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, 1997
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
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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 Identification No.)
incorporation or organization)
3600 West Lake Avenue, Glenview, IL 60025-5811
- ---------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
offices)
(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, 1997: 249,408,319
<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 notes to financial statements included in the
Company's Annual Report on Form 10-K. 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
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Operating Revenues $1,326,344 $1,324,800 $2,556,142 $2,461,722
Cost of revenues 854,352 871,156 1,661,669 1,626,695
Selling, administrative,
and research and develop-
ment expenses 215,855 229,429 431,544 440,500
Amortization of goodwill
and other intangible
assets 8,492 7,481 17,024 14,613
Amortization of retiree
health care 1,826 1,742 3,653 3,484
---------- ---------- ---------- ----------
Operating Income 245,819 214,992 442,252 376,430
Interest expense (5,617) (8,075) (11,578) (14,876)
Other income 3,092 58 6,675 2,176
---------- ---------- ---------- ----------
Income Before Income Taxes 243,294 206,975 437,349 363,730
Income taxes 88,900 76,600 159,700 134,600
---------- ---------- ---------- ----------
Net Income $ 154,394 $ 130,375 $ 277,649 $ 229,130
========== ========== ========== ==========
Per share of common stock:
Net Income $0.62 $0.53 $1.11 $0.93
===== ===== ===== =====
Cash dividends:
Paid $.095 $.085 $.190 $.170
===== ===== ===== =====
Declared $.120 $.085 $.215 $.170
===== ===== ===== =====
Average number of shares of
common stock outstanding
during the period 249,231 247,528 249,130 247,452
======= ======= ======= =======
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS June 30, 1997 December 31, 1996
- ------ ------------- -----------------
Current Assets:
Cash and equivalents $ 157,506 $ 137,699
Trade receivables 881,978 840,092
Inventories 506,474 526,016
Deferred income taxes 137,808 131,404
Prepaid expenses and other
current assets 76,183 65,881
---------- ----------
Total current assets 1,759,949 1,701,092
---------- ----------
Plant and Equipment:
Land 66,945 68,362
Buildings and improvements 432,888 429,686
Machinery and equipment 1,273,294 1,282,274
Equipment leased to others 105,291 109,030
Construction in progress 73,768 51,744
---------- ----------
1,952,186 1,941,096
Accumulated depreciation (1,157,066) (1,132,756)
---------- ----------
Net plant and equipment 795,120 808,340
---------- ----------
Investments 867,885 872,692
Goodwill 642,727 664,054
Deferred Income Taxes 314,435 292,152
Other Assets 548,383 467,832
---------- ----------
$4,928,499 $4,806,162
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 368,268 $ 390,425
Accounts payable 240,312 248,062
Accrued expenses 505,456 512,927
Cash dividends payable 29,919 23,538
Income taxes payable 66,021 44,373
---------- ----------
Total current liabilities 1,209,976 1,219,325
---------- ----------
Non-current Liabilities:
Long-term debt 777,074 818,947
Other 360,649 371,865
---------- ----------
Total non-current liabilities 1,137,723 1,190,812
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock 2,496 273,864
Additional Paid-in-Capital 276,550 --
Income reinvested in the business 2,342,981 2,105,144
Common stock held in treasury (1,833) (1,841)
Cumulative translation adjustment (39,394) 18,858
---------- ----------
Total stockholders' equity 2,580,800 2,396,025
---------- ----------
$4,928,499 $4,806,162
========== ==========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Six Months Ended
------------------
June 30
------------------
1997 1996
-------- --------
Cash Provided by (Used for) Operating Activities:
Net income $277,649 $229,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 97,337 90,820
Change in deferred income taxes (2,962) (23)
Provision for uncollectible accounts 2,225 3,444
(Gain)loss on sale of plant and equipment 5,461 (1,171)
Income from investments (43,905) (27,079)
Non-cash interest on nonrecourse debt 16,670 8,038
Gain on sale of operations and affiliates (7,073) (4,856)
Other non-cash items, net 2,657 552
-------- --------
Cash provided by operating activities 348,059 298,855
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (78,289) (44,836)
Inventories (9,234) 14,157
Prepaid expenses and other assets (31,791) (35,693)
Increase (decrease) in--
Accounts payable 7,112 (25,312)
Accrued expenses 2,185 36,170
Income taxes payable (7,508) (16,286)
Other, net 3,926 (1,195)
-------- --------
Net cash provided by operating activities 234,460 225,860
-------- --------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses(excluding cash and
equivalents) and additional interest in affiliates (160,636) (85,340)
Additions to plant and equipment (81,462) (79,487)
Purchase of investments (5,753) (4,647)
Proceeds from investments 18,138 39,283
Proceeds from sale of plant and equipment 6,873 17,242
Proceeds from sale of operations and affiliates 102,513 12,913
Other, net (2,364) (8,536)
-------- --------
Net cash used for investing activities (122,691) (108,572)
-------- --------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (47,205) (40,910)
Issuance of common stock 4,902 2,688
Repayments of short-term debt (9,579) 18,803
Proceeds from long-term debt 679 8,875
Repayments of long-term debt (31,662) (86,970)
Other, net 1,854 2,885
-------- --------
Net cash used for financing activities (81,011) (94,629)
-------- --------
Effect of Exchange Rate Changes on Cash and Equivalents (10,951) (2,060)
-------- --------
Cash and Equivalents:
Increase during the period 19,807 20,599
Beginning of period 137,699 116,600
-------- --------
End of period $157,506 $137,199
======== ========
Cash Paid During the Period for Interest $ 16,960 $ 18,521
======== ========
Cash Paid During the Period for Income Taxes $138,228 $139,673
======== ========
Liabilities Assumed from Acquisitions $ 28,679 $203,459
======== ========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at June 30, 1997 and December 31, 1996 were as follows:
(In Thousands)
June 30, Dec. 31,
1997 1996
-------- --------
Raw material $142,747 $143,979
Work-in-process 64,184 71,641
Finished goods 299,543 310,396
-------- --------
$506,474 $526,016
======== ========
(2) NEW ACCOUNTING STANDARD:
Effective for periods ending after December 15, 1997, the Company is
required to adopt Statement of Financial Accounting Standards No. 128
("SFAS 128"), Earnings Per Share. SFAS 128 requires dual presentation of
basic and diluted net income per share on the face of the statement of
income. Upon adoption of the new standard, the Company does not expect that
basic or diluted net income per share to be materially different from net
income per share as currently reported.
(3) COMMON STOCK:
On May 9, 1997, the Board of Directors authorized a two-for-one split
of the Company's common stock, with an effective date of May 27, 1997, at a
rate of one additional share for each common share held by stockholders of
record on May 20, 1997. All per-share data in this report is calculated on
a post-split basis.
Also on May 9, 1997, the stockholders approved an amendment to the
Certificate of Incorporation increasing the number of authorized shares of
common stock from 150,000,000 to 350,000,000 and changing the par value of
common stock to $.01 per share from no par value.
<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 1997 1996 1997 1996
- --------- -------- -------- ---------- ----------
Domestic $519,534 $536,979 $1,004,859 $ 963,586
International 224,339 227,459 426,133 432,561
-------- -------- ---------- ----------
Total $743,873 $764,438 $1,430,992 $1,396,147
======== ======== ========== ==========
Three months ended June 30 Six months ended June 30
-------------------------------- --------------------------------
Operating 1997 1996 1997 1996
Income Income Margin Income Margin Income Margin Income Margin
-------- ------ -------- ------ -------- ------ -------- ------
Domestic $ 98,361 18.9% $ 85,365 15.9% $186,631 18.6% $150,980 15.7%
International 37,861 16.9 33,108 14.6 60,755 14.3 54,628 12.6
-------- -------- -------- --------
Total $136,222 18.3 $118,473 15.5 $247,386 17.3 $205,608 14.7
======== ======== ======== ========
Domestic revenues declined for the three month period compared with last
year primarily as a result of the sale of a fastener distribution business,
partially offset by the revenue growth in the construction and welding units.
Revenues for the six month period increased primarily due to acquisitions of
automotive businesses, penetration gains with fasteners and components in the
U.S. automotive markets and increased demand for construction products.
Operating income and margins for both periods increased due to cost reductions
and new products in the automotive and construction businesses, along with
factory process improvements and increased exports in the welding businesses.
For the three and six month periods, international revenues grew as a result of
increased penetration by the automotive businesses in the European and South
American markets. The increase in revenues by the automotive businesses was more
than offset by the effect of foreign currency translation. Operating income
increased as a result of reduced cost structure in European automotive and
construction operations. Slight revenue growth in construction businesses, due
to soft European markets, coupled with significant operating income increases,
as a result of cost restructuring in 1996, resulted in increased margins
compared with last year.
<PAGE>
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT
Businesses in this segment manufacture longer lead-time systems and related
consumables for packaging, marking, labeling, and identification applications,
and finishing and quality measurement equipment. 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 1997 1996 1997 1996
- --------- -------- -------- ---------- ----------
Domestic $322,092 $317,904 $ 609,430 $ 604,239
International 236,933 228,234 460,437 433,207
-------- -------- ---------- ----------
Total $559,025 $546,138 $1,069,867 $1,037,446
======== ======== ========== ==========
Three months ended June 30 Six months ended June 30
--------------------------------- ----------------------------
Operating 1997 1996 1997 1996
Income Income Margin Income Margin Income Margin Income Margin
-------- ------ ------- ------ -------- ------ -------- ------
Domestic $ 66,630 20.7% $63,064 19.8% $118,086 19.4% $113,631 18.8%
International 35,211 14.9 26,272 11.5 60,553 13.2 43,656 10.1
-------- ------- -------- --------
Total $101,841 18.2 $89,336 16.4 $178,639 16.7 $157,287 15.2
======== ======= ======== ========
For the three and six month periods, domestic revenue growth in the marking
and labeling and resealable packaging operations, as a result of new product
introductions, was moderated by decreased revenues in the quality measurement
businesses. The finishing systems operations slightly moderated revenue growth
for the three month period, due to the delay of several large shipments, but
contributed to the revenue improvement for the six month period, as a result of
increased penetration in the U.S. general industrial markets. For both periods,
operating income and margins increased due to new product introductions in
the marking and labeling in the decorating businesses and lower
manufacturing costs for the certain packaging businesses.
International revenues increased for both periods versus last year due to
the 1996 Azon and Orgapack acquisitions in the packaging operations. Revenue
growth was partially offset by the effect of foreign currency translation and
divestitures of certain European packaging businesses. Operating income
increased due to successful cost reductions at certain packaging and finishing
systems operations, along with the acquisitions. The sale of the
under-performing packaging operations and aggressive cost reductions at
certain packaging and finishing systems units led to the increase in margins.
<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 through investments in capital equipment, acquisitions and new
products, 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 affordable housing investments.
(Dollars in Thousands)
Three months ended Six months ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Operating
revenues $23,446 $14,224 $55,283 $28,129
======= ======= ======= =======
Operating
income $ 7,756 $ 7,183 $16,227 $13,535
======= ======= ======= =======
For the second quarter and first half of the year, revenues and operating income
increased primarily due to the commercial mortgage transaction entered into at
year-end 1996. The operating income increase for both the three and six month
periods was partially offset by losses related to property developments and
property held for sale.
OPERATING EXPENSES
Cost of revenues as a percentage of revenues decreased to 65.0% in the first six
months of 1997 versus 66.1% in the first six months of 1996, due to increased
sales volume coupled with lower manufacturing costs. Selling, administrative,
and research and development expenses decreased to 16.9% of revenues in the
first six months of 1997 versus 17.9% in the first six months of 1996, primarily
due to expense reductions as a result of a Company-wide objective to reduce
administrative costs.
INTEREST EXPENSE
Interest expense decreased to $11.6 million in the first six months of 1997
from $14.9 million in the first six months of 1996, primarily due to decreased
commercial paper borrowings and higher interest expense in 1996 due to debt
assumed from acquisitions.
OTHER INCOME
Other income increased to $6.7 million for the first six months of 1997 from
$2.2 million in 1996. This increase is primarily due to higher gains on the sale
of operations in 1997 and debt prepayment costs in 1996, partially offset by
losses on sale of fixed assets in 1997.
NET INCOME
Net income of $277.6 million ($1.11 per share) in the first six months of
1997 was 21.2% higher than the 1996 first half net income of $229.1 million
($0.93 per share).
FOREIGN CURRENCY
The strengthening of the U.S. dollar against foreign currencies in 1997
decreased operating revenues for the first six months of 1997 by approximately
$43 million. Foreign currency fluctuations had no material impact on earnings in
the first half of 1997 versus 1996.
<PAGE>
FINANCIAL POSITION
Net working capital at June 30, 1997 and December 31, 1996 is summarized as
follows:
(Dollars in Thousands)
June 30, Dec. 31, Increase/
1997 1996 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 157,506 $ 137,699 $ 19,807
Trade receivables 881,978 840,092 41,886
Inventories 506,474 526,016 (19,542)
Other 213,991 197,285 16,706
---------- ---------- --------
1,759,949 1,701,092 58,857
---------- ---------- --------
Current Liabilities:
Short-term debt 368,268 390,425 (22,157)
Accounts payable and
accrued expenses 745,768 760,989 (15,221)
Other 95,940 67,911 28,029
---------- ---------- --------
1,209,976 1,219,325 (9,349)
---------- ---------- --------
Net Working Capital $ 549,973 $ 481,767 $ 68,206
========== ========== ========
Current Ratio 1.45 1.40
========== ==========
The increase in trade receivables in the first half of 1997 was primarily due to
higher revenues in the second quarter of 1997 versus the fourth quarter of 1996.
The increase in trade receivables was partially offset by the effect of foreign
currency translation.
<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 9, 1997. The
stockholders approved an increase in the number of authorized shares of common
stock to 350,000,000 from 150,000,000 and a change in the par value of common
stock to $.01 per share from no par value, by a vote of 109,996,316 in favor
(with 1,970,208 votes against and 1,003,275 votes withheld).
The following members were elected to the Company's Board of Directors to hold
office for the ensuing year:
Nominees In Favor Withheld
M. J. Birck 111,289,497 1,680,302
M. D. Brailsford 112,857,611 112,188
S. Crown 112,855,138 114,661
H. R. Crowther 112,861,064 108,735
W. J. Farrell 112,856,120 113,679
L. R. Flury 112,857,312 112,487
R. C. McCormack 112,857,014 112,785
P. B. Rooney 112,847,956 121,843
H. B. Smith 112,860,853 108,946
O. J. Wade 112,858,744 111,055
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
Form 8-K, Current Report, dated April 18, 1997 which included Item 5, Item
7 and a description of ITW's capital stock was filed during the period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, 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 14, 1997 By: /s/ Michael W. Gregg
---------------------------------------
Michael W. Gregg, Senior Vice President
and Controller, Accounting
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 157,506
<SECURITIES> 0
<RECEIVABLES> 881,978
<ALLOWANCES> 0
<INVENTORY> 506,474
<CURRENT-ASSETS> 1,759,949
<PP&E> 1,952,186
<DEPRECIATION> 1,157,066
<TOTAL-ASSETS> 4,928,499
<CURRENT-LIABILITIES> 1,209,976
<BONDS> 777,074
<COMMON> 2,496
0
0
<OTHER-SE> 2,619,531
<TOTAL-LIABILITY-AND-EQUITY> 4,928,499
<SALES> 2,556,142
<TOTAL-REVENUES> 2,556,142
<CGS> 1,661,669
<TOTAL-COSTS> 1,661,669
<OTHER-EXPENSES> 20,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,578
<INCOME-PRETAX> 437,349
<INCOME-TAX> 159,700
<INCOME-CONTINUING> 277,649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277,649
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
