-----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, TYzEkcZqekC/QT9lUFACuy4k6qGiii/Rrle13ZKZz/42si3NYnNn3Wk3eCkf+5Cz B5VgBDgVgJbIbNu0pYZEuQ== 0000049826-98-000003.txt : 19980817 0000049826-98-000003.hdr.sgml : 19980817 ACCESSION NUMBER: 0000049826-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 001-04797 FILM NUMBER: 98690411 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 June 30, 1998 ________________________________________________ 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 Identification No.) incorporation or organization) 3600 West Lake Avenue, Glenview, IL 60025-5811 ________________________________________ ______________________________________ (Address of principal executive offices) (Zip Code) offices) (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 July 31, 1998: 249,965,686. 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 Six Months Ended June 30 June 30 ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Operating Revenues $1,420,461 $1,326,344 $2,761,452 $2,556,142 Cost of revenues 910,889 854,352 1,784,846 1,661,669 Selling, administrative, and research and develop- ment expenses 213,662 215,855 434,740 431,544 Amortization of goodwill and other intangible assets 10,397 8,492 20,174 17,024 Amortization of retiree health care 1,826 1,826 3,653 3,653 ---------- ---------- ---------- ---------- Operating Income 283,687 245,819 518,039 442,252 Interest expense (2,293) (5,617) (5,239) (11,578) Other income (expense) (4,315) 3,092 (1,563) 6,675 ---------- ---------- ---------- ---------- Income Before Income Taxes 277,079 243,294 511,237 437,349 Income taxes 101,100 88,900 186,600 159,700 ---------- ---------- ---------- ---------- Net Income $ 175,979 $ 154,394 324,637 $ 277,649 ========== ========== ========== ========== Per share of common stock: Basic Net Income $0.70 $0.62 $1.30 $1.11 ===== ===== ===== ===== Diluted Net Income $0.70 $0.61 $1.29 $1.10 ===== ===== ===== ===== Cash dividends: Paid $0.12 $.095 $0.24 $.190 ===== ===== ===== ===== Declared $0.12 $.120 $0.24 $.215 ===== ===== ===== ===== Shares of common stock outstanding during the period: Average 249,889 249,231 249,789 249,130 Average assuming dilution 252,678 251,704 252,526 251,556 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS June 30, 1998 December 31, 1997 - ------ ------------- ----------------- Current Assets: Cash and equivalents $ 108,422 $ 185,856 Trade receivables 935,082 902,022 Inventories 532,229 522,996 Deferred income taxes 167,363 168,697 Prepaid expenses and other current assets 73,772 79,071 ---------- ---------- Total current assets 1,816,868 1,858,642 ---------- ---------- Plant and Equipment: Land 72,676 78,055 Buildings and improvements 499,844 485,845 Machinery and equipment 1,441,448 1,387,502 Equipment leased to others 103,860 107,345 Construction in progress 95,953 58,644 ---------- ---------- 2,213,781 2,117,391 Accumulated depreciation (1,326,703) (1,233,333) ---------- ---------- Net plant and equipment 887,078 884,058 ---------- ---------- Investments 1,172,985 1,170,015 Goodwill 850,082 774,250 Deferred Income Taxes 381,633 379,738 Other Assets 460,376 328,053 ---------- ---------- $5,569,022 $5,394,756 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Short-term debt $ 307,855 $ 298,278 Accounts payable 261,593 269,088 Accrued expenses 438,170 458,381 Cash dividends payable 29,992 29,952 Income taxes payable 81,099 102,181 ---------- ---------- Total current liabilities 1,118,709 1,157,880 ---------- ---------- Non-current Liabilities: Long-term debt 841,767 854,328 Other 560,430 576,094 ---------- ---------- Total non-current liabilities 1,402,197 1,430,422 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 2,502 2,499 Additional Paid-in-Capital 291,849 287,153 Income reinvested in the business 2,857,086 2,592,416 Common stock held in treasury (1,783) (1,833) Cumulative translation adjustment (101,538) (73,781) ---------- ---------- Total stockholders' equity 3,048,116 2,806,454 ---------- ---------- $5,569,022 $5,394,756 ========== ========== ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended June 30 ------------------ 1998 1997 -------- -------- Cash Provided by (Used for) Operating Activities: Net income 324,637 $277,649 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 107,371 97,337 Change in deferred income taxes 276 (2,962) Provision for uncollectible accounts 2,141 2,225 Loss on sale of plant and equipment 3,765 5,461 Income from investments (62,306) (43,905) Non-cash interest on nonrecourse debt 23,706 16,670 (Gain)loss on sale of operations and affiliates 3,293 (7,073) Other non-cash items, net 718 2,657 -------- -------- Cash provided by operating activities 403,601 348,059 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (41,576) (78,289) Inventories (9,804) (9,234) Prepaid expenses and other assets (31,136) (31,791) Increase (decrease) in-- Accounts payable (6,143) 7,112 Accrued expenses (26,799) 2,185 Income taxes payable (21,061) (7,508) Other, net 7,194 3,926 -------- -------- Net cash provided by operating activities 274,276 234,460 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses(excluding cash and equivalents) and additional interest in affiliates (229,509) (160,636) Additions to plant and equipment (104,856) (81,462) Purchase of investments (7,829) (5,753) Proceeds from investments 22,165 18,138 Proceeds from sale of plant and equipment 2,228 6,873 Proceeds from sale of operations and affiliates 9,845 102,513 Other, net 6,075 (2,364) -------- -------- Net cash used for investing activities (301,881) (122,691) -------- -------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (59,929) (47,205) Issuance of common stock 4,748 4,902 Net borrowings (repayments)of short-term debt 7,807 (9,579) Proceeds from long-term debt 45 679 Repayments of long-term debt (816) (31,662) Other, net (31) 1,854 -------- -------- Net cash used for financing activities (48,176) (81,011) -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents (1,653) (10,951) -------- -------- Cash and Equivalents: Increase (decrease) during the period (77,434) 19,807 Beginning of period 185,856 137,699 -------- -------- End of period 108,422 $157,506 ======== ======== Cash Paid During the Period for Interest $ 13,408 $ 16,960 ======== ======== Cash Paid During the Period for Income Taxes $145,440 $138,228 ======== ======== Liabilities Assumed from Acquisitions $ 20,995 $ 28,679 ======== ======== ILLINOIS TOOL WORKS INC. and SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) INVENTORIES at June 30, 1998 and December 31, 1997 were as follows: ----------- (In Thousands) June 30, Dec. 31, 1998 1997 -------- -------- Raw material $165,144 $145,851 Work-in-process 64,197 67,956 Finished goods 302,888 309,189 -------- -------- $532,229 $522,996 ======== ======== (2) NEW ACCOUNTING STANDARDS: ------------------------ During 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which established standards for reporting and displaying comprehensive income and its components in a separate financial statement. The only component of other comprehensive income that the Company has is foreign currency translation adjustments. The components of comprehensive income are as follows: Three Months Ended Six Months Ended June 30 June 30 -------- -------- -------- -------- 1998 1997 1998 1997 -------- -------- -------- -------- Net income $175,979 $154,394 $324,637 $277,649 Foreign currency translation adjustments, net of tax (9,081) (7,929) (27,756) (58,252) -------- -------- -------- -------- Total comprehensive income $166,898 $146,465 $296,881 $219,397 ======== ======== ======== ======== Effective for fiscal years beginning after June 15, 1999, the Company is required to adopt SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative will either be reported as gain or loss in current earnings or as a component of comprehensive income. Upon adoption of the new standard, the Company does not expect net income or comprehensive income to be materially affected. Item 2 - Management's Discussion and Analysis 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. (Dollars in Thousands) Three months ended Six months ended June 30 June 30 ------------------ ---------------------- Operating Revenues 1998 1997 1998 1997 - --------- -------- -------- ---------- ---------- North America $412,778 $391,559 $ 817,182 $ 755,823 International 225,132 212,921 424,653 405,464 -------- -------- ---------- ---------- Total $637,910 $604,480 $1,241,835 $1,161,287 ======== ======== ========== ========== Three months ended June 30 Six months ended June 30 ------------------------------- -------------------------------- Operating 1998 1997 1998 1997 Income Income Margin Income Margin Income Margin Income Margin - --------- -------------- --------------- --------------- --------------- North America $ 90,444 21.9% $ 77,362 19.8% $171,933 21.0% $146,269 19.4% International 33,416 14.8 35,229 16.5 56,779 13.4 57,264 14.1 -------- -------- -------- -------- Total $123,860 19.4 $112,591 18.6 $228,712 18.4 $203,533 17.5 ======== ======== ======== ======== In North America, revenues and operating income increased in the second quarter and first half of 1998 compared with last year largely due to acquisitions, which contributed 4% to the revenue growth for both periods. The automotive, general industrial and construction businesses were the primary contributors to revenue growth for both the three-month and six-month periods in the base businesses. Margins grew for the second quarter and first half of the year as a result of higher revenues in the base businesses without a corresponding increase in expenses. Internationally, revenues increased in the current period and first half of 1998 compared with last year largely due to acquisitions, which contributed 8% to the revenue growth for both periods. The automotive and general industrial businesses were the primary contributors to the base businesses' revenue growth for both the current and year-to-date periods. Currency translation moderated revenue growth by 6% in the second quarter and 7% for the first half of 1998. Operating income decreased in the second quarter of 1998 compared to the prior year as a result of higher nonrecurring costs in 1998 and the unfavorable effect of foreign currency translation. Operating income growth in the base businesses was moderated as a result of pricing pressures in the Australasian construction businesses. Operating income decreased in the first half of 1998 compared to last year primarily as a result of the negative effects of foreign currency translation. Margins were down due to restructuring expenses and price pressures in the construction businesses and the effect of lower margins for acquired companies. INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT Businesses in this segment produce longer lead-time machinery and related consumables primarily for the food and beverage, construction, automotive and general industrial markets. They also manufacture specialty products for applications such as industrial spray coating and quality measurement. (Dollars in Thousands) Three months ended Six months ended June 30 June 30 ------------------ ---------------------- Operating Revenues 1998 1997 1998 1997 - --------- -------- -------- ---------- ---------- North America $537,066 $539,612 $1,060,247 $1,030,062 International 283,955 230,642 539,402 447,630 -------- -------- ---------- ---------- Total $821,021 $770,254 $1,599,649 $1,477,692 ======== ======== ========== ========== Three months ended June 30 Six months ended June 30 -------------------------------- -------------------------------- Operating 1998 1997 1998 1997 Income Income Margin Income Margin Income Margin Income Margin - --------- --------------- --------------- --------------- --------------- North America $108,232 20.2% $ 91,737 17.0% $194,369 18.3% $165,689 16.1% International 38,960 13.7 33,747 14.6 68,590 12.7 56,824 12.7 -------- -------- -------- -------- Total $147,192 17.9 $125,484 16.3 $262,959 16.4 $222,513 15.1 ======== ======== ======== ======== Slower growth in the North American industrial markets resulted in slower growth or revenue declines in the majority of the businesses in the second quarter of 1998. Despite the decline in revenues, operating income and margins increased in the second quarter due to administrative and manufacturing cost reductions. For the first half of the year, the welding, finishing and marking and decorating operations largely contributed to the revenue and operating income increase. Year-to-date margins increased due to higher revenues from the base businesses and cost improvements. Internationally, acquisitions added significantly to the revenue growth with a 22% contribution for the second quarter and the first half of 1998. For both periods, international revenues and operating income also increased due to increased sales in the stretch film equipment operations. The unfavorable effect of foreign currency translation decreased revenues by 9% in the current period and 10% for the first half of 1998. For both periods, margins increased in the base operations but the lower margins of acquired businesses more than offset the increase. LEASING AND INVESTMENTS 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. (Dollars in Thousands) Three months ended Six months ended June 30 June 30 ------------------ ------------------ 1998 1997 1998 1997 -------- -------- -------- -------- Operating revenues $30,711 $23,446 $65,726 $55,283 ======= ======= ======= ======= Operating income $12,635 $ 7,744 $26,368 $16,206 ======= ======= ======= ======= Revenues and operating income increased primarily due to the commercial mortgage transaction entered into at year-end 1997. OPERATING REVENUES The reconciliation of segment operating revenues to total company operating revenues is as follows: Three months ended Six months ended June 30 June 30 --------------------- --------------------- 1998 1997 1998 1997 ---------- ---------- --------- ---------- Engineered components $ 637,910 $ 604,480 $1,241,835 $1,161,287 Industrial systems and consumables 821,021 770,254 1,599,649 1,477,692 Leasing and investments 30,711 23,446 65,726 55,283 ---------- ---------- ---------- ---------- Total segment operating revenues 1,489,642 1,398,180 2,907,210 2,694,262 Intersegment revenues (69,181) (71,836) (145,758) (138,120) ---------- ---------- ---------- ---------- Total company operating revenues $1,420,461 $1,326,344 $2,761,452 $2,556,142 ========== ========== ========== ========== OPERATING EXPENSES Cost of revenues as a percentage of revenues decreased to 64.6% in the first six months of 1998 versus 65.0% in the first six months of 1997 due to increased sales volume coupled with lower manufacturing costs. Selling, administrative, and research and development expenses decreased to 15.7% of revenues in the first six months of 1998 versus 16.9% in the first six months of 1997, primarily due to expense reductions as a result of a Company-wide objective to reduce administrative costs. INTEREST EXPENSE Interest expense decreased to $5.2 million in the first six months of 1998 from $11.6 million in the first six months of 1997, primarily due to decreased commercial paper borrowings and higher interest expense in 1997 due to debt related to acquisitions. OTHER INCOME(EXPENSE) Other expense was $1.6 million for the first six months of 1998 versus other income of $6.7 million in 1997, primarily due to losses on the sale of operations in 1998 versus gains on the sale of operations in 1997. NET INCOME Net income of $324.6 million ($1.29 per diluted share) in the first six months of 1998 was 16.9% higher than the 1997 first half net income of $277.6 million ($1.10 per diluted share). FOREIGN CURRENCY The strengthening of the U.S. dollar against foreign currencies in 1998 decreased operating revenues for the first six months of 1998 by approximately $80.4 million and reduced earnings by approximately 3 cents per diluted share. FINANCIAL POSITION Net working capital at June 30, 1998 and December 31, 1997 is summarized as follows: (Dollars in Thousands) June 30, Dec. 31, Increase/ 1998 1997 (Decrease) ---------- ---------- ---------- Current Assets: Cash and equivalents $ 108,422 $ 185,856 $(77,434) Trade receivables 935,082 902,022 33,060 Inventories 532,229 522,996 9,233 Other 241,135 247,768 (6,633) ---------- ---------- -------- 1,816,868 1,858,642 (41,774) ---------- ---------- -------- Current Liabilities: Short-term debt 307,855 298,278 9,577 Accounts payable and accrued expenses 699,763 727,469 (27,706) Other 111,091 132,133 (21,042) ---------- ---------- -------- 1,118,709 1,157,880 (39,171) ---------- ---------- -------- Net Working Capital $ 698,159 $ 700,762 $ (2,603) ========== ========== ======== Current Ratio 1.62 1.61 ========== ========== The increase in trade receivables in the first half of 1998 was primarily due to higher revenues in the second quarter of 1998 versus the fourth quarter of 1997, partially offset by the effect of foreign currency translation. Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The Company's Annual Meeting of Stockholders was held on May 8, 1998. The following members were elected to the Company's Board of Directors to hold office for the ensuing year: Nominees In Favor Withheld - -------- -------- -------- M. J. Birck 217,387,794 273,091 M. D. Brailsford 217,386,639 274,246 S. Crown 217,363,605 297,280 H. R. Crowther 217,375,746 285,138 W. J. Farrell 217,348,374 312,510 L. R. Flurry 217,399,294 261,591 R. C. McCormack 217,401,259 259,625 P. B. Rooney 217,318,001 342,883 H. B. Smith 217,365,143 295,742 O. J. Wade 217,396,382 264,502 Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibit Index 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 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: August 14, 1998 By: /s/ Jon C. Kinney ----------------------- -------------------------------------- Jon C. Kinney, Senior Vice President and Chief Financial Officer (Principal Accounting Officer) EX-27 2
5 This schedule contains summary financial information extracted from the Statement of Income and the Statement of Financial Position and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 108,422 0 935,082 0 532,229 1,816,868 2,213,781 1,326,703 5,569,022 1,118,709 841,767 0 0 2,502 3,148,935 5,569,022 2,761,452 2,761,452 1,784,846 1,784,846 23,827 2,141 5,239 511,237 186,600 324,637 0 0 0 324,637 1.30 1.29
-----END PRIVACY-ENHANCED MESSAGE-----