Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

Illinois Tool Works Inc. (the "Company" or "ITW") is a global manufacturer of a diversified range of industrial products and equipment. As of December 31, 2025, the Company had 88 divisions with approximately 43,000 people in 49 countries.

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

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

THE ITW BUSINESS MODEL

The powerful and highly differentiated ITW Business Model is the Company's core source of value creation. It serves as the Company's primary competitive advantage and defines the framework through which ITW generates sustainable value for its shareholders. The ITW Business Model is comprised of three unique elements:

80/20 Front-to-Back** defines how the Company operates. It is a unique set of proprietary tools and methodologies that ITW divisions utilize to structure and operate their businesses to (a) maximize the performance, execution, and value-add provided to their largest and most profitable customers (the "80"), and (b) minimize the costs, complexity, and distractions associated with serving less profitable accounts (the "20"). Through the application of the 80/20 Front-to-Back process, ITW divisions deliver best-in-class customer-facing execution, high-quality organic growth, and superior profitability and return on capital performance.
Customer-Back Innovation ("CBI")** drives the Company's approach to innovation and development. ITW innovates from the customer back, rather than from a centralized research and development center out. ITW divisions partner with their key customers to create unique solutions that solve difficult technical challenges and improve business performance. This disciplined, repeatable process directs innovation efforts toward high-growth markets with solid long-term fundamentals.
ITW's** Decentralized, Entrepreneurial Culture is the key to the Company's execution. Divisions are clear on the expectations of the ITW Business Model, strategy, and values. Within this framework, business teams are empowered to make decisions and customize their approach to maximize the relevance and impact of the ITW Business Model for their specific customers and end markets. This "flexibility within the framework" culture encourages an ownership mindset and accountability, enabling the Company to consistently deliver differentiated results.

ENTERPRISE STRATEGY: LEVERAGING THE ITW BUSINESS MODEL TO ITS FULL POTENTIAL

Since the initiation of the Enterprise Strategy in 2012, the entire organization has focused on utilizing the ITW Business Model to its full potential to deliver solid growth with best-in-class margins and returns. To execute the strategy, the Company undertook a complete review of its performance, focusing on its businesses that delivered consistent above-market growth with best-in-class margins and returns, and developed a framework to replicate that performance across its operations. ITW determined that high-quality above-market organic growth is the core growth engine to deliver world-class financial performance and compelling long-term returns for its shareholders.

Key initiatives in the Company's Enterprise Strategy included portfolio management, business structure simplification, strategic sourcing and the diligent re-application of ITW's proprietary 80/20 Front-to-Back process.

As part of the Portfolio Management initiative, ITW exited businesses that were operating in commoditized market spaces and prioritized sustainable differentiation as a must-have requirement for all ITW businesses. This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions.
Business Structure Simplification was implemented to simplify and scale up ITW's operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 88 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and Customer-Back Innovation.
The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year since 2013 and continues to be a key contributor to the Company's ongoing Enterprise Strategy.
With the initial portfolio realignment and scale-up work largely completed, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process to optimize its scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth.

Since implementing the Company's Enterprise Strategy in 2012, the Company has demonstrated the compelling performance potential of the ITW Business Model and superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company's operating margin and after-tax return on invested capital.

NEXT PHASE: 2024 - 2030

In the Next Phase of the Company's Enterprise Strategy, the ITW Business Model remains the Company's core competitive advantage and a powerful performance differentiator, uniquely positioning the Company to navigate a global operating environment characterized by increasing volatility and a rapid pace of change. The 80/20 Front-To-Back process provides the strategic clarity to deliver high-quality organic growth and superior customer service, profitability and returns on capital. Through Customer-Back Innovation, the Company innovates technical solutions to solve critical customer challenges with higher effectiveness and lower risk. The Company's decentralized entrepreneurial culture allows it to be a "fast adaptor," capable of reading and reacting to market shifts with agility. Furthermore, the Company's ability to execute and invest consistently through all phases of the business cycle has become a defining strength.

As the Company advances through this Next Phase, it is continuing to improve the quality of practice in its proprietary business model while pivoting decisively to build above-market organic growth, fueled by Customer-Back Innovation execution, into a core ITW strength. Achieving high-quality organic growth of four percent or more through the cycle is the Company's highest priority in the Next Phase. CBI successes, coupled with underlying market growth and share gains, are how the Company intends to achieve its high-quality organic growth.

Portfolio Discipline

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

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

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

TERMS USED BY ITW

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

Organic business - acquired businesses that have been included in the Company's results of operations for more than 12 months on a constant currency basis.
Operating leverage** - the estimated effect of the organic revenue volume changes on organic operating income, assuming variable margins remain the same as the prior period.
Price/cost** - represents the estimated net impact of increases or decreases in the cost of materials used in the Company's products versus changes in the selling price to the Company's customers.
Product line simplification ("PLS")** - focuses businesses on eliminating the complexity and overhead costs associated with smaller product lines and customers, and focuses businesses on supporting and growing their largest customers and product lines. In the short-term, PLS may result in a decrease in revenue and overhead costs while improving operating margin. In the long-term, PLS is expected to result in growth in revenue, profitability, and returns.

Unless otherwise stated, the changes in financial results in the consolidated results of operations and the results of operations by segment represent the current year period versus the comparable period in the prior year. The following discussion of operating results should be read in conjunction with Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2025 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

During the first quarter of 2022, Russian military forces invaded Ukraine. In response, the United States and several other countries imposed economic and other sanctions on Russia. The Company has four immaterial Russian subsidiaries with net assets of approximately $38 million as of March 31, 2026. The revenue for these four subsidiaries for the three months ended March 31, 2026 was approximately $6 million. These subsidiaries are not material to the Company's results of operations or financial position.

On April 2, 2025, the United States government announced additional tariffs on goods imported to the U.S. from numerous countries. In response, certain countries retaliated with additional counter-tariffs or negotiated with the U.S. government regarding tariffs. Tariffs on goods from many countries became effective on August 1, 2025. On February 20, 2026, the U.S. Supreme Court invalidated many of the tariffs imposed under the International Emergency Economic Powers Act (the "IEEPA"), resulting in the termination of many tariffs imposed in 2025. Following this decision, a new temporary 10 percent global tariff was imposed under the Trade Act, which may remain in effect up to 150 days. The Company believes that it continues to be well positioned to minimize the impact of these tariffs because its businesses generally manufacture products in the markets where they are sold and the Company expects to recover any increased cost due to tariffs through price increases. However, current tariff policies have introduced additional uncertainty and may negatively impact overall demand from the Company's customers. The Company continues to assess the impact of the tariffs and actions that can be taken to moderate and/or minimize their effects on the Company.

On October 1, 2025, the Company completed the acquisition of one business in the Test & Measurement and Electronics segment for $120 million, net of cash acquired, and subject to certain closing adjustments. The allocation of purchase price for this acquisition will be completed as soon as practicable, but no later than one year from the acquisition date. This acquisition was not material to the Company's results of operations, financial position or cash flows. Refer to Note 2. Acquisitions in Item 1. Financial Statements for further information regarding this acquisition.

In an uncertain external environment, the Company delivered solid financial results in the first quarter of 2026 primarily due to the continued successful execution of enterprise initiatives and continued focus on the highly differentiated ITW Business Model.

Operating Revenue

Refer to the "Results of Operations for Total Company" and the "Results of Operations by Segment" sections for discussion of changes in operating revenue for the first quarter of 2026 compared to 2025.

Operating Expenses


	Three Months Ended
	March 31,
Dollars in millions	2026			2025
Operating Revenue	$	4,016		$	3,839
Cost of revenue	$	2,256		$	2,161
Percent of operating revenue	56.2		%	56.3		%
Selling, administrative, and research and development expenses	$	722		$	706
Percent of operating revenue	18.0		%	18.4		%
Amortization and impairment of intangible assets	$	18		$	21
Percent of operating revenue	0.4		%	0.5		%

Cost of revenue was $2.3 billion and $2.2 billion in the first quarter of 2026 and 2025, respectively, an increase of 4.4%, primarily due to higher revenue and higher employee-related expenses. Cost of revenue as a percent of operating revenue was lower in 2026 compared to 2025 as benefits from the Company's enterprise initiatives were essentially offset by higher employee-related expenses and higher revenue.

Selling, administrative, and research and development expenses were $722 million and $706 million in the first quarter of 2026 and 2025, respectively, an increase of 2.3%. Selling, administrative, and research and development expenses as a percent of operating revenue were lower in 2026 compared to 2025 primarily due to benefits from the Company's enterprise initiatives, partially offset by higher selling, advertising and research and development expenses.

Amortization and impairment of intangible assets was lower in the first quarter of 2026 compared to 2025 primarily due to fully amortized intangible assets.

Refer to the "Results of Operations for Total Company" and the "Results of Operation by Segment" sections for additional discussion of operating results for the first quarter of 2026 compared to 2025.

RESULTS OF OPERATIONS FOR TOTAL COMPANY

The Company's consolidated results of operations for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	4,016		$	3,839		4.6	%	0.4	%	0.3	%	—	%	3.9	%	4.6	%
Operating income	$	1,020		$	951		7.2	%	2.0	%	(0.2)	%	1.4	%	4.0	%	7.2	%
Operating margin %	25.4		%	24.8		%	60 bps		40 bps		(10) bps		30 bps		—		60 bps

Operating revenue grew due to the favorable effect of foreign currency translation and higher organic and acquisition revenues.
Organic revenue increased 0.4% as growth in the Test & Measurement and Electronics, Welding and Polymers & Fluids segments was partially offset by a decline in the Specialty Products, Food Equipment, Automotive OEM and Construction Products segments. Product line simplification activities reduced organic revenue by 60 basis points.

◦North American organic revenue grew 1.2% as growth in the Test & Measurement and Electronics, Welding and Polymers & Fluids segments was partially offset by a decrease in the Food Equipment, Specialty Products, Automotive OEM and Construction Products segments.

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

◦Asia Pacific organic revenue grew 2.4% primarily due to growth in the Test & Measurement and Electronics segment. Organic revenue in China decreased 1.8% as a decline in the Automotive OEM, Specialty Products,

Construction Products and Food Equipment segments was partially offset by growth in the Test & Measurement and Electronics, Polymers & Fluids and Welding segments.

Operating income of $1.0 billion increased 7.2%.
Operating margin of 25.4% increased 60 basis points primarily due to benefits from the Company's enterprise initiatives of 120 basis points and lower restructuring expenses of 30 basis points, partially offset by higher employee-related expenses.
The Company's effective tax rate for the first quarter of 2026 and 2025 was 20.6% and 21.7%, respectively. The effective tax rate for the first quarter of 2026 included a discrete tax benefit of $34 million primarily related to the resolution of a U.S. tax audit. The effective tax rate for the first quarter of 2025 included a discrete tax benefit of $21 million related to the reversal of a valuation allowance on net operating loss carryforwards. Additionally, the effective tax rates included discrete tax benefits related to excess tax benefits from stock-based compensation of $4 million for both the first quarter of 2026 and 2025.
Diluted earnings per share ("EPS") of $2.66 for the first quarter of 2026 increased 11.8%.
The Company repurchased approximately 1.4 million shares of its common stock in the first quarter of 2026 for approximately $375 million.

RESULTS OF OPERATIONS BY SEGMENT

Total operating revenue and operating income for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended March 31,
Dollars in millions	Operating Revenue				Operating Income
	2026		2025		2026		2025
Automotive OEM	$	820	$	786	$	173	$	151
Food Equipment	637		627		157		166
Test & Measurement and Electronics	715		652		164		139
Welding	507		472		163		153
Polymers & Fluids	452		429		126		114
Construction Products	458		443		135		130
Specialty Products	431		435		135		135
Total segments	4,020		3,844		1,053		988
Intersegment revenue	(4)		(5)		—		—
Unallocated	—		—		(33)		(37)
Total	$	4,016	$	3,839	$	1,020	$	951

Segments are allocated a fixed overhead charge based on the segment's revenue. Expenses not charged to the segments are reported separately as Unallocated. Because the Unallocated category includes a variety of items, it is subject to fluctuations on a quarterly and annual basis.

AUTOMOTIVE OEM

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

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

The results of operations for the Automotive OEM segment for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	820		$	786		4.4	%	(0.9)	%	—	%	—	%	5.3	%	4.4	%
Operating income	$	173		$	151		14.1	%	4.2	%	—	%	3.7	%	6.2	%	14.1	%
Operating margin %	21.0		%	19.3		%	170 bps		90 bps		—		80 bps		—		170 bps

Operating revenue grew due to the favorable effect of foreign currency translation, partially offset by lower organic revenue.
Organic revenue decreased 0.9% compared to worldwide auto builds which declined 3%. Product line simplification activities reduced organic revenue by 100 basis points.

◦North American organic revenue declined 4.9% compared to North American auto builds which decreased 2%, primarily due to product line simplification activities.

◦European organic revenue increased 0.1% compared to European auto builds which declined 1%. The business outperformed the market primarily due to market penetration gains.

◦Asia Pacific organic revenue grew 2.7%, primarily due to growth in India and South Korea, partially offset by a decline in China. Organic revenue in China decreased 3.2% compared to China auto builds which declined 10%. Auto builds of foreign automotive manufacturers in China decreased 18%. The business outperformed the market primarily due to market penetration gains including growth in the electric vehicles end market.

Operating margin of 21.0% increased 170 basis points primarily due to benefits from the Company's enterprise initiatives and lower restructuring expenses of 80 basis points, partially offset by higher employee-related expenses, continued investment in the business and unfavorable operating leverage of 20 basis points.

FOOD EQUIPMENT

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

warewashing equipment;
cooking equipment, including ovens, ranges and broilers;
refrigeration equipment, including refrigerators, freezers and prep tables;
food processing equipment, including slicers, mixers and scales;
kitchen exhaust, ventilation and pollution control systems; and
food equipment service, maintenance and repair.

The results of operations for the Food Equipment segment for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	637		$	627		1.7	%	(2.8)	%	—	%	—	%	4.5	%	1.7	%
Operating income	$	157		$	166		(5.3)	%	(9.8)	%	—	%	0.6	%	3.9	%	(5.3)	%
Operating margin %	24.7		%	26.5		%	(180) bps		(190) bps		—		20 bps		(10) bps		(180) bps

Operating revenue grew due to the favorable effect of foreign currency translation, partially offset by lower organic revenue.
Organic revenue decreased 2.8% as equipment organic revenue declined 6.0% and service organic revenue grew 3.2%.

◦North American organic revenue decreased 4.7%. Equipment organic revenue declined 10.1% primarily due to lower demand in the institutional and food retail end markets, partially offset by higher demand in the noninstitutional end market, primarily in the quick serve restaurant end market. Service organic revenue grew 4.1%.

◦International organic revenue grew 0.2%. Equipment organic revenue decreased 0.4% primarily due to lower demand in the European cooking and refrigeration end markets, partially offset by higher demand in the European warewash end market and higher demand in Asia. Service organic revenue grew 1.5%.

Operating margin of 24.7% decreased 180 basis points primarily due to product mix, unfavorable operating leverage of 60 basis points and higher employee-related expenses, partially offset by benefits from the Company's enterprise initiatives and lower restructuring expenses of 20 basis points.

TEST & MEASUREMENT AND ELECTRONICS

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

equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids;
electronic assembly equipment;
electronic components and component packaging;
static control equipment and consumables used for contamination control in clean room environments; and
pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications.

The results of operations for the Test & Measurement and Electronics segment for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	715		$	652		9.6	%	4.6	%	1.8	%	—	%	3.2	%	9.6	%
Operating income	$	164		$	139		17.6	%	13.7	%	(1.3)	%	2.4	%	2.8	%	17.6	%
Operating margin %	22.9		%	21.4		%	150 bps		180 bps		(60) bps		50 bps		(20) bps		150 bps

Operating revenue grew due to higher organic and acquisition revenues and the favorable effect of foreign currency translation.
On October 1, 2025, the Company completed the acquisition of one business in the Test & Measurement and Electronics segment for $120 million, net of cash acquired. Refer to Note 2. Acquisitions in Item 1. Financial Statements for further information regarding this acquisition.
Organic revenue increased 4.6% primarily due to higher demand in the semiconductor and electronics end markets, partially offset by lower demand in the general industrial end market.

◦Organic revenue for the test and measurement businesses increased 1.4% driven by higher demand in the semiconductor end market, primarily in North America and Asia Pacific, partially offset by a decline in the MTS Test & Simulation business.

◦Electronics organic revenue increased 10.3% primarily due to higher demand in the semiconductor end market. The electronics assembly businesses grew 24.7% primarily due to higher demand in North America and Asia Pacific. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, grew 5.1% primarily due to higher demand in North America and Asia Pacific, partially offset by a decline in Europe.

Operating margin of 22.9% increased 150 basis points primarily due to positive operating leverage of 130 basis points, benefits from the Company's enterprise initiatives and lower restructuring expenses of 50 basis points, partially offset by the dilutive impact of 60 basis points from an acquisition and higher employee-related expenses.

WELDING

This segment is a branded value-added equipment and specialty consumable manufacturer with innovative and leading technology. Businesses in this segment produce arc welding equipment, consumables and accessories for a wide array of industrial and commercial applications. This segment primarily serves the general industrial market, which includes fabrication,

shipbuilding and other general industrial markets, and construction, energy, MRO, industrial capital goods and automotive original equipment manufacturers and tiers markets. Products in this segment include:

arc welding equipment; and
metal arc welding consumables and related accessories.

The results of operations for the Welding segment for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	507		$	472		7.3	%	6.0	%	—	%	—	%	1.3	%	7.3	%
Operating income	$	163		$	153		6.2	%	5.9	%	—	%	(0.5)	%	0.8	%	6.2	%
Operating margin %	32.1		%	32.5		%	(40) bps		(10) bps		—		(10) bps		(20) bps		(40) bps

Operating revenue grew due to higher organic revenue and the favorable effect of foreign currency translation.
Organic revenue increased 6.0% as equipment and consumables grew 8.1% and 2.1%, respectively.

◦North American organic revenue increased 8.4% primarily due to growth in the industrial and commercial end markets of 7.2% and 5.6%, respectively, and growth in the aerospace end market.

◦International organic revenue declined 6.2% primarily due to lower demand in Asia Pacific and Middle East.

Operating margin of 32.1% decreased 40 basis points primarily due to higher employee-related expenses, partially offset by positive operating leverage of 100 basis points and benefits from the Company's enterprise initiatives.

POLYMERS & FLUIDS

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

adhesives for industrial, construction and consumer purposes;
chemical fluids which clean or add lubrication to machines;
epoxy and resin-based coating products for industrial applications;
hand wipes and cleaners for industrial applications;
fluids, polymers and other supplies for auto aftermarket maintenance and appearance;
fillers and putties for auto body repair; and
polyester coatings and patch and repair products for the marine industry.

The results of operations for the Polymers & Fluids segment for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	452		$	429		5.4	%	1.7	%	—	%	—	%	3.7	%	5.4	%
Operating income	$	126		$	114		11.3	%	7.5	%	—	%	0.3	%	3.5	%	11.3	%
Operating margin %	28.0		%	26.5		%	150 bps		150 bps		—		10 bps		(10) bps		150 bps

Operating revenue grew due to the favorable effect of foreign currency translation and higher organic revenue.
Organic revenue increased 1.7% due to higher demand across all major regions. Product line simplification activities reduced organic revenue by 70 basis points.

◦Organic revenue for the automotive aftermarket businesses increased 2.9% primarily due to higher demand in the car care, engine repair and tire repair businesses in North America and the tire repair business in Asia Pacific and Europe.

◦Organic revenue for the fluids businesses grew 0.3% primarily driven by higher demand in the European life sciences end market, partially offset by lower demand in North America.

◦Organic revenue for the polymers businesses grew 0.2% primarily due to an increase in Asia Pacific, partially offset by a decrease in Europe and in North America.

Operating margin of 28.0% increased 150 basis points primarily due to benefits from the Company's enterprise initiatives, positive operating leverage of 40 basis points and lower intangible asset amortization expense, partially offset by higher employee-related expenses.

CONSTRUCTION PRODUCTS

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

fasteners and related fastening tools for wood and metal applications;
anchors, fasteners and related tools for concrete applications;
metal plate truss components and related equipment and software; and
packaged hardware, fasteners, anchors and other products for retail.

The results of operations for the Construction Products segment for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	458		$	443		3.4	%	(1.3)	%	—	%	—	%	4.7	%	3.4	%
Operating income	$	135		$	130		4.2	%	(0.9)	%	—	%	1.2	%	3.9	%	4.2	%
Operating margin %	29.4		%	29.2		%	20 bps		10 bps		—		40 bps		(30) bps		20 bps

Operating revenue grew due to the favorable effect of foreign currency translation, partially offset by lower organic revenue.
Organic revenue decreased 1.3% primarily due to lower demand in Europe and Asia Pacific.

◦North American organic revenue was flat as growth in the United States residential end market of 0.7% was offset by a decline in the commercial end market of 1.4% and a decline in Canada of 6.7%.

◦International organic revenue decreased 2.8%. European organic revenue declined 3.4% primarily due to lower demand in the commercial and residential end markets. Asia Pacific organic revenue decreased 1.9% primarily due to lower demand in the Australia and New Zealand residential end markets.

Operating margin of 29.4% increased 20 basis points primarily due to benefits from the Company's enterprise initiatives and lower restructuring expenses of 40 basis points, partially offset by higher employee-related expenses and unfavorable operating leverage of 20 basis points.

SPECIALTY PRODUCTS

This segment is focused on diversified niche market opportunities with substantial patent protection producing beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. This segment primarily serves the food and beverage, consumer durables, airlines, general industrial, industrial capital goods and printing and publishing markets. Products in this segment include:

conveyor systems and line automation for the food and beverage industries;
plastic consumables that multi-pack cans and bottles and related equipment;
foil, film and related equipment used to decorate consumer products;
product coding and marking equipment and related consumables;
plastic and metal closures and components for appliances;
airport ground support equipment; and
components for medical devices.

The results of operations for the Specialty Products segment for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2026			2025			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	431		$	435		(1.0)	%	(4.7)	%	—	%	—	%	3.7	%	(1.0)	%
Operating income	$	135		$	135		0.3	%	(5.1)	%	—	%	1.5	%	3.9	%	0.3	%
Operating margin %	31.3		%	30.9		%	40 bps		(10) bps		—		50 bps		—		40 bps

Operating revenue declined due to lower organic revenue, partially offset by the favorable effect of foreign currency translation.
Organic revenue decreased 4.7% as equipment sales and consumables declined 3.0% and 5.2%, respectively. Product line simplification activities reduced organic revenue by 200 basis points.

◦North American organic revenue decreased 5.8% primarily driven by a decline in the appliance, ground support equipment, consumer packaging and strength films businesses, partially offset by growth in the filter medical business.

◦International organic revenue declined 2.3% primarily due to lower demand in the appliance businesses in Asia Pacific and Europe, partially offset by growth in the European ground support equipment, specialty films and filter medical businesses.

Operating margin of 31.3% increased 40 basis points primarily due to benefits from the Company's enterprise initiatives and lower restructuring expenses of 50 basis points, partially offset by unfavorable operating leverage of 80 basis points and higher employee-related expenses.

OTHER FINANCIAL HIGHLIGHTS

Interest expense was $73 million in the first quarter 2026 versus $68 million in the first quarter 2025. Refer to Note 8. Debt in Item 1. Financial Statements for further information regarding the Company's outstanding debt.
Other income (expense) was income of $20 million in the first quarter of 2026 versus $12 million in the prior year period primarily due to foreign currency transaction gains in 2026 compared to foreign currency transaction losses in 2025.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 1. Significant Accounting Policies in Item 1. Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of March 31, 2026, the Company had $827 million of cash and equivalents on hand and no outstanding borrowings under its $3.0 billion revolving credit facility. The Company also has maintained strong access to public debt markets. Management believes that these sources are sufficient to service debt and to finance the Company's capital allocation priorities, which include:

internal investments to support organic growth and sustain core businesses;
payment of an attractive dividend to shareholders; and
external investments in selective strategic acquisitions that support the Company's organic growth focus and an active share repurchase program.

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

Cash Flow

The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluating the Company's financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. Summarized cash flow information for the first quarter of 2026 and 2025 is as follows:


	Three Months Ended
	March 31,
In millions	2026		2025
Net cash provided by operating activities	$	623	$	592
Additions to plant and equipment	(95)		(96)
Free cash flow	$	528	$	496

Cash dividends paid	$	(465)	$	(441)
Repurchases of common stock	(375)		(375)
Acquisition of businesses (excluding cash and equivalents)	—		2
Net proceeds from (repayments of) debt	259		202
Other, net	30		28
Effect of exchange rate changes on cash and equivalents	(1)		13
Net increase (decrease) in cash and equivalents	$	(24)	$	(75)

Stock Repurchase Programs

On August 4, 2023, the Company announced a new stock repurchase program which provides for the repurchase of up to $5.0 billion of the Company's common stock over an open-ended period of time (the "2023 Program"). The Company repurchased 1.4 million shares of its common stock at an average price of $271.47 during the first quarter of 2026, and 1.5 million shares of its common stock at an average price of $257.14 during the first quarter of 2025. As of March 31, 2026, there were approximately $1.6 billion of authorized repurchases remaining under the 2023 Program.

After-tax Return on Average Invested Capital

The Company uses after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its operations' use of invested capital to generate profits. After-tax ROIC is not defined under U.S. generally accepted accounting principles ("GAAP"). After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company's ability to generate returns from cash invested in its operations and may be different than the method used by other companies to calculate After-tax ROIC. The Company defines After-tax ROIC as operating income after taxes divided by average invested capital, which is annualized when presented in interim periods. Operating income after taxes is a non-GAAP measure consisting of net income before interest expense and other income (expense), on an after-tax basis, which are excluded as they do not represent returns generated by the Company's operations. For comparability, the Company also excluded the discrete tax benefit of $34 million in the first quarter of 2026 from net income and the effective tax rate for the three months ended March 31, 2026. Additionally, for comparability, the Company also excluded the discrete tax benefit of $21 million in the first quarter of 2025 from net income and the effective tax rate for the three months ended March 31, 2025. Total invested capital represents the net assets of the Company, other than cash and equivalents and outstanding debt which do not represent capital investment in the Company's operations. The most comparable GAAP measure to operating income after taxes is net income. Net income to average invested capital and After-tax ROIC for the first quarter of 2026 and 2025 were as follows:


	Three Months Ended
	March 31,
Dollars in millions	2026			2025
Numerator:
Net Income	$	768		$	700
Discrete tax benefit related to the first quarter 2026	(34)			—
Discrete tax benefit related to the first quarter 2025	—			(21)
Interest expense, net of tax (1)	56			52
Other (income) expense, net of tax (1)	(15)			(9)
Operating income after taxes	$	775		$	722

Denominator:
Invested capital:
Cash and equivalents	$	827		$	873
Trade receivables	3,380			3,153
Inventories	1,726			1,663
Net plant and equipment	2,230			2,085
Goodwill and intangible assets	5,657			5,475
Accounts payable and accrued expenses	(2,143)			(2,071)
Debt	(9,148)			(8,263)
Other, net	701			327
Total net assets (stockholders' equity)	3,230			3,242
Cash and equivalents	(827)			(873)
Debt	9,148			8,263
Total invested capital	$	11,551		$	10,632

Average invested capital (2)	$	11,447		$	10,432

Net income to average invested capital (3)	26.8		%	26.9		%
After-tax return on average invested capital (3)	27.1		%	27.7		%

(1) Effective tax rate used for interest expense and other (income) expense for the three months ended March 31, 2026 and 2025 was 24.1% and 24.0%, respectively.

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

(3) Returns for the three months ended March 31, 2026 and 2025 were converted to an annual rate by multiplying the calculated return by 4.

A reconciliation of the tax rate for the three month period ended March 31, 2026, excluding the first quarter 2026 discrete tax benefit of $34 million primarily related to the resolution of a U.S. tax audit, is as follows:


	Three Months Ended
	March 31, 2026
Dollars in millions	Income Taxes		Tax Rate
As reported	$	199	20.6	%
Discrete tax benefit related to the first quarter 2026	34		3.5	%
As adjusted	$	233	24.1	%

A reconciliation of the tax rate for the three month period ended March 31, 2025, excluding the first quarter 2025 discrete tax benefit of $21 million related to the reversal of a valuation allowance on net operating loss carryforwards, is as follows:


	Three Months Ended
	March 31, 2025
Dollars in millions	Income Taxes		Tax Rate
As reported	$	195	21.7	%
Discrete tax benefit related to the first quarter 2025	21		2.3	%
As adjusted	$	216	24.0	%

Refer to Note 4. Income Taxes in Item 1. Financial Statements for additional information regarding the discrete tax items noted above.

Working Capital

Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of March 31, 2026 and December 31, 2025 is summarized as follows:


In millions	March 31, 2026		December 31, 2025		Increase/ (Decrease)
Current assets:
Cash and equivalents	$	827	$	851	$	(24)
Trade receivables	3,380		3,227		153
Inventories	1,726		1,659		67
Prepaid expenses and other current assets	402		463		(61)
Total current assets	6,335		6,200		135
Current liabilities:
Short-term debt	2,545		2,286		259
Accounts payable and accrued expenses	2,143		2,158		(15)
Other	643		682		(39)
Total current liabilities	5,331		5,126		205
Net working capital	$	1,004	$	1,074	$	(70)

As of March 31, 2026, a significant portion of the Company's cash and equivalents was held by international subsidiaries. Cash and equivalents held internationally are typically used for international operating needs or reinvested to fund expansion of existing international businesses. International funds may also be used to fund international acquisitions or, if not considered

permanently invested, may be repatriated to the U.S. and subject to foreign withholding taxes. The Company has accrued for foreign withholding taxes related to foreign held cash and equivalents that are not permanently invested.

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

Debt

Total debt as of March 31, 2026 and December 31, 2025 was as follows:


In millions	March 31, 2026		December 31, 2025
Short-term debt	$	2,545	$	2,286
Long-term debt	6,603		6,683
Total debt	$	9,148	$	8,969

Short-term debt included commercial paper of $1.5 billion and $1.3 billion as of March 31, 2026 and December 31, 2025, respectively. The weighted-average interest rate on commercial paper as of March 31, 2026 and December 31, 2025 was 3.81% and 3.84%, respectively. Short-term debt also included $999 million as of March 31, 2026 and December 31, 2025 related to the 2.65% notes due November 15, 2026, which were reclassified from Long-term debt to Short-term debt in the fourth quarter of 2025.

On February 24, 2025, the Company entered into an amendment to the Euro-denominated credit agreement entered into on May 5, 2023 (the "Euro Credit Agreement") to extend the termination date from April 30, 2025 to February 28, 2027, with an option to further extend the termination date to September 15, 2027. The amendment also decreased the interest rate spread applicable to the loans from 0.75% to 0.70% and removed the option for a one-month interest period. As of March 31, 2026, the Company had $866 million outstanding under the Euro Credit Agreement with an interest rate of 2.71%, which was included in Long-term debt as the Company intends to exercise its option to extend the termination date. As of December 31, 2025, the Company had $881 million outstanding under the Euro Credit Agreement with an interest rate of 2.77%, which was included in Long-term debt.

On February 20, 2026, the Company entered into a $3.0 billion, five-year revolving credit facility with a termination date of February 20, 2031, which is available to provide additional liquidity, including to support the potential issuances of commercial paper. This agreement replaced the existing $3.0 billion, five-year revolving credit facility with a termination date of October 21, 2027. No amounts were outstanding under the revolving credit facility as of March 31, 2026.

Total Debt to EBITDA

The Company uses the ratio of total debt to EBITDA as a measure of its ability to repay its outstanding debt obligations. EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures. The Company believes that total debt to EBITDA is a meaningful metric to investors in evaluating the Company's long term financial liquidity and may be different than the method used by other companies to calculate total debt to EBITDA. The ratio of total debt to EBITDA represents total debt divided by net income before interest expense, other income (expense), income taxes, depreciation, and amortization and impairment of intangible assets on a trailing twelve month basis. Total debt to EBITDA for the trailing twelve month periods ended March 31, 2026 and December 31, 2025 was as follows:


Dollars in millions	March 31, 2026		December 31, 2025
Total debt	$	9,148	$	8,969

Net income	$	3,134	$	3,066
Add:
Interest expense	297		292
Other (income) expense	(50)		(42)
Income taxes	904		900
Depreciation	324		317
Amortization and impairment of intangible assets	77		80
EBITDA	$	4,686	$	4,613
Total debt to EBITDA ratio	2.0		1.9

Stockholders' Equity

The changes to stockholders' equity during the three months ended 2026 were as follows:


In millions
Total stockholders' equity, December 31, 2025	$	3,226
Net income	768
Repurchases of common stock	(375)
Dividends declared	(464)
Other comprehensive income (loss)	25
Other, net	50
Total stockholders' equity, March 31, 2026	$	3,230

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," "intend," "may," "strategy," "prospects," "estimate," "will," "should," "could," "project," "target," "anticipate," "guidance," "forecast," and other similar words, and may include, without limitation, statements regarding the duration and potential effects of global supply chain challenges, the current and expected impact of U.S. trade policy, including tariffs and related retaliatory countermeasures, future financial and operating performance, free cash flow, economic and regulatory conditions in various geographic regions, the impact of foreign currency fluctuations, the timing and amount of benefits from the Company's enterprise strategy initiatives, the timing and amount of dividends and share repurchases, the protection of the Company's intellectual property, the likelihood of future goodwill or intangible asset impairment charges, the impact of adopting new accounting pronouncements, the adequacy of internally generated funds and credit facilities to service debt and finance the Company's capital allocation priorities, the sufficiency of U.S. generated cash to fund cash requirements in the U.S., the cost and availability of additional financing, the availability of raw materials and energy and the impact of raw material cost inflation, the Company's portion of future benefit payments related to pension and postretirement benefits, the Company's information technology infrastructure, potential acquisitions and divestitures and the expected performance of acquired businesses and impact of divested businesses, the impact of U.S. and global tax legislation and the estimated timing and amount

related to the resolution of tax matters, the cost of compliance with environmental regulations, the impact of interest rate changes, the impact of failure of the Company's employees to comply with applicable laws and regulations, and the outcome of outstanding legal proceedings. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results include (1) weaknesses or downturns in the markets served by the Company, (2) changes or deterioration in international and domestic political and economic conditions, such as the Russia and Ukraine conflict, the conflict in Iran, or U.S.-China trade relations and the impact of related economic and other sanctions, (3) the unfavorable impact of foreign currency fluctuations, (4) the Company's enterprise strategy initiatives may not have the desired impact on organic revenue growth, (5) market conditions and cost and availability of financing to fund the Company's share repurchases, (6) a delay or decrease in the introduction of new products into the Company's product lines, (7) any failure to protect the Company's intellectual property, (8) potential negative impact of impairments to goodwill and other intangible assets on the Company's return on invested capital, financial condition or results of operations, (9) raw material price increases and supply shortages or delays, (10) financial market risks to the Company's obligations under its defined benefit pension plans, (11) negative effects of service interruptions, data corruption, cyber-based attacks, security breaches of our technology networks and systems or those of our vendors and third-party service providers, or violations of data privacy laws, (12) the potential negative impact of acquisitions on the Company's profitability and returns, (13) potential negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (14) impact of tax legislation and regulatory action and changing tax rates, (15) potential adverse outcomes in legal proceedings or enforcement actions, (16) uncertainties related to environmental regulation and the physical risks of climate change, (17) potential failure of the Company's employees, agents or business partners to comply with anti-bribery, competition, import/export, trade sanctions, data privacy, human rights and other laws, (18) public health crises and related government actions, and (19) increases in inflation or interest rates and the possibility of economic recession. A more detailed description of these risks is contained under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. These risks are not all inclusive and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Any forward-looking statements made by ITW speak only as of the date on which they are made. ITW is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by law.

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

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