EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
Illinois Tool Works Inc. is a multinational manufacturer of highly engineered
components and industrial systems with two business segments: Engineered
Components, and Industrial Systems and Consumables. These segments are
described below.
Overall, the Company believes that the majority of the increase in operating
revenues is due to higher sales volume rather than increased sales prices.
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 millions
Operating
Revenues 1995 1994 1993
- ---------------------------------------------------
Domestic $1,356 $1,204 $1,083
International 751 624 560
------ ------ ------
Total $2,107 $1,828 $1,643
====== ====== ======
Operating 1995 1994 1993
Income Income Margin Income Margin Income Margin
- ---------------------------------------------------------------------------
Domestic $226 16.7% $189 15.7% $147 13.6%
International 97 12.9 77 12.3 51 9.1
---- ---- ----
Total $323 15.3 $266 14.6 $198 12.1
===== ==== ====
Domestic
Successful penetration in the automotive markets largely contributed to the
increased domestic revenues in 1995 compared with 1994. Miller Electric's
revenue growth from welding equipment and accessories was attributable to new
product introductions and a stronger U.S. economy. The construction businesses
also contributed to revenue growth due to increased distribution efficiency,
continued penetration with new products and a steady commercial construction
market throughout the year. Operating income and margins were up due to a
reduction of manufacturing costs and revenue growth in the construction
businesses and revenue growth in the automotive businesses.
In 1994, the automotive businesses contributed to the growth in domestic
revenues compared with 1993 as a result of improved penetration with the "Big
Three" automotive companies and a stronger domestic car market. Construction
markets were stronger in 1994 versus 1993 which resulted in increased sales
volume. Operating income and margins increased primarily due to revenue gains in
both the automotive and construction businesses. Miller also contributed to the
overall improved financial performance due to strengthening welding markets and
cost reductions.
International
Strong performance in the European automotive markets in 1995 resulted in
increased international revenues and operating income versus 1994. Revenue
growth was moderated due to soft Australian and German construction markets.
Operating income and margins increased as a result of volume gains in the
European automotive businesses, partially offset by lower operating income in
the international construction businesses as a result of lower revenues.
Foreign currency fluctuations in 1995 versus 1994 increased revenues by $51
million and operating income by $8 million. Seventy-seven percent of
international revenues are from European operations.
The European automotive businesses mainly contributed to the international
revenue growth in 1994 over 1993 due to increased market penetration and an 11%
increase in European car builds for the year. Operating income and margins in
1994 were higher versus 1993 primarily due to the increase in sales volume
coupled with improved productivity in the automotive operations. Significant
cost reductions and product mix in the European construction markets also
contributed to operating income and margin growth.
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 millions
Operating
Revenues 1995 1994 1993
- ---------------------------------------------------
Domestic $1,217 $1,025 $ 936
International 828 608 580
------ ------ ------
Total $2,045 $1,633 $1,516
====== ====== ======
Operating 1995 1994 1993
Income Income Margin Income Margin Income Margin
- -----------------------------------------------------------------------------
Domestic $222 18.2% $161 15.7% $129 13.8%
International 82 9.9 48 7.9 42 7.2
---- ---- ----
Total $304 14.9 $209 12.8 $171 11.3
==== ==== ====
20
Domestic
Stronger demand in 1995 for industrial packaging products and increased market
penetration in the beverage markets for the consumer packaging businesses
resulted in an increase in domestic revenues and operating income compared with
1994. Approximately 50% of the increase in domestic revenues was attributed to
1995 acquisitions, primarily in the consumer packaging and finishing systems
groups. New products for the finishing systems operations resulted in higher
revenues but lower margins as a result of product mix. The industrial packaging
businesses' margins increased due to process improvements and new product
introductions.
Domestic revenues, operating income and margins increased in 1994 versus 1993
due to improved results in the industrial packaging and the finishing systems
businesses as a result of new product introductions and higher sales volume.
The quality measurement businesses, which serve the capital goods markets,
slightly moderated operating income growth.
International
In 1995, international industrial packaging businesses led in the revenue and
operating income growth followed by the consumer packaging operations.
Acquisitions accounted for approximately 40% of the revenue growth, mainly in
the industrial packaging businesses. The finishing systems businesses showed
continued growth as well due to market share gains in the European automotive
and general industrial markets and increased revenue in the Japanese market.
Margins increased due to new product introductions and cost reductions for the
industrial packaging businesses and European finishing systems operations.
Foreign currencies also increased revenues by $65 million and operating income
by $8 million. Seventy-eight percent of international revenues are from
European operations.
International revenue growth in 1994 versus 1993 was primarily due to higher
sales in the industrial packaging businesses. The consumer packaging group also
contributed to the revenue growth as beverage markets picked up in Europe.
While the industrial packaging businesses showed revenue growth in operating
income and margins declined due to price relief given to customers during the
soft economic period in Europe. The decline in operating income and margins for
the industrial packaging businesses was more than offset by improved
profitability in the finishing systems operations related to new products and
cost reductions.
Cost of Revenues
Cost of Revenues as a percentage of revenues was 65.4% in 1995 compared with
66.2% in 1994 and 67.2% in 1993. The decreases in 1995 and 1994 versus the
previous years were due to increased sales volume coupled with finding new, more
efficient manufacturing methods.
Selling, Administrative and R&D Expenses
Selling, administrative, and research and development expenses were 18.7% of
revenues in 1995 versus 19.3% in 1994 and 20.2% in 1993. This ratio continues to
decline because of expense reductions as a result of a Company-wide objective to
reduce administrative costs.
Interest Expense
Interest expense increased to $31.6 million in 1995, versus $26.9 million in
1994, primarily due to debt assumed from acquisitions. Interest expense
declined in 1994 from $35.0 million in 1993 mainly as a result of reduced
commercial paper and foreign borrowings.
Other Income
Other income increased to $28.8 million in 1995 versus $1.9 million in 1994 and
$1.4 million in 1993. The increased income in 1995 versus the prior years is
primarily due to an increase in investment and interest income.
Income Taxes
The effective tax rate was 37.9% in 1995, 38.3% in 1994 and 38.5% in 1993. See
the Provision for Income Taxes footnote for a reconciliation of the Federal
statutory rate to the effective tax rate. Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, was adopted in 1993 and had no
material impact on earnings.
Net Income
Net income in 1995 of $387.6 million ($3.29 per share) was 39.5% higher than the
1994 net income of $277.8 million($2.45 per share). Net income for 1994 was
34.5% higher than 1993 net income of $206.6 million ($1.83 per share).
21
Foreign Currency
The weakening of the U.S. dollar against foreign currencies in 1995 (primarily
European currencies) resulted in increased operating revenues of $116 million
and increased net income per share of approximately 10 cents per share. Foreign
currency fluctuations had no material impact on revenues or earnings in 1994
versus 1993.
As the Company and its subsidiaries do not have significant assets or
liabilities denominated in currencies other than their functional currencies, no
material transactions to hedge foreign currency exposures occurred in 1995,
1994, or 1993.
Financial Position
Net working capital at December 31, 1995 and 1994 is summarized as follows:
Dollars Increase
in thousands 1995 1994 (Decrease)
- ------------------------------------------------------------
Current Assets:
Cash and equivalents $ 116,600 $ 76,867 $ 39,733
Trade receivables 741,327 612,638 128,689
Inventories 518,964 439,486 79,478
Other 155,599 133,942 21,657
---------- ---------- --------
1,532,490 1,262,933 269,557
---------- ---------- --------
Current Liabilities:
Short-term debt 176,188 67,002 109,186
Accounts payable and
accrued expenses 613,199 491,779 121,420
Other 61,545 69,652 (8,107)
---------- ---------- --------
850,932 628,433 222,499
---------- ---------- --------
Net Working Capital $ 681,558 $ 634,500 $ 47,058
========== ========== ========
Current Ratio 1.80 2.01
==== ====
The increase in trade receivables at December 31, 1995 was primarily due to
higher operating revenues in the fourth quarter of 1995 versus 1994 and 1995
acquisitions. Inventories increased $79.5 million in 1995 mainly as a result of
acquisitions.
Short-term debt increased at December 31, 1995, primarily due to increased
short-term commercial paper borrowings of $93.7 million. Accounts payable and
accrued expenses increased at December 31, 1995 versus year-end 1994 due to
overall business growth and acquisitions.
Long-term debt at December 31, 1995 consisted of $125 million of 7.5% notes,$125
million of 5.875% notes, a $256 million nonrecourse 6.28% note,$75 million of
commercial paper borrowings and $43 million of capitalized lease obligations and
other debt. Long-term debt increased $343 million from December 31, 1994,
principally as a result of the issuance of the 6.28% note and commercial paper
borrowings during 1995. The percentage of total debt to total capitalization
increased to 29.2% at December 31, 1995 from 18.1% at December 31, 1994.
Stockholders' equity was $1.924 billion at December 31, 1995 compared with
$1.542 billion at December 31, 1994. Affecting equity were earnings of $388
million, dividends declared of $75 million, the effect of pooling of interests
acquisitions of $43 million and favorable currency translation adjustments of
$15 million, primarily related to stronger European currencies.
The Statement of Cash Flows for the years ended December 31, 1995 and 1994 is
summarized below:
Dollars in thousands 1995 1994
- ----------------------------------------------------
Net income $ 387,608 $ 277,783
Depreciation and
amortization 151,931 132,149
Acquisitions (212,426) (43,365)
Additions to plant and
equipment (150,176) (131,055)
Cash dividends paid (71,783) (61,162)
Net proceeds (repayments)
of debt 136,087 (152,167)
Purchase of investments (126,300) --
Other, net (75,208) 19,289
--------- ---------
Net increase in cash and
equivalents $ 39,733 $ 41,472
========= =========
Net cash provided by operating activities of $437 million in 1995 was primarily
used for acquistions, for additions to plant and equipment and for cash
dividends. Net cash generated by operations in 1994 of $387 million was used
mainly for repayment of commercial paper borrowings, for additions to plant and
equipment and for cash dividends. Commercial paper borrowings in 1995 were
primarily used to fund investment purchases and acquisitions.
Dividends paid per share increased 14.8% to $.62 per share in 1995 from $.54 in
1994. The Company expects to continue to meet its dividend payout objective of
25-30% of the average of the last three years' net income.
Management continues to believe that internally generated funds will be adequate
to service existing debt and maintain appropriate debt to total capitalization
and earnings to fixed charge ratios. Internally generated funds are also
expected to be adequate to finance internal growth, small-to-medium sized
acquisitions and additional investments. The Company has additional debt
capacity to fund larger acquisitions.
The Company had no material commitments for capital expenditures at December 31,
1995 or 1994.
The Company's adoption of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, will not have a material effect on the financial statements.
The Company anticipates that its leasing and investments business may become
significant enough to begin reporting as a separate segment in 1996.
22
FINANCIAL STATEMENTS
Statement of Income
Illinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31
--------------------------------------
In thousands except for per share amounts 1995 1994 1993
- ------------------------------------------------------------------------------
Operating Revenues $4,152,170 $3,461,315 $3,159,181
Cost of revenues 2,717,076 2,290,117 2,122,286
Selling, administrative, and research
and development expenses 776,583 666,576 638,560
Amortization of goodwill and other
intangible assets 25,031 22,344 21,874
Amortization of retiree health care 6,968 6,968 6,968
---------- ---------- ----------
Operating Income 626,512 475,310 369,493
Interest expense (31,581) (26,943) (35,025)
Other income 28,777 1,916 1,402
---------- ---------- ----------
Income Before Income Taxes 623,708 450,283 335,870
Income taxes 236,100 172,500 129,300
---------- ---------- ----------
Net Income $ 387,608 $ 277,783 $ 206,570
========== ========== ==========
Net Income Per Share of Common Stock $3.29 $2.45 $1.83
===== ===== =====
- ------------------------------------------------------------------------------
Statement of Income Reinvested in the Business
Illinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31
--------------------------------------
In thousands 1995 1994 1993
- ------------------------------------------------------------------------------
Balance, Beginning of Year $1,344,172 $1,129,435 $1,201,537
Net income 387,608 277,783 206,570
Cash dividends declared (74,789) (63,546) (56,443)
Effect of pooling of interests
acquisitions 16,329 500 (222,229)
---------- ---------- ----------
Balance, End of Year $1,673,320 $1,344,172 $1,129,435
========== ========== ==========
The Comments on Financial Statements are an integral part of these statements.
- ------------------------------------------------------------------------------
Report of Independent Public Accountants
To the Board of Directors of
Illinois Tool Works Inc.:
We have audited the accompanying statement of financial position of
Illinois Tool Works Inc. (a Delaware corporation) and Subsidiaries as of
December 31, 1995 and 1994, and the related statements of income, income
reinvested in the business and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Illinois Tool Works Inc. and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 29, 1996
23
Statement of Financial Position
Illinois Tool Works Inc. and Subsidiaries
December 31
-----------------------
In thousands except shares 1995 1994
- ----------------------------------------------------------------------
Assets
Current Assets:
Cash and equivalents $ 116,600 $ 76,867
Trade receivables 741,327 612,638
Inventories 518,964 439,486
Deferred income taxes 80,005 72,728
Prepaid expenses and other current assets 75,594 61,214
---------- ----------
Total current assets 1,532,490 1,262,933
---------- ----------
Plant and Equipment:
Land 60,486 66,577
Buildings and improvements 375,352 317,714
Machinery and equipment 1,076,950 915,198
Equipment leased to others 75,175 69,162
Construction in progress 32,621 32,143
---------- ----------
1,620,584 1,400,794
Accumulated depreciation (925,643) (759,559)
---------- ----------
Net plant and equipment 694,941 641,235
---------- ----------
Investments 504,820 87,066
---------- ----------
Goodwill 518,747 394,233
---------- ----------
Deferred Income Taxes 194,613 --
---------- ----------
Other Assets 221,407 195,031
---------- ----------
$3,667,018 $2,580,498
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt $ 176,188 $ 67,002
Accounts payable 221,497 174,748
Accrued expenses 391,702 317,031
Cash dividends payable 20,100 17,094
Income taxes payable 41,445 52,558
---------- ----------
Total current liabilities 850,932 628,433
---------- ----------
Non-current Liabilities:
Long-term debt 615,557 272,987
Deferred income taxes -- 69,516
Other 276,292 68,041
---------- ----------
Total non-current liabilities 891,849 410,544
---------- ----------
Stockholders' Equity:
Preferred stock -- --
Common stock:
Issued- 118,369,029 shares in 1995 and
114,100,500 shares in 1994 239,688 201,166
Income reinvested in the business 1,673,320 1,344,172
Common stock held in treasury (1,866) (1,952)
Cumulative translation adjustment 13,095 (1,865)
---------- ----------
Total stockholders' equity 1,924,237 1,541,521
---------- ----------
$3,667,018 $2,580,498
========== ==========
The Comments on Financial Statements are an integral part of this statement.
24
Statement of Cash Flows
Illinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31
------------------------------------------
In thousands 1995 1994 1993
- ------------------------------------------------------------------------------
Cash Provided by (Used for)
Operating Activities:
Net income $ 387,608 $ 277,783 $ 206,570
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 151,931 132,149 131,726
Change in deferred income
taxes (23,870) (31,686) (13,332)
Provision for uncollectible
accounts 6,889 7,191 8,233
(Gain) loss on sale of plant
and equipment 2,539 (261) 2,932
Income from investments (20,687) -- --
(Gain) loss on sale of
operations and affiliates (692) (379) 894
Other non-cash items, net 11,735 10,117 3,860
--------- --------- ---------
Cash provided by operating
activities 515,453 394,914 340,883
Change in assets and liabilities:
(Increase) decrease in-
Trade receivables (27,869) (81,180) (35,029)
Inventories (22,830) (8,053) 23,191
Prepaid expenses and
other assets (11,636) 9,515 (8,109)
Increase (decrease) in-
Accounts payable (20,020) 11,718 (3,569)
Accrued expenses 2,061 45,839 (2,954)
Income taxes payable (11,764) 10,424 (4,079)
Other, net 14,077 4,280 3,741
--------- --------- ---------
Net cash provided by
operating activities 437,472 387,457 314,075
--------- --------- ---------
Cash Provided by (Used for)
Investing Activities:
Acquisition of businesses
(excluding cash and
equivalents)
and additional interest in
affiliates (212,426) (43,365) (303,802)
Additions to plant and
equipment (150,176) (131,055) (119,931)
Purchase of investments (126,300) -- --
Proceeds from investments 34,006 -- --
Proceeds from sale of plant
and equipment 13,500 17,344 14,174
Proceeds from sale of
operations and affiliates 4,650 15,721 1,705
Other, net 11,996 (818) 14,271
--------- --------- ---------
Net cash used for
investing
activities (424,750) (142,173) (393,583)
--------- --------- ---------
Cash Provided by (Used for)
Financing Activities:
Cash dividends paid (71,783) (61,162) (55,175)
Issuance of common stock 7,598 3,216 8,316
Net proceeds (repayments) of
short-term debt 137,134 (149,103) 20,906
Proceeds from long-term debt 1,152 1,885 128,119
Repayments of long-term debt (2,199) (4,949) (15,939)
Redemption of preferred stock
of subsidiary (40,000) -- --
Other, net (7,919) -- --
--------- --------- ---------
Net cash provided
by (used for)
financing
activities 23,983 (210,113) 86,227
--------- --------- ---------
Effect of Exchange Rate Changes
on Cash and Equivalents 3,028 6,301 (2,517)
--------- --------- ---------
Cash and Equivalents:
Increase during the year 39,733 41,472 4,202
Beginning of year 76,867 35,395 31,193
--------- --------- ---------
End of year $ 116,600 $ 76,867 $ 35,395
========= ========= =========
Cash Paid During the Year for
Interest $ 31,595 $ 27,257 $ 33,052
========= ========= =========
Cash Paid During the Year for
Income Taxes $ 264,683 $ 194,460 $ 139,344
========= ========= =========
Liabilities Assumed from
Acquisitions $ 185,705 $ 28,438 $ 90,848
========= ========= =========
Note: See the Investments note for information regarding noncash transactions.
The Comments on Financial Statements are an integral part of this statement.
25
COMMENTS ON FINANCIAL STATEMENTS
Comments and Associated Schedules in this section furnish additional
information on items in the financial statements. The comments have been
arranged in the same order as the related items appear in the statements.
Illinois Tool Works Inc. ("the Company") is a multinational manufacturer of
highly engineered components and industrial systems. The Company primarily
serves the construction, automotive and general industrial markets.
Significant accounting principles and policies of the Company are highlighted
in italics. Certain reclassifications of prior years' data have been made to
conform with current year reporting.
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the comments on financial statements. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
Consolidation and Translation-The financial statements include the Company and
its majority-owned subsidiaries. All significant intercompany transactions are
eliminated from the financial statements. Substantially all of the Company's
foreign subsidiaries have November 30 fiscal year-ends to facilitate inclusion
of their financial statements in the December 31 financial statements.
Foreign subsidiaries' assets and liabilities are translated to U.S. dollars
at end-of-period exchange rates. Revenues and expenses are translated at average
rates for the period. Translation adjustments are not included in income but
are reported as a separate component of stockholders' equity.
- ------------------------------------------------------------------------------
Industry Segment and Geographic Information -The Company's operations are
divided into two segments: Engineered Components, and Industrial Systems and
Consumables. See Management's Discussion and Analysis for a description of the
segments and information regarding operating revenues and operating income.
No single customer accounted for more than 10% of consolidated revenues in
1995, 1994 or 1993. Export sales from the United States were less than 10% of
total operating revenues during these years.
Additional segment and geographic information for 1995,1994 and 1993 was as
follows:
In thousands 1995 1994 1993
- ------------------------------------------------------------------------------
Identifiable Assets:
Domestic -
Engineered Components $ 637,578 $ 586,084 $ 506,850
Industrial Systems and Consumables 809,387 719,400 620,263
---------- ---------- ----------
1,446,965 1,305,484 1,127,113
---------- ---------- ----------
International -
Engineered Components 600,456 441,616 429,370
Industrial Systems and Consumables 676,289 503,744 517,869
---------- ---------- ----------
1,276,745 945,360 947,239
---------- ---------- ----------
Corporate 943,308 329,654 262,539
---------- ---------- ----------
$3,667,018 $2,580,498 $2,336,891
========== ========== ==========
Plant and Equipment Additions:
Engineered Components $ 90,294 $ 85,553 $ 80,672
Industrial Systems and Consumables 59,882 45,502 39,259
---------- ---------- ----------
$ 150,176 $ 131,055 $ 119,931
========== ========== ==========
Depreciation and Amortization:
Engineered Components $ 82,656 $ 73,638 $ 75,370
Industrial Systems and Consumables 69,275 58,511 56,356
---------- ---------- ----------
$ 151,931 $ 132,149 $ 131,726
========== ========== ==========
Identifiable assets by segment and geographic area are those assets that are
specifically used in that segment and geographic area.
Corporate assets are principally cash and equivalents, investments, and other
general corporate assets.
26
Acquisitions and Dispositions - During 1995, 1994 and 1993, the Company acquired
and disposed of numerous operations which did not materially affect consolidated
results.
- -------------------------------------------------------------------------------
Depreciation was $126,900,000 in 1995 compared with $109,805,000 in 1994 and
$109,852,000 in 1993 and was reflected primarily in operating costs.
Depreciation of plant and equipment for financial reporting purposes is computed
principally on an accelerated basis. Equipment leased to others is depreciated
over the noncancelable period of the related lease.
- -------------------------------------------------------------------------------
Research and Development Costs are recorded as expense in the year incurred.
These costs were $52,700,000 in 1995, $48,700,000 in 1994, and $47,200,000 in
1993.
- -------------------------------------------------------------------------------
Rental Expense was $36,120,000 in 1995, $29,720,000 in 1994 and $30,550,000
in 1993.
Future minimum lease payments for the years ended December 31 are as follows:
In thousands
- -----------------------------------------------------------------------------
1996 $23,610
1997 19,002
1998 13,702
1999 9,975
2000 7,590
2001 and future years 22,968
-------
$96,847
=======
- -----------------------------------------------------------------------------
Other Income consisted of the following:
In thousands 1995 1994 1993
- ------------------------------------------------------------------------------
Interest income $ 8,549 $ 5,586 $ 6,596
Income from investments 20,687 -- --
Gain (loss) on sale of operations and affiliates 692 379 (894)
Gain (loss) on sale of plant and equipment (2,539) 261 (2,932)
Other, net 1,388 (4,310) (1,368)
------- ------- -------
$28,777 $ 1,916 $ 1,402
======= ======= =======
27
The Provision for Income Taxes - Effective January 1, 1993, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes, using the current-year recognition approach. The adoption of
SFAS No. 109 had no material impact on the Company's results of operations in
1993.
SFAS No. 109 utilizes the liability method of accounting for income taxes.
Deferred income taxes are determined based on the estimated future tax effects
of differences between the financial and tax bases of assets and liabilities
given the provisions of the enacted tax laws.
The components of the provision for income taxes were as shown below:
In thousands 1995 1994 1993
- ------------------------------------------------------------------------------
U.S. Federal income taxes:
Current $156,166 $120,606 $ 95,406
Deferred 943 (3,665) (14,383)
Investment tax credits (637) (810) (727)
-------- -------- --------
156,472 116,131 80,296
-------- -------- --------
Foreign income taxes:
Current 61,864 40,290 28,239
Deferred (8,488) (5,314) 4,515
-------- -------- --------
53,376 34,976 32,754
-------- -------- --------
State income taxes:
Current 27,448 24,349 18,383
Deferred (1,196) (2,956) (2,133)
-------- -------- --------
26,252 21,393 16,250
-------- -------- --------
$236,100 $172,500 $129,300
======== ======== ========
Income before income taxes for domestic and foreign operations was as follows:
In thousands 1995 1994 1993
- ------------------------------------------------------------------------------
Domestic $449,508 $318,368 $253,068
Foreign 174,200 131,915 82,802
-------- -------- --------
$623,708 $450,283 $335,870
======== ======== ========
The reconciliation between the Federal statutory tax rate and the effective
tax rate was as follows:
1995 1994 1993
- ------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit 2.7 3.1 3.2
Amortization of nondeductible goodwill .8 .8 1.1
Differences between Federal statutory and
foreign tax rates .6 (.4) 1.1
Other, net (1.2) (.2) (1.9)
---- ---- ----
Effective tax rate 37.9% 38.3% 38.5%
==== ==== ====
28
Deferred U.S. Federal income taxes and foreign withholding taxes have not
been provided on approximately $489,900,000 of undistributed earnings of
international affiliates as of December 31, 1995. In the event these earnings
were distributed to the Company, Federal income taxes payable would be reduced
by foreign tax credits based on income tax laws and circumstances at the time of
distribution. The net tax effect would not be expected to be material. The
components of deferred income tax assets and liabilities at December 31, 1995
and 1994 were as follows:
In thousands 1995 1994
- ---------------------------------------------------------------------------------------
Asset Liability Asset Liability
-------- --------- -------- ---------
Accumulated depreciation $ 4,124 $(34,820) $ 7,859 $ (25,648)
Acquisition asset basis differences 26,900 (15,950) 8,154 (26,208)
Inventory reserves, capitalized tax
cost and LIFO inventory 18,627 (9,029) 17,077 (9,036)
Investments 219,056 (41,654) 190 (46,372)
Accrued expenses and reserves 42,812 -- 36,415 --
Employee benefit accruals 38,978 -- 31,647 --
Net operating loss carryforwards 52,878 -- 15,936 --
Allowances for uncollectible accounts 4,460 -- 5,365 --
Prepaid pension assets -- (11,808) -- (11,904)
Other 11,608 (27,373) 17,334 (13,318)
-------- --------- -------- ---------
Gross deferred income tax
assets (liabilities) 419,443 (140,634) 139,977 (132,486)
Valuation allowances (4,191) -- (4,279) --
-------- --------- -------- ---------
Total deferred income tax
assets (liabilities) $415,252 $(140,634) $135,698 $(132,486)
======== ========= ======== =========
Net deferred income tax assets $274,618 $ 3,212
======== ========
No valuation allowance has been recorded on the net deferred tax asset at
December 31, 1995 and 1994 as the Company expects to continue to generate
significant taxable income in future years.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $135,400,000 available to offset future taxable income in certain
foreign jurisdictions which expire as follows:
In thousands
- -------------------------------------------------------------------------------
1996 $ 36,000
1997 5,700
1998 4,700
1999 3,500
2000 5,600
2007 700
Do not expire 79,200
--------
$135,400
========
- -------------------------------------------------------------------------------
Net Income Per Share of Common Stock is computed on the basis of the average
number of shares of common stock outstanding. The dilutive effect of shares of
common stock subject to issuance under stock option plans are excluded from the
computation since the effect is not material. The average number of shares
outstanding was 117,989,000, 113,387,000 and 112,979,000 for 1995, 1994 and
1993, respectively.
- -------------------------------------------------------------------------------
Cash and Equivalents included interest-bearing deposits of $40,021,000 at
December 31, 1995 and $18,702,000 at December 31, 1994. lnterest-bearing
deposits have maturities of 90 days or less and are stated at cost, which
approximates market.
- -------------------------------------------------------------------------------
Trade Receivables as of December 31, 1995 and 1994 were net of allowances for
uncollectible accounts of $23,500,000 and $19,600,000, respectively.
- ------------------------------------------------------------------------------
29
Inventories at December 31, 1995 and 1994 were as follows:
In thousands 1995 1994
- ---------------------------------------------------------------------------
Raw material $140,302 $126,730
Work-in-process 84,981 66,505
Finished goods 293,681 246,251
-------- --------
$518,964 $439,486
======== ========
Inventories are stated at the lower of cost or market and include material,
labor and factory overhead. The last-in, first-out (LIFO) method is used to
determine the cost of the inventories of the majority of domestic operations.
Inventories priced at LIFO were 39% and 43% of total inventories as of December
31, 1995 and 1994, respectively. The first-in, first-out (FIFO) method is used
for all other inventories. Under the FIFO method, which approximates current
cost, total inventories would have been approximately $42,300,000 and
$40,700,000 higher than reported at December 31, 1995 and 1994, respectively.
- -------------------------------------------------------------------------------
Plant and Equipment are stated at cost less accumulated depreciation. Renewals
and improvements that increase the useful life of plant and equipment are
capitalized. Maintenance and repairs are charged to expense as incurred.
The range of useful lives used to depreciate plant and equipment is as follows:
Buildings and improvements 10 - 40 years
Machinery and equipment 3 - 12 years
Equipment leased to others Term of lease
- -------------------------------------------------------------------------------
Investments as of December 31, 1995 and 1994 consisted of the following:
In thousands 1995 1994
- --------------------------------------------------------------------------------
Properties held for sale $ 14,275 $18,217
Property developments 7,575 9,045
Commercial mortgage loans and properties 285,262 --
Net swap receivable 70,738 --
Mortgage-backed securities 27,815 --
Leveraged and direct financing leases of equipment 89,441 55,413
Low-income housing 6,420 802
Other 3,294 3,589
-------- -------
$504,820 $87,066
======== =======
In the first quarter of 1995, the Company exchanged preferred stock of a
subsidiary of $40,000,000 for investments in mortgage-backed securities of
$32,000,000 and corporate debt securities of $8,000,000 in a noncash
transaction. The preferred stock was subsequently redeemed for $40,000,000 cash
in the fourth quarter of 1995. The mortgage-backed securities of $27,815,000 at
December 31, 1995 are recorded at fair value which approximates cost and are
classified as available-for-sale securities.
In December 1995, the Company acquired a pool of mortgage-related assets in
exchange for a nonrecourse note payable of $256,000,000, preferred stock of a
subsidiary of $20,000,000 and cash of $80,000,000. The mortgage-related assets
relate to commercial real estate located throughout the U.S. and include 26
subperforming, variable rate, balloon loans and five foreclosed properties. In
conjunction with this transaction, the Company simultaneously entered into a
ten-year swap agreement and other related agreements whereby the Company will
pay a third party the portion of the interest and net operating cash flow from
the mortgage-related assets in excess of $9,000,000 per year and a portion
(estimated to be $197,000,000 at December 31, 1995) of the proceeds from the
disposition of the mortgage-related assets and principal repayments, in exchange
for the third party making payments to the Company equal to the contractual
principal and interest payments on the nonrecourse note payable. In addition, in
the event that the pool of mortgage-related assets does not generate income of
$9,000,000 a year, the Company has a collateral right against the cash flow
generated by a separate pool of mortgage-related assets (owned by a third party
in which the Company has a minimal interest) which currently has a fair value of
approximately $719,000,000. The Company entered into the swap and other related
agreements in order to reduce its credit and interest rate risks relative to the
mortgage-related assets. The Company expects to recover its net investment in
the mortgage-related assets and net swap receivable of $100,000,000 (net of the
related nonrecourse note payable) through its expected net cash flow of
$9,000,000 per year for ten years and its estimated share of the proceeds from
disposition of the mortgage-related assets and principal repayments of
$118,000,000.
The Company evaluates whether the mortgage loans have been impaired by reviewing
the discounted estimated future cash flows of the loans versus the carrying
value of the loans. If the carrying value exceeds the discounted cash flows, an
impairment loss would be recognized through income. The estimated fair value of
the commercial mortgage loans and properties, based on discounted future cash
flows, approximates cost at December 31, 1995. The net swap receivable is
recorded at fair value, based on the estimated future cash flows discounted at
the current market interest rate. Any adjustments to the carrying value of the
net swap receivable due to changes in expected future cash flows or interest
rates are recorded through income.
The Company's investment in leveraged and direct financing leases relates to
equipment used primarily in the transportation, mining and paper processing
industries.
The components of the investment in leveraged and direct financing leases at
December 31, 1995 and 1994 were as shown below:
In thousands 1995 1994
- ------------------------------------------------------------------------------
Lease contracts receivable
(net of principal and interest on nonrecourse financing) $102,625 $ 46,798
Estimated residual value of leased assets 25,601 21,548
Unearned and deferred income (38,785) (12,933)
-------- -------
Investment in leveraged and direct financing leases 89,441 55,413
Deferred income taxes related to leveraged and direct
financing leases (38,978) (40,656)
-------- --------
Net investment in leveraged and direct financing leases $ 50,463 $ 14,757
======== ========
In 1995, the Company had a gain on the sale of equipment previously covered
under leveraged leases of $4,115,000.
30
- ------------------------------------------------------------------------------
Goodwill represents the excess cost over fair value of the net assets of
purchased businesses. Goodwill is being amortized on a straight-line basis over
15 to 40 years. The Company assesses the recoverability of unamortized goodwill
and the other long-lived assets whenever events or changes in circumstances
indicate that such assets may be impaired by reviewing the sufficiency of future
undiscounted cash flows of the related entity to cover the amortization or
depreciation over the remaining useful life of the asset. For any long-lived
assets which are determined to be impaired, a loss would be recognized for the
difference between the carrying value and the fair value for assets to be held
or the net realizable value for assets to be disposed of. This policy is
consistent with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of.
Amortization expense was $16,335,000 in 1995, $14,031,000 in 1994, and
$13,268,000 in 1993. Accumulated goodwill amortization was $100,242,000 and
$79,672,000, at December 31, 1995 and 1994, respectively.
- ------------------------------------------------------------------------------
Other Assets as of December 31, 1995 and 1994 consisted of the following:
In thousands 1995 1994
- -------------------------------------------------------------------------------
Other intangible assets $126,418 $134,083
Accumulated amortization of other intangible assets (59,727) (64,455)
Cash surrender value of life insurance policies 35,923 19,211
Investment in unconsolidated affiliates 30,849 25,481
Prepaid pension assets 32,994 28,566
Other 54,950 52,145
-------- --------
$221,407 $195,031
======== ========
Other intangible assets represent patents, noncompete agreements and other
assets acquired with purchased businesses and are being amortized primarily on a
straight-line basis over three to 17 years. Amortization expense was $8,696,000
in 1995, $8,313,000 in 1994 and$8,606,000 in 1993.
- ------------------------------------------------------------------------------
Short-Term Debt as of December 31, 1995 and 1994 consisted of the following:
In thousands 1995 1994
- --------------------------------------------------------------------------------
Commercial paper $ 93,728 $ --
Current maturities of long-term debt 7,949 2,009
Bank overdrafts 64,663 45,968
Other borrowings by foreign subsidiaries 9,848 19,025
-------- -------
$176,188 $67,002
======== =======
The weighted average interest rate on other foreign borrowings was 6.3% at
December 31, 1995 and 6.1% at December 31, 1994.
31
- --------------------------------------------------------------------------------
Retirement Plans - The Company sponsors defined contribution retirement plans
covering the majority of domestic employees. The Company's contributions to
these plans were $9,900,000 in 1995, $8,400,000 in 1994 and $6,900,000 in 1993.
The Company provides the majority of its employees with pension benefits. The
Company's principal domestic plan provides benefits based on years of service
and compensation levels during the latter years of employment. Other domestic
and foreign plans provide benefits similar to the principal domestic plan.
Subject to the limitation on deductibility imposed by Federal income tax
laws, the Company's policy has been to contribute funds to the plans annually in
amounts required to maintain sufficient plan assets to provide for accrued
benefits. No contributions to the principal plan were made in 1995, 1994 or
1993. Contributions to international and other domestic plans were minimal in
1995, 1994 and 1993. Domestic plan assets consist primarily of listed common
stocks and debt securities.
The components of net pension expense for the years ended December 31, 1995,
1994 and 1993 were as shown below:
In thousands 1995 1994 1993
- --------------------------------------------------------------------------------
Service cost $ 24,369 $ 21,622 $ 21,757
Interest cost on projected benefit obligation 33,972 32,800 29,832
Actual return on plan assets (99,364) (4,655) (48,002)
Net amortization and deferral 49,102 (38,278) 7,879
-------- -------- --------
Net pension expense $ 8,079 $ 11,489 $ 11,466
======== ======== ========
The following table sets forth the funded status and amounts recognized in the
Company's Statement of Financial Position at December 31, 1995 and 1994:
1995 1994
--------------------- ---------------------
In thousands Domestic Foreign Domestic Foreign
- ------------------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested $(269,601) $(72,237) $(244,931) $(65,919)
Non-vested (54,992) (14,130) (43,866) (13,389)
--------- -------- --------- --------
Accumulated benefit obligation (324,593) (86,367) (288,797) (79,308)
Effect of projected wage increases (38,550) (15,332) (36,099) (14,013)
--------- -------- --------- --------
Projected benefit obligation (363,143) (101,699) (324,896) (93,321)
Plan assets at fair value 443,910 103,631 375,632 97,771
--------- -------- --------- --------
Plan assets in excess of
projected benefit obligation 80,767 1,932 50,736 4,450
Unrecognized net gain (84,421) (6,379) (56,385) (6,909)
Unrecognized prior service cost 35,299 32 40,620 29
Unrecognized transition asset (20,389) (8,314) (24,461) (9,073)
Adjustment to recognize minimum
liability (3,448) (492) (1,140) (587)
--------- -------- --------- --------
Prepaid (accrued) pension asset
(liability) $ 7,808 $(13,221) $ 9,370 $(12,090)
========= ======== ========= ========
The significant actuarial assumptions at December 31, 1995, 1994 and 1993 were
as follows:
1995 1994 1993
- ------------------------------------------------------------------------------
Domestic plans:
Discount rate 7.75% 8.50% 7.60%
Expected long-term rate of return on
plan assets 10.00% 10.00% 9.00%
Rate of increase in future
compensation levels 4.00% 4.30% 4.30%
Foreign plans:
Discount rate 5.50-9.00% 5.50-9.00% 5.50-9.00%
Expected long-term rate of return on
plan assets 5.50-9.00% 5.50-9.00% 5.50-9.00%
32
- ------------------------------------------------------------------------------
Postretirement Health Care Benefits- The Company provides health care benefits
to the majority of domestic employees and their covered dependents. Generally,
employees who have reached age 55 and rendered 10 years of service are eligible
for these benefits, which are subject to retiree contributions, deductibles,
copayment provisions and other limitations.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. This standard requires that the expected cost of
health care benefits be charged to expense during the service lives of employees
rather than the cash basis method previously used. The Company has elected to
amortize the unfunded accumulated postretirement benefit obligation (APBO) of
$145,500,000 as of January 1, 1993 over 20 years.
A one-percentage point increase in the health care cost trend rate would
increase the APBO as of December 31, 1995 by approximately $13,698,000 and the
sum of the 1995 annual service and interest cost by approximately $1,597,000.
The costs of postretirement health care benefits under SFAS No. 106 for the
years ended December 31, 1995, 1994 and 1993 were as shown below:
In thousands 1995 1994 1993
- ------------------------------------------------------------------------
Service cost $ 2,110 $ 2,187 $ 2,312
Interest cost on accumulated postretirement
benefit obligation 10,077 10,715 11,912
Net amortization and deferral 5,581 7,519 6,968
------- ------- -------
Net postretirement benefit cost $17,768 $20,421 $21,192
======= ======= =======
The following table sets forth the amounts recognized in the Company's Statement
of Financial Position at December 31, 1995 and 1994:
In thousands 1995 1994
- ------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $(90,504) $(91,691)
Active employees (31,952) (29,661)
-------- --------
(122,456) (121,352)
Unrecognized transition obligation 122,555 129,764
Unrecognized net gain (27,284) (28,689)
-------- --------
Accrued postretirement benefit cost $(27,185) $(20,277)
======== ========
The significant actuarial assumptions at December 31, 1995, 1994 and 1993 were
as follows:
1995 1994 1993
- -------------------------------------------------------------------------------
Discount rate 7.75% 8.50% 7.60%
Health care cost trend rate:
Current rate 7.00% 8.00% 10.00%
Ultimate rate in 1998 5.00% 5.00% 5.00%
33
- --------------------------------------------------------------------------------
Accrued Expenses as of December 31, 1995 and 1994 consisted of accruals for:
In thousands 1995 1994
- --------------------------------------------------------------------------------
Compensation and employee benefits $196,002 $161,728
Taxes, other than income taxes 19,202 17,727
Customer deposits 24,966 20,019
Other 151,532 117,557
-------- --------
$391,702 $317,031
======== ========
- --------------------------------------------------------------------------------
Long-Term Debt at December 31, 1995 and 1994 consisted of the following:
In thousands 1995 1994
- --------------------------------------------------------------------------------
7.5% notes due December 1, 1998 $125,000 $125,000
5.875% notes due March 1, 2000 125,000 125,000
6.28% nonrecourse note due semiannually through
December 31, 2005 256,000 --
Commercial paper 75,000 --
Other, including capitalized lease obligations 42,506 24,996
-------- --------
623,506 274,996
Current maturities (7,949) (2,009)
-------- --------
$615,557 $272,987
======== ========
In 1991, the Company issued $125,000,000 of 7.5% notes due December 1, 1998
at 99.892% of face value. The notes may not be redeemed by the Company prior to
maturity. The effective interest rate of the notes is 7.6%.
In 1993, the Company issued $125,000,000 of 5.875% notes due March 1, 2000 at
99.744% of face value. The notes may not be redeemed by the Company prior to
maturity. The effective interest rate of the notes is 5.9%.
The quoted market prices of the 7.5% and 5.875% notes exceeded the carrying
values by approximately $6,000,000 at December 31, 1995, and were less than the
carrying values by approximately $14,000,000 at December 31, 1994.
In December 1995, the Company issued a $256,000,000 6.28% note at face value.
The note has a nonrecourse provision relative to the commercial mortgage loans
and properties and the net swap receivable, which are included in investments.
In 1992, the Company entered into a $300,000,000 revolving credit facility
(RCF) expiring on August 14, 1997, which provides for borrowing under a number
of options and which may be reduced or canceled at any time at the Company's
option. In July 1994, the Company canceled $150,000,000 of the RCF. In August
1995, the Company entered into another RCF for $175,000,000 expiring on August
21, 1996, which provides for borrowings under a number of options and which may
be reduced or canceled at any time at the Company's option. There were no
amounts outstanding under these facilities as of December 31, 1995.
Each RCF contains financial covenants establishing a maximum total debt to
total capitalization percentage and a minimum consolidated tangible net worth.
The Company was in compliance with these covenants at December 31, 1995.
Commercial paper is issued at a discount and generally matures 30 to 90 days
from the date of issue. The Company maintains unused commitments under the RCF's
equal to any commercial paper borrowings. The weighted average interest rate on
commercial paper outstanding at December 31, 1995 was 5.85%. No commercial paper
was outstanding at December 31, 1994.
The commercial paper balance expected to remain outstanding beyond one year
has been classified as long-term in the accompanying Statement of Financial
Position, reflecting the Company's intent and ability to finance the borrowings
on a long-term basis. The remaining commercial paper balance has been classified
as short-term.
34
Other debt bears interest at rates ranging from 2.2% to 14.2%, with
maturities through the year 2015.
Scheduled maturities of long-term debt for the years ended December 31 are as
follows:
In thousands
- ----------------------------------------------------------------------------
1997 $103,068
1998 148,097
1999 18,140
2000 142,092
2001 and future years 204,160
--------
$615,557
========
- ----------------------------------------------------------------------------
Preferred Stock, without par value, of which 300,000 shares are authorized, is
issuable in series. The Board of Directors is authorized to fix by resolution
the designation and characteristics of each series of preferred stock. The
Company has no present commitments to issue any preferred stock.
- -------------------------------------------------------------------------------
Common Stock, without par value, and Common Stock Held in Treasury transactions
during 1995,1994 and 1993 were as shown below.
On May 7, 1993, the Board of Directors authorized a two-for-one split of the
Company's common stock, with a distribution date of June 18, 1993, at a rate of
one additional share for each common share held by stockholders of record on
June 1, 1993. All per-share data in this report is calculated on a post-split
basis.
Common Stock
Common Stock Held in Treasury
--------------------- --------------------
Dollars in thousands Shares Amount Shares Amount
- --------------------------------------------------------------------------------------
Balance, December 31, 1992 56,078,291 $150,944 (71,584) $(1,960)
During 1993 -
Adjustment to reflect the
June 1993 stock split 56,078,291 -- (71,584) --
Stock options exercised 403,558 5,693 27,348 991
Shares surrendered on exercise
of stock options (5,274) (194) (27,348) (991)
Tax benefits related to stock
options exercised -- 2,114 -- --
Shares issued for
acquisitions 718,810 10,931 -- --
Shares issued for stock
incentive and restricted
stock grants 19,212 697 400 5
----------- ------- -------- ------
Balance, December 31, 1993 113,292,888 170,185 (142,768) (1,955)
During 1994 -
Stock options exercised 199,679 3,851 22,653 994
Shares surrendered on exercise
of stock options (14,531) (635) (22,653) (994)
Tax benefits related to
stock options exercised -- 1,212 -- --
Shares issued for
acquisitions 476,464 20,726 -- --
Shares issued for
restricted stock grants 146,000 5,827 200 3
----------- ------- -------- ------
Balance, December 31, 1994 114,100,500 201,166 (142,568) (1,952)
During 1995-
Stock options exercised 382,587 7,300 2,113 118
Shares surrendered on exercise
of stock options (4,626) (243) (2,113) (118)
Tax benefits related to stock
options exercised -- 2,528 -- --
Shares issued for
acquisitions 3,876,477 27,501 -- --
Shares issued for stock
incentive and restricted
stock grants 14,091 1,436 6,300 86
----------- -------- -------- --------
Balance, December 31, 1995 118,369,029 $239,688 (136,268) $ (1,866)
=========== ======== ======== ========
Authorized, December 31, 1995 150,000,000
===========
35
- ------------------------------------------------------------------------------
Stock Options have been issued to officers and other employees under the
Company's 1979 Stock Incentive Plan. At December 31, 1995, 4,604,115 shares
were reserved for issuance under the plan. Option prices are 100% of the common
stock fair market value on the date of grant.
Stock option transactions during 1995, 1994 and 1993 were as shown below:
Number of Shares Price per Share
- ---------------------------------------------------------------------------
Under Option at December 31, 1992 2,102,826 $ 7.13 to 32.50
During 1993-
Granted 688,008 36.38 to 37.00
Exercised (430,906) 7.13 to 29.75
Canceled or expired (25,402) 20.69 to 29.75
---------
Under option at December 31, 1993 2,334,526 8.19 to 37.00
During 1994-
Granted 126,358 40.13 to 44.38
Exercised (222,332) 8.19 to 36.38
Canceled or expired (15,000) 29.75 to 36.38
---------
Under option at December 31, 1994 2,223,552 8.19 to 44.38
During 1995-
Granted 777,165 50.38 to 60.25
Exercised (384,700) 8.19 to 36.38
Canceled or expired (38,938) 29.75 to 36.38
---------
Under option at December 31, 1995 2,577,079 8.78 to 60.25
=========
Exercisable at December 31, 1995 1,428,664 8.78 to 44.38
Reserved for grant-December 31, 1994 2,777,241
-December 31, 1995 2,027,036
Effective starting in 1996, Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," allows the recognition of
compensation cost related to employee stock options. The Company has elected
to continue to apply Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," which does not require that compensation cost
be recognized, and will disclose the pro forma effect of applying SFAS No. 123
beginning in 1996.
- ------------------------------------------------------------------------------
Cash Dividends Declared were $.64 per share in 1995, $.56 per share in 1994 and
$.50 per share in 1993.
36
QUARTERLY AND COMMON STOCK DATA
Quarterly Financial Data (Unaudited)
Three Months Ended
--------------------------------------------------------------------------------------------------
In thousands March 31 June 30 September 30 December 31
except per -------------------- ---------------------- ----------------------- ---------------------
share amounts 1995 1994 1995 1994 1995 1994 1995 1994
Operating revenues $929,085 $771,439 $1,090,713 $881,042 $1,045,134 $870,911 1,087,238 $937,923
Cost of revenues 616,022 520,264 706,419 583,910 689,018 579,917 705,617 606,026
Operating income 119,971 87,547 171,583 117,702 164,583 122,063 170,375 147,998
Net income 75,031 50,915 106,248 70,727 100,016 71,399 106,313 84,742
Net income per share .66 .45 .91 .62 .85 .63 .90 .75
- -----------------------------------------------------------------------------------------------------------------------
Common Stock Price and Dividend Data-
The common stock of Illinois Tool Works Inc. is listed on the New York Stock
Exchange and the Chicago Stock Exchange. Quarterly market price and dividend
data for 1995 and 1994 were as shown below:
Market Price
Per Share Dividends
---------------- Paid
High Low Per Share
- ------------------------------------------------------------------
1995
First quarter $48-7/8 $39-3/4 $.15
Second quarter 55-5/8 46 .15
Third quarter 65-1/2 54-1/4 .15
Fourth quarter 64-1/4 54-1/2 .17
1994
First quarter
Second quarter $45-1/8 $37 $.13
Third quarter 42-1/4 36-3/4 .13
Fourth quarter 44-7/8 37 .13
45-1/2 39-5/8 .15
The approximate number of holders of record of common stock as of February 20,
1996 was 3,900. This number does not include beneficial owners of the Company's
securities held in the name of nominees.
37
ELEVEN-YEAR FINANCIAL SUMMARY
Dollars and shares in thousands except per share amounts
1995 1994
Income:
Operating revenues $4,152,170 3,461,315
Cost of revenues $2,717,076 2,290,117
Selling, administrative and research and development
expenses $ 776,583 666,576
Amortization of goodwill and other intangible assets $ 25,031 22,344
Amortization of retiree health care $ 6,968 6,968
Operating income $ 626,512 475,310
Interest expense $ (31,581) (26,943)
Other income (expense) $ 28,777 1,916
Income before income taxes $ 623,708 450,283
Income taxes $ 236,100 172,500
Net income $ 387,608 277,783
Per share $ 3.29 2.45
Financial Position:
Net working capital $ 681,558 634,500
Net plant and equipment $ 694,941 641,235
Total assets $3,667,018 2,580,498
Long-term debt $ 615,557 272,987
Total debt $ 791,745 339,989
Stockholders' equity $1,924,237 1,541,521
Other Data:
Operating income:
Return on operating revenues 15.1% 13.7%
Net income:
Return on operating revenues 9.3% 8.0%
Return on average stockholders' equity 22.4% 19.8%
Cash dividends paid $ 71,783 61,162
Per share - paid $ .62 .54
- declared $ .64 .56
Book value per share $ 16.27 13.53
Common stock market price at year-end $ 59.00 43.75
Long-term debt to total capitalization 24.2% 15.0%
Total debt to total capitalization 29.2% 18.1%
Shares outstanding:
At December 31 118,233 113,958
Average during year 117,989 113,387
Plant and equipment additions $ 150,176 131,055
Depreciation $ 126,900 109,805
Research and development expenses $ 52,700 48,700
Employees at December 31 21,200 19,500
Note: Certain reclassifications of prior years' data have been made to conform
with current year reporting.
38
ELEVEN-YEAR FINANCIAL SUMMARY continued
1993 1992
Income:
Operating revenues $3,159,181 2,811,645
Cost of revenues $2,122,286 1,858,752
Selling, administrative and research and development
expenses $ 638,560 589,423
Amortization of goodwill and other intangible assets $ 21,874 22,169
Amortization of retiree health care $ 6,968 --
Operating income $ 369,493 341,301
Interest expense $ (35,025) (42,852)
Other income (expense) $ 1,402 11,331
Income before income taxes $ 335,870 309,780
Income taxes $ 129,300 117,700
Net income $ 206,570 192,080
Per share $ 1.83 1.72
Financial Position:
Net working capital $ 547,506 492,118
Net plant and equipment $ 583,765 524,116
Total assets $2,336,891 2,204,187
Long-term debt $ 375,641 251,979
Total debt $ 482,714 335,240
Stockholders' equity $1,258,669 1,339,673
Other Data:
Operating income:
Return on operating revenues % 11.7 12.1
Net income:
Return on operating revenues % 6.5 6.8
Return on average stockholders' equity % 15.9 15.1
Cash dividends paid $ 55,175 50,290
Per share - paid $ .49 .45
- declared $ .50 .46
Book value per share $ 11.12 11.96
Common stock market price at year-end $ 39.00 32.62
Long-term debt to total capitalization % 23.0 15.8
Total debt to total capitalization % 27.7 20.0
Shares outstanding:
At December 31 113,150 112,014
Average during year 112,979 111,746
Plant and equipment additions $ 119,931 115,313
Depreciation $ 109,852 100,462
Research and development expenses $ 47,200 42,500
Employees at December 31 19,000 17,800
ELEVEN-YEAR FINANCIAL SUMMARY continued
1991 1990
Income:
Operating revenues $ 2,639,650 2,544,153
Cost of revenues $ 1,759,288 1,686,423
Selling, administrative and research and development
expenses $ 551,865 512,685
Amortization of goodwill and other intangible assets $ 23,979 19,181
Amortization of retiree health care $ -- --
Operating income $ 304,518 325,864
Interest expense $ (44,342) (39,190)
Other income (expense) $ 27,583 13,209
Income before income taxes $ 287,759 299,883
Income taxes $ 107,200 117,500
Net income $ 180,559 182,383
Per share $ 1.62 1.68
Financial Position:
Net working capital $ 442,041 615,055
Net plant and equipment $ 525,695 483,549
Total assets $ 2,257,139 2,150,307
Long-term debt $ 307,082 430,632
Total debt $ 489,189 495,952
Stockholders' equity $ 1,212,051 1,091,842
Other Data:
Operating income:
Return on operating revenues % 11.5 12.8
Net income:
Return on operating revenues % 6.8 7.2
Return on average stockholders' equity % 15.7 18.6
Cash dividends paid $ 44,108 35,861
Per share - paid $ .40 .33
- declared $ .42 .35
Book value per share $ 10.88 9.96
Common stock market price at year-end $ 31.88 24.13
Long-term debt to total capitalization $ 20.2 28.3
Total debt to total capitalization $ 28.8 31.2
Shares outstanding:
At December 31 111,436 109,610
Average during year 111,178 108,872
Plant and equipment additions $ 106,036 101,183
Depreciation $ 91,414 82,913
Research and development expenses $ 40,300 40,300
Employees at December 31 18,700 18,400
ELEVEN-YEAR FINANCIAL SUMMARY continued
1989 1988
Income:
Operating revenues $2,172,747 1,929,805
Cost of revenues $1,450,116 1,287,297
Selling, administrative and research and development
expenses $ 417,520 377,003
Amortization of goodwill and other intangible assets $ 15,829 13,106
Amortization of retiree health care $ -- --
Operating income $ 289,282 252,399
Interest expense $ (30,995) (26,109)
Other income (expense) $ 10,735 6,522
Income before income taxes $ 269,022 232,812
Income taxes $ 105,200 92,800
Net income $ 163,822 140,012
Per share $ 1.53 1.33
Financial Position:
Net working capital $ 440,406 392,283
Net plant and equipment $ 413,578 342,794
Total assets $1,687,985 1,380,237
Long-term debt $ 334,407 255,907
Total debt $ 370,507 257,597
Stockholders' equity $ 871,124 744,727
Other Data:
Operating income:
Return on operating revenues 13.3 13.1
Net income:
Return on operating revenues % 7.5 7.3
Return on average stockholders' equity % 20.3 20.7
Cash dividends paid $ 28,747 23,027
Per share - paid $ .27 .22
- declared $ .28 .23
Book value per share $ 8.12 7.05
Common stock market price at year-end $ 22.44 17.25
Long-term debt to total capitalization $ 27.7 23.3
Total debt to total capitalization $ 29.8 25.7
Shares outstanding:
At December 31 107,332 105,588
Average during year 107,028 105,350
Plant and equipment additions $ 84,263 84,107
Depreciation $ 68,890 62,064
Research and development expenses $ 32,500 26,588
Employees at December 31 15,700 14,200
ELEVEN-YEAR FINANCIAL SUMMARY continued
1987 1986
Income:
Operating revenues $1,698,353 961,077
Cost of revenues $1,117,990 622,310
Selling, administrative and research and development
expenses $ 344,661 239,861
Amortization of goodwill and other intangible assets $ 16,812 8,635
Amortization of retiree health care $ -- --
Operating income $ 218,890 90,271
Interest expense $ (33,439) (14,468)
Other income (expense) $ 14,333 67,480
Income before income taxes $ 199,784 143,283
Income taxes $ 93,600 63,700
Net income $ 106,184 79,583
Per share $ 1.03 .78
Financial Position:
Net working capital $ 332,290 293,575
Net plant and equipment $ 318,690 317,829
Total assets $1,334,063 1,309,886
Long-term debt $ 309,515 468,269
Total debt $ 357,249 503,998
Stockholders' equity $ 608,541 476,550
Other Data:
Operating income:
Return on operating revenues % 12.9 9.4
Net income:
Return on operating revenues % 6.3 8.3
Return on average stockholders' equity % 19.6 18.1
Cash dividends paid $ 20,144 18,295
Per share - paid $ .20 .18
- declared $ .20 .18
Book value per share $ 5.88 4.65
Common stock market price at year-end $ 16.50 12.97
Long-term debt to total capitalization $ 33.7 49.6
Total debt to total capitalization $ 37.0 51.4
Shares outstanding:
At December 31 103,560 102,508
Average during year 103,272 102,206
Plant and equipment additions $ 61,052 44,722
Depreciation $ 57,839 37,213
Research and development expenses $ 24,739 13,161
Employees at December 31 13,600 13,700
ELEVEN-YEAR FINANCIAL SUMMARY continued
1985
Income:
Operating revenues $ 596,127
Cost of revenues $ 390,501
Selling, administrative and research and development
expenses $ 125,017
Amortization of goodwill and other intangible assets $ 715
Amortization of retiree health care $ --
Operating income $ 79,894
Interest expense $ (1,917)
Other income (expense) $ (8,030)
Income before income taxes $ 69,947
Income taxes $ 38,400
Net income $ 31,547
Per share $ .31
Financial Position:
Net working capital $ 172,201
Net plant and equipment $ 137,001
Total assets $ 521,850
Long-term debt $ 9,995
Total debt $ 17,618
Stockholders' equity $ 403,439
Other Data:
Operating income:
Return on operating revenues % 13.4
Net income:
Return on operating revenues % 5.3
Return on average stockholders' equity % 8.1
Cash dividends paid $ 17,095
Per share - paid $ .17
- declared $ .18
Book value per share $ 4.00
Common stock market price at year-end $ 8.75
Long-term debt to total capitalization $ 2.4
Total debt to total capitalization $ 4.2
Shares outstanding:
At December 31 100,796
Average during year 100,558
Plant and equipment additions $ 39,062
Depreciation $ 27,312
Research and development expenses $ 7,795
Employees at December 31 7,300
39