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, 1995
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) (708) 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, 1995: 117,555,428.
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.
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
30 -------------------- ----------------------
1995 1994 1995 1994
---------- -------- ---------- ----------
Operating Revenues $1,045,134 $870,911 $3,064,932 $2,523,392
Operating costs 689,018 579,917 2,011,459 1,684,091
Selling, administrative,
and research and develop-
ment expenses 184,233 159,128 554,999 474,020
Amortization of goodwill
and other intangible
assets 6,086 5,529 18,242 16,515
--------- ------- ---------- ----------
Operating Income 165,797 126,337 480,232 348,766
Interest expense (8,448) (6,453) (22,545) (21,103)
Amortization of retiree
health care (1,742) (1,742) (5,226) (5,226)
Other income (expense) 5,659 (2,043) 1,184 (8,596)
---------- -------- ---------- ----------
Income Before Income Taxes 161,266 116,099 453,645 313,841
Income taxes 61,250 44,700 172,350 120,800
---------- -------- ---------- ----------
Net Income $ 100,016 $ 71,399 $ 281,295 $ 193,041
========== ======== ========== ==========
Per share of common stock:
Net Income $ .85 $ .63 $2.40 $1.70
===== ===== ===== =====
Cash dividends:
Paid $ .15 $ .13 $ .45 $ .39
===== ===== ===== =====
Declared $ .17 $ .15 $ .47 $ .41
===== ===== ===== =====
Average number of shares of
common stock outstanding
during the period 117,508 113,291 117,396 113,247
======= ======= ======= =======
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS September 30, 1995 December 31, 1994
------------------ -----------------
Current Assets:
Cash and equivalents $ 102,220 $ 76,867
Trade receivables 729,634 612,638
Inventories 511,769 439,486
Deferred income taxes 82,633 72,728
Prepaid expenses and other
current assets 68,925 61,214
---------- ----------
Total current assets 1,495,181 1,262,933
---------- ----------
Plant and Equipment:
Land 68,510 66,577
Buildings 347,688 317,714
Machinery and equipment 1,011,428 915,198
Equipment leased to others 71,773 69,162
Construction in progress 48,933 32,143
---------- ----------
1,548,332 1,400,794
Accumulated depreciation (868,939) (759,559)
---------- ----------
Net plant and equipment 679,393 641,235
---------- ----------
Investment in Leases 90,113 55,413
Goodwill 475,293 394,233
Deferred Income Taxes 91,173 --
Other Assets 275,087 226,684
---------- ----------
$3,106,240 $2,580,498
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 147,443 $ 67,002
Accounts payable 199,622 174,748
Accrued expenses 406,597 317,031
Cash dividends payable 19,977 17,094
Income taxes payable 20,684 52,558
---------- ----------
Total current liabilities 794,323 628,433
---------- ----------
Non-current Liabilities:
Long-term debt 281,775 272,987
Deferred income taxes -- 69,516
Other 204,598 68,041
---------- ----------
Total non-current liabilities 486,373 410,544
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock 229,797 201,166
Income reinvested in the business 1,583,603 1,344,172
Common stock held in treasury (1,866) (1,952)
Equity adjustment from foreign
currency translation 14,010 (1,865)
---------- ----------
Total stockholders' equity 1,825,544 1,541,521
---------- ----------
$3,106,240 $2,580,498
========== ==========
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands) Nine Months Ended
September 30
------------------
1995 1994
-------- --------
Cash Provided by (Used for) Operating Activities:
Net income $281,295 $193,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 112,736 103,143
Change in deferred income taxes (12,122) (2,301)
Gain on sale of plant and equipment,
and equipment under a leveraged lease (3,840) (1,657)
(Income) loss from investment properties (9,665) 557
Gain on sale of operations and affiliates (496) (4,372)
Other non-cash items, net 16,998 9,415
-------- --------
Cash provided by operating activities 384,906 297,826
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (40,167) (71,943)
Inventories (30,096) (3,507)
Prepaid expenses and other assets 7,200 8,560
Increase (decrease) in--
Accounts payable (24,973) 5,262
Accrued expenses 21,982 56,055
Income taxes payable (33,608) (4,125)
Other, net 6,875 4,263
-------- --------
Net cash provided by operating activities 292,119 292,391
-------- --------
Cash Provided by (Used for) Investing Activities:
Acquisition of subsidiaries (excluding cash and
equivalents) and additional interest in affiliates (146,598) (24,059)
Additions to plant and equipment (106,760) (92,118)
Additions to investment in leases (40,307) --
Proceeds from sale of plant and equipment,
investment properties, and equipment under a
leveraged lease 27,028 16,403
Proceeds from sale of operations and affiliates 2,254 15,721
Other, net (1,374) 646
-------- --------
Net cash used for investing activities (265,757) (83,407)
-------- --------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (51,799) (44,166)
Issuance of common stock 6,453 2,603
Proceeds (repayments) of short-term debt 47,936 (144,687)
Proceeds from long-term debt 105 1,800
Repayments of long-term debt (1,361) (4,163)
Other, net (5,846) --
-------- --------
Net cash used for financing activities (4,512) (188,613)
-------- --------
Effect of Exchange Rate Changes on Cash and Equivalents 3,503 2,228
-------- --------
Cash and Equivalents:
Increase during the period 25,353 22,599
Beginning of period 76,867 35,395
-------- --------
End of the period $102,220 $ 57,994
======== ========
Cash Paid During the Period for Interest $ 21,783 $ 20,413
======== ========
Cash Paid During the Period for Income Taxes $213,693 $126,588
======== ========
Liabilities Assumed from Acquisitions $144,546 $ 3,696
======== ========
<page
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
COMMENTS ON FINANCIAL STATEMENTS
(UNAUDITED)
(1) OTHER INCOME (EXPENSE), consists of the following:
(In Thousands)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1995 1994 1995 1994
-------- ------- ------- -------
Interest income $2,976 $ 1,385 $ 8,599 $ 3,352
Income from unconsolidated
affiliates 211 452 679 1,403
Net reserves for disposition,
relocation and reorganization
of certain facilities,
revaluation of non-operating
assets to realizable value, and
nonrecurring costs unrelated to
operations 377 (2,532) (19,337) (16,228)
Income (loss)from investment
properties 3,242 (159) 9,665 (557)
Gain (loss) on sale of operations
and affiliates (6) 131 496 4,372
Gain on sale of equipment
under a leveraged lease -- -- 3,996 --
Gain (loss) on sale of plant and
equipment (484) (213) (156) 1,657
Other, net (657) (1,107) (2,758) (2,595)
------ ------- ------- -------
$5,659 $(2,043) $ 1,184 $(8,596)
====== ======= ======= =======
(2) INVENTORIES at September 30, 1995 and December 31, 1994 were as
follows:
(In Thousands)
Sept. 30, Dec. 31,
1995 1994
-------- --------
Raw Material $138,721 $126,730
Work-in-process 91,514 66,505
Finished goods 281,534 246,251
-------- --------
$511,769 $439,486
======== ========
(3) NONCASH TRANSACTION:
During 1995, the Company exchanged a minority interest in a subsidiary
for certain investments in debt securities. This transaction, along with
the associated tax effects, has not been reflected in the Statement of
Cash Flows, as it had no cash impact.
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 equipment. This segment primarily serves the
construction, automotive and general industrial markets.
(Dollars in millions)
Three months ended Nine months ended
Sept 30 Sept 30
------------------ -----------------
Operating
Revenues 1995 1994 1995 1994
-------- -------- ------- -------
Domestic $332 $302 $1,025 $ 897
International 178 154 546 441
---- ---- ------ ------
Total $510 $456 $1,571 $1,338
==== ==== ====== ======
Three months ended Sept 30 Nine months ended Sept
30 ----------------------------- -----------------------
Operating 1995 1994 1995 1994
Income Income Margin Income Margin Income Margin Income Margin
------ ------ ------ ------ ------ ------ ------ ------
Domestic $56 16.9 % $50 16.6 % $172 16.8 % $143 15.9 %
International 25 14.0 21 13.6 76 13.9 52 11.8
--- --- ---- ----
Total $81 15.9 $71 15.6 $248 15.8 $195 14.6
=== === ==== ====
Domestic revenues, operating income and margins for the three-month period
increased largely due to increased volume in residential construction markets
along with continued gains in non-residential construction markets. Increased
penetration in a soft domestic automotive market also contributed to the
improved results. Although Miller slightly contributed to the increase in
revenues, it moderated operating income and margin growth due to a seasonal
slowdown in the welding markets. For the nine-month period, the improved
performance in revenues was led by strong performances in non-residential
construction and welding markets followed by modest gains in automotive
businesses. Operating income and margins increased due to the increased volume
in construction markets and continued improvement in the automotive businesses.
The improved results internationally for the three-month period were due to
continued penetration gains in the European automotive markets. Growth was
moderated during this period due to soft Australian and German construction
markets. For the nine-month period, strong performances in European automotive
markets largely contributed to the improved results followed by the European
construction businesses.
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT
Businesses in this segment manufacture longer lead-time systems and related
consumables for consumer and industrial packaging, industrial spray coating
equipment and systems, and quality assurance application equipment and systems.
The largest markets served by this segment are general industrial, food and
beverage, and industrial capital goods.
(Dollars in millions)
Three months ended Nine months ended
Sept 30 Sept 30
------------------ -----------------
Operating
Revenues 1995 1994 1995 1994
------- ------- ------- -------
Domestic $300 $256 $ 893 $ 745
International 235 159 601 440
---- ---- ------ ------
Total $535 $415 $1,494 $1,185
==== ==== ====== ======
Three months ended Sept 30 Nine months ended Sept 30
------------------------------- -------------------------------
Operating 1995 1994 1995 1994
Income Income Margin Income Margin Income Margin Income Margin
------ ------- ------ ------ ------ ------ ------ -------
Domestic $55 18.3 % $39 15.2 % $162 18.1 % $116 15.6 %
International 30 12.8 16 10.1 70 11.6 38 8.6
--- --- ---- ----
$85 15.9 $55 13.3 $232 15.5 $154 13.0
Total === === ==== ====
Continued demand for new products in industrial packaging and increased
penetration in domestic beverage markets for the consumer packaging businesses
led to the increase in domestic revenues and operating income for the three-
month and nine-month periods. For the same
time period, margins increased due to new product introductions and continuous
cost reductions in industrial packaging.
International revenues and operating income for the three-month and nine-month
periods increased due to the consumer and industrial packaging businesses.
During the three-month period, new product introductions, acquisitions and
continued cost reductions in industrial packaging businesses led in the margin
increase along with consumer packaging, which benefitted from increased volume
in the European beverage markets. Margins increased for the nine-month period
due to new products in the industrial packaging and finishing systems
businesses.
OPERATING EXPENSES
Operating costs as a percentage of revenues decreased to 65.6% in the first
nine months of 1995 versus 66.7% in the first nine months of 1994. Selling,
administrative, and research and development expenses were 18.1% of revenues in
the first nine months of 1995 versus 18.8% in the first nine months of 1994.
These ratios were lower because of cost reductions as a result of a Company-
wide objective to reduce costs.
INTEREST EXPENSE
Interest expense increased slightly to $22.5 million in the first nine months
of 1995 from $21.1 million in the first nine months of 1994, primarily due to
increased foreign debt assumed from newly acquired companies.
OTHER INCOME (EXPENSE)
Other income (expense) increased to net other income of $1.2 million for the
first nine months of 1995 from net other expense of $8.6 million in 1994.
The increase in income is primarily due to an increase in
interest income and income from investment properties, along with a gain on
sale of equipment under a leverage lease.
NET INCOME
Net income of $281.3 million ($2.40 per share) in the first nine months of 1995
was 45.7% higher than the 1994 first nine months net income of $193.0 million
($1.70 per share). Foreign currency had no material impact on earnings in the
first nine months of 1995 versus 1994.
FINANCIAL POSITION
Net working capital at September 30, 1995 and December 31, 1994 is summarized
as follows:
(Dollars in Thousands)
Sept 30, Dec. 31, Increase
1995 1994 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 102,220 $ 76,867 $ 25,353
Trade receivables 729,634 612,638 116,996
Inventories 511,769 439,486 72,283
Other 151,558 133,942 17,616
---------- ---------- --------
$1,495,181 $1,262,933 $232,248
---------- ---------- --------
Current Liabilities:
Short-term debt $ 147,443 $ 67,002 $ 80,441
Accounts payable and
accrued expenses 606,219 491,779 114,440
Other 40,661 69,652 (28,991)
---------- ---------- --------
$ 794,323 $ 628,433 $165,890
---------- ---------- --------
Net Working Capital $ 700,858 $ 634,500 $ 66,358
========== ========== ========
Current Ratio 1.88 2.01
========== ==========
The increase in trade receivables in the third quarter of 1995 was primarily
due to acquisitions and stronger revenues in the third quarter of 1995 versus
the fourth quarter of 1994. Current year acquisitions combined with overall
business growth contributed to the increase in inventories from year-end 1994
to third quarter 1995. The increase in short-term debt was mainly due to
additional commercial paper borrowings to fund 1995 acquisitions. Accounts
payable and accrued expenses increased at September 30, 1995 versus year-end
1994 as a result of overall business growth and acquisitions.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No. Description
----------- -----------
3 By-laws of Illinois Tool Works Inc., as amended.
10 Amendment to the Illinois Tool Works Inc.
Stock Incentive Plan, dated May 5, 1995.
27 Financial Data Schedule.
(b) Reports on Form 8-K
A report on Form 8-K dated July 18, 1995 was filed during the period.
The Form describes various acquisitions by Illinois Tool Works Inc.,
(ITW) and presents unaudited pro forma information for ITW and the
combined pooled companies.
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: November 6, 1995 By: /s/ Michael W. Gregg
---------------- ----------------------------------------
Michael W. Gregg, Senior Vice President
and Controller, Accounting
(Principal Accounting Officer)