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): July 30, 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 July 30, 2021, Illinois Tool Works Inc. (the “Company”) announced its 2021 second 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 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. 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. 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. 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. datedJuly30, 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: July 30, 2021	By: /s/ Randall J. Scheuneman
	Randall J. Scheuneman
	Vice President & Chief Accounting Officer

Document

Exhibit 99.1

ITW Reports Second Quarter 2021 Results

•Total revenue of $3.7 billion, an increase of 43% with organic growth of 37%

•Operating margin of 24.3%, an increase of 680 basis points

•GAAP EPS of $2.45, an increase of 143%

•Raising full year organic growth guidance to a range of 11 to 13 percent and GAAP EPS guidance to a range of $8.55 to $8.95 per share

GLENVIEW, IL., July 30, 2021 - Illinois Tool Works Inc. (NYSE: ITW) today reported its second quarter 2021 results.

“In the second quarter, we saw continued improvement in both the breadth and pace of the recovery, with organic revenue growth at the segment level ranging from 17 to 84 percent,” said E. Scott Santi, Chairman and Chief Executive Officer. “In the face of rising raw material costs and a challenging supply chain environment, our people around the world leveraged the strength and resilience of our proprietary business model and the ‘Win the Recovery’ actions taken over the course of the past year to serve our customers with excellence while delivering 43 percent revenue growth and 143 percent earnings growth. While the near-term environment is certainly not without its challenges, order intake rates in all segments and geographic regions remain strong and I have no doubt that we are well positioned to continue to execute at a high level as we move through the remainder of the year.”

Second Quarter 2021 Results

Second quarter revenue of $3.7 billion increased 43 percent versus the prior year period, as organic revenue grew 37 percent and foreign currency translation impact was favorable by six percent.

GAAP EPS of $2.45 increased 143 percent and included a $0.35 one-time tax benefit related to the remeasurement of net deferred tax assets in the United Kingdom. Operating income increased 99 percent to $893 million and incremental margin was 40 percent. Operating margin was 24.3 percent, an increase of 680 basis points with enterprise initiatives contributing 150 basis points, partially offset by dilutive price/cost margin impact of 120 basis points. In the quarter, price recovery actions essentially offset raw material cost increases on a dollar-for-dollar basis. Free cash flow was $477 million, 72 percent of net income adjusted for the one-time tax benefit. After-tax return on invested capital improved to 30.8 percent. The effective tax rate for the second quarter was 10.1 percent, and excluding the one-time tax benefit, the effective tax rate was 23.0 percent.

All seven segments delivered double-digit organic growth in the quarter, led by Automotive OEM up 84 percent and Food Equipment up 46 percent. Welding, Test & Measurement and Electronics, Construction Products, and Polymers & Fluids delivered organic growth in the range of 28 to 33 percent, and Specialty Products grew 17 percent. On a geographic basis, organic growth was 36 percent in North America, 50 percent in Europe, and 20 percent in Asia Pacific. As expected, the impact of Automotive OEM customers adjusting production schedules to account for the well-publicized shortage of several components reduced ITW’s revenues by approximately $60 million or two percentage points in the quarter.

2021 Guidance

The company is raising its full-year GAAP EPS guidance to $8.55 to $8.95 per share, an increase of $0.35 or 32 percent at the midpoint versus prior year. This compares to previous guidance of $8.20 to $8.60 per share and incorporates the one-time tax benefit realized in the second quarter. The company is also raising its organic growth guidance to a range of 11 to 13 percent. Foreign currency translation impact at current foreign exchange rates is projected to contribute 3 percentage points to revenue growth. Raw material cost increases are expected to be offset by price increases on a dollar-for-dollar basis and therefore EPS neutral. The full year margin dilution impact from price/cost is now forecasted to be approximately 100 basis points, partially offsetting the expected margin contribution from Enterprise Initiatives of more than 100 basis points. As a result of price/cost, operating margin is expected to be in the range of 24.5 to 25.5 percent, an increase of 210 basis points at the midpoint versus 2020 and 50 basis points lower versus previous guidance. Free cash flow is expected to be approximately 100 percent of net income adjusted for the second quarter one-time tax benefit, and the company is on pace to repurchase approximately $1 billion of its shares, having repurchased $500 million in the first half of the year. Guidance excludes any impact from the previously announced 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 a reconciliation of estimated free cash flow to the most directly comparable GAAP measure has 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, 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, 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				Six Months Ended
	June 30,				June 30,
In millions except per share amounts	2021		2020		2021		2020
Operating Revenue	$	3,676	$	2,564	$	7,220	$	5,792
Cost of revenue	2,163		1,594		4,202		3,465
Selling, administrative, and research and development expenses	588		486		1,154		1,046
Amortization and impairment of intangible assets	32		35		66		71
Operating Income	893		449		1,798		1,210
Interest expense	(52)		(51)		(104)		(102)
Other income (expense)	22		8		34		33
Income Before Taxes	863		406		1,728		1,141
Income Taxes	88		87		282		256
Net Income	$	775	$	319	$	1,446	$	885
Net Income Per Share:
Basic	$	2.46	$	1.01	$	4.58	$	2.79
Diluted	$	2.45	$	1.01	$	4.56	$	2.78
Cash Dividends Per Share:
Paid	$	1.14	$	1.07	$	2.28	$	2.14
Declared	$	1.14	$	1.07	$	2.28	$	2.14
Shares of Common Stock Outstanding During the Period:
Average	315.6		316.1		316.1		317.2
Average assuming dilution	316.9		317.4		317.4		318.6

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

STATEMENT OF FINANCIAL POSITION (UNAUDITED)

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

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Three Months Ended June 30, 2021
Dollars in millions	Total Revenue		Operating Income		Operating Margin
Automotive OEM	$	707	$	133	18.8	%
Food Equipment	514		113		22.0	%
Test & Measurement and Electronics	606		170		28.1	%
Welding	402		115		28.5	%
Polymers & Fluids	466		127		27.3	%
Construction Products	518		143		27.6	%
Specialty Products	471		128		27.2	%
Intersegment	(8)		—		—	%
Total Segments	3,676		929		25.3	%
Unallocated	—		(36)		—	%
Total Company	$	3,676	$	893	24.3	%
Six Months Ended June 30, 2021
---	---	---	---	---	---	---
Dollars in millions	Total Revenue		Operating Income		Operating Margin
Automotive OEM	$	1,490	$	322	21.6	%
Food Equipment	965		209		21.6	%
Test & Measurement and Electronics	1,158		327		28.2	%
Welding	803		236		29.4	%
Polymers & Fluids	901		239		26.6	%
Construction Products	987		273		27.6	%
Specialty Products	928		254		27.4	%
Intersegment	(12)		—		—	%
Total Segments	7,220		1,860		25.8	%
Unallocated	—		(62)		—	%
Total Company	$	7,220	$	1,798	24.9	%

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

Q2 2021 vs. Q2 2020 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	83.5	%	46.0	%	28.7	%	32.6	%	27.6	%	28.2	%	17.2	%	37.2	%
Acquisitions/<br>Divestitures	—	%	—	%	—	%	—	%	—	%	(0.1)	%	—	%	—	%
Translation	11.8	%	6.9	%	4.3	%	2.6	%	4.1	%	9.6	%	4.4	%	6.2	%
Operating <br>Revenue	95.3	%	52.9	%	33.0	%	35.2	%	31.7	%	37.7	%	21.6	%	43.4	%
Q2 2021 vs. Q2 2020 Favorable/(Unfavorable)
---	---	---	---	---	---	---	---
Change in Operating Margin	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	1010 bps	560 bps	480 bps	520 bps	440 bps	330 bps	700 bps
Changes in Variable Margin & OH Costs	280 bps	(330) bps	220 bps	(70) bps	(30) bps	(140) bps	(20) bps
Total Organic	1290 bps	230 bps	700 bps	450 bps	410 bps	190 bps	680 bps
Acquisitions/Divestitures	—	—	—	—	—	—	—
Restructuring/Other	(10) bps	10 bps	(10) bps	(30) bps	(20) bps	(10) bps	—
Total Operating Margin Change	1280 bps	240 bps	690 bps	420 bps	390 bps	180 bps	680 bps
Total Operating Margin % *	22.0%	28.1%	28.5%	27.3%	27.6%	27.2%	24.3%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	70 bps	160 bps	10 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 second quarter of 2021.

All values are in US Dollars.

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

SEGMENT DATA (UNAUDITED)

1H 2021 vs. 1H 2020 Favorable/(Unfavorable)
Operating Revenue	Automotive OEM		Food Equipment		Test & Measurement and Electronics		Welding		Polymers & Fluids		Construction Products		Specialty Products		Total ITW
Organic	33.6	%	13.2	%	19.4	%	17.9	%	17.7	%	20.3	%	12.1	%	19.9	%
Acquisitions/<br>Divestitures	—	%	—	%	—	%	—	%	—	%	(0.1)	%	—	%	—	%
Translation	7.3	%	4.7	%	3.8	%	1.9	%	2.9	%	8.6	%	3.7	%	4.8	%
Operating <br>Revenue	40.9	%	17.9	%	23.2	%	19.8	%	20.6	%	28.8	%	15.8	%	24.7	%
1H 2021 vs. 1H 2020 Favorable/(Unfavorable)
---	---	---	---	---	---	---	---
Change in Operating Margin	Food Equipment	Test & Measurement and Electronics	Welding	Polymers & Fluids	Construction Products	Specialty Products	Total ITW
Operating Leverage	320 bps	420 bps	280 bps	360 bps	350 bps	230 bps	390 bps
Changes in Variable Margin & OH Costs	40 bps	(140) bps	90 bps	(40) bps	70 bps	(50) bps	10 bps
Total Organic	360 bps	280 bps	370 bps	320 bps	420 bps	180 bps	400 bps
Acquisitions/Divestitures	—	—	—	—	—	—	—
Restructuring/Other	(10) bps	—	(10) bps	—	(20) bps	(30) bps	—
Total Operating Margin Change	350 bps	280 bps	360 bps	320 bps	400 bps	150 bps	400 bps
Total Operating Margin % *	21.6%	28.2%	29.4%	26.6%	27.6%	27.4%	24.9%
*Includes unfavorable operating margin impact of amortization expense from acquisition-related intangible assets	70 bps	170 bps	10 bps	260 bps	20 bps	80 bps	100 bps **
** Amortization expense from acquisition-related intangible assets had an unfavorable impact of (0.16) on GAAP earnings per share for the first half 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						Six Months Ended
	June 30,						June 30,
Dollars in millions	2021			2020			2021			2020
Operating income	$	893		$	449		$	1,798		$	1,210
Tax rate	23.0		%	21.3		%	22.7		%	22.4		%
Income taxes	(206)			(96)			(409)			(271)
Operating income after taxes	$	687		$	353		$	1,389		$	939
Invested capital:
Trade receivables	$	2,786		$	2,156		$	2,786		$	2,156
Inventories	1,400			1,167			1,400			1,167
Net assets held for sale	—			181			—			181
Net plant and equipment	1,767			1,711			1,767			1,711
Goodwill and intangible assets	5,374			5,244			5,374			5,244
Accounts payable and accrued expenses	(1,933)			(1,508)			(1,933)			(1,508)
Other, net	(283)			(636)			(283)			(636)
Total invested capital	$	9,111		$	8,315		$	9,111		$	8,315
Average invested capital	$	8,926		$	8,431		$	8,864		$	8,557
After-tax return on average invested capital	30.8		%	16.8		%	31.3		%	22.0		%

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

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

ILLINOIS TOOL WORKS INC. and SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

FREE CASH FLOW (UNAUDITED)

	Three Months Ended						Six Months Ended						Twelve Months Ended
	June 30,						June 30,						December 31,
Dollars in millions	2021			2020			2021			2020			2020
Net cash provided by operating activities	$	555		$	737		$	1,164		$	1,351		$	2,807
Less: Additions to plant and equipment	(78)			(56)			(146)			(116)			(236)
Free cash flow	$	477		$	681		$	1,018		$	1,235		$	2,571
Net income	$	775		$	319		$	1,446		$	885		$	2,109
Less: Second quarter 2021 discrete tax benefit related to a change in the U.K. income tax rate	(112)			—			(112)			—			—
Adjusted net income	$	663		$	319		$	1,334		$	885		$	2,109
Free cash flow to adjusted net income conversion rate	72		%	213		%	76		%	140		%	122		%