-----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, FnvknbzRsc+y7eM8i8GLeFaeRHm14gPH6RUdvPZSRMbnag9PQgT1usXDOC5vlqfu flop0tnnxZ05U6wUVNFyeQ== 0000049826-99-000005.txt : 19990812 0000049826-99-000005.hdr.sgml : 19990812 ACCESSION NUMBER: 0000049826-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99683962 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, 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 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, 1999: 250,603,029. 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 Six Months Ended June 30 June 30 ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Operating Revenues $1,624,170 $1,420,461 $3,098,004 $2,761,452 Cost of revenues 1,023,657 910,889 1,965,799 1,784,846 Selling, administrative, and research and develop- ment expenses 258,404 213,662 511,665 434,740 Amortization of goodwill and other intangible assets 16,738 10,397 30,805 20,174 Amortization of retiree health care 1,826 1,826 3,653 3,653 ---------- ---------- ---------- ---------- Operating Income 323,545 283,687 586,082 518,039 Interest expense (11,557) (2,293) (19,942) (5,239) Other income (expense) 2,750 (4,315) 7,444 (1,563) ---------- ---------- ---------- ---------- Income Before Income Taxes 314,738 277,079 573,584 511,237 Income taxes 114,900 101,100 209,400 186,600 ---------- ---------- ---------- ---------- Net Income $ 199,838 $ 175,979 $ 364,184 $ 324,637 ========== ========== ========== ========== Per share of common stock: Basic Net Income $0.80 $0.70 $1.45 $1.30 ===== ===== ===== ===== Diluted Net Income $0.79 $0.70 $1.44 $1.29 ===== ===== ===== ===== Cash dividends: Paid $0.15 $0.12 $0.30 $0.24 ===== ===== ===== ===== Declared $0.15 $0.12 $0.30 $0.24 ===== ===== ===== ===== Shares of common stock outstanding during the period: Average 250,466 249,889 250,349 249,789 Average assuming dilution 253,247 252,678 253,035 252,526 -3- ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS June 30, 1999 December 31, 1998 - ------ ------------- ----------------- Current Assets: Cash and equivalents $ 119,542 $ 93,485 Trade receivables 1,087,783 989,086 Inventories 613,678 581,755 Deferred income taxes 110,811 102,607 Prepaid expenses and other current assets 100,469 67,540 ---------- ---------- Total current assets 2,032,283 1,834,473 ---------- ---------- Plant and Equipment: Land 77,630 73,266 Buildings and improvements 598,185 554,383 Machinery and equipment 1,701,370 1,624,703 Equipment leased to others 112,794 107,186 Construction in progress 96,497 57,894 ---------- ---------- 2,586,476 2,417,432 Accumulated depreciation (1,502,164) (1,429,883) ---------- ---------- Net plant and equipment 1,084,312 987,549 --------- ------- Investments 1,171,684 1,183,493 Goodwill 1,542,921 1,189,323 Deferred Income Taxes 413,424 417,361 Other Assets 494,269 505,963 ---------- ---------- $6,738,893 $6,118,162 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt $ 434,702 $ 406,707 Accounts payable 307,961 268,869 Accrued expenses 463,253 457,543 Cash dividends payable 37,584 37,519 Income taxes payable 88,406 51,371 ---------- ---------- Total current liabilities 1,331,906 1,222,009 ---------- ---------- Non-current Liabilities: Long-term debt 1,223,942 947,008 Other 592,566 611,110 ---------- ---------- Total non-current liabilities 1,816,508 1,558,118 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 2,508 2,504 Additional Paid-in-Capital 308,421 302,684 Income reinvested in the business 3,419,270 3,130,213 Common stock held in treasury (1,783) (1,783) Cumulative translation adjustment (137,937) (95,583) ---------- ---------- Total stockholders' equity 3,590,479 3,338,035 ---------- ---------- $6,738,893 $6,118,162 ========== ========== -4- ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended June 30 ------------------ 1999 1998 -------- -------- Cash Provided by (Used for) Operating Activities: Net income $364,184 $324,637 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 124,019 107,371 Change in deferred income taxes 1,399 276 Provision for uncollectible accounts 2,132 2,141 (Gain) loss on sale of plant and equipment (2,071) 3,765 Income from investments (79,297) (62,306) Non-cash interest on nonrecourse debt 23,038 23,706 (Gain)loss on sale of operations and affiliates (386) 3,293 Other non-cash items, net (2,904) 718 -------- -------- Cash provided by operating activities 430,114 403,601 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (60,618) (41,576) Inventories 4,064 (9,804) Prepaid expenses and other assets (47,430) (31,136) Increase (decrease) in-- Accounts payable 12,260 (6,143) Accrued expenses (19,799) (26,799) Income taxes payable 27,272 (21,061) Other, net 187 7,194 -------- -------- Net cash provided by operating activities 346,050 274,276 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses(excluding cash and equivalents) and additional interest in affiliates (485,631) (229,509) Additions to plant and equipment (108,606) (104,856) Purchase of investments (7,001) (7,829) Proceeds from investments 43,705 22,165 Proceeds from sale of plant and equipment 16,932 2,228 Proceeds from sale of operations and affiliates 9,391 9,845 Other, net 6,822 6,075 -------- -------- Net cash used for investing activities (524,388) (301,881) -------- -------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (75,063) (59,929) Issuance of common stock 5,742 4,748 Net borrowings (repayments)of short-term debt (213,605) 7,807 Proceeds from long-term debt 499,672 45 Repayments of long-term debt (7,091) (816) Other, net 1,760 (31) -------- -------- Net cash provided by (used for) financing activities 211,415 (48,176) -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents (7,020) (1,653) -------- -------- Cash and Equivalents: Increase (decrease) during the period 26,057 (77,434) Beginning of period 93,485 185,856 -------- -------- End of period $119,542 $108,422 ======== ======== Cash Paid During the Period for Interest $ 12,967 $ 13,408 ======== ======== Cash Paid During the Period for Income Taxes $171,108 $145,440 ======== ======== Liabilities Assumed from Acquisitions $161,033 $ 20,995 ======== ======== -5- ILLINOIS TOOL WORKS INC. and SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) INVENTORIES at June 30, 1999 and December 31, 1998 were as follows: (In Thousands) June 30, Dec. 31, 1999 1998 -------- -------- Raw material $176,791 $163,868 Work-in-process 75,033 72,254 Finished goods 361,854 345,633 -------- -------- $613,678 $581,755 ======== ======== (2) COMPREHENSIVE INCOME: The components of comprehensive income were as follows: Three Months Ended Six Months Ended June 30 June 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Net income $199,838 $175,979 $364,184 $324,637 Foreign currency translation adjustments, net of tax (9,315) (9,081) (42,354) (27,756) -------- -------- -------- -------- Total comprehensive income $190,523 $166,898 $321,830 $296,881 ======== ======== ======== ======== (3) SHORT-TERM DEBT: In 1998, the Company entered into a $350,000,000 Line of Credit Agreement, which was extended in 1999 from March 31,1999 to June 30, 1999. This line of credit was replaced on June 30, 1999, by a $400,000,000 Credit Agreement which expires on June 28, 2000. (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 Six months ended June 30 June 30 ------------------ -------------------- 1999 1998 1999 1998 -------- -------- ---------- -------- Operating revenues $543,948 $439,834 $1,044,094 $863,581 Operating income 119,492 93,851 220,186 177,616 Margin % 22.0% 21.3% 21.1% 20.6% The 1999 revenue increases of 24% in the second quarter and 21% year-to-date were mainly due to acquisitions, which contributed revenue growth of 14% and 13% for the second quarter and year-to-date periods, respectively. In addition, base business revenue grew 10% in the second quarter and 8% year-to-date, mainly as a result of increases in the construction, automotive and packaging 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 Six months ended June 30 June 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Operating revenues $306,256 $235,255 $565,053 $445,079 Operating income 36,032 35,779 63,569 62,379 Margin % 11.8% 15.2% 11.3% 14.0% The 1999 revenue increases of 30% in the second quarter and 27% year-to-date were largely due to acquisitions, which contributed growth of 34% in the second quarter and 29% year-to-date. The base business revenue growth was 2% in the second quarter and was flat year-to-date. Higher revenues in the automotive plastic, electronic component packaging and polymers operations were offset by revenue declines for the other base businesses. Foreign currency fluctuations decreased revenues by 6% and 2% for the three-month and six-month periods, respectively. -7- For both periods, the increase in operating income was largely due to acquisitions, partially offset by nonrecurring costs associated with the European construction operations. Margin declines were attributable both to the base businesses, mainly due to the European nonrecurring costs, and the initial lower margin impact of acquisitions. 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 Six months ended June 30 June 30 ------------------ ---------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- Operating revenues $539,776 $513,676 $1,046,873 $1,017,893 Operating income 113,512 105,053 210,515 189,384 Margin % 21.0% 20.5% 20.1% 18.6% In 1999, revenues increased 5% and 3% for the second quarter and year-to-date periods, respectively. Acquisitions contributed 9% to the revenue growth for both periods, partially offset by reduced base business revenues of 4% in the second quarter and 5% in the year-to-date period. Operating income grew 8% in the second quarter and 11% year-to-date as a result of increased operating efficiencies in the base businesses. For both periods, the margin improvement in the base businesses was partially offset by lower margins for acquired 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 Six months ended June 30 June 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Operating revenues $267,355 $269,729 $505,316 $511,721 Operating income 31,415 35,627 45,726 61,137 Margin % 11.8% 13.2% 9.0% 11.9% Revenues decreased slightly in both periods of 1999 versus 1998 due to a base business revenue decline of 7% for the second quarter and 10% for the year-to-date period. The base business decrease was partially offset by increased revenues of 8% for acquisitions for both periods. Foreign currency translation decreased revenues 2% for the second quarter and had no year-to-date impact. For both periods, operating income and margins decreased primarily as a result of the base business revenue declines, especially in certain packaging operations. -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 Six months ended June 30 June 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Operating revenues $ 40,914 $ 30,711 $ 80,771 $ 65,726 Operating income 23,094 13,377 46,086 27,523 Both revenues and operating income increased for both periods of 1999 versus 1998 due to gains on the sales of certain non-mortgage investment assets. In addition, operating income also increased for both periods 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 Six months ended June 30 June 30 --------------------- --------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Engineered Products - North America $ 543,948 $ 439,834 $1,044,094 $ 863,581 Engineered Products - International 306,256 235,255 565,053 445,079 Specialty Systems - North America 539,776 513,676 1,046,873 1,017,893 Specialty Systems - International 267,355 269,729 505,316 511,721 Leasing and Investments 40,914 30,711 80,771 65,726 ---------- ---------- ---------- ---------- Total segment operating revenues 1,698,249 1,489,205 3,242,107 2,904,000 Intersegment revenues (74,079) (68,744) (144,103) (142,548) ---------- ---------- ---------- ---------- Total company operating revenues $1,624,170 $1,420,461 $3,098,004 $2,761,452 ========== ========== ========== ========== OPERATING EXPENSES Cost of revenues as a percentage of revenues decreased to 63.5% in the first six months of 1999 versus 64.6% in the first six months of 1998, due to increased sales volume coupled with lower manufacturing costs. Selling, administrative, and research and development expenses increased to 16.5% of revenues in the first half of 1999 versus 15.7% in 1998, primarily due to higher nonrecurring charges in 1999. INTEREST EXPENSE Interest expense increased to $19.9 million in the first six months of 1999 from 5.2 million in 1998, primarily due to higher long-term debt and increased commercial paper borrowings. OTHER INCOME (EXPENSE) Other income (expense) was income of $7.4 million for the first half of 1999 versus expense $1.6 million in 1998. The increased income was primarily due to gains on the sale of operations and plant and equipment in 1999, versus losses in 1998. -9- NET INCOME Net income of $364.2 million ($1.44 per diluted share) in the first six months of 1999 was 12.2% higher than the 1998 net income of $324.6 million ($1.29 per diluted share). FINANCIAL POSITION Net working capital at June 30, 1999 and December 31, 1998 is summarized as follows: (Dollars in Thousands) June 30, Dec. 31, Increase/ 1999 1998 (Decrease) ---------- ---------- ---------- Current Assets: Cash and equivalents $ 119,542 $ 93,485 $ 26,057 Trade receivables 1,087,783 989,086 98,697 Inventories 613,678 581,755 31,923 Other 211,280 170,147 41,133 ---------- ---------- -------- 2,032,283 1,834,473 197,810 ---------- ---------- -------- Current Liabilities: Short-term debt 434,702 406,707 27,995 Accounts payable and accrued expenses 771,214 726,412 44,802 Other 125,990 88,890 37,100 ---------- ---------- -------- 1,331,906 1,222,009 109,897 ---------- ---------- -------- Net Working Capital $ 700,377 $ 612,464 $ 87,913 ========== ========== ======== Current Ratio 1.53 1.50 ==== ==== The increase in trade receivables for the first six 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. -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 80% of the business units have completed testing of existing systems and remediation activities as of June 30,1999, and it is expected that substantially all businesses will have completed their projects by September 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 has been 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 been developing 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 84% of the total cost has been incurred through June 30, 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. -12- 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 14, 1999. The following members were elected to the Company's Board of Directors to hold office for the ensuing year: Nominees In Favor Withheld - -------------------------------------------------------------------------- W. F. Aldinger, III 224,606,095 592,382 M. J. Birck 224,659,928 538,549 M. D. Brailsford 224,686,034 512,443 S. Crown 224,700,237 498,240 H. R. Crowther 224,580,031 618,446 W. J. Farrell 224,703,326 495,151 R. C. McCormack 224,660,618 537,859 P. B. Rooney 224,628,321 570,156 H. B. Smith 224,698,555 499,922 O. J. Wade 224,657,775 540,702 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. -13- 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 11, 1999 By: /s/ Jon C. Kinney --------------------------- -------------------------------------- Jon C. Kinney, Senior Vice President and Chief Financial Officer (Principal Accounting Officer) -14- 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-31-1999 JAN-01-1999 JUN-30-1999 119,542 0 1,114,899 27,116 613,678 2,032,283 2,586,476 1,502,164 6,738,893 1,331,906 1,223,942 0 0 2,508 3,727,691 6,738,893 3,098,004 3,098,004 1,965,799 1,965,799 34,458 2,132 19,942 573,584 209,400 364,184 0 0 0 364,184 1.45 1.44
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