Edgar Filing: ILLINOIS TOOL WORKS INC

itw10q2q11.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2011

	OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______________ to _______________

Commission File Number: 1-4797

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware		36-1258310
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3600 West Lake Avenue, Glenview, IL		60026-1215
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) 847-724-7500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer X Accelerated filer ___

Non-accelerated filer ___ (Do not check if a smaller reporting company)Smaller reporting company ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The number of shares of registrant’s common stock, $0.01 par value, outstanding at June 30, 2011: 491,414,518.

Part I – Financial Information

Item 1 – Financial Statements

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)

(In thousands except for per share amounts)	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Operating Revenues	$	4,614,914		$	3,928,056		$	8,886,759		$	7,560,820
Cost of revenues		2,996,014			2,514,222			5,758,023			4,842,085
Selling, administrative, and research
and development expenses		845,145			735,847			1,641,145			1,463,491
Amortization of intangible assets		62,705			51,952			117,949			103,534
Operating Income		711,050			626,035			1,369,642			1,151,710
Interest expense		(45,396	)		(43,269	)		(89,378	)		(87,564	)
Other income (expense)		15,357			2,207			21,252			6,085
Income from Continuing Operations
Before Income Taxes		681,011			584,973			1,301,516			1,070,231
Income Taxes		197,482			185,181			211,750			349,143
Income from Continuing Operations		483,529			399,792			1,089,766			721,088
Income from Discontinued Operations		14,901			11,664			31,804			24,173
Net Income	$	498,430		$	411,456		$	1,121,570		$	745,261

Income Per Share from Continuing
Operations:
Basic	$	0.97		$	0.79		$	2.19		$	1.43
Diluted	$	0.96		$	0.79		$	2.17		$	1.43
Income Per Share from Discontinued
Operations:
Basic	$	0.03		$	0.02		$	0.06		$	0.05
Diluted	$	0.03		$	0.02		$	0.06		$	0.05
Net Income Per Share:
Basic	$	1.00		$	0.82		$	2.25		$	1.48
Diluted	$	0.99		$	0.81		$	2.23		$	1.47
Cash Dividends:
Paid	$	0.34		$	0.31		$	0.68		$	0.62
Declared	$	0.34		$	0.31		$	0.68		$	0.62
Shares of Common Stock Outstanding
During the Period:
Average		497,798			503,265			498,178			502,847
Average assuming dilution		501,861			506,297			502,300			505,479

The Notes to Financial Statements are an integral part of these statements.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

(In thousands)	June 30, 2011			December 31, 2010
ASSETS
Current Assets:
Cash and equivalents	$	1,230,662		$	1,186,367
Trade receivables		3,146,005			2,581,592
Inventories		1,919,679			1,634,856
Deferred income taxes		329,523			301,486
Prepaid expenses and other current assets		507,436			266,187
Assets held for sale		423,774			—
Total current assets		7,557,079			5,970,488

Plant and Equipment:
Land		263,332			264,875
Buildings and improvements		1,618,362			1,574,593
Machinery and equipment		4,084,256			3,930,502
Equipment leased to others		194,560			187,284
Construction in progress		121,348			104,440
Gross plant and equipment		6,281,858			6,061,694
Accumulated depreciation		(4,149,845	)		(3,995,538	)
Net plant and equipment		2,132,013			2,066,156

Investments		435,576			440,760
Goodwill		5,101,220			4,971,818
Intangible Assets		2,105,649			1,731,016
Deferred Income Taxes		566,621			615,326
Other Assets		628,017			616,747
	$	18,526,175		$	16,412,311
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	1,450,332		$	326,236
Accounts payable		864,955			749,489
Accrued expenses		1,430,842			1,391,396
Cash dividends payable		167,081			169,233
Income taxes payable		43,673			386,498
Deferred income taxes		3,097			—
Liabilities held for sale		102,175			—
Total current liabilities		4,062,155			3,022,852
Noncurrent Liabilities:
Long-term debt		2,622,796			2,542,087
Deferred income taxes		114,120			194,590
Other liabilities		1,305,080			1,080,783
Total noncurrent liabilities		4,041,996			3,817,460

Stockholders’ Equity:
Common stock		5,418			5,385
Additional paid-in-capital		631,621			460,806
Income reinvested in the business		11,192,418			10,407,946
Common stock held in treasury		(2,291,851	)		(1,740,682	)
Accumulated other comprehensive income		870,881			427,155
Noncontrolling interest		13,537			11,389
Total stockholders’ equity		10,422,024			9,571,999
	$	18,526,175		$	16,412,311

The Notes to Financial Statements are an integral part of these statements.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF CASH FLOWS (UNAUDITED)

(In thousands)	Six Months Ended June 30
	2011			2010
Cash Provided by (Used for) Operating Activities:
Net income	$	1,121,570		$	745,261
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		166,910			166,525
Amortization of intangible assets		120,125			106,237
Change in deferred income taxes		(51,618	)		(14,173	)
Provision for uncollectible accounts		4,766			9,995
Loss on sale of plant and equipment		459			706
Income from investments		(13,630	)		(10,232	)
Gain on sale of operations and affiliates		(2,233	)		(1,611	)
Stock compensation expense		27,736			27,399
Other non-cash items, net		(2,983	)		664
Change in assets and liabilities:
(Increase) decrease in--
Trade receivables		(525,659	)		(393,136	)
Inventories		(193,673	)		(174,494	)
Prepaid expenses and other assets		(20,442	)		16,687
Increase (decrease) in--
Accounts payable		90,923			147,042
Accrued expenses and other liabilities		68,762			40,439
Income taxes		(336,412	)		(59,724	)
Other, net		2,568			586
Net cash provided by operating activities		457,169			608,171
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)		(747,855	)		(216,830	)
Additions to plant and equipment		(175,954	)		(123,281	)
Purchases of investments		(401	)		(1,257	)
Proceeds from investments		11,698			9,427
Proceeds from sale of plant and equipment		5,327			8,772
Proceeds from sale of operations and affiliates		1,386			1,403
Other, net		8,423			20,615
Net cash used for investing activities		(897,376	)		(301,151	)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid		(339,250	)		(311,495	)
Issuance of common stock		131,462			42,852
Repurchases of common stock		(550,000	)		—
Net proceeds of debt with original maturities of three months or less		1,114,933			95,662
Proceeds from debt with original maturities of more than three months		196			1,488
Repayments of debt with original maturities of more than three months		(1,966	)		(24,457	)
Excess tax benefits from share-based compensation		7,091			2,311
Net cash provided by (used for) financing activities		362,466			(193,639	)
Effect of Exchange Rate Changes on Cash and Equivalents		122,036			(118,232	)
Cash and Equivalents:
Increase (decrease) during the period		44,295			(4,851	)
Beginning of period		1,186,367			1,346,166
End of period	$	1,230,662		$	1,341,315
Cash Paid During the Period for Interest	$	58,728		$	64,455
Cash Paid During the Period for Income Taxes	$	566,193		$	378,179
Liabilities Assumed from Acquisitions	$	89,622		$	106,878

The Notes to Financial Statements are an integral part of these statements.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(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. It is suggested that these financial statements be read in conjunction with the financial statements and notes to financial statements included in the Company’s 2010 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

Prior to 2011, the Company’s international operations outside of North America had a fiscal reporting period that began on December 1 and ended on November 30. Effective January 1, 2011, the Company eliminated the one month lag for the reporting of its international operations outside of North America. As a result, the Company is now reporting both North American and international results on a calendar year basis. The Company determined that the elimination of the one month reporting lag was preferable because the same period-end reporting date improves overall financial reporting as the impact of current events, economic conditions and global trends are consistently reflected in the financial statements of the North American and international business units.

The Company has applied this change in accounting principle retrospectively to all prior financial statement periods presented. The elimination of the one month reporting lag for international operations outside of North America resulted in a decrease to operating revenues from continuing operations of $30,572,000, to income from continuing operations of $7,506,000, or $0.01 per diluted share, and to net income of $9,336,000, or $0.02 per diluted share, for the three months ended June 30, 2010; an increase to operating revenues from continuing operations of $93,363,000, to income from continuing operations of $26,961,000, or $0.06 per diluted share, and to net income of $30,138,000, or $0.06 per diluted share, for the six months ended June 30, 2010; and an increase to income reinvested in the business of $8,722,000 as of December 31, 2010.

(2) COMPREHENSIVE INCOME

The components of comprehensive income in the periods presented were:

(In thousands)	Three Months Ended June 30					Six Months Ended June 30
	2011		2010			2011		2010
Net income	$	498,430	$	411,456		$	1,121,570	$	745,261
Other comprehensive income:
Foreign currency translation adjustments		195,179		(310,954	)		426,773		(368,521	)
Pension and other postretirement benefit adjustments, net of tax		8,168		5,951			16,953		11,988
Comprehensive income	$	701,777	$	106,453		$	1,565,296	$	388,728

(3) DISCONTINUED OPERATIONS

In April 2011, the Company entered into a definitive agreement to sell its finishing group of businesses to Graco Inc. in a $650,000,000 cash transaction. The sale is not expected to be completed prior to the fourth quarter of 2011, to accommodate regulatory reviews. The finishing businesses, which were included within the All Other segment, had revenues of approximately $305,000,000 for the year ended December 31, 2010. Additionally, in the second quarter of 2011, the Company’s Board of Directors approved plans to divest a consumer packaging business in the All Other segment and an electronics components business in the Power Systems & Electronics segment, which had combined 2010 revenues of approximately $100,000,000. The Company expects to dispose of both businesses within one year. These businesses are classified as held for sale as of June 30, 2011.

The held for sale finishing, consumer packaging, and electronics components businesses discussed above, along with a flooring business in the Decorative Surfaces segment that was exited in early 2011 and a security printing business in the All Other segment that was sold in the third quarter of 2010, are reported as discontinued operations in the statement of income. All related prior period income statement information has been restated to conform to the current year reporting of these businesses.

Results of the discontinued operations for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(In thousands)	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Operating revenues	$	121,891		$	113,345		$	237,625		$	218,182

Income before income taxes	$	22,526		$	17,484		$	46,161		$	34,028
Income taxes		(7,625	)		(5,820	)		(14,357	)		(9,855	)
Income from discontinued operations	$	14,901		$	11,664		$	31,804		$	24,173

As of June 30, 2011, the assets and liabilities of the held for sale finishing, consumer packaging, and electronics components businesses discussed above were included in assets and liabilities held for sale in the statement of financial position, as follows:

(In thousands)		June 30, 2011
Trade receivables	$	87,350
Inventories		57,035
Net plant and equipment		49,130
Goodwill and intangible assets		215,320
Other		14,939
Total assets held for sale	$	423,774

Accounts payable	$	23,509
Accrued expenses		50,848
Other		27,818
Total liabilities held for sale	$	102,175

(4) INCOME TAXES

The Company has been litigating its dispute with the Australian Tax Office over the tax treatment of an intercompany financing transaction between the U.S. and Australia. The case was heard before the Federal Court of Australia, Victoria, in September 2010. The proceedings resulted from the Company’s appeal of a decision by the Australian Tax Commissioner to disallow income tax deductions for the income tax years 2002 through 2005 and the assessment of withholding taxes for income tax year 2003. The Company also contested the Commissioner’s similar determination for income tax years 2006 and 2007; however, the parties agreed to follow the Court’s decision made on the earlier years. On February 4, 2011, the Federal Court of Australia, Victoria, decided in the Company’s favor with respect to a significant portion of the income tax deductions. The Court issued the final orders on February 18, 2011. Based on this decision, the Company decreased its unrecognized tax benefits related to this matter by approximately $197,000,000 and recorded a favorable discrete non-cash tax benefit to reduce tax expense by $165,927,000 in the first half of 2011. The Australian Tax Office has appealed the timing of certain of the deductions, the outcome of which is not expected to be material.

During the first quarter of 2011, the Company resolved an issue with the Internal Revenue Service in the United States related to a deduction for foreign exchange losses on an intercompany loan that resulted in a decrease in unrecognized tax benefits of approximately $179,000,000.

In March 2010, the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act were signed into law. As a result, future tax deductions for retiree prescription drug coverage will be reduced by the amount of subsidies received starting in 2013. In the first quarter of 2010, the Company recorded a discrete tax charge of $21,881,000 for the impact of the health care reform legislation.

The components of the effective tax rate for the six month periods ended June 30, 2011 and 2010 were as follows:

	June 30, 2011			June 30, 2010
Estimated annual effective tax rate		29.0	%		30.6	%
Discrete tax adjustments		(12.7	)		2.0
Effective tax rate		16.3	%		32.6	%

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.

(5) INVENTORIES

Inventories at June 30, 2011 and December 31, 2010 were as follows:

(In thousands)

	June 30, 2011		December 31, 2010
Raw material	$	644,364	$	552,996
Work-in-process		177,272		165,298
Finished goods		1,098,043		916,562
	$	1,919,679	$	1,634,856

(6)RETIREMENT PLANS AND POSTRETIREMENT BENEFITS

Pension and other postretirement benefit costs related to both continuing and discontinued operations for the periods ended June 30, 2011 and 2010 were as follows:

(In thousands)	Three Months Ended June 30												Six Months Ended June 30
	Pension						Other Postretirement Benefits						Pension							Other Postretirement Benefits
	2011			2010			2011			2010			2011			2010				2011			2010
Components of net periodic
benefit cost:
Service cost	$	23,247		$	23,238		$	3,358		$	3,485		$	47,772		$	46,639			$	6,715		$	6,970
Interest cost		28,437			27,161			7,383			7,498			59,601			54,703				14,766			14,997
Expected return on plan assets		(38,691	)		(37,003	)		(5,141	)		(4,545	)		(80,540	)		(74,378	)			(10,282	)		(9,091	)
Amortization of actuarial loss		9,729			6,454			104			10			20,052			12,968				208			20
Amortization of prior service
cost		195			183			1,612			1,612			405			367				3,224			3,223
Amortization of net transition
amount		—			7			—			—			—			15				—			—
Net periodic benefit cost	$	22,917		$	20,040		$	7,316		$	8,060		$	47,290		$	40,314			$	14,631		$	16,119
Amounts were included in the statement of income as follows:
Income from continuing
operations	$	22,078		$	19,242		$	7,230		$	7,960		$	45,524		$	38,707		$		14,459		$	15,919
Income from discontinued
operations		839			798			86			100			1,766			1,607				172			200
Total	$	22,917		$	20,040		$	7,316		$	8,060		$	47,290		$	40,314		$		14,631		$	16,119

The Company expects to contribute approximately $129,100,000 to its pension plans and $39,500,000 to its other postretirement plans in 2011. As of June 30, 2011, contributions of $44,000,000 to pension plans and $16,300,000 to other postretirement plans have been made.

(7) SHORT-TERM DEBT

The Company had outstanding commercial paper of $1,065,933,000 at June 30, 2011 and no outstanding commercial paper at December 31, 2010. Commercial paper is stated at cost, which approximates fair value.

(8) LONG-TERM DEBT

Based on rates for comparable instruments, the approximate fair value and related carrying value of the Company’s long-term debt, including current maturities, were as follows:

(In thousands)

	June 30, 2011		December 31, 2010
Fair value	$	3,067,682	$	3,105,228
Carrying value		2,880,980		2,794,303

In June 2010, the Company entered into a $1,000,000,000 Line of Credit Agreement with a termination date of June 10, 2011. This line of credit was replaced on June 10, 2011 by a $1,000,000,000 Line of Credit Agreement with a termination date of June 10, 2016. No amounts were outstanding under this facility at June 30, 2011.

(9) SEGMENT INFORMATION

See Management’s Discussion and Analysis for information regarding operating revenues and operating income for the Company’s segments.

Item 2 - Management’s Discussion and Analysis

INTERNATIONAL REPORTING CHANGE

Prior to 2011, the Company’s international operations outside of North America had a fiscal reporting period that began on December 1 and ended on November 30. Effective January 1, 2011, the Company eliminated the one month lag for the reporting of its international operations outside of North America. As a result, the Company is now reporting both North American and international results on a calendar year basis. The Company has applied this change in accounting principle retrospectively to all prior financial statement periods presented.

DISCONTINUED OPERATIONS

In April 2011, the Company entered into a definitive agreement to sell its finishing group of businesses to Graco Inc. in a $650 million cash transaction. The sale is not expected to be completed prior to the fourth quarter of 2011, to accommodate regulatory reviews. The finishing businesses, which were included within the All Other segment, had revenues of approximately $305 million for the year ended December 31, 2010. Additionally, in the second quarter of 2011, the Company’s Board of Directors approved plans to divest a consumer packaging business in the All Other segment and an electronics components business in the Power Systems & Electronics segment, which had combined 2010 revenues of approximately $100 million. The Company expects to dispose of both businesses within one year. These businesses are classified as held for sale as of June 30, 2011.

CONSOLIDATED RESULTS OF OPERATIONS

The Company’s consolidated results of operations for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	4,614,914			$	3,928,056			$	8,886,759			$	7,560,820
Operating income			711,050				626,035				1,369,642				1,151,710
Margin %			15.4	%			15.9	%			15.4	%			15.2	%

In the second quarter and year-to-date periods of 2011, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		6.3	%		16.6	%		1.5	%		8.9	%		24.5	%		2.2	%
Changes in variable margins & overhead costs		—			(8.1	)		(1.2	)		—			(11.6	)		(1.6	)
Total		6.3			8.5			0.3			8.9			12.9			0.6

Acquisitions and divestitures		4.8			0.8			(0.6	)		4.5			1.2			(0.5	)
Restructuring costs		—			(1.9	)		(0.3	)		—			0.5			0.1
Translation		6.3			6.2			—			4.1			4.3			—
Other		0.1			—			0.1			—			—			—
Total		17.5	%		13.6	%		(0.5	)%		17.5	%		18.9	%		0.2	%

Operating Revenues

Revenues increased 17.5% for both the second quarter and year-to-date periods of 2011 versus 2010 primarily due to higher base revenues, the favorable effect of currency translation and revenues from acquisitions. Base revenues increased 6.3% and 8.9% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 amid economic conditions that have begun to show moderating growth in the second quarter of 2011. North American base revenues increased 7.4% and 9.8% in the second quarter and year-to-date periods, respectively, while international base revenues increased 5.1% and 8.0% in the same periods. End markets associated with the automotive, welding, and test and measurement businesses showed strength in the second quarter and year-to-date periods.

Operating Income

Operating income increased 13.6% and 18.9% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to the increase in base revenues and the favorable effect of currency translation. Base margins increased 30 basis points and 60 basis points in the second quarter and year-to-date periods of 2011, respectively, primarily due to the positive leverage effect of the increase in base revenues, partially offset by the negative impact of selling price versus material cost comparisons. Acquisitions and divestitures diluted operating margins by 60 and 50 basis points in the second quarter and year-to-date periods, respectively.

Certain reclassifications of prior year segment data have been made to conform with current year reporting. The reconciliation of segment operating revenues to total operating revenues is as follows:

(In thousands)	Three Months Ended June 30						Six Months Ended June 30
	2011			2010			2011			2010
Transportation	$	805,577		$	656,763		$	1,560,351		$	1,267,379
Industrial Packaging		697,695			577,210			1,328,887			1,119,440
Power Systems & Electronics		723,353			608,726			1,407,351			1,173,848
Food Equipment		491,358			446,786			963,777			880,957
Construction Products		519,868			465,554			983,155			851,029
Polymers & Fluids		368,461			287,642			684,940			544,674
Decorative Surfaces		284,606			254,349			551,852			495,289
All Other		746,561			653,144			1,452,363			1,272,060
Intersegment revenues		(22,565	)		(22,118	)		(45,917	)		(43,856	)
Total operating revenues	$	4,614,914		$	3,928,056		$	8,886,759		$	7,560,820

TRANSPORTATION

Businesses in this segment produce components, fasteners, fluids and polymers, as well as truck remanufacturing and related parts and service.

In the Transportation segment, products and services include:
•	metal and plastic components, fasteners and assemblies for automobiles and light trucks;
•	fluids, polymers and other supplies for auto aftermarket maintenance and appearance;
•	fillers and putties for auto body repair;
•	polyester coatings and patch and repair products for the marine industry; and
•	truck remanufacturing and related parts and service.

This segment primarily serves the automotive original equipment manufacturers and tiers, and the automotive aftermarket.

The results of operations for the Transportation segment for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	805,577			$	656,763			$	1,560,351			$	1,267,379
Operating income			119,718				104,022				240,022				196,289
Margin %			14.9	%			15.8	%			15.4	%			15.5	%

In the second quarter and year-to-date periods of 2011, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		7.4	%		17.3	%		1.5	%		11.1	%		26.6	%		2.2	%
Changes in variable margins & overhead costs		—			(7.6	)		(1.1	)		—			(9.3	)		(1.3	)
Total		7.4			9.7			0.4			11.1			17.3			0.9

Acquisitions		9.6			(1.4	)		(1.5	)		8.6			0.9			(1.1	)
Restructuring costs		—			(0.2	)		—			—			(0.1	)		—
Translation		5.7			7.0			0.2			3.5			4.3			0.1
Other		—			—			—			(0.1	)		(0.1	)		—
Total		22.7	%		15.1	%		(0.9	)%		23.1	%		22.3	%		(0.1	)%

Operating Revenues

Revenues increased 22.7% and 23.1% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to the increase in base revenues, revenues from acquisitions and the favorable effect of currency translation. The increase in acquisition revenue is primarily due to the purchase of two North American automotive aftermarket businesses, one in the second quarter of 2010, and one in the first quarter of 2011. North American automotive base revenues increased 6.6% and 12.2% in the second quarter and year-to-date periods, respectively, due to an increase in North American auto builds of 1.0% and 8.4% in the second quarter and year-to-date periods, respectively. International automotive base revenues increased 8.2% and 10.9% in the second quarter and year-to-date periods, respectively, due to an increase in European auto builds of 3.8% and 7.6% for the respective periods, increased product penetration and gains in emerging markets. Both North American and international automotive vehicle production was modestly affected by the late first quarter 2011 natural disaster in Japan. The automotive aftermarket base business increased 1.3% and 3.5%, respectively, for the second quarter and year-to-date periods of 2011, and was modestly impacted by higher fuel costs which reduced miles driven and the need for service and maintenance. The truck remanufacturing and related parts and service business increased 16.7% and 20.9%, respectively, driven primarily by increased market demand in North America.

Operating Income

Operating income increased 15.1% and 22.3% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to the increase in base revenues and the favorable effect of currency translation. Base margins increased 40 and 90 basis points for the second quarter and year-to-date periods, respectively, primarily as a result of positive leverage from the increase in base revenues partially offset by the negative impact of selling price versus material cost comparisons and higher operating costs. Acquisitions diluted margins by 150 and 110 basis points in the second quarter and year-to-date periods, respectively.

INDUSTRIAL PACKAGING

Businesses in this segment produce steel, plastic and paper products and equipment used for bundling, shipping and protecting goods in transit.

In the Industrial Packaging segment, products include:
•	steel and plastic strapping and related tools and equipment;
•	plastic stretch film and related equipment;
•	paper and plastic products that protect goods in transit; and
•	metal jacketing and other insulation products.

This segment primarily serves the general industrial, primary metals, food and beverage, and construction markets.

The results of operations for the Industrial Packaging segment for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	697,695			$	577,210			$	1,328,887			$	1,119,440
Operating income			75,801				61,966				141,898				119,490
Margin %			10.9	%			10.7	%			10.7	%			10.7	%

In the second quarter and year-to-date periods of 2011, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		9.6	%		34.8	%		2.5	%		11.8	%		43.6	%		3.0	%
Changes in variable margins & overhead costs		—			(22.9	)		(2.3	)		—			(32.1	)		(3.1	)
Total		9.6			11.9			0.2			11.8			11.5			(0.1	)

Acquisitions		3.7			3.2			—			1.9			1.7			—
Restructuring costs		—			(2.1	)		(0.2	)		—			(1.1	)		(0.1	)
Translation		7.6			9.4			0.2			5.0			6.7			0.2
Other		—			(0.1	)		—			—			—			—
Total		20.9	%		22.3	%		0.2	%		18.7	%		18.8	%		—	%

Operating Revenues

Operating revenues increased 20.9% and 18.7 % in the second quarter and year-to-date periods of 2011, respectively, versus 2010 due to the increase in base revenues, the favorable effect of currency translation and revenues from acquisitions. The increase in acquisition revenue is primarily due to the purchase of a protective packaging business in the first quarter of 2011. Base revenues increased 12.9% and 13.2% for the North American strapping and equipment businesses in the second quarter and year-to-date periods, respectively, primarily due to higher equipment sales and higher steel and plastic strapping prices. Increased activity in capital equipment sales to the brick and forest product markets contributed to the higher revenue. Base revenues for the international strapping and equipment businesses increased 6.2% and 10.7% in the second quarter and year-to-date periods, respectively, primarily due to an increase in strap price as well as an increase in tool and equipment revenues, mainly in Europe and India. Worldwide protective packaging base revenues increased 11.3% and 9.0% in the second quarter and year-to-date periods, respectively, while worldwide stretch packaging base revenues increased 10.2% and 16.5% in the same periods.

Operating Income

Operating income increased 22.3% and 18.8% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to the favorable effect of the increase in base revenues and the favorable effect of currency translation. Base operating margins increased 20 basis points in the second quarter and decreased 10 basis points for the year-to-date period of 2011, primarily due to the positive leverage effect of the increase in base revenues, offset by the negative impact of selling price versus material cost comparisons and increased operating expenses.

POWER SYSTEMS & ELECTRONICS

Businesses in this segment produce equipment and consumables associated with specialty power conversion, metallurgy and electronics.

In the Power Systems & Electronics segment, products include:
•	arc welding equipment;
•	metal arc welding consumables and related accessories;
•	metal solder materials for PC board fabrication;
•	equipment and services for microelectronics assembly;
•	electronic components and component packaging;
•	static and contamination control equipment;
•	airport ground support equipment; and
•	pressure sensitive adhesives and components for telecommunications, electronics, medical and transportation applications.

This segment primarily serves the general industrial, electronics and construction markets.

The results of operations for the Power Systems & Electronics segment for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	723,353			$	608,726			$	1,407,351			$	1,173,848
Operating income			149,261				122,175				293,633				233,065
Margin %			20.6	%			20.1	%			20.9	%			19.9	%

In the second quarter and year-to-date periods of 2011, the changes in operating revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		11.9	%		24.2	%		2.2	%		14.2	%		29.4	%		2.7	%
Changes in variable margins & overhead costs		—			(3.8	)		(0.7	)		—			(7.2	)		(1.3	)
Total		11.9			20.4			1.5			14.2			22.2			1.4

Acquisitions		2.5			0.4			(0.4	)		2.6			1.0			(0.3	)
Restructuring costs		—			(2.3	)		(0.4	)		—			—			—
Translation		4.4			3.7			(0.2	)		3.1			2.7			(0.1	)
Other		—			—			—			—			0.1			—
Total		18.8	%		22.2	%		0.5	%		19.9	%		26.0	%		1.0	%

Operating Revenues

Revenues increased 18.8% and 19.9% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 due to growth in base business, the favorable effect of currency translation and revenues from acquisitions. The acquisition revenue was primarily due to the purchase of an ionization control and monitoring systems business and an automated welding systems business in 2010. North American welding base business revenues increased 19.9% and 23.5% in the second quarter and year-to-date periods, respectively, as a number of industrial-based end markets continued to have strong demand. In particular, increased sales to heavy equipment OEM’s and other manufacturers helped drive base revenues. Base business revenues for the international welding businesses increased 14.1% and 13.4% in the same periods, primarily due to strong growth in both Asia Pacific and Europe. Base revenues for the electronics businesses increased 4.1% and 6.3% for the second quarter and year-to-date periods, respectively, mainly due to strong growth in the PC fabrication businesses driven by solid demand for consumer electronics products.

Operating Income

Operating income increased 22.2% and 26.0% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 mainly due to the increase in base revenues and the favorable effect of currency translation. Base margins increased 150 and 140 basis points in the second quarter and year-to-date periods, respectively, primarily due to the positive leverage effect of the growth in base business revenues, partially offset by the negative impact of selling price versus material cost comparisons and higher overhead expenses. Acquisitions diluted margins by 40 and 30 basis points in the second quarter and year-to-date periods, respectively.

FOOD EQUIPMENT

Businesses in this segment produce commercial food equipment and related service.

In the Food Equipment segment, products and services include:
•	warewashing equipment;
•	cooking equipment, including ovens, ranges and broilers;
•	refrigeration equipment, including refrigerators, freezers and prep tables;
•	food processing equipment, including slicers, mixers and scales;
•	kitchen exhaust, ventilation and pollution control systems; and
•	food equipment service, maintenance and repair.

This segment primarily serves the food institutional/restaurant, service and food retail markets.

The results of operations for the Food Equipment segment for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	491,358			$	446,786			$	963,777			$	880,957
Operating income			66,800				61,809				134,130				118,279
Margin %			13.6	%			13.8	%			13.9	%			13.4	%

In the second quarter and year-to-date periods of 2011, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		1.9	%		5.9	%		0.5	%		4.1	%		13.0	%		1.2	%
Changes in variable margins & overhead costs		—			10.9			1.5			—			6.9			0.9
Total		1.9			16.8			2.0			4.1			19.9			2.1

Acquisitions		1.9			(0.4	)		(0.3	)		1.8			(1.0	)		(0.4	)
Restructuring costs		—			(14.3	)		(1.9	)		—			(9.3	)		(1.2	)
Translation		6.2			6.0			—			3.5			3.8			—
Other		—			—			—			—			—			—
Total		10.0	%		8.1	%		(0.2	)%		9.4	%		13.4	%		0.5	%

Operating Revenues

Revenues increased 10.0% and 9.4% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 due to the favorable effect of currency translation, growth in base business and revenues from acquisitions. Acquisition revenue is attributable to a European food equipment business purchased in the third quarter of 2010. North American base revenues increased 4.2% and 5.3% in the second quarter and year-to-date periods, respectively, as equipment revenues increased 6.2% and 7.8%, respectively, and service revenues increased 3.0% and 1.8%, respectively. International base revenues decreased 0.4% in the second quarter as equipment revenues decreased 2.8%, partially offset by an increase in service revenues of 2.1%. Equipment sales were negatively impacted by a reduction in government institutional spending in France. For the year-to-date period, international base revenues increased 2.7% as equipment revenues increased 2.9% and service revenues increased 2.4%.

Operating Income

Operating income increased 8.1% and 13.4% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to the increase in base revenues, lower operating expenses and the favorable effect of currency translation, partially offset by higher restructuring expenses. Base margins increased 200 and 210 basis points in the second quarter and year-to-date periods, respectively, primarily due to the positive leverage effect of the increase in base revenues and adjustments related to a European business in 2010, partially offset by the negative impact of selling price versus material cost comparisons. Acquisitions diluted margins by 30 and 40 basis points in the second quarter and year-to-date periods, respectively.

CONSTRUCTION PRODUCTS

Businesses in this segment produce tools, fasteners and other products for construction applications.

In the Construction Products segment, products include:
•	fasteners and related fastening tools for wood and metal applications;
•	anchors, fasteners and related tools for concrete applications;
•	metal plate truss components and related equipment and software; and
•	packaged hardware, fasteners, anchors and other products for retail.

This segment primarily serves the residential construction, commercial construction and renovation construction markets.

The results of operations for the Construction Products segment for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	519,868			$	465,554			$	983,155			$	851,029
Operating income			64,338				67,519				109,977				99,950
Margin %			12.4	%			14.5	%			11.2	%			11.7	%

In the second quarter and year-to-date periods of 2011, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		(2.2	)%		(6.7	)%		(0.7	)%		2.6	%		10.0	%		0.9	%
Changes in variable margins & overhead costs		—			(12.4	)		(1.8	)		—			(23.2	)		(2.7	)
Total		(2.2	)		(19.1	)		(2.5	)		2.6			(13.2	)		(1.8	)

Acquisitions		3.5			0.8			(0.3	)		5.3			0.7			(0.5	)
Restructuring costs		—			2.1			0.3			—			11.2			1.3
Translation		10.4			11.5			0.4			7.6			11.3			0.5
Other		—			—			—			—			—			—
Total		11.7	%		(4.7	)%		(2.1	)%		15.5	%		10.0	%		(0.5	)%

Operating Revenues

Revenues increased 11.7% and 15.5% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to the favorable effect of currency translation and revenues from acquisitions. Acquisition revenue was primarily due to the acquisition of a European retail distribution business in the second quarter of 2010 and a Canadian fastener business in the second quarter of 2011. Base business revenues declined 2.2% in the second quarter of 2011 while increasing 2.6% in the year-to-date period. International base revenues increased 2.1% and 5.2% in the second quarter and year-to-date periods, respectively, primarily driven by a 6.1% and 11.3% increase in European base revenues in the second quarter and year-to-date periods, respectively, versus 2010. While European base revenues grew year-over-year as a result of commercial construction end market demand, growth moderated in the second quarter 2011 from earlier in the year. Base revenues for the Asia Pacific region decreased 2.8% and 1.6% for the same periods primarily due to pricing pressure in the Australian/New Zealand market. North American base revenues decreased 10.7% and 3.0% in the second quarter and year-to-date periods, respectively, primarily due to continued weakness in North American construction end market activity and a one-time licensing agreement settlement that positively impacted revenues in the second quarter of 2010.

Operating Income

Operating income decreased 4.7% in the second quarter versus 2010 primarily due to negative leverage from the decrease in base revenues described above and increased operating expenses, partially offset by the favorable effect of currency translation. Operating income increased 10.0% for the year-to-date period versus 2010 primarily due to the favorable effect of currency translation and lower restructuring expenses, partially offset by higher operating expenses. Base margins decreased 250 and 180 basis points in the second quarter and year-to-date periods, respectively, primarily due to the one-time licensing agreement settlement in 2010 and the negative impact of selling price versus material cost comparisons in 2011.

POLYMERS & FLUIDS

Businesses in this segment produce adhesives, sealants, lubrication and cutting fluids, and hygiene products.

In the Polymers & Fluids segment, products include:
•	adhesives for industrial, construction and consumer purposes;
•	chemical fluids which clean or add lubrication to machines;
•	epoxy and resin-based coating products for industrial applications; and
•	hand wipes and cleaners for industrial applications.

This segment primarily serves the general industrial, construction, maintenance, repair and operations, and automotive aftermarket markets.

The results of operations for the Polymers & Fluids segment for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	368,461			$	287,642			$	684,940			$	544,674
Operating income (loss)			61,970				57,847				108,635				100,800
Margin %			16.8	%			20.1	%			15.9	%			18.5	%

In the second quarter and year-to-date periods of 2011, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		1.5	%		3.4	%		0.4	%		3.2	%		7.9	%		0.8	%
Changes in variable margins & overhead costs		—			(9.6	)		(1.9	)		—			(12.8	)		(2.3	)
Total		1.5			(6.2	)		(1.5	)		3.2			(4.9	)		(1.5	)

Acquisitions		18.5			8.4			(1.4	)		17.1			9.4			(0.9	)
Restructuring costs		—			(1.7	)		(0.3	)		—			(1.7	)		(0.3	)
Translation		8.1			6.5			—			5.4			4.9			—
Other		—			0.1			(0.1	)		0.1			0.1			0.1
Total		28.1	%		7.1	%		(3.3	)%		25.8	%		7.8	%		(2.6	)%

Operating Revenues

Revenues increased 28.1% and 25.8% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to revenues from acquisitions and the favorable effect of currency translation. Acquisition revenue was primarily the result of the purchase of an international polymers business and a Latin American fluids business in the fourth quarter of 2010, as well as a Latin American solvent business in the second quarter of 2011. Worldwide base revenues for the fluids businesses increased 5.6% and 4.9% in the second quarter and year-to-date periods, respectively. Worldwide base revenues for the polymers businesses were flat in the second quarter and increased 2.5% for the year-to-date period as industrial demand for polymer products in North American and international end markets moderated in the second quarter of 2011.

Operating Income

Operating income increased 7.1% and 7.8% in the second quarter and year-to-date periods of 2011, respectively, versus 2010 primarily due to income from acquisitions and the favorable effect of currency translation, partially offset by higher operating expenses and higher restructuring expenses. Base margins decreased 150 basis points in both periods due to the negative impact of selling price versus material cost comparisons and increased overhead costs resulting from higher investment in new product development and other growth initiatives, partially offset by the positive leverage effect of the increase in base revenues.

DECORATIVE SURFACES

Businesses in this segment produce decorative surfacing materials for furniture, office and retail space, countertops, and other applications.

In the Decorative Surfaces segment, products include:
•	decorative high-pressure laminate for furniture, office and retail space and countertops; and
•	high-pressure laminate worktops.

This segment serves the commercial construction, renovation construction and residential construction markets.

The results of operations for the Decorative Surfaces segment for the second quarter and year-to-date periods of 2011 and 2010 were as follows:

(Dollars in thousands)	Three Months Ended June 30								Six Months Ended June 30
	2011				2010				2011				2010
Operating revenues		$	284,606			$	254,349			$	551,852			$	495,289
Operating income			35,502				36,066				69,379				64,009
Margin %			12.5	%			14.2	%			12.6	%			12.9	%

In the second quarter and year-to-date periods of 2011, the changes in revenues, operating income and operating margins over the prior year were primarily due to the following factors:

	Three Months Ended June 30									Six Months Ended June 30
	% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)			% Increase (Decrease)			% Increase (Decrease)			% Point Increase (Decrease)
	Operating Revenues			Operating Income			Operating Margins			Operating Revenues			Operating Income			Operating Margins
Base business:
Revenue change/Operating leverage		6.5	%		18.8	%		1.6	%		8.3	%		26.7	%		2.2	%
Changes in variable margins & overhead costs		—			(23.6	)		(3.1	)		—			(29.2	)		(3.5	)
Total		6.5			(4.8	)		(1.5	)		8.3			(2.5	)		(1.3	)

Acquisitions		—			—			—			—			—			—
Restructuring costs		—			0.3			—			—			8.6			1.0
Translation		5.4			3.0			(0.2	)		3.1			2.2			(0.1	)
Other		—			(0.1	)		—			—			0.1			0.1
Total		11.9	%		(1.6	)%		(1.7	)%		11.4	%		8.4	%