ILLINOIS TOOL WORKS INC [ITW] Filings

10-Q 1 itw-20230930.htm 10-Q itw-20230930

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	September 30, 2023

	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
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 September 30, 2023: 300,885,880


	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
I tem 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

	PART II - Other Information

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	36
Item 6.	Exhibits	37

Signatures		38

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions except per share amounts	2023		2022		2023		2022
Operating Revenue	$	4,031	$	4,011	$	12,124	$	11,961
Cost of revenue	2,319		2,371		7,004		7,120
Selling, administrative, and research and development expenses	615		624		1,980		1,935
Amortization and impairment of intangible assets	27		33		88		102
Operating Income	1,070		983		3,052		2,804
Interest expense	(67)		(52)		(196)		(147)
Other income (expense)	10		26		40		64
Income Before Taxes	1,013		957		2,896		2,721
Income Taxes	241		230		656		594
Net Income	$	772	$	727	$	2,240	$	2,127

Net Income Per Share:
Basic	$	2.55	$	2.36	$	7.38	$	6.85
Diluted	$	2.55	$	2.35	$	7.36	$	6.83

Shares of Common Stock Outstanding During the Period:
Average	301.9		308.8		303.4		310.6
Average assuming dilution	303.0		309.7		304.5		311.6

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				Nine Months Ended
	September 30,				September 30,
In millions	2023		2022		2023		2022
Net Income	$	772	$	727	$	2,240	$	2,127

Foreign currency translation adjustments, net of tax	(82)		(210)		(61)		(394)
Pension and other postretirement benefit adjustments, net of tax	—		5		—		14
Other comprehensive income (loss)	(82)		(205)		(61)		(380)

Comprehensive Income	$	690	$	522	$	2,179	$	1,747

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	September 30, 2023		December 31, 2022
Assets
Current Assets:
Cash and equivalents	$	990	$	708
Trade receivables	3,163		3,171
Inventories	1,799		2,054
Prepaid expenses and other current assets	336		329
Assets held for sale	—		8
Total current assets	6,288		6,270

Net plant and equipment	1,904		1,848
Goodwill	4,828		4,864
Intangible assets	682		768
Deferred income taxes	455		494
Other assets	1,238		1,178
	$	15,395	$	15,422

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	1,248	$	1,590
Accounts payable	580		594
Accrued expenses	1,588		1,728
Cash dividends payable	421		400
Income taxes payable	145		147
Liabilities held for sale	—		1
Total current liabilities	3,982		4,460

Noncurrent Liabilities:
Long-term debt	6,818		6,173
Deferred income taxes	464		484
Noncurrent income taxes payable	151		273
Other liabilities	976		943
Total noncurrent liabilities	8,409		7,873

Stockholders' Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2023 and 2022 Outstanding- 300.9 shares in 2023 and 305.0 shares in 2022	6		6
Additional paid-in-capital	1,569		1,501
Retained earnings	26,823		25,799
Common stock held in treasury	(23,493)		(22,377)
Accumulated other comprehensive income (loss)	(1,902)		(1,841)
Noncontrolling interest	1		1
Total stockholders' equity	3,004		3,089
	$	15,395	$	15,422

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 September 30, 2023
Balance at June 30, 2023	$	6	$	1,550	$	26,473	$	(23,116)	$	(1,820)	$	1	$	3,094
Net income	—		—		772		—		—		—		772
Common stock issued for stock-based compensation	—		2		—		1		—		—		3
Stock-based compensation expense	—		17		—		—		—		—		17
Repurchases of common stock	—		—		—		(375)		—		—		(375)
Excise tax on repurchases of common stock	—		—		—		(3)		—		—		(3)
Dividends declared ($1.40 per share)	—		—		(422)		—		—		—		(422)
Other comprehensive income (loss)	—		—		—		—		(82)		—		(82)

Balance at September 30, 2023	$	6	$	1,569	$	26,823	$	(23,493)	$	(1,902)	$	1	$	3,004

Three Months Ended September 30, 2022
Balance at June 30, 2022	$	6	$	1,464	$	24,967	$	(21,382)	$	(1,677)	$	1	$	3,379
Net income	—		—		727		—		—		—		727

Stock-based compensation expense	—		15		—		—		—		—		15
Repurchases of common stock	—		—		—		(500)		—		—		(500)
Dividends declared ($1.31 per share)	—		—		(402)		—		—		—		(402)
Other comprehensive income (loss)	—		—		—		—		(205)		—		(205)

Balance at September 30, 2022	$	6	$	1,479	$	25,292	$	(21,882)	$	(1,882)	$	1	$	3,014

Nine Months Ended September 30, 2023
Balance at December 31, 2022	$	6	$	1,501	$	25,799	$	(22,377)	$	(1,841)	$	1	$	3,089
Net income	—		—		2,240		—		—		—		2,240
Common stock issued for stock-based compensation	—		16		—		18		—		—		34
Stock-based compensation expense	—		52		—		—		—		—		52
Repurchases of common stock	—		—		—		(1,125)		—		—		(1,125)
Excise tax on repurchases of common stock	—		—		—		(9)		—		—		(9)
Dividends declared ($4.02 per share)	—		—		(1,216)		—		—		—		(1,216)
Other comprehensive income (loss)	—		—		—		—		(61)		—		(61)

Balance at September 30, 2023	$	6	$	1,569	$	26,823	$	(23,493)	$	(1,902)	$	1	$	3,004

Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	6	$	1,432	$	24,325	$	(20,636)	$	(1,502)	$	1	$	3,626
Net income	—		—		2,127		—		—		—		2,127
Common stock issued for stock-based compensation	—		(1)		—		4		—		—		3
Stock-based compensation expense	—		48		—		—		—		—		48
Repurchases of common stock	—		—		—		(1,250)		—		—		(1,250)
Dividends declared ($3.75 per share)	—		—		(1,160)		—		—		—		(1,160)
Other comprehensive income (loss)	—		—		—		—		(380)		—		(380)

Balance at September 30, 2022	$	6	$	1,479	$	25,292	$	(21,882)	$	(1,882)	$	1	$	3,014

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Cash Flows (Unaudited)


	Nine Months Ended
	September 30,
In millions	2023		2022
Cash Provided by (Used for) Operating Activities:
Net income	$	2,240	$	2,127
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	208		209
Amortization and impairment of intangible assets	88		102
Change in deferred income taxes	5		(72)
Provision for uncollectible accounts	7		4
(Income) loss from investments	—		(8)
(Gain) loss on sale of plant and equipment	—		(1)
(Gain) loss on sale of operations and affiliates	(1)		(1)
Stock-based compensation expense	52		48
Other non-cash items, net	(5)		1
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	(39)		(417)
Inventories	235		(477)
Prepaid expenses and other assets	(23)		27
Increase (decrease) in-
Accounts payable	(3)		84
Accrued expenses and other liabilities	(123)		14
Income taxes	(140)		(102)
Other, net	(1)		(1)
Net cash provided by operating activities	2,500		1,537
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	—		(2)
Additions to plant and equipment	(324)		(256)
Proceeds from investments	25		12
Proceeds from sale of plant and equipment	11		8
Proceeds from sales of operations and affiliates	7		3
Other, net	(2)		(2)
Net cash provided by (used for) investing activities	(283)		(237)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(1,194)		(1,139)
Issuance of common stock	49		17
Repurchases of common stock	(1,125)		(1,250)
Net proceeds from (repayments of) debt with original maturities of three months or less	(367)		1,078
Proceeds from debt with original maturities of more than three months	1,425		454
Repayments of debt with original maturities of more than three months	(678)		(1,110)
Other, net	(15)		(15)
Net cash provided by (used for) financing activities	(1,905)		(1,965)
Effect of Exchange Rate Changes on Cash and Equivalents	(30)		(88)
Cash and Equivalents:
Increase (decrease) during the period	282		(753)
Beginning of period	708		1,527
End of period	$	990	$	774
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	216	$	170
Cash Paid During the Period for Income Taxes, Net of Refunds	$	791	$	768

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 2022 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

(2) Divestitures

The Company routinely reviews its portfolio of businesses relative to its business portfolio criteria and evaluates if further portfolio refinements may be needed. 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 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. These two businesses were classified as held for sale beginning in the second quarter of 2022. In the fourth quarter of 2022, both of these businesses were divested. On October 3, 2022, the business in the Polymers & Fluids segment was sold for $220 million, subject to certain closing adjustments, resulting in a pre-tax gain of $156 million. On December 1, 2022, the business in the Food Equipment segment was sold for $59 million, subject to certain closing adjustments, resulting in a pre-tax gain of $41 million. Operating revenue related to these divested businesses that was included in the Company's results of operations for the three and nine months ended September 30, 2022 was $37 million and $100 million, respectively.

In the fourth quarter of 2022, plans were approved to divest one business in the Specialty Products segment. This business was presented as held for sale beginning in the fourth quarter of 2022. Assets and liabilities held for sale related to this business were $8 million and $1 million, respectively, as of December 31, 2022. This business was sold on April 3, 2023, with no significant gain or loss upon sale. Operating revenue related to this business that was included in the Company's results of operations was $9 million for the nine months ended September 30, 2023, and $10 million and $29 million for the three and nine months ended September 30, 2022, respectively. There was no operating revenue related to this business included in the Company's results of operations for the three months ended September 30, 2023.

(3) Operating Revenue

The Company's 84 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 nine months ended September 30, 2023 and 2022 was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions	2023		2022		2023		2022
Automotive OEM	$	799	$	753	$	2,421	$	2,224
Food Equipment	678		633		1,967		1,813
Test & Measurement and Electronics	698		715		2,101		2,096
Welding	468		477		1,451		1,413
Polymers & Fluids	458		473		1,364		1,450
Construction Products	522		527		1,574		1,643
Specialty Products	414		438		1,260		1,337
Intersegment revenue	(6)		(5)		(14)		(15)
Total operating revenue	$	4,031	$	4,011	$	12,124	$	11,961

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, energy, consumer durables and industrial capital goods 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 construction, energy, MRO, industrial capital goods and automotive original equipment manufacturers and tiers 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 and MRO 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:

•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.

(4) Income Taxes

The Company's effective tax rate for the three months ended September 30, 2023 and 2022 was 23.8% and 23.9%, respectively, and 22.7% and 21.8% for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate for the nine months ended September 30, 2023 included a discrete income tax benefit of $20 million in the second quarter of 2023 related to amended 2021 U.S. taxes. The effective tax rate for the nine months ended September 30, 2022 included a discrete income tax benefit of $51 million in the second quarter of 2022 related to a decrease in unrecognized tax benefits resulting from the resolution of a U.S. tax audit. Additionally, the effective tax rates for 2023 and 2022 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $2 million and $1 million for the three months ended September 30, 2023 and 2022, respectively, and $19 million and $9 million for the nine months ended September 30, 2023 and 2022, 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, His 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 $13 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.

(5) Net Income Per Share

Net income per basic share is computed by dividing net income by the weighted-average number of shares outstanding for the period. Net income per diluted share is computed by dividing net income by the weighted-average number of shares assuming dilution for stock options and restricted stock units. Dilutive shares reflect the potential additional shares that would be outstanding if the dilutive stock options outstanding were exercised and the unvested restricted stock units vested during the period. The computation of net income per share for the three and nine months ended September 30, 2023 and 2022 was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions except per share amounts	2023		2022		2023		2022
Net Income	$	772	$	727	$	2,240	$	2,127
Net income per share—Basic:
Weighted-average common shares	301.9		308.8		303.4		310.6
Net income per share—Basic	$	2.55	$	2.36	$	7.38	$	6.85
Net income per share—Diluted:
Weighted-average common shares	301.9		308.8		303.4		310.6
Effect of dilutive stock options and restricted stock units	1.1		0.9		1.1		1.0
Weighted-average common shares assuming dilution	303.0		309.7		304.5		311.6
Net income per share—Diluted	$	2.55	$	2.35	$	7.36	$	6.83

Options that were considered antidilutive were not included in the computation of diluted net income per share. There were 0.3 million and 0.9 million antidilutive options outstanding for the three months ended September 30, 2023 and 2022, respectively, and 0.3 million and 0.9 million antidilutive options outstanding for the nine months ended September 30, 2023 and 2022, respectively.

(6) Goodwill and Intangible Assets

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarters of 2023 and 2022. The assessments resulted in no impairment charges in either 2023 or 2022.

(7) Inventories

Inventories as of September 30, 2023 and December 31, 2022 were as follows:


In millions	September 30, 2023		December 31, 2022
Raw material	$	761	$	887
Work-in-process	267		228
Finished goods	891		1,050
LIFO reserve	(120)		(111)
Total inventories	$	1,799	$	2,054

(8) Pension and Other Postretirement Benefits

Pension and other postretirement benefit costs for the three and nine months ended September 30, 2023 and 2022 were as follows:


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	Pension				Other Postretirement Benefits				Pension				Other Postretirement Benefits
In millions	2023		2022		2023		2022		2023		2022		2023		2022
Components of net periodic benefit cost:
Service cost	$	9	$	11	$	1	$	2	$	27	$	35	$	3	$	5
Interest cost	24		13		5		3		70		38		17		10
Expected return on plan assets	(33)		(24)		(5)		(7)		(97)		(76)		(16)		(20)
Amortization of actuarial loss (gain)	—		5		(1)		(1)		2		18		(3)		(3)
Amortization of prior service cost	1		1		—		—		1		1		—		—
Settlements	—		1		—		—		—		1		—		—
Total net periodic benefit cost (income)	$	1	$	7	$	—	$	(3)	$	3	$	17	$	1	$	(8)

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 $13 million to its pension plans and $5 million to its other postretirement benefit plans in 2023. As of September 30, 2023, contributions of $8 million to pension plans and $4 million to other postretirement benefit plans have been made.

(9) Debt

Total debt as of September 30, 2023 and December 31, 2022 was as follows:


In millions	September 30, 2023		December 31, 2022
Short-term debt	$	1,248	$	1,590
Long-term debt	6,818		6,173
Total debt	$	8,066	$	7,763

Short-term debt included commercial paper of $548 million and $1.1 billion as of September 30, 2023 and December 31, 2022, respectively. The weighted-average interest rate on commercial paper as of September 30, 2023 and December 31, 2022 was 5.37% and 4.35%, respectively. Short-term debt as of September 30, 2023 also included $700 million related to the 3.50% notes due March 1, 2024, which were reclassified from Long-term debt to Short-term debt in the first quarter of 2023. Additionally,

Short-term debt as of December 31, 2022 included $535 million related to the 1.25% Euro notes due May 22, 2023, which were repaid on the due date.

In 2022, the $568 million of 1.75% Euro notes due May 20, 2022 were redeemed in full at face value on February 22, 2022.

On May 5, 2023, the Company entered into a Euro-denominated credit agreement (the “Euro Credit Agreement”) with a termination date of May 3, 2024; provided, however, that the Company may extend the termination date by six months on up to two occasions. Under the Euro Credit Agreement, the Company may borrow up to €1.3 billion. Any loan under the Euro Credit Agreement may not be re-borrowed once repaid, in full or in part, and will bear interest at a per annum rate equal to the applicable EURIBOR (adjusted for any statutory reserves) plus 0.75% for the interest period selected by the Company of one, three or six months.

On May 12, 2023, the Company borrowed €1.3 billion under the Euro Credit Agreement. Proceeds from the borrowing were used for general corporate purposes, including the repayment of outstanding debt. As of September 30, 2023, the Company had $1.4 billion outstanding under the Euro Credit Agreement with an interest rate of 4.45%, which was included in Long-term debt as the Company intends to exercise its options to extend the termination date.

The Company also has a $3.0 billion revolving credit facility with a termination date of October 21, 2027, which is available to provide additional liquidity, including to support the potential issuances of commercial paper. No amounts were outstanding under the revolving credit facility as of September 30, 2023 or December 31, 2022.

The approximate fair value and related carrying value of the Company's total long-term debt, including current maturities of long-term debt presented as short-term debt, as of September 30, 2023 and December 31, 2022 were as follows:


In millions	September 30, 2023		December 31, 2022
Fair value	$	6,959	$	6,228
Carrying value	7,518		6,708

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 nine months ended September 30, 2023 and 2022:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions	2023		2022		2023		2022
Beginning balance	$	(1,820)	$	(1,677)	$	(1,841)	$	(1,502)

Foreign currency translation adjustments during the period	(51)		(159)		(44)		(277)

Income taxes	(31)		(51)		(17)		(117)
Total foreign currency translation adjustments, net of tax	(82)		(210)		(61)		(394)


Pension and other postretirement benefit adjustments reclassified to income	—		6		—		17
Income taxes	—		(1)		—		(3)
Total pension and other postretirement benefit adjustments, net of tax	—		5		—		14

Ending balance	$	(1,902)	$	(1,882)	$	(1,902)	$	(1,882)

Pension and other postretirement benefit adjustments reclassified to income related primarily to the amortization of actuarial gains and losses. 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, the €1.6 billion of Euro notes issued in June 2019 and the €1.3 billion 2023 term loan under the Euro Credit Agreement 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 and on May 22, 2023, €500 million of the Euro notes issued in May 2015 were repaid on the due date. Refer to Note 9. Debt for additional information regarding the redemption and repayment of these notes. The carrying values of the outstanding 2019, 2015 and 2014 Euro notes and 2023 Euro term loan as of September 30, 2023 were $1.7 billion, $525 million, $519 million, and $1.4 billion, respectively. The amount of pre-tax gain (loss) related to this debt recorded in Other comprehensive income (loss) was a gain of $131 million and $211 million for the three months ended September 30, 2023 and 2022, respectively, and a gain of $73 million and $484 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023 and 2022, the ending balance of Accumulated other comprehensive income (loss) consisted of after-tax cumulative translation adjustment losses of $1.6 billion and $1.7 billion, respectively, and after-tax unrecognized pension and other postretirement benefit costs of $293 million and $182 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 84 divisions in 51 countries. As of December 31, 2022, the Company employed approximately 46,000 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 19,200 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: 2012-2022

In late 2012, ITW began its strategic framework transitioning the Company to fully leverage the unique and powerful set of capabilities and operating practices 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.

Key initiatives in the Company’s enterprise strategy included portfolio management, business structure simplification, strategic sourcing and the diligent re-application of ITW’s proprietary 80/20 Front-to-Back process.

•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.

•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 84 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 2022 and continues to be a key contributor to the Company's ongoing enterprise strategy.

•With the initial portfolio realignment and scale-up work largely completed, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process to optimize its scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth.

Since implementing the Company’s enterprise strategy in 2012, the Company has demonstrated the compelling performance potential of the ITW Business Model and 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.

OUR NEXT PHASE: 2023-2030

ITW’s enterprise strategy framework has evolved every year since it was launched in late 2012 and it will continue to evolve. With the “heavy lifting” essentially completed in the last decade, the Company is focused on two key priorities:

1.Execute on ITW's growth agenda, with consistent high-quality organic growth at the enterprise level, and high-quality acquisitions that extend ITW's long-term organic growth potential.

2.Sustain foundational strengths the Company has built over the past decade, including high-quality ITW Business Model practice throughout the Company, and the quality/depth of ITW’s leadership bench and pipeline.

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.

80/20 Front-to-Back Practice Excellence

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.

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 2022 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

Starting in early 2020, the COVID-19 pandemic and the measures taken to reduce its spread negatively impacted the global economy and caused significant disruptions in the Company's global operations as COVID-19 spread and impacted the countries in which the Company operates and the markets the Company serves.

Despite the ongoing disruptions caused by the COVID-19 pandemic, the Company experienced solid recovery progress in many of its end markets during the past two years. However, 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 2022 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. The Company has four immaterial Russian subsidiaries with total assets of approximately $23 million as of September 30, 2023. The revenue for these subsidiaries for the three and nine months ended September 30, 2023 was approximately $7 million and $20 million, respectively. These subsidiaries are 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 third quarter and year-to-date periods of 2023 primarily due to the continued successful execution of enterprise initiatives and continued focus on the highly differentiated ITW Business Model. The Company generated operating revenue growth of 0.5 percent and 1.4 percent in the third quarter and year-to-date periods of 2023, respectively, with organic revenue growth of 0.2 percent and 2.8 percent, respectively. Operating income was $1.1 billion in the third quarter and $3.1 billion in the year-to-date period of 2023. Operating margin was 26.5 percent and 25.2 percent in the third quarter and year-to-date periods of 2023, respectively.

The Company's consolidated results of operations for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	4,031		$	4,011		0.5	%	0.2	%	(1.2)	%	—	%	1.5	%	0.5	%
Operating income	$	1,070		$	983		8.9	%	8.5	%	(0.9)	%	0.2	%	1.1	%	8.9	%
Operating margin %	26.5		%	24.5		%	200 bps		200 bps		10 bps		10 bps		(20) bps		200 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	12,124		$	11,961		1.4	%	2.8	%	(1.0)	%	—	%	(0.4)	%	1.4	%
Operating income	$	3,052		$	2,804		8.8	%	10.0	%	(0.7)	%	0.1	%	(0.6)	%	8.8	%
Operating margin %	25.2		%	23.4		%	180 bps		170 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, partially offset by the impact of divestiture activity in the second quarter of 2023 and the fourth quarter of 2022. In the year-to-date period, operating revenue increased due to higher organic revenue, partially offset by the impact of divestiture activity in the second quarter of 2023 and the fourth quarter of 2022 and the unfavorable effect of foreign currency translation.

•Organic revenue was essentially flat in the third quarter as growth in the Food Equipment, Automotive OEM and Polymers & Fluids segments was offset by a decline in the Test & Measurement and Electronics, Specialty Products, Welding and Construction Products segments. In the year-to-date period, organic revenue increased 2.8% as growth in five segments was partially offset by a decline in the Specialty Products and Construction Products segments. Product line simplification activities reduced organic revenue by 40 basis points in the third quarter and 50 basis points in the year-to-date period.

◦North American organic revenue decreased 1.6% in the third quarter as a decline in the Test & Measurement and Electronics, Specialty Products, Automotive OEM and Welding segments was partially offset by growth

in the Food Equipment, Polymers & Fluids and Construction Products segments. In the year-to-date period, organic revenue increased 1.1% as growth in the Food Equipment, Polymers & Fluids, Welding and Automotive OEM segments was partially offset by a decline in the Specialty Products, Test & Measurement and Electronics and Construction Products segments.

◦Europe, Middle East and Africa organic revenue increased 0.4% in the third quarter as growth in three segments was partially offset by a decline in the Construction Products, Polymers & Fluids, Welding and Food Equipment segments. In the year-to-date period, organic revenue increased 4.2% as growth in five segments was partially offset by a decline in the Construction Products and Polymers & Fluids segments.

◦Asia Pacific increased 6.2% in the third quarter as growth in six segments was partially offset by a decline in the Construction Products segment. In the year-to-date period, organic revenue increased 6.3% as growth in five segments was partially offset by a decline in the Construction Products and Specialty Products segments. Organic revenue in China increased 8.4% in the third quarter due to an increase in the Automotive OEM, Polymers & Fluids and Specialty Products segments, partially offset by a decline in the Welding, Test & Measurement and Electronics, Food Equipment and Construction Products segments. In the year-to-date period, China organic revenue increased 7.6% as growth in the Automotive OEM, Test & Measurement and Electronics, Welding and Construction Products segments was partially offset by a decline in the Specialty Products, Food Equipment and Polymers & Fluids segments.

•Operating income of $1.1 billion and $3.1 billion in the third quarter and year-to-date periods increased 8.9% and 8.8%, respectively, compared to the prior year primarily due to higher organic revenue, partially offset by the impact of divestiture activity in the second quarter of 2023 and the fourth quarter of 2022. Additionally, foreign currency translation had a favorable impact in the third quarter and an unfavorable impact in the year-to-date period.

•Operating margin was 26.5% in the third quarter. The increase of 200 basis points was primarily due to favorable price/cost of 210 basis points and benefits from the Company's enterprise initiatives of 140 basis points, partially offset by higher operating expenses, including employee-related expenses.

•In the year-to-date period, operating margin of 25.2% increased 180 basis points primarily driven by favorable price/cost of 220 basis points, benefits from the Company's enterprise initiatives of 130 basis points and positive operating leverage of 60 basis points, partially offset by higher operating expenses, including employee-related expenses.

•The Company's effective tax rate for the third quarter of 2023 and 2022 was 23.8% and 23.9%, respectively, and 22.7% and 21.8% for the year-to-date periods of 2023 and 2022, respectively. The effective tax rate for the year-to-date period of 2023 included a discrete income tax benefit of $20 million in the second quarter of 2023 related to amended 2021 U.S. taxes. The effective tax rate for the year-to-date period of 2022 included a discrete income tax benefit of $51 million in the second quarter of 2022 related to a decrease in unrecognized tax benefits resulting from the resolution of a U.S. tax audit. Additionally, the effective tax rates for 2023 and 2022 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $2 million and $1 million for the third quarter of 2023 and 2022, respectively, and $19 million and $9 million for the year-to-date period of 2023 and 2022, respectively.

•Diluted earnings per share (EPS) of $2.55 for the third quarter and $7.36 for the year-to-date period of 2023 increased 8.5% and 7.8%, respectively. Excluding the favorable impact of the second quarter 2023 discrete income tax benefit of $0.07 related to amended 2021 U.S. taxes and the second quarter 2022 discrete income tax benefit of $0.16 related to the resolution of a U.S. tax audit, EPS increased 9.3% in the year-to-date period.

•The Company repurchased approximately 1.6 million and 4.8 million shares of its common stock in the third quarter and year-to-date periods of 2023, respectively, for approximately $375 million and $1.1 billion, respectively.

RESULTS OF OPERATIONS BY SEGMENT

Total operating revenue and operating income for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended September 30,								Nine Months Ended September 30,
Dollars in millions	Operating Revenue				Operating Income				Operating Revenue				Operating Income
	2023		2022		2023		2022		2023		2022		2023		2022
Automotive OEM	$	799	$	753	$	151	$	132	$	2,421	$	2,224	$	418	$	371
Food Equipment	678		633		185		167		1,967		1,813		536		445
Test & Measurement and Electronics	698		715		167		180		2,101		2,096		501		486
Welding	468		477		147		150		1,451		1,413		471		431
Polymers & Fluids	458		473		129		119		1,364		1,450		357		362
Construction Products	522		527		155		136		1,574		1,643		454		428
Specialty Products	414		438		115		121		1,260		1,337		333		362
Intersegment revenue	(6)		(5)		—		—		(14)		(15)		—		—
Unallocated	—		—		21		(22)		—		—		(18)		(81)
Total	$	4,031	$	4,011	$	1,070	$	983	$	12,124	$	11,961	$	3,052	$	2,804

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. Unallocated in the third quarter of 2023 included the impact of lower corporate expenses primarily related to an immaterial insurance recovery and favorable health and welfare and other employee-related expenses.

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 third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	799		$	753		6.0	%	3.8	%	—	%	—	%	2.2	%	6.0	%
Operating income	$	151		$	132		14.5	%	14.1	%	—	%	(1.2)	%	1.6	%	14.5	%
Operating margin %	18.9		%	17.5		%	140 bps		170 bps		—		(20) bps		(10) bps		140 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,421		$	2,224		8.8	%	9.2	%	—	%	—	%	(0.4)	%	8.8	%
Operating income	$	418		$	371		12.5	%	8.5	%	—	%	4.9	%	(0.9)	%	12.5	%
Operating margin %	17.3		%	16.7		%	60 bps		(10) bps		—		70 bps		—		60 bps

•Operating revenue grew in the third quarter due to higher organic revenue and the favorable effect of foreign currency translation. In the year-to-date period, operating revenue increased due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation.

•Organic revenue increased 3.8% and 9.2% in the third quarter and year-to-date periods, respectively, compared to worldwide auto builds which increased 4% in the third quarter and grew 9% in the year-to-date period. Product line simplification activities reduced organic revenue by 60 basis points in the third quarter and 50 basis points in the year-to-date period primarily in North America.

◦North American organic revenue decreased 5.2% in the third quarter and was essentially flat in the year-to-date period compared to North American auto builds which increased 9% in the third quarter and 11% in the year-to-date period primarily due to customer mix and product line simplification. Auto builds for the Detroit 3, where the Company has higher content, increased 1% and 4% in the third quarter and year-to-date periods, respectively. Additionally, organic revenue in the third quarter of 2023 was negatively impacted by customer shutdowns due to automotive industry labor actions in North America beginning in September.

◦European organic revenue grew 4.5% and 13.0% in the third quarter and year-to-date periods, respectively, compared to European auto builds which increased 6% in the third quarter and 14% in the year-to-date period primarily due to customer mix.

◦Asia Pacific organic revenue increased 16.9% and 19.2% in the third quarter and year-to-date periods, respectively. China organic revenue grew 17.7% and 18.6% in the third quarter and year-to-date periods, respectively, versus China auto builds which were flat in the third quarter and increased 5% in the year-to-date period. Auto builds of foreign automotive manufacturers in China, where the Company has higher content, declined 17% and 7% in the third quarter and year-to-date periods, respectively.

•Operating margin was 18.9% in the third quarter. The increase of 140 basis points was primarily due to favorable price/cost of 210 basis points, benefits from the Company's enterprise initiatives and positive operating leverage of 70 basis points, partially offset by higher operating expenses, including employee-related expenses and continued investment in the business, higher restructuring expenses and product mix.

•In the year-to-date period, operating margin of 17.3% increased 60 basis points primarily driven by positive operating leverage of 180 basis points, benefits from the Company's enterprise initiatives, favorable price/cost of 130 basis points and lower restructuring expenses, partially offset by higher operating expenses, including employee-related expenses and continued investment in the business, and product mix.

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.

The results of operations for the Food Equipment segment for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	678		$	633		7.2	%	6.3	%	(1.8)	%	—	%	2.7	%	7.2	%
Operating income	$	185		$	167		11.0	%	8.9	%	(1.5)	%	0.9	%	2.7	%	11.0	%
Operating margin %	27.3		%	26.3		%	100 bps		70 bps		10 bps		20 bps		—		100 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,967		$	1,813		8.5	%	9.6	%	(1.3)	%	—	%	0.2	%	8.5	%
Operating income	$	536		$	445		20.5	%	20.8	%	(0.8)	%	—	%	0.5	%	20.5	%
Operating margin %	27.2		%	24.5		%	270 bps		250 bps		20 bps		—		—		270 bps

•Operating revenue grew in the third quarter and year-to-date periods due to higher organic revenue and the favorable effect of foreign currency translation, partially offset by the impact of a divestiture in the fourth quarter of 2022.

•Operating revenue in the third quarter and year-to-date periods of 2022 included approximately $11 million and $24 million, respectively, related to the business divested in the fourth quarter of 2022.

•Organic revenue increased 6.3% in the third quarter as equipment and service organic revenue grew 5.2% and 9.4%, respectively. In the year-to-date period, organic revenue increased 9.6% as equipment and service organic revenue grew 7.5% and 14.7%, respectively.

◦North American organic revenue increased approximately 10% in the third quarter and 13% in the year-to-date period. Equipment organic revenue grew approximately 10% and 13% in the third quarter and year-to-date periods, respectively, with growth in the institutional, food retail and restaurant end markets. Service organic revenue increased approximately 10% and 14% in the third quarter and year-to-date periods, respectively.

◦International organic revenue increased approximately 1% and 5% in the third quarter and year-to-date periods, respectively. Equipment organic revenue decreased approximately 1% in the third quarter primarily due to lower demand in the European warewash and refrigeration end markets, partially offset by higher demand in the European cooking end market and growth in Asia Pacific. In the year-to-date period, equipment organic revenue grew approximately 1% primarily due to higher demand in the European warewash and refrigeration end markets and growth in Asia Pacific, partially offset by lower demand in the European cooking end market. Service organic revenue increased approximately 9% and 16% in the third quarter and year-to-date periods, respectively.

•Operating margin was 27.3% in the third quarter. The increase of 100 basis points was primarily due to favorable price/cost of 150 basis points, positive operating leverage of 110 basis points and benefits from the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses.

•In the year-to-date period, operating margin of 27.2% increased 270 basis points primarily driven by favorable price/cost of 230 basis points, positive operating leverage of 180 basis points and benefits from the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses.

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, energy, consumer durables and industrial capital goods 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.

The results of operations for the Test & Measurement and Electronics segment for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	698		$	715		(2.4)	%	(3.9)	%	—	%	—	%	1.5	%	(2.4)	%
Operating income	$	167		$	180		(7.7)	%	(8.0)	%	—	%	(0.2)	%	0.5	%	(7.7)	%
Operating margin %	23.8		%	25.2		%	(140) bps		(110) bps		—		(10) bps		(20) bps		(140) bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,101		$	2,096		0.2	%	0.9	%	—	%	—	%	(0.7)	%	0.2	%
Operating income	$	501		$	486		3.0	%	4.5	%	—	%	(0.5)	%	(1.0)	%	3.0	%
Operating margin %	23.8		%	23.2		%	60 bps		80 bps		—		(10) bps		(10) bps		60 bps

•Operating revenue declined in the third quarter due to lower organic revenue, partially offset by the favorable effect of foreign currency translation. In the year-to-date period, operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation.

•Organic revenue decreased 3.9% in the third quarter and increased 0.9% in the year-to-date period.

◦Organic revenue for the test and measurement businesses increased 1.7% in the third quarter primarily driven by growth in the MTS Test & Simulation business, partially offset by lower semiconductor demand in North America. In the year-to-date period, organic revenue for the test and measurement businesses increased 7.8% primarily driven by growth in the MTS Test & Simulation and Instron businesses and higher demand in the automotive, defense and oil and gas end markets, partially offset by lower semiconductor demand in North America.

◦Electronics organic revenue decreased 13.2% and 10.0% in the third quarter and year-to-date periods, respectively, primarily due to a decline in the consumer electronics and semiconductor end markets. The electronics assembly businesses decreased 22.7% in the third quarter and 16.6% in the year-to-date period primarily due to lower demand in North America and Asia Pacific. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, decreased 7.9% and 6.5% in the third quarter and year-to-date periods, respectively, primarily due to lower demand in the semiconductor end market, partially offset by higher demand in the automotive end market.

•Operating margin was 23.8% in the third quarter. The decrease of 140 basis points was primarily due to unfavorable operating leverage of 100 basis points and higher operating expenses, including employee-related expenses, partially offset by favorable price/cost of 190 basis points, benefits from the Company's enterprise initiatives and lower intangible asset amortization expense.

•In the year-to-date period, operating margin of 23.8% increased 60 basis points primarily driven by favorable price/cost of 160 basis points, benefits from the Company's enterprise initiatives and lower intangible asset amortization expense, partially offset by higher operating expenses, including employee-related expenses.

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 construction, energy, MRO, industrial capital goods and automotive original equipment manufacturers and tiers markets. Products in this segment include:

•arc welding equipment; and

•metal arc welding consumables and related accessories.

The results of operations for the Welding segment for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	468		$	477		(1.8)	%	(2.4)	%	—	%	—	%	0.6	%	(1.8)	%
Operating income	$	147		$	150		(1.4)	%	(1.8)	%	—	%	(0.2)	%	0.6	%	(1.4)	%
Operating margin %	31.6		%	31.5		%	10 bps		10 bps		—		—		—		10 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,451		$	1,413		2.7	%	2.7	%	—	%	—	%	—	%	2.7	%
Operating income	$	471		$	431		9.3	%	9.2	%	—	%	(0.2)	%	0.3	%	9.3	%
Operating margin %	32.5		%	30.5		%	200 bps		200 bps		—		(10) bps		10 bps		200 bps

•Organic revenue decreased 2.4% in the third quarter, which had a challenging comparable in the prior year third quarter of 13.9% growth. In the third quarter, equipment and consumables declined 2.9% and 1.5%, respectively. In the year-to-date period, organic revenue increased 2.7%, which had a challenging comparable in the prior year of 16.3% growth. Consumables grew 3.7% and equipment increased 2.1% in the year-to-date period.

◦North American organic revenue decreased 2.8% in the third quarter as a decline in the industrial end markets of 8.4% was partially offset by growth in the commercial end markets of 5.9%. In the year-to-date period, organic revenue grew 2.1% driven by growth in the industrial end markets of 3.9%, partially offset by a decline in the commercial end markets of 2.0%.

◦International organic revenue was flat in the third quarter primarily due to higher equipment demand in the general industrial and oil and gas end markets in Asia Pacific, offset by lower demand in Europe. In the year-to-date period, organic revenue grew 5.7% primarily due to higher equipment demand in the general industrial and oil and gas end markets in Asia Pacific and growth in Europe.

•Operating margin was 31.6% in the third quarter. The increase of 10 basis points was primarily due to favorable price/cost of 250 basis points and benefits from the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses, product mix and unfavorable operating leverage of 40 basis points.

•In the year-to-date period, operating margin of 32.5% increased 200 basis points primarily driven by favorable price/cost of 330 basis points, benefits from the Company's enterprise initiatives and positive operating leverage of 50 basis points, partially offset by higher operating expenses, including employee-related expenses, and product mix.

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 and MRO 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.

The results of operations for the Polymers & Fluids segment for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	458		$	473		(3.1)	%	3.4	%	(5.7)	%	—	%	(0.8)	%	(3.1)	%
Operating income	$	129		$	119		7.7	%	14.7	%	(5.4)	%	0.9	%	(2.5)	%	7.7	%
Operating margin %	28.1		%	25.3		%	280 bps		270 bps		20 bps		30 bps		(40) bps		280 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,364		$	1,450		(5.9)	%	0.9	%	(5.3)	%	—	%	(1.5)	%	(5.9)	%
Operating income	$	357		$	362		(1.5)	%	6.4	%	(4.3)	%	(1.1)	%	(2.5)	%	(1.5)	%
Operating margin %	26.2		%	25.0		%	120 bps		130 bps		30 bps		(20) bps		(20) bps		120 bps

•Operating revenue declined in the third quarter and year-to-date periods due to the impact of a divestiture in the fourth quarter of 2022 and the unfavorable effect of foreign currency translation, partially offset by higher organic revenue.

•Operating revenue in the third quarter and year-to-date periods of 2022 included approximately $26 million and $76 million, respectively, related to the business divested in the fourth quarter of 2022.

•Organic revenue increased 3.4% and 0.9% in the third quarter and year-to-date periods, respectively, as growth in North America and Asia Pacific was partially offset by a decline in Europe. Product line simplification activities reduced organic revenue by 80 basis points in both the third quarter and year-to-date periods.

◦Organic revenue for the automotive aftermarket businesses increased 9.6% in the third quarter and 3.1% in the year-to-date period primarily due to an increase in the car care, tire repair and engine repair businesses in North America and growth in Europe, partially offset by a decline in the body repair businesses in North America.

◦Organic revenue for the fluids businesses declined 3.7% in the third quarter and 1.2% in the year-to-date period driven by lower demand in the European life sciences end markets and the North American industrial MRO, automotive and health and hygiene end markets.

◦Organic revenue for the polymers businesses decreased 1.2% in the third quarter and 1.0% in the year-to-date period due to a decline in Europe and North America. In both respective periods, demand in Europe was negatively impacted by declines in the wind and industrial end markets.

•Operating margin was 28.1% in the third quarter. The increase of 280 basis points was primarily due to favorable price/cost of 250 basis points, benefits from the Company's enterprise initiatives, operating leverage of 70 basis points and lower intangible asset amortization expense, partially offset by higher operating expenses, including employee-related expenses, and product mix.

•In the year-to-date period, operating margin of 26.2% increased 120 basis points primarily driven by favorable price/cost of 200 basis points, benefits from the Company's enterprise initiatives and lower intangible asset amortization expense, partially offset by higher operating expenses, including employee-related expenses, and product mix.

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.

The results of operations for the Construction Products segment for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	522		$	527		(1.2)	%	(2.1)	%	—	%	—	%	0.9	%	(1.2)	%
Operating income	$	155		$	136		14.7	%	13.1	%	—	%	0.9	%	0.7	%	14.7	%
Operating margin %	29.9		%	25.7		%	420 bps		400 bps