Illinois Tool Works Inc.: Q3 FY2025 earnings call

What management said about Q3 FY2025, from the documents filed with the SEC on 24 October 2025: press release. Guidance figures: 1 raised, 1 lowered, 3 kept. The quarter’s numbers.

Key takeaways

Revenue rose two percent: Revenue was $4.1 billion, up 2 percent, with organic growth of 1 percent. Second-quarter organic growth had been essentially flat. Source
EPS rose six percent excluding gain: GAAP EPS was $2.81. Excluding the $1.26 divestiture gain in the prior-year quarter, EPS rose 6 percent. Source
Margin reached 27.4 percent: Operating margin of 27.4 percent was up 90 basis points, with enterprise initiatives contributing 140 basis points; six of seven segments expanded margins. Source
Tariffs offset by pricing and supply actions: Management said it is taking ongoing pricing and supply chain actions intended to offset tariff cost impacts, with guidance adjusted for these actions. Source
Free cash flow up 15 percent: Operating cash flow was $1.0 billion and free cash flow was $904 million, up 15 percent; free cash flow converted at 110 percent of net income. Source
Customer-Back Innovation drives growth: Management said its focus on Customer-Back Innovation is enabling consistent above-market organic growth. Source

“The ITW team concluded the third quarter with solid operational and financial execution, delivering EPS of $2.81, which grew six percent year-over-year excluding the divestiture gain”
Christopher A. O’Herlihy, President and Chief Executive Officer

Guidance

Area	Period	Figure	Against last quarter
GAAP EPS Source	full year 2025	$10.40 to $10.50
Organic revenue growth Source	full year 2025	flat to two percent	Kept
Operating margin Source	full year 2025	26 to 27 percent	Kept
Enterprise initiatives margin contribution Source	full year 2025	125 basis points or more	Raised from 100 basis points or more
Free cash flow to net income conversion Source	full year 2025	approximately 100 percent
Share repurchases Source	full year 2025	approximately $1.5 billion	Kept
Effective tax rate Source	full year 2025	approximately 23 percent	Lowered from approximately 24 percent

What changed from last quarter

Guidance kept: Full-year GAAP EPS range narrowed from $10.35 to $10.55 to $10.40 to $10.50; midpoint unchanged at $10.45. Source
Guidance raised: Enterprise initiatives margin contribution guidance raised to 125 basis points or more from 100 basis points or more. Source
Guidance lowered: Projected effective tax rate lowered to approximately 23 percent from approximately 24 percent. Source
Guidance kept: Revenue growth and organic growth ranges are unchanged from the prior release. Source
New: Pricing actions described in guidance now also include supply chain actions, intended to offset tariff cost impacts. Source
New: Dividend raised seven percent to an annualized $6.44 per share, the 62nd consecutive year of increases. Source

Results and growth drivers

Revenue rose two percent: Revenue was $4.1 billion, up 2 percent, with organic growth of 1 percent. Second-quarter organic growth had been essentially flat. Source
Currency added two points to revenue: Foreign currency translation added 2 percent to revenue, while product line simplification reduced revenue by 1 percent. Source
EPS rose six percent excluding gain: GAAP EPS was $2.81. Excluding the $1.26 divestiture gain in the prior-year quarter, EPS rose 6 percent. Source
Operating income rose six percent: Operating income was $1.1 billion, up 6 percent, with operating margin of 27.4 percent. Source
Nine-month revenue slightly lower: Nine-month revenue was $11.95 billion against $11.97 billion a year earlier; nine-month operating income was $3.13 billion against $3.23 billion. Source

Segment results

Automotive OEM revenue up 7.3 percent: Automotive OEM revenue was $830 million, up 7.3 percent, with 5.0 percent organic growth. Operating margin was 21.8 percent, up 240 basis points. Source
Food Equipment margin rose, T&M fell: Food Equipment revenue rose 2.5 percent with margin of 29.2 percent, up 80 basis points. Test & Measurement and Electronics revenue rose 0.3 percent; margin fell 30 basis points to 25.4 percent. Source
Welding and Specialty margins higher: Welding revenue rose 3.3 percent, with margin of 32.6 percent, up 30 basis points. Specialty Products revenue rose 3.3 percent, with margin of 32.3 percent, up 120 basis points. Source
Polymers and Construction revenue declined: Polymers & Fluids revenue fell 1.8 percent and Construction Products fell 1.4 percent. Their margins rose 60 and 140 basis points, to 28.5 and 31.6 percent. Source

“We are very pleased with the significant strategic progress made throughout the year”
Christopher A. O’Herlihy, President and Chief Executive Officer

Costs, margins and pricing

Margin reached 27.4 percent: Operating margin of 27.4 percent was up 90 basis points, with enterprise initiatives contributing 140 basis points; six of seven segments expanded margins. Source
Margin gain split by cost driver: Operating leverage added 20 basis points and changes in variable margin and overhead costs added 80 basis points; restructuring and other reduced the total by 10 basis points. Source
Tariffs offset by pricing and supply actions: Management said it is taking ongoing pricing and supply chain actions intended to offset tariff cost impacts, with guidance adjusted for these actions. Source
Tax rate lower after discrete items: Reported effective tax rate was 21.8 percent. Excluding a $27 million net discrete tax benefit, the adjusted rate was 24.3 percent. Source

Demand and organic growth

Organic growth up from flat in Q2: Organic revenue grew 1 percent in the third quarter, compared with essentially flat organic growth in the second quarter.
Guidance reflects current demand: Management said full-year guidance accounts for the current demand environment, adjusted for pricing and supply chain actions and current foreign exchange rates. Source
Polymers and Construction organic declines: Organic revenue fell 3.1 percent in Polymers & Fluids and 2.3 percent in Construction Products. Welding rose 2.8 percent and Automotive OEM rose 5.0 percent. Source

“As we head into the final quarter, we are narrowing our full year EPS guidance range”
Christopher A. O’Herlihy, President and Chief Executive Officer

Capital, cash and returns to shareholders

Free cash flow up 15 percent: Operating cash flow was $1.0 billion and free cash flow was $904 million, up 15 percent; free cash flow converted at 110 percent of net income. Source
Buybacks and dividend increase: The company repurchased $375 million of its own shares in the quarter and raised the dividend seven percent to $6.44 annualized, the 62nd consecutive annual increase. Source
Long-term debt higher than year-end: Long-term debt was $7,675 million at September 30, 2025, up from $6,308 million at December 31, 2024; cash and equivalents were $924 million. Source

Reporting adjustments and returns

After-tax return on invested capital: After-tax return on average invested capital was 29.8 percent for the quarter and 29.1 percent for the nine months, compared with 30.0 and 31.3 percent a year earlier. Source
Quarter tax benefit and expense items: The third-quarter net discrete tax benefit of $27 million included a $43 million benefit for the estimated 2024 U.S. federal tax liability, partly offset by $16 million of expense. Source
Amortization reduced EPS by five cents: Amortization of acquisition-related intangible assets reduced GAAP EPS by $0.05 in the quarter and by $0.16 for the first nine months of 2025. Source

Strategy and investment

Next Phase growth priorities: In the second quarter release, management described executing its Next Phase growth priorities to make above-market organic growth powered by Customer-Back Innovation a defining strength.
Customer-Back Innovation drives growth: Management said its focus on Customer-Back Innovation is enabling consistent above-market organic growth. Source
ITW Business Model cited: Management attributed the quarter to the strength of the ITW Business Model and the resilience of the diversified portfolio. Source

People and leadership

Colleagues credited with execution: The CEO credited colleagues worldwide with high-quality execution during the quarter. Source
About 44,000 colleagues worldwide: The release states the company has approximately 44,000 dedicated colleagues and a decentralized, entrepreneurial culture. Source
CEO named as spokesperson: Christopher A. O’Herlihy is named as the company’s President and Chief Executive Officer in the quarter’s results commentary. Source

Coming up, as management said on 24 October 2025

Final quarter of 2025: Management said the company is heading into the final quarter of 2025 with the full-year EPS range narrowed to $10.40 to $10.50. Source
Full-year share repurchases planned: Management plans about $1.5 billion of share repurchases for the full year 2025. Source

Risks management discussed

External: Tariff cost impacts are a cost pressure that management says it intends to offset through pricing and supply chain actions. Source
Operational: Product line simplification reduced third-quarter revenue by 1 percent. Source
Demand: Guidance is set against the current demand environment. Source

Earlier plans management reported on

Not stated: In the second quarter release, management referred to executing its Next Phase growth priorities.
Not stated: The CEO said the company remains committed to delivering differentiated performance in any economic environment. Source
Not stated: Management said the dividend increase marks the 62nd consecutive year of dividend increases. Source

Other quarters

Summarised with AI from the documents the company filed with the SEC. Every point is checked against the filing before it is shown: management’s own words word for word, figures against the line or table row they come from. A point that fails the check is left out. Source opens the filing at that line.

As filed with the SEC

Open the filing on EDGAR

ITW Reports Third Quarter 2025 Results

Revenue of $4.1 billion, an increase of 2% with organic growth of 1%
Record operating margin of 27.4%, an expansion of 90 bps as enterprise initiatives contributed 140 bps
GAAP EPS of $2.81, an increase of 6% excluding prior year divestiture gain
Operating cash flow of $1 billion; free cash flow of $0.9 billion, an increase of 15%
Narrowing full year GAAP EPS guidance range to $10.40 to $10.50 per share

GLENVIEW, IL., October 24, 2025 - Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2025 results.

"The ITW team concluded the third quarter with solid operational and financial execution, delivering EPS of $2.81, which grew six percent year-over-year excluding the divestiture gain, alongside record operating margin of 27.4 percent, and a 15 percent increase in free cash flow. This outcome underscores the fundamental strength of the ITW Business Model, the inherent resilience of our diversified portfolio, and the high-quality execution demonstrated by our colleagues worldwide," said Christopher A. O’Herlihy, President and Chief Executive Officer.

"We are very pleased with the significant strategic progress made throughout the year, especially how our focus on excellence in Customer-Back Innovation is enabling consistent above-market organic growth. As we head into the final quarter, we are narrowing our full year EPS guidance range, and remain committed to delivering high-quality, differentiated performance in any economic environment."

Third Quarter 2025 Results

Third quarter revenue of $4.1 billion increased by two percent as organic revenue grew one percent. Foreign currency translation impact increased revenue by two percent and product line simplification reduced revenue by one percent.

GAAP EPS of $2.81 increased six percent excluding a divestiture gain of $1.26 in the prior year quarter. Operating income of $1.1 billion increased six percent. Operating margin improved 90 basis points to 27.4 percent as enterprise initiatives contributed 140 basis points, and six of seven segments expanded margins. Operating cash flow was $1.0 billion, and free cash flow increased 15 percent to $904 million with a conversion rate of 110 percent to net income. During the quarter, the company repurchased $375 million of its own shares and raised its dividend seven percent, bringing the annualized payout to $6.44 per share. This increase marks the 62 consecutive year of dividend increases. The effective tax rate for the quarter was 21.8 percent.

2025 Guidance

ITW is narrowing its full year 2025 GAAP EPS guidance range to $10.40 to $10.50. The company is projecting overall revenue growth of one to three percent, which incorporates organic growth of flat to two percent. This outlook accounts for the current demand environment, adjusted for ongoing pricing and supply chain actions intended to effectively offset tariff cost impacts and for current foreign exchange rates. Operating margin is projected to be in the range of 26 to 27 percent with a projected contribution of 125 basis points or more from enterprise initiatives. Free cash flow is expected to be approximately 100 percent of net income, and the company plans to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is approximately 23 percent.

Non-GAAP Measures This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow to net income conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of reliable forward-looking cash flow information. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.

Forward-looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding the potential impact of tariffs, the Company’s projected pricing actions, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted earnings per share, after-tax return on invested capital, effective tax rates, exchange rates, expected timing and amount of share repurchases, end market economic and regulatory conditions, and the Company’s 2025 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the Company’s expectations include those that are detailed in ITW’s Form 10-K for 2024 and subsequent reports filed with the SEC.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 300 global multi-industrial manufacturing leader with revenue of $15.9 billion in 2024. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 44,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions except per share amounts		2025		2024		2025		2024
Operating Revenue	$4,059		$3,966		$11,951		$11,966
Cost of revenue	2,253		2,230		6,685		6,637
Selling, administrative, and research and development expenses	676		658		2,075		2,020
Amortization and impairment of intangible assets	18		26		60		76
Operating Income	1,112		1,052		3,131		3,233
Interest expense	(75)		(69)		(217)		(215)
Other income (expense)	12		379		28		421
Income Before Taxes	1,049		1,362		2,942		3,439
Income Taxes	228		202		666		701
Net Income	$821		$1,160		$2,276		$2,738
Net Income Per Share:
Basic	$2.82		$3.92		$7.79		$9.20
Diluted	$2.81		$3.91		$7.77		$9.17
Cash Dividends Per Share:
Paid	$1.50		$1.40		$4.50		$4.20
Declared	$1.61		$1.50		$4.61		$4.30
Shares of Common Stock Outstanding During the Period:
Average	290.8		296.1		292.2		297.6
Average assuming dilution	291.7		297.0		293.0		298.5

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions	September 30, 2025	December 31, 2024
Assets
Current Assets:
Cash and equivalents	$924	$948
Trade receivables	3,255	2,991
Inventories	1,725	1,605
Prepaid expenses and other current assets	416	312
Total current assets	6,320	5,856
Net plant and equipment	2,203	2,036
Goodwill	5,028	4,839
Intangible assets	540	592
Deferred income taxes	573	369
Other assets	1,471	1,375
	$16,135	$15,067
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$1,267	$1,555
Accounts payable	608	519
Accrued expenses	1,567	1,576
Cash dividends payable	467	441
Income taxes payable	223	217
Total current liabilities	4,132	4,308
Noncurrent Liabilities:
Long-term debt	7,675	6,308
Deferred income taxes	149	119
Other liabilities	970	1,015
Total noncurrent liabilities	8,794	7,442
Stockholders' Equity:
Common stock	6	6
Additional paid-in-capital	1,751	1,669
Retained earnings	29,825	28,893
Common stock held in treasury	(26,498)	(25,375)
Accumulated other comprehensive income (loss)	(1,876)	(1,877)
Noncontrolling interest	1	1
Total stockholders' equity	3,209	3,317
	$16,135	$15,067

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended September 30, 2025
Dollars in millions	Total Revenue	Operating Income	Operating Margin
Automotive OEM	$830	$182	21.8%
Food Equipment	694	202	29.2%
Test & Measurement and Electronics	698	177	25.4%
Welding	477	156	32.6%
Polymers & Fluids	441	126	28.5%
Construction Products	473	149	31.6%
Specialty Products	452	146	32.3%
Intersegment	(6)	-	- %
Total Segments	4,059	1,138	28.0%
Unallocated	-	(26)	- %
Total Company	$4,059	$1,112	27.4%

Nine Months Ended September 30, 2025
Dollars in millions	Total Revenue	Operating Income	Operating Margin
Automotive OEM	$2,461	$513	20.8%
Food Equipment	2,001	557	27.8%
Test & Measurement and Electronics	2,036	473	23.2%
Welding	1,428	468	32.8%
Polymers & Fluids	1,308	361	27.6%
Construction Products	1,389	424	30.6%
Specialty Products	1,342	429	32.0%
Intersegment	(14)	-	- %
Total Segments	11,951	3,225	27.0%
Unallocated	-	(94)	- %
Total Company	$11,951	$3,131	26.2%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q3 2025 vs. Q3 2024 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Organic	5.0%	0.7%	(1.4)%	2.8%	(3.1)%	(2.3)%	1.6%	0.7%
Acquisitions/ Divestitures	- %	- %	- %	- %	- %	- %	- %	- %
Translation	2.3%	1.8%	1.7%	0.5%	1.3%	0.9%	1.7%	1.6%
Operating Revenue	7.3%	2.5%	0.3%	3.3%	(1.8)%	(1.4)%	3.3%	2.3%

Q3 2025 vs. Q3 2024 Favorable/(Unfavorable)
Change in Operating Margin	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	90 bps	10 bps	(30) bps	50 bps	(60) bps	(40) bps	20 bps	20 bps
Changes in Variable Margin & OH Costs	170 bps	50 bps	60 bps	10 bps	120 bps	190 bps	100 bps	80 bps
Total Organic	260 bps	60 bps	30 bps	60 bps	60 bps	150 bps	120 bps	100 bps
Acquisitions/ Divestitures	-	-	-	-	-	-	-	-
Restructuring/Other	(20) bps	20 bps	(60) bps	(30) bps	-	(10) bps	-	(10) bps
Total Operating Margin Change	240 bps	80 bps	(30) bps	30 bps	60 bps	140 bps	120 bps	90 bps
Total Operating Margin % *	21.8%	29.2%	25.4%	32.6%	28.5%	31.6%	32.3%	27.4%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	30 bps	-	130 bps	10 bps	140 bps	10 bps	20 bps	50 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.05) on GAAP earnings per share for the third quarter of 2025.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

YTD 2025 vs. YTD 2024 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Organic	2.0%	0.9%	(2.5)%	1.9%	(1.8)%	(5.6)%	0.9%	(0.4)%
Acquisitions/ Divestitures	- %	- %	- %	- %	- %	- %	- %	- %
Translation	0.4%	0.4%	0.9%	(0.2)%	(0.2)%	- %	0.2%	0.3%
Operating Revenue	2.4%	1.3%	(1.6)%	1.7%	(2.0)%	(5.6)%	1.1%	(0.1)%

YTD 2025 vs. YTD 2024 Favorable/(Unfavorable)
Change in Operating Margin	Automotive OEM	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	40 bps	20 bps	(80) bps	30 bps	(30) bps	(110) bps	20 bps	(10) bps
Changes in Variable Margin & OH Costs	110 bps	30 bps	30 bps	(20) bps	60 bps	160 bps	90 bps	(60) bps
Total Organic	150 bps	50 bps	(50) bps	10 bps	30 bps	50 bps	110 bps	(70) bps
Acquisitions/ Divestitures	-	-	(10) bps	-	-	-	-	-
Restructuring/Other	(20) bps	10 bps	(40) bps	10 bps	-	50 bps	-	(10) bps
Total Operating Margin Change	130 bps	60 bps	(100) bps	20 bps	30 bps	100 bps	110 bps	(80) bps
Total Operating Margin % *	20.8%	27.8%	23.2%	32.8%	27.6%	30.6%	32.0%	26.2%
* Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	30 bps	20 bps	140 bps	-	150 bps	10 bps	10 bps	50 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.16) on GAAP earnings per share for the first nine months of 2025.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Dollars in millions		2025		2024		2025		2024
Numerator:
Net Income	$821		$1,160		$2,276		$2,738
Net discrete tax benefit related to the third quarter 2025	(27)		-		(27)		-
Discrete tax benefit related to the first quarter 2025	-		-		(21)		-
Net discrete tax benefit related to the third quarter 2024	-		(121)		-		(121)
Interest expense, net of tax	57		53		165		164
Other (income) expense, net of tax	(10)		(288)		(22)		(320)
Operating income after taxes	$841		$804		$2,371		$2,461
Denominator:
Invested capital:
Cash and equivalents	$924		$947		$924		$947
Trade receivables	3,255		3,226		3,255		3,226
Inventories	1,725		1,817		1,725		1,817
Net plant and equipment	2,203		2,071		2,203		2,071
Goodwill and intangible assets	5,568		5,597		5,568		5,597
Accounts payable and accrued expenses	(2,175)		(2,211)		(2,175)		(2,211)
Debt	(8,942)		(8,346)		(8,942)		(8,346)
Other, net	651		291		651		291
Total net assets (stockholders' equity)	3,209		3,392		3,209		3,392
Cash and equivalents	(924)		(947)		(924)		(947)
Debt	8,942		8,346		8,942		8,346
Total invested capital	$11,227		$10,791		$11,227		$10,791
Average invested capital	$11,293		$10,682		$10,863		$10,466
Net income to average invested capital	29.1%		43.4%		27.9%		34.9%
After-tax return on average invested capital	29.8%		30.0%		29.1%		31.3%

Effective tax rate used for interest expense and other (income) expense for the three months ended September 30, 2025 and 2024 was 24.3% and 23.7%, respectively. Effective tax rate used for interest expense and other (income) expense for the nine months ended September 30, 2025 and 2024 was 24.3% and 23.9%, respectively.

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

Returns for the three months ended September 30, 2025 and 2024 were converted to an annual rate by multiplying the calculated return by 4. Returns for the nine months ended September 30, 2025 and 2024 were converted to an annual rate by dividing the calculated return by 3 and multiplying it by 4.

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2025, excluding the third quarter 2025 net discrete tax benefit of $27 million, which included a favorable discrete tax benefit of $43 million related to the estimated U.S. federal tax liability for 2024, partially offset by a $16 million discrete tax expense related primarily to the resolution of a foreign tax audit, and excluding the first quarter 2025 discrete tax benefit of $21 million related to the reversal of a valuation allowance on net operating loss carryforwards, is as follows:

	Three Months Ended		Nine Months Ended
	September 30, 2025		September 30, 2025
Dollars in millions	Income Taxes	Tax Rate	Income Taxes	Tax Rate
As reported	$228	21.8%	$666	22.7%
Net Discrete tax benefit related to the third quarter 2025	27	2.5%	27	0.9%
Discrete tax benefit related to the first quarter 2025	-	- %	21	0.7%
As adjusted	$255	24.3%	$714	24.3%

After-tax ROIC for the nine months ended September 30, 2024 included 110 basis points of favorable impact related to the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax) in the first quarter of 2024.

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2024, excluding the third quarter 2024 net discrete tax benefit of $121 million, which included favorable discrete tax benefits of $107 million related to the utilization of capital loss carryforwards upon the sale of Wilsonart and $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, is as follows:

	Three Months Ended		Nine Months Ended
	September 30, 2024		September 30, 2024
Dollars in millions	Income Taxes	Tax Rate	Income Taxes	Tax Rate
As reported	$202	14.9%	$701	20.4%
Net discrete tax benefit related to the third quarter 2024	121	8.8%	121	3.5%
As adjusted	$323	23.7%	$822	23.9%

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

	Twelve Months Ended
Dollars in millions	December 31, 2024
Numerator:
Net income	$3,488
Net discrete tax benefit related to the third quarter 2024	(121)
Interest expense, net of tax	215
Other (income) expense, net of tax	(336)
Operating income after taxes	$3,246
Denominator:
Invested capital:
Cash and equivalents	$948
Trade receivables	2,991
Inventories	1,605
Net plant and equipment	2,036
Goodwill and intangible assets	5,431
Accounts payable and accrued expenses	(2,095)
Debt	(7,863)
Other, net	264
Total net assets (stockholders' equity)	3,317
Cash and equivalents	(948)
Debt	7,863
Total invested capital	$10,232
Average invested capital	$10,419
Net income to average invested capital	33.5%
After-tax return on average invested capital	31.2%

Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2024 was 23.8%.

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

A reconciliation of the 2024 effective tax rate excluding the third quarter 2024 net discrete tax benefit of $121 million, which included favorable discrete tax benefits of $107 million related to the utilization of capital loss carryforwards upon the sale of Wilsonart and $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, is as follows:

	Twelve Months Ended
	December 31, 2024
Dollars in millions	Income Taxes	Tax Rate
As reported	$934	21.1%
Net discrete tax benefit related to the third quarter 2024	121	2.7%
As adjusted	$1,055	23.8%

FREE CASH FLOW (UNAUDITED)

	Three Months Ended					Nine Months Ended				Twelve Months Ended
	September 30,					September 30,				December 31,
Dollars in millions		2025		2024			2025		2024		2024
Net cash provided by operating activities	$1,021		$891			$2,163		$2,167		$3,281
Less: Additions to plant and equipment	(117)		(108)			(314)		(319)		(437)
Free cash flow	$904		$783			$1,849		$1,848		$2,844
Net income	$821		$1,160			$2,276		$2,738		$3,488
Net cash provided by operating activities to net income conversion rate	124%		77%			95%		79%		94%
Free cash flow to net income conversion rate	110%		68%		(1)	81%		67%		82%		(2)

Excluding the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes, and a discrete tax benefit of $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, the free cash flow to net income conversion rate would have been 102% for the three months ended September 30, 2024.

Excluding the impact of the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses ($117 million pre-tax, or $88 million after-tax), the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes, and a discrete tax benefit of $87 million related to a reorganization of the Company's intellectual property, partially offset by a $73 million discrete tax expense related to the remeasurement of unrecognized tax benefits associated with various intercompany transactions, the free cash flow to net income conversion rate would have been 94% for the twelve months ended December 31, 2024.

ADJUSTED NET INCOME PER SHARE - DILUTED (UNAUDITED)

	Three Months Ended	Twelve Months Ended
	September 30, 2024	December 31, 2024
As reported	$3.91	$11.71
Cumulative effect of change in inventory accounting method, net of tax	-	(0.30)
Impact of sale of noncontrolling interest in Wilsonart	(1.26)	(1.26)
As adjusted	$2.65	$10.15

Represents the cumulative effect of the change from the LIFO method of accounting to the FIFO method for certain U.S. businesses in the first quarter of 2024 ($117 million pre-tax, or $88 million after-tax).

Includes the $363 million pre-tax gain on the sale of noncontrolling interest in Wilsonart and related taxes in the third quarter of 2024.