10-KPeriod: FY2015

ILLINOIS TOOL WORKS INC Annual Report, Year Ended Dec 31, 2015

Filed February 12, 2016For Securities:ITW

Summary

Illinois Tool Works Inc. (ITW) demonstrated resilience in 2015, navigating challenging global economic conditions and foreign currency headwinds. The company's core strength lies in its unique "ITW Business Model," characterized by its 80/20 management process, customer-back innovation, and a decentralized, entrepreneurial culture. This model has been central to ITW's ongoing Enterprise Strategy, which aims to shift the primary growth engine to organic revenue and deliver best-in-class margins and returns. Financially, despite a reported decrease in operating revenue due to unfavorable currency translations, the company achieved a record operating margin of 21.4%, an increase of 150 basis points, driven by its enterprise initiatives in business structure simplification and strategic sourcing. Diluted Earnings Per Share (EPS) from continuing operations saw a healthy increase of 9.9%. The company also generated strong free cash flow of $2.0 billion, underscoring its operational efficiency and ability to return value to shareholders through dividends and share repurchases.

Financial Highlights

54 data points
Beta

Revenue

$13.40B

41.2% Gross Margin

Net Income

$1.90B

14.2% Net Margin

EPS (Diluted)

$5.13

Total Assets

$15.73B

Cash & Equivalents

$3.09B

Free Cash Flow

$2.02B

Financial Statements
Beta
Revenue$13.40B
Cost of Revenue$7.89B
Gross Profit$5.52B
R&D Expenses$218.00M
Operating Income$2.87B
Interest Expense$226.00M
Net Income$1.90B
EPS (Basic)$5.16
EPS (Diluted)$5.13
Shares Outstanding (Basic)367.90M
Shares Outstanding (Diluted)370.10M

Key Highlights

  • 1Record operating margin of 21.4% in 2015, up 150 basis points, driven by enterprise initiatives like business structure simplification and strategic sourcing.
  • 2Diluted EPS from continuing operations increased by 9.9% to $5.13 in 2015, demonstrating improved profitability.
  • 3Generated $2.0 billion in free cash flow in 2015, highlighting strong cash generation capabilities.
  • 4Continued execution of the Enterprise Strategy, focused on organic growth and leveraging the ITW Business Model for margin expansion.
  • 5Portfolio management efforts, including exiting commoditized businesses, have positioned ITW for higher organic growth potential.
  • 6Repurchased approximately $2.0 billion of common stock in 2015, alongside paying $742 million in cash dividends, reflecting a commitment to shareholder returns.
  • 7Despite a 7.4% decrease in reported operating revenue (primarily due to foreign currency translation), organic revenue remained relatively stable, down only 0.4%, indicating underlying business resilience.

Frequently Asked Questions

The ITW Business Model is ITW's core source of value creation and competitive advantage. It comprises three key elements: the 80/20 management process (focusing on the most profitable opportunities and eliminating complexity), customer-back innovation (developing solutions based on deep customer insights), and a decentralized, entrepreneurial culture (enabling businesses to be fast, focused, and responsive). This model is crucial for driving operational excellence, innovation, and superior financial performance across ITW's diverse segments.

Foreign currency exchange rates had a significant negative impact on ITW's reported financial results in 2015. The strengthening U.S. Dollar against major foreign currencies led to a decrease in operating revenue by approximately $995 million and a decrease in income from continuing operations by approximately $153 million compared to 2014. While this affected reported numbers, the company's organic revenue only decreased by 0.4%.

ITW's Enterprise Strategy, initiated in 2013, focuses on two main paths: shifting the primary growth engine to organic growth and leveraging the ITW Business Model to deliver best-in-class margins and returns. This involves continued portfolio management, business structure simplification, strategic sourcing, and applying the 80/20 process to optimize divisions for growth. The company expects approximately 85% of its businesses to be ready to grow by the end of 2016.

ITW returns capital to shareholders through a combination of an attractive dividend and a robust share repurchase program. In 2015, the company paid $742 million in cash dividends and repurchased approximately $2.0 billion of its common stock. As of December 31, 2015, there was approximately $5.4 billion of authorized repurchases remaining under the 2015 Program, indicating a continued commitment to shareholder value.