What were the primary drivers of revenue growth in the second quarter of 2005?

Revenue growth in the second quarter of 2005 was primarily driven by a 4.0% increase in the base manufacturing business, bolstered by price increases implemented to offset raw material costs, and a 4.4% contribution from acquisitions. Favorable currency translation also added 2.9% to the revenue growth.

How did the adoption of SFAS 123R affect the company's reported earnings?

Effective January 1, 2005, ITW adopted SFAS 123R, requiring the company to recognize stock-based compensation expense based on grant-date fair value. Prior to 2005, the company used the intrinsic value method, which did not require recognition of stock option compensation cost. For Q2 2005, the adoption resulted in pretax charges to expense of $6.5 million for stock options.

What is the company's outlook regarding liquidity and capital resources?

ITW expects its free operating cash flow to be adequate for servicing debt, paying dividends, financing internal growth, and funding acquisitions. The company also plans to repatriate at least $890 million in foreign dividends in 2005 to reduce commercial paper borrowings. Significant stock repurchases are also being funded.

Were there any significant impairments recorded during the period?

Yes, in the first quarter of 2005, ITW recorded goodwill and intangible asset impairment charges totaling $11.3 million. These charges were primarily related to a Canadian stretch packaging equipment business, a U.S. welding components business, and a U.S. business manufacturing clean room mats, reflecting lower-than-expected future cash flows.

ITW 10-Q Quarterly Report Q2 FY2005 — Revenue, Net Income, EPS

Summary

Illinois Tool Works Inc. (ITW) reported solid financial results for the second quarter and the first half of 2005, demonstrating continued revenue growth and operational strength. For the three months ended June 30, 2005, ITW achieved operating revenues of $3.30 billion, an increase of 9.8% year-over-year. Net income rose to $373.8 million, or $1.29 per diluted share, compared to $360.3 million, or $1.16 per diluted share, in the prior year's second quarter. The company highlighted operational leverage from its base manufacturing businesses and the positive impact of acquisitions and currency translation as key drivers of this performance.

Key Highlights

1Operating revenues increased by 9.8% to $3.30 billion for Q2 2005 and by 11.5% to $6.37 billion for the first six months of 2005, indicating strong top-line growth.
2Net income from continuing operations grew to $373.8 million ($1.29/share) in Q2 2005 and $686.1 million ($2.35/share) year-to-date, up from $360.3 million ($1.16/share) and $650.4 million ($2.09/share) respectively in the prior year.
3The company experienced a decrease in operating margin to 17.2% in Q2 2005 (16.4% year-to-date) from 18.7% in Q2 2004 (17.7% year-to-date), primarily due to higher raw material costs impacting variable margins and other operating expenses.
4Significant share repurchases were undertaken, with $572.7 million spent on repurchasing common stock in the first six months of 2005.
5The company adopted the new accounting standard SFAS 123R for share-based payments effective January 1, 2005, which resulted in the recognition of stock-based compensation expense.
6Goodwill and intangible asset impairment charges of $11.3 million were recorded in Q1 2005, impacting specific businesses within the Engineered Products segment.
7The company plans to repatriate at least $890 million in foreign dividends in 2005, intending to reduce commercial paper borrowings.

ILLINOIS TOOL WORKS INC Quarterly Report for Q2 Ended Jun 30, 2005

Summary

Key Highlights

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