PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions except per share amounts	2023		2022		2023		2022
Operating Revenue	$	4,031	$	4,011	$	12,124	$	11,961
Cost of revenue	2,319		2,371		7,004		7,120
Selling, administrative, and research and development expenses	615		624		1,980		1,935
Amortization and impairment of intangible assets	27		33		88		102
Operating Income	1,070		983		3,052		2,804
Interest expense	(67)		(52)		(196)		(147)
Other income (expense)	10		26		40		64
Income Before Taxes	1,013		957		2,896		2,721
Income Taxes	241		230		656		594
Net Income	$	772	$	727	$	2,240	$	2,127

Net Income Per Share:
Basic	$	2.55	$	2.36	$	7.38	$	6.85
Diluted	$	2.55	$	2.35	$	7.36	$	6.83

Shares of Common Stock Outstanding During the Period:
Average	301.9		308.8		303.4		310.6
Average assuming dilution	303.0		309.7		304.5		311.6

Three Months Ended
Nine Months Ended

September 30,
September 30,
In millions except per share amounts 2017
2016
2017
2016
Operating Revenue $ 3,615

$ 3,495

$ 10,685

$ 10,200
Cost of revenue 2,094

2,027

6,185

5,890
Selling, administrative, and research and development expenses 589

604

1,795

1,818
Legal settlement (income) (80 ) —
(95 ) —
Amortization and impairment of intangible assets 51

56

156

170
Operating Income 961

808

2,644

2,322
Interest expense (65 )
(58 )
(194 )
(174 )
Other income (expense) 10

13

24

34
Income Before Taxes 906

763

2,474

2,182
Income Taxes 266

228

711

654
Net Income $ 640

$ 535

$ 1,763

$ 1,528

Net Income Per Share:

Basic $ 1.86

$ 1.51

$ 5.12

$ 4.28
Diluted $ 1.85

$ 1.50

$ 5.07

$ 4.25

Cash Dividends Per Share:

Paid $ 0.65

$ 0.55

$ 1.95

$ 1.65
Declared $ 0.78

$ 0.65

$ 2.08

$ 1.75

Shares of Common Stock Outstanding During the Period:

Average 343.4

353.5

344.7

357.3
Average assuming dilution 346.0

355.5

347.5

359.3

~~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
September 30, September 30,
In millions 2017 2016 2017 2016
Net Income $ 640
$ 535
$ 1,763
$ 1,528
Other Comprehensive Income (Loss):

Foreign currency translation adjustments, net of tax 96
(5 ) 367
15
Pension and other postretirement benefit adjustments, net of tax 13
7
33
21
Comprehensive Income $ 749
$ 537
$ 2,163
$ 1,564

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
	September 30,				September 30,
In millions	2023		2022		2023		2022
Net Income	$	772	$	727	$	2,240	$	2,127

Foreign currency translation adjustments, net of tax	(82)		(210)		(61)		(394)
Pension and other postretirement benefit adjustments, net of tax	—		5		—		14
Other comprehensive income (loss)	(82)		(205)		(61)		(380)

Comprehensive Income	$	690	$	522	$	2,179	$	1,747

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	September 30, 2017			December 31, 2016			In millions except per share amounts	September 30, 2023		December 31, 2022
Assets							Assets
Current Assets:							Current Assets:
Cash and equivalents	$	2,785		$	2,472		Cash and equivalents	$	990	$	708
Trade receivables	2,672			2,357			Trade receivables	3,163		3,171
Inventories	1,225			1,076			Inventories	1,799		2,054
Prepaid expenses and other current assets	230			218			Prepaid expenses and other current assets	336		329
Assets held for sale							Assets held for sale	—		8
Total current assets	6,912			6,123			Total current assets	6,288		6,270

Net plant and equipment	1,759			1,652			Net plant and equipment	1,904		1,848
Goodwill	4,732			4,558			Goodwill	4,828		4,864
Intangible assets	1,319			1,463			Intangible assets	682		768
Deferred income taxes	473			449			Deferred income taxes	455		494
Other assets	1,119			956			Other assets	1,238		1,178
	$	16,314		$	15,201			$	15,395	$	15,422

Liabilities and Stockholders' Equity							Liabilities and Stockholders' Equity
Current Liabilities:							Current Liabilities:
Short-term debt	$	698		$	652		Short-term debt	$	1,248	$	1,590
Accounts payable	585			511			Accounts payable	580		594
Accrued expenses	1,231			1,202			Accrued expenses	1,588		1,728
Cash dividends payable	267			226			Cash dividends payable	421		400
Income taxes payable	86			169			Income taxes payable	145		147
Liabilities held for sale							Liabilities held for sale	—		1
Total current liabilities	2,867			2,760			Total current liabilities	3,982		4,460

Noncurrent Liabilities:							Noncurrent Liabilities:
Long-term debt	7,439			7,177			Long-term debt	6,818		6,173
Deferred income taxes	112			134			Deferred income taxes	464		484
Noncurrent income taxes payable							Noncurrent income taxes payable	151		273
Other liabilities	870			871			Other liabilities	976		943
Total noncurrent liabilities	8,421			8,182			Total noncurrent liabilities	8,409		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):
Issued- 550.0 shares in 2017 and 2016 Outstanding- 342.6 shares in 2017 and 346.9 shares in 2016	6			6
Issued- 550.0 shares in 2023 and 2022 Outstanding- 300.9 shares in 2023 and 305.0 shares in 2022							Issued- 550.0 shares in 2023 and 2022 Outstanding- 300.9 shares in 2023 and 305.0 shares in 2022	6		6
Additional paid-in-capital	1,207			1,188			Additional paid-in-capital	1,569		1,501
Retained earnings	20,553			19,505			Retained earnings	26,823		25,799
Common stock held in treasury	(15,336		)	(14,638		)	Common stock held in treasury	(23,493)		(22,377)
Accumulated other comprehensive income (loss)	(1,407		)	(1,807		)	Accumulated other comprehensive income (loss)	(1,902)		(1,841)
Noncontrolling interest	3			5			Noncontrolling interest	1		1
Total stockholders’ equity	5,026			4,259
Total stockholders' equity							Total stockholders' equity	3,004		3,089
	$	16,314		$	15,201			$	15,395	$	15,422

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

Illinois Tool Works Inc. and Subsidiaries

Statement of ~~Cash Flows~~Changes in Stockholders' Equity (Unaudited)

Nine Months Ended
September 30,
In millions 2017 2016
Cash Provided by (Used for) Operating Activities:
Net income $ 1,763
$ 1,528
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation 188
182
Amortization and impairment of intangible assets 156
170
Change in deferred income taxes 55
(228 )
Provision for uncollectible accounts 3
7
(Income) loss from investments (13 ) (5 )
(Gain) loss on sale of plant and equipment —
2
(Gain) loss on sale of operations and affiliates —
6
Stock-based compensation expense 27
31
Other non-cash items, net 6
(4 )
Change in assets and liabilities, net of acquisitions and divestitures:

(Increase) decrease in-

Trade receivables (197 ) (198 )
Inventories (93 ) (47 )
Prepaid expenses and other assets (97 ) (30 )
Increase (decrease) in-

Accounts payable 41
23
Accrued expenses and other liabilities (56 ) (8 )
Income taxes (76 ) 209
Net cash provided by operating activities 1,707
1,638
Cash Provided by (Used for) Investing Activities:

Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates (3 ) (456 )
Additions to plant and equipment (219 ) (202 )
Proceeds from investments 25
17
Proceeds from sale of plant and equipment 8
11
Proceeds from sales of operations and affiliates 2
1
Other, net (7 ) (8 )
Net cash provided by (used for) investing activities (194 ) (637 )
Cash Provided by (Used for) Financing Activities:

Cash dividends paid (674 ) (593 )
Issuance of common stock 58
74
Repurchases of common stock (750 ) (1,482 )
Net proceeds from (repayments of) debt with original maturities of three months or less 697
188
Proceeds from debt with original maturities of more than three months —
1
Repayments of debt with original maturities of more than three months (652 ) (1 )
Excess tax benefits from stock-based compensation —
25
Other, net (13 ) (11 )
Net cash provided by (used for) financing activities (1,334 ) (1,799 )
Effect of Exchange Rate Changes on Cash and Equivalents 134
7
Cash and Equivalents:

Increase (decrease) during the period 313
(791 )
Beginning of period 2,472
3,090
End of period $ 2,785
$ 2,299
Supplementary Cash and Non-Cash Information:
Cash Paid During the Period for Interest $ 208
$ 198
Cash Paid During the Period for Income Taxes, Net of Refunds $ 732
$ 648


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, 2023
Balance at June 30, 2023	$	6	$	1,550	$	26,473	$	(23,116)	$	(1,820)	$	1	$	3,094
Net income	—		—		772		—		—		—		772
Common stock issued for stock-based compensation	—		2		—		1		—		—		3
Stock-based compensation expense	—		17		—		—		—		—		17
Repurchases of common stock	—		—		—		(375)		—		—		(375)
Excise tax on repurchases of common stock	—		—		—		(3)		—		—		(3)
Dividends declared ($1.40 per share)	—		—		(422)		—		—		—		(422)
Other comprehensive income (loss)	—		—		—		—		(82)		—		(82)

Balance at September 30, 2023	$	6	$	1,569	$	26,823	$	(23,493)	$	(1,902)	$	1	$	3,004

Three Months Ended September 30, 2022
Balance at June 30, 2022	$	6	$	1,464	$	24,967	$	(21,382)	$	(1,677)	$	1	$	3,379
Net income	—		—		727		—		—		—		727

Stock-based compensation expense	—		15		—		—		—		—		15
Repurchases of common stock	—		—		—		(500)		—		—		(500)
Dividends declared ($1.31 per share)	—		—		(402)		—		—		—		(402)
Other comprehensive income (loss)	—		—		—		—		(205)		—		(205)

Balance at September 30, 2022	$	6	$	1,479	$	25,292	$	(21,882)	$	(1,882)	$	1	$	3,014

Nine Months Ended September 30, 2023
Balance at December 31, 2022	$	6	$	1,501	$	25,799	$	(22,377)	$	(1,841)	$	1	$	3,089
Net income	—		—		2,240		—		—		—		2,240
Common stock issued for stock-based compensation	—		16		—		18		—		—		34
Stock-based compensation expense	—		52		—		—		—		—		52
Repurchases of common stock	—		—		—		(1,125)		—		—		(1,125)
Excise tax on repurchases of common stock	—		—		—		(9)		—		—		(9)
Dividends declared ($4.02 per share)	—		—		(1,216)		—		—		—		(1,216)
Other comprehensive income (loss)	—		—		—		—		(61)		—		(61)

Balance at September 30, 2023	$	6	$	1,569	$	26,823	$	(23,493)	$	(1,902)	$	1	$	3,004

Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	6	$	1,432	$	24,325	$	(20,636)	$	(1,502)	$	1	$	3,626
Net income	—		—		2,127		—		—		—		2,127
Common stock issued for stock-based compensation	—		(1)		—		4		—		—		3
Stock-based compensation expense	—		48		—		—		—		—		48
Repurchases of common stock	—		—		—		(1,250)		—		—		(1,250)
Dividends declared ($3.75 per share)	—		—		(1,160)		—		—		—		(1,160)
Other comprehensive income (loss)	—		—		—		—		(380)		—		(380)

Balance at September 30, 2022	$	6	$	1,479	$	25,292	$	(21,882)	$	(1,882)	$	1	$	3,014

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
	September 30,
In millions	2023		2022
Cash Provided by (Used for) Operating Activities:
Net income	$	2,240	$	2,127
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	208		209
Amortization and impairment of intangible assets	88		102
Change in deferred income taxes	5		(72)
Provision for uncollectible accounts	7		4
(Income) loss from investments	—		(8)
(Gain) loss on sale of plant and equipment	—		(1)
(Gain) loss on sale of operations and affiliates	(1)		(1)
Stock-based compensation expense	52		48
Other non-cash items, net	(5)		1
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	(39)		(417)
Inventories	235		(477)
Prepaid expenses and other assets	(23)		27
Increase (decrease) in-
Accounts payable	(3)		84
Accrued expenses and other liabilities	(123)		14
Income taxes	(140)		(102)
Other, net	(1)		(1)
Net cash provided by operating activities	2,500		1,537
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	—		(2)
Additions to plant and equipment	(324)		(256)
Proceeds from investments	25		12
Proceeds from sale of plant and equipment	11		8
Proceeds from sales of operations and affiliates	7		3
Other, net	(2)		(2)
Net cash provided by (used for) investing activities	(283)		(237)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(1,194)		(1,139)
Issuance of common stock	49		17
Repurchases of common stock	(1,125)		(1,250)
Net proceeds from (repayments of) debt with original maturities of three months or less	(367)		1,078
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	(678)		(1,110)
Other, net	(15)		(15)
Net cash provided by (used for) financing activities	(1,905)		(1,965)
Effect of Exchange Rate Changes on Cash and Equivalents	(30)		(88)
Cash and Equivalents:
Increase (decrease) during the period	282		(753)
Beginning of period	708		1,527
End of period	$	990	$	774
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	216	$	170
Cash Paid During the Period for Income Taxes, Net of Refunds	$	791	$	768

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”~~"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~~ ~~2016~~Company's 2022 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

~~New Accounting Pronouncements -~~ ~~In May 2014,~~

(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 ~~Financial Accounting Standards Board (the "FASB") issued authoritative guidance~~Company may commit to ~~change~~a plan to exit or dispose of certain businesses and present them as held for sale in periods prior to the ~~criteria for revenue recognition. The core principle~~sale of the ~~new standard is~~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 ~~revenue should be recognized to depict~~was included in the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, several new revenue recognition disclosures will be required. Under current guidance, the Company generally recognizes operating revenue when ownership and risk of loss are transferred to the customer, which is typically at the time of product shipment or delivery of service. The Company has completed a review of revenue transactions for a significant portion of its businesses. While the review is not fully completed, the Company does not currently expect the adoption of this guidance to have a material impact on its operating revenue,Company's results of operations ~~or financial position. However,~~for the ~~Company expects~~three and nine months ended September 30, 2022 was $37 million and $100 million, respectively.

In the fourth quarter of 2022, plans were approved to ~~provide additional disclosures~~divest one business in the ~~notes to financial statements required under the new guidance. The new guidance will be effective~~Specialty Products segment. This business was presented as held for ~~the Company~~sale beginning ~~January 1, 2018 and allows for either full or modified retrospective adoption methods. The Company expects to adopt the new revenue accounting guidance utilizing the modified retrospective method.~~

In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will be required to recognize a lease liability and lease asset for all leases with a lease term greater than twelve months in the ~~statement~~fourth quarter of financial position, including operating leases. Subsequent measurement, including presentation of expenses and cash flows, will depend on the classification of the lease as either a financing or operating lease. In addition, several new disclosures will be required. This guidance will be effective for the Company beginning January 1, 2019, with early adoption permitted. While the Company has not yet completed its evaluation of the impact the new lease accounting guidance will have on the consolidated financial statements and related disclosures, the Company expects to recognize right of use assets2022. Assets and liabilities held for ~~its operating leases~~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 upon adoption.~~

In March 2016, the FASB issued authoritative guidance that included several changes to simplify the accounting for stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows. Among the more significant changes, the new guidance requires the income tax effects associated with the settlement of stock-based awards to be recognized through income tax expense rather than directly in equity. Additionally, the income tax effects related to excess tax benefits should be presented within operating cash flows in the statement of cash flows rather than as a financing activity. Excess tax benefits recognized in equity under the prior guidance were $25operations was $9 million for the nine months ended September 30, ~~2016. The Company adopted the new guidance effective January 1, 2017~~2023, and ~~applied the newly adopted provisions prospectively. Excess tax benefits of $6~~$10 million and ~~$32~~$29 million ~~were included in Income Taxes in the statement of income~~ for the three and nine ~~month periods~~months ended September 30, ~~2017,~~2022, respectively. ~~The expected effect on income tax expense or net cash provided from~~There was no operating ~~activities~~revenue related to ~~future stock-based award settlements will vary each quarter~~this business included in the Company's results of operations for the three months ended September 30, 2023.

(3) Operating Revenue

The Company's 84 diversified operating divisions are organized and ~~will depend~~managed based on ~~inputs such~~similar product offerings and end markets, and are reported to senior management as the ~~stock price~~following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three and nine months ended September 30, 2023 and 2022 was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions	2023		2022		2023		2022
Automotive OEM	$	799	$	753	$	2,421	$	2,224
Food Equipment	678		633		1,967		1,813
Test & Measurement and Electronics	698		715		2,101		2,096
Welding	468		477		1,451		1,413
Polymers & Fluids	458		473		1,364		1,450
Construction Products	522		527		1,574		1,643
Specialty Products	414		438		1,260		1,337
Intersegment revenue	(6)		(5)		(14)		(15)
Total operating revenue	$	4,031	$	4,011	$	12,124	$	11,961

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 ~~settlement~~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 ~~number~~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 ~~awards settled~~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 ~~period presented.~~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 ~~October 2016,~~limited circumstances where significant obligations to the ~~FASB issued authoritative guidance requiring~~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 September 30, 2023 and 2022 was 23.8% and 23.9%, respectively, and 22.7% and 21.8% for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate for the nine months ended September 30, 2023 included a discrete income tax ~~consequences~~benefit of ~~an intra-entity transfer~~$20 million in the second quarter of ~~an asset, other than inventory, when~~2023 related to amended 2021 U.S. taxes. The effective tax rate for the ~~transfer occurs rather than when transferred~~nine months ended September 30, 2022 included a discrete income tax benefit of $51 million in the second quarter of 2022 related to a ~~third party as required under~~decrease in unrecognized tax benefits resulting from the ~~current guidance. The new guidance is~~resolution of a U.S. tax audit. Additionally, the effective tax rates for 2023 and 2022 included discrete income tax benefits related to excess tax benefits from stock-based compensation of $2 million and $1 million for the ~~Company beginning January 1, 2018~~three months ended September 30, 2023 and will be applied prospectively with the cumulative effect of adoption recorded directly to retained earnings. Although the Company is currently completing its assessment of the potential impact of this new guidance, the Company anticipates a cumulative-effect balance sheet adjustment reducing deferred tax assets2022, respectively, and retained earnings upon adoption. Additionally, intra-entity asset transfers may result in future tax rate volatility under the new guidance. The Company intends to complete its assessment in the fourth quarter of 2017.

~~In March 2017, the FASB issued authoritative guidance which changes the income statement presentation of the components of net periodic benefit cost related to defined benefit pension~~$19 million and ~~other postretirement plans. The primary change under the new guidance is that only the service cost component of net periodic benefit cost should be included in operating income and is~~

eligible for capitalization as an asset. The other components of net periodic benefit cost, such as interest cost, the expected return on assets, and amortization of actuarial gains and losses and prior service cost, should be presented below operating income. The guidance is effective for the Company starting January 1, 2018 and will be applied retrospectively to the presentation of net periodic benefit cost and prospectively to the capitalization of service cost. The Company does not expect the adoption of this guidance to have a material impact on the results of operations or financial position. Refer to Note 6. Pension and Other Postretirement Benefits for further information information regarding the Company’s net periodic benefit cost.

~~(2) Acquisition~~

On July 1, 2016, the Company completed the acquisition of the Engineered Fasteners and Components business ("EF&C") from ZF TRW for a purchase price of approximately $450 million. The acquisition of EF&C did not materially affect the Company’s results of operations or financial position for the periods presented.

~~EF&C had operating revenue of $382~~$9 million for the nine months ended September 30, ~~2017 which was reported within the Company’s Automotive OEM segment. As a result of the EF&C transaction, the Company recorded $187 million of goodwill~~2023 and $134 million of amortizable intangible assets primarily related to customer relationships and technology. The intangible assets will be amortized on a straight-line basis over their estimated useful lives ranging from 4 to 17 years, with a weighted average amortization period of 16 years.2022, respectively.

~~(3) Income Taxes~~

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"), Her~~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. ~~Due to the ongoing audits, the~~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 ~~$96~~$13 million related predominantly to ~~various intercompany transactions.~~the potential resolution of income tax examinations. The Company has recorded its best estimate of the potential exposure for these issues.

~~On February 18, 2014,~~

(5) Net Income Per Share

Net income per basic share is computed by dividing net income by the ~~Company received a Notice~~weighted-average number of ~~Deficiency (“NOD”) from the IRS asserting that a non-taxable return of capital received from a subsidiary was a taxable dividend distribution. The NOD assesses additional taxes of $70 million~~shares outstanding for the ~~2006 tax year, plus interest~~period. Net income per diluted share is computed by dividing net income by the weighted-average number of shares assuming dilution for stock options and ~~penalties. In May 2014,~~restricted stock units. Dilutive shares reflect the ~~Company petitioned~~potential additional shares that would be outstanding if the ~~United States Tax Court to challenge the NOD. The Company's petition was subsequently denied~~dilutive stock options outstanding were exercised and the ~~case proceeded to court with~~unvested restricted stock units vested during the ~~trial taking place~~period. The computation of net income per share for the three and nine months ended September 30, 2023 and 2022 was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions except per share amounts	2023		2022		2023		2022
Net Income	$	772	$	727	$	2,240	$	2,127
Net income per share—Basic:
Weighted-average common shares	301.9		308.8		303.4		310.6
Net income per share—Basic	$	2.55	$	2.36	$	7.38	$	6.85
Net income per share—Diluted:
Weighted-average common shares	301.9		308.8		303.4		310.6
Effect of dilutive stock options and restricted stock units	1.1		0.9		1.1		1.0
Weighted-average common shares assuming dilution	303.0		309.7		304.5		311.6
Net income per share—Diluted	$	2.55	$	2.35	$	7.36	$	6.83

Options that were considered antidilutive were not included in the ~~third quarter~~computation of ~~2016. Final decision by~~diluted net income per share. There were 0.3 million and 0.9 million antidilutive options outstanding for the tax court is expected in 2017 or 2018. Although the court's final decision cannot be predicted with certainty, the Company believes its position continues to be supportable. Accordingly, no reserve has been recorded related to this matter.

~~(4) Inventories~~

~~Inventories as of~~ three months ended September 30, ~~2017~~2023 and ~~December 31, 2016~~ ~~were as follows:~~2022, respectively, and 0.3 million and 0.9 million antidilutive options outstanding for the nine months ended September 30, 2023 and 2022, respectively.

In millions September 30, 2017 December 31, 2016
Raw material $ 453
$ 407
Work-in-process 148
126
Finished goods 709
629
LIFO reserve (85 ) (86 )
Total inventories $ 1,225
$ 1,076

~~(5)~~(6) Goodwill and Intangible Assets

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarters of ~~2017~~2023 and ~~2016.~~2022. The ~~assessment~~assessments resulted in no impairment charges in either ~~2017~~2023 or ~~2016.~~2022.

~~(6)~~

(7) Inventories

Inventories as of September 30, 2023 and December 31, 2022 were as follows:


In millions	September 30, 2023		December 31, 2022
Raw material	$	761	$	887
Work-in-process	267		228
Finished goods	891		1,050
LIFO reserve	(120)		(111)
Total inventories	$	1,799	$	2,054

(8) Pension and Other Postretirement Benefits

Beginning in 2017, the Company changed the method used to estimate the service and interest cost components of net periodic benefit cost related to pension and other postretirement benefit plans. The new method provides a more precise measure of the service and interest cost components of net periodic benefit cost by applying specific spot rates along the yield curve to the projected cash flows rather than a single weighted-average rate. The Company accounted for this change as a change in estimate prospectively. The change did not have a material impact on the 2017 net periodic pension and other postretirement benefit costs.

Pension and other postretirement benefit costs for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 were as follows:


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	Pension				Other Postretirement Benefits				Pension				Other Postretirement Benefits
In millions	2023		2022		2023		2022		2023		2022		2023		2022
Components of net periodic benefit cost:
Service cost	$	9	$	11	$	1	$	2	$	27	$	35	$	3	$	5
Interest cost	24		13		5		3		70		38		17		10
Expected return on plan assets	(33)		(24)		(5)		(7)		(97)		(76)		(16)		(20)
Amortization of actuarial loss (gain)	—		5		(1)		(1)		2		18		(3)		(3)
Amortization of prior service cost	1		1		—		—		1		1		—		—
Settlements	—		1		—		—		—		1		—		—
Total net periodic benefit cost (income)	$	1	$	7	$	—	$	(3)	$	3	$	17	$	1	$	(8)

Three Months Ended Nine Months Ended
September 30, September 30,
Pension Other Postretirement Benefits Pension Other Postretirement Benefits
In millions 2017 2016 2017 2016 2017 2016 2017 2016
Components of net periodic benefit cost:
Service cost $ 15
$ 15
$ 2
$ 2
$ 47
$ 47
$ 6
$ 7
Interest cost 18
23
5
6
54
70
15
18
Expected return on plan assets (33 ) (36 ) (6 ) (6 ) (99 ) (109 ) (17 ) (17 )
Amortization of actuarial loss 15
11
—
—
43
32
(1 ) —
Amortization of prior service income
—
—
—
—
—
—
—
(1 )
Total net periodic benefit cost $ 15
$ 13
$ 1
$ 2
$ 45
$ 40
$ 3
$ 7

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 ~~$179~~$13 million to its pension plans and $6$5 million to its other postretirement benefit plans in ~~2017. During the nine months ended~~2023. As of September 30, ~~2017, the Company made~~2023, contributions of ~~$174~~$8 million to ~~its~~ pension plans ~~which included an additional $115~~and $4 million ~~discretionary contribution made in the second quarter of 2017. Contributions of $5 million have been made~~ to other postretirement benefit plans ~~during the nine months ended~~have been made.

(9) Debt

Total debt as of September 30, ~~2017.~~2023 and December 31, 2022 was as follows:


In millions	September 30, 2023		December 31, 2022
Short-term debt	$	1,248	$	1,590
Long-term debt	6,818		6,173
Total debt	$	8,066	$	7,763

~~(7) Debt~~

Short-term debt included commercial paper of $548 million and $1.1 billion as of September 30, 2023 and December 31, 2022, respectively. The weighted-average interest rate on commercial paper as of September 30, 2023 and December 31, 2022 was 5.37% and 4.35%, respectively. Short-term debt as of September 30, ~~2017~~2023 also included ~~commercial paper~~$700 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 ~~$688 million.~~ 2023. Additionally,

Short-term debt as of December 31, ~~2016~~2022 included ~~$650~~$535 million related to the ~~0.90%~~1.25% Euro notes ~~paid~~due May 22, 2023, which were repaid on the ~~February 25, 2017~~ due date.

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.

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 September 30, 2023, the Company had $1.4 billion outstanding under the Euro Credit Agreement with an interest rate of 4.45%, 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 $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 September 30, 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 September 30, ~~2017~~2023 and December 31, ~~2016~~2022 were as follows:


In millions	September 30, 2023		December 31, 2022
Fair value	$	6,959	$	6,228
Carrying value	7,518		6,708

In millions September 30, 2017 December 31, 2016
Fair value $ 7,958
$ 8,281
Carrying value 7,439
7,827

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) Legal Settlement~~

In the second quarter of 2017, the Company entered into a $95 million confidential settlement agreement to resolve a litigation matter. Based on the terms of the agreement, the Company received the settlement within 120 days of the execution of the agreement. The receipt of the settlement resulted in a favorable pre-tax impact of $15 million in the second quarter of 2017 and $80 million in the third quarter of 2017, which was included in operating income.

~~(9)~~(10) Accumulated Other Comprehensive Income (Loss)

The following table summarizes changes in Accumulated other comprehensive income (loss) for the three and nine months ended September 30, ~~2017~~2023 and ~~2016:~~2022:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions	2023		2022		2023		2022
Beginning balance	$	(1,820)	$	(1,677)	$	(1,841)	$	(1,502)

Foreign currency translation adjustments during the period	(51)		(159)		(44)		(277)

Income taxes	(31)		(51)		(17)		(117)
Total foreign currency translation adjustments, net of tax	(82)		(210)		(61)		(394)


Pension and other postretirement benefit adjustments reclassified to income	—		6		—		17
Income taxes	—		(1)		—		(3)
Total pension and other postretirement benefit adjustments, net of tax	—		5		—		14

Ending balance	$	(1,902)	$	(1,882)	$	(1,902)	$	(1,882)

Three Months Ended Nine Months Ended
September 30, September 30,
In millions 2017
2016 2017 2016
Beginning balance $ (1,516 ) $ (1,470 ) $ (1,807 ) $ (1,504 )

Foreign currency translation adjustments during the period 67
(15 ) 271
(15 )
Foreign currency translation adjustments reclassified to income —
—
—
1
Income taxes 29
10
96
29
Total foreign currency translation adjustments, net of tax 96
(5 ) 367
15

Pension and other postretirement benefit adjustments during the period —
—
—
1
Pension and other postretirement benefit adjustments reclassified to income 15
11
42
31
Income taxes (2 ) (4 ) (9 ) (11 )
Total pension and other postretirement benefit adjustments, net of tax 13
7
33
21

Ending balance $ (1,407 ) $ (1,468 ) $ (1,407 ) $ (1,468 )

Pension and other postretirement benefit adjustments reclassified to income ~~relate~~related primarily to the amortization of actuarial gains and losses. Refer to Note 6.8. Pension and Other Postretirement Benefits for additional information.

The Company designated the €1.0 billion of Euro notes issued in May ~~2015 and~~2014, the €1.0 billion of Euro notes issued in May ~~2014~~2015, 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. ~~The carrying values of the 2015 and 2014 Euro notes were $1.2 billion and $1.2 billion, respectively, as of September 30, 2017.~~ Changes in the value of this debt resulting from fluctuations in the Euro to U.S. ~~dollar~~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 and on May 22, 2023, €500 million of the Euro notes issued in May 2015 were repaid on the due date. Refer to Note 9. Debt for additional information regarding the redemption and repayment of these notes. The ~~unrealized pre-tax gain recorded in Accumulated other comprehensive income (loss) related to~~carrying values of the ~~net investment hedge was $118 million~~outstanding 2019, 2015 and ~~$375 million~~2014 Euro notes and 2023 Euro term loan as of September 30, ~~2017~~2023 were $1.7 billion, $525 million, $519 million, and ~~December 31, 2016,~~$1.4 billion, respectively. The amount of pre-tax gain (loss) related to this debt recorded in Other comprehensive income (loss) was a gain of $131 million and $211 million for the three months ended September 30, 2023 and 2022, respectively, and a gain of $73 million and $484 million for the nine months ended September 30, 2023 and 2022, respectively.

~~The~~As of September 30, 2023 and 2022, the ending balance of Accumulated other comprehensive income (loss) asconsisted of ~~September 30, 2017 and 2016 consisted of~~after-tax cumulative translation adjustment losses ~~net~~ of ~~tax, of $1.0~~$1.6 billion and ~~$1.1~~$1.7 billion, respectively, and after-tax unrecognized pension and other postretirement ~~benefits~~benefit costs ~~net~~ of ~~tax, of $372~~$293 million and ~~$358~~$182 million, respectively.

~~(10)~~(11) Segment Information

The ~~Company has~~ 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 ~~reportable~~ segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. ~~See~~Refer to Item ~~2 -~~2. Management's Discussion and Analysis of Financial Condition and Results of Operations for information regarding operating revenue and operating income for the Company's segments.

ITEM 2. ~~Management’s~~ 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 8584 divisions in 5751 countries. As of December 31, ~~2016,~~2022, the Company employed approximately ~~50,000 persons.~~

46,000 people.

The Company's operations are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products.

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

THE ITW BUSINESS MODEL

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

~~ITW’s~~ •ITW's80/20 ~~management~~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~~data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the ~~“80”~~"80") and eliminates cost, complexity and distractions associated with the less profitable opportunities (the ~~“20”~~"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~~Innovation has fueled decades of profitable growth at ITW. The ~~Company’s~~Company's unique innovation approach is built on insight gathered from the 80/20 ~~management~~Front-to-Back process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their ~~“80”~~"80" customers. ~~ITW’s~~ITW's innovation efforts are focused on understanding customer needs, particularly those in ~~“80”~~"80" markets with solid long-term growth fundamentals, and ~~subsequently~~ creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of ~~more than 17,000~~approximately 19,200 granted and pending patents;

~~ITW’s~~ ~~decentralized, entrepreneurial culture~~ ~~allows~~•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 ~~the process of~~its strategic framework transitioning the Company ~~onto its current strategic path~~ to fully leverage the ~~compelling performance potential~~unique and powerful set of capabilities and operating practices of the ITW Business Model. ~~Since then, ITW has made considerable progress, as evidenced by the Company’s strong financial performance over the past four years.~~

The ~~roots of ITW’s Enterprise Strategy began in late 2011 / early 2012, when the~~ Company undertook a complete review of its ~~performance. Focusing~~performance, focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, ~~ITW developed~~and developing a strategy to replicate that performance across its operations.

~~Based on this rigorous evaluation,~~ ITW determined that solid and consistent above-market organic growth ~~must be~~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.~~

~~The first step was to narrow~~Company’s enterprise strategy included portfolio management, business structure simplification, strategic sourcing and the ~~focus and improve the quality~~diligent re-application of ITW’s ~~business portfolio.~~ proprietary 80/20 Front-to-Back process.

•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 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. With the initiative nearly complete and ITW businesses demonstrating notably improved financial performance, the Company believes that the significant product line simplification work is essentially finalized and will return to more normalized levels in 2017 and beyond.

~~Step two,~~•Business Structure Simplification, was implemented to simplify and ~~scale-up ITW’s~~scale up ITW's operating structure to support increased engineering, marketing, and sales resources, and ~~at the same time,~~ improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 8584 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

•The Strategic Sourcing initiative ~~was~~ established sourcing as ~~a core capability to better leverage ITW’s scale and improve global competitiveness. Sourcing is now~~ a core strategic and operational capability at ~~ITW. The Company’s 80/20-enabled sourcing organization has delivered~~ITW, delivering an average of one percent reduction in spend each year from 2013 through ~~2016~~2022 and ~~is on track~~continues to dobe a key contributor to the ~~same in 2017 and 2018.~~

Company's ongoing enterprise strategy.

•With the initial portfolio realignment and scale-up work largely ~~complete,~~completed, the Company ~~was able to~~ ~~shift~~shifted its focus to preparing for and accelerating organic growth,~~. As a preparatory step, ITW is in~~ reapplying the ~~process of reapplying~~ 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.

~~Once~~Since implementing the business has achieved operational excellence and identified the right growth opportunities, the final step is to accelerate organic growth. The process of preparing for accelerated organic growth generally takes 18 to 24 months.

~~Based on the financial performance of the divisions that are further along~~Company’s enterprise strategy in this process, the Company believes that its organic growth framework is capable of delivering above-market organic growth across all segments. Divisions are at various phases in preparation for growth and many are either ready to grow or already growing above their respective markets. ITW management is fully aligned with this plan and very focused on executing it. As of December 31, 2016, approximately 85 percent of the divisions were ready to grow.

~~PATH TO FULL POTENTIAL~~

~~While~~2012, the Company has ~~made considerable progress and ITW’s~~demonstrated the compelling performance is nearing best-in-class levels, the Company has significant opportunity for further improvement before it achieves full operating potential. In order to do so, ITW is focused on two key areas of opportunity, including: additional structural margin improvement and sustained above-market organic growth with strong incremental profitability.

~~Additional Structural Margin Improvement~~

~~To deliver on the additional structural margin improvement, the Company is implementing the following two levers: (1) further leveraging the 80/20 management process and (2) strategic sourcing.~~

~~The first lever, better leveraging the full power~~potential of the ITW Business Model ~~will be accomplished through a much more consistent~~ and focused approach to 80/20 best practice implementation across the Company. The 80/20 management system has continuously been refined, improved and expanded into a unique holistic business management process of interconnected tools, which improves all aspects of the business and, when applied

~~consistently and executed more effectively, will lead to additional margin improvement. ITW has clearly demonstrated~~ superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company’s operating margin and after-tax return on invested capital. ~~These~~At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

~~The second lever, strategic sourcing, is a core element of~~ OUR NEXT PHASE: 2023-2030

ITW’s ~~ongoing operational~~enterprise strategy framework has evolved every year since it was launched in late 2012 and ~~a sustainable enterprise-wide capability. Through~~it will continue to evolve.With the ~~continued execution of this initiative,~~“heavy lifting” essentially completed in the last decade, the Company ~~expects to deliver additional margin improvement~~is focused on two key priorities:

1.Execute on ITW's growth agenda, with ~~the goal of a one percent reduction in spend in 2017 and 2018.~~

~~Sustained Above-Market Organic Growth with Strong Incremental Profitability~~

ITW has done extensive work on its portfolio and operating structure to position the Company to deliver sustainable above-market organic growth. The Company has narrowed the focus and significantly improved the growth potential of ITW’s business portfolio. With approximately 85% of its divisions ready to grow as of the end of 2016, ITW is well positioned for accelerated growth in 2017 and beyond. To deliver on this accelerated growth, the divisions have been implementing theconsistent high-quality organic growth ~~framework, which includes continued investment in customer-back innovation~~at the enterprise level, and ~~a strengthened focus on market penetration. ITW continues to focus on growing its share of "80" products with existing customers with whom~~high-quality acquisitions that extend ITW's long-term organic growth potential.

2.Sustain foundational strengths the Company has ~~a resonant value proposition as well as target~~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 ~~new customers with similar pain points~~ to ~~existing customers. ITW has made strong progress on the Company’s pivot to organic growth and is well positioned to deliver on sustained~~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.

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 nine months ended September 30, 2023, and $10 million and $29 million for the three and nine months ended September 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 September 30, 2023. Refer to Note 2. Divestitures in Item 1. Financial Statements for further information regarding the Company's divestitures.

80/20 Front-to-Back Practice Excellence

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.

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~~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 ~~2016~~2022 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

~~The Company's strong third quarter~~Starting in early 2020, the COVID-19 pandemic and ~~year-to-date financial performance reflected continued progress leveraging~~ the ~~powerful~~measures taken to reduce its spread negatively impacted the global economy and ~~highly differentiated ITW Business Model and executing enterprise initiatives. Six of seven segments achieved worldwide organic revenue growth~~caused significant disruptions in the ~~third quarter,~~Company's global operations as COVID-19 spread and ~~all seven segments had organic revenue growth~~impacted the countries in which the Company operates and the markets the Company serves.

Despite the ongoing disruptions caused by the COVID-19 pandemic, the Company experienced solid recovery progress in many of its end markets during the past two years. However, the pandemic and resurgence of outbreaks could continue to adversely impact the operations of the Company and its customers and suppliers. A description of the risks relating to the impact of the COVID-19 outbreak on the Company's business, operations and financial condition is contained in Part I, Item 1A. Risk Factors in the ~~year-to-date period. All seven segments had operating margin at or above 21% in both respective periods.~~Company's 2022 Annual Report on Form 10-K.

~~On July 1, 2016,~~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 ~~completed the acquisition of the Engineered Fasteners and Components business ("EF&C") from ZF TRW for a purchase price~~has four immaterial Russian subsidiaries with total assets of approximately ~~$450 million.~~ $23 million as of September 30, 2023. The revenue for these subsidiaries for the three and nine months ended September 30, 2023 was approximately $7 million and $20 million, respectively. These subsidiaries are not material to the Company’s results of operations or financial position.

In ~~2017, EF&C had operating revenue~~the second quarter of ~~$126 million~~2022, plans were approved to divest two businesses, including one business in the ~~third quarter~~Polymers & Fluids segment and ~~$382 million~~one business in the ~~year-to-date period. EF&C diluted the Company's operating margin by 40 basis points~~Food Equipment segment. These two businesses were classified as held for sale beginning in the ~~year-to-date period due~~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 ~~lower operating margin and acquisition~~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 ~~expenses. The Company expects EF&C's operating margin~~ to ~~improve~~these divested businesses that was included in later years through the application of the Company's 80/20 business management process. The operating results of EF&C are reported within the Company's Automotive OEM segment. The acquisition of EF&C did not materially affect the Company's results of operations for the three and nine months ended September 30, 2022 was $37 million and $100 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 ~~financial position~~loss upon sale. Operating revenue related to this business that was included in the Company's results of operations was $9 million for ~~any period presented.~~the nine months ended September 30, 2023, and $10 million and $29 million for the three and nine months ended September 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 September 30, 2023. Refer to Note 2. ~~Acquisition~~Divestitures in Item ~~1 -~~1. Financial Statements for further information regarding ~~this acquisition.~~the Company's divestitures.

In a challenging and dynamic environment, the Company delivered strong financial results in the third quarter and year-to-date periods of 2023 primarily due to the continued successful execution of enterprise initiatives and continued focus on the highly differentiated ITW Business Model. The Company generated operating revenue growth of 0.5 percent and 1.4 percent in the third quarter and year-to-date periods of 2023, respectively, with organic revenue growth of 0.2 percent and 2.8 percent, respectively. Operating income was $1.1 billion in the third quarter and $3.1 billion in the year-to-date period of 2023. Operating margin was 26.5 percent and 25.2 percent in the third quarter and year-to-date periods of 2023, respectively.

The ~~Company’s~~Company's consolidated results of operations for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	4,031		$	4,011		0.5	%	0.2	%	(1.2)	%	—	%	1.5	%	0.5	%
Operating income	$	1,070		$	983		8.9	%	8.5	%	(0.9)	%	0.2	%	1.1	%	8.9	%
Operating margin %	26.5		%	24.5		%	200 bps		200 bps		10 bps		10 bps		(20) bps		200 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic
Acq/Div Restructuring Impairment Foreign Currency Total
Operating revenue $ 3,615
$ 3,495
3.5 % 1.9 % (0.2 )% — % — % 1.8 % 3.5 %
Operating income $ 961
$ 808
19.0 % 17.5 % — % (0.2 )% — % 1.7 % 19.0 %
Operating margin % 26.6 % 23.1 % 350 bps
350 bps
—
—
—
—
350 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	12,124		$	11,961		1.4	%	2.8	%	(1.0)	%	—	%	(0.4)	%	1.4	%
Operating income	$	3,052		$	2,804		8.8	%	10.0	%	(0.7)	%	0.1	%	(0.6)	%	8.8	%
Operating margin %	25.2		%	23.4		%	180 bps		170 bps		10 bps		—		—		180 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic
Acq/Div Restructuring Impairment Foreign Currency Total
Operating revenue $ 10,685
$ 10,200
4.8 % 2.7 % 2.3 % — % — % (0.2 )% 4.8 %
Operating income $ 2,644
$ 2,322
13.9 % 13.2 % 0.9 % — % 0.1 % (0.3 )% 13.9 %
Operating margin % 24.7 % 22.8 % 190 bps
230 bps
(40) bps
—
—
—
190 bps

•Operating revenue ~~grew~~increased in the third quarter ~~primarily~~ due to ~~an increase in organic revenue and~~ the favorable effect of foreign currency ~~translation.~~translation and higher organic revenue, partially offset by the impact of divestiture activity in the second quarter of 2023 and the fourth quarter of 2022. In the year-to-date period, operating revenue ~~grew primarily~~increased due to higher organic revenue, partially offset by the impact of divestiture activity in the second quarter of 2023 and the fourth quarter of 2022 and the unfavorable effect of foreign currency translation.

•Organic revenue was essentially flat in the third quarter as growth in the Food Equipment, Automotive OEM and Polymers & Fluids segments was offset by a decline in the Test & Measurement and Electronics, Specialty Products, Welding and Construction Products segments. In the year-to-date period, organic revenue increased 2.8% as growth in five segments was partially offset by a decline in the Specialty Products and Construction Products segments. Product line simplification activities reduced organic revenue by 40 basis points in the third quarter and 50 basis points in the year-to-date period.

◦North American organic revenue decreased 1.6% in the third quarter as a decline in the Test & Measurement and Electronics, Specialty Products, Automotive OEM and Welding segments was partially offset by growth

in the Food Equipment, Polymers & Fluids and Construction Products segments. In the year-to-date period, organic revenue increased 1.1% as growth in the Food Equipment, Polymers & Fluids, Welding and Automotive OEM segments was partially offset by a decline in the Specialty Products, Test & Measurement and Electronics and Construction Products segments.

◦Europe, Middle East and Africa organic revenue increased 0.4% in the third quarter as growth in three segments was partially offset by a decline in the Construction Products, Polymers & Fluids, Welding and Food Equipment segments. In the year-to-date period, organic revenue increased 4.2% as growth in five segments was partially offset by a decline in the Construction Products and Polymers & Fluids segments.

◦Asia Pacific increased 6.2% in the third quarter as growth in six segments was partially offset by a decline in the Construction Products segment. In the year-to-date period, organic revenue increased 6.3% as growth in five segments was partially offset by a decline in the Construction Products and Specialty Products segments. Organic revenue in China increased 8.4% in the third quarter due to an increase in ~~organic~~the Automotive OEM, Polymers & Fluids and ~~acquisition revenues.~~

~~Organic revenue grew 1.9% and 2.7%~~Specialty Products segments, partially offset by a decline in the ~~third quarter~~Welding, Test & Measurement and Electronics, Food Equipment and Construction Products segments. In the year-to-date ~~periods, respectively. Six segments achieved worldwide~~period, China organic revenue increased 7.6% as growth in the ~~third quarter,~~Automotive OEM, Test & Measurement and ~~all seven~~Electronics, Welding and Construction Products segments ~~achieved growth~~was partially offset by a decline in the ~~year-to-date period. In the third quarter,~~Specialty Products, Food Equipment ~~declined 0.4% primarily due to lower equipment demand in North America.~~

◦

North American organic revenue was flat in the third quarter. Growth in the Welding, Specialty Products, Construction Products and Polymers & Fluids segments was offset by a decline in the Automotive OEM, Food Equipment and Test & Measurements and Electronics segments. In the year-to-date period, organic revenue grew 1.0%. Growth in five segments was partially offset by a decline in the Food Equipment and Automotive OEM segments.

◦

Europe, Middle East and Africa organic revenue increased 2.4% in the third quarter as growth in the Automotive OEM, Food Equipment, Construction Products and Specialty Products segments was partially offset by a decline in the Welding, Polymers & Fluids and Test & Measurement and Electronics segments. Organic revenue increased 3.8% in the year-to-date period as growth in six segments was partially offset by a decline in the Welding segment.


◦	Asia Pacific organic revenue increased 8.1% in the third quarter as all seven segments achieved organic revenue growth. In the year-to-date period, organic revenue grew 7.6% as growth in six segments was partially offset by a decline in the Welding segment.

In the second quarter of 2017, the Company entered into a $95 million confidential settlement agreement to resolve a litigation matter. Based on the terms of the agreement, the Company received the settlement within 120 days of the execution of the agreement. The receipt of the settlement resulted in a favorable pre-tax impact of $15 million in the second quarter of 2017 and ~~$80 million in the third quarter of 2017, which was included in operating income.~~Polymers & Fluids segments.

•Operating income of ~~$961 million~~$1.1 billion and ~~$2.6~~$3.1 billion in the third quarter and year-to-date periods increased 8.9% and 8.8%, respectively, ~~increased 19.0% and 13.9%~~compared to the prior year primarily due to higher organic revenue, partially offset by the impact of divestiture activity in the ~~respective periods. Excluding~~second quarter of 2023 and the fourth quarter of 2022. Additionally, foreign currency translation had a favorable impact ~~of the confidential legal settlement, operating income would have increased 9.1% and 9.8%~~ in the third quarter and an unfavorable impact in the year-to-date ~~periods, respectively.~~period.

•Operating margin ~~of 26.6%~~was 26.5% in the third ~~quarter increased 350 basis points. Excluding the 220~~quarter. The increase of 200 basis points ~~of favorability from the confidential legal settlement, operating margin of 24.4% increased 130 basis points~~was primarily due to ~~the~~favorable price/cost of 210 basis points and benefits offrom the Company's enterprise initiatives ~~that contributed 110~~of 140 basis ~~points. In addition, positive operating leverage of 50 basis~~ points, ~~was~~ partially offset by ~~unfavorable price/cost of 40 basis points.~~higher operating expenses, including employee-related expenses.

•In the year-to-date period, operating margin of ~~24.7%~~25.2% increased ~~190 basis points. Excluding the 80 basis points of favorability from the confidential legal settlement, operating margin of 23.9% increased 110~~180 basis points primarily driven by ~~the~~favorable price/cost of 220 basis points, benefits offrom the Company's enterprise initiatives of ~~100~~130 basis ~~points. In addition,~~points and positive operating leverage of 5060 basis points, ~~and improved overhead efficiencies were~~ partially offset by higher operating expenses, including employee-related expenses.

•The Company's effective tax rate for the ~~dilutive impact~~third quarter of ~~40 basis points~~2023 and 2022 was 23.8% and 23.9%, respectively, and 22.7% and 21.8% for the year-to-date periods of 2023 and 2022, respectively. The effective tax rate for the year-to-date period of 2023 included a discrete income tax benefit of $20 million in the second quarter of 2023 related to amended 2021 U.S. taxes. The effective tax rate for the year-to-date period of 2022 included a discrete income tax benefit of $51 million in the second quarter of 2022 related to a decrease in unrecognized tax benefits resulting from the ~~EF&C acquisition~~resolution of a U.S. tax audit. Additionally, the effective tax rates for 2023 and ~~unfavorable price/cost~~2022 included discrete income tax benefits related to excess tax benefits from stock-based compensation of ~~40 basis points.~~$2 million and $1 million for the third quarter of 2023 and 2022, respectively, and $19 million and $9 million for the year-to-date period of 2023 and 2022, respectively.

•Diluted earnings per share (EPS) of ~~$1.85~~$2.55 for the third quarter and ~~$5.07~~$7.36 for the year-to-date period of 2023 increased ~~23.3%~~8.5% and ~~19.3%~~7.8%, respectively. Excluding the favorable ~~effect~~impact of ~~the confidential legal settlement of $0.14 and $0.17 in the third quarter and year-to-date periods, respectively, EPS increased 14.0% and 15.3% in the respective periods.~~

Free cash flow was $702 million and $1.5 billion for the third quarter and year-to-date periods, respectively. Free cash flow for the year-to-date period includes the impact from an additional discretionary pension contribution of $115 million in the second quarter 2023 discrete income tax benefit of ~~2017. Refer~~$0.07 related to amended 2021 U.S. taxes and the second quarter 2022 discrete income tax benefit of $0.16 related to the ~~Cash Flow section~~resolution of ~~Liquidity and Capital Resources for~~ a ~~reconciliation of this non-GAAP measure.~~U.S. tax audit, EPS increased 9.3% in the year-to-date period.

•The Company repurchased approximately ~~1.8~~1.6 million and ~~5.5~~4.8 million shares of its common stock in the third quarter and year-to-date periods of 2023, respectively, for approximately ~~$250~~$375 million and ~~$750 million,~~$1.1 billion, respectively.

The Company increased the quarterly dividend by 20.0% in the third quarter of 2017. Total cash dividends of $224 million and $674 million were paid in the third quarter and year-to-date periods of 2017, respectively.

Adjusted after-tax return on average invested capital was 26.3% for the third quarter. Excluding 220 basis points attributable to the confidential legal settlement, adjusted after-tax return on average invested capital was 24.1%, an increase of 110 basis points. In the year-to-date period, adjusted after-tax return on average invested capital was 25.0%, an increase of 270 basis points. Excluding 90 basis points attributable to the confidential legal settlement, adjusted after-tax return on average invested capital was 24.1%, an increase of 180 basis points. Refer to the Adjusted After-Tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

RESULTS OF OPERATIONS BY SEGMENT

Total operating revenue and operating income for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended September 30,								Nine Months Ended September 30,
Dollars in millions	Operating Revenue				Operating Income				Operating Revenue				Operating Income
	2023		2022		2023		2022		2023		2022		2023		2022
Automotive OEM	$	799	$	753	$	151	$	132	$	2,421	$	2,224	$	418	$	371
Food Equipment	678		633		185		167		1,967		1,813		536		445
Test & Measurement and Electronics	698		715		167		180		2,101		2,096		501		486
Welding	468		477		147		150		1,451		1,413		471		431
Polymers & Fluids	458		473		129		119		1,364		1,450		357		362
Construction Products	522		527		155		136		1,574		1,643		454		428
Specialty Products	414		438		115		121		1,260		1,337		333		362
Intersegment revenue	(6)		(5)		—		—		(14)		(15)		—		—
Unallocated	—		—		21		(22)		—		—		(18)		(81)
Total	$	4,031	$	4,011	$	1,070	$	983	$	12,124	$	11,961	$	3,052	$	2,804

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in millions Operating Revenue Operating Income Operating Revenue Operating Income
2017 2016 2017 2016 2017 2016 2017 2016
Automotive OEM $ 795
$ 765
$ 172
$ 166
$ 2,443
$ 2,091
$ 556
$ 512
Food Equipment 549
544
150
149
1,575
1,578
414
405
Test & Measurement and Electronics 525
516
127
108
1,524
1,487
337
274
Welding 378
361
100
95
1,150
1,125
312
282
Polymers & Fluids 434
422
90
89
1,297
1,283
272
266
Construction Products 440
415
112
94
1,260
1,223
303
278
Specialty Products 498
477
138
125
1,451
1,429
401
373
Intersegment revenues (4 ) (5 ) —
—
(15 ) (16 ) —
—
Unallocated —
—
72
(18 ) —
—
49
(68 )
Total $ 3,615
$ 3,495
$ 961
$ 808
$ 10,685
$ 10,200
$ 2,644
$ 2,322

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. Unallocated in ~~2017 includes~~ the third quarter of 2023 included the impact of lower corporate expenses primarily related to an immaterial insurance recovery and favorable ~~impact from the previously discussed confidential legal settlement.~~health and welfare and other employee-related expenses.

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 quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	799		$	753		6.0	%	3.8	%	—	%	—	%	2.2	%	6.0	%
Operating income	$	151		$	132		14.5	%	14.1	%	—	%	(1.2)	%	1.6	%	14.5	%
Operating margin %	18.9		%	17.5		%	140 bps		170 bps		—		(20) bps		(10) bps		140 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,421		$	2,224		8.8	%	9.2	%	—	%	—	%	(0.4)	%	8.8	%
Operating income	$	418		$	371		12.5	%	8.5	%	—	%	4.9	%	(0.9)	%	12.5	%
Operating margin %	17.3		%	16.7		%	60 bps		(10) bps		—		70 bps		—		60 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 795
$ 765
4.1 % 1.3 % — % — % 2.8 % 4.1 %
Operating income $ 172
$ 166
2.9 % 1.0 % — % (1.2 )% 3.1 % 2.9 %
Operating margin % 21.6 % 21.8 % (20) bps
(10) bps
—
(20) bps
10 bps
(20) bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 2,443
$ 2,091
16.9 % 4.7 % 12.2 % — % — % 16.9 %
Operating income $ 556
$ 512
8.4 % 6.1 % 4.2 % (1.7 )% (0.2 )% 8.4 %
Operating margin % 22.7 % 24.5 % (180) bps
30 bps
(160) bps
(40) bps
(10) bps
(180) bps

•Operating revenue ~~increased~~grew in the third quarter due to higher organic revenue and the favorable effect of foreign currency ~~translation and higher organic revenue. Operating revenue increased in~~translation. In the year-to-date period, operating revenue increased due to higher organic ~~and acquisition revenues.~~revenue, partially offset by the unfavorable effect of foreign currency translation.

•Organic revenue ~~grew 1.3%~~increased 3.8% and ~~4.7%~~9.2% in the third quarter and year-to-date periods, respectively, ~~as a result of penetration gains, exceeding auto build growth in every key geography. Worldwide~~compared to worldwide auto builds which increased 4% in the third quarter and grew 2%9% in the year-to-date period. Product line simplification activities reduced organic revenue by 60 basis points in the third quarter and 3%50 basis points in the year-to-date period primarily in North America.

◦North American organic revenue decreased 5.2% in the third quarter and was essentially flat in the year-to-date period compared to North American auto builds which increased 9% in the third quarter and 11% in the year-to-date period primarily due to customer mix and product line simplification. Auto builds for the Detroit 3, where the Company has higher content, increased 1% and 4% in the third quarter and year-to-date periods, respectively. Additionally, organic revenue in the third quarter of 2023 was negatively impacted by customer shutdowns due to automotive industry labor actions in North America beginning in September.


◦	European organic revenue grew 7.8% and 8.8% in the third quarter and year-to-date periods, respectively, compared to European auto builds which increased 5% in the third quarter and 2% in the year-to-date period.


◦	Asia Pacific organic revenue increased 9.0% and 12.2% in the third quarter and year-to-date periods, respectively. China organic revenue grew 10.3% and 17.9% in the third quarter and year-to-date periods, respectively, versus Chinese auto builds which increased 1% in the third quarter and 3% in the year-to-date period.


◦	North American organic revenue declined 6.7% and 0.8% in the third quarter and year-to-date periods, respectively. North American auto builds declined 10% in the third quarter and 4% in the year-to-date period. Auto builds for the Detroit 3, where the Company has higher content, declined 14% in the third quarter and 7% in the year-to-date period.

◦European organic revenue grew 4.5% and 13.0% in the third quarter and year-to-date periods, respectively, compared to European auto builds which increased 6% in the third quarter and 14% in the year-to-date period primarily due to customer mix.

◦Asia Pacific organic revenue increased 16.9% and 19.2% in the third quarter and year-to-date periods, respectively. China organic revenue grew 17.7% and 18.6% in the third quarter and year-to-date periods, respectively, versus China auto builds which were flat in the third quarter and increased 5% in the year-to-date period. Auto builds of foreign automotive manufacturers in China, where the Company has higher content, declined 17% and 7% in the third quarter and year-to-date periods, respectively.

•Operating margin was ~~21.6%~~18.9% in the third quarter. The ~~decrease~~increase of 20140 basis points was primarily ~~driven by unfavorable~~due to favorable price/cost of ~~120~~210 basis points, ~~and higher restructuring expenses, partially offset by the net~~ benefits from the Company's enterprise initiatives and ~~cost management of 80 basis points and~~ positive operating leverage of 3070 basis ~~points.~~points, partially offset by higher operating expenses, including employee-related expenses and continued investment in the business, higher restructuring expenses and product mix.

•In the year-to-date period, operating margin of ~~22.7% decreased 180~~17.3% increased 60 basis points primarily driven by ~~the dilutive impact of 160 basis points from the EF&C acquisition, unfavorable price/cost of 110 basis points and higher restructuring expenses, partially offset by~~ positive operating leverage of 80180 basis points, ~~and the net~~ benefits from the Company's enterprise initiatives, favorable price/cost of 130 basis points and ~~cost management of 60 basis points.~~lower restructuring expenses, partially offset by higher operating expenses, including employee-related expenses and continued investment in the business, and product mix.

FOOD EQUIPMENT

This segment is a highly focused and branded ~~industry-leader~~industry leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food ~~institutional/restaurant,~~service, food ~~service~~retail and food ~~retail~~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 quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	678		$	633		7.2	%	6.3	%	(1.8)	%	—	%	2.7	%	7.2	%
Operating income	$	185		$	167		11.0	%	8.9	%	(1.5)	%	0.9	%	2.7	%	11.0	%
Operating margin %	27.3		%	26.3		%	100 bps		70 bps		10 bps		20 bps		—		100 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 549
$ 544
1.1 % (0.4 )% — % — % 1.5 % 1.1 %
Operating income $ 150
$ 149
0.6 % 0.3 % — % (1.0 )% 1.3 % 0.6 %
Operating margin % 27.3 % 27.4 % (10) bps
20 bps
—
(30) bps
—
(10) bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,967		$	1,813		8.5	%	9.6	%	(1.3)	%	—	%	0.2	%	8.5	%
Operating income	$	536		$	445		20.5	%	20.8	%	(0.8)	%	—	%	0.5	%	20.5	%
Operating margin %	27.2		%	24.5		%	270 bps		250 bps		20 bps		—		—		270 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,575
$ 1,578
(0.2 )% 0.7 % — % — % (0.9 )% (0.2 )%
Operating income $ 414
$ 405
2.2 % 2.5 % — % 0.6 % (0.9 )% 2.2 %
Operating margin % 26.3 % 25.7 % 60 bps
40 bps
—
20 bps
—
60 bps

•Operating revenue ~~increased~~grew in the third quarter and year-to-date periods due to higher organic revenue and the favorable effect of foreign currency translation, partially offset by the impact of a ~~slight decline~~divestiture in ~~organic revenue.~~ the fourth quarter of 2022.

•Operating revenue ~~decreased~~ in the third quarter and year-to-date ~~period due~~periods of 2022 included approximately $11 million and $24 million, respectively, related to the ~~unfavorable effect~~business divested in the fourth quarter of ~~foreign currency translation, partially offset by organic revenue growth.~~2022.

•Organic revenue ~~decreased 0.4%~~increased 6.3% in the third quarter as equipment and service organic revenue ~~declined 0.5%~~grew 5.2% and ~~0.4%~~9.4%, respectively. In the year-to-date period, organic revenue increased ~~0.7%~~9.6% as equipment and service organic revenue ~~increased 0.8%~~grew 7.5% and ~~0.4%~~14.7%, respectively.

◦

North American organic revenue declined 3.6% in the third quarter. Equipment organic revenue decreased 5.5% primarily due to lower end market demand in food services. Service organic revenue declined 0.3%. In the year-to-date period, North American organic revenue decreased 1.1%. Equipment organic revenue, which had a challenging comparable in the prior year period of 5.7% growth, decreased 1.8% primarily due to lower demand in the retail and restaurant end markets, partially offset by higher demand in the institutional end market. Service organic revenue was flat.

◦

International organic revenue increased 4.0% and 3.2% in the third quarter and year-to-date periods, respectively. Equipment organic revenue grew 5.9% and 4.0% in the third quarter and year-to-date periods, respectively, primarily due to higher demand in the European refrigeration and warewash end markets. Service organic revenue decreased 0.5% in the third quarter and increased 1.3% in the year-to-date period.

◦North American organic revenue increased approximately 10% in the third quarter and 13% in the year-to-date period. Equipment organic revenue grew approximately 10% and 13% in the third quarter and year-to-date periods, respectively, with growth in the institutional, food retail and restaurant end markets. Service organic revenue increased approximately 10% and 14% in the third quarter and year-to-date periods, respectively.

◦International organic revenue increased approximately 1% and 5% in the third quarter and year-to-date periods, respectively. Equipment organic revenue decreased approximately 1% in the third quarter primarily due to lower demand in the European warewash and refrigeration end markets, partially offset by higher demand in the European cooking end market and growth in Asia Pacific. In the year-to-date period, equipment organic revenue grew approximately 1% primarily due to higher demand in the European warewash and refrigeration end markets and growth in Asia Pacific, partially offset by lower demand in the European cooking end market. Service organic revenue increased approximately 9% and 16% in the third quarter and year-to-date periods, respectively.

•Operating margin ofwas 27.3% in the third ~~quarter declined 10 basis points primarily due to product mix~~quarter. The increase of 100 basis points ~~and higher restructuring expenses, partially offset by the benefits~~was primarily due to favorable price/cost of ~~the Company's enterprise initiatives~~150 basis points, positive operating leverage of 110 basis points and ~~favorable price/cost of 10 basis points.~~benefits from the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses.

•In the year-to-date period, operating margin of ~~26.3%~~27.2% increased 60270 basis points primarily ~~due to the~~driven by favorable price/cost of 230 basis points, positive operating leverage of 180 basis points and benefits offrom the Company's enterprise initiatives, ~~of 100 basis points and 20 basis points each for favorable price/cost, positive operating leverage and lower restructuring expenses,~~ partially offset by ~~product mix of 100 basis points.~~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, ~~industrial capital goods,~~ automotive original equipment manufacturers and tiers, ~~and~~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 and related consumable solder materials;~~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 ~~telecommunications,~~ electronics, medical, transportation and ~~transportation~~telecommunications applications.

The results of operations for the Test & Measurement and Electronics segment for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	698		$	715		(2.4)	%	(3.9)	%	—	%	—	%	1.5	%	(2.4)	%
Operating income	$	167		$	180		(7.7)	%	(8.0)	%	—	%	(0.2)	%	0.5	%	(7.7)	%
Operating margin %	23.8		%	25.2		%	(140) bps		(110) bps		—		(10) bps		(20) bps		(140) bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 525
$ 516
1.8 % 0.8 % — % — % 1.0 % 1.8 %
Operating income $ 127
$ 108
16.9 % 13.3 % — % 2.8 % 0.8 % 16.9 %
Operating margin % 24.1 % 21.0 % 310 bps
260 bps
—
50 bps
—
310 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,101		$	2,096		0.2	%	0.9	%	—	%	—	%	(0.7)	%	0.2	%
Operating income	$	501		$	486		3.0	%	4.5	%	—	%	(0.5)	%	(1.0)	%	3.0	%
Operating margin %	23.8		%	23.2		%	60 bps		80 bps		—		(10) bps		(10) bps		60 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,524
$ 1,487
2.5 % 3.5 % — % — % (1.0 )% 2.5 %
Operating income $ 337
$ 274
22.8 % 22.5 % — % 1.3 % (1.0 )% 22.8 %
Operating margin % 22.1 % 18.4 % 370 bps
340 bps
—
30 bps
—
370 bps

•Operating revenue ~~increased~~declined in the third quarter due to lower organic revenue, partially offset by the favorable effect of foreign currency ~~translation and organic revenue growth. Operating revenue increased in~~translation. In the year-to-date period, operating revenue grew due to higher organic revenue, ~~growth,~~ partially offset by the unfavorable effect of foreign currency translation.

•Organic revenue decreased 3.9% in the third quarter and increased ~~0.8%~~0.9% in the year-to-date period.

◦Organic revenue for the test and ~~3.5%~~measurement businesses increased 1.7% in the third quarter primarily driven by growth in the MTS Test & Simulation business, partially offset by lower semiconductor demand in North America. In the year-to-date period, organic revenue for the test and measurement businesses increased 7.8% primarily driven by growth in the MTS Test & Simulation and Instron businesses and higher demand in the automotive, defense and oil and gas end markets, partially offset by lower semiconductor demand in North America.

◦Electronics organic revenue decreased 13.2% and 10.0% in the third quarter and year-to-date periods, ~~respectively.~~respectively, primarily due to a decline in the consumer electronics and semiconductor end markets. The electronics assembly businesses decreased 22.7% in the third quarter and 16.6% in the year-to-date period primarily due to lower demand in North America and Asia Pacific. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, decreased 7.9% and 6.5% in the third quarter and year-to-date periods, respectively, primarily due to lower demand in the semiconductor end market, partially offset by higher demand in the automotive end market.

◦

Organic revenue for the test and measurement businesses increased 4.2% and 5.1% in the third quarter and year-to-date periods, respectively, primarily due to higher semi-conductor end market demand across all major regions. Instron, where demand is more closely tied to the capital spending environment, had organic revenue growth of 2.6% and 3.9% in the third quarter and year-to-date periods, respectively.

◦

Electronics organic revenue, which had a challenging comparable in the prior year third quarter of 12.5% growth, decreased 2.6% in the third quarter and increased 1.8% in the year-to-date period. The electronics assembly businesses declined 12.8% and 2.2% in the third quarter and year-to-date periods, respectively, primarily due to a decrease in North America. The other electronics businesses grew 7.0% and 4.8% in the third quarter and year-to-date periods, respectively, due to higher semi-conductor end market demand.

•Operating margin was ~~24.1%~~23.8% in the third quarter. The ~~increase~~decrease of ~~310~~140 basis points was primarily due to ~~the net~~unfavorable operating leverage of 100 basis points and higher operating expenses, including employee-related expenses, partially offset by favorable price/cost of 190 basis points, benefits ~~resulting~~ from the Company's enterprise initiatives and ~~cost management of 130 basis points, favorable price/cost of 50 basis points,~~ lower ~~restructuring expenses and positive operating leverage of 20 basis points.~~intangible asset amortization expense.

•In the year-to-date period, operating margin of ~~22.1%~~23.8% increased ~~370~~60 basis points primarily driven by ~~the net~~favorable price/cost of 160 basis points, benefits ~~resulting~~ from the Company's enterprise initiatives and ~~cost management of 130 basis points, positive~~lower intangible asset amortization expense, partially offset by higher operating ~~leverage of 110 basis points and 30 basis points each of favorable price/cost and lower restructuring~~expenses, including employee-related 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, MRO, ~~construction, and~~ 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; and~~accessories.

~~metal jacketing and other insulation products.~~

The results of operations for the Welding segment for the third quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	468		$	477		(1.8)	%	(2.4)	%	—	%	—	%	0.6	%	(1.8)	%
Operating income	$	147		$	150		(1.4)	%	(1.8)	%	—	%	(0.2)	%	0.6	%	(1.4)	%
Operating margin %	31.6		%	31.5		%	10 bps		10 bps		—		—		—		10 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Restructuring Impairment Foreign Currency Total
Operating revenue $ 378
$ 361
4.8 % 3.9 % — % — % 0.9 % 4.8 %
Operating income $ 100
$ 95
5.4 % 7.0 % (2.2 )% — % 0.6 % 5.4 %
Operating margin % 26.6 % 26.5 % 10 bps
80 bps
(60) bps
—
(10) bps
10 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,451		$	1,413		2.7	%	2.7	%	—	%	—	%	—	%	2.7	%
Operating income	$	471		$	431		9.3	%	9.2	%	—	%	(0.2)	%	0.3	%	9.3	%
Operating margin %	32.5		%	30.5		%	200 bps		200 bps		—		(10) bps		10 bps		200 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Restructuring Impairment Foreign Currency Total
Operating revenue $ 1,150
$ 1,125
2.3 % 2.2 % — % — % 0.1 % 2.3 %
Operating income $ 312
$ 282
10.8 % 7.4 % 2.3 % 1.1 % — % 10.8 %
Operating margin % 27.2 % 25.1 % 210 bps
120 bps
60 bps
30 bps
—
210 bps

•Operating revenue ~~increased~~declined in the third quarter ~~and year-to-date periods~~ due to ~~higher~~lower organic revenue, ~~and~~partially offset by the favorable effect of foreign currency translation. In the year-to-date period, operating revenue grew due to higher organic revenue.

•Organic revenue ~~grew 3.9%~~decreased 2.4% in the third quarter, ~~driven~~which had a challenging comparable in the prior year third quarter of 13.9% growth. In the third quarter, equipment and consumables declined 2.9% and 1.5%, respectively. In the year-to-date period, organic revenue increased 2.7%, which had a challenging comparable in the prior year of 16.3% growth. Consumables grew 3.7% and equipment increased 2.1% in the year-to-date period.

◦North American organic revenue decreased 2.8% in the third quarter as a decline in the industrial end markets of 8.4% was partially offset by growth in ~~equipment~~the commercial end markets of ~~6.5% and consumables of 0.5%~~5.9%. In the year-to-date period, organic revenue ~~increased 2.2% as equipment~~ grew ~~4.6%~~2.1% driven by growth in the industrial end markets of 3.9%, partially offset by a ~~decrease of 0.8% in consumables. In both periods, organic revenue grew due to increased demand in the industrial end markets related to heavy equipment for agriculture, infrastructure and mining and~~decline in the commercial end markets ~~related~~of 2.0%.

◦International organic revenue was flat in the third quarter primarily due to ~~construction, light fabrication~~higher equipment demand in the general industrial and ~~farm~~oil and ~~ranch customers.~~gas end markets in Asia Pacific, offset by lower demand in Europe. In the year-to-date period, organic revenue grew 5.7% primarily due to higher equipment demand in the general industrial and oil and gas end markets in Asia Pacific and growth in Europe.


◦	North American organic revenue increased 8.0% in the third quarter primarily due to 11.0% and 5.2% growth in the industrial and commercial end markets, respectively. North American organic revenue grew 4.8% in the year-to-date period primarily driven by approximately 5% growth in the industrial and commercial end markets.


◦	International organic revenue decreased 11.2% and 7.3% in the third quarter and year-to-date periods, respectively, primarily due to weaker end market demand in the European and Asian oil and gas end markets.

•Operating margin was ~~26.6%~~31.6% in the third quarter. The increase of 10 basis points was primarily due to ~~the net~~favorable price/cost of 250 basis points and benefits offrom the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses, product mix and ~~cost management of 80 basis points and positive~~unfavorable operating leverage of 6040 basis ~~points, partially offset by 60 basis points each of unfavorable price/cost and higher restructuring expenses.~~points.

•In the year-to-date period, operating margin of ~~27.2%~~32.5% increased ~~210~~200 basis points ~~due to the net~~primarily driven by favorable price/cost of 330 basis points, benefits offrom the Company's enterprise initiatives and ~~cost management of 140 basis points, lower restructuring expenses of 60 basis points and~~ positive operating leverage of 4050 basis points, partially offset by ~~unfavorable price/cost of 60 basis points. In addition, the prior year period was negatively impacted by an intangible asset impairment charge of 30 basis points.~~higher operating expenses, including employee-related expenses, and product mix.

POLYMERS & FLUIDS

This segment is a ~~highly~~ 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 quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	458		$	473		(3.1)	%	3.4	%	(5.7)	%	—	%	(0.8)	%	(3.1)	%
Operating income	$	129		$	119		7.7	%	14.7	%	(5.4)	%	0.9	%	(2.5)	%	7.7	%
Operating margin %	28.1		%	25.3		%	280 bps		270 bps		20 bps		30 bps		(40) bps		280 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 434
$ 422
2.6 % 1.0 % — % — % 1.6 % 2.6 %
Operating income $ 90
$ 89
2.5 % 2.1 % — % (0.9 )% 1.3 % 2.5 %
Operating margin % 21.0 % 21.0 % —
20 bps
—
(20) bps
—
—


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,364		$	1,450		(5.9)	%	0.9	%	(5.3)	%	—	%	(1.5)	%	(5.9)	%
Operating income	$	357		$	362		(1.5)	%	6.4	%	(4.3)	%	(1.1)	%	(2.5)	%	(1.5)	%
Operating margin %	26.2		%	25.0		%	120 bps		130 bps		30 bps		(20) bps		(20) bps		120 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,297
$ 1,283
1.0 % 0.5 % — % — % 0.5 % 1.0 %
Operating income $ 272
$ 266
2.5 % 4.3 % — % (1.6 )% (0.2 )% 2.5 %
Operating margin % 21.0 % 20.7 % 30 bps
80 bps
—
(30) bps
(20) bps
30 bps

•Operating revenue ~~increased~~declined in the third quarter and year-to-date periods due to ~~higher organic revenue~~the impact of a divestiture in the fourth quarter of 2022 and the ~~favorable~~unfavorable effect of foreign currency ~~translation.~~translation, partially offset by higher organic revenue.

•Operating revenue in the third quarter and year-to-date periods of 2022 included approximately $26 million and $76 million, respectively, related to the business divested in the fourth quarter of 2022.

•Organic revenue ~~grew 1.0%~~increased 3.4% and ~~0.5%~~0.9% in the third quarter and year-to-date periods, respectively, ~~primarily due to higher demand~~as growth in North ~~American end markets.~~


◦	Organic revenue for the automotive aftermarket businesses increased 0.6% in the third quarter primarily driven by growth in the tire repair businesses in North America. In the year-to-date period, organic revenue grew 0.3% as stronger demand in the car care, engine and tire repair businesses in North America was offset by a decline in the body repair and additives businesses in Asia Pacific.


◦	Organic revenue for the fluids businesses grew 4.4% and 2.2% in the third quarter and year-to-date periods, respectively, primarily due to an increase in the industrial maintenance, repair, and operations end markets in Europe and North America.


◦	Organic revenue for the polymers businesses decreased 1.3% in the third quarter primarily driven by a decline in Europe, partially offset by an increase in North America. In the year-to-date period, organic revenue declined 0.9% primarily driven by a decline in Europe and North America.

~~Operating margin~~America and Asia Pacific was ~~21.0%~~partially offset by a decline in Europe. Product line simplification activities reduced organic revenue by 80 basis points in both the third quarter and year-to-date periods.

◦Organic revenue for the automotive aftermarket businesses increased 9.6% in the third quarter and 3.1% in the year-to-date period primarily due to an increase in the car care, tire repair and engine repair businesses in North America and growth in Europe, partially offset by a decline in the body repair businesses in North America.

◦Organic revenue for the fluids businesses declined 3.7% in the third quarter and 1.2% in the year-to-date period driven by lower demand in the European life sciences end markets and the North American industrial MRO, automotive and health and hygiene end markets.

◦Organic revenue for the polymers businesses decreased 1.2% in the third quarter and 1.0% in the year-to-date period due to a decline in Europe and North America. In both respective periods, demand in Europe was ~~flat compared~~negatively impacted by declines in the wind and industrial end markets.

•Operating margin was 28.1% in the third quarter. The increase of 280 basis points was primarily due to ~~the prior year as the net~~favorable price/cost of 250 basis points, benefits offrom the Company's enterprise initiatives, ~~and cost management and positive~~ operating leverage ~~were offset by unfavorable price/cost~~ of 3070 basis points and lower intangible asset amortization expense, partially offset by higher ~~restructuring expenses.~~operating expenses, including employee-related expenses, and product mix.

•In the year-to-date period, operating margin of ~~21.0%~~26.2% increased 30120 basis points primarily driven by ~~the net~~favorable price/cost of 200 basis points, benefits offrom the Company's enterprise initiatives and ~~cost management of 100 basis points,~~lower intangible asset amortization expense, partially offset by ~~30 basis points each of unfavorable price/cost~~higher operating expenses, including employee-related expenses, and ~~higher restructuring expenses.~~product mix.

CONSTRUCTION PRODUCTS

This segment is a branded supplier of innovative engineered fastening systems and solutions. This segment primarily serves the residential construction, renovation/remodel ~~construction~~ 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 quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	522		$	527		(1.2)	%	(2.1)	%	—	%	—	%	0.9	%	(1.2)	%
Operating income	$	155		$	136		14.7	%	13.1	%	—	%	0.9	%	0.7	%	14.7	%
Operating margin %	29.9		%	25.7		%	420 bps		400 bps		—		30 bps		(10) bps		420 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 440
$ 415
6.0 % 3.5 % — % — % 2.5 % 6.0 %
Operating income $ 112
$ 94
18.8 % 9.0 % — % 7.2 % 2.6 % 18.8 %
Operating margin % 25.4 % 22.6 % 280 bps
130 bps
—
150 bps
—
280 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,574		$	1,643		(4.2)	%	(3.1)	%	—	%	—	%	(1.1)	%	(4.2)	%
Operating income	$	454		$	428		6.3	%	8.1	%	—	%	(0.8)	%	(1.0)	%	6.3	%
Operating margin %	28.9		%	26.0		%	290 bps		310 bps		—		(20) bps		—		290 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,260
$ 1,223
3.0 % 2.7 % — % — % 0.3 % 3.0 %
Operating income $ 303
$ 278
8.9 % 5.6 % — % 2.7 % 0.6 % 8.9 %
Operating margin % 24.0 % 22.7 % 130 bps
70 bps
—
60 bps
—
130 bps

•Operating revenue declined in the third quarter due to lower organic revenue, partially offset by the favorable effect of foreign currency translation. In the year-to-date period, operating revenue declined due to lower organic revenue and the unfavorable effect of foreign currency translation.

•Organic revenue decreased 2.1% in the third quarter, which had a challenging comparable in the prior year third quarter of 17.1% growth. In the year-to-date period, organic revenue declined 3.1%, which had a challenging comparable in the prior year period of 17.7% growth. In both respective periods, organic revenue declined primarily due to a decrease in Europe and Asia Pacific. Product line simplification activities reduced organic revenue by 50 basis points in the third quarter and 40 basis points in the year-to-date period.

◦North American organic revenue increased 1.5% in the third quarter primarily due to higher demand in the United States residential end market of 1.8%, partially offset by a decline in the United States commercial end market of 1.6%. In the year-to-date period, organic revenue decreased 0.2% primarily due to lower demand in the United States residential and commercial end markets of 0.2% and 1.0%, respectively. Organic revenue in Canada grew 2.2% in the third quarter and declined 2.2% in the year-to-date period.

◦International organic revenue decreased 6.4% in the third quarter and 6.1% in the year-to-date period. European organic revenue declined 8.2% and 10.2% in the third quarter and year-to-date periods, respectively, primarily due to lower demand in the commercial and residential end markets. Asia Pacific organic revenue ~~growth~~declined 4.6% and ~~the favorable effect of foreign currency translation.~~

~~Organic revenue increased 3.5% and 2.7%~~1.2% in the third quarter and year-to-date periods, ~~respectively.~~respectively, primarily due to lower demand in the Australia and New Zealand residential end markets.


◦	North American organic revenue grew 4.4% in the third quarter primarily due to 6.9% growth in the residential end markets, partially offset by a decline of 3.3% in the commercial end markets. North American organic revenue increased 1.9% in the year-to-date period primarily due to 2.6% growth in the residential end markets, partially offset by a decline of 0.4% in the commercial end markets.

◦

International organic revenue increased 2.8% and 3.2% in the third quarter and year-to-date periods, respectively. Asia Pacific organic revenue increased 2.7% in both the third quarter and year-to-date periods primarily due to growth in the Australia and New Zealand retail end markets. European organic revenue increased 2.9% in the third quarter primarily due to growth in continental Europe and the Nordic countries. In the year-to-date period, European organic revenue grew 3.7% primarily due to growth in continental Europe, the United Kingdom and the Nordic countries.

•Operating margin was ~~25.4%~~29.9% in the third quarter. The increase of ~~280~~420 basis points was ~~driven by lower restructuring expenses~~primarily due to favorable price/cost of ~~150~~290 basis points ~~the net~~and benefits offrom the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses, and ~~cost management of 130 basis points and positive~~unfavorable operating leverage of 9030 basis ~~points, partially offset by unfavorable price/cost of 90 basis~~ points.

•In the year-to-date period, operating margin of ~~24.0%~~28.9% increased ~~130~~290 basis points primarily driven by ~~the net~~favorable price/cost of 410 basis points and benefits offrom the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses, and ~~cost management of 90 basis points, positive~~unfavorable operating leverage of 7050 basis ~~points and lower restructuring expenses of 60 basis points, partially offset by unfavorable price/cost of 90 basis~~ points.

SPECIALTY PRODUCTS

This segment is focused on diversified niche market opportunities ~~that deliver strong operating results~~ 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 ~~and industrial capital goods~~ markets. Products in this segment include:

~~line integration,~~ •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 ~~fasteners~~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 quarter and year-to-date periods of 2023 and 2022 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	414		$	438		(5.5)	%	(5.6)	%	(2.3)	%	—	%	2.4	%	(5.5)	%
Operating income	$	115		$	121		(5.3)	%	(8.0)	%	(0.3)	%	0.5	%	2.5	%	(5.3)	%
Operating margin %	27.8		%	27.7		%	10 bps		(70) bps		60 bps		20 bps		—		10 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 498
$ 477
4.6 % 4.5 % (1.2 )% — % 1.3 % 4.6 %
Operating income $ 138
$ 125
10.8 % 13.6 % (0.3 )% (3.9 )% 1.4 % 10.8 %
Operating margin % 27.7 % 26.1 % 160 bps
230 bps
30 bps
(100) bps
—
160 bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2023			2022			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,260		$	1,337		(5.8)	%	(4.7)	%	(1.5)	%	—	%	0.4	%	(5.8)	%
Operating income	$	333		$	362		(7.9)	%	(7.5)	%	(0.1)	%	(1.0)	%	0.7	%	(7.9)	%
Operating margin %	26.4		%	27.1		%	(70) bps		(80) bps		40 bps		(30) bps		—		(70) bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,451
$ 1,429
1.5 % 3.1 % (1.1 )% — % (0.5 )% 1.5 %
Operating income $ 401
$ 373
7.6 % 9.8 % — % (1.8 )% (0.4 )% 7.6 %
Operating margin % 27.6 % 26.1 % 150 bps
170 bps
30 bps
(50) bps
—
150 bps

•Operating revenue ~~increased~~declined in the third quarter and year-to-date periods due to lower organic revenue ~~growth~~ and the impact of a divestiture in the second quarter of 2023, partially offset by the favorable effect of foreign currency ~~translation, partially offset by~~translation.

•The Company divested a ~~divestiture. For~~business on April 3, 2023, and there was no operating revenue for this business in the third quarter and $9 million in the year-to-date period ~~operating revenue increased due to organic revenue growth, partially offset by a divestiture and the unfavorable effect~~ of ~~foreign currency translation.~~

~~Organic revenue increased 4.5% and 3.1% for~~2023. In the third quarter and year-to-date periods of 2022, operating revenue included approximately $10 million and $29 million, respectively, asrelated to the ~~consumer packaging businesses grew 3.6%~~divested business.

•Organic revenue decreased 5.6% and ~~3.2% in each respective period. Consumable sales increased 6.1% and 5.1%~~4.7% in the third quarter and year-to-date periods, respectively. Consumable sales declined 8.7% in the third quarter primarily due to lower demand in North America and Europe. In the year-to-date period, consumable sales decreased 7.3% due to lower demand in all major regions. Equipment sales ~~declined 1.3%~~increased 9.1% and ~~4.4%~~7.9% in the third quarter and year-to-date periods, ~~respectively.~~respectively, primarily driven by higher demand in Europe. Product line simplification activities reduced organic revenue by 90 basis points in the third quarter and 180 basis points in the year-to-date period.


◦	North American organic revenue increased 3.0% in the third quarter primarily due to an increase in the brand identification, medical and consumer packaging businesses. In the year-to-date period, organic revenue grew 0.5% primarily due to growth in the medical, consumer packaging, appliance and brand identification businesses, partially offset by a decline in the equipment businesses.


◦	International organic revenue increased 6.9% and 7.7% in the third quarter and year-to-date periods, respectively, primarily driven by growth in the consumer packaging and equipment businesses in Europe and Asia Pacific.

◦North American organic revenue decreased 8.6% and 6.6% in the third quarter and year-to-date periods, respectively, primarily driven by a decline in the consumer packaging, specialty films, strength films and decorating equipment businesses, partially offset by growth in the ground support equipment, appliance and filter medical businesses.

◦International organic revenue increased 1.1% in the third quarter primarily due to growth in Europe in the ground support equipment and consumer packaging businesses, partially offset by a decline in the specialty films business. In the year-to-date period, organic revenue declined 0.5% primarily due to a decrease in Europe and Asia Pacific in the strength films, graphics and decorating equipment businesses, partially offset by growth in the ground support equipment and consumer packaging businesses in Europe.

•Operating margin was ~~27.7% for~~27.8% in the third quarter. The increase of ~~160~~10 basis points was primarily ~~driven by the net~~due to favorable price/cost of 140 basis points, benefits offrom the Company's enterprise initiatives and ~~cost management of 130 basis points, positive operating leverage of 90 basis points and~~ the favorable impact of a divestiture in the second quarter of 2023, partially offset by ~~higher restructuring expenses~~unfavorable operating leverage of ~~100~~110 basis points, higher employee-related expenses and ~~unfavorable price/cost of 10 basis points.~~product mix.

•In the year-to-date period, operating margin of ~~27.6% increased 150~~26.4% decreased 70 basis points primarily driven by ~~the net~~unfavorable operating leverage of 100 basis points, higher employee-related expenses and product mix, partially offset by favorable price/cost of 110 basis points, benefits offrom the Company's enterprise initiatives and ~~cost management of 130 basis points, positive operating leverage of 70 basis points and~~ the favorable impact of a divestiture ~~partially offset by higher restructuring expenses and unfavorable price/cost~~in the second quarter of ~~30 basis points.~~2023.

OTHER FINANCIAL HIGHLIGHTS

•Interest expense ~~of $65~~was $67 million and ~~$194~~$196 million in the third quarter and year-to-date periods of 2023, respectively, ~~increased from $58~~versus $52 million and ~~$174~~$147 million in ~~the respective 2016 periods,~~2022, respectively. Interest expense in 2023 was higher than 2022 primarily due to higher interest rates and higher average outstanding commercial paper. Refer to Note 9. Debt in Item 1. Financial Statements for further information regarding the ~~debt issuance in the fourth quarter of 2016.~~Company's outstanding debt.

•Other income (expense) was income of $10 million in the third quarter of ~~2017~~2023, a decrease of $16 million compared to the third quarter of 2022 primarily due to an investment loss in 2023 versus investment income in 2022 and ~~$24~~foreign currency translation losses in 2023 versus foreign currency translation gains in 2022. Other income of $40 million in the year-to-date period ~~a decrease~~of 2023 decreased $24 million compared to the prior year ~~of $3 million in the third quarter and $10 million in the year-to-date~~ period primarily ~~driven by~~due to lower

investment income versus the prior year and foreign currency translation ~~losses.~~losses in 2023 versus foreign currency translation gains in 2022.

The effective tax rate was 29.3% and 28.7% for the third quarter and year-to-date periods, respectively, compared to 30.0% in both respective periods of 2016. Included in the effective tax rate for 2017 was a discrete income tax benefit of $6 million in the third quarter and $32 million in the year-to-date period related to the adoption of the new stock-based compensation guidance. Excluding this discrete tax benefit, the Company's effective tax rate for the third quarter and year-to-date periods of 2017 would have been 30.0%. Refer to Note 1. Significant Accounting Policies in Item 1 - Financial Statements for further information.

~~NEW ACCOUNTING PRONOUNCEMENTS~~

In May 2014, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, several new revenue recognition disclosures will be required. Under current guidance, the Company generally recognizes operating revenue when ownership and risk of loss are transferred to the customer, which is typically at the time of product shipment or delivery of service. The Company has completed a review of revenue transactions for a significant portion of its businesses. While the review is not fully completed, the Company does not currently expect the adoption of this guidance to have a material impact on its operating revenue, results of operations or financial position. However, the Company expects to provide additional disclosures in the notes to financial statements required under the new guidance. The new guidance will be effective for the Company beginning January 1, 2018 and allows for either full or modified retrospective adoption methods. The Company expects to adopt the new revenue accounting guidance utilizing the modified retrospective method.

In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will be required to recognize a lease liability and lease asset for all leases with a lease term greater than twelve months in the statement of financial position, including operating leases. Subsequent measurement, including presentation of expenses and cash flows, will depend on the classification of the lease as either a financing or operating lease. In addition, several new disclosures will be required. This guidance will be effective for the Company beginning January 1, 2019, with early adoption permitted. While the Company has not yet completed its evaluation of the impact the new lease accounting guidance will have on the consolidated financial statements and related disclosures, the Company expects to recognize right of use assets and liabilities for its operating leases in the statement of financial position upon adoption.

In March 2016, the FASB issued authoritative guidance that included several changes to simplify the accounting for stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows. Among the more significant changes, the new guidance requires the income tax effects associated with the settlement of stock-based awards to be recognized through income tax expense rather than directly in equity. Additionally, the income tax effects related to excess tax benefits should be presented within operating cash flows in the statement of cash flows rather than as a financing activity. Excess tax benefits recognized in equity under the prior guidance were $25 million for the nine months ended September 30, 2016. The Company adopted the new guidance effective January 1, 2017 and applied the newly adopted provisions prospectively. Excess tax benefits of $6 million and $32 million were included in Income Taxes in the statement of income for the three and nine month periods ended September 30, 2017, respectively. The expected effect on income tax expense or net cash provided from operating activities related to future stock-based award settlements will vary each quarter and will depend on inputs such as the stock price at the time of settlement and the number of awards settled in the period presented.

In October 2016, the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the current guidance. The new guidance is effective for the Company beginning January 1, 2018 and will be applied prospectively with the cumulative effect of adoption recorded directly to retained earnings. Although the Company is currently completing its assessment of the potential impact of this new guidance, the Company anticipates a cumulative-effect balance sheet adjustment reducing deferred tax assets and retained earnings upon adoption. Additionally, intra-entity asset transfers may result in future tax rate volatility under the new guidance. The Company intends to complete its assessment in the fourth quarter of 2017.

In March 2017, the FASB issued authoritative guidance which changes the income statement presentation of the components of net periodic benefit cost related to defined benefit pension and other postretirement plans. The primary change under the new guidance is that only the service cost component of net periodic benefit cost should be included in operating income and is eligible for capitalization as an asset. The other components of net periodic benefit cost, such as interest cost, the expected return on assets, and amortization of actuarial gains and losses and prior service cost, should be presented below operating income. The guidance is effective for the Company starting January 1, 2018 and will be applied retrospectively to the presentation of net periodic benefit cost and prospectively to the capitalization of service cost. The Company does not expect the adoption of this guidance to have a material impact on the results of operations or financial position. Refer to Note 6. Pension and Other Postretirement Benefits in Item 1 - Financial Statements for further information information regarding the Company’s net periodic benefit cost.

LIQUIDITY AND CAPITAL RESOURCES

The ~~Company’s~~Company's primary sources of liquidity are free cash flow and short-term credit facilities. ~~In addition,~~As of September 30, 2023, the Company had ~~$2.8 billion~~$990 million of cash and equivalents on hand ~~at September 30, 2017~~ and no outstanding borrowings under its $3.0 billion revolving credit facility. The Company also ~~maintains~~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 and an active share repurchase program.

The Company believes that, based on its operating revenue, operating margin, ~~current~~ 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 quarter and year-to-date periods of ~~2017~~2023 and ~~2016~~2022 was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions	2023		2022		2023		2022
Net cash provided by operating activities	$	982	$	713	$	2,500	$	1,537
Additions to plant and equipment	(126)		(101)		(324)		(256)
Free cash flow	$	856	$	612	$	2,176	$	1,281

Cash dividends paid	$	(396)	$	(377)	$	(1,194)	$	(1,139)
Repurchases of common stock	(375)		(500)		(1,125)		(1,250)
Acquisition of businesses (excluding cash and equivalents)	—		—		—		(2)
Net proceeds from (repayments of) debt with original maturities of three months or less	(25)		443		(367)		1,078
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	—		(247)		(678)		(1,110)
Other, net	31		10		75		23
Effect of exchange rate changes on cash and equivalents	(23)		(46)		(30)		(88)
Net increase (decrease) in cash and equivalents	$	68	$	(105)	$	282	$	(753)

Three Months Ended Nine Months Ended
September 30, September 30,
In millions 2017 2016 2017 2016
Net cash provided by operating activities $ 780
$ 624
$ 1,707
$ 1,638
Additions to plant and equipment (78 )
(81 )
(219 )
(202 )
Free cash flow $ 702
$ 543
$ 1,488
$ 1,436

Cash dividends paid $ (224 ) $ (195 ) $ (674 ) $ (593 )
Repurchases of common stock (250 ) (482 ) (750 ) (1,482 )
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates —
(454 ) (3 ) (456 )
Net proceeds from (repayments of) debt with original maturities of three months or less 6
499
697
188
Net repayments of debt with original maturities of more than three months —
—
(652 ) —
Other 19
36
73
109
Effect of exchange rate changes on cash and equivalents 36
(3 ) 134
7
Net increase (decrease) in cash and equivalents $ 289
$ (56 ) $ 313
$ (791 )

~~Free~~Net cash provided by operating activities and free cash flow ~~for the nine months ended September 30, 2017 included an additional $115 million discretionary pension contribution made~~were lower in the ~~second~~third quarter and year-to-date periods of ~~2017.~~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 ~~February 13, 2015,~~August 3, 2018, the ~~Company's Board of Directors authorized~~Company announced a stock repurchase program which ~~provides~~provided for the ~~buyback~~repurchase of up to ~~$6.0~~$3.0 billion of the Company's common stock over an open-ended period of time (the ~~“2015 Program”~~"2018 Program"). Under the ~~2015~~2018 Program, the Company repurchased approximately ~~5.3~~6.7 million shares of its common stock at an average price of ~~$94.07 in the first quarter of 2016,~~$158.11 per share during

2019, approximately ~~4.8~~4.2 million shares of its common stock at an average price of ~~$104.54 in the second quarter of 2016,~~$167.69 per share during 2020, approximately ~~4.3~~4.4 million shares of its common stock at an average price of ~~$116.27 in the third quarter of 2016,~~$227.29 during 2021 and approximately ~~4.3~~1.2 million shares of its common stock at an average price of ~~$117.29~~$216.62 in the ~~fourth~~first quarter of 2022. The 2018 Program was completed in the first quarter of 2022.

~~2016,~~On May 7, 2021, the Company announced 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 ~~1.9~~0.6 million shares of its common stock at an average price of ~~$128.47~~$209.29 in the first quarter of ~~2017,~~2022, approximately 1.8 million shares of its common stock at an average price of ~~$136.81~~$205.03 in the second quarter of ~~2017, and~~2022, approximately ~~1.8~~2.4 million shares of its common stock at an average price of ~~$142.54~~$204.54 in the third quarter of ~~2017.~~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, approximately 1.6 million shares of its common stock at an average price of $229.30 in the second quarter of 2023, and approximately 1.6 million shares of its common stock at an average price of $241.55 in the third quarter of 2023. As of September 30, ~~2017,~~2023, there were approximately ~~$2.7~~$365 million of authorized repurchases remaining under the 2021 Program.

On August 4, 2023, the Company announced a new stock repurchase program which provides for the repurchase of up to an additional $5.0 billion of the Company's common stock over an open-ended period of time (the "2023 Program"). As of September 30, 2023, there were $5.0 billion of authorized repurchases remaining under the ~~2015~~2023 Program.

~~Adjusted After-Tax~~

After-tax Return on Average Invested Capital

The Company uses ~~adjusted~~ after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its ~~operations’~~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 financial performance~~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. ~~Adjusted~~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 nine months ended September 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 months ended September 30, 2022. Total invested capital represents the net assets of the Company, ~~excluding~~other than cash and equivalents and outstanding debt which ~~are excluded as they~~ do not represent capital investment in the Company's ~~operations,~~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 quarter and year-to-date periods of 2023 and 2022 were as ~~well as~~follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Dollars in millions	2023			2022			2023			2022
Numerator:
Net Income	$	772		$	727		$	2,240		$	2,127
Discrete tax benefit related to the second quarter 2023	—			—			(20)			—
Discrete tax benefit related to the second quarter 2022	—			—			—			(51)
Interest expense, net of tax (1)	51			39			150			112
Other (income) expense, net of tax (1)	(8)			(20)			(31)			(49)
Operating income after taxes	$	815		$	746		$	2,339		$	2,139

Denominator:
Invested capital:
Cash and equivalents	$	990		$	774		$	990		$	774
Trade receivables	3,163			3,031			3,163			3,031
Inventories	1,799			2,007			1,799			2,007
Net assets held for sale	—			75			—			75
Net plant and equipment	1,904			1,705			1,904			1,705
Goodwill and intangible assets	5,510			5,557			5,510			5,557
Accounts payable and accrued expenses	(2,168)			(2,177)			(2,168)			(2,177)
Debt	(8,066)			(7,628)			(8,066)			(7,628)
Other, net	(128)			(330)			(128)			(330)
Total net assets (stockholders' equity)	3,004			3,014			3,004			3,014
Cash and equivalents	(990)			(774)			(990)			(774)
Debt	8,066			7,628			8,066			7,628
Total invested capital	$	10,080		$	9,868		$	10,080		$	9,868

Average invested capital (2)	$	10,237		$	10,004		$	10,239		$	9,985

Net income to average invested capital (3)	30.1		%	29.1		%	29.2		%	28.4		%
After-tax return on average invested capital (3)	31.9		%	29.9		%	30.5		%	28.6		%

(1) Effective tax rate used for interest expense and other (income) expense for the ~~Company's equity investment in~~three months ended September 30, 2023 and 2022 was 23.8% and 23.9%, respectively. Effective tax rate used for interest expense and other (income) expense for the ~~Wilsonart business (formerly the Decorative Surfaces segment).~~ nine months ended September 30, 2023 and 2022 was 23.4% and 23.7%, 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. ROIC for~~quarter within each of the ~~third~~ ~~quarter and year-to-date~~ periods ~~of 2017 and 2016 was as follows:~~presented.

Three Months Ended Nine Months Ended

September 30, September 30,
Dollars in millions 2017
2016 2017 2016
Operating income $ 961

$ 808

$ 2,644

$ 2,322
Tax rate 29.3 %
30.0 %
28.7 %
30.0 %
Income taxes (282 )
(243 )
(759 )
(697 )
Operating income after taxes $ 679
$ 565
$ 1,885
$ 1,625

Invested capital:
Trade receivables $ 2,672

$ 2,496

$ 2,672

$ 2,496
Inventories 1,225

1,167

1,225

1,167
Net plant and equipment 1,759

1,702

1,759

1,702
Goodwill and intangible assets 6,051

6,191

6,051

6,191
Accounts payable and accrued expenses (1,816 )
(1,762 )
(1,816 )
(1,762 )
Other, net 487

393

487

393
Total invested capital $ 10,378
$ 10,187
$ 10,378
$ 10,187

Average invested capital $ 10,354

$ 9,973

$ 10,051

$ 9,821
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) —

(116 )
—

(114 )
Adjusted average invested capital $ 10,354

$ 9,857

$ 10,051

$ 9,707
Adjusted return on average invested capital 26.3 %
23.0 %
25.0 %
22.3 %

~~ROIC increased 330 basis points~~(3) Returns for the three ~~month period~~months ended September 30, ~~2017 compared~~2023 and 2022 were converted to an annual rate by multiplying the ~~prior year period as a result of a 20.1% improvement in after-tax operating income versus a 5.0% increase in adjusted average invested capital. ROIC increased 270 basis points~~calculated return by 4. Returns for the nine ~~month period~~months ended September 30, ~~2017 compared~~2023 and 2022 were converted to an annual rate by dividing the ~~prior year period as a result~~calculated return by 3 and multiplying it by 4.

A reconciliation of ~~a 16.0% improvement in after-tax operating income versus a 3.5% increase in adjusted average invested capital.~~

~~ROIC was favorably impacted by 220 basis points and 90 basis points~~the tax rate for the ~~three and~~ nine ~~month periods~~months ended September 30, ~~2017, respectively,~~2023, excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes, is as follows:


	Nine Months Ended
	September 30, 2023
Dollars in millions	Income Taxes		Tax Rate
As reported	$	656	22.7	%
Discrete tax benefit related to the second quarter 2023	20		0.7	%
As adjusted	$	676	23.4	%

A reconciliation of the tax rate for the nine months ended September 30, 2022, excluding the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a ~~confidential legal settlement in 2017.~~ 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	%

Refer to Note ~~8. Legal Settlement~~4. Income Taxes in Item ~~1 -~~1. Financial Statements for further information regarding ~~this settlement.~~

~~The~~the second quarter 2023 and second quarter 2022 discrete tax benefit related to share-based compensation of $6 million and $32 million for the three and nine month periods ended September 30, 2017 improved after-tax ROIC by approximately 30 and 40 basis points, respectively. Refer to Note 1. Significant Accounting Policies in Item 1 - Financial Statements for further information.benefits.

Working Capital

Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of September 30, ~~2017~~2023 and December 31, ~~2016~~2022 is summarized as follows:


In millions	September 30, 2023		December 31, 2022		Increase/ (Decrease)
Current assets:
Cash and equivalents	$	990	$	708	$	282
Trade receivables	3,163		3,171		(8)
Inventories	1,799		2,054		(255)
Prepaid expenses and other current assets	336		329		7
Assets held for sale	—		8		(8)
Total current assets	6,288		6,270		18
Current liabilities:
Short-term debt	1,248		1,590		(342)
Accounts payable and accrued expenses	2,168		2,322		(154)
Liabilities held for sale	—		1		(1)
Other	566		547		19
Total current liabilities	3,982		4,460		(478)
Net working capital	$	2,306	$	1,810	$	496

In millions September 30, 2017 December 31, 2016
Increase/
(Decrease)
Current assets:
Cash and equivalents $ 2,785
$ 2,472
$ 313
Trade receivables 2,672
2,357
315
Inventories 1,225
1,076
149
Other 230
218
12
Total current assets 6,912
6,123
789
Current liabilities:
Short-term debt 698
652
46
Accounts payable and accrued expenses 1,816
1,713
103
Other 353
395
(42 )
Total current liabilities 2,867
2,760
107
Net working capital $ 4,045
$ 3,363
$ 682

~~Cash and equivalents totaled approximately $2.8 billion as~~As of September 30, ~~2017~~2023, a significant portion of the Company's cash and ~~$2.5 billion as of December 31, 2016, primarily all of which~~equivalents was held by international subsidiaries. Cash and equivalents held internationally may be subject to ~~U.S. income taxes and~~ foreign withholding taxes if repatriated to the U.S. Cash and equivalents ~~balances~~ held internationally are typically used for international operating needs or reinvested to fund expansion of existing international ~~businesses,~~businesses. International funds may also be used to fund ~~new~~ international acquisitions or, ~~used~~if not considered permanently invested, may be repatriated to ~~repay debt~~the U.S. The Company has accrued for foreign withholding taxes related to foreign held ~~internationally.~~ cash and equivalents that are not permanently invested.

In the U.S., the Company utilizes cash flows from ~~domestic~~ operations to fund domestic cash needs ~~which primarily consist~~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 ~~uses~~use its commercial paper program, which is ~~backed~~supported by a long-term credit ~~facilities,~~facility, for short-term liquidity needs. The Company believes cash generated ~~domestically~~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 30, ~~2017~~2023 and December 31, ~~2016~~2022 was as follows:

In millions September 30, 2017 December 31, 2016
Short-term debt $ 698
$ 652
Long-term debt 7,439
7,177
Total debt $ 8,137
$ 7,829


In millions	September 30, 2023		December 31, 2022
Short-term debt	$	1,248	$	1,590
Long-term debt	6,818		6,173
Total debt	$	8,066	$	7,763

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.

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~~Company's long term financial liquidity and may be different than the method used by other companies to calculate total debt to EBITDA. ~~EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures.~~ 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 30, ~~2017~~2023 and December 31, ~~2016~~2022 was as follows:


Dollars in millions	September 30, 2023		December 31, 2022
Total debt	$	8,066	$	7,763

Net income	$	3,147	$	3,034
Add:
Interest expense	252		203
Other (income) expense	(231)		(255)
Income taxes	870		808
Depreciation	275		276
Amortization and impairment of intangible assets	120		134
EBITDA	$	4,433	$	4,200
Total debt to EBITDA ratio	1.8		1.8

Dollars in millions September 30, 2017 December 31, 2016
Total debt $ 8,137
$ 7,829

Net income $ 2,270
$ 2,035
Add:
Interest expense 257
237
Other income (71 ) (81 )
Income taxes 930
873
Depreciation 252
246
Amortization and impairment of intangible assets 210
224
EBITDA $ 3,848
$ 3,534
Total debt to EBITDA ratio 2.1
2.2

~~Stockholders’~~Stockholders' Equity

The changes to ~~stockholders’~~stockholders' equity during ~~2017~~the nine months ended 2023 were as follows:


In millions
Total stockholders' equity, December 31, 2022	$	3,089
Net income	2,240
Repurchases of common stock	(1,125)
Dividends declared	(1,216)
Foreign currency translation adjustments, net of tax	(61)
Other, net	77
Total stockholders' equity, September 30, 2023	$	3,004

In millions
Total stockholders’ equity, December 31, 2016 $ 4,259
Net income 1,763
Repurchases of common stock (750 )
Cash dividends declared (715 )
Foreign currency translation adjustments, net of tax 367
Stock option and restricted stock activity 73
Other 29
Total stockholders’ equity, September 30, 2017 $ 5,026

FORWARD-LOOKING STATEMENTS

This ~~document~~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," ~~"intends,~~"intend," "may," "strategy," "prospects," "estimate," "will," "should," "could," "project," "target," "anticipate," "guidance," "forecast," and other similar words, ~~including,~~and may include, without limitation, statements regarding the ~~expected~~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, ~~of acquired businesses~~free cash flow, economic and ~~impact of divested businesses, economic~~regulatory conditions in various geographic regions including inflation, the ~~timing and amount~~impact of ~~share repurchases,~~foreign currency fluctuations, the timing and amount of benefits from the Company's ~~Enterprise Strategy,~~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 ~~a change in~~divested businesses, the ~~method~~impact of ~~calculating~~U.S. and global tax legislation and the ~~service~~estimated timing and ~~interest cost components~~amount related to the resolution of ~~net periodic pension and other postretirement benefit costs to a specific spot rate approach, the availability of raw materials and energy, the expiration of any one of the Company's patents,~~tax matters, the cost of compliance with environmental regulations, ~~the likelihood of future goodwill or intangible asset impairment charges,~~ the impact of failure of the Company's employees to comply with applicable laws and regulations, the ~~impact of foreign currency fluctuations, the~~ outcome of outstanding legal proceedings, and the potential impact of ~~adopting new accounting pronouncements, and the estimated timing and amount related to the~~

~~resolution of tax matters.~~automotive industry labor actions. 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, ~~(2)~~(3) changes or deterioration in international and domestic political and economic conditions, ~~(3)~~such as the ~~timing~~Russia and ~~amount~~Ukraine conflict or U.S.-China trade relations and the impact of ~~benefits from~~related economic and other sanctions, (4) the ~~Company’s~~unfavorable impact of foreign currency fluctuations, (5) the Company's enterprise strategy initiatives ~~and their~~may not have the desired impact on organic revenue growth, ~~(4)~~(6) market conditions and cost and availability of financing to fund the Company's share repurchases, ~~(5) the risk of intentional acts of the Company's employees, agents or business partners that violate anti-corruption and other laws, (6) the unfavorable impact of foreign currency fluctuations,~~ (7) a delay or decrease in the introduction of new products into the ~~Company’s~~Company's product lines, or(8) any failure to protect the Company's intellectual property, ~~(8) the potential negative impact of acquisitions on the Company’s profitability and returns,~~ (9) ~~negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (10)~~ potential negative impact of impairments to goodwill and other intangible assets on the ~~Company’s profitability and~~Company's return on invested capital, ~~(11) increases in funding costs~~financial condition or ~~decreases in credit availability due to market conditions or changes to the Company's credit ratings, (12)~~results of operations, (10) raw material price increases and supply shortages ~~(13) unfavorable tax law changes and tax authority rulings, (14)~~or delays, (11) financial market risks to the ~~Company’s~~Company's obligations under its defined benefit pension plans, ~~(15) potential adverse outcomes in legal proceedings, and (16)~~(12) negative effects of service interruptions, data corruption, cyber-based attacks, security breaches of our technology networks and systems or ~~network security breaches.~~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-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, ~~2016.~~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 ~~the Company~~ITW speak only as of the date on which they are made. ~~The Company~~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.~~otherwise, except as required by law.

~~The Company~~ITW practices fair disclosure for all interested parties. Investors should be aware that while ~~the Company~~ITW regularly communicates with securities analysts and other investment professionals, it is against ~~the Company's~~ITW's policy to disclose to them any material non-public information or other confidential commercial information. ~~Shareholders~~Investors should not assume that ~~the Company~~ITW agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to exposures to market risk as reported in the Company's 2022 Annual Report on Form 10-K.

ITEM 4. Controls and Procedures

The ~~Company carried out an evaluation, under the supervision and~~Company's management, with the participation of the ~~Company’s~~Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, ofhas evaluated the effectiveness of the ~~Company’s~~Company's disclosure controls and procedures (as

defined in Exchange Act Rule 13a–15(e)) as of September 30, ~~2017~~.2023. Based on such evaluation, the ~~Company’s~~Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of September 30, ~~2017~~,2023, the ~~Company’s~~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 30, ~~2017~~2023 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

None. The Company's threshold for disclosing environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.

ITEM 1A. Risk Factors

The Company's business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary materially from recent results or from anticipated future results. Refer to the description of the Company's risk factors previously disclosed in Part I - Item 1A - Risk Factors in the Company's ~~2016~~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, and Issuer Purchases of Equity Securities

On ~~February 13, 2015,~~August 3, 2018, the ~~Company's Board of Directors authorized~~Company announced a stock repurchase program which ~~provides~~provided for the repurchase of up to ~~$6.0~~$3.0 billion of the Company's common stock over an open-ended period of time (the ~~“2015 Program”~~"2018 Program"). The 2018 Program was completed in the first quarter of 2022.

On May 7, 2021, the Company announced 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 30, ~~2017,~~2023, there were approximately ~~$2.7~~$365 million of authorized repurchases remaining under the 2021 Program.

Share repurchase activity ~~under the Company's share repurchase program~~ for the third quarter of ~~2017~~2023 was as follows:


In millions except per share amounts
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 2023	—	$	—	—	$	740
August 2023	0.9	$	244.15	0.9	$	5,518
September 2023	0.7	$	237.88	0.7	$	5,365
Total	1.6			1.6

In millions except per share amounts

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Value of Shares That May Yet Be Purchased Under Program
July 2017 0.6
$ 142.97
0.6
$ 2,856
August 2017 0.7
$ 140.35
0.7
$ 2,762
September 2017 0.5
$ 145.15
0.5
$ 2,696
Total 1.8
1.8

ITEM 6. Exhibits

Exhibit Index


Exhibit Number		Exhibit Description

~~Exhibit Number~~ 31		~~Exhibit Description~~ Rule 13a-14(a) Certifications.

3132		~~Rule 13a-14(a) Certification.~~

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 30, ~~2017~~2023 is formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(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 ~~(v)~~(vi) related Notes to Financial Statements.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ILLINOIS TOOL WORKS INC.

Dated:

October 24, 2023

By:

~~Dated:~~

~~October 27, 2017~~

~~By:~~

/s/ Randall J. Scheuneman

Randall J. Scheuneman

Vice President & Chief Accounting Officer

(Principal Accounting Officer and Duly Authorized Officer)

3138



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

	For the quarterly period ended	September 30, ~~2017~~2023

	OR

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

	For the transition period from _______________ to _______________


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	ITW	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



Large accelerated filer			x		Accelerated filer		o

Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~			Smaller reporting company		o☐

		Emerging growth company	o☐


		Table of Contents

		~~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	1115
I tem 3.		Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.		Controls and Procedures	2834

		PART II - Other Information

Item 1A1..		~~Risk Factors~~Legal Proceedings	2836
Item 1A.		Risk Factors	36
Item 2.		Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	2936
Item 6.		Exhibits	3037

Signatures			3138



In millions
Total stockholders’ equity, December 31, 2016	$	4,259
Net income	1,763
Repurchases of common stock	(750		)
Cash dividends declared	(715		)
Foreign currency translation adjustments, net of tax	367
Stock option and restricted stock activity	73
Other	29
Total stockholders’ equity, September 30, 2017	$	5,026