0000049826false00000498262026-07-282026-07-280000049826us-gaap:CommonStockMemberexch:XNYS2026-07-282026-07-280000049826itw:A0.625EuroNotesdue2027Memberexch:XNYS2026-07-282026-07-280000049826itw:A3.250EuroNotesDue2028Memberexch:XNYS2026-07-282026-07-280000049826itw:A2.125EuroNotesdue2030Memberexch:XNYS2026-07-282026-07-280000049826itw:A1.00EuroNotesdue2031Memberexch:XNYS2026-07-282026-07-280000049826itw:A3.375EuroNotesDue2032Memberexch:XNYS2026-07-282026-07-280000049826itw:A3.00EuroNotesdue2034Memberexch:XNYS2026-07-282026-07-28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 28, 2026
_________________________
ILLINOIS TOOL WORKS INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | | | | | | | |
| Delaware | 1-4797 | | 36-1258310 |
| (State or other jurisdiction of incorporation) | (Commission File No.) | | (I.R.S. Employer Identification No.) |
| | | | | | | |
| 155 Harlem Avenue | Glenview | IL | | | | 60025 |
| (Address of principal executive offices) | | | (Zip Code) |
Registrant's telephone number, including area code: 847-724-7500
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| | | | | |
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | ITW | New York Stock Exchange |
| 0.625% Euro Notes due 2027 | ITW27 | New York Stock Exchange |
| 3.250% Euro Notes due 2028 | ITW28 | 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 |
| 3.375% Euro Notes due 2032 | ITW32 | New York Stock Exchange |
| 3.00% Euro Notes due 2034 | ITW34 | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On July 28, 2026, Illinois Tool Works Inc. (the "Company") announced its 2026 second quarter results of operations in the press release furnished as Exhibit 99.1.
Non-GAAP Financial Measures
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, along with free cash flow to net income conversion rate, are 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. A reconciliation of free cash flow to net cash provided by operating activities is included in the press release furnished as Exhibit 99.1.
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 six months ended June 30, 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 six months ended June 30, 2025 and the year ended December 31, 2025. For comparability, the Company also excluded the net discrete tax benefit of $27 million in the third quarter of 2025 from net income and the effective tax rate for the year ended December 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. Calculations of net income to average invested capital and After-tax ROIC are included in the press release furnished as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits
| | | | | | | | | | | |
| (d) | Exhibits | | |
| | | |
| Exhibit Number | | Exhibit Description |
| | | |
| 99.1 | | Press Release issued by Illinois Tool Works Inc. dated July 28, 2026 (furnished pursuant to Item 2.02). |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| | | | | | | | |
| | |
| | ILLINOIS TOOL WORKS INC. |
| | |
| | |
Dated: July 28, 2026 | | By: /s/ Michael M. Larsen |
| | Michael M. Larsen |
| | Senior Vice President & Chief Financial Officer |
Exhibit 99.1
ITW Reports Second Quarter 2026 Results and
Raises Full Year 2026 Guidance
•Revenue of $4.30 billion, increased +6.1% as organic growth accelerated to +4.5%
•Operating income of $1.15 billion grew +7.4% marking the most profitable quarter in company history
•Operating margin of 26.7% expanded 40 bps, as enterprise initiatives contributed 120 bps
•GAAP EPS of $2.84 increased +10.1%
•Operating cash flow of $723 million and free cash flow of $631 million; an increase of +41%
•Full Year 2026 guidance raised; organic revenue raised +1.5%-pts to new midpoint of 3.5% and GAAP EPS raised +$0.15 to new midpoint of $11.45
GLENVIEW, Ill., July 28, 2026 - Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2026 results and raised full year 2026 guidance.
“The ITW team delivered a strong operational and financial performance in the second quarter highlighted by organic growth of 4.5 percent, operating margin of 26.7 percent, and a 10 percent increase in GAAP earnings per share to $2.84,” said Christopher A. O’Herlihy, President and Chief Executive Officer.
“Our results reflect a meaningful acceleration in our capex-related segments, led by double-digit organic growth in Welding and Test & Measurement and Electronics, alongside strong performance in Polymers & Fluids. As we advance our enterprise strategy priorities, we remain well-positioned to drive consistent, above-market organic growth powered by increased contribution to revenue growth from Customer-Back Innovation while further expanding profitability and margins. As a result of our strong operational momentum, we are raising both top- and bottom-line guidance for the full year,” O’Herlihy concluded.
Second Quarter 2026 Results
Second quarter revenue of $4.30 billion increased by 6.1 percent. Organic revenue growth was 4.5 percent, led by 6.4 percent growth in North America. Foreign currency translation increased revenue by 1.4 percent and an acquisition added 0.2 percent.
GAAP EPS grew 10.1 percent to $2.84, while operating income increased 7.4 percent to $1.15 billion, marking the most profitable quarter in the history of the company. Operating margin expanded by 40 basis points to 26.7 percent as enterprise initiatives contributed 120 basis points. In the quarter, price increases more than offset higher raw material costs in dollar terms, though timing lags between inflation and price adjustments modestly diluted margins. Operating cash flow was $723 million, and free cash flow was $631 million, a 41 percent increase representing a 77 percent conversion of net income. During the quarter, the company returned over $1.2 billion to shareholders through dividends and share repurchases of $750 million. The effective tax rate for the quarter was 24.4 percent.
2026 Guidance
ITW is raising its full year 2026 GAAP EPS guidance by $0.15 to a narrowed range of $11.35 to $11.55 per share, representing 9 percent growth at the midpoint. Based on current demand levels and prevailing foreign exchange rates, the company is raising revenue growth guidance to a new range of 4 to 5 percent and raising organic growth guidance to 3 to 4 percent, a 1.5 percentage point increase at the midpoint.
Operating margin is projected to be in the range of 26.5 to 27.5 percent, with enterprise initiatives contributing more than 100 basis points. Free cash flow is projected to exceed 100 percent of net income, and the company expects to repurchase approximately $1.5 billion of its own shares. The projected effective tax rate is 23 to 24 percent.
Non-GAAP Measures
This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow to net income conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of this forward-looking estimate to its most directly comparable GAAP estimate have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack
of reliable forward-looking cash flow information. For the same reasons, the company is unable to address the potential significance of the unavailable information, which could be material to future results.
Forward-looking Statements
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding global supply chain challenges, expected impact of inflation including raw material inflation and rising interest rates, the potential impact of tariffs, the company’s projected pricing actions, the impact of enterprise initiatives, future financial and operating performance, free cash flow and free cash flow to net income conversion rate, organic and total revenue, operating and incremental margin, price/cost impact, statements regarding diluted income per share, expected dividend payments, after-tax return on invested capital, effective tax rates, exchange rates, expected timing and amount of share repurchases, end market economic and regulatory conditions, the impact of recent or potential acquisitions and/or divestitures, and the company’s 2026 guidance. These statements are subject to certain risks, uncertainties, assumptions, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that could cause actual results to differ materially from the company’s expectations include those that are detailed in ITW’s Form 10-K for 2025 and subsequent reports filed with the SEC.
About Illinois Tool Works
ITW (NYSE: ITW) is a Fortune 300 global multi-industrial manufacturing leader with revenue of $16 billion in 2025. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 43,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com.
Investor Relations & Media Contact:
Erin Linnihan
Tel: 224.661.7431
investorrelations@itw.com | mediarelations@itw.com
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| In millions except per share amounts | 2026 | | 2025 | | 2026 | | 2025 |
| Operating Revenue | $ | 4,301 | | | $ | 4,053 | | | $ | 8,317 | | | $ | 7,892 | |
| Cost of revenue | 2,403 | | | 2,271 | | | 4,659 | | | 4,432 | |
| Selling, administrative, and research and development expenses | 735 | | | 693 | | | 1,457 | | | 1,399 | |
| Amortization and impairment of intangible assets | 16 | | | 21 | | | 34 | | | 42 | |
| Operating Income | 1,147 | | | 1,068 | | | 2,167 | | | 2,019 | |
| Interest expense | (79) | | | (74) | | | (152) | | | (142) | |
| Other income (expense) | 12 | | | 4 | | | 32 | | | 16 | |
| Income Before Taxes | 1,080 | | | 998 | | | 2,047 | | | 1,893 | |
| Income Taxes | 265 | | | 243 | | | 464 | | | 438 | |
| Net Income | $ | 815 | | | $ | 755 | | | $ | 1,583 | | | $ | 1,455 | |
| | | | | | | |
| Net Income Per Share: | | | | | | | |
Basic | $ | 2.85 | | | $ | 2.58 | | | $ | 5.51 | | | $ | 4.97 | |
Diluted | $ | 2.84 | | | $ | 2.58 | | | $ | 5.50 | | | $ | 4.95 | |
| | | | | | | |
| Cash Dividends Per Share: | | | | | | | |
Paid | $ | 1.61 | | | $ | 1.50 | | | $ | 3.22 | | | $ | 3.00 | |
Declared | $ | 1.61 | | | $ | 1.50 | | | $ | 3.22 | | | $ | 3.00 | |
| | | | | | | |
| Shares of Common Stock Outstanding During the Period: | | | | | | | |
Average | 286.4 | | | 292.3 | | | 287.3 | | | 292.9 | |
Average assuming dilution | 287.0 | | | 292.9 | | | 288.1 | | | 293.7 | |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)
| | | | | | | | | | | |
| In millions | June 30, 2026 | | December 31, 2025 |
| Assets | | | |
| Current Assets: | | | |
| Cash and equivalents | $ | 839 | | | $ | 851 | |
| Trade receivables | 3,564 | | | 3,227 | |
| Inventories | 1,756 | | | 1,659 | |
| Prepaid expenses and other current assets | 441 | | | 463 | |
| Total current assets | 6,600 | | | 6,200 | |
| | | |
| Net plant and equipment | 2,235 | | | 2,230 | |
| Goodwill | 5,074 | | | 5,098 | |
| Intangible assets | 558 | | | 591 | |
| Deferred income taxes | 489 | | | 519 | |
| Other assets | 1,538 | | | 1,510 | |
| | $ | 16,494 | | | $ | 16,148 | |
| | | |
| Liabilities and Stockholders' Equity | | | |
| Current Liabilities: | | | |
| Short-term debt | $ | 3,145 | | | $ | 2,286 | |
| Accounts payable | 636 | | | 522 | |
| Accrued expenses | 1,592 | | | 1,636 | |
| Cash dividends payable | 457 | | | 465 | |
| Income taxes payable | 123 | | | 217 | |
| Total current liabilities | 5,953 | | | 5,126 | |
| | | |
| Noncurrent Liabilities: | | | |
| Long-term debt | 6,549 | | | 6,683 | |
| Deferred income taxes | 162 | | | 154 | |
| Other liabilities | 935 | | | 959 | |
| Total noncurrent liabilities | 7,646 | | | 7,796 | |
| | | |
| Stockholders' Equity: | | | |
| Common stock | 6 | | | 6 | |
| Additional paid-in-capital | 1,838 | | | 1,771 | |
| Retained earnings | 30,812 | | | 30,150 | |
| Common stock held in treasury | (28,004) | | | (26,875) | |
| Accumulated other comprehensive income (loss) | (1,758) | | | (1,827) | |
| Noncontrolling interest | 1 | | | 1 | |
| Total stockholders' equity | 2,895 | | | 3,226 | |
| $ | 16,494 | | | $ | 16,148 | |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| | | | | | | | | | | |
Three Months Ended June 30, 2026 |
| Dollars in millions | Total Revenue | Operating Income | Operating Margin |
| Automotive OEM | $ | 857 | | $ | 185 | | 21.6 | % |
| Food Equipment | 692 | | 188 | | 27.1 | % |
| Test & Measurement and Electronics | 769 | | 193 | | 25.2 | % |
| Welding | 549 | | 178 | | 32.4 | % |
| Polymers & Fluids | 476 | | 140 | | 29.3 | % |
| Construction Products | 494 | | 151 | | 30.6 | % |
| Specialty Products | 468 | | 148 | | 31.5 | % |
| Intersegment | (4) | | — | | — | % |
| Total Segments | 4,301 | | 1,183 | | 27.5 | % |
| Unallocated | — | | (36) | | — | % |
| Total Company | $ | 4,301 | | $ | 1,147 | | 26.7 | % |
| | | | | | | | | | | |
Six Months Ended June 30, 2026 |
| Dollars in millions | Total Revenue | Operating Income | Operating Margin |
| Automotive OEM | $ | 1,677 | | $ | 358 | | 21.3 | % |
| Food Equipment | 1,329 | | 345 | | 26.0 | % |
| Test & Measurement and Electronics | 1,484 | | 357 | | 24.1 | % |
| Welding | 1,056 | | 341 | | 32.3 | % |
| Polymers & Fluids | 928 | | 266 | | 28.7 | % |
| Construction Products | 952 | | 286 | | 30.0 | % |
| Specialty Products | 899 | | 283 | | 31.4 | % |
| Intersegment | (8) | | — | | — | % |
| Total Segments | 8,317 | | 2,236 | | 26.9 | % |
| Unallocated | — | | (69) | | — | % |
| Total Company | $ | 8,317 | | $ | 2,167 | | 26.1 | % |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Q2 2026 vs. Q2 2025 Favorable/(Unfavorable) |
Operating
Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Organic | (0.4) | % | — | % | 10.0 | % | 13.9 | % | 7.3 | % | 2.0 | % | 1.6 | % | 4.5 | % |
Acquisitions/
Divestitures | — | % | — | % | 1.3 | % | — | % | — | % | — | % | — | % | 0.2 | % |
| Translation | 1.7 | % | 1.6 | % | 0.8 | % | 0.8 | % | 1.5 | % | 2.3 | % | 1.4 | % | 1.4 | % |
Operating
Revenue | 1.3 | % | 1.6 | % | 12.1 | % | 14.7 | % | 8.8 | % | 4.3 | % | 3.0 | % | 6.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Q2 2026 vs. Q2 2025 Favorable/(Unfavorable) |
| Change in Operating Margin | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Operating Leverage | (10) bps | — | 250 bps | 220 bps | 140 bps | 40 bps | 20 bps | 90 bps |
Changes in Variable
Margin & OH Costs | 20 bps | (60) bps | — | (250) bps | 40 bps | (40) bps | (150) bps | (50) bps |
| Total Organic | 10 bps | (60) bps | 250 bps | (30) bps | 180 bps | — | (130) bps | 40 bps |
Acquisitions/
Divestitures | — | — | (20) bps | — | — | — | — | — |
| Restructuring/Other | 20 bps | — | 10 bps | (40) bps | (20) bps | (20) bps | 20 bps | — |
Total Operating
Margin Change | 30 bps | (60) bps | 240 bps | (70) bps | 160 bps | (20) bps | (110) bps | 40 bps |
| | | | | | | | |
Total Operating
Margin % * | 21.6% | 27.1% | 25.2% | 32.4% | 29.3% | 30.6% | 31.5% | 26.7% |
| | | | | | | | |
| * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 20 bps | 10 bps | 120 bps | — | 80 bps | 10 bps | 20 bps | 40 bps ** |
| ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.04) on GAAP earnings per share for the second quarter of 2026. |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| H1 2026 vs. H1 2025 Favorable/(Unfavorable) |
Operating
Revenue | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Organic | (0.6) | % | (1.3) | % | 7.4 | % | 10.0 | % | 4.6 | % | 0.4 | % | (1.5) | % | 2.5 | % |
Acquisitions/
Divestitures | — | % | — | % | 1.5 | % | — | % | — | % | — | % | — | % | 0.3 | % |
| Translation | 3.4 | % | 2.9 | % | 2.0 | % | 1.0 | % | 2.5 | % | 3.5 | % | 2.6 | % | 2.6 | % |
Operating
Revenue | 2.8 | % | 1.6 | % | 10.9 | % | 11.0 | % | 7.1 | % | 3.9 | % | 1.1 | % | 5.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| H1 2026 vs. H1 2025 Favorable/(Unfavorable) |
Change in
Operating Margin | Automotive OEM | Food Equipment | Test & Measurement and Electronics | Welding | Polymers & Fluids | Construction Products | Specialty Products | Total ITW |
| Operating Leverage | (10) bps | (20) bps | 200 bps | 160 bps | 90 bps | 20 bps | (30) bps | 50 bps |
Changes in Variable
Margin & OH Costs | 70 bps | (100) bps | 20 bps | (180) bps | 80 bps | (10) bps | (40) bps | (10) bps |
| Total Organic | 60 bps | (120) bps | 220 bps | (20) bps | 170 bps | 10 bps | (70) bps | 40 bps |
Acquisitions/
Divestitures | — | — | (40) bps | — | — | — | — | — |
| Restructuring/Other | 40 bps | 10 bps | 20 bps | (30) bps | (10) bps | (10) bps | 30 bps | 10 bps |
Total Operating
Margin Change | 100 bps | (110) bps | 200 bps | (50) bps | 160 bps | — | (40) bps | 50 bps |
| | | | | | | | |
Total Operating
Margin % * | 21.3% | 26.0% | 24.1% | 32.3% | 28.7% | 30.0% | 31.4% | 26.1% |
| | | | | | | | |
| * Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets | 20 bps | — | 130 bps | — | 90 bps | 10 bps | 20 bps | 40 bps ** |
| ** Amortization expense from acquisition-related intangible assets had an unfavorable impact of ($0.09) on GAAP earnings per share for the first half of 2026. |
ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| Dollars in millions | 2026 | | 2025 | | 2026 | | 2025 |
| Numerator: | | | | | | | |
| Net Income | $ | 815 | | | $ | 755 | | | $ | 1,583 | | | $ | 1,455 | |
| 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) | 59 | | | 56 | | | 115 | | | 108 | |
Other (income) expense, net of tax (1) | (9) | | | (3) | | | (24) | | | (12) | |
| Operating income after taxes | $ | 865 | | | $ | 808 | | | $ | 1,640 | | | $ | 1,530 | |
| | | | | | | |
| Denominator: | | | | | | | |
| Invested capital: | | | | | | | |
| Cash and equivalents | $ | 839 | | | $ | 788 | | | $ | 839 | | | $ | 788 | |
| Trade receivables | 3,564 | | | 3,320 | | | 3,564 | | | 3,320 | |
| Inventories | 1,756 | | | 1,710 | | | 1,756 | | | 1,710 | |
| Net plant and equipment | 2,235 | | | 2,177 | | | 2,235 | | | 2,177 | |
| Goodwill and intangible assets | 5,632 | | | 5,596 | | | 5,632 | | | 5,596 | |
| Accounts payable and accrued expenses | (2,228) | | | (2,157) | | | (2,228) | | | (2,157) | |
| Debt | (9,694) | | | (8,937) | | | (9,694) | | | (8,937) | |
| Other, net | 791 | | | 714 | | | 791 | | | 714 | |
| Total net assets (stockholders' equity) | 2,895 | | | 3,211 | | | 2,895 | | | 3,211 | |
| Cash and equivalents | (839) | | | (788) | | | (839) | | | (788) | |
| Debt | 9,694 | | | 8,937 | | | 9,694 | | | 8,937 | |
| Total invested capital | $ | 11,750 | | | $ | 11,360 | | | $ | 11,750 | | | $ | 11,360 | |
| | | | | | | |
Average invested capital (2) | $ | 11,650 | | | $ | 10,996 | | | $ | 11,548 | | | $ | 10,741 | |
| | | | | | | |
Net income to average invested capital (3) | 28.0 | % | | 27.4 | % | | 27.4 | % | | 27.1 | % |
After-tax return on average invested capital (3) | 29.7 | % | | 29.4 | % | | 28.4 | % | | 28.5 | % |
(1) Effective tax rate used for interest expense and other (income) expense for the three months ended June 30, 2026 and 2025 was 24.4% in both periods. Effective tax rate used for interest expense and other (income) expense for the six months ended June 30, 2026 and 2025 was 24.3% and 24.2%, respectively.
(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within each of the periods presented.
(3) Returns for the three months ended June 30, 2026 and 2025 were converted to an annual rate by multiplying the calculated return by 4. Returns for the six months ended June 30, 2026 and 2025 were converted to an annual rate by multiplying the calculated return by 2.
A reconciliation of the tax rate for the six month period ended June 30, 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:
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2026 |
| Dollars in millions | Income Taxes | | Tax Rate |
| As reported | $ | 464 | | | 22.6 | % |
| Discrete tax benefit related to the first quarter 2026 | 34 | | | 1.7 | % |
| As adjusted | $ | 498 | | | 24.3 | % |
A reconciliation of the tax rate for the six month period ended June 30, 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:
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2025 |
| Dollars in millions | Income Taxes | | Tax Rate |
| As reported | $ | 438 | | | 23.1 | % |
| Discrete tax benefit related to the first quarter 2025 | 21 | | | 1.1 | % |
| As adjusted | $ | 459 | | | 24.2 | % |
AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)
| | | | | |
| Twelve Months Ended |
| Dollars in millions | December 31, 2025 |
| Numerator: | |
| Net income | $ | 3,066 | |
| Net discrete tax benefit related to the third quarter 2025 | (27) | |
| Discrete tax benefit related to the first quarter 2025 | (21) | |
Interest expense, net of tax (1) | 222 | |
Other (income) expense, net of tax (1) | (32) | |
| Operating income after taxes | $ | 3,208 | |
| |
| Denominator: | |
| Invested capital: | |
| Cash and equivalents | $ | 851 | |
| Trade receivables | 3,227 | |
| Inventories | 1,659 | |
| Net plant and equipment | 2,230 | |
| Goodwill and intangible assets | 5,689 | |
| Accounts payable and accrued expenses | (2,158) | |
| Debt | (8,969) | |
| Other, net | 697 | |
| Total net assets (stockholders' equity) | 3,226 | |
| Cash and equivalents | (851) | |
| Debt | 8,969 | |
| Total invested capital | $ | 11,344 | |
| |
Average invested capital (2) | $ | 10,959 | |
| |
| Net income to average invested capital | 28.0 | % |
| After-tax return on average invested capital | 29.3 | % |
(1) Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2025 was 23.9%.
(2) Average invested capital is calculated using the total invested capital balances at the start of the period and at the end of each quarter within the period presented.
A reconciliation of the 2025 effective tax rate, excluding the third quarter 2025 net discrete tax benefit of $27 million, which included a favorable discrete tax benefit of $43 million related to the estimated U.S. federal tax liability for 2024, partially offset by a $16 million discrete tax expense related primarily to the resolution of a foreign tax audit, and excluding the first quarter 2025 discrete tax benefit of $21 million related to the reversal of a valuation allowance on net operating loss carryforwards, is as follows:
| | | | | | | | | | | |
| Twelve Months Ended |
| December 31, 2025 |
| Dollars in millions | Income Taxes | | Tax Rate |
| As reported | $ | 900 | | | 22.7 | % |
| Net discrete tax benefit related to the third quarter 2025 | 27 | | | 0.7 | % |
| Discrete tax benefit related to the first quarter 2025 | 21 | | | 0.5 | % |
| As adjusted | $ | 948 | | | 23.9 | % |
FREE CASH FLOW (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| June 30, | | June 30, | |
| Dollars in millions | 2026 | | 2025 | | 2026 | | 2025 | |
| Net cash provided by operating activities | $ | 723 | | | $ | 550 | | | $ | 1,346 | | | $ | 1,142 | | |
| Less: Additions to plant and equipment | (92) | | | (101) | | | (187) | | | (197) | | |
| Free cash flow | $ | 631 | | | $ | 449 | | | $ | 1,159 | | | $ | 945 | | |
| | | | | | | | |
| Net income | $ | 815 | | | $ | 755 | | | $ | 1,583 | | | $ | 1,455 | | |
| | | | | | | | |
| Net cash provided by operating activities to net income conversion rate | 89 | % | | 73 | % | | 85 | % | | 78 | % | |
| Free cash flow to net income conversion rate | 77 | % | | 59 | % | | 73 | % | | 65 | % | |
