FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
-------------------------------------------------
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
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 April 30, 1998: 249,886,684.
<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
March 31
----------------------
1998 1997
---------- ----------
Operating Revenues $1,340,991 $1,229,798
Cost of revenues 873,957 807,317
Selling, administrative,
and research and develop-
ment expenses 221,078 215,689
Amortization of goodwill
and other intangible
assets 9,777 8,532
Amortization of retiree
health care 1,827 1,827
---------- ---------
Operating Income 234,352 196,433
Interest expense (2,946) (5,961)
Other income 2,752 3,583
---------- ----------
Income Before Income Taxes 234,158 194,055
Income taxes 85,500 70,800
---------- ----------
Net Income $ 148,658 $ 123,255
========== ==========
Per share of common stock:
Basic net income $ .60 $ .49
===== =====
Diluted net income $ .59 $ .49
===== =====
Cash dividends:
Paid $ .12 $.095
===== =====
Declared $ .12 $.095
===== =====
Shares of common stock
outstanding during the
period:
Average 249,693 249,026
======= =======
Average assuming dilution 252,370 251,340
======= =======
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS March 31, 1998 December 31, 1997
- ------ -------------- -----------------
Current Assets:
Cash and equivalents $ 206,544 $ 185,856
Trade receivables 916,828 902,022
Inventories 530,423 522,996
Deferred income taxes 166,642 168,697
Prepaid expenses and other
current assets 83,891 79,071
---------- ----------
Total current assets 1,904,328 1,858,642
---------- ----------
Plant and Equipment:
Land 75,949 78,055
Buildings and improvements 490,323 485,845
Machinery and equipment 1,436,719 1,387,502
Equipment leased to others 107,356 107,345
Construction in progress 81,791 58,644
---------- ----------
2,192,138 2,117,391
Accumulated depreciation (1,310,133) (1,233,333)
---------- ----------
Net plant and equipment 882,005 884,058
---------- ----------
Investments 1,172,920 1,170,015
Goodwill 803,454 774,250
Deferred Income Taxes 383,278 379,738
Other Assets 363,204 328,053
---------- ----------
$5,509,189 $5,394,756
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 308,342 $ 298,278
Accounts payable 270,265 269,088
Accrued expenses 440,909 458,381
Cash dividends payable 29,977 29,952
Income taxes payable 133,908 102,181
---------- ----------
Total current liabilities 1,183,401 1,157,880
---------- ----------
Non-current Liabilities:
Long-term debt 848,651 854,328
Other 568,222 576,094
---------- ----------
Total non-current liabilities 1,416,873 1,430,422
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock 2,501 2,499
Additional paid-in-capital 289,556 287,153
Income reinvested in the business 2,711,099 2,592,416
Common stock held in treasury (1,783) (1,833)
Cumulative translation adjustment (92,458) (73,781)
---------- ----------
Total stockholders' equity 2,908,915 2,806,454
---------- ----------
$5,509,189 $5,394,756
========== ==========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands) Three Months Ended
March 31
------------------
1998 1997
-------- --------
Cash Provided by (Used for) Operating Activities:
Net income $148,658 $123,255
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 53,534 49,227
Change in deferred income taxes (2,854) (43,644)
Provision for uncollectible accounts 1,371 1,113
Loss on sale of plant and equipment 504 4,800
Income from investments (31,440) (22,603)
Non-cash interest on nonrecourse debt 11,772 8,444
Gain on sale of operations and affiliates (875) (6,096)
Other non-cash items, net 313 2,848
-------- --------
Cash provided by operating activities 180,983 117,344
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (24,761) (30,228)
Inventories (13,477) (16,162)
Prepaid expenses and other assets (13,343) (19,096)
Increase (decrease) in--
Accounts payable 5,502 (7,651)
Accrued expenses (13,915) (5,405)
Income taxes payable 34,093 45,462
Other, net 4,664 2 449
-------- -------
Net cash provided by operating activities 159,746 86,713
-------- -------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses(excluding cash and
equivalents) and additional interest in affiliates (75,690) (26,336)
Additions to plant and equipment (51,461) (39,701)
Purchase of investments (4,162) (2,395)
Proceeds from investments 6,169 5,645
Proceeds from sale of plant and equipment 1,380 2,877
Proceeds from sale of operations and affiliates 1,488 80,495
Other, net 3,139 (1,440)
-------- -------
Net cash provided by (used for)
investing activities (119,137) 19,145
-------- -------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (29,952) (23,538)
Issuance of common stock 2,454 2,158
Net borrowings (repayments) of short-term debt 19,699 (67,567)
Proceeds from long-term debt 361 417
Repayments of long-term debt (10,571) (31,637)
Other, net 1,730 1,586
------- --------
Net cash used for financing activities (16,279) (118,581)
------- --------
Effect of Exchange Rate Changes on Cash and Equivalents (3,642) (9,197)
------- --------
Cash and Equivalents:
Increase (decrease) during the period 20,688 (21,920)
Beginning of period 185,856 137,699
-------- --------
End of period $206,544 $115,779
======== ========
Cash Paid During the Period for Interest $ 4,096 $ 9,105
======== ========
Cash Paid During the Period for Income Taxes $ 48,733 $ 41,450
======== ========
Liabilities Assumed from Acquisitions $ 6,841 $ 24,933
======== ========
<PAGE>
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at March 31, 1998 and December 31, 1997 were as follows:
-----------
(In Thousands)
March 31, Dec. 31,
1998 1997
-------- --------
Raw material $148,285 $145,851
Work-in-process 70,170 67,956
Finished goods 311,968 309,189
-------- --------
$530,423 $522,996
======== ========
(2) NEW ACCOUNTING STANDARD:
-----------------------
During 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which established standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. The only
component of other comprehensive income that the Company has is foreign
currency translation adjustments. The components of comprehensive income
are as follows:
March 31, March 31,
1998 1997
-------- --------
Net income $148,658 $123,255
Foreign currency translation
adjustments, net of tax (18,675) (50,323)
--------- --------
Total comprehensive income $129,983 $ 72,932
======== ========
<PAGE>
Item 2 - Management's Discussion and Analysis
ENGINEERED COMPONENTS SEGMENT
Businesses in this segment manufacture short lead-time components and fasteners
primarily for automotive, construction and general industrial applications. They
also manufacture specialty products such as adhesives and static-control
equipment.
(Dollars in Thousands)
Three months ended
March 31
------------------
Operating
Revenues 1998 1997
- ------------- -------- --------
North America $404,404 $364,264
International 199,521 192,543
-------- --------
Total $603,925 $556,807
======== ========
Three months ended March 31
--------------------------------
Operating 1998 1997
Income Income Margin Income Margin
- ------------- -------- ------ -------- ------
North America $ 81,489 20.2% $ 68,907 18.9%
International 23,363 11.7 22,035 11.4
-------- --------
Total $104,852 17.4 $ 90,942 16.3
======== ========
In North America, unseasonably high demand in the residential construction
markets and increased market penetration in the automotive and general
industrial markets largely contributed to the increase in North American
revenues and operating income compared with last year. Acquisitions also added
to the growth in revenues and operating income. Margins grew due to higher
revenues in the base businesses and increased leverage of selling and
administrative expense.
Internationally, revenues increased in the first quarter of 1998 due to higher
demand in the European automotive markets as a result of a stronger car build.
Acquisitions also added approximately 8% to the revenue growth. The construction
businesses experienced flat revenue growth as the French and UK construction
markets remained soft. Currency translation moderated revenue growth by 9%.
Operating income and margins increased due to revenue growth in the automotive
markets and cost reductions in the European construction operations.
<PAGE>
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT
Businesses in this segment produce longer lead-time machinery and related
consumables primarily for the food and beverage, construction, automotive and
general industrial markets. They also manufacture specialty products for
applications such as industrial spray coating and quality measurement.
(Dollars in Thousands)
Three months ended
March 31
Operating
Revenues 1998 1997
- ------------- -------- --------
North America $523,181 $490,450
International 255,447 216,988
-------- --------
Total $778,628 $707,438
======== ========
Three months ended March 31
--------------------------------
Operating 1998 1997
Income Income Margin Income Margin
- ------------- -------- ------ ------- ------
North America $ 86,137 16.5% $73,952 15.1%
International 29,630 11.6 23,077 10.6
-------- -------
Total $115,767 14.9 $97,029 13.7
======== =======
In North America, increased demand in the U.S. construction and general
industrial markets fueled the growth in North American revenues. The welding,
decorating, finishing systems, Signode strapping and stretch film operations all
benefited from the increased demand. Operating income and margins increased
compared with last year due to increased revenues from base businesses and cost
improvements.
Internationally, the European Signode and stretch films operations primarily
contributed to the revenue growth. Acquisitions in the Signode and stretch film
businesses added 22% to the revenue increase, while currency translation
decreased revenues by 12%. Margins increased due to higher revenues and cost
reductions. Margin growth was tempered by acquisitions which have overall higher
costs than the average base international businesses in this segment.
<PAGE>
LEASING AND INVESTMENTS SEGMENT
This segment makes opportunistic investments that optimally utilize the
Company's cash flow. These investments primarily include mortgage-related
investments, leveraged and direct financing leases of equipment, investments in
properties and property developments, and affordable housing investments.
(Dollars in Thousands)
Three months ended
March 31
------------------
1998 1997
------- -------
Operating
revenues $35,015 $31,837
======= =======
Operating
income $13,733 $ 8,462
======= =======
Revenues and operating income increased primarily due to the commercial mortgage
transaction entered into at year-end 1997.
OPERATING REVENUES
The reconciliation of segment operating revenues to total company operating
revenues is as follows:
1998 1997
---------- ----------
Engineered components $ 603,925 $ 556,807
Industrial systems and consumables 778,628 707,438
Leasing and investments 35,015 31,837
---------- ----------
Total segment operating revenues $1,417,568 $1,296,082
Intersegment revenues (76,577) (66,284)
---------- ----------
Total company operating revenues $1,340,991 $1,229,798
========== ==========
OPERATING EXPENSES
Cost of revenues as a percentage of revenues decreased to 65.2% in the first
three months of 1998 versus 65.6% in the first three months of 1997, due to
increased sales volume coupled with lower manufacturing costs. Selling,
administrative, and research and development expenses decreased to 16.5% of
revenues in the first three months of 1998 versus 17.5% in the first three
months of 1997, primarily due to expense reductions as a result of a
Comapny-wide objective to reduce administrative costs.
INTEREST EXPENSE
Interest expense decreased to $2.9 million in the first three months of 1998
from $6.0 million in the first three months of 1997, primarily due to decreased
short-term borrowings.
<PAGE>
OTHER INCOME
Other income decreased to $2.8 million for the first three months of 1998 from
$3.6 million in 1997. This increase is primarily due to higher gains on the sale
of operations in 1997, partially offset by losses on the sale of fixed assets in
1997.
NET INCOME
Net income of $148.7 million ($0.59 per diluted share) in the first three months
of 1998 was 20.6% higher than the 1997 first quarter net income of $123.3
million ($0.49 per diluted share).
FOREIGN CURRENCY
The strengthening of the U.S. dollar against foreign currencies in 1998
decreased operating revenues by approximately $44 million and decreased net
income per diluted share by approximately 2 cents per diluted share.
FINANCIAL POSITION
Net working capital at March 31, 1998 and December 31, 1997 is summarized as
follows:
(Dollars in Thousands)
March 31, Dec. 31, Increase/
1998 1997 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 206,544 $ 185,856 $ 20,688
Trade receivables 916,828 902,022 14,806
Inventories 530,423 522,996 7,427
Other 250,533 247,768 2,765
---------- ---------- ----------
1,904,328 1,858,642 45,686
---------- ---------- ----------
Current Liabilities:
Short-term debt 308,342 298,278 10,064
Accounts payable and
accrued expenses 711,174 727,469 (16,295)
Other 163,885 132,133 31,752
----------- ---------- --------
1,183,401 1,157,880 25,521
----------- ---------- --------
Net Working Capital $ 720,927 $ 700,762 $ 20,165
========== ========== ========
Current Ratio 1.61 1.61
========== ==========
<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.
<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: May 15, 1998 By: /s/ Jon C. Kinney
--------------------- ------------------------------------
Jon C. Kinney, Senior Vice President
and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Income and the Statement of Financial Position and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 206,544
<SECURITIES> 0
<RECEIVABLES> 937,869
<ALLOWANCES> 21,041
<INVENTORY> 530,423
<CURRENT-ASSETS> 1,904,328
<PP&E> 2,192,138
<DEPRECIATION> 1,310,133
<TOTAL-ASSETS> 5,509,189
<CURRENT-LIABILITIES> 1,183,401
<BONDS> 848,651
0
0
<COMMON> 2,501
<OTHER-SE> 3,000,655
<TOTAL-LIABILITY-AND-EQUITY> 5,509,189
<SALES> 1,340,991
<TOTAL-REVENUES> 1,340,991
<CGS> 873,957
<TOTAL-COSTS> 873,957
<OTHER-EXPENSES> 11,604
<LOSS-PROVISION> 1,371
<INTEREST-EXPENSE> 2,946
<INCOME-PRETAX> 234,158
<INCOME-TAX> 85,500
<INCOME-CONTINUING> 148,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,658
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
</TABLE>
