x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2017 | |
OR | |
o | 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) |
Large accelerated filer | x | Accelerated filer | o |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | o |
Emerging growth company | o |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions except per share amounts | 2017 | 2016 | 2017 | 2016 | |||||||||||
Operating Revenue | $ | 3,615 | $ | 3,495 | $ | 10,685 | $ | 10,200 | |||||||
Cost of revenue | 2,094 | 2,027 | 6,185 | 5,890 | |||||||||||
Selling, administrative, and research and development expenses | 589 | 604 | 1,795 | 1,818 | |||||||||||
Legal settlement (income) | (80 | ) | — | (95 | ) | — | |||||||||
Amortization and impairment of intangible assets | 51 | 56 | 156 | 170 | |||||||||||
Operating Income | 961 | 808 | 2,644 | 2,322 | |||||||||||
Interest expense | (65 | ) | (58 | ) | (194 | ) | (174 | ) | |||||||
Other income (expense) | 10 | 13 | 24 | 34 | |||||||||||
Income Before Taxes | 906 | 763 | 2,474 | 2,182 | |||||||||||
Income Taxes | 266 | 228 | 711 | 654 | |||||||||||
Net Income | $ | 640 | $ | 535 | $ | 1,763 | $ | 1,528 | |||||||
Net Income Per Share: | |||||||||||||||
Basic | $ | 1.86 | $ | 1.51 | $ | 5.12 | $ | 4.28 | |||||||
Diluted | $ | 1.85 | $ | 1.50 | $ | 5.07 | $ | 4.25 | |||||||
Cash Dividends Per Share: | |||||||||||||||
Paid | $ | 0.65 | $ | 0.55 | $ | 1.95 | $ | 1.65 | |||||||
Declared | $ | 0.78 | $ | 0.65 | $ | 2.08 | $ | 1.75 | |||||||
Shares of Common Stock Outstanding During the Period: | |||||||||||||||
Average | 343.4 | 353.5 | 344.7 | 357.3 | |||||||||||
Average assuming dilution | 346.0 | 355.5 | 347.5 | 359.3 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net Income | $ | 640 | $ | 535 | $ | 1,763 | $ | 1,528 | |||||||
Other Comprehensive Income (Loss): | |||||||||||||||
Foreign currency translation adjustments, net of tax | 96 | (5 | ) | 367 | 15 | ||||||||||
Pension and other postretirement benefit adjustments, net of tax | 13 | 7 | 33 | 21 | |||||||||||
Comprehensive Income | $ | 749 | $ | 537 | $ | 2,163 | $ | 1,564 |
In millions except per share amounts | September 30, 2017 | December 31, 2016 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 2,785 | $ | 2,472 | |||
Trade receivables | 2,672 | 2,357 | |||||
Inventories | 1,225 | 1,076 | |||||
Prepaid expenses and other current assets | 230 | 218 | |||||
Total current assets | 6,912 | 6,123 | |||||
Net plant and equipment | 1,759 | 1,652 | |||||
Goodwill | 4,732 | 4,558 | |||||
Intangible assets | 1,319 | 1,463 | |||||
Deferred income taxes | 473 | 449 | |||||
Other assets | 1,119 | 956 | |||||
$ | 16,314 | $ | 15,201 | ||||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 698 | $ | 652 | |||
Accounts payable | 585 | 511 | |||||
Accrued expenses | 1,231 | 1,202 | |||||
Cash dividends payable | 267 | 226 | |||||
Income taxes payable | 86 | 169 | |||||
Total current liabilities | 2,867 | 2,760 | |||||
Noncurrent Liabilities: | |||||||
Long-term debt | 7,439 | 7,177 | |||||
Deferred income taxes | 112 | 134 | |||||
Other liabilities | 870 | 871 | |||||
Total noncurrent liabilities | 8,421 | 8,182 | |||||
Stockholders’ Equity: | |||||||
Common stock (par value of $0.01 per share): | |||||||
Issued- 550.0 shares in 2017 and 2016 Outstanding- 342.6 shares in 2017 and 346.9 shares in 2016 | 6 | 6 | |||||
Additional paid-in-capital | 1,207 | 1,188 | |||||
Retained earnings | 20,553 | 19,505 | |||||
Common stock held in treasury | (15,336 | ) | (14,638 | ) | |||
Accumulated other comprehensive income (loss) | (1,407 | ) | (1,807 | ) | |||
Noncontrolling interest | 3 | 5 | |||||
Total stockholders’ equity | 5,026 | 4,259 | |||||
$ | 16,314 | $ | 15,201 |
Nine Months Ended | |||||||
September 30, | |||||||
In millions | 2017 | 2016 | |||||
Cash Provided by (Used for) Operating Activities: | |||||||
Net income | $ | 1,763 | $ | 1,528 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation | 188 | 182 | |||||
Amortization and impairment of intangible assets | 156 | 170 | |||||
Change in deferred income taxes | 55 | (228 | ) | ||||
Provision for uncollectible accounts | 3 | 7 | |||||
(Income) loss from investments | (13 | ) | (5 | ) | |||
(Gain) loss on sale of plant and equipment | — | 2 | |||||
(Gain) loss on sale of operations and affiliates | — | 6 | |||||
Stock-based compensation expense | 27 | 31 | |||||
Other non-cash items, net | 6 | (4 | ) | ||||
Change in assets and liabilities, net of acquisitions and divestitures: | |||||||
(Increase) decrease in- | |||||||
Trade receivables | (197 | ) | (198 | ) | |||
Inventories | (93 | ) | (47 | ) | |||
Prepaid expenses and other assets | (97 | ) | (30 | ) | |||
Increase (decrease) in- | |||||||
Accounts payable | 41 | 23 | |||||
Accrued expenses and other liabilities | (56 | ) | (8 | ) | |||
Income taxes | (76 | ) | 209 | ||||
Net cash provided by operating activities | 1,707 | 1,638 | |||||
Cash Provided by (Used for) Investing Activities: | |||||||
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates | (3 | ) | (456 | ) | |||
Additions to plant and equipment | (219 | ) | (202 | ) | |||
Proceeds from investments | 25 | 17 | |||||
Proceeds from sale of plant and equipment | 8 | 11 | |||||
Proceeds from sales of operations and affiliates | 2 | 1 | |||||
Other, net | (7 | ) | (8 | ) | |||
Net cash provided by (used for) investing activities | (194 | ) | (637 | ) | |||
Cash Provided by (Used for) Financing Activities: | |||||||
Cash dividends paid | (674 | ) | (593 | ) | |||
Issuance of common stock | 58 | 74 | |||||
Repurchases of common stock | (750 | ) | (1,482 | ) | |||
Net proceeds from (repayments of) debt with original maturities of three months or less | 697 | 188 | |||||
Proceeds from debt with original maturities of more than three months | — | 1 | |||||
Repayments of debt with original maturities of more than three months | (652 | ) | (1 | ) | |||
Excess tax benefits from stock-based compensation | — | 25 | |||||
Other, net | (13 | ) | (11 | ) | |||
Net cash provided by (used for) financing activities | (1,334 | ) | (1,799 | ) | |||
Effect of Exchange Rate Changes on Cash and Equivalents | 134 | 7 | |||||
Cash and Equivalents: | |||||||
Increase (decrease) during the period | 313 | (791 | ) | ||||
Beginning of period | 2,472 | 3,090 | |||||
End of period | $ | 2,785 | $ | 2,299 | |||
Supplementary Cash and Non-Cash Information: | |||||||
Cash Paid During the Period for Interest | $ | 208 | $ | 198 | |||
Cash Paid During the Period for Income Taxes, Net of Refunds | $ | 732 | $ | 648 |
In millions | September 30, 2017 | December 31, 2016 | |||||
Raw material | $ | 453 | $ | 407 | |||
Work-in-process | 148 | 126 | |||||
Finished goods | 709 | 629 | |||||
LIFO reserve | (85 | ) | (86 | ) | |||
Total inventories | $ | 1,225 | $ | 1,076 |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||||||
Pension | Other Postretirement Benefits | Pension | Other Postretirement Benefits | ||||||||||||||||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
Components of net periodic benefit cost: | |||||||||||||||||||||||||||||||
Service cost | $ | 15 | $ | 15 | $ | 2 | $ | 2 | $ | 47 | $ | 47 | $ | 6 | $ | 7 | |||||||||||||||
Interest cost | 18 | 23 | 5 | 6 | 54 | 70 | 15 | 18 | |||||||||||||||||||||||
Expected return on plan assets | (33 | ) | (36 | ) | (6 | ) | (6 | ) | (99 | ) | (109 | ) | (17 | ) | (17 | ) | |||||||||||||||
Amortization of actuarial loss | 15 | 11 | — | — | 43 | 32 | (1 | ) | — | ||||||||||||||||||||||
Amortization of prior service income | — | — | — | — | — | — | — | (1 | ) | ||||||||||||||||||||||
Total net periodic benefit cost | $ | 15 | $ | 13 | $ | 1 | $ | 2 | $ | 45 | $ | 40 | $ | 3 | $ | 7 |
In millions | September 30, 2017 | December 31, 2016 | |||||
Fair value | $ | 7,958 | $ | 8,281 | |||
Carrying value | 7,439 | 7,827 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Beginning balance | $ | (1,516 | ) | $ | (1,470 | ) | $ | (1,807 | ) | $ | (1,504 | ) | |||
Foreign currency translation adjustments during the period | 67 | (15 | ) | 271 | (15 | ) | |||||||||
Foreign currency translation adjustments reclassified to income | — | — | — | 1 | |||||||||||
Income taxes | 29 | 10 | 96 | 29 | |||||||||||
Total foreign currency translation adjustments, net of tax | 96 | (5 | ) | 367 | 15 | ||||||||||
Pension and other postretirement benefit adjustments during the period | — | — | — | 1 | |||||||||||
Pension and other postretirement benefit adjustments reclassified to income | 15 | 11 | 42 | 31 | |||||||||||
Income taxes | (2 | ) | (4 | ) | (9 | ) | (11 | ) | |||||||
Total pension and other postretirement benefit adjustments, net of tax | 13 | 7 | 33 | 21 | |||||||||||
Ending balance | $ | (1,407 | ) | $ | (1,468 | ) | $ | (1,407 | ) | $ | (1,468 | ) |
• | 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 1980s, ITW has continually refined, improved and expanded 80/20 into a proprietary, holistic business management process that generates significant value for the Company and its customers. Through the application of data-driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the “80”) and eliminates cost, complexity and distractions associated with the less profitable opportunities (the “20”). 80/20 enables ITW businesses to consistently achieve world-class operational excellence in 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 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 subsequently 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 17,000 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 specific customers' needs. ITW colleagues recognize their unique responsibilities to execute the Company's strategy and values. As a result, the Company maintains a focused and simple organizational structure that, combined with outstanding execution, delivers best-in-class services adapted to each business' customers and end markets. |
• | The first step was to narrow the focus and improve the quality of ITW’s business portfolio. As part of the Portfolio Management initiative, ITW exited businesses that were operating in commoditized market spaces and prioritized sustainable differentiation as a must-have requirement for all ITW businesses. This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions. |
• | Step two, Business Structure Simplification, was implemented to simplify and scale-up ITW’s operating structure to support increased engineering, marketing, and sales resources, and, at the same time, improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 85 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation. |
• | The Strategic Sourcing initiative was established as a core capability to better leverage ITW’s scale and improve global competitiveness. Sourcing is now a core strategic and operational capability at ITW. The Company’s 80/20-enabled sourcing organization has delivered an average of one percent reduction in spend each year from 2013 through 2016 and is on track to do the same in 2017 and 2018. |
• | With the portfolio realignment and scale-up work largely complete, the Company was able to shift its focus to preparing for and accelerating, organic growth. As a preparatory step, ITW is in the process of reapplying 80/20 to optimize its newly scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth. |
• | The first lever, better leveraging the full power of the ITW Business Model, will be accomplished through a much more consistent and focused approach to 80/20 best practice implementation across the Company. The 80/20 management system has continuously been refined, improved and expanded into a unique holistic business management process of interconnected tools, which improves all aspects of the business and, when applied |
• | The second lever, strategic sourcing, is a core element of ITW’s ongoing operational strategy and a sustainable enterprise-wide capability. Through the continued execution of this initiative, the Company expects to deliver additional margin improvement with the goal of a one percent reduction in spend in 2017 and 2018. |
• | 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) | |||||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acq/Div | Restructuring | Impairment | Foreign Currency | Total | |||||||||||||||
Operating revenue | $ | 3,615 | $ | 3,495 | 3.5 | % | 1.9 | % | (0.2 | )% | — | % | — | % | 1.8 | % | 3.5 | % | |||||
Operating income | $ | 961 | $ | 808 | 19.0 | % | 17.5 | % | — | % | (0.2 | )% | — | % | 1.7 | % | 19.0 | % | |||||
Operating margin % | 26.6 | % | 23.1 | % | 350 bps | 350 bps | — | — | — | — | 350 bps |
Nine Months Ended | |||||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acq/Div | Restructuring | Impairment | Foreign Currency | Total | |||||||||||||||
Operating revenue | $ | 10,685 | $ | 10,200 | 4.8 | % | 2.7 | % | 2.3 | % | — | % | — | % | (0.2 | )% | 4.8 | % | |||||
Operating income | $ | 2,644 | $ | 2,322 | 13.9 | % | 13.2 | % | 0.9 | % | — | % | 0.1 | % | (0.3 | )% | 13.9 | % | |||||
Operating margin % | 24.7 | % | 22.8 | % | 190 bps | 230 bps | (40) bps | — | — | — | 190 bps |
• | Operating revenue grew in the third quarter primarily due to an increase in organic revenue and the favorable effect of foreign currency translation. In the year-to-date period, operating revenue grew primarily due to an increase in organic and acquisition revenues. |
• | Organic revenue grew 1.9% and 2.7% in the third quarter and year-to-date periods, respectively. Six segments achieved worldwide organic revenue growth in the third quarter, and all seven segments achieved growth in the year-to-date period. In the third quarter, Food Equipment declined 0.4% primarily due to lower equipment demand in North America. |
◦ | North American organic revenue was flat in the third quarter. Growth in the Welding, Specialty Products, Construction Products and Polymers & Fluids segments was offset by a decline in the Automotive OEM, Food Equipment and Test & Measurements and Electronics segments. In the year-to-date period, organic revenue grew 1.0%. Growth in five segments was partially offset by a decline in the Food Equipment and Automotive OEM segments. |
◦ | Europe, Middle East and Africa organic revenue increased 2.4% in the third quarter as growth in the Automotive OEM, Food Equipment, Construction Products and Specialty Products segments was partially offset by a decline in the Welding, Polymers & Fluids and Test & Measurement and Electronics segments. Organic revenue increased 3.8% in the year-to-date period as growth in six segments was partially offset by a decline in the Welding segment. |
◦ | Asia Pacific organic revenue increased 8.1% in the third quarter as all seven segments achieved organic revenue growth. In the year-to-date period, organic revenue grew 7.6% as growth in six segments was partially offset by a decline in the Welding segment. |
• | In the second quarter of 2017, the Company entered into a $95 million confidential settlement agreement to resolve a litigation matter. Based on the terms of the agreement, the Company received the settlement within 120 days of the execution of the agreement. The receipt of the settlement resulted in a favorable pre-tax impact of $15 million in the second quarter of 2017 and $80 million in the third quarter of 2017, which was included in operating income. |
• | Operating income of $961 million and $2.6 billion in the third quarter and year-to-date periods, respectively, increased 19.0% and 13.9% in the respective periods. Excluding the favorable impact of the confidential legal settlement, operating income would have increased 9.1% and 9.8% in the third quarter and year-to-date periods, respectively. |
• | Operating margin of 26.6% in the third quarter increased 350 basis points. Excluding the 220 basis points of favorability from the confidential legal settlement, operating margin of 24.4% increased 130 basis points primarily due to the benefits of the Company's enterprise initiatives that contributed 110 basis points. In addition, positive operating leverage of 50 basis points was partially offset by unfavorable price/cost of 40 basis points. |
• | In the year-to-date period, operating margin of 24.7% increased 190 basis points. Excluding the 80 basis points of favorability from the confidential legal settlement, operating margin of 23.9% increased 110 basis points primarily driven by the benefits of the Company's enterprise initiatives of 100 basis points. In addition, positive operating leverage of 50 basis points and improved overhead efficiencies were partially offset by the dilutive impact of 40 basis points from the EF&C acquisition and unfavorable price/cost of 40 basis points. |
• | Diluted earnings per share (EPS) of $1.85 for the third quarter and $5.07 for the year-to-date period increased 23.3% and 19.3%, respectively. Excluding the favorable effect of the confidential legal settlement of $0.14 and $0.17 in the third quarter and year-to-date periods, respectively, EPS increased 14.0% and 15.3% in the respective periods. |
• | Free cash flow was $702 million and $1.5 billion for the third quarter and year-to-date periods, respectively. Free cash flow for the year-to-date period includes the impact from an additional discretionary pension contribution of $115 million in the second quarter of 2017. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure. |
• | The Company repurchased approximately 1.8 million and 5.5 million shares of its common stock in the third quarter and year-to-date periods, respectively, for approximately $250 million and $750 million, respectively. |
• | The Company increased the quarterly dividend by 20.0% in the third quarter of 2017. Total cash dividends of $224 million and $674 million were paid in the third quarter and year-to-date periods of 2017, respectively. |
• | Adjusted after-tax return on average invested capital was 26.3% for the third quarter. Excluding 220 basis points attributable to the confidential legal settlement, adjusted after-tax return on average invested capital was 24.1%, an increase of 110 basis points. In the year-to-date period, adjusted after-tax return on average invested capital was 25.0%, an increase of 270 basis points. Excluding 90 basis points attributable to the confidential legal settlement, adjusted after-tax return on average invested capital was 24.1%, an increase of 180 basis points. 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 | |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Automotive OEM | $ | 795 | $ | 765 | $ | 172 | $ | 166 | $ | 2,443 | $ | 2,091 | $ | 556 | $ | 512 | |||||||||||||||
Food Equipment | 549 | 544 | 150 | 149 | 1,575 | 1,578 | 414 | 405 | |||||||||||||||||||||||
Test & Measurement and Electronics | 525 | 516 | 127 | 108 | 1,524 | 1,487 | 337 | 274 | |||||||||||||||||||||||
Welding | 378 | 361 | 100 | 95 | 1,150 | 1,125 | 312 | 282 | |||||||||||||||||||||||
Polymers & Fluids | 434 | 422 | 90 | 89 | 1,297 | 1,283 | 272 | 266 | |||||||||||||||||||||||
Construction Products | 440 | 415 | 112 | 94 | 1,260 | 1,223 | 303 | 278 | |||||||||||||||||||||||
Specialty Products | 498 | 477 | 138 | 125 | 1,451 | 1,429 | 401 | 373 | |||||||||||||||||||||||
Intersegment revenues | (4 | ) | (5 | ) | — | — | (15 | ) | (16 | ) | — | — | |||||||||||||||||||
Unallocated | — | — | 72 | (18 | ) | — | — | 49 | (68 | ) | |||||||||||||||||||||
Total | $ | 3,615 | $ | 3,495 | $ | 961 | $ | 808 | $ | 10,685 | $ | 10,200 | $ | 2,644 | $ | 2,322 |
• | 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) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 795 | $ | 765 | 4.1 | % | 1.3 | % | — | % | — | % | 2.8 | % | 4.1 | % | |||||
Operating income | $ | 172 | $ | 166 | 2.9 | % | 1.0 | % | — | % | (1.2 | )% | 3.1 | % | 2.9 | % | |||||
Operating margin % | 21.6 | % | 21.8 | % | (20) bps | (10) bps | — | (20) bps | 10 bps | (20) bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 2,443 | $ | 2,091 | 16.9 | % | 4.7 | % | 12.2 | % | — | % | — | % | 16.9 | % | |||||
Operating income | $ | 556 | $ | 512 | 8.4 | % | 6.1 | % | 4.2 | % | (1.7 | )% | (0.2 | )% | 8.4 | % | |||||
Operating margin % | 22.7 | % | 24.5 | % | (180) bps | 30 bps | (160) bps | (40) bps | (10) bps | (180) bps |
• | Operating revenue increased in the third quarter due to the favorable effect of foreign currency translation and higher organic revenue. Operating revenue increased in the year-to-date period due to higher organic and acquisition revenues. |
• | Organic revenue grew 1.3% and 4.7% in the third quarter and year-to-date periods, respectively, as a result of penetration gains, exceeding auto build growth in every key geography. Worldwide auto builds grew 2% and 3% in the third quarter and year-to-date periods, respectively. |
◦ | European organic revenue grew 7.8% and 8.8% in the third quarter and year-to-date periods, respectively, compared to European auto builds which increased 5% in the third quarter and 2% in the year-to-date period. |
◦ | Asia Pacific organic revenue increased 9.0% and 12.2% in the third quarter and year-to-date periods, respectively. China organic revenue grew 10.3% and 17.9% in the third quarter and year-to-date periods, respectively, versus Chinese auto builds which increased 1% in the third quarter and 3% in the year-to-date period. |
◦ | North American organic revenue declined 6.7% and 0.8% in the third quarter and year-to-date periods, respectively. North American auto builds declined 10% in the third quarter and 4% in the year-to-date period. Auto builds for the Detroit 3, where the Company has higher content, declined 14% in the third quarter and 7% in the year-to-date period. |
• | Operating margin was 21.6% in the third quarter. The decrease of 20 basis points was primarily driven by unfavorable price/cost of 120 basis points and higher restructuring expenses, partially offset by the net benefits from the Company's enterprise initiatives and cost management of 80 basis points and positive operating leverage of 30 basis points. |
• | In the year-to-date period, operating margin of 22.7% decreased 180 basis points primarily driven by the dilutive impact of 160 basis points from the EF&C acquisition, unfavorable price/cost of 110 basis points and higher restructuring expenses, partially offset by positive operating leverage of 80 basis points and the net benefits from the Company's enterprise initiatives and cost management of 60 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) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 549 | $ | 544 | 1.1 | % | (0.4 | )% | — | % | — | % | 1.5 | % | 1.1 | % | |||||
Operating income | $ | 150 | $ | 149 | 0.6 | % | 0.3 | % | — | % | (1.0 | )% | 1.3 | % | 0.6 | % | |||||
Operating margin % | 27.3 | % | 27.4 | % | (10) bps | 20 bps | — | (30) bps | — | (10) bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,575 | $ | 1,578 | (0.2 | )% | 0.7 | % | — | % | — | % | (0.9 | )% | (0.2 | )% | |||||
Operating income | $ | 414 | $ | 405 | 2.2 | % | 2.5 | % | — | % | 0.6 | % | (0.9 | )% | 2.2 | % | |||||
Operating margin % | 26.3 | % | 25.7 | % | 60 bps | 40 bps | — | 20 bps | — | 60 bps |
• | Operating revenue increased in the third quarter due to the favorable effect of foreign currency translation, partially offset by a slight decline in organic revenue. Operating revenue decreased in the year-to-date period due to the unfavorable effect of foreign currency translation, partially offset by organic revenue growth. |
• | Organic revenue decreased 0.4% in the third quarter as equipment and service organic revenue declined 0.5% and 0.4%, respectively. In the year-to-date period, organic revenue increased 0.7% as equipment and service organic revenue increased 0.8% and 0.4%, respectively. |
◦ | North American organic revenue declined 3.6% in the third quarter. Equipment organic revenue decreased 5.5% primarily due to lower end market demand in food services. Service organic revenue declined 0.3%. In the year-to-date period, North American organic revenue decreased 1.1%. Equipment organic revenue, which had a challenging comparable in the prior year period of 5.7% growth, decreased 1.8% primarily due to lower demand in the retail and restaurant end markets, partially offset by higher demand in the institutional end market. Service organic revenue was flat. |
◦ | International organic revenue increased 4.0% and 3.2% in the third quarter and year-to-date periods, respectively. Equipment organic revenue grew 5.9% and 4.0% in the third quarter and year-to-date periods, respectively, primarily due to higher demand in the European refrigeration and warewash end markets. Service organic revenue decreased 0.5% in the third quarter and increased 1.3% in the year-to-date period. |
• | Operating margin of 27.3% in the third quarter declined 10 basis points primarily due to product mix of 100 basis points and higher restructuring expenses, partially offset by the benefits of the Company's enterprise initiatives of 110 basis points and favorable price/cost of 10 basis points. |
• | In the year-to-date period, operating margin of 26.3% increased 60 basis points primarily due to the benefits of the Company's enterprise initiatives of 100 basis points and 20 basis points each for favorable price/cost, positive operating leverage and lower restructuring expenses, partially offset by product mix of 100 basis points. |
• | 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) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 525 | $ | 516 | 1.8 | % | 0.8 | % | — | % | — | % | 1.0 | % | 1.8 | % | |||||
Operating income | $ | 127 | $ | 108 | 16.9 | % | 13.3 | % | — | % | 2.8 | % | 0.8 | % | 16.9 | % | |||||
Operating margin % | 24.1 | % | 21.0 | % | 310 bps | 260 bps | — | 50 bps | — | 310 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,524 | $ | 1,487 | 2.5 | % | 3.5 | % | — | % | — | % | (1.0 | )% | 2.5 | % | |||||
Operating income | $ | 337 | $ | 274 | 22.8 | % | 22.5 | % | — | % | 1.3 | % | (1.0 | )% | 22.8 | % | |||||
Operating margin % | 22.1 | % | 18.4 | % | 370 bps | 340 bps | — | 30 bps | — | 370 bps |
• | Operating revenue increased in the third quarter due to the favorable effect of foreign currency translation and organic revenue growth. Operating revenue increased in the year-to-date period due to organic revenue growth, partially offset by the unfavorable effect of foreign currency translation. |
• | Organic revenue increased 0.8% and 3.5% in the third quarter and year-to-date periods, respectively. |
◦ | Organic revenue for the test and measurement businesses increased 4.2% and 5.1% in the third quarter and year-to-date periods, respectively, primarily due to higher semi-conductor end market demand across all major regions. Instron, where demand is more closely tied to the capital spending environment, had organic revenue growth of 2.6% and 3.9% in the third quarter and year-to-date periods, respectively. |
◦ | Electronics organic revenue, which had a challenging comparable in the prior year third quarter of 12.5% growth, decreased 2.6% in the third quarter and increased 1.8% in the year-to-date period. The electronics assembly businesses declined 12.8% and 2.2% in the third quarter and year-to-date periods, respectively, primarily due to a decrease in North America. The other electronics businesses grew 7.0% and 4.8% in the third quarter and year-to-date periods, respectively, due to higher semi-conductor end market demand. |
• | Operating margin was 24.1% in the third quarter. The increase of 310 basis points was primarily due to the net benefits resulting from the Company's enterprise initiatives and cost management of 130 basis points, favorable price/cost of 50 basis points, lower restructuring expenses and positive operating leverage of 20 basis points. |
• | In the year-to-date period, operating margin of 22.1% increased 370 basis points primarily driven by the net benefits resulting from the Company's enterprise initiatives and cost management of 130 basis points, positive operating leverage of 110 basis points and 30 basis points each of favorable price/cost and lower restructuring expenses. |
• | 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) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Restructuring | Impairment | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 378 | $ | 361 | 4.8 | % | 3.9 | % | — | % | — | % | 0.9 | % | 4.8 | % | |||||
Operating income | $ | 100 | $ | 95 | 5.4 | % | 7.0 | % | (2.2 | )% | — | % | 0.6 | % | 5.4 | % | |||||
Operating margin % | 26.6 | % | 26.5 | % | 10 bps | 80 bps | (60) bps | — | (10) bps | 10 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Restructuring | Impairment | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,150 | $ | 1,125 | 2.3 | % | 2.2 | % | — | % | — | % | 0.1 | % | 2.3 | % | |||||
Operating income | $ | 312 | $ | 282 | 10.8 | % | 7.4 | % | 2.3 | % | 1.1 | % | — | % | 10.8 | % | |||||
Operating margin % | 27.2 | % | 25.1 | % | 210 bps | 120 bps | 60 bps | 30 bps | — | 210 bps |
• | Operating revenue increased in the third quarter and year-to-date periods due to higher organic revenue and the favorable effect of foreign currency translation. |
• | Organic revenue grew 3.9% in the third quarter driven by growth in equipment of 6.5% and consumables of 0.5%. In the year-to-date period, organic revenue increased 2.2% as equipment grew 4.6%, partially offset by a decrease of 0.8% in consumables. In both periods, organic revenue grew due to increased demand in the industrial end markets related to heavy equipment for agriculture, infrastructure and mining and in the commercial end markets related to construction, light fabrication and farm and ranch customers. |
◦ | North American organic revenue increased 8.0% in the third quarter primarily due to 11.0% and 5.2% growth in the industrial and commercial end markets, respectively. North American organic revenue grew 4.8% in the year-to-date period primarily driven by approximately 5% growth in the industrial and commercial end markets. |
◦ | International organic revenue decreased 11.2% and 7.3% in the third quarter and year-to-date periods, respectively, primarily due to weaker end market demand in the European and Asian oil and gas end markets. |
• | Operating margin was 26.6% in the third quarter. The increase of 10 basis points was primarily due to the net benefits of the Company's enterprise initiatives and cost management of 80 basis points and positive operating leverage of 60 basis points, partially offset by 60 basis points each of unfavorable price/cost and higher restructuring expenses. |
• | In the year-to-date period, operating margin of 27.2% increased 210 basis points due to the net benefits of the Company's enterprise initiatives and cost management of 140 basis points, lower restructuring expenses of 60 basis points and positive operating leverage of 40 basis points, partially offset by unfavorable price/cost of 60 basis points. In addition, the prior year period was negatively impacted by an intangible asset impairment charge of 30 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) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 434 | $ | 422 | 2.6 | % | 1.0 | % | — | % | — | % | 1.6 | % | 2.6 | % | |||||
Operating income | $ | 90 | $ | 89 | 2.5 | % | 2.1 | % | — | % | (0.9 | )% | 1.3 | % | 2.5 | % | |||||
Operating margin % | 21.0 | % | 21.0 | % | — | 20 bps | — | (20) bps | — | — |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,297 | $ | 1,283 | 1.0 | % | 0.5 | % | — | % | — | % | 0.5 | % | 1.0 | % | |||||
Operating income | $ | 272 | $ | 266 | 2.5 | % | 4.3 | % | — | % | (1.6 | )% | (0.2 | )% | 2.5 | % | |||||
Operating margin % | 21.0 | % | 20.7 | % | 30 bps | 80 bps | — | (30) bps | (20) bps | 30 bps |
• | Operating revenue increased in the third quarter and year-to-date periods due to higher organic revenue and the favorable effect of foreign currency translation. |
• | Organic revenue grew 1.0% and 0.5% in the third quarter and year-to-date periods, respectively, primarily due to higher demand in North American end markets. |
◦ | Organic revenue for the automotive aftermarket businesses increased 0.6% in the third quarter primarily driven by growth in the tire repair businesses in North America. In the year-to-date period, organic revenue grew 0.3% as stronger demand in the car care, engine and tire repair businesses in North America was offset by a decline in the body repair and additives businesses in Asia Pacific. |
◦ | Organic revenue for the fluids businesses grew 4.4% and 2.2% in the third quarter and year-to-date periods, respectively, primarily due to an increase in the industrial maintenance, repair, and operations end markets in Europe and North America. |
◦ | Organic revenue for the polymers businesses decreased 1.3% in the third quarter primarily driven by a decline in Europe, partially offset by an increase in North America. In the year-to-date period, organic revenue declined 0.9% primarily driven by a decline in Europe and North America. |
• | Operating margin was 21.0% in the third quarter and was flat compared to the prior year as the net benefits of the Company's enterprise initiatives and cost management and positive operating leverage were offset by unfavorable price/cost of 30 basis points and higher restructuring expenses. |
• | In the year-to-date period, operating margin of 21.0% increased 30 basis points primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 100 basis points, partially offset by 30 basis points each of unfavorable price/cost and higher restructuring expenses. |
• | 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) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 440 | $ | 415 | 6.0 | % | 3.5 | % | — | % | — | % | 2.5 | % | 6.0 | % | |||||
Operating income | $ | 112 | $ | 94 | 18.8 | % | 9.0 | % | — | % | 7.2 | % | 2.6 | % | 18.8 | % | |||||
Operating margin % | 25.4 | % | 22.6 | % | 280 bps | 130 bps | — | 150 bps | — | 280 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,260 | $ | 1,223 | 3.0 | % | 2.7 | % | — | % | — | % | 0.3 | % | 3.0 | % | |||||
Operating income | $ | 303 | $ | 278 | 8.9 | % | 5.6 | % | — | % | 2.7 | % | 0.6 | % | 8.9 | % | |||||
Operating margin % | 24.0 | % | 22.7 | % | 130 bps | 70 bps | — | 60 bps | — | 130 bps |
• | Operating revenue increased in the third quarter and year-to-date periods due to organic revenue growth and the favorable effect of foreign currency translation. |
• | Organic revenue increased 3.5% and 2.7% in the third quarter and year-to-date periods, respectively. |
◦ | North American organic revenue grew 4.4% in the third quarter primarily due to 6.9% growth in the residential end markets, partially offset by a decline of 3.3% in the commercial end markets. North American organic revenue increased 1.9% in the year-to-date period primarily due to 2.6% growth in the residential end markets, partially offset by a decline of 0.4% in the commercial end markets. |
◦ | International organic revenue increased 2.8% and 3.2% in the third quarter and year-to-date periods, respectively. Asia Pacific organic revenue increased 2.7% in both the third quarter and year-to-date periods primarily due to growth in the Australia and New Zealand retail end markets. European organic revenue increased 2.9% in the third quarter primarily due to growth in continental Europe and the Nordic countries. In the year-to-date period, European organic revenue grew 3.7% primarily due to growth in continental Europe, the United Kingdom and the Nordic countries. |
• | Operating margin was 25.4% in the third quarter. The increase of 280 basis points was driven by lower restructuring expenses of 150 basis points, the net benefits of the Company's enterprise initiatives and cost management of 130 basis points and positive operating leverage of 90 basis points, partially offset by unfavorable price/cost of 90 basis points. |
• | In the year-to-date period, operating margin of 24.0% increased 130 basis points driven by the net benefits of the Company's enterprise initiatives and cost management of 90 basis points, positive operating leverage of 70 basis points and lower restructuring expenses of 60 basis points, partially offset by unfavorable price/cost of 90 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) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 498 | $ | 477 | 4.6 | % | 4.5 | % | (1.2 | )% | — | % | 1.3 | % | 4.6 | % | |||||
Operating income | $ | 138 | $ | 125 | 10.8 | % | 13.6 | % | (0.3 | )% | (3.9 | )% | 1.4 | % | 10.8 | % | |||||
Operating margin % | 27.7 | % | 26.1 | % | 160 bps | 230 bps | 30 bps | (100) bps | — | 160 bps |
Nine Months Ended | |||||||||||||||||||||
Dollars in millions | September 30, | Components of Increase (Decrease) | |||||||||||||||||||
2017 | 2016 | Inc (Dec) | Organic | Acquisition/Divestiture | Restructuring | Foreign Currency | Total | ||||||||||||||
Operating revenue | $ | 1,451 | $ | 1,429 | 1.5 | % | 3.1 | % | (1.1 | )% | — | % | (0.5 | )% | 1.5 | % | |||||
Operating income | $ | 401 | $ | 373 | 7.6 | % | 9.8 | % | — | % | (1.8 | )% | (0.4 | )% | 7.6 | % | |||||
Operating margin % | 27.6 | % | 26.1 | % | 150 bps | 170 bps | 30 bps | (50) bps | — | 150 bps |
• | Operating revenue increased in the third quarter due to organic revenue growth and the favorable effect of foreign currency translation, partially offset by a divestiture. For the year-to-date period, operating revenue increased due to organic revenue growth, partially offset by a divestiture and the unfavorable effect of foreign currency translation. |
• | Organic revenue increased 4.5% and 3.1% for the third quarter and year-to-date periods, respectively, as the consumer packaging businesses grew 3.6% and 3.2% in each respective period. Consumable sales increased 6.1% and 5.1% in the third quarter and year-to-date periods, respectively. Equipment sales declined 1.3% and 4.4% in the third quarter and year-to-date periods, respectively. |
◦ | North American organic revenue increased 3.0% in the third quarter primarily due to an increase in the brand identification, medical and consumer packaging businesses. In the year-to-date period, organic revenue grew 0.5% primarily due to growth in the medical, consumer packaging, appliance and brand identification businesses, partially offset by a decline in the equipment businesses. |
◦ | International organic revenue increased 6.9% and 7.7% in the third quarter and year-to-date periods, respectively, primarily driven by growth in the consumer packaging and equipment businesses in Europe and Asia Pacific. |
• | Operating margin was 27.7% for the third quarter. The increase of 160 basis points was primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 130 basis points, positive operating leverage of 90 basis points and the impact of a divestiture, partially offset by higher restructuring expenses of 100 basis points and unfavorable price/cost of 10 basis points. |
• | In the year-to-date period, operating margin of 27.6% increased 150 basis points driven by the net benefits of the Company's enterprise initiatives and cost management of 130 basis points, positive operating leverage of 70 basis points and the impact of a divestiture, partially offset by higher restructuring expenses and unfavorable price/cost of 30 basis points. |
• | Interest expense of $65 million and $194 million in the third quarter and year-to-date periods, respectively, increased from $58 million and $174 million in the respective 2016 periods, primarily due to the debt issuance in the fourth quarter of 2016. |
• | Other income (expense) was income of $10 million in the third quarter of 2017 and $24 million in the year-to-date period, a decrease compared to the prior year of $3 million in the third quarter and $10 million in the year-to-date period primarily driven by foreign currency translation losses. |
• | The effective tax rate was 29.3% and 28.7% for the third quarter and year-to-date periods, respectively, compared to 30.0% in both respective periods of 2016. Included in the effective tax rate for 2017 was a discrete income tax benefit of $6 million in the third quarter and $32 million in the year-to-date period related to the adoption of the new stock-based compensation guidance. Excluding this discrete tax benefit, the Company's effective tax rate for the third quarter and year-to-date periods of 2017 would have been 30.0%. Refer to Note 1. Significant Accounting Policies in Item 1 - Financial Statements for further information. |
• | 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 the Company's organic growth focus, and an active share repurchase program. |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
In millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net cash provided by operating activities | $ | 780 | $ | 624 | $ | 1,707 | $ | 1,638 | |||||||
Additions to plant and equipment | (78 | ) | (81 | ) | (219 | ) | (202 | ) | |||||||
Free cash flow | $ | 702 | $ | 543 | $ | 1,488 | $ | 1,436 | |||||||
Cash dividends paid | $ | (224 | ) | $ | (195 | ) | $ | (674 | ) | $ | (593 | ) | |||
Repurchases of common stock | (250 | ) | (482 | ) | (750 | ) | (1,482 | ) | |||||||
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates | — | (454 | ) | (3 | ) | (456 | ) | ||||||||
Net proceeds from (repayments of) debt with original maturities of three months or less | 6 | 499 | 697 | 188 | |||||||||||
Net repayments of debt with original maturities of more than three months | — | — | (652 | ) | — | ||||||||||
Other | 19 | 36 | 73 | 109 | |||||||||||
Effect of exchange rate changes on cash and equivalents | 36 | (3 | ) | 134 | 7 | ||||||||||
Net increase (decrease) in cash and equivalents | $ | 289 | $ | (56 | ) | $ | 313 | $ | (791 | ) |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
Dollars in millions | 2017 | 2016 | 2017 | 2016 | |||||||||||
Operating income | $ | 961 | $ | 808 | $ | 2,644 | $ | 2,322 | |||||||
Tax rate | 29.3 | % | 30.0 | % | 28.7 | % | 30.0 | % | |||||||
Income taxes | (282 | ) | (243 | ) | (759 | ) | (697 | ) | |||||||
Operating income after taxes | $ | 679 | $ | 565 | $ | 1,885 | $ | 1,625 | |||||||
Invested capital: | |||||||||||||||
Trade receivables | $ | 2,672 | $ | 2,496 | $ | 2,672 | $ | 2,496 | |||||||
Inventories | 1,225 | 1,167 | 1,225 | 1,167 | |||||||||||
Net plant and equipment | 1,759 | 1,702 | 1,759 | 1,702 | |||||||||||
Goodwill and intangible assets | 6,051 | 6,191 | 6,051 | 6,191 | |||||||||||
Accounts payable and accrued expenses | (1,816 | ) | (1,762 | ) | (1,816 | ) | (1,762 | ) | |||||||
Other, net | 487 | 393 | 487 | 393 | |||||||||||
Total invested capital | $ | 10,378 | $ | 10,187 | $ | 10,378 | $ | 10,187 | |||||||
Average invested capital | $ | 10,354 | $ | 9,973 | $ | 10,051 | $ | 9,821 | |||||||
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) | — | (116 | ) | — | (114 | ) | |||||||||
Adjusted average invested capital | $ | 10,354 | $ | 9,857 | $ | 10,051 | $ | 9,707 |