Illinois Tool Works Inc

ITWCIK 0000049826 · Every Form 4 filed by insiders at this issuer. See financials →

Annual report (10-K)

Latest 10-K filed Feb 13, 2026. Sentiment + YoY language diff vs prior year. Read sections →

Signal:Neutral

Risk Factors:tone -0.0498Δ-0.000199% similar+4/-4 ¶

MD&A:tone 0.0016Δ+0.001994% similar+79/-90 ¶

Sentiment via Loughran-McDonald lexicon · YoY diff via Jaccard similarity + paragraph set difference.

Recent 8-K announcements

Per-item disclosure feed. Item 2.02 is the earnings release.

May 22, 20265.02 · Departure/Election May 12, 2026no items parsed Apr 30, 2026no items parsed Feb 23, 2026no items parsed Feb 3, 2026no items parsed

YoY shift: Neutral

Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.09pp more bullish than last year's.

Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.

Tone shift by section

The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.

Risk Factors

-0.01pp

Flat

Net-tone change vs last year's 10-K.

MD&A

+0.19pp

Flat

Net-tone change vs last year's 10-K.

Per-snippet highlights

Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.

Language change vs prior 10-K

Risk Factors (Item 1A) - words with the biggest YoY frequency increase

Negative rising

retaliatory+1
countermeasures+1

Positive rising

beautiful+1

Risk Factors (Item 1A)

3,672 words

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 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.

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. 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 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.

Rising interest rates could have a dampening effect on overall economic activity and/or the financial condition of the Company's customers, either or both of which could negatively affect customer demand for the Company's products and customers' ability to repay obligations to the Company. Rising interest rates could have an impact on the Company and its customers' cost of capital.

The global nature of the Company's operations subjects it to political, economic and social risks that could adversely affect its business, results of operations or financial condition.

Over 50% of the Company's net sales are derived from customers outside the United States, and the Company currently operates in 49 countries. The 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.

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. Further changes in U.S. trade policy (including new or additional increases in duties or tariffs) and retaliatory actions by U.S. trade partners, including sanctions against Russia and developments in U.S.-China trade relations, could result in a worsening of economic conditions. If the Company is unable to successfully manage the risks associated with managing and expanding its international businesses, the Company's business, results of operations or financial condition may be adversely impacted.

A significant fluctuation between the U.S. Dollar and other currencies could adversely impact the Company's operating income.

Although the Company's financial results are reported in U.S. Dollars, a significant portion of its sales and operating costs are realized in other currencies, with the largest concentration of foreign sales occurring in Europe. The Company's profitability is affected by movements of the U.S. Dollar against the Euro and other foreign currencies in which it generates revenues and incurs expenses. Significant long-term fluctuations in relative currency values, and in particular, an increase in the value of the U.S. Dollar against foreign currencies, has had and could have an adverse effect on profitability and financial condition.

Business and Operational Risks

The benefits from the Company's enterprise strategy may not be as expected and the Company's financial results could be adversely impacted, or the Company may not meet its long-term financial performance targets.

As the Company continues to execute on its enterprise strategy initiatives, it remains focused on the core principles of portfolio discipline, 80/20 Front-to-Back practice excellence, and organic growth. Product line and customer base simplification activities, which are core elements of the Company's 80/20 Front-to-Back process, continue to be applied by the Company's operating divisions and are active elements of the enterprise strategy. Although these activities are expected to improve future operating margins and organic revenue growth, they are also expected to have a negative impact on the Company's overall organic revenue growth in the short term. 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. If the Company is unable to realize the expected benefits from its enterprise strategy initiatives, the Company's financial results could be adversely impacted, or the Company may not meet its long-term financial performance targets.

The timing and amount of the Company's share repurchases are subject to a number of uncertainties.

Share repurchases constitute a significant component of the Company's capital allocation strategy. The Company has historically funded its share repurchases with free cash flow and short-term borrowings. The amount and timing of share repurchases will be based on a variety of factors. Important factors that could cause the Company to limit, suspend or delay its share repurchases include unfavorable trading market conditions, the price of the Company's common stock, the nature of other investment opportunities presented to the Company from time to time, regulatory developments relating to share repurchase programs, the ability to obtain financing at attractive rates and the availability of U.S. cash.

If the Company is unable to successfully introduce new products, its future growth may be adversely affected.

The Company's ability to develop new products based on innovation can affect its competitive position and sometimes requires the investment of significant time and resources. Difficulties or delays in research, development, production or commercialization of new products and services or in the adoption of technological change, such as the use of artificial intelligence and machine learning, 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.

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 owns patents, trade secrets, copyrights, trademarks and/or other intellectual property rights related to many of its products, and also has exclusive and non-exclusive license rights under intellectual property owned by others. The Company's intellectual property rights may be challenged or the Company may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms. 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.

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. A number of factors may result in impairments to goodwill and other intangible assets, including significant negative industry or economic trends, disruptions to our business, increased competition and significant changes in the use of the assets. Impairment charges could adversely affect the Company's financial condition or results of operations in the periods recognized.

Raw material price increases and supply shortages could adversely affect results.

The supply of raw materials to the Company and to its component parts suppliers could be interrupted for a variety of reasons, including availability and pricing. Prices for raw materials have fluctuated significantly in the past and the Company has experienced upward pricing pressure on specialty materials such as high labor-content fabrications. Significant price increases could adversely affect the Company's results of operations and operating margins. 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 the Russia and Ukraine conflict) and severe weather events could adversely impact the price or availability of raw materials. The Company may not be able to pass along increased raw material and components parts prices to its customers in the form of price increases or its ability to do so could be delayed. Consequently, its results of operations and financial condition may be adversely affected.

The Company's defined benefit pension plans are subject to financial market risks that could adversely affect its results of operations and cash flows.

The performance of financial markets and interest rates impact the Company's funding obligations under its defined benefit pension plans. Significant changes in market interest rates, decreases in the fair value of plan assets and investment losses on plan assets may increase the Company's funding obligations and adversely impact its results of operations and cash flows.

If the Company is unable to protect its information technology infrastructure against service interruptions, data corruption, cyber-based attacks or network security breaches, or if there is a violation of data privacy laws, there could be a negative impact on operating results or the Company may suffer financial or reputational damage.

The Company relies on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including procurement, manufacturing, distribution, invoicing and collection. These technology networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; hardware failures; computer viruses; employee error or malfeasance; and attacks by computer hackers, which have continued to increase on a global scale in both magnitude and frequency, taken on novel and unprecedented forms and become more difficult to detect. The risk and severity of cybersecurity attacks could increase as artificial intelligence is used by threat actors to identify vulnerabilities and conduct increasingly sophisticated attacks. Minor security breaches have occurred from time to time and are expected to occur in the future. Although the cyber-attacks experienced to date have not had a material impact, future security breaches of our technology networks and systems or those of our vendors and third-party service providers could result in unauthorized disclosure of confidential information or personal data belonging to our employees, partners, customers or suppliers, which could cause reputational and legal harm as we are subject to data privacy laws, including the EU General Data Protection Regulation, in the various countries in which we operate. 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.

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.

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 and could choose to acquire additional businesses in the future. Acquisitions involve a number of risks and financial, accounting, managerial and operational challenges, including the following, any of which could adversely affect the Company's profitability and returns:

• The acquired business' inability to adapt to the ITW Business Model or otherwise perform in accordance with the Company's anticipated results or timetable, could cause it to under perform relative to the Company's expectations and the price paid for it.

• The acquired business could cause the Company's financial results to differ from expectations in any given fiscal period, or over the long term.

• Acquisition-related earnings charges could adversely impact operating results.

• The acquired business could place unanticipated demands on the Company's management, operational resources and financial and internal control systems.

• The Company may assume unknown liabilities, known contingent liabilities that become realized or known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the activities of the acquired business. The realization of any of these liabilities or deficiencies may increase the Company's expenses, adversely affect its financial position or cause noncompliance with its financial reporting obligations.

• As a result of acquisitions, the Company has in the past recorded significant goodwill and other identifiable intangible assets on its balance sheet. If the Company is not able to realize the value of these assets, it may recognize charges relating to the impairment of these assets.

Divestitures pose the risk of retained liabilities that could adversely affect the Company's financial results.

The Company has had significant divestiture activity in the past in accordance with its portfolio management initiative. It divested one business in the first quarter of 2023 as it continues portfolio refinements to maintain portfolio discipline. The Company has retained certain liabilities directly or through indemnifications made to the buyers against known and unknown contingent liabilities such as lawsuits, tax liabilities, product liability claims and environmental matters, which could adversely affect the Company's financial results.

Tax, Legal and Regulatory Risks

Unfavorable tax law changes and tax authority rulings may adversely affect results.

The Company is subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are based on the income and expenses in various tax jurisdictions. The Company's effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets or changes in tax laws. The amount of income taxes is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from amounts recorded, future financial results may include unfavorable tax adjustments.

Adverse outcomes in legal proceedings or enforcement actions may adversely affect results.

The Company's businesses expose it to potential costs and adverse rulings associated with commercial, intellectual property, employment, toxic tort and other product liability claims and lawsuits. The Company's global operations also subject it to government investigations in numerous countries. We cannot predict the outcome of claims, investigations and lawsuits and we may incur costs, judgments or fines or enter into settlements that could adversely impact our businesses, reputation or future financial results. The Company currently maintains insurance programs consisting of self-insurance up to certain limits and excess insurance coverage for claims over established limits. There can be no assurance that the Company will be able to obtain insurance on acceptable terms or that its insurance programs will provide adequate protection against actual losses. In addition, the Company is subject to the risk that one or more of its insurers may become insolvent and become unable to pay claims that may be made 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.

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. These regulations or standards could mandate even more restrictive requirements, such as stricter limits on greenhouse gas emissions and production of single use plastics, than the voluntary commitments that the Company has made or require such changes on a more accelerated time frame. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. In addition, the physical risks of climate change may impact the availability and cost of materials and natural resources, sources and supply of energy, product demand and manufacturing and could increase insurance and other operating costs, including, potentially, to repair damage incurred as a result of extreme weather events or to renovate or retrofit facilities to better withstand extreme weather events. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon the Company or its products, or the Company's operations are disrupted due to physical impacts of climate change, the Company's business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted.

The Company may incur fines or penalties, damage to its reputation or other adverse consequences if its employees, agents or business partners violate anti-bribery, competition, export and import, trade sanctions, data privacy, environmental, artificial intelligence, human rights or other laws.

The Company has a decentralized operating structure under which its individual businesses are allowed significant decision-making autonomy within the Company's strategic framework and internal financial and compliance controls. 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, the use of artificial intelligence in our business and in our products and services, and human rights laws. Although the Company has implemented compliance programs which include internal controls, internal audits, 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. 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. 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, the current and expected impact of U.S. trade policy, including tariffs and related retaliatory countermeasures, the expected impact of the One Big Beautiful Bill Act, 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, the Company's 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 interest rate changes, the impact of failure of the Company's employees to comply with applicable laws and regulations, and the outcome of outstanding legal proceedings. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results include those risks described above. 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. 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.

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

Language change vs prior 10-K

MD&A (Item 7) - words with the biggest YoY frequency increase

Negative rising

declined+6
retaliated+1

Positive rising

benefit+5
effective+3
favorable+1
improving+1
beautiful+1

MD&A (Item 7)

13,803 words

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 88 divisions in 49 countries. As of December 31, 2025, the Company employed approximately 43,000 people.

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

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

THE ITW BUSINESS MODEL

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

• ITW's 80/20 Front-to-Back process is the operating system that is applied in every ITW business. Initially introduced as a manufacturing efficiency tool in the 1980s, ITW has continually refined, improved and expanded 80/20 into a proprietary, holistic business management process that generates significant value for the Company and its customers. Through the application of data driven 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. The Company's unique innovation approach is built on insight gathered from the 80/20 Front-to-Back process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their "80" customers. ITW's innovation efforts are focused on understanding customer needs, particularly those in "80" markets with solid long-term growth fundamentals, and creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 21,800 granted and pending patents; and

• ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive. ITW businesses have significant flexibility within the framework of the ITW Business Model to customize their approach in order to best serve their specific customers' needs. ITW colleagues recognize their unique responsibilities to execute the Company's strategy and values. As a result, the Company maintains a focused and simple organizational structure that, combined with outstanding execution, delivers best-in-class services and solutions adapted to each business' customers and end markets.

ENTERPRISE STRATEGY: 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. The Company undertook a complete review of its performance, focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, and developing a strategy to replicate that performance across its operations. ITW determined that solid and consistent above-market organic growth is the core growth engine to deliver world-class financial performance and compelling long-term returns for its shareholders.

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. 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. ITW now has 88 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.

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. At the same time, these 80/20 initiatives may also result in restructuring initiatives that reduce costs and improve profitability and returns.

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. 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.

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. 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. CBI successes, coupled with underlying market growth and share gains, are how the Company intends to achieve its high-quality organic growth .

During the Next Phase, ITW will continue to drive 80/20 Front-to-Back practice excellence in every division in the Company, every day, further improving customer-facing performance and supporting additional structural margin expansion at the enterprise level.

Portfolio Discipline

The Company only operates in industries where it can generate significant, long-term competitive advantage from the ITW Business Model. ITW businesses have the right "raw material" in terms of market and business attributes that best fit the ITW Business Model and have significant potential to drive above-market organic growth over the long-term.

The Company focuses on high-quality businesses, ensuring it operates in markets with positive long-term macro fundamentals and with customers that have critical needs and value ITW's differentiated products, services and solutions. ITW's portfolio operates in highly diverse end markets and geographies which makes the Company more resilient in the face of uncertain or volatile market environments.

The Company routinely evaluates its portfolio to ensure it delivers sustainable differentiation and drives consistent long-term performance. This includes both implementing portfolio refinements and assessing selective high-quality acquisitions to supplement ITW's long-term growth potential.

In the fourth quarter of 2022, plans were approved to divest one business in the Specialty Products segment. This business was presented as held for sale beginning in the fourth quarter of 2022. This business was sold on April 3, 2023, with no significant gain or loss upon sale. Operating revenue related to this business that was included in the Company's results of operations was $9 million for the twelve months ended December 31, 2023. Refer to Note 3. Divestitures in Item 8. Financial Statements and Supplementary Data for further information regarding the Company's divestitures.

On January 2, 2024, the Company completed the acquisition of one business in the Test & Measurement and Electronics segment for $57 million, net of cash acquired. On April 1, 2024, the Company completed the acquisition of one business in the Test & Measurement and Electronics segment for $59 million, net of cash acquired. The Company has completed the allocation of purchase price for both of these acquisitions. On October 1, 2025, the Company completed the acquisition of one business in the Test & Measurement and Electronics segment for $120 million, net of cash acquired, and subject to certain closing adjustments. The allocation of purchase price for this acquisition will be completed as soon as practicable, but no later than one year from the acquisition date. These acquisitions were not material, individually or in the aggregate, to the Company's results of operations, financial position or cash flows. Refer to Note 2. Acquisitions in Item 8. Financial Statements and Supplementary Data for further information regarding the Company's acquisitions.

On August 5, 2024, the Company entered into a purchase agreement with affiliates of Clayton, Dubilier & Rice, LLC ("CD&R") for the sale of the Company's noncontrolling equity interest in Wilsonart International Holdings LLC ("Wilsonart") for $398 million. The transaction closed immediately after the execution of the purchase agreement. Proceeds from the transaction, net of transaction costs, were $395 million, resulting in a pre-tax gain of $363 million which was included in Other income (expense) in the Statement of Income. Income taxes on the gain were more than offset by a discrete tax benefit of $107 million in the third quarter of 2024 related to the utilization of capital loss carryforwards upon the sale of Wilsonart. Refer to Note 5. Other Income (Expense) and Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for additional information regarding this transaction.

TERMS USED BY ITW

Management uses the following terms to describe the financial results of operations of the Company:

• Organic business - acquired businesses that have been included in the Company's results of operations for more than 12 months on a constant currency basis.

• Operating leverage - the estimated effect of the organic revenue volume changes on organic operating income, assuming variable margins remain the same as the prior period.

• Price/cost - represents the estimated net impact of increases or decreases in the cost of materials used in the Company's products versus changes in the selling price to the Company's customers.

• Product line simplification ("PLS") - focuses businesses on eliminating the complexity and overhead costs associated with smaller product lines and customers, and focuses businesses on supporting and growing their largest customers and product lines. In the short-term, PLS may result in a decrease in revenue and overhead costs while improving operating margin. In the long-term, PLS is expected to result in growth in revenue, profitability, and returns.

Unless otherwise stated, the changes in financial results in the consolidated results of operations and the results of operations by segment represent the current year period versus the comparable period in the prior year.

CONSOLIDATED RESULTS OF OPERATIONS

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 net assets of approximately $38 million as of December 31, 2025. The revenue for these four subsidiaries for the twelve months ended December 31, 2025 was approximately $24 million. These subsidiaries were not material to the Company's results of operations or financial position.

During the first quarter of 2024, the Company changed the method used to determine the cost of inventory at certain U.S. businesses from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") method, as the Company believes the FIFO method is preferable because it provides a more consistent method for valuing inventory across the Company's operations, improves comparability with peers, and better reflects the current value of inventories at the balance sheet date. The LIFO provision for the year ended December 31, 2023 was $6 million of expense, and was not material to the Company’s results of operations, financial position or cash flows. Therefore, the Company recorded the pre-tax cumulative effect of this change in accounting method of $117 million as a reduction of Cost of revenue in the first quarter of 2024. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Data for additional information regarding this change in accounting method and the Company's inventory balances.

On August 5, 2024, the Company entered into a purchase agreement with affiliates of CD&R for the sale of the Company's noncontrolling equity interest in Wilsonart. The transaction closed immediately after the execution of the purchase agreement. Proceeds from the transaction, net of transaction costs, were $395 million, resulting in a pre-tax gain of $363 million which was included in Other income (expense) in the Statement of Income. Income taxes on the gain were more than offset by a discrete tax benefit of $107 million in the third quarter of 2024 related to the utilization of capital loss carryforwards upon the sale of Wilsonart. Refer to Note 5. Other Income (Expense) and Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for additional information regarding this transaction.

On April 2, 2025, the United States government announced additional tariffs on goods imported to the U.S. from numerous countries. In response, certain countries retaliated with additional counter-tariffs or are working to negotiate with the U.S government regarding tariffs. Tariffs on goods from many countries became effective on August 1, 2025. The Company believes it is well positioned to minimize the impact of these tariffs because its businesses generally manufacture products in the markets where they are sold and the Company expects to recover the increased cost of tariffs through price increases. However, current tariff policies have introduced additional uncertainty and may negatively impact overall demand from the Company's customers. The Company continues to assess the impact of the tariffs and actions that can be taken to moderate and/or minimize their effects on the Company.

On July 4, 2025, the One Big Beautiful Bill Act (the "OBBBA") was enacted in the United States, which extended and modified certain provisions of the 2017 Tax Cuts and Jobs Act (the "TCJA"). The provisions of the OBBBA did not have any impact on the Company's operating results, financial position or cash flows for the twelve months ended December 31, 2025, and is not expected to have a material impact on future periods.

In 2025, the Company delivered solid financial results in a challenging and dynamic environment primarily due to the strong execution on enterprise initiatives as an outcome of the highly differentiated ITW Business Model.

Operating Revenue

Refer to the "Results of Operations for Total Company" and the "Results of Operations by Segment" sections for discussion of changes in operating revenue for 2025 compared to 2024 and 2024 compared to 2023.

Operating Expenses

Dollars in millions

Operating Revenue

Cost of revenue

Percent of operating revenue

Selling, administrative, and research and development expenses

Percent of operating revenue

Amortization and impairment of intangible assets

Percent of operating revenue

Cost of revenue was $8.97 billion in 2025, $8.86 billion in 2024 and $9.32 billion in 2023. Cost of revenue increased 1.2% in 2025 compared to 2024. Excluding the first quarter 2024 LIFO accounting method change of $117 million, Cost of revenue decreased 0.1% in 2025 compared to 2024 primarily due to benefits from the Company's enterprise initiatives, partially offset by higher employee-related expenses. Cost of revenue, excluding the first quarter 2024 LIFO accounting method change, as a percent of operating revenue improved in 2025 compared to 2024 primarily due to benefits from the Company's enterprise initiatives, partially offset by higher employee-related expenses. Cost of revenue was 4.9% lower in 2024 compared to 2023 primarily due to lower revenue and the first quarter 2024 LIFO accounting method change, which reduced cost of revenue by 3.1% and 1.3%, respectively. Cost of revenue as a percent of operating revenue improved in 2024 compared to 2023 primarily due to the LIFO accounting method change and benefits from the Company's enterprise initiatives, partially offset by higher employee-related expenses.

Selling, administrative, and research and development expenses were $2.78 billion in 2025, $2.68 billion in 2024 and $2.64 billion in 2023. Selling, administrative, and research and development expenses in 2025 increased 3.9% compared to 2024 primarily due to higher employee-related expenses and higher research and development expenses, partially offset by benefits from the Company's enterprise initiatives. Expenses in 2024 increased 1.4% compared to 2023 primarily driven by higher employee-related expenses and the impact of acquisitions in 2024. Selling, administrative, and research and development expenses as a percent of operating revenue were higher in 2024 compared to 2023, as higher employee-related expenses and the unfavorable impact of acquisitions in the first and second quarters of 2024 were partially offset by benefits from the Company's enterprise initiatives.

Amortization and impairment of intangible assets was $80 million in 2025, $101 million in 2024 and $113 million in 2023. The decreased expense in each respective period was primarily due to fully amortized intangible assets.

Refer to the "Results of Operations for Total Company" and the "Results of Operation by Segment" sections for additional discussion of operating results for 2025 compared to 2024 and 2024 compared to 2023.

RESULTS OF OPERATIONS FOR TOTAL COMPANY

The Company's consolidated results of operations for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/

Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

(50) bps

• Operating revenue increased primarily due to the favorable effect of foreign currency translation.

• Organic revenue was flat as growth in the Automotive OEM, Welding, Food Equipment and Specialty Products segments was offset by a decline in the Construction Products, Test & Measurement and Electronics and Polymers & Fluids segments. Product line simplification activities reduced organic revenue by 60 basis points.

◦ North American organic revenue declined 0.7% as a decrease in the Construction Products, Test & Measurement and Electronics, Automotive OEM and Polymers & Fluids segments was partially offset by growth in the Food Equipment, Welding and Specialty Products segments.

◦ Europe, Middle East and Africa organic revenue decreased 2.2% as a decline in the Test & Measurement and Electronics, Construction Products, Automotive OEM, Polymers & Fluids and Food Equipment segments was partially offset by growth in the Specialty Products and Welding segments.

◦ Asia Pacific organic revenue grew 6.3% as growth in the Automotive OEM, Test & Measurement and Electronics, Welding, Polymers & Fluids and Specialty Products segments was partially offset by a decline in the Construction Products and Food Equipment segments. Organic revenue in China increased 8.7% as growth in the Automotive OEM, Test & Measurement and Electronics, Welding, Polymers & Fluids and Specialty Products segments was partially offset by a decline in the Food Equipment and Construction Products segments.

• Operating income of $4.2 billion declined 1.1%, or increased 1.7% excluding the $117 million favorable impact of the LIFO accounting method changed discussed previously.

• Operating margin of 26.3% decreased 50 basis points. Excluding the 70 basis points of favorable impact from the LIFO accounting method change in the first quarter of 2024, operating margin increased 20 basis points primarily driven by benefits from the Company's enterprise initiatives of 130 basis points and favorable price/cost of 10 basis points, partially offset by higher employee-related expenses, including higher health and welfare expenses.

• The Company's effective tax rate for 2025 and 2024 was 22.7% and 21.1%, respectively. The effective tax rate for 2025 included a discrete tax benefit of $21 million in the first quarter of 2025 related to the reversal of a valuation allowance on net operating loss carryforwards. Additionally, the 2025 effective tax rate benefited from a discrete tax benefit in the third quarter of 2025 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. The 2024 effective tax rate benefited from discrete income tax benefits during the third quarter of 2024 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. Refer to Note 5. Other Income (Expense) and Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for additional information regarding these transactions. Additionally, the effective tax rates for 2025 and 2024 included discrete income tax benefits of $8 million and $14 million, respectively, related to excess tax benefits from stock-based compensation.

• Diluted earnings per share ("EPS") of $10.49 in 2025 decreased 10.4%, or increased 3.3% excluding the favorable impact of $1.26 from the third quarter 2024 Wilsonart transaction and the favorable impact from the first quarter 2024 LIFO accounting method change of $0.30.

• The Company repurchased approximately 6.0 million shares of its common stock in 2025 for approximately $1.5 billion.

• The Company increased the quarterly dividend on common stock from $1.50 to $1.61 per share in 2025, or from $6.00 to $6.44 per share on an annualized basis. Total cash dividends of approximately $1.8 billion were paid in 2025.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/

Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

170 bps

(10) bps

10 bps

170 bps

• Operating revenue decreased primarily due to lower organic revenue and the unfavorable effect of foreign currency translation.

• Organic revenue declined 0.7% as a decrease in the Construction Products, Welding, Test & Measurement and Electronics and Automotive OEM segments was partially offset by growth in the Specialty Products, Food Equipment and Polymers & Fluids segments. Product line simplification activities reduced organic revenue by 60 basis points.

◦ North American organic revenue decreased 2.4% as a decline in six segments was partially offset by growth in the Specialty Products segment.

◦ Europe, Middle East and Africa organic revenue declined 0.3% as a decrease in the Automotive OEM, Construction Products and Test & Measurement and Electronics segments was partially offset by growth in the Specialty Products, Food Equipment, Polymers & Fluids and Welding segments.

◦ Asia Pacific organic revenue grew 3.0% as growth in six segments was partially offset by a decline in the Construction Products segment. Organic revenue in China increased 6.9% as growth in five segments was partially offset by a decline in the Construction Products and Test & Measurement and Electronics segments.

• Operating income of $4.3 billion grew 5.5%, or 2.6% excluding the $117 million favorable impact of the LIFO accounting method changed discussed previously.

• Operating margin of 26.8% increased 170 basis points. Excluding the 70 basis points of favorable impact from the LIFO accounting method change in the first quarter of 2024, operating margin increased 100 basis points primarily driven by benefits from the Company's enterprise initiatives of 130 basis points and favorable price/cost of 40 basis points, partially offset by higher employee-related expenses.

• The Company's effective tax rate for 2024 and 2023 was 21.1% and 22.6%, respectively. The 2024 effective tax rate benefited from discrete income tax benefits during the third quarter of 2024 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. Refer to Note 5. Other Income (Expense) and Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for additional information regarding these transactions. The 2023 effective tax rate benefited from a discrete income tax benefit of $20 million in the second quarter of 2023 related to amended 2021 U.S. taxes. Additionally, the effective tax rates for 2024 and 2023 included discrete income tax benefits of $14 million and $20 million, respectively, related to excess tax benefits from stock-based compensation.

• Diluted earnings per share ("EPS") of $11.71 in 2024 increased 20.2%, or 4.2% excluding the favorable impact from the first quarter 2024 LIFO accounting method change of $0.30 and the favorable impact of $1.26 from the third quarter 2024 Wilsonart transaction.

• The Company repurchased approximately 5.9 million shares of its common stock in 2024 for approximately $1.5 billion.

• The Company increased the quarterly dividend on common stock from $1.40 to $1.50 per share in 2024, or from $5.60 to $6.00 per share on an annualized basis. Total cash dividends of approximately $1.7 billion were paid in 2024.

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

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total segments

Intersegment revenue

Total

Operating Income

In millions

Automotive OEM

Food Equipment

Test & Measurement and Electronics

Welding

Polymers & Fluids

Construction Products

Specialty Products

Total segments

Unallocated

Total

Segments are allocated a fixed overhead charge based on the segment's revenue. Expenses not charged to the segments are reported separately as Unallocated. Because the Unallocated category includes a variety of items, it is subject to fluctuations on a quarterly and annual basis. Unallocated expenses in 2025 included higher employee-related expenses, including health and welfare expenses and insurance-related expenses as compared to 2024. Unallocated expenses in 2024 included the favorable pre-tax cumulative effect of the LIFO accounting method change of $117 million in the first quarter of 2024. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Data for additional information regarding this change in accounting method and the Company's inventory balances.

AUTOMOTIVE OEM

This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

• plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.

The results of operations for the Automotive OEM segment for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

150 bps

• Operating revenue increased due to higher organic revenue and the favorable effect of foreign currency translation.

• Organic revenue grew 2.0% compared to worldwide auto builds which increased 4%. Auto builds, for original equipment manufacturers in geographies where the Company has a higher concentration of revenue, increased 1%. Product line simplification activities reduced organic revenue by 120 basis points.

◦ North American revenue declined 2.1% compared to North American auto builds which decreased 1% primarily due to customer mix and product line simplification activities.

◦ European organic revenue decreased 1.2% compared to European auto builds which declined 1% primarily due to customer mix and product line simplification activities.

◦ Asia Pacific organic revenue grew 10.6%. China organic revenue increased 11.8%, including growth in the electric vehicles market and market penetration gains with Chinese original equipment manufacturers, versus China auto builds which grew 10%. Auto builds of foreign automotive manufacturers in China, where the Company has higher content per vehicle, declined 5%.

• Operating margin of 21.1% increased 150 basis points primarily driven by benefits from the Company's enterprise initiatives, positive operating leverage of 40 basis points and favorable price/cost of 10 basis points, partially offset by higher employee-related expenses and continued investment in the business.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

230 bps

180 bps

50 bps

230 bps

• Operating revenue decreased due to the unfavorable effect of foreign currency translation and lower organic revenue.

• Organic revenue declined 0.4% compared to worldwide auto builds which decreased 1%. Product line simplification activities reduced organic revenue by 70 basis points.

◦ North American revenue decreased 5.1% compared to North American auto builds which declined 1% primarily due to customer mix and product line simplification activities. Auto builds for the Detroit 3, where the Company has higher content, decreased 4%.

◦ European organic revenue declined 3.4% compared to European auto builds which decreased 5% primarily due to market penetration gains.

◦ Asia Pacific organic revenue grew 9.7%. China organic revenue increased 8.1%, including growth in the electric vehicles market and market penetration gains with Chinese original equipment manufacturers, versus China auto builds which grew 4%. Auto builds of foreign automotive manufacturers in China, where the Company has higher content per vehicle, decreased 17%.

• Operating margin of 19.6% increased 230 basis points primarily driven by benefits from the Company's enterprise initiatives, lower restructuring expenses and favorable price/cost of 20 basis points, partially offset by higher employee-related expenses and continued investment in the business.

FOOD EQUIPMENT

This segment is a highly focused and branded industry leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food service, food retail and food institutional/restaurant markets. Products in this segment include:

• warewashing equipment;

• cooking equipment, including ovens, ranges and broilers;

• refrigeration equipment, including refrigerators, freezers and prep tables;

• food processing equipment, including slicers, mixers and scales;

• kitchen exhaust, ventilation and pollution control systems; and

• food equipment service, maintenance and repair.

The results of operations for the Food Equipment segment for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

70 bps

60 bps

10 bps

70 bps

• Operating revenue increased due to the favorable effect of foreign currency translation and higher organic revenue.

• Organic revenue grew 0.8% as equipment declined 0.3% and service organic revenue increased 2.8%.

◦ North American organic revenue grew 1.8%. Equipment organic revenue grew 0.4% primarily due to growth in the institutional end market, partially offset by lower demand in the independent restaurant and food retail end markets. Service organic revenue increased 4.1%.

◦ International organic revenue decreased 0.6%. Equipment organic revenue declined 1.1% primarily due to lower demand in the European cooking and refrigeration end markets and a decline in Asia Pacific, partially offset by higher demand in the European warewash end market. Service organic revenue increased 0.4%.

• Operating margin of 27.9% increased 70 basis points primarily driven by benefits from the Company's enterprise initiatives and positive operating leverage of 20 basis points, partially offset by higher operating expenses, including employee-related expenses and additional investment in the business.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

10 bps

(10) bps

• Operating revenue increased primarily due to higher organic revenue.

• Organic revenue grew 1.1% as equipment declined 0.8% and service organic revenue increased 4.8%.

◦ North American organic revenue decreased 0.2%. Equipment organic revenue declined 2.4% primarily due to lower demand in the independent restaurant and food retail end markets, partially offset by growth in the institutional end market. Service organic revenue grew 3.9%.

◦ International organic revenue grew 3.0%. Equipment organic revenue increased 1.6% primarily due to higher demand in the European warewash and cooking end markets and growth in Asia Pacific, partially offset by lower demand in the European refrigeration end market. Service organic revenue grew 6.4%.

• Operating margin of 27.2% was flat as benefits from the Company's enterprise initiatives, favorable price/cost of 30 basis points and positive operating leverage of 20 basis points were offset by higher operating expenses, including employee-related expenses and additional investment in the business.

TEST & MEASUREMENT AND ELECTRONICS

This segment is a branded and innovative producer of test and measurement and electronic manufacturing and maintenance, repair, and operations, or "MRO" solutions that improve efficiency and quality for customers in diverse end markets. Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, automotive original equipment manufacturers and tiers, energy, industrial capital goods and consumer durables markets. Products in this segment include:

• equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids;

• electronic assembly equipment;

• electronic components and component packaging;

• static control equipment and consumables used for contamination control in clean room environments; and

• pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications.

The results of operations for the Test & Measurement and Electronics segment for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

(30) bps

20 bps

(20) bps

(10) bps

(30) bps

• Operating revenue increased due to the favorable effect of foreign currency translation and revenue from acquisitions, partially offset by lower organic revenue.

• On April 1, 2024, the Company completed the acquisition of one business in the Test & Measurement and Electronics segment for $59 million, net of cash acquired. On October 1, 2025, the Company completed the acquisition of one business in the Test & Measurement and Electronics segment for $120 million, net of cash

acquired. Refer to Note 2. Acquisitions in Item 8. Financial Statements and Supplementary Data for additional information regarding these acquisitions.

• Organic revenue declined 1.4% primarily due to a decrease in the general industrial end market, partially offset by growth in the semiconductor and electronics end markets.

◦ Organic revenue for the test and measurement businesses declined 2.5% primarily driven by lower demand in the MTS Test & Simulation business, partially offset by growth in the semiconductor end market, primarily in North America and Asia Pacific.

◦ Electronics organic revenue grew 1.1% primarily due to higher demand in the semiconductor end market. The electronics assembly businesses decreased 0.1% primarily due to lower demand in Asia Pacific, partially offset by growth in North America. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, increased 1.6% with higher demand in North America and Asia Pacific, partially offset by a decline in Europe.

• Operating margin of 24.6% decreased 30 basis points primarily driven by unfavorable operating leverage of 40 basis points, higher employee-related expenses and the dilutive impact of 20 basis points from acquisitions, partially offset by benefits from the Company's enterprise initiatives and lower intangible asset amortization expense.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

70 bps

130 bps

(50) bps

(10) bps

70 bps

• Operating revenue decreased due to lower organic revenue and the unfavorable effect of foreign currency translation, partially offset by revenue from acquisitions.

• The Company completed the acquisition of one business for $57 million, net of cash acquired, on January 2, 2024, and completed the acquisition of a second business for $59 million, net of cash acquired, on April 1, 2024. Refer to Note 2. Acquisitions in Item 8. Financial Statements and Supplementary Data for additional information regarding these acquisitions.

• Organic revenue decreased 1.0% primarily due to a decline in the semiconductor and electronics end markets, partially offset by growth in the MTS Test & Simulation business.

◦ Organic revenue for the test and measurement businesses declined 1.0% primarily driven by lower demand in the semiconductor and general industrial end markets, primarily in North America and Asia Pacific, partially offset by growth in the MTS Test & Simulation business.

◦ Electronics organic revenue decreased 1.3% primarily due to a decline in the consumer electronics end market, partially offset by higher demand in the consumable semiconductor end market. The electronics assembly businesses declined 11.1% primarily due to lower demand in North America. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, grew 3.1% primarily due to higher demand across all major regions.

• Operating margin of 24.9% increased 70 basis points primarily driven by benefits from the Company's enterprise initiatives, favorable price/cost of 60 basis points and lower intangible asset amortization expense, partially offset by product mix, the dilutive impact of 50 basis points from acquisitions in 2024, higher employee-related expenses and unfavorable operating leverage of 20 basis points.

WELDING

This segment is a branded value-added equipment and specialty consumable manufacturer with innovative and leading technology. Businesses in this segment produce arc welding equipment, consumables and accessories for a wide array of industrial and commercial applications. This segment primarily serves the general industrial market, which includes fabrication, shipbuilding and other general industrial markets, and construction, energy, MRO, industrial capital goods and automotive original equipment manufacturers and tiers markets. Products in this segment include:

• arc welding equipment; and

• metal arc welding consumables and related accessories.

The results of operations for the Welding segment for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/

Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

60 bps

• Operating revenue increased primarily due to higher organic revenue.

• Organic revenue grew 2.0% with growth across all major regions. Equipment grew 3.6%, partially offset by a decline in consumables of 0.6%.

◦ North American organic revenue grew 1.2% primarily due to an increase of 1.9% in the industrial end market and growth in the second half of the year in the aerospace end market, partially offset by a decline of 2.1% in the commercial end market.

◦ International organic revenue increased 6.0% primarily due to higher equipment demand in the general industrial and oil and gas end markets in Europe and Asia Pacific.

• Operating margin of 32.9% increased 60 basis points primarily driven by benefits from the Company's enterprise initiatives, favorable price/cost of 30 basis points and positive operating leverage of 30 basis points, partially offset by higher employee-related expenses.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

50 bps

40 bps

10 bps

50 bps

• Operating revenue decreased due to lower organic revenue and the unfavorable effect of foreign currency translation.

• Organic revenue declined 2.4% as equipment and consumables decreased 2.1% and 3.0%, respectively.

◦ North American organic revenue decreased 3.3% as the industrial and commercial end markets declined 2.3% and 6.0%, respectively.

◦ International organic revenue grew 2.2% primarily due to higher equipment demand in the general industrial and oil and gas end markets in Europe and Asia Pacific.

• Operating margin of 32.3% increased 50 basis points primarily driven by benefits from the Company's enterprise initiatives and favorable price/cost of 50 basis points, partially offset by higher employee-related expenses and unfavorable operating leverage of 40 basis points.

POLYMERS & FLUIDS

This segment is a branded supplier to niche markets that require value-added, differentiated products. Businesses in this segment produce engineered adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. This segment primarily serves the automotive aftermarket, general industrial and MRO markets. Products in this segment include:

• adhesives for industrial, construction and consumer purposes;

• chemical fluids which clean or add lubrication to machines;

• epoxy and resin-based coating products for industrial applications;

• hand wipes and cleaners for industrial applications;

• fluids, polymers and other supplies for auto aftermarket maintenance and appearance;

• fillers and putties for auto body repair; and

• polyester coatings and patch and repair products for the marine industry.

The results of operations for the Polymers & Fluids segment for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

50 bps

60 bps

(10) bps

50 bps

• Operating revenue increased due to the favorable effect of foreign currency translation, partially offset by lower organic revenue.

• Organic revenue declined 0.2%, primarily due to a decrease in Europe and North America, partially offset by an increase in Asia Pacific and South America. Product line simplification activities reduced organic revenue by 60 basis points.

◦ Organic revenue for the automotive aftermarket businesses declined 0.5% primarily due to lower demand in the North American body repair and tire repair businesses, partially offset by growth in the North American car care business.

◦ Organic revenue for the polymers businesses declined 0.3% due to a decrease in Europe and North America, partially offset by an increase in Asia Pacific and South America.

◦ Organic revenue for the fluids businesses increased 0.7% primarily driven by higher demand in Europe, primarily due to growth in the life sciences end market, partially offset by lower demand in the North American and European industrial maintenance, repair and operations and hygiene end markets.

• Operating margin of 27.9% increased 50 basis points primarily driven by benefits from the Company's enterprise initiatives and lower intangible asset amortization expense, partially offset by higher employee-related expenses.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

70 bps

80 bps

20 bps

(30) bps

70 bps

• Operating revenue decreased due to the unfavorable effect of foreign currency translation, partially offset by higher organic revenue.

• Organic revenue grew 0.9% due to increases in South America, Europe and Asia Pacific, partially offset by a decrease in North America. Product line simplification activities reduced organic revenue by 30 basis points.

◦ Organic revenue for the polymers businesses grew 6.3% due to increases in South America, Europe and Asia Pacific, partially offset by a decrease in North America.

◦ Organic revenue for the fluids businesses increased 1.9% primarily driven by higher demand in Europe, primarily due to growth in the life sciences end market, partially offset by lower demand in the North American and European industrial maintenance, repair and operations and hygiene end markets.

◦ Organic revenue for the automotive aftermarket businesses declined 2.2% primarily due to lower demand in the North American car care, body repair and tire repair businesses, partially offset by growth in the North American engine repair business and the European additives and tire repair businesses.

• Operating margin of 27.4% increased 70 basis points primarily driven by benefits from the Company's enterprise initiatives, favorable price/cost of 30 basis points, positive operating leverage of 20 basis points, lower restructuring expenses and lower intangible asset amortization expense, partially offset by higher employee-related expenses.

CONSTRUCTION PRODUCTS

This segment is a branded supplier of innovative engineered fastening systems and solutions. This segment primarily serves the residential construction, renovation/remodel and commercial construction markets. Products in this segment include:

• fasteners and related fastening tools for wood and metal applications;

• anchors, fasteners and related tools for concrete applications;

• metal plate truss components and related equipment and software; and

• packaged hardware, fasteners, anchors and other products for retail.

The results of operations for the Construction Products segment for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

90 bps

60 bps

30 bps

90 bps

• Operating revenue decreased due to lower organic revenue, partially offset by the favorable effect of foreign currency translation.

• Organic revenue declined 5.1% due to lower demand across all major regions. Product line simplification activities reduced organic revenue by 100 basis points.

◦ North American organic revenue declined 5.5% primarily due to lower demand in the residential and commercial end markets. Organic revenue in the United States residential end market decreased 6.4%. Organic revenue in the commercial end market was flat. Organic revenue in Canada decreased 3.2%.

◦ International organic revenue declined 4.7%. European organic revenue decreased 3.9% primarily due to lower demand in the commercial and residential end markets. Asia Pacific organic revenue declined 5.7% primarily due to lower demand in the Australia and New Zealand residential end markets.

• Operating margin of 30.2% increased 90 basis points primarily driven by benefits from the Company's enterprise initiatives and lower restructuring expenses, partially offset by unfavorable operating leverage of 110 basis points, unfavorable price/cost of 50 basis points and higher employee-related expenses.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

90 bps

110 bps

(20) bps

90 bps

• Operating revenue decreased due to lower organic revenue.

• Organic revenue declined 6.1% due to lower demand across all major regions. Product line simplification activities reduced organic revenue by 50 basis points.

◦ North American organic revenue decreased 4.6% primarily due to lower demand in the residential and commercial end markets. Organic revenue in the United States residential and commercial end markets declined 4.5% and 9.5%, respectively. Organic revenue in Canada increased 3.9%.

◦ International organic revenue declined 7.7%. European organic revenue decreased 6.3% primarily due to lower demand in the commercial and residential end markets. Asia Pacific organic revenue declined 9.2% primarily due to lower demand in the Australia and New Zealand residential end markets.

• Operating margin of 29.3% increased 90 basis points primarily driven by benefits from the Company's enterprise initiatives and favorable price/cost of 10 basis points, partially offset by unfavorable operating leverage of 110 basis points, higher employee-related expenses and higher restructuring expenses.

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, airlines, general industrial, industrial capital goods and printing and publishing markets. Products in this segment include:

• conveyor systems and line automation for the food and beverage industries;

• plastic consumables that multi-pack cans and bottles and related equipment;

• foil, film and related equipment used to decorate consumer products;

• product coding and marking equipment and related consumables;

• plastic and metal closures and components for appliances;

• airport ground support equipment; and

• components for medical devices.

The results of operations for the Specialty Products segment for 2025, 2024 and 2023 were as follows:

2025 compared to 2024

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

90 bps

• Operating revenue increased due to higher organic revenue and the favorable effect of foreign currency translation.

• Organic revenue grew 1.0% as equipment sales increased 7.4%, partially offset by a decline in consumables of 0.9%. Product line simplification activities reduced organic revenue by 90 basis points.

◦ North American organic revenue grew 0.6% primarily driven by growth in the filter medical, specialty films and ground support equipment businesses, partially offset by a decline in the consumer packaging strength films businesses.

◦ International organic revenue increased 1.7% primarily due to an increase in European ground support equipment and consumer packaging equipment businesses, partially offset by a decline in the appliance business.

• Operating margin of 31.2% increased 90 basis points primarily driven by benefits from the Company's enterprise initiatives, positive operating leverage of 20 basis points and favorable price/cost of 20 basis points, partially offset by higher employee-related expenses and product mix.

2024 compared to 2023

For the Years Ended

Dollars in millions

December 31,

Components of Increase (Decrease)

Inc (Dec)

Organic

Acquisition/Divestiture

Restructuring

Foreign Currency

Total

Operating revenue

Operating income

Operating margin %

380 bps

350 bps

10 bps

20 bps

380 bps

• Operating revenue increased due to higher organic revenue, partially offset by the impact of a divestiture in the second quarter of 2023 and the unfavorable effect of foreign currency translation.

• The Company divested a business on April 3, 2023. Operating revenue for this business in 2023 was $9 million.

• Organic revenue grew 3.5% as consumables increased 2.3% and equipment sales grew 8.2% due to higher demand across all major regions. Product line simplification activities reduced organic revenue by 270 basis points.

◦ North American organic revenue increased 1.8% primarily driven by growth in the ground support equipment, appliance, consumer packaging and strength films businesses, partially offset by a decline in the decorative and thermal foils businesses.

◦ International organic revenue grew 6.9% primarily due to an increase in Europe, primarily in the ground support equipment business, and growth in the appliance business in Asia Pacific, partially offset by a decline in the consumer packaging businesses.

• Operating margin of 30.3% increased 380 basis points primarily driven by benefits from the Company's enterprise initiatives, positive operating leverage of 70 basis points, favorable price/cost of 70 basis points and lower restructuring expenses, partially offset by higher employee-related expenses and product mix.

OTHER FINANCIAL HIGHLIGHTS

• Interest expense was $292 million in 2025, $283 million in 2024 and $266 million in 2023. Refer to Note 10. Debt in Item 8. Financial Statements and Supplementary Data for further information.

• Other income (expense) was income of $42 million in 2025, $441 million in 2024 and $49 million in 2023. On August 5, 2024, the Company entered into a purchase agreement with affiliates of CD&R for the sale of the Company's noncontrolling equity interest in Wilsonart. The transaction closed immediately after the execution of the purchase agreement. Proceeds from the transaction, net of transaction costs, were $395 million, resulting in a pre-tax gain of $363 million. Refer to Note 5. Other Income (Expense) in Item 8. Financial Statements and Supplementary Data for further information.

• The Company's effective tax rate for 2025, 2024, and 2023 was 22.7%, 21.1% and 22.6%, respectively. The effective tax rate for 2025 included a discrete tax benefit of $21 million in the first quarter of 2025 related to the reversal of a valuation allowance on net operating loss carryforwards. Additionally, the 2025 effective tax rate benefited from a discrete tax benefit in the third quarter of 2025 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. The 2024 effective tax rate benefited from discrete income tax benefits during the third quarter of 2024 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. The 2023 effective tax rate benefited from a discrete income tax benefit of $20 million in the second quarter of 2023 related to amended 2021 U.S. taxes. Additionally, the effective tax rates for 2025, 2024 and 2023 included discrete income tax benefits of $8 million, $14 million and $20 million, respectively, related to excess tax

benefits from stock-based compensation. Refer to Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for further information.

• The impact of foreign currencies against the U.S. Dollar in 2025 versus 2024 increased operating revenue and income before taxes by approximately $131 million and $29 million, respectively. The impact of foreign currencies against the U.S. Dollar in 2024 versus 2023 decreased operating revenue and income before taxes by approximately $115 million and $40 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of December 31, 2025, the Company had $851 million of cash and equivalents on hand and no outstanding borrowings under its $3.0 billion revolving credit facility. The Company also has maintained strong access to public debt markets. Management believes that these sources are sufficient to service debt and to finance the Company's capital allocation priorities, which include:

• internal investments to support organic growth and sustain core businesses;

• payment of an attractive dividend to shareholders; and

• external investments in selective strategic acquisitions that support the Company's organic growth focus and an active share repurchase program.

The Company believes that, based on its operating revenue, operating margin, free cash flow, and credit ratings, it could readily obtain additional financing, if necessary.

The Company has certain contractual obligations, primarily operating leases and long-term debt. Refer to Note 9. Leases and Note 10. Debt in Item 8. Financial Statements and Supplementary Data for details related to the Company's contractual obligations. The Company did not have any significant off-balance sheet commitments as of December 31, 2025.

Cash Flow

The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluating the Company's financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. Summarized cash flow information for the years ended December 31, 2025, 2024 and 2023 was as follows:

In millions

Net cash provided by operating activities

Additions to plant and equipment

Free cash flow

Cash dividends paid

Repurchases of common stock

Acquisition of businesses (excluding cash and equivalents)

Proceeds from sale of operations and affiliates

Proceeds from sale of noncontrolling interest in Wilsonart International Holdings LLC

Net proceeds from (repayments of) debt

Other

Effect of exchange rate changes on cash and equivalents

Net increase (decrease) in cash and equivalents

Stock Repurchase Programs

On May 7, 2021, 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 "2021 Program"). 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.

On August 4, 2023, the Company announced a 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"). Under the 2023 Program, the Company repurchased approximately 38,000 shares of its common stock at an average price of $263.44 per share during the fourth quarter of 2023, approximately 5.9 million shares of its common stock at an average price of $254.04 per share during 2024 and approximately 6.0 million shares of its common stock at an average price of $251.20 per share during 2025. As of December 31, 2025, there were approximately $2.0 billion of authorized repurchases remaining under the 2023 Program.

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. After-tax ROIC is not defined under U.S. generally accepted accounting principles ("GAAP"). After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company's ability to generate returns from cash invested in its operations and may be different than the method used by other companies to calculate After-tax ROIC. The Company defines After-tax ROIC as operating income after taxes divided by average invested capital, which is annualized when presented in interim periods. Operating income after taxes is a non-GAAP measure consisting of net income before interest expense and other income (expense), on an after-tax basis, which are excluded as they do not represent returns generated by the Company's operations. For comparability, the Company also excluded the net discrete tax benefit of $27 million in the third quarter of 2025 and the discrete tax benefit of $21 million in the first quarter of 2025 from net income and the effective tax rate for the year ended December 31, 2025. Additionally, for comparability, the Company also excluded the net discrete tax benefit of $121 million in the third quarter of 2024 from net income and the effective tax rate for the year ended December 31, 2024. Also, for comparability, the Company excluded the discrete tax benefit of $20 million in the second quarter of 2023 from net income and the effective tax rate for the year ended December 31, 2023. Total invested capital represents the net assets of the Company, other than cash and equivalents and outstanding debt which do not represent capital investment in the Company's operations. The most comparable GAAP measure to operating income after taxes is net income. Net income to average invested capital and After-tax ROIC for the years ended December 31, 2025, 2024, and 2023 were as follows:

Dollars in millions

Numerator:

Net income

Net discrete tax benefit related to the third quarter 2025

Discrete tax benefit related to the first quarter 2025

Net discrete tax benefit related to the third quarter 2024

Discrete tax benefit related to the second quarter 2023

Interest expense, net of tax (1)

Other (income) expense, net of tax (1)

Operating income after taxes

Denominator:

Invested capital:

Cash and equivalents

Trade receivables

Inventories

Net plant and equipment

Goodwill and intangible assets

Accounts payable and accrued expenses

Debt

Other, net

Total net assets (stockholders' equity)

Cash and equivalents

Debt

Total invested capital

Average invested capital (2)

Net income to average invested capital

After-tax return on average invested capital

(1) Effective tax rate used for interest expense and other (income) expense for the years ended December 31, 2025, 2024, and 2023 was 23.9%, 23.8% and 23.2%, respectively.

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

After-tax ROIC decreased 190 basis points for the twelve month period ended December 31, 2025 compared to the prior year period as a result of a 5.2% increase in average invested capital and a 1.2% decrease in after-tax operating income.

A reconciliation of the 2025 effective tax rate, 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:

Twelve Months Ended

December 31, 2025

Dollars in millions

Income Taxes

Tax Rate

As reported

Net discrete tax benefit related to the third quarter 2025

Discrete tax benefit related to the first quarter 2025

As adjusted

After-tax ROIC increased 80 basis points for the twelve month period ended December 31, 2024 compared to the prior year period as a result of a 4.6% increase in after-tax operating income versus a 2.0% increase in average invested capital.

After-tax ROIC for the year ended December 31, 2024 included 90 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. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies in Item 8. Financial Statements for additional information regarding this change in accounting method.

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

Net discrete tax benefit related to the third quarter 2024

As adjusted

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

Discrete tax benefit related to the second quarter 2023

As adjusted

Refer to Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for further information regarding the discrete tax items noted above.

Working Capital

Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of December 31, 2025 and 2024 is summarized as follows:

In millions

Increase

(Decrease)

Current Assets:

Cash and equivalents

Trade receivables

Inventories

Prepaid expenses and other current assets

Total current assets

Current Liabilities:

Short-term debt

Accounts payable and accrued expenses

Other

Total current liabilities

Net Working Capital

As of December 31, 2025, a significant portion of the Company's cash and equivalents was held by international subsidiaries. Cash and equivalents held internationally are typically used for international operating needs or reinvested to fund expansion of existing international businesses. International funds may also be used to fund international acquisitions or, if not considered permanently invested, may be repatriated to the U.S. and subject to foreign withholding taxes. The Company has accrued for foreign withholding taxes related to foreign held cash and equivalents that are not permanently invested.

In the U.S., the Company utilizes cash flows from operations to fund domestic cash needs and the Company's capital allocation priorities. This includes operating needs of the U.S. businesses, dividend payments, share repurchases, acquisitions, servicing of domestic debt obligations, reinvesting to fund expansion of existing U.S. businesses and general corporate needs. The Company may also use its commercial paper program, which is supported by a long-term credit facility, for short-term liquidity needs. The Company believes cash generated by operations and liquidity provided by the Company's commercial paper program will continue to be sufficient to fund cash requirements in the U.S.

Debt

Total debt as of December 31, 2025 and 2024 was as follows:

In millions

Increase

(Decrease)

Short-term debt

Long-term debt

Total debt

As of December 31, 2025, Short-term debt included $999 million related to the 2.65% notes due November 15, 2026, which were reclassified from Long-term debt to Short-term debt in the fourth quarter of 2025. As of December 31, 2024, Short-term debt included $777 million related to the Euro-denominated credit agreement entered into on May 5, 2023 (the "Euro Credit Agreement") with an interest rate of 3.61%, which was classified as Short-term debt since the debt, including the options to extend the termination date, was due on April 30, 2025. Short-term debt also included commercial paper of $1.3 billion and $778 million as of December 31, 2025 and December 31, 2024, respectively. The weighted-average interest rate on commercial paper outstanding was 3.84% and 4.56% as of December 31, 2025 and 2024, respectively.

In May 2024, the Company issued €650 million of 3.25% Euro notes due May 17, 2028 at 99.525% of face value and €850 million of 3.375% Euro notes due May 17, 2032 at 99.072% of face value. Proceeds from the issuance were used for general corporate purposes, including the repayment of a portion of the indebtedness under the commercial paper program and the Euro Credit Agreement.

On February 24, 2025, the Company entered into an amendment to the Euro Credit Agreement to extend the termination date from April 30, 2025 to February 28, 2027, with an option to further extend the termination date to September 15, 2027. The amendment also decreased the interest rate spread applicable to the loans from 0.75% to 0.70% and removed the option for a one-month interest period. As of December 31, 2025, the Company had $881 million outstanding under the Euro Credit Agreement with an interest rate of 2.77%, which was reclassified from Short-term debt to Long-term debt in the first quarter of 2025.

The Company may issue commercial paper to fund general corporate needs, share repurchases, and small and medium-sized acquisitions. 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, 2025 or 2024. The Company was also in compliance with the financial covenants of the revolving credit facility as of December 31, 2025, which included a minimum interest coverage ratio.

As of December 31, 2025, the Company had unused capacity of approximately $210 million under international debt facilities. In the ordinary course of business, the Company also had approximately $265 million outstanding in guarantees, letters of credit and other similar arrangements with financial institutions as of December 31, 2025. Refer to Note 10. Debt in Item 8. 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. The Company believes that total debt to EBITDA is a meaningful metric to investors in evaluating the Company's long term financial liquidity and may be different than the method used by other companies to calculate total debt to EBITDA. The ratio of total debt to EBITDA represents total debt divided by net income before interest expense, other income (expense), income taxes, depreciation, and amortization and impairment of intangible assets on a trailing twelve month basis. Total debt to EBITDA for the years ended December 31, 2025, 2024 and 2023 was as follows:

Dollars in millions

Total debt

Net income

Add:

Interest expense

Other (income) expense

Income taxes

Depreciation

Amortization and impairment of intangible assets

EBITDA

Total debt to EBITDA ratio

Stockholders' Equity

The changes to stockholders' equity during 2025 and 2024 were as follows:

In millions

Beginning balance

Net income

Cash dividends declared

Repurchases of common stock

Other comprehensive income (loss)

Other

Ending balance

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. 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.

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 deferred and other tax balances are based on management's interpretation of the tax regulations and rulings in numerous taxing jurisdictions. Income tax expense, assets and liabilities recognized by the Company also reflect its best estimates and assumptions regarding, among other things, the level of future taxable income, the effect of the Company's various tax planning strategies and uncertain tax positions. Future tax authority rulings and changes in tax laws, changes in projected levels of taxable income and future tax planning strategies could affect the actual effective tax rate and tax balances recorded by the Company.

Goodwill and Intangible Assets — The Company's business acquisitions typically result in recording goodwill and other intangible assets, which are a significant portion of the Company's total assets and affect the amount of amortization expense and impairment charges that the Company could incur in future periods. The Company follows the guidance prescribed in the accounting standards to test goodwill and intangible assets for impairment. On an annual basis, or more frequently if triggering events occur, the Company compares the estimated fair value of its reporting units to the carrying value of each reporting unit to determine if a potential goodwill impairment exists. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment loss is recorded for the difference. In calculating the fair value of the reporting units or specific intangible assets, management relies on a number of factors, including business plans, economic projections, anticipated future cash flows, comparable transactions and other market data. 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, 2025, the Company had total goodwill and intangible assets of approximately $5.7 billion allocated to its reporting units. Although there can be no assurance that the Company will not incur additional impairment charges related to its goodwill and other intangible assets, the Company generally believes the risk of significant impairment charges is lessened by the number of diversified businesses and end markets represented by its reporting units that have goodwill and other intangible assets. In addition, the individual businesses in many of the reporting units have been acquired over a long period of time, and in many cases have been able to improve their performance, primarily as a result of the application of the Company's 80/20 Front-to-Back process. The amount of goodwill and other intangible assets allocated to individual reporting units as of December 31, 2025 ranged from approximately $267 million to $1.4 billion , with the average amount equal to $711 million . In all cases, the fair value of the individual reporting unit significantly exceeds its carrying value. Fair value determinations require considerable judgment and are sensitive to changes in the factors described above. 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. Pension and other postretirement benefit expense and obligations are determined based on actuarial valuations. Pension benefit obligations are generally based on each participant's years of service, future compensation, and age at retirement or termination. Important assumptions in determining pension and postretirement expense and obligations are the discount rate, the expected long-term return on plan assets, life expectancy, and health care cost trend rates. Future changes in any of these assumptions could materially affect the amounts recorded related to the Company's pension and other postretirement benefit plans. See Note 11. Pension and Other Postretirement Benefits in Item 8. Financial Statements and Supplementary Data for additional discussion of actuarial assumptions used in determining pension and postretirement health care liabilities and expenses.

The Company determines the discount rate used to measure plan liabilities as of the year-end measurement date for the U.S. primary pension plan. The discount rate reflects the current rate at which the associated liabilities could theoretically be effectively settled at the end of the year. In estimating this rate, the Company looks at rates of return on high-quality fixed income investments, with similar duration to the liabilities in the plan. A 25 basis point decrease in the discount rate would increase the present value of the U.S. primary pension plan obligation by approximately $21 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. See Note 11. Pension and Other Postretirement Benefits in Item 8. Financial Statements and Supplementary Data for information on the Company's pension and other postretirement benefit plans and related assumptions.

The expected long-term return on plan assets is based on historical and expected long-term returns for similar investment allocations among asset classes. 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 $3 million.

Top insiders

Most active reporters at Illinois Tool Works Inc

Name	Roles	Filings
Santi Ernest Scott	OfficerDirector	27
Smith David Byron Jr	Director	22
Ford Darrell L	Director	15
Lawler Mary Katherine	Officer	11
Larsen Michael M	Officer	10

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Insiders ranked by realized 90-day signed return on their open-market trades at Illinois Tool Works Inc. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.

#	Insider	Trades	Win rate	Avg	Median	Best	Worst
1	Larsen Michael M	3	100%	+10.1%	+10.3%	+10.3%	+9.5%
2	Lawler Mary Katherine	3	100%	+10.0%	+9.6%	+13.0%	+7.5%
3	O'Herlihy Christopher A	7	100%	+8.6%	+7.9%	+10.3%	+7.9%
4	Santi Ernest Scott	37	100%	+6.8%	+7.9%	+11.9%	+2.4%
5	Smith David Byron Jr	5	80%	+4.9%	+7.8%	+8.4%	-2.3%
6	Scheuneman Randall J	3	100%	+2.6%	+2.4%	+4.8%	+0.7%

All filings

218 Form 4 / 4-A filings, newest first

Filed	Insider	Top transaction	Shares	Price	Value
May 12, 2026	Crown Susan Director	AGrant	833	$254.76	$212,215
May 12, 2026	Lenny Richard H Director	AGrant	765	$254.76	$194,891
May 12, 2026	Griffith James W Director	AGrant	765	$254.76	$194,891
May 12, 2026	Strobel Pamela B Director	AGrant	765	$254.76	$194,891
May 12, 2026	Santi Ernest Scott Director	AGrant	1,883	$254.76	$479,713

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Filed		Top transaction	Shares	Price	Value

Illinois Tool Works Inc

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