ITW Conference Call
Third 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, share repurchases 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
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Webcast / PowerPoint replay available at
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ITW
Quarterly Highlights
2005
2006
Q3
Q3
Amount
%
Operating Revenues
3,200.2
3,538.0
337.8
10.6%
Operating Income
565.2
626.9
61.7
10.9%
% of Revenues
17.7%
17.7%
0.0%
Net Income
Income Amount
408.2
446.1
37.9
9.3%
Income Per Share-Diluted
0.72
0.78
0.06
8.3%
Average Invested Capital
8,253.2
9,384.4
(1,131.2)
-13.7%
Return on Average Invested Capital
18.6%
18.6%
0.0%
Free Operating Cash Flow
488.0
486.7
(1.3)
-0.3%
F(U) Last Year
ITW
Quarterly Operating Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Manufacturing Business
Operating Leverage
2.4%
5.5%
0.5%
Nonvolume-related
-
-0.5%
-0.1%
Total
2.4%
5.0%
0.4%
Acquisitions / Divestitures
7.5%
2.4%
-0.9%
Translation
1.6%
1.1%
-
Impairment
-
-
-
Restructuring
-
2.4%
0.4%
Intercompany
-0.9%
-
0.1%
Total
10.6%
10.9%
0.0%
% F(U) Prior Year
ITW
Non Operating & Taxes
2005
2006
Q3
Q3
Amount
%
Operating Income
565.2
626.9
61.7
10.9%
Interest Expense
(20.5)
(20.8)
(0.3)
Investment Income
56.3
28.2
(28.1)
Other Income(Expense)
(0.8)
7.6
8.4
Net Income-P/T
600.2
641.9
41.7
6.9%
Income Taxes
192.0
195.8
(3.8)
% to Pre Tax Income
32.0%
30.5%
1.5%
Net Income-A/T
408.2
446.1
37.9
9.3%
F(U) Last Year
ITW
Invested Capital
9/30/05
6/30/06
9/30/06
Trade Receivables
2,168.6
2,374.2
2,369.7
Days Sales Outstanding
61.0
59.7
60.3
Inventories
1,229.7
1,370.0
1,444.6
Months on Hand
1.8
1.8
1.9
Other Current Assets
303.2
612.9
659.6
Accounts Payable & Accruals
(1,641.8)
(1,880.4)
(1,919.0)
Operating Working Capital
2,059.7
2,476.7
2,554.9
% to Revenue(Prior 4 Qtrs.)
16%
19%
19%
Net Plant & Equipment
1,825.5
1,916.0
1,979.1
Investments
1,021.2
907.5
917.7
Goodwill and Intangibles
3,377.2
3,997.6
4,311.2
Other, net
(9.7)
(111.2)
(180.7)
Invested Capital
8,273.9
9,186.6
9,582.2
ITW
Debt & Equity
9/30/05
6/30/06
9/30/06
Total Capital
Short Term Debt
378.6
91.7
524.6
Long Term Debt
965.5
960.2
964.3
Total Debt
1,344.1
1,051.9
1,488.9
Stockholders' Equity
7,281.1
8,593.9
8,711.2
Total Capital
8,625.2
9,645.8
10,200.1
Less:
Cash
(351.3)
(459.2)
(617.9)
Net Debt & Equity
8,273.9
9,186.6
9,582.2
Debt to Total Capital
16%
11%
15%
ITW
Cash Flow
2005
2006
Q3
Q3
Net Income
408.2
446.1
Adjust for Non-Cash Items
119.5
137.1
Changes in Operating Assets & Liabilities
31.6
(18.7)
Net Cash From Operating Activities
559.3
564.5
Additions to Plant & Equipment
(71.3)
(77.8)
Free Operating Cash Flow
488.0
486.7
Share Repurchases
(469.1)
(248.0)
Acquisitions
(112.6)
(446.8)
Purchase of Investments
(18.0)
(2.1)
Dividends
(79.9)
(93.7)
Debt
(318.7)
431.9
Proceeds from Investments
18.6
13.8
Other
(15.6)
16.9
Net Cash Increase(Decrease)
(507.3)
158.7
ITW
Return on Average Invested Capital
2005
2006
F(U)
Current Quarter
Q3
Q3
Prior Yr.
Operating Income after Taxes
384.3
435.7
51.4
Operating Margins - A/T
12.0%
12.3%
0.3%
Average Invested Capital
8,253.2
9,384.4
(1,131.2)
Capital Turnover
1.55
1.51
(0.04)
Return on Average Invested Capital
18.6%
18.6%
0.0%
2005
2006
F(U)
Year to Date
Q3
Q3
Prior Yr.
Operating Income after Taxes
1,077.0
1,269.5
192.5
Operating Margins - A/T
11.3%
12.2%
0.9%
Average Invested Capital
8,250.2
8,989.5
(739.3)
Capital Turnover
1.54
1.54
0.00
Return on Average Invested Capital
17.4%
18.8%
1.4%
ITW
Acquisitions
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Annual Revenues Acquired
151
36
105
292
353
154
388
Purchase Price
Net Cash Paid
188
12
113
314
199
82
447
Stock Issued
-
-
-
-
163
-
-
Total
188
12
113
314
362
82
447
Number of Acquisitions
North America
Engineered Products
1
1
5
4
2
4
5
Specialty Systems
1
-
3
1
2
4
4
International
Engineered Products
-
1
-
-
4
-
2
Specialty Systems
1
1
3
-
3
2
2
Total
3
3
11
5
11
10
13
2005
2006
Key Economic Data
Reverse of trends from prior quarters: In Q3,
international growth trended up; North American growth
moderated
International fundamentals support growth
Euro-Zone ISM: 56.6% in September ’06 vs. 56.6%
August ’06
EuroZone industrial production: +3.3% in July
Germany industrial production: +7.3% in August
North America: September ’06 ISM Index declined to
52.9% vs. 54.5% in August ’06; September ’06 new order
index at 54.2% was the same as prior month
ITW
Engineered Products - North America
2005
2006
Q3
Q3
Amount
%
Operating Revenues
959.6
1,029.5
69.9
7.3%
Operating Income
180.9
181.4
0.5
0.3%
Operating Margins
18.9%
17.6%
-1.3%
F(U) Last Year
Engineered Products - North America
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
-1.9%
-4.0%
-0.4%
Nonvolume-related
-
1.8%
0.3%
Total
-1.9%
-2.2%
-0.1%
Acquisitions / Divestitures
8.9%
4.0%
-0.8%
Translation
0.3%
0.4%
-
Impairment
-
-
-
Restructuring
-
-1.9%
-0.4%
Total
7.3%
0.3%
-1.3%
% F(U) Prior Year
Engineered Products - North America
Key Points
Total construction: -5% for Q3 ’06
ITW construction (tools and fasteners) base revenues: -8% for Q3
’06
- new housing and renovation were negative in Q3 ’06
- commercial: 3% growth in Q3 ’06
Wilsonart (high pressure laminate): base revenues -1% in Q3 ’06
- base laminate products positive in Q3 ’06 while flooring was
negative
Engineered Products - North America
Key Points
Auto base revenues: -8% for Q3 ’06
Big 3 build rates: -13% for Q3 ’06
GM: -8%
Ford: -12%
Chrysler: -21%
New domestics’ builds: Flat
Big 3 inventories: 77 days at 9-30-06
GM: 76 days
Ford: 74 days
Chrysler: 83 days
New domestics’ inventories: 46 days at 9-30-06
ITW auto build forecast for 2006:
Big 3 Q4: -13%; FY: -6%
New domestics’ : Q4: +5%; FY: +4%
Industrial: base revenues +6% for Q3 ’06
Top performers: Fluid Products +15%; Industrial
Plastics +8%; Minigrip/ZipPak +7%; Polymers +3%
ITW
Engineered Products - International
2005
2006
Q3
Q3
Amount
%
Operating Revenues
660.7
724.0
63.3
9.6%
Operating Income
100.9
109.6
8.7
8.6%
Operating Margins
15.3%
15.1%
-0.2%
F(U) Last Year
Engineered Products - International
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
4.5%
12.1%
1.1%
Nonvolume-related
-
-10.7%
-1.6%
Total
4.5%
1.4%
-0.5%
Acquisitions / Divestitures
1.7%
-0.1%
-0.3%
Translation
3.4%
2.7%
-0.1%
Impairment
-
-
-
Restructuring
-
4.6%
0.7%
Total
9.6%
8.6%
-0.2%
% F(U) Prior Year
Engineered Products - International
Key Points
Construction base revenues: +6% in Q3 ’06
Europe: +4% (improvement in wide variety of countries)
Austral-Asia: +9% (commercial/new housing strength in
Australia/New Zealand/Asia)
Wilsonart Intl.: +5% (growth in UK and Germany)
Automotive base revenues: Flat in Q3 ’06
Builds: Flat in Q3 ’06
Fiat: +21%; VW Group: +9%; Ford Group; +1%; GM Group; -2%;
BMW: -9%; Daimler Chrysler: -17%
ITW FY ’06 build forecast: +1% to +2%
Industrial base revenues: +6% in Q3 ’06
Electronic Component Packaging: +13%; Industrial Plastics: +7%;
Polymers: +6%; Fluid Products: +4%
ITW
Specialty Systems - North America
2005
2006
Q3
Q3
Amount
%
Operating Revenues
1,054.3
1,164.0
109.7
10.4%
Operating Income
210.9
227.1
16.2
7.7%
Operating Margins
20.0%
19.5%
-0.5%
F(U) Last Year
Specialty Systems - North America
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
2.8%
5.7%
0.6%
Nonvolume-related
-
-1.6%
-0.3%
Total
2.8%
4.1%
0.3%
Acquisitions / Divestitures
7.3%
3.7%
-0.7%
Translation
0.3%
0.4%
-
Impairment
-
-
-
Restructuring
-
-0.5%
-0.1%
Total
10.4%
7.7%
-0.5%
% F(U) Prior Year
Specialty Systems - North America
Key Points
Welding base revenues: 12% growth in Q3 ’06 due to
full array of products serving strong markets such
as energy, heavy fabricators, general industrial
Food Equipment base revenues: +2% in Q3 ’06;
restaurant/institutional and service side of business
continues to drive growth
Total Packaging: -1% base revenue performance in
Q3 ’06
Signode packaging: Flat base revenue growth
due largely to decline in steel revenues
ITW
Specialty Systems - International
2005
2006
Q3
Q3
Amount
%
Operating Revenues
635.0
758.6
123.6
19.5%
Operating Income
72.4
108.8
36.4
50.1%
Operating Margins
11.4%
14.3%
2.9%
F(U) Last Year
Specialty Systems - International
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
5.4%
18.5%
1.4%
Nonvolume-related
-
11.6%
1.3%
Total
5.4%
30.1%
2.7%
Acquisitions / Divestitures
10.8%
-1.5%
-1.6%
Translation
3.3%
3.0%
-0.2%
Impairment
-
-
-
Restructuring
-
18.5%
2.0%
Total
19.5%
50.1%
2.9%
% F(U) Prior Year
Specialty Systems - International
Key Points
Welding: base revenue +27% in Q3 ’06 due to strong
consumables and equipment sales in Asia and Europe
Finishing: base revenues grew 12% in Q3 ’06 thanks to
sales of Gema powder based products in Europe and
finishing equipment in Asia
Total packaging: +2% in Q3 ’06
Signode industrial packaging increased 2% in Europe and
was down 2% in Asia/Pacific
Food Equipment: base revenues +1% in Q3 ’06
ITW
2006 Forecast
Mid
Low
High
Point
4th Quarter
Base Revenues
3.1%
5.1%
4.1%
Income Per Share-Diluted
$0.77
$0.81
$0.79
%F(U) 2005
8%
14%
11%
Full Year
Base Revenues
4.0%
4.6%
4.3%
Income Per Share-Diluted
$3.01
$3.05
$3.03
%F(U) 2005
16%
17%
17%
ITW 2006 Forecast
Key Assumptions
Exchange rates hold at current levels.
Acquired revenues in the $1.1 billion to $1.4 billion
range.
Share repurchases of $350 million to $450 million for
the year.
Restructuring cost of $25 to $30 million.
No further impairment of goodwill/intangibles.
Nonoperating investment income of $75 to $85 million,
which is lower than 2005 by $45 to $55 million.
Tax rate of 30.5% for the 4th quarter and the full year.
ITW Conference Call
Q & A
Third Quarter
2006
