Document and Entity Information
Document and Entity Information | 3 Months Ended |
Mar. 31, 2019shares | |
Document and Entity Information [Abstract] | |
Entity Registrant Name | ILLINOIS TOOL WORKS INC |
Entity Central Index Key | 0000049826 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Document Type | 10-Q |
Document Period End Date | Mar. 31, 2019 |
Document Fiscal Year Focus | 2019 |
Document Fiscal Period Focus | Q1 |
Entity Emerging Growth Company | false |
Entity Small Business | false |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 325,775,111 |
Statement of Income (Unaudited)
Statement of Income (Unaudited) - USD ($) shares in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Income Statement [Abstract] | ||
Operating Revenue | $ 3,552 | $ 3,744 |
Cost of revenue | 2,059 | 2,181 |
Selling, administrative, and research and development expenses | 611 | 612 |
Amortization and impairment of intangible assets | 43 | 48 |
Operating Income | 839 | 903 |
Interest expense | (63) | (66) |
Other income (expense) | 14 | 12 |
Income Before Taxes | 790 | 849 |
Income Taxes | 193 | 197 |
Net Income | $ 597 | $ 652 |
Net Income Per Share: | ||
Basic (in dollars per share) | $ 1.82 | $ 1.92 |
Diluted (in dollars per share) | $ 1.81 | $ 1.90 |
Shares of Common Stock Outstanding During the Period: | ||
Average (in shares) | 327.3 | 340.2 |
Average assuming dilution (in shares) | 329.6 | 342.8 |
Statement of Comprehensive Inco
Statement of Comprehensive Income (Unaudited) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Statement of Comprehensive Income [Abstract] | ||
Net Income | $ 597 | $ 652 |
Other Comprehensive Income (Loss): | ||
Foreign currency translation adjustments, net of tax | 31 | 83 |
Pension and other postretirement benefit adjustments, net of tax | 4 | 9 |
Comprehensive Income | $ 632 | $ 744 |
Statement of Financial Position
Statement of Financial Position (Unaudited) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Current Assets: | ||
Cash and equivalents | $ 1,755 | $ 1,504 |
Trade receivables | 2,715 | 2,622 |
Inventories | 1,346 | 1,318 |
Prepaid expenses and other current assets | 259 | 334 |
Total current assets | 6,075 | 5,778 |
Net plant and equipment | 1,765 | 1,791 |
Goodwill | 4,621 | 4,633 |
Intangible assets | 1,044 | 1,084 |
Deferred income taxes | 547 | 554 |
Other assets | 1,274 | 1,030 |
Total assets | 15,326 | 14,870 |
Current Liabilities: | ||
Short-term debt | 1,760 | 1,351 |
Accounts payable | 568 | 524 |
Accrued expenses | 1,228 | 1,271 |
Cash dividends payable | 326 | 328 |
Income taxes payable | 79 | 68 |
Total current liabilities | 3,961 | 3,542 |
Noncurrent Liabilities: | ||
Long-term debt | 5,981 | 6,029 |
Deferred income taxes | 727 | 707 |
Noncurrent income taxes payable | 495 | 495 |
Other liabilities | 962 | 839 |
Total noncurrent liabilities | 8,165 | 8,070 |
Stockholders’ Equity: | ||
Common stock | 6 | 6 |
Additional paid-in-capital | 1,255 | 1,253 |
Retained earnings | 21,488 | 21,217 |
Common stock held in treasury | (17,911) | (17,545) |
Accumulated other comprehensive income (loss) | (1,642) | (1,677) |
Noncontrolling interest | 4 | 4 |
Total stockholders’ equity | 3,200 | 3,258 |
Total liabilities and stockholders' equity | $ 15,326 | $ 14,870 |
Statement of Financial Positi_2
Statement of Financial Position (Unaudited) - Parenthetical - $ / shares shares in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, issued (in shares) | 550 | 550 |
Common stock, outstanding (in shares) | 325.8 | 328.1 |
Statement of Changes in Stockho
Statement of Changes in Stockholders' Equity (Unaudited) Statement - USD ($) $ in Millions | Total | Common Stock | Additional Paid-in Capital | Retained Earnings | Common Stock Held in Treasury | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interest |
Beginning balance at Dec. 31, 2017 | $ 4,589 | $ 6 | $ 1,218 | $ 20,210 | $ (15,562) | $ (1,287) | $ 4 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Net income | 652 | 652 | |||||
Common stock issued for share-based compensation | 0 | (7) | 7 | ||||
Stock-based compensation expense | 9 | 9 | |||||
Repurchases of common stock | (500) | (500) | |||||
Dividends declared | (264) | (264) | |||||
Pension and other postretirement benefit adjustments | 9 | 9 | |||||
Currency translation adjustments | 83 | 83 | |||||
Ending balance at Mar. 31, 2018 | 4,163 | 6 | 1,220 | 20,228 | (16,055) | (1,240) | 4 |
Beginning balance at Dec. 31, 2018 | 3,258 | 6 | 1,253 | 21,217 | (17,545) | (1,677) | 4 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Net income | 597 | 597 | |||||
Common stock issued for share-based compensation | 1 | (8) | 9 | ||||
Stock-based compensation expense | 10 | 10 | |||||
Repurchases of common stock | (375) | (375) | |||||
Dividends declared | (326) | (326) | |||||
Pension and other postretirement benefit adjustments | 4 | 4 | |||||
Currency translation adjustments | 31 | 31 | |||||
Ending balance at Mar. 31, 2019 | $ 3,200 | $ 6 | $ 1,255 | $ 21,488 | $ (17,911) | $ (1,642) | $ 4 |
Statement of Changes in Stock_2
Statement of Changes in Stockholders' Equity (Unaudited) - Parenthetical - $ / shares | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Statement of Stockholders' Equity [Abstract] | ||
Dividends declared (in dollars per share) | $ 1 | $ 0.78 |
Statement of Cash Flows (Unaudi
Statement of Cash Flows (Unaudited) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash Provided by (Used for) Operating Activities: | ||
Net Income | $ 597 | $ 652 |
Adjustments to reconcile net income to cash provided by operating activities: | ||
Depreciation | 67 | 67 |
Amortization and impairment of intangible assets | 43 | 48 |
Change in deferred income taxes | 22 | (5) |
Provision for uncollectible accounts | 2 | 1 |
(Income) loss from investments | (7) | (3) |
(Gain) loss on sale of plant and equipment | 0 | (1) |
(Gain) loss on sale of operations and affiliates | 2 | 0 |
Stock-based compensation expense | 10 | 9 |
Other non-cash items, net | 4 | 4 |
(Increase) decrease in- | ||
Trade receivables | (106) | (192) |
Inventories | (32) | (68) |
Prepaid expenses and other assets | (22) | (29) |
Increase (decrease) in- | ||
Accounts payable | 48 | 55 |
Accrued expenses and other liabilities | (99) | (90) |
Income taxes | 87 | 90 |
Net cash provided by operating activities | 616 | 538 |
Cash Provided by (Used for) Investing Activities: | ||
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates | (4) | 0 |
Additions to plant and equipment | (77) | (94) |
Proceeds from investments | 7 | 5 |
Proceeds from sale of plant and equipment | 2 | 2 |
Other, net | 0 | (2) |
Net cash provided by (used for) investing activities | (72) | (89) |
Cash Provided by (Used for) Financing Activities: | ||
Cash dividends paid | (328) | (266) |
Issuance of common stock | 11 | 10 |
Repurchases of common stock | (375) | (500) |
Net proceeds from (repayments of) debt with original maturities of three months or less | 1,058 | (840) |
Repayments of debt with original maturities of more than three months | (650) | 0 |
Other, net | (11) | (12) |
Net cash provided by (used for) financing activities | (295) | (1,608) |
Effect of Exchange Rate Changes on Cash and Equivalents | 2 | 5 |
Cash and Equivalents: | ||
Increase (decrease) during the period | 251 | (1,154) |
Beginning of period | 1,504 | 3,094 |
End of period | 1,755 | 1,940 |
Supplementary Cash Flow Information: | ||
Cash Paid During the Period for Interest | 63 | 65 |
Cash Paid During the Period for Income Taxes, Net of Refunds | 84 | $ 113 |
Cash Paid During the Period for Lease Liabilities | 19 | |
Right-of-Use Assets Obtained in Exchange for Lease Liabilities | $ 6 |
Significant Accounting Policies
Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Significant Accounting Policies | Significant Accounting Policies Financial Statements — The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the “Company”). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. It is suggested that these financial statements be read in conjunction with the financial statements and notes to financial statements included in the Company’s 2018 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting. New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new guidance is that revenue should be recognized to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, expanded revenue disclosures are required. The Company's sales arrangements with customers are predominantly short-term in nature and generally provide for transfer of control and risks and rewards of ownership at the time of product shipment or delivery of service. As such, the timing of revenue recognition under both the prior and new guidance is the same for the majority of the Company’s transactions. Effective January 1, 2018, the Company adopted the new revenue recognition guidance under the modified retrospective method and recorded a cumulative-effect adjustment reducing retained earnings by $9 million as of January 1, 2018. In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. The primary change under the new guidance is that a lessee is required to recognize a lease liability and corresponding right-of-use asset for its operating leases. The new guidance also requires additional disclosures. Effective January 1, 2019, the Company adopted the new guidance prospectively for all operating lease transactions as of and after the effective date with a noncancellable lease term greater than one year. Upon adoption, the Company recorded a lease liability of $205 million and a corresponding right-of-use asset. The new guidance did not have a material impact on the results of operations or cash flows for the three months ended March 31, 2019. Refer to Note 5. Leases for additional information regarding the Company’s lease transactions. In October 2016, the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the prior guidance. The provisions of the new guidance are being applied prospectively to intra-entity asset transfers on or after January 1, 2018 and may result in future tax rate volatility. Upon adoption of the new guidance on January 1, 2018, the Company recorded a cumulative-effect adjustment reducing deferred tax assets and retained earnings by $406 million . In August 2017, the FASB issued authoritative guidance which includes targeted improvements to simplify the application of hedge accounting and improve financial reporting of hedging activities. Effective January 1, 2019, the Company adopted the new guidance which did not have a material impact on the results of operations, financial position or cash flows. In February 2018, the FASB issued authoritative guidance which allows for an optional one-time reclassification of the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the "Tax Cuts and Jobs Act" (the "Act") from accumulated other comprehensive income ("AOCI") to retained earnings. The guidance was effective January 1, 2019, with early adoption permitted. The Company elected to early adopt this guidance as of January 1, 2018 and to reclassify the stranded tax effects related to the Act, which resulted in an increase of $45 million to both retained earnings and accumulated other comprehensive loss. |
Operating Revenue
Operating Revenue | 3 Months Ended |
Mar. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Operating Revenue | Operating Revenue The Company's 87 diversified operating divisions are organized and managed based on similar product categories and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three months ended March 31, 2019 and 2018 was as follows: Three Months Ended March 31, In millions 2019 2018 Automotive OEM $ 806 $ 901 Food Equipment 518 527 Test & Measurement and Electronics 524 543 Welding 427 423 Polymers & Fluids 416 442 Construction Products 401 428 Specialty Products 465 485 Intersegment revenue (5 ) (5 ) Total $ 3,552 $ 3,744 The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's seven segments: Automotive OEM — This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include: • plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses. Products sold in this segment are primarily manufactured to the customer's specifications and are sold under long-term supply agreements with OEM auto manufacturers and other top tier auto parts suppliers. The Company typically recognizes revenue for products in this segment at the time of shipment. Certain products may be produced utilizing tooling that is owned by the customer that the Company developed and is reimbursed by the customer for the associated cost. In these arrangements, the Company typically retains a contractual right to use the customer-owned tooling for the purpose of fulfilling its obligations under the supply agreement. The Company records reimbursements for the cost of customer-owned tooling as a cost offset rather than operating revenue as tooling is not considered a product offering central to the Company's operations. Food Equipment — This segment is a highly focused and branded industry-leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food service, food institutional/restaurant and food retail markets. Products in this segment include: • warewashing equipment; • cooking equipment, including ovens, ranges and broilers; • refrigeration equipment, including refrigerators, freezers and prep tables; • food processing equipment, including slicers, mixers and scales; • kitchen exhaust, ventilation and pollution control systems; and • food equipment service, maintenance and repair. Revenue for equipment sold in this segment is typically recognized at the time of product shipment. In limited circumstances involving installation of equipment and customer acceptance, the Company may recognize revenue upon completion of installation and acceptance by the customer. Annual service contracts are typically sold separate from equipment and the related revenue is recognized on a straight-line basis over the annual service period. Operating revenue for on-demand service repairs and parts is recorded upon completion and customer acceptance of the work performed. Test & Measurement and Electronics — This segment is a branded and innovative producer of test and measurement and electronic manufacturing and maintenance, repair, and operations, or "MRO" solutions that improve efficiency and quality for customers in diverse end markets. Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, industrial capital goods, automotive original equipment manufacturers and tiers, and consumer durables markets. Products in this segment include: • equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids; • electronic assembly equipment and related consumable solder materials; • electronic components and component packaging; • static control equipment and consumables used for contamination control in clean room environments; and • pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications. Revenue for products sold in this segment is typically recognized at the time of shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue recognition is deferred until such obligations have been completed. Welding — This segment is a branded value-added equipment and specialty consumable manufacturer with innovative and leading technology. Businesses in this segment produce arc welding equipment, consumables and accessories for a wide array of industrial and commercial applications. This segment primarily serves the general industrial market, which includes fabrication, shipbuilding and other general industrial markets, and energy, construction, MRO, automotive original equipment manufacturers and tiers, and industrial capital goods markets. Products in this segment include: • arc welding equipment; • metal arc welding consumables and related accessories; and • metal jacketing and other insulation products. Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment. Polymers & Fluids — This segment is a branded supplier to niche markets that require value-added, differentiated products. Businesses in this segment produce engineered adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. This segment primarily serves the automotive aftermarket, general industrial, MRO and construction markets. Products in this segment include: • adhesives for industrial, construction and consumer purposes; • chemical fluids which clean or add lubrication to machines; • epoxy and resin-based coating products for industrial applications; • hand wipes and cleaners for industrial applications; • fluids, polymers and other supplies for auto aftermarket maintenance and appearance; • fillers and putties for auto body repair; and • polyester coatings and patch and repair products for the marine industry. Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment. Construction Products — This segment is a branded supplier of innovative engineered fastening systems and solutions. This segment primarily serves the residential construction, renovation/remodel and commercial construction markets. Products in this segment include: • fasteners and related fastening tools for wood and metal applications; • anchors, fasteners and related tools for concrete applications; • metal plate truss components and related equipment and software; and • packaged hardware, fasteners, anchors and other products for retail. Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment. Specialty Products — This segment is focused on diversified niche market opportunities with substantial patent protection producing beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. This segment primarily serves the food and beverage, consumer durables, general industrial, printing and publishing and industrial capital goods markets. Products in this segment include: • line integration, conveyor systems and line automation for the food and beverage industries; • plastic consumables that multi-pack cans and bottles and related equipment; • foil, film and related equipment used to decorate consumer products; • product coding and marking equipment and related consumables; • plastic and metal closures and components for appliances; • airport ground support equipment; and • components for medical devices. Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue is recognized when such obligations have been completed. |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The Company's effective tax rate for the three months ended March 31, 2019 and 2018 was 24.4% and 23.2% , respectively. The first quarter 2019 effective tax rate was higher primarily as a result of a discrete tax benefit of $14 million related to foreign tax credits in the first quarter of 2018. Additionally, the effective tax rate for both periods included discrete income tax benefits related to excess tax benefits from stock-based compensation of $5 million and $6 million in 2019 and 2018, respectively. The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions, including the Internal Revenue Service ("IRS"), Her Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. Due to the ongoing audits, the Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately $36 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues. |
Inventories
Inventories | 3 Months Ended |
Mar. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories Inventories as of March 31, 2019 and December 31, 2018 were as follows: In millions March 31, 2019 December 31, 2018 Raw material $ 508 $ 523 Work-in-process 171 161 Finished goods 755 731 LIFO reserve (88 ) (97 ) Total inventories $ 1,346 $ 1,318 |
Leases
Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Leases | Leases Effective January 1, 2019, the Company adopted the new lease accounting guidance which requires the recognition of a lease liability and corresponding right-of-use asset at inception for all operating leases with a noncancellable lease term of greater than one year. The new guidance did not change the recognition of rental expense for operating leases which is recognized on a straightline basis over the noncancellable lease term based on the minimum lease payments at lease inception. Changes in rent subsequent to commencement that were not included in minimum lease payments at inception are recognized as variable rent in the period incurred. The Company’s lease transactions are primarily for the use of facilities, vehicles and equipment under operating lease arrangements. Total rental expense for operating leases for the three months ended March 31, 2019 was $29 million which included $19 million related to capitalized operating leases and $10 million related to short-term operating leases and variable lease payments. Short-term operating leases have original terms of one year or less, or can be terminated at the Company's option with a short notice period and without significant penalty, and are not capitalized. The right-of-use asset related to operating leases was $223 million as of March 31, 2019 and was included in Other assets. As of March 31, 2019, the current portion of the lease liability for operating leases was $55 million and was included in Accrued expenses, and the long-term portion was $138 million and was included in Other liabilities. Future maturities of operating lease liabilities for the years ended December 31 are as follows: In millions April 1, 2019 through December 31, 2019 $ 45 2020 50 2021 34 2022 25 2023 18 2024 and future years 34 Total future minimum lease payments 206 Less: Imputed interest (13 ) Operating lease liability 193 Less: Current portion of operating lease liability (55 ) Long-term portion of operating lease liability $ 138 As of March 31, 2019, operating leases included in the lease liability had a weighted average remaining lease term of 4.8 years and a weighted average discount rate of 2.63% based on the incremental borrowing rate of the Company and its subsidiaries. As of December 31, 2018, minimum lease payments under operating leases with noncancellable terms in excess of one year for the years ending December 31 were as follows: In millions 2019 $ 67 2020 48 2021 32 2022 24 2023 18 2024 and future years 34 Total future minimum lease payments $ 223 |
Pension and Other Postretiremen
Pension and Other Postretirement Benefits | 3 Months Ended |
Mar. 31, 2019 | |
Retirement Benefits [Abstract] | |
Pension and Other Postretirement Benefits | Pension and Other Postretirement Benefits Pension and other postretirement benefit costs for the three months ended March 31, 2019 and 2018 were as follows: Three Months Ended March 31, Pension Other Postretirement Benefits In millions 2019 2018 2019 2018 Components of net periodic benefit cost: Service cost $ 13 $ 15 $ 2 $ 2 Interest cost 20 18 5 5 Expected return on plan assets (30 ) (32 ) (6 ) (6 ) Amortization of actuarial loss (gain) 5 11 — (1 ) Total net periodic benefit cost $ 8 $ 12 $ 1 $ — The service cost component of net periodic benefit cost is presented within Cost of revenue and Selling, administrative, and research and development expenses in the statement of income while the other components of net periodic benefit cost are presented within Other income (expense). The Company expects to contribute approximately $30 million to its pension plans and $5 million to its other postretirement benefit plans in 2019 . As of March 31, 2019 , contributions of $14 million to pension plans and $1 million to other postretirement benefit plans have been made. |
Debt
Debt | 3 Months Ended |
Mar. 31, 2019 | |
Debt Disclosure [Abstract] | |
Debt | Debt Short-term debt as of March 31, 2019 included $1.1 billion of commercial paper and $700 million related to the 6.25% notes due April 1, 2019. As of December 31, 2018 , short-term debt included $650 million related to the 1.95% notes due March 1, 2019 and $700 million related to the 6.25% notes due April 1, 2019, both of which were repaid on the due date. There was no commercial paper outstanding as of December 31, 2018. The approximate fair value and related carrying value of the Company's total long-term debt, including current maturities of long-term debt presented as short-term debt, as of March 31, 2019 and December 31, 2018 were as follows: In millions March 31, 2019 December 31, 2018 Fair value $ 7,201 $ 7,665 Carrying value 6,681 7,379 The approximate fair values of the Company's long-term debt, including current maturities, were based on a valuation model using Level 2 observable inputs which included market rates for comparable instruments for the respective periods. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Income (Loss) | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Accumulated Other Comprehensive Income (Loss) | Accumulated Other Comprehensive Income (Loss) The following table summarizes changes in Accumulated other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 : Three Months Ended March 31, In millions 2019 2018 Beginning balance $ (1,677 ) $ (1,287 ) Adoption of new accounting guidance related to reclassification of certain tax effects — (45 ) Foreign currency translation adjustments during the period 43 69 Income taxes (12 ) 14 Total foreign currency translation adjustments, net of tax 31 83 Pension and other postretirement benefit adjustments during the period — 1 Pension and other postretirement benefit adjustments reclassified to income 5 10 Income taxes (1 ) (2 ) Total pension and other postretirement benefit adjustments, net of tax 4 9 Ending balance $ (1,642 ) $ (1,240 ) $45 million of stranded income tax effects from Accumulated other comprehensive income (loss) to Retained earnings. Refer to Note 1. Significant Accounting Policies for additional information. Pension and other postretirement benefit adjustments reclassified to income relate to the amortization of actuarial losses. Refer to Note 6. Pension and Other Postretirement Benefits for additional information. The Company designated the € 1.0 billion of Euro notes issued in May 2015 and the € 1.0 billion of Euro notes issued in May 2014 as hedges of a portion of its net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. The carrying values of the 2015 and 2014 Euro notes were $1.1 billion and $1.1 billion , respectively, as of March 31, 2019 . Changes in the value of this debt resulting from fluctuations in the Euro to U.S. dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). The unrealized pre-tax gain recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was $237 million and $187 million as of March 31, 2019 and December 31, 2018 , respectively. The ending balance of Accumulated other comprehensive income (loss) as of March 31, 2019 and 2018 consisted of cumulative translation adjustment losses, net of tax, of $ 1.3 billion and $ 902 million , respectively, and unrecognized pension and other postretirement benefits costs, net of tax, of $ 360 million and $ 338 million , respectively. |
Segment Information
Segment Information | 3 Months Ended |
Mar. 31, 2019 | |
Segment Reporting [Abstract] | |
Segment Information | Segment Information The Company's operations are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for information regarding operating revenue and operating income for the Company's segments. |
Significant Accounting Polici_2
Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
New Accounting Pronouncements | New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new guidance is that revenue should be recognized to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, expanded revenue disclosures are required. The Company's sales arrangements with customers are predominantly short-term in nature and generally provide for transfer of control and risks and rewards of ownership at the time of product shipment or delivery of service. As such, the timing of revenue recognition under both the prior and new guidance is the same for the majority of the Company’s transactions. Effective January 1, 2018, the Company adopted the new revenue recognition guidance under the modified retrospective method and recorded a cumulative-effect adjustment reducing retained earnings by $9 million as of January 1, 2018. In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. The primary change under the new guidance is that a lessee is required to recognize a lease liability and corresponding right-of-use asset for its operating leases. The new guidance also requires additional disclosures. Effective January 1, 2019, the Company adopted the new guidance prospectively for all operating lease transactions as of and after the effective date with a noncancellable lease term greater than one year. Upon adoption, the Company recorded a lease liability of $205 million and a corresponding right-of-use asset. The new guidance did not have a material impact on the results of operations or cash flows for the three months ended March 31, 2019. Refer to Note 5. Leases for additional information regarding the Company’s lease transactions. In October 2016, the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the prior guidance. The provisions of the new guidance are being applied prospectively to intra-entity asset transfers on or after January 1, 2018 and may result in future tax rate volatility. Upon adoption of the new guidance on January 1, 2018, the Company recorded a cumulative-effect adjustment reducing deferred tax assets and retained earnings by $406 million . In August 2017, the FASB issued authoritative guidance which includes targeted improvements to simplify the application of hedge accounting and improve financial reporting of hedging activities. Effective January 1, 2019, the Company adopted the new guidance which did not have a material impact on the results of operations, financial position or cash flows. In February 2018, the FASB issued authoritative guidance which allows for an optional one-time reclassification of the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the "Tax Cuts and Jobs Act" (the "Act") from accumulated other comprehensive income ("AOCI") to retained earnings. The guidance was effective January 1, 2019, with early adoption permitted. The Company elected to early adopt this guidance as of January 1, 2018 and to reclassify the stranded tax effects related to the Act, which resulted in an increase of $45 million to both retained earnings and accumulated other comprehensive loss. |
Operating Revenue (Tables)
Operating Revenue (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of Revenue | Operating revenue by product category, which is consistent with the Company's segment presentation, for the three months ended March 31, 2019 and 2018 was as follows: Three Months Ended March 31, In millions 2019 2018 Automotive OEM $ 806 $ 901 Food Equipment 518 527 Test & Measurement and Electronics 524 543 Welding 427 423 Polymers & Fluids 416 442 Construction Products 401 428 Specialty Products 465 485 Intersegment revenue (5 ) (5 ) Total $ 3,552 $ 3,744 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories as of March 31, 2019 and December 31, 2018 were as follows: In millions March 31, 2019 December 31, 2018 Raw material $ 508 $ 523 Work-in-process 171 161 Finished goods 755 731 LIFO reserve (88 ) (97 ) Total inventories $ 1,346 $ 1,318 |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Operating Lease, Liability, Maturity | Future maturities of operating lease liabilities for the years ended December 31 are as follows: In millions April 1, 2019 through December 31, 2019 $ 45 2020 50 2021 34 2022 25 2023 18 2024 and future years 34 Total future minimum lease payments 206 Less: Imputed interest (13 ) Operating lease liability 193 Less: Current portion of operating lease liability (55 ) Long-term portion of operating lease liability $ 138 |
Schedule of Future Minimum Rental Payments for Operating Leases | As of December 31, 2018, minimum lease payments under operating leases with noncancellable terms in excess of one year for the years ending December 31 were as follows: In millions 2019 $ 67 2020 48 2021 32 2022 24 2023 18 2024 and future years 34 Total future minimum lease payments $ 223 |
Pension and Other Postretirem_2
Pension and Other Postretirement Benefits (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Retirement Benefits [Abstract] | |
Pension and Other Postretirement Benefit Costs | Pension and other postretirement benefit costs for the three months ended March 31, 2019 and 2018 were as follows: Three Months Ended March 31, Pension Other Postretirement Benefits In millions 2019 2018 2019 2018 Components of net periodic benefit cost: Service cost $ 13 $ 15 $ 2 $ 2 Interest cost 20 18 5 5 Expected return on plan assets (30 ) (32 ) (6 ) (6 ) Amortization of actuarial loss (gain) 5 11 — (1 ) Total net periodic benefit cost $ 8 $ 12 $ 1 $ — |
Debt (Tables)
Debt (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Debt Disclosure [Abstract] | |
Approximate Fair Value and Related Carrying Value of Long-term Debt, Including Current Maturities | The approximate fair value and related carrying value of the Company's total long-term debt, including current maturities of long-term debt presented as short-term debt, as of March 31, 2019 and December 31, 2018 were as follows: In millions March 31, 2019 December 31, 2018 Fair value $ 7,201 $ 7,665 Carrying value 6,681 7,379 |
Accumulated Other Comprehensi_2
Accumulated Other Comprehensive Income (Loss) (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Schedule of Accumulated Other Comprehensive Income (Loss) | The following table summarizes changes in Accumulated other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 : Three Months Ended March 31, In millions 2019 2018 Beginning balance $ (1,677 ) $ (1,287 ) Adoption of new accounting guidance related to reclassification of certain tax effects — (45 ) Foreign currency translation adjustments during the period 43 69 Income taxes (12 ) 14 Total foreign currency translation adjustments, net of tax 31 83 Pension and other postretirement benefit adjustments during the period — 1 Pension and other postretirement benefit adjustments reclassified to income 5 10 Income taxes (1 ) (2 ) Total pension and other postretirement benefit adjustments, net of tax 4 9 Ending balance $ (1,642 ) $ (1,240 ) |
Significant Accounting Polici_3
Significant Accounting Policies (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | Jan. 01, 2019 |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Operating lease, liability | $ 193 | |||
Adoption of new accounting guidance related to reclassification of certain tax effects | $ 45 | $ 0 | $ 45 | |
Accounting Standards Update 2016-02 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Operating lease, liability | $ 205 | |||
Deferred tax assets | Accounting Standards Update 2016-16 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Cumulative effect adjustment | (406) | |||
Retained Earnings | Accounting Standards Update 2016-16 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Cumulative effect adjustment | (406) | |||
Retained Earnings | Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Cumulative effect adjustment | $ (9) |
Operating Revenue (Details)
Operating Revenue (Details) | 3 Months Ended |
Mar. 31, 2019divisionSegment | |
Revenue from Contract with Customer [Abstract] | |
Number of company divisions | division | 87 |
Number of reportable segments | Segment | 7 |
Operating Revenue - Segment Rev
Operating Revenue - Segment Revenue (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Disaggregation of Revenue [Line Items] | ||
Revenue | $ 3,552 | $ 3,744 |
Operating segments | Automotive OEM | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | 806 | 901 |
Operating segments | Food Equipment | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | 518 | 527 |
Operating segments | Test & Measurement and Electronics | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | 524 | 543 |
Operating segments | Welding | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | 427 | 423 |
Operating segments | Polymers & Fluids | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | 416 | 442 |
Operating segments | Construction Products | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | 401 | 428 |
Operating segments | Specialty Products | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | 465 | 485 |
Intersegment revenue | ||
Disaggregation of Revenue [Line Items] | ||
Revenue | $ (5) | $ (5) |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Effective income tax rate reconciliation, percent | 24.40% | 23.20% |
Discrete tax expense (benefit) | $ (14) | |
Effective income tax rate reconciliation, share-based compensation, excess tax benefit, amount | $ 5 | $ 6 |
Potential decrease in unrecognized tax benefits | $ 36 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Inventory Disclosure [Abstract] | ||
Raw material | $ 508 | $ 523 |
Work-in-process | 171 | 161 |
Finished goods | 755 | 731 |
LIFO reserve | (88) | (97) |
Total inventories | $ 1,346 | $ 1,318 |
Leases (Details)
Leases (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Leases [Abstract] | |
Lease, cost | $ 29 |
Capitalized operating leases | 19 |
Short-term lease and variable lease payment | 10 |
Operating lease, right-of-use asset | 223 |
Operating lease, liability, current | 55 |
Operating lease, liability, noncurrent | $ 138 |
Operating lease, weighted average remaining lease term | 4 years 9 months 18 days |
Operating lease, weighted average discount rate, percent | 2.63% |
Leases - Future Maturities (Det
Leases - Future Maturities (Details) $ in Millions | Mar. 31, 2019USD ($) |
Leases [Abstract] | |
April 1, 2019 through December 31, 2019 | $ 45 |
2020 | 50 |
2021 | 34 |
2022 | 25 |
2023 | 18 |
2024 and future years | 34 |
Total future minimum lease payments | 206 |
Less: Imputed interest | (13) |
Operating lease liability | 193 |
Less: Current portion of operating lease liability | (55) |
Long-term portion of operating lease liability | $ 138 |
Leases - Minimum Lease Payments
Leases - Minimum Lease Payments (Details) $ in Millions | Dec. 31, 2018USD ($) |
Leases [Abstract] | |
2019 | $ 67 |
2020 | 48 |
2021 | 32 |
2022 | 24 |
2023 | 18 |
2024 and future years | 34 |
Total future minimum lease payments | $ 223 |
Pension and Other Postretirem_3
Pension and Other Postretirement Benefits (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Pension | ||
Components of net periodic benefit cost: | ||
Service cost | $ 13 | $ 15 |
Interest cost | 20 | 18 |
Expected return on plan assets | (30) | (32) |
Amortization of actuarial loss (gain) | 5 | 11 |
Total net periodic benefit cost | 8 | 12 |
Other Postretirement Benefits | ||
Components of net periodic benefit cost: | ||
Service cost | 2 | 2 |
Interest cost | 5 | 5 |
Expected return on plan assets | (6) | (6) |
Amortization of actuarial loss (gain) | 0 | (1) |
Total net periodic benefit cost | $ 1 | $ 0 |
Pension and Other Postretirem_4
Pension and Other Postretirement Benefits - Narrative (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Pension | |
Defined Benefit Plan Disclosure [Line Items] | |
Expected current year company contributions | $ 30 |
Contributions | 14 |
Other Postretirement Benefits | |
Defined Benefit Plan Disclosure [Line Items] | |
Expected current year company contributions | 5 |
Contributions | $ 1 |
Debt - Narrative (Details)
Debt - Narrative (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Debt Instrument [Line Items] | ||
Commercial paper | $ 1,100,000,000 | $ 0 |
6.25% Notes Due April 1, 2019 | ||
Debt Instrument [Line Items] | ||
Short-term Debt | $ 700,000,000 | $ 700,000,000 |
Stated interest rate | 6.25% | 6.25% |
1.95% Notes Due March 1, 2019 | ||
Debt Instrument [Line Items] | ||
Short-term Debt | $ 650,000,000 | |
Stated interest rate | 1.95% |
Debt - Fair Value and Related C
Debt - Fair Value and Related Carrying Values (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Debt Disclosure [Abstract] | ||
Fair value | $ 7,201 | $ 7,665 |
Carrying value | $ 6,681 | $ 7,379 |
Accumulated Other Comprehensi_3
Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Mar. 31, 2019 | Mar. 31, 2018 |
Changes in Accumulated Other Comprehensive Income [Roll Forward] | |||
Beginning balance | $ 4,589 | $ 3,258 | $ 4,589 |
Adoption of new accounting guidance related to reclassification of certain tax effects | (45) | 0 | (45) |
Ending balance | 3,200 | 4,163 | |
Accumulated Other Comprehensive Income Attributable to Parent | |||
Changes in Accumulated Other Comprehensive Income [Roll Forward] | |||
Beginning balance | $ (1,287) | (1,677) | (1,287) |
Ending balance | (1,642) | (1,240) | |
Accumulated Defined Benefit Plans Adjustment Attributable to Parent | |||
Changes in Accumulated Other Comprehensive Income [Roll Forward] | |||
Other comprehensive income (loss), adjustments during the period | 0 | 1 | |
Other comprehensive income (loss), adjustments reclassified to income | 5 | 10 | |
Income taxes | (1) | (2) | |
Other comprehensive income (loss), net of tax | 4 | 9 | |
Accumulated Foreign Currency Adjustment Attributable to Parent | |||
Changes in Accumulated Other Comprehensive Income [Roll Forward] | |||
Other comprehensive income (loss), adjustments during the period | 43 | 69 | |
Income taxes | (12) | 14 | |
Other comprehensive income (loss), net of tax | $ 31 | $ 83 |
Accumulated Other Comprehensi_4
Accumulated Other Comprehensive Income (Loss) - Narrative (Details) $ in Millions | Jan. 01, 2018USD ($) | Mar. 31, 2019USD ($) | Mar. 31, 2018USD ($) | Dec. 31, 2018USD ($) | May 31, 2015EUR (€) | May 31, 2014EUR (€) |
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Adoption of new accounting guidance related to reclassification of certain tax effects | $ 45 | $ 0 | $ 45 | |||
Cumulative translation adjustment losses, net of tax | 1,300 | 902 | ||||
Unrecognized pension and other postretirement benefits costs, net of tax | 360 | $ 338 | ||||
Net Investment Hedging | Euro Notes | ||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Accumulated other comprehensive income related to net investment hedge unrealized gain | 237 | $ 187 | ||||
Euro Notes Issued May 2015 | Net Investment Hedging | Euro Notes | ||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Face value of notes | € | € 1,000,000,000 | |||||
Long-term debt | 1,100 | |||||
Euro Notes Issued May 2014 | Net Investment Hedging | Euro Notes | ||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Face value of notes | € | € 1,000,000,000 | |||||
Long-term debt | $ 1,100 |
Segment Information (Details)
Segment Information (Details) | 3 Months Ended |
Mar. 31, 2019Segment | |
Segment Reporting [Abstract] | |
Number of reportable segments | 7 |
Uncategorized Items - itw-20190
Label | Element | Value |
Cumulative Effect of New Accounting Principle in Period of Adoption, Net | itw_CumulativeEffectofNewAccountingPrincipleinPeriodofAdoptionNet | $ (415,000,000) |
AOCI Including Portion Attributable to Noncontrolling Interest [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption, Net | itw_CumulativeEffectofNewAccountingPrincipleinPeriodofAdoptionNet | (45,000,000) |
Retained Earnings [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption, Net | itw_CumulativeEffectofNewAccountingPrincipleinPeriodofAdoptionNet | $ (370,000,000) |