itw-20230331

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	March 31, 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 March 31, 2023: 303,902,781


	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	14
Item 4.	Controls and Procedures	29

	PART II - Other Information

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31

Signatures		32

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


	Three Months Ended
	March 31,
In millions except per share amounts	2023		2022
Operating Revenue	$	4,019	$	3,939
Cost of revenue	2,341		2,357
Selling, administrative, and research and development expenses	675		652
Amortization and impairment of intangible assets	31		35
Operating Income	972		895
Interest expense	(60)		(48)
Other income (expense)	10		14
Income Before Taxes	922		861
Income Taxes	208		199
Net Income	$	714	$	662

Net Income Per Share:
Basic	$	2.34	$	2.12
Diluted	$	2.33	$	2.11

Shares of Common Stock Outstanding During the Period:
Average	305.0		312.5
Average assuming dilution	306.1		313.7

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
	March 31,
In millions	2023		2022
Net Income	$	714	$	662

Foreign currency translation adjustments, net of tax	37		26
Pension and other postretirement benefit adjustments, net of tax	—		5
Other comprehensive income (loss)	37		31

Comprehensive Income	$	751	$	693

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	March 31, 2023		December 31, 2022
Assets
Current Assets:
Cash and equivalents	$	1,143	$	708
Trade receivables	3,201		3,171
Inventories	2,000		2,054
Prepaid expenses and other current assets	334		329
Assets held for sale	10		8
Total current assets	6,688		6,270

Net plant and equipment	1,885		1,848
Goodwill	4,884		4,864
Intangible assets	738		768
Deferred income taxes	503		494
Other assets	1,223		1,178
	$	15,921	$	15,422

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	2,870	$	1,590
Accounts payable	599		594
Accrued expenses	1,504		1,728
Cash dividends payable	398		400
Income taxes payable	224		147
Liabilities held for sale	1		1
Total current liabilities	5,596		4,460

Noncurrent Liabilities:
Long-term debt	5,510		6,173
Deferred income taxes	477		484
Noncurrent income taxes payable	273		273
Other liabilities	964		943
Total noncurrent liabilities	7,224		7,873

Stockholders' Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2023 and 2022 Outstanding- 303.9 shares in 2023 and 305.0 shares in 2022	6		6
Additional paid-in-capital	1,526		1,501
Retained earnings	26,115		25,799
Common stock held in treasury	(22,743)		(22,377)
Accumulated other comprehensive income (loss)	(1,804)		(1,841)
Noncontrolling interest	1		1
Total stockholders' equity	3,101		3,089
	$	15,921	$	15,422

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Changes in Stockholders' Equity (Unaudited)


In millions except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total

Three Months Ended March 31, 2023
Balance at December 31, 2022	$	6	$	1,501	$	25,799	$	(22,377)	$	(1,841)	$	1	$	3,089
Net income	—		—		714		—		—		—		714
Common stock issued for stock-based compensation	—		8		—		11		—		—		19
Stock-based compensation expense	—		17		—		—		—		—		17
Repurchases of common stock	—		—		—		(375)		—		—		(375)
Excise tax on repurchases of common stock	—		—		—		(2)		—		—		(2)
Dividends declared ($1.31 per share)	—		—		(398)		—		—		—		(398)
Other comprehensive income (loss)	—		—		—		—		37		—		37

Balance at March 31, 2023	$	6	$	1,526	$	26,115	$	(22,743)	$	(1,804)	$	1	$	3,101

Three Months Ended March 31, 2022
Balance at December 31, 2021	$	6	$	1,432	$	24,325	$	(20,636)	$	(1,502)	$	1	$	3,626
Net income	—		—		662		—		—		—		662
Common stock issued for stock-based compensation	—		(1)		—		3		—		—		2
Stock-based compensation expense	—		16		—		—		—		—		16
Repurchases of common stock	—		—		—		(375)		—		—		(375)
Dividends declared ($1.22 per share)	—		—		(380)		—		—		—		(380)
Other comprehensive income (loss)	—		—		—		—		31		—		31

Balance at March 31, 2022	$	6	$	1,447	$	24,607	$	(21,008)	$	(1,471)	$	1	$	3,582

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Cash Flows (Unaudited)


	Three Months Ended
	March 31,
In millions	2023		2022
Cash Provided by (Used for) Operating Activities:
Net income	$	714	$	662
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	68		71
Amortization and impairment of intangible assets	31		35
Change in deferred income taxes	3		(37)
Provision for uncollectible accounts	3		1
(Income) loss from investments	(2)		(1)
(Gain) loss on sale of plant and equipment	(1)		—
(Gain) loss on sale of operations and affiliates	—		—
Stock-based compensation expense	17		16
Other non-cash items, net	4		—
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	(17)		(301)
Inventories	64		(207)
Prepaid expenses and other assets	(50)		(47)
Increase (decrease) in-
Accounts payable	2		116
Accrued expenses and other liabilities	(184)		(119)
Income taxes	77		134
Other, net	(1)		—
Net cash provided by operating activities	728		323
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	—		(2)
Additions to plant and equipment	(113)		(74)
Proceeds from investments	2		2
Proceeds from sale of plant and equipment	3		2
Proceeds from sales of operations and affiliates	(3)		—
Other, net	—		(1)
Net cash provided by (used for) investing activities	(111)		(73)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(400)		(382)
Issuance of common stock	33		16
Repurchases of common stock	(375)		(375)
Net proceeds from (repayments of) debt with original maturities of three months or less	709		564
Proceeds from debt with original maturities of more than three months	—		357
Repayments of debt with original maturities of more than three months	(138)		(656)
Other, net	(14)		(13)
Net cash provided by (used for) financing activities	(185)		(489)
Effect of Exchange Rate Changes on Cash and Equivalents	3		8
Cash and Equivalents:
Increase (decrease) during the period	435		(231)
Beginning of period	708		1,527
End of period	$	1,143	$	1,296
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	62	$	58
Cash Paid During the Period for Income Taxes, Net of Refunds	$	128	$	102

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

Illinois Tool Works Inc. and Subsidiaries

Notes to Financial Statements (Unaudited)

(1) Significant Accounting Policies

Financial Statements— The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the "Company"). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. Interim results are not necessarily indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and notes to financial statements included in the Company's 2022 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

(2) Divestitures

The Company routinely reviews its portfolio of businesses relative to its business portfolio criteria and evaluates if further portfolio refinements may be needed. As such, the Company may commit to a plan to exit or dispose of certain businesses and present them as held for sale in periods prior to the sale of the business.

In the second quarter of 2022, plans were approved to divest two businesses, including one business in the Polymers & Fluids segment and one business in the Food Equipment segment. These two businesses were classified as held for sale beginning in the second quarter of 2022. In the fourth quarter of 2022, both of these businesses were divested. On October 3, 2022, the business in the Polymers & Fluids segment was sold for $220 million, subject to certain closing adjustments, resulting in a pre-tax gain of $156 million. On December 1, 2022, the business in the Food Equipment segment was sold for $59 million, subject to certain closing adjustments, resulting in a pre-tax gain of $41 million. Operating revenue related to these divested businesses that was included in the Company's results of operations for the three months ended March 31, 2022 was $28 million.

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 $10 million and $1 million, respectively, as of March 31, 2023, and $8 million and $1 million, respectively, as of December 31, 2022. Operating revenue for this business was $9 million for the three months ended March 31, 2023 and 2022. This business was sold on April 3, 2023, with no significant gain or loss expected from the sale of the business.

(3) Operating Revenue

The Company's 84 diversified operating divisions are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three months ended March 31, 2023 and 2022 was as follows:


	Three Months Ended
	March 31,
In millions	2023		2022
Automotive OEM	$	796	$	760
Food Equipment	635		566
Test & Measurement and Electronics	703		685
Welding	493		450
Polymers & Fluids	447		481
Construction Products	526		551
Specialty Products	423		452
Intersegment revenue	(4)		(6)
Total operating revenue	$	4,019	$	3,939

The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's seven segments:

Automotive OEM— This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

•plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.

Products sold in this segment are primarily manufactured to the customer's specifications and are sold under long-term supply agreements with OEM auto manufacturers and other top tier auto parts suppliers. The Company typically recognizes revenue for products in this segment at the time of shipment. Certain products may be produced utilizing tooling that is owned by the customer that the Company developed and is reimbursed by the customer for the associated cost. In these arrangements, the Company typically retains a contractual right to use the customer-owned tooling for the purpose of fulfilling its obligations under the supply agreement. The Company records reimbursements for the cost of customer-owned tooling as a cost offset rather than operating revenue as tooling is not considered a product offering central to the Company's operations.

Food Equipment— This segment is a highly focused and branded industry leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food service, food retail and food institutional/restaurant markets. Products in this segment include:

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

•refrigeration equipment, including refrigerators, freezers and prep tables;

•food processing equipment, including slicers, mixers and scales;

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

Revenue for equipment sold in this segment is typically recognized at the time of product shipment. In limited circumstances involving installation of equipment and customer acceptance, the Company may recognize revenue upon completion of installation and acceptance by the customer. Annual service contracts are typically sold separate from equipment and the related revenue is recognized on a straight-line basis over the annual service period. Operating revenue for on-demand service repairs and parts is recorded upon completion and customer acceptance of the work performed.

Test & Measurement and Electronics— This segment is a branded and innovative producer of test and measurement and electronic manufacturing and maintenance, repair, and operations, or "MRO" solutions that improve efficiency and quality for customers in diverse end markets. Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, automotive original equipment manufacturers and tiers, energy, consumer durables and industrial capital goods markets. Products in this segment include:

•equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids;

•electronic assembly equipment;

•electronic components and component packaging;

•static control equipment and consumables used for contamination control in clean room environments; and

•pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications.

Revenue for products sold in this segment is typically recognized at the time of shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue recognition is deferred until such obligations have been completed. In other limited arrangements involving the sale of highly specialized systems that include a high degree of customization and installation at the customer site, revenue is recognized over time if the product does not have an alternative use and the Company has an enforceable right to payment for work performed to date. Revenue for transactions meeting these criteria is recognized over time as work is performed based on the costs incurred to date relative to the total estimated costs at completion.

Welding— This segment is a branded value-added equipment and specialty consumable manufacturer with innovative and leading technology. Businesses in this segment produce arc welding equipment, consumables and accessories for a wide array of industrial and commercial applications. This segment primarily serves the general industrial market, which includes fabrication, shipbuilding and other general industrial markets, and construction, energy, MRO, industrial capital goods and automotive original equipment manufacturers and tiers markets. Products in this segment include:

•arc welding equipment; and

•metal arc welding consumables and related accessories.

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

Polymers & Fluids— This segment is a branded supplier to niche markets that require value-added, differentiated products. Businesses in this segment produce engineered adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. This segment primarily serves the automotive aftermarket, general industrial and MRO markets. Products in this segment include:

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to machines;

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

•hand wipes and cleaners for industrial applications;

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

•fillers and putties for auto body repair; and

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

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

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

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

•anchors, fasteners and related tools for concrete applications;

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

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

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

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

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

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

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

•product coding and marking equipment and related consumables;

•plastic and metal closures and components for appliances;

•airport ground support equipment; and

•components for medical devices.

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

(4) Income Taxes

The Company's effective tax rate for the three months ended March 31, 2023 and 2022 was 22.6% and 23.1%, respectively. The effective tax rates included discrete income tax benefits related to excess tax benefits from stock-based compensation of $13 million and $8 million for the three months ended March 31, 2023 and 2022, respectively.

The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions, including the Internal Revenue Service, His Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. The Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately $28 million related predominantly to the potential resolution of income tax examinations. The Company has recorded its best estimate of the potential exposure for these issues.

(5) Inventories

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


In millions	March 31, 2023		December 31, 2022
Raw material	$	823	$	887
Work-in-process	252		228
Finished goods	1,036		1,050
LIFO reserve	(111)		(111)
Total inventories	$	2,000	$	2,054

(6) Pension and Other Postretirement Benefits

Pension and other postretirement benefit costs for the three months ended March 31, 2023 and 2022 were as follows:


	Three Months Ended
	March 31,
	Pension				Other Postretirement Benefits
In millions	2023		2022		2023		2022
Components of net periodic benefit cost:
Service cost	$	9	$	12	$	1	$	2
Interest cost	23		13		6		3
Expected return on plan assets	(32)		(27)		(5)		(6)
Amortization of actuarial loss (gain)	1		7		(1)		(1)


Total net periodic benefit cost (income)	$	1	$	5	$	1	$	(2)

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 2023. As of March 31, 2023, contributions of $3 million to pension plans and $2 million to other postretirement benefit plans have been made.

(7) Debt

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


In millions	March 31, 2023		December 31, 2022
Short-term debt	$	2,870	$	1,590
Long-term debt	5,510		6,173
Total debt	$	8,380	$	7,763

Short-term debt included commercial paper of $1.6 billion and $1.1 billion as of March 31, 2023 and December 31, 2022, respectively. The weighted-average interest rate on commercial paper as of March 31, 2023 and December 31, 2022 was 4.86% and 4.35%, respectively. Short-term debt as of March 31, 2023 also included $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 March 31, 2023 and December 31, 2022 included $542 million and $535 million, respectively, related to the 1.25% Euro notes due May 22, 2023, which were reclassified from Long-term debt to Short-term debt in the second quarter of 2022.

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

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

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


In millions	March 31, 2023		December 31, 2022
Fair value	$	6,376	$	6,228
Carrying value	6,751		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.

(8) Accumulated Other Comprehensive Income (Loss)

The following table summarizes changes in Accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022:


	Three Months Ended
	March 31,
In millions	2023		2022
Beginning balance	$	(1,841)	$	(1,502)

Foreign currency translation adjustments during the period

SEC Form 10-Q filed by Illinois Tool Works Inc.