GLENVIEW, Ill. — Illinois Tool Works Inc. (ITW) has reported a 24 percent decline in 2009 first quarter revenues and a loss of 6 cents in diluted income per share from continuing operations. Diluted income per share from continuing operations was 70 cents in the first quarter of 2008. The significant decrease in revenues and diluted income per share from continuing operations in the 2009 first quarter versus the year ago period was directly attributable to an impairment charge of $90 million and discrete tax charges of $28 million as well as dramatic slowing in world wide end-markets and macro economic trends. Excluding the 17 cents per share impact of impairment and the 6 cents per share of tax charges, diluted income per share from continuing operations would have been 17 cents in the first quarter. The company had most recently forecasted its 2009 first quarter diluted income per share from continuing operations to be in a range of 8 cents to 16 cents.
As part of the company’s annual goodwill impairment testing in the first quarter, it adopted a new accounting rule regarding fair value measurements. As a result, an impairment charge of $90 million was recorded, of which $78 million was attributed to goodwill and $12 million related to intangibles. The goodwill charge related to two larger businesses that have been acquired over the last few years: a pressure sensitive adhesives business included in the Polymers and Fluids segment and a PC board fabrication business included in the Power Systems and Electronics segment. In addition, the company recorded a tax charge of $28 million during the first quarter related to a reduction in the amount of tax loss carry forwards and additional tax reserves.
Due to further weakening in first quarter worldwide end-markets, revenues fell to $2.914 billion from $3.823 billion for the prior year period. Total base revenues declined 23.3 percent versus the year ago period, with North America decreasing 26.7 percent and international falling 19.5 percent. Currency translation negatively impacted revenues 7.3 percent and acquisitions contributed 6.6 percent in the quarter. First quarter operating margins of 2 percent were 13.2 percentage points lower than the year ago period due to lower base margins of 7.4 percentage points, impairment-related charges of 3 percentage points, translation impact of 1.2 percentage points and increased restructuring costs of 1 percentage points.
The company’s first quarter free operating cash flow was strong at $386 million in the quarter and was only modestly lower than the first quarter of 2008. Free operating cash flow in the first quarter was largely driven by reductions in working capital.
"The 2009 first quarter represented historic challenges for our company as end-markets continued to weaken in North America, Europe and Asia-Pacific," said David Speer, chairman and chief executive officer. "As a result, we continued to take aggressive restructuring actions that we believe provide the important balance between near-term market conditions and investment in longer-term growth initiatives. We spent $33 million on restructuring projects in the first quarter and we expect to spend an additional $60 million on restructuring in the second quarter. We remain confident that whenever economic trends and end-markets begin to improve, ITW and our relatively short lead-time businesses will benefit in a meaningful and measurable fashion."
Looking ahead, the company said it has limited visibility due to ongoing broad based weakness in worldwide end-markets. As a result, the company is limiting its current forecast to the 2009 second quarter. The company is forecasting second quarter 2009 diluted income per share from continuing operations to be in a range of 25 to 37 cents. The 2009 second quarter forecast range assumes a total revenue improvement of 5 percent to 11 percent compared to the first quarter of 2009. The company expects to provide full-year guidance when longer-term visibility becomes more reliable.
