Illinois Tool Works Earnings 2020-06-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

itw-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

	For the quarterly period ended	June 30, 2020

	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)

155 Harlem Avenue

Glenview

60025

(Address of principal executive offices)

(Zip Code)

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

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 (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 o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 o

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


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	☐
		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. o

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, 2020: 316,163,249.


	Table of Contents

	PART I - Financial Information
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 4.	Controls and Procedures	32

	PART II - Other Information
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	35

Signatures		36

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
In millions except per share amounts	2020		2019		2020		2019
Operating Revenue	$	2,564	$	3,609	$	5,792	$	7,161
Cost of revenue	1,594		2,099		3,465		4,158
Selling, administrative, and research and development expenses	486		598		1,046		1,209
Amortization and impairment of intangible assets	35		41		71		84
Operating Income	449		871		1,210		1,710
Interest expense	(51)		(55)		(102)		(118)
Other income (expense)	8		9		33		23
Income Before Taxes	406		825		1,141		1,615
Income Taxes	87		202		256		395
Net Income	$	319	$	623	$	885	$	1,220

Net Income Per Share:
Basic	$	1.01	$	1.92	$	2.79	$	3.74
Diluted	$	1.01	$	1.91	$	2.78	$	3.72

Shares of Common Stock Outstanding During the Period:
Average	316.1		324.8		317.2		326.0
Average assuming dilution	317.4		326.6		318.6		327.9

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Comprehensive Income (Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
In millions	2020		2019		2020		2019
Net Income	$	319	$	623	$	885	$	1,220

Foreign currency translation adjustments, net of tax	64		(60)		(223)		(29)
Pension and other postretirement benefit adjustments, net of tax	10		5		19		9
Other comprehensive income (loss)	74		(55)		(204)		(20)

Comprehensive Income	$	393	$	568	$	681	$	1,200

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Financial Position (Unaudited)


In millions except per share amounts	June 30, 2020		December 31, 2019
Assets
Current Assets:
Cash and equivalents	$	1,812	$	1,981
Trade receivables	2,156		2,461
Inventories	1,167		1,164
Prepaid expenses and other current assets	253		296
Assets held for sale	221		351
Total current assets	5,609		6,253

Net plant and equipment	1,711		1,729
Goodwill	4,443		4,492
Intangible assets	801		851
Deferred income taxes	470		516
Other assets	1,229		1,227
	$	14,263	$	15,068

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	4	$	4
Accounts payable	402		472
Accrued expenses	1,106		1,217
Cash dividends payable	338		342
Income taxes payable	152		48
Liabilities held for sale	40		71
Total current liabilities	2,042		2,154

Noncurrent Liabilities:
Long-term debt	7,765		7,754
Deferred income taxes	676		668
Noncurrent income taxes payable	413		462
Other liabilities	1,009		1,000
Total noncurrent liabilities	9,863		9,884

Stockholders’ Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2020 and 2019 Outstanding- 316.2 shares in 2020 and 319.8 shares in 2019	6		6
Additional paid-in-capital	1,317		1,304
Retained earnings	22,612		22,403
Common stock held in treasury	(19,669)		(18,982)
Accumulated other comprehensive income (loss)	(1,909)		(1,705)
Noncontrolling interest	1		4
Total stockholders’ equity	2,358		3,030
	$	14,263	$	15,068

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Changes in Stockholders' Equity (Unaudited)


In millions except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total

Three Months Ended June 30, 2020
Balance at March 31, 2020	$	6	$	1,309	$	22,631	$	(19,680)	$	(1,983)	$	1	$	2,284
Net income	—		—		319		—		—		—		319
Common stock issued for stock-based compensation	—		—		—		11		—		—		11
Stock-based compensation expense	—		8		—		—		—		—		8

Dividends declared ($1.07 per share)	—		—		(338)		—		—		—		(338)
Other comprehensive income (loss)	—		—		—		—		74		—		74

Balance at June 30, 2020	$	6	$	1,317	$	22,612	$	(19,669)	$	(1,909)	$	1	$	2,358

Three Months Ended June 30, 2019
Balance at March 31, 2019	$	6	$	1,255	$	21,488	$	(17,911)	$	(1,642)	$	4	$	3,200
Net income	—		—		623		—		—		—		623
Common stock issued for stock-based compensation	—		3		—		10		—		—		13
Stock-based compensation expense	—		12		—		—		—		—		12
Repurchases of common stock	—		—		—		(375)		—		—		(375)
Dividends declared ($1.00 per share)	—		—		(323)		—		—		—		(323)
Other comprehensive income (loss)	—		—		—		—		(55)		—		(55)

Balance at June 30, 2019	$	6	$	1,270	$	21,788	$	(18,276)	$	(1,697)	$	4	$	3,095

Six months ended June 30, 2020
Balance at December 31, 2019	$	6	$	1,304	$	22,403	$	(18,982)	$	(1,705)	$	4	$	3,030
Net income	—		—		885		—		—		—		885
Common stock issued for stock-based compensation	—		(3)		—		19		—		—		16
Stock-based compensation expense	—		17		—		—		—		—		17
Repurchases of common stock	—		—		—		(706)		—		—		(706)
Dividends declared ($2.14 per share)	—		—		(676)		—		—		—		(676)
Other comprehensive income (loss)	—		—		—		—		(204)		—		(204)
Noncontrolling interest	—		(1)		—		—		—		(3)		(4)
Balance at June 30, 2020	$	6	$	1,317	$	22,612	$	(19,669)	$	(1,909)	$	1	$	2,358

Six months ended June 30, 2019
Balance at December 31, 2018	$	6	$	1,253	$	21,217	$	(17,545)	$	(1,677)	$	4	$	3,258
Net income	—		—		1,220		—		—		—		1,220
Common stock issued for stock-based compensation	—		(5)		—		19		—		—		14
Stock-based compensation expense	—		22		—		—		—		—		22
Repurchases of common stock	—		—		—		(750)		—		—		(750)
Dividends declared ($2.00 per share)	—		—		(649)		—		—		—		(649)
Other comprehensive income (loss)	—		—		—		—		(20)		—		(20)

Balance at June 30, 2019	$	6	$	1,270	$	21,788	$	(18,276)	$	(1,697)	$	4	$	3,095

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Cash Flows (Unaudited)


	Six Months Ended
	June 30,
In millions	2020		2019
Cash Provided by (Used for) Operating Activities:
Net income	$	885	$	1,220
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	133		133
Amortization and impairment of intangible assets	71		84
Change in deferred income taxes	22		39
Provision for uncollectible accounts	4		3
(Income) loss from investments	(5)		(11)
(Gain) loss on sale of plant and equipment	—		1
(Gain) loss on sale of operations and affiliates	(1)		6
Stock-based compensation expense	17		22
Other non-cash items, net	4		6
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	302		(116)
Inventories	(14)		11
Prepaid expenses and other assets	23		14
Increase (decrease) in-
Accounts payable	(76)		20
Accrued expenses and other liabilities	(96)		(114)
Income taxes	80		(17)
Other, net	2		—
Net cash provided by operating activities	1,351		1,301
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	—		(4)
Additions to plant and equipment	(116)		(154)
Proceeds from investments	10		15
Proceeds from sale of plant and equipment	5		6
Proceeds from sales of operations and affiliates	—		2
Other, net	(2)		(16)
Net cash provided by (used for) investing activities	(103)		(151)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(680)		(654)
Issuance of common stock	28		24
Repurchases of common stock	(706)		(750)
Net proceeds from (repayments of) debt with original maturities of three months or less	—		(2)
Proceeds from debt with original maturities of more than three months	—		1,774
Repayments of debt with original maturities of more than three months	—		(1,350)
Other, net	(17)		(12)
Net cash provided by (used for) financing activities	(1,375)		(970)
Effect of Exchange Rate Changes on Cash and Equivalents	(42)		(7)
Cash and Equivalents:
Increase (decrease) during the period	(169)		173
Beginning of period	1,981		1,504
End of period	$	1,812	$	1,677
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	119	$	151
Cash Paid During the Period for Income Taxes, Net of Refunds	$	153	$	373

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Notes to Financial Statements (Unaudited)

(1) Significant Accounting Policies

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 2019 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance which changes the methodology used to measure credit losses for certain financial instruments. Under prior guidance, credit loss reserves were estimated based on historical information. The new guidance requires credit loss reserves to reflect the estimated credit losses expected to be incurred over the life of the financial asset. The Company adopted this new guidance effective January 1, 2020, which did not have a material impact on the Company's results of operations or financial position.

In January 2017, the FASB issued authoritative guidance which simplifies the assessment of goodwill for impairment. Under prior guidance, when the estimated fair value of a reporting unit was less than its carrying value, the fair value of the goodwill was determined by valuing the other assets and liabilities of the reporting unit. Under the new guidance, the requirement to determine the fair value of goodwill has been eliminated, and an impairment charge is recognized for the amount that the carrying value of the reporting unit exceeds its fair value. Effective January 1, 2020, the Company adopted the new guidance prospectively and will apply the new guidance during its annual assessment of goodwill in the third quarter, or earlier if a triggering event occurs. The adoption of this new accounting guidance had no impact on the Company's results of operations or financial position.

In December 2019, the FASB issued authoritative guidance which simplifies certain aspects of the accounting for income taxes, including the elimination of an exception to the methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated full year loss. The Company early adopted this new guidance effective January 1, 2020, which did not have a material impact on the Company's results of operations or financial position.

(2) Novel Coronavirus (COVID-19)

In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company’s global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 continued to spread and impact the countries in which the Company operates and the markets the Company serves. The Company expects the disruptions caused by the COVID-19 outbreak to continue to have an adverse impact on the Company's operating results across all segments in the second half of 2020. However, the full extent of the COVID-19 outbreak in 2020 and its impact on the markets served by the Company and on the Company’s operations is highly uncertain. A prolonged outbreak will continue to interrupt the operations of the Company and its customers and suppliers.

(3) Divestitures

The Company routinely reviews its portfolio of businesses relative to its business portfolio criteria and evaluates if further portfolio refinements may be needed. The Company previously communicated its intent to explore options, including potential divestitures, for certain businesses with annual revenues totaling up to $1 billion. As such, the Company may commit to a plan to exit or dispose of certain businesses and present them as held for sale in periods prior to the sale of the business.

In the second quarter of 2019, the Company approved plans to divest six businesses, including two businesses in the Test & Measurement and Electronics segment, one business in the Automotive OEM segment, one business in the Welding segment, and two businesses in the Specialty Products segment. These six businesses were classified as held for sale beginning in the second quarter of 2019.

In the fourth quarter of 2019, the Company divested three of the held for sale businesses which included one business in the Test & Measurement and Electronics segment, one business in the Welding segment, and one business in the Specialty Products segment. For the twelve months ended December 31, 2019, the Company recorded net pre-tax gains on disposal of businesses of $44 million ($30 million after-tax, or $0.09 per diluted share) which was primarily due to the three divestitures of held for sale businesses discussed above. The net pre-tax gain was included in Other income (expense) in the Statement of Income.

Operating revenue related to businesses divested in 2019 that was included in the Company's results of operations for the three months ended June 30, 2019 was $37 million, which included $16 million in the Welding segment, $17 million in the Test & Measurement and Electronics segment, and $4 million in the Specialty Products segment. Operating revenue related to businesses divested in 2019 for the six months ended June 30, 2019 was $73 million, which included $31 million in the Welding segment, $33 million in the Test & Measurement and Electronics segment, and $9 million in the Specialty Products segment.

As of December 31, 2019, three of the businesses discussed above continued to be held for sale, including one business in the Test & Measurement and Electronics segment, one business in the Automotive OEM segment, and one business in the Specialty Products segment. In the first quarter of 2020, the Company concluded that the sales of the one business in the Automotive OEM segment and the one business in the Specialty Products segment previously held for sale were no longer probable of being completed within one year, primarily due to the disruptions and economic uncertainty resulting from the COVID-19 pandemic. Accordingly, these businesses were no longer presented as held for sale in the Statement of Financial Position beginning in the first quarter of 2020. As of June 30, 2020, only the one business in the Test & Measurement and Electronics segment continued to be presented as held for sale, and it is expected to be sold within one year.

The assets and liabilities related to the held for sale businesses that were included in assets and liabilities held for sale in the Statement of Financial Position as of June 30, 2020 and December 31, 2019, were as follows:


In millions	June 30, 2020		December 31, 2019
Trade receivables	$	34	$	81
Inventories	24		28
Net plant and equipment	16		48
Goodwill and intangible assets	142		166
Other	5		28
Total assets held for sale	$	221	$	351

Accounts payable	$	9	$	21
Accrued expenses	10		17
Other	21		33
Total liabilities held for sale	$	40	$	71

Operating revenue related to the one business held for sale as of June 30, 2020 that was included in the Company's results of operations for the three and six months ended June 30, 2020 and 2019, was as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
In millions	2020		2019		2020		2019
Operating revenue	$	40	$	51	$	90	$	102

(4) Operating Revenue

The Company's 84 diversified operating divisions are organized and managed based on similar product categories and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three and six months ended June 30, 2020 and 2019 was as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
In millions	2020		2019		2020		2019
Automotive OEM	$	361	$	788	$	1,057	$	1,594
Food Equipment	336		548		819		1,066
Test & Measurement and Electronics	455		533		940		1,057
Welding	298		422		670		849
Polymers & Fluids	354		427		747		843
Construction Products	376		424		766		825
Specialty Products	387		473		801		938
Intersegment revenue	(3)		(6)		(8)		(11)
Total operating revenue	$	2,564	$	3,609	$	5,792	$	7,161

The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's seven segments:

Automotive OEM— This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

•plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.

Price	154.94	EPS	8
Shares	327	P/E	20
MCap	50,603	P/FCF	23
Net Debt	6,757	EBIT	3,234
TEV	57,360	TEV/EBIT	18
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-08-06
10-Q	2020-03-31	Filed 2020-05-08
10-K	2019-12-31	Filed 2020-02-14
10-Q	2019-09-30	Filed 2019-10-28
10-Q	2019-06-30	Filed 2019-08-02
10-Q	2019-03-31	Filed 2019-05-03
10-K	2018-12-31	Filed 2019-02-15
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-08-03
10-Q	2018-03-30	Filed 2018-05-04
10-K	2017-12-31	Filed 2018-02-15
10-Q	2017-09-30	Filed 2017-10-27
10-Q	2017-06-30	Filed 2017-08-04
10-Q	2017-03-31	Filed 2017-05-05
10-K	2016-12-31	Filed 2017-02-10
10-Q	2016-09-30	Filed 2016-10-28
10-Q	2016-06-30	Filed 2016-08-04
10-Q	2016-03-31	Filed 2016-05-06
10-K	2015-12-31	Filed 2016-02-12
10-Q	2015-09-30	Filed 2015-10-30
10-Q	2015-06-30	Filed 2015-08-07
10-Q	2015-03-31	Filed 2015-05-07
10-K	2014-12-31	Filed 2015-02-13
10-Q	2014-09-30	Filed 2014-10-31
10-Q	2014-06-30	Filed 2014-08-08
10-Q	2014-03-31	Filed 2014-05-02
10-K	2013-12-31	Filed 2014-02-14
10-Q	2013-09-30	Filed 2013-11-01
10-Q	2013-06-30	Filed 2013-08-02
10-Q	2013-03-31	Filed 2013-05-03
10-K	2012-12-31	Filed 2013-02-19
10-Q	2012-09-30	Filed 2012-10-26
10-Q	2012-08-03	Filed 2012-08-03
10-Q	2012-05-03	Filed 2012-05-04
10-K	2011-12-31	Filed 2012-02-17
10-Q	2011-10-28	Filed 2011-10-28
10-Q	2011-08-05	Filed 2011-08-05
10-Q	2011-05-05	Filed 2011-05-06
10-K	2010-12-31	Filed 2011-02-28
10-Q	2010-10-29	Filed 2010-10-29
10-Q	2010-08-06	Filed 2010-08-06
10-Q	2010-03-31	Filed 2010-05-07
10-K	2009-12-31	Filed 2010-02-26

8-K	2020-07-31	Earnings, Exhibits
8-K	2020-05-08
8-K	2020-05-05
8-K	2020-02-05
8-K	2020-01-31
8-K	2019-10-25
8-K	2019-09-27
8-K	2019-07-26
8-K	2019-07-26
8-K	2019-06-10
8-K	2019-06-05
8-K	2019-05-29
8-K	2019-05-03
8-K	2019-04-25
8-K	2019-02-14
8-K	2019-02-01
8-K	2018-12-21
8-K	2018-10-24
8-K	2018-07-23
8-K	2018-05-04
8-K	2018-04-26
8-K	2018-01-24

EX-31	itw2q20-exhibit31.htm
EX-32	itw2q20-exhibit32.htm

ITW 10Q Quarterly Report

Illinois Tool Works Earnings 2020-06-30