UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended | SeptemberJune 30, 20222023 |
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| OR |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from _______________ to _______________ |
Commission File Number: 1-4797
ILLINOIS TOOL WORKS INC.
(Exact name of registrant as specified in its charter)
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Delaware | 36-1258310 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| 155 Harlem Avenue | Glenview | IL | | 60025 |
(Address of principal executive offices) | (Zip Code) |
(Registrant's telephone number, including area code) 847-724-7500
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock | ITW | New York Stock Exchange |
1.25% Euro Notes due 2023 | ITW23 | New York Stock Exchange |
0.250% Euro Notes due 2024 | ITW24A | New York Stock Exchange |
0.625% Euro Notes due 2027 | ITW27 | New York Stock Exchange |
2.125% Euro Notes due 2030 | ITW30 | New York Stock Exchange |
1.00% Euro Notes due 2031 | ITW31 | New York Stock Exchange |
3.00% Euro Notes due 2034 | ITW34 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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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 SeptemberJune 30, 2022: 307,186,3792023: 302,390,322
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| Table of Contents | |
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| PART I - Financial Information | |
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PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
Illinois Tool Works Inc. and Subsidiaries
Statement of Income (Unaudited)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
In millions except per share amounts | In millions except per share amounts | 2022 | | 2021 | | 2022 | | 2021 | In millions except per share amounts | 2023 | | 2022 | | 2023 | | 2022 |
Operating Revenue | Operating Revenue | $ | 4,011 | | | $ | 3,556 | | | $ | 11,961 | | | $ | 10,776 | | Operating Revenue | $ | 4,074 | | | $ | 4,011 | | | $ | 8,093 | | | $ | 7,950 | |
Cost of revenue | Cost of revenue | 2,371 | | | 2,096 | | | 7,120 | | | 6,298 | | Cost of revenue | 2,344 | | | 2,392 | | | 4,685 | | | 4,749 | |
Selling, administrative, and research and development expenses | Selling, administrative, and research and development expenses | 624 | | | 581 | | | 1,935 | | | 1,735 | | Selling, administrative, and research and development expenses | 690 | | | 659 | | | 1,365 | | | 1,311 | |
Amortization and impairment of intangible assets | Amortization and impairment of intangible assets | 33 | | | 34 | | | 102 | | | 100 | | Amortization and impairment of intangible assets | 30 | | | 34 | | | 61 | | | 69 | |
Operating Income | Operating Income | 983 | | | 845 | | | 2,804 | | | 2,643 | | Operating Income | 1,010 | | | 926 | | | 1,982 | | | 1,821 | |
Interest expense | Interest expense | (52) | | | (49) | | | (147) | | | (153) | | Interest expense | (69) | | | (47) | | | (129) | | | (95) | |
Other income (expense) | Other income (expense) | 26 | | | 10 | | | 64 | | | 44 | | Other income (expense) | 20 | | | 24 | | | 30 | | | 38 | |
Income Before Taxes | Income Before Taxes | 957 | | | 806 | | | 2,721 | | | 2,534 | | Income Before Taxes | 961 | | | 903 | | | 1,883 | | | 1,764 | |
Income Taxes | Income Taxes | 230 | | | 167 | | | 594 | | | 449 | | Income Taxes | 207 | | | 165 | | | 415 | | | 364 | |
Net Income | Net Income | $ | 727 | | | $ | 639 | | | $ | 2,127 | | | $ | 2,085 | | Net Income | $ | 754 | | | $ | 738 | | | $ | 1,468 | | | $ | 1,400 | |
| Net Income Per Share: | Net Income Per Share: | | Net Income Per Share: | |
Basic | Basic | $ | 2.36 | | | $ | 2.03 | | | $ | 6.85 | | | $ | 6.61 | | Basic | $ | 2.49 | | | $ | 2.37 | | | $ | 4.83 | | | $ | 4.49 | |
Diluted | Diluted | $ | 2.35 | | | $ | 2.02 | | | $ | 6.83 | | | $ | 6.58 | | Diluted | $ | 2.48 | | | $ | 2.37 | | | $ | 4.81 | | | $ | 4.48 | |
| Shares of Common Stock Outstanding During the Period: | Shares of Common Stock Outstanding During the Period: | | Shares of Common Stock Outstanding During the Period: | |
Average | Average | 308.8 | | | 314.6 | | | 310.6 | | | 315.6 | | Average | 303.3 | | | 310.6 | | | 304.1 | | | 311.5 | |
Average assuming dilution | Average assuming dilution | 309.7 | | | 315.9 | | | 311.6 | | | 316.9 | | Average assuming dilution | 304.2 | | | 311.5 | | | 305.2 | | | 312.6 | |
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 | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
In millions | In millions | 2022 | | 2021 | | 2022 | | 2021 | In millions | 2023 | | 2022 | | 2023 | | 2022 |
Net Income | Net Income | $ | 727 | | | $ | 639 | | | $ | 2,127 | | | $ | 2,085 | | Net Income | $ | 754 | | | $ | 738 | | | $ | 1,468 | | | $ | 1,400 | |
| Foreign currency translation adjustments, net of tax | Foreign currency translation adjustments, net of tax | (210) | | | (59) | | | (394) | | | (29) | | Foreign currency translation adjustments, net of tax | (16) | | | (210) | | | 21 | | | (184) | |
Pension and other postretirement benefit adjustments, net of tax | Pension and other postretirement benefit adjustments, net of tax | 5 | | | 11 | | | 14 | | | 33 | | Pension and other postretirement benefit adjustments, net of tax | — | | | 4 | | | — | | | 9 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | (205) | | | (48) | | | (380) | | | 4 | | Other comprehensive income (loss) | (16) | | | (206) | | | 21 | | | (175) | |
| Comprehensive Income | Comprehensive Income | $ | 522 | | | $ | 591 | | | $ | 1,747 | | | $ | 2,089 | | Comprehensive Income | $ | 738 | | | $ | 532 | | | $ | 1,489 | | | $ | 1,225 | |
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 | In millions except per share amounts | September 30, 2022 | | December 31, 2021 | In millions except per share amounts | June 30, 2023 | | December 31, 2022 |
Assets | Assets | | | | Assets | | | |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and equivalents | Cash and equivalents | $ | 774 | | | $ | 1,527 | | Cash and equivalents | $ | 922 | | | $ | 708 | |
Trade receivables | Trade receivables | 3,031 | | | 2,840 | | Trade receivables | 3,216 | | | 3,171 | |
Inventories | Inventories | 2,007 | | | 1,694 | | Inventories | 1,921 | | | 2,054 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 281 | | | 313 | | Prepaid expenses and other current assets | 345 | | | 329 | |
Assets held for sale | Assets held for sale | 103 | | | — | | Assets held for sale | — | | | 8 | |
Total current assets | Total current assets | 6,196 | | | 6,374 | | Total current assets | 6,404 | | | 6,270 | |
| Net plant and equipment | Net plant and equipment | 1,705 | | | 1,809 | | Net plant and equipment | 1,901 | | | 1,848 | |
Goodwill | Goodwill | 4,759 | | | 4,965 | | Goodwill | 4,887 | | | 4,864 | |
Intangible assets | Intangible assets | 798 | | | 972 | | Intangible assets | 708 | | | 768 | |
Deferred income taxes | Deferred income taxes | 448 | | | 552 | | Deferred income taxes | 500 | | | 494 | |
Other assets | Other assets | 1,320 | | | 1,405 | | Other assets | 1,252 | | | 1,178 | |
| | $ | 15,226 | | | $ | 16,077 | | | $ | 15,652 | | | $ | 15,422 | |
| Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | | Liabilities and Stockholders' Equity | |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Short-term debt | Short-term debt | $ | 1,688 | | | $ | 778 | | Short-term debt | $ | 1,275 | | | $ | 1,590 | |
Accounts payable | Accounts payable | 618 | | | 585 | | Accounts payable | 590 | | | 594 | |
Accrued expenses | Accrued expenses | 1,559 | | | 1,648 | | Accrued expenses | 1,625 | | | 1,728 | |
Cash dividends payable | Cash dividends payable | 402 | | | 382 | | Cash dividends payable | 396 | | | 400 | |
Income taxes payable | Income taxes payable | 97 | | | 77 | | Income taxes payable | 154 | | | 147 | |
Liabilities held for sale | Liabilities held for sale | 28 | | | — | | Liabilities held for sale | — | | | 1 | |
Total current liabilities | Total current liabilities | 4,392 | | | 3,470 | | Total current liabilities | 4,040 | | | 4,460 | |
| Noncurrent Liabilities: | Noncurrent Liabilities: | | Noncurrent Liabilities: | |
Long-term debt | Long-term debt | 5,940 | | | 6,909 | | Long-term debt | 6,947 | | | 6,173 | |
Deferred income taxes | Deferred income taxes | 655 | | | 654 | | Deferred income taxes | 451 | | | 484 | |
Noncurrent income taxes payable | Noncurrent income taxes payable | 273 | | | 365 | | Noncurrent income taxes payable | 151 | | | 273 | |
Other liabilities | Other liabilities | 952 | | | 1,053 | | Other liabilities | 969 | | | 943 | |
Total noncurrent liabilities | Total noncurrent liabilities | 7,820 | | | 8,981 | | Total noncurrent liabilities | 8,518 | | | 7,873 | |
| Stockholders' Equity: | Stockholders' Equity: | | Stockholders' Equity: | |
Common stock (par value of $0.01 per share): | Common stock (par value of $0.01 per share): | | 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 | | |
Issued- 550.0 shares in 2023 and 2022 Outstanding- 302.4 shares in 2023 and 305.0 shares in 2022 | | Issued- 550.0 shares in 2023 and 2022 Outstanding- 302.4 shares in 2023 and 305.0 shares in 2022 | 6 | | | 6 | |
Additional paid-in-capital | Additional paid-in-capital | 1,479 | | | 1,432 | | Additional paid-in-capital | 1,550 | | | 1,501 | |
Retained earnings | Retained earnings | 25,292 | | | 24,325 | | Retained earnings | 26,473 | | | 25,799 | |
Common stock held in treasury | Common stock held in treasury | (21,882) | | | (20,636) | | Common stock held in treasury | (23,116) | | | (22,377) | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (1,882) | | | (1,502) | | Accumulated other comprehensive income (loss) | (1,820) | | | (1,841) | |
Noncontrolling interest | Noncontrolling interest | 1 | | | 1 | | Noncontrolling interest | 1 | | | 1 | |
Total stockholders' equity | Total stockholders' equity | 3,014 | | | 3,626 | | Total stockholders' equity | 3,094 | | | 3,089 | |
| | $ | 15,226 | | | $ | 16,077 | | | $ | 15,652 | | | $ | 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 | 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 | 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, 2022 | |
Balance at June 30, 2022 | $ | 6 | | $ | 1,464 | | $ | 24,967 | | $ | (21,382) | | $ | (1,677) | | $ | 1 | | $ | 3,379 | | |
Three Months ended June 30, 2023 | | Three Months ended June 30, 2023 |
Balance at March 31, 2023 | | Balance at March 31, 2023 | $ | 6 | | $ | 1,526 | | $ | 26,115 | | $ | (22,743) | | $ | (1,804) | | $ | 1 | | $ | 3,101 | |
Net income | Net income | — | | — | | 727 | | — | | — | | — | | 727 | | Net income | — | | — | | 754 | | — | | — | | — | | 754 | |
| Common stock issued for stock-based compensation | | Common stock issued for stock-based compensation | — | | 6 | | — | | 6 | | — | | — | | 12 | |
Stock-based compensation expense | Stock-based compensation expense | — | | 15 | | — | | — | | — | | — | | 15 | | Stock-based compensation expense | — | | 18 | | — | | — | | — | | — | | 18 | |
Repurchases of common stock | Repurchases of common stock | — | | — | | — | | (500) | | — | | — | | (500) | | Repurchases of common stock | — | | — | | — | | (375) | | — | | — | | (375) | |
Excise tax on repurchases of common stock | | Excise tax on repurchases of common stock | — | | — | | — | | (4) | | — | | — | | (4) | |
Dividends declared ($1.31 per share) | Dividends declared ($1.31 per share) | — | | — | | (402) | | — | | — | | — | | (402) | | Dividends declared ($1.31 per share) | — | | — | | (396) | | — | | — | | — | | (396) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | — | | — | | — | | (205) | | — | | (205) | | Other comprehensive income (loss) | — | | — | | — | | — | | (16) | | — | | (16) | |
| Balance at September 30, 2022 | $ | 6 | | $ | 1,479 | | $ | 25,292 | | $ | (21,882) | | $ | (1,882) | | $ | 1 | | $ | 3,014 | | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | $ | 6 | | $ | 1,550 | | $ | 26,473 | | $ | (23,116) | | $ | (1,820) | | $ | 1 | | $ | 3,094 | |
| Three Months Ended September 30, 2021 | |
Balance at June 30, 2021 | $ | 6 | | $ | 1,402 | | $ | 23,842 | | $ | (20,140) | | $ | (1,590) | | $ | 1 | | $ | 3,521 | | |
Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 |
Balance at March 31, 2022 | | Balance at March 31, 2022 | $ | 6 | | $ | 1,447 | | $ | 24,607 | | $ | (21,008) | | $ | (1,471) | | $ | 1 | | $ | 3,582 | |
Net income | Net income | — | | — | | 639 | | — | | — | | — | | 639 | | Net income | — | | — | | 738 | | — | | — | | — | | 738 | |
| Common stock issued for stock-based compensation | | Common stock issued for stock-based compensation | — | | — | | — | | 1 | | — | | — | | 1 | |
Stock-based compensation expense | Stock-based compensation expense | — | | 14 | | — | | — | | — | | — | | 14 | | Stock-based compensation expense | — | | 17 | | — | | — | | — | | — | | 17 | |
Repurchases of common stock | Repurchases of common stock | — | | — | | — | | (250) | | — | | — | | (250) | | Repurchases of common stock | — | | — | | — | | (375) | | — | | — | | (375) | |
Dividends declared ($1.22 per share) | Dividends declared ($1.22 per share) | — | | — | | (383) | | — | | — | | — | | (383) | | Dividends declared ($1.22 per share) | — | | — | | (378) | | — | | — | | — | | (378) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | — | | — | | — | | (48) | | — | | (48) | | Other comprehensive income (loss) | — | | — | | — | | — | | (206) | | — | | (206) | |
| Balance at September 30, 2021 | $ | 6 | | $ | 1,416 | | $ | 24,098 | | $ | (20,390) | | $ | (1,638) | | $ | 1 | | $ | 3,493 | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | $ | 6 | | $ | 1,464 | | $ | 24,967 | | $ | (21,382) | | $ | (1,677) | | $ | 1 | | $ | 3,379 | |
| Nine Months Ended September 30, 2022 | |
Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2023 |
Balance at December 31, 2022 | | Balance at December 31, 2022 | $ | 6 | | $ | 1,501 | | $ | 25,799 | | $ | (22,377) | | $ | (1,841) | | $ | 1 | | $ | 3,089 | |
Net income | | Net income | — | | — | | 1,468 | | — | | — | | — | | 1,468 | |
Common stock issued for stock-based compensation | | Common stock issued for stock-based compensation | — | | 14 | | — | | 17 | | — | | — | | 31 | |
Stock-based compensation expense | | Stock-based compensation expense | — | | 35 | | — | | — | | — | | — | | 35 | |
Repurchases of common stock | | Repurchases of common stock | — | | — | | — | | (750) | | — | | — | | (750) | |
Excise tax on repurchases of common stock | | Excise tax on repurchases of common stock | — | | — | | — | | (6) | | — | | — | | (6) | |
Dividends declared ($2.62 per share) | | Dividends declared ($2.62 per share) | — | | — | | (794) | | — | | — | | — | | (794) | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | — | | — | | — | | — | | 21 | | — | | 21 | |
| Balance at June 30, 2023 | | Balance at June 30, 2023 | $ | 6 | | $ | 1,550 | | $ | 26,473 | | $ | (23,116) | | $ | (1,820) | | $ | 1 | | $ | 3,094 | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
Balance at December 31, 2021 | Balance at December 31, 2021 | $ | 6 | | $ | 1,432 | | $ | 24,325 | | $ | (20,636) | | $ | (1,502) | | $ | 1 | | $ | 3,626 | | Balance at December 31, 2021 | $ | 6 | | $ | 1,432 | | $ | 24,325 | | $ | (20,636) | | $ | (1,502) | | $ | 1 | | $ | 3,626 | |
Net income | Net income | — | | — | | 2,127 | | — | | — | | — | | 2,127 | | Net income | — | | — | | 1,400 | | — | | — | | — | | 1,400 | |
Common stock issued for stock-based compensation | Common stock issued for stock-based compensation | — | | (1) | | — | | 4 | | — | | — | | 3 | | Common stock issued for stock-based compensation | — | | (1) | | — | | 4 | | — | | — | | 3 | |
Stock-based compensation expense | Stock-based compensation expense | — | | 48 | | — | | — | | — | | — | | 48 | | Stock-based compensation expense | — | | 33 | | — | | — | | — | | — | | 33 | |
Repurchases of common stock | Repurchases of common stock | — | | — | | — | | (1,250) | | — | | — | | (1,250) | | Repurchases of common stock | — | | — | | — | | (750) | | — | | — | | (750) | |
Dividends declared ($3.75 per share) | — | | — | | (1,160) | | — | | — | | — | | (1,160) | | |
Dividends declared ($2.44 per share) | | Dividends declared ($2.44 per share) | — | | — | | (758) | | — | | — | | — | | (758) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | — | | — | | — | | (380) | | — | | (380) | | Other comprehensive income (loss) | — | | — | | — | | — | | (175) | | — | | (175) | |
| Balance at September 30, 2022 | $ | 6 | | $ | 1,479 | | $ | 25,292 | | $ | (21,882) | | $ | (1,882) | | $ | 1 | | $ | 3,014 | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | $ | 6 | | $ | 1,464 | | $ | 24,967 | | $ | (21,382) | | $ | (1,677) | | $ | 1 | | $ | 3,379 | |
| 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.
Illinois Tool Works Inc. and Subsidiaries
Statement of Cash Flows (Unaudited)
| | | Nine Months Ended | | Six Months Ended |
| | September 30, | | June 30, |
In millions | In millions | 2022 | | 2021 | In millions | 2023 | | 2022 |
Cash Provided by (Used for) Operating Activities: | Cash Provided by (Used for) Operating Activities: | | | | Cash Provided by (Used for) Operating Activities: | | | |
Net income | Net income | $ | 2,127 | | | $ | 2,085 | | Net income | $ | 1,468 | | | $ | 1,400 | |
Adjustments to reconcile net income to cash provided by operating activities: | Adjustments to reconcile net income to cash provided by operating activities: | | | | Adjustments to reconcile net income to cash provided by operating activities: | | | |
Depreciation | Depreciation | 209 | | | 206 | | Depreciation | 138 | | | 140 | |
Amortization and impairment of intangible assets | Amortization and impairment of intangible assets | 102 | | | 100 | | Amortization and impairment of intangible assets | 61 | | | 69 | |
Change in deferred income taxes | Change in deferred income taxes | (72) | | | (79) | | Change in deferred income taxes | (5) | | | (60) | |
Provision for uncollectible accounts | Provision for uncollectible accounts | 4 | | | — | | Provision for uncollectible accounts | 4 | | | 3 | |
(Income) loss from investments | (Income) loss from investments | (8) | | | (28) | | (Income) loss from investments | (7) | | | (5) | |
(Gain) loss on sale of plant and equipment | (Gain) loss on sale of plant and equipment | (1) | | | — | | (Gain) loss on sale of plant and equipment | (2) | | | (1) | |
(Gain) loss on sale of operations and affiliates | (Gain) loss on sale of operations and affiliates | (1) | | | — | | (Gain) loss on sale of operations and affiliates | — | | | — | |
Stock-based compensation expense | Stock-based compensation expense | 48 | | | 41 | | Stock-based compensation expense | 35 | | | 33 | |
Other non-cash items, net | Other non-cash items, net | 1 | | | 8 | | Other non-cash items, net | (5) | | | 1 | |
Change in assets and liabilities, net of acquisitions and divestitures: | Change in assets and liabilities, net of acquisitions and divestitures: | | | | Change in assets and liabilities, net of acquisitions and divestitures: | | | |
(Increase) decrease in- | (Increase) decrease in- | | | | (Increase) decrease in- | | | |
Trade receivables | Trade receivables | (417) | | | (270) | | Trade receivables | (42) | | | (396) | |
Inventories | Inventories | (477) | | | (365) | | Inventories | 140 | | | (374) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 27 | | | (63) | | Prepaid expenses and other assets | (26) | | | (1) | |
Increase (decrease) in- | Increase (decrease) in- | | | | Increase (decrease) in- | | | |
Accounts payable | Accounts payable | 84 | | | 44 | | Accounts payable | (4) | | | 124 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 14 | | | 133 | | Accrued expenses and other liabilities | (105) | | | (27) | |
Income taxes | Income taxes | (102) | | | (30) | | Income taxes | (131) | | | (81) | |
Other, net | Other, net | (1) | | | 1 | | Other, net | (1) | | | (1) | |
Net cash provided by operating activities | Net cash provided by operating activities | 1,537 | | | 1,783 | | Net cash provided by operating activities | 1,518 | | | 824 | |
Cash Provided by (Used for) Investing Activities: | Cash Provided by (Used for) Investing Activities: | | | | Cash Provided by (Used for) Investing Activities: | | | |
Acquisition of businesses (excluding cash and equivalents) | Acquisition of businesses (excluding cash and equivalents) | (2) | | | — | | Acquisition of businesses (excluding cash and equivalents) | — | | | (2) | |
Additions to plant and equipment | Additions to plant and equipment | (256) | | | (217) | | Additions to plant and equipment | (198) | | | (155) | |
Proceeds from investments | Proceeds from investments | 12 | | | 37 | | Proceeds from investments | 7 | | | 7 | |
Proceeds from sale of plant and equipment | Proceeds from sale of plant and equipment | 8 | | | 6 | | Proceeds from sale of plant and equipment | 5 | | | 5 | |
Proceeds from sales of operations and affiliates | Proceeds from sales of operations and affiliates | 3 | | | — | | Proceeds from sales of operations and affiliates | 7 | | | — | |
Other, net | Other, net | (2) | | | (2) | | Other, net | (1) | | | (1) | |
Net cash provided by (used for) investing activities | Net cash provided by (used for) investing activities | (237) | | | (176) | | Net cash provided by (used for) investing activities | (180) | | | (146) | |
Cash Provided by (Used for) Financing Activities: | Cash Provided by (Used for) Financing Activities: | | | | Cash Provided by (Used for) Financing Activities: | | | |
Cash dividends paid | Cash dividends paid | (1,139) | | | (1,080) | | Cash dividends paid | (798) | | | (762) | |
Issuance of common stock | Issuance of common stock | 17 | | | 42 | | Issuance of common stock | 40 | | | 17 | |
Repurchases of common stock | Repurchases of common stock | (1,250) | | | (750) | | Repurchases of common stock | (750) | | | (750) | |
Net proceeds from (repayments of) debt with original maturities of three months or less | Net proceeds from (repayments of) debt with original maturities of three months or less | 1,078 | | | 1 | | Net proceeds from (repayments of) debt with original maturities of three months or less | (342) | | | 635 | |
Proceeds from debt with original maturities of more than three months | Proceeds from debt with original maturities of more than three months | 454 | | | — | | 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 | Repayments of debt with original maturities of more than three months | (1,110) | | | (350) | | Repayments of debt with original maturities of more than three months | (678) | | | (863) | |
Other, net | Other, net | (15) | | | (10) | | Other, net | (14) | | | (15) | |
Net cash provided by (used for) financing activities | Net cash provided by (used for) financing activities | (1,965) | | | (2,147) | | Net cash provided by (used for) financing activities | (1,117) | | | (1,284) | |
Effect of Exchange Rate Changes on Cash and Equivalents | Effect of Exchange Rate Changes on Cash and Equivalents | (88) | | | (37) | | Effect of Exchange Rate Changes on Cash and Equivalents | (7) | | | (42) | |
Cash and Equivalents: | Cash and Equivalents: | | | | Cash and Equivalents: | | | |
Increase (decrease) during the period | Increase (decrease) during the period | (753) | | | (577) | | Increase (decrease) during the period | 214 | | | (648) | |
Beginning of period | Beginning of period | 1,527 | | | 2,564 | | Beginning of period | 708 | | | 1,527 | |
End of period | End of period | $ | 774 | | | $ | 1,987 | | End of period | $ | 922 | | | $ | 879 | |
Supplementary Cash Flow Information: | Supplementary Cash Flow Information: | | | | Supplementary Cash Flow Information: | | | |
Cash Paid During the Period for Interest | Cash Paid During the Period for Interest | $ | 170 | | | $ | 178 | | Cash Paid During the Period for Interest | $ | 141 | | | $ | 113 | |
Cash Paid During the Period for Income Taxes, Net of Refunds | Cash Paid During the Period for Income Taxes, Net of Refunds | $ | 768 | | | $ | 558 | | Cash Paid During the Period for Income Taxes, Net of Refunds | $ | 550 | | | $ | 506 | |
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 20212022 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.
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.segment. These two businesses were classified as held for sale beginning in the second quarter of 2022.
Subsequent to In the thirdfourth quarter onof 2022, both of these businesses were divested. On October 3, 2022, the Company completed the sale of the one business in the Polymers & Fluids segment was sold for $220 million, subject to certain closing adjustments. The sale is expected to resultadjustments, resulting in a pre-tax gain of approximately $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 six months ended June 30, 2022 was $34 million and $63 million, respectively.
In the fourth quarter of 2022. As of September 30, 2022, thisplans were approved to divest one business in the Specialty Products segment. This business was presented as held for sale beginning in the Statementfourth quarter of Financial Position.
As of September 30, 2022, the assets and liabilities related to the two businesses discussed above that were included in assets2022. 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 StatementCompany's results of Financial Position were as follows:
| | | | | |
In millions | September 30, 2022 |
Trade receivables | $ | 20 | |
Inventories | 19 | |
Net plant and equipment | 14 | |
Goodwill and intangible assets | 43 | |
Other | 7 | |
Total assets heldoperations was $9 million for sale | $ | 103 | |
| |
Accounts payable | $ | 3 | |
Accrued expenses | 14 | |
Other | 11 | |
Total liabilities held for sale | $ | 28 | |
Operating revenue of the two businesses held for salesix months ended June 30, 2023, and $10 million and $19 million for the three and ninesix months ended SeptemberJune 30, 2022, and 2021respectively. There was as follows:no operating revenue related to this business included in the Company's results of operations for the three months ended June 30, 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
In millions | 2022 | | 2021 | | 2022 | | 2021 |
Operating revenue | $ | 37 | | | $ | 28 | | | $ | 100 | | | $ | 86 | |
(5)(3) Operating Revenue
The Company's 8384 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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 was as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
In millions | In millions | 2022 | | 2021 | | 2022 | | 2021 | In millions | 2023 | | 2022 | | 2023 | | 2022 |
Automotive OEM | Automotive OEM | $ | 753 | | | $ | 647 | | | $ | 2,224 | | | $ | 2,137 | | Automotive OEM | $ | 826 | | | $ | 711 | | | $ | 1,622 | | | $ | 1,471 | |
Food Equipment | Food Equipment | 633 | | | 544 | | | 1,813 | | | 1,509 | | Food Equipment | 654 | | | 614 | | | 1,289 | | | 1,180 | |
Test & Measurement and Electronics | Test & Measurement and Electronics | 715 | | | 552 | | | 2,096 | | | 1,710 | | Test & Measurement and Electronics | 700 | | | 696 | | | 1,403 | | | 1,381 | |
Welding | Welding | 477 | | | 425 | | | 1,413 | | | 1,228 | | Welding | 490 | | | 486 | | | 983 | | | 936 | |
Polymers & Fluids | Polymers & Fluids | 473 | | | 456 | | | 1,450 | | | 1,357 | | Polymers & Fluids | 459 | | | 496 | | | 906 | | | 977 | |
Construction Products | Construction Products | 527 | | | 478 | | | 1,643 | | | 1,465 | | Construction Products | 526 | | | 565 | | | 1,052 | | | 1,116 | |
Specialty Products | Specialty Products | 438 | | | 459 | | | 1,337 | | | 1,387 | | Specialty Products | 423 | | | 447 | | | 846 | | | 899 | |
Intersegment revenue | Intersegment revenue | (5) | | | (5) | | | (15) | | | (17) | | Intersegment revenue | (4) | | | (4) | | | (8) | | | (10) | |
Total operating revenue | Total operating revenue | $ | 4,011 | | | $ | 3,556 | | | $ | 11,961 | | | $ | 10,776 | | Total operating revenue | $ | 4,074 | | | $ | 4,011 | | | $ | 8,093 | | | $ | 7,950 | |
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 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 construction, energy, construction, MRO, industrial capital goods and 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 constructionMRO 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.
(6)
(4) Income Taxes
The Company's effective tax rate for the three months ended SeptemberJune 30, 2023 and 2022 was 21.4% and 2021 was 23.9% and 20.8%18.3%, respectively, and 21.8%22.0% and 17.7%20.7% for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The effective tax rate for the ninethree and six months ended SeptemberJune 30, 2023 included a discrete income tax benefit of $20 million related to amended 2021 U.S. taxes. The effective tax rate for the three and six months ended June 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 20222023 and 20212022 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $4 million and $1 million for the three months ended SeptemberJune 30, 2023 and 2022, respectively, and 2021, and $9$17 million and $14$8 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, 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, ("IRS"), HMHis Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. The Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately $22$45 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.
(8)(5) Inventories
Inventories as of SeptemberJune 30, 20222023 and December 31, 20212022 were as follows:
| In millions | In millions | September 30, 2022 | | December 31, 2021 | In millions | June 30, 2023 | | December 31, 2022 |
Raw material | Raw material | $ | 849 | | | $ | 716 | | Raw material | $ | 808 | | | $ | 887 | |
Work-in-process | Work-in-process | 250 | | | 208 | | Work-in-process | 248 | | | 228 | |
Finished goods | Finished goods | 1,047 | | | 888 | | Finished goods | 976 | | | 1,050 | |
LIFO reserve | LIFO reserve | (139) | | | (118) | | LIFO reserve | (111) | | | (111) | |
Total inventories | Total inventories | $ | 2,007 | | | $ | 1,694 | | Total inventories | $ | 1,921 | | | $ | 2,054 | |
(9)(6) Pension and Other Postretirement Benefits
Pension and other postretirement benefit costs for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 were as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
| | Pension | | Other Postretirement Benefits | | Pension | | Other Postretirement Benefits | | Pension | | Other Postretirement Benefits | | Pension | | Other Postretirement Benefits |
In millions | In millions | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | In millions | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Components of net periodic benefit cost: | Components of net periodic benefit cost: | | | | | | | | | | | | | | | | Components of net periodic benefit cost: | | | | | | | | | | | | | | | |
Service cost | Service cost | $ | 11 | | | $ | 13 | | | $ | 2 | | | $ | 2 | | | $ | 35 | | | $ | 40 | | | $ | 5 | | | $ | 6 | | Service cost | $ | 9 | | | $ | 12 | | | $ | 1 | | | $ | 1 | | | $ | 18 | | | $ | 24 | | | $ | 2 | | | $ | 3 | |
Interest cost | Interest cost | 13 | | | 10 | | | 3 | | | 3 | | | 38 | | | 30 | | | 10 | | | 8 | | Interest cost | 23 | | | 12 | | | 6 | | | 4 | | | 46 | | | 25 | | | 12 | | | 7 | |
Expected return on plan assets | Expected return on plan assets | (24) | | | (26) | | | (7) | | | (7) | | | (76) | | | (77) | | | (20) | | | (20) | | Expected return on plan assets | (32) | | | (25) | | | (6) | | | (7) | | | (64) | | | (52) | | | (11) | | | (13) | |
Amortization of actuarial loss (gain) | Amortization of actuarial loss (gain) | 5 | | | 14 | | | (1) | | | — | | | 18 | | | 40 | | | (3) | | | — | | Amortization of actuarial loss (gain) | 1 | | | 6 | | | (1) | | | (1) | | | 2 | | | 13 | | | (2) | | | (2) | |
Amortization of prior service cost | 1 | | | — | | | — | | | — | | | 1 | | | 1 | | | — | | | — | | |
Settlements | 1 | | | — | | | — | | | — | | | 1 | | | — | | | — | | | — | | |
| Total net periodic benefit cost (income) | Total net periodic benefit cost (income) | $ | 7 | | | $ | 11 | | | $ | (3) | | | $ | (2) | | | $ | 17 | | | $ | 34 | | | $ | (8) | | | $ | (6) | | Total net periodic benefit cost (income) | $ | 1 | | | $ | 5 | | | $ | — | | | $ | (3) | | | $ | 2 | | | $ | 10 | | | $ | 1 | | | $ | (5) | |
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 2022.2023. As of SeptemberJune 30, 2022,2023, contributions of $8$5 million to pension plans and $3$2 million to other postretirement benefit plans have been made.
(10)(7) Debt
Total debt as of SeptemberJune 30, 20222023 and December 31, 20212022 was as follows:
| In millions | In millions | September 30, 2022 | | December 31, 2021 | In millions | June 30, 2023 | | December 31, 2022 |
Short-term debt | Short-term debt | $ | 1,688 | | | $ | 778 | | Short-term debt | $ | 1,275 | | | $ | 1,590 | |
Long-term debt | Long-term debt | 5,940 | | | 6,909 | | Long-term debt | 6,947 | | | 6,173 | |
Total debt | Total debt | $ | 7,628 | | | $ | 7,687 | | Total debt | $ | 8,222 | | | $ | 7,763 | |
Short-term debt included commercial paper of $1.2$575 million and $1.1 billion and $210 million as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The weighted-average interest rate on commercial paper as of SeptemberJune 30, 20222023 and December 31, 20212022 was 2.68%5.27% and 0.14%4.35%, respectively. Short-term debt as of SeptemberJune 30, 20222023 also included $490$699 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 reclassified from Long-term debt to Short-term debt inrepaid on the second quarter of 2022. As of December 31, 2021, Short-term debt also includeddue date.
In 2022, the $568 million related to theof 1.75% Euro notes due May 20, 2022 which were
redeemed in full at face value on February 22, 2022. Additionally,
On May 5, 2023, the $350 millionCompany entered into a Euro-denominated credit agreement (the “Euro Credit Agreement”) with a termination date of 3.375% notes due September 15, 2021 were redeemedMay 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 face value ona 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 June 15, 2021.30, 2023, the Company had $1.4 billion outstanding under the Euro Credit Agreement with an interest rate of 4.01%, 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 $2.5$3.0 billion revolving credit facility with a termination date of September 27, 2024,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 $2.5 billion revolving credit facility as of SeptemberJune 30, 20222023 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.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 SeptemberJune 30, 20222023 and December 31, 20212022 were as follows:
| In millions | In millions | September 30, 2022 | | December 31, 2021 | In millions | June 30, 2023 | | December 31, 2022 |
Fair value | Fair value | $ | 5,873 | | | $ | 8,296 | | Fair value | $ | 7,231 | | | $ | 6,228 | |
Carrying value | Carrying value | 6,430 | | | 7,477 | | Carrying value | 7,647 | | | 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.
(11)
(8) Accumulated Other Comprehensive Income (Loss)
The following table summarizes changes in Accumulated other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
In millions | In millions | 2022 | | 2021 | | 2022 | | 2021 | In millions | 2023 | | 2022 | | 2023 | | 2022 |
Beginning balance | Beginning balance | $ | (1,677) | | | $ | (1,590) | | | $ | (1,502) | | | $ | (1,642) | | Beginning balance | $ | (1,804) | | | $ | (1,471) | | | $ | (1,841) | | | $ | (1,502) | |
| Foreign currency translation adjustments during the period | Foreign currency translation adjustments during the period | (159) | | | (35) | | | (277) | | | 22 | | Foreign currency translation adjustments during the period | (20) | | | (167) | | | 7 | | | (118) | |
Foreign currency translation adjustments reclassified to income | — | | | — | | | — | | | 4 | | |
| Income taxes | Income taxes | (51) | | | (24) | | | (117) | | | (55) | | Income taxes | 4 | | | (43) | | | 14 | | | (66) | |
Total foreign currency translation adjustments, net of tax | Total foreign currency translation adjustments, net of tax | (210) | | | (59) | | | (394) | | | (29) | | Total foreign currency translation adjustments, net of tax | (16) | | | (210) | | | 21 | | | (184) | |
| | Pension and other postretirement benefit adjustments reclassified to income | Pension and other postretirement benefit adjustments reclassified to income | 6 | | | 14 | | | 17 | | | 41 | | Pension and other postretirement benefit adjustments reclassified to income | — | | | 5 | | | — | | | 11 | |
Income taxes | Income taxes | (1) | | | (3) | | | (3) | | | (8) | | Income taxes | — | | | (1) | | | — | | | (2) | |
Total pension and other postretirement benefit adjustments, net of tax | Total pension and other postretirement benefit adjustments, net of tax | 5 | | | 11 | | | 14 | | | 33 | | Total pension and other postretirement benefit adjustments, net of tax | — | | | 4 | | | — | | | 9 | |
| Ending balance | Ending balance | $ | (1,882) | | | $ | (1,638) | | | $ | (1,882) | | | $ | (1,638) | | Ending balance | $ | (1,820) | | | $ | (1,677) | | | $ | (1,820) | | | $ | (1,677) | |
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 andrelated to the amortization of actuarial gains and losses. Refer to Note 9.6. 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 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.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 10.7. Debt for additional information regarding the redemption and repayment of these notes. The carrying values of the outstanding 2019, 2015 and 2014 Euro notes were $1.6 billion, $1.0 billion and $481 million, respectively,2023 Euro term loan as of SeptemberJune 30, 2022.2023 were $1.7 billion, $542 million, $536 million, and $1.4 billion, respectively. The cumulative unrealizedamount of pre-tax gain (loss) related to this debt recorded in Accumulated otherOther comprehensive income
(loss) related towas a loss of $17 million for the net investment hedge wasthree months ended June 30, 2023, a gain of $667$179 million and $183 million as of Septemberfor the three months ended June 30, 2022, a loss of $58 million for the six months ended June 30, 2023 and December 31, 2021, respectively.a gain of $273 million for the six months ended June 30, 2022.
As of SeptemberJune 30, 20222023 and 2021,2022, the ending balance of Accumulated other comprehensive income (loss) consisted of after-tax cumulative translation adjustment losses of $1.7$1.5 billion and $1.3 billion, respectively,in both periods, and after-tax unrecognized pension and other postretirement benefit costs of $182$293 million and $298$187 million, respectively.
(12)(9) 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 8384 divisions in 5251 countries. As of December 31, 2021,2022, the Company employed approximately 45,00046,000 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's80/20 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 19,30019,200 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 STRATEGYSTRATEGY: 2012-2022
In late 2012, ITW began its strategic framework transitioning the Company on its current path to fully leverage the compelling performance potentialunique 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. To shift its primary growth engine to organic,
Key initiatives in the Company began executing a multi-step approach.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.
•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
included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions.
As a result of this work, ITW's business portfolio now has significantly higher organic growth potential. ITW segments and divisions now possess attractive and differentiated product lines and end markets as they continue to improve operating margins and generate price/cost increases. The Company achieved this through product line simplification, or eliminating the complexity and overhead costs associated with smaller product lines and customers, while supporting and growing the businesses' largest / most profitable customers and product lines.
•Step two, Business Structure Simplification was implemented to simplify and scale up ITW's operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 8384 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 20212022 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,completed, 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.
Since implementing the Company’s enterprise strategy in 2012, the Company has demonstrated the compelling performance potential of the ITW has clearly demonstratedBusiness Model and superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company'sCompany’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: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.Portfolio disciplineWith the “heavy lifting” essentially completed in the last decade, the Company is focused on two key priorities:
•80/20 Front-to-Back practice excellence
•1.Full-potentialExecute 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.
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
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.segment. These two businesses were classified as held for sale beginning in the second quarter of 2022. Subsequent toIn the thirdfourth quarter onof 2022, both of these businesses were divested. On October 3, 2022, the Company completed the sale of the one business in the Polymers & Fluids segment was sold for $220 million, subject to certain closing adjustments. The sale is expected to resultadjustments, resulting in a pre-tax gain of approximately $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 six months ended June 30, 2022 was $34 million and $63 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 six months ended June 30, 2023, and $10 million and $19 million for the three and six months ended June 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 June 30, 2023. Refer to Note 4.2. 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 20212022 Annual Report on Form 10-K.
CONSOLIDATED RESULTS OF OPERATIONS
InStarting 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 causingand caused 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.
ForDespite the duration ofongoing disruptions caused by 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 bestexperienced solid recovery progress in many 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 operationalend markets during the pandemic, many of these facilities were operating at a reduced capacity at various times sincepast two years. However, 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 -1A. Risk Factors in the Company's 20212022 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$22 million as of SeptemberJune 30, 2022.2023. The revenue for these four subsidiaries for the yearthree and six months ended December 31, 2021June 30, 2023 was approximately $31 million. Sales to customers in Russia represented less than one percent of ITW’s total consolidated revenue$7 million and were$13 million, respectively. These subsidiaries are not material to the Company’s results of operations or financial position.
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 six months ended June 30, 2022 was $34 million and $63 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 six months ended June 30, 2023, and $10 million and $19 million for the three and six months ended June 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 June 30, 2023. Refer to Note 2. Divestitures in Item 1. Financial Statements for further information regarding the Company's divestitures.
In a challenging and dynamic environment, the Company delivered strong financial results in the thirdsecond quarter and year-to-date periods of 20222023 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, theThe Company generated operating revenue growth of 12.81.6 percent and 11.01.8 percent in the thirdsecond quarter and year-to-date periods of 2022,2023, respectively, as six of seven segments achieved worldwidewith organic revenue growth.growth of 3.0 percent and 4.1 percent, respectively. Operating income was $983 million$1.0 billion in the thirdsecond quarter and $2.8$2.0 billion in the year-to-date period of 2022.2023. Operating margin was 24.524.8 percent and 23.424.5 percent in the thirdsecond quarter and year-to-date periods of 2022,2023, respectively.
The Company's consolidated results of operations for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | | | Three Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 4,011 | | | $ | 3,556 | | | | 12.8 | % | | 15.7 | % | 2.8 | % | — | % | | (5.7) | % | 12.8 | % | Operating revenue | $ | 4,074 | | | $ | 4,011 | | | | 1.6 | % | | 3.0 | % | (1.1) | % | — | % | | (0.3) | % | 1.6 | % |
Operating income | Operating income | $ | 983 | | | $ | 845 | | | | 16.4 | % | | 22.0 | % | 0.2 | % | 0.2 | % | | (6.0) | % | 16.4 | % | Operating income | $ | 1,010 | | | $ | 926 | | | | 9.0 | % | | 10.2 | % | (0.7) | % | (0.1) | % | | (0.4) | % | 9.0 | % |
Operating margin % | Operating margin % | 24.5 | % | | 23.8 | % | | | 70 bps | | 120 bps | (60) bps | 10 bps | | — | | 70 bps | Operating margin % | 24.8 | % | | 23.1 | % | | | 170 bps | | 160 bps | 10 bps | — | | | — | | 170 bps |
| | | Nine Months Ended | | | | | Six Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 11,961 | | | $ | 10,776 | | | | 11.0 | % | | 12.2 | % | 2.9 | % | — | % | | (4.1) | % | 11.0 | % | Operating revenue | $ | 8,093 | | | $ | 7,950 | | | | 1.8 | % | | 4.1 | % | (0.9) | % | — | % | | (1.4) | % | 1.8 | % |
Operating income | Operating income | $ | 2,804 | | | $ | 2,643 | | | | 6.1 | % | | 11.0 | % | 0.1 | % | (0.9) | % | | (4.1) | % | 6.1 | % | Operating income | $ | 1,982 | | | $ | 1,821 | | | | 8.8 | % | | 10.8 | % | (0.6) | % | 0.1 | % | | (1.5) | % | 8.8 | % |
Operating margin % | Operating margin % | 23.4 | % | | 24.5 | % | | | (110) bps | | (20) bps | (60) bps | (20) bps | | (10) bps | (110) bps | Operating margin % | 24.5 | % | | 22.9 | % | | | 160 bps | | 150 bps | 10 bps | — | | | — | | 160 bps |
•Operating revenue increased in the thirdsecond 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.translation and the impact of divestiture activity in the second quarter of 2023 and the fourth quarter of 2022.
•Organic revenue grew 15.7%3.0% and 12.2%4.1% in the thirdsecond quarter and year-to-date periods, respectively, withas growth in six of sevenfour segments was partially offset by a decline in the Construction Products, Specialty Products and Polymers & Fluids segments. Additionally, productProduct line simplification activities reduced organic revenue by 7040 basis points in the thirdsecond quarter and 4050 basis points in the year-to-date period.
◦North American organic revenue increased 16.6%was flat in the thirdsecond quarter withas growth in sixthe Food Equipment, Automotive OEM and Polymers & Fluids segments partiallywas 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,Test & Measurement and Electronics, 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 period2.6% as growth in the Automotive OEM, Test & Measurement and Electronics, Polymers & Fluids and Weldingfour segments was partially offset by a decline in the Specialty Products, Construction Products and Test & Measurement and Electronics segments.
◦Europe, Middle East and Africa organic revenue increased 5.4% in the second quarter as growth in four segments was partially offset by a decline in the Construction Products, Polymers & Fluids and Welding
segments. In the year-to-date period, organic revenue increased 5.9% as growth in five segments was partially offset by a decline in the Construction Products and Polymers & Fluids segments.
◦Asia Pacific increased 11.0% in the second quarter due to growth in four segments, partially offset by a decline in the Construction Products, Test & Measurement and Electronics and Specialty Products segments. In the year-to-date period, organic revenue grew 6.4% due to growth in five segments, partially offset by a decline in the Specialty Products and Food Equipment segments. The resultsOrganic revenue in 2022 were negatively impactedChina increased 22.4% in the second quarter due to an increase in five segments, partially offset by a decline in the COVID-19 outbreakFood Equipment and government stay-at-home ordersSpecialty Products segments. In the year-to-date period, China organic revenue increased 7.1% as growth in China.four segments was partially offset by a decline in the Specialty Products, Food Equipment and Polymers & Fluids segments.
•Operating income of $983 million$1.0 billion and $2.8$2.0 billion in the thirdsecond quarter and year-to-date periods increased 16.4%9.0% and 6.1%8.8%, respectively, compared to the prior year primarily due to higher organic revenue, partially offset by unfavorable foreign currency translation.translation and the impact of divestiture activity in the second quarter of 2023 and the fourth quarter of 2022.
•Operating margin was 24.5%24.8% in the thirdsecond quarter. The increase of 70170 basis points was primarily driven by positive operating leveragedue to favorable price/cost of 290260 basis points, and benefits from the Company's enterprise initiatives of 110130 basis points and positive operating leverage of 60 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 11024.5% increased 160 basis points primarily driven by unfavorablefavorable price/cost of 150230 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 120 basis points and positive operating leverage of 90 basis points.points, partially offset by higher operating expenses, including employee-related expenses.
•The Company's effective tax rate for the thirdsecond quarter of 2023 and 2022 was 21.4% and 2021 was 23.9% and 20.8%18.3%, respectively, and 21.8%22.0% and 17.7%20.7% for the year-to-date periods of 20222023 and 2021,2022, respectively. The effective tax rate for the second quarter and year-to-date periodperiods of 2023 included a discrete income tax benefit of $20 million related to amended 2021 U.S. taxes. The effective tax rate for the second quarter and year-to-date periods 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%
effective April 1, 2023. Additionally, the effective tax rates for 20222023 and 20212022 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $4 million and $1 million for the thirdsecond quarter of 2023 and 2022, respectively, and 2021, and $9$17 million and $14$8 million for the year-to-date periodsperiod of 2023 and 2022, and 2021, respectively.
•Diluted earnings per share (EPS) of $2.35$2.48 for the thirdsecond quarter and $4.81 for the year-to-date period of 20222023 increased 16.3%.4.6% and 7.4%, respectively. Excluding the favorable impact of the thirdsecond quarter 20212023 discrete income tax benefit of $0.06$0.07 related to amended 2021 U.S. taxes and 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 millionsecond quarter 2022 discrete income tax benefit inof $0.16 related to the third quarterresolution of 2021, the $112 million discrete incomea U.S. tax benefitaudit, EPS increased 9.0% in the second quarter of 2021 and the $51 million discrete income tax benefit9.7% in the second quarter of 2022, EPS increased 8.1%.year-to-date period.
•The Company repurchased approximately 2.41.6 million and 6.03.2 million shares of its common stock in the thirdsecond quarter and year-to-date periods of 2022,2023, respectively, for approximately $500$375 million and $1.2 billion,$750 million, respectively.
RESULTS OF OPERATIONS BY SEGMENT
Total operating revenue and operating income for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
Dollars in millions | Dollars in millions | Operating Revenue | | Operating Income | | Operating Revenue | | Operating Income | Dollars in millions | Operating Revenue | | Operating Income | | Operating Revenue | | Operating Income |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Automotive OEM | Automotive OEM | $ | 753 | | | $ | 647 | | | $ | 132 | | | $ | 112 | | | $ | 2,224 | | | $ | 2,137 | | | $ | 371 | | | $ | 434 | | Automotive OEM | $ | 826 | | | $ | 711 | | | $ | 139 | | | $ | 101 | | | $ | 1,622 | | | $ | 1,471 | | | $ | 267 | | | $ | 239 | |
Food Equipment | Food Equipment | 633 | | | 544 | | | 167 | | | 130 | | | 1,813 | | | 1,509 | | | 445 | | | 339 | | Food Equipment | 654 | | | 614 | | | 182 | | | 152 | | | 1,289 | | | 1,180 | | | 351 | | | 278 | |
Test & Measurement and Electronics | Test & Measurement and Electronics | 715 | | | 552 | | | 180 | | | 148 | | | 2,096 | | | 1,710 | | | 486 | | | 475 | | Test & Measurement and Electronics | 700 | | | 696 | | | 162 | | | 157 | | | 1,403 | | | 1,381 | | | 334 | | | 306 | |
Welding | Welding | 477 | | | 425 | | | 150 | | | 128 | | | 1,413 | | | 1,228 | | | 431 | | | 364 | | Welding | 490 | | | 486 | | | 167 | | | 142 | | | 983 | | | 936 | | | 324 | | | 281 | |
Polymers & Fluids | Polymers & Fluids | 473 | | | 456 | | | 119 | | | 111 | | | 1,450 | | | 1,357 | | | 362 | | | 350 | | Polymers & Fluids | 459 | | | 496 | | | 119 | | | 125 | | | 906 | | | 977 | | | 228 | | | 243 | |
Construction Products | Construction Products | 527 | | | 478 | | | 136 | | | 133 | | | 1,643 | | | 1,465 | | | 428 | | | 406 | | Construction Products | 526 | | | 565 | | | 154 | | | 156 | | | 1,052 | | | 1,116 | | | 299 | | | 292 | |
Specialty Products | Specialty Products | 438 | | | 459 | | | 121 | | | 126 | | | 1,337 | | | 1,387 | | | 362 | | | 380 | | Specialty Products | 423 | | | 447 | | | 109 | | | 121 | | | 846 | | | 899 | | | 218 | | | 241 | |
Intersegment revenue | Intersegment revenue | (5) | | | (5) | | | — | | | — | | | (15) | | | (17) | | | — | | | — | | Intersegment revenue | (4) | | | (4) | | | — | | | — | | | (8) | | | (10) | | | — | | | — | |
Unallocated | Unallocated | — | | | — | | | (22) | | | (43) | | | — | | | — | | | (81) | | | (105) | | Unallocated | — | | | — | | | (22) | | | (28) | | | — | | | — | | | (39) | | | (59) | |
Total | Total | $ | 4,011 | | | $ | 3,556 | | | $ | 983 | | | $ | 845 | | | $ | 11,961 | | | $ | 10,776 | | | $ | 2,804 | | | $ | 2,643 | | Total | $ | 4,074 | | | $ | 4,011 | | | $ | 1,010 | | | $ | 926 | | | $ | 8,093 | | | $ | 7,950 | | | $ | 1,982 | | | $ | 1,821 | |
Segments are allocated a fixed overhead charge based on the segment's revenue. Expenses not charged to the segments are reported separately as Unallocated. Because the Unallocated category includes a variety of items, it is subject to fluctuations on a quarterly and annual basis.
AUTOMOTIVE OEM
This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:
•plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.
The results of operations for the Automotive OEM segment for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | Three Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 753 | | | $ | 647 | | | | 16.5 | % | | 24.7 | % | — | % | — | % | (8.2) | % | 16.5 | % | Operating revenue | $ | 826 | | | $ | 711 | | | | 16.2 | % | | 16.3 | % | — | % | — | % | (0.1) | % | 16.2 | % |
Operating income | Operating income | $ | 132 | | | $ | 112 | | | | 17.8 | % | | 26.1 | % | — | % | 0.3 | % | (8.6) | % | 17.8 | % | Operating income | $ | 139 | | | $ | 101 | | | | 36.2 | % | | 25.0 | % | — | % | 11.9 | % | (0.7) | % | 36.2 | % |
Operating margin % | Operating margin % | 17.5 | % | | 17.3 | % | | | 20 bps | | 20 bps | — | | — | | — | | 20 bps | Operating margin % | 16.8 | % | | 14.3 | % | | | 250 bps | | 110 bps | — | | 150 bps | (10) bps | 250 bps |
| | | Nine Months Ended | | | Six Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 2,224 | | | $ | 2,137 | | | | 4.1 | % | | 9.2 | % | — | % | — | % | (5.1) | % | 4.1 | % | Operating revenue | $ | 1,622 | | | $ | 1,471 | | | | 10.3 | % | | 11.9 | % | — | % | — | % | (1.6) | % | 10.3 | % |
Operating income | Operating income | $ | 371 | | | $ | 434 | | | | (14.5) | % | | (3.7) | % | — | % | (6.2) | % | (4.6) | % | (14.5) | % | Operating income | $ | 267 | | | $ | 239 | | | | 11.4 | % | | 5.4 | % | — | % | 8.2 | % | (2.2) | % | 11.4 | % |
Operating margin % | Operating margin % | 16.7 | % | | 20.3 | % | | | (360) bps | | (240) bps | — | | (120) bps | — | | (360) bps | Operating margin % | 16.4 | % | | 16.3 | % | | | 10 bps | | (100) bps | — | | 120 bps | (10) bps | 10 bps |
•Operating revenue grew in the thirdsecond quarter and year-to-date periods due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation.
•Organic revenue increased 24.7%16.3% and 11.9% in the thirdsecond quarter and 9.2%year-to-date periods, respectively, compared to worldwide auto builds which grew 16% in the second quarter and 11% in the year-to-date period. Worldwide auto builds grew 27% in the third quarter and increased 7% in the year-to-date period. The impact of Automotive OEM customers adjusting production schedules to account for the shortage of semiconductor chips and other components continued to negatively impact operating results in 2022. Additionally, productProduct line simplification activities reduced organic revenue by 50 basis points in the second quarter and 40 basis points in the third quarter and 20 basis pointsyear-to-date period primarily in the year-to-date period.North America.
◦North American organic revenue increased 21.5%2.9% and 13.8%3.0% in the thirdsecond quarter and year-to-date periods, respectively, compared to North American auto builds which grew 24%15% in the thirdsecond quarter and 12% in the year-to-date period primarily due to customer mix and 11% in the year-to-date period.product line simplification.
◦European organic revenue grew 26.2%18.2% and 2.8%16.9% in the thirdsecond quarter and year-to-date periods, respectively, compared to European auto builds which increased 20%14% in the thirdsecond quarter and decreased 3%16% in the year-to-date period.
◦Asia Pacific organic revenue increased 27.8%39.0% and 20.5% in the thirdsecond quarter and 12.2% in the year-to-date period.periods, respectively. China organic revenue grew 29.3%51.3% and 10.4%19.1% in the thirdsecond quarter and year-to-date periods, respectively, versus China auto builds which increased 31%20% in the thirdsecond quarter and 11%7% in the year-to-date period due to customer mix.period. Auto builds of foreign automotive manufacturers in China, where the Company has higher content, grew 31% and 5%increased 7% in the thirdsecond quarter and decreased 2% in the year-to-date periods, respectively.period.
•Operating margin was 17.5%16.8% in the thirdsecond quarter. The increase of 20250 basis points was primarily driven bydue to positive operating leverage of 420320 basis points, andfavorable price/cost of 180 basis points, benefits from the Company's enterprise initiatives and lower restructuring expenses, partially offset by higher operating expenses, including costs related toemployee-related expenses and continued investment in the business, and employee-related expenses, and unfavorable price/cost of 130 basis points.product mix.
•In the year-to-date period, operating margin of 16.7% decreased 36016.4% increased 10 basis points primarily driven by unfavorablepositive operating leverage of 230 basis points, benefits from the Company's enterprise initiatives, lower restructuring expenses and favorable price/cost of 24090 basis points, partially offset by higher operating expenses, including costs related toemployee-related expenses and continued investment in the business, and employee-related expenses, and higher restructuring expenses, partially offset by positive operating leverage of 170 basis points and benefits from the Company's enterprise initiatives.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 thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | Three Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 633 | | | $ | 544 | | | | 16.4 | % | | 23.1 | % | — | % | — | % | (6.7) | % | 16.4 | % | Operating revenue | $ | 654 | | | $ | 614 | | | | 6.3 | % | | 6.9 | % | (1.0) | % | — | % | 0.4 | % | 6.3 | % |
Operating income | Operating income | $ | 167 | | | $ | 130 | | | | 28.3 | % | | 37.0 | % | — | % | (1.4) | % | (7.3) | % | 28.3 | % | Operating income | $ | 182 | | | $ | 152 | | | | 19.6 | % | | 19.2 | % | (0.2) | % | — | % | 0.6 | % | 19.6 | % |
Operating margin % | Operating margin % | 26.3 | % | | 23.9 | % | | | 240 bps | | 270 bps | — | | (30) bps | — | | 240 bps | Operating margin % | 27.8 | % | | 24.7 | % | | | 310 bps | | 280 bps | 30 bps | — | | — | | 310 bps |
| | | Nine Months Ended | | | Six Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 1,813 | | | $ | 1,509 | | | | 20.2 | % | | 25.2 | % | — | % | — | % | (5.0) | % | 20.2 | % | Operating revenue | $ | 1,289 | | | $ | 1,180 | | | | 9.2 | % | | 11.3 | % | (1.1) | % | — | % | (1.0) | % | 9.2 | % |
Operating income | Operating income | $ | 445 | | | $ | 339 | | | | 31.2 | % | | 37.7 | % | — | % | (0.7) | % | (5.8) | % | 31.2 | % | Operating income | $ | 351 | | | $ | 278 | | | | 26.2 | % | | 28.0 | % | (0.4) | % | (0.5) | % | (0.9) | % | 26.2 | % |
Operating margin % | Operating margin % | 24.5 | % | | 22.5 | % | | | 200 bps | | 220 bps | — | | (10) bps | 200 bps | Operating margin % | 27.2 | % | | 23.6 | % | | | 360 bps | | 350 bps | 20 bps | (10) bps | — | | 360 bps |
•Operating revenue grew in the thirdsecond quarter and year-to-date periodsprimarily due to higher organic revenue, partially offset by the impact of a divestiture in the fourth quarter of 2022. Operating revenue grew in the year-to-date period due to higher organic revenue, partially offset by the impact of a divestiture in the fourth quarter of 2022 and the unfavorable effect of foreign currency translation.
•Operating revenue in the second quarter and year-to-date periods of 2022 included approximately $6 million and $13 million, respectively, related to the business divested in the fourth quarter of 2022.
•Organic revenue increased 23.1%6.9% in the thirdsecond quarter as equipment and service organic revenue grew 27.9%3.1% and 14.1%16.2%, respectively. In the year-to-date period, organic revenue increased 25.2%11.3% as equipment and service organic revenue grew 28.0%8.8% and 19.6%17.4%, respectively.
◦North American organic revenue increased 30.0%8.5% in the thirdsecond quarter and 26.6%14.5% in the year-to-date period. Equipment organic revenue grew 39.6%5.4% in the thirdsecond quarter and 32.3%14.2% in the year-to-date period with growth in the restaurant and institutional andend markets, partially offset by a decline in the food retail end markets.market. Service organic revenue increased 15.0%15.3% and 17.2%16.0% in the thirdsecond quarter and year-to-date periods, respectively.
◦International organic revenue increased 14.3%4.7% and 23.4%6.6% in the thirdsecond quarter and year-to-date periods, respectively. Equipment organic revenue grew 15.0% and 22.9%was flat in the thirdsecond quarter as higher demand in the European warewash and refrigeration end markets was offset by lower demand in Asia Pacific. In the year-to-date periods, respectively,period, equipment organic revenue grew 1.6% primarily due to higher demand in the European warewash and refrigeration and cooking end markets.markets, partially offset by lower demand in Asia Pacific. Service organic revenue increased 12.7%18.1% and 24.0%20.0% in the thirdsecond quarter and year-to-date periods, respectively.
•Operating margin was 26.3%27.8% in the thirdsecond quarter. The increase of 240310 basis points was primarily due to favorable price/cost of 270 basis points, positive operating leverage of 420140 basis points, favorable price/cost of 120 basis points and benefits from the Company's enterprise initiatives and the favorable impact of a divestiture in the fourth quarter of 2022, partially offset by higher operating expenses, including employee-related expenses.
•In the year-to-date period, operating margin of 24.5%27.2% increased 200360 basis points primarily due todriven by favorable price/cost of 280 basis points, positive operating leverage of 480210 basis points, benefits from the Company's enterprise initiatives and the favorable price/costimpact of 10 basis points,a divestiture in the fourth quarter of 2022, 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 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.
The results of operations for the Test & Measurement and Electronics segment for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | | | Three Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 715 | | | $ | 552 | | | | 29.5 | % | | 17.1 | % | 18.3 | % | — | % | | (5.9) | % | 29.5 | % | Operating revenue | $ | 700 | | | $ | 696 | | | | 0.7 | % | | 1.1 | % | — | % | — | % | | (0.4) | % | 0.7 | % |
Operating income | Operating income | $ | 180 | | | $ | 148 | | | | 21.5 | % | | 26.1 | % | 0.9 | % | 0.1 | % | | (5.6) | % | 21.5 | % | Operating income | $ | 162 | | | $ | 157 | | | | 3.5 | % | | 5.2 | % | — | % | (1.0) | % | | (0.7) | % | 3.5 | % |
Operating margin % | Operating margin % | 25.2 | % | | 26.8 | % | | | (160) bps | | 210 bps | (370) bps | — | | | — | | (160) bps | Operating margin % | 23.2 | % | | 22.5 | % | | | 70 bps | | 100 bps | — | | (30) bps | | — | | 70 bps |
| | | Nine Months Ended | | | | | Six Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 2,096 | | | $ | 1,710 | | | | 22.5 | % | | 8.4 | % | 18.0 | % | — | % | | (3.9) | % | 22.5 | % | Operating revenue | $ | 1,403 | | | $ | 1,381 | | | | 1.6 | % | | 3.3 | % | — | % | — | % | | (1.7) | % | 1.6 | % |
Operating income | Operating income | $ | 486 | | | $ | 475 | | | | 2.3 | % | | 4.9 | % | 0.5 | % | 0.3 | % | | (3.4) | % | 2.3 | % | Operating income | $ | 334 | | | $ | 306 | | | | 9.2 | % | | 11.8 | % | — | % | (0.7) | % | | (1.9) | % | 9.2 | % |
Operating margin % | Operating margin % | 23.2 | % | | 27.8 | % | | | (460) bps | | (90) bps | (380) bps | 10 bps | | — | | (460) bps | Operating margin % | 23.8 | % | | 22.2 | % | | | 160 bps | | 180 bps | — | | (20) bps | | — | | 160 bps |
•Operating revenue grew in the thirdsecond quarter and year-to-date periods due to the MTS Test & Simulation acquisition and higher organic revenue, partially offset by the unfavorable effect of foreign currency translation.
•Organic revenue increased 17.1%1.1% in the thirdsecond quarter and 8.4%3.3% in the year-to-date period.
◦Organic revenue for the test and measurement businesses increased 19.9% and 12.8%10.1% in the thirdsecond quarter and 11.0% in the year-to-date periods, respectively,period primarily driven by higher semiconductor demand in North America and the impact of a stronger capital spending environment.environment, growth in the MTS Test & Simulation business and higher demand in the automotive, defense and oil and gas end markets, partially offset by lower semiconductor demand in North America. Instron, where demand is more closely tied to the capital spending environment, had organic revenue growth of 12.9%30.2% and 8.1%26.1% in the thirdsecond quarter and year-to-date periods, respectively.
◦Electronics organic revenue increased 13.8%decreased 12.7% and 8.4% in the thirdsecond quarter and year-to-date periods, respectively, primarily due to higher demanda decline in the consumer electronics and semiconductor end markets. In the year-to-date period, organic revenue increased 3.7% primarily due to higher demand in the semiconductor end market, partially offset by a decline in the consumer electronics end market. The electronics assembly businesses increased 23.6%decreased 20.3% in the thirdsecond quarter primarily due to higher demand in North America, and declined 1.5%13.4% in the year-to-date period primarily due to lower demand in North America in the first half of 2022, partially offset by growth inand Asia Pacific. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, increased 9.2%decreased 8.8% and 6.6%5.7% in the thirdsecond quarter and year-to-date periods, respectively, with growth across all major regions.primarily due to lower demand in the semiconductor end market, partially offset by higher demand in the automotive end market.
•Operating margin was 25.2%23.2% in the thirdsecond quarter. The decreaseincrease of 16070 basis points was primarily due to the dilutive impactfavorable price/cost of 370210 basis points, benefits from the MTS Test & Simulation acquisition, unfavorable price/costCompany's enterprise initiatives, positive operating leverage of 100 30
basis points and lower intangible asset amortization expense, partially offset by higher operating expenses, including employee-related expenses, partially offset by positive operating leverage of 360 basis points and benefits from the Company's enterprise initiatives.expenses.
•In the year-to-date period, operating margin of 23.2% decreased 46023.8% increased 160 basis points primarily driven by the dilutive impactfavorable price/cost of 380150 basis points, benefits from the MTS Test & Simulation acquisition, unfavorable price/costCompany's enterprise initiatives, positive operating leverage of 17080 basis points and lower intangible asset amortization expense, partially offset by higher operating expenses, including employee-related expenses, partially offset by positive operating leverage of 180 basis points and benefits from the Company's enterprise initiatives.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, construction, MRO, industrial capital goods and 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.
The results of operations for the Welding segment for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | | | Three Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 477 | | | $ | 425 | | | | 12.4 | % | | 13.9 | % | — | % | — | % | | (1.5) | % | 12.4 | % | Operating revenue | $ | 490 | | | $ | 486 | | | | 0.7 | % | | 0.7 | % | — | % | — | % | | — | % | 0.7 | % |
Operating income | Operating income | $ | 150 | | | $ | 128 | | | | 17.7 | % | | 16.5 | % | — | % | 2.2 | % | | (1.0) | % | 17.7 | % | Operating income | $ | 167 | | | $ | 142 | | | | 16.8 | % | | 16.6 | % | — | % | (0.2) | % | | 0.4 | % | 16.8 | % |
Operating margin % | Operating margin % | 31.5 | % | | 30.0 | % | | | 150 bps | | 70 bps | — | | 60 bps | | 20 bps | 150 bps | Operating margin % | 33.9 | % | | 29.3 | % | | | 460 bps | | 460 bps | — | | — | | | — | | 460 bps |
| | | Nine Months Ended | | | | | Six Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 1,413 | | | $ | 1,228 | | | | 15.1 | % | | 16.3 | % | — | % | — | % | | (1.2) | % | 15.1 | % | Operating revenue | $ | 983 | | | $ | 936 | | | | 5.0 | % | | 5.3 | % | — | % | — | % | | (0.3) | % | 5.0 | % |
Operating income | Operating income | $ | 431 | | | $ | 364 | | | | 18.6 | % | | 18.8 | % | — | % | 0.5 | % | | (0.7) | % | 18.6 | % | Operating income | $ | 324 | | | $ | 281 | | | | 15.1 | % | | 15.1 | % | — | % | (0.2) | % | | 0.2 | % | 15.1 | % |
Operating margin % | Operating margin % | 30.5 | % | | 29.6 | % | | | 90 bps | | 60 bps | — | | 20 bps | | 10 bps | 90 bps | Operating margin % | 32.9 | % | | 30.0 | % | | | 290 bps | | 290 bps | — | | — | | | — | | 290 bps |
•Operating revenue grew in the thirdsecond quarter and year-to-date periods primarily due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation.revenue.
•Organic revenue increased 13.9% and 16.3%0.7% in the thirdsecond quarter, and year-to-date periods, respectively, drivenwhich had a challenging comparable in the prior year second quarter of 22.1% growth. In the second quarter, consumables grew 2.2%, partially offset by growtha decline in equipment of 13.4%0.2%. In the year-to-date period, organic revenue increased 5.3%, which had a challenging comparable in the prior year of 17.5% growth. Consumables grew 6.3% and 15.9%equipment increased 4.6% in the year-to-date period. In both the second quarter and consumables of 14.7% and 16.9%, respectively. In bothyear-to-date periods, organic revenue grew primarily due to higher demand in the industrial end markets related to heavy equipment for the agriculture, infrastructure and oil and gas and in the commercial end markets related to construction, light fabrication, and farm and ranch customers.markets.
◦North American organic revenue increased 14.4%was essentially flat in the thirdsecond quarter due toas a decline in the commercial end markets of 8.6% was offset by growth in the industrial end markets of 32.1%5.2%. In the year-to-date period, organic revenue grew 4.7% driven by growth in the industrial end markets of 10.9%, partially offset by a decline in the commercial end market of 9.7%. In the year-to-date period, organic revenue grew 17.1% due to growth in the industrial and commercial end markets of 25.6% and 5.5%, respectively.5.4%.
◦International organic revenue grew 11.5% and 12.1%4.8% in the thirdsecond quarter and 8.5% in the year-to-date periods, respectively,period primarily due to higher equipment demand in the oil and gas end markets.
•Operating margin was 31.5%33.9% in the thirdsecond quarter. The increase of 150460 basis points was primarily due to positive operating leveragefavorable price/cost of 230440 basis points and benefits from the Company's enterprise initiatives, and lower restructuring expenses, partially offset by higher operating expenses, including employee-related expenses, and unfavorable price/cost of 90 basis points.expenses.
•In the year-to-date period, operating margin of 30.5%32.9% increased 90290 basis points primarily driven by positive operating leveragefavorable price/cost of 230370 basis points, benefits from the Company's enterprise initiatives and lower restructuring expenses,positive operating leverage of 80 basis points, partially offset by higher operating expenses, including employee-related expenses and freight costs, and unfavorable price/cost of 110 basis points.expenses.
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 constructionMRO 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 thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | | | Three Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 473 | | | $ | 456 | | | | 3.5 | % | | 8.4 | % | — | % | — | % | | (4.9) | % | 3.5 | % | Operating revenue | $ | 459 | | | $ | 496 | | | | (7.6) | % | | (0.5) | % | (5.7) | % | — | % | | (1.4) | % | (7.6) | % |
Operating income | Operating income | $ | 119 | | | $ | 111 | | | | 8.2 | % | | 14.8 | % | — | % | (1.1) | % | | (5.5) | % | 8.2 | % | Operating income | $ | 119 | | | $ | 125 | | | | (4.4) | % | | 5.0 | % | (4.6) | % | (2.8) | % | | (2.0) | % | (4.4) | % |
Operating margin % | Operating margin % | 25.3 | % | | 24.2 | % | | | 110 bps | | 150 bps | — | | (30) bps | | (10) bps | 110 bps | Operating margin % | 25.9 | % | | 25.1 | % | | | 80 bps | | 140 bps | 30 bps | (70) bps | | (20) bps | 80 bps |
| | | Nine Months Ended | | | | | Six Months Ended | | | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 1,450 | | | $ | 1,357 | | | | 6.8 | % | | 10.4 | % | — | % | — | % | | (3.6) | % | 6.8 | % | Operating revenue | $ | 906 | | | $ | 977 | | | | (7.3) | % | | (0.3) | % | (5.1) | % | — | % | | (1.9) | % | (7.3) | % |
Operating income | Operating income | $ | 362 | | | $ | 350 | | | | 3.5 | % | | 7.5 | % | — | % | (0.1) | % | | (3.9) | % | 3.5 | % | Operating income | $ | 228 | | | $ | 243 | | | | (6.0) | % | | 2.4 | % | (3.8) | % | (2.0) | % | | (2.6) | % | (6.0) | % |
Operating margin % | Operating margin % | 25.0 | % | | 25.8 | % | | | (80) bps | | (70) bps | — | | — | | | (10) bps | (80) bps | Operating margin % | 25.2 | % | | 24.8 | % | | | 40 bps | | 70 bps | 30 bps | (40) bps | | (20) bps | 40 bps |
•Operating revenue grewdeclined in the thirdsecond quarter and year-to-date periods due to higher organic revenue, partially offset bythe impact of a divestiture in the fourth quarter of 2022, the unfavorable effect of foreign currency translation.translation and lower organic revenue.
•Operating revenue in the second quarter and year-to-date periods of 2022 included approximately $28 million and $50 million, respectively, related to the business divested in the fourth quarter of 2022.
•Organic revenue grew 8.4%decreased 0.5% and 10.4%0.3% in the thirdsecond quarter and year-to-date periods, respectively, withas a decline in Europe was partially offset by growth across all major regions.in North America and Asia Pacific. Product line simplification activities reduced organic revenue by 4090 basis points in the thirdsecond quarter and 3080 basis points in the year-to-date period.
◦Organic revenue for the automotive aftermarket businesses increased 1.6%1.4% in the thirdsecond quarter primarily due to growthan increase in the car care and tire repair businesses in North America, partially offset by a decline in the body repair and engine repair businesses in North America andAmerica. In the year-to-date period, organic revenue was essentially flat as growth in the North America engine repair and European tire repair business, partiallyand additives businesses was offset by a decline in the tire repair and car care businesses in North America and the European additives businesses. In the year-to-date period, organic revenue increased 7.1% with growth in the body repair, car care engine repair and tire repair businesses.
◦Organic revenue for the fluids businesses declined 1.2% in the second quarter and was essentially flat in the year-to-date period driven by lower demand in North America primarily due to a decrease in the health and hygiene end markets, partially offset by growth in the European additives businesses.industrial maintenance, repair and operations end market.
◦Organic revenue for the polymers businesses increased 21.1%decreased 2.5% and 0.9% in the third quarter and 19.2% in the year-to-date period with growth across all major regions, primarily in the heavy industrial and wind end markets.
◦Organic revenue for the fluids businesses grew 4.8% and 4.5% in the thirdsecond quarter and year-to-date periods, respectively, primarily due to an increasea decline in the hygiene and industrial maintenance, repair and operations end marketsEurope, partially offset by growth in North America and Europe.Asia Pacific. Demand in Europe was negatively impacted by the wind and industrial end markets.
•Operating margin was 25.3%25.9% in the thirdsecond quarter. The increase of 11080 basis points was primarily due to positive operating leveragefavorable price/cost of 150200 basis points, benefits from the Company's enterprise initiatives, the favorable impact of a divestiture in the fourth quarter of 2022 and favorable price/cost of 70 basis points,lower intangible asset amortization expense, partially offset by higher operating expenses, including employee-related expenses, and freight costs, and higher restructuring expenses.
•In the year-to-date period, operating margin of 25.0% decreased 8025.2% increased 40 basis points primarily driven by favorable price/cost of 170 basis points, benefits from the Company's enterprise initiatives, the favorable impact of a divestiture in the fourth quarter of 2022 and lower intangible asset amortization expense, partially offset by higher operating expenses, including employee-related expenses, and freight costs, and unfavorable price/cost of 100 basis points, partially offset by positive operating leverage of 180 basis points and benefits from the Company's enterprise initiatives.higher restructuring expenses.
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 thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | Three Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 527 | | | $ | 478 | | | | 10.2 | % | | 17.1 | % | — | % | — | % | (6.9) | % | 10.2 | % | Operating revenue | $ | 526 | | | $ | 565 | | | | (6.8) | % | | (5.7) | % | — | % | — | % | (1.1) | % | (6.8) | % |
Operating income | Operating income | $ | 136 | | | $ | 133 | | | | 1.9 | % | | 8.1 | % | — | % | (0.8) | % | (5.4) | % | 1.9 | % | Operating income | $ | 154 | | | $ | 156 | | | | (1.2) | % | | 1.9 | % | — | % | (2.1) | % | (1.0) | % | (1.2) | % |
Operating margin % | Operating margin % | 25.7 | % | | 27.8 | % | | | (210) bps | | (210) bps | — | | (20) bps | 20 bps | (210) bps | Operating margin % | 29.3 | % | | 27.6 | % | | | 170 bps | | 230 bps | — | | (60) bps | — | | 170 bps |
| | | Nine Months Ended | | | Six Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 1,643 | | | $ | 1,465 | | | | 12.1 | % | | 17.7 | % | — | % | — | % | (5.6) | % | 12.1 | % | Operating revenue | $ | 1,052 | | | $ | 1,116 | | | | (5.7) | % | | (3.6) | % | — | % | — | % | (2.1) | % | (5.7) | % |
Operating income | Operating income | $ | 428 | | | $ | 406 | | | | 5.4 | % | | 10.4 | % | — | % | (0.1) | % | (4.9) | % | 5.4 | % | Operating income | $ | 299 | | | $ | 292 | | | | 2.4 | % | | 5.8 | % | — | % | (1.6) | % | (1.8) | % | 2.4 | % |
Operating margin % | Operating margin % | 26.0 | % | | 27.7 | % | | | (170) bps | | (170) bps | — | | — | | — | | (170) bps | Operating margin % | 28.4 | % | | 26.2 | % | | | 220 bps | | 250 bps | — | | (40) bps | 10 bps | 220 bps |
•Operating revenue grewdeclined in the thirdsecond quarter and year-to-date periods due to higherlower organic revenue partially offset byand the unfavorable effect of foreign currency translation.
•Organic revenue increased 17.1%decreased 5.7% and 3.6% in the thirdsecond quarter and year-to-date periods, respectively, primarily due to growth in North America and Asia Pacific, partially offset by a decline in Europe. In the year-to-date period, organic revenue grew 17.7% with growth across all major regions.Europe and North America. Product line simplification activities reduced organic revenue by 5030 basis points in the thirdsecond quarter and 40 basis points in the year-to-date periods.period.
◦North American organic revenue grew 34.8%declined 2.6% in the thirdsecond quarter driven by higherand 1.1% in the year-to-date period due to lower demand in the residential and commercial end markets. Organic revenue in the United States residential end market declined 1.9% and 1.2% in the second quarter and year-to-date periods, respectively, and the commercial end markets of 42.1%market decreased 5.2% in the second quarter and 17.4%, respectively. In0.7% in the year-to-date period, organicperiod. Organic revenue increased 31.9% driven by higher demandin Canada declined 9.2% and 3.9% in the United States residentialsecond quarter and commercial end markets of 37.2% and 17.5%,year-to-date periods, respectively.
◦International organic revenue increased 2.7% and 6.6%decreased 8.9% in the thirdsecond quarter and 6.0% in the year-to-date periods, respectively.period. European organic revenue declined 0.9%13.5% in the thirdsecond quarter and 10.9% in the year-to-date period primarily due to lower demand in the commercial and residential end markets. In the year-to-date period, European organic revenue increased 7.0% primarily driven by higher demand in the commercial and residential end markets in the first half of 2022. Asia Pacific organic revenue increased 6.9%declined 3.1% in the thirdsecond quarter and 6.2% in the year-to-date period primarily due to higherlower demand in the Australia and New Zealand residential end markets. In the year-to-date period, Asia Pacific organic revenue grew 0.5% driven by higher demand in China, partially offset by a decline in the Australia and New Zealand residential end markets primarily in the second quarter.
•Operating margin was 25.7%29.3% in the thirdsecond quarter. The decreaseincrease of 210170 basis points was primarily driven by unfavorabledue to favorable price/cost of 150 basis points and higher operating expenses, including employee-related expenses, partially offset by positive operating leverage of 260440 basis points and benefits from the Company's enterprise initiatives.initiatives, partially offset by higher operating expenses, including employee-related expenses, unfavorable operating leverage of 90 basis points and higher restructuring expenses.
•In the year-to-date period, operating margin of 26.0% decreased 17028.4% increased 220 basis points primarily driven by unfavorablefavorable price/cost of 390 basis points and higher operating expenses, including employee-related expenses, partially offset by positive operating leverage of 260470 basis points and benefits from the Company's enterprise initiatives.initiatives, partially offset by higher operating expenses, including employee-related expenses, unfavorable operating leverage of 60 basis points and higher restructuring expenses.
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.
The results of operations for the Specialty Products segment for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | | Three Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 438 | | | $ | 459 | | | | (4.7) | % | | (0.3) | % | — | % | — | % | (4.4) | % | (4.7) | % | Operating revenue | $ | 423 | | | $ | 447 | | | | (5.4) | % | | (3.6) | % | (2.3) | % | — | % | 0.5 | % | (5.4) | % |
Operating income | Operating income | $ | 121 | | | $ | 126 | | | | (3.4) | % | | (1.5) | % | — | % | 1.9 | % | (3.8) | % | (3.4) | % | Operating income | $ | 109 | | | $ | 121 | | | | (8.6) | % | | (5.5) | % | (0.1) | % | (3.6) | % | 0.6 | % | (8.6) | % |
Operating margin % | Operating margin % | 27.7 | % | | 27.3 | % | | | 40 bps | | (30) bps | — | | 50 bps | 20 bps | 40 bps | Operating margin % | 26.0 | % | | 26.9 | % | | | (90) bps | | (60) bps | 60 bps | (90) bps | — | | (90) bps |
| | | Nine Months Ended | | | Six Months Ended | |
Dollars in millions | Dollars in millions | September 30, | | Components of Increase (Decrease) | Dollars in millions | June 30, | | Components of Increase (Decrease) |
| | 2022 | | 2021 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total | | 2023 | | 2022 | | | Inc (Dec) | | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total |
Operating revenue | Operating revenue | $ | 1,337 | | | $ | 1,387 | | | | (3.6) | % | | (0.5) | % | — | % | — | % | (3.1) | % | (3.6) | % | Operating revenue | $ | 846 | | | $ | 899 | | | | (5.9) | % | | (4.3) | % | (1.1) | % | — | % | (0.5) | % | (5.9) | % |
Operating income | Operating income | $ | 362 | | | $ | 380 | | | | (4.7) | % | | (2.6) | % | — | % | 0.5 | % | (2.6) | % | (4.7) | % | Operating income | $ | 218 | | | $ | 241 | | | | (9.2) | % | | (7.3) | % | (0.1) | % | (1.8) | % | — | % | (9.2) | % |
Operating margin % | Operating margin % | 27.1 | % | | 27.4 | % | | | (30) bps | | (60) bps | — | | 20 bps | 10 bps | (30) bps | Operating margin % | 25.8 | % | | 26.8 | % | | | (100) bps | | (90) bps | 30 bps | (40) bps | — | | (100) bps |
•Operating revenue declined in the thirdsecond quarter and year-to-date periods primarily due to the unfavorable effect of foreign currency translation and lower organic revenue.revenue and the impact of a divestiture in the second quarter of 2023.
•The Company divested a business on April 3, 2023, and there was no operating revenue for this business in the second quarter and $9 million in the year-to-date period of 2023. In the second quarter and year-to-date periods of 2022, operating revenue included approximately $10 million and $19 million, respectively, related to the divested business.
•Organic revenue decreased 0.3%3.6% and 4.3% in the thirdsecond quarter as equipmentand year-to-date periods, respectively. Consumable sales declined 10.8%8.7% in the second quarter and consumable sales grew 2.3%. In6.6% in the year-to-date period organic revenue declined 0.5% as equipment sales declined 15.9% and consumabledue to lower demand in all major regions. Equipment sales increased 3.5%. Additionally, product23.4% and 7.3% in the second quarter and year-to-date periods, respectively, primarily driven by higher demand in Europe. Product line simplification activities reduced organic revenue by 370 basis points and 170100 basis points in the thirdsecond quarter and 220 basis points in the year-to-date periods, respectively.period.
◦North American organic revenue decreased 1.8%6.7% and 5.5% in the thirdsecond quarter and year-to-date periods, respectively, primarily driven by a decline in the appliance, consumer packaging, strength films, specialty films and ground supportdecorating equipment businesses, partially offset by growth in the foils and thermal films and specialty films businesses. In the year-to-date period, organic revenue increased 3.2% primarily due to growth in the consumer packaging, foils and thermal films, specialty films and filter medical businesses, partially offset by a decline in the appliance, ground support equipment and strength filmfilter medical businesses.
◦International organic revenue increased 3.7%3.8% in the thirdsecond quarter primarily due to growth in Europe in the ground support equipment specialty films,and consumer packaging and filter medical businesses, partially offset by a decline in Asia Pacific in the appliance and strength film businesses. In the year-to-date period, organic revenue declined 6.6%1.2% primarily due to a declinedecrease in Europe and Asia Pacific in the consumer packaging, appliance,strength films, graphics and ground supportdecorating equipment businesses, partially offset by growth in the filter medical, specialty films, and foils and thermal films businesses. Additionally, Asia Pacific organic revenueground support equipment business in the year-to-date period decreased primarily due to a decline in the strength film, appliance, foils and thermal films, and graphics businesses.Europe.
•Operating margin was 27.7%26.0% in the thirdsecond quarter. The increasedecrease of 4090 basis points was primarily due to unfavorable operating leverage of 80 basis points, higher employee-related expenses, product mix and higher restructuring expenses, partially offset by benefits from the Company's enterprise initiatives, lower restructuring expensesthe favorable impact of a divestiture in the second quarter of 2023 and favorable price/cost of 30100 basis points, partially offset by higher operating expenses, including employee-related expenses.points.
•In the year-to-date period, operating margin of 27.1%25.8% decreased 30100 basis points primarily driven by higherunfavorable operating expenses, includingleverage of 90 basis points, higher employee-related expenses, product mix and unfavorable price/cost of 10 basis points,higher restructuring expenses, partially offset by benefits from the Company's enterprise initiatives, the favorable impact of a divestiture in the second quarter of 2023 and lower restructuring expenses.favorable price/cost of 100 basis points.
OTHER FINANCIAL HIGHLIGHTS
•Interest expense in the third quarter of 2022 increased to $52was $69 million versus $49and $129 million in the thirdsecond quarter and year-to-date periods of 20212023, respectively, versus $47 million and $95 million in 2022, respectively. Interest expense in 2023 was higher than 2022 primarily due to higher average outstanding commercial paper partially offset by the repayment of notes due May 20, 2022. Interest expense in the year-to-date period of 2022 was $147 million versus $153 million in 2021 primarily due to the repayment of notes due September 15, 2021 and May 20, 2022, partially offset by higher average outstanding commercial paper.interest rates. Refer to Note 10.7. Debt in Item 1. Financial Statements for further information regarding the repayment of notes.Company's outstanding debt.
•Other income (expense) was income of $26$20 million in the thirdsecond quarter of 2022, an increase of $16 million compared to the third quarter of 2021 primarily due to higher foreign currency translation gains, other net periodic benefit income2023 and interest income in 2022. Other income (expense) was income of $64$30 million in the year-to-date period, of
2022, an increasea decrease of $20$4 million compared to 2021the second quarter of 2022 and a decrease of $8 million in the year-to-date period primarily due to foreign currency translation gainslosses in 2022 compared to2023 versus foreign currency translation losses in 2021, and higher other net periodic benefit income and interest incomegains in 2022, partially offset by lower investment income in 2022.higher interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of SeptemberJune 30, 2022,2023, the Company had $774$922 million of cash and equivalents on hand and no outstanding borrowings under its $2.53.0 billion revolving credit facility. The Company also has maintained strong access to public debt markets. Management believes that these sources are sufficient to service debt and to finance the Company's capital allocation priorities, which include:
•internal investments to support organic growth and sustain core businesses;
•payment of an attractive dividend to shareholders; and
•external investments in selective strategic acquisitions that support the Company's organic growth focus such as the acquisition of the MTS Test & Simulation business, and an active share repurchase program. Refer to Note 3. MTS Test & Simulation Acquisition in Item 1. Financial Statements for further information regarding this acquisition.
The Company believes that, based on its operating revenue, operating margin, free cash flow, and credit ratings, it could readily obtain additional financing, if necessary.
Cash Flow
The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluating the Company's financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. Summarized cash flow information for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 was as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
In millions | In millions | 2022 | | 2021 | | 2022 | | 2021 | In millions | 2023 | | 2022 | | 2023 | | 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 713 | | | $ | 619 | | | $ | 1,537 | | | $ | 1,783 | | Net cash provided by operating activities | $ | 790 | | | $ | 501 | | | $ | 1,518 | | | $ | 824 | |
Additions to plant and equipment | Additions to plant and equipment | (101) | | | (71) | | | (256) | | | (217) | | Additions to plant and equipment | (85) | | | (81) | | | (198) | | | (155) | |
Free cash flow | Free cash flow | $ | 612 | | | $ | 548 | | | $ | 1,281 | | | $ | 1,566 | | Free cash flow | $ | 705 | | | $ | 420 | | | $ | 1,320 | | | $ | 669 | |
| Cash dividends paid | Cash dividends paid | $ | (377) | | | $ | (359) | | | $ | (1,139) | | | $ | (1,080) | | Cash dividends paid | $ | (398) | | | $ | (380) | | | $ | (798) | | | $ | (762) | |
Repurchases of common stock | Repurchases of common stock | (500) | | | (250) | | | (1,250) | | | (750) | | Repurchases of common stock | (375) | | | (375) | | | (750) | | | (750) | |
Acquisition of businesses (excluding cash and equivalents) | Acquisition of businesses (excluding cash and equivalents) | — | | | — | | | (2) | | | — | | Acquisition of businesses (excluding cash and equivalents) | — | | | — | | | — | | | (2) | |
Net proceeds from (repayments of) debt with original maturities of three months or less | Net proceeds from (repayments of) debt with original maturities of three months or less | 443 | | | 1 | | | 1,078 | | | 1 | | Net proceeds from (repayments of) debt with original maturities of three months or less | (1,051) | | | 71 | | | (342) | | | 635 | |
Proceeds from debt with original maturities of more than three months | Proceeds from debt with original maturities of more than three months | — | | | — | | | 454 | | | — | | Proceeds from debt with original maturities of more than three months | 1,425 | | | 97 | | | 1,425 | | | 454 | |
Repayments of debt with original maturities of more than three months | Repayments of debt with original maturities of more than three months | (247) | | | — | | | (1,110) | | | (350) | | Repayments of debt with original maturities of more than three months | (540) | | | (207) | | | (678) | | | (863) | |
Other, net | Other, net | 10 | | | 9 | | | 23 | | | 73 | | Other, net | 23 | | | 7 | | | 44 | | | 13 | |
Effect of exchange rate changes on cash and equivalents | Effect of exchange rate changes on cash and equivalents | (46) | | | (20) | | | (88) | | | (37) | | Effect of exchange rate changes on cash and equivalents | (10) | | | (50) | | | (7) | | | (42) | |
Net increase (decrease) in cash and equivalents | Net increase (decrease) in cash and equivalents | $ | (105) | | | $ | (71) | | | $ | (753) | | | $ | (577) | | Net increase (decrease) in cash and equivalents | $ | (221) | | | $ | (417) | | | $ | 214 | | | $ | (648) | |
Free cash flow decreasedwas lower in the second quarter and year-to-date periodperiods of 2022 due to higher working capital investments to support revenue growth, including increased inventory levels to help mitigate supply chain risk and sustain customer service levels.
Stock Repurchase ProgramPrograms
On August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program").
Under the 2018 Program, the Company repurchased approximately 6.7 million shares of its common stock at an average price of $158.11 per share during 2019, approximately 4.2 million shares of its common stock at an average price of $167.69 per share during 2020, approximately 1.24.4 million shares of its common stock at an average price of $211.50 in the first quarter of 2021, approximately 1.1 million shares of its common stock at an average price of $233.29 in the second quarter of 2021, approximately 1.0 million shares of its common stock at an average price of $229.03 in the third quarter of 2021, approximately 1.1 million shares of its common stock at an average price of $237.11 in the fourth quarter of$227.29 during 2021 and approximately 1.2 million shares of its common stock at an average price of $216.62 in the first quarter of 2022. The 2018 Program was completed in the first quarter of 2022.
On May 7, 2021, the Company's Board of Directors authorized a new stock repurchase program which provides for the repurchase of up to an additional $3.0 billion of the Company's common stock over an open-ended period of time (the "2021 Program"). Under the 2021 Program, the Company repurchased approximately 0.6 million shares of its common stock at an average price of $209.29 in the first quarter of 2022, approximately 1.8 million shares of its common stock at an average price of $205.03 in the second quarter of 2022, and approximately 2.4 million shares of its common stock at an average price of $204.54 in the third quarter of 2022.2022, approximately 2.3 million shares of its common stock at an average price of $221.59 in the fourth quarter of 2022, approximately 1.6 million shares of its common stock at an average price of $233.62 in the first quarter of 2023, and approximately 1.6 million shares of its common stock at an average price of $229.30 in the second quarter of 2023. As of SeptemberJune 30, 2022,2023, there were $2.0 billionapproximately $740 million of authorized repurchases remaining under the 2021 Program.
After-tax Return on Average Invested Capital
The Company uses after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its operations' use of invested capital to generate profits. After-tax ROIC is not defined under U.S. generally accepted accounting principles ("GAAP"). After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company's ability to generate returns from cash invested in its operations and may be different than the method used by other companies to calculate After-tax ROIC. The Company defines After-tax ROIC as operating income after taxes divided by average invested capital, which is annualized when presented in interim periods. Operating income after taxes is a non-GAAP measure consisting of net income before interest expense and other income (expense), on an after-tax basis, which are excluded as they do not represent returns generated by the Company's operations. For comparability, the Company also excluded the discrete tax benefit of $20 million in the second quarter of 2023 from net income and the effective tax rate for the three and six months ended June 30, 2023. Additionally, for comparability, the Company excluded the discrete tax benefit of $51 million in the second quarter of 2022 from net income and the effective tax rate for the ninethree and six months ended SeptemberJune 30, 2022. Additionally, for comparability, the Company excluded the discrete tax benefit of $21 million in the third quarter of 2021 and the discrete tax benefit of $112 million in the second quarter of 2021 from net income and the effective tax rate for the three and nine month periods ended September 30, 2021. Total invested capital represents the net assets of the Company, other than cash and equivalents and outstanding debt which do not represent capital investment in the Company's operations. The most comparable GAAP measure to operating income after taxes is net income. Net income to average invested capital and After-tax ROIC for the thirdsecond quarter and year-to-date periods of 20222023 and 20212022 were as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
Dollars in millions | Dollars in millions | 2022 | | 2021 | | 2022 | | 2021 | Dollars in millions | 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | | | | |
Net Income | Net Income | $ | 727 | | | $ | 639 | | | $ | 2,127 | | | $ | 2,085 | | Net Income | $ | 754 | | | $ | 738 | | | $ | 1,468 | | | $ | 1,400 | |
Discrete tax benefit related to the second quarter 2023 | | Discrete tax benefit related to the second quarter 2023 | (20) | | | — | | | (20) | | | — | |
Discrete tax benefit related to the second quarter 2022 | Discrete tax benefit related to the second quarter 2022 | — | | | — | | | (51) | | | — | | Discrete tax benefit related to the second quarter 2022 | — | | | (51) | | | — | | | (51) | |
Discrete tax benefit related to the third quarter 2021 | — | | | (21) | | | — | | | (21) | | |
Discrete tax benefit related to the second quarter 2021 | — | | | — | | | — | | | (112) | | |
Interest expense, net of tax (1) | Interest expense, net of tax (1) | 39 | | | 38 | | | 112 | | | 118 | | Interest expense, net of tax (1) | 53 | | | 36 | | | 99 | | | 73 | |
Other (income) expense, net of tax (1) | Other (income) expense, net of tax (1) | (20) | | | (9) | | | (49) | | | (34) | | Other (income) expense, net of tax (1) | (15) | | | (18) | | | (23) | | | (29) | |
Operating income after taxes | Operating income after taxes | $ | 746 | | | $ | 647 | | | $ | 2,139 | | | $ | 2,036 | | Operating income after taxes | $ | 772 | | | $ | 705 | | | $ | 1,524 | | | $ | 1,393 | |
| Denominator: | Denominator: | | Denominator: | |
Invested capital: | Invested capital: | | Invested capital: | |
Cash and equivalents | Cash and equivalents | $ | 774 | | | $ | 1,987 | | | $ | 774 | | | $ | 1,987 | | Cash and equivalents | $ | 922 | | | $ | 879 | | | $ | 922 | | | $ | 879 | |
Trade receivables | Trade receivables | 3,031 | | | 2,729 | | | 3,031 | | | 2,729 | | Trade receivables | 3,216 | | | 3,109 | | | 3,216 | | | 3,109 | |
Inventories | Inventories | 2,007 | | | 1,524 | | | 2,007 | | | 1,524 | | Inventories | 1,921 | | | 1,975 | | | 1,921 | | | 1,975 | |
Net assets held for sale | Net assets held for sale | 75 | | | — | | | 75 | | | — | | Net assets held for sale | — | | | 73 | | | — | | | 73 | |
Net plant and equipment | Net plant and equipment | 1,705 | | | 1,744 | | | 1,705 | | | 1,744 | | Net plant and equipment | 1,901 | | | 1,736 | | | 1,901 | | | 1,736 | |
Goodwill and intangible assets | Goodwill and intangible assets | 5,557 | | | 5,293 | | | 5,557 | | | 5,293 | | Goodwill and intangible assets | 5,595 | | | 5,702 | | | 5,595 | | | 5,702 | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | (2,177) | | | (1,964) | | | (2,177) | | | (1,964) | | Accounts payable and accrued expenses | (2,215) | | | (2,241) | | | (2,215) | | | (2,241) | |
Debt | Debt | (7,628) | | | (7,551) | | | (7,628) | | | (7,551) | | Debt | (8,222) | | | (7,640) | | | (8,222) | | | (7,640) | |
Other, net | Other, net | (330) | | | (269) | | | (330) | | | (269) | | Other, net | (24) | | | (214) | | | (24) | | | (214) | |
Total net assets (stockholders' equity) | Total net assets (stockholders' equity) | 3,014 | | | 3,493 | | | 3,014 | | | 3,493 | | Total net assets (stockholders' equity) | 3,094 | | | 3,379 | | | 3,094 | | | 3,379 | |
Cash and equivalents | Cash and equivalents | (774) | | | (1,987) | | | (774) | | | (1,987) | | Cash and equivalents | (922) | | | (879) | | | (922) | | | (879) | |
Debt | Debt | 7,628 | | | 7,551 | | | 7,628 | | | 7,551 | | Debt | 8,222 | | | 7,640 | | | 8,222 | | | 7,640 | |
Total invested capital | Total invested capital | $ | 9,868 | | | $ | 9,057 | | | $ | 9,868 | | | $ | 9,057 | | Total invested capital | $ | 10,394 | | | $ | 10,140 | | | $ | 10,394 | | | $ | 10,140 | |
| Average invested capital (2) | Average invested capital (2) | $ | 10,004 | | | $ | 9,084 | | | $ | 9,985 | | | $ | 8,912 | | Average invested capital (2) | $ | 10,366 | | | $ | 10,143 | | | $ | 10,292 | | | $ | 10,024 | |
| Net income to average invested capital (3) | Net income to average invested capital (3) | 29.1 | % | | 28.1 | % | | 28.4 | % | | 31.2 | % | Net income to average invested capital (3) | 29.1 | % | | 29.1 | % | | 28.5 | % | | 27.9 | % |
After-tax return on average invested capital (3) | After-tax return on average invested capital (3) | 29.9 | % | | 28.5 | % | | 28.6 | % | | 30.5 | % | After-tax return on average invested capital (3) | 29.8 | % | | 27.8 | % | | 29.6 | % | | 27.8 | % |
(1) Effective tax rate used for interest expense and other (income) expense for the three months ended SeptemberJune 30, 2023 and 2022 was 23.6% and 2021 was 23.9% and 23.4%, respectively. Effective tax rate used for interest expense and other (income) expense for the ninesix months ended SeptemberJune 30, 2023 and 2022 was 23.1% and 2021 was 23.7% and 22.9%23.5%, respectively.
(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.
(3) Returns for the three months ended SeptemberJune 30, 20222023 and 20212022 were converted to an annual rate by multiplying the calculated return by 4. Returns for the ninesix months ended SeptemberJune 30, 20222023 and 20212022 were converted to an annual rate by dividingmultiplying the calculated return by 3 and multiplying it by 4.2.
A reconciliation of the tax rate for the ninethree and six months ended SeptemberJune 30, 2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2023 | | June 30, 2023 |
Dollars in millions | Income Taxes | | Tax Rate | | Income Taxes | | Tax Rate |
As reported | $ | 207 | | | 21.4 | % | | $ | 415 | | | 22.0 | % |
Discrete tax benefit related to the second quarter 2023 | 20 | | | 2.2 | % | | 20 | | | 1.1 | % |
As adjusted | $ | 227 | | | 23.6 | % | | $ | 435 | | | 23.1 | % |
A reconciliation of the tax rate for the three and six months ended June 30, 2022, excluding the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit, is as follows:
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2022 |
Dollars in millions | Income Taxes | | Tax Rate |
As reported | $ | 594 | | | 21.8 | % |
Discrete tax benefit related to the second quarter 2022 | 51 | | | 1.9 | % |
As adjusted | $ | 645 | | | 23.7 | % |
A reconciliation of the tax rate for the three and nine month periods ended September 30, 2021, excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | | September 30, 2021 | | June 30, 2022 | | June 30, 2022 |
Dollars in millions | Dollars in millions | Income Taxes | | Tax Rate | | Income Taxes | | Tax Rate | Dollars in millions | Income Taxes | | Tax Rate | | Income Taxes | | Tax Rate |
As reported | As reported | $ | 167 | | | 20.8 | % | | $ | 449 | | | 17.7 | % | As reported | $ | 165 | | | 18.3 | % | | $ | 364 | | | 20.7 | % |
Discrete tax benefit related to the third quarter 2021 | 21 | | | 2.6 | % | | 21 | | | 0.8 | % | |
Discrete tax benefit related to the second quarter 2021 | — | | | — | % | | 112 | | | 4.4 | % | |
Discrete tax benefit related to the second quarter 2022 | | Discrete tax benefit related to the second quarter 2022 | 51 | | | 5.6 | % | | 51 | | | 2.8 | % |
As adjusted | As adjusted | $ | 188 | | | 23.4 | % | | $ | 582 | | | 22.9 | % | As adjusted | $ | 216 | | | 23.9 | % | | $ | 415 | | | 23.5 | % |
Refer to Note 6.4. Income Taxes in Item 1. Financial Statements for further information regarding the second quarter 20222023 and second and third quarter 20212022 discrete tax benefits.
Working Capital
Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of SeptemberJune 30, 20222023 and December 31, 20212022 is summarized as follows:
| In millions | In millions | September 30, 2022 | | December 31, 2021 | | Increase/ (Decrease) | In millions | June 30, 2023 | | December 31, 2022 | | Increase/ (Decrease) |
Current assets: | Current assets: | | | | | | Current assets: | | | | | |
Cash and equivalents | Cash and equivalents | $ | 774 | | | $ | 1,527 | | | $ | (753) | | Cash and equivalents | $ | 922 | | | $ | 708 | | | $ | 214 | |
Trade receivables | Trade receivables | 3,031 | | | 2,840 | | | 191 | | Trade receivables | 3,216 | | | 3,171 | | | 45 | |
Inventories | Inventories | 2,007 | | | 1,694 | | | 313 | | Inventories | 1,921 | | | 2,054 | | | (133) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 281 | | | 313 | | | (32) | | Prepaid expenses and other current assets | 345 | | | 329 | | | 16 | |
Assets held for sale | Assets held for sale | 103 | | | — | | | 103 | | Assets held for sale | — | | | 8 | | | (8) | |
Total current assets | Total current assets | 6,196 | | | 6,374 | | | (178) | | Total current assets | 6,404 | | | 6,270 | | | 134 | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Short-term debt | Short-term debt | 1,688 | | | 778 | | | 910 | | Short-term debt | 1,275 | | | 1,590 | | | (315) | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | 2,177 | | | 2,233 | | | (56) | | Accounts payable and accrued expenses | 2,215 | | | 2,322 | | | (107) | |
Liabilities held for sale | Liabilities held for sale | 28 | | | — | | | 28 | | Liabilities held for sale | — | | | 1 | | | (1) | |
Other | Other | 499 | | | 459 | | | 40 | | Other | 550 | | | 547 | | | 3 | |
Total current liabilities | Total current liabilities | 4,392 | | | 3,470 | | | 922 | | Total current liabilities | 4,040 | | | 4,460 | | | (420) | |
Net working capital | Net working capital | $ | 1,804 | | | $ | 2,904 | | | $ | (1,100) | | Net working capital | $ | 2,364 | | | $ | 1,810 | | | $ | 554 | |
As of SeptemberJune 30, 2022,2023, a significant portion of the Company's cash and equivalents was held by international subsidiaries. Cash and equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S. Cash and equivalents held internationally are typically used for international operating needs or reinvested to fund expansion of existing international businesses. International funds may also be used to fund international acquisitions or, if not considered permanently invested, may be repatriated to the U.S. The Company has accrued for foreign withholding taxes related to foreign held cash and equivalents that are not permanently invested.
In the U.S., the Company utilizes cash flows from operations to fund domestic cash needs and the Company's capital allocation priorities. This includes operating needs of the U.S. businesses, dividend payments, share repurchases, acquisitions, servicing of domestic debt obligations, reinvesting to fund expansion of existing U.S. businesses and general corporate needs. The Company may also use its commercial paper program, which is backedsupported by a long-term credit facility, for short-term liquidity needs. The Company believes cash generated by operations and liquidity provided by the Company's commercial paper program will continue to be sufficient to fund cash requirements in the U.S.
Debt
Total debt as of SeptemberJune 30, 20222023 and December 31, 20212022 was as follows:
| In millions | In millions | September 30, 2022 | | December 31, 2021 | In millions | June 30, 2023 | | December 31, 2022 |
Short-term debt | Short-term debt | $ | 1,688 | | | $ | 778 | | Short-term debt | $ | 1,275 | | | $ | 1,590 | |
Long-term debt | Long-term debt | 5,940 | | | 6,909 | | Long-term debt | 6,947 | | | 6,173 | |
Total debt | Total debt | $ | 7,628 | | | $ | 7,687 | | Total debt | $ | 8,222 | | | $ | 7,763 | |
Short-term debt included commercial paper of $1.2$575 million and $1.1 billion and $210 million as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The weighted-average interest rate on commercial paper as of SeptemberJune 30, 20222023 and December 31, 20212022 was 2.68%5.27% and 0.14%4.35%, respectively. Short-term debt as of SeptemberJune 30, 20222023 also included $490$699 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 reclassified from Long-term debt to Short-term debt inrepaid on the second quarter of 2022. As of December 31, 2021, Short-term debt also includeddue date.
In 2022, the $568 million related to theof 1.75% Euro notes due May 20, 2022 which were redeemed in full at face value on February 22, 2022. Additionally, the $350 million of 3.375% notes due September 15, 2021 were redeemed in full at face value on June 15, 2021.
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 June 30, 2023, the Company had $1.4 billion outstanding under the Euro Credit Agreement with an interest rate of 4.01%, 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 $2.5$3.0 billion revolving credit facility with a termination date of September 27, 2024,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 $2.5 billion revolving credit facility as of SeptemberJune 30, 20222023 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.2022.
Total Debt to EBITDA
The Company uses the ratio of total debt to EBITDA as a measure of its ability to repay its outstanding debt obligations. EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures. The Company believes that total debt to EBITDA is a meaningful metric to investors in evaluating the Company's long term financial liquidity and may be different than the method used by other companies to calculate total debt to EBITDA. The ratio of total debt to EBITDA represents total debt divided by net income before interest expense, other income (expense), income taxes, depreciation, and amortization and impairment of intangible assets on a trailing twelve month basis. Total debt to EBITDA for the trailing twelve month periods ended SeptemberJune 30, 20222023 and December 31, 20212022 was as follows:
| Dollars in millions | Dollars in millions | September 30, 2022 | | December 31, 2021 | Dollars in millions | June 30, 2023 | | December 31, 2022 |
Total debt | Total debt | $ | 7,628 | | | $ | 7,687 | | Total debt | $ | 8,222 | | | $ | 7,763 | |
| Net income | Net income | $ | 2,736 | | | $ | 2,694 | | Net income | $ | 3,102 | | | $ | 3,034 | |
Add: | Add: | | Add: | |
Interest expense | Interest expense | 196 | | | 202 | | Interest expense | 237 | | | 203 | |
Other income | (71) | | | (51) | | |
Other (income) expense | | Other (income) expense | (247) | | | (255) | |
Income taxes | Income taxes | 777 | | | 632 | | Income taxes | 859 | | | 808 | |
Depreciation | Depreciation | 280 | | | 277 | | Depreciation | 274 | | | 276 | |
Amortization and impairment of intangible assets | Amortization and impairment of intangible assets | 135 | | | 133 | | Amortization and impairment of intangible assets | 126 | | | 134 | |
EBITDA | EBITDA | $ | 4,053 | | | $ | 3,887 | | EBITDA | $ | 4,351 | | | $ | 4,200 | |
Total debt to EBITDA ratio | Total debt to EBITDA ratio | 1.9 | | | 2.0 | | Total debt to EBITDA ratio | 1.9 | | | 1.8 | |
Stockholders' Equity
The changes to stockholders' equity during the ninesix months ended September 30, 20222023 were as follows:
| | | | | |
In millions | |
Total stockholders' equity, December 31, 20212022 | $ | 3,6263,089 | |
Net income | 2,1271,468 | |
Repurchases of common stock | (1,250)(750) | |
Dividends declared | (1,160)(794) | |
Foreign currency translation adjustments, net of tax | (394)21 | |
Other, net | 6560 | |
Total stockholders' equity, SeptemberJune 30, 20222023 | $ | 3,0143,094 | |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," "intend," "may," "strategy," "prospects," "estimate," "will," "should," "could," "project," "target," "anticipate," "guidance," "forecast," and other similar words, and may include, without limitation, statements regarding the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the Company's strategy in response thereto on the Company's business, future financial and operating performance, free cash flow, economic and regulatory conditions in various geographic regions including inflation, the impact of foreign currency fluctuations, the timing and amount of benefits from the Company's enterprise strategy initiatives, the timing and amount of dividends and share repurchases, the protection of the Company's intellectual property, the likelihood of future goodwill or intangible asset
impairment charges, the impact of adopting new accounting pronouncements, the adequacy of internally generated funds and credit facilities to service debt and finance the Company's capital allocation priorities, the sufficiency of U.S. generated cash to fund cash requirements in the U.S., the cost and availability of additional financing, the availability of raw materials and energy and the impact of raw material cost inflation, the Company's portion of future benefit payments related to pension and other postretirement benefits, the Company's information technology infrastructure, potential acquisitions and divestitures and the expected performance of acquired businesses and impact of divested businesses, the impact of U.S. and global tax legislation and the estimated timing and amount related to the resolution of tax matters, the cost of compliance with environmental regulations, the impact of failure of the Company's employees to comply with applicable laws and regulations, and the outcome of outstanding legal proceedings. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results include (1) the COVID-19 pandemic and other pandemics or public health crises, related government actions and the Company's strategy in response thereto, (2) weaknesses or downturns in the markets served by the Company, (3) changes or deterioration in international and domestic political and economic conditions, such as the Russian invasion ofRussia and Ukraine conflict or U.S.-China trade relations and the impact of related economic and other sanctions, imposed on Russia, (4) the unfavorable impact of foreign currency fluctuations, (5) the Company's enterprise strategy initiatives may not have the desired impact on organic revenue growth, (6) market conditions and cost and availability of financing to fund the Company's share repurchases, (7) a delay or decrease in the introduction of new products into the Company's product lines, (8) any failure to protect the Company's intellectual property, (9) potential negative impact of impairments to goodwill and other intangible assets on the Company's return on invested capital, financial condition or results of operations, (10) raw material price increases and supply shortages or delays, (11) financial market risks to the Company's obligations under its defined benefit pension plans, (12) negative effects of service interruptions, data corruption, cyber-based attacks, network security breaches of our technology networks and systems or those of our vendors and third-party service providers, or violations of data privacy laws, (13) the potential negative impact of acquisitions on the Company's profitability and returns, (14) potential negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (15) impact of tax legislation and regulatory action and changing tax rates, (16) potential adverse outcomes in legal proceedings or enforcement actions, (17) uncertainties related to environmental regulation and the physical risks of climate change, (18) potential failure of the Company's employees, agents or business partners to comply with anti-corruption,anti-bribery, competition, import/export, trade sanctions, data privacy, human rights and other laws, and (19) increases in inflation or interest rates and the possibility of economic recession. A more detailed description of these risks is contained under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.2022. These risks are not all- inclusiveall-inclusive and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
Any forward-looking statements made by ITW speak only as of the date on which they are made. ITW is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, subsequent events or otherwise.
ITW practices fair disclosure for all interested parties. Investors should be aware that while ITW regularly communicates with securities analysts and other investment professionals, it is against ITW's policy to disclose to them any material non-public information or other confidential commercial information. Investors should not assume that ITW agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.
ITEM 4. Controls and Procedures
The Company's management, with the participation of the Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e)) as of SeptemberJune 30, 2022.2023. Based on such evaluation, the Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of SeptemberJune 30, 2022,2023, the Company's disclosure controls and procedures were effective.
In connection with the evaluation by management, including the Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the Company's internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended SeptemberJune 30, 20222023 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
None. The Company's threshold for disclosing environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.
ITEM 1A. Risk Factors
The Company's business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary materially from recent results or from anticipated future results. Refer to the description of the Company's risk factors previously disclosed in Part I - Item 1A - Risk Factors in the Company's 20212022 Annual Report on Form 10-K. There have been no material changes to the risk factors described therein.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program"). The 2018 Program was completed in the first quarter of 2022.
On May 7, 2021, the Company's Board of Directors authorized a new stock repurchase program which provides for the repurchase of up to an additional $3.0 billion of the Company's common stock over an open-ended period of time (the "2021 Program"). As of SeptemberJune 30, 2022,2023, there were $2.0 billionapproximately $740 million of authorized repurchases remaining under the 2021 Program.
Share repurchase activity for the thirdsecond quarter of 20222023 was as follows:
| In millions except per share amounts | In millions except per share amounts | In millions except per share amounts |
Period | Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | Maximum Value of Shares That May Yet Be Purchased Under Programs | Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | Maximum Value of Shares That May Yet Be Purchased Under Programs |
July 2022 | | — | | | $ | — | | | — | | | $ | 2,490 | | |
August 2022 | | 1.4 | | | $ | 207.03 | | | 1.4 | | | $ | 2,192 | | |
September 2022 | | 1.0 | | | $ | 200.97 | | | 1.0 | | | $ | 1,990 | | |
April 2023 | | April 2023 | | — | | | $ | — | | | — | | | $ | 1,115 | |
May 2023 | | May 2023 | | 1.2 | | | $ | 227.41 | | | 1.2 | | | $ | 825 | |
June 2023 | | June 2023 | | 0.4 | | | $ | 235.96 | | | 0.4 | | | $ | 740 | |
Total | Total | | 2.4 | | | 2.4 | | | Total | | 1.6 | | | 1.6 | | |
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Exhibit Number | | Exhibit Description |
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| | Euro Credit Agreement dated as of October 21, 2022May 5, 2023 among Illinois Tool Works Inc., JPMorgan Chasethe lender(s) party thereto and ING Bank, N.A.N.V., London Branch, as Agent, Citibank, N.A., as Syndication Agent, and a syndicate of Lenders, filedAgent. Filed as Exhibit 10(a) to the Company’s Current Report on Form 8-K filed on October 26, 2022May 10, 2023 (Commission File No. 1-4797)001-04797) and incorporated herein by reference. |
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101 | | The following financial and related information from the Illinois Tool Works Inc. Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 20222023 is formatted in Inline Extensible Business Reporting Language (iXBRL) and submitted electronically herewith: (i) Statement of Income, (ii) Statement of Comprehensive Income, (iii) Statement of Financial Position, (iv) Statement of Changes in Stockholders' Equity, (v) Statement of Cash Flows, and (vi) related Notes to Financial Statements. |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | ILLINOIS TOOL WORKS INC. |
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Dated: | October 27, 2022August 3, 2023 | By: | /s/ Randall J. Scheuneman |
| | | Randall J. Scheuneman |
| | | Vice President & Chief Accounting Officer |
| | | (Principal Accounting Officer and Duly Authorized Officer) |