REG - 3M Company - Annual Financial Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 5
01/04/2016 14:49
- Part 5: For the preceding part double click ID:nRSO0010Pd
732
Accrued income taxes 332 435
Other current liabilities 2,404 2,884
Total current liabilities 7,118 5,964
Long-term debt 8,753 6,705
Pension and postretirement benefits 3,520 3,843
Other liabilities 1,580 1,555
Total liabilities $ 20,971 $ 18,067
Commitments and contingencies (Note 14)
Equity
3M Company shareholders' equity:
Common stock, par value $.01 per share $ 9 $ 9
Shares outstanding - 2015: 609,330,124
Shares outstanding - 2014: 635,134,594
Additional paid-in capital 4,791 4,379
Retained earnings 36,575 34,317
Treasury stock (23,308) (19,307)
Accumulated other comprehensive income (loss) (6,359) (6,289)
Total 3M Company shareholders' equity 11,708 13,109
Noncontrolling interest 39 33
Total equity $ 11,747 $ 13,142
Total liabilities and equity $ 32,718 $ 31,209
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
Consolidated Statement of Changes in Equity
3M Company and Subsidiaries
Years Ended December 31
3M Company Shareholders
Common Accumulated
Stock and Other
Additional Comprehensive Non-
Paid-in Retained Treasury Income controlling
(Dollars in millions, except per share amounts) Total Capital Earnings Stock (Loss) Interest
Balance at December 31, 2012 $ 18,040 $ 4,053 $ 30,679 $ (12,407) $ (4,750) $ 465
Net income 4,721 4,659 62
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment (505) (418) (87)
Defined benefit pension and post-retirement plans adjustment 1,245 1,240 5
Debt and equity securities - unrealized gain (loss) - - -
Cash flow hedging instruments - unrealized gain (loss) 15 15 -
Total other comprehensive income (loss), net of tax 755
Dividends declared ($3.395 per share, Note 6) (2,297) (2,297)
Sale of subsidiary shares 8 7 1
Stock-based compensation, net of tax impacts 324 324
Reacquired stock (5,216) (5,216)
Issuances pursuant to stock option and benefit plans 1,613 (625) 2,238
Balance at December 31, 2013 $ 17,948 $ 4,384 $ 32,416 $ (15,385) $ (3,913) $ 446
Net income 4,998 4,956 42
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment (942) (948) 6
Defined benefit pension and post-retirement plans adjustment (1,562) (1,562) -
Debt and equity securities - unrealized gain (loss) 2 2 -
Cash flow hedging instruments - unrealized gain (loss) 107 107 -
Total other comprehensive income (loss), net of tax (2,395)
Dividends declared ($3.59 per share, Note 6) (2,297) (2,297)
Purchase of subsidiary shares (870) (434) 25 (461)
Stock-based compensation, net of tax impacts 438 438
Reacquired stock (5,643) (5,643)
Issuances pursuant to stock option and benefit plans 963 (758) 1,721
Balance at December 31, 2014 $ 13,142 $ 4,388 $ 34,317 $ (19,307) $ (6,289) $ 33
Net income 4,841 4,833 8
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment (586) (584) (2)
Defined benefit pension and post-retirement plans adjustment 489 489 -
Debt and equity securities - unrealized gain (loss) - - -
Cash flow hedging instruments - unrealized gain/(loss) 25 25 -
Total other comprehensive income (loss), net of tax (72)
Dividends declared ($3.075 per share, Note 6) (1,913) (1,913)
Stock-based compensation, net of tax impacts 412 412
Reacquired stock (5,304) (5,304)
Issuances pursuant to stock option and benefit plans 641 (662) 1,303
Balance at December 31, 2015 $ 11,747 $ 4,800 $ 36,575 $ (23,308) $ (6,359) $ 39
Supplemental share information 2015 2014 2013
Treasury stock
Beginning balance 308,898,462 280,736,817 256,941,406
Reacquired stock 34,072,584 40,664,061 45,445,610
Issuances pursuant to stock options and benefit plans (8,268,114) (12,502,416) (21,650,199)
Ending balance 334,702,932 308,898,462 280,736,817
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
Consolidated Statement of Cash Flows
3M Company and Subsidiaries
Years ended December 31
(Millions) 2015 2014 2013
Cash Flows from Operating Activities
Net income including noncontrolling interest $ 4,841 $ 4,998 $ 4,721
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities
Depreciation and amortization 1,435 1,408 1,371
Company pension and postretirement contributions (267) (215) (482)
Company pension and postretirement expense 556 391 553
Stock-based compensation expense 276 280 240
Deferred income taxes 395 (146) (167)
Excess tax benefits from stock-based compensation (154) (167) (92)
Changes in assets and liabilities
Accounts receivable (58) (268) (337)
Inventories 3 (113) (86)
Accounts payable 9 75 16
Accrued income taxes (current and long-term) (744) 206 206
Other - net 128 177 (126)
Net cash provided by operating activities 6,420 6,626 5,817
Cash Flows from Investing Activities
Purchases of property, plant and equipment (PP&E) (1,461) (1,493) (1,665)
Proceeds from sale of PP&E and other assets 33 135 128
Acquisitions, net of cash acquired (2,914) (94) -
Purchases of marketable securities and investments (652) (1,280) (4,040)
Proceeds from maturities and sale of marketable securities and investments 1,952 2,034 4,667
Proceeds from sale of businesses 123 - 8
Other investing 102 102 46
Net cash used in investing activities (2,817) (596) (856)
Cash Flows from Financing Activities
Change in short-term debt - net 860 27 (2)
Repayment of debt (maturities greater than 90 days) (800) (1,625) (859)
Proceeds from debt (maturities greater than 90 days) 3,422 2,608 824
Purchases of treasury stock (5,238) (5,652) (5,212)
Proceeds from issuance of treasury stock pursuant to stock option and benefit plans 635 968 1,609
Dividends paid to shareholders (2,561) (2,216) (1,730)
Excess tax benefits from stock-based compensation 154 167 92
Purchase of noncontrolling interest - (861) -
Other - net (120) (19) 32
Net cash used in financing activities (3,648) (6,603) (5,246)
Effect of exchange rate changes on cash and cash equivalents (54) (111) (17)
Net increase (decrease) in cash and cash equivalents (99) (684) (302)
Cash and cash equivalents at beginning of year 1,897 2,581 2,883
Cash and cash equivalents at end of period $ 1,798 $ 1,897 $ 2,581
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
Notes to Consolidated Financial Statements
NOTE 1. Significant Accounting Policies
Consolidation: 3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products.
All subsidiaries are consolidated. All intercompany transactions are eliminated. As used herein, the term "3M" or "Company"
refers to 3M Company and subsidiaries unless the context indicates otherwise.
Basis of presentation: Certain balances relative to prior periods have been reclassified to conform to December 31, 2015
presentation in connection with the following, each of which is further discussed in the indicated section of Note 1:
· Change in method of classification of certain marketable securities previously classified as non-current to current
as further discussed in the Marketable securities section; and
· Adoption of Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, and
ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, in the fourth quarter of 2015 on a retrospective basis as
further discussed in the New Accounting Pronouncements section.
Foreign currency translation: Local currencies generally are considered the functional currencies outside the United
States. Assets and liabilities for operations in local-currency environments are translated at month-end exchange rates of
the period reported. Income and expense items are translated at month-end exchange rates of each applicable month.
Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in
shareholders' equity.
Although local currencies are typically considered as the functional currencies outside the United States, under Accounting
Standards Codification (ASC) 830, Foreign Currency Matters, the reporting currency of a foreign entity's parent is assumed
to be that entity's functional currency when the economic environment of a foreign entity is highly inflationary-generally
when its cumulative inflation is approximately 100 percent or more for the three years that precede the beginning of a
reporting period. 3M has a subsidiary in Venezuela with operating income representing less than 1.0 percent of 3M's
consolidated operating income for 2015. Since January 1, 2010, the financial statements of the Venezuelan subsidiary have
been remeasured as if its functional currency were that of its parent.
The Venezuelan government sets official rates of exchange and conditions precedent to purchase foreign currency at these
rates with local currency. Such rates and conditions have been and continue to be subject to change. In January 2014, the
Venezuelan government announced that the National Center for Foreign Commerce (CENCOEX), had assumed the role with respect
to the continuation of the existing official exchange rate, significantly expanded the use of a second currency auction
exchange mechanism called the Complementary System for Foreign Currency Acquirement (or SICAD1), and issued exchange
regulations indicating the SICAD1 rate of exchange would be used for payments related to international investments. In late
March 2014, the Venezuelan government launched a third foreign exchange mechanism, SICAD2, which it later replaced with
another foreign currency exchange platform in February 2015 called the Marginal System of Foreign Currency (SIMADI). The
SIMADI rate was described as being derived from daily private bidders and buyers exchanging offers through authorized
agents. This rate is approved and published by the Venezuelan Central Bank.
The financial statements of 3M's Venezuelan subsidiary were remeasured utilizing the official CENCOEX (or its predecessor)
rate into March 2014, the SICAD1 rate beginning in late March 2014, the SICAD2 rate beginning in June 2014, and the SIMADI
rate beginning in February 2015. 3M's uses of these rates were based upon evaluation of a number of factors including, but
not limited to, the exchange rate the Company's Venezuelan subsidiary may legally use to convert currency, settle
transactions or pay dividends; the probability of accessing and obtaining currency by use of a particular rate or
mechanism; and the Company's intent and ability to use a particular exchange mechanism. Other factors notwithstanding,
remeasurement impacts of the changes in use of these exchange rates did not have material impacts on 3M's consolidated
results of operations or financial condition.
The Company continues to monitor circumstances relative to its Venezuelan subsidiary. Changes in applicable exchange rates
or exchange mechanisms may continue in the future. These changes could impact the rate of exchange applicable to remeasure
the Company's net monetary assets (liabilities) denominated in Venezuelan Bolivars (VEF). As of December 31, 2015, the
Company had a balance of net monetary liabilities denominated in VEF of less than 500 million VEF and the CENCOEX, SICAD
(formerly SICAD1), and SIMADI exchange rates were approximately 6 VEF, 13 VEF, and 200 VEF per U.S. dollar, respectively.
A need to deconsolidate the Company's Venezuelan subsidiary's operations may result from a lack of exchangeability of
VEF-denominated cash coupled with an acute degradation in the ability to make key operational decisions due to government
regulations in Venezuela. 3M monitors factors such as its ability to access various exchange mechanisms; the impact of
government regulations on the Company's ability to manage its Venezuelan subsidiary's capital structure, purchasing,
product pricing, and labor relations; and the current political and economic situation within Venezuela. Based upon such
factors as of December 31, 2015, the Company continues to consolidate its Venezuelan subsidiary. As of December 31, 2015,
the balance of intercompany receivables due from this subsidiary and its equity balance are not significant.
Reclassifications: Certain amounts in the prior years' consolidated financial statements have been reclassified to conform
to the current year presentation.
Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and cash equivalents: Cash and cash equivalents consist of cash and temporary investments with maturities of three
months or less when acquired.
Marketable securities: Effective December 31, 2015, the Company changed the method of classification of certain securities
previously classified as non-current to current. This new method classifies these securities as current or non-current
based on the nature of the securities and availability for use in current operations while the prior classification was
based on management's intended holding period, the security's maturity date and liquidity considerations based on market
conditions. The Company believes this method is preferable because it is consistent with how the Company manages its
capital structure and liquidity. The prior period balance has been reclassified to conform to the current year
presentation:
December 31, 2014
(Millions) Previously Reported Impact As Adjusted
Marketable securities - current $ 626 $ 813 $ 1,439
Marketable securities - non-current 828 (813) 15
Total marketable securities $ 1,454 $ - $ 1,454
3M reviews impairments associated with its marketable securities in accordance with the measurement guidance provided by
ASC 320, Investments-Debt and Equity Securities, when determining the classification of the impairment as "temporary" or
"other-than-temporary". A temporary impairment charge results in an unrealized loss being recorded in the other
comprehensive income component of shareholders' equity. Such an unrealized loss does not reduce net income for the
applicable accounting period because the loss is not viewed as other-than-temporary. The factors evaluated to differentiate
between temporary and other-than-temporary include the projected future cash flows, credit ratings actions, and assessment
of the credit quality of the underlying collateral, as well as other factors.
Investments: Investments primarily include equity method, cost method, and available-for-sale equity investments.
Available-for-sale investments are recorded at fair value. Unrealized gains and losses relating to investments classified
as available-for-sale are recorded as a component of accumulated other comprehensive income (loss) in shareholders'
equity.
Other assets: Other assets include deferred income taxes, product and other insurance receivables, the cash surrender value
of life insurance policies, and other long-term assets. Investments in life insurance are reported at the amount that could
be realized under contract at the balance sheet date, with any changes in cash surrender value or contract value during the
period accounted for as an adjustment of premiums paid. Cash outflows and inflows associated with life insurance activity
are included in "Purchases of marketable securities and investments" and "Proceeds from maturities and sale of marketable
securities and investments," respectively.
Inventories: Inventories are stated at the lower of cost or market, with cost generally determined on a first-in, first-out
basis.
Property, plant and equipment: Property, plant and equipment, including capitalized interest and internal engineering
costs, are recorded at cost. Depreciation of property, plant and equipment generally is computed using the straight-line
method based on the estimated useful lives of the assets. The estimated useful lives of buildings and improvements
primarily range from ten to forty years, with the majority in the range of twenty to forty years. The estimated useful
lives of machinery and equipment primarily range from three to fifteen years, with the majority in the range of five to ten
years. Fully depreciated assets are retained in property and accumulated depreciation accounts until disposal. Upon
disposal, assets and related accumulated depreciation are removed from the accounts and the net amount, less proceeds from
disposal, is charged or credited to operations. Property, plant and equipment amounts are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An
impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss recorded
is calculated by the excess of the asset's carrying value over its fair value. Fair value is generally determined using a
discounted cash flow analysis.
Conditional asset retirement obligations: A liability is initially recorded at fair value for an asset retirement
obligation associated with the retirement of tangible long-lived assets in the period in which it is incurred if a
reasonable estimate of fair value can be made. Conditional asset retirement obligations exist for certain long-term assets
of the Company. The obligation is initially measured at fair value using expected present value techniques. Over time the
liabilities are accreted for the change in their present value and the initial capitalized costs are depreciated over the
remaining useful lives of the related assets. The asset retirement obligation liability was $102 million and $96 million at
December 31, 2015 and 2014, respectively.
Goodwill: Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities
assumed in a business combination. Goodwill is not amortized. Goodwill is tested for impairment annually in the fourth
quarter of each year, and is tested for impairment between annual tests if an event occurs or circumstances change that
would indicate the carrying amount may be impaired. 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. 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. Companies have the option to first assess qualitative factors to
determine whether the fair value of a reporting unit is not "more likely than not" less than its carrying amount, which is
commonly referred to as "Step 0". 3M has chosen not to apply Step 0 for 2015 or prior period annual goodwill assessments.
Intangible assets: Intangible asset types include customer related, patents, other technology-based, tradenames and other
intangible assets acquired from an independent party. Intangible assets with a definite life are amortized over a period
ranging from one to twenty years on a systematic and rational basis (generally straight line) that is representative of the
asset's use. The estimated useful lives vary by category, with customer related largely between seven to seventeen years,
patents largely between five to thirteen years, other technology-based largely between two to fifteen years, definite lived
tradenames largely between three and twenty years, and other intangibles largely between two to ten years. Costs related to
internally developed intangible assets, such as patents, are expensed as incurred, primarily in "Research, development and
related expenses."
Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the
carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount
of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of
the impairment loss recorded is calculated by the excess of the asset's carrying value over its fair value. Fair value is
generally determined using a discounted cash flow analysis.
Intangible assets with an indefinite life, namely certain tradenames, are not amortized. Indefinite-lived intangible assets
are tested for impairment annually, and are tested for impairment between annual tests if an event occurs or circumstances
change that would indicate that the carrying amount may be impaired. An impairment loss generally would be recognized when
the fair value is less than the carrying value of the indefinite-lived intangible asset.
Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance
charges, contract termination costs, and impairment or accelerated depreciation/amortization of assets associated with such
actions. Employee-related severance charges are largely based upon distributed employment policies and substantive
severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable,
which typically is when management approves the associated actions. Severance amounts for which affected employees were
required to render service in order to receive benefits at their termination dates were measured at the date such benefits
were communicated to the applicable employees and recognized as expense over the employees' remaining service periods.
Contract termination and other charges primarily reflect costs to terminate a contract before the end of its term (measured
at fair value at the time the Company provided notice to the counterparty) or costs that will continue to be incurred under
the contract for its remaining term without economic benefit to the Company. Asset impairment charges related to intangible
assets and property, plant and equipment reflect the excess of the assets' carrying values over their fair values.
Revenue (sales) recognition: The Company sells a wide range of products to a diversified base of customers around the world
and has no material concentration of credit risk. Revenue is recognized when the risks and rewards of ownership have
substantively transferred to customers. This condition normally is met when the product has been delivered or upon
performance of services. The Company records estimated reductions to revenue or records expense for customer and
distributor incentives, primarily comprised of rebates and free goods, at the time of the initial sale. These sales
incentives are accounted for in accordance with ASC 605, Revenue Recognition. The estimated reductions of revenue for
rebates are based on the sales terms, historical experience, trend analysis and projected market conditions in the various
markets served. Since the Company serves numerous markets, the rebate programs offered vary across businesses, but the most
common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives.
Free goods are accounted for as an expense and recorded in cost of sales. Sales, use, value-added and other excise taxes
are not recognized in revenue.
The vast majority of 3M's sales agreements are for standard products and services with customer acceptance occurring upon
delivery of the product or performance of the service. However, to a limited extent 3M also enters into agreements that
involve multiple elements (such as equipment, installation and service), software, or non-standard terms and conditions.
For non-software multiple-element arrangements, the Company recognizes revenue for delivered elements when they have
stand-alone value to the customer, they have been accepted by the customer, and for which there are only customary refund
or return rights. Arrangement consideration is allocated to the deliverables by use of the relative selling price method.
The selling price used for each deliverable is based on vendor-specific objective evidence (VSOE) if available, third-party
evidence (TPE) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Estimated selling
price is determined in a manner consistent with that used to establish the price to sell the deliverable on a standalone
basis. In addition to the preceding conditions, equipment revenue is not recorded until the installation has been completed
if equipment acceptance is dependent upon installation or if installation is essential to the functionality of the
equipment. Installation revenues are not recorded until installation has been completed.
For arrangements (or portions of arrangements) falling within software revenue recognition standards and that do not
involve significant production, modification, or customization, revenue for each software or software-related element is
recognized when the Company has VSOE of the fair value of all of the undelivered elements and applicable criteria have been
met for the delivered elements. When the arrangements involve significant production, modification or customization,
long-term construction-type accounting involving proportional performance is generally employed.
For prepaid service contracts, sales revenue is recognized on a straight-line basis over the term of the contract, unless
historical evidence indicates the costs are incurred on other than a straight-line basis. License fee revenue is recognized
as earned, and no revenue is recognized until the inception of the license term.
On occasion, agreements will contain milestones, or 3M will recognize revenue based on proportional performance. For these
agreements, and depending on the specifics, 3M may recognize revenue upon completion of a substantive milestone, or in
proportion to costs incurred to date compared with the estimate of total costs to be incurred.
Accounts receivable and allowances: Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
The Company maintains allowances for bad debts, cash discounts, product returns and various other items. The allowance for
doubtful accounts and product returns is based on the best estimate of the amount of probable credit losses in existing
accounts receivable and anticipated sales returns. The Company determines the allowances based on historical write-off
experience by industry and regional economic data and historical sales returns. The Company reviews the allowance for
doubtful accounts monthly. The Company does not have any significant off-balance-sheet credit exposure related to its
customers.
Advertising and merchandising: These costs are charged to operations in the period incurred, and totaled $368 million in
2015, $407 million in 2014 and $423 million in 2013.
Research, development and related expenses: These costs are charged to operations in the period incurred and are shown on a
separate line of the Consolidated Statement of Income. Research, development and related expenses totaled $1.763 billion in
2015, $1.770 billion in 2014 and $1.715 billion in 2013. Research and development expenses, covering basic scientific
research and the application of scientific advances in the development of new and improved products and their uses, totaled
$1.223 billion in 2015, $1.193 billion in 2014 and $1.150 billion in 2013. Related expenses primarily include technical
support; internally developed patent costs, which include costs and fees incurred to prepare, file, secure and maintain
patents; amortization of externally acquired patents and externally acquired in-process research and development; and
gains/losses associated with certain corporate approved investments in R&D-related ventures, such as equity method effects
and impairments.
Internal-use software: The Company capitalizes direct costs of services used in the development of internal-use software.
Amounts capitalized are amortized over a period of three to seven years, generally on a straight-line basis, unless another
systematic and rational basis is more representative of the software's use. Amounts are reported as a component of either
machinery and equipment or capital leases within property, plant and equipment.
Environmental: Environmental expenditures relating to existing conditions caused by past operations that do not contribute
to current or future revenues are expensed. Reserves for liabilities related to anticipated remediation costs are recorded
on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of
feasibility studies, the Company's commitment to a plan of action, or approval by regulatory agencies. Environmental
expenditures for capital projects that contribute to current or future operations generally are capitalized and depreciated
over their estimated useful lives.
Income taxes: The provision for income taxes is determined using the asset and liability approach. Under this approach,
deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts
and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when
uncertainty regarding their realizability exists. As of December 31, 2015 and 2014, the Company had valuation allowances of
$31 million and $22 million on its deferred tax assets, respectively. The increase in valuation allowance at December 31,
2015 relates to current acquisitions in certain international jurisdictions. The Company recognizes and measures its
uncertain tax positions based on the rules under ASC 740, Income Taxes.
Earnings per share: The difference in the weighted average 3M shares outstanding for calculating basic and diluted earnings
per share attributable to 3M common shareholders is the result of the dilution associated with the Company's stock-based
compensation plans. Certain options outstanding under these stock-based compensation plans during the years 2015, 2014 and
2013 were not included in the computation of diluted earnings per share attributable to 3M common shareholders because they
would not have had a dilutive effect (5.0 million average options for 2015, 1.4 million average options for 2014, and 2.0
million average options for 2013). The computations for basic and diluted earnings per share for the years ended December
31 follow:
Earnings Per Share Computations
(Amounts in millions, except per share amounts) 2015 2014 2013
Numerator:
Net income attributable to 3M $ 4,833 $ 4,956 $ 4,659
Denominator:
Denominator for weighted average 3M common shares outstanding - basic 625.6 649.2 681.9
Dilution associated with the Company's stock-based compensation plans 11.6 12.8 11.7
Denominator for weighted average 3M common shares outstanding - diluted 637.2 662.0 693.6
Earnings per share attributable to 3M common shareholders - basic $ 7.72 $ 7.63 $ 6.83
Earnings per share attributable to 3M common shareholders - diluted $ 7.58 $ 7.49 $ 6.72
Stock-based compensation: The Company recognizes compensation expense for its stock-based compensation programs, which
include stock options, restricted stock, restricted stock units, performance shares, and the General Employees' Stock
Purchase Plan (GESPP). Under applicable accounting standards, the fair value of share-based compensation is determined at
the grant date and the recognition of the related expense is recorded over the period in which the share-based compensation
vests. Refer to Note 15 for additional information.
Comprehensive income: Total comprehensive income and the components of accumulated other comprehensive income (loss) are
presented in the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Changes in Equity.
Accumulated other comprehensive income (loss) is composed of foreign currency translation effects (including hedges of net
investments in international companies), defined benefit pension and postretirement plan adjustments, unrealized gains and
losses on available-for-sale debt and equity securities, and unrealized gains and losses on cash flow hedging instruments.
Derivatives and hedging activities: All derivative instruments within the scope of ASC 815, Derivatives and Hedging, are
recorded on the balance sheet at fair value. The Company uses interest rate swaps, currency and commodity price swaps, and
foreign currency forward and option contracts to manage risks generally associated with foreign exchange rate, interest
rate and commodity market volatility. All hedging instruments that qualify for hedge accounting are designated and
effective as hedges, in accordance with U.S. generally accepted accounting principles. If the underlying hedged transaction
ceases to exist, all changes in fair value of the related derivatives that have not been settled are recognized in current
earnings. Instruments that do not qualify for hedge accounting are marked to market with changes recognized in current
earnings. Cash flows from derivative instruments are classified in the statement of cash flows in the same category as the
cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The Company does not
hold or issue derivative financial instruments for trading purposes and is not a party to leveraged derivatives.
Credit risk: 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. 3M enters into
master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master
netting arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a
result of multiple, separate derivative transactions. The Company does not anticipate nonperformance by any of these
counterparties. 3M has elected to present the fair value of derivative assets and liabilities within the Company's
consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements
and may otherwise qualify for net presentation.
Fair value measurements: 3M follows ASC 820, Fair Value Measurements and Disclosures, with respect to assets and
liabilities that are measured at fair value on a recurring basis and nonrecurring basis. Under the standard, fair value is
defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market
participants would use in valuing the asset or liability developed based on market data obtained from sources independent
of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the factors market participants
would use in valuing the asset or liability developed based upon the best information available in the circumstances. The
hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices)
that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for
the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
Acquisitions: The Company accounts for business acquisitions in accordance with ASC 805, Business Combinations. This
standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed in a business combination. Certain provisions of this standard prescribe, among
other things, the determination of acquisition-date fair value of consideration paid in a business combination (including
contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition
accounting.
New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-08, Reporting Discontinued Operations
and Disclosures of Disposals of Components of an Entity, which changed the criteria for determining which disposals can be
presented as discontinued operations and modified related disclosure requirements. This standard has the impact of reducing
the frequency of disposals reported as discontinued operations, by requiring such a disposal to represent a strategic shift
that has or will have a major effect on an entity's operations and financial results. However, existing provisions that
prohibited an entity from reporting a discontinued operation if it had certain continuing cash flows or involvement with
the component after disposal were eliminated by this standard. The ASU also expands the disclosures for discontinued
operations and requires new disclosures related to individually significant disposals that do not qualify as discontinued
operations. For 3M, this ASU was effective prospectively beginning January 1, 2015. This ASU was applied to the 2015
divestiture information discussed in Note 2 and had no material impact on consolidated results of operations and financial
condition.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, and in August 2015 issued ASU No.
2015-14, which amended ASU No. 2014-09 as to effective date. The ASU, as amended, provides a single comprehensive model to
be used in the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition
guidance, including industry-specific guidance. The standard's stated core principle is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle the ASU
includes provisions within a five step model that includes identifying the contract with a customer, identifying the
performance obligations in the contract, determining the transaction price, allocating the transaction price to the
performance obligations, and recognizing revenue when (or as) an entity satisfies a performance obligation. The standard
also specifies the accounting for some costs to obtain or fulfill a contract with a customer and requires expanded
disclosures about revenue recognition. The standard provides for either full retrospective adoption or a modified
retrospective adoption by which it is applied only to the most current period presented. For 3M, the ASU, as amended, is
effective January 1, 2018. The Company is currently assessing this standard's impact on 3M's consolidated results of
operations and financial condition.
In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, which changes guidance related
to both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models. With respect to the VIE
model, the standard changes, among other things, the identification of variable interests associated with fees paid to a
decision maker or service provider, the VIE characteristics for a limited partner or similar entity, and the primary
beneficiary determination. With respect to the VOE model, the ASU eliminates the presumption that a general partner
controls a limited partnership or similar entity unless the presumption can otherwise be overcome. Under the new guidance,
a general partner would largely not consolidate a partnership or similar entity under the VOE model. For 3M, this ASU is
effective January 1, 2016, with early adoption permitted. 3M does not have significant involvement with entities subject to
consolidation considerations impacted by the VIE model changes or with limited partnerships potentially impacted by the VOE
model changes. As a result, 3M does not expect this ASU to have a material impact on the Company's consolidated results of
operations and financial condition.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, and in August 2015
issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements. Under ASU 2015-03, debt issuance costs reported on the consolidated balance sheet would be reflected as a
direct deduction from the related debt liability rather than as an asset. While ASU 2015-03 addresses costs related to term
debt, ASU No. 2015-15 provides clarification regarding
- More to follow, for following part double click ID:nRSO0010PfRecent news on 3M Co
See all newsREG - Stock Exch Notice - Admission to ISM - 30/11/2023
AnnouncementRCS - 3M Company - StageZero Announces COC Protocol in Europe
AnnouncementREG - Official List - Removal: 3M Company
AnnouncementREG - Stock Exch Notice - Cancellation - 3M Company
AnnouncementREG - 3M Company - 3rd Quarter Results
Announcement