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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): October 23, 2020
_________________________

ILLINOIS TOOL WORKS INC.
(Exact name of registrant as specified in its charter)
Delaware1-479736-1258310
(State or other jurisdiction of incorporation)(Commission File No.)(I.R.S. Employer Identification No.)
155 Harlem AvenueGlenviewIL60025
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: 847-724-7500

Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockITWNew York Stock Exchange
1.75% Euro Notes due 2022ITW22New York Stock Exchange
1.25% Euro Notes due 2023ITW23New York Stock Exchange
0.250% Euro Notes due 2024ITW24ANew York Stock Exchange
0.625% Euro Notes due 2027ITW27New York Stock Exchange
2.125% Euro Notes due 2030ITW30New York Stock Exchange
1.00% Euro Notes due 2031ITW31New York Stock Exchange
3.00% Euro Notes due 2034ITW34New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 




Item 2.02    Results of Operations and Financial Condition

On October 23, 2020, Illinois Tool Works Inc. (the “Company”) announced its 2020 third quarter results of operations in the press release furnished as Exhibit 99.1.

Non-GAAP Financial Measures

The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluating the Company’s financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. A reconciliation of free cash flow to net cash provided by operating activities is included in the press release furnished as Exhibit 99.1.

The Company uses after-tax return on average invested capital (“ROIC”) to measure the effectiveness of its operations’ use of invested capital to generate profits. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. For comparability, the Company excluded the third quarter 2019 discrete tax benefit of ex991pressrel3q20.htm">, 2020 (furnished pursuant to Item 2.02).
104Cover Page Interactive Data File (embedded within the Inline XBRL document).




SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ILLINOIS TOOL WORKS INC.
Dated: October 23, 2020
By: /s/ Michael M. Larsen
Michael M. Larsen
Senior Vice President & Chief Financial Officer


Item 9.01    Financial Statements and Exhibits
(d)Exhibits
Exhibit NumberExhibit Description
104Cover Page Interactive Data File (embedded within the Inline XBRL document).




SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ILLINOIS TOOL WORKS INC.
Dated: October 23, 2020
By: /s/ Michael M. Larsen
Michael M. Larsen
Senior Vice President & Chief Financial Officer


Document

Exhibit 99.1

ITW Reports Third Quarter 2020 Results

Total revenue of $3.3 billion as revenue increased 29 percent versus Q2 2020
Operating margin of 23.8%
GAAP EPS of $1.83
After-tax ROIC of 29.6%
Free cash flow was 108% of net income

GLENVIEW, IL., October 23, 2020 - Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2020 results.

“We saw solid recovery progress in many of the end markets we serve in the third quarter as evidenced by our revenue being up sequentially 29 percent versus second quarter. Our people around the world responded by leveraging our proprietary business model to provide excellent service to our customers while keeping themselves and their co-workers safe. These efforts and our third quarter financial results support the decisions we made early in the pandemic to provide full compensation and benefits support to all of our ITW team members, to focus on positioning the company for full participation in the recovery, and to remain invested in the key initiatives supporting the execution of our long-term enterprise strategy,” said E. Scott Santi, chairman and chief executive officer. “I am very proud of how the ITW team is managing through this challenging period, and I thank all of my ITW colleagues around the world for their continued exceptional efforts and dedication.”

“In the face of the unprecedented challenges and circumstances brought about by the global pandemic, our strong operational and financial performance over the last several quarters provides further evidence that ITW is a company that has both the enduring competitive advantages and the resilience necessary to deliver consistent upper tier performance in any economic environment. Looking ahead, we remain focused on delivering strong results across a range of economic scenarios while continuing to execute on our long-term strategy to achieve and sustain ITW’s full-potential performance,” Santi concluded.

Third Quarter Results
Third-quarter revenue of $3.3 billion declined 4.9 percent compared to the prior year period as organic revenue declined 4.6 percent. Divestitures reduced revenue by 1.0 percent, partially offset by a foreign currency translation benefit of 0.7 percent. Product Line Simplification reduced revenue by 30 basis points.
Operating margin was 23.8 percent compared to 25.0 percent in the prior year period as the lower volume impact and higher restructuring expenses were partially offset with benefits from Enterprise Initiatives of 120 basis points. Six of seven segments delivered operating margin above 20 percent.

GAAP earnings per share was $1.83 compared to $2.04 in the prior year period. Free cash flow was $631 million, 108 percent of net income. After-tax return on invested capital improved to 29.6 percent compared to 29.2 percent in the prior year period. The effective tax rate was 21.3 percent.

On May 5, 2020, ITW suspended annual guidance for 2020 due to uncertainties regarding the duration and severity of the COVID-19 pandemic. On August 7, 2020, ITW raised its dividend seven percent to an annualized $4.56 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. Such statements may include, without limitation, statements regarding the potential effects of the COVID-19 pandemic, related government actions and the Company’s strategy in response thereto on the Company’s business, the anticipated duration of the Company’s COVID-19 containment and recovery phases, the Company’s fiscal 2020 financial performance projections and ranges, 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, expected adjustments to capacity and cost structure, free cash flow, effective tax rate, after-tax return on invested capital, timing and amount of share repurchases, if any, 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 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 EndedNine Months Ended
September 30,September 30,
In millions except per share amounts2020201920202019
Operating Revenue$3,307 $3,479 $9,099 $10,640 
Cost of revenue1,910 2,007 5,375 6,165 
Selling, administrative, and research and development expenses560 566 1,606 1,775 
Amortization and impairment of intangible assets48 38 119 122 
Operating Income789 868 1,999 2,578 
Interest expense(52)(52)(154)(170)
Other income (expense)26 35 49 
Income Before Taxes739 842 1,880 2,457 
Income Taxes157 182 413 577 
Net Income$582 $660 $1,467 $1,880 
Net Income Per Share:
Basic$1.84 $2.05 $4.63 $5.79 
Diluted$1.83 $2.04 $4.61 $5.76 
Cash Dividends Per Share:
Paid$1.07 $1.00 $3.21 $3.00 
Declared$1.14 $1.07 $3.28 $3.07 
Shares of Common Stock Outstanding During the Period:
Average316.5 322.3 316.9 324.8 
Average assuming dilution317.9 324.0 318.3 326.6 




ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In millionsSeptember 30, 2020December 31, 2019
Assets
Current Assets:
Cash and equivalents$2,169 $1,981 
Trade receivables2,494 2,461 
Inventories1,149 1,164 
Prepaid expenses and other current assets219 296 
Assets held for sale— 351 
Total current assets6,031 6,253 
Net plant and equipment1,736 1,729 
Goodwill4,591 4,492 
Intangible assets814 851 
Deferred income taxes509 516 
Other assets1,259 1,227 
 $14,940 $15,068 
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$353 $
Accounts payable521 472 
Accrued expenses1,263 1,217 
Cash dividends payable361 342 
Income taxes payable42 48 
Liabilities held for sale— 71 
Total current liabilities2,540 2,154 
Noncurrent Liabilities:
Long-term debt7,592 7,754 
Deferred income taxes671 668 
Noncurrent income taxes payable413 462 
Other liabilities1,027 1,000 
Total noncurrent liabilities9,703 9,884 
Stockholders’ Equity:
Common stock
Additional paid-in-capital1,346 1,304 
Retained earnings22,833 22,403 
Common stock held in treasury(19,652)(18,982)
Accumulated other comprehensive income (loss)(1,837)(1,705)
Noncontrolling interest
Total stockholders’ equity2,697 3,030 
 $14,940 $15,068 




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

Three Months Ended September 30, 2020
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$714 $149 20.8 %
Food Equipment449 88 19.6 %
Test & Measurement and Electronics489 116 23.7 %
Welding346 96 27.9 %
Polymers & Fluids438 116 26.6 %
Construction Products456 128 28.1 %
Specialty Products420 106 25.2 %
Intersegment(5)— — %
Total Segments3,307 799 24.2 %
Unallocated— (10)— %
Total Company$3,307 $789 23.8 %

Nine Months Ended September 30, 2020
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$1,771 $266 15.0 %
Food Equipment1,268 236 18.6 %
Test & Measurement and Electronics1,429 354 24.8 %
Welding1,016 269 26.5 %
Polymers & Fluids1,185 291 24.6 %
Construction Products1,222 309 25.3 %
Specialty Products1,221 313 25.7 %
Intersegment(13)— — %
Total Segments9,099 2,038 22.4 %
Unallocated— (39)— %
Total Company$9,099 $1,999 22.0 %






ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
Q3 2020 vs. Q3 2019 Favorable/(Unfavorable)
Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic(4.8)%(19.5)%(2.4)%(10.0)%5.8 %7.6 %(4.7)%(4.6)%
Acquisitions/
Divestitures
— %— %(3.0)%(4.3)%— %— %(0.8)%(1.0)%
Translation0.7 %0.9 %1.1 %0.3 %(1.0)%2.0 %0.7 %0.7 %
Operating
Revenue
(4.1)%(18.6)%(4.3)%(14.0)%4.8 %9.6 %(4.8)%(4.9)%

Q3 2020 vs. Q3 2019 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage (90) bps  (490) bps  (60) bps  (180) bps  130 bps  150 bps  (100) bps  (100) bps
Changes in Variable Margin & OH Costs 120 bps  (120) bps  (140) bps  120 bps  150 bps  180 bps  (90) bps  40 bps
Total Organic 30 bps  (610) bps  (200) bps  (60) bps  280 bps  330 bps  (190) bps  (60) bps
Acquisitions/Divestitures 30 bps  60 bps  20 bps  10 bps
Restructuring/
Other
 (160) bps  (180) bps  (20) bps  (30) bps  (30) bps  (30) bps  70 bps  (70) bps
Total Operating Margin Change (130) bps  (790) bps  (190) bps  (30) bps  250 bps  300 bps  (100) bps  (120) bps
Total Operating Margin % *20.8%19.6%23.7%27.9%26.6%28.1%25.2%23.8%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 50 bps  80 bps  440 bps  10 bps  310 bps  20 bps  90 bps  150 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 2020.





ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
YTD 2020 vs. YTD 2019 Favorable/(Unfavorable)
Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic(23.3)%(21.2)%(5.5)%(14.7)%(4.0)%(0.5)%(9.9)%(12.7)%
Acquisitions/
Divestitures
— %— %(3.0)%(3.9)%— %— %(0.9)%(1.0)%
Translation(0.9)%(0.4)%(0.4)%(0.2)%(2.0)%(1.0)%(0.7)%(0.8)%
Operating
Revenue
(24.2)%(21.6)%(8.9)%(18.8)%(6.0)%(1.5)%(11.5)%(14.5)%

YTD 2020 vs. YTD 2019 Favorable/(Unfavorable)
Change in Operating MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage (530) bps  (580) bps  (150) bps  (280) bps  (90) bps  (20) bps  (220) bps  (300) bps
Changes in Variable Margin & OH Costs (180) bps  (150) bps  120 bps  (10) bps  230 bps  100 bps  30 bps  30 bps
Total Organic (710) bps  (730) bps  (30) bps  (290) bps  140 bps  80 bps  (190) bps  (270) bps
Acquisitions/Divestitures 40 bps  70 bps  50 bps  20 bps
Restructuring/Other 50 bps  (10) bps  30 bps  40 bps  50 bps  80 bps  30 bps
Total Operating Margin Change (660) bps  (740) bps  10 bps  (190) bps  180 bps  130 bps  (60) bps  (220) bps
Total Operating Margin % *15.0%18.6%24.8%26.5%24.6%25.3%25.7%22.0%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets 60 bps  80 bps  270 bps  20 bps  340 bps  20 bps  90 bps  130 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.28) on GAAP earnings per share for the first nine months of 2020.



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

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
Three Months EndedNine Months Ended
June 30,September 30,September 30,
Dollars in millions20202020201920202019
Operating income$449 $789 $868 $1,999 $2,578 
Tax rate21.3 %21.3 %24.1 %22.0 %24.3 %
Income taxes(96)(168)(210)(439)(628)
Operating income after taxes$353 $621 $658 $1,560 $1,950 
Invested capital:  
Trade receivables$2,156 $2,494 $2,499 $2,494 $2,499 
Inventories1,167 1,149 1,209 1,149 1,209 
Net assets held for sale181 — 324 — 324 
Net plant and equipment1,711 1,736 1,693 1,736 1,693 
Goodwill and intangible assets5,244 5,405 5,320 5,405 5,320 
Accounts payable and accrued expenses(1,508)(1,784)(1,722)(1,784)(1,722)
Other, net(636)(527)(535)(527)(535)
Total invested capital$8,315 $8,473 $8,788 $8,473 $8,788 
Average invested capital$8,431 $8,394 $9,007 $8,536 $9,083 
Return on average invested capital16.8 %29.6 %29.2 %24.4 %28.6 %

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2019 excluding the third quarter 2019 discrete tax benefit of $21 million related to a U.S. federal provision to return adjustment is as follows:

Three Months EndedNine Months Ended
September 30, 2019September 30, 2019
Dollars in millionsIncome TaxesTax RateIncome TaxesTax Rate
As reported$182 21.6 %$577 23.5 %
Discrete tax benefit21 2.5 %21 0.8 %
As adjusted$203 24.1 %$598 24.3 %

FREE CASH FLOW (UNAUDITED)
Three Months EndedNine Months Ended
September 30,September 30,
Dollars in millions2020201920202019
Net cash provided by operating activities$683 $920 $2,034 $2,221 
Less: Additions to plant and equipment(52)(90)(168)(244)
Free cash flow$631 $830 $1,866 $1,977 
Net income$582 $660 $1,467 $1,880 
Free cash flow to net income conversion rate108 %126 %127 %105 %


v3.20.2
Document and Entity Information Document
Oct. 23, 2020
Entity Information [Line Items]  
Document Type 8-K
Document Period End Date Oct. 23, 2020
Entity Registrant Name ILLINOIS TOOL WORKS INC.
Entity Incorporation, State or Country Code DE
Entity File Number 1-4797
Entity Tax Identification Number 36-1258310
Entity Address, Address Line One 155 Harlem Avenue
Entity Address, City or Town Glenview
Entity Address, State or Province IL
Entity Address, Postal Zip Code 60025
City Area Code 847
Local Phone Number 724-7500
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Entity Emerging Growth Company false
Entity Central Index Key 0000049826
Amendment Flag false
NEW YORK STOCK EXCHANGE, INC. | Common Stock  
Entity Information [Line Items]  
Title of 12(b) Security Common Stock
Trading Symbol ITW
Security Exchange Name NYSE
NEW YORK STOCK EXCHANGE, INC. | 1.75% Euro Notes due 2022  
Entity Information [Line Items]  
Title of 12(b) Security 1.75% Euro Notes due 2022
Trading Symbol ITW22
Security Exchange Name NYSE
NEW YORK STOCK EXCHANGE, INC. | 1.25% Euro Notes due 2023  
Entity Information [Line Items]  
Title of 12(b) Security 1.25% Euro Notes due 2023
Trading Symbol ITW23
Security Exchange Name NYSE
NEW YORK STOCK EXCHANGE, INC. | 0.250% Euro Notes due 2024  
Entity Information [Line Items]  
Title of 12(b) Security 0.250% Euro Notes due 2024
Trading Symbol ITW24A
Security Exchange Name NYSE
NEW YORK STOCK EXCHANGE, INC. | 0.625% Euro Notes due 2027  
Entity Information [Line Items]  
Title of 12(b) Security 0.625% Euro Notes due 2027
Trading Symbol ITW27
Security Exchange Name NYSE
NEW YORK STOCK EXCHANGE, INC. | 2.125% Euro Notes due 2030  
Entity Information [Line Items]  
Title of 12(b) Security 2.125% Euro Notes due 2030
Trading Symbol ITW30
Security Exchange Name NYSE
NEW YORK STOCK EXCHANGE, INC. | 1.00% Euro Notes due 2031  
Entity Information [Line Items]  
Title of 12(b) Security 1.00% Euro Notes due 2031
Trading Symbol ITW31
Security Exchange Name NYSE
NEW YORK STOCK EXCHANGE, INC. | 3.00% Euro Notes due 2034  
Entity Information [Line Items]  
Title of 12(b) Security 3.00% Euro Notes due 2034
Trading Symbol ITW34
Security Exchange Name NYSE