Form 8-K ILLINOIS TOOL WORKS INC For: Apr 24
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): April 24, 2017
_________________________
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.)
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 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. [ ]
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:
[ ] | 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)) |
Item 2.02 Results of Operations and Financial Condition
On April 24, 2017, Illinois Tool Works Inc. (the “Company”) announced its 2017 first 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. Adjusted 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, as well as the Company's equity investment in the Wilsonart business (formerly the Decorative Surfaces segment). 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 | ||
99.1 | Press Release issued by Illinois Tool Works Inc. dated April 24, 2017 (furnished pursuant to Item 2.02). | ||
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: April 24, 2017 | By: /s/ Michael M. Larsen | |
Michael M. Larsen | ||
Senior Vice President & Chief Financial Officer | ||
Exhibit 99.1
ITW Reports First-Quarter 2017 Results
Delivers record financial results and raises guidance for 2017
First-quarter highlights:
• | GAAP EPS of $1.54, an increase of 19% |
• | Total revenue of $3.5 billion, an increase of 6.0%; organic growth of 3.5% |
• | Operating margin of 23.3%, an increase of 120 bps and an all-time record for the company |
• | Company now expects 2017 earnings to be in the range of $6.20 to $6.40 per share with organic growth of 2 to 4% |
GLENVIEW, Ill., April, 24 2017 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its first-quarter 2017 results.
First-quarter GAAP earnings were $1.54 per share, an increase of 19% versus the first quarter of 2016. Excluding the impact of foreign currency translation, EPS grew 21% year-on-year. Revenue grew 6.0% to $3.5 billion. Organic revenue increased 3.5% while the 2016 acquisition of Engineered Fasteners & Components (EF&C) added 3.8% to revenue. Foreign currency translation reduced revenue by 1.3%.
“Our record results in the first quarter reflect strong execution across the company and further progress in our efforts to leverage ITW’s highly differentiated and proprietary business model to drive solid growth with best-in-class margins and returns,” said E. Scott Santi, Chairman and Chief Executive Officer. “We are off to a strong start in 2017 and the company is well-positioned to deliver continued progress and differentiated performance through the balance of 2017 and beyond.”
Operating income was $809 million, an increase of 12%, and operating margin for the quarter was 23.3%, an increase of 120 basis points. Excluding the margin impact from the 2016 acquisition of EF&C, operating margin was 23.8%, an increase of 170 basis points year-on-year with 100 basis points of structural margin improvement from Enterprise Initiatives. After-tax return on invested capital was 23.8%, an improvement of 260 basis points. First-quarter net income was $536 million.
Organic revenue growth was positive in six of seven segments: 9% in Automotive OEM, 6% in Test & Measurement/Electronics, 3% in Construction Products, 2% in Food Equipment and Polymers & Fluids and 1% in Specialty Products. Welding was flat.
Effective January 1, 2017 the company adopted FASB guidance that requires that the income tax effects associated with the settlement of stock-based awards be recognized through income tax expense rather than equity. The first-quarter effective tax rate was 28.3%, in line with company expectations.
Full-Year and Second Quarter 2017 Guidance
As a result of the company’s strong Q1 results, ITW is raising its 2017 full-year guidance. The company now expects earnings to be in the range of $6.20 to $6.40 per share, up from prior guidance of $6.00 to $6.20 per share, with organic growth of 2 to 4%, up from 1.5 to 3.5%. ITW expects operating margin to exceed 23.5% and free cash flow to exceed 100% of net income. The company now expects an effective tax rate of approximately 29%, down from prior guidance of 29 to 30%, resulting in an EPS benefit of $0.04 per share.
For the second quarter 2017, the company expects earnings to be in the range of $1.55 to $1.65 per share with organic growth of 2 to 4%.
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, organic revenue growth, operating margin, free cash flow, effective tax rate and after-tax return on invested capital. 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 2016.
About ITW
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $13.6 billion in 2016. 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 more than 50,000 dedicated colleagues in operations around the world who thrive in the company’s unique, decentralized and entrepreneurial culture. To learn more about the company and the ITW Business Model, visit www.itw.com.
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
Three Months Ended | |||||||
March 31, | |||||||
In millions except per share amounts | 2017 | 2016 | |||||
Operating Revenue | $ | 3,471 | $ | 3,274 | |||
Cost of revenue | 2,004 | 1,896 | |||||
Selling, administrative, and research and development expenses | 605 | 597 | |||||
Amortization and impairment of intangible assets | 53 | 59 | |||||
Operating Income | 809 | 722 | |||||
Interest expense | (64 | ) | (58 | ) | |||
Other income (expense) | 4 | 4 | |||||
Income Before Taxes | 749 | 668 | |||||
Income taxes | 213 | 200 | |||||
Net Income | $ | 536 | $ | 468 | |||
Net Income Per Share: | |||||||
Basic | $ | 1.55 | $ | 1.29 | |||
Diluted | $ | 1.54 | $ | 1.29 | |||
Cash Dividends Per Share: | |||||||
Paid | $ | 0.65 | $ | 0.55 | |||
Declared | $ | 0.65 | $ | 0.55 | |||
Shares of Common Stock Outstanding During the Period: | |||||||
Average | 346.2 | 362.0 | |||||
Average assuming dilution | 349.0 | 363.9 | |||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millions | March 31, 2017 | December 31, 2016 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 2,493 | $ | 2,472 | |||
Trade receivables | 2,534 | 2,357 | |||||
Inventories | 1,158 | 1,076 | |||||
Prepaid expenses and other current assets | 245 | 218 | |||||
Total current assets | 6,430 | 6,123 | |||||
Net plant and equipment | 1,674 | 1,652 | |||||
Goodwill | 4,605 | 4,558 | |||||
Intangible assets | 1,411 | 1,463 | |||||
Deferred income taxes | 425 | 449 | |||||
Other assets | 984 | 956 | |||||
$ | 15,529 | $ | 15,201 | ||||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 671 | $ | 652 | |||
Accounts payable | 574 | 511 | |||||
Accrued expenses | 1,149 | 1,202 | |||||
Cash dividends payable | 225 | 226 | |||||
Income taxes payable | 256 | 169 | |||||
Total current liabilities | 2,875 | 2,760 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt | 7,205 | 7,177 | |||||
Deferred income taxes | 121 | 134 | |||||
Other liabilities | 830 | 871 | |||||
Total noncurrent liabilities | 8,156 | 8,182 | |||||
Stockholders’ Equity: | |||||||
Common stock | 6 | 6 | |||||
Additional paid-in-capital | 1,184 | 1,188 | |||||
Retained earnings | 19,817 | 19,505 | |||||
Common stock held in treasury | (14,871 | ) | (14,638 | ) | |||
Accumulated other comprehensive income (loss) | (1,643 | ) | (1,807 | ) | |||
Noncontrolling interest | 5 | 5 | |||||
Total stockholders’ equity | 4,498 | 4,259 | |||||
$ | 15,529 | $ | 15,201 | ||||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Three Months Ended March 31, 2017 | ||||||||
Dollars in millions | Total Revenue | Operating Income | Operating Margin | |||||
Automotive OEM | $ | 828 | $ | 202 | 24.4 | % | ||
Food Equipment | 497 | 125 | 25.1 | % | ||||
Test & Measurement and Electronics | 480 | 96 | 20.0 | % | ||||
Welding | 387 | 107 | 27.7 | % | ||||
Polymers & Fluids | 426 | 88 | 20.6 | % | ||||
Construction Products | 395 | 89 | 22.5 | % | ||||
Specialty Products | 463 | 124 | 26.9 | % | ||||
Intersegment | (5 | ) | — | — | % | |||
Total Segments | 3,471 | 831 | 23.9 | % | ||||
Unallocated | — | (22 | ) | — | % | |||
Total Company | $ | 3,471 | $ | 809 | 23.3 | % | ||
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q1 2017 vs. Q1 2016 Favorable/(Unfavorable) | ||||||||||||||||
Operating Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW | ||||||||
Organic | 9.0 | % | 2.0 | % | 5.5 | % | (0.3 | )% | 1.5 | % | 2.9 | % | 0.8 | % | 3.5 | % |
Acquisitions/Divestitures | 19.4 | % | — | % | — | % | — | % | — | % | — | % | (0.7 | )% | 3.8 | % |
Translation | (2.1 | )% | (2.4 | )% | (2.0 | )% | (0.3 | )% | 0.5 | % | (0.2 | )% | (1.3 | )% | (1.3 | )% |
Operating Revenue | 26.3 | % | (0.4 | )% | 3.5 | % | (0.6 | )% | 2.0 | % | 2.7 | % | (1.2 | )% | 6.0 | % |
Q1 2017 vs. Q1 2016 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 | 120 bps | 50 bps | 170 bps | — | 40 bps | 80 bps | 10 bps | 80 bps |
Changes in Variable Margin & OH Costs | (30) bps | (30) bps | 290 bps | 220 bps | 100 bps | 120 bps | 80 bps | 90 bps |
Total Organic | 90 bps | 20 bps | 460 bps | 220 bps | 140 bps | 200 bps | 90 bps | 170 bps |
Acquisitions/Divestitures | (260) bps | — | — | — | — | — | 40 bps | (50) bps |
Restructuring/Other | (30) bps | 40 bps | (10) bps | 160 bps | (100) bps | (50) bps | (50) bps | — |
Total Operating Margin Change | (200) bps | 60 bps | 450 bps | 380 bps | 40 bps | 150 bps | 80 bps | 120 bps |
Total Operating Margin % * | 24.4% | 25.1% | 20.0% | 27.7% | 20.6% | 22.5% | 26.9% | 23.3% |
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 50 bps | 80 bps | 350 bps | 50 bps | 420 bps | 60 bps | 140 bps | 160 bps |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months Ended | Twelve Months Ended | ||||||||||
March 31, | December 31, | ||||||||||
Dollars in millions | 2017 | 2016 | 2016 | ||||||||
Operating income | $ | 809 | $ | 722 | $ | 3,064 | |||||
Tax rate | 28.3 | % | 30.0 | % | 30.0 | % | |||||
Income taxes | (229 | ) | (216 | ) | (919 | ) | |||||
Operating income after taxes | $ | 580 | $ | 506 | $ | 2,145 | |||||
Invested capital: | |||||||||||
Trade receivables | $ | 2,534 | $ | 2,394 | $ | 2,357 | |||||
Inventories | 1,158 | 1,134 | 1,076 | ||||||||
Net plant and equipment | 1,674 | 1,598 | 1,652 | ||||||||
Goodwill and intangible assets | 6,016 | 6,005 | 6,021 | ||||||||
Accounts payable and accrued expenses | (1,723 | ) | (1,611 | ) | (1,713 | ) | |||||
Other, net | 222 | 257 | 223 | ||||||||
Total invested capital | $ | 9,881 | $ | 9,777 | $ | 9,616 | |||||
Average invested capital | $ | 9,748 | $ | 9,668 | $ | 9,780 | |||||
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) | — | (111 | ) | (91 | ) | ||||||
Adjusted average invested capital | $ | 9,748 | $ | 9,557 | $ | 9,689 | |||||
Adjusted return on average invested capital | 23.8 | % | 21.2 | % | 22.1 | % | |||||
FREE CASH FLOW (UNAUDITED)
Three Months Ended | |||||||
March 31, | |||||||
Dollars in millions | 2017 | 2016 | |||||
Net cash provided by operating activities | $ | 463 | $ | 479 | |||
Less: Additions to plant and equipment | (64 | ) | (57 | ) | |||
Free cash flow | $ | 399 | $ | 422 | |||
Net income | $ | 536 | $ | 468 | |||
Free cash flow to net income conversion rate | 74 | % | * | 90 | % | ||
* | Excluding $87 million related to the timing of payments for income taxes and pension contributions, the free cash flow to net income conversion rate for the three months ended March 31, 2017 would have been 91%. |