FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4797 ILLINOIS TOOL WORKS INC. (Exact name of registrant as specified in its charter) Delaware 36-1258310 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3600 West Lake Avenue, Glenview, IL 60025-5811 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (847) 724-7500 Former address: (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . The number of shares of registrant's common stock, without par value, outstanding at April 30, 1997: 124,605,544.
Part I - Financial Information Item 1 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES FINANCIAL STATEMENTS The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the "Company"). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. It is suggested that these financial statements be read in conjunction with the financial statements and notes to financial statements included in the Company's Annual Report on Form 10-K. Certain reclassifications of prior years' data have been made to conform with current year reporting.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF INCOME (UNAUDITED) (In Thousands Except for Per Share Amounts) Three Months Ended March 31 ---------------------- 1997 1996 ---------------------- Operating Revenues $1,229,798 $1,136,922 Cost of revenues 807,317 755,539 Selling, administrative, and research and develop- ment expenses 215,689 211,071 Amortization of goodwill and other intangible assets 8,532 7,132 Amortization of retiree health care 1,827 1,742 ---------- ---------- Operating Income 196,433 161,438 Interest expense (5,961) (6,801) Other income 3,583 2,118 ---------- ---------- Income Before Income Taxes 194,055 156,755 Income taxes 70,800 58,000 ---------- ---------- Net Income $ 123,255 $ 98,755 ========== ========== Per share of common stock: Net Income $ .99 $ .81 ===== ===== Cash dividends: Paid $ .19 $ .17 ===== ===== Declared $ .19 $ .17 ===== ===== Average number of shares of common stock outstanding during the period 124,513 122,370 ======= =======
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS March 31, 1997 December 31, 1996 -------------- ----------------- Current Assets: Cash and equivalents $ 115,779 $ 137,699 Trade receivables 837,815 840,092 Inventories 515,327 526,016 Deferred income taxes 136,776 131,404 Prepaid expenses and other current assets 67,433 65,881 ---------- ---------- Total current assets 1,673,130 1,701,092 ---------- ---------- Plant and Equipment: Land 67,230 68,362 Buildings and improvements 436,200 429,686 Machinery and equipment 1,269,694 1,282,274 Equipment leased to others 105,827 109,030 Construction in progress 57,546 51,744 ---------- ---------- 1,936,497 1,941,096 Accumulated depreciation (1,136,793) (1,132,756) ---------- ---------- Net plant and equipment 799,704 808,340 ---------- ---------- Investments 888,127 872,692 Goodwill 637,723 664,054 Deferred Income Taxes 327,247 292,152 Other Assets 445,355 467,832 ---------- ---------- $4,771,286 $4,806,162 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt $ 309,094 $ 390,425 Accounts payable 229,164 248,062 Accrued expenses 504,020 512,927 Cash dividends payable 23,666 23,538 Income taxes payable 90,384 44,373 ---------- ---------- Total current liabilities 1,156,328 1,219,325 ---------- ---------- Non-current Liabilities: Long-term debt 788,688 818,947 Other 366,760 371,865 ---------- ---------- Total non-current liabilities 1,155,448 1,190,812 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 276,302 273,864 Income reinvested in the business 2,216,506 2,105,144 Common stock held in treasury (1,833) (1,841) Cumulative translation adjustment (31,465) 18,858 ---------- ---------- Total stockholders' equity 2,459,510 2,396,025 ---------- ---------- $4,771,286 $4,806,162 ========== ==========
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Three Months Ended March 31 ------------------ 1997 1996 -------- -------- Cash Provided by (Used for) Operating Activities: Net income $123,255 $ 98,755 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,227 43,750 Change in deferred income taxes (43,644) (510) Provision for uncollectible accounts 1,113 1,722 (Gain)loss on sale of plant and equipment 4,800 (1,202) Income from investments (22,603) (9,143) Gain on sale of operations and affiliates (6,096) (3,753) Other non-cash items, net 2,848 205 -------- -------- Cash provided by operating activities 108,900 129,824 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (30,228) (8,926) Inventories (16,162) (1,004) Prepaid expenses and other assets (19,096) (26,936) Increase (decrease) in-- Accounts payable (7,651) (3,629) Accrued expenses 3,039 8,074 Income taxes payable 45,462 31,339 Other, net 2,449 545 -------- -------- Net cash provided by operating activities 86,713 129,287 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates (26,336) (22,216) Additions to plant and equipment (39,701) (39,969) Purchase of investments (2,395) (294) Proceeds from investments 5,645 30,496 Proceeds from sale of plant and equipment 2,877 16,235 Proceeds from sale of operations and affiliates 80,495 7,718 Other, net (1,440) 1,797 -------- -------- Net cash provided by (used for) investing activities 19,145 (6,233) -------- -------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (23,538) (19,641) Issuance of common stock 2,158 2,056 Repayments of short-term debt (67,567) (56,355) Proceeds from long-term debt 417 8,853 Repayments of long-term debt (31,637) (57,780) Other, net 1,586 -- -------- -------- Net cash used for financing activities (118,581) (122,867) -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents (9,197) 1,875 -------- -------- Cash and Equivalents: Increase (decrease) during the period (21,920) 2,062 Beginning of period 137,699 116,600 -------- -------- End of period $115,779 $118,662 ======== ======== Cash Paid During the Period for Interest $ 9,105 $ 7,855 ======== ======== Cash Paid During the Period for Income Taxes $ 41,450 $ 16,329 ======== ======== Liabilities Assumed from Acquisitions $ 24,933 $118,896 ======== ========
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) INVENTORIES at March 31, 1997 and December 31, 1996 were as follows: (In Thousands) March 31, Dec. 31, 1997 1996 -------- -------- Raw material $140,275 $143,979 Work-in-process 70,229 71,641 Finished goods 304,823 310,396 -------- -------- $515,327 $526,016 ======== ======== (2) NEW ACCOUNTING STANDARD: Effective for periods ending after December 15, 1997, the Company is required to adopt Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share. SFAS 128 requires dual presentation of basic and diluted net income per share on the face of the income statement. The Company does not expect that basic and diluted net income per share upon adoption of the new standard to be materially different from net income per share as currently reported.
Item 2 - Management's Discussion and Analysis ENGINEERED COMPONENTS SEGMENT Businesses in this segment manufacture short lead-time plastic and metal components, fasteners and assemblies; industrial fluids and adhesives; fastening tools; and welding products. This segment primarily serves the construction, automotive and general industrial markets. (Dollars in Thousands) Three months ended March 31 ------------------ Operating Revenues 1997 1996 -------- -------- Domestic $471,762 $412,542 International 210,761 212,424 -------- -------- Total $682,523 $624,966 ======== ======== Three months ended March 31 -------------------------------- Operating 1997 1996 Income Income Margin Income Margin -------- ------ ------- ------ Domestic $ 83,863 17.8% $61,197 14.8 % International 25,082 11.9 23,552 11.1 -------- ------- Total $108,945 16.0 $84,749 13.6 ======== ======= Domestic revenues and operating income increased compared with last year primarily due to acquisitions in the automotive businesses and market penetration gains with fasteners and components in the U.S. automotive markets. Increased demand for construction products as a result of strong residential and commercial construction markets also contributed to the revenue growth. Product line simplification in the welding operations resulted in a decrease in revenues versus last year which moderated the total domestic revenue growth. Margins increased as a result of improved operating efficiencies in the automotive and industrial components businesses, new products in the construction operations and cost reductions in the welding group. Internationally, revenue gains in the European automotive markets were offset by the effect of foreign currency fluctuations and declines in the construction markets, which remained soft. Operating income and margins increased as a result of a reduced cost structure in the construction operations.
INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT Businesses in this segment manufacture longer lead-time systems and related consumables for consumer and industrial packaging; marking, labeling and identification systems; industrial spray coating equipment and systems; and quality assurance equipment and systems. The largest markets served by this segment are general industrial, food and beverage, and industrial capital goods. (Dollars in Thousands) Three months ended March 31 ------------------ Operating Revenues 1997 1996 -------- -------- Domestic $300,901 $300,399 International 214,537 197,652 -------- -------- Total $515,438 $498,051 ======== ======== Three months ended March 31 ------------------------------- Operating 1997 1996 Income Income Margin Income Margin ------- ------ ------- ------ Domestic $55,863 18.6% $54,985 18.3 % International 23,155 10.8 15,352 7.8 ------- ------- Total $79,018 15.3 $70,337 14.1 ======= ======= Domestic revenue growth in the finishing systems, consumer packaging and Signode businesses was offset by lower demand in the general industrial markets for quality measurement equipment and a divestiture in the specialty packaging operations. Operating income and margins increased largely because of new products for the consumer packaging and finishing systems operations along with improved manufacturing processes at Signode. International revenues increased primarily as a result of acquisitions in the Signode packaging operations, partially offset by lower revenues as a result of foreign currency fluctuations and reduced revenues related to divestitures in the European specialty packaging businesses. Operating income increased due to successful cost reductions at the Signode and specialty packaging operations and due to acquisitions. The sale of under-performing specialty packaging operations along with aggressive cost reductions at the Signode and finishing systems units led to the increase in margins.
LEASING AND INVESTMENTS SEGMENT The Company has historically had strong cash flows from its manufacturing operations. Although most of this cash has been reinvested in the manufacturing businesses through investments in capital equipment, acquisitions and new products, some of the excess cash has been used to make financial investments. These investments primarily include leveraged and direct financing leases of equipment, mortgage-related investments, investments in properties and property developments, and affordable housing investments. (Dollars in Thousands) Three months ended March 31 ------------------ 1997 1996 -------- ------- Operating revenues $31,837 $13,905 ======= ======= Operating income $ 8,470 $ 6,352 ======= ======= Revenues and operating income increased primarily due to the commercial mortgage transaction entered into at year-end 1996. OPERATING EXPENSES Cost of revenues as a percentage of revenues decreased to 65.6% in the first three months of 1997 versus 66.5% in the first three months of 1996, due to increased sales volume coupled with lower manufacturing costs. Selling, administrative, and research and development expenses decreased to 17.5% of revenues in the first three months of 1997 versus 18.6% in the first three months of 1996, primarily due to expense reductions as a result of a Company-wide objective to reduce administrative costs. INTEREST EXPENSE Interest expense decreased to $6.0 million in the first three months of 1997 from $6.8 million in the first three months of 1996, primarily due to decreased commercial paper borrowings. OTHER INCOME Other income increased to $3.6 million for the first three months of 1997 from $2.1 million in 1996. This increase is primarily due to higher gains on the sale of operations in 1997 and debt prepayment costs in 1996, partially offset by losses on sale of fixed assets in 1997. NET INCOME Net income of $123.3 million ($0.99 per share) in the first three months of 1997 was 24.8% higher than the 1996 first quarter net income of $98.8 million ($0.81 per share).
FOREIGN CURRENCY The strengthening of the U.S. dollar against foreign currencies in 1997 decreased operating revenues by approximately $15 million. Foreign currency fluctuations had no material impact on earnings in the first quarter of 1997 versus 1996. FINANCIAL POSITION Net working capital at March 31, 1997 and December 31, 1996 is summarized as follows: (Dollars in Thousands) March 31, Dec. 31, Increase/ 1997 1996 (Decrease) ---------- ---------- ---------- Current Assets: Cash and equivalents $ 115,779 $ 137,699 $(21,920) Trade receivables 837,815 840,092 (2,277) Inventories 515,327 526,016 (10,689) Other 204,209 197,285 6,924 ---------- ---------- -------- 1,673,130 1,701,092 (27,962) ---------- ---------- -------- Current Liabilities: Short-term debt 309,094 390,425 (81,331) Accounts payable and accrued expenses 733,184 760,989 (27,805) Other 114,050 67,911 46,139 ---------- ---------- -------- 1,156,328 1,219,325 (62,997) ---------- ---------- -------- Net Working Capital $ 516,802 $ 481,767 $ 35,035 ========== ========== ======== Current Ratio 1.45 1.40 ========== ========== The decrease in short-term debt was due to a reduction in commercial paper borrowings during the first quarter of 1997 as a result of proceeds from divestitures.
Part II - Other Information Item 2 - Changes in Securities (a) On May 9, 1997, the shareholders of Illinois Tool Works Inc. approved an increase in the number of authorized shares of Common Stock to 350,000,000 from 150,000,000 and an increase in the par value of Common Stock to $.01 per share from no par value. See Exhibit 99 for a revised description of the capital stock of Illinois Tool Works Inc. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit Index Exhibit No. Description ----------- -------------------------------------------------- 3(a) Restated Certificate of Incorporation of Illinois Tool Works Inc., as amended 3(b) By-laws of Illinois Tool Works Inc., as amended 27 Financial Data Schedule 99 Description of the capital stock of Illinois Tool Works Inc. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ILLINOIS TOOL WORKS INC. Dated: May 15, 1997 By: /s/ Michael W. Gregg --------------------- ----------------------------------------------- Michael W. Gregg, Senior Vice President and Controller, Accounting (Principal Accounting Officer)