ITW - ITW Delivers $1.90 Earnings per Share
- Total revenue $3.6 billion; organic growth +2%; North America +4%
- Operating margin 24.6%, +30 bps ex. 2017 legal settlement
- GAAP EPS $1.90, +11% ex. 2017 legal settlement
- Full-year EPS guidance narrowed $7.55 to $7.65; 15% growth at the mid-point
GLENVIEW, Ill., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Illinois Tool Works Inc. (NYSE: ITW) today reported third quarter 2018 GAAP earnings of $1.90 per share. As previously disclosed, the company recorded an EPS benefit of $0.14 per share related to a legal settlement in the third quarter of 2017. Excluding this item, EPS increased 11 percent. Excluding unfavorable foreign currency translation impact of $(0.03), EPS grew 13 percent.
“Despite some near-term market challenges in the third quarter, the ITW team delivered 11 percent earnings growth and EPS at the high end of our guidance range. We improved operating margin by 30 basis points to 24.6 percent, with continued strong execution of Enterprise Initiatives contributing 100 basis points of margin expansion. Pricing actions more than offset material cost inflation on a dollar for dollar basis, and price/cost margin percentage dilution showed sequential improvement versus the second quarter,” said E. Scott Santi, Chairman and Chief Executive Officer. “Overall market conditions in North America remained solid this quarter, while auto production in Europe and China and demand levels in several international end markets served by our Specialty and Polymers & Fluids segments softened versus the first half of the year and were below our expectations heading into the quarter. Our business model continues to generate strong free cash flow as evidenced by 17 percent free cash flow growth in the quarter, supporting our ability to raise our dividend 28 percent and repurchase $500 million of our shares in the quarter.”
“While we expect that these near-term market challenges will continue in the fourth quarter, we remain firmly on track to deliver our full-year EPS guidance with 15 percent earnings growth at the mid-point,” added Santi. “Our ability to deliver consistent, strong results across a wide range of economic scenarios is a direct reflection of the resilience of our high-quality diversified business portfolio, the strength of ITW’s proprietary Business Model and our team’s focused execution of ITW’s long-term strategy.”
Total revenue was flat as two percent organic growth was offset by the unfavorable impact of foreign currency translation. Organic revenue growth increased four percent in North America, offset by a one percent decline in Europe and a two percent decline in Asia Pacific. As expected, ongoing Product Line Simplification (PLS) activities reduced organic revenue growth by 70 basis points.
According to IHS, automotive production in Europe declined five percent in the third quarter following four percent growth in the second quarter, while China automotive production declined four percent following 11 percent growth in the second quarter. As a result, in the third quarter, our European Automotive OEM business declined six percent, following three percent growth in the second quarter, while our China Auto OEM business was flat, following 17 percent growth in the second quarter.
In North America, organic growth remained solid as Welding grew 10 percent, Automotive OEM seven percent, Food Equipment four percent and Polymers & Fluids three percent.
Operating margin was 24.6 percent, an improvement of 30 basis points excluding the 2017 legal settlement, as Enterprise Initiatives contributed 100 basis points of margin improvement. Price/cost margin dilution impact in the third quarter improved to (60) basis points from (70) basis points in the second quarter of 2018.
After-tax return on invested capital was 28.0 percent, an improvement of 400 basis points resulting primarily from new U.S. tax rules and regulations. The effective tax rate in the third quarter was 23.7 percent.
Free Cash Flow was $743 million, an increase of 17 percent, and 116 percent of net income. In the quarter, the company repurchased $500 million of its own shares and raised its dividend 28 percent to an annualized $4.00 per share. Year-to-date, the company has repurchased $1.5 billion of its own shares.
2018 Guidance
Full-year EPS guidance was narrowed to a range of $7.55 to $7.65 per share, or 15 percent growth at the mid-point, with revenue up three to four percent, and organic growth of two to three percent. Prior year GAAP EPS of $4.86 included a ($1.90) per share impact from tax reform and a $0.17 per share impact from the legal settlement. Excluding these two items, 2017 adjusted EPS was $6.59 per share. The company expects to repurchase approximately $2.0 billion of its own shares in 2018.
For the fourth quarter 2018, the company expects GAAP EPS of $1.78 to $1.88, with revenue essentially flat as the impact of foreign currency translation, at current exchange rates, is expected to offset organic growth of one to two percent based on current levels of demand. Prior year GAAP EPS of ($0.22) included a $1.92 per share impact from tax reform. Excluding this item, adjusted EPS was $1.70 per share.
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 conditions in various geographic regions, price/cost impact, 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 Works
ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.3 billion in 2017. 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 50,000 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 SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
| Three Months Ended |
| Nine Months Ended |
| September 30, |
| September 30, |
| In millions except per share amounts |
| 2018 |
| 2017(1) |
| 2018 |
| 2017(1) |
| Operating Revenue |
| $ |
| 3,613 |
| $ |
| 3,615 |
| $ |
| 11,188 |
| $ |
| 10,685 |
| Cost of revenue |
| 2,096 |
| 2,092 |
| 6,508 |
| 6,182 |
| Selling, administrative, and research and development expenses |
| 581 |
| 592 |
| 1,813 |
| 1,803 |
| Legal settlement (income) |
| – |
| (80 |
| ) |
| – |
| (95 |
| ) |
| Amortization and impairment of intangible assets |
| 47 |
| 51 |
| 143 |
| 156 |
| Operating Income |
| 889 |
| 960 |
| 2,724 |
| 2,639 |
| Interest expense |
| (64 |
| ) |
| (65 |
| ) |
| (194 |
| ) |
| (194 |
| ) |
| Other income (expense) |
| 10 |
| 11 |
| 48 |
| 29 |
| Income Before Taxes |
| 835 |
| 906 |
| 2,578 |
| 2,474 |
| Income Taxes |
| 197 |
| 266 |
| 622 |
| 711 |
| Net Income |
| $ |
| 638 |
| $ |
| 640 |
| $ |
| 1,956 |
| $ |
| 1,763 |
| Net Income Per Share: |
| Basic |
| $ |
| 1.91 |
| $ |
| 1.86 |
| $ |
| 5.81 |
| $ |
| 5.12 |
| Diluted |
| $ |
| 1.90 |
| $ |
| 1.85 |
| $ |
| 5.77 |
| $ |
| 5.07 |
| Cash Dividends Per Share: |
| Paid |
| $ |
| 0.78 |
| $ |
| 0.65 |
| $ |
| 2.34 |
| $ |
| 1.95 |
| Declared |
| $ |
| 1.00 |
| $ |
| 0.78 |
| $ |
| 2.56 |
| $ |
| 2.08 |
| Shares of Common Stock Outstanding During the Period: |
| Average |
| 333.3 |
| 343.4 |
| 336.7 |
| 344.7 |
| Average assuming dilution |
| 335.3 |
| 346.0 |
| 339.0 |
| 347.5 |
(1) The three and nine months ended September 30, 2017 have been restated to reflect the adoption of new accounting guidance in 2018 which resulted in the presentation of $1 million and $5 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 SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
| In millions |
| September 30, 2018 |
| December 31, 2017 |
| Assets |
| Current Assets: |
| Cash and equivalents |
| $ |
| 1,589 |
| $ |
| 3,094 |
| Trade receivables |
| 2,777 |
| 2,628 |
| Inventories |
| 1,338 |
| 1,220 |
| Prepaid expenses and other current assets |
| 236 |
| 336 |
| Total current assets |
| 5,940 |
| 7,278 |
| Net plant and equipment |
| 1,799 |
| 1,778 |
| Goodwill |
| 4,655 |
| 4,752 |
| Intangible assets |
| 1,130 |
| 1,272 |
| Deferred income taxes |
| 614 |
| 505 |
| Other assets |
| 1,181 |
| 1,195 |
| $ |
| 15,319 |
| $ |
| 16,780 |
| Liabilities and Stockholders' Equity |
| Current Liabilities: |
| Short-term debt |
| $ |
| 1,350 |
| $ |
| 850 |
| Accounts payable |
| 576 |
| 590 |
| Accrued expenses |
| 1,268 |
| 1,258 |
| Cash dividends payable |
| 332 |
| 266 |
| Income taxes payable |
| 137 |
| 89 |
| Total current liabilities |
| 3,663 |
| 3,053 |
| Noncurrent Liabilities: |
| Long-term debt |
| 6,054 |
| 7,478 |
| Deferred income taxes |
| 707 |
| 164 |
| Noncurrent income taxes payable |
| 496 |
| 614 |
| Other liabilities |
| 853 |
| 882 |
| Total noncurrent liabilities |
| 8,110 |
| 9,138 |
| Stockholders’ Equity: |
| Common stock |
| 6 |
| 6 |
| Additional paid-in-capital |
| 1,241 |
| 1,218 |
| Retained earnings |
| 20,938 |
| 20,210 |
| Common stock held in treasury |
| (17,054 |
| ) |
| (15,562 |
| ) |
| Accumulated other comprehensive income (loss) |
| (1,589 |
| ) |
| (1,287 |
| ) |
| Noncontrolling interest |
| 4 |
| 4 |
| Total stockholders’ equity |
| 3,546 |
| 4,589 |
| $ |
| 15,319 |
| $ |
| 16,780 |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Three Months Ended September 30, 2018 |
| Dollars in millions |
| Total Revenue |
| Operating Income |
| Operating Margin |
| Automotive OEM |
| $ |
| 781 |
| $ |
| 168 |
| 21.5 |
| % |
| Food Equipment |
| 567 |
| 151 |
| 26.6 |
| % |
| Test & Measurement and Electronics |
| 536 |
| 132 |
| 24.7 |
| % |
| Welding |
| 414 |
| 117 |
| 28.2 |
| % |
| Polymers & Fluids |
| 415 |
| 91 |
| 22.1 |
| % |
| Construction Products |
| 431 |
| 111 |
| 25.8 |
| % |
| Specialty Products |
| 475 |
| 128 |
| 26.8 |
| % |
| Intersegment |
| (6 |
| ) |
| – |
| – |
| % |
| Total Segments |
| 3,613 |
| 898 |
| 24.8 |
| % |
| Unallocated |
| – |
| (9 |
| ) |
| – |
| % |
| Total Company |
| $ |
| 3,613 |
| $ |
| 889 |
| 24.6 |
| % |
| Nine Months Ended September 30, 2018 |
| Dollars in millions |
| Total Revenue |
| Operating Income |
| Operating Margin |
| Automotive OEM |
| $ |
| 2,561 |
| $ |
| 583 |
| 22.8 |
| % |
| Food Equipment |
| 1,647 |
| 421 |
| 25.6 |
| % |
| Test & Measurement and Electronics |
| 1,633 |
| 390 |
| 23.9 |
| % |
| Welding |
| 1,277 |
| 363 |
| 28.4 |
| % |
| Polymers & Fluids |
| 1,302 |
| 278 |
| 21.4 |
| % |
| Construction Products |
| 1,303 |
| 315 |
| 24.2 |
| % |
| Specialty Products |
| 1,482 |
| 404 |
| 27.2 |
| % |
| Intersegment |
| (17 |
| ) |
| – |
| – |
| % |
| Total Segments |
| 11,188 |
| 2,754 |
| 24.6 |
| % |
| Unallocated |
| – |
| (30 |
| ) |
| – |
| % |
| Total Company |
| $ |
| 11,188 |
| $ |
| 2,724 |
| 24.3 |
| % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| Q3 2018 vs. Q3 2017 Favorable/(Unfavorable) |
| Operating Revenue |
| Automotive OEM |
| Food Equipment |
| Test & Measurement and Electronics |
| Welding |
| Polymers & Fluids |
| Construction Products |
| Specialty Products |
| Total ITW |
| Organic |
| (0.2 |
| )% |
| 3.8 |
| % |
| 2.9 |
| % |
| 10.3 |
| % |
| (0.7 |
| )% |
| 0.9 |
| % |
| (3.8 |
| )% |
| 1.5 |
| % |
| Acquisitions/ Divestitures |
| – |
| % |
| – |
| % |
| – |
| % |
| – |
| % |
| (0.6 |
| )% |
| – |
| % |
| – |
| % |
| (0.1 |
| )% |
| Translation |
| (1.7 |
| )% |
| (0.7 |
| )% |
| (0.7 |
| )% |
| (0.9 |
| )% |
| (3.1 |
| )% |
| (2.9 |
| )% |
| (0.9 |
| )% |
| (1.5 |
| )% |
| Operating Revenue |
| (1.9 |
| )% |
| 3.1 |
| % |
| 2.2 |
| % |
| 9.4 |
| % |
| (4.4 |
| )% |
| (2.0 |
| )% |
| (4.7 |
| )% |
| (0.1 |
| )% |
| Q3 2018 vs. Q3 2017 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 |
| (10) bps |
| 70 bps |
| 70 bps |
| 160 bps |
| (20) bps |
| 20 bps |
| (70) bps |
| 20 bps |
| Changes in Variable Margin & OH Costs |
| 40 bps |
| (180) bps |
| (10) bps |
| (40) bps |
| 80 bps |
| 40 bps |
| (40) bps |
| (230) bps (1) |
| Total Organic |
| 30 bps |
| (110) bps |
| 60 bps |
| 120 bps |
| 60 bps |
| 60 bps |
| (110) bps |
| (210) bps |
| Acquisitions/ Divestitures |
| – |
| – |
| – |
| – |
| 10 bps |
| – |
| – |
| – |
| Restructuring/Other |
| (40) bps |
| 40 bps |
| – |
| 40 bps |
| 40 bps |
| (20) bps |
| 20 bps |
| 10 bps |
| Total Operating Margin Change |
| (10) bps |
| (70) bps |
| 60 bps |
| 160 bps |
| 110 bps |
| 40 bps |
| (90) bps |
| (200) bps |
| Total Operating Margin % * |
| 21.5% |
| 26.6% |
| 24.7% |
| 28.2% |
| 22.1% |
| 25.8% |
| 26.8% |
| 24.6% |
| *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets |
| 50 bps |
| 70 bps |
| 270 bps |
| 30 bps |
| 390 bps |
| 40 bps |
| 110 bps |
| 130 bps** |
| ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.11) on GAAP earnings per share for the third quarter of 2018. |
| (1) The third quarter of 2017 included 230 basis points of favorability from the confidential legal settlement. |
| YTD 2018 vs YTD 2017 Favorable/(Unfavorable) |
| Operating Revenue |
| Automotive OEM |
| Food Equipment |
| Test & Measurement and Electronics |
| Welding |
| Polymers & Fluids |
| Construction Products |
| Specialty Products |
| Total ITW |
| Organic |
| 1.2 |
| % |
| 2.0 |
| % |
| 4.7 |
| % |
| 10.4 |
| % |
| 0.2 |
| % |
| 1.8 |
| % |
| 0.2 |
| % |
| 2.6 |
| % |
| Acquisitions/ Divestitures |
| – |
| % |
| – |
| % |
| – |
| % |
| – |
| % |
| (0.2 |
| )% |
| – |
| % |
| (0.1 |
| )% |
| – |
| % |
| Translation |
| 3.6 |
| % |
| 2.6 |
| % |
| 2.5 |
| % |
| 0.6 |
| % |
| 0.4 |
| % |
| 1.6 |
| % |
| 2.0 |
| % |
| 2.1 |
| % |
| Operating Revenue |
| 4.8 |
| % |
| 4.6 |
| % |
| 7.2 |
| % |
| 11.0 |
| % |
| 0.4 |
| % |
| 3.4 |
| % |
| 2.1 |
| % |
| 4.7 |
| % |
| YTD 2018 vs. YTD 2017 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 |
| 30 bps |
| 40 bps |
| 120 bps |
| 150 bps |
| 10 bps |
| 50 bps |
| 10 bps |
| 50 bps |
| Changes in Variable Margin & OH Costs |
| (30) bps |
| (120) bps |
| 70 bps |
| (40) bps |
| (10) bps |
| (10) bps |
| (70) bps |
| (100) bps (1) |
| Total Organic |
| – |
| (80) bps |
| 190 bps |
| 110 bps |
| – |
| 40 bps |
| (60) bps |
| (50) bps |
| Acquisitions/ Divestitures |
| – |
| – |
| – |
| – |
| – |
| – |
| – |
| – |
| Restructuring/Other |
| 10 bps |
| 10 bps |
| (10) bps |
| 10 bps |
| 40 bps |
| (20) bps |
| 20 bps |
| 10 bps |
| Total Operating Margin Change |
| 10 bps |
| (70) bps |
| 180 bps |
| 120 bps |
| 40 bps |
| 20 bps |
| (40) bps |
| (40) bps |
| Total Operating Margin % * |
| 22.8% |
| 25.6% |
| 23.9% |
| 28.4% |
| 21.4% |
| 24.2% |
| 27.2% |
| 24.3% |
| *Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets |
| 50 bps |
| 70 bps |
| 270 bps |
| 30 bps |
| 380 bps |
| 40 bps |
| 110 bps |
| 140 bps** |
| ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.32) on GAAP earnings per share for the first nine months of 2018. |
| (1) The year-to-date period of 2017 included 90 basis points of favorability from the confidential legal settlement. |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
ADJUSTED AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
| Three Months Ended |
| Nine Months Ended |
| Twelve Months Ended |
| September 30, |
| September 30, |
| December 31, |
| Dollars in millions |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2017 |
| Operating income(1) |
| $ |
| 889 |
| $ |
| 960 |
| $ |
| 2,724 |
| $ |
| 2,639 |
| $ |
| 3,485 |
| Less: Legal settlement income |
| – |
| (80 |
| ) |
| – |
| (95 |
| ) |
| (95 |
| ) |
| Adjusted operating income |
| 889 |
| 880 |
| 2,724 |
| 2,544 |
| 3,390 |
| Tax rate(2) |
| 25.5 |
| % |
| 29.3 |
| % |
| 25.0 |
| % |
| 28.7 |
| % |
| 28.3 |
| % |
| Income taxes |
| (227 |
| ) |
| (259 |
| ) |
| (681 |
| ) |
| (731 |
| ) |
| (958 |
| ) |
| Operating income after taxes |
| $ |
| 662 |
| $ |
| 621 |
| $ |
| 2,043 |
| $ |
| 1,813 |
| $ |
| 2,432 |
| Invested capital: |
| Trade receivables |
| $ |
| 2,777 |
| $ |
| 2,672 |
| $ |
| 2,777 |
| $ |
| 2,672 |
| $ |
| 2,628 |
| Inventories |
| 1,338 |
| 1,225 |
| 1,338 |
| 1,225 |
| 1,220 |
| Net plant and equipment |
| 1,799 |
| 1,759 |
| 1,799 |
| 1,759 |
| 1,778 |
| Goodwill and intangible assets |
| 5,785 |
| 6,051 |
| 5,785 |
| 6,051 |
| 6,024 |
| Accounts payable and accrued expenses |
| (1,844 |
| ) |
| (1,816 |
| ) |
| (1,844 |
| ) |
| (1,816 |
| ) |
| (1,848 |
| ) |
| Other, net |
| (494 |
| ) |
| 487 |
| (494 |
| ) |
| 487 |
| 21 |
| Total invested capital |
| $ |
| 9,361 |
| $ |
| 10,378 |
| $ |
| 9,361 |
| $ |
| 10,378 |
| $ |
| 9,823 |
| Average invested capital |
| $ |
| 9,470 |
| $ |
| 10,354 |
| $ |
| 9,634 |
| $ |
| 10,051 |
| $ |
| 10,005 |
| Annualized return on average invested capital |
| 28.0 |
| % |
| 24.0 |
| % |
| 28.3 |
| % |
| 24.1 |
| % |
| 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 $9 million, $5 million and $1 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the full year 2017, first nine months of 2017 and third quarter 2017, respectively, with no change in Net Income.
(2) The tax rate for the three months ended September 30, 2018 excludes a net discrete tax benefit of $15 million. The tax rate for the nine months ended September 30, 2018 represents the estimated effective tax rate for the full year of 2018, excluding the third quarter net discrete tax benefit. The tax rate for the twelve months ended December 31, 2017 excludes the impact of the $658 million discrete tax charge related to the 2017 U.S. tax legislation.
ROIC for the three months ended September 30, 2018 was 28%, an improvement of 400 basis points. ROIC for the nine months ended September 30, 2018 was 28.3%, an improvement of 420 basis points. The improvement in both periods was primarily the result of the new U.S. tax rules and regulations.
ADJUSTED FREE CASH FLOW (UNAUDITED)
| Three Months Ended |
| Nine Months Ended |
| September 30, |
| September 30, |
| In millions |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| Net cash provided by operating activities |
| $ |
| 844 |
| $ |
| 780 |
| $ |
| 2,002 |
| $ |
| 1,707 |
| Less: Additions to plant and equipment |
| (101 |
| ) |
| (78 |
| ) |
| (282 |
| ) |
| (219 |
| ) |
| Free cash flow |
| $ |
| 743 |
| $ |
| 702 |
| $ |
| 1,720 |
| $ |
| 1,488 |
| Less: 2017 legal settlement |
| – |
| (65 |
| ) |
| – |
| (95 |
| ) |
| Adjusted free cash flow |
| $ |
| 743 |
| $ |
| 637 |
| $ |
| 1,720 |
| $ |
| 1,393 |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
IMPACT OF THE "TAX CUTS AND JOBS ACT" AND LEGAL SETTLEMENT ON 2017 RESULTS
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, of which $15 million was recognized in the second quarter of 2017 and $80 million was recognized in the third quarter of 2017. The following schedules illustrate the impact of these items on the Company’s full year, fourth quarter and third quarter 2017 financial results:
| Fourth Quarter 2017 |
| Full Year 2017 |
| Dollars in millions |
| As Reported(1) |
| Tax Charge |
| Ex. Tax Charge |
| As Reported(1) |
| Legal Item |
| Tax Charge |
| Ex. Items |
| Total Revenue |
| $3,629 |
| – |
| $3,629 |
| $14,314 |
| – |
| – |
| $14,314 |
| Operating Income |
| 846 |
| – |
| 846 |
| 3,485 |
| +$95 |
| – |
| 3,390 |
| Operating Margin |
| 23.3% |
| – |
| 23.3% |
| 24.3% |
| +60 bps |
| – |
| 23.7% |
| Tax Rate |
| 109.6% |
| +82.7%-pts |
| 26.9% |
| 48.4% |
| – |
| +20.1%-pts |
| 28.3% |
| Net Income (Loss) |
| ($76) |
| ($658) |
| $582 |
| $1,687 |
| +$59 |
| ($658) |
| $2,286 |
| EPS |
| ($0.22) |
| ($1.92) |
| $1.70 |
| $4.86 |
| +$0.17 |
| ($1.90) |
| $6.59 |
| Third Quarter 2017 |
| Dollars in millions |
| As Reported(1) |
| Legal Item |
| Ex. Legal Item |
| Total Revenue |
| $3,615 |
| – |
| $3,615 |
| Operating Income |
| 960 |
| +$80 |
| 880 |
| Operating Margin |
| 26.6% |
| +230 bps |
| 24.3% |
| EPS |
| $1.85 |
| +$0.14 |
| $1.71 |
(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 $9 million, $4 million and $1 million of other net periodic benefit income in Other income (expense) rather than in Operating Income for the full year 2017, fourth quarter 2017 and third quarter 2017, respectively, with no change in Net Income.
Media Contact Investor Relations
Illinois Tool Works Illinois Tool Works
Trisha Knych Karen Fletcher
Tel: 224.661.7566 Tel: 224.661.7433
mediarelations@itw.com investorrelations@itw.com