Illinois Tool Works (ITW) 10-K risk factor changes: FY2017 vs FY2016

Slower economic growth, financial market instability, high unemployment, 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, increasing order cancellations and the difficulty in collecting accounts [added: 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.]

The Company currently operates in [removed: 57] [added: 56] countries.

Product line and customer base simplification activities, which are core elements of the Company’s 80/20 [removed: management] [added: front to back] process, continue to be applied to the Company’s scaled up operating divisions and remain active elements of the Enterprise Strategy.

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 [removed: opportunities presented to us from time to time, the ability to obtain financing at attractive rates and the availability of U.S. cash.]

If the Company is unable to successfully introduce new [removed: products or adequately protect its intellectual property,] [added: products,] its future growth may be adversely affected.

[removed: Acquisitions, including the Company’s acquisition of the Engineered Fasteners and Components business on July 1, 2016 from ZF TRW,] [added: 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 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 [added: activities of the] acquired [removed: business’s activities.] [added: business.] The realization of any of these liabilities or deficiencies may [removed: increase the Company's expenses, adversely affect its financial position or cause noncompliance with its financial reporting obligations.] |

[removed: Recent] [added: Past] divestitures pose the risk of retained liabilities that could adversely affect the Company's financial results.

The Company has significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on [removed: our] [added: the Company's] financial results.

Disruptions or volatility in global financial markets or changes in [removed: our] [added: the Company's] credit ratings could increase [removed: our] [added: the Company's] funding costs or reduce the availability of credit.

The amount of income taxes [removed: and other taxes are] [added: is] subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. authorities.

Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," "intends," "may," "strategy," "prospects," "estimate," "project," "target," "anticipate," "guidance," "forecast," and other similar words, including, without limitation, statements regarding the expected performance of acquired businesses and impact of divested businesses, economic conditions in various geographic regions, the timing and amount of share repurchases, the timing and amount of benefits from the Company's Enterprise Strategy, 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 [added: impact of the recently enacted U.S. tax legislation, the] cost and availability of additional financing, the Company's portion of future benefit payments related to pension and postretirement benefits, the [removed: expected impact of a change in the method of calculating the service and interest cost components of net periodic pension and other postretirement benefit costs to a specific spot rate approach, the] availability of raw materials and energy, the expiration of any one of the Company's patents, the cost of compliance with environmental regulations, the likelihood of future goodwill or intangible asset impairment charges, the impact of failure of the Company's employees to comply with applicable laws and regulations, the impact of foreign currency [removed: fluctuations, the outcome of outstanding legal proceedings, the impact of adopting new accounting pronouncements, and the estimated timing and amount related to the resolution of tax matters.]

The Company's businesses are impacted by economic conditions around the globe.

opportunities presented to us from time to time, the ability to obtain financing at attractive rates and the availability of U.S. cash.

If the Company is unable to adequately protect its intellectual property, its competitive position and results of operations may be adversely impacted.

The Company has engaged in various acquisitions in the past, and could choose to acquire additional businesses in the future.

increase the Company's expenses, adversely affect its financial position or cause noncompliance with its financial reporting obligations.

The U.S. government has recently enacted comprehensive tax legislation that includes significant changes to the taxation of business entities.

The Company made a reasonable estimate of the effects on the existing deferred tax balances and one-time transition tax, however the ultimate impact of this tax reform is uncertain due to subsequent clarification of the tax law and refinement of estimated amounts and the Company's business and financial condition could be adversely affected.

Uncertainty related to climate change regulation and industry standards could impact the Company's results of operations and financial position.

Increased public awareness and concern regarding global climate change may result in more international, regional and/or federal requirements to reduce or mitigate global warming and these regulations could mandate even more restrictive standards, such as stricter limits on greenhouse gas emissions, 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.

If environmental laws or regulations are either changed or adopted and impose significant operational restrictions and compliance requirements upon the Company or its products, they could negatively impact the Company’s business, capital expenditures, results of operations, financial condition and competitive position.

fluctuations, the outcome of outstanding legal proceedings, the impact of adopting new accounting pronouncements, and the estimated timing and amount related to the resolution of tax matters.

The Company's businesses are impacted by economic conditions around the globe, including the uncertainty created by the United Kingdom’s June 2016 vote to leave the European Union.

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.

The United Kingdom's vote in June 2016 to leave the European Union may increase certain of the risks and uncertainties described above.

The United Kingdom represented approximately 5% of the Company's total consolidated operating revenue for the year ended December 31, 2016.

Illinois Tool Works Inc. (the "Company" or "ITW") is a global manufacturer of a diversified range of industrial products and equipment with 85 divisions in [removed: 57] [added: 56] countries.

As of December 31, [removed: 2016,] [added: 2017,] the Company employed approximately 50,000 [removed: persons.][added: people.]

| • | ITW’s 80/20 [removed: management] [added: front to back] process is the operating system that is applied in every ITW business. Initially introduced as a manufacturing efficiency tool in the [removed: 1980’s,] [added: 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 [removed: management] [added: 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 subsequently creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of more than 17,000 granted and pending patents; |

| • | ITW’s decentralized, entrepreneurial culture [removed: allows] [added: 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 adapted to each business' customers and end markets. |

In late 2012, ITW began the [removed: process] [added: first phase] of [added: its strategic framework,] transitioning the Company [removed: onto] [added: on] its current strategic path to fully leverage the compelling performance potential of the ITW Business Model.

Since then, ITW has made considerable progress, as evidenced by the Company’s strong financial performance over the past [removed: four] [added: five] years.

With the initiative nearly complete and ITW businesses demonstrating notably improved financial performance, the Company believes that the [removed: significant] product line simplification work is [removed: essentially finalized and will return] [added: returning] to more normalized [removed: levels in 2017 and beyond.][added: levels.]

| • | The Strategic Sourcing initiative [removed: was] established [added: sourcing] as a core [removed: capability to better leverage ITW’s scale and improve global competitiveness. Sourcing is now a core] strategic and operational capability at ITW. The Company’s 80/20-enabled sourcing organization has delivered an average of one percent reduction in spend each year from 2013 through [removed: 2016] [added: 2017] and is on track to do the same in [removed: 2017 and] 2018. |

| • | With the portfolio realignment and scale-up work largely complete, the Company [removed: was able to shift] [added: shifted] its focus to preparing for and accelerating, organic [removed: growth. As a preparatory step, ITW is in the process of] [added: growth,] reapplying 80/20 to optimize its newly scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth. |

While the Company has made considerable progress and ITW’s performance is nearing best-in-class levels, the Company has significant opportunity for further [removed: improvement before it achieves full operating potential.][added: improvement.]

[removed: These] [added: At the same time, these] 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

EF&C had operating revenue of [added: $517 million in 2017 and] $245 million for the [added: last] six months [removed: ended December 31,] [added: of] 2016.

EF&C diluted the Company's operating margin in [added: 2017 and] 2016 [removed: by 30 basis points] due to lower operating margin and acquisition related expenses.

The Company expects [removed: EF&C to be slightly accretive to earnings in the first twelve months, but expects improved earnings and] [added: EF&C's] operating margin [removed: performance] [added: to improve] in later years through the application of the Company's 80/20 [removed: business management] [added: front to back] process.

Refer to Note [removed: 3.][added: 9.]

The Company’s consolidated results of operations for [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] are summarized as follows:

| Operating income | [added: $ |] 3,064 | | | [added: $] | 2,867 | | | [removed: |] 6.9 | % | | 8.1 | % | 0.6 | % | 0.1 | % | (1.9 | )% | 6.9 | % |

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | Inc (Dec) | | | Organic | | Acquisition/Divestiture | | Restructuring | | Foreign Currency | | Total | |

| Operating margin % | [removed: 21.4] [added: 22.8] | | % | | [removed: 19.9] [added: 24.1] | | % | | [removed: 150] [added: (130)] bps | | | [removed: 130] [added: 30] bps | | [removed: —] [added: (120) bps] | | [removed: 20] [added: (40)] bps | | — | | [removed: 150] [added: (130)] bps | |

| ◦ | North American organic revenue [removed: decreased 0.5% as a decline] [added: grew 1.6%. Growth] in [removed: the Welding and Test & Measurement and Electronics] [added: five] segments was partially offset by [removed: growth] [added: a decline] in the Automotive [removed: OEM,] [added: OEM and] Food Equipment [removed: and Construction Products] segments. |

| ◦ | [removed: European] [added: Europe, Middle East and Africa] organic revenue increased [removed: 1.2%. Double-digit] [added: 3.5% as] growth in [removed: the Automotive OEM segment] [added: five segments] was partially offset by a decline in the [added: Welding and] Polymers & [removed: Fluids, Test & Measurement and Electronics and Welding] [added: Fluids] segments. |

| ◦ | Asia Pacific organic revenue [removed: decreased 1.4% primarily due to a decline] [added: increased 6.8% as growth] in [removed: the Welding and Test & Measurement and Electronics segments,] [added: five segments was] partially offset by [removed: growth] [added: a decline] in the [removed: Construction Products segment.] [added: Welding and Food Equipment segments.] |

| • | Operating margin of [removed: 21.4%] [added: 26.2%] increased [removed: 150] [added: 80] basis points primarily [removed: due to the benefit of the Company's enterprise initiatives related to business structure simplification and strategic sourcing that contributed 110 basis points. Lower] [added: driven by lower] restructuring [removed: expenses] [added: expenses, positive operating leverage] and favorable price/cost [removed: each contributed] [added: of] 20 basis points [added: each, and the net benefits] of [removed: operating margin expansion.] [added: the Company's enterprise initiatives and cost management.] |

| • | Free cash flow was [removed: $2.0] [added: $2.1] billion [added: for 2017 and includes the impact from an additional discretionary pension contribution of $115 million] in [removed: 2015.] [added: the second quarter of 2017.] Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure. |

| • | The Company repurchased approximately [removed: 21.0] [added: 7.1] million shares of its common stock in [removed: 2015] [added: 2017] for approximately [removed: $2.0] [added: $1.0] billion. |

| • | Adjusted after-tax return on average invested capital was [removed: 20.4%,] [added: 24.4%,] an increase of [removed: 140] [added: 230] basis points. Refer to the Adjusted After-Tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure. |

| In millions | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Automotive OEM | $ | [removed: 2,864] [added: 3,271] | | | $ | [removed: 2,529] [added: 2,864] | | | $ | [removed: 2,590] [added: 2,529] | |

| Food Equipment | [removed: 2,110] [added: 2,123] | | | | [removed: 2,096] [added: 2,110] | | | | [removed: 2,177] [added: 2,096] | | |

| Test & Measurement and Electronics | [removed: 1,974] [added: 2,069] | | | | [removed: 1,969] [added: 1,974] | | | | [removed: 2,204] [added: 1,969] | | |

| Welding | [removed: 1,486] [added: 1,538] | | | | [removed: 1,650] [added: 1,486] | | | | [removed: 1,850] [added: 1,650] | | |

| Polymers & Fluids | [removed: 1,691] [added: 1,724] | | | | [removed: 1,712] [added: 1,691] | | | | [removed: 1,927] [added: 1,712] | | |

| Construction Products | [removed: 1,609] [added: 1,672] | | | | [removed: 1,587] [added: 1,609] | | | | [removed: 1,707] [added: 1,587] | | |

| Specialty Products | [removed: 1,885] [added: 1,938] | | | | 1,885 | | | | [removed: 2,055] [added: 1,885] | | |

| Intersegment revenue | [removed: (20] [added: (21] | | ) | | [removed: (23] [added: (20] | | ) | | [removed: (26] [added: (23] | | ) |

| Total | $ | [removed: 13,599] [added: 14,314] | | | $ | [removed: 13,405] [added: 13,599] | | | $ | [removed: 14,484] [added: 13,405] | |

| Automotive OEM | $ | [removed: 690] [added: 747] | | | $ | [removed: 613] [added: 690] | | | $ | [removed: 600] [added: 613] | |

| Food Equipment | [removed: 537] [added: 556] | | | | [removed: 498] [added: 537] | | | | [removed: 453] [added: 498] | | |

| Test & Measurement and Electronics | [removed: 372] [added: 464] | | | | [removed: 322] [added: 372] | | | | [removed: 340] [added: 322] | | |

With this first phase of the strategy nearing completion, the Company will look ahead to the next five years and delivering differentiated performance on a sustained basis.

SUSTAINED DIFFERENTIATED PERFORMANCE

The second phase of the strategic framework is focused on delivering differentiated performance on a sustained basis, with consistent above market organic growth.

Moving forward, the Company remains committed to the four strategic principles that have served as the foundation of its progress over the past five years and that the Company believes best positions ITW to deliver continued differentiated performance over the next five years:

| • | The ITW Business Model is the Company's competitive advantage |

| • | Focus on quality growth |

| • | "Do what we say" execution is a critical differentiator |

| • | Invest only where ITW has a competitive advantage |

The ITW Business Model is the Company's Competitive Advantage

The ITW Business Model is the combination of a set of strategic, operational, and cultural approaches and practices that is applied to every ITW business.

The Business Model has existed inside the Company for over 30 years and is truly ITW's differentiating competitive advantage.

The ITW Business Model is comprised of three elements:

- 80/20 Front to Back Process = How the Company Operates

- Customer-Back Innovation Approach = How the Company Innovates

- Decentralized Entrepreneurial Culture = How the Company Executes

Focus on Quality Growth

ITW prioritizes high-quality revenue growth and, as such, the Company’s primary growth focus is organic.

Leveraging the Business Model and the 80/20 front to back process provides a clear view of where to focus for high- quality growth.

The Company targets differentiated end-markets and customers with critical needs and challenging pain points.

ITW generates high-quality growth through consistent customer-back innovation and customer service excellence.

The Company only invests and operates in industries and businesses that have the right “raw material” to generate high quality organic growth through the application of the ITW Business Model.

ITW’s current portfolio of seven segments offers solid growth potential and a high degree of diversification in terms of geographic and end market exposures, enabling the Company to deliver consistent high-quality growth in an increasingly volatile and competitive global market environment.

"Do What We Say" Execution is a Critical Differentiator

ITW’s commitment to execution is a key differentiator for ITW.

Living up to the Company’s commitments - “do what we say” execution - is a deeply embedded core element of the culture.

The culture is the engine that translates ITW's strategy into action, and action into results.

All divisions function within a “framework” that defines how the culture operates and defines the Company’s values, business model and strategy to ensure all divisions are working toward our common set of goals.

Business leaders have the flexibility to define the actions and customize their approach to meet those goals.

This “flexibility within the framework” establishes an entrepreneurial environment where decisions are made “bottom up” by those with the greatest knowledge, capability and proximity to the customer, which enables our businesses to be nimble and react quickly to market conditions and customer requirements.

ITW is simple, straightforward and transparent in everything it does.

The Company sets clear performance expectations and financial targets, executes against these at the appropriate pace, and establishes the freedom to define how to achieve results within the construct of the Business Model.

Invest Only Where ITW Has a Competitive Advantage

The Company is highly focused and disciplined in its approach to invest only where it can leverage the ITW Business Model into compelling and sustainable competitive advantage.

Investments to support organic growth and sustain its highly differentiated core businesses, such as new product innovation, marketing programs, simplification projects, and capital investments, are ITW’s number one investment priority.

The Company's strong financial results in 2017 demonstrate the combination of ITW's high-quality business portfolio with continued focus on leveraging the powerful and highly differentiated ITW Business Model.

Meaningful progress on accelerating organic revenue growth and strong execution on enterprise initiatives resulted in all seven segments achieving worldwide organic revenue growth and having operating margin above 20% for 2017.

The Company presents certain financial measures in fiscal year 2017 excluding the $658 million tax charge related to the "Tax Cuts and Jobs Act" and the benefit of a favorable $95 million legal settlement.

These non-GAAP measures are consistent with the way management analyzes and assesses the Company's operating performance.

The Company believes these non-GAAP measures enhance investors' understanding of the Company's underlying financial performance, as well as their ability to compare the Company's financial results and overall performance to that of its peers.

2017 compared to 2016

| | |

| --- | --- |

Once the business has achieved operational excellence and identified the right growth opportunities, the final step is to accelerate organic growth.

The process of preparing for accelerated organic growth generally takes 18 to 24 months.

Based on the financial performance of the divisions that are further along in this process, the Company believes that its organic growth framework is capable of delivering above-market organic growth across all segments.

Divisions are at various phases in preparation for growth and many are either ready to grow or already growing above their respective markets.

ITW management is fully aligned with this plan and very focused on executing it.

With the close of 2016, approximately 85 percent of the divisions are ready to grow.

PATH TO FULL POTENTIAL

In order to do so, ITW is focused on two key areas of opportunity, including: additional structural margin improvement and sustained above-market organic growth with strong incremental profitability.

Additional Structural Margin Improvement

To deliver on the additional structural margin improvement, the Company is implementing the following two levers: (1) further leveraging the 80/20 management process and (2) strategic sourcing.

| • | The first lever, better leveraging the full power of the ITW Business Model, will be accomplished through a much more consistent and focused approach to 80/20 best practice implementation across the Company. The 80/20 |

management system has continuously been refined, improved and expanded into a unique holistic business management process of interconnected tools, which improves all aspects of the business and, when applied consistently and executed more effectively, will lead to additional margin improvement.

| • | The second lever, strategic sourcing, is a core element of ITW’s ongoing operational strategy and a sustainable enterprise-wide capability. Through the continued execution of this initiative, the Company expects to deliver additional margin improvement with the goal of a one percent reduction in spend in 2017 and 2018. |

Sustained Above-Market Organic Growth with Strong Incremental Profitability

ITW has done extensive work on its portfolio and operating structure to position the Company to deliver sustainable above-market organic growth.

The Company has narrowed the focus and significantly improved the growth potential of ITW’s business portfolio.

With approximately 85% of its divisions ready to grow as of the end of 2016, ITW is well positioned for accelerated growth in 2017 and beyond.

To deliver on this accelerated growth, the divisions have been implementing the organic growth framework, which includes continued investment in customer-back innovation and a strengthened focus on market penetration.

ITW continues to focus on growing its share of "80" products with existing customers with whom the Company has a resonant value proposition as well as target potential new customers with similar pain points to existing customers.

ITW has made strong progress on the Company’s pivot to organic growth and is well positioned to deliver on sustained above-market organic growth over the long-term.

Leveraging ITW's highly differentiated and proprietary business model, the Company delivered strong financial results in 2016 despite a challenging global macro environment and foreign currency translation headwinds.

With the solid execution of the Company's Enterprise Strategy initiatives, six of seven segments achieved worldwide organic revenue growth and five of seven segments had operating margin expansion.

2015 compared to 2014

| Operating revenue | $ | 13,405 | | | $ | 14,484 | | | (7.4 | )% | | (0.4 | )% | (0.2 | )% | — | % | (6.8 | )% | (7.4 | )% |

| Operating income | $ | 2,867 | | | $ | 2,888 | | | (0.7 | )% | | 5.8 | % | (0.3 | )% | 1.2 | % | (7.4 | )% | (0.7 | )% |

| • | Operating revenue decreased 7.4% primarily due to the unfavorable effect of foreign currency translation as the U.S. Dollar strengthened against most major currencies. |

| • | Organic revenue decreased 0.4% in 2015 as compared to the prior year. |

| ◦ | Automotive OEM, Food Equipment and Construction Products had solid organic revenue growth primarily due to penetration gains, higher market demand and product innovation. Organic revenue declined in the Welding and Test & Measurement and Electronics segments primarily due to lower demand in the oil and gas end markets and a challenging capital spending environment. |

| ◦ | PLS activities reduced organic revenue growth by approximately one percentage point. |

| • | Operating income of $2.9 billion decreased 0.7%. Excluding the negative impact from foreign currency translation of 7.4%, operating income would have increased 6.7%. |

| • | Diluted earnings per share (EPS) from continuing operations of $5.13 increased 9.9%. Excluding the negative impact from foreign currency of approximately $0.41 per diluted share, EPS would have increased 18.6%. |

| • | Total cash dividends of $742 million were paid in 2015. |

| Operating revenue | $ | 2,529 | | | $ | 2,590 | | | (2.4 | )% | | 5.8 | % | (0.2 | )% | — | % | (8.0 | )% | (2.4 | )% |

| Operating income | $ | 613 | | | $ | 600 | | | 2.1 | % | | 10.4 | % | (0.1 | )% | (0.3 | )% | (7.9 | )% | 2.1 | % |

| ◦ | North American organic revenue growth of 4.2% exceeded auto build growth of 3%. |

| • | Operating income of $613 million increased 2.1%. Excluding the negative impact of foreign currency translation of 7.9%, operating income would have increased 10.0%. |

| Operating revenue | $ | 2,096 | | | $ | 2,177 | | | (3.7 | )% | | 3.4 | % | — | % | — | % | (7.1 | )% | (3.7 | )% |

| Operating income | $ | 498 | | | $ | 453 | | | 9.8 | % | | 17.7 | % | — | % | (0.3 | )% | (7.6 | )% | 9.8 | % |

The Company operates in the U.S. and [removed: 56] [added: 55] foreign countries.

Changes in the value of this debt resulting from fluctuations in the Euro to U.S. Dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other [added: comprehensive income (loss).]

The cumulative unrealized gain recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was [removed: $375] [added: $81] million and [removed: $308] [added: $375] million as of December 31, [removed: 2016] [added: 2017] and December 31, [removed: 2015,] [added: 2016,] respectively.

Refer to Note 8.

Debt in Item 8.

Financial Statements and Supplemental Data for details related to the fair value of Company's debt instruments.

The following table presents the Company’s fixed rate debt for which the fair value is subject to changing market interest rates:

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 0.90% Notes Due | | | | 1.95% Notes Due | | | | 6.25% Notes Due | | | | 4.88% Notes Due thru | | | | 3.375% Notes Due | | | | 1.75% Euro Notes Due | | | | 1.25% Euro Notes Due | | | | 3.50% Notes Due | | | | 2.65% Notes Due | | | | 2.125% Euro Notes Due | | | | 3.00% Euro Notes Due | | | | 4.875% Notes Due | | | | 3.9% Notes Due | | |

| In millions | Feb 25, 2017 | | | | Mar 1, 2019 | | | | Apr 1, 2019 | | | | Dec 31, 2020 | | | | Sep 15, 2021 | | | | May 20, 2022 | | | | May 22, 2023 | | | | Mar 1, 2024 | | | | Nov 15, 2026 | | | | May 22, 2030 | | | | May 19, 2034 | | | | Sep 15, 2041 | | | | Sep 1, 2042 | | |

| As of December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Estimated cash outflow by year of principal maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| 2017 | $ | 650 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |

| 2018 | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | |

| 2019 | — | | | | 650 | | | | 700 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | |

| 2020 | — | | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | |

| 2021 | — | | | | — | | | | — | | | | — | | | | 350 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | |

| 2022 and thereafter | — | | | | — | | | | — | | | | — | | | | | | | | 526 | | | | 526 | | | | 700 | | | | 1,000 | | | | 526 | | | | 526 | | | | 650 | | | | 1,100 | | |

| Estimated fair value | 650 | | | | 656 | | | | 768 | | | | 4 | | | | 365 | | | | 565 | | | | 549 | | | | 728 | | | | 959 | | | | 565 | | | | 618 | | | | 734 | | | | 1,114 | | |

| Carrying value | 650 | | | | 648 | | | | 698 | | | | 4 | | | | 348 | | | | 520 | | | | 520 | | | | 695 | | | | 991 | | | | 519 | | | | 512 | | | | 636 | | | | 1,080 | | |

| As of December 31, 2015: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Estimated total cash outflow | $ | 650 | | | $ | 650 | | | $ | 700 | | | $ | 4 | | | $ | 350 | | | $ | 543 | | | $ | 543 | | | $ | 700 | | | $ | — | | | $ | 543 | | | $ | 543 | | | $ | 650 | | | $ | 1,100 | |

| Estimated fair value | 649 | | | | 655 | | | | 790 | | | | 4 | | | | 362 | | | | 564 | | | | 538 | | | | 727 | | | | — | | | | 530 | | | | 569 | | | | 708 | | | | 1,051 | | |

| Carrying value | 649 | | | | 647 | | | | 698 | | | | 4 | | | | 347 | | | | 536 | | | | 536 | | | | 695 | | | | — | | | | 536 | | | | 528 | | | | 635 | | | | 1,080 | | |

comprehensive income (loss).

The Company is a global manufacturer of a diversified range of industrial products and equipment with 85 divisions in [removed: 57] [added: 56] countries.

As of December 31, [removed: 2016,] [added: 2017,] the Company employed approximately 50,000 [removed: persons.][added: people.]

This segment primarily serves the food [removed: institutional/restaurant,] [added: service,] food [removed: service] [added: institutional/restaurant] and food retail markets.

Businesses in this segment produce equipment, consumables, and related software for testing and measuring [removed: physical properties] of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics.

This segment primarily serves the general industrial market, which includes fabrication, shipbuilding and other general industrial markets, and energy, construction, MRO, [added: automotive original equipment manufacturers] and [added: tiers, and] industrial capital goods markets.

Businesses in this segment produce [added: engineered] adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance.

This segment primarily serves the automotive aftermarket, [removed: MRO,] general industrial, [added: MRO] and construction markets.

This segment primarily serves the [removed: residential/remodel construction] [added: residential construction, renovation/remodel] and commercial construction markets.

This segment primarily serves the food and beverage, [removed: general industrial,] consumer durables, [added: general industrial,] printing and publishing and industrial capital goods markets.

| • | ITW’s 80/20 [removed: management] [added: front to back] process is the operating system that is applied in every ITW business. Initially introduced as a manufacturing efficiency tool in the [removed: 1980’s,] [added: 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 [removed: management] [added: 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 subsequently creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of more than 17,000 granted and pending patents; |

| • | ITW’s decentralized, entrepreneurial culture [removed: allows] [added: 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 adapted to each business' customers and end markets. |

In late 2012, ITW began the [removed: process] [added: first phase] of [added: its strategic framework] transitioning the Company [removed: onto] [added: on] its current strategic path to fully leverage the compelling performance potential of the ITW Business Model.

Since then, ITW has made considerable progress, as evidenced by the Company’s strong financial performance over the past [removed: four] [added: five] years.

With the initiative nearly complete and ITW businesses demonstrating notably improved financial performance, the Company believes that the [removed: significant] product line simplification work is [removed: essentially finalized and will return] [added: returning] to more normalized [removed: levels in 2017 and beyond.][added: levels.]

| • | The Strategic Sourcing initiative [removed: was] established [added: sourcing] as a core [removed: capability to better leverage ITW’s scale and improve global competitiveness. Sourcing is now a core] strategic and operational capability at ITW. The Company’s 80/20-enabled sourcing organization has delivered an average of one percent reduction in spend each year from 2013 through [removed: 2016] [added: 2017] and is on track to do the same in [removed: 2017 and] 2018. |

| • | With the portfolio realignment and scale-up work largely complete, the Company [removed: was able to shift] [added: shifted] its focus to preparing for and accelerating, organic [removed: growth. As a preparatory step, ITW is in the process of] [added: growth,] reapplying 80/20 to optimize its newly scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth. |

While the Company has made considerable progress and ITW’s performance is nearing best-in-class levels, the Company has significant opportunity for further [removed: improvement before it achieves full operating potential.][added: improvement.]

Backlog by segment as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] was as follows:

| In millions | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Automotive OEM | $ | [removed: 452] [added: 462] | | | $ | [removed: 403] [added: 452] | |

| Food Equipment | [removed: 188] [added: 204] | | | | [removed: 203] [added: 188] | | |

| Test & Measurement and Electronics | [removed: 298] [added: 342] | | | | [removed: 289] [added: 298] | | |

| Welding | [removed: 67] [added: 90] | | | | [removed: 68] [added: 67] | | |

| Polymers & Fluids | [removed: 62] [added: 57] | | | | [removed: 53] [added: 62] | | |

| Construction Products | [removed: 29] [added: 39] | | | | [removed: 34] [added: 29] | | |

| Specialty Products | [removed: 217] [added: 243] | | | | [removed: 237] [added: 217] | | |

| Total | $ | [removed: 1,313] [added: 1,437] | | | $ | [removed: 1,287] [added: 1,313] | |

[removed: Backlog] [added: Due to the predominately short term nature of the Company's arrangements with its customers, backlog] orders scheduled for shipment beyond calendar year [removed: 2017] [added: 2018] were not material as of December 31, [removed: 2016.][added: 2017.]

With operations in [removed: 57] [added: 56] countries, the Company offers a wide range of products in a myriad of markets, many of which are fragmented, and the Company encounters a variety of competitors that vary by product line, end market and geographic area.

[removed: The] Company believes that each segment's primary competitive advantages derive from the Company's business model and decentralized operating structure, which creates a strong focus on end markets and customers at the local level, enabling its businesses to respond rapidly to market dynamics.

This structure enables the Company's businesses to drive operational excellence utilizing the Company's 80/20 [removed: management] [added: front to back] process and leveraging its product innovation capabilities.

Research and development expenses were [added: $225 million,] $223 million [removed: in 2016,] [added: and] $218 million [removed: in 2015] [added: for the years ended December 31, 2017, 2016] and [removed: $227 million in 2014.][added: 2015, respectively.]

The Company owns approximately [removed: 3,500] [added: 3,600] unexpired U.S. patents and [removed: 7,400] [added: 8,000] foreign patents covering articles, methods and machines.

In addition, the Company has approximately 1,500 applications for patents pending in the U.S. Patent Office and [removed: 4,800] [added: 4,600] applications pending in foreign patent offices.

The Company employed approximately 50,000 [removed: persons] [added: people] as of December 31, [removed: 2016] [added: 2017] and considers its employee relations to be excellent.

The Company's international operations include subsidiaries and joint ventures in [removed: 56] [added: 55] foreign countries on six continents.

These operations serve such end markets as automotive OEM/tiers, automotive aftermarket, [removed: general industrial,] commercial food equipment, construction, [added: general industrial,] and others on a worldwide basis.

The Company's revenues from sales to customers outside the U.S. were approximately [added: 56% of revenues,] 55% of revenues [removed: in 2016,] [added: and] 54% of revenues [removed: in 2015,] [added: for the years ended December 31, 2017, 2016] and [removed: 57% of revenues in 2014.][added: 2015, respectively.]

International operations are subject to certain potential risks inherent in conducting business in foreign countries, [added: including price controls, exchange controls, limitations on participation in local enterprises, nationalization, expropriation and other governmental action, and fluctuations in currency exchange rates.]

ITW has clearly demonstrated superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company’s operating margin and after-tax return on invested capital.

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

With this first phase of the strategy nearing completion, the Company will look ahead to the next five years and delivering differentiated performance on a sustained basis.

Sustained Differentiated Performance

The second phase of the strategic framework is focused on delivering

differentiated performance on a sustained basis, with consistent above market organic growth.

Moving forward, the Company remains committed to the four strategic principles that have served as the foundation of its progress over the past five years and that the Company believes best positions ITW to deliver continued differentiated performance over the next five years:

| • | The ITW Business Model is the Company's competitive advantage |

| • | Focus on quality growth |

| • | "Do what we say" execution is a critical differentiator |

| • | Invest only where ITW has a competitive advantage |

The ITW Business Model is the Company's Competitive Advantage

The ITW Business Model is the combination of a set of strategic, operational, and cultural approaches and practices that is applied to every ITW business.

The Business Model has existed inside the Company for over 30 years and is truly ITW's differentiating competitive advantage.

The ITW Business Model is comprised of three elements:

- 80/20 Front to Back Process = How the Company Operates

- Customer-Back Innovation Approach = How the Company Innovates

- Decentralized Entrepreneurial Culture = How the Company Executes

Focus on Quality Growth

ITW prioritizes high-quality revenue growth and, as such, the Company’s primary growth focus is organic.

Leveraging the Business Model and the 80/20 front to back process provides a clear view of where to focus for high- quality growth.

The Company targets differentiated end-markets and customers with critical needs and challenging pain points.

ITW generates high-quality growth through consistent customer-back innovation and customer service excellence.

The Company only invests and operates in industries and businesses that have the right “raw material” to generate high quality organic growth through the application of the ITW Business Model.

ITW’s current portfolio of seven segments offers solid growth potential and a high degree of diversification in terms of geographic and end market exposures, enabling the Company to deliver consistent high-quality growth in an increasingly volatile and competitive global market environment.

"Do What We Say" Execution is a Critical Differentiator

ITW’s commitment to execution is a key differentiator for ITW.

Living up to the Company’s commitments - “do what we say” execution - is a deeply embedded core element of the culture.

The culture is the engine that translates ITW's strategy into action, and action into results.

All divisions function within a “framework” that defines how the culture operates and defines the Company’s values, business model and strategy to ensure all divisions are working toward our common set of goals.

Business leaders have the flexibility to define the actions and customize their approach to meet those goals.

This “flexibility within the framework” establishes an entrepreneurial environment where decisions are made “bottom up” by those with the greatest knowledge, capability and proximity to the customer, which enables our businesses to be nimble and react quickly to market conditions and customer requirements.

ITW is simple, straightforward and transparent in everything it does.

The Company sets clear performance expectations and financial targets, executes against these at the appropriate pace, and establishes the freedom to define how to achieve results within the construct of the Business Model.

Invest Only Where ITW Has a Competitive Advantage

The Company is highly focused and disciplined in its approach to invest only where it can leverage the ITW Business Model into compelling and sustainable competitive advantage.

Investments to support organic growth and sustain its highly differentiated core businesses, such as new product innovation, marketing programs, simplification projects, and capital investments, are ITW’s number one investment priority.

The

In addition, he served as

| | |

Once the business has achieved operational excellence and identified the right growth opportunities, the final step is to accelerate organic growth.

The process of preparing for accelerated organic growth generally takes 18 to 24 months.

Based on the financial performance of the divisions that are further along in this process, the Company believes that its organic growth framework is capable of delivering above-market organic growth across all segments.

Divisions

are at various phases in preparation for growth and many are either ready to grow or already growing above their respective markets.

ITW management is fully aligned with this plan and very focused on executing it.

With the close of 2016, approximately 85 percent of the divisions are ready to grow.

Path to Full Potential

In order to do so, ITW is focused on two key areas of opportunity, including: additional structural margin improvement and sustained above-market organic growth with strong incremental profitability.

Additional Structural Margin Improvement

To deliver on the additional structural margin improvement, the Company is implementing the following two levers: (1) further leveraging the 80/20 management process and (2) strategic sourcing.

| • | The first lever, better leveraging the full power of the ITW Business Model, will be accomplished through a much more consistent and focused approach to 80/20 best practice implementation across the Company. The 80/20 management system has continuously been refined, improved and expanded into a unique holistic business management process of interconnected tools, which improves all aspects of the business and, when applied consistently and executed more effectively, will lead to additional margin improvement. ITW has clearly demonstrated superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company’s operating margin and after-tax return on invested capital. These 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns. |

| • | The second lever, strategic sourcing, is a core element of ITW’s ongoing operational strategy and a sustainable enterprise-wide capability. Through the continued execution of this initiative, the Company expects to deliver additional margin improvement with the goal of a one percent reduction in spend in 2017 and 2018. |

Sustained Above-Market Organic Growth with Strong Incremental Profitability

ITW has done extensive work on its portfolio and operating structure to position the Company to deliver sustainable above-market organic growth.

The Company has narrowed the focus and significantly improved the growth potential of ITW’s business portfolio.

With approximately 85% of its divisions ready to grow as of the end of 2016, ITW is well positioned for accelerated growth in 2017 and beyond.

To deliver on this accelerated growth, the divisions have been implementing the organic growth framework, which includes continued investment in customer-back innovation and a strengthened focus on market penetration.

ITW continues to focus on growing its share of "80" products with existing customers with whom the Company has a resonant value proposition as well as target potential new customers with similar pain points to existing customers.

ITW has made strong progress on the Company’s pivot to organic growth and is well positioned to deliver on sustained above-market organic growth over the long-term.

Divestiture of Majority Interest in Former Decorative Surfaces Segment— On October 31, 2012, the Company divested a 51% majority interest in the Decorative Surfaces segment.

Accordingly, the Company ceased consolidating the results of the Decorative Surfaces segment as of October 31, 2012 and now reports its 49% ownership interest using the equity method of accounting.

Due to the Company's continuing involvement through its 49% interest, the historical operating results of Decorative Surfaces are presented in continuing operations.

Effective November 1, 2012, Decorative Surfaces was no longer a reportable segment of the Company.

See Note 2.

Discontinued Operations in Item 8.

Financial Statements and Supplementary Data for further discussion of this transaction.

including price controls, exchange controls, limitations on participation in local enterprises, nationalization, expropriation and other governmental action, and fluctuations in currency exchange rates.

| David C. Parry | Vice Chairman | 63 | |

Mr. Parry has served in his present position since 2010.

For the fiscal year ended December 31, [removed: 2016][added: 2017]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [removed: o][added: x]

See the definitions of "large accelerated filer," "accelerated [removed: filer" and] [added: filer,"] "smaller reporting [added: company," and "emerging growth] company" in Rule 12b-2 of the Exchange Act.

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, [removed: 2016] [added: 2017] was approximately [removed: $30.4] [added: $45.9] billion based on the New York Stock Exchange closing sales price as of June 30, [removed: 2016.][added: 2017.]

| Portions of the [removed: 2017] [added: 2018] Proxy Statement for Annual Meeting of Stockholders to be held on May [removed: 5, 2017.] [added: 4, 2018.] | | Part III |

| | [removed: PART I] [added: [PART I](#s30362B7856AD5CCF9AD27CEB4505A9C6)] | |

| [removed: Item 1.] [added: [Item 1.](#sD76737E7B5E356AE891D747611A23291)] | [removed: [Business](#s56EAD444E49C93543EB28E06E216F2A1)] [added: [Business](#sD76737E7B5E356AE891D747611A23291)] | [removed: [3](#s56EAD444E49C93543EB28E06E216F2A1)] [added: [3](#sD76737E7B5E356AE891D747611A23291)] |

| [removed: Item 1A.] [added: [Item 1A.](#s31476398F7F453E3A8038325FD0E9557)] | [Risk [removed: Factors](#sF717D2E3BE3AD9C645E18E06EFCC8355)] [added: Factors](#s31476398F7F453E3A8038325FD0E9557)] | [removed: [10](#sF717D2E3BE3AD9C645E18E06EFCC8355)] [added: [11](#s31476398F7F453E3A8038325FD0E9557)] |

| [removed: Item 1B.] [added: [Item 1B.](#s39762F8F08CD58049FEA8FD74CC0F926)] | [Unresolved Staff [removed: Comments](#sACD3005A0F0848B2CC358E06EFE7F187)] [added: Comments](#s39762F8F08CD58049FEA8FD74CC0F926)] | [removed: [14](#sACD3005A0F0848B2CC358E06EFE7F187)] [added: [15](#s39762F8F08CD58049FEA8FD74CC0F926)] |

| [removed: Item 2.] [added: [Item 2.](#sE584E7513FA057789D1AB8019A5F2813)] | [removed: [Properties](#s96ECF7B3B352B6778C6E8E06DDAC2E3B)] [added: [Properties](#sE584E7513FA057789D1AB8019A5F2813)] | [removed: [15](#s96ECF7B3B352B6778C6E8E06DDAC2E3B)] [added: [15](#sE584E7513FA057789D1AB8019A5F2813)] |

| [removed: Item 3.] [added: [Item 3.](#sF3F3449C117B5D7D9860C124906F2CAB)] | [Legal [removed: Proceedings](#sCFD4DFD212E314730EA88E06F03A811D)] [added: Proceedings](#sF3F3449C117B5D7D9860C124906F2CAB)] | [removed: [15](#sCFD4DFD212E314730EA88E06F03A811D)] [added: [15](#sF3F3449C117B5D7D9860C124906F2CAB)] |

| [removed: Item 4.] [added: [Item 4.](#sB9A7C6DC0E22573C817DFD8BA97BFF48)] | [Mine Safety [removed: Disclosures](#sD19504EE31C5805A855E8E06F05CB6C3)] [added: Disclosures](#sB9A7C6DC0E22573C817DFD8BA97BFF48)] | [removed: [15](#sD19504EE31C5805A855E8E06F05CB6C3)] [added: [15](#sB9A7C6DC0E22573C817DFD8BA97BFF48)] |

| | [removed: PART II] [added: [PART II](#sAB43D5EBCDC055689189CC6BDFC4242B)] | |

| [removed: Item 5.] [added: [Item 5.](#s2F7BD706123851979E2B1DBC3AFF42F3)] | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s65032B06845A57BA479F8E06DF4DF172)] [added: Securities](#s2F7BD706123851979E2B1DBC3AFF42F3)] | [removed: [16](#s65032B06845A57BA479F8E06DF4DF172)] [added: [16](#s2F7BD706123851979E2B1DBC3AFF42F3)] |

| [removed: Item 6.] [added: [Item 6](#s0376C6B07BAA541292845BA6560CC1BA).] | [Selected Financial [removed: Data](#s08AE6D6C3829FFFF3B3B8E06DEFB7B9E)] [added: Data](#s0376C6B07BAA541292845BA6560CC1BA)] | [removed: [17](#s08AE6D6C3829FFFF3B3B8E06DEFB7B9E)] [added: [17](#s0376C6B07BAA541292845BA6560CC1BA)] |

| [removed: Item 7.] [added: [Item 7.](#s11697B71E6465718BB4BC09FA5326B4E)] | [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s08538BAE3F72DB57E5F68E06F10A7DAE)] [added: Operations](#s11697B71E6465718BB4BC09FA5326B4E)] | [removed: [19](#s08538BAE3F72DB57E5F68E06F10A7DAE)] [added: [19](#s11697B71E6465718BB4BC09FA5326B4E)] |

| [removed: Item 7A.] [added: [Item 7A.](#s2F2DBD0FE12A542383DE540A5B1A04DA)] | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s1837700DE66EFA88F09C8E06F53D3017)] [added: Risk](#s2F2DBD0FE12A542383DE540A5B1A04DA)] | [removed: [40](#s1837700DE66EFA88F09C8E06F53D3017)] [added: [41](#s2F2DBD0FE12A542383DE540A5B1A04DA)] |

| [removed: Item 8.] [added: [Item 8.](#s3D23B3C640A45D90B4BF422D1B98BDAE)] | [Financial Statements and Supplementary [removed: Data](#s1A7C149AE8E59D8C97F18E06F5772F6B)] [added: Data](#s3D23B3C640A45D90B4BF422D1B98BDAE)] | [removed: [42](#s1A7C149AE8E59D8C97F18E06F5772F6B)] [added: [42](#s3D23B3C640A45D90B4BF422D1B98BDAE)] |

| [removed: Item 9.] [added: [Item 9.](#sE643E645D12E535A9D0EF5A5D03A2ACF)] | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#sBD15D1B6C5AE795B6EF08E06FD4B5730)] [added: Disclosure](#sE643E645D12E535A9D0EF5A5D03A2ACF)] | [removed: [73](#sBD15D1B6C5AE795B6EF08E06FD4B5730)] [added: [73](#sE643E645D12E535A9D0EF5A5D03A2ACF)] |

| [removed: Item 9A.] [added: [Item 9A.](#sAC11282076C85E6FA43864CFEB32964B)] | [Controls and [removed: Procedures](#s96C512ADDBE45EF297588E06FD53445E)] [added: Procedures](#sAC11282076C85E6FA43864CFEB32964B)] | [removed: [73](#s96C512ADDBE45EF297588E06FD53445E)] [added: [73](#sAC11282076C85E6FA43864CFEB32964B)] |

| [removed: Item 9B.] [added: [Item 9B.](#s5D59ACA79D07550BB8D2B86D9C6A7944)] | [Other [removed: Information](#s0E98D5504F19780D9EAD8E06FD60D944)] [added: Information](#s5D59ACA79D07550BB8D2B86D9C6A7944)] | [removed: [73](#s0E98D5504F19780D9EAD8E06FD60D944)] [added: [73](#s5D59ACA79D07550BB8D2B86D9C6A7944)] |

| | [removed: PART III] [added: [PART III](#sCC7FEBA049A15786A85F951BFD5BA7CB)] | |

| [removed: Item 10.] [added: [Item 10.](#s04C11153B5495FA8AAC67900647DE58A)] | [Directors, Executive Officers and Corporate [removed: Governance](#s0EC0DE0DF5EB255B0B768E06FDB3C460)] [added: Governance](#s04C11153B5495FA8AAC67900647DE58A)] | [removed: [74](#s0EC0DE0DF5EB255B0B768E06FDB3C460)] [added: [74](#s04C11153B5495FA8AAC67900647DE58A)] |

| [removed: Item 11.] [added: [Item 11.](#sDD127E7A295A59CA85B380FBE7D6CA03)] | [Executive [removed: Compensation](#s5CC61056DAC3EC336DE48E06FDE68788)] [added: Compensation](#sDD127E7A295A59CA85B380FBE7D6CA03)] | [removed: [74](#s5CC61056DAC3EC336DE48E06FDE68788)] [added: [74](#sDD127E7A295A59CA85B380FBE7D6CA03)] |

| [removed: Item 12.] [added: [Item 12.](#s4CDF8724A47B5E3791EAB33ECCB6BEAD)] | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sBB65E8DEDCBD19AAC0498E06FE08A9B3)] [added: Matters](#s4CDF8724A47B5E3791EAB33ECCB6BEAD)] | [removed: [74](#sBB65E8DEDCBD19AAC0498E06FE08A9B3)] [added: [74](#s4CDF8724A47B5E3791EAB33ECCB6BEAD)] |

| [removed: Item 13.] [added: [Item 13.](#s84AB0F4268D35198872A62D7D99AAE45)] | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sE3DD84588C4D5AD2674B8E06FE3B6825)] [added: Independence](#s84AB0F4268D35198872A62D7D99AAE45)] | [removed: [74](#sE3DD84588C4D5AD2674B8E06FE3B6825)] [added: [74](#s84AB0F4268D35198872A62D7D99AAE45)] |

| [removed: Item 14.] [added: [Item 14.](#sE84FFD66548D507D9E43394EE3B789B0)] | [Principal Accounting Fees and [removed: Services](#s776342EDA7A5CFA73C9C8E06FE5A942B)] [added: Services](#sE84FFD66548D507D9E43394EE3B789B0)] | [removed: [74](#s776342EDA7A5CFA73C9C8E06FE5A942B)] [added: [74](#sE84FFD66548D507D9E43394EE3B789B0)] |

| | [removed: PART IV] [added: [PART IV](#s731A77315F3D5F4F8DEDAB66BF0C8175)] | |

| [removed: Item 15.] [added: [Item 15.](#s69F4BDDA93355B489BD19031C3D5D38A)] | [Exhibits and Financial Statement [removed: Schedules](#s6F2ABCD6E8DDC14D3DD28E06FEAD6481)] [added: Schedules](#s69F4BDDA93355B489BD19031C3D5D38A)] | [removed: [75](#s6F2ABCD6E8DDC14D3DD28E06FEAD6481)] [added: [75](#s69F4BDDA93355B489BD19031C3D5D38A)] |

10-K 1 itw-20171231x10k.htm 10-K

| | | Emerging growth company | o |

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

Shares of Common Stock outstanding at January 31, 2018: 341,545,719.

| [Item 16.](#s9fbde6a7e1774c0ca69fd19b1812e460) | [Form 10-K Summary](#s9fbde6a7e1774c0ca69fd19b1812e460) | [78](#s9fbde6a7e1774c0ca69fd19b1812e460) |

| [Signatures](#s1EBC4854B2825689887668AEA5D0120C) | | [79](#s1EBC4854B2825689887668AEA5D0120C) |

10-K 1 itw-20161231x10k.htm 10-K

| | | |

| | | | |

Shares of Common Stock outstanding at January 31, 2017: 346,550,685.

| [Signatures](#sBD3F9F93755B9D929B828E06FEEC7613) | | [76](#sBD3F9F93755B9D929B828E06FEEC7613) |

| [Exhibit Index](#sC5DBE4AF2A05300AE7D88E06FF00124F) | | [77](#sC5DBE4AF2A05300AE7D88E06FF00124F) |

As of December 31, [removed: 2016,] [added: 2017,] the Company operated the following plants and office facilities, excluding regional sales offices and warehouse facilities:

| Automotive OEM | | [removed: 59] [added: 58] | | | [removed: 38] [added: 35] | | | [removed: 97] [added: 93] | |

| Food Equipment | | [removed: 24] [added: 25] | | | [removed: 17] [added: 19] | | | [removed: 41] [added: 44] | |

| Test & Measurement and Electronics | | [removed: 29] [added: 27] | | | [removed: 63] [added: 58] | | | [removed: 92] [added: 85] | |

| Welding | | [removed: 26] [added: 25] | | | [removed: 18] [added: 15] | | | [removed: 44] [added: 40] | |

| Polymers & Fluids | | [removed: 37] [added: 34] | | | [removed: 32] [added: 33] | | | [removed: 69] [added: 67] | |

| Construction Products | | [removed: 28] [added: 27] | | | [removed: 28] [added: 27] | | | [removed: 56] [added: 54] | |

| Specialty Products | | [removed: 47] [added: 45] | | | [removed: 42] [added: 37] | | | [removed: 89] [added: 82] | |

| Corporate | | 1 | | | [removed: 12] [added: 9] | | | [removed: 13] [added: 10] | |

The Company’s properties are [removed: highly suitable] [added: well suited] for the purposes for which they were designed and are maintained in good operating condition.

The Company operated [removed: 307] [added: 301] plants and office facilities outside of the U.S. Principal countries include China, Germany, France and the United Kingdom.

| Total | | 242 | | | 233 | | | 475 | |

| Total | | 251 | | | 250 | | | 501 | |

Quarterly market price and dividend data for [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] were as shown below:

There were approximately [removed: 6,433] [added: 6,083] holders of record of common stock as of January 31, [removed: 2017.][added: 2018.]

[removed: ][added: ]

*Assumes $100 invested on [removed: 12/31/11] [added: 12/31/12] in stock or index, including reinvestment of dividends.

Copyright© [removed: 2017] [added: 2018] S&P, a division of McGraw Hill Financial.

The [removed: 2016] [added: 2017] peer group consists of the following [removed: 18] [added: 17] public companies, consistent with the peer group included in the Company's Proxy statement:

| [removed: BorgWarner Inc. |] Eaton Corporation plc | [removed: Parker-Hannifin Corporation] [added: Johnson Controls, Inc.] | [added: |]

| Caterpillar Inc. | [removed: Emerson Electric Co.] [added: Fortive Corporation] | PPG Industries, Inc. |

| [removed: Deere & Company] [added: Dover Corporation] | Ingersoll-Rand plc | Stanley Black & Decker, Inc. |

As of December 31, [removed: 2016,] [added: 2017,] there were approximately [removed: $3.4] [added: $2.4] billion of authorized repurchases remaining under the 2015 Program.

Share repurchase activity under the Company's share repurchase program for the fourth quarter of [removed: 2016] [added: 2017] was as follows:

| December [removed: 2016] [added: 2017] | 0.4 | | | $ | [removed: 126.26] [added: 165.58] | | | 0.4 | | | $ | [removed: 3,446] [added: 2,446] | |

| 2017: | | | | | | | | | | | |

| Fourth quarter | $ | 169.69 | | | $ | 147.96 | | | $ | 0.78 | |

| Third quarter | 148.28 | | | | 135.07 | | | | 0.78 | | |

| Second quarter | 150.29 | | | | 130.17 | | | | 0.65 | | |

| First quarter | 136.03 | | | | 120.06 | | | | 0.65 | | |

| 3M Company | Emerson Electric Co. | Parker-Hannifin Corporation |

| Cummins Inc. | General Dynamics Corporation | Raytheon Company |

| Deere & Company | Honeywell International Inc. | Rockwell Automation, Inc. |

The Compensation Committee of the Board of Directors of the Company reviews the peer group annually and from time to time it changes the composition of the Company’s peer group where changes are appropriate.

In 2017, Fortive Corporation, General Dynamics Corporation, Raytheon Company and Rockwell Automation, Inc. were added, as they meet the Company’s industry and size criteria.

BorgWarner Inc., Masco Corporation and Textron Inc. were removed because they are consistently below the Company’s cut-off for market capitalization.

Additionally, E.I. du Pont de Nemours and Company was removed due to its merger with Dow Chemical Company, and Pentair plc was removed due to the spin-off of its electrical business.

Although Fortive Corporation was added to the Company’s peer group in 2017, it was excluded from the five year cumulative total return as there was insufficient historical data due to its recent spin-off from Danaher Corporation in 2016.

| October 2017 | 0.6 | | | $ | 153.31 | | | 0.6 | | | $ | 2,596 | |

| November 2017 | 0.6 | | | $ | 157.32 | | | 0.6 | | | $ | 2,504 | |

| Total | 1.6 | | | | | | | 1.6 | | | | | |

| 2015: | | | | | | | | | | | |

| Fourth quarter | $ | 95.00 | | | $ | 80.16 | | | $ | 0.55 | |

| Third quarter | 94.33 | | | | 78.79 | | | | 0.55 | | |

| Second quarter | 99.92 | | | | 91.41 | | | | 0.485 | | |

| First quarter | 100.14 | | | | 90.43 | | | | 0.485 | | |

| 3M Company | E.I. du Pont de Nemours and Company | Masco Corporation |

| Cummins Inc. | Honeywell International Inc. | Pentair plc |

| Dover Corporation | Johnson Controls, Inc. | Textron Inc. |

Danaher Corporation was removed from the Company's peer group in 2016 due to the spin-off of Fortive Corporation.

| October 2016 | 2.8 | | | $ | 114.89 | | | 2.8 | | | $ | 3,622 | |

| November 2016 | 1.1 | | | $ | 120.25 | | | 1.1 | | | $ | 3,498 | |

| Total | 4.3 | | | | | | | 4.3 | | | | | |

| In millions except per share amounts | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| Operating revenue | $ | [removed: 13,599] [added: 14,314] | | | $ | [removed: 13,405] [added: 13,599] | | | $ | [removed: 14,484] [added: 13,405] | | | $ | [removed: 14,135] [added: 14,484] | | | $ | [removed: 14,791] [added: 14,135] | |

| Income from continuing operations | [removed: 2,035] [added: 1,687] | | | | [removed: 1,899] [added: 2,035] | | | | [removed: 1,890] [added: 1,899] | | | | [removed: 1,630] [added: 1,890] | | | | [removed: 2,233] [added: 1,630] | | |

| Basic | [removed: 5.73] [added: 4.90] | | | | [removed: 5.16] [added: 5.73] | | | | [removed: 4.70] [added: 5.16] | | | | [removed: 3.65] [added: 4.70] | | | | [removed: 4.75] [added: 3.65] | | |

| Diluted | [removed: 5.70] [added: 4.86] | | | | [removed: 5.13] [added: 5.70] | | | | [removed: 4.67] [added: 5.13] | | | | [removed: 3.63] [added: 4.67] | | | | [removed: 4.72] [added: 3.63] | | |

| Total assets at year-end | [removed: 15,201] [added: 16,780] | | | | [removed: 15,729] [added: 15,201] | | | | [removed: 17,465] [added: 15,729] | | | | [removed: 19,599] [added: 17,465] | | | | [removed: 19,138] [added: 19,599] | | |

| Long-term debt at year-end | [removed: 7,177] [added: 7,478] | | | | [removed: 6,896] [added: 7,177] | | | | [removed: 5,943] [added: 6,896] | | | | [removed: 2,771] [added: 5,943] | | | | [removed: 4,564] [added: 2,771] | | |

| Cash dividends declared per common share | [removed: 2.40] [added: 2.86] | | | | [removed: 2.07] [added: 2.40] | | | | [removed: 1.81] [added: 2.07] | | | | [removed: 1.60] [added: 1.81] | | | | [removed: 1.48] [added: 1.60] | | |

In April 2014, the Financial Accounting Standards Board [removed: ("FASB")] [added: (the "FASB")] issued authoritative guidance to change the criteria for reporting discontinued operations.

There were no discontinued operations during [added: 2017,] 2016 or 2015 under this new accounting guidance.

Income from discontinued operations was $1.1 [removed: billion, $49 million,] [added: billion] and [removed: $637] [added: $49] million [removed: in] [added: for] the years [removed: 2014, 2013,] [added: 2014] and [removed: 2012,] [added: 2013,] respectively.

Financial Statements and Supplementary Data for [removed: discussion of the Company's discontinued operations.][added: further information.]

The Company early adopted this guidance in the fourth quarter of 2015 and restated $38 [removed: million, $22 million,] [added: million] and [removed: $26] [added: $22] million of deferred long-term debt issuance costs from Other assets to Long-term debt in the years [removed: 2014, 2013,] [added: 2014] and [removed: 2012,] [added: 2013,] respectively.

Early adoption of this guidance in the fourth quarter of 2015 decreased total assets by $175 [removed: million, $345 million,] [added: million] and [removed: $145] [added: $345] million in the years [removed: 2014, 2013,] [added: 2014] and [removed: 2012,] [added: 2013,] respectively.

In 2017, the Company recorded a one-time additional income tax expense of $658 million, or $1.90 per diluted share, related to the enactment of the United States "Tax Cuts and Jobs Act." Refer to Note 5.

Income Taxes in Item 8.

In March 2016, the FASB issued authoritative guidance that includes several changes to simplify the accounting for stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows.

Among the more significant changes, the new guidance requires that the income tax effects associated with the settlement of stock-based awards after adoption of the guidance be recognized through income tax expense rather than directly in equity.

Additionally, the income tax effects related to excess tax benefits should be presented within operating cash flows in the statement of cash flows rather than as a financing activity.

Excess tax benefits recognized in equity under the prior guidance were $29 million, $20 million, $33 million and $24 million for the years ended December 31, 2016, 2015, 2014 and 2013, respectively.

The Company adopted the new guidance effective January 1, 2017 and applied the new guidance prospectively.

Excess tax benefits of $50 million were included in Income taxes in the statement of income for the year ended December 31, 2017.

The expected effect on income tax expense or net cash provided from operating activities related to future stock-based award settlements will vary each period and will depend on inputs such as the stock price at the time of settlement and the number of awards settled in the period presented.

On October 31, 2012, the Company divested a 51% majority interest in its Decorative Surfaces segment.

Accordingly, the Company ceased consolidating the results of the Decorative Surfaces segment as of October 31, 2012 and now reports its 49% ownership interest using the equity method of accounting.

Due to the Company's continuing involvement through its 49% interest, the historical operating results of Decorative Surfaces are presented in continuing operations.

Effective November 1, 2012, Decorative Surfaces was no longer a reportable segment of the Company.

Refer to Note 2.

Discontinued Operations in Item 8.

ITW management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2016.][added: 2017.]

Based on our assessment we believe that, as of December 31, [removed: 2016,] [added: 2017,] the Company’s internal control over financial reporting is effective based on those criteria.

The effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2016] [added: 2017] has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report herein.

| /s/ E. Scott Santi E. Scott Santi Chairman & Chief Executive Officer February [removed: 10, 2017] [added: 15, 2018] | | /s/ Michael M. Larsen Michael M. Larsen Senior Vice President & Chief Financial Officer February [removed: 10, 2017] [added: 15, 2018] |

We have audited the accompanying consolidated statements of financial position of Illinois Tool Works Inc. and subsidiaries (the [removed: “Company”)] [added: "Company")] as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of income, comprehensive income, changes in [removed: stockholders’] [added: shareholders'] equity, and cash [removed: flows] [added: flows,] for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, and the related notes (collectively referred to as the “financial statements”).]

We also have audited the Company’s internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal [removed: Control-Integrated] [added: Control - Integrated] Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission.][added: Commission (COSO).]

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the [removed: audit] [added: audits] to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement] [added: misstatement, whether due to error or fraud,] and whether effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the financial statements] [added: also] included [removed: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: evaluating] the accounting principles used and significant estimates made by management, [removed: and] [added: as well as] evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

A company’s internal control over financial reporting is a process designed [removed: by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Also, projections of any evaluation of [removed: the] effectiveness [removed: of the internal control over financial reporting] to future periods are subject to the risk that [removed: the] controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the [removed: consolidated] financial statements referred to above present fairly, in all material respects, the financial position of [removed: Illinois Tool Works Inc. and subsidiaries] [added: the Company] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on [removed: the] criteria established in Internal [removed: Control-Integrated] [added: Control - Integrated] Framework (2013) issued by [removed: the Committee of Sponsoring Organizations of the Treadway Commission.][added: COSO.]

| In millions except per share amounts | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Operating Revenue | $ | [removed: 13,599] [added: 14,314] | | | $ | [removed: 13,405] [added: 13,599] | | | $ | [removed: 14,484] [added: 13,405] | |

| Cost of revenue | [removed: 7,896] [added: 8,309] | | | | [removed: 7,888] [added: 7,896] | | | | [removed: 8,673] [added: 7,888] | | |

| Selling, administrative, and research and development expenses | [removed: 2,415] [added: 2,400] | | | | [removed: 2,417] [added: 2,415] | | | | [removed: 2,678] [added: 2,417] | | |

| Amortization and impairment of intangible assets | [removed: 224] [added: 206] | | | | [removed: 233] [added: 224] | | | | [removed: 245] [added: 233] | | |

| Operating Income | [removed: 3,064] [added: 3,494] | | | | [removed: 2,867] [added: 3,064] | | | | [removed: 2,888] [added: 2,867] | | |

| Interest expense | [removed: (237] [added: (260] | | ) | | [removed: (226] [added: (237] | | ) | | [removed: (250] [added: (226] | | ) |

| Other income (expense) | [removed: 81] [added: 36] | | | | [removed: 78] [added: 81] | | | | [removed: 61] [added: 78] | | |

| Income [removed: from Continuing Operations] Before [removed: Income] Taxes | [removed: 2,908] [added: 3,270] | | | | [removed: 2,719] [added: 2,908] | | | | [removed: 2,699] [added: 2,719] | | |

| Income taxes | [removed: 873] [added: 1,583] | | | | [removed: 820] [added: 873] | | | | [removed: 809] [added: 820] | | |

| Net Income | $ | [removed: 2,035] [added: 1,687] | | | $ | [removed: 1,899] [added: 2,035] | | | $ | [removed: 2,946] [added: 1,899] | |

[removed: |] [added: (6) Net] Income Per Share [removed: from Continuing Operations: | | | | | | | | | | | |]

| Basic | $ | [removed: 5.73] [added: 4.90] | | | $ | [removed: 5.16] [added: 5.73] | | | $ | [removed: 4.70] [added: 5.16] | |

| Diluted | $ | [removed: 5.70] [added: 4.86] | | | $ | [removed: 5.13] [added: 5.70] | | | $ | [removed: 4.67] [added: 5.13] | |

| In millions | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Foreign currency translation adjustments, net of tax | [removed: (277] [added: 406] | | [removed: )] | | [removed: (860] [added: (277] | | ) | | [removed: (939] [added: (860] | | ) |

| Pension and other postretirement benefit adjustments, net of tax | [removed: (26] [added: 114] | | [removed: )] | | [removed: 14] [added: (26] | | [added: )] | | [removed: (103] [added: 14] | | [removed: )] |

| Comprehensive Income | $ | [removed: 1,732] [added: 2,207] | | | $ | [removed: 1,053] [added: 1,732] | | | $ | [removed: 1,904] [added: 1,053] | |

| In millions except per share amounts | [added: | 2017 | | | |] 2016 | | | | 2015 | | |

| Cash and equivalents | $ | [removed: 2,472] [added: 3,094] | | | $ | [removed: 3,090] [added: 2,472] | |

| Trade receivables | [removed: 2,357] [added: 2,628] | | | | [removed: 2,203] [added: 2,357] | | |

| Inventories | [removed: 1,076] [added: 1,220] | | | | [removed: 1,086] [added: 1,076] | | |

| Prepaid expenses and other current assets | [removed: 218] [added: 336] | | | | [removed: 341] [added: 218] | | |

| Total current assets | [removed: 6,123] [added: 7,278] | | | | [removed: 6,720] [added: 6,123] | | |

| Net plant and equipment | [removed: 1,652] [added: 1,778] | | | | [removed: 1,577] [added: 1,652] | | |

| Goodwill | [removed: 4,558] [added: 4,752] | | | | [removed: 4,439] [added: 4,558] | | |

| Intangible assets | [removed: 1,463] [added: 1,272] | | | | [removed: 1,560] [added: 1,463] | | |

Opinions on the Financial Statements and Internal Control over Financial Reporting

Basis for Opinions

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Definition and Limitations of Internal Control over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

We have served as the Company's auditor since 2002.

| Legal settlement (income) | (95 | | ) | | — | | | | — | | |

| Net Income | $ | 1,687 | | | $ | 2,035 | | | $ | 1,899 | |

| | $ | 16,780 | | | $ | 15,201 | |

| | $ | 16,780 | | | $ | 15,201 | |

| Balance at December 31, 2017 | $ | 6 | | $ | 1,218 | | $ | 20,210 | | $ | (15,562 | ) | $ | (1,287 | ) | $ | 4 | | $ | 4,589 | |

| Net income | $ | 1,687 | | | $ | 2,035 | | | $ | 1,899 | |

| Amortization and impairment of intangible assets | 206 | | | | 224 | | | | 233 | | |

| In millions | | 2017 | | | | 2016 | | |

| In millions | | 2017 | | | | 2016 | | |

Effective January 1, 2017

Excess tax benefits recognized in equity under the prior guidance were $29 million and $20 million for the years ended December 31, 2016 and 2015, respectively.

Excess tax benefits of $50 million were included in Income taxes in the statement of income for the year ended December 31, 2017.

Effective January 1, 2018

The Company's sales arrangements with customers are predominately short term in nature and generally provide for transfer of control and revenue recognition at the time of product shipment or delivery of service.

In limited circumstances, arrangements may include service performed over time, or there may be significant obligations to the customer that are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance.

Effective January 1, 2018, the Company adopted this new guidance under the modified retrospective method which requires the new guidance to be applied prospectively to revenue transactions completed on or after the effective date.

Given the nature of the Company’s revenue transactions, the new guidance is not expected to have a material impact on the Company’s operating revenue, results of operations, or financial position.

As a result of adopting the guidance, the Company expects to record a cumulative-effect adjustment reducing retained earnings as of January 1, 2018 by approximately $10 million related to certain transactions that were impacted by the new guidance.

Additionally, the Company expects to provide the required additional disclosures in periods subsequent to adoption.

Effective January 1, 2018, the Company adopted the new guidance and will apply the newly adopted guidance to intra-entity asset transfers on or after the date of adoption.

As a result of adopting the new guidance, the Company expects to record a cumulative-effect adjustment reducing deferred tax assets and retained earnings by approximately $400 million.

Additionally, intra-entity asset transfers may result in future tax rate volatility under the new guidance.

In March 2017, the FASB issued authoritative guidance which changes the income statement presentation of the components of net periodic benefit cost related to defined benefit pension and other postretirement plans.

The primary change under the new guidance is that only the service cost component of net periodic benefit cost should be included in operating income and is eligible for capitalization as an asset.

The other components of net periodic benefit cost, including interest cost, expected return on assets, settlements, curtailments, and amortization of actuarial gains and losses and prior service cost, should be presented below operating income.

Effective January 1, 2018, the Company adopted the new guidance and will apply the new presentation of net periodic benefit cost in future periods and expects to restate prior periods for comparability.

For the years ended December 31, 2017, 2016 and 2015, the other components of net periodic benefit cost were income of $9 million, income of $8 million, and expense of $1 million, respectively.

Pension and Other Postretirement Benefits for further information regarding the Company’s net periodic benefit cost.

Effective January 1, 2019

EF&C had operating revenue of $517 million for the year ended December 31, 2017 and $245 million for the six months ended December 31,

(3) Legal Settlement

In the second quarter of 2017, the Company entered into a $95 million confidential settlement agreement to resolve a litigation matter.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.

Deloitte & Touche LLP

February 10, 2017

| Income from Continuing Operations | 2,035 | | | | 1,899 | | | | 1,890 | | |

| Income from Discontinued Operations | — | | | | — | | | | 1,056 | | |

| Income Per Share from Discontinued Operations: | | | | | | | | | | | |

| Basic | $ | — | | | $ | — | | | $ | 2.63 | |

| Diluted | $ | — | | | $ | — | | | $ | 2.61 | |

| Basic | $ | 5.73 | | | $ | 5.16 | | | $ | 7.33 | |

| Diluted | $ | 5.70 | | | $ | 5.13 | | | $ | 7.28 | |

| Balance at December 31, 2013 | $ | 6 | | $ | 1,046 | | $ | 14,943 | | $ | (6,676 | ) | $ | 384 | | $ | 6 | | $ | 9,709 | |

| Tax benefits related to stock options | — | | | 33 | | | — | | | — | | | — | | | — | | | 33 | | |

| Tax benefits related to defined contribution plans | — | | | 4 | | | — | | | 1 | | | — | | | — | | | 5 | | |

| (Gain) loss on discontinued operations | — | | | | — | | | | (1,718 | | ) |

| Proceeds from sale of operations and affiliates | 3 | | | | 29 | | | | 18 | | |

There was no depreciation included in Income from discontinued operations in 2014.

This guidance is effective for the Company beginning January 1, 2018, with early adoption permitted.

The Company expects to adopt the new revenue accounting guidance effective January 1, 2018 and is in the process of completing its analysis of the impact this guidance will have on the consolidated financial statements and related disclosures.

For the twelve months ended December 31, 2016 and 2015, the Company had classified $29 million and $20 million, respectively, of excess tax benefits as a financing activity in the statement of cash flows which will be presented as an operating cash flow under the new guidance.

The new guidance is effective for the Company beginning January 1, 2018, with early adoption permitted.

The Company is currently assessing the potential impact the guidance will have upon adoption.

In January 2017, the FASB issued authoritative guidance that simplifies the assessment of goodwill for impairment when the estimated fair value of a reporting unit is less than its carrying value by eliminating the requirement to determine the fair value of goodwill.

Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value.

The new guidance is effective for the Company beginning January 1, 2020, with early adoption permitted.

The Company performs its annual goodwill impairment assessment process in the third quarter, or more frequently if triggering events occur.

(2) Discontinued Operations

In April 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for reporting discontinued operations.

Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations.

In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as a discontinued operation is required.

The Company adopted this new guidance effective January 1, 2015.

The new guidance applies prospectively to new disposals and new classifications of disposal groups held for sale after such date.

There were no discontinued operations during 2015 and 2016 under this new accounting guidance.

Third Quarter 2013 Discontinued Operations— In February 2013, the Company announced that it was initiating a review process to explore strategic alternatives for its Industrial Packaging segment.

In September 2013, the Company’s Board of Directors authorized a plan to commence a sale process for the Industrial Packaging segment.

The Company classified the Industrial Packaging segment as held for sale beginning in the third quarter of 2013 and no longer presented this segment as part of its continuing operations.

On February 6, 2014, the Company announced that it had signed a definitive agreement to sell its Industrial Packaging business to The Carlyle Group for $3.2 billion.

The transaction was completed on May 1, 2014, resulting in a pre-tax gain of $1.7 billion ($1.1 billion after-tax) in the second quarter of 2014 which was included in Income from discontinued operations.

In the third quarter of 2013, the Company also committed to plans for the divestiture of a construction distribution business previously included in the Construction Products segment.

This business was classified as held for sale beginning in the third quarter of 2013 and was sold in the second quarter of 2014.

First Quarter 2013 Discontinued Operations— In the first quarter of 2013, the Company committed to a plan for the divestiture of a construction distribution business previously included in the Construction Products segment.

The Company’s management, with the participation of the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 31, [removed: 2016.][added: 2017.]

Based on such evaluation, the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of December 31, [removed: 2016,] [added: 2017,] the Company’s disclosure controls and procedures were effective.

In connection with the evaluation by management, including the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31, [removed: 2016] [added: 2017] were identified that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Information regarding the Directors of the Company is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

Information regarding the Audit Committee and its Financial Experts is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Board of Directors and Its Committees" and "Audit Committee Report" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

Information regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference from the information under the caption "Proposal 1 - Election of Directors - Section 16(a) Beneficial Ownership Reporting Compliance" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

Information regarding the Company’s code of ethics that applies to the Company’s Chairman & Chief Executive Officer, Senior Vice President & Chief Financial Officer, and key financial and accounting personnel is incorporated by reference from the information under the caption "Proposal 1 - Election of Directors - Corporate Governance Policies and Practices" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

This information is incorporated by reference from the information under the captions "NEO Compensation," "Proposal 1 - Election of Directors - Director Compensation," and "Compensation Discussion and Analysis" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

This information is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Ownership of ITW Stock" and "NEO Compensation - Equity Compensation Plan Information" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

Information regarding certain relationships and related transactions is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Ownership of ITW Stock," "Certain Relationships and Related Party Transactions" and "Proposal 1 - Election of Directors - Corporate Governance Policies and Practices" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

Information regarding director independence is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Corporate Governance Policies and Practices" and "Appendix A - Categorical Standards for Director Independence" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

This information is incorporated by reference from the information under the caption "Proposal 2 - Ratification of the Appointment of Independent Registered Public Accounting Firm" in the Company’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders.

[removed: (a)(1)] [added: | (a) | (1)] Financial Statements [added: |]

[removed: (ii)] Pursuant to Regulation S-K, Item 601(b)(4)(iii), the Company has not filed with Exhibit 4 any debt instruments for which the total amount of securities authorized thereunder is less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis as of December 31, [removed: 2016,] [added: 2017,] with the exception of the Officers' Certificates related to the [removed: 0.90% Notes due 2017, the] 1.95% Notes due 2019, the 6.25% Notes due 2019, the 3.375% Notes due 2021, the 1.75% Euro Notes due 2022, the 1.25% Euro Notes due 2023, the 3.50% Notes due 2024, the 2.65% Notes due 2026, the 2.125% Euro Notes due 2030, the 3.00% Euro Notes due 2034, the 4.875% Notes due 2041, and the 3.90% Notes due 2042, which are described as Exhibit numbers [removed: 4(a)] [added: 4(c)] through (i) in the Exhibit Index.

| [removed: 2.1(a)] [added: [2.1(a)](http://www.sec.gov/Archives/edgar/data/49826/000004982612000073/wimbledoninvtagmt.htm)] | | [removed: Investment] [added: [Investment] Agreement, dated as of August 15, 2012, among CD&R Wimbledon Holdings III, L.P., a Cayman Islands limited partnership; Illinois Tool Works Inc.; ITW DS Investments Inc., a Delaware corporation; and Wilsonart International Holdings LLC, a Delaware limited liability company, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 17, 2012 (Commission File No. 1-4797) and incorporated herein by reference. (Certain of the schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but the Company undertakes to furnish a copy of the schedules or similar attachments to the Securities and Exchange Committee upon [removed: request.)] [added: request.)](http://www.sec.gov/Archives/edgar/data/49826/000004982612000073/wimbledoninvtagmt.htm)] |

| [removed: 2.1(b)] [added: [2.1(b)](http://www.sec.gov/Archives/edgar/data/49826/000004982614000016/ex21ipgpurchaseagmtfeb2014.htm)] | | [removed: Stock] [added: [Stock] Purchase Agreement, dated as of February 6, 2014, between Illinois Tool Works Inc. and certain of its subsidiaries and Vault Bermuda Holding Co. Ltd., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 12, 2014. (Commission File No. 1-4797) and incorporated herein by reference. (Certain of the schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but the Company undertakes to furnish a copy of the schedules or similar attachments to the Securities and Exchange Commission upon [removed: request).] [added: request).](http://www.sec.gov/Archives/edgar/data/49826/000004982614000016/ex21ipgpurchaseagmtfeb2014.htm)] |

| [removed: 3(a)(i)] [added: [3(a)(i)](http://www.sec.gov/Archives/edgar/data/49826/000004982614000130/itw_exhibit0301.htm)] | | [removed: Amended] [added: [Amended] and Restated Certificate of Incorporation of Illinois Tool Works Inc., filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000130/itw_exhibit0301.htm)] |

| [removed: 3(a)(ii)] [added: [3(a)(ii)](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3aii.htm)] | | [removed: Certificate] [added: [Certificate] of Amendment to Amended and Restated Certificate of Incorporation of Illinois Tool Works Inc., filed as Exhibit 3(a)(ii) to the Company’s Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3aii.htm)] |

| [removed: 3(b)] [added: [3(b)](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3bi.htm)] | | [removed: By-laws] [added: [By-laws] of Illinois Tool Works Inc., as amended and restated as of May 6, 2016, filed as Exhibit 3(b)(i) to the Company’s Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3bi.htm)] |

| [removed: 4(a)] [added: [4(a)](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt)] | | [removed: Indenture] [added: [Indenture] between Illinois Tool Works Inc. and The First National Bank of Chicago, as Trustee, dated as of November 1, 1986, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed on January 15, 1999 (Commission File No. 333-70691) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt)] |

| [removed: 4(b)] [added: [4(b)](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt)] | | [removed: First] [added: [First] Supplemental Indenture between Illinois Tool Works Inc. and Harris Trust and Savings Bank, as Trustee, dated as of May 1, 1990, filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-3 filed on January 15, 1999 (Commission File No. 333-70691) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt)] |

| [removed: 4(c)] [added: [4(c)](http://www.sec.gov/Archives/edgar/data/49826/000095013709002300/c50292exv4w3.htm)] | | [removed: Officers’] [added: [Officers’] Certificate dated March 26, 2009 establishing the terms, and setting forth the forms, of the 5.15% Notes due 2014 and the 6.25% Notes due 2019, filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on March 27, 2009 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000095013709002300/c50292exv4w3.htm)] |

| [removed: 4(d)] [added: [4(d)](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm)] | | [removed: Officers’] [added: [Officers’] Certificate dated August 31, 2011, establishing the terms, and setting forth the forms, of the 3.375% Notes due 2021 and the 4.875% Notes due 2041, filed as Exhibit 4.3 to the Company’s Form 8-K filed on September 1, 2011 (Commission File No. 001-04797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm)] |

| [removed: 4(e)] [added: [4(e)](http://www.sec.gov/Archives/edgar/data/49826/000004982612000083/exhibit41.htm)] | | [removed: Officers'] [added: [Officers'] Certificate dated August 28, 2012, establishing the terms, and setting forth the forms, of the 3.9% Notes due 2042, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 28, 2012 (Commission File No. 001-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982612000083/exhibit41.htm)] |

| [removed: 4(f)] [added: [4(f)](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm)] | | [removed: Officers’] [added: [Officers’] Certificate dated February 25, 2014, establishing the terms, and setting forth the forms, of the 0.9% Notes due 2017, the 1.95% Notes due 2019, and the 3.5% Notes due 2024, filed as Exhibit 4.1 to the Company’s Form 8-K filed on February 26, 2014 (Commission File No. 001-04797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm)] |

| [removed: 4(g)] [added: [4(g)](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm)] | | [removed: Officers’] [added: [Officers’] Certificate dated May 20, 2014, establishing the terms, and setting forth the forms, of the 1.75% Euro Notes due 2022 and the 3.0% Euro Notes due 2034, filed as Exhibit 4.1 to the Company’s Form 8-K filed on May 22, 2014 (Commission File No. 001-04797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm)] |

| [removed: 4(h)] [added: [4(h)](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm)] | | [removed: Officers’] [added: [Officers’] Certificate dated May 19, 2015, establishing the terms, and setting forth the forms, of the 1.25% Euro Notes due 2023 and the 2.125% Euro Notes due 2030, filed as Exhibit 4.1 to the Company’s Form 8-K filed on May 22, 2015 (Commission File No. 001-04797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm)] |

| [removed: 4(i)] [added: [4(i)](http://www.sec.gov/Archives/edgar/data/49826/000004982616000277/exhibit41.htm)] | | [removed: Officer’s] [added: [Officer’s] Certificate dated November 7, 2016, establishing the terms, and setting forth the forms, of the 2.65% Notes due 2026, filed as Exhibit 4.1 to the Company’s Form 8-K filed on November [removed: 1,] [added: 10,] 2016 (Commission File No. 001-04797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000277/exhibit41.htm)] |

| [removed: 10(a)*] [added: [10(a)*](http://www.sec.gov/Archives/edgar/data/49826/000004982606000018/exhibit10a.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. 2006 Stock Incentive Plan dated February 10, 2006, as amended on May 5, 2006, filed as Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982606000018/exhibit10a.htm)] |

| [removed: 10(b)*] [added: [10(b)*](http://www.sec.gov/Archives/edgar/data/49826/000095013708002954/c23108exv10wxqy.htm)] | | [removed: Amendment] [added: [Amendment] to Illinois Tool Works Inc. 2006 Stock Incentive Plan dated February 8, 2008, filed as Exhibit 10(q) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000095013708002954/c23108exv10wxqy.htm)] |

| [removed: 10(c)*] [added: [10(c)*](http://www.sec.gov/Archives/edgar/data/49826/000095013709001368/c48856exv10wxdy.htm)] | | [removed: Second] [added: [Second] Amendment to Illinois Tool Works Inc. 2006 Stock Incentive Plan dated February 13, 2009, filed as Exhibit 10(d) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000095013709001368/c48856exv10wxdy.htm)] |

| [removed: 10(d)*] [added: [10(d)*](http://www.sec.gov/Archives/edgar/data/49826/000129993310004465/exhibit2.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. 2011 Long-Term Incentive Plan, filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000129993310004465/exhibit2.htm)] |

| [removed: 10(e)*] [added: [10(e)*](http://www.sec.gov/Archives/edgar/data/49826/000004982615000101/itw2q15-exhibit101.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. 2015 Long-Term Incentive Plan effective May 8, 2015, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended [removed: March 31,] [added: June 30,] 2015 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982615000101/itw2q15-exhibit101.htm)] |

| [removed: 10(f)*] [added: [10(f)*](http://www.sec.gov/Archives/edgar/data/49826/000004982609000013/exhibit991.htm)] | | [removed: Form] [added: [Form] of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 5, 2009 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982609000013/exhibit991.htm)] |

| [removed: 10(g)*] [added: [10(g)*](http://www.sec.gov/Archives/edgar/data/49826/000129993311000437/exhibit1.htm)] | | [removed: Form] [added: [Form] of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 9, 2011 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000129993311000437/exhibit1.htm)] |

| [removed: 10(h)*] [added: [10(h)*](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)] | | [removed: Form] [added: [Form] of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 7, 2012 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)] |

| [removed: 10(i)*] [added: [10(i)*](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)] | | [removed: Form] [added: [Form] of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 13, 2014 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)] |

| [removed: 10(j)*] [added: [10(k)*](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit992rsugrantterms.htm)] | | [removed: Form] [added: [Form] of restricted stock unit terms filed as Exhibit 99.2 to the [removed: Company’s] [added: Company's] Current Report on Form 8-K filed on February [removed: 13, 2014] [added: 9, 2016] (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit992rsugrantterms.htm)] |

| [removed: 10(k)*] [added: [10(l)*](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit993prsugrantterms.htm)] | | [removed: Form] [added: [Form] of performance restricted stock unit terms filed as Exhibit 99.3 to the [removed: Company’s] [added: Company's] Current Report on Form 8-K filed on February [removed: 13, 2014] [added: 9, 2016] (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit993prsugrantterms.htm)] |

| [removed: 10(l)*] [added: [10(m)*](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit994lticashgrantterms.htm)] | | [removed: Form] [added: [Form] of Long-Term Incentive Cash Grant filed as Exhibit 99.4 to the [removed: Company’s] [added: Company's] Current Report on Form 8-K filed on February [removed: 13, 2014] [added: 9, 2016] (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit994lticashgrantterms.htm)] |

| [removed: 10(m)*] [added: [10(j)*](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit991stockoptionterms.htm)] | | [removed: Form] [added: [Form] of stock option terms filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on February 9, 2016 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit991stockoptionterms.htm)] |

| [removed: 10(n)*] [added: [10(o)*](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex992awardsagrmnt4q2016.htm)] | | [removed: Form] [added: [Form] of restricted stock unit terms filed as Exhibit 99.2 to the Company's Current Report on Form 8-K filed on February 9, [removed: 2016] [added: 2017] (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex992awardsagrmnt4q2016.htm)] |

| [removed: 10(o)*] [added: [10(p)*](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex993awardsagrmnt4q2016.htm)] | | [removed: Form] [added: [Form] of performance [removed: restricted stock] [added: share] unit terms filed as Exhibit 99.3 to the Company's Current Report on Form 8-K filed on February 9, [removed: 2016] [added: 2017] (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex993awardsagrmnt4q2016.htm)] |

| [removed: 10(p)*] [added: [10(q)*](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex994awardsagrmnt4q2016.htm)] | | [removed: Form] [added: [Form] of [removed: Long-Term Incentive] [added: Performance] Cash Grant filed as Exhibit 99.4 to the Company's Current Report on Form 8-K filed on February 9, [removed: 2016] [added: 2017] (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex994awardsagrmnt4q2016.htm)] |

| [removed: 10(q)*] [added: [10(n)*](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex991awardsagrmnt4q2016.htm)] | | [removed: Form] [added: [Form] of stock option terms filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex991awardsagrmnt4q2016.htm)] |

| [removed: 10(u)*] [added: [10(r)*](http://www.sec.gov/Archives/edgar/data/49826/000129993310004465/exhibit1.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. 2011 Executive Incentive Plan, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000129993310004465/exhibit1.htm)] |

| [removed: 10(v)*] [added: [10(s)*](http://www.sec.gov/Archives/edgar/data/49826/000004982609000096/exhibit10.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. Executive Contributory Retirement Income Plan as amended and restated, effective January 1, 2010, filed as exhibit 10 to the Company’s Current Report on Form 8-K filed on November 5, 2009 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982609000096/exhibit10.htm)] |

| [removed: 10(w)*] [added: [10(t)*](http://www.sec.gov/Archives/edgar/data/49826/000095013709001368/c48856exv10wxpy.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. Nonqualified Pension Plan, effective January 1, 2008, as amended and approved by the Board of Directors on December 22, 2008, filed as Exhibit 10(p) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000095013709001368/c48856exv10wxpy.htm)] |

| [removed: 10(x)*] [added: [10(u)*](http://www.sec.gov/Archives/edgar/data/49826/000129993310004465/exhibit3.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. 2011 Change-in-Control Severance Compensation Policy, filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000129993310004465/exhibit3.htm)] |

| [removed: 10(y)*] [added: [10(v)*](http://www.sec.gov/Archives/edgar/data/49826/000004982614000130/itw_exhibit101.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. Amended and Restated Directors’ Deferred Fee Plan effective May 2, 2014, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000130/itw_exhibit101.htm)] |

| [removed: 10(z)*] [added: [10(w)*](http://www.sec.gov/Archives/edgar/data/49826/000129993311001474/exhibit2.htm)] | | [removed: Illinois] [added: [Illinois] Tool Works Inc. 2011 Cash Incentive Plan, filed as Exhibit 99.1 to the Company’s Form 8-K filed on May 12, 2011 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000129993311001474/exhibit2.htm)] |

| [removed: 10(aa)*] [added: [10(x)*](http://www.sec.gov/Archives/edgar/data/49826/000004982613000024/itwexhibit102.htm)] | | [removed: First] [added: [First] Amendment to the ITW [added: Executive] Contributory Retirement Income Plan dated February 15, 2013, filed as Exhibit 10.2 to the Company’s Current Form 10-Q filed on May 3, 2013 (Commission File No. 1-4797) and incorporated herein by [removed: reference.] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982613000024/itwexhibit102.htm)] |

| [21](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex21.htm) | | [Subsidiaries and Affiliates of the Company.](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex21.htm) |

| [24](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex24.htm) | | [Powers of Attorney.](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex24.htm) |

| [31](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex31.htm) | | [Rule 13a-14(a) Certifications.](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex31.htm) |

| [32](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex32.htm) | | [Section 1350 Certification.](https://www.sec.gov/Archives/edgar/data/49826/000004982618000017/itw-20171231xex32.htm) |

| --- | --- |

| | |

(i) See the Exhibit Index within this Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 10th day of February 2017.

| | | |

| --- | --- | --- |

| ILLINOIS TOOL WORKS INC. | | |

| By: | | /s/ E. SCOTT SANTI |

| | | E. Scott Santi |

| | | Chairman & Chief Executive Officer |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on this 10th day of February 2017.

| Signatures | | Title |

| /s/ E. SCOTT SANTI | | Chairman & Chief Executive Officer, Director |

| E. Scott Santi | | (Principal Executive Officer) |

| /s/ MICHAEL M. LARSEN | | Senior Vice President & Chief Financial Officer |

| Michael M. Larsen | | (Principal Financial Officer) |

| /s/ RANDALL J. SCHEUNEMAN | | Vice President & Chief Accounting Officer |

| Randall J. Scheuneman | | (Principal Accounting Officer) |

| DANIEL J. BRUTTO | | Director |

| SUSAN CROWN | | Director |

| JAMES W. GRIFFITH | | Director |

| JAY L. HENDERSON | | Director |

| RICHARD H. LENNY | | Director |

| ROBERT S. MORRISON | | Director |

| JAMES A. SKINNER | | Director |

| DAVID B. SMITH, JR. | | Director |

| PAMELA B. STROBEL | | Director |

| KEVIN M. WARREN | | Director |

| ANRÉ D. WILLIAMS | | Director |

| | | By: /s/ E. SCOTT SANTI |

| | | (E. Scott Santi, as Attorney-in-Fact) |

Original powers of attorney authorizing E.

Scott Santi to sign the Company’s Annual Report on Form 10-K and amendments thereto on behalf of the above-named directors of the registrant have been filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K (Exhibit 24).

Exhibit Index

Annual Report on Form 10-K

2016

| 10(r)* | | Form of restricted stock unit terms filed as Exhibit 99.2 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference. |

| 10(s)* | | Form of performance share unit terms filed as Exhibit 99.3 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference. |

| 10(t)* | | Form of Performance Cash Grant filed as Exhibit 99.4 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference. |

| 21 | | Subsidiaries and Affiliates of the Company. |

| 24 | | Powers of Attorney. |

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 15th day of February 2018.

| | | |

| --- | --- | --- |

| | | |

| ILLINOIS TOOL WORKS INC. | | |

| | | |

| By: | | /s/ E. SCOTT SANTI |

| | | E. Scott Santi |

| | | Chairman & Chief Executive Officer |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on this 15th day of February 2018.

| | | |

| --- | --- | --- |

| | | |

| Signatures | | Title |

| | | |

| /s/ E. SCOTT SANTI | | Chairman & Chief Executive Officer, Director |

| E. Scott Santi | | (Principal Executive Officer) |

| | | |

| /s/ MICHAEL M. LARSEN | | Senior Vice President & Chief Financial Officer |

| Michael M. Larsen | | (Principal Financial Officer) |

| | | |

| /s/ RANDALL J. SCHEUNEMAN | | Vice President & Chief Accounting Officer |

| Randall J. Scheuneman | | (Principal Accounting Officer) |

| | | |

| DANIEL J. BRUTTO | | Director |

| | | |