-----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, Q9V/HLm5kkJNLoWKRGsEcFQFrO7zosixsJdwbxOsM8aYGkadGUE4IWkz0gX0b1DV XouwQ9H1Lv5ji1w8vLos9A== 0000950137-99-004139.txt : 19991117 0000950137-99-004139.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950137-99-004139 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99752383 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 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, 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) (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, $.01 par value, outstanding at October 31, 1999: 250,699,566. 2 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 year's data have been made to conform with current year reporting. 3 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 ---------------------- ---------------------- 1999 1998 1999 1998 ----------- ---------- ---------- --------- Operating Revenues $1,593,811 $1,377,212 $4,691,815 $4,138,664 Cost of revenues 1,012,132 888,741 2,977,931 2,673,587 Selling, administrative, and research and development expenses 254,618 212,854 769,936 651,247 Amortization of goodwill and other intangible assets 17,423 11,055 48,228 31,229 ----------- ---------- ---------- --------- Operating Income 309,638 264,562 895,720 782,601 Interest expense (11,956) (3,652) (31,898) (8,891) Other income (expense) (2,858) (2,840) 4,586 (4,403) ----------- ---------- ---------- --------- Income Before Income Taxes 294,824 258,070 868,408 769,307 Income taxes 107,600 94,200 317,000 280,800 ---------- ---------- ---------- ---------- Net Income $ 187,224 $ 163,870 $ 551,408 $ 488,507 ========== ========== ========== ========== Per share of common stock: Basic Net Income $0.75 $0.66 $2.20 $1.96 ===== ===== ===== ===== Diluted Net Income $0.74 $0.65 $2.18 $1.94 ===== ===== ===== ===== Cash dividends: Paid $0.15 $0.12 $0.45 $0.36 ===== ===== ===== ===== Declared $0.18 $0.15 $0.48 $0.39 ===== ===== ===== ===== Shares of common stock outstanding during the period: Average 250,617 249,973 250,435 249,848 Average assuming dilution 253,329 252,268 253,139 252,424 4 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS September 30, 1999 December 31, 1998 - ------ ------------------ ----------------- Current Assets: Cash and equivalents $ 151,493 $ 93,485 Trade receivables 1,096,907 989,086 Inventories 625,046 581,755 Deferred income taxes 115,979 102,607 Prepaid expenses and other current assets 95,090 67,540 ---------- ---------- Total current assets 2,084,515 1,834,473 ---------- ---------- Plant and Equipment: Land 78,240 73,266 Buildings and improvements 597,047 554,383 Machinery and equipment 1,718,773 1,624,703 Equipment leased to others 110,446 107,186 Construction in progress 111,417 57,894 ---------- ---------- 2,615,923 2,417,432 Accumulated depreciation (1,527,950) (1,429,883) ---------- ---------- Net plant and equipment 1,087,973 987,549 ---------- ---------- Investments 1,185,202 1,183,493 Goodwill 1,577,653 1,189,323 Deferred Income Taxes 415,659 417,361 Other Assets 540,019 505,963 ---------- ---------- $6,891,021 $6,118,162 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Short-term debt $ 424,894 $ 406,707 Accounts payable 289,402 268,869 Accrued expenses 474,694 457,543 Cash dividends payable 45,121 37,519 Income taxes payable 119,150 51,371 ---------- ---------- Total current liabilities 1,353,261 1,222,009 ---------- ---------- Non-current Liabilities: Long-term debt 1,212,431 947,008 Other 583,774 611,110 ---------- ---------- Total non-current liabilities 1,796,205 1,558,118 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 2,509 2,504 Additional Paid-in-Capital 310,372 302,684 Income reinvested in the business 3,561,372 3,130,213 Common stock held in treasury (1,783) (1,783) Cumulative translation adjustment (130,915) (95,583) ---------- ---------- Total stockholders' equity 3,741,555 3,338,035 ---------- ---------- $6,891,021 $6,118,162 ========== ========== 5 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Nine Months Ended September 30 ------------------ 1999 1998 -------- -------- Cash Provided by (Used for) Operating Activities: Net income $551,408 $488,507 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 188,912 159,164 Change in deferred income taxes (3,540) 20,183 Provision for uncollectible accounts 8,829 3,079 (Gain) loss on sale of plant and equipment (1,418) 5,059 Income from investments (115,691) (97,670) Non-cash interest on nonrecourse debt 34,719 36,125 (Gain)loss on sale of operations and affiliates (12) 3,142 Other non-cash items, net (4,665) 1,983 -------- -------- Cash provided by operating activities 658,542 619,572 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (70,486) (16,226) Inventories (9,769) 9,917 Prepaid expenses and other assets (45,681) (25,722) Increase (decrease) in-- Accounts payable (5,248) (32,969) Accrued expenses (14,481) (25,315) Income taxes payable 57,152 (33,168) Other, net 258 (160) -------- -------- Net cash provided by operating activities 570,287 495,929 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates (569,234) (597,970) Additions to plant and equipment (164,985) (149,967) Purchase of investments (35,734) (9,238) Proceeds from investments 66,368 33,711 Proceeds from sale of plant and equipment 18,762 18,198 Proceeds from sale of operations and affiliates 9,535 10,251 Other, net 7,293 6,366 -------- -------- Net cash used for investing activities (667,995) (688,649) -------- -------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (112,647) (89,920) Issuance of common stock 7,693 5,301 Net borrowings (repayments)of short-term debt (221,945) 195,542 Proceeds from long-term debt 507,057 17,162 Repayments of long-term debt (19,494) (9,552) Other, net 1,641 2,286 -------- -------- Net cash provided by financing activities 162,305 120,819 -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents (6,589) (5,817) -------- -------- Cash and Equivalents: Increase (decrease) during the period 58,008 (77,718) Beginning of period 93,485 185,856 -------- -------- End of period $151,493 $108,138 ======== ======== Cash Paid During the Period for Interest $ 39,583 $ 20,223 ======== ======== Cash Paid During the Period for Income Taxes $237,740 $226,461 ======== ======== Liabilities Assumed from Acquisitions $168,151 $150,542 ======== ======== 6 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) INVENTORIES at September 30, 1999 and December 31, 1998 were as follows: (In Thousands) Sept 30, Dec. 31, 1999 1998 -------- -------- Raw material $186,571 $163,868 Work-in-process 76,531 72,254 Finished goods 361,944 345,633 -------- -------- $625,046 $581,755 ======== ======== (2) COMPREHENSIVE INCOME: The components of comprehensive income were as follows: Three Months Ended Nine Months Ended September 30 September 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Net income $187,224 $163,870 $551,408 $488,507 Foreign currency translation adjustments, net of tax 7,022 (14,962) (35,332) (42,719) -------- -------- -------- -------- Total comprehensive income $194,246 $148,908 $516,076 $445,788 ======== ======== ======== ======== (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 that 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. (5) PREMARK ACQUISITION: On September 9, 1999, the Company entered into an Agreement and Plan of Merger with Premark International, Inc. ("Premark") pursuant to which, subject to the terms and conditions contained in the Merger Agreement, CS Merger Sub Inc., a wholly owned subsidiary of the Company, will be merged (the "Merger") into Premark, with Premark surviving as a wholly owned subsidiary of the Company. As a result of the Merger, each outstanding share of Premark common stock, par value $1.00 per share (the "Premark Common Stock") will be converted into the right to receive between .5776 and .9181 of a share of ITW common stock, par value of $.01 ("ITW Common Stock"), depending on the average closing price of ITW Common Stock over the 20 day trading period ending on the second business day prior to the closing of the Merger. 7 As a condition and inducement to the Company's willingness to enter into the Merger Agreement, Premark has entered into a Stock Option Agreement with the Company dated as of September 9, 1999 (the "Option Agreement"). Pursuant to the Option Agreement, the Company has an option (the "Option") to purchase 12,203,694 shares of Premark's Common Stock at a price of $34.06 (the "Option Price") per share of Premark Common Stock under certain circumstances, subject to adjustment. The Option Agreement limits the profit that the Company may receive pursuant to the Option to $30 million in the aggregate. 8 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 Nine months ended September 30 September 30 ------------------ ---------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- Operating revenues $531,350 $453,571 $1,575,444 $1,317,152 Operating income 108,369 93,247 328,556 270,863 Margin % 20.4% 20.6% 20.9% 20.6% In 1999, revenues increased 17% and 20% for the third quarter and year-to-date periods, respectively. Base business revenue grew 10% for the third quarter and 9% year-to-date, mainly as a result of increases in the automotive, construction and consumer packaging businesses. In addition, acquisitions contributed revenue growth of 8% and 11% for the third quarter and year-to-date periods, respectively. For both periods, operating income grew due to the base business revenue increases, improved operating efficiencies and acquisitions. Overall margins were essentially flat for both periods as improved operating efficiencies at the base businesses were 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 Nine months ended September 30 September 30 ------------------- --------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Operating revenues $300,029 $221,068 $865,082 $666,146 Operating income 37,821 33,825 101,390 96,204 Margin % 12.6% 15.3% 11.7% 14.4% 9 The 1999 revenue increases of 36% in the third quarter and 30% year-to-date were largely due to acquisitions, which contributed growth of 36% and 31% in the three-month and nine-month periods, respectively. For the three-month and nine-month periods, the base business revenue growth was 3% and 1%, respectively, mainly related to the automotive and polymers businesses for both periods, as well as Australian construction businesses for the third quarter. Foreign currency fluctuations negatively impacted revenues by 3% and 2% for the three-month and nine-month periods, respectively. For both periods, the increase in operating income was due to acquisitions, partially offset by nonrecurring costs associated with various European operations. The 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 Nine months ended September 30 September 30 ------------------ ---------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- Operating revenues $527,870 $480,472 $1,574,744 $1,498,365 Operating income 108,869 90,338 319,384 279,722 Margin % 20.6% 18.8% 20.3% 18.7% In 1999, revenues increased 10% for the three-month period and 5% for the year-to-date period. For the third quarter, acquisitions contributed 7% to the revenue growth, while the base business revenue grew 2%. For the year-to-date period, revenue growth of 8% from acquisitions was partially offset by reduced base business revenues of 3%. Operating income increased 21% in the third quarter and 14% year-to-date as a result of improved operating efficiencies in the base businesses. For both periods, the base business margin improvement was partially offset by lower margins for acquired businesses. 10 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 Nine months ended September 30 September 30 ------------------ ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Operating revenues $275,579 $254,001 $780,895 $765,722 Operating income 35,029 30,685 80,755 91,822 Margin % 12.7% 12.1% 10.3% 12.0% In 1999, revenues increased 8% in the third quarter and 2% in the year-to-date period. For both periods, acquisitions contributed 8% to the revenue growth. Base business revenues increased 1% for the three-month period and decreased 6% year-to-date. Foreign currency translation did not have any significant impact in either period. In the third quarter, operating income and margins increased due to acquisitions and improved performance in various packaging and finishing businesses. For the year-to-date period, operating income and margins decreased due to the base business revenue declines and the lower margins of acquired businesses. 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. (Dollars in Thousands) Three months ended Nine months ended September 30 September 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Operating revenues $ 38,013 $ 36,159 $118,784 $101,885 Operating income 19,550 16,467 65,635 43,990 Both revenues and operating income increased for both periods of 1999 versus 1998 due to gains on the sales of assets and higher mortgage-related income. 11 OPERATING REVENUES The reconciliation of segment operating revenues to total company operating revenues is as follows:
Three months ended Nine months ended September 30 September 30 -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Engineered Products - North America $ 531,350 $ 453,571 $ 1,575,444 $ 1,317,152 Engineered Products - International 300,029 221,068 865,082 666,146 Specialty Systems - North America 527,870 480,472 1,574,744 1,498,365 Specialty Systems - International 275,579 254,001 780,895 765,722 Leasing and Investments 38,013 36,159 118,784 101,885 ----------- ----------- ----------- ----------- Total segment operating revenues 1,672,841 1,445,271 4,914,949 4,349,270 Intersegment revenues (79,030) (68,059) (223,134) (210,606) ----------- ----------- ----------- ----------- Total company operating revenues $ 1,593,811 $ 1,377,212 $ 4,691,815 $ 4,138,664 =========== =========== =========== ===========
OPERATING EXPENSES Cost of revenues as a percentage of revenues decreased to 63.5% in the first nine months of 1999 versus 64.6% in the first nine months of 1998, due to increased sales volume coupled with lower manufacturing costs. Selling, administrative, and research and development expenses increased to 16.4% of revenues in the first nine months of 1999 versus 15.7% in 1998, primarily due to higher nonrecurring charges in 1999. INTEREST EXPENSE Interest expense increased to $31.9 million in the first nine months of 1999 from $8.9 million in 1998, primarily due to higher long-term debt and increased commercial paper borrowings. OTHER INCOME (EXPENSE) Other income (expense) was income of $4.6 million for the first nine months of 1999 versus expense of $4.4 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. NET INCOME Net income of $551.4 million ($2.18 per diluted share) in the first nine months of 1999 was 12.9% higher than the 1998 net income of $488.5 million ($1.94 per diluted share). 12 FINANCIAL POSITION Net working capital at September 30, 1999 and December 31, 1998 is summarized as follows: (Dollars in Thousands) Sept 30, Dec. 31, 1999 1998 Increase ---------- ---------- -------- Current Assets: Cash and equivalents $ 151,493 $ 93,485 $ 58,008 Trade receivables 1,096,907 989,086 107,821 Inventories 625,046 581,755 43,291 Other 211,069 170,147 40,922 ---------- ---------- -------- 2,084,515 1,834,473 250,042 ---------- ---------- -------- Current Liabilities: Short-term debt 424,894 406,707 18,187 Accounts payable and accrued expenses 764,096 726,412 37,684 Other 164,271 88,890 75,381 ---------- ---------- -------- 1,353,261 1,222,009 131,252 ---------- ---------- -------- Net Working Capital $ 731,254 $ 612,464 $118,790 ========== ========== ======== Current Ratio 1.54 1.50 ==== ==== The increase in trade receivables for the first nine months of 1999 was due to 1999 acquisitions and higher operating revenues in the third quarter of 1999 versus the fourth quarter of 1998, partially offset by the effect of foreign currency translation. The increase in inventories is due to acquisitions, slightly offset by the effect of foreign currency translation. YEAR 2000 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 87% of the business units have completed testing of existing systems and remediation activities as of September 30, 1999, and it is expected that substantially all businesses will have completed their projects 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 13 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. Although a small number of products which have display date functions may display an incorrect date, few products will fail to operate and no products have been identified which can cause property damage or bodily harm due to a year 2000 failure. To date, 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 $41 million for 1997 through 1999. Of this amount, approximately 67% relates to capital expenditures and 33% to expensed costs. Approximately 88% of the total cost has been incurred through September 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. FORWARD-LOOKING STATEMENTS This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including 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, 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 10(a) Illinois Tool Works Inc. 1996 Stock Incentive Plan dated February 16, 1996, as amended on December 12, 1997 and October 29, 1999. (b) Reports on Form 8-K Form 8-K, Current Report, dated September 9, 1999 which included Item 5, a description of the merger agreement between Illinois Tool Works Inc. and Premark International, Inc., and Item 7, which included the Agreement and Plan of Merger among Premark International, Inc., Illinois Tool Works Inc. and CS Merger Sub Inc., the Stock Option Agreement between Premark International Inc. and Illinois Tool Works Inc., and a press release dated September 9, 1999. 14 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: November 15, 1999 By: /s/ Jon C. Kinney ----------------- ----------------------------------- Jon C. Kinney, Senior Vice President and Chief Financial Officer (Principal Accounting Officer) EX-10.(A) 2 ITW 1996 STOCK INCENTIVE PLAN 1 EXHIBIT 10(a) ILLINOIS TOOL WORKS INC. 1996 STOCK INCENTIVE PLAN Approved by the Board of Directors on February 16, 1996 and by the Stockholders on May 3, 1996 Amended by the Board of Directors on December 12, 1997 and on October 29, 1999 2 TABLE OF CONTENTS Section 1. Purpose...........................................................1 Section 2. Definitions.......................................................1 Section 3. Administration....................................................3 Section 4. Common Stock Subject to Plan......................................3 Section 5. Options...........................................................3 Section 6. Stock Awards......................................................4 Section 7. Performance Units.................................................5 Section 8. Stock Appreciation Rights.........................................5 Section 9. Termination of Employment.........................................6 Section 10. Adjustment Provisions.............................................7 Section 11. Term..............................................................7 Section 12. Corporate Change..................................................7 Section 13. General Provisions................................................7 Section 14. Amendment or Discontinuance of the Plan...........................9 -i- 3 ILLINOIS TOOL WORKS INC. 1996 STOCK INCENTIVE PLAN Section 1. PURPOSE. The purpose of the Plan is to encourage Key Employees to have a greater financial investment in the Company through ownership of its Common Stock. The Plan is an amendment and restatement of the 1979 Stock Incentive Plan (the "1979 Plan"). The terms of the Plan will apply to all outstanding Incentives granted under the 1979 Plan, including those pertaining to a Corporate Change and termination of employment as described below. No additional Incentives will be granted under the 1979 Plan. Section 2. DEFINITIONS. Board: The Board of Directors of the Company. Code: The Internal Revenue Code of 1986, as amended. Committee: The Compensation Committee of the Board or such other committee as shall be appointed by the Board to administer the Plan pursuant to Section 3. Common Stock: The Common Stock, without par value, of the Company or such other class of shares or other securities as may be applicable pursuant to the provisions of Section 10. Company: Illinois Tool Works Inc., a Delaware corporation, and any successor thereto. Corporate Change: Any of the following: (i) the dissolution of the Company; (ii) the merger, consolidation, or reorganization of the Company with any other corporation after which the holders of Common Stock immediately prior to the effective date thereof hold less than 70% of the outstanding common stock of the surviving or resulting entity; (iii) the sale of all or substantially all of the assets of the Company to any person or entity other than a wholly owned subsidiary; (iv) any person or group of persons acting in concert, other than descendants of Byron L. Smith and trusts for the benefit of such descendants, or entity becomes the beneficial owner, directly or indirectly, of more than 30% of the outstanding Common Stock; or (v) the individuals who, as of the close of the most recent annual meeting of the Company's stockholders, are members of the Board (the "Existing Directors") cease for any reason to constitute more than 50% of the Board; provided, however, that if the election, or nomination for election, by the Company's stockholders of any new director was approved by a vote of at least 50% of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 under the Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. 4 Covered Employee: A Key Employee who is or is expected to be a "covered employee" within the meaning of Code Section 162(m) and the related regulations for the year in which an Incentive is taxable to such employee and for whom the Committee intends that such Incentive qualify as performance-based compensation under Code Section 162(m). Disability: Eligible for Social Security disability benefits or disability benefits under the Company's long-term disability plan, based upon a determination by the Committee that the condition arose prior to termination of employment. Fair Market Value: The average of the highest and lowest price at which Common Stock was traded on the relevant date, as reported in the "NYSE-Composite Transactions" section of the Midwest Edition of The Wall Street Journal, or, if no sales of Common Stock were reported for that date, on the most recent preceding date on which Common Stock was traded. Incentive Stock Option: As defined in Code Section 422. Incentives: Options (including Incentive Stock Options), Stock Awards, Performance Units and Stock Appreciation Rights. Key Employee: An employee of the Company approved by the Committee for participation in the Plan on the basis of his or her ability to contribute significantly to the growth and profitability of the Company. Option: An option to purchase shares of Common Stock granted to a Key Employee pursuant to Section 5. Performance Unit: A unit representing a cash sum or one or more shares of Common Stock that is granted to a Key Employee pursuant to Section 7. Plan: The Illinois Tool Works Inc. 1996 Stock Incentive Plan, as amended from time to time. Restricted Shares: Shares of Common Stock issued subject to restrictions pursuant to Section 6(b). Retirement: Termination of employment while eligible for retirement as defined by the Company's tax-qualified defined benefit retirement plan. Stock Appreciation Right or Right: An award granted to a Key Employee pursuant to Section 8. Stock Award: An award of Common Stock granted to a Key Employee pursuant to Section 6. -2- 5 Stock Ownership Guidelines: The stock ownership guidelines adopted by the Board, as amended from time to time. Section 3. ADMINISTRATION. (a) Committee. The Plan shall be administered by the Committee. To the extent required to comply with Rule 16b-3 under the Securities Exchange Act of 1934, each member of the Committee shall qualify as a "non-employee director" as defined therein. To the extent required to comply with Code Section 162(m) and the related regulations, each member of the Committee shall qualify as an "outside director" as defined therein. (b) Authority of the Committee. The Committee shall have the authority to approve Key Employees for participation; to construe and interpret the Plan; to establish, amend or waive rules and regulations for its administration; and to accelerate the exercisability of any Incentive or the termination of any restriction under any Incentive. Incentives may be subject to such provisions as the Committee shall deem advisable, and may be amended by the Committee from time to time; provided that no such amendment may adversely affect the rights of the holder of an Incentive without such holder's consent, and no amendment, as it applies to any Covered Employee, shall be made that would cause an Incentive granted to such Covered Employee to fail to satisfy the performance-based compensation exemption under Code Section 162(m) and the related regulations. Section 4. COMMON STOCK SUBJECT TO PLAN. Subject to Section 10, the aggregate shares of Common Stock that may be issued under the Plan, including Common Stock authorized but not issued or reserved for issuance under the 1979 Plan, shall not exceed 10,000,000. In the event of a lapse, expiration, termination, forfeiture or cancellation of any Incentive granted under the Plan or the 1979 Plan without the issuance of shares or payment of cash, the Common Stock subject to or reserved for such Incentive may be used again for a new Incentive hereunder; provided that in no event may the number of shares of Common Stock issued hereunder exceed the total number of shares reserved for issuance. Any shares of Common Stock withheld or surrendered to pay withholding taxes pursuant to Section 13(e) or surrendered in full or partial payment of the exercise price of an Option pursuant to Section 5(e) shall be added to the aggregate of shares of Common Stock available for issuance. Section 5. OPTIONS. (a) Price. The exercise price per share of an Option shall be not less than the Fair Market Value on the grant date. (b) Limitations. The exercise price of Incentive Stock Options exercisable for the first time by a Key Employee during any calendar year shall not exceed $100,000. Options for more than 500,000 shares of Common Stock may not be granted in any calendar year to any Key Employee. No Incentive Stock Options may be granted after April 30, 2006. -3- 6 (c) Required Period of Employment. The Committee may condition the exercisability of any Option on the completion of a minimum period of employment. (d) Duration. Each Option shall expire at such time as the Committee may determine at the time of grant, provided that Incentive Stock Options must expire not later than ten years from the grant date. (e) Payment. The exercise price of an Option shall be paid in full at the time of exercise in cash, or by the surrender of Common Stock previously acquired from the Company that has been held by the Incentive holder for a period of at least six months and that has a value equal to the exercise price, or by a combination of the foregoing. (f) Grant of Restorative Options. The Committee shall grant to any Key Employee a restorative Option to purchase additional shares of Common Stock equal to the number of shares delivered by the Key Employee in payment of the exercise price of an Option. The terms of a restorative Option shall be identical to the terms of the exercised Option, except that the exercise price shall be not less than the Fair Market Value on the grant date of the restorative Option. Section 6. STOCK AWARDS. (a) Grant of Stock Awards. Stock Awards may be made on terms and conditions fixed by the Committee. Stock Awards may be in the form of Restricted Shares authorized pursuant to Section 6(b). Officers who are covered by the Stock Ownership Guidelines may elect to receive up to 50% of their Executive Incentive Plan awards in shares of Common Stock. The recipient of Common Stock pursuant to a Stock Award shall be a stockholder of the Company with respect thereto, fully entitled to receive dividends, vote and exercise all other rights of a stockholder except to the extent otherwise provided in the Stock Award. Stock Awards (including Restricted Share awards) for more than 500,000 shares of Common Stock may not be granted in any calendar year to any Key Employee. (b) Restricted Shares. Restricted Shares may not be sold by the holder, or subject to execution, attachment or similar process, until the lapse of the applicable restriction period or satisfaction of other conditions specified by the Committee. If the Committee intends the Restricted Shares granted to any Covered Employee to satisfy the performance-based compensation exemption under Code Section 162(m) ("Qualifying Restricted Shares"), the extent to which the Qualifying Restricted Shares will vest shall be based on the attainment of performance goals established in writing prior to commencement of the performance period by the Committee from the list in Section 7(a). The level of attainment of such performance goals and the corresponding number of vested Qualifying Restricted Shares shall be certified by the Committee in writing pursuant to Code Section 162(m) and the related regulations. Section 7. PERFORMANCE UNITS. (a) Value of Performance Units. Prior to the commencement of the performance period, the Committee shall establish in writing an initial target value or number of shares of -4- 7 Common Stock for the Performance Units to be granted to a Key Employee, the duration of the performance period, and the specific performance goals to be attained, including performance levels at which various percentages of Performance Units will be earned and, for Covered Employees, the minimum level of attainment to be met to earn any portion of the Performance Units. If the Committee intends the Performance Units granted to any Covered Employee to satisfy the performance-based compensation exemption under Code Section 162(m) ("Qualifying Performance Units"), the performance goals shall be based on one or more of the following objective criteria: generation of free cash, earnings per share, revenues, market share, stock price, cash flow, retained earnings, results of customer satisfaction surveys, aggregate product price and other product price measures, safety record, acquisition activity, management succession planning, improved asset management, improved gross margins, increased inventory turns, product development and liability, research and development integration, proprietary protections, legal effectiveness, handling SEC or environmental issues, manufacturing efficiencies, system review and improvement, service reliability and cost management, operating expense ratios, total stockholder return, return on sales, return on equity, return on capital, return on assets, return on investment, net income, operating income, and the attainment of one or more performance goals relative to the performance of other corporations. (b) Payment of Performance Units. After the end of a performance period, the Committee shall certify in writing the extent to which performance goals have been met and shall compute the payout to be received by each Key Employee. With respect to Qualifying Performance Units, for any calendar year, the maximum amount payable in cash to any Covered Employee shall be $5,000,000, and the aggregate shares of Common Stock that may be issued to any Covered Employee is 500,000. The Committee may not adjust upward the amount payable to any Covered Employee with respect to Qualifying Performance Units. Section 8. STOCK APPRECIATION RIGHTS. (a) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted in connection with an Option (at the time of the grant or at any time thereafter) or may be granted independently. Stock Appreciation Rights for more than 500,000 shares of Common Stock may not be granted to any Key Employee in any calendar year. (b) Value of Stock Appreciation Rights. The holder of a Stock Appreciation Right granted in connection with an Option, upon surrender of that Option, will receive cash or shares of Common Stock equal in value to the lesser of (i) the excess of the Fair Market Value on the exercise date over the Option's exercise price or (ii) the exercise price of the Option that is surrendered, multiplied by the number of shares covered by such Option. The holder of a Stock Appreciation Right granted independently of an Option, upon exercise of that Right, will receive cash or shares of Common Stock equal in value to the lesser of (i) the excess of the Fair Market Value on the exercise date over the Fair Market Value on the grant date or (ii) the Fair Market Value on the grant date, multiplied by the number of shares covered by such Right. Section 9. TERMINATION OF EMPLOYMENT. -5- 8 (a) Forfeiture of Incentives Upon Termination of Employment. Except as may be determined otherwise by the Committee, all unvested Options, Rights and Stock Awards and all unpaid Performance Units shall be forfeited upon termination of employment for reasons other than Retirement, Disability or death. (b) Vesting Upon Retirement, Disability or Death. Subject to Section 13(g), upon termination of employment by reason of Retirement, Disability or death, all unvested Options, Rights and Stock Awards shall become fully vested and any Performance Units shall become payable to the extent provided in Section 9(c)(ii). (c) Treatment of Incentives Following Termination. (i) Options and Stock Appreciation Rights. (A) Termination Due to Retirement, Disability or Death. Upon termination of employment by reason of Retirement or Disability, Options shall be exercisable not later than the earlier of five years after the termination date or the expiration of the term of the Options. Options held by a Key Employee who dies while employed by the Company or after terminating by reason of Retirement or Disability shall be exercisable by the Key Employee's beneficiary not later than the earliest of two years after the date of death, five years after the date of termination due to Retirement or Disability, or the expiration of the term of the Options. (B) Termination for Other Reasons. Upon termination of employment for any reason other than Retirement, Disability or death, all unvested Options shall be forfeited as provided in Section 9(a) and any Options vested prior to such termination may be exercised by a Key Employee during the three-month period commencing on the date of termination, but not later than the expiration of the term of the Options. If a Key Employee dies during such post-employment period, such Key Employee's beneficiary may exercise the Options (to the extent such Options were vested and exercisable at the date of termination of employment), but not later than the earlier of two years after the date of death or the expiration of the term of the Options. (C) Stock Appreciation Rights. Sections 9(c)(i)(A) and (B) shall apply in the same manner to Stock Appreciation Rights. (ii) Performance Units. If a Key Employee terminates employment by reason of Retirement, Disability or death, the Key Employee or such Key Employee's beneficiary in the event of death shall receive a prorated payment of the Key Employee's Performance Units based on the number of full months of service completed by the Key Employee during the applicable performance period, adjusted based on the achievement of performance goals during the performance -6- 9 period. Payment shall be made at the time payments would have been made had the Key Employee not terminated by reason of Retirement, Disability or death. Section 10. ADJUSTMENT PROVISIONS. In the event of a stock split, stock dividend, recapitalization, reclassification or combination of shares, merger, sale of assets or similar event, the Committee shall adjust equitably (a) the number and class of shares or other securities that are reserved for issuance under the Plan, (b) the number and class of shares or other securities that have not been issued under outstanding Incentives, and (c) the appropriate Fair Market Value and other price determinations applicable to Incentives. Section 11. TERM. The Plan shall be deemed adopted and shall become effective on the date it is approved by the stockholders of the Company and shall continue until terminated by the Board or no Common Stock remains available for issuance under Section 4, whichever occurs first. Section 12. CORPORATE CHANGE. In the event of a Corporate Change, all Incentives shall vest in each Key Employee, and the maximum value of each Key Employee's Performance Units, prorated for the number of full months of service completed by the Key Employee during the applicable performance period, shall immediately be paid in cash to the Key Employee. Section 13. GENERAL PROVISIONS. (a) Employment. Nothing in the Plan or in any related instrument shall confer upon any employee any right to continue in the employ of the Company or shall affect the right of the Company to terminate the employment of any employee with or without cause. (b) Legality of Issuance of Shares. No Common Stock shall be issued pursuant to an Incentive unless and until all legal requirements applicable to such issuance have been satisfied. (c) Ownership of Common Stock Allocated to Plan. No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through such employee, shall have any right, title or interest in or to any Common Stock allocated or reserved for purposes of the Plan or subject to any Incentive except as to shares of Common Stock, if any, as shall have been issued to such employee. (d) Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Illinois. (e) Withholding of Taxes. The Company may withhold, or allow an Incentive holder to remit to the Company, any Federal, state or local taxes applicable to any grant, exercise, -7- 10 vesting, distribution or other event giving rise to income tax liability with respect to an Incentive. In order to satisfy all or a portion of the income tax liability that arises with respect to any Incentive, the holder of the Incentive may elect to surrender previously acquired Common Stock or to have the Company withhold Common Stock that would otherwise have been issued pursuant to the exercise of an Option or in connection with any other Incentive; provided that any withheld Common Stock, or any surrendered Common Stock previously acquired from the Company and held by the Incentive holder for less than six months, may only be used to satisfy the minimum tax withholding required by law. (f) Non-transferability; Exceptions. Except as provided in this Section 13(f), no Incentive may be assigned or subjected to any encumbrance, pledge or charge of any nature. Under such rules and procedures as the Committee may establish, the holder of an Incentive may transfer such Incentive to members of the holder's immediate family (i.e., children, grandchildren and spouse) or to one or more trusts for the benefit of such family members or to partnerships in which such family members are the only partners, provided that (i) the agreement, if any, with respect to such Incentives, expressly so permits or is amended to so permit, (ii) the holder does not receive any consideration for such transfer, and (iii) the holder provides such documentation or information concerning any such transfer or transferee as the Committee may reasonably request. Any Incentives held by any transferees shall be subject to the same terms and conditions that applied immediately prior to their transfer. The Committee may also amend the agreements applicable to any outstanding Incentives to permit such transfers. Any Incentive not granted pursuant to any agreement expressly permitting its transfer or amended expressly to permit its transfer shall not be transferable. Such transfer rights shall in no event apply to any Incentive Stock Option. (g) Forfeiture of Incentives. Except for an Incentive that becomes vested pursuant to Section 12, the Committee may immediately forfeit an Incentive, whether vested or unvested, if the holder competes with the Company or engages in conduct that, in the opinion of the Committee, adversely affects the Company. (h) Beneficiary Designation. Under such rules and procedures as the Committee may establish, each Key Employee may designate a beneficiary or beneficiaries to succeed to any rights which the Key Employee may have with respect to Options, Stock Appreciation Rights, Stock Awards or Performance Units at the time of his or her death. The designation may be changed or revoked by the Key Employee at any time. No such designation, revocation or change shall be effective unless made in writing on a form provided by the Company and delivered to the Company prior to the Key Employee's death. If a Key Employee does not designate a beneficiary or no designated beneficiary survives the Key Employee, then his or her beneficiary shall be the Key Employee's estate. Section 14. AMENDMENT OR DISCONTINUANCE OF THE PLAN. (a) Amendment or Discontinuance. The Plan may be amended or discontinued by the Board from time to time, provided that without the approval of stockholders, no amendment shall be made which (i) amends Section 4 to increase the aggregate Common Stock that may be issued -8- 11 pursuant to Incentives, (ii) amends the provisions of Section 12, (iii) permits any person who is not a Key Employee to be granted an Incentive, (iv) permits Common Stock to be valued at, or permits the exercise price of Options at the grant date, to be less than Fair Market Value, (v) amends the provisions of Section 8 to change the method of establishing the amount the Company shall distribute upon exercise of a Stock Appreciation Right, (vi) amends the provisions of Section 7(b) to increase the value which may be specified for Performance Units or amends any other provision of the Plan, the amendment of which would require stockholder approval in order to continue to satisfy the performance-based compensation exemption under Code Section 162(m) and the related regulations with respect to any Incentive awarded to any Covered Employee, (vii) changes the maximum number of shares of Common Stock that may be awarded to any employee in any year pursuant to Options, Stock Awards or Stock Appreciation Rights, or (viii) amends this Section 14. (b) Effect of Amendment or Discontinuance on Incentives. No amendment or discontinuance of the Plan by the Board or the stockholders of the Company shall adversely affect any Incentive theretofore granted without the consent of the holder. -9- EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 151,493 0 1,130,912 34,005 625,046 2,084,515 2,615,923 1,527,950 6,891,021 1,353,261 1,212,431 0 0 2,509 3,871,744 6,891,021 4,691,815 4,691,815 2,977,931 2,977,931 48,228 8,829 31,898 868,408 317,000 551,408 0 0 0 551,408 2.20 2.18
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