ILLINOIS TOOL WORKS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - October 21, 2014

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Exhibit 99.1
                                
ITW Reports Third Quarter 2014 Financial Results

*Q3 diluted EPS from continuing operations of $1.28 up 42 percent
*Record operating margins of 20.9 percent up 190 basis points versus year-ago period; Enterprise initiatives contribute 120 basis points
*Organic revenues grow 3.5 percent
*Company raises full-year EPS guidance to $4.61 at midpoint, a 27 percent increase versus 2013

GLENVIEW, ILLINOIS-October 21, 2014-Illinois Tool Works Inc. (NYSE: ITW) today reported third quarter 2014 earnings per share (EPS) from continuing operations of $1.28, 42 percent higher than the year-ago period. The strong growth in EPS was due to ongoing contributions from enterprise initiatives, solid organic revenue growth, and continuing share repurchase activity.
Key highlights for the 2014 third quarter financial results versus the year-ago period include:
*Total revenues grew 3.5 percent to $3.7 billion and operating income increased 14 percent to $772 million, the highest quarterly operating income total in the Company’s history. Organic revenues grew 3.5 percent, with North American and international growth of 4 percent and 3 percent, respectively. In North America, organic revenue growth was driven by strength in the automotive OEM, food equipment, welding, and test and measurement businesses. Internationally, European organic revenues increased 3 percent and Asia Pacific grew 5 percent. As expected, ongoing product line simplification activities associated with the portfolio management component of ITW’s enterprise strategy reduced organic revenue growth by approximately 1 percent in the quarter.
*Record operating margins of 20.9 percent increased 190 basis points, with enterprise initiatives contributing 120 basis points. All segments produced operating margin improvement, with five segments growing operating margins by more than 200 basis points.
*After-tax Return on Invested Capital (ROIC) of 20.1 percent increased 250 basis points.
Third quarter segment highlights versus the year-ago period include:
*Automotive OEM organic revenue growth of 8 percent outpaced third quarter worldwide auto builds of 2 percent. Organic revenues grew 9 percent in Europe, 8 percent in North America and 12 percent in China. Operating margins of 23.4 percent increased 230 basis points.
*Food Equipment’s organic revenues increased 5 percent due to across-the-board growth in equipment and service worldwide. Operating margins of 23.1 percent increased 320 basis points.
*Welding’s organic revenues grew 5 percent, with North America increasing 10 percent due to strength in equipment sales to industrial and commercial customers. Operating margins of 26.2 percent increased 80 basis points.
“ITW had a strong third quarter with solid organic revenue growth, operating margins hitting record levels, EPS increasing more than 40 percent, and after tax return on invested capital exceeding 20 percent,” said Scott Santi, president and chief executive officer. “These results reflect the continued progress in the execution of our enterprise strategy as we position ITW for solid organic growth with best-in-class margins and returns. Looking




ahead, we are raising full year guidance as we expect operating margins of approximately 20 percent and EPS to increase by more than 25 percent. The ITW operating team continues to execute at a high level, and we thank all of our people around the world for their dedication and ongoing contributions to our progress.”
The Company is raising its full-year EPS guidance range to $4.57 to $4.65 from $4.50 to $4.62. For the 2014 fourth quarter, the Company is forecasting EPS to be in a range of $1.07 to $1.15, on 2 to 3 percent organic revenue growth. Total revenue growth in the fourth quarter is projected to be flat due to currency translation effects.
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding total revenue growth, operating margins and diluted income per share from continuing operations. 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-Q from the second quarter of 2014. The attached tables include a calculation of ROIC, a non-GAAP measure.
ITW is a Fortune 200 global diversified industrial manufacturer of value added consumables and specialty equipment with related service businesses. The Company focuses on solid growth, improving profitability and strong returns across its worldwide platforms and divisions. These divisions serve customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW’s revenues totaled $14.1 billion in 2013.

Contact: John Brooklier, 847-657-4104 or jbrooklier@itw.com






     






ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
 
Three Months Ended
 
Nine Months Ended
(In millions except per share amounts)
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Operating Revenues
$
3,692

 
$
3,568

 
$
10,980

 
$
10,581

Cost of revenues
2,182

 
2,148

 
6,559

 
6,381

Selling, administrative, and research and development expenses
675

 
676

 
2,034

 
2,126

Amortization of intangible assets
60

 
64

 
182

 
186

 Impairment of goodwill and other intangible assets
3

 
2

 
3

 
2

Operating Income
772

 
678

 
2,202

 
1,886

Interest expense
(68
)
 
(60
)
 
(196
)
 
(179
)
Other income (expense)
20

 
10

 
36

 
67

Income from Continuing Operations Before Income Taxes
724

 
628

 
2,042

 
1,774

Income Taxes
217

 
222

 
613

 
551

Income from Continuing Operations
507

 
406

 
1,429

 
1,223

Income from Discontinued Operations
24

 
46

 
1,067

 
48

Net Income
$
531

 
$
452

 
$
2,496

 
$
1,271

 
 
 
 
 
 
 
 
Income Per Share from Continuing Operations:
 
 
 
 
 
 
 
Basic
$
1.29

 
$
0.91

 
$
3.51

 
$
2.72

Diluted
$
1.28

 
$
0.90

 
$
3.49

 
$
2.70

Income Per Share from Discontinued Operations:
 
 
 
 
 
 
 
Basic
$
0.06

 
$
0.10

 
$
2.62

 
$
0.11

Diluted
$
0.06

 
$
0.10

 
$
2.60

 
$
0.11

Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
1.35

 
$
1.01

 
$
6.14

 
$
2.83

Diluted
$
1.34

 
$
1.01

 
$
6.09

 
$
2.81

 
 
 
 
 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
 
 
 
 
Average
394.0

 
445.9

 
406.8

 
449.0

Average assuming dilution
396.8

 
448.9

 
409.7

 
452.1








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

(In millions)
 
September 30, 2014
 
December 31, 2013
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
4,820

 
$
3,618

Trade receivables
2,519

 
2,365

Inventories
1,265

 
1,247

Deferred income taxes
266

 
384

Prepaid expenses and other current assets
282

 
366

Assets held for sale
—

 
1,836

Total current assets
9,152

 
9,816

 
 
 
 
Net Plant and Equipment
1,693

 
1,709

Goodwill
4,771

 
4,886

Intangible Assets
1,825

 
1,999

Deferred Income Taxes
329

 
359

Other Assets
1,258

 
1,197

 
$
19,028

 
$
19,966

 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
1,496

 
$
3,551

Accounts payable
594

 
634

Accrued expenses
1,307

 
1,272

Cash dividends payable
190

 
181

Income taxes payable
277

 
69

Deferred income taxes
10

 
10

Liabilities held for sale
—

 
317

Total current liabilities
3,874

 
6,034

 
 
 
 
Noncurrent Liabilities:
 
 
 
Long-term debt
6,034

 
2,793

Deferred income taxes
418

 
507

Other liabilities
901

 
923

Total noncurrent liabilities
7,353

 
4,223

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,076

 
1,046

Income reinvested in the business
16,909

 
14,943

Common stock held in treasury
(10,047
)
 
(6,676
)
Accumulated other comprehensive income
(148
)
 
384

Noncontrolling interest
5

 
6

Total stockholders’ equity
7,801

 
9,709

 
$
19,028

 
$
19,966





ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATION (UNAUDITED)
ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
Three Months Ended
 
Nine Months Ended
(Dollars in millions)
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Operating income
$
772

 
$
678

 
$
2,202

 
$
1,886

Tax rate (as adjusted for discrete tax charge in 2013)
30.0
%
 
29.0
%
 
30.0
%
 
28.8
%
Income taxes
(232
)
 
(196
)
 
(661
)
 
(543
)
Operating income after taxes
$
540

 
$
482

 
$
1,541

 
$
1,343

 
 
 
 
 
 
 
 
Invested capital:
 
 
 

 
 
 
 
Trade receivables
$
2,519

 
$
2,493

 
$
2,519

 
$
2,493

Inventories
1,265

 
1,308

 
1,265

 
1,308

Net assets held for sale
—

 
1,557

 
—

 
1,557

Net plant and equipment
1,693

 
1,667

 
1,693

 
1,667

Goodwill and intangible assets
6,596

 
6,975

 
6,596

 
6,975

Accounts payable and accrued expenses
(1,901
)
 
(1,898
)
 
(1,901
)
 
(1,898
)
Other, net
339

 
484

 
339

 
484

Total invested capital
$
10,511

 
$
12,586

 
$
10,511

 
$
12,586

 
 
 
 
 
 
 
 
Average invested capital
$
10,432

 
$
12,560

 
$
11,489

 
$
12,648

Adjustment for Wilsonart (formerly Decorative Surfaces)
(155
)
 
(169
)
 
(158
)
 
(170
)
Adjustment for Industrial Packaging
461

 
(1,468
)
 
(529
)
 
(1,482
)
Adjusted average invested capital
$
10,738

 
$
10,923

 
$
10,802

 
$
10,996

Annualized adjusted return on average invested capital
20.1
%
 
17.6
%
 
19.0
%
 
16.3
%
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2013
Income Taxes - As reported
$
222
 
 
$
551
 
Discrete tax charge related to foreign earnings
(40
)
 
(40
)
Income Taxes - As adjusted
182
 
 
511
 
Income from Continuing Operations Before Income Taxes
628
 
 
1,774
 
Tax rate (as adjusted for discrete tax charge in 2013)
29.0
%
 
28.8
%
 
 
 
 

ADJUSTED FREE OPERATING CASH FLOW (UNAUDITED)
 
Three Months Ended
 
Nine Months Ended
(In millions)
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net cash provided by operating activities
$
271

 
$
811

 
$
1,158

 
$
1,820

Less: Additions to plant and equipment
(126
)
 
(79
)
 
(272
)
 
(257
)
Free operating cash flow
145

 
732

 
886

 
1,563

Plus: Taxes paid related to sale of Industrial Packaging
533

 
—

 
533

 
—

Adjusted free operating cash flow
$
678

 
$
732

 
$
1,419

 
$
1,563

 
 
 
 
 
 
 
 





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

For the Three Months Ended September 30, 2014
% F(U) vs. prior year
(Dollars in millions)
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
631

$
148

23.4
%
 
7.1
 %
7.6
 %
230 bps

Test & Measurement and Electronics
586

110

18.7
%
 
5.6
 %
5.2
 %
240 bps

Food Equipment
575

133

23.1
%
 
6.0
 %
5.3
 %
320 bps

Polymers & Fluids
490

99

20.2
%
 
(2.8
)%
(2.0
)%
210 bps

Welding
459

120

26.2
%
 
4.7
 %
5.0
 %
80 bps

Construction Products
445

84

18.9
%
 
1.1
 %
2.1
 %
270 bps

Specialty Products
513

109

21.3
%
 
0.5
 %
—
 %
20 bps

Intersegment
(7
)
—

—
%
 
—
 %
—
 %
—

Total Segments
3,692

803

21.7
%
 
3.5
 %
3.5
 %
200 bps

Unallocated
—

(31
)
—
%
 
—
 %
—
 %
—

Total Company
$
3,692

$
772

20.9
%
 
3.5
 %
3.5
 %
190 bps




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