|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | | | | | | |
|
|
| Repayments of debt with original maturities of more than three months | (700) | | | (138) | |
| Other, net | 18 | | | 21 | |
| Effect of exchange rate changes on cash and equivalents | (19) | | | 3 | |
| Net increase (decrease) in cash and equivalents | $ | (106) | | | $ | 435 | |
Stock Repurchase Programs
On May 7, 2021, the Company announced a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2021 Program"). Under the 2021 program, the Company repurchased approximately 7.1 million shares of its common stock at an average price of $210.46 per share during 2022, approximately 1.6 million shares of its common stock at an average price of $233.62 in the first quarter of 2023, approximately 1.6 million shares of its common stock at an average price of $229.30 in the second quarter of 2023, approximately 1.6 million shares of its common stock at an average price of $241.55 in the third quarter of 2023 and approximately 1.5 million shares of its common stock at an average price of $237.34 in the fourth quarter of 2023. The 2021 Program was completed in the fourth quarter of 2023.
On August 4, 2023, the Company announced a new stock repurchase program which provides for the repurchase of up to an additional $5.0 billion of the Company's common stock over an open-ended period of time (the "2023 Program"). Under the 2023 program, the Company repurchased approximately 38,000 shares of its common stock at an average price of $263.44 per share in the fourth quarter of 2023 and approximately 1.4 million shares of its common stock at an average price of $259.07 per share in the first quarter of 2024. As of March 31, 2024, there were $4.6 billion of authorized repurchases remaining under the 2023 Program.
After-tax Return on Average Invested Capital
The Company uses after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its operations' use of invested capital to generate profits. After-tax ROIC is not defined under U.S. generally accepted accounting principles ("GAAP"). After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company's ability to generate returns from cash invested in its operations and may be different than the method used by other companies to calculate After-tax ROIC. The Company defines After-tax ROIC as operating income after taxes divided by average invested capital, which is annualized when presented in interim periods. Operating income after taxes is a non-GAAP measure consisting of net income before interest expense and other income (expense), on an after-tax basis, which are excluded as they do not represent returns generated by the Company's operations. For comparability, the Company also excluded the cumulative effect of a change in inventory accounting method from net income in the first quarter
of 2024. Refer to Note 1. Significant Accounting Policies and Note 7. Inventories in Item 1. Financial Statements for additional information regarding this change in accounting method. Total invested capital represents the net assets of the Company, other than cash and equivalents and outstanding debt which do not represent capital investment in the Company's operations. The most comparable GAAP measure to operating income after taxes is net income. Net income to average invested capital and After-tax ROIC for the first quarter of 2024 and 2023 were as follows:
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| Dollars in millions | 2024 | | 2023 |
| Numerator: | | | |
| Net Income | $ | 819 | | | $ | 714 | |
Cumulative effect of change in inventory accounting method, net of tax (1) | (88) | | | — | |
Interest expense, net of tax (2) | 54 | | | 46 | |
Other (income) expense, net of tax (2) | (12) | | | (8) | |
| Operating income after taxes | $ | 773 | | | $ | 752 | |
| | | |
| Denominator: | | | |
| Invested capital: | | | |
| Cash and equivalents | $ | 959 | | | $ | 1,143 | |
| Trade receivables | 3,238 | | | 3,201 | |
| Inventories | 1,825 | | | 2,000 | |
| Net assets held for sale | — | | | 9 | |
| Net plant and equipment | 1,973 | | | 1,885 | |
| Goodwill and intangible assets | 5,557 | | | 5,622 | |
| Accounts payable and accrued expenses | (2,109) | | | (2,103) | |
| Debt | (8,325) | | | (8,380) | |
| Other, net | (97) | | | (276) | |
| Total net assets (stockholders' equity) | 3,021 | | | 3,101 | |
| Cash and equivalents | (959) | | | (1,143) | |
| Debt | 8,325 | | | 8,380 | |
| Total invested capital | $ | 10,387 | | | $ | 10,338 | |
| | | |
Average invested capital (3) | $ | 10,249 | | | $ | 10,241 | |
| | | |
Net income to average invested capital (4) | 32.0 | % | | 27.9 | % |
After-tax return on average invested capital (4) | 30.1 | % | | 29.4 | % |
(1) Represents the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax).
(2) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2024 and 2023 was 23.6% and 22.6%, respectively.
(3) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of the periods presented.
(4) Returns for the three months ended March 31, 2024 and 2023 were converted to an annual rate by multiplying the calculated return by 4.
Working Capital
Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of March 31, 2024 and December 31, 2023 is summarized as follows:
| | | | | | | | | | | | | | | | | |
| In millions | March 31, 2024 | | December 31, 2023 | | Increase/
(Decrease) |
| Current assets: | | | | | |
| Cash and equivalents | $ | 959 | | | $ | 1,065 | | | $ | (106) | |
| Trade receivables | 3,238 | | | 3,123 | | | 115 | |
| Inventories | 1,825 | | | 1,707 | | | 118 | |
| Prepaid expenses and other current assets | 349 | | | 340 | | | 9 | |
| Total current assets | 6,371 | | | 6,235 | | | 136 | |
| Current liabilities: | | | | | |
| Short-term debt | 2,066 | | | 1,825 | | | 241 | |
| Accounts payable and accrued expenses | 2,109 | | | 2,244 | | | (135) | |
| Other | 669 | | | 606 | | | 63 | |
| Total current liabilities | 4,844 | | | 4,675 | | | 169 | |
| Net working capital | $ | 1,527 | | | $ | 1,560 | | | $ | (33) | |
As of March 31, 2024, a significant portion of the Company's cash and equivalents was held by international subsidiaries. Cash and equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S. Cash and equivalents held internationally are typically used for international operating needs or reinvested to fund expansion of existing international businesses. International funds may also be used to fund international acquisitions or, if not considered permanently invested, may be repatriated to the U.S. The Company has accrued for foreign withholding taxes related to foreign held cash and equivalents that are not permanently invested.
In the U.S., the Company utilizes cash flows from operations to fund domestic cash needs and the Company's capital allocation priorities. This includes operating needs of the U.S. businesses, dividend payments, share repurchases, acquisitions, servicing of domestic debt obligations, reinvesting to fund expansion of existing U.S. businesses and general corporate needs. The Company may also use its commercial paper program, which is supported by a long-term credit facility, for short-term liquidity needs. The Company believes cash generated by operations and liquidity provided by the Company's commercial paper program will continue to be sufficient to fund cash requirements in the U.S.
Debt
Total debt as of March 31, 2024 and December 31, 2023 was as follows:
| | | | | | | | | | | |
| In millions | March 31, 2024 | | December 31, 2023 |
| Short-term debt | $ | 2,066 | | | $ | 1,825 | |
| Long-term debt | 6,259 | | | 6,339 | |
| Total debt | $ | 8,325 | | | $ | 8,164 | |
Short-term debt included commercial paper of $1.4 billion and $464 million as of March 31, 2024 and December 31, 2023, respectively. The weighted-average interest rate on commercial paper as of March 31, 2024 and December 31, 2023 was 5.40% for both periods. Short-term debt also included $647 million as of March 31, 2024 and $661 million as of December 31, 2023 related to the 0.25% Euro notes due December 5, 2024, which were reclassified from Long-term debt to Short-term debt in the fourth quarter of 2023. Additionally, Short-term debt as of December 31, 2023 included $700 million related to the 3.50% notes due March 1, 2024, which were repaid on the due date.
On May 5, 2023, the Company entered into a €1.3 billion Euro-denominated credit agreement (the "Euro Credit Agreement") with an initial termination date of May 3, 2024; provided, however, that the Company may extend the termination date by six months on up to two occasions. On May 12, 2023, the Company borrowed €1.3 billion of Euro term loans under the Euro Credit Agreement. Proceeds from the borrowing were used for general corporate purposes, including the repayment of outstanding debt. Any loan under the Euro Credit Agreement may not be re-borrowed once repaid, in full or in part, and will
bear interest at a per annum rate equal to the applicable EURIBOR (adjusted for any statutory reserves) plus 0.75% for the interest period selected by the Company of one, three or six months. As of March 31, 2024, the Company had €1.3 billion outstanding under the Euro Credit Agreement with an interest rate of 4.61%, which was included in Long-term debt as the Company exercised its first option during the first quarter of 2024 and intends to exercise its second option to extend the termination date.
The Company also has a $3.0 billion revolving credit facility with a termination date of October 21, 2027, which is available to provide additional liquidity, including to support the potential issuances of commercial paper. No amounts were outstanding under the revolving credit facility as of March 31, 2024 or December 31, 2023.
Total Debt to EBITDA
The Company uses the ratio of total debt to EBITDA as a measure of its ability to repay its outstanding debt obligations. EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures. The Company believes that total debt to EBITDA is a meaningful metric to investors in evaluating the Company's long term financial liquidity and may be different than the method used by other companies to calculate total debt to EBITDA. The ratio of total debt to EBITDA represents total debt divided by net income before interest expense, other income (expense), income taxes, depreciation, and amortization and impairment of intangible assets on a trailing twelve month basis. Total debt to EBITDA for the trailing twelve month periods ended March 31, 2024 and December 31, 2023 was as follows:
| | | | | | | | | | | |
| Dollars in millions | March 31, 2024 | | December 31, 2023 |
| Total debt | $ | 8,325 | | | $ | 8,164 | |
| | | |
| Net income | $ | 3,062 | | | $ | 2,957 | |
| Add: | | | |
| Interest expense | 277 | | | 266 | |
| Other (income) expense | (55) | | | (49) | |
| Income taxes | 911 | | | 866 | |
| Depreciation | 286 | | | 282 | |
Amortization and impairment of intangible assets | 107 | | | 113 | |
| EBITDA | $ | 4,588 | | | $ | 4,435 | |
| Total debt to EBITDA ratio | 1.8 | | | 1.8 | |
Stockholders' Equity
The changes to stockholders' equity during the three months ended 2024 were as follows:
| | | | | |
| In millions | |
Total stockholders' equity, December 31, 2023 | $ | 3,013 | |
| Net income | 819 | |
| Repurchases of common stock | (375) | |
| Dividends declared | (418) | |
| Other comprehensive income (loss) | (50) | |
| Other, net | 32 | |
Total stockholders' equity, March 31, 2024 | $ | 3,021 | |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," "intend," "may," "strategy," "prospects," "estimate," "will," "should," "could," "project," "target," "anticipate," "guidance," "forecast," and other similar words, and may include, without limitation, statements regarding the duration and potential effects of global supply chain challenges and the Company's strategy in response thereto on the Company's business, future financial and operating performance, free cash flow, economic and regulatory conditions in various geographic regions
including inflation, the impact of foreign currency fluctuations, the timing and amount of benefits from the Company's enterprise strategy initiatives, the timing and amount of dividends and share repurchases, the protection of the Company's intellectual property, the likelihood of future goodwill or intangible asset impairment charges, the impact of adopting new accounting pronouncements, the adequacy of internally generated funds and credit facilities to service debt and finance the Company's capital allocation priorities, the sufficiency of U.S. generated cash to fund cash requirements in the U.S., the cost and availability of additional financing, the availability of raw materials and energy and the impact of raw material cost inflation, the Company's portion of future benefit payments related to pension and other postretirement benefits, the Company's information technology infrastructure, potential acquisitions and divestitures and the expected performance of acquired businesses and impact of divested businesses, the impact of U.S. and global tax legislation and the estimated timing and amount related to the resolution of tax matters, the cost of compliance with environmental regulations, the impact of failure of the Company's employees to comply with applicable laws and regulations, and the outcome of outstanding legal proceedings. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results include (1) weaknesses or downturns in the markets served by the Company, (2) changes or deterioration in international and domestic political and economic conditions, such as the Russia and Ukraine conflict or U.S.-China trade relations and the impact of related economic and other sanctions, (3) the unfavorable impact of foreign currency fluctuations, (4) the Company's enterprise strategy initiatives may not have the desired impact on organic revenue growth, (5) market conditions and cost and availability of financing to fund the Company's share repurchases, (6) a delay or decrease in the introduction of new products into the Company's product lines, (7) any failure to protect the Company's intellectual property, (8) potential negative impact of impairments to goodwill and other intangible assets on the Company's return on invested capital, financial condition or results of operations, (9) raw material price increases and supply shortages or delays, (10) financial market risks to the Company's obligations under its defined benefit pension plans, (11) negative effects of service interruptions, data corruption, cyber-based attacks, security breaches of our technology networks and systems or those of our vendors and third-party service providers, or violations of data privacy laws, (12) the potential negative impact of acquisitions on the Company's profitability and returns, (13) potential negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (14) impact of tax legislation and regulatory action and changing tax rates, (15) potential adverse outcomes in legal proceedings or enforcement actions, (16) uncertainties related to environmental regulation and the physical risks of climate change, (17) potential failure of the Company's employees, agents or business partners to comply with anti-bribery, competition, import/export, trade sanctions, data privacy, human rights and other laws, (18) public health crises and related government actions, and (19) increases in inflation or interest rates and the possibility of economic recession. A more detailed description of these risks is contained under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. These risks are not all inclusive and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
Any forward-looking statements made by ITW speak only as of the date on which they are made. ITW is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by law.
ITW practices fair disclosure for all interested parties. Investors should be aware that while ITW regularly communicates with securities analysts and other investment professionals, it is against ITW's policy to disclose to them any material non-public information or other confidential commercial information. Investors should not assume that ITW agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to exposures to market risk as reported in the Company's 2023 Annual Report on Form 10-K.
ITEM 4. Controls and Procedures
The Company's management, with the participation of the Company's President & Chief Executive Officer and Senior Vice President & Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e)) as of March 31, 2024. Based on such evaluation, the Company's President & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of March 31, 2024, the Company's disclosure controls and procedures were effective.
In connection with the evaluation by management, including the Company's President & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the Company's internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended March 31, 2024 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
None. The Company's threshold for disclosing environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.
ITEM 1A. Risk Factors
The Company's business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary materially from recent results or from anticipated future results. Refer to the description of the Company's risk factors previously disclosed in Part I - Item 1A - Risk Factors in the Company's 2023 Annual Report on Form 10-K. There have been no material changes to the risk factors described therein.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 7, 2021, the Company announced a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2021 Program"). The 2021 Program was completed in the fourth quarter of 2023.
On August 4, 2023, the Company announced a new stock repurchase program which provides for the repurchase of up to an additional $5.0 billion of the Company's common stock over an open-ended period of time (the "2023 Program"). As of March 31, 2024, there were approximately $4.6 billion of authorized repurchases remaining under the 2023 Program.
Share repurchase activity for the first quarter of 2024 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions except per share amounts |
| Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | Maximum Value of Shares That May Yet Be Purchased Under Programs |
| January 2024 | | 0.5 | | | $ | 257.82 | | | 0.5 | | | $ | 4,857 | |
| February 2024 | | 0.5 | | | $ | 256.26 | | | 0.5 | | | $ | 4,730 | |
| March 2024 | | 0.4 | | | $ | 263.77 | | | 0.4 | | | $ | 4,615 | |
| Total | | 1.4 | | | | | 1.4 | | | |
| | | | | | | | |
| Exhibit Number | | Exhibit Description |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| 101 | | The following financial and related information from the Illinois Tool Works Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 is formatted in Inline Extensible Business Reporting Language (iXBRL) and submitted electronically herewith: (i) Statement of Income, (ii) Statement of Comprehensive Income, (iii) Statement of Financial Position, (iv) Statement of Changes in Stockholders' Equity, (v) Statement of Cash Flows, and (vi) related Notes to Financial Statements. |
| | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities 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: | May 2, 2024 | By: | /s/ Randall J. Scheuneman |
| | | Randall J. Scheuneman |
| | | Vice President & Chief Accounting Officer |
| | | (Principal Accounting Officer and Duly Authorized Officer) |
Similar companies
See also Ingersoll Rand Inc. -
Annual report 2022 (10-K 2022-12-31)
Annual report 2025 (10-Q 2025-03-31)
See also ZEBRA TECHNOLOGIES CORP -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also Gates Industrial Corp plc -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also Zurn Elkay Water Solutions Corp -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also TWIN DISC INC -
Annual report 2023 (10-K 2023-06-30)
Annual report 2023 (10-Q 2023-09-29)
Open main menu