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| ITW > SEC Filings for ITW > Form 10-Q on 30-Oct-2009 | All Recent SEC Filings |
30-Oct-2009
Quarterly Report
CONSOLIDATED RESULTS OF OPERATIONS
In 2007, the Company classified an automotive components business and a consumer packaging business as discontinued operations. Additionally, in 2008, the Company's Board of Directors authorized the divestiture of the Click Commerce industrial software business which was previously reported in the All Other segment. The consolidated statements of income, statements of financial position, 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.
In May 2009, the Company's Board of Directors rescinded a resolution from August 2008 to divest the Decorative Surfaces segment. The consolidated financial statements, the notes to financial statements and management's discussion and analysis for all periods have been restated to present the results related to the Decorative Surfaces segment as continuing operations.
The Company's consolidated results of operations for the third quarter and year-to-date periods of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
Operating revenues $ 3,580,354 $ 4,464,621 $ 10,119,639 $ 13,146,312
Operating income 483,595 670,998 909,724 2,046,788
Margin % 13.5 % 15.0 % 9.0 % 15.6 %
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In the third quarter and year-to-date periods 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 September 30 Nine Months Ended September 30
% Point Increase % Point Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating
Revenues Operating Income Operating Margins Revenues Operating Income Operating Margins
Base manufacturing business:
Revenue change/Operating
leverage (17.9 )% (48.4 )% (5.6 )% (20.9 )% (55.5 )% (6.8 )%
Changes in variable margins
and overhead costs - 31.7 5.8 - 17.6 3.5
Total (17.9 ) (16.7 ) 0.2 (20.9 ) (37.9 ) (3.3 )
Acquisitions and divestitures 3.6 1.4 (0.4 ) 5.0 (0.1 ) (0.6 )
Restructuring costs - (4.0 ) (0.7 ) - (4.9 ) (1.0 )
Impairment of goodwill
and intangibles - (1.8 ) (0.3 ) - (4.9 ) (1.0 )
Translation (5.6 ) (6.8 ) (0.3 ) (7.2 ) (7.7 ) (0.7 )
Other 0.1 - - 0.1 (0.1 ) -
Total (19.8 )% (27.9 )% (1.5 )% (23.0 )% (55.6 )% (6.6 )%
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Operating Revenues
Revenues decreased 19.8% and 23.0% in the third quarter and year-to-date periods
of 2009, respectively, primarily due to lower base revenues and the unfavorable
effect of currency translation, mainly due to the strengthening of the Dollar,
partially offset by revenues from acquisitions. Total base revenues declined
17.9% and 20.9% in the third quarter and year-to-date periods, respectively, but
showed improvement as compared to the second quarter 2009. North American base
revenue declined 21.6% and 24.8%, in the third quarter and year-to-date periods,
respectively, while international base revenues declined 13.8% and 16.7% in the
same periods. Both North American and international base revenues were adversely
affected by weak, but improving macroeconomic and industrial production trends
as compared to the second quarter 2009. The Company anticipates that the current
weak 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 27.9% and 55.6% in the third quarter and year-to-date
periods of 2009, respectively, primarily due to the decline in base revenues,
the negative effect of currency translation, increased restructuring charges and
increased goodwill and intangible impairment charges. In the first quarter of
2009, the Company recorded impairment charges of $78 million and $12 million
against goodwill and intangibles, respectively, and in the third quarter
recorded a $12 million goodwill impairment charge. The goodwill and intangible
impairments were primarily related to new reporting units which were acquired
over the last few years. These charges were driven by lower current forecasts
compared to the expected forecasts at the time the reporting units were
acquired. The higher restructuring charges reflect the Company's efforts to
reduce costs in response to current economic conditions. Improvements in base
variable margins and lower overhead costs increased base margins 5.8% and 3.5%
in the third quarter and year-to-date periods, respectively, as the cumulative
benefits of past restructuring projects began to be more fully realized and
price versus raw material cost comparisons were favorable. Total margins
declined by 1.5% and 6.6% in the third quarter and year-to-date periods of 2009,
respectively, primarily due to the declines in base revenues, restructuring
charges 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 Nine Months Ended
September 30 September 30
2009 2008 2009 2008
Industrial Packaging $ 489,506 $ 694,322 $ 1,375,987 $ 2,042,058
Power Systems & Electronics 405,764 620,743 1,199,681 1,851,919
Transportation 540,921 581,867 1,477,821 1,806,384
Food Equipment 487,325 542,687 1,369,878 1,590,905
Construction Products 402,459 525,005 1,097,191 1,575,211
Polymers & Fluids 307,299 369,370 834,059 924,130
Decorative Surfaces 252,875 316,861 742,318 955,352
All Other 702,707 828,006 2,046,262 2,443,682
Intersegment revenues (8,502 ) (14,240 ) (23,558 ) (43,329 )
Total operating revenues $ 3,580,354 $ 4,464,621 $ 10,119,639 $ 13,146,312
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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 third quarter and year-to-date periods of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
Operating revenues $ 489,506 $ 694,322 $ 1,375,987 $ 2,042,058
Operating income 37,193 77,422 50,856 241,122
Margin % 7.6 % 11.2 % 3.7 % 11.8 %
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In the third quarter and year-to-date periods 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 September 30 Nine Months Ended September 30
% Point Increase % Point Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating
Revenues Operating Income Operating Margins Revenues Operating Income Operating Margins
Base manufacturing business:
Revenue change/Operating
leverage (23.3 )% (83.6 )% (8.8 )% (24.7 )% (86.6 )% (9.7 )%
Changes in variable margins
and overhead costs - 45.9 6.7 - 21.8 3.4
Total (23.3 ) (37.7 ) (2.1 ) (24.7 ) (64.8 ) (6.3 )
Acquisitions 0.9 0.8 - 0.8 (0.4 ) (0.1 )
Restructuring costs - (5.2 ) (0.8 ) - (3.5 ) (0.6 )
Translation (7.1 ) (9.8 ) (0.7 ) (8.8 ) (10.2 ) (1.2 )
Other - (0.1 ) - 0.1 - 0.1
Total (29.5 )% (52.0 )% (3.6 )% (32.6 )% (78.9 )% (8.1 )%
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Operating Revenues
Revenues decreased 29.5% and 32.6% in the third quarter and year-to-date periods
of 2009, respectively, primarily due to lower base revenues and the unfavorable
impact of currency translation. Base revenues declined 27.0% and 29.7% for the
North American industrial packaging businesses in the third quarter and
year-to-date periods, respectively, largely due to declines in consumable and
equipment volume in key end markets such as primary metals, construction-related
materials and manufacturing. The international industrial packaging businesses
declined 25.0% and 25.6%, respectively, in the third quarter and year-to-date
periods, as both were adversely affected by the continued global decline in
industrial production and construction industries.
Operating Income
Operating income decreased 52.0% and 78.9% in the third quarter and year-to-date
periods of 2009, respectively, primarily due to the negative leverage effect of
the decline in base revenues described above, the negative effect of currency
translation and higher restructuring charges. Improvements in base variable
margins and overhead costs increased margins 6.7% and 3.4% in the third quarter
and year-to-date periods, respectively, as price versus raw material cost
comparisons were favorable and benefits of past restructuring projects began to
be realized. Total operating margins declined by 3.6% and 8.1% in the third
quarter and year-to-date periods, respectively, 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 third quarter and year-to-date periods of 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
Operating revenues $ 405,764 $ 620,743 $ 1,199,681 $ 1,851,919
Operating income 69,954 118,910 156,474 385,797
Margin % 17.2 % 19.2 % 13.0 % 20.8 %
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In the third quarter and year-to-date periods 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 September 30 Nine Months Ended September 30
% Point Increase % Point Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating
Revenues Operating Income Operating Margins Revenues Operating Income Operating Margins
Base manufacturing business:
Revenue change/Operating
leverage (34.2 )% (64.8 )% (8.9 )% (34.3 )% (61.8 )% (8.7 )%
Changes in variable margins
and overhead costs - 25.8 7.5 - 16.0 5.1
Total (34.2 ) (39.0 ) (1.4 ) (34.3 ) (45.8 ) (3.6 )
Acquisitions 2.4 1.2 (0.3 ) 2.5 (1.1 ) (0.8 )
Restructuring costs - (0.6 ) (0.2 ) - (3.5 ) (1.1 )
Impairment of goodwill
and intangibles - - - - (6.2 ) (2.0 )
Translation (2.8 ) (2.8 ) (0.1 ) (3.4 ) (2.9 ) (0.2 )
Other - - - - 0.1 (0.1 )
Total (34.6 )% (41.2 )% (2.0 )% (35.2 )% (59.4 )% (7.8 )%
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Operating Revenues
Revenues declined 34.6% and 35.2% in the third quarter and year-to-date periods
of 2009, respectively, mainly due to declines in base revenues and the negative
effect of currency translation. Revenues fell as end market demand continued to
decline across the broad spectrum of industries that this segment serves,
including key end markets such as commercial construction and manufacturing. The
revenue decrease was partially offset by 2008 acquisitions, including a welding
equipment business and a PC board fabrication business. Worldwide base welding
revenues declined 36.2% in the third quarter and 34.9% year-to-date. North
American welding businesses declined 40.0% and 39.1% while international base
businesses declined 26.7% and 23.5%, in the respective periods. Base revenues
for the electronics businesses fell 32.6% and 36.6% in the third quarter and
year-to-date periods, respectively, while base revenues in the PC board
fabrication businesses fell 42.3% and 52.1% in the same periods, both largely
due to the decline in consumer demand for electronics.
Operating Income
Operating income decreased 41.2% and 59.4% in the third quarter and year-to-date
periods of 2009, respectively, primarily due to the declines in base revenues
described above, first quarter 2009 impairment charges, higher restructuring
charges and the negative effect of currency translation. Goodwill and intangible
asset impairment charges of $18.0 million and $6.7 million, respectively, were
incurred in the PC board fabrication and welding accessories businesses in the
first quarter of 2009. Total operating margins declined by 2.0% and 7.8% in the
third quarter and year-to-date periods, respectively, primarily due to the
declines in base revenues and higher year-to-date impairment and restructuring
charges. Improvements in variable margins and overhead expenses, including
favorable price versus raw material cost comparisons and benefits of prior
restructuring projects, increased operating margins by 7.5% and 5.1% in the
third quarter and year-to-date periods, respectively.
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 aftermarkets 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 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
Operating revenues $ 540,921 $ 581,867 $ 1,477,821 $ 1,806,384
Operating income 57,033 68,752 64,906 260,159
Margin % 10.5 % 11.8 % 4.4 % 14.4 %
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In the third quarter and year-to-date periods 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 September 30 Nine Months Ended September 30
% Point Increase % Point Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating
Revenues Operating Income Operating Margins Revenues Operating Income Operating Margins
Base manufacturing business:
Revenue change/Operating
leverage (7.9 )% (24.2 )% (2.1 )% (22.5 )% (58.4 )% (6.7 )%
Changes in variable margins
and overhead costs - 42.4 5.4 - 8.0 1.5
Total (7.9 ) 18.2 3.3 (22.5 ) (50.4 ) (5.2 )
Acquisitions and divestitures 7.5 (3.2 ) (1.3 ) 12.0 (0.8 ) (1.0 )
Restructuring costs - (2.3 ) (0.3 ) - (7.6 ) (1.4 )
Impairment of goodwill
and intangibles - (17.5 ) (2.2 ) - (5.5 ) (1.0 )
Translation (6.6 ) (12.3 ) (0.8 ) (7.7 ) (10.8 ) (1.4 )
Other - 0.1 - - - -
Total (7.0 )% (17.0 )% (1.3 )% (18.2 )% (75.1 )% (10.0 )%
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Operating Revenues
Revenues declined 7.0% and 18.2% in the third quarter and year-to-date periods,
respectively, due to declines in base revenues and the unfavorable effect of
currency translation. Acquisition revenue partially mitigated the base revenue
decrease and was primarily related to the purchase of a North American truck
remanufacturing and parts/service business in the third quarter of 2008.
Worldwide automotive base revenues declined 9.7% and 28.9% in the third quarter
and year-to-date periods, respectively, as automotive production continued to be
lower than last year, but better than the first and second quarters of 2009.
North American automotive base revenues declined 14.3% and 33.6% in the third
quarter and year-to-date periods, respectively, on declines of 21% and 41% in
North American auto builds in the same periods. Despite the year-over-year
declines, the third quarter improved as compared to the second quarter 2009 due
to the "cash for clunkers" program. International automotive base revenues
declined 4.7% and 24.3% for the third quarter and year-to-date periods,
respectively, on declines in car builds of 7% and 21%. The automotive
aftermarket businesses declined 4.5% in the third quarter and 9.2% year-to-date
as a result of a continued decline in discretionary consumer spending.
Operating Income
Operating income decreased 17.0% and 75.1% in the third quarter and year-to-date
periods of 2009, respectively, primarily due to the decline in base revenues
described above, higher restructuring costs and the unfavorable effect of
currency translation. In addition, a $12 million goodwill impairment charge was
recorded in the third quarter of 2009 related to the North American truck
remanufacturing and parts/service business. The increase in restructuring
charges is primarily due to continued efforts to reduce costs in response to
current economic conditions and the decline in worldwide automotive production.
Total operating margins declined by 1.3% and 10.0% in the third quarter and
year-to-date periods, respectively, primarily due to the decline in base
revenues described above. Improvements in variable margins and overhead
expenses, including favorable price versus raw material cost comparisons and
benefits of prior restructuring projects, increased operating margins by 5.4%
and 1.5% in the same periods.
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 2009 and 2008 were as follows:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
Operating revenues $ 487,325 $ 542,687 $ 1,369,878 $ 1,590,905
Operating income 83,661 88,193 186,492 232,184
Margin % 17.2 % 16.3 % 13.6 % 14.6 %
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In the third quarter and year-to-date periods 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 September 30 Nine Months Ended September 30
% Point Increase % Point Increase
% Increase (Decrease) (Decrease) % Increase (Decrease) (Decrease)
Operating Operating
Revenues Operating Income Operating Margins Revenues Operating Income Operating Margins
Base manufacturing business:
Revenue change/Operating
leverage (6.3 )% (16.0 )% (1.7 )% (8.0 )% (22.6 )% (2.3 )%
. . .
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