ILLINOIS TOOL WORKS INC [ITW] Filings

10-Q 1 itw-20210930.htm 10-Q itw-20210930

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 30, 2021

	OR

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

	For the transition period from _______________ to _______________

Commission File Number: 1-4797

ILLINOIS TOOL WORKS INC.

(Exact name of registrant as specified in its charter)

Delaware

36-1258310

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

155 Harlem Avenue

Glenview

60025

(Address of principal executive offices)

(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	ITW	New York Stock Exchange
1.75% Euro Notes due 2022	ITW22	New York Stock Exchange
1.25% Euro Notes due 2023	ITW23	New York Stock Exchange
0.250% Euro Notes due 2024	ITW24A	New York Stock Exchange
0.625% Euro Notes due 2027	ITW27	New York Stock Exchange
2.125% Euro Notes due 2030	ITW30	New York Stock Exchange
1.00% Euro Notes due 2031	ITW31	New York Stock Exchange
3.00% Euro Notes due 2034	ITW34	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of registrant's common stock, $0.01 par value, outstanding at September 30, 2021: 313,880,725


	Table of Contents

	PART I - Financial Information
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4.	Controls and Procedures	32

	PART II - Other Information

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34

Signatures		3 5

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

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

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

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
	September 30,				September 30,
In millions	2021		2020		2021		2020
Net Income	$	639	$	582	$	2,085	$	1,467

Foreign currency translation adjustments, net of tax	(59)		63		(29)		(160)
Pension and other postretirement benefit adjustments, net of tax	11		9		33		28
Other comprehensive income (loss)	(48)		72		4		(132)

Comprehensive Income	$	591	$	654	$	2,089	$	1,335

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	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 (par value of $0.01 per share):
Issued- 550.0 shares in 2021 and 2020 Outstanding- 313.9 shares in 2021 and 316.7 shares in 2020	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

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	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, 2021
Balance at June 30, 2021	$	6	$	1,402	$	23,842	$	(20,140)	$	(1,590)	$	1	$	3,521
Net income	—		—		639		—		—		—		639
Common stock issued for stock-based compensation	—		—		—		—		—		—		—
Stock-based compensation expense	—		14		—		—		—		—		14
Repurchases of common stock	—		—		—		(250)		—		—		(250)
Dividends declared ($1.22 per share)	—		—		(383)		—		—		—		(383)
Other comprehensive income (loss)	—		—		—		—		(48)		—		(48)

Balance at September 30, 2021	$	6	$	1,416	$	24,098	$	(20,390)	$	(1,638)	$	1	$	3,493

Three Months Ended September 30, 2020
Balance at June 30, 2020	$	6	$	1,317	$	22,612	$	(19,669)	$	(1,909)	$	1	$	2,358
Net income	—		—		582		—		—		—		582
Common stock issued for stock-based compensation	—		15		—		17		—		—		32
Stock-based compensation expense	—		14		—		—		—		—		14

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

Balance at September 30, 2020	$	6	$	1,346	$	22,833	$	(19,652)	$	(1,837)	$	1	$	2,697

Nine Months Ended September 30, 2021
Balance at December 31, 2020	$	6	$	1,362	$	23,114	$	(19,659)	$	(1,642)	$	1	$	3,182
Net income	—		—		2,085		—		—		—		2,085
Common stock issued for stock-based compensation	—		13		—		19		—		—		32
Stock-based compensation expense	—		41		—		—		—		—		41
Repurchases of common stock	—		—		—		(750)		—		—		(750)
Dividends declared ($3.50 per share)	—		—		(1,101)		—		—		—		(1,101)
Other comprehensive income (loss)	—		—		—		—		4		—		4

Balance at September 30, 2021	$	6	$	1,416	$	24,098	$	(20,390)	$	(1,638)	$	1	$	3,493

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

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
	September 30,
In millions	2021		2020
Cash Provided by (Used for) Operating Activities:
Net income	$	2,085	$	1,467
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	206		203
Amortization and impairment of intangible assets	100		119
Change in deferred income taxes	(79)		19
Provision for uncollectible accounts	—		5
(Income) loss from investments	(28)		(6)
(Gain) loss on sale of plant and equipment	—		1
(Gain) loss on sale of operations and affiliates	—		(1)
Stock-based compensation expense	41		31
Other non-cash items, net	8		6
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in-
Trade receivables	(270)		42
Inventories	(365)		50
Prepaid expenses and other assets	(63)		50
Increase (decrease) in-
Accounts payable	44		23
Accrued expenses and other liabilities	133		29
Income taxes	(30)		(6)
Other, net	1		2
Net cash provided by operating activities	1,783		2,034
Cash Provided by (Used for) Investing Activities:

Additions to plant and equipment	(217)		(168)
Proceeds from investments	37		10
Proceeds from sale of plant and equipment	6		8

Other, net	(2)		(1)
Net cash provided by (used for) investing activities	(176)		(151)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(1,080)		(1,019)
Issuance of common stock	42		60
Repurchases of common stock	(750)		(706)
Net proceeds from (repayments of) debt with original maturities of three months or less	1		—

Repayments of debt with original maturities of more than three months	(350)		—
Other, net	(10)		(16)
Net cash provided by (used for) financing activities	(2,147)		(1,681)
Effect of Exchange Rate Changes on Cash and Equivalents	(37)		(14)
Cash and Equivalents:
Increase (decrease) during the period	(577)		188
Beginning of period	2,564		1,981
End of period	$	1,987	$	2,169
Supplementary Cash Flow Information:
Cash Paid During the Period for Interest	$	178	$	175
Cash Paid During the Period for Income Taxes, Net of Refunds	$	558	$	399

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"). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. It is suggested that these financial statements be read in conjunction with the financial statements and notes to financial statements included in the Company's 2020 Annual Report on Form 10-K. Certain reclassifications of prior year data have been made to conform with current year reporting.

(2) Novel Coronavirus (COVID-19)

In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 continued to spread and impact the countries in which the Company operates and the markets the Company serves. In the first three quarters of 2021, the Company experienced solid recovery progress in many of its end markets; however, the disruptions caused by the COVID-19 pandemic continue to have an adverse impact on the Company's global operations. The full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company's operations continues to be highly uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and spikes in infections (including the spread of variants) also being experienced. A prolonged outbreak could continue to interrupt the operations of the Company and its customers and suppliers.

(3) Operating Revenue

The Company's 83 diversified operating divisions are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the three and nine months ended September 30, 2021 and 2020 was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions	2021		2020		2021		2020
Automotive OEM	$	647	$	714	$	2,137	$	1,771
Food Equipment	544		449		1,509		1,268
Test & Measurement and Electronics	552		489		1,710		1,429
Welding	425		346		1,228		1,016
Polymers & Fluids	456		438		1,357		1,185
Construction Products	478		456		1,465		1,222
Specialty Products	459		420		1,387		1,221
Intersegment revenue	(5)		(5)		(17)		(13)
Total operating revenue	$	3,556	$	3,307	$	10,776	$	9,099

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

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

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

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

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

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

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

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

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

Revenue for equipment sold in this segment is typically recognized at the time of product shipment. In limited circumstances involving installation of equipment and customer acceptance, the Company may recognize revenue upon completion of installation and acceptance by the customer. Annual service contracts are typically sold separate from equipment and the related revenue is recognized on a straight-line basis over the annual service period. Operating revenue for on-demand service repairs and parts is recorded upon completion and customer acceptance of the work performed.

Test & Measurement and Electronics— This segment is a branded and innovative producer of test and measurement and electronic manufacturing and maintenance, repair, and operations, or "MRO" solutions that improve efficiency and quality for customers in diverse end markets. Businesses in this segment produce equipment, consumables, and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, industrial capital goods, automotive original equipment manufacturers and tiers, energy and consumer durables markets. Products in this segment include:

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

•electronic assembly equipment;

•electronic components and component packaging;

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

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

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

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

•arc welding equipment; and

•metal arc welding consumables and related accessories.

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

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

•adhesives for industrial, construction and consumer purposes;

•chemical fluids which clean or add lubrication to machines;

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

•hand wipes and cleaners for industrial applications;

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

•fillers and putties for auto body repair; and

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

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

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

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

•anchors, fasteners and related tools for concrete applications;

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

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

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

Specialty Products— This segment is focused on diversified niche market opportunities with substantial patent protection producing beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. This segment primarily serves the food and beverage, consumer durables, general industrial, industrial capital goods and printing and publishing markets. Products in this segment include:

•line integration, conveyor systems and line automation for the food and beverage industries;

•plastic consumables that multi-pack cans and bottles and related equipment;

•foil, film and related equipment used to decorate consumer products;

•product coding and marking equipment and related consumables;

•plastic and metal closures and components for appliances;

•airport ground support equipment; and

•components for medical devices.

Products in this segment are primarily manufactured to meet anticipated customer demand. The Company typically recognizes revenue for these products at the time of product shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance, revenue is recognized when such obligations have been completed.

(4) Income Taxes

The Company's effective tax rate for the three months ended September 30, 2021 and 2020 was 20.8% and 21.3%, respectively, and 17.7% and 22.0% for the nine months ended September 30, 2021 and 2020, respectively. The effective tax rate for the three and nine months ended September 30, 2021 included a discrete income tax benefit of $21 million in the third quarter of 2021 related to the utilization of capital losses. The effective tax rate for the nine months ended September 30, 2021 also benefited from a discrete income tax benefit of $112 million in the second quarter of 2021 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 $1 million and $7 million for the three months ended September 30, 2021 and 2020, respectively, and $14 million and $20 million for the nine months ended September 30, 2021 and 2020, respectively.

The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions, including the Internal Revenue Service ("IRS"), Her Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. Due to the ongoing audits, the Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately $55 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues.

(5) Goodwill and Intangible Assets

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarters of 2021 and 2020. The assessments resulted in no impairment charges in either 2021 or 2020.

(6) Inventories

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


In millions	September 30, 2021		December 31, 2020
Raw material	$	614	$	454
Work-in-process	176		136
Finished goods	850		681
LIFO reserve	(116)		(82)
Total inventories	$	1,524	$	1,189

(7) Pension and Other Postretirement Benefits

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


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	Pension				Other Postretirement Benefits				Pension				Other Postretirement Benefits
In millions	2021		2020		2021		2020		2021		2020		2021		2020
Components of net periodic benefit cost:
Service cost	$	13	$	14	$	2	$	2	$	40	$	41	$	6	$	6
Interest cost	10		15		3		4		30		45		8		12
Expected return on plan assets	(26)		(28)		(7)		(6)		(77)		(84)		(20)		(18)
Amortization of actuarial loss (gain)	14		11		—		—		40		35		—		—
Amortization of prior service cost	—		1		—		—		1		1		—		—
Total net periodic benefit cost	$	11	$	13	$	(2)	$	—	$	34	$	38	$	(6)	$	—

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

The Company expects to contribute approximately $28 million to its pension plans and $4 million to its other postretirement benefit plans in 2021. As of September 30, 2021, contributions of $22 million to pension plans and $3 million to other postretirement benefit plans have been made.

(8) Debt

There was no commercial paper outstanding as of September 30, 2021 and December 31, 2020. Short-term debt as of September 30, 2021 included $578 million related to the 1.75% Euro notes due May 20, 2022, which were reclassified from Long-term debt to Short-term debt in the second quarter of 2021. Short-term debt as of December 31, 2020 included $350 million related to the 3.375% notes due September 15, 2021, which were redeemed in full on June 15, 2021. The Company has a $2.5 billion revolving credit facility with a termination date of September 27, 2024, which is available to provide additional liquidity, including to support the potential issuances of commercial paper. On September 22, 2021, due to the anticipated LIBOR transition, the Company agreed to suspend its right to borrow in Euro, British Pounds Sterling and Japanese Yen currencies under the revolving credit facility, effective December 31, 2021. The Company may continue to borrow in U.S. Dollars under the credit facility. This change is not expected to have a significant impact on the Company’s liquidity or its commercial paper program. No amounts were outstanding under the $2.5 billion revolving credit facility as of September 30, 2021 or December 31, 2020.

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


In millions	September 30, 2021		December 31, 2020
Fair value	$	8,451	$	9,412
Carrying value	7,551		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.

(9) Accumulated Other Comprehensive Income (Loss)

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In millions	2021		2020		2021		2020
Beginning balance	$	(1,590)	$	(1,909)	$	(1,642)	$	(1,705)

Foreign currency translation adjustments during the period	(35)		22		22		(203)
Foreign currency translation adjustments reclassified to income	—		—		4		—
Income taxes	(24)		41		(55)		43
Total foreign currency translation adjustments, net of tax	(59)		63		(29)		(160)


Pension and other postretirement benefit adjustments reclassified to income	14		12		41		36
Income taxes	(3)		(3)		(8)		(8)
Total pension and other postretirement benefit adjustments, net of tax	11		9		33		28

Ending balance	$	(1,638)	$	(1,837)	$	(1,638)	$	(1,837)

Foreign currency translation adjustments reclassified to income related to the exit of immaterial foreign operations. Pension and other postretirement benefit adjustments reclassified to income represented the amortization of actuarial losses and prior service cost. Refer to Note 7. Pension and Other Postretirement Benefits for additional information.

The Company 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 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 fluctuations in the Euro to U.S. Dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). The carrying values of the 2019, 2015 and 2014 Euro notes were $1.8 billion, $1.2 billion and $1.1 billion, respectively, as of September 30, 2021. The cumulative unrealized pre-tax gain (loss) recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was a gain of $108 million as of September 30, 2021 and a loss of $120 million as of December 31, 2020.

As of September 30, 2021 and 2020, the ending balance of Accumulated other comprehensive income (loss) consisted of after-tax cumulative translation adjustment losses of $1.3 billion and $1.5 billion, respectively, and after-tax unrecognized pension and other postretirement benefits cost of $298 million and $362 million, respectively.

(10) Segment Information

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

(11) Acquisition Agreement

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

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

Illinois Tool Works Inc. (the "Company" or "ITW") is a global manufacturer of a diversified range of industrial products and equipment with 83 divisions in 52 countries. As of December 31, 2020, the Company employed approximately 43,000 people.

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

THE ITW BUSINESS MODEL

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

•ITW's 80/20 Front-to-Back process is the operating system that is applied in every ITW business. Initially introduced as a manufacturing efficiency tool in the 1980s, ITW has continually refined, improved and expanded 80/20 into a proprietary, holistic business management process that generates significant value for the Company and its customers. Through the application of data driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the "80") and eliminates cost, complexity and distractions associated with the less profitable opportunities (the "20"). 80/20 enables ITW businesses to consistently achieve world-class operational excellence in product availability, quality, and innovation, while generating superior financial performance;

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

•ITW's Decentralized, Entrepreneurial Culture enables ITW businesses to be fast, focused, and responsive. ITW businesses have significant flexibility within the framework of the ITW Business Model to customize their approach in order to best serve their specific customers' needs. ITW colleagues recognize their unique responsibilities to execute the Company's strategy and values. As a result, the Company maintains a focused and simple organizational structure that, combined with outstanding execution, delivers best-in-class services and solutions adapted to each business' customers and end markets.

ENTERPRISE STRATEGY

In late 2012, ITW began its strategic framework transitioning the Company on its current path to fully leverage the compelling performance potential of the ITW Business Model. The Company undertook a complete review of its performance, focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, and developing a strategy to replicate that performance across its operations.

ITW determined that solid and consistent above-market organic growth is the core growth engine to deliver world-class financial performance and compelling long-term returns for its shareholders. To shift its primary growth engine to organic, the Company began executing a multi-step approach.

•The first step was to narrow the focus and improve the quality of ITW's business portfolio. As part of the Portfolio Management initiative, ITW exited businesses that were operating in commoditized market spaces and prioritized sustainable differentiation as a must-have requirement for all ITW businesses. This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions.

As a result of this work, ITW's business portfolio now has significantly higher organic growth potential. ITW segments and divisions now possess attractive and differentiated product lines and end markets as they continue to improve operating margins and generate price/cost increases. The Company achieved this through product line simplification, or eliminating the complexity and overhead costs associated with smaller product lines and customers, while supporting and growing the businesses' largest / most profitable customers and product lines.

•Step two, Business Structure Simplification, was implemented to simplify and scale up ITW's operating structure to support increased engineering, marketing, and sales resources, and improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 83 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

•The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through 2020 and continues to be a key contributor to the Company's ongoing enterprise strategy.

•With the initial portfolio realignment and scale-up work largely complete, the Company shifted its focus to preparing for and accelerating organic growth, reapplying the 80/20 Front-to-Back process to optimize its newly scaled-up divisions for growth, first, to build a foundation of operational excellence, and second, to identify the best opportunities to drive organic growth.

ITW has clearly demonstrated superior 80/20 management, resulting in meaningful incremental improvement in margins and returns as evidenced by the Company's operating margin and after-tax return on invested capital. At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

PATH TO FULL POTENTIAL

Since the launch of the enterprise strategy, the Company has made considerable progress to position itself to reach full potential. The ITW Business Model and unique set of capabilities are a source of strong and enduring competitive advantage, but for the Company to truly reach its full potential, every one of its divisions must also be operating at its full potential. To do so, the Company remains focused on its core principles to position ITW to perform to its full potential:

•Portfolio discipline

•80/20 Front-to-Back practice excellence

•Full-potential organic growth

Portfolio Discipline

The Company only operates in industries where it can generate significant, long-term competitive advantage from the ITW Business Model. ITW businesses have the right "raw material" in terms of market and business attributes that best fit the ITW Business Model and have significant potential to drive above-market organic growth over the long-term.

The Company focuses on high-quality businesses, ensuring it operates in markets with positive long-term macro fundamentals and with customers that have critical needs and value ITW's differentiated products, services and solutions. ITW's portfolio operates in highly diverse end markets and geographies which makes the Company more resilient in the face of uncertain or volatile market environments.

The Company routinely evaluates its portfolio to ensure it delivers sustainable differentiation and drives consistent long-term performance. This includes both implementing portfolio refinements and assessing selective high-quality acquisitions to supplement ITW's long-term growth potential.

The Company previously communicated its intent to explore options, including potential divestitures, for certain businesses with revenues totaling up to $1 billion. The Company expects any earnings per share dilution from divestitures would be offset by incremental share repurchases. In the fourth quarter of 2019, the Company completed the divestitures of three businesses and continues to evaluate options for certain other businesses. However, due to the COVID-19 pandemic, the Company has deferred any further significant divestiture activity until market conditions normalize.

80/20 Front-to-Back Practice Excellence

The 80/20 Front-to-Back process is a rigorous, iterative and highly data-driven approach to identify where the Company has true differentiation and the ability to drive sustainable, high-quality organic growth. The Company simplifies and eliminates complexity and redesigns every aspect of its business to ensure focused execution on key opportunities, markets, customers, and products.

ITW will continue to drive 80/20 Front-to-Back practice excellence in every division in the Company, every day. Driving strong operational excellence in the quality of 80/20 Front-to-Back practice across the Company, division by division, will produce further customer-facing performance improvement in a number of the Company's divisions and additional structural margin expansion at the enterprise level.

Near-term Priorities

While it was the challenges brought about by the COVID-19 pandemic that dominated the Company's attention starting in 2020, it was the collection of capabilities and competitive advantages that have been built and honed over the past nine 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" focused Market Penetration - fully leveraging the considerable growth potential that resides in the Company's largest and most differentiated product offerings and customer relationships

•Customer-back Innovation - strengthening the Company's commitment to serial innovation and delivering a continuous flow of differentiated new products to its key customers

•Strategic Sales Excellence - deploying a high-performance sales function in every division

As the Company continues to make progress toward its full potential, the Company will explore opportunities to reinforce or further expand the long-term organic growth potential of ITW through the addition of selective high-quality acquisitions, such as the agreement with Amphenol Corporation ("Amphenol") announced earlier this year, whereby the Company intends to acquire the Test & Simulation business of MTS Systems Corporation ("MTS") from Amphenol, which is expected to close in the fourth quarter of 2021 following the receipt of all required regulatory approvals and the satisfaction of other customary closing conditions. Upon completion of this acquisition, the Test & Simulation business of MTS will be reported within the Company's Test & Measurement and Electronics segment.

TERMS USED BY ITW

Management uses the following terms to describe the financial results of operations of the Company:

•Organic business - acquired businesses that have been included in the Company's results of operations for more than 12 months on a constant currency basis.

•Operating leverage - the estimated effect of the organic revenue volume changes on organic operating income, assuming variable margins remain the same as the prior period.

•Price/cost - represents the estimated net impact of increases or decreases in the cost of materials used in the Company's products versus changes in the selling price to the Company's customers.

•Product line simplification (PLS) - focuses businesses on eliminating the complexity and overhead costs associated with smaller product lines and customers, and focuses businesses on supporting and growing their largest customers and product lines. In the short-term, PLS may result in a decrease in revenue and overhead costs while improving operating margin. In the long-term, PLS is expected to result in growth in revenue, profitability, and returns.

Unless otherwise stated, the changes in financial results in the consolidated results of operations and the results of operations by segment represent the current year period versus the comparable period in the prior year. The following discussion of operating results should be read in conjunction with Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2020 Annual Report on Form 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

For the duration of the COVID-19 pandemic, the Company is focusing on the following priorities: (1) protect the health and support the well-being of ITW's colleagues; (2) continue to serve the Company's customers with excellence to the best of its ability; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company's strengths to position it to fully participate in the recovery. To support ITW's colleagues, among its many actions and initiatives, the Company redesigned production processes to ensure proper social distancing practices, adjusted shift schedules and assignments to help colleagues who have child and elder care needs, and implemented aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk. To support its customers, the Company has worked diligently to keep its facilities open and operating safely. The Company has adapted customer service systems and practices to seamlessly serve its customers under "work from home" requirements in many parts of the world. In areas around the world where governments issued stay-at-home or similar orders, the vast majority of ITW's businesses were designated as critical or essential businesses and, as such, they remained open and operational. In some cases, this is because the Company's products directly impact the COVID-19 response effort. In other cases, the Company's businesses are designated as critical because they play a vital role in serving and supporting industries that are deemed essential to the physical and economic health of our communities.

While the vast majority of the Company's facilities have remained open and operational during the pandemic, many of these facilities were operating at a reduced capacity at various times since the outset of the pandemic. The full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company's operations and financial position continues to be highly uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and spikes in infections (including the spread of variants) also being experienced. A prolonged outbreak could continue to interrupt the operations of the Company and its customers and suppliers. A description of the risks relating to the impact of the COVID-19 outbreak on the Company's business, operations and financial condition is contained in Part I - Item 1A - Risk Factors in the Company's 2020 Annual Report on Form 10-K.

Separately, the Company does not believe that tariffs imposed in recent years have had a material impact on its operating results. As the global trade environment, including the regulatory environment, continues to evolve, the Company will continue to evaluate the impact of enacted and proposed tariffs on its businesses, as well as pricing actions to mitigate the impact of any raw material cost increases resulting from these tariffs.

The Company delivered solid financial results in the third 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 7.5 percent in the third quarter as six of seven segments had organic revenue growth. Organic revenue for the Automotive OEM segment declined as this segment continued to be impacted by auto production reductions associated with the supply chain challenges affecting its customers. In the year-to-date period, operating revenue increased 18.4 percent as all seven segments had double-digit organic revenue growth. Operating income grew 7.1 percent and 32.2 percent in the third quarter and year-to-date periods of 2021, respectively. Operating margin was 23.8 percent in the third quarter of 2021. In the year-to-date period, operating margin was 24.5 percent as all segments achieved margin expansion compared to the prior year period.

The Company's consolidated results of operations for the third quarter and year-to-date periods of 2021 and 2020 were as follows:


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	3,556		$	3,307		7.5	%	6.3	%	—	%	—	%	1.2	%	7.5	%
Operating income	$	845		$	789		7.1	%	2.5	%	—	%	3.1	%	1.5	%	7.1	%
Operating margin %	23.8		%	23.8		%	—		(80) bps		—		70 bps		10 bps		—


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	10,776		$	9,099		18.4	%	14.9	%	—	%	—	%	3.5	%	18.4	%
Operating income	$	2,643		$	1,999		32.2	%	26.9	%	—	%	1.1	%	4.2	%	32.2	%
Operating margin %	24.5		%	22.0		%	250 bps		230 bps		—		20 bps		—		250 bps

•Operating revenue increased 7.5% in the third quarter and 18.4% in the year-to-date period due to higher organic revenue and the favorable effect of foreign currency translation.

•Organic revenue increased 6.3% and 14.9% in the third quarter and year-to-date periods, respectively. Six of seven segments grew in the third quarter and all seven segments increased in the year-to-date period as the Company saw continued improvement in both the breadth and pace of the recovery. In the third quarter, Automotive OEM declined 10.7% primarily due to declines in North America and Europe. Additionally, product line simplification activities reduced organic revenue by 30 basis points in the third quarter and 20 basis points in the year-to-date period.

◦North American organic revenue increased 9.0% in the third quarter due to growth in six segments, partially offset by a decline in the Automotive OEM segment. In the year-to-date period, organic revenue increased 15.1% due to growth in all segments primarily driven by the Welding, Test & Measurement and Electronics and Food Equipment segments.

◦Europe, Middle East and Africa organic revenue increased 1.0% in the third quarter as growth in five segments was partially offset by a decline in the Automotive OEM and Specialty Products segments. In the year-to-date period, organic revenue increased 13.1% due to growth in all segments primarily driven by the Automotive OEM, Construction Products and Food Equipment segments.

◦Asia Pacific organic revenue increased 5.4% in the third quarter due to growth in six segments, partially offset by a decline in the Specialty Products segment. In the year-to-date period, organic revenue increased 16.5% due to growth in all segments. China organic revenue grew 2.1% in the third quarter as growth in the Food Equipment, Test & Measurement and Electronics, Automotive OEM and Welding segments was offset by a decline in the Specialty Products, Construction Products and Polymers & Fluids segments. In the year-to-date period, organic revenue increased 21.3% with growth in six segments, partially offset by a decline in the Construction Products segment.

•Operating income of $845 million and $2.6 billion in the third quarter and year-to-date periods, respectively, increased 7.1% and 32.2% in the respective periods.

•Operating margin was 23.8% in the third quarter, flat to the prior year, as positive operating leverage of 130 basis points, benefits from the Company's enterprise initiatives of 100 basis points, lower restructuring expenses and lower intangible asset amortization expense were offset by unfavorable price/cost of 200 basis points, higher freight costs and higher overhead expenses, including employee-related expenses.

•In the year-to-date period, operating margin of 24.5% increased 250 basis points primarily due to positive operating leverage of 300 basis points and benefits from the Company's enterprise initiatives of 110 basis points, partially offset by unfavorable price/cost of 130 basis points and higher overhead expenses, including employee-related expenses.

•The Company's effective tax rate for the third quarter of 2021 and 2020 was 20.8% and 21.3%, respectively, and 17.7% and 22.0% for the respective year-to-date periods. The effective tax rate for the third quarter of 2021 included a discrete income tax benefit of $21 million related to the utilization of capital losses. The effective tax rate for the year-to-date period of 2021 also benefited from a discrete income tax benefit of $112 million in the second quarter of 2021 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 $1 million and $7 million for the third quarter of 2021 and 2020, respectively, and $14 million and $20 million for the year-to-date periods of 2021 and 2020, respectively.

•Diluted earnings per share (EPS) of $2.02 for the third quarter and $6.58 for the year-to-date period increased 10.4% and 42.7%, respectively. Excluding the favorable impact of the $21 million discrete income tax benefit in the third quarter of 2021 and the $112 million discrete income tax benefit in the second quarter of 2021, EPS increased 7.1% and 33.6% in the third quarter and year-to-date periods, respectively.

•Operating cash flow was $619 million and $1.8 billion in the third quarter and year-to-date periods of 2021, respectively. Free cash flow was $548 million and $1.6 billion for the third quarter and year-to-date periods of 2021, respectively. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of free cash flow, which is a non-GAAP measure.

•The Company repurchased approximately 1.0 million and 3.3 million shares of its common stock in the third quarter and year-to-date periods of 2021, respectively, for approximately $250 million and $750 million, respectively.

•After-tax return on average invested capital was 28.5% for the third quarter and 30.5% for the year-to-date period of 2021. Refer to the After-tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

RESULTS OF OPERATIONS BY SEGMENT

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


	Three Months ended September 30,								Nine Months Ended September 30,
Dollars in millions	Operating Revenue				Operating Income				Operating Revenue				Operating Income
	2021		2020		2021		2020		2021		2020		2021		2020
Automotive OEM	$	647	$	714	$	112	$	149	$	2,137	$	1,771	$	434	$	266
Food Equipment	544		449		130		88		1,509		1,268		339		236
Test & Measurement and Electronics	552		489		148		116		1,710		1,429		475		354
Welding	425		346		128		96		1,228		1,016		364		269
Polymers & Fluids	456		438		111		116		1,357		1,185		350		291
Construction Products	478		456		133		128		1,465		1,222		406		309
Specialty Products	459		420		126		106		1,387		1,221		380		313
Intersegment revenue	(5)		(5)		—		—		(17)		(13)		—		—
Unallocated	—		—		(43)		(10)		—		—		(105)		(39)
Total	$	3,556	$	3,307	$	845	$	789	$	10,776	$	9,099	$	2,643	$	1,999

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


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	647		$	714		(9.4)	%	(10.7)	%	—	%	—	%	1.3	%	(9.4)	%
Operating income	$	112		$	149		(24.7)	%	(34.6)	%	—	%	9.3	%	0.6	%	(24.7)	%
Operating margin %	17.3		%	20.8		%	(350) bps		(560) bps		—		220 bps		(10) bps		(350) bps


	Nine Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,137		$	1,771		20.6	%	15.7	%	—	%	—	%	4.9	%	20.6	%
Operating income	$	434		$	266		63.3	%	51.1	%	—	%	5.5	%	6.7	%	63.3	%
Operating margin %	20.3		%	15.0		%	530 bps		460 bps		—		70 bps		—		530 bps

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

•Organic revenue decreased 10.7% in the third quarter and increased 15.7% in the year-to-date period. The impact of Automotive OEM customers adjusting production schedules to account for the shortage of semiconductor chips and other components negatively impacted organic revenue in the third quarter and year-to-date periods of 2021. Worldwide auto builds declined 20% in the third quarter and increased 10% in the year-to-date period. Auto builds for North America, Europe and China, where the Company has a higher concentration of revenue as compared to the other geographic regions, declined 23% in the third quarter and increased 7% in the year-to-date period.

◦North American organic revenue decreased 12.4% in the third quarter and increased 12.3% in the year-to-date period compared to North American auto builds which declined 25% in the third quarter and grew 7% in the year-to-date period. Auto builds for the Detroit 3, where the Company has higher content, decreased 28% in the third quarter and decreased 1% in the year-to-date period.

◦European organic revenue declined 18.0% in the third quarter and increased 13.5% in the year-to-date period compared to European auto builds which decreased 30% in the third quarter and grew 6% in the year-to-date period.

◦Asia Pacific organic revenue increased 6.0% and 26.3% in the third quarter and year-to-date periods, respectively. China organic revenue grew 2.3% in the third quarter and increased 22.7% in the year-to-date period versus China auto builds which decreased 17% in the third quarter and increased 8% in the year-to-date period. Auto builds of foreign automotive manufacturers in China, where the Company has higher content, declined 28% in the third quarter and decreased 6% in the year-to-date period.

•Operating margin of 17.3% in the third quarter decreased 350 basis points primarily driven by unfavorable price/cost of 360 basis points, negative operating leverage of 240 basis points and higher overhead expenses, partially offset by benefits from the Company's enterprise initiatives and lower restructuring expenses.

•In the year-to-date period, operating margin was 20.3%. The increase of 530 basis points was primarily driven by positive operating leverage of 310 basis points, the net benefits from the Company's enterprise initiatives and cost management, and lower restructuring expenses, partially offset by unfavorable price/cost of 230 basis points.

FOOD EQUIPMENT

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

•warewashing equipment;

•cooking equipment, including ovens, ranges and broilers;

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

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

•kitchen exhaust, ventilation and pollution control systems; and

•food equipment service, maintenance and repair.

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


	Three Months Ended
Dollars in millions	September 30,						Components of Increase (Decrease)
	2021			2020			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	544		$	449		21.0	%	18.9	%	—	%	—	%	2.1	%	21.0	%
Operating income	$	130		$	88		47.2	%	35.2	%	—	%	8.4	%	3.6	%	47.2	%
Operating margin %	23.9		%	19.6		%	430 bps		270 bps		—		140 bps		20 bps		430 bps


	Nine Months Ended
Dollars in millions	September 30,				Components of Increase (Decrease)
	2021		2020		Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,509	$	1,268	19.0	%	15.2	%	—	%	—	%	3.8	%	19.0	%
Operating income	$	339	$	236	43.4	%	35.6	%	—	%