FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
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 October 31, 1997: 249,454,009.
1
<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.
2
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME
(UNAUDITED)
(In Thousands Except for
Per Share Amounts)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Operating Revenues $1,315,388 $1,238,261 $3,871,530 $3,699,983
Cost of revenues 857,495 817,658 2,519,164 2,444,353
Selling, administrative,
and research and develop-
ment expenses 210,654 212,525 642,198 653,025
Amortization of goodwill
and other intangible
assets 9,649 7,605 26,673 22,218
Amortization of retiree
health care 1,827 1,742 5,480 5,226
---------- ---------- ---------- ----------
Operating Income 235,763 198,731 678,015 575,161
Interest expense (4,337) (5,375) (15,915) (20,251)
Other income 3,404 1,686 10,079 3,862
---------- ---------- ---------- ----------
Income Before Income Taxes 234,830 195,042 672,179 558,772
Income taxes 85,700 72,200 245,400 206,800
---------- ---------- ---------- ----------
Net Income $ 149,130 $ 122,842 $ 426,779 $ 351,972
========== ========== ========== ==========
Per share of common stock:
Net Income $ .60 $ .50 $1.71 $1.42
===== ===== ===== =====
Cash dividends:
Paid $ .12 $.085 $.310 $.255
===== ===== ===== =====
Declared $ .12 $.095 $.335 $.265
===== ===== ===== =====
Average number of shares of
common stock outstanding
during the period 249,389 247,610 249,214 247,504
======= ======= ======= =======
3
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS September 30, 1997 December 31, 1996
------------------ -----------------
Current Assets:
Cash and equivalents $ 183,152 $ 137,699
Trade receivables 875,089 840,092
Inventories 503,420 526,016
Deferred income taxes 126,133 131,404
Prepaid expenses and other
current assets 58,882 65,881
---------- ----------
Total current assets 1,746,676 1,701,092
---------- ----------
Plant and Equipment:
Land 65,876 68,362
Buildings and improvements 435,657 429,686
Machinery and equipment 1,302,088 1,282,274
Equipment leased to others 104,362 109,030
Construction in progress 80,726 51,744
---------- ----------
1,988,709 1,941,096
Accumulated depreciation (1,195,730) (1,132,756)
---------- ----------
Net plant and equipment 792,979 808,340
---------- ----------
Investments 858,752 872,692
Goodwill 740,615 664,054
Deferred Income Taxes 314,225 292,152
Other Assets 435,894 467,832
---------- ----------
$4,889,141 $4,806,162
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 259,364 $ 390,425
Accounts payable 242,166 248,062
Accrued expenses 506,324 512,927
Cash dividends payable 29,930 23,538
Income taxes payable 54,602 44,373
---------- ----------
Total current liabilities 1,092,386 1,219,325
---------- ----------
Non-current Liabilities:
Long-term debt 765,783 818,947
Other 364,997 371,865
---------- ----------
Total non-current liabilities 1,130,780 1,190,812
---------- ----------
Stockholders' Equity:
Preferred stock --
Common stock 2,497 273,864
Additional Paid-in-Capital 277,039 --
Income reinvested in the business 2,462,195 2,105,144
Common stock held in treasury (1,833) (1,841)
Cumulative translation adjustment (73,923) 18,858
---------- ----------
Total stockholders' equity 2,665,975 2,396,025
---------- ----------
$4,889,141 $4,806,162
========== ==========
4
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ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands) Nine Months Ended
September 30
-------------------
1997 1996
-------------------
Cash Provided by (Used for) Operating Activities:
Net income $ 426,779 $ 351,972
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 146,615 135,230
Change in deferred income taxes 12,291 (5,226)
Provision for uncollectible accounts 3,338 5,166
(Gain)loss on sale of plant and equipment 5,231 (573)
Income from investments (68,996) (40,701)
Non-cash interest on nonrecourse debt 26,730 12,298
Gain on sale of operations and affiliates (7,153) (5,587)
Other non-cash items, net 2,761 (600)
--------- ---------
Cash provided by operating activities 547,596 451,979
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (70,500) (20,227)
Inventories (5,731) 32,534
Prepaid expenses and other assets (26,430) (39,197)
Increase (decrease) in--
Accounts payable 9,228 (18,596)
Accrued expenses 3,602 36,429
Income taxes payable (26,173) (18,823)
Other, net 5,196 1,958
--------- ---------
Net cash provided by operating activities 436,788 426,057
--------- ---------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses(excluding cash and
equivalents) and additional interest in affiliates (183,500) (101,146)
Additions to plant and equipment (119,805) (117,391)
Purchase of investments (9,436) (10,855)
Proceeds from investments 26,904 46,253
Proceeds from sale of plant and equipment 13,024 20,662
Proceeds from sale of operations and affiliates 104,932 13,922
Other, net 6,917 (8,021)
--------- ---------
Net cash used for investing activities (160,964) (156,576)
--------- ---------
Cash Provided
by (Used for) Financing Activities:
Cash dividends paid (77,124) (61,953)
Issuance of common stock 5,406 4,035
Repayments of short-term debt (111,708) (74,700)
Proceeds from long-term debt 785 8,891
Repayments of long-term debt (32,595) (100,980)
Other, net 3,210 2,767
--------- ---------
Net cash used for financing activities (212,026) (221,940)
--------- ---------
Effect of Exchange Rate Changes on Cash and Equivalents (18,345) (1,414)
--------- ---------
Cash and Equivalents:
Increase during the period 45,453 46,127
Beginning of period 137,699 116,600
--------- ---------
End of period $ 183,152 $ 162,727
========= =========
Cash Paid During the Period for Interest $ 24,552 $ 33,090
========= =========
Cash Paid During the Period for Income Taxes $ 219,989 $ 208,919
========= =========
Liabilities Assumed from Acquisitions $ 60,324 $ 233,881
========= =========
5
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at September 30, 1997 and December 31, 1996 were as follows:
(In Thousands)
September 30, Dec. 31,
1997 1996
------------- ---------
Raw material $144,658 $143,979
Work-in-process 68,008 71,641
Finished goods 290,754 310,396
-------- --------
$503,420 $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 will be materially different
from net income per share as currently reported.
(3) COMMON STOCK:
On February 14, 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.
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.
6
<PAGE>
Item 2 - Management's Discussion and Analysis
ENGINEERED COMPONENTS SEGMENT
Businesses in this segment manufacture short lead-time plastic and metal
components and fasteners; industrial fluids and adhesives; and welding products.
This segment primarily serves the construction, automotive and general
industrial markets.
(Dollars in Thousands)
Three months ended Nine months ended
September 30 September 30
------------------ ----------------------
Operating
Revenues 1997 1996 1997 1996
- --------- --------- -------- ---------- ----------
Domestic $498,415 $476,489 $1,503,274 $1,440,075
Int'l 203,235 202,631 629,368 635,192
-------- -------- ---------- ----------
Total $701,650 $679,120 $2,132,642 $2,075,267
======== ======== ========== ==========
Three months ended September 30 Nine months ended September 30
--------------------------------- ---------------------------------
Operating 1997 1996 1997 1996
Income Income Margin Income Margin Income Margin Income Margin
- -------- -------- ------ -------- ------ -------- ------ -------- ------
Domestic $ 96,189 19.3% $ 79,969 16.8% $282,820 18.8% $230,949 16.0%
Int'l 30,442 15.0 21,220 10.5 91,197 14.5 75,848 11.9
-------- -------- -------- --------
Total $126,631 18.0 $101,189 14.9 $374,017 17.5 $306,797 14.8
======== ======== ======== ========
Domestic
Domestic revenues for the three-month and nine-month periods increased primarily
due to acquisitions completed in the automotive businesses, along with new
products in the construction and industrial products operations. The sale of a
fastener distribution business in the first quarter of 1997 moderated revenue
growth for both periods. For both the three-month and year-to-date periods,
operating income and margins increased due to cost reductions and new products
in the welding and industrial products operations. The automotive acquisitions
also contributed to the operating income and margin increases.
International
For both three- and nine-month periods, international revenues grew as a result
ofincreased penetration by the European automotive businesses supported by
increased European car builds. The increase in revenues was partially offset by
the negative effect of currency translation for the three-month period and was
more than offset year-to-date. Operating income and margins increased as a
result of increased revenues and reduced costs in the European automotive
operations and a reduced cost structure for the construction operations.
7
<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 Nine months ended
September 30 September 30
------------------ ----------------------
Operating
Revenues 1997 1996 1997 1996
- --------- -------- -------- ---------- ----------
Domestic $327,418 $302,721 $ 936,848 $ 906,960
Int'l 254,786 233,706 715,223 666,913
-------- -------- ---------- ----------
Total $582,204 $536,427 $1,652,071 $1,573,873
======== ======== ========== ==========
Three months ended September 30 Nine months ended September 30
Operating 1997 1996 1997 1996
Income Income Margin Income Margin Income Margin Income Margin
- -------- -------- ------ -------- ------ -------- ------ -------- ------
Domestic $ 66,395 20.3% $ 62,309 20.6% $184,481 19.7% $175,940 19.4%
Int'l 33,548 13.2 29,225 12.5 94,101 13.2 72,881 10.9
Total $ 99,943 17.2 $ 91,534 17.1 $278,582 16.9 $248,821 15.8
======== ======== ======== ========
Domestic
For the three-month period, acquisitions and new products in the marking
and labeling operations along with new product introductions in the resealable
packaging businesses led to the domestic revenue and operating income growth.
The finishing systems businesses also contributed to the improved performance as
a result of several painting systems that were shipped in the third quarter. The
revenue growth was moderated by decreased revenues in the Signode operations as
a result of a product mix shift towards plastic strapping versus steel, which
sells for a lower unit price with higher margins. For the nine-month period,
revenue and operating income increased because of the marking and labeling
businesses and increased penetration in industrial markets for finishing systems
equipment. The growth in year-to-date revenues was partially offset by decreased
revenues in the quality measurement and Signode operations. Operating income and
margins for both periods increased primarily as a result of higher revenues for
the marking and labeling businesses and reduced manufacturing costs at the
Signode operations, followed by higher revenues from the finishing systems
businesses. For the third quarter, the above margin increases were offset by
lower margins for the stretch film operations.
International
International revenue and operating income increased for both periods primarily
due to acquisitions in the Signode and stretch film operations. Currency
translation and the sale of the European palletizing businesses in the first
quarter of 1997 partially offset the revenue growth. Operating income and
margins also improved as a result of cost reductions at the Signode operations.
The sale of the under- performing palletizing businesses contributed to the
increase in margins.
8
<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 Nine months ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
-------- ------- ------- -------
Operating
revenues $31,534 $22,714 $86,817 $50,843
======= ======= ======= =======
Operating
income $ 9,189 $ 6,008 $25,416 $19,543
======= ======= ======= =======
For the third 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 the nine-month period 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 65.1% in the first six
months of 1997 versus 66.1% in the first nine months of 1996, due to increased
sales volume coupled with lower manufacturing costs. Selling, administrative,
and research and development expenses decreased to 16.6% of revenues in the
first nine months of 1997 versus 17.6% in the first nine 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 $15.9 million in the first nine months of 1997
from $20.3 million in the first nine 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 $10.1 million for the first nine months of 1997 from
$3.9 million in 1996. This increase is primarily due to higher gains on the sale
of operations, more interest income in 1997, and higher debt prepayment
costs in 1996, partially offset by losses on sale of fixed assets in 1997.
NET INCOME
Net income of $426.8 million ($1.71 per share) in the first nine months of 1997
was 11.0% higher than 1996 nine-month net income of $352.0 million ($1.42 per
share).
FOREIGN CURRENCY
The strengthening of the U.S. dollar against foreign currencies in 1997
decreased operating revenues for the first nine months of 1997 by approximately
$82 million. Foreign currency fluctuations had no material impact on earnings
for the first nine months of 1997 versus 1996.
9
<PAGE>
FINANCIAL POSITION
Net working capital at September 30, 1997 and December 31, 1996 is summarized as
follows:
(Dollars in Thousands)
Sept. 30, Dec. 31, Increase/
1997 1996 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 183,152 $ 137,699 $ 45,453
Trade receivables 875,089 840,092 34,997
Inventories 503,420 526,016 (22,596)
Other 185,015 197,285 (12,270)
---------- ---------- --------
1,746,676 1,701,092 45,584
---------- ---------- --------
Current Liabilities:
Short-term debt 259,364 390,425 (131,061)
Accounts payable and
accrued expenses 748,490 760,989 (12,499)
Other 84,532 67,911 16,621
---------- ---------- --------
1,092,386 1,219,325 (126,939)
---------- ---------- --------
Net Working Capital $ 654,290 $ 481,767 $172,523
========== ========== ========
Current Ratio 1.60 1.40
========== ==========
The increase in trade receivables for the first nine months of 1997 was
primarily due to higher revenues in the third quarter of 1997 versus the fourth
quarter of 1996. The increase in trade receivables was partially offset by the
effect of foreign currency translation. The decrease in inventories from
year-end 1996 is primarily due to currency translation.
The reduction in short-term debt is mainly due to the repayment of a portion of
the 1996 Azon acquisition debt.
10
<PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No. Description
----------- -----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
11
<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: November 14, 1997 By: /s/ Michael W. Gregg
----------------------- ---------------------------------------------
Michael W. Gregg,
Senior Vice President and
Controller, Accounting
(Principal Accounting Officer)
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 183,152
<SECURITIES> 0
<RECEIVABLES> 875,089
<ALLOWANCES> 0
<INVENTORY> 503,420
<CURRENT-ASSETS> 1,746,676
<PP&E> 1,988,709
<DEPRECIATION> 1,195,730
<TOTAL-ASSETS> 4,889,141
<CURRENT-LIABILITIES> 1,092,386
<BONDS> 765,783
<COMMON> 2,497
0
0
<OTHER-SE> 2,739,234
<TOTAL-LIABILITY-AND-EQUITY> 4,889,141
<SALES> 3,871,530
<TOTAL-REVENUES> 3,871,530
<CGS> 2,519,164
<TOTAL-COSTS> 2,519,164
<OTHER-EXPENSES> 32,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,915
<INCOME-PRETAX> 672,179
<INCOME-TAX> 245,400
<INCOME-CONTINUING> 426,779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 426,779
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
