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| ITW > SEC Filings for ITW > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
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 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 Company is actively marketing the Decorative Surfaces, Click Commerce and automotive components businesses. The consolidated statements of income, the notes to financial statements and management's discussion and analysis for all periods have been restated to present the results related to all of these businesses as discontinued operations. See the Discontinued Operations note for further information on the Company's discontinued operations.
The Company's consolidated results of operations for the first quarter of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended
March 31
2009 2008
Operating revenues $2,914,268 $3,823,278
Operating income 57,562 579,381
Margin % 2.0 % 15.2 %
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In the first quarter of 2009, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended March 31
% Point
Increase
% Increase (Decrease) (Decrease)
Operating Operating Operating
Revenues Income Margins
Base manufacturing business:
Revenue change/Operating leverage (23.3 )% (64.3 )% (8.1 )%
Changes in variable margins and overhead
costs - 3.7 0.7
Total (23.3 ) (60.6 ) (7.4 )
Acquisitions and divestitures 6.6 (1.6 ) (0.6 )
Restructuring costs - (5.1 ) (1.0 )
Impairment of goodwill and intangibles - (15.3 ) (3.0 )
Translation (7.3 ) (7.5 ) (1.2 )
Other 0.2 - -
Total (23.8 )% (90.1 )% (13.2 )%
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Operating Revenues
Revenues decreased 23.8% in the first quarter of 2009 versus 2008 primarily due to lower base revenues and the unfavorable effect of currency translation, mainly due to a weaker Euro versus the Dollar, partially offset by revenues from acquisitions. Total base revenues declined 23.3% in the first quarter as North American and international base revenues decreased 26.7% and 19.5%, respectively. Both North American and international base revenues were adversely affected by steep declines in macro economic trends and related weak industrial production. The Company anticipates that the current global economic environment will continue through 2009 and as such expects that key end markets will continue to be negatively impacted.
Operating Income
Operating income declined 90.1% in the first quarter of 2009 primarily due to the decline in base revenues, goodwill and intangible asset impairment charges, the negative effect of currency translation and increased restructuring expenses. The Company recorded impairment charges of $60 million and $18 million against the goodwill of the pressure sensitive adhesives and PC board fabrication businesses, respectively. The goodwill impairment was primarily driven by the combination of lower forecasts and lower market multiples being paid for similar businesses. In addition, $12 million in intangible asset impairment charges were recorded on various businesses, most notably the PC board fabrication business. The higher restructuring expenses reflect the Company's efforts to reduce costs in response to current economic conditions. Total margins declined by 13.2% primarily due to the declines in base revenues and the goodwill and intangible impairment charges.
The reconciliation of segment operating revenues to total operating revenues is as follows:
(In thousands) Three Months Ended
March 31
2009 2008
Industrial Packaging $ 426,145 $ 629,750
Power Systems & Electronics 395,455 582,390
Transportation 434,634 594,090
Food Equipment 431,200 509,739
Construction Products 323,987 484,034
Polymers & Fluids 248,073 255,511
All Other 661,804 781,890
Intersegment revenues (7,030 ) (14,126 )
Total operating revenues $ 2,914,268 $ 3,823,278
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INDUSTRIAL PACKAGING
Businesses in this segment produce steel, plastic and paper products used for bundling, shipping and protecting goods in transit.
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 first quarter of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended
March 31
2009 2008
Operating revenues $426,145 $629,750
Operating income (loss) (4,426 ) 69,421
Margin % (1.0 )% 11.0 %
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In the first quarter of 2009, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended March 31
% Point
Increase
% Increase (Decrease) (Decrease)
Operating
Operating Income Operating
Revenues (Loss) Margins
Base manufacturing business:
Revenue change/Operating leverage (24.5 )% (92.0 )% (9.8 )%
Changes in variable margins and overhead )
costs - (4.7 ) (0.7
Total (24.5 ) (96.7 ) (10.5 )
Acquisitions and divestitures 0.7 (1.2 ) (0.2 )
Restructuring costs - 0.5 0.1
Impairment of goodwill and intangibles - (0.6 ) (0.1 )
Translation (8.5 ) (8.4 ) (1.3 )
Total (32.3 )% (106.4 )% (12.0 )%
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Operating Revenues
Revenues decreased 32.3% in the first quarter of 2009 versus 2008 primarily due to lower base revenues and the unfavorable effect of currency translation. Base revenues declined 37.9% and 25.8% for the North American and international strapping businesses, respectively, as both were adversely affected by the continued global decline in industrial production and construction industries. The worldwide stretch packaging and protective packaging businesses experienced declines in base revenues of 19.1% and 16.3% due to accelerating weakness in worldwide end markets.
Operating Income (Loss)
Operating income decreased 106.4% to a loss in the first quarter of 2009 primarily due to the negative leverage effect of the decline in base revenues described above and the negative effect of currency translation and acquisitions. Total operating margins declined by 12.0% mainly due to the declines in base revenues.
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 first quarter of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended
March 31
2009 2008
Operating revenues $395,455 $582,390
Operating income 24,505 124,065
Margin % 6.2 % 21.3 %
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In the first quarter of 2009, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended March 31
% Point
Increase
% Increase (Decrease) (Decrease)
Operating Operating Operating
Revenues Income Margins
Base manufacturing business:
Revenue change/Operating leverage (31.9 )% (57.9 )% (8.1 )%
Changes in variable margins and overhead
costs - 9.7 3.0
Total (31.9 ) (48.2 ) (5.1 )
Acquisitions and divestitures 3.2 (3.8 ) (1.5 )
Restructuring costs - (6.2 ) (2.0 )
Impairment of goodwill and intangibles - (19.3 ) (6.0 )
Translation (3.4 ) (2.7 ) (0.5 )
Total (32.1 )% (80.2 )% (15.1 )%
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Operating Revenues
Revenues declined 32.1% in the first quarter of 2009 over 2008 mainly due to declines in base revenues and the negative effect of currency translation. The revenue decrease was partially offset by acquisitions including a welding equipment business and a PC board fabrication business. Worldwide base welding revenues declined 31.3%, with North American and international businesses declining 36.1% and 16.3%, respectively. Revenues fell as market demand continued to decline across the broad spectrum of industries that this segment serves. Base revenues for the PC board fabrication and electronics businesses fell 55.3% and 44.4%, respectively, due to the rapid decline in consumer demand for electronics. Revenues in the ground support businesses increased 15.6% due to commercial and military airport infrastructure projects.
Operating Income
Operating income decreased 80.2% in the first quarter of 2009 primarily due to the declines in base revenues described above, increased impairment charges, higher restructuring expenses and lower income from acquisitions. Goodwill and intangible asset impairment charges of $18.0 million and $5.8 million, respectively, were incurred in the PC board fabrication business. In addition, intangible asset impairment charges $0.9 million were incurred in the welding accessories business. Total operating margins declined by 15.1% primarily due to the declines in base revenues, higher impairment charges and higher restructuring expense. Reduced operating and overhead expenses increased operating margins by 3.0%.
TRANSPORTATION
Businesses in this segment produce components, fasteners, fluids and polymers, as well as truck remanufacturing and related parts and service.
In the Transportation segment, products include:
• metal and plastic components, fasteners and assemblies for automobiles and
light trucks;
• fluids and polymers for auto aftermarket 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 first quarter of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended
March 31
2009 2008
Operating revenues $434,634 $594,090
Operating income (loss) (17,249 ) 91,882
Margin % (4.0 )% 15.5 %
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In the first quarter of 2009, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended March 31
% Point
Increase
% Increase (Decrease) (Decrease)
Operating
Operating Income Operating
Revenues (Loss) Margins
Base manufacturing business:
Revenue change/Operating leverage (35.5 )% (88.5 )% (12.7 )%
Changes in variable margins and overhead ) )
costs - (8.3 (2.0
Total (35.5 ) (96.8 ) (14.7 )
Acquisitions 15.6 2.0 1.0
Restructuring costs - (12.8 ) (3.1 )
Impairment of goodwill and intangibles - (2.6 ) (0.6 )
Translation (7.0 ) (8.6 ) (2.0 )
Other 0.1 - (0.1 )
Total (26.8 )% (118.8 )% (19.5 )%
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Operating Revenues
Revenues declined 26.8% in the first quarter of 2009 versus the first quarter of 2008 due to declines in base revenues and the unfavorable effect of currency translation. Acquisition revenue mitigated the base revenue decrease and was primarily related to the purchase of a North American truck remanufacturing and parts business in the third quarter of 2008. Worldwide automotive base revenues declined 45.2% in the first quarter due to a 51% and 44% decline in North American and European auto builds, respectively. Automotive aftermarket and transportation repair businesses declined 10.3% and 17.7%, respectively, as a result of a decline in discretionary consumer spending.
Operating Income (Loss)
Operating income decreased 118.8% to a loss in the first quarter of 2009 versus 2008 due to the decline in base revenues described above, higher restructuring costs, the unfavorable effect of currency translation and intangible asset impairment charges slightly offset by acquisition income. The increase in restructuring expense is primarily due to continued efforts to reduce costs in response to current economic conditions. The negative effect of lower revenues offset the benefits of lower operating and overhead expenses. Total operating margins declined by 19.5% primarily due to the dramatic decline in revenues described above.
Due to the severe deterioration in the North American automotive market, there is significant uncertainty about the ability of certain U.S. auto manufacturers and their suppliers to continue as going concerns. On April 30, 2009, Chrysler LLC filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Shortly thereafter, Chrysler LLC suspended production at most of its facilities while the company goes through the bankruptcy process. Additionally, there is uncertainty surrounding General Motors potentially filing for bankruptcy in the near future.
Management believes there will be short term interruptions in business in the second quarter of 2009 due to the Chrysler reorganization and the impact is currently under review by management. The long term impact of the Chrysler reorganization or a possible bankruptcy of General Motors cannot be estimated at this time. While management currently does not believe that these events will have a significant impact on the Company, management continues to monitor and evaluate these events.
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 first quarter of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended
March 31
2009 2008
Operating revenues $431,200 $509,739
Operating income 43,588 69,592
Margin % 10.1 % 13.7 %
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In the first quarter of 2009, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended March 31
% Point
Increase
% Increase (Decrease) (Decrease)
Operating Operating Operating
Revenues Income Margins
Base manufacturing business:
Revenue change/Operating leverage (9.2 )% (28.2 )% (2.9 )%
Changes in variable margins and overhead
costs - 0.5 0.1
Total (9.2 ) (27.7 ) (2.8 )
Acquisitions 1.3 (1.5 ) (0.4 )
Restructuring costs - (0.4 ) (0.1 )
Impairment of goodwill and intangibles - (0.1 ) -
Translation (7.5 ) (7.7 ) (0.3 )
Total (15.4 )% (37.4 )% (3.6 )%
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Operating Revenues
Revenues decreased 15.4% in the first quarter of 2009 versus 2008 primarily due to the decline in base business and the unfavorable effect of currency translation slightly offset by revenues from acquisition. The acquired revenues were attributable to the acquisition of a European food equipment business. North American and international base revenues declined 13.7% and 5.5%, respectively. Base revenues for the North American institutional/restaurant businesses declined 18.1% as customers delayed equipment purchases. Base service revenues declined a more modest 3.1% as customers continued to maintain existing equipment.
Operating Income
Operating income declined 37.4% in the first quarter primarily due to the decrease in base revenues described above and the unfavorable effect of currency translation. Total operating margins declined by 3.6% primarily due to the decline in base revenues and the dilutive margin effect of acquisitions.
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 first quarter of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended
March 31
2009 2008
Operating revenues $323,987 $484,034
Operating income (loss) (11,083 ) 50,564
Margin % (3.4 )% 10.4 %
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In the first quarter of 2009, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended March 31
% Point
Increase
% Increase (Decrease) (Decrease)
Operating
Operating Income Operating
Revenues (Loss) Margins
Base manufacturing business:
Revenue change/Operating leverage (21.2 )% (84.7 )% (8.4 )%
Changes in variable margins and overhead ) )
costs - (8.2 (1.1
Total (21.2 ) (92.9 ) (9.5 )
Acquisitions 0.6 (2.4 ) (0.3 )
Restructuring costs - (7.7 ) (1.0 )
Translation (12.5 ) (18.9 ) (3.0 )
Total (33.1 )% (121.9 )% (13.8 )%
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Operating Revenues
Revenues declined 33.1% in the first quarter of 2009 versus 2008 as a result of the decline in base revenue and the unfavorable effect of currency translation. Base revenues for the North American, European and Asia-Pacific regions decreased 31.0%, 29.2% and 4.6%, respectively. This decline in base revenues was a result of ongoing weakness in the residential and commercial construction markets in Europe and North America as indicated by a 51% decline in both North American housing starts and commercial construction square footage activity over the prior year. The European and Asia-Pacific regions continued to show weakening demand, primarily in the commercial construction category.
Operating Income (Loss)
Operating income and margins decreased 121.9% and by 13.8%, respectively, in the first quarter of 2009, primarily due to the revenue decline described above. In addition, the unfavorable effect of currency translation, higher restructuring expenses and higher inventory reserves contributed to the lower income and margins.
POLYMERS & FLUIDS
Businesses in this segment produce adhesives, sealants, lubrication and cutting fluids and hygiene products.
In the Polymers & Fluids segment, products include:
• adhesives for industrial, construction and consumer purposes;
• chemical fluids that clean or add lubrication to machines;
• epoxy and resin-based coating products for industrial applications;
• hand wipes and cleaners for industrial applications; and
• pressure-sensitive adhesives and components for telecommunications,
electronics, medical and transportation applications.
This segment primarily serves the general industrial, maintenance, repair and operations, construction and automotive aftermarket markets.
The results of operations for the Polymers & Fluids segment for the first quarter of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended
March 31
2009 2008
Operating revenues $248,073 $255,511
Operating income (loss) (51,503 ) 35,128
Margin % (20.8 )% 13.7 %
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In the first quarter of 2009, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:
Three Months Ended March 31
% Point
Increase
% Increase (Decrease) (Decrease)
Operating
Operating Income Operating
Revenues (Loss) Margins
Base manufacturing business:
Revenue change/Operating leverage (16.9 )% (53.8 )% (6.1 )%
Changes in variable margins and overhead
costs - 11.1 1.8
Total (16.9 ) (42.7 ) (4.3 )
Acquisitions 23.7 (13.9 ) (3.6 )
Restructuring costs - (8.3 ) (1.4 )
Impairment of goodwill and intangibles - (171.3 ) (24.3 )
Translation (9.7 ) (10.5 ) (1.0 )
. . .
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