-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I1ihxr71WCuRBw9ULcxypLxIhHDjZKHdqh3gu5KZriQ+I1MwTWQxIcweVifAGkme abAgXjL3BoL8ro8+Eox/Lw== 0000049826-96-000013.txt : 19961118 0000049826-96-000013.hdr.sgml : 19961118 ACCESSION NUMBER: 0000049826-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS TOOL WORKS INC CENTRAL INDEX KEY: 0000049826 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 361258310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04797 FILM NUMBER: 96665030 BUSINESS ADDRESS: STREET 1: 3600 W LAKE AVE CITY: GLENVIEW STATE: IL ZIP: 60025-5811 BUSINESS PHONE: 8477247500 MAIL ADDRESS: STREET 1: 3600 WEST LAKE AVENUE CITY: GLENVIEW STATE: IL ZIP: 60025-5811 10-Q 1 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, 1996 -------------------------------------------- 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 October 31, 1996: 123,854,150. 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/A. 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 Nine Months Ended September 30 September 30 ---------------------- ---------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Operating Revenues $1,238,261 $1,050,123 $3,699,983 $3,084,326 Cost of revenues 817,658 690,594 2,444,353 2,016,366 Selling, administrative, and research and develop- ment expenses 212,525 183,577 653,025 573,716 Amortization of goodwill and other intangible assets 7,605 6,086 22,218 18,242 Amortization of retiree health care 1,742 1,742 5,226 5,226 ---------- ---------- ---------- ---------- Operating Income 198,731 168,124 575,161 470,776 Interest expense (5,375) (8,190) (20,251) (22,183) Other income 1,686 1,332 3,862 5,052 ---------- ---------- ---------- ---------- Income Before Income Taxes 195,042 161,266 558,772 453,645 Income taxes 72,200 61,250 206,800 172,350 ---------- ---------- ---------- ---------- Net Income $ 122,842 $ 100,016 $ 351,972 $ 281,295 ========== ========== ========== ========== Per share of common stock: Net Income $ .99 $ .85 $2.84 $2.40 ===== ===== ===== ===== Cash dividends: Paid $ .17 $ .15 $ .51 $ .45 ===== ===== ===== ===== Declared $ .19 $ .17 $ .53 $ .47 ===== ===== ===== ===== Average number of shares of common stock outstanding during the period 123,805 117,508 123,752 117,396 ======= ======= ======= ======= ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS September 30, 1996 December 31, 1995 ------------------ ----------------- Current Assets: Cash and equivalents $ 162,727 $ 116,600 Trade receivables 837,337 741,327 Inventories 541,060 518,964 Deferred income taxes 121,511 80,005 Prepaid expenses and other current assets 84,548 75,594 ---------- ---------- Total current assets 1,747,183 1,532,490 ---------- ---------- Plant and Equipment: Land 61,494 60,486 Buildings and improvements 416,697 375,352 Machinery and equipment 1,219,321 1,076,950 Equipment leased to others 92,603 75,175 Construction in progress 54,602 32,621 ---------- ---------- 1,844,717 1,620,584 Accumulated depreciation (1,080,755) (925,643) ---------- ---------- Net plant and equipment 763,962 694,941 Investments 482,669 504,820 Goodwill 609,060 518,747 Deferred Income Taxes 160,595 118,913 Other Assets 293,135 221,407 ---------- ---------- $4,056,604 $3,591,318 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt $ 137,419 $ 176,188 Accounts payable 243,686 221,497 Accrued expenses 508,740 391,702 Cash dividends payable 23,075 20,100 Income taxes payable 26,706 41,445 ---------- ---------- Total current liabilities 939,626 850,932 ---------- ---------- Non-current Liabilities: Long-term debt 597,630 615,557 Other 240,654 200,592 ---------- ---------- Total non-current liabilities 838,284 816,149 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 269,208 239,688 Income reinvested in the business 1,994,657 1,673,320 Common stock held in treasury (1,841) (1,866) Cumulative translation adjustment 16,670 13,095 ---------- ---------- Total stockholders' equity 2,278,694 1,924,237 ---------- ---------- $4,056,604 $3,591,318 ========== ========== ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Nine Months Ended September 30 ------------------ 1996 1995 -------- -------- Cash Provided by (Used for) Operating Activities: Net income $351,972 $281,295 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 135,230 112,736 Change in deferred income taxes (5,226) (12,122) Provision for uncollectible accounts 5,166 5,393 (Gain)loss on sale of plant and equipment (573) 156 Income from investments (40,701) (14,957) Gain on sale of operations and affiliates (5,587) (496) Other non-cash items, net (600) 11,605 -------- -------- Cash provided by operating activities 439,681 383,610 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (20,227) (40,167) Inventories 32,534 (30,096) Prepaid expenses and other assets (39,197) 7,940 Increase (decrease) in-- Accounts payable (18,596) (24,973) Accrued expenses 48,727 21,982 Income taxes payable (18,823) (33,608) Other, net 1,958 4,536 -------- -------- Net cash provided by operating activities 426,057 289,224 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses(excluding cash and equivalents) and additional interest in affiliates (101,146) (146,598) Additions to plant and equipment (117,391) (106,760) Purchase of investments (10,855) (44,328) Proceeds from investments 46,253 20,685 Proceeds from sale of plant and equipment 20,662 9,978 Proceeds from sale of operations and affiliates 13,922 2,254 Other, net (8,021) 1,907 -------- -------- Net cash used for investing activities (156,576) (262,862) -------- -------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (61,953) (51,799) Issuance of common stock 4,035 6,453 Net (repayments)proceeds from short-term debt (74,700) 47,936 Proceeds from long-term debt 8,891 105 Repayments of long-term debt (100,980) (1,361) Other, net 2,767 (5,846) -------- -------- Net cash used for financing activities (221,940) (4,512) -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents (1,414) 3,503 -------- -------- Cash and Equivalents: Increase during the period 46,127 25,353 Beginning of period 116,600 76,867 -------- -------- End of period $162,727 $102,220 ======== ======== Cash Paid During the Period for Interest $ 33,090 $ 21,783 ======== ======== Cash Paid During the Period for Income Taxes $208,689 $213,693 ======== ======== Liabilities Assumed from Acquisitions $233,881 $144,546 ======== ======== ILLINOIS TOOL WORKS INC. and SUBSIDIARIES COMMENTS ON FINANCIAL STATEMENTS (UNAUDITED) (1) INVENTORIES at September 30, 1996 and December 31, 1995 were as follows: (In Thousands) Sept. 30, Dec. 31, 1996 1995 --------- -------- Raw material $164,702 $140,302 Work-in-process 79,299 84,981 Finished goods 297,059 293,681 -------- -------- $541,060 $518,964 ======== ======== (2) LONG-TERM DEBT In May 1996, the Company amended its existing revolving credit facility (RCF) to increase the maximum available borrowings to $350,000,000 and to extend 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 this facility at September 30, 1996. The amended RCF contains financial covenants establishing a maximum total debt to capitalization percentage and a minimum consolidated net worth. The Company was in compliance with these covenants at September 30, 1996. 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 Nine months ended September 30 September 30 ------------------ ---------------------- Operating Revenues 1996 1995 1996 1995 - --------- -------- -------- ---------- ---------- Domestic $459,938 $331,983 $1,394,519 $1,024,973 International 207,381 178,061 654,340 546,286 -------- -------- ---------- ---------- Total $667,319 $510,044 $2,048,859 $1,571,259 ======== ======== ========== ========== Three months ended September 30 Nine months ended September 30 --------------------------------- -------------------------------- Operating 1996 1995 1996 1995 Income Income Margin Income Margin Income Margin Income Margin - ------------------------------------------------------------------------------- Domestic $ 74,828 16.3% $55,355 16.7% $215,817 15.5% $167,654 16.4% International 21,070 10.2 25,783 14.5 79,069 12.1 72,646 13.3 -------- ------- -------- -------- Total $ 95,898 14.4 $81,138 15.9 $294,886 14.4 $240,300 15.3 ======== ======= ======== ======== For both the three month and nine month periods, acquisitions (primarily Hobart Brothers and Medalist Industries) largely contributed to domestic revenue growth, along with increased penetration in the automotive markets by the automotive businesses and new product introductions in the construction businesses. Operating income for the three month period increased primarily due to higher revenues without a corresponding increase in costs in the automotive and industrial components businesses, while acquisitions also contributed to the operating income growth for the nine month period. Margins declined in both the three month and nine month periods as a result of lower margins at acquired businesses, partially offset in the year-to-date period by margin increases in the automotive and construction businesses. International revenues increased primarily due to acquisitions in the European automotive businesses for both the three month and nine month periods. Operating income and margins decreased in the three month period primarily due to nonrecurring costs of $4.5 million in the European construction businesses. For the year-to-date period, margins were lower due to soft demand in the European and Australian construction businesses and the German automotive market and price decreases in the French automotive markets. A nonrecurring goodwill write-off of $3.7 million in the first quarter of 1995 contributed to the 1996 year-to-date operating income increase. 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 Nine months ended September 30 September 30 ------------------ ---------------------- Operating Revenues 1996 1995 1996 1995 -------- -------- ---------- ---------- Domestic $319,272 $300,206 $ 952,515 $ 892,900 International 228,956 234,884 647,766 600,773 -------- -------- ---------- ---------- Total $548,228 $535,090 $1,600,281 $1,493,673 ======== ======== ========== ========== Three months ended September 30 Nine months ended September 30 Operating 1996 1995 1996 1995 Income Income Margin Income Margin Income Margin Income Margin - ------------------------------------------------------------------------------- Domestic $ 67,450 21.1% $55,150 18.4% $191,072 20.1% $156,647 17.5% International 29,375 12.8 28,450 12.1 69,660 10.8 59,658 9.9 -------- ------- -------- -------- Total $ 96,825 17.7 $83,600 15.6 $260,732 16.3 $216,305 14.5 ======== ======= ======== ======== For the three month period, domestic revenues slightly increased primarily due to acquisitions in the consumer and specialty packaging groups and improved de- mand in the Signode packaging and finishing systems businesses. For the nine month period, domestic revenues increased primarily due to acquisitions in the consumer and specialty packaging businesses as well as continuing strong demand for specialty industrial packaging and quality measurement products. Operating income and margins increased in the third quarter primarily due to lower raw material costs for the Signode and consumer packaging operations. Year-to-date operating income and margins grew as a result of increased revenues in the specialty industrial packaging businesses and lower operating costs in the quality measurement and Signode packaging businesses. International revenues for the three month period decreased primarily due to the negative impact of foreign currency translation as a result of the stronger U.S. dollar. The revenue growth in the third quarter for the Signode and specialty industrial packaging businesses, due primarily to acquisitions, was offset by revenue declines in the finishing systems and the existing Signode packaging businesses. Acquisitions in the specialty industrial packaging businesses and the Signode packaging operations contributed to the majority of the revenue growth in the year-to-date period. Operating income and margins increased for the third quarter largely due to improved results in the specialty industrial packaging businesses. For the nine month period, the majority of the increase in operating income and margins was due to lower nonrecurring costs of $6.1 million in 1996. 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 manufactur- ing businesses, both through investments in capital equipment and through acquisitions, some of the excess cash has traditionally been used to make fi- nancial 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. In 1996, due to the increased significance of these investments, the Company's leasing and investments business began reporting as a separate segment. Accordingly, certain reclassifications of amounts in the 1995 statement of income have been made. For the Leasing and Investments segment, operating revenues and operating income for the year ended December 31, 1995 were $25.9 million and $18.8 million, respectively, and identifiable assets at December 31, 1995 were $604.5 million. (Dollars in Thousands) Three months ended Nine months ended September 30 September 30 ------------------ ------------------ 1996 1995 1996 1995 -------- -------- -------- -------- Operating revenues $22,714 $4,989 $50,843 $19,394 ======= ====== ======= ======= Operating income $ 6,008 $3,386 $19,543 $14,171 ======= ====== ======= ======= Margin 26.5% 67.9% 38.4% 73.1% For the three month and nine month periods, revenues and operating income increased primarily due to the commercial mortgage transaction entered into at year-end 1995 (see Financial Position section for discussion). Year-to-date operating income in 1995 included a nonrecurring gain on the sale of equipment under leveraged lease of $4.0 million. Margins declined for both the third quarter and the nine month period ended September 30, 1996 from the comparable periods in 1995 as a result of lower margins for the commercial mortgage transaction versus the transactions in the prior year. The 1996 year-to-date margins are more indicative of the segment's performance. OPERATING EXPENSES Cost of revenues as a percentage of revenues increased to 66.1% in the first nine months of 1996 versus 65.4% in the first nine months of 1995, mainly due to lower gross margins for acquired companies. Selling, administrative and research and development expenses decreased to 17.6% of revenues in the first nine months of 1996 versus 18.6% in the nine month period ended September 30, 1995, due in part to higher 1995 nonrecurring costs of approximately $9.4 million. INTEREST EXPENSE Interest expense decreased slightly to $20.3 million in the first nine months of 1996 from $22.2 million in the same period of 1995, primarily due to a lower amount of debt outstanding attributed to the Company's manufacturing operations. Interest cost of $18.4 million attributed to the leasing and investment business has been classified as cost of revenues. OTHER INCOME Other income decreased to $3.9 million for the first nine months of 1996 from $5.1 million in 1995. This decrease is primarily due to debt prepayment costs related to acquired companies in 1996 and higher 1996 currency translation losses, partially offset by higher gains on the sale of operations and the sale of plant and equipment. NET INCOME Net income of $352.0 million ($2.84 per share) in the first nine months of 1996 was 25.1% higher than the 1995 net income for the same period of $281.3 million ($2.40 per share). Foreign currency fluctuations had no material impact on consolidated revenues or earnings in the first nine months of 1996 versus 1995. FINANCIAL POSITION Net working capital at September 30, 1996 and December 31, 1995 is summarized as follows: (Dollars in Thousands) Sept. 30, Dec. 31, Increase/ 1996 1995 (Decrease) ---------- ---------- ---------- Current Assets: Cash and equivalents $ 162,727 $ 116,600 $ 46,127 Trade receivables 837,337 741,327 96,010 Inventories 541,060 518,964 22,096 Other 206,059 155,599 50,460 ---------- ---------- -------- $1,747,183 $1,532,490 $214,693 ---------- ---------- -------- Current Liabilities: Short-term debt $ 137,419 $ 176,188 $(38,769) Accounts payable and accrued expenses 752,426 613,199 139,227 Other 49,781 61,545 (11,764) ---------- ---------- -------- $ 939,626 $ 850,932 $ 88,694 ---------- ---------- -------- Net Working Capital $ 807,557 $ 681,558 $125,999 ========== ========== ======== Current Ratio 1.86 1.80 =========== ========== The increase in trade receivables in the first nine months of 1996 was primarily due to 1996 acquisitions and higher revenues in the third quarter of 1996 versus the fourth quarter of 1995. Short-term debt decreased in the first nine months of 1996 as a result of cash flow generated from operations. Accounts payable and accrued expenses increased at September 30, 1996 versus year-end 1995 as a result of overall business growth and 1996 acquisitions. In the first nine months of 1996, long-term debt of $92.0 million assumed in acquisitions was repaid. In December 1995, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $256,000,000, preferred stock of a subsidiary of $20,000,000 and cash of $80,000,000. The mortgage-related assets relate to commercial real estate located throughout the U.S. and include 26 subperforming, variable rate, balloon loans and five foreclosed properties. In conjunction with this transaction, the Company simultaneously entered into a ten-year swap agreement and other related agreements whereby the Company will pay a third party the portion of the interest and net operating cash flow from the mortgage-related assets in excess of $9,000,000 per year and a portion of the proceeds from the disposition of the mortgage-related assets and principal repayments, in exchange for the third party making payments to the Company equal to the contractual principal and interest payments on the nonrecourse note payable. In addition, in the event that the pool of mortgage-related assets does not generate income of $9,000,000 a year, the Company has a collateral right against the cash flow generated by a separate pool of mortgage-related assets (owned by a third party in which the Company has a minimal interest) which has a fair value of approximately $726,000,000 at September 30, 1996. The Company entered into the swap and other related agreements in order to reduce its credit and interest rate risks relative to the mortgage-related assets. The Company expects to recover its net investment in the mortgage-related assets and net swap receivable of $100,000,000 (net of the related nonrecourse note payable) through its expected net cash flow of $9,000,000 per year for ten years and its estimated share of the proceeds from disposition of the mortgage- related assets and principal repayments of an additional $114,000,000. The Company believes that because the swap counter party is Aaa-rated and that significant collateral secures the net annual cash flow of $9,000,000, its risk of not recovering that portion of its $100,000,000 net investment has been significantly mitigated. The Company currently believes that 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. Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit Index (1) Exhibit No. Description 27 Financial Data Schedule (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 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 14, 1996 By: /s/ Michael W. Gregg ------------------ --------------------------------------- Michael W. Gregg, Senior Vice President and Controller, Accounting (Principal Accounting Officer) EX-27 2
5 The schedule contains financial information extracted from the Statement of Income (Unaudited) and the Statement of Financial Position (Unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 162,727 0 837,337 0 541,060 1,747,183 1,844,717 1,080,755 4,056,604 939,626 597,630 269,208 0 0 1,994,657 4,056,604 3,699,983 3,699,983 2,444,353 2,444,353 27,444 0 20,251 558,772 206,800 351,972 0 0 0 351,972 2.84 2.84
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