GlobeNewswire Inc | Oct 23, 2020 08:00AM EDT

October 23, 2020

-- 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, Ill., Oct. 23, 2020 (GLOBE NEWSWIRE) -- 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 ITWs full-potential performance, Santi concluded.

Third Quarter ResultsThird-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 MeasuresThis 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 StatementThis 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 Companys strategy in response thereto on the Companys business, the anticipated duration of the Companys COVID-19 containment and recovery phases, the Companys 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 WorksITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.1 billion in 2019. The companys 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. ITWs approximately 45,000 dedicated colleagues around the world thrive in the companys decentralized and entrepreneurial culture. www.itw.com

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

Three Months Ended Nine Months Ended September 30, September 30,In millionsexcept per 2020 2019 2020 2019share amountsOperating $ 3,307 $ 3,479 $ 9,099 $ 10,640 RevenueCost of revenue 1,910 2,007 5,375 6,165 Selling,administrative,and research 560 566 1,606 1,775 and developmentexpensesAmortizationand impairment 48 38 119 122 of intangibleassetsOperating 789 868 1,999 2,578 IncomeInterest (52 ) (52 ) (154 ) (170 ) expenseOther income 2 26 35 49 (expense)Income Before 739 842 1,880 2,457 TaxesIncome Taxes 157 182 413 577 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 ofCommon StockOutstanding During thePeriod:Average 316.5 322.3 316.9 324.8 Averageassuming 317.9 324.0 318.3 326.6 dilution

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

In millions September 30, December 31, 2019 2020Assets Current Assets: Cash and equivalents $ 2,169 $ 1,981 Trade receivables 2,494 2,461 Inventories 1,149 1,164 Prepaid expenses and other current assets 219 296 Assets held for sale ? 351 Total current assets 6,031 6,253 Net plant and equipment 1,736 1,729 Goodwill 4,591 4,492 Intangible assets 814 851 Deferred income taxes 509 516 Other assets 1,259 1,227 $ 14,940 $ 15,068 Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 353 $ 4 Accounts payable 521 472 Accrued expenses 1,263 1,217 Cash dividends payable 361 342 Income taxes payable 42 48 Liabilities held for sale ? 71 Total current liabilities 2,540 2,154 Noncurrent Liabilities: Long-term debt 7,592 7,754 Deferred income taxes 671 668 Noncurrent income taxes payable 413 462 Other liabilities 1,027 1,000 Total noncurrent liabilities 9,703 9,884 Stockholders? Equity: Common stock 6 6 Additional paid-in-capital 1,346 1,304 Retained earnings 22,833 22,403 Common stock held in treasury (19,652 ) (18,982 ) Accumulated other comprehensive income (1,837 ) (1,705 ) (loss)Noncontrolling interest 1 4 Total stockholders? equity 2,697 3,030 $ 14,940 $ 15,068

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Three Months Ended September 30, 2020Dollars in millions Total Operating Operating Revenue Income MarginAutomotive OEM $ 714 $ 149 20.8 %Food Equipment 449 88 19.6 %Test & Measurement and Electronics 489 116 23.7 %Welding 346 96 27.9 %Polymers & Fluids 438 116 26.6 %Construction Products 456 128 28.1 %Specialty Products 420 106 25.2 %Intersegment (5 ) ? ? %Total Segments 3,307 799 24.2 %Unallocated ? (10 ) ? %Total Company $ 3,307 $ 789 23.8 %

Nine Months Ended September 30, 2020Dollars in millions Total Operating Operating Revenue Income MarginAutomotive OEM $ 1,771 $ 266 15.0 %Food Equipment 1,268 236 18.6 %Test & Measurement and Electronics 1,429 354 24.8 %Welding 1,016 269 26.5 %Polymers & Fluids 1,185 291 24.6 %Construction Products 1,222 309 25.3 %Specialty Products 1,221 313 25.7 %Intersegment (13 ) ? ? %Total Segments 9,099 2,038 22.4 %Unallocated ? (39 ) ? %Total Company $ 9,099 $ 1,999 22.0 %

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

Q3 2020 vs. Q3 2019 Favorable/(Unfavorable) Test &Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalRevenue OEM Equipment and & Fluids Products Products ITW ElectronicsOrganic (4.8) % (19.5) % (2.4) % (10.0) % 5.8 % 7.6 % (4.7) % (4.6) %Acquisitions/ ? % ? % (3.0) % (4.3) % ? % ? % (0.8) % (1.0) %DivestituresTranslation 0.7 % 0.9 % 1.1 % 0.3 % (1.0) % 2.0 % 0.7 % 0.7 %Operating (4.1) % (18.6) % (4.3) % (14.0) % 4.8 % 9.6 % (4.8) % (4.9) %Revenue

Q3 2020 vs. Q3 2019 Favorable/(Unfavorable) Test &Change in Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalMargin OEM Equipment and & Fluids Products Products ITW ElectronicsOperating Leverage (90) bps (490) bps (60) bps (180) 130 bps 150 bps (100) bps (100) bps bpsChanges in Variable 120 bps (120) bps (140) bps 120 bps 150 bps 180 bps (90) bps 40Margin & OH Costs bpsTotal Organic 30 bps (610) (200) bps (60) 280 bps 330 bps (190) bps (60) bps bps bpsAcquisitions/ ? ? 30 bps 60 bps ? ? 20 bps 10Divestitures bpsRestructuring/Other (160) bps (180) bps (20) bps (30) (30) bps (30) bps 70 bps (70) bps bpsTotal Operating (790) (30) Margin Change (130) bps bps (190) bps bps 250 bps 300 bps (100) bps (120) bps Total Operating 20.8% 19.6% 23.7% 27.9% 26.6% 28.1% 25.2% 23.8%Margin % * *Includesunfavorableoperating margin 150impact of 50 bps 80 bps 440 bps 10 bps 310 bps 20 bps 90 bps bpsamortization **expense fromacquisition-relatedintangible assets** Amortization expense from acquisition-related intangible assets had anunfavorable impact of ($0.11) on GAAP earnings per share for the third quarterof 2020.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIESSEGMENT DATA (UNAUDITED)

YTD 2020 vs. YTD 2019 Favorable/(Unfavorable) Test &Operating Automotive Food Measurement Welding Polymers Construction Specialty Total ITWRevenue OEM Equipment and & Fluids Products Products ElectronicsOrganic (23.3) % (21.2) % (5.5) % (14.7) % (4.0) % (0.5) % (9.9) % (12.7) %Acquisitions/ ? % ? % (3.0) % (3.9) % ? % ? % (0.9) % (1.0) %DivestituresTranslation (0.9) % (0.4) % (0.4) % (0.2) % (2.0) % (1.0) % (0.7) % (0.8) %Operating (24.2) % (21.6) % (8.9) % (18.8) % (6.0) % (1.5) % (11.5) % (14.5) %Revenue

YTD 2020 vs. YTD 2019 Favorable/(Unfavorable) Test &Change in Operating Automotive Food Measurement Welding Polymers Construction Specialty TotalMargin OEM Equipment and & Fluids Products Products ITW ElectronicsOperating Leverage (530) bps (580) bps (150) bps (280) (90) bps (20) bps (220) bps (300) bps bpsChanges in Variable (180) bps (150) bps 120 bps (10) 230 bps 100 bps 30 bps 30Margin & OH Costs bps bps (730) (290) (190) Total Organic (710) bps bps (30) bps bps 140 bps 80 bps bps (270) bpsAcquisitions/ ? ? 40 bps 70 bps ? ? 50 bps 20Divestitures bpsRestructuring/Other 50 bps (10) bps ? 30 bps 40 bps 50 bps 80 bps 30 bpsTotal Operating (740) (190) Margin Change (660) bps bps 10 bps bps 180 bps 130 bps (60) bps (220) bps Total Operating 15.0% 18.6% 24.8% 26.5% 24.6% 25.3% 25.7% 22.0%Margin % * *Includesunfavorableoperating margin 130impact of 60 bps 80 bps 270 bps 20 bps 340 bps 20 bps 90 bps bpsamortization **expense fromacquisition-relatedintangible assets** Amortization expense from acquisition-related intangible assets had anunfavorable impact of ($0.28) on GAAP earnings per share for the first ninemonths of 2020.

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

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months Ended Nine Months Ended June 30, September 30, September 30,Dollars in millions 2020 2020 2019 2020 2019Operating income $ 449 $ 789 $ 868 $ 1,999 $ 2,578 Tax rate 21.3 % 21.3 % 24.1 % 22.0 % 24.3 %Income taxes (96) (168) (210) (439) (628) Operating income after $ 353 $ 621 $ 658 $ 1,560 $ 1,950 taxes Invested capital: Trade receivables $ 2,156 $ 2,494 $ 2,499 $ 2,494 $ 2,499 Inventories 1,167 1,149 1,209 1,149 1,209 Net assets held for 181 ? 324 ? 324 saleNet plant and 1,711 1,736 1,693 1,736 1,693 equipmentGoodwill and 5,244 5,405 5,320 5,405 5,320 intangible assetsAccounts payable and (1,508) (1,784) (1,722) (1,784) (1,722) accrued expensesOther, net (636) (527) (535) (527) (535) Total invested capital $ 8,315 $ 8,473 $ 8,788 $ 8,473 $ 8,788 Average invested $ 8,431 $ 8,394 $ 9,007 $ 8,536 $ 9,083 capitalReturn on average 16.8 % 29.6 % 29.2 % 24.4 % 28.6 %invested capital

A reconciliation of the tax rate for the three and nine month periods ended September30, 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 Ended Nine Months Ended September 30, 2019 September 30, 2019Dollars in millions Income Tax Rate Income Tax Rate Taxes TaxesAs reported $ 182 21.6 % $ 577 23.5 %Discrete tax benefit 21 2.5 % 21 0.8 %As adjusted $ 203 24.1 % $ 598 24.3 %

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

FREE CASH FLOW (UNAUDITED)

Three Months Ended Nine Months Ended September 30, September 30,Dollars in millions 2020 2019 2020 2019Net cash provided by operating $ 683 $ 920 $ 2,034 $ 2,221 activitiesLess: Additions to plant and (52) (90) (168) (244) equipmentFree cash flow $ 631 $ 830 $ 1,866 $ 1,977 Net income $ 582 $ 660 $ 1,467 $ 1,880 Free cash flow to net income 108 % 126 % 127 % 105 %conversion rate

Media Contact Investor RelationsIllinois Tool Works Illinois Tool WorksTrisha Knych Karen FletcherTel: 224.661.7566 Tel: 224.661.7433mediarelations@itw.com investorrelations@itw.com