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. 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, 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 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		/s/ Michael M. Larsen Michael M. Larsen Senior Vice President & Chief Financial Officer February 10, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Glenview, Illinois

We have audited the accompanying consolidated statements of financial position of Illinois Tool Works Inc. and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. We also have audited the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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 Financial 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.

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 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 or detected on a timely basis. 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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Illinois Tool Works Inc. and subsidiaries as of December 31, 2016 and 2015 and the results of their operations and their cash flows for each of the three years in 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 of the Treadway Commission.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP

Chicago, Illinois

February 10, 2017

Statement of Income

Illinois Tool Works Inc. and Subsidiaries

	For the Years Ended December 31
In millions except per share amounts	2016				2015				2014
Operating Revenue	$	13,599			$	13,405			$	14,484
Cost of revenue	7,896				7,888				8,673
Selling, administrative, and research and development expenses	2,415				2,417				2,678
Amortization and impairment of intangible assets	224				233				245
Operating Income	3,064				2,867				2,888
Interest expense	(237		)		(226		)		(250		)
Other income (expense)	81				78				61
Income from Continuing Operations Before Income Taxes	2,908				2,719				2,699
Income taxes	873				820				809
Income from Continuing Operations	2,035				1,899				1,890
Income from Discontinued Operations	—				—				1,056
Net Income	$	2,035			$	1,899			$	2,946
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
Diluted	$	5.70			$	5.13			$	7.28

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
In millions	2016				2015				2014
Net Income	$	2,035			$	1,899			$	2,946
Other Comprehensive Income (Loss):
Foreign currency translation adjustments, net of tax	(277		)		(860		)		(939		)
Pension and other postretirement benefit adjustments, net of tax	(26		)		14				(103		)
Comprehensive Income	$	1,732			$	1,053			$	1,904

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

Statement of Financial Position

Illinois Tool Works Inc. and Subsidiaries

	December 31
In millions except per share amounts	2016				2015
Assets
Current Assets:
Cash and equivalents	$	2,472			$	3,090
Trade receivables	2,357				2,203
Inventories	1,076				1,086
Prepaid expenses and other current assets	218				341
Total current assets	6,123				6,720
Net plant and equipment	1,652				1,577
Goodwill	4,558				4,439
Intangible assets	1,463				1,560
Deferred income taxes	449				346
Other assets	956				1,087
	$	15,201			$	15,729
Liabilities and Stockholders’ Equity
Current Liabilities:
Short-term debt	$	652			$	526
Accounts payable	511				449
Accrued expenses	1,202				1,136
Cash dividends payable	226				200
Income taxes payable	169				57
Total current liabilities	2,760				2,368
Noncurrent Liabilities:
Long-term debt	7,177				6,896
Deferred income taxes	134				256
Other liabilities	871				981
Total noncurrent liabilities	8,182				8,133
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
Additional paid-in-capital	1,188				1,135
Retained earnings	19,505				18,316
Common stock held in treasury	(14,638		)		(12,729		)
Accumulated other comprehensive income (loss)	(1,807		)		(1,504		)
Noncontrolling interest	5				4
Total stockholders’ equity	4,259				5,228
	$	15,201			$	15,729

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

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
In millions	2016				2015				2014
Cash Provided by (Used for) Operating Activities:
Net income	$	2,035			$	1,899			$	2,946
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	246				244				262
Amortization and impairment of intangible assets	224				233				245
Change in deferred income taxes	(263		)		(11		)		55
Provision for uncollectible accounts	7				7				7
(Income) loss from investments	13				(4		)		(8		)
(Gain) loss on sale of plant and equipment	1				1				2
(Gain) loss on discontinued operations	—				—				(1,718		)
(Gain) loss on sale of operations and affiliates	12				(16		)		6
Stock-based compensation expense	39				41				39
Gain on dividend distribution from equity investment in Wilsonart	(54		)		—				—
Other non-cash items, net	5				12				11
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in—
Trade receivables	(132		)		(42		)		(70		)
Inventories	9				25				(10		)
Prepaid expenses and other assets	(63		)		24				(98		)
Increase (decrease) in—
Accounts payable	(3		)		(30		)		(20		)
Accrued expenses and other liabilities	40				(56		)		5
Income taxes	187				(27		)		33
Other, net	(1		)		(1		)		(71		)
Net cash provided by operating activities	2,302				2,299				1,616
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents) and additional interest in affiliates	(453		)		(6		)		(45		)
Additions to plant and equipment	(273		)		(284		)		(361		)
Proceeds from investments	21				22				28
Dividend distribution from equity investment in Wilsonart	167				—				—
Proceeds from sale of plant and equipment	16				30				28
Net proceeds from sale of discontinued operations	—				—				3,191
Proceeds from sale of operations and affiliates	3				29				18
Other, net	(13		)		(1		)		(17		)
Net cash provided by (used for) investing activities	(532		)		(210		)		2,842
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(821		)		(742		)		(711		)
Issuance of common stock	84				59				148
Repurchases of common stock	(2,000		)		(2,002		)		(4,346		)
Net proceeds from (repayments of) debt with original maturities of three months or less	(526		)		(946		)		(239		)
Proceeds from debt with original maturities of more than three months	992				1,099				3,329
Repayments of debt with original maturities of more than three months	(1		)		(2		)		(1,751		)
Excess tax benefits from stock-based compensation	29				20				33
Other, net	(12		)		(12		)		(14		)
Net cash provided by (used for) financing activities	(2,255		)		(2,526		)		(3,551		)
Effect of Exchange Rate Changes on Cash and Equivalents	(133		)		(463		)		(535		)
Cash and Equivalents:
Increase (decrease) during the year	(618		)		(900		)		372
Beginning of year	3,090				3,990				3,618
End of year	$	2,472			$	3,090			$	3,990
Supplementary Cash Flow Information:
Cash Paid During the Year for Interest	$	212			$	200			$	236
Cash Paid During the Year for Income Taxes, Net of Refunds	$	920			$	775			$	1,502
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 85 divisions in 57 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 revenue is recognized when persuasive evidence of an arrangement exists, product has shipped and the risks and rewards of ownership have transferred or services have been rendered, the price to the customer is fixed or determinable, and collectibility is reasonably assured, which is generally at the time of product shipment. Typical sales arrangements are for standard products and provide for transfer of ownership and risk of loss at the time of shipment. In limited circumstances where significant obligations to the customer are unfulfilled at the time of shipment, typically involving installation and customer acceptance, revenue recognition is deferred until such obligations have been completed. Customer allowances and rebates, consisting primarily of volume discounts and other short-term incentive programs, are estimated at the time of sale based on historical experience and known trends and are recorded as a reduction in reported revenues.

Research and development expenses— Research and development expenses are recorded as expense in the year incurred. These costs were $223 million in 2016, $218 million in 2015 and $227 million in 2014.

Advertising expenses— Advertising expenses are recorded as expense in the year incurred. These costs were $58 million in 2016, $58 million in 2015 and $66 million in 2014.

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 which includes reserves for uncollectible accounts, customer credits and cash discounts. 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, reserves for customer credits and cash discounts are estimated based on past experience. The changes in the allowance for doubtful accounts during 2016, 2015 and 2014 were as follows:

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% of total inventories as of both December 31, 2016 and 2015. If the FIFO method was used for all inventories, total inventories would have been approximately $86 million and $81 million higher than reported at December 31, 2016 and 2015, respectively. The major classes of inventory at December 31, 2016 and 2015 were as follows:

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 and 2015:

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 million in 2016, $244 million in 2015 and $262 million in 2014. There was no depreciation included in Income from discontinued operations in 2014.

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 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 and 2014 were as follows:

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

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 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, with early adoption permitted. The Company expects to adopt 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.

In February 2016, the FASB issued authoritative guidance to change the criteria for recognizing leasing transactions. Under the new guidance, a lessee will be required to recognize a lease liability and lease asset for all leases, including operating leases, with a lease term greater than twelve months in the statement of financial position. Subsequent measurement, including presentation of expenses and cash flows, will depend on the classification 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, the new guidance 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 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 months ended December 31, 2016 and 2015, 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 adoption of the new guidance will depend on inputs such as the stock price at the time of settlement and the number of awards settled in the period presented.

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 guidance. The new guidance is effective for the Company beginning January 1, 2018, with early adoption permitted. The Company is currently assessing the potential impact the guidance will have upon adoption.

In January 2017, the FASB issued authoritative guidance that simplifies the assessment of goodwill for impairment when the estimated fair value of a reporting unit is less than its carrying value by eliminating the requirement to determine the fair value of goodwill. Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value. The new guidance is effective for the Company beginning January 1, 2020, with early adoption permitted. The Company performs its annual goodwill impairment assessment process in the third quarter, or more frequently if triggering events occur. Adoption of this new guidance is not expected to have a material impact on the Company's operating results, financial position or cash flows.

(2) Discontinued Operations

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. The new guidance applies prospectively to new disposals and new classifications of disposal groups held for sale after 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 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 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 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) 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. This business was classified as held for sale beginning in the third quarter of 2013 and was sold in the second quarter of 2014.

First Quarter 2013 Discontinued Operations— In the first quarter of 2013, the Company committed to a plan for the divestiture of a construction distribution business previously 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.

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

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 million for the six 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 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) consisted of the following:

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

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 of 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 2016 resulting from a $167 million cash dividend distribution from Wilsonart which exceeded the Company's equity investment balance. Subsequent to the dividend distribution, the equity investment balance in Wilsonart was reduced to zero and future equity investment income will not be recognized until the gain is recaptured.

(5) Income Taxes

Provision for income taxes— The components of the provision for income taxes were as follows:

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 was as follows:

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 was as follows:

		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	%

Deferred U.S. federal income taxes and foreign withholding taxes have not been provided on the remaining undistributed earnings of certain international subsidiaries as these earnings are considered permanently invested. Undistributed earnings of

these subsidiaries 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. Determination of the related 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 at December 31, 2016 and 2015 were as follows:

		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 at December 31, 2016 and 2015 related primarily to certain net operating loss carryforwards, capital loss carryforwards and foreign tax credit carryforwards. As of December 31, 2016, the Company has utilized all realizable foreign tax credit carryforwards.

At December 31, 2016, 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
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 and 2014 were as follows:

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 at December 31, 2016 were approximately $176 million of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate.

During the fourth quarter of 2016, the Company effectively settled with the Internal Revenue Service on issues identified during its 2012-2013 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.

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 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
United Kingdom		2013-2016
Germany		2009-2016
France		2013-2016
Australia		2012-2016

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 and 2015 was $28 million and $32 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) Income Per Share from Continuing Operations

Income per share from continuing operations is computed by dividing income from continuing operations by the weighted-average number of shares outstanding for the period. Income from continuing operations per diluted share is computed by dividing 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 income per share from continuing operations was as follows:

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 income per share from continuing operations. There were no antidilutive options outstanding as of December 31, 2016, 0.6 million antidilutive options outstanding as of December 31, 2015 and no antidilutive options outstanding as of December 31, 2014.

(7) Goodwill and Intangible Assets

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

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 and 2015 were as follows:

		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 and 2014. The 2016 assessment resulted in no impairment charges. In 2015, the Company recorded a $2 million indefinite-lived intangible asset impairment charge related to a brand in the Polymers & Fluids segment which had a fair value 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.

For the years ended December 31, 2016, 2015 and 2014, amortization expense and impairment of intangible assets was $224 million, $233 million, and $245 million, respectively.

The estimated amortization expense of intangible assets for the future years ending December 31 is as follows:

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

(8) 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 and 2015 consisted of the following:

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, the Company reclassified $650 million related to the 0.90% notes due February 25, 2017 from Long-term debt to Short-term debt.

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

agreement with a termination date of May 9, 2021 to support the potential issuances of commercial paper. This agreement replaced the previously existing $1.5 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 amounts were outstanding under the new line of credit agreement at December 31, 2016. As of December 31, 2016, the Company was in compliance with the financial covenants of the line of credit agreement, which includes a minimum interest coverage ratio. The weighted-average interest rate on commercial paper was 0.4% and 0.1% at December 31, 2016 and 2015, respectively.

As of December 31, 2016, the Company had unused capacity of approximately $286 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 and 2015 consisted of the following:

				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.

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 February 2014 debt issuances were used to repay commercial paper.

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.

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 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. 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 maturities of long-term debt, including current maturities of long-term debt, for the future years ending December 31 are as follows:

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

(9) 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 million in 2016, $77 million in 2015, and $78 million in 2014. 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 the Company’s significant defined benefit pension and other postretirement benefit plans related to both continuing and discontinued operations is as follows:

		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 periodic benefit cost was included in the statement of income as follows:

		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 and MP-2016, to measure its U.S. pension and other postretirement obligations as of December 31, 2015 and 2016, 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 ended December 31, 2016 and 2015:

		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		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
	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 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 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 at December 31 were as follows:

	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 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% to 45% equity securities, 50% to 65% fixed income securities 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 at December 31, 2016 and 2015, 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
In millions		Total				Level 1				Level 2				Level 3
Pension Plan Assets:
Cash and equivalents		$	82			$	55			$	27			$	—
Equity securities:
Domestic		1				1				—				—
Fixed income securities:
Government securities		307				—				307				—
Corporate debt securities		541				—				541				—
Mortgage-backed securities		19				—				19				—
Investment contracts with insurance companies		1				—				—				1
Commingled funds:
Collective trust funds		1,478
Partnerships/private equity interests		54
Other		4
Total fair value of pension plan assets		$	2,487			$	56			$	894			$	1
Other Postretirement Benefit Plan Assets:
Cash and equivalents		$	1			$	1			$	—			$	—
Life insurance policies		350
Total fair value of other postretirement benefit plan assets		$	351			$	1			$	—			$	—

		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 million to its pension plans and $5 million to its other postretirement benefit plans in 2017. The Company’s portion of the benefit payments that are expected to be paid during the years ending December 31 is as follows:

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) 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) 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, the 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. As of December 31, 2016, there were approximately $3.4 billion of authorized repurchases remaining under the 2015 Program.

Cash Dividends— Cash dividends declared were $2.40 per share in 2016, $2.07 per share in 2015 and $1.81 per share in 2014. Cash dividends paid were $2.30 per share in 2016, $2.005 per share in 2015 and $1.745 per share in 2014.

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

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	)

Foreign currency translation adjustments reclassified to income are primarily related 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 losses and prior service cost, and settlement and curtailment charges recognized in net periodic benefit cost. Refer to Note 9. 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 €1.0 billion of Euro notes issued in May 2014 and €1.0 billion of Euro notes issued in May 2015 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 gain recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was $375 million and $308 million as of December 31, 2016 and December 31, 2015, respectively.

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

(12) 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 issued to officers and 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 share of common stock of the Company for each vested RSU.

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. As of December 31, 2016, approximately 15 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:

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:

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 ended December 31, 2016:

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 the closing market price on the date of the grant by the present value of projected dividends over the vesting period. Stock option exercise prices are equal to the common stock fair market value on the date of grant. 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:

		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 behavior.

The weighted-average grant-date fair value of stock options granted during 2016, 2015 and 2014 was $20.02, $20.58 and $15.14 per share, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2016, 2015 and 2014 was $89 million, $55 million and $115 million, respectively. As of December 31, 2016, there was $7 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 years. Exercise of stock options during the years ended December 31, 2016, 2015 and 2014 resulted in cash receipts of $84 million, $59 million and $148 million, respectively. The total fair value of vested stock option awards during the years ended December 31, 2016, 2015 and 2014 was $12 million, $13 million and $16 million, respectively.

As of December 31, 2016, there was $16 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 years. The total fair value of vested RSU awards during the years ended December 31, 2016, 2015 and 2014 was $21 million, $20 million and $27 million, respectively.

(13) Other Balance Sheet Information

Other balance sheet information at December 31, 2016 and 2015 was as follows:

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) Segment Information

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

Food Equipment— This segment is a highly focused and branded 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 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.

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.

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.

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

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.

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.

Segment information for 2016, 2015 and 2014 was as follows:

In millions		2016				2015				2014
Operating revenue:
Automotive OEM		$	2,864			$	2,529			$	2,590
Food Equipment		2,110				2,096				2,177
Test & Measurement and Electronics		1,974				1,969				2,204
Welding		1,486				1,650				1,850
Polymers & Fluids		1,691				1,712				1,927
Construction Products		1,609				1,587				1,707
Specialty Products		1,885				1,885				2,055
Intersegment revenue		(20		)		(23		)		(26		)
Total		$	13,599			$	13,405			$	14,484
Operating income:
Automotive OEM		$	690			$	613			$	600
Food Equipment		537				498				453
Test & Measurement and Electronics		372				322				340
Welding		370				415				479
Polymers & Fluids		343				335				357
Construction Products		361				316				289
Specialty Products		482				439				440
Total Segments		3,155				2,938				2,958
Unallocated		(91		)		(71		)		(70		)
Total		$	3,064			$	2,867			$	2,888
Depreciation and amortization and impairment of intangible assets:
Automotive OEM		$	90			$	76			$	79
Food Equipment		45				48				52
Test & Measurement and Electronics		104				110				115
Welding		36				37				38
Polymers & Fluids		92				95				99
Construction Products		34				36				43
Specialty Products		69				75				81
Total		$	470			$	477			$	507
Plant and equipment additions:
Automotive OEM		$	116			$	106			$	96
Food Equipment		31				37				47
Test & Measurement and Electronics		25				32				56
Welding		16				23				36
Polymers & Fluids		18				20				28
Construction Products		20				26				41
Specialty Products		47				40				54
Total Segments		273				284				358
Discontinued Operations		—				—				3
Total		$	273			$	284			$	361
Identifiable assets:
Automotive OEM		$	2,051			$	1,419			$	1,454
Food Equipment		1,013				1,054				1,123
Test & Measurement and Electronics		2,362				2,448				2,615
Welding		701				747				879
Polymers & Fluids		2,019				2,034				2,257
Construction Products		1,099				1,129				1,249
Specialty Products		1,599				1,659				1,798
Total Segments		10,844				10,490				11,375
Corporate		4,357				5,239				6,090
Total		$	15,201			$	15,729			$	17,465

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 and 2014 was as follows:

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 assets in any single country outside of the U.S. did not exceed 10% of the Company's total long-lived assets. No single customer accounted for more than 5% of consolidated revenues in 2016, 2015 or 2014. Additionally, the Company has thousands of product lines within its businesses; therefore, providing operating revenue by product line is not practicable.

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		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