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): February 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 February 2, 2023, Illinois Tool Works Inc. (the "Company") announced its 2022 fourth 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 benefit of $32 million in the fourth quarter of 2022 from net income and the effective tax rate for the three and twelve months ended December 31, 2022, and the discrete tax benefit of $51 million in the second quarter of 2022 from net income and the effective tax rate for the twelve months ended December 31, 2022. Additionally, for comparability, the Company excluded the discrete tax benefit of $21 million in the third quarter of 2021 and the discrete tax benefit of $112 million in the second quarter of 2021 from net income and the effective tax rate for the twelve months ended December 31, 2021. Total invested capital represents the net assets of the Company, other than cash and equivalents and outstanding debt which do not represent capital investment in the Company's operations. The most comparable GAAP measure to operating income after taxes is net income. 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 three and 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 February 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: February 2, 2023	By: /s/ Michael M. Larsen
	Michael M. Larsen
	Senior Vice President & Chief Financial Officer

EX-99.1

Exhibit 99.1

ITW Reports Fourth Quarter and Full Year 2022 Results

Fourth Quarter 2022 Highlights

•Revenue of $4.0 billion, an increase of 8% with organic growth of 12%

•Record operating income of $986 million, an increase of 18%

•Operating margin of 24.8%, an increase of 210 bps

•Record GAAP EPS of $2.95 including $0.61 of divestiture gains

•Excluding divestiture gains, EPS of $2.34, an increase of 21%

2022 Highlights

•Revenue of $15.9 billion, an increase of 10% with organic growth of 12%

•Record operating income of $3.8 billion, an increase of 9%

•Operating margin of 23.8%; 24.4% excluding MTS acquisition impact

•Record GAAP EPS of $9.77, an increase of 15%

2023 Guidance

•Organic growth of 3 to 5%

•Operating margin of 24.5 to 25.5% with enterprise initiatives contributing approximately 100 bps

•GAAP EPS of $9.40 to $9.80

GLENVIEW, IL., February 2, 2023 - Illinois Tool Works Inc. (NYSE: ITW) today reported its fourth quarter and full year 2022 results and initiated guidance for full year 2023.

“We delivered a robust finish to a strong year of differentiated execution and performance by the ITW team. Fourth quarter organic growth was 12 percent, operating margin was 24.8 percent, and earnings per share increased 21 percent excluding divestiture gains,” said E. Scott Santi, Chairman and Chief Executive Officer. We were very pleased with both our revenue growth and margin performance in the fourth quarter as we delivered eight percent overall revenue growth and a 210-basis point operating margin improvement.”

“For all of 2022, in a year marked by significant supply chain disruptions and cost inflation, ITW delivered organic growth of 12 percent for the second year in a row, operating margin of 24.4 percent in our base business, after tax return on invested capital of 29.1 percent, and record GAAP EPS of $9.77, an increase of 15 percent versus the prior year. There is no question that our decision to stay invested in our enterprise strategy and in our people throughout the pandemic and the quality of our teams’ execution of our “Win the Recovery” focus coming out of it are powering the strong growth and financial performance ITW is currently delivering. As a result, we are very pleased with our momentum and positioning heading into 2023. I want to again thank my ITW colleagues around the world for their extraordinary dedication and commitment to serving our customers and executing our strategy with excellence,” Santi concluded.

Fourth Quarter 2022 Results

Fourth quarter revenue of $4.0 billion increased eight percent with organic revenue growth of 12 percent. The net impact from acquisitions and divestitures contributed one percent to revenue. Unfavorable foreign currency translation reduced revenue by five percent. Five of seven segments delivered double-digit organic growth in the quarter, led by Automotive OEM up 20 percent, Food Equipment up 17 percent, Welding up 15 percent, Polymers & Fluids up 11 percent, and Test & Measurement and Electronics up 10 percent. Construction Products was up four percent, and Specialty Products was up three percent. On a geographic basis, organic growth was 13 percent in North America, 11 percent in Europe, and nine percent in Asia Pacific.

GAAP EPS increased 53 percent to $2.95 and included $0.61 of divestiture gains and $0.12 of unfavorable foreign currency translation impact. Excluding divestiture gains and foreign currency translation impact, EPS of $2.46 increased 27 percent.Operating income increased 18 percent to $986 million and incremental margin was 52 percent. Operating margin of 24.8 percent improved 210 basis points with enterprise initiatives contributing 110 basis points and favorable price/cost margin impact of 70 basis points. Operating cash flow was $811 million, and free cash flow was $655 million, a seven percent sequential improvement from the third quarter and a conversion rate to net income of 72 percent. Excluding the abovementioned divestiture gains, the conversion rate to net income was 91 percent. The company repurchased $500 million of

its own shares and the effective tax rate was 19.1 percent, which included a 2.9 percentage-point favorable impact from the utilization of capital loss carryforwards related to the divestitures.

Full Year 2022 Results

Full year revenue of $15.9 billion increased 10 percent with organic revenue growth of 12 percent. The net impact from acquisitions and divestitures contributed two percent to revenue. Unfavorable foreign currency translation reduced revenue by four percent. Five of seven segments delivered double-digit organic growth for the year, led by Food Equipment up 23 percent, Welding up 16 percent, Construction Products up 14 percent, Automotive OEM up 12 percent, and Polymers & Fluids up 11 percent. Test & Measurement and Electronics was up nine percent and Specialty Products was up 0.4 percent. On a geographic basis, organic growth was 14 percent in North America, 10 percent in Europe, and eight percent in Asia Pacific.

GAAP EPS increased 15 percent to $9.77 including the abovementioned divestiture gains and $0.39 of unfavorable foreign currency translation impact. Excluding divestiture gains and foreign currency translation impact, EPS increased 12 percent. Operating margin of 23.8 percent declined 30 basis points primarily due to 150 basis points of combined unfavorable margin headwind from price/cost and MTS acquisition impact. Operating cash flow was $2.3 billion and free cash flow was $1.9 billion with a conversion rate of 64 percent to net income, as the company continues to make working capital investments to support double-digit organic revenue growth and to mitigate supply chain risk in order to sustain best-in-class customer service levels across our portfolio. The company repurchased $1.75 billion of its own shares, and the effective tax rate was 21 percent.

Fourth Quarter Divestiture Update

As previously announced, on October 3, 2022, ITW closed the sale of a $100 million revenue division within the Polymers & Fluids segment for $220 million. On December 1, 2022, ITW closed the sale of a $35 million revenue business unit within the Food Equipment segment for $59 million. The gains on sale related to these two divestitures contributed $197 million to non-operating income and $0.61 to fourth quarter EPS.

2023 Guidance

The company is initiating 2023 guidance including GAAP EPS in the range of $9.40 to $9.80 per share and organic growth of three to five percent based on current levels of demand and anticipated further slowing in certain end markets. Foreign currency translation and the abovementioned divestitures are expected to reduce revenue by approximately 0.75 percent each, resulting in total revenue growth 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 expected to be greater than 100 percent of net income and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is approximately 24 percent.

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 the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, 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, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation of overseas cash, 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, potential acquisitions and divestitures and related impact on financial results, including statements with respect to the impact of the 2021 acquisition of the MTS Test & Simulation business and the 2022 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 2021 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $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				Twelve Months Ended
	December 31,				December 31,
In millions except per share amounts	2022		2021		2022		2021
Operating Revenue	$	3,971	$	3,679	$	15,932	$	14,455
Cost of revenue	2,309		2,191		9,429		8,489
Selling, administrative, and research and development expenses	644		621		2,579		2,356
Amortization and impairment of intangible assets	32		33		134		133
Operating Income	986		834		3,790		3,477
Interest expense	(56)		(49)		(203)		(202)
Other income (expense)	191		7		255		51
Income Before Taxes	1,121		792		3,842		3,326
Income taxes	214		183		808		632
Net Income	$	907	$	609	$	3,034	$	2,694
Net Income Per Share:
Basic	$	2.96	$	1.94	$	9.80	$	8.55
Diluted	$	2.95	$	1.93	$	9.77	$	8.51
Cash Dividends Per Share:
Paid	$	1.31	$	1.22	$	4.97	$	4.64
Declared	$	1.31	$	1.22	$	5.06	$	4.72
Shares of Common Stock Outstanding During the Period:
Average	306.8		313.6		309.6		315.1
Average assuming dilution	307.9		315.0		310.7		316.4

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions	December 31, 2022		December 31, 2021
Assets
Current Assets:
Cash and equivalents	$	708	$	1,527
Trade receivables	3,171		2,840
Inventories	2,054		1,694
Prepaid expenses and other current assets	329		313
Assets held for sale	8		—
Total current assets	6,270		6,374
Net plant and equipment	1,848		1,809
Goodwill	4,864		4,965
Intangible assets	768		972
Deferred income taxes	494		552
Other assets	1,178		1,405
	$	15,422	$	16,077
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	1,590	$	778
Accounts payable	594		585
Accrued expenses	1,728		1,648
Cash dividends payable	400		382
Income taxes payable	147		77
Liabilities held for sale	1		—
Total current liabilities	4,460		3,470
Noncurrent Liabilities:
Long-term debt	6,173		6,909
Deferred income taxes	484		654
Noncurrent income taxes payable	273		365
Other liabilities	943		1,053
Total noncurrent liabilities	7,873		8,981
Stockholders' Equity:
Common stock	6		6
Additional paid-in-capital	1,501		1,432
Retained earnings	25,799		24,325
Common stock held in treasury	(22,377)		(20,636)
Accumulated other comprehensive income (loss)	(1,841)		(1,502)
Noncontrolling interest	1		1
Total stockholders' equity	3,089		3,626
	$	15,422	$	16,077

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended December 31, 2022
Dollars in millions	Total Revenue		Operating Income		Operating Margin
Automotive OEM	$	745	$	128	17.1	%
Food Equipment	631		173		27.6	%
Test & Measurement and Electronics	732		198		26.9	%
Welding	481		152		31.6	%
Polymers & Fluids	455		117		25.8	%
Construction Products	470		120		25.5	%
Specialty Products	462		119		25.7	%
Intersegment	(5)		—		—	%
Total Segments	3,971		1,007		25.4	%
Unallocated	—		(21)		—	%
Total Company	$	3,971	$	986	24.8	%

Twelve Months Ended December 31, 2022
Dollars in millions	Total Revenue		Operating Income		Operating Margin
Automotive OEM	$	2,969	$	499	16.8	%
Food Equipment	2,444		618		25.3	%
Test & Measurement and Electronics	2,828		684		24.2	%
Welding	1,894		583		30.8	%
Polymers & Fluids	1,905		479		25.2	%
Construction Products	2,113		548		25.9	%
Specialty Products	1,799		481		26.7	%
Intersegment	(20)		—		—	%
Total Segments	15,932		3,892		24.4	%
Unallocated	—		(102)		—	%
Total Company	$	15,932	$	3,790	23.8	%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q4 2022 vs. Q4 2021 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	19.6	%	16.8	%	10.4	%	15.4	%	10.8	%	4.2	%	2.9	%	11.9	%
Acquisitions/ Divestitures	—	%	(0.4)	%	10.1	%	—	%	(4.7)	%	—	%	—	%	1.2	%
Translation	(7.3)	%	(5.5)	%	(5.2)	%	(1.7)	%	(4.3)	%	(6.2)	%	(3.9)	%	(5.2)	%
Operating Revenue	12.3	%	10.9	%	15.3	%	13.7	%	1.8	%	(2.0)	%	(1.0)	%	7.9	%

Q4 2022 vs. Q4 2021 Favorable/(Unfavorable)
Change in Operating Margin	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	350 bps	310 bps	220 bps	210 bps	190 bps	70 bps	50 bps	230 bps
Changes in Variable Margin & OH Costs	(320) bps	130 bps	130 bps	(90) bps	(70) bps	(90) bps	(110) bps	20 bps
Total Organic	30 bps	440 bps	350 bps	120 bps	120 bps	(20) bps	(60) bps	250 bps
Acquisitions/ Divestitures	—	10 bps	(290) bps	—	50 bps	—	—	(40) bps
Restructuring/Other	—	20 bps	(10) bps	40 bps	—	(10) bps	(20) bps	—
Total Operating Margin Change	30 bps	470 bps	50 bps	160 bps	170 bps	(30) bps	(80) bps	210 bps
Total Operating Margin % *	17.1%	27.6%	26.9%	31.6%	25.8%	25.5%	25.7%	24.8%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	30 bps	50 bps	180 bps	10 bps	220 bps	20 bps	60 bps	90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.08) on GAAP earnings per share for the fourth quarter of 2022.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Full Year 2022 vs Full Year 2021 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	11.7	%	22.9	%	9.0	%	16.0	%	10.5	%	14.4	%	0.4	%	12.1	%
Acquisitions/ Divestitures	—	%	(0.1)	%	15.9	%	—	%	(1.2)	%	—	%	—	%	2.4	%
Translation	(5.7)	%	(5.2)	%	(4.3)	%	(1.3)	%	(3.7)	%	(5.8)	%	(3.3)	%	(4.3)	%
Operating Revenue	6.0	%	17.6	%	20.6	%	14.7	%	5.6	%	8.6	%	(2.9)	%	10.2	%

Full Year 2022 vs Full Year 2021 Favorable/(Unfavorable)
Change in Operating Margin	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	190 bps	430 bps	190 bps	220 bps	170 bps	220 bps	—	220 bps
Changes in Variable Margin & OH Costs	(370) bps	(150) bps	(160) bps	(140) bps	(200) bps	(350) bps	(60) bps	(180) bps
Total Organic	(180) bps	280 bps	30 bps	80 bps	(30) bps	(130) bps	(60) bps	40 bps
Acquisitions/ Divestitures	—	—	(350) bps	—	20 bps	—	—	(60) bps
Restructuring/Other	(90) bps	(10) bps	—	30 bps	(10) bps	—	10 bps	(10) bps
Total Operating Margin Change	(270) bps	270 bps	(320) bps	110 bps	(20) bps	(130) bps	(50) bps	(30) bps
Total Operating Margin % *	16.8%	25.3%	24.2%	30.8%	25.2%	25.9%	26.7%	23.8%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	30 bps	50 bps	190 bps	10 bps	220 bps	20 bps	70 bps	90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.33) on GAAP earnings per share for 2022.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
Dollars in millions	2022			2021			2022			2021
Numerator:
Net income	$	907		$	609		$	3,034		$	2,694
Discrete tax benefit related to the fourth quarter 2022	(32)			—			(32)			—
Discrete tax benefit related to the second quarter 2022	—			—			(51)			—
Discrete tax benefit related to the third quarter 2021	—			—			—			(21)
Discrete tax benefit related to the second quarter 2021	—			—			—			(112)
Interest expense, net of tax (1)	44			38			156			157
Other (income) expense, net of tax (1)	(147)			(5)			(196)			(40)
Operating income after taxes	$	772		$	642		$	2,911		$	2,678
Denominator:
Invested capital:
Cash and equivalents	$	708		$	1,527		$	708		$	1,527
Trade receivables	3,171			2,840			3,171			2,840
Inventories	2,054			1,694			2,054			1,694
Net assets held for sale	7			—			7			—
Net plant and equipment	1,848			1,809			1,848			1,809
Goodwill and intangible assets	5,632			5,937			5,632			5,937
Accounts payable and accrued expenses	(2,322)			(2,233)			(2,322)			(2,233)
Debt	(7,763)			(7,687)			(7,763)			(7,687)
Other, net	(246)			(261)			(246)			(261)
Total net assets (stockholders' equity)	3,089			3,626			3,089			3,626
Cash and equivalents	(708)			(1,527)			(708)			(1,527)
Debt	7,763			7,687			7,763			7,687
Total invested capital	$	10,144		$	9,786		$	10,144		$	9,786
Average invested capital (2)	$	10,006		$	9,421		$	10,017		$	9,087
Net income to average invested capital (3)	36.3		%	25.8		%	30.3		%	29.6		%
After-tax return on average invested capital (3)	30.8		%	27.2		%	29.1		%	29.5		%

(1)    Effective tax rate used for interest expense and other (income) expense for the three months ended December 31, 2022 and 2021 was 22.0% and 23.1%, respectively, and 23.2% and 23.0% for the twelve months ended December 31, 2022 and 2021, respectively.

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

(3)    Returns for the three months ended December 31, 2022 and 2021 were converted to an annual rate by multiplying the calculated return by 4.

A reconciliation of the effective tax rate for the three and twelve month periods ended December 31, 2022, 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:

	Three Months Ended				Twelve Months Ended
	December 31, 2022				December 31, 2022
Dollars in millions	Income Taxes		Tax Rate		Income Taxes		Tax Rate
As reported	$	214	19.1	%	$	808	21.0	%
Discrete tax benefit related to the fourth quarter 2022	32		2.9	%	32		0.8	%
Discrete tax benefit related to the second quarter 2022	—		—	%	51		1.4	%
As adjusted	$	246	22.0	%	$	891	23.2	%

A reconciliation of the effective tax rate for the twelve month period ended December 31, 2021, excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital loss carryforwards and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:

	Twelve Months Ended
	December 31, 2021
Dollars in millions	Income Taxes		Tax Rate
As reported	$	632	19.0	%
Discrete tax benefit related to the third quarter 2021	21		0.6	%
Discrete tax benefit related to the second quarter 2021	112		3.4	%
As adjusted	$	765	23.0	%

FREE CASH FLOW (UNAUDITED)

	Three Months Ended							Twelve Months Ended
	December 31,							December 31,
Dollars in millions	2022				2021			2022			2021
Net cash provided by operating activities	$	811			$	774		$	2,348		$	2,557
Less: Additions to plant and equipment	(156)				(79)			(412)			(296)
Free cash flow	$	655			$	695		$	1,936		$	2,261
Net income	$	907			$	609		$	3,034		$	2,694
Net cash provided by operating activities to net income conversion rate	89		%		127		%	77		%	95		%
Free cash flow to net income conversion rate	72		%	*	114		%	64		%	84		%

* Excluding the net impact of the two divestiture gains on net income, the free cash flow to net income conversion rate would have been 91% for the three months ended December 31, 2022.

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

	Three Months Ended		Twelve Months Ended
	December 31, 2022		December 31, 2022
As reported	$	2.95	$	9.77
Net impact of gains from two divestitures in the fourth quarter 2022	(0.61)		(0.60)
As adjusted	$	2.34	$	9.17

XML

Document and Entity Information Document	Feb. 02, 2023
Entity Information [Line Items]
Document Type	8-K
Document Period End Date	Feb. 02, 2023
Entity Registrant Name	ILLINOIS TOOL WORKS INC.
Entity Incorporation, State or Country Code	DE
Entity File Number	1-4797
Entity Tax Identification Number	36-1258310
Entity Address, Address Line One	155 Harlem Avenue
Entity Address, City or Town	Glenview
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60025
City Area Code	847
Local Phone Number	724-7500
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
Entity Central Index Key	0000049826
Amendment Flag	false
NEW YORK STOCK EXCHANGE, INC. | Common Stock
Entity Information [Line Items]
Title of 12(b) Security	Common Stock
Trading Symbol	ITW
Security Exchange Name	NYSE
NEW YORK STOCK EXCHANGE, INC. | 1.25% Euro Notes due 2023
Entity Information [Line Items]
Title of 12(b) Security	1.25% Euro Notes due 2023
Trading Symbol	ITW23
Security Exchange Name	NYSE
NEW YORK STOCK EXCHANGE, INC. | 0.250% Euro Notes due 2024
Entity Information [Line Items]
Title of 12(b) Security	0.250% Euro Notes due 2024
Trading Symbol	ITW24A
Security Exchange Name	NYSE
NEW YORK STOCK EXCHANGE, INC. | 0.625% Euro Notes due 2027
Entity Information [Line Items]
Title of 12(b) Security	0.625% Euro Notes due 2027
Trading Symbol	ITW27
Security Exchange Name	NYSE
NEW YORK STOCK EXCHANGE, INC. | 2.125% Euro Notes due 2030
Entity Information [Line Items]
Title of 12(b) Security	2.125% Euro Notes due 2030
Trading Symbol	ITW30
Security Exchange Name	NYSE
NEW YORK STOCK EXCHANGE, INC. | 1.00% Euro Notes due 2031
Entity Information [Line Items]
Title of 12(b) Security	1.00% Euro Notes due 2031
Trading Symbol	ITW31
Security Exchange Name	NYSE
NEW YORK STOCK EXCHANGE, INC. | 3.00% Euro Notes due 2034
Entity Information [Line Items]
Title of 12(b) Security	3.00% Euro Notes due 2034
Trading Symbol	ITW34
Security Exchange Name	NYSE