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	~~September~~June 30, ~~2020~~2021

	OR

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

	For the transition period from _______________ to _______________

Commission File Number: 1-4797

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware

36-1258310

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

155 Harlem Avenue

Glenview

60025

(Address of principal executive offices)

(Zip Code)

(~~Registrant’s~~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~~registrant's common stock, $0.01 par value, outstanding at ~~September~~June 30, ~~2020: 316,520,261.~~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	1413
Item 4.	Controls and Procedures	3330

	PART II - Other Information

Item 1.	Legal Proceedings	3431
Item 1A.	Risk Factors	3431
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3531
Item 6.	Exhibits	3632

Signatures		3734

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Illinois Tool Works Inc. and Subsidiaries

Statement of Income (Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
In millions except per share amounts	In millions except per share amounts	2020		2019		2020		2019		In millions except per share amounts	2021		2020		2021		2020
Operating Revenue	Operating Revenue	$	3,307	$	3,479	$	9,099	$	10,640	Operating Revenue	$	3,676	$	2,564	$	7,220	$	5,792
Cost of revenue	Cost of revenue	1,910		2,007		5,375		6,165		Cost of revenue	2,163		1,594		4,202		3,465
Selling, administrative, and research and development expenses	Selling, administrative, and research and development expenses	560		566		1,606		1,775		Selling, administrative, and research and development expenses	588		486		1,154		1,046
Amortization and impairment of intangible assets	Amortization and impairment of intangible assets	48		38		119		122		Amortization and impairment of intangible assets	32		35		66		71
Operating Income	Operating Income	789		868		1,999		2,578		Operating Income	893		449		1,798		1,210
Interest expense	Interest expense	(52)		(52)		(154)		(170)		Interest expense	(52)		(51)		(104)		(102)
Other income (expense)	Other income (expense)	2		26		35		49		Other income (expense)	22		8		34		33
Income Before Taxes	Income Before Taxes	739		842		1,880		2,457		Income Before Taxes	863		406		1,728		1,141
Income Taxes	Income Taxes	157		182		413		577		Income Taxes	88		87		282		256
Net Income	Net Income	$	582	$	660	$	1,467	$	1,880	Net Income	$	775	$	319	$	1,446	$	885

Net Income Per Share:	Net Income Per Share:									Net Income Per Share:
Basic	Basic	$	1.84	$	2.05	$	4.63	$	5.79	Basic	$	2.46	$	1.01	$	4.58	$	2.79
Diluted	Diluted	$	1.83	$	2.04	$	4.61	$	5.76	Diluted	$	2.45	$	1.01	$	4.56	$	2.78

Shares of Common Stock Outstanding During the Period:	Shares of Common Stock Outstanding During the Period:									Shares of Common Stock Outstanding During the Period:
Average	Average	316.5		322.3		316.9		324.8		Average	315.6		316.1		316.1		317.2
Average assuming dilution	Average assuming dilution	317.9		324.0		318.3		326.6		Average assuming dilution	316.9		317.4		317.4		318.6

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Comprehensive Income (Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
In millions	In millions	2020		2019		2020		2019		In millions	2021		2020		2021		2020
Net Income	Net Income	$	582	$	660	$	1,467	$	1,880	Net Income	$	775	$	319	$	1,446	$	885

Foreign currency translation adjustments, net of tax	Foreign currency translation adjustments, net of tax	63		(105)		(160)		(134)		Foreign currency translation adjustments, net of tax	37		64		30		(223)
Pension and other postretirement benefit adjustments, net of tax	Pension and other postretirement benefit adjustments, net of tax	9		4		28		13		Pension and other postretirement benefit adjustments, net of tax	11		10		22		19
Other comprehensive income (loss)	Other comprehensive income (loss)	72		(101)		(132)		(121)		Other comprehensive income (loss)	48		74		52		(204)

Comprehensive Income	Comprehensive Income	$	654	$	559	$	1,335	$	1,759	Comprehensive Income	$	823	$	393	$	1,498	$	681

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Financial Position (Unaudited)


In millions except per share amounts	In millions except per share amounts	September 30, 2020		December 31, 2019		In millions except per share amounts	June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current Assets:	Current Assets:					Current Assets:
Cash and equivalents	Cash and equivalents	$	2,169	$	1,981	Cash and equivalents	$	2,058	$	2,564
Trade receivables	Trade receivables	2,494		2,461		Trade receivables	2,786		2,506
Inventories	Inventories	1,149		1,164		Inventories	1,400		1,189
Prepaid expenses and other current assets	Prepaid expenses and other current assets	219		296		Prepaid expenses and other current assets	265		264
Assets held for sale		0		351
Total current assets	Total current assets	6,031		6,253		Total current assets	6,509		6,523

Net plant and equipment	Net plant and equipment	1,736		1,729		Net plant and equipment	1,767		1,777
Goodwill	Goodwill	4,591		4,492		Goodwill	4,658		4,690
Intangible assets	Intangible assets	814		851		Intangible assets	716		781
Deferred income taxes	Deferred income taxes	509		516		Deferred income taxes	613		533
Other assets	Other assets	1,259		1,227		Other assets	1,317		1,308
		$	14,940	$	15,068		$	15,580	$	15,612

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current Liabilities:	Current Liabilities:					Current Liabilities:
Short-term debt	Short-term debt	$	353	$	4	Short-term debt	$	592	$	350
Accounts payable	Accounts payable	521		472		Accounts payable	607		534
Accrued expenses	Accrued expenses	1,263		1,217		Accrued expenses	1,326		1,284
Cash dividends payable	Cash dividends payable	361		342		Cash dividends payable	358		361
Income taxes payable	Income taxes payable	42		48		Income taxes payable	77		60
Liabilities held for sale		0		71
Total current liabilities	Total current liabilities	2,540		2,154		Total current liabilities	2,960		2,589

Noncurrent Liabilities:	Noncurrent Liabilities:					Noncurrent Liabilities:
Long-term debt	Long-term debt	7,592		7,754		Long-term debt	7,056		7,772
Deferred income taxes	Deferred income taxes	671		668		Deferred income taxes	617		588
Noncurrent income taxes payable	Noncurrent income taxes payable	413		462		Noncurrent income taxes payable	365		413
Other liabilities	Other liabilities	1,027		1,000		Other liabilities	1,061		1,068
Total noncurrent liabilities	Total noncurrent liabilities	9,703		9,884		Total noncurrent liabilities	9,099		9,841

Stockholders’ Equity:
Stockholders' Equity:						Stockholders' Equity:
Common stock (par value of $0.01 per share):	Common stock (par value of $0.01 per share):					Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2020 and 2019 Outstanding- 316.5 shares in 2020 and 319.8 shares in 2019		6		6
Issued- 550.0 shares in 2021 and 2020 Outstanding- 315.0 shares in 2021 and 316.7 shares in 2020						Issued- 550.0 shares in 2021 and 2020 Outstanding- 315.0 shares in 2021 and 316.7 shares in 2020	6		6
Additional paid-in-capital	Additional paid-in-capital	1,346		1,304		Additional paid-in-capital	1,402		1,362
Retained earnings	Retained earnings	22,833		22,403		Retained earnings	23,842		23,114
Common stock held in treasury	Common stock held in treasury	(19,652)		(18,982)		Common stock held in treasury	(20,140)		(19,659)
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(1,837)		(1,705)		Accumulated other comprehensive income (loss)	(1,590)		(1,642)
Noncontrolling interest	Noncontrolling interest	1		4		Noncontrolling interest	1		1
Total stockholders’ equity		2,697		3,030
Total stockholders' equity						Total stockholders' equity	3,521		3,182
		$	14,940	$	15,068		$	15,580	$	15,612

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Changes in Stockholders' Equity (Unaudited)


In millions except per share amounts	In millions except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total		In millions except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Common Stock Held in Treasury		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total

Three Months Ended September 30, 2020
Balance at June 30, 2020		$	6	$	1,317	$	22,612	$	(19,669)	$	(1,909)	$	1	$	2,358
Three Months Ended June 30, 2021																Three Months Ended June 30, 2021
Balance at March 31, 2021																Balance at March 31, 2021	$	6	$	1,378	$	23,425	$	(19,897)	$	(1,638)	$	2	$	3,276
Net income																Net income	—		—		775		—		—		—		775
Common stock issued for stock-based compensation																Common stock issued for stock-based compensation	—		8		—		7		—		—		15
Stock-based compensation expense																Stock-based compensation expense	—		16		—		—		—		—		16
Repurchases of common stock																Repurchases of common stock	—		—		—		(250)		—		—		(250)
Dividends declared ($1.14 per share)																Dividends declared ($1.14 per share)	—		—		(358)		—		—		—		(358)
Other comprehensive income (loss)																Other comprehensive income (loss)	—		—		—		—		48		—		48
Noncontrolling interest																Noncontrolling interest	—		—		—		—		—		(1)		(1)
Balance at June 30, 2021																Balance at June 30, 2021	$	6	$	1,402	$	23,842	$	(20,140)	$	(1,590)	$	1	$	3,521

Three Months Ended June 30, 2020																Three Months Ended June 30, 2020
Balance at March 31, 2020																Balance at March 31, 2020	$	6	$	1,309	$	22,631	$	(19,680)	$	(1,983)	$	1	$	2,284
Net income	Net income	—		—		582		—		—		—		582		Net income	—		—		319		—		—		—		319
Common stock issued for stock-based compensation	Common stock issued for stock-based compensation	—		15		—		17		—		—		32		Common stock issued for stock-based compensation	—		—		—		11		—		—		11
Stock-based compensation expense	Stock-based compensation expense	—		14		—		—		—		—		14		Stock-based compensation expense	—		8		—		—		—		—		8

Dividends declared ($1.14 per share)		—		—		(361)		—		—		—		(361)
Dividends declared ($1.07 per share)																Dividends declared ($1.07 per share)	—		—		(338)		—		—		—		(338)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		72		—		72		Other comprehensive income (loss)	—		—		—		—		74		—		74

Balance at September 30, 2020		$	6	$	1,346	$	22,833	$	(19,652)	$	(1,837)	$	1	$	2,697
Balance at June 30, 2020																Balance at June 30, 2020	$	6	$	1,317	$	22,612	$	(19,669)	$	(1,909)	$	1	$	2,358

Three Months Ended September 30, 2019
Balance at June 30, 2019		$	6	$	1,270	$	21,788	$	(18,276)	$	(1,697)	$	4	$	3,095
Six Months Ended June 30, 2021																Six Months Ended June 30, 2021
Balance at December 31, 2020																Balance at December 31, 2020	$	6	$	1,362	$	23,114	$	(19,659)	$	(1,642)	$	1	$	3,182
Net income	Net income	—		—		660		—		—		—		660		Net income	—		—		1,446		—		—		—		1,446
Common stock issued for stock-based compensation	Common stock issued for stock-based compensation	—		6		—		19		—		—		25		Common stock issued for stock-based compensation	—		13		—		19		—		—		32
Stock-based compensation expense	Stock-based compensation expense	—		10		—		—		—		—		10		Stock-based compensation expense	—		27		—		—		—		—		27
Repurchases of common stock	Repurchases of common stock	—		—		—		(375)		—		—		(375)		Repurchases of common stock	—		—		—		(500)		—		—		(500)
Dividends declared ($1.07 per share)		—		—		(344)		—		—		—		(344)
Dividends declared ($2.28 per share)																Dividends declared ($2.28 per share)	—		—		(718)		—		—		—		(718)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		(101)		—		(101)		Other comprehensive income (loss)	—		—		—		—		52		—		52
Noncontrolling interest																Noncontrolling interest	—		—		—		—		—		—		0
Balance at June 30, 2021																Balance at June 30, 2021	$	6	$	1,402	$	23,842	$	(20,140)	$	(1,590)	$	1	$	3,521

Balance at September 30, 2019		$	6	$	1,286	$	22,104	$	(18,632)	$	(1,798)	$	4	$	2,970

Nine months ended September 30, 2020
Six Months Ended June 30, 2020																Six Months Ended June 30, 2020
Balance at December 31, 2019	Balance at December 31, 2019	$	6	$	1,304	$	22,403	$	(18,982)	$	(1,705)	$	4	$	3,030	Balance at December 31, 2019	$	6	$	1,304	$	22,403	$	(18,982)	$	(1,705)	$	4	$	3,030
Net income	Net income	—		—		1,467		—		—		—		1,467		Net income	—		—		885		—		—		—		885
Common stock issued for stock-based compensation	Common stock issued for stock-based compensation	—		12		—		36		—		—		48		Common stock issued for stock-based compensation	—		(3)		—		19		—		—		16
Stock-based compensation expense	Stock-based compensation expense	—		31		—		—		—		—		31		Stock-based compensation expense	—		17		—		—		—		—		17
Repurchases of common stock	Repurchases of common stock	—		—		—		(706)		—		—		(706)		Repurchases of common stock	—		—		—		(706)		—		—		(706)
Dividends declared ($3.28 per share)		—		—		(1,037)		—		—		—		(1,037)
Dividends declared ($2.14 per share)																Dividends declared ($2.14 per share)	—		—		(676)		—		—		—		(676)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		—		(132)		—		(132)		Other comprehensive income (loss)	—		—		—		—		(204)		—		(204)
Noncontrolling interest	Noncontrolling interest	—		(1)		—		—		—		(3)		(4)		Noncontrolling interest	—		(1)		—		—		—		(3)		(4)
Balance at September 30, 2020		$	6	$	1,346	$	22,833	$	(19,652)	$	(1,837)	$	1	$	2,697

Nine months ended September 30, 2019
Balance at December 31, 2018		$	6	$	1,253	$	21,217	$	(17,545)	$	(1,677)	$	4	$	3,258
Net income		—		—		1,880		—		—		—		1,880
Common stock issued for stock-based compensation		—		1		—		38		—		—		39
Stock-based compensation expense		—		32		—		—		—		—		32
Repurchases of common stock		—		—		—		(1,125)		—		—		(1,125)
Dividends declared ($3.07 per share)		—		—		(993)		—		—		—		(993)
Other comprehensive income (loss)		—		—		—		—		(121)		—		(121)

Balance at September 30, 2019		$	6	$	1,286	$	22,104	$	(18,632)	$	(1,798)	$	4	$	2,970

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

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

Illinois Tool Works Inc. and Subsidiaries

Statement of Cash Flows (Unaudited)


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
In millions	In millions	2020		2019		In millions	2021		2020
Cash Provided by (Used for) Operating Activities:	Cash Provided by (Used for) Operating Activities:					Cash Provided by (Used for) Operating Activities:
Net income	Net income	$	1,467	$	1,880	Net income	$	1,446	$	885
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	Depreciation	203		199		Depreciation	136		133
Amortization and impairment of intangible assets	Amortization and impairment of intangible assets	119		122		Amortization and impairment of intangible assets	66		71
Change in deferred income taxes	Change in deferred income taxes	19		47		Change in deferred income taxes	(87)		22
Provision for uncollectible accounts	Provision for uncollectible accounts	5		3		Provision for uncollectible accounts	1		4
(Income) loss from investments	(Income) loss from investments	(6)		(12)		(Income) loss from investments	(24)		(5)
(Gain) loss on sale of plant and equipment		1		(8)

(Gain) loss on sale of operations and affiliates	(Gain) loss on sale of operations and affiliates	(1)		6		(Gain) loss on sale of operations and affiliates	0		(1)
Stock-based compensation expense	Stock-based compensation expense	31		32		Stock-based compensation expense	27		17
Other non-cash items, net	Other non-cash items, net	6		7		Other non-cash items, net	7		4
Change in assets and liabilities, net of acquisitions and divestitures:	Change in assets and liabilities, net of acquisitions and divestitures:					Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-	(Increase) decrease in-					(Increase) decrease in-
Trade receivables	Trade receivables	42		(38)		Trade receivables	(300)		302
Inventories	Inventories	50		31		Inventories	(222)		(14)
Prepaid expenses and other assets	Prepaid expenses and other assets	50		21		Prepaid expenses and other assets	(20)		23
Increase (decrease) in-	Increase (decrease) in-					Increase (decrease) in-
Accounts payable	Accounts payable	23		15		Accounts payable	80		(76)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	29		(68)		Accrued expenses and other liabilities	41		(96)
Income taxes	Income taxes	(6)		(21)		Income taxes	13		80
Other, net	Other, net	2		5		Other, net	0		2
Net cash provided by operating activities	Net cash provided by operating activities	2,034		2,221		Net cash provided by operating activities	1,164		1,351
Cash Provided by (Used for) Investing Activities:	Cash Provided by (Used for) Investing Activities:					Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)		0		(4)

Additions to plant and equipment	Additions to plant and equipment	(168)		(244)		Additions to plant and equipment	(146)		(116)
Proceeds from investments	Proceeds from investments	10		16		Proceeds from investments	30		10
Proceeds from sale of plant and equipment	Proceeds from sale of plant and equipment	8		22		Proceeds from sale of plant and equipment	3		5
Proceeds from sales of operations and affiliates		0		5

Other, net	Other, net	(1)		(15)		Other, net	(1)		(2)
Net cash provided by (used for) investing activities	Net cash provided by (used for) investing activities	(151)		(220)		Net cash provided by (used for) investing activities	(114)		(103)
Cash Provided by (Used for) Financing Activities:	Cash Provided by (Used for) Financing Activities:					Cash Provided by (Used for) Financing Activities:
Cash dividends paid	Cash dividends paid	(1,019)		(977)		Cash dividends paid	(721)		(680)
Issuance of common stock	Issuance of common stock	60		50		Issuance of common stock	42		28
Repurchases of common stock	Repurchases of common stock	(706)		(1,125)		Repurchases of common stock	(500)		(706)
Net proceeds from (repayments of) debt with original maturities of three months or less		0		(1)
Proceeds from debt with original maturities of more than three months		0		1,774

Repayments of debt with original maturities of more than three months	Repayments of debt with original maturities of more than three months	0		(1,350)		Repayments of debt with original maturities of more than three months	(350)		0
Other, net	Other, net	(16)		(12)		Other, net	(10)		(17)
Net cash provided by (used for) financing activities	Net cash provided by (used for) financing activities	(1,681)		(1,641)		Net cash provided by (used for) financing activities	(1,539)		(1,375)
Effect of Exchange Rate Changes on Cash and Equivalents	Effect of Exchange Rate Changes on Cash and Equivalents	(14)		(39)		Effect of Exchange Rate Changes on Cash and Equivalents	(17)		(42)
Cash and Equivalents:	Cash and Equivalents:					Cash and Equivalents:
Increase (decrease) during the period	Increase (decrease) during the period	188		321		Increase (decrease) during the period	(506)		(169)
Beginning of period	Beginning of period	1,981		1,504		Beginning of period	2,564		1,981
End of period	End of period	$	2,169	$	1,825	End of period	$	2,058	$	1,812
Supplementary Cash Flow Information:	Supplementary Cash Flow Information:					Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	Cash Paid During the Period for Interest	$	175	$	207	Cash Paid During the Period for Interest	$	128	$	119
Cash Paid During the Period for Income Taxes, Net of Refunds	Cash Paid During the Period for Income Taxes, Net of Refunds	$	399	$	553	Cash Paid During the Period for Income Taxes, Net of Refunds	$	355	$	153

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

Illinois Tool Works Inc. and Subsidiaries

Notes to Financial Statements (Unaudited)

(1) Significant Accounting Policies

Financial Statements— The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the ~~“Company”~~"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 2019~~Company's 2020 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

~~New Accounting Pronouncements~~

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance which changes the methodology used to measure credit losses for certain financial instruments. Under prior guidance, credit loss reserves were estimated based on historical information. The new guidance requires credit loss reserves to reflect the estimated credit losses expected to be incurred over the life of the financial asset. The Company adopted this new guidance effective January 1, 2020, which did not have a material impact on the Company's results of operations or financial position.

In January 2017, the FASB issued authoritative guidance which simplifies the assessment of goodwill for impairment. Under prior guidance, when the estimated fair value of a reporting unit was less than its carrying value, the fair value of the goodwill was determined by valuing the other assets and liabilities of the reporting unit. Under the new guidance, the requirement to determine the fair value of goodwill has been eliminated, and an impairment charge is recognized for the amount that the carrying value of the reporting unit exceeds its fair value. Effective January 1, 2020, the Company adopted the new guidance prospectively and applied the new guidance during its annual assessment of goodwill in the third quarter of 2020. The adoption of this new accounting guidance had no impact on the Company's results of operations or financial position. Refer to Note 6. Goodwill and Intangible Assets for additional information regarding the Company's annual assessment of goodwill.

In December 2019, the FASB issued authoritative guidance which simplifies certain aspects of the accounting for income taxes, including the elimination of an exception to the methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated full year loss. The Company early adopted this new guidance effective January 1, 2020, which did not have a material impact on the Company's results of operations or financial position.

(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~~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. ~~The~~In the first half of 2021, the Company ~~expects~~experienced solid recovery progress in many of its end markets; however, the disruptions caused by the COVID-19 ~~outbreak to~~pandemic continue to have an adverse impact on the Company's ~~operating results in the fourth quarter of 2020. However, the~~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~~Company's operations continues to be highly ~~uncertain.~~uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and spikes in infections (including the spread of variants) also being experienced. A prolonged outbreak ~~will~~could continue to interrupt the operations of the Company and its customers and suppliers.

(3) ~~Divestitures~~

The Company routinely reviews its portfolio of businesses relative to its business portfolio criteria and evaluates if further portfolio refinements may be needed. The Company previously communicated its intent to explore options, including potential divestitures, for certain businesses with annual revenues totaling up to $1 billion. As such, the Company may commit to a plan to exit or dispose of certain businesses and present them as held for sale in periods prior to the sale of the business.

In the second quarter of 2019, the Company approved plans to divest 6 businesses, including 2 businesses in the Test & Measurement and Electronics segment, 1 business in the Automotive OEM segment, 1 business in the Welding segment, and 2 businesses in the Specialty Products segment. These 6 businesses were classified as held for sale beginning in the second quarter of 2019.

In the fourth quarter of 2019, the Company divested 3 of the held for sale businesses which included 1 business in the Test & Measurement and Electronics segment, 1 business in the Welding segment, and 1 business in the Specialty Products segment. For the twelve months ended December 31, 2019, the Company recorded net pre-tax gains on disposal of businesses of $44 million ($30 million after-tax, or $0.09 per diluted share) which was primarily due to the 3 divestitures of held for sale businesses discussed above. The net pre-tax gain was included in Other income (expense) in the Statement of Income.

Operating revenue related to businesses divested in 2019 that was included in the Company's results of operations for the three months ended September 30, 2019 was $36 million, which included $17 million in the Welding segment, $15 million in the Test & Measurement and Electronics segment, and $4 million in the Specialty Products segment. Operating revenue related to businesses divested in 2019 for the nine months ended September 30, 2019 was $109 million, which included $48 million in the Welding segment, $48 million in the Test & Measurement and Electronics segment, and $13 million in the Specialty Products segment.

As of December 31, 2019, 3 of the businesses discussed above continued to be held for sale, including 1 business in the Test & Measurement and Electronics segment, 1 business in the Automotive OEM segment, and 1 business in the Specialty Products segment.

In the first quarter of 2020, the Company concluded that the sales of the 1 business in the Automotive OEM segment and the 1 business in the Specialty Products segment previously held for sale were no longer probable of being completed within one year, primarily due to the disruptions and economic uncertainty resulting from the COVID-19 pandemic. In the third quarter of 2020, the Company concluded that the sale of the remaining held for sale business in the Test & Measurement and Electronics segment was no longer probable of being completed within one year due to delays in the sale process and ongoing economic uncertainty resulting from the COVID-19 pandemic. Accordingly, these businesses were no longer presented as held for sale in the Statement of Financial Position beginning in the first and third quarters of 2020, respectively. As of September 30, 2020, 0 businesses were presented as held for sale.

The assets and liabilities related to the held for sale businesses that were included in assets and liabilities held for sale in the Statement of Financial Position as of December 31, 2019, were as follows:


~~In millions~~	~~December 31, 2019~~
~~Trade receivables~~	$	81
~~Inventories~~	28
~~Net plant and equipment~~	48
~~Goodwill and intangible assets~~	~~166~~
~~Other~~	28
~~Total assets held for sale~~	$	~~351~~

~~Accounts payable~~	$	21
~~Accrued expenses~~	17
~~Other~~	33
~~Total liabilities held for sale~~	$	71

~~(4)~~ Operating Revenue

The Company's 8483 diversified operating divisions are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following 7 segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
In millions	In millions	2020		2019		2020		2019		In millions	2021		2020		2021		2020
Automotive OEM	Automotive OEM	$	714	$	744	$	1,771	$	2,338	Automotive OEM	$	707	$	361	$	1,490	$	1,057
Food Equipment	Food Equipment	449		551		1,268		1,617		Food Equipment	514		336		965		819
Test & Measurement and Electronics	Test & Measurement and Electronics	489		512		1,429		1,569		Test & Measurement and Electronics	606		455		1,158		940
Welding	Welding	346		402		1,016		1,251		Welding	402		298		803		670
Polymers & Fluids	Polymers & Fluids	438		418		1,185		1,261		Polymers & Fluids	466		354		901		747
Construction Products	Construction Products	456		416		1,222		1,241		Construction Products	518		376		987		766
Specialty Products	Specialty Products	420		441		1,221		1,379		Specialty Products	471		387		928		801
Intersegment revenue	Intersegment revenue	(5)		(5)		(13)		(16)		Intersegment revenue	(8)		(3)		(12)		(8)
Total operating revenue	Total operating revenue	$	3,307	$	3,479	$	9,099	$	10,640	Total operating revenue	$	3,676	$	2,564	$	7,220	$	5,792

The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's 7 segments:

Automotive OEM— This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

•plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.

Products sold in this segment are primarily manufactured to the customer's specifications and are sold under long-term supply agreements with OEM auto manufacturers and other top tier auto parts suppliers. The Company typically recognizes revenue for products in this segment at the time of shipment. Certain products may be produced utilizing tooling that is owned by the customer that the Company developed and is reimbursed by the customer for the associated cost. In these arrangements, the Company typically retains a contractual right to use the customer-owned tooling for the purpose of fulfilling its obligations under the supply agreement. The Company records reimbursements for the cost of customer-owned tooling as a cost offset rather than operating revenue as tooling is not considered a product offering central to the Company's operations.

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

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

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

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

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

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, ~~industrial capital goods,~~ energy and consumer durables markets. Products in this segment include:

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

•electronic assembly equipment;

•electronic components and component packaging;

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

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

Revenue for products sold in this segment is typically recognized at the time of shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue recognition is deferred until such obligations have been completed.

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

•arc welding equipment; and

•metal arc welding consumables and related accessories.

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

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

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to machines;

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

•hand wipes and cleaners for industrial applications;

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

•fillers and putties for auto body repair; and

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

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

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

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

•anchors, fasteners and related tools for concrete applications;

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

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

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

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

~~(5)~~

(4) Income Taxes

The Company's effective tax rate for the three months ended ~~September~~June 30, 2021 and 2020 was 10.1% and ~~2019 was~~ 21.3% ~~and 21.6%~~, respectively, and ~~22.0%~~16.3% and ~~23.5%~~22.4% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~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 ~~$7 million for each of the three month periods ended September 30, 2020 and 2019, and $20~~$4 million and ~~$16~~$5 million for the ~~nine~~three months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~2019, respectively. Additionally, the effective tax rate~~$13 million and $12 million for the ~~third quarter~~six months ended June 30, 2021 and year-to-date periods of 2019 benefited from a discrete tax benefit of $21 million in the third quarter of 2019 for the U.S. federal provision to return adjustment which primarily related to changes in estimates related to the "Tax Cuts and Jobs Act."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 ~~$67~~$55 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues.

~~(6) Goodwill and Intangible Assets~~

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarters of 2020 and 2019. The assessments resulted in 0 impairment charges in either 2020 or 2019.

~~(7)~~(5) Inventories

Inventories as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


In millions	In millions	September 30, 2020		December 31, 2019		In millions	June 30, 2021		December 31, 2020
Raw material	Raw material	$	434	$	452	Raw material	$	546	$	454
Work-in-process	Work-in-process	156		131		Work-in-process	166		136
Finished goods	Finished goods	648		670		Finished goods	779		681
LIFO reserve	LIFO reserve	(89)		(89)		LIFO reserve	(91)		(82)
Total inventories	Total inventories	$	1,149	$	1,164	Total inventories	$	1,400	$	1,189

~~(8)~~(6) Pension and Other Postretirement Benefits

Pension and other postretirement benefit costs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows:


		Three Months Ended								Nine Months Ended									Three Months Ended								Six Months Ended
		September 30,								September 30,									June 30,								June 30,
		Pension				Other Postretirement Benefits				Pension				Other Postretirement Benefits					Pension				Other Postretirement Benefits				Pension				Other Postretirement Benefits
In millions	In millions	2020		2019		2020		2019		2020		2019		2020		2019		In millions	2021		2020		2021		2020		2021		2020		2021		2020
Components of net periodic benefit cost:	Components of net periodic benefit cost:																	Components of net periodic benefit cost:
Service cost	Service cost	$	14	$	13	$	2	$	1	$	41	$	39	$	6	$	5	Service cost	$	14	$	13	$	2	$	2	$	27	$	27	$	4	$	4
Interest cost	Interest cost	15		20		4		5		45		59		12		15		Interest cost	10		15		2		4		20		30		5		8
Expected return on plan assets	Expected return on plan assets	(28)		(30)		(6)		(5)		(84)		(91)		(18)		(16)		Expected return on plan assets	(26)		(28)		(6)		(6)		(51)		(56)		(13)		(12)
Amortization of actuarial loss (gain)	Amortization of actuarial loss (gain)	11		5		0		0		35		16		0		(1)		Amortization of actuarial loss (gain)	13		12		0		0		26		24		0		0
Amortization of prior service cost	Amortization of prior service cost	1		0		0		0		1		1		0		0		Amortization of prior service cost	1		0		0		0		1		0		0		0
Total net periodic benefit cost	Total net periodic benefit cost	$	13	$	8	$	0	$	1	$	38	$	24	$	0	$	3	Total net periodic benefit cost	$	12	$	12	$	(2)	$	0	$	23	$	25	$	(4)	$	0

The service cost component of net periodic benefit cost is presented within Cost of revenue and Selling, administrative, and research and development expenses in the Statement of Income while the other components of net periodic benefit cost are presented within Other income (expense).

The Company expects to contribute approximately ~~$27~~$28 million to its pension plans and $5$4 million to its other postretirement benefit plans in ~~2020.~~2021. As of ~~September~~June 30, ~~2020,~~2021, contributions of ~~$22~~$18 million to pension plans and $4$2 million to other postretirement benefit plans have been made.

~~(9)~~(7) Debt

There was 0 commercial paper outstanding as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Short-term debt as of ~~September~~June 30, ~~2020 and December 31, 2019~~2021 included $4$592 million related to the ~~4.88%~~1.75% Euro notes due ~~through December 31, 2020. As of September 30, 2020, Short-term debt also included $349 million related to the 3.375% notes due September 15, 2021,~~May 20, 2022, which were reclassified from Long-term debt to Short-term debt in the ~~third~~second quarter of ~~2020.~~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~~$2.5 billion ~~line of~~ revolving credit ~~agreement~~facility with a termination date of September 27, 2024, which is available to provide additional liquidity, including to support the potential issuances of commercial paper. NaN amounts were outstanding under the ~~$2.5~~$2.5 billion ~~line of~~ revolving credit ~~agreement~~facility as of ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

The approximate fair value and related carrying value of the Company's total long-term debt, including current maturities of long-term debt presented as short-term debt, as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


In millions	In millions	September 30, 2020		December 31, 2019		In millions	June 30, 2021		December 31, 2020
Fair value	Fair value	$	9,151	$	8,614	Fair value	$	8,649	$	9,412
Carrying value	Carrying value	7,945		7,758		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.

~~(10)~~(8) Accumulated Other Comprehensive Income (Loss)

The following table summarizes changes in Accumulated other comprehensive income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
In millions	In millions	2020		2019		2020		2019		In millions	2021		2020		2021		2020
Beginning balance	Beginning balance	$	(1,909)	$	(1,697)	$	(1,705)	$	(1,677)	Beginning balance	$	(1,638)	$	(1,983)	$	(1,642)	$	(1,705)

Foreign currency translation adjustments during the period	Foreign currency translation adjustments during the period	22		(65)		(203)		(98)		Foreign currency translation adjustments during the period	24		47		57		(225)

Foreign currency translation adjustments reclassified to income										Foreign currency translation adjustments reclassified to income	2		0		4		0
Income taxes	Income taxes	41		(40)		43		(36)		Income taxes	11		17		(31)		2
Total foreign currency translation adjustments, net of tax	Total foreign currency translation adjustments, net of tax	63		(105)		(160)		(134)		Total foreign currency translation adjustments, net of tax	37		64		30		(223)

Pension and other postretirement benefit adjustments reclassified to income	Pension and other postretirement benefit adjustments reclassified to income	12		5		36		16		Pension and other postretirement benefit adjustments reclassified to income	14		12		27		24
Income taxes	Income taxes	(3)		(1)		(8)		(3)		Income taxes	(3)		(2)		(5)		(5)
Total pension and other postretirement benefit adjustments, net of tax	Total pension and other postretirement benefit adjustments, net of tax	9		4		28		13		Total pension and other postretirement benefit adjustments, net of tax	11		10		22		19

Ending balance	Ending balance	$	(1,837)	$	(1,798)	$	(1,837)	$	(1,798)	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 ~~related to~~represented the amortization of actuarial ~~gains and~~ losses and prior service cost. Refer to Note 8.6. Pension and Other Postretirement Benefits for additional information.

The Company ~~designated~~designated the €1.0 billion of Euro notes issued in May 2014, the €1.0 billion of Euro notes issued in May 2015 and the €1.6 billion of Euro ~~notes~~notes issued in June 2019 as hedges of a portion of its net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. Changes in the value of this debt resulting ~~from~~from fluctuations in the Euro to U.S. ~~dollar~~Dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). The carrying values of the 2019, 2015 and 2014 Euro notes were $1.9 billion, $1.2 billion and $1.2 billion, ~~respectively,~~respectively, as of ~~September~~June 30, ~~2020.~~2021. The cumulative unrealized pre-tax gain (loss) recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was ~~$58 million and $239~~a gain of $9 million as of ~~September~~June 30, ~~2020~~2021 and a loss of $120 million as of December 31, ~~2019, respectively.~~2020.

~~The~~As of June 30, 2021 and 2020, the ending balance of Accumulated other comprehensive income (loss) asconsisted of ~~September 30, 2020 and 2019 consisted of~~after-tax cumulative translation adjustment losses ~~net~~ of ~~tax, of~~$1.3 billion and $1.5 billion, ~~and $1.4 billion,~~ respectively, and after-tax unrecognized pension and other postretirement benefits ~~costs, net~~cost of ~~tax, of $362~~$309 million and ~~$351~~$371 million, respectively.

~~(11)~~(9) Segment Information

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

(10) Acquisition Agreement

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

ITEM 2. ~~Management’s~~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 8483 divisions in 5352 countries. As of December 31, ~~2019,~~2020, the Company employed approximately ~~45,000~~43,000 people.

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

Due to the large number of diverse businesses and the Company's decentralized operating structure, the Company does not require its businesses to provide detailed information on operating results. Instead, the Company's corporate management collects data on several key measurements: operating revenue, operating income, operating margin, overhead costs, number of months on hand in inventory, days sales outstanding in accounts receivable, past due receivables and return on invested capital. These key measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are discussed with operating unit management.

THE ITW BUSINESS MODEL

The powerful and highly differentiated ITW Business Model is the ~~Company’s~~Company's core source of value creation. The ITW Business Model is the ~~Company’s~~Company's competitive advantage and defines how ITW creates value for its shareholders. It is comprised of three unique elements:

•~~ITW’s~~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”~~"80") and eliminates cost, complexity and distractions associated with the less profitable opportunities (the ~~“20”~~"20"). 80/20 enables ITW businesses to consistently achieve world-class operational excellence in product availability, quality, and innovation, while generating superior financial performance;

•Customer-Back Innovation has fueled decades of profitable growth at ITW. The ~~Company’s~~Company's unique innovation approach is built on insight gathered from the 80/20 Front-to-Back process. Working from the customer back, ITW businesses position themselves as the go-to problem solver for their ~~“80”~~"80" customers. ~~ITW’s~~ITW's innovation efforts are focused on understanding customer needs, particularly those in ~~“80”~~"80" markets with solid long-term growth fundamentals, and creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of approximately ~~18,000~~18,500 granted and pending patents;

•~~ITW’s~~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~~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 8483 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 ~~2019~~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~~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 ~~- FINISHING THE JOB~~

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 ~~finish the job and~~ reach its full potential, every one of its divisions must also be operating at its full potential. To do so, the Company remains focused on its core principles to position ITW to perform to its full potential:

•Portfolio discipline

•80/20 Front-to-Back practice excellence

•Full-potential organic growth

Portfolio Discipline

The Company only operates in industries where it can generate significant, long-term competitive advantage from the ITW Business Model. ITW businesses have the right ~~“raw material”~~"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~~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.

~~As part of its agenda to finish the job, the~~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~~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. ~~The~~However, due to the COVID-19 pandemic, the Company ~~expects~~has deferred any earnings per share dilution from divestitures would be offset by incremental share repurchases. Refer to Note 3. Divestitures in Item 1. Financial Statements for more information regarding divestitures.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 ~~its efforts~~ to ~~finish the job and~~ 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.

~~Full-potential~~Near-term Priorities

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

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

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

Full-Potential Organic Growth

Reaching full potential means that every division is positioned for sustainable, high-quality organic growth. The Company has clearly defined action plans aimed at leveraging the performance power of the ITW Business Model to achieve full-potential organic growth in every division, with specific focus on:

•"~~80”~~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~~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.~~

~~Near-term Priorities~~

~~There continues~~acquisitions, such as the recently announced agreement with Amphenol Corporation ("Amphenol"), whereby the Company intends to ~~be uncertainty around how severe~~acquire the ~~COVID-19 pandemic will be, how long its effects will last, or how quickly ITW’s customers and end markets will recover. The COVID-19 pandemic has impacted, and~~Test & Simulation business of MTS Systems Corporation ("MTS") from Amphenol, which is expected to ~~continue to impact,~~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 ~~organic revenue~~Test & Measurement and profitability. However, at this very uncertain time, ITW believes that the strength and resilience of ITW’s Business Model and its strong balance sheet continue to put the Company in a favorable position to deal with the crisis as it continues to unfold.

For the duration of the COVID-19 pandemic, the Company is focusing 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 phase.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 ~~2019~~2020 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

in the ~~Company’s~~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.

The Company experienced solid recovery progress in many of the end markets served by the Company in the third quarter of 2020, with operating revenue increasing sequentially 29 percent versus the second quarter of 2020, as demand levels in all segments improved sequentially from the second quarter of 2020, with year-over-year growth in the Construction Products and Polymers & Fluids segments. The COVID-19 pandemic continued to have more pronounced impacts in the Food Equipment and Welding segments. The strength and resilience of ITW's Business Model has resulted in the Company delivering solid financial performance. In the third quarter of 2020, operating revenue declined 4.9 percent, operating income was $789 million, operating margin was 23.8% and free cash flow was $631 million. In the year-to-date period of 2020, despite the decline in operating revenue of 14.5 percent, the Company generated $2.0 billion in operating income, operating margin was 22.0% and free cash flow was $1.9 billion.

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~~ITW's colleagues; (2) continue to serve the ~~Company’s~~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~~ITW's colleagues, among ~~other~~its many actions and initiatives, the Company ~~has~~ 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 ~~factories~~facilities open and operating safely. The Company has adapted customer service systems and practices to seamlessly serve its customers under ~~“work~~"work from ~~home”~~home" requirements in many parts of the world.

In areas around the world where governments issued stay-at-home or similar orders, the vast majority of ITW's businesses were designated as critical or essential businesses and, as such, they remained open and operational. In some cases, this is because the ~~Company’s~~Company's products directly impact the COVID-19 response effort. In other cases, the ~~Company’s~~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.

~~As of September 30, 2020, all~~While the vast majority of the Company's facilities ~~are~~have remained open and ~~operational; however,~~operational during the pandemic, many of these facilities ~~are~~were operating at a reduced capacity and the Company expects the customer demand disruptions caused by the COVID-19 outbreak to continue to have an adverse impact on the Company's operating results in the fourth quarter of 2020 and beyond.capacity. The full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the ~~Company’s~~Company's operations and financial position continues to be highly ~~uncertain.~~uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and spikes in infections (including the spread of variants) also being experienced. A prolonged outbreak ~~will~~could continue to interrupt the operations of the Company and its customers and suppliers. A description of the risks relating to the impact of the COVID-19 outbreak on the Company's business, operations and financial condition is contained in Part III - ~~Other Information,~~ Item ~~1A.~~1A - Risk ~~Factors.~~Factors in the Company's 2020 Annual Report on Form 10-K.

Separately, the Company does not believe that tariffs imposed in ~~the prior year~~recent years have had a material impact on its operating results. The Company will continue to evaluate the impact of enacted and proposed tariffs on its businesses, as well as pricing actions to mitigate the impact of any raw material cost increases resulting from these tariffs.

The ~~Company’s~~Company delivered strong 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 ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2020 2019 Inc (Dec) Organic Acquisition/
Divestiture Restructuring Foreign
Currency Total
Operating revenue $ 3,307 $ 3,479 (4.9) % (4.6) % (1.0) % — % 0.7 % (4.9) %
Operating income $ 789 $ 868 (9.1) % (6.9) % (0.5) % (2.1) % 0.4 % (9.1) %
Operating margin % 23.8 % 25.0 % (120) bps (60) bps 10 bps (60) bps (10) bps (120) bps


	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


		Nine Months Ended																	Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	9,099		$	10,640		(14.5)	%	(12.7)	%	(1.0)	%	—	%			(0.8)	%	(14.5)	%	Operating revenue	$	7,220		$	5,792			24.7	%	19.9	%	—	%	—	%	4.8	%	24.7	%
Operating income	Operating income	$	1,999		$	2,578		(22.5)	%	(22.6)	%	(0.4)	%	1.1	%			(0.6)	%	(22.5)	%	Operating income	$	1,798		$	1,210			48.5	%	42.8	%	—	%	(0.2)	%	5.9	%	48.5	%
Operating margin %	Operating margin %	22.0		%	24.2		%	(220) bps		(270) bps		20 bps		30 bps				—		(220) bps		Operating margin %	24.9		%	20.9		%		400 bps		400 bps		—		—		—		400 bps

•Operating revenue ~~declined~~increased 43.4% in the ~~third~~second quarter and 24.7% in the year to date period due to ~~lower~~higher organic revenue and the ~~impact of 2019 divestitures, partially offset by the~~ favorable ~~effect of foreign currency translation. In the year-to-date period, operating revenue decreased due to lower organic revenue, the impact of 2019 divestitures and the unfavorable~~ effect of foreign currency translation.

•Organic revenue ~~decreased 4.6%~~grew 37.2% and ~~12.7%~~19.9% in the ~~third~~second quarter and year-to-date periods, respectively, primarily due to disruptions in the Company's global operations resulting from the COVID-19 pandemic. Organic revenue declined in five of seven segments in the third quarter and all seven segments decreased in the year-to-date period. In the third quarter, Construction Products and Polymers & Fluids grew 7.6% and 5.8%, respectively, primarily due to growth in ~~North America. Product~~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 3020 basis points in the ~~third~~second quarter and ~~40 basis points in the~~ year-to-date ~~period.~~periods.

◦North American organic revenue ~~decreased 5.0%~~grew 36.3% and 18.5% in the ~~third~~second quarter ~~as a decrease in five segments was partially offset by~~and year-to-date periods, respectively, due to growth in ~~the Construction Products and Polymers & Fluids segments. In the year-to-date period, organic revenue decreased 12.0% as a decline in six~~all segments primarily driven by the Automotive OEM, Test & Measurement and Electronics, Welding and Food Equipment ~~and Welding segments, was partially offset by growth in the Construction Products segment.~~segments.

◦Europe, Middle East and Africa organic revenue ~~decreased 8.0%~~increased 49.6% in the ~~third quarter. A decline in the Food Equipment, Specialty Products, Automotive OEM, Test & Measurement~~second quarter and ~~Electronics and Welding segments was partially offset by growth in the Construction Products and Polymers & Fluids segments. Organic revenue decreased 17.7%~~20.3% in the year-to-date period asdue to growth in all ~~seven~~ segments ~~had a decline in organic revenue.~~primarily driven by Automotive OEM, Food Equipment, Construction Products and Specialty Products segments.

◦Asia Pacific organic revenue increased ~~3.4%~~20.0% and 23.4% in the ~~third~~second quarter asand year-to-date periods, respectively, due to growth in ~~the Automotive OEM, Specialty Products, Polymers & Fluids, Construction Products and Test & Measurement and Electronics segments was partially offset by a decline in the Food Equipment and Welding~~all segments. ~~Organic revenue decreased 5.1% in the year-to-date period as all seven segments had a decline in organic revenue.~~ China organic revenue grew ~~10.2%~~14.3% and 34.5% in the ~~third~~second quarter ~~primarily~~and year-to-date periods, respectively, due to ~~an increase~~growth in ~~the Automotive OEM, Polymers & Fluids, Specialty Products and Test & Measurement and Electronics~~six segments, partially offset by a decline in the ~~Food Equipment, Welding and~~ Construction Products segments. In the year-to-date period, China organic revenue declined 3.8% as a decrease in the Food Equipment, Welding and Specialty Products segments, was partially offset by growth in the Polymers & Fluids, Test & Measurement and Electronics, Automotive OEM and Construction Products segments.segment.

•Operating income of ~~$789~~$893 million and ~~$2.0~~$1.8 billion in the ~~third~~second quarter and year-to-date periods, respectively, ~~decreased 9.1%~~increased 99.0% and ~~22.5%~~48.5% in the respective ~~periods primarily due to lower organic revenue.~~periods.

•Operating margin was ~~23.8%~~24.3% in the ~~third~~second quarter. The ~~decrease~~increase of ~~120~~680 basis points was primarily driven by ~~negative~~positive operating leverage of ~~100~~700 basis points ~~higher restructuring expenses, product mix~~ and ~~the recapture of amortization and depreciation expense related to a business previously classified as held for sale, partially offset by~~ benefits from the Company's enterprise initiatives of 150 basis points, partially offset by unfavorable price/cost of 120 basis points and ~~favorable price/cost of 10 basis points.~~higher overhead expenses, including employee-related expenses.

•In the year-to-date period, operating margin of ~~22.0% decreased 220~~24.9% increased 400 basis points primarily ~~driven by negative~~due to positive operating leverage of ~~300~~390 basis points and ~~product mix, partially offset by~~ benefits from the Company's enterprise initiatives of ~~120~~130 basis points, ~~lower restructuring expenses and favorable~~partially offset by unfavorable price/cost of 1090 basis ~~points.~~points and higher overhead expenses, including employee-related expenses.

•The effective tax rate for the ~~third~~second quarter of 2021 and 2020 was 10.1% and ~~2019 was~~ 21.3% ~~and 21.6%~~, respectively, and ~~22.0%~~16.3% and ~~23.5%~~22.4% for the respective year-to-date periods of ~~2020~~2021 and ~~2019, respectively.~~2020. The effective tax rate for the second quarter of 2021 included a discrete income tax benefit of $112 million related to the remeasurement of net deferred tax assets due to the enactment of the U.K. Finance Bill 2021, which increases the U.K. income tax rate from 19% to 25% effective April 1, 2023. Additionally, the effective tax rate included discrete income tax benefits related to excess tax benefits from stock-based compensation of $7$4 million and $5 million for the ~~third~~second quarter of ~~both~~2021 and 2020, respectively, and ~~2019, and $20~~$13 million and ~~$16~~$12 million for the respective year-to-date periods of ~~2020~~2021 and 2019, respectively. Additionally, the effective tax rate for the third quarter and year-to-date periods of 2019 benefited from a discrete tax benefit of $21 million in the third quarter of 2019 for the U.S. federal provision to return adjustment which primarily related to changes in estimates related to the “Tax Cuts and Jobs Act.”2020.

•Diluted earnings per share (EPS) ~~were $1.83~~of $2.45 for the ~~third~~second quarter and ~~$4.61~~$4.56 for the year-to-date period increased 142.6% and 64.0%, respectively. Excluding the favorable impact of ~~2020.~~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 ~~$631~~$477 million and ~~$1.9~~$1.0 billion for the ~~third~~second quarter and year-to-date periods of ~~2020,~~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 ~~4.2~~1.1 million and 2.3 million shares of its common stock in the second quarter and year-to-date ~~period~~periods of ~~2020~~2021, respectively, for approximately ~~$706 million. The Company did not repurchase any shares of its common stock in the third quarter of~~$250 million and $500 million, respectively.

~~2020, as the Company temporarily suspended its share repurchase program starting in March 2020 due to the COVID-19 pandemic.~~

•After-tax return on average invested capital was ~~29.6%~~30.8% for the ~~third~~second quarter and ~~24.4%~~31.3% for the year-to-date period of ~~2020.~~2021. Refer to the ~~After-Tax~~After-tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

RESULTS OF OPERATIONS BY SEGMENT

Total operating revenue and operating income for the ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:


		Three Months ended September 30,								Nine Months Ended September 30,									Three Months ended June 30,								Six Months Ended June 30,
Dollars in millions	Dollars in millions	Operating Revenue				Operating Income				Operating Revenue				Operating Income				Dollars in millions	Operating Revenue				Operating Income				Operating Revenue				Operating Income
		2020		2019		2020		2019		2020		2019		2020		2019			2021		2020		2021		2020		2021		2020		2021		2020
Automotive OEM	Automotive OEM	$	714	$	744	$	149	$	164	$	1,771	$	2,338	$	266	$	505	Automotive OEM	$	707	$	361	$	133	$	(28)	$	1,490	$	1,057	$	322	$	117
Food Equipment	Food Equipment	449		551		88		152		1,268		1,617		236		421		Food Equipment	514		336		113		31		965		819		209		148
Test & Measurement and Electronics	Test & Measurement and Electronics	489		512		116		130		1,429		1,569		354		387		Test & Measurement and Electronics	606		455		170		117		1,158		940		327		238
Welding	Welding	346		402		96		113		1,016		1,251		269		355		Welding	402		298		115		64		803		670		236		173
Polymers & Fluids	Polymers & Fluids	438		418		116		101		1,185		1,261		291		287		Polymers & Fluids	466		354		127		82		901		747		239		175
Construction Products	Construction Products	456		416		128		105		1,222		1,241		309		298		Construction Products	518		376		143		90		987		766		273		181
Specialty Products	Specialty Products	420		441		106		116		1,221		1,379		313		363		Specialty Products	471		387		128		98		928		801		254		207
Intersegment revenue	Intersegment revenue	(5)		(5)		—		—		(13)		(16)		—		—		Intersegment revenue	(8)		(3)		—		—		(12)		(8)		—		—
Unallocated	Unallocated	—		—		(10)		(13)		—		—		(39)		(38)		Unallocated	—		—		(36)		(5)		—		—		(62)		(29)
Total	Total	$	3,307	$	3,479	$	789	$	868	$	9,099	$	10,640	$	1,999	$	2,578	Total	$	3,676	$	2,564	$	893	$	449	$	7,220	$	5,792	$	1,798	$	1,210

Segments are allocated a fixed overhead charge based on the segment's revenue. Expenses not charged to the segments are reported separately as Unallocated. Because the Unallocated category includes a variety of items, it is subject to fluctuations on a quarterly and annual basis.

AUTOMOTIVE OEM

This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

•plastic and metal components, fasteners and assemblies for automobiles, light trucks and other industrial uses.

The results of operations for the Automotive OEM segment for the ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2020 2019 Inc (Dec) Organic Acquisition/
Divestiture Restructuring Foreign Currency Total
Operating revenue $ 714 $ 744 (4.1) % (4.8) % — % — % 0.7 % (4.1) %
Operating income $ 149 $ 164 (9.5) % (3.3) % — % (6.3) % 0.1 % (9.5) %
Operating margin % 20.8 % 22.1 % (130) bps 30 bps — (150) bps (10) bps (130) bps


	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


		Nine Months Ended															Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	1,771		$	2,338		(24.2)	%	(23.3)	%	—	%	—	%	(0.9)	%	(24.2)	%	Operating revenue	$	1,490		$	1,057			40.9	%	33.6	%	—	%	—	%	7.3	%	40.9	%
Operating income	Operating income	$	266		$	505		(47.4)	%	(48.5)	%	—	%	1.7	%	(0.6)	%	(47.4)	%	Operating income	$	322		$	117			175.0	%	159.9	%	—	%	0.6	%	14.5	%	175.0	%
Operating margin %	Operating margin %	15.0		%	21.6		%	(660) bps		(710) bps		—		50 bps		—		(660) bps		Operating margin %	21.6		%	11.1		%		1050 bps		1050 bps		—		—		—		1050 bps

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

•Organic revenue ~~declined 4.8%~~increased 83.5%and 33.6% in the ~~third~~second quarter and ~~23.3%~~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 versus worldwide auto builds which decreased 3% in the third quarter and 23% in the year-to-date period due to customer and geographic region mix.~~period. Product line simplification activities reduced organic revenue by 8020 basis points in ~~both~~ the ~~third~~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.~~periods of 2021.

◦North American organic revenue ~~decreased 10.3%~~increased 102.1% and ~~28.6%~~29.1% in the ~~third~~second quarter and year-to-date periods, respectively, compared to North American auto builds which grew 1%132% in the ~~third~~second quarter and ~~declined 26%~~32% in the year-to-date ~~periods.~~period. Auto builds for the Detroit 3, where the Company has higher content, ~~decreased 1%~~increased 92% and ~~28%~~19% in the ~~third~~second quarter and year-to-date periods, respectively.

◦European organic revenue ~~was down 5.3%~~increased 106.2% and ~~25.0%~~34.7% in the ~~third~~second quarter and year-to-date periods, respectively, compared to European auto builds which ~~decreased 8% and 30%~~increased 86% in the ~~respective periods.~~second quarter and 28% in the year-to-date period.

◦Asia Pacific organic revenue increased ~~10.5%~~36.9% and 39.8% in the ~~third~~second quarter and ~~declined 6.1% in the~~ year-to-date ~~periods.~~periods, respectively. China organic revenue grew ~~15.2%~~19.9% and ~~0.2%~~36.8% in the ~~third~~second quarter and year-to-date periods, respectively, versus China auto builds which ~~increased 11%~~declined 4% in the ~~third~~second quarter and ~~decreased 9%~~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 ~~was 20.8%~~of 18.8% in the ~~third quarter. The decrease of 130~~second quarter increased 2,660 basis points ~~was~~ primarily driven by ~~higher restructuring expenses of 150 basis points, negative~~positive operating leverage of 901,700 basis points and ~~unfavorable price/cost of 20 basis points, partially offset by~~the net benefits from the Company's enterprise ~~initiatives.~~initiatives and cost management, partially offset by unfavorable price/cost of 240 basis points.

•In the year-to-date period, operating margin was 21.6%. The increase of ~~15.0% decreased 660~~1,050 basis points was primarily ~~due to negative~~driven by positive operating leverage of ~~530~~630 basis points and ~~product mix,~~the net benefits from the Company's enterprise initiatives and cost management, partially offset by ~~benefits from the Company’s enterprise initiatives and lower restructuring expenses.~~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 ~~institutional/restaurant~~retail and food ~~retail~~institutional/restaurant markets. Products in this segment include:

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

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

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

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

The results of operations for the Food Equipment segment for the ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:


		Three Months Ended															Three Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	449		$	551		(18.6)	%	(19.5)	%	—	%	—	%	0.9	%	(18.6)	%	Operating revenue	$	514		$	336			52.9	%	46.0	%	—	%	—	%	6.9	%	52.9	%
Operating income	Operating income	$	88		$	152		(41.7)	%	(37.4)	%	—	%	(5.0)	%	0.7	%	(41.7)	%	Operating income	$	113		$	31			265.6	%	250.4	%	—	%	(1.2)	%	16.4	%	265.6	%
Operating margin %	Operating margin %	19.6		%	27.5		%	(790) bps		(610) bps		—		(180) bps		—		(790) bps		Operating margin %	22.0		%	9.2		%		1280 bps		1290 bps		—		(10) bps		—		1280 bps


		Nine Months Ended															Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	1,268		$	1,617		(21.6)	%	(21.2)	%	—	%	—	%	(0.4)	%	(21.6)	%	Operating revenue	$	965		$	819			17.9	%	13.2	%	—	%	—	%	4.7	%	17.9	%
Operating income	Operating income	$	236		$	421		(43.9)	%	(43.5)	%	—	%	(0.2)	%	(0.2)	%	(43.9)	%	Operating income	$	209		$	148			41.2	%	35.9	%	—	%	(0.1)	%	5.4	%	41.2	%
Operating margin %	Operating margin %	18.6		%	26.0		%	(740) bps		(730) bps		—		(10) bps		—		(740) bps		Operating margin %	21.6		%	18.1		%		350 bps		360 bps		—		(10) bps		—		350 bps

•Organic revenue ~~decreased 19.5%~~increased 46.0% in the ~~third~~second quarter as equipment and service organic revenue ~~declined 20.9%~~grew 51.7% and ~~17.1%~~35.4%, respectively. In the year-to-date period, organic revenue ~~declined 21.2%~~grew 13.2% as equipment and service organic revenue ~~decreased 22.6%~~grew 19.6% and ~~18.6%~~2.6%, respectively.

◦North American organic revenue ~~declined 19.2%~~increased 38.6% and 12.7% in the third quarter and 18.9% in the year-to-date period as equipment organic revenue declined 19.6% and 19.8%, respectively, primarily driven by lower demand in the restaurant and institutional end markets, partially offset by growth in the food retail end markets. Service organic revenue decreased 18.7% and 17.5% in the third quarter and year-to-date periods, respectively.

◦~~International organic revenue decreased 20.0% and 24.2% in the third~~second quarter and year-to-date periods, respectively. Equipment organic revenue ~~declined 22.5%~~grew 41.6% in the ~~third~~second quarter and ~~26.0%~~17.2% in the year-to-date period primarily due to ~~lower~~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 ~~and refrigeration~~ end ~~markets and lower demand in Asia.~~markets. Service organic revenue ~~decreased 14.5% and 20.4%~~increased 39.2% in the ~~third~~second quarter and declined 3.0% in the year-to-date ~~periods, respectively.~~period.

•Operating margin of ~~19.6%~~22.0% in the ~~third~~second quarter ~~decreased 790~~increased 1,280 basis points primarily due to ~~negative~~positive operating leverage of ~~490 basis points, higher restructuring expenses of 180~~1,010 basis points and ~~product mix, partially offset by~~the net benefits from the Company's enterprise initiatives and ~~favorable~~cost management, partially offset by unfavorable price/cost of 5060 basis points.

•In the year-to-date period, operating margin was ~~18.6%~~21.6%. The ~~decrease~~increase of ~~740~~350 basis points was primarily ~~due to negative~~driven by positive operating leverage of ~~580~~320 basis points and ~~product mix, partially offset by~~the net benefits from the Company's enterprise initiatives and ~~favorable~~cost management, partially offset by unfavorable price/cost of 6040 basis points.

TEST & MEASUREMENT AND ELECTRONICS

This segment is a branded and innovative producer of test and measurement and electronic manufacturing and maintenance, repair, and operations, or "MRO" solutions that improve efficiency and quality for customers in diverse end markets. Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, industrial capital goods, automotive original equipment manufacturers and tiers, ~~industrial capital goods,~~ 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 ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:


		Three Months Ended																	Three Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	489		$	512		(4.3)	%	(2.4)	%	(3.0)	%	—	%			1.1	%	(4.3)	%	Operating revenue	$	606		$	455			33.0	%	28.7	%	—	%	—	%	4.3	%	33.0	%
Operating income	Operating income	$	116		$	130		(11.5)	%	(10.1)	%	(1.6)	%	(0.6)	%			0.8	%	(11.5)	%	Operating income	$	170		$	117			45.4	%	40.2	%	—	%	0.7	%	4.5	%	45.4	%
Operating margin %	Operating margin %	23.7		%	25.6		%	(190) bps		(200) bps		30 bps		(20) bps				—		(190) bps		Operating margin %	28.1		%	25.7		%		240 bps		230 bps		—		10 bps		—		240 bps


		Nine Months Ended																	Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	1,429		$	1,569		(8.9)	%	(5.5)	%	(3.0)	%	—	%			(0.4)	%	(8.9)	%	Operating revenue	$	1,158		$	940			23.2	%	19.4	%	—	%	—	%	3.8	%	23.2	%
Operating income	Operating income	$	354		$	387		(8.6)	%	(6.7)	%	(1.5)	%	(0.1)	%			(0.3)	%	(8.6)	%	Operating income	$	327		$	238			37.1	%	32.8	%	—	%	0.3	%	4.0	%	37.1	%
Operating margin %	Operating margin %	24.8		%	24.7		%	10 bps		(30) bps		40 bps		—				—		10 bps		Operating margin %	28.2		%	25.4		%		280 bps		280 bps		—		—		—		280 bps

•Operating revenue ~~declined~~grew in the ~~third~~second quarter and year-to-date periods due to ~~the impact of a 2019 divestiture and lower~~higher organic revenue ~~partially offset by~~and the favorable ~~effect of foreign currency translation. In the year-to-date period, operating revenue declined due to lower organic revenue, the impact of a 2019 divestiture and the unfavorable~~ effect of foreign currency translation.

•Organic revenue ~~decreased 2.4%~~increased 28.7% in the ~~third~~second quarter and ~~5.5%~~19.4% in the year-to-date period.

◦Organic revenue for the test and measurement businesses ~~decreased 6.1%~~increased 20.2% and ~~6.9%~~13.1% in the ~~third~~second quarter and year-to-date periods, respectively, primarily driven by higher semi-conductor demand in North America, the impact of a ~~soft~~stronger capital spending environment, and higher demand in ~~North America~~the aerospace and ~~Europe, partially offset by higher semi-conductor demand~~oil and gas end markets in North America. Instron, where demand is more closely tied to the capital spending environment, had an organic revenue ~~decline~~growth of ~~12.2%~~10.8% in the ~~third~~second quarter and ~~14.2%~~11.3% in the year-to-date period.

◦Electronics organic revenue increased ~~1.7%~~37.9% and 26.9% in the ~~third quarter.~~second quarter and year-to-date periods, respectively, driven by higher demand in consumer electronics and automotive applications. The electronics assembly businesses ~~decreased 0.8%~~grew 82.3% in the ~~third~~second quarter and 53.4% in the year-to-date period primarily due to ~~lower~~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 ~~3.3%~~17.4% and 14.8% in the ~~third~~second quarter ~~primarily due to an increase in North America~~ and ~~Europe, partially offset by a decrease in Asia Pacific. In the~~ year-to-date period, electronics organic revenue declined 3.8%. The electronics assembly businesses decreased 8.3% primarily due to lower demand in North America. The other electronics businesses declined 1.0% primarily due to a decrease in Europe and Asia Pacific, partially offset byperiods, respectively, with growth in ~~North America.~~all major regions.

•Operating margin of ~~23.7%~~28.1% in the ~~third~~second quarter ~~decreased 190~~increased 240 basis points primarily due to ~~the recapture of amortization and depreciation expense related to a business previously classified as held for sale, negative~~positive operating leverage of 60560 basis points and ~~higher restructuring expenses, partially offset by the net~~ benefits from the Company's enterprise initiatives, partially offset by higher overhead expenses and ~~cost management, the impact of a 2019 divestiture and favorable price/cost of 40 basis points.~~product mix.

•In the year-to-date period, operating margin was ~~24.8%~~28.2%. The increase of 10280 basis points was primarily ~~due to the net~~driven by positive operating leverage of 420 basis points and benefits from the Company's enterprise initiatives, ~~and cost management, the impact of a 2019 divestiture and favorable price/cost of 30 basis points,~~ partially offset by ~~negative operating leverage of 150 basis points,~~higher overhead expenses and product ~~mix and the recapture of amortization and depreciation expense related to a business previously classified as held for sale.~~mix.

WELDING

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

•arc welding equipment; and

•metal arc welding consumables and related accessories.

The results of operations for the Welding segment for the ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2020 2019 Inc (Dec) Organic Acquisition/
Divestiture Restructuring Foreign Currency Total
Operating revenue $ 346 $ 402 (14.0) % (10.0) % (4.3) % — % 0.3 % (14.0) %
Operating income $ 96 $ 113 (14.9) % (11.7) % (2.3) % (1.0) % 0.1 % (14.9) %
Operating margin % 27.9 % 28.2 % (30) bps (60) bps 60 bps (30) bps — (30) bps


	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


		Nine Months Ended																	Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	1,016		$	1,251		(18.8)	%	(14.7)	%	(3.9)	%	—	%			(0.2)	%	(18.8)	%	Operating revenue	$	803		$	670			19.8	%	17.9	%	—	%	—	%	1.9	%	19.8	%
Operating income	Operating income	$	269		$	355		(24.1)	%	(23.2)	%	(1.6)	%	0.8	%			(0.1)	%	(24.1)	%	Operating income	$	236		$	173			36.6	%	34.8	%	—	%	0.5	%	1.3	%	36.6	%
Operating margin %	Operating margin %	26.5		%	28.4		%	(190) bps		(290) bps		70 bps		30 bps				—		(190) bps		Operating margin %	29.4		%	25.8		%		360 bps		370 bps		—		10 bps		(20) bps		360 bps

•Operating revenue ~~decreased~~grew in the ~~third~~second quarter and year-to-date periods due to ~~lower~~higher organic revenue and the ~~impact of a 2019 divestiture, partially offset by the~~ favorable ~~effect of foreign currency translation. In the year-to-date period, operating revenue decreased due to lower organic revenue, the impact of a 2019 divestiture and the unfavorable~~ effect of foreign currency translation.

•Organic revenue ~~declined 10.0% and 14.7%~~grew 32.6% in the ~~third~~second quarter ~~and year-to-date periods, respectively,~~ driven by ~~a decrease~~growth in equipment of ~~10.3% and 16.0%~~37.8% and consumables of ~~9.6%~~24.9%. In the year-to-date period, organic revenue grew 17.9% as equipment increased 22.3% and ~~12.7%, respectively,~~consumables increased 11.3%. In both periods, organic revenue growth was primarily due to ~~lower~~higher demand in the industrial end ~~markets.~~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 ~~decreased 8.8%~~increased 37.6% in the ~~third~~second quarter primarily due to ~~a decline~~51.7% and 25.9% growth in the industrial ~~end~~and commercial ends markets, ~~of 22.8%, partially offset by an increase in the commercial end markets of 11.3%.~~respectively. In the year-to-date period, organic revenue ~~declined 14.2%~~grew 20.0% primarily ~~due to a decline~~driven by 20.4% and 21.3% growth in the industrial and commercial end markets, ~~of 24.3% and 1.3%,~~ respectively.

◦International organic revenue ~~decreased 15.8%~~grew 13.0% and 8.4% in the ~~third~~second quarter and ~~17.0% in the~~ year-to-date ~~period~~periods, respectively, primarily due to ~~a decline~~higher equipment demand in the ~~European~~ oil and gas end markets ~~of 30.3%~~in Europe and ~~25.1%, respectively.~~Asia.

•Operating margin of ~~27.9%~~28.5% in the ~~third~~second quarter ~~decreased 30~~increased 690 basis points primarily driven by ~~negative~~positive operating leverage of ~~180~~480 basis points ~~product mix~~ and ~~higher restructuring expenses, partially offset by~~the net benefits from the Company's enterprise initiatives and ~~the impact of a 2019 divestiture.~~cost management.

•In the year-to-date period, operating margin was ~~26.5%~~29.4%. The ~~decrease~~increase of ~~190~~360 basis points was primarily driven by ~~negative~~positive operating leverage of 280 basis points and ~~product mix, partially offset by~~the net benefits from the Company's enterprise initiatives ~~the impact of a 2019 divestiture~~ and ~~lower restructuring expenses.~~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;

•chemical fluids which clean or add lubrication to machines;

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

•hand wipes and cleaners for industrial applications;

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

•fillers and putties for auto body repair; and

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

The results of operations for the Polymers & Fluids segment for the ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2020 2019 Inc (Dec) Organic Acquisition/
Divestiture Restructuring Foreign Currency Total
Operating revenue $ 438 $ 418 4.8 % 5.8 % — % — % (1.0) % 4.8 %
Operating income $ 116 $ 101 15.5 % 17.8 % — % (1.5) % (0.8) % 15.5 %
Operating margin % 26.6 % 24.1 % 250 bps 280 bps — (40) bps 10 bps 250 bps


	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


		Nine Months Ended																	Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,												Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring				Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	1,185		$	1,261		(6.0)	%	(4.0)	%	—	%	—	%			(2.0)	%	(6.0)	%	Operating revenue	$	901		$	747			20.6	%	17.7	%	—	%	—	%	2.9	%	20.6	%
Operating income	Operating income	$	291		$	287		1.5	%	2.0	%	—	%	1.2	%			(1.7)	%	1.5	%	Operating income	$	239		$	175			37.1	%	33.9	%	—	%	(0.1)	%	3.3	%	37.1	%
Operating margin %	Operating margin %	24.6		%	22.8		%	180 bps		140 bps		—		30 bps				10 bps		180 bps		Operating margin %	26.6		%	23.4		%		320 bps		320 bps		—		—		—		320 bps

•Operating revenue ~~increased~~grew in the ~~third~~second quarter and year-to-date periods due to higher organic revenue ~~partially offset by the unfavorable effect of foreign currency translation. In the year-to-date period, operating revenue decreased due to lower organic revenue~~ and the ~~unfavorable~~favorable effect of foreign currency translation.

•Organic revenue increased ~~5.8%~~27.6% in the ~~third~~second quarter and ~~declined 4.0%~~17.7% in the year-to-date ~~period. Product~~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 ~~both respective periods.~~the year-to-date period.

◦Organic revenue for the automotive aftermarket businesses increased ~~10.0%~~33.1% and 20.2% in the ~~third~~second quarter and year-to-date periods, respectively, primarily driven by growth in the car care, tire repair, ~~engine~~body repair and ~~car care businesses in North America. In the year-to-date period, organic revenue declined 2.5% primarily driven by a decrease in the car care and body~~engine repair businesses in North America and the European additives businesses.

◦Organic revenue for the polymers businesses ~~in Europe, partially offset by growth~~increased 33.9% in the ~~tire~~second quarter and ~~engine repair businesses~~24.3% in ~~North America.~~the year-to-date period with growth across all major regions.

◦Organic revenue for the fluids businesses increased ~~5.7%~~7.7% and 3.4% in the ~~third~~second quarter and year-to-date periods, respectively, primarily due to growth in the industrial maintenance, repair, and operations end markets in North America and growth in Europe. In the year-to-date period, organic revenue decreased 0.5% primarily due to a decline in the industrial maintenance, repair, and operations end markets in North America, partially offset by growth in Europe.

◦~~Organic revenue for the polymers businesses was flat in the third quarter as growth in South America, Asia Pacific and Europe was offset by a decline in North~~ America. ~~In the year-to-date period, organic revenue declined 8.3% primarily driven by a decline in the heavy industrial end markets in North America and Europe.~~

•Operating margin of ~~26.6%~~27.3% in the ~~third~~second quarter increased ~~250~~420 basis points primarily driven by ~~the net~~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 ~~management, positive operating leverage~~ of ~~130~~170 basis points and ~~favorable price/cost of 40 basis points, partially offset by~~ higher restructuring expenses.

•In the year-to-date period, operating margin was ~~24.6%~~26.6%. The increase of ~~180~~320 basis points was primarily due to ~~the net~~positive operating leverage of 360 basis points, benefits from the Company's enterprise ~~initiative~~initiatives, lower intangible asset amortization expense and ~~cost management, favorable~~a one-time benefit related to a recovery of indirect taxes in Brazil, partially offset by unfavorable price/cost of ~~60 basis points and lower restructuring expenses, partially offset by negative operating leverage of 90~~140 basis points.

CONSTRUCTION PRODUCTS

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

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

•anchors, fasteners and related tools for concrete applications;

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

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

The results of operations for the Construction Products segment for the ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2020 2019 Inc (Dec) Organic Acquisition/
Divestiture Restructuring Foreign Currency Total
Operating revenue $ 456 $ 416 9.6 % 7.6 % — % — % 2.0 % 9.6 %
Operating income $ 128 $ 105 22.5 % 21.7 % — % (0.4) % 1.2 % 22.5 %
Operating margin % 28.1 % 25.1 % 300 bps 330 bps — (10) bps (20) bps 300 bps


	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


		Nine Months Ended																			Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)												Dollars in millions	June 30,								Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total					2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	1,222		$	1,241		(1.5)	%	(0.5)	%	—	%	—	%	(1.0)	%	(1.5)	%			Operating revenue	$	987		$	766			28.8	%	20.3	%	(0.1)	%	—	%	8.6	%	28.8	%
Operating income	Operating income	$	309		$	298		3.6	%	2.8	%	—	%	1.8	%	(1.0)	%	3.6	%			Operating income	$	273		$	181			50.9	%	41.7	%	0.1	%	(0.6)	%	9.7	%	50.9��	%
Operating margin %	Operating margin %	25.3		%	24.0		%	130 bps		80 bps		—		50 bps		—		130 bps				Operating margin %	27.6		%	23.6		%		400 bps		420 bps		—		(20) bps		—		400 bps

•Operating revenue ~~increased~~grew in the ~~third~~second quarter and year-to-date periods due to higher organic revenue and the favorable effect of foreign currency translation. ~~In the year-to-date period, operating revenue decreased due to the unfavorable effect of foreign currency translation and lower organic revenue.~~

•Organic revenue increased ~~7.6%~~28.2% and 20.3% in the ~~third~~second quarter and year-to-date periods, respectively, with growth across all major regions. ~~Organic~~Additionally, product line simplification activities reduced organic revenue ~~declined 0.5%~~by 40 basis points in the second quarter and 30 basis points in the year-to-date ~~period as declines in Europe and Asia Pacific were partially offset by growth in North America.~~period.

◦North American organic revenue grew ~~11.9%~~20.1% in the ~~third~~second quarter ~~as an increase of 14.3%~~driven by higher demand in the United States residential and commercial end markets ~~was partially offset by a decrease~~ of ~~9.5%~~16.3% and 25.7%, respectively, and growth in ~~the commercial end markets.~~Canada. In the year-to-date period, organic revenue grew ~~7.1% as an increase of 10.7%~~15.9% due to higher demand in the United States residential and commercial end markets ~~was partially offset by a decrease~~ of ~~11.6%~~14.6% and 13.8%, respectively, and growth in ~~the commercial end markets.~~Canada.

◦International organic revenue increased ~~4.1%~~36.0% and 24.3% in the ~~third~~second quarter and ~~decreased 6.4%~~year-to-date periods, respectively. European organic revenue grew 61.0% in the second quarter and 37.4% in the year-to-date ~~period.~~period primarily driven by higher demand in the commercial and residential end markets. Asia Pacific organic revenue increased ~~2.1%~~12.5% and 9.8% in the ~~third~~second quarter and year-to-date periods, respectively, primarily due to ~~an increase in Australia and New Zealand. In the year-to-date period, Asia Pacific organic revenue decreased 2.2% primarily due to a decline~~higher demand in Australia and New Zealand in the ~~first half of 2020. European organic revenue increased 6.0% in the third quarter driven by an increase in continental Europe~~retail and ~~the United Kingdom. In the year-to-date period, European organic revenue decreased 9.9% driven by a decline in continental Europe and the United Kingdom in the first half of 2020.~~residential end markets.

•Operating margin ~~was 28.1%~~of 27.6% in the ~~third quarter. The increase of 300~~second quarter increased 390 basis points ~~was~~ primarily driven by positive operating leverage of ~~150~~440 basis points and ~~net~~ benefits from the Company's enterprise initiatives, ~~and~~ partially offset by unfavorable price/cost ~~management.~~of 120 basis points.

•In the year-to-date period, operating margin was 27.6%. The increase of ~~25.3% increased 130~~400 basis points was primarily ~~driven by the net~~due to positive operating leverage of 350 basis points and benefits from the Company's enterprise initiatives, ~~and cost management and lower restructuring expenses,~~ partially offset by unfavorable price/cost of ~~40 basis points and negative operating leverage of 20~~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, ~~consumer durables,~~ 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.

The results of operations for the Specialty Products segment for the ~~third~~second quarter and year-to-date periods of ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended
Dollars in millions September 30, Components of Increase (Decrease)
2020 2019 Inc (Dec) Organic Acquisition/
Divestiture Restructuring Foreign Currency Total
Operating revenue $ 420 $ 441 (4.8) % (4.7) % (0.8) % — % 0.7 % (4.8) %
Operating income $ 106 $ 116 (8.4) % (11.6) % — % 2.9 % 0.3 % (8.4) %
Operating margin % 25.2 % 26.2 % (100) bps (190) bps 20 bps 80 bps (10) bps (100) bps


	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


		Nine Months Ended															Six Months Ended
Dollars in millions	Dollars in millions	September 30,						Components of Increase (Decrease)								Dollars in millions	June 30,										Components of Increase (Decrease)
		2020			2019			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total			2021			2020				Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	Operating revenue	$	1,221		$	1,379		(11.5)	%	(9.9)	%	(0.9)	%	—	%	(0.7)	%	(11.5)	%	Operating revenue	$	928		$	801			15.8	%	12.1	%	—	%	—	%	3.7	%	15.8	%
Operating income	Operating income	$	313		$	363		(13.6)	%	(16.3)	%	0.7	%	2.6	%	(0.6)	%	(13.6)	%	Operating income	$	254		$	207			22.8	%	20.2	%	—	%	(1.4)	%	4.0	%	22.8	%
Operating margin %	Operating margin %	25.7		%	26.3		%	(60) bps		(190) bps		50 bps		80 bps		—		(60) bps		Operating margin %	27.4		%	25.9		%		150 bps		180 bps		—		(30) bps		—		150 bps

•Operating revenue ~~decreased~~grew in the ~~third~~second quarter and year-to-date periods due to ~~lower~~higher organic revenue and the ~~impact of 2019 divestitures, partially offset by the~~ favorable ~~effect of foreign currency translation. In the year-to-date period, operating revenue decreased due to lower organic revenue, the impact of 2019 divestitures and the unfavorable~~ effect of foreign currency translation.

•Organic revenue ~~decreased 4.7%~~increased 17.2% in the ~~third~~second quarter asdriven by growth in consumables of 18.6% and equipment ~~and consumables sales declined 17.0% and 1.2%, respectively, primarily due to lower demand in North America and Europe.~~of 11.7%. In the year-to-date period, organic revenue ~~decreased 9.9%~~grew 12.1% as consumables ~~declined 7.2%~~increased 12.8% and equipment increased 9.6%. In both periods, organic revenue increased for consumables and equipment sales ~~declined 19.2%. Additionally, product line simplification activities reduced organic revenue by 20 basis points in the third quarter and 40 basis points in the year-to-date period.~~due to higher demand across all major regions.

◦North American organic revenue ~~decreased 3.5%~~increased 14.5% and 10.0% in the ~~third~~second quarter and year-to-date periods, respectively, primarily ~~due to a decline in the ground support equipment and appliance businesses, partially offset~~driven by ~~an increase~~growth in the consumer packaging, ~~businesses. In the year-to-date period, North American organic revenue decreased 8.9% primarily due to a decline in the~~ appliance, ~~ground support equipment, specialty films, marking~~product coding and ~~consumer packaging~~marking, and strength film businesses.

◦International organic revenue ~~decreased 6.9%~~increased 21.5% in the ~~third~~second quarter and 15.4% in the year-to-date period primarily due to ~~a decline~~an increase in the ~~consumer packaging~~appliance businesses in Europe and Asia Pacific and the ground support equipment ~~businesses in Europe. In the year-to-date period, organic revenue declined 11.8% primarily due to a decline in the consumer packaging, ground support equipment, appliance and marking coding~~ businesses in Europe.

•Operating margin ~~was 25.2%~~of 27.2% in the ~~third quarter. The decrease of 100~~second quarter increased 180 basis points ~~was~~ primarily driven by ~~negative~~positive operating leverage of ~~100~~330 basis points ~~unfavorable price/cost of 80 basis points~~ and ~~the unfavorable impact of a one-time customer cost-sharing settlement, partially offset by~~ benefits from the Company's enterprise initiatives, ~~lower restructuring expenses and the impact~~partially offset by unfavorable price/cost of ~~2019 divestitures.~~230 basis points.

•In the year-to-date period, operating margin was 27.4%. The increase of ~~25.7% decreased 60~~150 basis points was primarily due to ~~negative~~positive operating leverage of ~~220~~230 basis points ~~unfavorable price/cost of 50 basis points~~ and ~~the unfavorable impact of a one-time customer cost-sharing settlement, partially offset by~~ benefits from the Company's enterprise initiatives, ~~lower~~partially offset by unfavorable price/cost of 190 basis points and higher restructuring ~~expenses and the impact of 2019 divestitures.~~expenses.

OTHER FINANCIAL HIGHLIGHTS

•Interest expense was $52 million ~~in the third quarter of both 2020~~ and ~~2019. Interest expense of $154~~$104 million in the second quarter and year-to-date ~~period~~periods of ~~2020 decreased from $170~~2021, respectively, versus $51 million and $102 million in ~~2019. The year-to-date decrease was primarily driven by outstanding commercial paper in 2019 and~~ the ~~repayment~~respective periods of ~~the $700 million notes due April 1, 2019 and the $650 million notes due March 1, 2019, partially offset by the issuance of the Euro notes in June of 2019.~~2020.

•Other income (expense) was income of $2$22 million in the ~~third~~second quarter of ~~2020~~2021 versus ~~$26~~$8 million in the prior year period ~~and $35~~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 ~~2020~~2021 versus ~~$49~~$33 million in the prior year ~~period. The third quarter includes the impact of~~period as higher investment income in 2021 was partially offset by foreign currency translation losses in ~~2020~~2021 versus gains in ~~2019 and lower interest income.~~2020.

~~NEW ACCOUNTING PRONOUNCEMENTS~~

~~Information regarding new accounting pronouncements is included in Note 1. Significant Accounting Policies of Item 1. Financial Statements.~~

LIQUIDITY AND CAPITAL RESOURCES

The ~~Company’s~~Company's primary sources of liquidity are free cash flow and short-term credit facilities. As of ~~September~~June 30, ~~2020,~~2021, the Company had ~~$2.2~~$2.1 billion of cash and equivalents on hand, no outstanding borrowings under its ~~$2.5~~$2.5 billion revolving credit facility, and no commercial paper outstanding. The Company also has maintained strong access to public debt markets. Management believes that these sources are sufficient to service debt and to finance the Company's capital allocation priorities, which include:

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

•payment of an attractive dividend to shareholders; and

•external investments in selective strategic acquisitions that support the Company's organic growth focus, and an active share repurchase ~~program that the Company temporarily suspended starting in March 2020 due to the COVID-19 pandemic.~~program.

Also, for the duration of the COVID-19 pandemic, the Company has made the strategic decision to aggressively manage its discretionary costs and working capital, while staying invested in its businesses, people and strategies, so that the Company is positioned to fully support its customers in the recovery phase and can return to executing its long-term strategy to deliver differentiated long-term performance and returns as soon as possible.

The Company believes that, based on its operating revenue, operating margin, free cash flow, and credit ratings, it could readily obtain additional financing, if necessary. A description of the risks related to the impact of the COVID-19 outbreak on the financial and capital markets and the related potential risks to the Company is contained in Part II - Other Information, Item 1A. Risk Factors.

Cash Flow

The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors in evaluating the Company's financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. Summarized cash flow information for the ~~third~~second quarter and year-to-date periods of ~~September 30,~~2021 and 2020 ~~and 2019~~ was as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
In millions	In millions	2020		2019		2020		2019		In millions	2021		2020		2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	683	$	920	$	2,034	$	2,221	Net cash provided by operating activities	$	555	$	737	$	1,164	$	1,351
Additions to plant and equipment	Additions to plant and equipment	(52)		(90)		(168)		(244)		Additions to plant and equipment	(78)		(56)		(146)		(116)
Free cash flow	Free cash flow	$	631	$	830	$	1,866	$	1,977	Free cash flow	$	477	$	681	$	1,018	$	1,235

Cash dividends paid	Cash dividends paid	$	(339)	$	(323)	$	(1,019)	$	(977)	Cash dividends paid	$	(360)	$	(338)	$	(721)	$	(680)
Repurchases of common stock	Repurchases of common stock	—		(375)		(706)		(1,125)		Repurchases of common stock	(250)		—		(500)		(706)
Acquisition of businesses (excluding cash and equivalents)		—		—		—		(4)
Net proceeds from (repayments of) debt with original maturities of three months or less		—		1		—		(1)
Proceeds from debt with original maturities of more than three months		—		—		—		1,774

Repayments of debt with original maturities of more than three months	Repayments of debt with original maturities of more than three months	—		—		—		(1,350)		Repayments of debt with original maturities of more than three months	(350)		—		(350)		—
Other, net	Other, net	37		47		61		66		Other, net	44		16		64		24
Effect of exchange rate changes on cash and equivalents	Effect of exchange rate changes on cash and equivalents	28		(32)		(14)		(39)		Effect of exchange rate changes on cash and equivalents	13		23		(17)		(42)
Net increase (decrease) in cash and equivalents	Net increase (decrease) in cash and equivalents	$	357	$	148	$	188	$	321	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 ~~February 13, 2015,~~August 3, 2018, the Company's Board of Directors authorized a stock repurchase program which provided for the repurchase of up to $6.0 billion of the Company's common stock over an open-ended period of time (the "2015 Program"). Under the 2015 Program, the Company repurchased approximately 6.1 million shares of its common stock at an average price of $91.78 per share during 2015, approximately 18.7 million shares of its common stock at an average price of $107.17 per share during 2016, approximately 7.1 million shares of its common stock at an average price of $140.56 per share during 2017, approximately 13.9 million shares of its common stock at an average price of $143.66 per share during 2018,

approximately 2.7 million shares of its common stock at an average price of $141.34 in the first quarter of 2019 and approximately 0.5 million shares of its common stock at an average price of $154.21 in the second quarter of 2019. The 2015 Program was completed in the second quarter of 2019.

~~On August 3, 2018, 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 "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. ~~As of September 30, 2020, there were $1.2 billion of authorized repurchases remaining under the 2018 Program.~~ Due to the COVID-19 pandemic, the Company temporarily suspended its share repurchase program starting in March 2020. In February 2021, the Company resumed its share repurchase program and repurchased approximately 1.2 million shares of its common stock at an average price of $211.50 in the first quarter of 2021, and approximately 1.1 million shares of its

common stock at an average price of $233.29 in the second quarter of 2021. As of 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~~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’~~operations' use of invested capital to generate profits. After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the ~~Company’s~~Company's financial performance and may be different than the method used by other companies to calculate After-tax ROIC. ~~For comparability, the Company excluded the third quarter 2019 discrete tax benefit of $21 million from the effective tax rate for the three and nine months ended September 30, 2019.~~ 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 ~~third~~second quarter and year-to-date periods of ~~September 30,~~2021 and 2020 ~~and 2019~~ was as follows:


		Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
		September 30,						September 30,							June 30,						June 30,
Dollars in millions	Dollars in millions	2020			2019			2020			2019			Dollars in millions	2021			2020			2021			2020
Operating income	Operating income	$	789		$	868		$	1,999		$	2,578		Operating income	$	893		$	449		$	1,798		$	1,210
Tax rate	Tax rate	21.3		%	24.1		%	22.0		%	24.3		%	Tax rate	23.0		%	21.3		%	22.7		%	22.4		%
Income taxes	Income taxes	(168)			(210)			(439)			(628)			Income taxes	(206)			(96)			(409)			(271)
Operating income after taxes	Operating income after taxes	$	621		$	658		$	1,560		$	1,950		Operating income after taxes	$	687		$	353		$	1,389		$	939

Invested capital:	Invested capital:													Invested capital:
Trade receivables	Trade receivables	$	2,494		$	2,499		$	2,494		$	2,499		Trade receivables	$	2,786		$	2,156		$	2,786		$	2,156
Inventories	Inventories	1,149			1,209			1,149			1,209			Inventories	1,400			1,167			1,400			1,167
Net assets held for sale	Net assets held for sale	—			324			—			324			Net assets held for sale	—			181			—			181
Net plant and equipment	Net plant and equipment	1,736			1,693			1,736			1,693			Net plant and equipment	1,767			1,711			1,767			1,711
Goodwill and intangible assets	Goodwill and intangible assets	5,405			5,320			5,405			5,320			Goodwill and intangible assets	5,374			5,244			5,374			5,244
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(1,784)			(1,722)			(1,784)			(1,722)			Accounts payable and accrued expenses	(1,933)			(1,508)			(1,933)			(1,508)
Other, net	Other, net	(527)			(535)			(527)			(535)			Other, net	(283)			(636)			(283)			(636)
Total invested capital	Total invested capital	$	8,473		$	8,788		$	8,473		$	8,788		Total invested capital	$	9,111		$	8,315		$	9,111		$	8,315

Average invested capital	Average invested capital	$	8,394		$	9,007		$	8,536		$	9,083		Average invested capital	$	8,926		$	8,431		$	8,864		$	8,557
Return on average invested capital		29.6		%	29.2		%	24.4		%	28.6		%
After-tax return on average invested capital														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 ~~nine~~six month periods ended ~~September~~June 30, ~~2019~~2021, excluding the ~~third~~second quarter ~~2019~~2021 discrete tax benefit of ~~$21~~$112 million related to a ~~U.S. federal provision to return adjustment~~change in the U.K. income tax rate, is as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30, 2019				September 30, 2019					June 30, 2021				June 30, 2021
Dollars in millions	Dollars in millions	Income Taxes		Tax Rate		Income Taxes		Tax Rate		Dollars in millions	Income Taxes		Tax Rate		Income Taxes		Tax Rate
As reported	As reported	$	182	21.6	%	$	577	23.5	%	As reported	$	88	10.1	%	$	282	16.3	%
Discrete tax benefit	Discrete tax benefit	21		2.5	%	21		0.8	%	Discrete tax benefit	112		12.9	%	112		6.4	%
As adjusted	As adjusted	$	203	24.1	%	$	598	24.3	%	As adjusted	$	200	23.0	%	$	394	22.7	%

Refer to Note 5.4. Income Taxes in Item 1. Financial Statements for further information regarding the ~~third~~second quarter ~~2019~~2021 discrete tax benefit.

Working Capital

Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is summarized as follows:


In millions	In millions	September 30, 2020		December 31, 2019		Increase/ (Decrease)		In millions	June 30, 2021		December 31, 2020		Increase/ (Decrease)
Current assets:	Current assets:							Current assets:
Cash and equivalents	Cash and equivalents	$	2,169	$	1,981	$	188	Cash and equivalents	$	2,058	$	2,564	$	(506)
Trade receivables	Trade receivables	2,494		2,461		33		Trade receivables	2,786		2,506		280
Inventories	Inventories	1,149		1,164		(15)		Inventories	1,400		1,189		211
Assets held for sale		—		351		(351)
Other	Other	219		296		(77)		Other	265		264		1
Total current assets	Total current assets	6,031		6,253		(222)		Total current assets	6,509		6,523		(14)
Current liabilities:	Current liabilities:							Current liabilities:
Short-term debt	Short-term debt	353		4		349		Short-term debt	592		350		242
Accounts payable and accrued expenses	Accounts payable and accrued expenses	1,784		1,689		95		Accounts payable and accrued expenses	1,933		1,818		115
Liabilities held for sale		—		71		(71)
Other	Other	403		390		13		Other	435		421		14
Total current liabilities	Total current liabilities	2,540		2,154		386		Total current liabilities	2,960		2,589		371
Net working capital	Net working capital	$	3,491	$	4,099	$	(608)	Net working capital	$	3,549	$	3,934	$	(385)

As of ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was as follows:


In millions	In millions	September 30, 2020		December 31, 2019		In millions	June 30, 2021		December 31, 2020
Short-term debt	Short-term debt	$	353	$	4	Short-term debt	$	592	$	350
Long-term debt	Long-term debt	7,592		7,754		Long-term debt	7,056		7,772
Total debt	Total debt	$	7,945	$	7,758	Total debt	$	7,648	$	8,122

There was no commercial paper outstanding as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Short-term debt as of ~~September~~June 30, ~~2020 and December 31, 2019~~2021 included $4$592 million related to the ~~4.88%~~1.75% Euro notes due ~~through~~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. As of September 30,~~ 2020 ~~Short-term debt also~~ included ~~$349~~$350 million related to the 3.375% notes due September 15, 2021, which were ~~reclassified from Long-term debt to Short-term debt~~redeemed in ~~the third quarter of 2020.~~full on June 15, 2021. The Company has a $2.5 billion ~~line of~~revolving credit ~~agreement~~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 ~~line of~~revolving credit ~~agreement~~facility as of ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

Total Debt to EBITDA

The Company uses the ratio of total debt to EBITDA as a measure of its ability to repay its outstanding debt obligations. EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures. The Company believes that total debt to

EBITDA is a meaningful metric to investors in evaluating the ~~Company’s long-term~~Company's long term financial liquidity and may be different than the method used by other companies to calculate total debt to EBITDA. ~~EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures.~~ The ratio of total debt to EBITDA represents total debt divided by net income before interest expense, other income (expense), income taxes, depreciation, and amortization and impairment of intangible assets on a trailing twelve month basis. Total debt to EBITDA for the trailing twelve month periods ended ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was as follows:


Dollars in millions	Dollars in millions	September 30, 2020		December 31, 2019		Dollars in millions	June 30, 2021		December 31, 2020
Total debt	Total debt	$	7,945	$	7,758	Total debt	$	7,648	$	8,122

Net income	Net income	$	2,108	$	2,521	Net income	$	2,670	$	2,109
Add:	Add:					Add:
Interest expense	Interest expense	205		221		Interest expense	208		206
Other income	Other income	(93)		(107)		Other income	(29)		(28)
Income taxes	Income taxes	603		767		Income taxes	621		595
Depreciation	Depreciation	271		267		Depreciation	276		273
Amortization and impairment of intangible assets	Amortization and impairment of intangible assets	156		159		Amortization and impairment of intangible assets	149		154
EBITDA	EBITDA	$	3,250	$	3,828	EBITDA	$	3,895	$	3,309
Total debt to EBITDA ratio	Total debt to EBITDA ratio	2.4		2.0		Total debt to EBITDA ratio	2.0		2.5

~~Stockholders’~~Stockholders' Equity

The changes to ~~stockholders’~~stockholders' equity during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were as follows:


In millions
Total ~~stockholders’~~stockholders' equity, December 31, ~~2019~~2020	$	~~3,030~~3,182
Net income	~~1,467~~1,446
Repurchases of common stock	~~(706)~~(500)
Dividends declared	~~(1,037)~~(718)
Foreign currency translation adjustments, net of tax	~~(160)~~30
Other, net	~~103~~81
Total ~~stockholders’~~stockholders' equity, ~~September~~June 30, ~~2020~~2021	$	~~2,697~~3,521

FORWARD-LOOKING STATEMENTS

This ~~document~~Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," ~~"intends,~~"intend," "may," "strategy," "prospects," "estimate," “will,” “should,” “could,” "project," "target," "anticipate," "guidance," "forecast," and other similar words, ~~including,~~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~~Company's business, ~~potential acquisitions~~future financial and ~~divestitures and the expected~~operating performance, ~~of acquired businesses and impact of divested businesses, the impact of tariffs and raw material cost inflation,~~free cash flow, economic and regulatory conditions in various geographic regions, the ~~timing and amount~~impact of ~~share repurchases, if any,~~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 ~~impact of enacted U.S. tax legislation, 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 ~~availability~~Company's information technology infrastructure, potential acquisitions and divestitures and the expected performance of ~~raw materials~~acquired businesses and ~~energy,~~impact of divested businesses, the ~~expiration~~impact of ~~any one~~U.S. and global tax legislation and the estimated timing and amount related to the resolution of ~~the Company's patents,~~tax matters, the cost of compliance with environmental regulations, ~~the likelihood of future goodwill or intangible asset impairment charges,~~ the impact of failure of the Company's employees to comply with applicable laws and regulations, ~~the impact of foreign currency fluctuations,~~and the outcome of outstanding legal ~~proceedings, the impact of adopting new accounting pronouncements, and the estimated timing and amount related to the resolution of tax matters.~~proceedings. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results

include (1) ~~the impact of~~ the COVID-19 pandemic, related government actions and the Company's strategy in response thereto, ~~on the Company’s operating results, financial condition and liquidity,~~ (2) weaknesses or downturns in the markets served by the Company, (3) changes or deterioration in international and domestic political and economic conditions, ~~including as a result~~(4) the unfavorable impact of ~~the COVID-19 pandemic, (4)~~foreign currency fluctuations, (5) the timing and amount of benefits from the ~~Company’s~~Company's enterprise strategy initiatives and their impact on organic revenue growth, ~~including the ability to execute divestitures, (5)~~(6) market conditions and availability of financing to fund the Company's share repurchases, ~~if any, (6) failure of the Company's employees, agents or business partners to comply with anti-corruption and other laws,~~ (7) ~~the unfavorable impact of foreign currency fluctuations, (8)~~ a delay or decrease in the introduction of new products into the ~~Company’s~~Company's product lines, ~~(9)~~(8) any failure to protect the Company's intellectual property, (10) the potential negative impact of acquisitions on the Company’s profitability and returns, (11) negative effects of divestitures, including retained liabilities and unknown contingent liabilities, (12)(9) potential negative impact of impairments to goodwill and other intangible assets on the ~~Company’s~~Company's return on invested capital, financial condition or results of operations, ~~(13) increases in funding costs or decreases in credit availability due to market conditions or changes to the Company's credit ratings, (14)~~(10) raw material price increases and supply shortages, ~~(15) unfavorable tax law changes and tax authority rulings, (16)~~(11) financial market risks to the ~~Company’s~~Company's obligations under its defined benefit pension plans, ~~(17) potential adverse outcomes in legal proceedings, (18) uncertainties related to environmental regulation and the physical risks of climate change, and (19)~~(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 ~~Part II, Item 1A of this Quarterly Report on Form 10-Q and in~~ the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019.~~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. ~~Shareholders~~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~~Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e)) as of ~~September~~June 30, ~~2020.~~2021. Based on such evaluation, the ~~Company’s~~Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of ~~September~~June 30, ~~2020,~~2021, the ~~Company’s~~Company's disclosure controls and procedures were effective.

In connection with the evaluation by management, including the Company's Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the Company's internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended ~~September~~June 30, ~~2020~~2021 were identified that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

None. The ~~following matter is disclosed solely pursuant to the requirement to disclose certain~~Company's threshold for disclosing environmental ~~matters~~legal proceedings involving a governmental authority where potential monetary sanctions in excess of $100,000. On August 26, 2020, the Company received an offer for settlement of an action brought by the U.S. EPA against a facility in Rockland, Massachusetts. The settlement would resolve allegations that the Company violated sections of the Clean Air Act’s Risk Management Plan Rule relating to process documentation, training and equipment maintenance, none of which resulted in chemical release. Under the proposed terms of the settlement, the Company would pay a penalty of approximately $400,000. This proceeding will not have a material impact on the Company’s financial condition, results of operations, or cash flows.are involved is $1 million.

ITEM 1A. Risk Factors

The ~~Company’s~~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. ~~The risk set forth below relating~~Refer to the ~~impact~~description of the ~~COVID-19 pandemic on our business supplements the risks~~Company's risk factors previously disclosed ~~under the heading “Risk Factors”~~ in Part I - Item 1A of- Risk Factors in the ~~Company’s~~Company's 2020 Annual Report on Form ~~10-K for the year ended December 31, 2019, and updates~~10-K. There have been no material changes to the risk set forth under the heading “Risk Factors” in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. The risk set forth below should be read together with other information included in this Quarterly Report on Form 10-Q, including the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations."

The COVID-19 pandemic has adversely affected the Company’s business, financial condition and results of operations and could affect the Company’s liquidity. The full and long-term extent of the effects of the COVID-19 pandemic on our business depend on future events that continue to be highly uncertain and cannot be predicted.

The COVID-19 pandemic and the continued measures taken globally to reduce its spread have negatively impacted the global economy, disrupted consumer/customer demand and global supply chains, and created significant volatility and disruption of financial markets. These measures and the continued volatility of the global economy have adversely affected our year-to-date results of operations, and while we expect that our results will continue to be adversely impacted beyond 2020, we are currently unable to quantify the full and long-term impact of the pandemic on our financial condition, results of operations and liquidity.

The Company has implemented numerous actions in order to focus on the needs of its colleagues and customers, such as redesigning production processes, adjusting shift schedules and assignments and implementing aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk. Further actions may be required as conditions evolve, including if new waves of infection emerge in various parts of the globe or there is continued uncertainty regarding widespread availability of a vaccine. In addition, because the pandemic has decreased customer demand in many of our end markets, some of our businesses have continued to operate at reduced capacity. Although the Company has avoided widespread furloughs or layoffs, we cannot predict the number or timing of future facility closures, the duration and extent of operating at reduced capacity or the size of the workforce that will be impacted by such actions.

The COVID-19 pandemic continues to have the potential to significantly and extendedly alter demand for our products. The pandemic also has the potential to disrupt our supply chain as a result of shifts in demand, illness, quarantine, travel restrictions or financial hardship. We have been able to procure the critical raw materials and components necessary to continue production, but there is no guarantee that we will be able to do so in the future. A prolonged extension of the conditions resulting from the pandemic could force both customer and supplier bankruptcies, which we expect would adversely impact our results; however, given the uncertainty around the continued duration and breadth of the COVID-19 pandemic, we cannot reasonably estimate the extent of these adverse effects on our operations.

The Company has sought to implement a differentiated strategy to manage through the pandemic, including a focus on thoughtful cost management and continued investment in areas of strategic importance, such as its workforce, in order to maintain optionality and fully participate in the recovery phase. Although some opportunities have already emerged from this strategy, the Company cannot estimate the extent or the timing of the benefits from this strategy, if any. If the Company's strategy does not generate the expected benefits, the Company's long-term financial results could be adversely impacted.

Furthermore, the COVID-19 pandemic has impacted the proper functioning of financial and capital markets. If the global economy continues to deteriorate and recovery is protracted, we may not be able to access our short-term credit facilities and may be required to seek additional financing sources, which may not be available on reasonable terms or at all. If the Company

suffers a liquidity shortage, we may be forced to reduce our workforce, decrease or suspend dividend payments to our stockholders or adopt other measures. We cannot predict the likelihood, timing or the consequences of a future liquidity shortage in our business.

Due to the unprecedented and sustained social and economic consequences of the COVID-19 pandemic on the global economy generally, the full and long-term impact of the pandemic on our business continues to be uncertain. The ultimate significance of the COVID-19 pandemic, including any measures to reduce its spread, on our business will depend on events that are beyond our control and that we cannot predict. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, financial condition or results of operations.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 ~~new~~ 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 ~~September~~June 30, ~~2020,~~2021, there were ~~$1.2~~$740 million of authorized repurchases remaining under the 2018 Program.

Share repurchase activity for the ~~COVID-19 pandemic, the Company temporarily suspended its share repurchase program starting in March 2020.~~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

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ITEM 6. Exhibits

Exhibit Index


Exhibit Number						Exhibit Description

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

31						Rule 13a-14(a) Certifications.

32						Section 1350 Certification.

101						The following financial and related information from the Illinois Tool Works Inc. Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020~~2021 is formatted in Inline Extensible Business Reporting Language (iXBRL) and submitted electronically herewith: (i) Statement of Income, (ii) Statement of Comprehensive Income, (iii) Statement of Financial Position, (iv) Statement of Changes in Stockholders' Equity, (v) Statement of Cash Flows, and (vi) related Notes to Financial Statements.

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

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SIGNATURES

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



		ILLINOIS TOOL WORKS INC.

Dated:	~~October 29, 2020~~August 5, 2021	By:	/s/ Randall J. Scheuneman
			Randall J. Scheuneman
			Vice President & Chief Accounting Officer
			(Principal Accounting Officer and Duly Authorized Officer)

3733