Illinois Tool Works Inc. and Subsidiaries

Statement of ~~Cash Flows~~Changes in Stockholders' Equity (Unaudited)

Six Months Ended
June 30,
In millions 2018 2017
Cash Provided by (Used for) Operating Activities:
Net income $ 1,318
$ 1,123
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation 135
123
Amortization and impairment of intangible assets 96
105
Change in deferred income taxes 10
23
Provision for uncollectible accounts 3
2
(Income) loss from investments (5 ) (11 )
(Gain) loss on sale of plant and equipment (2 ) 1
(Gain) loss on sale of operations and affiliates 1
—
Stock-based compensation expense 20
19
Other non-cash items, net 5
4
Change in assets and liabilities, net of acquisitions and divestitures:

(Increase) decrease in-

Trade receivables (288 ) (186 )
Inventories (95 ) (82 )
Prepaid expenses and other assets (3 ) (112 )
Increase (decrease) in-

Accounts payable 47
47
Accrued expenses and other liabilities (77 ) (115 )
Income taxes (7 ) (14 )
Net cash provided by operating activities 1,158
927
Cash Provided by (Used for) Investing Activities:

Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates —
(3 )
Additions to plant and equipment (181 ) (141 )
Proceeds from investments 10
18
Proceeds from sale of plant and equipment 8
3
Proceeds from sales of operations and affiliates —
2
Other, net (2 ) (1 )
Net cash provided by (used for) investing activities (165 ) (122 )
Cash Provided by (Used for) Financing Activities:

Cash dividends paid (530 ) (450 )
Issuance of common stock 10
45
Repurchases of common stock (1,000 ) (500 )
Net proceeds from (repayments of) debt with original maturities of three months or less (850 ) 691
Repayments of debt with original maturities of more than three months —
(652 )
Other, net (12 ) (13 )
Net cash provided by (used for) financing activities (2,382 ) (879 )
Effect of Exchange Rate Changes on Cash and Equivalents (77 ) 98
Cash and Equivalents:

Increase (decrease) during the period (1,466 ) 24
Beginning of period 3,094
2,472
End of period $ 1,628
$ 2,496
Supplementary Cash and Non-Cash Information:
Cash Paid During the Period for Interest $ 149
$ 146
Cash Paid During the Period for Income Taxes, Net of Refunds $ 422
$ 436



In millions except per share amounts	Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held in Treasury			Accumulated Other Comprehensive Income (Loss)			Non-controlling Interest			Total

Three Months Ended June 30, 2019
Balance at March 31, 2019	$	6	$	1,255		$	21,488		$	(17,911	)	$	(1,642	)	$	4		$	3,200
Net income	—		—			623			—			—			—			623
Common stock issued for stock-based compensation	—		3			—			10			—			—			13
Stock-based compensation expense	—		12			—			—			—			—			12
Repurchases of common stock	—		—			—			(375		)	—			—			(375		)
Dividends declared ($1.00 per share)	—		—			(323		)	—			—			—			(323		)
Pension and other postretirement benefit adjustments	—		—			—			—			5			—			5
Currency translation adjustment	—		—			—			—			(60		)	—			(60		)
Balance at June 30, 2019	$	6	$	1,270		$	21,788		$	(18,276	)	$	(1,697	)	$	4		$	3,095

Three Months Ended June 30, 2018
Balance at March 31, 2018	$	6	$	1,220		$	20,228		$	(16,055	)	$	(1,240	)	$	4		$	4,163
Net income	—		—			666			—			—			—			666
Stock-based compensation expense	—		11			—			—			—			—			11
Repurchases of common stock	—		—			—			(500		)	—			—			(500		)
Dividends declared ($0.78 per share)	—		—			(261		)	—			—			—			(261		)
Pension and other postretirement benefit adjustments	—		—			—			—			9			—			9
Currency translation adjustment	—		—			—			—			(299		)	—			(299		)
Noncontrolling interest	—		—			—			—			—			(1		)	(1		)
Balance at June 30, 2018	$	6	$	1,231		$	20,633		$	(16,555	)	$	(1,530	)	$	3		$	3,788

Six Months Ended June 30, 2019
Balance at December 31, 2018	$	6	$	1,253		$	21,217		$	(17,545	)	$	(1,677	)	$	4		$	3,258
Net income	—		—			1,220			—			—			—			1,220
Common stock issued for stock-based compensation	—		(5		)	—			19			—			—			14
Stock-based compensation expense	—		22			—			—			—			—			22
Repurchases of common stock	—		—			—			(750		)	—			—			(750		)
Dividends declared ($2.00 per share)	—		—			(649		)	—			—			—			(649		)
Pension and other postretirement benefit adjustments	—		—			—			—			9			—			9
Currency translation adjustment	—		—			—			—			(29		)	—			(29		)
Balance at June 30, 2019	$	6	$	1,270		$	21,788		$	(18,276	)	$	(1,697	)	$	4		$	3,095

Six Months Ended June 30, 2018
Balance at December 31, 2017	$	6	$	1,218		$	20,210		$	(15,562	)	$	(1,287	)	$	4		$	4,589
Net income	—		—			1,318			—			—			—			1,318
Adoption of new accounting guidance	—		—			(370		)	—			(45		)	—			(415		)
Common stock issued for stock-based compensation	—		(7		)	—			7			—			—			—
Stock-based compensation expense	—		20			—			—			—			—			20
Repurchases of common stock	—		—			—			(1,000		)	—			—			(1,000		)
Dividends declared ($1.56 per share)	—		—			(525		)	—			—			—			(525		)
Pension and other postretirement benefit adjustments	—		—			—			—			18			—			18
Currency translation adjustment	—		—			—			—			(216		)	—			(216		)
Noncontrolling interest	—		—			—			—			—			(1		)	(1		)
Balance at June 30, 2018	$	6	$	1,231		$	20,633		$	(16,555	)	$	(1,530	)	$	3		$	3,788

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Statement of Cash Flows (Unaudited)



	Six Months Ended
	June 30,
In millions	2019			2018
Cash Provided by (Used for) Operating Activities:
Net income	$	1,220		$	1,318
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	133			135
Amortization and impairment of intangible assets	84			96
Change in deferred income taxes	39			10
Provision for uncollectible accounts	3			3
(Income) loss from investments	(11		)	(5		)
(Gain) loss on sale of plant and equipment	1			(2		)
(Gain) loss on sale of operations and affiliates	6			1
Stock-based compensation expense	22			20
Other non-cash items, net	6			5
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	(116		)	(288		)
Inventories	11			(95		)
Prepaid expenses and other assets	14			(3		)
Increase (decrease) in-
Accounts payable	20			47
Accrued expenses and other liabilities	(114		)	(77		)
Income taxes	(17		)	(7		)
Net cash provided by operating activities	1,301			1,158
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates	(4		)	—
Additions to plant and equipment	(154		)	(181		)
Proceeds from investments	15			10
Proceeds from sale of plant and equipment	6			8
Proceeds from sales of operations and affiliates	2			—
Other, net	(16		)	(2		)
Net cash provided by (used for) investing activities	(151		)	(165		)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(654		)	(530		)
Issuance of common stock	24			10
Repurchases of common stock	(750		)	(1,000		)
Net proceeds from (repayments of) debt with original maturities of three months or less	(2		)	(850		)
Proceeds from debt with original maturities of more than three months	1,774			—
Repayments of debt with original maturities of more than three months	(1,350		)	—
Other, net	(12		)	(12		)
Net cash provided by (used for) financing activities	(970		)	(2,382		)
Effect of Exchange Rate Changes on Cash and Equivalents	(7		)	(77		)
Cash and Equivalents:
Increase (decrease) during the period	173			(1,466		)
Beginning of period	1,504			3,094
End of period	$	1,677		$	1,628
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	151		$	149
Cash Paid During the Period for Income Taxes, Net of Refunds	$	373		$	422
Cash Paid During the Period for Lease Liabilities	$	37
Right-of-Use Assets Obtained in Exchange for Lease Liabilities	$	23

The Notes to Financial Statements are an integral part of this statement.

Illinois Tool Works Inc. and Subsidiaries

Notes to Financial Statements (Unaudited)

(1) Significant Accounting Policies

Financial Statements—The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the “Company”). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. It is suggested that these financial statements be read in conjunction with the financial statements and notes to financial statements included in the Company’s ~~2017~~2018 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

~~Operating Revenue~~— Prior to 2018, the Company recognized revenue when persuasive evidence of an arrangement existed, product had shipped and the risks and rewards of ownership had transferred or services had been rendered, the price to the customer was fixed or determinable, and collectibility was reasonably assured, which generally occurred at the time of product shipment. Effective January 1, 2018, the Company adopted new revenue recognition guidance. Under this new guidance, operating revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. The Company's sales arrangements with customers are predominantly short-term in nature involving a single performance obligation related to the delivery of products and generally provide for transfer of control at the time of shipment. In limited circumstances, arrangements may include service performed over time, or there may be significant obligations to the customer that are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance. In these circumstances, operating revenue may be recognized over time as the service is provided to the customer or deferred until all significant obligations have been completed. The amount of operating revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods or services and may include adjustments for customer allowances and rebates. Customer allowances and rebates consist primarily of volume discounts and other short-term incentive programs, which are estimated at the time of sale based on historical experience and anticipated trends. Shipping and handling charges billed to customers are included in revenue and are recognized along with the related product revenue as they are considered a fulfillment cost. Sales commissions are expensed when incurred, which is generally at the time of revenue recognition. Contract liabilities associated with sales arrangements primarily relate to deferred revenue on equipment sales and prepaid service contracts. Total deferred revenue was $236 million and $205 million as of June 30, 2018 and December 31, 2017, respectively, and is short-term in nature. For additional information regarding the Company's operating revenue, see New Accounting Pronouncements below and Note 2. Operating Revenue.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the ~~“FASB”~~"FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new guidance is that revenue should be recognized to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, expanded revenue disclosures are required. The Company's sales arrangements with customers are predominantly short-term in nature and generally provide for transfer of control and risks and rewards of ownership at the time of product shipment or delivery of service. As such, the timing of revenue recognition under both the prior and new guidance is the same for the majority of the Company’s transactions. Effective January 1, 2018, the Company adopted the new revenue recognition guidance under the modified retrospective method and recorded a cumulative-effect adjustment reducing retained earnings by $9 million as of January 1, 2018. ~~Under~~

In February 2016, the ~~modified retrospective method of adoption, prior periods are not restated and~~FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. The primary change under the new guidance is ~~applied prospectively~~that a lessee is required to ~~revenue transactions completed on or after~~recognize a lease liability and corresponding right-of-use asset for its operating leases. The new guidance also requires additional disclosures. Effective January 1, ~~2018. Given~~2019, the ~~nature of the Company’s revenue transactions,~~Company adopted the new guidance ~~had an immaterial~~prospectively for all operating lease transactions as of and after the effective date with a noncancellable lease term greater than one year. Upon adoption, the Company recorded a lease liability of $205 million and a corresponding right-of-use asset. The new guidance did not have a material impact on the ~~Company's operating revenue,~~ results of operations ~~and financial position~~or cash flows for the three and six ~~months~~month periods ended June 30, ~~2018. The Company updated its revenue recognition accounting policy~~2019. Refer to ~~reflect the requirements of the new guidance and included~~Note 6. Leases for additional ~~disclosures~~information regarding the ~~Company's revenue~~Company’s lease transactions. ~~Refer to the Company’s operating revenue accounting policy above and Note 2. Operating Revenue for additional information.~~

In October 2016, the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the prior guidance. The provisions of the new guidance are being applied prospectively to intra-entity asset transfers on or after January 1, 2018 and may result in future tax rate volatility. Upon adoption of the new guidance on January 1, 2018, the Company recorded a cumulative-effect adjustment reducing deferred tax assets and retained earnings by $406 million. ~~For the three and six months ended June 30, 2018, the impact of the new guidance on the Company's effective income tax rate was not material.~~

In ~~March~~August 2017, the FASB issued authoritative guidance which ~~changes~~included targeted improvements to simplify the ~~income statement presentation~~application of ~~net periodic benefit cost related to defined benefit pension~~hedge accounting and ~~other postretirement plans. The primary change under the new guidance is that only the service cost component~~improve financial reporting of net periodic benefit cost should be included in operating income and is eligible for capitalization as an asset. The other components of net periodic benefit cost ("other net periodic benefit cost"), including interest cost, expected return on assets, settlements, curtailments, and amortization of actuarial gains and losses and prior service cost, should be presented below operating income.hedging activities. Effective January 1, ~~2018,~~2019, the Company adopted the new ~~presentation~~guidance which did not have a material impact on the results of other net periodic benefit cost and restated the prior year statement of income and related disclosures for comparability, as required under the new guidance. For the three months ended June 30, 2018 and 2017, other net periodic benefit cost included in Other income (expense) was income of $5 million and $2 million, respectively. For the six months ended June 30, 2018 and 2017, other net periodic benefit cost included in Other income (expense) was income of $10 million and $4 million, respectively. Refer to Note 5. Pension and Other Postretirement Benefits for additional information.operations, financial position or cash flows.

In February 2018, the FASB issued authoritative guidance which allows for an optional one-time reclassification of the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the "Tax Cuts and Jobs Act" (the "Act") from accumulated other comprehensive income ("AOCI") to retained earnings. The guidance iswas effective January 1, 2019, with early adoption permitted. The Company elected to early adopt this guidance as of January 1, 2018 and to reclassify the stranded tax effects related to the Act, which resulted in an increase of $45 million to both retained earnings and accumulated other comprehensive loss. ~~Refer to Note 8. Accumulated Other Comprehensive Income (Loss) for additional information.~~

~~In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will~~

(2) Divestitures

The Company consistently reviews its portfolio, assesses businesses that are long-term growth-challenged and evaluates if further portfolio refinements may be required to recognize a lease liability and right-of-use lease asset for all leases with a lease term greater than twelve months, including operating leases, in the statement of financial position. Subsequent measurement, including presentation of expenses and cash flows, will depend on the classification of the lease as either a financing or operating lease. In addition, expanded disclosures will be required. This guidance is effective for the Company beginning January 1, 2019, with early adoption permitted.needed. The Company is currently ~~reviewing its existing lease portfolio~~exploring options, including potential divestitures, for certain businesses with annual revenues totaling up to ~~assess the impact that the new lease accounting guidance will have on the consolidated financial statements and related disclosures. While~~$1 billion. As such, the Company ~~has not yet completed this review,~~may commit to a plan to exit or dispose of certain businesses and present them as businesses held for sale.

In the second quarter of 2019, the Company ~~expects~~approved plans to ~~recognize right-of-use~~divest six of the Company's businesses, including two businesses in the Test & Measurement and Electronics segment, one business in the Automotive OEM segment, one business in the Welding segment, and two businesses in the Specialty Products segment. These businesses were classified as held for sale beginning in the second quarter of 2019 and are expected to be sold within one year. None of the six held for sale businesses are considered significant to the Company.

As a result of being classified as held for sale, the Company recorded estimated losses of $4 million in the second quarter of 2019 related to the two businesses in the Specialty Products segment, which were included in Other income (expense) in the Statement of Income. Operating revenue of the businesses held for sale for the three and six months ended June 30, 2019 and 2018 were as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
In millions	2019		2018		2019		2018
Operating revenue	$	128	$	137	$	255	$	275

As of June 30, 2019, the assets and ~~lease~~ liabilities related to the six businesses discussed above that were included in assets and liabilities held for ~~its operating leases~~sale in the ~~statement~~Statement of ~~financial position upon adoption.~~Financial Position were as follows:



In millions	June 30, 2019
Trade receivables	$	101
Inventories	46
Net plant and equipment	56
Goodwill and intangible assets	202
Other	34
Total assets held for sale	$	439

Accounts payable	$	26
Accrued expenses	23
Other	44
Total liabilities held for sale	$	93

~~(2)~~

(3) Operating Revenue

The Company's 8587 diversified operating divisions are organized and managed based on similar product ~~offerings~~categories 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. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
In millions	2019			2018			2019			2018
Automotive OEM	$	788		$	879		$	1,594		$	1,780
Food Equipment	548			553			1,066			1,080
Test & Measurement and Electronics	533			554			1,057			1,097
Welding	422			440			849			863
Polymers & Fluids	427			445			843			887
Construction Products	424			444			825			872
Specialty Products	473			522			938			1,007
Intersegment revenue	(6		)	(6		)	(11		)	(11		)
Total	$	3,609		$	3,831		$	7,161		$	7,575

Three Months Ended Six Months Ended
June 30, June 30,
In millions 2018 2017 2018 2017
Automotive OEM $ 879
$ 820
$ 1,780
$ 1,648
Food Equipment 553
529
1,080
1,026
Test & Measurement and Electronics 554
519
1,097
999
Welding 440
385
863
772
Polymers & Fluids 445
437
887
863
Construction Products 444
425
872
820
Specialty Products 522
490
1,007
953
Intersegment revenue (6 ) (6 ) (11 ) (11 )
Total $ 3,831
$ 3,599
$ 7,575
$ 7,070

Prior to 2018, the Company recognized revenue when persuasive evidence of an arrangement existed, product had shipped and the risks and rewards of ownership had transferred or services had been rendered, the price to the customer was fixed or determinable, and collectibility was reasonably assured, which generally occurred at the time of product shipment. Effective January 1, 2018, the Company adopted new revenue recognition guidance. Under this new guidance, operating revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Given the nature of the Company’s revenue transactions, the new guidance had an immaterial impact on the Company's operating revenue, results of operations, and financial position for the three and six months ended June 30, 2018. See Note 1. Significant Accounting Policies for additional information. The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's seven segments:

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.

Products sold in this segment are primarily manufactured to the customer's specifications and are sold under long-term supply agreements with OEM auto manufacturers and other top tier auto parts suppliers. The Company typically recognizes revenue for products in this segment at the time of shipment. Certain products may be produced utilizing tooling that is owned by the customer that the Company developed and is reimbursed by the customer for the associated cost. In these arrangements, the Company typically retains a contractual right to use the customer-owned tooling for the purpose of fulfilling its obligations under the supply agreement. The Company records reimbursements for the cost of customer-owned tooling as a cost offset rather than operating revenue as tooling is not considered a product offering central to the Company's operations.

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 institutional/restaurant and food retail 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.

Revenue for equipment sold in this segment is typically recognized at the time of product shipment. In limited circumstances involving installation of equipment and customer acceptance, the Company may recognize revenue upon completion of installation and acceptance by the customer. Annual service contracts are typically sold separate from equipment and the related revenue is recognized on a straight-line basis over the annual service period. Operating revenue for on-demand service repairs and parts is recorded upon completion and customer acceptance of the work performed.

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, industrial capital goods, automotive original equipment manufacturers and tiers, 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 and related consumable solder materials;

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 ~~telecommunications,~~ electronics, medical, transportation and ~~transportation~~telecommunications applications.

Revenue for products sold in this segment is typically recognized at the time of shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue recognition is deferred until such obligations have been completed.

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

arc welding equipment;

metal arc welding consumables and related accessories; and

metal jacketing and other insulation products.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment.

Polymers & Fluids— This segment is a ~~highly~~ 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, MRO and construction 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.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment.

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.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment.

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

line integration, 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 ~~fasteners~~closures and components for appliances;

airport ground support equipment; and

components for medical devices.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue is recognized when such obligations have been completed.

~~(3)~~(4) Income Taxes

The Company's effective tax rate for the three months ended June 30, 2019 and 2018 was 24.5% and 25.5%, respectively, and 24.5% and 24.4% for the six months ended June 30, ~~2018~~2019 and ~~2017 was 24.4% and 28.4%,~~2018, respectively. The year-to-date 2018 effective tax rate ~~was lower primarily as~~included a ~~result of the lower U.S. corporate federal tax rate and a~~ discrete ~~income~~ tax benefit of $14 million related to foreign tax credits in the first quarter of ~~2018 related to foreign tax credits.~~2018. Additionally, the effective tax rate ~~for both respective periods~~ included discrete income tax benefits ~~of $6 million and $26 million in 2018 and 2017, respectively,~~ related to excess tax benefits from stock-based ~~compensation.~~

~~On December 22, 2017, the "Tax Cuts and Jobs Act" (the “Act”) was enacted in the United States. The provisions~~compensation of ~~the Act significantly revised the U.S. corporate income tax rules. At December 31, 2017, the Company had not completed the accounting~~$4 million for the ~~tax effects of enactment of the Act; however, the Company made a reasonable estimate of the effects on the existing deferred tax balances~~three months ended June 30, 2019, and ~~one-time transition tax. The Company continues to analyze certain aspects of the Act~~$9 million and ~~may refine its calculations, which could potentially affect the measurement of the amounts recorded at December 31, 2017. The provisional amounts recorded~~$6 million for the ~~year~~six months ended ~~December 31, 2017, and unchanged at~~ June 30, 2019 and 2018, reflect the Company’s best estimate based on information currently available and are subject to future changes due to subsequent clarification of the tax law and refinement of estimated amounts. On August 1, 2018, the U.S. Department of Treasury released proposed rules related to the one-time transition tax. The Company is currently assessing the potential impact of these proposed rules on the consolidated financial statements.respectively.

The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions, including the Internal Revenue Service ("IRS"), Her Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. Due to the ongoing audits, the Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately ~~$18~~$50 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues.

On February 18, 2014, the Company received a Notice of Deficiency (“NOD”) from the IRS asserting that a non-taxable return of capital received from a subsidiary was a taxable dividend distribution. The NOD assesses additional taxes of $70 million for the 2006 tax year, plus interest and penalties. In May 2014, the Company petitioned the United States Tax Court to challenge the NOD. The Company's petition was subsequently denied and the case proceeded to court with the trial taking place in the third quarter of 2016. Final decision by the tax court is expected in 2018. Although the court's final decision cannot be predicted with certainty, the Company believes its position continues to be supportable. Accordingly, no reserve has been recorded related to this matter.

~~(4)~~(5) Inventories

Inventories as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:



In millions	June 30, 2019			December 31, 2018
Raw material	$	466		$	523
Work-in-process	146			161
Finished goods	732			731
LIFO reserve	(88		)	(97		)
Total inventories	$	1,256		$	1,318

(6) Leases

Effective January 1, 2019, the Company adopted new lease accounting guidance which requires the recognition of a lease liability and corresponding right-of-use asset for all operating leases with a noncancellable lease term of greater than one year. The new guidance did not change the recognition of rental expense for operating leases which is recognized on a straightline basis over the noncancellable lease term based on the minimum lease payments at lease inception. Changes in rent subsequent to commencement that were not included in minimum lease payments at inception are recognized as variable rent in the period incurred.

In millions June 30, 2018 December 31, 2017
Raw material $ 499
$ 465
Work-in-process 180
141
Finished goods 730
703
LIFO reserve (89 ) (89 )
Total inventories $ 1,320
$ 1,220

The Company’s lease transactions are primarily for the use of facilities, vehicles and equipment under operating lease arrangements. Total rental expense for operating leases for the three months ended June 30, 2019 was $26 million, which included $17 million related to capitalized operating leases and $9 million related to short-term operating leases and variable lease payments. Total rental expense for operating leases for the six months ended June 30, 2019 was $56 million, which included $36 million related to capitalized operating leases and $20 million related to short-term operating leases and variable lease payments. Short-term operating leases have original terms of one year or less, or can be terminated at the Company's option with a short notice period and without significant penalty, and are not capitalized. The right-of-use asset related to operating leases was $213 million as of June 30, 2019 and was included in Other assets. As of June 30, 2019, the current portion of the lease liability for operating leases was $51 million and was included in Accrued expenses, and the long-term portion was $133 million and was included in Other liabilities. Future maturities of operating lease liabilities for the years ended December 31 are as follows:



In millions
July 1, 2019 through December 31, 2019	$	27
2020	51
2021	36
2022	27
2023	20
2024 and future years	35
Total future minimum lease payments	196
Less: Imputed interest	(12		)
Operating lease liability	184
Less: Current portion of operating lease liability	(51		)
Long-term portion of operating lease liability	$	133

As of June 30, 2019, operating leases included in the lease liability had a weighted average remaining lease term of 4.8 years and a weighted average discount rate of 2.63% based on the incremental borrowing rate of the Company and its subsidiaries.

As of December 31, 2018, minimum lease payments under operating leases with noncancellable terms in excess of one year for the years ending December 31 were as follows:



In millions
2019	$	67
2020	48
2021	32
2022	24
2023	18
2024 and future years	34
Total future minimum lease payments	$	223

~~(5)~~

(7) Pension and Other Postretirement Benefits

Pension and other postretirement benefit costs for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:



	Three Months Ended												Six Months Ended
	June 30,												June 30,
	Pension						Other Postretirement Benefits						Pension						Other Postretirement Benefits
In millions	2019			2018			2019			2018			2019			2018			2019			2018
Components of net periodic benefit cost:
Service cost	$	13		$	15		$	2		$	2		$	26		$	30		$	4		$	4
Interest cost	19			18			5			4			39			36			10			9
Expected return on plan assets	(31		)	(32		)	(5		)	(6		)	(61		)	(64		)	(11		)	(12		)
Amortization of actuarial loss (gain)	6			11			(1		)	—			11			22			(1		)	(1		)
Amortization of prior service cost	1			—			—			—			1			—			—			—
Total net periodic benefit cost	$	8		$	12		$	1		$	—		$	16		$	24		$	2		$	—

Three Months Ended Six Months Ended
June 30, June 30,
Pension Other Postretirement Benefits Pension Other Postretirement Benefits
In millions 2018 2017 2018 2017 2018 2017 2018 2017
Components of net periodic benefit cost:
Service cost $ 15
$ 16
$ 2
$ 2
$ 30
$ 32
$ 4
$ 4
Interest cost 18
18
4
5
36
36
9
10
Expected return on plan assets (32 ) (33 ) (6 ) (5 ) (64 ) (66 ) (12 ) (11 )
Amortization of actuarial loss (gain) 11
14
—
(1 ) 22
28
(1 ) (1 )
Total net periodic benefit cost $ 12
$ 15
$ —
$ 1
$ 24
$ 30
$ —
$ 2

The service cost component of net periodic benefit cost is presented within Cost of revenue and Selling, administrative, and research and development expenses in the statement of income while the other components of net periodic benefit cost are presented within Other income (expense).

The Company expects to contribute approximately ~~$26~~$30 million to its pension plans and $5 million to its other postretirement benefit plans in ~~2018.~~2019. As of June 30, ~~2018,~~2019, contributions of ~~$15~~$18 million to pension plans and $3$2 million to other postretirement benefit plans have been made.

~~(6)~~(8) Debt

~~Short-term debt~~There was no commercial paper outstanding as of June 30, 2019 and December 31, 2018. As of December 31, 2018, short-term debt included ~~$649~~$650 million related to the 1.95% notes due March 1, 2019 and ~~$699~~$700 million related to the 6.25% notes due April 1, 2019, both of which were ~~reclassified~~repaid on their due date.

In June 2019, the Company issued €600 million of 0.25% Euro notes due December 5, 2024 at 99.662% of face value, €500 million of 0.625% Euro notes due December 5, 2027 at 99.343% of face value and €500 million of 1.00% Euro notes due June 5, 2031 at 98.982% of face value. Net proceeds from ~~Long-term debt~~the issuances were used to ~~Short-term debt in the first and second quarters of 2018, respectively. There was no~~repay commercial paper ~~outstanding~~and for general corporate purposes.

The Company designated the €1.6 billion of Euro notes issued in June 2019 as a hedge of ~~June 30, 2018. Short-term debt as~~a portion of ~~December 31, 2017 included commercial paper of $849 million.~~its net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. Refer to Note 9. Accumulated Other Comprehensive Income (Loss) for additional information regarding the net investment hedge.

The approximate fair value and related carrying value of the Company's total long-term debt, including current maturities of long-term debt presented as short-term debt, as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:



In millions	June 30, 2019		December 31, 2018
Fair value	$	8,542	$	7,665
Carrying value	7,809		7,379

In millions June 30, 2018 December 31, 2017
Fair value $ 7,727
$ 8,052
Carrying value 7,419
7,479

The approximate fair values of the Company's long-term debt, including current maturities, were based on a valuation model using Level 2 observable inputs which included market rates for comparable instruments for the respective periods.

~~(7) Legal Settlement~~

In the second quarter of 2017, the Company entered into a $95 million confidential settlement agreement to resolve a litigation matter. Based on the terms of the agreement, the Company received the settlement within 120 days of the execution of the agreement. The receipt of the settlement resulted in a favorable pre-tax impact of $15 million in the second quarter of 2017 and $80 million in the third quarter of 2017, which was included in operating income.

~~(8)~~

(9) Accumulated Other Comprehensive Income (Loss)

The following table summarizes changes in Accumulated other comprehensive income (loss) for the three and six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
In millions	2019			2018			2019			2018
Beginning balance	$	(1,642	)	$	(1,240	)	$	(1,677	)	$	(1,287	)

Adoption of new accounting guidance related to reclassification of certain tax effects	—			—			—			(45		)

Foreign currency translation adjustments during the period	(76		)	(270		)	(33		)	(201		)
Income taxes	16			(29		)	4			(15		)
Total foreign currency translation adjustments, net of tax	(60		)	(299		)	(29		)	(216		)

Pension and other postretirement benefit adjustments during the period	—			—			—			1
Pension and other postretirement benefit adjustments reclassified to income	6			11			11			21
Income taxes	(1		)	(2		)	(2		)	(4		)
Total pension and other postretirement benefit adjustments, net of tax	5			9			9			18

Ending balance	$	(1,697	)	$	(1,530	)	$	(1,697	)	$	(1,530	)

Three Months Ended Six Months Ended
June 30, June 30,
In millions 2018
2017 2018 2017
Beginning balance $ (1,240 ) $ (1,643 ) $ (1,287 ) $ (1,807 )

Adoption of new accounting guidance related to reclassification of certain tax effects —
—
(45 ) —

Foreign currency translation adjustments during the period (270 ) 60
(201 ) 204
Income taxes (29 ) 57
(15 ) 67
Total foreign currency translation adjustments, net of tax (299 ) 117
(216 ) 271

Pension and other postretirement benefit adjustments during the period —
—
1
—
Pension and other postretirement benefit adjustments reclassified to income 11
13
21
27
Income taxes (2 ) (3 ) (4 ) (7 )
Total pension and other postretirement benefit adjustments, net of tax 9
10
18
20

Ending balance $ (1,530 ) $ (1,516 ) $ (1,530 ) $ (1,516 )

Effective January 1, 2018, the Company elected to early adopt new accounting guidance related to the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the "Tax Cuts and Jobs Act" (the "Act") and reclassified $45 million of stranded income tax effects from Accumulated other comprehensive income (loss) to Retained earnings. Refer to Note 1. Significant Accounting Policies for additional information.

Pension and other postretirement benefit adjustments reclassified to income ~~relate primarily~~relates to the amortization of actuarial ~~losses.~~gains and losses and prior service cost. Refer to Note 5.7. Pension and Other Postretirement Benefits for additional information.

The Company designated the €1.0 billion of Euro notes issued in May ~~2015 and~~2014, the €1.0 billion of Euro notes issued in May ~~2014~~2015 and the €1.6 billion of Euro notes issued in June 2019 as hedges of a portion of its net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. ~~The carrying values of the 2015 and 2014 Euro notes were $1.2 billion and $1.2 billion, respectively, as of June 30, 2018.~~ Changes in the value of this debt resulting from fluctuations in the Euro to U.S. dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). The carrying values of the 2019, 2015 and 2014 Euro notes were $1.8 billion, $1.1 billion and $1.1 billion, respectively, as of June 30, 2019. The unrealized pre-tax gain recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was ~~$145~~$183 million and ~~$81~~$187 million as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

The ending balance of Accumulated other comprehensive income (loss) as of June 30, ~~2018~~2019 and ~~2017~~2018 consisted of cumulative translation adjustment losses, net of tax, of ~~$1.2~~$1.3 billion and ~~$1.1~~$1.2 billion, respectively, and unrecognized pension and other postretirement benefits costs, net of tax, of ~~$329~~$355 million and ~~$385~~$329 million, respectively.

~~(9)~~(10) Segment Information

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. Refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for information regarding operating revenue and operating income for the Company's segments.

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 with 8587 divisions in 55 countries. As of December 31, ~~2017,~~2018, the Company employed approximately ~~50,000~~48,000 people.

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, overhead costs, 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. This business model is the Company’s competitive advantage and defines how ITW creates value for its shareholders and comprises three unique elements:

•

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

•

Customer-back Innovation has fueled decades of profitable growth at ITW. The Company’s unique innovation approach is built on insight gathered from the 80/20 Front-to-Back process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their “80” customers. ITW’s innovation efforts are focused on understanding customer needs, particularly those in “80” markets with solid long-term growth fundamentals, and subsequently 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;

~~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;

•

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.

~~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 subsequently creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of more than 17,000 granted and pending patents;

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

ENTERPRISE STRATEGY

In late 2012, ITW began ~~the first phase of~~ its strategic framework transitioning the Company on its current ~~strategic~~ path to fully leverage the compelling performance potential of the ITW Business Model. Since then, ITW has made considerable progress ~~as evidenced by the Company’s strong financial performance over the past five years.~~in its path to full potential.

The roots of ITW’s Enterprise Strategy began in late 2011 / early 2012, when the Company undertook a complete review of its performance. Focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, ITW developed a strategy to replicate that performance across its operations.

Based on this rigorous evaluation, ITW determined that solid and consistent above-market organic growth must be the core growth engine to deliver world-class financial performance and compelling long-term returns for its shareholders. To shift its primary growth engine to organic, the Company began executing a multi-step approach.

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

As a result of this work, ITW’s business portfolio now has significantly higher organic growth potential. ITW segments and divisions now possess attractive and differentiated product lines and end markets as they continue to improve operating margins and generate price/cost increases. The Company achieved this through product line simplification, or eliminating the complexity and overhead costs associated with smaller product lines and customers, while supporting and growing the businesses’ largest / most profitable customers and product lines. With the initiative nearly complete and ITW businesses demonstrating notably improved financial performance, the Company believes that the product line simplification work is returning to more normalized levels.

Step two, Business Structure Simplification, was implemented to simplify and scale-up ITW’s operating structure to support increased engineering, marketing, and sales resources, and, at the same time, improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 8587 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. The Company’s 80/20-enabled sourcing organization has delivered an average of one percent reduction in spend each year from 2013 through ~~2017~~2018 and is on track to do the same in ~~2018.~~

2019.

With the initial portfolio realignment and scale-up work largely complete, the Company has 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.

ITW has clearly demonstrated superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company’s operating margin and after-tax return on invested capital. At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns. ~~With this first phase~~

PATH TO FULL POTENTIAL - FINISHING THE JOB

Since the launch of the enterprise strategy, ~~nearing completion, the Company will look ahead to the next five years and delivering differentiated performance on a sustained basis.~~

~~SUSTAINED DIFFERENTIATED PERFORMANCE~~

~~While~~ the Company has made considerable progress to position itself to reach full potential. The ITW Business Model and ~~ITW’s performance is nearing best-in-class levels,~~unique set of capabilities are a source of strong and enduring competitive advantage, but for the Company has significant opportunity for further improvement. The second phase of the strategic framework is focused on delivering differentiated performance on a sustained basis, with consistent above market organic growth. Moving forward, the Company remains committed to ~~the four strategic principles that have served as the foundation of~~truly reach its ~~progress over the past five years and that the Company believes best positions ITW to deliver continued differentiated performance~~full potential over the next five ~~years:~~years, every one of its divisions must also be operating at its full potential. To do so, the Company remains focused on three key areas to finish the job of positioning ITW to perform to its full potential:

~~The ITW Business Model is the Company's competitive advantage~~Portfolio discipline

~~Focus on quality~~80/20 Front-to-Back practice excellence

Full-potential organic growth

~~"Do what we say" execution is a critical differentiator~~

~~Invest only where ITW has a competitive advantage~~Portfolio Discipline

~~The ITW Business Model is the Company's Competitive Advantage~~

The ITW Business Model is the combination of a set of strategic, operational, and cultural approaches and practices that is applied to every ITW business. The Business Model has existed inside the Company for over 30 years and is truly ITW's differentiating competitive advantage. The ITW Business Model is comprised of three elements:

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

•~~Customer-Back Innovation Approach = How the Company Innovates~~

•~~Decentralized Entrepreneurial Culture = How the Company Executes~~

~~Focus on Quality Growth~~

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

Leveraging the Business Model and the 80/20 front to back process provides a clear view of where to focus for high- quality growth. The Company targets differentiated end-markets and customers with critical needs and challenging pain points. ITW generates high-quality growth through consistent customer-back innovation and customer service excellence.

The Company only ~~invests and~~ operates in industries ~~and~~where it can generate significant, long-term competitive advantage from the ITW Business Model. ITW businesses ~~that~~ have the right “raw material” in terms of market and business attributes that best fit the ITW Business Model and have significant potential to ~~generate high quality~~drive above-market organic growth ~~through~~over the ~~application~~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 diverse end markets and geographies which makes the Company more resilient in the face of uncertain or volatile market environments.

80/20 Front-to-Back Practice Excellence

The 80/20 Front-to-Back process is a rigorous, iterative and highly data-driven approach to identify where the Company has true differentiation and the ability to drive sustainable, high-quality organic growth. The Company simplifies and eliminates complexity and redesigns every aspect of its business to ensure focused execution on key opportunities, markets, customers,

and products. ITW will continue its efforts to drive 80/20 Front-to-Back practice excellence in every division in the Company, every day.

Full-potential Organic Growth

Reaching full potential means that every division is positioned for sustainable, high-quality organic growth. The Company has clearly defined action plans aimed at leveraging the performance power of the ITW Business ~~Model. ITW’s current portfolio of seven segments offers solid~~Model to achieve full-potential organic growth ~~potential and a high degree of diversification~~ in ~~terms of geographic and end market exposures, enabling~~every division. At the same time, the Company ~~to deliver consistent high-quality growth in an increasingly volatile~~consistently reviews its portfolio, assesses businesses that are long-term growth-challenged and ~~competitive global market environment.~~

~~"Do What We Say" Execution is a Critical Differentiator~~

ITW’s commitment to execution is a key differentiator for ITW. Living up to the Company’s commitments - “do what we say” execution - is a deeply embedded core element of the culture. The culture is the engine that translates ITW's strategy into action, and action into results.

All divisions function within a “framework” that defines how the culture operates and defines the Company’s values, business model and strategy to ensure all divisions are working toward our common set of goals. Business leaders have the flexibility to define the actions and customize their approach to meet those goals. This “flexibility within the framework” establishes an entrepreneurial environment where decisions are made “bottom up” by those with the greatest knowledge, capability and proximity to the customer, which enables our businesses toevaluates if further portfolio refinements may be ~~nimble and react quickly to market conditions and customer requirements.~~

ITW is simple, straightforward and transparent in everything it does. The Company sets clear performance expectations and financial targets, executes against these at the appropriate pace, and establishes the freedom to define how to achieve results within the construct of the Business Model.

~~Invest Only Where ITW Has a Competitive Advantage~~

needed. The Company is ~~highly focused~~currently exploring options, including potential divestitures, for certain businesses with annual revenues totaling up to $1 billion. If a decision is made to divest any of these businesses, the Company expects that earnings per share dilution would be offset by incremental share repurchases. In the second quarter of 2019, the Company approved plans to divest six of the Company's businesses. These businesses were classified as held for sale beginning in the second quarter of 2019 and ~~disciplined~~are expected to be sold within one year. Refer to Note 2. Divestitures in ~~its approach to invest only where it can leverage the ITW Business Model into compelling and sustainable competitive advantage.~~Item 1 - Financial Statements for further information.

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

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.

~~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 ~~2017~~2018 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

The Company delivered strong second quarter and year-to-date financial results primarily attributable to the successful execution of enterprise initiatives and continued focus on the highly differentiated Business Model despite a challenging external environment. All segments achieved worldwide organic revenue growth and had operating margin above 21% inIn the second quarter and year-to-date periods of ~~2018.~~2019, the Company experienced softness in certain end markets, particularly in customer capital equipment purchases in the second quarter, as broad uncertainty appeared to adversely affect demand. As expected, the quarter and year-to-date periods were also negatively impacted by foreign currency translation and accelerated restructuring expenses as compared to the prior year. Despite these challenges, the Company executed well on enterprise initiatives and all segments had operating margins above 22% in the second quarter and 21% in the year-to-date period of 2019.

The Company does not believe that tariffs imposed in the past year have had a material impact on its operating results. The Company will continue to evaluate the impact of enacted and proposed tariffs on its businesses, as well as pricing actions to mitigate the impact of any raw material cost increases resulting from these tariffs.

The Company’s consolidated results of operations for the second quarter and year-to-date periods of 2019 and 2018 were as follows:


	Three Months Ended																		Three Months Ended
Dollars in millions	June 30,								Components of Increase (Decrease)										June 30,								Components of Increase (Decrease)
	2018			2017			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2019			2018			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	3,831		$	3,599		6.5	%	3.7	%	—	%	—	%	2.8	%	6.5	%	$	3,609		$	3,831		(5.8	)%	(2.8	)%	(0.3	)%	—	%	(2.7	)%	(5.8	)%
Operating income	$	932		$	872		6.9	%	4.0	%	—	%	(0.1	)%	3.0	%	6.9	%	$	871		$	932		(6.6	)%	(3.0	)%	—	%	(0.9	)%	(2.7	)%	(6.6	)%
Operating margin %	24.3		%	24.2		%	10 bps		10 bps		—		—		—		10 bps		24.1		%	24.3		%	(20) bps		—		10 bps		(30) bps		—		(20) bps


	Six Months Ended																		Six Months Ended
Dollars in millions	June 30,								Components of Increase (Decrease)										June 30,								Components of Increase (Decrease)
	2018			2017			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2019			2018			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	7,575		$	7,070		7.1	%	3.2	%	—	%	—	%	3.9	%	7.1	%	$	7,161		$	7,575		(5.5	)%	(2.2	)%	(0.2	)%	—	%	(3.1	)%	(5.5	)%
Operating income	$	1,835		$	1,679		9.3	%	4.6	%	—	%	0.4	%	4.3	%	9.3	%	$	1,710		$	1,835		(6.8	)%	(2.0	)%	—	%	(1.8	)%	(3.0	)%	(6.8	)%
Operating margin %	24.2		%	23.7		%	50 bps		40 bps		—		10 bps		—		50 bps		23.9		%	24.2		%	(30) bps		10 bps		10 bps		(50) bps		—		(30) bps

Operating revenue ~~grew~~declined in the second quarter and year-to-date periods primarily due to ~~an increase in organic revenue and~~ the ~~favorable~~unfavorable effect of foreign currency ~~translation.~~translation and lower organic revenue.

Organic revenue ~~grew 3.7%~~decreased 2.8% and ~~3.2%~~2.2% in the second quarter and year-to-date periods, respectively, ~~as all segments had organic revenue growth~~primarily driven by a decline in ~~each respective period primarily due to penetration gains, higher end market demand~~the Automotive OEM and ~~product innovation.~~Specialty Products segments. Product line simplification activities reduced organic revenue ~~growth~~ by 70 basis points in both the second quarter and year-to-date periods.


◦	~~North American~~Europe, Middle East and Africa organic revenue ~~increased 5.4%~~decreased 3.8% and ~~4.3%~~2.9% in the second quarter and year-to-date periods, respectively, ~~primarily driven~~as five segments declined, partially offset by growth in the ~~Welding,~~Food Equipment and Construction Products segments.

◦

North American organic revenue decreased 2.0% in the second quarter as a decline in the Automotive OEM, Specialty Products, Welding, and Test & Measurement and Electronics segments was partially offset by growth in the Food Equipment, Construction Products and Polymers & Fluids segments. Organic revenue declined 1.3% in the year-to-date period as a decrease in six segments was partially offset by growth in the Food Equipment segment.


◦	Asia Pacific organic revenue increased 2.8% in the second quarter as growth in six segments was partially offset by a decline in the Construction Products segment. In the year-to-date period, organic revenue grew 3.1% as all segments had organic revenue growth.

◦

~~Europe, Middle East~~decreased 4.4% and ~~Africa organic revenue increased 1.4% and 1.2%~~3.9% in the second quarter and year-to-date periods, respectively, as ~~growth~~a decline in ~~the Automotive OEM, Food Equipment, Test & Measurement and Electronics and Construction Products~~five segments was partially offset by ~~a decline~~growth in the ~~Specialty Products,~~Welding and Polymers & Fluids ~~and Welding~~ segments.

Operating income of ~~$932~~$871 million and ~~$1.8~~$1.7 billion in the second quarter and year-to-date periods, respectively, ~~increased 6.9%~~decreased 6.6% and ~~9.3%~~6.8% in the respective ~~periods. Excluding the favorable impact~~periods primarily due to unfavorable foreign currency translation, lower organic revenue and higher restructuring expenses.

Operating margin of ~~the 2017 confidential legal settlement, operating income would have increased 8.8% and 10.3%~~24.1% in the second quarter ~~and year-to-date periods, respectively.~~

~~Operating~~decreased 20 basis points. Excluding the unfavorable impact of higher restructuring expenses of 30 basis points, operating margin ~~of 24.3% in the second quarter~~ increased 10 basis points. ~~Excluding the 40 basis points of favorability from the 2017 second quarter confidential legal settlement, operating margin increased 50 basis points primarily due to the~~The benefits of the Company's enterprise initiatives that contributed 110 basis points ~~and positive~~were partially offset by negative operating leverage of ~~70 basis points, partially offset by unfavorable price/cost of 70~~60 basis points and ~~additional growth investments in the business.~~

higher employee-related expenses.

In the year-to-date period, operating margin of ~~24.2% increased 50~~23.9% decreased 30 basis points. Excluding the unfavorable impact of higher restructuring expenses of 50 basis points, operating margin increased 20 basis points ~~of favorability from the 2017 confidential legal settlement, operating margin increased 70 basis points~~ primarily ~~driven by the~~due to benefits of the Company's enterprise initiatives ~~of 110 basis points and positive operating leverage of 70~~that contributed 100 basis points, partially offset by negative operating leverage of 40 basis points, unfavorable price/cost of 6010 basis points and ~~additional growth investments~~higher employee-related expenses.

The second quarter 2019 effective tax rate was 24.5% versus 25.5% in ~~the business.~~

2018. The effective tax rate ~~for~~in the second quarter of 2018 was 25.5% compared to 28.4% in 2017. The second quarter 2018 effective tax rate was lower primarily as a result of the lower U.S. corporate federal tax rate. Additionally, the effective tax rate for the second quarter of 20172019 included discrete income tax benefits of ~~$13~~$4 million related to excess tax benefits from stock-based compensation. ~~In the year-to-date period, the effective tax rate was 24.4% and 28.4% for 2018 and 2017, respectively.~~ The ~~year-to-date~~ effective tax rate for the year-to-date period of 2019 was 24.5% compared to 24.4% in 2018. The year-to-date period of 2018 ~~was lower primarily as~~included a ~~result of the lower U.S. corporate federal tax rate and a~~first quarter discrete ~~income~~ tax benefit of $14 million ~~in the first quarter of 2018~~ related to foreign tax credits. Additionally, the effective tax rate for both ~~respective~~year-to-date periods included discrete income tax benefits ~~of $6 million and $26 million in 2018 and 2017, respectively,~~ related to excess tax benefits from stock-based ~~compensation.~~

~~The estimated effective tax rate for the full year~~compensation of $9 million and $6 million in 2019 and 2018, ~~is approximately 25%.~~respectively. Refer to Note 3.4. Income Taxes in Item 1 - Financial Statements for further information.

Diluted earnings per share (EPS) ~~of $1.97~~was $1.91 for the second quarter and ~~$3.87~~$3.72 for the year-to-date period ~~increased 16.6% and 19.8%, respectively. Excluding the favorable effect~~ of ~~the 2017 second quarter confidential legal settlement of $0.03 in~~2019. EPS for the second quarter and year-to-date periods included headwinds of $0.09 and $0.22, respectively, ~~EPS increased 18.7%~~compared to the prior year related to unfavorable foreign currency translation, accelerated restructuring expenses and ~~20.9% in the respective periods.~~a small loss related to divestitures.

Free cash flow was ~~$533~~$608 million and ~~$977 million~~$1.1 billion for the second quarter and year-to-date periods, respectively. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

The Company repurchased approximately ~~3.4~~2.5 million and ~~6.5~~5.2 million shares of its common stock in the second quarter and year-to-date periods of ~~2018,~~2019, respectively, for approximately ~~$500~~$375 million and ~~$1.0 billion,~~$750 million, respectively.

Total cash dividends of $654 million were paid in the year-to-date period of 2019.

Adjusted after-tax return on average invested capital was ~~28.7%~~28.6% for the second quarter and ~~28.3%~~28.1% for the year-to-date ~~period, an increase of 440 basis points and 430 basis points in the second quarter and year-to-date periods, respectively, primarily due to the new U.S. tax rules and regulations.~~period. Refer to the Adjusted After-Tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

RESULTS OF OPERATIONS BY SEGMENT

Total operating revenue and operating income for the second quarter and year-to-date periods of 2019 and 2018 were as follows:


	Three Months Ended June 30,												Six Months Ended June 30,												Three Months Ended June 30,												Six Months Ended June 30,
Dollars in millions	Operating Revenue						Operating Income						Operating Revenue						Operating Income						Operating Revenue						Operating Income						Operating Revenue						Operating Income
	2018			2017			2018			2017			2018			2017			2018			2017			2019			2018			2019			2018			2019			2018			2019			2018
Automotive OEM	$	879		$	820		$	198		$	182		$	1,780		$	1,648		$	415		$	384		$	788		$	879		$	174		$	198		$	1,594		$	1,780		$	341		$	415
Food Equipment	553			529			140			139			1,080			1,026			270			264			548			553			140			140			1,066			1,080			269			270
Test & Measurement and Electronics	554			519			131			114			1,097			999			258			210			533			554			131			131			1,057			1,097			257			258
Welding	440			385			129			105			863			772			246			212			422			440			122			129			849			863			242			246
Polymers & Fluids	445			437			95			94			887			863			187			182			427			445			97			95			843			887			186			187
Construction Products	444			425			109			102			872			820			204			191			424			444			106			109			825			872			193			204
Specialty Products	522			490			146			139			1,007			953			276			263			473			522			124			146			938			1,007			247			276
Intersegment revenue	(6		)	(6		)	—			—			(11		)	(11		)	—			—			(6		)	(6		)	—			—			(11		)	(11		)	—			—
Unallocated	—			—			(16		)	(3		)	—			—			(21		)	(27		)	—			—			(23		)	(16		)	—			—			(25		)	(21		)
Total	$	3,831		$	3,599		$	932		$	872		$	7,575		$	7,070		$	1,835		$	1,679		$	3,609		$	3,831		$	871		$	932		$	7,161		$	7,575		$	1,710		$	1,835

Segments are allocated a fixed overhead charge based on the segment's revenue. Expenses not charged to the segments are reported separately as Unallocated. Because the Unallocated category includes a variety of items, it is subject to fluctuations on a quarterly and annual basis. ~~Unallocated in 2017 includes the favorable impact from the previously disclosed confidential legal settlement.~~

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.

~~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 second quarter and year-to-date periods of 2019 and 2018 were as follows:


	Three Months Ended																		Three Months Ended
Dollars in millions	June 30,								Components of Increase (Decrease)										June 30,								Components of Increase (Decrease)
	2018			2017			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2019			2018			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	879		$	820		7.2	%	2.8	%	—	%	—	%	4.4	%	7.2	%	$	788		$	879		(10.4	)%	(7.1	)%	—	%	—	%	(3.3	)%	(10.4	)%
Operating income	$	198		$	182		8.4	%	3.2	%	—	%	0.7	%	4.5	%	8.4	%	$	174		$	198		(11.9	)%	(8.2	)%	—	%	(0.8	)%	(2.9	)%	(11.9	)%
Operating margin %	22.5		%	22.3		%	20 bps		—		—		20 bps		—		20 bps		22.1		%	22.5		%	(40) bps		(30) bps		—		(10) bps		—		(40) bps


	Six Months Ended																		Six Months Ended
Dollars in millions	June 30,								Components of Increase (Decrease)										June 30,								Components of Increase (Decrease)
	2018			2017			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2019			2018			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,780		$	1,648		8.0	%	1.9	%	—	%	—	%	6.1	%	8.0	%	$	1,594		$	1,780		(10.4	)%	(6.7	)%	—	%	—	%	(3.7	)%	(10.4	)%
Operating income	$	415		$	384		8.0	%	0.7	%	—	%	1.1	%	6.2	%	8.0	%	$	341		$	415		(17.9	)%	(10.5	)%	—	%	(4.0	)%	(3.4	)%	(17.9	)%
Operating margin %	23.3		%	23.3		%	—		(30) bps		—		30 bps		—		—		21.4		%	23.3		%	(190) bps		(90) bps		—		(100) bps		—		(190) bps



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended	June 30, ~~2018~~2019

	OR

o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______________ to _______________



Delaware				36-1258310
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification Number)
	155 Harlem Avenue	Glenview	IL	60025
(Address of principal executive offices)				(Zip Code)



Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o
			☐
		Emerging growth company	o☐



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	ITW	New York Stock Exchange
1.75% Euro Notes due 2022	ITW22	New York Stock Exchange
1.25% Euro Notes due 2023	ITW23	New York Stock Exchange
0.250% Euro Notes due 2024	ITW24A	New York Stock Exchange
0.625% Euro Notes due 2027	ITW27	New York Stock Exchange
2.125% Euro Notes due 2030	ITW30	New York Stock Exchange
1.00% Euro Notes due 2031	ITW31	New York Stock Exchange
3.00% Euro Notes due 2034	ITW34	New York Stock Exchange



	Table of Contents

	PART I - Financial Information
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1516
Item 4.	Controls and Procedures	3233

	PART II - Other Information
Item 1A.	Risk Factors	3233
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34

Signatures		35


In millions except per share amounts	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Assets
Current Assets:
Cash and equivalents	$	1,628		$	3,094		$	1,677		$	1,504
Trade receivables	2,878			2,628			2,629			2,622
Inventories	1,320			1,220			1,256			1,318
Prepaid expenses and other current assets	293			336			288			334
Assets held for sale							439			—
Total current assets	6,119			7,278			6,289			5,778

Net plant and equipment	1,783			1,778			1,717			1,791
Goodwill	4,675			4,752			4,503			4,633
Intangible assets	1,177			1,272			928			1,084
Deferred income taxes	595			505			516			554
Other assets	1,174			1,195			1,234			1,030
	$	15,523		$	16,780		$	15,187		$	14,870

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	1,350		$	850		$	—		$	1,351
Accounts payable	623			590			512			524
Accrued expenses	1,224			1,258			1,207			1,271
Cash dividends payable	262			266			323			328
Income taxes payable	88			89			53			68
Liabilities held for sale							93			—
Total current liabilities	3,547			3,053			2,188			3,542

Noncurrent Liabilities:
Long-term debt	6,069			7,478			7,809			6,029
Deferred income taxes	704			164			683			707
Noncurrent income taxes payable	561			614			462			495
Other liabilities	854			882			950			839
Total noncurrent liabilities	8,188			9,138			9,904			8,070

Stockholders’ Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2018 and 2017 Outstanding- 335.4 shares in 2018 and 341.5 shares in 2017	6			6
Issued- 550.0 shares in 2019 and 2018 Outstanding- 323.5 shares in 2019 and 328.1 shares in 2018							6			6
Additional paid-in-capital	1,231			1,218			1,270			1,253
Retained earnings	20,633			20,210			21,788			21,217
Common stock held in treasury	(16,555		)	(15,562		)	(18,276		)	(17,545		)
Accumulated other comprehensive income (loss)	(1,530		)	(1,287		)	(1,697		)	(1,677		)
Noncontrolling interest	3			4			4			4
Total stockholders’ equity	3,788			4,589			3,095			3,258
	$	15,523		$	16,780		$	15,187		$	14,870


◦	International organic revenue ~~increased 0.6% and 0.1%~~was flat in the second ~~quarter~~quarter. Growth in the industrial end markets was offset by a decline in the oil and gas end markets. In the year-to-date ~~periods, respectively,~~period, organic revenue increased 1.9% primarily due to higher ~~end market~~ demand in Asia in the ~~Asian commercial and~~ oil and gas end markets.


◦	Organic revenue for the polymers businesses increased 1.6% and 1.7% in the second quarter and year-to-date periods, respectively, primarily driven by growth in the heavy industrial end markets in North America and in the transportation end markets in Asia.


◦	Organic revenue for the fluids businesses ~~grew 0.6%~~decreased 2.8% and ~~0.9%~~0.8% in the second quarter and year-to-date periods, respectively, primarily due to ~~an increase~~declines in Europe and the industrial maintenance, repair, and operations end markets in North ~~America, partially offset by a decline in Europe.~~


•	plastic and metal closures and components for appliances;


◦	North American organic revenue ~~increased 7.7%~~decreased 5.5% and ~~3.6%~~2.2% in the second quarter and year-to-date periods, respectively, primarily due to ~~an increase~~a decrease in the consumer packaging, ~~ground support~~specialty films and ~~medical~~labels businesses.


In millions
Total stockholders’ equity, December 31, 2017	$	4,589
Total stockholders’ equity, December 31, 2018				$	3,258
Net income	1,318			1,220
Adoption of new accounting guidance	(415		)
Repurchases of common stock	(1,000		)	(750		)
Cash dividends declared	(525		)	(649		)
Foreign currency translation adjustments, net of tax	(216		)	(29		)
Other	37			45
Total stockholders’ equity, June 30, 2018	$	3,788
Total stockholders’ equity, June 30, 2019				$	3,095



Exhibit Number		Exhibit Description

314.1		~~Rule 13a-14(a) Certification.~~Officers’ 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 Company’s Current Report on Form 8-K filed on June 5, 2019 (Commission File No. 1-4797) and incorporated herein by reference.

3231		Rule 13a-14(a) Certification.

32		Section 1350 Certification.

101		The following financial and related information from the Illinois Tool Works Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2018~~2019 is formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL) and submitted electronically herewith: (i) Statement of Income, (ii) Statement of Comprehensive Income, (iii) Statement of Financial Position, (iv) Statement of Changes in Stockholders' Equity, (v) Statement of Cash Flows, and ~~(v)~~(vi) related Notes to Financial Statements.




		ILLINOIS TOOL WORKS INC.


Dated:	August ~~2, 2018~~1, 2019	By:	/s/ Randall J. Scheuneman
			Randall J. Scheuneman
			Vice President & Chief Accounting Officer
			(Principal Accounting Officer and Duly Authorized Officer)