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 84 divisions in 57 countries. As of December 31, 2015, the Company employed approximately 48,000 persons.

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

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

THE ITW BUSINESS MODEL

The powerful and highly differentiated ITW Business Model is the Company’s core source of value creation. This business model is the Company’s competitive advantage and defines how ITW creates value for its shareholders and comprises three unique elements:

•

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. Through the application of data-driven insights generated by 80/20 practice, ITW focuses on its largest and best opportunities (the “80”) and eliminates complexity associated with the less profitable opportunities (the “20”). 80/20 enables ITW businesses to consistently deliver world-class operational excellence in regards to 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 the 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 then 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 16,000 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 customers. ITW colleagues are clear about what is expected of them with regard to ITW’s business model, strategy, and values. This leads to a focused and simple organizational structure that, combined with outstanding execution, delivers operational excellence adapted to their specific customers and end markets.

ENTERPRISE STRATEGY

In 2013, ITW began the process of transitioning the Company onto 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 three years.

The roots of ITW’s Enterprise Strategy began in 2011-2012, when the Company undertook a complete review of its performance. ITW gathered deep insights from its businesses that were delivering consistent above-market growth with best-in-class margins and returns, and defined a strategy to replicate that performance throughout the Company.

Based on this rigorous and thorough evaluation, ITW determined two paths to deliver world-class financial performance and compelling long-term returns for its shareholders. One, ITW needed to shift the Company's primary growth engine to organic; and two, the Company needed to leverage the ITW Business Model to deliver best-in-class margins and returns.

Shift the Company’s Core Growth Engine to Organic

In order to pivot to fully focus on organic growth, the Company needed to first accomplish several preparatory steps. These key initiatives were a major focus of the Company in 2012-2015, which included portfolio management, business structure simplification and strategic sourcing.

The first step, portfolio management, was to construct and maintain a business portfolio capable of delivering consistent above-market organic growth. As part of this initiative to realign the portfolio, ITW exited businesses that were operating in commoditized market spaces and prioritized sustainable differentiation as a must-have requirement for all ITW businesses. This process included both divesting entire businesses and exiting commoditized product lines and customers inside otherwise highly differentiated ITW divisions.

As a result of this work, ITW’s business portfolio now has significantly higher organic growth potential. ITW segments and divisions now possess attractive and differentiated product lines and end markets as they continue to improve margins and generate price/cost increases. This was achieved through product line simplification which focuses 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. Most of this initiative is complete and ITW businesses are demonstrating notably improved financial performance; the Company expects the remaining product line simplification work to largely be accomplished in 2016.

The second step, business structure simplification, was to scale-up ITW’s operating structure to support increased engineering, marketing, and sales resources, and to improve global reach and competitiveness, all of which were critical to ITW’s ability to drive 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.

With the portfolio realignment and scale-up work largely complete, the Company is now able to shift its focus to preparing for, and accelerating, organic growth.

As a third preparatory step, ITW is currently in the process of reapplying 80/20 to optimize its newly scaled-up divisions for growth. This process involves first using 80/20 to build a foundation of operational excellence, and then applying 80/20-driven insights to identify the best opportunities to drive organic growth.

Once the business is operationally excellent and has 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.

Based on the financial performance of the divisions that are further along in this process, the Company believes that this framework is capable of delivering above market organic growth in all ITW segments. Many ITW divisions are ready to grow and growing above their respective markets, while the rest of the Company’s divisions are at various phases of preparing to grow. ITW management is fully aligned on this plan and very focused on executing it. By the end of 2016, the Company expects approximately 85 percent of its businesses to be ready to grow.

Leverage the ITW Business Model to Deliver Best-in-Class Margins and Returns

The Company’s work to deliver best-in-class margins and returns is focused on two key areas of ongoing activity. The first is strategic sourcing, where the Company seeks to benefit from its size and scale in procurement processes. Sourcing is now a core strategic and operational capability and this improved competitiveness supports ITW’s organic growth framework. The Company’s 80/20-enabled sourcing organization has delivered an average of 1 percent reduction in spend each year in 2013-2015 and is on track to do the same in 2016 and 2017.

The second element of the margin and return area of focus is to better leverage the full power of the ITW Business Model through a much more consistent and focused approach to 80/20 best practice implementation across the Company. ITW has clearly defined what excellence in the practice of ITW’s 80/20 management process looks like and the result is significant opportunity to create meaningful incremental improvement in margins and returns as evidenced by the

Company’s improvement in both operating margin and after-tax return on invested capital. These 80/20 initiatives can result in restructuring initiatives that reduce costs and improve profitability and returns.

TERMS USED BY ITW

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

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

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

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

•

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

Unless otherwise stated, the changes in financial results in the consolidated results of operations and the results of operations by segment represent the current year period versus the comparable period in the prior year.

CONSOLIDATED RESULTS OF OPERATIONS

In 2015, the Company delivered solid financial results driven by the continued successful execution of enterprise initiatives despite foreign currency translation headwinds and challenging end market conditions.

The Company’s consolidated results of operations for 2015, 2014 and 2013 are summarized as follows:

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	$	13,405			$	14,484			(7.4	)%		(0.4	)%	(0.2	)%	—	%	(6.8	)%	(7.4	)%
Operating income	2,867				2,888				(0.7	)%		5.8	%	(0.3	)%	1.2	%	(7.4	)%	(0.7	)%
Operating margin %	21.4		%		19.9		%		150 bps			130 bps		—		20 bps		—		150 bps

•	Operating revenue decreased 7.4% primarily due to the unfavorable effect of foreign currency translation as the U.S. Dollar strengthened against most major currencies.

•	Organic revenue decreased 0.4% in 2015 as compared to the prior year.

◦	Automotive OEM, Food Equipment and Construction Products had solid worldwide 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% as a decline in the Welding and Test & Measurement and Electronics segments was partially offset by growth in the Automotive OEM, Food Equipment and Construction Products segments.

◦	European organic revenue increased 1.2%. Double-digit growth in the Automotive OEM segment was partially offset by a decline in the 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.

•	Operating income of $2.9 billion decreased 0.7%. Excluding the negative impact from foreign currency translation of 7.4%, operating income would have increased 6.7%.

•	Record operating margin of 21.4% increased 150 basis points primarily due to the benefit of the Company's enterprise initiatives related to business structure simplification and strategic sourcing that contributed 110 basis points. Lower restructuring expenses and favorable price/cost each contributed 20 basis points of operating margin expansion.

•	Diluted earnings per share (EPS) from continuing operations of $5.13 increased 9.9%. Excluding the negative impact from foreign currency of approximately $0.41 per diluted share, EPS would have increased 18.6%.

•	Free cash flow was $2.0 billion in 2015. 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 million shares of its common stock in 2015 for approximately $2.0 billion.

•	Total cash dividends of $742 million were paid in 2015.

•	Adjusted after-tax return on average invested capital was 20.4%, an increase of 140 basis points. 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.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acquisition/Divestiture		Restructuring		Foreign Currency		Total
Operating revenue	$	14,484			$	14,135			2.5	%		2.6	%	0.6	%	—	%	(0.7	)%	2.5	%
Operating income	$	2,888			$	2,514			14.9	%		14.5	%	0.2	%	0.9	%	(0.7	)%	14.9	%
Operating margin %	19.9		%		17.8		%		210 bps			200 bps		(10) bps		20 bps		—		210 bps

•	Operating revenue increased $349 million, or 2.5%, due to an increase in organic and acquisition revenue, partially offset by the unfavorable effect of currency translation which primarily occurred in the fourth quarter. Acquisitions primarily included the purchase of a European consumer packaging equipment business and a Chinese food equipment business in the third quarter of 2013.

•	Organic revenue increased 2.6% in 2014 as compared to 2013.

◦	Growth in the Automotive OEM and the Food Equipment segments was partially offset by modest declines in the Polymers & Fluids and Specialty Products segments.

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

◦	European organic revenue increased 2.4% primarily driven by the Automotive OEM, Food Equipment and Test & Measurement and Electronics segments, partially offset by the Welding, Polymers & Fluids and Construction Products segments.

◦	Asia Pacific organic revenue increased 4.9% primarily due to growth in the Automotive OEM segment in China and the Construction Products segment in Australia.

◦	North American organic revenue increased 2.3% primarily due to growth in the Automotive OEM, Welding and Food Equipment segments.

•

Operating margin of 19.9% increased 210 basis points primarily due to the benefit of the Company's enterprise initiatives related to business structure simplification and strategic sourcing that contributed 120 basis points and positive operating leverage of 60 basis points. Lower restructuring expenses of 20 basis points, favorable price/cost of 10 basis points and lower operating expenses also contributed to the increase in operating margin. Operating expenses in 2014 included the impact of lower employee benefit expenses, offset by costs related to continued investment in the business.

•	Diluted EPS from continuing operations of $4.67 increased 28.7%.

•	Free cash flow was $1.3 billion in 2014. The 2014 net cash provided by operating activities included $724 million of tax payments related to the disposition of the Industrial Packaging business. Refer to the Cash Flow section of Liquidity and Capital Resources for a reconciliation of this non-GAAP measure.

•	The Company repurchased approximately 50.4 million shares of its common stock in 2014 for approximately $4.3 billion.

•	Total cash dividends of $711 million were paid in 2014.

•	Adjusted after-tax return on average invested capital was 19.0%, an increase of 260 basis points. 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
In millions	2015				2014				2013
Automotive OEM	$	2,529			$	2,590			$	2,396
Test & Measurement and Electronics	1,969				2,204				2,176
Food Equipment	2,096				2,177				2,047
Polymers & Fluids	1,712				1,927				1,993
Welding	1,650				1,850				1,837
Construction Products	1,587				1,707				1,717
Specialty Products	1,885				2,055				2,007
Intersegment revenue	(23		)		(26		)		(38		)
Total	$	13,405			$	14,484			$	14,135

	Operating Income
In millions	2015				2014				2013
Automotive OEM	$	613			$	600			$	490
Test & Measurement and Electronics	322				340				321
Food Equipment	498				453				385
Polymers & Fluids	335				357				335
Welding	415				479				464
Construction Products	316				289				238
Specialty Products	439				440				408
Total Segments	2,938				2,958				2,641
Unallocated	(71		)		(70		)		(127		)
Total	$	2,867			$	2,888			$	2,514

Segments are allocated a fixed overhead charge based on the segment's revenue. Expenses not charged to the segments are reported separately as Unallocated. Because the Unallocated category includes a variety of items, it is subject to fluctuations on a quarterly and annual basis.

AUTOMOTIVE OEM

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

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

The results of operations for the Automotive OEM segment for 2015, 2014 and 2013 were as follows:

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 Exchange		Total
Operating revenue	$	2,529			$	2,590			(2.4	)%		5.8	%	(0.2	)%	—	%	(8.0	)%	(2.4	)%
Operating income	$	613			$	600			2.1	%		10.4	%	(0.1	)%	(0.3	)%	(7.9	)%	2.1	%
Operating margin %	24.2		%		23.2		%		100 bps			100 bps		10 bps		(10) bps		—		100 bps

•	Operating revenue decreased primarily due to the unfavorable effect of currency translation, partially offset by organic revenue growth.

•	Worldwide automotive organic revenue grew 5.8% as a result of product innovation and penetration gains, exceeding worldwide auto build growth of 1%.

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

◦	North American organic revenue growth of 4.2% exceeded auto build growth of 3%.

◦	Asia Pacific organic revenue increased 0.5%. China organic revenue grew 7.9%, as Chinese auto builds increased 4%. Auto builds of foreign automotive manufacturers in China, where the Company has higher content, were flat for 2015.

•	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%. The increase of 100 basis points was primarily driven by 80 basis points of operating leverage, the net benefits from the Company's enterprise initiatives and favorable price/cost of 10 basis points.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acquisition/Divestiture		Restructuring		Foreign Exchange		Total
Operating revenue	$	2,590			$	2,396			8.1	%		8.9	%	(0.1	)%	—	%	(0.7	)%	8.1	%
Operating income	$	600			$	490			22.5	%		20.2	%	—	%	2.9	%	(0.6	)%	22.5	%
Operating margin %	23.2		%		20.5		%		270 bps			220 bps		—		50 bps		—		270 bps

•	Operating revenue increased 8.1% primarily due to an increase in organic revenue, partially offset by the unfavorable effect of currency translation.

•	As a result of product innovation and penetration gains, worldwide automotive organic revenue grew 8.9%, exceeding auto builds which grew 3%.

◦	European organic revenue growth of 10.8% exceeded auto build growth of 3%.

◦	North American automotive organic revenue grew 7.6% as auto builds increased 5%.

◦	Organic revenue for Asia Pacific increased 12.1% primarily due to revenue growth in China of 17.2%, which exceeded Chinese auto build growth of 8%.

•	Operating margin increased 270 basis points to 23.2% primarily driven by positive operating leverage of 140 basis points, the net benefits of the Company's enterprise initiatives and lower restructuring expenses, partially offset by unfavorable price/cost of 30 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 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, 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;

•	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 and transportation applications.

The results of operations for the Test & Measurement and Electronics segment for 2015, 2014 and 2013 were as follows:

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 Exchange		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% due to the unfavorable effect of currency translation and the decrease in organic revenue.

•	Worldwide organic revenue decreased 5.2% in 2015.

◦	Organic revenue for the worldwide test and measurement businesses decreased 5.9% primarily due to the impact of a weak capital spending environment in North America and Europe.

◦	Worldwide electronics organic revenue declined 4.3% primarily due to the decrease in the electronic assembly businesses across all major regions. Organic revenue for the other electronics businesses increased 0.3% primarily driven by the contamination and static control businesses.

•	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%. The increase of 90 basis points was primarily driven by the net 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.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acq/Div		Restructuring		Impairment		Foreign Exchange		Total
Operating revenue	$	2,204			$	2,176			1.3	%		1.5	%	(0.1	)%	—	%	—	%	(0.1	)%	1.3	%
Operating income	$	340			$	321			5.8	%		7.9	%	0.1	%	(2.4	)%	0.2	%	—	%	5.8	%
Operating margin %	15.4		%		14.8		%		60 bps			90 bps		—		(30) bps		—		—		60 bps

•	Operating revenue increased 1.3% in 2014 primarily due to the increase in organic revenue.

•	Worldwide organic revenue increased 1.5% in 2014.

◦	Organic revenue for the worldwide test and measurement businesses increased 1.8% primarily due to strength in the Instron business.

◦

Worldwide electronics organic revenue increased 1.2% primarily due to a 2.0% increase in the other electronics businesses, which was driven by growth in the contamination control businesses, resulting primarily from increased demand across all major regions, the pressure sensitive adhesives businesses, primarily due to higher market demand in Europe, and the static control businesses, primarily due to increased sales to the industrial end market in Asia and North America. Organic revenue for the electronic assembly businesses declined 0.7% but showed improvement in the second half of the year.

•	Operating margin increased 60 basis points to 15.4% primarily due to the benefits resulting from the Company's enterprise initiatives and positive operating leverage of 40 basis points, partially offset by the impact of a discrete claim recovery in 2013 of 30 basis points and higher restructuring expenses.

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 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 2015, 2014 and 2013 were as follows:

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 Exchange		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 currency translation, partially offset by organic revenue growth.

•	Worldwide 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%. International equipment 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%.

•	Operating margin was 23.7%. The 290 basis point improvement was primarily driven by the benefits of the Company's enterprise initiatives, partially offset by additional investment in the business that contributed 160 basis points, positive operating leverage of 80 basis points and favorable price/cost of 30 basis points.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acquisition/Divestiture		Restructuring		Foreign Exchange		Total
Operating revenue	$	2,177			$	2,047			6.4	%		4.7	%	1.7	%	—	%	—	%	6.4	%
Operating income	$	453			$	385			18.0	%		16.0	%	1.0	%	1.0	%	—	%	18.0	%
Operating margin %	20.8		%		18.8		%		200 bps			200 bps		(20) bps		20 bps		—		200 bps

•	Operating revenue increased 6.4% due to an increase in organic and acquisition revenue. The increase in revenue from acquisitions was due to the purchase of a Chinese food equipment business in the third quarter of 2013.

•	Worldwide organic revenue increased 4.7% in 2014.

◦	North American organic revenue increased 5.1% as North American equipment revenue increased 5.3%, primarily due to product innovation and penetration gains in refrigeration and cooking. North American service revenue increased 4.0%.

◦	International organic revenue increased 4.6% as equipment revenue increased 6.4% primarily due to growth in warewash and refrigeration businesses and product innovation. International service revenue growth of 0.6% was impacted by slower demand in southern Europe.

•	Operating margin increased 200 basis points to 20.8% primarily due to positive operating leverage of 120 basis points, the benefits of the Company's enterprise initiatives, favorable price/cost of 20 basis points and lower restructuring expenses.

POLYMERS & FLUIDS

This segment is a highly branded supplier to niche markets that require value-added, differentiated products. Businesses in this segment produce 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.

The results of operations for the Polymers & Fluids segment for 2015, 2014 and 2013 were as follows:

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 Exchange		Total
Operating revenue	$	1,712			$	1,927			(11.2	)%		(2.0	)%	(1.0	)%	—	%	—	%	(8.2	)%	(11.2	)%
Operating income	$	335			$	357			(6.3	)%		1.8	%	(2.3	)%	1.7	%	(0.4	)%	(7.1	)%	(6.3	)%
Operating margin %	19.6		%		18.5		%		110 bps			80 bps		(20) bps		30 bps		(10) bps		30 bps		110 bps

•	Operating revenue decreased primarily due to the unfavorable effect of currency translation and the decrease in organic revenue.

•	Worldwide organic revenue declined 2.0% primarily due to lower demand in Europe and North America.

◦

Organic revenue for the worldwide fluids businesses decreased 3.8% primarily driven by a decline in the industrial maintenance, repair and operations end markets in Europe and North America. Worldwide polymers businesses decreased 2.6% primarily due to the organic revenue decline in the European wind energy business, partially offset by growth in China and South America. Organic revenue for the worldwide automotive aftermarket businesses was essentially flat as a decline in North America was offset by growth in South America.

•	Operating income of $335 million decreased 6.3%. Excluding the negative impact of foreign currency translation of 7.1%, operating income would have increased 0.8%.

•	Operating margin was 19.6%. The 110 basis point improvement was primarily driven by the net benefits of the Company's enterprise initiatives and cost management of 150 basis points and lower restructuring expenses, partially offset by lower variable margins due to product mix and negative operating leverage of 40 basis points.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acq/Div		Restructuring		Impairment		Foreign Exchange		Total
Operating revenue	$	1,927			$	1,993			(3.3	)%		(1.2	)%	—	%	—	%	—	%	(2.1	)%	(3.3	)%
Operating income	$	357			$	335			6.3	%		7.0	%	—	%	1.7	%	(0.3	)%	(2.1	)%	6.3	%
Operating margin %	18.5		%		16.8		%		170 bps			140 bps		—		30 bps		—		—		170 bps

•	Operating revenue decreased 3.3% in 2014 due to the unfavorable effect of currency translation and lower organic revenue.

•	Worldwide organic revenue declined 1.2% as ongoing PLS activities negatively impacted organic revenue by approximately two percentage points.

◦

Organic revenue decreases in North America and Europe were partially offset by growth in China and South America. Worldwide polymers organic revenue decreased 3.8% primarily due to revenue declines in North America and Europe, partially offset by growth in China and Brazil. Worldwide fluids organic revenue decreased 0.4% primarily due to a decrease in revenue in Europe, partially offset by growth in Brazil. Automotive aftermarket organic revenue declined 0.2% driven by a decrease in revenue in North America, partially offset by growth in Asia Pacific and South America.

•	Operating margin improved 170 basis points to 18.5% primarily due to lower operating expenses driven by the benefits of the Company's enterprise initiatives and lower restructuring expenses, partially offset by negative operating leverage of 30 basis points.

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, MRO, construction, and industrial capital goods markets. Products in this segment include:

•	arc welding equipment;

•	metal arc welding consumables and related accessories; and

•	metal jacketing and other insulation products.

The results of operations for the Welding segment for 2015, 2014 and 2013 were as follows:

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 Exchange		Total
Operating revenue	$	1,650			$	1,850			(10.8	)%		(7.6	)%	(0.1	)%	—	%	(3.1	)%	(10.8	)%
Operating income	$	415			$	479			(13.4	)%		(12.1	)%	—	%	0.3	%	(1.6	)%	(13.4	)%
Operating margin %	25.2		%		25.9		%		(70) bps			(130) bps		—		10 bps		50 bps		(70) bps

•	Operating revenue decreased primarily due to the decrease in organic revenue and the unfavorable effect of currency translation.

•	Worldwide organic revenue decreased 7.6% due to lower demand in the oil and gas end markets, the impact of a soft capital spending environment and continued PLS activities.

◦	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% primarily due to weak oil and gas end markets across all regions.

•	Operating margin was 25.2%. The decline of 70 basis points was primarily due to negative operating leverage of 130 basis points and lower variable margins due to product mix from lower sales of higher margin equipment, partially offset by favorable price/cost of 50 basis points and the net benefits of the Company's enterprise initiatives.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acquisition/Divestiture		Restructuring		Foreign Exchange		Total
Operating revenue	$	1,850			$	1,837			0.7	%		1.2	%	0.3	%	—	%	(0.8	)%	0.7	%
Operating income	$	479			$	464			3.2	%		4.3	%	—	%	(0.5	)%	(0.6	)%	3.2	%
Operating margin %	25.9		%		25.3		%		60 bps			80 bps		(10) bps		(10) bps		—		60 bps

•	Operating revenue increased 0.7% due to the increase in organic and acquisition revenue, partially offset by the unfavorable effect of currency translation. The increase from acquisition revenue was due to the purchase of a European supplier of welding consumables in the first quarter of 2013.

•	Worldwide welding organic revenue increased 1.2%.

◦	North American welding organic revenue increased 6.0% primarily due to strength in equipment sales to general industrial and commercial customers.

◦	International organic revenue decreased 10.4% primarily due to a delay in China oil and gas pipeline projects and continued PLS activities in Europe.

•	Operating margin increased 60 basis points to 25.9% primarily due to the benefits of the Company's enterprise initiatives, favorable price/cost of 40 basis points and favorable operating leverage of 20 basis points, partially offset by higher overhead expenses driven by continued investment in product innovation.

CONSTRUCTION PRODUCTS

This segment is a branded supplier of innovative engineered fastening systems and solutions. This segment primarily serves the 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;

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

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

The results of operations for the Construction Products segment for 2015, 2014 and 2013 were as follows:

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 Exchange		Total
Operating revenue	$	1,587			$	1,707			(7.0	)%		3.7	%	(0.5	)%	—	%	(10.2	)%	(7.0	)%
Operating income	$	316			$	289			8.8	%		17.0	%	(0.2	)%	3.8	%	(11.8	)%	8.8	%
Operating margin %	19.9		%		17.0		%		290 bps			220 bps		10 bps		60 bps		—		290 bps

•	Operating revenue decreased primarily due to the unfavorable effect of currency translation, partially offset by organic revenue growth.

•	Worldwide organic revenue increased 3.7%.

◦	North American organic revenue increased 7.1% primarily due to an increase in demand in the renovation/remodel end markets.

◦	International organic revenue increased 1.8%. Asia Pacific organic revenue increased 4.0% primarily due to growth in Australia and New Zealand. European organic revenue decreased 0.3% primarily due to ongoing PLS activities.

•	Operating income of $316 million increased 8.8%. Excluding the negative impact of foreign currency translation of 11.8%, operating income would have increased 20.6%.

•	Operating margin improved 290 basis points to 19.9% primarily due to the net benefits of the Company's enterprise initiatives and cost management of 150 basis points, positive operating leverage of 100 basis points and lower restructuring expenses.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acquisition/Divestiture		Restructuring		Foreign Exchange		Total
Operating revenue	$	1,707			$	1,717			(0.6	)%		2.2	%	(0.9	)%	—	%	(1.9	)%	(0.6	)%
Operating income	$	289			$	238			21.3	%		22.5	%	(0.7	)%	2.4	%	(2.9	)%	21.3	%
Operating margin %	17.0		%		13.9		%		310 bps			280 bps		10 bps		30 bps		(10) bps		310 bps

•	Operating revenue decreased 0.6% primarily due to the negative impact of currency translation and divestitures, partially offset by an increase in organic revenue.

•	Worldwide organic revenue increased 2.2%. Ongoing PLS activities negatively impacted organic revenue by approximately one percentage point.

◦	International organic revenue increased 2.2% as Asia Pacific increased 7.0% primarily due to strong end market growth in Australia and New Zealand. European organic revenue declined 2.1% primarily due to lower end market demand in the region and PLS activities.

◦	North American organic revenue increased 2.1% primarily due to U.S. renovation organic revenue growth of 4.6%, driven by increased sales to big box retailers, partially offset by a decrease in organic revenue in Canada, primarily due to lower demand in the residential market.

•	Operating margin of 17.0% increased 310 basis points primarily driven by the benefits of the Company's enterprise initiatives, positive operating leverage of 60 basis points, lower restructuring expenses and favorable price/cost of 20 basis points.

SPECIALTY PRODUCTS

This segment is focused on diversified niche market opportunities that deliver strong operating results with substantial patent protection producing beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. This segment primarily serves the food and beverage, consumer durables, general industrial, 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;

•	airport ground support equipment; and

•	components for medical devices.

The results of operations for the Specialty Products segment for 2015, 2014 and 2013 were as follows:

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 Exchange		Total
Operating revenue	$	1,885			$	2,055			(8.3	)%		(2.3	)%	—	%	—	%	(6.0	)%	(8.3	)%
Operating income	$	439			$	440			(0.4	)%		4.2	%	—	%	1.8	%	(6.4	)%	(0.4	)%
Operating margin %	23.3		%		21.4		%		190 bps			150 bps		—		40 bps		—		190 bps

•	Operating revenue decreased due to the unfavorable effect of currency translation and the decrease in organic revenue.

•	Worldwide organic revenue declined 2.3%.

◦	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 decreased 3.2% as growth in the consumer packaging and brand identification businesses was more than offset by a decline in the ground support equipment and the appliance businesses. International organic revenue decreased 0.9% primarily due to a decline in the ground support equipment businesses, partially offset by growth in the consumer packaging businesses.

•	Operating income of $439 million decreased 0.4%. Excluding the negative impact of foreign currency translation of 6.4%, operating income would have increased 6.0%.

•	Operating margin improved 190 basis points to 23.3% primarily due to the net benefits of the Company's enterprise initiatives and cost management of 150 basis points, favorable price/cost of 50 basis points and lower restructuring expenses, partially offset by negative operating leverage of 50 basis points.

2014 compared to 2013

	For the Years Ended
Dollars in millions	December 31,											Components of Increase (Decrease)
	2014				2013				Inc (Dec)			Organic		Acquisition/Divestiture		Restructuring		Foreign Exchange		Total
Operating revenue	$	2,055			$	2,007			2.4	%		(0.3	)%	2.7	%	—	%	—	%	2.4	%
Operating income	$	440			$	408			8.0	%		6.7	%	0.7	%	0.5	%	0.1	%	8.0	%
Operating margin %	21.4		%		20.3		%		110 bps			140 bps		(40) bps		10 bps		—		110 bps

•	Operating revenue increased 2.4% in 2014 due to an increase in acquisition revenue, partially offset by the decrease in organic revenue. Acquisition revenue was primarily due to the purchase of a European consumer packaging equipment business in the third quarter of 2013.

•	Worldwide organic revenue declined 0.3%.

◦	Worldwide consumer packaging organic revenue decreased 1.0% driven by lower equipment revenue in North America. Worldwide ground support equipment organic revenue increased 5.3% primarily due to higher end market demand in North America. Worldwide appliance organic revenue increased 0.7% primarily due to penetration gains in the North American home appliance sector.

•	Operating margin of 21.4%, an increase of 110 basis points, was primarily due to the benefits of the Company's enterprise initiatives, partially offset by unfavorable price/cost of 30 basis points. Acquisitions diluted total operating margin by 40 basis points primarily due to lower operating margins and the impact of intangible asset amortization expense.

OTHER FINANCIAL HIGHLIGHTS

•	Interest expense was $226 million in 2015, a decrease from $250 million in 2014, due to debt issuances in 2014 and 2015 at lower rates compared to prior debt obligations. Higher interest expense in 2014 versus $239 million in 2013 was due to interest expense on notes issued in February 2014 and the Euro notes issued in May 2014.

•

Other income (expense) was income of $78 million in 2015, $61 million in 2014 and $72 million in 2013. The increase in income in 2015 versus 2014 was primarily due to a $15 million gain on the sale of a business in the first quarter of 2015. The decrease in income in 2014 versus 2013 was primarily due to a pre-tax gain of $30 million recorded in 2013 related to the acquisition of the controlling interest in an existing equity investment, partially offset by higher interest income ($65 million in 2014 versus $50 million in 2013).

•	The effective tax rate was 30.1% in 2015, 30.0% in 2014, and 30.6% in 2013. The effective tax rate for 2013 was unfavorably impacted by a $40 million discrete tax charge in the third quarter of 2013 related to the tax treatment of intercompany financing transactions that impact the taxability of foreign earnings.

•	The impact of the Euro and other foreign currencies against the U.S. Dollar decreased operating revenue by approximately $995 million in 2015 versus 2014 and $110 million in 2014 versus 2013. Additionally, the impact of foreign currencies against the U.S. Dollar decreased income from continuing operations by approximately $153 million in 2015 versus 2014 and $14 million in 2014 versus 2013.

DISCONTINUED OPERATIONS

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 as part of its continuing operations.

On February 6, 2014, the Company announced that it had signed a definitive agreement to sell 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 quarter of 2014 which was included in Income from discontinued operations.

In the third quarter of 2013, the Company also committed to plans for the divestiture of a construction distribution business previously included in the Construction Products segment and a specialty coatings business previously included in the Polymers & Fluids segment. The construction distribution and specialty coatings businesses were classified as held for sale beginning in the third quarter of 2013.

In the first quarter of 2013, the Company committed to plans for the divestiture of two transportation related businesses and a machine components business previously included in the Specialty Products segment, two construction distribution businesses previously included in the Construction Products segment, and a chemical manufacturing business previously included in the Polymers & Fluids segment. These businesses were classified as held for sale beginning in the first quarter of 2013.

The operating results of the businesses discussed above are reported as discontinued operations in the statement of income for all periods presented. As of the second quarter of 2014, the Company had completed the divestiture of all of the businesses previously classified as discontinued operations.

Income from discontinued operations was $1.1 billion in 2014 and $49 million in 2013. Income from discontinued operations in 2014 included the after-tax gain of $1.1 billion on the disposal of the Industrial Packaging business in the second quarter of 2014. Income from discontinued operations in 2013 included after-tax losses on disposals of $72 million and goodwill impairment of $42 million related to various divested businesses. Refer to the Discontinued Operations note in Item 8. Financial Statements and Supplementary Data for discussion of the Company’s discontinued operations.

NEW ACCOUNTING PRONOUNCEMENTS

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, with expanded disclosures. 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. The new guidance applies prospectively to new disposals and new classifications of disposal groups held for sale after such date. As a result, this guidance did not have any impact on the Company's financial statements or related disclosures upon adoption.

In May 2014, the FASB issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer 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 new revenue recognition disclosures will be required. This guidance is effective for the Company beginning January 1, 2018. The Company is currently assessing the potential impact the guidance will have upon adoption.

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 applied it retrospectively to all periods presented. As of December 31, 2014, the Company restated $38 million of deferred long-term debt issuance costs from Other assets to Long-term debt. Refer to the Other Assets and Debt notes in Item 8. Financial Statements and Supplementary Data for further information.

In May 2015, the FASB issued authoritative guidance removing investments measured at net asset value from the fair value hierarchy disclosures as a practical expedient. The Company early adopted this guidance in the fourth quarter of 2015 and applied it retrospectively to all periods presented. Adoption of this guidance resulted in changes to the fair value disclosures related to the Company's plan assets for pension and other postretirement benefits. Refer to the Pension and Other Postretirement Benefits note in Item 8. Financial Statements and Supplementary Data for further information.

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. The Company early adopted this guidance in the fourth quarter of 2015 and applied it retrospectively to all periods presented. Due to the restatement of current deferred tax assets and liabilities to noncurrent, adoption of this guidance resulted in an increase of noncurrent deferred tax assets of $37 million and a decrease of noncurrent deferred tax liabilities of $167 million as of December 31, 2014. Refer to the Income Taxes note in Item 8. Financial Statements and Supplementary Data for further information.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of liquidity are free cash flow and short-term credit facilities. In addition, the Company had $3.1 billion of cash on hand at December 31, 2015 and also maintains strong access to public debt markets. Management believes that these sources are sufficient to service debt and to finance the Company's capital allocation priorities, which include:

•	internal investments to support organic growth and sustain core businesses;

•	payment of an attractive dividend to shareholders; and

•	external investments in selective strategic acquisitions that support organic growth focus and an active share repurchase program.

In September 2013, the Company’s Board of Directors authorized a plan to commence a sale process for the Industrial Packaging business. The Company classified the Industrial Packaging segment as held for sale beginning in the third quarter of 2013 and no longer presented this segment as part of its continuing operations. As to the impact of this divestiture on the Company’s income per share from continuing operations and capital structure going forward, the Company also indicated that it intended to repurchase approximately 50 million shares through a program utilizing its existing share repurchase authorization to offset the full amount of divestiture-related dilution of income per share from continuing operations through a combination of sale proceeds, free cash flow and additional leverage. The Company completed this program in the second quarter of 2014. Under this program, the Company repurchased approximately 14.0 million shares of its common stock in the fourth quarter of 2013 and approximately 35.7 million shares of its common stock in the first half of 2014.

On February 6, 2014, the Company announced that it had signed a definitive agreement to sell 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 quarter of 2014 which was included in Income from discontinued operations. A portion of the proceeds was used to fund share repurchases under the program noted above.

The Company believes that, based on its revenues, operating margins, current free cash flow, and credit ratings, it could readily obtain additional financing if necessary.

Cash Flow

The Company uses free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. The Company believes this non-GAAP financial measure is useful to investors

in evaluating the Company’s financial performance and measures the Company's ability to generate cash internally to fund Company initiatives. Free cash flow represents net cash provided by operating activities less additions to plant and equipment. Free cash flow is a measurement that is not the same as net cash flow from operating activities per the statement of cash flows and may not be consistent with similarly titled measures used by other companies. Summarized cash flow information for the years ended December 31, 2015, 2014 and 2013 was as follows:

In millions		2015				2014				2013
Net cash provided by operating activities		$	2,299			$	1,616			$	2,528
Additions to plant and equipment		(284		)		(361		)		(368		)
Free cash flow		$	2,015			$	1,255			$	2,160
Cash dividends paid		$	(742	)		$	(711	)		$	(528	)
Repurchases of common stock		(2,002		)		(4,346		)		(2,106		)
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates		(6		)		(45		)		(369		)
Net proceeds from sale of discontinued operations		—				3,191				206
Net proceeds from (repayment of) debt		151				1,339				1,264
Other		147				224				305
Effect of exchange rate changes on cash and equivalents		(463		)		(535		)		(93		)
Net increase (decrease) in cash and equivalents		$	(900	)		$	372			$	839

The 2014 net cash provided by operating activities included $724 million of tax payments related to the disposition of the Industrial Packaging business. Cash dividends paid during 2013 do not include the dividend payment of $174 million originally scheduled to be paid in January 2013, which was accelerated and paid in December 2012.

Stock Repurchase Programs

On May 6, 2011, the Company’s Board of Directors authorized a stock repurchase program, which provided for the buyback of up to $4.0 billion of the Company’s common stock over an open-ended period of time (the "2011 Program"). Under the 2011 Program, the Company repurchased approximately 1.8 million shares of its common stock at an average price of $43.20 per share during 2011, approximately 35.5 million shares of its common stock at an average price of $56.93 per share during 2012 and approximately 26.4 million shares of its common stock at an average price of $71.89 per share during 2013. As of December 31, 2013, there were no authorized repurchases remaining under the 2011 Program.

On August 2, 2013, the Company’s Board of Directors authorized a new stock repurchase program, which provided for the buyback of up to an additional $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 provides for the buyback 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. As of December 31, 2015, there was approximately $5.4 billion of authorized repurchases remaining under the 2015 Program.

Adjusted After-Tax Return on Average Invested Capital

The Company uses adjusted after-tax return on average invested capital ("ROIC") to measure the effectiveness of its operations’ use of invested capital to generate profits. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. Adjusted average invested capital represents the net assets of the Company, excluding cash and equivalents and outstanding debt, which are excluded as they do not represent capital investment in the Company's operations, as well as the Company's net investment in the former Industrial Packaging segment and the equity investment in

the Wilsonart business (formerly the Decorative Surfaces segment). Average invested capital is calculated using balances at the start of the period and at the end of each quarter.

ROIC for the years ended December 31, 2015, 2014, and 2013 was as follows:

Dollars in millions		2015				2014				2013
Operating income		$	2,867			$	2,888			$	2,514
Tax rate (as adjusted in 2013)		30.1		%		30.0		%		28.8		%
Income taxes		(864		)		(866		)		(724		)
Operating income after taxes		$	2,003			$	2,022			$	1,790
Invested capital:
Trade receivables		$	2,203			$	2,293			$	2,365
Inventories		1,086				1,180				1,247
Net assets held for sale		—				—				1,519
Net plant and equipment		1,577				1,686				1,709
Goodwill and intangible assets		5,999				6,466				6,885
Accounts payable and accrued expenses		(1,585		)		(1,799		)		(1,906		)
Other, net		280				427				593
Total invested capital		$	9,560			$	10,253			$	12,412
Average invested capital		$	9,943			$	11,215			$	12,581
Adjustment for Wilsonart (formerly the Decorative Surfaces segment)		(123		)		(154		)		(169		)
Adjustment for Industrial Packaging		—				(424		)		(1,477		)
Adjusted average invested capital		$	9,820			$	10,637			$	10,935
Adjusted return on average invested capital		20.4		%		19.0		%		16.4		%

ROIC increased 140 basis points in 2015 versus 2014 as a result of a decrease in adjusted average invested capital of 7.7%. ROIC increased 260 basis points in 2014 versus 2013 as a result of improvement in after-tax operating income of 13.0% and a decrease in adjusted average invested capital of 2.7%.

The 2013 effective tax rate included a discrete tax charge of $40 million related to the tax treatment of intercompany financing transactions that impact the taxability of foreign earnings.

A reconciliation of the 2013 effective tax rate to the adjusted tax rate excluding the discrete tax item is as follows:

	For the Year Ended December 31, 2013
Dollars in millions	Income Taxes				Tax Rate
As reported	$	717			30.6	%
Discrete tax charge	(40		)		(1.8	)
As adjusted	$	677			28.8	%

Working Capital

Management uses working capital as a measurement of the short-term liquidity of the Company. Net working capital at December 31, 2015 and 2014 is summarized as follows:

Dollars in millions		2015				2014				Increase (Decrease)
Current Assets:
Cash and equivalents		$	3,090			$	3,990			$	(900	)
Trade receivables		2,203				2,293				(90		)
Inventories		1,086				1,180				(94		)
Other		341				401				(60		)
		6,720				7,864				(1,144		)
Current Liabilities:
Short-term debt		526				1,476				(950		)
Accounts payable and accrued expenses		1,585				1,799				(214		)
Other		257				250				7
		2,368				3,525				(1,157		)
Net Working Capital		$	4,352			$	4,339			$	13

Net working capital increased slightly at December 31, 2015 as lower short-term debt levels were partially offset by lower cash and equivalents resulting from repayments of commercial paper.

Cash and equivalents totaled approximately $3.1 billion as of December 31, 2015 and $4.0 billion as of December 31, 2014, primarily all of which was held by international subsidiaries. Cash and equivalents held internationally may be subject to U.S. income taxes and foreign withholding taxes if repatriated to the U.S. Cash and equivalents balances held internationally are typically used for international operating needs, reinvested to fund expansion of existing international businesses, used to fund new international acquisitions, or used to repay debt held internationally. In the U.S., the Company utilizes cash flows from domestic operations to fund domestic cash needs, which primarily consist of dividend payments, share repurchases, acquisitions, servicing of domestic debt obligations and general corporate needs. The Company also uses its commercial paper program, which is backed by long-term credit facilities, for short-term liquidity needs. The Company believes cash generated domestically and liquidity provided by the Company's commercial paper program will continue to be sufficient to fund cash requirements in the U.S.

Debt

Total debt at December 31, 2015 and 2014 was as follows:

In millions		2015				2014				Increase (Decrease)
Short-term debt		$	526			$	1,476			$	(950	)
Long-term debt		6,896				5,943				953
Total debt		$	7,422			$	7,419			$	3

Short-term debt as of December 31, 2015 and December 31, 2014 included commercial paper of $0.5 billion and $1.4 billion, respectively.

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.

The Company may issue commercial paper to fund general corporate needs, share repurchases, and small and medium-sized acquisitions. The Company has committed lines of credit of $2.5 billion in the U.S. to support the potential issuances of commercial paper. Of this amount, $1.5 billion is provided under a line of credit agreement with a termination date of June 8,

2017 and $1.0 billion is provided under a line of credit agreement with a termination date of August 15, 2018. No amounts were outstanding under these two facilities at December 31, 2015. The maximum outstanding commercial paper balance during 2015 was $2.4 billion, while the average daily balance was $1.4 billion.

As of December 31, 2015, the Company's foreign operations had authorized credit facilities with unused capacity of $296 million.

Total Debt to EBITDA

The Company uses the ratio of total debt to EBITDA to measure its ability to repay its outstanding debt obligations. The Company believes that total debt to EBITDA is a meaningful metric to investors in evaluating the Company's long term financial liquidity and may be different than the method used by other companies to calculate total debt to EBITDA. EBITDA and the ratio of total debt to EBITDA are non-GAAP financial measures. The ratio of total debt to EBITDA represents total debt divided by income from continuing operations before interest expense, other income (expense), income taxes, depreciation, and amortization and impairment of goodwill and other intangible assets on a trailing twelve month basis.

Total debt to EBITDA for the years ended December 31, 2015, 2014 and 2013 was as follows:

Dollars in millions	2015				2014				2013
Total debt	$	7,422			$	7,419			$	6,322
Income from continuing operations	$	1,899			$	1,890			$	1,630
Add:
Interest expense	226				250				239
Other income	(78		)		(61		)		(72		)
Income taxes	820				809				717
Depreciation	244				262				270
Amortization and impairment of goodwill and other intangible assets	233				245				252
EBITDA	$	3,344			$	3,395			$	3,036
Total debt to EBITDA ratio	2.2				2.2				2.1

Stockholders’ Equity

The changes to stockholders’ equity during 2015 and 2014 were as follows:

In millions		2015				2014
Beginning balance		$	6,824			$	9,709
Net income		1,899				2,946
Cash dividends declared		(756		)		(716		)
Repurchases of common stock		(2,002		)		(4,283		)
Currency translation adjustments		(860		)		(939		)
Other		123				107
Ending balance		$	5,228			$	6,824

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

The Company's significant contractual obligations as of December 31, 2015 were as follows:

In millions		2016				2017				2018				2019				2020				2021 and Future Years
Total long-term debt		$	1			$	650			$	—			$	1,350			$	4			$	4,977
Interest payments on notes		217				214				212				183				167				2,078
Minimum lease payments		98				69				47				31				23				29
		$	316			$	933			$	259			$	1,564			$	194			$	7,084

As of December 31, 2015, the Company had recorded noncurrent liabilities for unrecognized tax benefits of $171 million. The Company is not able to reasonably estimate the timing of payments related to the liabilities for unrecognized tax benefits.

The Company did not have any significant off-balance sheet commitments at December 31, 2015.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company has six accounting policies that it believes are most important to the Company’s financial condition and results of operations, and which require the Company to make estimates about matters that are inherently uncertain. Management bases its estimates on historical experience, and in some cases on observable market information. Various assumptions are also used that are believed to be reasonable under the circumstances and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The Company's critical accounting policies are as follows:

Realizability of Inventories—Inventories are stated at the lower of cost or net realizable value. Generally, the Company’s businesses perform an analysis of the historical sales usage of the individual inventory items on hand and a reserve is recorded to adjust inventory cost to net realizable value based on the following usage criteria:

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	%

In addition, for approximately 22% of total inventories, the Company has elected to use the last-in, first-out ("LIFO") method of inventory costing. Generally, this method results in a lower inventory value than the first-in, first-out ("FIFO") method due to the effects of inflation.

Collectibility of Accounts Receivable—The Company estimates the allowance for uncollectible accounts based on the greater of a specific reserve or a reserve calculated based on the historical write-off percentage over the last two years. In addition, the allowance for uncollectible accounts includes reserves for customer credits and cash discounts, which are also estimated based on past experience.

Depreciation of Plant and Equipment — The Company’s U.S. businesses primarily compute depreciation on an accelerated basis, as follows:

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

The majority of the Company's international businesses compute depreciation on a straight-line basis.

Income Taxes—The Company provides deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws. The Company’s deferred and other tax balances are based on management’s interpretation of the tax regulations and rulings in numerous taxing jurisdictions. Income tax expense, assets and liabilities recognized by the Company also reflect its best estimates and assumptions regarding, among other things, the level of future taxable income, the effect of the Company’s various tax planning strategies and uncertain tax positions. Future tax authority rulings and changes in tax laws, changes in projected levels of taxable income and future tax planning strategies could affect the actual effective tax rate and tax balances recorded by the Company.

Goodwill and Intangible Assets—The Company’s business acquisitions typically result in recording goodwill and other intangible assets, which are a significant portion of the Company’s total assets and affect the amount of amortization expense and impairment charges that the Company could incur in future periods. The Company follows the guidance prescribed in the accounting standards to test goodwill and intangible assets for impairment. On an annual basis, or more frequently if triggering events occur, the Company compares the estimated fair value of its reporting units to the carrying value of each reporting unit to determine if a potential goodwill impairment exists. 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. In calculating the fair value of the reporting units or specific intangible assets, management relies on a number of factors, including business plans, economic projections, anticipated future cash flows, comparable transactions and other market data. There are inherent uncertainties related to these factors and management’s judgment in applying them in the impairment tests of goodwill and other intangible assets.

As of December 31, 2015, the Company had total goodwill and intangible assets of $6.0 billion allocated to its reporting units. Although there can be no assurance that the Company will not incur additional impairment charges related to its goodwill and other intangible assets, the Company generally believes the risk of significant impairment charges is lessened by the number of diversified businesses and end markets represented by its reporting units that have goodwill and other intangible assets. In addition, the individual businesses in many of the reporting units have been acquired over a long period of time, and in many cases have been able to improve their performance, primarily as a result of the application of the Company’s 80/20 management process. The amount of goodwill and other intangible assets allocated to individual reporting units ranges from approximately $58 million to $1.5 billion, with the average amount equal to $428 million. Fair value determinations require considerable judgment and are sensitive to changes in the factors described above. Due to the inherent uncertainties associated with these factors and economic conditions in the Company’s global end markets, impairment charges related to one or more reporting units could occur in future periods.

Pension and Other Postretirement Benefits—The Company has various company-sponsored defined benefit retirement plans covering a substantial portion of U.S. employees and many employees outside the U.S. Pension and other postretirement benefit expense and obligations are determined based on actuarial valuations. Pension benefit obligations are generally based on each participant’s years of service, future compensation, and age at retirement or termination. Important assumptions in determining pension and postretirement expense and obligations are the discount rate, the expected long-term return on plan assets, life expectancy, and health care cost trend rates. Future changes in any of these assumptions could materially affect the amounts recorded related to the Company's pension and other postretirement benefit plans. See the Pension and Other Postretirement Benefits note in Item 8. Financial Statements and Supplementary Data for additional discussion of actuarial assumptions used in determining pension and postretirement health care liabilities and expenses.

The Company determines the discount rate used to measure plan liabilities as of the year-end measurement date for the U.S. primary pension plan. 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. A 25 basis point decrease in the discount rate would increase the present value of the U.S. primary pension plan obligation by approximately $37 million.

The expected long-term return on plan assets is based on historical and expected long-term returns for similar investment allocations among asset classes. For the U.S. primary pension plan, a 25 basis point decrease in the expected return on plan assets would increase the annual pension expense by approximately $4 million. See the Pension and Other Postretirement Benefits note in Item 8. Financial Statements and Supplementary Data for information on the Company's pension and other postretirement benefit plans and related assumptions.