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| ITW > SEC Filings for ITW > Form 10-Q on 5-Nov-2008 | All Recent SEC Filings |
5-Nov-2008
Quarterly Report
CONSOLIDATED RESULTS OF OPERATIONS
In 2007, the Company classified two consumer packaging businesses, an automotive machinery business and an automotive components business as discontinued operations. Additionally, in August 2008, the Company's Board of Directors authorized the divestiture of the Decorative Surfaces segment and Click Commerce industrial software business which was previously reported in the All Other segment. The consolidated statement of income for all periods has been restated to present the results related to these businesses as discontinued operations.
The Company's consolidated results of operations for the third quarter and year-to-date periods of 2008 and 2007 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Operating revenues $ 4,147,757 $ 3,744,402 $ 12,190,960 $ 10,962,643
Operating income 638,963 649,557 1,924,123 1,830,176
Margin % 15.4 % 17.3 % 15.8 % 16.7 %
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In the third quarter and year-to-date periods of 2008, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended September 30 Nine Months Ended September 30
% Point % Point
Increase Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating Operating Operating Operating Operating
Revenues Income Margins Revenues Income Margins
Base
manufacturing
business:
Revenue
change/Operating
leverage (0.8 )% (1.9 )% (0.2 )% (0.1 )% (0.4 )% - %
Changes in
variable margins
and
overhead costs - (6.1 ) (1.1 ) - (1.5 ) (0.3 )
Total (0.8 ) (8.0 ) (1.3 ) (0.1 ) (1.9 ) (0.3 )
Acquisitions and
divestitures 6.9 1.9 (0.7 ) 6.0 1.8 (0.7 )
Restructuring
costs - 0.3 0.1 - 0.1 -
Impairment of
goodwill &
intangibles - 0.1 - - 0.1 -
Translation 4.7 4.1 - 5.4 5.0 -
Other - - - (0.1 ) - 0.1
Total 10.8 % (1.6 )% (1.9 )% 11.2 % 5.1 % (0.9 )%
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Operating Revenues
Revenues increased 10.8% and 11.2% in the third quarter and year-to-date periods of 2008, respectively, versus 2007 primarily due to revenues from acquisitions and the favorable effect of currency translation. Total base revenues declined 0.8% and 0.1% in the third quarter and year-to-date periods, respectively, as price increases were more than offset by volume decreases. International base revenues increased 1.2% in the third quarter and 2.7% year-to-date, offset by a 2.1% and 2.4% decline, respectively, in North American base revenues. The Company's Asia-Pacific end markets continue to experience relatively strong growth while Europe showed weakening end markets. North American revenues continue to be negatively impacted by declines in the residential construction and automotive sectors as well as weak industrial production.
Operating Income
Operating income in the third quarter declined 1.6% and increased 5.1% year-to-date versus 2007 primarily due to the negative effect of lower sales and decreased variable margins, offset in the year-to-date-period by the positive effect of currency translation and income from acquired businesses. Total operating margins decreased 1.9% and 0.9% for the third quarter and year-to-date period, respectively, primarily due to lower margins of acquired companies and base businesses. Base margins declined 130 basis points and 30 basis points in the third quarter and year-to-date periods, respectively, mainly due to volume decreases and lower variable margins associated with raw material price increases. These decreases were partially offset by lower overhead expenses at base businesses due to tighter cost controls.
The reconciliation of segment operating revenues to total operating revenues is as follows:
(In thousands) Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Industrial Packaging $ 687,549 $ 599,655 $ 2,022,286 $ 1,775,801
Power Systems & Electronics 620,743 567,479 1,851,919 1,687,155
Transportation 581,865 534,494 1,806,776 1,647,255
Construction Products 525,005 516,432 1,575,211 1,532,195
Food Equipment 542,687 500,419 1,590,905 1,364,572
Polymers & Fluids 371,036 252,507 928,688 684,689
All Other 833,115 786,935 2,458,507 2,309,539
Intersegment revenues (14,243 ) (13,519 ) (43,332 ) (38,563 )
Total operating revenues $ 4,147,757 $ 3,744,402 $ 12,190,960 $ 10,962,643
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INDUSTRIAL PACKAGING
Businesses in this segment produce steel, plastic and paper products used for bundling, shipping and protecting transported goods.
In the Industrial Packaging segment, products include:
• steel and plastic strapping and related tools and equipment;
• plastic stretch film and related equipment;
• paper and plastic products that protect goods in transit; and
• metal jacketing and other insulation products.
This segment primarily serves the primary metals, general industrial, construction, and food and beverage markets.
The results of operations for the Industrial Packaging segment for the third quarter and year-to-date periods of 2008 and 2007 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Operating revenues $ 687,549 $ 599,655 $ 2,022,286 $ 1,775,801
Operating income 76,247 78,532 237,229 221,936
Margin % 11.1 % 13.1 % 11.7 % 12.5 %
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In the third quarter and year-to-date periods of 2008, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended September 30 Nine Months Ended September 30
% Point % Point
Increase Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating Operating Operating Operating Operating
Revenues Income Margins Revenues Income Margins
Base
manufacturing
business:
Revenue
change/Operating
leverage 5.2 % 15.8 % 1.3 % 2.2 % 7.2 % 0.6 %
Changes in
variable margins
and
overhead costs - (20.6 ) (2.5 ) - (6.7 ) (0.8 )
Total 5.2 (4.8 ) (1.2 ) 2.2 0.5 (0.2 )
Acquisitions and
divestitures 4.2 3.5 - 4.9 1.8 (0.3 )
Restructuring
costs - (5.2 ) (0.6 ) - (1.3 ) (0.2 )
Impairment of
goodwill &
intangibles - 0.5 - - 0.2 -
Translation 5.3 3.1 (0.2 ) 6.8 5.7 (0.1 )
Other - - - - - -
Total 14.7 % (2.9 )% (2.0 )% 13.9 % 6.9 % (0.8 )%
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Operating Revenues
Revenues increased 14.7% and 13.9% in the third quarter and year-to-date-periods of 2008, respectively, over the same periods of 2007 due to the favorable effect of currency translation, increased base revenues and revenues from acquired companies. The increase in acquisition revenue was primarily related to the acquisition of a European industrial packaging business, a European stretch packaging business and a U.S. equipment business. Total base revenues increased for the current quarter and year-to-date periods as price increases and strong growth in the worldwide insulation businesses, due to penetration in emerging markets, were partially offset by volume declines in the strapping businesses.
Operating Income
Operating income decreased 2.9% in the third quarter of 2008 and increased 6.9% year-to-date over the same periods of 2007. In the third quarter, the positive leverage effect of the revenue increase, income from acquisitions and the favorable effect of currency translation was more than offset by decreased variable margins and higher restructuring expenses. Variable margins in the third quarter and year-to-date was negatively affected by increased raw material costs and unfavorable product mix. Year-to-date, lower overhead costs, as a result of tighter cost controls and the benefit of prior year restructuring projects, partially offset these increases.
POWER SYSTEMS & ELECTRONICS
Businesses in this segment produce equipment and consumables associated with specialty power conversion, metallurgy and electronics.
In the Power Systems & Electronics segment, products include:
• arc welding equipment;
• metal arc welding consumables and related accessories;
• metal solder materials for PC board fabrication;
• equipment and services for microelectronics assembly;
• electronic components and component packaging; and
• airport ground support equipment.
This segment primarily serves the general industrial, electronics and construction markets.
The results of operations for the Power Systems & Electronics segment for the third quarter and year-to-date periods of 2008 and 2007 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Operating revenues $ 620,743 $ 567,479 $ 1,851,919 $ 1,687,155
Operating income 118,220 110,772 383,760 341,736
Margin % 19.0 % 19.5 % 20.7 % 20.3 %
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In the third quarter and year-to-date periods of 2008, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended September 30 Nine Months Ended September 30
% Point % Point
Increase Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating Operating Operating Operating Operating
Revenues Income Margins Revenues Income Margins
Base
manufacturing
business:
Revenue
change/Operating
leverage 3.1 % 6.1 % 0.6 % 3.9 % 7.3 % 0.7 %
Changes in
variable margins
and
overhead costs - (1.1 ) (0.2 ) - 2.4 0.5
Total 3.1 5.0 0.4 3.9 9.7 1.2
Acquisitions and
divestitures 3.7 (1.0 ) (0.9 ) 3.2 0.4 (0.6 )
Restructuring
costs - 0.9 0.2 - 0.3 0.1
Impairment of
goodwill &
intangibles - - - - (0.2 ) (0.1 )
Translation 2.5 1.9 (0.1 ) 2.7 2.1 (0.1 )
Other 0.1 (0.1 ) (0.1 ) - - (0.1 )
Total 9.4 % 6.7 % (0.5 )% 9.8 % 12.3 % 0.4 %
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Operating Revenues
Revenues increased 9.4% and 9.8% in the third quarter and year-to-date periods of 2008, respectively, over the same periods of 2007 primarily due to an increase in base revenues, revenues from acquired companies and the positive effect of currency translation. Base revenues grew 3.1% and 3.9% for the third quarter and year-to-date periods primarily due to a 26.4% and 23.3% increase in international welding businesses in third quarter and year-to-date periods, respectively, due to stronger Asian demand in energy and ship building end markets. The third quarter decline in North American welding base revenues of 0.9% is a result of the continued slowdown in U.S. industrial production and related end markets. Year-to-date North American welding revenues have increased 0.2%. The acquisition revenue was primarily due to the purchase of a PC board fabrication business and a welding accessories business.
Operating Income
Operating income increased 6.7% and 12.3% in the third quarter and year-to-date periods of 2008, respectively, over the same periods of 2007 primarily due to the positive leverage effect from the increase in base revenues and the favorable effect of currency translation. In the third quarter, these increases were partially offset by lower income from acquisitions and decreased variable margins. Base margins increased 40 basis points and 120 basis points for the third quarter and year-to-date periods, respectively, primarily due to leverage from the increase in revenue. Year-to-date margin gains from lower overhead expenses due to improved performance in the PC board businesses are a result of prior year restructurings.
TRANSPORTATION
Businesses in this segment produce components, fasteners, fluids and polymers for transportation-related applications.
In the Transportation segment, products include:
• metal and plastic components and assemblies for automobiles and trucks;
• metal and plastic fasteners for automobiles and trucks;
• fluids and polymers for maintenance and appearance;
• fillers and putties for auto body repair; and
• polyester coatings and patch and repair products for the marine industry.
This segment primarily serves the automotive original equipment manufacturers and tiers and automotive aftermarket markets.
The results of operations for the Transportation segment for the third quarter and year-to-date periods of 2008 and 2007 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Operating revenues $ 581,865 $ 534,494 $ 1,806,776 $ 1,647,255
Operating income 68,941 88,859 260,724 279,054
Margin % 11.8 % 16.6 % 14.4 % 16.9 %
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In the third quarter and year-to-date periods of 2008, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended September 30 Nine Months Ended September 30
% Point % Point
Increase Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating Operating Operating Operating Operating
Revenues Income Margins Revenues Income Margins
Base
manufacturing
business:
Revenue
change/Operating
leverage (9.6 )% (22.5 )% (2.4 )% (4.4 )% (10.2 )% (1.0 )%
Changes in
variable margins
and
overhead costs - (10.3 ) (1.9 ) - (4.9 ) (0.9 )
Total (9.6 ) (32.8 ) (4.3 ) (4.4 ) (15.1 ) (1.9 )
Acquisitions 12.3 0.6 (1.5 ) 7.9 1.9 (0.9 )
Restructuring
costs - 4.3 0.8 - 0.1 -
Translation 6.1 5.5 0.2 6.3 6.5 0.2
Other 0.1 - - (0.1 ) - 0.1
Total 8.9 % (22.4 )% (4.8 )% 9.7 % (6.6 )% (2.5 )%
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Operating Revenues
Revenues increased 8.9% and 9.7% in the third quarter and year-to-date periods of 2008, respectively, over the same periods of 2007 primarily due to revenues from acquired companies and favorable currency translation, partially offset by declines in base revenue. Acquisition revenue increased primarily due to the purchase of a U.S. truck remanufacturing and parts business, a worldwide components business and two automotive aftermarket businesses. Base revenues for the North American automotive businesses declined 18.1% and 11.8% in the third quarter and year-to date periods, respectively, due to a 15.3% and 12.7% decline in automotive production in the third quarter and year-to-date periods, respectively. International automotive base revenues declined 7.3% in the third quarter due to a 1.2% decline in European automotive production and product mix. Year-to-date international base revenues decreased 0.6% despite a 3.3% increase in European production due to product mix. Base revenues for the automotive aftermarket businesses increased 2.8% and 4.2% for the third quarter and year-to-date periods, respectively, primarily due to growth in sales to Asian end markets and higher demand as consumers are maintaining existing vehicles longer.
Operating Income
Operating income decreased 22.4% and 6.6% third quarter and year to-date periods, respectively, over the same periods of 2007 primarily due to the negative leverage effect from the decrease in base business revenues described above and various one-time charges in operating expenses. These decreases were partially offset by the favorable effect of currency translation, lower restructuring expenses and income from acquired businesses. Base margins declined due to the decline in revenue and lower variable margins due to increases in raw material costs and operating expenses.
CONSTRUCTION PRODUCTS
Businesses in this segment produce tools, fasteners and other products for construction applications.
In the Construction Products segment, products include:
• fasteners and related fastening tools for wood applications;
• anchors, fasteners and related tools for concrete applications;
• metal plate truss components and related equipment and software; and
• packaged hardware, fasteners, anchors and other products for retail.
This segment primarily serves the residential construction, renovation construction and commercial construction markets.
The results of operations for the Construction Products segment for the third quarter and year-to-date periods of 2008 and 2007 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Operating revenues $ 525,005 $ 516,432 $ 1,575,211 $ 1,532,195
Operating income 73,423 77,027 202,485 209,339
Margin % 14.0 % 14.9 % 12.9 % 13.7 %
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In the third quarter and year-to-date periods of 2008, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended September 30 Nine Months Ended September 30
% Point % Point
Increase Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating Operating Operating Operating Operating
Revenues Income Margins Revenues Income Margins
Base
manufacturing
business:
Revenue
change/Operating
leverage (4.4 )% (12.5 )% (1.3 )% (4.8 )% (14.5 )% (1.4 )%
Changes in
variable margins
and
overhead costs - 0.3 0.1 - (0.5 ) (0.1 )
Total (4.4 ) (12.2 ) (1.2 ) (4.8 ) (15.0 ) (1.5 )
Acquisitions 0.3 (0.6 ) (0.2 ) 0.5 (0.8 ) (0.2 )
Restructuring
costs - 1.7 0.3 - 4.1 0.6
Impairment of
goodwill &
intangibles - - - - 0.2 -
Translation 5.8 6.4 0.2 7.1 8.2 0.2
Other - - - - - 0.1
Total 1.7 % (4.7 )% (0.9 )% 2.8 % (3.3 )% (0.8 )%
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Operating Revenues
Revenues increased 1.7% and 2.8% in the third quarter and year-to-date periods of 2008, respectively, over the same periods of 2007 primarily due to the favorable effect of currency translation partially offset by a decline in base revenues. Base revenues for the North American construction businesses decreased 6.2% and 12.3% in the third quarter and year-to-date periods, respectively, due to the ongoing weakness in the North American construction market. Notably, housing starts declined an annualized 31% and commercial construction fell 19%, on a square-footage basis, year-to-date. Internationally, base revenue decreased 3.2% and increased 0.7% for the third quarter and year-to-date, respectively, primarily due to growth in residential and commercial demand in the Australasian region offset by weaker European demand.
Operating Income
Operating income decreased 4.7% and 3.3% in the third quarter and year-to-date periods of 2008, respectively, over the same periods of 2007 primarily due to the negative leverage effect from the decline in base revenues described above, partially offset by lower restructuring expenses and the favorable effect of currency translation. Base margins declined in both periods primarily due to the revenue decreases.
FOOD EQUIPMENT
Businesses in this segment produce commercial food equipment and related service.
In the Food Equipment segment, products include:
• warewashing equipment;
• cooking equipment, including ovens, ranges and broilers;
• refrigeration equipment, including refrigerators, freezers and prep tables;
• food processing equipment, including slicers, mixers and scales; and
• kitchen exhaust, ventilation and pollution control systems.
This segment primarily serves the food institutional/restaurant, service and food retail markets.
The results of operations for the Food Equipment segment for the third quarter and year-to-date periods of 2008 and 2007 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Operating revenues $ 542,687 $ 500,419 $ 1,590,905 $ 1,364,572
Operating income 87,476 88,882 230,064 220,558
Margin % 16.1 % 17.8 % 14.5 % 16.2 %
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In the third quarter and year-to-date periods of 2008, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended September 30 Nine Months Ended September 30
% Point % Point
Increase Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating Operating Operating Operating Operating
Revenues Income Margins Revenues Income Margins
Base
manufacturing
business:
Revenue
change/Operating
leverage (1.7 )% (4.1 )% (0.5 )% 1.9 % 5.0 % 0.5 %
Changes in
variable margins
and
overhead costs - (2.9 ) (0.5 ) - (5.0 ) (0.8 )
Total (1.7 ) (7.0 ) (1.0 ) 1.9 - (0.3 )
Acquisitions 5.8 2.4 (0.5 ) 9.7 3.4 (0.8 )
Restructuring
costs - (0.8 ) (0.1 ) - (3.3 ) (0.5 )
Translation 4.4 3.8 - 5.0 4.2 -
Other (0.1 ) - (0.1 ) - - (0.1 )
Total 8.4 % (1.6 )% (1.7 )% 16.6 % 4.3 % (1.7 )%
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Operating Revenues
Revenues increased 8.4% and 16.6% in the third quarter and year-to-date periods of 2008, respectively, over the same periods of 2007 primarily due to revenues from acquired companies, the favorable effect of currency translation and year-to-date base revenue growth. The acquired revenues are primarily attributable to the acquisition of a European food equipment business and two worldwide food processing equipment businesses. International base revenues declined 3.2% in the third quarter due to weakening European end market demand. For the year-to-date period, international base revenues increased 3.2% on the strength of strong Asian demand. North American base revenue declined 1.2% in the third quarter while increasing 0.3% year-to-date primarily due to increased service revenue offset by declines in the institutional/restaurant end market.
Operating Income
Operating income decreased 1.6% and increased 4.3% in the third quarter and year-to-date periods of 2008, respectively, over the same periods of 2007. In the third quarter, favorable effect of currency translation and income from . . .
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