10-Q 1 itw-20220930.htm 10-Q itw-20220930
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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 endedSeptember 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)
Delaware36-1258310
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
155 Harlem AvenueGlenviewIL60025
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockITWNew York Stock Exchange
1.25% Euro Notes due 2023ITW23New York Stock Exchange
0.250% Euro Notes due 2024ITW24ANew York Stock Exchange
0.625% Euro Notes due 2027ITW27New York Stock Exchange
2.125% Euro Notes due 2030ITW30New York Stock Exchange
1.00% Euro Notes due 2031ITW31New York Stock Exchange
3.00% Euro Notes due 2034ITW34New 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 filerxAccelerated filero
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, 2022: 307,186,379




2


PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries
Statement of Income (Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
In millions except per share amounts2022202120222021
Operating Revenue$4,011 $3,556 $11,961 $10,776 
Cost of revenue2,371 2,096 7,120 6,298 
Selling, administrative, and research and development expenses624 581 1,935 1,735 
Amortization and impairment of intangible assets33 34 102 100 
Operating Income983 845 2,804 2,643 
Interest expense(52)(49)(147)(153)
Other income (expense)26 10 64 44 
Income Before Taxes957 806 2,721 2,534 
Income Taxes230 167 594 449 
Net Income$727 $639 $2,127 $2,085 
Net Income Per Share:
Basic
$2.36 $2.03 $6.85 $6.61 
Diluted
$2.35 $2.02 $6.83 $6.58 
Shares of Common Stock Outstanding During the Period:
Average308.8 314.6 310.6 315.6 
Average assuming dilution
309.7 315.9 311.6 316.9 

The Notes to Financial Statements are an integral part of this statement.
3


Illinois Tool Works Inc. and Subsidiaries
Statement of Comprehensive Income (Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
In millions2022202120222021
Net Income$727 $639 $2,127 $2,085 
Foreign currency translation adjustments, net of tax(210)(59)(394)(29)
Pension and other postretirement benefit adjustments, net of tax5 11 14 33 
Other comprehensive income (loss)(205)(48)(380)4 
Comprehensive Income$522 $591 $1,747 $2,089 

The Notes to Financial Statements are an integral part of this statement.
4


Illinois Tool Works Inc. and Subsidiaries
Statement of Financial Position (Unaudited)
In millions except per share amountsSeptember 30, 2022December 31, 2021
Assets
Current Assets:
Cash and equivalents$774 $1,527 
Trade receivables3,031 2,840 
Inventories2,007 1,694 
Prepaid expenses and other current assets281 313 
Assets held for sale103  
Total current assets6,196 6,374 
Net plant and equipment1,705 1,809 
Goodwill4,759 4,965 
Intangible assets798 972 
Deferred income taxes448 552 
Other assets1,320 1,405 
$15,226 $16,077 
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$1,688 $778 
Accounts payable618 585 
Accrued expenses1,559 1,648 
Cash dividends payable402 382 
Income taxes payable97 77 
Liabilities held for sale28  
Total current liabilities4,392 3,470 
Noncurrent Liabilities:
Long-term debt5,940 6,909 
Deferred income taxes655 654 
Noncurrent income taxes payable273 365 
Other liabilities952 1,053 
Total noncurrent liabilities7,820 8,981 
Stockholders' Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2022 and 2021
Outstanding- 307.2 shares in 2022 and 312.9 shares in 2021
6 6 
Additional paid-in-capital1,479 1,432 
Retained earnings25,292 24,325 
Common stock held in treasury(21,882)(20,636)
Accumulated other comprehensive income (loss)(1,882)(1,502)
Noncontrolling interest1 1 
Total stockholders' equity3,014 3,626 
$15,226 $16,077 

The Notes to Financial Statements are an integral part of this statement.
5


Illinois Tool Works Inc. and Subsidiaries
Statement of Changes in Stockholders' Equity (Unaudited)
In millions except per share amountsCommon StockAdditional Paid-in CapitalRetained EarningsCommon Stock Held in TreasuryAccumulated Other Comprehensive Income (Loss)Non-controlling
Interest
Total
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 
Three Months Ended September 30, 2021
Balance at June 30, 2021$6 $1,402 $23,842 $(20,140)$(1,590)$1 $3,521 
Net income— — 639 — — — 639 
Stock-based compensation expense— 14 — — — — 14 
Repurchases of common stock— — — (250)— — (250)
Dividends declared ($1.22 per share)
— — (383)— — — (383)
Other comprehensive income (loss)— — — — (48)— (48)
Balance at September 30, 2021$6 $1,416 $24,098 $(20,390)$(1,638)$1 $3,493 
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 
Nine Months Ended September 30, 2021
Balance at December 31, 2020$6 $1,362 $23,114 $(19,659)$(1,642)$1 $3,182 
Net income— — 2,085 — — — 2,085 
Common stock issued for stock-based
compensation
— 13 — 19 — — 32 
Stock-based compensation expense— 41 — — — — 41 
Repurchases of common stock— — — (750)— — (750)
Dividends declared ($3.50 per share)
— — (1,101)— — — (1,101)
Other comprehensive income (loss)— — — — 4 — 4 
Balance at September 30, 2021$6 $1,416 $24,098 $(20,390)$(1,638)$1 $3,493 

The Notes to Financial Statements are an integral part of this statement.
6


Illinois Tool Works Inc. and Subsidiaries
Statement of Cash Flows (Unaudited)
Nine Months Ended
September 30,
In millions20222021
Cash Provided by (Used for) Operating Activities:
Net income$2,127 $2,085 
Adjustments to reconcile net income to cash provided by operating activities:  
Depreciation209 206 
Amortization and impairment of intangible assets102 100 
Change in deferred income taxes(72)(79)
Provision for uncollectible accounts4  
(Income) loss from investments(8)(28)
(Gain) loss on sale of plant and equipment(1) 
(Gain) loss on sale of operations and affiliates(1) 
Stock-based compensation expense48 41 
Other non-cash items, net1 8 
Change in assets and liabilities, net of acquisitions and divestitures:  
(Increase) decrease in-  
Trade receivables(417)(270)
Inventories(477)(365)
Prepaid expenses and other assets27 (63)
Increase (decrease) in-  
Accounts payable84 44 
Accrued expenses and other liabilities14 133 
Income taxes(102)(30)
Other, net(1)1 
Net cash provided by operating activities1,537 1,783 
Cash Provided by (Used for) Investing Activities:  
Acquisition of businesses (excluding cash and equivalents)(2) 
Additions to plant and equipment(256)(217)
Proceeds from investments12 37 
Proceeds from sale of plant and equipment8 6 
Proceeds from sales of operations and affiliates3  
Other, net(2)(2)
Net cash provided by (used for) investing activities(237)(176)
Cash Provided by (Used for) Financing Activities:  
Cash dividends paid(1,139)(1,080)
Issuance of common stock17 42 
Repurchases of common stock(1,250)(750)
Net proceeds from (repayments of) debt with original maturities of three months or less1,078 1 
Proceeds from debt with original maturities of more than three months454  
Repayments of debt with original maturities of more than three months(1,110)(350)
Other, net(15)(10)
Net cash provided by (used for) financing activities(1,965)(2,147)
Effect of Exchange Rate Changes on Cash and Equivalents(88)(37)
Cash and Equivalents:  
Increase (decrease) during the period(753)(577)
Beginning of period1,527 2,564 
End of period$774 $1,987 
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest$170 $178 
Cash Paid During the Period for Income Taxes, Net of Refunds$768 $558 

The Notes to Financial Statements are an integral part of this statement.
7


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 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 $101 million and $308 million for the three and nine months ended September 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 $435 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.

8


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 has reinitiated 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.

Subsequent to the third quarter, on October 3, 2022, the Company completed the sale of the one business in the Polymers & Fluids segment for $220 million, subject to certain closing adjustments. The sale is expected to result in a pre-tax gain of approximately $156 million in the fourth quarter of 2022. As of September 30, 2022, this business was presented as held for sale in the Statement of Financial Position.

As of September 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 millionsSeptember 30, 2022
Trade receivables$20 
Inventories19 
Net plant and equipment14 
Goodwill and intangible assets43 
Other7 
Total assets held for sale$103 
Accounts payable$3 
Accrued expenses14 
Other11 
Total liabilities held for sale$28 

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

Three Months EndedNine Months Ended
September 30,September 30,
In millions2022202120222021
Operating revenue$37 $28 $100 $86 
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(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 nine months ended September 30, 2022 and 2021 was as follows:

Three Months EndedNine Months Ended
September 30,September 30,
In millions2022202120222021
Automotive OEM$753 $647 $2,224 $2,137 
Food Equipment633 544 1,813 1,509 
Test & Measurement and Electronics715 552 2,096 1,710 
Welding477 425 1,413 1,228 
Polymers & Fluids473 456 1,450 1,357 
Construction Products527 478 1,643 1,465 
Specialty Products438 459 1,337 1,387 
Intersegment revenue(5)(5)(15)(17)
Total operating revenue$4,011 $3,556 $11,961 $10,776 

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.
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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.
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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.

(6)    Income Taxes

The Company's effective tax rate for the three months ended September 30, 2022 and 2021 was 23.9% and 20.8%, respectively, and 21.8% and 17.7% for the nine months ended September 30, 2022 and 2021, respectively. 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. The effective tax rate for the three and nine months ended September 30, 2021 included a discrete income tax benefit of $21 million in the third quarter of 2021 related to the utilization of capital losses. The effective tax rate for the nine months ended September 30, 2021 also benefited from a discrete income tax benefit of $112 million in the second quarter of 2021 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 for the three months ended September 30, 2022 and 2021, and $9 million and $14 million for the nine months ended September 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"), HM 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)    Goodwill and Intangible Assets

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarters of 2022 and 2021. The assessments resulted in no impairment charges in either 2022 or 2021.

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(8)    Inventories

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

In millionsSeptember 30, 2022December 31, 2021
Raw material$849 $716 
Work-in-process250 208 
Finished goods1,047 888 
LIFO reserve(139)(118)
Total inventories$2,007 $1,694 

(9)    Pension and Other Postretirement Benefits

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

Three Months EndedNine Months Ended
September 30,September 30,
PensionOther Postretirement BenefitsPensionOther Postretirement Benefits
In millions20222021202220212022202120222021
Components of net periodic benefit cost:
Service cost$11 $13 $2 $2 $35 $40 $5 $6 
Interest cost13 10 3 3 38 30 10 8 
Expected return on plan assets(24)(26)(7)(7)(76)(77)(20)(20)
Amortization of actuarial loss (gain)5 14 (1) 18 40 (3) 
Amortization of prior service cost1    1 1   
Settlements1    1    
Total net periodic benefit cost (income)$7 $11 $(3)$(2)$17 $34 $(8)$(6)

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 September 30, 2022, contributions of $8 million to pension plans and $3 million to other postretirement benefit plans have been made.

(10)    Debt

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

In millionsSeptember 30, 2022December 31, 2021
Short-term debt$1,688 $778 
Long-term debt5,940 6,909 
Total debt$7,628 $7,687 

Short-term debt included commercial paper of $1.2 billion and $210 million as of September 30, 2022 and December 31, 2021, respectively. The weighted-average interest rate on commercial paper as of September 30, 2022 and December 31, 2021 was 2.68% and 0.14%, respectively. Short-term debt as of September 30, 2022 also included $490 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
13


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 September 30, 2022 or December 31, 2021.

On October 21, 2022, the Company entered into a $3.0 billion revolving credit facility with a termination date of October 21, 2027. This agreement replaced the existing $2.5 billion revolving credit facility discussed above.

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, 2022 and December 31, 2021 were as follows:

In millionsSeptember 30, 2022December 31, 2021
Fair value$5,873 $8,296 
Carrying value6,430 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.

(11)    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, 2022 and 2021:

Three Months EndedNine Months Ended
September 30,September 30,
In millions2022202120222021
Beginning balance$(1,677)$(1,590)$(1,502)$(1,642)
Foreign currency translation adjustments during the period(159)(35)(277)22 
Foreign currency translation adjustments reclassified to income
   4 
Income taxes(51)(24)(117)(55)
Total foreign currency translation adjustments, net of tax(210)(59)(394)(29)
Pension and other postretirement benefit adjustments reclassified to income
6 14 17 41 
Income taxes(1)(3)(3)(8)
Total pension and other postretirement benefit adjustments, net of tax
5 11 14 33 
Ending balance$(1,882)$(1,638)$(1,882)$(1,638)

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 settlements and the amortization of actuarial gains and losses. Refer to Note 9. 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 10. Debt for additional information regarding the redemption of these notes. The carrying values of the 2019, 2015 and 2014 Euro notes were $1.6 billion, $1.0 billion and $481 million, respectively, as of September 30, 2022. The cumulative unrealized pre-tax gain (loss) recorded in Accumulated other comprehensive income
14


(loss) related to the net investment hedge was a gain of $667 million and $183 million as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and 2021, the ending balance of Accumulated other comprehensive income (loss) consisted of after-tax cumulative translation adjustment losses of $1.7 billion and $1.3 billion, respectively, and after-tax unrecognized pension and other postretirement benefit costs of $182 million and $298 million, respectively.

(12)    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.

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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.
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.

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
16


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 has reinitiated 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
17


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. Subsequent to the third quarter, on October 3, 2022, the Company completed the sale of the one business in the Polymers & Fluids segment for $220 million, subject to certain closing adjustments. The sale is expected to result in a pre-tax gain of approximately $156 million in the fourth 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.

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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. The Company has four immaterial Russian subsidiaries with total assets of approximately $29 million as of September 30, 2022. The revenue for these four subsidiaries for the year ended December 31, 2021 was approximately $31 million. 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 third 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 12.8 percent and 11.0 percent in the third quarter and year-to-date periods of 2022, respectively, as six of seven segments achieved worldwide organic revenue growth. Operating income was $983 million in the third quarter and $2.8 billion in the year-to-date period of 2022. Operating margin was 24.5 percent and 23.4 percent in the third quarter and year-to-date periods of 2022, respectively.

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

Three Months Ended
Dollars in millionsSeptember 30,Components of Increase (Decrease)
20222021Inc (Dec)OrganicAcquisition/
Divestiture
RestructuringForeign
Currency
Total
Operating revenue$4,011 $3,556 12.8 %15.7 %2.8 %— %(5.7)%12.8 %
Operating income$983 $845 16.4 %22.0 %0.2 %0.2 %(6.0)%16.4 %
Operating margin %24.5 %23.8 %70 bps120 bps(60) bps10 bps— 70 bps

Nine Months Ended
Dollars in millionsSeptember 30,Components of Increase (Decrease)
20222021Inc (Dec)OrganicAcquisition/
Divestiture
RestructuringForeign
Currency
Total
Operating revenue$11,961 $10,776 11.0 %12.2 %2.9 %— %(4.1)%11.0 %
Operating income$2,804 $2,643 6.1 %11.0 %0.1 %(0.9)%(4.1)%6.1 %
Operating margin %23.4 %24.5 %(110) bps(20) bps(60) bps(20) bps(10) bps(110) bps

Operating revenue increased in the third 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 15.7% and 12.2% in the third quarter and year-to-date periods, respectively, with growth in six of seven segments. Additionally, product line simplification activities reduced organic revenue by 70 basis points in the third quarter and 40 basis points in the year-to-date period.
North American organic revenue increased 16.6% in the third quarter with growth in six segments, partially offset by a decline in the Specialty Products segment. In the year-to-date period, organic revenue increased 14.8% with growth in all seven segments primarily driven by the Food Equipment, Construction Products and Welding segments.
Europe, Middle East and Africa organic revenue increased 13.9% in the third quarter due to growth in six segments, partially offset by a decline in the Construction Products segment. In the year-to-date period, organic revenue grew 9.1% due to growth in six segments, partially offset by a decline in the Specialty Products segment.
Asia Pacific organic revenue increased 14.6% and 7.9% in the third quarter and year-to-date periods, respectively, due to growth in six segments, partially offset by a decline in the Specialty Products segment. China organic revenue increased 14.5% in the third quarter and 3.9% in the year-to-date period as growth in the Automotive OEM, Test & Measurement and Electronics, Polymers & Fluids and Welding segments was partially offset by a decline in the Specialty Products, Construction Products 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 $983 million and $2.8 billion in the third quarter and year-to-date periods increased 16.4% and 6.1%, respectively, primarily due to higher organic revenue, partially offset by unfavorable foreign currency translation.
Operating margin was 24.5% in the third quarter. The increase of 70 basis points was primarily driven by positive operating leverage of 290 basis points and benefits from the Company's enterprise initiatives of 110 basis points, partially offset by the dilutive impact of 60 basis points from the MTS Test & Simulation acquisition, unfavorable price/cost of 40 basis points and higher operating expenses, including employee-related expenses.
In the year-to-date period, operating margin of 23.4% decreased 110 basis points primarily driven by unfavorable price/cost of 150 basis points, the dilutive impact of 60 basis points from the MTS Test & Simulation acquisition and higher operating expenses, including employee-related expenses and freight costs, partially offset by positive operating leverage of 220 basis points and benefits from the Company's enterprise initiatives of 90 basis points.
The Company's effective tax rate for the third quarter of 2022 and 2021 was 23.9% and 20.8%, respectively, and 21.8% and 17.7% for the year-to-date periods of 2022 and 2021, respectively. 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. The effective tax rate for the third quarter and year-to-date periods of 2021 included a discrete income tax benefit of $21 million related to the utilization of capital losses. The effective tax rate for the year-to-date period of 2021 also benefited from a discrete income tax benefit of $112 million in the second quarter of 2021 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%
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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 for the third quarter of 2022 and 2021, and $9 million and $14 million for the year-to-date periods of 2022 and 2021, respectively.
Diluted earnings per share (EPS) of $2.35 for the third quarter of 2022 increased 16.3%. Excluding the favorable impact of the third quarter 2021 discrete income tax benefit of $0.06 related to the utilization of capital losses, EPS increased 19.9%. In the year-to-date period, EPS of $6.83 increased 3.8%. Excluding the favorable impact of the $21 million discrete income tax benefit in the third quarter of 2021, the $112 million discrete income tax benefit in the second quarter of 2021 and the $51 million discrete income tax benefit in the second quarter of 2022, EPS increased 8.1%.
The Company repurchased approximately 2.4 million and 6.0 million shares of its common stock in the third quarter and year-to-date periods of 2022, respectively, for approximately $500 million and $1.2 billion, respectively.

RESULTS OF OPERATIONS BY SEGMENT

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

Three Months ended September 30,Nine Months Ended September 30,
Dollars in millionsOperating RevenueOperating IncomeOperating RevenueOperating Income
20222021202220212022202120222021
Automotive OEM$753 $647 $132 $112 $2,224 $2,137 $371 $434 
Food Equipment633 544 167 130 1,813 1,509 445 339 
Test & Measurement and Electronics715 552 180 148 2,096 1,710 486 475 
Welding477 425 150 128 1,413 1,228 431 364 
Polymers & Fluids473 456 119 111 1,450 1,357 362 350 
Construction Products527 478 136 133 1,643 1,465 428 406 
Specialty Products438 459 121 126 1,337 1,387 362 380 
Intersegment revenue(5)(5)— — (15)(17)— — 
Unallocated— — (22)(43)— — (81)(105)
Total$4,011 $3,556 $983 $845 $11,961 $10,776 $2,804