UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

	For the quarterly period ended	~~September~~June 30, ~~2022~~2023

	OR

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

	For the transition period from _______________ to _______________

Commission File Number: 1-4797

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware

36-1258310

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

155 Harlem Avenue

Glenview

60025

(Address of principal executive offices)

(Zip Code)

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

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


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

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

Yes x No o

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

Yes x No o

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


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

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

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

Yes ☐ No ☒

The number of shares of registrant's common stock, $0.01 par value, outstanding at ~~September~~June 30, ~~2022: 307,186,379~~2023: 302,390,322


	Table of Contents

	PART I - Financial Information
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1614
Item 4.	Controls and Procedures	3532

	PART II - Other Information

Item 1.	Legal Proceedings	3634
Item 1A.	Risk Factors	3634
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3634
Item 6.	Exhibits	3735

Signatures		3836

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 ~~2021~~2022 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 ~~third~~fourth 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 result~~adjustments, 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, ~~this~~plans were approved to divest one business in the Specialty Products segment. This business was presented as held for sale beginning in the ~~Statement~~fourth quarter of ~~Financial Position.~~

~~As of September 30, 2022, the assets and liabilities related to the two businesses discussed above that were included in assets~~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 ~~Statement~~Company'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 held~~operations 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 sale~~six months ended June 30, 2023, and $10 million and $19 million for the three and ~~nine~~six months ended ~~September~~June 30, 2022, ~~and 2021~~respectively. 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 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 ~~construction~~MRO markets. Products in this segment include:

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to machines;

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

•hand wipes and cleaners for industrial applications;

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

•fillers and putties for auto body repair; and

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

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

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

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

•anchors, fasteners and related tools for concrete applications;

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

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

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

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

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

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

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

•product coding and marking equipment and related consumables;

•plastic and metal closures and components for appliances;

•airport ground support equipment; and

•components for medical devices.

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

~~(6)~~

(4) Income Taxes

The Company's effective tax rate for the three months ended ~~September~~June 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The effective tax rate for the ~~nine~~three and six months ended ~~September~~June 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 ~~2022~~2023 and ~~2021~~2022 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 ~~September~~June 30, 2023 and 2022, respectively, and ~~2021, and $9~~$17 million and ~~$14~~$8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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"), HM~~His Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. The Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately ~~$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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 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 ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The weighted-average interest rate on commercial paper as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~2.68%~~5.27% and ~~0.14%~~4.35%, respectively. Short-term debt as of ~~September~~June 30, ~~2022~~2023 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 in~~repaid on the ~~second quarter of 2022. As of December 31, 2021, Short-term debt also included~~due date.

In 2022, the $568 million ~~related to the~~of 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 million~~Company entered into a Euro-denominated credit agreement (the “Euro Credit Agreement”) with a termination date of ~~3.375% notes due September 15, 2021 were redeemed~~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 ~~face value on~~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 ~~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 ~~September~~June 30, ~~2022~~2023 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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 and~~related 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 ~~September~~June 30, ~~2022.~~2023 were $1.7 billion, $542 million, $536 million, and $1.4 billion, respectively. The ~~cumulative unrealized~~amount of pre-tax gain (loss) related to this debt recorded in ~~Accumulated other~~Other comprehensive income

(loss) ~~related to~~was a loss of $17 million for the ~~net investment hedge was~~three months ended June 30, 2023, a gain of ~~$667~~$179 million ~~and $183 million as of September~~for 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 ~~September~~June 30, ~~2022~~2023 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.

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

INTRODUCTION

Illinois Tool Works Inc. (the "Company" or "ITW") is a global manufacturer of a diversified range of industrial products and equipment with 8384 divisions in 5251 countries. As of December 31, ~~2021,~~2022, the Company employed approximately ~~45,000~~46,000 people.

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

THE ITW BUSINESS MODEL

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

•ITW'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 ~~19,300~~19,200 granted and pending patents;

•ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive. ITW businesses have significant flexibility within the framework of the ITW Business Model to customize their approach in order to best serve their specific customers' needs. ITW colleagues recognize their unique responsibilities to execute the Company's strategy and values. As a result, the Company maintains a focused and simple organizational structure that, combined with outstanding execution, delivers best-in-class services and solutions adapted to each business' customers and end markets.

ENTERPRISE ~~STRATEGY~~STRATEGY: 2012-2022

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

ITW determined that solid and consistent above-market organic growth is the core growth engine to deliver world-class financial performance and compelling long-term returns for its shareholders. ~~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~~

1614

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 ~~2021~~2022 and continues to be a key contributor to the Company's ongoing enterprise strategy.

•With the initial portfolio realignment and scale-up work largely ~~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 demonstrated~~Business Model and superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the ~~Company's~~Company’s operating margin and after-tax return on invested capital. At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

~~PATH TO FULL POTENTIAL~~

Since the launch of the enterprise strategy, the Company has made considerable progress to position itself to reach full potential. The ITW Business Model and unique set of capabilities are a source of strong and enduring competitive advantage, but for the Company to truly reach its full potential, every one of its divisions must also be operating at its full potential. To do so, the Company remains focused on its core principles to position ITW to perform to its full potential: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 discipline~~With 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-potential~~Execute on ITW's growth agenda, with consistent high-quality organic growth at the enterprise level, and high-quality acquisitions that extend ITW's long-term organic growth potential.

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

Portfolio Discipline

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

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

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

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 to~~In the ~~third~~fourth 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 result~~adjustments, 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 ~~2021~~2022 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 ~~causing~~and 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.

~~For~~Despite the ~~duration of~~ongoing 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 best~~experienced 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 operational~~end markets during the ~~pandemic, many of these facilities were operating at a reduced capacity at various times since~~past 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 ~~2021~~2022 Annual Report on Form 10-K.

During the first quarter of 2022, Russian military forces invaded Ukraine. In response, the United States and several other countries imposed economic and other sanctions on Russia. The Company has four immaterial Russian subsidiaries with total assets of approximately ~~$29~~$22 million as of ~~September~~June 30, ~~2022.~~2023. The revenue for these ~~four~~ subsidiaries for the ~~year~~three and six months ended ~~December 31, 2021~~June 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 primarily due to the continued successful execution of enterprise initiatives ~~including the "Win the Recovery" actions initiated over the course of the past year,~~ and continued focus on the highly differentiated ITW Business Model. ~~Despite rising costs and a challenging global supply chain environment, the~~The Company generated operating revenue growth of ~~12.8~~1.6 percent and ~~11.0~~1.8 percent in the ~~third~~second quarter and year-to-date periods of ~~2022,~~2023, respectively, ~~as six of seven segments achieved worldwide~~with organic revenue ~~growth.~~growth of 3.0 percent and 4.1 percent, respectively. Operating income was ~~$983 million~~$1.0 billion in the ~~third~~second quarter and ~~$2.8~~$2.0 billion in the year-to-date period of ~~2022.~~2023. Operating margin was ~~24.5~~24.8 percent and ~~23.4~~24.5 percent in the ~~third~~second quarter and year-to-date periods of ~~2022,~~2023, respectively.

The Company's consolidated results of operations for the ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~third~~second quarter and year-to-date periods due to higher organic revenue, ~~and the MTS Test & Simulation acquisition, which was completed on December 1, 2021,~~ partially offset by the unfavorable effect of foreign currency ~~translation.~~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 ~~third~~second quarter and year-to-date periods, respectively, ~~with~~as growth in ~~six of seven~~four segments was partially offset by a decline in the Construction Products, Specialty Products and Polymers & Fluids segments. ~~Additionally, product~~Product line simplification activities reduced organic revenue by 7040 basis points in the ~~third~~second quarter and 4050 basis points in the year-to-date period.

◦North American organic revenue ~~increased 16.6%~~was flat in the ~~third~~second quarter ~~with~~as growth in ~~six~~the Food Equipment, Automotive OEM and Polymers & Fluids segments ~~partially~~was 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 Welding~~four 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 results~~Organic revenue in ~~2022 were negatively impacted~~China increased 22.4% in the second quarter due to an increase in five segments, partially offset by a decline in the ~~COVID-19 outbreak~~Food Equipment and ~~government stay-at-home orders~~Specialty 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 ~~third~~second 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 ~~third~~second quarter. The increase of 70170 basis points was primarily ~~driven by positive operating leverage~~due to favorable price/cost of ~~290~~260 basis points, ~~and~~ benefits from the Company's enterprise initiatives of ~~110~~130 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 110~~24.5% increased 160 basis points primarily driven by ~~unfavorable~~favorable price/cost of ~~150~~230 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 ~~third~~second 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 ~~2022~~2023 and ~~2021,~~2022, respectively. The effective tax rate for the second quarter and year-to-date ~~period~~periods 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 ~~2022~~2023 and ~~2021~~2022 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $4 million and $1 million for the ~~third~~second quarter of 2023 and 2022, respectively, and ~~2021, and $9~~$17 million and ~~$14~~$8 million for the year-to-date ~~periods~~period of 2023 and 2022, ~~and 2021,~~ respectively.

•Diluted earnings per share (EPS) of ~~$2.35~~$2.48 for the ~~third~~second quarter and $4.81 for the year-to-date period of ~~2022~~2023 increased ~~16.3%.~~4.6% and 7.4%, respectively. Excluding the favorable impact of the ~~third~~second quarter ~~2021~~2023 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 million~~second quarter 2022 discrete income tax benefit inof $0.16 related to the ~~third quarter~~resolution of ~~2021, the $112 million discrete income~~a U.S. tax ~~benefit~~audit, EPS increased 9.0% in the second quarter ~~of 2021~~ and ~~the $51 million discrete income tax benefit~~9.7% in the ~~second quarter of 2022, EPS increased 8.1%.~~year-to-date period.

•The Company repurchased approximately ~~2.4~~1.6 million and ~~6.0~~3.2 million shares of its common stock in the ~~third~~second 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~third~~second 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 ~~third~~second 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 points~~year-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 ~~third~~second quarter and year-to-date periods, respectively, compared to North American auto builds which grew ~~24%~~15% in the ~~third~~second 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 ~~third~~second quarter and year-to-date periods, respectively, compared to European auto builds which increased ~~20%~~14% in the ~~third~~second 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 ~~third~~second 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 ~~third~~second quarter and year-to-date periods, respectively, versus China auto builds which increased ~~31%~~20% in the ~~third~~second 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 ~~third~~second quarter and decreased 2% in the year-to-date ~~periods, respectively.~~period.

•Operating margin was ~~17.5%~~16.8% in the ~~third~~second quarter. The increase of 20250 basis points was primarily ~~driven by~~due to positive operating leverage of ~~420~~320 basis points, ~~and~~favorable 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 to~~employee-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 360~~16.4% increased 10 basis points primarily driven by ~~unfavorable~~positive operating leverage of 230 basis points, benefits from the Company's enterprise initiatives, lower restructuring expenses and favorable price/cost of ~~240~~90 basis points, partially offset by higher operating expenses, including ~~costs related to~~employee-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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~third~~second quarter ~~and year-to-date periods~~primarily 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 ~~third~~second 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 ~~third~~second quarter and ~~26.6%~~14.5% in the year-to-date period. Equipment organic revenue grew ~~39.6%~~5.4% in the ~~third~~second quarter and ~~32.3%~~14.2% in the year-to-date period with growth in the restaurant and institutional ~~and~~end 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 ~~third~~second quarter and year-to-date periods, respectively.

◦International organic revenue increased ~~14.3%~~4.7% and ~~23.4%~~6.6% in the ~~third~~second quarter and year-to-date periods, respectively. Equipment organic revenue ~~grew 15.0% and 22.9%~~was flat in the ~~third~~second 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 ~~third~~second quarter and year-to-date periods, respectively.

•Operating margin was ~~26.3%~~27.8% in the ~~third~~second quarter. The increase of ~~240~~310 basis points was primarily due to favorable price/cost of 270 basis points, positive operating leverage of ~~420~~140 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 ~~200~~360 basis points primarily ~~due to~~driven by favorable price/cost of 280 basis points, positive operating leverage of ~~480~~210 basis points, benefits from the Company's enterprise initiatives and the favorable ~~price/cost~~impact 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~third~~second 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 ~~third~~second 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 ~~third~~second 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 ~~third~~second quarter and year-to-date periods, respectively.

◦Electronics organic revenue ~~increased 13.8%~~decreased 12.7% and 8.4% in the ~~third~~second quarter and year-to-date periods, respectively, primarily due to ~~higher demand~~a 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 ~~third~~second 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 in~~and 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 ~~third~~second 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 ~~third~~second quarter. The ~~decrease~~increase of ~~160~~70 basis points was primarily due to ~~the dilutive impact~~favorable price/cost of ~~370~~210 basis points, benefits from the ~~MTS Test & Simulation acquisition, unfavorable price/cost~~Company'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 460~~23.8% increased 160 basis points primarily driven by ~~the dilutive impact~~favorable price/cost of ~~380~~150 basis points, benefits from the ~~MTS Test & Simulation acquisition, unfavorable price/cost~~Company's enterprise initiatives, positive operating leverage of ~~170~~80 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~third~~second 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 ~~third~~second quarter, ~~and year-to-date periods, respectively, driven~~which 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 ~~growth~~a 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 both~~year-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 ~~third~~second quarter ~~due to~~as 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 ~~third~~second 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 ~~third~~second quarter. The increase of ~~150~~460 basis points was primarily due to ~~positive operating leverage~~favorable price/cost of ~~230~~440 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 leverage~~favorable price/cost of ~~230~~370 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 ~~construction~~MRO markets. Products in this segment include:

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to machines;

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

•hand wipes and cleaners for industrial applications;

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

•fillers and putties for auto body repair; and

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

The results of operations for the Polymers & Fluids segment for the ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~grew~~declined in the ~~third~~second quarter and year-to-date periods due to ~~higher organic revenue, partially offset by~~the 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 ~~third~~second quarter and year-to-date periods, respectively, ~~with~~as 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 ~~third~~second 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 ~~third~~second quarter primarily due to ~~growth~~an 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 and~~America. In the year-to-date period, organic revenue was essentially flat as growth in the North America engine repair and European tire repair ~~business, partially~~and 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 third~~second quarter and year-to-date periods, respectively, ~~primarily~~ due to ~~an increase~~a decline in ~~the hygiene and industrial maintenance, repair and operations end markets~~Europe, 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 ~~third~~second quarter. The increase of ~~110~~80 basis points was primarily due to ~~positive operating leverage~~favorable price/cost of ~~150~~200 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 80~~25.2% 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~grew~~declined in the ~~third~~second quarter and year-to-date periods due to ~~higher~~lower organic revenue ~~partially offset by~~and the unfavorable effect of foreign currency translation.

•Organic revenue ~~increased 17.1%~~decreased 5.7% and 3.6% in the ~~third~~second 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 ~~third~~second quarter and 40 basis points in the year-to-date ~~periods.~~period.

◦North American organic revenue ~~grew 34.8%~~declined 2.6% in the ~~third~~second quarter ~~driven by higher~~and 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. In~~0.7% in the year-to-date ~~period, organic~~period. Organic revenue ~~increased 31.9% driven by higher demand~~in Canada declined 9.2% and 3.9% in the ~~United States residential~~second 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 ~~third~~second quarter and 6.0% in the year-to-date ~~periods, respectively.~~period. European organic revenue declined ~~0.9%~~13.5% in the ~~third~~second 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 ~~third~~second quarter ~~and 6.2% in the year-to-date period~~ primarily due to ~~higher~~lower 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 ~~third~~second quarter. The ~~decrease~~increase of ~~210~~170 basis points was primarily ~~driven by unfavorable~~due to favorable price/cost of ~~150 basis points and higher operating expenses, including employee-related expenses, partially offset by positive operating leverage of 260~~440 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 170~~28.4% increased 220 basis points primarily driven by ~~unfavorable~~favorable price/cost of ~~390 basis points and higher operating expenses, including employee-related expenses, partially offset by positive operating leverage of 260~~470 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~third~~second 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 ~~third~~second quarter ~~as equipment~~and year-to-date periods, respectively. Consumable sales declined ~~10.8%~~8.7% in the second quarter and ~~consumable sales grew 2.3%. In~~6.6% in the year-to-date period ~~organic revenue declined 0.5% as equipment sales declined 15.9% and consumable~~due to lower demand in all major regions. Equipment sales increased ~~3.5%. Additionally, product~~23.4% 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 170~~100 basis points in the ~~third~~second 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 ~~third~~second quarter and year-to-date periods, respectively, primarily driven by a decline in the ~~appliance,~~ consumer packaging, strength films, specialty films and ~~ground support~~decorating 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 film~~filter medical businesses.

◦International organic revenue increased ~~3.7%~~3.8% in the ~~third~~second 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 ~~decline~~decrease in Europe and Asia Pacific in the ~~consumer packaging, appliance,~~strength films, graphics and ~~ground support~~decorating equipment businesses, partially offset by growth in the ~~filter medical, specialty films, and foils and thermal films businesses. Additionally, Asia Pacific organic revenue~~ground 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 ~~third~~second quarter. The ~~increase~~decrease 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 expenses~~the 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 ~~higher~~unfavorable operating ~~expenses, including~~leverage 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 $52~~was $69 million ~~versus $49~~and $129 million in the ~~third~~second quarter and year-to-date periods of ~~2021~~2023, 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 ~~third~~second 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 income~~2023 and ~~interest income in 2022. Other income (expense) was income of $64~~$30 million in the year-to-date period, of

~~2022, an increase~~a decrease of ~~$20~~$4 million compared to ~~2021~~the second quarter of 2022 and a decrease of $8 million in the year-to-date period primarily due to foreign currency translation ~~gains~~losses in ~~2022 compared to~~2023 versus foreign currency ~~translation losses in 2021, and higher other net periodic benefit income and interest income~~gains 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 ~~September~~June 30, ~~2022,~~2023, the Company had ~~$774~~$922 million of cash and equivalents on hand and no outstanding borrowings under its $~~2.5~~3.0 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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 ~~decreased~~was lower in the second quarter and year-to-date ~~period~~periods 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 ~~Program~~Programs

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 ~~1.2~~4.4 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 ~~September~~June 30, ~~2022,~~2023, there were ~~$2.0 billion~~approximately $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 ~~nine~~three and six months ended ~~September~~June 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 ~~third~~second quarter and year-to-date periods of ~~2022~~2023 and ~~2021~~2022 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		%

3128

(1) Effective tax rate used for interest expense and other (income) expense for the three months ended ~~September~~June 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 ~~nine~~six months ended ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were converted to an annual rate by multiplying the calculated return by 4. Returns for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were converted to an annual rate by ~~dividing~~multiplying the calculated return by ~~3 and multiplying it by 4.~~2.

A reconciliation of the tax rate for the ~~nine~~three and six months ended ~~September~~June 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 ~~2022~~2023 and second ~~and third~~ quarter ~~2021~~2022 discrete tax benefits.

3229

Working Capital

Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 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 ~~September~~June 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 ~~backed~~supported 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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 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

In 2022, the $568 million ~~related to the~~of 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.~~

3330

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.

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 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 ~~nine~~six months ended ~~September 30, 2022~~2023 were as follows:


In millions
Total stockholders' equity, December 31, ~~2021~~2022	$	~~3,626~~3,089
Net income	~~2,127~~1,468
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, ~~September~~June 30, ~~2022~~2023	$	~~3,014~~3,094

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 of~~Russia 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- inclusive~~all-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 ~~September~~June 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 ~~September~~June 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 ~~September~~June 30, ~~2022~~2023 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

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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 ~~2021~~2022 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 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 ~~September~~June 30, ~~2022,~~2023, there were ~~$2.0 billion~~approximately $740 million of authorized repurchases remaining under the 2021 Program.

Share repurchase activity for the ~~third~~second quarter of ~~2022~~2023 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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ITEM 6. Exhibits

Exhibit Index


Exhibit Number						Exhibit Description

~~10(a)~~10						Euro Credit Agreement dated as of ~~October 21, 2022~~May 5, 2023 among Illinois Tool Works Inc., ~~JPMorgan Chase~~the 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, filed~~Agent. Filed as Exhibit 10(a) to the Company’s Current Report on Form 8-K filed ~~on October 26, 2022~~May 10, 2023 (Commission File No. ~~1-4797)~~001-04797) and incorporated herein by reference.

31						Rule 13a-14(a) Certifications.

32						Section 1350 Certification.

101						The following financial and related information from the Illinois Tool Works Inc. Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2022~~2023 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.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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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.



		ILLINOIS TOOL WORKS INC.

Dated:	~~October 27, 2022~~August 3, 2023	By:	/s/ Randall J. Scheuneman
			Randall J. Scheuneman
			Vice President & Chief Accounting Officer
			(Principal Accounting Officer and Duly Authorized Officer)

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