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

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Illinois Tool Works Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, 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, 2019, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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

Basis for Opinions

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

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

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

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

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

Income Taxes-Refer to Note 6 to the financial statements

Critical Audit Matter Description

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

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

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

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

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

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

•	Testing the accuracy of the income tax expense calculation.

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

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

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

•	Comparing results of prior tax audits to ongoing and anticipated tax audits by tax authorities.

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

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

•	We evaluated a sample of the liabilities recorded for unrecognized tax benefits to assess the establishment and amount of the liability for the specific underlying tax position.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 14, 2020

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

Statement of Income

Illinois Tool Works Inc. and Subsidiaries

	For the Years Ended December 31
In millions except per share amounts	2019				2018				2017
Operating Revenue	$	14,109			$	14,768			$	14,314
Cost of revenue	8,187				8,604				8,306
Selling, administrative, and research and development expenses	2,361				2,391				2,412
Legal settlement (income)	—				—				(95		)
Amortization and impairment of intangible assets	159				189				206
Operating Income	3,402				3,584				3,485
Interest expense	(221		)		(257		)		(260		)
Other income (expense)	107				67				45
Income Before Taxes	3,288				3,394				3,270
Income taxes	767				831				1,583
Net Income	$	2,521			$	2,563			$	1,687
Net Income Per Share:
Basic	$	7.78			$	7.65			$	4.90
Diluted	$	7.74			$	7.60			$	4.86

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

Statement of Comprehensive Income

Illinois Tool Works Inc. and Subsidiaries

	For the Years Ended December 31
In millions	2019				2018				2017
Net Income	$	2,521			$	2,563			$	1,687
Other Comprehensive Income (Loss):
Foreign currency translation adjustments, net of tax	(2		)		(328		)		406
Pension and other postretirement benefit adjustments, net of tax	(26		)		(17		)		114
Comprehensive Income	$	2,493			$	2,218			$	2,207

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

Statement of Financial Position

Illinois Tool Works Inc. and Subsidiaries

	December 31
In millions except per share amounts	2019				2018
Assets
Current Assets:
Cash and equivalents	$	1,981			$	1,504
Trade receivables	2,461				2,622
Inventories	1,164				1,318
Prepaid expenses and other current assets	296				334
Assets held for sale	351				—
Total current assets	6,253				5,778
Net plant and equipment	1,729				1,791
Goodwill	4,492				4,633
Intangible assets	851				1,084
Deferred income taxes	516				554
Other assets	1,227				1,030
	$	15,068			$	14,870
Liabilities and Stockholders’ Equity
Current Liabilities:
Short-term debt	$	4			$	1,351
Accounts payable	472				524
Accrued expenses	1,217				1,271
Cash dividends payable	342				328
Income taxes payable	48				68
Liabilities held for sale	71				—
Total current liabilities	2,154				3,542
Noncurrent Liabilities:
Long-term debt	7,754				6,029
Deferred income taxes	668				707
Noncurrent income taxes payable	462				495
Other liabilities	1,000				839
Total noncurrent liabilities	9,884				8,070
Stockholders’ Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2019 and 2018 Outstanding- 319.8 shares in 2019 and 328.1 shares in 2018	6				6
Additional paid-in-capital	1,304				1,253
Retained earnings	22,403				21,217
Common stock held in treasury	(18,982		)		(17,545		)
Accumulated other comprehensive income (loss)	(1,705		)		(1,677		)
Noncontrolling interest	4				4
Total stockholders’ equity	3,030				3,258
	$	15,068			$	14,870

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

Statement of Changes in Stockholders' Equity

Illinois Tool Works Inc. and Subsidiaries

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

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

Statement of Cash Flows

Illinois Tool Works Inc. and Subsidiaries

	For the Years Ended December 31
In millions	2019				2018				2017
Cash Provided by (Used for) Operating Activities:
Net income	$	2,521			$	2,563			$	1,687
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	267				272				256
Amortization and impairment of intangible assets	159				189				206
Change in deferred income taxes	32				34				64
Provision for uncollectible accounts	6				5				3
(Income) loss from investments	(15		)		(9		)		(16		)
(Gain) loss on sale of plant and equipment	(9		)		(7		)		(1		)
(Gain) loss on sale of operations and affiliates	(44		)		2				(1		)
Stock-based compensation expense	41				40				36
Other non-cash items, net	9				10				10
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in—
Trade receivables	40				(60		)		(138		)
Inventories	98				(108		)		(81		)
Prepaid expenses and other assets	11				3				(121		)
Increase (decrease) in—
Accounts payable	(16		)		(46		)		39
Accrued expenses and other liabilities	(95		)		(36		)		(42		)
Income taxes	(7		)		(41		)		501
Other, net	(3		)		—				—
Net cash provided by operating activities	2,995				2,811				2,402
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	(4		)		—				(3		)
Additions to plant and equipment	(326		)		(364		)		(297		)
Proceeds from investments	20				16				43
Proceeds from sale of plant and equipment	25				26				14
Proceeds from sale of operations and affiliates	120				1				2
Other, net	(18		)		(4		)		(10		)
Net cash provided by (used for) investing activities	(183		)		(325		)		(251		)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(1,321		)		(1,124		)		(941		)
Issuance of common stock	85				22				84
Repurchases of common stock	(1,500		)		(2,000		)		(1,000		)
Net proceeds from (repayments of) debt with original maturities of three months or less	(1		)		(850		)		849
Proceeds from debt with original maturities of more than three months	1,774				—				—
Repayments of debt with original maturities of more than three months	(1,351		)		(1		)		(652		)
Other, net	(12		)		(11		)		(14		)
Net cash provided by (used for) financing activities	(2,326		)		(3,964		)		(1,674		)
Effect of Exchange Rate Changes on Cash and Equivalents	(9		)		(112		)		145
Cash and Equivalents:
Increase (decrease) during the year	477				(1,590		)		622
Beginning of year	1,504				3,094				2,472
End of year	$	1,981			$	1,504			$	3,094
Supplementary Cash Flow Information:
Cash Paid During the Year for Interest	$	223			$	247			$	240
Cash Paid During the Year for Income Taxes, Net of Refunds	$	742			$	838			$	1,018

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 84 divisions in 53 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— Prior to 2018, the Company recognized revenue when persuasive evidence of an arrangement existed, product had shipped and the risks and rewards of ownership had transferred or services had been rendered, the price to the customer was fixed or determinable, and collectability was reasonably assured, which generally occurred at the time of product shipment. Effective January 1, 2018, the Company adopted new revenue recognition guidance. Under this new guidance, operating revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. The Company's sales arrangements with customers are predominantly short-term in nature involving a single performance obligation related to the delivery of products and generally provide for transfer of control at the time of shipment. In limited circumstances, arrangements may include service performed over time, or there may be significant obligations to the customer that are unfulfilled at the time of shipment, typically involving installation of equipment and customer acceptance. In these circumstances, operating revenue may be recognized over time as the service is provided to the customer or deferred until all significant obligations have been completed. The amount of operating revenue recorded reflects the consideration to which the Company expects to be entitled in exchange for goods or services and may include adjustments for customer allowances and rebates. Customer allowances and rebates consist primarily of volume discounts and other short-term incentive programs, which are estimated at the time of sale based on historical experience and anticipated trends. Shipping and handling charges billed to customers are included in revenue and are recognized along with the related product revenue as they are considered a fulfillment cost. Sales commissions are expensed when incurred, which is generally at the time of revenue recognition. Contract liabilities associated with sales arrangements primarily relate to deferred revenue on equipment sales and prepaid service contracts. Total deferred revenue and customer deposits were $188 million and $215 million as of December 31, 2019 and 2018, respectively, and are short-term in nature. For additional information regarding the Company's operating revenue, see New Accounting Pronouncements below and Note 3. Operating Revenue.

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

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

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

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

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

Trade receivables— Trade receivables are net of allowances for doubtful accounts. Prior to 2018, the allowance for doubtful accounts included reserves for uncollectible accounts and customer credits. Under the new revenue guidance adopted on January 1, 2018, the reserve for customer credits is reported as a liability and included in Accrued expenses in the Statement of Financial Position. Accordingly, after January 1, 2018, the allowance for doubtful accounts was comprised of reserves for uncollectible accounts. The changes in the allowance for doubtful accounts for the years ended December 31, 2019, 2018 and 2017 were as follows:

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

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 23% of total inventories as of December 31, 2019 and 2018. If the FIFO method was used for all inventories, total inventories would have been approximately $89 million and $97 million higher than reported at December 31, 2019 and 2018, respectively. The major classes of inventory at December 31, 2019 and 2018 were as follows:

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

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, 2019 and 2018:

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

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

Depreciation was $267 million, $272 million and $256 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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

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

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

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

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

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

New Accounting Pronouncements

Effective January 1, 2018

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

retrospective method of adoption, prior periods are not restated and the new guidance is applied prospectively to revenue transactions completed on or after January 1, 2018. Given the nature of the Company’s revenue transactions, the new guidance had an immaterial impact on the Company's operating revenue, results of operations, and financial position for the year ended December 31, 2018. The Company updated its revenue recognition accounting policy to reflect the requirements of the new guidance and included additional disclosures regarding the Company's revenue transactions. Refer to the Company’s operating revenue accounting policy above and Note 3. Operating Revenue for additional information.

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

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

Effective January 1, 2019

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

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

Effective January 1, 2020

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

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

(2) Divestitures

The Company routinely reviews its portfolio of businesses relative to its business portfolio criteria and evaluates if further portfolio refinements may be needed. The Company previously communicated its intent to explore options, including potential divestitures, for certain businesses with annual revenues totaling up to $1 billion. As such, the Company may commit to a plan to exit or dispose of certain businesses and present them as held for sale in periods prior to the sale of the business.

In the second quarter of 2019, the Company approved plans to divest six businesses, including two businesses in the Test & Measurement and Electronics segment, one business in the Automotive OEM segment, one business in the Welding segment, and two businesses in the Specialty Products segment. These six businesses were classified as held for sale beginning in the second quarter of 2019. In the fourth quarter of 2019, the Company divested three of the held for sale businesses which included one business in the Test & Measurement and Electronics segment, one business in the Welding segment, and one business in the Specialty Products segment.

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

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

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

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

In millions
Trade receivables	$	81
Inventories	28
Net plant and equipment	48
Goodwill and intangible assets	166
Other	28
Total assets held for sale	$	351
Accounts payable	$	21
Accrued expenses	17
Other	33
Total liabilities held for sale	$	71

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

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

(3) Operating Revenue

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

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

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

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

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

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

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

•	warewashing equipment;

•	cooking equipment, including ovens, ranges and broilers;

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

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

•	kitchen exhaust, ventilation and pollution control systems; and

•	food equipment service, maintenance and repair.

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

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

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

•	electronic assembly equipment;

•	electronic components and component packaging;

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

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

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

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

•	arc welding equipment; and

•	metal arc welding consumables and related accessories.

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

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

•	adhesives for industrial, construction and consumer purposes;

•	chemical fluids which clean or add lubrication to machines;

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

•	hand wipes and cleaners for industrial applications;

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

•	fillers and putties for auto body repair; and

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

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

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

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

•	anchors, fasteners and related tools for concrete applications;

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

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

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

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

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

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

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

•	product coding and marking equipment and related consumables;

•	plastic and metal closures and components for appliances;

•	airport ground support equipment; and

•	components for medical devices.

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

(4) Legal Settlement

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

(5) Other Income (Expense)

Other income (expense) for the twelve months ended December 31, 2019, 2018 and 2017 consisted of the following:

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

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

In the fourth quarter of 2012, the Company divested a 51% majority interest in its former Decorative Surfaces segment to certain funds managed by Clayton, Dubilier & Rice, LLC ("CD&R"). As a result of the transaction, the Company owns common units (the "Common Units") of Wilsonart International Holdings LLC ("Wilsonart") initially representing approximately 49% (on an as-converted basis) of the total outstanding equity. CD&R owns cumulative convertible participating preferred units (the "Preferred Units") of Wilsonart representing approximately 51% (on an as-converted basis) of the total outstanding equity. The Preferred Units rank senior to the Common Units as to dividends and liquidation preference, and accrue dividends at a rate of 10% per annum. 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 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. In 2016, the Company received a $167 million dividend distribution from Wilsonart which exceeded the Company's equity investment balance and resulted in a $54 million pre-tax gain in 2016. As a result of the dividend distribution, the equity investment balance in Wilsonart was reduced to zero and any subsequent equity investment income will not be recognized until the gain is recaptured.

(6) Income Taxes

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

•

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

•

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

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

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

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

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

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

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

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

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

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

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

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

Deferred foreign withholding taxes have not been provided on undistributed earnings considered permanently invested. As of December 31, 2019, undistributed earnings of certain international subsidiaries that are considered permanently invested were approximately $5.7 billion. Determination of the related deferred tax liability is not practicable because of the complexities associated with the hypothetical calculation.

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

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

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

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

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

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

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

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

Settlements during 2017 primarily related to the Company effectively settling with the German Fiscal Authority on issues identified during its 2009-2011 audit, which primarily related to intercompany transactions.

The Company and its subsidiaries file tax returns in the U.S. and various state, local and foreign jurisdictions. These tax returns are routinely audited by the tax authorities in these jurisdictions including the Internal Revenue Service, Her Majesty's Revenue and Customs, German Fiscal Authority, French Fiscal Authority, and Australian Tax Office, and a number of these audits are currently ongoing, which may increase the amount of the unrecognized tax benefits in future periods. Due to the ongoing audits, the Company believes it is reasonably possible that within the next twelve months the amount of the Company's unrecognized tax benefits may be decreased by approximately $56 million related predominantly to various intercompany transactions. The Company has recorded its best estimate of the potential exposure for these issues. The following table summarizes the open tax years for the Company’s major jurisdictions:

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

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

(7) Net Income Per Share

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

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

Options that were considered antidilutive were not included in the computation of diluted net income per share. There were 0.9 million and 0.5 million antidilutive options outstanding as of December 31, 2019 and 2018, respectively. There were no antidilutive options outstanding as of December 31, 2017.

(8) Goodwill and Intangible Assets

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

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

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

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

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarter of 2019, 2018 and 2017. There were no impairment charges as a result of these assessments.

For the twelve months ended December 31, 2019, 2018 and 2017, amortization expense of intangible assets was $159 million, $189 million and $206 million, respectively.

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

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

(9) Leases

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

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

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

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

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

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

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

(10) Debt

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

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

As of December 31, 2019, short-term debt included $4 million related to the 4.88% notes due through December 31, 2020. As of December 31, 2018, short-term debt included $650 million related to the 1.95% notes due March 1, 2019 and $700 million related to the 6.25% notes due April 1, 2019, both of which were repaid on the due date. There was no commercial paper outstanding as of December 31, 2019 and 2018.

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

agreement with a termination date of September 27, 2024 to support the potential issuances of commercial paper. This agreement replaced the existing $2.5 billion line of credit agreement with a termination date of May 9, 2021. No amounts were outstanding under the line of credit agreement as of December 31, 2019. The Company was also in compliance with the financial covenants of the line of credit agreement as of December 31, 2019, which included a minimum interest coverage ratio. The weighted-average interest rate on commercial paper was 2.5% and 1.7% for the twelve months ended December 31, 2019 and 2018, respectively.

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

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

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

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, which were repaid on the due date.

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

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

In February 2014, the Company issued $650 million of 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. The $650 million of 1.95% notes due March 1, 2019 were repaid on the due date.

In May 2014, the Company issued €500 million of 1.75% Euro notes due May 20, 2022 at 99.16% of face value and €500 million of 3.0% Euro notes due May 19, 2034 at 98.089% of face value.

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

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

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

The Company designated the €1.0 billion of Euro notes issued in May 2014, the €1.0 billion of Euro notes issued in May 2015 and the €1.6 billion of Euro notes issued in June 2019 as hedges of a portion of its net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. Refer to Note 13. Stockholders' Equity for additional information regarding the net investment hedge.

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

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

(11) Pension and Other Postretirement Benefits

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

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

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

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

The Company used the updated mortality improvement scales from the Society of Actuaries, MP-2019 and MP-2018, to measure its U.S. pension and other postretirement obligations as of December 31, 2019 and 2018, respectively, which did not have a significant impact in either period.

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

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

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

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

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

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. The Company estimates the service and interest cost components of net periodic benefit cost by applying specific spot rates along the yield curve to the projected cash flows rather than a single weighted-average rate.

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

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

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

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

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 15% to 25% equity investments, 75% to 85% fixed income investments and 0% to 10% in other types of investments. The Company does not use derivatives for the purpose of speculation, leverage, circumventing investment guidelines or taking risks that are inconsistent with specified guidelines.

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

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

		2019
In millions		Total				Level 1				Level 2				Level 3
Pension Plan Assets:
Cash and equivalents		$	28			$	27			$	1			$	—
Fixed income securities:
Government securities		355				—				355				—
Corporate debt securities		969				—				969				—
Investment contracts with insurance companies		1				—				—				1
Commingled funds:
Collective trust funds		1,460
Partnerships/private equity interests		27
Other		4				—				4				—
Total fair value of pension plan assets		$	2,844			$	27			$	1,329			$	1
Other Postretirement Benefit Plan Assets:
Life insurance policies		$	374
Total fair value of other postretirement benefit plan assets		$	374			$	—			$	—			$	—

		2018
In millions		Total				Level 1				Level 2				Level 3
Pension Plan Assets:
Cash and equivalents		$	28			$	27			$	1			$	—
Fixed income securities:
Government securities		371				—				371				—
Corporate debt securities		853				—				853				—
Investment contracts with insurance companies		1				—				—				1
Commingled funds:
Collective trust funds		1,257
Partnerships/private equity interests		36
Other		4				—				4				—
Total fair value of pension plan assets		$	2,550			$	27			$	1,229			$	1
Other Postretirement Benefit Plan Assets:
Life insurance policies		333
Total fair value of other postretirement benefit plan assets		$	333			$	—			$	—			$	—

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. Fixed income securities primarily consist of U.S. and foreign government bills, notes and bonds, corporate debt 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. The underlying investments include small-cap equity, international equity and long- and short-term fixed income instruments.

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 $29 million to its pension plans and $5 million to its other postretirement benefit plans in 2020. As of December 31, 2019, the Company’s portion of the future benefit payments that are expected to be paid during the twelve months ending December 31 is as follows:

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

(12) Commitments and Contingencies

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.

(13) Stockholders' Equity

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

Share Repurchases— On February 13, 2015, 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 "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, approximately 18.7 million shares of its common stock at an average price of $107.17 per share during 2016, approximately 7.1 million shares of its common stock at an average price of $140.56 per share during 2017, approximately 13.9 million shares of its common stock at an average price of $143.66 per share during 2018 and approximately 3.1 million shares of its common stock at an average price of $143.23 per share during 2019. The 2015 Program was completed in the second quarter of 2019.

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

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

Cash Dividends— Cash dividends declared were $4.14 per share in 2019, $3.56 per share in 2018 and $2.86 per share in 2017. Cash dividends paid were $4.07 per share in 2019, $3.34 per share in 2018 and $2.73 per share in 2017.

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

In millions		2019				2018				2017
Beginning balance		$	(1,677	)		$	(1,287	)		$	(1,807	)
Adoption of new accounting guidance related to reclassification of certain tax effects		—				(45		)		—
Foreign currency translation adjustments during the period		7				(308		)		294
Foreign currency translation adjustments reclassified to income		—				5				2
Income taxes		(9		)		(25		)		110
Total foreign currency translation adjustments, net of tax		(2		)		(328		)		406
Pension and other postretirement benefit adjustments during the period		(54		)		(64		)		96
Pension and other postretirement benefit adjustments reclassified to income		21				41				56
Income taxes		7				6				(38		)
Total pension and other postretirement benefit adjustments, net of tax		(26		)		(17		)		114
Ending balance		$	(1,705	)		$	(1,677	)		$	(1,287	)

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

Foreign currency translation adjustments reclassified to income primarily relate to the disposal of operations and were included in the related gain or loss upon disposal. Pension and other postretirement benefit adjustments reclassified to income represent the amortization of actuarial gains and losses and prior service cost. Refer to Note 11. Pension and Other Postretirement Benefits for the amounts included in net periodic benefit cost.

The Company designated the €1.0 billion of Euro notes issued in May 2014, the €1.0 billion of Euro notes issued in May 2015 and the €1.6 billion of Euro notes issued in June 2019 as hedges of a portion of its net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. Changes in the value of this debt resulting from fluctuations in the Euro to U.S. Dollar exchange rate have been recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). The cumulative unrealized pre-tax gain recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was $239 million and $187 million as of December 31, 2019 and 2018, respectively.

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

(14) Stock-Based Compensation

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

Commencing in February 2013, the Company began issuing shares from treasury stock to cover the exercised options and vested RSUs. Prior to February 2013, the Company generally issued new shares from its authorized but unissued share pool. As of December 31, 2019, approximately 11 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 for the twelve months ended December 31, 2019, 2018 and 2017:

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

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

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

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

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

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

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

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

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

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

(15) Other Balance Sheet Information

Other balance sheet information as of December 31, 2019 and 2018 was as follows:

In millions		2019				2018
Prepaid expenses and other current assets:
Income tax refunds receivable		$	77			$	98
Value-added-tax receivables		73				79
Vendor advances		25				30
Other		121				127
Total prepaid expenses and other current assets		$	296			$	334
Other assets:
Cash surrender value of life insurance policies		$	441			$	429
Prepaid pension assets		297				290
Operating lease right-of-use asset		206				—
Customer tooling		141				171
Investments		51				51
Other		91				89
Total other assets		$	1,227			$	1,030
Accrued expenses:
Compensation and employee benefits		$	335			$	391
Deferred revenue and customer deposits		188				215
Rebates		159				172
Current portion of operating lease liability		51				—
Warranties		45				45
Current portion of pension and other postretirement benefit obligations		14				16
Other		425				432
Total accrued expenses		$	1,217			$	1,271
Other liabilities:
Pension benefit obligation		$	215			$	203
Postretirement benefit obligation		198				179
Long-term portion of operating lease liability		128				—
Other		459				457
Total other liabilities		$	1,000			$	839

(16) Segment Information

The Company's operations are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven 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, 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.

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 branded supplier to niche markets that require value-added, differentiated products. Businesses in this segment produce engineered adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance.

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

Segment information for 2019, 2018 and 2017 was as follows:

In millions		2019				2018				2017
Operating revenue:
Automotive OEM		$	3,063			$	3,338			$	3,271
Food Equipment		2,188				2,214				2,123
Test & Measurement and Electronics		2,121				2,171				2,069
Welding		1,638				1,691				1,538
Polymers & Fluids		1,669				1,724				1,724
Construction Products		1,625				1,700				1,672
Specialty Products		1,825				1,951				1,938
Intersegment revenue		(20		)		(21		)		(21		)
Total		$	14,109			$	14,768			$	14,314
Operating income:
Automotive OEM		$	659			$	751			$	747
Food Equipment		578				572				556
Test & Measurement and Electronics		542				523				464
Welding		453				474				415
Polymers & Fluids		381				369				357
Construction Products		383				414				399
Specialty Products		472				522				527
Total Segments		3,468				3,625				3,465
Unallocated		(66		)		(41		)		20
Total		$	3,402			$	3,584			$	3,485
Depreciation and amortization and impairment of intangible assets:
Automotive OEM		$	125			$	123			$	111
Food Equipment		41				44				45
Test & Measurement and Electronics		69				88				92
Welding		26				27				28
Polymers & Fluids		77				83				89
Construction Products		29				32				33
Specialty Products		59				64				64
Total		$	426			$	461			$	462
Plant and equipment additions:
Automotive OEM		$	134			$	184			$	147
Food Equipment		35				28				27
Test & Measurement and Electronics		26				31				23
Welding		28				23				17
Polymers & Fluids		18				15				16
Construction Products		29				25				22
Specialty Products		56				58				45
Total		$	326			$	364			$	297
Identifiable assets:
Automotive OEM		$	2,417			$	2,388			$	2,402
Food Equipment		1,042				1,019				1,054
Test & Measurement and Electronics		2,374				2,343				2,449
Welding		734				789				756
Polymers & Fluids		1,862				1,942				2,067
Construction Products		1,176				1,167				1,196
Specialty Products		1,656				1,687				1,721
Total Segments		11,261				11,335				11,645
Corporate		3,807				3,535				5,135
Total		$	15,068			$	14,870			$	16,780

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

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

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

Operating revenue by geographic region is based on the customers' locations. As of December 31, 2019, the Company had approximately 11% of its total long-lived assets in China. There was no single country outside the U.S with long-lived assets exceeding 10% of the Company's total long-lived assets in 2018. No single customer accounted for more than 5% of consolidated revenues for the twelve months ended December 31, 2019, 2018 or 2017.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

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