Illinois Tool Works (ITW) 10-Q 30 Oct 09 2009 Q3 Quarterly report Financial data

Document and Company Informatio

Document and Company Information (USD $)
In Thousands, except Share data	9 Months Ended Sep. 30, 2009	Jun. 30, 2008
Document And Company Information [Abstract]
Entity Registrant Name	Illinois Tool Works Inc
Entity Central Index Key	0000049826
Document Type	10-Q
Document Period End Date	2009-09-30
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$20,000,000
Entity Common Stock Shares Outstanding	500,909,909

Statement of Income

Statement of Income (USD $)
In Thousands	3 Months Ended Sep. 30, 2009	3 Months Ended Sep. 30, 2008	9 Months Ended Sep. 30, 2009	9 Months Ended Sep. 30, 2008
Operating revenues	$3,580,354	$4,464,621	$10,119,639	$13,146,312
Cost of revenues	2,315,175	2,936,599	6,716,255	8,570,541
Selling, administrative, and research and development expenses	720,042	806,533	2,239,604	2,394,612
Amortization of intangible assets	49,542	50,491	152,059	132,933
Impairment of goodwill and other intangible assets	12,000	0	101,997	1,438
Operating Income	483,595	670,998	909,724	2,046,788
Interest expense	(45,670)	(38,240)	(120,992)	(112,295)
Other income (expense)	11,139	16,763	(13,041)	19,924
Income from Continuing Operations Before Income Taxes	449,064	649,521	775,691	1,954,417
Income Taxes	146,100	184,935	301,800	565,789
Income from Continuing Operations	302,964	464,586	473,891	1,388,628
Loss from Discontinued Operations	(546)	(11,068)	(34,282)	(103,399)
Net Income	$302,418	$453,518	$439,609	$1,285,229
Income Per Share from Continuing Operations, Basic	0.61	0.9	0.95	2.66
Income Per Share from Continuing Operations, Diluted	0.6	0.89	0.95	2.64
Loss Per Share from Discontinued Operations, Basic	0	-0.02	-0.07	-0.2
Loss Per Share from Discontinued Operations, Diluted	0	-0.02	-0.07	-0.2
Net Income Per Share, Basic	0.6	0.88	0.88	2.46
Net Income Per Share, Diluted	0.6	0.87	0.88	2.45
Cash Dividend, Paid	0.31	0.28	0.93	0.84
Cash Dividend, Declared	0.31	0.31	0.93	0.87
Shares of Common Stock Outstanding, Average	500,313	517,914	499,635	521,886
Shares of Common Stock Outstanding, Average Assuming Dilution	502,187	521,086	501,184	525,326

Statement of Financial Position

Statement of Financial Position (USD $)
In Thousands	Sep. 30, 2009	Dec. 31, 2008
Cash and equivalents	$942,856	$742,950
Trade receivables	2,410,667	2,571,987
Inventories	1,361,201	1,774,697
Deferred income taxes	243,284	206,496
Prepaid expenses and other current assets	327,083	375,778
Assets held for sale	0	82,071
Total current assets	5,285,091	5,753,979
Land	236,084	227,167
Buildings and improvements	1,532,356	1,457,732
Machinery and equipment	3,904,162	3,714,456
Equipment leased to others	172,405	164,504
Construction in progress	103,468	98,876
Gross plant and equipment	5,948,475	5,662,735
Accumulated depreciation	3,841,372	3,553,303
Net plant and equipment	2,107,103	2,109,432
Investments	456,450	465,894
Goodwill	4,721,777	4,517,550
Intangible Assets	1,652,292	1,779,669
Deferred Income Taxes	81,870	75,999
Other Assets	579,633	501,028
Total Assets	14,884,216	15,203,551
Short-term debt	67,460	2,433,973
Accounts payable	626,314	683,991
Accrued expenses	1,391,824	1,315,106
Cash dividends payable	155,282	154,726
Income taxes payable	225,751	216,751
Liabilities held for sale	0	20,546
Total current liabilities	2,466,631	4,825,093
Long-term debt	2,869,377	1,247,883
Deferred income tax liabilities	71,468	125,089
Other Liabilities	1,234,447	1,330,395
Total noncurrent liabilities	4,175,292	2,703,367
Common stock	5,336	5,318
Additional paid-in-capital	199,259	105,497
Income reinvested in the business	9,170,064	9,196,465
Common stock held in treasury	1,390,594	1,390,594
Accumulated other comprehensive income	249,471	(253,211)
Noncontrolling interest	8,757	11,616
Total stockholders' equity	8,242,293	7,675,091
Total Liabilities and Stockholders' Equity	$14,884,216	$15,203,551

Statement of Cash Flows

Statement of Cash Flows (USD $)
In Thousands	9 Months Ended Sep. 30, 2009	9 Months Ended Sep. 30, 2008
Net income	$439,609	$1,285,229
Depreciation	272,336	284,600
Amortization and impairment of goodwill and intangible assets	254,056	272,815
Change in deferred income taxes	(87,050)	27,236
Provision for uncollectible accounts	13,188	4,010
Loss on sale of plant and equipment	444	623
(Income) loss from investments	2,194	(27,800)
(Gain) loss on sale of operations and affiliates	34,171	(25,966)
Stock compensation expense	35,657	31,950
Other non-cash items, net	3,218	11,161
(Increase) decrease in trade receivables	324,088	(105,219)
(Increase) decrease in inventories	525,497	(131,583)
(Increase) decrease in prepaid expenses and other assets	(18,512)	(38,197)
Increase (Decrease) in accounts payable	(117,826)	(35,389)
Increase (decrease) in accrued expenses and other liabilities	(123,969)	46,397
Increase (decrease) in income taxes receivable and payable	82,727	28,482
Increase (decrease) in other, net	451	4,438
Net cash provided by operating activities	1,640,279	1,632,787
Acquisition of businesses (excluding cash and equivalents)	(118,342)	(1,324,239)
Additions to plant and equipment	(174,353)	(274,295)
Purchases of investments	(36,676)	(3,109)
Proceeds from Investments	10,564	21,538
Proceeds from sale of plant and equipment	22,683	15,455
Proceeds from sale of operations and affiliates	16,316	106,364
Other, net	(891)	(4,679)
Net cash used for investing activities	(280,699)	(1,462,965)
Cash dividends paid	(464,399)	(440,229)
Issuance of common stock	55,328	45,333
Repurchases of common stock	0	(991,583)
Net proceeds (repayments) of debt with original maturities 3 months or less	(1,753,883)	1,275,667
Proceeds from debt with original maturities greater than 3 months	2,158,119	1,824
Repayments of debt with original maturities greater than 3 months	(1,278,674)	(4,875)
Excess tax benefits from share-based compensation	609	3,974
Net cash used for financing activities	(1,282,900)	(109,889)
Effect of Exchange Rate Changes on Cash and Equivalents	123,226	(19,839)
Cash and Equivalents, Increase during the period	199,906	40,094
Cash and Equivalents, Beginning of period	742,950	827,524
Cash and Equivalents, End of period	942,856	867,618
Cash Paid During the Period for Interest	40,607	65,974
Cash Paid During the Period for Income Taxes	267,787	491,820
Liabilities Assumed from Acquisitions	$34,659	$464,053

Financial Statements

Financial Statements
	9 Months Ended Sep. 30, 2009
Financial Statements [Abstract]
Organization, Consolidation and Presentation of Financial Statements Disclosure	(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 September 30, 2009 through the time that these financial statements have been filed on October 30, 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 Companys Annual Report on Form 10-K, as updated by the Current Report on Form 8-K filed August 7, 2009. Certain reclassifications of prior year data have been made to conform to current year reporting.

Comprehensive Income

Comprehensive Income
	9 Months Ended Sep. 30, 2009
Comprehensive Income Note [Abstract]
Comprehensive Income Note	(2) COMPREHENSIVE INCOME The Companys components of comprehensive income in the periods presented are: (In thousands) Three Months Ended September 30 Nine Months Ended September 30 2009 2008 2009 2008 Net income $ 302,418 $ 453,518 $ 439,609 $ 1,285,229 Other comprehensive income: Foreign currency translation adjustments 116,929 (313,175 ) 498,567 (171,236 ) Pension and other postretirement benefit adjustments, net of tax 2,181 442 4,115 (6 ) Comprehensive income $ 421,528 $ 140,785 $ 942,291 $ 1,113,987

Discontinued Operations

Discontinued Operations
	9 Months Ended Sep. 30, 2009
Discontinued Operations [Abstract]
Disposal Groups, Including Discontinued Operations, Disclosure	(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 Companys 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 sold the automotive components business in the third quarter of 2009. In May 2009, the Companys 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 were as follows: (In thousands) Three Months Ended September 30 Nine Months Ended September 30 2009 2008 2009 2008 Operating revenues $ 2,794 $ 25,420 $ 25,963 $ 98,861 Loss before taxes (1,043 ) (10,218 ) (36,107 ) (103,439 ) Income tax (expense) benefit 497 (850 ) 1,825 40 Loss from discontinued operations $ (546 ) $ (11,068 ) $ (34,282 ) $ (103,399 ) In 2009, the Company recorded a pre-tax loss on the disposal of the Click Commerce business of $29,626,000. Loss before taxes in 2008 includes goodwill impairment charges of $132,700,000 related to the Click Commerce business and a pre-tax gain on the disposal of the consumer packaging business of $25,062,000.

Income Taxes

Income Taxes
	9 Months Ended Sep. 30, 2009
Income Taxes [Abstract]
Income Tax Disclosure	(4) INCOME TAXES In the first nine months of 2009, the Company incurred significant charges related to the impairment of goodwill and intangible assets of $101,997,000 that were mostly non-deductible, and discrete tax items of $46,849,000 to record reserves for tax contingencies related to audits and valuation allowances on net operating loss carryforwards no longer expected to be utilized. The components of the effective tax rate for the nine month period ended September 30, 2009 were as follows: Effective tax rate excluding discrete items 29.6 % Discrete tax adjustments 6.0 Goodwill and intangible asset impairment charges 3.3 Effective tax rate 38.9 % The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions and a number of these audits are currently ongoing. As part of the Australia, Germany and U.S. tax audits, the tax authorities are reviewing several items, the most significant of which are related to financing transactions, leveraged leases and mortgage-backed securities. The Company believes it is reasonably possible that it will resolve the matters currently under consideration within the next 12 months, and that the amount of the Companys unrecognized tax benefits may be reduced by a range of approximately $270 million up to $580 million. The Company has recorded its best estimate of the exposure for these issues.

Inventories

Inventories
	9 Months Ended Sep. 30, 2009
Inventory Disclosures [Abstract]
Inventory Disclosure	(5) INVENTORIES Inventories at September 30, 2009 and December 31, 2008 were as follows: (In thousands) September 30, 2009 December 31, 2008 Raw material $ 428,414 $ 612,190 Work-in-process 144,219 174,607 Finished goods 788,568 987,900 $ 1,361,201 $ 1,774,697

Goodwill and Intangible Assets

Goodwill and Intangible Assets
	9 Months Ended Sep. 30, 2009
Goodwill And Intangible Assets [Abstract]
Goodwill and Intangible Assets Disclosure	(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. 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 new accounting guidance on fair value measurements. The Company adopted these provisions on January 1, 2009 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value on a nonrecurring basis. The new accounting guidance 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 62 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 units goodwill. The Companys 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 fair value measurement provisions 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. Also in the first quarter of 2009, intangible asset impairments of $11,997,000 were recorded to reduce to the estimated fair value the carrying value of certain 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. In the third quarter of 2009, the Company changed the date of its annual goodwill impairment assessment from the first quarter to the third quarter. This constitutes a cha

Retirement Plans And Post Retir

Retirement Plans And Post Retirement Benefits
	9 Months Ended Sep. 30, 2009
Retirement Plans And Post Retirement Benefits [Abstract]
Pension and Other Postretirement Benefits Disclosure	(7) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS Pension and other postretirement benefit costs for the periods ended September 30, 2009 and 2008 were as follows: (In thousands) Three Months Ended September 30 Nine Months Ended September 30 Pension Other Postretirement Benefits Pension Other Postretirement Benefits 2009 2008 2009 2008 2009 2008 2009 2008 Components of net periodic benefit cost: Service cost $ 24,724 $ 28,144 $ 3,142 $ 3,585 $ 73,157 $ 84,153 $ 9,426 $ 10,755 Interest cost 30,350 30,042 7,718 8,091 89,280 90,361 23,154 24,524 Expected return on plan assets (39,078) (42,045) (3,403) (3,848) (114,963) (126,581) (10,209) (11,544) Amortization of actuarial (gain) loss 2,093 649 64 (204) 6,230 1,938 192 (708) Amortization of prior service (income) cost (391) (602) 1,606 1,565 (1,191) (1,804) 4,818 4,695 Amortization of net transition amount 34 25 110 70 Settlement/curtailment (income) loss 12,900 (12,345) 12,900 (1,929) Net periodic benefit cost $ 17,732 $ 29,113 $ 9,127 $ 9,189 $ 40,278 $ 61,037 $ 27,381 $ 25,793 The Company expects to contribute approximately $218,000,000 to its pension plans and $38,000,000 to its other postretirement plans in 2009. As of September 30, 2009, contributions of $209,800,000 to pension plans and $24,200,000 to other postretirement plans have been made.

Short Term Debt

Short Term Debt
	9 Months Ended Sep. 30, 2009
Short Term Debt [Abstract]
Short-term Debt	(8) SHORT-TERM DEBT On June 12, 2009, the Company entered into a $2,000,000,000 Line of Credit Agreement with a termination date of June 11, 2010 which replaced the prior line of credit. No amounts were outstanding under this facility at September 30, 2009. The Company had no commercial paper outstanding at September 30, 2009 and $1,820,423,000 outstanding at December 31, 2008. In 1999, the Company issued $500,000,000 of 5.75% redeemable notes due March 1, 2009. These notes were repaid at maturity.

Long Term Debt

Long Term Debt
	9 Months Ended Sep. 30, 2009
Long-term Debt, Unclassified [Abstract]
Long-term Debt	(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 99.98% of face value. The effective interest rates of the notes are 5.2% and 6.3%, respectively. Based on rates for comparable instruments the approximate fair value and related carrying value of the Companys long-term debt, including current maturities, was as follows: (In thousands) September 30, 2009 December 31, 2008 Fair value $ 3,087,152 $ 1,682,304 Carrying value 2,877,534 1,757,807

Stockholders Equity

Stockholders Equity
	1/1/2009 - 9/30/2009
Stockholders' Equity Note [Abstract]
Stockholders' Equity Note Disclosure	(10) STOCKHOLDERS' EQUITY On January 1, 2009, the Company adopted new accounting guidance on noncontrolling interests. Upon adoption the Company reclassified the December 31, 2008 balance of $11,616,000 from other noncurrent liabilities to noncontrolling interest in stockholders equity.

Segment Information

Segment Information
	9 Months Ended Sep. 30, 2009
Segment Information [Abstract]
Segment Reporting Disclosure	(11) SEGMENT INFORMATION See Managements Discussion and Analysis for information regarding operating revenues and operating income for the Companys segments.