GLENVIEW, IL -- Illinois Tool Works Inc. (ITW) today reported 27 percent growth in diluted net income per share in the 2006 second quarter. Diluted net income per share was 81 cents compared to 64 cents in the 2005 second quarter. In addition, the company's second quarter revenues increased 9 percent, operating income grew 18 percent and net income rose 25 percent. These per share amounts reflect ITW's two-for-one stock split which was effective in May.

The company said robust growth in earnings in the second quarter was primarily due to reasonable North American market demand, improving international end market activity and strong operating margin performance. Total base revenues grew 4.5 percent while acquisitions added 6.7 percent to the top line. Translation and intercompany sales reduced revenues by 2.3 percent. Of the 17 cent increase in earnings per share in the quarter versus a year ago, 12 cents came from operations and 5 cents resulted from a reduction in the tax rate, contributions from investment income and lower shares outstanding. The tax rate moved to 30.1 percent in the most recent quarter from 31.0 percent in the first quarter of 2006.

For the 2006 second quarter, revenues were $3.579 billion compared to $3.286 billion for the year earlier period. Operating income improved to $659.8 million in the second quarter versus $559.9 million in the prior year period. Net income was $465.9 million in the quarter compared to $373.8 million a year ago. ITW’s operating margins of 18.4 percent in the quarter were 140 basis points higher than a year ago.

For the 2006 first half, revenues increased 8 percent, operating income grew 18 percent, net income rose 21 percent and diluted net income per share was 24 percent higher than the year earlier period. Revenues of $6.877 billion compared to $6.338 billion in the year ago period. Operating income was $1.200 billion versus $1.019 billion. Net income was $832.4 million compared to $686.1 million and diluted net income per share was $1.46 versus $1.18. Operating margins of 17.4 percent were 130 basis points higher than the year ago period.

The company's free operating cash flow was $281.2 million in the 2006 second quarter. This free cash was utilized, in part, to fund 10 acquisitions during the quarter representing $154 million of annualized revenues. Through June 30, the company had completed 21 acquisitions totaling $507 million of annualized revenues. Based on two transactions completed in July representing $188 million of annualized revenues and a strong pipeline of potential acquisitions, the company is now forecasting a range of $900 million to $1.1 billion of annualized acquisition revenues for full-year 2006.

Non-operating investment income was higher than last year by $17.9 million due to income from mark-to-market adjustments in the venture capital investment.

Looking ahead, the company believes its end markets will be relatively stable in North America, and will improve modestly internationally for the remainder of the year. As a result, the company is now forecasting a third quarter earnings range of 78 cents to 82 cents and a full-year range of $3.03 to $3.11. Base revenues are expected to grow in a range of 4 percent to 6 percent in the third quarter and 4.7 percent to 5.7 percent for the full year. The new forecasts incorporate a lower tax rate, lower restructuring costs and higher contributions from investment income. If the company achieves the midpoints of these forecasted ranges, earnings growth would be 11 percent in the third quarter and 18 percent for the full year.

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