8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): May 2, 2023

_________________________

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware				1-4797	36-1258310
(State or other jurisdiction of incorporation)				(Commission File No.)	(I.R.S. Employer Identification No.)
	155 Harlem Avenue	Glenview	IL		60025
(Address of principal executive offices)					(Zip Code)

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

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	ITW	New York Stock Exchange
1.25% Euro Notes due 2023	ITW23	New York Stock Exchange
0.250% Euro Notes due 2024	ITW24A	New York Stock Exchange
0.625% Euro Notes due 2027	ITW27	New York Stock Exchange
2.125% Euro Notes due 2030	ITW30	New York Stock Exchange
1.00% Euro Notes due 2031	ITW31	New York Stock Exchange
3.00% Euro Notes due 2034	ITW34	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

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

Item 2.02    Results of Operations and Financial Condition

On May 2, 2023, Illinois Tool Works Inc. (the "Company") announced its 2023 first quarter results of operations in the press release furnished as Exhibit 99.1.

Non-GAAP Financial Measures

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, along with free cash flow to net income conversion rate, are 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. A reconciliation of free cash flow to net cash provided by operating activities is included in the press release furnished as Exhibit 99.1.

The Company uses after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its operations' use of invested capital to generate profits. After-tax ROIC is not defined under U.S. generally accepted accounting principles ("GAAP"). After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company's ability to generate returns from cash invested in its operations and may be different than the method used by other companies to calculate After-tax ROIC. The Company defines After-tax ROIC as operating income after taxes divided by average invested capital, which is annualized when presented in interim periods. Operating income after taxes is a non-GAAP measure consisting of net income before interest expense and other income (expense), on an after-tax basis, which are excluded as they do not represent returns generated by the Company's operations. For comparability, the Company also excluded the discrete tax benefits of $32 million in the fourth quarter of 2022 and $51 million in the second quarter of 2022 from net income and the effective tax rate for the year ended December 31, 2022. Total invested capital represents the net assets of the Company, other than cash and equivalents and outstanding debt which do not represent capital investment in the Company's operations. The most comparable GAAP measure to operating income after taxes is net income. Calculations of net income to average invested capital and After-tax ROIC are included in the press release furnished as Exhibit 99.1.

The Company presented diluted net income per share for the twelve months ended December 31, 2022 excluding the net impact of gains from two divestitures in the fourth quarter of 2022. The Company believes this non-GAAP measure enhances investors' understanding of the Company's underlying financial performance and improves comparability with other annual periods. A reconciliation of this non-GAAP measure to diluted net income per share is included in the press release furnished as Exhibit 99.1.

Item 9.01    Financial Statements and Exhibits

(d)	Exhibits
	Exhibit Number	Exhibit Description
	99.1	Press Release issued by Illinois Tool Works Inc. dated May 2, 2023 (furnished pursuant to Item 2.02).
	104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities and 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: May 2, 2023	By: /s/ Michael M. Larsen
	Michael M. Larsen
	Senior Vice President & Chief Financial Officer

Document

Exhibit 99.1

ITW Reports First Quarter 2023 Results

•Revenue of $4.0 billion, an increase of 2% with organic growth of 5%

•Operating income of $972 million, an increase of 9%

•Operating margin of 24.2%, an increase of 150 bps

•GAAP EPS of $2.33, an increase of 10%

•Raising full year GAAP EPS guidance by $0.05 to a range of $9.45 to $9.85 per share

GLENVIEW, IL., May 2, 2023 - Illinois Tool Works Inc. (NYSE: ITW) today reported its first quarter 2023 results.

“The ITW team delivered a solid start to the year with organic growth of five percent, operating margin expansion of 150 basis points, strong free cash flow, and double-digit EPS growth as we continue to demonstrate the performance power of our proprietary business model and the resilience of our diversified high-quality business portfolio,” said E. Scott Santi, Chairman and Chief Executive Officer. “While the near-term economic outlook continues to be uncertain, I am confident that ITW remains well positioned to deliver best-in-class performance in any environment.”

First Quarter 2023 Results

First quarter revenue of $4.0 billion increased two percent with organic revenue growth of five percent. Foreign currency translation impact and divestitures combined reduced revenue by three percent.

GAAP EPS increased 10 percent to $2.33, a new first quarter record, and included $0.06 of unfavorable foreign currency translation impact. Operating income increased nine percent to $972 million. Operating margin of 24.2 percent improved 150 basis points with enterprise initiatives contributing 100 basis points. Operating cash flow was $728 million, and free cash flow was $615 million, an increase of 147 percent, with a conversion rate to net income of 86 percent. The company repurchased $375 million of its own shares and the effective tax rate was 22.6 percent.

2023 Guidance

The company is raising its full-year GAAP EPS guidance to $9.45 to $9.85 per share which incorporates a projected lower tax rate for the full year in the range of 23.5 to 24 percent. This compares to previous guidance of $9.40 to $9.80 per share. The organic growth projection of three to five percent reflects current levels of demand and a risk adjustment for further slowing in certain end markets. Foreign currency translation impact and divestitures combined are expected to reduce revenue by one percent, resulting in total revenue growth of two to four percent. This compares to previous guidance of 1.5 to 3.5 percent. Operating margin is projected to be in the range of 24.5 to 25.5 percent, with approximately 100 basis points contribution from enterprise initiatives. Free cash flow is projected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares.

Non-GAAP Measures

This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information.

Forward-looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding global supply chain challenges, expected impact of inflation including raw material inflation and rising interest rates, enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, restructuring expenses and related benefits, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, the impact of recent or potential acquisitions and/or divestitures, and the Company’s 2023 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors that could cause actual results to differ materially from those anticipated. Such factors include those contained in ITW's Form 10-K for 2022.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenue of $15.9 billion in 2022. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 46,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)

	Three Months Ended
	March 31,
In millions except per share amounts	2023		2022
Operating Revenue	$	4,019	$	3,939
Cost of revenue	2,341		2,357
Selling, administrative, and research and development expenses	675		652
Amortization and impairment of intangible assets	31		35
Operating Income	972		895
Interest expense	(60)		(48)
Other income (expense)	10		14
Income Before Taxes	922		861
Income taxes	208		199
Net Income	$	714	$	662
Net Income Per Share:
Basic	$	2.34	$	2.12
Diluted	$	2.33	$	2.11
Cash Dividends Per Share:
Paid	$	1.31	$	1.22
Declared	$	1.31	$	1.22
Shares of Common Stock Outstanding During the Period:
Average	305.0		312.5
Average assuming dilution	306.1		313.7

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions	March 31, 2023		December 31, 2022
Assets
Current Assets:
Cash and equivalents	$	1,143	$	708
Trade receivables	3,201		3,171
Inventories	2,000		2,054
Prepaid expenses and other current assets	334		329
Assets held for sale	10		8
Total current assets	6,688		6,270
Net plant and equipment	1,885		1,848
Goodwill	4,884		4,864
Intangible assets	738		768
Deferred income taxes	503		494
Other assets	1,223		1,178
	$	15,921	$	15,422
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	2,870	$	1,590
Accounts payable	599		594
Accrued expenses	1,504		1,728
Cash dividends payable	398		400
Income taxes payable	224		147
Liabilities held for sale	1		1
Total current liabilities	5,596		4,460
Noncurrent Liabilities:
Long-term debt	5,510		6,173
Deferred income taxes	477		484
Noncurrent income taxes payable	273		273
Other liabilities	964		943
Total noncurrent liabilities	7,224		7,873
Stockholders' Equity:
Common stock	6		6
Additional paid-in-capital	1,526		1,501
Retained earnings	26,115		25,799
Common stock held in treasury	(22,743)		(22,377)
Accumulated other comprehensive income (loss)	(1,804)		(1,841)
Noncontrolling interest	1		1
Total stockholders' equity	3,101		3,089
	$	15,921	$	15,422

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended March 31, 2023
Dollars in millions	Total Revenue		Operating Income		Operating Margin
Automotive OEM	$	796	$	128	16.1	%
Food Equipment	635		169		26.7	%
Test & Measurement and Electronics	703		172		24.5	%
Welding	493		157		31.9	%
Polymers & Fluids	447		109		24.4	%
Construction Products	526		145		27.5	%
Specialty Products	423		109		25.6	%
Intersegment	(4)		—		—	%
Total Segments	4,019		989		24.6	%
Unallocated	—		(17)		—	%
Total Company	$	4,019	$	972	24.2	%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q1 2023 vs. Q1 2022 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	7.9	%	16.0	%	5.6	%	10.2	%	(0.1)	%	(1.4)	%	(5.0)	%	5.2	%
Acquisitions/<br>Divestitures	—	%	(1.2)	%	—	%	—	%	(4.5)	%	—	%	—	%	(0.7)	%
Translation	(3.2)	%	(2.5)	%	(3.0)	%	(0.6)	%	(2.4)	%	(3.2)	%	(1.4)	%	(2.5)	%
Operating Revenue	4.7	%	12.3	%	2.6	%	9.6	%	(7.0)	%	(4.6)	%	(6.4)	%	2.0	%
Q1 2023 vs. Q1 2022 Favorable/(Unfavorable)
---	---	---	---	---	---	---	---
Change in Operating Margin	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	300 bps	130 bps	140 bps	—	(20) bps	(100) bps	100 bps
Changes in Variable Margin & OH Costs	130 bps	140 bps	(40) bps	(10) bps	310 bps	(10) bps	40 bps
Total Organic	430 bps	270 bps	100 bps	(10) bps	290 bps	(110) bps	140 bps
Acquisitions/Divestitures	20 bps	—	—	40 bps	—	—	10 bps
Restructuring/Other	(10) bps	—	10 bps	(40) bps	(10) bps	10 bps	—
Total Operating Margin Change	440 bps	270 bps	110 bps	(10) bps	280 bps	(100) bps	150 bps
Total Operating Margin % *	26.7%	24.5%	31.9%	24.4%	27.5%	25.6%	24.2%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	50 bps	180 bps	10 bps	210 bps	20 bps	70 bps	80 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of (0.08) on GAAP earnings per share for the first quarter of 2023.

All values are in US Dollars.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

	Three Months Ended
	March 31,
Dollars in millions	2023			2022
Numerator:
Net income	$	714		$	662
Interest expense, net of tax (1)	46			37
Other (income) expense, net of tax (1)	(8)			(11)
Operating income after taxes	$	752		$	688
Denominator:
Invested capital:
Cash and equivalents	$	1,143		$	1,296
Trade receivables	3,201			3,126
Inventories	2,000			1,883
Net assets held for sale	9			—
Net plant and equipment	1,885			1,795
Goodwill and intangible assets	5,622			5,883
Accounts payable and accrued expenses	(2,103)			(2,237)
Debt	(8,380)			(7,858)
Other, net	(276)			(306)
Total net assets (stockholders' equity)	3,101			3,582
Cash and equivalents	(1,143)			(1,296)
Debt	8,380			7,858
Total invested capital	$	10,338		$	10,144
Average invested capital (2)	$	10,241		$	9,966
Net income to average invested capital (3)	27.9		%	26.6		%
After-tax return on average invested capital (3)	29.4		%	27.6		%

(1)    Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2023 and 2022 was 22.6% and 23.1%, respectively.

(2)    Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of the periods presented.

(3)    Returns for the three months ended March 31, 2023 and 2022 were converted to an annual rate by multiplying the calculated return by 4.

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

	Twelve Months Ended
Dollars in millions	December 31, 2022
Numerator:
Net income	$	3,034
Discrete tax benefit related to the fourth quarter 2022	(32)
Discrete tax benefit related to the second quarter 2022	(51)
Interest expense, net of tax (1)	156
Other (income) expense, net of tax (1)	(196)
Operating income after taxes	$	2,911
Denominator:
Invested capital:
Cash and equivalents	$	708
Trade receivables	3,171
Inventories	2,054
Net assets held for sale	7
Net plant and equipment	1,848
Goodwill and intangible assets	5,632
Accounts payable and accrued expenses	(2,322)
Debt	(7,763)
Other, net	(246)
Total net assets (stockholders' equity)	3,089
Cash and equivalents	(708)
Debt	7,763
Total invested capital	$	10,144
Average invested capital (2)	$	10,017
Net income to average invested capital	30.3		%
After-tax return on average invested capital	29.1		%

(1)    Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2022 was 23.2%.

(2)    Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.

A reconciliation of the 2022 effective tax rate excluding the fourth quarter 2022 discrete tax benefit of $32 million related to the utilization of capital loss carryforwards and the second quarter 2022 discrete tax benefit of $51 million related to the resolution of a U.S. tax audit is as follows:

	Twelve Months Ended
	December 31, 2022
Dollars in millions	Income Taxes		Tax Rate
As reported	$	808	21.0	%
Discrete tax benefit related to the fourth quarter 2022	32		0.8	%
Discrete tax benefit related to the second quarter 2022	51		1.4	%
As adjusted	$	891	23.2	%

FREE CASH FLOW (UNAUDITED)

	Three Months Ended
	March 31,
Dollars in millions	2023			2022
Net cash provided by operating activities	$	728		$	323
Less: Additions to plant and equipment	(113)			(74)
Free cash flow	$	615		$	249
Net income	$	714		$	662
Net cash provided by operating activities to net income conversion rate	102		%	49		%
Free cash flow to net income conversion rate	86		%	38		%

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

	Twelve Months Ended
	December 31, 2022
As reported	$	9.77
Net impact of gains from two divestitures in the fourth quarter 2022	(0.60)
As adjusted	$	9.17