PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


	Three Months Ended
	March 31,
In millions except per share amounts	2021		2020
Operating Revenue	$	3,544	$	3,228
Cost of revenue	2,039		1,871
Selling, administrative, and research and development expenses	566		560
Amortization and impairment of intangible assets	34		36
Operating Income	905		761
Interest expense	(52)		(51)
Other income (expense)	12		25
Income Before Taxes	865		735
Income Taxes	194		169
Net Income	$	671	$	566

Net Income Per Share:
Basic	$	2.12	$	1.78
Diluted	$	2.11	$	1.77

Shares of Common Stock Outstanding During the Period:
Average	316.6		318.3
Average assuming dilution	317.9		319.7

Three Months Ended
Nine Months Ended

September 30,
September 30,
In millions except per share amounts 2017
2016
2017
2016
Operating Revenue $ 3,615

$ 3,495

$ 10,685

$ 10,200
Cost of revenue 2,094

2,027

6,185

5,890
Selling, administrative, and research and development expenses 589

604

1,795

1,818
Legal settlement (income) (80 ) —
(95 ) —
Amortization and impairment of intangible assets 51

56

156

170
Operating Income 961

808

2,644

2,322
Interest expense (65 )
(58 )
(194 )
(174 )
Other income (expense) 10

13

24

34
Income Before Taxes 906

763

2,474

2,182
Income Taxes 266

228

711

654
Net Income $ 640

$ 535

$ 1,763

$ 1,528

Net Income Per Share:

Basic $ 1.86

$ 1.51

$ 5.12

$ 4.28
Diluted $ 1.85

$ 1.50

$ 5.07

$ 4.25

Cash Dividends Per Share:

Paid $ 0.65

$ 0.55

$ 1.95

$ 1.65
Declared $ 0.78

$ 0.65

$ 2.08

$ 1.75

Shares of Common Stock Outstanding During the Period:

Average 343.4

353.5

344.7

357.3
Average assuming dilution 346.0

355.5

347.5

359.3

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

~~Illinois Tool Works Inc. and Subsidiaries~~

~~Statement of Comprehensive Income (Unaudited)~~

Three Months Ended Nine Months Ended
September 30, September 30,
In millions 2017 2016 2017 2016
Net Income $ 640
$ 535
$ 1,763
$ 1,528
Other Comprehensive Income (Loss):

Foreign currency translation adjustments, net of tax 96
(5 ) 367
15
Pension and other postretirement benefit adjustments, net of tax 13
7
33
21
Comprehensive Income $ 749
$ 537
$ 2,163
$ 1,564

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Comprehensive Income (Unaudited)


	Three Months Ended
	March 31,
In millions	2021		2020
Net Income	$	671	$	566

Foreign currency translation adjustments, net of tax	(7)		(287)
Pension and other postretirement benefit adjustments, net of tax	11		9
Other comprehensive income (loss)	4		(278)

Comprehensive Income	$	675	$	288

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Financial Position (Unaudited)


In millions except per share amounts	March 31, 2021		December 31, 2020
Assets
Current Assets:
Cash and equivalents	$	2,484	$	2,564
Trade receivables	2,662		2,506
Inventories	1,292		1,189
Prepaid expenses and other current assets	266		264
Total current assets	6,704		6,523

Net plant and equipment	1,746		1,777
Goodwill	4,632		4,690
Intangible assets	747		781
Deferred income taxes	519		533
Other assets	1,315		1,308
	$	15,663	$	15,612

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	350	$	350
Accounts payable	589		534
Accrued expenses	1,261		1,284
Cash dividends payable	360		361
Income taxes payable	120		60
Total current liabilities	2,680		2,589

Noncurrent Liabilities:
Long-term debt	7,599		7,772
Deferred income taxes	637		588
Noncurrent income taxes payable	413		413
Other liabilities	1,058		1,068
Total noncurrent liabilities	9,707		9,841

Stockholders' Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2021 and 2020 Outstanding- 315.9 shares in 2021 and 316.7 shares in 2020	6		6
Additional paid-in-capital	1,378		1,362
Retained earnings	23,425		23,114
Common stock held in treasury	(19,897)		(19,659)
Accumulated other comprehensive income (loss)	(1,638)		(1,642)
Noncontrolling interest	2		1
Total stockholders' equity	3,276		3,182
	$	15,663	$	15,612

In millions except per share amounts September 30, 2017
December 31, 2016
Assets

Current Assets:

Cash and equivalents $ 2,785

$ 2,472
Trade receivables 2,672

2,357
Inventories 1,225

1,076
Prepaid expenses and other current assets 230

218
Total current assets 6,912

6,123

Net plant and equipment 1,759

1,652
Goodwill 4,732

4,558
Intangible assets 1,319

1,463
Deferred income taxes 473

449
Other assets 1,119

956
$ 16,314

$ 15,201

Liabilities and Stockholders' Equity

Current Liabilities:

Short-term debt $ 698

$ 652
Accounts payable 585

511
Accrued expenses 1,231

1,202
Cash dividends payable 267

226
Income taxes payable 86

169
Total current liabilities 2,867

2,760

Noncurrent Liabilities:

Long-term debt 7,439

7,177
Deferred income taxes 112

134
Other liabilities 870

871
Total noncurrent liabilities 8,421

8,182

Stockholders’ Equity:

Common stock (par value of $0.01 per share):

Issued- 550.0 shares in 2017 and 2016
Outstanding- 342.6 shares in 2017 and 346.9 shares in 2016
6

6
Additional paid-in-capital 1,207

1,188
Retained earnings 20,553

19,505
Common stock held in treasury (15,336 )
(14,638 )
Accumulated other comprehensive income (loss) (1,407 )
(1,807 )
Noncontrolling interest 3

5
Total stockholders’ equity 5,026

4,259
$ 16,314

$ 15,201

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

Illinois Tool Works Inc. and Subsidiaries

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

Nine Months Ended
September 30,
In millions 2017 2016
Cash Provided by (Used for) Operating Activities:
Net income $ 1,763
$ 1,528
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation 188
182
Amortization and impairment of intangible assets 156
170
Change in deferred income taxes 55
(228 )
Provision for uncollectible accounts 3
7
(Income) loss from investments (13 ) (5 )
(Gain) loss on sale of plant and equipment —
2
(Gain) loss on sale of operations and affiliates —
6
Stock-based compensation expense 27
31
Other non-cash items, net 6
(4 )
Change in assets and liabilities, net of acquisitions and divestitures:

(Increase) decrease in-

Trade receivables (197 ) (198 )
Inventories (93 ) (47 )
Prepaid expenses and other assets (97 ) (30 )
Increase (decrease) in-

Accounts payable 41
23
Accrued expenses and other liabilities (56 ) (8 )
Income taxes (76 ) 209
Net cash provided by operating activities 1,707
1,638
Cash Provided by (Used for) Investing Activities:

Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates (3 ) (456 )
Additions to plant and equipment (219 ) (202 )
Proceeds from investments 25
17
Proceeds from sale of plant and equipment 8
11
Proceeds from sales of operations and affiliates 2
1
Other, net (7 ) (8 )
Net cash provided by (used for) investing activities (194 ) (637 )
Cash Provided by (Used for) Financing Activities:

Cash dividends paid (674 ) (593 )
Issuance of common stock 58
74
Repurchases of common stock (750 ) (1,482 )
Net proceeds from (repayments of) debt with original maturities of three months or less 697
188
Proceeds from debt with original maturities of more than three months —
1
Repayments of debt with original maturities of more than three months (652 ) (1 )
Excess tax benefits from stock-based compensation —
25
Other, net (13 ) (11 )
Net cash provided by (used for) financing activities (1,334 ) (1,799 )
Effect of Exchange Rate Changes on Cash and Equivalents 134
7
Cash and Equivalents:

Increase (decrease) during the period 313
(791 )
Beginning of period 2,472
3,090
End of period $ 2,785
$ 2,299
Supplementary Cash and Non-Cash Information:
Cash Paid During the Period for Interest $ 208
$ 198
Cash Paid During the Period for Income Taxes, Net of Refunds $ 732
$ 648


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 March 31, 2021
Balance at December 31, 2020	$	6	$	1,362	$	23,114	$	(19,659)	$	(1,642)	$	1	$	3,182
Net income	—		—		671		—		—		—		671
Common stock issued for stock-based compensation	—		5		—		12		—		—		17
Stock-based compensation expense	—		11		—		—		—		—		11
Repurchases of common stock	—		—		—		(250)		—		—		(250)
Dividends declared ($1.14 per share)	—		—		(360)		—		—		—		(360)
Other comprehensive income (loss)	—		—		—		—		4		—		4
Noncontrolling interest	—		—		—		—		—		1		1
Balance at March 31, 2021	$	6	$	1,378	$	23,425	$	(19,897)	$	(1,638)	$	2	$	3,276

Three Months Ended March 31, 2020
Balance at December 31, 2019	$	6	$	1,304	$	22,403	$	(18,982)	$	(1,705)	$	4	$	3,030
Net income	—		—		566		—		—		—		566
Common stock issued for stock-based compensation	—		(3)		—		8		—		—		5
Stock-based compensation expense	—		9		—		—		—		—		9
Repurchases of common stock	—		—		—		(706)		—		—		(706)
Dividends declared ($1.07 per share)	—		—		(338)		—		—		—		(338)
Other comprehensive income (loss)	—		—		—		—		(278)		—		(278)
Noncontrolling interest	—		(1)		—		—		—		(3)		(4)
Balance at March 31, 2020	$	6	$	1,309	$	22,631	$	(19,680)	$	(1,983)	$	1	$	2,284

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Cash Flows (Unaudited)


	Three Months Ended
	March 31,
In millions	2021		2020
Cash Provided by (Used for) Operating Activities:
Net income	$	671	$	566
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	66		68
Amortization and impairment of intangible assets	34		36
Change in deferred income taxes	21		17
Provision for uncollectible accounts	0		2
(Income) loss from investments	(1)		(3)

(Gain) loss on sale of operations and affiliates	0		(1)
Stock-based compensation expense	11		9
Other non-cash items, net	3		2
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	(192)		10
Inventories	(122)		(48)
Prepaid expenses and other assets	(21)		(10)
Increase (decrease) in-
Accounts payable	65		17
Accrued expenses and other liabilities	(13)		(93)
Income taxes	88		46
Other, net	(1)		(4)
Net cash provided by operating activities	609		614
Cash Provided by (Used for) Investing Activities:

Additions to plant and equipment	(68)		(60)
Proceeds from investments	1		7
Proceeds from sale of plant and equipment	2		3

Other, net	0		(3)
Net cash provided by (used for) investing activities	(65)		(53)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(361)		(342)
Issuance of common stock	26		17
Repurchases of common stock	(250)		(706)



Other, net	(9)		(16)
Net cash provided by (used for) financing activities	(594)		(1,047)
Effect of Exchange Rate Changes on Cash and Equivalents	(30)		(65)
Cash and Equivalents:
Increase (decrease) during the period	(80)		(551)
Beginning of period	2,564		1,981
End of period	$	2,484	$	1,430
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	56	$	56
Cash Paid During the Period for Income Taxes, Net of Refunds	$	86	$	106

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”~~"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~~ ~~2016~~Company's 2020 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

~~New Accounting Pronouncements -~~

(2) Novel Coronavirus (COVID-19)

In ~~May 2014,~~early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the ~~Financial Accounting Standards Board (the "FASB") issued authoritative guidance~~World Health Organization on March 11, 2020. In response to ~~change~~ the ~~criteria for revenue recognition.~~outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The ~~core principle~~COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the ~~new standard is that revenue should be recognized~~first quarter of 2020 as COVID-19 continued to ~~depict~~spread and impact the ~~transfer of promised goods or services to customers~~countries in ~~an amount that reflects the consideration to~~ which the ~~entity expects~~Company operates and the markets the Company serves. In the first quarter of 2021, the Company experienced solid recovery progress in many of its end markets; however, the disruptions caused by the COVID-19 pandemic continue to have an adverse impact on the Company's global operations. The full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company's operations continues to be ~~entitled in exchange for those goods or services. In addition, several new revenue recognition disclosures~~highly uncertain. A prolonged outbreak will ~~be required. Under current guidance,~~continue to interrupt the operations of the Company ~~generally~~and its customers and suppliers.

(3) Operating Revenue

The Company's 83 diversified operating divisions are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following 7 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 months ended March 31, 2021 and 2020 was as follows:


	Three Months Ended
	March 31,
In millions	2021		2020
Automotive OEM	$	783	$	696
Food Equipment	451		483
Test & Measurement and Electronics	552		485
Welding	401		372
Polymers & Fluids	435		393
Construction Products	469		390
Specialty Products	457		414
Intersegment revenue	(4)		(5)
Total operating revenue	$	3,544	$	3,228

The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's 7 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 ~~when ownership and risk of loss are transferred~~as tooling is not considered a product offering central to the ~~customer, which~~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 retail and food institutional/restaurant markets. Products in this segment include:

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

•refrigeration equipment, including refrigerators, freezers and prep tables;

•food processing equipment, including slicers, mixers and scales;

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

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, energy and consumer durables markets. Products in this segment include:

•equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids;

•electronic assembly equipment;

•electronic components and component packaging;

•static control equipment and consumables used for contamination control in clean room environments; and

•pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications.

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, ~~or delivery~~typically involving installation of ~~service.~~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; and

•metal arc welding consumables and related accessories.

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

Polymers & Fluids— This segment is a ~~review of revenue transactions~~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 ~~a significant portion of its businesses. While~~auto aftermarket maintenance and appearance. This segment primarily serves the ~~review is not fully completed, the Company does not currently expect the adoption of~~automotive aftermarket, general industrial, MRO and construction markets. Products in this ~~guidance~~segment include:

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to have a material impact on its operating revenue, results of operations or financial position. However, the Company expects to provide additional disclosures in the notes to financial statements required under the new guidance. The new guidance will be effectivemachines;

•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 ~~Company beginning January 1, 2018 and allows for either full or modified retrospective adoption methods.~~marine industry.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company ~~expects~~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 ~~adopt~~meet anticipated customer demand. The Company typically recognizes revenue for these products at the ~~new revenue accounting guidance utilizing~~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 ~~modified retrospective method.~~food and beverage, consumer durables, general industrial, industrial capital goods and printing and publishing markets. Products in this segment include:

~~In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will be required to recognize a lease liability~~•line integration, conveyor systems and lease asset for all leases with a lease term greater than twelve months in the statement of financial position, including operating leases. 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, several new disclosures will be required. This guidance will be effectiveline automation for the Company beginning January 1, 2019, with early adoption permitted. While the Company has not yet completed its evaluation of the impact the new lease accounting guidance will have on the consolidated financial statementsfood and beverage industries;

•plastic consumables that multi-pack cans and bottles and related ~~disclosures,~~equipment;

•foil, film and related equipment used to decorate consumer products;

•product coding and marking equipment and related consumables;

•plastic and metal closures and components for appliances;

•airport ground support equipment; and

•components for medical devices.

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

(4) Income Taxes

The Company's effective tax rate for ~~its operating leases in~~ the ~~statement of financial position upon adoption.~~

Inthree months ended March ~~2016,~~31, 2021 and 2020 was 22.4% and 23.0%, respectively. The effective tax rate for the ~~FASB issued authoritative guidance that included several changes to simplify the accounting for stock-based compensation, including the accounting for~~three months ended March 31, 2021 and 2020 benefited from discrete income ~~taxes, forfeitures, statutory tax withholding requirements and classification of~~ tax benefits ~~in the statement~~ of cash flows. Among the more significant changes, the new guidance requires the income tax effects associated with the settlement of stock-based awards to be recognized through income tax expense rather than directly in equity. Additionally, the income tax effects$9 million and $7 million, respectively, related to excess tax benefits should be presented within operating cash flows in the statement of cash flows rather than as a financing activity. Excess tax benefits recognized in equity under the prior guidance were $25 million for the nine months ended September 30, 2016. The Company adopted the new guidance effective January 1, 2017 and applied the newly adopted provisions prospectively. Excess tax benefits of $6 million and $32 million were included in Income Taxes in the statement of income for the three and nine month periods ended September 30, 2017, respectively. The expected effect on income tax expense or net cash provided from ~~operating activities related to future~~ stock-based ~~award settlements will vary each quarter and will depend on inputs such as the stock price at the time of settlement and the number of awards settled in the period presented.~~compensation.

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 current guidance. The new guidance is effective for the Company beginning January 1, 2018 and will be applied prospectively with the cumulative effect of adoption recorded directly to retained earnings. Although the Company is currently completing its assessment of the potential impact of this new guidance, the Company anticipates a cumulative-effect balance sheet adjustment reducing deferred tax assets and retained earnings upon adoption. Additionally, intra-entity asset transfers may result in future tax rate volatility under the new guidance. The Company intends to complete its assessment in the fourth quarter of 2017.

eligible for capitalization as an asset. The other components of net periodic benefit cost, such as interest cost, the expected return on assets, and amortization of actuarial gains and losses and prior service cost, should be presented below operating income. The guidance is effective for the Company starting January 1, 2018 and will be applied retrospectively to the presentation of net periodic benefit cost and prospectively to the capitalization of service cost. The Company does not expect the adoption of this guidance to have a material impact on the results of operations or financial position. Refer to Note 6. Pension and Other Postretirement Benefits for further information information regarding the Company’s net periodic benefit cost.

~~(2) Acquisition~~

On July 1, 2016, the Company completed the acquisition of the Engineered Fasteners and Components business ("EF&C") from ZF TRW for a purchase price of approximately $450 million. The acquisition of EF&C did not materially affect the Company’s results of operations or financial position for the periods presented.

EF&C had operating revenue of $382 million for the nine months ended September 30, 2017 which was reported within the Company’s Automotive OEM segment. As a result of the EF&C transaction, the Company recorded $187 million of goodwill and $134 million of amortizable intangible assets primarily related to customer relationships and technology. The intangible assets will be amortized on a straight-line basis over their estimated useful lives ranging from 4 to 17 years, with a weighted average amortization period of 16 years.

~~(3) Income Taxes~~

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 ~~$96~~$99 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 2017 or 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 ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 were as follows:


In millions	September 30, 2017			December 31, 2016			In millions	March 31, 2021		December 31, 2020
Raw material	$	453		$	407		Raw material	$	495	$	454
Work-in-process	148			126			Work-in-process	159		136
Finished goods	709			629			Finished goods	722		681
LIFO reserve	(85		)	(86		)	LIFO reserve	(84)		(82)
Total inventories	$	1,225		$	1,076		Total inventories	$	1,292	$	1,189

~~(5) Goodwill and Intangible Assets~~

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarters of 2017 and 2016. The assessment resulted in no impairment charges in either 2017 or 2016.

(6) Pension and Other Postretirement Benefits

Beginning in 2017, the Company changed the method used to estimate the service and interest cost components of net periodic benefit cost related to pension and other postretirement benefit plans. The new method provides a more precise measure of the service and interest cost components of net periodic benefit cost by applying specific spot rates along the yield curve to the projected cash flows rather than a single weighted-average rate. The Company accounted for this change as a change in estimate prospectively. The change did not have a material impact on the 2017 net periodic pension and other postretirement benefit costs.

Pension and other postretirement benefit costs for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 were as follows:


	Three Months Ended
	March 31,
	Pension				Other Postretirement Benefits
In millions	2021		2020		2021		2020
Components of net periodic benefit cost:
Service cost	$	13	$	14	$	2	$	2
Interest cost	10		15		3		4
Expected return on plan assets	(25)		(28)		(7)		(6)
Amortization of actuarial loss (gain)	13		12		0		0

Total net periodic benefit cost	$	11	$	13	$	(2)	$	0

Three Months Ended Nine Months Ended
September 30, September 30,
Pension Other Postretirement Benefits Pension Other Postretirement Benefits
In millions 2017 2016 2017 2016 2017 2016 2017 2016
Components of net periodic benefit cost:
Service cost $ 15
$ 15
$ 2
$ 2
$ 47
$ 47
$ 6
$ 7
Interest cost 18
23
5
6
54
70
15
18
Expected return on plan assets (33 ) (36 ) (6 ) (6 ) (99 ) (109 ) (17 ) (17 )
Amortization of actuarial loss 15
11
—
—
43
32
(1 ) —
Amortization of prior service income
—
—
—
—
—
—
—
(1 )
Total net periodic benefit cost $ 15
$ 13
$ 1
$ 2
$ 45
$ 40
$ 3
$ 7

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 ~~$179~~$28 million to its pension plans and $6$4 million to its other postretirement benefit plans in ~~2017. During the nine months ended September 30, 2017, the Company made~~2021. As of March 31, 2021, contributions of ~~$174~~$14 million to ~~its~~ pension plans ~~which included an additional $115~~and $2 million ~~discretionary contribution made in the second quarter of 2017. Contributions of $5 million have been made~~ to other postretirement benefit plans ~~during the nine months ended September 30, 2017.~~have been made.

(7) Debt

There was 0 commercial paper outstanding as of March 31, 2021 and December 31, 2020. Short-term debt as of ~~September 30, 2017 included commercial paper of $688 million. Short-term debt as of~~March 31, 2021 and December 31, ~~2016~~2020 included ~~$650~~$350 million related to the ~~0.90%~~3.375% notes ~~paid on~~due September 15, 2021. The Company has a $2.5 billion revolving credit facility with a termination date of September 27, 2024, which is available to provide additional

liquidity, including to support the ~~February 25, 2017 due date.~~potential issuances of commercial paper. NaN amounts were outstanding under the $2.5 billion revolving credit facility as of March 31, 2021 or December 31, 2020.

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 ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 were as follows:


In millions	March 31, 2021		December 31, 2020
Fair value	$	8,880	$	9,412
Carrying value	7,949		8,122

In millions September 30, 2017 December 31, 2016
Fair value $ 7,958
$ 8,281
Carrying value 7,439
7,827

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.

(8) ~~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.

~~(9)~~ Accumulated Other Comprehensive Income (Loss)

The following table summarizes changes in Accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016:~~2020:


	Three Months Ended
	March 31,
In millions	2021		2020
Beginning balance	$	(1,642)	$	(1,705)

Foreign currency translation adjustments during the period	33		(272)
Foreign currency translation adjustments reclassified to income	2		0
Income taxes	(42)		(15)
Total foreign currency translation adjustments, net of tax	(7)		(287)


Pension and other postretirement benefit adjustments reclassified to income	13		12
Income taxes	(2)		(3)
Total pension and other postretirement benefit adjustments, net of tax	11		9

Ending balance	$	(1,638)	$	(1,983)

Three Months Ended Nine Months Ended
September 30, September 30,
In millions 2017
2016 2017 2016
Beginning balance $ (1,516 ) $ (1,470 ) $ (1,807 ) $ (1,504 )

Foreign currency translation adjustments during the period 67
(15 ) 271
(15 )
Foreign currency translation adjustments reclassified to income —
—
—
1
Income taxes 29
10
96
29
Total foreign currency translation adjustments, net of tax 96
(5 ) 367
15

Pension and other postretirement benefit adjustments during the period —
—
—
1
Pension and other postretirement benefit adjustments reclassified to income 15
11
42
31
Income taxes (2 ) (4 ) (9 ) (11 )
Total pension and other postretirement benefit adjustments, net of tax 13
7
33
21

Ending balance $ (1,407 ) $ (1,468 ) $ (1,407 ) $ (1,468 )

Foreign currency translation adjustments reclassified to income related to an immaterial divestiture. Pension and other postretirement benefit adjustments reclassified to income ~~relate primarily to~~represent the amortization of actuarial losses. Refer to Note 6. 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 September 30, 2017.~~ Changes in the value of this debt resulting from fluctuations in the Euro to U.S. ~~dollar~~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 $1.9 billion, $1.2 billion and $1.2 billion, respectively, as of March 31, 2021. The cumulative unrealized pre-tax gain (loss) recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was ~~$118 million and $375~~a gain of $54 million as of ~~September 30, 2017~~March 31, 2021 and a loss of $120 million as of December 31, ~~2016, respectively.~~2020.

~~The~~As of March 31, 2021 and 2020, the ending balance of Accumulated other comprehensive income (loss) asconsisted of ~~September 30, 2017 and 2016 consisted of~~after-tax cumulative translation adjustment losses ~~net~~ of ~~tax, of $1.0~~$1.3 billion and ~~$1.1~~$1.6 billion, respectively, and after-tax unrecognized pension and other postretirement benefits ~~costs, net~~cost of ~~tax, of $372~~$320 million and ~~$358~~$381 million, respectively.

~~(10)~~

(9) Segment Information

The ~~Company has~~ ~~seven~~ ~~reportable~~Company's operations are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following 7 segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. ~~See~~Refer to Item ~~2 -~~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.

(10) Acquisition Agreement

The Company has entered into an agreement with Amphenol Corporation ("Amphenol"), whereby the Company intends to acquire the Test & Simulation business of MTS Systems Corporation (“MTS”) from Amphenol for $750 million, subject to certain post-closing adjustments and excluding transaction-related expenses. The acquisition of the Test & Simulation business of MTS from Amphenol is expected to close following the receipt of all required regulatory approvals and the satisfaction of other customary closing conditions. Upon completion of this acquisition, the Test & Simulation business of MTS will be reported within the Company's Test & Measurement and Electronics segment.

ITEM 2. ~~Management’s~~ 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 8583 divisions in 5752 countries. As of December 31, ~~2016,~~2020, the Company employed approximately ~~50,000 persons.~~43,000 people.

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

Due to the large number of diverse businesses and the Company's decentralized operating structure, the Company does not require its businesses to provide detailed information on operating results. Instead, the Company's corporate management collects data on several key measurements: operating revenue, operating income, operating margin, 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~~Company's core source of value creation. ~~This business model~~The ITW Business Model is the ~~Company’s~~Company's competitive advantage and defines how ITW creates value for its ~~shareholders and comprises~~shareholders. It is comprised of three unique elements:

~~ITW’s~~ •ITW's 80/20 ~~management~~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~~data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the ~~“80”~~"80") and eliminates cost, complexity and distractions associated with the less profitable opportunities (the ~~“20”~~"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~~•Customer-Back Innovation has fueled decades of profitable growth at ITW. The ~~Company’s~~Company's unique innovation approach is built on insight gathered from the 80/20 ~~management~~Front-to-Back process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their ~~“80”~~"80" customers. ~~ITW’s~~ITW's innovation efforts are focused on understanding customer needs, particularly those in ~~“80”~~"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~~approximately 18,500 granted and pending patents;

~~ITW’s~~ ~~decentralized, entrepreneurial culture~~ ~~allows~~•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.

ENTERPRISE STRATEGY

In late 2012, ITW began ~~the process of~~its strategic framework transitioning the Company ~~onto~~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 four years.~~

The ~~roots of ITW’s Enterprise Strategy began in late 2011 / early 2012, when the~~ Company undertook a complete review of its ~~performance. Focusing~~performance, focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, ~~ITW developed~~and developing 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~~is 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~~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~~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’~~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 significant product line simplification work is essentially finalized and will return to more normalized levels in 2017 and beyond.

•Step two, Business Structure Simplification,, was implemented to simplify and ~~scale-up ITW’s~~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 8583 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

•The Strategic Sourcing initiative ~~was~~ established sourcing as ~~a core capability to better leverage ITW’s scale and improve global competitiveness. Sourcing is now~~ a core strategic and operational capability at ~~ITW. The Company’s 80/20-enabled sourcing organization has delivered~~ITW, delivering an average of one percent reduction in spend each year from 2013 through ~~2016~~2020 and ~~is on track~~continues to dobe a key contributor to the ~~same in 2017 and 2018.~~

Company's ongoing enterprise strategy.

•With the initial portfolio realignment and scale-up work largely complete, the Company ~~was able to~~ ~~shift~~shifted its focus to preparing for and accelerating organic growth,~~. As a preparatory step, ITW is in~~ reapplying the ~~process of reapplying~~ 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.

Once the business has achieved operational excellence and identified the right growth opportunities, the final step is to accelerate organic growth. The process of preparing for accelerated organic growth generally takes 18 to 24 months.

Based on the financial performance of the divisions that are further along in this process, the Company believes that its organic growth framework is capable of delivering above-market organic growth across all segments. Divisions are at various phases in preparation for growth and many are either ready to grow or already growing above their respective markets. ITW management is fully aligned with this plan and very focused on executing it. As of December 31, 2016, approximately 85 percent of the divisions were ready to grow.

~~PATH TO FULL POTENTIAL~~

While the Company has made considerable progress and ITW’s performance is nearing best-in-class levels, the Company has significant opportunity for further improvement before it achieves full operating potential. In order to do so, ITW is focused on two key areas of opportunity, including: additional structural margin improvement and sustained above-market organic growth with strong incremental profitability.

~~Additional Structural Margin Improvement~~

~~To deliver on the additional structural margin improvement, the Company is implementing the following two levers: (1) further leveraging the 80/20 management process and (2) strategic sourcing.~~

The first lever, better leveraging the full power of the ITW Business Model, will be accomplished through a much more consistent and focused approach to 80/20 best practice implementation across the Company. The 80/20 management system has continuously been refined, improved and expanded into a unique holistic business management process of interconnected tools, which improves all aspects of the business and, when applied

~~consistently and executed more effectively, will lead to additional margin improvement.~~ ITW has clearly demonstrated superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the ~~Company’s~~Company's operating margin and after-tax return on invested capital. ~~These~~At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

~~The second lever, strategic sourcing, is a core element~~PATH TO FULL POTENTIAL

Since the launch of ~~ITW’s ongoing operational~~the enterprise strategy, ~~and a sustainable enterprise-wide capability. Through the continued execution of this initiative,~~ the Company ~~expects~~has made considerable progress to ~~deliver additional margin improvement with the goal~~position itself to reach full potential. The ITW Business Model and unique set of capabilities are a ~~one percent reduction in spend in 2017~~source of strong and ~~2018.~~

~~Sustained Above-Market Organic Growth with Strong Incremental Profitability~~

~~ITW has done extensive work on its portfolio and operating structure to position~~enduring competitive advantage, but for the Company to ~~deliver sustainable above-market organic growth. The Company has narrowed the focus and significantly improved the growth~~truly reach its full potential, ~~of ITW’s business portfolio. With approximately 85%~~every one of its divisions ~~ready to grow as of the end of 2016, ITW is well positioned for accelerated growth in 2017 and beyond.~~must also be operating at its full potential. To deliver on this accelerated growth, the divisions have been implementing the organic growth framework, which includes continued investment in customer-back innovation and a strengthened focus on market penetration. ITW continues to focus on growing its share of "80" products with existing customers with whomdo so, the Company ~~has a resonant value proposition as well as target~~remains focused on its core principles to position ITW to perform to its full potential:

•Portfolio discipline

•80/20 Front-to-Back practice excellence

•Full-potential organic growth

Portfolio Discipline

The Company only operates in industries where it can generate significant, long-term competitive advantage from the ITW Business Model. ITW businesses have the right "raw material" in terms of market and business attributes that best fit the ITW Business Model and have significant potential ~~new customers with similar pain points~~ to ~~existing customers. ITW has made strong progress on the Company’s pivot to organic growth and is well positioned to deliver on sustained~~drive above-market organic growth over the long-term.

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

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

The Company previously communicated its intent to explore options, including potential divestitures, for certain businesses with revenues totaling up to $1 billion. The Company expects any earnings per share dilution from divestitures would be offset by incremental share repurchases. In the fourth quarter of 2019, the Company completed the divestitures of three businesses and continues to evaluate options for certain other businesses. However, due to the COVID-19 pandemic, the Company has deferred any further significant divestiture activity until market conditions normalize.

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 to drive 80/20 Front-to-Back practice excellence in every division in the Company, every day. Driving strong operational excellence in the quality of 80/20 Front-to-Back practice across the Company, division by division, will produce further customer-facing performance improvement in a number of the Company's divisions and additional structural margin expansion at the enterprise level.

Near-term Priorities

While it was the challenges brought about by the COVID-19 pandemic that dominated the Company's attention starting in 2020, it was the collection of capabilities and competitive advantages that have been built and honed over the past eight years through the execution of ITW's enterprise strategy that provided the Company with the options to respond. This, coupled with the proprietary and powerful ITW Business Model, diversified high-quality business portfolio and diligent execution put the Company in a position of strength in dealing with the global pandemic.

From the early days of the pandemic, the Company focused its efforts on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery.

"Win the Recovery" is an execution component of the Company's enterprise strategy, not a separate initiative, with every one of the Company's divisions identifying specific opportunities presented by the pandemic to capture sustainable share gains that are aligned with the ITW long-term enterprise strategy. The Company expects these efforts to contribute meaningfully to accelerate its progress toward full-potential organic growth. The Company continues to focus on delivering strong results in any environment while executing its long-term strategy to achieve and sustain ITW's full potential performance.

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 to achieve full-potential organic growth in every division, with specific focus on:

•"80" focused Market Penetration - fully leveraging the considerable growth potential that resides in the Company's largest and most differentiated product offerings and customer relationships

•Customer-back Innovation - strengthening the Company's commitment to serial innovation and delivering a continuous flow of differentiated new products to its key customers

•Strategic Sales Excellence - deploying a high-performance sales function in every division

As the Company continues to make progress toward its full potential, the Company will explore opportunities to reinforce or further expand the long-term organic growth potential of ITW through the addition of selective high-quality acquisitions, such as the recently announced agreement with Amphenol Corporation ("Amphenol"), whereby the Company intends to acquire the Test & Simulation business of MTS Systems Corporation ("MTS") from Amphenol, which is expected to close following the receipt of all required regulatory approvals and the satisfaction of other customary closing conditions. Upon completion of this acquisition, the Test & Simulation business of MTS will be reported within the Company's Test & Measurement and Electronics segment.

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~~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 ~~2016~~2020 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 continued to spread and impact the countries in which the Company operates and the markets the Company serves.

For the duration of the COVID-19 pandemic, the Company is focusing on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery phase. To support ITW's colleagues, among its many actions and initiatives, the Company redesigned production processes to ensure proper social distancing practices, adjusted shift schedules and assignments to help colleagues who have child and elder care needs, and implemented aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk. To support its customers, the Company has worked diligently to keep its facilities open and operating safely. The Company has adapted customer service systems and practices to seamlessly serve its customers under "work from home" requirements in many parts of the world.

In areas around the world where governments issued stay-at-home or similar orders, the vast majority of ITW's businesses were designated as critical or essential businesses and, as such, they remained open and operational. In some cases, this is because the Company's products directly impact the COVID-19 response effort. In other cases, the Company's businesses are designated as critical because they play a vital role in serving and supporting industries that are deemed essential to the physical and economic health of our communities.

While the vast majority of the Company's facilities have remained open and operational during the pandemic, many of these facilities were operating at a reduced capacity. The full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company's operations and financial position continues to be highly uncertain. A prolonged outbreak will continue to interrupt the operations of the Company and its customers and suppliers. A description of the risks relating to the impact of the COVID-19 outbreak on the Company's business, operations and financial condition is contained in Part I - Item 1A - Risk Factors in the Company's 2020 Annual Report on Form 10-K.

Separately, the Company does not believe that tariffs imposed in recent years 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~~Company delivered strong ~~third~~financial results in the first quarter ~~and year-to-date~~of 2021, as the Company experienced solid recovery progress in many of its end markets. The primary drivers of the Company's financial performance ~~reflected~~are the continued ~~progress leveraging~~successful execution of enterprise initiatives, including the ~~powerful~~"Win the Recovery" actions initiated over the course of the past year, and continued focus on the highly differentiated ITW Business ~~Model~~Model. Despite rising raw material costs and ~~executing enterprise initiatives. Six of seven segments achieved worldwide organic~~a challenging global supply chain environment, the Company generated operating revenue growth ~~in the third quarter, and all seven segments had organic revenue~~of 9.8 percent, operating income growth ~~in the year-to-date period. All seven segments had~~of 18.8 percent, operating margin ~~at or above 21% in both respective periods.~~

~~On July 1, 2016, the Company completed the acquisition of the Engineered Fasteners~~was 25.5 percent and Components business ("EF&C") from ZF TRW for a purchase price of approximately $450 million. In 2017, EF&C had operating revenue of $126 million in the third quarter and $382 million in the year-to-date period. EF&C diluted the Company's operating margin by 40 basis points in the year-to-date period due to lower operating margin and acquisition related expenses. The Company expects EF&C's operating margin to improve in later years through the application of the Company's 80/20 business management process. The operating results of EF&C are reported within the Company's Automotive OEM segment. The acquisition of EF&C did not materially affect the Company's results of operations or financial position for any period presented. Refer to Note 2. Acquisition in Item 1 - Financial Statements for further information regarding this acquisition.

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

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic
Acq/Div Restructuring Impairment Foreign Currency Total
Operating revenue $ 3,615
$ 3,495
3.5 % 1.9 % (0.2 )% — % — % 1.8 % 3.5 %
Operating income $ 961
$ 808
19.0 % 17.5 % — % (0.2 )% — % 1.7 % 19.0 %
Operating margin % 26.6 % 23.1 % 350 bps
350 bps
—
—
—
—
350 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic
Acq/Div Restructuring Impairment Foreign Currency Total
Operating revenue $ 10,685
$ 10,200
4.8 % 2.7 % 2.3 % — % — % (0.2 )% 4.8 %
Operating income $ 2,644
$ 2,322
13.9 % 13.2 % 0.9 % — % 0.1 % (0.3 )% 13.9 %
Operating margin % 24.7 % 22.8 % 190 bps
230 bps
(40) bps
—
—
—
190 bps

Operating revenue grew in the third quarter primarily due to an increase in organic revenue and the favorable effect of foreign currency translation. In the year-to-date period, operating revenue grew primarily due to an increase in organic and acquisition revenues.

Organic revenue grew 1.9% and 2.7% in the third quarter and year-to-date periods, respectively. Six segments achieved worldwide organic revenue growth in the third quarter, and all seven segments achieved growth in the year-to-date period. In the third quarter, Food Equipment declined 0.4% primarily due to lower equipment demand in North America.

◦

North American organic revenue was flat in the third quarter. Growth in the Welding, Specialty Products, Construction Products and Polymers & Fluids segments was offset by a decline in the Automotive OEM, Food Equipment and Test & Measurements and Electronics segments. In the year-to-date period, organic revenue grew 1.0%. Growth in five segments was partially offset by a decline in the Food Equipment and Automotive OEM segments.

◦

Europe, Middle East and Africa organic revenue increased 2.4% in the third quarter as growth in the Automotive OEM, Food Equipment, Construction Products and Specialty Products segments was partially offset by a decline in the Welding, Polymers & Fluids and Test & Measurement and Electronics segments. Organic revenue increased 3.8% in the year-to-date period as growth in six segments was partially offset by a decline in the Welding segment.


◦	Asia Pacific organic revenue increased 8.1% in the third quarter as all seven segments achieved organic revenue growth. In the year-to-date period, organic revenue grew 7.6% as growth in six segments was partially offset by a decline in the Welding segment.

Operating income of $961 million and $2.6 billion in the third quarter and year-to-date periods, respectively, increased 19.0% and 13.9% in the respective periods. Excluding the favorable impact of the confidential legal settlement, operating income would have increased 9.1% and 9.8% in the third quarter and year-to-date periods, respectively.

Operating margin of 26.6% in the third quarter increased 350 basis points. Excluding the 220 basis points of favorability from the confidential legal settlement, operating margin of 24.4% increased 130 basis points primarily due to the benefits of the Company's enterprise initiatives that contributed 110 basis points. In addition, positive operating leverage of 50 basis points was partially offset by unfavorable price/cost of 40 basis points.

In the year-to-date period, operating margin of 24.7% increased 190 basis points. Excluding the 80 basis points of favorability from the confidential legal settlement, operating margin of 23.9% increased 110 basis points primarily driven by the benefits of the Company's enterprise initiatives of 100 basis points. In addition, positive operating leverage of 50 basis points and improved overhead efficiencies were partially offset by the dilutive impact of 40 basis points from the EF&C acquisition and unfavorable price/cost of 40 basis points.

Diluted earnings per share (EPS) of $1.85 for the third quarter and $5.07 for the year-to-date period increased 23.3% and 19.3%, respectively. Excluding the favorable effect of the confidential legal settlement of $0.14 and $0.17 in the third quarter and year-to-date periods, respectively, EPS increased 14.0% and 15.3% in the respective periods.

Free cash flow was $702 million and $1.5 billion for the third quarter and year-to-date periods, respectively. Free cash flow for the year-to-date period includes the impact from an additional discretionary pension contribution of $115 million in the second quarter of 2017. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

The Company repurchased approximately 1.8 million and 5.5 million shares of its common stock in the third quarter and year-to-date periods, respectively, for approximately $250 million and $750 million, respectively.

The Company increased the quarterly dividend by 20.0% in the third quarter of 2017. Total cash dividends of $224 million and $674 million were paid in the third quarter and year-to-date periods of 2017, respectively.

~~Adjusted~~ after-tax return on average invested capital was ~~26.3% for~~32.1 percent. Additionally, with the ~~third quarter. Excluding 220 basis points attributable to~~exception of the confidential legal settlement, adjusted after-tax return on average invested capital was 24.1%, an increase of 110 basis points. In the year-to-date period, adjusted after-tax return on average invested capital was 25.0%, an increase of 270 basis points. Excluding 90 basis points attributable to the confidential legal settlement, adjusted after-tax return on average invested capital was 24.1%, an increase of 180 basis points.Food Equipment segment, all segments achieved organic revenue growth, and all seven segments had operating margins that exceeded 21 percent. Refer to the ~~Adjusted After-Tax~~After-tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

The Company's consolidated results of operations for the first quarter of 2021 and 2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	3,544		$	3,228		9.8	%	6.1	%	—	%	—	%	3.7	%	9.8	%
Operating income	$	905		$	761		18.8	%	14.6	%	—	%	—	%	4.2	%	18.8	%
Operating margin %	25.5		%	23.6		%	190 bps		190 bps		—		—		—		190 bps

•Operating revenue increased 9.8 percent due to higher organic revenue and the favorable effect of foreign currency translation.

•Organic revenue grew 6.1% primarily due to the solid recovery progress in many of the Company's end markets from the disruptions in the Company's global operations resulting from the COVID-19 pandemic. An increase in organic revenue in six segments was partially offset by a decline in the Food Equipment segment, which continues to have more pronounced impacts from the COVID-19 pandemic. Product line simplification activities reduced organic revenue by 20 basis points in the first quarter.

◦North American organic revenue grew 4.3% as an increase in five segments was partially offset by a decline in the Food Equipment and Automotive OEM segments.

◦Europe, Middle East and Africa organic revenue increased 0.5%. Growth in the Construction Products, Automotive OEM, Specialty Products, Polymers & Fluids and Test & Measurement and Electronics segments was partially offset by a decline in the Food Equipment and Welding segments.

◦Asia Pacific organic revenue increased 27.1% due to growth in all segments. China organic revenue grew 62.4% as all segments had growth, driven primarily by the Automotive OEM, Test & Measurement and Electronics, Food Equipment and Polymers & Fluids segments.

•Operating income of $905 million in the first quarter increased 18.8%.

•Operating margin was 25.5% in the first quarter. The increase of 190 basis points was primarily driven by benefits from the Company's enterprise initiatives of 120 basis points and positive operating leverage of 120 basis points, partially offset by unfavorable price/cost of 60 basis points.

•The effective tax rate for the first quarter of 2021 and 2020 was 22.4% and 23.0%, respectively. The effective tax rate included discrete income tax benefits related to excess tax benefits from stock-based compensation of $9 million and $7 million for the first quarter of 2021 and 2020, respectively.

•Diluted earnings per share (EPS) were $2.11 for the first quarter of 2021, an increase of 19.2%.

•Free cash flow was $541 million for the first quarter of 2021. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

•The Company repurchased approximately 1.2 million shares of its common stock in the first quarter of 2021 for approximately $250 million.

•After-tax return on average invested capital was 32.1% for the first quarter of 2021 compared to 27.0% in the prior period. Refer to the 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 ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months ended March 31,
Dollars in millions	Operating Revenue				Operating Income
	2021		2020		2021		2020
Automotive OEM	$	783	$	696	$	189	$	145
Food Equipment	451		483		96		117
Test & Measurement and Electronics	552		485		157		121
Welding	401		372		121		109
Polymers & Fluids	435		393		112		93
Construction Products	469		390		130		91
Specialty Products	457		414		126		109
Intersegment revenue	(4)		(5)		—		—
Unallocated	—		—		(26)		(24)
Total	$	3,544	$	3,228	$	905	$	761

Three Months Ended September 30, Nine Months Ended September 30,
Dollars in millions Operating Revenue Operating Income Operating Revenue Operating Income
2017 2016 2017 2016 2017 2016 2017 2016
Automotive OEM $ 795
$ 765
$ 172
$ 166
$ 2,443
$ 2,091
$ 556
$ 512
Food Equipment 549
544
150
149
1,575
1,578
414
405
Test & Measurement and Electronics 525
516
127
108
1,524
1,487
337
274
Welding 378
361
100
95
1,150
1,125
312
282
Polymers & Fluids 434
422
90
89
1,297
1,283
272
266
Construction Products 440
415
112
94
1,260
1,223
303
278
Specialty Products 498
477
138
125
1,451
1,429
401
373
Intersegment revenues (4 ) (5 ) —
—
(15 ) (16 ) —
—
Unallocated —
—
72
(18 ) —
—
49
(68 )
Total $ 3,615
$ 3,495
$ 961
$ 808
$ 10,685
$ 10,200
$ 2,644
$ 2,322

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 discussed 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.

The results of operations for the Automotive OEM segment for the ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	783		$	696		12.6	%	7.6	%	—	%	—	%	5.0	%	12.6	%
Operating income	$	189		$	145		30.2	%	23.1	%	—	%	1.1	%	6.0	%	30.2	%
Operating margin %	24.1		%	20.9		%	320 bps		300 bps		—		20 bps		—		320 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 795
$ 765
4.1 % 1.3 % — % — % 2.8 % 4.1 %
Operating income $ 172
$ 166
2.9 % 1.0 % — % (1.2 )% 3.1 % 2.9 %
Operating margin % 21.6 % 21.8 % (20) bps
(10) bps
—
(20) bps
10 bps
(20) bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 2,443
$ 2,091
16.9 % 4.7 % 12.2 % — % — % 16.9 %
Operating income $ 556
$ 512
8.4 % 6.1 % 4.2 % (1.7 )% (0.2 )% 8.4 %
Operating margin % 22.7 % 24.5 % (180) bps
30 bps
(160) bps
(40) bps
(10) bps
(180) bps

•Operating revenue ~~increased in the third quarter~~grew due to higher organic revenue and the favorable effect of foreign currency ~~translation and higher organic revenue. Operating~~translation.

•Organic revenue increased 7.6% versus worldwide auto builds which increased 14% due to customer and geographic region mix. Additionally, product line simplification activities reduced organic revenue by 40 basis points.

◦North American organic revenue decreased 1.8% compared to North American auto builds which declined 4%. Auto builds for the Detroit 3, where the Company has higher content, decreased 9%. Additionally, North American revenue was down as customers adjusted their production schedules in response to the near-term supply chain issues affecting the automotive industry.

◦European organic revenue increased 4.0% compared to European auto builds which decreased 1%.

◦Asia Pacific organic revenue increased 42.7%. China organic revenue grew 58.4% versus China auto builds which increased 77%.

•Operating margin of 24.1% in the ~~year-to-date period due to higher organic and acquisition revenues.~~

~~Organic revenue grew 1.3% and 4.7% in the third~~first quarter and year-to-date periods, respectively, as a result of penetration gains, exceeding auto build growth in every key geography. Worldwide auto builds grew 2% and 3% in the third quarter and year-to-date periods, respectively.


◦	European organic revenue grew 7.8% and 8.8% in the third quarter and year-to-date periods, respectively, compared to European auto builds which increased 5% in the third quarter and 2% in the year-to-date period.


◦	Asia Pacific organic revenue increased 9.0% and 12.2% in the third quarter and year-to-date periods, respectively. China organic revenue grew 10.3% and 17.9% in the third quarter and year-to-date periods, respectively, versus Chinese auto builds which increased 1% in the third quarter and 3% in the year-to-date period.


◦	North American organic revenue declined 6.7% and 0.8% in the third quarter and year-to-date periods, respectively. North American auto builds declined 10% in the third quarter and 4% in the year-to-date period. Auto builds for the Detroit 3, where the Company has higher content, declined 14% in the third quarter and 7% in the year-to-date period.

~~Operating margin was 21.6% in the third quarter. The decrease of 20~~increased 320 basis points ~~was~~ primarily driven by ~~unfavorable price/cost~~positive operating leverage of ~~120~~130 basis points and ~~higher restructuring expenses, partially offset by~~ the net benefits ~~from~~of the Company's enterprise initiatives and cost management, ~~of 80 basis points and positive operating leverage of 30 basis points.~~

~~In the year-to-date period, operating margin of 22.7% decreased 180 basis points primarily driven~~partially offset by ~~the dilutive impact of 160 basis points from the EF&C acquisition,~~ unfavorable price/cost of 110 basis points and higher restructuring expenses, partially offset by positive operating leverage of 80 basis points and the net benefits from the Company's enterprise initiatives and cost management of 60 basis points.

FOOD EQUIPMENT

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

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

•refrigeration equipment, including refrigerators, freezers and prep tables;

•food processing equipment, including slicers, mixers and scales;

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

The results of operations for the Food Equipment segment for the ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	451		$	483		(6.5)	%	(9.6)	%	—	%	—	%	3.1	%	(6.5)	%
Operating income	$	96		$	117		(18.3)	%	(20.9)	%	—	%	0.2	%	2.4	%	(18.3)	%
Operating margin %	21.2		%	24.3		%	(310) bps		(310) bps		—		—		—		(310) bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 549
$ 544
1.1 % (0.4 )% — % — % 1.5 % 1.1 %
Operating income $ 150
$ 149
0.6 % 0.3 % — % (1.0 )% 1.3 % 0.6 %
Operating margin % 27.3 % 27.4 % (10) bps
20 bps
—
(30) bps
—
(10) bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,575
$ 1,578
(0.2 )% 0.7 % — % — % (0.9 )% (0.2 )%
Operating income $ 414
$ 405
2.2 % 2.5 % — % 0.6 % (0.9 )% 2.2 %
Operating margin % 26.3 % 25.7 % 60 bps
40 bps
—
20 bps
—
60 bps

•Operating revenue ~~increased in the third quarter~~declined due to lower organic revenue, partially offset by the favorable effect of foreign currency translation, partially offset by a slight decline in organic revenue. Operating revenue decreased in the year-to-date period due to the unfavorable effect of foreign currency translation, partially offset by organic revenue growth.translation.

•Organic revenue decreased ~~0.4% in the third quarter~~9.6% as equipment and service organic revenue declined ~~0.5%~~3.9% and ~~0.4%~~19.0%, ~~respectively. In~~respectively, driven by the ~~year-to-date period,~~negative impacts resulting from the COVID-19 pandemic. Although organic revenue ~~increased 0.7%~~was down in the quarter, the demand trends have improved sequentially versus the fourth quarter of 2020.

◦North American organic revenue declined 6.2% as equipment ~~and service~~ organic revenue ~~increased 0.8%~~decreased 1.3%, primarily driven by lower demand in the restaurant and ~~0.4%~~institutional end markets, partially offset by growth in the food retail end markets. Service organic revenue decreased 13.2%.

◦International organic revenue decreased 14.6%. Equipment organic revenue declined 7.1%, ~~respectively.~~primarily due to lower demand in the European warewash and refrigeration end markets, partially offset by higher demand in Asia. Service organic revenue decreased 28.0%.

◦

North American organic revenue declined 3.6% in the third quarter. Equipment organic revenue decreased 5.5% primarily due to lower end market demand in food services. Service organic revenue declined 0.3%. In the year-to-date period, North American organic revenue decreased 1.1%. Equipment organic revenue, which had a challenging comparable in the prior year period of 5.7% growth, decreased 1.8% primarily due to lower demand in the retail and restaurant end markets, partially offset by higher demand in the institutional end market. Service organic revenue was flat.

◦

International organic revenue increased 4.0% and 3.2% in the third quarter and year-to-date periods, respectively. Equipment organic revenue grew 5.9% and 4.0% in the third quarter and year-to-date periods, respectively, primarily due to higher demand in the European refrigeration and warewash end markets. Service organic revenue decreased 0.5% in the third quarter and increased 1.3% in the year-to-date period.

•Operating margin of ~~27.3%~~21.2% in the ~~third~~first quarter ~~declined 10~~decreased 310 basis points primarily due to negative operating leverage of 260 basis points, product mix ~~of 100 basis points~~ and ~~higher restructuring expenses, partially offset by the benefits of the Company's enterprise initiatives of 110 basis points and favorable~~unfavorable price/cost of 10 basis ~~points.~~

~~In the year-to-date period, operating margin of 26.3% increased 60 basis~~ points, ~~primarily due to the~~partially offset by benefits offrom the Company's enterprise ~~initiatives of 100 basis points and 20 basis points each for favorable price/cost, positive operating leverage and lower restructuring expenses, partially offset by product mix of 100 basis points.~~initiatives.

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, energy 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;~~equipment;

•electronic components and component packaging;

•static control equipment and consumables used for contamination control in clean room environments; and

•pressure sensitive adhesives and components for ~~telecommunications,~~ electronics, medical, transportation and ~~transportation~~telecommunications applications.

The results of operations for the Test & Measurement and Electronics segment for the ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	552		$	485		14.0	%	10.7	%	—	%	—	%	3.3	%	14.0	%
Operating income	$	157		$	121		29.2	%	25.7	%	—	%	—	%	3.5	%	29.2	%
Operating margin %	28.4		%	25.1		%	330 bps		330 bps		—		—		—		330 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 525
$ 516
1.8 % 0.8 % — % — % 1.0 % 1.8 %
Operating income $ 127
$ 108
16.9 % 13.3 % — % 2.8 % 0.8 % 16.9 %
Operating margin % 24.1 % 21.0 % 310 bps
260 bps
—
50 bps
—
310 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,524
$ 1,487
2.5 % 3.5 % — % — % (1.0 )% 2.5 %
Operating income $ 337
$ 274
22.8 % 22.5 % — % 1.3 % (1.0 )% 22.8 %
Operating margin % 22.1 % 18.4 % 370 bps
340 bps
—
30 bps
—
370 bps

•Operating revenue ~~increased in the third quarter~~grew due to higher organic revenue and the favorable effect of foreign currency ~~translation and~~translation.

•Organic revenue increased 10.7%.

◦Electronics organic revenue ~~growth. Operating~~increased 16.0%. The electronics assembly businesses increased 24.3% primarily due to higher demand in North America and Asia Pacific. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, increased 12.4% with growth in all major regions.

◦Organic revenue for the test and measurement businesses increased 6.5% primarily driven by higher semi-conductor demand in North America and the impact of a stronger capital spending environment, partially offset by lower demand in the ~~year-to-date period due~~aerospace and oil and gas end markets in North America. Instron, where demand is more closely tied to the capital spending environment, had organic revenue growth ~~partially offset by the unfavorable effect~~ of ~~foreign currency translation.~~11.8%.

~~Organic revenue increased 0.8% and 3.5%~~•Operating margin of 28.4% in the ~~third~~first quarter ~~and year-to-date periods, respectively.~~

◦

Organic revenue for the test and measurement businesses increased 4.2% and 5.1% in the third quarter and year-to-date periods, respectively, primarily due to higher semi-conductor end market demand across all major regions. Instron, where demand is more closely tied to the capital spending environment, had organic revenue growth of 2.6% and 3.9% in the third quarter and year-to-date periods, respectively.

◦

Electronics organic revenue, which had a challenging comparable in the prior year third quarter of 12.5% growth, decreased 2.6% in the third quarter and increased 1.8% in the year-to-date period. The electronics assembly businesses declined 12.8% and 2.2% in the third quarter and year-to-date periods, respectively, primarily due to a decrease in North America. The other electronics businesses grew 7.0% and 4.8% in the third quarter and year-to-date periods, respectively, due to higher semi-conductor end market demand.

~~Operating margin was 24.1% in the third quarter. The increase of 310~~increased 330 basis points ~~was~~ primarily due to ~~the net~~positive operating leverage of 260 basis points and benefits ~~resulting~~ from the Company's enterprise ~~initiatives and cost management of 130 basis points, favorable price/cost of 50 basis points, lower restructuring expenses and positive operating leverage of 20 basis points.~~initiatives.

In the year-to-date period, operating margin of 22.1% increased 370 basis points primarily driven by the net benefits resulting from the Company's enterprise initiatives and cost management of 130 basis points, positive operating leverage of 110 basis points and 30 basis points each of favorable price/cost and lower restructuring expenses.

WELDING

This segment is a branded value-added equipment and specialty consumable manufacturer with innovative and leading technology. Businesses in this segment produce arc welding equipment, consumables and accessories for a wide array of industrial and commercial applications. This segment primarily serves the general industrial market, which includes fabrication, shipbuilding and other general industrial markets, and energy, construction, MRO, ~~construction,~~automotive original equipment manufacturers and tiers, and industrial capital goods markets. Products in this segment include:

•arc welding equipment; and

•metal arc welding consumables and related ~~accessories; and~~accessories.

~~metal jacketing and other insulation products.~~

The results of operations for the Welding segment for the ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	401		$	372		7.5	%	6.2	%	—	%	—	%	1.3	%	7.5	%
Operating income	$	121		$	109		11.7	%	10.6	%	—	%	0.5	%	0.6	%	11.7	%
Operating margin %	30.3		%	29.1		%	120 bps		120 bps		—		10 bps		(10) bps		120 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Restructuring Impairment Foreign Currency Total
Operating revenue $ 378
$ 361
4.8 % 3.9 % — % — % 0.9 % 4.8 %
Operating income $ 100
$ 95
5.4 % 7.0 % (2.2 )% — % 0.6 % 5.4 %
Operating margin % 26.6 % 26.5 % 10 bps
80 bps
(60) bps
—
(10) bps
10 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Restructuring Impairment Foreign Currency Total
Operating revenue $ 1,150
$ 1,125
2.3 % 2.2 % — % — % 0.1 % 2.3 %
Operating income $ 312
$ 282
10.8 % 7.4 % 2.3 % 1.1 % — % 10.8 %
Operating margin % 27.2 % 25.1 % 210 bps
120 bps
60 bps
30 bps
—
210 bps

•Operating revenue increased ~~in the third quarter and year-to-date periods~~ due to higher organic revenue and the favorable effect of foreign currency translation.

•Organic revenue grew ~~3.9% in the third quarter~~6.2% driven by ~~growth~~an increase in equipment of ~~6.5%~~10.2%, primarily due to higher demand in the commercial end markets. Consumables organic revenue was flat as growth in the commercial end markets in North America and ~~consumables of 0.5%. In~~ the ~~year-to-date period,~~oil and gas end markets in Asia Pacific was offset by a decline in the industrial end markets.

◦North American organic revenue increased ~~2.2% as equipment grew 4.6%~~6.7% primarily due to an increase in the commercial end markets of 17.4%, partially offset by a ~~decrease~~decline in the industrial end markets of ~~0.8% in consumables. In both periods,~~0.6%.

◦International organic revenue grew 3.6% primarily due to increased demand in the ~~industrial~~oil and gas end markets ~~related to heavy equipment for agriculture, infrastructure and mining and~~in Asia Pacific of 10.8%, partially offset by a decline in Europe of 3.6%.

•Operating margin of 30.3% in the ~~commercial end markets related to construction, light fabrication and farm and ranch customers.~~


◦	North American organic revenue increased 8.0% in the third quarter primarily due to 11.0% and 5.2% growth in the industrial and commercial end markets, respectively. North American organic revenue grew 4.8% in the year-to-date period primarily driven by approximately 5% growth in the industrial and commercial end markets.


◦	International organic revenue decreased 11.2% and 7.3% in the third quarter and year-to-date periods, respectively, primarily due to weaker end market demand in the European and Asian oil and gas end markets.

~~Operating margin was 26.6% in the third quarter. The increase of 10~~first quarter increased 120 basis points ~~was~~ primarily ~~due to the net~~driven by positive operating leverage of 100 basis points and benefits offrom the Company's enterprise initiatives, ~~and cost management of 80 basis points and positive operating leverage of 60 basis points, partially offset by 60 basis points each of unfavorable price/cost and higher restructuring expenses.~~

In the year-to-date period, operating margin of 27.2% increased 210 basis points due to the net benefits of the Company's enterprise initiatives and cost management of 140 basis points, lower restructuring expenses of 60 basis points and positive operating leverage of 40 basis points, partially offset by unfavorable price/cost of ~~60 basis points. In addition, the prior year period was negatively impacted by an intangible asset impairment charge of~~ 30 basis points.

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.

The results of operations for the Polymers & Fluids segment for the ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	435		$	393		10.7	%	8.8	%	—	%	—	%	1.9	%	10.7	%
Operating income	$	112		$	93		20.4	%	17.3	%	—	%	0.5	%	2.6	%	20.4	%
Operating margin %	25.7		%	23.6		%	210 bps		190 bps		—		10 bps		10 bps		210 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 434
$ 422
2.6 % 1.0 % — % — % 1.6 % 2.6 %
Operating income $ 90
$ 89
2.5 % 2.1 % — % (0.9 )% 1.3 % 2.5 %
Operating margin % 21.0 % 21.0 % —
20 bps
—
(20) bps
—
—

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,297
$ 1,283
1.0 % 0.5 % — % — % 0.5 % 1.0 %
Operating income $ 272
$ 266
2.5 % 4.3 % — % (1.6 )% (0.2 )% 2.5 %
Operating margin % 21.0 % 20.7 % 30 bps
80 bps
—
(30) bps
(20) bps
30 bps

•Operating revenue increased ~~in the third quarter and year-to-date periods~~ due to higher organic revenue and the favorable effect of foreign currency translation.

•Organic revenue ~~grew 1.0% and 0.5%~~increased 8.8%. Product line simplification activities reduced organic revenue by 60 basis points.

◦Organic revenue for the automotive aftermarket businesses increased 8.7% primarily driven by growth in the ~~third quarter~~car care, engine repair and ~~year-to-date periods, respectively,~~body repair businesses in North America.

◦Organic revenue for the polymers businesses increased 15.9% with growth across all major regions.

◦Organic revenue for the fluids businesses decreased 0.8% primarily due to ~~higher demand~~a decline in the industrial maintenance, repair, and operations end markets in Europe, partially offset by growth in North ~~American end markets.~~America.


◦	Organic revenue for the automotive aftermarket businesses increased 0.6% in the third quarter primarily driven by growth in the tire repair businesses in North America. In the year-to-date period, organic revenue grew 0.3% as stronger demand in the car care, engine and tire repair businesses in North America was offset by a decline in the body repair and additives businesses in Asia Pacific.


◦	Organic revenue for the fluids businesses grew 4.4% and 2.2% in the third quarter and year-to-date periods, respectively, primarily due to an increase in the industrial maintenance, repair, and operations end markets in Europe and North America.


◦	Organic revenue for the polymers businesses decreased 1.3% in the third quarter primarily driven by a decline in Europe, partially offset by an increase in North America. In the year-to-date period, organic revenue declined 0.9% primarily driven by a decline in Europe and North America.

•Operating margin ~~was 21.0%~~of 25.7% in the ~~third~~first quarter ~~and was flat compared to the prior year as the net~~increased 210 basis points primarily driven by positive operating leverage of 200 basis points, benefits offrom the Company's enterprise initiatives and ~~cost management and positive operating leverage were~~lower intangible asset amortization expense, partially offset by unfavorable price/cost of ~~30 basis points and higher restructuring expenses.~~

~~In the year-to-date period, operating margin of 21.0% increased 30 basis points primarily driven by the net benefits of the Company's enterprise initiatives and cost management of~~ 100 basis ~~points, partially offset by 30 basis points each of unfavorable price/cost and higher restructuring expenses.~~points.

CONSTRUCTION PRODUCTS

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

•fasteners and related fastening tools for wood and metal applications;

•anchors, fasteners and related tools for concrete applications;

•metal plate truss components and related equipment and software; and

•packaged hardware, fasteners, anchors and other products for retail.

The results of operations for the Construction Products segment for the ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	469		$	390		20.2	%	12.8	%	(0.2)	%	—	%	7.6	%	20.2	%
Operating income	$	130		$	91		41.8	%	33.5	%	—	%	0.1	%	8.2	%	41.8	%
Operating margin %	27.6		%	23.4		%	420 bps		430 bps		—		—		(10) bps		420 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 440
$ 415
6.0 % 3.5 % — % — % 2.5 % 6.0 %
Operating income $ 112
$ 94
18.8 % 9.0 % — % 7.2 % 2.6 % 18.8 %
Operating margin % 25.4 % 22.6 % 280 bps
130 bps
—
150 bps
—
280 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,260
$ 1,223
3.0 % 2.7 % — % — % 0.3 % 3.0 %
Operating income $ 303
$ 278
8.9 % 5.6 % — % 2.7 % 0.6 % 8.9 %
Operating margin % 24.0 % 22.7 % 130 bps
70 bps
—
60 bps
—
130 bps

•Operating revenue increased ~~in the third quarter and year-to-date periods~~primarily due to higher organic revenue ~~growth~~ and the favorable effect of foreign currency translation.

•Organic revenue increased ~~3.5%~~12.8% with growth across all major regions. Product line simplification activities reduced organic revenue by 30 basis points.

◦North American organic revenue grew 11.8% as the United States residential and ~~2.7%~~commercial end markets increased 12.8% and 2.8%, respectively.

◦International organic revenue increased 13.7%. European organic revenue increased 18.9% primarily driven by an increase in continental Europe and the United Kingdom in the ~~third quarter~~commercial and ~~year-to-date periods, respectively.~~residential end markets. Asia Pacific organic revenue increased 6.9% primarily due to an increase in Australia and New Zealand in the retail and residential end markets.


◦	North American organic revenue grew 4.4% in the third quarter primarily due to 6.9% growth in the residential end markets, partially offset by a decline of 3.3% in the commercial end markets. North American organic revenue increased 1.9% in the year-to-date period primarily due to 2.6% growth in the residential end markets, partially offset by a decline of 0.4% in the commercial end markets.

◦

International organic revenue increased 2.8% and 3.2% in the third quarter and year-to-date periods, respectively. Asia Pacific organic revenue increased 2.7% in both the third quarter and year-to-date periods primarily due to growth in the Australia and New Zealand retail end markets. European organic revenue increased 2.9% in the third quarter primarily due to growth in continental Europe and the Nordic countries. In the year-to-date period, European organic revenue grew 3.7% primarily due to growth in continental Europe, the United Kingdom and the Nordic countries.

•Operating margin ~~was 25.4%~~of 27.6% in the ~~third quarter. The increase of 280~~first quarter increased 420 basis points ~~was~~primarily driven by ~~lower restructuring expenses~~positive operating leverage of ~~150~~260 basis points ~~the~~and net benefits offrom the Company's enterprise initiatives and cost ~~management of 130 basis points and positive operating leverage of 90 basis points, partially offset by unfavorable price/cost of 90 basis points.~~management.

In the year-to-date period, operating margin of 24.0% increased 130 basis points driven by the net benefits of the Company's enterprise initiatives and cost management of 90 basis points, positive operating leverage of 70 basis points and lower restructuring expenses of 60 basis points, partially offset by unfavorable price/cost of 90 basis points.

SPECIALTY PRODUCTS

This segment is focused on diversified niche market opportunities ~~that deliver strong operating results~~ 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, industrial capital goods and 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.

The results of operations for the Specialty Products segment for the ~~third~~first quarter of 2021 and ~~year-to-date periods~~2020 were as follows:


	Three Months Ended
Dollars in millions	March 31,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	457		$	414		10.4	%	7.3	%	—	%	—	%	3.1	%	10.4	%
Operating income	$	126		$	109		15.9	%	15.1	%	—	%	(2.3)	%	3.1	%	15.9	%
Operating margin %	27.6		%	26.3		%	130 bps		190 bps		—		(60) bps		—		130 bps

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 498
$ 477
4.6 % 4.5 % (1.2 )% — % 1.3 % 4.6 %
Operating income $ 138
$ 125
10.8 % 13.6 % (0.3 )% (3.9 )% 1.4 % 10.8 %
Operating margin % 27.7 % 26.1 % 160 bps
230 bps
30 bps
(100) bps
—
160 bps

Nine Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2017 2016 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 1,451
$ 1,429
1.5 % 3.1 % (1.1 )% — % (0.5 )% 1.5 %
Operating income $ 401
$ 373
7.6 % 9.8 % — % (1.8 )% (0.4 )% 7.6 %
Operating margin % 27.6 % 26.1 % 150 bps
170 bps
30 bps
(50) bps
—
150 bps

•Operating revenue increased ~~in the third quarter~~ due to higher organic revenue ~~growth~~ and the favorable effect of foreign currency ~~translation,~~translation.

•Organic revenue increased 7.3%. Consumable sales grew 7.3% primarily due to higher demand in North America and Asia Pacific. Equipment sales increased 7.6% as higher demand in Europe and North America was offset by lower demand in Asia Pacific.

◦North American organic revenue increased 5.7% as growth in the consumer packaging businesses was partially offset by a ~~divestiture. For~~decline in the ~~year-to-date period, operating~~ground support equipment businesses.

◦International organic revenue increased 9.9% primarily due to ~~organic revenue growth, partially offset by a divestiture~~an increase in the appliances businesses in Europe and Asia Pacific and the ~~unfavorable effect~~ground support equipment businesses in Europe.

•Operating margin of ~~foreign currency translation.~~

Organic revenue increased 4.5% and 3.1% for the third quarter and year-to-date periods, respectively, as the consumer packaging businesses grew 3.6% and 3.2% in each respective period. Consumable sales increased 6.1% and 5.1%27.6% in the ~~third~~first quarter ~~and year-to-date periods, respectively. Equipment sales declined 1.3% and 4.4% in the third quarter and year-to-date periods, respectively.~~


◦	North American organic revenue increased 3.0% in the third quarter primarily due to an increase in the brand identification, medical and consumer packaging businesses. In the year-to-date period, organic revenue grew 0.5% primarily due to growth in the medical, consumer packaging, appliance and brand identification businesses, partially offset by a decline in the equipment businesses.


◦	International organic revenue increased 6.9% and 7.7% in the third quarter and year-to-date periods, respectively, primarily driven by growth in the consumer packaging and equipment businesses in Europe and Asia Pacific.

~~Operating margin was 27.7% for the third quarter. The increase of 160~~increased 130 basis points ~~was~~ primarily driven by ~~the~~positive operating leverage of 140 basis points and net benefits offrom the Company's enterprise initiatives and cost management, partially offset by unfavorable price/cost of ~~130 basis points, positive operating leverage of 90~~150 basis points and ~~the impact of a divestiture, partially offset by~~ higher restructuring ~~expenses of 100 basis points and unfavorable price/cost of 10 basis points.~~expenses.

In the year-to-date period, operating margin of 27.6% increased 150 basis points driven by the net benefits of the Company's enterprise initiatives and cost management of 130 basis points, positive operating leverage of 70 basis points and the impact of a divestiture, partially offset by higher restructuring expenses and unfavorable price/cost of 30 basis points.

OTHER FINANCIAL HIGHLIGHTS

•Interest expense in the first quarter of ~~$65~~2021 was $52 million ~~and $194~~versus $51 million in the ~~third quarter and year-to-date periods, respectively, increased from $58 million and $174 million in the respective 2016 periods, primarily due to the debt issuance in the fourth~~first quarter of ~~2016.~~2020.

•Other income (expense) was income of ~~$10~~$12 million in the ~~third~~first quarter of ~~2017 and $24 million in the year-to-date period,~~2021, a decrease of $13 million compared to the ~~prior year~~first quarter of ~~$3 million in the third quarter and $10 million in the year-to-date period~~2020 primarily ~~driven by~~due to lower foreign currency translation ~~losses.~~

The effective tax rate was 29.3% and 28.7% for the third quarter and year-to-date periods, respectively, compared to 30.0% in both respective periods of 2016. Included in the effective tax rate for 2017 was a discrete income tax benefit of $6 million in the third quarter and $32 million in the year-to-date period related to the adoption of the new stock-based compensation guidance. Excluding this discrete tax benefit, the Company's effective tax rate for the third quarter and year-to-date periods of 2017 would have been 30.0%. Refer to Note 1. Significant Accounting Policies in Item 1 - Financial Statements for further information.

~~NEW ACCOUNTING PRONOUNCEMENTS~~

In May 2014, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer 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, several new revenue recognition disclosures will be required. Under current guidance, the Company generally recognizes operating revenue when ownership and risk of loss are transferred to the customer, which is typically at the time of product shipment or delivery of service. The Company has completed a review of revenue transactions for a significant portion of its businesses. While the review is not fully completed, the Company does not currently expect the adoption of this guidance to have a material impact on its operating revenue, results of operations or financial position. However, the Company expects to provide additional disclosures in the notes to financial statements required under the new guidance. The new guidance will be effective for the Company beginning January 1, 2018 and allows for either full or modified retrospective adoption methods. The Company expects to adopt the new revenue accounting guidance utilizing the modified retrospective method.

In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will be required to recognize a lease liability and lease asset for all leases with a lease term greater than twelve months in the statement of financial position, including operating leases. 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, several new disclosures will be required. This guidance will be effective for the Company beginning January 1, 2019, with early adoption permitted. While the Company has not yet completed its evaluation of the impact the new lease accounting guidance will have on the consolidated financial statements and related disclosures, the Company expects to recognize right of use assets and liabilities for its operating leases in the statement of financial position upon adoption.

In March 2016, the FASB issued authoritative guidance that included several changes to simplify the accounting for stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows. Among the more significant changes, the new guidance requires the income tax effects associated with the settlement of stock-based awards to be recognized through income tax expense rather than directly in equity. Additionally, the income tax effects related to excess tax benefits should be presented within operating cash flows in the statement of cash flows rather than as a financing activity. Excess tax benefits recognized in equity under the prior guidance were $25 million for the nine months ended September 30, 2016. The Company adopted the new guidance effective January 1, 2017 and applied the newly adopted provisions prospectively. Excess tax benefits of $6 million and $32 million were included in Income Taxes in the statement of income for the three and nine month periods ended September 30, 2017, respectively. The expected effect on income tax expense or net cash provided from operating activities related to future stock-based award settlements will vary each quarter and will depend on inputs such as the stock price at the time of settlement and the number of awards settled in the period presented.

In March 2017, the FASB issued authoritative guidance which changes the income statement presentation of the components of net periodic benefit cost related to defined benefit pension and other postretirement plans. The primary change under the new guidance is that only the service cost component 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, such as interest cost, the expected return on assets, and amortization of actuarial gains and losses and prior service cost, should be presented below operating income. The guidance is effective for the Company starting January 1, 2018 and will be applied retrospectively to the presentation of net periodic benefit cost and prospectively to the capitalization of service cost. The Company does not expect the adoption of this guidance to have a material impact on the results of operations or financial position. Refer to Note 6. Pension and Other Postretirement Benefitslower interest income in ~~Item 1 - Financial Statements for further information information regarding the Company’s net periodic benefit cost.~~

2021.

LIQUIDITY AND CAPITAL RESOURCES

The ~~Company’s~~Company's primary sources of liquidity are free cash flow and short-term credit facilities. ~~In addition,~~As of March 31, 2021, the Company had ~~$2.8~~$2.5 billion of cash and equivalents on hand, ~~at September 30, 2017~~no outstanding borrowings under its $2.5 billion revolving credit facility, and no commercial paper outstanding. The Company also ~~maintains~~has maintained strong access to public debt markets. Management believes that these sources are sufficient to service debt and to finance the Company's capital allocation priorities, which include:

•internal investments to support organic growth and sustain core businesses;

•payment of an attractive dividend to shareholders; and

•external investments in selective strategic acquisitions that support the Company's organic growth focus, and an active share repurchase program.

The Company believes that, based on its operating revenue, operating margin, ~~current~~ free cash flow, and credit ratings, it could readily obtain additional financing, if necessary. A description of the risks related to the impact of the COVID-19 outbreak on the financial and capital markets and the related potential risks to the Company is contained in Part I - Item 1A - Risk Factors in the Company's 2020 Annual Report on Form 10-K.

Cash Flow

The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluating the Company's financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. Summarized cash flow information for the ~~third~~first quarter of 2021 and ~~year-to-date periods of 2017 and 2016~~2020 was as follows:


	Three Months Ended
	March 31,
In millions	2021		2020
Net cash provided by operating activities	$	609	$	614
Additions to plant and equipment	(68)		(60)
Free cash flow	$	541	$	554

Cash dividends paid	$	(361)	$	(342)
Repurchases of common stock	(250)		(706)




Other, net	20		8
Effect of exchange rate changes on cash and equivalents	(30)		(65)
Net increase (decrease) in cash and equivalents	$	(80)	$	(551)

Three Months Ended Nine Months Ended
September 30, September 30,
In millions 2017 2016 2017 2016
Net cash provided by operating activities $ 780
$ 624
$ 1,707
$ 1,638
Additions to plant and equipment (78 )
(81 )
(219 )
(202 )
Free cash flow $ 702
$ 543
$ 1,488
$ 1,436

Cash dividends paid $ (224 ) $ (195 ) $ (674 ) $ (593 )
Repurchases of common stock (250 ) (482 ) (750 ) (1,482 )
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates —
(454 ) (3 ) (456 )
Net proceeds from (repayments of) debt with original maturities of three months or less 6
499
697
188
Net repayments of debt with original maturities of more than three months —
—
(652 ) —
Other 19
36
73
109
Effect of exchange rate changes on cash and equivalents 36
(3 ) 134
7
Net increase (decrease) in cash and equivalents $ 289
$ (56 ) $ 313
$ (791 )

~~Free cash flow for the nine months ended September 30, 2017 included an additional $115 million discretionary pension contribution made in the second quarter of 2017.~~

Stock Repurchase Program

On ~~February 13, 2015,~~August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provides for the ~~buyback~~repurchase of up to ~~$6.0~~$3.0 billion of the Company's common stock over an open-ended period of time (the ~~“2015 Program”~~"2018 Program"). Under the ~~2015~~2018 Program, the Company repurchased approximately ~~5.3~~2.0 million shares of its common stock at an average price of ~~$94.07~~$149.04 in the ~~first~~second quarter of ~~2016,~~2019, approximately ~~4.8~~2.4 million shares of its common stock at an average price of ~~$104.54~~$150.97 in the ~~second~~third quarter of ~~2016,~~2019, approximately ~~4.3~~2.2 million shares of its common stock at an average price of ~~$116.27~~$175.02 in the ~~third~~fourth quarter of ~~2016,~~2019, and approximately ~~4.3~~4.2 million shares of its common stock at an average price of ~~$117.29~~$167.69 in the ~~fourth~~first quarter of

~~2016,~~ 2020. Due to the COVID-19 pandemic, the Company temporarily suspended its share repurchase program starting in March 2020. In February 2021, the Company resumed its share repurchase program and repurchased approximately ~~1.9~~1.2 million shares of its common stock at an average price of ~~$128.47~~$211.50 in the first quarter of 2017, approximately 1.8 million shares of its common stock at an average price of $136.81 in the second quarter of 2017, and approximately 1.8 million shares of its common stock at an average price of $142.54 in the third quarter of 2017.2021. As of ~~September 30, 2017,~~March 31, 2021, there were ~~approximately $2.7 billion~~$990 million of authorized repurchases remaining under the ~~2015~~2018 Program.

~~Adjusted After-Tax~~

After-tax Return on Average Invested Capital

The Company uses ~~adjusted~~ after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its ~~operations’~~operations' use of invested capital to generate profits. After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the ~~Company’s~~Company's financial performance and may be different than the method used by other companies to calculate After-tax ROIC. ~~Adjusted average~~Average invested capital represents the net assets of the Company, excluding cash and equivalents and outstanding debt, which are excluded as they do not represent capital investment in the Company's ~~operations, as well as the Company's equity investment in the Wilsonart business (formerly the Decorative Surfaces segment).~~operations. Average invested capital is calculated using balances at the start of the period and at the end of each quarter. After-tax ROIC for the ~~third~~first quarter of 2021 and ~~year-to-date periods of 2017 and 2016~~2020 was as follows:


	Three Months Ended
	March 31,
Dollars in millions	2021			2020
Operating income	$	905		$	761
Tax rate	22.4		%	23.0		%
Income taxes	(203)			(175)
Operating income after taxes	$	702		$	586

Invested capital:
Trade receivables	$	2,662		2,424
Inventories	1,292			1,185
Net assets held for sale	—			181
Net plant and equipment	1,746			1,704
Goodwill and intangible assets	5,379			5,237
Accounts payable and accrued expenses	(1,850)			(1,593)
Other, net	(488)			(590)
Total invested capital	$	8,741		$	8,548

Average invested capital	$	8,740		$	8,677
After-tax return on average invested capital	32.1		%	27.0		%

Three Months Ended Nine Months Ended

September 30, September 30,
Dollars in millions 2017
2016 2017 2016
Operating income $ 961

$ 808

$ 2,644

$ 2,322
Tax rate 29.3 %
30.0 %
28.7 %
30.0 %
Income taxes (282 )
(243 )
(759 )
(697 )
Operating income after taxes $ 679
$ 565
$ 1,885
$ 1,625

Invested capital:
Trade receivables $ 2,672

$ 2,496

$ 2,672

$ 2,496
Inventories 1,225

1,167

1,225

1,167
Net plant and equipment 1,759

1,702

1,759

1,702
Goodwill and intangible assets 6,051

6,191

6,051

6,191
Accounts payable and accrued expenses (1,816 )
(1,762 )
(1,816 )
(1,762 )
Other, net 487

393

487

393
Total invested capital $ 10,378
$ 10,187
$ 10,378
$ 10,187

Average invested capital $ 10,354

$ 9,973

$ 10,051

$ 9,821
Adjustment for Wilsonart (formerly the Decorative Surfaces segment) —

(116 )
—

(114 )
Adjusted average invested capital $ 10,354

$ 9,857

$ 10,051

$ 9,707
Adjusted return on average invested capital 26.3 %
23.0 %
25.0 %
22.3 %

After-tax ROIC increased ~~330~~510 basis points for the three month period ended ~~September 30, 2017~~March 31, 2021 compared to the prior year period as a result of a ~~20.1% improvement~~19.7% increase in after-tax operating income versus a ~~5.0%~~0.7% increase in adjusted average invested capital. ROIC increased 270 basis points for the nine month period ended September 30, 2017 compared to the prior year period as a result of a 16.0% improvement in after-tax operating income versus a 3.5% increase in adjusted average invested capital.

ROIC was favorably impacted by 220 basis points and 90 basis points for the three and nine month periods ended September 30, 2017, respectively, related to a confidential legal settlement in 2017. Refer to Note 8. Legal Settlement in Item 1 - Financial Statements for further information regarding this settlement.

The discrete tax benefit related to share-based compensation of $6 million and $32 million for the three and nine month periods ended September 30, 2017 improved after-tax ROIC by approximately 30 and 40 basis points, respectively. Refer to Note 1. Significant Accounting Policies in Item 1 - Financial Statements for further information.

Working Capital

Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 is summarized as follows:


In millions	March 31, 2021		December 31, 2020		Increase/ (Decrease)
Current assets:
Cash and equivalents	$	2,484	$	2,564	$	(80)
Trade receivables	2,662		2,506		156
Inventories	1,292		1,189		103
Other	266		264		2
Total current assets	6,704		6,523		181
Current liabilities:
Short-term debt	350		350		—
Accounts payable and accrued expenses	1,850		1,818		32
Other	480		421		59
Total current liabilities	2,680		2,589		91
Net working capital	$	4,024	$	3,934	$	90

In millions September 30, 2017 December 31, 2016
Increase/
(Decrease)
Current assets:
Cash and equivalents $ 2,785
$ 2,472
$ 313
Trade receivables 2,672
2,357
315
Inventories 1,225
1,076
149
Other 230
218
12
Total current assets 6,912
6,123
789
Current liabilities:
Short-term debt 698
652
46
Accounts payable and accrued expenses 1,816
1,713
103
Other 353
395
(42 )
Total current liabilities 2,867
2,760
107
Net working capital $ 4,045
$ 3,363
$ 682

~~Cash~~As of March 31, 2021, a significant portion of the Company's cash and equivalents ~~totaled approximately $2.8 billion as of September 30, 2017 and $2.5 billion as of December 31, 2016, primarily all of which~~ was held by international subsidiaries. Cash and equivalents held internationally may be subject to ~~U.S. income taxes and~~ foreign withholding taxes if repatriated to the U.S. Cash and equivalents ~~balances~~ held internationally are typically used for international operating needs or reinvested to fund expansion of existing international ~~businesses,~~businesses. International funds may also be used to fund ~~new~~ international acquisitions or, ~~used~~if not considered permanently invested, may be repatriated to ~~repay debt~~the U.S. The Company has accrued for foreign withholding taxes related to foreign held ~~internationally.~~ cash and equivalents that are not permanently invested.

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

Debt

Total debt as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 was as follows:

In millions September 30, 2017 December 31, 2016
Short-term debt $ 698
$ 652
Long-term debt 7,439
7,177
Total debt $ 8,137
$ 7,829


In millions	March 31, 2021		December 31, 2020
Short-term debt	$	350	$	350
Long-term debt	7,599		7,772
Total debt	$	7,949	$	8,122

There was no commercial paper outstanding as of March 31, 2021 and December 31, 2020. Short-term debt as of ~~September 30, 2017 included commercial paper of $688 million. Short-term debt as of~~March 31, 2021 and December 31, ~~2016~~2020 included ~~$650~~$350 million related to the ~~0.90%~~3.375% notes ~~paid on~~due September 15, 2021. The Company has a $2.5 billion revolving credit facility with a termination date of September 27, 2024, which is available to provide additional liquidity, including to support the ~~February 25, 2017 due date.~~potential issuances of commercial paper. No amounts were outstanding under the $2.5 billion revolving credit facility as of March 31, 2021 or December 31, 2020.

Total Debt to EBITDA

The Company uses the ratio of total debt to EBITDA as a measure of its ability to repay its outstanding debt obligations. EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures. The Company believes that total debt to EBITDA is a meaningful metric to investors in evaluating the ~~Company’s~~Company's long term financial liquidity and may be different

than the method used by other companies to calculate total debt to EBITDA. ~~EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures.~~ The ratio of total debt to EBITDA represents total debt divided by net income before interest expense, other income (expense), income taxes, depreciation, and amortization and impairment of intangible assets on a trailing twelve month basis. Total debt to EBITDA for the trailing twelve month periods ended ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 was as follows:


Dollars in millions	March 31, 2021		December 31, 2020
Total debt	$	7,949	$	8,122

Net income	$	2,214	$	2,109
Add:
Interest expense	207		206
Other income	(15)		(28)
Income taxes	620		595
Depreciation	271		273
Amortization and impairment of intangible assets	152		154
EBITDA	$	3,449	$	3,309
Total debt to EBITDA ratio	2.3		2.5

Dollars in millions September 30, 2017 December 31, 2016
Total debt $ 8,137
$ 7,829

Net income $ 2,270
$ 2,035
Add:
Interest expense 257
237
Other income (71 ) (81 )
Income taxes 930
873
Depreciation 252
246
Amortization and impairment of intangible assets 210
224
EBITDA $ 3,848
$ 3,534
Total debt to EBITDA ratio 2.1
2.2

~~Stockholders’~~Stockholders' Equity

The changes to ~~stockholders’~~stockholders' equity during ~~2017~~the three months ended March 31, 2021 were as follows:


In millions
Total stockholders' equity, December 31, 2020	$	3,182
Net income	671
Repurchases of common stock	(250)
Dividends declared	(360)
Foreign currency translation adjustments, net of tax	(7)
Other, net	40
Total stockholders' equity, March 31, 2021	$	3,276

In millions
Total stockholders’ equity, December 31, 2016 $ 4,259
Net income 1,763
Repurchases of common stock (750 )
Cash dividends declared (715 )
Foreign currency translation adjustments, net of tax 367
Stock option and restricted stock activity 73
Other 29
Total stockholders’ equity, September 30, 2017 $ 5,026

FORWARD-LOOKING STATEMENTS

This ~~document~~Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," ~~"intends,~~"intend," "may," "strategy," "prospects," "estimate," “will,” “should,” “could,” "project," "target," "anticipate," "guidance," "forecast," and other similar words, including, without limitation, statements regarding the ~~expected~~duration and potential effects of the COVID-19 pandemic, related government actions and the Company's strategy in response thereto on the Company's business, future financial and operating performance, ~~of acquired businesses~~free cash flow, economic and ~~impact of divested businesses, economic~~regulatory conditions in various geographic regions, the ~~timing and amount~~impact of ~~share repurchases,~~foreign currency fluctuations, the timing and amount of benefits from the Company's ~~Enterprise Strategy,~~enterprise strategy initiatives, the timing and amount of share repurchases, the protection of the Company's intellectual property, the likelihood of future goodwill or intangible asset impairment charges, the impact of adopting new accounting pronouncements, the adequacy of internally generated funds and credit facilities to service debt and finance the Company's capital allocation priorities, the sufficiency of U.S. generated cash to fund cash requirements in the U.S., the cost and availability of additional financing, the availability of raw materials and energy and the impact of tariffs and raw material cost inflation, product line simplification activities and enterprise initiatives, the Company's portion of future benefit payments related to pension and postretirement benefits, the Company's information technology infrastructure, potential acquisitions and divestitures and the expected performance of acquired businesses and impact of ~~a change in~~divested businesses, the ~~method~~impact of ~~calculating~~U.S. tax legislation and the ~~service~~estimated timing and ~~interest cost components~~amount related to the resolution of ~~net periodic pension and other postretirement benefit costs to a specific spot rate approach, the availability of raw materials and energy, the expiration of any one of the Company's patents,~~tax matters, the cost of compliance with environmental regulations, ~~the likelihood of future goodwill or intangible asset impairment charges,~~ the impact of failure of the Company's employees to comply with applicable laws and regulations, ~~the impact of foreign currency fluctuations,~~and the outcome of outstanding legal ~~proceedings, the impact of adopting new accounting pronouncements, and the estimated timing and amount related to the~~

~~resolution of tax matters.~~proceedings. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results include (1) the COVID-19 pandemic, related government actions and the Company's strategy in response thereto, (2)

weaknesses or downturns in the markets served by the Company, ~~(2)~~(3) changes or deterioration in international and domestic political and economic conditions, ~~(3)~~(4) the unfavorable impact of foreign currency fluctuations, (5) the timing and amount of benefits from the ~~Company’s~~Company's enterprise strategy initiatives and their impact on organic revenue growth, ~~(4)~~(6) market conditions and availability of financing to fund the Company's share repurchases, ~~(5) the risk of intentional acts of the Company's employees, agents or business partners that violate anti-corruption and other laws, (6) the unfavorable impact of foreign currency fluctuations,~~ (7) a delay or decrease in the introduction of new products into the ~~Company’s~~Company's product lines, or(8) failure to protect the Company's intellectual property, ~~(8) the potential negative impact of acquisitions on the Company’s profitability and returns,~~ (9) ~~negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (10)~~ potential negative impact of impairments to goodwill and other intangible assets on the ~~Company’s profitability and~~Company's return on invested capital, ~~(11) increases in funding costs~~financial condition or ~~decreases in credit availability due to market conditions or changes to the Company's credit ratings, (12)~~results of operations, (10) raw material price increases and supply shortages, ~~(13) unfavorable tax law changes and tax authority rulings, (14)~~(11) financial market risks to the ~~Company’s~~Company's obligations under its defined benefit pension plans, ~~(15) potential adverse outcomes in legal proceedings, and (16)~~(12) negative effects of service interruptions, data corruption, cyber-based attacks, or network security ~~breaches.~~breaches, or violations of data privacy laws, (13) the potential negative impact of acquisitions on the Company's profitability and returns, (14) negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (15) unfavorable tax law changes and tax authority rulings, (16) potential adverse outcomes in legal proceedings, (17) uncertainties related to environmental regulation and the physical risks of climate change, and (18) failure of the Company's employees, agents or business partners to comply with anti-corruption and other laws. A more detailed description of these risks is contained under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. These risks are not all inclusive and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

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

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

ITEM 4. Controls and Procedures

The ~~Company carried out an evaluation, under the supervision and~~Company's management, with the participation of the ~~Company’s~~Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, ofhas evaluated the effectiveness of the ~~Company’s~~Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e)) as of ~~September 30, 2017~~.March 31, 2021. Based on such evaluation, the ~~Company’s~~Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of ~~September 30, 2017~~,March 31, 2021, the ~~Company’s~~Company's disclosure controls and procedures were effective.

In connection with the evaluation by management, including the Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the Company's internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended ~~September 30, 2017~~March 31, 2021 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

None. The Company's threshold for disclosing environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.

ITEM 1A. Risk Factors

The Company's business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary materially from recent results or from anticipated future results. Refer to the description of the Company's risk factors previously disclosed in Part I - Item 1A - Risk Factors in the Company's ~~2016~~2020 Annual Report on Form 10-K. There have been no material changes to the risk factors described therein.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On ~~February 13, 2015,~~August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provides for the repurchase of up to ~~$6.0~~$3.0 billion of the Company's common stock over an open-ended period of time (the ~~“2015 Program”~~"2018 Program"). As of ~~September 30, 2017,~~March 31, 2021, there were ~~approximately $2.7 billion~~$990 million of authorized repurchases remaining under the ~~2015~~2018 Program.

Share repurchase activity ~~under the Company's share repurchase program~~ for the ~~third~~first quarter of ~~2017~~2021 was as follows:


In millions except per share amounts
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Value of Shares That May Yet Be Purchased Under Program
January 2021	—	$	—	—	$	1,240
February 2021	0.4	$	199.70	0.4	$	1,158
March 2021	0.8	$	217.77	0.8	$	990
Total	1.2			1.2

In millions except per share amounts

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Value of Shares That May Yet Be Purchased Under Program
July 2017 0.6
$ 142.97
0.6
$ 2,856
August 2017 0.7
$ 140.35
0.7
$ 2,762
September 2017 0.5
$ 145.15
0.5
$ 2,696
Total 1.8
1.8

ITEM 6. Exhibits

Exhibit Index


Exhibit Number		Exhibit Description

~~Exhibit Number~~ 31		~~Exhibit Description~~ Rule 13a-14(a) Certifications.

3132		~~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 ~~September 30, 2017~~March 31, 2021 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.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ILLINOIS TOOL WORKS INC.

Dated:

May 6, 2021

By:

~~Dated:~~

~~October 27, 2017~~

~~By:~~

/s/ Randall J. Scheuneman

Randall J. Scheuneman

Vice President & Chief Accounting Officer

(Principal Accounting Officer and Duly Authorized Officer)



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

	For the quarterly period ended ~~September 30, 2017~~	March 31, 2021

	OR

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

	For the transition period from _______________ to _______________


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



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☐


		Table of Contents

		~~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	1113
Item 4.		Controls and Procedures	28

		PART II - Other Information

Item 1A1..		~~Risk Factors~~Legal Proceedings	2829
Item 1A.		Risk Factors	29
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.		Exhibits	30

Signatures			31



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
In millions except per share amounts	2017			2016			2017			2016
Operating Revenue	$	3,615		$	3,495		$	10,685		$	10,200
Cost of revenue	2,094			2,027			6,185			5,890
Selling, administrative, and research and development expenses	589			604			1,795			1,818
Legal settlement (income)	(80		)	—			(95		)	—
Amortization and impairment of intangible assets	51			56			156			170
Operating Income	961			808			2,644			2,322
Interest expense	(65		)	(58		)	(194		)	(174		)
Other income (expense)	10			13			24			34
Income Before Taxes	906			763			2,474			2,182
Income Taxes	266			228			711			654
Net Income	$	640		$	535		$	1,763		$	1,528

Net Income Per Share:
Basic	$	1.86		$	1.51		$	5.12		$	4.28
Diluted	$	1.85		$	1.50		$	5.07		$	4.25

Cash Dividends Per Share:
Paid	$	0.65		$	0.55		$	1.95		$	1.65
Declared	$	0.78		$	0.65		$	2.08		$	1.75

Shares of Common Stock Outstanding During the Period:
Average	343.4			353.5			344.7			357.3
Average assuming dilution	346.0			355.5			347.5			359.3



	Three Months Ended September 30,											Nine Months Ended September 30,
Dollars in millions	Operating Revenue						Operating Income					Operating Revenue						Operating Income
	2017			2016			2017		2016			2017			2016			2017		2016
Automotive OEM	$	795		$	765		$	172	$	166		$	2,443		$	2,091		$	556	$	512
Food Equipment	549			544			150		149			1,575			1,578			414		405
Test & Measurement and Electronics	525			516			127		108			1,524			1,487			337		274
Welding	378			361			100		95			1,150			1,125			312		282
Polymers & Fluids	434			422			90		89			1,297			1,283			272		266
Construction Products	440			415			112		94			1,260			1,223			303		278
Specialty Products	498			477			138		125			1,451			1,429			401		373
Intersegment revenues	(4		)	(5		)	—		—			(15		)	(16		)	—		—
Unallocated	—			—			72		(18		)	—			—			49		(68		)
Total	$	3,615		$	3,495		$	961	$	808		$	10,685		$	10,200		$	2,644	$	2,322



In millions
Total stockholders’ equity, December 31, 2016	$	4,259
Net income	1,763
Repurchases of common stock	(750		)
Cash dividends declared	(715		)
Foreign currency translation adjustments, net of tax	367
Stock option and restricted stock activity	73
Other	29
Total stockholders’ equity, September 30, 2017	$	5,026