ILLINOIS TOOL WORKS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - January 27, 2015

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Exhibit 99.1
                                
ITW Reports Fourth Quarter and Full-Year 2014 Financial Results
•
4Q diluted EPS from continuing operations of $1.18, up 28 percent
•
4Q operating margin of 19.6 percent up 190 basis points; Enterprise initiatives contributed 120 basis points
•
4Q organic revenue grew 2.3 percent
•
Full-year 2015 EPS guidance unchanged; $5.25 at midpoint, up 12 percent

GLENVIEW, Ill., January 27, 2015 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE:ITW) today reported fourth quarter 2014 earnings per share (EPS) from continuing operations of $1.18, 28 percent higher than the year-ago period. Operating margin increased 190 basis points to 19.6 percent and organic revenue grew 2.3 percent.

"We were pleased with ITW’s strong performance in the quarter and for the year," said E. Scott Santi, president and chief executive officer. "In the quarter, the Company continued to deliver meaningful improvement in our earnings per share, operating margin and return on invested capital metrics.”

“For full-year 2014, ITW grew earnings per share 29 percent, expanded operating margin by 210 basis points to 19.9 percent, improved after-tax return on invested capital by 260 basis points to 18.9 percent, and returned $5 billion to shareholders in the form of dividends and share repurchases. As a result of the strength of the ITW business model and the continued execution of our enterprise strategy, the Company is well positioned to deliver another year of solid progress in 2015,” Santi concluded.


Fourth quarter 2014 financial highlights (versus year-ago):
•
Organic revenue was up 2.3 percent, with North American and international growth of 3 percent and 2 percent, respectively. In North America, organic revenue growth was driven by continued strength in welding, food equipment, and automotive OEM. Internationally, European organic revenues increased 1 percent and Asia Pacific grew 2 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 percentage point in the quarter. Total revenues of $3.5 billion were down 1.4 percent due to negative foreign currency translation impact.
•
Operating margins of 19.6 percent increased 190 basis points, with enterprise initiatives contributing 120 basis points. Six of the Company’s seven segments delivered operating margin improvement in excess of 100 basis points. Operating income increased 9.2 percent to $686 million.




•After-tax Return on Invested Capital (ROIC) of 18.6 percent increased 220 basis points.

Fourth quarter 2014 segment highlights (versus year-ago):
•
Automotive OEM organic revenue growth of 7 percent outpaced fourth quarter worldwide auto builds of 1 percent. Organic revenues grew 12 percent in Europe, 4 percent in North America and 7 percent in Asia Pacific. Operating margins of 22.3 percent increased 190 basis points.
•
Food Equipment's organic revenues increased 5 percent due to solid growth in equipment and service worldwide. Operating margins of 21.7 percent increased 220 basis points.
•
Welding's organic revenues grew 4 percent, with North America increasing 10 percent due to strength in equipment sales to industrial and commercial customers. Operating margins of 25.4 percent increased 230 basis points.

Outlook
ITW is confirming its 2015 full-year EPS guidance range of $5.15 to $5.35, which is $5.25 at the midpoint, a 12 percent increase. Organic revenue growth for the year is expected to be 2.5 to 3.5 percent. Total revenue for the year is projected to decline 1 to 2 percent due to the impact of foreign currency translation. For the first quarter 2015, the Company is forecasting EPS to be in a range of $1.13 to $1.21, which is $1.17 at the midpoint, a 16 percent increase. In the first quarter, the Company expects 2 to 3 percent organic revenue growth and total revenue to decline 2 to 3 percent due to the impact of currency translation. The Company’s outlook is based on current foreign exchange rates.

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 organic and 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.

About ITW
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 $14.5 billion in 2014.
     






ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
 
Three Months Ended
 
Twelve Months Ended
(In millions except per share amounts)
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
Operating Revenues
$
3,504

 
$
3,554

 
$
14,484

 
$
14,135

Cost of revenues
2,114

 
2,173

 
8,673

 
8,554

Selling, administrative, and research and development expenses
644

 
689

 
2,678

 
2,815

Amortization of intangible assets
60

 
64

 
242

 
250

 Impairment of goodwill and other intangible assets
—

 
—

 
3

 
2

Operating Income
686

 
628

 
2,888

 
2,514

Interest expense
(54
)
 
(60
)
 
(250
)
 
(239
)
Other income (expense)
25

 
5

 
61

 
72

Income from Continuing Operations Before Income Taxes
657

 
573

 
2,699

 
2,347

Income Taxes
196

 
166

 
809

 
717

Income from Continuing Operations
461

 
407

 
1,890

 
1,630

Income (Loss) from Discontinued Operations
(11
)
 
1

 
1,056

 
49

Net Income
$
450

 
$
408

 
$
2,946

 
$
1,679

 
 
 
 
 
 
 
 
Income Per Share from Continuing Operations:
 
 
 
 
 
 
 
Basic
$
1.19

 
$
0.93

 
$
4.70

 
$
3.65

Diluted
$
1.18

 
$
0.92

 
$
4.67

 
$
3.63

Income (Loss) Per Share from Discontinued Operations:
 
 
 
 
 
 
 
Basic
$
(0.02
)
 
$
—

 
$
2.63

 
$
0.11

Diluted
$
(0.02
)
 
$
—

 
$
2.61

 
$
0.11

Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
1.17

 
$
0.93

 
$
7.33

 
$
3.76

Diluted
$
1.16

 
$
0.93

 
$
7.28

 
$
3.74

 
 
 
 
 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
 
 
 
 
Average
386.4

 
437.7

 
401.7

 
446.2

Average assuming dilution
389.2

 
440.9

 
404.6

 
449.3








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

(In millions)
 
December 31, 2014
 
December 31, 2013
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
3,990

 
$
3,618

Trade receivables
2,293

 
2,365

Inventories
1,180

 
1,247

Deferred income taxes
212

 
384

Prepaid expenses and other current assets
401

 
366

Assets held for sale
—

 
1,836

Total current assets
8,076

 
9,816

 
 
 
 
Net plant and equipment
1,686

 
1,709

Goodwill
4,667

 
4,886

Intangible assets
1,799

 
1,999

Deferred income taxes
301

 
359

Other assets
1,149

 
1,197

 
$
17,678

 
$
19,966

 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
1,476

 
$
3,551

Accounts payable
512

 
634

Accrued expenses
1,287

 
1,272

Cash dividends payable
186

 
181

Income taxes payable
64

 
69

Deferred income taxes
8

 
10

Liabilities held for sale
—

 
317

Total current liabilities
3,533

 
6,034

 
 
 
 
Noncurrent Liabilities:
 
 
 
Long-term debt
5,981

 
2,793

Deferred income taxes
338

 
507

Other liabilities
1,002

 
923

Total noncurrent liabilities
7,321

 
4,223

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,096

 
1,046

Income reinvested in the business
17,173

 
14,943

Common stock held in treasury
(10,798
)
 
(6,676
)
Accumulated other comprehensive income
(658
)
 
384

Noncontrolling interest
5

 
6

Total stockholders’ equity
6,824

 
9,709

 
$
17,678

 
$
19,966





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

ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
Three Months Ended
 
Twelve Months Ended
(Dollars in millions)
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
Operating income
$
686

 
$
628

 
$
2,888

 
$
2,514

Tax rate (as adjusted for discrete tax charge in 2013)
30.0
%
 
29.0
%
 
30.0
%
 
28.8
%
Income taxes
(206
)
 
(182
)
 
(866
)
 
(724
)
Operating income after taxes
$
480

 
$
446

 
$
2,022

 
$
1,790

 
 
 
 
 
 
 
 
Invested capital:
 
 
 

 
 
 
 
Trade receivables
$
2,293

 
$
2,365

 
$
2,293

 
$
2,365

Inventories
1,180

 
1,247

 
1,180

 
1,247

Net assets held for sale
—

 
1,519

 
—

 
1,519

Net plant and equipment
1,686

 
1,709

 
1,686

 
1,709

Goodwill and intangible assets
6,466

 
6,885

 
6,466

 
6,885

Accounts payable and accrued expenses
(1,799
)
 
(1,906
)
 
(1,799
)
 
(1,906
)
Other, net
465

 
616

 
465

 
616

Total invested capital
$
10,291

 
$
12,435

 
$
10,291

 
$
12,435

 
 
 
 
 
 
 
 
Average invested capital
$
10,401

 
$
12,511

 
$
11,249

 
$
12,605

Adjustment for Wilsonart (formerly Decorative Surfaces)
(147
)
 
(165
)
 
(154
)
 
(169
)
Adjustment for Industrial Packaging
95

 
(1,469
)
 
(424
)
 
(1,477
)
Adjusted average invested capital
$
10,349

 
$
10,877

 
$
10,671

 
$
10,959

Annualized adjusted return on average invested capital
18.6
%
 
16.4
%
 
18.9
%
 
16.3
%
 
 
 
Twelve Months Ended
 
December 31, 2013
Income Taxes - As reported
$
717
 
Discrete tax charge related to foreign earnings
(40
)
Income Taxes - As adjusted
677
 
Income from Continuing Operations Before Income Taxes
2,347
 
Tax rate (as adjusted for discrete tax charge in 2013)
28.8
%
 
 







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

ADJUSTED FREE OPERATING CASH FLOW (UNAUDITED)
 
Three Months Ended
 
Twelve Months Ended
(In millions)
December 31,
 
December 31,
 
2014
 
2013
 
2014
 
2013
Net cash provided by operating activities
$
458

 
$
708

 
$
1,616

 
$
2,528

Less: Additions to plant and equipment
(89
)
 
(111
)
 
(361
)
 
(368
)
Free operating cash flow
369

 
597

 
1,255

 
2,160

Plus: Taxes paid related to sale of Industrial Packaging
191

 
—

 
724

 
—

Adjusted free operating cash flow
$
560

 
$
597

 
$
1,979

 
$
2,160


ADJUSTED FREE OPERATING CASH FLOW CONVERSION RATE (UNAUDITED)
(Dollars in millions)
Three Months Ended
 
Twelve Months Ended
 
December 31, 2014
 
December 31, 2014
Adjusted free operating cash flow
$
560

 
$
1,979

 
 
 
 
Net Income - As reported
$
450

 
$
2,946

Less: Industrial Packaging gain on sale, after taxes
—

 
(1,148
)
Adjusted net income
$
450

 
$
1,798

 
 
 
 
Adjusted free operating cash flow to adjusted net income conversion rate
124
%
 
110
%





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

For the Three Months Ended December 31, 2014
% F(U) vs. prior year
(Dollars in millions)
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
620

$
138

22.3
%
 
2.7
 %
7.3
 %
190 bps

Test & Measurement and Electronics
541

82

15.1
%
 
(3.3
)%
(0.5
)%
(60) bps

Food Equipment
554

120

21.7
%
 
1.4
 %
4.7
 %
220 bps

Polymers & Fluids
452

79

17.5
%
 
(4.2
)%
0.7
 %
150 bps

Welding
458

116

25.4
%
 
2.3
 %
4.2
 %
230 bps

Construction Products
402

63

15.7
%
 
(4.7
)%
1.6
 %
190 bps

Specialty Products
482

92

19.0
%
 
(5.4
)%
(2.6
)%
110 bps

Intersegment
(5
)
—

—
%
 
—
 %
—
 %
—

Total Segments
3,504

690

19.7
%
 
(1.4
)%
2.3
 %
150 bps

Unallocated
—

(4
)
—
%
 
—
 %
—
 %
—

Total Company
$
3,504

$
686

19.6
%
 
(1.4
)%
2.3
 %
190 bps


For the Twelve Months Ended December 31, 2014
% F(U) vs. prior year
(Dollars in millions)
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
2,590

$
600

23.2
%
 
8.1
 %
8.9
 %
270 bps

Test & Measurement and Electronics
2,204

340

15.4
%
 
1.3
 %
1.5
 %
60 bps

Food Equipment
2,177

453

20.8
%
 
6.4
 %
4.7
 %
200 bps

Polymers & Fluids
1,927

357

18.5
%
 
(3.3
)%
(1.2
)%
170 bps

Welding
1,850

479

25.9
%
 
0.7
 %
1.2
 %
60 bps

Construction Products
1,707

289

17.0
%
 
(0.6
)%
2.2
 %
310 bps

Specialty Products
2,055

440

21.4
%
 
2.4
 %
(0.3
)%
110 bps

Intersegment
(26
)
—

—
%
 
—
 %
—
 %
—

Total Segments
14,484

2,958

20.4
%
 
2.5
 %
2.6
 %
170 bps

Unallocated
—

(70
)
—
%
 
—
 %
—
 %
—

Total Company
$
14,484

$
2,888

19.9
%
 
2.5
 %
2.6
 %
210 bps




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