0000049826 12/31 2021 Q2 false 0000049826 2021-01-01 2021-06-30 0000049826 exch:XNYS us-gaap:CommonStockMember 2021-01-01 2021-06-30 0000049826 exch:XNYS itw:A1.75EuroNotesdue2022Member 2021-01-01 2021-06-30 0000049826 itw:A1.25EuroNotesdue2023Member exch:XNYS 2021-01-01 2021-06-30 0000049826 exch:XNYS itw:A0.250EuroNotesdue2024Member 2021-01-01 2021-06-30 0000049826 exch:XNYS itw:A0.625EuroNotesdue2027Member 2021-01-01 2021-06-30 0000049826 itw:A2.125EuroNotesdue2030Member exch:XNYS 2021-01-01 2021-06-30 0000049826 exch:XNYS itw:A1.00EuroNotesdue2031Member 2021-01-01 2021-06-30 0000049826 exch:XNYS itw:A3.00EuroNotesdue2034Member 2021-01-01 2021-06-30 xbrli:shares 0000049826 2021-06-30 iso4217:USD 0000049826 2021-04-01 2021-06-30 0000049826 2020-04-01 2020-06-30 0000049826 2020-01-01 2020-06-30 iso4217:USD xbrli:shares 0000049826 2020-12-31 0000049826 us-gaap:CommonStockMember 2021-03-31 0000049826 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0000049826 us-gaap:RetainedEarningsMember 2021-03-31 0000049826 us-gaap:TreasuryStockCommonMember 2021-03-31 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2021-03-31 0000049826 us-gaap:NoncontrollingInterestMember 2021-03-31 0000049826 2021-03-31 0000049826 us-gaap:RetainedEarningsMember 2021-04-01 2021-06-30 0000049826 us-gaap:AdditionalPaidInCapitalMember 2021-04-01 2021-06-30 0000049826 us-gaap:TreasuryStockCommonMember 2021-04-01 2021-06-30 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2021-04-01 2021-06-30 0000049826 us-gaap:NoncontrollingInterestMember 2021-04-01 2021-06-30 0000049826 us-gaap:CommonStockMember 2021-06-30 0000049826 us-gaap:AdditionalPaidInCapitalMember 2021-06-30 0000049826 us-gaap:RetainedEarningsMember 2021-06-30 0000049826 us-gaap:TreasuryStockCommonMember 2021-06-30 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2021-06-30 0000049826 us-gaap:NoncontrollingInterestMember 2021-06-30 0000049826 us-gaap:CommonStockMember 2020-03-31 0000049826 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0000049826 us-gaap:RetainedEarningsMember 2020-03-31 0000049826 us-gaap:TreasuryStockCommonMember 2020-03-31 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2020-03-31 0000049826 us-gaap:NoncontrollingInterestMember 2020-03-31 0000049826 2020-03-31 0000049826 us-gaap:RetainedEarningsMember 2020-04-01 2020-06-30 0000049826 us-gaap:TreasuryStockCommonMember 2020-04-01 2020-06-30 0000049826 us-gaap:AdditionalPaidInCapitalMember 2020-04-01 2020-06-30 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2020-04-01 2020-06-30 0000049826 us-gaap:CommonStockMember 2020-06-30 0000049826 us-gaap:AdditionalPaidInCapitalMember 2020-06-30 0000049826 us-gaap:RetainedEarningsMember 2020-06-30 0000049826 us-gaap:TreasuryStockCommonMember 2020-06-30 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2020-06-30 0000049826 us-gaap:NoncontrollingInterestMember 2020-06-30 0000049826 2020-06-30 0000049826 us-gaap:CommonStockMember 2020-12-31 0000049826 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0000049826 us-gaap:RetainedEarningsMember 2020-12-31 0000049826 us-gaap:TreasuryStockCommonMember 2020-12-31 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2020-12-31 0000049826 us-gaap:NoncontrollingInterestMember 2020-12-31 0000049826 us-gaap:RetainedEarningsMember 2021-01-01 2021-06-30 0000049826 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-06-30 0000049826 us-gaap:TreasuryStockCommonMember 2021-01-01 2021-06-30 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2021-01-01 2021-06-30 0000049826 us-gaap:CommonStockMember 2019-12-31 0000049826 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000049826 us-gaap:RetainedEarningsMember 2019-12-31 0000049826 us-gaap:TreasuryStockCommonMember 2019-12-31 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-12-31 0000049826 us-gaap:NoncontrollingInterestMember 2019-12-31 0000049826 2019-12-31 0000049826 us-gaap:RetainedEarningsMember 2020-01-01 2020-06-30 0000049826 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-06-30 0000049826 us-gaap:TreasuryStockCommonMember 2020-01-01 2020-06-30 0000049826 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2020-01-01 2020-06-30 0000049826 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-06-30 itw:division itw:segment 0000049826 itw:AutomotiveOEMSegmentMember us-gaap:OperatingSegmentsMember 2021-04-01 2021-06-30 0000049826 itw:AutomotiveOEMSegmentMember us-gaap:OperatingSegmentsMember 2020-04-01 2020-06-30 0000049826 itw:AutomotiveOEMSegmentMember us-gaap:OperatingSegmentsMember 2021-01-01 2021-06-30 0000049826 itw:AutomotiveOEMSegmentMember us-gaap:OperatingSegmentsMember 2020-01-01 2020-06-30 0000049826 itw:FoodEquipmentSegmentMember us-gaap:OperatingSegmentsMember 2021-04-01 2021-06-30 0000049826 itw:FoodEquipmentSegmentMember us-gaap:OperatingSegmentsMember 2020-04-01 2020-06-30 0000049826 itw:FoodEquipmentSegmentMember us-gaap:OperatingSegmentsMember 2021-01-01 2021-06-30 0000049826 itw:FoodEquipmentSegmentMember us-gaap:OperatingSegmentsMember 2020-01-01 2020-06-30 0000049826 itw:TestandMeasurementandElectronicsSegmentMember us-gaap:OperatingSegmentsMember 2021-04-01 2021-06-30 0000049826 itw:TestandMeasurementandElectronicsSegmentMember us-gaap:OperatingSegmentsMember 2020-04-01 2020-06-30 0000049826 itw:TestandMeasurementandElectronicsSegmentMember us-gaap:OperatingSegmentsMember 2021-01-01 2021-06-30 0000049826 itw:TestandMeasurementandElectronicsSegmentMember us-gaap:OperatingSegmentsMember 2020-01-01 2020-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:WeldingSegmentMember 2021-04-01 2021-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:WeldingSegmentMember 2020-04-01 2020-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:WeldingSegmentMember 2021-01-01 2021-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:WeldingSegmentMember 2020-01-01 2020-06-30 0000049826 itw:PolymersAndFluidsSegmentMember us-gaap:OperatingSegmentsMember 2021-04-01 2021-06-30 0000049826 itw:PolymersAndFluidsSegmentMember us-gaap:OperatingSegmentsMember 2020-04-01 2020-06-30 0000049826 itw:PolymersAndFluidsSegmentMember us-gaap:OperatingSegmentsMember 2021-01-01 2021-06-30 0000049826 itw:PolymersAndFluidsSegmentMember us-gaap:OperatingSegmentsMember 2020-01-01 2020-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:ConstructionProductsSegmentMember 2021-04-01 2021-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:ConstructionProductsSegmentMember 2020-04-01 2020-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:ConstructionProductsSegmentMember 2021-01-01 2021-06-30 0000049826 us-gaap:OperatingSegmentsMember itw:ConstructionProductsSegmentMember 2020-01-01 2020-06-30 0000049826 itw:SpecialtyProductsSegmentMember us-gaap:OperatingSegmentsMember 2021-04-01 2021-06-30 0000049826 itw:SpecialtyProductsSegmentMember us-gaap:OperatingSegmentsMember 2020-04-01 2020-06-30 0000049826 itw:SpecialtyProductsSegmentMember us-gaap:OperatingSegmentsMember 2021-01-01 2021-06-30 0000049826 itw:SpecialtyProductsSegmentMember us-gaap:OperatingSegmentsMember 2020-01-01 2020-06-30 0000049826 us-gaap:IntersegmentEliminationMember 2021-04-01 2021-06-30 0000049826 us-gaap:IntersegmentEliminationMember 2020-04-01 2020-06-30 0000049826 us-gaap:IntersegmentEliminationMember 2021-01-01 2021-06-30 0000049826 us-gaap:IntersegmentEliminationMember 2020-01-01 2020-06-30 xbrli:pure 0000049826 us-gaap:PensionPlansDefinedBenefitMember 2021-04-01 2021-06-30 0000049826 us-gaap:PensionPlansDefinedBenefitMember 2020-04-01 2020-06-30 0000049826 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2021-04-01 2021-06-30 0000049826 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2020-04-01 2020-06-30 0000049826 us-gaap:PensionPlansDefinedBenefitMember 2021-01-01 2021-06-30 0000049826 us-gaap:PensionPlansDefinedBenefitMember 2020-01-01 2020-06-30 0000049826 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2021-01-01 2021-06-30 0000049826 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2020-01-01 2020-06-30 0000049826 us-gaap:PensionPlansDefinedBenefitMember 2021-06-30 0000049826 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2021-06-30 0000049826 itw:A175NotesMember 2021-06-30 0000049826 itw:A3375NotesMember 2020-12-31 0000049826 us-gaap:LineOfCreditMember 2021-06-30 0000049826 us-gaap:LineOfCreditMember 2020-12-31 0000049826 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-03-31 0000049826 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0000049826 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0000049826 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000049826 us-gaap:AccumulatedTranslationAdjustmentMember 2021-04-01 2021-06-30 0000049826 us-gaap:AccumulatedTranslationAdjustmentMember 2020-04-01 2020-06-30 0000049826 us-gaap:AccumulatedTranslationAdjustmentMember 2021-01-01 2021-06-30 0000049826 us-gaap:AccumulatedTranslationAdjustmentMember 2020-01-01 2020-06-30 0000049826 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2021-04-01 2021-06-30 0000049826 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-04-01 2020-06-30 0000049826 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2021-01-01 2021-06-30 0000049826 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-01-01 2020-06-30 0000049826 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-06-30 0000049826 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-06-30 iso4217:EUR 0000049826 itw:EuroNotesIssuedMay2014Member itw:EuroNotesMember us-gaap:NetInvestmentHedgingMember 2014-05-31 0000049826 itw:EuroNotesMember itw:EuroNotesIssuedMay2015Member us-gaap:NetInvestmentHedgingMember 2015-05-31 0000049826 itw:EuroNotesMember itw:EuroNotesIssuedJune2019Member us-gaap:NetInvestmentHedgingMember 2019-06-30 0000049826 itw:EuroNotesMember itw:EuroNotesIssuedJune2019Member us-gaap:NetInvestmentHedgingMember 2021-06-30 0000049826 itw:EuroNotesMember itw:EuroNotesIssuedMay2015Member us-gaap:NetInvestmentHedgingMember 2021-06-30 0000049826 itw:EuroNotesIssuedMay2014Member itw:EuroNotesMember us-gaap:NetInvestmentHedgingMember 2021-06-30 0000049826 itw:EuroNotesMember us-gaap:NetInvestmentHedgingMember 2021-06-30 0000049826 itw:EuroNotesMember us-gaap:NetInvestmentHedgingMember 2020-12-31 0000049826 itw:MTSMember srt:ScenarioForecastMember 2021-01-01 2021-12-31
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 | 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 | IL |  | 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 June 30, 2021: 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 | 30
| PART II - Other Information |
Item 1. | Legal Proceedings | 31
Item 1A. | Risk Factors | 31
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31
Item 6. | Exhibits | 32
Signatures |  | 34

2

PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
Illinois Tool Works Inc. and Subsidiaries
Statement of Income (Unaudited)

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
In millions except per share amounts | 2021 |  | 2020 |  | 2021 |  | 2020
Operating Revenue | $ | 3,676 |  |  | $ | 2,564 |  |  | $ | 7,220 |  |  | $ | 5,792 |
Cost of revenue | 2,163 |  |  | 1,594 |  |  | 4,202 |  |  | 3,465 |
Selling, administrative, and research and development expenses | 588 |  |  | 486 |  |  | 1,154 |  |  | 1,046 |
Amortization and impairment of intangible assets | 32 |  |  | 35 |  |  | 66 |  |  | 71 |
Operating Income | 893 |  |  | 449 |  |  | 1,798 |  |  | 1,210 |
Interest expense | (52) |  |  | (51) |  |  | (104) |  |  | (102) |
Other income (expense) | 22 |  |  | 8 |  |  | 34 |  |  | 33 |
Income Before Taxes | 863 |  |  | 406 |  |  | 1,728 |  |  | 1,141 |
Income Taxes | 88 |  |  | 87 |  |  | 282 |  |  | 256 |
Net Income | $ | 775 |  |  | $ | 319 |  |  | $ | 1,446 |  |  | $ | 885 |
Net Income Per Share: |  |  |  |  |  |  |
Basic | $ | 2.46 |  |  | $ | 1.01 |  |  | $ | 4.58 |  |  | $ | 2.79 |
Diluted | $ | 2.45 |  |  | $ | 1.01 |  |  | $ | 4.56 |  |  | $ | 2.78 |
Shares of Common Stock Outstanding During the Period: |  |  |  |  |  |  |
Average | 315.6 |  |  | 316.1 |  |  | 316.1 |  |  | 317.2 |
Average assuming dilution | 316.9 |  |  | 317.4 |  |  | 317.4 |  |  | 318.6 |

The Notes to Financial Statements are an integral part of this statement.
3

Illinois Tool Works Inc. and Subsidiaries
Statement of Comprehensive Income (Unaudited)

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
In millions | 2021 |  | 2020 |  | 2021 |  | 2020
Net Income | $ | 775 |  |  | $ | 319 |  |  | $ | 1,446 |  |  | $ | 885 |
Foreign currency translation adjustments, net of tax | 37 |  |  | 64 |  |  | 30 |  |  | (223) |
Pension and other postretirement benefit adjustments, net of tax | 11 |  |  | 10 |  |  | 22 |  |  | 19 |
Other comprehensive income (loss) | 48 |  |  | 74 |  |  | 52 |  |  | (204) |
Comprehensive Income | $ | 823 |  |  | $ | 393 |  |  | $ | 1,498 |  |  | $ | 681 |

The Notes to Financial Statements are an integral part of this statement.
4

Illinois Tool Works Inc. and Subsidiaries
Statement of Financial Position (Unaudited)

In millions except per share amounts | June 30, 2021 |  | December 31, 2020
Assets |  |  |
Current Assets: |  |  |
Cash and equivalents | $ | 2,058 |  |  | $ | 2,564 |
Trade receivables | 2,786 |  |  | 2,506 |
Inventories | 1,400 |  |  | 1,189 |
Prepaid expenses and other current assets | 265 |  |  | 264 |
Total current assets | 6,509 |  |  | 6,523 |
Net plant and equipment | 1,767 |  |  | 1,777 |
Goodwill | 4,658 |  |  | 4,690 |
Intangible assets | 716 |  |  | 781 |
Deferred income taxes | 613 |  |  | 533 |
Other assets | 1,317 |  |  | 1,308 |
| $ | 15,580 |  |  | $ | 15,612 |
Liabilities and Stockholders' Equity |  |  |
Current Liabilities: |  |  |
Short-term debt | $ | 592 |  |  | $ | 350 |
Accounts payable | 607 |  |  | 534 |
Accrued expenses | 1,326 |  |  | 1,284 |
Cash dividends payable | 358 |  |  | 361 |
Income taxes payable | 77 |  |  | 60 |
Total current liabilities | 2,960 |  |  | 2,589 |
Noncurrent Liabilities: |  |  |
Long-term debt | 7,056 |  |  | 7,772 |
Deferred income taxes | 617 |  |  | 588 |
Noncurrent income taxes payable | 365 |  |  | 413 |
Other liabilities | 1,061 |  |  | 1,068 |
Total noncurrent liabilities | 9,099 |  |  | 9,841 |
Stockholders' Equity: |  |  |
Common stock (par value of $0.01 per share): |  |  |
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 | 1,402 |  |  | 1,362 |
Retained earnings | 23,842 |  |  | 23,114 |
Common stock held in treasury | (20,140) |  |  | (19,659) |
Accumulated other comprehensive income (loss) | (1,590) |  |  | (1,642) |
Noncontrolling interest | 1 |  |  | 1 |
Total stockholders' equity | 3,521 |  |  | 3,182 |
| $ | 15,580 |  |  | $ | 15,612 |

The Notes to Financial Statements are an integral part of this statement.
5

Illinois Tool Works Inc. and Subsidiaries
Statement of Changes in Stockholders' Equity (Unaudited)

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 June 30, 2021
Balance at March 31, 2021 | $ | 6 |  | $ | 1,378 |  | $ | 23,425 |  | $ | (19,897) |  | $ | (1,638) |  | $ | 2 |  | $ | 3,276 |
Net income | — |  | — |  | 775 |  | — |  | — |  | — |  | 775 |
Common stock issued for stock-based compensation | — |  | 8 |  | — |  | 7 |  | — |  | — |  | 15 |
Stock-based compensation expense | — |  | 16 |  | — |  | — |  | — |  | — |  | 16 |
Repurchases of common stock | — |  | — |  | — |  | (250) |  | — |  | — |  | (250) |
Dividends declared ($1.14 per share) | — |  | — |  | (358) |  | — |  | — |  | — |  | (358) |
Other comprehensive income (loss) | — |  | — |  | — |  | — |  | 48 |  | — |  | 48 |
Noncontrolling interest | — |  | — |  | — |  | — |  | — |  | (1) |  | (1) |
Balance at June 30, 2021 | $ | 6 |  | $ | 1,402 |  | $ | 23,842 |  | $ | (20,140) |  | $ | (1,590) |  | $ | 1 |  | $ | 3,521 |
Three Months Ended June 30, 2020
Balance at March 31, 2020 | $ | 6 |  | $ | 1,309 |  | $ | 22,631 |  | $ | (19,680) |  | $ | (1,983) |  | $ | 1 |  | $ | 2,284 |
Net income | — |  | — |  | 319 |  | — |  | — |  | — |  | 319 |
Common stock issued for stock-based compensation | — |  | — |  | — |  | 11 |  | — |  | — |  | 11 |
Stock-based compensation expense | — |  | 8 |  | — |  | — |  | — |  | — |  | 8 |
Dividends declared ($1.07 per share) | — |  | — |  | (338) |  | — |  | — |  | — |  | (338) |
Other comprehensive income (loss) | — |  | — |  | — |  | — |  | 74 |  | — |  | 74 |
Balance at June 30, 2020 | $ | 6 |  | $ | 1,317 |  | $ | 22,612 |  | $ | (19,669) |  | $ | (1,909) |  | $ | 1 |  | $ | 2,358 |
Six Months Ended June 30, 2021 |  |  |  |  |  |  |
Balance at December 31, 2020 | $ | 6 |  | $ | 1,362 |  | $ | 23,114 |  | $ | (19,659) |  | $ | (1,642) |  | $ | 1 |  | $ | 3,182 |
Net income | — |  | — |  | 1,446 |  | — |  | — |  | — |  | 1,446 |
Common stock issued for stock-based compensation | — |  | 13 |  | — |  | 19 |  | — |  | — |  | 32 |
Stock-based compensation expense | — |  | 27 |  | — |  | — |  | — |  | — |  | 27 |
Repurchases of common stock | — |  | — |  | — |  | (500) |  | — |  | — |  | (500) |
Dividends declared ($2.28 per share) | — |  | — |  | (718) |  | — |  | — |  | — |  | (718) |
Other comprehensive income (loss) | — |  | — |  | — |  | — |  | 52 |  | — |  | 52 |
Noncontrolling interest | — |  | — |  | — |  | — |  | — |  | — |  | — |
Balance at June 30, 2021 | $ | 6 |  | $ | 1,402 |  | $ | 23,842 |  | $ | (20,140) |  | $ | (1,590) |  | $ | 1 |  | $ | 3,521 |
Six Months Ended June 30, 2020 |  |  |  |  |  |  |
Balance at December 31, 2019 | $ | 6 |  | $ | 1,304 |  | $ | 22,403 |  | $ | (18,982) |  | $ | (1,705) |  | $ | 4 |  | $ | 3,030 |
Net income | — |  | — |  | 885 |  | — |  | — |  | — |  | 885 |
Common stock issued for stock-based compensation | — |  | (3) |  | — |  | 19 |  | — |  | — |  | 16 |
Stock-based compensation expense | — |  | 17 |  | — |  | — |  | — |  | — |  | 17 |
Repurchases of common stock | — |  | — |  | — |  | (706) |  | — |  | — |  | (706) |
Dividends declared ($2.14 per share) | — |  | — |  | (676) |  | — |  | — |  | — |  | (676) |
Other comprehensive income (loss) | — |  | — |  | — |  | — |  | (204) |  | — |  | (204) |
Noncontrolling interest | — |  | (1) |  | — |  | — |  | — |  | (3) |  | (4) |
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.
6

Illinois Tool Works Inc. and Subsidiaries
Statement of Cash Flows (Unaudited)

| Six Months Ended
| June 30,
In millions | 2021 |  | 2020
Cash Provided by (Used for) Operating Activities: |  |  |
Net income | $ | 1,446 |  |  | $ | 885 |
Adjustments to reconcile net income to cash provided by operating activities: |  |  |
Depreciation | 136 |  |  | 133 |
Amortization and impairment of intangible assets | 66 |  |  | 71 |
Change in deferred income taxes | (87) |  |  | 22 |
Provision for uncollectible accounts | 1 |  |  | 4 |
(Income) loss from investments | (24) |  |  | (5) |
(Gain) loss on sale of operations and affiliates | — |  |  | (1) |
Stock-based compensation expense | 27 |  |  | 17 |
Other non-cash items, net | 7 |  |  | 4 |
Change in assets and liabilities, net of acquisitions and divestitures: |  |  |
(Increase) decrease in- |  |  |
Trade receivables | (300) |  |  | 302 |
Inventories | (222) |  |  | (14) |
Prepaid expenses and other assets | (20) |  |  | 23 |
Increase (decrease) in- |  |  |
Accounts payable | 80 |  |  | (76) |
Accrued expenses and other liabilities | 41 |  |  | (96) |
Income taxes | 13 |  |  | 80 |
Other, net | — |  |  | 2 |
Net cash provided by operating activities | 1,164 |  |  | 1,351 |
Cash Provided by (Used for) Investing Activities: |  |  |
Additions to plant and equipment | (146) |  |  | (116) |
Proceeds from investments | 30 |  |  | 10 |
Proceeds from sale of plant and equipment | 3 |  |  | 5 |
Other, net | (1) |  |  | (2) |
Net cash provided by (used for) investing activities | (114) |  |  | (103) |
Cash Provided by (Used for) Financing Activities: |  |  |
Cash dividends paid | (721) |  |  | (680) |
Issuance of common stock | 42 |  |  | 28 |
Repurchases of common stock | (500) |  |  | (706) |
Repayments of debt with original maturities of more than three months | (350) |  |  | — |
Other, net | (10) |  |  | (17) |
Net cash provided by (used for) financing activities | (1,539) |  |  | (1,375) |
Effect of Exchange Rate Changes on Cash and Equivalents | (17) |  |  | (42) |
Cash and Equivalents: |  |  |
Increase (decrease) during the period | (506) |  |  | (169) |
Beginning of period | 2,564 |  |  | 1,981 |
End of period | $ | 2,058 |  |  | $ | 1,812 |
Supplementary Cash Flow Information: |  |  |
Cash Paid During the Period for Interest | $ | 128 |  |  | $ | 119 |
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.
7

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 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 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 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 seven 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 June 30, 2021 and 2020 was as follows:

| 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 |

8

The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's seven 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.
9

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.
10

(4) Income Taxes
The Company's effective tax rate for the three months ended 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 2020, respectively. The effective tax rate for the three months ended June 30, 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 $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 $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 June 30, 2021 and December 31, 2020 were as follows:

In millions | June 30, 2021 |  | December 31, 2020
Raw material | $ | 546 |  |  | $ | 454 |
Work-in-process | 166 |  |  | 136 |
Finished goods | 779 |  |  | 681 |
LIFO reserve | (91) |  |  | (82) |
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 June 30, 2021 and 2020 were as follows:

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
| Pension |  | Other Postretirement Benefits |  | Pension |  | Other Postretirement Benefits
In millions | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Components of net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost | $ | 14 |  |  | $ | 13 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 27 |  |  | $ | 27 |  |  | $ | 4 |  |  | $ | 4 |
Interest cost | 10 |  |  | 15 |  |  | 2 |  |  | 4 |  |  | 20 |  |  | 30 |  |  | 5 |  |  | 8 |
Expected return on plan assets | (26) |  |  | (28) |  |  | (6) |  |  | (6) |  |  | (51) |  |  | (56) |  |  | (13) |  |  | (12) |
Amortization of actuarial loss (gain) | 13 |  |  | 12 |  |  | — |  |  | — |  |  | 26 |  |  | 24 |  |  | — |  |  | — |
Amortization of prior service cost | 1 |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — |
Total net periodic benefit cost | $ | 12 |  |  | $ | 12 |  |  | $ | (2) |  |  | $ | — |  |  | $ | 23 |  |  | $ | 25 |  |  | $ | (4) |  |  | $ | — |

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 June 30, 2021, contributions of $18 million to pension plans and $2 million to other postretirement benefit plans have been made.
11

(7) Debt
There was no commercial paper outstanding as of June 30, 2021 and December 31, 2020. Short-term debt as of June 30, 2021 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 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 June 30, 2021 and December 31, 2020 were as follows:

In millions | June 30, 2021 |  | December 31, 2020
Fair value | $ | 8,649 |  |  | $ | 9,412 |
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 June 30, 2021 and 2020:

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
In millions | 2021 |  | 2020 |  | 2021 |  | 2020
Beginning balance | $ | (1,638) |  |  | $ | (1,983) |  |  | $ | (1,642) |  |  | $ | (1,705) |
Foreign currency translation adjustments during the period | 24 |  |  | 47 |  |  | 57 |  |  | (225) |
Foreign currency translation adjustments reclassified to income | 2 |  |  | — |  |  | 4 |  |  | — |
Income taxes | 11 |  |  | 17 |  |  | (31) |  |  | 2 |
Total foreign currency translation adjustments, net of tax | 37 |  |  | 64 |  |  | 30 |  |  | (223) |
Pension and other postretirement benefit adjustments reclassified to income | 14 |  |  | 12 |  |  | 27 |  |  | 24 |
Income taxes | (3) |  |  | (2) |  |  | (5) |  |  | (5) |
Total pension and other postretirement benefit adjustments, net of tax | 11 |  |  | 10 |  |  | 22 |  |  | 19 |
Ending balance | $ | (1,590) |  |  | $ | (1,909) |  |  | $ | (1,590) |  |  | $ | (1,909) |

Foreign currency translation adjustments reclassified to income related to the exit of immaterial foreign operations. Pension and other postretirement benefit adjustments reclassified to income represented the amortization of actuarial losses and prior service cost. Refer to Note 6. Pension and Other Postretirement Benefits for additional information.
The Company des ignated 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 note s 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 fr om 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, res pectively, as of 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 $9 million as of June 30, 2021 and a loss of $120 million as of December 31, 2020.
12

As of 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 $1.5 billion, respectively, and after-tax unrecognized pension and other postretirement benefits cost of $309 million and $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 seven 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;
13

•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
14

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.
15

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
In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 continued to spread and impact the countries in which the Company operates and the markets the Company serves.
For the duration of the COVID-19 pandemic, the Company is focusing on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery phase. To support ITW's colleagues, among its many actions and initiatives, the Company redesigned production processes to ensure proper social distancing practices, adjusted shift schedules and assignments to help colleagues who have child and elder care needs, and implemented aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk. To support its customers, the Company has worked diligently to keep its facilities open and operating safely. The Company has adapted customer service systems and practices to seamlessly serve its customers under "work from home" requirements in many parts of the world.
16

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 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 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 second quarter and year-to-date periods of 2021 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 43.4 percent 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 grew 99 percent and 48.5 percent in the second quarter and year-to-date periods, respectively. Operating margin was 24.3 percent in the second quarter and 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 30.8 percent and 31.3 percent in the second quarter and year-to-date periods of 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 second quarter and year-to-date periods of 2021 and 2020 were as follows:

| Three Months Ended |  |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring |  | Foreign Currency | Total
Operating revenue | $ | 3,676 |  |  | $ | 2,564 |  |  |  |  | 43.4 | % |  | 37.2 | % | — | % | — | % |  | 6.2 | % | 43.4 | %
Operating income | $ | 893 |  |  | $ | 449 |  |  |  |  | 99.0 | % |  | 90.5 | % | 0.1 | % | (0.5) | % |  | 8.9 | % | 99.0 | %
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 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 37.2% and 19.9% in the second quarter and year-to-date periods, respectively, due to growth in all segments, as the Company saw continued improvement in both the breadth and pace of the recovery. Additionally, product line simplification activities reduced organic revenue by 20 basis points in the second quarter and year-to-date periods.
17

◦North American organic revenue grew 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 segments.
◦Europe, Middle East and Africa organic revenue increased 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 and Specialty Products segments.
◦Asia Pacific organic revenue increased 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 14.3% and 34.5% in the second quarter and year-to-date periods, respectively, due to growth in six segments, partially offset by a decline in the Construction Products segment.
•Operating income of $893 million and $1.8 billion in the second quarter and year-to-date periods, respectively, increased 99.0% and 48.5% in the respective periods.
•Operating margin was 24.3% in the second quarter. The increase of 680 basis points was primarily driven by positive operating leverage of 700 basis points and benefits from the Company's enterprise initiatives of 150 basis points, partially offset by unfavorable price/cost of 120 basis 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 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 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 $4 million and $5 million for the second quarter of 2021 and 2020, respectively, and $13 million and $12 million for the respective year-to-date periods of 2021 and 2020.
•Diluted earnings per share (EPS) of $2.45 for the second quarter and $4.56 for the year-to-date period increased 142.6% and 64.0%, respectively. Excluding the favorable impact of the discrete income tax benefit of $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 $477 million and $1.0 billion for the second quarter and year-to-date periods of 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 1.1 million and 2.3 million shares of its common stock in the second quarter and year-to-date periods of 2021, respectively, for approximately $250 million and $500 million, respectively.
•After-tax return on average invested capital was 30.8% for the second quarter and 31.3% for the year-to-date period of 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 second quarter and year-to-date periods of 2021 and 2020 were as follows:

| Three Months ended June 30, |  | Six Months Ended June 30,
Dollars in millions | Operating Revenue |  | Operating Income |  | Operating Revenue |  | Operating Income
| 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Automotive OEM | $ | 707 |  |  | $ | 361 |  |  | $ | 133 |  |  | $ | (28) |  |  | $ | 1,490 |  |  | $ | 1,057 |  |  | $ | 322 |  |  | $ | 117 |
Food Equipment | 514 |  |  | 336 |  |  | 113 |  |  | 31 |  |  | 965 |  |  | 819 |  |  | 209 |  |  | 148 |
Test & Measurement and Electronics | 606 |  |  | 455 |  |  | 170 |  |  | 117 |  |  | 1,158 |  |  | 940 |  |  | 327 |  |  | 238 |
Welding | 402 |  |  | 298 |  |  | 115 |  |  | 64 |  |  | 803 |  |  | 670 |  |  | 236 |  |  | 173 |
Polymers & Fluids | 466 |  |  | 354 |  |  | 127 |  |  | 82 |  |  | 901 |  |  | 747 |  |  | 239 |  |  | 175 |
Construction Products | 518 |  |  | 376 |  |  | 143 |  |  | 90 |  |  | 987 |  |  | 766 |  |  | 273 |  |  | 181 |
Specialty Products | 471 |  |  | 387 |  |  | 128 |  |  | 98 |  |  | 928 |  |  | 801 |  |  | 254 |  |  | 207 |
Intersegment revenue | (8) |  |  | (3) |  |  | — |  |  | — |  |  | (12) |  |  | (8) |  |  | — |  |  | — |
Unallocated | — |  |  | — |  |  | (36) |  |  | (5) |  |  | — |  |  | — |  |  | (62) |  |  | (29) |
Total | $ | 3,676 |  |  | $ | 2,564 |  |  | $ | 893 |  |  | $ | 449 |  |  | $ | 7,220 |  |  | $ | 5,792 |  |  | $ | 1,798 |  |  | $ | 1,210 |

18

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

| Three Months Ended |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total
Operating revenue | $ | 707 |  |  | $ | 361 |  |  |  |  | 95.3 | % |  | 83.5 | % | — | % | — | % | 11.8 | % | 95.3 | %
Operating income | $ | 133 |  |  | $ | (28) |  |  |  |  | 573.8 | % |  | 547.8 | % | — | % | (3.1) | % | 29.1 | % | 573.8 | %
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 83.5% and 33.6% in the second quarter and year-to-date periods, respectively, primarily due to demand recovery versus the prior year. Worldwide auto builds grew 49% in the second quarter and 29% in the year-to-date period. Product line simplification activities reduced organic revenue by 20 basis 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 increased 102.1% and 29.1% in the second quarter and year-to-date periods, respectively, compared to North American auto builds which 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, increased 92% and 19% in the second quarter and year-to-date periods, respectively.
◦European organic revenue increased 106.2% and 34.7% in the second quarter and year-to-date periods, respectively, compared to European auto builds which increased 86% in the second quarter and 28% in the year-to-date period.
◦Asia Pacific organic revenue increased 36.9% and 39.8% in the second quarter and year-to-date periods, respectively. China organic revenue grew 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 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 18.8% in the second quarter increased 2,660 basis points primarily driven by positive operating leverage of 1,700 basis points and the net benefits from the Company's enterprise initiatives and cost management, partially offset by unfavorable price/cost of 240 basis points.
19

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

| Three Months Ended |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total
Operating revenue | $ | 514 |  |  | $ | 336 |  |  |  |  | 52.9 | % |  | 46.0 | % | — | % | — | % | 6.9 | % | 52.9 | %
Operating income | $ | 113 |  |  | $ | 31 |  |  |  |  | 265.6 | % |  | 250.4 | % | — | % | (1.2) | % | 16.4 | % | 265.6 | %
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 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 46.0% in the second quarter as equipment and service organic revenue grew 51.7% and 35.4%, respectively. In the year-to-date period, organic revenue grew 13.2% as equipment and service organic revenue grew 19.6% and 2.6%, respectively.
◦North American organic revenue increased 38.6% and 12.7% in the second quarter and year-to-date periods, respectively. Equipment organic revenue grew 41.6% in the second quarter and 17.2% in the year-to-date period primarily due to growth in the restaurant, institutional and food retail end markets. Service organic revenue increased 33.4% in the second quarter and 5.9% in the year-to-date period.
◦International organic revenue increased 57.9% in the second quarter and 13.9% in the year-to-date period. Equipment organic revenue grew 65.5% and 22.7% in the second quarter and year-to-date periods, respectively, primarily due to higher demand in the European warewash, refrigeration and cooking end markets. Service organic revenue increased 39.2% in the second quarter and declined 3.0% in the year-to-date period.
•Operating margin of 22.0% in the second quarter increased 1,280 basis points primarily due to positive operating leverage of 1,010 basis points and the net benefits from the Company's enterprise 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.
20

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

| Three Months Ended |  |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring |  | Foreign Currency | Total
Operating revenue | $ | 606 |  |  | $ | 455 |  |  |  |  | 33.0 | % |  | 28.7 | % | — | % | — | % |  | 4.3 | % | 33.0 | %
Operating income | $ | 170 |  |  | $ | 117 |  |  |  |  | 45.4 | % |  | 40.2 | % | — | % | 0.7 | % |  | 4.5 | % | 45.4 | %
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 28.7% in the second quarter and 19.4% in the year-to-date period.
◦Organic revenue for the test and measurement businesses increased 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, the impact of a stronger capital spending environment, 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 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 28.1% in the second quarter increased 240 basis points primarily due to positive operating leverage of 560 basis points and benefits from the Company's enterprise 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.
21

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

| Three Months Ended |  |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring |  | Foreign Currency | Total
Operating revenue | $ | 402 |  |  | $ | 298 |  |  |  |  | 35.2 | % |  | 32.6 | % | — | % | — | % |  | 2.6 | % | 35.2 | %
Operating income | $ | 115 |  |  | $ | 64 |  |  |  |  | 78.3 | % |  | 75.5 | % | — | % | 0.4 | % |  | 2.4 | % | 78.3 | %
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 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 32.6% in the second quarter driven by growth in equipment of 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 industrial end markets related to heavy equipment for agriculture, infrastructure and mining and in the commercial end markets related to construction, light fabrication and farm and ranch customers.
◦North American organic revenue increased 37.6% in the second quarter primarily due to 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, respectively.
◦International organic revenue grew 13.0% and 8.4% in the second quarter and year-to-date periods, respectively, primarily due to higher equipment demand in the oil and gas end markets in Europe and Asia.
•Operating margin of 28.5% in the second quarter increased 690 basis points primarily driven by positive operating leverage of 480 basis points and the net benefits from the Company's enterprise initiatives and cost management.
•In the year-to-date period, operating margin was 29.4%. The increase of 360 basis points was primarily driven by positive operating leverage of 280 basis points and the net benefits from the Company's enterprise initiatives and cost 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;
22

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

| Three Months Ended |  |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring |  | Foreign Currency | Total
Operating revenue | $ | 466 |  |  | $ | 354 |  |  |  |  | 31.7 | % |  | 27.6 | % | — | % | — | % |  | 4.1 | % | 31.7 | %
Operating income | $ | 127 |  |  | $ | 82 |  |  |  |  | 56.1 | % |  | 52.8 | % | — | % | (0.8) | % |  | 4.1 | % | 56.1 | %
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 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 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 in the year-to-date period.
◦Organic revenue for the automotive aftermarket businesses increased 33.1% and 20.2% in the second quarter and year-to-date periods, respectively, primarily driven by growth in the car care, tire repair, body repair and engine repair businesses in North America and the European additives businesses.
◦Organic revenue for the polymers businesses increased 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 increased 7.7% and 3.4% in the second quarter and year-to-date periods, respectively, primarily due to growth in the industrial maintenance, repair, and operations end markets in North America.
•Operating margin of 27.3% in the second quarter increased 420 basis points primarily driven by positive operating leverage of 520 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 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.
23

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

| Three Months Ended |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total
Operating revenue | $ | 518 |  |  | $ | 376 |  |  |  |  | 37.7 | % |  | 28.2 | % | (0.1) | % | — | % | 9.6 | % | 37.7 | %
Operating income | $ | 143 |  |  | $ | 90 |  |  |  |  | 60.3 | % |  | 50.2 | % | 0.3 | % | (1.2) | % | 11.0 | % | 60.3 | %
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 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 28.2% and 20.3% in the second quarter and year-to-date periods, respectively, with growth across all major regions. Additionally, product line simplification activities reduced organic revenue by 40 basis points in the second quarter and 30 basis points in the year-to-date period.
◦North American organic revenue grew 20.1% in the second quarter driven by higher demand in the United States residential and commercial end markets of 16.3% and 25.7%, 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 36.0% and 24.3% in the second quarter and year-to-date periods, respectively. European organic revenue grew 61.0% in the second quarter and 37.4% in the year-to-date period primarily driven by higher demand in the commercial and residential end markets. Asia Pacific organic revenue increased 12.5% and 9.8% in the second quarter and year-to-date periods, respectively, primarily due to higher demand in Australia and New Zealand in the retail and residential end markets.
•Operating margin of 27.6% in the second quarter increased 390 basis points primarily driven by positive operating leverage of 440 basis points and 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 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.
24

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

| Three Months Ended |  |  |  |  |  |
Dollars in millions | June 30, |  | Components of Increase (Decrease)
| 2021 |  | 2020 |  |  |  | Inc (Dec) |  | Organic | Acquisition/ Divestiture | Restructuring | Foreign Currency | Total
Operating revenue | $ | 471 |  |  | $ | 387 |  |  |  |  | 21.6 | % |  | 17.2 | % | — | % | — | % | 4.4 | % | 21.6 | %
Operating income | $ | 128 |  |  | $ | 98 |  |  |  |  | 30.4 | % |  | 25.9 | % | — | % | (0.3) | % | 4.8 | % | 30.4 | %
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 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 17.2% in the second quarter driven by growth in consumables of 18.6% and equipment of 11.7%. 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 due to higher demand across all major regions.
◦North American organic revenue increased 14.5% and 10.0% in the second quarter and year-to-date periods, respectively, primarily driven by growth in the consumer packaging, appliance, product coding and marking, and strength film businesses.
◦International organic revenue increased 21.5% in the second quarter and 15.4% in the year-to-date period primarily due to an increase in the appliance businesses in Europe and Asia Pacific and the ground support equipment businesses in Europe.
•Operating margin of 27.2% in the second quarter increased 180 basis points primarily driven by positive operating leverage of 330 basis points and benefits from the Company's enterprise initiatives, 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 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 respective periods of 2020.
•Other income (expense) was income of $22 million in the second quarter of 2021 versus $8 million in the prior year period primarily driven by higher investment income, partially offset by higher foreign currency translation 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 was partially offset by foreign currency translation losses in 2021 versus gains in 2020.
25

LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of June 30, 2021, the Company had $2.1 billion of cash and equivalents on hand, no outstanding borrowings under its $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.
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 second quarter and year-to-date periods of 2021 and 2020 was as follows:

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
In millions | 2021 |  | 2020 |  | 2021 |  | 2020
Net cash provided by operating activities | $ | 555 |  |  | $ | 737 |  |  | $ | 1,164 |  |  | $ | 1,351 |
Additions to plant and equipment | (78) |  |  | (56) |  |  | (146) |  |  | (116) |
Free cash flow | $ | 477 |  |  | $ | 681 |  |  | $ | 1,018 |  |  | $ | 1,235 |
Cash dividends paid | $ | (360) |  |  | $ | (338) |  |  | $ | (721) |  |  | $ | (680) |
Repurchases of common stock | (250) |  |  | — |  |  | (500) |  |  | (706) |
Repayments of debt with original maturities of more than three months | (350) |  |  | — |  |  | (350) |  |  | — |
Other, net | 44 |  |  | 16 |  |  | 64 |  |  | 24 |
Effect of exchange rate changes on cash and equivalents | 13 |  |  | 23 |  |  | (17) |  |  | (42) |
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
26

common stock at an average price of $233.29 in the second quarter of 2021. As of June 30, 2021, there were $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.
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 second quarter and year-to-date periods of 2021 and 2020 was as follows:

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
Dollars in millions | 2021 |  | 2020 |  | 2021 |  | 2020
Operating income | $ | 893 |  |  | $ | 449 |  |  | $ | 1,798 |  |  | $ | 1,210 |
Tax rate | 23.0 | % |  | 21.3 | % |  | 22.7 | % |  | 22.4 | %
Income taxes | (206) |  |  | (96) |  |  | (409) |  |  | (271) |
Operating income after taxes | $ | 687 |  |  | $ | 353 |  |  | $ | 1,389 |  |  | $ | 939 |
Invested capital: |  |  |  |  |  |  |
Trade receivables | $ | 2,786 |  |  | $ | 2,156 |  |  | $ | 2,786 |  |  | $ | 2,156 |
Inventories | 1,400 |  |  | 1,167 |  |  | 1,400 |  |  | 1,167 |
Net assets held for sale | — |  |  | 181 |  |  | — |  |  | 181 |
Net plant and equipment | 1,767 |  |  | 1,711 |  |  | 1,767 |  |  | 1,711 |
Goodwill and intangible assets | 5,374 |  |  | 5,244 |  |  | 5,374 |  |  | 5,244 |
Accounts payable and accrued expenses | (1,933) |  |  | (1,508) |  |  | (1,933) |  |  | (1,508) |
Other, net | (283) |  |  | (636) |  |  | (283) |  |  | (636) |
Total invested capital | $ | 9,111 |  |  | $ | 8,315 |  |  | $ | 9,111 |  |  | $ | 8,315 |
Average invested capital | $ | 8,926 |  |  | $ | 8,431 |  |  | $ | 8,864 |  |  | $ | 8,557 |
After-tax return on average invested capital | 30.8 | % |  | 16.8 | % |  | 31.3 | % |  | 22.0 | %

A reconciliation of the tax rate for the three and six month periods ended June 30, 2021, excluding the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as 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 Item 1. Financial Statements for further information regarding the second quarter 2021 discrete tax benefit.
27

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

In millions | June 30, 2021 |  | December 31, 2020 |  | Increase/ (Decrease)
Current assets: |  |  |  |  |
Cash and equivalents | $ | 2,058 |  |  | $ | 2,564 |  |  | $ | (506) |
Trade receivables | 2,786 |  |  | 2,506 |  |  | 280 |
Inventories | 1,400 |  |  | 1,189 |  |  | 211 |
Other | 265 |  |  | 264 |  |  | 1 |
Total current assets | 6,509 |  |  | 6,523 |  |  | (14) |
Current liabilities: |  |  |  |  |
Short-term debt | 592 |  |  | 350 |  |  | 242 |
Accounts payable and accrued expenses | 1,933 |  |  | 1,818 |  |  | 115 |
Other | 435 |  |  | 421 |  |  | 14 |
Total current liabilities | 2,960 |  |  | 2,589 |  |  | 371 |
Net working capital | $ | 3,549 |  |  | $ | 3,934 |  |  | $ | (385) |

As of 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 June 30, 2021 and December 31, 2020 was as follows:

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

There was no commercial paper outstanding as of June 30, 2021 and December 31, 2020. Short-term debt as of June 30, 2021 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 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
28

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 June 30, 2021 and December 31, 2020 was as follows:

Dollars in millions | June 30, 2021 |  | December 31, 2020
Total debt | $ | 7,648 |  |  | $ | 8,122 |
Net income | $ | 2,670 |  |  | $ | 2,109 |
Add: |  |  |
Interest expense | 208 |  |  | 206 |
Other income | (29) |  |  | (28) |
Income taxes | 621 |  |  | 595 |
Depreciation | 276 |  |  | 273 |
Amortization and impairment of intangible assets | 149 |  |  | 154 |
EBITDA | $ | 3,895 |  |  | $ | 3,309 |
Total debt to EBITDA ratio | 2.0 |  |  | 2.5 |

Stockholders' Equity
The changes to stockholders' equity during the six months ended June 30, 2021 were as follows:

In millions |
Total stockholders' equity, December 31, 2020 | $ | 3,182 |
Net income | 1,446 |
Repurchases of common stock | (500) |
Dividends declared | (718) |
Foreign currency translation adjustments, net of tax | 30 |
Other, net | 81 |
Total stockholders' equity, June 30, 2021 | $ | 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, 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
29

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) impact of tax legislation and regulatory action and changing tax 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 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 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 June 30, 2021 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
30

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 June 30, 2021, there were $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 second quarter of 2021 was as follows:

In millions except per share amounts
Period |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Programs |  | Maximum Value of Shares That May Yet Be Purchased Under Programs
April 2021 |  | — |  |  | $ | — |  |  | — |  |  | $ | 990 |
May 2021 |  | 0.9 |  |  | $ | 233.48 |  |  | 0.9 |  |  | $ | 3,784 |
June 2021 |  | 0.2 |  |  | $ | 232.44 |  |  | 0.2 |  |  | $ | 3,740 |
Total |  | 1.1 |  |  |  |  | 1.1 |  |  |

31

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 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).

32

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

33