ILLINOIS TOOL WORKS INC [ITW] Filings

10-Q 1 itw-20220630.htm 10-Q itw-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended	June 30, 2022

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______________ to _______________

Commission File Number: 1-4797

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware

36-1258310

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

155 Harlem Avenue

Glenview

60025

(Address of principal executive offices)

(Zip Code)

(Registrant's telephone number, including area code) 847-724-7500

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	ITW	New York Stock Exchange
1.25% Euro Notes due 2023	ITW23	New York Stock Exchange
0.250% Euro Notes due 2024	ITW24A	New York Stock Exchange
0.625% Euro Notes due 2027	ITW27	New York Stock Exchange
2.125% Euro Notes due 2030	ITW30	New York Stock Exchange
1.00% Euro Notes due 2031	ITW31	New York Stock Exchange
3.00% Euro Notes due 2034	ITW34	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of registrant's common stock, $0.01 par value, outstanding at June 30, 2022: 309,621,709


	Table of Contents

	PART I - Financial Information
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 4.	Controls and Procedures	34

	PART II - Other Information

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36

Signatures		37

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
In millions except per share amounts	2022		2021		2022		2021
Operating Revenue	$	4,011	$	3,676	$	7,950	$	7,220
Cost of revenue	2,392		2,163		4,749		4,202
Selling, administrative, and research and development expenses	659		588		1,311		1,154
Amortization and impairment of intangible assets	34		32		69		66
Operating Income	926		893		1,821		1,798
Interest expense	(47)		(52)		(95)		(104)
Other income (expense)	24		22		38		34
Income Before Taxes	903		863		1,764		1,728
Income Taxes	165		88		364		282
Net Income	$	738	$	775	$	1,400	$	1,446

Net Income Per Share:
Basic	$	2.37	$	2.46	$	4.49	$	4.58
Diluted	$	2.37	$	2.45	$	4.48	$	4.56

Shares of Common Stock Outstanding During the Period:
Average	310.6		315.6		311.5		316.1
Average assuming dilution	311.5		316.9		312.6		317.4

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Comprehensive Income (Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
In millions	2022		2021		2022		2021
Net Income	$	738	$	775	$	1,400	$	1,446

Foreign currency translation adjustments, net of tax	(210)		37		(184)		30
Pension and other postretirement benefit adjustments, net of tax	4		11		9		22
Other comprehensive income (loss)	(206)		48		(175)		52

Comprehensive Income	$	532	$	823	$	1,225	$	1,498

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Financial Position (Unaudited)


In millions except per share amounts	June 30, 2022		December 31, 2021
Assets
Current Assets:
Cash and equivalents	$	879	$	1,527
Trade receivables	3,109		2,840
Inventories	1,975		1,694
Prepaid expenses and other current assets	305		313
Assets held for sale	103		—
Total current assets	6,371		6,374

Net plant and equipment	1,736		1,809
Goodwill	4,870		4,965
Intangible assets	832		972
Deferred income taxes	498		552
Other assets	1,359		1,405
	$	15,666	$	16,077

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	1,525	$	778
Accounts payable	679		585
Accrued expenses	1,562		1,648
Cash dividends payable	378		382
Income taxes payable	120		77
Liabilities held for sale	30		—
Total current liabilities	4,294		3,470

Noncurrent Liabilities:
Long-term debt	6,115		6,909
Deferred income taxes	632		654
Noncurrent income taxes payable	274		365
Other liabilities	972		1,053
Total noncurrent liabilities	7,993		8,981

Stockholders' Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2022 and 2021 Outstanding- 309.6 shares in 2022 and 312.9 shares in 2021	6		6
Additional paid-in-capital	1,464		1,432
Retained earnings	24,967		24,325
Common stock held in treasury	(21,382)		(20,636)
Accumulated other comprehensive income (loss)	(1,677)		(1,502)
Noncontrolling interest	1		1
Total stockholders' equity	3,379		3,626
	$	15,666	$	16,077

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Changes in Stockholders' Equity (Unaudited)


In millions except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total

Three Months Ended June 30, 2022
Balance at March 31, 2022	$	6	$	1,447	$	24,607	$	(21,008)	$	(1,471)	$	1	$	3,582
Net income	—		—		738		—		—		—		738
Common stock issued for stock-based compensation	—		—		—		1		—		—		1
Stock-based compensation expense	—		17		—		—		—		—		17
Repurchases of common stock	—		—		—		(375)		—		—		(375)
Dividends declared ($1.22 per share)	—		—		(378)				—		—		(378)
Other comprehensive income (loss)	—		—		—		—		(206)		—		(206)

Balance at June 30, 2022	$	6	$	1,464	$	24,967	$	(21,382)	$	(1,677)	$	1	$	3,379

Three Months Ended June 30, 2021
Balance at March 31, 2021	$	6	$	1,378	$	23,425	$	(19,897)	$	(1,638)	$	2	$	3,276
Net income	—		—		775		—		—		—		775
Common stock issued for stock-based compensation	—		8		—		7		—		—		15
Stock-based compensation expense	—		16		—		—		—		—		16
Repurchases of common stock	—		—		—		(250)		—		—		(250)
Dividends declared ($1.14 per share)	—		—		(358)		—		—		—		(358)
Other comprehensive income (loss)	—		—		—		—		48		—		48
Noncontrolling interest	—		—		—		—		—		(1)		(1)
Balance at June 30, 2021	$	6	$	1,402	$	23,842	$	(20,140)	$	(1,590)	$	1	$	3,521

Six Months Ended June 30, 2022
Balance at December 31, 2021	$	6	$	1,432	$	24,325	$	(20,636)	$	(1,502)	$	1	$	3,626
Net income	—		—		1,400		—		—		—		1,400
Common stock issued for stock-based compensation	—		(1)		—		4		—		—		3
Stock-based compensation expense	—		33		—		—		—		—		33
Repurchases of common stock	—		—		—		(750)		—		—		(750)
Dividends declared ($2.44 per share)	—		—		(758)		—		—		—		(758)
Other comprehensive income (loss)	—		—		—		—		(175)		—		(175)

Balance at June 30, 2022	$	6	$	1,464	$	24,967	$	(21,382)	$	(1,677)	$	1	$	3,379

Six Months Ended June 30, 2021
Balance at December 31, 2020	$	6	$	1,362	$	23,114	$	(19,659)	$	(1,642)	$	1	$	3,182
Net income	—		—		1,446		—		—		—		1,446
Common stock issued for stock-based compensation	—		13		—		19		—		—		32
Stock-based compensation expense	—		27		—		—		—		—		27
Repurchases of common stock	—		—		—		(500)		—		—		(500)
Dividends declared ($2.28 per share)	—		—		(718)		—		—		—		(718)
Other comprehensive income (loss)	—		—		—		—		52		—		52
Noncontrolling interest	—		—		—		—		—		—		—
Balance at June 30, 2021	$	6	$	1,402	$	23,842	$	(20,140)	$	(1,590)	$	1	$	3,521

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Cash Flows (Unaudited)


	Six Months Ended
	June 30,
In millions	2022		2021
Cash Provided by (Used for) Operating Activities:
Net income	$	1,400	$	1,446
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	140		136
Amortization and impairment of intangible assets	69		66
Change in deferred income taxes	(60)		(87)
Provision for uncollectible accounts	3		1
(Income) loss from investments	(5)		(24)
(Gain) loss on sale of plant and equipment	(1)		—

Stock-based compensation expense	33		27
Other non-cash items, net	1		7
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	(396)		(300)
Inventories	(374)		(222)
Prepaid expenses and other assets	(1)		(20)
Increase (decrease) in-
Accounts payable	124		80
Accrued expenses and other liabilities	(27)		41
Income taxes	(81)		13
Other, net	(1)		—
Net cash provided by operating activities	824		1,164
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	(2)		—
Additions to plant and equipment	(155)		(146)
Proceeds from investments	7		30
Proceeds from sale of plant and equipment	5		3

Other, net	(1)		(1)
Net cash provided by (used for) investing activities	(146)		(114)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(762)		(721)
Issuance of common stock	17		42
Repurchases of common stock	(750)		(500)
Net proceeds from (repayments of) debt with original maturities of three months or less	635		—
Proceeds from debt with original maturities of more than three months	454		—
Repayments of debt with original maturities of more than three months	(863)		(350)
Other, net	(15)		(10)
Net cash provided by (used for) financing activities	(1,284)		(1,539)
Effect of Exchange Rate Changes on Cash and Equivalents	(42)		(17)
Cash and Equivalents:
Increase (decrease) during the period	(648)		(506)
Beginning of period	1,527		2,564
End of period	$	879	$	2,058
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	113	$	128
Cash Paid During the Period for Income Taxes, Net of Refunds	$	506	$	355

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Notes to Financial Statements (Unaudited)

(1) Significant Accounting Policies

Financial Statements— The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the "Company"). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. Interim results are not necessarily indicative of results for the full year. 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 2021 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

(2) Novel Coronavirus (COVID-19)

In early 2020, an outbreak of a novel strain of coronavirus ("COVID-19") occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 spread and impacted the countries in which the Company operates and the markets the Company serves. During 2021 and the first half of 2022, the Company experienced solid recovery progress in many of its end markets; however, the disruptions caused by the COVID-19 pandemic have continued to have an adverse impact on the Company's global operations. The full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company's operations continues to be highly uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions, spikes in infections (including the spread of variants) continuing to be experienced and certain jurisdictions continuing to impose stay-at-home orders. The pandemic and resurgence of outbreaks could continue to adversely impact the operations of the Company and its customers and suppliers.

(3) MTS Test & Simulation Acquisition

On December 1, 2021, the Company completed the acquisition of the Test & Simulation business of MTS Systems Corporation ("MTS") from Amphenol Corporation for a purchase price of $750 million, subject to certain closing adjustments. The MTS Test & Simulation business is a leading global supplier of high-performance testing and simulation systems and is highly complementary to the Company's existing Test & Measurement and Electronics segment. The operating results of the MTS Test & Simulation business were reported within the Test & Measurement and Electronics segment from the date of acquisition, with operating revenue of $107 million and $207 million for the three and six months ended June 30, 2022, respectively. The Company is in the process of allocating the purchase price to the acquired assets and liabilities as of the acquisition date, including intangible assets and goodwill. Based on its updated allocation, the Company recorded goodwill of $431 million and intangible assets of $257 million. The intangible assets included $93 million related to indefinite-lived trademarks and brands and $164 million related to amortizable intangible assets that are expected to be amortized on a straight-line basis over estimated useful lives ranging from 1 to 14 years, with a weighted-average life of 11 years. The Company does not expect any of the goodwill related to the transaction to be tax deductible. The fair values of the intangible assets were estimated based on discounted cash flow and market-based valuation models using Level 2 and Level 3 inputs and assumptions. Adjustments resulting from updates to the purchase price allocation during 2022 were not material. Subsequent acquisition accounting adjustments may change the amounts recorded, including 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.

(4) Divestitures

The Company routinely reviews its portfolio of businesses relative to its business portfolio criteria and evaluates if further portfolio refinements may be needed. The Company previously communicated its intent to explore options, including potential divestitures, for certain businesses with annual revenues totaling up to $1.0 billion. As such, the Company may commit to a plan to exit or dispose of certain businesses and present them as held for sale in periods prior to the sale of the business.

In the fourth quarter of 2019, the Company completed the divestitures of three businesses and continues to evaluate options for certain other businesses. Due to the COVID-19 pandemic, the Company chose to defer any further significant divestiture activity in 2020 and 2021. The Company is reinitiating the divestiture process in 2022 for certain businesses with combined annual revenues of approximately $0.5 billion, subject to approval by the Company's Board of Directors.

In the second quarter of 2022, plans were approved to divest two businesses, including one business in the Polymers & Fluids segment and one business in the Food Equipment segment, with total combined revenues of $115 million for the year ended December 31, 2021. These two businesses were classified as held for sale beginning in the second quarter of 2022.

As of June 30, 2022, the assets and liabilities related to the two businesses discussed above that were included in assets and liabilities held for sale in the Statement of Financial Position were as follows:


In millions	June 30, 2022
Trade receivables	$	21
Inventories	19
Net plant and equipment	14
Goodwill and intangible assets	43
Other	6
Total assets held for sale	$	103

Accounts payable	$	2
Accrued expenses	14
Other	14
Total liabilities held for sale	$	30

Operating revenue of the two businesses held for sale for the three and six months ended June 30, 2022 and 2021 was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
In millions	2022		2021		2022		2021
Operating revenue	$	34	$	31	$	63	$	58

(5) Operating Revenue

The Company's 83 diversified operating divisions are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three and six months ended June 30, 2022 and 2021 was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
In millions	2022		2021		2022		2021
Automotive OEM	$	711	$	707	$	1,471	$	1,490
Food Equipment	614		514		1,180		965
Test & Measurement and Electronics	696		606		1,381		1,158
Welding	486		402		936		803
Polymers & Fluids	496		466		977		901
Construction Products	565		518		1,116		987
Specialty Products	447		471		899		928
Intersegment revenue	(4)		(8)		(10)		(12)
Total operating revenue	$	4,011	$	3,676	$	7,950	$	7,220

The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's seven segments:

Automotive OEM— This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

•plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.

Products sold in this segment are primarily manufactured to the customer's specifications and are sold under long-term supply agreements with OEM auto manufacturers and other top tier auto parts suppliers. The Company typically recognizes revenue for products in this segment at the time of shipment. Certain products may be produced utilizing tooling that is owned by the customer that the Company developed and is reimbursed by the customer for the associated cost. In these arrangements, the Company typically retains a contractual right to use the customer-owned tooling for the purpose of fulfilling its obligations under the supply agreement. The Company records reimbursements for the cost of customer-owned tooling as a cost offset rather than operating revenue as tooling is not considered a product offering central to the Company's operations.

Food Equipment— This segment is a highly focused and branded industry leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food service, food retail and food institutional/restaurant markets. Products in this segment include:

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

•refrigeration equipment, including refrigerators, freezers and prep tables;

•food processing equipment, including slicers, mixers and scales;

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

Revenue for equipment sold in this segment is typically recognized at the time of product shipment. In limited circumstances involving installation of equipment and customer acceptance, the Company may recognize revenue upon completion of installation and acceptance by the customer. Annual service contracts are typically sold separate from equipment and the related revenue is recognized on a straight-line basis over the annual service period. Operating revenue for on-demand service repairs and parts is recorded upon completion and customer acceptance of the work performed.

Test & Measurement and Electronics— This segment is a branded and innovative producer of test and measurement and electronic manufacturing and maintenance, repair, and operations, or "MRO" solutions that improve efficiency and quality for customers in diverse end markets. Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, automotive original equipment manufacturers and tiers, industrial capital goods, energy and consumer durables markets. Products in this segment include:

•equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids;

•electronic assembly equipment;

•electronic components and component packaging;

•static control equipment and consumables used for contamination control in clean room environments; and

•pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications.

Revenue for products sold in this segment is typically recognized at the time of shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue recognition is deferred until such obligations have been completed. In other limited arrangements involving the sale of highly specialized systems that include a high degree of customization and installation at the customer site, revenue is recognized over time if the product does not have an alternative use and the Company has an enforceable right to payment for work performed to date. Revenue for transactions meeting these criteria is recognized over time as work is performed based on the costs incurred to date relative to the total estimated costs at completion.

Welding— This segment is a branded value-added equipment and specialty consumable manufacturer with innovative and leading technology. Businesses in this segment produce arc welding equipment, consumables and accessories for a wide array of industrial and commercial applications. This segment primarily serves the general industrial market, which includes fabrication, shipbuilding and other general industrial markets, and energy, construction, MRO, automotive original equipment manufacturers and tiers, and industrial capital goods markets. Products in this segment include:

•arc welding equipment; and

•metal arc welding consumables and related accessories.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment.

Polymers & Fluids— This segment is a branded supplier to niche markets that require value-added, differentiated products. Businesses in this segment produce engineered adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. This segment primarily serves the automotive aftermarket, general industrial, MRO and construction markets. Products in this segment include:

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to machines;

•epoxy and resin-based coating products for industrial applications;

•hand wipes and cleaners for industrial applications;

•fluids, polymers and other supplies for auto aftermarket maintenance and appearance;

•fillers and putties for auto body repair; and

•polyester coatings and patch and repair products for the marine industry.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment.

Construction Products— This segment is a branded supplier of innovative engineered fastening systems and solutions. This segment primarily serves the residential construction, renovation/remodel and commercial construction markets. Products in this segment include:

•fasteners and related fastening tools for wood and metal applications;

•anchors, fasteners and related tools for concrete applications;

•metal plate truss components and related equipment and software; and

•packaged hardware, fasteners, anchors and other products for retail.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment.

Specialty Products— This segment is focused on diversified niche market opportunities with substantial patent protection producing beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. This segment primarily serves the food and beverage, consumer durables, general industrial, industrial capital goods and printing and publishing markets. Products in this segment include:

•line integration, conveyor systems and line automation for the food and beverage industries;

•plastic consumables that multi-pack cans and bottles and related equipment;

•foil, film and related equipment used to decorate consumer products;

•product coding and marking equipment and related consumables;

•plastic and metal closures and components for appliances;

•airport ground support equipment; and

•components for medical devices.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue is recognized when such obligations have been completed.

(6) Income Taxes

The Company's effective tax rate for the three months ended June 30, 2022 and 2021 was 18.3% and 10.1%, respectively, and 20.7% and 16.3% for the six months ended June 30, 2022 and 2021, respectively. The effective tax rate for the three and six months ended June 30, 2022 included a discrete income tax benefit of $51 million related to a decrease in unrecognized tax benefits resulting from the resolution of a U.S. tax audit. The effective tax rate for the three and six months ended June 30, 2021 included a discrete income tax benefit of $112 million related to the remeasurement of net deferred tax assets due to the enactment of the U.K. Finance Bill 2021, which increases the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rates for 2022 and 2021 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $1 million and $4 million for the three months ended June 30, 2022 and 2021, respectively, and $8 million and $13 million for the six months ended June 30, 2022 and 2021, respectively.

The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions, including the Internal Revenue Service ("IRS"), Her Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. 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 $22 million related predominantly to the potential resolution of income tax examinations. The Company has recorded its best estimate of the potential exposure for these issues.

(7) Inventories

Inventories as of June 30, 2022 and December 31, 2021 were as follows:


In millions	June 30, 2022		December 31, 2021
Raw material	$	835	$	716
Work-in-process	242		208
Finished goods	1,028		888
LIFO reserve	(130)		(118)
Total inventories	$	1,975	$	1,694

(8) Pension and Other Postretirement Benefits

Pension and other postretirement benefit costs for the three and six months ended June 30, 2022 and 2021 were as follows:


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	Pension				Other Postretirement Benefits				Pension				Other Postretirement Benefits
In millions	2022		2021		2022		2021		2022		2021		2022		2021
Components of net periodic benefit cost:
Service cost	$	12	$	14	$	1	$	2	$	24	$	27	$	3	$	4
Interest cost	12		10		4		2		25		20		7		5
Expected return on plan assets	(25)		(26)		(7)		(6)		(52)		(51)		(13)		(13)
Amortization of actuarial loss (gain)	6		13		(1)		—		13		26		(2)		—
Amortization of prior service cost	—		1		—		—		—		1		—		—
Total net periodic benefit cost	$	5	$	12	$	(3)	$	(2)	$	10	$	23	$	(5)	$	(4)

The service cost component of net periodic benefit cost is presented within Cost of revenue and Selling, administrative, and research and development expenses in the Statement of Income while the other components of net periodic benefit cost are presented within Other income (expense).

The Company expects to contribute approximately $14 million to its pension plans and $4 million to its other postretirement benefit plans in 2022. As of June 30, 2022, contributions of $6 million to pension plans and $2 million to other postretirement benefit plans have been made.

(9) Debt

Total debt as of June 30, 2022 and December 31, 2021 was as follows:


In millions	June 30, 2022		December 31, 2021
Short-term debt	$	1,525	$	778
Long-term debt	6,115		6,909
Total debt	$	7,640	$	7,687

Short-term debt included commercial paper of $1.0 billion and $210 million as of June 30, 2022 and December 31, 2021, respectively. The weighted-average interest rate on commercial paper as of June 30, 2022 and December 31, 2021 was 1.08% and 0.14%, respectively. Short-term debt as of June 30, 2022 also included $523 million related to the 1.25% Euro notes due May 22, 2023, which were reclassified from Long-term debt to Short-term debt in the second quarter of 2022. As of December 31, 2021, Short-term debt also included $568 million related to the 1.75% Euro notes due May 20, 2022, which were redeemed in full at face value on February 22, 2022. Additionally, the $350 million of 3.375% notes due September 15, 2021 were redeemed in full at face value on June 15, 2021.

The Company has a $2.5 billion revolving credit facility with a termination date of September 27, 2024, which is available to provide additional liquidity, including to support the potential issuances of commercial paper. No amounts were outstanding under the $2.5 billion revolving credit facility as of June 30, 2022 or December 31, 2021.

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 June 30, 2022 and December 31, 2021 were as follows:


In millions	June 30, 2022		December 31, 2021
Fair value	$	6,375	$	8,296
Carrying value	6,639		7,477

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.

(10) Accumulated Other Comprehensive Income (Loss)

The following table summarizes changes in Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
In millions	2022		2021		2022		2021
Beginning balance	$	(1,471)	$	(1,638)	$	(1,502)	$	(1,642)

Foreign currency translation adjustments during the period	(167)		24		(118)		57
Foreign currency translation adjustments reclassified to income	—		2		—		4
Income taxes	(43)		11		(66)		(31)
Total foreign currency translation adjustments, net of tax	(210)		37		(184)		30


Pension and other postretirement benefit adjustments reclassified to income	5		14		11		27
Income taxes	(1)		(3)		(2)		(5)
Total pension and other postretirement benefit adjustments, net of tax	4		11		9		22

Ending balance	$	(1,677)	$	(1,590)	$	(1,677)	$	(1,590)

Foreign currency translation adjustments reclassified to income related to the exit of immaterial foreign operations. Pension and other postretirement benefit adjustments reclassified to income represented the amortization of actuarial gains and losses and prior service cost. Refer to Note 8. Pension and Other Postretirement Benefits for additional information.

The Company designated the €1.0 billion of Euro notes issued in May 2014, the €1.0 billion of Euro notes issued in May 2015 and the €1.6 billion of Euro notes issued in June 2019 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. 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). On February 22, 2022, €500 million of the Euro notes issued in May 2014 were redeemed in full. Refer to Note 9. Debt for additional information regarding the redemption of these notes. The carrying values of the 2019, 2015 and 2014 Euro notes were $1.7 billion, $1.0 billion and $514 million, respectively, as of June 30, 2022. The cumulative unrealized pre-tax gain (loss) recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was a gain of $456 million and $183 million as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022 and 2021, the ending balance of Accumulated other comprehensive income (loss) consisted of after-tax cumulative translation adjustment losses of $1.5 billion and $1.3 billion, respectively, and after-tax unrecognized pension and other postretirement benefits costs of $187 million and $309 million, respectively.

(11) Segment Information

The Company's operations are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for information regarding operating revenue and operating income for the Company's segments.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

Illinois Tool Works Inc. (the "Company" or "ITW") is a global manufacturer of a diversified range of industrial products and equipment with 83 divisions in 52 countries. As of December 31, 2021, the Company employed approximately 45,000 people.

Due to the large number of diverse businesses and the Company's decentralized operating structure, the Company does not require its businesses to provide detailed information on operating results. Instead, the Company's corporate management collects data on several key measurements: operating revenue, operating income, operating margin, overhead costs, number of months on hand in inventory, days sales outstanding in accounts receivable, past due receivables and return on invested capital. These key measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are discussed with operating unit management.

THE ITW BUSINESS MODEL

The powerful and highly differentiated ITW Business Model is the Company's core source of value creation. It is the Company's competitive advantage and defines how ITW creates value for its shareholders. The ITW Business Model is comprised of three unique elements:

•ITW's 80/20 Front-to-Back 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 Front-to-Back 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 creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 19,300 granted and pending patents;

•ITW's Decentralized, Entrepreneurial Culture enables 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 and solutions adapted to each business' customers and end markets.

ENTERPRISE STRATEGY

In late 2012, ITW began its strategic framework transitioning the Company on its current path to fully leverage the compelling performance potential of the ITW Business Model. The Company undertook a complete review of its performance, focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, and developing a strategy to replicate that performance across its operations.

ITW determined that solid and consistent above-market organic growth is the core growth engine to deliver world-class financial performance and compelling long-term returns for its shareholders. To shift its primary growth engine to organic, the Company began executing a multi-step approach.

•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.

As a result of this work, ITW's business portfolio now has significantly higher organic growth potential. ITW segments and divisions now possess attractive and differentiated product lines and end markets as they continue to improve operating margins and generate price/cost increases. The Company achieved this through product line simplification, or eliminating the complexity and overhead costs associated with smaller product lines and customers, while supporting and growing the businesses' largest / most profitable customers and product lines.

•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 improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 83 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

•The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through 2021 and continues to be a key contributor to the Company's ongoing enterprise strategy.

•With the initial portfolio realignment and scale-up work largely complete, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process 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.

ITW has clearly demonstrated superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company's operating margin and after-tax return on invested capital. At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

PATH TO FULL POTENTIAL

Since the launch of the enterprise strategy, the Company has made considerable progress to position itself to reach full potential. The ITW Business Model and unique set of capabilities are a source of strong and enduring competitive advantage, but for the Company to truly reach its full potential, every one of its divisions must also be operating at its full potential. To do so, the Company remains focused on its core principles to position ITW to perform to its full potential:

•Portfolio discipline

•80/20 Front-to-Back practice excellence

•Full-potential organic growth

Portfolio Discipline

The Company only operates in industries where it can generate significant, long-term competitive advantage from the ITW Business Model. ITW businesses have the right "raw material" in terms of market and business attributes that best fit the ITW Business Model and have significant potential to drive above-market organic growth over the long-term.

The Company focuses on high-quality businesses, ensuring it operates in markets with positive long-term macro fundamentals and with customers that have critical needs and value ITW's differentiated products, services and solutions. ITW's portfolio operates in highly diverse end markets and geographies which makes the Company more resilient in the face of uncertain or volatile market environments.

The Company routinely evaluates its portfolio to ensure it delivers sustainable differentiation and drives consistent long-term performance. This includes both implementing portfolio refinements and assessing selective high-quality acquisitions to supplement ITW's long-term growth potential.

The Company previously communicated its intent to explore options, including potential divestitures, for certain businesses with annual revenues totaling up to $1.0 billion. In the fourth quarter of 2019, the Company completed the divestitures of three businesses and continues to evaluate options for certain other businesses. Due to the COVID-19 pandemic, the Company chose to defer any further significant divestiture activity in 2020 and 2021. The Company is reinitiating the divestiture process in 2022 for certain businesses with combined annual revenues of approximately $0.5 billion, subject to approval by the Company's Board of Directors. In the second quarter of 2022, plans were approved to divest two businesses, including one business in the

Polymers & Fluids segment and one business in the Food Equipment segment, with total combined revenues of $115 million for the year ended December 31, 2021. These two businesses were classified as held for sale beginning in the second quarter of 2022. Refer to Note 4. Divestitures in Item 1. Financial Statements for further information regarding the Company's divestitures.

80/20 Front-to-Back Practice Excellence

The 80/20 Front-to-Back process is a rigorous, iterative and highly data-driven approach to identify where the Company has true differentiation and the ability to drive sustainable, high-quality organic growth. The Company simplifies and eliminates complexity and redesigns every aspect of its business to ensure focused execution on key opportunities, markets, customers, and products.

ITW will continue to drive 80/20 Front-to-Back practice excellence in every division in the Company, every day. Driving strong operational excellence in the quality of 80/20 Front-to-Back practice across the Company, division by division, will produce further customer-facing performance improvement in a number of divisions and additional structural margin expansion at the enterprise level.

Full-potential Organic Growth

Reaching full potential means that every division is positioned for sustainable, high-quality organic growth. The Company has clearly defined action plans aimed at leveraging the performance power of the ITW Business Model to achieve full-potential organic growth in every division, with specific focus on:

•"80" focused Market Penetration - fully leveraging the considerable growth potential that resides in the Company's largest and most differentiated product offerings and customer relationships

•Customer-back Innovation - strengthening the Company's commitment to serial innovation and delivering a continuous flow of differentiated new products to its key customers

•Strategic Sales Excellence - deploying a high-performance sales function in every division

As the Company continues to make progress toward its full potential, the Company will explore opportunities to reinforce or further expand the long-term organic growth potential of ITW through the addition of selective high-quality acquisitions, such as the acquisition of the Test & Simulation business of MTS Systems Corporation ("MTS") from Amphenol Corporation on December 1, 2021. The operating results of the MTS Test & Simulation business were reported within the Company's Test & Measurement and Electronics segment. Refer to Note 3. MTS Test & Simulation Acquisition in Item 1. Financial Statements for further information regarding this acquisition.

TERMS USED BY ITW

Management uses the following terms to describe the financial results of operations of the Company:

•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.

Unless otherwise stated, the changes in financial results in the consolidated results of operations and the results of operations by segment represent the current year period versus the comparable period in the prior year. The following discussion of operating results should be read in conjunction with Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2021 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 spread and impacted the countries in which the Company operates and the markets the Company serves.

For the duration of the COVID-19 pandemic, the Company is focusing on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery. To support ITW's colleagues, among its many actions and initiatives, the Company redesigned production processes to ensure proper social distancing practices, adjusted shift schedules and assignments to help colleagues who have child and elder care needs, and implemented aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk. To support its customers, the Company has worked diligently to keep its facilities open and operating safely. The Company has adapted customer service systems and practices to seamlessly serve its customers under "work from home" requirements in many parts of the world.

In areas around the world where governments issued stay-at-home or similar orders, the vast majority of ITW's businesses were designated as critical or essential businesses and, as such, they remained open and operational. In some cases, this is because the Company's products directly impact the COVID-19 response effort. In other cases, the Company's businesses are designated as critical because they play a vital role in serving and supporting industries that are deemed essential to the physical and economic health of our communities.

While the vast majority of the Company's facilities have remained open and operational during the pandemic, many of these facilities were operating at a reduced capacity at various times since the outset of the pandemic. The full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company's operations and financial position continues to be highly uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions, spikes in infections (including the spread of variants) continuing to be experienced and certain jurisdictions continuing to impose stay-at-home orders. The pandemic and resurgence of outbreaks could continue to adversely impact the operations of the Company and its customers and suppliers. A description of the risks relating to the impact of the COVID-19 outbreak on the Company's business, operations and financial condition is contained in Part I - Item 1A - Risk Factors in the Company's 2021 Annual Report on Form 10-K.

During the first quarter of 2022, Russian military forces invaded Ukraine. In response, the United States and several other countries imposed economic and other sanctions on Russia. Sales to customers in Russia represented less than one percent of ITW’s total consolidated revenue and were not material to the Company’s results of operations or financial position.

In a challenging and dynamic environment, the Company delivered strong financial results in the second quarter and year-to-date periods of 2022 primarily due to the continued successful execution of enterprise initiatives, including the "Win the Recovery" actions initiated over the course of the past year, and continued focus on the highly differentiated ITW Business Model. Despite rising costs and a challenging global supply chain environment, the Company generated operating revenue growth of 9.1 percent and 10.1 percent in the second quarter and year-to-date periods of 2022, respectively, as six of seven segments achieved worldwide organic revenue growth. Operating income was $926 million in the second quarter and $1.8 billion in the year-to-date period of 2022, respectively. Operating margin was 23.1 percent and 22.9 percent in the second quarter and year-to-date periods of 2022, respectively. The Automotive OEM segment continued to be impacted by auto production reductions associated with the supply chain challenges affecting its customers.

The Company's consolidated results of operations for the second quarter and year-to-date periods of 2022 and 2021 were as follows:


	Three Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2022			2021			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	4,011		$	3,676		9.1	%	10.4	%	2.9	%	—	%	(4.2)	%	9.1	%
Operating income	$	926		$	893		3.7	%	9.7	%	0.5	%	(2.3)	%	(4.2)	%	3.7	%
Operating margin %	23.1		%	24.3		%	(120) bps		(20) bps		(50) bps		(50) bps		—		(120) bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2022			2021			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	7,950		$	7,220		10.1	%	10.5	%	2.9	%	—	%	(3.3)	%	10.1	%
Operating income	$	1,821		$	1,798		1.3	%	5.9	%	0.1	%	(1.5)	%	(3.2)	%	1.3	%
Operating margin %	22.9		%	24.9		%	(200) bps		(100) bps		(60) bps		(40) bps		—		(200) bps

•Operating revenue increased in the second quarter and year-to-date periods due to higher organic revenue and the MTS Test & Simulation acquisition, which was completed on December 1, 2021, partially offset by the unfavorable effect of foreign currency translation.

•Organic revenue grew 10.4% and 10.5% in the second quarter and year-to-date periods, respectively, as growth in six segments was partially offset by a decline in the Specialty Products segment. Additionally, product line simplification activities reduced organic revenue by 30 basis points in the second quarter and 20 basis points in the year-to-date period.

◦North American organic revenue increased 14.4% in the second quarter as growth in six segments was partially offset by a decline in the Test & Measurement and Electronics segment. Organic revenue increased 13.9% in the year-to-date period due to growth in all segments, primarily driven by the Food Equipment, Construction Products and Welding segments.

◦Europe, Middle East and Africa organic revenue increased 6.5% and 6.9% in the second quarter and year-to-date periods, respectively, as growth in five segments was partially offset by a decline in the Automotive OEM and Specialty Products segments.

◦Asia Pacific organic revenue increased 2.7% in the second quarter due to growth in four segments, partially offset by a decline in the Specialty Products, Automotive OEM and Welding segments. In the year-to-date period, organic revenue grew 4.5% due to growth in six segments, partially offset by a decline in the Specialty Products segment. China organic revenue declined 4.4% in the second quarter as a decrease in the Automotive OEM, Specialty Products, Welding and Construction Products segments was partially offset by growth in the Test & Measurement and Electronics, Polymers & Fluids and Food Equipment segments. In the year-to-date period, China organic revenue declined 1.6% as a decrease in the Specialty Products, Construction Products, Welding and Polymers & Fluids segments was partially offset by growth in the Test & Measurement and Electronics, Automotive OEM and Food Equipment segments. The results in 2022 were negatively impacted by the COVID-19 outbreak and government stay-at-home orders in China.

•Operating income of $926 million and $1.8 billion in the second quarter and year-to-date periods increased 3.7% and 1.3%, respectively, compared to the prior year primarily due to higher organic revenue, partially offset by unfavorable foreign currency translation and higher restructuring expenses.

•Operating margin was 23.1% in the second quarter. The decrease of 120 basis points was primarily driven by unfavorable price/cost of 160 basis points, the dilutive impact of 50 basis points from the MTS Test & Simulation acquisition, higher restructuring expenses and higher operating expenses, including employee-related expenses and freight costs, partially offset by positive operating leverage of 200 basis points and benefits from the Company's enterprise initiatives of 90 basis points.

•In the year-to-date period, operating margin of 22.9% decreased 200 basis points primarily driven by unfavorable price/cost of 200 basis points, the dilutive impact of 60 basis points from the MTS Test & Simulation acquisition, higher restructuring expenses and higher operating expenses, including employee-related expenses and freight costs, partially offset by positive operating leverage of 200 basis points and benefits from the Company's enterprise initiatives of 90 basis points.

•The Company's effective tax rate for the second quarter of 2022 and 2021 was 18.3% and 10.1%, respectively, and 20.7% and 16.3% for the year-to-date periods of 2022 and 2021, respectively. The effective tax rate for the second quarter and year-to-date periods of 2022 included a discrete income tax benefit of $51 million related to a decrease in

unrecognized tax benefits resulting from the resolution of a U.S. tax audit. The effective tax rate for the second quarter and year-to-date periods of 2021 included a discrete income tax benefit of $112 million related to the remeasurement of net deferred tax assets due to the enactment of the U.K. Finance Bill 2021, which increases the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rates for 2022 and 2021 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $1 million and $4 million for the second quarter of 2022 and 2021, respectively, and $8 million and $13 million for the year-to-date period of 2022 and 2021, respectively.

•Diluted earnings per share (EPS) of $2.37 for the second quarter and $4.48 for the year-to-date period of 2022 decreased 3.3% and 1.8%, respectively. Excluding the favorable impact of the second quarter 2021 discrete income tax benefit of $0.35 related to the remeasurement of the U.K. net deferred tax assets and the favorable impact of the second quarter 2022 discrete income tax benefit of $0.16 related to the resolution of a U.S. tax audit, EPS increased 5.2% in the second quarter and 2.6% in the year-to-date period.

•The Company repurchased approximately 1.8 million and 3.6 million shares of its common stock in the second quarter and year-to-date periods of 2022, respectively, for approximately $375 million and $750 million, respectively.

RESULTS OF OPERATIONS BY SEGMENT

Total operating revenue and operating income for the second quarter and year-to-date periods of 2022 and 2021 were as follows:


	Three Months ended June 30,								Six Months Ended June 30,
Dollars in millions	Operating Revenue				Operating Income				Operating Revenue				Operating Income
	2022		2021		2022		2021		2022		2021		2022		2021
Automotive OEM	$	711	$	707	$	101	$	133	$	1,471	$	1,490	$	239	$	322
Food Equipment	614		514		152		113		1,180		965		278		209
Test & Measurement and Electronics	696		606		157		170		1,381		1,158		306		327
Welding	486		402		142		115		936		803		281		236
Polymers & Fluids	496		466		125		127		977		901		243		239
Construction Products	565		518		156		143		1,116		987		292		273
Specialty Products	447		471		121		128		899		928		241		254
Intersegment revenue	(4)		(8)		—		—		(10)		(12)		—		—
Unallocated	—		—		(28)		(36)		—		—		(59)		(62)
Total	$	4,011	$	3,676	$	926	$	893	$	7,950	$	7,220	$	1,821	$	1,798

Segments are allocated a fixed overhead charge based on the segment's revenue. Expenses not charged to the segments are reported separately as Unallocated. Because the Unallocated category includes a variety of items, it is subject to fluctuations on a quarterly and annual basis.

AUTOMOTIVE OEM

This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

•plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.

The results of operations for the Automotive OEM segment for the second quarter and year-to-date periods of 2022 and 2021 were as follows:

Three Months Ended

Dollars in millions

June 30,

Components of Increase (Decrease)

2022

2021

Inc (Dec)

Organic

Acquisition/
Divestiture

Restructuring