Item 8. Financial Statements and Supplementary Data

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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, 2020. 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, 2020, 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, 2020 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 12, 2021						/s/ Michael M. Larsen Michael M. Larsen Senior Vice President & Chief Financial Officer February 12, 2021

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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 2020 was $595 million and the liability recorded for unrecognized tax benefits as of December 31, 2020, was $346 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 12, 2021

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	2020		2019		2018
Operating Revenue	$	12,574	$	14,109	$	14,768
Cost of revenue	7,375		8,187		8,604
Selling, administrative, and research and development expenses	2,163		2,361		2,391
Amortization and impairment of intangible assets	154		159		189
Operating Income	2,882		3,402		3,584
Interest expense	(206)		(221)		(257)
Other income (expense)	28		107		67
Income Before Taxes	2,704		3,288		3,394
Income taxes	595		767		831
Net Income	$	2,109	$	2,521	$	2,563

Net Income Per Share:
Basic	$	6.66	$	7.78	$	7.65
Diluted	$	6.63	$	7.74	$	7.60

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	2020		2019		2018
Net Income	$	2,109	$	2,521	$	2,563
Other Comprehensive Income (Loss):
Foreign currency translation adjustments, net of tax	4		(2)		(328)
Pension and other postretirement benefit adjustments, net of tax	59		(26)		(17)
Comprehensive Income	$	2,172	$	2,493	$	2,218

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	2020		2019
Assets
Current Assets:
Cash and equivalents	$	2,564	$	1,981
Trade receivables	2,506		2,461
Inventories	1,189		1,164
Prepaid expenses and other current assets	264		296
Assets held for sale	—		351
Total current assets	6,523		6,253

Net plant and equipment	1,777		1,729
Goodwill	4,690		4,492
Intangible assets	781		851
Deferred income taxes	533		516
Other assets	1,308		1,227
	$	15,612	$	15,068

Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt	$	350	$	4
Accounts payable	534		472
Accrued expenses	1,284		1,217
Cash dividends payable	361		342
Income taxes payable	60		48
Liabilities held for sale	—		71
Total current liabilities	2,589		2,154
Noncurrent Liabilities:
Long-term debt	7,772		7,754
Deferred income taxes	588		668
Noncurrent income taxes payable	413		462
Other liabilities	1,068		1,000
Total noncurrent liabilities	9,841		9,884
Stockholders' Equity:
Common stock (par value of $0.01 per share):
Issued- 550.0 shares in 2020 and 2019 Outstanding- 316.7 shares in 2020 and 319.8 shares in 2019	6		6
Additional paid-in-capital	1,362		1,304
Retained earnings	23,114		22,403
Common stock held in treasury	(19,659)		(18,982)
Accumulated other comprehensive income (loss)	(1,642)		(1,705)
Noncontrolling interest	1		4
Total stockholders' equity	3,182		3,030
	$	15,612	$	15,068

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 as of 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)
Other comprehensive income (loss)	—		—		—		—		(345)		—		(345)

Balance as of 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)
Other comprehensive income (loss)	—		—		—		—		(28)		—		(28)
Noncontrolling interest	—		(1)		—		—		—		—		(1)
Balance as of December 31, 2019	6		1,304		22,403		(18,982)		(1,705)		4		3,030
Net income	—		—		2,109		—		—		—		2,109
Common stock issued for stock-based compensation	—		17		—		29		—		—		46
Stock-based compensation expense	—		42		—		—		—		—		42
Repurchases of common stock	—		—		—		(706)		—		—		(706)
Dividends declared ($4.42 per share)	—		—		(1,398)		—		—		—		(1,398)
Other comprehensive income (loss)	—		—		—		—		63		—		63
Noncontrolling interest	—		(1)		—		—		—		(3)		(4)
Balance as of December 31, 2020	$	6	$	1,362	$	23,114	$	(19,659)	$	(1,642)	$	1	$	3,182

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	2020		2019		2018
Cash Provided by (Used for) Operating Activities:
Net income	$	2,109	$	2,521	$	2,563
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	273		267		272
Amortization and impairment of intangible assets	154		159		189
Change in deferred income taxes	(30)		32		34
Provision for uncollectible accounts	7		6		5
(Income) loss from investments	(8)		(15)		(9)
(Gain) loss on sale of plant and equipment	2		(9)		(7)
(Gain) loss on sale of operations and affiliates	—		(44)		2
Stock-based compensation expense	42		41		40
Other non-cash items, net	8		9		10
Change in assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in—
Trade receivables	95		40		(60)
Inventories	43		98		(108)
Prepaid expenses and other assets	41		11		3
Increase (decrease) in—
Accounts payable	19		(16)		(46)
Accrued expenses and other liabilities	17		(95)		(36)
Income taxes	34		(7)		(41)
Other, net	1		(3)		—
Net cash provided by operating activities	2,807		2,995		2,811
Cash Provided by (Used for) Investing Activities:
Acquisition of businesses (excluding cash and equivalents)	—		(4)		—
Additions to plant and equipment	(236)		(326)		(364)
Proceeds from investments	14		20		16
Proceeds from sale of plant and equipment	10		25		26
Proceeds from sale of operations and affiliates	1		120		1
Other, net	(3)		(18)		(4)
Net cash provided by (used for) investing activities	(214)		(183)		(325)
Cash Provided by (Used for) Financing Activities:
Cash dividends paid	(1,379)		(1,321)		(1,124)
Issuance of common stock	66		85		22
Repurchases of common stock	(706)		(1,500)		(2,000)
Net proceeds from (repayments of) debt with original maturities of three months or less	—		(1)		(850)
Proceeds from debt with original maturities of more than three months	—		1,774		—
Repayments of debt with original maturities of more than three months	(4)		(1,351)		(1)
Other, net	(26)		(12)		(11)
Net cash provided by (used for) financing activities	(2,049)		(2,326)		(3,964)
Effect of Exchange Rate Changes on Cash and Equivalents	39		(9)		(112)
Cash and Equivalents:
Increase (decrease) during the year	583		477		(1,590)
Beginning of year	1,981		1,504		3,094
End of year	$	2,564	$	1,981	$	1,504
Supplementary Cash Flow Information:
Cash Paid During the Year for Interest	$	194	$	223	$	247
Cash Paid During the Year for Income Taxes, Net of Refunds	$	591	$	742	$	838

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 83 divisions in 52 countries. 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.

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

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

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

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

Operating revenue— Operating revenue is recognized 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 $222 million and $188 million as of December 31, 2020 and 2019, respectively, and are short-term in nature. Refer to Note 4. Operating Revenue for additional information regarding the Company's operating revenue.

Research and development expenses— Research and development expenses are recorded as expense in the year incurred. These costs were $214 million, $221 million and $233 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Advertising expenses— Advertising expenses are recorded as expense in the year incurred. These costs were $43 million, $48 million and $50 million for the years ended December 31, 2020, 2019 and 2018, 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, 2020, 2019 and 2018 were as follows:


In millions	2020		2019		2018
Beginning balance	$	20	$	21	$	43
Adoption of new revenue recognition guidance	—		—		(23)
Provision charged to expense	7		6		5
Write-offs, net of recoveries	(4)		(4)		(3)
Transfer (to)/from assets held for sale	2		(2)		—
Foreign currency translation/other	4		(1)		(1)
Ending balance	$	29	$	20	$	21

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 19% of total inventories as of December 31, 2020 and 23% of total inventories as of December 31, 2019. If the FIFO method was used for all inventories, total inventories would have been approximately $82 million and $89 million higher than reported at December 31, 2020 and 2019, respectively. The major classes of inventory at December 31, 2020 and 2019 were as follows:


In millions	2020		2019
Raw material	$	454	$	452
Work-in-process	136		131
Finished goods	681		670
LIFO reserve	(82)		(89)
Total inventories	$	1,189	$	1,164

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, 2020 and 2019:


In millions	2020		2019
Land	$	204	$	186
Buildings and improvements	1,432		1,357
Machinery and equipment	3,824		3,551
Construction in progress	133		133
Gross plant and equipment	5,593		5,227
Accumulated depreciation	(3,816)		(3,498)
Net plant and equipment	$	1,777	$	1,729

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 $273 million, $267 million and $272 million for the years ended December 31, 2020, 2019 and 2018, 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 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, a goodwill impairment loss is recorded for the difference.

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, 2020, 2019 and 2018 were as follows:


In millions	2020		2019		2018
Beginning balance	$	45	$	45	$	45
Charges	(34)		(44)		(49)
Provision charged to expense	33		44		50

Foreign currency translation	1		—		(1)
Ending balance	$	45	$	45	$	45

New Accounting Pronouncements

Adopted in 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. 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.

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.

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.

Adopted in 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 an operating 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.

Adopted in 2020

In June 2016, the FASB issued authoritative guidance which changes the methodology used to measure credit losses for certain financial instruments. Under prior guidance, credit loss reserves were 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. The Company adopted this new guidance effective January 1, 2020 and applied it prospectively, which did not 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 prior guidance, when the estimated fair value of a reporting unit was less than its carrying value, the fair value of the goodwill was 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. Effective January 1, 2020, the Company adopted the new guidance prospectively and applied the new guidance during its annual assessment of goodwill in the third quarter of 2020. The adoption of this new accounting guidance had no impact on the Company's results of operations or financial position. Refer to Note 8. Goodwill and Intangible Assets for additional information regarding the Company's annual assessment of goodwill.

In August 2018, the FASB issued new accounting guidance which revised certain annual disclosure requirements for defined benefit pension and other postretirement plans with the objective of improving the effectiveness of these disclosures. The new guidance eliminates several existing disclosure requirements, adds or expands other disclosures, and is required to be applied retrospectively to all periods presented. The Company adopted the new guidance for the year ended December 31, 2020, which resulted in modified disclosures. Refer to Note 11. Pension and Other Postretirement Benefits for disclosures related to the Company's defined benefit pension and other postretirement benefit plans.

In December 2019, the FASB issued authoritative guidance which simplifies certain aspects of the accounting for income taxes, including the elimination of an exception to the methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated full year loss. The Company early adopted this new guidance effective January 1, 2020 and applied it prospectively, which did not have a material impact on the Company's results of operations or financial position.

(2) Novel Coronavirus (COVID-19)

In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred in China and other jurisdictions. The COVID-19 outbreak was subsequently declared a global pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governments around the globe have taken various actions to reduce its spread, including travel restrictions, shutdowns of businesses deemed nonessential, and stay-at-home or similar orders. The COVID-19 pandemic and the measures taken globally to reduce its spread have negatively impacted the global economy, causing significant disruptions in the Company's global operations starting primarily in the latter part of the first quarter of 2020 as COVID-19 continued to spread and impact the countries in which the Company operates and the markets the Company serves. The Company expects the disruptions caused by the COVID-19 outbreak to continue to have an adverse impact on the Company's operating results in 2021. However, the full extent of the COVID-19 outbreak and its impact on the markets served by the Company and on the Company’s operations continues to be highly uncertain. A prolonged outbreak will continue to interrupt the operations of the Company and its customers and suppliers.

(3) 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 and 2018 was $134 million and $194 million, respectively. 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. The assets and liabilities related to the held for sale businesses that were included in assets and liabilities held for sale in the Statement of Financial Position as of December 31, 2019, were 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

In the first quarter of 2020, the Company concluded that the sales of the one business in the Automotive OEM segment and the one business in the Specialty Products segment previously held for sale were no longer probable of being completed within one year, primarily due to the disruptions and economic uncertainty resulting from the COVID-19 pandemic. In the third quarter of 2020, the Company concluded that the sale of the remaining held for sale business in the Test & Measurement and Electronics segment was no longer probable of being completed within one year due to delays in the sale process and ongoing economic uncertainty resulting from the COVID-19 pandemic. Accordingly, these businesses were no longer presented as held for sale in the Statement of Financial Position beginning in the first and third quarters of 2020, respectively. As of December 31, 2020, no businesses were presented as held for sale. Due to the COVID-19 pandemic in 2020, the Company has deferred any further significant divestiture activity until market conditions normalize.

(4) Operating Revenue

The Company's 83 diversified operating divisions are organized and managed based on similar product offerings and end markets, and are reported to senior management as the following seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products. Operating revenue by product category, which is consistent with the Company's segment presentation, for the twelve months ended December 31, 2020, 2019 and 2018 was as follows:


In millions	2020		2019		2018
Automotive OEM	$	2,571	$	3,063	$	3,338
Food Equipment	1,739		2,188		2,214
Test & Measurement and Electronics	1,963		2,121		2,171
Welding	1,384		1,638		1,691
Polymers & Fluids	1,622		1,669		1,724
Construction Products	1,652		1,625		1,700
Specialty Products	1,660		1,825		1,951
Intersegment revenue	(17)		(20)		(21)
Total operating revenue	$	12,574	$	14,109	$	14,768

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

Automotive OEM**—** This segment is a global, niche supplier to top tier OEMs, providing unique innovation to address pain points for sophisticated customers with complex problems. Businesses in this segment produce components and fasteners for

automotive-related applications. This segment primarily serves the automotive original equipment manufacturers and tiers market. Products in this segment include:

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

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

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

warewashing equipment;
cooking equipment, including ovens, ranges and broilers;
refrigeration equipment, including refrigerators, freezers and prep tables;
food processing equipment, including slicers, mixers and scales;
kitchen exhaust, ventilation and pollution control systems; and
food equipment service, maintenance and repair.

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

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

equipment, consumables, and related software for testing and measuring of materials, structures, gases and fluids;
electronic assembly equipment;
electronic components and component packaging;
static control equipment and consumables used for contamination control in clean room environments; and
pressure sensitive adhesives and components for electronics, medical, transportation and telecommunications applications.

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

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

arc welding equipment; and
metal arc welding consumables and related accessories.

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

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

adhesives for industrial, construction and consumer purposes;
chemical fluids which clean or add lubrication to machines;
epoxy and resin-based coating products for industrial applications;
hand wipes and cleaners for industrial applications;
fluids, polymers and other supplies for auto aftermarket maintenance and appearance;
fillers and putties for auto body repair; and
polyester coatings and patch and repair products for the marine industry.

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

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

fasteners and related fastening tools for wood and metal applications;
anchors, fasteners and related tools for concrete applications;
metal plate truss components and related equipment and software; and
packaged hardware, fasteners, anchors and other products for retail.

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

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

line integration, conveyor systems and line automation for the food and beverage industries;
plastic consumables that multi-pack cans and bottles and related equipment;
foil, film and related equipment used to decorate consumer products;
product coding and marking equipment and related consumables;
plastic and metal closures and components for appliances;
airport ground support equipment; and
components for medical devices.

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

(5) Other Income (Expense)

Other income (expense) for the twelve months ended December 31, 2020, 2019 and 2018 consisted of the following:


In millions	2020		2019		2018
Interest income	$	17	$	29	$	35
Other net periodic benefit income	13		24		20
Income (loss) from investments	8		15		9
Gain (loss) on disposal of operations and affiliates	—		44		(2)
Equity income in Wilsonart	—		—		—
Gain (loss) on foreign currency transactions, net	(5)		(10)		(1)
Other, net	(5)		5		6
Total other income (expense)	$	28	$	107	$	67

Refer to Note 3. 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 the 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

Noncurrent income taxes payable— 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 connection with the enactment of the Act, the Company recorded a one-time additional income tax expense of $676 million in the fourth quarter of 2017 related to a one-time repatriation tax on the deemed repatriation of post-1986 undistributed earnings of foreign subsidiaries. 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 $413 million and $462 million as of December 31, 2020 and 2019, respectively.

Provision for income taxes— The components of the provision for income taxes for the twelve months ended December 31, 2020, 2019 and 2018 were as follows:


In millions	2020		2019		2018
U.S. federal income taxes:
Current	$	301	$	356	$	373
Deferred	(54)		(26)		(15)

Total U.S. federal income taxes	247		330		358
Foreign income taxes:
Current	276		302		358
Deferred	15		53		49
Total foreign income taxes	291		355		407
State income taxes:
Current	48		77		66
Deferred	9		5		—

Total state income taxes	57		82		66
Total provision for income taxes	$	595	$	767	$	831

Income before taxes for domestic and foreign operations for the twelve months ended December 31, 2020, 2019 and 2018 was as follows:


In millions	2020		2019		2018
Domestic	$	1,419	$	1,774	$	1,774
Foreign	1,285		1,514		1,620
Total income before taxes	$	2,704	$	3,288	$	3,394

The reconciliation between the U.S. federal statutory tax rate and the effective tax rate for the twelve months ended December 31, 2020, 2019 and 2018 was as follows:


	2020		2019		2018
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
U.S. tax effect of foreign earnings	1.0		1.1		1.5
Changes in tax law	(1.5)		—		(0.1)
State income taxes, net of U.S. federal tax benefit	1.9		1.7		1.6

Differences between U.S. federal statutory and foreign tax rates	2.0		2.0		2.1
Nontaxable foreign interest income	(2.0)		(1.4)		(1.7)



Tax effect of foreign dividends	1.6		0.2		1.0
Foreign derived intangible income	(1.3)		(0.1)		(0.7)
Excess tax benefits from stock-based compensation	(1.0)		(0.9)		(0.3)
Other, net	0.3		(0.3)		0.1
Effective tax rate	22.0	%	23.3	%	24.5	%

The Company's effective tax rate for the twelve months ended December 31, 2020, 2019 and 2018 was 22.0%, 23.3% and 24.5%, respectively. 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. Additionally, the effective tax rates for 2020, 2019 and 2018 included $27 million, $28 million and $10 million, respectively, related to excess tax benefits from stock-based compensation.

Upon repatriation of foreign 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, 2020 and 2019 was $55 million and $62 million, respectively.

Deferred foreign withholding taxes have not been provided on undistributed earnings considered permanently invested. As of December 31, 2020, undistributed earnings of certain international subsidiaries that are considered permanently invested were approximately $6 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, 2020 and 2019 were as follows:


	2020				2019
In millions	Asset		Liability		Asset		Liability
Goodwill and intangible assets	$	292	$	(476)	$	202	$	(453)
Inventory reserves, capitalized tax cost and LIFO inventory	31		(3)		29		(3)
Investments	10		(156)		16		(158)
Plant and equipment	16		(91)		17		(74)
Accrued expenses and reserves	37		—		42		—
Employee benefit accruals	168		—		176		—
Foreign tax credit carryforwards	12		—		7		—
Net operating loss carryforwards	418		—		419		—
Capital loss carryforwards	88		—		80		—
Allowances for uncollectible accounts	10		—		9		—
Pension liabilities	—		(27)		—		(15)

Unrealized loss (gain) on foreign debt instruments	29		—		—		(57)
Operating leases	48		(48)		45		(45)
Other	32		(18)		32		(13)
Gross deferred income tax assets (liabilities)	1,191		(819)		1,074		(818)
Valuation allowances	(427)		—		(408)		—
Total deferred income tax assets (liabilities)	$	764	$	(819)	$	666	$	(818)

The valuation allowances recorded as of December 31, 2020 and 2019 related primarily to certain net operating loss carryforwards, capital loss carryforwards and foreign tax credit carryforwards. As of December 31, 2020, the Company had utilized all realizable foreign tax credit carryforwards.

As of December 31, 2020, 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 to Net
In millions	Operating Losses
2021	$	80
2022	22
2023	5
2024	12
2025	2

2026-2046	138
Do not expire	1,396
Total gross carryforwards related to net operating losses	$	1,655

Unrecognized tax benefits— The changes in the amount of unrecognized tax benefits for the twelve months ended December 31, 2020, 2019 and 2018 were as follows:


In millions	2020		2019		2018
Beginning balance	$	296	$	297	$	285
Additions based on tax positions related to the current year	74		6		3
Additions for tax positions of prior years	39		13		49
Reductions for tax positions of prior years	(47)		(14)		(31)
Settlements	(23)		(5)		(5)
Foreign currency translation	7		(1)		(4)
Ending balance	$	346	$	296	$	297

Included in the balance as of December 31, 2020 were approximately $312 million of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate.

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 $89 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			2017-2020
United Kingdom			2017-2020
Germany			2015-2020
France			2017-2020
Australia			2013-2020

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, 2020 and 2019 was $34 million and $19 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, 2020, 2019 and 2018 was as follows:


In millions except per share amounts	2020		2019		2018
Net Income	$	2,109	$	2,521	$	2,563
Net income per share—Basic:
Weighted-average common shares	316.9		323.9		335.0
Net income per share—Basic	$	6.66	$	7.78	$	7.65
Net income per share—Diluted:
Weighted-average common shares	316.9		323.9		335.0
Effect of dilutive stock options and restricted stock units	1.4		1.7		2.1
Weighted-average common shares assuming dilution	318.3		325.6		337.1
Net income per share—Diluted	$	6.63	$	7.74	$	7.60

Options that were considered antidilutive were not included in the computation of diluted net income per share. There were 0.5 million, 0.9 million and 0.5 million antidilutive options outstanding as of December 31, 2020, 2019 and 2018, respectively.

(8) Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the twelve months ended December 31, 2020 and 2019 were as follows:


In millions	Automotive OEM		Test & Measurement and Electronics		Food Equipment		Polymers & Fluids		Welding		Construction Products		Specialty Products		Total
Balance, December 31, 2018	$	476	$	1,352	$	259	$	889	$	263	$	513	$	881	$	4,633
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

Transfer from assets held for sale	5		83		—		—		—		—		7		95
Foreign currency translation	20		19		15		6		9		19		15		103
Balance, December 31, 2020	$	491	$	1,347	$	271	$	893	$	267	$	531	$	890	$	4,690
Cumulative goodwill impairment charges, December 31, 2020	$	24	$	83	$	60	$	15	$	5	$	7	$	46	$	240

Intangible assets as of December 31, 2020 and 2019 were as follows:


	2020						2019
In millions	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Amortizable intangible assets:
Customer lists and relationships	$	1,692	$	(1,396)	$	296	$	1,530	$	(1,195)	$	335
Trademarks and brands	742		(505)		237		694		(434)		260
Patents and proprietary technology	606		(542)		64		581		(501)		80
Other	487		(463)		24		449		(433)		16
Total amortizable intangible assets	3,527		(2,906)		621		3,254		(2,563)		691
Indefinite-lived intangible assets:
Trademarks and brands	160		—		160		160		—		160
Total intangible assets	$	3,687	$	(2,906)	$	781	$	3,414	$	(2,563)	$	851

The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarter of 2020, 2019 and 2018. There were no impairment charges as a result of these assessments.

For the twelve months ended December 31, 2020, 2019 and 2018, amortization expense of intangible assets was $154 million, $159 million and $189 million, respectively.

As of December 31, 2020, the estimated future amortization expense of intangible assets for the twelve months ending December 31 was as follows:


In millions
2021	$	128
2022	115
2023	95
2024	78
2025	54

(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, 2020, 2019 and 2018 was $113 million, $113 million and $124 million, respectively. Total rental expense for the twelve months ended December 31, 2020 and 2019 included $48 million and $44 million, respectively, 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 following table summarizes information related to the Company's capitalized operating leases for the twelve months ended December 31, 2020 and 2019:


Dollars in millions	2020			2019
Right-of-use assets	$	216		$	206

Current portion of operating lease liabilities	$	55		$	51
Long-term portion of operating lease liabilities	133			128
Operating lease liabilities	$	188		$	179

Rental expense related to capitalized operating leases	$	65		$	69
Cash paid related to maturities of operating lease liabilities	$	64		$	70
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	65		$	50

Weighted-average remaining lease term	4.1 years			4.6 years
Weighted-average discount rate	2.34		%	2.59		%

The right-of-use assets related to operating leases and the current and long-term portions of operating lease liabilities were included in Other assets, Accrued expenses and Other liabilities, respectively, in the Statement of Financial Position. The weighted-average discount rate was based on the incremental borrowing rate of the Company and its subsidiaries. As of December 31, 2020, future maturities of operating lease liabilities for the twelve months ending December 31 were as follows:


In millions
2021	$	58
2022	49
2023	37
2024	25
2025	14
2026 and future years	15
Total future minimum lease payments	198
Less: Imputed interest	(10)
Operating lease liabilities	$	188

(10) Debt

Total debt as of December 31, 2020 and 2019 was as follows:


In millions	2020		2019
Short-term debt	$	350	$	4
Long-term debt	7,772		7,754
Total debt	$	8,122	$	7,758

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 that have been reclassified to short-term.

As of December 31, 2020, short-term debt included $350 million related to the 3.375% notes due September 15, 2021. As of December 31, 2019, short-term debt included $4 million related to the 4.88% notes due through December 31, 2020, which was repaid by the due date. There was no commercial paper outstanding as of December 31, 2020 and 2019.

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 revolving credit facility with a termination date of September 27, 2024 to support the potential issuances of commercial paper. No amounts were outstanding under the revolving credit facility as of December 31, 2020. The Company was also in compliance with the financial covenants of the revolving credit facility as of December 31, 2020, which included a minimum interest coverage ratio. The Company did not have any commercial paper outstanding during 2020. The weighted-average interest rate on commercial paper was 2.5% for the twelve months ended December 31, 2019.

As of December 31, 2020, the Company had unused capacity of approximately $195 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, 2020 and 2019 consisted of the following:


		2020				2019
In millions	Effective Interest Rate	Carrying Value		Fair Value		Carrying Value		Fair Value
4.88% notes due thru December 31, 2020	4.96%	$	—	$	—	$	4	$	4
3.375% notes due September 15, 2021	3.43%	350		355		349		358
1.75% Euro notes due May 20, 2022	1.86%	609		625		558		584
1.25% Euro notes due May 22, 2023	1.35%	609		631		558		584
3.50% notes due March 1, 2024	3.54%	698		764		697		742
0.25% Euro notes due December 5, 2024	0.31%	729		745		668		677
2.65% notes due November 15, 2026	2.69%	994		1,108		993		1,032
0.625% Euro notes due December 5, 2027	0.71%	605		639		554		570
2.125% Euro notes due May 22, 2030	2.18%	606		732		555		644
1.00% Euro notes due June 5, 2031	1.09%	602		671		552		580
3.00% Euro notes due May 19, 2034	3.13%	598		830		548		724
4.875% notes due September 15, 2041	4.97%	637		912		637		829
3.90% notes due September 1, 2042	3.96%	1,082		1,397		1,082		1,283
Other borrowings		3		3		3		3
Total		$	8,122	$	9,412	$	7,758	$	8,614
Less: Current maturities of long-term debt		(350)				(4)
Total long-term debt		$	7,772			$	7,754

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, which were fully repaid by the due date.

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.

All of the Company's notes listed above represent senior unsecured obligations ranking equal in right of payment. As of December 31, 2020, 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
2021	$	350
2022	609
2023	609
2024	1,427
2025	—
2026 and future years	5,127
Total	$	8,122

(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 $85 million in 2020, $86 million in 2019, and $82 million in 2018. 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, 2020, 2019 and 2018 is as follows:


	Pension						Other Postretirement Benefits
In millions	2020		2019		2018		2020		2019		2018
Components of net periodic benefit cost:
Service cost	$	55	$	52	$	60	$	8	$	7	$	8
Interest cost	60		78		72		16		20		18
Expected return on plan assets	(113)		(121)		(126)		(24)		(22)		(25)
Amortization of actuarial (gain) loss	47		21		43		(1)		(1)		(2)
Amortization of prior service cost	2		1		—		—		—		—
Total net periodic benefit cost	$	51	$	31	$	49	$	(1)	$	4	$	(1)

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-2020 and MP-2019, to measure its U.S. pension and other postretirement benefit obligations as of December 31, 2020 and 2019, respectively, which did not have a significant impact in either period.

The following table provides a rollforward of the plan benefit obligations for the twelve months ended December 31, 2020 and 2019:


	Pension				Other Postretirement Benefits
In millions	2020		2019		2020		2019
Change in benefit obligation:
Beginning balance	$	2,731	$	2,429	$	570	$	511
Service cost	55		52		8		7
Interest cost	60		78		16		20
Plan participants' contributions	1		2		10		12
Amendments	1		—		—		—
Actuarial (gain) loss	205		295		26		61
Transfer to liabilities held for sale	—		(2)		—		—
Benefits paid	(160)		(156)		(41)		(42)
Medicare subsidy received	—		—		2		1

Foreign currency translation	46		33		—		—
Ending balance	$	2,939	$	2,731	$	591	$	570
Accumulated benefit obligation as of December 31	$	2,792	$	2,589

For the years ended December 31, 2020 and 2019, the actuarial loss for the Company's pension and other postretirement benefit plans was primarily related to lower discount rates. Refer to the Assumptions section below for further details related to the discount rates used in the valuations of pension and other postretirement benefit obligations.

The following table provides a rollforward of the plan assets and a reconciliation of funded status for the twelve months ended December 31, 2020 and 2019:


	Pension				Other Postretirement Benefits
In millions	2020		2019		2020		2019
Change in plan assets:
Beginning balance	$	2,844	$	2,550	$	374	$	333
Actual return on plan assets	343		379		55		66
Company contributions	26		27		4		5
Plan participants' contributions	1		2		10		12
Benefits paid	(160)		(156)		(41)		(42)
Foreign currency translation	42		42		—		—
Ending balance	$	3,096	$	2,844	$	402	$	374
Reconciliation of funded status:
Funded status	$	157	$	113	$	(189)	$	(196)
Other immaterial plans	(54)		(42)		(5)		(5)
Net asset (liability) as of December 31	$	103	$	71	$	(194)	$	(201)
The amounts recognized in the Statement of Financial Position as of December 31 consist of:
Other assets	$	355	$	297	$	—	$	—
Accrued expenses	(11)		(11)		(3)		(3)
Other noncurrent liabilities	(241)		(215)		(191)		(198)
Net asset (liability) as of December 31	$	103	$	71	$	(194)	$	(201)
The pre-tax amounts recognized in accumulated other comprehensive (income) loss consist of:
Net actuarial (gain) loss	$	495	$	568	$	(39)	$	(35)
Prior service cost	6		7		—		—
Pre-tax accumulated other comprehensive (income) loss as of December 31	$	501	$	575	$	(39)	$	(35)

As of December 31, 2020 and 2019, pension plans with projected benefit obligations in excess of plan assets had projected benefit obligations of $212 million and $194 million, respectively, and plan assets of $32 million and $29 million, respectively. As of December 31, 2020 and 2019, pension plans with accumulated benefit obligations in excess of plan assets had accumulated benefit obligations of $205 million and $188 million, respectively, and plan assets of $32 million and $29 million, respectively.

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


	Pension						Other Postretirement Benefits
	2020		2019		2018		2020		2019		2018
Assumptions used to determine benefit obligations as of December 31:
Discount rate	1.89	%	2.61	%	3.66	%	2.59	%	3.29	%	4.40	%
Rate of compensation increases	3.24	%	3.44	%	3.52	%
Interest crediting rate - U.S. cash balance plan	3.75 %		4.00 %		4.00 %
Assumptions used to determine net periodic benefit cost for the twelve months ended December 31:
Discount rate	2.61	%	3.66	%	3.12	%	3.29	%	4.40	%	3.72	%
Expected return on plan assets	4.33	%	4.71	%	4.77	%	6.70	%	6.70	%	6.80	%
Rate of compensation increases	3.44	%	3.52	%	3.54	%
Interest crediting rate - U.S. cash balance plan	4.00 %		4.00 %		4.00 %

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:


	2020		2019		2018
Health care cost trend rate assumed for the next year	7.00	%	6.70	%	7.00	%
Ultimate trend rate	4.50	%	4.50	%	4.50	%
Year the rate reaches the ultimate trend rate	2027		2026		2026

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, 2020 and 2019, 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.


	2020
In millions	Total		Level 1		Level 2		Level 3
Pension Plan Assets:
Cash and equivalents	$	75	$	61	$	14	$	—


Fixed income securities:
Government securities	373		—		373		—
Corporate debt securities	1,043		—		1,043		—

Investment contracts with insurance companies	1		—		—		1
Commingled funds:
Collective trust funds	1,577
Partnerships/private equity interests	22
Other	5		—		5		—
Total fair value of pension plan assets	$	3,096	$	61	$	1,435	$	1

Other Postretirement Benefit Plan Assets:

Life insurance policies	$	402
Total fair value of other postretirement benefit plan assets	$	402	$	—	$	—	$	—


	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	$	—	$	—	$	—

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 $28 million to its pension plans and $4 million to its other postretirement benefit plans in 2021. As of December 31, 2020, 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
2021	$	155	$	34
2022	159		35
2023	166		35
2024	169		35
2025	172		35
Years 2026-2030	836		171

(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 and approximately 4.2 million shares of its common stock at an average price of $167.69 per share during the first quarter of 2020. As of December 31, 2020, there were approximately $1.2 billion of authorized repurchases remaining under the 2018 program. Due to the COVID-19 pandemic, the Company temporarily suspended its share repurchase program starting in March 2020.

Cash Dividends— Cash dividends declared were $4.42 per share in 2020, $4.14 per share in 2019 and $3.56 per share in 2018. Cash dividends paid were $4.35 per share in 2020, $4.07 per share in 2019 and $3.34 per share in 2018.

Accumulated other comprehensive income (loss)— The changes in accumulated other comprehensive income (loss) during 2020, 2019 and 2018 were as follows:


In millions	2020		2019		2018
Beginning balance	$	(1,705)	$	(1,677)	$	(1,287)

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

Foreign currency translation adjustments during the period	(82)		7		(308)
Foreign currency translation adjustments reclassified to income	—		—		5
Income taxes	86		(9)		(25)
Total foreign currency translation adjustments, net of tax	4		(2)		(328)

Pension and other postretirement benefit adjustments during the period	30		(54)		(64)
Pension and other postretirement benefit adjustments reclassified to income	48		21		41
Income taxes	(19)		7		6
Total pension and other postretirement benefit adjustments, net of tax	59		(26)		(17)

Ending balance	$	(1,642)	$	(1,705)	$	(1,677)

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 (loss) recorded in Accumulated other comprehensive income (loss) related to the net investment hedge was a loss of $120 million as of December 31, 2020 and a gain of $239 million as of December 31, 2019.

As of December 31, 2020 and 2019, 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 $331 million and $390 million, respectively.

(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, 2020, approximately 10 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, 2020, 2019 and 2018:


In millions	2020		2019		2018
Pre-tax stock-based compensation expense	$	42	$	41	$	40
Tax benefit	(5)		(5)		(5)
Total stock-based compensation expense, net of tax	$	37	$	36	$	35

The following table summarizes activity related to non-vested RSUs for the twelve months ended December 31, 2020:


Shares in millions	Number of Shares	Weighted-Average Grant-Date Fair Value
Unvested, January 1, 2020	0.5	$144.92
Granted	0.2	178.49
Vested	(0.2)	129.10

Unvested, December 31, 2020	0.5	164.76

The following table summarizes stock option activity for the twelve months ended December 31, 2020:


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, 2020	3.7	$106.57
Granted	0.5	187.86
Exercised	(1.0)	75.54

Under option, December 31, 2020	3.2	128.81	6.2	$240
Exercisable, December 31, 2020	2.0	107.43	5.0	$191

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, 2020, 2019 and 2018:


	2020	2019	2018
Risk-free interest rate	1.41-1.59%	2.50-2.68%	2.07-3.06%
Weighted-average volatility	21.0%	22.0%	22.0%
Dividend yield	2.56%	2.20%	2.10%
Expected years until exercise	9.1-9.6	8.7-9.0	7.5-8.4

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, 2020, 2019 and 2018 was $35.45, $34.36 and $38.34 per share, respectively. The aggregate intrinsic value of stock options exercised during the twelve months ended December 31, 2020, 2019 and 2018 was $114 million, $127 million and $33 million, respectively. As of December 31, 2020, 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 years. Exercise of stock options during the twelve months ended December 31, 2020, 2019 and 2018 resulted in cash receipts of $66 million, $85 million and $22 million, respectively. The total fair value of vested stock option awards during the twelve months ended December 31, 2020, 2019 and 2018 was $16 million, $17 million and $15 million, respectively.

As of December 31, 2020, there was $31 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, 2020, 2019 and 2018 was $25 million, $20 million and $19 million, respectively.

(15) Other Balance Sheet Information

Other balance sheet information as of December 31, 2020 and 2019 was as follows:


In millions	2020		2019
Prepaid expenses and other current assets:
Value-added-tax receivables	$	72	$	73
Income tax refunds receivable	43		77
Vendor advances	30		25
Other	119		121
Total prepaid expenses and other current assets	$	264	$	296

Other assets:
Cash surrender value of life insurance policies	$	454	$	441
Prepaid pension assets	355		297
Operating lease right-of-use assets	216		206
Customer tooling	160		141
Other	123		142
Total other assets	$	1,308	$	1,227

Accrued expenses:
Compensation and employee benefits	$	335	$	335
Deferred revenue and customer deposits	222		188
Rebates	171		159
Current portion of operating lease liabilities	55		51
Warranties	45		45
Current portion of pension and other postretirement benefit obligations	14		14
Other	442		425
Total accrued expenses	$	1,284	$	1,217

Other liabilities:
Pension benefit obligation	$	241	$	215
Postretirement benefit obligation	191		198
Long-term portion of operating lease liabilities	133		128
Other	503		459
Total other liabilities	$	1,068	$	1,000

(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.

Segment information for 2020, 2019 and 2018 was as follows:


In millions	2020		2019		2018
Operating revenue:
Automotive OEM	$	2,571	$	3,063	$	3,338
Food Equipment	1,739		2,188		2,214
Test & Measurement and Electronics	1,963		2,121		2,171
Welding	1,384		1,638		1,691
Polymers & Fluids	1,622		1,669		1,724
Construction Products	1,652		1,625		1,700
Specialty Products	1,660		1,825		1,951
Intersegment revenue	(17)		(20)		(21)
Total	$	12,574	$	14,109	$	14,768
Operating income:
Automotive OEM	$	457	$	659	$	751
Food Equipment	342		578		572
Test & Measurement and Electronics	507		542		523
Welding	376		453		474
Polymers & Fluids	402		381		369
Construction Products	421		383		414
Specialty Products	432		472		522
Total segments	2,937		3,468		3,625
Unallocated	(55)		(66)		(41)
Total	$	2,882	$	3,402	$	3,584
Depreciation and amortization and impairment of intangible assets:
Automotive OEM	$	131	$	125	$	123
Food Equipment	41		41		44
Test & Measurement and Electronics	75		69		88
Welding	24		26		27
Polymers & Fluids	72		77		83
Construction Products	31		29		32
Specialty Products	53		59		64


Total	$	427	$	426	$	461
Plant and equipment additions:
Automotive OEM	$	79	$	134	$	184
Food Equipment	34		35		28
Test & Measurement and Electronics	23		26		31
Welding	27		28		23
Polymers & Fluids	16		18		15
Construction Products	21		29		25
Specialty Products	36		56		58
Total	$	236	$	326	$	364
Identifiable assets:
Automotive OEM	$	2,302	$	2,417	$	2,388
Food Equipment	983		1,042		1,019
Test & Measurement and Electronics	2,239		2,374		2,343
Welding	700		734		789
Polymers & Fluids	1,855		1,862		1,942
Construction Products	1,239		1,176		1,167
Specialty Products	1,635		1,656		1,687
Total segments	10,953		11,261		11,335
Corporate	4,659		3,807		3,535
Total	$	15,612	$	15,068	$	14,870

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, 2020, 2019 and 2018 was as follows:


In millions	2020		2019		2018
Operating Revenue by Geographic Region:
United States	$	5,834	$	6,507	$	6,562
Canada/Mexico	778		972		1,050
Total North America	6,612		7,479		7,612
Europe, Middle East and Africa	3,447		3,920		4,241
Asia Pacific	2,291		2,400		2,573
South America	224		310		342
Total operating revenue	$	12,574	$	14,109	$	14,768

Operating revenue by geographic region is based on the customers' locations. As of December 31, 2020 and 2019, the Company had approximately 42% and 40%, respectively, of its total net plant and equipment in the United States. As of December 31, 2020 and 2019, the Company had approximately 10% and 11%, respectively, of its total net plant and equipment in China. As of December 31, 2020, the Company had approximately 10% of its total net plant and equipment in Germany. No single customer accounted for more than 5% of consolidated revenues for the twelve months ended December 31, 2020, 2019 or 2018.

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	2020		2019		2020		2019		2020		2019		2020		2019
Operating revenue	$	3,228	$	3,552	$	2,564	$	3,609	$	3,307	$	3,479	$	3,475	$	3,469
Cost of revenue	1,871		2,059		1,594		2,099		1,910		2,007		2,000		2,022
Operating income	761		839		449		871		789		868		883		824
Net income	566		597		319		623		582		660		642		641
Net income per share:
Basic	$	1.78	$	1.82	$	1.01	$	1.92	$	1.84	$	2.05	$	2.03	$	2.00
Diluted	1.77		1.81		1.01		1.91		1.83		2.04		2.02		1.99

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