REG - 3M Company - Annual Financial Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 4

3M CoAnnouncement

10/02/2017 17:40

- Part 4: For the preceding part double click  ID:nRSJ6609Wc 

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 International pension plans                                                      23                                (19)              14       (14)    
 
 
Asset Impairments: 
 
As of December 31, 2016, net property, plant and equipment totaled $8.5 billion and net identifiable intangible assets
totaled $2.3 billion. Management makes estimates and assumptions in preparing the consolidated financial statements for
which actual results will emerge over long periods of time. This includes the recoverability of long-lived assets employed
in the business, including assets of acquired businesses. These estimates and assumptions are closely monitored by
management and periodically adjusted as circumstances warrant. For instance, expected asset lives may be shortened or an
impairment recorded based on a change in the expected use of the asset or performance of the related asset group. 
 
Of the $2.3 billion in net identifiable intangible assets, $0.6 billion relates to indefinite-lived tradenames, primarily
Capital Safety, whose tradenames ($520 million at acquisition date) have been in existence for over 55 years (refer to Note
2 for more detail). The primary valuation technique used in estimating the fair value of indefinite lived intangible assets
(tradenames) is a discounted cash flow approach. Specifically, a relief of royalty rate is applied to estimated sales, with
the resulting amounts then discounted using an appropriate market/technology discount rate. The relief of royalty rate is
the estimated royalty rate a market participant would pay to acquire the right to market/produce the product. If the
resulting discounted cash flows are less than the book value of the indefinite lived intangible asset, impairment exists,
and the asset value must be written down. Based on impairment testing in the third quarter of 2016, no impairment was
indicated. The discounted cash flows related to the Capital Safety tradename exceeded its book value by more than 10
percent. 
 
3M goodwill totaled approximately $9.2 billion as of December 31, 2016. 3M's annual goodwill impairment testing is
performed in the fourth quarter of each year. Impairment testing for goodwill is done at a reporting unit level, with all
goodwill assigned to a reporting unit. Reporting units are one level below the business segment level, but can be combined
when reporting units within the same segment have similar economic characteristics. At 3M, reporting units correspond to a
division. 3M did not combine any of its reporting units for impairment testing. 
 
An impairment loss generally would be recognized when the carrying amount of the reporting unit's net assets exceeds the
estimated fair value of the reporting unit. The estimated fair value of a reporting unit is determined using earnings for
the reporting unit multiplied by a price/earnings ratio for comparable industry groups, or by using a discounted cash flow
analysis. 3M typically uses the price/earnings ratio approach for stable and growing businesses that have a long history
and track record of generating positive operating income and cash flows. 3M uses the discounted cash flow approach for
start-up, loss position and declining businesses, in addition to businesses where the price/earnings ratio valuation method
indicates additional review is warranted. 3M also uses discounted cash flow as an additional tool for businesses that may
be growing at a slower rate than planned due to economic or other conditions. 
 
As described in Note 16, effective in the first quarter of 2016, 3M made a product line reporting change involving two of
its business segments. For any product moves that resulted in reporting unit changes, the Company applied the relative fair
value method to determine the impact on goodwill of the associated reporting units. During the first quarter of 2016, the
Company completed its assessment of any potential goodwill impairment for reporting units impacted by this new structure
and determined that no impairment existed. The discussion that follows relates to the separate fourth quarter 2016 annual
impairment test and is in the context of the reporting unit structure that existed at that time. 
 
As of October 1, 2016, 3M had 26 primary reporting units, with ten reporting units accounting for approximately 86 percent
of the goodwill. These ten reporting units were comprised of the following divisions: Advanced Materials, Communication
Markets, Display Materials and Systems, Health Information Systems, Industrial Adhesives and Tapes, Infection Prevention,
Oral Care Solutions, Personal Safety (which includes the Capital Safety acquisition), Separation and Purification (which
includes the Membrana acquisition), and Traffic Safety and Security. The estimated fair values for these reporting units
were in excess of carrying value by approximately 35 percent or more, except for one reporting unit with approximately $250
million of goodwill, where the fair value exceeded the carrying value by approximately 30 percent. 3M's market value at
both December 31, 2016, and September 30, 2016, was significantly in excess of its shareholders' equity of approximately
$10 billion and $12 billion, at December 31, 2016 and September 30, 2016, respectively. 
 
In 2016, 3M primarily used an industry price-earnings ratio approach, but also used a discounted cash flows approach for
certain reporting units, to determine fair values. Where applicable, 3M used a weighted-average discounted cash flow
analysis for certain divisions, using projected cash flows that were weighted based on different sales growth and terminal
value assumptions, among other factors. The weighting was based on management's estimates of the likelihood of each
scenario occurring. 
 
3M is an integrated materials enterprise, thus many of 3M's businesses could not easily be sold on a stand-alone basis.
3M's focus on research and development has resulted in a portion of 3M's value being comprised of internally developed
businesses that have no goodwill associated with them. Based on the annual test in the fourth quarter of 2016, no goodwill
impairment was indicated for any of the reporting units. 
 
Factors which could result in future impairment charges include, among others, changes in worldwide economic conditions,
changes in competitive conditions and customer preferences, and fluctuations in foreign currency exchange rates. These risk
factors are discussed in Item 1A, "Risk Factors," of this document. In addition, changes in the weighted average cost of
capital could also impact impairment testing results. As indicated above, during the first quarter of 2016, the Company
completed its assessment of any potential goodwill impairment for reporting units impacted by changes between reporting
units and determined that no impairment existed. Long-lived assets with a definite life are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be
recoverable. If future non-cash asset impairment charges are taken, 3M would expect that only a portion of the long-lived
assets or goodwill would be impaired. 3M will continue to monitor its reporting units and asset groups in 2017 for any
triggering events or other indicators of impairment. 
 
Income Taxes: 
 
The extent of 3M's operations involves dealing with uncertainties and judgments in the application of complex tax
regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations
with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international
tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in
the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes
will be due. The Company follows guidance provided by ASC 740, Income Taxes, regarding uncertainty in income taxes, to
record these liabilities (refer to Note 8 for additional information). The Company adjusts these reserves in light of
changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution
may result in a payment that is materially different from the Company's current estimate of the tax liabilities. If the
Company's estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would
result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities
would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer
necessary. 
 
NEW ACCOUNTING PRONOUNCEMENTS 
 
Information regarding new accounting pronouncements is included in Note 1 to the Consolidated Financial Statements. 
 
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which modifies
certain accounting aspects for share-based payments to employees including, among other elements, the accounting for income
taxes and forfeitures, as well as classifications in the statement of cash flows. The Company early adopted ASU No. 2016-09
as of January 1, 2016. Prospectively beginning January 1, 2016, excess tax benefits/deficiencies have been reflected as
income tax benefit/expense in the statement of income resulting in a $184 million tax benefit for 2016. 3M typically
experiences the largest volume of stock option exercises and restricted stock unit vestings in the first quarter of its
fiscal year. Refer to Note 1 for additional detail. 
 
FINANCIAL CONDITION AND LIQUIDITY 
 
3M continues its transition to a better-optimized capital structure and is adding leverage at a measured pace. The strength
and stability of 3M's business model and strong free cash flow capability, together with proven capital markets access,
enable the Company to implement this strategy. Investing in 3M's businesses to drive organic growth remains the first
priority for capital deployment, including research and development, capital expenditures, and commercialization
capability. Investment in organic growth will be supplemented by complementary acquisitions. 3M will also continue to
return cash to shareholders through dividends and share repurchases. Sources for cash availability in the United States,
such as ongoing cash flow from operations and access to capital markets, have historically been sufficient to fund dividend
payments to shareholders and share repurchases, as well as funding U.S. acquisitions and other items as needed. For those
international earnings considered to be reinvested indefinitely, the Company currently has no plans or intentions to
repatriate these funds for U.S. operations. However, if these international funds are needed for operations in the U.S., 3M
would be required to accrue and pay U.S. taxes to repatriate them. See Note 8 for further information on earnings
considered to be reinvested indefinitely. 
 
3M's primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M believes it
will have continuous access to the commercial paper market. 3M's commercial paper program permits the Company to have a
maximum of $5 billion outstanding with a maximum maturity of 397 days from date of issuance. Effective July 15, 2016, this
program was increased to a maximum of $5 billion outstanding from a previous program size of $3 billion. 
 
Total Debt: 
 
The strength of 3M's capital structure and significant ongoing cash flows provide 3M proven access to capital markets.
Additionally, the Company's maturity profile is staggered to help ensure refinancing needs in any given year are reasonable
in proportion to the total portfolio. 3M currently has an AA- credit rating with a stable outlook from Standard & Poor's
and has an A1 credit rating with a stable outlook from Moody's Investors Service. 
 
The Company has a "well-known seasoned issuer" (WKSI) shelf registration statement, effective May 16, 2014, which registers
an indeterminate amount of debt and equity securities for future sales. In May 2016, in connection with the WKSI shelf, 3M
entered into an amended and restated distribution agreement relating to the future issuance and sale (from time to time) of
the Company's medium-term notes program (Series F), up to the aggregate principal amount of $18 billion, which was an
increase from the previous aggregate principal amount up to $9 billion of the same Series. 
 
The Company's total debt was $853 million higher at December 31, 2016 when compared to December 31, 2015, with the increase
primarily due to May 2016 and September 2016 debt issuances, partially offset by the September 2016 repayment of $1 billion
aggregate principal amount of medium-term notes. In May 2016, 3M issued 500 million Euro aggregate principal amount of
5.75-year fixed rate medium-term notes due February 2022 with a coupon rate of 0.375% and 500 million Euro aggregate
principal amount of 15-year fixed rate medium-term notes due 2031 with a coupon rate of 1.50%. In September 2016, 3M issued
$600 million aggregate principal amount of five-year fixed rate medium-term notes due 2021 with a coupon rate of 1.625%,
$650 million aggregate principal amount of 10-year fixed rate medium-term notes due 2026 with a coupon rate of 2.250%, and
$500 million aggregate principal amount of 30-year fixed rate medium-term notes due 2046 with a coupon rate of 3.125%. All
of these 2016 issuances were under the medium-term notes program (Series F). As of December 31, 2016, the total amount of
debt issued as part of the medium-term notes program (Series F), inclusive of debt issued in 2011, 2012, 2014, 2015 and the
2016 debt referenced above, is approximately $11.1 billion (utilizing the foreign exchange rates applicable at the time of
issuance for the Euro denominated debt). Information with respect to long-term debt issuances and maturities for the
periods presented is included in Note 10. 
 
In March 2016, 3M amended and restated its existing $2.25 billion five-year revolving credit facility expiring in August
2019 to a $3.75 billion five-year revolving credit facility expiring in March 2021. This credit agreement includes a
provision under which 3M may request an increase of up to $1.25 billion (at lenders' discretion), bringing the total
facility up to $5.0 billion. This revolving credit facility is undrawn at December 31, 2016. Under the $3.75 billion credit
agreement, the Company is required to maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not
less than 3.0 to 1. This is calculated (as defined in the agreement) as the ratio of consolidated total EBITDA for the four
consecutive quarters then ended to total interest expense on all funded debt for the same period. At December 31, 2016,
this ratio was approximately 44 to 1. Debt covenants do not restrict the payment of dividends. Apart from the committed
facilities, an additional $291 million in stand-alone letters of credit and bank guarantees were also issued and
outstanding at December 31, 2016. These instruments are utilized in connection with normal business activities. 
 
Cash, Cash Equivalents and Marketable Securities: 
 
At December 31, 2016, 3M had $2.7 billion of cash, cash equivalents and marketable securities, of which approximately $2.35
billion was held by the Company's foreign subsidiaries and approximately $350 million was held by the United States. These
balances are invested in bank instruments and other high-quality fixed income securities. At December 31, 2015, cash, cash
equivalents and marketable securities held by the Company's foreign subsidiaries and by the United States totaled
approximately $1.7 billion and $200 million, respectively. Specifics concerning marketable securities investments are
provided in Note 9. 
 
Net Debt (non-GAAP measure): 
 
The Company defines net debt as total debt less the total of cash, cash equivalents and marketable securities. 3M considers
net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy.
Net debt is not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly
titled measures used by other companies. The following table provides net debt as of December 31, 2016 and 2015. 
 
                                                                                               
 At December 31                                                                                
 (Millions)                                                   2016          2015     
                                                                                               
 Total Debt                                                   $     11,650        $  10,797    
 Less: Cash and cash equivalents and marketable securities          2,695            1,925     
 Net Debt (non-GAAP measure)                                  $     8,955         $  8,872     
 
 
In 2016, net debt rose by $83 million to a net debt balance of $9.0 billion (as of December 31, 2016), as 3M progressed on
its capital structure strategy. Debt levels were higher due to 2016 issuances, with this increase partially offset by the
September 2016 repayment of $1 billion aggregate principal amount of medium-term notes. Cash and cash equivalents and
marketable securities were higher in both the U.S. and internationally. 
 
Balance Sheet: 
 
3M's strong balance sheet and liquidity provide the Company with significant flexibility to take advantage of numerous
opportunities going forward. The Company will continue to invest in its operations to drive growth, including continual
review of acquisition opportunities. 
 
Various assets and liabilities, including cash and short-term debt, can fluctuate significantly from month to month
depending on short-term liquidity needs. Working capital (defined as current assets minus current liabilities) totaled
$5.507 billion at December 31, 2016, compared with $3.868 billion at December 31, 2015, an increase of $1.639 billion.
Current asset balance changes increased working capital by $740 million, largely due to higher cash, cash equivalents, and
marketable securities balances. Current liability balance changes increased working capital by $899 million, driven by
lower short-term debt balances. 
 
The Company uses working capital measures that place emphasis and focus on certain working capital assets. These measures
are not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled
measures used by other companies. These measures include accounts receivable turns (defined as quarterly net sales
multiplied by 4 divided by ending accounts receivable - net) and inventory turns (defined as quarterly manufacturing cost
multiplied by 4 divided by ending inventory). For inventory turns calculation purposes, manufacturing cost is defined as
cost of sales less freight and engineering costs. Freight and engineering cost totaled $160 million for the fourth quarter
of 2016, and $159 million for the fourth quarter of 2015. 
 
Accounts receivable increased $238 million, or approximately 5.7%, compared with December 31, 2015, as higher December 2016
sales compared to December 2015 sales contributed to this increase. Accounts receivable turns were 6.67 at December 31,
2016, compared to 7.03 at December 31, 2015. Inventories decreased $133 million, or approximately 3.8 percent, compared
with December 31, 2015. Inventory turns were 4.20 at December 30, 2016, up from 4.13 at December 31, 2015. Accounts payable
increased by $104 million compared with December 31, 2015, as changes in business activity impacted balances. 
 
Return on Invested Capital (non-GAAP measure): 
 
Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC
should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to
similarly titled measures used by other companies. The Company defines ROIC as adjusted net income (net income including
non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt). Total
equity has been immaterially revised for prior periods as discussed in Note 1, Significant Accounting Policies, Basis of
Presentation. The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation. ROIC was
22.6 percent for 2016, 22.7 percent for 2015, and 22.3 percent for 2014. The calculation is provided in the below table. 
 
                                                                                                                            
 Years ended December 31                                                                                                    
 (Millions)                                                               2016          2015     2014          
                                                                                                                            
 Return on Invested Capital (non-GAAP measure)                                                                              
 Net income including non-controlling interest                            $     5,058         $  4,841      $  4,998        
 Interest expense (after-tax) (1)                                               143              106           102          
 Adjusted net income (Return)                                             $     5,201         $  4,947      $  5,100        
                                                                                                                            
 Average shareholders' equity (including non-controlling interest) (2)    $     11,316        $  12,484     $  16,000       
 Average short-term and long-term debt (3)                                      11,725           9,266         6,913        
 Average invested capital                                                 $     23,041        $  21,750     $  22,913       
                                                                                                                            
 Return on invested capital (non-GAAP measure)                                  22.6    %        22.7    %     22.3    %    
                                                                                                                            
 (1) Effective income tax rate used for interest expense                        28.3    %        29.1    %     28.9    %    
                                                                                                                            
 (2) Calculation of average equity (includes non-controlling interest)                                                      
 Ending total equity as of:                                                                                                 
 March 31                                                                 $     11,495        $  13,673     $  17,645       
 June 30                                                                        11,658           12,851        17,567       
 September 30                                                                   11,769           11,945        15,927       
 December 31                                                                    10,343           11,468        12,863       
 Average total equity                                                     $     11,316        $  12,484     $  16,000       
                                                                                                                            
 (3) Calculation of average debt                                                                                            
 Ending short-term and long-term debt as of:                                                                                
 March 31                                                                 $     11,139        $  6,566      $  6,560        
 June 30                                                                        11,749           8,484         6,956        
 September 30                                                                   12,361           11,216        7,323        
 December 31                                                                    11,650           10,797        6,811        
 Average short-term and long-term debt                                    $     11,725        $  9,266      $  6,913        
 
 
Cash Flows: 
 
Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in
the Consolidated Statement of Cash Flows exclude the effects of acquisitions, divestitures and exchange rate impacts on
cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the following
operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these
effects. 
 
Cash Flows from Operating Activities: 
 
                                                                                                 
 Years Ended December 31                                                                         
 (Millions)                                           2016         2015     2014     
                                                                                                 
 Net income including noncontrolling interest         $     5,058        $  4,841    $  4,998    
 Depreciation and amortization                              1,474           1,435       1,408    
 Company pension contributions                              (380)           (264)       (210)    
 Company postretirement contributions                       (3)             (3)         (5)      
 Company pension expense                                    202             442         310      
 Company postretirement expense                             49              114         81       
 Stock-based compensation expense                           298             276         280      
 Income taxes (deferred and accrued income taxes)           108             (349)       60       
 Excess tax benefits from stock-based compensation          -               (154)       (167)    
 Accounts receivable                                        (313)           (58)        (268)    
 Inventories                                                57              3           (113)    
 Accounts payable                                           148             9           75       
 Other - net                                                (36)            128         177      
 Net cash provided by operating activities            $     6,662        $  6,420    $  6,626    
 
 
Cash flows from operating activities can fluctuate significantly from period to period, as pension funding decisions, tax
timing differences and other items can significantly impact cash flows. 
 
In 2016, cash flows provided by operating activities increased $242 million compared to the same period last year, with
this increase primarily due to lower year-on-year cash taxes and higher net income. These items were partially offset by
higher Company pension contributions. The combination of accounts receivable, inventories and accounts payable increased
working capital by $108 million in 2016, compared to working capital increases of $46 million in 2015. Additional
discussion on working capital changes is provided earlier in the "Financial Condition and Liquidity" section. Information
concerning defined benefit pension and postretirement contributions and expense is provided in Note 11, with additional
discussion in the preceding Results of Operations section. Other-net in the preceding table reflects a reduction in cash
flows from operating activities, partially due to divestiture gains in 2016 (discussed in Note 2), as cash divestiture
activity is presented as proceeds from sale of businesses within investing activities, not operating activities. Additional
discussion on working capital changes is provided earlier in the "Financial Condition and Liquidity" section. 
 
In 2015, cash flows provided by operating activities decreased $206 million compared to 2014. Operating cash flows
decreased due to $363 million in higher cash income taxes when comparing 2015 to 2014, plus lower net income, which was
partially offset by lower year-on-year working capital requirements. The combination of accounts receivable, inventories
and accounts payable increased working capital by $46 million in 2015, compared to increases of $306 million in 2014, with
the year-on-year improvement related to lower organic volume growth. 
 
Cash Flows from Investing Activities: 
 
                                                                                                                                                   
 Years ended December 31                                                                                                                           
 (Millions)                                                                                       2016           2015     2014       
                                                                                                                                                   
 Purchases of property, plant and equipment (PP&E)                                                $     (1,420)        $  (1,461)    $  (1,493)    
 Proceeds from sale of PP&E and other assets                                                            58                33            135        
 Acquisitions, net of cash acquired                                                                     (16)              (2,914)       (94)       
 Purchases and proceeds from maturities and sale of marketable securities and investments, net          (163)             1,300         754        
 Proceeds from sale of businesses                                                                       142               123           -          
 Other investing activities                                                                             (4)               102           102        
 Net cash used in investing activities                                                            $     (1,403)        $  (2,817)    $  (596)      
 
 
Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and
increasing manufacturing efficiency. Capital spending was $1.420 billion in 2016, $1.461 billion in 2015, and $1.493
billion in 2014. The Company expects 2017 capital spending to be approximately $1.3 billion to $1.5 billion as 3M continues
to invest in its businesses. 
 
3M invests in renewable and maintenance programs, which pertains to cost reduction, cycle time, maintaining and renewing
current capacity, eliminating pollution, and compliance. Costs related to maintenance, ordinary repairs, and certain other
items are expensed. 3M also invests in growth, which adds to capacity, driven by new products, both through expansion of
current facilities and new facilities, plus research facilities. Finally, 3M also invests in other initiatives, such as
information technology (IT) and corporate laboratory facilities. 
 
In 2016, investments included new sites and buildings, in addition to continued expansion and sustainment of current and
new facilities; specifically renewal projects done at the 3M Center in St. Paul, Minnesota. Other investments across
geographies included growth, productivity, and capacity, as well as IT systems and infrastructure, particularly the ongoing
multi-year phased implementation of an ERP system on a worldwide basis. 
 
In 2015, investments included new sites and buildings, investments in IT, continued expansion of current facilities and new
facilities, plus the sustainment of existing facilities, in addition to other initiatives. Specific investments in 2015
included a new state-of-the-art, four story, 400,000 square foot research facility at 3M Center in St. Paul, Minnesota. In
addition, 3M continued its investments it IT systems and infrastructure, particularly the ongoing multi-year phased
implementation of an ERP system. 
 
In 2014, investments in growth across geographies included production equipment, new sites and buildings, capacity
investments, converting, and distribution, and other growth initiatives. Other investments include IT systems and
infrastructure, including an ongoing multi-year phased implementation of an ERP system on a worldwide basis. In addition,
3M began a multi-year program in the United States to renew and upgrade laboratory facilities and administrative
buildings. 
 
Proceeds from sale of PP&E and other assets totaled $58 million in 2016, $33 million in 2015, and $135 million in 2014.
Apart from the normal periodic sales of PP&E, 2014 included proceeds of $114 million related to the sales of real estate
and non-production equipment. 
 
Refer to Note 2 for information on acquisitions and divestitures. The Company is actively considering additional
acquisitions, investments and strategic alliances, and from time to time may also divest certain businesses. Proceeds from
sale of businesses in 2016 related to the divestiture of the assets of the pressurized polyurethane foam adhesives business
(formerly known as Polyfoam) within the Industrial business segment and the completion of the divestiture of the Library
business within the Safety and Graphics business segment. In addition, in the fourth quarter of 2016, 3M sold the assets of
its protective films business (Industrial) and its cathode battery technology out-licensing business (Electronics and
Energy). 
 
Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and
investments are primarily attributable to asset-backed securities, certificates of deposit/time deposits, commercial paper,
and other securities, which are classified as available-for-sale. Net proceeds from maturities and sale of marketable
securities in 2015 were used to help fund the August 2015 acquisitions of Capital Safety and Membrana. Refer to Note 9 for
more details about 3M's diversified marketable securities portfolio. Purchases of investments include additional survivor
benefit insurance, plus cost method and equity investments. 
 
Cash Flows from Financing Activities: 
 
                                                                                                                                          
 Years ended December 31                                                                                                                  
 (Millions)                                                                              2016           2015     2014       
                                                                                                                                          
 Change in short-term debt - net                                                         $     (797)          $  860        $  27         
 Repayment of debt (maturities greater than 90 days)                                           (992)             (800)         (1,625)    
 Proceeds from debt (maturities greater than 90 days)                                          2,832             3,422         2,608      
 Total cash change in debt                                                               $     1,043          $  3,482      $  1,010      
 Purchases of treasury stock                                                                   (3,753)           (5,238)       (5,652)    
 Proceeds from issuances of treasury stock pursuant to stock option and benefit plans          804               635           968        
 Dividends paid to stockholders                                                                (2,678)           (2,561)       (2,216)    
 Excess tax benefits from stock-based compensation                                             -                 154           167        
 Purchase of noncontrolling interest                                                           -                 -             (861)      
 Other - net                                                                                   (42)              (120)         (19)       
 Net cash used in financing activities                                                   $     (4,626)        $  (3,648)    $  (6,603)    
 
 
Total debt was $11.7 billion at December 31, 2016, $10.8 billion at December 31, 2015, and $6.8 billion at December 31,
2014. Total debt was 53 percent of total capital (total capital is defined as debt plus equity) at year-end 2016, 48
percent at year-end 2015, and 35 percent at year-end 2014. 
 
2016 Debt Activity: 
 
Total debt at December 31, 2016 increased $853 million when compared to year-end 2015, with the increase primarily due to
May 2016 debt issuances (approximately $1.1 billion at issue date exchange rates) and September 2016 debt issuances of
approximately $1.75 billion. This increase was partially offset by the repayment of $1 billion aggregate principal amount
of medium-term notes due September 2016 along with the net impact of repayments and borrowings by international
subsidiaries, primarily Japan and Korea (approximately $0.8 million decrease), which is reflected in "Change in short-term
debt-net" in the preceding table. Foreign exchange rate changes also impact debt balances. 
 
Proceeds from debt for 2016 primarily related to the May 2016 issuance of 500 million Euros aggregate principal amount of
5.75-year fixed rate medium-term notes due February 2022, and 500 million Euros aggregate principal amount of 15-year fixed
rate medium-term notes due 2031 along with the September 2016 issuances of $600 million aggregate principal amount of
five-year fixed rate medium-term notes due 2021, $650 million aggregate principal amount of 10-year fixed rate medium-term
notes due 2026, and $500 million aggregate principal amount of 30-year fixed rate medium-term notes due 2046 (refer to Note
10 for more detail). 
 
2015 and 2014 Debt Activity: 
 
In both 2015 and 2014, the change in short-term debt primarily related to bank borrowings by international subsidiaries,
primarily Japan and Korea in 2015. In 2015, repayment of debt primarily related to debt assumed (and paid off) as part of
the Capital Safety acquisition (refer to Note 2). In 2014, repayment of debt primarily includes repayment of a Eurobond in
July 2014 totaling 1.025 billion Euros (approximately $1.4 billion carrying value), repayment of the three-year 66 million
British Pound committed credit facility agreement entered into in December 2012, and repayment of other international
debt. 
 
In 2015, proceeds from debt primarily related to the May 2015 issuance of 650 million Euros aggregate principal amount of
five-year floating rate medium-term notes due 2020, 600 million Euros aggregate principal amount of eight-year fixed rate
medium-term notes due 2023, and 500 million Euros aggregate principal amount of fifteen-year fixed rate medium-term notes
due 2030, which in the aggregate total approximately $1.9 billion at issue date exchange rates. In addition, August 2015
issuances included $450 million aggregate principal amount of three-year fixed rate medium-term notes due 2018, $500
million aggregate principal amount of five-year fixed rate medium-term notes due 2020, and $550 million aggregate principal
amount of 10-year fixed rate medium-term notes due 2025, which in aggregate total $1.5 billion. In 2014, proceeds from debt
primarily related to the June 2014 issuances of $625 million aggregate principal amount of five-year fixed rate medium-term
notes due 2019 and $325 million aggregate principal amount of thirty-year fixed rate medium-term notes due 2044, as well as
the November 2014 issuances of 500 million Euros principal amount of four-year floating rate medium-term notes due 2018 and
750 million Euros principal amount of 12-year fixed rate medium-term notes due 2026. In addition, proceeds from debt for
2014 also include bank borrowings by international subsidiaries. Refer to Note 10 for additional discussion of debt. 
 
Repurchases of Common Stock: 
 
Repurchases of common stock are made to support the Company's stock-based employee compensation plans and for other
corporate purposes. In February 2016, 3M's Board of Directors authorized the repurchase of up to $10 billion of 3M's
outstanding common stock, which replaced the Company's February 2014 repurchase program. This authorization has no
pre-established end date. In 2016, the Company purchased $3.75 billion of its own stock, compared to purchases in 2015 and
2014 of more than $5 billion of its own stock in each year. The Company expects full-year 2017 gross share repurchases will
be in the range of $2.5 billion to $4.5 billion. For more information, refer to the table titled "Issuer Purchases of
Equity Securities" in Part II, Item 5. The Company does not utilize derivative instruments linked to the Company's stock. 
 
Dividends Paid to Shareholders: 
 
Cash dividends paid to shareholders totaled $2.678 billion ($4.44 per share) in 2016, $2.561 billion ($4.10 per share) in
2015, and $2.216 billion ($3.42 per share) in 2014. 3M has paid dividends since 1916. In February 2017, 3M's Board of
Directors declared a first-quarter 2017 dividend of $1.175 per share, an increase of 6 percent. This is equivalent to an
annual dividend of $4.70 per share and marked the 59th consecutive year of dividend increases. 
 
Purchase of Noncontrolling Interest: 
 
On September 1, 2014, 3M purchased (via Sumitomo 3M Limited) Sumitomo Electric Industries, Ltd.'s 25 percent interest in
3M's consolidated Sumitomo 3M Limited subsidiary for 90 billion Japanese Yen. Upon completion of this transaction, 3M owned
100 percent of Sumitomo 3M Limited. This was reflected as a "Purchase of noncontrolling interest" in the financing section
of the consolidated statement of cash flows. In addition, in April 2014, 3M purchased the remaining noncontrolling interest
in a consolidated 3M subsidiary for an immaterial amount, which was also classified as a "Purchase of noncontrolling
interest" in the financing section of the consolidated statement of cash flows. 
 
Other cash flows from financing activities may include various other items, such as changes in cash overdraft balances, and
principal payments for capital leases. 
 
Free Cash Flow (non-GAAP measure): 
 
In addition, to net cash provided by operating activities, 3M believes free cash flow and free cash flow conversion are
useful measures of performance and uses these measures as an indication of the strength of the Company and its ability to
generate cash. Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting
principles (GAAP). Therefore, they should not be considered a substitute for income or cash flow data prepared in
accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. 3M defines free
cash flow as net cash provided by operating activities less purchases of property, plant and equipment (which is classified
as an investing activity). It should not be inferred that the entire free cash flow amount is available for discretionary
expenditures. 3M defines free cash flow conversion as free cash flow divided by net income attributable to 3M. Below find a
recap of free cash flow and free cash flow conversion for 2016, 2015 and 2014. 
 
                                                                                                         
 Years ended December 31                                                                                 
 (Millions)                                           2016           2015     2014        
                                                                                                         
 Major GAAP Cash Flow Categories                                                                         
 Net cash provided by operating activities            $     6,662          $  6,420       $  6,626       
 Net cash used in investing activities                      (1,403)           (2,817)        (596)       
 Net cash used in financing activities                      (4,626)           (3,648)        (6,603)     
                                                                                                         
 Free Cash Flow (non-GAAP measure)                                                                       
 Net cash provided by operating activities            $     6,662          $  6,420       $  6,626       
 Purchases of property, plant and equipment (PP&E)          (1,420)           (1,461)        (1,493)     
 Free cash flow                                       $     5,242          $  4,959       $  5,133       
 Net income attributable to 3M                        $     5,050          $  4,833       $  4,956       
 Free cash flow conversion                                  104      %        103      %     104      %  
 
 
Off-Balance Sheet Arrangements and Contractual Obligations: 
 
As of December 31, 2016, the Company has not utilized special purpose entities to facilitate off-balance sheet financing
arrangements. Refer to the section entitled "Warranties/Guarantees" in Note 14 for discussion of accrued product warranty
liabilities and guarantees. 
 
In addition to guarantees, 3M, in the normal course of business, periodically enters into agreements that require the
Company to indemnify either major customers or suppliers for specific risks, such as claims for injury or property damage
arising out of the use of 3M products or the negligence of 3M personnel, or claims alleging that 3M products infringe
third-party patents or other intellectual property. While 3M's maximum exposure under these indemnification provisions
cannot be estimated, these indemnifications are not expected to have a material impact on the Company's consolidated
results of operations or financial condition. 
 
A summary of the Company's significant contractual obligations as of December 31, 2016, follows: 
 
Contractual Obligations 
 
                                                                                                                                                                                      
                                                                             Payments due by year         
                                                                                                                                                                      After         
 (Millions)                                             Total          2017                        2018     2019         2020     2021     2021         
 Long-term debt, including current portion (Note 10)    $      11,478        $                     800      $     1,042        $  623      $     1,176    $  1,246    $      6,591    
 Interest on long-term debt                                    2,936                               224            221             210            205         195             1,881    
 Operating leases (Note 14)                                    825                                 210            161             119            89          58              188      
 Capital leases (Note 14)                                      59                                  9              7               5              4           4               30       
 Unconditional purchase obligations and other                  1,361                               946            189             123            54          24              25       
 Total contractual cash obligations                     $      16,659        $                     2,189    $     1,620        $  1,080    $     1,528    $  1,527    $      8,715    
 
 
Long-term debt payments due in 2017 and 2018 include floating rate notes totaling $150 million (classified as current
portion of long-term debt), and $71 million (included in other borrowings in the long-term debt table), respectively, as a
result of put provisions associated with these debt instruments. Interest projections on both floating and fixed rate
long-term debt, including the effects of interest rate swaps, are based on effective interest rates as of December 31,
2016. 
 
Unconditional purchase obligations are defined as an agreement to purchase goods or services that is enforceable and
legally binding on the Company. Included in the unconditional purchase obligations category above are certain obligations
related to take or pay contracts, capital commitments, service agreements and utilities. These estimates include both
unconditional purchase obligations with terms in excess of one year and normal ongoing purchase obligations with terms of
less than one year. Many of these commitments relate to take or pay contracts, in which 3M guarantees payment to ensure
availability of products or services that are sold to customers. The Company expects to receive consideration (products or
services) for these unconditional purchase obligations. Contractual capital commitments are included in the preceding
table, but these commitments represent a small part of the Company's expected capital spending. The purchase obligation
amounts do not represent the entire anticipated purchases in the future, but represent only those items for which the
Company is contractually obligated. The majority of 3M's products and services are purchased as needed, with no
unconditional commitment. For this reason, these amounts will not provide a reliable indicator of the Company's expected
future cash outflows on a stand-alone basis. 
 
Other obligations, included in the preceding table within the caption entitled "Unconditional purchase obligations and
other," include the current portion of the liability for uncertain tax positions under ASC 740, which is expected to be
paid out in cash in the next 12 months. The Company is not able to reasonably estimate the timing of the long-term payments
or the amount by which the liability will increase or decrease over time; therefore, the long-term portion of the net tax
liability of $284 million is excluded from the preceding table. Refer to Note 8 for further details. 
 
As discussed in Note 11, the Company does not have a required minimum cash pension contribution obligation for its U.S.
plans in 2017 and Company contributions to its U.S. and international pension plans are expected to be largely
discretionary in future years; therefore, amounts related to these plans are not included in the preceding table. 
 
FINANCIAL INSTRUMENTS 
 
The Company enters into foreign exchange forward contracts, options and swaps to hedge against the effect of exchange rate
fluctuations on cash flows denominated in foreign currencies and certain intercompany financing transactions. The Company
manages interest rate risks using a mix of fixed and floating rate debt. To help manage borrowing costs, the Company may
enter into interest rate swaps. Under these arrangements, the Company agrees to exchange, at specified intervals, the
difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
The Company manages commodity price risks through negotiated supply contracts, price protection agreements and commodity
price swaps. 
 
Refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", for further discussion of foreign exchange
rates risk, interest rates risk, commodity prices risk and value at risk analysis. 
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 
 
In the context of Item 7A, 3M is exposed to market risk due to the risk of loss arising from adverse changes in foreign
currency exchange rates, interest rates and commodity prices. Changes in those factors could cause fluctuations in earnings
and cash flows. Senior management provides oversight for risk management and derivative activities, determines certain of
the Company's financial risk policies and objectives, and provides guidelines for derivative instrument utilization. Senior
management also establishes certain associated procedures relative to control and valuation, risk analysis, counterparty
credit approval, and ongoing monitoring and reporting. 
 
The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps, currency
swaps, commodity price swaps, and forward and option contracts. However, the Company's risk is limited to the fair value of
the instruments. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit
limits, and by selecting major international banks and financial institutions as counterparties. The Company does not
anticipate nonperformance by any of these counterparties. 
 
Foreign Exchange Rates Risk: 
 
Foreign currency exchange rates and fluctuations in those rates may affect the Company's net investment in foreign
subsidiaries and may cause fluctuations in cash flows related to foreign denominated transactions. 3M is also exposed to
the translation of foreign currency earnings to the U.S. dollar. The Company enters into foreign exchange forward and
option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies.
These transactions are designated as cash flow hedges. 3M may dedesignate these cash flow hedge relationships in advance of
the occurrence of the forecasted transaction. Beginning in the second quarter of 2014, 3M began extending the maximum
length of time over which it hedges its exposure to the variability in future cash flows of the forecasted transactions
from a previous term of 12 months to a longer term of 24 months, with certain currencies being extended further to 36
months starting in the first quarter of 2015. In addition, 3M enters into foreign currency forward contracts that are not
designated in hedging relationships to offset, in part, the impacts of certain intercompany activities (primarily
associated with intercompany licensing arrangements and intercompany financing transactions). As circumstances warrant, the
Company also uses foreign currency forward contracts and foreign currency denominated debt as hedging instruments to hedge
portions of the Company's net investments in foreign operations. The dollar equivalent gross notional amount of the
Company's foreign exchange forward and option contracts designated as cash flow hedges and those not designated as hedging
instruments were $3.2 billion and $5.7 billion, respectively, at December 31, 2016. As of December 31, 2016, the Company
had 150 million Euros and 248 billion South Korean Won in notional amount of foreign currency forward contracts designated
as net investment hedges along with 4.4 billion Euros in principal amount of foreign currency denominated debt designated
as non-derivative hedging instruments in certain net investment hedges as discussed in Note 12 in the "Net Investment
Hedges" section. 
 
Interest Rates Risk: 
 
The Company may be impacted by interest rate volatility with respect to existing debt and future debt issuances. 3M manages
interest rate risk and expense using a mix of fixed and floating rate debt. In addition, the Company may enter into
interest rate swaps that are designated and qualify as fair value hedges. Under these arrangements, the Company agrees to
exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an
agreed-upon notional principal amount. The dollar equivalent (based on inception date foreign currency exchange rates)
gross notional amount of the Company's interest rate swaps at December 31, 2016 was $2.0 billion. Additional details about
3M's long-term debt can be found in Note 10, including references to information regarding derivatives and/or hedging
instruments associated with the Company's long-term debt. 
 
Commodity Prices Risk: 
 
The Company manages commodity price risks through negotiated supply contracts, price protection agreements and commodity
price swaps. 3M used commodity price swaps as cash flow hedges of forecasted commodity transactions to manage price
volatility, but discontinued this practice in the first quarter of 2015. The related mark-to-market gain or loss on
qualifying hedges was included in other comprehensive income to the extent effective, and reclassified into cost of sales
in the period during which the hedged transaction affected earnings. The Company may enter into other commodity price swaps
to offset, in part, fluctuation and costs associated with the use of certain commodities and precious metals. These
instruments are not designated in hedged relationships and the extent to which they were outstanding at December 31, 2016
was not material. 
 
Value At Risk: 
 
The value at risk analysis is performed annually to assess the Company's sensitivity to changes in currency rates, interest
rates, and commodity prices. A Monte Carlo simulation technique was used to test the impact on after-tax earnings related
to financial instruments (primarily debt), derivatives and underlying exposures outstanding at December 31, 2016. The model
(third-party bank dataset) used a 95 percent confidence level over a 12-month time horizon. The exposure to changes in
currency rates model used 18 currencies, interest rates related to three currencies, and commodity prices related to five
commodities. This model does not purport to represent what actually will be experienced by the Company. This model does not
include certain hedge transactions, because the Company believes their inclusion would not materially impact the results.
The following table summarizes the possible adverse and positive impacts to after-tax earnings related to these exposures. 
 
                                                                                                                                
                           Adverse impact on after-tax         Positive impact on after-tax     
                           earnings                            earnings                         
 (Millions)                2016                                2015                             2016     2015       
 Foreign exchange rates    $                            (245)                                $  (254)    $     264    $  273    
 Interest rates                                         (13)                                    (13)           (2)       9      
 Commodity prices                                       (2)                                     (1)            1         1      
 
 
In addition to the possible adverse and positive impacts discussed in the preceding table related to foreign exchange
rates, recent historical information is as follows. 3M estimates that year-on-year currency effects, including hedging
impacts, had the following effects on pre-tax income: 2016 ($127 million decrease) and 2015 ($390 million decrease). This
estimate includes the effect of translating profits from local currencies into 

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