itw-20210730
0000049826false00000498262021-07-302021-07-300000049826us-gaap:CommonStockMemberexch:XNYS2021-07-302021-07-300000049826itw:A1.75EuroNotesdue2022Memberexch:XNYS2021-07-302021-07-300000049826itw:A1.25EuroNotesdue2023Memberexch:XNYS2021-07-302021-07-300000049826itw:A0.250EuroNotesdue2024Memberexch:XNYS2021-07-302021-07-300000049826itw:A0.625EuroNotesdue2027Memberexch:XNYS2021-07-302021-07-300000049826itw:A2.125EuroNotesdue2030Memberexch:XNYS2021-07-302021-07-300000049826itw:A1.00EuroNotesdue2031Memberexch:XNYS2021-07-302021-07-300000049826itw:A3.00EuroNotesdue2034Memberexch:XNYS2021-07-302021-07-30


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)
Delaware1-479736-1258310
(State or other jurisdiction of incorporation)(Commission File No.)(I.R.S. Employer Identification No.)
155 Harlem AvenueGlenviewIL60025
(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 classTrading Symbol(s)Name of each exchange on which registered
Common StockITWNew York Stock Exchange
1.75% Euro Notes due 2022ITW22New York Stock Exchange
1.25% Euro Notes due 2023ITW23New York Stock Exchange
0.250% Euro Notes due 2024ITW24ANew York Stock Exchange
0.625% Euro Notes due 2027ITW27New York Stock Exchange
2.125% Euro Notes due 2030ITW30New York Stock Exchange
1.00% Euro Notes due 2031ITW31New York Stock Exchange
3.00% Euro Notes due 2034ITW34New 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 NumberExhibit Description
104Cover 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



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 EndedSix Months Ended
June 30,June 30,
In millions except per share amounts2021202020212020
Operating Revenue$3,676 $2,564 $7,220 $5,792 
Cost of revenue2,163 1,594 4,202 3,465 
Selling, administrative, and research and development expenses588 486 1,154 1,046 
Amortization and impairment of intangible assets32 35 66 71 
Operating Income893 449 1,798 1,210 
Interest expense(52)(51)(104)(102)
Other income (expense)22 8 34 33 
Income Before Taxes863 406 1,728 1,141 
Income Taxes88 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:
Average315.6 316.1 316.1 317.2 
Average assuming dilution316.9 317.4 317.4 318.6 



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
STATEMENT OF FINANCIAL POSITION (UNAUDITED)

In millionsJune 30, 2021December 31, 2020
Assets
Current Assets:
Cash and equivalents$2,058 $2,564 
Trade receivables2,786 2,506 
Inventories1,400 1,189 
Prepaid expenses and other current assets265 264 
Total current assets6,509 6,523 
Net plant and equipment1,767 1,777 
Goodwill4,658 4,690 
Intangible assets716 781 
Deferred income taxes613 533 
Other assets1,317 1,308 
 $15,580 $15,612 
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt$592 $350 
Accounts payable607 534 
Accrued expenses1,326 1,284 
Cash dividends payable358 361 
Income taxes payable77 60 
Total current liabilities2,960 2,589 
Noncurrent Liabilities:
Long-term debt7,056 7,772 
Deferred income taxes617 588 
Noncurrent income taxes payable365 413 
Other liabilities1,061 1,068 
Total noncurrent liabilities9,099 9,841 
Stockholders’ Equity:
Common stock6 6 
Additional paid-in-capital1,402 1,362 
Retained earnings23,842 23,114 
Common stock held in treasury(20,140)(19,659)
Accumulated other comprehensive income (loss)(1,590)(1,642)
Noncontrolling interest1 1 
Total stockholders’ equity3,521 3,182 
 $15,580 $15,612 



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

Three Months Ended June 30, 2021
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$707 $133 18.8 %
Food Equipment514 113 22.0 %
Test & Measurement and Electronics606 170 28.1 %
Welding402 115 28.5 %
Polymers & Fluids466 127 27.3 %
Construction Products518 143 27.6 %
Specialty Products471 128 27.2 %
Intersegment(8)— — %
Total Segments3,676 929 25.3 %
Unallocated— (36)— %
Total Company$3,676 $893 24.3 %

Six Months Ended June 30, 2021
Dollars in millionsTotal RevenueOperating IncomeOperating Margin
Automotive OEM$1,490 $322 21.6 %
Food Equipment965 209 21.6 %
Test & Measurement and Electronics1,158 327 28.2 %
Welding803 236 29.4 %
Polymers & Fluids901 239 26.6 %
Construction Products987 273 27.6 %
Specialty Products928 254 27.4 %
Intersegment(12)— — %
Total Segments7,220 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 RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic83.5 %46.0 %28.7 %32.6 %27.6 %28.2 %17.2 %37.2 %
Acquisitions/
Divestitures		— %— %— %— %— %(0.1)%— %— %
Translation11.8 %6.9 %4.3 %2.6 %4.1 %9.6 %4.4 %6.2 %
Operating
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 MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage 1700 bps  1010 bps  560 bps  480 bps  520 bps  440 bps  330 bps  700 bps
Changes in Variable Margin & OH Costs 970 bps  280 bps  (330) bps  220 bps  (70) bps  (30) bps  (140) bps  (20) bps
Total Organic 2670 bps  1290 bps  230 bps  700 bps  450 bps  410 bps  190 bps  680 bps
Acquisitions/Divestitures————————
Restructuring/
Other		 (10) bps  (10) bps  10 bps  (10) bps  (30) bps  (20) bps  (10) bps —
Total Operating Margin Change 2660 bps  1280 bps  240 bps  690 bps  420 bps  390 bps  180 bps  680 bps
Total Operating Margin % *18.8%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 40 bps  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.



ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
SEGMENT DATA (UNAUDITED)

1H 2021 vs. 1H 2020 Favorable/(Unfavorable)
Operating RevenueAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Organic33.6 %13.2 %19.4 %17.9 %17.7 %20.3 %12.1 %19.9 %
Acquisitions/
Divestitures		— %— %— %— %— %(0.1)%— %— %
Translation7.3 %4.7 %3.8 %1.9 %2.9 %8.6 %3.7 %4.8 %
Operating
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 MarginAutomotive OEMFood EquipmentTest & Measurement and ElectronicsWeldingPolymers & FluidsConstruction ProductsSpecialty ProductsTotal ITW
Operating Leverage 630 bps  320 bps  420 bps  280 bps  360 bps  350 bps  230 bps  390 bps
Changes in Variable Margin & OH Costs 420 bps  40 bps  (140) bps  90 bps  (40) bps  70 bps  (50) bps  10 bps
Total Organic 1050 bps  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 1050 bps  350 bps  280 bps  360 bps  320 bps  400 bps  150 bps  400 bps
Total Operating Margin % *21.6%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 40 bps  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.


ILLINOIS TOOL WORKS INC. and SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATIONS (UNAUDITED)

AFTER-TAX RETURN ON AVERAGE INVESTED CAPITAL (UNAUDITED)

Three Months EndedSix Months Ended
June 30,June 30,
Dollars in millions2021202020212020
Operating income$893 $449 $1,798 $1,210 
Tax rate23.0 %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 
Inventories1,400 1,167 1,400 1,167 
Net assets held for sale— 181 — 181 
Net plant and equipment1,767 1,711 1,767 1,711 
Goodwill and intangible assets5,374 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 capital30.8 %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 EndedSix Months Ended
June 30, 2021June 30, 2021
Dollars in millionsIncome TaxesTax RateIncome TaxesTax Rate
As reported$88 10.1 %$282 16.3 %
Discrete tax benefit112 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 EndedSix Months EndedTwelve Months Ended
June 30,June 30,December 31,
Dollars in millions20212020202120202020
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 rate72 %213 %76 %140 %122 %