Illinois Tool Works (ITW) 10-K risk factor changes: FY2020 vs FY2019

[removed: Slower economic growth, financial market instability, natural disasters, public health crises, 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, causing production delays, increasing order cancellations and the difficulty in collecting accounts receivable, increasing price competition, or increasing the risk that counterparties to the Company's contractual arrangements will become insolvent or otherwise unable to fulfill their obligations.

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

Over 50% of the Company's net sales are derived from customers outside the United States, and the Company currently operates in [removed: 53] [added: 52] countries.

[removed: | • |] [added: -] fluctuation in currency exchange rates; [removed: |]

[removed: | • |] [added: -] limitations on ownership or participation in local enterprises; [removed: |]

[removed: | • |] [added: -] price controls, exchange controls and limitations on repatriation of earnings; [removed: |]

[removed: | • |] [added: -] transportation delays and interruptions; [removed: |]

[removed: | • |] [added: -] political, social and economic instability and disruptions; [removed: |]

[removed: | • |] [added: -] acts of terrorism; [removed: |]

[removed: | • |] [added: -] the impact of widespread public health [removed: crises; |][added: crises (such as the COVID-19 pandemic);]

[removed: | • |] [added: -] government embargoes or foreign trade restrictions; [removed: |]

[removed: | • |] [added: -] the imposition of duties and tariffs and other trade barriers and retaliatory countermeasures; [removed: |]

[removed: | • |] [added: -] government actions impacting international trade [removed: agreements; |][added: agreements, including the EU-UK Trade and Cooperation Agreement;]

[removed: | • |] [added: -] import and export controls; [removed: |]

[removed: | • |] [added: - social and] labor unrest and current and changing regulatory environments; [removed: |]

[removed: | • |] [added: -] the potential for expropriation or nationalization of enterprises; [removed: |]

[removed: | • |] [added: -] difficulties in staffing and managing multi-national operations; [removed: |]

[removed: | • |] [added: -] limitations on its ability to enforce legal rights and remedies; and [removed: |]

[removed: | • |] [added: -] potentially adverse tax consequences. [removed: |]

The [removed: current] [added: recent] global geopolitical and trade environment has resulted in raw material inflation and potential for increased escalation of domestic and international tariffs and retaliatory trade policies.

Further changes in U.S. trade policy (including new or additional increases in duties or tariffs) and [removed: additional] retaliatory actions by U.S. trade partners could result in a worsening of economic conditions.

If the Company is unable to successfully manage [removed: these and other] [added: the] risks associated with managing and expanding its international businesses, the [removed: risks could have a material adverse effect on the] Company's business, results of operations or financial [removed: condition.][added: condition may be adversely impacted.]

Share [removed: repurchases] [added: repurchases, which the Company plans to resume in 2021 after they were temporarily suspended in March of 2020,] constitute a significant component of the Company’s capital allocation strategy.

The Company [removed: funds] [added: has historically funded] its share repurchases with free cash flow and short-term borrowings.

The Company may incur fines or penalties, damage to its reputation or other adverse consequences if its employees, agents or business partners violate anti-bribery, competition, export and import, [removed: environmental] [added: environmental, human rights] or other laws.

The Company cannot ensure that its internal controls will always protect against reckless or criminal acts committed by its employees, agents or business partners that might violate U.S. and/or non-U.S. laws, including anti-bribery, competition, export and import, [removed: and] environmental [added: and human rights] laws.

[removed: | • |] [added: -] The acquired [removed: business] [added: business' inability to adapt to the ITW Business Model or otherwise perform in accordance with the Company's anticipated results or timetable,] could [added: cause it to] under-perform relative to the [removed: Company’s] [added: Company's] expectations and the price paid for [removed: it, or not perform in accordance with the Company’s anticipated timetable. |][added: it.]

[removed: | • |] [added: -] The acquired business could cause the Company's financial results to differ from expectations in any given fiscal period, or over the long term. [removed: |]

[removed: | • |] [added: -] Acquisition-related earnings charges could adversely impact operating results. [removed: |]

[removed: | • |] [added: -] The acquired business could place unanticipated demands on the Company's management, operational resources and financial and internal control systems. [removed: |]

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

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

In particular, changes in trade policies, the imposition of duties and tariffs, potential retaliatory [removed: countermeasures] [added: countermeasures, public health crises (such as the COVID-19 pandemic)] and severe weather events could adversely impact the price or availability of raw materials.

In addition, the physical risks of climate change may impact the availability and cost of materials and natural resources, sources and supply of energy, product demand and [removed: manufacturing.][added: manufacturing and could increase insurance and other operating costs.]

These technology networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; hardware failures; [removed: attacks by] computer [removed: hackers; computer] viruses; employee error or [removed: malfeasance.][added: malfeasance; and attacks by computer hackers, which have continued to increase on a global scale in both magnitude and frequency, taken on novel and unprecedented forms and become more difficult to detect.]

In addition, security breaches could result in unauthorized disclosure of confidential information or personal data belonging to our employees, partners, customers or [removed: suppliers.][added: suppliers, which could cause reputational and legal harm as we are subject to data privacy laws, including the EU General Data Protection Regulation, in the various countries in which we operate.]

Forward-looking statements may be identified by the use of words such as "believe," "expect," [removed: "plans," "intends,"] [added: "plan," "intend,"] "may," "strategy," "prospects," "estimate," [added: "will," "should," "could,"] "project," "target," "anticipate," "guidance," "forecast," and other similar words, including, without limitation, statements regarding the [removed: expected performance of acquired businesses and impact] [added: potential effects] of [removed: divested businesses,] the [removed: impact of tariffs] [added: COVID-19 pandemic, related government actions] and [removed: raw material cost inflation,] [added: the Company's strategy in response thereto on the Company's business, future financial performance,] economic and regulatory conditions in various geographic regions, the [removed: timing and amount] [added: impact] of [removed: share repurchases,] [added: foreign currency fluctuations,] the timing and amount of benefits from the Company's enterprise [added: strategy] initiatives, the [added: timing and amount of share repurchases, the protection of the Company's intellectual property, the likelihood of future goodwill or intangible asset impairment charges, the impact of adopting new accounting pronouncements, the] adequacy of internally generated funds and credit facilities to service debt and finance the Company's capital allocation priorities, the sufficiency of U.S. generated cash to fund cash requirements in the U.S., the [removed: impact of the recently enacted U.S. tax legislation, the] cost and availability of additional financing, the [added: availability of raw materials and energy and the impact of tariffs and raw material cost inflation, the] Company's portion of future benefit payments related to pension and postretirement benefits, the [removed: availability of raw materials] [added: Company’s information technology infrastructure, potential acquisitions] and [removed: energy,] [added: divestitures and] the [removed: expiration] [added: expected performance] of [removed: any one] [added: acquired businesses and impact] of [added: divested businesses,] the [removed: Company's patents,] [added: impact of U.S. tax legislation and] the [added: estimated timing and amount related to the resolution of tax matters, the] cost of compliance with environmental regulations, the [removed: 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, [removed: the impact of foreign currency fluctuations,] [added: and] the outcome of outstanding legal [removed: proceedings, the impact of adopting new accounting pronouncements, and the estimated timing and amount related to the resolution of tax matters.][added: proceedings.]

Investors should be aware that while ITW regularly communicates with securities analysts and other investment professionals, it is against ITW's policy to disclose to them any material [removed: non-][added: non-public information or other confidential commercial information.]

Economic Risks

The COVID-19 pandemic has adversely affected the Company's business, financial condition and results of operations and could affect the Company's liquidity.

The full and long-term extent of the effects of the COVID-19 pandemic on our business depend on future events that continue to be highly uncertain and cannot be predicted.

The COVID-19 pandemic and the continued measures taken globally to reduce its spread have negatively impacted the global economy, disrupted consumer/customer demand and global supply chains, and created significant volatility and disruption of financial markets.

These measures and the continued volatility of the global economy adversely affected our results of operations for 2020, and while we expect that our results will continue to be adversely impacted beyond 2020, we are currently unable to quantify the full and long-term impact of the pandemic on our financial condition, results of operations and liquidity.

The Company has implemented numerous actions in order to focus on the needs of its colleagues and customers, such as redesigning production processes, adjusting shift schedules and assignments and implementing aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk.

Further actions may be required in response to evolving conditions such as renewed travel restrictions, quarantine, and stay-at-home orders as well as uncertainty regarding the timing of widespread availability of a vaccine.

In addition, because the pandemic has decreased customer demand in certain of our end markets, some of our businesses are operating at reduced capacity.

We cannot predict when or whether these businesses will resume full operations or whether there will be related or unrelated facility closures in the future.

The COVID-19 pandemic continues to have the potential to significantly and extendedly alter demand for our products and to disrupt our supply chain as a result of shifts in demand, illness, quarantine, travel restrictions or financial hardship.

We have been able to procure the critical raw materials and components necessary to continue production, but there is no guarantee that we will be able to do so in the future.

A prolonged extension of the conditions resulting from the pandemic could force both customer and supplier bankruptcies, which we expect would adversely impact our results; however, given the uncertainty around the continued duration and breadth of the COVID-19 pandemic, we cannot reasonably estimate the extent of these adverse effects on our operations.

The Company has sought to implement a differentiated strategy to manage through the pandemic, including a focus on thoughtful cost management and continued investment in areas of strategic importance in order to maintain optionality and fully participate in the recovery phase.

Although some opportunities have already emerged from this strategy, the Company cannot estimate the extent or the timing of the benefits from this strategy, if any.

If the Company's strategy does not generate the expected benefits, the Company's long-term financial results could be adversely impacted.

Furthermore, the COVID-19 pandemic has the potential to impact the proper functioning of financial and capital markets.

If the economic recovery is protracted, we may not be able to access our short-term credit facilities and may be required to seek additional financing sources, which may not be available on reasonable terms or at all.

If the Company suffers a liquidity shortage, we may be forced to reduce our workforce, decrease or suspend dividend payments to our stockholders or adopt other measures.

We cannot predict the likelihood, timing or the consequences of a future liquidity shortage in our business.

The ultimate significance of the COVID-19 pandemic on our business will depend on events that are beyond our control and that we cannot predict.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, financial condition or results of operations.

Slower economic growth, financial market instability, natural disasters, public health crises (such as the COVID-19 pandemic), high unemployment, government

Business and Operational Risks

Significant disruptions to the supply chain could adversely affect the Company's

ability to meet commitments to customers.

Strategic Transaction Risks

The Company has engaged in various acquisitions in the past, and could choose to acquire additional businesses in the future, such as the recently announced agreement with Amphenol Corporation ("Amphenol"), whereby the Company will acquire the Test & Simulation business of MTS Systems Corporation ("MTS") following the closing of Amphenol's acquisition of MTS.

The realization of any of these liabilities or deficiencies may increase the Company's expenses, adversely affect its financial position or cause noncompliance with its financial reporting obligations.

If the Company is not able to realize the value of these assets, it may recognize charges relating to the impairment of these assets.

Tax, Legal and Regulatory Risks

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Additionally, in early 2020, an outbreak of the coronavirus occurred in China and other jurisdictions.

The extent of the outbreak and its impact on the markets served by the Company and on its operations is uncertain.

A prolonged outbreak could interrupt the operations of the Company and its customers and suppliers.

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

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Illinois Tool Works Inc. (the "Company" or "ITW") is a global manufacturer of a diversified range of industrial products and equipment with [removed: 84] [added: 83] divisions in [removed: 53] [added: 52] countries.

As of December 31, [removed: 2019,] [added: 2020,] the Company employed approximately [removed: 45,000] [added: 43,000] people.

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

[removed: | • | The first step was to narrow the focus and improve the quality of ITW's business portfolio.] As part of the Portfolio Management initiative, ITW exited businesses that were operating in commoditized market spaces and prioritized sustainable differentiation as a must-have requirement for all ITW businesses. [removed: This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions. |]

[removed: | • |] [added: -] Step two, Business Structure Simplification, was implemented to simplify and scale up [removed: ITW’s] [added: ITW's] operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. [removed: ITW now has 84 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation. |]

[removed: | • |] [added: -] The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through [removed: 2019] [added: 2020] and continues to be a key contributor to the Company's ongoing enterprise strategy. [removed: |]

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

PATH TO FULL [removed: POTENTIAL - FINISHING THE JOB][added: POTENTIAL]

[removed: | • |] [added: -] Portfolio discipline [removed: |]

[removed: | • |] [added: -] 80/20 Front-to-Back practice excellence [removed: |]

[removed: | • |] [added: -] Full-potential organic growth [removed: |]

[removed: As part of its agenda to finish the job, the] [added: The] Company routinely evaluates its portfolio to ensure it delivers sustainable differentiation and drives consistent long-term performance.

The Company expects any earnings per share dilution from divestitures would be [removed: offset by incremental share repurchases.]

Refer to Note [removed: 2.][added: 3.]

Financial Statements and Supplementary Data for more information regarding [added: the Company's] divestitures.

ITW will continue [removed: its efforts] to [removed: finish the job and] drive 80/20 Front-to-Back practice excellence in every division in the Company, every day.

[removed: | • | "80”] [added: - "80"] focused Market Penetration - fully leveraging the considerable growth potential that resides in the Company's largest and most differentiated product offerings and customer relationships [removed: |]

[removed: | • | Customer-Back] [added: - Customer-back] Innovation - strengthening the Company's commitment to serial innovation and delivering a continuous flow of differentiated new products to its key customers [removed: |]

[removed: | • |] [added: -] Strategic Sales Excellence - deploying a high-performance sales function in every division [removed: |]

As the Company continues to make progress toward its full potential, the Company will explore opportunities to reinforce or further expand the long-term organic growth potential of ITW through the addition of selective high-quality [removed: acquisitions.][added: acquisitions, such as the recently announced agreement with Amphenol Corporation ("Amphenol"), whereby the Company will acquire the Test & Simulation business of MTS Systems Corporation ("MTS") following the closing of Amphenol's acquisition of MTS.]

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

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

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

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

[removed: The] [added: Separately, the] Company does not believe that tariffs imposed in [removed: the past year] [added: recent years] have had a material impact on its operating results.

In early 2020, an outbreak of [removed: the] [added: a novel strain of] coronavirus [added: (COVID-19)] occurred in China and other jurisdictions.

The [added: full] extent of the [added: COVID-19] outbreak and its impact on the markets served by the Company and on [removed: its] [added: the Company's] operations [removed: is] [added: and financial position continues to be highly] uncertain.

A prolonged outbreak [removed: could] [added: will continue to] interrupt the operations of the Company and its customers and suppliers.

The [removed: Company’s] [added: Company's] consolidated results of operations for [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017] [added: 2018] were as follows:

[removed: 2019 compared to 2018][added: 2019 compared to 2018]

| | [added: | |] For the Years Ended | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | | | | | | | | |]

| Dollars in millions | [added: | |] December 31, | | | | | | | | | | | [added: | | | | | | |] Components of Increase (Decrease) | | | | | | | | | | [added: | | | | | | | | | | | | | |]

| | [added: | |] 2019 | | | | [added: | |] 2018 | | | | [added: | | | | | | | |] Inc (Dec) | | | [added: | | |] Organic | | [removed: Acquisition/ Divestiture] | [added: Acquisition/ Divestiture] | [added: | |] Restructuring | | [added: | | | |] Foreign Currency | | [added: |] Total | | [added: |]

| Operating revenue | [added: | |] $ | 14,109 | | | [added: | |] $ | 14,768 | | | [removed: (4.5] | [removed: )%] | | [removed: (1.9] | [removed: )%] | [removed: (0.3] | [removed: )%] | [added: | (4.5) | | % | | | | (1.9) | | % | (0.3) | | % |] — | [added: |] % | [removed: (2.3] | [removed: )%] | [removed: (4.5] | [removed: )%] [added: (2.3)] | [added: | % | (4.5) | | % |]

| Operating income | [added: | |] $ | 3,402 | | | [added: | |] $ | 3,584 | | | [removed: (5.1] | [removed: )%] | | [removed: (1.3] | [removed: )%] | [removed: (0.1] | [removed: )%] | [removed: (1.4] | [removed: )%] [added: (5.1)] | [removed: (2.3] | [removed: )%] [added: %] | [removed: (5.1] | [removed: )%] | [added: | (1.3) | | % | (0.1) | | % | (1.4) | | % | | | | (2.3) | | % | (5.1) | | % |]

| Operating margin % | [added: | |] 24.1 | | % | | [added: | |] 24.3 | | % | | [added: | | | | | | | |] (20) bps | | | [added: | | |] 10 bps | | [added: |] — | | [added: |] (30) bps | | [added: | | | |] — | | [added: |] (20) bps | | [added: |]

[removed: | • |] [added: -] Operating revenue declined due to the unfavorable effect of foreign currency translation, lower organic revenue and divestitures. [removed: |]

[removed: | • |] [added: -] Organic revenue decreased 1.9% primarily driven by a decline in the Automotive OEM, Specialty Products, Welding and Construction Products segments. [removed: Product line simplification activities reduced organic revenue by 60 basis points. |]

[removed: | ◦ | North] [added: ◦North] American organic revenue decreased 1.8% as a decline in the Automotive OEM, Specialty Products, Welding and Polymers & Fluids segments was partially offset by growth in the Food Equipment, Test & Measurement and Electronics and Construction Products segments. [removed: |]

[removed: | ◦ | Europe,] [added: ◦Europe,] Middle East and Africa organic revenue decreased 2.2% as five segments declined, partially offset by growth in the Food Equipment and Construction Products segments. [removed: |]

- ITW's 80/20 Front-to-Back process is the operating system that is applied in every ITW business.

Initially introduced as a manufacturing efficiency tool in the 1980s, ITW has continually refined, improved and expanded 80/20 into a proprietary, holistic business management process that generates significant value for the Company and its customers.

Through the application of data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the "80") and eliminates cost, complexity and distractions associated with the less profitable opportunities (the "20").

80/20 enables ITW businesses to consistently achieve world-class operational excellence in product availability, quality, and innovation, while generating superior financial performance;

- Customer-back Innovation has fueled decades of profitable growth at ITW.

The Company's unique innovation approach is built on insight gathered from the 80/20 Front-to-Back process.

Working from the customer back, ITW businesses position themselves as the go-to problem solver for their "80" customers.

ITW's innovation efforts are focused on understanding customer needs, particularly those in "80" markets with solid long-term growth fundamentals, and creating unique solutions to address those needs.

These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 18,500 granted and pending patents;

- ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive.

ITW businesses have significant flexibility within the framework of the ITW Business Model to customize their approach in order to best serve their specific customers' needs.

ITW colleagues recognize their unique responsibilities to execute the Company's strategy and values.

- The first step was to narrow the focus and improve the quality of ITW's business portfolio.

This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions.

ITW now has 83 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

offset by incremental share repurchases.

However, due to the COVID-19 pandemic in 2020, the Company has deferred any further significant divestiture activity until market conditions normalize.

Near-term Priorities

While it was the challenges brought about by the COVID-19 pandemic that dominated the Company's attention in 2020, it was the collection of capabilities and competitive advantages that have been built and honed over the past eight years through the execution of ITW's enterprise strategy that provided the Company with the options to respond.

This, coupled with the proprietary and powerful ITW Business Model, diversified high-quality business portfolio and diligent execution put the Company in a position of strength in dealing with the global pandemic.

From the early days of the pandemic, the Company focused its efforts on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery.

"Win the Recovery" is an execution component of the Company's enterprise strategy, not a separate initiative, with every one of the Company's divisions identifying specific opportunities presented by the pandemic to capture sustainable share gains that are aligned with the ITW long-term enterprise strategy.

These efforts are just beginning to take hold and the Company expects them to contribute meaningfully to accelerate its progress toward full-potential organic growth.

The Company continues to focus on delivering strong results in any environment while executing its long-term strategy to achieve and sustain ITW's full potential performance.

Upon completion of this acquisition, this business will be reported within the Company's Test & Measurement and Electronics segment.

In the long-term, PLS is expected to result in growth in revenue, profitability, and returns.

The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020.

In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders.

The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company’s global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 continued to spread and impact the countries in which the Company operates and the markets the Company serves.

The Company delivered solid financial results in 2020 despite the extraordinary challenges posed by the COVID-19 pandemic, as the Company experienced solid recovery progress in many of its end markets in the third and fourth quarters of 2020 versus the second quarter.

The primary driver of the Company's financial performance is the continued successful execution of enterprise initiatives and continued focus on the highly differentiated ITW Business Model.

In 2020, despite the decline in operating revenue of 10.9 percent, the Company generated operating income of $2.9 billion, operating margin was 22.9 percent, free cash flow was $2.6 billion and after-tax return on average invested capital was 26.2 percent.

Additionally, all segments, other than the Food Equipment, Automotive OEM and Welding segments, which had more pronounced impacts from the COVID-19 pandemic, had operating margins that improved compared to the prior year.

Refer to the Cash Flow and After-tax Return on Average Invested Capital sections of Liquidity and Capital Resources for a reconciliation of these non-GAAP measures.

For the duration of the COVID-19 pandemic, the Company is focusing on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery phase.

To support ITW's colleagues, among its many actions and initiatives, the Company redesigned production processes to ensure proper social distancing practices, adjusted shift schedules and assignments to help colleagues who have child and elder care needs, and implemented aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk.

To support its customers, the Company has worked diligently to keep its facilities open and operating safely.

The Company has adapted customer service systems and practices to seamlessly serve its customers under “work from home” requirements in many parts of the world.

In areas around the world where governments issued stay-at-home or similar orders, the vast majority of ITW's businesses were designated as critical or essential businesses and, as such, they remained open and operational.

In some cases, this is because the Company's products directly impact the COVID-19 response effort.

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| • | ITW’s 80/20 Front-to-Back process is the operating system that is applied in every ITW business. Initially introduced as a manufacturing efficiency tool in the 1980s, ITW has continually refined, improved and expanded 80/20 into a proprietary, holistic business management process that generates significant value for the Company and its customers. Through the application of data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the “80”) and eliminates cost, complexity and distractions associated with the less profitable opportunities (the “20”). 80/20 enables ITW businesses to consistently achieve world-class operational excellence in product availability, quality, and innovation, while generating superior financial performance; |

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| • | Customer-back Innovation has fueled decades of profitable growth at ITW. The Company’s unique innovation approach is built on insight gathered from the 80/20 Front-to-Back process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their “80” customers. ITW’s innovation efforts are focused on understanding customer needs, particularly those in “80” markets with solid long-term growth fundamentals, and creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 18,000 granted and pending patents; |

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The Company delivered solid financial results in 2019 despite a contracting industrial demand environment.

With the Company's diversified high-quality business portfolio, highly differentiated ITW Business Model and continued strong execution on enterprise initiatives throughout the year, the Company grew diluted earnings per share and returned approximately $2.8 billion to shareholders in the form of dividends and share repurchases in 2019.

Additionally, all segments had operating margin at or above 21.5% for 2019.

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.

The Company operates in the U.S. and [removed: 52] [added: 51] foreign countries.

The cumulative unrealized pre-tax gain [added: (loss)] recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was [removed: $239] [added: a loss of $120] million [added: as of December 31, 2020] and [removed: $187] [added: a gain of $239] million as of December 31, [removed: 2019 and 2018, respectively.][added: 2019.]

The Company is a global manufacturer of a diversified range of industrial products and equipment with [removed: 84] [added: 83] divisions in [removed: 53] [added: 52] countries.

As of December 31, [removed: 2019,] [added: 2020,] the Company employed approximately [removed: 45,000] [added: 43,000] people.

[removed: | • |] [added: -] plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses. [removed: |]

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

[removed: | • |] [added: -] warewashing equipment; [removed: |]

[removed: | • |] [added: -] cooking equipment, including ovens, ranges and broilers; [removed: |]

[removed: | • |] [added: -] refrigeration equipment, including refrigerators, freezers and prep tables; [removed: |]

[removed: | • |] [added: -] food processing equipment, including slicers, mixers and scales; [removed: |]

[removed: | • |] [added: -] kitchen exhaust, ventilation and pollution control systems; and [removed: |]

[removed: | • |] [added: -] food equipment service, maintenance and repair. [removed: |]

This segment primarily serves the electronics, general industrial, [added: industrial capital goods,] automotive original equipment manufacturers and tiers, [removed: industrial capital goods,] energy and consumer durables markets.

[removed: | • |] [added: -] equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids; [removed: |]

[removed: | • |] [added: -] electronic assembly equipment; [removed: |]

[removed: | • |] [added: -] electronic components and component packaging; [removed: |]

[removed: | • |] [added: -] static control equipment and consumables used for contamination control in clean room environments; and [removed: |]

[removed: | • |] [added: -] pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications. [removed: |]

[removed: | • |] [added: -] arc welding equipment; and [removed: |]

[removed: | • |] [added: -] metal arc welding consumables and related accessories. [removed: |]

[removed: | • |] [added: -] adhesives for industrial, construction and consumer purposes; [removed: |]

[removed: | • |] [added: -] chemical fluids which clean or add lubrication to machines; [removed: |]

[removed: | • |] [added: -] epoxy and resin-based coating products for industrial applications; [removed: |]

[removed: | • |] [added: -] hand wipes and cleaners for industrial applications; [removed: |]

[removed: | • |] [added: -] fluids, polymers and other supplies for auto aftermarket maintenance and appearance; [removed: |]

[removed: | • |] [added: -] fillers and putties for auto body repair; and [removed: |]

[removed: | • |] [added: -] polyester coatings and patch and repair products for the marine industry. [removed: |]

[removed: | • |] [added: -] fasteners and related fastening tools for wood and metal applications; [removed: |]

[removed: | • |] [added: -] anchors, fasteners and related tools for concrete applications; [removed: |]

[removed: | • |] [added: -] metal plate truss components and related equipment and software; and [removed: |]

[removed: | • |] [added: -] packaged hardware, fasteners, anchors and other products for retail. [removed: |]

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

[removed: | • |] [added: -] line integration, conveyor systems and line automation for the food and beverage industries; [removed: |]

[removed: | • |] [added: -] plastic consumables that multi-pack cans and bottles and related equipment; [removed: |]

[removed: | • |] [added: -] foil, film and related equipment used to decorate consumer products; [removed: |]

[removed: | • |] [added: -] product coding and marking equipment and related consumables; [removed: |]

[removed: | • |] [added: -] plastic and metal closures and components for appliances; [removed: |]

[removed: | • |] [added: -] airport ground support equipment; and [removed: |]

[removed: | • |] [added: -] components for medical devices. [removed: |]

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

[removed: | • | The first step was to narrow the focus and improve the quality of ITW's business portfolio.] As part of the Portfolio Management initiative, ITW exited businesses that were operating in commoditized market spaces and prioritized sustainable differentiation as a must-have requirement for all ITW businesses. [removed: This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions. |]

[removed: | • |] [added: -] Step two, Business Structure Simplification, was implemented to simplify and scale up [removed: ITW’s] [added: ITW's] operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. [removed: ITW now has 84 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation. |]

- ITW's 80/20 Front-to-Back process is the operating system that is applied in every ITW business.

Initially introduced as a manufacturing efficiency tool in the 1980s, ITW has continually refined, improved and expanded 80/20 into a proprietary, holistic business management process that generates significant value for the Company and its customers.

Through the application of data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the "80") and eliminates cost, complexity and distractions associated with the less profitable opportunities (the "20").

80/20 enables ITW businesses to consistently achieve world-class operational excellence in product availability, quality, and innovation, while generating superior financial performance;

- Customer-back Innovation has fueled decades of profitable growth at ITW.

The Company's unique innovation approach is built on insight gathered from the 80/20 Front-to-Back process.

Working from the customer back, ITW businesses position themselves as the go-to problem solver for their "80" customers.

ITW's innovation efforts are focused on understanding customer needs, particularly those in "80" markets with solid long-term growth fundamentals, and creating unique solutions to address those needs.

These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 18,500 granted and pending patents;

- ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive.

ITW businesses have significant flexibility within the framework of the ITW Business Model to customize their approach in order to best serve their specific customers' needs.

ITW colleagues recognize their unique responsibilities to execute the Company's strategy and values.

- The first step was to narrow the focus and improve the quality of ITW's business portfolio.

This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions.

ITW now has 83 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

However, due to the COVID-19 pandemic in 2020, the Company has deferred any further significant divestiture activity until market conditions normalize.

Near-term Priorities

While it was the challenges brought about by the COVID-19 pandemic that dominated the Company's attention in 2020, it was the collection of capabilities and competitive advantages that have been built and honed over the past eight years through the execution of ITW's enterprise strategy that provided the Company with the options to respond.

This, coupled with the proprietary and powerful ITW Business Model, diversified high-quality business portfolio and diligent execution put the Company in a position of strength in dealing with the global pandemic.

From the early days of the pandemic, the Company focused its efforts on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery.

"Win the Recovery" is an execution component of the Company's enterprise strategy, not a separate initiative, with every one of the Company's divisions identifying specific opportunities presented by the pandemic to capture sustainable share gains that are aligned with the ITW long-term enterprise strategy.

These efforts are just beginning to take hold and the Company expects them to contribute meaningfully to accelerate its progress toward full-potential organic growth.

The Company continues to focus on delivering strong results in any environment while executing its long-term strategy to achieve and sustain ITW's full potential performance.

Upon completion of this acquisition, this business will be reported within the Company's Test & Measurement and Electronics segment.

Government Regulations

However, if new or amended laws or regulations impose significant operational restrictions and compliance requirements upon the Company or its products, the Company's business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted.

Refer to Item 1A.

Risk Factors for further information.

Human Capital Management

As of December 31, 2020, the Company employed approximately 43,000 people, with approximately 16,000 people located in the United States and the remainder in multiple other countries where the Company's businesses operate.

The Company strives to be a great employer through its demonstrated commitment to talent development, employee safety, workplace culture, compensation and benefits, and diversity and inclusion.

*Talent Development*.

The Company's Great ITW Leader Framework defines the leadership capabilities and attributes that guide all leadership talent assessment, development and selection decisions.

Great ITW Leaders are expected to be experts in the practice of the ITW Business Model, make great strategic choices, deliver great results, be great talent managers and provide strong leadership.

Great ITW Leaders who have expertise in the ITW Business Model are the critical factor in translating the potential of the ITW Business Model into full performance.

Because this expertise develops over time and through specific experiences, the Company focuses on developing and promoting its own talent to ensure the Company's sustained business success over the long term.

*Employee Safety*.

The safety and well-being of ITW's colleagues around the world has been, and always will be, its top priority.

Guided by the Company's Enterprise Safety Strategy and the philosophy that every accident is preventable, ITW strives every day to foster a proactive safety culture.

ITW's Enterprise Safety Strategy is based on the following core principles: (i) a goal of zero accidents, (ii) shared ownership for safety (business and individual); (iii) proactive approach focused on accident prevention; and (iv) continuous improvement philosophy.

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The Company's threshold for disclosing environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.

[removed: FORM 10-K][added: FORM 10-K]

| ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

For the fiscal year [removed: ended December] [added: ended December] 31, [removed: 2019][added: 2020]

| ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

Commission file [removed: number 1-4797][added: number 1-4797]

ILLINOIS TOOL WORKS [removed: INC.][added: INC.]

| Delaware | | | | | | [added: | | | | | | | | | | | |] 36-1258310 | [added: | |]

| (State or Other Jurisdiction of Incorporation or Organization) | | | | | | [added: | | | | | | | | | | | |] (I.R.S. Employer Identification No.) | [added: | |]

| | [added: | |] 155 Harlem Avenue | [added: | |] Glenview | [added: | |] Illinois | | | [added: | | | | | |] 60025 | [added: | |]

| (Address of Principal Executive Offices) | | | | | | [added: | | | | | | | | | | | |] (Zip Code) | [added: | |]

Registrant’s telephone number, including area code: [removed: (847) 724-7500][added: (847) 724-7500]

| Title of Each Class | [added: | |] Trading Symbol(s) | [added: | |] Name of Each Exchange on Which Registered | [added: | |]

| Common Stock | [added: | |] ITW | [added: | |] New York Stock Exchange | [added: | |]

| 1.75% Euro Notes due 2022 | [added: | |] ITW22 | [added: | |] New York Stock Exchange | [added: | |]

| 1.25% Euro Notes due 2023 | [added: | |] ITW23 | [added: | |] New York Stock Exchange | [added: | |]

| 0.250% Euro Notes due 2024 | [added: | |] ITW24A | [added: | |] New York Stock Exchange | [added: | |]

| 0.625% Euro Notes due 2027 | [added: | |] ITW27 | [added: | |] New York Stock Exchange | [added: | |]

| 2.125% Euro Notes due 2030 | [added: | |] ITW30 | [added: | |] New York Stock Exchange | [added: | |]

| 1.00% Euro Notes due 2031 | [added: | |] ITW31 | [added: | |] New York Stock Exchange | [added: | |]

| 3.00% Euro Notes due 2034 | [added: | |] ITW34 | [added: | |] New York Stock Exchange | [added: | |]

| Large accelerated filer | [added: | |] ☒ | [added: | |] Accelerated filer | [added: | |] ☐ | [added: | |]

| Non-accelerated filer | [added: | |] ☐ | [added: | |] Smaller reporting company | [added: | |] ☐ | [added: | |]

| Emerging growth company | [added: | |] ☐ | | | [added: | | | | | |]

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, [removed: 2019] [added: 2020] was approximately [removed: $45.6] [added: $55.1] billion based on the New York Stock Exchange closing sales price as of June 30, [removed: 2019.][added: 2020.]

| Portions of the [removed: 2020] [added: 2021] Proxy Statement for Annual Meeting of Stockholders to be held on May [removed: 8, 2020.] [added: 7, 2021.] | | [added: | | | |] Part III | [added: | |]

| | [added: | |] Table of Contents | | [added: | | | |]

| [Item [removed: 1.](#s81D6D784461E521EA3E6B82727AFC486)] [added: 1.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_13)] | [removed: [Business](#s81D6D784461E521EA3E6B82727AFC486)] | [removed: [3](#s81D6D784461E521EA3E6B82727AFC486)] | [added: [Business](#ibd00c01e6e3e4016aeed4572c8aeb4ea_13) | | | [3](#ibd00c01e6e3e4016aeed4572c8aeb4ea_13) | | |]

| [Item [removed: 1A.](#s171F4FEF9D1C5E82A46BB1ED5A8EF4FA)] [added: 1A.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_16)] | [added: | |] [Risk [removed: Factors](#s171F4FEF9D1C5E82A46BB1ED5A8EF4FA)] [added: Factors](#ibd00c01e6e3e4016aeed4572c8aeb4ea_16)] | [removed: [9](#s171F4FEF9D1C5E82A46BB1ED5A8EF4FA)] | [added: | [11](#ibd00c01e6e3e4016aeed4572c8aeb4ea_16) | | |]

| [Item [removed: 1B.](#s62989A6C1CF9533DA42815ABA780DBB6)] [added: 1B.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_19)] | [added: | |] [Unresolved Staff [removed: Comments](#s62989A6C1CF9533DA42815ABA780DBB6)] [added: Comments](#ibd00c01e6e3e4016aeed4572c8aeb4ea_19)] | [removed: [14](#s62989A6C1CF9533DA42815ABA780DBB6)] | [added: | [16](#ibd00c01e6e3e4016aeed4572c8aeb4ea_19) | | |]

| [Item [removed: 2.](#s17E9918C04245459A886A11F1309DD83)] [added: 2.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_22)] | [removed: [Properties](#s17E9918C04245459A886A11F1309DD83)] | [removed: [14](#s17E9918C04245459A886A11F1309DD83)] | [added: [Properties](#ibd00c01e6e3e4016aeed4572c8aeb4ea_22) | | | [16](#ibd00c01e6e3e4016aeed4572c8aeb4ea_22) | | |]

| [Item [removed: 3.](#s1F1EF399BEC1547AA417AF45A3536780)] [added: 3.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_25)] | [added: | |] [Legal [removed: Proceedings](#s1F1EF399BEC1547AA417AF45A3536780)] [added: Proceedings](#ibd00c01e6e3e4016aeed4572c8aeb4ea_25)] | [removed: [14](#s1F1EF399BEC1547AA417AF45A3536780)] | [added: | [16](#ibd00c01e6e3e4016aeed4572c8aeb4ea_25) | | |]

| [Item [removed: 4.](#s03A8C14800845005BC5A2E822E0B014F)] [added: 4.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_28)] | [added: | |] [Mine Safety [removed: Disclosures](#s03A8C14800845005BC5A2E822E0B014F)] [added: Disclosures](#ibd00c01e6e3e4016aeed4572c8aeb4ea_28)] | [removed: [14](#s03A8C14800845005BC5A2E822E0B014F)] | [added: | [16](#ibd00c01e6e3e4016aeed4572c8aeb4ea_28) | | |]

| [Item [removed: 5.](#s447D9FDBC09F5289BF1E219BB4D640FD)] [added: 5.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_34)] | [added: | |] [Market for [removed: Registrant’s] [added: Registrant](#ibd00c01e6e3e4016aeed4572c8aeb4ea_34)['](#ibd00c01e6e3e4016aeed4572c8aeb4ea_34)[s] Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s447D9FDBC09F5289BF1E219BB4D640FD)] [added: Securities](#ibd00c01e6e3e4016aeed4572c8aeb4ea_34)] | [removed: [15](#s447D9FDBC09F5289BF1E219BB4D640FD)] | [added: | [17](#ibd00c01e6e3e4016aeed4572c8aeb4ea_34) | | |]

| [Item [removed: 6](#s8679CC3BF7845E8B8646FACAAF41179F).] [added: 6](#ibd00c01e6e3e4016aeed4572c8aeb4ea_37).] | [added: | |] [Selected Financial [removed: Data](#s8679CC3BF7845E8B8646FACAAF41179F)] [added: Data](#ibd00c01e6e3e4016aeed4572c8aeb4ea_37)] | [removed: [16](#s8679CC3BF7845E8B8646FACAAF41179F)] | [added: | [18](#ibd00c01e6e3e4016aeed4572c8aeb4ea_37) | | |]

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| [Item [removed: 7A.](#sBDD188A42529516B9106EC834316971A)] [added: 7A.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_115)] | [added: | |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sBDD188A42529516B9106EC834316971A)] [added: Risk](#ibd00c01e6e3e4016aeed4572c8aeb4ea_115)] | [removed: [38](#sBDD188A42529516B9106EC834316971A)] | [added: | [40](#ibd00c01e6e3e4016aeed4572c8aeb4ea_115) | | |]

| [Item [removed: 8.](#s57E4649D7483595BA0A140E6D29C1831)] [added: 8.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_118)] | [added: | |] [Financial Statements and Supplementary [removed: Data](#s57E4649D7483595BA0A140E6D29C1831)] [added: Data](#ibd00c01e6e3e4016aeed4572c8aeb4ea_118)] | [removed: [39](#s57E4649D7483595BA0A140E6D29C1831)] | [added: | [42](#ibd00c01e6e3e4016aeed4572c8aeb4ea_118) | | |]

| [Item [removed: 9.](#s51C1912AACCB51A9AAAFC0B7EDC2B313)] [added: 9.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_217)] | [added: | |] [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#s51C1912AACCB51A9AAAFC0B7EDC2B313)] [added: Disclosure](#ibd00c01e6e3e4016aeed4572c8aeb4ea_217)] | [removed: [76](#s51C1912AACCB51A9AAAFC0B7EDC2B313)] | [added: | [79](#ibd00c01e6e3e4016aeed4572c8aeb4ea_217) | | |]

| [Item [removed: 9A.](#sE09BED32C1D957D58467E7F692102B1F)] [added: 9A.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_220)] | [added: | |] [Controls and [removed: Procedures](#sE09BED32C1D957D58467E7F692102B1F)] [added: Procedures](#ibd00c01e6e3e4016aeed4572c8aeb4ea_220)] | [removed: [76](#sE09BED32C1D957D58467E7F692102B1F)] | [added: | [79](#ibd00c01e6e3e4016aeed4572c8aeb4ea_220) | | |]

| [Item [removed: 9B.](#sB008BB900E615AD0A1A19338091F3074)] [added: 9B.](#ibd00c01e6e3e4016aeed4572c8aeb4ea_223)] | [added: | |] [Other [removed: Information](#sB008BB900E615AD0A1A19338091F3074)] [added: Information](#ibd00c01e6e3e4016aeed4572c8aeb4ea_223)] | [removed: [76](#sB008BB900E615AD0A1A19338091F3074)] | [added: | [79](#ibd00c01e6e3e4016aeed4572c8aeb4ea_223) | | |]

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Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Shares of common stock outstanding at January 31, 2021: 316,662,263.

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| | | | [PART I](#ibd00c01e6e3e4016aeed4572c8aeb4ea_10) | | | | | |

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| | | | [PART II](#ibd00c01e6e3e4016aeed4572c8aeb4ea_31) | | | | | |

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| | | | [PART IV](#ibd00c01e6e3e4016aeed4572c8aeb4ea_244) | | | | | |

| | | | [Signatures](#ibd00c01e6e3e4016aeed4572c8aeb4ea_256) | | | [85](#ibd00c01e6e3e4016aeed4572c8aeb4ea_256) | | |

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Shares of Common Stock outstanding at January 31, 2020: 318,864,237.

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| | [PART I](#s4DA93EB080D551368E621504F0FBF141) | |

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| | [PART II](#s0BAF78C6DDB95848A8B375CD45D0B203) | |

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| | [PART IV](#s86DA3D28705C5AAC99F2123B143D0A05) | |

| | [Signatures](#s2AB090D251275B54B19480147D2AE2E3) | [82](#s2AB090D251275B54B19480147D2AE2E3) |

Due to the [removed: Company’s] [added: Company's] decentralized operating structure and global operations, the Company operates out of a [added: large] number of facilities worldwide, none of which are individually significant to the Company or its segments.

As of December 31, [removed: 2019,] [added: 2020,] the Company operated approximately 440 plants and office facilities, excluding regional sales offices and warehouse facilities.

Approximately [removed: 280] [added: 290] of the facilities were located outside of the United States.

Principal foreign countries include China, Germany, [added: France, and] the United [removed: Kingdom and France.][added: Kingdom.]

There were approximately [removed: 5,513] [added: 5,245] holders of record of common stock as of January 31, [removed: 2020.][added: 2021.]

[removed: ][added: ]

*Assumes $100 invested on [removed: 12/31/14] [added: 12/31/15] in stock or index, including reinvestment of dividends.

Copyright© [removed: 2020] [added: 2021] Standard & Poor's, a division of S&P Global.

The [removed: 2019 peer group] [added: 2020 Peer Group] consists of the following 17 public [removed: companies, consistent with the peer group included in the Company's Proxy statement:][added: companies:]

| 3M Company | [removed: Emerson Electric Co.] | [added: | Ecolab Inc. | | |] Parker-Hannifin Corporation | [added: | |]

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

| [removed: Cummins Inc.] [added: Deere & Company] | [added: | |] General Dynamics Corporation | [removed: Raytheon Company] | [added: | Stanley Black & Decker, Inc. | | |]

| Eaton Corporation plc | [added: | |] Johnson [removed: Controls, Inc.] [added: Controls International plc] | | [added: | | | |]

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

Repurchases of Common Stock— On [removed: February 13, 2015,] [added: August 3, 2018,] the [removed: Company’s] [added: Company's] Board of Directors authorized a [added: new] stock repurchase program which [removed: provided] [added: provides] for the repurchase of up to [removed: $6.0] [added: $3.0] billion of the [removed: Company’s] [added: Company's] common stock over an open-ended period of time (the [removed: "2015] [added: "2018] Program").

As of December 31, [removed: 2019,] [added: 2020,] there were approximately [removed: $1.9] [added: $1.2] billion of authorized repurchases remaining under the 2018 program.

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| Cummins Inc. | | | Fortive Corporation | | | Rockwell Automation, Inc. | | |

| Dover Corporation | | | Honeywell International Inc. | | | Trane Technologies plc | | |

In 2020, the Compensation Committee added Ecolab Inc. as it meets the Company's industry and size criteria, and Trane Technologies plc, which is the company resulting from the spin-off of Ingersoll-Rand plc and its combination with certain businesses of Gardner Denver, Inc. As a result, Ingersoll-Rand plc was removed, as well as Raytheon Company, which merged with United Technologies Corporation and no longer meets the Company's industry and size criteria.

Due to the COVID-19 pandemic, the Company temporarily suspended its share repurchase program starting in March 2020.

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

| Dover Corporation | Ingersoll-Rand plc | Stanley Black & Decker, Inc. |

The 2015 Program was completed in the second quarter of 2019.

On August 3, 2018, the Company's Board of Directors authorized a new stock repurchase program which provides for the repurchase of up to an additional $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program").

Share repurchase activity under the Company's share repurchase program for the fourth quarter of 2019 was as follows:

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| In millions except per share amounts | | | | | | | | | | | | | |

| Period | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | | Total Number of Shares Purchased as Part of Publicly Announced Program | | | Maximum Value of Shares That May Yet Be Purchased Under Programs | | |

| October 2019 | 0.1 | | | $ | 167.78 | | | 0.1 | | | $ | 2,301 | |

| November 2019 | 0.3 | | | $ | 173.98 | | | 0.3 | | | $ | 2,256 | |

| December 2019 | 1.8 | | | $ | 175.67 | | | 1.8 | | | $ | 1,946 | |

| Total | 2.2 | | | | | | | 2.2 | | | | | |

| In millions except per share amounts | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | | | [removed: 2017] | | [added: 2017] | | [removed: 2016] | | | | [removed: 2015] [added: 2016] | | |

| Operating revenue | [added: | |] $ | [removed: 14,109] [added: 12,574] | | | [added: | |] $ | [removed: 14,768] [added: 14,109] | | | [added: | |] $ | [removed: 14,314] [added: 14,768] | | | [added: | |] $ | [removed: 13,599] [added: 14,314] | | | [added: | |] $ | [removed: 13,405] [added: 13,599] | |

| Income from continuing operations | [added: | | 2,109 | | | | | |] 2,521 | | | | [added: | |] 2,563 | | | | [removed: 1,687] | | [added: 1,687] | | [removed: 2,035] | | | | [removed: 1,899] [added: 2,035] | | |

| Income per share from continuing operations: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Basic | [added: | | 6.66 | | | | | |] 7.78 | | | | [added: | |] 7.65 | | | | [removed: 4.90] | | [added: 4.90] | | [removed: 5.73] | | | | [removed: 5.16] [added: 5.73] | | |

| Diluted | [added: | | 6.63 | | | | | |] 7.74 | | | | [added: | |] 7.60 | | | | [removed: 4.86] | | [added: 4.86] | | [removed: 5.70] | | | | [removed: 5.13] [added: 5.70] | | |

| Total assets at year-end | [added: | | 15,612 | | | | | |] 15,068 | | | | [added: | |] 14,870 | | | | [removed: 16,780] | | [added: 16,780] | | [removed: 15,201] | | | | [removed: 15,729] [added: 15,201] | | |

| Long-term debt at year-end | [added: | | 7,772 | | | | | |] 7,754 | | | | [added: | |] 6,029 | | | | [removed: 7,478] | | [added: 7,478] | | [removed: 7,177] | | | | [removed: 6,896] [added: 7,177] | | |

| Cash dividends declared per common share | [added: | | 4.42 | | | | | |] 4.14 | | | | [added: | |] 3.56 | | | | [removed: 2.86] | | [added: 2.86] | | [removed: 2.40] | | | | [removed: 2.07] [added: 2.40] | | |

In [added: the fourth quarter of] 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 [removed: Act." Refer to Note 6.][added: Act" (the "Act") on December 22, 2017.]

In March 2016, the [removed: FASB] [added: Financial Accounting Standards Board (the "FASB")] issued authoritative guidance that included 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.

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

Excess tax benefits of [added: $27 million,] $28 million, $10 million and $50 million were included in Income taxes in the statement of income for the years ended December 31, [added: 2020,] 2019, 2018 and 2017, respectively.

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The provisions of the Act significantly revised the U.S. corporate income tax rules.

The additional tax expense recorded in the fourth quarter of 2017 primarily related to a one-time repatriation tax of $676 million on the deemed repatriation of post-1986 undistributed earnings of foreign subsidiaries and $53 million of additional foreign withholding taxes related to the expected repatriation of foreign held cash and equivalents.

These additional tax charges were partially offset by an $82 million one-time income tax benefit related to the remeasurement of deferred tax assets and liabilities in the fourth quarter of 2017 due to the reduction of the U.S. corporate federal tax rate from a maximum of 35% to a flat rate of 21% beginning in 2018 under the Act.

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Income Taxes in Item 8.

Financial Statements and Supplementary Data for further information.

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.

ITW management assessed the effectiveness of the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2019.][added: 2020.]

Based on our assessment we believe that, as of December 31, [removed: 2019,] [added: 2020,] the [removed: Company’s] [added: Company's] internal control over financial reporting is effective based on those criteria.

The effectiveness of the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2019] [added: 2020] 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: 14, 2020] [added: 12, 2021] | | [added: | | | |] /s/ Michael M. Larsen Michael M. Larsen Senior Vice President & Chief Financial Officer February [removed: 14, 2020] [added: 12, 2021] | [added: | |]

We have audited the accompanying consolidated statements of financial position of Illinois Tool Works Inc. and subsidiaries (the "Company") as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, [removed: 2019,] [added: 2020,] and the related notes (collectively referred to as the "financial statements").

We also have audited the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in *Internal Control [removed: -] [added: —] Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2019,] [added: 2020,] 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: 2019,] [added: 2020,] based on criteria established in *Internal Control [removed: -] [added: —] Integrated Framework (2013)* issued by COSO.

Income [removed: Taxes-Refer] [added: Taxes — Refer] to Note 6 to the financial statements

The [removed: Company’s] [added: Company's] income tax expense for [removed: 2019] [added: 2020] was [removed: $767] [added: $595] million and the liability recorded for unrecognized tax benefits as of December 31, [removed: 2019,] [added: 2020,] was [removed: $296] [added: $346] million.

[removed: | • |] [added: -] We tested the effectiveness of [removed: management’s] [added: management's] controls over income taxes, including those over income tax expense, unrecognized tax benefits, and certain planning transactions with income tax expense implications. [removed: |]

[removed: | • |] [added: -] We evaluated [removed: management’s] [added: management's] significant estimates and judgments incorporated into the calculation of income tax expense by: [removed: |]

[removed: | • | Selecting] [added: ◦Selecting] a sample of book to tax differences (temporary and permanent) and testing the accuracy, completeness, and classification of the selections, including evaluating that all impacts of significant transactions with income tax expense implications are considered. [removed: |]

[removed: | • | Developing] [added: ◦Developing] an expectation over the foreign income tax expense by jurisdiction and comparing it to the recorded balance. [removed: |]

[removed: | • | Testing] [added: ◦Testing] the accuracy of the income tax expense calculation. [removed: |]

[removed: | • |] [added: -] We evaluated [removed: management’s] [added: management's] significant judgments regarding the identification of uncertain tax positions by: [removed: |]

[removed: | • | Evaluating] [added: ◦Evaluating] the reasonableness of a selection of certain planning transactions with income tax expense implications, including the completeness and accuracy of the underlying data supporting the transactions. [removed: |]

[removed: | • | Assessing management’s] [added: ◦Assessing management's] methods and assumptions used in identifying uncertain tax positions. [removed: |]

[removed: | • | Comparing] [added: ◦Comparing] results of prior tax audits to ongoing and anticipated tax audits by tax authorities. [removed: |]

[removed: | • | Evaluating] [added: ◦Evaluating] external information, including applicable tax law, new interpretations, and related changes to assess the completeness and reasonableness of [removed: management’s] [added: management's] considerations. [removed: |]

[removed: | • | Determining] [added: ◦Determining] if there was additional information not considered in [removed: management’s] [added: management's] assessment. [removed: |]

[removed: | • |] [added: -] We evaluated a sample of the liabilities recorded for unrecognized tax benefits to assess the establishment and amount of the liability for the specific underlying tax position. [removed: |]

| | [added: | |] For the Years Ended December 31 | | | | | | | | | | | [added: | | | |]

| In millions except per share amounts | [removed: 2019] | | [added: 2020] | | [removed: 2018] | | | | [removed: 2017] [added: 2019] | | | [added: | | | 2018 | | |]

| Operating Revenue | [added: | |] $ | [removed: 14,109] [added: 12,574] | | | [added: | |] $ | [removed: 14,768] [added: 14,109] | | | [added: | |] $ | [removed: 14,314] [added: 14,768] | |

| Cost of revenue | [removed: 8,187] | | [added: 7,375] | | [removed: 8,604] | | | | [removed: 8,306] [added: 8,187] | | | [added: | | | 8,604 | | |]

| Selling, administrative, and research and development expenses | [removed: 2,361] | | [added: 2,163] | | [removed: 2,391] | | | | [removed: 2,412] [added: 2,361] | | | [added: | | | 2,391 | | |]

| Amortization and impairment of intangible assets | [removed: 159] | | [added: 154] | | [removed: 189] | | | | [removed: 206] [added: 159] | | | [added: | | | 189 | | |]

| Operating Income | [removed: 3,402] | | [added: 2,882] | | [removed: 3,584] | | | | [removed: 3,485] [added: 3,402] | | | [added: | | | 3,584 | | |]

| Interest expense | [removed: (221] | | [removed: )] [added: (206)] | | [removed: (257] | | [removed: )] | | [removed: (260] [added: (221)] | | [removed: )] | [added: | | | (257) | | |]

| Other income (expense) | [removed: 107] | | [added: 28] | | [removed: 67] | | | | [removed: 45] [added: 107] | | | [added: | | | 67 | | |]

| Income Before Taxes | [removed: 3,288] | | [added: 2,704] | | [removed: 3,394] | | | | [removed: 3,270] [added: 3,288] | | | [added: | | | 3,394 | | |]

| Income taxes | [removed: 767] | | [added: 595] | | [removed: 831] | | | | [removed: 1,583] [added: 767] | | | [added: | | | 831 | | |]

| Net Income | [added: | |] $ | [removed: 2,521] [added: 2,109] | | | [added: | |] $ | [removed: 2,563] [added: 2,521] | | | [added: | |] $ | [removed: 1,687] [added: 2,563] | |

| Net Income Per Share: | | | | | | | | | | | | [added: | | | | | |]

| Basic | [added: | |] $ | [removed: 7.78] [added: 6.66] | | | [added: | |] $ | [removed: 7.65] [added: 7.78] | | | [added: | |] $ | [removed: 4.90] [added: 7.65] | |

| Diluted | [added: | |] $ | [removed: 7.74] [added: 6.63] | | | [added: | |] $ | [removed: 7.60] [added: 7.74] | | | [added: | |] $ | [removed: 4.86] [added: 7.60] | |

| | [added: | |] For the Years Ended December 31 | | | | | | | | | | | [added: | | | |]

| In millions | [removed: 2019] | | [added: 2020] | | [removed: 2018] | | | | [removed: 2017] [added: 2019] | | | [added: | | | 2018 | | |]

| Net Income | [added: | |] $ | [removed: 2,521] [added: 2,109] | | | [added: | |] $ | [removed: 2,563] [added: 2,521] | | | [added: | |] $ | [removed: 1,687] [added: 2,563] | |

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| | | | $ | 15,612 | | | | | $ | 15,068 | |

| | | | $ | 15,612 | | | | | $ | 15,068 | |

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| Other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | (345) | | | — | | | (345) | | |

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| Other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | (28) | | | — | | | (28) | | |

| Net income | | | — | | | — | | | 2,109 | | | — | | | — | | | — | | | 2,109 | | |

| Other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | 63 | | | — | | | 63 | | |

| Balance as of December 31, 2020 | | | $ | 6 | | $ | 1,362 | | $ | 23,114 | | $ | (19,659) | | $ | (1,642) | | $ | 1 | | $ | 3,182 | |

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Goodwill and Intangible Assets for additional information regarding the Company's annual assessment of goodwill.

In August 2018, the FASB issued new accounting guidance which revised certain annual disclosure requirements for defined benefit pension and other postretirement plans with the objective of improving the effectiveness of these disclosures.

The new guidance eliminates several existing disclosure requirements, adds or expands other disclosures, and is required to be applied retrospectively to all periods presented.

The Company adopted the new guidance for the year ended December 31, 2020, which resulted in modified disclosures.

Pension and Other Postretirement Benefits for disclosures related to the Company's defined benefit pension and other postretirement benefit plans.

In December 2019, the FASB issued authoritative guidance which simplifies certain aspects of the accounting for income taxes, including the elimination of an exception to the methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated full year loss.

(2) Novel Coronavirus (COVID-19)

In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions.

The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020.

In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders.

The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 continued to spread and impact the countries in which the Company operates and the markets the Company serves.

The Company expects the disruptions caused by the COVID-19 outbreak to continue to have an adverse impact on the Company's operating results in 2021.

However, the full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company’s operations continues to be highly uncertain.

A prolonged outbreak will continue to interrupt the operations of the Company and its customers and suppliers.

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In the first quarter of 2020, the Company concluded that the sales of the one business in the Automotive OEM segment and the one business in the Specialty Products segment previously held for sale were no longer probable of being completed within one year, primarily due to the disruptions and economic uncertainty resulting from the COVID-19 pandemic.

In the third quarter of 2020, the Company concluded that the sale of the remaining held for sale business in the Test & Measurement and Electronics segment was no longer probable of being completed within one year due to delays in the sale process and ongoing economic uncertainty resulting from the COVID-19 pandemic.

Accordingly, these businesses were no longer presented as held for sale in the Statement of Financial Position beginning in the first and third quarters of 2020, respectively.

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February 14, 2020

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

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| | $ | 15,068 | | | $ | 14,870 | |

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| Balance at December 31, 2016 | $ | 6 | | $ | 1,188 | | $ | 19,505 | | $ | (14,638 | ) | $ | (1,807 | ) | $ | 5 | | $ | 4,259 | |

The Company primarily serves the automotive OEM/tiers, commercial food equipment, construction, general industrial, and automotive aftermarket end markets.

The [removed: Company’s] [added: Company's] management, with the participation of the [removed: Company’s] [added: Company's] Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, has evaluated the effectiveness of the [removed: Company’s] [added: Company's] disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 31, [removed: 2019.][added: 2020.]

Based on such evaluation, the [removed: Company’s] [added: Company's] Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of December 31, [removed: 2019,] [added: 2020,] the [removed: Company’s] [added: Company's] disclosure controls and procedures were effective.

In connection with the evaluation by management, including the [removed: Company’s] [added: Company's] Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the [removed: Company’s] [added: Company's] internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31, [removed: 2019] [added: 2020] were identified that have materially affected or are reasonably likely to materially affect the [removed: Company’s] [added: Company's] internal control over financial reporting.

Information regarding the Directors of the Company [added: who are standing for reelection and any persons nominated to become Directors of the Company] is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors" in the [removed: Company’s] [added: Company's] Proxy Statement for the [removed: 2020] [added: 2021] 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 [removed: Company’s] [added: Company's] Proxy Statement for the [removed: 2020] [added: 2021] Annual Meeting of Stockholders.

Information regarding the [removed: Company’s] [added: Company's] code of ethics that applies to the [removed: Company’s] [added: 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 [removed: Company’s] [added: Company's] Proxy Statement for the [removed: 2020] [added: 2021] 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 Reports" in the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders.

[removed: This information] [added: Information regarding executive compensation] 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 [removed: Company’s] [added: Company's] Proxy Statement for the [removed: 2020] [added: 2021] Annual Meeting of Stockholders.

[removed: This information] [added: Information regarding security ownership of certain beneficial owners and management and related stockholder matters] 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 [removed: Company’s] [added: Company's] Proxy Statement for the [removed: 2020] [added: 2021] 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: 2020] [added: 2021] 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 [removed: Company’s] [added: Company's] Proxy Statement for the [removed: 2020] [added: 2021] 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 [removed: Company’s] [added: Company's] Proxy Statement for the [removed: 2020] [added: 2021] Annual Meeting of Stockholders.

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

| [removed: Exhibit Number] [added: Exhibit Number] | | [added: | | | |] Description | [added: | |]

| [2.1(a)](http://www.sec.gov/Archives/edgar/data/49826/000004982612000073/wimbledoninvtagmt.htm) | | [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 request.)](http://www.sec.gov/Archives/edgar/data/49826/000004982612000073/wimbledoninvtagmt.htm) | [added: | |]

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

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

| [3(b)](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3bi.htm) | | [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 [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3bi.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3bi.htm)[s] Current Report on Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312516588819/d192476dex3bi.htm) | [added: | |]

| [removed: [4(a)](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt)] [added: [4(a)](http://www.sec.gov/Archives/edgar/data/49826/000119312520213047/d95049dex44.htm)] | | [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 [removed: 4.1] [added: 4.4] to the [removed: Company’s] [added: Company's] Registration Statement on Form S-3 filed on [removed: January 15, 1999] [added: August 7, 2020] (Commission File No. [removed: 333-70691)] [added: 333-242331)] and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt) | [added: | |]

| [4(b)](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt) | | [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 [removed: 4.2] [added: 4.5] to the [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000119312520213047/d95049dex45.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000119312520213047/d95049dex45.htm)[s] Registration Statement on Form S-3 filed on [removed: January 15, 1999] [added: August 7, 2020] (Commission File No. [removed: 333-70691)] [added: 333-242331)] and incorporated herein by [removed: reference.](http://www.sec.gov/Archives/edgar/data/49826/0000950124-99-000281.txt)] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312520213047/d95049dex45.htm)] | [added: | |]

| [4(c)](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm) | | [removed: [Officers’ Certificate] [added: | | | | [Officers](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm) [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 [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm)[s] Current Report on Form 8-K filed on September 1, 2011 (Commission File No. 001-04797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982611000059/exhibit43.htm) | [added: | |]

| [4(d)](http://www.sec.gov/Archives/edgar/data/49826/000004982612000083/exhibit41.htm) | | [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 reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982612000083/exhibit41.htm) | [added: | |]

| [removed: Exhibit Number] [added: Exhibit Number] | | [added: | | | |] Description | [added: | |]

| [4(e)](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm) | | [removed: [Officers’ Certificate] [added: | | | | [Officers](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm) [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 [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm)[s] Current Report on Form 8-K filed on February 26, 2014 (Commission File No. 001-04797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000055/exhibit41.htm) | [added: | |]

| [4(f)](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm) | | [removed: [Officers’ Certificate] [added: | | | | [Officers](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm) [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 [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm)[s] Current Report on Form 8-K filed on May 22, 2014 (Commission File No. 001-04797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000099/itwexhibit41.htm) | [added: | |]

| [4(g)](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm) | | [removed: [Officers’ Certificate] [added: | | | | [Officers](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm) [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 [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm)[s] Current Report on Form 8-K filed on May 22, 2015 (Commission File No. 001-04797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312515198771/d930210dex41.htm) | [added: | |]

| [4(h)](http://www.sec.gov/Archives/edgar/data/49826/000004982616000277/exhibit41.htm) | | [removed: [Officer’s] [added: | | | | [Officers'] 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 [removed: Company’s] [added: Company's] Current Report on Form 8-K filed on November 10, 2016 (Commission File No. 001-04797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000277/exhibit41.htm) | [added: | |]

| [removed: [4(i)](http://www.sec.gov/Archives/edgar/data/49826/000119312519165902/0001193125-19-165902-index.htm)] [added: [4(i)](https://www.sec.gov/Archives/edgar/data/49826/000119312519165902/d753649dex41.htm)] | | [removed: [Officers’ Certificate] [added: | | | | [Officers](http://www.sec.gov/Archives/edgar/data/49826/000119312519165902/d753649dex41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000119312519165902/d753649dex41.htm) [Certificate] dated June 5, 2019, establishing the terms, and setting forth the forms, of the 0.250% Notes due 2024, the 0.625% Notes due 2027 and the 1.000% Notes due 2031, filed as Exhibit 4.1 to the [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000119312519165902/d753649dex41.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000119312519165902/d753649dex41.htm)[s] Current Report on Form 8-K filed on June 5, 2019 (Commission File No. 001-04797) and incorporated herein by [removed: reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312519165902/0001193125-19-165902-index.htm)] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312519165902/d753649dex41.htm)] | [added: | |]

| [removed: [4(k)](https://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4kdescriptionof.htm)] [added: [4(k)](http://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4kdescriptionof.htm)] | | [added: | | | |] [Description of the 1.75% Euro Notes due 2022 and 3.00% Euro Notes due [removed: 2034.](https://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4kdescriptionof.htm)] [added: 2034, filed as Exhibit 4(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (Commission File No. 1-4797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4kdescriptionof.htm)] | [added: | |]

| [removed: [4(l)](https://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4ldescriptionof.htm)] [added: [4(l)](http://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4ldescriptionof.htm)] | | [added: | | | |] [Description of the 1.25% Euro Notes due 2023 and 2.125% Euro Notes due [removed: 2030.](https://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4ldescriptionof.htm)] [added: 2030, filed as Exhibit 4(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (Commission File No. 1-4797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4ldescriptionof.htm)] | [added: | |]

| [removed: [4(m)](https://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4mdescriptionof.htm)] [added: [4(m)](http://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4mdescriptionof.htm)] | | [added: | | | |] [Description of the 0.250% Euro Notes due 2024, 0.625% Euro Notes due 2027 and 1.00% Euro Notes due [removed: 2031.](https://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4mdescriptionof.htm)] [added: 2031, filed as Exhibit 4(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (Commission File No. 1-4797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982620000020/exhibit4mdescriptionof.htm)] | [added: | |]

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

| [removed: [10(b)*](http://www.sec.gov/Archives/edgar/data/49826/000004982615000101/itw2q15-exhibit101.htm)] [added: [10(c)*](http://www.sec.gov/Archives/edgar/data/49826/000004982615000101/itw2q15-exhibit101.htm)] | | [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 June 30, 2015 (Commission File No. 1-4797) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982615000101/itw2q15-exhibit101.htm) | [added: | |]

| [removed: [10(c)*](http://www.sec.gov/Archives/edgar/data/49826/000129993311000437/exhibit1.htm)] [added: [10(d)*](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)] | | [added: | | | |] [Form of stock option terms filed as Exhibit 99.1 to the [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)[s] Current Report on Form 8-K filed on February [removed: 9, 2011] [added: 7, 2012] (Commission File No. 1-4797) and incorporated herein by [removed: reference.](http://www.sec.gov/Archives/edgar/data/49826/000129993311000437/exhibit1.htm)] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)] | [added: | |]

| [removed: [10(d)*](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)] [added: [10(e)*](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)] | | [added: | | | |] [Form of stock option terms filed as Exhibit 99.1 to the [removed: Company’s] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)[s] Current Report on Form 8-K filed on February [removed: 7, 2012] [added: 13, 2014] (Commission File No. 1-4797) and incorporated herein by [removed: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982612000012/itw8k991awardagreement.htm)] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)] | [added: | |]

| [removed: [10(e)*](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)] [added: [10(f)*](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit991stockoptionterms.htm)] | | [added: | | | |] [Form of stock option terms filed as Exhibit 99.1 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.](http://www.sec.gov/Archives/edgar/data/49826/000004982614000019/ex991universaloptiongrant.htm)] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit991stockoptionterms.htm)] | [added: | |]

| [removed: [10(f)*](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit991stockoptionterms.htm)] [added: [10(g)*](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex991awardsagrmnt4q2016.htm)] | | [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, [removed: 2016] [added: 2017] (Commission File No. 1-4797) and incorporated herein by [removed: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982616000135/exhibit991stockoptionterms.htm)] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex991awardsagrmnt4q2016.htm)] | [added: | |]

| [removed: [10(g)*](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex991awardsagrmnt4q2016.htm)] [added: [10(n)*](http://www.sec.gov/Archives/edgar/data/49826/000119312520025381/d840623dex991.htm)] | | [added: | | | |] [Form of stock option terms filed as Exhibit 99.1 to the [removed: Company's] [added: Company](http://www.sec.gov/Archives/edgar/data/49826/000119312520025381/d840623dex991.htm)['](http://www.sec.gov/Archives/edgar/data/49826/000119312520025381/d840623dex991.htm)[s] Current Report on Form 8-K filed on February [removed: 9, 2017] [added: 5, 2020] (Commission File No. 1-4797) and incorporated herein by [removed: reference.](http://www.sec.gov/Archives/edgar/data/49826/000004982617000019/ex991awardsagrmnt4q2016.htm)] [added: reference.](http://www.sec.gov/Archives/edgar/data/49826/000119312520025381/d840623dex991.htm)] | [added: | |]