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What changed in Illinois Tool Works's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Illinois Tool Works's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+247 added−246 removedSource: 10-K (2024-02-09) vs 10-K (2023-02-10)

Top changes in Illinois Tool Works's 2023 10-K

247 paragraphs added · 246 removed · 182 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe Company has clearly defined action plans aimed at leveraging the performance power of the ITW Business Model to achieve full-potential organic growth in every division, with specific focus on: • "80" focused Market Penetration - fully leveraging the considerable growth potential that resides in the Company's largest and most differentiated product offerings and customer relationships • Customer-back Innovation - strengthening the Company's commitment to serial innovation and delivering a continuous flow of differentiated new products to its key customers • Strategic Sales Excellence - deploying a high-performance sales function in every division As the Company continues to make progress toward its full potential, the Company will explore opportunities to reinforce or further expand the long-term organic growth potential of ITW through the addition of selective high-quality acquisitions, such as the acquisition of the Test & Simulation business of MTS Systems Corporation ("MTS") from Amphenol Corporation on December 1, 2021.
Biggest changeAs the Company continues to make progress toward its full potential, the Company will explore opportunities to reinforce or further expand the long-term organic growth potential of ITW through the addition of selective high-quality acquisitions, such as the acquisition of the Test & Simulation business of MTS Systems Corporation ("MTS") from Amphenol Corporation on December 1, 2021.
Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, automotive original equipment manufacturers and tiers, energy, consumer durables and industrial capital goods markets.
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, energy, automotive original equipment manufacturers and tiers, industrial capital goods and consumer durables markets.
Any additional measures to maintain compliance are not expected to materially affect the Company's capital expenditures (including expenditures for environmental control facilities), competitive position, financial position or results of operations. Various legislative and administrative regulations applicable to the Company in the matters noted above have become effective or are under consideration in many parts of the world.
Any additional 7 measures to maintain compliance are not expected to materially affect the Company's capital expenditures (including expenditures for environmental control facilities), competitive position, financial position or results of operations. Various legislative and administrative regulations applicable to the Company in the matters noted above have become effective or are under consideration in many parts of the world.
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.
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, airlines and printing and publishing markets.
Copies of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge through the Company's website ( www.itw.com ), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC.
Available Information Copies of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 9 are available free of charge through the Company's website ( www.itw.com ), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the Securities and Exchange Commission ("the SEC").
These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 19,200 granted and pending patents; 4 • ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive.
These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 19,600 granted and pending patents; 4 • ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive.
In addition to numerous smaller regional competitors, the Welding segment competes globally with Lincoln Electric and ESAB. In virtually all segments, the Company differentiates its businesses from its competitors based on product innovation, product quality, brand preference and service delivery. Technical capability is also a competitive factor in most segments.
In addition to numerous smaller regional competitors, the Welding segment competes globally with Lincoln Electric Holdings, Inc. and ESAB Corporation. In virtually all segments, the Company differentiates its businesses from its competitors based on product innovation, product quality, brand preference and service delivery. Technical capability is also a competitive factor in most segments.
ITW now has 84 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation. • The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through 2022 and continues to be a key contributor to the Company's ongoing enterprise strategy. • With the initial portfolio realignment and scale-up work largely complete, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 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.
ITW now has 84 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation. • The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year since 2013 and continues to be a key contributor to the Company's ongoing enterprise strategy. • With the initial portfolio realignment and scale-up work largely completed, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process to optimize its scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth.
ITEM 1. Business General Illinois Tool Works Inc. (the "Company" or "ITW") was founded in 1912 and incorporated in 1915. The Company's ticker symbol is ITW. The Company is a global manufacturer of a diversified range of industrial products and equipment with 84 divisions in 51 countries. As of December 31, 2022, the Company employed approximately 46,000 people.
ITEM 1. Business General Illinois Tool Works Inc. (the "Company" or "ITW") was founded in 1912 and incorporated in 1915. The Company's ticker symbol is ITW. The Company is a global manufacturer of a diversified range of industrial products and equipment with 84 divisions in 51 countries. As of December 31, 2023, the Company employed approximately 45,000 people.
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.
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. Current Year Developments Refer to Item 7.
Refer to Item 1A. Risk Factors for further information. Human Capital Management As of December 31, 2022, the Company employed approximately 46,000 people, with approximately 18,000 people located in the United States and the remainder in multiple other countries where the Company's businesses operate.
Refer to Item 1A. Risk Factors for further information. Human Capital Management As of December 31, 2023, the Company employed approximately 45,000 people, with approximately 17,000 people located in the United States and the remainder in multiple other countries where the Company's businesses operate.
Distribution Methods The Company's businesses primarily distribute their products directly to industrial manufacturers and through independent distributors. Backlog Backlog generally is not considered a significant factor in the Company's businesses as relatively short delivery periods and rapid inventory turnover are characteristic of most of their products.
Management's Discussion and Analysis of Financial Condition and Results of Operations. 6 Distribution Methods The Company's businesses primarily distribute their products directly to industrial manufacturers and through independent distributors. Backlog Backlog generally is not considered a significant factor in the Company's businesses as relatively short delivery periods and rapid inventory turnover are characteristic of most of their products.
As a global employer, the Company is committed to providing market-competitive compensation and benefits to attract and retain great talent across its global divisions. Specific compensation and benefits vary worldwide and are based on regional practices.
As a global employer, the Company is committed to providing market-competitive compensation and benefits that support physical, mental, and financial well-being to attract and retain great talent across its global divisions. Specific compensation and benefits vary worldwide and are based on regional practices.
The Company believes that many of its patents are valuable and important; however, the expiration of any one of the Company's patents would not have a material effect on the Company's results of operations or financial position.
The Company maintains a patent group for the administration of patents and processing of patent applications. The Company believes that many of its patents are valuable and important; however, the expiration of any one of the Company's patents would not have a material effect on the Company's results of operations or financial position.
Outside the U.S., employees in certain countries are represented by an employee representative organization, such as a union, works council or employee association. The Company considers its employee relations to be excellent.
Outside the U.S., employees in certain countries are represented by an employee representative organization, such as a union, works council or employee association. The Company considers its employee relations to be excellent. 8 Information About Our Executive Officers The executive officers of the Company serve at the discretion of the Board of Directors.
Scheuneman 55 Vice President & Chief Accounting Officer 2009 Jennifer K. Schott 49 Senior Vice President, General Counsel & Secretary 2021 Vice President, Assistant General Counsel & Assistant Secretary, Discover Financial Services, 2016-2019; Deputy General Counsel & Assistant Secretary, Caterpillar, Inc., 2019-2021.
Lawler 58 Senior Vice President & Chief Human Resources Officer 2014 Randall J. Scheuneman 56 Vice President & Chief Accounting Officer 2009 Jennifer K. Schott 50 Senior Vice President, General Counsel & Secretary 2021 Vice President, Assistant General Counsel & Assistant Secretary, Discover Financial Services, 2016-2019; Deputy General Counsel & Assistant Secretary, Caterpillar, Inc., 2019-2021.
Rooted in ITW's core values of Respect and Integrity, the Company is committed to equal employment opportunity, fair treatment and creating diverse and inclusive workplaces where all ITW colleagues can perform to their full potential. ITW remains committed to achieving its diversity and inclusion goals and enhancing the diversity of its global leadership teams.
Diversity and Inclusion . ITW believes it is at its best when it brings together unique perspectives, experiences, and ideas. Rooted in ITW's core values of Respect and Integrity, the Company is committed to equal employment opportunity, fair treatment and creating diverse and inclusive workplaces where all ITW colleagues can perform to their full potential.
ITW drives progress through a comprehensive enterprise Diversity and Inclusion Framework, which focuses on (i) leadership commitment and accountability; (ii) attracting and retaining global, diverse talent; (iii) creating inclusive workplaces; and (iv) striving to be a great employer. Labor Relations . Less than three percent of the Company's U.S. employees are represented by a labor union.
ITW is committed to attracting the best talent and enhancing the diversity of its global leadership teams. ITW drives progress through a comprehensive enterprise Diversity and Inclusion Framework, which focuses on; (i) leadership commitment and accountability; (ii) attracting and retaining global, diverse talent; (iii) creating inclusive workplaces; and (iv) striving to be a great employer. Compensation and Benefits .
Operating revenue related to these divested businesses that was included in the Company's results of operations for the twelve months ended December 31, 2022, 2021 and 2020 was $106 million, $115 million and $113 million, respectively. Refer to Note 4. Divestitures in Item 8.
Operating revenue related to these divested businesses that was included in the Company's results of operations for the twelve months ended December 31, 2022 and 2021 was $106 million and $115 million, respectively. In the fourth quarter of 2022, plans were approved to divest one business in the Specialty Products segment.
Great ITW Leaders are expected to be experts in the practice of the ITW Business Model, make great strategic choices, deliver great results, be great talent managers and provide strong leadership. Great ITW Leaders who have expertise in the ITW Business Model are the critical factor in translating the potential of the ITW Business Model into full performance.
The Great ITW Leader Framework defines leadership capabilities and attributes to help colleagues to reach their full potential as leaders. Great ITW Leaders are expected to be experts in the practice of the ITW Business Model, make great strategic choices, deliver great results, be great talent managers and provide strong leadership.
ITW's Enterprise Safety Strategy is based on the following core principles: (i) a goal of zero accidents; (ii) shared ownership for safety (business and individual); (iii) proactive approach focused on accident prevention; and (iv) continuous improvement philosophy. Consistent with these commitments, employee health and safety has been a top priority during the COVID-19 pandemic.
ITW's Enterprise Safety Strategy and Safety Policy are based on the following core principles: (i) a goal of zero accidents; (ii) shared ownership for safety (business and individual); (iii) proactive approach focused on accident prevention; (iv) continuous improvement philosophy; and (v) compliance with applicable national, regional, and local health and safety laws and regulations. Workplace Culture .
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 In late 2012, ITW began its strategic framework transitioning the Company on its current path to fully leverage the compelling performance potential of the ITW Business Model.
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.
The operating results of the MTS Test & Simulation business were reported within the Company's Test & Measurement and Electronics segment. Refer to Note 3. Acquisitions in Item 8. Financial Statements and Supplementary Data for further information regarding this acquisition. Current Year Developments Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The operating results of the MTS Test & Simulation business were reported within the Company's Test & Measurement and Electronics segment. Refer to Note 3. Acquisitions in Item 8.
This structure enables the Company's businesses to drive operational excellence utilizing the Company's 80/20 Front-to-Back process and leveraging its product innovation capabilities.
This structure enables the Company's businesses to drive operational excellence utilizing the Company's 80/20 Front-to-Back process and leveraging its product innovation capabilities. The Company also believes that its global footprint is a competitive advantage in many of its markets, especially in its Automotive OEM segment.
Hartzell 46 Executive Vice President 2022 Vice President/General Manager, test and measurement & electronics businesses, 2017-2020; Group President, test and measurement & electronics businesses, 2020-2021. Michael M. Larsen 54 Senior Vice President & Chief Financial Officer 2013 Mary K. Lawler 57 Senior Vice President & Chief Human Resources Officer 2014 Christopher O'Herlihy 59 Vice Chairman 2015 Randall J.
Javier Gracia Carbonell 51 Executive Vice President 2022 Vice President/General Manager, construction businesses, 2017-2020; Group President, construction businesses, 2020-2021. Patricia A. Hartzell 47 Executive Vice President 2022 Vice President/General Manager, test & measurement and electronics businesses, 2017-2020; Group President, test & measurement and electronics businesses, 2020-2021. Michael M. Larsen 55 Senior Vice President & Chief Financial Officer 2013 Mary K.
Patent Office and 4,300 applications pending in foreign patent offices. There is no assurance that any of these patents will be issued. The Company maintains a patent group for the administration of patents and processing of patent applications.
Intellectual Property The Company owns approximately 4,000 unexpired U.S. patents and 9,900 foreign patents covering articles, methods and machines. In addition, the Company has approximately 1,400 applications for patents pending in the U.S. Patent Office and 4,300 applications pending in foreign patent offices. There is no assurance that any of these patents will be issued.
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. At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.
Since implementing the Company's enterprise strategy in 2012, the Company has demonstrated the compelling performance potential of the ITW Business Model and 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.
In the U.S., the Company focuses on providing a comprehensive, competitive benefits package that supports the health and wellness, educational endeavors, community involvement and financial stability of its colleagues. Diversity and Inclusion . ITW believes it is at its best when it brings together unique perspectives, experiences and ideas.
In the U.S., the Company focuses on providing a comprehensive, competitive benefits package that supports the health and wellness, educational endeavors, community involvement and financial stability of its colleagues. Labor Relations . Less than three percent of the Company's U.S. employees are represented by a labor union.
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. • Step two, Business Structure Simplification, was implemented to simplify and scale up ITW's operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth.
This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions. • Business Structure Simplification was implemented to simplify and scale up ITW's operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth.
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.
Key initiatives in the Company's enterprise strategy included portfolio management, business structure simplification, strategic sourcing and the diligent re-application of ITW's 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.
To do so, the Company remains focused on its core principles: • Portfolio discipline • 80/20 Front-to-Back practice excellence • Full-potential organic growth 5 Portfolio Discipline The Company only operates in industries where it can generate significant, long-term competitive advantage from the ITW Business Model.
CBI successes, coupled with underlying market growth and share gains, are how the Company intends to achieve its high-quality organic growth . 5 Portfolio Discipline The Company only operates in industries where it can generate significant, long-term competitive advantage from the ITW Business Model.
Because this expertise develops over time and through specific experiences, the Company focuses on developing and promoting its own talent to ensure the Company's sustained business success over the long term. 8 Employee Safety . The safety and well-being of ITW's colleagues around the world has been, and always will be, its top priority.
Great ITW Leaders who have expertise in the ITW Business Model are the critical factor in translating the potential of the ITW Business Model into full performance. Because this expertise develops over time and through specific experiences, the Company focuses on developing and promoting its own talent to support the Company's sustained business success over the long term.
The Company strives to be a great employer through its demonstrated commitment to talent development, employee safety, workplace culture, compensation and benefits, and diversity and inclusion. Talent Development . The Company's Great ITW Leader Framework defines the leadership capabilities and attributes that guide all leadership talent assessment, development and selection decisions.
The Company strives to be a great employer through its demonstrated commitment to employee safety, its workplace culture, talent development, diversity and inclusion, compensation and benefits. Employee Safety . The safety and well-being of ITW's colleagues around the world is its top priority, in addition to being an essential component of our commitment to be a great employer.
Sharon Szafranski 56 Executive Vice President 2020 Vice President/General Manager, test & measurement and electronics businesses, 2016-2019; Group President, test & measurement and electronics businesses, 2019-2020. Michael R. Zimmerman 62 Executive Vice President 2015 Available Information The Company electronically files reports with the Securities and Exchange Commission (the "SEC").
Guilherme Silva 48 Executive Vice President 2024 Vice President/General Manager, polymers & fluids businesses, 2016-2020; Group President, polymers & fluids businesses, 2020-2021; Group President, test & measurement and electronics businesses, 2021-2023. Sharon Szafranski 57 Executive Vice President 2020 Vice President/General Manager, test & measurement and electronics businesses, 2016-2019; Group President, test & measurement and electronics businesses, 2019. Michael R.
Unless otherwise stated, employment is by the Company. Executive Officers of the Company as of February 10, 2023 were as follows: Name Age Present Position Year Elected to Present Position Other Positions Held During 2018-2022 E. Scott Santi 61 Chairman & Chief Executive Officer 2015 President & Chief Executive Officer, 2012-2015.
Set forth below is information regarding the principal occupations and employment and business experience over the past five years for each executive officer. Unless otherwise stated, employment is by the Company. Executive Officers of the Company as of February 9, 2024 were as follows: Name Age Present Position First Year in Present Position Other Positions Held During 2019-2023 Christopher A.
The Company simplifies and eliminates complexity and redesigns every aspect of its business to ensure focused execution on key opportunities, markets, customers, and products. ITW will continue to drive 80/20 Front-to-Back practice excellence in every division in the Company, every day.
Financial Statements and Supplementary Data for further information regarding this acquisition. 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.
Axel Beck 57 Executive Vice President 2020 Group President, food equipment businesses, 2016-2020. Kenneth Escoe 47 Executive Vice President 2020 Vice President/General Manager, specialty products businesses, 2016-2019; Group President, specialty products businesses, 2019-2020. Javier Gracia Carbonell 50 Executive Vice President 2022 Vice President/General Manager, construction businesses, 2017-2020; Group President, construction businesses, 2020-2021. Patricia A.
O'Herlihy 60 President & Chief Executive Officer 2024 Vice Chairman 2015-2023. E. Scott Santi (1) 62 Chairman 2024 Chairman & Chief Executive Officer 2015-2023. Axel Beck 58 Executive Vice President 2020 Group President, food equipment businesses, 2016-2020. Kenneth Escoe 48 Executive Vice President 2020 Vice President/General Manager, specialty products businesses, 2016-2019; Group President, specialty products businesses, 2019.
The availability of materials and energy has not resulted in any significant business interruptions or other major problems, and no such problems are currently anticipated. Intellectual Property The Company owns approximately 3,900 unexpired U.S. patents and 9,600 foreign patents covering articles, methods and machines. In addition, the Company has approximately 1,400 applications for patents pending in the U.S.
Raw Materials The Company uses raw materials of various types, primarily steel, resins and chemicals, that are available from numerous commercial sources. The availability of materials and energy has not resulted in any significant business interruptions or other major problems, and no such problems are currently anticipated.
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To shift its primary growth engine to organic, the Company began executing a multi-step approach. • The first step was to narrow the focus and improve the quality of ITW's business portfolio.
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ENTERPRISE STRATEGY: 2012 - 2023 In late 2012, ITW began its strategic framework transitioning the Company to fully leverage the unique and powerful set of capabilities and operating practices of the ITW Business Model.
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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.
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At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.
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Path to Full Potential Since the launch of the enterprise strategy, the Company has made considerable progress on our path to full potential.
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OUR NEXT PHASE: 2024-2030 In the Next Phase of the Company’s evolution, the ITW Business Model and the Enterprise Strategy framework will be as formidable of a competitive advantage and performance differentiator as it has been over the last decade, if not more so.
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The ITW Business Model and unique set of capabilities are a source of strong and enduring competitive advantage, but for the Company to truly reach its full potential, every one of its divisions must also be operating at its full potential.
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Volatility, risk and the pace of change in the global operating environment will continue to increase, and a decentralized entrepreneurial culture allows the Company to be a fast adaptor – to read, react, respond and evolve. The Company’s ability to consistently execute and invest through the ups and downs of the business cycle is now a defining competitive advantage.
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Financial Statements and Supplementary Data for further information regarding the Company's divestitures. 80/20 Front-to-Back Practice Excellence The 80/20 Front-to-Back process is a rigorous, iterative and highly data-driven approach to identify where the Company has true differentiation and the ability to drive sustainable, high-quality organic growth.
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Throughout the Next Phase, the Company's focus is to build organic growth into a core ITW strength on par with the Company’s world-class financial performance and operational capabilities. Throughout this phase, the Company will sustain its foundational strengths built over the past decade, including the high-quality ITW Business Model practice.
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Pandemic Priorities and "Win the Recovery" While it was the challenges brought about by the COVID-19 pandemic that dominated the Company's attention starting in 2020, it was the collection of capabilities and competitive advantages that have been built and honed since 2012 through the execution of ITW's enterprise strategy that provided the Company with the options to respond.
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Customer-back Innovation (CBI) is the most impactful driver to achieve high-quality organic growth through the cycle by establishing trusted problem solver relationships with key customers to effectively invent solutions that address customers' most critical pain points or tackle the biggest growth opportunities.
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This, coupled with the proprietary and powerful ITW Business Model, diversified high-quality business portfolio and diligent execution put the Company in a position of strength in dealing with the global pandemic.
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This business was presented as held for sale in the Statement of Financial Position as of December 31, 2022 and had assets and liabilities held for sale of $8 million and $1 million, respectively. This business was sold on April 3, 2023, with no significant gain or loss upon sale.
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Throughout the global pandemic, the Company has focused its efforts on (1) protecting the health and supporting the well-being of ITW's colleagues; (2) serving the Company's customers with excellence; (3) maintaining financial strength, liquidity and strategic optionality; and (4) leveraging the Company's strengths to position it to fully participate in the recovery.
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Operating revenue related to this business that was included in the Company's results of operations was $9 million, $37 million and $35 million for the twelve months ended December 31, 2023, 2022 and 2021, respectively. Refer to Note 4. Divestitures in Item 8. Financial Statements and Supplementary Data for further information regarding the Company's divestitures.
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"Win the Recovery" is an execution component of the Company's enterprise strategy, not a separate initiative, with every one of the Company's divisions identifying specific opportunities presented by the pandemic to capture sustainable share gains that are aligned with the ITW long-term enterprise strategy. The Company expects these efforts to contribute meaningfully to accelerate its progress toward full-potential organic growth.
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The Company's culture is deeply rooted in its core values: Integrity, Respect, Trust, Shared Risk and Simplicity. ITW colleagues are empowered to think and act like business owners within the Company's decentralized, entrepreneurial culture. Our decentralized structure allows each division to operate with autonomy and enables our people to embrace the personal impact they can make. Talent Development .
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The Company continues to focus on delivering strong results in any environment while executing its long-term strategy to achieve and sustain ITW's full potential performance. 6 Full-potential Organic Growth Reaching full potential means that every division is positioned for sustainable, high-quality organic growth.
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The Company strives for all colleagues to "own" their careers and feel valued for the work they do. ITW colleagues are encouraged to learn new skills and capabilities primarily through on-the-job experience, hands-on coaching and feedback, in addition to formal training.
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Total backlog was $2.7 billion and $2.9 billion as of December 31, 2022 and 2021, respectively. Due to the predominately short-term nature of the Company's arrangements with its customers, backlog orders expected to be completed beyond calendar year 2023 are not significant and represent approximately 10% of total backlog as of December 31, 2022.
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Zimmerman 63 Executive Vice President 2015 (1) Mr. Santi will remain Chairman through March 1, 2024, after which he will become Non-Executive Chairman and will no longer be an employee of the Company.
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The Company also believes that its global footprint is a competitive advantage in many of its markets, especially in its Automotive OEM segment. 7 Raw Materials The Company uses raw materials of various types, primarily steel, resins and chemicals, that are available from numerous commercial sources.
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Moreover, the Company's commitment to its employees was reinforced when the Company decided not to initiate any enterprise-wide employment reduction mandates or programs at any point during the pandemic. Workplace Culture . The Company operates under a decentralized, entrepreneurial culture that is crucial to the Company's performance and is one of the three unique elements of the ITW Business Model.
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ITW believes its colleagues around the world thrive in this culture, as it allows them to experience significant autonomy, a sense of shared ownership with their colleagues, and a work atmosphere deeply rooted in the Company's core values of Integrity, Respect, Trust, Shared Risk and Simplicity. Compensation and Benefits .
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The Company's Sustainability Report, published annually and available on the Company's website ( www.itw.com ), contains more information about the Company's human capital and its programs, goals and progress.
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Information in the Sustainability Report or on the Company's website is not incorporated herein by reference. 9 Information About Our Executive Officers The executive officers of the Company serve at the discretion of the Board of Directors. Set forth below is information regarding the principal occupations and employment and business experience over the past five years for each executive officer.
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The SEC maintains a website ( www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

21 edited+2 added−9 removed44 unchanged
Biggest changeThe risks inherent in the Company's global operations include: • fluctuation in currency exchange rates; • limitations on ownership or participation in local enterprises; • price controls, exchange controls and limitations on repatriation of earnings; • transportation delays and disruptions; • political, social and economic instability and disruptions, including political unrest and armed conflicts; • acts of terrorism; • the impact of widespread public health crises (such as the COVID-19 pandemic); • government embargoes, sanctions or foreign trade restrictions; • the imposition of duties and tariffs and other trade barriers and retaliatory countermeasures; 11 • government actions impacting international trade agreements, including the EU-UK Trade and Cooperation Agreement; • import and export controls; • social and labor unrest and current and changing regulatory environments; • the potential for expropriation or nationalization of enterprises; • difficulties in staffing and managing multi-national operations; • multiple and potentially conflicting laws, regulations and policies that are subject to change; • limitations on its ability to enforce legal rights and remedies; and • potentially adverse tax consequences.
Biggest changeThe risks inherent in the Company's global operations include: • fluctuation in currency exchange rates; • limitations on ownership or participation in local enterprises; • price controls, exchange controls and limitations on repatriation of earnings; • supply chain disruptions, including transportation delays and disruptions; • political, social and economic instability and disruptions, including political unrest and armed conflicts; • acts of terrorism; • the impact of widespread public health crises and pandemics; • government embargoes, sanctions or foreign trade restrictions; • the imposition of duties and tariffs and other trade barriers and retaliatory countermeasures; • government actions impacting international trade agreements, including the EU-UK Trade and Cooperation Agreement; • import and export controls; • social and labor unrest and current and changing regulatory environments; • the potential for expropriation or nationalization of enterprises; • difficulties in staffing and managing multi-national operations; • multiple and potentially conflicting laws, regulations and policies that are subject to change; • limitations on its ability to enforce legal rights and remedies; and • potentially adverse tax consequences. 10 The global geopolitical and trade environment has resulted in raw material inflation and potential for increased escalation of domestic and international tariffs and retaliatory trade policies.
Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," "intend," "may," "strategy," "prospects," "estimate," "will," "should," "could," "project," "target," "anticipate," "guidance," "forecast," and other similar words, and 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, future financial and operating performance, free cash flow, economic and regulatory conditions in various geographic regions, the impact of foreign currency fluctuations, the timing and amount of benefits from the Company's 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, enterprise initiatives, the Company's portion of future benefit payments related to pension and postretirement benefits, the Company's information technology infrastructure, potential acquisitions and divestitures and the expected performance of acquired businesses and impact of divested businesses, the impact of U.S. and global tax legislation and the estimated timing and amount related to the resolution of tax matters, the cost of compliance with environmental regulations, the impact of failure of the Company's employees to comply with applicable laws and regulations, and the outcome of outstanding legal proceedings.
Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," "intend," "may," "strategy," "prospects," "estimate," "will," "should," "could," "project," "target," "anticipate," "guidance," "forecast," and other similar words, and may include, without limitation, statements regarding the duration and potential effects of 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, free cash flow, economic and regulatory conditions in various geographic regions, the impact of foreign currency fluctuations, the timing and amount of benefits from the Company's 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, enterprise initiatives, the Company's portion of future benefit payments related to pension and postretirement benefits, the Company's information technology infrastructure, potential acquisitions and divestitures and the expected performance of acquired businesses and impact of divested businesses, the impact of U.S. and global tax legislation and the estimated timing and amount related to the resolution of tax matters, the cost of compliance with environmental regulations, the impact of failure of the Company's employees to comply with applicable laws and regulations, and the outcome of outstanding legal proceedings.
ITEM 1A. Risk Factors The Company's business, financial condition, results of operations and cash flows are subject to various risks, including, but 10 not limited to, those set forth below, which could cause actual results to vary materially from recent results or from anticipated future results.
ITEM 1A. Risk Factors The Company's business, financial condition, results of operations and cash flows are subject to various risks, including, but not limited to, those set forth below, which could cause actual results to vary materially from recent results or from anticipated future results.
These risks are not 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. 15 Any forward-looking statements made by ITW speak only as of the date on which they are made.
These risks are not 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 ITW speak only as of the date on which they are made.
The Company's results are impacted by global economic conditions. Downturns in the markets served by the Company could adversely affect its businesses, results of operations or financial condition. The Company's businesses are impacted by economic conditions around the globe.
Economic Risks The Company's results are impacted by global economic conditions. Downturns in the markets served by the Company could adversely affect its businesses, results of operations or financial condition. The Company's businesses are impacted by economic conditions around the globe.
If our information technology systems suffer severe damage, disruption, or shutdown, and business continuity plans do not effectively resolve the issues in a timely manner, or if we 13 violate data privacy laws, there could be a negative impact on operating results or the Company may suffer financial or reputational damage.
If our information technology systems suffer severe damage, disruption, or shutdown, and business continuity plans do not effectively resolve the issues in a timely manner, or if we violate data privacy laws, there could be a negative impact on operating results and/or the financial reporting process and the Company may suffer financial or reputational damage.
Slower economic growth, financial market instability, inflation, natural disasters, public health crises (such as the COVID-19 pandemic), labor market challenges, supply chain disruptions, armed conflicts (such as the Russia and Ukraine conflict), government deficit reduction, sequestration and other austerity measures impacting the markets the Company serves can adversely affect the Company's businesses by reducing demand for the Company's products and services, limiting financing available to the Company's customers, causing production delays, increasing order cancellations and the difficulty in collecting accounts receivable, increasing price competition, or increasing the risk that counterparties to the Company's contractual arrangements will become insolvent or otherwise unable to fulfill their obligations.
Slower economic growth, financial market instability, supply chain disruptions, natural disasters, public health crises (such as the COVID-19 pandemic), labor market challenges, rapid inflation, armed conflicts (such as Russia's ongoing invasion of Ukraine), government deficit reduction, sequestration and other austerity measures impacting the markets the Company serves can adversely affect the Company's businesses by reducing demand for the Company's products and services, limiting financing available to the Company's customers, causing production delays, increasing order cancellations and the difficulty in collecting accounts receivable, increasing price competition, or increasing the risk that counterparties to the Company's contractual arrangements will become insolvent or otherwise unable to fulfill their obligations.
Additionally, other core activities of the enterprise strategy related to portfolio discipline and organic growth, including customer-back innovation and strategic sales excellence, may not have the desired impact on future operating results.
Additionally, other core activities of the enterprise strategy related to portfolio discipline and organic growth, including customer-back innovation, may not have the desired impact on future operating results.
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. ITW practices fair disclosure for all interested parties.
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, except as required by law. 14 ITW practices fair disclosure for all interested parties.
In particular, inflation, changes in trade policies, the imposition of duties and tariffs, potential retaliatory countermeasures, public health crises (such as the COVID-19 pandemic), threatened or actual military conflicts and severe weather events could adversely impact the price or availability of raw materials.
In particular, inflation, changes in trade policies, the imposition of duties and tariffs, potential retaliatory countermeasures, public health crises and pandemics (such as the COVID-19 pandemic, which adversely impacted the price and availability of raw materials), threatened or actual military conflicts (such as Russia's ongoing invasion of Ukraine) and severe weather events could adversely impact the price or availability of raw materials.
If the Company is unable to create sustainable product differentiation, its organic growth may be adversely affected. 12 If the Company is unable to adequately protect its intellectual property, its competitive position and results of operations may be adversely impacted. Protecting the Company's intellectual property is critical to its innovation efforts.
If the Company is unable to adequately protect its intellectual property, its competitive position and results of operations may be adversely impacted. Protecting the Company's intellectual property is critical to its innovation efforts.
The Company has had significant divestiture activity in the past in accordance with its portfolio management initiative, and it divested two businesses in the fourth quarter of 2022 as it continues portfolio refinements to maintain portfolio discipline.
The Company has had significant divestiture activity in the past in accordance with its portfolio management initiative, and it divested one business in the first quarter of 2023 as it continues portfolio refinements to maintain portfolio discipline.
Strategic Transaction Risks The Company's acquisition of businesses could negatively impact its profitability and returns. The Company has engaged in various acquisitions in the past, such as the acquisition of the MTS Test & Simulation business in December 2021, and could choose to acquire additional businesses in the future.
The Company has engaged in various acquisitions in the past, such as the acquisition of the MTS Test & Simulation business in December 2021, and could choose to acquire additional businesses in the future.
The Company has significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on the Company's financial results. The Company has recorded significant goodwill and other identifiable intangible assets on its balance sheet as a result of acquisitions, including the acquisition of the MTS Test & Simulation business in December 2021.
The Company has recorded significant goodwill and other identifiable intangible assets on its balance sheet as a result of acquisitions, including the acquisition of the MTS Test & Simulation business in December 2021.
Even if it maintains adequate insurance programs, claims, judgments or settlements 14 could have a material adverse effect on the Company's financial condition, liquidity and results of operations and on its ability to obtain suitable, adequate or cost-effective insurance in the future.
Even if it maintains adequate insurance programs, claims, judgments or settlements could have a material adverse effect on the Company's financial condition, liquidity and results of operations and on its ability to obtain suitable, adequate or cost-effective insurance in the future. 13 Uncertainty related to environmental regulation and industry standards, as well as physical risks of climate change, could impact the Company's results of operations and financial position.
Unauthorized use of the Company's intellectual property rights by third parties, particularly in countries where property rights are not highly developed or protected, or inability to preserve existing intellectual property rights could adversely impact the Company's competitive position and results of operations.
Unauthorized use of the Company's intellectual property rights by third parties, particularly in countries where property rights are not highly developed or protected, or inability to preserve existing intellectual property rights could adversely impact the Company's competitive position and results of operations. 11 The Company has significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on the Company's financial results.
Uncertainty related to environmental regulation and industry standards, as well as physical risks of climate change, could impact the Company's results of operations and financial position. Increased public awareness and concern regarding environmental risks, including global climate change, may result in more international, regional and/or federal requirements or industry standards to reduce or mitigate global warming and other environmental risks.
Increased public awareness and concern regarding environmental risks, including global climate change, may result in more international, regional and/or federal requirements or industry standards to reduce or mitigate global warming and other environmental risks.
Difficulties or delays in research, development, production or commercialization of new products and services may reduce future revenues and adversely affect the Company's competitive position.
Difficulties or delays in research, development, production or commercialization of new products and services may reduce future revenues and adversely affect the Company's competitive position. If the Company is unable to create sustainable product differentiation, its organic growth may be adversely affected.
These risk factors should be considered together with information included elsewhere in this Annual Report on Form 10-K. Economic Risks The COVID-19 pandemic has adversely affected the Company's business, financial condition and results of operations and could affect the Company's liquidity.
These risk factors should be considered together with information included elsewhere in this Annual Report on Form 10-K. Any of such risks and matters, individually or in combination, could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as on the attractiveness and value of an investment in the Company’s securities.
Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Any such improper actions could subject the Company to civil or criminal investigations, could lead to substantial civil or criminal monetary and non-monetary penalties against the Company or its subsidiaries, or could damage its reputation. Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
The Company cannot ensure that its internal controls will always protect against reckless or criminal acts committed by its employees, agents or business partners that might violate U.S. and/or non-U.S. laws, including anti-bribery, competition, export and import, trade sanctions, data privacy, environmental and human rights laws.
The Company is subject to complex U.S., foreign and other local laws and regulations that are applicable to its operations, such as anti-bribery and anti-corruption, competition, export and import, trade sanctions, data privacy, environmental and human rights laws.
Removed
The full and long-term extent of the effects of the COVID-19 pandemic or other outbreaks, pandemics, or public health crises on our business depend on future events that continue to be highly uncertain and cannot be predicted.
Added
In addition, cybersecurity laws and regulations continue to evolve, and are increasingly demanding, both in the U.S. and globally, which adds compliance complexity and may increase costs of compliance and expose the Company to reputational damage or litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions. 12 Strategic Transaction Risks The Company's acquisition of businesses could negatively impact its profitability and returns.
Removed
The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, disrupted consumer/customer demand and global supply chains, and created significant volatility and disruption of financial markets.
Added
Although the Company has implemented compliance programs which include internal controls, policies and procedures and employee training to deter prohibited practices, these measures may not be effective in preventing employees, agents or business partners from violating or circumventing such internal policies and violating applicable laws and regulations.
Removed
The COVID-19 pandemic continues to have the potential to alter demand for our products and to disrupt our supply chain as a result of shifts in demand, illness, travel restrictions, transportation disruptions, increased border controls or closures, or financial hardship.
Removed
We have been able to procure the critical raw materials and components necessary to continue production, but prices for some raw materials have increased significantly and there is no guarantee that we will be able to procure critical raw materials in the future without materially adversely impacting our operating margins.
Removed
A prolonged extension of the conditions resulting from the pandemic could force both customer and supplier bankruptcies, which we expect would adversely impact our results; however, given the uncertainty around the continued duration and breadth of the COVID-19 pandemic, we cannot reasonably estimate the extent of these adverse effects on our operations.
Removed
The ultimate significance of the COVID-19 pandemic or other outbreaks, pandemics or public health crises on our business will depend on events that are beyond our control and that we cannot predict. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, financial condition or results of operations.
Removed
The global geopolitical and trade environment has resulted in raw material inflation and potential for increased escalation of domestic and international tariffs and retaliatory trade policies.
Removed
The Company and its customers have experienced supply chain disruptions related to the COVID-19 pandemic and the global reaction to Russia's ongoing invasion of Ukraine, and continued disruptions to the supply chain could adversely affect the Company's ability to meet commitments to customers.
Removed
As recent years have seen a substantial increase in the global enforcement of anti-corruption laws and adoption of new trade sanctions and human rights laws, any such improper actions could subject the Company to civil or criminal investigations, could lead to substantial civil or criminal monetary and non-monetary penalties against the Company or its subsidiaries, or could damage its reputation.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeApproximately 290 of the facilities were located outside of the United States. Principal foreign countries include Germany, China, France, and the United Kingdom. The Company's properties are well suited for the purposes for which they were designed and are maintained in good operating condition. Production capacity, in general, currently exceeds operating levels.
Biggest changeApproximately 270 of the facilities were located outside of the United States. Principal foreign countries include China, Germany, France, and the United Kingdom. The Company's properties are well suited for the purposes for which they were designed and are maintained in good operating condition. Production capacity, in general, currently exceeds operating levels.
ITEM 2. Properties Due to the Company's decentralized operating structure and global operations, the Company operates out of a large number of facilities worldwide, none of which are individually significant to the Company or its segments. As of December 31, 2022, the Company operated approximately 440 plants and office facilities, excluding regional sales offices and warehouse facilities.
ITEM 2. Properties Due to the Company's decentralized operating structure and global operations, the Company operates out of a large number of facilities worldwide, none of which are individually significant to the Company or its segments. As of December 31, 2023, the Company operated approximately 410 plants and office facilities, excluding regional sales offices and warehouse facilities.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−0 removed0 unchanged
Biggest changeAs of December 31, 2022, there were approximately $1.5 billion of authorized repurchases remaining under the 2021 Program. 17 Share repurchase activity under the Company's share repurchase programs for the fourth quarter of 2022 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 October 2022 — $ — — $ 1,990 November 2022 0.5 $ 222.66 0.5 $ 1,869 December 2022 1.8 $ 221.25 1.8 $ 1,490 Total 2.3 2.3
Biggest changeShare repurchase activity under the Company's share repurchase programs for the fourth quarter of 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 October 2023 0.6 $ 229.18 0.6 $ 5,227 November 2023 0.6 $ 235.76 0.6 $ 5,096 December 2023 0.4 $ 253.48 0.4 $ 4,990 Total 1.6 1.6
This number does not include beneficial owners of the Company's securities held in the name of nominees. *Assumes $100 invested on December 31, 2017, including reinvestment of dividends. Fiscal years ended December 31. Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved.
This number does not include beneficial owners of the Company's securities held in the name of nominees. *Assumes $100 invested on December 31, 2018, including reinvestment of dividends. Fiscal years ended December 31. Copyright© 2024 Standard & Poor's, a division of S&P Global. All rights reserved.
Trane Technologies plc Eaton Corporation plc Johnson Controls International plc The Compensation Committee of the Board of Directors of the Company reviews the peer group annually and from time to time changes the composition of the peer group where changes are appropriate. There were no changes in the Company's peer group in 2022.
Trane Technologies plc Eaton Corporation plc Johnson Controls International plc The Compensation Committee of the Board of Directors of the Company reviews the peer group annually and from time to time changes the composition of the peer group where changes are appropriate.
ITEM 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Data — The Company's common stock is listed on the New York Stock Exchange. There were approximately 4,748 holders of record of common stock as of January 31, 2023.
ITEM 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Data — The Company's common stock is listed on the New York Stock Exchange under the trading symbol "ITW." There were approximately 4,484 holders of record of common stock as of January 31, 2024.
The 2022 Peer Group consists of the following 17 public companies: 3M Company Ecolab Inc. Parker-Hannifin Corporation Caterpillar Inc. Emerson Electric Co. PPG Industries, Inc. Cummins Inc. Fortive Corporation Rockwell Automation, Inc. Deere & Company General Dynamics Corporation Stanley Black & Decker, Inc. Dover Corporation Honeywell International Inc.
The 2023 peer group consists of the following 17 public companies, consistent with the peer group included in the Company's Proxy Statement: 3M Company Ecolab Inc. Parker-Hannifin Corporation Caterpillar Inc. Emerson Electric Co. PPG Industries, Inc. Cummins Inc. Fortive Corporation Rockwell Automation, Inc. Deere & Company General Dynamics Corporation Stanley Black & Decker, Inc. Dover Corporation Honeywell International Inc.
Repurchases of Common Stock — On August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program"). The 2018 program was completed in the first quarter of 2022.
The 2018 program was completed in the first quarter of 2022. On May 7, 2021, the Company announced a stock repurchase program which provided 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"). The 2021 program was completed in the fourth quarter of 2023.
On May 7, 2021, the Company's Board of Directors authorized 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").
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 December 31, 2023, there were approximately $5.0 billion of authorized repurchases remaining under the 2023 Program.
Added
There were no changes in the Company's peer group in 2023. 17 Repurchases of Common Stock On August 3, 2018, the Company announced a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program").

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

109 edited+49 added−38 removed62 unchanged
Biggest changeProducts in this segment include: • arc welding equipment; and • metal arc welding consumables and related accessories. 29 The results of operations for the Welding segment for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/ Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,894 $ 1,650 14.7 % 16.0 % — % — % (1.3) % 14.7 % Operating income $ 583 $ 490 19.0 % 19.1 % — % 0.6 % (0.7) % 19.0 % Operating margin % 30.8 % 29.7 % 110 bps 80 bps — 10 bps 20 bps 110 bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue grew 16.0% as equipment increased 16.2% and consumables increased 15.8% primarily due to higher demand in the industrial end markets related to heavy equipment for agriculture, infrastructure and mining, and in the commercial end markets related to construction, light fabrication and farm and ranch customers. ◦ North American organic revenue grew 16.6% due to growth in the industrial and commercial end markets of 25.6% and 3.9%, respectively. ◦ International organic revenue grew 13.3% primarily due to higher equipment demand in the oil and gas end markets in Europe and Asia. • Operating margin of 30.8% increased 110 basis points primarily driven by positive operating leverage of 220 basis points and benefits from the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses and freight costs, and unfavorable price/cost of 80 basis points. 2021 compared to 2020 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2021 2020 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,650 $ 1,384 19.2 % 18.1 % — % — % 1.1 % 19.2 % Operating income $ 490 $ 376 30.5 % 29.8 % — % (0.2) % 0.9 % 30.5 % Operating margin % 29.7 % 27.1 % 260 bps 270 bps — — (10) bps 260 bps • Operating revenue grew due to higher organic revenue and the favorable effect of foreign currency translation. • Organic revenue grew 18.1% as equipment increased 20.5% and consumables increased 14.3% primarily due to higher demand in the industrial end markets related to heavy equipment for agriculture, infrastructure and mining, and in the commercial end markets related to construction, light fabrication and farm and ranch customers. ◦ North American organic revenue increased 19.6% primarily driven by growth in the industrial and commercial end markets of 22.6% and 17.0%, respectively. ◦ International organic revenue grew 10.7% primarily due to higher equipment demand in the oil and gas end markets in Europe and Asia. • Operating margin was 29.7%.
Biggest changeConsumables grew 1.3% and equipment decreased 0.4%. ◦ North American organic revenue decreased 0.2% primarily due to a decline in the commercial end markets, partially offset by growth in the industrial and aerospace end markets. 29 ◦ International organic revenue grew 2.7% primarily due to higher equipment demand in the general industrial and oil and gas end markets in Asia Pacific. • Operating margin of 31.8% increased 100 basis points primarily driven by favorable price/cost of 300 basis points and benefits from the Company's enterprise initiatives, partially offset by higher employee-related expenses and product mix. 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,894 $ 1,650 14.7 % 16.0 % — % — % (1.3) % 14.7 % Operating income $ 583 $ 490 19.0 % 19.1 % — % 0.6 % (0.7) % 19.0 % Operating margin % 30.8 % 29.7 % 110 bps 80 bps — 10 bps 20 bps 110 bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue grew 16.0% as equipment increased 16.2% and consumables increased 15.8% primarily due to higher demand in the industrial end markets related to heavy equipment for agriculture, infrastructure and mining, and in the commercial end markets related to construction, light fabrication and farm and ranch customers. ◦ North American organic revenue grew 16.6% due to growth in the industrial and commercial end markets of 25.6% and 3.9%, respectively. ◦ International organic revenue grew 13.3% primarily due to higher equipment demand in the oil and gas end markets in Europe and Asia. • Operating margin of 30.8% increased 110 basis points primarily driven by positive operating leverage of 220 basis points and benefits from the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses and freight costs, and unfavorable price/cost of 80 basis points.
Product line simplification activities reduced organic revenue by 40 basis points. ◦ North American organic revenue increased 14.3% with growth in all seven segments primarily driven by the Food Equipment, Welding and Construction Products segments. ◦ Europe, Middle East and Africa organic revenue increased 9.7% with growth in all seven segments primarily driven by the Food Equipment and Automotive OEM segments. ◦ Asia Pacific revenue increased 8.3% due to growth in six segments, partially offset by a decline in the Specialty Products segment.
Product line simplification activities reduced organic revenue by 40 basis points. ◦ North American organic revenue increased 14.3% with growth in all seven segments primarily driven by the Food Equipment, Welding and Construction Products segments. ◦ Europe, Middle East and Africa organic revenue increased 9.7% with growth in all seven segments primarily driven by the Food Equipment and Automotive OEM segments. ◦ Asia Pacific organic revenue increased 8.3% due to growth in six segments, partially offset by a decline in the Specialty Products segment.
Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, automotive original equipment manufacturers and tiers, energy, consumer durables and industrial capital goods markets.
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, energy, automotive original equipment manufacturers and tiers, industrial capital goods and consumer durables markets.
The 2022 effective tax rate benefited from discrete income tax benefits of $32 million in the fourth quarter of 2022 related to the utilization of capital loss carryforwards and $51 million in the second quarter of 2022 related to a decrease in unrecognized tax benefits resulting from the resolution of a U.S. tax audit.
The 2022 effective tax rate benefited from discrete income tax benefits of $32 million in the fourth quarter of 2022 related to the utilization of capital loss carryforwards and $51 million in the second quarter of 2022 related to a decrease in unrecognized tax benefits resulting from the resolution of a U.S. tax audit.
The 2021 effective tax rate benefited from discrete income tax benefits of $21 million in the third quarter of 2021 related to the utilization of capital loss carryforwards and $112 million in the second quarter of 2021 related to the remeasurement of net deferred tax assets due to the enactment of the U.K.
The 2021 effective tax rate benefited from discrete income tax benefits of $21 million in the third quarter of 2021 related to the utilization of capital loss carryforwards and $112 million in the second quarter of 2021 related to the remeasurement of net deferred tax assets due to the enactment of the U.K.
Through the application of data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the "80") and eliminates cost, complexity and distractions associated with the less profitable opportunities (the "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 has fueled decades of profitable growth at ITW.
Through the application of data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the "80") and eliminates cost, complexity and distractions associated with the less 18 profitable opportunities (the "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 has fueled decades of profitable growth at ITW.
Due to the inherent uncertainties associated with these factors and economic conditions in the Company's global end markets, impairment charges related to one or more reporting units could occur in future periods. Pension and Other Postretirement Benefits — The Company has various company-sponsored defined benefit retirement plans covering a number of U.S. employees and many employees outside the U.S.
Due to the inherent uncertainties associated with these factors and economic conditions in the Company's global end markets, impairment charges related to one or more reporting units could occur in future periods. 41 Pension and Other Postretirement Benefits — The Company has various company-sponsored defined benefit retirement plans covering a number of U.S. employees and many employees outside the U.S.
Finance Bill 2021, which increases the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rates for 2022 and 2021 included discrete income tax benefits of $12 million and $17 million, respectively, related to excess tax benefits from stock-based compensation. • Diluted earnings per share (EPS) of $9.77 in 2022 increased 14.8%.
Finance Bill 2021, which increased the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rates for 2022 and 2021 included discrete income tax benefits of $12 million and $17 million, respectively, related to excess tax benefits from stock-based compensation. • Diluted earnings per share (EPS) of $9.77 in 2022 increased 14.8%.
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; 30 • 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 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.
Under the 2018 Program, the Company repurchased approximately 6.7 million shares of its common stock at an average price of $158.11 per share during 2019, approximately 4.2 million shares of its common stock at an average price of $167.69 per share during 2020, approximately 4.4 million shares of its common stock at an average price of $227.29 per share during 2021 and approximately 1.2 million shares of its common stock at an average price of $216.62 per share during 2022.
Under the 2018 Program, the Company repurchased approximately 6.7 million shares of its common stock at an average price of $158.11 per share 35 during 2019, approximately 4.2 million shares of its common stock at an average price of $167.69 per share during 2020, approximately 4.4 million shares of its common stock at an average price of $227.29 per share during 2021 and approximately 1.2 million shares of its common stock at an average price of $216.62 per share during 2022.
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 18 execute the Company's strategy and values.
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.
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.
Additionally, 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.
For the U.S. primary pension plan, a 25 basis point decrease in the expected return on plan assets would increase the annual pension expense by approximately $4 million . 41
For the U.S. primary pension plan, a 25 basis point decrease in the expected return on plan assets would increase the annual pension expense by approximately $4 million .
A 25 basis point decrease in the discount rate would increase the present value of the U.S. primary pension plan obligation by approximately $27 million . The Company estimates 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.
A 25 basis point decrease in the discount rate would increase the present value of the U.S. primary pension plan obligation by approximately $24 million . The Company estimates 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.
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 use its commercial paper program, which is backed by a long-term credit facility, for short-term liquidity needs.
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 use its commercial paper program, which is supported by a long-term credit facility, for short-term liquidity needs.
Income taxes on the gains were mostly offset by the utilization of capital loss carryforwards of $32 million. Operating revenue related to these divested businesses that was included in the Company's results of operations for the twelve months ended December 31, 2022, 2021 and 2020 was $106 million, $115 million and $113 million, respectively.
Income taxes on the gains were mostly offset by the utilization of capital loss carryforwards of $32 million. Operating revenue related to these divested businesses that was included in the Company's results of operations for the twelve months ended December 31, 2022 and 2021 was $106 million and $115 million, respectively.
There are inherent uncertainties related to these factors and management's judgment in applying them in the impairment tests of goodwill and other intangible assets. As of December 31, 2022, the Company had total goodwill and intangible assets of approximately $5.6 billion allocated to its reporting units.
There are inherent uncertainties related to these factors and management's judgment in applying them in the impairment tests of goodwill and other intangible assets. As of December 31, 2023, the Company had total goodwill and intangible assets of approximately $5.6 billion allocated to its reporting units.
These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 19,200 granted and pending patents; • ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive.
These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 19,600 granted and pending patents; • ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive.
Additionally, for comparability, the Company excluded the discrete tax benefits of $21 million in the third quarter of 2021 and $112 million in the second quarter of 2021 from net income and the effective tax rate for the year ended December 31, 2021.
Also, for comparability, the Company excluded the discrete tax benefits of $21 million in the third quarter of 2021 and $112 million in the second quarter of 2021 from net income and the effective tax rate for the year ended December 31, 2021.
ITW now has 84 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation. • The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through 2022 and continues to be a key contributor to the Company's ongoing enterprise strategy. • With the initial portfolio realignment and scale-up work largely complete, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 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.
ITW now has 84 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation. • The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year since 2013 and continues to be a key contributor to the Company's ongoing enterprise strategy. • With the initial portfolio realignment and scale-up work largely completed, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process to optimize its scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth.
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 % A reconciliation of the 2021 effective tax rate 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 % Refer to Note 7.
A reconciliation of the 2023 effective tax rate excluding the second quarter 2023 discrete tax benefit of $20 million related to amended 2021 U.S. taxes is as follows: Twelve Months Ended December 31, 2023 Dollars in millions Income Taxes Tax Rate As reported $ 866 22.6 % Discrete tax benefit related to the second quarter 2023 20 0.6 % As adjusted $ 886 23.2 % 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 % A reconciliation of the 2021 effective tax rate 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 % Refer to Note 7.
ITEM 7. 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 84 divisions in 51 countries. As of December 31, 2022, the Company employed approximately 46,000 people.
ITEM 7. 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 84 divisions in 51 countries. As of December 31, 2023, the Company employed approximately 45,000 people.
Financial Statements and Supplementary Data for further information. • Organic revenue increased 22.9% as equipment and service organic revenue grew 25.2% and 18.5%, respectively. ◦ North American organic revenue increased 26.1%. Equipment organic revenue grew 31.5% primarily due to growth in the restaurant, institutional and food retail end markets. Service organic revenue increased 17.2%. ◦ International organic revenue increased 18.8%.
Financial Statements and Supplementary Data for further information. • Organic revenue increased 22.9% as equipment and service organic revenue grew 25.2% and 18.5%, respectively. 27 ◦ North American organic revenue increased 26.1%. Equipment organic revenue grew 31.5% primarily due to growth in the restaurant, institutional and food retail end markets.
Management bases its estimates on historical experience, and in some cases on observable market information. Various assumptions are also used that are believed to be reasonable under the circumstances and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management bases its estimates on historical experience, and in some cases on observable market information. Various assumptions are also used that are believed to be reasonable under the circumstances and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Finance Bill 2021, which increases the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rates for 2022, 2021 and 2020 included discrete income tax benefits of $12 million, $17 million and $27 million, respectively, related to excess tax benefits from stock-based compensation. Refer to Note 7. Income Taxes in Item 8.
Finance Bill 2021, which increased the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rates for 2023, 2022 and 2021 included discrete income tax benefits of $20 million, $12 million and $17 million, respectively, related to excess tax benefits from stock-based compensation. Refer to Note 7. Income Taxes in Item 8.
As of December 31, 2022, there were approximately $1.5 billion of authorized repurchases remaining under the 2021 Program. 36 After-tax Return on Average Invested Capital 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.
As of December 31, 2023, there were approximately $5.0 billion of authorized repurchases remaining under the 2023 program. 36 After-tax Return on Average Invested Capital 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.
Financial Statements and Supplementary Data for further information. • The impact of the Euro and other foreign currencies against the U.S. Dollar in 2022 versus 2021 decreased operating revenue and income before taxes by approximately $628 million and $157 million, respectively. The impact of the Euro and other foreign currencies against the U.S.
Financial Statements and Supplementary Data for further information. • The impact of the Euro and other foreign currencies against the U.S. Dollar in 2023 versus 2022 decreased operating revenue and income before taxes by approximately $7 million and $15 million, respectively. The impact of the Euro and other foreign currencies against the U.S.
Stock Repurchase Programs On August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program").
Stock Repurchase Programs On August 3, 2018, the Company announced a stock repurchase program which provided for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program").
Operating margin was 23.8 percent in 2022. 22 The Company's consolidated results of operations for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/ Divestiture Restructuring Foreign Currency Total Operating revenue $ 15,932 $ 14,455 10.2 % 12.1 % 2.4 % — % (4.3) % 10.2 % Operating income $ 3,790 $ 3,477 9.0 % 14.3 % (0.1) % (0.7) % (4.5) % 9.0 % Operating margin % 23.8 % 24.1 % (30) bps 40 bps (60) bps (10) bps — (30) bps • Operating revenue increased due to higher organic revenue and the MTS Test & Simulation acquisition, which was completed on December 1, 2021, partially offset by the unfavorable effect of foreign currency translation and the impact of divestiture activity in the fourth quarter of 2022. • Organic revenue grew 12.1% with growth in all seven segments.
Total cash dividends of approximately $1.6 billion were paid in 2023. 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/ Divestiture Restructuring Foreign Currency Total Operating revenue $ 15,932 $ 14,455 10.2 % 12.1 % 2.4 % — % (4.3) % 10.2 % Operating income $ 3,790 $ 3,477 9.0 % 14.3 % (0.1) % (0.7) % (4.5) % 9.0 % Operating margin % 23.8 % 24.1 % (30) bps 40 bps (60) bps (10) bps — (30) bps • Operating revenue increased due to higher organic revenue and the MTS Test & Simulation acquisition, which was completed on December 1, 2021, partially offset by the unfavorable effect of foreign currency translation and the impact of divestiture activity in the fourth quarter of 2022. • Organic revenue grew 12.1% with growth in all seven segments.
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.
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.
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.
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.
Actual results may differ from these estimates. 40 The Company's critical accounting estimates are as follows: Income Taxes — The Company provides deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws.
The Company's critical accounting estimates are as follows: Income Taxes — The Company provides deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws.
Equipment organic revenue grew 17.8% primarily due to higher demand in the European warewash, refrigeration and cooking end markets.
Service organic revenue increased 17.2%. ◦ International organic revenue increased 18.8%. Equipment organic revenue grew 17.8% primarily due to higher demand in the European warewash, refrigeration and cooking end markets.
The results of operations for the Polymers & Fluids segment for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,905 $ 1,804 5.6 % 10.5 % (1.2) % — % (3.7) % 5.6 % Operating income $ 479 $ 457 4.8 % 9.6 % (0.7) % — % (4.1) % 4.8 % Operating margin % 25.2 % 25.4 % (20) bps (30) bps 20 bps — (10) bps (20) bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation and the impact of a divestiture in the fourth quarter of 2022. • On October 3, 2022, the Company completed the sale of a business.
The results of operations for the Polymers & Fluids segment for 2023, 2022 and 2021 were as follows: 2023 compared to 2022 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2023 2022 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,804 $ 1,905 (5.3) % 0.3 % (4.0) % — % (1.6) % (5.3) % Operating income $ 482 $ 479 0.6 % 7.6 % (3.3) % (0.8) % (2.9) % 0.6 % Operating margin % 26.7 % 25.2 % 150 bps 180 bps 30 bps (20) bps (40) bps 150 bps 30 • Operating revenue declined due to the impact of a divestiture in the fourth quarter of 2022 and the unfavorable effect of foreign currency translation, partially offset by higher organic revenue.
Operating revenue for this business that was included in the Company's results of operations for the year ended December 31, 2022 and 2021 was $30 million and $28 million, respectively. Refer to Note 4. Divestitures in Item 8.
On December 1, 2022, the Company completed the sale of a business. Operating revenue for this business that was included in the Company's results of operations for the years ended December 31, 2022 and 2021 was $30 million and $28 million, respectively. Refer to Note 4. Divestitures in Item 8.
During the fourth quarter of 2022, the Company entered into a $3.0 billion, five-year 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.
During the fourth quarter of 2022, the Company entered into a $3.0 billion, five-year 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 December 31, 2023 or 2022.
The 2018 Program was completed in the first quarter of 2022. 35 On May 7, 2021, the Company's Board of Directors authorized 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").
The 2018 Program was completed in the first quarter of 2022. On May 7, 2021, the Company announced a stock repurchase program which provided 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").
Total debt to EBITDA for the years ended December 31, 2022, 2021 and 2020 was as follows: Dollars in millions 2022 2021 2020 Total debt $ 7,763 $ 7,687 $ 8,122 Net income $ 3,034 $ 2,694 $ 2,109 Add: Interest expense 203 202 206 Other (income) expense (255) (51) (28) Income taxes 808 632 595 Depreciation 276 277 273 Amortization and impairment of intangible assets 134 133 154 EBITDA $ 4,200 $ 3,887 $ 3,309 Total debt to EBITDA ratio 1.8 2.0 2.5 Stockholders' Equity The changes to stockholders' equity during 2022 and 2021 were as follows: In millions 2022 2021 Beginning balance $ 3,626 $ 3,182 Net income 3,034 2,694 Cash dividends declared (1,560) (1,483) Repurchases of common stock (1,750) (1,000) Other comprehensive income (loss) (339) 140 Other 78 93 Ending balance $ 3,089 $ 3,626 CRITICAL ACCOUNTING ESTIMATES The Company has three accounting estimates that it believes are most important to the Company's financial condition and results of operations, and which require the Company to make judgments about matters that are inherently uncertain.
Total debt to EBITDA for the years ended December 31, 2023, 2022 and 2021 was as follows: Dollars in millions 2023 2022 2021 Total debt $ 8,164 $ 7,763 $ 7,687 Net income $ 2,957 $ 3,034 $ 2,694 Add: Interest expense 266 203 202 Other (income) expense (49) (255) (51) Income taxes 866 808 632 Depreciation 282 276 277 Amortization and impairment of intangible assets 113 134 133 EBITDA $ 4,435 $ 4,200 $ 3,887 Total debt to EBITDA ratio 1.8 1.8 2.0 40 Stockholders' Equity The changes to stockholders' equity during 2023 and 2022 were as follows: In millions 2023 2022 Beginning balance $ 3,089 $ 3,626 Net income 2,957 3,034 Cash dividends declared (1,634) (1,560) Repurchases of common stock (1,500) (1,750) Other comprehensive income (loss) 7 (339) Other 94 78 Ending balance $ 3,013 $ 3,089 CRITICAL ACCOUNTING ESTIMATES The Company has three accounting estimates that it believes are most important to the Company's financial condition and results of operations, and which require the Company to make judgments about matters that are inherently uncertain.
Asia Pacific organic revenue increased 3.8% primarily due to higher demand in the Australia and New Zealand residential end markets. • Operating margin of 25.9% decreased 130 basis points primarily driven by unfavorable price/cost of 260 basis points and higher operating expenses, including employee-related expenses, partially offset by positive operating leverage of 220 basis points and benefits from the Company's enterprise initiatives. 2021 compared to 2020 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2021 2020 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,945 $ 1,652 17.7 % 13.6 % (0.1) % — % 4.2 % 17.7 % Operating income $ 530 $ 421 25.7 % 20.9 % — % 0.2 % 4.6 % 25.7 % Operating margin % 27.2 % 25.5 % 170 bps 160 bps — 10 bps — 170 bps • Operating revenue grew primarily due to higher organic revenue and the favorable effect of foreign currency translation. • Organic revenue increased 13.6% with growth across all major regions.
Asia Pacific organic revenue declined 2.3% primarily due to lower demand in the Australia and New Zealand residential end markets. • Operating margin of 28.4% increased 250 basis points primarily driven by favorable price/cost of 350 basis points and benefits from the Company's enterprise initiatives, partially offset by higher employee-related expenses and unfavorable operating leverage of 60 basis points. 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,113 $ 1,945 8.6 % 14.4 % — % — % (5.8) % 8.6 % Operating income $ 548 $ 530 3.5 % 8.8 % — % (0.2) % (5.1) % 3.5 % Operating margin % 25.9 % 27.2 % (130) bps (130) bps — — — (130) bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue grew 14.4% with growth across all major regions.
Refer to Note 3. Acquisitions in Item 8. Financial Statements and Supplementary Data for further information regarding this acquisition. The Company believes that, based on its operating revenue, operating margin, free cash flow, and credit ratings, it could readily obtain additional financing, if necessary.
Refer to Note 3. Acquisitions in Item 8. Financial Statements and Supplementary Data for further information regarding this acquisition. The Company believes that, based on its operating revenue, operating margin, free cash flow, and credit ratings, it could readily obtain additional financing, if necessary. The Company has certain contractual obligations, primarily noncurrent income taxes payable, operating leases and long-term debt.
Net income to average invested capital and After-tax ROIC for the years ended December 31, 2022, 2021, and 2020 were as follows: Dollars in millions 2022 2021 2020 Numerator: Net income $ 3,034 $ 2,694 $ 2,109 Discrete tax benefit related to the fourth quarter 2022 (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) 156 157 162 Other (income) expense, net of tax (1) (196) (40) (22) Operating income after taxes $ 2,911 $ 2,678 $ 2,249 Denominator: Invested capital: Cash and equivalents $ 708 $ 1,527 $ 2,564 Trade receivables 3,171 2,840 2,506 Inventories 2,054 1,694 1,189 Net assets held for sale 7 — — Net plant and equipment 1,848 1,809 1,777 Goodwill and intangible assets 5,632 5,937 5,471 Accounts payable and accrued expenses (2,322) (2,233) (1,818) Debt (7,763) (7,687) (8,122) Other, net (246) (261) (385) Total net assets (stockholders' equity) 3,089 3,626 3,182 Cash and equivalents (708) (1,527) (2,564) Debt 7,763 7,687 8,122 Total invested capital $ 10,144 $ 9,786 $ 8,740 Average invested capital (2) $ 10,017 $ 9,087 $ 8,576 Net income to average invested capital 30.3 % 29.6 % 24.6 % After-tax return on average invested capital 29.1 % 29.5 % 26.2 % 37 (1) Effective tax rate used for interest expense and other (income) expense for the years ended December 31, 2022, 2021, and 2020 was 23.2%, 23.0% and 22.0%, respectively.
Net income to average invested capital and After-tax ROIC for the years ended December 31, 2023, 2022, and 2021 were as follows: Dollars in millions 2023 2022 2021 Numerator: Net income $ 2,957 $ 3,034 $ 2,694 Discrete tax benefit related to the second quarter 2023 (20) — — Discrete tax benefit related to the fourth quarter 2022 — (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) 204 156 157 Other (income) expense, net of tax (1) (38) (196) (40) Operating income after taxes $ 3,103 $ 2,911 $ 2,678 Denominator: Invested capital: Cash and equivalents $ 1,065 $ 708 $ 1,527 Trade receivables 3,123 3,171 2,840 Inventories 1,707 2,054 1,694 Net assets held for sale — 7 — Net plant and equipment 1,976 1,848 1,809 Goodwill and intangible assets 5,566 5,632 5,937 Accounts payable and accrued expenses (2,244) (2,322) (2,233) Debt (8,164) (7,763) (7,687) Other, net (16) (246) (261) Total net assets (stockholders' equity) 3,013 3,089 3,626 Cash and equivalents (1,065) (708) (1,527) Debt 8,164 7,763 7,687 Total invested capital $ 10,112 $ 10,144 $ 9,786 Average invested capital (2) $ 10,214 $ 10,017 $ 9,087 Net income to average invested capital 29.0 % 30.3 % 29.6 % After-tax return on average invested capital 30.4 % 29.1 % 29.5 % 37 (1) Effective tax rate used for interest expense and other (income) expense for the years ended December 31, 2023, 2022, and 2021 was 23.2%, 23.2% and 23.0%, respectively.
Financial Statements and Supplementary Data for additional details regarding the Company's outstanding debt obligations. 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.
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.
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.
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.
After-tax ROIC increased 330 basis points for the twelve month period ended December 31, 2021 compared to the prior year period as a result of a 19.1% increase in after-tax operating income versus a 5.9% increase in average invested capital.
After-tax ROIC increased 130 basis points for the twelve month period ended December 31, 2023 compared to the prior year period as a result of a 6.6% increase in after-tax operating income versus a 2.0% increase in average invested capital.
The results of operations for the Specialty Products segment for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,799 $ 1,854 (2.9) % 0.4 % — % — % (3.3) % (2.9) % Operating income $ 481 $ 504 (4.5) % (1.8) % — % 0.1 % (2.8) % (4.5) % Operating margin % 26.7 % 27.2 % (50) bps (60) bps — — 10 bps (50) bps • Operating revenue declined due to the unfavorable effect of foreign currency translation, partially offset by higher organic revenue. • Organic revenue increased 0.4% as consumable sales increased 3.0% and equipment sales declined 9.5%.
The results of operations for the Specialty Products segment for 2023, 2022 and 2021 were as follows: 2023 compared to 2022 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2023 2022 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,697 $ 1,799 (5.7) % (4.9) % (1.6) % — % 0.8 % (5.7) % Operating income $ 449 $ 481 (6.5) % (7.2) % (0.1) % (0.3) % 1.1 % (6.5) % Operating margin % 26.5 % 26.7 % (20) bps (60) bps 40 bps (10) bps 10 bps (20) bps • Operating revenue declined due to lower organic revenue and the impact of a divestiture in the second quarter of 2023, partially offset by the favorable effect of foreign currency translation.
Dollar in 2021 versus 2020 increased operating revenue and income before taxes by approximately $301 million and $77 million, respectively. NEW ACCOUNTING PRONOUNCEMENTS Information regarding new accounting pronouncements is included in Note 1. Description of Business and Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Data.
Dollar in 2022 versus 2021 decreased operating revenue and income before taxes by approximately $628 million and $157 million, respectively. NEW ACCOUNTING PRONOUNCEMENTS Information regarding new accounting pronouncements is included in Note 1. Description of Business and Summary of Significant Accounting Policies in Item 8.
In a challenging and dynamic environment, the Company delivered strong financial results in 2022 primarily due to the continued successful execution of enterprise initiatives, including the "Win the Recovery" actions initiated over the course of the past year, and continued focus on the highly differentiated ITW Business Model.
In a challenging and dynamic environment, the Company delivered strong financial results in 2023 primarily due to the continued successful execution of enterprise initiatives and continued focus on the highly differentiated ITW Business Model.
The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 spread and impacted the countries in which the Company operates and the markets the Company serves.
CONSOLIDATED RESULTS OF OPERATIONS Starting in early 2020, the COVID-19 pandemic and the measures taken to reduce its spread negatively impacted the global economy and caused significant disruptions in the Company's global operations as COVID-19 spread and impacted the countries in which the Company operates and the markets the Company serves.
Total cash dividends of approximately $1.5 billion were paid in 2021. 24 RESULTS OF OPERATIONS BY SEGMENT The reconciliation of segment operating revenue and operating income to total operating revenue and operating income is as follows: Operating Revenue In millions 2022 2021 2020 Automotive OEM $ 2,969 $ 2,800 $ 2,571 Food Equipment 2,444 2,078 1,739 Test & Measurement and Electronics 2,828 2,346 1,963 Welding 1,894 1,650 1,384 Polymers & Fluids 1,905 1,804 1,622 Construction Products 2,113 1,945 1,652 Specialty Products 1,799 1,854 1,660 Intersegment revenue (20) (22) (17) Total $ 15,932 $ 14,455 $ 12,574 Operating Income In millions 2022 2021 2020 Automotive OEM $ 499 $ 545 $ 457 Food Equipment 618 469 342 Test & Measurement and Electronics 684 643 507 Welding 583 490 376 Polymers & Fluids 479 457 402 Construction Products 548 530 421 Specialty Products 481 504 432 Total Segments 3,892 3,638 2,937 Unallocated (102) (161) (55) Total $ 3,790 $ 3,477 $ 2,882 Segments are allocated a fixed overhead charge based on the segment's revenue.
Total cash dividends of approximately $1.5 billion were paid in 2022. 24 RESULTS OF OPERATIONS BY SEGMENT The reconciliation of segment operating revenue and operating income to total operating revenue and operating income is as follows: Operating Revenue In millions 2023 2022 2021 Automotive OEM $ 3,235 $ 2,969 $ 2,800 Food Equipment 2,622 2,444 2,078 Test & Measurement and Electronics 2,832 2,828 2,346 Welding 1,902 1,894 1,650 Polymers & Fluids 1,804 1,905 1,804 Construction Products 2,033 2,113 1,945 Specialty Products 1,697 1,799 1,854 Intersegment revenue (18) (20) (22) Total $ 16,107 $ 15,932 $ 14,455 Operating Income In millions 2023 2022 2021 Automotive OEM $ 561 $ 499 $ 545 Food Equipment 713 618 469 Test & Measurement and Electronics 686 684 643 Welding 605 583 490 Polymers & Fluids 482 479 457 Construction Products 578 548 530 Specialty Products 449 481 504 Total Segments 4,074 3,892 3,638 Unallocated (34) (102) (161) Total $ 4,040 $ 3,790 $ 3,477 Segments are allocated a fixed overhead charge based on the segment's revenue.
The operating results of the MTS Test & Simulation business were reported within the Company's Test & Measurement and Electronics segment. Refer to Note 3. Acquisitions in Item 8. Financial Statements and Supplementary Data for further information regarding this acquisition.
The operating results of the MTS Test & Simulation business were reported within the Company's Test & Measurement and Electronics segment. Refer to Note 3. Acquisitions in Item 8.
Product line simplification activities reduced organic revenue by 50 basis points. ◦ Organic revenue for the polymers businesses increased 17.2% with growth across all major regions, primarily in the heavy industrial and wind end markets. ◦ Organic revenue for the automotive aftermarket businesses increased 8.5% with growth in the car care, body repair, engine repair and tire repair businesses in North America and growth in the European additives and tire repair businesses. ◦ Organic revenue for the fluids businesses grew 4.6% primarily due to growth in the hygiene and industrial maintenance, repair and operations end markets in North America and Europe. • Operating margin of 25.2% decreased 20 basis points primarily driven by higher operating expenses, including employee-related expenses and freight costs, and unfavorable price/cost of 50 basis points, partially offset by positive operating leverage of 170 basis points, benefits from the Company's enterprise initiatives, lower intangible asset amortization expense and the impact of a divestiture. 2021 compared to 2020 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2021 2020 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,804 $ 1,622 11.2 % 10.0 % — % — % 1.2 % 11.2 % Operating income $ 457 $ 402 13.7 % 12.2 % — % 0.3 % 1.2 % 13.7 % Operating margin % 25.4 % 24.8 % 60 bps 50 bps — 10 bps — 60 bps • Operating revenue grew due to higher organic revenue and the favorable effect of foreign currency translation. • Organic revenue increased 10.0% driven by higher demand across all major regions.
Product line simplification activities reduced organic revenue by 50 basis points. ◦ Organic revenue for the polymers businesses increased 17.2% with growth across all major regions, primarily in the heavy industrial and wind end markets. ◦ Organic revenue for the automotive aftermarket businesses increased 8.5% with growth in the car care, body repair, engine repair and tire repair businesses in North America and growth in the European additives and tire repair businesses. ◦ Organic revenue for the fluids businesses grew 4.6% primarily due to growth in the hygiene and industrial maintenance, repair and operations end markets in North America and Europe. • Operating margin of 25.2% decreased 20 basis points primarily driven by higher operating expenses, including employee-related expenses and freight costs, and unfavorable price/cost of 50 basis points, partially offset by positive operating leverage of 170 basis points, benefits from the Company's enterprise initiatives, lower intangible asset amortization expense and the impact of a divestiture.
OTHER FINANCIAL HIGHLIGHTS • Interest expense was $203 million in 2022, $202 million in 2021 and $206 million in 2020. Interest expense in 2022 was $1 million higher than 2021 primarily due to higher average outstanding commercial paper and higher interest rates, partially offset by the repayment of notes due September 15, 2021 and May 20, 2022.
Interest expense in 2022 was $1 million higher than 2021 primarily due to higher average outstanding commercial paper and higher interest rates, partially offset by the repayment of notes due September 15, 2021 and May 20, 2022. Refer to Note 11. Debt in Item 8.
The results of operations for the Food Equipment segment for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,444 $ 2,078 17.6 % 22.9 % (0.1) % — % (5.2) % 17.6 % Operating income $ 618 $ 469 31.7 % 38.1 % (0.1) % (0.4) % (5.9) % 31.7 % Operating margin % 25.3 % 22.6 % 270 bps 280 bps — (10) bps — 270 bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation and the impact of a divestiture in the fourth quarter of 2022. • On December 1, 2022, the Company completed the sale of a business.
The results of operations for the Food Equipment segment for 2023, 2022 and 2021 were as follows: 2023 compared to 2022 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2023 2022 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,622 $ 2,444 7.3 % 7.8 % (1.2) % — % 0.7 % 7.3 % Operating income $ 713 $ 618 15.2 % 15.4 % (0.7) % (0.3) % 0.8 % 15.2 % Operating margin % 27.2 % 25.3 % 190 bps 180 bps 20 bps (10) bps — 190 bps • Operating revenue grew due to higher organic revenue and the favorable effect of foreign currency translation, partially offset by the impact of a divestiture in the fourth quarter of 2022.
Under the 2021 program, the Company repurchased approximately 7.1 million shares of its common stock at an average price of $210.46 per share during 2022.
Under the 2021 program, the Company repurchased approximately 7.1 million shares of its common stock at an average price of $210.46 per share during 2022 and approximately 6.3 million shares of its common stock at an average price of $235.35 per share during 2023. The 2021 Program was completed in the fourth quarter of 2023.
The results of operations for the Test & Measurement and Electronics segment for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,828 $ 2,346 20.6 % 9.0 % 15.9 % — % (4.3) % 20.6 % Operating income $ 684 $ 643 6.3 % 10.1 % — % 0.1 % (3.9) % 6.3 % Operating margin % 24.2 % 27.4 % (320) bps 30 bps (350) bps — — (320) bps • Operating revenue grew due to the MTS Test & Simulation acquisition, which was completed on December 1, 2021, and higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue increased 9.0%. ◦ Organic revenue for the test and measurement businesses increased 12.7% primarily driven by higher semiconductor demand in North America and Asia Pacific and the impact of a stronger capital spending 28 environment.
The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, decreased 6.4% primarily due to lower demand in the semiconductor end market, partially offset by higher demand in the automotive end market. • Operating margin of 24.2% was flat compared to the prior year as favorable price/cost of 160 basis points, benefits from the Company's enterprise initiatives and lower intangible asset amortization expense were offset by higher employee-related expenses and product mix. 28 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,828 $ 2,346 20.6 % 9.0 % 15.9 % — % (4.3) % 20.6 % Operating income $ 684 $ 643 6.3 % 10.1 % — % 0.1 % (3.9) % 6.3 % Operating margin % 24.2 % 27.4 % (320) bps 30 bps (350) bps — — (320) bps • Operating revenue grew due to the MTS Test & Simulation acquisition, which was completed on December 1, 2021, and higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue increased 9.0%. ◦ Organic revenue for the test and measurement businesses increased 12.7% primarily driven by higher semiconductor demand in North America and Asia Pacific and the impact of a stronger capital spending environment.
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.
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.
Refer to Note 11. Debt in Item 8. Financial Statements and Supplementary Data for further information regarding the repayment of notes. • Other income (expense) was income of $255 million in 2022, $51 million in 2021 and $28 million in 2020.
Financial Statements and Supplementary Data for further information regarding the repayment of notes. • Other income (expense) was income of $49 million in 2023, $255 million in 2022 and $51 million in 2021.
Auto builds of foreign automotive manufacturers in China, where the Company has higher content, increased 1%. • Operating margin of 16.8% decreased 270 basis points primarily driven by unfavorable price/cost of 200 basis points, higher restructuring expenses, higher operating expenses and continued investment in the business, including the electric vehicles market, partially offset by positive operating leverage of 190 basis points and benefits from the Company's enterprise initiatives. 2021 compared to 2020 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2021 2020 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,800 $ 2,571 8.9 % 5.8 % — % — % 3.1 % 8.9 % Operating income $ 545 $ 457 19.3 % 13.0 % — % 3.0 % 3.3 % 19.3 % Operating margin % 19.5 % 17.8 % 170 bps 120 bps — 50 bps — 170 bps • Operating revenue increased due to higher organic revenue and the favorable effect of foreign currency translation. • Organic revenue increased 5.8%.
China organic revenue grew 21.9%, including growth in the electric vehicles market and higher content in the Chinese original equipment manufacturers, versus China auto builds which increased 9%. • Operating margin of 17.3% increased 50 basis points primarily driven by positive operating leverage of 160 basis points, favorable price/cost of 140 basis points and benefits from the Company's enterprise initiatives, partially offset by higher employee-related expenses and continued investments in the business, including the electric vehicles market, and product mix. 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,969 $ 2,800 6.0 % 11.7 % — % — % (5.7) % 6.0 % Operating income $ 499 $ 545 (8.6) % 1.5 % — % (4.8) % (5.3) % (8.6) % Operating margin % 16.8 % 19.5 % (270) bps (180) bps — (90) bps — (270) bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue increased 11.7% compared to worldwide auto builds which grew 6%.
LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of December 31, 2022, the Company had $708 million of cash and equivalents on hand and no outstanding borrowings under its $3.0 billion revolving 34 credit facility. The Company also has maintained strong access to public debt markets.
Financial Statements and Supplementary Data. 34 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of December 31, 2023, the Company had $1.1 billion of cash and equivalents on hand and no outstanding borrowings under its $3.0 billion revolving credit facility.
Service organic revenue increased 20.8%. • Operating margin of 25.3% increased 270 basis points primarily due to positive operating leverage of 430 basis points, benefits from the Company's enterprise initiatives and favorable price/cost of 90 basis points, partially offset by higher operating expenses, including employee-related expenses. 27 2021 compared to 2020 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2021 2020 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,078 $ 1,739 19.5 % 16.7 % — % — % 2.8 % 19.5 % Operating income $ 469 $ 342 37.4 % 31.7 % — % 2.4 % 3.3 % 37.4 % Operating margin % 22.6 % 19.6 % 300 bps 260 bps — 40 bps — 300 bps • Operating revenue grew due to higher organic revenue and the favorable effect of foreign currency translation. • Organic revenue increased 16.7% as equipment and service organic revenue grew 21.4% and 8.5%, respectively. ◦ North American organic revenue increased 16.2%.
Service organic revenue increased 13.4%. • Operating margin of 27.2% increased 190 basis points primarily driven by favorable price/cost of 220 basis points, positive operating leverage of 150 basis points and benefits from the Company's enterprise initiatives, partially offset by higher operating expenses, including employee-related expenses. 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,444 $ 2,078 17.6 % 22.9 % (0.1) % — % (5.2) % 17.6 % Operating income $ 618 $ 469 31.7 % 38.1 % (0.1) % (0.4) % (5.9) % 31.7 % Operating margin % 25.3 % 22.6 % 270 bps 280 bps — (10) bps — 270 bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation and the impact of a divestiture in the fourth quarter of 2022.
Auto builds for the Detroit 3, where the Company has higher content, decreased 5%. ◦ European organic revenue was essentially flat compared to European auto builds which declined 5%. ◦ Asia Pacific organic revenue increased 17.2%. China organic revenue grew 13.9% versus China auto builds which increased 4%.
Auto builds for the Detroit 3, where the Company has higher content, grew 1%. ◦ European organic revenue grew 12.5% compared to European auto builds which increased 13%. ◦ Asia Pacific organic revenue increased 21.4%.
Additionally, the prior year included the recapture of amortization and depreciation expense related to a business previously classified as held for sale. 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.
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.
Europe organic revenue grew 2.8% primarily due to an increase in the consumer packaging, specialty films and filter medical businesses, partially offset by a decline in the appliance business. • Operating margin of 26.7% decreased 50 basis points primarily driven by higher operating expenses, including employee-related expenses, partially offset by benefits from the Company's enterprise initiatives and favorable price/cost of 10 basis points. 33 2021 compared to 2020 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2021 2020 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,854 $ 1,660 11.7 % 9.8 % — % — % 1.9 % 11.7 % Operating income $ 504 $ 432 16.6 % 15.6 % — % (1.0) % 2.0 % 16.6 % Operating margin % 27.2 % 26.0 % 120 bps 140 bps — (20) bps — 120 bps • Operating revenue grew due to higher organic revenue and the favorable effect of foreign currency translation. • Organic revenue increased 9.8% as consumables increased 10.8% and equipment increased 6.4% primarily due to higher demand in North America.
Product line simplification activities reduced organic revenue by 150 basis points. ◦ North American organic revenue decreased 6.4% 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 declined 1.6% primarily due to a decrease in 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 of 26.5% decreased 20 basis points primarily driven by unfavorable operating leverage of 90 basis points, higher employee-related expenses and product mix, partially offset by favorable price/cost of 130 basis points, benefits from the Company's enterprise initiatives and the favorable impact of a divestiture in the second quarter of 2023. 33 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 1,799 $ 1,854 (2.9) % 0.4 % — % — % (3.3) % (2.9) % Operating income $ 481 $ 504 (4.5) % (1.8) % — % 0.1 % (2.8) % (4.5) % Operating margin % 26.7 % 27.2 % (50) bps (60) bps — — 10 bps (50) bps • Operating revenue declined due to the unfavorable effect of foreign currency translation, partially offset by higher organic revenue. • Organic revenue increased 0.4% as consumable sales increased 3.0% and equipment sales declined 9.5%.
As of December 31, 2022, the Company had unused capacity of approximately $184 million under international debt facilities. In the ordinary course of business, the Company also had approximately $182 million outstanding in guarantees, letters of credit and other similar arrangements with financial institutions as of December 31, 2022. Refer to Note 11. Debt in Item 8.
In the ordinary course of business, the Company also had approximately $231 million outstanding in guarantees, letters of credit and other similar arrangements with financial institutions as of December 31, 2023. Refer to Note 11. Debt in Item 8. Financial Statements and Supplementary Data for additional details regarding the Company's outstanding debt obligations.
Operating revenue for this business that was included in the Company's results of operations for the year ended December 31, 2022 and 2021, was $76 million and $87 million, respectively. Refer to Note 4. Divestitures in Item 8. Financial Statements and Supplementary Data for further information. • Organic revenue increased 10.5% with growth across all major regions.
Operating revenue related to this business that was included in the Company's results of operations was $9 million, $37 million and $35 million for the twelve months ended December 31, 2023, 2022 and 2021, respectively. Refer to Note 4. Divestitures in Item 8. Financial Statements and Supplementary Data for further information regarding the Company's divestitures.
The results of operations for the Automotive OEM segment for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,969 $ 2,800 6.0 % 11.7 % — % — % (5.7) % 6.0 % Operating income $ 499 $ 545 (8.6) % 1.5 % — % (4.8) % (5.3) % (8.6) % Operating margin % 16.8 % 19.5 % (270) bps (180) bps — (90) bps — (270) bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue increased 11.7% compared to worldwide auto builds which grew 6%.
Products in this segment include: • plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses. 25 The results of operations for the Automotive OEM segment for 2023, 2022 and 2021 were as follows: 2023 compared to 2022 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2023 2022 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 3,235 $ 2,969 9.0 % 8.8 % — % — % 0.2 % 9.0 % Operating income $ 561 $ 499 12.4 % 11.7 % — % 1.1 % (0.4) % 12.4 % Operating margin % 17.3 % 16.8 % 50 bps 40 bps — 20 bps (10) bps 50 bps • Operating revenue grew due to higher organic revenue and the favorable effect of foreign currency translation. • Organic revenue increased 8.8% compared to worldwide auto builds which grew 9%.
Summarized cash flow information for the years ended December 31, 2022, 2021 and 2020 was as follows: In millions 2022 2021 2020 Net cash provided by operating activities $ 2,348 $ 2,557 $ 2,807 Additions to plant and equipment (412) (296) (236) Free cash flow $ 1,936 $ 2,261 $ 2,571 Cash dividends paid $ (1,542) $ (1,463) $ (1,379) Repurchases of common stock (1,750) (1,000) (706) Acquisition of businesses (excluding cash and equivalents) (2) (731) — Proceeds from sale of operations and affiliates 278 — 1 Net proceeds from (repayments of) debt 276 (141) (4) Other 42 83 61 Effect of exchange rate changes on cash and equivalents (57) (46) 39 Net increase (decrease) in cash and equivalents $ (819) $ (1,037) $ 583 Free cash flow decreased in 2022 and 2021 primarily 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.
Summarized cash flow information for the years ended December 31, 2023, 2022 and 2021 was as follows: In millions 2023 2022 2021 Net cash provided by operating activities $ 3,539 $ 2,348 $ 2,557 Additions to plant and equipment (455) (412) (296) Free cash flow $ 3,084 $ 1,936 $ 2,261 Cash dividends paid $ (1,615) $ (1,542) $ (1,463) Repurchases of common stock (1,500) (1,750) (1,000) Acquisition of businesses (excluding cash and equivalents) — (2) (731) Proceeds from sale of operations and affiliates 7 278 — Net proceeds from (repayments of) debt 294 276 (141) Other 84 42 83 Effect of exchange rate changes on cash and equivalents 3 (57) (46) Net increase (decrease) in cash and equivalents $ 357 $ (819) $ (1,037) Operating cash flow improved in 2023 compared to 2022 as supply chains began to normalize in 2023 and the Company reduced its investment in working capital.
The income in 2021 increased $23 million compared to 2020 primarily due to higher investment income and higher other net periodic benefit income in 2021. • The Company's effective tax rate for 2022, 2021 and 2020 was 21.0%, 19.0% and 22.0%, respectively.
Other income was higher in 2022 as compared to 2023 and 2021 primarily due to net pre-tax gains of $191 million related to the sale of businesses in 2022. • The Company's effective tax rate for 2023, 2022, and 2021 was 22.6%, 21.0% and 19.0%, respectively.
Operating revenue related to these divested businesses that was included in the Company's results of operations for the twelve months ended December 31, 2022, 2021 and 2020 was $106 million, $115 million and $113 million, respectively. Refer to Note 4. Divestitures in Item 8.
Operating revenue related to these divested businesses that was included in the Company's results of operations for the twelve months ended December 31, 2022 and 2021 was $106 million and $115 million, respectively. In the fourth quarter of 2022, plans were approved to divest one business in the Specialty Products segment.
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 has four immaterial Russian subsidiaries with total assets of approximately $25 million as of December 31, 2022.
In response, the United States and several other countries imposed economic and other sanctions on Russia. The Company has four immaterial Russian subsidiaries with total assets of approximately $22 million as of December 31, 2023. The revenue for these four subsidiaries for the twelve months ended December 31, 2023 was approximately $26 million.
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. CONSOLIDATED RESULTS OF OPERATIONS In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions.
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.
Net working capital as of December 31, 2022 and 2021 is summarized as follows: In millions 2022 2021 Increase (Decrease) Current Assets: Cash and equivalents $ 708 $ 1,527 $ (819) Trade receivables 3,171 2,840 331 Inventories 2,054 1,694 360 Prepaid expenses and other current assets 329 313 16 Assets held for sale 8 — 8 6,270 6,374 (104) Current Liabilities: Short-term debt 1,590 778 812 Accounts payable and accrued expenses 2,322 2,233 89 Liabilities held for sale 1 — 1 Other 547 459 88 4,460 3,470 990 Net Working Capital $ 1,810 $ 2,904 $ (1,094) As of December 31, 2022, a significant portion of the Company's cash and equivalents was held by international subsidiaries.
Net working capital as of December 31, 2023 and 2022 is summarized as follows: In millions 2023 2022 Increase (Decrease) Current Assets: Cash and equivalents $ 1,065 $ 708 $ 357 Trade receivables 3,123 3,171 (48) Inventories 1,707 2,054 (347) Prepaid expenses and other current assets 340 329 11 Assets held for sale — 8 (8) 6,235 6,270 (35) Current Liabilities: Short-term debt 1,825 1,590 235 Accounts payable and accrued expenses 2,244 2,322 (78) Liabilities held for sale — 1 (1) Other 606 547 59 4,675 4,460 215 Net Working Capital $ 1,560 $ 1,810 $ (250) As of December 31, 2023, a significant portion of the Company's cash and equivalents was held by international subsidiaries.
The results of operations for the Construction Products segment for 2022, 2021 and 2020 were as follows: 2022 compared to 2021 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2022 2021 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total Operating revenue $ 2,113 $ 1,945 8.6 % 14.4 % — % — % (5.8) % 8.6 % Operating income $ 548 $ 530 3.5 % 8.8 % — % (0.2) % (5.1) % 3.5 % Operating margin % 25.9 % 27.2 % (130) bps (130) bps — — — (130) bps • Operating revenue grew due to higher organic revenue, partially offset by the unfavorable effect of foreign currency translation. • Organic revenue grew 14.4% with growth across all major regions.
RESULTS OF OPERATIONS FOR TOTAL COMPANY The Company's consolidated results of operations for 2023, 2022 and 2021 were as follows: 2023 compared to 2022 For the Years Ended Dollars in millions December 31, Components of Increase (Decrease) 2023 2022 Inc (Dec) Organic Acquisition/ Divestiture Restructuring Foreign Currency Total Operating revenue $ 16,107 $ 15,932 1.1 % 2.0 % (0.8) % — % (0.1) % 1.1 % Operating income $ 4,040 $ 3,790 6.6 % 7.6 % (0.5) % (0.2) % (0.3) % 6.6 % Operating margin % 25.1 % 23.8 % 130 bps 130 bps 10 bps (10) bps — 130 bps • Operating revenue 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 increased 2.0% as growth in five segments was partially offset by a decline in the Specialty Products and Construction Products segments.
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 In late 2012, ITW began its strategic framework transitioning the Company on its current path to fully leverage the compelling performance potential of the ITW Business Model.
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.
Excluding the favorable impact of $0.60 per diluted share related to the pre-tax divestiture gains of $197 million in the fourth quarter of 2022, or $188 million after-tax including the impact of the $32 million discrete tax benefit noted above, EPS increased 7.8%. • Operating cash flow was $2.3 billion and free cash flow was $1.9 billion for 2022.
Excluding the favorable impact of $0.60 per diluted share related to the pre-tax divestiture gains of $197 million in the fourth quarter of 2022, or $188 million after-tax including the impact of the $32 million discrete tax benefit noted above, EPS increased 7.8%. • The Company repurchased approximately 8.3 million shares of its common stock in 2022 for approximately $1.75 billion. • The Company increased the quarterly dividend on common stock from $1.22 to $1.31 per share in 2022, or from $4.88 to $5.24 per share on an annualized basis.
Debt Total debt as of December 31, 2022 and 2021 was as follows: In millions 2022 2021 Increase (Decrease) Short-term debt $ 1,590 $ 778 $ 812 Long-term debt 6,173 6,909 (736) Total debt $ 7,763 $ 7,687 $ 76 As of December 31, 2022, short-term debt included $535 million related to the 1.25% Euro notes due May 22, 2023, which were reclassified from Long-term debt to Short-term debt in the second quarter of 2022, and commercial paper of $1.1 billion.
Debt Total debt as of December 31, 2023 and 2022 was as follows: In millions 2023 2022 Increase (Decrease) Short-term debt $ 1,825 $ 1,590 $ 235 Long-term debt 6,339 6,173 166 Total debt $ 8,164 $ 7,763 $ 401 As of December 31, 2023, short-term debt included $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 2023, $661 million related to the 0.25% Euro notes due December 5, 2024, which were reclassified from Long-term debt to Short-term debt in the fourth quarter of 2023, and commercial paper of $464 million.
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.
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.
The amount of goodwill and other intangible assets allocated to individual reporting units ranges from approximately $212 million to $1.4 billion , with the average amount equal to $562 million . Fair value determinations require considerable judgment and are sensitive to changes in the factors described above.
The amount of goodwill and other intangible assets allocated to individual reporting units ranges from approximately $215 million to $1.4 billion , with the average amount equal to $556 million . In all cases, the fair value of the individual reporting unit significantly exceeds its carrying value.
Financial Statements and Supplementary Data for further information. 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.
These subsidiaries were not material to the Company's results of operations or financial position. 21 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.
Service organic revenue increased 5.5%. • Operating margin was 22.6%. The increase of 300 basis points was primarily driven by positive operating leverage of 370 basis points, benefits from the Company's enterprise initiatives and lower restructuring expenses, partially offset by unfavorable price/cost of 90 basis points and higher overhead expenses.
Service organic revenue increased 20.8%. • Operating margin of 25.3% increased 270 basis points primarily due to positive operating leverage of 430 basis points, benefits from the Company's enterprise initiatives and favorable price/cost of 90 basis points, partially offset by higher operating expenses, including employee-related expenses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe funding for the foreign manufacturing operations is provided primarily through the permanent investment of equity capital. The Company's products are typically manufactured and sold within the same country or economic union. Therefore, the Company's manufacturing operations generally do not have significant assets or liabilities denominated in currencies other than their functional currencies.
Biggest changeForeign Currency Risk The Company operates in the U.S. and 50 foreign countries. The funding for the foreign manufacturing operations is provided primarily through the permanent investment of equity capital. The Company's products are typically manufactured and sold within the same country or economic union.
Financial Statements and Supplemental Data for additional information regarding the redemption of these notes. The amount of pre-tax gain (loss) related to these notes recorded in Other comprehensive income (loss) for the twelve months ended December 31, 2022, 2021 and 2020 was $205 million, $303 million and $(359) million, respectively. 42
Financial Statements and Supplemental Data for additional information regarding the redemption of these notes. The amount of pre-tax gain (loss) related to these notes that was recorded in Other comprehensive income (loss) for the twelve months ended December 31, 2023, 2022 and 2021 was $(109) million, $205 million and $303 million, respectively. 42
The Company designated the €1.0 billion of Euro notes issued in May 2014, the €1.0 billion of Euro notes issued in May 2015 and the €1.6 billion of Euro notes issued in June 2019 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 Company designated the €1.0 billion of Euro notes issued in May 2014, the €1.0 billion of Euro notes issued in May 2015, the €1.6 billion of Euro notes issued in June 2019 and the €1.3 billion of Euro term loans borrowed under the Euro Credit Agreement in May 2023 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.
Changes in the value of this debt resulting from fluctuations in the Euro to U.S. 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. Refer to Note 11. Debt in Item 8.
Changes in the value of this debt resulting from fluctuations in the Euro to U.S. Dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss).
Financial Statements and Supplemental Data for details related to the fair value of the Company's debt instruments. Additionally, rising interest rates would negatively impact the amount of interest expense related to new issuances of commercial paper. Foreign Currency Risk The Company operates in the U.S. and 50 foreign countries.
Financial Statements and Supplemental Data for details related to the fair value of the Company's debt instruments. Additionally, rising interest rates would negatively impact the amount of interest expense related to new issuances of commercial paper and the outstanding Euro term loans borrowed under the Euro Credit Agreement.
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Therefore, the Company's manufacturing operations generally do not have significant assets or liabilities denominated in currencies other than their functional currencies.
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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 11. Debt in Item 8.

Other ITW 10-K year-over-year comparisons