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, 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 April 30, 1997: 124,605,544.
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.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME
(UNAUDITED)
(In Thousands Except for
Per Share Amounts)
Three Months Ended
March 31
----------------------
1997 1996
----------------------
Operating Revenues $1,229,798 $1,136,922
Cost of revenues 807,317 755,539
Selling, administrative,
and research and develop-
ment expenses 215,689 211,071
Amortization of goodwill
and other intangible
assets 8,532 7,132
Amortization of retiree
health care 1,827 1,742
---------- ----------
Operating Income 196,433 161,438
Interest expense (5,961) (6,801)
Other income 3,583 2,118
---------- ----------
Income Before Income Taxes 194,055 156,755
Income taxes 70,800 58,000
---------- ----------
Net Income $ 123,255 $ 98,755
========== ==========
Per share of common stock:
Net Income $ .99 $ .81
===== =====
Cash dividends:
Paid $ .19 $ .17
===== =====
Declared $ .19 $ .17
===== =====
Average number of shares of
common stock outstanding
during the period 124,513 122,370
======= =======
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
(In Thousands)
ASSETS March 31, 1997 December 31, 1996
-------------- -----------------
Current Assets:
Cash and equivalents $ 115,779 $ 137,699
Trade receivables 837,815 840,092
Inventories 515,327 526,016
Deferred income taxes 136,776 131,404
Prepaid expenses and other
current assets 67,433 65,881
---------- ----------
Total current assets 1,673,130 1,701,092
---------- ----------
Plant and Equipment:
Land 67,230 68,362
Buildings and improvements 436,200 429,686
Machinery and equipment 1,269,694 1,282,274
Equipment leased to others 105,827 109,030
Construction in progress 57,546 51,744
---------- ----------
1,936,497 1,941,096
Accumulated depreciation (1,136,793) (1,132,756)
---------- ----------
Net plant and equipment 799,704 808,340
---------- ----------
Investments 888,127 872,692
Goodwill 637,723 664,054
Deferred Income Taxes 327,247 292,152
Other Assets 445,355 467,832
---------- ----------
$4,771,286 $4,806,162
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 309,094 $ 390,425
Accounts payable 229,164 248,062
Accrued expenses 504,020 512,927
Cash dividends payable 23,666 23,538
Income taxes payable 90,384 44,373
---------- ----------
Total current liabilities 1,156,328 1,219,325
---------- ----------
Non-current Liabilities:
Long-term debt 788,688 818,947
Other 366,760 371,865
---------- ----------
Total non-current liabilities 1,155,448 1,190,812
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock 276,302 273,864
Income reinvested in the business 2,216,506 2,105,144
Common stock held in treasury (1,833) (1,841)
Cumulative translation adjustment (31,465) 18,858
---------- ----------
Total stockholders' equity 2,459,510 2,396,025
---------- ----------
$4,771,286 $4,806,162
========== ==========
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands) Three Months Ended
March 31
------------------
1997 1996
-------- --------
Cash Provided by (Used for) Operating Activities:
Net income $123,255 $ 98,755
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 49,227 43,750
Change in deferred income taxes (43,644) (510)
Provision for uncollectible accounts 1,113 1,722
(Gain)loss on sale of plant and equipment 4,800 (1,202)
Income from investments (22,603) (9,143)
Gain on sale of operations and affiliates (6,096) (3,753)
Other non-cash items, net 2,848 205
-------- --------
Cash provided by operating activities 108,900 129,824
Changes in assets and liabilities:
(Increase) decrease in--
Trade receivables (30,228) (8,926)
Inventories (16,162) (1,004)
Prepaid expenses and other assets (19,096) (26,936)
Increase (decrease) in--
Accounts payable (7,651) (3,629)
Accrued expenses 3,039 8,074
Income taxes payable 45,462 31,339
Other, net 2,449 545
-------- --------
Net cash provided by operating activities 86,713 129,287
-------- --------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and
equivalents) and additional interest in affiliates (26,336) (22,216)
Additions to plant and equipment (39,701) (39,969)
Purchase of investments (2,395) (294)
Proceeds from investments 5,645 30,496
Proceeds from sale of plant and equipment 2,877 16,235
Proceeds from sale of operations and affiliates 80,495 7,718
Other, net (1,440) 1,797
-------- --------
Net cash provided by (used for)
investing activities 19,145 (6,233)
-------- --------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (23,538) (19,641)
Issuance of common stock 2,158 2,056
Repayments of short-term debt (67,567) (56,355)
Proceeds from long-term debt 417 8,853
Repayments of long-term debt (31,637) (57,780)
Other, net 1,586 --
-------- --------
Net cash used for financing activities (118,581) (122,867)
-------- --------
Effect of Exchange Rate Changes on Cash and Equivalents (9,197) 1,875
-------- --------
Cash and Equivalents:
Increase (decrease) during the period (21,920) 2,062
Beginning of period 137,699 116,600
-------- --------
End of period $115,779 $118,662
======== ========
Cash Paid During the Period for Interest $ 9,105 $ 7,855
======== ========
Cash Paid During the Period for Income Taxes $ 41,450 $ 16,329
======== ========
Liabilities Assumed from Acquisitions $ 24,933 $118,896
======== ========
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) INVENTORIES at March 31, 1997 and December 31, 1996 were as follows:
(In Thousands)
March 31, Dec. 31,
1997 1996
-------- --------
Raw material $140,275 $143,979
Work-in-process 70,229 71,641
Finished goods 304,823 310,396
-------- --------
$515,327 $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 income statement.
The Company does not expect that basic and diluted net income per share
upon adoption of the new standard to be materially different from net
income per share as currently reported.
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
March 31
------------------
Operating
Revenues 1997 1996
-------- --------
Domestic $471,762 $412,542
International 210,761 212,424
-------- --------
Total $682,523 $624,966
======== ========
Three months ended March 31
--------------------------------
Operating 1997 1996
Income Income Margin Income Margin
-------- ------ ------- ------
Domestic $ 83,863 17.8% $61,197 14.8 %
International 25,082 11.9 23,552 11.1
-------- -------
Total $108,945 16.0 $84,749 13.6
======== =======
Domestic revenues and operating income increased compared with last year
primarily due to acquisitions in the automotive businesses and market
penetration gains with fasteners and components in the U.S. automotive markets.
Increased demand for construction products as a result of strong residential and
commercial construction markets also contributed to the revenue growth. Product
line simplification in the welding operations resulted in a decrease in revenues
versus last year which moderated the total domestic revenue growth. Margins
increased as a result of improved operating efficiencies in the automotive and
industrial components businesses, new products in the construction operations
and cost reductions in the welding group.
Internationally, revenue gains in the European automotive markets were
offset by the effect of foreign currency fluctuations and declines in the
construction markets, which remained soft. Operating income and margins
increased as a result of a reduced cost structure in the construction
operations.
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT
Businesses in this segment manufacture longer lead-time systems and related
consumables for consumer and industrial packaging; marking, labeling and
identification systems; industrial spray coating equipment and systems; and
quality assurance equipment and systems. The largest markets served by this
segment are general industrial, food and beverage, and industrial capital goods.
(Dollars in Thousands)
Three months ended
March 31
------------------
Operating
Revenues 1997 1996
-------- --------
Domestic $300,901 $300,399
International 214,537 197,652
-------- --------
Total $515,438 $498,051
======== ========
Three months ended March 31
-------------------------------
Operating 1997 1996
Income Income Margin Income Margin
------- ------ ------- ------
Domestic $55,863 18.6% $54,985 18.3 %
International 23,155 10.8 15,352 7.8
------- -------
Total $79,018 15.3 $70,337 14.1
======= =======
Domestic revenue growth in the finishing systems, consumer packaging and
Signode businesses was offset by lower demand in the general industrial markets
for quality measurement equipment and a divestiture in the specialty packaging
operations. Operating income and margins increased largely because of new
products for the consumer packaging and finishing systems operations along with
improved manufacturing processes at Signode.
International revenues increased primarily as a result of acquisitions in
the Signode packaging operations, partially offset by lower revenues as a result
of foreign currency fluctuations and reduced revenues related to divestitures in
the European specialty packaging businesses. Operating income increased due to
successful cost reductions at the Signode and specialty packaging operations and
due to acquisitions. The sale of under-performing specialty packaging operations
along with aggressive cost reductions at the Signode and finishing systems units
led to the increase in margins.
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
March 31
------------------
1997 1996
-------- -------
Operating
revenues $31,837 $13,905
======= =======
Operating
income $ 8,470 $ 6,352
======= =======
Revenues and operating income increased primarily due to the commercial
mortgage transaction entered into at year-end 1996.
OPERATING EXPENSES
Cost of revenues as a percentage of revenues decreased to 65.6% in the
first three months of 1997 versus 66.5% in the first three months of 1996, due
to increased sales volume coupled with lower manufacturing costs. Selling,
administrative, and research and development expenses decreased to 17.5% of
revenues in the first three months of 1997 versus 18.6% in the first three
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 $6.0 million in the first three months of
1997 from $6.8 million in the first three months of 1996, primarily due to
decreased commercial paper borrowings.
OTHER INCOME
Other income increased to $3.6 million for the first three months of 1997
from $2.1 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 $123.3 million ($0.99 per share) in the first three months of
1997 was 24.8% higher than the 1996 first quarter net income of $98.8 million
($0.81 per share).
FOREIGN CURRENCY
The strengthening of the U.S. dollar against foreign currencies in 1997
decreased operating revenues by approximately $15 million. Foreign currency
fluctuations had no material impact on earnings in the first quarter of 1997
versus 1996.
FINANCIAL POSITION
Net working capital at March 31, 1997 and December 31, 1996 is summarized
as follows:
(Dollars in Thousands)
March 31, Dec. 31, Increase/
1997 1996 (Decrease)
---------- ---------- ----------
Current Assets:
Cash and equivalents $ 115,779 $ 137,699 $(21,920)
Trade receivables 837,815 840,092 (2,277)
Inventories 515,327 526,016 (10,689)
Other 204,209 197,285 6,924
---------- ---------- --------
1,673,130 1,701,092 (27,962)
---------- ---------- --------
Current Liabilities:
Short-term debt 309,094 390,425 (81,331)
Accounts payable and
accrued expenses 733,184 760,989 (27,805)
Other 114,050 67,911 46,139
---------- ---------- --------
1,156,328 1,219,325 (62,997)
---------- ---------- --------
Net Working Capital $ 516,802 $ 481,767 $ 35,035
========== ========== ========
Current Ratio 1.45 1.40
========== ==========
The decrease in short-term debt was due to a reduction in commercial paper
borrowings during the first quarter of 1997 as a result of proceeds from
divestitures.
Part II - Other Information
Item 2 - Changes in Securities
(a) On May 9, 1997, the shareholders of Illinois Tool Works Inc. approved
an increase in the number of authorized shares of Common Stock to
350,000,000 from 150,000,000 and an increase in the par value of Common
Stock to $.01 per share from no par value. See Exhibit 99 for a revised
description of the capital stock of Illinois Tool Works Inc.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No. Description
----------- --------------------------------------------------
3(a) Restated Certificate of Incorporation of
Illinois Tool Works Inc., as amended
3(b) By-laws of Illinois Tool Works Inc., as amended
27 Financial Data Schedule
99 Description of the capital stock of
Illinois Tool Works Inc.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
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, 1997 By: /s/ Michael W. Gregg
--------------------- -----------------------------------------------
Michael W. Gregg, Senior Vice President
and Controller, Accounting
(Principal Accounting Officer)