1
Management's Discussion and Analysis
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INTRODUCTION
Illinois Tool Works Inc. is a multinational manufacturer of highly engineered
components and industrial systems with three business segments: Engineered
Components, Industrial Systems and Consumables, and Leasing and Investments.
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 components and fasteners
primarily for automotive, construction and general industrial applications. They
also manufacture specialty products such as adhesives and static-control
equipment.
Operating Revenues
Dollars in millions 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $ 1,404 $ 1,315 $ 1,034
International 816 821 720
--------- --------- ---------
Total $ 2,220 $ 2,136 $ 1,754
========= ========= =========
Operating Income 1997 1996 1995
---------------- ---------------- ----------------
Dollars in millions Income Margin Income Margin Income Margin
- ------------------------------------------------------------------------------
Domestic $ 288 20.5% $ 257 19.5% $ 194 18.8%
International 129 15.8 104 12.7 94 13.1
------ ------ ------
Total $ 417 18.8 $ 361 16.9 $ 288 16.4
====== ====== ======
Domestic
Domestic revenues and operating income increased in 1997 over 1996 due primarily
to acquisitions, sound growth in the automotive businesses, and successful
strategic marketing in the static control and adhesives businesses. The sale of
a fastener distribution business in the first quarter of 1997 moderated revenue
growth. Revenue growth also was reduced by a parts-reduction program in the
automotive and industrial components operations, implemented after extensive
analysis of those operations. New products and increased market penetration in
the static control, adhesives and automotive businesses, along with the
parts-reduction program, caused margin growth. Operating income in the
construction businesses were flat as a result of costs to expand capacity, which
tempered margin growth.
Acquisitions (primarily Medalist Industries) largely contributed to the
increase in domestic revenues in 1996 versus 1995. New products from the
automotive and industrial components businesses, supported by healthy U.S. car
and appliance markets, also contributed to revenue, operating income and margin
growth. The construction businesses contributed to the improved financial
results through increased market share in residential and commercial
construction markets, and increased penetration in the hardware and home center
distribution channels.
International
International revenues grew in 1997 over 1996 due to increased market
penetration by the European automotive businesses supported by a 4 percent
increase in European car builds. The increase in revenues was more than offset,
however, by the negative effect of European currencies against the U.S. dollar,
which grew stronger throughout the year. Construction revenues were flat due to
product line simplification, a focus on fewer customers and soft Australian and
European construction markets. A more profitable product mix and lower overall
cost structure in the construction businesses, however, combined with increased
revenues in the international automotive operations, resulted in strong
operating income and margin increases. Foreign currency fluctuations in 1997
versus 1996 decreased revenues by $62 million and operating income by $10
million. European operations represent 81 percent of the segment's international
revenues.
Most of the Company's international revenue and operating income growth in
1996 versus 1995 was due to acquisitions, primarily for the European automotive
and industrial components businesses. This growth was moderated, however, by a
decline in revenues and operating income in the construction businesses due to a
weak European construction market. Margins were down internationally due to the
decline in revenues for construction operations, lower prices and unit volume in
the French automotive market and a weak European appliance market. Foreign
currency fluctuations in 1996 versus 1995 had minimal effect on revenue and
earnings.
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT
Businesses in this segment produce longer lead-time machinery and related
consumables primarily for food and beverage, construction, automotive and
general industrial markets. They also manufacture specialty products for
applications such as industrial spray coating and quality measurement.
Operating Revenues
Dollars in millions 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $1,852 $1,803 $1,539
International 1,047 990 859
------ ------ ------
Total $2,899 $2,793 $2,398
====== ====== ======
Operating Income 1997 1996 1995
---------------- ---------------- ----------------
Dollars in millions Income Margin Income Margin Income Margin
- ------------------------------------------------------------------------------
Domestic $333 18.0% $300 16.6% $255 16.6%
International 138 13.2 115 11.6 84 9.8
---- ---- ----
Total $471 16.2 $415 14.9 $339 14.1
==== ==== ====
18
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Illinois Tool Works Inc.
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Domestic
Acquisitions and new products in the decorating businesses, along with new
product introductions in the resealable packaging and welding businesses, led to
the growth in revenue and operating income domestically in 1997. The finishing
systems businesses, as a result of new products and focused selling units, also
contributed to this segment's improved performance. Tempering revenue growth was
a decline in revenues in the quality measurement businesses due to reduced
demand for their capital goods machinery from the automotive and tire markets.
In addition a shift in product mix by the Signode operations from steel to
plastic strapping systems,which sell for a lower unit price and higher margins,
also moderated revenue growth. Reduced manufacturing costs at Signode and the
welding operations, increased revenues from the finishing systems businesses and
growth in the decorating businesses contributed to operating income and margin
increases. Margin growth was partially offset by increased operating costs and
lower pricing in stretch film operations and the lower revenues in the quality
measurement businesses.
The majority of the revenue growth in 1996 compared with 1995 was due to
the Hobart acquisition. The finishing systems and stretch film operations also
contributed to the revenue growth as a result of an increase in new customers
and steady demand from general industrial markets, respectively. Operating
income grew as a result of shorter lead-times for equipment and improved
manufacturing efficiencies at Signode, stretch film and quality measurement
operations along with contributions from the Hobart acquisition. Margins
increased due to cost reductions and lower raw material costs in most of the
operations but lower margins at the newly acquired Hobart operations offset the
increase.
International
International revenues grew in 1997, due primarily to the acquisition of Mobil
Chemical, which manufactures stretch film, and acquisitions in the Signode
businesses. Stretch film operations, along with growth in the European
decorating and Hi-Cone businesses, also contributed to the increase in revenues.
Currency translation and the sale of the European palletizing operations in the
first quarter of 1997 partially offset the revenue growth. The sale of the
underperforming palletizing business did, however, contribute to increased
margins. Operating income and margins also improved as a result of cost
reductions in Signode operations and new product introductions in the finishing
systems businesses. European operations represent 65 percent of this segment's
international revenues. Foreign currency translation reduced revenues by $80
million and operating income by $13 million in 1997 versus 1996.
In 1996, international revenues increased from 1995 due to acquisitions,
primarily in the Signode and stretch film operations. Soft European
construction, steel and general industrial markets resulted in lower demand for
Signode products, which moderated revenue growth. Increased demand and new
customers fueled revenue increases in the specialty packaging and finishing
systems businesses, respectively, despite weak European packaging and industrial
markets. Operating income increased in 1996 due primarily to acquisitions and
lower nonrecurring costs of $10 million. The lower nonrecurring costs also
caused margins to increase in 1996. Foreign currency translation reduced
revenues by $23 million and operating income by $2 million in 1996 versus 1995.
LEASING AND INVESTMENT SEGMENT
This segment makes opportunistic investments that optimally utilize the
Company's cash flow. These investments primarily include mortgage-related
investments, leveraged and direct financing leases of equipment, investments in
properties and property developments, and affordable housing investments.
Operating Revenues
In millions 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $101 $68 $26
Operating Income
In millions 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $39 $25 $19
Revenues and operating income increased in 1997 primarily due to the commercial
mortgage transaction entered into at year-end 1996 and a nonrecurring gain on
the sale of equipment under leveraged lease of $3.0 million. Revenues and
operating income increased in 1996 versus 1995 primarily due to the commercial
mortgage transaction entered into at year-end 1995. Operating income in 1995
also included a nonrecurring gain on the sale of equipment under leveraged lease
of $4.1 million.
In December 1997, the Company acquired a pool of mortgage-related assets in
exchange for a nonrecourse note payable of $217.4 million, preferred stock of a
subsidiary of $20 million and cash of $80 million. In December 1996, the Company
acquired a pool of mortgage-related assets in exchange for a nonrecourse note
payable of $266.3 million, preferred stock of a subsidiary of $20 million and
cash of $80 million. In December 1995, the Company acquired a pool of
mortgage-related assets in exchange for a nonrecourse note payable of $256
million, preferred stock of a subsidiary of $20 million and cash of $80 million.
The mortgage-related assets for the three transactions are located throughout
the U.S. and include 38 subperforming, variable rate, balloon loans and 13
foreclosed properties at December 31, 1997. In conjunction with these
transactions, the Company simultaneously entered into ten-year swap agreements
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 $26 million per year and a portion of the proceeds from the
disposition of the mortgage-related assets and principal repayments, in
19
3
Management's Discussion and Analysis
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exchange for the third party making payments to the Company equal to the
contractual principal and interest payments on the nonrecourse notes payable. In
addition, in the event that the pools of mortgage-related assets do not generate
income of $26 million a year, the Company has a collateral right against the
cash flow generated by three separate pools of mortgage-related assets (owned by
third parties in which the Company has minimal interests) which have a total
fair value of approximately $3.1 billion at December 31, 1997. The Company
entered into the swaps 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 receivables of $297.9 million at December 31, 1997 (net of
the related nonrecourse notes payable) through its expected net cash flow of $26
million per year for the remainder of the ten-year periods and its estimated
share of $416.5 million of the proceeds from disposition of the mortgage-related
assets and principal repayments. The Company believes that because the swaps'
counterparty is Aaa-rated and that significant collateral secures the net annual
cash flow of $26 million, its risk of not recovering that portion of its net
investment has been significantly mitigated. The Company currently believes that
its share of the disposition proceeds will be sufficient to recover the
remainder of its net investment. However, there can be no assurances that all of
the net investment will be recovered.
The net assets attributed to the Leasing and Investments Segment at
December 31, 1997 and 1996 are summarized as follows:
In thousands 1997 1996
- --------------------------------------------------------------------------------
Assets:
Investments--
Mortgage-related assets $1,017,984 $ 731,577
Leases 79,875 83,432
Properties and affordable housing 57,549 50,462
Other 14,607 7,221
Deferred tax assets 360,262 281,307
Other assets 4,519 3,205
---------- ----------
$1,534,796 1,157,204
---------- ----------
Liabilities:
Debt--
Nonrecourse notes payable 720,125 519,890
Allocated general corporate debt 302,332 248,421
Deferred investment income 327,508 269,595
Preferred stock of subsidiaries 60,000 40,000
Other liabilities 16,720 16,464
---------- ----------
1,426,685 1,094,370
---------- ----------
Net assets $ 108,111 $ 62,834
========== ==========
COST OF REVENUES
Cost of Revenues as a percentage of revenues was 64.7% in 1997 compared with
65.7% in 1996 and 65.2% in 1995. The decrease in 1997 versus 1996 was mainly due
to increased sales volume coupled with lower manufacturing costs, while the
increase in 1996 versus 1995 was mainly due to lower gross margins related to
acquired companies.
SELLING, ADMINISTRATIVE AND R&D EXPENSES
Selling, administrative, and research and development expenses were 16.7% of
revenues in 1997 versus 17.5% in 1996 and 18.6% in 1995. This ratio continues to
decline because of increasing revenues and expense reductions as a result of a
Company-wide objective to reduce administrative costs.
INTEREST EXPENSE
Interest expense decreased to $19.4 million in 1997 versus $27.8 million in
1996, primarily due to decreased commercial paper borrowings and higher interest
expense in 1996 due to debt assumed from acquisitions. Interest expense
decreased in 1996 versus $30 million in 1995 as a result of lower interest rates
related to commercial paper and foreign borrowings. Interest costs of $49.3
million in 1997, $24.8 million in 1996 and $1.6 million in 1995 attributed to
the Leasing and Investments Segment have been classified in the segment's cost
of revenues.
OTHER INCOME (EXPENSE)
Other income increased to $16.5 million in 1997 versus expense of $2.4 million
in 1996, primarily due to higher gains on the sale of operations, foreign
currency translation gains, and debt prepayment costs in 1996, partially offset
by higher losses on sale of fixed assets in 1997. Other income (expense) was net
other expense of $2.4 million in 1996 versus net other income of $7.7 million in
1995, primarily due to 1996 debt prepayment costs of $2.7 million related to
debt assumed from acquired companies and foreign currency translation losses of
$3.2 million in 1996 versus translation gains of $2.4 million in 1995.
INCOME TAXES
The effective tax rate was 36.5% in 1997, 36.9% in 1996 and 37.9% in 1995. See
the Income Taxes note for a reconciliation of the U.S. federal statutory rate to
the effective tax rate. The Company has not recorded a valuation allowance on
the net deferred income tax assets of $548.4 million at December 31, 1997 and
$423.6 million at December 31, 1996 as it expects to continue to generate
significant taxable income in future years.
20
4
Illinois Tool Works Inc.
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NET INCOME
Net income in 1997 of $587.0 million ($2.35 per basic share and $2.33 per
diluted share) was 20.7% higher than 1996 net income of $486.3 million ($1.96
per basic share and $1.95 per diluted share). Net income in 1996 was 25.5%
higher than the 1995 net income of $387.6 million ($1.64 per basic share and
$1.63 per diluted share). In 1997, the stockholders approved a two-for-one
common stock split. All per share data in this report is calculated on a
post-split basis.
FOREIGN CURRENCY
The strengthening of the U.S. dollar against foreign currencies in 1997 resulted
in decreased operating revenues of $142 million and decreased net income of
approximately 4 cents per basic share. Foreign currency fluctuations had minimal
impact on revenues or earnings in 1996. 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 basic share of
approximately 5 cents per share.
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 1997, 1996
or 1995.
FINANCIAL POSITION
Net working capital at December 31, 1997 and 1996 is summarized as follows:
Increase
Dollars in thousands 1997 1996 (Decrease)
- -----------------------------------------------------------------------------------
Current Assets:
Cash and equivalents $ 185,856 $ 137,699 $ 48,157
Trade receivables 902,022 840,092 61,930
Inventories 522,996 526,016 (3,020)
Other 247,768 197,285 50,483
----------- ----------- -----------
1,858,642 1,701,092 157,550
----------- ----------- -----------
Current Liabilities:
Short-term debt 298,278 390,425 (92,147)
Accounts payable and
accrued expenses 727,469 760,989 (33,520)
Other 132,133 67,911 64,222
----------- ----------- -----------
1,157,880 1,219,325 (61,445)
----------- ----------- -----------
Net Working Capital $ 700,762 $ 481,767 $ 218,995
=========== =========== ===========
Current Ratio 1.61 1.40
=========== ===========
The increase in trade receivables at December 31, 1997 was primarily due to 1997
acquisitions.
Short-term debt decreased at December 31, 1997, due to the repayment of
commercial paper and a portion of the 1996 Azon acquisition debt, partially
offset by higher current maturities of long-term debt.
Long-term debt at December 31, 1997 consisted of $125 million of 7.5%
notes, $125 million of 5.875% notes, a $237 million nonrecourse 6.59% note, a
$266 million 7.00% nonrecourse note, a $217 million nonrecourse 6.44% note and
$36 million of capitalized lease obligations and other debt. Long-term debt
increased $35 million from December 31, 1996, principally as a result of the
issuance of the 6.44% note, partially offset by reclassifications to current
maturities. Excluding the effect of the Leasing and Investments Segment, the
percentage of total debt to total capitalization decreased to 4.6% at December
31, 1997 from 15.9% at December 31, 1996.
Stockholders' equity was $2.8 billion at December 31, 1997 compared with
$2.4 billion at December 31, 1996. Affecting equity were earnings of $587
million, dividends declared of $113 million, the effect of pooling of interests
acquisitions of $14 million and unfavorable currency translation adjustments of
$93 million.
The Statement of Cash Flows for the years ended December 31, 1997 and 1996
is summarized below:
In thousands 1997 1996
- --------------------------------------------------------------------------------
Net income $ 586,951 $ 486,315
Depreciation and
amortization 185,386 178,233
Acquisitions (221,954) (343,595)
Additions to plant and
equipment (178,702) (168,657)
Cash dividends paid (107,053) (85,481)
Net proceeds (repayments)
of debt (241,880) (14,833)
Purchase of investments (89,729) (104,159)
Other, net 115,138 73,276
--------- ---------
Net increase in cash and
equivalents $ 48,157 $ 21,099
========= =========
Net cash provided by operating activities of $660 million in 1997 and $629
million in 1996 was primarily used for acquisitions, for additions to plant and
equipment, for cash dividends, to repay long-term debt assumed from acquisitions
and to make investments.
Dividends paid per share increased 23% to $.43 per share in 1997 from $.35
per share in 1996. 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, 1997 or 1996.
21
5
Management's Discussion and Analysis
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MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt obligations and certain
mortgage-related investments.
The Company has no cash flow exposure on its long-term obligations related
to changes in market interest rates. The Company primarily enters into long-term
debt obligations for general corporate purposes, including the funding of
capital expenditures and larger acquisitions. The Company has not entered into
any material derivative financial instruments to hedge interest rate risk on
these general corporate borrowings.
The Company has also issued nonrecourse notes in connection with the three
commercial mortgage transactions. The holders of these notes only have recourse
against certain mortgage-related assets.
The mortgage-related assets acquired in the commercial mortgage
transactions include 38 subperforming, variable rate, balloon loans at December
31, 1997. The fair value of these commercial mortgage loans fluctuates as market
interest rates change. The Company has entered into swap and other related
agreements to reduce its credit and interest rate risks relative to the
commercial mortgage loans and other mortgage-related assets.
The table below presents the Company's financial instruments for which fair
value is subject to changing market interest rates:
AS OF DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------
ESTIMATED CASH INFLOW (OUTFLOW) BY YEAR OF PRINCIPAL MATURITY
-----------------------------------------------------------------------
2003 AND ESTIMATED CARRYING
In thousands 1998 1999 2000 2001 2002 THEREAFTER FAIR VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
General Corporate Debt:
7.5% notes due December 1, 1998 $(125,000) -- -- -- -- -- (126,484) (125,000)
5.875% notes due March 1, 2000 $ -- -- (125,000) -- -- -- (124,707) (125,000)
Mortgage-related Investments and
Related Nonrecourse Debt:
Commercial mortgage loans $ 30,214 80,387 461 55 658 497,347 600,304 573,717
Net swap receivables $ 52,031 51,269 (108,643) 73,478 46,628 228,892 258,857 258,857
6.59% nonrecourse note $ (19,000) (16,000) (16,000) (16,000) (16,000) (153,500) (246,963) (236,500)
7.00% nonrecourse note $ (2,663) (9,319) (9,319) (31,286) (13,979) (199,619) (278,700) (266,185)
6.44% nonrecourse note $ -- -- -- -- (1,087) (216,353) (217,440) (217,440)
Foreign Currency Risk
The Company operates in the United States and 33 other countries. In general,
the Company manufactures products that are sold in its significant foreign
markets in the particular local country. The initial funding for these foreign
manufacturing operations is provided primarily through the permanent investment
of capital from the U.S. parent company. As such, the Company does not have any
significant derivatives or other financial instruments which are subject to
foreign currency risk at December 31, 1997.
YEAR 2000 ISSUE
The Company utilizes software and related technologies throughout its businesses
that will be affected by the date change in the year 2000. In 1997, the Company
began an extensive internal study of the computer systems at all of its business
units to determine the extent of the systems that are not year 2000 compliant.
Testing of existing systems and remediation activities have begun and are
expected to be completed for critical systems by the end of 1998. It is
anticipated that the remaining system issues will be resolved in 1999. Based on
preliminary estimates, the cost of the Company's year 2000 compliance program is
not expected to be material to its business, results of operation or financial
condition.
22
6
Financial Statements Illinois Tool Works Inc.
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STATEMENT OF INCOME
Illinois Tool Works Inc. and Subsidiaries
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------
In thousands except for per share amounts 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Operating Revenues $ 5,220,433 $ 4,996,681 $ 4,178,080
Cost of revenues 3,378,794 3,281,530 2,723,988
Selling, administrative, and research and development expenses 870,268 875,386 776,112
Amortization of goodwill and other intangible assets 36,842 31,873 25,031
Amortization of retiree health care 7,306 7,306 6,968
----------- ----------- -----------
Operating Income 927,223 800,586 645,981
Interest expense (19,383) (27,834) (29,991)
Other income (expense) 16,511 (2,437) 7,718
----------- ----------- -----------
Income Before Income Taxes 924,351 770,315 623,708
Income taxes 337,400 284,000 236,100
----------- ----------- -----------
Net Income $ 586,951 $ 486,315 $ 387,608
=========== =========== ===========
Net Income Per Share:
Basic $ 2.35 $ 1.96 $ 1.64
=========== =========== ===========
Diluted $ 2.33 $ 1.95 $ 1.63
=========== =========== ===========
- --------------------------------------------------------------------------------
STATEMENT OF INCOME REINVESTED IN THE BUSINESS
Illinois Tool Works Inc. and Subsidiaries
FOR THE YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------
In thousands 1997 1996 1995
- --------------------------------------------------------------------------------------------
Balance, Beginning of Year $ 2,105,144 $ 1,673,320 $ 1,344,172
Net income 586,951 486,315 387,608
Cash dividends declared (113,467) (88,920) (74,789)
Effect of pooling of interests acquisitions 13,788 34,429 16,329
----------- ----------- -----------
Balance, End of Year $ 2,592,416 $ 2,105,144 $ 1,673,320
=========== =========== ===========
The Notes to 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1998
23
7
Financial Statements
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STATEMENT OF FINANCIAL POSITION
Illinois Tool Works Inc. and Subsidiaries
DECEMBER 31
-----------------------------
In thousands except shares 1997 1996
- ----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and equivalents $ 185,856 $ 137,699
Trade receivables 902,022 840,092
Inventories 522,996 526,016
Deferred income taxes 168,697 131,404
Prepaid expenses and other current assets 79,071 65,881
----------- -----------
Total current assets 1,858,642 1,701,092
----------- -----------
Plant and Equipment:
Land 78,055 68,362
Buildings and improvements 485,845 429,686
Machinery and equipment 1,387,502 1,282,274
Equipment leased to others 107,345 109,030
Construction in progress 58,644 51,744
----------- -----------
2,117,391 1,941,096
Accumulated depreciation (1,233,333) (1,132,756)
----------- -----------
Net plant and equipment 884,058 808,340
----------- -----------
Investments 1,170,015 872,692
Goodwill 774,250 664,054
Deferred Income Taxes 379,738 292,152
Other Assets 328,053 467,832
----------- -----------
$ 5,394,756 $ 4,806,162
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 298,278 $ 390,425
Accounts payable 269,088 248,062
Accrued expenses 458,381 512,927
Cash dividends payable 29,952 23,538
Income taxes payable 102,181 44,373
----------- -----------
Total current liabilities 1,157,880 1,219,325
----------- -----------
Noncurrent Liabilities:
Long-term debt 854,328 818,947
Other 576,094 371,865
----------- -----------
Total noncurrent liabilities 1,430,422 1,190,812
----------- -----------
Stockholders' Equity:
Preferred stock -- --
Common stock:
Issued--249,865,904 shares in 1997 and
248,040,246 shares in 1996 2,499 273,864
Additional paid-in-capital 287,153 --
Income reinvested in the business 2,592,416 2,105,144
Common stock held in treasury (1,833) (1,841)
Cumulative translation adjustment (73,781) 18,858
----------- -----------
Total stockholders' equity 2,806,454 2,396,025
----------- -----------
$ 5,394,756 $ 4,806,162
=========== ===========
The Notes to Financial Statements are an integral part of this statement.
24
8
Illinois Tool Works Inc.
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STATEMENT OF CASH FLOWS
Illinois Tool Works Inc. and Subsidiaries
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------
In thousands 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
Cash Provided by (Used for) Operating Activities:
Net income $ 586,951 $ 486,315 $ 387,608
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 185,386 178,233 151,931
Change in deferred income taxes (7,819) (12,627) (23,870)
Provision for uncollectible accounts 6,268 4,451 6,889
Loss on sale of plant and equipment 7,683 536 2,539
Income from investments (93,652) (53,623) (20,981)
Non-cash interest on nonrecourse debt 35,638 16,413 --
(Gain) loss on sale of operations and affiliates (6,824) 2,076 (692)
Other non-cash items, net (1,206) (165) 11,735
--------- --------- ---------
Cash provided by operating activities 712,425 621,609 515,159
Change in assets and liabilities:
(Increase) decrease in--
Trade receivables (66,001) (11,461) (27,869)
Inventories 6,173 58,935 (22,830)
Prepaid expenses and other assets (46,519) (30,428) (11,636)
Increase (decrease) in--
Accounts payable 20,714 (22,396) (20,020)
Accrued expenses (1,968) 5,913 2,061
Income taxes payable 35,836 8,863 (11,764)
Other, net (402) (1,608) 11,451
--------- --------- ---------
Net cash provided by operating activities 660,258 629,427 434,552
--------- --------- ---------
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)
and additional interest in affiliates (221,954) (343,595) (212,426)
Additions to plant and equipment (178,702) (168,657) (150,176)
Purchase of investments (89,729) (104,159) (126,300)
Proceeds from investments 43,772 50,049 36,926
Proceeds from sale of plant and equipment 17,054 20,836 13,500
Proceeds from sale of operations and affiliates 168,383 24,660 4,650
Other, net 6,542 (521) 11,996
--------- --------- ---------
Net cash used for investing activities (254,634) (521,387) (421,830)
--------- --------- ---------
Cash Provided by (Used for) Financing Activities:
Cash dividends paid (107,053) (85,481) (71,783)
Issuance of common stock 7,763 5,514 7,598
Net proceeds (repayments) of short-term debt (208,362) 74,362 137,134
Proceeds from long-term debt 3,341 9,776 1,152
Repayments of long-term debt (36,859) (98,971) (2,199)
Redemption of preferred stock of subsidiary -- -- (40,000)
Other, net 4,700 2,940 (7,919)
--------- --------- ---------
Net cash provided by (used for) financing activities (336,470) (91,860) 23,983
--------- --------- ---------
Effect of Exchange Rate Changes on Cash and Equivalents (20,997) 4,919 3,028
--------- --------- ---------
Cash and Equivalents:
Increase during the year 48,157 21,099 39,733
Beginning of year 137,699 116,600 76,867
--------- --------- ---------
End of year $ 185,856 $ 137,699 $ 116,600
========= ========= =========
Cash Paid During the Year for Interest $ 32,184 $ 45,394 $ 31,595
========= ========= =========
Cash Paid During the Year for Income Taxes $ 291,721 $ 262,685 $ 264,683
========= ========= =========
Liabilities Assumed from Acquisitions $ 132,122 $ 306,677 $ 185,705
========= ========= =========
See the Investments note for information regarding noncash transactions. The
Notes to Financial Statements are an integral part of this statement.
25
9
Notes to Financial Statements
The Notes to Financial Statements furnish additional information on items in the
financial statements. The notes 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 notes to 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 three segments: Engineered Components, Industrial Systems and
Consumables, and Leasing and Investments. 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
1997, 1996 or 1995. Export sales from the United States were less than 10% of
total operating revenues during these years.
Additional segment and geographic information for 1997, 1996 and 1995 was
as follows:
In thousands 1997 1996 1995
- ------------------------------------------------------------------------------------------
Identifiable Assets:
Domestic--
Engineered Components $ 682,614 $ 620,827 $ 522,495
Industrial Systems and Consumables 1,045,525 1,003,062 930,145
Leasing and Investments 1,534,796 1,157,204 604,471
---------- ---------- ----------
3,262,935 2,781,093 2,057,111
---------- ---------- ----------
International--
Engineered Components 608,064 597,145 572,026
Industrial Systems and Consumables 1,082,185 1,073,502 704,721
---------- ---------- ----------
1,690,249 1,670,647 1,276,747
---------- ---------- ----------
Corporate 441,572 354,422 257,460
---------- ---------- ----------
$5,394,756 $4,806,162 $3,591,318
========== ========== ==========
Plant and Equipment Additions:
Engineered Components $ 83,848 $ 87,431 $ 78,922
Industrial Systems and Consumables 94,854 81,226 71,254
Leasing and Investments -- -- --
---------- ---------- ----------
$ 178,702 $ 168,657 $ 150,176
========== ========== ==========
Depreciation and Amortization:
Engineered Components $ 87,490 $ 86,874 $ 73,269
Industrial Systems and Consumables 97,317 90,655 78,160
Leasing and Investments 579 704 502
---------- ---------- ----------
$ 185,386 $ 178,233 $ 151,931
========== ========== ==========
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.
10
Illinois Tool Works Inc.
- --------------------------------------------------------------------------------
ACQUISITIONS AND DISPOSITIONS--In the fourth quarter of 1996, the Company
acquired all of the outstanding common stock of Azon Limited ("Azon"), an
Australian manufacturer of strapping and other industrial products. The
acquisition has been accounted for as a purchase, and accordingly, the acquired
net assets have been recorded at their estimated fair values at the date of
acquisition. The results of operations have been included in the Statement of
Income from the acquisition date, except for the Azon businesses which were
expected to be sold, which were not consolidated at December 31, 1996. During
1997, the Company disposed of the majority of the Azon businesses which were
expected to be sold.
Based on the assumption that the Azon acquisition had occurred on January
1, 1996 or January 1, 1995, the Company's pro forma operating revenues, net
income and net income per share would not have been significantly different.
During 1997, 1996 and 1995, the Company acquired and disposed of numerous
other operations which did not materially affect consolidated results.
Research and Development Expenses are recorded as expense in the year incurred.
These costs were $52,021,000 in 1997, $55,800,000 in 1996 and $52,700,000
in 1995.
RENTAL EXPENSE was $41,809,000 in 1997, $41,740,000 in 1996 and $36,120,000 in
1995.
Future minimum lease payments for the years ended December 31 are as follows:
In thousands
- -------------------------------------------------------------------------------
1998 $ 28,556
1999 22,310
2000 18,260
2001 13,955
2002 10,620
2003 and future years 21,826
--------
$115,527
========
- --------------------------------------------------------------------------------
Other Income (Expense) consisted of the following:
In thousands 1997 1996 1995
- --------------------------------------------------------------------------------------------------
Interest income $14,592 $ 9,732 $ 8,177
Gain (loss) on sale of operations and affiliates 6,824 (2,076) 692
Loss on sale of plant and equipment (7,683) (536) (2,539)
Gain (loss) on foreign currency translation 3,628 (3,198) 2,375
Debt prepayment costs -- (2,721) --
Other, net (850) (3,638) (987)
------- -------- -------
$16,511 $ (2,437) $ 7,718
======= ======== =======
27
11
Notes to Financial Statements
- --------------------------------------------------------------------------------
INCOME TAXES--The Company 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 1997 1996 1995
- --------------------------------------------------------------------------------
U.S. federal income taxes:
Current $ 189,876 $ 162,454 $ 156,166
Deferred 21,961 (9,526) 306
--------- --------- ---------
211,837 152,928 156,472
--------- --------- ---------
Foreign income taxes:
Current 121,990 80,422 61,864
Deferred (34,420) 16,850 (8,488)
--------- --------- ---------
87,570 97,272 53,376
--------- --------- ---------
State income taxes:
Current 40,238 32,165 27,448
Deferred (2,245) 1,635 (1,196)
--------- --------- ---------
37,993 33,800 26,252
--------- --------- ---------
$ 337,400 $ 284,000 $ 236,100
========= ========= =========
Income before income taxes for domestic and foreign operations was as follows:
In thousands 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $728,120 $522,770 $449,508
Foreign 196,231 247,545 174,200
-------- -------- --------
$924,351 $770,315 $623,708
======== ======== ========
The reconciliation between the U.S. federal statutory tax
rate and the effective tax rate was as follows:
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
U.S federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of U.S. federal tax benefit 2.7 2.9 2.7
Amortization of nondeductible goodwill .9 .9 .8
Differences between U.S. federal statutory and foreign tax rates .9 .6 .6
Other, net (3.0) (2.5) (1.2)
------ ------ ------
Effective tax rate 36.5% 36.9% 37.9%
====== ====== ======
Deferred U.S. federal income taxes and foreign withholding taxes have not been
provided on approximately $201,000,000 of undistributed earnings of
international affiliates as of December 31, 1997. In the event these earnings
were distributed to the Company, U.S. 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.
28
12
Illinois Tool Works Inc.
- --------------------------------------------------------------------------------
The components of deferred income tax assets and liabilities at December 31,
1997 and 1996 were as follows:
1997 1996
----------------------- ----------------------
In thousands Asset Liability Asset Liability
- ---------------------------------------------------------------------------------------------------------------------------
Acquisition asset basis differences $ 40,689 $ (20,505) $ 29,625 $ (14,289)
Inventory reserves, capitalized tax cost and LIFO inventory 22,134 (11,894) 24,713 (11,011)
Investments 400,280 (40,018) 324,033 (42,726)
Plant and equipment 10,736 (35,425) 3,940 (46,795)
Accrued expenses and reserves 74,173 -- 57,784 --
Employee benefit accruals 60,694 -- 52,529 --
Net operating loss carryforwards 41,414 -- 51,797 --
Allowances for uncollectible accounts 4,395 -- 5,434 --
Prepaid pension assets -- (23,027) -- (19,849)
Other 44,422 (17,975) 28,870 (16,334)
-------- --------- -------- ---------
Gross deferred income tax assets (liabilities) 698,937 (148,844) 578,725 (151,004)
Valuation allowances (1,658) -- (4,165) --
-------- --------- -------- ---------
Total deferred income tax assets (liabilities) $697,279 $(148,844) $574,560 $(151,004)
======== ========= ======== =========
Net deferred income tax assets $548,435 $423,556
======== ========
No valuation allowance has been recorded on the net deferred income tax assets
at December 31, 1997 and 1996 as the Company expects to continue to generate
significant taxable income in future years.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $108,800,000 available to offset future taxable income in the U.S.
and certain foreign jurisdictions which expire as follows:
In thousands
- --------------------------------------------------------------------------------
1998 $ 300
1999 1,100
2000 1,400
2001 8,000
2002 400
2003 1,800
2004 2,200
2005 1,900
2006 200
2007 6,200
2008 1,800
2009 1,300
2010 900
2011 900
Do not expire 80,400
--------
$108,800
========
29
13
Notes to Financial Statements
- --------------------------------------------------------------------------------
NET INCOME PER SHARE OF COMMON STOCK--The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings per Share, in the fourth quarter
of 1997. Under SFAS No. 128, net income per basic share is computed by dividing
net income by the weighted average number of shares outstanding for the period.
Net income per diluted share is computed by dividing net income by the weighted
average number of shares assuming dilution. Dilutive shares reflect the
potential additional shares that would be outstanding if the dilutive stock
options outstanding were exercised during the period.
The computation of net income per share was as follows:
In thousands except per share data 1997 1996 1995
- --------------------------------------------------------------------------------------------
Net income $ 586,951 $ 486,315 $ 387,608
========== ========== ==========
Net income per share--Basic:
Weighted average common shares 249,284 247,556 235,978
========== ========== ==========
Net income per share--Basic $ 2.35 $ 1.96 $ 1.64
========== ========== ==========
Net income per share--Diluted:
Weighted average common shares 249,284 247,556 235,978
Effect of dilutive stock options 2,476 2,014 1,768
---------- ---------- ----------
Weighted average common shares assuming dilution 251,760 249,570 237,746
========== ========== ==========
Net income per share--Diluted $ 2.33 $ 1.95 $ 1.63
========== ========== ==========
Options to purchase 1,128,639 and 752,350 shares of common stock at an average
price of $54.61 and $30.13 per share were outstanding at December 31, 1997 and
1995, respectively, but were not included in the computation of diluted net
income per share for the period, because the options' exercise price was greater
than the average market price of the common shares. These options will expire in
2007 and 2005, respectively.
Cash and Equivalents included interest-bearing deposits of $118,982,000 at
December 31, 1997 and $83,900,000 at December 31, 1996.
Interest-bearing deposits have maturities of 90 days or less and are stated
at cost, which approximates market.
Trade Receivables as of December 31, 1997 and 1996 were net of allowances for
uncollectible accounts of $20,800,000 and $22,400,000, respectively.
Inventories at December 31, 1997 and 1996 were as follows:
In thousands 1997 1996
- --------------------------------------------------------------------------------
Raw material $145,851 $143,979
Work-in-process 67,956 71,641
Finished goods 309,189 310,396
-------- --------
$522,996 $526,016
======== ========
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, 1997 and 1996, 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 $58,500,000 and
$57,100,000 higher than reported at December 31, 1997 and 1996, 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.
Depreciation was $148,544,000 in 1997 compared with $146,360,000 in 1996
and $126,900,000 in 1995 and was reflected primarily in cost of revenues.
Depreciation of plant and equipment for financial reporting purposes is computed
principally on an accelerated basis.
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
30
14
Illinois Tool Works Inc.
- --------------------------------------------------------------------------------
Investments as of December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996
- ------------------------------------------------------------------------------------------
Commercial mortgage loans $ 573,717 $ 457,015
Commercial real estate 167,194 86,919
Net swap receivables 258,857 171,330
Receivable from mortgage servicer 18,216 16,313
Leveraged, direct financing and sales-type leases of equipment 79,875 83,432
Properties held for sale 22,583 18,456
Property developments 17,871 18,425
Affordable housing 17,095 13,581
Annuity contract 5,005 --
U.S. Treasury security 4,479 4,286
Other 5,123 2,935
---------- ----------
$1,170,015 $ 872,692
========== ==========
In December 1997, the Company acquired a pool of mortgage-related assets in
exchange for a nonrecourse note payable of $217,440,000, preferred stock of a
subsidiary of $20,000,000 and cash of $80,000,000. In December 1996, the Company
acquired a pool of mortgage-related assets in exchange for a nonrecourse note
payable of $266,265,000, preferred stock of a subsidiary of $20,000,000 and cash
of $80,000,000. 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 for the three transactions are located
throughout the U.S. and include 38 subperforming, variable rate, balloon loans
and 13 foreclosed properties at December 31, 1997. In conjunction with these
transactions, the Company simultaneously entered into ten-year swap agreements
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 $26,000,000 per year and a portion 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 notes payable. In addition,
in the event that the pools of mortgage-related assets do not generate income of
$26,000,000 a year, the Company has a collateral right against the cash flow
generated by three separate pools of mortgage-related assets (owned by third
parties in which the Company has minimal interests) which have a total fair
value of approximately $3,074,588,000 at December 31, 1997. The Company entered
into the swaps 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 receivables of $297,859,000 at December 31, 1997 (net of the
related nonrecourse notes payable) through its expected net cash flow of
$26,000,000 per year for the remainder of the ten-year periods and its estimated
share of $416,500,000 of the proceeds from disposition of the mortgage-related
assets and principal repayments.
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 were sold in the
first quarter of 1996.
The Company evaluates whether the commercial 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 is recorded through income. At
December 31, 1997 and 1996, the impairment loss allowance was $12,000,000 and
$4,803,000, respectively. The estimated fair value of the commercial mortgage
loans, based on discounted future cash flows, exceeds the carrying value by
$26,587,000 at December 31, 1997 and approximates the carrying value at December
31, 1996. The net swap receivables are 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 receivables due to changes in
expected future cash flows or interest rates are recorded through income.
31
15
Notes to Financial Statements
- --------------------------------------------------------------------------------
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, direct financing and
sales-type leases at December 31, 1997 and 1996 were as shown below:
In thousands 1997 1996
- -------------------------------------------------------------------------------------------------------------
Lease contracts receivable (net of principal and interest on nonrecourse financing) $ 86,183 $ 92,874
Estimated residual value of leased assets 25,596 25,601
Unearned and deferred income (31,904) (35,043)
-------- --------
Investment in leveraged, direct financing and sales-type leases 79,875 83,432
Deferred income taxes related to leveraged and direct financing leases (36,639) (37,980)
-------- --------
Net investment in leveraged, direct financing and sales-type leases $ 43,236 $ 45,452
======== ========
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.
Amortization expense was $25,666,000 in 1997, $21,727,000 in 1996, and
$16,335,000 in 1995. Accumulated goodwill amortization was $133,137,000 and
$125,532,000, at December 31, 1997 and 1996, respectively.
Other Assets as of December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996
- --------------------------------------------------------------------------------
Other intangible assets $ 132,974 $ 136,774
Accumulated amortization of other intangible assets (30,048) (48,269)
Cash surrender value of life insurance policies 83,341 64,234
Prepaid pension assets 62,041 54,115
Investment in unconsolidated affiliates 28,526 34,217
Investment in businesses to be sold -- 170,478
Other 51,219 56,283
--------- ---------
$ 328,053 $ 467,832
========= =========
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 five to 17 years. Amortization expense was $11,176,000
in 1997, $10,146,000 in 1996, and $8,696,000 in 1995.
The businesses acquired in the Azon acquisition in 1996 which were expected
to be sold were not consolidated and were recorded at estimated fair value at
December 31, 1996. During 1997, the Company disposed of the majority of the Azon
businesses which were expected to be sold.
32
16
Illinois Tool Works Inc.
- --------------------------------------------------------------------------------
Retirement Plans--The Company sponsors defined contribution retirement plans
covering the majority of domestic employees. The Company's contributions to
these plans were $11,900,000 in 1997, $12,200,000 in 1996 and $9,900,000 in
1995.
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 U.S federal income
tax laws, the Company's policy has been to contribute funds to the domestic
plans annually in amounts required to maintain sufficient plan assets to provide
for accrued benefits. Contributions of $13,865,000 and $11,303,000 were made to
the principal plan during 1997 and 1996, respectively. No contributions to the
principal plan were made in 1995. Contributions to international and other
domestic plans were minimal in 1997, 1996 and 1995. Domestic plan assets consist
primarily of listed common stocks and debt securities.
The components of net pension expense were as shown below:
In thousands 1997 1996 1995
- ---------------------------------------------------------------------------------------
Service cost $ 29,830 $ 24,373 $ 24,369
Interest cost on projected benefit obligation 41,688 35,641 33,972
Actual return on plan assets (155,661) (71,754) (99,364)
Net amortization and deferral 99,948 19,233 49,102
--------- --------- ---------
Net pension expense $ 15,805 $ 7,493 $ 8,079
========= ========= =========
The following table sets forth the funded status and amounts recognized in the
Company's Statement of Financial Position at December 31, 1997 and 1996:
1997 1996
----------------------- ------------------------
In thousands Domestic Foreign Domestic Foreign
- -------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $(356,846) $(107,492) $(323,331) $ (86,844)
Non-vested (61,681) (11,465) (62,057) (16,118)
--------- --------- --------- ---------
Accumulated benefit obligation (418,527) (118,957) (385,388) (102,962)
Effect of projected wage increases (51,758) (24,101) (49,970) (16,751)
--------- --------- --------- ---------
Projected benefit obligation (470,285) (143,058) (435,358) (119,713)
Plan assets at fair value 620,314 149,972 499,218 122,956
--------- --------- --------- ---------
Plan assets in excess of projected benefit obligation 150,029 6,914 63,860 3,243
Unrecognized net gain (129,459) (12,636) (52,218) (13,653)
Unrecognized prior service cost 25,983 292 31,038 --
Unrecognized transition asset (11,585) (5,542) (15,501) (6,554)
Adjustment to recognize minimum liability (6,239) (1,008) (5,873) (643)
--------- --------- --------- ---------
Prepaid (accrued) pension asset (liability) $ 28,729 $ (11,980) $ 21,306 $ (17,607)
========= ========= ========= =========
The significant actuarial assumptions at December 31, 1997, 1996 and 1995 were
as follows:
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Domestic plans:
Discount rate 7.50% 7.75% 7.75%
Expected long-term rate of return on plan assets 10.00% 10.00% 10.00%
Rate of increase in future compensation levels 4.00% 4.50% 4.00%
Foreign plans:
Discount rate 3.50-8.00% 4.00-9.00% 5.50-9.00%
Expected long-term rate of return on plan assets 5.00-9.00% 5.50-9.00% 5.50-9.00%
33
17
Notes to Financial Statements
- --------------------------------------------------------------------------------
Short-Term Debt as of December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996
- ---------------------------------------------------------------------------------
Bank overdrafts $ 73,322 $ 45,472
Commercial paper -- 54,990
Current maturities of long-term debt 151,409 30,549
Australian cash advance facility 56,842 244,717
Other borrowings by foreign subsidiaries 16,705 14,697
-------- --------
$298,278 $390,425
======== ========
Commercial paper is issued at a discount and generally matures 30 to 90 days
from the date of issue. The weighted average interest rate on commercial paper
outstanding at December 31, 1996 was 6.41%.
In August 1996, to fund the Azon acquisition, the Company entered into a
364-day Australian cash advance facility with maximum available borrowings of
Australian $325,000,000. In September 1997, the Company amended this cash
advance facility to decrease the maximum available borrowings to Australian
$175,000,000 and to extend the term of the facility to August 1998. The facility
had an interest rate of 5.0% at December 31, 1997 and 6.7% at December 31, 1996.
The weighted average interest rate on other foreign borrowings was 5.0% at
December 31, 1997 and 4.4% at December 31, 1996.
Accrued Expenses as of December 31, 1997 and 1996 consisted of accruals for:
- --------------------------------------------------------------------------------
In thousands 1997 1996
- --------------------------------------------------------------------------------
Compensation and employee benefits $185,017 $237,476
Taxes, other than income taxes 20,985 23,375
Customer deposits 20,780 29,816
Other 231,599 222,260
-------- --------
$458,381 $512,927
======== ========
34
18
Illinois Tool Works Inc.
- --------------------------------------------------------------------------------
Long-Term Debt at December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
7.5% notes due December 1, 1998 $ 125,000 $ 125,000
5.875% notes due March 1, 2000 125,000 125,000
6.59% nonrecourse note due semiannually through December 31, 2005 236,500 253,625
7.00% nonrecourse note due semiannually through November 30, 2006 266,185 266,265
6.44% nonrecourse note due semiannually from August 31, 2002 through February 29, 2008 217,440 --
Other, including capitalized lease obligations 35,612 79,606
----------- -----------
1,005,737 849,496
Current maturities (151,409) (30,549)
----------- -----------
$ 854,328 $ 818,947
=========== ===========
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 $1,191,000 at December 31, 1997, and $700,000 at December 31, 1996.
The Company issued a $256,000,000 6.28% nonrecourse note at face value in
December 1995, a $266,265,000 7.0% nonrecourse note at face value in December
1996 and a $217,440,000 6.44% nonrecourse note at face value in December 1997.
In 1997, the Company refinanced the 6.28% nonrecourse note with a 6.59%
nonrecourse note with similar terms. The holders of these notes only have
recourse against the commercial mortgage loans, commercial real estate and the
net swap receivable, which are included in investments. The estimated fair value
of the three nonrecourse notes, based on discounted cash flows, exceeded the
carrying value by $19,978,000 at December 31, 1997 and approximated carrying
value at December 31, 1996.
In 1992, the Company entered into a $300,000,000 revolving credit facility
(RCF). In May 1996, the Company amended the RCF to increase the maximum
available borrowings to $350,000,000 and extended the commitment termination
date to May 30, 2001. The amended RCF provides for borrowings under a number of
options and 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, 1997
or 1996. The Company maintains unused commitments under the RCF equal to any
commercial paper borrowings.
The amended 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, 1997.
Other debt outstanding at December 31, 1997 bears interest at rates ranging
from 2.19% to 14.5%, with maturities through the year 2012.
Scheduled maturities of long-term debt for the years ended December 31 are
as follows:
In thousands
- --------------------------------------------------------------------------------
1999 $ 30,830
2000 153,629
2001 49,949
2002 40,141
2003 and future years 579,779
--------
$854,328
========
- --------------------------------------------------------------------------------
Other Noncurrent Liabilities at December 31, 1997 and 1996 consisted of the
following:
In thousands 1997 1996
- --------------------------------------------------------------------------------
Deferred investment income $287,958 $238,870
Preferred stock of subsidiaries 60,000 40,000
Other 228,136 92,995
-------- --------
$576,094 $371,865
======== ========
35
19
Notes to Financial Statements
- --------------------------------------------------------------------------------
POSTRETIREMENT HEALTH CARE BENEFITS--The Company provides postretirement 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. The
expected cost of the health care benefits is charged to expense during the
service lives of the employees. The Company funds the health care benefits
principally on a pay-as-you-go basis.
A one-percentage point increase in the health care cost trend rate would
increase the accumulated postretirement benefit obligation as of December 31,
1997 by approximately $16,437,000 and the sum of the 1997 annual service and
interest cost by approximately $1,635,000. The costs of postretirement health
care benefits were as shown below:
In thousands 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
Service cost $ 2,381 $ 2,253 $ 2,110
Interest cost on accumulated postretirement benefit obligation 9,246 9,182 10,077
Net amortization and deferral 6,134 6,067 5,581
------- ------- -------
Net postretirement benefit cost $17,761 $17,502 $17,768
======= ======= =======
The following table sets forth the amounts recognized in the
Company's Statement of Financial Position at December 31, 1997 and 1996:
In thousands 1997 1996
- -------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ (89,650) $ (86,467)
Active employees (36,904) (35,614)
--------- ---------
(126,554) (122,081)
Unrecognized transition obligation 108,137 115,346
Unrecognized net gain (21,631) (26,461)
--------- ---------
Accrued postretirement benefit cost $ (40,048) $ (33,196)
========= =========
The significant actuarial assumptions at December 31, 1997, 1996 and 1995 were
as follows:
1997 1996 1995
- ------------------------------------------------------------------------------
Discount rate 7.50% 7.75% 7.75%
Health care cost trend rate:
Current rate 5.00% 5.00% 7.00%
Ultimate rate in 1998 5.00% 5.00% 5.00%
36
20
Illinois Tool Works Inc.
- --------------------------------------------------------------------------------
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 its preferred stock.
- --------------------------------------------------------------------------------
Common Stock, Additional Paid-in-Capital and Common Stock Held in Treasury
transactions during 1997, 1996 and 1995 are shown below. On May 9, 1997, the
stockholders approved a) an amendment to the Restated Certificate of
Incorporation changing the number of authorized shares of common stock from
150,000,000 shares without par value to 350,000,000 shares with a par value of
$.01 and b) a two-for-one split of the Company's common stock, with a
distribution date of May 27, 1997, at a rate of one additional share for each
common share held by stockholders of record on May 20, 1997. All per share data
in this report is calculated on a post-split basis.
ADDITIONAL COMMON STOCK
COMMON STOCK PAID-IN-CAPITAL HELD IN TREASURY
--------------------------- --------------- ---------------------------
In thousands except shares SHARES AMOUNT AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
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)
----------- ----------- ----------- ----------- -----------
During 1996--
Stock options exercised 254,181 5,871 -- 23,462 1,579
Shares surrendered on exercise of stock options (11,791) (462) -- (23,462) (1,579)
Tax benefits related to stock options exercised -- 3,176 -- -- --
Shares issued for acquisitions 5,408,704 25,510 -- -- --
Shares issued for stock incentive and
restricted stock grants -- 81 -- 1,800 25
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 124,020,123 273,864 -- (134,468) (1,841)
----------- ----------- ----------- ----------- -----------
During 1997--
Adjustment to reflect the May 1997 stock split 124,020,123 -- -- (134,468) --
Adjustment to reflect change in par value -- (275,701) 275,701 -- --
Stock options exercised 673,132 4,018 4,452 14,862 796
Shares surrendered on exercise of stock options (33,162) (10) (744) (14,862) (796)
Tax benefits related to stock options exercised -- -- 7,758 -- --
Shares issued for acquisitions 1,181,228 289 (14) -- --
Shares issued for stock incentive and
restricted stock grants 4,460 39 -- 1,200 8
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 249,865,904 $ 2,499 $ 287,153 (267,736) $ (1,833)
=========== =========== =========== =========== ===========
Authorized, December 31, 1997 350,000,000
===========
- --------------------------------------------------------------------------------
Cash Dividends declared were $.46 per share in 1997, $.36 per share in 1996 and
$.32 per share in 1995. Cash dividends paid were $.43 per share in 1997, $.35
per share in 1996 and $.31 per share in 1995.
37
21
Notes to Financial Statements
- --------------------------------------------------------------------------------
Stock Options have been issued to officers and other employees under the
Company's 1996 Stock Incentive Plan, which was adopted in 1996. At December 31,
1997, 19,005,370 shares were reserved for issuance under the plan. Option prices
are 100% of the common stock fair market value on the date of grant.
Effective 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. The pro forma net income effect of applying SFAS No. 123 is as
follows:
In thousands except per share data 1997 1996 1995
- --------------------------------------------------------------------------------
Net Income:
As reported $ 586,951 $ 486,315 $ 387,608
Pro forma 582,909 482,767 387,608
Net income per basic share:
As reported $ 2.35 $ 1.96 $ 1.64
Pro forma 2.34 1.95 1.64
Net income per diluted share:
As reported $ 2.33 $ 1.95 $ 1.63
Pro forma 2.32 1.93 1.63
The table presented below provides a summary of the stock option transactions
during 1997, 1996 and 1995:
1997 1996 1995
--------------------------------- --------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------------
Under option at beginning of year 4,999,416 $ 21.56 5,154,158 $ 19.71 4,447,104 $ 14.26
Granted 1,128,639 54.61 420,028 33.69 1,554,330 30.12
Exercised (687,994) 14.30 (556,020) 13.44 (769,400) 9.56
Canceled or expired (55,376) 27.17 (18,750) 23.29 (77,876) 17.34
-------------- ------------ ------------
Under option at end of year 5,384,685 29.36 4,999,416 21.56 5,154,158 19.71
============== ============ ============
Exercisable at year-end 3,145,946 3,037,064 2,857,328
Available for grant at year-end 13,620,685 14,650,384 4,054,072
Weighted average fair value of
option grant during the year $ 15.82 $ 10.01 $ 8.47
The following table summarizes information on stock options outstanding as of
December 31, 1997:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------- ------------------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------------
$ 8.31-16.25 1,164,071 3.42 years $13.69 1,164,071 $13.69
18.31-25.19 1,225,958 6.11 years 18.62 1,179,958 18.55
30.13-39.81 1,864,989 8.03 years 30.92 800,889 30.51
40.22-56.75 1,129,667 9.95 years 54.60 1,028 40.22
--------- ---------
5,384,685 7.00 years 29.36 3,145,946 19.80
========= =========
The estimated fair value of each option granted is calculated using the
Black-Scholes option pricing model. The following summarizes the assumptions
used in the model:
1997 1996 1995
- -------------------------------------------------------------------------------------
Risk-free interest rate 5.9% 6.4% 5.6%
Expected stock volatility 21.7% 22.2% 21.8%
Dividend yield 1.29% 1.36% 1.36%
Expected years until exercise 5.5 5.5 5.5
38
22
Quarterly and Common Stock Data Illinois Tool Works Inc.
- --------------------------------------------------------------------------------
Quarterly Financial Data (Unaudited)
THREE MONTHS ENDED
- ---------------------------------------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
In thousands except ----------------------- ----------------------- ----------------------- -------------------------
per share amounts 1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Operating revenues $1,229,798 $1,136,922 $1,326,344 $1,324,800 $1,315,388 $1,238,261 $1,348,903 $1,296,698
Cost of revenues 807,317 755,539 854,352 871,156 857,495 817,658 859,630 837,177
Operating income 196,433 161,438 245,819 214,992 235,763 198,731 249,208 225,425
Net income 123,255 98,755 154,394 130,375 149,130 122,842 160,172 134,343
Net income per share:
Basic .49 .40 .62 .53 .60 .50 .64 .54
Diluted .49 .40 .61 .52 .59 .49 .64 .54
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 1997 and 1996, restated for the
two-for-one stock split in May 1997, were as shown below:
MARKET PRICE PER SHARE
----------------------
HIGH LOW DIVIDENDS PAID PER SHARE
- -------------------------------------------------------------------------
1997
Fourth quarter $60.13 $46.88 $.120
Third quarter 55.31 45.56 .120
Second quarter 52.63 40.31 .095
First quarter 45.69 37.38 .095
1996
Fourth quarter $43.63 $34.75 $.095
Third quarter 37.13 30.44 .085
Second quarter 34.88 30.50 .085
First quarter 34.75 25.94 .085
The approximate number of holders of record of common stock as of February 13,
1998 was 4,772. This number does not include beneficial owners of the Company's
securities held in the name of nominees.
39
23
Eleven-Year Financial Summary
Dollars and shares in thousands
except per share amounts 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Income:
Operating revenues $ 5,220,433 4,996,681 4,178,080 3,461,315 3,159,181 2,811,645
Cost of revenues $ 3,378,794 3,281,530 2,723,988 2,290,117 2,122,286 1,858,752
Selling, administrative and research and
development expenses $ 870,268 875,386 776,112 666,576 638,560 589,423
Amortization of goodwill and other
intangible assets $ 36,842 31,873 25,031 22,344 21,874 22,169
Amortization of retiree health care $ 7,306 7,306 6,968 6,968 6,968 --
Operating income $ 927,223 800,586 645,981 475,310 369,493 341,301
Interest expense $ (19,383) (27,834) (29,991) (26,943) (35,025) (42,852)
Other income (expense) $ 16,511 (2,437) 7,718 1,916 1,402 11,331
Income before income taxes $ 924,351 770,315 623,708 450,283 335,870 309,780
Income taxes $ 337,400 284,000 236,100 172,500 129,300 117,700
Net income $ 586,951 486,315 387,608 277,783 206,570 192,080
Basic per share $ 2.35 1.96 1.64 1.22 .91 .86
Diluted per share $ 2.33 1.95 1.63 1.22 .90 .85
Financial Position:
Net working capital $ 700,762 481,767 681,558 634,500 547,506 492,118
Net plant and equipment $ 884,058 808,340 694,941 641,235 583,765 524,116
Total assets $ 5,394,756 4,806,162 3,591,318 2,580,498 2,336,891 2,204,187
Long-term debt $ 854,328 818,947 615,557 272,987 375,641 251,979
Total debt $ 1,152,606 1,209,372 791,745 339,989 482,714 335,240
Stockholders' equity $ 2,806,454 2,396,025 1,924,237 1,541,521 1,258,669 1,339,673
Other Data:
Operating income:
Return on operating revenues % 17.8 16.0 15.5 13.7 11.7 12.1
Net income:
Return on operating revenues % 11.2 9.7 9.3 8.0 6.5 6.8
Return on average stockholders' equity % 22.6 22.5 22.4 19.8 15.9 15.1
Cash dividends paid $ 107,053 85,481 71,783 61,162 55,175 50,290
Per share--paid $ .43 .35 .31 .27 .25 .23
--declared $ .46 .36 .32 .28 .25 .23
Book value per share $ 11.24 9.67 8.14 6.76 5.56 5.98
Common stock market price at year-end $ 60.13 39.94 29.50 21.88 19.50 16.31
Long-term debt to total capitalization % 23.3 25.5 24.2 15.0 23.0 15.8
Total debt to total capitalization % 29.1 33.5 29.2 18.1 27.7 20.0
Total debt to total capitalization (excluding
Leasing and Investments Segment) % 4.6 15.9 16.2 18.1 27.7 20.0
Shares outstanding:
At December 31 249,598 247,771 236,466 227,916 226,300 224,027
Average during year 249,284 247,556 235,978 226,775 225,958 223,492
Plant and equipment additions $ 178,704 168,657 150,176 131,055 119,931 115,313
Depreciation $ 148,544 146,360 126,900 109,805 109,852 100,462
Research and development expenses $ 52,021 55,800 52,700 48,700 47,200 42,500
Employees at December 31 25,700 24,400 21,200 19,500 19,000 17,800
Operating revenues per employee $ 203 205 197 178 166 158
Dollars and shares in thousands
except per share amounts 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------
Income:
Operating revenues 2,639,650 2,544,153 2,172,747 1,929,805 1,698,353
Cost of revenues 1,759,288 1,686,423 1,450,116 1,287,297 1,117,990
Selling, administrative and research and
development expenses 551,865 512,685 417,520 377,003 344,661
Amortization of goodwill and other
intangible assets 23,979 19,181 15,829 13,106 16,812
Amortization of retiree health care -- -- -- -- --
Operating income 304,518 325,864 289,282 252,399 218,890
Interest expense (44,342) (39,190) (30,995) (26,109) (33,439)
Other income (expense) 27,583 13,209 10,735 6,522 14,333
Income before income taxes 287,759 299,883 269,022 232,812 199,784
Income taxes 107,200 117,500 105,200 92,800 93,600
Net income 180,559 182,383 163,822 140,012 106,184
Basic per share .81 .84 .77 .66 .51
Diluted per share .81 .83 .76 .65 .50
Financial Position:
Net working capital 442,041 615,055 440,406 392,283 332,290
Net plant and equipment 525,695 483,549 413,578 342,794 318,690
Total assets 2,257,139 2,150,307 1,687,985 1,380,237 1,334,063
Long-term debt 307,082 430,632 334,407 255,907 309,515
Total debt 489,189 495,952 370,507 257,597 357,249
Stockholders' equity 1,212,051 1,091,842 871,124 744,727 608,541
Other Data:
Operating income:
Return on operating revenues 11.5 12.8 13.3 13.1 12.9
Net income:
Return on operating revenues 6.8 7.2 7.5 7.3 6.3
Return on average stockholders' equity 15.7 18.6 20.3 20.7 19.6
Cash dividends paid 44,108 35,861 28,747 23,027 20,144
Per share--paid .20 .17 .14 .11 .10
--declared .21 .17 .14 .12 .10
Book value per share 5.44 4.98 4.06 3.53 2.94
Common stock market price at year-end 15.94 12.07 11.22 8.63 8.25
Long-term debt to total capitalization 20.2 28.3 27.7 23.3 33.7
Total debt to total capitalization 28.8 31.2 29.8 25.7 37.0
Total debt to total capitalization (excluding
Leasing and Investments Segment) 28.8 31.2 29.8 25.7 37.0
Shares outstanding:
At December 31 222,872 219,218 214,663 211,175 207,120
Average during year 222,354 217,745 214,056 210,700 206,544
Plant and equipment additions 106,036 101,183 84,263 84,107 61,052
Depreciation 91,414 82,913 68,890 62,064 57,839
Research and development expenses 40,300 40,300 32,500 26,588 24,739
Employees at December 31 18,700 18,400 15,700 14,200 13,600
Operating revenues per employee 141 138 138 136 125
Note: Certain reclassifications of prior years' data have been made to conform
with current year reporting. All share and per share amounts have been restated
for the two-for-one stock split in May 1997.
40