UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
For the transition period from _______________ to _______________
Commission File Number: 1-4797
ILLINOIS TOOL WORKS INC.
(Exact name of registrant as specified in its charter)
Delaware
36-1258310
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
3600 West Lake Avenue, Glenview, IL
60026-1215
(Address of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code) 847-724-7500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer X
Accelerated filer ___
Non-accelerated filer ___ (Do not check if a smaller reporting company)
Smaller reporting company ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No x
The number of shares of registrant’s common stock, $0.01 par value, outstanding at July 31, 2009: 500,145,460.
Part I – Financial Information
Item 1 – Financial Statements
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
(In thousands except for per share amounts)
Three Months Ended June 30
Six Months Ended June 30
2009
2008
Operating Revenues
$
3,392,906
4,555,881
6,539,285
8,681,691
Cost of revenues
2,248,253
2,941,457
4,401,080
5,633,942
Selling, administrative, and research
and development expenses
757,871
814,962
1,519,562
1,588,079
Amortization of intangible assets
51,947
42,303
102,517
82,442
Impairment of goodwill and
other intangible assets
—
89,997
1,438
Operating Income
334,835
757,159
426,129
1,375,790
Interest expense
(43,886
)
(36,588
(75,322
(74,055
Other income (expense)
(19,839
24,294
(24,180
3,161
Income from Continuing Operations
Before Income Taxes
271,110
744,865
326,627
1,304,896
Income Taxes
92,167
216,161
155,700
380,854
178,943
528,704
170,927
924,042
Loss from Discontinued Operations
(2,378
(614
(33,736
(92,331
Net Income
176,565
528,090
137,191
831,711
Income Per Share from Continuing
Operations:
Basic
$0.36
$1.01
$0.34
$1.76
Diluted
$1.75
Loss Per Share from Discontinued
$(0.00
$(0.07
$(0.18
Net Income Per Share:
$0.35
$0.27
$1.59
$1.58
Cash Dividends:
Paid
$0.31
$0.28
$0.62
$0.56
Declared
Shares of Common Stock Outstanding
During the Period:
Average
499,389
521,488
499,290
523,894
Average assuming dilution
500,875
525,209
500,617
527,467
The Notes to Financial Statements are an integral part of these statements.
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
(In thousands)
June 30, 2009
December 31, 2008
ASSETS
Current Assets:
Cash and equivalents
616,403
742,950
Trade receivables
2,393,176
2,571,987
Inventories
1,438,637
1,774,697
Deferred income taxes
218,125
206,496
Prepaid expenses and other current assets
453,424
375,778
Assets held for sale
12,229
82,071
Total current assets
5,131,994
5,753,979
Plant and Equipment:
Land
234,406
227,167
Buildings and improvements
1,520,474
1,457,732
Machinery and equipment
3,904,401
3,714,456
Equipment leased to others
170,422
164,504
Construction in progress
101,285
98,876
5,930,988
5,662,735
Accumulated depreciation
(3,793,006
(3,553,303
Net plant and equipment
2,137,982
2,109,432
Investments
450,889
465,894
Goodwill
4,677,193
4,517,550
Intangible Assets
1,696,585
1,779,669
Deferred Income Taxes
82,448
75,999
Other Assets
564,584
501,028
14,741,675
15,203,551
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt
180,511
2,433,973
Accounts payable
575,001
683,991
Accrued expenses
1,326,115
1,315,106
Cash dividends payable
154,892
154,726
Income taxes payable
206,219
216,751
Liabilities held for sale
5,454
20,546
Total current liabilities
2,448,192
4,825,093
Noncurrent Liabilities:
Long-term debt
2,855,812
1,247,883
139,167
125,089
Other liabilities
1,372,380
1,330,395
Total noncurrent liabilities
4,367,359
2,703,367
Stockholders’ Equity:
Common stock
5,323
5,318
Additional paid-in-capital
146,116
105,497
Income reinvested in the business
9,022,927
9,196,465
Common stock held in treasury
(1,390,594
Accumulated other comprehensive income
130,361
(253,211
Noncontrolling interest
11,991
11,616
Total stockholders’ equity
7,926,124
7,675,091
STATEMENT OF CASH FLOWS (UNAUDITED)
Cash Provided by (Used for) Operating Activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation
182,633
189,775
Amortization and impairment of goodwill and other intangible assets
192,514
185,627
Change in deferred income taxes
(11,302
(24,910
Provision for uncollectible accounts
6,784
4,405
(Gain) loss on sale of plant and equipment
2,322
(484
(Income) loss from investments
13,956
(19,653
(Gain) loss on sale of operations and affiliates
29,773
(97
Stock compensation expense
23,969
21,834
Other non-cash items, net
27
(2,365
Change in assets and liabilities:
(Increase) decrease in--
322,425
(213,253
428,659
(98,781
Prepaid expenses and other assets
(23,114
(15,773
Increase (decrease) in--
(156,461
(7,835
Accrued expenses and other liabilities
(32,799
18,859
Income taxes receivable and payable
(56,777
72,795
Other, net
11,283
2,173
Net cash provided by operating activities
1,071,083
944,028
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)
(113,640
(678,194
Additions to plant and equipment
(121,338
(184,987
Purchases of investments
(30,874
(2,468
Proceeds from investments
4,076
14,424
Proceeds from sale of plant and equipment
14,905
10,590
Proceeds from sale of operations and affiliates
15,685
1,006
(815
851
Net cash used for investing activities
(232,001
(838,778
Cash Provided by (Used for) Financing Activities:
Cash dividends paid
(309,507
(294,806
Issuance of common stock
15,955
35,195
Repurchases of common stock
(585,574
Net proceeds (repayments) of debt with original maturities 3 months or less
(1,668,982
539,314
Proceeds from debt with original maturities greater than 3 months
2,157,995
432
Repayments of debt with original maturities greater than 3 months
(1,258,619
(4,170
Excess tax benefits from share-based compensation
28
3,413
Net cash used for financing activities
(1,063,130
(306,196
Effect of Exchange Rate Changes on Cash and Equivalents
97,501
13,596
Cash and Equivalents:
Decrease during the period
(126,547
(187,350
Beginning of period
827,524
End of period
640,174
Cash Paid During the Period for Interest
26,565
40,905
Cash Paid During the Period for Income Taxes
182,850
308,190
Liabilities Assumed from Acquisitions
38,233
249,880
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1)
FINANCIAL STATEMENTS
The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the “Company”). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. Events that occurred after June 30, 2009 through the time that these financial statements have been filed on August 7, 2009 with the Securities and Exchange Commission were considered in the preparation of these financial statements. These financial statements should be read in conjunction with the financial statements and notes to financial statements included in the Company’s Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.
(2)
COMPREHENSIVE INCOME
The Company’s components of comprehensive income in the periods presented are:
Other comprehensive income:
Foreign currency translation adjustments
504,626
39,400
381,638
141,939
Pension and other postretirement benefit adjustments, net of tax
1,954
(1,169
1,934
(448
Comprehensive income
683,145
566,321
520,763
973,202
(3)
DISCONTINUED OPERATIONS
The Company periodically reviews its 895 operations for businesses which may no longer be aligned with its long-term objectives. In August 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. In the second quarter of 2009, the Company completed the sale of the Click Commerce business.
In the fourth quarter of 2007, the Company classified an automotive components business and a consumer packaging business as held for sale. The consumer packaging business was sold in the second quarter of 2008. The Company has sold the automotive components business in the third quarter of 2009.
The consolidated statements of income and the notes to financial statements have been restated to present the operating results of the held for sale and divested businesses as 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 and related notes for all periods have been restated to present the results related to the Decorative Surfaces segment as continuing operations.
Results of the discontinued operations for the second quarter of 2009 and 2008 were as follows:
Operating revenues
9,542
37,764
23,169
73,441
Income (loss) before taxes
(1,251
2,270
(35,064
(93,221
Income tax (expense) benefit
(1,127
(2,884
1,328
890
Loss from discontinued operations
In 2009, the Company recorded a pre-tax loss on the disposal of the Click Commerce business of $29,827,000. Loss before taxes in 2008 includes goodwill impairment charges of $97,152,000 related to the Click Commerce business.
As of June 30, 2009, the assets and liabilities of a certain automotive components business were included in assets and liabilities held for sale. As of December 31, 2008, the Company had recorded the assets and liabilities of the Click Commerce business and a certain automotive components business as held for sale. The total assets and liabilities held for sale were as follows:
3,650
18,122
1,603
2,369
8,943
11,308
Net goodwill and intangible assets
108,405
Other assets
2,033
5,867
Loss reserve on assets held for sale
(4,000
(64,000
Total assets held for sale
870
1,119
4,584
19,427
Total liabilities held for sale
(4)
INCOME TAXES
In the first half of 2009, the Company incurred significant charges related to the impairment of goodwill and intangible assets of $89,997,000 that were mostly non-deductible, and discrete tax items of $43,540,000 to record reserves on net operating loss carryforwards no longer expected to be utilized and other tax adjustments. The components of the effective tax rate for the six month period ended June 30, 2009 were as follows:
Effective tax rate excluding discrete items
28.1
%
Discrete tax adjustments
13.4
Goodwill and intangible asset impairment charges
6.2
Effective tax rate
47.7
In the U.S., the Internal Revenue Service (IRS) has completed its audits for the years 2001-2003 and has proposed several adjustments for which the Company is negotiating a settlement, the most significant of which are related to leveraged leases and mortgage-backed securities. The Company has recorded its best estimate for these exposures. Management believes it is reasonably possible that within the next twelve months the matters presently under consideration for 2001-2003 with the IRS will be resolved and that the amount of the Company’s unrecognized tax benefits may decrease by approximately $271 million.
(5)
INVENTORIES
Inventories at June 30, 2009 and December 31, 2008 were as follows:
Raw material
461,914
612,190
Work-in-process
141,844
174,607
Finished goods
834,879
987,900
(6)
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess cost over fair value of the net assets of purchased businesses. The Company does not amortize goodwill and intangible assets that have indefinite lives. In the first quarter of each year, the Company performs an annual impairment assessment of goodwill and intangible assets with indefinite lives based on the fair value of the related reporting unit or intangible asset.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). The Company adopted the provisions of SFAS 157 on January 1, 2009 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value on a nonrecurring basis. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and provides guidance for measuring fair value and the necessary disclosures.
When performing its annual goodwill impairment assessment, the Company compares the estimated fair value of each of its 63 reporting units to the carrying value. Fair values are determined primarily by discounting estimated future cash flows based either on current operating cash flows or on a detailed cash flow forecast prepared by the relevant reporting unit. The Company also considers additional valuation techniques, such as market multiples from similar transactions and quoted market prices of relevant public companies. If the fair value of a reporting unit is less than its carrying value, an impairment loss, if any, is recorded for the difference between the implied fair value and the carrying value of the reporting unit’s goodwill.
The Company’s indefinite-lived intangibles consist of trademarks and brands. The fair values of these intangibles are determined based on a relief-of-royalty income approach derived from internally forecasted revenues of the related products. If the fair value of the trademark or brand is less than its carrying value, an impairment loss is recorded for the difference between the estimated fair value and carrying value of the intangible.
In the first quarter of 2009, the Company performed its annual impairment testing of its goodwill and intangible assets with indefinite lives in compliance with the newly adopted provisions of SFAS 157 which resulted in goodwill impairment charges of $60,000,000 related to the pressure sensitive adhesive reporting unit in the Polymers & Fluids segment and $18,000,000 related to the PC board fabrication reporting unit in the Power Systems & Electronics segment.
The goodwill impairments were related to new reporting units which were acquired over the last few years. These charges were driven by lower than expected forecasts compared to results expected when the reporting units were acquired. Also in the first quarter 2009, intangible asset impairments of $11,997,000 were recorded to reduce to the estimated fair value the carrying value of trademarks and brands with indefinite lives. Approximately $5,800,000 of this charge related to the PC board fabrication reporting unit and the remainder to various trademarks and brands of other reporting units.
A summary of goodwill and indefinite-lived intangible assets that were adjusted to fair value and the related impairment charges included in earnings for the first quarter of 2009 is as follows:
Book Value
Fair Value
Total Impairment
Charges
353,000
275,000
78,000
Indefinite-lived intangible assets
94,973
82,976
11,997
(7)
RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
Pension and other postretirement benefit costs for the periods ended June 30, 2009 and 2008 were as follows:
Three Months Ended
June 30
Six Months Ended
Pension
Other Postretirement Benefits
Components of net periodic benefit cost:
Service cost
24,201
28,060
3,142
3,585
48,433
56,009
6,284
7,170
Interest cost
29,350
30,223
7,718
8,217
58,930
60,319
15,436
16,433
Expected return on plan assets
(38,040
(42,283
(3,403
(3,848
(75,885
(84,536
(6,806
(7,696
Amortization of actuarial (gain)
loss
2,072
651
64
(252
4,137
1,289
128
(504
Amortization of prior service
(income) cost
(422
(600
1,606
1,565
(800
(1,202
3,212
3,130
Amortization of net transition
amount
37
24
76
45
Curtailment & settlement gain
(12,345
(1,929
Net periodic benefit cost
4,853
16,075
9,127
7,338
22,546
31,924
18,254
16,604
The Company expects to contribute $218,400,000 to its pension plans and $38,100,000 to its other postretirement plans in 2009. As of June 30, 2009, contributions of $41,100,000 to pension plans and $17,300,000 to other postretirement plans have been made.
(8)
SHORT-TERM DEBT
In June 2008, the Company entered into a $1,500,000,000 Line of Credit Agreement with a termination date of June 12, 2009. In October 2008, the Company amended the Line of Credit Agreement in order to increase the line of credit to $2,500,000,000. This line of credit was replaced on June 12, 2009 by a $2,000,000,000 Line of Credit Agreement with a termination date of June 11, 2010. No amounts were outstanding under this facilities at June 30, 2009.
The Company had outstanding commercial paper of $121,997,000 at June 30, 2009 and $1,820,423,000 at December 31, 2008.
In 1999, the Company issued $500,000,000 of 5.75% redeemable notes due March 1, 2009. The balance related to these notes was repaid at maturity.
(9)
LONG-TERM DEBT
On March 23, 2009, the Company issued $800,000,000 of 5.15% redeemable notes due April 1, 2014 at 99.92% of face value and $700,000,000 of 6.25% redeemable notes due April 1, 2019 at 99.984% of face value. The effective interest rates of the notes are 5.2% and 6.3%, respectively.
The approximate fair value based on rates for comparable instruments and related carrying value of the Company’s long-term debt, including current maturities was as follows:
Fair value
2,845,031
1,682,304
Carrying value
2,864,070
1,757,807
(10)
STOCKHOLDERS' EQUITY
On January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements. Upon adoption the Company reclassified the December 31, 2008 balance of $11,616,000 from other noncurrent liabilities to noncontrolling interest in stockholders’ equity.
(11)
SEGMENT INFORMATION
See Management’s Discussion and Analysis for information regarding operating revenues and operating income for the Company’s segments.
Item 2 - Management’s Discussion and Analysis
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 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 second quarter and year-to-date periods of 2009 and 2008 were as follows:
(Dollars in thousands)
Operating income
Margin %
9.9
16.6
6.5
15.8
In the second 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:
% Increase (Decrease)
% Point Increase (Decrease)
Operating Margins
Base manufacturing business:
Revenue change/Operating
leverage
(22.2
)%
(55.3
(7.1
(22.5
(59.0
(7.5
Changes in variable margins and
overhead costs
14.6
3.1
10.8
2.2
Total
(40.7
(4.0
(48.2
(5.3
Acquisitions and divestitures
5.3
(0.2
(0.8
5.7
(0.7
Restructuring costs
(5.9
(1.3
(5.4
(1.1
intangibles
(6.4
Translation
(8.8
(8.9
(8.0
(8.2
(0.9
Other
0.2
(0.1
0.1
(25.5
(55.8
(6.7
(24.7
(69.0
(9.3
Revenues decreased 25.5% and 24.7% in the second quarter and year-to-date periods of 2009, respectively, 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 22.2% and 22.5% in the second quarter and year-to-date periods, respectively. North American base revenue declined 26.8% and 26.5%, in the second quarter and year-to-date periods, respectively, while international base revenues declined 17.3% and 18.1% in the same periods. Both North American and international base revenues were adversely affected by on-going and significant declines in macroeconomic 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 declined 55.8% and 69.0% in the second quarter and year-to-date periods of 2009, respectively, primarily due to the decline in base revenues, the negative effect of currency translation and increased restructuring expenses. In addition, in the first quarter of 2009 the Company recorded impairment charges of $78 million and $12 million against the goodwill and intangible assets, respectively. The goodwill impairments were primarily driven by the combination of lower forecasts and lower market multiples being paid for similar businesses. The higher restructuring expenses reflect the Company’s efforts to reduce costs in response to current economic conditions. Improvements in base variable margins and lower overhead costs increased margins 3.1% and 2.2% in the second quarter and year-to-date periods, respectively, as the benefits of past restructuring projects began to be realized and price versus cost comparisons were favorable. Total margins declined by 6.7% and 9.3% in the second quarter and year-to-date periods of 2009, respectively, primarily due to the declines in base revenues, restructuring charges and the first quarter goodwill and intangible impairment charges.
The reconciliation of segment operating revenues to total operating revenues is as follows:
Industrial Packaging
460,336
717,986
886,481
1,347,736
Power Systems & Electronics
398,462
648,785
793,917
1,231,176
Transportation
502,266
630,427
936,900
1,224,517
Food Equipment
451,353
538,479
882,553
1,048,218
Construction Products
370,745
566,172
694,732
1,050,206
Polymers & Fluids
278,687
299,249
526,760
554,760
Decorative Surfaces
257,332
335,956
489,443
638,491
All Other
681,751
833,786
1,343,555
1,615,676
Intersegment revenues
(8,026
(14,959
(15,056
(29,089
Total operating revenues
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 second quarter and year-to-date periods of 2009 and 2008 were as follows:
16,273
94,496
13,663
163,700
3.5
13.2
1.5
12.1
(26.1
(84.7
(10.5
(25.4
(88.1
(10.2
19.2
3.4
10.4
1.7
(65.5
(77.7
(8.5
0.8
(5.1
(2.7
(0.5
(10.6
(11.4
(1.5
(9.6
(10.1
(1.4
(35.9
(82.8
(9.7
(34.2
(91.7
Revenues decreased 35.9% and 34.2% in the second quarter and year-to-date periods of 2009, respectively, versus 2008 primarily due to lower base revenues and the unfavorable impact of currency translation. Base revenues declined 43.1% and 40.6% for the North American strapping businesses in the second 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 strapping businesses declined 28.9% and 27.6%, respectively. Both were adversely affected by the continued global decline in industrial production and construction industries. The worldwide stretch packaging businesses experienced declines in base revenues of 22.9% and 21.2% in the second quarter and year-to-date periods, respectively, while the protective packaging business declined 6.8% and 11.4% for the same periods both due to continuing weakness in worldwide industrial-based end markets.
Operating income decreased 82.8% and 91.7% in the second 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 expenses. Improvements in base variable margins and overhead costs increased margins 3.4% and 1.7% in the second quarter and year-to-date periods, respectively, as price versus cost comparisons were favorable and benefits of past restructuring projects began to be realized. Total operating margins declined by 9.7% and 10.6% in the second 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 second quarter and year-to-date periods of 2009 and 2008 were as follows:
61,155
142,124
86,520
266,887
15.3
21.9
10.9
21.7
(36.5
(62.9
(9.1
(34.3
(60.5
(8.6
4.5
11.6
3.8
(49.7
(4.6
(48.9
(4.8
2.0
(0.6
2.5
(2.1
(3.6
(1.2
(1.6
(9.0
(3.0
(4.1
(3.1
(3.7
(2.9
(0.3
(38.6
(57.0
(6.6
(35.5
(67.6
(10.8
Revenues declined 38.6% and 35.5% in the second quarter and year-to-date periods of 2009, respectively, over 2008 mainly due to declines in base revenues and the negative effect of currency translation. 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 37.0% in the second quarter and 34.2% year-to-date. North American welding businesses declined 41.3% and 38.7% while international base businesses declined 26.4% and 21.9%, in the respective periods. Revenues fell as end market demand continued to decline across the broad spectrum of industries that this segment serves. Base revenues for the electronics businesses fell 33.3% and 38.8% in the second quarter and year-to-date periods while base revenues in the PC board fabrication businesses fell 59.2% and 57.6% in the same periods both due to the decline in consumer demand for electronics. Revenues in the ground support businesses increased 4.0% and 9.4% in the second quarter and year-to-date period, respectively, due to commercial and military airport infrastructure projects.
Operating income decreased 57.0% and 67.6% in the second 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 expenses 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 6.6% and 10.8% in the second quarter and year-to-date periods, respectively, primarily due to the declines in base revenues, higher impairment charges and higher restructuring expense. Improvements in variable margins and overhead costs, including favorable price versus cost comparison, increased operating margins by 4.5% and 3.8% in the same periods.
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 second quarter and year-to-date periods of 2009 and 2008 were as follows:
24,321
99,705
7,873
191,407
4.8
15.6
(23.7
(55.9
(29.4
(71.4
(55.7
(75.0
Acquisitions
12.7
(1.8
14.1
(9.5
(9.4
(11.7
(20.3
(75.6
(11.0
(23.5
(95.9
(14.8
Revenues declined 20.3% and 23.5% in the second quarter and year-to-date periods, respectively, versus 2008 primarily 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 business in the third quarter of 2008. Worldwide automotive base revenues declined 30.5% and 37.8% in the second quarter and year-to-date periods, respectively, as automotive production continued to be weak. Automotive aftermarket declined 12.7%, in the second quarter and 11.5% year-to-date as a result of a continued decline in discretionary consumer spending. North American base revenues declined 39.5% and 43.1% in the second quarter and year-to-date periods, respectively, on declines of 49% and 50% in North American auto builds in the same periods. International base revenues declined 22.5% and 32.8% for the second quarter and year-to-date, respectively, on declines in car builds of 23% and 28%.
Operating income decreased 75.6% and 95.9% in the second quarter and year-to-date periods of 2009, respectively, versus 2008 primarily due to the decline in base revenues described above, the unfavorable effect of currency translation and higher restructuring costs. The increase in restructuring expense 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 11.0% and 14.8% in the second quarter and year-to-date periods, respectively, 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 went through the bankruptcy process. Additionally, General Motors (“GM”) filed for bankruptcy protection on June 1, 2009.
Both GM and Chrysler have subsequently emerged from bankruptcy reorganization and Chrysler has resumed production. Management continues to monitor conditions in the automotive industry, but currently believes these reorganizations will not have a significant long term impact on the Company.
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 second quarter and year-to-date periods of 2009 and 2008 were as follows:
58,428
73,675
102,831
143,991
12.9
13.7
11.7
(2.6
(26.6
18.5
2.8
9.8
(7.0
(16.8
1.6
1.4
(3.2
(1.9
(8.4
(16.2
(20.7
(15.8
(28.6
(2.0
Revenues decreased 16.2% and 15.8% in the second quarter and year-to-date periods of 2009, respectively, versus 2008 primarily due to the decline in base business and the unfavorable effect of currency translation slightly offset by revenues from acquisitions. The acquired revenues were attributable to the acquisition of a European food equipment business in 2008. North American base revenues declined 8.4% and 11.1%, respectively, for the second quarter and year-to-date periods while international base revenues declined 10.2% and 7.9% in the same periods. Base revenues for the North American institutional/restaurant businesses declined 13.2% and 15.6% in the second quarter and year-to-date periods, respectively, as customers delayed equipment purchases. North American service revenues declined a more modest 1.1% and 2.1% in the second quarter and year-to-date periods as customers continued to maintain existing equipment.
Operating income declined 20.7% and 28.6% in the second quarter and year-to-date periods, respectively, primarily due to the decrease in base revenues described above and the unfavorable effect of currency translation. Total operating margins declined by 0.8% and 2.0% in the second quarter and year-to-date, respectively, primarily due to the decline in base revenues partially offset by margin gains due to lower operating costs including lower fuel costs, favorable product mix, and reduced headcount.
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 second quarter and year-to-date periods of 2009 and 2008 were as follows:
21,738
80,044
11,518
132,223
5.9
12.6
(22.1
(65.1
(7.8
(21.7
(71.8
(8.1
11.4
2.1
3.2
0.5
(53.7
(5.7
(68.6
(7.6
0.7
0.6
(1.7
(3.9
(13.1
(16.9
(12.8
(17.4
(2.5
(34.5
(72.8
(33.8
(91.3
(10.9
Revenues declined 34.5% and 33.8% in the second quarter and year-to-date periods of 2009 versus 2008 primarily 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 34.0%, 30.2% and 2.5%, respectively during the second quarter while declining 32.6%, 29.7% and 3.5% year-to-date. These declines in base revenues were the result of ongoing weakness in the residential and commercial construction markets in North America and Europe. North American housing starts declined 48% on an annualized basis in the second quarter. In addition, commercial construction activity fell 50% year-to-date. The European and Asia-Pacific regions continued to show weakening demand, primarily in the commercial construction category.
Operating income decreased 72.8% and 91.3%, respectively, in the second quarter and year-to-date periods of 2009, primarily due to the revenue decline described above. In addition, the unfavorable effect of currency translation, higher restructuring expenses and lower income from acquisitions contributed to the lower income and margins. Total margins declined 8.2% and 10.9% as reduced operating expenses, including benefits from past restructuring projects, were more than offset by the effect of lower revenues.
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 which 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, construction, maintenance, repair and operations and automotive aftermarket markets.
The results of operations for the Polymers & Fluids segment for the second quarter and year-to-date periods of 2009 and 2008 were as follows:
Operating income (loss)
28,926
53,677
(21,694
89,593
17.9
16.1
(15.1
(37.0
(15.9
(43.3
3.0
(22.9
(30.4
(2.8
21.3
(8.7
(67.2
(12.9
(10.4
(6.9
(46.1
(5.0
(124.2
(20.2
Revenues decreased 6.9% and 5.0% in the second quarter and year-to-date periods of 2009 versus the same 2008 periods primarily due to lower base revenues and the unfavorable effect of currency translation mostly offset by revenues from acquisitions. Acquisition revenue was primarily the result of the purchase of a pressure sensitive adhesives business and two construction adhesives businesses. Total base revenues declined 15.1% and 15.9% in the second quarter and year-to-date periods, respectively, primarily due to continued weakness in worldwide industrial production and MRO market demand. Worldwide base revenue for the fluids and polymers businesses declined 16.9% and 17.7% in the second quarter and year-to-date, respectively.
Operating income decreased 46.1% in the second quarter and 124.2% to a year-to-date loss primarily due to a $60.0 million goodwill impairment charge against the pressure sensitive adhesive businesses in the first quarter of 2009 and declines in base revenues. Base operating margins declined 1.6% and 2.8% as savings from prior period restructuring projects and favorable price versus cost comparisons were offset by the lower revenues. The first quarter 2009 goodwill impairment charge further reduced year-to-date margins by 12.9%. Additionally, acquisitions diluted margins 3.1% and 0.8% in the second quarter and year-to-date periods.
DECORATIVE SURFACES
Businesses in this segment produce decorative surfacing materials for countertops, flooring, furniture and other applications.
In the Decorative Surfaces segment, products include:
decorative high-pressure laminate for countertops;
solid surface materials for countertops;
high-pressure laminate flooring;
laminate for furniture applications; and
high-pressure laminate worktops.
This segment serves the commercial construction, renovation construction, residential construction and general industrial markets.
The results of operations for the Decorative Surfaces segment for the second quarter and year-to-date periods of 2009 and 2008 were as follows:
34,041
46,761
62,025
81,059
13.9
(16.0
(45.8
(4.9
(16.5
(52.0
32.2
37.7
5.8
(13.6
0.4
(14.3
(7.4
(6.8
(23.4
(27.2
(23.3
Revenues decreased 23.4% and 23.3% in the second quarter and year-to-date periods of 2009 versus 2008 due to lower base revenues and the unfavorable effect of currency translation. North American laminate base revenues declined 20.0% and 19.4% in the second quarter and year-to-date periods, respectively, as a result of the continued downturn in commercial and residential construction. These declines were partially offset by increased product penetration in the premium high definition laminate product segment. International base revenues declined 11.6% and 12.3% in the same periods due to European volume declines.
Operating income decreased 27.2% and 23.5% in the second quarter and year-to-date periods primarily due to the decline in revenues described above, higher restructuring expenses and the negative effect of currency translation. Improvements in base variable margins and lower overhead costs increased margins 5.3% and 5.8% in the second quarter and year-to-date periods, respectively, largely due to higher prices on premium products, lower raw material costs and benefits from prior restructuring expense.
ALL OTHER
This segment contains all other operating segments.
In the All Other segment, products include:
equipment and related software for testing of materials and structures;
plastic reclosable packaging for consumer food storage;
plastic reclosable bags for storage of clothes and home goods;
plastic consumables that multi-pack cans and bottles and related equipment;
plastic fasteners and components for appliances, furniture and industrial uses;
metal fasteners and components for appliances and industrial applications;
swabs, wipes and mats for clean room usage;
foil, film and related equipment used to decorate consumer products;
product coding and marking equipment and related consumables;
paint spray and adhesive dispensing equipment; and
static and contamination control equipment.
This segment primarily serves the general industrial, consumer durables, food and beverage and electronics markets.
The results of operations for the All Other segment for the second quarter and year-to-date periods of 2009 and 2008 were as follows:
89,953
166,677
163,393
306,930
20.0
12.2
19.0
Leverage
(20.0
(46.4
(19.5
(47.5
14.2
3.6
11.9
(32.2
(35.6
(3.8
8.6
8.7
1.8
(2.3
(6.1
(6.0
(6.3
(18.2
(46.0
(46.8
Revenues decreased 18.2% and 16.8% in the second quarter and year-to-date periods of 2009, respectively, versus 2008 due to the decline in base business revenues and the unfavorable effect of currency translation, partially offset by an increase in revenues from acquired companies. The increase in acquisition revenue was primarily due to the purchase of two test and measurement businesses. Base revenues declined in the second quarter 26.9%, 38.7%, 12.9% and 15.3% for the industrial plastics and metals, finishing, consumer packaging and test and measurement businesses, respectively, due to the effect of weak capital expenditure spending and a fall-off in end market demand across the broad spectrum of industries this segment serves. Year-to-date these declines were 27.3%, 31.8%, 14.0% and 14.2%, respectively.
Operating income declined 46.0% and 46.8% in the second quarter and year-to-date periods of 2009, respectively, primarily due to the decline in base revenues described above, the unfavorable effect of currency translation and higher restructuring expenses. Total operating margins declined by 6.8% in both periods primarily due to the lower margins for both base and acquired businesses. Base margins declined by 3.0% and 3.8% in the second quarter and year-to-date, respectively, as favorable price versus cost comparisons and gains from tight cost controls were offset by the impact of lower revenues.
AMORTIZATION AND IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
Amortization expense increased to $102.5 million in the first six months of 2009 versus $82.4 million in the first six months of 2008, due to intangible amortization related to newly acquired businesses in the second half of 2008.
Total goodwill and intangible asset impairment charges by segment for the six months ended June 30, 2009 and 2008 were as follows:
386
24,766
824
2,414
13
46
60,416
251
1,969
350
See the Goodwill and Intangible Assets note for further details of the impairment charges.
INTEREST EXPENSE
Interest expense increased to $75.3 million in the first six months of 2009 from $74.1 million in the first six months of 2008 due to interest on the 5.15% and 6.25% notes issued on March 23, 2009, partially offset by the 6.875% notes and 5.75% bonds repaid at maturity on November 17, 2008 and March 2, 2009, respectively, and lower commercial paper rates and borrowings.
OTHER INCOME (EXPENSE)
Other income (expense) was expense of $24.2 million for the first six months of 2009 versus income of $3.2 million in 2008, primarily due to investment and currency translation losses in 2009 versus gains in 2008 and lower interest income in 2009, partially offset by a charge for German taxes in 2008.
The effective tax rate for the first six months of 2009 was 47.67% compared to 29.19% for the first six months of 2008. The increase in the effective tax rate resulted primarily from the impairment of non-deductible goodwill and discrete tax adjustments in 2009.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations of $170.9 million ($0.34 per diluted share) in the first six months of 2009 was 81.5% lower than the 2008 income from continuing operations of $924.0 million ($1.75 per diluted share).
FOREIGN CURRENCY
The strengthening of the U.S. dollar against foreign currencies in 2009 decreased operating revenues for the first six months of 2009 by approximately $565 million and decreased income from continuing operations by approximately 7 cents per diluted share.
Loss from discontinued operations was $33.7 million in the first six months of 2009 compared to $92.3 million in 2008 primarily due to 2008 impairment of goodwill of $97.2 million versus the 2009 loss on sale of the Click Commerce industrial software business of $29.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are free operating cash flows and short-term credit facilities. The Company’s targeted debt-to-capital ratio is 20% to 30%, excluding the impact of any larger acquisitions.
The primary uses of liquidity are:
dividend payments – the Company’s dividend payout guidelines are 25% to 35% of the last two years’ average income from continuing operations;
acquisitions; and
any excess liquidity may be used for share repurchases. The Company’s open-ended share repurchase program allows it flexibility in achieving the targeted debt-to-capital ratio.
The Company believes that based on its current free operating cash flow, debt-to-capitalization ratios and credit ratings, it could readily obtain additional financing if necessary.
Cash Flow
Free operating cash flow is used by management to measure normal cash flow generated by operations that is available for dividends, acquisitions, share repurchases and debt repayment. Free operating cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies.
Summarized cash flow information for the second quarter of 2009 and 2008 was as follows:
624,082
450,104
(57,402
(95,982
Free operating cash flow
566,680
354,122
949,745
759,041
Acquisition of businesses
(49,131
(442,152
Purchase of investments
(18,520
(1,862
17,233
4,733
(154,781
(146,379
10,572
17,642
(200,000
Net proceeds (repayments) of debt
(965,728
110,421
(769,606
535,576
88,979
16,208
115,695
42,874
Net decrease in cash and equivalents
(504,696
(287,267
On August 20, 2007 the Company's Board of Directors authorized a stock repurchase program, which provides for the buyback of up to $3.0 billion of the Company’s common stock over an open-ended period of time. There are approximately $1.2 billion of authorized repurchases remaining under this program.
Return on Average Invested Capital
The Company uses return on average invested capital (“ROIC”) to measure the effectiveness of its operations’ use of invested capital to generate profits. We believe that ROIC is a meaningful metric to investors and may be different than the method used by other companies to calculate ROIC. ROIC for the second quarter of 2009 and 2008 was as follows:
Tax rate
34.00%
29.02%
31.90%
29.19%
Operating income after taxes
220,991
537,431
351,482
974,197
Invested capital:
3,302,285
1,845,621
2,285,049
506,407
Goodwill and intangible assets
6,373,778
6,279,880
Accounts payable and accrued expenses
(1,901,116
(2,364,395
Net assets held for sale
6,775
139,552
(554,077
(199,349
Total invested capital
10,346,044
11,795,050
Average invested capital
10,237,095
11,449,069
10,362,729
11,242,732
Annualized return on average invested capital
18.8
6.8
17.3
The ROIC decrease of 10.2% in the second quarter of 2009 was the result of after-tax operating income decreasing 58.9%, resulting from the current economic downturn, while average invested capital decreased 10.6%.
The ROIC decrease of 10.5% for year-to-date 2009 was the result of after-tax operating income decreasing 63.9%, resulting from the current economic downturn, while average invested capital decreased 7.8%.
In the first quarter of 2009, the Company incurred significant charges for the impairment of goodwill and intangible assets of $90.0 million that was mostly non-deductible and discrete tax adjustments of $28.0 million. Since these charges were unusual, the ROIC calculation has been adjusted to exclude these items to improve comparability and better reflect the return on invested capital for the 2009 year-to-date period presented above. A reconciliation of year-to-date operating income and the tax rate as reported to operating income after taxes and tax rate used above is as follows:
Income from Continuing Operations Before Income Taxes
Tax Rate
As reported
Goodwill and intangible asset impairments
5,058
(7.3
(27,800
As adjusted
516,126
416,624
132,958
31.9
Income taxes at the adjusted rate of 31.9%
(164,644
Adjusted operating income after taxes
Working Capital
Net working capital at June 30, 2009 and December 31, 2008 is summarized as follows:
Increase/(Decrease)
Current assets:
(178,811
(336,060
671,549
582,274
89,275
(69,842
(621,985
Current liabilities:
(2,253,462
1,901,116
1,999,097
(97,981
361,111
371,477
(10,366
(15,092
(2,376,901
Net working capital
2,683,802
928,886
1,754,916
Current ratio
2.10
1.19
Short-term debt decreased primarily due to the pay down of commercial paper resulting from the issuance of $1.5 billion of long-term notes, cash repatriation to the U.S. from Europe and excess cash flow. Inventories decreased primarily as a result of lower purchase activity. Trade receivables decreased primarily due to lower revenues.
Debt
Total debt at June 30, 2009 and December 31, 2008 was as follows:
Total debt
3,036,323
3,681,856
Total debt to capitalization
27.7
32.4
The Company had outstanding commercial paper of $122.0 million at June 30, 2009 and $1.8 billion at December 31, 2008.
In 1999, the Company issued $500.0 million of 5.75% redeemable notes due March 1, 2009. The balance related to these notes outstanding at December 31, 2008 was repaid at maturity.
On March 23, 2009, the Company issued $800.0 million of 5.15% redeemable notes due April 1, 2014 at 99.92% of face value and $700.0 million of 6.25% redeemable notes due April 1, 2019 at 99.984% of face value. The net proceeds from the offering were used to pay down the Company’s commercial paper balance.
In June 2008, the Company entered into a $1.5 billion Line of Credit Agreement with a termination date of June 12, 2009. In October 2008, the Company amended the Line of Credit Agreement in order to increase the line of credit to $2.5 billion. This line of credit was replaced on June 12, 2009 by a $2.0 billion Line of Credit Agreement with a termination date of June 11, 2010. No amounts were outstanding under this facility at June 30, 2009.
Stockholders’ Equity
The changes to stockholders’ equity during 2009 were as follows:
Total stockholders’ equity, December 31, 2008
Currency translation adjustments
Stock option activity
40,624
375
Adoption of new accounting standard
(1,056
Cash dividends declared
(309,673
Total stockholders’ equity, June 30, 2009
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that may be identified by the use of words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “guidance,” and other similar words, including, without limitation, the impact of bankruptcies of particular customers in the transportation business, the adequacy of internally generated funds and credit facilities, the meeting of dividend payout objectives, the ability to fund debt service obligations and expected contributions to the Company’s pension and postretirement plans. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results include (1) a further downturn in the construction, general industrial, automotive or food institutional/restaurant and service markets, (2) changes or deterioration in international and domestic business and economic conditions, particularly in North America, Europe, Asia or Australia, (3) the unfavorable impact of foreign currency fluctuations and costs of raw materials, (4) decreases in credit availability, (5) an interruption in, or reduction in, introducing new products into the Company’s product lines, (6) an unfavorable environment for making acquisitions, domestic and international, including adverse accounting or regulatory requirements and market values of candidates, and (7) unfavorable tax law changes and tax authority rulings. The risks covered here are not all inclusive and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. A more detailed description of these risks is set forth in the Company’s Form 10-K for 2008.
The Company practices fair disclosure for all interested parties. Investors should be aware that while the Company regularly communicates with securities analysts and other investment professionals, it is against the Company’s policy to disclose to them any material non-public information or other confidential commercial information. Shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's debt.
On March 23, 2009, the Company issued $800.0 million of 5.15% redeemable notes due April 1, 2014 at 99.92% of face value and $700.0 million of 6.25% redeemable notes due April 1, 2019 at 99.984% of face value. The estimated fair value of the 5.15% and 6.25% notes exceeded the carrying value by approximately $41.2 million and $50.9 million, respectively, at June 30, 2009.
Item 4 – Controls and Procedures
The Company’s management, with the participation of the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e)) as of June 30, 2009. Based on such evaluation, the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, have concluded that, as of June 30, 2009, the Company’s disclosure controls and procedures were effective.
In connection with the evaluation by management, including the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended June 30, 2009 were identified that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Part II – Other Information
Item 4 – Submission of Matters to a Vote of Security Holders
The Company’s Annual Meeting of Stockholders was held on May 8, 2009. The following members were elected to the Company’s Board of Directors to hold office for the ensuing year:
Nominees
In Favor
Against
Abstained
W. F. Aldinger
441,861,385
5,619,907
705,968
M. D. Brailsford
435,075,899
12,406,696
704,436
S. Crown
440,474,041
6,836,171
876,818
D. H. Davis, Jr.
442,811,544
4,726,245
649,241
R. C. McCormack
439,942,713
7,327,101
917,216
R. S. Morrison
445,168,608
2,314,632
703,790
J. A. Skinner
441,726,405
5,742,163
718,462
H. B. Smith
443,017,342
4,614,786
554,902
D.B. Speer
436,141,972
11,387,953
657,103
P.B. Strobel
445,364,935
2,176,669
645,426
The stockholder proposal urging the Board of Directors to seek stockholder approval of any future extraordinary retirement benefits for senior executives was defeated with 120,168,204 votes in favor, 275,336,964 votes against, and 5,903,029 votes abstained. There were 46,779,063 broker non-votes with respect to this proposal.
The appointment of Deloitte & Touche LLP as the Company’s independent public accountants was ratified with 444,280,892 votes in favor, 3,137,209 votes against, and 769,028 votes abstained.
Item 6 – Exhibits
Exhibit Index
Exhibit Number
Exhibit Description
3
By-laws of Illinois Tool Works Inc., as amended, May 8, 2009.
10
Severance, Release and Proprietary Interests Protection Agreement between Russell M. Flaum and Illinois Tool Works Inc. filed as Exhibit 10 to the Company’s Form 8-K filed on June 19, 2009 (Commission File No. 1-4797) and incorporated herein by reference.
31
Rule 13a-14(a) Certification.
32
Section 1350 Certification.
101
The following materials from the Illinois Tool Works Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statement of Cash Flows and (iv) related notes tagged as blocks of text.*
* As provided in Rule 406T of Regulation S-T, this information is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, and is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and is otherwise not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements 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.
Dated: August 7, 2009
By: /s/ Ronald D. Kropp
Ronald D. Kropp
Senior Vice President & Chief Financial Officer
(Principal Accounting & Financial Officer)