Financial Data and Key Metrics Changes - Operating margin improved by 200 basis points year-over-year to 26.5%, with enterprise initiatives contributing 140 basis points [10][34] - Quarterly operating income grew by 9% to $1.1 billion, and GAAP EPS increased by 9% to $2.55 [10][12] - Free cash flow rose by 40% to $856 million, with a conversion to net income of 111% [35] Business Line Data and Key Metrics Changes - Automotive OEM organic growth was 4%, with North America down 5%, Europe up 5%, and China up 18% [36] - Food Equipment achieved solid organic growth of 6%, with North America growing 10% [37] - Welding's organic revenue declined by 2%, with equipment revenue down 3% [38] - Construction organic revenue was down 2%, with North America growing 2% [39] - Specialty Products saw organic revenue down 6%, with North America down 9% [40] Market Data and Key Metrics Changes - North America revenue was down 3%, while international revenue was essentially flat [16] - Organic revenue growth by geography showed North America down 2%, Europe flat, and Asia Pacific up 6% [13] Company Strategy and Development Direction - The company aims to elevate high-quality organic growth and customer-back innovation as key differentiators [9] - The focus remains on leveraging ITW's unique strengths and capabilities to optimize long-term performance [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged uncertainties in the demand environment, including inventory normalization and elevated interest rates [42] - The company is projecting organic growth of 2% to 3% for the full year and has raised its operating margin guidance to 25% to 25.5% [41][18] Other Important Information - The company announced a CEO succession plan, with Chris O'Herlihy set to take over at year-end [6] - The impact of the auto strike is estimated to reduce Q4 earnings by $0.12 per share [14] Q&A Session Summary Question: What contributed to the operating margin expansion? - The operating margin expansion of 200 basis points was driven by enterprise initiatives and positive price/cost impacts, with some headwinds from investments in labor and compensation [51][67] Question: What is the outlook for price versus cost in 2024? - There is no significant deflation expected, but inflation levels have stabilized, indicating a tight environment for pricing [61] Question: How is the company managing inventory levels? - The company is currently running slightly above three months of inventory, with expectations to normalize by early to mid-next year [118] Question: What is the impact of the auto strike on Q4? - The $0.12 headwind from the auto strike assumes it continues through the end of the quarter, affecting organic growth [69] Question: How is the company performing in the Electronics segment? - The consumer electronics market remains weak, but the company is committed to investing in these businesses for future recovery [77][110]

October 24, 2023 Safe Harbor Statement Non-GAAP Measures 2 $2.35 - Foreign exchange translation impact of +1.5% $4.03B +0.2% Organic - Operating income grew 9% to $1.1B OPERATING MARGIN 24.5% Third Quarter 2023 Earnings Conference Call Forward-Looking Statements This presentation and related conference call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding global supply chain ch ...

Part I - Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Illinois Tool Works Inc. reported increased operating revenue to $8.09 billion and net income to $1.47 billion for the six months ended June 30, 2023, alongside improved operating cash flow [Statement of Income](index=3&type=section&id=Statement%20of%20Income) Statement of Income (Unaudited) | Metric | Three Months Ended June 30, 2023 (Millions USD) | Three Months Ended June 30, 2022 (Millions USD) | Six Months Ended June 30, 2023 (Millions USD) | Six Months Ended June 30, 2022 (Millions USD) | | :--- | :--- | :--- | :--- | :--- | | **Operating Revenue** | **$4,074** | **$4,011** | **$8,093** | **$7,950** | | Operating Income | $1,010 | $926 | $1,982 | $1,821 | | **Net Income** | **$754** | **$738** | **$1,468** | **$1,400** | | Diluted EPS | $2.48 | $2.37 | $4.81 | $4.48 | [Statement of Financial Position](index=5&type=section&id=Statement%20of%20Financial%20Position) Statement of Financial Position Highlights (Unaudited) | Metric | June 30, 2023 (Millions USD) | December 31, 2022 (Millions USD) | | :--- | :--- | :--- | | **Total current assets** | **$6,404** | **$6,270** | | Goodwill | $4,887 | $4,864 | | **Total assets** | **$15,652** | **$15,422** | | Total current liabilities | $4,040 | $4,460 | | Long-term debt | $6,947 | $6,173 | | **Total liabilities** | **$12,558** | **$12,333** | | **Total stockholders' equity** | **$3,094** | **$3,089** | [Statement of Cash Flows](index=7&type=section&id=Statement%20of%20Cash%20Flows) Cash Flow Summary (Unaudited, Six Months Ended June 30) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$1,518** | **$824** | | Net cash provided by (used for) investing activities | ($180) | ($146) | | Net cash provided by (used for) financing activities | ($1,117) | ($1,284) | | **Increase (decrease) in cash and equivalents** | **$214** | **($648)** | - The significant increase in operating cash flow was primarily due to a smaller increase in trade receivables (**$42 million** vs **$396 million**) and a decrease in inventories (**$140 million**) compared to a large increase in the prior year (**$374 million**)[24](index=24&type=chunk) [Notes to Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) - In Q4 2022, the company divested two businesses (one in Polymers & Fluids, one in Food Equipment) for a total of **$279 million**, resulting in a combined pre-tax gain of **$197 million**. A third business in the Specialty Products segment was sold on April 3, 2023, with no significant gain or loss[28](index=28&type=chunk)[29](index=29&type=chunk) - The effective tax rate for Q2 2023 was **21.4%**, up from **18.3%** in Q2 2022. The 2023 rate included a **$20 million** discrete tax benefit, while the 2022 rate included a larger **$51 million** benefit from a U.S. tax audit resolution[42](index=42&type=chunk) - Total debt increased to **$8.22 billion** as of June 30, 2023, from **$7.76 billion** at year-end 2022. This was partly due to borrowing **€1.3 billion ($1.4 billion)** under a new Euro Credit Agreement in May 2023[47](index=47&type=chunk)[50](index=50&type=chunk) [Management's Discussion and Analysis (MD&A)](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) ITW's Q2 2023 saw operating revenue of $4.07 billion with 3.0% organic growth, operating margin expansion to 24.8%, and increased diluted EPS, reflecting successful enterprise strategy execution [ITW Business Model and Enterprise Strategy](index=15&type=section&id=ITW%20Business%20Model%20and%20Enterprise%20Strategy) - The ITW Business Model is the company's core source of value creation, based on three elements: - **80/20 Front-to-Back Process:** An operating system focusing on the most profitable 80% of opportunities and eliminating complexity from the less profitable 20% - **Customer-Back Innovation:** Developing unique solutions based on understanding the needs of key customers - **Decentralized, Entrepreneurial Culture:** Enabling businesses to be fast, focused, and responsive to their specific customer needs[61](index=61&type=chunk) - The company's next strategic phase (2023-2030) focuses on two key priorities: 1. Executing a growth agenda with high-quality organic growth and selective acquisitions 2. Sustaining foundational strengths, including high-quality ITW Business Model practice and leadership development[64](index=64&type=chunk)[68](index=68&type=chunk) [Consolidated Results of Operations](index=17&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated Results of Operations | Metric | Q2 2023 (Millions USD) | Q2 2022 (Millions USD) | % Change | YTD 2023 (Millions USD) | YTD 2022 (Millions USD) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating Revenue** | **$4,074** | **$4,011** | **1.6%** | **$8,093** | **$7,950** | **1.8%** | | Organic Revenue Growth | 3.0% | - | - | 4.1% | - | - | | **Operating Income** | **$1,010** | **$926** | **9.0%** | **$1,982** | **$1,821** | **8.8%** | | **Operating Margin** | **24.8%** | **23.1%** | **+170 bps** | **24.5%** | **22.9%** | **+160 bps** | - Q2 operating margin increased by **170 bps**, primarily due to favorable price/cost of **260 bps** and benefits from enterprise initiatives of **130 bps**, partially offset by higher operating expenses[78](index=78&type=chunk) - Diluted EPS for Q2 2023 was **$2.48**, an increase of **4.6%** from **$2.37** in Q2 2022. Excluding discrete tax items in both years, EPS increased **9.0%**[78](index=78&type=chunk) [Results of Operations by Segment](index=20&type=section&id=Results%20of%20Operations%20by%20Segment) Segment Operating Revenue (Q2 2023 vs Q2 2022) | Segment | Q2 2023 Revenue (Millions USD) | Q2 2022 Revenue (Millions USD) | % Change | Organic Growth % | | :--- | :--- | :--- | :--- | :--- | | Automotive OEM | 826 | 711 | 16.2% | 16.3% | | Food Equipment | 654 | 614 | 6.3% | 6.9% | | Test & Measurement and Electronics | 700 | 696 | 0.7% | 1.1% | | Welding | 490 | 486 | 0.7% | 0.7% | | Polymers & Fluids | 459 | 496 | (7.6)% | (0.5)% | | Construction Products | 526 | 565 | (6.8)% | (5.7)% | | Specialty Products | 423 | 447 | (5.4)% | (3.6)% | Segment Operating Income (Q2 2023 vs Q2 2022) | Segment | Q2 2023 Income (Millions USD) | Q2 2022 Income (Millions USD) | % Change | Operating Margin % (Q2 2023) | | :--- | :--- | :--- | :--- | :--- | | Automotive OEM | 139 | 101 | 36.2% | 16.8% | | Food Equipment | 182 | 152 | 19.6% | 27.8% | | Test & Measurement and Electronics | 162 | 157 | 3.5% | 23.2% | | Welding | 167 | 142 | 16.8% | 33.9% | | Polymers & Fluids | 119 | 125 | (4.4)% | 25.9% | | Construction Products | 154 | 156 | (1.2)% | 29.3% | | Specialty Products | 109 | 121 | (8.6)% | 26.0% | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary sources of liquidity are free cash flow and credit facilities. As of June 30, 2023, the company had **$922 million** in cash and no borrowings under its **$3.0 billion** revolving credit facility[124](index=124&type=chunk) Free Cash Flow (Unaudited) | Metric | Six Months Ended June 30, 2023 (Millions USD) | Six Months Ended June 30, 2022 (Millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,518 | $824 | | Additions to plant and equipment | ($198) | ($155) | | **Free cash flow** | **$1,320** | **$669** | - Under the 2021 Program, the company repurchased **1.6 million shares** for **$375 million** in Q2 2023. As of June 30, 2023, approximately **$740 million** remained authorized for repurchase[129](index=129&type=chunk)[150](index=150&type=chunk) - The After-tax Return on Average Invested Capital (ROIC) was **29.8%** for the three months ended June 30, 2023, an increase from **27.8%** in the prior-year period[130](index=130&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2023. No material changes to internal control over financial reporting were identified during the quarter - The Chairman & CEO and SVP & CFO concluded that as of June 30, 2023, the Company's disclosure controls and procedures were effective[144](index=144&type=chunk) - No changes in the Company's internal control over financial reporting were identified during the quarter ended June 30, 2023, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[145](index=145&type=chunk) Part II - Other Information [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings. The disclosure threshold for environmental legal proceedings involving potential monetary sanctions by a governmental authority is $1 million - The company reports no legal proceedings for the period[147](index=147&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors described in the Company's 2022 Annual Report on Form 10-K[148](index=148&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company continued its 2021 stock repurchase program, buying back 1.6 million shares for approximately $375 million during the second quarter of 2023. As of June 30, 2023, $740 million remained available for future repurchases under this program - The Board of Directors authorized a **$3.0 billion** stock repurchase program on May 7, 2021. As of June 30, 2023, approximately **$740 million** of authorized repurchases remained under this program[150](index=150&type=chunk) Share Repurchase Activity (Q2 2023) | Period | Total Number of Shares Purchased (Millions) | Average Price Paid Per Share (USD) | Maximum Value Remaining Under Program (Millions USD) | | :--- | :--- | :--- | :--- | | April 2023 | — | $— | $1,115 | | May 2023 | 1.2 | $227.41 | $825 | | June 2023 | 0.4 | $235.96 | $740 | | **Total** | **1.6** | | |

Financial Data and Key Metrics Changes - Organic revenue growth was 3%, with stable underlying demand partially offset by inventory reductions impacting growth by 1 to 1.5 points [77][78] - GAAP EPS reached $2.48, a record for Q2, with a 9% increase excluding one-time tax items [84] - Operating margin expanded to 24.8%, a record for Q2, with a 170 basis point year-over-year improvement [84][79] Business Line Data and Key Metrics Changes - Automotive OEM segment led with 16% organic growth, with North America up 3% and Europe up 18% [79] - Food Equipment segment grew 7%, with service revenue up 16%, marking nine consecutive quarters of double-digit growth [87] - Welding segment achieved 1% organic growth, with operating margin expanding by 460 basis points to 33.9% [31] Market Data and Key Metrics Changes - North America revenue was flat, while Europe grew 5% and Asia Pacific grew 11%, with China up 22% [78] - Construction organic revenue declined 6%, with North America down 3% and Europe down 14% [3] - Specialty organic revenue was down 4%, with North America down 7% and international up 4% [3] Company Strategy and Development Direction - The company aims for a long-term operating margin goal of 30% by 2030, with ongoing enterprise initiatives contributing to margin improvements [79] - Continued focus on organic growth strategies, including investments in service capabilities and market share expansion [66][98] - The company is optimistic about the recovery in semiconductor-related revenues and expects stable demand in the automotive sector [91][114] Management's Comments on Operating Environment and Future Outlook - Management noted that supply chain performance is improving, leading to a reduction in backlogs, although still above normal levels [13] - The company anticipates continued strong margin and profitability performance through the remainder of the year, despite inventory normalization impacts [4][6] - Management expressed confidence in the underlying demand stability across most end markets, with some softness in specific areas [78][90] Other Important Information - Free cash flow grew 68% to $705 million, representing 94% of net income, aided by a 6% reduction in inventory [86] - The company raised its full-year 2023 EPS guidance by $0.10, reflecting strong first-half performance [4][77] Q&A Session Summary Question: Can you provide insights on the price-cost margin recovery? - Management indicated that price-cost margin impact was positive, with expectations of recovering 150 to 200 basis points at the enterprise level for the full year [11][12] Question: What is the status of backlogs and supply chain normalization? - Backlogs are decreasing as supply chain performance improves, with some businesses still operating at double normal levels [13] Question: How is the company managing inventory reductions from customers? - Inventory reduction impacts are embedded in guidance, with expectations of stable underlying demand in sectors like Automotive and Food Equipment [18] Question: What are the expectations for construction margins despite sales decline? - Construction margins expanded significantly due to enterprise initiatives, with expectations for continued positive price/cost impacts [19][22] Question: How is the company positioned in the Chinese market? - The company reported a strong performance in China, particularly in the automotive sector, with expectations for continued growth [63][114] Question: What are the long-term service opportunities in Food Equipment? - The service business is seen as a significant differentiator, with ongoing investments expected to enhance growth and profitability [97][98]

(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q 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 | ...

Illinois Tool Works Inc. (NYSE:ITW) Q1 2023 Earnings Conference Call May 2, 2023 10:00 AM ET Company Participants Karen Fletcher - VP of IR Scott Santi - Chairman and CEO Michael Larsen - SVP and CFO Conference Call Participants Andrew Kaplowitz - Citigroup Tami Zakaria - JPMorgan Jeff Sprague - Vertical Research Partners Scott Davis - Melius Joe Ritchie - Goldman Sachs Steve Volkmann - Jefferies Chigusa Katoku - Credit Suisse Sabrina Abrams - Bank of America Joe O'Dea - Wells Fargo Nigel Coe - Wolfe Resea ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) ITW is a global diversified manufacturer operating through seven segments guided by its unique ITW Business Model - ITW is a global manufacturer of a diversified range of industrial products and equipment with 84 divisions in 51 countries and approximately **46,000 employees** as of year-end 2022[10](index=10&type=chunk) - The company's operations are organized into seven reporting segments: Automotive OEM, Food Equipment, Test & Measurement and Electronics, Welding, Polymers & Fluids, Construction Products, and Specialty Products[11](index=11&type=chunk) - The core of ITW's value creation is its Business Model, which consists of three elements: the 80/20 Front-to-Back process, Customer-back Innovation, and a Decentralized, Entrepreneurial Culture[14](index=14&type=chunk)[15](index=15&type=chunk)[17](index=17&type=chunk) - The company's enterprise strategy, initiated in 2012, focuses on achieving full potential through portfolio discipline, 80/20 excellence, and driving organic growth[18](index=18&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - In 2022, ITW divested two businesses for a combined pre-tax gain of **$197 million**, as part of its ongoing portfolio refinement[26](index=26&type=chunk) - As of year-end 2022, the company holds approximately **19,200 granted and pending patents**, underscoring its focus on innovation[15](index=15&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant economic, operational, strategic, and regulatory risks that could impact its business - **Economic Risks:** The COVID-19 pandemic, global economic conditions, geopolitical instability (including the Russia-Ukraine conflict), rising interest rates, and foreign currency fluctuations are cited as significant economic risks[58](index=58&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk)[65](index=65&type=chunk) - **Business & Operational Risks:** Key operational risks include the failure to realize expected benefits from the enterprise strategy, inability to introduce new products, inadequate protection of intellectual property, potential impairment of significant goodwill and intangible assets, raw material price increases, and cybersecurity breaches[66](index=66&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[73](index=73&type=chunk) - **Strategic Risks:** The company faces risks related to acquisitions, such as the inability of an acquired business to adapt to the ITW Business Model, and retained liabilities from divestitures[75](index=75&type=chunk)[76](index=76&type=chunk) - **Legal & Regulatory Risks:** Risks include unfavorable changes in tax laws, adverse outcomes in legal proceedings, impacts from environmental regulations and climate change, and potential penalties for violations of anti-bribery, trade, or other laws[77](index=77&type=chunk)[78](index=78&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) [Properties](index=18&type=section&id=Item%202.%20Properties) ITW operates approximately 440 facilities globally, with the majority located outside the United States - As of December 31, 2022, the Company operated approximately **440 plants and office facilities** worldwide[86](index=86&type=chunk) - Approximately **290 of the facilities** were located outside of the United States, with principal foreign countries including Germany, China, France, and the United Kingdom[86](index=86&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock is listed on the NYSE, and it actively manages capital through share repurchase programs - The company's common stock is listed on the New York Stock Exchange (NYSE)[92](index=92&type=chunk) - The **$3.0 billion 2018 stock repurchase program** was completed in the first quarter of 2022[95](index=95&type=chunk) - A new **$3.0 billion stock repurchase program** was authorized in May 2021, with approximately **$1.5 billion remaining** for repurchases as of December 31, 2022[96](index=96&type=chunk) Q4 2022 Share Repurchase Activity (in millions) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | October 2022 | — | $ — | | November 2022 | 0.5 | $222.66 | | December 2022 | 1.8 | $221.25 | | **Total** | **2.3** | | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's 2022 financial performance, including revenue growth and segment results [Consolidated Results of Operations](index=23&type=section&id=Consolidated%20Results%20of%20Operations) In 2022, the company achieved 10.2% revenue growth to $15.9 billion, driven by 12.1% organic growth Consolidated Results: 2022 vs 2021 | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Operating Revenue | $15,932M | $14,455M | 10.2% | | Operating Income | $3,790M | $3,477M | 9.0% | | Operating Margin | 23.8% | 24.1% | (30) bps | - For 2022, **organic revenue grew 12.1%**, with growth in all seven segments, offset by a **4.3% unfavorable foreign currency translation impact**[129](index=129&type=chunk)[130](index=130&type=chunk) - Diluted EPS for 2022 was **$9.77**, an increase of **14.8%** from 2021; excluding a $0.60 per share gain from divestitures, EPS increased 7.8%[130](index=130&type=chunk) Consolidated Results: 2021 vs 2020 | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Operating Revenue | $14,455M | $12,574M | 15.0% | | Operating Income | $3,477M | $2,882M | 20.6% | | Operating Margin | 24.1% | 22.9% | 120 bps | [Results of Operations by Segment](index=27&type=section&id=Results%20of%20Operations%20by%20Segment) All seven business segments reported organic revenue growth in 2022, led by Food Equipment Operating Revenue by Segment (in millions) | Segment | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Automotive OEM | $2,969 | $2,800 | $2,571 | | Food Equipment | $2,444 | $2,078 | $1,739 | | Test & Measurement and Electronics | $2,828 | $2,346 | $1,963 | | Welding | $1,894 | $1,650 | $1,384 | | Polymers & Fluids | $1,905 | $1,804 | $1,622 | | Construction Products | $2,113 | $1,945 | $1,652 | | Specialty Products | $1,799 | $1,854 | $1,660 | Operating Income by Segment (in millions) | Segment | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Automotive OEM | $499 | $545 | $457 | | Food Equipment | $618 | $469 | $342 | | Test & Measurement and Electronics | $684 | $643 | $507 | | Welding | $583 | $490 | $376 | | Polymers & Fluids | $479 | $457 | $402 | | Construction Products | $548 | $530 | $421 | | Specialty Products | $481 | $504 | $432 | [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity through free cash flow, prioritizing dividends and share repurchases - Primary sources of liquidity are free cash flow and short-term credit facilities; as of Dec 31, 2022, the company had **$708 million in cash** and no outstanding borrowings under its **$3.0 billion revolving credit facility**[180](index=180&type=chunk)[194](index=194&type=chunk) Cash Flow Summary (in millions) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $2,348 | $2,557 | $2,807 | | Additions to plant and equipment | ($412) | ($296) | ($236) | | **Free cash flow** | **$1,936** | **$2,261** | **$2,571** | - In 2022, the company repurchased approximately **8.3 million shares for $1.75 billion** and paid **$1.5 billion in dividends**[130](index=130&type=chunk) - The **total debt to EBITDA ratio improved to 1.8x** in 2022 from 2.0x in 2021 and 2.5x in 2020[197](index=197&type=chunk) - After-tax Return on Average Invested Capital (ROIC) was **29.1% in 2022**, a slight decrease from 29.5% in 2021, but up from 26.2% in 2020[187](index=187&type=chunk) [Critical Accounting Estimates](index=48&type=section&id=Critical%20Accounting%20Estimates) Key estimates involve income taxes, goodwill impairment, and pension benefit obligations - The company identifies three critical accounting estimates: Income Taxes, Goodwill and Intangible Assets, and Pension and Other Postretirement Benefits[199](index=199&type=chunk)[200](index=200&type=chunk) - **Goodwill and Intangible Assets:** The company had approximately **$5.6 billion in goodwill and intangible assets** as of December 31, 2022, with impairment testing relying on estimates of future cash flows and market data[201](index=201&type=chunk)[202](index=202&type=chunk) - **Pension Benefits:** Determining pension obligations involves significant assumptions about discount rates and expected long-term return on plan assets; a **25 basis point decrease in the discount rate** would increase the U.S. pension obligation by approximately **$27 million**[203](index=203&type=chunk)[204](index=204&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from currency, commodity, and interest rate fluctuations - The company is exposed to market risks including fluctuations in currency exchange rates, commodity price volatility, and changes in interest rates[206](index=206&type=chunk) - To hedge against foreign currency risk, the company has designated its Euro-denominated notes as a hedge of its net investment in Euro-based operations[209](index=209&type=chunk) [Financial Statements and Supplementary Data](index=51&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the audited consolidated financial statements and the independent auditor's report Key Financial Statement Data (Year Ended Dec 31, 2022) | Metric | Amount (in millions) | | :--- | :--- | | **Income Statement** | | | Operating Revenue | $15,932 | | Operating Income | $3,790 | | Net Income | $3,034 | | Diluted EPS | $9.77 | | **Balance Sheet** | | | Total Assets | $15,422 | | Total Liabilities | $12,333 | | Total Stockholders' Equity | $3,089 | | **Cash Flow Statement** | | | Net Cash from Operating Activities | $2,348 | - Management assessed the company's internal control over financial reporting as **effective** as of December 31, 2022, based on the COSO framework[212](index=212&type=chunk) - The independent auditor, Deloitte & Touche LLP, issued an **unqualified opinion** on the financial statements and the effectiveness of internal control over financial reporting[216](index=216&type=chunk) Part III [Directors, Executive Officers, Compensation, and Governance](index=88&type=section&id=Items%2010-14) Information on governance, compensation, and security ownership is incorporated by reference from the 2023 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Director Independence (Item 13), and Principal Accounting Fees (Item 14) is **incorporated by reference** from the Company's 2023 Proxy Statement[358](index=358&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=89&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K; the financial statements are located in Item 8[366](index=366&type=chunk)

Illinois Tool Works Inc. (NYSE:ITW) Q4 2022 Results Conference Call February 2, 2023 10:00 AM ET Company Participants Karen Fletcher - Vice President, Investor Relations Scott Santi - Chairman and Chief Executive Officer Michael Larsen - Senior Vice President and Chief Financial Officer Conference Call Participants Jamie Cook - Credit Suisse Scott Davis - Melius Research Tami Zakaria - JPMorgan Andy Kaplowitz - Citigroup Jeff Sprague - Vertical Research Stephen Volkmann - Jefferies Dan Donner - BMO Capital ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number: 1-4797 ILLINOIS TOOL WORKS INC. (Exact name of registrant as specified in its charter) | Delaware | ...

Financial Data and Key Metrics Changes - The company reported organic growth of 10.4% and operating margin of 23.1% for Q2 2022, with GAAP EPS of $2.37, marking the second highest quarterly EPS ever [5][12] - Quarterly revenue grew 9% to exceed $4 billion for the first time since 2012, with the MTS acquisition contributing 3% to revenue [12] - Free cash flow increased by 69% to $420 million compared to Q1 [15] Business Line Data and Key Metrics Changes - Automotive OEM segment experienced organic growth of 6%, with North America growing 18% while Europe and China saw declines [18] - Food Equipment led with an organic growth rate of 25%, achieving record quarterly revenues of $614 million and an operating margin of 24.7% [22] - Welding segment reported strong organic growth of 22%, with North America growing 25% [24] - Polymers & Fluids grew 10% organically, with Polymers up 25% [25] - Construction segment delivered strong organic growth of 15%, with North America up 29% [26] - Specialty segment was the only one to decline, with organic revenue down 2% due to supply chain constraints [27] Market Data and Key Metrics Changes - North America grew 14%, while international markets grew 6%, with Europe up 6% and Asia Pacific up 3% [13] - China organic revenue was down 4%, with lockdowns estimated to have reduced the organic growth rate by about 1 percentage point [13] Company Strategy and Development Direction - The company is focused on executing its "Win the Recovery" strategy to accelerate profitable market penetration and organic growth [6] - Management emphasized the importance of maintaining operational execution and delivering differentiated performance for shareholders [11][30] Management Comments on Operating Environment and Future Outlook - Management acknowledged challenges from input cost inflation and supply chain issues but noted some stabilization in Q2 [8] - The company maintained its full-year guidance for organic growth of 8.5% and GAAP EPS of $9.20, which would be an all-time record [10][29] - Management expressed confidence in the company's ability to deliver strong performance despite macro uncertainties [30][31] Other Important Information - The effective tax rate for Q2 was 18.3%, compared to 10.1% last year, with a one-time tax benefit of $0.16 [15] - The company expects margin dilution impact to be neutral in the second half of the year, contrasting with 200 basis points of headwind in the first half [29] Q&A Session Summary Question: Can you provide insights on underlying demand trends in consumer versus capital goods businesses? - Management noted a slowdown in the automotive aftermarket and international construction businesses, which represent less than 15% of overall revenues, while the remaining 85% remains strong [36] Question: How do you view the price/cost margin impact for the second half of the year? - Management expects the margin dilution impact to be neutral in the second half, based on known price and cost increases [38] Question: Is the weakness in international construction focused on both residential and non-residential markets? - Management confirmed that the weakness is primarily in the residential market in Europe and Australia [40] Question: What is the outlook for organic growth in Europe? - Management expects low single-digit growth rates in Europe, with positive signals from automotive customers for potential ramp-up in production [43] Question: Can you clarify the margin outlook for the back half of the year? - Management indicated that the margin guide implies significant improvement in the fourth quarter due to reduced price/cost margin dilution impact [70]