ILLINOIS TOOL WORKS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 29, 2014

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Exhibit 99.1
                                
ITW Reports Second Quarter 2014 Financial Results
Q2 diluted EPS from continuing operations of $1.21 up 32 percent
Record operating margins of 20.5 percent up 300 basis points versus year-ago period; Enterprise initiatives contribute 120 basis points
Total revenues up 4 percent; organic revenues grow 1.4 percent
Raising EPS midpoint and narrowing full-year EPS guidance to $4.50 to $4.62, a 26 percent midpoint increase versus 2013
GLENVIEW, ILLINOIS-July 29, 2014-Illinois Tool Works Inc. (NYSE: ITW) today reported second quarter 2014 diluted earnings per share (EPS) from continuing operations of $1.21, 32 percent higher than the prior-year period. The strong growth in EPS was largely due to ongoing contributions from enterprise initiatives as well as the completion of a previously announced share repurchase program.
Key highlights for the 2014 second quarter financial results versus the year-ago period include:
*Total revenues grew 4 percent to $3.7 billion and operating income increased 21 percent to $763 million. Organic revenues increased 1.4 percent, with international growth of 2 percent compared to 6 percent in the 2014 first quarter. In the second quarter, European and Asia Pacific organic revenues grew 1 percent and 7 percent, respectively. North America organic revenues increased 1 percent in the second quarter. Also in the quarter, as expected, ongoing product line and customer base simplification initiatives associated with the execution of ITW’s enterprise strategy reduced the Company’s overall organic revenue growth rate by approximately 1 percent.
*Record operating margins of 20.5 percent increased 300 basis points, with enterprise initiatives contributing 120 basis points.
Second quarter segment highlights versus the year-ago period include:
*Automotive OEM organic revenue growth of 8 percent outpaced second quarter worldwide auto builds of 2 percent. Organic revenues grew 8 percent in North America, 9 percent in Europe and 22 percent in China. Operating margins of 23.7 percent increased 310 basis points.
*Food Equipment’s organic revenues increased 3 percent due to growth in equipment and service in North America as well as increased equipment sales internationally. Operating margins of 19.5 percent increased 80 basis points.
*While Test & Measurement and Electronics organic revenues increased 1 percent, the test and measurement portion of the segment grew 6 percent. Segment operating margins of 15.2 percent increased 150 basis points.
*Operating margins expanded in six of seven segments with strong performances by Construction Products (up 450 basis points), Specialty Products (up 180 basis points) and Polymers & Fluids (up 130 basis points). Welding’s company-leading operating margins of 26.3 percent declined 20 basis points.
“ITW had a very good second quarter as our operating margins hit record levels, our EPS increased more than 30 percent and our after tax return on invested capital was near 20 percent,” said Scott Santi, president and chief executive officer. “The ITW team continued to execute well on our enterprise initiatives and produced strong financial results that give us increased confidence in our ability to achieve our 2014 and five-year enterprise performance goals. As a result, we are narrowing and raising the EPS guidance range for 2014 and now expect EPS to increase 26 percent at the midpoint. In the second quarter, we also successfully completed the sale of the




Industrial Packaging segment and the associated share repurchase program. We believe that our business portfolio is well positioned for long-term growth with best-in-class margins and return on invested capital.”
As noted, the Company is raising its midpoint and narrowing its full-year EPS guidance range to $4.50 to $4.62 from $4.45 to $4.65. Total revenue is expected to continue to grow in a range of 3 percent to 4 percent. For the 2014 third quarter, the Company is forecasting EPS to be in a range of $1.19 to $1.27 and expects total revenue growth in a range of 3 percent to 4 percent.
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 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 2013 Form 10-K.
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 businesses. These businesses serve local 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
 
Six Months Ended
(In millions except per share amounts)
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Operating Revenues
$
3,719

 
$
3,593

 
$
7,288

 
$
7,013

Cost of revenues
2,219

 
2,155

 
4,377

 
4,233

Selling, administrative, and research and development expenses
677

 
747

 
1,359

 
1,450

Amortization of intangible assets
60

 
61

 
122

 
122

Operating Income
763

 
630

 
1,430

 
1,208

Interest expense
(64
)
 
(59
)
 
(128
)
 
(119
)
Other income (expense)
7

 
10

 
16

 
57

Income from Continuing Operations Before Income Taxes
706

 
581

 
1,318

 
1,146

Income Taxes
212

 
165

 
396

 
329

Income from Continuing Operations
494

 
416

 
922

 
817

Income from Discontinued Operations
998

 
49

 
1,043

 
2

Net Income
$
1,492

 
$
465

 
$
1,965

 
$
819

 
 
 
 
 
 
 
 
Income Per Share from Continuing Operations:
 
 
 
 
 
 
 
Basic
$
1.22

 
$
0.93

 
$
2.23

 
$
1.81

Diluted
$
1.21

 
$
0.92

 
$
2.22

 
$
1.80

Income Per Share from Discontinued Operations:
 
 
 
 
 
 
 
Basic
$
2.47

 
$
0.11

 
$
2.52

 
$
—

Diluted
$
2.45

 
$
0.11

 
$
2.50

 
$
—

Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
3.69

 
$
1.04

 
$
4.76

 
$
1.82

Diluted
$
3.66

 
$
1.03

 
$
4.72

 
$
1.81

 
 
 
 
 
 
 
 
Shares of Common Stock Outstanding During the Period:
 
 
 
 
 
 
 
Average
404.7

 
449.6

 
413.3

 
450.7

Average assuming dilution
407.6

 
452.5

 
416.3

 
453.7


FREE OPERATING CASH FLOW (UNAUDITED)
 
Three Months Ended
 
Six Months Ended
(In millions)
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net cash provided by operating activities
$
573

 
$
643

 
$
887

 
$
1,009

Less: Additions to plant and equipment
(78
)
 
(89
)
 
(146
)
 
(178
)
Free operating cash flow
$
495

 
$
554

 
$
741

 
$
831








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

(In millions)
 
June 30, 2014
 
December 31, 2013
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
5,297

 
$
3,618

Trade receivables
2,598

 
2,365

Inventories
1,305

 
1,247

Deferred income taxes
307

 
384

Prepaid expenses and other current assets
284

 
366

Assets held for sale
—

 
1,836

Total current assets
9,791

 
9,816

 
 
 
 
Net Plant and Equipment
1,700

 
1,709

Goodwill
4,904

 
4,886

Intangible Assets
1,876

 
1,999

Deferred Income Taxes
368

 
359

Other Assets
1,297

 
1,197

 
$
19,936

 
$
19,966

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
1,070

 
$
3,551

Accounts payable
683

 
634

Accrued expenses
1,278

 
1,272

Cash dividends payable
167

 
181

Income taxes payable
715

 
69

Deferred income taxes
10

 
10

Liabilities held for sale
—

 
317

Total current liabilities
3,923

 
6,034

 
 
 
 
Noncurrent Liabilities:
 
 
 
Long-term debt
6,140

 
2,793

Deferred income taxes
515

 
507

Other liabilities
918

 
923

Total noncurrent liabilities
7,573

 
4,223

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
6

 
6

Additional paid-in-capital
1,064

 
1,046

Income reinvested in the business
16,568

 
14,943

Common stock held in treasury
(9,562
)
 
(6,676
)
Accumulated other comprehensive income
359

 
384

Noncontrolling interest
5

 
6

Total stockholders’ equity
8,440

 
9,709

 
$
19,936

 
$
19,966





ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
ADJUSTED RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

 
Three Months Ended
 
Six Months Ended
(Dollars in millions)
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Operating income
$
763

 
$
630

 
$
1,430

 
$
1,208

Tax rate
30.0
%
 
28.4
%
 
30.0
%
 
28.7
%
Income taxes
(229
)
 
(179
)
 
(429
)
 
(347
)
Operating income after taxes
$
534

 
$
451

 
$
1,001

 
$
861

 
 
 
 
 
 
 
 
Invested capital:
 
 
 

 
 
 
 
Trade receivables
$
2,598

 
$
2,907

 
$
2,598

 
$
2,907

Inventories
1,305

 
1,490

 
1,305

 
1,490

Net assets held for sale
—

 
171

 
—

 
171

Net plant and equipment
1,700

 
1,936

 
1,700

 
1,936

Goodwill and intangible assets
6,780

 
7,491

 
6,780

 
7,491

Accounts payable and accrued expenses
(1,961
)
 
(2,053
)
 
(1,961
)
 
(2,053
)
Other, net
(69
)
 
593

 
(69
)
 
593

Total invested capital
$
10,353

 
$
12,535

 
$
10,353

 
$
12,535

 
 
 
 
 
 
 
 
Average invested capital
$
11,504

 
$
12,583

 
$
11,815

 
$
12,668

Adjustment for Wilsonart (formerly Decorative Surfaces)
(157
)
 
(171
)
 
(159
)
 
(172
)
Adjustment for Industrial Packaging
(409
)
 
(1,480
)
 
(771
)
 
(1,483
)
Adjusted average invested capital
$
10,938

 
$
10,932

 
$
10,885

 
$
11,013

Annualized adjusted return on average invested capital
19.5
%
 
16.5
%
 
18.4
%
 
15.6
%








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

For the Three Months Ended June 30, 2014
% F(U) vs. prior year
(Dollars in millions)
Total Revenue
Operating Income
Operating Margin
 
Total Revenue
Organic Revenue
Operating Margin
Automotive OEM
$
671

$
158

23.7
%
 
9.2
 %
7.8
 %
310 bps

Test & Measurement and Electronics
558

85

15.2
%
 
2.7
 %
1.4
 %
150 bps

Food Equipment
537

105

19.5
%
 
9.5
 %
3.4
 %
80 bps

Polymers & Fluids
506

99

19.6
%
 
(3.5
)%
(3.0
)%
130 bps

Welding
470

124

26.3
%
 
(2.0
)%
(1.8
)%
-20 bps

Construction Products
444

81

18.2
%
 
(0.4
)%
0.4
 %
450 bps

Specialty Products
540

130

24.2
%
 
6.8
 %
—
 %
180 bps

Intersegment
(7
)
—

—
%
 
—
 %
—
 %
—

Total Segments
3,719

782

21.0
%
 
3.5
 %
1.4
 %
180 bps

Unallocated
—

(19
)
—
%
 
—
 %
—
 %
—

Total Company
$
3,719

$
763

20.5
%
 
3.5
 %
1.4
 %
300 bps




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