[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2016 | |
OR | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _______________ to _______________ |
Delaware | 36-1258310 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
155 Harlem Avenue, Glenview, IL | 60025 |
(Address of principal executive offices) | (Zip Code) |
Table of Contents | ||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions except per share amounts | 2016 | 2015 | 2016 | 2015 | |||||||||||
Operating Revenue | $ | 3,495 | $ | 3,354 | $ | 10,200 | $ | 10,130 | |||||||
Cost of revenue | 2,027 | 1,953 | 5,890 | 5,947 | |||||||||||
Selling, administrative, and research and development expenses | 604 | 581 | 1,818 | 1,819 | |||||||||||
Amortization and impairment of intangible assets | 56 | 59 | 170 | 176 | |||||||||||
Operating Income | 808 | 761 | 2,322 | 2,188 | |||||||||||
Interest expense | (58 | ) | (59 | ) | (174 | ) | (168 | ) | |||||||
Other income (expense) | 13 | 23 | 34 | 65 | |||||||||||
Income Before Taxes | 763 | 725 | 2,182 | 2,085 | |||||||||||
Income Taxes | 228 | 214 | 654 | 636 | |||||||||||
Net Income | $ | 535 | $ | 511 | $ | 1,528 | $ | 1,449 | |||||||
Net Income Per Share: | |||||||||||||||
Basic | $ | 1.51 | $ | 1.40 | $ | 4.28 | $ | 3.92 | |||||||
Diluted | $ | 1.50 | $ | 1.39 | $ | 4.25 | $ | 3.90 | |||||||
Cash Dividends Per Share: | |||||||||||||||
Paid | $ | 0.55 | $ | 0.485 | $ | 1.65 | $ | 1.455 | |||||||
Declared | $ | 0.65 | $ | 0.55 | $ | 1.75 | $ | 1.52 | |||||||
Shares of Common Stock Outstanding During the Period: | |||||||||||||||
Average | 353.5 | 365.1 | 357.3 | 369.3 | |||||||||||
Average assuming dilution | 355.5 | 367.1 | 359.3 | 371.6 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net Income | $ | 535 | $ | 511 | $ | 1,528 | $ | 1,449 | |||||||
Other Comprehensive Income (Loss): | |||||||||||||||
Foreign currency translation adjustments, net of tax | (5 | ) | (335 | ) | 15 | (743 | ) | ||||||||
Pension and other postretirement benefit adjustments, net of tax | 7 | 11 | 21 | 31 | |||||||||||
Comprehensive Income (Loss) | $ | 537 | $ | 187 | $ | 1,564 | $ | 737 |
In millions | September 30, 2016 | December 31, 2015 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 2,299 | $ | 3,090 | |||
Trade receivables | 2,496 | 2,203 | |||||
Inventories | 1,167 | 1,086 | |||||
Prepaid expenses and other current assets | 223 | 341 | |||||
Total current assets | 6,185 | 6,720 | |||||
Net plant and equipment | 1,702 | 1,577 | |||||
Goodwill | 4,711 | 4,439 | |||||
Intangible assets | 1,480 | 1,560 | |||||
Deferred income taxes | 467 | 346 | |||||
Other assets | 1,164 | 1,087 | |||||
$ | 15,709 | $ | 15,729 | ||||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 1,364 | $ | 526 | |||
Accounts payable | 582 | 449 | |||||
Accrued expenses | 1,180 | 1,136 | |||||
Cash dividends payable | 228 | 200 | |||||
Income taxes payable | 132 | 57 | |||||
Total current liabilities | 3,486 | 2,368 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt | 6,329 | 6,896 | |||||
Deferred income taxes | 131 | 256 | |||||
Other liabilities | 970 | 981 | |||||
Total noncurrent liabilities | 7,430 | 8,133 | |||||
Stockholders’ Equity: | |||||||
Common stock | 6 | 6 | |||||
Additional paid-in-capital | 1,174 | 1,135 | |||||
Income reinvested in the business | 19,223 | 18,316 | |||||
Common stock held in treasury | (14,147 | ) | (12,729 | ) | |||
Accumulated other comprehensive income (loss) | (1,468 | ) | (1,504 | ) | |||
Noncontrolling interest | 5 | 4 | |||||
Total stockholders’ equity | 4,793 | 5,228 | |||||
$ | 15,709 | $ | 15,729 |
Nine Months Ended | |||||||
September 30, | |||||||
In millions | 2016 | 2015 | |||||
Cash Provided by (Used for) Operating Activities: | |||||||
Net income | $ | 1,528 | $ | 1,449 | |||
Adjustments to reconcile net income to cash provided by (used for) operating activities: | |||||||
Depreciation | 182 | 180 | |||||
Amortization and impairment of intangible assets | 170 | 176 | |||||
Change in deferred income taxes | (228 | ) | (35 | ) | |||
Provision for uncollectible accounts | 7 | 6 | |||||
(Income) loss from investments | (5 | ) | (1 | ) | |||
(Gain) loss on sale of plant and equipment | 2 | 1 | |||||
(Gain) loss on sale of operations and affiliates | 6 | (16 | ) | ||||
Stock-based compensation expense | 31 | 33 | |||||
Other non-cash items, net | (4 | ) | 7 | ||||
Change in assets and liabilities, net of acquisitions and divestitures: | |||||||
(Increase) decrease in- | |||||||
Trade receivables | (198 | ) | (157 | ) | |||
Inventories | (47 | ) | (32 | ) | |||
Prepaid expenses and other assets | (30 | ) | 22 | ||||
Increase (decrease) in- | |||||||
Accounts payable | 23 | 13 | |||||
Accrued expenses and other liabilities | (8 | ) | (88 | ) | |||
Income taxes | 209 | 38 | |||||
Other, net | — | — | |||||
Net cash provided by (used for) operating activities | 1,638 | 1,596 | |||||
Cash Provided by (Used for) Investing Activities: | |||||||
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates | (456 | ) | (6 | ) | |||
Additions to plant and equipment | (202 | ) | (209 | ) | |||
Proceeds from investments | 17 | 17 | |||||
Proceeds from sale of plant and equipment | 11 | 19 | |||||
Proceeds from sales of operations and affiliates | 1 | 29 | |||||
Other, net | (8 | ) | (3 | ) | |||
Net cash provided by (used for) investing activities | (637 | ) | (153 | ) | |||
Cash Provided by (Used for) Financing Activities: | |||||||
Cash dividends paid | (593 | ) | (542 | ) | |||
Issuance of common stock | 74 | 48 | |||||
Repurchases of common stock | (1,482 | ) | (2,002 | ) | |||
Net proceeds from (repayments of) debt with original maturities of three months or less | 188 | (662 | ) | ||||
Proceeds from debt with original maturities of more than three months | 1 | 1,098 | |||||
Repayments of debt with original maturities of more than three months | (1 | ) | (1 | ) | |||
Excess tax benefits from stock-based compensation | 25 | 18 | |||||
Other, net | (11 | ) | (11 | ) | |||
Net cash provided by (used for) financing activities | (1,799 | ) | (2,054 | ) | |||
Effect of Exchange Rate Changes on Cash and Equivalents | 7 | (378 | ) | ||||
Cash and Equivalents: | |||||||
Increase (decrease) during the period | (791 | ) | (989 | ) | |||
Beginning of period | 3,090 | 3,990 | |||||
End of period | $ | 2,299 | $ | 3,001 | |||
Supplementary Cash and Non-Cash Information: | |||||||
Cash Paid During the Period for Interest | $ | 198 | $ | 178 | |||
Cash Paid During the Period for Income Taxes, Net of Refunds | $ | 648 | $ | 585 |
In millions | September 30, 2016 | December 31, 2015 | |||||
Raw material | $ | 430 | $ | 415 | |||
Work-in-process | 145 | 130 | |||||
Finished goods | 674 | 622 | |||||
LIFO reserve | (82 | ) | (81 | ) | |||
Total inventories | $ | 1,167 | $ | 1,086 |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||||||
Pension | Other Postretirement Benefits | Pension | Other Postretirement Benefits | ||||||||||||||||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||
Components of net periodic benefit cost: | |||||||||||||||||||||||||||||||
Service cost | $ | 15 | $ | 18 | $ | 2 | $ | 3 | $ | 47 | $ | 54 | $ | 7 | $ | 8 | |||||||||||||||
Interest cost | 23 | 23 | 6 | 6 | 70 | 69 | 18 | 18 | |||||||||||||||||||||||
Expected return on plan assets | (36 | ) | (38 | ) | (6 | ) | (7 | ) | (109 | ) | (114 | ) | (17 | ) | (19 | ) | |||||||||||||||
Amortization of actuarial loss | 11 | 15 | — | — | 32 | 45 | — | — | |||||||||||||||||||||||
Amortization of prior service income | — | — | — | — | — | — | (1 | ) | — | ||||||||||||||||||||||
Net periodic benefit cost | $ | 13 | $ | 18 | $ | 2 | $ | 2 | $ | 40 | $ | 54 | $ | 7 | $ | 7 |
In millions | September 30, 2016 | December 31, 2015 | |||||
Fair value | $ | 7,860 | $ | 7,153 | |||
Carrying value | 6,979 | 6,897 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | |||||||||||
Beginning balance | $ | (1,470 | ) | $ | (1,046 | ) | $ | (1,504 | ) | $ | (658 | ) | |||
Foreign currency translation adjustments during the period | (15 | ) | (337 | ) | (15 | ) | (711 | ) | |||||||
Foreign currency translation adjustments reclassified to income | — | — | 1 | — | |||||||||||
Income taxes | 10 | 2 | 29 | (32 | ) | ||||||||||
Foreign currency translation adjustments, net of tax | (5 | ) | (335 | ) | 15 | (743 | ) | ||||||||
Pension and other postretirement benefit adjustments during the period | — | 1 | 1 | (1 | ) | ||||||||||
Pension and other postretirement benefit adjustments reclassified to income | 11 | 15 | 31 | 45 | |||||||||||
Income taxes | (4 | ) | (5 | ) | (11 | ) | (13 | ) | |||||||
Pension and other postretirement benefit adjustments, net of tax | 7 | 11 | 21 | 31 | |||||||||||
Ending balance | $ | (1,468 | ) | $ | (1,370 | ) | $ | (1,468 | ) | $ | (1,370 | ) |
• | ITW’s 80/20 management process is the operating system that is applied in every ITW business. Initially introduced as a manufacturing efficiency tool in the 1980’s, ITW has continually refined, improved and expanded 80/20 into a proprietary, holistic business management process that generates significant value for the Company. Through the application of data-driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the “80”) and eliminates complexity associated with the less profitable opportunities (the “20”). 80/20 enables ITW businesses to consistently deliver world-class operational excellence in regards to product availability, quality, and innovation, while generating superior financial performance; |
• | Customer-back innovation has fueled decades of profitable growth at ITW. The Company’s unique innovation approach is built on the insight gathered from the 80/20 management process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their “80” customers. ITW’s innovation efforts are focused on understanding customer needs, particularly those in “80” markets with solid long-term growth fundamentals, and then creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of more than 16,000 granted and pending patents; |
• | ITW’s decentralized, entrepreneurial culture allows ITW businesses to be fast, focused, and responsive. ITW businesses have significant flexibility within the framework of the ITW Business Model to customize their approach in order to best serve their customers. ITW colleagues are clear about what is expected of them with regard to ITW’s business model, strategy, and values. This leads to a focused and simple organizational structure that, combined with outstanding execution, delivers operational excellence adapted to their specific customers and end markets. |
• | Organic business - acquired businesses that have been included in the Company's results of operations for more than 12 months on a constant currency basis. |
• | Operating leverage - the estimated effect of the organic revenue volume changes on organic operating income, assuming variable margins remain the same as the prior period. |
• | Price/cost - represents the estimated net impact of increases or decreases in the cost of materials used in the Company's products versus changes in the selling price to the Company's customers. |
• | Product line simplification (PLS) - focuses businesses on eliminating the complexity and overhead costs associated with smaller product lines and customers, and focuses businesses on supporting and growing their largest customers and product lines; in the short-term, PLS may result in a decrease in revenue and overhead costs while improving operating margin. In the long-term, PLS is expected to result in growth in revenue, profitability, and returns. |
Three Months Ended | |||||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acq/Div | Restructuring | Impairment | Foreign Currency | Total | |||||||||||||||
Operating revenue | $ | 3,495 | $ | 3,354 | 4.2 | % | 1.6 | % | 3.5 | % | — | % | — | % | (0.9 | )% | 4.2 | % | |||||
Operating income | $ | 808 | $ | 761 | 6.2 | % | 7.5 | % | 0.2 | % | (0.5 | )% | 0.3 | % | (1.3 | )% | 6.2 | % | |||||
Operating margin % | 23.1% | 22.7% | 40 bps | 130 bps | (80) bps | (10) bps | — | — | 40 bps |
Nine Months Ended | |||||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acq/Div | Restructuring | Impairment | Foreign Currency | Total | |||||||||||||||
Operating revenue | $ | 10,200 | $ | 10,130 | 0.7 | % | 1.2 | % | 1.1 | % | — | % | — | % | (1.6 | )% | 0.7 | % | |||||
Operating income | $ | 2,322 | $ | 2,188 | 6.1 | % | 7.7 | % | — | % | 0.2 | % | — | % | (1.8 | )% | 6.1 | % | |||||
Operating margin % | 22.8% | 21.6% | 120 bps | 140 bps | (20) bps | — | — | — | 120 bps |
• | Operating revenue increased in the third quarter and year-to-date periods due to an increase in organic and acquisition revenues, partially offset by the unfavorable effect of foreign currency translation. |
• | Organic revenue grew 1.6% and 1.2% in the third quarter and year-to-date periods, respectively, as consumer-facing businesses increased 2% and 3% in each respective period, representing approximately 60% of total revenues. Industrial-facing businesses were flat in the third quarter and declined 1% in the year-to-date periods. |
◦ | Six of seven segments had worldwide organic revenue growth primarily due to higher end market demand, penetration gains and product innovation in each respective period. Organic revenue declined in the Welding segment in each respective period primarily due to lower capital spending in the industrial end markets and sluggish demand in the oil and gas end market. |
◦ | PLS activities associated with the portfolio management component of the Company's Enterprise Strategy reduced organic revenue growth by approximately one percentage point. |
◦ | North American organic revenue increased 0.7% in the third quarter. Growth in the Test & Measurement and Electronics, Automotive OEM, Food Equipment and Construction Products segments was partially offset by the decline in the Welding, Specialty Products and Polymers & Fluids segments. In the year-to-date period, North American organic revenue increased 1.0% as growth in six segments was partially offset by a decline in the Welding segment. |
◦ | Europe, Middle East and Africa organic revenue increased 3.1% and 2.2% in the third quarter and year-to-date periods, respectively, as growth in six segments was partially offset by a decline in the Food Equipment segment in the third quarter and a decline in the Welding segment in the year-to-date period. |
◦ | Asia Pacific organic revenue increased 3.8% in the third quarter primarily due to growth in the Automotive OEM, Test & Measurement and Electronics, Construction Products, Specialty Products and Food Equipment segments, partially offset by a decline in the Welding and Polymers & Fluids segments. In the year-to-date period, Asia Pacific organic revenue increased 1.0% primarily due to growth in the Automotive OEM, Construction Products, Specialty Products and Food Equipment segments, partially offset by a decline in the Welding, Polymers & Fluids and Test & Measurement and Electronics segments. |
• | Operating margin of 23.1% in the third quarter increased 40 basis points primarily driven by the benefit of the Company's enterprise initiatives of 120 basis points, positive operating leverage of 30 basis points and favorable price/cost of 10 basis points, partially offset by the dilutive impact of 80 basis points from the EF&C acquisition, additional investment in the business and slightly higher expenses related to certain employee benefits. Operating margin was 22.8% in the year-to-date period, an increase of 120 basis points. The primary driver of the operating margin improvement was the benefit of the Company's enterprise initiatives that contributed 130 basis points. Favorable price/cost and positive operating leverage each contributed 20 basis points and were partially offset by the dilutive impact of 20 basis points from the EF&C acquisition, additional investment in the business and slightly higher expenses related to certain employee benefits. |
• | Diluted earnings per share (EPS) of $1.50 increased 7.9% for the third quarter. In the year-to-date period, EPS of $4.25 increased 9.0%. |
• | Free cash flow was $543 million and $1.4 billion in the third quarter and year-to-date periods, respectively. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure. |
• | The Company repurchased approximately 4.3 million and 14.4 million shares of its common stock in the third quarter and year-to-date periods, respectively, for approximately $500 million and $1.5 billion, respectively. |
• | The Company increased the quarterly dividend by 18.2% in the third quarter of 2016. Total cash dividends of $195 million and $593 million were paid in the third quarter and year-to-date periods of 2016, respectively. |
• | Adjusted after-tax return on average invested capital was 23.0% for the third quarter and 22.3% for the year-to-date period, an increase of 140 basis points and 180 basis points, respectively. Refer to the Adjusted After-Tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||
Dollars in millions | Operating Revenue | Operating Income | Operating Revenue | Operating Income | |||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
Automotive OEM | $ | 765 | $ | 612 | $ | 166 | $ | 156 | $ | 2,091 | $ | 1,914 | $ | 512 | $ | 478 | |||||||||||||||
Food Equipment | 544 | 551 | 149 | 144 | 1,578 | 1,564 | 405 | 370 | |||||||||||||||||||||||
Test & Measurement and Electronics | 516 | 490 | 108 | 82 | 1,487 | 1,469 | 274 | 232 | |||||||||||||||||||||||
Welding | 361 | 396 | 95 | 98 | 1,125 | 1,255 | 282 | 326 | |||||||||||||||||||||||
Polymers & Fluids | 422 | 423 | 89 | 80 | 1,283 | 1,310 | 266 | 262 | |||||||||||||||||||||||
Construction Products | 415 | 409 | 94 | 94 | 1,223 | 1,209 | 278 | 241 | |||||||||||||||||||||||
Specialty Products | 477 | 479 | 125 | 115 | 1,429 | 1,427 | 373 | 334 | |||||||||||||||||||||||
Intersegment revenues | (5 | ) | (6 | ) | — | — | (16 | ) | (18 | ) | — | — | |||||||||||||||||||
Unallocated | — | — | (18 | ) | (8 | ) | — | — | (68 | ) | (55 | ) | |||||||||||||||||||
Total | $ | 3,495 | $ | 3,354 | $ | 808 | $ | 761 | $ | 10,200 | $ | 10,130 | $ | 2,322 | $ | 2,188 |
• | plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses. |
Three Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 765 | $ | 612 | 24.8 | % | 6.6 | % | 19.2 | % | — | % | (1.0 | )% | 24.8 | % | |||||
Operating income | $ | 166 | $ | 156 | 7.0 | % | 7.9 | % | 0.9 | % | (0.7 | )% | (1.1 | )% | 7.0 | % | |||||
Operating margin % | 21.8 | % | 25.4 | % | (360) bps | 30 bps | (370) bps | (20) bps | — | (360) bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 2,091 | $ | 1,914 | 9.2 | % | 4.4 | % | 6.1 | % | — | % | (1.3 | )% | 9.2 | % | |||||
Operating income | $ | 512 | $ | 478 | 7.2 | % | 8.1 | % | 0.3 | % | — | % | (1.2 | )% | 7.2 | % | |||||
Operating margin % | 24.5 | % | 25.0 | % | (50) bps | 80 bps | (140) bps | — | 10 bps | (50) bps |
• | Operating revenue increased in the third quarter and year-to-date periods due to the EF&C acquisition and higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. |
• | Organic revenue grew 6.6% and 4.4% in the third quarter and year-to-date periods, respectively, as a result of penetration gains, exceeding worldwide auto build growth of 5% and 4% in the respective periods. |
◦ | North American organic revenue grew 4.7% and 3.8% in the third quarter and year-to-date periods, respectively, versus total North American auto build growth of 2% and 3% in the respective periods. Auto |
◦ | European organic revenue grew 5.0% and 5.3% in the third quarter and year-to-date periods, respectively. European auto builds declined 2% in the third quarter and grew 3% in the year-to-date period. |
◦ | Asia Pacific organic revenue increased 20.0% and 7.4% in the third quarter and year-to-date periods, respectively, driven by product penetration gains in China due to new product launches in 2016. China organic revenue growth of 40.2% and 18.5% in the third quarter and year-to-date periods, respectively, exceeded Chinese auto build growth of 23% and 11% in each respective period. Auto builds of foreign automotive manufacturers in China, where the Company has higher content, grew 31% in the third quarter and 10% in the year-to-date period. |
• | Operating margin was 21.8% in the third quarter. The decrease of 360 basis points was driven by the dilutive impact of 370 basis points from the EF&C acquisition. Positive operating leverage of 90 basis points and the net benefits from the Company's enterprise initiatives and cost management of 30 basis points were partially offset by unfavorable price/cost of 90 basis points and higher restructuring expenses. |
• | In the year-to-date period, operating margin of 24.5% decreased 50 basis points primarily due to the dilutive impact of 140 basis points from the EF&C acquisition. Positive operating leverage of 60 basis points and the net benefits from the Company's enterprise initiatives and cost management of 50 basis points were partially offset by unfavorable price/cost of 30 basis points. |
• | 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. |
Three Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 544 | $ | 551 | (1.3 | )% | 0.7 | % | — | % | — | % | (2.0 | )% | (1.3 | )% | |||||
Operating income | $ | 149 | $ | 144 | 3.0 | % | 5.2 | % | — | % | (0.4 | )% | (1.8 | )% | 3.0 | % | |||||
Operating margin % | 27.4 | % | 26.3 | % | 110 bps | 120 bps | — | (10) bps | — | 110 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,578 | $ | 1,564 | 1.0 | % | 2.8 | % | — | % | — | % | (1.8 | )% | 1.0 | % | |||||
Operating income | $ | 405 | $ | 370 | 9.4 | % | 9.7 | % | — | % | 1.2 | % | (1.5 | )% | 9.4 | % | |||||
Operating margin % | 25.7 | % | 23.7 | % | 200 bps | 160 bps | — | 30 bps | 10 bps | 200 bps |
• | Operating revenue decreased in the third quarter due to the unfavorable effect of foreign currency translation, partially offset by organic revenue growth. In the year-to-date period, operating revenue increased due to organic revenue growth, partially offset by the unfavorable effect of foreign currency translation. |
• | Organic revenue increased 0.7% in the third quarter as equipment and service organic revenue grew 0.4% and 1.4%, respectively. In the year-to-date period, organic revenue increased 2.8% as equipment and service organic revenue grew 3.6% and 1.6%, respectively. |
◦ | North American organic revenue increased 2.7% in the third quarter and 4.3% in the year-to-date periods. North American equipment revenue increased 3.3% in the third quarter primarily due to increased demand in refrigeration and retail and 5.7% in the year-to-date period primarily due to strong end market demand in the retail, refrigeration, warewash and cooking businesses. Service revenue in North America increased 1.6% and 2.0% in the third quarter and year-to-date periods, respectively. |
◦ | International organic revenue declined 1.9% in the third quarter and grew 0.9% in the year-to-date periods. International equipment organic revenue decreased 2.9% in the third quarter primarily due to lower demand in the United Kingdom and France and increased 1.0% in the year-to-date period primarily due to growth in Europe. International service organic revenue grew 1.1% and 0.8% in the third quarter and year-to-date periods, respectively. |
• | Operating margin was 27.4% in the third quarter. The 110 basis point improvement was primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 70 basis points, favorable price/cost of 40 basis points and positive operating leverage of 10 basis points. |
• | In the year-to-date period, operating margin of 25.7% increased 200 basis points primarily driven by positive operating leverage of 60 basis points, the net benefits of the Company's enterprise initiatives and cost management of 50 basis points, favorable price/cost of 50 basis points and lower restructuring expenses. |
• | 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 telecommunications, electronics, medical and transportation applications. |
Three Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 516 | $ | 490 | 5.3 | % | 6.6 | % | — | % | — | % | (1.3 | )% | 5.3 | % | |||||
Operating income | $ | 108 | $ | 82 | 33.2 | % | 34.0 | % | — | % | 1.0 | % | (1.8 | )% | 33.2 | % | |||||
Operating margin % | 21.0 | % | 16.6 | % | 440 bps | 420 bps | — | 20 bps | — | 440 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,487 | $ | 1,469 | 1.2 | % | 2.5 | % | — | % | — | % | (1.3 | )% | 1.2 | % | |||||
Operating income | $ | 274 | 232 | 18.4 | % | 19.5 | % | — | % | 0.8 | % | (1.9 | )% | 18.4 | % | ||||||
Operating margin % | 18.4 | % | 15.8 | % | 260 bps | 260 bps | — | 10 bps | (10) bps | 260 bps |
• | Operating revenue increased in the third quarter and year-to-date periods due to organic revenue growth, partially offset by the unfavorable effect of foreign currency translation. |
• | Organic revenue increased 6.6% and 2.5% in the third quarter and year-to-date periods, respectively. |
◦ | Worldwide electronics organic revenue increased 12.5% and 5.8% in the third quarter and year-to-date periods, respectively, primarily due to an increase in the electronics assembly businesses in the North American solar and semi-conductor end markets. Other electronics businesses grew 0.4% in the third quarter, primarily due to growth in Europe in the pressure sensitive adhesives businesses, and declined 0.2% in the year-to-date period primarily due to PLS activities in Asia Pacific. |
◦ | Organic revenue for the worldwide test and measurement businesses increased 1.4% in the third quarter primarily due to easier year-over-year comparisons across all major regions. In the year-to-date period, organic revenue decreased 0.4% primarily due to the continued softness in oil and gas related end markets and the impact of a weak capital spending environment in North America and Europe. |
• | Operating margin was 21.0% in the third quarter. The increase of 440 basis points was primarily driven by the net benefits resulting from the Company's enterprise initiatives and cost management of 210 basis points, positive operating leverage of 190 basis points and favorable price/cost of 20 basis points. |
• | In the year-to-date period, operating margin of 18.4% increased 260 basis points primarily driven by the net benefits resulting from the Company's enterprise initiatives and cost management of 160 basis points, positive operating leverage of 70 basis points and favorable price/cost of 30 basis points. |
• | arc welding equipment; |
• | metal arc welding consumables and related accessories; and |
• | metal jacketing and other insulation products. |
Three Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Restructuring | Impairment | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 361 | $ | 396 | (8.9 | )% | (8.5 | )% | — | % | — | % | (0.4 | )% | (8.9 | )% | |||||
Operating income | $ | 95 | $ | 98 | (2.6 | )% | (3.4 | )% | 1.5 | % | — | % | (0.7 | )% | (2.6 | )% | |||||
Operating margin % | 26.5 | % | 24.8 | % | 170 bps | 130 bps | 40 bps | — | — | 170 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Restructuring | Impairment | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,125 | $ | 1,255 | (10.4 | )% | (9.4 | )% | — | % | — | % | (1.0 | )% | (10.4 | )% | |||||
Operating income | $ | 282 | $ | 326 | (13.5 | )% | (9.8 | )% | (2.2 | )% | (0.9 | )% | (0.6 | )% | (13.5 | )% | |||||
Operating margin % | 25.1 | % | 26.0 | % | (90) bps | (10) bps | (60) bps | (30) bps | 10 bps | (90) bps |
• | Operating revenue decreased in the third quarter and year-to-date periods due to the decline in organic revenue and the unfavorable effect of foreign currency translation. |
• | Organic revenue decreased 8.5% and 9.4% in the third quarter and year-to-date periods, respectively, due to lower demand in the oil and gas and industrial end markets and the impact of a soft capital spending environment. In the third quarter, organic revenue declined 8% and 9% for equipment and consumables, respectively. In the year-to-date period, organic revenue declined 11% and 8% for equipment and consumables, respectively. |
◦ | North American organic revenue declined 8.7% and 7.9% in the third quarter and year-to-date periods, respectively, driven by decreases across the oil and gas end markets and industrial end markets primarily related to heavy equipment for agriculture, infrastructure and mining. |
◦ | International organic revenue decreased 7.8% and 14.9% in the third quarter and year-to-date periods, respectively, primarily due to weak oil and gas end markets in Europe and Asia Pacific. |
• | Operating margin was 26.5% in the third quarter. The increase of 170 basis points was due to the net benefits of the Company's enterprise initiatives and cost management of 250 basis points, favorable price/cost of 40 basis points and lower restructuring expenses, partially offset by negative operating leverage of 160 basis points. |
• | In the year-to-date period, operating margin of 25.1% declined 90 basis points primarily due to negative operating leverage of 190 basis points, higher restructuring expenses, lower variable margins due to product mix from lower sales of higher margin equipment and the unfavorable impact of intangible asset impairment, partially offset by the net benefits of the Company's enterprise initiatives and cost management of 190 basis points and favorable price/cost of 40 basis points. |
• | 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. |
Three Months Ended | |||||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acq/Div | Restructuring | Impairment | Foreign Currency | Total | |||||||||||||||
Operating revenue | $ | 422 | $ | 423 | — | % | 0.8 | % | — | % | — | % | — | % | (0.8 | )% | — | % | |||||
Operating income | $ | 89 | $ | 80 | 10.6 | % | 8.2 | % | — | % | 1.6 | % | 3.0 | % | (2.2 | )% | 10.6 | % | |||||
Operating margin % | 21.0 | % | 19.0 | % | 200 bps | 140 bps | — | 30 bps | 50 bps | (20) bps | 200 bps |
Nine Months Ended | |||||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acq/Div | Restructuring | Impairment | Foreign Currency | Total | |||||||||||||||
Operating revenue | $ | 1,283 | $ | 1,310 | (2.0 | )% | 1.1 | % | (0.3 | )% | — | % | — | % | (2.8 | )% | (2.0 | )% | |||||
Operating income | $ | 266 | $ | 262 | 1.5 | % | 4.1 | % | (0.3 | )% | (0.3 | )% | 0.9 | % | (2.9 | )% | 1.5 | % | |||||
Operating margin % | 20.7 | % | 20.0 | % | 70 bps | 60 bps | — | (10) bps | 20 bps | — | 70 bps |
• | Operating revenue was flat in the third quarter as organic revenue growth was offset by the unfavorable effect of foreign currency translation. In the year-to-date period, operating revenue decreased primarily due to the unfavorable effect of foreign currency translation, partially offset by organic revenue growth. |
• | Organic revenue increased 0.8% and 1.1% in the third quarter and year-to-date periods, respectively, primarily due to stronger demand in European and South American end markets. |
◦ | Organic revenue for the worldwide polymers businesses increased 3.7% and 0.9% in the third quarter and year-to-date periods, respectively, primarily driven by an increase in Europe and South America, partially offset by a decline in North America. Organic revenue for the worldwide automotive aftermarket businesses increased 0.4% and 1.8% in the third quarter and year-to-date periods, respectively, primarily driven by an increase in North America. Organic revenue for the worldwide fluids businesses decreased 1.1% in the third quarter due to a decline in North America. Organic revenue for the worldwide fluids businesses increased |
• | Operating margin of 21.0% in the third quarter increased 200 basis points primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 140 basis points, lower restructuring expenses and favorable operating leverage of 20 basis points, partially offset by unfavorable price/cost of 20 basis points. In addition, the third quarter of 2015 included the unfavorable impact of intangible asset impairment. See the Goodwill and Intangible Assets note in Item 1 - Financial Statements for further discussion of the Company's annual impairment assessment. |
• | In the year-to-date period, operating margin of 20.7% increased 70 basis points primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 80 basis points and favorable operating leverage of 40 basis points, partially offset by the impact of a first quarter 2015 discrete claim recovery of 40 basis points and unfavorable price/cost of 20 basis points. |
• | 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. |
Three Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 415 | $ | 409 | 1.6 | % | 1.5 | % | (0.2 | )% | — | % | 0.3 | % | 1.6 | % | |||||
Operating income | $ | 94 | $ | 94 | (0.2 | )% | 8.0 | % | (0.3 | )% | (8.3 | )% | 0.4 | % | (0.2 | )% | |||||
Operating margin % | 22.6 | % | 23.1 | % | (50) bps | 140 bps | — | (190) bps | — | (50) bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,223 | $ | 1,209 | 1.2 | % | 3.1 | % | (0.2 | )% | — | % | (1.7 | )% | 1.2 | % | |||||
Operating income | $ | 278 | $ | 241 | 15.4 | % | 17.4 | % | (0.2 | )% | 0.4 | % | (2.2 | )% | 15.4 | % | |||||
Operating margin % | 22.7 | % | 19.9 | % | 280 bps | 280 bps | (10) bps | 10 bps | — | 280 bps |
• | Operating revenue increased in the third quarter primarily due to organic revenue growth. In the year-to-date period, operating revenue increased primarily due to organic revenue growth, partially offset by the unfavorable effect of foreign currency translation. |
• | Organic revenue increased 1.5% and 3.1% in the third quarter and year-to-date periods, respectively. |
◦ | North American organic revenue increased 1.1% in the third quarter. Renovation/remodel increased 3.5% and commercial increased 5.2% due to higher demand, partially offset by a decline of 1.3% in residential. In the year-to-date period, North American organic revenue grew 3.1% driven by growth of 5.0% in renovation/remodel, 6.1% in commercial and 0.6% in residential. |
◦ | International organic revenue increased 1.9% and 3.2% in the third quarter and year-to-date periods, respectively. Asia Pacific organic revenue increased 2.1% and 3.6% in the third quarter and year-to-date periods, respectively, primarily due to growth in Australia and New Zealand. European organic revenue increased 1.6% and 2.8% in the third quarter and year-to-date periods, respectively, primarily due to growth in the United Kingdom. |
• | Operating margin was 22.6% in the third quarter. The decrease of 50 basis points was driven by higher restructuring expenses of 190 basis points, partially offset by the net benefits of the Company's enterprise initiatives and cost |
• | In the year-to-date period, operating margin of 22.7% increased 280 basis points primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 140 basis points, positive operating leverage of 80 basis points and favorable price/cost of 60 basis points. |
• | 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 fasteners and components for appliances; |
• | airport ground support equipment; and |
• | components for medical devices. |
Three Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 477 | $ | 479 | (0.6 | )% | 0.1 | % | — | % | — | % | (0.7 | )% | (0.6 | )% | |||||
Operating income | $ | 125 | $ | 115 | 8.3 | % | 7.8 | % | — | % | 1.6 | % | (1.1 | )% | 8.3 | % | |||||
Operating margin % | 26.1 | % | 24.0 | % | 210 bps | 180 bps | — | 40 bps | (10) bps | 210 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2016 | 2015 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,429 | $ | 1,427 | 0.1 | % | 1.2 | % | — | % | — | % | (1.1 | )% | 0.1 | % | |||||
Operating income | $ | 373 | $ | 334 | 11.7 | % | 11.4 | % | — | % | 1.5 | % | (1.2 | )% | 11.7 | % | |||||
Operating margin % | 26.1 | % | 23.4 | % | 270 bps | 230 bps | — | 40 bps | — | 270 bps |
• | Operating revenue decreased in the third quarter primarily due to the unfavorable effect of foreign currency translation, partially offset by organic revenue growth. In the year-to-date period, operating revenue increased due to organic revenue growth, partially offset by the unfavorable effect of foreign currency translation. |
• | Organic revenue increased 0.1% and 1.2% in the third quarter and year-to-date periods, respectively, primarily driven by growth in the consumer packaging businesses. |
◦ | North American organic revenue declined 1.4% in the third quarter due to a decline in the equipment businesses, partially offset by an increase in the consumer packaging businesses. North American organic revenue increased 1.1% in the year-to-date period driven by growth in the consumer packaging businesses, partially offset by the decline in the equipment businesses. |
◦ | International organic revenue increased 2.8% and 1.4% in the third quarter and year-to-date periods, respectively, driven by growth in Europe and Asia Pacific. |
• | Operating margin was 26.1% in the third quarter. The increase of 210 basis points was primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 180 basis points and lower restructuring expenses. |
• | In the year-to-date period, operating margin of 26.1% increased 270 basis points primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 210 basis points and lower restructuring expenses. |
• | Interest expense was $58 million and $59 million in the third quarter of 2016 and 2015, respectively. Interest expense of $174 million in the year-to-date period increased from $168 million in 2015, primarily due to the Euro notes issued in May 2015. |
• | Other income (expense) was income of $13 million in the third quarter of 2016, a decrease of $10 million primarily driven by the impact of foreign currency translation losses and lower interest income, partially offset by an increase in equity investment income. Other income (expense) was income of $34 million in the year-to-date period, a decrease of $31 million primarily due to a $15 million gain on the sale of a business in the first quarter of 2015, lower interest income and a $6 million loss on the anticipated sale of a business in the second quarter of 2016, partially offset by higher equity investment income. |
• | The effective tax rate for the year-to-date period of 2016 was 30.0% compared to 30.5% in 2015. |
• | internal investments to support organic growth and sustain core businesses; |
• | payment of an attractive dividend to shareholders; and |
• | external investments in selective strategic acquisitions that support organic growth focus, and an active share repurchase program. |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net cash provided by operating activities | $ | 624 | $ | 706 | $ | 1,638 | $ | 1,596 | |||||||
Additions to plant and equipment | (81 | ) | (62 | ) | (202 | ) | (209 | ) | |||||||
Free cash flow | $ | 543 | $ | 644 | $ | 1,436 | $ | 1,387 | |||||||
Cash dividends paid | $ | (195 | ) | $ | (177 | ) | $ | (593 | ) | $ | (542 | ) | |||
Repurchases of common stock | (482 | ) | (216 | ) | (1,482 | ) | (2,002 | ) | |||||||
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates | (454 | ) | — | (456 | ) | (6 | ) | ||||||||
Net proceeds from (repayment of) debt | 499 | (7 | ) | 188 | 435 | ||||||||||
Other | 36 | 75 | 109 | 117 | |||||||||||
Effect of exchange rate changes on cash and equivalents | (3 | ) | (176 | ) | 7 | (378 | ) | ||||||||
Net increase (decrease) in cash and equivalents | $ | (56 | ) | $ | 143 | $ | (791 | ) | $ | (989 | ) |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
Dollars in millions | 2016 | 2015 | 2016 | 2015 | |||||||||||
Operating income | $ | 808 | $ | 761 | $ | 2,322 | $ | 2,188 | |||||||
Tax rate | 30.0 | % | 29.6 | % | 30.0 | % | 30.5 | % | |||||||
Income taxes | (243 | ) | (225 | ) | (697 | ) | (668 | ) | |||||||
Operating income after taxes | $ | 565 | $ | 536 | $ | 1,625 | $ | 1,520 | |||||||
Invested capital: | |||||||||||||||
Trade receivables | $ | 2,496 | $ | 2,339 | $ | 2,496 | $ | 2,339 | |||||||
Inventories | 1,167 | 1,153 | 1,167 | 1,153 | |||||||||||
Net plant and equipment | 1,702 | 1,601 | 1,702 | 1,601 | |||||||||||
Goodwill and intangible assets | 6,191 | 6,088 | 6,191 | 6,088 | |||||||||||
Accounts payable and accrued expenses | (1,762 | ) | (1,635 | ) | (1,762 | ) | (1,635 | ) | |||||||
Other, net | 393 | 313 | 393 | 313 | |||||||||||
Total invested capital | $ | 10,187 | $ | 9,859 | $ | 10,187 | $ | 9,859 | |||||||
Average invested capital | $ | 9,973 | $ | 10,038 | $ | 9,821 | $ | 10,039 | |||||||
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) | (116 | ) | (121 | ) | (114 | ) | (126 | ) | |||||||
Adjusted average invested capital | $ | 9,857 | $ | 9,917 | $ | 9,707 | $ | 9,913 | |||||||
Adjusted return on average invested capital | 23.0 | % | 21.6 | % | 22.3 | % | 20.5 | % |
In millions | September 30, 2016 | December 31, 2015 | Increase/ (Decrease) | ||||||||
Current assets: | |||||||||||
Cash and equivalents | $ | 2,299 | $ | 3,090 | $ | (791 | ) | ||||
Trade receivables | 2,496 | 2,203 | 293 | ||||||||
Inventories | 1,167 | 1,086 | 81 | ||||||||
Other | 223 | 341 | (118 | ) | |||||||
Total current assets | 6,185 | 6,720 | (535 | ) | |||||||
Current liabilities: | |||||||||||
Short-term debt | 1,364 | 526 | 838 | ||||||||
Accounts payable and accrued expenses | 1,762 | 1,585 | 177 | ||||||||
Other | 360 | 257 | 103 | ||||||||
Total current liabilities | 3,486 | 2,368 | 1,118 | ||||||||
Net working capital | $ | 2,699 | $ | 4,352 | $ | (1,653 | ) |
In millions | September 30, 2016 | December 31, 2015 | |||||
Short-term debt | $ | 1,364 | $ | 526 | |||
Long-term debt | 6,329 | 6,896 | |||||
Total debt | $ | 7,693 | $ | 7,422 |
Dollars in millions | September 30, 2016 | December 31, 2015 | |||||
Total debt | $ | 7,693 | $ | 7,422 | |||
Net income | $ | 1,978 | $ | 1,899 | |||
Add: | |||||||
Interest expense | 232 | 226 | |||||
Other income | (47 | ) | (78 | ) | |||
Income taxes | 838 | 820 | |||||
Depreciation | 246 | 244 | |||||
Amortization and impairment of intangible assets | 227 | 233 | |||||
EBITDA | $ | 3,474 | $ | 3,344 | |||
Total debt to EBITDA ratio | 2.2 | 2.2 |
In millions | |||
Total stockholders’ equity, December 31, 2015 | $ | 5,228 | |
Net income | 1,528 | ||
Cash dividends declared | (621 | ) | |
Repurchases of common stock | (1,500 | ) | |
Stock option and restricted stock activity | 119 | ||
Foreign currency translation adjustments, net of tax | 15 | ||
Other | 24 | ||
Total stockholders’ equity, September 30, 2016 | $ | 4,793 |
• | The acquired business could under-perform relative to the Company’s expectations and the price paid for it, or not perform in accordance with the Company’s anticipated timetable. |
• | The acquired business could cause the Company's financial results to differ from expectations in any given fiscal period, or over the long term. |
• | Acquisition-related earnings charges could adversely impact operating results. |
• | The acquired business could place unanticipated demands on the Company's management, operational resources and financial and internal control systems. |
• | The Company may assume unknown liabilities, known contingent liabilities that become realized or known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the |
• | As a result of acquisitions, the Company has in the past recorded significant goodwill and other identifiable intangible assets on its balance sheet. If the Company is not able to realize the value of these assets, it may recognize charges relating to the impairment of these assets. |
• | fluctuation in currency exchange rates; |
• | limitations on ownership or participation in local enterprises; |
• | price controls, exchange controls and limitations on repatriation of earnings; |
• | transportation delays and interruptions; |
• | political, social and economic instability and disruptions; |
• | acts of terrorism; |
• | government embargoes or foreign trade restrictions; |
• | the imposition of duties and tariffs and other trade barriers; |
• | import and export controls; |
• | labor unrest and current and changing regulatory environments; |
• | the potential for expropriation or nationalization of enterprises; |
• | difficulties in staffing and managing multi-national operations; |
• | limitations on its ability to enforce legal rights and remedies; and |
• | potentially adverse tax consequences. |
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 Program | Maximum Value of Shares That May Yet Be Purchased Under Program | ||||||||||
July 2016 | 0.8 | $ | 106.55 | 0.8 | $ | 4,363 | ||||||||
August 2016 | 1.5 | $ | 118.99 | 1.5 | $ | 4,179 | ||||||||
September 2016 | 2.0 | $ | 117.99 | 2.0 | $ | 3,946 | ||||||||
Total | 4.3 | 4.3 |
Item 6 – Exhibits |
Exhibit Index |
Exhibit Number | Exhibit Description | |
31 | Rule 13a-14(a) Certification. | |
32 | Section 1350 Certification. | |
101 | The following financial and related information from the Illinois Tool Works Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 is formatted in Extensible Business Reporting Language (XBRL) and submitted electronically herewith: (i) Statement of Income, (ii) Statement of Comprehensive Income, (iii) Statement of Financial Position, (iv) Statement of Cash Flows and (v) related Notes to Financial Statements. |
ILLINOIS TOOL WORKS INC. | |||
Dated: | October 27, 2016 | By: | /s/ Randall J. Scheuneman |
Randall J. Scheuneman | |||
Vice President & Chief Accounting Officer | |||
(Principal Accounting Officer and Duly Authorized Officer) |
1. | I have reviewed this report on Form 10-Q of Illinois Tool Works Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: | October 27, 2016 | /s/ E. Scott Santi | |
E. Scott Santi | |||
Chairman & Chief Executive Officer |
1. | I have reviewed this report on Form 10-Q of Illinois Tool Works Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: | October 27, 2016 | /s/ Michael M. Larsen | |
Michael M. Larsen | |||
Senior Vice President & Chief Financial Officer |
Dated: | October 27, 2016 | /s/ E. Scott Santi | |
E. Scott Santi | |||
Chairman & Chief Executive Officer |
Dated: | October 27, 2016 | /s/ Michael M. Larsen | |
Michael M. Larsen | |||
Senior Vice President & Chief Financial Officer |
Document and Entity Information |
9 Months Ended |
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Sep. 30, 2016
shares
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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 | Sep. 30, 2016 |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus | Q3 |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 351,004,744 |
Statement of Income (Unaudited) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
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Income Statement [Abstract] | ||||
Operating Revenue | $ 3,495 | $ 3,354 | $ 10,200 | $ 10,130 |
Cost of revenue | 2,027 | 1,953 | 5,890 | 5,947 |
Selling, administrative, and research and development expenses | 604 | 581 | 1,818 | 1,819 |
Amortization and impairment of intangible assets | 56 | 59 | 170 | 176 |
Operating Income | 808 | 761 | 2,322 | 2,188 |
Interest expense | (58) | (59) | (174) | (168) |
Other income (expense) | 13 | 23 | 34 | 65 |
Income Before Taxes | 763 | 725 | 2,182 | 2,085 |
Income Taxes | 228 | 214 | 654 | 636 |
Net Income | $ 535 | $ 511 | $ 1,528 | $ 1,449 |
Net Income Per Share: | ||||
Basic (in dollars per share) | $ 1.51 | $ 1.40 | $ 4.28 | $ 3.92 |
Diluted (in dollars per share) | 1.50 | 1.39 | 4.25 | 3.90 |
Cash Dividends Per Share: | ||||
Paid (in dollars per share) | 0.55 | 0.485 | 1.65 | 1.455 |
Declared (in dollars per share) | $ 0.65 | $ 0.55 | $ 1.75 | $ 1.52 |
Shares of Common Stock Outstanding During the Period: | ||||
Average (in shares) | 353.5 | 365.1 | 357.3 | 369.3 |
Average assuming dilution (in shares) | 355.5 | 367.1 | 359.3 | 371.6 |
Statement of Comprehensive Income (Unaudited) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
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Statement of Comprehensive Income [Abstract] | ||||
Net Income | $ 535 | $ 511 | $ 1,528 | $ 1,449 |
Other Comprehensive Income (Loss): | ||||
Foreign currency translation adjustments, net of tax | (5) | (335) | 15 | (743) |
Pension and other postretirement benefit adjustments, net of tax | 7 | 11 | 21 | 31 |
Comprehensive Income (Loss) | $ 537 | $ 187 | $ 1,564 | $ 737 |
Financial Statements |
9 Months Ended |
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Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Financial Statements | 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 2015 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting. In May 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer 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, several new revenue recognition disclosures will be required. This guidance is effective for the Company beginning January 1, 2018. The Company is currently assessing the potential impact the guidance will have upon adoption. In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will be required to recognize a lease liability and lease asset for all leases, including operating leases, with a lease term greater than twelve months in the statement of financial position. Subsequent measurement, including presentation of expenses and cash flows, will depend on the classification of the lease as either a financing or operating lease. In addition, several new disclosures will be required. This guidance is effective for the Company beginning January 1, 2019. The Company is currently assessing the potential impact the guidance will have upon adoption. In March 2016, the FASB issued authoritative guidance that includes several changes to simplify the accounting for stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows. The new guidance will require that the income tax effects associated with the settlement of stock-based awards after adoption of the guidance be recognized through income tax expense rather than directly in equity. The income tax effects related to excess tax benefits will also be presented as an operating cash flow in the statement of cash flows rather than a financing activity for all periods presented. This guidance is effective for the Company beginning January 1, 2017, with early adoption permitted. For the nine months ended September 30, 2016 and 2015, the Company classified $25 million and $18 million, respectively, of excess tax benefits as a financing activity in the statement of cash flows which will be presented as an operating cash flow under the new guidance. The expected effect on income tax expense or operating cash flows for stock-based awards settled after adoption of the new guidance will depend on inputs such as the stock price and the number of stock-based awards settled in the period presented. In August 2016, the FASB issued authoritative guidance to clarify the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The objective of the new guidance is to reduce the diversity in practice of the presentation and classification of certain transactions. This guidance is effective for the Company beginning January 1, 2018, with early adoption permitted. The adoption of this standard is not expected to have a material impact. 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 current guidance. The new guidance is effective for the Company beginning January 1, 2018, with early adoption permitted. The Company is currently assessing the potential impact the guidance will have upon adoption. |
Income Taxes |
9 Months Ended |
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Sep. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes 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 $104 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues. On February 18, 2014, the Company received a Notice of Deficiency (“NOD”) from the IRS asserting that a non-taxable return of capital received from a subsidiary was a taxable dividend distribution. The NOD assesses additional taxes of $70 million for the 2006 tax year, plus interest and penalties. In May 2014, the Company petitioned the United States Tax Court to challenge the NOD. The Company's petition was subsequently denied and the case proceeded to court with the trial taking place in the third quarter of 2016. Final decision by the tax court is expected in 2017. Although the court's final decision cannot be predicted with certainty, the Company believes its position continues to be supportable. Accordingly, no reserve has been recorded related to this matter. |
Inventories |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Inventories Inventories as of September 30, 2016 and December 31, 2015 were as follows:
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Goodwill and Intangible Assets |
9 Months Ended |
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Sep. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the excess cost over fair value of the net assets of purchased businesses. The Company does not amortize goodwill and intangible assets that have indefinite lives. The Company performs an impairment assessment of goodwill and intangible assets with indefinite lives annually, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When performing its annual impairment assessment, the Company evaluates the goodwill assigned to each of its reporting units for potential impairment by comparing the estimated fair value of the relevant reporting unit to the carrying value. The Company uses various Level 2 and Level 3 valuation techniques to determine the fair value of its reporting units, including discounting estimated future cash flows based on a detailed cash flow forecast prepared by the relevant reporting unit and market multiples of relevant public companies. If the fair value of a reporting unit is less than its carrying value, an impairment loss, if any, is recorded for the difference between the implied fair value and the carrying value of the reporting unit's goodwill. The Company's indefinite-lived intangible assets consist of trademarks and brands. The estimated fair values of these intangible assets are determined based on a Level 3 valuation method using a relief-from-royalty income approach derived from internally forecasted revenues of the related products. If the fair value of the trademark or brand is less than its carrying value, an impairment loss is recorded for the difference between the estimated fair value and carrying value of the intangible asset. The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarter of 2016 and 2015. The assessment resulted in no impairment charges in 2016. In 2015, the Company recorded a $2 million indefinite-lived intangible asset impairment charge related to a brand in the Polymers & Fluids segment which had a fair value of $24 million and a carrying value of $26 million. |
Pension and Other Postretirement Benefits |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension and Other Postretirement Benefits | Pension and Other Postretirement Benefits Pension and other postretirement benefit costs for the three and nine months ended September 30, 2016 and 2015 were as follows:
The Company expects to contribute approximately $73 million to its pension plans and $5 million to its other postretirement plans in 2016. As of September 30, 2016, contributions of $66 million to pension plans and $4 million to other postretirement plans have been made. |
Debt |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Debt | Debt Short-term debt as of September 30, 2016 and December 31, 2015 included commercial paper of $687 million and $498 million, respectively. In addition, in the first quarter of 2016, the Company reclassified $649 million related to the 0.90% notes due February 25, 2017 from Long-term debt to Short-term debt. During the second quarter of 2016, the Company entered into a $2.5 billion, five-year line of credit agreement with a termination date of May 9, 2021. This agreement replaced the existing $1.5 billion line of credit agreement with a termination date of June 8, 2017 and $1.0 billion line of credit agreement with a termination date of August 15, 2018. No amount was outstanding under this agreement as of September 30, 2016. 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 September 30, 2016 and December 31, 2015 were as follows:
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 Income (Loss) |
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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 and nine months ended September 30, 2016 and 2015:
Pension and other postretirement benefit adjustments reclassified to income relate to the amortization of actuarial losses and prior service income. Refer to the Pension and Other Postretirement Benefits note 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 Euro notes were $1.1 billion and $1.1 billion, respectively, as of September 30, 2016. 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 $232 million and $308 million as of September 30, 2016 and December 31, 2015, respectively. The ending balance of Accumulated other comprehensive income (loss) as of September 30, 2016 and 2015 consisted of cumulative translation adjustment losses, net of tax, of $1.1 billion and $1.0 billion, respectively, and unrecognized pension and other postretirement benefits costs, net of tax, of $358 million and $362 million, respectively. |
Segment Information |
9 Months Ended |
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Sep. 30, 2016 | |
Segment Reporting [Abstract] | |
Segment Information | Segment Information The Company has seven reportable segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. See 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. |
Acquisition |
9 Months Ended |
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Sep. 30, 2016 | |
Business Combinations [Abstract] | |
Acquisition | Acquisition On July 1, 2016, the Company completed the acquisition of the Engineered Fasteners and Components business ("EF&C") from ZF TRW for a purchase price of approximately $450 million. EF&C had operating revenue of $117 million for the three months ended September 30, 2016 which was reported within the Company’s Automotive OEM segment. The acquisition of EF&C did not materially affect the Company’s results of operations or financial position for any period presented. Based on preliminary acquisition accounting, the Company allocated $236 million to goodwill and $95 million to intangible assets, primarily related to customer relationships and technology. The intangible assets are expected to be amortized on a straight-line basis over their estimated useful lives ranging from 4 to 19 years. The Company anticipates subsequent acquisition accounting adjustments will change the initial amounts recorded for goodwill and intangible assets, primarily due to the completion of valuations. The allocation of purchase price will be completed as soon as practicable, but no later than one year from the acquisition date. |
Financial Statements (Policies) |
9 Months Ended |
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Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
New Accounting Pronouncements | In May 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer 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, several new revenue recognition disclosures will be required. This guidance is effective for the Company beginning January 1, 2018. The Company is currently assessing the potential impact the guidance will have upon adoption. In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will be required to recognize a lease liability and lease asset for all leases, including operating leases, with a lease term greater than twelve months in the statement of financial position. Subsequent measurement, including presentation of expenses and cash flows, will depend on the classification of the lease as either a financing or operating lease. In addition, several new disclosures will be required. This guidance is effective for the Company beginning January 1, 2019. The Company is currently assessing the potential impact the guidance will have upon adoption. In March 2016, the FASB issued authoritative guidance that includes several changes to simplify the accounting for stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows. The new guidance will require that the income tax effects associated with the settlement of stock-based awards after adoption of the guidance be recognized through income tax expense rather than directly in equity. The income tax effects related to excess tax benefits will also be presented as an operating cash flow in the statement of cash flows rather than a financing activity for all periods presented. This guidance is effective for the Company beginning January 1, 2017, with early adoption permitted. For the nine months ended September 30, 2016 and 2015, the Company classified $25 million and $18 million, respectively, of excess tax benefits as a financing activity in the statement of cash flows which will be presented as an operating cash flow under the new guidance. The expected effect on income tax expense or operating cash flows for stock-based awards settled after adoption of the new guidance will depend on inputs such as the stock price and the number of stock-based awards settled in the period presented. In August 2016, the FASB issued authoritative guidance to clarify the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The objective of the new guidance is to reduce the diversity in practice of the presentation and classification of certain transactions. This guidance is effective for the Company beginning January 1, 2018, with early adoption permitted. The adoption of this standard is not expected to have a material impact. 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 current guidance. The new guidance is effective for the Company beginning January 1, 2018, with early adoption permitted. The Company is currently assessing the potential impact the guidance will have upon adoption. |
Inventories (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Inventories as of September 30, 2016 and December 31, 2015 were as follows:
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Pension and Other Postretirement Benefits (Tables) |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension and Other Postretirement Benefit Costs | Pension and other postretirement benefit costs for the three and nine months ended September 30, 2016 and 2015 were as follows:
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Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||
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 September 30, 2016 and December 31, 2015 were as follows:
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Accumulated Other Comprehensive Income (Loss) (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) | The following table summarizes changes in Accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015:
|
Financial Statements (Details) - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Excess tax benefits | $ 25 | $ 18 |
Income Taxes (Details) - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Feb. 18, 2014 |
Sep. 30, 2016 |
|
Income Tax Examination [Line Items] | ||
Period for unrecognized tax benefits to decrease | 12 months | |
Potential decrease in unrecognized tax benefits | $ 104 | |
Internal Revenue Service (IRS) | Tax Year 2006 | ||
Income Tax Examination [Line Items] | ||
IRS Notice of Deficiency tax assessment | $ 70 |
Inventories (Details) - USD ($) $ in Millions |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw material | $ 430 | $ 415 |
Work-in-process | 145 | 130 |
Finished goods | 674 | 622 |
LIFO reserve | (82) | (81) |
Total inventories | $ 1,167 | $ 1,086 |
Goodwill and Intangible Assets - Narrative (Details) - USD ($) |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | |||
Goodwill and indefinite-lived intangible asset impairment charges | $ 0 | ||
Indefinite-lived intangible asset impairment charges | $ 2,000,000 | ||
Indefinite-lived intangible assets, fair value | $ 24,000,000 | ||
Indefinite-lived intangible assets, carrying value | $ 26,000,000 |
Pension and Other Postretirement Benefits (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Pension | ||||
Components of net periodic benefit cost: | ||||
Service cost | $ 15 | $ 18 | $ 47 | $ 54 |
Interest cost | 23 | 23 | 70 | 69 |
Expected return on plan assets | (36) | (38) | (109) | (114) |
Amortization of actuarial loss | 11 | 15 | 32 | 45 |
Amortization of prior service income | 0 | 0 | 0 | 0 |
Net periodic benefit cost | 13 | 18 | 40 | 54 |
Other Postretirement Benefits | ||||
Components of net periodic benefit cost: | ||||
Service cost | 2 | 3 | 7 | 8 |
Interest cost | 6 | 6 | 18 | 18 |
Expected return on plan assets | (6) | (7) | (17) | (19) |
Amortization of actuarial loss | 0 | 0 | 0 | 0 |
Amortization of prior service income | 0 | 0 | (1) | 0 |
Net periodic benefit cost | $ 2 | $ 2 | $ 7 | $ 7 |
Pension and Other Postretirement Benefits - Narrative (Details) $ in Millions |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Pension | |
Defined Benefit Plan Disclosure [Line Items] | |
Expected current year company contributions | $ 73 |
Contributions | 66 |
Other Postretirement Benefits | |
Defined Benefit Plan Disclosure [Line Items] | |
Expected current year company contributions | 5 |
Contributions | $ 4 |
Debt - Narrative (Details) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2016 |
Mar. 31, 2016 |
Sep. 30, 2016 |
Dec. 31, 2015 |
|
Debt Instrument [Line Items] | ||||
Outstanding commercial paper | $ 687,000,000 | $ 498,000,000 | ||
Long-term debt reclassified to short-term debt | $ 649,000,000 | |||
Notes Payable, Other Payables | 0.90% Notes Due February 25, 2017 | ||||
Debt Instrument [Line Items] | ||||
Stated interest rate | 0.90% | |||
Line of Credit Terminating May 9, 2021 | ||||
Debt Instrument [Line Items] | ||||
Maximum borrowing capacity | $ 2,500,000,000.0 | |||
Expiration period | 5 years | |||
Long-term debt | $ 0 | |||
Line of Credit Terminating June 8, 2017 | ||||
Debt Instrument [Line Items] | ||||
Maximum borrowing capacity | $ 1,500,000,000.0 | |||
Line of Credit Terminating August 15, 2018 | ||||
Debt Instrument [Line Items] | ||||
Maximum borrowing capacity | $ 1,000,000,000.0 |
Debt - Fair Value and Related Carrying Values (Details) - USD ($) $ in Millions |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Debt Disclosure [Abstract] | ||
Fair value | $ 7,860 | $ 7,153 |
Carrying value | $ 6,979 | $ 6,897 |
Accumulated Other Comprehensive Income (Loss) - Narrative (Details) $ in Millions |
Sep. 30, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
Sep. 30, 2015
USD ($)
|
May 31, 2015
EUR (€)
|
May 31, 2014
EUR (€)
|
---|---|---|---|---|---|
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||
Cumulative translation adjustment losses, net of tax | $ 1,100 | $ 1,000 | |||
Unrecognized pension and other postretirement benefits costs, net of tax | 358 | $ 362 | |||
Net Investment Hedging | Euro Notes | |||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||||
Accumulated other comprehensive income related to net investment hedge unrealized gain | 232 | $ 308 | |||
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) |
9 Months Ended |
---|---|
Sep. 30, 2016
Segment
| |
Segment Reporting [Abstract] | |
Number of reportable segments | 7 |
Acquisition (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Jul. 01, 2016 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
|
Business Acquisition [Line Items] | ||||||
Operating revenue | $ 3,495 | $ 3,354 | $ 10,200 | $ 10,130 | ||
Goodwill | 4,711 | $ 4,711 | $ 4,439 | |||
Engineered Fasteners and Components | ||||||
Business Acquisition [Line Items] | ||||||
Business acquisition, purchase price | $ 450 | |||||
Operating revenue | $ 117 | |||||
Goodwill | 236 | |||||
Intangible assets | $ 95 | |||||
Minimum | Engineered Fasteners and Components | ||||||
Business Acquisition [Line Items] | ||||||
Finite-lived intangible assets, estimated useful life | 4 years | |||||
Maximum | Engineered Fasteners and Components | ||||||
Business Acquisition [Line Items] | ||||||
Finite-lived intangible assets, estimated useful life | 19 years |
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