Analysis of Property, Plant and Equipment
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Property, Plant and Equipment Disclosure
Illinois Tool Works Inc., balance sheet: property, plant and equipment
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Land
- The value of land showed a slight downward trend from 2017 to 2019, decreasing from 203 million USD to 186 million USD. There was a rebound in 2020 to 204 million USD, followed by a minor decline in 2021 to 198 million USD. Overall, land values remained relatively stable with only minor fluctuations.
- Buildings and Improvements
- Buildings and improvements experienced a gradual increase over the period. Starting at 1370 million USD in 2017, the value slightly decreased in 2018 and 2019 but then rose to 1432 million USD in 2020 and further to 1462 million USD in 2021. This indicates ongoing investment or capitalization in building assets during the latter years.
- Machinery and Equipment
- There was a consistent upward trend in machinery and equipment values over the five years. The amount increased from 3465 million USD in 2017 to 3898 million USD in 2021, indicating continuous acquisition or upgrading of machinery and equipment assets.
- Construction in Progress
- Construction in progress values fluctuated without a clear trend. The value increased from 123 million USD in 2017 to 154 million USD in 2018, then decreased to 133 million USD in 2019 and 2020, with a slight rise to 142 million USD in 2021. This suggests varying levels of ongoing capital projects at different times.
- Gross Plant and Equipment
- Gross plant and equipment showed a general increase across the period. From 5161 million USD in 2017, it grew steadily to 5700 million USD by 2021. This reflects overall capital investment in fixed assets despite some yearly fluctuations.
- Accumulated Depreciation
- Accumulated depreciation increased consistently in absolute terms (more negative), moving from -3383 million USD in 2017 to -3891 million USD in 2021. This indicates ongoing depreciation expense being recorded, as expected with aging fixed assets.
- Net Plant and Equipment
- Net plant and equipment values showed minor fluctuations over the period. Starting at 1778 million USD in 2017, it slightly increased to 1791 million USD in 2018, then declined to 1729 million USD in 2019, before rising again to 1777 million USD in 2020 and 1809 million USD in 2021. Overall, net asset values were relatively stable, reflecting balanced capital investment and depreciation.
Asset Age Ratios (Summary)
Illinois Tool Works Inc., asset age ratios
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Average Age Ratio
- The average age ratio showed a gradual increase over the analyzed period, rising from 68.23% in 2017 to 70.72% in 2021. This trend indicates that the existing property, plant, and equipment are aging progressively, with a slightly higher proportion of the assets' useful life having elapsed by the end of 2021 compared to 2017.
- Estimated Total Useful Life
- The estimated total useful life remained mostly stable at 19 years from 2017 through 2019 and increased to 20 years in 2020 and 2021. This slight extension in the total useful life estimate suggests a reassessment in the asset longevity, potentially reflecting improvements in asset maintenance or initial asset quality.
- Estimated Age, Time Elapsed Since Purchase
- The estimated age of the assets stayed consistent at 13 years from 2017 to 2019 and then increased to 14 years for 2020 and 2021. This indicates a natural progression aligning with the passage of time, confirming the aging trend of the assets within the firm's property, plant, and equipment.
- Estimated Remaining Life
- The estimated remaining life of assets held steady at 6 years throughout the entire period from 2017 to 2021. Despite the assets aging, the constant remaining life points to either acquisition of newer assets replacing older ones or an adjustment in useful life assessments maintaining a balance in asset renewal expectations.
Average Age
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Accumulated depreciation | ||||||
| Gross plant and equipment | ||||||
| Land | ||||||
| Asset Age Ratio | ||||||
| Average age1 | ||||||
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2021 Calculations
1 Average age = 100 × Accumulated depreciation ÷ (Gross plant and equipment – Land)
= 100 × ÷ ( – ) =
The financial data for property, plant, and equipment over the five-year period demonstrates several notable trends in the company's asset base and depreciation patterns.
- Accumulated Depreciation
- The accumulated depreciation shows a steady increase each year, rising from $3,383 million in 2017 to $3,891 million in 2021. This growth indicates ongoing wear and usage of plant and equipment assets over time, reflecting continuous charge-offs of asset value.
- Gross Plant and Equipment
- The gross value of plant and equipment slightly fluctuated but generally increased, moving from $5,161 million in 2017 to $5,700 million in 2021. The increment suggests ongoing investments or acquisitions of physical assets, with a notable uptick in 2020 and 2021 after a relatively flat period in 2018 and 2019.
- Land
- The reported land value exhibited minor fluctuations without a significant overall trend, remaining roughly stable around the $200 million mark, with a low of $186 million in 2019 and a high of $204 million in 2020. This stability is consistent with land typically not being subject to depreciation or frequent revaluation.
- Average Age Ratio
- The average age ratio of assets indicated a gradual upward trend from 68.23% in 2017 to a peak of 70.81% in 2020, slightly declining to 70.72% in 2021. This trend implies that the asset base is aging steadily, which could reflect slower replacement rates or longer use of existing equipment relative to the asset life.
Overall, the data reveals a strategy combining steady asset investment with increasing accumulated depreciation, resulting in an aging asset base. This situation might require attention to maintenance or capital expenditures to manage potential risks associated with older assets.
Estimated Total Useful Life
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2021 Calculations
1 Estimated total useful life = (Gross plant and equipment – Land) ÷ Depreciation expense
= ( – ) ÷ =
- Gross Plant and Equipment
- The gross plant and equipment value demonstrated a generally increasing trend over the five-year period, starting at 5,161 million USD in 2017 and rising to 5,700 million USD by the end of 2021. This indicates a steady investment in property, plant, and equipment assets, with a noticeable acceleration of growth between 2019 and 2020.
- Land
- Land value showed minor fluctuations, decreasing from 203 million USD in 2017 to 186 million USD in 2019, then slightly recovering to 204 million USD in 2020 before a small decline to 198 million USD in 2021. This pattern reflects a relative stability in land holdings but with some variability possibly due to acquisitions or disposals.
- Depreciation Expense
- The depreciation expense steadily increased from 256 million USD in 2017 to 277 million USD in 2021. This gradual rise is consistent with the growing asset base and suggests ongoing consumption of the plant and equipment assets over time.
- Estimated Total Useful Life
- The estimated total useful life of the assets remained stable at 19 years from 2017 through 2019, then increased slightly to 20 years in 2020 and 2021. This adjustment may reflect changes in asset composition or revisions in management's expectations regarding asset longevity.
Estimated Age, Time Elapsed since Purchase
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2021 Calculations
1 Time elapsed since purchase = Accumulated depreciation ÷ Depreciation expense
= ÷ =
- Accumulated Depreciation
- Accumulated depreciation shows a consistent increase over the five-year period. It rose from 3,383 million US dollars at the end of 2017 to 3,891 million US dollars by the end of 2021. This steady growth indicates ongoing depreciation of property, plant, and equipment assets, reflecting the age and amortization of these assets over time.
- Depreciation Expense
- Depreciation expense remained relatively stable across the years, fluctuating slightly between 256 million and 277 million US dollars annually. This stability suggests that the company is recognizing depreciation expenses at a consistent rate, indicating a steady utilization or systematic charge-off of asset value.
- Time Elapsed Since Purchase
- The time elapsed since purchase remained constant at 13 years from 2017 through 2019 and increased to 14 years in 2020 and 2021. This gradual increase corresponds with the aging of the company’s asset base, implying limited acquisition of new assets during this period or replacement at a pace that maintains the average age of the assets.
Estimated Remaining Life
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2021 Calculations
1 Estimated remaining life = (Net plant and equipment – Land) ÷ Depreciation expense
= ( – ) ÷ =
The analysis of the annual property, plant, and equipment data reveals several noteworthy trends and patterns over the five-year period.
- Net Plant and Equipment
- The net plant and equipment values show minor fluctuations between 2017 and 2021. Starting at $1,778 million in 2017, there was a slight increase to $1,791 million in 2018, followed by a decrease to $1,729 million in 2019. The figure then rose again to $1,777 million in 2020 and further to $1,809 million in 2021. Overall, this suggests a relatively stable investment in net plant and equipment with modest growth in the latter years.
- Land
- The land value exhibits a gradual decline from $203 million in 2017 to $186 million in 2019, before rebounding to $204 million in 2020, and slightly decreasing again to $198 million in 2021. This pattern indicates some variability but no clear long-term upward or downward trend in land holdings.
- Depreciation Expense
- Depreciation expense increased from $256 million in 2017 to $272 million in 2018, then slightly decreased to $267 million in 2019. From 2019 onward, depreciation expense consistently increased, reaching $273 million in 2020 and $277 million in 2021. This rising trend may reflect aging assets or additions to depreciable assets.
- Estimated Remaining Life
- The estimated remaining life of the assets remained constant at six years throughout the period, indicating no significant change in the expected useful life of the property, plant, and equipment.
In summary, net plant and equipment values have remained relatively stable with modest growth, land values have fluctuated without a clear trend, depreciation expenses have generally increased indicating ongoing asset aging or acquisitions, and the estimated remaining life has been steady over the analyzed years.