ITW Conference Call
Fourth Quarter
2006
Exhibit 99.2
ITW
Agenda
1. Introduction…………………….. John Brooklier
2. Financial Overview……………... Ron Kropp
3. Manufacturing Segments……… John Brooklier
4. Forecast 2007………………….… Ron Kropp
5. Q & A………………......……………David Speer/Ron Kropp/John Brooklier
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 2007 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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February 13, 2007
Webcast / PowerPoint replay available at
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ITW
Quarterly Highlights
2005
2006
Q4
Q4
Amount
%
Operating Revenues
3,252.2
3,640.5
388.3
11.9%
Operating Income
557.1
594.3
37.2
6.7%
% of Revenues
17.1%
16.3%
-0.8%
Net Income
Income Amount
400.6
439.3
38.7
9.7%
Income Per Share-Diluted
0.71
0.77
0.06
8.5%
Average Invested Capital
8,330.8
9,703.1
(1,372.3)
-16.5%
Return on Average Invested Capital
18.7%
17.8%
-0.9%
Free Operating Cash Flow
411.6
658.1
246.5
59.9%
F(U) Last Year
ITW
Quarterly Operating Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Manufacturing Business
Operating Leverage
2.2%
5.2%
0.5%
Nonvolume-related
-
-1.3%
-0.2%
Total
2.2%
3.9%
0.3%
Acquisitions / Divestitures
8.1%
0.2%
-1.3%
Translation
2.1%
1.6%
-
Impairment
-
-0.4%
-0.1%
Restructuring
-
1.4%
0.2%
Intercompany
-0.5%
-
0.1%
Total
11.9%
6.7%
-0.8%
% F(U) Prior Year
ITW
Non Operating & Taxes
2005
2006
Q4
Q4
Amount
%
Operating Income
557.1
594.3
37.2
6.7%
Interest Expense
(25.1)
(26.9)
(1.8)
Investment Income
40.6
13.9
(26.7)
Other Income(Expense)
(0.2)
24.4
24.6
Net Income-P/T
572.4
605.7
33.3
5.8%
Income Taxes
171.8
166.4
5.4
% to Pre Tax Income
30.0%
27.5%
2.5%
Net Income-A/T
400.6
439.3
38.7
9.7%
F(U) Last Year
ITW
Invested Capital
12/31/05
9/30/06
12/31/06
Trade Receivables
2,098.3
2,369.7
2,471.3
Days Sales Outstanding
58.1
60.3
61.1
Inventories
1,203.1
1,444.6
1,482.5
Months on Hand
1.7
1.9
1.9
Other Current Assets
439.8
659.6
662.4
Accounts Payable & Accruals
(1,747.8)
(1,919.0)
(2,173.9)
Operating Working Capital
1,993.4
2,554.9
2,442.3
% to Revenue(Prior 4 Qtrs.)
16%
19%
17%
Net Plant & Equipment
1,807.1
1,979.1
2,053.5
Investments
896.5
917.7
595.1
Goodwill and Intangibles
3,678.9
4,311.2
5,138.7
Other, net
11.8
(180.7)
(405.7)
Invested Capital
8,387.7
9,582.2
9,823.9
ITW
Debt & Equity
12/31/05
9/30/06
12/31/06
Total Capital
Short Term Debt
252.9
524.6
462.7
Long Term Debt
958.3
964.3
955.6
Total Debt
1,211.2
1,488.9
1,418.3
Stockholders' Equity
7,546.9
8,711.2
8,995.8
Total Capital
8,758.1
10,200.1
10,414.1
Less:
Cash
(370.4)
(617.9)
(590.2)
Net Debt & Equity
8,387.7
9,582.2
9,823.9
Debt to Total Capital
14%
15%
14%
ITW
Cash Flow
2005
2006
Q4
Q4
Net Income
400.6
439.3
Adjust for Non-Cash Items
34.7
172.2
Changes in Operating Assets & Liabilities
53.4
124.8
Net Cash From Operating Activities
488.7
736.3
Additions to Plant & Equipment
(77.1)
(78.2)
Free Operating Cash Flow
411.6
658.1
Share Repurchases
-
(198.9)
Acquisitions
(314.2)
(650.4)
Purchase of Investments
(29.0)
(19.5)
Dividends
(92.4)
(119.0)
Debt
(131.6)
(89.5)
Proceeds from Investments
173.9
335.0
Other
0.8
56.5
Net Cash Increase(Decrease)
19.1
(27.7)
ITW
Return on Average Invested Capital
2005
2006
F(U)
Current Quarter
Q4
Q4
Prior Yr.
Operating Income after Taxes
390.0
431.1
41.1
Operating Margins - A/T
12.0%
11.8%
-0.2%
Average Invested Capital
8,330.8
9,703.1
(1,372.3)
Capital Turnover
1.56
1.50
(0.06)
Return on Average Invested Capital
18.7%
17.8%
-0.9%
2005
2006
F(U)
Year to Date
Q4
Q4
Prior Yr.
Operating Income after Taxes
1,466.5
1,700.7
234.2
Operating Margins - A/T
11.5%
12.1%
0.6%
Average Invested Capital
8,277.7
9,156.4
(878.7)
Capital Turnover
1.55
1.54
(0.01)
Return on Average Invested Capital
17.7%
18.6%
0.9%
ITW
Acquisitions
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Annual Revenues Acquired
151
36
105
292
353
154
388
820
Purchase Price
Net Cash Paid
188
12
113
314
199
82
447
650
Stock Issued
-
-
-
-
163
-
-
-
Total
188
12
113
314
362
82
447
650
Number of Acquisitions
North America
Engineered Products
1
1
5
4
2
4
5
4
Specialty Systems
1
-
3
1
2
4
4
4
International
Engineered Products
-
1
-
-
4
-
2
11
Specialty Systems
1
1
3
-
3
2
2
-
Total
3
3
11
5
11
10
13
19
2005
2006
Key Economic Data
In Q4: international growth trended up; North American growth
moved down
International fundamentals support growth:
Euro-Zone ISM: 56.5% in December ’06 vs. 56.6% in September
’06
EuroZone industrial production: +2.5% in November ’06
Germany industrial production: +6.1% in November ’06
North America trends down:
December ’06 ISM Index was 51.4% vs. 52.9% in September ’06
ISM New Order Index was 52.1% in December ’06 vs. 54.2% in
September ’06
Industrial Production (excluding technology) was +1.8% in
December ’06 vs. +4.9% in September ’06
ITW
Engineered Products - North America
2005
2006
Q4
Q4
Amount
%
Operating Revenues
916.7
943.4
26.7
2.9%
Operating Income
156.9
143.6
(13.3)
-8.5%
Operating Margins
17.1%
15.2%
-1.9%
F(U) Last Year
Engineered Products - North America
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
-5.0%
-11.8%
-1.2%
Nonvolume-related
-
3.9%
0.7%
Total
-5.0%
-7.9%
-0.5%
Acquisitions / Divestitures
7.8%
0.7%
-1.1%
Translation
0.1%
-
-
Impairment
-
-
-
Restructuring
-
-1.3%
-0.3%
Total
2.9%
-8.5%
-1.9%
% F(U) Prior Year
Engineered Products - North America
Key Points
Total construction: -7% in Q4 ’06
ITW Construction (tools and fasteners) base revenues: -14% in Q4 ’06
- new housing: -21% in Q4 ’06 (housing starts in Q4: -24%)
- renovation: +9% in Q4 ’06
- commercial: +1% in Q4 ’06
Wilsonart (high pressure laminate): base revenues flat in Q4 ’06
- base laminate products positive in Q4 ’06 while flooring was
negative
2007 end market assumptions:
- new housing starts: -7% to -9%
- renovation: -1% to -2%
- commercial construction: +2%
Engineered Products - North America
Key Points
Auto base revenues: -9% in Q4 ’06
Detroit 3 build rates: -12% in Q4 ’06
GM: -14%
Ford: -20%
Chrysler: -2%
New domestic builds: +3% in Q4 ’06
Detroit 3 inventories: 75 days at 12-31-06
GM: 80 days
Ford: 70 days
Chrysler: 74 days
New domestics’ inventories: 67 days at 12-31-06
ITW auto build forecast for 2007:
Detroit 3 Q1: -10%; FY: -3% to -5%
New domestics’ : Q1: +6%; FY: +8% to 10%
Industrial: base revenues flat in Q4 ’06
Top performers: Fluid Products: +5%; Polymers: +2%;
Industrial Plastics: +1%; Contamination Control: -9%
ITW
Engineered Products - International
2005
2006
Q4
Q4
Amount
%
Operating Revenues
723.7
824.7
101.0
13.9%
Operating Income
118.7
134.7
16.0
13.5%
Operating Margins
16.4%
16.3%
-0.1%
F(U) Last Year
Engineered Products - International
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
5.9%
14.5%
1.3%
Nonvolume-related
-
-8.9%
-1.4%
Total
5.9%
5.6%
-0.1%
Acquisitions / Divestitures
3.4%
1.1%
-0.4%
Translation
4.6%
3.8%
-0.1%
Impairment
-
-
-
Restructuring
-
3.0%
0.5%
Total
13.9%
13.5%
-0.1%
% F(U) Prior Year
Engineered Products - International
Key Points
Construction base revenues: +12% in Q4 ’06
Europe: +8% (improvement in wide variety of countries…especially Germany)
Austral-Asia: +11% (commercial/new housing strength in Australia/New Zealand)
Wilsonart Intl.: +24% (growth in Germany and UK)
ITW FY ’07 construction forecast:
- Europe: commercial construction: +3%; new housing: +1%; renovation: +2%
- Australia/New Zealand: commercial construction: +6%; new housing: -3%; renovation: +4%
- China: total construction: +6% to +7 %
- Southeast Asia: total construction: +3%
Automotive base revenues: -1% in Q4 ’06
Builds: -1% in Q4 ’06
Fiat: +11%; Ford Group: +4%; VW Group: flat; PSA Group: -1%; GM Group: -7%; Renault: -
15%
ITW FY ’07 build forecast: flat to +2%
Industrial base revenues: +3% in Q4 ’06
Fluid Products: +9%; Polymers: +8%; Industrial Products: -1%
ITW
Specialty Systems - North America
2005
2006
Q4
Q4
Amount
%
Operating Revenues
1,070.4
1,174.4
104.0
9.7%
Operating Income
198.5
198.8
0.3
0.2%
Operating Margins
18.5%
16.9%
-1.6%
F(U) Last Year
Specialty Systems - North America
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
1.5%
3.5%
0.3%
Nonvolume-related
-
-1.7%
-0.3%
Total
1.5%
1.8%
0.0%
Acquisitions / Divestitures
8.1%
-1.6%
-1.6%
Translation
0.1%
0.1%
-
Impairment
-
0.1%
-
Restructuring
-
-0.2%
-
Total
9.7%
0.2%
-1.6%
% F(U) Prior Year
Specialty Systems - North America
Key Points
Welding base revenues: +13% in Q4 ’06 due to
strong markets such as energy and heavy
fabricators
Food Equipment base revenues: +5% in Q4 ’06;
restaurant/institutional and service side of business
continue to drive growth
Total Packaging base revenues: -10% in Q4 ’06
Industrial packaging: hit by double digit declines
in key end markets such as lumber and
brick/block
ITW
Specialty Systems - International
2005
2006
Q4
Q4
Amount
%
Operating Revenues
665.8
838.2
172.4
25.9%
Operating Income
82.9
117.2
34.3
41.3%
Operating Margins
12.5%
14.0%
1.5%
F(U) Last Year
Specialty Systems - International
Quarterly Analysis
Operating
Operating
Operating
Revenues
Income
Margins
Base Business
Operating Leverage
8.8%
27.3%
2.1%
Nonvolume-related
-
1.7%
0.2%
Total
8.8%
29.0%
2.3%
Acquisitions / Divestitures
12.3%
1.8%
-1.4%
Translation
4.8%
5.1%
-
Impairment
-
-2.7%
-0.3%
Restructuring
-
8.1%
0.9%
Total
25.9%
41.3%
1.5%
% F(U) Prior Year
Specialty Systems - International
Key Points
Welding: base revenue +19% in Q4 ’06 due to strong
consumables and equipment sales in Asia and Europe
Finishing: base revenues grew 18% in Q4 ’06 thanks to
sales of Gema powder based products in Europe and
finishing equipment in Asia (Japan and China)
Total packaging: +6% in Q4 ’06
Signode industrial packaging increased 10% in Europe and
grew 2% in Asia/Pacific
ITW
2007 Forecast
Mid
Low
High
Point
1st Quarter
Base Revenues
1.2%
3.2%
2.2%
Income Per Share-Diluted
$0.69
$0.73
$0.71
%F(U) 2006
6%
12%
9%
Full Year
Base Revenues
2.5%
4.5%
3.5%
Income Per Share-Diluted
$3.27
$3.39
$3.33
%F(U) 2006
9%
13%
11%
ITW 2007 Forecast
Key Assumptions
Exchange rates hold at current levels.
Acquired revenues in the $800 million to $1.2 billion range.
Share repurchases of $500 million to $700 million for the
year.
Restructuring cost of $30 to $50 million.
Impairment of goodwill/intangibles of $15 to $25 million in
the first quarter.
Nonoperating investment income of $25 to $30 million,
which is lower than 2006 by $50 to $55 million.
Tax rate of 29.75% for the first quarter and the full year.
ITW Conference Call
Q & A
Fourth Quarter
2006
