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Illinois Tool Works Inc (ITW) SEC Filing 8-K Material Event for the period ending Tuesday, May 5, 2020

Illinois Tool Works Inc

CIK: 49826 Ticker: ITW


Exhibit 99.1

ITW Reports First Quarter 2020 Results


GAAP EPS of $1.77, a decrease of 2%
Operating margin of 23.6%
Free cash flow was 98% of net income
Strong financial position and balance sheet with $1.4 billion of cash on hand, essentially no short-term debt, and a revolving credit facility in place that could provide additional liquidity of $2.5 billion
Due to uncertainties regarding the duration and severity of the COVID-19 pandemic, ITW is suspending previously announced annual guidance for 2020

GLENVIEW, IL., May 5, 2020 - Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2020 results with GAAP earnings per share (EPS) of $1.77 compared to $1.81 in the prior year period. First-quarter revenue of $3.2 billion declined 9.1 percent with organic revenue down 6.6 percent. Foreign currency translation and divestitures reduced revenues by 1.5 percent and 1.0 percent, respectively. Operating margin was flat at 23.6 percent as Enterprise Initiatives contributed 120 basis points. Free cash flow was $554 million with a 98 percent conversion rate and after-tax return on invested capital was 27.0 percent.

ITW’s differentiated financial position includes a strong balance sheet, with approximately $1.4 billion in cash and cash equivalents on hand, essentially no short-term debt, and a revolving credit facility in place that could provide additional liquidity of up to $2.5 billion, if needed.

“While things are far from normal for any of us or our businesses at present, I am inspired and heartened by the teamwork, flexibility, ingenuity, and selflessness demonstrated by the ITW team in adapting to the very unusual and challenging circumstances brought about by the pandemic,” said E. Scott Santi, chairman and chief executive officer. “Our ITW colleagues everywhere are going the extra mile to protect the health and support the well-being of each other and to continue to serve our customers with excellence. Around the world, many ITW manufacturing locations have been designated as essential, signifying the vital role the company plays in supporting customers and industries that are critical to the economic health of the markets and communities we serve.”

“It remains highly uncertain as to how long this global pandemic and related economic challenges will last or how quickly our customers and end markets will recover. However, I am confident that the strength and resilience of ITW’s powerful Business Model, our diversified, high-quality business portfolio, and our people put us in a position of strength to deal with whatever lies ahead. ITW will rise to the challenge, as we always have over the course of our 108-year history. Our strong financial position gives us the latitude to make strategic choices now to prepare for a range of recovery scenarios, and to come out the other side well-positioned to continue on our path to ITW’s full-potential performance.”

2020 Guidance
Due to the uncertainties regarding the duration and severity of the coronavirus (COVID-19) pandemic, ITW is suspending its previously announced annual guidance for 2020.

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. Such statements may include, without limitation, statements regarding the potential effects of the COVID-19 pandemic on the Company’s business, the anticipated duration of the Company’s COVID-19 containment and recovery phases, the Company’s financial scenario planning and estimates, expected access to liquidity sources, expected capital allocation, diluted earnings per share, foreign exchange rates, total and organic revenue, operating margin, economic and regulatory conditions in various geographic regions, expected dividend payments, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, timing and amount of share repurchases, potential acquisitions and dispositions and related impact on financial results, and plans regarding the issuance of guidance. These statements are subject to certain risks, uncertainties, assumptions 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 2019, the Form 8-K filed on May 5, 2020 and subsequent reports filed with the SEC.





About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.1 billion in 2019. 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’s approximately 45,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com






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

 
Three Months Ended
 
March 31,
In millions except per share amounts
2020
 
2019
Operating Revenue
$
3,228

 
$
3,552

Cost of revenue
1,871

 
2,059

Selling, administrative, and research and development expenses
560

 
611

Amortization and impairment of intangible assets
36

 
43

Operating Income
761

 
839

Interest expense
(51
)
 
(63
)
Other income (expense)
25

 
14

Income Before Taxes
735

 
790

Income Taxes
169

 
193

Net Income
$
566

 
$
597

 
 
 
 
Net Income Per Share:
 
 
 
Basic
$
1.78

 
$
1.82

Diluted
$
1.77

 
$
1.81

 
 
 
 
Cash Dividends Per Share:
 
 
 
Paid
$
1.07

 
$
1.00

Declared
$
1.07

 
$
1.00

 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
Average
318.3

 
327.3

Average assuming dilution
319.7

 
329.6







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

In millions
March 31, 2020
 
December 31, 2019
Assets
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
1,430

 
$
1,981

Trade receivables
2,424

 
2,461

Inventories
1,185

 
1,164

Prepaid expenses and other current assets
244

 
296

Assets held for sale
223

 
351

Total current assets
5,506

 
6,253

 
 
 
 
Net plant and equipment
1,704

 
1,729

Goodwill
4,401

 
4,492

Intangible assets
836

 
851

Deferred income taxes
473

 
516

Other assets
1,229

 
1,227

 
$
14,149

 
$
15,068

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
4

 
$
4

Accounts payable
488

 
472

Accrued expenses
1,105

 
1,217

Cash dividends payable
338

 
342

Income taxes payable
55

 
48

Liabilities held for sale
42

 
71

Total current liabilities
2,032

 
2,154

 
 
 
 
Noncurrent Liabilities:
 
 
 
Long-term debt
7,690

 
7,754

Deferred income taxes
695

 
668

Noncurrent income taxes payable
462

 
462

Other liabilities
986

 
1,000

Total noncurrent liabilities
9,833

 
9,884

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,309

 
1,304

Retained earnings
22,631

 
22,403

Common stock held in treasury
(19,680
)
 
(18,982
)
Accumulated other comprehensive income (loss)
(1,983
)
 
(1,705
)
Noncontrolling interest
1

 
4

Total stockholders’ equity
2,284

 
3,030

 
$
14,149

 
$
15,068







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


Three Months Ended March 31, 2020
Dollars in millions
Total Revenue
Operating Income
Operating Margin
Automotive OEM
$
696

$
145

20.9
%
Food Equipment
483

117

24.3
%
Test & Measurement and Electronics
485

121

25.1
%
Welding
372

109

29.1
%
Polymers & Fluids
393

93

23.6
%
Construction Products
390

91

23.4
%
Specialty Products
414

109

26.3
%
Intersegment
(5
)

%
Total Segments
3,228

785

24.3
%
Unallocated

(24
)
%
Total Company
$
3,228

$
761

23.6
%







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

Q1 2020 vs. Q1 2019 Favorable/(Unfavorable)
Operating Revenue
Automotive OEM
Food Equipment
Test & Measurement and Electronics
Welding
Polymers & Fluids
Construction Products
Specialty Products
Total ITW
Organic
(12.0
)%
(5.6
)%
(3.3
)%
(9.0
)%
(3.2
)%
0.1
 %
(8.7
)%
(6.6
)%
Acquisitions/
Divestitures
 %
 %
(3.1
)%
(3.4
)%
 %
 %
(1.2
)%
(1.0
)%
Translation
(1.7
)%
(1.2
)%
(1.1
)%
(0.4
)%
(2.3
)%
(2.7
)%
(1.0
)%
(1.5
)%
Operating
Revenue
(13.7
)%
(6.8
)%
(7.5
)%
(12.8
)%
(5.5
)%
(2.6
)%
(10.9
)%
(9.1
)%
Q1 2020 vs. Q1 2019 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
(240) bps
(130) bps
 (100) bps
(160) bps
(80) bps
10 bps
(180) bps
(150) bps
Changes in Variable Margin & OH Costs
70 bps
10 bps
120 bps
130 bps
260 bps
30 bps
30 bps
40 bps
Total Organic
(170) bps
(120) bps
20 bps
(30) bps
180 bps
40 bps
(150) bps
(110) bps
Acquisitions/Divestitures
60 bps
80 bps
70 bps
20 bps
Restructuring/Other
200 bps
60 bps
20 bps
50 bps
50 bps
130 bps
60 bps
90 bps
Total Operating Margin Change
30 bps
(60) bps
100 bps
100 bps
230 bps
170 bps
(20) bps
 
 
 
 
 
 
 
 
 
Total Operating Margin % *
20.9%
24.3%
25.1%
29.1%
23.6%
23.4%
26.3%
23.6%
 
 
 
 
 
 
 
 
 
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets
60 bps
70 bps
170 bps
 20 bps
 360 bps
 30 bps
90 bps
 110 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the first quarter of 2020.





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


AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
 
Three Months Ended

March 31,
Dollars in millions
2020
 
2019
Operating income
$
761

 
$
839

Tax rate
23.0
%
 
24.4
%
Income taxes
(175
)
 
(205
)
Operating income after taxes
$
586

 
$
634

 
 
 
 
Invested capital:
 
 
 

Trade receivables
$
2,424

 
$
2,715

Inventories
1,185

 
1,346

Net assets held for sale
181

 

Net plant and equipment
1,704

 
1,765

Goodwill and intangible assets
5,237

 
5,665

Accounts payable and accrued expenses
(1,593
)
 
(1,796
)
Other, net
(590
)
 
(509
)
Total invested capital
$
8,548

 
$
9,186

 
 
 
 
Average invested capital
$
8,677

 
$
9,160

Return on average invested capital
27.0
%
 
27.7
%



FREE CASH FLOW (UNAUDITED)

 
Three Months Ended
 
March 31,
Dollars in millions
2020

2019
Net cash provided by operating activities
$
614

 
$
616

Less: Additions to plant and equipment
(60
)
 
(77
)
Free cash flow
$
554

 
$
539

 
 
 
 
Net income
$
566

 
$
597

Free cash flow to net income conversion rate
98
%
 
90
%








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


NET DEBT TO EBITDA (UNAUDITED)

 
Twelve Months Ended
Dollars in millions
March 31, 2020
Total debt
$
7,694

Less: Cash and equivalents
(1,430
)
Net debt
$
6,264

 
 
Net income
$
2,490

Add:
 
Interest expense
209

Other income
(118
)
Income taxes
743

Depreciation
268

Amortization and impairment of intangible assets
152

EBITDA
$
3,744

 
 
Net debt to EBITDA ratio
1.7




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Ticker: ITW
CIK: 49826
Form Type: 8-K Corporate News
Accession Number: 0000049826-20-000050
Submitted to the SEC: Tue May 05 2020 9:21:49 AM EST
Accepted by the SEC: Tue May 05 2020
Period: Tuesday, May 5, 2020
Industry: General Industrial Machinery And Equipment
Events:
  1. Earnings Release
  2. Financial Exhibit
  3. Other Events

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