ILLINOIS TOOL WORKS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - October 21, 2015

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Exhibit 99.1
                               
ITW Reports Third Quarter 2015 Financial Results

•
EPS of $1.39, up 9 percent; up 18 percent excluding $(0.12) of currency headwinds
•
Record operating margin of 22.7 percent, up 180 basis points; Enterprise Initiatives contribute 110 basis points
•
Strong free cash flow conversion at 126 percent of net income
•
Record after-tax return on invested capital of 21.5 percent

GLENVIEW, Ill., October 21, 2015 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported third quarter 2015 diluted earnings per share (EPS) from continuing operations of $1.39, a 9 percent increase compared to the year-ago period. Organic revenue was down 1.7 percent in the quarter as continued solid organic growth performance in Automotive OEM, Food Equipment and Construction Products was offset by deteriorating end market trends in Welding and Test & Measurement and Electronics. In addition, the company’s ongoing Product Line Simplification (PLS) activities reduced organic growth by 1 percentage-point.

"ITW delivered another strong quarter of margin expansion and earnings per share growth," said E. Scott Santi, chairman and chief executive officer. "In the quarter, ITW set new all-time records for operating margin and after-tax return on invested capital and grew EPS by 9 percent. In addition, free cash flow conversion was very strong at 126 percent. Due to ITW’s unique business model and proven track record of operational execution, the company is well positioned to continue to deliver differentiated performance in both the current environment and over the long-term.”

Third quarter 2015 enterprise highlights*
•
EPS increased 9 percent to $1.39. Excluding $(0.12) impact from foreign currency headwinds, EPS would have been up 18 percent.
•
Operating margin increased 180 basis points to a record of 22.7 percent as Enterprise Initiatives contribute 110 basis points.
•
Free cash flow was $644 million, 126 percent of net income.
•
After-tax return on invested capital improved 140 basis points to a record of 21.5 percent.
•
Total revenues of $3.4 billion were down 9 percent primarily due to the impact of foreign currency translation.

Third quarter 2015 segment performance*
•
Automotive OEM organic revenue growth of 5 percent outpaced flat worldwide auto builds. Organic revenue increased 12 percent in Europe, 5 percent in North America and declined 5 percent in China. Operating margin of 25.4 percent was up 200 basis points.
•
Construction Products organic revenue increased 4 percent driven by 7 percent growth in North America and 5 percent growth in Asia Pacific. Record operating margin of 23.1 percent was up 420 basis points.
•
Food Equipment organic revenue increased 3 percent due to 6 percent growth in North America. Record operating margin of 26.3 percent was an increase of 320 basis points.
•
Facing challenging year-over-year comparisons and significant end market weakness, organic revenue in Welding and Test & Measurement and Electronics declined by 10 percent and 11 percent, respectively.

Guidance
The company is reducing its 2015 full-year EPS guidance by $0.05 or 1 percent at the midpoint to reflect current demand levels. The updated EPS range of $5.05 to $5.15 is a year-over-year increase of 9 percent at the midpoint. Excluding the negative currency impact, full-year EPS would be up 18 percent at the midpoint. Organic revenue for the year is projected to be down 1 percent to flat, which includes the expected 1-percentage point of impact from PLS. Operating margin is projected to exceed 21 percent, an increase of more than 100 basis points year-over-year. For the fourth quarter 2015, the company is expecting EPS to be in a range of $1.15 to $1.25 and operating margin to be approximately 21 percent. Fourth quarter organic revenue is forecast to be down 1 to 2 percent, in line with current demand levels.

*All comparisons are to the prior year period.





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, impact of foreign currency translation, 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-K for 2014 and Form 10-Q for the second quarter of 2015. The attached tables include a calculation of ROIC, a non-GAAP measure.

About ITW
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2014. The Company’s seven industry-leading businesses 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 nearly 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
 
Nine Months Ended
In millions except per share amounts
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Operating Revenues
$
3,354

 
$
3,692

 
$
10,130

 
$
10,980

Cost of revenues
1,953

 
2,182

 
5,947

 
6,559

Selling, administrative, and research and development expenses
581

 
675

 
1,819

 
2,034

Amortization of intangible assets
57

 
60

 
174

 
182

Impairment of goodwill and other intangible assets
2

 
3

 
2

 
3

Operating Income
761

 
772

 
2,188

 
2,202

Interest expense
(59
)
 
(68
)
 
(168
)
 
(196
)
Other income (expense)
23

 
20

 
65

 
36

Income from Continuing Operations Before Income Taxes
725

 
724

 
2,085

 
2,042

Income Taxes
214

 
217

 
636

 
613

Income from Continuing Operations
511

 
507

 
1,449

 
1,429

Income from Discontinued Operations
—

 
24

 
—

 
1,067

Net Income
$
511

 
$
531

 
$
1,449

 
$
2,496

 
 
 
 
 
 
 
 
Income Per Share from Continuing Operations:
 
 
 
 
 
 
 
Basic
$
1.40

 
$
1.29

 
$
3.92

 
$
3.51

Diluted
$
1.39

 
$
1.28

 
$
3.90

 
$
3.49

Income Per Share from Discontinued Operations:
 
 
 
 
 
 
 
Basic
$
—

 
$
0.06

 
$
—

 
$
2.62

Diluted
$
—

 
$
0.06

 
$
—

 
$
2.60

Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
1.40

 
$
1.35

 
$
3.92

 
$
6.14

Diluted
$
1.39

 
$
1.34

 
$
3.90

 
$
6.09

 
 
 
 
 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
 
 
 
 
Average
365.1

 
394.0

 
369.3

 
406.8

Average assuming dilution
367.1

 
396.8

 
371.6

 
409.7











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

In millions
 
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
3,001

 
$
3,990

Trade receivables
2,339

 
2,293

Inventories
1,153

 
1,180

Deferred income taxes
189

 
212

Prepaid expenses and other current assets
287

 
401

Total current assets
6,969

 
8,076

 
 
 
 
Net plant and equipment
1,601

 
1,686

Goodwill
4,470

 
4,667

Intangible assets
1,618

 
1,799

Deferred income taxes
286

 
301

Other assets
1,160

 
1,149

 
$
16,104

 
$
17,678

Liabilities and Stockholders' Equity
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
812

 
$
1,476

Accounts payable
498

 
512

Accrued expenses
1,137

 
1,287

Cash dividends payable
200

 
186

Income taxes payable
71

 
64

Deferred income taxes
6

 
8

Total current liabilities
2,724

 
3,533

 
 
 
 
Noncurrent Liabilities:
 

 
 
Long-term debt
7,000

 
5,981

Deferred income taxes
342

 
338

Other liabilities
948

 
1,002

Total noncurrent liabilities
8,290

 
7,321

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,124

 
1,096

Income reinvested in the business
18,066

 
17,173

Common stock held in treasury
(12,740
)
 
(10,798
)
Accumulated other comprehensive income
(1,370
)
 
(658
)
Noncontrolling interest
4

 
5

Total stockholders’ equity
5,090

 
6,824

 
$
16,104

 
$
17,678





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

ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 
Three Months Ended
 
Nine Months Ended
Dollars in millions
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Operating income
$
761

 
$
772

 
$
2,188

 
$
2,202

Tax rate
29.6
%
 
30.0
%
 
30.5
%
 
30.0
%
Income taxes
(225
)
 
(232
)
 
(668
)
 
(661
)
Operating income after taxes
$
536

 
$
540

 
$
1,520

 
$
1,541

 
 
 
 
 
 
 
 
Invested capital:
 
 
 

 
 
 
 
Trade receivables
$
2,339

 
$
2,519

 
$
2,339

 
$
2,519

Inventories
1,153

 
1,265

 
1,153

 
1,265

Net plant and equipment
1,601

 
1,693

 
1,601

 
1,693

Goodwill and intangible assets
6,088

 
6,596

 
6,088

 
6,596

Accounts payable and accrued expenses
(1,635
)
 
(1,901
)
 
(1,635
)
 
(1,901
)
Other, net
355

 
339

 
355

 
339

Total invested capital
$
9,901

 
$
10,511

 
$
9,901

 
$
10,511

 
 
 
 
 
 
 
 
Average invested capital
$
10,080

 
$
10,432

 
$
10,079

 
$
11,489

Adjustment for Wilsonart (formerly the Decorative Surfaces segment)
(121
)
 
(155
)
 
(126
)
 
(158
)
Adjustment for Industrial Packaging
—

 
461

 
—

 
(529
)
Adjusted average invested capital
$
9,959

 
$
10,738

 
$
9,953

 
$
10,802

Annualized adjusted return on average invested capital
21.5
%
 
20.1
%
 
20.4
%
 
19.0
%


FREE CASH FLOW (UNAUDITED)

In millions
Three Months Ended
 
September 30, 2015
Net income
$
511

 
 
Net cash provided by operating activities
$
706

Less: Additions to plant and equipment
(62
)
Free cash flow
$
644

 
 
Free cash flow conversion
126
%







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

For the Three Months Ended September 30, 2015
% F(U) vs. prior year
Dollars in millions
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
612

$
156

25.4
%
 
(3.0
)%
5.2
 %
2.0
 %
Test & Measurement and Electronics
490

82

16.6
%
 
(16.4
)%
(11.3
)%
(2.1
)%
Food Equipment
551

144

26.3
%
 
(4.2
)%
3.1
 %
3.2
 %
Polymers & Fluids
423

80

19.0
%
 
(13.6
)%
(3.0
)%
(1.2
)%
Welding
396

98

24.8
%
 
(13.7
)%
(10.3
)%
(1.4
)%
Construction Products
409

94

23.1
%
 
(8.1
)%
3.7
 %
4.2
 %
Specialty Products
479

115

24.0
%
 
(6.5
)%
(0.1
)%
2.7
 %
Intersegment
(6
)
—

—
%
 
—
 %
—
 %
—
 %
Total Segments
3,354

769

22.9
%
 
(9.2
)%
(1.7
)%
1.2
 %
Unallocated
—

(8
)
—
%
 
—
 %
—
 %
—
 %
Total Company
$
3,354

$
761

22.7
%
 
(9.2
)%
(1.7
)%
1.8
 %

For the Nine Months Ended September 30, 2015
% F(U) vs. prior year
Dollars in millions
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
1,914

$
478

25.0
%
 
(2.8
)%
6.0
 %
1.5
 %
Test & Measurement and Electronics
1,469

232

15.8
%
 
(11.6
)%
(5.9
)%
0.3
 %
Food Equipment
1,564

370

23.7
%
 
(3.7
)%
3.7
 %
3.2
 %
Polymers & Fluids
1,310

262

20.0
%
 
(11.2
)%
(1.7
)%
1.2
 %
Welding
1,255

326

26.0
%
 
(9.9
)%
(6.5
)%
(0.1
)%
Construction Products
1,209

241

19.9
%
 
(7.4
)%
4.0
 %
2.5
 %
Specialty Products
1,427

334

23.4
%
 
(9.2
)%
(3.1
)%
1.2
 %
Intersegment
(18
)
—

—
%
 
—
 %
—
 %
—
 %
Total Segments
10,130

2,243

22.1
%
 
(7.7
)%
(0.3
)%
1.4
 %
Unallocated
—

(55
)
—
%
 
—
 %
—
 %
—
 %
Total Company
$
10,130

$
2,188

21.6
%
 
(7.7
)%
(0.3
)%
1.5
 %



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