FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _________________ Commission file number 1-4797 ILLINOIS TOOL WORKS INC. (Exact name of registrant as specified in its charter) Delaware 36-1258310 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3600 West Lake Avenue, Glenview, IL 60025-5811 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (708) 724-7500 Former address: (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ----- ----- The number of shares of registrant's common stock, without par value, outstanding at October 31, 1995: 117,555,428.
Part I - Financial Information Item 1 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES FINANCIAL STATEMENTS The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the "Company"). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. It is suggested that these financial statements be read in conjunction with the financial statements and comments on financial statements included in the Company's Annual Report on Form 10-K.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF INCOME (UNAUDITED) (In Thousands Except for Per Share Amounts) Three Months Ended Nine Months Ended September 30 September 30 30 -------------------- ---------------------- 1995 1994 1995 1994 ---------- -------- ---------- ---------- Operating Revenues $1,045,134 $870,911 $3,064,932 $2,523,392 Operating costs 689,018 579,917 2,011,459 1,684,091 Selling, administrative, and research and develop- ment expenses 184,233 159,128 554,999 474,020 Amortization of goodwill and other intangible assets 6,086 5,529 18,242 16,515 --------- ------- ---------- ---------- Operating Income 165,797 126,337 480,232 348,766 Interest expense (8,448) (6,453) (22,545) (21,103) Amortization of retiree health care (1,742) (1,742) (5,226) (5,226) Other income (expense) 5,659 (2,043) 1,184 (8,596) ---------- -------- ---------- ---------- Income Before Income Taxes 161,266 116,099 453,645 313,841 Income taxes 61,250 44,700 172,350 120,800 ---------- -------- ---------- ---------- Net Income $ 100,016 $ 71,399 $ 281,295 $ 193,041 ========== ======== ========== ========== Per share of common stock: Net Income $ .85 $ .63 $2.40 $1.70 ===== ===== ===== ===== Cash dividends: Paid $ .15 $ .13 $ .45 $ .39 ===== ===== ===== ===== Declared $ .17 $ .15 $ .47 $ .41 ===== ===== ===== ===== Average number of shares of common stock outstanding during the period 117,508 113,291 117,396 113,247 ======= ======= ======= =======
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS September 30, 1995 December 31, 1994 ------------------ ----------------- Current Assets: Cash and equivalents $ 102,220 $ 76,867 Trade receivables 729,634 612,638 Inventories 511,769 439,486 Deferred income taxes 82,633 72,728 Prepaid expenses and other current assets 68,925 61,214 ---------- ---------- Total current assets 1,495,181 1,262,933 ---------- ---------- Plant and Equipment: Land 68,510 66,577 Buildings 347,688 317,714 Machinery and equipment 1,011,428 915,198 Equipment leased to others 71,773 69,162 Construction in progress 48,933 32,143 ---------- ---------- 1,548,332 1,400,794 Accumulated depreciation (868,939) (759,559) ---------- ---------- Net plant and equipment 679,393 641,235 ---------- ---------- Investment in Leases 90,113 55,413 Goodwill 475,293 394,233 Deferred Income Taxes 91,173 -- Other Assets 275,087 226,684 ---------- ---------- $3,106,240 $2,580,498 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt $ 147,443 $ 67,002 Accounts payable 199,622 174,748 Accrued expenses 406,597 317,031 Cash dividends payable 19,977 17,094 Income taxes payable 20,684 52,558 ---------- ---------- Total current liabilities 794,323 628,433 ---------- ---------- Non-current Liabilities: Long-term debt 281,775 272,987 Deferred income taxes -- 69,516 Other 204,598 68,041 ---------- ---------- Total non-current liabilities 486,373 410,544 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 229,797 201,166 Income reinvested in the business 1,583,603 1,344,172 Common stock held in treasury (1,866) (1,952) Equity adjustment from foreign currency translation 14,010 (1,865) ---------- ---------- Total stockholders' equity 1,825,544 1,541,521 ---------- ---------- $3,106,240 $2,580,498 ========== ==========
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Nine Months Ended September 30 ------------------ 1995 1994 -------- -------- Cash Provided by (Used for) Operating Activities: Net income $281,295 $193,041 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 112,736 103,143 Change in deferred income taxes (12,122) (2,301) Gain on sale of plant and equipment, and equipment under a leveraged lease (3,840) (1,657) (Income) loss from investment properties (9,665) 557 Gain on sale of operations and affiliates (496) (4,372) Other non-cash items, net 16,998 9,415 -------- -------- Cash provided by operating activities 384,906 297,826 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (40,167) (71,943) Inventories (30,096) (3,507) Prepaid expenses and other assets 7,200 8,560 Increase (decrease) in-- Accounts payable (24,973) 5,262 Accrued expenses 21,982 56,055 Income taxes payable (33,608) (4,125) Other, net 6,875 4,263 -------- -------- Net cash provided by operating activities 292,119 292,391 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of subsidiaries (excluding cash and equivalents) and additional interest in affiliates (146,598) (24,059) Additions to plant and equipment (106,760) (92,118) Additions to investment in leases (40,307) -- Proceeds from sale of plant and equipment, investment properties, and equipment under a leveraged lease 27,028 16,403 Proceeds from sale of operations and affiliates 2,254 15,721 Other, net (1,374) 646 -------- -------- Net cash used for investing activities (265,757) (83,407) -------- -------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (51,799) (44,166) Issuance of common stock 6,453 2,603 Proceeds (repayments) of short-term debt 47,936 (144,687) Proceeds from long-term debt 105 1,800 Repayments of long-term debt (1,361) (4,163) Other, net (5,846) -- -------- -------- Net cash used for financing activities (4,512) (188,613) -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents 3,503 2,228 -------- -------- Cash and Equivalents: Increase during the period 25,353 22,599 Beginning of period 76,867 35,395 -------- -------- End of the period $102,220 $ 57,994 ======== ======== Cash Paid During the Period for Interest $ 21,783 $ 20,413 ======== ======== Cash Paid During the Period for Income Taxes $213,693 $126,588 ======== ======== Liabilities Assumed from Acquisitions $144,546 $ 3,696 ======== ======== <page ILLINOIS TOOL WORKS INC. and SUBSIDIARIES COMMENTS ON FINANCIAL STATEMENTS (UNAUDITED) (1) OTHER INCOME (EXPENSE), consists of the following: (In Thousands) Three Months Ended Nine Months Ended September 30 September 30 ------------------ ------------------ 1995 1994 1995 1994 -------- ------- ------- ------- Interest income $2,976 $ 1,385 $ 8,599 $ 3,352 Income from unconsolidated affiliates 211 452 679 1,403 Net reserves for disposition, relocation and reorganization of certain facilities, revaluation of non-operating assets to realizable value, and nonrecurring costs unrelated to operations 377 (2,532) (19,337) (16,228) Income (loss)from investment properties 3,242 (159) 9,665 (557) Gain (loss) on sale of operations and affiliates (6) 131 496 4,372 Gain on sale of equipment under a leveraged lease -- -- 3,996 -- Gain (loss) on sale of plant and equipment (484) (213) (156) 1,657 Other, net (657) (1,107) (2,758) (2,595) ------ ------- ------- ------- $5,659 $(2,043) $ 1,184 $(8,596) ====== ======= ======= =======
(2) INVENTORIES at September 30, 1995 and December 31, 1994 were as follows: (In Thousands) Sept. 30, Dec. 31, 1995 1994 -------- -------- Raw Material $138,721 $126,730 Work-in-process 91,514 66,505 Finished goods 281,534 246,251 -------- -------- $511,769 $439,486 ======== ======== (3) NONCASH TRANSACTION: During 1995, the Company exchanged a minority interest in a subsidiary for certain investments in debt securities. This transaction, along with the associated tax effects, has not been reflected in the Statement of Cash Flows, as it had no cash impact.
Item 2 - Management's Discussion and Analysis ENGINEERED COMPONENTS SEGMENT Businesses in this segment manufacture short lead-time plastic and metal components, fasteners and assemblies; industrial fluids and adhesives; fastening tools and welding equipment. This segment primarily serves the construction, automotive and general industrial markets. (Dollars in millions) Three months ended Nine months ended Sept 30 Sept 30 ------------------ ----------------- Operating Revenues 1995 1994 1995 1994 -------- -------- ------- ------- Domestic $332 $302 $1,025 $ 897 International 178 154 546 441 ---- ---- ------ ------ Total $510 $456 $1,571 $1,338 ==== ==== ====== ====== Three months ended Sept 30 Nine months ended Sept 30 ----------------------------- ----------------------- Operating 1995 1994 1995 1994 Income Income Margin Income Margin Income Margin Income Margin ------ ------ ------ ------ ------ ------ ------ ------ Domestic $56 16.9 % $50 16.6 % $172 16.8 % $143 15.9 % International 25 14.0 21 13.6 76 13.9 52 11.8 --- --- ---- ---- Total $81 15.9 $71 15.6 $248 15.8 $195 14.6 === === ==== ==== Domestic revenues, operating income and margins for the three-month period increased largely due to increased volume in residential construction markets along with continued gains in non-residential construction markets. Increased penetration in a soft domestic automotive market also contributed to the improved results. Although Miller slightly contributed to the increase in revenues, it moderated operating income and margin growth due to a seasonal slowdown in the welding markets. For the nine-month period, the improved performance in revenues was led by strong performances in non-residential construction and welding markets followed by modest gains in automotive businesses. Operating income and margins increased due to the increased volume in construction markets and continued improvement in the automotive businesses. The improved results internationally for the three-month period were due to continued penetration gains in the European automotive markets. Growth was moderated during this period due to soft Australian and German construction markets. For the nine-month period, strong performances in European automotive markets largely contributed to the improved results followed by the European construction businesses.
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT Businesses in this segment manufacture longer lead-time systems and related consumables for consumer and industrial packaging, industrial spray coating equipment and systems, and quality assurance application equipment and systems. The largest markets served by this segment are general industrial, food and beverage, and industrial capital goods. (Dollars in millions) Three months ended Nine months ended Sept 30 Sept 30 ------------------ ----------------- Operating Revenues 1995 1994 1995 1994 ------- ------- ------- ------- Domestic $300 $256 $ 893 $ 745 International 235 159 601 440 ---- ---- ------ ------ Total $535 $415 $1,494 $1,185 ==== ==== ====== ====== Three months ended Sept 30 Nine months ended Sept 30 ------------------------------- ------------------------------- Operating 1995 1994 1995 1994 Income Income Margin Income Margin Income Margin Income Margin ------ ------- ------ ------ ------ ------ ------ ------- Domestic $55 18.3 % $39 15.2 % $162 18.1 % $116 15.6 % International 30 12.8 16 10.1 70 11.6 38 8.6 --- --- ---- ---- $85 15.9 $55 13.3 $232 15.5 $154 13.0 Total === === ==== ==== Continued demand for new products in industrial packaging and increased penetration in domestic beverage markets for the consumer packaging businesses led to the increase in domestic revenues and operating income for the three- month and nine-month periods. For the same time period, margins increased due to new product introductions and continuous cost reductions in industrial packaging. International revenues and operating income for the three-month and nine-month periods increased due to the consumer and industrial packaging businesses. During the three-month period, new product introductions, acquisitions and continued cost reductions in industrial packaging businesses led in the margin increase along with consumer packaging, which benefitted from increased volume in the European beverage markets. Margins increased for the nine-month period due to new products in the industrial packaging and finishing systems businesses.
OPERATING EXPENSES Operating costs as a percentage of revenues decreased to 65.6% in the first nine months of 1995 versus 66.7% in the first nine months of 1994. Selling, administrative, and research and development expenses were 18.1% of revenues in the first nine months of 1995 versus 18.8% in the first nine months of 1994. These ratios were lower because of cost reductions as a result of a Company- wide objective to reduce costs. INTEREST EXPENSE Interest expense increased slightly to $22.5 million in the first nine months of 1995 from $21.1 million in the first nine months of 1994, primarily due to increased foreign debt assumed from newly acquired companies. OTHER INCOME (EXPENSE) Other income (expense) increased to net other income of $1.2 million for the first nine months of 1995 from net other expense of $8.6 million in 1994. The increase in income is primarily due to an increase in interest income and income from investment properties, along with a gain on sale of equipment under a leverage lease. NET INCOME Net income of $281.3 million ($2.40 per share) in the first nine months of 1995 was 45.7% higher than the 1994 first nine months net income of $193.0 million ($1.70 per share). Foreign currency had no material impact on earnings in the first nine months of 1995 versus 1994.
FINANCIAL POSITION Net working capital at September 30, 1995 and December 31, 1994 is summarized as follows: (Dollars in Thousands) Sept 30, Dec. 31, Increase 1995 1994 (Decrease) ---------- ---------- ---------- Current Assets: Cash and equivalents $ 102,220 $ 76,867 $ 25,353 Trade receivables 729,634 612,638 116,996 Inventories 511,769 439,486 72,283 Other 151,558 133,942 17,616 ---------- ---------- -------- $1,495,181 $1,262,933 $232,248 ---------- ---------- -------- Current Liabilities: Short-term debt $ 147,443 $ 67,002 $ 80,441 Accounts payable and accrued expenses 606,219 491,779 114,440 Other 40,661 69,652 (28,991) ---------- ---------- -------- $ 794,323 $ 628,433 $165,890 ---------- ---------- -------- Net Working Capital $ 700,858 $ 634,500 $ 66,358 ========== ========== ======== Current Ratio 1.88 2.01 ========== ========== The increase in trade receivables in the third quarter of 1995 was primarily due to acquisitions and stronger revenues in the third quarter of 1995 versus the fourth quarter of 1994. Current year acquisitions combined with overall business growth contributed to the increase in inventories from year-end 1994 to third quarter 1995. The increase in short-term debt was mainly due to additional commercial paper borrowings to fund 1995 acquisitions. Accounts payable and accrued expenses increased at September 30, 1995 versus year-end 1994 as a result of overall business growth and acquisitions.
Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit Index Exhibit No. Description ----------- ----------- 3 By-laws of Illinois Tool Works Inc., as amended. 10 Amendment to the Illinois Tool Works Inc. Stock Incentive Plan, dated May 5, 1995. 27 Financial Data Schedule. (b) Reports on Form 8-K A report on Form 8-K dated July 18, 1995 was filed during the period. The Form describes various acquisitions by Illinois Tool Works Inc., (ITW) and presents unaudited pro forma information for ITW and the combined pooled companies.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ILLINOIS TOOL WORKS INC. Dated: November 6, 1995 By: /s/ Michael W. Gregg ---------------- ---------------------------------------- Michael W. Gregg, Senior Vice President and Controller, Accounting (Principal Accounting Officer)