Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL --
Illinois Tool Works Inc. (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 260 operations in 33 countries. The Company's business units are divided into two segments: Engineered Components, and Industrial Systems and Consumables. 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 equipment. Industrial Systems and Consumables' products include longer lead-time systems and related consumables for consumer and industrial packaging; industrial spray coating equipment and systems and quality assurance applications equipment and systems.
In March 1993, the Company acquired the Miller Group Ltd., a manufacturer of arc welding equipment, through an exchange of ITW voting Common Stock for all of the voting Common Stock of Miller. As a result, the acquisition has been accounted for as a pooling of interests in conformity with Generally Accepted Accounting Principles, specifically paragraphs 46 through 48 of Accounting Principles Board Opinion No. 16. Accordingly, the results of operations have been included in the Statement of Income as of the beginning of 1993. The impact of Miller on consolidated operating revenues, net income and net income per share for 1993 and 1992 was not significant. Therefore, the 1992 financial statements have not been restated to reflect the acquisition of Miller.
In 1990, the Company acquired substantially all of the net assets of the DeVilbiss Industrial/Commercial businesses of Eagle Industries, Inc. ("DeVilbiss"). The DeVilbiss businesses manufacture products and engineered systems used for product finishing and coating applications, including conventional air spray equipment, powder-coating devices and robotic finishing systems. The acquisition has been accounted for as a purchase and, accordingly, the results of operations have been included in the Statement of Income from the acquisition date.
In 1991, the Company sold certain net assets and technology related to the automotive finishing systems business. The revenues, income and net assets related to the automotive finishing systems business were not material.
During the five-year period ending December 31, 1994, the Company acquired and disposed of a number of other businesses, none of which individually had a material impact on consolidated results.
CURRENT YEAR DEVELOPMENTS --
Refer to pages 19 through 21, Management's Discussion and Analysis, in the Company's 1994 Annual Report to Stockholders.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS --
The percentage contributions to operating revenues for the last three years by industry segment are as follows:
Segment and geographic data are included on pages 19, 20 and 25 of the Company's 1994 Annual Report to Stockholders.
The principal markets served by the Company's two segments are as follows:
Operating results of the segments are described on pages 19, 20 and 25 of the Company's 1994 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.
The following summarizes backlog by industry segment as of December 31, 1994 and 1993:
Backlog orders scheduled for shipment beyond calendar year 1995 were not material in either industry segment as of December 31, 1994.
The following information is equally applicable to both industry segments of the business unless otherwise noted:
COMPETITION --
The Company's global competitive environment is complex because of the wide diversity of products the Company manufactures and the markets it serves. Depending on the product or market, the Company may compete with few other companies or with many firms, some of which may be the Company's own licensees.
The Company is a leading producer of plastic and metal fastening components and assemblies; adhesives and fluids; packaging systems and related consumables; finishing and static control systems and products; quality assurance equipment; tooling for specialty applications; and arc welding equipment.
RAW MATERIALS --
The Company uses raw materials of various types, primarily metals and plastics that are available from numerous commercial sources. The availability of materials and energy has not resulted in any business interruptions or other major problems, nor are any such problems anticipated.
RESEARCH AND DEVELOPMENT --
The Company's growth has resulted from developing new and improved products, broadening the application of established products, continuing efforts to improve and develop new methods, processes and
equipment, and from acquisitions. Many new products are designed to reduce customers' costs by eliminating steps in their manufacturing processes, reducing the number of parts in an assembly, or by improving the quality of customers' assembled products. Typically, the development of such products is accomplished by working closely with customers on specific applications. Identifiable research and development costs are set forth on page 26 of the Company's 1994 Annual Report to Stockholders.
The Company owns approximately 1,640 unexpired United States patents covering articles, methods and machines. Many counterparts of these patents have also been obtained in various foreign countries. In addition, the Company has approximately 333 applications for patents pending in the United States Patent Office, but there is no assurance that any patent will be issued. The Company maintains an active patent department for the administration of patents and processing of patent applications.
The Company 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, Keps, Magnaflux, Miller, Minigrip, Paslode, Ransburg, Ramset, Shakeproof, Teks, Tenax, and Zip-Pak.
ENVIRONMENTAL PROTECTION --
The Company believes that its plants and equipment are in substantial compliance with applicable environmental regulations. Additional measures to maintain compliance are not expected to materially affect the Company's capital expenditures, competitive position, financial position or results of operations.
Various legislative and administrative regulations concerning environmental issues have become effective or are under consideration in many parts of the world relating to manufacturing processes, and the sale or use of certain products. To date, such developments have not had a substantial adverse impact on the Company's sales or earnings. The Company has made considerable efforts to develop and sell environmentally compatible products resulting in new and expanding marketing opportunities.
EMPLOYEES --
The Company employed approximately 19,500 persons as of December 31, 1994 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, beverage and food, construction, general industrial, packaging and others on a worldwide basis. The Company's international subsidiaries contributed approximately 36% of operating revenues in both 1994 and 1993.
Refer to pages 19 and 20 in the Company's 1994 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 7, 1995:
Except for Messrs. Hudnut and Karpan, each of the foregoing officers has been employed by the Company in various executive capacities for more than five years. The executive officers of the Company serve at the pleasure of the Board of Directors. Mr. Hudnut joined the Company in January 1992 having previously served as Senior Vice President, General Counsel and Secretary of MBIA Inc., a financial guarantor, and Vice President, General Counsel and Secretary of Scovill Inc., a diversified manufacturer. Mr. Karpan joined the Company in June 1990 having previously served as President and Chief Operating Officer of Butler Fixture Company, a manufacturer of commercial fixtures, and Vice President, Human Resources and Planning for Borg Warner Automotive, Inc., a manufacturer of automotive components.
ITEM 2.



ITEM 2. PROPERTIES As of December 31, 1994 the Company operated 172 plants and office facilities in the United States, excluding regional sales offices and warehouse facilities. Of the total U.S. floor space of 11.4 million square feet, 7.7 million is owned by the Company, with the remaining 3.7 million being leased. Internationally, the Company operated 89 plants and office facilities excluding regional sales offices and warehouse facilities. Of the total international floor space of 5.3 million square feet, 3.8 million is owned by the Company, with the remaining 1.5 million being leased. The principal international plants and office facilities are in Australia, Belgium, Canada, France, Germany, Ireland, Italy, Japan, Malaysia, Spain, Switzerland and the United Kingdom.
Of the worldwide plants and office facilities, 133 were operated by businesses in the Engineered Components segment, 123 by businesses in the Industrial Systems and Consumables segment, and 5 by corporate-related entities. Of the company-wide square footage, 8.0 million are used by businesses in the Engineered Components segment and 7.7 million are used by businesses in the Industrial Systems and Consumables segment, with the remaining square footage used as corporate-related facilities.
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.

ITEM 3. LEGAL PROCEEDINGS Not applicable.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference to page 38 of the Company's 1994 Annual Report to Stockholders.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference to pages 36 and 37 of the Company's 1994 Annual Report to Stockholders.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This information is incorporated by reference to pages 19 through 21 of the Company's 1994 Annual Report to Stockholders.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and report thereon of Arthur Andersen LLP dated January 31, 1995, as found on pages 22 through 35 and page 38 of the Company's 1994 Annual Report to Stockholders, are incorporated by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.



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 1995 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.

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 1995 Annual Meeting of Stockholders.
ITEM 12.

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 1995 Annual Meeting of Stockholders.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14.

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 31, 1995 as found on pages 22 through 35 and page 38 of the Company's 1994 Annual Report to Stockholders, are incorporated by reference.
(2) Financial Statement Schedules
The following supplementary financial data should be read in conjunction with the financial statements and comments thereto as presented in the Company's 1994 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 comments on financial statements.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which this report is filed.
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 1994 Annual Report to Stockholders, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 31, 1995. 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 31, 1995
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 24th day of March, 1995.
ILLINOIS TOOL WORKS INC.
By /s/ JOHN D. NICHOLS
------------------------------------ John D. Nichols 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 24th day of March, 1995.
SIGNATURES TITLE --------------------------------- ---------------------------------------------
/s/ MICHAEL W. GREGG Senior Vice President and Controller, --------------------------------- Accounting (Principal Accounting and Michael W. Gregg Financial Officer) Julius W. Becton, Jr. Director Silas S. Cathcart Director Susan Crown Director Richard M. Jones Director George D. Kennedy Director Richard H. Leet Director John D. Nichols Director Robert C. McCormack Director Phillip B. Rooney Director Harold B. Smith Director Ormand J. Wade Director
By /s/ JOHN D. NICHOLS ------------------------------------------ (John D. Nichols as Attorney-in-Fact)
Original powers of attorney authorizing John D. Nichols 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).
ILLINOIS TOOL WORKS INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 SCHEDULE II
EXHIBIT INDEX ANNUAL REPORT ON FORM 10-K
[LOGO] THIS REPORT HAS BEEN PRINTED ON RECYCLED PAPER.
[LOGO]