How did ITW's profitability trend in 1993?

Net income rose 7.5% to $206.6 million ($1.83 per share) and operating income rose 12.1% to $385.6 million. Operating margin was roughly flat at about 12.2%, since acquisitions and U.S. volume gains were offset by European price pressure, nonrecurring costs, and the lower-margin Miller business. Management expects margins to improve in 1994 as cost reductions take effect.

What was the impact of the Miller acquisition?

ITW acquired The Miller Group Ltd., an arc welding equipment maker, in March 1993 in a stock exchange accounted for as a pooling of interests. The company said the impact on 1993, 1992 and 1991 revenue, net income and EPS was not significant, so prior years were not restated. Miller's operating costs were higher than the company average, which contributed to the rise in consolidated operating cost ratios.

Why did international results weaken and what is the outlook?

European operations were hurt by a recession that reduced volumes, especially in the Industrial Packaging Systems Group, and by price pressure in the automotive and construction markets. International Engineered Components operating income fell to $55 million from $68 million, and International Industrial Systems and Consumables income fell to $45 million from $65 million. Management expects international revenues in the Industrial Systems segment to be flat in 1994 but expects margins to improve through cost reductions.

How much debt does ITW carry and how is it financed?

Total debt was $482.7 million at year-end 1993, up from $335.2 million, and long-term debt was $375.6 million. The increase came from $125 million of 5-7/8% notes due 2000 issued in March 1993 and commercial paper used to fund acquisitions. Management believes internally generated funds will cover existing debt and small-to-medium cash acquisitions, and the company has additional debt capacity for larger deals.

What are the company's dividend and share structure details?

ITW declared $0.50 per share in 1993, up from $0.46 in 1992, and paid $0.49 per share. The company's policy targets a payout of 25-30% of average three-year net income. A two-for-one stock split was completed in June 1993, and there were 113.2 million common shares outstanding at year-end. Approximately 3,600 holders of record were reported as of March 8, 1994.

ITW 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 30, 1994. Cited figures are marked; the original filing is the authoritative source.

Illinois Tool Works Inc. (ITW) reported solid 1993 results, with operating revenues of $3.16 billion^a, up 12.3% from $2.81 billion in 1992, and net income of $207 million ($1.83 per share), up 7.5%.

Growth was driven largely by acquisitions, including the March 1993 Miller Group pooling and the purchase of several businesses for roughly $304 million^b in cash. Operating income rose 12.1% to $386 million, though the operating margin on revenue was essentially flat at about 12.2%, as European price pressure and the higher-cost Miller business offset cost reductions. The company operates through two segments: Engineered Components (52% of 1993 revenue, up from 46%) and Industrial Systems and Consumables (48%), with the mix shifting toward components after the Miller acquisition.

The balance sheet remains conservative but levered up somewhat. Long-term debt rose to $376 million^c from $252 million after the issuance of $125 million of 5-7/8% notes due 2000, and total debt to capitalization increased to 27.7% from 20.0%. Stockholders' equity fell to $1.26 billion from $1.34 billion, largely because of $211 million in pooling-related adjustments and a $28 million currency translation hit from weaker European currencies.

Liquidity is adequate, with a current ratio of 2.00, $35 million^d in cash, and an undrawn $300 million revolving credit facility. Cash from operations was $314 million, and management targets a dividend payout of 25-30% of average three-year earnings.

The key watch items for investors are European weakness, which depressed international operating income and margins, and the expected margin recovery in 1994 from cost reduction programs at newly acquired businesses. Note that the filing incorporates much of its financial detail by reference to the 1993 Annual Report, and it reports that legal proceedings are not applicable.

02—Key points

Key Highlights

Operating revenues rose 12.3% to $3.16 billion in 1993, with the Miller acquisition and higher U.S. automotive and construction volumes as main drivers, while international revenues fell on the European recession.
Net income grew 7.5% to $206.6 million, or $1.83 per share, while operating income increased 12.1% to $385.6 million.
Engineered Components segment operating margin improved to 12.7% from 12.5%, while Industrial Systems and Consumables margin declined to 11.7% from 12.0%, reflecting European price pressure.
Total debt to capitalization rose to 27.7% from 20.0%, after issuing $125 million of 5-7/8% notes due 2000 and spending about $304 million on acquisitions.
Stockholders' equity declined to $1.26 billion from $1.34 billion, reflecting $211 million in pooling-of-interests adjustments and a $28 million currency translation loss.
Liquidity remained solid, with a 2.00 current ratio, $35 million cash, a $300 million undrawn revolving credit facility, and operating cash flow of $314 million.
The Board maintained its dividend policy of 25-30% of average three-year earnings, with 1993 dividends declared of $0.50 per share, up from $0.46.

03—Questions

Frequently Asked Questions

How did ITW's profitability trend in 1993?
Net income rose 7.5% to $206.6 million ($1.83 per share) and operating income rose 12.1% to $385.6 million. Operating margin was roughly flat at about 12.2%, since acquisitions and U.S. volume gains were offset by European price pressure, nonrecurring costs, and the lower-margin Miller business. Management expects margins to improve in 1994 as cost reductions take effect.
What was the impact of the Miller acquisition?
ITW acquired The Miller Group Ltd., an arc welding equipment maker, in March 1993 in a stock exchange accounted for as a pooling of interests. The company said the impact on 1993, 1992 and 1991 revenue, net income and EPS was not significant, so prior years were not restated. Miller's operating costs were higher than the company average, which contributed to the rise in consolidated operating cost ratios.
Why did international results weaken and what is the outlook?
European operations were hurt by a recession that reduced volumes, especially in the Industrial Packaging Systems Group, and by price pressure in the automotive and construction markets. International Engineered Components operating income fell to $55 million from $68 million, and International Industrial Systems and Consumables income fell to $45 million from $65 million. Management expects international revenues in the Industrial Systems segment to be flat in 1994 but expects margins to improve through cost reductions.
How much debt does ITW carry and how is it financed?
Total debt was $482.7 million at year-end 1993, up from $335.2 million, and long-term debt was $375.6 million. The increase came from $125 million of 5-7/8% notes due 2000 issued in March 1993 and commercial paper used to fund acquisitions. Management believes internally generated funds will cover existing debt and small-to-medium cash acquisitions, and the company has additional debt capacity for larger deals.
What are the company's dividend and share structure details?
ITW declared $0.50 per share in 1993, up from $0.46 in 1992, and paid $0.49 per share. The company's policy targets a payout of 25-30% of average three-year net income. A two-for-one stock split was completed in June 1993, and there were 113.2 million common shares outstanding at year-end. Approximately 3,600 holders of record were reported as of March 8, 1994.

04—Continue

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