<PAGE> 1
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, 2000
--------------
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, $.01 par value, outstanding
at April 30, 2000: 301,536,666.
<PAGE> 2
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> 3
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME
(UNAUDITED)
(In Thousands Except for
Per Share Amounts)
Three Months Ended
March 31
-----------------------------
2000 1999
----------- -----------
Operating Revenues $ 2,404,960 $ 2,156,657
Cost of revenues 1,571,930 1,411,567
Selling, administrative,
and research and
development expenses 454,171 423,770
Amortization of goodwill
and other intangible assets 20,556 16,823
----------- -----------
Operating Income 358,303 304,497
Interest expense (16,083) (14,258)
Other income 209 7,479
----------- -----------
Income Before Income Taxes 342,429 297,718
Income taxes 123,300 109,286
----------- -----------
Net Income $ 219,129 $ 188,432
=========== ===========
Per share of common stock:
Basic net income $ .73 $ .63
=========== ===========
Diluted net income $ .72 $ .62
=========== ===========
Cash dividends:
Paid $ .180 $ .146
=========== ===========
Declared $ .180 $ .146
=========== ===========
Shares of common stock
outstanding during the period:
Average 300,746 300,021
Average assuming dilution 304,019 304,568
3
<PAGE> 4
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS March 31, 2000 December 31, 1999
- ------ -------------- -----------------
Current Assets:
Cash and equivalents $ 247,902 $ 232,953
Trade receivables 1,625,275 1,630,937
Inventories 1,118,504 1,084,212
Deferred income taxes 193,960 188,729
Prepaid expenses and other
current assets 155,067 136,100
----------- -----------
Total current assets 3,340,708 3,272,931
----------- -----------
Plant and Equipment:
Land 115,172 114,048
Buildings and improvements 942,643 926,306
Machinery and equipment 2,697,560 2,633,212
Equipment leased to others 117,547 118,164
Construction in progress 151,630 120,568
----------- -----------
4,024,552 3,912,298
Accumulated depreciation (2,378,857) (2,278,367)
----------- -----------
Net plant and equipment 1,645,695 1,633,931
----------- -----------
Investments 1,178,791 1,188,120
Goodwill and Other Intangibles 2,142,659 2,029,959
Deferred Income Taxes 432,797 433,792
Other Assets 400,964 501,526
----------- -----------
$ 9,141,614 $ 9,060,259
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 549,513 $ 553,655
Accounts payable 450,106 470,200
Accrued expenses 783,436 906,215
Cash dividends payable 54,204 54,102
Income taxes payable 122,942 61,189
----------- -----------
Total current liabilities 1,960,201 2,045,361
----------- ----------
Non-current Liabilities:
Long-term debt 1,350,069 1,360,746
Other 871,295 838,729
----------- -----------
Total non-current liabilities 2,221,364 2,199,475
----------- -----------
Stockholders' Equity:
Preferred stock -- --
Common stock 3,014 3,008
Additional paid-in-capital 530,097 517,210
Income reinvested in
the business 4,650,440 4,485,515
Common stock held in treasury (1,783) (1,783)
Cumulative translation adjustment (221,719) (188,527)
----------- -----------
Total stockholders' equity 4,960,049 4,815,423
----------- -----------
$ 9,141,614 $ 9,060,259
=========== ===========
4
<PAGE> 5
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Three Months Ended
March 31
--------------------------
2000 1999
--------- ---------
Cash Provided by (Used for) Operating Activities:
Net income $ 219,129 $ 188,432
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 89,187 83,395
Change in deferred income taxes (908) 7,125
Provision for uncollectible accounts 5,023 1,902
(Gain) Loss on sale of plant and equipment 348 (727)
Income from investments (35,753) (39,536)
Non-cash interest on nonrecourse debt 11,105 11,365
Gain on sale of operations and affiliates (1,843) (2,828)
Other non-cash items, net (937) (1,349)
--------- ---------
Cash provided by operating activities 285,351 247,779
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables 5,987 (6,664)
Inventories (19,110) (10,676)
Prepaid expenses and other assets (3,647) (20,408)
Increase (decrease) in--
Accounts payable (27,746) (6,163)
Accrued expenses (83,306) (39,379)
Income taxes payable 58,367 65,826
Other, net -- (3,648)
--------- ---------
Net cash provided by operating activities 215,896 226,667
--------- ---------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses(excluding cash and
equivalents) and additional interest
in affiliates (83,059) (139,172)
Additions to plant and equipment (71,894) (71,707)
Purchase of investments (3,930) (5,551)
Proceeds from investments 18,386 15,156
Proceeds from sale of plant and equipment 4,608 3,699
Proceeds from sale of operations and affiliates 4,220 9,589
Sales (purchases) of short-term investments (3,013) 6,704
Other, net 1,152 491
--------- ---------
Net cash used for investing activities (133,530) (180,791)
--------- ---------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (54,102) (43,707)
Issuance of common stock 6,612 4,432
Net borrowings (repayments) of short-term debt 122,352 (333,502)
Proceeds from long-term debt 531 499,924
Repayments of long-term debt (134,353) (3,780)
Repurchase of treasury stock -- (27,226)
Other, net 1,548 4,269
--------- ---------
Net cash provided by(used for)
financing activities (57,412) 100,410
--------- ---------
Effect of Exchange Rate Changes on
Cash & Equivalents (10,005) (4,525)
--------- ---------
Cash and Equivalents:
Increase during the period 14,949 141,761
Beginning of period 232,953 109,526
--------- ---------
End of period $ 247,902 $ 251,287
========= =========
Cash Paid During the Period for Interest $ 28,596 $ 16,231
========= =========
Cash Paid During the Period for Income Taxes $ 53,528 $ 43,461
========= =========
Liabilities Assumed from Acquisitions $ 57,459 $ 108,074
========= =========
5
<PAGE> 6
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at March 31, 2000 and December 31, 1999 were as follows:
-----------
(In Thousands)
March 31, Dec. 31,
2000 1999
--------- ----------
Raw material $ 325,304 $ 370,300
Work-in-process 139,770 126,783
Finished goods 653,430 587,129
---------- ----------
$1,118,504 $1,084,212
========== ==========
(2) COMPREHENSIVE INCOME
--------------------
The only component of other comprehensive income that the Company has is
foreign currency translation adjustments.
(In Thousands)
March 31, March 31,
2000 1999
---------- ----------
Net income $ 219,129 $ 188,432
Foreign currency translation
adjustments, net of tax (33,192) (45,095)
---------- ----------
Total comprehensive income $ 185,937 $ 143,337
========== ==========
6
<PAGE> 7
Item 2 - Management's Discussion and Analysis
- ---------------------------------------------
ENGINEERED PRODUCTS - NORTH AMERICA
- -----------------------------------
Businesses in this segment are located in North America and manufacture short
lead-time components and fasteners, and specialty products such as adhesives,
resealable packaging and electronic component packaging.
(Dollars in Thousands)
Three months ended
March 31
--------------------------
2000 1999
---------- ----------
Operating revenues $ 805,727 $ 692,886
Operating income 147,790 125,154
Margin % 18.3% 18.1%
Operating revenues increased 16% in the first three months of 2000 versus 1999
principally due to base business revenue growth of 11%, mainly in the
automotive, industrial plastics and construction businesses, including the
Wilsonart decorative laminate operation. Acquisitions also contributed 6% to the
revenue growth. Operating income increased 18% primarily due to the revenue
increases. Margins improved modestly as operating efficiencies at the base
businesses were partially offset by the lower margins of acquired businesses.
ENGINEERED PRODUCTS - INTERNATIONAL
- -----------------------------------
Businesses in this segment are located outside North America and manufacture
short lead-time components and fasteners, and specialty products such as
electronic component packaging and adhesives.
(Dollars in Thousands)
Three months ended
March 31
--------------------------
2000 1999
---------- ----------
Operating revenues $ 343,088 $ 282,414
Operating income 32,073 22,952
Margin % 9.3% 8.1%
For the first quarter of 2000, the revenue increase of 21% versus the prior year
was mainly due to acquisitions, which contributed 22% to the increase. Base
business revenue growth was 9%, primarily related to the automotive, industrial
plastics and construction businesses. Operating
7
<PAGE> 8
income increased 40%, largely due to the revenue growth and cost reductions in
the base businesses. Margins improved 120 basis points as a result of cost
improvements in the base businesses, partially offset by the lower margins of
acquired businesses. Foreign currency fluctuations, primarily related to the
Euro, negatively impacted revenues by 9% and operating income by 12%.
SPECIALTY SYSTEMS - NORTH AMERICA
- ---------------------------------
Businesses in this segment are located in North America and produce longer
lead-time machinery and related consumables, and specialty equipment for
applications such as food service and industrial spray coating.
(Dollars in Thousands)
Three months ended
March 31
--------------------------
2000 1999
---------- ----------
Operating revenues $ 829,062 $ 743,369
Operating income 131,505 113,938
Margin % 15.9% 15.3%
Revenues increased 12% in the first quarter of 2000 due to base business revenue
growth of 9%, mainly related to the welding, food equipment, industrial
packaging and decorating businesses. Acquisitions also contributed 3% to the
revenue growth. Operating income increased 15% and margins improved 60 basis
points primarily due to the base business revenue growth and improved
productivity in the welding, food equipment and finishing businesses.
SPECIALTY SYSTEMS - INTERNATIONAL
- ---------------------------------
Businesses in this segment are located outside North America and manufacture
longer lead-time machinery and related consumables, and specialty equipment for
food service and industrial spray coating.
(Dollars in Thousands)
Three months ended
March 31
--------------------------
2000 1999
---------- ----------
Operating revenues $ 376,692 $ 365,322
Operating income 27,755 14,678
Margin % 7.4% 4.0%
8
<PAGE> 9
In the first quarter of 2000, operating revenues increased 3%, mainly due to
acquisitions, which contributed 7%, and the base businesses, which grew 3%.
These increases were partially offset by the effect of foreign currency
fluctuations, which reduced revenues 5%. Operating income increased 89% and
margins improved 340 basis points due to the revenue increase and improved
productivity in such base businesses, primarily related to the food equipment,
industrial packaging and finishing. Also, operating income and margins were
higher in 2000 due to a nonrecurring receivables adjustment in the first quarter
of 1999. Operating income was reduced 18% due to foreign currency fluctuations,
primarily related to the Euro.
CONSUMER PRODUCTS
- -----------------
Businesses in this segment are located primarily in North America and
manufacture household products which are used by consumers, including small
electric appliances, physical fitness equipment and ceramic tile.
(Dollars in Thousands)
Three months ended
March 31
--------------------------
2000 1999
---------- ----------
Operating revenues $ 119,657 $ 120,923
Operating income 1,816 5,920
Margin % 1.5% 4.9%
Operating revenues decreased in the first quarter of 2000 due to lower small
appliance sales, partially offset by higher sales of fitness equipment.
Operating income and margins declined due to lower sales volume in the small
appliance businesses and higher costs in the ceramic tile operation.
LEASING AND INVESTMENTS
- -----------------------
This segment makes opportunistic investments in mortgage-related assets,
leveraged and direct financing leases of equipment, properties and property
developments, and affordable housing.
(Dollars in Thousands)
Three months ended
March 31
--------------------------
2000 1999
Operating revenues $ 34,668 $ 39,859
Operating income 17,364 21,855
In the first quarter of 2000, operating revenues and income decreased from the
prior year primarily due to higher gains on the sales of assets in 1999.
9
<PAGE> 10
OPERATING REVENUES
- ------------------
The reconciliation of segment operating revenues to total operating revenues is
as follows:
2000 1999
---------- ----------
Engineered Products - North America $ 805,727 $ 692,886
Engineered Products - International 343,088 282,414
Specialty Systems - North America 829,062 743,369
Specialty Systems - International 376,692 365,322
Consumer Products 119,657 120,923
Leasing and Investments 34,668 39,859
---------- ----------
Total segment operating revenues 2,508,894 2,244,773
Intersegment revenues (103,934) (88,116)
---------- ----------
Total operating revenues $2,404,960 $2,156,657
========== ==========
OPERATING EXPENSES
- ------------------
Cost of revenues as a percentage of revenues were flat in the first three months
of 2000 versus the first three months of 1999. Selling, administrative, and
research and development expenses decreased to 18.9% of revenues in the first
three months of 2000 versus 19.6% in the first three months of 1999, primarily
due to nonrecurring charges in 1999.
INTEREST EXPENSE
- ----------------
Interest expense increased to $16.1 million in the first three months of 2000
from $14.3 million in the first three months of 1999, primarily due to a full
quarter of interest expense on the $500 million of 5.75% notes issued in
February 1999.
OTHER INCOME
- ------------
Other income decreased to $.2 million for the first three months of 2000 from
$7.5 million in 1999. This decrease is primarily due to higher minority interest
expense on less-than-100%-owned subsidiaries and lower interest income in 2000.
NET INCOME
- ----------
Net income of $219.1 million ($0.72 per diluted share) in the first three months
of 2000 was 16.3% higher than the 1999 first quarter net income of $188.4
million ($0.62 per diluted share).
10
<PAGE> 11
FINANCIAL POSITION
- ------------------
Net working capital at March 31, 2000 and December 31, 1999 is summarized as
follows:
(Dollars in Thousands)
March 31, Dec. 31, Increase/
2000 1999 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 247,902 $ 232,953 $ 14,949
Trade receivables 1,625,275 1,630,937 (5,662)
Inventories 1,118,504 1,084,212 34,292
Other 349,027 324,829 24,198
---------- ---------- ----------
3,340,708 3,272,931 67,777
---------- ---------- ----------
Current Liabilities:
Short-term debt 549,513 553,655 (4,142)
Accounts payable 450,106 470,200 (20,094)
Accrued expenses 783,436 906,215 (122,779)
Other 177,146 115,291 61,855
---------- ---------- ----------
1,960,201 2,045,361 (85,160)
---------- ---------- ----------
Net Working Capital $1,380,507 $1,227,570 $ 152,937
========== ========== ==========
Current Ratio 1.70 1.60
========== ==========
Accrued liabilities decreased primarily as a result of a decrease in accrued
rebates, payroll and bonuses. The increase in other liabilities reflects an
increase in income taxes payable as a result of the timing of tax payments.
FORWARD-LOOKING STATEMENTS
- --------------------------
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to certain risks, uncertainties, and other factors which could cause actual
results to differ materially from those anticipated, including, without
limitation, the risks described herein. Important factors that may influence
future results include (1) a downturn in the construction, food service,
automotive, general industrial or real estate markets, (2) deterioration in
global and domestic business and economic conditions, particularly in North
America, Europe, and Australia, (3) an interruption in, or reduction in,
introducing new products into the Company's product line, and (4) an unfavorable
environment for making acquisitions, domestic and foreign, including adverse
accounting or regulatory requirements and market values of candidates.
11
<PAGE> 12
Part II - Other Information
- ---------------------------
Item 5 - Other Information
- --------------------------
At the Company's May 12, 2000 Meeting of the Board of Directors, Arthur
Andersen LLP was approved as the Company's sole independent accountants for the
2000 fiscal year. Accordingly, the Company has dismissed Ernst & Young LLP as
independent accountants for Premark International, Inc. ("Premark"). Premark
merged with the Company on November 23, 1999. The report of Ernst & Young LLP
for the years ended December 25, 1999 and December 26, 1998 contains no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
December 25, 1999 and December 26, 1998, there were no disagreements with Ernst
& Young LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference thereto in their report on the financial statements for such
years.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
99 Letter dated May 12, 2000 from Ernst & Young LLP to
the Securities & Exchange Commission.
(b) Reports on Form 8-K
Form 8-K/A, Current Report (Amendment Number 1) filed February 10, 2000 which
included Item 7 and a press release dated February 1, 2000 setting forth the
financial results of Illinois Tools Works Inc..
12
<PAGE> 13
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 12, 2000 By: /s/ Jon C. Kinney
------------------ --------------------------------
Jon C. Kinney, Senior Vice President
and Chief Financial Officer
(Principal Accounting Officer)
13
<PAGE> 1
EX. 99
May 12, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read Item 5 of Form 10-Q dated May 12, 2000 of Illinois Tool Works Inc.
and are in agreement with the statements contained therein. We have no basis to
agree or disagree with other statements of the registrant contained therein.
ERNST & YOUNG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 247,902
<SECURITIES> 0
<RECEIVABLES> 1,689,065
<ALLOWANCES> 63,790
<INVENTORY> 1,118,504
<CURRENT-ASSETS> 3,340,708
<PP&E> 4,024,552
<DEPRECIATION> 2,378,857
<TOTAL-ASSETS> 9,141,614
<CURRENT-LIABILITIES> 1,960,201
<BONDS> 1,350,069
0
0
<COMMON> 3,014
<OTHER-SE> 5,180,537
<TOTAL-LIABILITY-AND-EQUITY> 9,141,614
<SALES> 2,404,960
<TOTAL-REVENUES> 2,404,960
<CGS> 1,571,930
<TOTAL-COSTS> 1,571,930
<OTHER-EXPENSES> 20,556
<LOSS-PROVISION> 7,292
<INTEREST-EXPENSE> 16,083
<INCOME-PRETAX> 342,429
<INCOME-TAX> 123,300
<INCOME-CONTINUING> 219,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,129
<EPS-BASIC> 0.73
<EPS-DILUTED> 0.72
</TABLE>
