ITW Reports Diluted Income Per Share from Continuing Operations of $0.60 in the 2009 Third Quarter; Operating Margins of 13.5 Percent Improve 360 Basis Points Versus the 2009 Second Quarter; Company's Free Operating Cash Flow Totals $516 Million in the Quarter
GLENVIEW, Ill., Oct. 20, 2009 -- Illinois Tool Works Inc. today reported diluted income per share from continuing operations of $0.60 in the 2009 third quarter as ongoing restructuring activities and modest revenue improvement in discrete end markets helped drive income and operating margins to significantly higher levels compared to the 2009 second quarter. In the 2009 third quarter, operating income of $483.6 million equated to operating margins of 13.5 percent versus operating margins of 9.9 percent in the 2009 second quarter.
Third quarter 2009 operating revenues of $3.580 billion were 19.8 percent lower than the year ago period but better than the 2009 second quarter as worldwide end markets continued to stabilize, or in some cases, modestly improved. The Company's base revenues declined 17.9 percent in the 2009 third quarter versus a year ago, with North American base revenues decreasing 21.6 percent and international base revenues declining 13.8 percent. Acquisitions added 3.6 percent to revenues while translation negatively impacted revenues 5.6 percent in the third quarter. By comparison, total company base revenues decreased 22.2 percent in the 2009 second quarter versus the year-ago period. While third quarter operating margins of 13.5 percent were 150 basis points lower than the year-ago quarter, base margins actually improved 20 basis points in the 2009 third quarter. Diluted income per share from continuing operations of $0.60 was 33 percent lower than the year-ago period.
Starting with this quarter, the Company has moved its annual goodwill impairment testing from the first quarter to the third quarter of each year. As part of the third quarter impairment review, the Company recorded $12 million of impairment, or a reduction of 2.5 cents of earnings. This impairment was related to a 2008 acquisition of a truck remanufacturing and parts/service business. In addition, the Company's effective tax rate of 32.5 percent in the third quarter was higher than the previously forecasted third quarter tax rate of 28.0 percent, resulting in 3.5 cents of reduced earnings. The higher tax rate in the third quarter was due to the non-deductibility of the goodwill associated with impairment and several discrete tax adjustments.
The Company's strong third quarter free operating cash flow of $516 million was largely driven by the strong improvement in margins and further reductions in working capital. In the quarter, the free operating cash flow to net income conversion rate was 171 percent. Year-to-date free operating cash flow totaled $1.466 billion, representing a conversion rate of 333 percent.
"We continue to be very pleased with the Company's overall operating performance amid an environment of generally weak end markets," said David B. Speer, ITW's chairman and chief executive officer. "Our strong operating margins of 13.5 percent in the third quarter were largely achieved thanks to the focused response by our operating managers and right-sizing of our decentralized business units around the world. We incurred $31 million of restructuring expense in the quarter, bringing our year-to-date restructuring total to $128 million. Additionally, we expect to incur between $25 million and $40 million of restructuring in the 2009 fourth quarter. The cumulative benefits of these restructuring programs will continue to help us in the 2009 fourth quarter and in 2010."
Segment highlights for the 2009 third quarter include:
*Worldwide revenues for the Power Systems and Electronics segment declined 34.6 percent in the quarter, with base revenues decreasing 34.2 percent. Base revenues performance in the quarter was modestly better than the decrease of 36.5 percent in the 2009 second quarter. Total worldwide welding base revenues declined 36.2 percent as demand for capital equipment and consumables continued to mirror weak capital expenditure spending. In PC board fabrication, base revenues decreased 42.3 percent in the third quarter versus a base revenue decline of 59.2 percent in the second quarter. Even with the weak top line, operating margins of 17.2 percent in the quarter were 190 basis points higher than the 2009 second quarter.
*Worldwide revenues for the Transportation segment declined 7.0 percent in the quarter. Base revenues decreased 7.9 percent compared to a base revenue decline of 23.7 percent in the 2009 second quarter. The sequential improvement in base revenues was largely attributable to increased auto builds in North America. Thanks in large part to incentive programs, North American auto builds of 2.4 million in the third quarter were 600,000 units higher than the second quarter. Automotive aftermarket base revenues declined 4.5 percent in the quarter versus a decrease of 12.7 percent in the second quarter. Notably, third quarter operating margins of 10.5 percent were 570 basis points higher than the 2009 second quarter.
*Worldwide revenues for the Food Equipment segment declined 10.2 percent in the quarter, with base revenues decreasing 6.3 percent. North American food equipment base revenues decreased 8.0 percent while international food equipment base revenues fell 4.9 percent. All revenue metrics in the quarter represented improvement versus the 2009 second quarter. Operating margins of 17.2 percent in the quarter were 90 basis points higher than the prior year period and 430 basis points higher than the preceding quarter.
Looking ahead, the Company is forecasting fourth quarter 2009 diluted income per share from continuing operations to be in a range of $0.54 to $0.66. The 2009 fourth quarter forecast assumes a total revenue range of -1 percent to +5 percent versus the 2009 third quarter.
This Earnings Release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding operating performance, revenue growth, diluted income per share from continuing operations, restructuring expenses and related benefits and the Company's related forecast. These statements are subject to certain risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated. Important factors that could cause actual results to differ materially from the Company's expectations are contained in ITW's Form 10-K for 2009, as updated by our current report on Form 8-K filed in August 2009.
With $17.1 billion in 2008 revenues, ITW is a multinational manufacturer of a diversified range of value-adding and short lead-time industrial products and equipment. The Company consists of 895 business units in 54 countries and employs some 59,000 people.
ILLINOIS TOOL WORKS INC.
(In thousands except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
STATEMENT OF INCOME 2009 2008 2009 2008
------------------- ---- ---- ---- ----
Operating Revenues $3,580,354 $4,464,621 $10,119,639 $13,146,312
Cost of revenues 2,315,175 2,936,599 6,716,255 8,570,541
Selling,
administrative,
and R&D expenses 720,042 806,533 2,239,604 2,394,612
Amortization of
intangible assets 49,542 50,491 152,059 132,933
Impairment of
goodwill and other
intangible assets 12,000 - 101,997 1,438
------ - ------- -----
Operating Income 483,595 670,998 909,724 2,046,788
Interest expense (45,670) (38,240) (120,992) (112,295)
Other income/(expense) 11,139 16,763 (13,041) 19,924
------ ------ ------- ------
Income from Continuing
Operations Before Taxes 449,064 649,521 775,691 1,954,417
Income taxes 146,100 184,935 301,800 565,789
------- ------- ------- -------
Income from Continuing
Operations $302,964 $464,586 $473,891 $1,388,628
Loss from Discontinued
Operations (546) (11,068) (34,282) (103,399)
---- ------- ------- --------
Net Income $302,418 $453,518 $439,609 $1,285,229
======== ======== ======== ==========
Income Per Share from
Continuing Operations:
Basic $0.61 $0.90 $0.95 $2.66
Diluted $0.60 $0.89 $0.95 $2.64
Loss Per Share from
Discontinued Operations:
Basic $(0.00) $(0.02) $(0.07) $(0.20)
Diluted $(0.00) $(0.02) $(0.07) $(0.20)
Net Income Per Share:
Basic $0.60 $0.88 $0.88 $2.46
Diluted $0.60 $0.87 $0.88 $2.45
Shares outstanding
during the period:
Average 500,313 517,914 499,635 521,886
Average assuming
dilution 502,187 521,086 501,184 525,326
ESTIMATED FREE OPERATING CASH FLOW
----------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Net cash provided by
operating activities $569,196 $688,759 $1,640,279 $1,632,787
Less: Additions to
PP&E (53,015) (89,308) (174,353) (274,295)
------- ------- -------- --------
Free operating cash
flow $516,181 $599,451 $1,465,926 $1,358,492
======== ======== ========== ==========
ILLINOIS TOOL WORKS INC.
(In thousands)
SEPT 30, JUNE 30, DEC 31,
STATEMENT OF
FINANCIAL POSITION 2009 2009 2008
------------------- ---- ---- ----
ASSETS
------
Cash & equivalents $942,856 $616,403 $742,950
Trade receivables 2,410,667 2,393,176 2,571,987
Inventories 1,361,201 1,438,637 1,774,697
Deferred income
taxes 243,284 218,125 206,496
Prepaids and other
current assets 327,083 453,424 375,778
Assets held for
sale - 12,229 82,071
- ------ ------
Total current
assets 5,285,091 5,131,994 5,753,979
--------- --------- ---------
Net plant &
equipment 2,107,103 2,137,982 2,109,432
Investments 456,450 450,889 465,894
Goodwill 4,721,777 4,677,193 4,517,550
Intangible assets 1,652,292 1,696,585 1,779,669
Deferred income
taxes 81,870 82,448 75,999
Other assets 579,633 564,584 501,028
------- ------- -------
$14,884,216 $14,741,675 $15,203,551
=========== =========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY
------------------------------------
Short-term debt $67,460 $180,511 $2,433,973
Accounts payable 626,314 575,001 683,991
Accrued expenses 1,391,824 1,326,115 1,315,106
Cash dividends
payable 155,282 154,892 154,726
Income taxes
payable 225,751 206,219 216,751
Liabilities held
for sale - 5,454 20,546
- ----- ------
Total current
liabilities 2,466,631 2,448,192 4,825,093
--------- --------- ---------
Long-term debt 2,869,377 2,855,812 1,247,883
Deferred income
taxes 71,468 139,167 125,089
Other liabilities 1,234,447 1,372,380 1,330,395
--------- --------- ---------
Total noncurrent
liabilities 4,175,292 4,367,359 2,703,367
--------- --------- ---------
Common stock 5,336 5,323 5,318
Additional paid-in
capital 199,259 146,116 105,497
Income reinvested
in the business 9,170,064 9,022,927 9,196,465
Common stock held
in treasury (1,390,594) (1,390,594) (1,390,594)
Accumulated other
comprehensive
income 249,471 130,361 (253,211)
Noncontrolling
interest 8,757 11,991 11,616
----- ------ ------
Total
stockholders'
equity 8,242,293 7,926,124 7,675,091
--------- --------- ---------
$14,884,216 $14,741,675 $15,203,551
=========== =========== ===========