-----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, Fo3x4bWgJgHAcb057oNV2J7er9wO59+mF980rlyy1B7k2bVdO0EFa8e7HlZK9NfN ZGx1v/06IKpw8spNGcq6Ww== 0000049826-99-000002.txt : 19990518 0000049826-99-000002.hdr.sgml : 19990518 ACCESSION NUMBER: 0000049826-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS TOOL WORKS INC CENTRAL INDEX KEY: 0000049826 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] 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: 99628818 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 March 31, 1999 ________________________________________________ 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, 1999: 250,467,238. -1- 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. -2- ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF INCOME (UNAUDITED) (In Thousands Except for Per Share Amounts) Three Months Ended March 31 ---------------------- 1999 1998 ---------- ---------- Operating Revenues $1,473,834 $1,340,991 Cost of revenues 942,142 873,957 Selling, administrative, and research and develop- ment expenses 253,261 221,078 Amortization of goodwill and other intangible assets 14,067 9,777 Amortization of retiree health care 1,827 1,827 ---------- ---------- Operating Income 262,537 234,352 Interest expense (8,385) (2,946) Other income 4,694 2,752 ---------- ---------- Income Before Income Taxes 258,846 234,158 Income taxes 94,500 85,500 ---------- ---------- Net Income $ 164,346 $ 148,658 ========== ========== Per share of common stock: Basic net income $ .66 $ .60 ===== ===== Diluted net income $ .65 $ .59 ===== ===== Cash dividends: Paid $ .15 $ .12 ===== ===== Declared $ .15 $ .12 ===== ===== Shares of common stock outstanding during the period: Average 250,222 249,693 ======= ======= Average assuming dilution 252,788 252,370 ======= ======= -3- ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS March 31, 1999 December 31, 1998 -------------- ----------------- Current Assets: Cash and equivalents $ 250,578 $ 93,485 Trade receivables 1,031,275 989,086 Inventories 598,173 581,755 Deferred income taxes 106,302 102,607 Prepaid expenses and other current assets 82,095 67,540 ---------- ---------- Total current assets 2,068,423 1,834,473 ---------- ---------- Plant and Equipment: Land 76,718 73,266 Buildings and improvements 574,357 554,383 Machinery and equipment 1,655,293 1,624,703 Equipment leased to others 112,562 107,186 Construction in progress 81,121 57,894 ---------- ---------- 2,500,051 2,417,432 Accumulated depreciation (1,467,629) (1,429,883) ---------- ---------- Net plant and equipment 1,032,422 987,549 ---------- ---------- Investments 1,179,621 1,183,493 Goodwill 1,339,446 1,189,323 Deferred Income Taxes 414,210 417,361 Other Assets 427,548 505,963 ---------- ---------- $6,461,670 $6,118,162 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt $ 304,996 $ 406,707 Accounts payable 282,454 268,869 Accrued expenses 446,514 457,543 Cash dividends payable 37,546 37,519 Income taxes payable 127,555 51,371 ---------- ---------- Total current liabilities 1,199,065 1,222,009 ---------- ---------- Non-current Liabilities: Long-term debt 1,230,818 947,008 Other 597,459 611,110 ---------- ---------- Total non-current liabilities 1,828,277 1,558,118 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 2,505 2,504 Additional paid-in-capital 305,212 302,684 Income reinvested in the business 3,257,016 3,130,213 Common stock held in treasury (1,783) (1,783) Cumulative translation adjustment (128,622) (95,583) ---------- ---------- Total stockholders' equity 3,434,328 3,338,035 ---------- ---------- $6,461,670 $6,118,162 ========== ========== -4- ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Three Months Ended March 31 ------------------ 1999 1998 -------- -------- Cash Provided by (Used for) Operating Activities: Net income $164,346 $148,658 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 60,257 53,534 Change in deferred income taxes 4,533 (2,854) Provision for uncollectible accounts 1,404 1,371 (Gain) Loss on sale of plant and equipment (1) 504 Income from investments (39,536) (31,440) Non-cash interest on nonrecourse debt 11,365 11,772 Gain on sale of operations and affiliates (2,828) (875) Other non-cash items, net (1,859) 313 -------- -------- Cash provided by operating activities 197,681 180,983 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (26,497) (24,761) Inventories (393) (13,477) Prepaid expenses and other assets (22,940) (13,343) Increase (decrease) in-- Accounts payable 533 5,502 Accrued expenses (23,291) (13,915) Income taxes payable 67,055 34,093 Other, net 31 4,664 -------- -------- Net cash provided by operating activities 192,179 159,746 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses(excluding cash and equivalents) and additional interest in affiliates (131,643) (75,690) Additions to plant and equipment (49,307) (51,461) Purchase of investments (5,551) (4,162) Proceeds from investments 15,156 6,169 Proceeds from sale of plant and equipment 2,473 1,380 Proceeds from sale of operations and affiliates 9,589 1,488 Other, net 3,802 3,139 -------- -------- Net cash used for investing activities (155,481) (119,137) -------- -------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (37,517) (29,952) Issuance of common stock 2,529 2,454 Net borrowings (repayments) of short-term debt (338,870) 19,699 Proceeds from long-term debt 499,924 361 Repayments of long-term debt (2,529) (10,571) Other, net 1,659 1,730 -------- -------- Net cash provided by (used for) financing activities 125,196 (16,279) -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents (4,801) (3,642) -------- -------- Cash and Equivalents: Increase during the period 157,093 20,688 Beginning of period 93,485 185,856 -------- -------- End of period $250,578 $206,544 ======== ======== Cash Paid During the Period for Interest $ 10,238 $ 4,096 ======== ======== Cash Paid During the Period for Income Taxes $ 21,143 $ 48,733 ======== ======== Liabilities Assumed from Acquisitions $106,268 $ 6,841 ======== ======== -5- ILLINOIS TOOL WORKS INC. and SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) INVENTORIES at March 31, 1999 and December 31, 1998 were as follows: (In Thousands) March 31, Dec. 31, 1999 1998 -------- -------- Raw material $164,069 $163,868 Work-in-process 80,184 72,254 Finished goods 353,920 345,633 -------- -------- $598,173 $581,755 ======== ======== (2) COMPREHENSIVE INCOME: The only component of other comprehensive income that the Company has is foreign currency translation adjustments. (In Thousands) March 31, March 31, 1999 1998 --------- --------- Net income $164,346 $148,658 Foreign currency translation adjustments, net of tax (33,039) (18,675) -------- -------- Total comprehensive income $131,307 $129,983 ======== ======== (3) SHORT-TERM DEBT: In November 1998, the Company entered into a $350,000,000 Line of Credit Agreement. In 1999, the Company extended the agreement from March 31, 1999 to May 31,1999. (4) LONG-TERM DEBT: In February 1999, the Company issued $500,000,000 of 5.75% notes due March 1, 2009, at 99.281% of face value. -6- Item 2 - Management's Discussion and Analysis ENGINEERED PRODUCTS - NORTH AMERICA Businesses in this segment are located in North America and manufacture short lead-time components and fasteners, and specialty products such as adhesives, resealable packaging and electronic component packaging. (Dollars in Thousands) Three months ended March 31 ------------------ 1999 1998 -------- -------- Operating revenues $500,146 $423,747 Operating income 100,695 83,765 Margin % 20.1% 19.8% Revenues increased 18% in the first quarter of 1999 versus 1998 due primarily to acquisitions, which contributed 11% to the revenue growth. In addition, base business revenue grew 7%, mainly in the construction and automotive businesses. Operating income grew mainly due to the base business revenue increases, improved operating efficiencies and acquisitions. The improved margins were the result of operating efficiencies at the base businesses, partially offset by the lower margins of acquired businesses. ENGINEERED PRODUCTS - INTERNATIONAL Businesses in this segment are located outside North America and manufacture short lead-time components and fasteners, and specialty products such as electronic component packaging and adhesives. (Dollars in Thousands) Three months ended March 31 ------------------ 1999 1998 -------- -------- Operating revenues $258,797 $209,823 Operating income 27,537 26,599 Margin % 10.6% 12.7% For the first quarter of 1999, acquisitions accounted for a 22% increase in revenues. This revenue growth was offset by a 2% decline in base business revenues, primarily in the construction and industrial components businesses. Foreign currency fluctuations increased revenues by 3%. The increased operating income from acquisitions was offset by lower operating income for the base businesses. Margin declines are attributable both to the base businesses and the lower margins of acquisitions. -7- SPECIALTY SYSTEMS -NORTH AMERICA Businesses in this segment are located in North America and produce longer lead-time machinery and related consumables, and specialty equipment for applications such as industrial spray coating, quality measurement, and static control. (Dollars in Thousands) Three months ended March 31 ------------------ 1999 1998 -------- -------- Operating revenues $507,097 $504,218 Operating income 97,003 84,332 Margin % 19.1% 16.7% For the first three months of 1999, the 1% growth in revenues was made up of a 9% increase in acquisitions, offset by reduced base business revenues of 6% and a revenue decline of 2% related to divestitures. Despite the reduced revenues in the base businesses, operating income grew 15% as a result of increased operating efficiencies. Lower margins for acquired businesses partially offset the margin improvement in the base businesses. SPECIALTY SYSTEMS - INTERNATIONAL Businesses in this segment are located outside North America and manufacture longer lead-time machinery and related consumables, and specialty equipment for industrial spray coating and other applications. (Dollars in Thousands) Three months ended March 31 ------------------ 1999 1998 -------- -------- Operating revenues $237,961 $241,992 Operating income 14,311 25,510 Margin % 6.0% 10.5% Revenues decreased 2% in the first quarter of 1999 versus 1998 due to a revenue decline of 13% for the base businesses, partially offset by increased revenues of 8% for acquisitions and 3% related to favorable foreign currency fluctuations. Operating income and margins decreased primarily as a result of the base business revenue declines and uncollectible receivables at one operation. -8- LEASING AND INVESTMENTS This segment makes opportunistic investments in mortgage-related assets, leveraged and direct financing leases of equipment, properties and property developments, and affordable housing investments. (Dollars in Thousands) Three months ended March 31 ------------------ 1999 1998 -------- -------- Operating revenues $ 39,858 $ 35,015 Operating income 22,991 14,148 Both revenues and operating income increased in the first quarter of 1999 from 1998 due to gains on sales of certain investment assets. In addition, operating income also increased due to higher commercial mortgage income. OPERATING REVENUES The reconciliation of segment operating revenues to total company operating revenues is as follows: Three months ended March 31 ------------------------ 1999 1998 ---------- ---------- Engineered Products - North America $ 500,146 $ 423,747 Engineered Products - International 258,797 209,823 Specialty Systems - North America 507,097 504,218 Specialty Systems - International 237,961 241,992 Leasing and Investments 39,858 35,015 ---------- ----------- Total segment operating revenues 1,543,859 1,414,795 Intersegment revenues (70,025) (73,804) ---------- ---------- Total company operating revenues $1,473,834 $1,340,991 ========== ========== OPERATING EXPENSES Cost of revenues as a percentage of revenues decreased to 63.9% in the first three months of 1999 versus 65.2% in the first three months of 1998, due to increased sales volume coupled with lower manufacturing costs. Selling, administrative, and research and development expenses increased to 17.2% of revenues in the first three months of 1999 versus 16.5% in the first three months of 1998, primarily due to higher nonrecurring charges in 1999. INTEREST EXPENSE Interest expense increased to $8.4 million in the first three months of 1999 from $2.9 million in the first three months of 1998, primarily due to increased borrowings. -9- OTHER INCOME Other income increased to $4.7 million for the first three months of 1999 from $2.8 million in 1998. This increase is primarily due to higher gains on the sale of operations in 1999. NET INCOME Net income of $164.3 million ($0.65 per diluted share) in the first three months of 1999 was 10.6% higher than the 1998 first quarter net income of $148.7 million ($0.59 per diluted share). FINANCIAL POSITION Net working capital at March 31, 1999 and December 31, 1998 is summarized as follows: (Dollars in Thousands) March 31, Dec. 31, Increase/ 1999 1998 (Decrease) ---------- ---------- ---------- Current Assets: Cash and equivalents $ 250,578 $ 93,485 $157,093 Trade receivables 1,031,275 989,086 42,189 Inventories 598,173 581,755 16,418 Other 188,397 170,147 18,250 ---------- ---------- -------- 2,068,423 1,834,473 233,950 ---------- ---------- -------- Current Liabilities: Short-term debt 304,996 406,707 (101,711) Accounts payable and accrued expenses 728,968 726,412 2,556 Other 165,101 88,890 76,211 ---------- ---------- ------- 1,199,065 1,222,009 (22,944) ---------- ---------- ------- Net Working Capital $ 869,358 $ 12,464 $256,894 ========== ========== ======== Current Ratio 1.73 1.50 ========== ========== The increase in trade receivables in the first three months of 1999 was primarily due to 1999 acquisitions. In February 1999, the Company issued $500,000,000 of 5.75% notes due March 1, 2009. The proceeds were primarily used to repay commercial paper. The increase in other liabilities reflects an increase in income taxes payable. Income taxes payable have increased as a result of the timing of tax payments. -10- 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. To determine the extent of the year 2000 compliance issues related to its computer systems, including equipment with embedded chip technology, the Company began an extensive internal study at all of its business units in 1997. Approximately 70% of the business units have completed testing of existing systems and remediation activities as of March 31,1999, and it is expected that substantially all businesses will have completed their projects by June 30, 1999. It is anticipated that the remaining non-critical year 2000 issues will be resolved by the end of 1999. The Company also has initiated formal communications with its significant suppliers, customers and other relevant third parties to determine the extent and steps that they are taking to be year 2000 compliant. To date, no significant issues have been identified. However, there is a risk that the systems of these other companies could have a negative impact on the Company's operations if they are not year 2000 compliant. To mitigate this risk, the Company is monitoring the status of these companies' year 2000 compliance programs. To the extent that critical suppliers are not compliant, in many instances the Company may be able to obtain alternative sources of raw materials or services. The Company believes that the overall risk of year 2000 issues having a material adverse effect on the Company's operations is mitigated by the Company's decentralized organization, in which there are approximately 400 operating units and very few individual computer systems which affect a significant number of operating units. In addition, the Company's products are primarily components or consumable goods that do not have embedded chip technology. Approximately 20% of the Company's products are capital equipment goods that could have embedded chip issues. The Company is reviewing this equipment as part of its internal year 2000 compliance study. To date, because this equipment is generally not highly automated, no significant year 2000 issues related to the Company's equipment products have been identified. The Company has begun to develop contingency plans for the operations where case critical systems or third parties are not year 2000 compliant. Based on preliminary estimates, the total cost of the Company's year 2000 compliance program is approximately $40 million for 1997 through 1999. Of this amount, approximately 67% relates to capital expenditures and 33% to expensed costs. Approximately 80% of the total cost has been incurred through March 31, 1999. Estimates of year 2000 related costs are based upon numerous assumptions and there is no certainty that actual costs could not be significantly different from the estimates. -11- FORWARD-LOOKING STATEMENTS This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding year 2000 readiness. These statements are subject to certain risks, uncertainties, and other factors which could cause actual results to differ materially from those anticipated, including, without limitation, the risks described herein. Important factors that may influence future results include (1) a downturn in the automotive, construction, general industrial or real estate markets, (2) deterioration in global and domestic business and economic conditions, particularly in North America, Europe, and Australia, (3) an interruption in, or reduction in, introducing new products into the Company's product line, (4) an unfavorable environment for making acquisitions, domestic and foreign, including adverse accounting or regulatory requirements and market value of candidates, and (5) the failure of the Company's suppliers or customers to be year 2000 compliant or unexpected costs or difficulties in the Company becoming year 2000 compliant. Part II - Other Information 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 The following reports on Form 8-K have been filed during the period: (1) Form 8-K, Current Report, dated January 28, 1999 which included Item 5, Item 7 and the Form of a press release dated January 28, 1999. (2) Form 8-K, Current Report, dated February 24, 1999 which included Item 5, Item 7 and the Underwriting Agreement and the Form of Note for the $500,000,000 5 3/4% Notes due 2009. -12- 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 17, 1999 By: /s/ Jon C. Kinney ______________________ ____________________________________ Jon C. Kinney, Senior Vice President and Chief Financial Officer (Principal Accounting Officer) -13- 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 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 250,578 0 1,058,396 27,121 598,173 2,068,423 2,500,051 1,467,629 6,461,670 1,199,065 1,230,818 0 0 2,505 3,562,228 6,461,670 1,473,834 1,473,834 942,142 942,142 15,894 1,404 8,385 258,846 94,500 164,346 0 0 0 164,346 .66 .65
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