Illinois Tool Works

Financial Statement Model

($ in millions, fiscal year ending December 31)

UNIVERSITY OF MISSOURI INVESTMENT GROUP Historical Projection

2016A 2017A 2018A 2019E
Income Statement
Revenue $ 13,599 $ 14,314 $ 14,768 $ 15,506
Cost of Goods Sold 7,908 8,306 8,604 9,016
Gross Profit 5,691 6,008 6,164 6,490

SG&A 2,411 2,412 2,391 2,624

Amortization 224 206 189 156
Other Operating Expenses / (Income) - (95) - -
Operating Income 3,056 3,485 3,584 3,709

Interest Expense 237 260 257 247

Other Non-Operating Loss / (Income) (89) (45) (67) -
Pretax Income 2,908 3,270 3,394 3,463

Tax Expense 873 1,583 831 727

Net Income $ 2,035 $ 1,687 $ 2,563 $ 2,736

Assumptions & Drivers

Growth Rate NA 5.3% 3.2% 5.0%
Cost of Goods Sold (% revenue) 58.2% 58.0% 58.3% 58.1%
SG&A (% revenue) 17.7% 16.9% 16.2% 16.9%
Other Operating Expenses / (Income) (% revenue) 0.0% -0.7% 0.0% 0.0%
Other Non-Operating Loss / (Income) (% revenue) -0.7% -0.3% -0.5% 0.0%
Tax Rate (% pretax income) 30.0% 48.4% 24.5% 21.0%

xBalance Sheet
Assets
Current Assets:
Cash & Equivalents 2,472 3,094 1,504 1,151
Accounts Receivable 2,357 2,628 2,622 2,763
Inventory 1,076 1,220 1,318 1,311
Prepaid Expenses 218 336 334 323
Total Current Assets 6,123 7,278 5,778 5,547

Noncurrent Assets:
PP&E, net 1,652 1,778 1,791 1,852
Goodwill 4,558 4,752 4,633 4,633
Intangibles 1,463 1,272 1,084 928
Deferred Tax Assets 449 505 554 547
Other Assets 956 1,195 1,030 1,155
Total Noncurrent Assets 9,078 9,502 9,092 9,115

Total Assets $ 15,201 $ 16,780 $ 14,870 $ 14,662

Liabilities
Current Liabilities:
Accounts Payable 511 590 524 591
Accrued Expenses 1,202 1,258 1,271 1,357
Dividends Payable 226 266 328 362
Taxes Payable 169 89 68 80
Short-Term Debt 652 850 1,351 1,001
Total Current Liabilities 2,760 3,053 3,542 3,391
Long-Term Liabilities:
Long-Term Debt 7,177 7,478 6,029 7,029
Deferred Tax Liabilities 134 164 707 358
Noncurrent Taxes Payable - 614 495 238
Other Liabilities 871 882 839 943
Total Long-Term Liabilities 8,182 9,138 8,070 8,568

Total Liabilities 10,942 12,191 11,612 11,959

Equity
Common Stock 6 6 6 6
Additional Paid-in-Capital 1,188 1,218 1,253 1,295
Retained Earnings 19,505 20,210 21,217 22,621
Treasury Stock (14,638) (15,562) (17,545) (19,545)
Accumulated Other Comprehensive Loss (1,807) (1,287) (1,677) (1,677)
Noncontrolling Interest 5 4 4 4
Total Equity 4,259 4,589 3,258 2,704

Total Liabilities & Equity $ 15,201 $ 16,780 $ 14,870 $ 14,662

xBalance Check OK OK OK OK

Working Capital Drivers

Accounts Receivable Days 63.3 days 67.0 days 64.8 days 65.0 days
Inventory Turnover Days 49.7 days 53.6 days 55.9 days 53.1 days
Prepaid Expenses (% SG&A) 9.0% 13.9% 14.0% 12.3%
Accounts Payable Days 23.6 days 25.9 days 22.2 days 23.9 days
Accrued Expenses (% SG&A) 49.9% 52.2% 53.2% 51.7%

Other Balance Sheet Assumptions

Deferred Tax Assets (% revenue) 3.3% 3.5% 3.8% 3.5%
Other Assets (% revenue) 7.0% 8.3% 7.0% 7.5%
Dividends Payable (% dividends declared) 26.7% 27.1% 27.7% 27.2%
Taxes Payable (% tax expense) 19.4% 5.6% 8.2% 11.1%
Deferred Tax Liabilities (% revenue) 1.0% 1.1% 4.8% 2.3%
Noncurrent Taxes Payable (% tax expense) 0.0% 38.8% 59.6% 32.8%
Other Liabilities (% SG&A) 36.1% 36.6% 35.1% 35.9%

Cash Flow Statement

Cash Flows from Operating Activities
Net Income 2,736
Non-Cash Adjustments:
(+) Depreciation 277
(+) Amortization 156
(+) Stock-Based Compensation 42
Changes in Working Capital & Other:
Accounts Receivable (141)
Inventory 7
Prepaid Expenses 11
Deferred Tax Assets 7
Other Assets (125)
Accounts Payable 67
Accrued Expenses 86
Taxes Payable 12
Deferred Tax Liabilities (349)
Noncurrent Taxes Payable (257)
Other Liabilities 104
 Net Cash from Operating Activities 2,633

Cash Flows from Investing Activities

Capital Expenditures (338)
Net Cash from Investing Activities (338)

Cash Flows from Financing Activities

Cash Dividends Paid (1,298)
Stock Buybacks (2,000)
Principal Repayments of Debt (1,350)
Proceeds from Issuance New Debt 2,000
Net Cash from Financing Activities (2,648)

xNet Change in Cash (353)

Cash & Equivalents, beginning balance 1,504
Cash & Equivalents, ending balance $ 1,151

Supporting Schedules
Fixed Assets
PP&E, beginning balance 1,577 1,652 1,778 1,791
(+) Capital Expenditures 273 297 364 338
(−) Depreciation (246) (256) (272) (277)
PP&E, ending balance 1,852

Intangibles, beginning balance 1,560 1,463 1,272 1,084

(−) Amortization (224) (206) (189) (156)
Intangibles, ending balance 928

Assumptions & Drivers

Capital Expenditures (% revenue) 2.0% 2.1% 2.5% 2.2%
Depreciation (% PP&E, beginning balance) 15.6% 15.5% 15.3% 15.5%
Amortization (% Intangibles, beginning balance) 14.4% 14.1% 14.9% 14.4%

Equity
Retained Earnings, beginning balance 18,316 19,505 20,210 21,217
(+) Net Income 2,035 1,687 2,563 2,736
(−) Dividends Declared (846) (982) (1,186) (1,332)
Retained Earnings, ending balance 22,621

Additional Paid-in-Capital, beginning balance 1,135 1,188 1,218 1,253

(+) Stock-Based Compensation 39 36 40 42
Additional Paid-in-Capital, ending balance 1,295

Treasury Stock, beginning balance 12,729 14,638 15,562 17,545

(+) Stock Buybacks 2,000 1,000 2,000 2,000
Treasury Stock, ending balance 19,545

Assumptions & Drivers

Dividend Payout Ratio (% net income) 41.6% 58.2% 46.3% 48.7%
Stock-Based Compensation (% SG&A) 1.6% 1.5% 1.7% 1.6%
Stock Buybacks 2,000 1,000 2,000 2,000

xDebt
Short-Term Debt, beginning balance 526 652 850 1,351
(+) Maturing Long-Term Debt 1,000
(−) Principal Repayments of Debt (1,350)
Short-Term Debt, ending balance 652 850 1,351 1,001
Long-Term Debt, beginning balance 6,896 7,177 7,478 6,029
(+) Proceeds from Issuance of New Debt 2,000
(−) Maturing Long-Term Debt (1,000)
Long-Term Debt, ending balance 7,177 7,478 6,029 7,029

Total Debt, beginning balance 7,422 7,829 8,328 7,380

Total Debt, ending balance 7,829 8,328 7,380 8,030

Interest Expense 237 260 257 247

Assumptions & Drivers

Maturing Long-Term Debt 1,000
Principal Repayments of Debt 1,350
Proceeds from Issuance of New Debt 2,000
Interest Expense (% average total debt) 3.1% 3.2% 3.3% 3.2%
 Projection Period
2020E 2021E 2022E 2023E

$ 16,282 $ 17,096 $ 17,951 $ 18,848

9,467 9,941 10,438 10,960
6,814 7,155 7,513 7,889

2,755 2,893 3,038 3,190

134 115 98 84
- - - -
3,925 4,147 4,377 4,615

241 245 257 273

- - - -
3,684 3,903 4,120 4,342

774 820 865 912

$ 2,911 $ 3,083 $ 3,255 $ 3,430

5.0% 5.0% 5.0% 5.0%

58.1% 58.1% 58.1% 58.1%
16.9% 16.9% 16.9% 16.9%
0.0% 0.0% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0%
21.0% 21.0% 21.0% 21.0%

654 2,464 2,584 4,768

2,901 3,046 3,198 3,358
1,376 1,445 1,517 1,593
339 356 374 393
5,271 7,311 7,673 10,111

1,921 1,997 2,080 2,170

4,633 4,633 4,633 4,633
794 679 581 497
574 603 633 665
1,213 1,274 1,337 1,404
9,135 9,186 9,265 9,369

$ 14,406 $ 16,497 $ 16,938 $ 19,481

620 651 684 718

1,425 1,496 1,571 1,650
385 408 430 453
86 91 96 101
1,001 1,251 1,751 2,251
3,517 3,897 4,532 5,173
 6,029 7,029 6,029 7,029
375 394 414 435
254 269 284 299
990 1,039 1,091 1,146
7,648 8,731 7,818 8,909

11,165 12,628 12,350 14,082

6 6 6 6
1,339 1,385 1,433 1,484
24,114 25,696 27,367 29,127
(20,545) (21,545) (22,545) (23,545)
(1,677) (1,677) (1,677) (1,677)
4 4 4 4
3,241 3,869 4,588 5,399

$ 14,406 $ 16,497 $ 16,938 $ 19,481

OK OK OK OK

65.0 days 65.0 days 65.0 days 65.0 days

53.1 days 53.1 days 53.1 days 53.1 days
12.3% 12.3% 12.3% 12.3%
23.9 days 23.9 days 23.9 days 23.9 days
51.7% 51.7% 51.7% 51.7%

3.5% 3.5% 3.5% 3.5%

7.5% 7.5% 7.5% 7.5%
27.2% 27.2% 27.2% 27.2%
11.1% 11.1% 11.1% 11.1%
2.3% 2.3% 2.3% 2.3%
32.8% 32.8% 32.8% 32.8%
35.9% 35.9% 35.9% 35.9%

2,911 3,083 3,255 3,430

286 297 309 322

134 115 98 84
44 46 48 51

(138) (145) (152) (160)

(66) (69) (72) (76)
(16) (17) (18) (19)
(27) (29) (30) (32)
(58) (61) (64) (67)
30 31 33 34
68 71 75 79
5 5 5 5
18 19 20 21
15 15 15 15
47 49 52 55
 3,253 3,411 3,573 3,742

(355) (373) (392) (411)

(355) (373) (392) (411)

(1,394) (1,478) (1,562) (1,647)

(1,000) (1,000) (1,000) (1,000)
(1,000) (750) (500) (500)
- 2,000 - 2,000
(3,394) (1,228) (3,062) (1,147)

(497) 1,810 119 2,184

1,151 654 2,464 2,584
$ 654 $ 2,464 $ 2,584 $ 4,768

1,852 1,921 1,997 2,080

355 373 392 411
(286) (297) (309) (322)
1,921 1,997 2,080 2,170

928 794 679 581

(134) (115) (98) (84)
794 679 581 497

2.2% 2.2% 2.2% 2.2%

15.5% 15.5% 15.5% 15.5%
14.4% 14.4% 14.4% 14.4%

22,621 24,114 25,696 27,367

2,911 3,083 3,255 3,430
(1,417) (1,501) (1,585) (1,670)
24,114 25,696 27,367 29,127

1,295 1,339 1,385 1,433

44 46 48 51
1,339 1,385 1,433 1,484

19,545 20,545 21,545 22,545

1,000 1,000 1,000 1,000
20,545 21,545 22,545 23,545

48.7% 48.7% 48.7% 48.7%

1.6% 1.6% 1.6% 1.6%
1,000 1,000 1,000 1,000

1,001 1,001 1,251 1,751

1,000 1,000 1,000 1,000
(1,000) (750) (500) (500)
1,001 1,251 1,751 2,251
 7,029 6,029 7,029 6,029
- 2,000 - 2,000
(1,000) (1,000) (1,000) (1,000)
6,029 7,029 6,029 7,029

8,030 7,030 8,280 7,780

7,030 8,280 7,780 9,280

241 245 257 273

1,000 1,000 1,000 1,000

1,000 750 500 500
- 2,000 - 2,000
3.2% 3.2% 3.2% 3.2%