-----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, O0UTPNjNnGGcdb0s4PX5MabOkbyPYwH1F8CZwyXQlgB9S6dHDr+HlVqJS4XgWfam KQ7cPGxm+AI8bcRITeEcsA== 0000950137-98-001347.txt : 19980401 0000950137-98-001347.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950137-98-001347 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS TOOL WORKS INC CENTRAL INDEX KEY: 0000049826 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 361258310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04797 FILM NUMBER: 98581467 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-K 1 FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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 W. LAKE AVENUE, GLENVIEW, ILLINOIS 60025-5811 (Address of Principal Executive (Zip Code) Offices)
Registrant's telephone number, including area code: (847) 724-7500 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock New York Stock Exchange Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None 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 ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 10, 1998, was approximately $11,300,000,000. Shares of Common Stock outstanding at March 10, 1998 -- 249,760,628. --------------- DOCUMENTS INCORPORATED BY REFERENCE 1997 Annual Report to Stockholders...............................Parts I, II, IV Proxy Statement dated March 26, 1998 for Annual Meeting of Stockholders to be held on May 8, 1998.............................................Part III ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL Illinois Tool Works Inc. (the "Company") was founded in 1912 and incorporated in 1915. The Company manufactures and markets a variety of products and systems that provide specific, problem-solving solutions for a diverse customer base worldwide. The Company has more than 365 operations in 34 countries. The Company's business units are divided into three segments: Engineered Components, Industrial Systems and Consumables, and Leasing and Investments. Products in the Company's Engineered Components Segment include short lead-time components and fasteners primarily for automotive, construction and general industrial applications. This segment also manufactures specialty products such as adhesives and static-control equipment. Industrial Systems and Consumables products include longer lead-time machinery and related consumables primarily for food and beverage, construction, automotive and general industrial markets. They also manufacture specialty products for applications such as industrial spray coating and quality measurement. The Leasing and Investment segment makes investments that utilize the Company's cash flow, including mortgage-related investments, leveraged and direct financing leases of equipment, investments in properties and property developments, and affordable housing investments. In the first quarter of 1993, the Company acquired the Miller Group Ltd.("Miller"), a manufacturer of arc welding equipment, through an exchange of ITW voting Common Stock for all of the voting Common Stock of Miller. In early 1996, the Company acquired all of the voting stock of Hobart Brothers Company ("Hobart"), a manufacturer of welding products, in exchange for shares of ITW voting common stock. As a result, the Miller and Hobart acquisitions have been accounted for as poolings of interests in conformity with Generally Accepted Accounting Principles, specifically paragraphs 46 through 48 of Accounting Principles Board Opinion ("APB") No. 16. Accordingly, the results of operations for Miller and Hobart have been included in the Statement of Income as of the beginning of 1993 and 1996, respectively. The impact of Miller and Hobart on consolidated operating revenues, net income and net income per share was not significant. Therefore, the 1992 and 1995 financial statements have not been restated to reflect the acquisitions of Miller and Hobart, respectively. In late 1996, the Company acquired all of the outstanding common stock of Azon Limited ("Azon"), an Australian manufacturer of strapping and other industrial products. The acquisition has been accounted for as a purchase, and accordingly, the acquired net assets have been recorded at their estimated fair values at the date of acquisition. The results of operations have been included in the Statement of Income from the acquisition date, except for the Azon businesses which were expected to be sold, which were not consolidated at December 31, 1996. During 1997, the Company disposed of the majority of the Azon businesses which were expected to be sold. Based on the assumption that the Azon acquisition had occurred on January 1, 1996 or January 1, 1995, the Company's pro forma operating revenues, net income and net income per share would not have been significantly different. During the five-year period ending December 31, 1997, the Company acquired and disposed of numerous other operations which did not materially impact consolidated results. CURRENT YEAR DEVELOPMENTS Refer to pages 18 through 22, Management's Discussion and Analysis, in the Company's 1997 Annual Report to Stockholders. 3 FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The percentage contributions to operating revenues for the last three years by industry segment are as follows:
INDUSTRIAL ENGINEERED SYSTEMS AND LEASING AND COMPONENTS CONSUMABLES INVESTMENTS ---------- ----------- ----------- 1997................................................ 42% 56% 2% 1996................................................ 43% 56% 1% 1995................................................ 42% 57% 1%
Segment and geographic data are included on pages 18 through 20 and 26 of the Company's 1997 Annual Report to Stockholders. The principal markets served by the Company's two manufacturing segments are as follows:
% OF OPERATING REVENUES ------------------------ INDUSTRIAL ENGINEERED SYSTEMS AND COMPONENTS CONSUMABLES ---------- ----------- Automotive.................................................. 39% 11% Construction................................................ 29% 13% General Industrial.......................................... 14% 27% Food and Beverage........................................... --% 16% Industrial Capital Goods.................................... 3% 7% Consumer Durables........................................... 9% 3% Paper Products.............................................. -- 7% Electronics................................................. 4% 4% Other....................................................... 2% 12% ---- ---- 100% 100% ==== ====
Operating results of the segments are described on pages 18 through 20 and 26 of the Company's 1997 Annual Report to Stockholders. BACKLOG Backlog generally is not considered a significant factor in the Company's businesses as relatively short delivery periods and rapid inventory turnover are characteristic of many of its products. Backlog by manufacturing segment as of December 31, 1997 and 1996 is summarized as follows:
BACKLOG IN THOUSANDS OF DOLLARS ----------------------------------- INDUSTRIAL ENGINEERED SYSTEMS AND COMPONENTS CONSUMABLES TOTAL ---------- ----------- -------- 1997................................................. $265,000 $231,000 $496,000 1996................................................. $238,000 $221,000 $459,000
Backlog orders scheduled for shipment beyond calendar year 1998 were not material in either manufacturing segment as of December 31, 1997. 2 4 The information set forth below is equally applicable to all industry segments of the Company unless otherwise noted. COMPETITION The Company's global competitive environment is complex because of the wide diversity of products the Company manufactures and the markets it serves. Depending on the product or market, the Company may compete with a few other companies or with many others, some of which may be the Company's own licensees. The Company is a leading producer of plastic and metal components, fasteners and assemblies; industrial fluids and adhesives; tooling for specialty applications; welding products; packaging systems and related consumables; industrial spray coating and static control equipment and systems; and quality assurance equipment and systems. RAW MATERIALS The Company uses raw materials of various types, primarily metals and plastics that are available from numerous commercial sources. The availability of materials and energy has not resulted in any business interruptions or other major problems, nor are any such problems anticipated. RESEARCH AND DEVELOPMENT The Company's growth has resulted from developing new and improved products, broadening the application of established products, continuing efforts to improve and develop new methods, processes and equipment, and from acquisitions. Many new products are designed to reduce customers' costs by eliminating steps in their manufacturing processes, reducing the number of parts in an assembly, or by improving the quality of customers' assembled products. Typically, the development of such products is accomplished by working closely with customers on specific applications. Identifiable research and development costs are set forth on page 27 of the Company's 1997 Annual Report to Stockholders. Research and development expenditures in 1997 in local currencies were consistent with 1996, however U.S. dollar expenditures decreased in 1997 as a result of the negative impact of foreign currencies against the U.S. dollar. The Company owns approximately 1,770 unexpired United States patents covering articles, methods and machines. Many counterparts of these patents have also been obtained in various foreign countries. In addition, the Company has approximately 333 applications for patents pending in the United States Patent Office, but there is no assurance that any patent will be issued. The Company maintains an active patent department for the administration of patents and processing of patent applications. The Company believes that many of its patents are valuable and important. Nevertheless, the Company credits its leadership in the markets it serves to engineering capability; manufacturing techniques, skills and efficiency; marketing and sales promotion; and service and delivery of quality products to its customers. TRADEMARKS Many of the Company's products are sold under various trademarks owned or licensed by the Company. Among the most significant are: ITW, Apex, Buildex, Deltar, Devcon, DeVilbiss, Fastex, Hi-Cone, Hobart, Keps, Magnaflux, Miller, Minigrip, Newtec, Oxo, Paktron, Paslode, Powcon, Ramset, Ransburg, Red Head, Shakeproof, Signode, Teks, Tenax and Zip-Pak. ENVIRONMENTAL The Company believes that its plants and equipment are in substantial compliance with applicable environmental regulations. Additional measures to maintain compliance are not expected to materially affect the Company's capital expenditures, competitive position, financial position or results of operations. 3 5 Various legislative and administrative regulations concerning environmental issues have become effective or are under consideration in many parts of the world relating to manufacturing processes, and the sale or use of certain products. To date, such developments have not had a substantial adverse impact on the Company's sales or earnings. The Company has made considerable efforts to develop and sell environmentally compatible products resulting in new and expanding marketing opportunities. EMPLOYEES The Company employed approximately 25,700 persons as of December 31, 1997 and considers its employee relations to be excellent. INTERNATIONAL The Company's international operations include subsidiaries, joint ventures and licensees in 34 countries on six continents. These operations serve such markets as automotive, food and beverage, construction, general industrial, industrial capital goods and others on a worldwide basis. The Company's international subsidiaries contributed approximately 36% of operating revenues in 1997 and 1996. Refer to pages 18 through 22 in the Company's 1997 Annual Report to Stockholders for additional information on international activities. International operations are subject to certain risks inherent in conducting business in foreign countries, including price controls, exchange controls, limitations on participation in local enterprises, nationalization, expropriation and other governmental action, and changes in currency exchange rates. YEAR 2000 Refer to page 22 in the Company's 1997 Annual Report to Stockholders for discussion of the effect on the Company of the Year 2000 computer issue. EXECUTIVE OFFICERS Executive Officers of the Company as of March 23, 1998:
NAME OFFICE AGE - ---- ------ --- Thomas W. Buckman........................ Vice President, Patents and Technology 60 W. James Farrell......................... Chairman and Chief Executive Officer 55 Russell M. Flaum......................... Executive Vice President 47 Michael W. Gregg......................... Senior Vice President and Controller, Accounting 62 Thomas J. Hansen......................... Executive Vice President 49 Stewart S. Hudnut........................ Senior Vice President, General Counsel and Secretary 58 John Karpan.............................. Senior Vice President, Human Resources 57 Jon C. Kinney............................ Senior Vice President and Chief Financial Officer 55 Dennis J. Martin......................... Executive Vice President 47 Frank S. Ptak............................ Vice Chairman 54 F. Ronald Seager......................... Executive Vice President 57 Harold B. Smith.......................... Chairman of the Executive Committee 64 David B. Speer........................... Executive Vice President 46 Allan C. Sutherland...................... Senior Vice President 34 Donald L. VanErden....................... Vice President, Research and Advanced Development 62 Hugh J. Zentmeyer........................ Executive Vice President 51
4 6 Except for Messrs. Hansen, Kinney, Martin, Speer, Sutherland, and Zentmeyer, each of the foregoing officers has been employed by the Company in various elected executive capacities for more than five years. The executive officers of the Company serve at the pleasure of the Board of Directors. Mr. Hansen joined the Company in 1980 and has held various management positions within the Company's Engineered Components segment. Mr. Kinney joined the Company in 1973 and has served as Vice President and Controller, Operations, and Group Controller of several of the Company's businesses. Mr. Martin joined the Company in 1991 and has held several management positions in the Industrial Systems and Consumables segment. Mr. Speer joined the Company in 1978 and has held various sales, marketing and general management positions within the Engineered Components segment. Mr. Sutherland joined the Company in 1993 after serving as a senior tax manager with Ernst & Young and has served the Company in various capacities, most recently as Vice President of Leasing and Investments. Mr. Zentmeyer joined Signode Corporation (which was acquired by the Company in 1986) in 1968 and has held various management positions in the Industrial Systems and Consumables segment. ITEM 2. PROPERTIES As of December 31, 1997 the Company operated the following plants and office facilities, excluding regional sales offices and warehouse facilities:
NUMBER FLOOR SPACE OF ------------------------ PROPERTIES OWNED LEASED TOTAL ---------- ----- ------ ----- (IN MILLIONS OF SQUARE FEET) Domestic -- Engineered Components........................... 103 4.1 2.0 6.1 Industrial Systems and Consumables.............. 85 3.6 1.7 5.3 Leasing and Investments......................... 20 .9 .1 1.0 --- ---- --- ---- 208 8.6 3.8 12.4 --- ---- --- ---- International -- Engineered Components........................... 69 1.8 .6 2.4 Industrial Systems and Consumables.............. 66 2.6 .9 3.5 --- ---- --- ---- 135 4.4 1.5 5.9 --- ---- --- ---- Corporate......................................... 12 1.3 -- 1.3 --- ---- --- ---- 355 14.3 5.3 19.6 === ==== === ====
The principal international plants are in Australia, Belgium, Canada, France, Germany, Ireland, Italy, Japan, Malaysia, Spain, Sweden, Switzerland and the United Kingdom. The Company's properties are primarily of steel, brick or concrete construction and are maintained in good operating condition. Productive capacity, in general, currently exceeds operating levels. Capacity levels are somewhat flexible based on the number of shifts operated and on the number of overtime hours worked. The Company adds productive capacity from time to time as required by increased demand. Additions to capacity can be made within a reasonable period of time due to the nature of the businesses. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 5 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This information is incorporated by reference to page 39 of the Company's 1997 Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA This information is incorporated by reference to pages 40 and 41 of the Company's 1997 Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information is incorporated by reference to pages 18 through 22 of the Company's 1997 Annual Report to Stockholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This information is incorporated by reference to page 22 of the Company's 1997 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and report thereon of Arthur Andersen LLP dated January 27, 1998, as found on pages 23 through 38 and supplementary data on page 39 of the Company's 1997 Annual Report to Stockholders, are incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information regarding the Directors of the Company is incorporated by reference to the information under the caption "Election of Directors" in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. Information regarding the Executive Officers of the Company can be found in Part I of this Annual Report on Form 10-K on page 4. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference to the information under the caption "Executive Compensation" in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference to the information under the caption "Security Ownership" in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Dennis J. Martin, Executive Vice President, had an non-interest bearing relocation loan outstanding in 1997. The maximum amount of the loan outstanding in 1997 was $107,000, which by March 26, 1998 had been reduced to $50,000. 6 8 Frank S. Ptak, Vice Chairman, had loans bearing interest at a rate of 5.91% per annum related to stock transactions outstanding in 1997. The maximum amount of the loan outstanding in 1997 was $63,675, which by February 28, 1998, had been reduced to $60,593. Additional information is incorporated by reference to the information under the captions "Directors Compensation" and "Executive Compensation" in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements The financial statements and report thereon of Arthur Andersen LLP dated January 27, 1998 as found on pages 23 through 39 of the Company's 1997 Annual Report to Stockholders, are incorporated by reference. (2) Financial Statement Schedule The following supplementary financial data should be read in conjunction with the financial statements and notes thereto as presented in the Company's 1997 Annual Report to Stockholders. Schedules not included with this supplementary financial data have been omitted because they are not applicable, immaterial or the required information is included in the financial statements or the related notes to financial statements.
SCHEDULE PAGE NO. NO. -------- ---- Valuation and Qualifying Accounts........................... II 10
(3) Exhibits (i) See the Exhibit Index on page 11 of this Form 10-K. (ii) Pursuant to Regulation S-K, Item 601(b)(4)(iii), the Company has not filed with Exhibit 4 any debt instruments for which the total amount of securities authorized thereunder are less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis as of December 31, 1997, with the exception of the agreements related to the 7 1/2% and 5 7/8% Notes, which are filed with Exhibit 4. The Company agrees to furnish a copy of the agreements related to the debt instruments which have not been filed with Exhibit 4 to the Securities and Exchange Commission upon request. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the three months ended December 31, 1997. 7 9 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To Illinois Tool Works Inc.: We have audited, in accordance with generally accepted auditing standards, the financial statements included in Illinois Tool Works Inc.'s 1997 Annual Report to Stockholders, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 27, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois, January 27, 1998 8 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on this 27th day of March 1998. ILLINOIS TOOL WORKS INC. By /s/ W. JAMES FARRELL ------------------------------------ W. James Farrell Director, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on this 27th day of March 1998.
SIGNATURES TITLE ---------- ----- /s/ JON C. KINNEY Senior Vice President and Chief Financial - -------------------------------------------------- Officer, Jon C. Kinney (Principal Accounting and Financial Officer) MICHAEL J. BIRCK Director MARVIN D. BRAILSFORD Director SUSAN CROWN Director H. RICHARD CROWTHER Director W. JAMES FARRELL Director L. RICHARD FLURY Director ROBERT C. MCCORMACK Director PHILLIP B. ROONEY Director HAROLD B. SMITH Director ORMAND J. WADE Director
By /s/ W. JAMES FARRELL ----------------------------------- (W. James Farrell as Attorney-in-Fact) Original powers of attorney authorizing W. James Farrell to sign this Annual Report on Form 10-K and amendments thereto on behalf of the above-named directors of the registrant have been filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K (Exhibit 24). 9 11 SCHEDULE II ILLINOIS TOOL WORKS INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
DEDUCTIONS ------------------------------------- RECEIVABLES BALANCE AT PROVISIONS WRITTEN OFF, BALANCE BEGINNING CHARGED TO NET OF (1) AT END OF PERIOD INCOME ACQUISITIONS RECOVERIES DISPOSITIONS OTHER OF PERIOD ---------- ---------- ------------ ------------ ------------ ------- --------- (IN THOUSANDS) Year Ended December 31, 1995: Allowance for uncollectible accounts............ 19,600 6,889 2,672 (5,763) (414) 516 23,500 Year Ended December 31, 1996: Allowances for uncollectible accounts............ 23,500 4,451 4,836 (10,319) 111 (179) 22,400 Year Ended December 31, 1997: Allowance for uncollectible accounts............ 22,400 6,268 989 (5,639) -- (3,218) 20,800
- --------------- (1) Includes the effects of foreign currency translation and other reserve adjustments. 10 12 EXHIBIT INDEX ANNUAL REPORT ON FORM 10-K 1997
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3(a) -- Restated Certificate of Incorporation of Illinois Tool Works Inc., as amended, filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (Commission File No. 1-4797) and incorporated herein by reference. 3(b) -- By-laws of Illinois Tool Works Inc., as amended, filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (Commission File No. 1-4797) and incorporated herein by reference. 4(a) -- Indenture, dated as of November 1, 1986, between Illinois Tool Works Inc. and The First National Bank of Chicago, as Trustee, filed as Exhibit 4 to the Company's Registration Statement on Form S-3 (Registration Statement No. 33-5780) filed with the Securities and Exchange Commission on May 14, 1986 and incorporated herein by reference. 4(b) -- Resignation of Trustee and Appointment of Successor under Indenture (Exhibit 4(a)), filed as Exhibit 4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (Commission File No. 1-4797) and incorporated herein by reference. 4(c) -- First Supplemental Indenture, dated as of May 1, 1990 between Illinois Tool Works Inc. and Harris Trust and Savings Bank, as Trustee, filed as Exhibit 4-3 to the Company's Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 33-5780) filed with the Securities and Exchange Commission on May 8, 1990 and incorporated herein by reference. 4(d) -- Officers' Certificate Pursuant to Sections 2.01 and 2.04 of the Indenture (Exhibit 4(a) as amended by Exhibit 4(c)) related to the 5 7/8% Notes due March 1, 2000, filed as Exhibit 4(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File No. 1-4797) and incorporated herein by reference. 4(e) -- Form of 7 1/2% Notes due December 1, 1998, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated December 2, 1991 and incorporated herein by reference. 4(f) -- Form of 5 7/8% Notes due March 1, 2000, filed as Exhibit 4(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File No. 1-4797) and incorporated herein by reference. 10(a) -- Illinois Tool Works Inc. 1996 Stock Incentive Plan, dated February 16, 1996, as amended on December 12, 1997. 10(b) -- Illinois Tool Works Inc. 1982 Executive Contributory Retirement Income Plan adopted December 13, 1982, filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-4797) and incorporated herein by reference. 10(c) -- Illinois Tool Works Inc. 1985 Executive Contributory Retirement Income Plan adopted December 1985, filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-4797) and incorporated herein by reference. 10(d) -- Amendment to the Illinois Tool Works Inc. 1985 Executive Contributory Retirement Income Plan dated May 1, 1996, filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-4797) and incorporated herein by reference. 10(e) -- Illinois Tool Works Inc. Executive Incentive Plan adopted February 16, 1996, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-4797) and incorporated herein by reference. 10(f) -- Supplemental Plan for Employees of Illinois Tool Works Inc., effective January 1, 1989, filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (Commission File No. 1-4797) and incorporated herein by reference.
11 13
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10(g) -- Non-officer directors' restricted stock program, and non-officer directors' phantom stock plan, descriptions of which are under the caption "Directors' Compensation" in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. 10(h) -- Illinois Tool Works Inc. Outside Directors' Deferred Fee Plan dated December 12, 1980. 10(i) -- Illinois Tool Works Inc. Phantom Stock Plan for Non-officer Directors, filed as Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-4797) and incorporated herein by reference. 10(j) -- Underwriting Agreement dated November 20, 1991, related to the 7 1/2% Notes due December 1, 1998, filed as Exhibit 1 to the Company's Current Report on Form 8-K dated December 2, 1991 and incorporated herein by reference. 10(k) -- Underwriting Agreement dated February 23, 1993, related to the 5 7/8% Notes due March 1, 2000, filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File No. 1-4797) and incorporated herein by reference. 10(l) -- Illinois Tool Works Inc. 1993 Executive Contributory Retirement Income Plan, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1993 (Commission File No. 1-4797) and incorporated herein by reference. 10(m) -- Amendment to the Illinois Tool Works Inc. 1993 Executive Contributory Retirement Income Plan dated December 5, 1994, filed as Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (Commission File No. 1-4797) and incorporated herein by reference. 10(n) -- Amendment to the Illinois Tool Works Inc. 1993 Executive Contributory Retirement Income Plan dated June 24, 1996, filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 (Commission File No. 1-4797) and incorporated herein by reference. 13 -- The Company's 1997 Annual Report to Stockholders, pages 18 -- 41. 21 -- Subsidiaries and Affiliates of the Company. 22 -- Information under the captions "Election of Directors," "Executive Compensation" and "Security Ownership" in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders. 23 -- Consent of Arthur Andersen LLP. 24 -- Powers of Attorney. 27 -- Financial Data Schedule. 99 -- Description of the capital stock of Illinois Tool Works Inc., filed as Exhibit 99 to the Company's Quarterly Report of Form 10-Q for the quarterly period ended March 31, 1997 (Commission File No. 1-4797) and incorporated herein by reference.
12 EX-10.(A) 2 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 Dated: December 12, 1997 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........................8 -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 4 Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. 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. -2- 5 Stock Award: An award of Common Stock granted to a Key Employee pursuant to Section 6. 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 withheld 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 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. -3- 6 (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. (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, through the surrender or withholding of Common Stock having 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. -4- 7 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 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 -5- 8 Value on the grant date, multiplied by the number of shares covered by such Right. SECTION 9. TERMINATION OF EMPLOYMENT (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. -6- 9 (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 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 -7- 10 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, vesting, distribution or other event giving rise to income tax liability with respect to an Incentive. An Incentive holder 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, the number of shares of such withheld or surrendered Common Stock to be sufficient to satisfy all or a portion of the income tax liability that arises upon the exercise, vesting, distribution or other event giving rise to income tax liability with respect to an Incentive. (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 -8- 11 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 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-10.(G) 3 DIRECTORS' COMPENSATION 1 EXHIBIT 10(g) Directors' Compensation Compensation for directors has three components, the first being paid in cash and the remaining two being tied to the Company's Common Stock. Each non-employee director receives a $25,000 annual retainer, together with a fee of $1,000 for each Board of Directors' meeting and committee meeting attended. (Committee Chairmen receive an additional $600 for each meeting chaired.) The Company's deferred fee plan permits directors to defer receipt of all or any part of their fees until they cease to be directors. Amounts deferred are credited with interest at current rates. Since 1992 the directors' compensation plan has linked a portion of compensation directly with the interests of the stockholders through periodic awards of restricted Common Stock. In January 1998 each non-officer director received an award of 900 restricted shares, which vest in one-third increments on the first three anniversaries of the award and fully vest upon death or retirement. Under the program, each non-officer director who joins the Board after January 2, 1998 will receive on the first business day of January following election a grant of 300 shares for each full year of service remaining until January 2001. Shares granted to directors pursuant to this program are included in the table under "Security Ownership." The Company also has adopted a phantom stock plan under which each non-officer director is granted 1,000 units of phantom stock upon becoming a director. Each unit is equal in value to the market value of one share of the Company's Common Stock. The phantom stock account is credited with additional units in an amount equivalent to dividends on the Company's Common Stock and is adjusted for any stock dividends, stock splits, combinations or similar changes. A director is eligible for a cash distribution from his or her phantom stock account at retirement or upon approved resignation in the form of a lump sum or ten annual installments as elected by the director at the time of grant. In addition, the value of each director's phantom stock account will be distributed immediately to the director in the event of a corporate change of control. Harold B. Smith has a one-year agreement with the Company providing for a consulting fee of $85,000. EX-10.(H) 4 OUTSIDE DIRECTORS' DEFERRED FEE PLAN 1 EXHIBIT 10(h) ILLINOIS TOOL WORKS INC. OUTSIDE DIRECTORS' DEFERRED FEE PLAN The Plan set forth herein shall be known as the "Outside Directors' Deferred Fee Plan." Illinois Tool Works Inc. is hereinafter referred to as "ITW." 1. ELIGIBILITY. Each member of ITW's Board of Directors who (a) is or becomes entitled to receive directors' and attendance fees (both for attendance at meetings of the Board of Directors and of its committees) from ITW, and (b) is not an employee of ITW, shall be eligible to participate in the Plan and shall be known for the purposes of this Plan as an "eligible director." 2. PURPOSE. The purpose of the Plan is to enable ITW to attract and retain as members of its Board of Directors persons who are not employees of ITW, but whose experience and judgment are a valuable asset to ITW. 3. ELECTION. Each eligible director may elect to defer payment to him as hereinafter provided of part or all of the directors' and attendance fees earned while he is a director of ITW. This election may be exercised only by the eligible director and shall be accomplished by his filing a written notice of election with the Secretary of ITW not later than the exercise date. For directors holding office as such in December 1980, the initial exercise date is December 26, 1980. Thereafter, the exercise date is five (5) days prior to the date on which the director's term of office commences. Such election shall be effective and irrevocable with respect to directors' and attendance fees earned by such director between December 31, 1980 and the -1- 2 next annual stockholders meeting or during his term of office next following the date of the notice of election filed by such director. The election may also be made effective (by so specifying in the notice of election) with respect to any subsequent term or terms of office of such director; provided, however, that the election with respect to any subsequent term or terms of office may be changed or revoked by filing a new notice of election not later than five (5) business days prior to the date on which such subsequent term of office commences. For purposes of this Plan, the term of office of an eligible director shall commence on the date of his election or reelection and end at the next following annual meeting of ITW's stockholders. 4. DEFERRED FEES. All deferred directors' and attendance fees shall be credited to a deferred fees account maintained on the books at ITW for the electing director at the time such fees would otherwise have been payable to such director. Such deferred fees account shall bear interest from the date amounts are credited thereto to the date of payment at the rate equivalent to the rate on the most recently issued 90 day Treasury Bills at the beginning of each calendar quarter. 5. PAYMENT OF DEFERRED FEES. Any cash balance in an electing directors' deferred fee account shall be paid to such director after he ceases to be a director either promptly in a lump sum or in such installments and over such a period of time as the Compensation Committee of the Board of Directors may determine. 6. EFFECT OF DEATH. If an eligible director, who has made an election under this Plan, dies before payment -2- 3 in full to him of the balance, if any, in such director's deferred fee account, such director's election shall remain in effect and such balance shall be paid to the person or persons specified as provided in paragraph 7 hereof. Such balance shall be paid after such director's death either in a lump sum or in such installments and over such a period of time as the Compensation Committee of the Board of Directors may determine. 7. BENEFICIARY. Each director or former director entitled to payment of deferred fees may name any person (named contingently or successively) to whom the cash balance in such director's deferred fee account shall be paid, in the event of such director's death. Each designation will revoke all prior designations by such director or former director, shall be in writing and in form prescribed by the Compensation Committee of the Board of Directors and will be effective only when filed during his lifetime by the director or former director with the Secretary of ITW. If the director or former director shall have failed to name a beneficiary as herein provided, or if the named beneficiary dies before receiving payment of the entitled cash balance in such director's deferred fee account, the Compensation Committee of the Board of Directors may in its discretion make payment directly to the spouse or any one or more or all of the next of kin of the director or former director or to the legal representative of the estate of the director or former director. 8. MISCELLANEOUS. (a) Establishment of this Plan and coverage thereunder of any person shall not be construed to confer any right on the part of such person to be nominated for reelection to the Board of Directors of ITW or to be -3- 4 reelected to such Board of Directors. (b) Payment of deferred fees hereunder will be made only to the person entitled thereto in accordance with the terms of this Plan. Deferred fees are not in any way subject to the debts or other obligations of the persons entitled thereto and may not be voluntarily or involuntarily sold, transferred to assigned. When a person entitled to payment under the Plan is under legal disability or in opinion of the Compensation Committee of the Board of Directors is in any way incapacitated so as to be unable to manage his own affairs, the Compensation Committee of the Board of Directors may direct that payment be made to such person's legal representative, or to such person's spouse, a relative or friend of such person for his benefit. Any payment made in accordance with the preceding sentence shall be in complete discharge of ITW's obligation to make payment under the Plan. 9. AMENDMENT OR TERMINATION. This Plan may be amended or terminated at any time by the Board of Directors of ITW. 10. EFFECTIVE DATE. This Plan shall become effective on the date of its adoption by the Board of Directors of ITW. ADOPTED BY BOARD OF DIRECTORS ON DECEMBER 12, 1980. -4- EX-13 5 COMPANY'S 1997 ANNUAL REPORT 1 Management's Discussion and Analysis - -------------------------------------------------------------------------------- INTRODUCTION Illinois Tool Works Inc. is a multinational manufacturer of highly engineered components and industrial systems with three business segments: Engineered Components, Industrial Systems and Consumables, and Leasing and Investments. These segments are described below. Overall, the Company believes that the majority of the increase in operating revenues is due to higher sales volume rather than increased sales prices. ENGINEERED COMPONENTS SEGMENT Businesses in this segment manufacture short lead-time components and fasteners primarily for automotive, construction and general industrial applications. They also manufacture specialty products such as adhesives and static-control equipment. Operating Revenues
Dollars in millions 1997 1996 1995 - -------------------------------------------------------------------------------- Domestic $ 1,404 $ 1,315 $ 1,034 International 816 821 720 --------- --------- --------- Total $ 2,220 $ 2,136 $ 1,754 ========= ========= =========
Operating Income 1997 1996 1995 ---------------- ---------------- ---------------- Dollars in millions Income Margin Income Margin Income Margin - ------------------------------------------------------------------------------ Domestic $ 288 20.5% $ 257 19.5% $ 194 18.8% International 129 15.8 104 12.7 94 13.1 ------ ------ ------ Total $ 417 18.8 $ 361 16.9 $ 288 16.4 ====== ====== ======
Domestic Domestic revenues and operating income increased in 1997 over 1996 due primarily to acquisitions, sound growth in the automotive businesses, and successful strategic marketing in the static control and adhesives businesses. The sale of a fastener distribution business in the first quarter of 1997 moderated revenue growth. Revenue growth also was reduced by a parts-reduction program in the automotive and industrial components operations, implemented after extensive analysis of those operations. New products and increased market penetration in the static control, adhesives and automotive businesses, along with the parts-reduction program, caused margin growth. Operating income in the construction businesses were flat as a result of costs to expand capacity, which tempered margin growth. Acquisitions (primarily Medalist Industries) largely contributed to the increase in domestic revenues in 1996 versus 1995. New products from the automotive and industrial components businesses, supported by healthy U.S. car and appliance markets, also contributed to revenue, operating income and margin growth. The construction businesses contributed to the improved financial results through increased market share in residential and commercial construction markets, and increased penetration in the hardware and home center distribution channels. International International revenues grew in 1997 over 1996 due to increased market penetration by the European automotive businesses supported by a 4 percent increase in European car builds. The increase in revenues was more than offset, however, by the negative effect of European currencies against the U.S. dollar, which grew stronger throughout the year. Construction revenues were flat due to product line simplification, a focus on fewer customers and soft Australian and European construction markets. A more profitable product mix and lower overall cost structure in the construction businesses, however, combined with increased revenues in the international automotive operations, resulted in strong operating income and margin increases. Foreign currency fluctuations in 1997 versus 1996 decreased revenues by $62 million and operating income by $10 million. European operations represent 81 percent of the segment's international revenues. Most of the Company's international revenue and operating income growth in 1996 versus 1995 was due to acquisitions, primarily for the European automotive and industrial components businesses. This growth was moderated, however, by a decline in revenues and operating income in the construction businesses due to a weak European construction market. Margins were down internationally due to the decline in revenues for construction operations, lower prices and unit volume in the French automotive market and a weak European appliance market. Foreign currency fluctuations in 1996 versus 1995 had minimal effect on revenue and earnings. INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT Businesses in this segment produce longer lead-time machinery and related consumables primarily for food and beverage, construction, automotive and general industrial markets. They also manufacture specialty products for applications such as industrial spray coating and quality measurement. Operating Revenues
Dollars in millions 1997 1996 1995 - -------------------------------------------------------------------------------- Domestic $1,852 $1,803 $1,539 International 1,047 990 859 ------ ------ ------ Total $2,899 $2,793 $2,398 ====== ====== ======
Operating Income 1997 1996 1995 ---------------- ---------------- ---------------- Dollars in millions Income Margin Income Margin Income Margin - ------------------------------------------------------------------------------ Domestic $333 18.0% $300 16.6% $255 16.6% International 138 13.2 115 11.6 84 9.8 ---- ---- ---- Total $471 16.2 $415 14.9 $339 14.1 ==== ==== ====
18 2 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- Domestic Acquisitions and new products in the decorating businesses, along with new product introductions in the resealable packaging and welding businesses, led to the growth in revenue and operating income domestically in 1997. The finishing systems businesses, as a result of new products and focused selling units, also contributed to this segment's improved performance. Tempering revenue growth was a decline in revenues in the quality measurement businesses due to reduced demand for their capital goods machinery from the automotive and tire markets. In addition a shift in product mix by the Signode operations from steel to plastic strapping systems,which sell for a lower unit price and higher margins, also moderated revenue growth. Reduced manufacturing costs at Signode and the welding operations, increased revenues from the finishing systems businesses and growth in the decorating businesses contributed to operating income and margin increases. Margin growth was partially offset by increased operating costs and lower pricing in stretch film operations and the lower revenues in the quality measurement businesses. The majority of the revenue growth in 1996 compared with 1995 was due to the Hobart acquisition. The finishing systems and stretch film operations also contributed to the revenue growth as a result of an increase in new customers and steady demand from general industrial markets, respectively. Operating income grew as a result of shorter lead-times for equipment and improved manufacturing efficiencies at Signode, stretch film and quality measurement operations along with contributions from the Hobart acquisition. Margins increased due to cost reductions and lower raw material costs in most of the operations but lower margins at the newly acquired Hobart operations offset the increase. International International revenues grew in 1997, due primarily to the acquisition of Mobil Chemical, which manufactures stretch film, and acquisitions in the Signode businesses. Stretch film operations, along with growth in the European decorating and Hi-Cone businesses, also contributed to the increase in revenues. Currency translation and the sale of the European palletizing operations in the first quarter of 1997 partially offset the revenue growth. The sale of the underperforming palletizing business did, however, contribute to increased margins. Operating income and margins also improved as a result of cost reductions in Signode operations and new product introductions in the finishing systems businesses. European operations represent 65 percent of this segment's international revenues. Foreign currency translation reduced revenues by $80 million and operating income by $13 million in 1997 versus 1996. In 1996, international revenues increased from 1995 due to acquisitions, primarily in the Signode and stretch film operations. Soft European construction, steel and general industrial markets resulted in lower demand for Signode products, which moderated revenue growth. Increased demand and new customers fueled revenue increases in the specialty packaging and finishing systems businesses, respectively, despite weak European packaging and industrial markets. Operating income increased in 1996 due primarily to acquisitions and lower nonrecurring costs of $10 million. The lower nonrecurring costs also caused margins to increase in 1996. Foreign currency translation reduced revenues by $23 million and operating income by $2 million in 1996 versus 1995. LEASING AND INVESTMENT SEGMENT This segment makes opportunistic investments that optimally utilize the Company's cash flow. These investments primarily include mortgage-related investments, leveraged and direct financing leases of equipment, investments in properties and property developments, and affordable housing investments. Operating Revenues
In millions 1997 1996 1995 - -------------------------------------------------------------------------------- Domestic $101 $68 $26
Operating Income
In millions 1997 1996 1995 - -------------------------------------------------------------------------------- Domestic $39 $25 $19
Revenues and operating income increased in 1997 primarily due to the commercial mortgage transaction entered into at year-end 1996 and a nonrecurring gain on the sale of equipment under leveraged lease of $3.0 million. Revenues and operating income increased in 1996 versus 1995 primarily due to the commercial mortgage transaction entered into at year-end 1995. Operating income in 1995 also included a nonrecurring gain on the sale of equipment under leveraged lease of $4.1 million. In December 1997, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $217.4 million, preferred stock of a subsidiary of $20 million and cash of $80 million. In December 1996, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $266.3 million, preferred stock of a subsidiary of $20 million and cash of $80 million. In December 1995, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $256 million, preferred stock of a subsidiary of $20 million and cash of $80 million. The mortgage-related assets for the three transactions are located throughout the U.S. and include 38 subperforming, variable rate, balloon loans and 13 foreclosed properties at December 31, 1997. In conjunction with these transactions, the Company simultaneously entered into ten-year swap agreements and other related agreements whereby the Company will pay a third party the portion of the interest and net operating cash flow from the mortgage-related assets in excess of $26 million per year and a portion of the proceeds from the disposition of the mortgage-related assets and principal repayments, in 19 3 Management's Discussion and Analysis - -------------------------------------------------------------------------------- exchange for the third party making payments to the Company equal to the contractual principal and interest payments on the nonrecourse notes payable. In addition, in the event that the pools of mortgage-related assets do not generate income of $26 million a year, the Company has a collateral right against the cash flow generated by three separate pools of mortgage-related assets (owned by third parties in which the Company has minimal interests) which have a total fair value of approximately $3.1 billion at December 31, 1997. The Company entered into the swaps and other related agreements in order to reduce its credit and interest rate risks relative to the mortgage-related assets. The Company expects to recover its net investment in the mortgage-related assets and net swap receivables of $297.9 million at December 31, 1997 (net of the related nonrecourse notes payable) through its expected net cash flow of $26 million per year for the remainder of the ten-year periods and its estimated share of $416.5 million of the proceeds from disposition of the mortgage-related assets and principal repayments. The Company believes that because the swaps' counterparty is Aaa-rated and that significant collateral secures the net annual cash flow of $26 million, its risk of not recovering that portion of its net investment has been significantly mitigated. The Company currently believes that its share of the disposition proceeds will be sufficient to recover the remainder of its net investment. However, there can be no assurances that all of the net investment will be recovered. The net assets attributed to the Leasing and Investments Segment at December 31, 1997 and 1996 are summarized as follows:
In thousands 1997 1996 - -------------------------------------------------------------------------------- Assets: Investments-- Mortgage-related assets $1,017,984 $ 731,577 Leases 79,875 83,432 Properties and affordable housing 57,549 50,462 Other 14,607 7,221 Deferred tax assets 360,262 281,307 Other assets 4,519 3,205 ---------- ---------- $1,534,796 1,157,204 ---------- ---------- Liabilities: Debt-- Nonrecourse notes payable 720,125 519,890 Allocated general corporate debt 302,332 248,421 Deferred investment income 327,508 269,595 Preferred stock of subsidiaries 60,000 40,000 Other liabilities 16,720 16,464 ---------- ---------- 1,426,685 1,094,370 ---------- ---------- Net assets $ 108,111 $ 62,834 ========== ==========
COST OF REVENUES Cost of Revenues as a percentage of revenues was 64.7% in 1997 compared with 65.7% in 1996 and 65.2% in 1995. The decrease in 1997 versus 1996 was mainly due to increased sales volume coupled with lower manufacturing costs, while the increase in 1996 versus 1995 was mainly due to lower gross margins related to acquired companies. SELLING, ADMINISTRATIVE AND R&D EXPENSES Selling, administrative, and research and development expenses were 16.7% of revenues in 1997 versus 17.5% in 1996 and 18.6% in 1995. This ratio continues to decline because of increasing revenues and expense reductions as a result of a Company-wide objective to reduce administrative costs. INTEREST EXPENSE Interest expense decreased to $19.4 million in 1997 versus $27.8 million in 1996, primarily due to decreased commercial paper borrowings and higher interest expense in 1996 due to debt assumed from acquisitions. Interest expense decreased in 1996 versus $30 million in 1995 as a result of lower interest rates related to commercial paper and foreign borrowings. Interest costs of $49.3 million in 1997, $24.8 million in 1996 and $1.6 million in 1995 attributed to the Leasing and Investments Segment have been classified in the segment's cost of revenues. OTHER INCOME (EXPENSE) Other income increased to $16.5 million in 1997 versus expense of $2.4 million in 1996, primarily due to higher gains on the sale of operations, foreign currency translation gains, and debt prepayment costs in 1996, partially offset by higher losses on sale of fixed assets in 1997. Other income (expense) was net other expense of $2.4 million in 1996 versus net other income of $7.7 million in 1995, primarily due to 1996 debt prepayment costs of $2.7 million related to debt assumed from acquired companies and foreign currency translation losses of $3.2 million in 1996 versus translation gains of $2.4 million in 1995. INCOME TAXES The effective tax rate was 36.5% in 1997, 36.9% in 1996 and 37.9% in 1995. See the Income Taxes note for a reconciliation of the U.S. federal statutory rate to the effective tax rate. The Company has not recorded a valuation allowance on the net deferred income tax assets of $548.4 million at December 31, 1997 and $423.6 million at December 31, 1996 as it expects to continue to generate significant taxable income in future years. 20 4 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- NET INCOME Net income in 1997 of $587.0 million ($2.35 per basic share and $2.33 per diluted share) was 20.7% higher than 1996 net income of $486.3 million ($1.96 per basic share and $1.95 per diluted share). Net income in 1996 was 25.5% higher than the 1995 net income of $387.6 million ($1.64 per basic share and $1.63 per diluted share). In 1997, the stockholders approved a two-for-one common stock split. All per share data in this report is calculated on a post-split basis. FOREIGN CURRENCY The strengthening of the U.S. dollar against foreign currencies in 1997 resulted in decreased operating revenues of $142 million and decreased net income of approximately 4 cents per basic share. Foreign currency fluctuations had minimal impact on revenues or earnings in 1996. The weakening of the U.S. dollar against foreign currencies in 1995 (primarily European currencies) resulted in increased operating revenues of $116 million and increased net income per basic share of approximately 5 cents per share. As the Company and its subsidiaries do not have significant assets or liabilities denominated in currencies other than their functional currencies, no material transactions to hedge foreign currency exposures occurred in 1997, 1996 or 1995. FINANCIAL POSITION Net working capital at December 31, 1997 and 1996 is summarized as follows:
Increase Dollars in thousands 1997 1996 (Decrease) - ----------------------------------------------------------------------------------- Current Assets: Cash and equivalents $ 185,856 $ 137,699 $ 48,157 Trade receivables 902,022 840,092 61,930 Inventories 522,996 526,016 (3,020) Other 247,768 197,285 50,483 ----------- ----------- ----------- 1,858,642 1,701,092 157,550 ----------- ----------- ----------- Current Liabilities: Short-term debt 298,278 390,425 (92,147) Accounts payable and accrued expenses 727,469 760,989 (33,520) Other 132,133 67,911 64,222 ----------- ----------- ----------- 1,157,880 1,219,325 (61,445) ----------- ----------- ----------- Net Working Capital $ 700,762 $ 481,767 $ 218,995 =========== =========== =========== Current Ratio 1.61 1.40 =========== ===========
The increase in trade receivables at December 31, 1997 was primarily due to 1997 acquisitions. Short-term debt decreased at December 31, 1997, due to the repayment of commercial paper and a portion of the 1996 Azon acquisition debt, partially offset by higher current maturities of long-term debt. Long-term debt at December 31, 1997 consisted of $125 million of 7.5% notes, $125 million of 5.875% notes, a $237 million nonrecourse 6.59% note, a $266 million 7.00% nonrecourse note, a $217 million nonrecourse 6.44% note and $36 million of capitalized lease obligations and other debt. Long-term debt increased $35 million from December 31, 1996, principally as a result of the issuance of the 6.44% note, partially offset by reclassifications to current maturities. Excluding the effect of the Leasing and Investments Segment, the percentage of total debt to total capitalization decreased to 4.6% at December 31, 1997 from 15.9% at December 31, 1996. Stockholders' equity was $2.8 billion at December 31, 1997 compared with $2.4 billion at December 31, 1996. Affecting equity were earnings of $587 million, dividends declared of $113 million, the effect of pooling of interests acquisitions of $14 million and unfavorable currency translation adjustments of $93 million. The Statement of Cash Flows for the years ended December 31, 1997 and 1996 is summarized below:
In thousands 1997 1996 - -------------------------------------------------------------------------------- Net income $ 586,951 $ 486,315 Depreciation and amortization 185,386 178,233 Acquisitions (221,954) (343,595) Additions to plant and equipment (178,702) (168,657) Cash dividends paid (107,053) (85,481) Net proceeds (repayments) of debt (241,880) (14,833) Purchase of investments (89,729) (104,159) Other, net 115,138 73,276 --------- --------- Net increase in cash and equivalents $ 48,157 $ 21,099 ========= =========
Net cash provided by operating activities of $660 million in 1997 and $629 million in 1996 was primarily used for acquisitions, for additions to plant and equipment, for cash dividends, to repay long-term debt assumed from acquisitions and to make investments. Dividends paid per share increased 23% to $.43 per share in 1997 from $.35 per share in 1996. The Company expects to continue to meet its dividend payout objective of 25-30% of the average of the last three years' net income. Management continues to believe that internally generated funds will be adequate to service existing debt and maintain appropriate debt to total capitalization and earnings to fixed charge ratios. Internally generated funds are also expected to be adequate to finance internal growth, small-to-medium sized acquisitions and additional investments. The Company has additional debt capacity to fund larger acquisitions. The Company had no material commitments for capital expenditures at December 31, 1997 or 1996. 21 5 Management's Discussion and Analysis - -------------------------------------------------------------------------------- MARKET RISK Interest Rate Risk The Company's exposure to market risk for changes in interest rates relates primarily to the Company's long-term debt obligations and certain mortgage-related investments. The Company has no cash flow exposure on its long-term obligations related to changes in market interest rates. The Company primarily enters into long-term debt obligations for general corporate purposes, including the funding of capital expenditures and larger acquisitions. The Company has not entered into any material derivative financial instruments to hedge interest rate risk on these general corporate borrowings. The Company has also issued nonrecourse notes in connection with the three commercial mortgage transactions. The holders of these notes only have recourse against certain mortgage-related assets. The mortgage-related assets acquired in the commercial mortgage transactions include 38 subperforming, variable rate, balloon loans at December 31, 1997. The fair value of these commercial mortgage loans fluctuates as market interest rates change. The Company has entered into swap and other related agreements to reduce its credit and interest rate risks relative to the commercial mortgage loans and other mortgage-related assets. The table below presents the Company's financial instruments for which fair value is subject to changing market interest rates:
AS OF DECEMBER 31, 1997 ----------------------------------------------------------------------------------------------- ESTIMATED CASH INFLOW (OUTFLOW) BY YEAR OF PRINCIPAL MATURITY ----------------------------------------------------------------------- 2003 AND ESTIMATED CARRYING In thousands 1998 1999 2000 2001 2002 THEREAFTER FAIR VALUE VALUE - ------------------------------------------------------------------------------------------------------------------------------------ General Corporate Debt: 7.5% notes due December 1, 1998 $(125,000) -- -- -- -- -- (126,484) (125,000) 5.875% notes due March 1, 2000 $ -- -- (125,000) -- -- -- (124,707) (125,000) Mortgage-related Investments and Related Nonrecourse Debt: Commercial mortgage loans $ 30,214 80,387 461 55 658 497,347 600,304 573,717 Net swap receivables $ 52,031 51,269 (108,643) 73,478 46,628 228,892 258,857 258,857 6.59% nonrecourse note $ (19,000) (16,000) (16,000) (16,000) (16,000) (153,500) (246,963) (236,500) 7.00% nonrecourse note $ (2,663) (9,319) (9,319) (31,286) (13,979) (199,619) (278,700) (266,185) 6.44% nonrecourse note $ -- -- -- -- (1,087) (216,353) (217,440) (217,440)
Foreign Currency Risk The Company operates in the United States and 33 other countries. In general, the Company manufactures products that are sold in its significant foreign markets in the particular local country. The initial funding for these foreign manufacturing operations is provided primarily through the permanent investment of capital from the U.S. parent company. As such, the Company does not have any significant derivatives or other financial instruments which are subject to foreign currency risk at December 31, 1997. 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. In 1997, the Company began an extensive internal study of the computer systems at all of its business units to determine the extent of the systems that are not year 2000 compliant. Testing of existing systems and remediation activities have begun and are expected to be completed for critical systems by the end of 1998. It is anticipated that the remaining system issues will be resolved in 1999. Based on preliminary estimates, the cost of the Company's year 2000 compliance program is not expected to be material to its business, results of operation or financial condition. 22 6 Financial Statements Illinois Tool Works Inc. - -------------------------------------------------------------------------------- STATEMENT OF INCOME Illinois Tool Works Inc. and Subsidiaries
FOR THE YEARS ENDED DECEMBER 31 ------------------------------------------- In thousands except for per share amounts 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------- Operating Revenues $ 5,220,433 $ 4,996,681 $ 4,178,080 Cost of revenues 3,378,794 3,281,530 2,723,988 Selling, administrative, and research and development expenses 870,268 875,386 776,112 Amortization of goodwill and other intangible assets 36,842 31,873 25,031 Amortization of retiree health care 7,306 7,306 6,968 ----------- ----------- ----------- Operating Income 927,223 800,586 645,981 Interest expense (19,383) (27,834) (29,991) Other income (expense) 16,511 (2,437) 7,718 ----------- ----------- ----------- Income Before Income Taxes 924,351 770,315 623,708 Income taxes 337,400 284,000 236,100 ----------- ----------- ----------- Net Income $ 586,951 $ 486,315 $ 387,608 =========== =========== =========== Net Income Per Share: Basic $ 2.35 $ 1.96 $ 1.64 =========== =========== =========== Diluted $ 2.33 $ 1.95 $ 1.63 =========== =========== ===========
- -------------------------------------------------------------------------------- STATEMENT OF INCOME REINVESTED IN THE BUSINESS Illinois Tool Works Inc. and Subsidiaries
FOR THE YEARS ENDED DECEMBER 31 - -------------------------------------------------------------------------------------------- In thousands 1997 1996 1995 - -------------------------------------------------------------------------------------------- Balance, Beginning of Year $ 2,105,144 $ 1,673,320 $ 1,344,172 Net income 586,951 486,315 387,608 Cash dividends declared (113,467) (88,920) (74,789) Effect of pooling of interests acquisitions 13,788 34,429 16,329 ----------- ----------- ----------- Balance, End of Year $ 2,592,416 $ 2,105,144 $ 1,673,320 =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Illinois Tool Works Inc.: We have audited the accompanying statement of financial position of Illinois Tool Works Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1997 and 1996, and the related statements of income, income reinvested in the business and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Illinois Tool Works Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Chicago, Illinois January 27, 1998 23 7 Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF FINANCIAL POSITION Illinois Tool Works Inc. and Subsidiaries
DECEMBER 31 ----------------------------- In thousands except shares 1997 1996 - ---------------------------------------------------------------------------- ASSETS Current Assets: Cash and equivalents $ 185,856 $ 137,699 Trade receivables 902,022 840,092 Inventories 522,996 526,016 Deferred income taxes 168,697 131,404 Prepaid expenses and other current assets 79,071 65,881 ----------- ----------- Total current assets 1,858,642 1,701,092 ----------- ----------- Plant and Equipment: Land 78,055 68,362 Buildings and improvements 485,845 429,686 Machinery and equipment 1,387,502 1,282,274 Equipment leased to others 107,345 109,030 Construction in progress 58,644 51,744 ----------- ----------- 2,117,391 1,941,096 Accumulated depreciation (1,233,333) (1,132,756) ----------- ----------- Net plant and equipment 884,058 808,340 ----------- ----------- Investments 1,170,015 872,692 Goodwill 774,250 664,054 Deferred Income Taxes 379,738 292,152 Other Assets 328,053 467,832 ----------- ----------- $ 5,394,756 $ 4,806,162 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt $ 298,278 $ 390,425 Accounts payable 269,088 248,062 Accrued expenses 458,381 512,927 Cash dividends payable 29,952 23,538 Income taxes payable 102,181 44,373 ----------- ----------- Total current liabilities 1,157,880 1,219,325 ----------- ----------- Noncurrent Liabilities: Long-term debt 854,328 818,947 Other 576,094 371,865 ----------- ----------- Total noncurrent liabilities 1,430,422 1,190,812 ----------- ----------- Stockholders' Equity: Preferred stock -- -- Common stock: Issued--249,865,904 shares in 1997 and 248,040,246 shares in 1996 2,499 273,864 Additional paid-in-capital 287,153 -- Income reinvested in the business 2,592,416 2,105,144 Common stock held in treasury (1,833) (1,841) Cumulative translation adjustment (73,781) 18,858 ----------- ----------- Total stockholders' equity 2,806,454 2,396,025 ----------- ----------- $ 5,394,756 $ 4,806,162 =========== ===========
The Notes to Financial Statements are an integral part of this statement. 24 8 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS Illinois Tool Works Inc. and Subsidiaries
FOR THE YEARS ENDED DECEMBER 31 ------------------------------------- In thousands 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- Cash Provided by (Used for) Operating Activities: Net income $ 586,951 $ 486,315 $ 387,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 185,386 178,233 151,931 Change in deferred income taxes (7,819) (12,627) (23,870) Provision for uncollectible accounts 6,268 4,451 6,889 Loss on sale of plant and equipment 7,683 536 2,539 Income from investments (93,652) (53,623) (20,981) Non-cash interest on nonrecourse debt 35,638 16,413 -- (Gain) loss on sale of operations and affiliates (6,824) 2,076 (692) Other non-cash items, net (1,206) (165) 11,735 --------- --------- --------- Cash provided by operating activities 712,425 621,609 515,159 Change in assets and liabilities: (Increase) decrease in-- Trade receivables (66,001) (11,461) (27,869) Inventories 6,173 58,935 (22,830) Prepaid expenses and other assets (46,519) (30,428) (11,636) Increase (decrease) in-- Accounts payable 20,714 (22,396) (20,020) Accrued expenses (1,968) 5,913 2,061 Income taxes payable 35,836 8,863 (11,764) Other, net (402) (1,608) 11,451 --------- --------- --------- Net cash provided by operating activities 660,258 629,427 434,552 --------- --------- --------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates (221,954) (343,595) (212,426) Additions to plant and equipment (178,702) (168,657) (150,176) Purchase of investments (89,729) (104,159) (126,300) Proceeds from investments 43,772 50,049 36,926 Proceeds from sale of plant and equipment 17,054 20,836 13,500 Proceeds from sale of operations and affiliates 168,383 24,660 4,650 Other, net 6,542 (521) 11,996 --------- --------- --------- Net cash used for investing activities (254,634) (521,387) (421,830) --------- --------- --------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (107,053) (85,481) (71,783) Issuance of common stock 7,763 5,514 7,598 Net proceeds (repayments) of short-term debt (208,362) 74,362 137,134 Proceeds from long-term debt 3,341 9,776 1,152 Repayments of long-term debt (36,859) (98,971) (2,199) Redemption of preferred stock of subsidiary -- -- (40,000) Other, net 4,700 2,940 (7,919) --------- --------- --------- Net cash provided by (used for) financing activities (336,470) (91,860) 23,983 --------- --------- --------- Effect of Exchange Rate Changes on Cash and Equivalents (20,997) 4,919 3,028 --------- --------- --------- Cash and Equivalents: Increase during the year 48,157 21,099 39,733 Beginning of year 137,699 116,600 76,867 --------- --------- --------- End of year $ 185,856 $ 137,699 $ 116,600 ========= ========= ========= Cash Paid During the Year for Interest $ 32,184 $ 45,394 $ 31,595 ========= ========= ========= Cash Paid During the Year for Income Taxes $ 291,721 $ 262,685 $ 264,683 ========= ========= ========= Liabilities Assumed from Acquisitions $ 132,122 $ 306,677 $ 185,705 ========= ========= =========
See the Investments note for information regarding noncash transactions. The Notes to Financial Statements are an integral part of this statement. 25 9 Notes to Financial Statements The Notes to Financial Statements furnish additional information on items in the financial statements. The notes have been arranged in the same order as the related items appear in the statements. Illinois Tool Works Inc. (the "Company") is a multinational manufacturer of highly engineered components and industrial systems. The Company primarily serves the construction, automotive and general industrial markets. Significant accounting principles and policies of the Company are highlighted in italics. Certain reclassifications of prior years' data have been made to conform with current year reporting. The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to financial statements. Actual results could differ from those estimates. Consolidation and Translation--The financial statements include the Company and its majority-owned subsidiaries. All significant intercompany transactions are eliminated from the financial statements. Substantially all of the Company's foreign subsidiaries have November 30 fiscal year-ends to facilitate inclusion of their financial statements in the December 31 financial statements. Foreign subsidiaries' assets and liabilities are translated to U.S. dollars at end-of-period exchange rates. Revenues and expenses are translated at average rates for the period. Translation adjustments are not included in income but are reported as a separate component of stockholders' equity. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION--The Company's operations are divided into three segments: Engineered Components, Industrial Systems and Consumables, and Leasing and Investments. See Management's Discussion and Analysis for a description of the segments and information regarding operating revenues and operating income. No single customer accounted for more than 10% of consolidated revenues in 1997, 1996 or 1995. Export sales from the United States were less than 10% of total operating revenues during these years. Additional segment and geographic information for 1997, 1996 and 1995 was as follows:
In thousands 1997 1996 1995 - ------------------------------------------------------------------------------------------ Identifiable Assets: Domestic-- Engineered Components $ 682,614 $ 620,827 $ 522,495 Industrial Systems and Consumables 1,045,525 1,003,062 930,145 Leasing and Investments 1,534,796 1,157,204 604,471 ---------- ---------- ---------- 3,262,935 2,781,093 2,057,111 ---------- ---------- ---------- International-- Engineered Components 608,064 597,145 572,026 Industrial Systems and Consumables 1,082,185 1,073,502 704,721 ---------- ---------- ---------- 1,690,249 1,670,647 1,276,747 ---------- ---------- ---------- Corporate 441,572 354,422 257,460 ---------- ---------- ---------- $5,394,756 $4,806,162 $3,591,318 ========== ========== ========== Plant and Equipment Additions: Engineered Components $ 83,848 $ 87,431 $ 78,922 Industrial Systems and Consumables 94,854 81,226 71,254 Leasing and Investments -- -- -- ---------- ---------- ---------- $ 178,702 $ 168,657 $ 150,176 ========== ========== ========== Depreciation and Amortization: Engineered Components $ 87,490 $ 86,874 $ 73,269 Industrial Systems and Consumables 97,317 90,655 78,160 Leasing and Investments 579 704 502 ---------- ---------- ---------- $ 185,386 $ 178,233 $ 151,931 ========== ========== ==========
Identifiable assets by segment and geographic area are those assets that are specifically used in that segment and geographic area. Corporate assets are principally cash and equivalents, investments, and other general corporate assets. 10 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- ACQUISITIONS AND DISPOSITIONS--In the fourth quarter of 1996, the Company acquired all of the outstanding common stock of Azon Limited ("Azon"), an Australian manufacturer of strapping and other industrial products. The acquisition has been accounted for as a purchase, and accordingly, the acquired net assets have been recorded at their estimated fair values at the date of acquisition. The results of operations have been included in the Statement of Income from the acquisition date, except for the Azon businesses which were expected to be sold, which were not consolidated at December 31, 1996. During 1997, the Company disposed of the majority of the Azon businesses which were expected to be sold. Based on the assumption that the Azon acquisition had occurred on January 1, 1996 or January 1, 1995, the Company's pro forma operating revenues, net income and net income per share would not have been significantly different. During 1997, 1996 and 1995, the Company acquired and disposed of numerous other operations which did not materially affect consolidated results. Research and Development Expenses are recorded as expense in the year incurred. These costs were $52,021,000 in 1997, $55,800,000 in 1996 and $52,700,000 in 1995. RENTAL EXPENSE was $41,809,000 in 1997, $41,740,000 in 1996 and $36,120,000 in 1995. Future minimum lease payments for the years ended December 31 are as follows:
In thousands - ------------------------------------------------------------------------------- 1998 $ 28,556 1999 22,310 2000 18,260 2001 13,955 2002 10,620 2003 and future years 21,826 -------- $115,527 ========
- -------------------------------------------------------------------------------- Other Income (Expense) consisted of the following:
In thousands 1997 1996 1995 - -------------------------------------------------------------------------------------------------- Interest income $14,592 $ 9,732 $ 8,177 Gain (loss) on sale of operations and affiliates 6,824 (2,076) 692 Loss on sale of plant and equipment (7,683) (536) (2,539) Gain (loss) on foreign currency translation 3,628 (3,198) 2,375 Debt prepayment costs -- (2,721) -- Other, net (850) (3,638) (987) ------- -------- ------- $16,511 $ (2,437) $ 7,718 ======= ======== =======
27 11 Notes to Financial Statements - -------------------------------------------------------------------------------- INCOME TAXES--The Company utilizes the liability method of accounting for income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws. The components of the provision for income taxes were as shown below:
In thousands 1997 1996 1995 - -------------------------------------------------------------------------------- U.S. federal income taxes: Current $ 189,876 $ 162,454 $ 156,166 Deferred 21,961 (9,526) 306 --------- --------- --------- 211,837 152,928 156,472 --------- --------- --------- Foreign income taxes: Current 121,990 80,422 61,864 Deferred (34,420) 16,850 (8,488) --------- --------- --------- 87,570 97,272 53,376 --------- --------- --------- State income taxes: Current 40,238 32,165 27,448 Deferred (2,245) 1,635 (1,196) --------- --------- --------- 37,993 33,800 26,252 --------- --------- --------- $ 337,400 $ 284,000 $ 236,100 ========= ========= =========
Income before income taxes for domestic and foreign operations was as follows:
In thousands 1997 1996 1995 - -------------------------------------------------------------------------------- Domestic $728,120 $522,770 $449,508 Foreign 196,231 247,545 174,200 -------- -------- -------- $924,351 $770,315 $623,708 ======== ======== ========
The reconciliation between the U.S. federal statutory tax rate and the effective tax rate was as follows:
1997 1996 1995 - --------------------------------------------------------------------------------------------------- U.S federal statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of U.S. federal tax benefit 2.7 2.9 2.7 Amortization of nondeductible goodwill .9 .9 .8 Differences between U.S. federal statutory and foreign tax rates .9 .6 .6 Other, net (3.0) (2.5) (1.2) ------ ------ ------ Effective tax rate 36.5% 36.9% 37.9% ====== ====== ======
Deferred U.S. federal income taxes and foreign withholding taxes have not been provided on approximately $201,000,000 of undistributed earnings of international affiliates as of December 31, 1997. In the event these earnings were distributed to the Company, U.S. federal income taxes payable would be reduced by foreign tax credits based on income tax laws and circumstances at the time of distribution. The net tax effect would not be expected to be material. 28 12 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- The components of deferred income tax assets and liabilities at December 31, 1997 and 1996 were as follows:
1997 1996 ----------------------- ---------------------- In thousands Asset Liability Asset Liability - --------------------------------------------------------------------------------------------------------------------------- Acquisition asset basis differences $ 40,689 $ (20,505) $ 29,625 $ (14,289) Inventory reserves, capitalized tax cost and LIFO inventory 22,134 (11,894) 24,713 (11,011) Investments 400,280 (40,018) 324,033 (42,726) Plant and equipment 10,736 (35,425) 3,940 (46,795) Accrued expenses and reserves 74,173 -- 57,784 -- Employee benefit accruals 60,694 -- 52,529 -- Net operating loss carryforwards 41,414 -- 51,797 -- Allowances for uncollectible accounts 4,395 -- 5,434 -- Prepaid pension assets -- (23,027) -- (19,849) Other 44,422 (17,975) 28,870 (16,334) -------- --------- -------- --------- Gross deferred income tax assets (liabilities) 698,937 (148,844) 578,725 (151,004) Valuation allowances (1,658) -- (4,165) -- -------- --------- -------- --------- Total deferred income tax assets (liabilities) $697,279 $(148,844) $574,560 $(151,004) ======== ========= ======== ========= Net deferred income tax assets $548,435 $423,556 ======== ========
No valuation allowance has been recorded on the net deferred income tax assets at December 31, 1997 and 1996 as the Company expects to continue to generate significant taxable income in future years. At December 31, 1997, the Company had net operating loss carryforwards of approximately $108,800,000 available to offset future taxable income in the U.S. and certain foreign jurisdictions which expire as follows:
In thousands - -------------------------------------------------------------------------------- 1998 $ 300 1999 1,100 2000 1,400 2001 8,000 2002 400 2003 1,800 2004 2,200 2005 1,900 2006 200 2007 6,200 2008 1,800 2009 1,300 2010 900 2011 900 Do not expire 80,400 -------- $108,800 ========
29 13 Notes to Financial Statements - -------------------------------------------------------------------------------- NET INCOME PER SHARE OF COMMON STOCK--The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, in the fourth quarter of 1997. Under SFAS No. 128, net income per basic share is computed by dividing net income by the weighted average number of shares outstanding for the period. Net income per diluted share is computed by dividing net income by the weighted average number of shares assuming dilution. Dilutive shares reflect the potential additional shares that would be outstanding if the dilutive stock options outstanding were exercised during the period. The computation of net income per share was as follows:
In thousands except per share data 1997 1996 1995 - -------------------------------------------------------------------------------------------- Net income $ 586,951 $ 486,315 $ 387,608 ========== ========== ========== Net income per share--Basic: Weighted average common shares 249,284 247,556 235,978 ========== ========== ========== Net income per share--Basic $ 2.35 $ 1.96 $ 1.64 ========== ========== ========== Net income per share--Diluted: Weighted average common shares 249,284 247,556 235,978 Effect of dilutive stock options 2,476 2,014 1,768 ---------- ---------- ---------- Weighted average common shares assuming dilution 251,760 249,570 237,746 ========== ========== ========== Net income per share--Diluted $ 2.33 $ 1.95 $ 1.63 ========== ========== ==========
Options to purchase 1,128,639 and 752,350 shares of common stock at an average price of $54.61 and $30.13 per share were outstanding at December 31, 1997 and 1995, respectively, but were not included in the computation of diluted net income per share for the period, because the options' exercise price was greater than the average market price of the common shares. These options will expire in 2007 and 2005, respectively. Cash and Equivalents included interest-bearing deposits of $118,982,000 at December 31, 1997 and $83,900,000 at December 31, 1996. Interest-bearing deposits have maturities of 90 days or less and are stated at cost, which approximates market. Trade Receivables as of December 31, 1997 and 1996 were net of allowances for uncollectible accounts of $20,800,000 and $22,400,000, respectively. Inventories at December 31, 1997 and 1996 were as follows:
In thousands 1997 1996 - -------------------------------------------------------------------------------- Raw material $145,851 $143,979 Work-in-process 67,956 71,641 Finished goods 309,189 310,396 -------- -------- $522,996 $526,016 ======== ========
Inventories are stated at the lower of cost or market and include material, labor and factory overhead. The last-in, first-out (LIFO) method is used to determine the cost of the inventories of the majority of domestic operations. Inventories priced at LIFO were 39% and 43% of total inventories as of December 31, 1997 and 1996, respectively. The first-in, first-out (FIFO) method is used for all other inventories. Under the FIFO method, which approximates current cost, total inventories would have been approximately $58,500,000 and $57,100,000 higher than reported at December 31, 1997 and 1996, respectively. Plant and Equipment are stated at cost less accumulated depreciation. Renewals and improvements that increase the useful life of plant and equipment are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation was $148,544,000 in 1997 compared with $146,360,000 in 1996 and $126,900,000 in 1995 and was reflected primarily in cost of revenues. Depreciation of plant and equipment for financial reporting purposes is computed principally on an accelerated basis. The range of useful lives used to depreciate plant and equipment is as follows: Buildings and improvements 10-40 years Machinery and equipment 3-12 years Equipment leased to others Term of lease
30 14 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- Investments as of December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996 - ------------------------------------------------------------------------------------------ Commercial mortgage loans $ 573,717 $ 457,015 Commercial real estate 167,194 86,919 Net swap receivables 258,857 171,330 Receivable from mortgage servicer 18,216 16,313 Leveraged, direct financing and sales-type leases of equipment 79,875 83,432 Properties held for sale 22,583 18,456 Property developments 17,871 18,425 Affordable housing 17,095 13,581 Annuity contract 5,005 -- U.S. Treasury security 4,479 4,286 Other 5,123 2,935 ---------- ---------- $1,170,015 $ 872,692 ========== ==========
In December 1997, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $217,440,000, preferred stock of a subsidiary of $20,000,000 and cash of $80,000,000. In December 1996, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $266,265,000, preferred stock of a subsidiary of $20,000,000 and cash of $80,000,000. In December 1995, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $256,000,000, preferred stock of a subsidiary of $20,000,000 and cash of $80,000,000. The mortgage-related assets for the three transactions are located throughout the U.S. and include 38 subperforming, variable rate, balloon loans and 13 foreclosed properties at December 31, 1997. In conjunction with these transactions, the Company simultaneously entered into ten-year swap agreements and other related agreements whereby the Company will pay a third party the portion of the interest and net operating cash flow from the mortgage-related assets in excess of $26,000,000 per year and a portion of the proceeds from the disposition of the mortgage-related assets and principal repayments, in exchange for the third party making payments to the Company equal to the contractual principal and interest payments on the nonrecourse notes payable. In addition, in the event that the pools of mortgage-related assets do not generate income of $26,000,000 a year, the Company has a collateral right against the cash flow generated by three separate pools of mortgage-related assets (owned by third parties in which the Company has minimal interests) which have a total fair value of approximately $3,074,588,000 at December 31, 1997. The Company entered into the swaps and other related agreements in order to reduce its credit and interest rate risks relative to the mortgage-related assets. The Company expects to recover its net investment in the mortgage-related assets and net swap receivables of $297,859,000 at December 31, 1997 (net of the related nonrecourse notes payable) through its expected net cash flow of $26,000,000 per year for the remainder of the ten-year periods and its estimated share of $416,500,000 of the proceeds from disposition of the mortgage-related assets and principal repayments. In the first quarter of 1995, the Company exchanged preferred stock of a subsidiary of $40,000,000 for investments in mortgage-backed securities of $32,000,000 and corporate debt securities of $8,000,000 in a noncash transaction. The preferred stock was subsequently redeemed for $40,000,000 cash in the fourth quarter of 1995. The mortgage-backed securities were sold in the first quarter of 1996. The Company evaluates whether the commercial mortgage loans have been impaired by reviewing the discounted estimated future cash flows of the loans versus the carrying value of the loans. If the carrying value exceeds the discounted cash flows, an impairment loss is recorded through income. At December 31, 1997 and 1996, the impairment loss allowance was $12,000,000 and $4,803,000, respectively. The estimated fair value of the commercial mortgage loans, based on discounted future cash flows, exceeds the carrying value by $26,587,000 at December 31, 1997 and approximates the carrying value at December 31, 1996. The net swap receivables are recorded at fair value, based on the estimated future cash flows discounted at the current market interest rate. Any adjustments to the carrying value of the net swap receivables due to changes in expected future cash flows or interest rates are recorded through income. 31 15 Notes to Financial Statements - -------------------------------------------------------------------------------- The Company's investment in leveraged and direct financing leases relates to equipment used primarily in the transportation, mining and paper processing industries. The components of the investment in leveraged, direct financing and sales-type leases at December 31, 1997 and 1996 were as shown below:
In thousands 1997 1996 - ------------------------------------------------------------------------------------------------------------- Lease contracts receivable (net of principal and interest on nonrecourse financing) $ 86,183 $ 92,874 Estimated residual value of leased assets 25,596 25,601 Unearned and deferred income (31,904) (35,043) -------- -------- Investment in leveraged, direct financing and sales-type leases 79,875 83,432 Deferred income taxes related to leveraged and direct financing leases (36,639) (37,980) -------- -------- Net investment in leveraged, direct financing and sales-type leases $ 43,236 $ 45,452 ======== ========
Goodwill represents the excess cost over fair value of the net assets of purchased businesses. Goodwill is being amortized on a straight-line basis over 15 to 40 years. The Company assesses the recoverability of unamortized goodwill and the other long-lived assets whenever events or changes in circumstances indicate that such assets may be impaired by reviewing the sufficiency of future undiscounted cash flows of the related entity to cover the amortization or depreciation over the remaining useful life of the asset. For any long-lived assets which are determined to be impaired, a loss would be recognized for the difference between the carrying value and the fair value for assets to be held or the net realizable value for assets to be disposed of. Amortization expense was $25,666,000 in 1997, $21,727,000 in 1996, and $16,335,000 in 1995. Accumulated goodwill amortization was $133,137,000 and $125,532,000, at December 31, 1997 and 1996, respectively. Other Assets as of December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996 - -------------------------------------------------------------------------------- Other intangible assets $ 132,974 $ 136,774 Accumulated amortization of other intangible assets (30,048) (48,269) Cash surrender value of life insurance policies 83,341 64,234 Prepaid pension assets 62,041 54,115 Investment in unconsolidated affiliates 28,526 34,217 Investment in businesses to be sold -- 170,478 Other 51,219 56,283 --------- --------- $ 328,053 $ 467,832 ========= =========
Other intangible assets represent patents, noncompete agreements and other assets acquired with purchased businesses and are being amortized primarily on a straight-line basis over five to 17 years. Amortization expense was $11,176,000 in 1997, $10,146,000 in 1996, and $8,696,000 in 1995. The businesses acquired in the Azon acquisition in 1996 which were expected to be sold were not consolidated and were recorded at estimated fair value at December 31, 1996. During 1997, the Company disposed of the majority of the Azon businesses which were expected to be sold. 32 16 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- Retirement Plans--The Company sponsors defined contribution retirement plans covering the majority of domestic employees. The Company's contributions to these plans were $11,900,000 in 1997, $12,200,000 in 1996 and $9,900,000 in 1995. The Company provides the majority of its employees with pension benefits. The Company's principal domestic plan provides benefits based on years of service and compensation levels during the latter years of employment. Other domestic and foreign plans provide benefits similar to the principal domestic plan. Subject to the limitation on deductibility imposed by U.S federal income tax laws, the Company's policy has been to contribute funds to the domestic plans annually in amounts required to maintain sufficient plan assets to provide for accrued benefits. Contributions of $13,865,000 and $11,303,000 were made to the principal plan during 1997 and 1996, respectively. No contributions to the principal plan were made in 1995. Contributions to international and other domestic plans were minimal in 1997, 1996 and 1995. Domestic plan assets consist primarily of listed common stocks and debt securities. The components of net pension expense were as shown below:
In thousands 1997 1996 1995 - --------------------------------------------------------------------------------------- Service cost $ 29,830 $ 24,373 $ 24,369 Interest cost on projected benefit obligation 41,688 35,641 33,972 Actual return on plan assets (155,661) (71,754) (99,364) Net amortization and deferral 99,948 19,233 49,102 --------- --------- --------- Net pension expense $ 15,805 $ 7,493 $ 8,079 ========= ========= =========
The following table sets forth the funded status and amounts recognized in the Company's Statement of Financial Position at December 31, 1997 and 1996:
1997 1996 ----------------------- ------------------------ In thousands Domestic Foreign Domestic Foreign - ------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $(356,846) $(107,492) $(323,331) $ (86,844) Non-vested (61,681) (11,465) (62,057) (16,118) --------- --------- --------- --------- Accumulated benefit obligation (418,527) (118,957) (385,388) (102,962) Effect of projected wage increases (51,758) (24,101) (49,970) (16,751) --------- --------- --------- --------- Projected benefit obligation (470,285) (143,058) (435,358) (119,713) Plan assets at fair value 620,314 149,972 499,218 122,956 --------- --------- --------- --------- Plan assets in excess of projected benefit obligation 150,029 6,914 63,860 3,243 Unrecognized net gain (129,459) (12,636) (52,218) (13,653) Unrecognized prior service cost 25,983 292 31,038 -- Unrecognized transition asset (11,585) (5,542) (15,501) (6,554) Adjustment to recognize minimum liability (6,239) (1,008) (5,873) (643) --------- --------- --------- --------- Prepaid (accrued) pension asset (liability) $ 28,729 $ (11,980) $ 21,306 $ (17,607) ========= ========= ========= =========
The significant actuarial assumptions at December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995 - --------------------------------------------------------------------------------------------------- Domestic plans: Discount rate 7.50% 7.75% 7.75% Expected long-term rate of return on plan assets 10.00% 10.00% 10.00% Rate of increase in future compensation levels 4.00% 4.50% 4.00% Foreign plans: Discount rate 3.50-8.00% 4.00-9.00% 5.50-9.00% Expected long-term rate of return on plan assets 5.00-9.00% 5.50-9.00% 5.50-9.00%
33 17 Notes to Financial Statements - -------------------------------------------------------------------------------- Short-Term Debt as of December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996 - --------------------------------------------------------------------------------- Bank overdrafts $ 73,322 $ 45,472 Commercial paper -- 54,990 Current maturities of long-term debt 151,409 30,549 Australian cash advance facility 56,842 244,717 Other borrowings by foreign subsidiaries 16,705 14,697 -------- -------- $298,278 $390,425 ======== ========
Commercial paper is issued at a discount and generally matures 30 to 90 days from the date of issue. The weighted average interest rate on commercial paper outstanding at December 31, 1996 was 6.41%. In August 1996, to fund the Azon acquisition, the Company entered into a 364-day Australian cash advance facility with maximum available borrowings of Australian $325,000,000. In September 1997, the Company amended this cash advance facility to decrease the maximum available borrowings to Australian $175,000,000 and to extend the term of the facility to August 1998. The facility had an interest rate of 5.0% at December 31, 1997 and 6.7% at December 31, 1996. The weighted average interest rate on other foreign borrowings was 5.0% at December 31, 1997 and 4.4% at December 31, 1996. Accrued Expenses as of December 31, 1997 and 1996 consisted of accruals for: - --------------------------------------------------------------------------------
In thousands 1997 1996 - -------------------------------------------------------------------------------- Compensation and employee benefits $185,017 $237,476 Taxes, other than income taxes 20,985 23,375 Customer deposits 20,780 29,816 Other 231,599 222,260 -------- -------- $458,381 $512,927 ======== ========
34 18 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- Long-Term Debt at December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996 - --------------------------------------------------------------------------------------------------------------------- 7.5% notes due December 1, 1998 $ 125,000 $ 125,000 5.875% notes due March 1, 2000 125,000 125,000 6.59% nonrecourse note due semiannually through December 31, 2005 236,500 253,625 7.00% nonrecourse note due semiannually through November 30, 2006 266,185 266,265 6.44% nonrecourse note due semiannually from August 31, 2002 through February 29, 2008 217,440 -- Other, including capitalized lease obligations 35,612 79,606 ----------- ----------- 1,005,737 849,496 Current maturities (151,409) (30,549) ----------- ----------- $ 854,328 $ 818,947 =========== ===========
In 1991, the Company issued $125,000,000 of 7.5% notes due December 1, 1998 at 99.892% of face value. The notes may not be redeemed by the Company prior to maturity. The effective interest rate of the notes is 7.6%. In 1993, the Company issued $125,000,000 of 5.875% notes due March 1, 2000 at 99.744% of face value. The notes may not be redeemed by the Company prior to maturity. The effective interest rate of the notes is 5.9%. The quoted market prices of the 7.5% and 5.875% notes exceeded the carrying values by $1,191,000 at December 31, 1997, and $700,000 at December 31, 1996. The Company issued a $256,000,000 6.28% nonrecourse note at face value in December 1995, a $266,265,000 7.0% nonrecourse note at face value in December 1996 and a $217,440,000 6.44% nonrecourse note at face value in December 1997. In 1997, the Company refinanced the 6.28% nonrecourse note with a 6.59% nonrecourse note with similar terms. The holders of these notes only have recourse against the commercial mortgage loans, commercial real estate and the net swap receivable, which are included in investments. The estimated fair value of the three nonrecourse notes, based on discounted cash flows, exceeded the carrying value by $19,978,000 at December 31, 1997 and approximated carrying value at December 31, 1996. In 1992, the Company entered into a $300,000,000 revolving credit facility (RCF). In May 1996, the Company amended the RCF to increase the maximum available borrowings to $350,000,000 and extended the commitment termination date to May 30, 2001. The amended RCF provides for borrowings under a number of options and may be reduced or canceled at any time at the Company's option. There were no amounts outstanding under these facilities as of December 31, 1997 or 1996. The Company maintains unused commitments under the RCF equal to any commercial paper borrowings. The amended RCF contains financial covenants establishing a maximum total debt to total capitalization percentage and a minimum consolidated tangible net worth. The Company was in compliance with these covenants at December 31, 1997. Other debt outstanding at December 31, 1997 bears interest at rates ranging from 2.19% to 14.5%, with maturities through the year 2012. Scheduled maturities of long-term debt for the years ended December 31 are as follows:
In thousands - -------------------------------------------------------------------------------- 1999 $ 30,830 2000 153,629 2001 49,949 2002 40,141 2003 and future years 579,779 -------- $854,328 ========
- -------------------------------------------------------------------------------- Other Noncurrent Liabilities at December 31, 1997 and 1996 consisted of the following:
In thousands 1997 1996 - -------------------------------------------------------------------------------- Deferred investment income $287,958 $238,870 Preferred stock of subsidiaries 60,000 40,000 Other 228,136 92,995 -------- -------- $576,094 $371,865 ======== ========
35 19 Notes to Financial Statements - -------------------------------------------------------------------------------- POSTRETIREMENT HEALTH CARE BENEFITS--The Company provides postretirement health care benefits to the majority of domestic employees and their covered dependents. Generally, employees who have reached age 55 and rendered 10 years of service are eligible for these benefits, which are subject to retiree contributions, deductibles, copayment provisions and other limitations. The expected cost of the health care benefits is charged to expense during the service lives of the employees. The Company funds the health care benefits principally on a pay-as-you-go basis. A one-percentage point increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1997 by approximately $16,437,000 and the sum of the 1997 annual service and interest cost by approximately $1,635,000. The costs of postretirement health care benefits were as shown below:
In thousands 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Service cost $ 2,381 $ 2,253 $ 2,110 Interest cost on accumulated postretirement benefit obligation 9,246 9,182 10,077 Net amortization and deferral 6,134 6,067 5,581 ------- ------- ------- Net postretirement benefit cost $17,761 $17,502 $17,768 ======= ======= =======
The following table sets forth the amounts recognized in the Company's Statement of Financial Position at December 31, 1997 and 1996:
In thousands 1997 1996 - ------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ (89,650) $ (86,467) Active employees (36,904) (35,614) --------- --------- (126,554) (122,081) Unrecognized transition obligation 108,137 115,346 Unrecognized net gain (21,631) (26,461) --------- --------- Accrued postretirement benefit cost $ (40,048) $ (33,196) ========= =========
The significant actuarial assumptions at December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995 - ------------------------------------------------------------------------------ Discount rate 7.50% 7.75% 7.75% Health care cost trend rate: Current rate 5.00% 5.00% 7.00% Ultimate rate in 1998 5.00% 5.00% 5.00%
36 20 Illinois Tool Works Inc. - -------------------------------------------------------------------------------- PREFERRED STOCK, without par value, of which 300,000 shares are authorized, is issuable in series. The Board of Directors is authorized to fix by resolution the designation and characteristics of each series of preferred stock. The Company has no present commitments to issue its preferred stock. - -------------------------------------------------------------------------------- Common Stock, Additional Paid-in-Capital and Common Stock Held in Treasury transactions during 1997, 1996 and 1995 are shown below. On May 9, 1997, the stockholders approved a) an amendment to the Restated Certificate of Incorporation changing the number of authorized shares of common stock from 150,000,000 shares without par value to 350,000,000 shares with a par value of $.01 and b) a two-for-one split of the Company's common stock, with a distribution date of May 27, 1997, at a rate of one additional share for each common share held by stockholders of record on May 20, 1997. All per share data in this report is calculated on a post-split basis.
ADDITIONAL COMMON STOCK COMMON STOCK PAID-IN-CAPITAL HELD IN TREASURY --------------------------- --------------- --------------------------- In thousands except shares SHARES AMOUNT AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 114,100,500 $ 201,166 $ -- (142,568) $ (1,952) During 1995-- Stock options exercised 382,587 7,300 -- 2,113 118 Shares surrendered on exercise of stock options (4,626) (243) -- (2,113) (118) Tax benefits related to stock options exercised -- 2,528 -- -- -- Shares issued for acquisitions 3,876,477 27,501 -- -- -- Shares issued for stock incentive and restricted stock grants 14,091 1,436 -- 6,300 86 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1995 118,369,029 239,688 -- (136,268) (1,866) ----------- ----------- ----------- ----------- ----------- During 1996-- Stock options exercised 254,181 5,871 -- 23,462 1,579 Shares surrendered on exercise of stock options (11,791) (462) -- (23,462) (1,579) Tax benefits related to stock options exercised -- 3,176 -- -- -- Shares issued for acquisitions 5,408,704 25,510 -- -- -- Shares issued for stock incentive and restricted stock grants -- 81 -- 1,800 25 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 124,020,123 273,864 -- (134,468) (1,841) ----------- ----------- ----------- ----------- ----------- During 1997-- Adjustment to reflect the May 1997 stock split 124,020,123 -- -- (134,468) -- Adjustment to reflect change in par value -- (275,701) 275,701 -- -- Stock options exercised 673,132 4,018 4,452 14,862 796 Shares surrendered on exercise of stock options (33,162) (10) (744) (14,862) (796) Tax benefits related to stock options exercised -- -- 7,758 -- -- Shares issued for acquisitions 1,181,228 289 (14) -- -- Shares issued for stock incentive and restricted stock grants 4,460 39 -- 1,200 8 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1997 249,865,904 $ 2,499 $ 287,153 (267,736) $ (1,833) =========== =========== =========== =========== =========== Authorized, December 31, 1997 350,000,000 ===========
- -------------------------------------------------------------------------------- Cash Dividends declared were $.46 per share in 1997, $.36 per share in 1996 and $.32 per share in 1995. Cash dividends paid were $.43 per share in 1997, $.35 per share in 1996 and $.31 per share in 1995. 37 21 Notes to Financial Statements - -------------------------------------------------------------------------------- Stock Options have been issued to officers and other employees under the Company's 1996 Stock Incentive Plan, which was adopted in 1996. At December 31, 1997, 19,005,370 shares were reserved for issuance under the plan. Option prices are 100% of the common stock fair market value on the date of grant. Effective in 1996, Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, allows the recognition of compensation cost related to employee stock options. The Company has elected to continue to apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which does not require that compensation cost be recognized. The pro forma net income effect of applying SFAS No. 123 is as follows:
In thousands except per share data 1997 1996 1995 - -------------------------------------------------------------------------------- Net Income: As reported $ 586,951 $ 486,315 $ 387,608 Pro forma 582,909 482,767 387,608 Net income per basic share: As reported $ 2.35 $ 1.96 $ 1.64 Pro forma 2.34 1.95 1.64 Net income per diluted share: As reported $ 2.33 $ 1.95 $ 1.63 Pro forma 2.32 1.93 1.63
The table presented below provides a summary of the stock option transactions during 1997, 1996 and 1995:
1997 1996 1995 --------------------------------- --------------------------------- -------------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF SHARES EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE - ----------------------------------------------------------------------------------------------------------------------------------- Under option at beginning of year 4,999,416 $ 21.56 5,154,158 $ 19.71 4,447,104 $ 14.26 Granted 1,128,639 54.61 420,028 33.69 1,554,330 30.12 Exercised (687,994) 14.30 (556,020) 13.44 (769,400) 9.56 Canceled or expired (55,376) 27.17 (18,750) 23.29 (77,876) 17.34 -------------- ------------ ------------ Under option at end of year 5,384,685 29.36 4,999,416 21.56 5,154,158 19.71 ============== ============ ============ Exercisable at year-end 3,145,946 3,037,064 2,857,328 Available for grant at year-end 13,620,685 14,650,384 4,054,072 Weighted average fair value of option grant during the year $ 15.82 $ 10.01 $ 8.47
The following table summarizes information on stock options outstanding as of December 31, 1997:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------------- ------------------------------------------ WEIGHTED AVERAGE RANGE OF NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE - --------------------------------------------------------------------------------------------------------------------------- $ 8.31-16.25 1,164,071 3.42 years $13.69 1,164,071 $13.69 18.31-25.19 1,225,958 6.11 years 18.62 1,179,958 18.55 30.13-39.81 1,864,989 8.03 years 30.92 800,889 30.51 40.22-56.75 1,129,667 9.95 years 54.60 1,028 40.22 --------- --------- 5,384,685 7.00 years 29.36 3,145,946 19.80 ========= =========
The estimated fair value of each option granted is calculated using the Black-Scholes option pricing model. The following summarizes the assumptions used in the model:
1997 1996 1995 - ------------------------------------------------------------------------------------- Risk-free interest rate 5.9% 6.4% 5.6% Expected stock volatility 21.7% 22.2% 21.8% Dividend yield 1.29% 1.36% 1.36% Expected years until exercise 5.5 5.5 5.5
38 22 Quarterly and Common Stock Data Illinois Tool Works Inc. - -------------------------------------------------------------------------------- Quarterly Financial Data (Unaudited)
THREE MONTHS ENDED - --------------------------------------------------------------------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 In thousands except ----------------------- ----------------------- ----------------------- ------------------------- per share amounts 1997 1996 1997 1996 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- Operating revenues $1,229,798 $1,136,922 $1,326,344 $1,324,800 $1,315,388 $1,238,261 $1,348,903 $1,296,698 Cost of revenues 807,317 755,539 854,352 871,156 857,495 817,658 859,630 837,177 Operating income 196,433 161,438 245,819 214,992 235,763 198,731 249,208 225,425 Net income 123,255 98,755 154,394 130,375 149,130 122,842 160,172 134,343 Net income per share: Basic .49 .40 .62 .53 .60 .50 .64 .54 Diluted .49 .40 .61 .52 .59 .49 .64 .54
COMMON STOCK PRICE AND DIVIDEND DATA--The common stock of Illinois Tool Works Inc. is listed on the New York Stock Exchange and the Chicago Stock Exchange. Quarterly market price and dividend data for 1997 and 1996, restated for the two-for-one stock split in May 1997, were as shown below:
MARKET PRICE PER SHARE ---------------------- HIGH LOW DIVIDENDS PAID PER SHARE - ------------------------------------------------------------------------- 1997 Fourth quarter $60.13 $46.88 $.120 Third quarter 55.31 45.56 .120 Second quarter 52.63 40.31 .095 First quarter 45.69 37.38 .095 1996 Fourth quarter $43.63 $34.75 $.095 Third quarter 37.13 30.44 .085 Second quarter 34.88 30.50 .085 First quarter 34.75 25.94 .085
The approximate number of holders of record of common stock as of February 13, 1998 was 4,772. This number does not include beneficial owners of the Company's securities held in the name of nominees. 39 23 Eleven-Year Financial Summary
Dollars and shares in thousands except per share amounts 1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Income: Operating revenues $ 5,220,433 4,996,681 4,178,080 3,461,315 3,159,181 2,811,645 Cost of revenues $ 3,378,794 3,281,530 2,723,988 2,290,117 2,122,286 1,858,752 Selling, administrative and research and development expenses $ 870,268 875,386 776,112 666,576 638,560 589,423 Amortization of goodwill and other intangible assets $ 36,842 31,873 25,031 22,344 21,874 22,169 Amortization of retiree health care $ 7,306 7,306 6,968 6,968 6,968 -- Operating income $ 927,223 800,586 645,981 475,310 369,493 341,301 Interest expense $ (19,383) (27,834) (29,991) (26,943) (35,025) (42,852) Other income (expense) $ 16,511 (2,437) 7,718 1,916 1,402 11,331 Income before income taxes $ 924,351 770,315 623,708 450,283 335,870 309,780 Income taxes $ 337,400 284,000 236,100 172,500 129,300 117,700 Net income $ 586,951 486,315 387,608 277,783 206,570 192,080 Basic per share $ 2.35 1.96 1.64 1.22 .91 .86 Diluted per share $ 2.33 1.95 1.63 1.22 .90 .85 Financial Position: Net working capital $ 700,762 481,767 681,558 634,500 547,506 492,118 Net plant and equipment $ 884,058 808,340 694,941 641,235 583,765 524,116 Total assets $ 5,394,756 4,806,162 3,591,318 2,580,498 2,336,891 2,204,187 Long-term debt $ 854,328 818,947 615,557 272,987 375,641 251,979 Total debt $ 1,152,606 1,209,372 791,745 339,989 482,714 335,240 Stockholders' equity $ 2,806,454 2,396,025 1,924,237 1,541,521 1,258,669 1,339,673 Other Data: Operating income: Return on operating revenues % 17.8 16.0 15.5 13.7 11.7 12.1 Net income: Return on operating revenues % 11.2 9.7 9.3 8.0 6.5 6.8 Return on average stockholders' equity % 22.6 22.5 22.4 19.8 15.9 15.1 Cash dividends paid $ 107,053 85,481 71,783 61,162 55,175 50,290 Per share--paid $ .43 .35 .31 .27 .25 .23 --declared $ .46 .36 .32 .28 .25 .23 Book value per share $ 11.24 9.67 8.14 6.76 5.56 5.98 Common stock market price at year-end $ 60.13 39.94 29.50 21.88 19.50 16.31 Long-term debt to total capitalization % 23.3 25.5 24.2 15.0 23.0 15.8 Total debt to total capitalization % 29.1 33.5 29.2 18.1 27.7 20.0 Total debt to total capitalization (excluding Leasing and Investments Segment) % 4.6 15.9 16.2 18.1 27.7 20.0 Shares outstanding: At December 31 249,598 247,771 236,466 227,916 226,300 224,027 Average during year 249,284 247,556 235,978 226,775 225,958 223,492 Plant and equipment additions $ 178,704 168,657 150,176 131,055 119,931 115,313 Depreciation $ 148,544 146,360 126,900 109,805 109,852 100,462 Research and development expenses $ 52,021 55,800 52,700 48,700 47,200 42,500 Employees at December 31 25,700 24,400 21,200 19,500 19,000 17,800 Operating revenues per employee $ 203 205 197 178 166 158 Dollars and shares in thousands except per share amounts 1991 1990 1989 1988 1987 - ------------------------------------------------------------------------------------------------------------------ Income: Operating revenues 2,639,650 2,544,153 2,172,747 1,929,805 1,698,353 Cost of revenues 1,759,288 1,686,423 1,450,116 1,287,297 1,117,990 Selling, administrative and research and development expenses 551,865 512,685 417,520 377,003 344,661 Amortization of goodwill and other intangible assets 23,979 19,181 15,829 13,106 16,812 Amortization of retiree health care -- -- -- -- -- Operating income 304,518 325,864 289,282 252,399 218,890 Interest expense (44,342) (39,190) (30,995) (26,109) (33,439) Other income (expense) 27,583 13,209 10,735 6,522 14,333 Income before income taxes 287,759 299,883 269,022 232,812 199,784 Income taxes 107,200 117,500 105,200 92,800 93,600 Net income 180,559 182,383 163,822 140,012 106,184 Basic per share .81 .84 .77 .66 .51 Diluted per share .81 .83 .76 .65 .50 Financial Position: Net working capital 442,041 615,055 440,406 392,283 332,290 Net plant and equipment 525,695 483,549 413,578 342,794 318,690 Total assets 2,257,139 2,150,307 1,687,985 1,380,237 1,334,063 Long-term debt 307,082 430,632 334,407 255,907 309,515 Total debt 489,189 495,952 370,507 257,597 357,249 Stockholders' equity 1,212,051 1,091,842 871,124 744,727 608,541 Other Data: Operating income: Return on operating revenues 11.5 12.8 13.3 13.1 12.9 Net income: Return on operating revenues 6.8 7.2 7.5 7.3 6.3 Return on average stockholders' equity 15.7 18.6 20.3 20.7 19.6 Cash dividends paid 44,108 35,861 28,747 23,027 20,144 Per share--paid .20 .17 .14 .11 .10 --declared .21 .17 .14 .12 .10 Book value per share 5.44 4.98 4.06 3.53 2.94 Common stock market price at year-end 15.94 12.07 11.22 8.63 8.25 Long-term debt to total capitalization 20.2 28.3 27.7 23.3 33.7 Total debt to total capitalization 28.8 31.2 29.8 25.7 37.0 Total debt to total capitalization (excluding Leasing and Investments Segment) 28.8 31.2 29.8 25.7 37.0 Shares outstanding: At December 31 222,872 219,218 214,663 211,175 207,120 Average during year 222,354 217,745 214,056 210,700 206,544 Plant and equipment additions 106,036 101,183 84,263 84,107 61,052 Depreciation 91,414 82,913 68,890 62,064 57,839 Research and development expenses 40,300 40,300 32,500 26,588 24,739 Employees at December 31 18,700 18,400 15,700 14,200 13,600 Operating revenues per employee 141 138 138 136 125
Note: Certain reclassifications of prior years' data have been made to conform with current year reporting. All share and per share amounts have been restated for the two-for-one stock split in May 1997. 40 EX-21 6 SUBSIDIARIES AND AFFILIATES 1 EXHIBIT 21 MARCH 1998 ILLINOIS TOOL WORKS INC. SUBSIDIARIES AND AFFILIATES
PERCENT COMPANY RELATIONSHIP OWNERSHIP ------- ------------ --------- A 3 Sud S.p.A. -- Italy(1).................................. Subsidiary 100% Accu-Lub manufacturing GmbH -- Germany...................... Subsidiary +50% Azon Pty. Limited -- Australia(2)........................... Subsidiary 100% Buell Industries, Inc. -- Delaware.......................... Subsidiary 100% Burseryds Bruk AB -- Sweden................................. Subsidiary 100% Bursped AB -- Sweden(3)..................................... Subsidiary 100% CEV Hydroelectric Company -- Italy(4)....................... Affiliate 5.77% Champs Investment E.U.R.L. -- France(5)..................... Subsidiary 100% Cofiva S.p.A. -- Italy(6)................................... Subsidiary 100% Compagnie de Materiel et d'Equipements Techniques S.A.S. -- France.................................................... Subsidiary 100% Company Consurtium Valle D'Aosta -- Italy(4)................ Subsidiary 100% CS Packaging (Malaysia) Sdn Bhd -- Malaysia(7).............. Affiliate 50% CS Packaging Corporation Ltd. -- British Virgin Islands..... Affiliate 50% CS Packaging Corporation Ltd. -- Hong Kong(8)............... Affiliate 50% CS Packaging Corporation Pte. Ltd. -- Singapore(9).......... Affiliate 50% CS Packaging Investment Pte. Ltd. -- Singapore(8)........... Affiliate 50% Cumberland Leasing Co. -- Illinois(10)...................... Subsidiary 100% Cyclone Hardware Pty. Ltd. -- Australia(11)................. Subsidiary 100% Cyklop Signode Packaging Corporation -- Thailand............ Subsidiary 100% Cyklop Singapore Pte. Ltd. -- Singapore(9).................. Subsidiary 100% Danband Products Australia Pty. Ltd. -- Australia(12)....... Subsidiary 100% Danband Products Limited -- New Zealand(12)................. Subsidiary 100% Devcon de Mexico, S.A. -- Mexico............................ Subsidiary 100% Devcon Limited -- Ireland................................... Subsidiary 100% DeVilbiss Equipamentos Para Pintura Industrial Ltda. -- Brazil.................................................... Subsidiary 100% DeVilbiss Ransburg de Mexico S.A. de C.V. -- Mexico......... Subsidiary 100% Edgepack Limited -- United Kingdom(13)...................... Subsidiary 100% Elettro Gibi S.p.A. -- Italy(6)............................. Subsidiary 100% Elleyse Financing SNC -- France(14)......................... Subsidiary 100% Envases Multipac, S.A.de C.V. -- Mexico..................... Affiliate 49% Fiber Products Corp. -- Louisiana........................... Subsidiary 100% Fixing System S.A. -- Switzerland(15)....................... Subsidiary 100% Gema Volstatic AG -- Switzerland(15)........................ Subsidiary 100% Gerhard Haugk GmbH -- Germany(16)........................... Subsidiary 100% Gerrard Signode Limited -- New Zealand(12).................. Subsidiary 100% Gerrard Signode Pty. Limited -- Australia(12)............... Subsidiary 100% Halles Financing E.U.R.L. -- France(17)..................... Subsidiary 100% Haloila Vertrieb GmbH -- Germany(5)......................... Subsidiary 100% Heistrap Industriesysteme GmbH -- Germany(18)............... Subsidiary 100% Hobart Brothers(International) AG -- Switzerland(15)........ Subsidiary 100% Hobart Brothers Company -- Ohio............................. Subsidiary 100% Hobart Laser Products, Inc.(19)............................. Subsidiary 100% Hobart Mexico -- Mexico..................................... Subsidiary 100% Hylec Eletro Gibi(UK) Ltd. -- United Kingdom(20)............ Affiliate 33% I.T.W. Inc. -- Illinois..................................... Subsidiary 100% ILI International S.A. de C.V. -- Mexico.................... Subsidiary 100%
2
PERCENT COMPANY RELATIONSHIP OWNERSHIP ------- ------------ --------- Illinois Tool Works FSC Inc. -- Barbados(21)................ Subsidiary 100% IMSA ITW, S.A. de C.V. -- Mexico............................ Affiliate 50% IMSA Paslode, S.A. de C.V. -- Mexico........................ Affiliate 50% IMSA Signode, S.A. de C.V. -- Mexico........................ Affiliate 50% Inmobiliaria Cit, S.A. de C.V. -- Mexico.................... Affiliate 49% Ispra-Control S.p.A. -- Italy(22)........................... Subsidiary 100% Ispra-Flex S.p.A. -- Italy(20).............................. Subsidiary 85% ITW Ampang Industries Philippines, Inc. -- Philippines...... Subsidiary 100% ITW Asia(Pte) Limited -- Singapore.......................... Subsidiary 100% ITW Ateco GmbH -- Germany(23)............................... Subsidiary 100% ITW Austria Vertriebs GmbH -- Austria(16)................... Subsidiary 100% ITW Automotive Products GmbH -- Germany(24)................. Subsidiary 100% ITW Automotive Products GmbH, K.G.(25)...................... Subsidiary 100% ITW Befestigungssyteme GmbH -- Germany(24).................. Subsidiary 100% ITW Belgium S.A. -- Belgium................................. Subsidiary 100% ITW Bevestigingssystemen B.V. -- Netherlands(26)............ Subsidiary 100% ITW Canada -- Canada(27).................................... Subsidiary 100% ITW Canada Holdings Company -- Canada(19)................... Subsidiary 100% ITW Canada Management Inc. -- Canada........................ Subsidiary 100% ITW-Canguru Rotulos Ltda. -- Brazil......................... Affiliate 50% ITW Cayman -- Cayman Islands(6)............................. Subsidiary 100% ITW China Components Inc. -- Delaware....................... Subsidiary 100% ITW Construction Products (Suzhou) Co. Ltd. -- China........ Subsidiary 100% ITW de Argentina S.A -- Argentina(6)........................ Subsidiary 100% ITW de Fastex de Argentina S.A. -- Argentina(28)............ Subsidiary 100% ITW de France S.A.S. -- France(5)........................... Subsidiary 100% ITW (Deutschland) GmbH -- Germany(29)....................... Subsidiary 100% ITW Devcon Industriel Products GmbH -- Germany(24).......... Subsidiary 100% ITW do Brazil Industrial e Comercial Ltda. -- Brazil........ Subsidiary 100% ITW Domestic Holdings Inc. -- Delaware...................... Subsidiary 100% ITW Dynatec (Hong Kong) Limited -- Hong Kong................ Affiliate 50% ITW Dynatec Kabushiki Kaisha -- Japan....................... Subsidiary 100% ITW Dynatec Singapore Pte. Ltd. -- Singapore................ Affiliate 50% ITW Dynatec Thailand Ltd. -- Thailand....................... Affiliate 20% ITW Electronic Packaging (Malta) Ltd. -- Malta(30).......... Subsidiary 100% ITW Espana S.A. -- Spain(6)................................. Subsidiary 100% ITW Expandet S.A. -- France(31)............................. Subsidiary 100% ITW Fastex Italia S.p.A. -- Italy(6)........................ Subsidiary 100% ITW Finance L.L.C. -- Delaware(32).......................... Subsidiary 100% ITW Finance II L.L.C. -- Delaware(33)....................... Subsidiary 100% ITW Finishing L.L.C. -- Delaware(34)........................ Subsidiary 100% ITW Gunther S.A.S -- France(5).............................. Subsidiary 100% ITW Holding France S.A.S. -- France(6)...................... Subsidiary 100% ITW Holdings GmbH -- Germany(35)............................ Subsidiary 100% ITW Holdings Japan L.L.C. -- Delaware(36)................... Subsidiary 100% ITW Holdings Pty. -- Australia(37).......................... Subsidiary 100% ITW Holdings U.K. -- United Kingdom(6)...................... Subsidiary 100% ITW-Imaden Industria E Comercio Ltda. -- Brazil............. Subsidiary 75% ITW Industrie G.m.b.H. -- Germany(24)....................... Subsidiary 100% ITW Industry Co., Ltd. -- Japan(38)......................... Subsidiary 100% ITW International Finance Inc. -- Delaware(21).............. Subsidiary 100%
3
PERCENT COMPANY RELATIONSHIP OWNERSHIP ------- ------------ --------- ITW International Finance S.A.S. -- France(6)............... Subsidiary 100% ITW International Holdings Inc. -- Delaware(39)............. Subsidiary 100% ITW Investments, Inc. -- Delaware(40)....................... Subsidiary 90% ITW Ireland -- Ireland(41).................................. Subsidiary 100% ITW Ireland Holdings -- Ireland(42)......................... Subsidiary 100% ITW Italy Finance E.U.R.L. -- France(17).................... Subsidiary 100% ITW Jeju Industries Private Limited -- India................ Subsidiary 51% ITW Leasing & Investments Inc. -- Delaware.................. Subsidiary 100% ITW Limited Sweden Filial Sverige -- Sweden(43)............. Subsidiary 100% ITW Limited -- United Kingdom(44)........................... Subsidiary 100% ITW Mapri Industria e Commercio Ltda -- Brazil(45).......... Subsidiary 100% ITW Meritex Sdn. Bhd. -- Malaysia(46)....................... Subsidiary 100% ITW Mima Europe S.N.C. -- France(5)......................... Subsidiary 100% ITW Mima Films L.L.C. -- Delaware(47)....................... Subsidiary 100% ITW Mima Holdings L.L.C. -- Delaware(47).................... Subsidiary 100% ITW Mortgage Investments I, Inc. -- Delaware(48)............ Subsidiary 90% ITW Mortgage Investments II, Inc. -- Delaware(49)........... Subsidiary 100% ITW Mortgage Investments III, Inc. -- Delaware(50).......... Subsidiary 100% ITW Mortgage Investments IV, Inc. -- Delaware(51)........... Subsidiary 100% ITW Muller Inc. -- Texas.................................... Subsidiary 100% ITW Nederland B.V. -- Netherlands........................... Subsidiary 100% ITW New Zealand -- New Zealand.............................. Subsidiary 100% ITW Oberflaechentechnik GmbH -- Germany(23)................. Subsidiary 100% ITW Packaging Corporation -- Delaware....................... Subsidiary 100% ITW PanCon Inc. -- Delaware................................. Subsidiary 100% ITW Paris E.U.R.L. -- France(5)............................. Subsidiary 100% ITW Polska Sp.s.o.o. -- Poland(6)........................... Subsidiary 100% ITW Real Estate L.L.C. -- Delaware(52)...................... Subsidiary 100% ITW Residuals Inc. -- Delaware.............................. Subsidiary 100% ITW Service Inc. -- Korea(53)............................... Subsidiary 100% ITW Shippers S.A. -- Belgium(54)............................ Subsidiary 100% ITW Signode Australasia Pty. Limited -- Australia(55)....... Subsidiary 100% ITW Signode Holding GmbH -- Germany......................... Subsidiary 100% ITW Signode India Limited -- India.......................... Subsidiary 51% ITW Specialty Packaging L.L.C. -- Delaware(56).............. Subsidiary 100% ITW Surfaces & Finitions S.A. -- France(5).................. Subsidiary 100% ITW Sverige AB -- Sweden.................................... Subsidiary 100% ITW Switches Asia Ltd. -- Taiwan............................ Subsidiary 100% ITW Tech Co. Inc. -- Delaware(57)........................... Subsidiary 100% ITW Universal L.L.C. -- Delaware(6)......................... Subsidiary 100% ITW Welding Products Asia Pacific Pte. Limited -- Singapore................................................. Subsidiary 100% Jambro Ltd. -- New Zealand.................................. Subsidiary 100% Japit Inc. -- Japan......................................... Affiliate 19% Jemco de Mexico,, S.A. de C.V. -- Mexico.................... Subsidiary 100% KC Metal Products Pty. Ltd. -- Australia(12)................ Subsidiary 100% Kinnears Pty. Ltd. -- Australia(11)......................... Subsidiary 100% Kinnears Ropes Ltd. -- New Zealand(11)...................... Subsidiary 100% Kormag Industries e Comercio Ltda. -- Brazil................ Affiliate 40% Liljendals Bruk Ab -- Finland............................... Subsidiary 100% Lombard Pressings Limited -- United Kingdom(44)............. Subsidiary 100% Loveshaw Corporation, The -- Delaware(58)................... Subsidiary 100%
4
PERCENT COMPANY RELATIONSHIP OWNERSHIP ------- ------------ --------- Lys Comet S.A.S. -- France(5)............................... Subsidiary 100% Lys Fusion Poland Sp.z.o.o. -- Poland(4).................... Subsidiary 87% Lys Fusion S.p.A. -- Italy(59).............................. Subsidiary 100% Meritex(Penang) Sdn. Bhd. -- Malaysia(46)................... Subsidiary 100% Meritex Plastic Industries, Inc. -- Texas(6)................ Subsidiary 100% Meyercord Co., The -- Delaware.............................. Subsidiary 100% Miller Electric Mfg. Co. -- Wisconsin....................... Subsidiary 100% Miller Europe S.p.A. -- Italy(60)........................... Subsidiary 100% Miller Group France S.A., The -- France(5).................. Subsidiary 100% Miller Insurance Ltd -- Bermuda(60)......................... Subsidiary 100% Mima Films L.L.C. -- Delaware(61)........................... Subsidiary 100% Mima Films S.a.r.1. -- Luxembourg(62)....................... Subsidiary 100% Mima Films SCA -- Belgium(63)............................... Subsidiary 100% Morlock GmbH -- Germany(16)................................. Subsidiary 100% Morlock Mechanik Verwaltungsgessellschaft mbH -- Germany(16)............................................... Subsidiary 100% Nation Financing E.U.R.L. -- France(5)...................... Subsidiary 100% Newtec Iberica S.A. -- Spain(64)............................ Subsidiary 100% Nifco Hi-Cone Leasing Company Limited -- Japan.............. Affiliate 40% Nouva Cannottieri Olona s.r.1. -- Italy(20)................. Affiliate .5% Nuovo Lys Fusion s.r.1. -- Italy(65)........................ Subsidiary 100% Odesign, Inc. -- Illinois................................... Subsidiary 100% Orgapack A.G. -- Switzerland(66)............................ Subsidiary 100% Orgapack E.U.R.L. -- France(5).............................. Subsidiary 100% Orgapack Finance GmbH -- Switzerland(67).................... Subsidiary 100% Orgapack GmbH -- Switzerland(67)............................ Subsidiary 100% Orgapack Holding A.G. -- Switzerland(68).................... Subsidiary 100% Oy M Haloila Ab -- Finland(5)............................... Subsidiary 100% PT Cyklop Indo Utama -- Indonesia(69)....................... Affiliate 57% Packaging Leasing Systems Inc. -- Delaware.................. Subsidiary 80% Padlocker Corporation -- Delaware........................... Subsidiary 100% PanCon GmbH -- Germany(16).................................. Subsidiary 100% Paslode S.A.R.L. -- France(5)............................... Subsidiary 100% Ransburg Gema s.r.1. -- Italy(6)............................ Subsidiary 100% Ransburg Industrial Finishing K.K. -- Japan(70)............. Subsidiary 100% Ransburg Manufacturing Corporation -- Indiana............... Subsidiary 100% Reddi-Pac, Inc. -- Pennsylvania............................. Subsidiary 100% Scanilec B.V. -- Netherlands(25)............................ Subsidiary 100% Scybele S.A.S. -- France(5)................................. Subsidiary 100% Seine Investments E.U.R.L. -- France(5)..................... Subsidiary 100% Serim s.r.1. -- Italy(19)................................... Subsidiary 51% Shanghai ITW Plastic & Metal Company Limited -- China(71)... Subsidiary 93% Signode B.V. -- Netherlands(26)............................. Subsidiary 100% Signode Bernpak GmbH -- Germany............................. Subsidiary 100% Signode Brasileiria S.A. -- Brazil.......................... Subsidiary 60% Signode France S.A.S. -- France(5).......................... Subsidiary 100% Signode Ireland Limited -- United Kingdom(72)............... Affiliate 50% Signode Kabushiki Kaisha -- Japan(6)........................ Subsidiary 100% Signode Packaging Systems Limited -- East Africa............ Affiliate 20% Signode Systems GmbH -- Germany(16)......................... Subsidiary 100% Simco(Nederland) B.V. -- Netherlands(6)..................... Subsidiary 100% Simco Japan, K.K. -- Japan.................................. Subsidiary +50%
5
PERCENT COMPANY RELATIONSHIP OWNERSHIP ------- ------------ --------- Societe de Prospection et d'Inventions Techniques S.A.S. (SPIT) -- France(5)....................................... Subsidiary 100% Societe d'Applications Thermiques S.A.(SAT) -- France(5).... Subsidiary 100% Societe Nouvelle Provence Plastiques S.A.R.L. -- France(5)................................................. Subsidiary 100% Svenska Kantskydd AB -- Sweden.............................. Subsidiary 100% Thimon S.A. -- France(5).................................... Subsidiary 100% Triumph Financing E.U.R.L. -- France(5)..................... Subsidiary 100% Vikadan A/S -- Denmark...................................... Subsidiary 100% Vikadan Finans ApS -- Denmark(73)........................... Subsidiary 100% W.A. Deutsher Pty. Ltd -- Australia......................... Subsidiary 100% Wide Body(FSC) I, Inc. -- U.S. Virgin Islands(21)........... Subsidiary 100%
- --------------- (1) Wholly owned by ITW Fastex Italia S.p.A. (2) Wholly owned by ITW Holdings Pty. (3) Wholly owned by Burseryds Bruk AB (4) Ownership interest is by Lys Fusion S.p.A. (5) Wholly owned by ITW Holding France S.A.S. (6) Wholly Owned by ITW International Holdings Inc. (7) Wholly owned by CS Packaging Corporation Pte. Ltd. (Signapore) (8) Wholly owned by CS Packaging Corporation Ltd. (BVI) (9) Wholly owned by CS Packaging Investment Pte. Ltd. (10) Wholly owned by ITW Investments, Inc. (11) Wholly owned by Azon Pty. Limited (12) Wholly owned by ITW Signode Australasia Pty. Limited (13) Wholly owned by Lombard Pressings Limited (14) Wholly owned by Champs Investment E.U.R.L. (15) Wholly owned by Orgapack GmbH (16) Wholly owned by ITW Signode Holding GmbH (17) Wholly owned by ITW International Finance S.A.S. (18) Wholly owned by Signode Bernpak GmbH (19) Wholly owned by Hobart Brothers Company (20) Ownership interest is by Elettro GiBi S.p.A. (21) Wholly owned by ITW Leasing & Investments Inc. (22) Wholly owned by Elettro GiBi S.p.A. (23) Wholly owned by ITW Industrie G.m.b.H. (24) Wholly owned by ITW (Deutschland) GmbH (25) 99.9% owned by ITW Befestigungssysteme GmbH; .1% owned by ITW Automotive Products GmbH (26) Wholly owned by ITW Nederland B.V. (27) 99.9% owned by ITW Canada Holdings Company; .1% owned by ITW Canada Management Inc. (28) Wholly owned by ITW Mapri Industria e Comercio Ltda. (29) 94% owned by ITW International Holdings Inc.; 6% owned by Illinois Tool Works Inc. (30) 99.9% owned by Illinois Tool Works Inc.; .1% owned by ITW Limited (31) 53% owned by ITW Holding France S.A.S.; 47% owned by Societe de Prospection et d'Inventions (32) Techniques S.A.S. 99% owned by ITW Tech Co. Inc.; 1% owned by Illinois Tool Works Inc. 6 (33) 99% owned by ITW Leasing & Investments Inc.; 1% owned by Illinois Tool Works Inc. (34) 99% owned by Illinois Tool Works Inc.; 1% owned by ITW Domestic Holdings Inc. (35) 50% owned by Azon Pty. Limited; 50% owned by ITW International Holdings Inc. (36) 90% owned by ITW International Holdings Inc.; 10% owned by ITW Leasing & Investments Inc. (37) 99% owned by Illinois Tool Works Inc.; 1% owned by W.A. Deutsher Pty. Ltd. (38) Wholly owned by Ransburg Industrial Finishing K.K. (39) 1,000 common shares owned by ITW Investments, Inc.; 150,000 Preferred 6% Non-Voting shares (40) owned by Illinois Tool Works Inc. Ownership interest is by ITW Leasing & Investments Inc. (41) 99.9% owned by ITW Ireland Holdings; .1% owned by ITW Cayman (42) 99.9% owned by ITW International Holdings Inc.; .1% owned by ITW Cayman (43) Wholly owned by ITW Limited (44) Wholly owned by ITW Holdings U.K. (45) 96.39% owned by Illinois Tool Works Inc.; .3% owned by ITW do Brazil Industrial e Comercial Ltda. (46) Wholly owned by Meritex Plastic Industries, Inc. (47) 99% owned by ITW Specialty Packaging L.L.C.; 1% owned by ITW Leasing & Investments Inc. (48) Ownership interest is by: 1,000 common shares, 800 Preferred Series A 6% Cumulative Non-Voting shares and 800 Preferred Series B 7.3% Cumulative Non-Voting shares owned by ITW Leasing & Investments Inc. (49) 1,000 common shares owned by Illinois Tool Works Inc.; 1,000 Preferred Series A 6% Cumulative Non-Voting shares owned by ITW Real Estate L.L.C. (50) 1,000 common shares owned by Illinois Tool Works Inc.; 1,000 Preferred Series A 5% Cumulative Non-Voting shares owned by ITW Real Estate L.L.C. (51) 1,000 common shares owned by Illinois Tool Works Inc.; 1,000 Preferred Series A 7.5% Cumulative Non-Voting shares owned by ITW Investments, Inc. (52) 99% owned by ITW Mortgage Investments I, Inc.; 1% owned by Illinois Tool Works Inc. (53) 50.65% owned by Illinois Tool Works Inc.; 43.72% owned by ITW International Holdings Inc.; 5.63% owned by ITW Dynatec Kabushiki Kaisha (54) 76% owned by Scybele S.A.S.; 24% owned by ITW Belgium S.A. (55) Wholly owned by ITW Holdings GmbH (56) 90% Illinois Tool Works Inc.; 10% ITW Leasing & Investments Inc. (57) Wholly owned by ITW International Finance Inc. (58) 1,000 common shares owned by Illinois Tool Works Inc.; 52,850 Preferred Series A 7% Cumulative Non-Voting shares owned by ITW Finance II L.L.C.; 54,000 Preferred Series B 7.1% Cumulative Non-Voting shares owned by Padlocker Corporation (59) Wholly owned by Cofiva S.p.A. (60) Wholly owned by Miller Electric Mfg. Co. (61) Wholly owned by ITW Mima Films L.L.C. (62) Wholly owned by ITW Specialty Packaging L.L.C. (63) 73% owned by ITW Mima Films L.L.C.; 1% owned by Mima Films L.L.C. (64) Wholly owned by ITW Espana S.A. (65) 90% owned by Lys Fusion S.p.A.; 10% ITW Fastex Italia S.p.A. (66) Wholly owned by Orgapack Holding A.G. (67) 99% owned by ITW International Holdings; 1% owned by ITW Universal L.L.C. (68) Wholly owned by Orgapack Finance GmbH 7 (69) Ownership interest by Cyklop Singapore Pte. Ltd. (70) Wholly owned by ITW Japan Holdings L.L.C. (71) Ownership interest is by ITW China Components Inc. (72) Ownership interest is by ITW Limited (73) Wholly owned by Vikadan A/S EX-22 7 INFORMATION UNDER THE CAPTIONS 1 EXHIBIT 22 Election of Directors Ten directors of the Company are to be elected to hold office until the next annual meeting, until their successors are duly elected and qualified, or until their earlier resignation or removal. Unless otherwise directed, proxies will be voted at the meeting for the election of the persons listed below or, in the event of an unforeseen contingency, for different persons as substitutes. The Corporate Governance and Nominating Committee and the Board of Directors are recommending this slate. Set forth below are the name, age, principal occupation and other information concerning each nominee. 2 MICHAEL J. BIRCK (59) Founder, and President and Chief Executive Officer since 1975, of Tellabs, Inc. Tellabs designs, manufactures, markets and services voice and data equipment. Mr. Birck is a director of USF&G Corporation and Molex, Inc. He has been a director of the Company since 1996. MARVIN D. BRAILSFORD (59) Vice President of Kaiser-Hill Company LLC (construction and environmental services) since 1996, founder and President of the Brailsford Group (acquisition consulting) from 1995 to 1996, and President of Metters Industries (information technology) from 1992 to 1995. He retired from the United States Army in 1992 with the rank of Lieutenant General after 33 years of service. He has been a director of the Company since 1996. SUSAN CROWN (39) Vice President, Henry Crown and Company since 1984, a family owned and operated company with investments in securities, real estate and manufacturing operations. Ms. Crown is a director of Baxter International Inc. and Northern Trust Corporation and its subsidiary, The Northern Trust Company. She is also a trustee of The Yale Corporation. She has been a director of the Company since 1994. H. RICHARD CROWTHER (65) Former Vice Chairman of the Company from 1990 through 1995. Prior to becoming Vice Chairman, Mr. Crowther was Executive Vice President from 1983 through 1989 and had a total of 36 years service with the Company before his retirement. He is a director of Applied Power Inc. and has been a director of the Company since 1995. W. JAMES FARRELL (55) Chairman since 1996 and Chief Executive Officer of the Company since 1995. Mr. Farrell served as President from 1994 until 1996 and as Executive Vice President from 1983 to 1994. He has a total of 32 years service with the Company. Mr. Farrell is a director of Morton International, Inc., Premark International, Inc. and the Quaker Oats Company, and has been a director of the Company since 1995. 3 L. RICHARD FLURY (50) Executive Vice President, Amoco Corporation (energy and chemicals) since 1996, formerly Senior Vice President for Shared Services from 1994 through 1995 and Executive Vice President, Amoco Chemical Co., from 1991 to 1994, with a total of 27 years service with Amoco. Mr. Flury is a director of the Illinois Coalition, North Central College and the Field Museum, and has been a director of the Company since 1995. ROBERT C. MCCORMACK (58) Partner, Trident Capital LP(venture capital) since 1993; Assistant Secretary of the Navy from 1990 to 1993; Deputy Under Secretary of Defense from 1987 to 1990; and Managing Director, Morgan Stanley & Co. Incorporated (investment banking) from 1985 to 1987. Mr. McCormack is a director of DeVry, Inc. and has been a director of the Company since 1993. He was previously a director of the Company from 1978 through 1987. PHILLIP B. ROONEY (53) Vice Chairman of The ServiceMaster Company (a network of quality service companies). Former President of WMX Technologies Inc. (waste management) from 1985 until 1997. Mr. Rooney is a director of The ServiceMaster Company, Urban Shopping Centers Inc. and Stone Container Corporation, and a Trustee of the Van Kampen American Capital Open-End Funds. He has been a director of the Company since 1990. HAROLD B. SMITH (64) Chairman of the Executive Committee of the Company since 1982. Mr. Smith is a director of W.W. Grainger Inc. and Northern Trust Corporation and its subsidiary, The Northern Trust Company, and a trustee of The Northwestern Mutual Life Insurance Company. He has been a director of the Company since 1968. ORMAND J. WADE (58) Former Vice Chairman, Ameritech Corp. (telecommunications products and services) from 1987 to 1993 and President and Chief Executive Officer, Illinois Bell Telephone Company from 1982 through 1986. Mr. Wade is a director of Andrew Corporation and Westell Inc. and has been a director of the Company since 1985. 4 Security Ownership The following table sets forth information regarding ownership of the Company's Common Stock as of December 31, 1997 by each director and nominee for director; by each of the named Executive Officers; by directors, nominees and Executive Officers as a group; and by other persons who, to the knowledge of the Company, own of record or beneficially more than 5% of the outstanding Common Stock of the Company.
DIRECTORS' AMOUNT AND NATURE OF PHANTOM STOCK PERCENT OF NAME OF BENEFICIAL OWNER OR GROUP BENEFICIAL OWNERSHIP(1) UNITS(2) CLASS --------------------------------- ----------------------- ------------- ---------- Directors and Nominees (Other than Executive Officers) Michael J. Birck.......................... 3,500(3) 2,024 * Marvin D. Brailsford...................... 1,900(3) 2,019 * Susan Crown............................... 8,700(3)(4) 2,040 * H. Richard Crowther....................... 363,327(3)(5)(6) 2,193 * L. Richard Flury.......................... 2,100(3) 2,040 * Robert C. McCormack....................... 14,519,200(3)(7)(8) 2,040 5.8 Phillip B. Rooney......................... 24,641(3)(9) 2,040 * Harold B. Smith........................... 38,840,362(8)(10) -- 15.6 Ormand J. Wade............................ 4,700(3) 2,040 * Executive Officers W. James Farrell.......................... 320,733(6)(11) * Russell M. Flaum.......................... 91,883(6)(12) * Frank S. Ptak............................. 205,690(6) * F. Ronald Seager.......................... 195,538(6)(13) * David B. Speer............................ 45,205(6)(14) * Directors, Nominees and All Executive Officers as a Group (22 Persons).......... 40,445,526(6) 16.2 Other Principal Beneficial Owners Edward Byron Smith, Jr. .................. 15,067,868(15) 6.0 The Northern Trust Company................ 46,846,170(16) 18.8
- --------------- * Less than 1% of Class (1) Unless otherwise noted, ownership is direct. (2) Represents units of phantom stock and dividend equivalents earned under the phantom stock plan for non-officer directors. Each unit is equal in value to one share of Common Stock. The units are not transferable and have no voting rights. Such units are not included in the "Percent of Class" column. (3) Includes 900 shares of restricted stock granted on January 2, 1998 under the Directors' Restricted Stock Plan. 5 (4) Includes 2,000 shares owned in a trust as to which Ms. Crown shares voting and investment power. (5) Includes 266,041 shares held in a revocable living trust as to which Mr. Crowther shares voting and investment power and 30,107 shares owned by his spouse, as to which Mr. Crowther disclaims beneficial ownership. (6) Includes shares covered by stock options exercisable within 60 days of December 31, 1997 as follows: Mr. Crowther, 27,104; Mr. Farrell, 247,992; Mr. Flaum, 56,600; Mr. Ptak, 132,000; Mr. Seager, 145,000; Mr. Speer, 42,200; and directors, nominees and Executive Officers as a group, 924,746. (7) Includes 400 shares owned in a trust as to which Mr. McCormack shares voting and investment power with The Northern Trust Company and 14,510,380 shares as described in Footnote 8. (8) Robert C. McCormack, Edward Byron Smith, Jr., Harold B. Smith and The Northern Trust Company are trustees of twelve trusts owning 14,510,380 shares as to which they share voting and investment power. (9) Includes 2,000 shares owned by Mr. Rooney's spouse, as to which he disclaims beneficial ownership. (10) Includes 21,443,264 shares owned in twelve trusts as to which Mr. Smith shares voting and investment power with The Northern Trust Company and others; 2,164,480 shares owned in eleven trusts as to which he shares voting and investment power; 14,510,380 shares as described in Footnote 8; and 83,012 shares owned by a charitable foundation of which he is a director. (11) Includes 2,450 shares held by Mr. Farrell's son and 1,700 shares owned by his spouse, as to both of which holdings Mr. Farrell disclaims beneficial ownership, and 43,847 shares owned in a partnership as to which Mr. Farrell shares voting and investment power. (12) Includes 1,473 shares allocated to Mr. Flaum's account in the Company's Savings and Investment Plan. (13) Includes 1,976 shares owned by Mr. Seager's spouse, as to which he disclaims beneficial ownership. (14) Includes 800 shares allocated to Mr. Speer's account in the Company's Savings and Investment Plan. (15) Includes 32,932 shares owned in two trusts as to which Edward Byron Smith, Jr. has sole voting and investment power; 192,400 shares owned in a trust as to which The Northern Trust Company has sole voting and investment power; 166,666 shares owned in two trusts as to which Mr. Smith shares voting and investment power; and 14,510,380 shares as described in Footnote 8. Also includes the following shares held for the benefit of Mr. Smith's children: 111,160 shares owned in two trusts as to which The Northern Trust Company has sole voting and investment power; 32,080 shares held in two trusts as to which Mr. Smith's spouse and sister share voting and investment power; and 8,800 shares owned in two trusts as to which Mr. Smith's sister has sole voting and investment power. (16) Including its holdings as trustee described in Footnotes 7, 8, 10 and 15, The Northern Trust Company and its affiliates act as sole fiduciary or co-fiduciary of trusts and other fiduciary accounts that own an aggregate of 46,846,170 shares. They have sole voting power with respect to 17,792,456 shares and share voting power with respect to 16,766,852 shares. They have sole investment power with respect to 3,544,639 shares and share investment power with respect to 38,046,475 shares. In addition, The Northern Trust Company holds in other accounts, but does not beneficially own, 18,634,203 shares, resulting in aggregate holdings by The Northern Trust Company of 65,479,373 shares (25.9%). Because of their holdings individually and as trustees, the holdings of their immediate families and/or their positions with the Company, Robert C. McCormack, Edward Byron Smith, Jr. and Harold B. Smith may be deemed to be "controlling persons" of the Company within the meaning of 6 the Securities Act of 1933, as amended. Byron L. Smith, great grandfather of Robert C. McCormack, Edward Byron Smith, Jr. and Harold B. Smith, founded the Company in 1912. The Company maintains normal commercial banking relationships with The Northern Trust Company, which also acts as the trustee under the Company's principal pension plan. The Northern Trust Company is a wholly owned subsidiary of Northern Trust Corporation. Harold B. Smith and Susan Crown, directors of the Company, are also directors of both Northern Trust Corporation and The Northern Trust Company. The Northern Trust Company's address is 50 South LaSalle Street, Chicago, IL 60675 and the address of each of the other beneficial owners of more than 5% of the Company's Common Stock is c/o The Secretary, Illinois Tool Works Inc., 3600 West Lake Avenue, Glenview, IL 60025. Executive Compensation The table below summarizes the compensation of the Chief Executive Officer and the other four most highly compensated Executive Officers. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION ----------------------------------------- --------------------------------- AWARDS PAYOUTS ----------------------- ------- RESTRICTED SECURITIES NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION POSITION YEAR ($)(1) ($)(1)(2) ($)(3) ($)(4) (#) ($) ($) --------- ---- ------- --------- ------------ ---------- ---------- ------- ------------ W. James Farrell 1997 499,900 600,000 -- -- 100,000 -- 48,042(5)(6)(7) Chairman and Chief 1996 453,754 500,000 -- -- 400,000 -- 40,808 Executive Officer 1995 317,212 370,000 -- -- 120,000 -- 38,000 Frank S. Ptak 1997 288,017 293,030 -- -- 50,000 -- 14,140(5)(6) Vice Chairman 1996 255,261 275,000 -- -- -- -- 11,429 1995 219,397 219,670 -- -- 60,000 -- 10,252 F. Ronald Seager 1997 232,562 220,980 -- -- 30,000 -- 15,155(5)(6) Executive 1996 218,801 204,580 -- -- -- -- 12,160 Vice President 1995 209,501 206,150 -- -- 60,000 -- 11,306 Russell M. Flaum 1997 214,955 218,500 -- -- 30,000 -- 7,552(5)(6) Executive 1996 208,082 209,195 -- -- -- -- 6,411 Vice President 1995 199,452 195,000 -- -- 30,000 -- 6,364 David B. Speer 1997 190,924 183,300 -- -- 30,000 -- 7,262(5)(6) Executive 1996 179,507 159,480 -- -- -- -- 5,931 Vice President 1995 159,746 113,085 -- -- 24,000 -- 5,300
- --------------- (1) Actual salary or bonus earned. Includes amounts deferred under the Company's 1993 Executive Contributory Retirement Income Plan or Savings and Investment Plan or both. (2) Amounts awarded under the Executive Incentive Plan are calculated on the base salary of record as of December 31 for the respective years and paid in the subsequent year. (3) Perquisites and other personal benefits, securities or property in the aggregate do not exceed the threshold reporting level of the lesser of $50,000 or 10% of total salary and bonus reported for the named Executive Officer. (4) The number of unvested restricted shares previously granted under the Company's Stock Incentive Plan and their value as of December 31, 1997 were: Mr. Farrell, 35,200 shares ($2,116,400); Mr. Ptak, 35,200 shares ($2,116,400); Mr. Seager, 22,000 shares ($1,322,750); and Mr. Flaum, 22,000 shares ($1,322,750). (5) Includes Company matching contributions to the 1993 Executive Contributory Retirement Income Plan or the Savings and Investment Plan as follows: Mr. Farrell, $14,997; Mr. Ptak, $8,641; Mr. Seager, $6,977; Mr. Flaum, $4,800; and Mr. Speer $5,728. 7 (6) Includes interest credited on deferred compensation in excess of 120% of the Applicable Federal Long Term Rate as follows: Mr. Farrell, $6,193; Mr. Ptak, $5,500; Mr. Seager, $8,178; Mr. Flaum, $2,752; and Mr. Speer $1,535. (7) Includes $26,852 representing imputed income on Mr. Farrell's outstanding home loan made by the Company in 1995. The maximum amount of the loan outstanding during 1997 was $420,000, which by March 1, 1998 had been reduced to $290,000. The imputed rate of interest on the loan is 7.34% per annum and the loan is repayable in annual installments through the year 2000. The Company has a loan program for Executive Officers to assist them in complying with the Company's stock ownership guidelines. As of February 28, 1998, Mr. Farrell had an outstanding loan of $94,193 payable December 31, 2000, bearing interest at a rate of 5.91% per annum and secured by 3,200 shares of Common Stock of the Company. The five-year term of the promissory note is renewable, but the note is repayable 180 days following termination of employment with the Company (or immediately if termination is for gross or willful misconduct) and upon bankruptcy, insolvency or death of the employee or breach of the terms of the note. In the event of a corporate change of control, each Executive Officer's unvested restricted stock and stock options previously granted under the Stock Incentive Plan would immediately become fully vested. In addition, the maximum awards under the Executive Incentive Plan for the fiscal year then in progress, prorated for the number of days in the fiscal year that have elapsed as of the date of the change of control, would immediately be paid in cash. ------------------------ The table below sets forth information as to options granted during 1997 to the Executive Officers listed in the Summary Compensation Table. OPTION GRANTS IN 1997
INDIVIDUAL GRANTS ------------------------------------------------ NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED EXERCISE GRANT DATE VALUE OPTIONS TO OR BASE -------------------- GRANTED EMPLOYEES PRICE EXPIRATION GRANT DATE NAME (#)(1) IN 1997 ($/SH) DATE PRESENT VALUE ($)(2) ---- ---------- ---------- -------- ---------- -------------------- W. James Farrell................... 100,000 8.8% 54.62 12/12/07 1,582,000 Frank S. Ptak...................... 50,000 4.4% 54.62 12/12/07 791,000 F. Ronald Seager................... 30,000 2.7% 54.62 12/12/07 474,600 Russell M. Flaum................... 30,000 2.7% 54.62 12/12/07 474,600 David B. Speer..................... 30,000 2.7% 54.62 12/12/07 474,600
- --------------- (1) These grants become exercisable as to 25% of the shares underlying the options on each of the first four anniversaries of the grant, and are generally fully exercisable after the first anniversary in the event of retirement, disability or death. A restorative option right applies to these grants so long as the option holder is employed by the Company. (2) The estimated fair value of each option granted is calculated using the Black-Scholes option pricing model. The assumptions used in the model are: risk-free interest rate (5.9%); expected stock volatility (21.7%); dividend yield (1.29%); and expected years until exercise (5.5). 8 The table below sets forth information as to option exercises during 1997 as well as the number and value of unexercised options as of December 31, 1997 for the Executive Officers listed in the Summary Compensation Table. AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS ACQUIRED VALUE OPTIONS AT YEAR END(#) AT YEAR END($)(1) ON EXERCISE REALIZED --------------------------- --------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- --------- ----------- ------------- ----------- ------------- W. James Farrell........... 42,000 1,594,313 247,992 480,000 8,664,101 10,910,500 Frank S. Ptak.............. 12,000 520,583 132,000 80,000 5,371,124 1,175,250 F. Ronald Seager........... 15,000 678,444 145,000 60,000 5,972,968 1,065,150 Russell M. Flaum........... 18,000 585,750 56,600 45,000 2,233,025 615,150 David B. Speer............. 5,000 186,563 42,200 46,000 1,620,800 684,150
- ------------ (1) Based on the closing market price ($60.125) of the Company's Common Stock on December 31, 1997. RETIREMENT PLANS The Company's principal non-contributory defined benefit pension plan covers approximately 15,000 domestic business unit employees, including Executive Officers. Benefit amounts are based on years of service and average monthly compensation for the five highest consecutive years out of the last ten years of employment. The following table illustrates the maximum estimated annual benefits to be paid upon normal retirement at age 65 to individuals in specified compensation and years of service classifications. The table does not reflect the limitations on those benefits contained in the Internal Revenue Code of 1986. Supplemental payments in excess of those limitations will be made under a Board approved plan to participants designated by the Compensation Committee in order to maintain their retirement benefits at the levels provided under the pension plan's formula.
ESTIMATED ANNUAL NORMAL RETIREMENT BENEFITS(1) -------------------------------------------------------------------------- YEARS OF SERVICE AT NORMAL RETIREMENT(2) COMPENSATION(3) 10 15 20 25 30 35 40 --------------- -------- -------- -------- -------- -------- -------- -------- $ 250,000........... $ 41,250 $ 61,875 $ 82,500 $103,125 $123,750 $133,125 $142,500 500,000........... 82,500 123,750 165,000 206,250 247,500 266,250 285,000 750,000........... 123,750 185,625 247,500 309,375 371,250 399,375 427,500 1,000,000........... 165,000 247,500 330,000 412,500 495,000 532,500 570,000 1,250,000........... 206,250 309,375 412,500 515,625 618,750 665,625 712,500
- --------------- (1) Amounts shown exceed actual amounts by .65% of Social Security covered compensation for each year of service up to 30 years. (2) Years of service as of December 31, 1997 for the five most highly compensated Executive Officers were as follows: Mr. Farrell, 32.5 years; Mr. Ptak, 22.1 years; Mr. Seager, 17.6 years; Mr. Flaum, 11.0 years; and Mr. Speer, 19.5 years. (3) Compensation includes all amounts shown under the columns "Salary" and "Bonus" in the Summary Compensation Table. Under the Company's 1982 Executive Contributory Retirement Income Plan, annual benefits payable beginning at the normal retirement age of 65 for 15 years are as follows: Mr. Farrell, $113,529 and Mr. Seager, $68,266. EX-23 8 CONSENT OF ARTHUR ANDERSON LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated January 27, 1998 included in this Form 10-K into the Company's previously filed registration statements on Form S-8 (File No.'s 333-22035 and 333-17473), Form S-4 (File No.'s 33-60013 and 33-302671) and Form S-3 (File No. 33-5780). ARTHUR ANDERSEN LLP Chicago, Illinois March 31, 1998 EX-24 9 POWERS OF ATTORNEY 1 EXHIBIT 24 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ MICHAEL J. BIRCK -------------------------------------- (signature) Michael J. Birck -------------------------------------- (printed name) 2 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ MARVIN D. BRAILSFORD -------------------------------------- (signature) Marvin D. Brailsford -------------------------------------- (printed name) 3 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ SUSAN CROWN -------------------------------------- (signature) Susan Crown -------------------------------------- (printed name) 4 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ H. RICHARD CROWTHER -------------------------------------- (signature) H. Richard Crowther -------------------------------------- (printed name) 5 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ W. JAMES FARRELL -------------------------------------- (signature) W. James Farrell -------------------------------------- (printed name) 6 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ L. RICHARD FLURY -------------------------------------- (signature) L. Richard Flury -------------------------------------- (printed name) 7 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ ROBERT C. MCCORMACK -------------------------------------- (signature) Robert C. McCormack -------------------------------------- (printed name) 8 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ PHILLIP B. ROONEY -------------------------------------- (signature) Phillip B. Rooney -------------------------------------- (printed name) 9 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ HAROLD B. SMITH -------------------------------------- (signature) Harold B. Smith -------------------------------------- (printed name) 10 ILLINOIS TOOL WORKS INC. FORM 10-K ANNUAL REPORT ------------------------ POWER OF ATTORNEY ------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature appears below constitutes and appoints W. James Farrell, Harold B. Smith, and Stewart S. Hudnut, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign the Company's Form 10-K Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 20th day of February 1998. /s/ ORMAND J. WADE -------------------------------------- (signature) Ormand J. Wade -------------------------------------- (printed name) EX-27 10 FINANCIAL DATA SCHEDULE
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 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 185,856 0 922,822 20,800 522,996 1,858,642 2,117,391 1,233,333 5,394,756 1,157,880 854,328 0 0 2,499 2,803,955 5,394,756 5,220,433 5,220,433 3,378,794 3,378,794 44,148 6,268 19,383 924,351 337,400 586,951 0 0 0 586,951 2.35 2.33
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