Illinois Tool Works Inc.: Q2 FY2026 earnings call

What management said about Q2 FY2026, from the documents filed with the SEC on 28 July 2026: press release. Guidance figures: 4 raised, 4 kept. The quarter’s numbers.

Key takeaways

Operating income marked most profitable quarter: Operating income rose 7.4 percent to $1,147 million, which the company described as its most profitable quarter. Diluted EPS was $2.84, against $2.58. Source
Welding and Test & Measurement led growth: Welding organic revenue rose 13.9 percent and Test & Measurement and Electronics rose 10.0 percent. Total revenue rose 14.7 and 12.1 percent. Source
Operating margin rose to 26.7 percent: Operating margin improved 40 basis points, and the company attributed a 120 basis point contribution to enterprise initiatives. Source
Price increases offset raw material inflation: Price increases more than covered higher raw material costs in dollar terms, which the company said was the position for the quarter. Source
Free cash flow rose 41 percent: Six-month free cash flow was $1,159 million, against $945 million a year earlier. Source
Over $1.2 billion returned to holders: Share repurchases of $750 million were part of the total returned in the quarter; the remainder was dividends. Source
Revenue and organic growth ranges raised: Revenue growth moved to 4 to 5 percent and organic growth to 3 to 4 percent. Management tied both to current demand levels and prevailing foreign exchange rates. Source
GAAP EPS range narrowed and raised: The full-year EPS range was narrowed to $11.35 to $11.55 and raised by $0.15. The company said this represents 9 percent growth at the midpoint. Source

“Our results reflect a meaningful acceleration in our capex-related segments, led by double-digit organic growth in Welding and Test & Measurement and Electronics”
Christopher A. O’Herlihy, President and Chief Executive Officer

Guidance

Area	Period	Figure	Against last quarter
GAAP EPS Source	full year 2026	$11.35 to $11.55	Raised from $11.10 to $11.50
Revenue growth Source	full year 2026	4 to 5 percent	Raised from 2 to 4 percent
Organic revenue growth Source	full year 2026	3 to 4 percent	Raised from 1 to 3 percent
Operating margin Source	full year 2026	26.5 to 27.5 percent	Kept
Enterprise initiatives contribution to operating margin Source	full year 2026	more than 100 basis points	Raised from approximately 100 basis points
Free cash flow to net income conversion Source	full year 2026	exceed 100 percent	Kept
Share repurchases Source	full year 2026	approximately $1.5 billion	Kept
Effective tax rate Source	full year 2026	23 to 24 percent	Kept

What changed from last quarter

Guidance raised: GAAP EPS guidance raised by $0.15 to a narrowed $11.35 to $11.55, from $11.10 to $11.50 previously. Source
Guidance raised: Revenue growth range moved to 4 to 5 percent from 2 to 4 percent. Source
Guidance raised: Organic growth range moved to 3 to 4 percent from 1 to 3 percent. Source
Guidance kept: Operating margin range kept at 26.5 to 27.5 percent. Source
Guidance kept: Share repurchase guidance of about $1.5 billion kept. Source

Results and growth drivers

Revenue up 6.1 percent to $4.30 billion: Organic growth was 4.5 percent. Revenue was $4,301 million, against $4,053 million in the second quarter of 2025. Source
Currency and an acquisition added to revenue: Foreign currency translation added 1.4 percent to revenue, and an acquisition added 0.2 percent. Source
Operating income marked most profitable quarter: Operating income rose 7.4 percent to $1,147 million, which the company described as its most profitable quarter. Diluted EPS was $2.84, against $2.58. Source
Net income and interest expense rose: Net income was $815 million against $755 million a year earlier. Interest expense was $79 million against $74 million. Source

Segments and regions

Welding and Test & Measurement led growth: Welding organic revenue rose 13.9 percent and Test & Measurement and Electronics rose 10.0 percent. Total revenue rose 14.7 and 12.1 percent. Source
Polymers & Fluids organic growth 7.3 percent: Polymers & Fluids total revenue rose 8.8 percent. Construction Products organic growth was 2.0 percent and Specialty Products 1.6 percent. Source
Automotive OEM and Food Equipment flat: Automotive OEM organic revenue fell 0.4 percent and Food Equipment was flat organically. Total revenue rose 1.3 and 1.6 percent respectively, helped by currency translation. Source
Acquisition added to Test & Measurement: The acquisition contributed 1.3 percent to Test & Measurement and Electronics revenue, and 0.2 percent to total company revenue. Source
North America organic growth 6.4 percent: North America was the only region for which the release gives organic growth, at 6.4 percent. Source

“we are raising both top- and bottom-line guidance for the full year”
Christopher A. O’Herlihy, President and Chief Executive Officer

Margins, costs and pricing

Operating margin rose to 26.7 percent: Operating margin improved 40 basis points, and the company attributed a 120 basis point contribution to enterprise initiatives. Source
Price increases offset raw material inflation: Price increases more than covered higher raw material costs in dollar terms, which the company said was the position for the quarter. Source
Cost of revenue and overheads increased: Cost of revenue rose to $2,403 million from $2,271 million. Selling, administrative and R&D expenses rose to $735 million from $693 million. Source
Segment margins diverged across businesses: Test & Measurement and Electronics margin rose 240 basis points to 25.2 percent. Food Equipment fell 60 basis points to 27.1 percent, and Specialty Products fell 110 basis points. Source
Amortization reduced EPS by $0.04: Amortization of acquisition-related intangible assets reduced GAAP EPS by $0.04 in the quarter, and by $0.09 in the first half. Source

Cash flow and shareholder returns

Free cash flow rose 41 percent: Six-month free cash flow was $1,159 million, against $945 million a year earlier. Source
Capital additions fell to $92 million: Additions to plant and equipment were $92 million in the quarter, against $101 million a year earlier. Six-month additions were $187 million. Source
Over $1.2 billion returned to holders: Share repurchases of $750 million were part of the total returned in the quarter; the remainder was dividends. Source
Dividends declared $1.61 a share: Declared dividends were $1.61 per share in the quarter and $3.22 in the six months, against $1.50 and $3.00 a year earlier. Source
Average diluted shares fell 2 percent: Average diluted shares were 287.0 million in the quarter, against 292.9 million a year earlier, and 288.1 million for the six months. Source

“we remain well-positioned to drive consistent, above-market organic growth powered by increased contribution to revenue growth from Customer-Back Innovation”
Christopher A. O’Herlihy, President and Chief Executive Officer

Full-year 2026 guidance update

Revenue and organic growth ranges raised: Revenue growth moved to 4 to 5 percent and organic growth to 3 to 4 percent. Management tied both to current demand levels and prevailing foreign exchange rates. Source
GAAP EPS range narrowed and raised: The full-year EPS range was narrowed to $11.35 to $11.55 and raised by $0.15. The company said this represents 9 percent growth at the midpoint. Source
Operating margin range held at 26.5 to 27.5: The margin range is unchanged from the prior update, while the enterprise initiative contribution is now described as more than 100 basis points. Source
Buybacks and cash conversion held: Share repurchases of about $1.5 billion and free cash flow above 100 percent of net income were kept from the prior update. Source
Tax rate guidance held at 23 to 24: The projected full-year effective tax rate is unchanged from the prior update. Source

Enterprise strategy and growth model

Customer-Back Innovation adds to growth: Management expects Customer-Back Innovation to make a growing contribution to revenue growth, in support of organic growth above market rates. Source
Enterprise priorities tied to continued gains: Management tied continued profitability and margin gains to the enterprise strategy priorities it is advancing. Source
Capex-related segments drove acceleration: Management linked the acceleration in organic growth to its capex-related segments. Source

Tax, balance sheet and returns on capital

Quarter tax rate 24.4 percent: The company reported an effective tax rate of 24.4 percent for the quarter. Source
First-quarter discrete tax benefit of $34 million: The benefit related to the resolution of a U.S. tax audit. Excluding it, the six-month tax rate was 24.3 percent. Source
Short-term debt rose to $3.15 billion: Short-term debt was $3,145 million, against $2,286 million at December 31, 2025. Cash and equivalents were $839 million. Source
Return on invested capital 29.7 percent: After-tax return on average invested capital was 29.7 percent for the quarter, on an annual rate basis, and 28.4 percent for the six months. Source
Equity fell as treasury stock grew: Total stockholders equity was $2,895 million, down from $3,226 million at December 31, 2025, as treasury stock rose. Source

Coming up, as management said on 28 July 2026

Share repurchases of about $1.5 billion: Management expects to repurchase approximately $1.5 billion of its own shares over the full year. Source
Free cash flow above net income: Management projects free cash flow to exceed 100 percent of net income for the full year. Source

Risks management discussed

Operational: Timing lags between raw material inflation and price adjustments modestly diluted margins in the quarter. Source
External: Raw material costs rose in dollar terms during the quarter, which price increases more than offset. Source
Demand: Revenue guidance is based on current demand levels and prevailing foreign exchange rates. Source

Earlier plans management reported on

Not stated: The operating margin range was kept from the prior update. Source
Not stated: The enterprise initiative contribution is now described as more than 100 basis points, previously approximately 100. Source

Other quarters

Summarised with AI from the documents the company filed with the SEC. Every point is checked against the filing before it is shown: management’s own words word for word, figures against the line or table row they come from. A point that fails the check is left out. Source opens the filing at that line.

As filed with the SEC

Open the filing on EDGAR

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

Forward-looking statements notice

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	59		56		115		108
Other (income) expense, net of tax	(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	$11,650		$10,996		$11,548		$10,741
Net income to average invested capital	28.0%		27.4%		27.4%		27.1%
After-tax return on average invested capital	29.7%		29.4%		28.4%		28.5%

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.

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.

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	222
Other (income) expense, net of tax	(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	$10,959
Net income to average invested capital	28.0%
After-tax return on average invested capital	29.3%

Effective tax rate used for interest expense and other (income) expense for the year ended December 31, 2025 was 23.9%.

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%