UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

	For the quarterly period ended	~~March 31,~~June 30, 2021

	OR

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

	For the transition period from _______________ to _______________

Commission File Number: 1-4797

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware

36-1258310

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

155 Harlem Avenue

Glenview

60025

(Address of principal executive offices)

(Zip Code)

(Registrant's telephone number, including area code) 847-724-7500

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	ITW	New York Stock Exchange
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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

The number of shares of registrant's common stock, $0.01 par value, outstanding at ~~March 31,~~June 30, 2021: ~~315,882,732~~314,967,814


	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	13
Item 4.	Controls and Procedures	2830

	PART II - Other Information

Item 1.	Legal Proceedings	2931
Item 1A.	Risk Factors	2931
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2931
Item 6.	Exhibits	3032

Signatures		3134

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31,				June 30,				June 30,
In millions except per share amounts	In millions except per share amounts	2021		2020			In millions except per share amounts	2021		2020		2021		2020
Operating Revenue	Operating Revenue	$	3,544	$	3,228		Operating Revenue	$	3,676	$	2,564	$	7,220	$	5,792
Cost of revenue	Cost of revenue	2,039		1,871			Cost of revenue	2,163		1,594		4,202		3,465
Selling, administrative, and research and development expenses	Selling, administrative, and research and development expenses	566		560			Selling, administrative, and research and development expenses	588		486		1,154		1,046
Amortization and impairment of intangible assets	Amortization and impairment of intangible assets	34		36			Amortization and impairment of intangible assets	32		35		66		71
Operating Income	Operating Income	905		761			Operating Income	893		449		1,798		1,210
Interest expense	Interest expense	(52)		(51)			Interest expense	(52)		(51)		(104)		(102)
Other income (expense)	Other income (expense)	12		25			Other income (expense)	22		8		34		33
Income Before Taxes	Income Before Taxes	865		735			Income Before Taxes	863		406		1,728		1,141
Income Taxes	Income Taxes	194		169			Income Taxes	88		87		282		256
Net Income	Net Income	$	671	$	566		Net Income	$	775	$	319	$	1,446	$	885

Net Income Per Share:	Net Income Per Share:						Net Income Per Share:
Basic	Basic	$	2.12	$	1.78		Basic	$	2.46	$	1.01	$	4.58	$	2.79
Diluted	Diluted	$	2.11	$	1.77		Diluted	$	2.45	$	1.01	$	4.56	$	2.78

Shares of Common Stock Outstanding During the Period:	Shares of Common Stock Outstanding During the Period:						Shares of Common Stock Outstanding During the Period:
Average	Average	316.6		318.3			Average	315.6		316.1		316.1		317.2
Average assuming dilution	Average assuming dilution	317.9		319.7			Average assuming dilution	316.9		317.4		317.4		318.6

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				Three Months Ended				Six Months Ended
		March 31,				June 30,				June 30,
In millions	In millions	2021		2020			In millions	2021		2020		2021		2020
Net Income	Net Income	$	671	$	566		Net Income	$	775	$	319	$	1,446	$	885

Foreign currency translation adjustments, net of tax	Foreign currency translation adjustments, net of tax	(7)		(287)			Foreign currency translation adjustments, net of tax	37		64		30		(223)
Pension and other postretirement benefit adjustments, net of tax	Pension and other postretirement benefit adjustments, net of tax	11		9			Pension and other postretirement benefit adjustments, net of tax	11		10		22		19
Other comprehensive income (loss)	Other comprehensive income (loss)	4		(278)			Other comprehensive income (loss)	48		74		52		(204)

Comprehensive Income	Comprehensive Income	$	675	$	288		Comprehensive Income	$	823	$	393	$	1,498	$	681

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	In millions except per share amounts	March 31, 2021		December 31, 2020		In millions except per share amounts	June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current Assets:	Current Assets:					Current Assets:
Cash and equivalents	Cash and equivalents	$	2,484	$	2,564	Cash and equivalents	$	2,058	$	2,564
Trade receivables	Trade receivables	2,662		2,506		Trade receivables	2,786		2,506
Inventories	Inventories	1,292		1,189		Inventories	1,400		1,189
Prepaid expenses and other current assets	Prepaid expenses and other current assets	266		264		Prepaid expenses and other current assets	265		264
Total current assets	Total current assets	6,704		6,523		Total current assets	6,509		6,523

Net plant and equipment	Net plant and equipment	1,746		1,777		Net plant and equipment	1,767		1,777
Goodwill	Goodwill	4,632		4,690		Goodwill	4,658		4,690
Intangible assets	Intangible assets	747		781		Intangible assets	716		781
Deferred income taxes	Deferred income taxes	519		533		Deferred income taxes	613		533
Other assets	Other assets	1,315		1,308		Other assets	1,317		1,308
		$	15,663	$	15,612		$	15,580	$	15,612

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current Liabilities:	Current Liabilities:					Current Liabilities:
Short-term debt	Short-term debt	$	350	$	350	Short-term debt	$	592	$	350
Accounts payable	Accounts payable	589		534		Accounts payable	607		534
Accrued expenses	Accrued expenses	1,261		1,284		Accrued expenses	1,326		1,284
Cash dividends payable	Cash dividends payable	360		361		Cash dividends payable	358		361
Income taxes payable	Income taxes payable	120		60		Income taxes payable	77		60
Total current liabilities	Total current liabilities	2,680		2,589		Total current liabilities	2,960		2,589

Noncurrent Liabilities:	Noncurrent Liabilities:					Noncurrent Liabilities:
Long-term debt	Long-term debt	7,599		7,772		Long-term debt	7,056		7,772
Deferred income taxes	Deferred income taxes	637		588		Deferred income taxes	617		588
Noncurrent income taxes payable	Noncurrent income taxes payable	413		413		Noncurrent income taxes payable	365		413
Other liabilities	Other liabilities	1,058		1,068		Other liabilities	1,061		1,068
Total noncurrent liabilities	Total noncurrent liabilities	9,707		9,841		Total noncurrent liabilities	9,099		9,841

Stockholders' Equity:	Stockholders' Equity:					Stockholders' Equity:
Common stock (par value of $0.01 per share):	Common stock (par value of $0.01 per share):					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
Issued- 550.0 shares in 2021 and 2020 Outstanding- 315.0 shares in 2021 and 316.7 shares in 2020						Issued- 550.0 shares in 2021 and 2020 Outstanding- 315.0 shares in 2021 and 316.7 shares in 2020	6		6
Additional paid-in-capital	Additional paid-in-capital	1,378		1,362		Additional paid-in-capital	1,402		1,362
Retained earnings	Retained earnings	23,425		23,114		Retained earnings	23,842		23,114
Common stock held in treasury	Common stock held in treasury	(19,897)		(19,659)		Common stock held in treasury	(20,140)		(19,659)
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(1,638)		(1,642)		Accumulated other comprehensive income (loss)	(1,590)		(1,642)
Noncontrolling interest	Noncontrolling interest	2		1		Noncontrolling interest	1		1
Total stockholders' equity	Total stockholders' equity	3,276		3,182		Total stockholders' equity	3,521		3,182
		$	15,663	$	15,612		$	15,580	$	15,612

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Changes in Stockholders' Equity (Unaudited)


In millions except per share amounts	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		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
Three Months Ended June 30, 2021																Three Months Ended June 30, 2021
Balance at March 31, 2021																Balance at March 31, 2021	$	6	$	1,378	$	23,425	$	(19,897)	$	(1,638)	$	2	$	3,276
Net income	Net income	—		—		671		—		—		—		671		Net income	—		—		775		—		—		—		775
Common stock issued for stock-based compensation	Common stock issued for stock-based compensation	—		5		—		12		—		—		17		Common stock issued for stock-based compensation	—		8		—		7		—		—		15
Stock-based compensation expense	Stock-based compensation expense	—		11		—		—		—		—		11		Stock-based compensation expense	—		16		—		—		—		—		16
Repurchases of common stock	Repurchases of common stock	—		—		—		(250)		—		—		(250)		Repurchases of common stock	—		—		—		(250)		—		—		(250)
Dividends declared ($1.14 per share)	Dividends declared ($1.14 per share)	—		—		(360)		—		—		—		(360)		Dividends declared ($1.14 per share)	—		—		(358)		—		—		—		(358)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		4		—		4		Other comprehensive income (loss)	—		—		—		—		48		—		48
Noncontrolling interest	Noncontrolling interest	—		—		—		—		—		1		1		Noncontrolling interest	—		—		—		—		—		(1)		(1)
Balance at March 31, 2021		$	6	$	1,378	$	23,425	$	(19,897)	$	(1,638)	$	2	$	3,276
Balance at June 30, 2021																Balance at June 30, 2021	$	6	$	1,402	$	23,842	$	(20,140)	$	(1,590)	$	1	$	3,521

Three Months Ended March 31, 2020
Three Months Ended June 30, 2020																Three Months Ended June 30, 2020
Balance at March 31, 2020																Balance at March 31, 2020	$	6	$	1,309	$	22,631	$	(19,680)	$	(1,983)	$	1	$	2,284
Net income																Net income	—		—		319		—		—		—		319
Common stock issued for stock-based compensation																Common stock issued for stock-based compensation	—		—		—		11		—		—		11
Stock-based compensation expense																Stock-based compensation expense	—		8		—		—		—		—		8

Dividends declared ($1.07 per share)																Dividends declared ($1.07 per share)	—		—		(338)		—		—		—		(338)
Other comprehensive income (loss)																Other comprehensive income (loss)	—		—		—		—		74		—		74

Balance at June 30, 2020																Balance at June 30, 2020	$	6	$	1,317	$	22,612	$	(19,669)	$	(1,909)	$	1	$	2,358

Six Months Ended June 30, 2021																Six Months Ended June 30, 2021
Balance at December 31, 2020																Balance at December 31, 2020	$	6	$	1,362	$	23,114	$	(19,659)	$	(1,642)	$	1	$	3,182
Net income																Net income	—		—		1,446		—		—		—		1,446
Common stock issued for stock-based compensation																Common stock issued for stock-based compensation	—		13		—		19		—		—		32
Stock-based compensation expense																Stock-based compensation expense	—		27		—		—		—		—		27
Repurchases of common stock																Repurchases of common stock	—		—		—		(500)		—		—		(500)
Dividends declared ($2.28 per share)																Dividends declared ($2.28 per share)	—		—		(718)		—		—		—		(718)
Other comprehensive income (loss)																Other comprehensive income (loss)	—		—		—		—		52		—		52
Noncontrolling interest																Noncontrolling interest	—		—		—		—		—		—		0
Balance at June 30, 2021																Balance at June 30, 2021	$	6	$	1,402	$	23,842	$	(20,140)	$	(1,590)	$	1	$	3,521

Six Months Ended June 30, 2020																Six Months Ended June 30, 2020
Balance at December 31, 2019	Balance at December 31, 2019	$	6	$	1,304	$	22,403	$	(18,982)	$	(1,705)	$	4	$	3,030	Balance at December 31, 2019	$	6	$	1,304	$	22,403	$	(18,982)	$	(1,705)	$	4	$	3,030
Net income	Net income	—		—		566		—		—		—		566		Net income	—		—		885		—		—		—		885
Common stock issued for stock-based compensation	Common stock issued for stock-based compensation	—		(3)		—		8		—		—		5		Common stock issued for stock-based compensation	—		(3)		—		19		—		—		16
Stock-based compensation expense	Stock-based compensation expense	—		9		—		—		—		—		9		Stock-based compensation expense	—		17		—		—		—		—		17
Repurchases of common stock	Repurchases of common stock	—		—		—		(706)		—		—		(706)		Repurchases of common stock	—		—		—		(706)		—		—		(706)
Dividends declared ($1.07 per share)		—		—		(338)		—		—		—		(338)
Dividends declared ($2.14 per share)																Dividends declared ($2.14 per share)	—		—		(676)		—		—		—		(676)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		(278)		—		(278)		Other comprehensive income (loss)	—		—		—		—		(204)		—		(204)
Noncontrolling interest	Noncontrolling interest	—		(1)		—		—		—		(3)		(4)		Noncontrolling interest	—		(1)		—		—		—		(3)		(4)
Balance at March 31, 2020		$	6	$	1,309	$	22,631	$	(19,680)	$	(1,983)	$	1	$	2,284

Balance at June 30, 2020																Balance at June 30, 2020	$	6	$	1,317	$	22,612	$	(19,669)	$	(1,909)	$	1	$	2,358

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					Six Months Ended
		March 31,					June 30,
In millions	In millions	2021		2020		In millions	2021		2020
Cash Provided by (Used for) Operating Activities:	Cash Provided by (Used for) Operating Activities:					Cash Provided by (Used for) Operating Activities:
Net income	Net income	$	671	$	566	Net income	$	1,446	$	885
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	Depreciation	66		68		Depreciation	136		133
Amortization and impairment of intangible assets	Amortization and impairment of intangible assets	34		36		Amortization and impairment of intangible assets	66		71
Change in deferred income taxes	Change in deferred income taxes	21		17		Change in deferred income taxes	(87)		22
Provision for uncollectible accounts	Provision for uncollectible accounts	0		2		Provision for uncollectible accounts	1		4
(Income) loss from investments	(Income) loss from investments	(1)		(3)		(Income) loss from investments	(24)		(5)

(Gain) loss on sale of operations and affiliates	(Gain) loss on sale of operations and affiliates	0		(1)		(Gain) loss on sale of operations and affiliates	0		(1)
Stock-based compensation expense	Stock-based compensation expense	11		9		Stock-based compensation expense	27		17
Other non-cash items, net	Other non-cash items, net	3		2		Other non-cash items, net	7		4
Change in assets and liabilities, net of acquisitions and divestitures:	Change in assets and liabilities, net of acquisitions and divestitures:					Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-	(Increase) decrease in-					(Increase) decrease in-
Trade receivables	Trade receivables	(192)		10		Trade receivables	(300)		302
Inventories	Inventories	(122)		(48)		Inventories	(222)		(14)
Prepaid expenses and other assets	Prepaid expenses and other assets	(21)		(10)		Prepaid expenses and other assets	(20)		23
Increase (decrease) in-	Increase (decrease) in-					Increase (decrease) in-
Accounts payable	Accounts payable	65		17		Accounts payable	80		(76)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(13)		(93)		Accrued expenses and other liabilities	41		(96)
Income taxes	Income taxes	88		46		Income taxes	13		80
Other, net	Other, net	(1)		(4)		Other, net	0		2
Net cash provided by operating activities	Net cash provided by operating activities	609		614		Net cash provided by operating activities	1,164		1,351
Cash Provided by (Used for) Investing Activities:	Cash Provided by (Used for) Investing Activities:					Cash Provided by (Used for) Investing Activities:

Additions to plant and equipment	Additions to plant and equipment	(68)		(60)		Additions to plant and equipment	(146)		(116)
Proceeds from investments	Proceeds from investments	1		7		Proceeds from investments	30		10
Proceeds from sale of plant and equipment	Proceeds from sale of plant and equipment	2		3		Proceeds from sale of plant and equipment	3		5

Other, net	Other, net	0		(3)		Other, net	(1)		(2)
Net cash provided by (used for) investing activities	Net cash provided by (used for) investing activities	(65)		(53)		Net cash provided by (used for) investing activities	(114)		(103)
Cash Provided by (Used for) Financing Activities:	Cash Provided by (Used for) Financing Activities:					Cash Provided by (Used for) Financing Activities:
Cash dividends paid	Cash dividends paid	(361)		(342)		Cash dividends paid	(721)		(680)
Issuance of common stock	Issuance of common stock	26		17		Issuance of common stock	42		28
Repurchases of common stock	Repurchases of common stock	(250)		(706)		Repurchases of common stock	(500)		(706)

Repayments of debt with original maturities of more than three months						Repayments of debt with original maturities of more than three months	(350)		0
Other, net	Other, net	(9)		(16)		Other, net	(10)		(17)
Net cash provided by (used for) financing activities	Net cash provided by (used for) financing activities	(594)		(1,047)		Net cash provided by (used for) financing activities	(1,539)		(1,375)
Effect of Exchange Rate Changes on Cash and Equivalents	Effect of Exchange Rate Changes on Cash and Equivalents	(30)		(65)		Effect of Exchange Rate Changes on Cash and Equivalents	(17)		(42)
Cash and Equivalents:	Cash and Equivalents:					Cash and Equivalents:
Increase (decrease) during the period	Increase (decrease) during the period	(80)		(551)		Increase (decrease) during the period	(506)		(169)
Beginning of period	Beginning of period	2,564		1,981		Beginning of period	2,564		1,981
End of period	End of period	$	2,484	$	1,430	End of period	$	2,058	$	1,812
Supplementary Cash Flow Information:	Supplementary Cash Flow Information:					Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	Cash Paid During the Period for Interest	$	56	$	56	Cash Paid During the Period for Interest	$	128	$	119
Cash Paid During the Period for Income Taxes, Net of Refunds	Cash Paid During the Period for Income Taxes, Net of Refunds	$	86	$	106	Cash Paid During the Period for Income Taxes, Net of Refunds	$	355	$	153

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

Illinois Tool Works Inc. and Subsidiaries

Notes to Financial Statements (Unaudited)

(1) Significant Accounting Policies

Financial Statements— The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the "Company"). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. It is suggested that these financial statements be read in conjunction with the financial statements and notes to financial statements included in the Company's 2020 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

(2) Novel Coronavirus (COVID-19)

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. In the first ~~quarter~~half 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 highly ~~uncertain.~~uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and spikes in infections (including the spread of variants) also being experienced. A prolonged outbreak ~~will~~could continue to interrupt the operations of the Company 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 and six months ended ~~March 31,~~June 30, 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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
In millions	2021		2020		2021		2020
Automotive OEM	$	707	$	361	$	1,490	$	1,057
Food Equipment	514		336		965		819
Test & Measurement and Electronics	606		455		1,158		940
Welding	402		298		803		670
Polymers & Fluids	466		354		901		747
Construction Products	518		376		987		766
Specialty Products	471		387		928		801
Intersegment revenue	(8)		(3)		(12)		(8)
Total operating revenue	$	3,676	$	2,564	$	7,220	$	5,792

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 as tooling is not considered a product offering central to the Company's operations.

Food Equipment— This segment is a highly focused and branded industry leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food service, food 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, typically involving installation of equipment and customer acceptance, revenue recognition is deferred until such obligations have been completed.

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

•arc welding equipment; and

•metal arc welding consumables and related accessories.

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

Polymers & Fluids— This segment is a branded supplier to niche markets that require value-added, differentiated products. Businesses in this segment produce engineered adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. This segment primarily serves the automotive aftermarket, general industrial, MRO and construction markets. Products in this segment include:

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to machines;

•epoxy and resin-based coating products for industrial applications;

•hand wipes and cleaners for industrial applications;

•fluids, polymers and other supplies for auto aftermarket maintenance and appearance;

•fillers and putties for auto body repair; and

•polyester coatings and patch and repair products for the marine industry.

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

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

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

•anchors, fasteners and related tools for concrete applications;

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

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

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

Specialty Products— This segment is focused on diversified niche market opportunities with substantial patent protection producing beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. This segment primarily serves the food and beverage, consumer durables, general industrial, industrial capital goods and printing and publishing 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 closures and components for appliances;

•airport ground support equipment; and

•components for medical devices.

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

(4) Income Taxes

The Company's effective tax rate for the three months ended ~~March 31,~~June 30, 2021 and 2020 was 10.1% and 21.3%, respectively, and 16.3% and 22.4% for the six months ended June 30, 2021 and ~~23.0%,~~2020, respectively. The effective tax rate for the three months ended ~~March 31,~~June 30, 2021 ~~and 2020 benefited from~~included a discrete income tax ~~benefits~~benefit of $9$112 million ~~and $7 million, respectively,~~related to the remeasurement of net deferred tax assets due to the enactment of the U.K. Finance Bill 2021, which increases the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rate included discrete income tax benefits related to excess tax benefits from stock-based ~~compensation.~~compensation of $4 million and $5 million for the three months ended June 30, 2021 and 2020, respectively, and $13 million and $12 million for the six months ended June 30, 2021 and 2020, respectively.

The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions, including the Internal Revenue Service ("IRS"), Her Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. Due to the ongoing audits, the Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately ~~$99~~$55 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues.

(5) Inventories

Inventories as of ~~March 31,~~June 30, 2021 and December 31, 2020 were as follows:


In millions	In millions	March 31, 2021		December 31, 2020		In millions	June 30, 2021		December 31, 2020
Raw material	Raw material	$	495	$	454	Raw material	$	546	$	454
Work-in-process	Work-in-process	159		136		Work-in-process	166		136
Finished goods	Finished goods	722		681		Finished goods	779		681
LIFO reserve	LIFO reserve	(84)		(82)		LIFO reserve	(91)		(82)
Total inventories	Total inventories	$	1,292	$	1,189	Total inventories	$	1,400	$	1,189

(6) Pension and Other Postretirement Benefits

Pension and other postretirement benefit costs for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 were as follows:


		Three Months Ended								Three Months Ended					Six Months Ended
		March 31,								June 30,					June 30,
		Pension				Other Postretirement Benefits					Pension		Other Postretirement Benefits				Pension				Other Postretirement Benefits
In millions	In millions	2021		2020		2021		2020				In millions	2021		2020		2021		2020		2021		2020		2021		2020
Components of net periodic benefit cost:	Components of net periodic benefit cost:											Components of net periodic benefit cost:
Service cost	Service cost	$	13	$	14	$	2	$	2			Service cost	$	14	$	13	$	2	$	2	$	27	$	27	$	4	$	4
Interest cost	Interest cost	10		15		3		4				Interest cost	10		15		2		4		20		30		5		8
Expected return on plan assets	Expected return on plan assets	(25)		(28)		(7)		(6)				Expected return on plan assets	(26)		(28)		(6)		(6)		(51)		(56)		(13)		(12)
Amortization of actuarial loss (gain)	Amortization of actuarial loss (gain)	13		12		0		0				Amortization of actuarial loss (gain)	13		12		0		0		26		24		0		0

Amortization of prior service cost												Amortization of prior service cost	1		0		0		0		1		0		0		0
Total net periodic benefit cost	Total net periodic benefit cost	$	11	$	13	$	(2)	$	0			Total net periodic benefit cost	$	12	$	12	$	(2)	$	0	$	23	$	25	$	(4)	$	0

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 $28 million to its pension plans and $4 million to its other postretirement benefit plans in 2021. As of ~~March 31,~~June 30, 2021, contributions of ~~$14~~$18 million to pension plans and $2 million to other postretirement benefit plans have been made.

(7) Debt

There was 0 commercial paper outstanding as of ~~March 31,~~June 30, 2021 and December 31, 2020. Short-term debt as of ~~March 31,~~June 30, 2021 ~~and~~included $592 million related to the 1.75% Euro notes due May 20, 2022, which were reclassified from Long-term debt to Short-term debt in the second quarter of 2021. Short-term debt as of December 31, 2020 included ~~$350~~$350 million related to the 3.375% notes due September 15, 2021, which were redeemed in full on June 15, 2021. The Company has a ~~$2.5~~$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 potential issuances of commercial paper. NaN amounts were outstanding under the ~~$2.5~~$2.5 billion revolving credit facility as of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021 and December 31, 2020 were as follows:


In millions	In millions	March 31, 2021		December 31, 2020		In millions	June 30, 2021		December 31, 2020
Fair value	Fair value	$	8,880	$	9,412	Fair value	$	8,649	$	9,412
Carrying value	Carrying value	7,949		8,122		Carrying value	7,648		8,122

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) Accumulated Other Comprehensive Income (Loss)

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


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31,				June 30,				June 30,
In millions	In millions	2021		2020			In millions	2021		2020		2021		2020
Beginning balance	Beginning balance	$	(1,642)	$	(1,705)		Beginning balance	$	(1,638)	$	(1,983)	$	(1,642)	$	(1,705)

Foreign currency translation adjustments during the period	Foreign currency translation adjustments during the period	33		(272)			Foreign currency translation adjustments during the period	24		47		57		(225)
Foreign currency translation adjustments reclassified to income	Foreign currency translation adjustments reclassified to income	2		0			Foreign currency translation adjustments reclassified to income	2		0		4		0
Income taxes	Income taxes	(42)		(15)			Income taxes	11		17		(31)		2
Total foreign currency translation adjustments, net of tax	Total foreign currency translation adjustments, net of tax	(7)		(287)			Total foreign currency translation adjustments, net of tax	37		64		30		(223)

Pension and other postretirement benefit adjustments reclassified to income	Pension and other postretirement benefit adjustments reclassified to income	13		12			Pension and other postretirement benefit adjustments reclassified to income	14		12		27		24
Income taxes	Income taxes	(2)		(3)			Income taxes	(3)		(2)		(5)		(5)
Total pension and other postretirement benefit adjustments, net of tax	Total pension and other postretirement benefit adjustments, net of tax	11		9			Total pension and other postretirement benefit adjustments, net of tax	11		10		22		19

Ending balance	Ending balance	$	(1,638)	$	(1,983)		Ending balance	$	(1,590)	$	(1,909)	$	(1,590)	$	(1,909)

Foreign currency translation adjustments reclassified to income related to anthe exit of immaterial ~~divestiture.~~foreign operations. Pension and other postretirement benefit adjustments reclassified to income ~~represent~~represented the amortization of actuarial ~~losses.~~losses and prior service cost. Refer to Note 6. Pension and Other Postretirement Benefits for additional information.

The Company ~~designated~~designated the €1.0 billion of Euro notes issued in May 2014, the €1.0 billion of Euro notes issued in May 2015 and the €1.6 billion of Euro ~~notes~~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. Changes in the value of this debt resulting ~~from~~from fluctuations in the Euro to U.S. Dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). The carrying values of the 2019, 2015 and 2014 Euro notes were $1.9 billion, $1.2 billion and $1.2 billion, ~~respectively,~~respectively, as of ~~March 31,~~June 30, 2021. The cumulative unrealized pre-tax gain (loss) recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was a gain of ~~$54~~$9 million as of ~~March 31,~~June 30, 2021 and a loss of $120 million as of December 31, 2020.

As of ~~March 31,~~June 30, 2021 and 2020, the ending balance of Accumulated other comprehensive income (loss) consisted of after-tax cumulative translation adjustment losses of $1.3 billion and ~~$1.6~~$1.5 billion, respectively, and after-tax unrecognized pension and other postretirement benefits cost of ~~$320~~$309 million and ~~$381~~$371 million, respectively.

(9) Segment Information

The Company's operations are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following 7 segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for information regarding operating revenue and operating income for the Company's segments.

(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 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 83 divisions in 52 countries. As of December 31, 2020, the Company employed approximately 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 core source of value creation. The ITW Business Model is the Company's competitive advantage and defines how ITW creates value for its shareholders. It is comprised of three unique elements:

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

•Customer-Back Innovation has fueled decades of profitable growth at ITW. The Company's unique innovation approach is built on insight gathered from the 80/20 Front-to-Back process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their "80" customers. ITW's innovation efforts are focused on understanding customer needs, particularly those in "80" markets with solid long-term growth fundamentals, and creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately 18,500 granted and pending patents;

•ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive. ITW businesses have significant flexibility within the framework of the ITW Business Model to customize their approach in order to best serve their specific customers' needs. ITW colleagues recognize their unique responsibilities to execute

the Company's strategy and values. As a result, the Company maintains a focused and simple organizational structure that, combined with outstanding execution, delivers best-in-class services and solutions adapted to each business' customers and end markets.

ENTERPRISE STRATEGY

In late 2012, ITW began its strategic framework transitioning the Company on its current path to fully leverage the compelling performance potential of the ITW Business Model. The Company undertook a complete review of its performance, focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, and developing a strategy to replicate that performance across its operations.

ITW determined that solid and consistent above-market organic growth 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 business portfolio. As part of the Portfolio Management initiative, ITW exited businesses that were operating in commoditized market spaces and prioritized sustainable differentiation as a must-have requirement for all ITW businesses. This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions.

As a result of this work, ITW's business portfolio now has significantly higher organic growth potential. ITW segments and divisions now possess attractive and differentiated product lines and end markets as they continue to improve operating margins and generate price/cost increases. The Company achieved this through product line simplification, or eliminating the complexity and overhead costs associated with smaller product lines and customers, while supporting and growing the businesses' largest / most profitable customers and product lines.

•Step two, Business Structure Simplification, was implemented to simplify and scale up ITW's operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 83 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

•The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through 2020 and continues to be a key contributor to the Company's ongoing enterprise strategy.

•With the initial portfolio realignment and scale-up work largely complete, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process to optimize its newly scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth.

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

PATH TO FULL POTENTIAL

Since the launch of the enterprise strategy, the Company has made considerable progress to position itself to reach full potential. The ITW Business Model and unique set of capabilities are a source of strong and enduring competitive advantage, but for the Company to truly reach its full potential, every one of its divisions must also be operating at its full potential. To do so, the Company 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 to 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 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 2020 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

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.~~uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and spikes in infections (including the spread of variants) also being experienced. A prolonged outbreak ~~will~~could 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 delivered strong financial results in the ~~first~~second quarter and year-to-date periods of 2021 ~~as the Company experienced solid recovery progress in many of its end markets. The primary drivers of the Company's financial performance are~~primarily due to the continued successful execution of enterprise initiatives, including the "Win the Recovery" actions initiated over the course of the past year, and continued focus on the highly differentiated ITW Business Model. Despite rising raw material costs and a challenging global supply chain environment, the Company generated operating revenue growth of ~~9.8~~43.4 percent ~~operating~~in the second quarter and 24.7 percent in the year-to-date period as all segments and major geographic regions achieved double-digit organic revenue growth. Operating income ~~growth of 18.8~~grew 99 percent ~~operating~~and 48.5 percent in the second quarter and year-to-date periods, respectively. Operating margin was ~~25.5~~24.3 percent in the second quarter and ~~after-tax~~24.9 percent in the year-to-date period as all segments achieved margin expansion compared to the respective prior year period. After-tax return on average invested capital was ~~32.1 percent. Additionally, with~~30.8 percent and 31.3 percent in the ~~exception~~second quarter and year-to-date periods of ~~the Food Equipment segment, all segments achieved organic revenue growth, and all seven segments had operating margins that exceeded 21 percent.~~2021, respectively. Refer to the 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~~second quarter and year-to-date periods of 2021 and 2020 were as follows:


		Three Months Ended																	Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	3,544		$	3,228		9.8	%	6.1	%	—	%	—	%			3.7	%	9.8	%	Operating revenue	$	3,676		$	2,564			43.4	%	37.2	%	—	%	—	%	6.2	%	43.4	%
Operating income	Operating income	$	905		$	761		18.8	%	14.6	%	—	%	—	%			4.2	%	18.8	%	Operating income	$	893		$	449			99.0	%	90.5	%	0.1	%	(0.5)	%	8.9	%	99.0	%
Operating margin %	Operating margin %	25.5		%	23.6		%	190 bps		190 bps		—		—				—		190 bps		Operating margin %	24.3		%	17.5		%		680 bps		680 bps		—		—		—		680 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	7,220		$	5,792		24.7	%	19.9	%	—	%	—	%	4.8	%	24.7	%
Operating income	$	1,798		$	1,210		48.5	%	42.8	%	—	%	(0.2)	%	5.9	%	48.5	%
Operating margin %	24.9		%	20.9		%	400 bps		400 bps		—		—		—		400 bps

•Operating revenue increased ~~9.8 percent~~43.4% in the second quarter and 24.7% in the year to date period due to higher organic revenue and the favorable effect of foreign currency translation.

•Organic revenue grew ~~6.1% primarily~~37.2% and 19.9% in the second quarter and year-to-date periods, respectively, due to growth in all segments, as the ~~solid recovery progress~~Company saw continued improvement in ~~many~~both the breadth and pace 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. Productrecovery. Additionally, product line simplification activities reduced organic revenue by 20 basis points in the ~~first quarter.~~second quarter and year-to-date periods.

◦North American organic revenue grew ~~4.3% as an increase in five segments was partially offset by a decline~~36.3% and 18.5% in the second quarter and year-to-date periods, respectively, due to growth in all segments primarily driven by the Automotive OEM, Test & Measurement and Electronics, Welding and Food Equipment ~~and Automotive OEM~~ segments.

◦Europe, Middle East and Africa organic revenue increased ~~0.5%. Growth~~49.6% in the second quarter and 20.3% in the year-to-date period due to growth in all segments primarily driven by Automotive OEM, Food Equipment, Construction Products ~~Automotive OEM,~~and 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%~~20.0% and 23.4% in the second quarter and year-to-date periods, respectively, due to growth in all segments. China organic revenue grew ~~62.4% as all~~14.3% and 34.5% in the second quarter and year-to-date periods, respectively, due to growth in six segments, ~~had growth, driven primarily~~partially offset by a decline in the ~~Automotive OEM, Test & Measurement and Electronics, Food Equipment and Polymers & Fluids segments.~~Construction Products segment.

•Operating income of ~~$905~~$893 million and $1.8 billion in the ~~first~~second quarter and year-to-date periods, respectively, increased ~~18.8%.~~99.0% and 48.5% in the respective periods.

•Operating margin was ~~25.5%~~24.3% in the ~~first~~second quarter. The increase of ~~190~~680 basis points was primarily driven by positive operating leverage of 700 basis points and benefits from the Company's enterprise initiatives of ~~120 basis points and positive operating leverage of 120~~150 basis points, partially offset by unfavorable price/cost of 60120 basis ~~points.~~points and higher overhead expenses, including employee-related expenses.

•

In the year-to-date period, operating margin of 24.9% increased 400 basis points primarily due to positive operating leverage of 390 basis points and benefits from the Company's enterprise initiatives of 130 basis points, partially offset by unfavorable price/cost of 90 basis points and higher overhead expenses, including employee-related expenses.

•The effective tax rate for the ~~first~~second quarter of 2021 and 2020 was 10.1% and 21.3%, respectively, and 16.3% and 22.4% for the respective year-to-date periods of 2021 and ~~23.0%, respectively.~~2020. The effective tax rate for the second quarter of 2021 included a discrete income tax benefit of $112 million related to the remeasurement of net deferred tax assets due to the enactment of the U.K. Finance Bill 2021, which increases the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rate included discrete income tax benefits related to excess tax benefits from stock-based compensation of $9$4 million and $7$5 million for the ~~first~~second quarter of 2021 and 2020, ~~respectively.~~respectively, and $13 million and $12 million for the respective year-to-date periods of 2021 and 2020.

•Diluted earnings per share (EPS) ~~were $2.11~~of $2.45 for the ~~first~~second quarter and $4.56 for the year-to-date period increased 142.6% and 64.0%, respectively. Excluding the favorable impact of ~~2021, an increase~~the discrete income tax benefit of ~~19.2%.~~$0.35 related to the remeasurement of the U.K. net deferred tax assets, EPS increased 107.9% and 51.4% in the respective periods.

•Free cash flow was ~~$541~~$477 million and $1.0 billion for the ~~first~~second quarter and year-to-date periods of ~~2021.~~2021, respectively. 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~~1.1 million and 2.3 million shares of its common stock in the ~~first~~second quarter and year-to-date periods of 2021, respectively, for approximately $250 ~~million.~~million and $500 million, respectively.

•After-tax return on average invested capital was ~~32.1%~~30.8% for the ~~first~~second quarter and 31.3% for the year-to-date period of ~~2021 compared to 27.0% in the prior period.~~2021. 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 ~~first~~second quarter and year-to-date periods of 2021 and 2020 were as follows:


		Three Months ended March 31,								Three Months ended June 30,						Six Months Ended June 30,
Dollars in millions	Dollars in millions	Operating Revenue				Operating Income					Dollars in millions	Operating Revenue		Operating Income				Operating Revenue				Operating Income
		2021		2020		2021		2020						2021		2020		2021		2020		2021		2020		2021		2020
Automotive OEM	Automotive OEM	$	783	$	696	$	189	$	145				Automotive OEM	$	707	$	361	$	133	$	(28)	$	1,490	$	1,057	$	322	$	117
Food Equipment	Food Equipment	451		483		96		117					Food Equipment	514		336		113		31		965		819		209		148
Test & Measurement and Electronics	Test & Measurement and Electronics	552		485		157		121					Test & Measurement and Electronics	606		455		170		117		1,158		940		327		238
Welding	Welding	401		372		121		109					Welding	402		298		115		64		803		670		236		173
Polymers & Fluids	Polymers & Fluids	435		393		112		93					Polymers & Fluids	466		354		127		82		901		747		239		175
Construction Products	Construction Products	469		390		130		91					Construction Products	518		376		143		90		987		766		273		181
Specialty Products	Specialty Products	457		414		126		109					Specialty Products	471		387		128		98		928		801		254		207
Intersegment revenue	Intersegment revenue	(4)		(5)		—		—					Intersegment revenue	(8)		(3)		—		—		(12)		(8)		—		—
Unallocated	Unallocated	—		—		(26)		(24)					Unallocated	—		—		(36)		(5)		—		—		(62)		(29)
Total	Total	$	3,544	$	3,228	$	905	$	761				Total	$	3,676	$	2,564	$	893	$	449	$	7,220	$	5,792	$	1,798	$	1,210

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.

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 ~~first~~second quarter and year-to-date periods of 2021 and 2020 were as follows:


		Three Months Ended															Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	783		$	696		12.6	%	7.6	%	—	%	—	%	5.0	%	12.6	%	Operating revenue	$	707		$	361			95.3	%	83.5	%	—	%	—	%	11.8	%	95.3	%
Operating income	Operating income	$	189		$	145		30.2	%	23.1	%	—	%	1.1	%	6.0	%	30.2	%	Operating income	$	133		$	(28)			573.8	%	547.8	%	—	%	(3.1)	%	29.1	%	573.8	%
Operating margin %	Operating margin %	24.1		%	20.9		%	320 bps		300 bps		—		20 bps		—		320 bps		Operating margin %	18.8		%	(7.8)		%		2660 bps		2670 bps		—		(10) bps		—		2660 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,490		$	1,057		40.9	%	33.6	%	—	%	—	%	7.3	%	40.9	%
Operating income	$	322		$	117		175.0	%	159.9	%	—	%	0.6	%	14.5	%	175.0	%
Operating margin %	21.6		%	11.1		%	1050 bps		1050 bps		—		—		—		1050 bps

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

•Organic revenue increased ~~7.6%~~83.5%and 33.6% in the second quarter and year-to-date periods, respectively, primarily due to demand recovery versus ~~worldwide~~the prior year. Worldwide auto builds ~~which increased 14% due to customer~~grew 49% in the second quarter and ~~geographic region mix. Additionally, product~~29% in the year-to-date period. Product line simplification activities reduced organic revenue by 4020 basis ~~points.~~points in the second quarter and 30 basis points in the year-to-date period. Additionally, the impact of Automotive OEM customers adjusting production schedules to account for the shortage of several components negatively impacted organic revenue in the second quarter and year-to-date periods of 2021.

◦North American organic revenue ~~decreased 1.8%~~increased 102.1% and 29.1% in the second quarter and year-to-date periods, respectively, compared to North American auto builds which ~~declined 4%.~~grew 132% in the second quarter and 32% in the year-to-date period. 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~~increased 92% and 19% in ~~response to~~ the ~~near-term supply chain issues affecting the automotive industry.~~second quarter and year-to-date periods, respectively.

◦European organic revenue increased ~~4.0%~~106.2% and 34.7% in the second quarter and year-to-date periods, respectively, compared to European auto builds which ~~decreased 1%.~~increased 86% in the second quarter and 28% in the year-to-date period.

◦Asia Pacific organic revenue increased ~~42.7%.~~36.9% and 39.8% in the second quarter and year-to-date periods, respectively. China organic revenue grew ~~58.4%~~19.9% and 36.8% in the second quarter and year-to-date periods, respectively, versus China auto builds which declined 4% in the second quarter and increased ~~77%.~~25% in the year-to-date period. Auto builds of foreign automotive manufacturers in China, where the Company has higher content, declined 19% in the second quarter and increased 11% in the year-to-date period.

•Operating margin of ~~24.1%~~18.8% in the ~~first~~second quarter increased ~~320~~2,660 basis points primarily driven by positive operating leverage of ~~130~~1,700 basis points and the net benefits offrom the Company's enterprise initiatives and cost management, partially offset by unfavorable price/cost of ~~110~~240 basis points.

•In the year-to-date period, operating margin was 21.6%. The increase of 1,050 basis points was primarily driven by positive operating leverage of 630 basis points and the net benefits from the Company's enterprise initiatives and cost management, partially offset by unfavorable price/cost of 170 basis points.

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.

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


		Three Months Ended															Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	451		$	483		(6.5)	%	(9.6)	%	—	%	—	%	3.1	%	(6.5)	%	Operating revenue	$	514		$	336			52.9	%	46.0	%	—	%	—	%	6.9	%	52.9	%
Operating income	Operating income	$	96		$	117		(18.3)	%	(20.9)	%	—	%	0.2	%	2.4	%	(18.3)	%	Operating income	$	113		$	31			265.6	%	250.4	%	—	%	(1.2)	%	16.4	%	265.6	%
Operating margin %	Operating margin %	21.2		%	24.3		%	(310) bps		(310) bps		—		—		—		(310) bps		Operating margin %	22.0		%	9.2		%		1280 bps		1290 bps		—		(10) bps		—		1280 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	965		$	819		17.9	%	13.2	%	—	%	—	%	4.7	%	17.9	%
Operating income	$	209		$	148		41.2	%	35.9	%	—	%	(0.1)	%	5.4	%	41.2	%
Operating margin %	21.6		%	18.1		%	350 bps		360 bps		—		(10) bps		—		350 bps

•Operating revenue ~~declined~~grew in the second quarter and year-to-date periods due to ~~lower~~higher organic revenue ~~partially offset by~~and the favorable effect of foreign currency translation.

•Organic revenue ~~decreased 9.6%~~increased 46.0% in the second quarter as equipment and service organic revenue ~~declined 3.9%~~grew 51.7% and ~~19.0%~~35.4%, ~~respectively, driven by~~respectively. In the ~~negative impacts resulting from the COVID-19 pandemic. Although~~year-to-date period, organic revenue ~~was down in the quarter, the demand trends have improved sequentially versus the fourth quarter of 2020.~~grew 13.2% as equipment and service organic revenue grew 19.6% and 2.6%, respectively.

◦North American organic revenue ~~declined 6.2% as equipment~~increased 38.6% and 12.7% in the second quarter and year-to-date periods, respectively. Equipment organic revenue ~~decreased 1.3%,~~grew 41.6% in the second quarter and 17.2% in the year-to-date period primarily ~~driven by lower demand~~due to growth in the restaurant, ~~and~~ institutional ~~end markets, partially offset by growth in the~~and food retail end markets. Service organic revenue ~~decreased 13.2%.~~increased 33.4% in the second quarter and 5.9% in the year-to-date period.

◦International organic revenue ~~decreased 14.6%.~~increased 57.9% in the second quarter and 13.9% in the year-to-date period. Equipment organic revenue ~~declined 7.1%,~~grew 65.5% and 22.7% in the second quarter and year-to-date periods, respectively, primarily due to ~~lower~~higher demand in the European warewash, refrigeration and ~~refrigeration~~cooking end ~~markets, partially offset by higher demand in Asia.~~markets. Service organic revenue ~~decreased 28.0%.~~increased 39.2% in the second quarter and declined 3.0% in the year-to-date period.

•Operating margin of ~~21.2%~~22.0% in the ~~first~~second quarter ~~decreased 310~~increased 1,280 basis points primarily due to ~~negative~~positive operating leverage of ~~260~~1,010 basis points ~~product mix~~ and ~~unfavorable price/cost of 10 basis points, partially offset by~~the net benefits from the Company's enterprise ~~initiatives.~~initiatives and cost management, partially offset by unfavorable price/cost of 60 basis points.

•In the year-to-date period, operating margin was 21.6%. The increase of 350 basis points was primarily driven by positive operating leverage of 320 basis points and the net benefits from the Company's enterprise initiatives and cost management, partially offset by unfavorable price/cost of 40 basis points.

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.

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


		Three Months Ended																	Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	552		$	485		14.0	%	10.7	%	—	%	—	%			3.3	%	14.0	%	Operating revenue	$	606		$	455			33.0	%	28.7	%	—	%	—	%	4.3	%	33.0	%
Operating income	Operating income	$	157		$	121		29.2	%	25.7	%	—	%	—	%			3.5	%	29.2	%	Operating income	$	170		$	117			45.4	%	40.2	%	—	%	0.7	%	4.5	%	45.4	%
Operating margin %	Operating margin %	28.4		%	25.1		%	330 bps		330 bps		—		—				—		330 bps		Operating margin %	28.1		%	25.7		%		240 bps		230 bps		—		10 bps		—		240 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,158		$	940		23.2	%	19.4	%	—	%	—	%	3.8	%	23.2	%
Operating income	$	327		$	238		37.1	%	32.8	%	—	%	0.3	%	4.0	%	37.1	%
Operating margin %	28.2		%	25.4		%	280 bps		280 bps		—		—		—		280 bps

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

•Organic revenue increased ~~10.7%.~~

◦~~Electronics organic revenue increased 16.0%. The electronics assembly businesses increased 24.3% primarily due to higher demand~~28.7% in ~~North America~~the second quarter and ~~Asia Pacific. The other electronics businesses, which include~~19.4% in the ~~contamination control, static control and pressure sensitive adhesives businesses, increased 12.4% with growth in all major regions.~~year-to-date period.

◦Organic revenue for the test and measurement businesses increased ~~6.5%~~20.2% and 13.1% in the second quarter and year-to-date periods, respectively, primarily driven by higher semi-conductor demand in North America, ~~and~~ the impact of a stronger capital spending environment, ~~partially offset by lower~~and higher demand in the 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 of ~~11.8%.~~10.8% in the second quarter and 11.3% in the year-to-date period.

◦Electronics organic revenue increased 37.9% and 26.9% in the second quarter and year-to-date periods, respectively, driven by higher demand in consumer electronics and automotive applications. The electronics assembly businesses grew 82.3% in the second quarter and 53.4% in the year-to-date period 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 17.4% and 14.8% in the second quarter and year-to-date periods, respectively, with growth in all major regions.

•Operating margin of ~~28.4%~~28.1% in the ~~first~~second quarter increased ~~330~~240 basis points primarily due to positive operating leverage of ~~260~~560 basis points and benefits from the Company's enterprise ~~initiatives.~~initiatives, partially offset by higher overhead expenses and product mix.

•In the year-to-date period, operating margin was 28.2%. The increase of 280 basis points was primarily driven by positive operating leverage of 420 basis points and benefits from the Company's enterprise initiatives, partially offset by higher overhead expenses and product mix.

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.

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


		Three Months Ended																	Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	401		$	372		7.5	%	6.2	%	—	%	—	%			1.3	%	7.5	%	Operating revenue	$	402		$	298			35.2	%	32.6	%	—	%	—	%	2.6	%	35.2	%
Operating income	Operating income	$	121		$	109		11.7	%	10.6	%	—	%	0.5	%			0.6	%	11.7	%	Operating income	$	115		$	64			78.3	%	75.5	%	—	%	0.4	%	2.4	%	78.3	%
Operating margin %	Operating margin %	30.3		%	29.1		%	120 bps		120 bps		—		10 bps				(10) bps		120 bps		Operating margin %	28.5		%	21.6		%		690 bps		700 bps		—		10 bps		(20) bps		690 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	803		$	670		19.8	%	17.9	%	—	%	—	%	1.9	%	19.8	%
Operating income	$	236		$	173		36.6	%	34.8	%	—	%	0.5	%	1.3	%	36.6	%
Operating margin %	29.4		%	25.8		%	360 bps		370 bps		—		10 bps		(20) bps		360 bps

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

•Organic revenue grew ~~6.2%~~32.6% in the second quarter driven by ~~an increase~~growth in equipment of ~~10.2%,~~37.8% and consumables of 24.9%. In the year-to-date period, organic revenue grew 17.9% as equipment increased 22.3% and consumables increased 11.3%. In both periods, organic revenue growth was primarily due to higher demand in the ~~commercial~~industrial end ~~markets. Consumables organic revenue was flat as growth~~markets related to heavy equipment for agriculture, infrastructure and mining and in the commercial end markets ~~in North America~~related to construction, light fabrication and ~~the oil~~farm and ~~gas end markets in Asia Pacific was offset by a decline in the industrial end markets.~~ranch customers.

◦North American organic revenue increased ~~6.7%~~37.6% in the second quarter primarily due to ~~an increase~~51.7% and 25.9% growth in the industrial and commercial ends markets, respectively. In the year-to-date period, organic revenue grew 20.0% primarily driven by 20.4% and 21.3% growth in the industrial and commercial end markets, ~~of 17.4%, partially offset by a decline in the industrial end markets of 0.6%.~~respectively.

◦International organic revenue grew ~~3.6%~~13.0% and 8.4% in the second quarter and year-to-date periods, respectively, primarily due to ~~increased~~higher equipment demand in the oil and gas end markets in ~~Asia Pacific of 10.8%, partially offset by a decline in~~ Europe ~~of 3.6%.~~and Asia.

•Operating margin of ~~30.3%~~28.5% in the ~~first~~second quarter increased ~~120~~690 basis points primarily driven by positive operating leverage of ~~100~~480 basis points and the net benefits from the Company's enterprise initiatives ~~partially offset~~and cost management.

•In the year-to-date period, operating margin was 29.4%. The increase of 360 basis points was primarily driven by ~~unfavorable price/~~positive operating leverage of 280 basis points and the net benefits from the Company's enterprise initiatives and cost ~~of 30 basis points.~~management.

POLYMERS & FLUIDS

This segment is a 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 ~~first~~second quarter and year-to-date periods of 2021 and 2020 were as follows:


		Three Months Ended																	Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	435		$	393		10.7	%	8.8	%	—	%	—	%			1.9	%	10.7	%	Operating revenue	$	466		$	354			31.7	%	27.6	%	—	%	—	%	4.1	%	31.7	%
Operating income	Operating income	$	112		$	93		20.4	%	17.3	%	—	%	0.5	%			2.6	%	20.4	%	Operating income	$	127		$	82			56.1	%	52.8	%	—	%	(0.8)	%	4.1	%	56.1	%
Operating margin %	Operating margin %	25.7		%	23.6		%	210 bps		190 bps		—		10 bps				10 bps		210 bps		Operating margin %	27.3		%	23.1		%		420 bps		450 bps		—		(30) bps		—		420 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	901		$	747		20.6	%	17.7	%	—	%	—	%	2.9	%	20.6	%
Operating income	$	239		$	175		37.1	%	33.9	%	—	%	(0.1)	%	3.3	%	37.1	%
Operating margin %	26.6		%	23.4		%	320 bps		320 bps		—		—		—		320 bps

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

•Organic revenue increased ~~8.8%. Product~~27.6% in the second quarter and 17.7% in the year-to-date period driven by higher demand across all major regions. Additionally, product line simplification activities reduced organic revenue by 70 basis points in the second quarter and 60 basis ~~points.~~points in the year-to-date period.

◦Organic revenue for the automotive aftermarket businesses increased ~~8.7%~~33.1% and 20.2% in the second quarter and year-to-date periods, respectively, primarily driven by growth in the car care, ~~engine~~tire repair, body repair and ~~body~~engine repair businesses in North ~~America.~~America and the European additives businesses.

◦Organic revenue for the polymers businesses increased ~~15.9%~~33.9% in the second quarter and 24.3% in the year-to-date period with growth across all major regions.

◦Organic revenue for the fluids businesses ~~decreased 0.8%~~increased 7.7% and 3.4% in the second quarter and year-to-date periods, respectively, primarily due to ~~a decline~~growth in the industrial maintenance, repair, and operations end markets in ~~Europe, partially offset by growth in~~ North America.

•Operating margin of ~~25.7%~~27.3% in the ~~first~~second quarter increased ~~210~~420 basis points primarily driven by positive operating leverage of ~~200~~520 basis points, benefits from the Company's enterprise initiatives, ~~and~~ lower intangible asset amortization expense and a one-time benefit related to a recovery of indirect taxes in Brazil, partially offset by unfavorable price/cost of ~~100~~170 basis points and higher restructuring expenses.

•In the year-to-date period, operating margin was 26.6%. The increase of 320 basis points was primarily due to positive operating leverage of 360 basis points, benefits from the Company's enterprise initiatives, lower intangible asset amortization expense and a one-time benefit related to a recovery of indirect taxes in Brazil, partially offset by unfavorable price/cost of 140 basis 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 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 ~~first~~second quarter and year-to-date periods of 2021 and 2020 were as follows:


		Three Months Ended															Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	469		$	390		20.2	%	12.8	%	(0.2)	%	—	%	7.6	%	20.2	%	Operating revenue	$	518		$	376			37.7	%	28.2	%	(0.1)	%	—	%	9.6	%	37.7	%
Operating income	Operating income	$	130		$	91		41.8	%	33.5	%	—	%	0.1	%	8.2	%	41.8	%	Operating income	$	143		$	90			60.3	%	50.2	%	0.3	%	(1.2)	%	11.0	%	60.3	%
Operating margin %	Operating margin %	27.6		%	23.4		%	420 bps		430 bps		—		—		(10) bps		420 bps		Operating margin %	27.6		%	23.7		%		390 bps		410 bps		—		(20) bps		—		390 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	987		$	766		28.8	%	20.3	%	(0.1)	%	—	%	8.6	%	28.8	%
Operating income	$	273		$	181		50.9	%	41.7	%	0.1	%	(0.6)	%	9.7	%	50.9��	%
Operating margin %	27.6		%	23.6		%	400 bps		420 bps		—		(20) bps		—		400 bps

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

•Organic revenue increased ~~12.8%~~28.2% and 20.3% in the second quarter and year-to-date periods, respectively, with growth across all major regions. ~~Product~~Additionally, product line simplification activities reduced organic revenue by 40 basis points in the second quarter and 30 basis ~~points.~~points in the year-to-date period.

◦North American organic revenue grew ~~11.8% as~~20.1% in the second quarter driven by higher demand in the United States residential and commercial end markets ~~increased 12.8%~~of 16.3% and ~~2.8%~~25.7%, ~~respectively.~~respectively, and growth in Canada. In the year-to-date period, organic revenue grew 15.9% due to higher demand in the United States residential and commercial end markets of 14.6% and 13.8%, respectively, and growth in Canada.

◦International organic revenue increased ~~13.7%.~~36.0% and 24.3% in the second quarter and year-to-date periods, respectively. European organic revenue ~~increased 18.9%~~grew 61.0% in the second quarter and 37.4% in the year-to-date period primarily driven by ~~an increase in continental Europe and the United Kingdom~~higher demand in the commercial and residential end markets. Asia Pacific organic revenue increased ~~6.9%~~12.5% and 9.8% in the second quarter and year-to-date periods, respectively, primarily due to ~~an increase~~higher demand in Australia and New Zealand in the retail and residential end markets.

•Operating margin of 27.6% in the ~~first~~second quarter increased ~~420~~390 basis points primarily driven by positive operating leverage of ~~260~~440 basis points and ~~net~~ benefits from the Company's enterprise initiatives, partially offset by unfavorable price/cost of 120 basis points.

•In the year-to-date period, operating margin was 27.6%. The increase of 400 basis points was primarily due to positive operating leverage of 350 basis points and benefits from the Company's enterprise initiatives, partially offset by unfavorable price/cost ~~management.~~of 60 basis points.

SPECIALTY PRODUCTS

This segment is focused on diversified niche market opportunities with substantial patent protection producing beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. This segment primarily serves the food and beverage, consumer durables, general industrial, industrial capital goods and printing and publishing 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 closures and components for appliances;

•airport ground support equipment; and

•components for medical devices.

2224

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


		Three Months Ended															Three Months Ended
Dollars in millions	Dollars in millions	March 31,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	457		$	414		10.4	%	7.3	%	—	%	—	%	3.1	%	10.4	%	Operating revenue	$	471		$	387			21.6	%	17.2	%	—	%	—	%	4.4	%	21.6	%
Operating income	Operating income	$	126		$	109		15.9	%	15.1	%	—	%	(2.3)	%	3.1	%	15.9	%	Operating income	$	128		$	98			30.4	%	25.9	%	—	%	(0.3)	%	4.8	%	30.4	%
Operating margin %	Operating margin %	27.6		%	26.3		%	130 bps		190 bps		—		(60) bps		—		130 bps		Operating margin %	27.2		%	25.4		%		180 bps		190 bps		—		(10) bps		—		180 bps


	Six Months Ended
Dollars in millions	June 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	928		$	801		15.8	%	12.1	%	—	%	—	%	3.7	%	15.8	%
Operating income	$	254		$	207		22.8	%	20.2	%	—	%	(1.4)	%	4.0	%	22.8	%
Operating margin %	27.4		%	25.9		%	150 bps		180 bps		—		(30) bps		—		150 bps

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

•Organic revenue increased ~~7.3%~~17.2% in the second quarter driven by growth in consumables of 18.6% and equipment of 11.7%. ~~Consumable~~In the year-to-date period, organic revenue grew 12.1% as consumables increased 12.8% and equipment increased 9.6%. In both periods, organic revenue increased for consumables and equipment 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.~~across all major regions.

◦North American organic revenue increased ~~5.7% as~~14.5% and 10.0% in the second quarter and year-to-date periods, respectively, primarily driven by growth in the consumer packaging, ~~businesses was partially offset by a decline in the ground support equipment~~appliance, product coding and marking, and strength film businesses.

◦International organic revenue increased ~~9.9%~~21.5% in the second quarter and 15.4% in the year-to-date period primarily due to an increase in the ~~appliances~~appliance businesses in Europe and Asia Pacific and the ground support equipment businesses in Europe.

•Operating margin of ~~27.6%~~27.2% in the ~~first~~second quarter increased ~~130~~180 basis points primarily driven by positive operating leverage of ~~140~~330 basis points and ~~net~~ benefits from the Company's enterprise initiatives, ~~and cost management,~~ partially offset by unfavorable price/cost of 230 basis points.

•In the year-to-date period, operating margin was 27.4%. The increase of 150 basis points was primarily due to positive operating leverage of 230 basis points and benefits from the Company's enterprise initiatives, partially offset by unfavorable price/cost of 190 basis points and higher restructuring expenses.

OTHER FINANCIAL HIGHLIGHTS

•Interest expense ~~in the first quarter of 2021~~ was $52 million and $104 million in the second quarter and year-to-date periods of 2021, respectively, versus $51 million and $102 million in the ~~first quarter~~respective periods of 2020.

•Other income (expense) was income of ~~$12~~$22 million in the ~~first~~second quarter of 2021 ~~a decrease of $13~~versus $8 million ~~compared to~~in the ~~first quarter of 2020~~prior year period primarily ~~due to lower~~driven by higher investment income, partially offset by higher foreign currency translation ~~gains and lower interest~~losses. Other income (expense) was income of $34 million in the year-to-date period of 2021 versus $33 million in the prior year period as higher investment income in ~~2021.~~2021 was partially offset by foreign currency translation losses in 2021 versus gains in 2020.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of ~~March 31,~~June 30, 2021, the Company had ~~$2.5~~$2.1 billion of cash and equivalents on hand, no outstanding borrowings under its ~~$2.5~~$2.5 billion revolving credit facility, and no commercial paper outstanding. The Company also 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, 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 ~~first~~second quarter and year-to-date periods of 2021 and 2020 was as follows:


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31,				June 30,				June 30,
In millions	In millions	2021		2020			In millions	2021		2020		2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	609	$	614		Net cash provided by operating activities	$	555	$	737	$	1,164	$	1,351
Additions to plant and equipment	Additions to plant and equipment	(68)		(60)			Additions to plant and equipment	(78)		(56)		(146)		(116)
Free cash flow	Free cash flow	$	541	$	554		Free cash flow	$	477	$	681	$	1,018	$	1,235

Cash dividends paid	Cash dividends paid	$	(361)	$	(342)		Cash dividends paid	$	(360)	$	(338)	$	(721)	$	(680)
Repurchases of common stock	Repurchases of common stock	(250)		(706)			Repurchases of common stock	(250)		—		(500)		(706)

Repayments of debt with original maturities of more than three months							Repayments of debt with original maturities of more than three months	(350)		—		(350)		—
Other, net	Other, net	20		8			Other, net	44		16		64		24
Effect of exchange rate changes on cash and equivalents	Effect of exchange rate changes on cash and equivalents	(30)		(65)			Effect of exchange rate changes on cash and equivalents	13		23		(17)		(42)
Net increase (decrease) in cash and equivalents	Net increase (decrease) in cash and equivalents	$	(80)	$	(551)		Net increase (decrease) in cash and equivalents	$	(426)	$	382	$	(506)	$	(169)

In the second quarter of 2020, the Company elected to defer payment of U.S. income taxes of $158 million to the third quarter of 2020 in accordance with the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Stock Repurchase Program

On August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provides for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program"). Under the 2018 Program, the Company repurchased approximately 2.0 million shares of its common stock at an average price of $149.04 in the second quarter of 2019, approximately 2.4 million shares of its common stock at an average price of $150.97 in the third quarter of 2019, approximately 2.2 million shares of its common stock at an average price of $175.02 in the fourth quarter of 2019, and approximately 4.2 million shares of its common stock at an average price of $167.69 in the first quarter of 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 1.2 million shares of its common stock at an average price of $211.50 in the first quarter of 2021, and approximately 1.1 million shares of its

common stock at an average price of $233.29 in the second quarter of 2021. As of ~~March 31,~~June 30, 2021, there were ~~$990~~$740 million of authorized repurchases remaining under the 2018 Program.

24On May 7, 2021, the Company's Board of Directors authorized a new stock repurchase program which provides for the repurchase of up to an additional $3.0 billion of the Company's common stock over an open-ended period of time (the "2021 Program"). As of June 30, 2021, there were $3.0 billion of authorized repurchases remaining under the 2021 Program.

After-tax Return on Average Invested Capital

The Company uses after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its operations' use of invested capital to generate profits. After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company's financial performance and may be different than the method used by other companies to calculate After-tax ROIC. 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. 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 ~~first~~second quarter and year-to-date periods of 2021 and 2020 was as follows:


		Three Months Ended						Three Months Ended					Six Months Ended
		March 31,						June 30,					June 30,
Dollars in millions	Dollars in millions	2021			2020				Dollars in millions	2021			2020			2021			2020
Operating income	Operating income	$	905		$	761			Operating income	$	893		$	449		$	1,798		$	1,210
Tax rate	Tax rate	22.4		%	23.0		%		Tax rate	23.0		%	21.3		%	22.7		%	22.4		%
Income taxes	Income taxes	(203)			(175)				Income taxes	(206)			(96)			(409)			(271)
Operating income after taxes	Operating income after taxes	$	702		$	586			Operating income after taxes	$	687		$	353		$	1,389		$	939

Invested capital:	Invested capital:								Invested capital:
Trade receivables	Trade receivables	$	2,662		2,424				Trade receivables	$	2,786		$	2,156		$	2,786		$	2,156
Inventories	Inventories	1,292			1,185				Inventories	1,400			1,167			1,400			1,167
Net assets held for sale	Net assets held for sale	—			181				Net assets held for sale	—			181			—			181
Net plant and equipment	Net plant and equipment	1,746			1,704				Net plant and equipment	1,767			1,711			1,767			1,711
Goodwill and intangible assets	Goodwill and intangible assets	5,379			5,237				Goodwill and intangible assets	5,374			5,244			5,374			5,244
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(1,850)			(1,593)				Accounts payable and accrued expenses	(1,933)			(1,508)			(1,933)			(1,508)
Other, net	Other, net	(488)			(590)				Other, net	(283)			(636)			(283)			(636)
Total invested capital	Total invested capital	$	8,741		$	8,548			Total invested capital	$	9,111		$	8,315		$	9,111		$	8,315

Average invested capital	Average invested capital	$	8,740		$	8,677			Average invested capital	$	8,926		$	8,431		$	8,864		$	8,557
After-tax return on average invested capital	After-tax return on average invested capital	32.1		%	27.0		%		After-tax return on average invested capital	30.8		%	16.8		%	31.3		%	22.0		%

~~After-tax ROIC increased 510 basis points~~A reconciliation of the tax rate for the three and six month ~~period~~periods ended ~~March 31,~~June 30, 2021, ~~compared~~excluding the second quarter 2021 discrete tax benefit of $112 million related to a change in the ~~prior year period~~U.K. income tax rate, is as ~~a result of a 19.7% increase~~follows:


	Three Months Ended				Six Months Ended
	June 30, 2021				June 30, 2021
Dollars in millions	Income Taxes		Tax Rate		Income Taxes		Tax Rate
As reported	$	88	10.1	%	$	282	16.3	%
Discrete tax benefit	112		12.9	%	112		6.4	%
As adjusted	$	200	23.0	%	$	394	22.7	%

Refer to Note 4. Income Taxes in ~~after-tax operating income versus a 0.7% increase in average invested capital.~~Item 1. Financial Statements for further information regarding the second quarter 2021 discrete tax benefit.

2527

Working Capital

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


In millions	In millions	March 31, 2021		December 31, 2020		Increase/ (Decrease)		In millions	June 30, 2021		December 31, 2020		Increase/ (Decrease)
Current assets:	Current assets:							Current assets:
Cash and equivalents	Cash and equivalents	$	2,484	$	2,564	$	(80)	Cash and equivalents	$	2,058	$	2,564	$	(506)
Trade receivables	Trade receivables	2,662		2,506		156		Trade receivables	2,786		2,506		280
Inventories	Inventories	1,292		1,189		103		Inventories	1,400		1,189		211
Other	Other	266		264		2		Other	265		264		1
Total current assets	Total current assets	6,704		6,523		181		Total current assets	6,509		6,523		(14)
Current liabilities:	Current liabilities:							Current liabilities:
Short-term debt	Short-term debt	350		350		—		Short-term debt	592		350		242
Accounts payable and accrued expenses	Accounts payable and accrued expenses	1,850		1,818		32		Accounts payable and accrued expenses	1,933		1,818		115
Other	Other	480		421		59		Other	435		421		14
Total current liabilities	Total current liabilities	2,680		2,589		91		Total current liabilities	2,960		2,589		371
Net working capital	Net working capital	$	4,024	$	3,934	$	90	Net working capital	$	3,549	$	3,934	$	(385)

As of ~~March 31,~~June 30, 2021, a significant portion of the Company's cash and equivalents was held by international subsidiaries. Cash and equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S. Cash and equivalents held internationally are typically used for international operating needs or reinvested to fund expansion of existing international businesses. International funds may also be used to fund international acquisitions or, if not considered permanently invested, may be repatriated to the U.S. The Company has accrued for foreign withholding taxes related to foreign held cash and equivalents that are not permanently invested.

In the U.S., the Company utilizes cash flows from operations to fund domestic cash needs 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 use its commercial paper program, which is backed by long-term credit facilities, for short-term liquidity needs. The Company believes cash generated 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 ~~March 31,~~June 30, 2021 and December 31, 2020 was as follows:


In millions	In millions	March 31, 2021		December 31, 2020		In millions	June 30, 2021		December 31, 2020
Short-term debt	Short-term debt	$	350	$	350	Short-term debt	$	592	$	350
Long-term debt	Long-term debt	7,599		7,772		Long-term debt	7,056		7,772
Total debt	Total debt	$	7,949	$	8,122	Total debt	$	7,648	$	8,122

There was no commercial paper outstanding as of ~~March 31,~~June 30, 2021 and December 31, 2020. Short-term debt as of ~~March 31,~~June 30, 2021 ~~and~~included $592 million related to the 1.75% Euro notes due May 20, 2022, which were reclassified from Long-term debt to Short-term debt in the second quarter of 2021. Short-term debt as of December 31, 2020 included $350 million related to the 3.375% notes due September 15, 2021, which were redeemed in full on June 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 potential issuances of commercial paper. No amounts were outstanding under the $2.5 billion revolving credit facility as of ~~March 31,~~June 30, 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 long term financial liquidity and may be different

than the method used by other companies to calculate total debt to EBITDA. 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 ~~March 31,~~June 30, 2021 and December 31, 2020 was as follows:


Dollars in millions	Dollars in millions	March 31, 2021		December 31, 2020		Dollars in millions	June 30, 2021		December 31, 2020
Total debt	Total debt	$	7,949	$	8,122	Total debt	$	7,648	$	8,122

Net income	Net income	$	2,214	$	2,109	Net income	$	2,670	$	2,109
Add:	Add:					Add:
Interest expense	Interest expense	207		206		Interest expense	208		206
Other income	Other income	(15)		(28)		Other income	(29)		(28)
Income taxes	Income taxes	620		595		Income taxes	621		595
Depreciation	Depreciation	271		273		Depreciation	276		273
Amortization and impairment of intangible assets	Amortization and impairment of intangible assets	152		154		Amortization and impairment of intangible assets	149		154
EBITDA	EBITDA	$	3,449	$	3,309	EBITDA	$	3,895	$	3,309
Total debt to EBITDA ratio	Total debt to EBITDA ratio	2.3		2.5		Total debt to EBITDA ratio	2.0		2.5

Stockholders' Equity

The changes to stockholders' equity during the ~~three~~six months ended ~~March 31,~~June 30, 2021 were as follows:


In millions
Total stockholders' equity, December 31, 2020	$	3,182
Net income	~~671~~1,446
Repurchases of common stock	~~(250)~~(500)
Dividends declared	~~(360)~~(718)
Foreign currency translation adjustments, net of tax	~~(7)~~30
Other, net	4081
Total stockholders' equity, ~~March 31,~~June 30, 2021	$	~~3,276~~3,521

FORWARD-LOOKING STATEMENTS

This 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," "intend," "may," "strategy," "prospects," "estimate," “will,” “should,” “could,” "project," "target," "anticipate," "guidance," "forecast," and other similar words, ~~including,~~and may include, without limitation, statements regarding the 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, free cash flow, economic and regulatory conditions in various geographic regions, the impact of foreign currency fluctuations, the timing and amount of benefits from the Company's enterprise strategy initiatives, the timing and amount of dividends and 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 divested businesses, the impact of U.S. and global tax legislation and the estimated timing and amount related to the resolution of tax matters, the cost of compliance with environmental regulations, the impact of failure of the Company's employees to comply with applicable laws and regulations, and the outcome of outstanding legal 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, (3) changes or deterioration in international and domestic political and economic conditions, (4) the unfavorable impact of foreign currency fluctuations, (5) the timing and amount of benefits from the Company's enterprise strategy initiatives and their impact on organic revenue growth, (6) market conditions and availability of financing to fund the Company's share repurchases, (7) a delay or decrease in the introduction of new products into the Company's product lines, (8) any failure to protect the Company's intellectual property, (9) potential negative impact of impairments to goodwill and other intangible assets on the Company's return on invested capital, financial condition or results of operations, (10) raw material price increases and supply shortages, (11) financial market risks to the Company's obligations under its defined benefit pension plans, (12) negative effects of service interruptions, data corruption, cyber-based attacks, network security breaches, or violations of data privacy laws, (13) the potential negative impact of acquisitions on the Company's profitability and returns, (14) potential negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (15) ~~unfavorable~~impact of tax ~~law changes~~legislation and regulatory action and changing tax ~~authority rulings,~~rates, (16) potential adverse outcomes in legal proceedings, (17) uncertainties related to environmental regulation and the physical risks of climate change, and (18) potential failure of the Company's employees, agents or business partners to comply with anti-corruption, import/export, human rights 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, 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 ITW speak only as of the date on which they are made. 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.

ITW practices fair disclosure for all interested parties. Investors should be aware that while ITW regularly communicates with securities analysts and other investment professionals, it is against ITW's policy to disclose to them any material non-public information or other confidential commercial information. Investors should not assume that 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's management, with the participation of the Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e)) as of ~~March 31,~~June 30, 2021. Based on such evaluation, the Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of ~~March 31,~~June 30, 2021, the 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 ~~March 31,~~June 30, 2021 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

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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 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 August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provides for the repurchase of up to $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program"). As of ~~March 31,~~June 30, 2021, there were ~~$990~~$740 million of authorized repurchases remaining under the 2018 Program.

On May 7, 2021, the Company's Board of Directors authorized a new stock repurchase program which provides for the repurchase of up to an additional $3.0 billion of the Company's common stock over an open-ended period of time (the "2021 Program"). As of June 30, 2021, there were $3.0 billion of authorized repurchases remaining under the 2021 Program.

Share repurchase activity for the ~~first~~second quarter of 2021 was as follows:


In millions except per share amounts	In millions except per share amounts							In millions except per share amounts
Period	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		Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Value of Shares That May Yet Be Purchased Under Programs
January 2021		—	$	—	—	$	1,240
February 2021		0.4	$	199.70	0.4	$	1,158
March 2021		0.8	$	217.77	0.8	$	990
April 2021								April 2021	—	$	—	—	$	990
May 2021								May 2021	0.9	$	233.48	0.9	$	3,784
June 2021								June 2021	0.2	$	232.44	0.2	$	3,740
Total	Total	1.2			1.2			Total	1.1			1.1

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ITEM 6. Exhibits

Exhibit Index


Exhibit Number						Exhibit Description

10(a)						Consulting Agreement dated June 9, 2021 between Illinois Tool Works Inc. and SLM Advisory Services LLC.

31						Rule 13a-14(a) Certifications.

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 ~~March 31,~~June 30, 2021 is formatted in Inline Extensible Business Reporting Language (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 (vi) related Notes to Financial Statements.

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

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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,~~August 5, 2021	By:	/s/ Randall J. Scheuneman
			Randall J. Scheuneman
			Vice President & Chief Accounting Officer
			(Principal Accounting Officer and Duly Authorized Officer)

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