ITW Conference Call
Second Quarter
2006
Exhibit 99.2
ITW
Agenda
1.
Introduction…………………….. John Brooklier
2.
Financial Overview……………... Ron Kropp
3.
Manufacturing Segments……… John Brooklier
4.
Forecast 2006………………….… Ron Kropp
4.
Q & A………………......……………John Brooklier/Ron Kropp
ITW
Forward - Looking Statements
This conference call contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without limitation,
statements regarding end market conditions, base revenue growth, earnings
growth, operating income, tax rates, use of free cash and potential acquisitions
for the 2006 full year and the Company’s related forecasts. 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 downturn in the construction,
automotive, general industrial, food institutional and retail, or real estate
markets, (2) deterioration in global and domestic business and economic
conditions, particularly in North America, the European Community, Asia and
Australia, (3) the unfavorable impact of foreign currency fluctuations and costs
of raw materials, (4) an interruption in, or reduction in, introducing new
products into the Company’s product lines, (5) an unfavorable environment for
making acquisitions, domestic and international, including adverse accounting
or regulatory requirements and market values of candidates, and (6)
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.
Conference Call Playback
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Telephone replay available through midnight of
August 3, 2006
Webcast / PowerPoint replay available at
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ITW
Quarterly Highlights
2005
2006
Q2
Q2
Amount
%
Operating Revenues
3,286.1
3,579.5
293.4
8.9%
Operating Income
559.9
659.8
99.9
17.8%
% of Revenues
17.0%
18.4%
1.4%
Net Income
Income Amount
373.8
465.9
92.1
24.6%
Income Per Share-Diluted
0.64
0.81
0.17
26.6%
Average Invested Capital
8,321.1
8,994.0
(672.9)
-8.1%
Return on Average Invested Capital
18.4%
20.5%
2.1%
Free Operating Cash Flow
417.6
281.2
(136.4)
-32.7%
F(U) Last Year
ITW
Quarterly Operating Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Manufacturing Business
Operating Leverage
4.5%
10.7%
1.0%
Nonvolume-related
-
3.0%
0.5%
Total
4.5%
13.7%
1.5%
Acquisitions / Divestitures
6.7%
3.3%
-0.7%
Translation
-1.4%
-1.1%
0.1%
Impairment
-
-
-
Restructuring
-
1.9%
0.3%
Intercompany
-0.9%
-
0.2%
Total
8.9%
17.8%
1.4%
% F(U) Prior Year
ITW
Non Operating & Taxes
2005
2006
Q2
Q2
Amount
%
Operating Income
559.9
659.8
99.9
17.8%
Interest Expense
(28.8)
(19.0)
9.8
Investment Income
8.5
26.4
17.9
Other Income(Expense)
6.8
(0.7)
(7.5)
Net Income-P/T
546.4
666.5
120.1
22.0%
Income Taxes
172.6
200.6
(28.0)
% to Pre Tax Income
31.6%
30.1%
1.5%
Net Income-AT
373.8
465.9
92.1
24.6%
F(U) Last Year
ITW
Invested Capital
6/30/05
3/31/06
6/30/06
Trade Receivables
2,134.2
2,191.7
2,374.2
Days Sales Outstanding
58.3
59.8
59.7
Inventories
1,274.5
1,279.1
1,370.0
Months on Hand
1.8
1.8
1.8
Other Current Assets
299.7
426.8
612.9
Accounts Payable & Accruals
(1,583.6)
(1,715.1)
(1,880.4)
Operating Working Capital
2,124.8
2,182.5
2,476.7
% to Revenue(Prior 4 Qtrs.)
17%
17%
19%
Net Plant & Equipment
1,822.2
1,843.2
1,916.0
Investments
855.4
890.2
907.5
Goodwill and Intangibles
2,834.8
3,956.0
3,997.6
Other, net
595.3
(70.5)
(111.2)
Invested Capital
8,232.5
8,801.4
9,186.6
ITW
Debt & Equity
6/30/05
3/31/06
6/30/06
Total Capital
Short Term Debt
696.8
230.8
91.7
Long Term Debt
967.2
959.9
960.2
Total Debt
1,664.0
1,190.7
1,051.9
Stockholders' Equity
7,427.2
8,065.2
8,593.9
Total Capital
9,091.2
9,255.9
9,645.8
Less:
Cash
(858.7)
(454.5)
(459.2)
Net Debt & Equity
8,232.5
8,801.4
9,186.6
Debt to Total Capital
18%
13%
11%
ITW
Cash Flow
2005
2006
Q2
Q2
Net Income
373.8
465.9
Adjust for Non-Cash Items
68.6
127.7
Changes in Operating Assets & Liabilities
55.9
(235.7)
Net Cash From Operating Activities
498.3
357.9
Additions to Plant & Equipment
(80.7)
(76.7)
Free Operating Cash Flow
417.6
281.2
Stock Repurchase
(383.0)
-
Acquisitions
(11.8)
(82.5)
Purchase of Investments
(2.6)
(1.7)
Dividends
(81.1)
(93.6)
Debt
(87.4)
(139.9)
Proceeds from Investments
12.3
6.3
Other
(58.3)
34.9
Net Cash Increase
(194.3)
4.7
ITW
Return on Average Invested Capital
2005
2006
F(U)
Current Quarter
Q2
Q2
Prior Yr.
Operating Income after Taxes
383.0
461.2
78.2
Operating Margins
11.7%
12.9%
1.2%
Average Invested Capital
8,321.1
8,994.0
(672.9)
Capital Turnover
1.58
1.59
0.01
Return on Average Invested Capital
18.4%
20.5%
2.1%
2005
2006
F(U)
Year to Date
Q2
Q2
Prior Yr.
Operating Income after Taxes
692.7
833.8
141.1
Operating Margins
10.9%
12.1%
1.2%
Average Invested Capital
8,242.3
8,791.9
(549.6)
Capital Turnover
1.54
1.56
0.02
Return on Average Invested Capital
16.8%
19.0%
2.2%
ITW
Acquisitions
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Annual Revenues Acquired
151
36
105
292
353
154
188
-
Purchase Price
Cash Paid
188
12
113
314
199
82
165
-
Stock Issued
-
-
-
-
163
-
-
-
Total
188
12
113
314
362
82
165
-
Number of Acquisitions
North America
Engineered Products
1
1
5
4
2
4
-
-
Specialty Systems
1
-
3
1
2
4
2
-
International
Engineered Products
-
1
-
-
4
-
-
-
Specialty Systems
1
1
3
-
3
2
-
-
Total
3
3
11
5
11
10
2
-
2005
2006
Key Economic Data
Gap between stronger North America and weaker International
end market activity narrowed in Q2: North America base
revenues at 4.4%; International base revenue at 4.3%
June ’06 ISM Index: declined to 53.8% vs. 55.2% in March ’06;
June ’06 new order index at 57.9% vs. 58.4% in March ’06
US Industrial Production (ex. Tech.): +4.0% in May ’06
International showed improvement
Euro-Zone ISM: 57.9% in June ’06 vs. 56.1% March ’06
EuroZone industrial production: +2.1%
Germany industrial production: +6.0%
UK and France industrial production: Flat
ITW
Engineered Products - North America
2005
2006
Q2
Q2
Amount
%
Operating Revenues
971.7
1,102.2
130.5
13.4%
Operating Income
177.0
211.9
34.9
19.8%
Operating Margins
18.2%
19.2%
1.0%
F(U) Last Year
Engineered Products - North America
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
1.9%
4.3%
0.4%
Nonvolume-related
-
5.3%
0.9%
Total
1.9%
9.6%
1.3%
Acquisitions / Divestitures
11.1%
6.5%
-0.9%
Translation
0.4%
0.5%
-
Impairment
-
-
-
Restructuring
-
3.2%
0.6%
Total
13.4%
19.8%
1.0%
% F(U) Prior Year
Engineered Products - North America
Key Points
Total construction: -1% for Q2 ’06
ITW construction (tools and fasteners) base revenues: -2% for Q2
’06
- new housing and renovation were slightly negative in Q2 ’06
- commercial: 10% growth in Q2 ’06
Wilsonart (high pressure laminate): base revenues flat in Q2 ’06
- base laminate products +4% in Q2 ’06 while flooring was
weaker due to earlier new product launch to the channel
Engineered Products - North America
Key Points
Auto base revenues: +1% for Q2 ’06
Big 3 build rates: -1% for Q2 ’06
GM: Flat
Ford: -1%
Chrysler: -1%
New domestics: +1%
Big 3 inventories: 79 days at 6-30-06
GM: 73 days
Ford: 79 days
Chrysler: 91 days
New domestics’ inventories: 53 days at 6-30-06
ITW Big 3 auto build forecast for 2006:
Down 2% to 4% for full year ’06
Industrial: base revenues +6% for Q2 ’06
Top performers: Minigrip/ZipPak +17%; Fluid Products
+10%; Industrial Plastics +6%; Polymers +6%
ITW
Engineered Products - International
2005
2006
Q2
Q2
Amount
%
Operating Revenues
711.6
739.2
27.6
3.9%
Operating Income
102.1
110.5
8.4
8.2%
Operating Margins
14.3%
14.9%
0.6%
F(U) Last Year
Engineered Products - International
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
4.1%
11.4%
1.0%
Nonvolume-related
-
-2.2%
-0.3%
Total
4.1%
9.2%
0.7%
Acquisitions / Divestitures
3.7%
0.7%
-0.4%
Translation
-3.9%
-4.3%
-0.1%
Impairment
-
-
-
Restructuring
-
2.6%
0.4%
Total
3.9%
8.2%
0.6%
% F(U) Prior Year
Engineered Products - International
Key Points
Construction base revenues: +5% in Q2 ’06
Europe: +6% (improvement in wide variety of countries)
Austral-Asia: +8% (commercial/new housing strength in
Australia/New Zealand)
Wilsonart Intl.: Flat (growth in Germany neutralized by slowing in
Asia)
Automotive base revenues: +2% in Q2 ’06
Builds: +2% in Q2 ’06
Fiat: +28%; BMW: +10%; Citroen/Peugeot: +2; GM Group: -6%;
Renault: -4%; Daimler Chrysler: -3%
ITW FY ’06 build forecast: +2% to +3%
Industrial base revenues: +5% in Q2 ’06
Electronic Component Packaging: +19%; ZipPak: +15%; Polymers:
+8%; Industrial Plastics: +2%
ITW
Specialty Systems - North America
2005
2006
Q2
Q2
Amount
%
Operating Revenues
1,037.7
1,150.9
113.2
10.9%
Operating Income
188.3
230.1
41.8
22.2%
Operating Margins
18.1%
20.0%
1.9%
F(U) Last Year
Specialty Systems - North America
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
6.8%
15.0%
1.4%
Nonvolume-related
-
3.2%
0.6%
Total
6.8%
18.2%
2.0%
Acquisitions / Divestitures
3.5%
2.3%
-0.3%
Translation
0.6%
0.7%
-
Impairment
-
-
-
Restructuring
-
1.0%
0.2%
Total
10.9%
22.2%
1.9%
% F(U) Prior Year
Specialty Systems - North America
Key Points
Welding base revenues: 21% growth in Q2 ’06 due
primarily to demand for replacement products, new
product introductions and better pricing metrics
Total Packaging: +4% base revenue growth in Q2 ’06
Signode packaging: +1% base revenue growth
due largely to price reductions
Other industrial packaging units (stretch/paper)
grew base revenues double-digit in the quarter
Food Equipment base revenues: -1% in Q2 ’06;
restaurant/institutional side of business prospers
while supermarket units struggle
ITW
Specialty Systems - International
2005
2006
Q2
Q2
Amount
%
Operating Revenues
675.0
728.2
53.2
7.9%
Operating Income
92.6
107.3
14.7
15.9%
Operating Margins
13.7%
14.7%
1.0%
F(U) Last Year
Specialty Systems - International
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
4.6%
13.0%
1.1%
Nonvolume-related
-
4.4%
0.6%
Total
4.6%
17.4%
1.7%
Acquisitions / Divestitures
7.2%
2.1%
-0.7%
Translation
-3.9%
-4.1%
-
Impairment
-
-
-
Restructuring
-
0.5%
-
Total
7.9%
15.9%
1.0%
% F(U) Prior Year
Specialty Systems - International
Key Points
Welding: base revenue +22% in Q2 ’06 due to stronger equipment
and consumables sales in Asia and Europe
Total packaging: Flat in Q2 ’06
-Signode industrial packaging declined 1% in Europe and fell
10% in Asia/Pacific
Food Equipment: base revenues +3% in Q2 ’06; most growth
emanating from institutional demand in Europe (especially
Germany)
Finishing: base revenues grew 8% in Q2 ’06 thanks to sales of
Gema powder based products in Europe
ITW
2006 Forecast
Mid
Low
High
Point
3rd Quarter
Base Revenues
4.0%
6.0%
5.0%
Income Per Share-Diluted
$0.78
$0.82
$0.80
%F(U) 2005
8%
14%
11%
Full Year
Base Revenues
4.7%
5.7%
5.2%
Income Per Share-Diluted
$3.03
$3.11
$3.07
%F(U) 2005
17%
20%
18%
ITW 2006 Forecast
Key Assumptions
Exchange rates hold at current levels.
Acquired revenues in the $900 million to $1.1 billion
range.
Restructuring cost of $25 to $30 million.
No further impairment of goodwill/intangibles.
Nonoperating investment income of $60 to $70 million,
which is lower than 2005 by $60 to $70 million.
Tax rate of 30.5% for the 3rd quarter and the full year.
ITW Conference Call
Q & A
Second Quarter
2006
