8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): October 28, 2021

_________________________

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware				1-4797	36-1258310
(State or other jurisdiction of incorporation)				(Commission File No.)	(I.R.S. Employer Identification No.)
	155 Harlem Avenue	Glenview	IL		60025
(Address of principal executive offices)					(Zip Code)

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

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐

Item 2.02    Results of Operations and Financial Condition

On October 28, 2021, Illinois Tool Works Inc. (the “Company”) announced its 2021 third quarter results of operations in the press release furnished as Exhibit 99.1.

Non-GAAP Financial Measures

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, along with free cash flow to net income conversion rate, are 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. A reconciliation of free cash flow to net cash provided by operating activities is included in the press release furnished as Exhibit 99.1.

The Company uses after-tax return on average invested capital ("After-tax ROIC") to measure the effectiveness of its operations' use of invested capital to generate profits. After-tax ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company's financial performance and may be different than the method used by other companies to calculate After-tax ROIC. Operating income and each of the invested capital balances are the GAAP amounts reported in the Company's financial statements. Operating income after taxes is a non-GAAP measure consisting of operating income as reported in the Company's financial statements less income taxes calculated based on the Company's effective tax rate for the period. For comparability, the Company excluded the discrete tax benefit of $21 million in the third quarter of 2021 and the discrete tax benefit of $112 million in the second quarter of 2021 from the effective tax rate for the three and nine month periods ended September 30, 2021. Total invested capital represents the net assets of the Company, other than cash and equivalents and outstanding debt which 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 within each of the periods presented. After-tax ROIC is calculated by dividing operating income after taxes by average invested capital for the period presented, and is annualized for interim periods. A calculation of After-tax ROIC is included in the press release furnished as Exhibit 99.1.

Item 9.01    Financial Statements and Exhibits

(d)	Exhibits
	Exhibit Number	Exhibit Description
	99.1	Press Release issued by Illinois Tool Works Inc. dated October 28, 2021 (furnished pursuant to Item 2.02).
	104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities and 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 28, 2021	By: /s/ Michael M. Larsen
		Michael M. Larsen
		Senior Vice President & Chief Financial Officer

Document

Exhibit 99.1

ITW Reports Third Quarter 2021 Results

•Total revenue of $3.6 billion, an increase of 8% with organic revenue growth of 6%

•Operating margin of 23.8%; Enterprise initiatives contributed 100 basis points

•GAAP EPS of $2.02, an increase of 10%

•Updated full year guidance with organic growth of 11 to 12% and EPS growth of 25 to 28%

GLENVIEW, IL., October 28, 2021 - Illinois Tool Works Inc. (NYSE: ITW) today reported its third quarter 2021 results.

“We saw continued strong growth momentum in six of our seven segments in the third quarter, while our Automotive OEM segment continued to be impacted by auto production reductions associated with the well-publicized supply chain challenges affecting our customers,” said E. Scott Santi, Chairman and Chief Executive Officer. “Our teams around the world continue to do an exceptional job of executing for our customers and for the company in a very challenging environment as evidenced by the six percent organic growth and ten percent earnings per share growth that ITW delivered in the quarter. Moving forward, we remain highly focused on fully leveraging the competitive strength of the ITW Business Model and the investments we have made, and continue to make, in support of the execution of our enterprise strategy and our ‘Win the Recovery’ positioning to their full potential.”

Third Quarter 2021 Results

Third quarter revenue grew eight percent to $3.6 billion, with six percent organic growth. Operating income grew seven percent to $845 million. Excluding Automotive OEM, revenue grew 12 percent and operating income grew 14 percent. Operating margin was 23.8 percent, flat year-over-year, with enterprise initiatives and volume leverage each contributing 100 basis points or more of positive margin impact offset by price/cost margin dilution impact of 200 basis points. Consistent with our strategy, price recovery actions offset raw material cost increases on a dollar-for-dollar basis in the third quarter. GAAP EPS of $2.02 increased 10 percent. The effective tax rate for the third quarter was 20.8 percent, in line with the third quarter of 2020, and included a $0.06 one-time tax benefit. Operating cash flow was $619 million, 97 percent of net income, and free cash flow was $548 million, 86 percent of net income.

Six of seven segments delivered strong organic growth in the quarter, led by Welding up 22 percent, Food Equipment up 19 percent, Test & Measurement and Electronics up 12 percent, and Specialty Products up 8 percent. Polymers & Fluids and Construction Products were both up 3 percent. Automotive OEM declined 11 percent.

Capital Allocation Update

Pending final regulatory approvals, ITW expects to complete its previously announced acquisition of the MTS Test & Simulation business in the fourth quarter of 2021. On August 6, 2021, ITW raised its dividend by seven percent to an annualized rate of $4.88 per share. The company is on pace to repurchase approximately $1 billion of its shares in 2021, having repurchased $750 million year-to-date.

2021 Guidance

ITW expects total revenue growth of 13 to 14 percent and organic growth in the range of 11 to 12 percent. Foreign currency translation impact at current foreign exchange rates is projected to contribute two percentage points to revenue growth. GAAP EPS guidance is updated to a range of $8.30 to $8.50, due to actual and anticipated lower auto production levels in Q3 and Q4 versus previous guidance. Raw material cost increases are expected to be offset with price on a dollar-for-dollar basis and therefore EPS neutral. Full year margin dilution impact from price/cost is expected to be approximately 150 basis points, offset by more than 200 basis points of volume leverage and a contribution from enterprise initiatives of more than 100 basis points. Operating margin is expected to be in the range of 23.5 to 24.5 percent, an increase of more than 100 basis points at the midpoint versus 2020. Free cash flow is expected to be approximately 90 percent of net income adjusted for one-time tax benefits. Guidance excludes any impact from the acquisition of the MTS Test & Simulation business.

Non-GAAP Measures

This earnings release contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the attached supplemental reconciliation schedule. The estimated guidance of free cash flow conversion rate is based on assumptions that are difficult to predict, and estimated guidance for the most directly comparable GAAP measure and a reconciliation of estimated free cash flow to the most directly comparable GAAP measure

have been omitted due to the unreasonable efforts required in connection with such a reconciliation and the lack of availability of reliable forward-looking cash flow and operating information.

Forward-looking Statement

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements regarding the duration and potential effects of the COVID-19 pandemic and global supply chain challenges, related government actions and the company’s strategy in response thereto on the company’s business, expected impact of tariffs and raw material inflation, product line simplification activities and enterprise initiatives, future financial and operating performance, free cash flow and free cash flow conversion rate, organic and total revenue, operating margin, price/cost impact, diluted income per share, restructuring expenses and related benefits, expected dividend payments, expected repatriation, after-tax return on invested capital, effective tax rates, exchange rates, expected access to liquidity sources, expected capital allocation, expected timing and amount of share repurchases, end market economic and regulatory conditions, potential acquisitions and dispositions and related impact on financial results, including statements with respect to the anticipated acquisition of the MTS Test & Simulation business, and the company’s 2021 guidance. These statements are subject to certain risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those anticipated. Such factors include those contained in ITW's Form 10-K for 2020.

About Illinois Tool Works

ITW (NYSE: ITW) is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $12.6 billion in 2020. The company’s seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW’s approximately 43,000 dedicated colleagues around the world thrive in the company’s decentralized and entrepreneurial culture. www.itw.com

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF INCOME (UNAUDITED)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions except per share amounts	2021		2020		2021		2020
Operating Revenue	$	3,556	$	3,307	$	10,776	$	9,099
Cost of revenue	2,096		1,910		6,298		5,375
Selling, administrative, and research and development expenses	581		560		1,735		1,606
Amortization and impairment of intangible assets	34		48		100		119
Operating Income	845		789		2,643		1,999
Interest expense	(49)		(52)		(153)		(154)
Other income (expense)	10		2		44		35
Income Before Taxes	806		739		2,534		1,880
Income Taxes	167		157		449		413
Net Income	$	639	$	582	$	2,085	$	1,467
Net Income Per Share:
Basic	$	2.03	$	1.84	$	6.61	$	4.63
Diluted	$	2.02	$	1.83	$	6.58	$	4.61
Cash Dividends Per Share:
Paid	$	1.14	$	1.07	$	3.42	$	3.21
Declared	$	1.22	$	1.14	$	3.50	$	3.28
Shares of Common Stock Outstanding During the Period:
Average	314.6		316.5		315.6		316.9
Average assuming dilution	315.9		317.9		316.9		318.3

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millions	September 30, 2021		December 31, 2020
Assets
Current Assets:
Cash and equivalents	$	1,987	$	2,564
Trade receivables	2,729		2,506
Inventories	1,524		1,189
Prepaid expenses and other current assets	337		264
Total current assets	6,577		6,523
Net plant and equipment	1,744		1,777
Goodwill	4,610		4,690
Intangible assets	683		781
Deferred income taxes	580		533
Other assets	1,323		1,308
	$	15,517	$	15,612
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	579	$	350
Accounts payable	565		534
Accrued expenses	1,399		1,284
Cash dividends payable	383		361
Income taxes payable	70		60
Total current liabilities	2,996		2,589
Noncurrent Liabilities:
Long-term debt	6,972		7,772
Deferred income taxes	633		588
Noncurrent income taxes payable	365		413
Other liabilities	1,058		1,068
Total noncurrent liabilities	9,028		9,841
Stockholders’ Equity:
Common stock	6		6
Additional paid-in-capital	1,416		1,362
Retained earnings	24,098		23,114
Common stock held in treasury	(20,390)		(19,659)
Accumulated other comprehensive income (loss)	(1,638)		(1,642)
Noncontrolling interest	1		1
Total stockholders’ equity	3,493		3,182
	$	15,517	$	15,612

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended September 30, 2021
Dollars in millions	Total Revenue		Operating Income		Operating Margin
Automotive OEM	$	647	$	112	17.3	%
Food Equipment	544		130		23.9	%
Test & Measurement and Electronics	552		148		26.8	%
Welding	425		128		30.0	%
Polymers & Fluids	456		111		24.2	%
Construction Products	478		133		27.8	%
Specialty Products	459		126		27.3	%
Intersegment	(5)		—		—	%
Total Segments	3,556		888		24.9	%
Unallocated	—		(43)		—	%
Total Company	$	3,556	$	845	23.8	%
Nine Months Ended September 30, 2021
---	---	---	---	---	---	---
Dollars in millions	Total Revenue		Operating Income		Operating Margin
Automotive OEM	$	2,137	$	434	20.3	%
Food Equipment	1,509		339		22.5	%
Test & Measurement and Electronics	1,710		475		27.8	%
Welding	1,228		364		29.6	%
Polymers & Fluids	1,357		350		25.8	%
Construction Products	1,465		406		27.7	%
Specialty Products	1,387		380		27.4	%
Intersegment	(17)		—		—	%
Total Segments	10,776		2,748		25.5	%
Unallocated	—		(105)		—	%
Total Company	$	10,776	$	2,643	24.5	%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q3 2021 vs. Q3 2020 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	(10.7)	%	18.9	%	11.8	%	22.0	%	3.4	%	3.4	%	8.3	%	6.3	%
Acquisitions/Divestitures	—	%	—	%	—	%	—	%	—	%	(0.1)	%	—	%	—	%
Translation	1.3	%	2.1	%	1.1	%	0.9	%	0.7	%	1.7	%	1.1	%	1.2	%
Operating <br>Revenue	(9.4)	%	21.0	%	12.9	%	22.9	%	4.1	%	5.0	%	9.4	%	7.5	%
Q3 2021 vs. Q3 2020 Favorable/(Unfavorable)
---	---	---	---	---	---	---	---
Change in Operating Margin	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	410 bps	290 bps	290 bps	70 bps	50 bps	180 bps	130 bps
Changes in Variable Margin & OH Costs	(140) bps	(20) bps	(40) bps	(340) bps	(120) bps	30 bps	(210) bps
Total Organic	270 bps	270 bps	250 bps	(270) bps	(70) bps	210 bps	(80) bps
Acquisitions/Divestitures	—	—	—	—	—	—	—
Restructuring/Other	160 bps	40 bps	(40) bps	30 bps	40 bps	—	80 bps
Total Operating Margin Change	430 bps	310 bps	210 bps	(240) bps	(30) bps	210 bps	—
Total Operating Margin % *	23.9%	26.8%	30.0%	24.2%	27.8%	27.3%	23.8%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	60 bps	170 bps	20 bps	240 bps	20 bps	80 bps	90 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of (0.08) on GAAP earnings per share for the third quarter of 2021.

All values are in US Dollars.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

YTD 2021 vs. YTD 2020 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	15.7	%	15.2	%	16.8	%	19.3	%	12.4	%	14.0	%	10.8	%	14.9	%
Acquisitions/Divestitures	—	%	—	%	—	%	—	%	—	%	(0.1)	%	—	%	—	%
Translation	4.9	%	3.8	%	2.9	%	1.6	%	2.1	%	6.0	%	2.8	%	3.5	%
Operating <br>Revenue	20.6	%	19.0	%	19.7	%	20.9	%	14.5	%	19.9	%	13.6	%	18.4	%
YTD 2021 vs. YTD 2020 Favorable/(Unfavorable)
---	---	---	---	---	---	---	---
Change in Operating Margin	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	350 bps	380 bps	270 bps	240 bps	250 bps	210 bps	300 bps
Changes in Variable Margin & OH Costs	(20) bps	(100) bps	60 bps	(130) bps	(20) bps	(20) bps	(70) bps
Total Organic	330 bps	280 bps	330 bps	110 bps	230 bps	190 bps	230 bps
Acquisitions/Divestitures	—	—	—	—	—	—	—
Restructuring/Other	60 bps	20 bps	(20) bps	10 bps	10 bps	(20) bps	20 bps
Total Operating Margin Change	390 bps	300 bps	310 bps	120 bps	240 bps	170 bps	250 bps
Total Operating Margin % *	22.5%	27.8%	29.6%	25.8%	27.7%	27.4%	24.5%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	60 bps	160 bps	10 bps	250 bps	20 bps	70 bps	100 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of (0.24) on GAAP earnings per share for the first nine months of 2021.

All values are in US Dollars.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Dollars in millions	2021			2020			2021			2020
Operating income	$	845		$	789		$	2,643		$	1,999
Tax rate (as adjusted in 2021)	23.4		%	21.3		%	22.9		%	22.0		%
Income taxes	(198)			(168)			(607)			(439)
Operating income after taxes	$	647		$	621		$	2,036		$	1,560
Invested capital:
Trade receivables	$	2,729		$	2,494		$	2,729		$	2,494
Inventories	1,524			1,149			1,524			1,149
Net plant and equipment	1,744			1,736			1,744			1,736
Goodwill and intangible assets	5,293			5,405			5,293			5,405
Accounts payable and accrued expenses	(1,964)			(1,784)			(1,964)			(1,784)
Other, net	(269)			(527)			(269)			(527)
Total invested capital	$	9,057		$	8,473		$	9,057		$	8,473
Average invested capital	$	9,084		$	8,394		$	8,912		$	8,536
After-tax return on average invested capital	28.5		%	29.6		%	30.5		%	24.4		%

A reconciliation of the tax rate for the three and nine month periods ended September 30, 2021, excluding the third quarter 2021 discrete tax benefit of $21 million related to the utilization of capital losses and the second quarter 2021 discrete tax benefit of $112 million related to a change in the U.K. income tax rate, is as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2021				September 30, 2021
Dollars in millions	Income Taxes		Tax Rate		Income Taxes		Tax Rate
As reported	$	167	20.8	%	$	449	17.7	%
Discrete tax benefit related to the third quarter 2021	21		2.6	%	21		0.8	%
Discrete tax benefit related to the second quarter 2021	—		—	%	112		4.4	%
As adjusted	$	188	23.4	%	$	582	22.9	%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

	Three Months Ended						Nine Months Ended						Twelve Months
	September 30,						September 30,						Ended
Dollars in millions	2021			2020			2021			2020			December 31, 2020
Net cash provided by operating activities	$	619		$	683		$	1,783		$	2,034		$	2,807
Less: Additions to plant and equipment	(71)			(52)			(217)			(168)			(236)
Free cash flow	$	548		$	631		$	1,566		$	1,866		$	2,571
Net income	$	639		$	582		$	2,085		$	1,467		$	2,109
Net cash provided by operating activities to Net income conversion rate	97		%	117		%	86		%	139		%	133		%
Free cash flow to Net income conversion rate	86		%	108		%	75		%	127		%	122		%