Illinois Tool Works Inc 10-Q for FY2020 Q1

Illinois Tool Works Inc (ITW)

10-Q 2020-05-08 For: 2020-03-31

Added on April 06, 2026

About this 10-Q

Illinois Tool Works Inc filed this 10-Q on May 8, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.23B; down 9.1% from $3.55B a year earlier
Net income: $566M; down 5.2% from net income of $597M a year earlier
Diluted EPS: $1.77; down 2.2% from $1.81 a year earlier

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

	For the quarterly period ended	March 31, 2020

	OR

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

	For the transition period from _______________ to _______________



Delaware				36-1258310
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification Number)
	155 Harlem Avenue	Glenview	IL	60025
(Address of principal executive offices)				(Zip Code)



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



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



	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	29

	PART II - Other Information
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	32

Signatures		33



	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

Shares of Common Stock Outstanding During the Period:
Average	318.3			327.3
Average assuming dilution	319.7			329.6



	Three Months Ended
	March 31,
In millions	2020			2019
Net Income	$	566		$	597

Foreign currency translation adjustments, net of tax	(287		)	31
Pension and other postretirement benefit adjustments, net of tax	9			4
Other comprehensive income (loss)	(278		)	35

Comprehensive Income	$	288		$	632



In millions except per share amounts	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 (par value of $0.01 per share):
Issued- 550.0 shares in 2020 and 2019 Outstanding- 315.9 shares in 2020 and 319.8 shares in 2019	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



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 March 31, 2020
Balance at December 31, 2019	$	6	$	1,304		$	22,403		$	(18,982	)	$	(1,705	)	$	4		$	3,030
Net income	—		—			566			—			—			—			566
Common stock issued for stock-based compensation	—		(3		)	—			8			—			—			5
Stock-based compensation expense	—		9			—			—			—			—			9
Repurchases of common stock	—		—			—			(706		)	—			—			(706		)
Dividends declared ($1.07 per share)	—		—			(338		)	—			—			—			(338		)
Other comprehensive income (loss)	—		—			—			—			(278		)	—			(278		)
Noncontrolling interest	—		(1		)	—			—			—			(3		)	(4		)
Balance at March 31, 2020	$	6	$	1,309		$	22,631		$	(19,680	)	$	(1,983	)	$	1		$	2,284

Three Months Ended March 31, 2019
Balance at December 31, 2018	$	6	$	1,253		$	21,217		$	(17,545	)	$	(1,677	)	$	4		$	3,258
Net income	—		—			597			—			—			—			597
Common stock issued for stock-based compensation	—		(8		)	—			9			—			—			1
Stock-based compensation expense	—		10			—			—			—			—			10
Repurchases of common stock	—		—			—			(375		)	—			—			(375		)
Dividends declared ($1.00 per share)	—		—			(326		)	—			—			—			(326		)
Other comprehensive income (loss)	—		—			—			—			35			—			35
Balance at March 31, 2019	$	6	$	1,255		$	21,488		$	(17,911	)	$	(1,642	)	$	4		$	3,200


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


•	refrigeration equipment, including refrigerators, freezers and prep tables;


•	food processing equipment, including slicers, mixers and scales;


•	kitchen exhaust, ventilation and pollution control systems; and


•	equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids;


•	static control equipment and consumables used for contamination control in clean room environments; and



	Three Months Ended
	March 31,
In millions	2020			2019
Cash Provided by (Used for) Operating Activities:
Net income	$	566		$	597
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	68			67
Amortization and impairment of intangible assets	36			43
Change in deferred income taxes	17			22
Provision for uncollectible accounts	2			2
(Income) loss from investments	(3		)	(7		)
(Gain) loss on sale of operations and affiliates	(1		)	2
Stock-based compensation expense	9			10
Other non-cash items, net	2			4
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	10			(106		)
Inventories	(48		)	(32		)
Prepaid expenses and other assets	(10		)	(22		)
Increase (decrease) in-
Accounts payable	17			48
Accrued expenses and other liabilities	(93		)	(99		)
Income taxes	46			87
Other, net	(4		)	—
Net cash provided by operating activities	614			616
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	—			(4		)
Additions to plant and equipment	(60		)	(77		)
Proceeds from investments	7			7
Proceeds from sale of plant and equipment	3			2
Other, net	(3		)	—
Net cash provided by (used for) investing activities	(53		)	(72		)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(342		)	(328		)
Issuance of common stock	17			11
Repurchases of common stock	(706		)	(375		)
Net proceeds from (repayments of) debt with original maturities of three months or less	—			1,058
Repayments of debt with original maturities of more than three months	—			(650		)



	Three Months Ended
	March 31,
In millions	2020			2019
Automotive OEM	$	696		$	806
Food Equipment	483			518
Test & Measurement and Electronics	485			524
Welding	372			427
Polymers & Fluids	393			416
Construction Products	390			401
Specialty Products	414			465
Intersegment revenue	(5		)	(5		)
Total operating revenue	$	3,228		$	3,552


•	warewashing equipment;


•	cooking equipment, including ovens, ranges and broilers;


•	pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications.


•	adhesives for industrial, construction and consumer purposes;


•	chemical fluids which clean or add lubrication to machines;


•	epoxy and resin-based coating products for industrial applications;


•	fluids, polymers and other supplies for auto aftermarket maintenance and appearance;


•	polyester coatings and patch and repair products for the marine industry.


•	fasteners and related fastening tools for wood and metal applications;


•	anchors, fasteners and related tools for concrete applications;


•	metal plate truss components and related equipment and software; and


•	packaged hardware, fasteners, anchors and other products for retail.


•	line integration, conveyor systems and line automation for the food and beverage industries;


•	plastic consumables that multi-pack cans and bottles and related equipment;


•	foil, film and related equipment used to decorate consumer products;


•	product coding and marking equipment and related consumables;


•	plastic and metal closures and components for appliances;



	Three Months Ended
	March 31,
	Pension						Other Postretirement Benefits
In millions	2020			2019			2020			2019
Components of net periodic benefit cost:
Service cost	$	14		$	13		$	2		$	2
Interest cost	15			20			4			5
Expected return on plan assets	(28		)	(30		)	(6		)	(6		)
Amortization of actuarial loss (gain)	12			5			—			—
Total net periodic benefit cost	$	13		$	8		$	—		$	1


•	The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through 2019 and continues to be a key contributor to the Company's ongoing enterprise strategy.


•	With the initial portfolio realignment and scale-up work largely complete, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process to optimize its newly scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth.


•	"80” focused Market Penetration - fully leveraging the considerable growth potential that resides in the Company's largest and most differentiated product offerings and customer relationships


•	Customer-Back Innovation - strengthening the Company's commitment to serial innovation and delivering a continuous flow of differentiated new products to its key customers