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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): October 25, 2019
_________________________

ILLINOIS TOOL WORKS INC.
(Exact name of registrant as specified in its charter)

Delaware
 
1-4797
 
36-1258310
(State or other jurisdiction of incorporation)
 
(Commission File No.)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
 
 
 
155 Harlem Avenue
Glenview
IL
 
 
 
 
60025
(Address of principal executive offices)
 
 
 
(Zip Code)
Registrant's telephone number, including area code: 847-724-7500

Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
ITW
New York Stock Exchange
1.75% Euro Notes due 2022
ITW22
New York Stock Exchange
1.25% Euro Notes due 2023
ITW23
New York Stock Exchange
0.250% Euro Notes due 2024
ITW24A
New York Stock Exchange
0.625% Euro Notes due 2027
ITW27
New York Stock Exchange
2.125% Euro Notes due 2030
ITW30
New York Stock Exchange
1.00% Euro Notes due 2031
ITW31
New York Stock Exchange
3.00% Euro Notes due 2034
ITW34
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Item 2.02    Results of Operations and Financial Condition

On October 25, 2019, Illinois Tool Works Inc. (the “Company”) announced its 2019 third quarter results of operations in the press release furnished as Exhibit 99.1.

Non-GAAP Financial Measures

The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluating the Company’s financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. A reconciliation of free cash flow to net cash provided by operating activities is included in the press release furnished as Exhibit 99.1.

The Company uses adjusted after-tax return on average invested capital ("ROIC") to measure the effectiveness of its operations’ use of invested capital to generate profits. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. For comparability, the Company excluded the third quarter 2019 discrete tax benefit of $21 million from the effective tax rate for the three and nine months ended September 30, 2019. Additionally, the Company excluded the third quarter 2018 net discrete tax benefit of $15 million from the effective tax rate for the three and nine months ended September 30, 2018, and for the year ended December 31, 2018. Average invested capital represents the net assets of the Company, excluding cash and equivalents and outstanding debt, which are excluded as they do not represent capital investment in the Company's operations. Average invested capital is calculated using balances at the start of the period and at the end of each quarter. A calculation of ROIC is included in the press release furnished as Exhibit 99.1.



Item 9.01    Financial Statements and Exhibits

(d)
Exhibits
 
 
 
 
 
 
 
Exhibit Number
 
Exhibit Description
 
 
 
 
 
 
 
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)




SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
 
 
ILLINOIS TOOL WORKS INC.
 
 
 
 
 
 
Dated: October 25, 2019
 
By: /s/ Michael M. Larsen
 
 
Michael M. Larsen
 
 
Senior Vice President & Chief Financial Officer


(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1

ITW Reports Third Quarter 2019 Results
GAAP EPS of $2.04, +7% year-over-year
Operating Margin of 25.0%, +40 bps
Free Cash Flow +12%, 126% of net income
After-tax ROIC of 29.2%, +120 bps
Maintaining full-year EPS guidance range of $7.55 to $7.85

GLENVIEW, IL., October 25, 2019 - Illinois Tool Works Inc. (NYSE: ITW) today reported its third-quarter 2019 results including GAAP earnings per share (EPS) of $2.04 compared to $1.90 in the third quarter of 2018. Foreign currency had a $0.05 negative impact to earnings per share versus the prior year.

“While the demand environment continued to moderate across a broad cross section of our portfolio, we delivered another solid quarter with excellent operational execution,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our ability to overcome near-term macro challenges and deliver seven percent earnings per share growth, expand margins to 25 percent, and grow free cash flow by 12 percent is a direct result of our high quality business portfolio, the performance power of the ITW Business Model, and focused execution by our team of dedicated ITW professionals around the world,” Santi concluded.

Revenue of $3.5 billion was down 3.7 percent with unfavorable foreign currency translation impact of 1.8 percent and a decline in organic revenue of 1.7 percent. The company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 60 basis points. The third quarter 2019 benefited from one extra shipping day versus the prior year. Adjusting for this impact, organic revenues declined 3.2 percent on an equal day basis versus a decline of 2.8 percent in the second quarter.

Operating margin was 25.0 percent as enterprise initiatives contributed 120 basis points. Price/cost was favorable 20 basis points. Free Cash Flow was $830 million, an increase of 12 percent versus the prior year and 126 percent of net income. In the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent to an annualized $4.28 per share.

After-tax return on invested capital was 29.2 percent, an improvement of 120 basis points. The effective tax rate in the third quarter was 21.6 percent, and benefited from a $21 million or $0.07 EPS adjustment to the company’s estimated U.S. federal tax liability for tax year 2018.

2019 Full-Year Guidance

The company is maintaining its full-year GAAP EPS guidance of $7.55 to $7.85 per share, as compared to GAAP EPS of $7.60 in 2018. Year-over-year headwinds from foreign currency translation impact and higher restructuring expenses are expected to impact 2019 EPS by approximately $0.30. The company expects organic revenue down one to three percent, and operating margin of approximately 24 percent. Free cash flow is expected to exceed 100 percent of net income and the company is on pace to repurchase approximately $1.5 billion of its shares.

Non-GAAP Measures
This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule.

Forward-looking Statement
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding diluted earnings per share, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases. These statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated. Such factors include those contained in ITW's Form 10-K for 2018.






About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.8 billion in 2018. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW has approximately 48,000 dedicated colleagues in operations around the world who thrive in the company’s unique, decentralized and entrepreneurial culture. www.itw.com







ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
In millions except per share amounts
2019
 
2018
 
2019
 
2018
Operating Revenue
$
3,479

 
$
3,613

 
$
10,640

 
$
11,188

Cost of revenue
2,007

 
2,096

 
6,165

 
6,508

Selling, administrative, and research and development expenses
566

 
581

 
1,775

 
1,813

Amortization and impairment of intangible assets
38

 
47

 
122

 
143

Operating Income
868

 
889

 
2,578

 
2,724

Interest expense
(52
)
 
(64
)
 
(170
)
 
(194
)
Other income (expense)
26

 
10

 
49

 
48

Income Before Taxes
842

 
835

 
2,457

 
2,578

Income Taxes
182

 
197

 
577

 
622

Net Income
$
660

 
$
638

 
$
1,880

 
$
1,956

 
 
 
 
 
 
 
 
Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
2.05

 
$
1.91

 
$
5.79

 
$
5.81

Diluted
$
2.04

 
$
1.90

 
$
5.76

 
$
5.77

 
 
 
 
 
 
 
 
Cash Dividends Per Share:
 
 
 
 
 
 
 
Paid
$
1.00

 
$
0.78

 
$
3.00

 
$
2.34

Declared
$
1.07

 
$
1.00

 
$
3.07

 
$
2.56

 
 
 
 
 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
 
 
 
 
Average
322.3

 
333.3

 
324.8

 
336.7

Average assuming dilution
324.0

 
335.3

 
326.6

 
339.0







ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions
September 30, 2019
 
December 31, 2018
Assets
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
1,825

 
$
1,504

Trade receivables
2,499

 
2,622

Inventories
1,209

 
1,318

Prepaid expenses and other current assets
292

 
334

Assets held for sale
420

 

Total current assets
6,245

 
5,778

 
 
 
 
Net plant and equipment
1,693

 
1,791

Goodwill
4,430

 
4,633

Intangible assets
890

 
1,084

Deferred income taxes
479

 
554

Other assets
1,223

 
1,030

 
$
14,960

 
$
14,870

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$

 
$
1,351

Accounts payable
493

 
524

Accrued expenses
1,229

 
1,271

Cash dividends payable
344

 
328

Income taxes payable
61

 
68

Liabilities held for sale
96

 

Total current liabilities
2,223

 
3,542

 
 
 
 
Noncurrent Liabilities:
 
 
 
Long-term debt
7,643

 
6,029

Deferred income taxes
716

 
707

Noncurrent income taxes payable
462

 
495

Other liabilities
946

 
839

Total noncurrent liabilities
9,767

 
8,070

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,286

 
1,253

Retained earnings
22,104

 
21,217

Common stock held in treasury
(18,632
)
 
(17,545
)
Accumulated other comprehensive income (loss)
(1,798
)
 
(1,677
)
Noncontrolling interest
4

 
4

Total stockholders’ equity
2,970

 
3,258

 
$
14,960

 
$
14,870







ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)


Three Months Ended September 30, 2019
Dollars in millions
Total Revenue
Operating Income
Operating Margin
Automotive OEM
$
744

$
164

22.1
%
Food Equipment
551

152

27.5
%
Test & Measurement and Electronics
512

130

25.6
%
Welding
402

113

28.2
%
Polymers & Fluids
418

101

24.1
%
Construction Products
416

105

25.1
%
Specialty Products
441

116

26.2
%
Intersegment
(5
)

%
Total Segments
3,479

881

25.3
%
Unallocated

(13
)
%
Total Company
$
3,479

$
868

25.0
%

Nine Months Ended September 30, 2019
Dollars in millions
Total Revenue
Operating Income
Operating Margin
Automotive OEM
$
2,338

$
505

21.6
%
Food Equipment
1,617

421

26.0
%
Test & Measurement and Electronics
1,569

387

24.7
%
Welding
1,251

355

28.4
%
Polymers & Fluids
1,261

287

22.8
%
Construction Products
1,241

298

24.0
%
Specialty Products
1,379

363

26.3
%
Intersegment
(16
)

%
Total Segments
10,640

2,616

24.6
%
Unallocated

(38
)
%
Total Company
$
10,640

$
2,578

24.2
%







ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Q3 2019 vs. Q3 2018 Favorable/(Unfavorable)
Operating Revenue
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Organic
(2.3
)%
(0.7
)%
(3.3
)%
(1.6
)%
2.8
 %
(0.7
)%
(4.7
)%
(1.7
)%
Acquisitions/Divestitures
 %
 %
 %
(0.8
)%
0.1
 %
 %
(0.8
)%
(0.2
)%
Translation
(2.4
)%
(2.0
)%
(1.4
)%
(0.6
)%
(2.1
)%
(2.9
)%
(1.6
)%
(1.8
)%
Operating Revenue
(4.7
)%
(2.7
)%
(4.7
)%
(3.0
)%
0.8
 %
(3.6
)%
(7.1
)%
(3.7
)%
Q3 2019 vs. Q3 2018 Favorable/(Unfavorable)
Change in Operating Margin
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Operating Leverage
 (40) bps
 (20) bps
 (100) bps
 (40) bps
 60 bps
 (20) bps
 (100) bps
 (40) bps
Changes in Variable Margin & OH Costs
 110 bps
 80 bps
 210 bps
 20 bps
 170 bps
 (40) bps
 20 bps
 80 bps
Total Organic
 70 bps
 60 bps
 110 bps
 (20) bps
 230 bps
 (60) bps
 (80) bps
 40 bps
Acquisitions/Divestitures
 20 bps
 10 bps
Restructuring/Other
 (10) bps
 30 bps
 (20) bps
 (30) bps
 (10) bps
 10 bps
Total Operating Margin Change
 60 bps
 90 bps
 90 bps
 200 bps
 (70) bps
 (60) bps
 40 bps
 
 
 
 
 
 
 
 
 
Total Operating Margin % *
22.1%
27.5%
25.6%
28.2%
24.1%
25.1%
26.2%
25.0%
 
 
 
 
 
 
 
 
 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets
 50 bps
 60 bps
 180 bps
 20 bps
 360 bps
 30 bps
 100 bps
 110 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the third quarter of 2019.









YTD 2019 vs YTD 2018 Favorable/(Unfavorable)
Operating Revenue
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Organic
(5.4
)%
0.9
 %
(1.7
)%
(0.4
)%
0.7
 %
(0.9
)%
(4.3
)%
(2.0
)%
Acquisitions/Divestitures
 %
 %
 %
(0.7
)%
(0.6
)%
 %
(0.6
)%
(0.2
)%
Translation
(3.3
)%
(2.7
)%
(2.3
)%
(1.0
)%
(3.2
)%
(3.9
)%
(2.0
)%
(2.7
)%
Operating Revenue
(8.7
)%
(1.8
)%
(4.0
)%
(2.1
)%
(3.1
)%
(4.8
)%
(6.9
)%
(4.9
)%

YTD 2019 vs. YTD 2018 Favorable/(Unfavorable)
Change in Operating Margin
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Operating Leverage
 (100) bps
 10 bps
 (50) bps
 (10) bps
 10 bps
 (20) bps
 (80) bps
 (40) bps
Changes in Variable Margin & OH Costs
 50 bps
 50 bps
 130 bps
 140 bps
 20 bps
 (20) bps
 60 bps
Total Organic
 (50) bps
 60 bps
 80 bps
 (10) bps
 150 bps
 (100) bps
 20 bps
Acquisitions/Divestitures
 20 bps
 10 bps
 20 bps
Restructuring/Other
 (70) bps
 (20) bps
 (10) bps
 (20) bps
 (20) bps
 (10) bps
 (30) bps
Total Operating Margin Change
 (120) bps
 40 bps
 80 bps
 140 bps
 (20) bps
 (90) bps
 (10) bps
 
 
 
 
 
 
 
 
 
Total Operating Margin % *
21.6%
26.0%
24.7%
28.4%
22.8%
24.0%
26.3%
24.2%
 
 
 
 
 
 
 
 
 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets
 50 bps
 70 bps
 220 bps
 20 bps
 350 bps
 30 bps
 100 bps
 120 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.28) on GAAP earnings per share for the first nine months of 2019.






ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)


ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
Three Months Ended
 
Nine Months Ended

September 30,
 
September 30,
Dollars in millions
2019
 
2018
 
2019
 
2018
Operating income
$
868

 
$
889

 
$
2,578

 
$
2,724

Adjusted tax rate
24.1
%
 
25.5
%
 
24.3
%
 
24.7
%
Income taxes
(210
)
 
(227
)
 
(628
)
 
(674
)
Operating income after taxes
$
658

 
$
662

 
$
1,950

 
$
2,050

 
 
 
 
 
 
 
 
Invested capital:
 
 
 

 
 
 
 

Trade receivables
$
2,499

 
$
2,777

 
$
2,499

 
$
2,777

Inventories
1,209

 
1,338

 
1,209

 
1,338

Net assets held for sale
324

 

 
324

 

Net plant and equipment
1,693

 
1,799

 
1,693

 
1,799

Goodwill and intangible assets
5,320

 
5,785

 
5,320

 
5,785

Accounts payable and accrued expenses
(1,722
)
 
(1,844
)
 
(1,722
)
 
(1,844
)
Other, net
(535
)
 
(494
)
 
(535
)
 
(494
)
Total invested capital
$
8,788

 
$
9,361

 
$
8,788

 
$
9,361

 
 
 
 
 
 
 
 
Average invested capital
$
9,007

 
$
9,470

 
$
9,083

 
$
9,634

Adjusted return on average invested capital
29.2
%
 
28.0
%
 
28.6
%
 
28.4
%


A reconciliation of the tax rate for the three and nine month periods ended September 30, 2019 excluding the third quarter 2019 discrete tax benefit of $21 million is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2019
Dollars in millions
Income Taxes
 
Tax Rate
 
Income Taxes
 
Tax Rate
As reported
$
182

 
21.6
%
 
$
577

 
23.5
%
Discrete tax benefit
21

 
2.5
%
 
21

 
0.8
%
As adjusted
$
203

 
24.1
%
 
$
598

 
24.3
%


A reconciliation of the tax rate for the three and nine month periods ended September 30, 2018 excluding the third quarter 2018 net discrete tax benefit of $15 million is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2018
Dollars in millions
Income Taxes
 
Tax Rate
 
Income Taxes
 
Tax Rate
As reported
$
197

 
23.7
%
 
$
622

 
24.1
%
Net discrete tax benefit
15

 
1.8
%
 
15

 
0.6
%
As adjusted
$
212

 
25.5
%
 
$
637

 
24.7
%






ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)


ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Dollars in millions
Twelve Months Ended
December 31,
2018
Operating income
$
3,584

Adjusted tax rate
24.9
%
Income taxes
(893
)
Operating income after taxes
$
2,691

 
 
Invested capital:
 
Trade receivables
$
2,622

Inventories
1,318

Net plant and equipment
1,791

Goodwill and intangible assets
5,717

Accounts payable and accrued expenses
(1,795
)
Other, net
(519
)
Total invested capital
$
9,134

 
 
Average invested capital
$
9,533

Adjusted return on average invested capital
28.2
%

A reconciliation of the full year 2018 effective tax rate excluding the third quarter 2018 net discrete tax benefit of $15 million is as follows:
 
Twelve Months Ended
 
December 31, 2018
Dollars in millions
Income Taxes
 
Tax Rate
As reported
$
831

 
24.5
%
Net discrete tax benefit
15

 
0.4
%
As adjusted
$
846

 
24.9
%






ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)


FREE CASH FLOW (UNAUDITED)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
Dollars in millions
2019

2018
 
2019
 
2018
Net cash provided by operating activities
$
920

 
$
844

 
$
2,221

 
$
2,002

Less: Additions to plant and equipment
(90
)
 
(101
)
 
(244
)
 
(282
)
Free cash flow
$
830

 
$
743

 
$
1,977

 
$
1,720

 
 
 
 
 
 
 
 
Net income
$
660

 
$
638

 
$
1,880

 
$
1,956

Free cash flow to net income conversion rate
126
%
 
116
%
 
105
%
 
88
%



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