-----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, Bef3m43OZqn/EKRSJuHsnEnKV9hPNmTt2PsLu1QhC7Xfp/IoGQ2ZHFb67y4Qerjt Y4IKKLV0nJW/xVIlCbNoBA== 0000950137-97-001181.txt : 19970328 0000950137-97-001181.hdr.sgml : 19970328 ACCESSION NUMBER: 0000950137-97-001181 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS TOOL WORKS INC CENTRAL INDEX KEY: 0000049826 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 361258310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04797 FILM NUMBER: 97565017 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 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 11, 1997, was approximately $8,000,000,000. Shares of Common Stock outstanding at March 11, 1997 -- 124,531,549. --------------- DOCUMENTS INCORPORATED BY REFERENCE 1996 Annual Report to Stockholders...............................Parts I, II, IV Proxy Statement dated March 25, 1997, for Annual Meeting of Stockholders to be held on May 9, 1997.............................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 plastic and metal components, fasteners and assemblies; industrial fluids and adhesives; fastening tools; and welding products. Industrial Systems and Consumables' products include longer lead-time systems and related consumables for consumer and industrial packaging; marking, labeling and identification systems; industrial spray coating equipment and systems; and quality assurance equipment and systems. Leasing and Investments' activities consist of making opportunistic investments that optimally utilize the Company's cash flow and provide high returns. 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. 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. 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. 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 are expected to be sold, which have not been consolidated. 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, 1996, the Company acquired and disposed of numerous other operations which did not materially impact consolidated results. CURRENT YEAR DEVELOPMENTS Refer to pages 20 through 23, Management's Discussion and Analysis, in the Company's 1996 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 ---------- ----------- ----------- 1996................................................ 55% 44% 1% 1995................................................ 50% 49% 1% 1994................................................ 53% 47% --
Segment and geographic data are included on pages 20 through 22 and 38 of the Company's 1996 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 ---------- ----------- Construction................................................ 30% 7% Automotive.................................................. 29% 9% General Industrial.......................................... 18% 27% Food and Beverage........................................... 1% 21% Industrial Capital Goods.................................... 4% 11% Consumer Durables........................................... 7% 4% Paper Products.............................................. -- 9% Electronics................................................. 7% 2% Other....................................................... 4% 10% --- --- 100% 100% === ===
Operating results of the segments are described on pages 20 through 22 and 38 of the Company's 1996 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, 1996 and 1995 is summarized as follows:
BACKLOG IN THOUSANDS OF DOLLARS ----------------------------------- INDUSTRIAL ENGINEERED SYSTEMS AND COMPONENTS CONSUMABLES TOTAL ---------- ----------- -------- 1996.................................................. $272,000 $187,000 $459,000 1995.................................................. $236,000 $213,000 $449,000
Backlog orders scheduled for shipment beyond calendar year 1997 were not material in either industry segment as of December 31, 1996. The following information 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 2 4 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 determined in accordance with generally accepted accounting principles are set forth on page 27 of the Company's 1996 Annual Report to Stockholders. The Company owns approximately 1,700 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 355 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 licenses some of its patents to other companies, from which the Company collects royalties. 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, Signode, Apex, Buildex, Deltar, Devcon, DeVilbiss, Fastex, Hi-Cone, Hobart, Keps, Magnaflux, Miller, Minigrip, Newtec, Oxo, Paktron, Paslode, Powcon, Ramset, Ransburg, Red Head, Shakeproof, Teks, Tenax and ZipPak. ENVIRONMENTAL COMPLIANCE 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 affect materially the Company's capital expenditures, competitive position, financial position or results of operations. 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. 3 5 EMPLOYEES The Company employed approximately 24,400 persons as of December 31, 1996 and considers its employee relations to be excellent. INTERNATIONAL The Company's international operations include subsidiaries, joint ventures and licensees in 33 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% and 38% of operating revenues in 1996 and 1995, respectively. Refer to pages 20 through 23 in the Company's 1996 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. EXECUTIVE OFFICERS Executive Officers of the Company as of March 11, 1997:
NAME OFFICE AGE ---- ------ --- Thomas W. Buckman......................... Vice President, Patents and Technology 59 W. James Farrell.......................... Chairman and Chief Executive Officer 54 Russell M. Flaum.......................... Executive Vice President 46 Michael W. Gregg.......................... Senior Vice President and Controller, Accounting 61 Stewart S. Hudnut......................... Senior Vice President, General Counsel and Secretary 57 John Karpan............................... Senior Vice President, Human Resources 56 Jon C. Kinney............................. Senior Vice President and Controller, Operations 54 Dennis J. Martin.......................... Executive Vice President 46 Frank S. Ptak............................. Vice Chairman 53 F. Ronald Seager.......................... Executive Vice President 56 Harold B. Smith........................... Chairman of the Executive Committee 63 David B. Speer............................ Executive Vice President 45 Donald L. VanErden........................ Vice President, Research and Advanced Development 61 Hugh J. Zentmeyer......................... Executive Vice President 50
Except for Messrs. Kinney, Martin, Speer, 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. Kinney joined the Company in 1973 and has served as Vice President and Controller, Operations, and Group Controller of the Company's automotive, construction, finishing systems and quality measurement groups. Mr. Martin joined the Company in 1991 and has served as a general manager in the construction products group and has most recently served as President and Chief Operating Officer of the welding products group. Mr. Speer joined the Company in 1978 and has held various sales, marketing and general management positions within the construction products group, most recently having served as Group Vice President of the worldwide construction products group. Mr. Zentmeyer joined the Company as part of Signode Corporation in 1968 and has most recently served as President of the specialty industrial packaging businesses. 4 6 ITEM 2. PROPERTIES As of December 31, 1996 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........................... 90 4.7 1.6 6.3 Industrial Systems and Consumables.............. 94 3.0 1.7 4.7 Leasing and Investments......................... 18 .7 .2 .9 --- ---- --- ---- 202 8.4 3.5 11.9 --- ---- --- ---- International -- Engineered Components........................... 67 1.5 .7 2.2 Industrial Systems and Consumables.............. 64 2.7 .9 3.6 --- ---- --- ---- 131 4.2 1.6 5.8 --- ---- --- ---- Corporate......................................... 8 1.1 -- 1.1 --- ---- --- ---- 341 13.7 5.1 18.8 === ==== === ====
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. 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 1996 Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA This information is incorporated by reference to pages 40 and 41 of the Company's 1996 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 20 through 23 of the Company's 1996 Annual Report to Stockholders. 5 7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and report thereon of Arthur Andersen LLP dated January 28, 1997, together with other supplementary data, as found on pages 24 through 39 of the Company's 1996 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 1997 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 1997 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 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 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 28, 1997 as found on pages 24 through 39 of the Company's 1996 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 comments thereto as presented in the Company's 1996 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. 6 8 (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, 1996, 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, 1996. 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 1996 Annual Report to Stockholders, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 28, 1997. 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 audits 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 28, 1997 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 21st day of March 1997. 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 21st day of March 1997.
SIGNATURES TITLE ---------- ----- /s/ MICHAEL W. GREGG Senior Vice President and Controller, - -------------------------------------------------- Accounting (Principal Accounting and Financial Officer) Michael W. Gregg JULIUS W. BECTON, JR. Director MICHAEL J. BIRCK Director MARVIN D. BRAILSFORD Director SUSAN CROWN Director H. RICHARD CROWTHER Director W. JAMES FARRELL Director L. RICHARD FLURY Director RICHARD M. JONES Director GEORGE D. KENNEDY Director RICHARD H. LEET 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, 1994, 1995, AND 1996
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, 1994: Allowances for uncollectible accounts............. $18,000 $7,191 $1,234 $ (6,983) $(131) $ 289 $19,600 Year Ended December 31, 1995: Allowances 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
- --------------- (1) Primarily represents effect of foreign currency translation. 10 12 EXHIBIT INDEX ANNUAL REPORT ON FORM 10-K 1996
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3(a) -- Restated Certificate of Incorporation of Illinois Tool Works Inc., as amended, filed as Exhibit 4(a) to the Company's Registration Statement on Form S-8 (Registration No. 33-53517) filed with the Securities and Exchange Commission on May 6, 1994 and incorporated herein by reference. 3(b) -- By-laws of Illinois Tool Works Inc., as amended, filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-17473) filed with the Securities and Exchange Commission on December 9, 1996, 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, filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-22035) filed with the Securities and Exchange Commission on February 19, 1997, and incorporated herein by reference. 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.
11 13
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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. 10(g) -- Directors' deferred fee plan, 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 1997 Annual Meeting of Stockholders. 10(h) -- 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(i) -- 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(j) -- 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(k) -- 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(l) -- 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(m) -- 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 1996 Annual Report to Stockholders, pages 20 -- 41. 21 -- Significant Subsidiaries of the Company. 22 -- Information under the captions "Election of Directors," "Executive Compensation" and "Security Ownership" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders. 23 -- Consent of Arthur Andersen LLP. 24 -- Powers of Attorney. 27 -- Financial Data Schedule.
12 EX-10.(G) 2 DIRECTOR'S COMPENSATION 1 EXHIBIT 10(g) Directors' Compensation Compensation for non-employee 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 stock. In January 1995 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 joined the Board since January 3, 1995 received on the first business day of January following election a grant of 300 shares for each full year of service remaining until January 1998. 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. (At the time of the adoption of the plan in 1995, certain long-term directors with short remaining service periods until retirement received a greater number of units.) 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-13 3 1996 ANNUAL REPORT 1 EXHIBIT 13 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 plastic and metal components, fasteners and assemblies; industrial fluids and adhesives; fastening tools; and welding products. This segment primarily serves the construction, automotive and general industrial markets. Dollars in millions
Operating Revenues 1996 1995 1994 - ---------------------------------------------------------------------- Domestic $1,841 $1,356 $1,204 International 903 751 624 ------ ------ ------ Total $2,744 $2,107 $1,828 ====== ====== ======
Operating 1996 1995 1994 Income Income Margin Income Margin Income Margin - ---------------------------------------------------------------------- Domestic $294 16.0% $226 16.7% $189 15.7% International 115 12.7 97 12.9 77 12.3 ---- ---- ---- Total $409 14.9 $323 15.3 $266 14.6 ==== ==== ====
Domestic Acquisitions (primarily Hobart Brothers and Medalist Industries) contributed approximately 75% to the increase in domestic revenues in 1996 versus 1995. The automotive and industrial components businesses also contributed to the revenue and operating income growth as a result of new products supported by healthy U.S. car and appliance markets. Construction businesses also contributed to the revenue and operating income growth due to increased market share in residential and commercial construction markets and increased penetration in the hardware and home center distribution channels. Lower margins at Hobart and Medalist more than offset the margin increases in the automotive and industrial components and construction businesses. In 1995, successful penetration in the automotive markets with fasteners and components largely contributed to the increase in domestic revenues compared with 1994. The welding products businesses also contributed to the revenue growth due to new product introductions and a stronger U.S. economy. Increased distribution efficiencies, continued penetration with new products and steady commercial construction markets throughout the year led to increased revenues for the construction businesses. Operating income and margins were up due to a reduction of manufacturing costs and revenue growth in the construction and automotive businesses. International Substantially all of the revenue and operating income increase in 1996 versus 1995 was due to acquisitions, primarily in the European automotive and appliance industries. Weak European construction markets caused revenues and operating income to decline in the construction businesses which moderated the revenue and operating income growth from acquisitions and from the core automotive businesses. Margins were down due to the decline in revenues for construction operations, the lower prices and unit volume in the French automotive markets and the weak European appliance market. Foreign currency fluctuations in 1996 versus 1995 had a minimal effect on revenue and earnings. Seventy-six percent of international revenues are from European operations. Strong performances in the European automotive markets in 1995 versus 1994 resulted in increased international revenues and operating income. Revenue declines in the construction businesses as a result of soft Australian and German markets moderated international revenue growth. Operating income and margins increased as a result of revenue gains in the European automotive businesses. These gains were partially offset by lower operating income in the international construction businesses. Foreign currency fluctuations in 1995 versus 1994 increased revenues by $51 million and operating income by $8 million. Industrial Systems and Consumables Segment Businesses in this segment manufacture longer lead-time systems and related consumables for consumer and industrial packaging; marking, labeling and identification systems; industrial spray coating equipment and systems; and quality assurance equipment and systems. The largest markets served by this segment are food and beverage, general industrial, and industrial capital goods. Dollars in millions
Operating Revenues 1996 1995 1994 - ---------------------------------------------------------------- Domestic $1,277 $1,217 $1,025 International 908 828 608 ------ ------ ------ Total $2,185 $2,045 $1,633 ====== ====== ======
Operating 1996 1995 1994 Income Income Margin Income Margin Income Margin - ---------------------------------------------------------------------- Domestic $261 20.4% $222 18.2% $161 15.7% International 106 11.7 82 9.9 48 7.9 ---- ---- ---- Total $367 16.8 $304 14.9 $209 12.8 ==== ==== ====
PAGE 20 2 Domestic The finishing systems operations, which benefited from new customers, and the specialty packaging businesses, which had steady demand from general industrial markets, were the major contributors to revenue growth in 1996 compared with 1995. Approximately 42% of the increase in revenues was attributed to acquisitions. Operating income grew at Signode, specialty packaging and quality measurement operations as a result of shorter lead-times for equipment and improved manufacturing efficiencies. Margins increased due to cost reductions and lower raw material costs in most of the operations. Stronger demand in 1995 for industrial packaging products and increased market penetration in the beverage markets for the consumer packaging businesses resulted in an increase in domestic revenues and operating income compared with 1994. Approximately 50% of the increase in domestic revenues was attributed to 1995 acquisitions, primarily in the consumer packaging and finishing systems groups. New products for finishing systems operations resulted in higher revenues but lower margins as a result of product mix. The industrial packaging businesses' margins increased due to process improvements and new product introductions. International In 1996, revenues increased by $126 million compared with 1995 due to acquisitions, primarily in the Signode and specialty packaging operations. Soft European construction, steel and general industrial markets resulted in lower demand for Signode products, which moderated the revenue growth. Despite weak demand in the European packaging and general industrial markets, revenues increased in the specialty packaging and finishing systems businesses due to increased demand and new customers, respectively. Operating income increased in 1996 primarily due to lower nonrecurring costs of $10 million and acquisitions. Margins increased in 1996 mainly due to the lower nonrecurring costs. Foreign currency translation decreased revenues by $23 million and operating income by $2 million in 1996 versus 1995. Seventy-six percent of international revenues are from European operations. In 1995, the international industrial packaging businesses led the revenue and operating income growth followed by the consumer packaging operations. Acquisitions accounted for approximately 40% of the revenue growth, mainly in the industrial packaging businesses. The finishing systems businesses showed growth as well due to market share gains in the European automotive and general industrial markets and increased revenue in the Japanese market. Margins increased due to new product introductions and cost reductions for the industrial packaging businesses and European finishing systems operations. Foreign currencies also increased revenues by $65 million and operating income by $8 million. LEASING AND INVESTMENTS SEGMENT The Company has historically had strong cash flows from its manufacturing operations. Although most of this cash has been reinvested in the manufacturing businesses, both through investments in capital equipment and through acquisitions, some of the excess cash has traditionally been used to make financial investments. These investments primarily include leveraged and direct financing leases of equipment, mortgage-related investments, investments in properties and property developments, and affordable housing investments. In 1996, due to the increased significance of these investments, the Company's leasing and investments business began reporting as a separate segment. Accordingly, certain reclassifications of amounts in the 1995 statement of income have been made. Dollars in millions
Operating Revenues 1996 1995 - -------------------------------------------- Domestic $68 $26
Operating Income 1996 1995 - -------------------------------------------- Domestic $25 $19
Revenues and operating income increased in 1996 primarily due to the commercial mortgage transaction entered into at year-end 1995. Operating income in 1995 included a nonrecurring gain on the sale of equipment under leveraged lease of $4.1 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 both transactions are located throughout the U.S. and include 32 subperforming, variable rate, balloon loans and six foreclosed properties at December 31, 1996. 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 $18 million 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 $18 million a year, the Company has a collateral right against the cash flow generated by two separate pools of mortgage-related assets (owned by third parties in which the Company have minimal interests) which have a total fair value of approximately $1.689 billion at December 31, 1996. 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. PAGE 21 3 The Company expects to recover its net investment in the mortgage-related assets and net swap receivables of $211.7 million at December 31, 1996 (net of the related nonrecourse notes payable) through its expected net cash flow of $18 million per year for the remainder of the ten-year periods and its estimated share of the proceeds from disposition of the mortgage-related assets and principal repayments of an additional $239.9 million. The Company believes that because the swap counterparty is Aaa-rated and that significant collateral secures the net annual cash flow of $18.0 million, its risk of not recovering that portion of its net investment has been significantly mitigated. The Company currently believes that 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, 1996 and 1995 are summarized as follows:
In thousands 1996 1995 - ---------------------------------------------------------------------- Assets: Investments - Mortgage-related assets $ 731,577 $383,815 Leases 83,432 89,441 Properties and affordable housing 50,462 28,270 Other 7,221 3,294 Deferred tax assets 281,307 95,574 Other assets 3,052 4,077 ---------- -------- 1,157,051 604,471 ---------- -------- Liabilities: Debt - Nonrecourse notes payable 519,890 256,000 Allocated general corporate debt 248,421 171,995 Deferred investment income 269,595 105,949 Preferred stock of subsidiary 40,000 20,000 Other liabilities 16,464 2,216 --------- -------- 1,094,370 556,160 --------- -------- Net assets $ 62,681 $ 48,311 ========= ========
Cost of Revenues Cost of Revenues as a percentage of revenues was 65.7% in 1996 compared with 65.2% in 1995 and 66.2% in 1994. The increase in 1996 versus 1995 was mainly due to lower gross margins for acquired companies, while the decrease in 1995 versus 1994 was due to increased sales volume coupled with lower manufacturing costs. Selling, Administrative and R&D Expenses Selling, administrative, and research and development expenses were 17.5% of revenues in 1996 versus 18.6% in 1995 and 19.3% in 1994. This ratio continues to decline because of expense reductions as a result of a Company-wide objective to reduce administrative costs. Interest Expense Interest expense decreased to $27.8 million in 1996 versus $30 million in 1995 as a result of lower interest rates related to commercial paper and foreign borrowings. Interest expense increased slightly in 1995, from $26.9 million in 1994, primarily due to debt assumed from acquisitions. Interest costs of $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 (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. Other income increased in 1995 from $1.9 million in 1994 mainly as a result of higher interest income. Income Taxes The effective tax rate was 36.9% in 1996, 37.9% in 1995, and 38.3% in 1994. 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 $423.6 million at December 31, 1996 and $198.9 million at December 31, 1995, as it expects to continue to generate significant taxable income in future years. Net Income Net income in 1996 of $486.3 million ($3.93 per share) was 25.5% higher than the 1995 net income of $387.6 million ($3.29 per share). Net income for 1995 was 39.5% higher than 1994 net income of $277.8 million ($2.45 per share). Foreign Currency Foreign currency fluctuations had no material impact on revenues or earnings in 1996 versus 1995. 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 share of approximately 10 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 1996, 1995, or 1994. PAGE 22 4 Financial Position Net working capital at December 31, 1996 and 1995 is summarized as follows:
Dollars Increase in thousands 1996 1995 (Decrease) - ------------------------------------------------------------------------------ Current Assets: Cash and equivalents $ 137,699 $ 116,600 $ 21,099 Trade receivables 840,092 741,327 98,765 Inventories 526,016 518,964 7,052 Other 197,285 155,599 41,686 ---------- ---------- --------- 1,701,092 1,532,490 168,602 ---------- ---------- --------- Current Liabilities: Short-term debt 390,425 176,188 214,237 Accounts payable and accrued expenses 760,989 613,199 147,790 Other 67,911 61,545 6,366 ---------- ---------- --------- 1,219,325 850,932 368,393 ---------- ---------- --------- Net Working Capital $ 481,767 $ 681,558 $(199,791) ========== ========== ========= Current Ratio 1.40 1.80 ==== ====
The increase in trade receivables at December 31, 1996 was primarily due to 1996 acquisitions. Short-term debt increased at December 31, 1996, primarily due to borrowings under an Australian cash advance facility which were used to fund the acquisition of Azon Limited. Accounts payable and accrued expenses increased at December 31, 1996 versus year-end 1995 mainly due to 1996 acquisitions. Long-term debt at December 31, 1996 consisted of $125 million of 7.5% notes,$125 million of 5.875% notes, a $254 million nonrecourse 6.28% note, a $266 million 7.00% nonrecourse note and $80 million of capitalized lease obligations and other debt. Long-term debt increased $203 million from December 31, 1995, principally as a result of the issuance of the 7.00% note. Excluding the effect of the Leasing and Investments Segment, the percentage of total debt to total capitalization decreased to 15.9% at December 31, 1996 from 16.2% at December 31, 1995. Stockholders' equity was $2.396 billion at December 31, 1996 compared with $1.924 billion at December 31, 1995. Affecting equity were earnings of $486 million, dividends declared of $89 million, the effect of pooling of interests acquisitions of $60 million and favorable currency translation adjustments of $7 million. The Statement of Cash Flows for the years ended December 31, 1996 and 1995 is summarized below:
Dollars in thousands 1996 1995 - ------------------------------------------------------ Net income $486,315 $ 387,608 Depreciation and amortization 178,233 151,931 Acquisitions (343,595) (212,426) Additions to plant and equipment (168,657) (150,176) Cash dividends paid (85,481) (71,783) Net proceeds (repayments) of debt (14,833) 136,087 Purchase of investments (104,159) (126,300) Other, net 73,276 (75,208) -------- --------- Net increase in cash and equivalents $21,099 $ 39,733 ======== =========
Net cash provided by operating activities of $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. Net cash generated by operations in 1995 of $435 million was used mainly for repayment of commercial paper borrowings, for additions to plant and equipment and for cash dividends. Commercial paper borrowings in 1995 were primarily used to make investments and acquisitions. Dividends paid per share increased 13% to $.70 per share in 1996 from $.62 per share in 1995. 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, 1996 or 1995. On February 14, 1997, the Board of Directors approved a two-for-one split of the Company's common stock, subject to approval at the Annual Meeting of Stockholders of an increase in the number of authorized common shares to 350,000,000 and a change to a common stock par value of $.01 per share. On May 27, 1997, an additional share for each common share held by stockholders of record on May 20, 1997, will be distributed. PAGE 23 5 FINANCIAL STATEMENTS Statement of Income Illinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31 -------------------------------------- In thousands except for per share amounts 1996 1995 1994 - ------------------------------------------------------------------------------ Operating Revenues $4,996,681 $4,178,080 $3,461,315 Cost of revenues 3,281,530 2,723,988 2,290,117 Selling, administrative, and research and development expenses 875,386 776,112 666,576 Amortization of goodwill and other intangible assets 31,873 25,031 22,344 Amortization of retiree health care 7,306 6,968 6,968 ---------- ---------- ---------- Operating Income 800,586 645,981 475,310 Interest expense (27,834) (29,991) (26,943) Other income (expense) (2,437) 7,718 1,916 ---------- ---------- --------- Income Before Income Taxes 770,315 623,708 450,283 Income taxes 284,000 236,100 172,500 ---------- ---------- --------- Net Income $ 486,315 $ 387,608 $ 277,783 ========== ========== ========= Net Income Per Share of Common Stock $3.93 $3.29 $2.45 ===== ===== ===== - ------------------------------------------------------------------------------
Statement of Income Reinvested in the Business Illinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31 -------------------------------------- In thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Balance, Beginning of Year $1,673,320 $1,344,172 $1,129,435 Net income 486,315 387,608 277,783 Cash dividends declared (88,920) (74,789) (63,546) Effect of pooling of interests acquisitions 34,429 16,329 500 ---------- ---------- ---------- Balance, End of Year $2,105,144 $1,673,320 $1,344,172 ========== ========== ========== - ------------------------------------------------------------------------------
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois January 28, 1997 PAGE 24 6 Statement of Financial Position Illinois Tool Works Inc. and Subsidiaries
December 31 ------------------------ In thousands except shares 1996 1995 - ------------------------------------------------------------------------------ Assets Current Assets: Cash and equivalents $ 137,699 $ 116,600 Trade receivables 840,092 741,327 Inventories 526,016 518,964 Deferred income taxes 131,404 80,005 Prepaid expenses and other current assets 65,881 75,594 ---------- ---------- Total current assets 1,701,092 1,532,490 ---------- ---------- Plant and Equipment: Land 68,362 60,486 Buildings and improvements 429,686 375,352 Machinery and equipment 1,282,274 1,076,950 Equipment leased to others 109,030 75,175 Construction in progress 51,744 32,621 ---------- ---------- 1,941,096 1,620,584 Accumulated depreciation (1,132,756) (925,643) ---------- ---------- Net plant and equipment 808,340 694,941 Investments 872,692 504,820 Goodwill 711,228 518,747 Deferred Income Taxes 292,152 118,913 Other Assets 420,658 221,407 ---------- ---------- $4,806,162 $3,591,318 ========== ========== Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 390,425 $ 176,188 Accounts payable 248,062 221,497 Accrued expenses 512,927 391,702 Cash dividends payable 23,538 20,100 Income taxes payable 44,373 41,445 ---------- ---------- Total current liabilities 1,219,325 850,932 Noncurrent Liabilities: ---------- ---------- Long-term debt 818,947 615,557 Other 371,865 200,592 ---------- ---------- Total noncurrent liabilities 1,190,812 816,149 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock: Issued- 124,020,123 shares in 1996 and 118,369,029 shares in 1995 273,864 239,688 Income reinvested in the business 2,105,144 1,673,320 Common stock held in treasury (1,841) (1,866) Cumulative translation adjustment 18,858 13,095 ---------- ---------- Total stockholders' equity 2,396,025 1,924,237 ---------- ---------- $4,806,162 $3,591,318 ========== ==========
The Notes to Financial Statements are an integral part of this statement. PAGE 25 7 Statement of Cash Flows Illinois Tool Works Inc. and Subsidiaries
For the Years Ended December 31 ------------------------------------------ In thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Cash Provided by (Used for) Operating Activities: Net income $486,315 $387,608 $ 277,783 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 178,233 151,931 132,149 Change in deferred income taxes (12,627) (23,870) (31,686) Provision for uncollectible accounts 4,451 6,889 7,191 (Gain) loss on sale of plant and equipment 536 2,539 (261) Income from investments (53,623) (20,981) -- (Gain) loss on sale of operations and affiliates 2,076 (692) (379) Other non-cash items, net (165) 11,735 10,117 -------- -------- --------- Cash provided by operating activities 605,196 515,159 394,914 Change in assets and liabilities: (Increase) decrease in- Trade receivables (11,461) (27,869) (81,180) Inventories 58,935 (22,830) (8,053) Prepaid expenses and other assets (30,428) (11,636) 9,515 Increase (decrease) in- Accounts payable (22,396) (20,020) 11,718 Accrued expenses 22,326 2,061 45,839 Income taxes payable 8,863 (11,764) 10,424 Other, net (1,608) 11,451 4,280 -------- -------- --------- Net cash provided by operating activities 629,427 434,552 387,457 -------- -------- --------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates (343,595) (212,426) (43,365) Additions to plant and equipment (168,657) (150,176) (131,055) Purchase of investments (104,159) (126,300) -- Proceeds from investments 50,049 36,926 -- Proceeds from sale of plant and equipment 20,836 13,500 17,344 Proceeds from sale of operations and affiliates 24,660 4,650 15,721 Other, net (521) 11,996 (818) -------- -------- --------- Net cash used for investing activities (521,387) (421,830) (142,173) -------- --------- --------- Cash Provided by (Used for) Financing Activities: Cash dividends paid (85,481) (71,783) (61,162) Issuance of common stock 5,514 7,598 3,216 Net proceeds (repayments) of short-term debt 74,362 137,134 (149,103) Proceeds from long-term debt 9,776 1,152 1,885 Repayments of long-term debt (98,971) (2,199) (4,949) Redemption of preferred stock of subsidiary -- (40,000) -- Other, net 2,940 (7,919) -- -------- --------- --------- Net cash provided by (used for) financing activities (91,860) 23,983 (210,113) -------- -------- --------- Effect of Exchange Rate Changes on Cash and Equivalents 4,919 3,028 6,301 -------- -------- --------- Cash and Equivalents: Increase during the year 21,099 39,733 41,472 Beginning of year 116,600 76,867 35,395 -------- -------- --------- End of year $137,699 $116,600 $ 76,867 ======== ======== ========= Cash Paid During the Year for Interest $ 45,394 $ 31,595 $ 27,257 ======== ======== ========= Cash Paid During the Year for Income Taxes $262,685 $264,683 $194,460 ======== ======== ========= Liabilities Assumed from Acquisitions $306,677 $185,705 $ 28,438 ======== ======== =========
See the Investments note for information regarding noncash transactions. The Notes to Financial Statements are an integral part of this statement. PAGE 26 8 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. - ------------------------------------------------------------------------------- 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 are expected to be sold, which have not been consolidated. 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 1996, 1995 and 1994, 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 $55,800,000 in 1996, $52,700,000 in 1995, and $48,700,000 in 1994. - ------------------------------------------------------------------------------- Rental Expense was $41,740,000 in 1996, $36,120,000 in 1995, and $29,720,000 in 1994. Future minimum lease payments for the years ended December 31 are as follows:
In thousands - ----------------------------------------------------------------------------- 1997 $ 29,585 1998 22,170 1999 16,191 2000 12,839 2001 10,069 2002 and future years 22,634 -------- $113,488 ========
- ------------------------------------------------------------------------------ Other Income (Expense) consisted of the following:
In thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Interest income $ 9,732 $ 8,177 $5,586 Gain (loss) on sale of operations and affiliates (2,076) 692 379 Gain (loss) on sale of plant and equipment (536) (2,539) 261 Gain (loss) on foreign currency translation (3,198) 2,375 (3,935) Debt prepayment costs (2,721) -- -- Other, net (3,638) (987) (375) ------- ------ ------- $(2,437) $ 7,718 $1,916 ======= ======= =======
PAGE 27 9 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 1996 1995 1994 - ------------------------------------------------------------------------------ U.S. Federal income taxes: Current $162,454 $156,166 $120,606 Deferred (9,526) 306 (4,475) -------- -------- -------- 152,928 156,472 116,131 Foreign income taxes: -------- -------- -------- Current 80,422 61,864 40,290 Deferred 16,850 (8,488) (5,314) -------- -------- -------- 97,272 53,376 34,976 -------- -------- -------- State income taxes: Current 32,165 27,448 24,349 Deferred 1,635 (1,196) (2,956) -------- -------- -------- 33,800 26,252 21,393 -------- -------- -------- $284,000 $236,100 $172,500 ======== ======== ========
Income before income taxes for domestic and foreign operations was as follows:
In thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Domestic $522,770 $449,508 $318,368 Foreign 247,545 174,200 131,915 -------- -------- -------- $770,315 $623,708 $450,283 ======== ======== ========
The reconciliation between the U.S. federal statutory tax rate and the effective tax rate was as follows:
1996 1995 1994 - ------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of U.S. federal tax benefit 2.9 2.7 3.1 Amortization of nondeductible goodwill .9 .8 .8 Differences between U.S. federal statutory and foreign tax rates .6 .6 (.4) Other, net (2.5) (1.2) (.2) ---- ---- ---- Effective tax rate 36.9% 37.9% 38.3% ==== ==== ====
Deferred U.S. federal income taxes and foreign withholding taxes have not been provided on approximately $643,100,000 of undistributed earnings of international affiliates as of December 31, 1996. 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. PAGE 28 10 The components of deferred income tax assets and liabilities at December 31, 1996 and 1995 were as follows:
In thousands 1996 1995 - ------------------------------------------------------------------------------ Asset Liability Asset Liability -------- --------- -------- --------- Acquisition asset basis differences $ 29,625 $ (14,289) $ 26,900 $ (22,217) Inventory reserves, capitalized tax cost and LIFO inventory 24,713 (11,011) 18,627 (9,029) Investments 324,033 (42,726) 140,918 (45,344) Plant and equipment 3,940 (46,795) 4,124 (33,493) Accrued expenses and reserves 57,784 -- 42,812 -- Employee benefit accruals 52,529 -- 38,978 -- Net operating loss carryforwards 51,797 -- 52,878 -- Allowances for uncollectible accounts 5,434 -- 4,460 -- Prepaid pension assets -- (19,849) -- (11,808) Other 28,870 (16,334) 14,046 (18,743) -------- --------- -------- -------- Gross deferred income tax assets (liabilities) 578,725 (151,004) 343,743 (140,634) Valuation allowances (4,165) -- (4,191) -- -------- --------- -------- --------- Total deferred income tax assets (liabilities) $574,560 $(151,004) $339,552 $(140,634) ======== ========= ======== ========= Net deferred income tax assets $423,556 $198,918 ======== ========
No valuation allowance has been recorded on the net deferred income tax assets at December 31, 1996 and 1995 as the Company expects to continue to generate significant taxable income in future years. At December 31, 1996, the Company had net operating loss carryforwards of approximately $132,700,000 available to offset future taxable income in the U.S. and certain foreign jurisdictions which expire as follows:
In thousands - ------------------------------------------------------------------------------ 1997 $ 4,600 1998 700 1999 3,900 2000 5,700 2001 18,100 2002 400 2003 1,700 2004 1,700 2005 900 2006 2,200 2007 11,000 2008 4,300 2009 2,500 2010 4,200 Do not expire 70,800 -------- $132,700 ======== - -------------------------------------------------------------------------------
PAGE 29 11 Net Income Per Share of Common Stock is computed on the basis of the average number of shares of common stock outstanding. The dilutive effect of shares of common stock subject to issuance under stock option plans are excluded from the computation since the effect is not material. The average number of shares outstanding was 123,778,000, 117,989,000 and 113,387,000 for 1996, 1995 and 1994, respectively. - -------------------------------------------------------------------------------- Cash and Equivalents included interest-bearing deposits of $83,900,000 at December 31, 1996 and $40,021,000 at December 31, 1995. Interest-bearing deposits have maturities of 90 days or less and are stated at cost, which approximates market. - -------------------------------------------------------------------------------- - -Trade Receivables as of December 31, 1996 and 1995 were net of allowances for uncollectible accounts of $22,400,000 and $23,500,000, respectively. - -------------------------------------------------------------------------------- Inventories at December 31, 1996 and 1995 were as follows:
In thousands 1996 1995 - ----------------------------------------------------------------------------- Raw material $143,979 $140,302 Work-in-process 71,641 84,981 Finished goods 310,396 293,681 -------- -------- $526,016 $518,964 ======== ========
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 43% and 39% of total inventories as of December 31, 1996 and 1995, 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 $57,100,000 and $42,300,000 higher than reported at December 31, 1996 and 1995, 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. 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 Depreciation was $146,360,000 in 1996 compared with $126,900,000 in 1995 and $109,805,000 in 1994 and was reflected primarily in cost of revenues. Depreciation of plant and equipment for financial reporting purposes is computed principally on an accelerated basis. - -------------------------------------------------------------------------------- PAGE 30 12 Investments as of December 31, 1996 and 1995 consisted of the following:
In thousands 1996 1995 - ------------------------------------------------------------------------------ Properties held for sale $ 18,456 $ 18,715 Property developments 18,425 3,135 Commercial mortgage loans 457,015 280,473 Commercial real estate 86,919 8,219 Net swap receivables 171,330 67,308 Receivable from mortgage servicer 16,313 -- Mortgage-backed securities -- 27,815 U.S. treasury security 4,286 -- Leveraged, direct financing and sales-type leases of equipment 83,432 89,441 Affordable housing 13,581 6,420 Other 2,935 3,294 -------- -------- $872,692 $504,820 ======== ========
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 both transactions are located throughout the U.S. and include 32 subperforming, variable rate, balloon loans and six foreclosed properties at December 31, 1996. 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 $18,000,000 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 $18,000,000 a year, the Company has a collateral right against the cash flow generated by two separate pools of mortgage-related assets (owned by third parties in which the Company have minimal interests) which have a total fair value of approximately $1,688,823,000 at December 31, 1996. 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 $211,687,000 at December 31, 1996 (net of the related nonrecourse notes payable) through its expected net cash flow of $18,000,000 per year for the remainder of the ten-year periods and its estimated share of the proceeds from disposition of the mortgage-related assets and principal repayments of an additional $239,881,000. 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 of $27,815,000 at December 31, 1995 are recorded at fair value which approximates cost and 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, 1996, the impairment loss allowance was $4,803,000. The estimated fair value of the commercial mortgage loans, based on discounted future cash flows, approximates carrying value at December 31, 1996 and 1995. 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. 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, 1996 and 1995 were as shown below:
In thousands 1996 1995 - ------------------------------------------------------------------------------ Lease contracts receivable (net of principal and interest on nonrecourse financing) $92,874 $102,625 Estimated residual value of leased assets 25,601 25,601 Unearned and deferred income (35,043) (38,785) ------- -------- Investment in leveraged, direct financing and sales-type leases 83,432 89,441 Deferred income taxes related to leveraged and direct financing leases (37,980) (38,978) ------- -------- Net investment in leveraged, direct financing and sales-type leases $45,452 $ 50,463 ======= ========
In 1995, the Company had a gain on the sale of equipment previously covered under leveraged leases of $4,115,000. PAGE 31 13 - ------------------------------------------------------------------------------ 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. This policy is consistent with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. Amortization expense was $21,727,000 in 1996, $16,335,000 in 1995, and $14,031,000 in 1994. Accumulated goodwill amortization was $125,532,000 and $100,242,000, at December 31, 1996 and 1995, respectively. - ------------------------------------------------------------------------------ Other Assets as of December 31, 1996 and 1995 consisted of the following:
In thousands 1996 1995 - ------------------------------------------------------------------------------ Other intangible assets $136,774 $126,418 Accumulated amortization of other intangible assets (48,269) (59,727) Cash surrender value of life insurance policies 64,234 36,113 Investment in unconsolidated affiliates 34,217 30,849 Investment in businesses to be sold 123,305 -- Prepaid pension assets 54,115 32,994 Other 56,282 54,760 -------- -------- $420,658 $221,407 ======== ========
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 three to 17 years. Amortization expense was $10,146,000 in 1996, $8,696,000 in 1995, and $8,313,000 in 1994. The businesses acquired in the Azon acquisition in 1996 which are expected to be sold have not been consolidated and are recorded at estimated fair value at December 31, 1996. - ------------------------------------------------------------------------------ Short-Term Debt as of December 31, 1996 and 1995 consisted of the following:
In thousands 1996 1995 - --------------------------------------------------------------------- -------- Commercial paper $ 54,990 $ 93,728 Current maturities of long-term debt 30,549 7,949 Bank overdrafts 45,472 64,663 Australian cash advance facility 244,717 -- Other borrowings by foreign subsidiaries 14,697 9,848 -------- -------- $390,425 $176,188 ======== ========
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 was 6.41% at December 31, 1996 and 5.85% at December 31, 1995. The Company entered into an Australian cash advance facility in August 1996 to fund the Azon acquisition. The maximum available borrowings under the facility are Australian $325,000,000 or the U.S. dollar equivalent. The facility has a 364-day term and has an interest rate of 6.65% at December 31, 1996. The weighted average interest rate on other foreign borrowings was 4.4% at December 31, 1996 and 6.3% at December 31, 1995. - ------------------------------------------------------------------------------ PAGE 32 14 Retirement Plans - The Company sponsors defined contribution retirement plans covering the majority of domestic employees. The Company's contributions to these plans were $12,200,000 in 1996, $9,900,000 in 1995, and $8,400,000 in 1994. 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 Federal income tax laws, the Company's policy has been to contribute funds to the plans annually in amounts required to maintain sufficient plan assets to provide for accrued benefits. A contribution of $11,303,000 was made to the principal plan during 1996. No contributions to the principal plan were made in 1995 or 1994. Contributions to international and other domestic plans were minimal in 1996, 1995 and 1994. Domestic plan assets consist primarily of listed common stocks and debt securities. The components of net pension expense for the years ended December 31, 1996, 1995 and 1994 were as shown below:
In thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Service cost $ 24,373 $24,369 $ 21,622 Interest cost on projected benefit obligation 35,641 33,972 32,800 Actual return on plan assets (71,754) (99,364) (4,655) Net amortization and deferral 19,233 49,102 (38,278) -------- ------- -------- Net pension expense $ 7,493 $ 8,079 $ 11,489 ======== ======= ========
The following table sets forth the funded status and amounts recognized in the Company's Statement of Financial Position at December 31, 1996 and 1995:
1996 1995 -------------------- ------------------- In thousands Domestic Foreign Domestic Foreign - ------------------------------------------------------------------------------ Actuarial present value of benefit obligations: Vested $(323,331) $(86,844) $(269,601) $(72,237) Non-vested (62,057) (16,118) (54,992) (14,130) --------- -------- --------- -------- Accumulated benefit obligation (385,388) (102,962) (324,593) (86,367) Effect of projected wage increases (49,970) (16,751) (38,550) (15,332) --------- -------- --------- -------- Projected benefit obligation (435,358) (119,713) (363,143) (101,699) Plan assets at fair value 499,218 122,956 443,910 103,631 --------- -------- --------- -------- Plan assets in excess of projected benefit obligation 63,860 3,243 80,767 1,932 Unrecognized net gain (52,218) (13,653) (84,421) (6,379) Unrecognized prior service cost 31,038 -- 35,299 32 Unrecognized transition asset (15,501) (6,554) (20,389) (8,314) Adjustment to recognize minimum liability (5,873) (643) (3,448) (492) --------- -------- --------- -------- Prepaid (accrued) pension asset (liability) $ 21,306 $(17,607) $ 7,808 $(13,221) ========= ======== ========= ========
The significant actuarial assumptions at December 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994 - -------------------------------------------------------------------------------- Domestic plans: Discount rate 7.75% 7.75% 8.50% Expected long-term rate of return on plan assets 10.00% 10.00% 10.00% Rate of increase in future compensation levels 4.50% 4.00% 4.30% Foreign plans: Discount rate 4.00-9.00% 5.50-9.00% 5.50-9.00% Expected long-term rate of return on plan assets 5.50-9.00% 5.50-9.00% 5.50-9.00%
PAGE 33 15 - -------------------------------------------------------------------------------- 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 is charged to expense during the service lives of the employees. 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 APBO as of December 31, 1996 by approximately $15,863,000 and the sum of the 1996 annual service and interest cost by approximately $1,597,000. The costs of postretirement health care benefits for the years ended December 31, 1996, 1995 and 1994 were as shown below:
In thousands 1996 1995 1994 - ----------------------------------------------------------------------------- Service cost $ 2,253 $ 2,110 $ 2,187 Interest cost on accumulated postretirement benefit obligation 9,182 10,077 10,715 Net amortization and deferral 6,067 5,581 7,519 ------- ------- ------- Net postretirement benefit cost $17,502 $17,768 $20,421 ======= ======= =======
The following table sets forth the amounts recognized in the Company's Statement of Financial Position at December 31, 1996 and 1995:
In thousands 1996 1995 - ------------------------------------------------------------------------------ Accumulated postretirement benefit obligation: Retirees $ (86,467) $ (90,504) Active employees (35,614) (31,952) --------- --------- (122,081) (122,456) Unrecognized transition obligation 115,346 122,555 Unrecognized net gain (26,461) (27,284) --------- --------- Accrued postretirement benefit cost $ (33,196) $ (27,185) ========= =========
The significant actuarial assumptions at December 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994 - ------------------------------------------------------------------------------- Discount rate 7.75% 7.75% 8.50% Health care cost trend rate: Current rate 5.00% 7.00% 8.00% Ultimate rate in 1998 5.00% 5.00% 5.00%
PAGE 34 16 - ------------------------------------------------------------------------------ Accrued Expenses as of December 31, 1996 and 1995 consisted of accruals for:
In thousands 1996 1995 - ------------------------------------------------------------------------------ Compensation and employee benefits $237,476 $196,002 Taxes, other than income taxes 23,375 19,202 Customer deposits 29,816 24,966 Other 222,260 151,532 -------- -------- $512,927 $391,702 ======== ========
- ------------------------------------------------------------------------------ Long-Term Debt at December 31, 1996 and 1995 consisted of the following:
In thousands 1996 1995 - ------------------------------------------------------------------------------ 7.5% notes due December 1, 1998 125,000 $125,000 5.875% notes due March 1, 2000 125,000 125,000 6.28% nonrecourse note due semiannually through December 31, 2005 253,625 256,000 7.00% nonrecourse note due semiannually through November 30, 2006 266,265 -- Commercial paper -- 75,000 Other, including capitalized lease obligations 79,606 42,506 -------- -------- 849,496 623,506 Current maturities (30,549) (7,949) -------- -------- 818,947 $615,557 ======== ========
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 approximately $700,000 at December 31, 1996, and $6,000,000 at December 31, 1995. The Company issued a $256,000,000 6.28% nonrecourse note at face value in December 1995 and a $266,265,000 7.0% nonrecourse note at face value in December 1996. 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. In 1992, the Company entered into a $300,000,000 revolving credit facility (RCF) expiring on August 14, 1997. In August 1995, the Company entered into another RCF for $175,000,000 which expired on August 21, 1996. In May 1996, the Company amended its existing RCF to allow it 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, 1996 or 1995. 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, 1996. The commercial paper balance expected to remain outstanding beyond one year has been classified as long-term in the accompanying Statement of Financial Position, reflecting the Company's intent and ability to finance the borrowings on a long-term basis. The remaining commercial paper balance has been classified as short-term. - ------------------------------------------------------------------------------- Other debt bears interest at rates ranging from 1.0% to 13.9%, with maturities through the year 2015. Scheduled maturities of long-term debt for the years ended December 31 are as follows:
In thousands - ------------------------------------------------------------------------------- 1998 $178,041 1999 23,937 2000 151,292 2001 23,446 2002 and future years 442,231 -------- $818,947 ========
- ------------------------------------------------------------------------------- PAGE 35 17 Other Noncurrent Liabilities at December 31, 1996 and 1995 consisted of the following:
In thousands 1996 1995 - ------------------------------------------------------------------------------- Deferred investment income $238,870 $ 92,947 Preferred stock of subsidiary 40,000 20,000 Other 92,995 87,645 -------- -------- $371,865 $200,592 ======== ========
- ------------------------------------------------------------------------------- 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, without par value, and Common Stock Held in Treasury transactions during 1996, 1995 and 1994 were as shown below.
Common Stock Common Stock Held in Treasury -------------------- -------------------- Dollars in thousands Shares Amount Shares Amount - ------------------------------------------------------------------------------- Balance, December 31, 1993 113,292,888 170,185 (142,768) (1,955) During 1994- Stock options exercised 199,679 3,851 22,653 994 Shares surrendered on exercise of stock options (14,531) (635) (22,653) (994) Tax benefits related to stock options exercised -- 1,212 -- -- Shares issued for acquisitions 476,464 20,726 -- -- Shares issued for restricted stock grants 146,000 5,827 200 3 ----------- -------- -------- ------- 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) =========== ======== ======== ======= Authorized, December 31, 1996 150,000,000 ===========
PAGE 36 18 - ------------------------------------------------------------------------------ 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, 1996, 9,824,900 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 not material. Stock option transactions during 1996, 1995 and 1994 were as shown below:
Number of Shares Weighted Average Exercise Price - --------------------------------------------------------------------------- Under Option at December 31, 1993 2,334,526 $27.13 During 1994- Granted 126,358 41.33 Exercised (222,332) 20.96 Canceled or expired (15,000) 31.08 --------- Under option at December 31, 1994 2,223,552 28.51 During 1995- Granted 777,165 60.24 Exercised (384,700) 19.12 Canceled or expired (38,938) 34.67 --------- Under option at December 31, 1995 2,577,079 39.41 During 1996- Granted 210,014 67.37 Exercised (278,010) 26.88 Canceled or expired (9,375) 46.58 --------- Under option at December 31, 1996 2,499,708 43.13 ========= Exercisable at December 31, 1996 1,518,532 Reserved for grant-December 31, 1995 2,027,036 -December 31, 1996 7,325,192
- ------------------------------------------------------------------------------ Cash Dividends declared were $.72 per share in 1996, $.64 per share in 1995 and $.56 per share in 1994. Cash dividends paid were $.70 per share in 1996, $.62 per share in 1995 and $.54 per share in 1994. PAGE 37 19 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 1996, 1995 or 1994. Export sales from the United States were less than 10% of total operating revenues during these years. Additional segment and geographic information for 1996, 1995 and 1994 was as follows:
In thousands 1996 1995 1994 - ------------------------------------------------------------------------------ Identifiable Assets: Domestic - Engineered Components $ 817,233 $ 637,578 $ 586,084 Industrial Systems and Consumables 806,030 809,387 719,400 Leasing and Investments 1,157,051 604,471 -- ---------- ---------- ---------- 2,780,314 2,051,436 1,305,484 ---------- ---------- ---------- International - Engineered Components 660,129 600,456 441,616 Industrial Systems and Consumables 1,011,036 676,289 503,744 ---------- ---------- ---------- 1,671,165 1,276,745 945,360 ---------- ---------- ---------- Corporate 354,683 263,137 329,654 ---------- ---------- ---------- $4,806,162 $3,591,318 $2,580,498 ========== ========== ========== Plant and Equipment Additions: Engineered Components $ 106,738 $ 90,294 $ 85,553 Industrial Systems and Consumables 61,919 59,882 45,502 Leasing and Investments -- -- -- ---------- ---------- ---------- $ 168,657 $ 150,176 $ 131,055 ========== ========== ========== Depreciation and Amortization: Engineered Components $ 103,914 $ 82,240 $ 73,638 Industrial Systems and Consumables 73,615 69,189 58,511 Leasing and Investments 704 502 -- ---------- ---------- ---------- $ 178,233 $ 151,931 $ 132,149 ========== ========== ==========
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. PAGE 38 20 QUARTERLY AND COMMON STOCK DATA Quarterly Financial Data (Unaudited)
In thousands Three Months Ended except ------------------------------------------------------------------------------------- per share March 31 June 30 September 30 December 31 amounts ------------------- --------------------- --------------------- --------------------- 1996 1995 1996 1995 1996 1995 1996 1995 Operating revenues $1,136,922 $938,545 $1,324,800 $1,095,658 $1,238,261 $1,050,123 $1,296,698 $1,093,754 Cost of revenues 755,539 618,668 871,156 707,104 817,658 690,594 837,177 707,622 Operating income 161,438 126,681 214,992 175,970 198,731 168,124 225,425 175,205 Net income 98,755 75,031 130,375 106,248 122,842 100,016 134,343 106,313 Net income per share .81 .66 1.05 .91 .99 .85 1.08 .90 - --------------------------------------------------------------------------------------------------
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 1996 and 1995 were as shown below:
Market Price Per Share Dividends ----------------- Paid High Low Per Share - ------------------------------------------------------------------------------- 1996 Fourth quarter $87-1/4 $69-1/2 $.19 Third quarter 74-1/4 60-7/8 .17 Second quarter 69-3/4 61 .17 First quarter 69-1/2 51-7/8 .17 1995 Fourth quarter $64-1/4 $54-1/2 $.17 Third quarter 65-1/2 54-1/4 .15 Second quarter 55-5/8 46 .15 First quarter 48-7/8 39-3/4 .15
The approximate number of holders of record of common stock as of February 10, 1997 was 4,511. This number does not include beneficial owners of the Company's securities held in the name of nominees. PAGE 39 21 ELEVEN-YEAR FINANCIAL SUMMARY Dollars and shares in thousands except per share amounts
1996 1995 Income: Operating revenues $4,996,681 4,178,080 Cost of revenues $3,281,530 2,723,988 Selling, administrative and research and development expenses $ 875,386 776,112 Amortization of goodwill and other intangible assets $ 31,873 25,031 Amortization of retiree health care $ 7,306 6,968 Operating income $ 800,586 645,981 Interest expense $ (27,834) (29,991) Other income (expense) $ (2,437) 7,718 Income before income taxes $ 770,315 623,708 Income taxes $ 284,000 236,100 Net income $ 486,315 387,608 Per share $ 3.93 3.29 Financial Position: Net working capital $ 481,767 681,558 Net plant and equipment $ 808,340 694,941 Total assets $4,806,162 3,591,318 Long-term debt $ 818,947 615,557 Total debt $1,209,372 791,745 Stockholders' equity $2,396,025 1,924,237 Other Data: Operating income: Return on operating revenues % 16.0 15.5 Net income: Return on operating revenues % 9.7 9.3 Return on average stockholders' equity % 22.5 22.4 Cash dividends paid $ 85,481 71,783 Per share - paid $ .70 .62 - declared $ .72 .64 Book value per share $ 19.34 16.27 Common stock market price at year-end $ 79.88 59.00 Long-term debt to total capitalization % 25.5 24.2 Total debt to total capitalization % 33.5 29.2 Total debt to total capitalization (excluding Leasing and Investments Segment) % 15.9 16.2 Shares outstanding: At December 31 123,886 118,233 Average during year 123,778 117,989 Plant and equipment additions $ 168,657 150,176 Depreciation $ 146,360 126,900 Research and development expenses $ 55,800 52,700 Employees at December 31 24,400 21,200 Operating revenues per employee $ 205 197
Note: Certain reclassifications of prior years' data have been made to conform with current year reporting. ELEVEN-YEAR FINANCIAL SUMMARY continued
1994 1993 Income: Operating revenues $3,461,315 3,159,181 Cost of revenues $2,290,117 2,122,286 Selling, administrative and research and development expenses $ 666,576 638,560 Amortization of goodwill and other intangible assets $ 22,344 21,874 Amortization of retiree health care $ 6,968 6,968 Operating income $ 475,310 369,493 Interest expense $ (26,943) (35,025) Other income (expense) $ 1,916 1,402 Income before income taxes $ 450,283 335,870 Income taxes $ 172,500 129,300 Net income $ 277,783 206,570 Per share $ 2.45 1.83 Financial Position: Net working capital $ 634,500 547,506 Net plant and equipment $ 641,235 583,765 Total assets $2,580,498 2,336,891 Long-term debt $ 272,987 375,641 Total debt $ 339,989 482,714 Stockholders' equity $1,541,521 1,258,669 Other Data: Operating income: Return on operating revenues % 13.7 11.7 Net income: Return on operating revenues % 8.0 6.5 Return on average stockholders' equity % 19.8 15.9 Cash dividends paid $ 61,162 55,175 Per share - paid $ .54 .49 - declared $ .56 .50 Book value per share $ 13.53 11.12 Common stock market price at year-end $ 43.75 39.00 Long-term debt to total capitalization % 15.0 23.0 Total debt to total capitalization % 18.1 27.7 Total debt to total capitalization (excluding Leasing and Investments) % 18.1 27.7 Shares outstanding: At December 31 113,958 113,150 Average during year 113,387 112,979 Plant and equipment additions $ 131,055 119,931 Depreciation $ 109,805 109,852 Research and development expenses $ 48,700 47,200 Employees at December 31 19,500 19,000 Operating revenues per employee $ 178 166
PAGE 40 22 ELEVEN-YEAR FINANCIAL SUMMARY continued
1992 1991 Income: Operating revenues $2,811,645 2,639,650 Cost of revenues $1,858,752 1,759,288 Selling, administrative and research and development expenses $ 589,423 551,865 Amortization of goodwill and other intangible assets $ 22,169 23,979 Amortization of retiree health care $ -- -- Operating income $ 341,301 304,518 Interest expense $ (42,852) (44,342) Other income (expense) $ 11,331 27,583 Income before income taxes $ 309,780 287,759 Income taxes $ 117,700 107,200 Net income $ 192,080 180,559 Per share $ 1.72 1.62 Financial Position: Net working capital $ 492,118 442,041 Net plant and equipment $ 524,116 525,695 Total assets $2,204,187 2,257,139 Long-term debt $ 251,979 307,082 Total debt $ 335,240 489,189 Stockholders' equity $1,339,673 1,212,051 Other Data: Operating income: Return on operating revenues % 12.1 11.5 Net income: Return on operating revenues % 6.8 6.8 Return on average stockholders' equity % 15.1 15.7 Cash dividends paid $ 50,290 44,108 Per share - paid $ .45 .40 - declared $ .46 .42 Book value per share $ 11.96 10.88 Common stock market price at year-end $ 32.62 31.88 Long-term debt to total capitalization % 15.8 20.2 Total debt to total capitalization % 20.0 28.8 Total debt to total capitalization (excluding Leasing and Investments) % 20.0 28.8 Shares outstanding: At December 31 112,014 111,436 Average during year 111,746 111,178 Plant and equipment additions $ 115,313 106,036 Depreciation $ 100,462 91,414 Research and development expenses $ 42,500 40,300 Employees at December 31 17,800 18,700 Operating revenues per employee $ 158 141
ELEVEN-YEAR FINANCIAL SUMMARY continued
1990 1989 Income: Operating revenues $2,544,153 2,172,747 Cost of revenues $1,686,423 1,450,116 Selling, administrative and research and development expenses $ 512,685 417,520 Amortization of goodwill and other intangible assets $ 19,181 15,829 Amortization of retiree health care $ -- -- Operating income $ 325,864 289,282 Interest expense $ (39,190) (30,995) Other income (expense) $ 13,209 10,735 Income before income taxes $ 299,883 269,022 Income taxes $ 117,500 105,200 Net income $ 182,383 163,822 Per share $ 1.68 1.53 Financial Position: Net working capital $ 615,055 440,406 Net plant and equipment $ 483,549 413,578 Total assets $2,150,307 1,687,985 Long-term debt $ 430,632 334,407 Total debt $ 495,952 370,507 Stockholders' equity $1,091,842 871,124 Other Data: Operating income: Return on operating revenues % 12.8 13.3 Net income: Return on operating revenues % 7.2 7.5 Return on average stockholders' equity % 18.6 20.3 Cash dividends paid $ 35,861 28,747 Per share - paid $ .33 .27 - declared $ .35 .28 Book value per share $ 9.96 8.12 Common stock market price at year-end $ 24.13 22.44 Long-term debt to total capitalization % 28.3 27.7 Total debt to total capitalization % 31.2 29.8 Total debt to total capitalization (excluding Leasing and Investments) % 31.2 29.8 Shares outstanding: At December 31 109,610 107,332 Average during year 108,872 107,028 Plant and equipment additions $ 101,183 84,263 Depreciation $ 82,913 68,890 Research and development expenses $ 40,300 32,500 Employees at December 31 18,400 15,700 Operating revenues per employee $ 138 138
ELEVEN-YEAR FINANCIAL SUMMARY continued
1988 1987 Income: Operating revenues $1,929,805 1,698,353 Cost of revenues $1,287,297 1,117,990 Selling, administrative and research and development expenses $ 377,003 344,661 Amortization of goodwill and other intangible assets $ 13,106 16,812 Amortization of retiree health care $ -- -- Operating income $ 252,399 218,890 Interest expense $ (26,109) (33,439) Other income (expense) $ 6,522 14,333 Income before income taxes $ 232,812 199,784 Income taxes $ 92,800 93,600 Net income $ 140,012 106,184 Per share $ 1.33 1.03 Financial Position: Net working capital $ 392,283 332,290 Net plant and equipment $ 342,794 318,690 Total assets $1,380,237 1,334,063 Long-term debt $ 255,907 309,515 Total debt $ 257,597 357,249 Stockholders' equity $ 744,727 608,541 Other Data: Operating income: Return on operating revenues % 13.1 12.9 Net income: Return on operating revenues % 7.3 6.3 Return on average stockholders' equity % 20.7 19.6 Cash dividends paid $ 23,027 20,144 Per share - paid $ .22 .20 - declared $ .23 .20 Book value per share $ 7.05 5.88 Common stock market price at year-end $ 17.25 16.50 Long-term debt to total capitalization % 23.3 33.7 Total debt to total capitalization % 25.7 37.0 Total debt to total capitalization (excluding Leasing Investments) % 25.7 37.0 Shares outstanding: At December 31 105,588 103,560 Average during year 105,350 103,272 Plant and equipment additions $ 84,107 61,052 Depreciation $ 62,064 57,839 Research and development expenses $ 26,588 24,739 Employees at December 31 14,200 13,600 Operating revenues per employee $ 136 125
ELEVEN-YEAR FINANCIAL SUMMARY continued
1986 Income: Operating revenues $ 961,077 Cost of revenues $ 622,310 Selling, administrative and research and development expenses $ 239,861 Amortization of goodwill and other intangible assets $ 8,635 Amortization of retiree health care $ -- Operating income $ 90,271 Interest expense $ (14,468) Other income (expense) $ 67,480 Income before income taxes $ 143,283 Income taxes $ 63,700 Net income $ 79,583 Per share $ .78 Financial Position: Net working capital $ 293,575 Net plant and equipment $ 317,829 Total assets $1,309,886 Long-term debt $ 468,269 Total debt $ 503,998 Stockholders' equity $ 476,550 Other Data: Operating income: Return on operating revenues % 9.4 Net income: Return on operating revenues % 8.3 Return on average stockholders' equity % 18.1 Cash dividends paid $ 18,295 Per share - paid $ .18 - declared $ .18 Book value per share $ 4.65 Common stock market price at year-end $ 12.97 Long-term debt to total capitalization % 49.6 Total debt to total capitalization % 51.4 Total debt to total capitalization (excluding Leasing and Investments) % 51.4 Shares outstanding: At December 31 102,508 Average during year 102,206 Plant and equipment additions $ 44,722 Depreciation $ 37,213 Research and development expenses $ 13,161 Employees at December 31 13,700 Operating revenues per employee $ 70
PAGE 41 EX-21 4 SIGNIFICANT SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 DECEMBER, 1996 ILLINOIS TOOL WORKS INC. SIGNIFICANT SUBSIDIARIES OF THE COMPANY
PERCENT COMPANY RELATIONSHIP OWNERSHIP - ---------------------------------------------- ------------ --------- Azon Limited - Australia (1) Subsidiary 100% Buell Industries, Inc. - Delaware Subsidiary 100% Burseryds Bruk AB - Sweden Subsidiary 100% Coding Products Inc. - Michigan (2) Subsidiary 100% Cumberland Leasing Co. - Illinois (3) Subsidiary 100% Elettro GiBi S.p.A. - Italy Subsidiary 100% Gema Volstatic AG - Switzerland (4) Subsidiary 100% Gerrard Strapping Systems Ltd. - New Zealand (5) Subsidiary 100% Gerrard Strapping Systems Pty Ltd. - Australia (5) Subsidiary 100% Hobart Brothers Company - Ohio Subsidiary 100% Hobart Brothers of Canada, Inc. - Canada (6) Subsidiary 100% ITW Austria Vertriebs-Ges.m.b.H. - Austria (7) Subsidiary 100% ITW Ateco GmbH - Germany (8) Subsidiary 100% ITW Befestigungssyteme GmbH - Germany (9) Subsidiary 100% ITW Canada Inc. - Canada (6) Subsidiary 100% ITW de France S.A. - France (10) Subsidiary 100% ITW (Deutschland) GmbH - Germany (4) Subsidiary 100% ITW Espana S.A. - Spain (11) Subsidiary 100% ITW Fastex Italia S.p.A. - Italy Subsidiary 100% ITW Gunther - France (10) Subsidiary 100% ITW Holding S.A. - France (11) Subsidiary 100% ITW Holdings Proprietary - Australia (12) Subsidiary 100% ITW Holdings U.K. - England (15) Subsidiary 100% ITW International Finance S.A.S. - France (13) Subsidiary 100% ITW International Holdings Inc. - Delaware (3) Subsidiary 100% ITW Ireland - Ireland (14) Subsidiary 100% ITW Leasing & Investments Inc. - Delaware Subsidiary 100% ITW Limited - England (22) Subsidiary 100% ITW Meritex Sdn Bhd - Malaysia (11) Subsidiary 100% ITW Mortgage Investments I, Inc. - Delaware (3) Subsidiary 100% ITW Mortgage Investments II, Inc. - Delaware Subsidiary 100% ITW Mortgage Investments III, Inc. - Delaware Subsidiary 100% ITW Oberflachentechnik GmbH - Germany (8) Subsidiary 100% ITW Overseas Investments Corp. - Delaware (11) Subsidiary 100% ITW Real Estate L.L.C. - Delaware (16) Subsidiary 100% ITW Residuals Inc. - Delaware Subsidiary 100% ITW Tech Co. Inc. - Delaware (3) Subsidiary 100% Illinois Tool Works FSC Inc - Barbados (3) Subsidiary 100% IspraControl s.r.l. - Italy (23) Subsidiary 100% Liljendals Bruk Ab - Finland Subsidiary 100% Loveshaw Corporation, The - Delaware Subsidiary 100% Lys Fusion S.p.A. - Italy (23) Subsidiary 100% Medalist Industries, Inc. - Wisconsin Subsidiary 100% Miller Electric Mfg. Co. - Wisconsin Subsidiary 100% Miller Europe, S.p.A. - Italy (18) Subsidiary 100% Miller Thermal, Inc. - Wisconsin (18) Subsidiary 100% Mima, Inc. - Florida Subsidiary 100% Minigrip Inc. - Delaware Subsidiary 100% N. A. Woodworth Company - Michigan Subsidiary 100% Orgapack AG - Switzerland (19) Subsidiary 100% Orgapack Holding AG - Switzerland (20) Subsidiary 100% Paslode Corporation - Illinois Subsidiary 100% Pro/Mark Corporation - Connecticut (21) Subsidiary 100% Ransburg Corporation - Indiana Subsidiary 100%
2 ILLINOIS TOOL WORKS INC. SIGNIFICANT SUBSIDIARIES OF THE COMPANY DECEMBER, 1996 PAGE 2 - --------------------------------------------------------------------------------
PERCENT COMPANY RELATIONSHIP OWNERSHIP - ---------------------------------------------- ------------ --------- Ransburg Industrial Finishing KK - Japan (11) Subsidiary 100% Shippers Paper Products Company - Ohio Subsidiary 100% Signode France - France (10) Subsidiary 100% Signode Kabushiki Kaisha - Japan (11) Subsidiary 100% Signode Systems GmbH - Germany (7) Subsidiary 100% Societe de Prospection et d'Invention Techniques - France (10) Subsidiary 100% W. A. Deutsher Pty. Ltd. - Australia Subsidiary 100%
3 ILLINOIS TOOL WORKS INC. SIGNIFICANT SUBSIDIARIES OF THE COMPANY DECEMBER, 1996 PAGE 3 - -------------------------------------------------------------------------------- ( 1) Wholly owned by ITW Holdings Pty. ( 2) 80% owned by Maple Control Company; 20% owned by Illinois Tool Works Inc. ( 3) Wholly owned by ITW Leasing & Investments Inc. ( 4) Wholly owned by Ransburg Corporation ( 5) Wholly owned by Azon Pty. Limited ( 6) Wholly owned by Hobart Brothers Company ( 7) Wholly owned by ITW Signode Holdings GmbH ( 8) Wholly owned by ITW Industrie GmbH ( 9) Wholly owned by ITW (Deutschland) GmbH (10) Wholly owned by ITW Holding S.A. (11) Wholly owned by ITW International Holdings Inc. (12) 99% owned by Illinois Tool Works Inc.; 1% owned by ITW W. A. Deutsher Pty. Ltd. (13) 99.9% owned by ITW International Holdings Inc.; .1% owned by ITW Holdings S.A. (14) 99.9% owned by ITW Ireland Holdings Inc.; .1% owned by ITW Cayman (15) 90% owned by ITW International Holdings Inc.; 10% owned by ITW Leasing and Investments Inc. (16) 99% owned by ITW Mortgage Investments I; 1% owned by Illinois Tool Works Inc. (17) Wholly owned by Elettro GiBi S.p.A. (18) Wholly owned by Miller Electric Mfg. Co. (19) Wholly owned by Orgapack Holding AG (20) Wholly owned by Gema Volstatic AG (21) Wholly owned by Maple Roll Leaf Company, Inc. (22) Wholly owned by ITW Holdings U.K. (23) Wholly owned by Cofiva S.p.A.
EX-22 5 CAPTION INFORMATION 1 EXHIBIT 22 Election of Directors Ten directors of the Company are to be elected to hold office until the next annual meeting or 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, and note with regret the retirement as directors of Julius Becton, Richard Jones, George Kennedy and Richard Leet. Each of these individuals has brought unique skills to his service on the Board, but has now reached the mandatory retirement age. Following are the name, age, principal occupation and other information concerning each nominee. 2 MICHAEL J. BIRCK (58) 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 (58) Vice President of Kaiser-Hill LLC (construction and environmental services) since August 1996, founder and President of the Brailsford Group from 1995 to 1996, and President of Metters Industries 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 (38) Vice President, Henry Crown and Company since 1984, a family owned and operated company with investments in securities, real estate, resort properties and manufacturing operations. Ms. Crown is a director of Baxter International Inc. She is also a trustee and executive committee member of Rush-Presbyterian-St. Luke's Medical Center in Chicago and a trustee of The Yale Corporation. She has been a director of the Company since 1994. H. RICHARD CROWTHER (64) 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 of 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. 3 W. JAMES FARRELL (54) Chairman since May 1996 and Chief Executive Officer of the Company since September 1995. Mr. Farrell served as President from December 1994 until May 1996 and as Executive Vice President from 1983 to 1994. He has a total of 31 years service with the Company. Mr. Farrell is a director of Hon Industries Inc., Morton International, Inc. and Premark International, Inc. and has been a director of the Company since 1995. L. RICHARD FLURY (49) Executive Vice President, Amoco Corporation (energy and chemicals) since January 1996, formerly Senior Vice President for Shared Services from June 1994 through 1995 and Executive Vice President, Amoco Chemical Co., from 1991 to June 1994, with a total of 27 years service with Amoco. Mr. Flury is a director of the Illinois Coalition, North Central College, the Field Museum and Amoco Foundation, and has been a director of the Company since 1995. ROBERT C. MCCORMACK (57) Partner, Trident Capital L.P.(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 from 1978 through 1987. PHILLIP B. ROONEY (52) Chairman, F.N.B.C. of LaGrange, Inc. (multi-bank holding company) since February 1997. Former President of WMX Technologies Inc. (waste management) from 1985 until 1997. Mr. Rooney is a director of The ServiceMaster Company and Urban Shopping Centers Inc. and has been a director of the Company since 1990. 4 HAROLD B. SMITH (63) 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 (57) 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. 5 Security Ownership The following table sets forth information regarding ownership of the Company's Common Stock as of December 31, 1996 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) Julius W. Becton, Jr...................... 1,300 1,731 * Michael J. Birck.......................... 300(3) 1,002 * Marvin D. Brailsford...................... 300(3) 1,000 * Susan Crown............................... 3,900(4) 1,010 * H. Richard Crowther....................... 196,517(5)(6) 1,086 * L. Richard Flury.......................... 600 1,010 * Richard M. Jones.......................... 5,500 1,731 * George D. Kennedy......................... 1,760 1,731 * Richard H. Leet........................... 4,500 1,731 * Robert C. McCormack....................... 7,259,150(7)(8) 1,010 5.8 Phillip B. Rooney......................... 5,816 1,010 * Harold B. Smith........................... 19,546,756(8)(9) -- 15.6 Ormand J. Wade............................ 1,900 1,010 * Executive Officers W. James Farrell.......................... 122,462(6)(10) * Russell M. Flaum.......................... 49,169(6)(11) * Frank S. Ptak............................. 93,838(6) * F. Ronald Seager.......................... 92,417(6)(12) * Hugh J. Zentmyer.......................... 16,742(6)(13) * Directors, Nominees and All Executive Officers as a Group (26 Persons).......... 20,303,735(6) 15,062 16.2 Other Principal Beneficial Owners Edward Byron Smith, Jr.................... 7,553,996(8)(14) 6.0 The Northern Trust Company................ 23,570,704(15) 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) Represents shares of restricted stock granted on January 2, 1997 under the Directors' Restricted Stock Plan. (4) Includes 1,000 shares owned in a trust as to which Ms. Crown shares voting and investment power. (5) Includes 160,987 shares held in a revocable living trust as to which Mr. Crowther shares voting and investment power. (6) Includes shares covered by stock options exercisable within 60 days of December 31, 1996 as follows: Mr. Crowther, 30,620; Mr. Farrell, 82,496; Mr. Flaum, 29,800; Mr. Ptak, 57,000; Mr. Seager, 6 65,000; Mr. Zentmyer, 16,000; and directors, nominees and all Executive Officers as a group, 413,491. (7) Includes 3,760 shares held in a revocable living trust as to which Mr. McCormack has sole voting and investment power, 200 shares owned in a trust as to which he shares voting and investment power with The Northern Trust Company, and 7,255,190 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 7,255,190 shares as to which they share voting and investment power. (9) Includes 197,338 shares held in a revocable living trust as to which Harold B. Smith has sole voting and investment power; 10,825,732 shares owned in twelve trusts as to which he shares voting and investment power with The Northern Trust Company and others; 1,082,240 shares owned in eleven trusts as to which he shares voting and investment power; 7,255,190 shares as described in Footnote 8; and 42,256 shares owned by a charitable foundation of which he is a director. (10) Includes 1,225 shares held by Mr. Farrell as custodian for his minor child and 850 shares owned by his spouse, as to both of which Mr. Farrell disclaims beneficial ownership; 10,691 shares held in a revocable living trust as to which he has sole voting and investment power; and 24,000 shares owned in a partnership as to which Mr. Farrell shares voting and investment power. (11) Includes 702 shares allocated to Mr. Flaum's account in the Company's Savings and Investment Plan. (12) Includes 10,876 shares held in a revocable living trust as to which Mr. Seager has sole voting and investment power and 1,038 shares owned by his spouse, as to which Mr. Seager disclaims beneficial ownership. (13) Includes 209 shares held in a revocable living trust as to which Mr. Zentmyer has sole voting and investment power and 533 shares allocated to his account in the Company's Savings and Investment Plan. (14) Includes 10,874 shares owned in a trust as to which Edward Byron Smith, Jr. has sole voting and investment power; 96,200 shares owned in a trust as to which The Northern Trust Company has sole voting and investment power; 105,992 shares owned in three trusts as to which Mr. Smith shares voting and investment power; and 7,255,190 shares as described in Footnote 8. Also includes the following shares held for the benefit of Mr. Smith's children: 58,580 shares owned in two trusts as to which The Northern Trust Company has sole voting and investment power; 6,720 shares held in a trust as to which Mr. Smith shares voting and investment power; 9,320 shares held in a trust as to which Mr. Smith's spouse and sister share voting and investment power; and 4,400 shares owned in two trusts as to which Mr. Smith's sister has sole voting and investment power. (15) Including its holdings as trustee described in Footnotes 7, 8, 9 and 14, The Northern Trust Company and its affiliates act as sole fiduciary or co-fiduciary of trusts and other fiduciary accounts which own an aggregate of 23,570,704 shares. They have sole voting power with respect to 8,962,471 shares and share voting power with respect to 8,367,252 shares. They have sole investment power with respect to 1,700,207 shares and share investment power with respect to 19,065,931 shares. In addition, The Northern Trust Company holds in other accounts, but does not beneficially own, 9,341,199 shares, resulting in aggregate holdings by The Northern Trust Company of 32,911,903 shares (26.2%). 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 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. 7 The Company maintains normal commercial banking relationships with The Northern Trust Company, which also acts as the trustee under the Company's pension plan. The Northern Trust Company is a wholly owned subsidiary of Northern Trust Corporation. Harold B. Smith, a director of the Company, is a director 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
LONG TERM COMPENSATION --------------------------------- ANNUAL 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 1996 453,754 500,000 -- -- 200,000 -- 40,808(5)(6)(7) Chairman and Chief 1995 317,212 370,000 -- -- 60,000 -- 38,000 Executive Officer 1994 250,850 291,200 -- 1,400,000 -- -- 9,236 Frank S. Ptak 1996 255,261 275,000 -- -- -- -- 11,429(5)(6) Vice Chairman 1995 219,397 219,670 -- -- 30,000 -- 10,252 1994 192,165 195,000 -- 1,400,000 -- -- 7,320 F. Ronald Seager 1996 218,801 204,580 -- -- -- -- 12,160(5)(6) Executive 1995 209,501 206,150 -- -- 30,000 -- 11,306 Vice President 1994 199,606 182,608 -- 875,000 -- -- 7,733 Russell M. Flaum 1996 208,082 209,195 -- -- -- -- 6,411(5)(6) Executive 1995 199,452 195,000 -- -- 15,000 -- 6,364 Vice President 1994 179,660 176,540 -- 875,000 -- -- 5,074 Hugh J. Zentmyer 1996 184,493 179,358 -- -- -- -- 7,461(5)(6) Executive 1995 170,110 120,435 -- -- 12,000 -- 6,990 Vice President 1994 139,925 67,968 -- -- 8,000 -- 4,849
- --------------- (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) Represents the value on the grant date (December 8, 1994) of restricted stock awarded under the 1979 Stock Incentive Plan. The number of shares and their value as of December 31, 1996 for each of the officers were: Mr. Farrell, 32,000 shares ($2,556,000); Mr. Ptak, 32,000 shares ($2,556,000); Mr. Seager, 20,000 shares ($1,597,500); and Mr. Flaum, 20,000 shares ($1,597,500). These individuals may exercise full voting rights as to the restricted stock and are entitled to receive all dividends and other distributions paid on the restricted stock from the date of grant until forfeited or sold. Messrs. Farrell's and Ptak's shares each vest in the following manner: 3,200 on December 31, 1995; 4,800 on December 31, 1996; 6,400 on December 31, 1997; 6,400 on December 31, 1998; 6,400 on December 31, 1999; 3,200 on December 31, 2000; and 1,600 on December 31, 2001. Messrs. Seager's and Flaum's shares each vest in the following manner: 2,000 on December 31, 1995; 3,000 on December 31, 1996; 4,000 on December 31, 1997; 4,000 on December 31, 1998; 4,000 on 8 December 31, 1999; 2,000 on December 31, 2000; and 1,000 on December 31, 2001. Unvested shares will be forfeited if the Executive Officer leaves the Company for any reason other than retirement, death or disability. (5) Includes Company matching contributions to the 1993 Executive Contributory Retirement Income Plan or the Savings and Investment Plan as follows: Mr. Farrell, $13,613; Mr. Ptak, $7,658; Mr. Seager, $6,564; Mr. Flaum, $4,500; and Mr. Zentmyer, $5,535. (6) Includes interest credited on deferred compensation in excess of 120% of the Applicable Federal Long Term Rate as follows: Mr. Farrell, $4,074; Mr. Ptak, $3,771; Mr. Seager, $5,596; Mr. Flaum, $1,911; and Mr. Zentmyer $1,926. (7) Includes $23,121 representing imputed income on Mr. Farrell's outstanding home loan made by the Company in 1995, the balance of which was $355,000 as of February 28, 1997 (formerly $460,000). 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, 1997, Mr. Farrell had an outstanding loan of $88,938 payable December 31, 2000, bearing interest at a rate of 5.91% per annum and secured by 3,200 shares of Common Stock of the Company. The five-year term of the promissory note is renewable, but the note is repayable 180 days following termination of employment with the Company (or immediately if termination is for gross or willful misconduct) and upon bankruptcy, insolvency or death of the employee or breach of the terms of the note. ------------------------ The table below sets forth information as to options granted during 1996 to the Executive Officers listed in the Summary Compensation Table. OPTION GRANTS IN 1996
INDIVIDUAL GRANTS ------------------------------------------------ NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT SECURITIES OPTIONS ASSUMED ANNUAL RATES UNDERLYING GRANTED EXERCISE OF STOCK PRICE APPRECIATION OPTIONS TO OR BASE FOR OPTION TERM(1) GRANTED EMPLOYEES PRICE EXPIRATION ------------------------------- NAME (#) IN 1996 ($/SH) DATE 0% ($) 5% ($) 10% ($) ---- ---------- ---------- -------- ---------- ------ --------- ---------- W. J. Farrell........... 200,000(2) 95% 66.75 05/03/06 0 8,395,743 21,276,462 Frank S. Ptak........... -- F. Ronald Seager........ -- Russell M. Flaum........ -- Hugh J. Zentmyer........ --
- --------------- (1) The dollar amounts under these columns are the result of calculations at 0% and at the 5% and 10% rates set by the Securities and Exchange Commission. They are therefore not intended to forecast possible future appreciation, if any, of the Company's Common Stock price and reflect neither the income tax liability of the individual recipient nor the time value of money. The Company did not use an alternative formula for a grant date valuation as the Company is not aware of any formula that will determine with reasonable accuracy a present value based on future unknown or volatile factors. (2) This option becomes exercisable as to 20% of the underlying shares on each of the first five anniversaries of the grant and is fully exercisable after the first anniversary in the event of disability or death. A restorative option right applies to this option. 9 The table below sets forth information as to option exercises during 1996 as well as the number and value of unexercised options as of December 31, 1996 for the Executive Officers listed in the Summary Compensation Table. AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS ACQUIRED VALUE OPTIONS AT YEAR END (#) AT YEAR END ($)(1) ON EXERCISE REALIZED --------------------------- --------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------- ----------- ------------- ----------- ------------- W. James Farrell............ -- -- 82,496 252,500 3,641,828 3,834,375 Frank S. Ptak............... -- -- 57,000 30,000 2,615,438 767,812 F. Ronald Seager............ 5,000 257,500 65,000 30,000 3,039,063 767,812 Russell M. Flaum............ -- -- 29,800 15,000 1,348,319 383,906 Hugh J. Zentmyer............ -- -- 16,000 14,000 646,625 376,625
- ------------ (1) Based on the closing market price ($79.875) of the Company's Common Stock on December 31, 1996. RETIREMENT PLANS The Company's principal non-contributory defined benefit pension plan covers employees of participating domestic business units. Executive Officers participate in this plan on the same basis as do approximately 12,000 other eligible employees. 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 contained in the Internal Revenue Code of 1986 on benefit accruals under the pension plan. Under a plan adopted by the Board of Directors, supplemental payments in excess of those limitations will be made to participants designated by the Compensation Committee in order to maintain benefits upon retirement 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, 1996 for the five most highly compensated Executive Officers were as follows: Mr. Farrell, 31.5 years; Mr. Ptak, 21.1 years; Mr. Seager, 16.6 years; Mr. Flaum, 10.0 years; and Mr. Zentmyer, 10.0 years. (3) Compensation includes all amounts shown under the columns "Salary" and "Bonus" in the Summary Compensation Table. The Company's 1982 Executive Contributory Retirement Income Plan provided certain executives designated by the Compensation Committee the opportunity to supplement their retirement benefits in exchange for salary reductions during the four-year period 1983 through 1986. Under the Plan the Company agreed to pay benefits upon retirement, death or disability, with the actual benefit amounts 10 dependent upon the amount of the deferral, the amount of the Company's contribution, and the age of the participant at entry into the plan. Two of the five named Executive Officers included in the Summary Compensation Table were eligible and elected to have their salaries reduced by 10%. During the period of salary reduction the executives could not contribute to and did not receive the Company's matching contribution in the Savings and Investment Plan. The Company purchased insurance on the lives of the participants to fund the benefits, with the 10% of salary retained by the Company and the 3% of base compensation that the Company would have contributed to match participant contributions to the Savings and Investment Plan applied to the premium for the insurance. Under the 1982 Plan, annual benefits payable beginning at the normal retirement age of 65 for 15 years were fixed following the deferral period and are as follows: Mr. Farrell, $113,529 and Mr. Seager, $68,266. EX-23 6 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated January 28, 1997 incorporated by reference and 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 24, 1997 EX-24 7 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 14th day of February 1997. (s) Julius W. Becton, Jr. ----------------------------------- (signature) Julius W. Becton, Jr. ------------------------------------ (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 14th day of February 1997. (s) Michael J. Birck ----------------------------------- (signature) Michael J. Birck ------------------------------------ (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 14th day of February 1997. (s) Marvin D. Brailsford ----------------------------------- (signature) Marvin D. Brailsford ------------------------------------ (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 14th day of February 1997. (s) Susan Crown ----------------------------------- (signature) Susan Crown ------------------------------------ (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 14th day of February 1997. (s) H. Richard Crowther ----------------------------------- (signature) H. Richard Crowther ------------------------------------ (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 14th day of February 1997. (s) W. James Farrell ----------------------------------- (signature) W. James Farrell ------------------------------------ (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 14th day of February 1997. (s) L. Richard Flury ----------------------------------- (signature) L. Richard Flury ------------------------------------ (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 14th day of February 1997. (s) Richard M. Jones ----------------------------------- (signature) Richard M. Jones ------------------------------------ (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 14th day of February 1997. (s) George D. Kennedy ----------------------------------- (signature) George D. Kennedy ------------------------------------ (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 14th day of February 1997. (s) Richard H. Leet ----------------------------------- (signature) Richard H. Leet ------------------------------------ (printed name) 11 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 14th day of February 1997. (s) Robert C. McCormack ----------------------------------- (signature) Robert C. McCormack ------------------------------------ (printed name) 12 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 14th day of February 1997. (s) Phillip B. Rooney ----------------------------------- (signature) Phillip B. Rooney ------------------------------------ (printed name) 13 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 14th day of February 1997. (s) Harold B. Smith ----------------------------------- (signature) Harold B. Smith ------------------------------------ (printed name) 14 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 14th day of February 1997. (s) Ormand J. Wade ----------------------------------- (signature) Ormand J. Wade ------------------------------------ (printed name) EX-27 8 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-31-1996 JAN-01-1996 DEC-31-1996 137,699 0 862,492 22,400 526,016 1,701,092 1,941,096 1,132,756 4,806,162 1,219,325 818,947 0 0 273,864 2,122,161 4,806,162 4,996,681 4,996,681 3,281,530 3,281,530 39,179 4,451 27,834 770,315 284,000 486,315 0 0 0 486,315 3.93 3.93
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