The ITW Business Model is our company’s defining competitive advantage. It is a powerful and proprietary set of strategic, operational, and cultural practices that have been in a state of continual development and evolution inside the company for over 36 years. For the past ten years, we have been executing a strategy centered squarely on our commitment to leveraging the differentiated performance capability of the ITW Business Model to full potential across the company. As a result, today, the ITW Business Model is more powerful and our people are more skilled in applying it than ever before in our history – by a significant margin. The ITW Business Model is comprised of three elements:

• 80/20 Front-to-Back defines how we operate.
• It is a unique set of proprietary tools and methodologies that our divisions use to structure and operate their businesses to (a) maximize the performance, execution, and value-add they provide to their largest and most profitable customers, and (b) minimize the costs, complexity, and distractions associated with serving small customers. Through the application of ITW’s 80/20 Front-to-Back process, our divisions deliver best-in-class customer-facing execution, high-quality organic growth, and superior profitability and return on capital performance.
• Customer-Back Innovation drives how we innovate.
• At ITW, we innovate from the customer back, not from the research and development center out. Our divisions partner with their key customers to create unique solutions that solve difficult technical challenges and improve business performance. The deep capabilities and creativity of our people in this regard are evidenced by our portfolio of approximately 19,200 granted and pending patents, including 1,700 new patent applications filed in 2022.
• Our Decentralized, Entrepreneurial Culture is the key to how we execute.
• Our people are clear about what is expected of them with regard to our business model, our strategy, and our values. Within this framework, we empower our business teams to make decisions and customize their approach in order to maximize the relevance and impact of the ITW Business Model for their specific customers and end markets. Our people thrive in ITW’s “flexibility within the framework” culture; they think and act like entrepreneurs, they are accountable, and they deliver.

In 2012 we launched a new enterprise strategy for the company that was built around five key tenets:
1. The ITW Business Model is our defining competitive advantage and our most valuable asset. It provides us with a powerful set of strategic, operational, and cultural practices that when properly applied and practiced drive high-quality organic growth, best-in-class margins and returns, and consistent “do what we say” execution.
2. ITW’s highly differentiated business model must translate into consistent top-tier performance. In any environment, over any 10-year period … no excuses.
3. Solid growth with best-in-class margins and returns is our performance positioning objective. We prioritize quality of growth over quantity of growth.
4. Our focus is on being the best ITW that we can be. Excellence in the practice of the ITW Business Model everywhere in the company every day.
5. Invest capital and management time, effort, and resources only where we can leverage the ITW Business Model into meaningful and sustainable competitive advantage. Highly disciplined and selective with regard to our business portfolio. Return surplus capital to shareholders rather than pursue opportunities that reside outside of our core competitive advantages.

ITW's business portfolio is comprised of seven market-leading segments and while they operate in different industries, they all share fundamental characteristics:

• End markets with strong and sustainable differentiation.

• Positive long-term macro fundamentals.

• Strong and durable competitive advantages with relevance to key market trends.

• Significant potential to drive above-market organic growth over the long-term.

• Ability to leverage the ITW Business Model to generate consistent best-in-class margins and returns.

Core to our enterprise strategy is our highly focused and disciplined approach to capital allocation. We invest only where we can leverage the ITW Business Model to create compelling competitive advantage and deliver sustained differentiated performance. We will not deploy capital in areas of opportunity that reside outside of our core capabilities. Internal investments to grow and support our highly profitable core businesses remain our top capital allocation priority. As a result, every internal investment that fits our strategy and meets our return criteria is fully funded. We allocate capital to discrete projects and strategies, not in lump sums to our businesses, ensuring that every investment we make is aligned with our business model, our strategy and our financial objectives. Our second priority is an attractive dividend, which we view as a very important component of our total shareholder return equation given the strong and consistent cash flow-generating attributes of our business model. We have increased our annual dividend consecutively for more than 59 years, including a 7% increase in 2022, bringing the dividend to $5.24 per share on an annualized basis.

While organic growth will remain our number one long-term priority, we expect that compelling opportunities to supplement our organic growth agenda with a high-quality strategic acquisition may emerge such as the MTS Test & Simulation acquisition that closed in December 2021. After funding these capital allocation priorities, we will continue to utilize an active share repurchase program to return any surplus capital to our shareholders.