinuance. The Plan may be amended or
discontinued by the Board from time to time, provided that without the approval
of stockholders, no amendment shall be made which (i) amends Section 4 to
increase the aggregate Common Stock that may be issued pursuant to Incentives,
(ii) amends the provisions of Section 12, (iii) permits any person who is not a
Key Employee to be granted an Incentive, (iv) permits Common Stock to be valued
at, or permits the exercise price of Options at the grant date, to be less than
Fair Market Value, (v) amends the provisions of Section 8 to change the method
of establishing the amount the Company shall distribute upon exercise of a Stock
Appreciation Right, (vi) amends the provisions of Section 7(b) to increase the
value which may be specified for Performance Units or amends any other provision
of the Plan, the amendment of which would require stockholder approval in order
to continue to satisfy the performance-based compensation exemption under Code
Section 162(m) and the related regulations with respect to any Incentive awarded
to any Covered Employee, (vii) changes the maximum number of shares of Common
Stock that may be awarded to any employee in any year
<PAGE>
pursuant to Options, Stock Awards or Stock Appreciation Rights, or (viii) amends
this Section 14.
(b) Effect of Amendment or Discontinuance on Incentives. No amendment
or discontinuance of the Plan by the Board or the stockholders of the Company
shall adversely affect any Incentive theretofore granted without the consent of
the holder.
<PAGE>
AMENDMENT
Pursuant to Section 7.01 of the Illinois Tool Works Inc. 1985 Executive
Contributory Retirement Income Plan ( the "Plan" ) effective May 1, 1996,
Illinois Tool Works Inc. hereby amends Sections 2.06, 2.07, 4.07, 4.11, and
6.01 of this Plan to read as follows:
2.06 "Change in Control" means any of the following: (i) the dissolution of
the Company; (ii) the merger, consolidation, or reorganization of the
Company with any other corporation after which the holders of common
stock immediately prior to the effective date thereof hold less than
70% of the outstanding common stock of the surviving or resulting
entity; (iii) the sale of all or substantially all of the assets of
the Company to any person or entity other than a wholly owned
subsidiary; (iv) any person or group of persons acting in concert,
other than descendants of Byron L. Smith and trusts for the benefit of
such descendants, or entity becomes the beneficial owner, directly or
indirectly, of more than 30% of the outstanding common stock; or (v)
the individuals who, as of the close of the most recent annual meeting
of the Company's stockholders, are members of the Board of Directors
(the "Existing Directors") cease for any reason to constitute more
than 50% of the Board of Directors; provided, however, that if the
election, or nomination for election, by the Company's stockholders of
any new director was approved by a vote of at least 50% of the
Existing Directors, such new director shall be considered an Existing
Director; provided further, however, that no individual shall be
considered an Existing Director if such individual initially assumed
office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies by
or on behalf of anyone other than the Board of Directors (a "Proxy
Contest"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest.
2.07 "Committee" means the Employee Benefits Committee appointed by the
Board of Directors to manage and administer the Plan.
4.07 Form of Benefit Payment.
(a) Upon the happening of an event described in Section 4.01, the
Company shall pay to the Participant the amount calculated
thereunder in monthly installments payable over a period of
fifteen (15) years, with interest on the unpaid principal
balance equal to the applicable Retirement InterestYield
added to the Deferred Benefit Account on each succeeding
Determination Date. The amount of the installment payments
shall be based on the prevailing Retirement Interest Yield at
the commencement of payments, projected into the future, and
shall be recomputed every three years, based on changes in
the Retirement Interest Yield. Upon the death of a Participant
after the commencement of benefits pursuant to Section 4.01,
the remaining installment payments shall be paid to the
Beneficiary, except that the Interest Yield used to determine
the Deferred Benefit Account shall be the Retirement Interest
Yield in effect at the time of the Participant's death, until
all payments have been made to the Beneficiary of the deceased
Participant.
<PAGE>
(b) In the event of the death of the Participant, as described in
Section 4.03, the Participant's Beneficiary may, with the
consent of the Committee, elect one of the payment options in
this Section 4.07. In such event, the applicable Death Interest
Yield in effect at the time of the Participant's death, shall be
the Interest Yield used in determining the Deferred Benefit
Account until all payments have been made to the Beneficiary of
the deceased Participant.
(c) Upon a written request by a Participant or his Beneficiary
filed with the Committee prior to the commencement of benefits
under this Plan, the Committee may, in its sole discretion, (i)
pay out a lump sum payment at a time designated but within
fifteen (15) years of the Participant's retirement or death, or
(ii) pay out installments over a period of fewer than fifteen
(15) years.
(d) In the event that a Participant retires on or subsequent to his
Early Benefit Date but prior to his Normal Benefit Date, the
Participant may file a written request with the Committee
requesting the deferral of his Retirement Benefit, pursuant to
Section 4.01, until age 65. The written request must be made
prior to the earlier of December 31 of the calendar year
preceding the Participant's Early Benefit Date or six months
prior to the Participant's Early Benefit Date. The Committee
may, but is not required to, grant the Participant's request.
4.11 Recipients of Payment: Designation of Beneficiary. All payments to be
made by the Company under the Plan shall be made to the Participant
during his/her lifetime, provided that if the Participant dies prior
to the completion of such payments, then all subsequent payments under
the Plan shall be made by the Company to the Beneficiary determined in
accordance with this Section 4.11. The Participant may designate a
Beneficiary by filing a written notice of such designation with the
Committee in such form as the Company requires and may include
contingent Beneficiaries. The Participant may from time-to-time change
the designated Beneficiary by filing a new designation in writing with
the Committee. If no designation is in effect or if an existing
designation is determined to be invalid at the time any benefits
payable under this Plan shall become due, the Beneficiary shall be the
spouse of the Participant, or if no spouse is then living, the
representatives of the Participant's estate.
6.01 Committee. The Plan shall be administered by the Committee. Members
of the Committee or agents of the Committee may be Participants under
the Plan.
Only Sections 2.06, 2.07, 4.07, 4.11, and 6.01 are affected by this Amendment.
<PAGE>
AMENDMENT
Pursuant to Section 7.1 of the Illinois Tool Works Inc. 1993 Executive
Contributory Retirement Income Plan ( the "Plan" ) effective April 1, 1993,
Illinois Tool Works Inc. hereby amends Section 2.7 of the Plan to read as
follows:
2.7 "Change in Control" means any of the following: (i) the dissolution of
the Company; (ii) the merger, consolidation, or reorganization of the
Company with any other corporation after which the holders of common
stock immediately prior to the effective date thereof hold less than
70% of the outstanding common stock of the surviving or resulting
entity; (iii) the sale of all or substantially all of the assets of
the Company to any person or entity other than a wholly owned
subsidiary; (iv) any person or group of persons acting in concert,
other than descendants of Byron L. Smith and trusts for the benefit of
such descendants, or entity becomes the beneficial owner, directly or
indirectly, of more than 30% of the outstanding common stock; or (v)
the individuals who, as of the close of the most recent annual meeting
of the Company's stockholders, are members of the Board of Directors
(the "Existing Directors") cease for any reason to constitute more
than 50% of the Board of Directors; provided, however, that if the
election, or nomination for election, by the Company's stockholders of
any new director was approved by a vote of at least 50% of the
Existing Directors, such new director shall be considered an Existing
Director; provided further, however, that no individual shall be
considered an Existing Director if such individual initially assumed
office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 under the Securities Exchange
Act of (1934) or other actual or threatened solicitation of proxies by
or on behalf of anyone other than the Board of Directors (a "Proxy
Contest"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest.
Only Section 2.7 is affected by this Amendment.
<PAGE>
ILLINOIS TOOL WORKS INC.
PHANTOM STOCK PLAN FOR NON-OFFICER DIRECTORS
The Plan set forth herein shall be known as the "Non-Officer Directors'
Phantom Stock Plan". Illinois Tool Works Inc. is hereinafter referred to as
ITW.
1. ELIGIBILITY. Each member of ITW's Board of Directors who is not
an officer of ITW shall be eligible to participate in the Plan and
shall be known for the purposes of this Plan as an "eligible
director."
2. PURPOSE. The purpose of the Plan is to enable ITW to attract and
retain as members of its Board of Directors persons who are not
officers of ITW, but whose experience and judgement are a valuable
asset to ITW. It is also intended to provide for the equivalent of
additional stock ownership to align the interests of the
non-officer (employee) directors with those of the stockholders.
3. GRANT OF PHANTOM STOCK UNITS. Except for six eligible directors
who are within ten years of retirement as of the Effective Date,
all eligible directors present and future shall have their phantom
stock accounts credited with one thousand phantom stock units,
with each unit having a value at any time equal to the current
market value of a share of ITW Common Stock. Five of the six
eligible directors who are within ten years of retirement as of
the Effective Date shall be credited with one thousand seven
hundred thirteen phantom stock units and the other director
(as identified by the Board) with one thousand seventy-five units.
4. PLAN ADMINISTRATION. The Plan shall be administered under the
direction of the Corporate Secretary of ITW. Each phantom stock
account will be maintained by ITW Corporate accounting, and annual
statements will be issued reflecting current account balances
adjusted for dividend reinvestment and market value changes.
5. DIVIDENDS. Whenever ITW declares a dividend on ITW the Common
Stock, a dividend award shall be made to all eligible directors as
of the date of payment of the dividend. The dividend award for an
eligible director shall be determined by multiplying the phantom
stock units credited to the eligible director's account on the date
of payment by the amount of the dividend paid on the ITW Common
Stock. The dividend award shall be converted into phantom stock
units by dividing the award by the closing market price of a share
of ITW Common Stock as of the dividend payment date.
6. ADJUSTMENTS. In the event of a stock dividend on the ITW Common
Stock, or any split up or combination of shares of the ITW Common
Stock, or other change therein, appropriate adjustment shall be made
to the phantom stock units in each eligible director's phantom stock
account so as to give effect, to the extent practicable, to such
change in ITW's capital structure.
7. DISTRIBUTION OF PHANTOM STOCK ACCOUNT. An eligible director will
be eligible for a cash distribution from his/her phantom stock
account at retirement, death or approved
<PAGE>
resignation. This distribution will be in the form of a lump sum or
ten annual installments as elected by the eligible director at the
time that this Plan was implemented or upon appointment to the Board
of Directors for future participants. The distribution will take
place as soon as practical but no later than 60 days following the
date of retirement, death or approved resignation. Any such election
may be changed by the eligible director no less than twenty-four
months prior to the first distribution to the director; any change
made less than twenty-four months prior to the actual date as of
which distributions are to commence shall be considered void and
distributions shall thereafter commence pursuant to the director's
initial election. For installments, the payment on each distribution
date shall be an amount equal to the value of the phantom stock
units credited to the eligible director's account on such
distribution date, divided by the number of installments remaining
to be paid. The value of the phantom stock units to be distributed
is determined by multiplying the market value of a share of ITW
Common Stock on the distribution date by the number of such phantom
stock units.
8. BENEFICIARY DESIGNATION. Each eligible director or former eligible
director entitled to payment from a phantom stock account may name
any person or persons to whom the value of such director's phantom
stock account shall be paid in the event of his/ her death. Each
designation will revoke all prior designations, shall be in writing
and in a form prescribed by the Corporate Secretary of ITW, and will
be effective only when filed during the eligible director's or
former eligible director's lifetime with the Corporate Secretary of
ITW. If the director shall have failed to name a
beneficiary, or if the named beneficiary dies before receiving
payment of the entire balance in such director's phantom stock
account, payment of the remaining balance
shall be made in a lump sum to the legal representative of the
estate of the director or named beneficiary, as applicable.
9. MISCELLANEOUS
(a) Establishment of this Plan and coverage hereunder of any
person shall not be construed to confer any right on the
part of such person to be nominated for reelection to the
Board of Directors or to be reelected to the Board of
Directors.
(b) No eligible director may assign, pledge or encumber his/her
interest under the Plan, or any part thereof, except that an
eligible director may designate a beneficiary as provided in
Paragraph 8 or may elect to assign his/her phantom stock
interests to a family trust or family partnership. However,
under the "assignment of income" tax doctrine, any
distributions of the assigned phantom stock interests would
still be taxable to the eligible director as ordinary
income.
<PAGE>
(c) No eligible director or beneficiary shall have any interest
in ITW's assets by reason of his/her participation in the
Plan. It is intended that ITW merely has a contractual
obligation to make payments when due hereunder and it is not
intended that ITW hold any funds in reserve or trust to
secure payments hereunder.
10. AMENDMENT ON TERMINATION. This Plan may be amended or terminated at
any time by the Board of Directors; provided, however, that no such
amendment or termination may, without the consent of the eligible
director, or his/her beneficiary in the case of his/her death,
reduce the right of the eligible director, or his/her beneficiary
as the case may be, to any payment under the Plan.
11. CORPORATE CHANGE. Notwithstanding the provisions of Paragraph 7,
each eligible the value of director's phantom stock account shall
be distributed immediately to the director or his/her
beneficiary in the event of a Corporate Change. "Corporate
Change" shall mean (i) a dissolution of ITW, (ii) a merger,
consolidation, or reorganization of ITW with any
other corporation after which the holders of ITW Common Stock
immediately prior to the effective date thereof hold less than 70%
of the outstanding common stock of the surviving or resulting
entity, (iii) a sale of all or substantially all of the assets of
ITW to any person or entity other than a wholly owned subsidiary,
(iv) any person or group of persons, other than the Smith family
trusts as described in ITW's proxy statement, or entity becomes the
beneficial owner, directly or indirectly, of more than 30% of the
outstanding ITW Common Stock, or (v) the individuals who, as of the
close of most recent annual meeting of ITW's stockholders, are
members of the Board of Directors (the "Existing Directors") cease
for any reason to constitute more than 50% of the Board of
Directors; provided, however, that if the election, or nomination
for election, by ITW's stockholders of any new director was
approved by a vote of at least 50% of the Existing Directors, such
new director shall be considered an Existing Director; provided
further, however, that no individual shall be considered an
Existing Director if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies
by or on behalf of anyone other than the Board of Directors (a
"Proxy Contest"), including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest.
12. GOVERNING LAW. This Plan shall be construed, administered and
governed in all respects under and by the laws of the state of
Illinois.
13. EFFECTIVE DATE. This Plan shall become effective on the date of its
adoption by the Board of Directors of ITW.
<PAGE>
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<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF
INCOME (UNAUDITED) AND THE STATEMENT OF FINANACIAL POSITION (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 137,199
<SECURITIES> 0
<RECEIVABLES> 852,573
<ALLOWANCES> 0
<INVENTORY> 548,360
<CURRENT-ASSETS> 1,726,346
<PP&E> 1,801,505
<DEPRECIATION> 1,053,407
<TOTAL-ASSETS> 4,018,870
<CURRENT-LIABILITIES> 991,620
<BONDS> 616,815
<COMMON> 267,861
0
0
<OTHER-SE> 1,895,343
<TOTAL-LIABILITY-AND-EQUITY> 4,018,870
<SALES> 2,461,722
<TOTAL-REVENUES> 2,461,722
<CGS> 1,626,695
<TOTAL-COSTS> 1,626,695
<OTHER-EXPENSES> 18,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,876
<INCOME-PRETAX> 363,730
<INCOME-TAX> 134,600
<INCOME-CONTINUING> 229,130
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<EXTRAORDINARY> 0
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<NET-INCOME> 229,130
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