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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

ITW Reports Fourth Quarter and Full Year Results

February 1, 2019

Fourth-Quarter Highlights

-- Total revenue $3.6 billion; organic growth +1%; North America +4% -- Operating margin 24.0%, an increase of 70 bps -- GAAP EPS $1.83 vs. 2017 GAAP EPS of $(0.22); Excluding one-time 2017 tax charge of $658 million, EPS increased 8%, +10% excluding $(0.04) currency impact

Full-Year Highlights

-- Total revenue $14.8 billion, an increase of 3%; organic growth +2% -- Operating margin 24.3%, an increase of 60 bps excluding 2017 legal settlement of $95 million -- After-tax ROIC 28.2%, an increase of 390 bps -- GAAP EPS $7.60, up 56% vs. 2017 GAAP EPS of $4.86; Excluding one-time 2017 tax charge and legal settlement, EPS increased 15%

GLENVIEW, Ill., Feb. 01, 2019 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth-quarter and full-year 2018 results.

“The fourth quarter closed out another year of strong execution and financial performance by the ITW team. For the quarter, the company delivered 10 percent EPS growth excluding currency impact and the 2017 tax charge, operating margin expansion of 70 basis points and after-tax return on invested capital of 27.7 percent,” said E. Scott Santi, Chairman and Chief Executive Officer.

“For the year, excluding the 2017 one-time items, we grew EPS by 15 percent, expanded operating margin by 60 basis points to a record 24.3 percent, grew Free Cash Flow 10 percent and returned $3 billion cash to shareholders in the form of dividends and share repurchases. The fact that we achieved these results despite significant raw material cost headwinds and a decline in auto builds in North America, Europe and China clearly demonstrates the power of ITW’s highly differentiated business model and the resilience of our high quality diversified business portfolio.”

“We enter 2019 well-positioned to deliver another year of differentiated performance and continued progress in executing our long-term strategy to leverage the power of the ITW Business Model to its full potential,” Santi concluded.

Fourth-quarter revenue was essentially flat at $3.6 billion as organic growth of one percent was more than offset by the impact of foreign currency translation. Organic revenue growth increased four percent in North America, offset by a two percent decline in International. As expected, Product Line Simplification (PLS) activities reduced organic revenue growth by 90 basis points. Excluding a tax charge in the prior year, fourth quarter EPS increased eight percent to $1.83. Excluding the unfavorable foreign currency translation impact of $(0.04) and one-time 2017 tax charge, EPS grew 10 percent. Operating margin was 24.0 percent, an increase of 70 basis points, with enterprise initiatives contributing 110 basis points and more than offsetting 40 basis points of price/cost headwind. Fourth quarter Free Cash Flow increased 18 percent to $727 million.

Full year revenue grew three percent to $14.8 billion, with organic growth of two percent. As previously disclosed, the company recorded a favorable legal settlement of $95 million in 2017. Excluding this settlement and the 2017 fourth quarter tax charge, 2018 full-year EPS increased 15 percent to $7.60. Operating margin was 24.3 percent, an increase of 60 basis points excluding the 2017 legal settlement, with enterprise initiatives contributing 110 basis points of margin improvement, more than offsetting 50 basis points of price/cost headwind. After-tax return on invested capital was 28.2 percent, an improvement of 390 basis points.

2018 Free Cash Flow increased 10 percent to $2.4 billion. The company repurchased $2 billion of its own shares and raised its dividend 28 percent in August 2018 to an annualized $4.00 per share.

2019 GuidanceThe company re-affirmed its full-year EPS guidance in a range of $7.90 to $8.20 per share. Organic growth is expected to be in the range of one to three percent based on current run rates. Operating margin is expected to improve by approximately 100 basis points with enterprise initiatives contributing 100 basis points. Free cash flow is expected to be at or above 100 percent of net income. The company expects to repurchase approximately $1.5 billion of its shares in 2019.

For the first quarter 2019, the company expects EPS of $1.73 to $1.83. This incorporates higher estimated restructuring expense of $0.07 per share, foreign currency translation headwind of $0.07 per share and a tax rate in the range of 24.5 to 25.5 percent, which represents a $0.05 per share headwind year-over-year.

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, including, without limitation, statements regarding diluted earnings per share, foreign exchange rates, total and organic revenue growth, operating margin, economic and regulatory conditions in various geographic regions, price/cost impact, restructuring expenses, free cash flow, effective tax rate, after-tax return on invested capital, and timing and amount of share repurchases. 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 2017 and subsequently filed Form 10-Qs.

About Illinois Tool WorksITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.8 billion in 2018. 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 has approximately 48,000 dedicated colleagues in operations around the world who thrive in the company’s unique, decentralized and entrepreneurial culture. www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSTATEMENT OF INCOME (UNAUDITED)

Three Months Ended Twelve Months Ended December 31, December 31, In millions except per share amounts 2018 2017(1) 2018 2017(1) --------- --------- ---------- ---------- Operating Revenue $ 3,580 $ 3,629 $ 14,768 $ 14,314 Cost of revenue 2,096 2,124 8,604 8,306 Selling, administrative, and research and development expenses 578 609 2,391 2,412 Legal settlement (income) — — — (95 ) Amortization and impairment of intangible assets 46 50 189 206 ------- - ------- - -------- - -------- - Operating Income 860 846 3,584 3,485 Interest expense (63 ) (66 ) (257 ) (260 ) Other income (expense) 19 16 67 45 ------- - ------- - -------- - -------- - Income Before Taxes 816 796 3,394 3,270 Income taxes 209 872 831 1,583 ------- - ------- - -------- - -------- - Net Income (Loss) $ 607 $ (76 ) $ 2,563 $ 1,687 - ----- - - ----- - - ------ - - ------ - Net Income (Loss) Per Share: Basic $ 1.84 $ (0.22 ) $ 7.65 $ 4.90 Diluted $ 1.83 $ (0.22 ) $ 7.60 $ 4.86 Cash Dividends Per Share: Paid $ 1.00 $ 0.78 $ 3.34 $ 2.73 Declared $ 1.00 $ 0.78 $ 3.56 $ 2.86 Shares of Common Stock Outstanding During the Period: Average 329.8 342.1 335.0 344.1 Average assuming dilution 331.6 342.1 337.1 346.8

1. The three and twelve months ended December 31, 2017 have been restated to reflect the adoption of new accounting guidance in 2018 which resulted in the presentation of $4 million and $9 million, respectively, of other net periodic benefit income in Other income (expense) rather than in Operating Income, with no change in Net Income.

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

In millions December December 31, 2018 31, 2017 ---------- ---------- Assets Current Assets: Cash and equivalents $ 1,504 $ 3,094 Trade receivables 2,622 2,628 Inventories 1,318 1,220 Prepaid expenses and other current assets 334 336 -------- - -------- - Total current assets 5,778 7,278 Net plant and equipment 1,791 1,778 Goodwill 4,633 4,752 Intangible assets 1,084 1,272 Deferred income taxes 554 505 Other assets 1,030 1,195 -------- - -------- - $ 14,870 $ 16,780 - ------ - - ------ - Liabilities and Stockholders’ Equity Current Liabilities: Short-term debt $ 1,351 $ 850 Accounts payable 524 590 Accrued expenses 1,271 1,258 Cash dividends payable 328 266 Income taxes payable 68 89 -------- - -------- - Total current liabilities 3,542 3,053 Noncurrent Liabilities: Long-term debt 6,029 7,478 Deferred income taxes 707 164 Noncurrent income taxes payable 495 614 Other liabilities 839 882 -------- - -------- - Total noncurrent liabilities 8,070 9,138 Stockholders’ Equity: Common stock 6 6 Additional paid-in-capital 1,253 1,218 Retained earnings 21,217 20,210 Common stock held in treasury (17,545 ) (15,562 ) Accumulated other comprehensive income (loss) (1,677 ) (1,287 ) Noncontrolling interest 4 4 -------- - -------- - Total stockholders’ equity 3,258 4,589 -------- - -------- - $ 14,870 $ 16,780 - ------ - - ------ -

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Three Months Ended December 31, 2018 Total OperatinOperating Dollars in millions Revenue g Margin Income ---------------------------------- --------- ------- --------- Automotive OEM $ 777 $ 168 21.6% Food Equipment 567 151 26.6% Test & Measurement and Electronics 538 133 24.8% Welding 414 111 26.9% Polymers & Fluids 422 91 21.5% Construction Products 397 99 24.9% Specialty Products 469 118 25.4% Intersegment (4 ) — —% ---------------------------------- ------- - ----- - --------- Total Segments 3,580 871 24.4% Unallocated — (11 ) —% ------- - ----- - --------- Total Company $ 3,580 $ 860 24.0% ---------------------------------- - ----- - - --- - ---------

Twelve Months Ended December 31, 2018 Dollars in millions Total Operating Operating Revenue Income Margin ---------------------------------- ---------- --------- --------- Automotive OEM $ 3,338 $ 751 22.5% Food Equipment 2,214 572 25.8% Test & Measurement and Electronics 2,171 523 24.1% Welding 1,691 474 28.0% Polymers & Fluids 1,724 369 21.4% Construction Products 1,700 414 24.3% Specialty Products 1,951 522 26.8% Intersegment (21 ) — — ---------------------------------- -------- - ------- - --------- Total Segments 14,768 3,625 24.5% Unallocated — (41 ) — -------- - ------- - --------- Total Company $ 14,768 $ 3,584 24.3% ---------------------------------- - ------ - - ----- - ---------

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Q4 2018 vs. Q4 2017 Favorable/(Unfavorable) Test & AutomotiFood Measurem PolymersConstrucSpecialt Operating Revenue ve Equipmenent Welding & tion y Total OEM t and Fluids ProductsProductsITW Electron ics -------------------------- ------- ------- ------- ------- ------- ------- ------- ------- Organic (3.6 )% 5.2 % 0.2 % 7.6 % 3.5 % (0.7 )% (2.0 )% 0.9 % Acquisitions/ Divestitures — % — % — % — % (1.0 )% — % — % (0.1 )% Translation (2.5 )% (1.7 )% (1.5 )% (0.9 )% (3.4 )% (3.1 )% (1.6 )% (2.2 )% -------------------------- ---- -- ---- -- ---- -- ---- -- ---- -- ---- -- ---- -- ---- -- Operating Revenue (6.1 )% 3.5 % (1.3 )% 6.7 % (0.9 )% (3.8 )% (3.6 )% (1.4 )% -------------------------- ---- -- ---- -- ---- -- ---- -- ---- -- ---- -- ---- -- ---- --

Q4 2018 vs. Q4 2017 Favorable/(Unfavorable) Test & Change in Automotive Food Measurement Welding Polymers & Construction Specialty Total Operating Margin OEM Equipment and Fluids Products Products ITW Electronics ------------------- ---------- --------- ----------- --------- ---------- ------------ --------- ---------- Operating Leverage (70) bps 110 bps — 130 bps 80 bps (20) bps (30) bps 20 bps Changes in Variable (90) bps (50) bps 110 bps (130) bps 20 bps 100 bps (20) bps 30 bps Margin & OH Costs ---------- Total Organic (160) bps 60 bps 110 bps — 100 bps 80 bps (50) bps 50 bps Acquisitions/ — — — — 10 bps — — — Divestitures Restructuring/Other 10 bps 20 bps 30 bps 50 bps 50 bps 70 bps — 20 bps Total Operating (150) bps 80 bps 140 bps 50 bps 160 bps 150 bps (50) bps 70 bps Margin Change ------------------- ---------- --------- ----------- --------- ---------- ------------ --------- ---------- Total Operating 21.6% 26.6% 24.8% 26.9% 21.5% 24.9% 25.4% 24.0% Margin % * * Includes unfavorable operating margin impact of 50 bps 70 bps 270 bps 30 bps 380 bps 50 bps 100 bps 140 bps ** amortization expense from acquisition-related intangible assets ------------------- ---------- --------- ----------- --------- ---------- ------------ --------- ---------- ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.10) on GAAP earnings per share for the fourth quarter of 2018. -----------------------------------------------------------------------------------------------------------

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Full Year 2018 vs Full Year 2017 Favorable/(Unfavorable) Test & Constr AutomoFood MeasurWeldinPolymersuctionSpecialtTotal Operating Revenue tive Equipmement g & Producy ITW OEM ent and Fluids ts Products Electr onics -------------------------- ----- ----- ----- ----- ------- ----- ------- ------- Organic — % 2.8 % 3.5 % 9.7 % 1.0 % 1.2 % (0.4 )% 2.2 % Acquisitions/ Divestitures — % — % — % — % (0.4 )% — % (0.1 )% (0.1 )% Translation 2.0 % 1.5 % 1.4 % 0.2 % (0.6 )% 0.4 % 1.2 % 1.1 % -------------------------- --- - --- - --- - --- - ---- -- --- - ---- -- ---- -- Operating Revenue 2.0 % 4.3 % 4.9 % 9.9 % — % 1.6 % 0.7 % 3.2 % -------------------------- --- - --- - --- - --- - ---- -- --- - ---- -- ---- --

Full Year 2018 vs Full Year 2017 Favorable/(Unfavorable) Test & Change in Operating Automotive Food Measurement Welding Polymers & Construction Specialty Total Margin OEM Equipment and Fluids Products Products ITW Electronics ------------------- ---------- --------- ----------- -------- ---------- ------------ --------- ------------ Operating Leverage 10 bps 60 bps 90 bps 150 bps 30 bps 20 bps — 50 bps Changes in Variable (50) bps (110) bps 80 bps (70) bps (10) bps 20 bps (60) bps (70) bps (1) Margin & OH Costs Total Organic (40) bps (50) bps 170 bps 80 bps 20 bps 40 bps (60) bps (20) bps Acquisitions/ — — — — — — — — Divestitures Restructuring/Other 10 bps 10 bps — 20 bps 50 bps — 20 bps 20 bps ------------ Total Operating (30) bps (40) bps 170 bps 100 bps 70 bps 40 bps (40) bps — Margin Change ------------------- ---------- --------- ----------- -------- ---------- ------------ --------- ------------ Total Operating 22.5% 25.8% 24.1% 28.0% 21.4% 24.3% 26.8% 24.3% Margin % * * Includes unfavorable operating margin impact of 50 bps 70 bps 280 bps 30 bps 380 bps 50 bps 110 bps 130 bps** amortization expense from acquisition-related intangible assets ------------------- ---------- --------- ----------- -------- ---------- ------------ --------- ------------ ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.42) on GAAP earnings per share for 2018. ------------------------------------------------------------------------------------------------------------ (1)Full year 2017 included 60 basis points of favorability from the confidential legal settlement. ------------------------------------------------------------------------------------------------------------

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

ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months Ended Twelve Months Ended December 31, December 31, Dollars in millions 2018 2017 2018 2017 --------- ---------- --------- ---------- Operating income(1) $ 860 $ 846 $ 3,584 $ 3,485 Less: Legal settlement income — — — (95 ) ------- - -------- - ------- - -------- - Adjusted operating income 860 846 3,584 3,390 Adjusted tax rate 25.5 % 26.9 % 24.9 % 28.3 % Income taxes (219 ) (227 ) (893 ) (958 ) ------- - -------- - ------- - -------- - Operating income after taxes $ 641 $ 619 $ 2,691 $ 2,432 - ----- - - ------ - - ----- - - ------ - Invested capital: Trade receivables $ 2,622 $ 2,628 $ 2,622 $ 2,628 Inventories 1,318 1,220 1,318 1,220 Net plant and equipment 1,791 1,778 1,791 1,778 Goodwill and intangible assets 5,717 6,024 5,717 6,024 Accounts payable and accrued expenses (1,795 ) (1,848 ) (1,795 ) (1,848 ) Other, net (519 ) 21 (519 ) 21 ------- - -------- - ------- - -------- - Total invested capital $ 9,134 $ 9,823 $ 9,134 $ 9,823 Average invested capital $ 9,247 $ 10,101 $ 9,533 $ 10,005 - ----- - - ------ - - ----- - - ------ - Return on average invested capital 27.7 % 24.5 % 28.2 % 24.3 % ------- - -------- - ------- - -------- -

1. The 2017 results have been restated to reflect the adoption of new accounting guidance in 2018 related to the presentation of net periodic benefit costs. The adoption of this guidance resulted in the presentation of $4 million and $9 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the fourth quarter 2017 and full year 2017, respectively, with no change in Net Income.

ROIC for the three months ended December 31, 2018 was 27.7%, an improvement of 320 basis points. ROIC for the twelve months ended December 31, 2018 was 28.2%, an improvement of 390 basis points. The improvement in both periods was primarily the result of the new U.S. tax rules and regulations.

A reconciliation of the 2018 effective tax rate to the adjusted tax rate excluding the third quarter 2018 net discrete tax benefit is as follows:

Twelve Months Ended December 31, 2018 Income Taxes Tax Rate ------------ ------ As reported $ 831 24.5 % Net discrete tax benefit related to third quarter 15 0.4 % ----- ------ As adjusted $ 846 24.9 % - --- ------ ---- -

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

A reconciliation of the 2017 effective tax rate to the adjusted tax rate excluding the discrete tax charge related to the 2017 U.S. tax legislation is as follows:

Three Months Twelve Months Ended Ended December 31, 2017 December 31, 2017 Income Tax Rate Income Tax Rate Taxes Taxes ------- -------- --------- -------- As reported $ 872 109.6 % $ 1,583 48.4 % Discrete tax charge related to 2017 U.S. tax legislation (658 ) (82.7 )% (658 ) (20.1 )% ----- - ----- -- ------- - As adjusted $ 214 26.9 % $ 925 28.3 % - --- - ----- -- - ----- - ----- --

FREE CASH FLOW (UNAUDITED)

Three Months Twelve Months Ended Ended December 31, December 31, Dollars in millions 2018 2017 2018 2017 ------- ------- --------- --------- Net cash provided by operating activities $ 809 $ 695 $ 2,811 $ 2,402 Less: Additions to plant and equipment (82 ) (78 ) (364 ) (297 ) ----- - ----- - ------- - ------- - Free cash flow $ 727 $ 617 $ 2,447 $ 2,105 * - --- - - --- - - ----- - - ----- - Net income (loss), as reported $ 607 $ (76 ) $ 2,563 $ 1,687 Discrete tax charge related to 2017 U.S. tax legislation — 658 — 658 ----- - ----- - ------- - ------- - Adjusted net income $ 607 $ 582 $ 2,563 $ 2,345 - --- - - --- - - ----- - - ----- -

* Excluding $115 million related to an additional discretionary pension contribution, free cash flow would have been $2.2 billion for the twelve months ended December 31, 2017.

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

IMPACT OF THE “TAX CUTS AND JOBS ACT” AND LEGAL SETTLEMENT

Following the passing of the “Tax Cuts and Jobs Act” in the U.S., ITW recorded a one-time tax charge of $658 million in the fourth quarter of 2017. Additionally, as previously disclosed, ITW entered into a confidential legal settlement, resulting in a favorable one-time benefit of $95 million in 2017. The following schedules illustrate the impact of these items on the Company’s fourth quarter and full year 2017 financial results:

Fourth Quarter

Dollars in millions Q4 ’17 Tax Q4 ‘17 Q4 ’18 Change Vs. AsReported(1) Charge Excl. Item As Reported Prior Year ------------------- ------------- ---------- ---------- ----------- ---------- Total Revenue $3,629 — $3,629 $3,580 (1)% Operating Income $846 — $846 $860 +2% Operating Margin 23.3% — 23.3% 24.0% +70 bps Tax Rate 109.6% +82.7%-pts 26.9% 25.5% (1.4)%-pts Net Income (Loss) $(76) $(658) $582 $607 +4% EPS $(0.22) $(1.92) $1.70 $1.83 +8%

Full Year

Dollars in millions 2017 Legal Tax 2017 2018 Change Vs. AsReported(1) Item Charge Excl. Items As Reported Prior Year ------------------- ------------- ------- ---------- ----------- ----------- ---------- Total Revenue $14,314 — — $14,314 $14,768 +3% Operating Income $3,485 +$95 — $3,390 $3,584 +6% Operating Margin 24.3% +60 bps — 23.7% 24.3% +60 bps Tax Rate 48.4% — +20.1%-pts 28.3% 24.5% (3.8)%-pts Net Income (Loss) $1,687 +$59 $(658) $2,286 $2,563 +12% EPS $4.86 +$0.17 $(1.90) $6.59 $7.60 +15%

1. The 2017 results have been restated to reflect the adoption of new accounting guidance in 2018 related to the presentation of net periodic benefit costs. The adoption of this guidance resulted in the presentation of $4 million and $9 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the fourth quarter 2017 and full year 2017, respectively, with no change in Net Income.

Media Contact Illinois Tool WorksTrisha Knych Tel: 224.661.7566 mediarelations@itw.com

Investor RelationsIllinois Tool WorksKaren FletcherTel: 224.661.7433 investorrelations@itw.com