UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



x☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2016~~2019



o☐	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.~~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 No.)

155 Harlem Avenue	Glenview	Illinois	60025
(Address of Principal Executive Offices)				(Zip Code)

Registrant’s telephone number, including area code: ~~(847)~~ (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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yesx☒ No o☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o☐Nox☒

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.

Yesx☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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).

Yesx☒ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o☐

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



Large accelerated filer	x☒	Accelerated filer	o
			☐
Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	o☐
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. ☐

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

Yes o☐ No x☒

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, ~~2016~~2019 was approximately ~~$30.4~~$45.6 billion based on the New York Stock Exchange closing sales price as of June 30, ~~2016.~~2019.

Shares of Common Stock outstanding at January 31, ~~2017: 346,550,685.~~2020: 318,864,237.

Documents Incorporated by Reference



Portions of the ~~2017~~2020 Proxy Statement for Annual Meeting of Stockholders to be held on May ~~5, 2017.~~8, 2020.		Part III



	Table of Contents

	PART I
Item 1.	Business	3
Item 1A.	~~Risk Factors~~	10Risk Factors	9
Item 1B.	Unresolved Staff Comments	14
Item 2.	~~Properties~~	15Properties	14
Item 3.	~~Legal Proceedings~~	15Legal Proceedings	14
Item 4.	~~Mine Safety Disclosures~~	15Mine Safety Disclosures	14

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	16
Item 6.	~~Selected Financial Data~~7.	17
~~Item 7.~~	Management's Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	4038
Item 8.	Financial Statements and Supplementary Data	4239
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	7376
Item 9A.	~~Controls and Procedures~~	73Controls and Procedures	76
Item 9B.	~~Other Information~~	73Other Information	76

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	7477
Item 11.	~~Executive Compensation~~	74Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7477
Item 13.	Certain Relationships and Related Transactions, and Director Independence	7477
Item 14.	Principal Accounting Fees and Services	7477

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	7578
Item 16.	Form 10-K Summary	81

Signatures		76
~~Exhibit Index~~		7782

PART I

ITEM 1.Business

General

Illinois Tool Works Inc. (the "Company" or "ITW") was founded in 1912 and incorporated in 1915. The Company's ticker symbol is ITW. The Company is a global manufacturer of a diversified range of industrial products and equipment with 8584 divisions in 5753 countries. As of December 31, ~~2016,~~2019, the Company employed approximately ~~50,000 persons.~~45,000 people.

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

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

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

~~warewashing equipment;~~


•	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.

~~food equipment service, maintenance and repair.~~

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 ~~physical properties~~ of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics. This segment primarily serves the electronics, general industrial, ~~industrial capital goods,~~ automotive original equipment manufacturers and tiers, industrial capital goods, energy and consumer durables markets. Products in this segment include:

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

electronic assembly ~~equipment and related consumable solder materials;~~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.

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

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

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; and~~accessories.

~~metal jacketing and other insulation products.~~

Polymers & Fluids— This segment is a ~~highly~~ 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, ~~MRO,~~ 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;~~


•	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~~


•	fillers and putties for auto body repair; and

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

Construction Products— This segment is a branded supplier of innovative engineered fastening systems and solutions. This segment primarily serves the ~~residential/~~residential construction, renovation/remodel ~~construction~~ 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;~~


•	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.

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

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, general industrial, consumer durables, industrial capital goods and printing and publishing ~~and industrial capital goods~~ 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 fasteners and components for appliances;~~


•	plastic and metal closures and components for appliances;

airport ground support equipment; and


•	components for medical devices.

~~components for medical devices.~~

The information set forth below is applicable to all segments of the Company unless otherwise noted.

The ITW Business Model

The powerful and highly differentiated ITW Business Model is the Company’s core source of value creation. ~~This business model~~The ITW Business Model is the Company’s competitive advantage and defines how ITW creates value for its ~~shareholders and comprises~~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 18,000 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.

~~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 management 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 subsequently creating unique solutions to address those needs. These customer insights and learnings drive innovation at ITW and have contributed to a portfolio of more than 17,000 granted and pending patents;

~~ITW’s~~ ~~decentralized, entrepreneurial culture~~ allows 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 adapted to each business' customers and end markets.

Enterprise Strategy

In late 2012, ITW began ~~the process of~~its strategic framework transitioning the Company ~~onto~~on its current ~~strategic~~ path to fully leverage the compelling performance potential of the ITW Business Model. ~~Since then, ITW has made considerable progress, as evidenced by the Company’s strong financial performance over the past four years.~~

The ~~roots of ITW’s Enterprise Strategy began in late 2011 / early 2012, when the~~ Company undertook a complete review of its ~~performance. Focusing~~performance, focusing on its businesses delivering consistent above-market growth with best-in-class margins and returns, ~~ITW developed~~and developing a strategy to replicate that performance across its operations.

~~Based on this rigorous evaluation,~~ ITW determined that solid and consistent above-market organic growth ~~must be~~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~~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~~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’~~businesses' largest / most profitable customers and product lines. With the initiative nearly complete and ITW businesses demonstrating notably improved financial performance, the Company believes that the significant product line simplification work is essentially finalized and will return to more normalized levels in 2017 and beyond.

Step two, Business Structure Simplification,, was implemented to simplify and ~~scale-up~~scale up ITW’s operating structure to support increased engineering, marketing, and sales resources, and ~~at the same time,~~ improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 8584 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

The Strategic Sourcing initiative ~~was~~ established sourcing as ~~a core capability to better leverage ITW’s scale and improve global competitiveness. Sourcing is now~~ a core strategic and operational capability at ~~ITW. The Company’s 80/20-enabled sourcing organization has delivered~~ITW, delivering an average of one percent reduction in spend each year from 2013 through ~~2016~~2019 and ~~is on track~~continues to dobe a key contributor to the ~~same in 2017 and 2018.~~

Company's ongoing enterprise strategy.

With the initial portfolio realignment and scale-up work largely complete, the Company ~~was able to~~ ~~shift~~shifted its focus to preparing for and accelerating organic growth,~~. As a preparatory step, ITW is in~~ reapplying the ~~process of reapplying~~ 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.

Once the business has achieved operational excellence and identified the right growth opportunities, the final step is to accelerate organic growth. The process of preparing for accelerated organic growth generally takes 18 to 24 months.

are at various phases in preparation for growth and many are either ready to grow or already growing above their respective markets. ITW management is fully aligned with this plan and very focused on executing it. With the close of 2016, approximately 85 percent of the divisions are ready to grow.

~~Path to Full Potential~~

While the Company has made considerable progress and ITW’s performance is nearing best-in-class levels, the Company has significant opportunity for further improvement before it achieves full operating potential. In order to do so, ITW is focused on two key areas of opportunity, including: additional structural margin improvement and sustained above-market organic growth with strong incremental profitability.

~~Additional Structural Margin Improvement~~

~~To deliver on the additional structural margin improvement, the Company is implementing the following two levers: (1) further leveraging the 80/20 management process and (2) strategic sourcing.~~

The first lever, better leveraging the full power of the ITW Business Model, will be accomplished through a much more consistent and focused approach to 80/20 best practice implementation across the Company. The 80/20 management system has continuously been refined, improved and expanded into a unique holistic business management process of interconnected tools, which improves all aspects of the business and, when applied consistently and executed more effectively, will lead to additional margin improvement. 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. ~~These~~At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

~~The second lever, strategic sourcing, is a core element~~Path to Full Potential - Finishing the Job

Since the launch of ~~ITW’s ongoing operational~~the enterprise strategy, ~~and a sustainable enterprise-wide capability. Through the continued execution of this initiative,~~ the Company ~~expects~~has made considerable progress to ~~deliver additional margin improvement with the goal~~position itself to reach full potential. The ITW Business Model and unique set of capabilities are a ~~one percent reduction in spend in 2017~~source of strong and ~~2018.~~

~~Sustained Above-Market Organic Growth with Strong Incremental Profitability~~

~~ITW has done extensive work on its portfolio and operating structure to position~~enduring competitive advantage, but for the Company to ~~deliver sustainable above-market organic growth. The Company has narrowed~~truly finish the ~~focus~~job and ~~significantly improved the growth~~reach its full potential, ~~of ITW’s business portfolio. With approximately 85%~~every one of its divisions ~~ready to grow as of the end of 2016, ITW is well positioned for accelerated growth in 2017 and beyond.~~must also be operating at its full potential. To deliver on this accelerated growth, the divisions have been implementing the organic growth framework, which includes continued investment in customer-back innovation and a strengthened focus on market penetration. ITW continues to focus on growing its share of "80" products with existing customers with whomdo so, the Company ~~has a resonant value proposition as well as target~~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 ~~new customers with similar pain points~~ to ~~existing customers. ITW has made strong progress on the Company’s pivot to organic growth and is well positioned to deliver on sustained~~drive above-market organic growth over the long-term.

~~Divestiture Activity~~

~~Divestiture of Majority Interest~~The Company focuses on high-quality businesses, ensuring it operates in ~~Former Decorative Surfaces Segment— On October 31, 2012,~~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 ~~divested a 51% majority interest~~more resilient in the ~~Decorative Surfaces segment. Accordingly, the Company ceased consolidating the results~~face of the Decorative Surfaces segment as of October 31, 2012 and now reports its 49% ownership interest using the equity method of accounting. Due to the Company's continuing involvement through its 49% interest, the historical operating results of Decorative Surfaces are presented in continuing operations. Effective November 1, 2012, Decorative Surfaces was no longer a reportable segment of the Company.uncertain or volatile market environments.

~~Divestiture of the Industrial Packaging Segment~~— In February 2013, the Company announced that it was initiating a review process to explore strategic alternatives for the Industrial Packaging segment. In September 2013, the Company’s Board of Directors authorized a plan to commence a sale process for the Industrial Packaging segment. The Company classified the Industrial Packaging segment as held for sale beginning in the third quarter of 2013 and no longer presented this segment asAs part of its ~~continuing operations.~~

~~On February 6, 2014,~~agenda to finish the job, the Company ~~announced that~~routinely evaluates its portfolio to ensure it ~~had signed a definitive agreement~~delivers sustainable differentiation and drives consistent long-term performance. This includes both implementing portfolio refinements and assessing selective high-quality acquisitions to ~~sell~~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. In the ~~Industrial Packaging business to The Carlyle Group for $3.2 billion. The transaction was completed on May 1, 2014, resulting in a pre-tax gain of $1.7 billion ($1.1 billion after-tax) in the second~~fourth quarter of ~~2014 which was included in Income~~2019, the Company completed the divestitures of three businesses and continues to evaluate options for certain other businesses. The Company expects any earnings per share dilution from ~~discontinued operations.~~

~~See~~divestitures would be offset by incremental share repurchases. Refer to Note 2. ~~Discontinued Operations~~Divestitures in Item 8. Financial Statements and Supplementary Data for more information regarding divestitures.

80/20 Front-to-Back Practice Excellence

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

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

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

Current Year Developments

Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

~~Financial Information about Segments~~

Segment information is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 14. Segment Information in Item 8. Financial Statements and Supplementary Data.

Distribution Methods

The Company’s businesses primarily distribute their products directly to industrial manufacturers and through independent distributors.

Backlog

Backlog generally is not considered a significant factor in the Company’s businesses as relatively short delivery periods and rapid inventory turnover are characteristic of most of their products. ~~Backlog by segment~~Total backlog was $1.5 billion and $1.6 billion as of December 31, ~~2016~~2019 and ~~2015 was as follows:~~

In millions 2016 2015
Automotive OEM $ 452
$ 403
Food Equipment 188
203
Test & Measurement and Electronics 298
289
Welding 67
68
Polymers & Fluids 62
53
Construction Products 29
34
Specialty Products 217
237
Total $ 1,313
$ 1,287

~~Backlog~~2018, respectively. Due to the predominately short-term nature of the Company's arrangements with its customers, backlog orders scheduled for shipment beyond calendar year ~~2017~~2020 were not material as of December 31, ~~2016.~~2019.

Competition

With operations in 5753 countries, the Company offers a wide range of products in a myriad of markets, many of which are fragmented, and the Company encounters a variety of competitors that vary by product line, end market and geographic area. The Company's competitors include many regional or specialized companies, as well as large U.S. and non-U.S. companies or divisions of large companies. Each of the Company's segments generally has several main competitors and numerous smaller ones in most of their end markets and geographic areas. In addition to numerous smaller regional competitors, the Welding segment competes globally with Lincoln Electric and ESAB.

In virtually all segments, the Company differentiates its businesses from its competitors based on product innovation, product quality, brand preference and service delivery. Technical capability is also a competitive factor in most segments. The Company believes that each segment's primary competitive advantages derive from the Company's business model and decentralized operating structure, which creates a strong focus on end markets and customers at the local level, enabling its businesses to respond rapidly to market dynamics. This structure enables the Company's businesses to drive operational excellence utilizing the Company's 80/20 ~~management~~Front-to-Back process and leveraging its product innovation capabilities. The Company also believes that its global footprint is a competitive advantage in many of its markets, especially in its Automotive OEM segment.

Raw Materials

The Company uses raw materials of various types, primarily steel, resins and chemicals, that are available from numerous commercial sources. The availability of materials and energy has not resulted in any significant business interruptions or other major problems, and no such problems are currently anticipated.

~~Research and Development~~

Developing new and improved products, broadening the application of established products, and continuing efforts to improve and develop new methods, processes and equipment all contribute to the Company's organic growth. Many new products are designed to reduce customers' costs by eliminating steps in their manufacturing processes, reducing the number of parts in an assembly or improving the quality of customers' assembled products. Typically, the development of such products is accomplished by working closely with customers on specific applications. Research and development expenses were $223 million in 2016, $218 million in 2015 and $227 million in 2014.

Intellectual Property

The Company owns approximately ~~3,500~~3,600 unexpired U.S. patents and ~~7,400~~8,700 foreign patents covering articles, methods and machines. In addition, the Company has approximately 1,500 applications for patents pending in the U.S. Patent Office and ~~4,800~~4,300 applications pending in foreign patent offices. There is no assurance that any of these patents will be issued. The Company maintains a patent group for the administration of patents and processing of patent applications.

The Company believes that many of its patents are valuable and important; however, the expiration of any one of the Company's patents would not have a material effect on the Company's results of operations or financial position. The Company also credits its success in the markets it serves to engineering capability; manufacturing techniques; skills and efficiency; marketing and sales promotion; and service and delivery of quality products to its customers.

In addition to patents, many of the Company's products and services are sold under various owned or licensed trademarks, which are important to the Company in the aggregate. Some of the Company's more significant trademarks include ITW, which is also used in conjunction with the trademarks of many of the Company's businesses; Deltar and Shakeproof in the Automotive OEM segment; Hobart in the Food Equipment segment; Instron in the Test & Measurement and Electronics segment; Miller in the Welding segment; Rain-X and Permatex in the Polymers & Fluids segment; Paslode in the Construction Products segment; and Hi-Cone in the Specialty Products segment.

Environmental

The Company believes that its manufacturing plants and equipment are in substantial compliance with all applicable environmental regulations. Additional measures to maintain compliance are not expected to materially affect the Company’s capital expenditures, competitive position, financial position or results of operations.

Various legislative and administrative regulations concerning environmental issues have become effective or are under consideration in many parts of the world relating to manufacturing processes and the sale or use of certain products. To date, such developments have not had a substantial adverse impact on the Company's revenues, earnings or cash flows.

Employees

The Company employed approximately ~~50,000 persons~~45,000 people as of December 31, ~~2016~~2019 and considers its employee relations to be excellent.

~~International~~

The Company's international operations include subsidiaries and joint ventures in 56 foreign countries on six continents. These operations serve such end markets as automotive OEM/tiers, automotive aftermarket, general industrial, commercial food equipment, construction, and others on a worldwide basis. The Company's revenues from sales to customers outside the U.S. were approximately 55% of revenues in 2016, 54% of revenues in 2015, and 57% of revenues in 2014.

~~Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 14. Segment~~ Information in Item 8. Financial Statements and Supplementary Data for additional information on international activities. International operations are subject to certain potential risks inherent in conducting business in foreign countries,

including price controls, exchange controls, limitations on participation in local enterprises, nationalization, expropriation and other governmental action, and fluctuations in currency exchange rates. Additional risks of the Company's international operations are described under Item 1A. Risk Factors.

About Our Executive Officers

~~Executive Officers of the Company as of February 10, 2017 were as follows:~~



~~Name~~	~~Office~~	~~Age~~
~~E. Scott Santi~~	~~Chairman & Chief Executive Officer~~	55
~~Norman D. Finch Jr.~~	~~Senior Vice President, General Counsel & Secretary~~	52
~~John R. Hartnett~~	~~Executive Vice President~~	56
~~Michael M. Larsen~~	~~Senior Vice President & Chief Financial Officer~~	48
~~Mary K. Lawler~~	~~Senior Vice President & Chief Human Resources Officer~~	51
~~Roland M. Martel~~	~~Executive Vice President~~	62
~~Steven L. Martindale~~	~~Executive Vice President~~	60
~~Sundaram Nagarajan~~	~~Executive Vice President~~	54
~~Christopher O’Herlihy~~	~~Vice Chairman~~	53
~~David C. Parry~~	~~Vice Chairman~~	63
~~Randall J. Scheuneman~~	~~Vice President & Chief Accounting Officer~~	49
~~Lei Schlitz~~	~~Executive Vice President~~	50
~~Juan Valls~~	~~Executive Vice President~~	55
~~Michael R. Zimmerman~~	~~Executive Vice President~~	56

The executive officers of the Company serve at the discretion of the Board of Directors. Set forth below is information regarding the principal occupations and employment and business experience over the past five years for each executive officer. Unless otherwise stated, employment is by the Company.

~~Mr. Santi is the Chairman~~Executive Officers of the ~~Board and Chief Executive Officer~~Company as of ~~the Company. He was elected Chairman of the Board in 2015 after having served~~February 14, 2020 were as President and Chief Executive Officer, as well as a director, since November 2012. In October 2012, he was elected President and Chief Operating Officer. Mr. Santi served as Vice Chairman from 2008 to October 2012.follows:



Name	Age	Present Position	Year Elected to Present Position	Other Positions Held During 2015-2019
E. Scott Santi	58	Chairman & Chief Executive Officer	2015	President and Chief Executive Officer, 2012-2015
Axel Beck	54	Executive Vice President	2020	Vice President/General Manager, food equipment businesses, 2011-2016, Group President, food equipment businesses, 2016-2020
Kenneth Escoe	44	Executive Vice President	2020	Vice President/General Manager, welding businesses, 2014-2016, Vice President/General Manager, specialty products businesses, 2016-2019, Group President, specialty products businesses, 2019-2020
Norman D. Finch Jr.	55	Senior Vice President, General Counsel & Secretary	2017	Vice President, General Counsel and Secretary, Sealed Air Corporation, a global manufacturer of products related to food safety and security, facility hygiene and product protection, 2013-2017
John R. Hartnett	59	Executive Vice President	2012
Michael M. Larsen	51	Senior Vice President & Chief Financial Officer	2013
Mary K. Lawler	54	Senior Vice President & Chief Human Resources Officer	2014
Steven L. Martindale	63	Executive Vice President	2008
Christopher O’Herlihy	56	Vice Chairman	2015	Executive Vice President, 2010-2015
Randall J. Scheuneman	52	Vice President & Chief Accounting Officer	2009
Lei Schlitz	53	Executive Vice President	2015	Group President, food equipment businesses, 2011-2015
Sharon Szafranski	53	Executive Vice President	2020	Vice President/General Manager, food equipment businesses, 2010-2016, Vice President/General Manager, test & measurement and electronics businesses, 2016-2019, Group President, test & measurement and electronics businesses, 2019-2020
Michael R. Zimmerman	59	Executive Vice President	2015	Group President, welding businesses, 2010-2015

Mr. Finch joined the Company in January 2017 and was elected Senior Vice President, General Counsel and Secretary in February 2017. From 2013 to January 2017 he served as Vice President, General Counsel and Secretary of Sealed Air Corporation, a global manufacturer of products related to food safety and security, facility hygiene and product protection. Prior thereto, he served as Vice President, Associate General Counsel and Chief Compliance Officer of Zimmer Holdings, Inc. (now Zimmer Biomet Holdings), a global medical device company.

Mr. Hartnett was elected Executive Vice President in 2012. Prior to that, he held various management positions of increasing responsibility. Most recently, he served as Group President of the automotive aftermarket businesses.

Mr. Larsen joined the Company and was elected Senior Vice President and Chief Financial Officer in September 2013. From October 2010 to August 2013, he served as Vice President and Chief Financial Officer of Gardner Denver, Inc., a global manufacturer of highly engineered compressors, blowers, pumps and other fluid transfer equipment. In addition, he served as interim CEO of Gardner Denver from July 2012 to November 2012, and as President, Chief Executive Officer and a director of that company from November 2012 to July 2013.

Ms. Lawler joined the Company and was elected Senior Vice President and Chief Human Resources Officer in October 2014. From June 2013 to October 2014, she served as Executive Vice President, Human Resources, at GATX Corporation, a rail car leasing company. Prior to that, she served as Senior Vice President, Human Resources, at GATX Corporation, from May 2008 to May 2013.

~~Mr. Martel has served in his present position since 2006.~~

~~Mr. Martindale has served in his present position since 2008.~~

~~Mr. Nagarajan has served in his present position since 2010.~~

~~Mr. O’Herlihy was elected Vice Chairman in 2015. Prior to that, he served as Executive Vice President from 2010 to 2015.~~

~~Mr. Parry has served in his present position since 2010.~~

~~Mr. Scheuneman has served in his present position since 2009.~~

Ms. Schlitz was elected Executive Vice President in 2015. Prior to that, she held various management positions of increasing responsibility. Most recently, she served as Group President of the food equipment businesses since 2011.

~~Mr. Valls has served in his present position since 2007.~~

Mr. Zimmerman was elected Executive Vice President in 2015. Prior to that, he held various management positions of increasing responsibility. Most recently, he served as Group President of the welding businesses since 2010.

Available Information

The Company electronically files reports with the Securities and Exchange Commission ("SEC"). The public may read and copy any materials the Company has filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Copies of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge through the Company's website (www.itw.com), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any shareholder who requests them. The Company will furnish any exhibit not contained herein upon the payment of a fee representing the reasonable cost to the Company of furnishing the exhibit. Requests for exhibits may be sent to Illinois Tool Works Inc., 155 Harlem Avenue, Glenview, IL 60025, Attention: Secretary. Also posted on the Company’s website are the following:

Statement of Principles of Conduct;

Code of Ethics for CEO and key financial and accounting personnel;

Charters of the Audit, Corporate Governance and Nominating, and Compensation Committees of the Board of Directors;

Corporate Governance Guidelines;

Global Anti-Corruption Policy;

Corporate ~~Citizenship Statement;~~Social Responsibility Reports;

Anti-Human Trafficking Disclosure;

Conflict Minerals Policy Statement; ~~and~~

Supplier Code of Conduct;

Government Affairs ~~Information.~~Information;

Environmental & Sustainability Policy;

Human Rights Policy;

Safety Policy; and

United Kingdom Tax Policy Document.

ITEM 1A.Risk Factors

The Company's business, financial condition, results of operations and cash flows are subject to various risks, including, but not limited to, those set forth below, which could cause actual results to vary materially from recent results or from anticipated future results. These risk factors should be considered together with information included elsewhere in this Annual Report on Form 10-K.

The Company's results are impacted by global economic conditions. Downturns in the markets served by the Company could adversely affect its businesses, results of operations or financial condition.

The Company's businesses are impacted by economic conditions around the ~~globe, including the uncertainty created by the United Kingdom’s June 2016 vote to leave the European Union.~~globe. Slower economic growth, financial market instability, natural disasters, public health crises, high unemployment, government deficit reduction, sequestration and other austerity measures impacting the markets the Company serves can adversely affect the Company’s businesses by reducing demand for the Company's products and services, limiting financing available to the Company's customers, causing production delays, increasing order cancellations and the difficulty in collecting accounts

receivable, increasing price competition, or increasing the risk that counterparties to the Company's contractual arrangements will become insolvent or otherwise unable to fulfill their obligations.

The global nature of the Company's operations subjects it to political and economic risks that could adversely affect its business, results of operations or financial condition.

~~The~~Over 50% of the Company's net sales are derived from customers outside the United States, and the Company currently operates in 5753 countries. The risks inherent in the Company's global operations include:

fluctuation in currency exchange rates;

limitations on ownership or participation in local enterprises;

price controls, exchange controls and limitations on repatriation of earnings;

transportation delays and interruptions;

political, social and economic instability and disruptions;

acts of terrorism;

the impact of widespread public health crises;

government embargoes or foreign trade restrictions;

the imposition of duties and tariffs and other trade ~~barriers;~~barriers and retaliatory countermeasures;

government actions impacting international trade agreements;

import and export controls;

labor unrest and current and changing regulatory environments;

the potential for expropriation or nationalization of enterprises;

difficulties in staffing and managing multi-national operations;

limitations on its ability to enforce legal rights and remedies; and

potentially adverse tax consequences.

The ~~United Kingdom's vote~~current global geopolitical and trade environment has resulted in ~~June 2016 to leave the European Union may increase certain~~raw material inflation and potential for increased escalation of domestic and international tariffs and retaliatory trade policies. Further changes in U.S. trade policy (including new or additional increases in duties or tariffs) and additional retaliatory actions by U.S. trade partners could result in a worsening of economic conditions. Additionally, in early 2020, an outbreak of the ~~risks~~coronavirus occurred in China and ~~uncertainties described above.~~other jurisdictions. The ~~United Kingdom represented approximately 5%~~extent of the ~~Company's total consolidated operating revenue for~~outbreak and its impact on the ~~year ended December 31, 2016.~~markets served by the Company and on its operations is uncertain. A prolonged outbreak could interrupt the operations of the Company and its customers and suppliers. If the Company is unable to successfully manage these and other risks associated with managing and expanding its international businesses, the risks could have a material adverse effect on the Company's business, results of operations or financial condition.

The benefits from the Company’s Enterprise Strategy may not be as expected and the Company's financial results could be adversely ~~impacted.~~impacted, or the Company may not meet its long-term financial performance targets.

As the Company ~~has substantially completed~~continues to execute on its Enterprise Strategy initiatives, it remains focused on the core principles of portfolio ~~management~~discipline, 80/20 Front-to-Back practice excellence, and ~~business structure simplification, its focus has pivoted to~~ organic ~~revenue growth and continued margin improvement.~~growth. Product line and customer base simplification activities, which are core elements of the Company’s 80/20 ~~management~~Front-to-Back process, continue to be applied toby the Company’s ~~scaled up~~ operating divisions and ~~remain~~are active elements of the Enterprise Strategy. Although these activities are expected to improve future operating margins and organic revenue growth, they are also expected to have a negative impact on the Company’s overall organic revenue growth in the short term. Additionally, other core activities of the Enterprise Strategy related to portfolio discipline and organic growth, including customer-back innovation and strategic sales excellence, may not have the desired impact on future operating results. If the Company is unable to realize the expected benefits from its Enterprise Strategy initiatives, the Company's financial results could be adversely ~~impacted.~~impacted, or the Company may not meet its long-term financial performance targets.

The timing and amount of the Company’s share repurchases are subject to a number of uncertainties.

Share repurchases constitute a significant component of the Company’s capital allocation strategy. The Company funds its share repurchases with free cash flow and short-term borrowings. The amount and timing of share repurchases will be based on a variety of factors. Important factors that could cause the Company to limit, suspend or delay its share repurchases include unfavorable trading market conditions, the price of the Company's common stock, the nature of other investment opportunities presented to usthe Company from time to time, the ability to obtain financing at attractive rates and the availability of U.S. cash.

The Company may incur fines or penalties, damage to its reputation or other adverse consequences if its employees, agents or business partners violate anti-bribery, competition, export and import, environmental or other laws.

The Company has a decentralized operating structure under which its individual businesses are allowed significant decision-making autonomy within the Company’s strategic framework and internal financial and compliance controls. The Company cannot ensure that its internal controls will always protect against reckless or criminal acts committed by its employees, agents or business partners that might violate U.S. and/or non-U.S. laws, including anti-bribery, competition, export and import, and environmental laws. Any such improper actions could subject the Company to civil or criminal investigations, could lead to substantial civil or criminal monetary and non-monetary penalties against the Company or its subsidiaries, or could damage its reputation.

A significant fluctuation between the U.S. Dollar and other currencies could adversely impact the Company's operating income.

Although the Company's financial results are reported in U.S. Dollars, a significant portion of its sales and operating costs are realized in other currencies, with the largest concentration of foreign sales occurring in Europe. The Company's profitability is affected by movements of the U.S. Dollar against the Euro and other foreign currencies in which it generates revenues and incurs expenses. Significant long-term fluctuations in relative currency values, and in particular, an increase in the value of the U.S. Dollar against foreign currencies, has had and could have an adverse effect on profitability and financial condition.

If the Company is unable to successfully introduce new products, ~~or adequately protect its intellectual property,~~ its future growth may be adversely affected.

The Company's ability to develop new products based on innovation can affect its competitive position and sometimes requires the investment of significant time and resources. Difficulties or delays in research, development, production or commercialization of new products and services may reduce future revenues and adversely affect the Company's competitive position. If the Company is unable to create sustainable product differentiation, its organic growth may be adversely affected.

If the Company is unable to adequately protect its intellectual property, its competitive position and results of operations may be adversely impacted.

Protecting the Company's intellectual property is critical to its innovation efforts. The Company owns patents, trade secrets, copyrights, trademarks and/or other intellectual property rights related to many of its products, and also has exclusive and non-exclusive license rights under intellectual property owned by others. The Company's intellectual property rights may be challenged or infringed upon by third parties, particularly in countries where property rights are not highly developed or protected, or the Company may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms. Unauthorized use of the Company's intellectual property rights or inability to preserve existing intellectual property rights could adversely impact the Company's competitive position and results of operations.

The Company's acquisition of businesses could negatively impact its profitability and returns.

~~Acquisitions, including~~The Company has engaged in various acquisitions in the ~~Company’s acquisition of~~past, and could choose to acquire additional businesses in the ~~Engineered Fasteners and Components business on July 1, 2016 from ZF TRW,~~future. Acquisitions involve a number of risks and financial, accounting, managerial and operational challenges, including the following, any of which could adversely affect the Company's profitability and returns:

The acquired business could under-perform relative to the Company’s expectations and the price paid for it, or not perform in accordance with the Company’s anticipated timetable.

The acquired business could cause the Company's financial results to differ from expectations in any given fiscal period, or over the long term.

Acquisition-related earnings charges could adversely impact operating results.

The acquired business could place unanticipated demands on the Company's management, operational resources and financial and internal control systems.

The Company may assume unknown liabilities, known contingent liabilities that become realized or known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the activities of the acquired ~~business’s activities.~~business. The realization of any of these liabilities or deficiencies may increase the Company's expenses, adversely affect its financial position or cause noncompliance with its financial reporting obligations.

As a result of acquisitions, the Company has in the past recorded significant goodwill and other identifiable intangible assets on its balance sheet. If the Company is not able to realize the value of these assets, it may recognize charges relating to the impairment of these assets.

~~Recent divestitures~~Divestitures pose the risk of retained liabilities that could adversely affect the Company's financial results.

The ~~Company's~~Company had significant divestiture activity ~~increased~~ in 2012, 2013 and 2014 in accordance with its portfolio management ~~initiative. Though the divestiture element of its~~initiative, and it divested additional businesses in 2019 as it continues portfolio ~~management initiative is essentially complete, the~~refinements to maintain portfolio discipline. The Company has retained certain liabilities directly or through indemnifications made to the ~~buyer~~buyers against known and unknown contingent liabilities such as lawsuits, tax liabilities, product liability claims and environmental ~~matters.~~matters, which could adversely affect the Company's financial results.

The Company has significant goodwill and other intangible assets, and future impairment of these assets could have a material adverse impact on ~~our~~the Company's financial results.

The Company has recorded significant goodwill and other identifiable intangible assets on its balance sheet as a result of acquisitions. A number of factors may result in impairments to goodwill and other intangible assets, including significant negative industry or economic trends, disruptions to our business, increased competition and significant changes in the use of the assets. Impairment charges could ~~result that~~ adversely affect the Company's financial condition or results of operations in the periods recognized.

Disruptions or volatility in global financial markets or changes in ~~our~~the Company's credit ratings could increase ~~our~~the Company's funding costs or reduce the availability of credit.

Global economic conditions may cause volatility and disruptions in the financial markets. The Company’s continued ability to meet its cash requirements requires substantial liquidity and access to the financial markets. In addition, the Company’s borrowing costs can be affected by short and long-term ratings assigned by independent rating agencies. If conditions in the financial markets decline or the Company’s credit ratings are negatively impacted, its funding costs could be increased or the availability of credit could be diminished.

Raw material price increases and supply shortages could adversely affect results.

The supply of raw materials to the Company and to its component parts suppliers could be interrupted for a variety of reasons, including availability and pricing. Prices for raw materials necessary for production have fluctuated significantly in the past and significant increases could adversely affect the Company's results of operations and profit margins. In particular, changes in trade policies, the imposition of duties and tariffs, potential retaliatory countermeasures and severe weather events could adversely impact the price or availability of raw materials. Due to pricing pressure or other factors, the Company may not be able to pass along increased raw material and components parts prices to its customers in the form of price increases or its ability to do so could be delayed. Consequently, its results of operations and financial condition may be adversely affected.

Unfavorable tax law changes and tax authority rulings may adversely affect results.

The Company is subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are based on the income and expenses in various tax jurisdictions. The Company's effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets or changes in tax laws. The amount of income taxes ~~and other taxes are~~is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from amounts recorded, future financial results may include unfavorable tax adjustments.

In December 2017, the U.S. government enacted comprehensive tax legislation that included significant changes to the taxation of business entities. The Company’s accounting for the tax effects of the Act may be subject to change due to subsequent clarification of the tax law which could adversely affect the Company's operating results or financial condition.

The Company's defined benefit pension plans are subject to financial market risks that could adversely affect its results of operations and cash flows.

The performance of financial markets and interest rates impact the Company's funding obligations under its defined benefit pension plans. Significant changes in market interest rates, decreases in the fair value of plan assets and investment losses on plan assets may increase the Company's funding obligations and adversely impact its results of operations and cash flows.

Potential adverse outcomes in legal proceedings may adversely affect results.

The Company's businesses expose it to potential toxic tort and other types of product liability claims that are inherent in the design, manufacture and sale of its products and the products of third-party vendors. The Company currently maintains insurance programs consisting of self-insurance up to certain limits and excess insurance coverage for claims over established limits. There can be no assurance that the Company will be able to obtain insurance on acceptable terms or that its insurance programs will provide adequate protection against actual losses. In addition, the Company is subject to the risk that one or more of its insurers may become insolvent and become unable to pay claims that may be made in the future. Even if it maintains adequate insurance programs, claims could have a material adverse effect on the Company's financial condition, liquidity and results of operations and on its ability to obtain suitable, adequate or cost-effective insurance in the future.

Uncertainty related to environmental regulation and industry standards, as well as physical risks of climate change, could impact the Company's results of operations and financial position.

Increased public awareness and concern regarding environmental risks, including global climate change, may result in more international, regional and/or federal requirements or industry standards to reduce or mitigate global warming and other environmental risks. These regulations or standards could mandate even more restrictive requirements, such as stricter limits on greenhouse gas emissions and production of single use plastics, than the voluntary commitments that the Company has made or require such changes on a more accelerated time frame. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. In addition, the physical risks of climate change may impact the availability and cost of materials and natural resources, sources and supply of energy, product demand and manufacturing. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon the Company or its products, or the Company's operations are disrupted due to physical impacts of climate change, the Company’s business, capital expenditures, results of operations, financial condition and competitive position could be negatively impacted.

If the Company is unable to protect its information technology infrastructure against service interruptions, data corruption, cyber-based attacks or network security breaches, or if there is a violation of data privacy laws, there could be a negative impact on operating results or the Company may suffer financial or reputational damage.

The Company relies on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including procurement, manufacturing, distribution, invoicing and collection. These technology networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; hardware failures; attacks by computer hackers; computer viruses; employee error or malfeasance. In addition, security breaches could result in unauthorized disclosure of confidential information or personal data belonging to our employees, partners, customers or suppliers. We are also subject to data privacy laws, including the EU General Data Protection Regulation, in the various countries in which we operate. If ~~these~~our information technology systems suffer severe damage, disruption, or shutdown, and business continuity plans do not effectively resolve the issues in a timely manner, or if we violate data privacy laws, there could be a negative impact on operating results or the Company may suffer financial or reputational damage.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "expect," "plans," "intends," "may," "strategy," "prospects," "estimate," "project," "target," "anticipate," "guidance," "forecast," and other similar words, including, without limitation, statements regarding the expected performance of acquired businesses and impact of divested businesses, the impact of tariffs and raw material cost inflation, economic and regulatory conditions in various geographic regions, the timing and amount of share repurchases, the timing and amount of benefits from the Company's ~~Enterprise Strategy,~~enterprise initiatives, the adequacy of internally generated funds and credit facilities to service debt and finance the Company's capital allocation priorities, the sufficiency of U.S. generated cash to fund cash requirements in the U.S., the impact of the recently enacted U.S. tax legislation, the cost and availability of additional financing, the Company's portion of future benefit payments related to pension and postretirement benefits, ~~the expected impact of a change in the method of calculating the service and interest cost components of net periodic pension and other postretirement benefit costs to a specific spot rate approach,~~ the availability of raw materials and energy, the expiration of any one of the Company's patents, the cost of compliance with environmental regulations, the likelihood of future goodwill or intangible asset impairment charges, the impact of failure of the Company's employees to comply with applicable laws and regulations, the impact of foreign currency fluctuations, the outcome of outstanding legal proceedings, the impact of adopting new accounting pronouncements, and the estimated timing and amount related to the resolution of tax matters. These statements are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated. Important risks that may influence future results include those risks described above. These risks are not all inclusive and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Any forward-looking statements made by ITW speak only as of the date on which they are made. ITW is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, subsequent events or otherwise.

ITW practices fair disclosure for all interested parties. Investors should be aware that while ITW regularly communicates with securities analysts and other investment professionals, it is against ITW's policy to disclose to them any material ~~non-public~~non-

public information or other confidential commercial information. Investors should not assume that ITW agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.

ITEM 1B.Unresolved Staff Comments

None.

ITEM 2.Properties

Due to the Company’s decentralized operating structure and global operations, the Company operates out of a number of facilities worldwide, none of which are individually significant to the Company or its segments. As of December 31, ~~2016,~~2019, the Company operated ~~the following~~approximately 440 plants and office facilities, excluding regional sales offices and warehouse ~~facilities:~~facilities. Approximately 280 of the facilities were located outside of the United States. Principal foreign countries include China, Germany, the United Kingdom and France.

Number Of Properties
Owned Leased Total
Automotive OEM 59
38
97
Food Equipment 24
17
41
Test & Measurement and Electronics 29
63
92
Welding 26
18
44
Polymers & Fluids 37
32
69
Construction Products 28
28
56
Specialty Products 47
42
89
Corporate 1
12
13
Total 251
250
501

The Company’s properties are ~~highly suitable~~well suited for the purposes for which they were designed and are maintained in good operating condition. Production capacity, in general, currently exceeds operating levels. Capacity levels are somewhat flexible based on the number of shifts operated and on the number of overtime hours worked. The Company adds production capacity from time to time as required by increased demand. Additions to capacity can be made within a reasonable period of time due to the nature of the Company’s businesses.

~~The Company operated 307 plants and office facilities outside of the U.S. Principal countries include China, Germany, France and the United Kingdom.~~

ITEM 3.Legal Proceedings

None.

ITEM 4.Mine Safety Disclosures

None.

PART II

ITEM 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock ~~Price and Dividend~~ Data— The Company's common stock is listed on the New York Stock Exchange. ~~Quarterly market price and dividend data for 2016 and 2015 were as shown below:~~

Market Price Per Share
Dividends
Declared
Per Share
High Low
2016:
Fourth quarter $ 127.99
$ 111.50
$ 0.65
Third quarter 123.50
103.08
0.65
Second quarter 109.54
98.32
0.55
First quarter 102.98
79.15
0.55

2015:
Fourth quarter $ 95.00
$ 80.16
$ 0.55
Third quarter 94.33
78.79
0.55
Second quarter 99.92
91.41
0.485
First quarter 100.14
90.43
0.485

There were approximately ~~6,433~~5,513 holders of record of common stock as of January 31, ~~2017.~~2020. This number does not include beneficial owners of the Company's securities held in the name of nominees.

*Assumes $100 invested on 12/31/1114 in stock or index, including reinvestment of dividends. Fiscal years ended December 31.

The ~~2016~~2019 peer group consists of the following 1817 public companies, consistent with the peer group included in the Company's Proxy statement:



3M Company	~~E.I. du Pont de Nemours and Company~~	~~Masco Corporation~~
~~BorgWarner Inc.~~	~~Eaton Corporation plc~~Emerson Electric Co.	Parker-Hannifin Corporation
Caterpillar Inc.	~~Emerson Electric Co.~~Fortive Corporation	PPG Industries, Inc.
Cummins Inc.	~~Honeywell International Inc.~~General Dynamics Corporation	~~Pentair plc~~Raytheon Company
Deere & Company	Honeywell International Inc.	Rockwell Automation, Inc.
Dover Corporation	Ingersoll-Rand plc	Stanley Black & Decker, Inc.
~~Dover~~Eaton Corporation plc	Johnson Controls, Inc.	~~Textron Inc.~~

~~Danaher~~The Compensation Committee of the Board of Directors of the Company reviews the peer group annually and from time to time it changes the composition of the Company’s peer group where changes are appropriate. Although Fortive Corporation was ~~removed from~~added to the ~~Company's~~Company’s peer group in ~~2016~~2017, it was excluded from the five year cumulative total return as there was insufficient historical data due to ~~the~~its spin-off ~~of Fortive Corporation.~~from Danaher Corporation in 2016.

Repurchases of Common Stock— On February 13, 2015, the Company’s Board of Directors authorized a stock repurchase program which ~~provides~~provided for the repurchase of up to $6.0 billion of the Company’s common stock over an open-ended period of time (the "2015 Program"). The 2015 Program was completed in the second quarter of 2019.

On August 3, 2018, the Company's Board of Directors authorized a new stock repurchase program which provides for the repurchase of up to an additional $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program"). As of December 31, ~~2016,~~2019, there were approximately ~~$3.4~~$1.9 billion of authorized repurchases remaining under the ~~2015 Program.~~ 2018 program.

Share repurchase activity under the Company's share repurchase program for the fourth quarter of ~~2016~~2019 was as follows:


In millions except per share amounts	In millions except per share amounts						In millions except per share amounts
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Value of Shares That May Yet Be Purchased Under Program		Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Value of Shares That May Yet Be Purchased Under Programs
October 2016	2.8	$	114.89	2.8	$	3,622
November 2016	1.1	$	120.25	1.1	$	3,498
December 2016	0.4	$	126.26	0.4	$	3,446
October 2019							0.1	$	167.78	0.1	$	2,301
November 2019							0.3	$	173.98	0.3	$	2,256
December 2019							1.8	$	175.67	1.8	$	1,946
Total	4.3			4.3			2.2			2.2

ITEM 6.Selected Financial Data


In millions except per share amounts	2016		2015		2014		2013		2012		2019		2018		2017		2016		2015
Operating revenue	$	13,599	$	13,405	$	14,484	$	14,135	$	14,791	$	14,109	$	14,768	$	14,314	$	13,599	$	13,405
Income from continuing operations	2,035		1,899		1,890		1,630		2,233		2,521		2,563		1,687		2,035		1,899
Income per share from continuing operations:	Income per share from continuing operations:										Income per share from continuing operations:
Basic	5.73		5.16		4.70		3.65		4.75		7.78		7.65		4.90		5.73		5.16
Diluted	5.70		5.13		4.67		3.63		4.72		7.74		7.60		4.86		5.70		5.13
Total assets at year-end	15,201		15,729		17,465		19,599		19,138		15,068		14,870		16,780		15,201		15,729
Long-term debt at year-end	7,177		6,896		5,943		2,771		4,564		7,754		6,029		7,478		7,177		6,896
Cash dividends declared per common share	2.40		2.07		1.81		1.60		1.48		4.14		3.56		2.86		2.40		2.07

In 2017, the Company recorded a one-time additional income tax expense of $658 million, or $1.90 per diluted share, related to the enactment of the United States "Tax Cuts and Jobs Act." Refer to Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for further information.

Certain reclassifications of prior year data have been made to conform to current year reporting, including ~~discontinued operations and~~the adoption of new accounting guidance as discussed below.

On October 31, 2012, the Company divested a 51% majority interest in its Decorative Surfaces segment. Accordingly, the Company ceased consolidating the results of the Decorative Surfaces segment as of October 31, 2012 and now reports its 49% ownership interest using the equity method of accounting. Due to the Company's continuing involvement through its 49% interest, the historical operating results of Decorative Surfaces are presented in continuing operations. Effective November 1, 2012, Decorative Surfaces was no longer a reportable segment of the Company.

In ~~April 2014,~~March 2016, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued authoritative guidance that included several changes to ~~change~~simplify the ~~criteria~~accounting for ~~reporting discontinued operations. Under~~stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows. Among the more significant changes, the new guidance ~~only disposals representing a strategic shift~~requires that the income tax effects associated with the settlement of stock-based awards after adoption of the guidance be recognized through income tax expense rather than directly in ~~a company's operations and financial results~~equity. Additionally, the income tax effects related to excess tax benefits should be ~~reported~~presented within operating cash flows in the statement of cash flows rather than as ~~discontinued operations.~~a financing activity. Excess tax benefits recognized in equity under the prior guidance were $29 million and $20 million for the years ended December 31, 2016 and 2015, respectively. The Company adopted ~~this~~the new guidance effective January 1, ~~2015. The~~2017 and applied the new guidance ~~applies prospectively to new disposals~~prospectively. Excess tax benefits of $28 million, $10 million and ~~new classifications of disposal groups held for sale after such date. There~~$50 million were ~~no discontinued operations during 2016 or 2015 under this new accounting guidance. For businesses reported as discontinued operations~~included in Income taxes in the statement of income ~~prior~~for the years ended December 31, 2019, 2018 and 2017, respectively. The expected effect on income tax expense or net cash provided from operating activities related to ~~adoption, all related prior~~future stock-based award settlements will vary each period ~~income statement information has been restated. Income from discontinued operations was $1.1 billion, $49 million,~~ and ~~$637 million~~will depend on inputs such as the stock price at the time of settlement and the number of awards settled in the ~~years 2014, 2013, and 2012, respectively. Refer to Note 2. Discontinued Operations in Item 8. Financial Statements and Supplementary Data for discussion of the Company's discontinued operations.~~period presented.

In April 2015, the FASB issued authoritative guidance to simplify the balance sheet presentation of long-term debt issuance costs. Under the new guidance, long-term debt issuance costs are presented as a reduction of the carrying amount of the related long-term debt. The Company early adopted this guidance in the fourth quarter of 2015 and restated $38 million, $22 million, and $26 million of deferred long-term debt issuance costs from Other assets to Long-term debt in the years 2014, 2013, and 2012, respectively.

In November 2015, the FASB issued authoritative guidance to simplify the presentation of deferred taxes. Under the new guidance, all deferred tax assets and liabilities are presented as noncurrent in the statement of financial position. Early adoption of this guidance in the fourth quarter of 2015 decreased total assets by $175 million, $345 million, and $145 million in the years 2014, 2013, and 2012, respectively.

Additional information on the comparability of results is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 7.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 8584 divisions in 5753 countries. As of December 31, ~~2016,~~2019, the Company employed approximately ~~50,000 persons.~~45,000 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

•

~~ITW’s~~ ~~80/20 management process~~ is the operating system that is applied in every ITW business. Initially introduced as a manufacturing efficiency tool in the 1980’s, 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;

•

ENTERPRISE STRATEGY

•

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 84 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.


•	The Strategic Sourcing initiative established sourcing as a core strategic and operational capability at ITW, delivering an average of one percent reduction in spend each year from 2013 through 2019 and continues to be a key contributor to the Company's ongoing enterprise strategy.

With the initiative nearly complete and ITW businesses demonstrating notably improved financial performance, the Company believes that the significant product line simplification work is essentially finalized and will return to more normalized levels in 2017 and beyond.

~~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, at the same time, improve global reach and competitiveness, all of which were critical to driving accelerated organic growth. ITW now has 85 scaled-up divisions with significantly enhanced focus on growth investments, core customers and products, and customer-back innovation.

~~The~~ ~~Strategic Sourcing~~ initiative was established as a core capability to better leverage ITW’s scale and improve global competitiveness. Sourcing is now a core strategic and operational capability at ITW. The Company’s 80/20-enabled sourcing organization has delivered an average of one percent reduction in spend each year from 2013 through 2016 and is on track to do the same in 2017 and 2018.

~~With the~~initial portfolio realignment and scale-up work largely complete, the Company ~~was able to~~ ~~shift~~shifted its focus to preparing for and accelerating organic growth,~~. As a preparatory step, ITW is in~~ reapplying the ~~process of reapplying~~ 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.

Based on the financial performance of the divisions that are further along in this process, the Company believes that its organic growth framework is capable of delivering above-market organic growth across all segments. Divisions are at various phases in preparation for growth and many are either ready to grow or already growing above their respective markets. ITW management is fully aligned with this plan and very focused on executing it. With the close of 2016, approximately 85 percent of the divisions are ready to grow.

~~PATH TO FULL POTENTIAL~~

~~Additional Structural Margin Improvement~~

~~To deliver on the additional structural margin improvement, the Company is implementing the following two levers: (1) further leveraging the 80/20 management process and (2) strategic sourcing.~~

management system has continuously been refined, improved and expanded into a unique holistic business management process of interconnected tools, which improves all aspects of the business and, when applied consistently and executed more effectively, will lead to additional margin improvement. 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. ~~These~~At the same time, these 80/20 initiatives can also result in restructuring initiatives that reduce costs and improve profitability and returns.

~~The second lever, strategic sourcing, is a core element~~PATH TO FULL POTENTIAL - FINISHING THE JOB

~~Sustained Above-Market Organic Growth with Strong Incremental Profitability~~

~~ITW has done extensive work on its portfolio and operating structure to position~~enduring competitive advantage, but for the Company to ~~deliver~~truly finish the job and reach its full potential, every one of its divisions must also be operating at its full potential. To do so, the Company remains focused on its core principles to position ITW to perform to its full potential:


•	Portfolio discipline

80/20 Front-to-Back practice excellence


•	Full-potential organic growth

Portfolio Discipline

The Company 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.

As part of its agenda to finish the job, the Company routinely evaluates its portfolio to ensure it delivers sustainable ~~above-market~~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. In the fourth quarter of 2019, the Company completed the divestitures of three businesses and continues to evaluate options for certain other businesses. The Company expects any earnings per share dilution from divestitures would be offset by incremental share repurchases. Refer to Note 2. Divestitures in Item 8. Financial Statements and Supplementary Data for more information regarding divestitures.

80/20 Front-to-Back Practice Excellence

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

Full-potential Organic Growth

Reaching full potential means that every division is positioned for sustainable, high-quality organic growth. The Company has ~~narrowed~~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 ~~significantly improved~~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’s business portfolio. With approximately 85%~~ITW through the addition of its divisions ready to grow as of the end of 2016, ITW is well positioned for accelerated growth in 2017 and beyond. To deliver on this accelerated growth, the divisions have been implementing the organic growth framework, which includes continued investment in customer-back innovation and a strengthened focus on market penetration. ITW continues to focus on growing its share of "80" products with existing customers with whom the Company has a resonant value proposition as well as target potential new customers with similar pain points to existing customers. ITW has made strong progress on the Company’s pivot to organic growth and is well positioned to deliver on sustained above-market organic growth over the long-term.selective high-quality acquisitions.

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.

~~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.

CONSOLIDATED RESULTS OF OPERATIONS

~~Leveraging ITW's highly differentiated and proprietary business model, the~~The Company delivered ~~strong~~solid financial results in ~~2016~~2019 despite a ~~challenging global macro environment and foreign currency translation headwinds.~~contracting industrial demand environment. With the ~~solid~~Company's diversified high-quality business portfolio, highly differentiated ITW Business Model and continued strong execution on enterprise initiatives throughout the year, the Company grew diluted earnings per share and returned approximately $2.8 billion to shareholders in the form of ~~the Company's Enterprise Strategy initiatives, six of seven segments achieved worldwide organic revenue growth~~dividends and ~~five of seven~~share repurchases in 2019. Additionally, all segments had operating margin ~~expansion.~~at or above 21.5% for 2019.

~~On July 1, 2016,~~

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

In early 2020, an outbreak of the coronavirus occurred in China and other jurisdictions. The extent of the outbreak and its impact on the markets served by the Company ~~completed~~and on its operations is uncertain. A prolonged outbreak could interrupt the ~~acquisition~~operations of the ~~Engineered Fasteners~~Company and ~~Components business ("EF&C") from ZF TRW for~~its customers and suppliers.

The Company presents certain financial measures in fiscal year 2017 excluding the $658 million tax charge related to the "Tax Cuts and Jobs Act" and the benefit of a ~~purchase price of approximately $450 million. EF&C had operating revenue of $245~~favorable $95 million ~~for~~legal settlement. These non-GAAP measures are consistent with the ~~six months ended December 31, 2016. EF&C diluted~~way management analyzes and assesses the Company's operating performance. The Company believes these non-GAAP measures enhance investors' understanding of the Company's underlying financial performance, as well as their ability to compare the Company's financial results and overall performance to that of its peers.

The Company’s consolidated results of operations for 2019, 2018 and 2017 were as follows:

2019 compared to 2018



	For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)
	2019			2018			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	14,109		$	14,768		(4.5	)%	(1.9	)%	(0.3	)%	—	%	(2.3	)%	(4.5	)%
Operating income	$	3,402		$	3,584		(5.1	)%	(1.3	)%	(0.1	)%	(1.4	)%	(2.3	)%	(5.1	)%
Operating margin %	24.1		%	24.3		%	(20) bps		10 bps		—		(30) bps		—		(20) bps

Operating revenue declined due to the unfavorable effect of foreign currency translation, lower organic revenue and divestitures.

Organic revenue decreased 1.9% primarily driven by a decline in the Automotive OEM, Specialty Products, Welding and Construction Products segments. Product line simplification activities reduced organic revenue by 60 basis points.


◦	North American organic revenue decreased 1.8% as a decline in the Automotive OEM, Specialty Products, Welding and Polymers & Fluids segments was partially offset by growth in the Food Equipment, Test & Measurement and Electronics and Construction Products segments.


◦	Europe, Middle East and Africa organic revenue decreased 2.2% as five segments declined, partially offset by growth in the Food Equipment and Construction Products segments.


◦	Asia Pacific organic revenue declined 1.6% as a decrease in the Construction Products, Automotive OEM, Food Equipment and Test & Measurement and Electronics segments was partially offset by an increase in the Welding, Polymers & Fluids and Specialty Products segments.

Operating income of $3.4 billion decreased 5.1% primarily due to unfavorable foreign currency translation, higher restructuring expenses and lower organic revenue.

Operating margin ~~in 2016 by~~of 24.1% decreased 20 basis points. Excluding the unfavorable impact of higher restructuring expenses of 30 basis points, operating margin increased 10 basis points primarily due to benefits from the Company's enterprise initiatives that contributed 120 basis points and favorable price/cost of 10 basis points, partially offset by negative operating leverage of 50 basis points, product mix and higher employee-related expenses.

The effective tax rate for 2019 was 23.3% compared to 24.5% in 2018. The 2019 and 2018 effective tax rates benefited from the lower ~~operating margin~~U.S. corporate federal tax rate and ~~acquisition related expenses.~~discrete items. The ~~Company expects EF&C to be slightly accretive to earnings~~2019 effective tax rate benefited from a discrete tax benefit of $21 million in the ~~first twelve months, but expects improved earnings~~third quarter for the U.S. federal provision to return adjustment resulting primarily from changes in estimates related to the "Tax Cuts and ~~operating margin performance~~Jobs Act." The 2018 effective tax rate benefited from a discrete tax benefit of $37 million in ~~later years through~~ the ~~application~~third quarter related to the release of a valuation allowance against the ~~Company's 80/20 business management process. The operating results~~deferred tax assets of ~~EF&C are reported within~~a non-U.S. subsidiary, which was partially offset by a discrete tax charge of $22 million in the ~~Company's Automotive OEM segment. The acquisition of EF&C did not materially affect~~third quarter related to foreign tax credits. Additionally, the ~~Company's results of operations or financial position~~effective tax rate for ~~any period presented.~~2019 and 2018 included $28 million and $10 million, respectively, related to excess tax benefits from stock-based compensation. Refer to Note ~~3. Acquisitions~~6. Income Taxes in Item 8. Financial Statements and Supplementary Data for further information.

~~The Company’s consolidated results of operations for 2016, 2015 and 2014 are summarized as follows:~~

~~2016 compared to 2015~~

For the Years Ended
Dollars in millions December 31, Components of Increase (Decrease)
2016 2015 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 13,599
$ 13,405
1.4 % 1.2 % 1.7 % — % (1.5 )% 1.4 %
Operating income 3,064
2,867
6.9 % 8.1 % 0.6 % 0.1 % (1.9 )% 6.9 %
Operating margin % 22.5 % 21.4 % 110 bps
140 bps
(30) bps
10 bps
(10) bps
110 bps

~~Operating revenue increased due to growth in organic and acquisition revenues, partially offset by the unfavorable effect of foreign currency translation.~~

Organic revenue grew 1.2% as six of seven segments had worldwide organic revenue growth primarily due to penetration gains, higher end market demand and product innovation. Organic revenue declined in the Welding segment primarily due to lower capital spending in the industrial end markets and sluggish demand in the oil and gas end market.


◦	~~PLS activities associated with the portfolio management component of the Company's Enterprise Strategy reduced organic revenue growth by approximately one percentage point.~~


◦	~~North American organic revenue increased 0.7% and European organic revenue increased 2.3% as growth in six segments for both regions was partially offset by a decline in the Welding segment.~~


◦	Asia Pacific organic revenue increased 2.7% primarily due to growth in the Automotive OEM, Specialty Products, Construction Products, Food Equipment, and Test & Measurement and Electronics segments, partially offset by a decline in the Welding and Polymers & Fluids segments.

Operating margin of 22.5% increased 110 basis points. The primary driver of the operating margin improvement was 130 basis points from the benefit of the Company's enterprise initiatives. Positive operating leverage of 30 basis points and favorable price/cost of 10 basis points were partially offset by the dilutive impact of 30 basis points from the EF&C acquisition and additional investment in the business.

In 2016, the Company received a $167 million cash dividend distribution from Wilsonart which exceeded the Company’s equity investment balance and resulted in a $54 million pre-tax gain, partially offset by $30 million of pre-tax losses related to the disposals of businesses and the disposal of a partnership investment. Refer to Note 4. Other Income (Expense) in Item 8. Financial Statements and Supplementary Data for further information on the Wilsonart equity investment.

Diluted earnings per share (EPS) of ~~$5.70 increased 11.1%.~~$7.74, an increase of 1.8%, included a $0.09 gain in 2019 from the disposal of businesses.

Free cash flow was ~~$2.0~~$2.7 billion ~~in 2016.~~for 2019. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

The Company repurchased approximately ~~18.7~~9.8 million shares of its common stock in ~~2016~~2019 for approximately ~~$2.0~~$1.5 billion.

The Company increased the quarterly dividend by 7.0% in 2019. Total cash dividends of ~~$821 million~~approximately $1.3 billion were paid in ~~2016.~~2019.

Adjusted after-tax return on average invested capital was ~~22.1%, an increase of 170 basis points.~~28.7% for 2019. Refer to the Adjusted After-Tax Return on Average Invested Capital section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

~~2015~~2018 compared to ~~2014~~

2017


	For the Years Ended																		For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)										December 31,								Components of Increase (Decrease)
	2015			2014			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2018			2017			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	13,405		$	14,484		(7.4	)%	(0.4	)%	(0.2	)%	—	%	(6.8	)%	(7.4	)%	$	14,768		$	14,314		3.2	%	2.2	%	(0.1	)%	—	%	1.1	%	3.2	%
Operating income	$	2,867		$	2,888		(0.7	)%	5.8	%	(0.3	)%	1.2	%	(7.4	)%	(0.7	)%	$	3,584		$	3,485		2.8	%	1.2	%	—	%	0.5	%	1.1	%	2.8	%
Operating margin %	21.4		%	19.9		%	150 bps		130 bps		—		20 bps		—		150 bps		24.3		%	24.3		%	—		(20) bps		—		10 bps		10 bps		—

Operating revenue ~~decreased 7.4% primarily~~increased due to an increase in organic revenue and the ~~unfavorable~~favorable effect of foreign currency ~~translation as the U.S. Dollar strengthened against most major currencies.~~translation.

Organic revenue ~~decreased 0.4% in 2015 as compared~~grew 2.2% primarily due to ~~the prior year.~~penetration gains, higher end market demand and product innovation. Product line simplification activities reduced organic revenue growth by 70 basis points.


◦	Automotive OEM, Food Equipment and Construction Products had solid organic revenue growth primarily due to penetration gains, higher market demand and product innovation. Organic revenue declined in the Welding and Test & Measurement and Electronics segments primarily due to lower demand in the oil and gas end markets and a challenging capital spending environment.


◦	~~PLS activities reduced organic revenue growth by approximately one percentage point.~~


◦	North American organic revenue ~~decreased 0.5%~~increased 4.0% as ~~a decline~~all seven segments had revenue growth.


◦	Asia Pacific organic revenue grew 0.4% primarily driven by growth in the Welding, ~~and~~ Test & Measurement and Electronics, Food Equipment and Polymers & Fluids segments, ~~was~~ partially offset by ~~growth~~a decline in the Specialty Products, Automotive OEM ~~Food Equipment~~ and Construction Products segments.


◦	~~European~~Europe, Middle East and Africa organic revenue ~~increased 1.2%. Double-digit growth in~~decreased 0.2% primarily driven by the Automotive OEM, ~~segment was partially offset by a decline in the~~Specialty Products and Polymers & Fluids ~~Test & Measurement and Electronics and Welding~~ segments.


◦	~~Asia Pacific organic revenue decreased 1.4% primarily due to a decline in the Welding and Test & Measurement and Electronics segments, partially offset by growth in the Construction Products segment.~~

In the second quarter of 2017, the Company entered into a $95 million confidential settlement agreement to resolve a litigation matter. Based on the terms of the agreement, the Company received the settlement within 120 days of the execution of the agreement. The receipt of the settlement resulted in a favorable pre-tax impact of $15 million in the second quarter of 2017 and $80 million in the third quarter of 2017, which was included in operating income.

Operating income of ~~$2.9~~$3.6 billion ~~decreased 0.7%~~increased 2.8%. Excluding the ~~negative~~favorable impact ~~from foreign currency translation~~ of ~~7.4%,~~the 2017 confidential legal settlement, operating income would have increased ~~6.7%~~5.7%.

Operating margin of ~~21.4%~~24.3% was flat with the prior year. Excluding the 60 basis points of favorability from the 2017 confidential legal settlement, operating margin increased ~~150~~60 basis points primarily due to the ~~benefit~~benefits of the Company's enterprise initiatives ~~related to business structure simplification and strategic sourcing~~ that contributed 110 basis ~~points. Lower restructuring expenses~~points and ~~favorable price/cost each contributed 20~~positive operating leverage of 50 basis points, partially offset by unfavorable price/cost of ~~operating margin expansion.~~50 basis points and higher freight and employee-related expenses.

The effective tax rate was 24.5% and 48.4% for 2018 and 2017, respectively. Included in the effective tax rate for 2017 was a one-time additional income tax expense of $658 million related to the enactment of the "Tax Cuts and Jobs Act" in the United States. Excluding the tax charge of $658 million, the 2017 effective tax rate would have been 28.3%. Refer to Note 6. Income Taxes in Item 8. Financial Statements and Supplementary Data for further information.

Diluted earnings per share (EPS) ~~from continuing operations~~ of ~~$5.13~~$7.60 increased ~~9.9%~~56.4%. Excluding the ~~negative~~2017 unfavorable impact ~~from foreign currency~~ of ~~approximately $0.41 per diluted share,~~$1.90 for the previously discussed one-time tax charge and the favorable impact of $0.17 for the confidential legal settlement, EPS ~~would have~~ increased ~~18.6%~~15.3%.

Free cash flow was ~~$2.0~~$2.4 billion ~~in 2015.~~for 2018. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

The Company repurchased approximately ~~21.0~~13.9 million shares of its common stock in ~~2015~~2018 for approximately $2.0 billion.

The Company increased the quarterly dividend by 28.2% in 2018. Total cash dividends of ~~$742 million~~approximately $1.1 billion were paid in ~~2015.~~2018.

Adjusted after-tax return on average invested capital was ~~20.4%~~28.2%, an increase of ~~140~~390 basis ~~points.~~points, primarily due to the new U.S. tax rules and regulations. Refer to the Adjusted 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

The reconciliation of segment operating revenue and operating income to total operating revenue and operating income is as follows:


	Operating Revenue									Operating Revenue
In millions	2016			2015			2014			2019			2018			2017
Automotive OEM	$	2,864		$	2,529		$	2,590		$	3,063		$	3,338		$	3,271
Food Equipment	2,110			2,096			2,177			2,188			2,214			2,123
Test & Measurement and Electronics	1,974			1,969			2,204			2,121			2,171			2,069
Welding	1,486			1,650			1,850			1,638			1,691			1,538
Polymers & Fluids	1,691			1,712			1,927			1,669			1,724			1,724
Construction Products	1,609			1,587			1,707			1,625			1,700			1,672
Specialty Products	1,885			1,885			2,055			1,825			1,951			1,938
Intersegment revenue	(20		)	(23		)	(26		)	(20		)	(21		)	(21		)
Total	$	13,599		$	13,405		$	14,484		$	14,109		$	14,768		$	14,314


	Operating Income									Operating Income
In millions	2016			2015			2014			2019			2018			2017
Automotive OEM	$	690		$	613		$	600		$	659		$	751		$	747
Food Equipment	537			498			453			578			572			556
Test & Measurement and Electronics	372			322			340			542			523			464
Welding	370			415			479			453			474			415
Polymers & Fluids	343			335			357			381			369			357
Construction Products	361			316			289			383			414			399
Specialty Products	482			439			440			472			522			527
Total Segments	3,155			2,938			2,958			3,468			3,625			3,465
Unallocated	(91		)	(71		)	(70		)	(66		)	(41		)	20
Total	$	3,064		$	2,867		$	2,888		$	3,402		$	3,584		$	3,485

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. Unallocated in 2017 includes the favorable impact from the previously discussed confidential legal settlement.

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 ~~2016, 2015~~2019, 2018 and ~~2014~~2017 were as follows:

~~2016~~2019 compared to ~~2015~~2018


	For the Years Ended																		For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)										December 31,								Components of Increase (Decrease)
	2016			2015			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2019			2018			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,864		$	2,529		13.3	%	5.1	%	9.7	%	—	%	(1.5	)%	13.3	%	$	3,063		$	3,338		(8.2	)%	(5.4	)%	—	%	—	%	(2.8	)%	(8.2	)%
Operating income	$	690		$	613		12.6	%	10.7	%	2.6	%	0.7	%	(1.4	)%	12.6	%	$	659		$	751		(12.2	)%	(7.0	)%	—	%	(2.6	)%	(2.6	)%	(12.2	)%
Operating margin %	24.1		%	24.2		%	(10) bps		130 bps		(160) bps		20 bps		—		(10) bps		21.5		%	22.5		%	(100) bps		(40) bps		—		(60) bps		—		(100) bps

Operating revenue ~~increased~~declined due to ~~the EF&C acquisition and higher~~lower organic revenue ~~partially offset by~~and the unfavorable effect of foreign currency translation.

Organic revenue ~~grew 5.1%~~declined 5.4% versus worldwide auto builds which decreased 6%. Auto builds for North America, Europe and China, where the Company has a higher concentration of revenue as compared to other geographic regions, declined 6%. Product line simplification activities reduced organic revenue by 120 basis points. Additionally, organic revenue was negatively impacted by approximately 100 basis points due to unexpected customer shutdowns in North America in the second half of 2019.


◦	North American organic revenue ~~grew 3.4% versus total~~decreased 7.8% compared to North American auto ~~build growth of 2%.~~builds which were down 4% due to customer mix. Auto ~~build growth~~builds for the Detroit 3, where the Company has higher content, ~~declined 1%~~decreased 8%. Additionally, 2019 was negatively impacted by unexpected customer shutdowns.


◦	European organic revenue ~~growth of 6.0% exceeded~~declined 4.5% compared to European auto builds which ~~grew 3%.~~declined 4% in 2019 due to customer mix.


◦	Asia Pacific organic revenue ~~increased 10.9% driven by product penetration gains~~declined 2.2% in ~~China due to new product launches in 2016.~~2019. China organic revenue ~~growth of 22.7% exceeded~~declined 1.0% versus Chinese auto ~~build growth of 14%. Auto~~ builds ~~of foreign automotive manufacturers~~which declined 8% in ~~China, where the Company has higher content, grew 11%.~~2019.

On July 1, 2016, the Company completed the acquisition of the EF&C business from ZF TRW. EF&C had operating revenue of $245 million for the six months ended December 31, 2016, and increased Automotive OEM operating revenue by 9.7%.

Operating margin was 21.5% in 2019. The decrease of ~~24.1% decreased 10~~100 basis points was primarily due to ~~the dilutive impact~~negative operating leverage of ~~160~~90 basis points, ~~from the EF&C acquisition and~~ unfavorable price/cost of 4060 basis points, higher restructuring expenses and product mix, partially offset by ~~positive operating leverage of 80 basis~~

~~points, the net~~ benefits from the Company's enterprise ~~initiatives and cost management of 90 basis points and lower restructuring expenses.~~initiatives.

~~2015~~2018 compared to ~~2014~~2017


	For the Years Ended																		For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)										December 31,								Components of Increase (Decrease)
	2015			2014			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2018			2017			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,529		$	2,590		(2.4	)%	5.8	%	(0.2	)%	—	%	(8.0	)%	(2.4	)%	$	3,338		$	3,271		2.0	%	—	%	—	%	—	%	2.0	%	2.0	%
Operating income	$	613		$	600		2.1	%	10.4	%	(0.1	)%	(0.3	)%	(7.9	)%	2.1	%	$	751		$	747		0.5	%	(2.0	)%	—	%	0.6	%	1.9	%	0.5	%
Operating margin %	24.2		%	23.2		%	100 bps		100 bps		10 bps		(10) bps		—		100 bps		22.5		%	22.8		%	(30) bps		(40) bps		—		10 bps		—		(30) bps

Operating revenue ~~decreased primarily~~increased due to the ~~unfavorable~~favorable effect of foreign currency ~~translation, partially offset by organic revenue growth.~~translation.

Organic revenue ~~grew 5.8% as a result of product innovation and penetration gains, exceeding~~was flat compared to worldwide auto ~~build~~builds which declined 1%. Product line simplification activities reduced organic revenue growth ~~of 1%.~~by 120 basis points.


◦	~~European organic revenue growth of 11.1% exceeded auto builds which grew 4%.~~


◦	North American organic revenue ~~growth~~increased 3.0% compared to North American auto builds which declined 1%. Auto builds for the Detroit 3, where the Company has higher content, were flat.


◦	European organic revenue declined 2.7% compared to European auto builds which declined 1% due to customer mix. Organic revenue was negatively impacted by the new emissions testing requirements in Europe which disrupted auto production in the second half of ~~4.2% exceeded auto build growth of 3%.~~2018.


◦	Asia Pacific organic revenue ~~increased 0.5%~~decreased 0.7%. China organic revenue grew ~~7.9%, as~~2.6% versus Chinese auto builds ~~increased~~which declined 4%~~. Auto builds of foreign automotive manufacturers~~, as auto production in China ~~where~~softened during the ~~Company has higher content, were flat for 2015.~~second half of 2018.

~~Operating income of $613 million increased 2.1%. Excluding the negative impact of foreign currency translation of 7.9%, operating income would have increased 10.0%.~~

Operating margin was ~~24.2%.~~22.5% in 2018. The ~~increase~~decrease of ~~100~~30 basis points was primarily ~~driven by 80~~due to unfavorable price/cost of 130 basis points, ~~of operating leverage, the net~~partially offset by benefits from the Company's enterprise ~~initiatives and favorable price/cost of 10 basis points.~~initiatives.

FOOD EQUIPMENT

This segment is a highly focused and branded ~~industry-leader~~industry leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food service, food institutional/restaurant ~~food service~~ and food retail 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 ~~2016, 2015~~2019, 2018 and ~~2014~~2017 were as follows:

~~2016~~2019 compared to ~~2015~~2018


	For the Years Ended																		For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)										December 31,								Components of Increase (Decrease)
	2016			2015			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total		2019			2018			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,110		$	2,096		0.7	%	2.8	%	—	%	—	%	(2.1	)%	0.7	%	$	2,188		$	2,214		(1.2	)%	1.1	%	—	%	—	%	(2.3	)%	(1.2	)%
Operating income	$	537		$	498		7.8	%	8.7	%	—	%	1.1	%	(2.0	)%	7.8	%	$	578		$	572		1.1	%	4.5	%	—	%	(1.2	)%	(2.2	)%	1.1	%
Operating margin %	25.4		%	23.7		%	170 bps		140 bps		—		30 bps		—		170 bps		26.4		%	25.8		%	60 bps		90 bps		—		(30) bps		—		60 bps

Operating revenue declined due to the unfavorable effect of foreign currency translation, partially offset by higher organic revenue.

Organic revenue increased 1.1% as equipment organic revenue decreased 0.2% and service organic revenue increased 3.5%.


◦	North American organic revenue grew 1.1%. Equipment organic revenue declined 0.4% primarily driven by lower demand in the restaurant and institutional end markets, partially offset by higher demand in food retail. Service organic revenue increased 3.6%.


◦	International organic revenue grew 1.1% as equipment organic revenue increased 0.2% primarily due to higher demand in the European warewash, cooking and retail end markets, partially offset by lower demand in Asia. Service organic revenue increased 3.5%.

Operating margin of 26.4% in 2019 increased 60 basis points primarily driven by benefits from the Company's enterprise initiatives, favorable price/cost of 40 basis points and positive operating leverage of 30 basis points, partially offset by product mix, higher employee-related expenses and higher restructuring expenses.

2018 compared to 2017



	For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)
	2018			2017			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,214		$	2,123		4.3	%	2.8	%	—	%	—	%	1.5	%	4.3	%
Operating income	$	572		$	556		2.9	%	1.0	%	—	%	0.3	%	1.6	%	2.9	%
Operating margin %	25.8		%	26.2		%	(40) bps		(50) bps		—		10 bps		—		(40) bps

Operating revenue increased due to higher organic revenue ~~growth, partially offset by~~and the ~~unfavorable~~favorable effect of foreign currency translation.

Organic revenue increased 2.8% as equipment and service organic revenue ~~grew 3.9%~~increased 3.2% and ~~0.8%~~2.1%, respectively.


◦	North American organic revenue increased ~~4.3%~~3.5%. ~~North American equipment~~Equipment organic revenue ~~increased 6.6% primarily due to strong~~grew 4.6% as higher end market demand in ~~the retail,~~cooking, refrigeration and warewash ~~and cooking businesses.~~was offset by lower end market demand in food retail. Service ~~revenue in North America increased 0.8%.~~


◦	~~International~~ organic revenue grew ~~0.8%. International equipment organic revenue increased 0.8% primarily due to growth in Europe and Asia. International service organic revenue grew 0.9%~~1.9%.

Operating margin of 25.4% increased 170 basis points driven by positive operating leverage of 60 basis points, the net benefits of the Company's enterprise initiatives and cost management of 40 basis points, favorable price/cost of 40 basis points and lower restructuring expenses.

~~2015 compared to 2014~~

For the Years Ended
Dollars in millions December 31, Components of Increase (Decrease)
2015 2014 Inc (Dec) Organic Acquisition/Divestiture Restructuring Foreign Currency Total
Operating revenue $ 2,096
$ 2,177
(3.7 )% 3.4 % — % — % (7.1 )% (3.7 )%
Operating income $ 498
$ 453
9.8 % 17.7 % — % (0.3 )% (7.6 )% 9.8 %
Operating margin % 23.7 % 20.8 % 290 bps
290 bps
—
—
—
290 bps

~~Operating revenue decreased 3.7% due to the unfavorable effect of foreign currency translation, partially offset by organic revenue growth.~~

~~Organic revenue increased 3.4% in 2015.~~


◦	North American organic revenue increased 5.6%. North American equipment revenue increased 6.6% primarily due to product innovation and improved market penetration in the warewash and refrigeration businesses. Service revenue in North America increased 4.1%.

◦

International organic revenue increased ~~1.0%~~1.9%. ~~International equipment~~Equipment organic revenue grew 1.8% primarily due to higher demand in the European warewash and cooking end markets, partially offset by lower end market demand in refrigeration. Service organic revenue increased 0.9% primarily due to growth in the refrigeration business, partially offset by difficult year-over-year comparisons in the cooking and retail businesses. International service organic revenue increased 1.3%2.4%.

Operating margin ~~was 23.7%. The 290~~of 25.8% in 2018 declined 40 basis ~~point improvement was~~points primarily ~~driven~~due to the unfavorable impact of product mix and higher employee-related expenses, partially offset by ~~the~~ benefits offrom the Company's enterprise initiatives ~~partially offset by additional investment in the business that contributed 160 basis points,~~and positive operating leverage of ~~80 basis points and favorable price/cost of 30~~60 basis points.

TEST & MEASUREMENT AND ELECTRONICS

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

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

electronic assembly ~~equipment and related consumable solder materials;~~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 ~~telecommunications,~~ electronics, medical, transportation and ~~transportation~~telecommunications applications.

The results of operations for the Test & Measurement and Electronics segment for ~~2016, 2015~~2019, 2018 and ~~2014~~2017 were as follows:

~~2016~~2019 compared to ~~2015~~2018



	For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)
	2019			2018			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,121		$	2,171		(2.3	)%	(0.3	)%	(0.2	)%	—	%	(1.8	)%	(2.3	)%
Operating income	$	542		$	523		3.7	%	5.7	%	—	%	(0.2	)%	(1.8	)%	3.7	%
Operating margin %	25.6		%	24.1		%	150 bps		140 bps		10 bps		—		—		150 bps

For the Years Ended
Dollars in millions December 31, Components of Increase (Decrease)
2016 2015 Inc (Dec) Organic Acq/Div Restructuring Impairment Foreign Currency Total
Operating revenue $ 1,974
$ 1,969
0.3 % 1.8 % — % — % — % (1.5 )% 0.3 %
Operating income $ 372
$ 322
15.6 % 17.4 % — % 0.4 % — % (2.2 )% 15.6 %
Operating margin % 18.9 % 16.3 % 260 bps
250 bps
—
10 bps
—
—
260 bps

Operating revenue ~~increased due to organic revenue growth, partially offset by the unfavorable effect of foreign currency translation.~~

~~Organic revenue increased 1.8%.~~


◦	Electronics organic revenue increased 4.9%. Organic revenue grew 11.6% in the electronics assembly businesses primarily driven by higher demand from electronics equipment manufacturers and by the solar and semi-conductor end markets. Other electronics businesses grew 0.5% primarily due to strength in Europe, partially offset by PLS activities in Asia Pacific.


◦	Organic revenue for the test and measurement businesses decreased 0.9% primarily due to the impact of a weak capital spending environment in North America and Europe and continued softness in the oil and gas related end markets.

Operating margin of 18.9% increased 260 basis points primarily driven by the net benefits resulting from the Company's enterprise initiatives and cost management of 170 basis points, positive operating leverage of 60 basis points and favorable price/cost of 20 basis points.

~~2015 compared to 2014~~

For the Years Ended
Dollars in millions December 31, Components of Increase (Decrease)
2015 2014 Inc (Dec) Organic Acq/Div Restructuring Impairment Foreign Currency Total
Operating revenue $ 1,969
$ 2,204
(10.7 )% (5.2 )% — % — % — % (5.5 )% (10.7 )%
Operating income $ 322
$ 340
(5.1 )% (2.5 )% — % 3.1 % 0.5 % (6.2 )% (5.1 )%
Operating margin % 16.3 % 15.4 % 90 bps
40 bps
—
40 bps
10 bps
—
90 bps

~~Operating revenue decreased 10.7%~~declined due to the unfavorable effect of foreign currency translation, lower organic revenue and a divestiture.

Operating revenue for 2019 included $58 million related to the ~~decrease~~business divested in ~~organic revenue.~~2019.

Organic revenue decreased ~~5.2%~~0.3% in ~~2015.~~2019.

◦

Organic revenue for the test and measurement businesses decreased ~~5.9%~~0.8% primarily ~~due~~driven by lower semi-conductor end market demand in North America. Excluding semi-conductor, the test and measurement businesses increased 3.5%. Instron, where demand is more closely tied to the ~~impact of a weak~~ capital spending environment, ~~in North America and Europe.~~had organic revenue growth of 6.4%.

◦

Electronics organic revenue ~~declined 4.3%~~grew 0.4%. The other electronics businesses, which include the contamination control, static control and pressure sensitive adhesives businesses, grew 1.5% primarily due to ~~the decrease~~growth in ~~the~~North America and Asia, partially offset by a decline in Europe. The electronics assembly businesses ~~across all major regions.~~ decreased 1.4% primarily due to lower demand in Asia.

Operating margin of 25.6% in 2019 increased 150 basis points primarily driven by benefits from the Company's enterprise initiatives, lower intangible asset amortization expense and favorable price/cost of 50 basis points.

2018 compared to 2017



	For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)
	2018			2017			Inc (Dec)		Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	2,171		$	2,069		4.9	%	3.5	%	—	%	—	%	1.4	%	4.9	%
Operating income	$	523		$	464		12.7	%	11.3	%	—	%	—	%	1.4	%	12.7	%
Operating margin %	24.1		%	22.4		%	170 bps		170 bps		—		—		—		170 bps

Operating revenue increased due to higher organic revenue and the favorable effect of foreign currency translation.

Organic revenue increased 3.5% in 2018.


◦	Organic revenue for the test and measurement businesses increased 5.5% with growth in all major regions primarily due to higher semi-conductor end market demand. Instron, where demand is more closely tied to the capital spending environment, had organic revenue growth of 7.1%.

◦

Electronics organic revenue grew 1.2%. The electronics assembly businesses declined 4.3% due to lower demand across North America and Europe. The other electronics businesses, ~~increased 0.3% primarily driven by~~which include the contamination ~~and~~control, static control ~~businesses.~~and pressure sensitive adhesives businesses, grew 5.0% primarily due to higher semi-conductor end market demand in North America.

~~Operating income of $322 million decreased 5.1%. Excluding the negative impact of foreign currency translation of 6.2%, operating income would have increased 1.1%.~~

Operating margin was ~~16.3%.~~24.1% in 2018. The increase of 90170 basis points was primarily driven by ~~the net~~positive operating leverage of 90 basis points and benefits ~~resulting~~ from the Company's enterprise ~~initiatives and cost management of 190 basis points, lower restructuring expenses, and favorable price/cost of 20 basis points, partially offset by negative operating leverage of 170 basis points.~~initiatives.

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; and~~accessories.

~~metal jacketing and other insulation products.~~

The results of operations for the Welding segment for ~~2016, 2015~~2019, 2018 and ~~2014~~2017 were as follows:

~~2016~~2019 compared to ~~2015~~2018


	For the Years Ended																		For the Years Ended
Dollars in millions	December 31,								Components of Increase (Decrease)										December 31,								Components of Increase (Decrease)
	2016			2015			Inc (Dec)		Organic		Restructuring		Impairment		Foreign Currency		Total		2019			2018			Inc (Dec)		Organic		Acquisition/ Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	1,486		$	1,650		(10.0	)%	(9.1	)%	—	%	—	%	(0.9	)%	(10.0	)%	$	1,638		$	1,691		(3.1	)%	(1.2	)%	(1.1	)%	—	%	(0.8	)%	(3.1	)%
Operating income	$	370		$	415		(10.8	)%	(8.0	)%	(1.4	)%	(0.7	)%	(0.7	)%	(10.8	)%	$	453		$	474		(4.4	)%	(2.1	)%	(0.4	)%	(1.7	)%	(0.2	)%	(4.4	)%
Operating margin %	24.9		%	25.2		%	(30) bps		20 bps		(30) bps		(20) bps		—		(30) bps		27.7		%	28.0		%	(30) bps		(20) bps		20 bps		(50) bps		20 bps		(30) bps

ITEM 8.Financial Statements and Supplementary Data

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Illinois Tool Works Inc. (the "Company" or "ITW") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). ITW’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

ITW management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2016.~~2019. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on our assessment we believe that, as of December 31, ~~2016,~~2019, the Company’s internal control over financial reporting is effective based on those criteria.

The effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2016~~2019 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report herein.



/s/ E. Scott Santi E. Scott Santi Chairman & Chief Executive Officer February ~~10, 2017~~14, 2020		/s/ Michael M. Larsen Michael M. Larsen Senior Vice President & Chief Financial Officer February ~~10, 2017~~14, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors ~~and Stockholders~~ of Illinois Tool Works Inc.

~~Glenview, Illinois~~Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Illinois Tool Works Inc. and subsidiaries (the ~~“Company”~~"Company") as of December 31, ~~2016~~2019 and ~~2015, and~~2018, the related consolidated statements of income, comprehensive income, changes in ~~stockholders’~~stockholders' equity, and cash flows, for each of the three years in the period ended December 31, ~~2016.~~2019, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, ~~2016,~~2019, based on criteria established in Internal ~~Control-Integrated~~Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission.~~ Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control ~~over~~Over Financial ~~Reporting.~~Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the ~~audit~~audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the financial ~~statements, assessing~~statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, ~~and~~as well as evaluating the overall presentation of the financial ~~statement presentation.~~statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of ~~the~~its inherent limitations, of internal control over financial reporting ~~including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud~~ may not ~~be prevented~~prevent or ~~detected on a timely basis.~~detect misstatements. Also, projections of any evaluation of ~~the~~ effectiveness ~~of the internal control over financial reporting~~ to future periods are subject to the risk that ~~the~~ controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the ~~consolidated~~ financial statements, ~~referred~~taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to ~~above present fairly, in all material respects,~~which it relates.

Income Taxes-Refer to Note 6 to the financial statements

Critical Audit Matter Description

The Company’s income tax expense is recognized and measured based on management’s interpretation of the tax regulations and rulings in numerous taxing jurisdictions, which requires significant judgment. When calculating income tax expense management makes estimates and assumptions, including determination of the completeness of book income in each jurisdiction, calculation of taxable income through identification and classification of book to tax differences (either temporary or permanent items), consideration of applicable tax deductions or credits, and the identification of uncertain tax positions.

The evaluation of each uncertain tax position requires management to apply specialized skill and knowledge related to the identified position. Management evaluates uncertain tax positions identified and a liability is established for unrecognized tax benefits when there is a more than 50% likelihood that its tax position will not be sustained upon examination by taxing authorities. There is additional judgment to determine the amount of ~~Illinois Tool Works Inc.~~the liability for the underlying tax position. The Company’s income tax expense for 2019 was $767 million and ~~subsidiaries~~the liability recorded for unrecognized tax benefits as of December 31, ~~2016 and 2015~~2019, was $296 million.

Given the number of taxing jurisdictions and the complex and subjective nature of the associated tax regulations and rulings, certain audit matters required a high degree of auditor judgment and increased extent of effort, including the need to involve our income tax specialists. These matters included the auditing of income tax expense, identification of uncertain tax positions, measurement of unrecognized tax benefits, and certain planning transactions with income tax expense implications.

How the Critical Audit Matter Was Addressed in the Audit

With the assistance of our income tax specialists, our principal audit procedures related to income tax expense included the following, among others:

We tested the effectiveness of management’s controls over income taxes, including those over income tax expense, unrecognized tax benefits, and certain planning transactions with income tax expense implications.

We evaluated management’s significant estimates and judgments incorporated into the calculation of income tax expense by:

Selecting a sample of book to tax differences (temporary and permanent) and testing the accuracy, completeness, and classification of the selections, including evaluating that all impacts of significant transactions with income tax expense implications are considered.

Developing an expectation over the foreign income tax expense by jurisdiction and comparing it to the recorded balance.

Testing the accuracy of the income tax expense calculation.

We evaluated management’s significant judgments regarding the identification of uncertain tax positions by:

Evaluating the reasonableness of a selection of certain planning transactions with income tax expense implications, including the completeness and accuracy of the underlying data supporting the transactions.

Assessing management’s methods and assumptions used in identifying uncertain tax positions.

Comparing results of ~~their operations~~prior tax audits to ongoing and ~~their cash flows for each~~anticipated tax audits by tax authorities.

Evaluating external information, including applicable tax law, new interpretations, and related changes to assess the completeness and reasonableness of management’s considerations.

Determining if there was additional information not considered in management’s assessment.

We evaluated a sample of the ~~three years in~~liabilities recorded for unrecognized tax benefits to assess the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in ~~Internal Control-Integrated Framework~~ ~~(2013) issued by the Committee of Sponsoring Organizations~~establishment and amount of the ~~Treadway Commission.~~liability for the specific underlying tax position.

/s/ DELOITTE & TOUCHE LLP

~~Deloitte & Touche LLP~~

Chicago, Illinois

February ~~10, 2017~~14, 2020

We have served as the Company's auditor since 2002.

Statement of Income

Illinois Tool Works Inc. and Subsidiaries


	For the Years Ended December 31									For the Years Ended December 31
In millions except per share amounts	2016			2015			2014			2019			2018			2017
Operating Revenue	$	13,599		$	13,405		$	14,484		$	14,109		$	14,768		$	14,314
Cost of revenue	7,896			7,888			8,673			8,187			8,604			8,306
Selling, administrative, and research and development expenses	2,415			2,417			2,678			2,361			2,391			2,412
Legal settlement (income)										—			—			(95		)
Amortization and impairment of intangible assets	224			233			245			159			189			206
Operating Income	3,064			2,867			2,888			3,402			3,584			3,485
Interest expense	(237		)	(226		)	(250		)	(221		)	(257		)	(260		)
Other income (expense)	81			78			61			107			67			45
Income from Continuing Operations Before Income Taxes	2,908			2,719			2,699
Income Before Taxes										3,288			3,394			3,270
Income taxes	873			820			809			767			831			1,583
Income from Continuing Operations	2,035			1,899			1,890
Income from Discontinued Operations	—			—			1,056
Net Income	$	2,035		$	1,899		$	2,946		$	2,521		$	2,563		$	1,687

Income Per Share from Continuing Operations:
Basic	$	5.73		$	5.16		$	4.70
Diluted	$	5.70		$	5.13		$	4.67
Income Per Share from Discontinued Operations:
Basic	$	—		$	—		$	2.63
Diluted	$	—		$	—		$	2.61
Net Income Per Share:
Basic	$	5.73		$	5.16		$	7.33		$	7.78		$	7.65		$	4.90
Diluted	$	5.70		$	5.13		$	7.28		$	7.74		$	7.60		$	4.86

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

Statement of Comprehensive Income

Illinois Tool Works Inc. and Subsidiaries


	For the Years Ended December 31									For the Years Ended December 31
In millions	2016			2015			2014			2019			2018			2017
Net Income	$	2,035		$	1,899		$	2,946		$	2,521		$	2,563		$	1,687
Other Comprehensive Income (Loss):
Foreign currency translation adjustments, net of tax	(277		)	(860		)	(939		)	(2		)	(328		)	406
Pension and other postretirement benefit adjustments, net of tax	(26		)	14			(103		)	(26		)	(17		)	114
Comprehensive Income	$	1,732		$	1,053		$	1,904		$	2,493		$	2,218		$	2,207

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

Statement of Financial Position

Illinois Tool Works Inc. and Subsidiaries


	December 31						December 31
In millions except per share amounts	2016			2015			2019			2018
Assets
Current Assets:
Cash and equivalents	$	2,472		$	3,090		$	1,981		$	1,504
Trade receivables	2,357			2,203			2,461			2,622
Inventories	1,076			1,086			1,164			1,318
Prepaid expenses and other current assets	218			341			296			334
Assets held for sale							351			—
Total current assets	6,123			6,720			6,253			5,778

Net plant and equipment	1,652			1,577			1,729			1,791
Goodwill	4,558			4,439			4,492			4,633
Intangible assets	1,463			1,560			851			1,084
Deferred income taxes	449			346			516			554
Other assets	956			1,087			1,227			1,030
	$	15,201		$	15,729		$	15,068		$	14,870

Liabilities and Stockholders’ Equity
Current Liabilities:
Short-term debt	$	652		$	526		$	4		$	1,351
Accounts payable	511			449			472			524
Accrued expenses	1,202			1,136			1,217			1,271
Cash dividends payable	226			200			342			328
Income taxes payable	169			57			48			68
Liabilities held for sale							71			—
Total current liabilities	2,760			2,368			2,154			3,542
Noncurrent Liabilities:
Long-term debt	7,177			6,896			7,754			6,029
Deferred income taxes	134			256			668			707
Noncurrent income taxes payable							462			495
Other liabilities	871			981			1,000			839
Total noncurrent liabilities	8,182			8,133			9,884			8,070
Stockholders’ Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2016 and 2015 Outstanding- 346.9 shares in 2016 and 363.7 shares in 2015	6			6
Issued- 550.0 shares in 2019 and 2018 Outstanding- 319.8 shares in 2019 and 328.1 shares in 2018							6			6
Additional paid-in-capital	1,188			1,135			1,304			1,253
Retained earnings	19,505			18,316			22,403			21,217
Common stock held in treasury	(14,638		)	(12,729		)	(18,982		)	(17,545		)
Accumulated other comprehensive income (loss)	(1,807		)	(1,504		)	(1,705		)	(1,677		)
Noncontrolling interest	5			4			4			4
Total stockholders’ equity	4,259			5,228			3,030			3,258
	$	15,201		$	15,729		$	15,068		$	14,870

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

Statement of Changes in Stockholders' Equity

Illinois Tool Works Inc. and Subsidiaries

In millions except per share amounts Common Stock Additional Paid-in Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest Total
Balance at December 31, 2013 $ 6
$ 1,046
$ 14,943
$ (6,676 ) $ 384
$ 6
$ 9,709
Net income —
—
2,946
—
—
—
2,946
Common stock issued for share-based awards —
(26 ) —
160
—
—
134
Stock-based compensation expense —
39
—
—
—
—
39
Tax benefits related to stock options —
33
—
—
—
—
33
Tax benefits related to defined contribution plans —
4
—
1
—
—
5
Repurchases of common stock —
—
—
(4,283 ) —
—
(4,283 )
Dividends declared ($1.81 per share) —
—
(716 ) —
—
—
(716 )
Pension and other postretirement benefit adjustments —
—
—
—
(103 ) —
(103 )
Currency translation adjustment —
—
—
—
(939 ) —
(939 )
Noncontrolling interest —
—
—
—
—
(1 ) (1 )
Balance at December 31, 2014 6
1,096
17,173
(10,798 ) (658 ) 5
6,824
Net income —
—
1,899
—
—
—
1,899
Common stock issued for share-based awards —
(21 ) —
69
—
—
48
Stock-based compensation expense —
39
—
2
—
—
41
Tax benefits related to stock options —
20
—
—
—
—
20
Tax benefits related to defined contribution plans —
3
—
—
—
—
3
Repurchases of common stock —
—
—
(2,002 ) —
—
(2,002 )
Dividends declared ($2.07 per share) —
—
(756 ) —
—
—
(756 )
Pension and other postretirement benefit adjustments —
—
—
—
14
—
14
Currency translation adjustment —
—
—
—
(860 ) —
(860 )
Noncontrolling interest —
(2 ) —
—
—
(1 ) (3 )
Balance at December 31, 2015 6
1,135
18,316
(12,729 ) (1,504 ) 4
5,228
Net income —
—
2,035
—
—
—
2,035
Common stock issued for share-based awards —
(18 ) —
91
—
—
73
Stock-based compensation expense —
39
—
—
—
—
39
Tax benefits related to stock options —
29
—
—
—
—
29
Tax benefits related to defined contribution plans —
3
—
—
—
—
3
Repurchases of common stock —
—
—
(2,000 ) —
—
(2,000 )
Dividends declared ($2.40 per share) —
—
(846 ) —
—
—
(846 )
Pension and other postretirement benefit adjustments —
—
—
—
(26 ) —
(26 )
Currency translation adjustment —
—
—
—
(277 ) —
(277 )
Noncontrolling interest —
—
—
—
—
1
1
Balance at December 31, 2016 $ 6
$ 1,188
$ 19,505
$ (14,638 ) $ (1,807 ) $ 5
$ 4,259



In millions except per share amounts	Common Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held in Treasury			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
Balance at December 31, 2016	$	6	$	1,188		$	19,505		$	(14,638	)	$	(1,807	)	$	5		$	4,259
Net income	—		—			1,687			—			—			—			1,687
Common stock issued for stock-based compensation	—		(4		)	—			76			—			—			72
Stock-based compensation expense	—		36			—			—			—			—			36
Repurchases of common stock	—		—			—			(1,000		)	—			—			(1,000		)
Dividends declared ($2.86 per share)	—		—			(982		)	—			—			—			(982		)
Pension and other postretirement benefit adjustments	—		—			—			—			114			—			114
Currency translation adjustments	—		—			—			—			406			—			406
Noncontrolling interest	—		(2		)	—			—			—			(1		)	(3		)
Balance at December 31, 2017	6		1,218			20,210			(15,562		)	(1,287		)	4			4,589
Net income	—		—			2,563			—			—			—			2,563
Adoption of new accounting guidance	—		—			(370		)	—			(45		)	—			(415		)
Common stock issued for stock-based compensation	—		(5		)	—			17			—			—			12
Stock-based compensation expense	—		40			—			—			—			—			40
Repurchases of common stock	—		—			—			(2,000		)	—			—			(2,000		)
Dividends declared ($3.56 per share)	—		—			(1,186		)	—			—			—			(1,186		)
Pension and other postretirement benefit adjustments	—		—			—			—			(17		)	—			(17		)
Currency translation adjustments	—		—			—			—			(328		)	—			(328		)
Balance at December 31, 2018	6		1,253			21,217			(17,545		)	(1,677		)	4			3,258
Net income	—		—			2,521			—			—			—			2,521
Common stock issued for stock-based compensation	—		11			—			63			—			—			74
Stock-based compensation expense	—		41			—			—			—			—			41
Repurchases of common stock	—		—			—			(1,500		)	—			—			(1,500		)
Dividends declared ($4.14 per share)	—		—			(1,335		)	—			—			—			(1,335		)
Pension and other postretirement benefit adjustments	—		—			—			—			(26		)	—			(26		)
Currency translation adjustments	—		—			—			—			(2		)	—			(2		)
Noncontrolling interest	—		(1		)	—			—			—			—			(1		)
Balance at December 31, 2019	$	6	$	1,304		$	22,403		$	(18,982	)	$	(1,705	)	$	4		$	3,030

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

Statement of Cash Flows

Illinois Tool Works Inc. and Subsidiaries


	For the Years Ended December 31									For the Years Ended December 31
In millions	2016			2015			2014			2019			2018			2017
Cash Provided by (Used for) Operating Activities:
Net income	$	2,035		$	1,899		$	2,946		$	2,521		$	2,563		$	1,687
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	246			244			262			267			272			256
Amortization and impairment of intangible assets	224			233			245			159			189			206
Change in deferred income taxes	(263		)	(11		)	55			32			34			64
Provision for uncollectible accounts	7			7			7			6			5			3
(Income) loss from investments	13			(4		)	(8		)	(15		)	(9		)	(16		)
(Gain) loss on sale of plant and equipment	1			1			2			(9		)	(7		)	(1		)
(Gain) loss on discontinued operations	—			—			(1,718		)
(Gain) loss on sale of operations and affiliates	12			(16		)	6			(44		)	2			(1		)
Stock-based compensation expense	39			41			39			41			40			36
Gain on dividend distribution from equity investment in Wilsonart	(54		)	—			—
Other non-cash items, net	5			12			11			9			10			10
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in—
Trade receivables	(132		)	(42		)	(70		)	40			(60		)	(138		)
Inventories	9			25			(10		)	98			(108		)	(81		)
Prepaid expenses and other assets	(63		)	24			(98		)	11			3			(121		)
Increase (decrease) in—
Accounts payable	(3		)	(30		)	(20		)	(16		)	(46		)	39
Accrued expenses and other liabilities	40			(56		)	5			(95		)	(36		)	(42		)
Income taxes	187			(27		)	33			(7		)	(41		)	501
Other, net	(1		)	(1		)	(71		)	(3		)	—			—
Net cash provided by operating activities	2,302			2,299			1,616			2,995			2,811			2,402
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates	(453		)	(6		)	(45		)
Acquisition of businesses (excluding cash and equivalents)										(4		)	—			(3		)
Additions to plant and equipment	(273		)	(284		)	(361		)	(326		)	(364		)	(297		)
Proceeds from investments	21			22			28			20			16			43
Dividend distribution from equity investment in Wilsonart	167			—			—
Proceeds from sale of plant and equipment	16			30			28			25			26			14
Net proceeds from sale of discontinued operations	—			—			3,191
Proceeds from sale of operations and affiliates	3			29			18			120			1			2
Other, net	(13		)	(1		)	(17		)	(18		)	(4		)	(10		)
Net cash provided by (used for) investing activities	(532		)	(210		)	2,842			(183		)	(325		)	(251		)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(821		)	(742		)	(711		)	(1,321		)	(1,124		)	(941		)
Issuance of common stock	84			59			148			85			22			84
Repurchases of common stock	(2,000		)	(2,002		)	(4,346		)	(1,500		)	(2,000		)	(1,000		)
Net proceeds from (repayments of) debt with original maturities of three months or less	(526		)	(946		)	(239		)	(1		)	(850		)	849
Proceeds from debt with original maturities of more than three months	992			1,099			3,329			1,774			—			—
Repayments of debt with original maturities of more than three months	(1		)	(2		)	(1,751		)	(1,351		)	(1		)	(652		)
Excess tax benefits from stock-based compensation	29			20			33
Other, net	(12		)	(12		)	(14		)	(12		)	(11		)	(14		)
Net cash provided by (used for) financing activities	(2,255		)	(2,526		)	(3,551		)	(2,326		)	(3,964		)	(1,674		)
Effect of Exchange Rate Changes on Cash and Equivalents	(133		)	(463		)	(535		)	(9		)	(112		)	145
Cash and Equivalents:
Increase (decrease) during the year	(618		)	(900		)	372			477			(1,590		)	622
Beginning of year	3,090			3,990			3,618			1,504			3,094			2,472
End of year	$	2,472		$	3,090		$	3,990		$	1,981		$	1,504		$	3,094

Supplementary Cash Flow Information:
Cash Paid During the Year for Interest	$	212		$	200		$	236		$	223		$	247		$	240
Cash Paid During the Year for Income Taxes, Net of Refunds	$	920		$	775		$	1,502		$	742		$	838		$	1,018
Liabilities Assumed from Acquisitions	$	150		$	1		$	4

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

Notes to Financial Statements

(1) Description of Business and Summary of Significant Accounting Policies

Description of business— Illinois Tool Works Inc. (the "Company" or "ITW") is a global manufacturer of a diversified range of industrial products and equipment with approximately 8584 divisions in 5753 countries. The Company primarily serves the automotive OEM/tiers, commercial food equipment, construction, general industrial, and automotive aftermarket end markets.

Consolidation and translation— The financial statements include the Company and its majority-owned subsidiaries. The Company follows the equity method of accounting for investments where the Company has a significant influence but not a controlling interest. Intercompany transactions are eliminated from the financial statements. Foreign subsidiaries’ assets and liabilities are translated to U.S. dollars at end-of-period exchange rates. Revenues and expenses are translated at average rates for the period. Translation adjustments are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

Reclassifications— Certain reclassifications of prior year data have been made to conform to current year reporting.

Use of estimates— The preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to financial statements. Actual results could differ from those estimates.

Acquisitions— The Company accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition. The operating results of the acquired companies are included in the Company’s consolidated financial statements from the date of acquisition.

Operating revenue— ~~Operating~~Prior to 2018, the Company recognized revenue ~~is recognized~~ when persuasive evidence of an arrangement ~~exists,~~existed, product ~~has~~had shipped and the risks and rewards of ownership ~~have~~had transferred or services ~~have~~had been rendered, the price to the customer iswas fixed or determinable, and ~~collectibility is~~collectability was reasonably assured, which is generally occurred at the time of product shipment. ~~Typical~~Effective January 1, 2018, the Company adopted new revenue recognition guidance. Under this new guidance, operating revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. The Company's sales arrangements with customers are ~~for standard~~predominantly short-term in nature involving a single performance obligation related to the delivery of products and generally provide for transfer of ~~ownership and risk of loss~~control at the time of shipment. In limited circumstances, ~~where~~arrangements may include service performed over time, or there may be significant obligations to the customer that are unfulfilled at the time of shipment, typically involving installation of equipment and customer ~~acceptance,~~acceptance. In these circumstances, operating revenue ~~recognition~~may be recognized over time as the service is provided to the customer or deferred until ~~such~~all significant obligations have been completed. The amount of operating revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods or services and may include adjustments for customer allowances and rebates. Customer allowances and rebates ~~consisting~~consist primarily of volume discounts and other short-term incentive programs, which are estimated at the time of sale based on historical experience and ~~known trends~~anticipated trends. Shipping and handling charges billed to customers are included in revenue and are ~~recorded~~recognized along with the related product revenue as they are considered a ~~reduction~~fulfillment cost. Sales commissions are expensed when incurred, which is generally at the time of revenue recognition. Contract liabilities associated with sales arrangements primarily relate to deferred revenue on equipment sales and prepaid service contracts. Total deferred revenue and customer deposits were $188 million and $215 million as of December 31, 2019 and 2018, respectively, and are short-term in ~~reported revenues.~~nature. For additional information regarding the Company's operating revenue, see New Accounting Pronouncements below and Note 3. Operating Revenue.

Research and development expenses— Research and development expenses are recorded as expense in the year incurred. These costs were ~~$223~~$221 million, ~~in 2016, $218~~$233 million ~~in 2015~~ and ~~$227~~$225 million ~~in 2014.~~for the years ended December 31, 2019, 2018 and 2017, respectively.

Advertising expenses— Advertising expenses are recorded as expense in the year incurred. These costs were ~~$58~~$48 million, ~~in 2016, $58~~$50 million ~~in 2015~~ and ~~$66~~$53 million ~~in 2014.~~for the years ended December 31, 2019, 2018 and 2017, respectively.

Income taxes— The Company utilizes the asset and liability method of accounting for income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and

liabilities given the provisions of the enacted tax laws. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized.

Cash and equivalents— Cash and equivalents include cash on hand and instruments having original maturities of three months or less. Cash and equivalents are stated at cost, which approximates fair value.

Trade receivables— Trade receivables are net of allowances for doubtful accounts. Prior to 2018, the allowance for doubtful accounts ~~which includes~~included reserves for uncollectible accounts and customer credits. Under the new revenue guidance adopted on January 1, 2018, the reserve for customer credits is reported as a liability and ~~cash discounts. The Company estimates~~included in Accrued expenses in the Statement of Financial Position. Accordingly, after January 1, 2018, the allowance for ~~uncollectible~~doubtful accounts ~~based on the greater~~was comprised of ~~a specific reserve or a reserve calculated based on the historical write-off percentage over the last two years. In addition,~~ reserves for ~~customer credits and cash discounts are estimated based on past experience.~~uncollectible accounts. The changes in the allowance for doubtful accounts ~~during 2016, 2015~~for the years ended December 31, 2019, 2018 and ~~2014~~2017 were as follows:



In millions	2019			2018			2017
Beginning balance	$	21		$	43		$	43
Adoption of new revenue recognition guidance	—			(23		)	—
Provision charged to expense	6			5			3
Write-offs, net of recoveries	(4		)	(3		)	(6		)
Transfer to assets held for sale	(2		)	—			—
Foreign currency translation	(1		)	(1		)	3
Ending balance	$	20		$	21		$	43

In millions 2016 2015 2014
Beginning balance $ 42
$ 43
$ 46
Provision charged to expense 7
7
7
Write-offs, net of recoveries (6 ) (5 ) (7 )
Acquisitions and divestitures 1
—
—
Foreign currency translation (1 ) (3 ) (3 )
Ending balance $ 43
$ 42
$ 43

Inventories— Inventories are stated at the lower of cost or net realizable value and include material, labor and factory overhead. The last-in, first-out ("LIFO") method is used to determine the cost of inventories at certain U.S. businesses. The first-in, first-out ("FIFO") method, which approximates current cost, is used for all other inventories. Inventories priced at LIFO were approximately ~~22%~~23% of total inventories as of ~~both~~ December 31, ~~2016~~2019 and ~~2015.~~2018. If the FIFO method was used for all inventories, total inventories would have been approximately ~~$86~~$89 million and ~~$81~~$97 million higher than reported at December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. The major classes of inventory at December 31, ~~2016~~2019 and ~~2015~~2018 were as follows:



In millions	2019			2018
Raw material	$	452		$	523
Work-in-process	131			161
Finished goods	670			731
LIFO reserve	(89		)	(97		)
Total inventories	$	1,164		$	1,318

In millions 2016 2015
Raw material $ 407
$ 415
Work-in-process 126
130
Finished goods 629
622
LIFO reserve (86 ) (81 )
Total inventories $ 1,076
$ 1,086

Net plant and equipment— Net plant and equipment are stated at cost, less accumulated depreciation. Renewals and improvements that increase the useful life of plant and equipment are capitalized. Maintenance and repairs are charged to expense as incurred. Net plant and equipment consisted of the following at December 31, ~~2016~~2019 and ~~2015:~~2018:



In millions	2019			2018
Land	$	186		$	194
Buildings and improvements	1,357			1,368
Machinery and equipment	3,551			3,517
Construction in progress	133			154
Gross plant and equipment	5,227			5,233
Accumulated depreciation	(3,498		)	(3,442		)
Net plant and equipment	$	1,729		$	1,791

In millions 2016 2015
Land $ 186
$ 179
Buildings and improvements 1,297
1,272
Machinery and equipment 3,036
2,972
Equipment leased to others 160
156
Construction in progress 104
76
Gross plant and equipment 4,783
4,655
Accumulated depreciation (3,131 ) (3,078 )
Net plant and equipment $ 1,652
$ 1,577

The Company’s U.S. businesses primarily compute depreciation on an accelerated basis. The majority of the Company's international businesses compute depreciation on a straight-line basis. The ranges of useful lives used to depreciate plant and equipment are as follows:



Buildings and improvements	5—50 years
Machinery and equipment	3—12 years
~~Equipment leased to others~~	~~Term of lease~~

Depreciation was ~~$246~~$267 million, ~~in 2016, $244~~$272 million ~~in 2015~~ and ~~$262~~$256 million ~~in 2014. There was no depreciation included in Income from discontinued operations in 2014.~~for the years ended December 31, 2019, 2018 and 2017, respectively.

Goodwill and intangible assets— Goodwill represents the excess cost over fair value of the net assets of acquired businesses. The Company does not amortize goodwill and intangible assets that have indefinite lives. Amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives of 3 to 20 years.

The Company performs an impairment assessment of goodwill and intangible assets with indefinite lives annually, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

When performing its annual impairment assessment, the Company evaluates the goodwill assigned to each of its reporting units for potential impairment by comparing the estimated fair value of the relevant reporting unit to the carrying value. The Company uses various Level 2 and Level 3 valuation techniques to determine the fair value of its reporting units, including discounting estimated future cash flows based on a detailed cash flow forecast prepared by the relevant reporting unit and market multiples of relevant public companies. If the fair value of a reporting unit is less than its carrying value, an impairment loss, if any, is recorded for the difference between the implied fair value and the carrying value of the reporting unit's goodwill.

The Company's indefinite-lived intangible assets consist of trademarks and brands. The estimated fair values of these intangible assets are determined based on a Level 3 valuation method using a ~~relief-of-royalty~~relief-from-royalty income approach derived from internally forecasted revenues of the related products. If the fair value of the trademark or brand is less than its carrying value, an impairment loss is recorded for the difference between the estimated fair value and carrying value of the intangible asset.

Accrued warranties— The Company accrues for product warranties based on historical experience. The changes in accrued warranties ~~during 2016, 2015~~for the years ended December 31, 2019, 2018 and ~~2014~~2017 were as follows:



In millions	2019			2018			2017
Beginning balance	$	45		$	45		$	45
Charges	(44		)	(49		)	(45		)
Provision charged to expense	44			50			43
Foreign currency translation	—			(1		)	2
Ending balance	$	45		$	45		$	45

In millions 2016 2015 2014
Beginning balance $ 46
$ 49
$ 50
Charges (41 ) (37 ) (41 )
Provision charged to expense 42
36
43
Acquisitions and divestitures 1
—
—
Foreign currency translation (3 ) (2 ) (3 )
Ending balance $ 45
$ 46
$ 49

New Accounting Pronouncements

Effective January 1, 2018

In May 2014, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new ~~standard~~guidance is that revenue should be recognized to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ~~several~~expanded revenue disclosures are required. The Company's sales arrangements with customers are predominantly short-term in nature and generally provide for transfer of control and risks and rewards of ownership at the time of product shipment or delivery of service. As such, the timing of revenue recognition under both the prior and new guidance is the same for the majority of the Company’s transactions. Effective January 1, 2018, the Company adopted the new revenue recognition ~~disclosures will be required. This~~ guidance ~~is effective for~~under the ~~Company beginning~~modified retrospective method and recorded a cumulative-effect adjustment reducing retained earnings by $9 million as of January 1, ~~2018, with early adoption permitted. The Company expects to adopt~~2018. Under the new revenue accounting guidance effective January 1, 2018 and is in the process of completing its analysis of the impact this guidance will have on the consolidated financial statements and related disclosures.modified

~~In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under~~

retrospective method of adoption, prior periods are not restated and the new guidance ~~a lessee will be required~~is applied prospectively to ~~recognize a lease liability and lease asset for all leases, including operating leases, with a lease term greater than twelve months in~~revenue transactions completed on or after January 1, 2018. Given the ~~statement of financial position. Subsequent measurement, including presentation of expenses and cash flows, will depend on the classification~~nature of the lease as either a financing or operating lease. In addition, several new disclosures will be required. This guidance is effective for the Company beginning January 1, 2019, with early adoption permitted. While the Company has not yet completed its evaluation of the impact the new lease accounting guidance will have on the consolidated financial statements and related disclosures, the Company expects to recognize right of use assets and liabilities for its operating leases in the statement of financial position upon adoption.

In March 2016, the FASB issued authoritative guidance that includes several changes to simplify the accounting for stock-based compensation, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification of tax benefits in the statement of cash flows. Among the more significant changes,Company’s revenue transactions, the new guidance ~~requires that~~had an immaterial impact on the ~~income tax effects associated with~~Company's operating revenue, results of operations, and financial position for the settlement of stock-based awards after adoption of the guidance be recognized through income tax expense rather than directly in equity. Additionally, the income tax effects related to excess tax benefits will be presented as an operating cash flow in the statement of cash flows rather than a financing activity for all current and prior periods presented. The Company adopted this guidance effective January 1, 2017. For the twelve monthsyear ended December 31, ~~2016 and 2015,~~2018. The Company updated its revenue recognition accounting policy to reflect the Company had classified $29 million and $20 million, respectively, of excess tax benefits as a financing activity in the statement of cash flows which will be presented as an operating cash flow under the new guidance. The expected effect on income tax expense or net cash provided from operating activities related to stock-based awards settled after adoptionrequirements of the new guidance ~~will depend on inputs such as~~and included additional disclosures regarding the ~~stock price at~~Company's revenue transactions. Refer to the ~~time of settlement~~Company’s operating revenue accounting policy above and ~~the number of awards settled in the period presented.~~Note 3. Operating Revenue for additional information.

In October 2016, the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the ~~current~~prior guidance. The provisions of the new guidance are being applied prospectively to intra-entity asset transfers on or after January 1, 2018 and may result in future tax rate volatility. Upon adoption of the new guidance on January 1, 2018, the Company recorded a cumulative-effect adjustment reducing deferred tax assets and retained earnings by $406 million. For the years ended December 31, 2019 and 2018, the impact of the new guidance on the Company's effective income tax rate was not material.

In February 2018, the FASB issued authoritative guidance which allows for an optional one-time reclassification of the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the "Tax Cuts and Jobs Act" (the "Act") from accumulated other comprehensive income ("AOCI") to retained earnings. The guidance was effective January 1, 2019, with early adoption permitted. The Company elected to early adopt this guidance as of January 1, 2018 and to reclassify the stranded tax effects related to the Act, which resulted in an increase of $45 million to both retained earnings and accumulated other comprehensive loss. Refer to Note 13. Stockholders' Equity for additional information.

Effective January 1, 2019

In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. The primary change under the new guidance is that a lessee is required to recognize a lease liability and corresponding right-of-use asset for its operating leases. The new guidance also requires additional disclosures. Effective January 1, 2019, the Company adopted the new guidance prospectively for all operating lease transactions as of and after the effective date with a noncancellable lease term greater than one year. Upon adoption, the Company recorded a lease liability of $205 million and a corresponding right-of-use asset. The new guidance did not have a material impact on the results of operations or cash flows for the year ended December 31, 2019. Refer to Note 9. Leases for additional information regarding the Company’s lease transactions.

In August 2017, the FASB issued authoritative guidance which included targeted improvements to simplify the application of hedge accounting and improve financial reporting of hedging activities. Effective January 1, 2019, the Company adopted the new guidance which did not have a material impact on the Company's results of operations, financial position or cash flows for the year ended December 31, 2019.

Effective January 1, 2020

In June 2016, the FASB issued authoritative guidance which changes the methodology used to measure credit losses for certain financial instruments. Under current guidance, credit loss reserves are estimated based on historical information. The new guidance requires credit loss reserves to reflect the estimated credit losses expected to be incurred over the life of the financial asset. This new guidance is effective for the Company prospectively beginning January 1, ~~2018, with early adoption permitted. The Company~~2020 and is ~~currently assessing~~not expected to have a material impact on the ~~potential impact the guidance will have upon adoption.~~Company's results of operations or financial position.

In January 2017, the FASB issued authoritative guidance ~~that~~which simplifies the assessment of goodwill for ~~impairment~~impairment. Under current guidance, when the estimated fair value of a reporting unit is less than its carrying value, the fair value of the goodwill must be determined by ~~eliminating~~valuing the other assets and liabilities of the reporting unit. Under the new guidance, the requirement to determine the fair value of ~~goodwill. Under the new guidance,~~goodwill has been eliminated, and an impairment charge is recognized for the amount ~~of goodwill impairment will be determined by the amount~~that the carrying value of the reporting unit exceeds its fair value. ~~The~~This new guidance is effective for the Company prospectively beginning January 1, 2020 ~~with early adoption permitted. The~~and will be applied by the Company ~~performs~~during its annual ~~goodwill impairment~~ assessment ~~process~~of goodwill in the third quarter, or ~~more frequently~~earlier if a triggering ~~events occur. Adoption~~event occurs. The adoption of this new accounting guidance is not expected to have a material impact on the Company's ~~operating~~ results of operations or financial ~~position or cash flows.~~position.

(2) ~~Discontinued Operations~~Divestitures

In April 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as a discontinued operation is required. The Company ~~adopted this new guidance effective January 1, 2015.~~routinely reviews its portfolio of businesses relative to its business portfolio criteria and evaluates if further portfolio refinements may be needed. The ~~new guidance applies prospectively~~Company previously communicated its intent to ~~new disposals and new classifications of disposal groups held~~explore options, including potential divestitures, for ~~sale after~~certain businesses with annual revenues totaling up to $1 billion. As such, ~~date. There were no discontinued operations during 2015 and 2016 under this new accounting guidance.~~

~~Third Quarter 2013 Discontinued Operations— In February 2013,~~ the Company ~~announced that it was initiating a review process~~may commit to ~~explore strategic alternatives for its Industrial Packaging segment. In September 2013, the Company’s Board of Directors authorized~~ a plan to ~~commence a sale process for the Industrial Packaging segment. The Company classified the Industrial Packaging segment~~exit or dispose of certain businesses and present them as held for sale ~~beginning~~ in periods prior to the ~~third quarter~~sale of ~~2013 and no longer presented this segment as part of its continuing operations.~~the business.

On February 6, 2014, the Company announced that it had signed a definitive agreement to sell its Industrial Packaging business to The Carlyle Group for $3.2 billion. The transaction was completed on May 1, 2014, resulting in a pre-tax gain of $1.7 billion ($1.1 billion after-tax) inIn the second quarter of ~~2014 which was included in Income from discontinued operations.~~

~~In the third quarter of 2013,~~2019, the Company ~~also committed~~approved plans to ~~plans for the divestiture of a construction distribution business previously included~~divest 6 businesses, including 2 businesses in the ~~Construction~~Test & Measurement and Electronics segment, 1 business in the Automotive OEM segment, 1 business in the Welding segment, and 2 businesses in the Specialty Products segment. ~~This business was~~These 6 businesses were classified as held for sale beginning in the ~~third~~second quarter of ~~2013~~2019. In the fourth quarter of 2019, the Company divested 3 of the held for sale businesses which included 1 business in the Test & Measurement and Electronics segment, 1 business in the Welding segment, and 1 business in the Specialty Products segment.

For the twelve months ended December 31, 2019, the Company recorded net pre-tax gains on disposal of businesses of $44 million ($30 million after-tax, or $0.09 per diluted share) which was primarily due to the 3 divestitures of held for sale businesses discussed above. The net pre-tax gain was included in Other income (expense) in the Statement of Income. Operating revenue related to businesses divested in 2019 that was included in the Company's results of operations for the twelve months ended December 31, 2019, 2018 and 2017, was as follows:



In millions	2019		2018		2017
Operating revenue	$	134	$	194	$	202

The operating revenue for the twelve months ended December 31, 2019 of $134 million related to the businesses divested in 2019 included $62 million in the Welding segment, $58 million in the Test & Measurement and Electronics segment, and $14 million in the Specialty Products segment.

As of December 31, 2019, 3 of the businesses discussed above continued to be held for sale, including 1 business in the Test & Measurement and Electronics segment, 1 business in the Automotive OEM segment, and 1 business in the Specialty Products segment. All of these businesses are expected to be sold within one year. The assets and liabilities related to the held for sale businesses were included in assets and liabilities held for sale in the Statement of Financial Position as of December 31, 2019, as follows:



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

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

Operating revenue related to the 3 businesses held for sale as of December 31, 2019 that was included in the Company's results of operations for the twelve months ended December 31, 2019, 2018 and 2017, was as follows:



In millions	2019		2018		2017
Operating revenue	$	373	$	393	$	397

(3) Operating Revenue

The Company's 84 diversified operating divisions are organized and managed based on similar product categories and end markets, and are reported to senior management as the following 7 segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the twelve months ended December 31, 2019, 2018 and 2017 was as follows:



In millions	2019			2018			2017
Automotive OEM	$	3,063		$	3,338		$	3,271
Food Equipment	2,188			2,214			2,123
Test & Measurement and Electronics	2,121			2,171			2,069
Welding	1,638			1,691			1,538
Polymers & Fluids	1,669			1,724			1,724
Construction Products	1,625			1,700			1,672
Specialty Products	1,825			1,951			1,938
Intersegment revenue	(20		)	(21		)	(21		)
Total	$	14,109		$	14,768		$	14,314

Prior to 2018, the Company recognized revenue when persuasive evidence of an arrangement existed, product had shipped and the risks and rewards of ownership had transferred or services had been rendered, the price to the customer was fixed or determinable, and collectability was reasonably assured, which generally occurred at the time of product shipment. Effective January 1, 2018, the Company adopted new revenue recognition guidance. Under this new guidance, operating revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Given the nature of the Company’s revenue transactions, the new guidance had an immaterial impact on the Company's operating revenue, results of operations, and financial position for the twelve months ended December 31, 2019 and 2018. See Note 1. Description of Business and Summary of Significant Accounting Policies for additional information. The following is a description of the product offerings, end markets and typical revenue transactions for each of the Company's 7 segments:

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

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

Food Equipment— This segment is a highly focused and branded industry leader in commercial food equipment differentiated by innovation and integrated service offerings. This segment primarily serves the food service, food institutional/restaurant and food retail 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, automotive original equipment manufacturers and tiers, industrial capital goods, energy and consumer durables markets. Products in this segment include:

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

electronic assembly equipment;

electronic components and component packaging;

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

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

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

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.

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) Legal Settlement

~~First Quarter 2013 Discontinued Operations— In~~2017 and $80 million in the ~~first~~third quarter of ~~2013, the Company committed to a plan for the divestiture of a construction distribution business previously~~2017, which were included in ~~the Construction Products segment. This business was classified as held for sale beginning in the first quarter of 2013 and was sold in the second quarter of 2014.~~operating income.

The operating results of the businesses discussed above are reported as discontinued operations in the statement of income for the applicable periods presented. Results of the discontinued operations for the year ended December 31, 2014 were as follows:

In millions 2014
Operating revenue $ 798

Income before income taxes $ 1,805
Income tax expense (749 )
Income from discontinued operations $ 1,056

Included in income before income taxes from discontinued operations for 2014 are net gains on disposal of $1.7 billion ($1.1 billion after-tax) primarily related to the sale of the Industrial Packaging business. Income tax expense from discontinued operations for 2014 included $175 million of U.S. income tax expense related to the repatriation of approximately $1.3 billion of international proceeds from the sale of the Industrial Packaging business.

~~(3) Acquisitions~~(5) Other Income (Expense)

Net cash paid for acquisitions during 2016, 2015, and 2014 was $453 million, $6 million, and $45 million, respectively. Acquisitions, individually and in the aggregate, did not materially affect the Company's results of operations or financial position for any period presented.

The net cash paid for acquisitions in 2016 primarily related to the acquisition of the Engineered Fasteners and Components ("EF&C") business from ZF TRW on July 1, 2016 for a purchase price of approximately $450 million. EF&C had operating revenue of $245 millionOther income (expense) for the ~~six~~twelve months ended December 31, ~~2016 which was reported within the Company’s Automotive OEM segment. As a result of the EF&C transaction, the Company recorded $187 million of goodwill~~2019, 2018 and $135 million of amortizable intangible assets primarily related to customer relationships and technology. The Company expects goodwill of $104 million related to the transaction will be tax deductible. The fair values of the intangible assets were estimated based on discounted cash flow and market-based valuation models using Level 2 and Level 3 inputs and assumptions. The intangible assets are expected to be amortized on a straight-line basis over their estimated useful lives ranging from 4 to 17 years, with a weighted average amortization period of 16 years. Subsequent purchase accounting adjustments may change the initial amounts recorded, including goodwill and intangible assets, primarily due to the completion of valuations. The allocation of purchase price will be completed as soon as practicable, but no later than one year from the acquisition date.

~~(4) Other Income (Expense)~~

~~Other income (expense)~~2017 consisted of the following:



In millions	2019			2018			2017
Gain (loss) on disposal of operations and affiliates	$	44		$	(2	)	$	1
Interest income	29			35			45
Other net periodic benefit income	24			20			9
Income (loss) from investments	15			9			16
Equity income in Wilsonart	—			—			—
Gain (loss) on foreign currency transactions, net	(10		)	(1		)	(25		)
Other, net	5			6			(1		)
Total other income (expense)	$	107		$	67		$	45

In millions 2016 2015 2014
Interest income $ 38
$ 52
$ 65
Gain (loss) on disposal of operations and affiliates (12 ) 16
(6 )
Gain (loss) on foreign currency transactions, net 9
5
8
Income (loss) from investments (13 ) 4
8
Equity income (loss) in Wilsonart 61
(4 ) (9 )
Other, net (2 ) 5
(5 )
Total other income (expense) $ 81
$ 78
$ 61

Refer to Note 2. Divestitures for further information regarding the Gain (loss) on disposal of operations and affiliates of $44 million for the twelve months ended December 31, 2019.

In the fourth quarter of 2012, the Company divested a 51% majority interest in its former Decorative Surfaces segment to certain funds managed by Clayton, Dubilier & Rice, LLC ("CD&R"). As a result of the transaction, the Company owns common units (the "Common Units") of Wilsonart International Holdings LLC ("Wilsonart") initially representing approximately 49% (on an as-converted basis) of the total outstanding equity. CD&R owns cumulative convertible participating preferred units (the "Preferred Units") of Wilsonart representing approximately 51% (on an as-converted basis) of the total outstanding equity. The Preferred Units rank senior to the Common Units as to dividends and liquidation preference, and accrue dividends at a rate of 10% per annum. ~~Due to the Company's continuing involvement through its 49% ownership interest in Wilsonart, the former Decorative Surfaces segment was not presented as discontinued operations.~~ The

ownership interest in Wilsonart is reported using the equity

method of accounting. The Company's proportionate share in income (loss) of Wilsonart is reported in Other income (expense) in the ~~consolidated statement~~Statement of ~~income.~~Income. As the Company's investment in Wilsonart is structured as a partnership for U.S. tax purposes, U.S. taxes are recorded separately from the equity investment.

~~Equity income (loss) in Wilsonart includes a $54 million pre-tax gain in~~ In 2016, ~~resulting from~~the Company received a $167 million ~~cash~~ dividend distribution from Wilsonart which exceeded the Company's equity investment ~~balance. Subsequent to~~balance and resulted in a $54 million pre-tax gain in 2016. As a result of the dividend distribution, the equity investment balance in Wilsonart was reduced to ~~zero~~0 and ~~future~~any subsequent equity investment income will not be recognized until the gain is recaptured.

~~(5)~~(6) Income Taxes

On December 22, 2017, the "Tax Cuts and Jobs Act" (the “Act”) was enacted in the United States. The provisions of the Act significantly revised the U.S. corporate income tax rules. In the fourth quarter of 2017, the Company recorded a one-time additional income tax expense of $658 million related to the enactment of the Act. The more significant tax law changes resulting from the Act and related impacts to the Company are as follows:

•

A one-time repatriation tax on the deemed repatriation of post-1986 undistributed earnings of foreign subsidiaries. As a result of this one-time deemed repatriation, the Company recorded a one-time additional income tax expense of $676 million during the fourth quarter of 2017. A portion of the resulting income taxes payable can be paid in installments over eight years. The noncurrent income taxes payable related to the one-time repatriation tax was $462 million and $495 million as of December 31, 2019 and 2018, respectively. Additionally, as a result of the one-time repatriation provisions of the Act, the Company recorded additional foreign withholding taxes of $53 million in the fourth quarter of 2017 related to the expected repatriation of foreign held cash and equivalents.

•

A reduction in the U.S. corporate federal tax rate from a maximum of 35% to a flat rate of 21% beginning in 2018. Although the lower tax rate took effect in 2018, deferred tax assets and liabilities should be measured using the enacted tax rate expected to apply in the years in which they are expected to be settled. In the fourth quarter of 2017, the Company recorded a one-time net income tax benefit of $82 million as a result of the revaluation of the Company’s deferred tax assets and liabilities to reflect the impact of lower future U.S. corporate tax rates.


•	Deductibility of certain executive compensation. In the fourth quarter of 2017, the Company recorded a one-time write-off of deferred tax assets of $11 million related to the non-deductibility of certain performance-based compensation.

At December 31, 2017, the Company had not completed the accounting for the tax effects of enactment of the Act; however, the Company made a reasonable estimate which was recorded in the fourth quarter of 2017. During 2018, the Company revised its initial estimates which did not result in material changes to the provisional amounts recorded at December 31, 2017, or the effective tax rate for 2018. As of December 31, 2018, the Company had completed its accounting related to the tax effects of enactment of the Act. The Company’s ongoing accounting for the tax effects of the Act are based on the Company's current understanding of the changes in the tax law under the Act, but may be impacted due to issuance of final regulations or further clarification of the tax law.

Provision for income taxes— The components of the provision for income taxes for the twelve months ended December 31, 2019, 2018 and 2017 were as follows:



In millions	2019			2018			2017
U.S. federal income taxes:
Current	$	356		$	373		$	1,117
Deferred	(26		)	(15		)	(10		)
Total U.S. federal income taxes	330			358			1,107
Foreign income taxes:
Current	302			358			296
Deferred	53			49			102
Total foreign income taxes	355			407			398
State income taxes:
Current	77			66			106
Deferred	5			—			(28		)
Total state income taxes	82			66			78
Total provision for income taxes	$	767		$	831		$	1,583

In millions 2016 2015 2014
U.S. federal income taxes:
Current $ 756
$ 503
$ 413
Deferred (224 ) 8
121
Total U.S. federal income taxes 532
511
534
Foreign income taxes:
Current 290
310
163
Deferred (5 ) (11 ) 66
Benefit of net operating loss carryforwards —
(48 ) (13 )
Total foreign income taxes 285
251
216
State income taxes:
Current 90
66
50
Deferred (34 ) (8 ) 9
Total state income taxes 56
58
59
Total provision for income taxes $ 873
$ 820
$ 809

Income ~~from continuing operations~~ before ~~income~~ taxes for domestic and foreign operations for the twelve months ended December 31, 2019, 2018 and 2017 was as follows:



In millions	2019		2018		2017
Domestic	$	1,774	$	1,774	$	1,806
Foreign	1,514		1,620		1,464
Total income before taxes	$	3,288	$	3,394	$	3,270

In millions 2016 2015 2014
Domestic $ 1,653
$ 1,660
$ 1,669
Foreign 1,255
1,059
1,030
Total income from continuing operations before income taxes $ 2,908
$ 2,719
$ 2,699

The reconciliation between the U.S. federal statutory tax rate and the effective tax rate for the twelve months ended December 31, 2019, 2018 and 2017 was as follows:



	2019		2018		2017
U.S. federal statutory tax rate	21.0	%	21.0	%	35.0	%
U.S. tax effect of foreign earnings	1.1		1.5		0.5
Tax effect of U.S. federal tax law change	—		(0.1	)	20.1
State income taxes, net of U.S. federal tax benefit	1.7		1.6		1.2
Differences between U.S. federal statutory and foreign tax rates	2.0		2.1		(3.5	)
Nontaxable foreign interest income	(1.4	)	(1.7	)	(1.7	)
Tax effect of foreign dividends	0.2		1.0		0.4
Tax relief for U.S. manufacturers	—		—		(1.4	)
Excess tax benefits from stock-based compensation	(0.9	)	(0.3	)	(1.5	)
Other, net	(0.4	)	(0.6	)	(0.7	)
Effective tax rate	23.3	%	24.5	%	48.4	%

2016 2015 2014
U.S. federal statutory tax rate 35.0 % 35.0 % 35.0 %
State income taxes, net of U.S. federal tax benefit 1.3
1.4
1.6
Differences between U.S. federal statutory and foreign tax rates (3.6 ) (3.1 ) (3.5 )
Nontaxable foreign interest income (2.1 ) (3.3 ) (3.6 )
Tax effect of foreign dividends 1.5
2.8
2.1
Tax relief for U.S. manufacturers (1.4 ) (1.6 ) (1.5 )
Other, net (0.7 ) (1.1 ) (0.1 )
Effective tax rate 30.0 % 30.1 % 30.0 %

The Company's effective tax rate for the twelve months ended December 31, 2019, 2018 and 2017 was 23.3%, 24.5% and 48.4%, respectively. The 2019 and 2018 effective tax rates benefited from the lower U.S. corporate federal tax rate and discrete items. The 2019 effective tax rate benefited from a discrete tax benefit of $21 million in the third quarter for the U.S. federal provision to return adjustment resulting primarily from changes in estimates related to the Act. The 2018 effective tax rate benefited from a discrete tax benefit of $37 million in the third quarter related to the release of a valuation allowance against the deferred tax assets of a non-U.S. subsidiary, which was partially offset by a discrete tax charge of $22 million in the third quarter related to foreign tax credits. Included in the effective tax rate for 2017 was a one-time additional income tax expense of $658 million related to the enactment of the Act. Additionally, the effective tax rates for 2019, 2018

~~Deferred~~

and 2017 included $28 million, $10 million and $50 million, respectively, related to excess tax benefits from stock-based compensation.

Prior to the Act, deferred U.S. federal and state income taxes and foreign withholding taxes had not been provided on substantially all undistributed earnings of international subsidiaries as these earnings were considered permanently invested. As part of the one-time deemed repatriation provisions of the Act, the Company provided for U.S. tax on substantially all undistributed earnings of its foreign subsidiaries as of December 31, 2017. Upon repatriation of earnings to the U.S., the Company may be subject to foreign withholding taxes. The accrual for foreign withholding taxes related to the expected repatriation of foreign held cash and equivalents as of December 31, 2019 and 2018 was $62 million and $71 million, respectively.

Deferred foreign withholding taxes have not been provided on ~~the remaining~~undistributed earnings considered permanently invested. As of December 31, 2019, undistributed earnings of certain international subsidiaries ~~as these earnings~~that are considered permanently ~~invested. Undistributed earnings of~~

~~these subsidiaries~~invested were approximately $8.8 billion and $8.7 billion as of December 31, 2016 and 2015, respectively. Upon repatriation of these earnings to the U.S. in the form of dividends or other distribution of earnings, the Company may be subject to U.S. income taxes and foreign withholding taxes. The actual U.S. tax cost would depend on income tax laws and circumstances at the time of distribution.$5.7 billion. Determination of the related deferred tax liability is not practicable because of the complexities associated with the hypothetical calculation.

Deferred tax assets and liabilities— The components of deferred income tax assets and liabilities atas of December 31, ~~2016~~2019 and ~~2015~~2018 were as follows:



	2019						2018
In millions	Asset			Liability			Asset			Liability
Goodwill and intangible assets	$	202		$	(453	)	$	194		$	(484	)
Inventory reserves, capitalized tax cost and LIFO inventory	29			(3		)	30			(3		)
Investments	16			(158		)	19			(171		)
Plant and equipment	17			(74		)	17			(72		)
Accrued expenses and reserves	42			—			36			—
Employee benefit accruals	176			—			186			—
Foreign tax credit carryforwards	7			—			8			—
Net operating loss carryforwards	419			—			451			—
Capital loss carryforwards	80			—			89			—
Allowances for uncollectible accounts	9			—			10			—
Pension liabilities	—			(15		)	—			(19		)
Unrealized loss (gain) on foreign debt instruments	—			(57		)	—			(45		)
Operating leases	45			(45		)	—			—
Other	32			(13		)	32			(13		)
Gross deferred income tax assets (liabilities)	1,074			(818		)	1,072			(807		)
Valuation allowances	(408		)	—			(418		)	—
Total deferred income tax assets (liabilities)	$	666		$	(818	)	$	654		$	(807	)

2016 2015
In millions Asset Liability Asset Liability
Goodwill and intangible assets $ 240
$ (716 ) $ 282
$ (734 )
Inventory reserves, capitalized tax cost and LIFO inventory 40
(5 ) 42
(5 )
Investments 23
(206 ) 25
(298 )
Plant and equipment 23
(79 ) 28
(84 )
Accrued expenses and reserves 76
—
79
—
Employee benefit accruals 306
—
314
—
Foreign tax credit carryforwards 6
—
216
—
Net operating loss carryforwards 610
—
643
—
Capital loss carryforwards 42
—
39
—
Allowances for uncollectible accounts 13
—
13
—
Pension liabilities 25
—
13
—
Deferred intercompany deductions 430
—
—
—
Unrealized loss (gain) on foreign debt instruments —
(140 ) —
(115 )
Other 97
(16 ) 109
(10 )
Gross deferred income tax assets (liabilities) 1,931
(1,162 ) 1,803
(1,246 )
Valuation allowances (454 ) —
(467 ) —
Total deferred income tax assets (liabilities) $ 1,477
$ (1,162 ) $ 1,336
$ (1,246 )

The valuation allowances recorded atas of December 31, ~~2016~~2019 and ~~2015~~2018 related primarily to certain net operating loss carryforwards, capital loss carryforwards and foreign tax credit carryforwards. As of December 31, ~~2016,~~2019, the Company ~~has~~had utilized all realizable foreign tax credit carryforwards.

As of December 31, ~~2016,~~2019, the Company had net operating loss carryforwards available to offset future taxable income in the U.S. and certain foreign jurisdictions, which expire as follows:



	Gross Carryforwards Related
In millions	to Net Operating Losses
2020	$	86
2021	80
2022	25
2023	7
2024	49
2025-2045	117
Do not expire	1,378
Total gross carryforwards related to net operating losses	$	1,742

Gross Carryforwards Related
In millions to Net Operating Losses
2017 $ 9
2018 7
2019 8
2020 75
2021 80
2022 21
2023 18
2024-2036 31
Do not expire 1,956
Total gross carryforwards related to net operating losses $ 2,205

Unrecognized tax benefits— The changes in the amount of unrecognized tax benefits ~~during 2016, 2015~~for the twelve months ended December 31, 2019, 2018 and ~~2014~~2017 were as follows:



In millions	2019			2018			2017
Beginning balance	$	297		$	285		$	210
Additions based on tax positions related to the current year	6			3			42
Additions for tax positions of prior years	13			49			100
Reductions for tax positions of prior years	(14		)	(31		)	(24		)
Settlements	(5		)	(5		)	(53		)
Foreign currency translation	(1		)	(4		)	10
Ending balance	$	296		$	297		$	285

In millions 2016 2015 2014
Beginning balance $ 259
$ 218
$ 268
Additions based on tax positions related to the current year 19
39
23
Additions for tax positions of prior years 126
54
12
Reductions for tax positions of prior years (97 ) (41 ) (59 )
Settlements (96 ) (6 ) (18 )
Foreign currency translation (1 ) (5 ) (8 )
Ending balance $ 210
$ 259
$ 218

Included in the balance atas of December 31, ~~2016~~2019 were approximately ~~$176~~$267 million of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate.

~~During the fourth quarter of 2016,~~Settlements during 2017 primarily related to the Company effectively ~~settled~~settling with the ~~Internal Revenue Service~~German Fiscal Authority on issues identified during its ~~2012-2013~~2009-2011 audit, which primarily related to ~~deferred gain recognition and foreign tax credits. Based on this agreement, the Company decreased its unrecognized tax benefits by approximately $96 million.~~intercompany transactions.

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, 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 ~~$57~~$56 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues. The following table summarizes the open tax years for the Company’s major jurisdictions:



Jurisdiction		Open Tax Years
United States – Federal		~~2012-2016~~2016-2019
United Kingdom		~~2013-2016~~2017-2019
Germany		~~2009-2016~~2012-2019
France		~~2013-2016~~2016-2019
Australia		~~2012-2016~~2013-2019

The Company recognizes interest and penalties related to income tax matters in income tax expense. The accrual for interest and penalties as of December 31, ~~2016~~2019 and ~~2015~~2018 was ~~$28~~$19 million and ~~$32~~$25 million, respectively.

On February 18, 2014, the Company received a Notice of Deficiency ("NOD") from the IRS asserting that a non-taxable return of capital received from a subsidiary was a taxable dividend distribution. The NOD assesses additional taxes of $70 million for the 2006 tax year, plus interest and penalties. In May 2014, the Company petitioned the United States Tax Court to challenge the NOD. The Company's petition was subsequently denied and the case proceeded to court with the trial taking place in the third quarter of 2016. Final decision by the tax court is expected in 2017. Although the court's final decision cannot be predicted with certainty, the Company believes its position continues to be supportable. Accordingly, no reserve has been recorded related to this matter.

~~(6)~~(7) Net Income Per Share ~~from Continuing Operations~~

~~Income~~Net income per basic share ~~from continuing operations~~ is computed by dividing net income ~~from continuing operations~~ by the weighted-average number of shares outstanding for the period. ~~Income from continuing operations~~Net income per diluted share is computed by dividing net income ~~from continuing operations~~ by the weighted-average number of shares assuming dilution for stock options and restricted stock units. Dilutive shares reflect the potential additional shares that would be outstanding if the dilutive stock options outstanding were exercised and the unvested restricted stock units vested during the period. The computation of net income per share ~~from continuing operations~~for the twelve months ended December 31, 2019, 2018 and 2017 was as follows:



In millions except per share amounts	2019		2018		2017
Net Income	$	2,521	$	2,563	$	1,687
Net income per share—Basic:
Weighted-average common shares	323.9		335.0		344.1
Net income per share—Basic	$	7.78	$	7.65	$	4.90
Net income per share—Diluted:
Weighted-average common shares	323.9		335.0		344.1
Effect of dilutive stock options and restricted stock units	1.7		2.1		2.7
Weighted-average common shares assuming dilution	325.6		337.1		346.8
Net income per share—Diluted	$	7.74	$	7.60	$	4.86

In millions except per share amounts 2016 2015 2014
Income from continuing operations $ 2,035
$ 1,899
$ 1,890
Income per share from continuing operations—Basic:
Weighted-average common shares 355.0
367.9
401.7
Income per share from continuing operations—Basic $ 5.73
$ 5.16
$ 4.70
Income per share from continuing operations—Diluted:
Weighted-average common shares 355.0
367.9
401.7
Effect of dilutive stock options and restricted stock units 2.1
2.2
2.9
Weighted-average common shares assuming dilution 357.1
370.1
404.6
Income per share from continuing operations—Diluted $ 5.70
$ 5.13
$ 4.67

Options that were considered antidilutive were not included in the computation of diluted net income per ~~share from continuing operations.~~share. There were ~~no antidilutive options outstanding as of December 31, 2016, 0.6~~0.9 million and 0.5 million antidilutive options outstanding as of December 31, ~~2015~~2019 and no2018, respectively. There were 0 antidilutive options outstanding as of December 31, ~~2014.~~2017.

~~(7)~~(8) Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the ~~years~~twelve months ended December 31, ~~2016~~2019 and ~~2015~~2018 were as follows:



In millions	Automotive OEM			Test & Measurement and Electronics			Food Equipment			Polymers & Fluids			Welding			Construction Products			Specialty Products			Total
Balance, December 31, 2017	$	488		$	1,372		$	269		$	919		$	272		$	530		$	902		$	4,752
2018 activity:
Foreign currency translation	(12		)	(20		)	(10		)	(30		)	(9		)	(17		)	(21		)	(119		)
Balance, December 31, 2018	476			1,352			259			889			263			513			881			4,633
2019 activity:
Acquisitions / (divestitures)	—			2			—			—			—			—			(1		)	1
Transfer to assets held for sale	(5		)	(109		)	—			—			(4		)	—			(8		)	(126		)
Foreign currency translation	(5		)	—			(3		)	(2		)	(1		)	(1		)	(4		)	(16		)
Balance, December 31, 2019	$	466		$	1,245		$	256		$	887		$	258		$	512		$	868		$	4,492
Cumulative goodwill impairment charges, December 31, 2019	$	24		$	83		$	60		$	15		$	5		$	7		$	46		$	240

In millions Automotive OEM Test & Measurement and Electronics Food Equipment Polymers & Fluids Welding Construction Products Specialty Products Total
Balance, December 31, 2014 $ 294
$ 1,390
$ 276
$ 964
$ 277
$ 542
$ 924
$ 4,667
2015 activity:
Acquisitions & divestitures —
—
—
(6 ) 1
—
—
(5 )
Impairment charges —
—
—
—
—
—
—
—
Foreign currency translation (17 ) (35 ) (17 ) (64 ) (17 ) (26 ) (47 ) (223 )
Balance, December 31, 2015 277
1,355
259
894
261
516
877
4,439
2016 activity:
Acquisitions & divestitures 187
1
—
(2 ) —
(1 ) 1
186
Impairment charges —
—
—
—
—
—
—
—
Foreign currency translation (8 ) (20 ) (10 ) (3 ) (1 ) (7 ) (18 ) (67 )
Balance, December 31, 2016 $ 456
$ 1,336

$ 249
$ 889
$ 260
$ 508
$ 860
$ 4,558
Cumulative goodwill impairment charges, December 31, 2016 $ 24
$ 83
$ 60
$ 15
$ 5
$ 7
$ 46
$ 240

Intangible assets as of December 31, ~~2016~~2019 and ~~2015~~2018 were as follows:



	2019							2018
In millions	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Amortizable intangible assets:
Customer lists and relationships	$	1,530	$	(1,195	)	$	335	$	1,747	$	(1,282	)	$	465
Trademarks and brands	694		(434		)	260		759		(435		)	324
Patents and proprietary technology	581		(501		)	80		621		(506		)	115
Other	449		(433		)	16		478		(458		)	20
Total amortizable intangible assets	3,254		(2,563		)	691		3,605		(2,681		)	924
Indefinite-lived intangible assets:
Trademarks and brands	160		—			160		160		—			160
Total intangible assets	$	3,414	$	(2,563	)	$	851	$	3,765	$	(2,681	)	$	1,084

2016 2015
In millions Cost
Accumulated
Amortization
Net Cost
Accumulated
Amortization
Net
Amortizable intangible assets:
Customer lists and relationships $ 1,744
$ (1,060 ) $ 684
$ 1,630
$ (943 ) $ 687
Trademarks and brands 733
(344 ) 389
724
(298 ) 426
Patents and proprietary technology 620
(432 ) 188
618
(397 ) 221
Other 461
(444 ) 17
475
(446 ) 29
Total amortizable intangible assets 3,558
(2,280 ) 1,278
3,447
(2,084 ) 1,363
Indefinite-lived intangible assets:
Trademarks and brands 185
—
185
197
—
197
Total intangible assets $ 3,743
$ (2,280 ) $ 1,463
$ 3,644
$ (2,084 ) $ 1,560

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarter of ~~2016, 2015~~2019, 2018 and ~~2014. The 2016 assessment resulted in no~~2017. There were 0 impairment ~~charges. In 2015, the Company recorded~~charges as a ~~$2 million indefinite-lived intangible asset impairment charge related to a brand in the Polymers & Fluids segment which had a fair value~~result of $24 million and a carrying value of $26 million. In 2014, the Company recorded a $3 million indefinite-lived intangible asset impairment charge related to certain brands in the Polymers & Fluids and Test & Measurement and Electronics segments which had a total fair value of $8 million and a carrying value of $11 million. The 2015 and 2014 impairments were included in Amortization and impairment of intangible assets in the statement of income.these assessments.

For the ~~years~~twelve months ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014,~~2017, amortization expense ~~and impairment~~ of intangible assets was ~~$224~~$159 million, ~~$233~~$189 million and ~~$245~~$206 million, respectively.

~~The~~As of December 31, 2019, the estimated future amortization expense of intangible assets for the ~~future years~~twelve months ending December 31 iswas as follows:



In millions
2020	$	135
2021	117
2022	104
2023	85
2024	68

In millions
2017 $ 203
2018 184
2019 162
2020 141
2021 123

~~(8) Debt~~(9) Leases

Effective January 1, 2019, the Company adopted new lease accounting guidance which requires the recognition of a lease liability and corresponding right-of-use asset for all operating leases with a noncancellable lease term of greater than one year. The new guidance did not change the recognition of rental expense for operating leases which is recognized on a straight-line basis over the noncancellable lease term based on the minimum lease payments at lease inception. Changes in rent subsequent to commencement that were not included in minimum lease payments at inception are recognized as variable rent in the period incurred.

The Company’s lease transactions are primarily for the use of facilities, vehicles and equipment under operating lease arrangements. Total rental expense for operating leases for the twelve months ended December 31, 2019, 2018 and 2017 was $113 million, $124 million and $120 million, respectively. Total rental expense for 2019 included $69 million related to capitalized operating leases and $44 million related to short-term operating leases and variable lease payments. Short-term operating leases have original terms of one year or less, or can be terminated at the Company's option with a short notice period and without significant penalty, and are not capitalized. The right-of-use asset related to operating leases was $206 million as of December 31, 2019 and was included in Other assets. As of December 31, 2019, the current portion of the lease liability for operating leases was $51 million and was included in Accrued expenses, and the long-term portion was $128 million and was included in Other liabilities.

As of December 31, 2019, future maturities of operating lease liabilities for the twelve months ending December 31 were as follows:



In millions
2020	$	55
2021	42
2022	32
2023	23
2024	18
2025 and future years	21
Total future minimum lease payments	191
Less: Imputed interest	(12		)
Operating lease liability	179
Less: Current portion of operating lease liability	51
Long-term portion of operating lease liability	$	128

As of December 31, 2019, operating leases included in the lease liability had a weighted average remaining lease term of 4.6 years and a weighted average discount rate of 2.59% based on the incremental borrowing rate of the Company and its subsidiaries. During the twelve months ended December 31, 2019, cash paid related to maturities of operating lease liabilities was $70 million and operating lease right-of-use assets obtained in exchange for operating lease liabilities was $50 million.

As of December 31, 2018, future minimum lease payments under operating leases with noncancellable terms in excess of one year for the twelve months ending December 31 were as follows:



In millions
2019	$	67
2020	48
2021	32
2022	24
2023	18
2024 and future years	34
Total future minimum lease payments	$	223

(10) Debt

Short-term debt— Short-term debt represents obligations with a maturity date of one year or less and is stated at cost which approximates fair value. Short-term debt also includes current maturities of long-term debt. Short-term debt as of December 31, ~~2016~~2019 and ~~2015~~2018 consisted of the following:



In millions	2019		2018
Current maturities of long-term debt	$	4	$	1,350
Bank overdrafts	—		1
Total short-term debt	$	4	$	1,351

In millions 2016 2015
Commercial paper $ —
$ 498
Bank overdrafts —
25
Current maturities of long-term debt 650
1
Other borrowings 2
2
Total short-term debt $ 652
$ 526

~~In 2016,~~As of December 31, 2019, short-term debt included $4 million related to the ~~Company reclassified~~4.88% notes due through December 31, 2020. As of December 31, 2018, short-term debt included $650 million related to the ~~0.90%~~1.95% notes due ~~February 25, 2017 from Long-term debt~~March 1, 2019 and $700 million related to ~~Short-term debt.~~the 6.25% notes due April 1, 2019, both of which were repaid on the due date. There was 0 commercial paper outstanding as of December 31, 2019 and 2018.

The Company may issue commercial paper to fund general corporate needs, share repurchases, and small and medium-sized acquisitions. During the ~~second~~third quarter of ~~2016,~~2019, the Company entered into a $2.5 billion, five-year line of credit

agreement with a termination date of ~~May 9, 2021~~September 27, 2024 to support the potential issuances of commercial paper. This agreement replaced the ~~previously~~ existing ~~$1.5~~$2.5 billion line of credit agreement with a termination date of ~~June 8, 2017 and the $1.0 billion line of credit agreement with a termination date of August 15, 2018. No~~May 9, 2021. NaN amounts were outstanding under the ~~new~~ line of credit agreement ~~at December 31, 2016. As~~as of December 31, ~~2016, the~~2019. The Company was also in compliance with the financial covenants of the line of credit agreement as of December 31, 2019, which ~~includes~~included a minimum interest coverage ratio. The weighted-average interest rate on commercial paper was ~~0.4%~~2.5% and ~~0.1% at~~1.7% for the twelve months ended December 31, ~~2016~~2019 and ~~2015,~~2018, respectively.

As of December 31, ~~2016,~~2019, the Company had unused capacity of approximately ~~$286~~$206 million under international debt facilities.

Long-term debt— Long-term debt represents obligations with a maturity date greater than one year, and excludes current maturities that have been reclassified to short-term debt. Long-term debt at carrying value and fair value as of December 31, ~~2016~~2019 and ~~2015~~2018 consisted of the following:



		2019					2018
In millions	Effective Interest Rate	Carrying Value			Fair Value		Carrying Value			Fair Value
1.95% notes due March 1, 2019	1.98%	$	—		$	—	$	650		$	649
6.25% notes due April 1, 2019	6.25%	—			—		700			706
4.88% notes due thru December 31, 2020	4.96%	4			4		4			4
3.375% notes due September 15, 2021	3.43%	349			358		349			354
1.75% Euro notes due May 20, 2022	1.86%	558			584		570			603
1.25% Euro notes due May 22, 2023	1.35%	558			584		569			596
3.50% notes due March 1, 2024	3.54%	697			742		696			712
0.25% Euro notes due December 5, 2024	0.31%	668			677		—			—
2.65% notes due November 15, 2026	2.69%	993			1,032		993			933
0.625% Euro notes due December 5, 2027	0.71%	554			570		—			—
2.125% Euro notes due May 22, 2030	2.18%	555			644		567			620
1.00% Euro notes due June 5, 2031	1.09%	552			580		—			—
3.00% Euro notes due May 19, 2034	3.13%	548			724		560			678
4.875% notes due September 15, 2041	4.97%	637			829		636			719
3.90% notes due September 1, 2042	3.96%	1,082			1,283		1,081			1,087
Other borrowings		3			3		4			4
Total		$	7,758		$	8,614	$	7,379		$	7,665
Less: Current maturities of long-term debt		(4		)			(1,350		)
Total long-term debt		$	7,754				$	6,029

2016 2015
In millions Effective Interest Rate Carrying Value Fair Value Carrying Value Fair Value
0.90% notes due February 25, 2017 0.95% $ 650
$ 650
$ 649
$ 649
1.95% notes due March 1, 2019 1.98% 648
656
647
655
6.25% notes due April 1, 2019 6.25% 698
768
698
790
4.88% notes due thru December 31, 2020 4.96% 4
4
4
4
3.375% notes due September 15, 2021 3.43% 348
365
347
362
1.75% Euro notes due May 20, 2022 1.86% 520
565
536
564
1.25% Euro notes due May 22, 2023 1.35% 520
549
536
538
3.50% notes due March 1, 2024 3.54% 695
728
695
727
2.65% notes due November 15, 2026 2.69% 991
959
—
—
2.125% Euro notes due May 22, 2030 2.18% 519
565
536
530
3.0% Euro notes due May 19, 2034 3.13% 512
618
528
569
4.875% notes due September 15, 2041 4.97% 636
734
635
708
3.9% notes due September 1, 2042 3.96% 1,080
1,114
1,080
1,051
Other borrowings 6
6
6
6
Total $ 7,827
$ 8,281
$ 6,897
$ 7,153
Less: Current maturities of long-term debt (650 )
(1 )

Total long-term debt $ 7,177

$ 6,896

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.

In 2005, the Company issued $54 million of 4.88% notes due through December 31, 2020 at 100% of face value.

In 2009, the Company issued $700 million of 6.25% redeemable notes due April 1, 2019 at 99.98% of face ~~value.~~value, which were repaid on the due date.

In 2011, the Company issued $350 million of 3.375% notes due September 15, 2021 at 99.552% of face value and $650 million of 4.875% notes due September 15, 2041 at 98.539% of face value.

In 2012, the Company issued $1.1 billion of 3.9% notes due September 1, 2042 at 99.038% of face value.

In February 2014, the Company issued ~~$650 million of 0.9% notes due February 25, 2017 at 99.861% of face value,~~ $650 million of 1.95% notes due March 1, 2019 at 99.871% of face value and $700 million of 3.5% notes due March 1, 2024 at 99.648% of face value. ~~Net proceeds from~~The $650 million of 1.95% notes due March 1, 2019 were repaid on the ~~February 2014 debt issuances were used to repay commercial paper.~~due date.

In May 2014, the Company issued €500 million of 1.75% Euro notes due May 20, 2022 at 99.16% of face value and €500 million of 3.0% Euro notes due May 19, 2034 at 98.089% of face value. ~~Net proceeds from the May 2014 debt issuances were used for general corporate purposes.~~

In May 2015, the Company issued €500 million of 1.25% Euro notes due May 22, 2023 at 99.239% of face value and €500 million of 2.125% Euro notes due May 22, 2030 at 99.303% of face value. Net proceeds from the May 2015 debt issuances were used to repay commercial paper and for general corporate purposes.

In November 2016, the Company issued $1.0 billion of 2.65% notes due November 15, 2026 at 99.685% of face value. Net proceeds from the November 2016 debt issuance were used to repay commercial paper and for general corporate purposes.

In June 2019, the Company issued €600 million of 0.25% Euro notes due December 5, 2024 at 99.662% of face value, €500 million of 0.625% Euro notes due December 5, 2027 at 99.343% of face value and €500 million of 1.00% Euro notes due June 5, 2031 at 98.982% of face value. Net proceeds from the issuances were used to repay commercial paper and for general corporate purposes.

The Company designated the €1.0 billion of Euro notes issued in May 2014, ~~and~~ 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. Refer to Note ~~11.~~13. Stockholders' Equity for additional information regarding the net investment hedge.

All of the Company's notes listed above represent senior unsecured obligations ranking equal in right of payment. ~~Scheduled~~As of December 31, 2019, scheduled future maturities of long-term debt, including current maturities of long-term debt, for the ~~future years~~twelve months ending December 31 ~~are~~were as follows:



In millions
2020	$	4
2021	349
2022	558
2023	558
2024	1,365
2025 and future years	4,924
Total	$	7,758

In millions
2017 $ 650
2018 —
2019 1,346
2020 4
2021 348
2022 and future years 5,479
Total $ 7,827

~~(9)~~(11) Pension and Other Postretirement Benefits

The Company has both funded and unfunded defined benefit pension and other postretirement benefit plans, predominately in the U.S. The U.S. primary pension plan provides benefits based on years of service and final average salary. The U.S. primary postretirement health care plan is contributory with the participants’ contributions adjusted annually. The U.S. primary postretirement life insurance plan is noncontributory. Beginning January 1, 2007, the U.S. primary pension and other postretirement benefit plans were closed to new participants. Newly hired employees and employees from acquired businesses that are not participating in these plans are eligible for additional Company contributions under the existing U.S. primary defined contribution retirement plans. The Company’s expense related to defined contribution plans was ~~$77~~$86 million in ~~2016, $77~~2019, $82 million in ~~2015,~~2018, and ~~$78~~$79 million in ~~2014.~~2017. In addition to the U.S. plans, the Company also has defined benefit pension plans in certain other countries, mainly the United Kingdom, Canada, Germany and Switzerland.

Summarized information regarding net periodic benefit cost included in the ~~Company’s~~Statement of Income related to the Company's significant defined benefit pension and other postretirement benefit plans ~~related to both continuing~~for the twelve months ended December 31, 2019, 2018 and ~~discontinued operations~~2017 is as follows:



	Pension									Other Postretirement Benefits
In millions	2019			2018			2017			2019			2018			2017
Components of net periodic benefit cost:
Service cost	$	52		$	60		$	63		$	7		$	8		$	9
Interest cost	78			72			72			20			18			19
Expected return on plan assets	(121		)	(126		)	(133		)	(22		)	(25		)	(23		)
Amortization of actuarial (gain) loss	21			43			57			(1		)	(2		)	(1		)
Amortization of prior service cost	1			—			—			—			—			—
Total net periodic benefit cost	$	31		$	49		$	59		$	4		$	(1	)	$	4

Pension Other Postretirement Benefits
In millions 2016 2015 2014 2016 2015 2014
Components of net periodic benefit cost:
Service cost $ 62
$ 70
$ 80
$ 9
$ 11
$ 10
Interest cost 92
92
103
24
24
24
Expected return on plan assets (144 ) (151 ) (159 ) (23 ) (25 ) (25 )
Amortization of actuarial (gain) loss 44
60
48
—
(1 ) (4 )
Amortization of prior service cost —
1
1
(1 ) 1
1
Settlement/curtailment (gain) loss —
—
1
—
—
(9 )
Total net periodic benefit cost $ 54
$ 72
$ 74
$ 9
$ 10
$ (3 )

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

Pension Other Postretirement Benefits
In millions 2016 2015 2014 2016 2015 2014
Income from continuing operations $ 54
$ 72
$ 69
$ 9
$ 10
$ 6
Income from discontinued operations —
—
5
—
—
(9 )
Total net periodic benefit cost $ 54
$ 72
$ 74
$ 9
$ 10
$ (3 )

The Company recognized a $9 million curtailment gain on the U.S. primary postretirement plan in the second quarter of 2014 related to the Company's sale of the Industrial Packaging business, which was included in Income from discontinued operations.

During 2014, the Society of Actuaries released a new mortality table, referred to as RP-2014, which is believed to better reflect mortality improvements. The Company used the RP-2014 mortality table to measure its U.S. pension and other postretirement benefit obligations as of December 31, 2014 which resulted in additional actuarial losses of $76 million for pension and $46 million for other postretirement benefits. The Company used the updated mortality improvement scales ~~MP-2015~~from the Society of Actuaries, MP-2019 and ~~MP-2016,~~MP-2018, to measure its U.S. pension and other postretirement obligations as of December 31, ~~2015~~2019 and ~~2016,~~2018, respectively, which did not have a significant impact in either period.

The following tables provide a rollforward of the plan benefit obligations, plan assets and a reconciliation of funded status for the ~~years~~twelve months ended December 31, ~~2016~~2019 and ~~2015:~~2018:



	Pension						Other Postretirement Benefits
In millions	2019			2018			2019			2018
Change in benefit obligation:
Benefit obligation at January 1	$	2,429		$	2,661		$	511		$	546
Service cost	52			60			7			8
Interest cost	78			72			20			18
Plan participants’ contributions	2			2			12			12
Amendments	—			9			—			—
Actuarial (gain) loss	295			(162		)	61			(35		)
Transfer to liabilities held for sale	(2		)	—			—			—
Benefits paid	(156		)	(165		)	(42		)	(40		)
Medicare subsidy received	—			—			1			2
Liabilities from other immaterial plans	—			5			—			—
Foreign currency translation	33			(53		)	—			—
Benefit obligation at December 31	$	2,731		$	2,429		$	570		$	511

Pension Other Postretirement Benefits
In millions 2016 2015 2016 2015
Change in benefit obligation:
Benefit obligation at January 1 $ 2,462
$ 2,607
$ 552
$ 591
Service cost 62
70
9
11
Interest cost 92
92
24
24
Plan participants’ contributions 2
3
12
13
Amendments —
1
—
—
Actuarial (gain) loss 216
(82 ) (5 ) (43 )
Acquisitions and divestitures 7
—
—
—
Benefits paid (150 ) (169 ) (43 ) (46 )
Medicare subsidy received —
—
2
2
Foreign currency translation (129 ) (60 ) —
—
Benefit obligation at December 31 $ 2,562
$ 2,462
$ 551
$ 552



	Pension						Other Postretirement Benefits
In millions	2019			2018			2019			2018
Change in plan assets:
Fair value of plan assets at January 1	$	2,550		$	2,832		$	333		$	373
Actual return on plan assets	379			(82		)	66			(19		)
Company contributions	27			23			5			7
Plan participants’ contributions	2			2			12			12
Benefits paid	(156		)	(165		)	(42		)	(40		)
Foreign currency translation	42			(60		)	—			—
Fair value of plan assets at December 31	$	2,844		$	2,550		$	374		$	333
Funded status	$	113		$	121		$	(196	)	$	(178	)
Other immaterial plans	(42		)	(46		)	(5		)	(5		)
Net asset (liability) at December 31	$	71		$	75		$	(201	)	$	(183	)
The amounts recognized in the Statement of Financial Position as of December 31 consist of:
Other assets	$	297		$	290		$	—		$	—
Accrued expenses	(11		)	(12		)	(3		)	(4		)
Other noncurrent liabilities	(215		)	(203		)	(198		)	(179		)
Net asset (liability) at end of year	$	71		$	75		$	(201	)	$	(183	)
The pre-tax amounts recognized in accumulated other comprehensive income consist of:
Net actuarial (gain) loss	$	568		$	552		$	(35	)	$	(53	)
Prior service cost	7			8			—			—
	$	575		$	560		$	(35	)	$	(53	)
Accumulated benefit obligation	$	2,589		$	2,299
Plans with accumulated benefit obligation in excess of plan assets as of December 31:
Projected benefit obligation	$	194		$	176
Accumulated benefit obligation	$	188		$	170
Fair value of plan assets	$	29		$	28

Pension Other Postretirement Benefits
In millions 2016 2015 2016 2015
Change in plan assets:
Fair value of plan assets at January 1 $ 2,441
$ 2,557
$ 342
$ 372
Actual return on plan assets 274
16
36
(3 )
Company contributions 70
97
4
6
Plan participants’ contributions 2
3
12
13
Benefits paid (150 ) (169 ) (43 ) (46 )
Foreign currency translation (150 ) (63 ) —
—
Fair value of plan assets at December 31 $ 2,487
$ 2,441
$ 351
$ 342
Funded status $ (75 ) $ (21 ) $ (200 ) $ (210 )
Other immaterial plans (58 ) (50 ) (5 ) (5 )
Net liability at December 31 $ (133 ) $ (71 ) $ (205 ) $ (215 )
The amounts recognized in the statement of financial position as of December 31 consist of:
Other assets $ 131
$ 191
$ —
$ —
Accrued expenses (12 ) (11 ) (4 ) (4 )
Other noncurrent liabilities (252 ) (251 ) (201 ) (211 )
Net liability at end of year $ (133 ) $ (71 ) $ (205 ) $ (215 )
The pre-tax amounts recognized in accumulated other comprehensive income consist of:
Net actuarial (gain) loss $ 673
$ 631
$ (38 ) $ (20 )
Prior service cost —
—
—
(1 )
$ 673
$ 631
$ (38 ) $ (21 )
Accumulated benefit obligation $ 2,207
$ 2,297

Plans with accumulated benefit obligation in excess of plan assets as of December 31:
Projected benefit obligation $ 183
$ 164

Accumulated benefit obligation $ 167
$ 152

Fair value of plan assets $ 25
$ 25

Assumptions— The weighted-average assumptions used in the valuations of pension and other postretirement benefits were as follows:



	Pension						Other Postretirement Benefits
	2019		2018		2017		2019		2018		2017
Assumptions used to determine benefit obligations as of December 31:
Discount rate	2.61	%	3.66	%	3.12	%	3.29	%	4.40	%	3.72	%
Rate of compensation increases	3.44	%	3.52	%	3.54	%
Assumptions used to determine net periodic benefit cost for the twelve months ended December 31:
Discount rate	3.66	%	3.12	%	3.41	%	4.40	%	3.72	%	4.30	%
Expected return on plan assets	4.71	%	4.77	%	5.53	%	6.70	%	6.80	%	6.80	%
Rate of compensation increases	3.52	%	3.54	%	3.77	%

Pension Other Postretirement Benefits
2016 2015 2014 2016 2015 2014
Assumptions used to determine benefit obligations at December 31:
Discount rate 3.41 % 3.95 % 3.70 % 4.30 % 4.55 % 4.15 %
Rate of compensation increases 3.77 % 3.72 % 3.72 % — % — % — %
Assumptions used to determine net periodic benefit cost for years ended December 31:
Discount rate 3.95 % 3.70 % 4.32 % 4.55 % 4.15 % 4.95 %
Expected return on plan assets 6.22 % 6.54 % 7.02 % 7.00 % 7.00 % 7.00 %
Rate of compensation increases 3.72 % 3.72 % 3.72 % — % — % — %

The expected long-term rates of return for pension and other postretirement benefit plans were developed using historical asset class returns while factoring in current market conditions such as inflation, interest rates and asset class performance.

The discount rate reflects the current rate at which the associated liabilities could theoretically be effectively settled at the end of the year. In estimating this rate, the Company looks at rates of return on high-quality fixed income investments, with similar

duration to the liabilities in the plan. ~~Beginning in 2017, the~~The Company ~~changed the method used to estimate the service and~~

~~interest cost components of net periodic pension and other postretirement benefit costs. The new method will provide a more precise measure of~~estimates the service and interest cost components of net periodic benefit cost by applying specific spot rates along the yield curve to the projected cash flows rather than a single weighted-average rate.

Assumed health care cost trend rates have an effect on the amounts reported for the postretirement health care benefit plans. The assumed health care cost trend rates used to determine the postretirement benefit obligation atas of December 31 were as follows:



	2019		2018		2017
Health care cost trend rate assumed for the next year	6.70	%	7.00	%	6.25	%
Ultimate trend rate	4.50	%	4.50	%	4.50	%
Year the rate reaches the ultimate trend rate	2026		2026		2025

2016 2015 2014
Health care cost trend rate assumed for the next year 6.00 % 6.00 % 8.00 %
Ultimate trend rate 4.50 % 4.50 % 4.50 %
Year the rate reaches the ultimate trend rate 2023
2021
2022

A one percentage-point change in assumed health care cost trend rates would have the following impact:



In millions	1 Percentage-Point Increase		1 Percentage-Point Decrease
Change in service cost and interest cost for 2019	$	—	$	(1	)
Change in postretirement benefit obligation at December 31, 2019	$	2	$	(3	)

In millions 1 Percentage-Point Increase 1 Percentage-Point Decrease
Change in service cost and interest cost for 2016 $ —
$ (1 )
Change in postretirement benefit obligation at December 31, 2016 $ 6
$ (14 )

Plan assets— The Company’s overall investment strategy for the assets in the pension funds is to achieve a balance between the goals of growing plan assets and keeping risk at a reasonable level over a long-term investment horizon. In order to reduce unnecessary risk, the pension funds are diversified across several asset classes, securities and investment managers. The target allocations for plan assets are ~~30%~~15% to ~~45%~~25% equity ~~securities, 50%~~investments, 75% to ~~65%~~85% fixed income ~~securities~~investments and 0% to 10% in other types of investments. The Company does not use derivatives for the purpose of speculation, leverage, circumventing investment guidelines or taking risks that are inconsistent with specified guidelines.

The assets in the Company’s postretirement health care plan are primarily invested in life insurance policies. The Company’s overall investment strategy for the assets in the postretirement health care fund is to invest in assets that provide a reasonable tax exempt rate of return while preserving capital.

The following tables present the fair value of the Company’s pension and other postretirement benefit plan assets atas of December 31, ~~2016~~2019 and ~~2015,~~2018, by asset category and valuation methodology. Level 1 assets are valued using unadjusted quoted prices for identical assets in active markets. Level 2 assets are valued using quoted prices or other observable inputs for similar assets. Level 3 assets are valued using unobservable inputs, but reflect the assumptions market participants would be expected to use in pricing the assets. Each financial instrument’s categorization is based on the lowest level of input that is significant to the fair value measurement.


	2016								2019
In millions	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Pension Plan Assets:
Cash and equivalents	$	82	$	55	$	27	$	—	$	28	$	27	$	1	$	—
Equity securities:
Domestic	1		1		—		—
Fixed income securities:
Government securities	307		—		307		—		355		—		355		—
Corporate debt securities	541		—		541		—		969		—		969		—
Mortgage-backed securities	19		—		19		—
Investment contracts with insurance companies	1		—		—		1		1		—		—		1
Commingled funds:
Collective trust funds	1,478								1,460
Partnerships/private equity interests	54								27
Other	4								4		—		4		—
Total fair value of pension plan assets	$	2,487	$	56	$	894	$	1	$	2,844	$	27	$	1,329	$	1

Other Postretirement Benefit Plan Assets:
Cash and equivalents	$	1	$	1	$	—	$	—
Life insurance policies	350								$	374
Total fair value of other postretirement benefit plan assets	$	351	$	1	$	—	$	—	$	374	$	—	$	—	$	—



	2018
In millions	Total		Level 1		Level 2		Level 3
Pension Plan Assets:
Cash and equivalents	$	28	$	27	$	1	$	—
Fixed income securities:
Government securities	371		—		371		—
Corporate debt securities	853		—		853		—
Investment contracts with insurance companies	1		—		—		1
Commingled funds:
Collective trust funds	1,257
Partnerships/private equity interests	36
Other	4		—		4		—
Total fair value of pension plan assets	$	2,550	$	27	$	1,229	$	1

Other Postretirement Benefit Plan Assets:
Life insurance policies	333
Total fair value of other postretirement benefit plan assets	$	333	$	—	$	—	$	—

2015
In millions Total Level 1 Level 2 Level 3
Pension Plan Assets:
Cash and equivalents $ 53
$ 53
$ —
$ —
Equity securities:
Domestic 1
1
—
—
Foreign 62
62
—
—
Fixed income securities:
Government securities 285
—
285
—
Corporate debt securities 483
—
483
—
Investment contracts with insurance companies 1
—
—
1
Commingled funds:
Mutual funds 145
145
—
—
Collective trust funds 1,347

Partnerships/private equity interests 66

Other (2 ) —
(2 ) —
Total fair value of pension plan assets $ 2,441
$ 261
$ 766
$ 1

Other Postretirement Benefit Plan Assets:
Cash and equivalents $ 8
$ 8
$ —
$ —
Life insurance policies 334

Total fair value of other postretirement benefit plan assets $ 342
$ 8
$ —
$ —

Cash and equivalents include cash on hand and instruments with original maturities of three months or less and are valued at cost, which approximates fair value. ~~Equity securities primarily include common and preferred equity securities covering a~~

~~wide range of industries and geographies that are traded in active markets and are valued based on quoted prices.~~ Fixed income securities primarily consist of U.S. and foreign government bills, notes and bonds, corporate debt ~~securities, asset-backed~~ securities and investment contracts. The majority of the assets in this category are valued by evaluating bid prices provided by independent financial data services. For securities where market data is not readily available,

unobservable market data is used to value the security. ~~Mutual funds are traded in active markets and are valued based on quoted prices.~~ The underlying investments include small-cap equity, international equity and long- and short-term fixed income instruments. ~~Other primarily includes derivative instruments such as interest rate swaps used by fixed income investment managers to offset interest rate sensitivity.~~

Pension assets measured at net asset value include collective trust funds, partnerships/private equity interests and life insurance policies. Collective trust funds are private funds that are valued based on the value of the underlying investments which can be redeemed on a daily basis. The underlying investments include both passively and actively managed U.S. and foreign large- and mid-cap equity funds and short-term investment funds. Partnerships/private equity interests are investments in partnerships where the benefit plan is a limited partner. The investments are valued by the investment managers on a periodic basis using pricing models that use market, income and cost valuation methods. Distributions are received from these funds on a periodic basis through the liquidation of the underlying assets of the fund. Life insurance policies are used to fund other postretirement benefits in order to obtain favorable tax treatment and are valued based on the cash surrender value of the underlying policies. The Company has selected the funds in which these assets are invested and may elect to withdraw funds with proper notice to the insurance company or maintain the policies and receive death benefits as determined by the contracts.

Cash flows— The Company generally funds its pension and other postretirement benefit plans as required by law or to the extent such contributions are tax deductible. The Company expects to contribute approximately ~~$64~~$29 million to its pension plans and $5 million to its other postretirement benefit plans in ~~2017. The~~2020. As of December 31, 2019, the Company’s portion of the future benefit payments that are expected to be paid during the ~~years~~twelve months ending December 31 is as follows:



In millions	Pension		Other Postretirement Benefits
2020	$	152	$	35
2021	157		35
2022	164		35
2023	171		35
2024	175		36
Years 2025-2029	862		176

In millions Pension Other Postretirement Benefits
2017 $ 182
$ 35
2018 181
36
2019 183
37
2020 185
38
2021 184
38
Years 2022-2026 882
193

~~(10)~~(12) Commitments and Contingencies

~~Litigation~~— The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, including those involving environmental, product liability (including toxic tort) and general liability claims. The Company accrues for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, the Company’s estimates of the outcomes of these matters and its experience in contesting, litigating and settling other similar matters. The Company believes resolution of these matters, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position, liquidity or future operations.

~~Lease Commitments~~— ~~Rental expense was $121 million in 2016, $117 million in 2015 and $130 million in 2014. Future minimum lease payments under non-cancelable leases for the years ending December 31 are as follows:~~

In millions
2017 $ 104
2018 75
2019 53
2020 37
2021 26
2022 and future years 43
Total future minimum lease payments $ 338

~~(11)~~(13) Stockholders' Equity

Preferred Stock— Preferred Stock, without par value, of which 0.3 million shares are authorized and unissued, is issuable in series. The Board of Directors is authorized to fix by resolution the designation and characteristics of each series of preferred stock. The Company has no present commitment to issue its preferred stock.

Share Repurchases— On ~~August 2, 2013,~~February 13, 2015, the ~~Company’s~~Company's Board of Directors authorized a stock repurchase program which provided for the repurchase of up to $6.0 billion of the Company’s common stock over an open-ended period of time (the "2013 Program"). Under the 2013 Program, the Company repurchased approximately 3.3 million shares of its common stock at an average price of $81.62 per share during 2013, approximately 50.4 million shares of its common stock at an average price of $84.92 per share during 2014, and approximately 14.9 million shares of its common stock at an average price of $96.84 during 2015. As of December 31, 2015, there were no authorized repurchases remaining under the 2013 Program.

~~On February 13, 2015, the Company's Board of Directors authorized a new stock repurchase program, which provided for the repurchase of up to an additional~~ $6.0 billion of the Company’s common stock over an open-ended period of time (the "2015 Program"). Under the 2015 Program, the Company repurchased approximately 6.1 million shares of its common stock at an average price of $91.78 per share during 2015, ~~and~~ approximately 18.7 million shares of its common stock at an average price of $107.17 per share during ~~2016.~~2016, approximately 7.1 million shares of its common stock at an average price of $140.56 per share during 2017, approximately 13.9 million shares of its common stock at an average price of $143.66 per share during 2018 and approximately 3.1 million shares of its common stock at an average price of $143.23 per share during 2019. The 2015 Program was completed in the second quarter of 2019.

On August 3, 2018, the Company's Board of Directors authorized a new stock repurchase program which provides for the repurchase of up to an additional $3.0 billion of the Company's common stock over an open-ended period of time (the "2018 Program"). Under the 2018 Program, the Company repurchased approximately 6.7 million shares of its common stock at an

average price of $158.11 per share during 2019. As of December 31, ~~2016,~~2019, there were approximately ~~$3.4~~$1.9 billion of authorized repurchases remaining under the ~~2015 Program.~~2018 program.

Cash Dividends— Cash dividends declared were ~~$2.40~~$4.14 per share in ~~2016, $2.07~~2019, $3.56 per share in ~~2015~~2018 and ~~$1.81~~$2.86 per share in ~~2014.~~2017. Cash dividends paid were ~~$2.30~~$4.07 per share in ~~2016, $2.005~~2019, $3.34 per share in ~~2015~~2018 and ~~$1.745~~$2.73 per share in ~~2014.~~2017.

Accumulated Other Comprehensive Income (Loss)— The changes in accumulated other comprehensive income (loss) during ~~2016, 2015~~2019, 2018 and ~~2014~~2017 were as follows:



In millions	2019			2018			2017
Beginning balance	$	(1,677	)	$	(1,287	)	$	(1,807	)

Adoption of new accounting guidance related to reclassification of certain tax effects	—			(45		)	—

Foreign currency translation adjustments during the period	7			(308		)	294
Foreign currency translation adjustments reclassified to income	—			5			2
Income taxes	(9		)	(25		)	110
Total foreign currency translation adjustments, net of tax	(2		)	(328		)	406

Pension and other postretirement benefit adjustments during the period	(54		)	(64		)	96
Pension and other postretirement benefit adjustments reclassified to income	21			41			56
Income taxes	7			6			(38		)
Total pension and other postretirement benefit adjustments, net of tax	(26		)	(17		)	114

Ending balance	$	(1,705	)	$	(1,677	)	$	(1,287	)

In millions 2016 2015 2014
Beginning balance $ (1,504 ) $ (658 ) $ 384

Foreign currency translation adjustments during the period (251 ) (800 ) (806 )
Foreign currency translation adjustments reclassified to income (1 ) —
(133 )
Income taxes (25 ) (60 ) —
Total foreign currency translation adjustments, net of tax (277 ) (860 ) (939 )

Pension and other postretirement benefit adjustments during the period (67 ) (41 ) (224 )
Pension and other postretirement benefit adjustments reclassified to income 43
61
54
Income taxes (2 ) (6 ) 67
Total pension and other postretirement benefit adjustments, net of tax (26 ) 14
(103 )

Ending balance $ (1,807 ) $ (1,504 ) $ (658 )

Effective January 1, 2018, the Company elected to early adopt new accounting guidance related to the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the "Tax Cuts and Jobs Act" (the "Act") and reclassified $45 million of stranded income tax effects from Accumulated other comprehensive income (loss) to Retained earnings. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies for additional information.

Foreign currency translation adjustments reclassified to income ~~are~~ primarily ~~related~~relate to the disposal of ~~certain discontinued~~ operations and were included in the related gain or loss upon disposal. ~~Refer to Note 2. Discontinued Operations for additional information regarding the sale of the Company's discontinued operations.~~

Pension and other postretirement benefit adjustments reclassified to income represent the amortization of actuarial gains and losses and prior service ~~cost, and settlement and curtailment charges recognized in net periodic benefit~~ cost. Refer to Note 9.11. Pension and Other Postretirement Benefits for the amounts included in net periodic benefit cost. Pension and other postretirement benefit adjustments reclassified to income also include the reclassification of deferred losses of $6 million for the year ended December 31, 2014 related to the disposal of certain discontinued operations. Refer to Note 2. Discontinued Operations for additional information regarding the sale of the Company's discontinued operations.

The Company designated the €1.0 billion of Euro notes issued in May 2014, ~~and~~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 cumulative unrealized pre-tax gain recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was ~~$375~~$239 million and ~~$308~~$187 million as of December 31, ~~2016~~2019 and ~~December 31, 2015,~~2018, respectively.

As of December 31, ~~2016~~2019 and ~~2015,~~2018, the ending balance of Accumulated other comprehensive income (loss) consisted of after-tax cumulative translation adjustment losses of ~~$1.4~~$1.3 billion and ~~$1.1~~$1.3 billion, respectively, and after-tax unrecognized pension and other postretirement benefits costs of ~~$405~~$390 million and ~~$379~~$364 million, respectively. The estimated pre-tax unrecognized net benefit cost that will be amortized from Accumulated other comprehensive income (loss) into ~~net periodic benefit cost~~income in ~~2017~~2020 is ~~$55~~$48 million for pension and other postretirement benefits.

~~(12)~~

(14) Stock-Based Compensation

On May 8, 2015 (the "Effective Date"), the 2015 Long-Term Incentive Plan (the "2015 Plan") was approved by shareholders. As of the Effective Date, no additional awards will be granted to employees under the 2011 Long-Term Incentive Plan (the "2011 Plan"). The significant terms of stock options and restricted stock units ("RSUs") were not changed under the 2015 Plan. Stock options and RSUs ~~have been~~are issued to officers ~~and~~and/or other management employees under these plans. Stock options generally vest over a four-year period and have an expiration of ten years from the issuance date. RSUs generally "cliff" vest after a three-year period and include units with and without performance criteria. RSUs with performance criteria provide for full "cliff" vesting after three years if the Compensation Committee certifies that the performance goals have been met. Upon vesting, the holder will receive ~~one~~1 share of common stock of the Company for each vested RSU.

Commencing in February 2013, the Company began issuing shares from treasury stock to cover the exercised options and vested RSUs. Prior to February 2013, the Company generally issued new shares from its authorized but unissued share ~~pool to cover the exercised options and vested RSUs. Commencing in February 2013, the Company began issuing shares from treasury stock.~~pool. As of December 31, ~~2016,~~2019, approximately 1511 million shares of ITW common stock were reserved for issuance under these plans.

The Company records compensation expense for the grant date fair value of stock awards over the remaining service periods of those awards. The following table summarizes the Company’s stock-based compensation ~~expense:~~expense for the twelve months ended December 31, 2019, 2018 and 2017:



In millions	2019			2018			2017
Pre-tax stock-based compensation expense	$	41		$	40		$	36
Tax benefit	(5		)	(5		)	(9		)
Total stock-based compensation expense, net of tax	$	36		$	35		$	27

In millions 2016 2015 2014
Pre-tax compensation expense $ 39
$ 35
$ 34
Tax benefit (13 ) (12 ) (12 )
Total stock-based compensation expense, net of tax $ 26
$ 23
$ 22

There was no pre-tax stock-based compensation expense included in income from discontinued operations in 2016 or 2015. Pre-tax stock-based compensation expense included in Income from discontinued operations was $5 million in 2014.

The following table summarizes activity related to non-vested RSUs ~~during 2016:~~for the twelve months ended December 31, 2019:



Shares in millions	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested, January 1, 2019	0.5		$121.24
Granted	0.2		144.43
Vested	(0.2	)	87.28
Unvested, December 31, 2019	0.5		144.92

Shares in millions
Number of
Shares

Weighted-Average
Grant-Date Fair Value
Unvested, January 1, 2016 0.8
$73.58
Granted 0.3
85.61
Vested (0.3 ) 61.14
Canceled (0.1 ) 83.12
Unvested, December 31, 2016 0.7
83.39

The following table summarizes stock option activity for the ~~year~~twelve months ended December 31, ~~2016:~~2019:



In millions except exercise price and contractual terms	Number of Shares		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Under option, January 1, 2019	4.6		$90.56
Granted	0.5		144.21
Exercised	(1.3	)	64.51
Canceled or expired	(0.1	)	144.55
Under option, December 31, 2019	3.7		106.57	5.9	$271
Exercisable, December 31, 2019	2.4		89.55	4.8	$220

In millions except exercise price and contractual terms Number of Shares
Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual Term

Aggregate Intrinsic
Value
Under option, January 1, 2016 6.4
$61.44
Granted 0.6
91.88
Exercised (1.6 ) 50.66
Canceled or expired (0.1 ) 87.15
Under option, December 31, 2016 5.3
68.05 5.9 $290
Exercisable, December 31, 2016 3.7
59.72 4.9 $232

The fair value of RSUs is ~~determined by reducing~~equal to the ~~closing~~common stock fair market ~~price~~value on the date of the ~~grant by the present value of projected~~grant. RSUs provide for dividend equivalents payable in additional RSUs for dividends ~~over~~that would have been paid during the vesting period. Stock option exercise prices are equal to the common stock fair market value on the date of grant. The Company estimates forfeitures based on historical rates for awards with similar characteristics. The Company uses a binomial option pricing model to estimate the fair value of the stock options granted. The following summarizes the assumptions used in the ~~models:~~option valuations for the twelve months ended December 31, 2019, 2018 and 2017:



	2019	2018	2017
Risk-free interest rate	2.50-2.68%	2.07-3.06%	0.91-2.61%
Weighted-average volatility	22.0%	22.0%	22.0%
Dividend yield	2.20%	2.10%	2.22%
Expected years until exercise	8.7-9.0	7.5-8.4	7.2-7.9

2016 2015 2014
Risk-free interest rate 0.56-1.86% 0.23-2.25% 0.16-2.83%
Weighted-average volatility 24.0% 23.0% 22.9%
Dividend yield 2.12% 2.11% 2.46%
Expected years until exercise 6.9-7.7 6.9-8.0 6.7-7.9

Lattice-based option valuation models, such as the binomial option pricing model, incorporate ranges of assumptions for inputs. The risk-free rate of interest for periods within the contractual life of the option is based on a zero-coupon U.S. government instrument over the contractual term of the equity instrument. Expected volatility is based on implied volatility from traded options on the Company’s stock and historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise timing and employee termination rates within the valuation model. The weighted-average dividend yield is based on historical information. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The ranges presented result from separate groups of employees assumed to exhibit different exercise behavior.

The weighted-average grant-date fair value of stock options granted ~~during 2016, 2015~~for the twelve months ended December 31, 2019, 2018 and ~~2014~~2017 was ~~$20.02, $20.58~~$34.36, $38.34 and ~~$15.14~~$26.83 per share, respectively. The aggregate intrinsic value of stock options exercised during the ~~years~~twelve months ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 was ~~$89~~$127 million, ~~$55~~$33 million and ~~$115~~$132 million, respectively. As of December 31, ~~2016,~~2019, there was $7$10 million of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted-average period of ~~1.9~~2.0 years. Exercise of stock options during the ~~years~~twelve months ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 resulted in cash receipts of ~~$84~~$85 million, ~~$59~~$22 million and ~~$148~~$84 million, respectively. The total fair value of vested stock option awards during the ~~years~~twelve months ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 was ~~$12~~$17 million, $15 million and $13 million, ~~and $16 million,~~ respectively.

As of December 31, ~~2016,~~2019, there was ~~$16~~$29 million of total unrecognized compensation cost related to unvested RSUs. That cost is expected to be recognized over a weighted-average remaining contractual life of ~~1.6~~1.8 years. The total fair value of vested RSU awards during the ~~years~~twelve months ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 was ~~$21 million,~~ $20 million, $19 million and ~~$27~~$19 million, respectively.

~~(13)~~

(15) Other Balance Sheet Information

Other balance sheet information atas of December 31, ~~2016~~2019 and ~~2015~~2018 was as follows:



In millions	2019		2018
Prepaid expenses and other current assets:
Income tax refunds receivable	$	77	$	98
Value-added-tax receivables	73		79
Vendor advances	25		30
Other	121		127
Total prepaid expenses and other current assets	$	296	$	334

Other assets:
Cash surrender value of life insurance policies	$	441	$	429
Prepaid pension assets	297		290
Operating lease right-of-use asset	206		—
Customer tooling	141		171
Investments	51		51
Other	91		89
Total other assets	$	1,227	$	1,030

Accrued expenses:
Compensation and employee benefits	$	335	$	391
Deferred revenue and customer deposits	188		215
Rebates	159		172
Current portion of operating lease liability	51		—
Warranties	45		45
Current portion of pension and other postretirement benefit obligations	14		16
Other	425		432
Total accrued expenses	$	1,217	$	1,271

Other liabilities:
Pension benefit obligation	$	215	$	203
Postretirement benefit obligation	198		179
Long-term portion of operating lease liability	128		—
Other	459		457
Total other liabilities	$	1,000	$	839

In millions 2016 2015
Prepaid expenses and other current assets:
Value-added-tax receivables $ 55
$ 48
Income tax refunds receivable 21
147
Vendor advances 20
22
Other 122
124
Total prepaid expenses and other current assets $ 218

$ 341

Other assets:
Cash surrender value of life insurance policies $ 442
$ 428
Customer tooling 146
88
Prepaid pension assets 131
191
Investments 73
99
Equity investment in Wilsonart (See Note 4) —
113
Other 164
168
Total other assets $ 956
$ 1,087

Accrued expenses:
Compensation and employee benefits $ 379
$ 363
Deferred revenue and customer deposits 180
169
Rebates 144
125
Warranties 45
46
Current portion of pension and other postretirement benefit obligations 16
15
Other 438
418
Total accrued expenses $ 1,202
$ 1,136

Other liabilities:
Pension benefit obligation $ 252
$ 251
Postretirement benefit obligation 201
211
Other 418
519
Total other liabilities $ 871
$ 981

~~(14)~~(16) 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~~7 segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. The following is a description of the Company's ~~seven~~7 segments:

Food Equipment— This segment is a highly focused and branded ~~industry-leader~~industry leader in commercial food equipment differentiated by innovation and integrated service offerings.

Test & Measurement and Electronics— This segment is a branded and innovative producer of test and measurement and electronic manufacturing and MRO solutions that improve efficiency and quality for customers in diverse end markets. Businesses in this segment produce equipment, consumables, and related ~~accessories, consumables, and~~ software for testing and measuring ~~physical properties~~ of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics.

Construction Products— This segment is a branded supplier of innovative engineered fastening systems and solutions.

Segment information for ~~2016, 2015~~2019, 2018 and ~~2014~~2017 was as follows:


In millions	2016			2015			2014			2019			2018			2017
Operating revenue:
Automotive OEM	$	2,864		$	2,529		$	2,590		$	3,063		$	3,338		$	3,271
Food Equipment	2,110			2,096			2,177			2,188			2,214			2,123
Test & Measurement and Electronics	1,974			1,969			2,204			2,121			2,171			2,069
Welding	1,486			1,650			1,850			1,638			1,691			1,538
Polymers & Fluids	1,691			1,712			1,927			1,669			1,724			1,724
Construction Products	1,609			1,587			1,707			1,625			1,700			1,672
Specialty Products	1,885			1,885			2,055			1,825			1,951			1,938
Intersegment revenue	(20		)	(23		)	(26		)	(20		)	(21		)	(21		)
Total	$	13,599		$	13,405		$	14,484		$	14,109		$	14,768		$	14,314
Operating income:
Automotive OEM	$	690		$	613		$	600		$	659		$	751		$	747
Food Equipment	537			498			453			578			572			556
Test & Measurement and Electronics	372			322			340			542			523			464
Welding	370			415			479			453			474			415
Polymers & Fluids	343			335			357			381			369			357
Construction Products	361			316			289			383			414			399
Specialty Products	482			439			440			472			522			527
Total Segments	3,155			2,938			2,958			3,468			3,625			3,465
Unallocated	(91		)	(71		)	(70		)	(66		)	(41		)	20
Total	$	3,064		$	2,867		$	2,888		$	3,402		$	3,584		$	3,485
Depreciation and amortization and impairment of intangible assets:
Automotive OEM	$	90		$	76		$	79		$	125		$	123		$	111
Food Equipment	45			48			52			41			44			45
Test & Measurement and Electronics	104			110			115			69			88			92
Welding	36			37			38			26			27			28
Polymers & Fluids	92			95			99			77			83			89
Construction Products	34			36			43			29			32			33
Specialty Products	69			75			81			59			64			64
Total	$	470		$	477		$	507		$	426		$	461		$	462
Plant and equipment additions:
Automotive OEM	$	116		$	106		$	96		$	134		$	184		$	147
Food Equipment	31			37			47			35			28			27
Test & Measurement and Electronics	25			32			56			26			31			23
Welding	16			23			36			28			23			17
Polymers & Fluids	18			20			28			18			15			16
Construction Products	20			26			41			29			25			22
Specialty Products	47			40			54			56			58			45
Total Segments	273			284			358
Discontinued Operations	—			—			3
Total	$	273		$	284		$	361		$	326		$	364		$	297
Identifiable assets:
Automotive OEM	$	2,051		$	1,419		$	1,454		$	2,417		$	2,388		$	2,402
Food Equipment	1,013			1,054			1,123			1,042			1,019			1,054
Test & Measurement and Electronics	2,362			2,448			2,615			2,374			2,343			2,449
Welding	701			747			879			734			789			756
Polymers & Fluids	2,019			2,034			2,257			1,862			1,942			2,067
Construction Products	1,099			1,129			1,249			1,176			1,167			1,196
Specialty Products	1,599			1,659			1,798			1,656			1,687			1,721
Total Segments	10,844			10,490			11,375			11,261			11,335			11,645
Corporate	4,357			5,239			6,090			3,807			3,535			5,135
Total	$	15,201		$	15,729		$	17,465		$	15,068		$	14,870		$	16,780

Identifiable assets by segment are those assets that are specifically used in that segment. Corporate assets are principally cash and equivalents, investments and other general corporate assets.

Enterprise-wide information for ~~2016, 2015~~the twelve months ended December 31, 2019, 2018 and ~~2014~~2017 was as follows:



In millions	2019		2018		2017
Operating Revenue by Geographic Region:
United States	$	6,507	$	6,562	$	6,243
Canada/Mexico	972		1,050		996
Total North America	7,479		7,612		7,239
Europe, Middle East and Africa	3,920		4,241		4,102
Asia Pacific	2,400		2,573		2,577
South America	310		342		396
Total Operating Revenue	$	14,109	$	14,768	$	14,314

In millions 2016 2015 2014
Operating Revenue by Geographic Region:
United States $ 6,176
$ 6,167
$ 6,191
Canada/Mexico 923
928
993
Total North America 7,099
7,095
7,184
Europe, Middle East and Africa 3,787
3,725
4,319
Asia Pacific 2,361
2,197
2,427
South America 352
388
554
Total Operating Revenue $ 13,599
$ 13,405
$ 14,484

Operating revenue by geographic region is based on the customers' locations. ~~Long-lived~~As of December 31, 2019, the Company had approximately 11% of its total long-lived assets in ~~any~~China. There was no single country outside of the ~~U.S. did not exceed~~U.S with long-lived assets exceeding 10% of the Company's total long-lived ~~assets.~~assets in 2018. No single customer accounted for more than 5% of consolidated revenues ~~in 2016, 2015~~for the twelve months ended December 31, 2019, 2018 or ~~2014. Additionally, the Company has thousands of product lines within its businesses; therefore, providing operating revenue by product line is not practicable.~~2017.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The unaudited quarterly financial data included as supplementary data reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.



	Three Months Ended
	March 31				June 30				September 30				December 31
In millions except per share amounts	2019		2018		2019		2018		2019		2018		2019		2018
Operating revenue	$	3,552	$	3,744	$	3,609	$	3,831	$	3,479	$	3,613	$	3,469	$	3,580
Cost of revenue	2,059		2,181		2,099		2,231		2,007		2,096		2,022		2,096
Operating income	839		903		871		932		868		889		824		860
Net income	597		652		623		666		660		638		641		607
Net income per share:
Basic	$	1.82	$	1.92	$	1.92	$	1.98	$	2.05	$	1.91	$	2.00	$	1.84
Diluted	1.81		1.90		1.91		1.97		2.04		1.90		1.99		1.83

Three Months Ended
March 31 June 30 September 30 December 31
In millions except per share amounts 2016 2015 2016 2015 2016 2015 2016 2015
Operating revenue $ 3,274
$ 3,342
$ 3,431
$ 3,434
$ 3,495
$ 3,354
$ 3,399
$ 3,275
Cost of revenue 1,896
1,970
1,967
2,024
2,027
1,953
2,006
1,941
Operating income 722
697
792
730
808
761
742
679
Net income 468
458
525
480
535
511
507
450
Net income per share:
Basic 1.29
1.22
1.47
1.31
1.51
1.40
1.46
1.24
Diluted 1.29
1.21
1.46
1.30
1.50
1.39
1.45
1.23

ITEM 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.Controls and Procedures

Controls and Procedures

The Company’s management, with the participation of the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 31, ~~2016.~~2019. Based on such evaluation, the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer have concluded that, as of December 31, ~~2016,~~2019, the Company’s disclosure controls and procedures were effective.

Management Report on Internal Control over Financial Reporting

The Management Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm are found in Item 8. Financial Statements and Supplementary Data.

In connection with the evaluation by management, including the Company’s Chairman & Chief Executive Officer and Senior Vice President & Chief Financial Officer, no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31, ~~2016~~2019 were identified that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

ITEM 9B.Other Information

None.

PART III

ITEM 10.Directors, Executive Officers and Corporate Governance

Information regarding the Directors of the Company is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

Information regarding the Audit Committee and its Financial Experts is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Board of Directors and Its Committees" and "Audit Committee Report" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

Information regarding the Executive Officers of the Company can be found in Part I of this Annual Report on Form 10-K under the caption ~~"Executive~~"Information About Our Executive Officers."

Information regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference from the information under the caption "Proposal 1 - Election of Directors - Section 16(a) Beneficial Ownership ~~Reporting Compliance"~~Reports" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

Information regarding the Company’s code of ethics that applies to the Company’s Chairman & Chief Executive Officer, Senior Vice President & Chief Financial Officer, and key financial and accounting personnel is incorporated by reference from the information under the caption "Proposal 1 - Election of Directors - Corporate Governance Policies and Practices" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

ITEM 11.Executive Compensation

This information is incorporated by reference from the information under the captions "NEO Compensation," "Proposal 1 - Election of Directors - Director Compensation," and "Compensation Discussion and Analysis" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

This information is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Ownership of ITW Stock" and "NEO Compensation - Equity Compensation Plan Information" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

ITEM 13.Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and related transactions is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Ownership of ITW Stock," "Certain Relationships and Related Party Transactions" and "Proposal 1 - Election of Directors - Corporate Governance Policies and Practices" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

Information regarding director independence is incorporated by reference from the information under the captions "Proposal 1 - Election of Directors - Corporate Governance Policies and Practices" and "Appendix A - Categorical Standards for Director Independence" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

ITEM 14. Principal Accounting Fees and Services

This information is incorporated by reference from the information under the caption "Proposal 2 - Ratification of the Appointment of Independent Registered Public Accounting Firm" in the Company’s Proxy Statement for the ~~2017~~2020 Annual Meeting of Stockholders.

PART IV

ITEM 15.Exhibits and Financial Statement Schedules

~~(a)(1) Financial Statements~~


(a)	(1) Financial Statements

The following information is included as part of Item 8. Financial Statements and Supplementary Data:

Management Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm

Statement of Income

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Stockholders' Equity

Statement of Cash Flows

Notes to Financial Statements

(2) Financial Statement Schedules

None.

(3) Exhibits

~~(i) See the Exhibit Index within this Annual Report on Form 10-K.~~



Exhibit Number		Description
2.1(a)		Investment Agreement, dated as of August 15, 2012, among CD&R Wimbledon Holdings III, L.P., a Cayman Islands limited partnership; Illinois Tool Works Inc.; ITW DS Investments Inc., a Delaware corporation; and Wilsonart International Holdings LLC, a Delaware limited liability company, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 17, 2012 (Commission File No. 1-4797) and incorporated herein by reference. (Certain of the schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but the Company undertakes to furnish a copy of the schedules or similar attachments to the Securities and Exchange Committee upon request.)

2.1(b)		Stock Purchase Agreement, dated as of February 6, 2014, between Illinois Tool Works Inc. and certain of its subsidiaries and Vault Bermuda Holding Co. Ltd., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 12, 2014. (Commission File No. 1-4797) and incorporated herein by reference. (Certain of the schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but the Company undertakes to furnish a copy of the schedules or similar attachments to the Securities and Exchange Commission upon request).

3(a)(i)		Amended and Restated Certificate of Incorporation of Illinois Tool Works Inc., filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (Commission File No. 1-4797) and incorporated herein by reference.

3(a)(ii)		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Illinois Tool Works Inc., filed as Exhibit 3(a)(ii) to the Company’s Current Report on Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by reference.

3(b)		By-laws of Illinois Tool Works Inc., as amended and restated as of May 6, 2016, filed as Exhibit 3(b)(i) to the Company’s Current Report on Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by reference.

4(a)		Indenture between Illinois Tool Works Inc. and The First National Bank of Chicago, as Trustee, dated as of November 1, 1986, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed on January 15, 1999 (Commission File No. 333-70691) and incorporated herein by reference.

4(b)		First Supplemental Indenture between Illinois Tool Works Inc. and Harris Trust and Savings Bank, as Trustee, dated as of May 1, 1990, filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-3 filed on January 15, 1999 (Commission File No. 333-70691) and incorporated herein by reference.

4(c)		Officers’ Certificate dated August 31, 2011, establishing the terms, and setting forth the forms, of the 3.375% Notes due 2021 and the 4.875% Notes due 2041, filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on September 1, 2011 (Commission File No. 001-04797) and incorporated herein by reference.

4(d)		Officers' Certificate dated August 28, 2012, establishing the terms, and setting forth the forms, of the 3.9% Notes due 2042, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 28, 2012 (Commission File No. 001-4797) and incorporated herein by reference.



Exhibit Number		Description

4(e)		Officers’ Certificate dated February 25, 2014, establishing the terms, and setting forth the forms, of the 0.9% Notes due 2017, the 1.95% Notes due 2019, and the 3.5% Notes due 2024, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 26, 2014 (Commission File No. 001-04797) and incorporated herein by reference.

4(f)		Officers’ Certificate dated May 20, 2014, establishing the terms, and setting forth the forms, of the 1.75% Euro Notes due 2022 and the 3.0% Euro Notes due 2034, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 22, 2014 (Commission File No. 001-04797) and incorporated herein by reference.

4(g)		Officers’ Certificate dated May 19, 2015, establishing the terms, and setting forth the forms, of the 1.25% Euro Notes due 2023 and the 2.125% Euro Notes due 2030, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 22, 2015 (Commission File No. 001-04797) and incorporated herein by reference.

4(h)		Officer’s Certificate dated November 7, 2016, establishing the terms, and setting forth the forms, of the 2.65% Notes due 2026, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 10, 2016 (Commission File No. 001-04797) and incorporated herein by reference.

4(i)		Officers’ Certificate dated June 5, 2019, establishing the terms, and setting forth the forms, of the 0.250% Notes due 2024, the 0.625% Notes due 2027 and the 1.000% Notes due 2031, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 5, 2019 (Commission File No. 001-04797) and incorporated herein by reference.

4(j)		Description of the Company’s common stock.

4(k)		Description of the 1.75% Euro Notes due 2022 and 3.00% Euro Notes due 2034.

4(l)		Description of the 1.25% Euro Notes due 2023 and 2.125% Euro Notes due 2030.

4(m)		Description of the 0.250% Euro Notes due 2024, 0.625% Euro Notes due 2027 and 1.00% Euro Notes due 2031.

10(a)*		Illinois Tool Works Inc. 2011 Long-Term Incentive Plan, filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by reference.

10(b)*		Illinois Tool Works Inc. 2015 Long-Term Incentive Plan effective May 8, 2015, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 (Commission File No. 1-4797) and incorporated herein by reference.

10(c)*		Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 9, 2011 (Commission File No. 1-4797) and incorporated herein by reference.

10(d)*		Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 7, 2012 (Commission File No. 1-4797) and incorporated herein by reference.

10(e)*		Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 13, 2014 (Commission File No. 1-4797) and incorporated herein by reference.

10(f)*		Form of stock option terms filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on February 9, 2016 (Commission File No. 1-4797) and incorporated herein by reference.

10(g)*		Form of stock option terms filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.

10(h)*		Form of restricted stock unit terms filed as Exhibit 99.2 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.

10(i)*		Form of performance share unit terms filed as Exhibit 99.3 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.

10(j)*		Form of performance cash grant filed as Exhibit 99.4 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.

10(k)*		Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 14, 2019 (Commission File No. 1-4797) and incorporated herein by reference

10(l)*		Form of performance share unit terms filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on February 14, 2019 (Commission File No. 1-4797) and incorporated herein by reference



Exhibit Number		Description

10(m)*		Form of performance cash terms filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on February 14, 2019 (Commission File No. 1-4797) and incorporated herein by reference

10(n)*		Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 5, 2020 (Commission File No. 1-4797) and incorporated herein by reference.

10(o)*		Form of performance share unit terms filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on February 5, 2020 (Commission File No. 1-4797) and incorporated herein by reference.

10(p)*		Form of performance cash terms filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on February 5, 2020 (Commission File No. 1-4797) and incorporated herein by reference.

10(q)*		Form of restricted stock unit terms filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on February 5, 2020 (Commission File No. 1-4797) and incorporated herein by reference.

10(r)*		Illinois Tool Works Inc. 2011 Executive Incentive Plan, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by reference.

10(s)*		Illinois Tool Works Inc. Executive Contributory Retirement Income Plan as amended and restated, effective January 1, 2010, filed as exhibit 10 to the Company’s Current Report on Form 8-K filed on November 5, 2009 (Commission File No. 1-4797) and incorporated herein by reference.

10(t)*		Illinois Tool Works Inc. Nonqualified Pension Plan, effective January 1, 2008, as amended and approved by the Board of Directors on December 22, 2008, filed as Exhibit 10(p) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 1-4797) and incorporated herein by reference.

10(u)*		Illinois Tool Works Inc. 2011 Change-in-Control Severance Compensation Policy, filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by reference.

10(v)*		Illinois Tool Works Inc. Amended and Restated Directors’ Deferred Fee Plan effective May 2, 2014, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (Commission File No. 1-4797) and incorporated herein by reference.

10(w)*		Illinois Tool Works Inc. 2011 Cash Incentive Plan, filed as Exhibit 99.1 to the Company’s Form 8-K filed on May 12, 2011 (Commission File No. 1-4797) and incorporated herein by reference.

10(x)*		First Amendment to the ITW Executive Contributory Retirement Income Plan dated February 15, 2013, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 (Commission File No. 1-4797) and incorporated herein by reference.

10(y)*		Five Year Credit Agreement dated as of September 27, 2019 among Illinois Tool Works Inc., JPMorgan Chase Bank, N.A., as Agent, Citibank, N.A., as Syndication Agent, and a syndicate of lenders, filed as Exhibit 10(a) to the Company’s Current Report on Form 8-K filed on October 3, 2019 (Commission File No. 1-4797) and incorporated herein by reference.

21		Subsidiaries and Affiliates of the Company.

23		Consent of Independent Registered Public Accounting Firm.

24		Powers of Attorney.

31		Rule 13a-14(a) Certifications.

32		Section 1350 Certification.

101.INS		iXBRL Instance Document**

101.SCH		iXBRL Taxonomy Extension Schema**

101.CAL		iXBRL Taxonomy Extension Calculation Linkbase**

101.DEF		iXBRL Taxonomy Extension Definition Linkbase**

101.LAB		iXBRL Taxonomy Extension Label Linkbase**

101.PRE		iXBRL Taxonomy Extension Presentation Linkbase**

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



*	Management contract or compensatory plan or arrangement.
**	The following financial information from Illinois Tool Works Inc.'s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Statement of Income, (ii) Statement of Comprehensive Income, (iii) Statement of Changes in Stockholders' Equity (iv) Statement of Financial Position, (v) Statement of Cash Flows and (vi) related Notes to Financial Statements.

Pursuant to Regulation S-K, Item 601(b)(4)(iii), the Company has not filed with Exhibit 4 any debt instruments for which the total amount of securities authorized thereunder is less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis as of December 31, ~~2016,~~2019, with the exception of the Officers' Certificates related to ~~the 0.90% Notes due 2017, the 1.95% Notes due 2019, the 6.25% Notes due 2019,~~ the 3.375% Notes due 2021, the 1.75% Euro Notes due 2022, the 1.25% Euro Notes due 2023, the 3.50% Notes due 2024, 0.25% Euro Notes due 2024, the 2.65% Notes due 2026, 0.625% Euro Notes due 2027, the 2.125% Euro Notes due 2030, 1.00% Euro Notes due 2031, the 3.00% Euro Notes due 2034, the 4.875% Notes due 2041, and the 3.90% Notes due 2042, which are described as Exhibit numbers ~~4(a)~~4(c) through (i) in the Exhibit Index. The Company agrees to furnish a copy of the agreement related to the debt instruments which have not been filed with Exhibit 4 to the Securities and Exchange Commission upon request.

ITEM 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this ~~10th~~14th day of February ~~2017.~~2020.



ILLINOIS TOOL WORKS INC.

By:		/s/ E. SCOTT SANTI
		E. Scott Santi
		Chairman & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on this ~~10th~~14th day of February ~~2017.~~2020.



Signatures		Title

/s/ E. SCOTT SANTI		Chairman & Chief Executive Officer, Director
E. Scott Santi		(Principal Executive Officer)

/s/ MICHAEL M. LARSEN		Senior Vice President & Chief Financial Officer
Michael M. Larsen		(Principal Financial Officer)

/s/ RANDALL J. SCHEUNEMAN		Vice President & Chief Accounting Officer
Randall J. Scheuneman		(Principal Accounting Officer)

DANIEL J. BRUTTO		Director

SUSAN CROWN		Director

JAMES W. GRIFFITH		Director

JAY L. HENDERSON		Director

RICHARD H. LENNY		Director

~~ROBERT S. MORRISON~~		~~Director~~

JAMES A. SKINNER		Director

DAVID B. SMITH, JR.		Director

PAMELA B. STROBEL		Director

KEVIN M. WARREN		Director

ANRÉ D. WILLIAMS		Director

		By: /s/ E. SCOTT SANTI
		(E. Scott Santi, as Attorney-in-Fact)

Original powers of attorney authorizing E. Scott Santi to sign the Company’s Annual Report on Form 10-K and amendments thereto on behalf of the above-named directors of the registrant have been filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K (Exhibit 24).

~~Exhibit Index~~

~~Annual Report on Form 10-K~~

~~2016~~



~~Exhibit~~ ~~Number~~		~~Description~~
~~2.1(a)~~		Investment Agreement, dated as of August 15, 2012, among CD&R Wimbledon Holdings III, L.P., a Cayman Islands limited partnership; Illinois Tool Works Inc.; ITW DS Investments Inc., a Delaware corporation; and Wilsonart International Holdings LLC, a Delaware limited liability company, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 17, 2012 (Commission File No. 1-4797) and incorporated herein by reference. (Certain of the schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but the Company undertakes to furnish a copy of the schedules or similar attachments to the Securities and Exchange Committee upon request.)

~~2.1(b)~~		Stock Purchase Agreement, dated as of February 6, 2014, between Illinois Tool Works Inc. and certain of its subsidiaries and Vault Bermuda Holding Co. Ltd., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 12, 2014. (Commission File No. 1-4797) and incorporated herein by reference. (Certain of the schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K, but the Company undertakes to furnish a copy of the schedules or similar attachments to the Securities and Exchange Commission upon request).

~~3(a)(i)~~		Amended and Restated Certificate of Incorporation of Illinois Tool Works Inc., filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (Commission File No. 1-4797) and incorporated herein by reference.

~~3(a)(ii)~~		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Illinois Tool Works Inc., filed as Exhibit 3(a)(ii) to the Company’s Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by reference.

~~3(b)~~		By-laws of Illinois Tool Works Inc., as amended and restated as of May 6, 2016, filed as Exhibit 3(b)(i) to the Company’s Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by reference.

~~4(a)~~		Indenture between Illinois Tool Works Inc. and The First National Bank of Chicago, as Trustee, dated as of November 1, 1986, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed on January 15, 1999 (Commission File No. 333-70691) and incorporated herein by reference.

~~4(b)~~		First Supplemental Indenture between Illinois Tool Works Inc. and Harris Trust and Savings Bank, as Trustee, dated as of May 1, 1990, filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-3 filed on January 15, 1999 (Commission File No. 333-70691) and incorporated herein by reference.

~~4(c)~~		Officers’ Certificate dated March 26, 2009 establishing the terms, and setting forth the forms, of the 5.15% Notes due 2014 and the 6.25% Notes due 2019, filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on March 27, 2009 (Commission File No. 1-4797) and incorporated herein by reference.

~~4(d)~~		Officers’ Certificate dated August 31, 2011, establishing the terms, and setting forth the forms, of the 3.375% Notes due 2021 and the 4.875% Notes due 2041, filed as Exhibit 4.3 to the Company’s Form 8-K filed on September 1, 2011 (Commission File No. 001-04797) and incorporated herein by reference.

~~4(e)~~		Officers' Certificate dated August 28, 2012, establishing the terms, and setting forth the forms, of the 3.9% Notes due 2042, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 28, 2012 (Commission File No. 001-4797) and incorporated herein by reference.

~~4(f)~~		Officers’ Certificate dated February 25, 2014, establishing the terms, and setting forth the forms, of the 0.9% Notes due 2017, the 1.95% Notes due 2019, and the 3.5% Notes due 2024, filed as Exhibit 4.1 to the Company’s Form 8-K filed on February 26, 2014 (Commission File No. 001-04797) and incorporated herein by reference.

~~4(g)~~		Officers’ Certificate dated May 20, 2014, establishing the terms, and setting forth the forms, of the 1.75% Euro Notes due 2022 and the 3.0% Euro Notes due 2034, filed as Exhibit 4.1 to the Company’s Form 8-K filed on May 22, 2014 (Commission File No. 001-04797) and incorporated herein by reference.

~~4(h)~~		Officers’ Certificate dated May 19, 2015, establishing the terms, and setting forth the forms, of the 1.25% Euro Notes due 2023 and the 2.125% Euro Notes due 2030, filed as Exhibit 4.1 to the Company’s Form 8-K filed on May 22, 2015 (Commission File No. 001-04797) and incorporated herein by reference.

~~4(i)~~		Officer’s Certificate dated November 7, 2016, establishing the terms, and setting forth the forms, of the 2.65% Notes due 2026, filed as Exhibit 4.1 to the Company’s Form 8-K filed on November 1, 2016 (Commission File No. 001-04797) and incorporated herein by reference.



~~Exhibit~~ ~~Number~~		~~Description~~
10(a)*		Illinois Tool Works Inc. 2006 Stock Incentive Plan dated February 10, 2006, as amended on May 5, 2006, filed as Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 (Commission File No. 1-4797) and incorporated herein by reference.

10(b)*		Amendment to Illinois Tool Works Inc. 2006 Stock Incentive Plan dated February 8, 2008, filed as Exhibit 10(q) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (Commission File No. 1-4797) and incorporated herein by reference.

10(c)*		Second Amendment to Illinois Tool Works Inc. 2006 Stock Incentive Plan dated February 13, 2009, filed as Exhibit 10(d) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 1-4797) and incorporated herein by reference.

10(d)*		Illinois Tool Works Inc. 2011 Long-Term Incentive Plan, filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by reference.

10(e)*		Illinois Tool Works Inc. 2015 Long-Term Incentive Plan effective May 8, 2015, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 (Commission File No. 1-4797) and incorporated herein by reference.

10(f)*		~~Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 5, 2009 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(g)*		~~Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 9, 2011 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(h)*		~~Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 7, 2012 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(i)*		~~Form of stock option terms filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 13, 2014 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(j)*		~~Form of restricted stock unit terms filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on February 13, 2014 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(k)*		Form of performance restricted stock unit terms filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on February 13, 2014 (Commission File No. 1-4797) and incorporated herein by reference.

10(l)*		~~Form of Long-Term Incentive Cash Grant filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on February 13, 2014 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(m)*		~~Form of stock option terms filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on February 9, 2016 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(n)*		~~Form of restricted stock unit terms filed as Exhibit 99.2 to the Company's Current Report on Form 8-K filed on February 9, 2016 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(o)*		Form of performance restricted stock unit terms filed as Exhibit 99.3 to the Company's Current Report on Form 8-K filed on February 9, 2016 (Commission File No. 1-4797) and incorporated herein by reference.

10(p)*		~~Form of Long-Term Incentive Cash Grant filed as Exhibit 99.4 to the Company's Current Report on Form 8-K filed on February 9, 2016 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(q)*		~~Form of stock option terms filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(r)*		~~Form of restricted stock unit terms filed as Exhibit 99.2 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(s)*		~~Form of performance share unit terms filed as Exhibit 99.3 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(t)*		~~Form of Performance Cash Grant filed as Exhibit 99.4 to the Company's Current Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.~~

10(u)*		Illinois Tool Works Inc. 2011 Executive Incentive Plan, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by reference.

10(v)*		Illinois Tool Works Inc. Executive Contributory Retirement Income Plan as amended and restated, effective January 1, 2010, filed as exhibit 10 to the Company’s Current Report on Form 8-K filed on November 5, 2009 (Commission File No. 1-4797) and incorporated herein by reference.



~~Exhibit~~ ~~Number~~		~~Description~~
10(w)*		Illinois Tool Works Inc. Nonqualified Pension Plan, effective January 1, 2008, as amended and approved by the Board of Directors on December 22, 2008, filed as Exhibit 10(p) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 1-4797) and incorporated herein by reference.

10(x)*		Illinois Tool Works Inc. 2011 Change-in-Control Severance Compensation Policy, filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on December 16, 2010 (Commission File No. 1-4797) and incorporated herein by reference.

10(y)*		Illinois Tool Works Inc. Amended and Restated Directors’ Deferred Fee Plan effective May 2, 2014, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 (Commission File No. 1-4797) and incorporated herein by reference.

10(z)*		~~Illinois Tool Works Inc. 2011 Cash Incentive Plan, filed as Exhibit 99.1 to the Company’s Form 8-K filed on May 12, 2011 (Commission File No. 1-4797) and incorporated herein by reference.~~


10(aa)*		First Amendment to the ITW Contributory Retirement Income Plan dated February 15, 2013, filed as Exhibit 10.2 to the Company’s Current Form 10-Q filed on May 3, 2013 (Commission File No. 1-4797) and incorporated herein by reference.

~~10(bb)~~		Five Year Credit Agreement dated as of May 9, 2016 among Illinois Tool Works Inc., the Lenders, JPMorgan Chase Bank, National Association, as Administrative Agent, and Citibank, N.A., as Syndication Agent filed as Exhibit 10(a) to the Company’s Form 8-K filed on May 12, 2016 (Commission File No. 1-4797) and incorporated herein by reference.

21		~~Subsidiaries and Affiliates of the Company.~~

23		~~Consent of Independent Registered Public Accounting Firm.~~

24		~~Powers of Attorney.~~

31		~~Rule 13a-14(a) Certifications.~~

32		~~Section 1350 Certification.~~

~~99(a)~~		A description of the capital stock of Illinois Tool Works Inc. is included under Item 8.01 Other Events in the Company's Report on Form 8-K filed on February 9, 2017 (Commission File No. 1-4797) and incorporated herein by reference.

~~101.INS~~		XBRL Instance Document**

~~101.SCH~~		XBRL Taxonomy Extension Schema**

~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase**

~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase**

~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase**

~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase**



*	~~Management contract or compensatory plan or arrangement.~~
**	The following financial information from Illinois Tool Works Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Statement of Income, (ii) Statement of Comprehensive Income, (iii) Statement of Income Reinvested in the Business (iv) Statement of Financial Position, (v) Statement of Cash Flows and (vi) related Notes to Financial Statements.


Dollars in millions	2016			2015			2014			2019			2018			2017
Operating income	$	3,064		$	2,867		$	2,888		$	3,402		$	3,584		$	3,485
Tax rate	30.0		%	30.1		%	30.0		%
Less: Legal settlement income										—			—			(95		)
Adjusted operating income										3,402			3,584			3,390
Adjusted tax rate										24.0		%	24.9		%	28.3		%
Income taxes	(919		)	(864		)	(866		)	(815		)	(893		)	(958		)
Operating income after taxes	$	2,145		$	2,003		$	2,022		$	2,587		$	2,691		$	2,432

Invested capital:
Trade receivables	$	2,357		$	2,203		$	2,293		$	2,461		$	2,622		$	2,628
Inventories	1,076			1,086			1,180			1,164			1,318			1,220
Net assets held for sale										280			—			—
Net plant and equipment	1,652			1,577			1,686			1,729			1,791			1,778
Goodwill and intangible assets	6,021			5,999			6,466			5,343			5,717			6,024
Accounts payable and accrued expenses	(1,713		)	(1,585		)	(1,799		)	(1,689		)	(1,795		)	(1,848		)
Other, net	223			280			427			(481		)	(519		)	21
Total invested capital	$	9,616		$	9,560		$	10,253		$	8,807		$	9,134		$	9,823

Average invested capital	$	9,780		$	9,943		$	11,215		$	9,028		$	9,533		$	10,005
Adjustment for Wilsonart (formerly the Decorative Surfaces segment)	(91		)	(123		)	(154		)
Adjustment for Industrial Packaging	—			—			(424		)
Adjusted average invested capital	$	9,689		$	9,820		$	10,637
Adjusted return on average invested capital	22.1		%	20.4		%	19.0		%
Adjusted after-tax return on average invested capital										28.7		%	28.2		%	24.3		%



~~Usage Classification~~	~~Criteria~~	~~Reserve %~~
~~Active~~	~~Quantity on hand is less than prior 6 months of usage~~	0	%
~~Slow-moving~~	~~Some usage in last 12 months, but quantity on hand exceeds prior 6 months of usage~~	50	%
~~Obsolete~~	~~No usage in the last 12 months~~	90	%



	Number Of Properties
	Owned	Leased	Total
Automotive OEM	59	38	97
Food Equipment	24	17	41
Test & Measurement and Electronics	29	63	92
Welding	26	18	44
Polymers & Fluids	37	32	69
Construction Products	28	28	56
Specialty Products	47	42	89
Corporate	1	12	13
Total	251	250	501



	Market Price Per Share				Dividends Declared Per Share
	High		Low		Dividends Declared Per Share
2016:
Fourth quarter	$	127.99	$	111.50	$	0.65
Third quarter	123.50		103.08		0.65
Second quarter	109.54		98.32		0.55
First quarter	102.98		79.15		0.55

2015:
Fourth quarter	$	95.00	$	80.16	$	0.55
Third quarter	94.33		78.79		0.55
Second quarter	99.92		91.41		0.485
First quarter	100.14		90.43		0.485


◦	North American organic revenue declined ~~8.0% driven~~1.1% as a decrease in the industrial end markets was partially offset by ~~decreases across~~growth in the commercial and oil and gas ~~end markets and industrial end markets primarily related to heavy equipment for agriculture, infrastructure and mining.~~


◦	~~International organic revenue decreased 12.9% primarily due to weak oil and gas end markets in Europe and Asia Pacific.~~


◦	~~North American organic revenue declined 5.1% primarily due to decreases across the oil and gas and industrial~~ end markets.


◦	International organic revenue decreased ~~14.5%~~1.6% primarily due to ~~weak~~a decline in Europe, partially offset by higher demand in Asia in the oil and gas end markets.


◦	Organic revenue for the automotive aftermarket businesses ~~increased 2.1%~~declined 0.7% primarily ~~driven~~due to lower demand in the tire repair businesses in North America and the additives businesses in Europe, partially offset by ~~an increase~~stronger demand in the car care ~~and tire repair~~businesses in North America.


◦	Organic revenue for the polymers businesses increased ~~1.4%~~2.4% primarily driven by ~~an increase~~growth in ~~South~~Asia and North America, ~~and a modest increase~~primarily in the ~~European wind energy business, partially offset by a decline in North America.~~ heavy industrial end markets.


◦	Organic revenue for the fluids businesses ~~was flat as growth in South America was offset by~~decreased 2.0% primarily due to a decline in the industrial maintenance, repair, and operations end markets in North America.


◦	North American organic revenue was flat as an increase of 1.9% in the United States residential end markets was offset by a decline of 3.2% in the commercial end markets and a decline in Canada.


◦	International organic revenue declined 1.8%. Asia Pacific organic revenue decreased 5.1% primarily due to a decline in Australia and New Zealand across all end markets. European organic revenue increased 1.3% driven by growth in continental Europe.


◦	North American organic revenue grew ~~3.3% driven by~~1.6% as growth in ~~residential/remodel and~~the residential end markets of 3.2% was partially offset by a decline in the commercial end ~~markets.~~markets of 5.7%.


◦	~~International organic revenue increased 2.3% driven by growth in the appliance, foils, and gluing system businesses in Asia Pacific.~~


◦	Growth in the consumer packaging businesses, driven by strong food and beverage end market demand, and in the brand identification businesses, due to increased medical, credit card, and automotive end market demand, was more than offset by the impact of a challenging capital spending environment and ongoing PLS activities.


◦	North American organic revenue grew 1.8% primarily due to increased demand in the consumer packaging and ground support ~~equipment~~ businesses, partially offset by ~~growth~~a decline in the ~~consumer packaging~~labels, appliance and plastic films businesses.



	Twelve Months Ended
	December 31, 2019
Dollars in millions	Income Taxes		Tax Rate
As reported	$	767	23.3	%
Discrete tax benefit related to third quarter	21		0.7	%
As adjusted	$	788	24.0	%



	Twelve Months Ended
	December 31, 2018
Dollars in millions	Income Taxes		Tax Rate
As reported	$	831	24.5	%
Net discrete tax benefit related to third quarter	15		0.4	%
As adjusted	$	846	24.9	%



	Twelve Months Ended
	December 31, 2017
Dollars in millions	Income Taxes			Tax Rate
As reported	$	1,583		48.4	%
Discrete tax charge related to 2017 U.S. tax legislation	(658		)	(20.1	)%
As adjusted	$	925		28.3	%



~~Buildings and improvements~~	~~150% declining balance~~
~~Machinery and equipment~~	~~200% declining balance~~



	0.90% Notes Due		1.95% Notes Due		6.25% Notes Due		4.88% Notes Due thru		3.375% Notes Due		1.75% Euro Notes Due		1.25% Euro Notes Due		3.50% Notes Due		2.65% Notes Due		2.125% Euro Notes Due		3.00% Euro Notes Due		4.875% Notes Due		3.9% Notes Due
In millions	Feb 25, 2017		Mar 1, 2019		Apr 1, 2019		Dec 31, 2020		Sep 15, 2021		May 20, 2022		May 22, 2023		Mar 1, 2024		Nov 15, 2026		May 22, 2030		May 19, 2034		Sep 15, 2041		Sep 1, 2042
As of December 31, 2016:
Estimated cash outflow by year of principal maturity
2017	$	650	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2018	—		—		—		—		—		—		—		—		—		—		—		—		—
2019	—		650		700		—		—		—		—		—		—		—		—		—		—
2020	—		—		—		4		—		—		—		—		—		—		—		—		—
2021	—		—		—		—		350		—		—		—		—		—		—		—		—
2022 and thereafter	—		—		—		—				526		526		700		1,000		526		526		650		1,100
Estimated fair value	650		656		768		4		365		565		549		728		959		565		618		734		1,114
Carrying value	650		648		698		4		348		520		520		695		991		519		512		636		1,080

As of December 31, 2015:
Estimated total cash outflow	$	650	$	650	$	700	$	4	$	350	$	543	$	543	$	700	$	—	$	543	$	543	$	650	$	1,100
Estimated fair value	649		655		790		4		362		564		538		727		—		530		569		708		1,051
Carrying value	649		647		698		4		347		536		536		695		—		536		528		635		1,080