REG - 3M Company - Annual Financial Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 7
01/04/2016 14:49
- Part 7: For the preceding part double click ID:nRSO0010Pf
million in its Health Care business segment. In October
2013, cash was received for the note receivable and is reflected in other investing activity in the consolidated statement
of cash flows for the year ended December 31, 2013.
· During the second quarter of 2013, the Company's Sumitomo 3M Limited subsidiary moved its administrative
headquarters to a new leased location and sold the former site under an installment sale arrangement. As a result, at the
time of the closing of the sale transaction, the Company received certain cash proceeds (included in proceeds from sale of
property, plant and equipment in the consolidated statement of cash flows) and recorded a note receivable (due in quarterly
installments through the first quarter of 2016) of $78 million and deferred profit of $49 million (both based on the
foreign currency exchange rate at the time of closing). Remaining quarterly installments are due through the first quarter
of 2016 and will be included in other investing activities in the consolidated statement of cash flows. Deferred profit is
reduced and recognized into income in connection with such quarterly installments.
In addition, as discussed in Note 6, in the fourth quarter of 2014, 3M's Board of Directors declared a first-quarter 2015
dividend of $1.025 per share (paid in March 2015), which reduced 3M's stockholders equity and increased other current
liabilities as of December 2014 by $648 million. In the fourth quarter of 2013, 3M's Board of Directors declared a
first-quarter 2014 dividend of $0.855 per share (paid in March 2014). This reduced 3M's stockholders equity and increased
other current liabilities as of December 31, 2013 by $567 million.
NOTE 8. Income Taxes
Income Before Income Taxes
(Millions) 2015 2014 2013
United States $ 4,399 $ 3,815 $ 3,194
International 2,424 3,211 3,368
Total $ 6,823 $ 7,026 $ 6,562
Provision for Income Taxes
(Millions) 2015 2014 2013
Currently payable
Federal $ 1,338 $ 1,103 $ 948
State 101 108 91
International 566 1,008 901
Deferred
Federal (55) (171) (123)
State 6 (9) (2)
International 26 (11) 26
Total $ 1,982 $ 2,028 $ 1,841
Components of Deferred Tax Assets and Liabilities
(Millions) 2015 2014
Deferred tax assets:
Accruals not currently deductible
Employee benefit costs $ 175 $ 148
Product and other claims 146 152
Miscellaneous accruals 114 137
Pension costs 1,120 1,312
Stock-based compensation 305 290
Net operating/capital loss carryforwards 109 175
Foreign tax credits 25 360
Inventory 46 52
Other - 30
Gross deferred tax assets 2,040 2,656
Valuation allowance (31) (22)
Total deferred tax assets $ 2,009 $ 2,634
Deferred tax liabilities:
Product and other insurance receivables $ (28) $ (31)
Accelerated depreciation (736) (804)
Intangible amortization (1,017) (719)
Currency translation (199) (91)
Other (70) -
Total deferred tax liabilities $ (2,050) $ (1,645)
Net deferred tax assets (liabilities) $ (41) $ 989
The net deferred tax assets are included as components of Other Assets and Other Liabilities within the Consolidated
Balance Sheet. See Note 5 "Supplemental Balance Sheet Information" for further details.
As of December 31, 2015, the Company had tax effected operating losses, capital losses, and tax credit carryovers for
federal (approximately $31 million), state (approximately $2 million), and international (approximately $76 million), with
all amounts before valuation allowances. The federal tax attribute carryovers will expire after 15 to 20 years, the state
after five to 10 years, and the majority of international after four years with the remaining international expiring in one
year or with an indefinite carryover period. The tax attributes being carried over arise as certain jurisdictions may have
tax losses or may have inabilities to utilize certain losses without the same type of taxable income. As of December 31,
2015, the Company has provided $31 million of valuation allowance against certain of these deferred tax assets based on
management's determination that it is more-likely-than-not that the tax benefits related to these assets will not be
realized.
Reconciliation of Effective Income Tax Rate
2015 2014 2013
Statutory U.S. tax rate 35.0 % 35.0 % 35.0 %
State income taxes - net of federal benefit 1.1 0.9 0.9
International income taxes - net (3.8) (5.8) (6.3)
U.S. research and development credit (0.5) (0.4) (0.7)
Reserves for tax contingencies (1.0) 0.6 1.2
Domestic Manufacturer's deduction (1.8) (1.3) (1.6)
All other - net 0.1 (0.1) (0.4)
Effective worldwide tax rate 29.1 % 28.9 % 28.1 %
The effective tax rate for 2015 was 29.1 percent, compared to 28.9 percent in 2014, an increase of 0.2 percentage points,
impacted by several factors. Factors which increased the Company's effective tax rate included international taxes, which
were impacted by changes in foreign currency rates and changes to the geographic mix of income before taxes, and other
items. Combined, these factors increased the Company's effective tax rate by 2.4 percentage points. This increase was
partially offset by a 2.2 percentage point decrease, which related to the remeasurements of 3M's uncertain tax positions,
including the restoration of tax basis on certain assets for which depreciation deductions were previously limited, and
increases in the domestic manufacturer's deduction and U.S. research and development credit benefits.
The effective tax rate for 2014 was 28.9 percent, compared to 28.1 percent in 2013, an increase of 0.8 percentage points,
impacted by many factors. Factors which increased the Company's effective tax rate included a one-time international tax
impact related to the establishment of the supply chain center of expertise in Europe, decreased U.S. research and
development credit in 2014 compared to 2013 due to two years inclusion as a result of the reinstatement in 2013, decreased
domestic manufacturer's deduction, and other items. Combined, these factors increased the Company's effective tax rate by
1.6 percentage points. This increase was partially offset by a 0.8 percentage point decrease, which related to both lower
3M income tax reserves for 2014 when compared to 2013 and international taxes as a result of changes to the geographic mix
of income before taxes.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by
tax authorities for years before 2005.
The IRS has completed its field examination of the Company's U.S. federal income tax returns for the years 2005 through
2013. The Company protested certain IRS positions within these tax years and entered into the administrative appeals
process with the IRS. In December 2012, the Company received a statutory notice of deficiency for the 2006 year. The
Company filed a petition in Tax Court in the first quarter of 2013 relating to the 2006 tax year. Currently, the Company is
under examination by the IRS for its U.S. federal income tax returns for the years 2014 and 2015. It is anticipated that
the IRS will complete its examination of the Company for 2014 by the end of the first quarter of 2016 and for 2015 by the
end of the first quarter of 2017. As of December 31, 2015, the IRS has not proposed any significant adjustments to the
Company's tax positions for which the Company is not adequately reserved.
Payments relating to other proposed assessments arising from the 2005 through 2015 examinations may not be made until a
final agreement is reached between the Company and the IRS on such assessments or upon a final resolution resulting from
the administrative appeals process or judicial action. In addition to the U.S. federal examination, there is also audit
activity in several U.S. state and foreign jurisdictions.
3M anticipates changes to the Company's uncertain tax positions due to the closing and resolution of audit issues for
various audit years mentioned above and closure of statutes. The Company is not currently able to reasonably estimate the
amount by which the liability for unrecognized tax benefits will increase or decrease during the next 12 months as a result
of the ongoing income tax authority examinations.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows:
Federal, State and Foreign Tax
(Millions) 2015 2014 2013
Gross UTB Balance at January 1 $ 583 $ 659 $ 528
Additions based on tax positions related to the current year 77 201 97
Additions for tax positions of prior years 140 30 158
Reductions for tax positions of prior years (399) (74) (29)
Settlements (4) (154) (17)
Reductions due to lapse of applicable statute of limitations (16) (79) (78)
Gross UTB Balance at December 31 $ 381 $ 583 $ 659
Net UTB impacting the effective tax rate at December 31 $ 369 $ 265 $ 262
The total amount of UTB, if recognized, would affect the effective tax rate by $369 million as of December 31, 2015, $265
million as of December 31, 2014, and $262 million as of December 31, 2013. The ending net UTB results from adjusting the
gross balance for items such as Federal, State, and non-U.S. deferred items, interest and penalties, and deductible taxes.
The net UTB is included as components of Other Assets, Accrued Income Taxes, and Other Liabilities within the Consolidated
Balance Sheet.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company
recognized in the consolidated statement of income on a gross basis approximately $2 million of expense, $14 million of
benefit, and $22 million of expense in 2015, 2014, and 2013, respectively. The amount of interest and penalties recognized
may be an expense or benefit due to new or remeasured unrecognized tax benefit accruals. At December 31, 2015, and December
31, 2014, accrued interest and penalties in the consolidated balance sheet on a gross basis were $45 million and $44
million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions
for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such
deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the
shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier period.
As a result of certain employment commitments and capital investments made by 3M, income from certain manufacturing
activities in the following countries is subject to reduced tax rates or, in some cases, is exempt from tax for years
through the following: Taiwan (2015), China (2016), Korea (2018), Brazil (2023), Switzerland (2024), and Singapore (2025).
The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $114 million (18 cents per
diluted share) in 2015, $99 million (15 cents per diluted share) in 2014, and $87 million (13 cents per diluted share) in
2013.
The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have been
considered to be reinvested indefinitely, with the exception of an acquired entity. These earnings relate to ongoing
operations and were approximately $12 billion as of December 31, 2015. Because of the availability of U.S. foreign tax
credits, the multiple avenues in which to repatriate the earnings to minimize tax cost, and because a large portion of
these earnings are not liquid, it is not practical to determine the income tax liability that would be payable if such
earnings were not reinvested indefinitely.
NOTE 9. Marketable Securities
The Company invests in agency securities, corporate securities, asset-backed securities and other securities. The following
is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities (current and non-current).
December 31, December 31,
(Millions) 2015 2014
U.S. government agency securities $ - $ 108
Foreign government agency securities 10 95
Corporate debt securities 10 619
Commercial paper 12 -
Certificates of deposit/time deposits 26 41
U.S. treasury securities - 38
U.S. municipal securities 3 -
Asset-backed securities:
Automobile loan related 26 282
Credit card related 10 162
Equipment lease related 2 48
Other 19 46
Asset-backed securities total 57 538
Current marketable securities $ 118 $ 1,439
U.S. municipal securities $ 9 $ 15
Non-current marketable securities $ 9 $ 15
Total marketable securities $ 127 $ 1,454
Classification of marketable securities as current or non-current is based on the nature of the securities and availability
for use in current operations. At December 31, 2015 and 2014, gross unrealized gains and/or losses (pre-tax) were not
material. Refer to Note 6 for a table that provides the net realized gains (losses) related to sales or impairments of debt
and equity securities, which includes marketable securities. The gross amounts of the realized gains or losses were not
material. Cost of securities sold use the first in, first out (FIFO) method. Since these marketable securities are
classified as available-for-sale securities, changes in fair value will flow through other comprehensive income, with
amounts reclassified out of other comprehensive income into earnings upon sale or "other-than-temporary" impairment.
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 attributable to
3M 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.
The balance at December 31, 2015, for marketable securities by contractual maturity are shown below. Actual maturities may
differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without
prepayment penalties.
(Millions) December 31, 2015
Due in one year or less $ 52
Due after one year through five years 74
Due after five years through ten years 1
Due after ten years -
Total marketable securities $ 127
3M has a diversified marketable securities portfolio of $127 million as of December 31, 2015. Within this portfolio,
current asset-backed securities (estimated fair value of $57 million) primarily include interests in automobile loans,
credit cards and equipment leases. 3M's investment policy allows investments in asset-backed securities with minimum credit
ratings of Aa2 by Moody's Investors Service or AA by Standard & Poor's or Fitch Ratings or DBRS. Asset-backed securities
must be rated by at least two of the aforementioned rating agencies, one of which must be Moody's Investors Service or
Standard & Poor's. At December 31, 2015, all asset-backed security investments were in compliance with this policy.
Approximately 75.8 percent of all asset-backed security investments were rated AAA or A-1+ by Standard & Poor's and/or Aaa
or P-1 by Moody's Investors Service and/or AAA or F1+ by Fitch Ratings. Interest rate risk and credit risk related to the
underlying collateral may impact the value of investments in asset-backed securities, while factors such as general
conditions in the overall credit market and the nature of the underlying collateral may affect the liquidity of investments
in asset-backed securities. 3M does not currently expect risk related to its holding in asset-backed securities to
materially impact its financial condition or liquidity.
NOTE 10. Long-Term Debt and Short-Term Borrowings
The following debt tables reflect effective interest rates, which include the impact of interest rate swaps, as of December
31, 2015. If the debt was issued on a combined basis, the debt has been separated to show the impact of the fixed versus
floating effective interest rates. Carrying value includes the impact of debt issuance costs and fair value hedging
activity. Long-term debt and short-term borrowings as of December 31 consisted of the following:
Long-Term Debt
Currency/ Effective Final
(Millions) Fixed vs. Interest Maturity Carrying Value
Description / 2015 Principal Amount Floating Rate Date 2015 2014
Medium-term note ($1 billion) USD Fixed 1.62 % 2016 $ 999 $ 996
Medium-term note ($650 million) USD Fixed 1.10 % 2017 648 647
Medium-term note (500 million Euros) Euro Floating 0.16 % 2018 545 606
Medium-term note ($450 million) USD Floating 0.44 % 2018 448 -
Medium-term note ($600 million) USD Floating 0.55 % 2019 597 592
Medium-term note ($25 million) USD Fixed 1.74 % 2019 25 25
Medium-term note (650 million Euros) Euro Floating 0.15 % 2020 708 -
Medium-term note ($300 million) USD Floating 0.61 % 2020 297 -
Medium-term note ($200 million) USD Fixed 2.12 % 2020 198 -
Eurobond (300 million Euros) Euro Floating 0.21 % 2021 348 389
Eurobond (300 million Euros) Euro Fixed 1.97 % 2021 326 361
Medium-term note ($600 million) USD Fixed 2.17 % 2022 592 591
Medium-term note (600 million Euros) Euro Fixed 1.14 % 2023 644 -
Medium-term note ($550 million) USD Fixed 3.04 % 2025 545 -
Medium-term note (750 million Euros) Euro Fixed 1.71 % 2026 801 892
30-year debenture ($330 million) USD Fixed 6.01 % 2028 343 344
Medium-term note (500 million Euros) Euro Fixed 1.90 % 2030 533 -
30-year bond ($750 million) USD Fixed 5.73 % 2037 743 742
Floating rate note ($96 million) USD Floating 0.22 % 2041 96 96
Medium-term note ($325 million) USD Fixed 4.05 % 2044 313 312
Floating rate note ($55 million) USD Floating 0.16 % 2044 55 55
Other borrowings Various 0.22 % 2016-2040 74 112
Total long-term debt $ 9,878 $ 6,760
Less: current portion of long-term debt 1,125 55
Long-term debt (excluding current portion) $ 8,753 $ 6,705
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
2015 2014
Carrying Effective Carrying Effective
(Millions) Value Interest Rate Value Interest Rate
Fixed-rate debt $ 6,712 2.54 % $ 4,911 2.74 %
Floating-rate debt 3,166 0.32 % 1,849 0.53 %
Total long-term debt, including current portion $ 9,878 $ 6,760
Short-Term Borrowings and Current Portion of Long-Term Debt
Effective Carrying Value
(Millions) Interest Rate 2015 2014
Current portion of long-term debt 1.45 % $ 1,125 $ 55
U.S. dollar commercial paper - % - -
Other borrowings 1.01 % 919 51
Total short-term borrowings and current portion of long-term debt $ 2,044 $ 106
In 2015, other short-term borrowings primarily consisted of bank borrowings by international subsidiaries, primarily Japan
and Korea.
Maturities of Long-term Debt
Maturities of long-term debt for the five years subsequent of December 31, 2015 are as follows (in millions):
After
2016 2017 2018 2019 2020 2020 Total
$ 1,125 $ 744 $ 993 $ 622 $ 1,203 $ 5,191 $ 9,878
Long-term debt payments due in 2016 and 2017 include floating rate notes totaling $126 million (classified as current
portion of long-term debt), and $96 million (included as a separate floating rate note in the long-term debt table),
respectively, as a result of put provisions associated with these debt instruments.
Credit Facilities
In August 2014, 3M amended and extended its existing $1.5 billion five-year revolving credit facility to a $2.25 billion
five-year agreement expiring in August 2019. This credit agreement includes a provision under which 3M may request an
increase of up to $2.25 billion, bringing the total facility up to $4.5 billion (at the lender's discretion). This facility
was undrawn at December 31, 2015. Under the $2.25 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, 2015, this ratio was approximately 56 to 1. Debt covenants do not
restrict the payment of dividends.
Other Credit Facilities
Apart from the committed revolving facility, an additional $241 million in stand-alone letters of credit and $18 million in
bank guarantees were also issued and outstanding at December 31, 2015. These lines of credit are utilized in connection
with normal business activities.
Long-Term Debt Issuances
The principal amounts, interest rates and maturity dates of individual long-term debt issuances can be found in the
long-term debt table found at the beginning of this note.
In May 2015, 3M issued 1.750 billion Euros aggregate principal amount of medium term notes. In August 2015, 3M issued
$1.500 billion aggregate principal amount of medium-term notes. Upon debt issuance, the Company entered into two interest
rate swaps as fair value hedges of a portion of the fixed interest rate medium-term note obligation. The first converted a
$450 million three-year fixed rate note, and the second converted $300 million of a five-year fixed rate note included in
this issuance to an interest rate based on a floating three-month LIBOR index.
In June 2014, 3M issued $950 million aggregate principal amount of medium-term notes. Upon debt issuance, the Company
entered into an interest rate swap to convert $600 million of a $625 million note included in this issuance to an interest
rate based on a floating three-month LIBOR index as a fair value hedge of a portion of the fixed interest rate medium-term
note obligation. In November 2014, the Company issued 1.250 billion Euros aggregate principal amount of medium-term notes.
In November 2013, 3M issued a Eurobond for an amount of 600 million Euros. Upon debt issuance, 3M completed a
fixed-to-floating interest rate swap on a notional amount of 300 million Euros.
Long-Term Debt Maturities
In July 2014, 3M retired at maturity 1.025 billion Euros of seven-year 5.0% fixed rate Eurobonds. In December 2012, 3M
entered into a three-year 66 million British Pound (approximately $106 million based on agreement date exchange rates)
committed credit facility agreement with JP Morgan Chase Bank, which was fully drawn as of December 31, 2012. 3M repaid the
balance in 2014.
In August 2013, 3M repaid $850 million (principal amount) of medium-term notes.
Floating Rate Notes
At various times, 3M has issued floating rate notes containing put provisions. 3M would be required to repurchase these
securities at various prices ranging from 99 percent to 100 percent of par value according to the reduction schedules for
each security. In December 2004, 3M issued a forty-year $60 million floating rate note, with a rate based on a floating
LIBOR index. Under the terms of this floating rate note due in 2044, holders have an annual put feature at 100 percent of
par value from 2014 and every anniversary thereafter until final maturity. Under the terms of the floating rate notes due
in 2027, 2040 and 2041, holders have put options that commence ten years from the date of issuance and each third
anniversary thereafter until final maturity at prices ranging from 99 percent to 100 percent of par value. In 2008 through
2015, 3M was required to repurchase an immaterial amount of principal on the aforementioned floating rate notes.
NOTE 11. Pension and Postretirement Benefit Plans
3M has company-sponsored retirement plans covering substantially all U.S. employees and many employees outside the United
States. In total, 3M has over 80 defined benefit plans in 28 countries. Pension benefits associated with these plans
generally are based on each participant's years of service, compensation, and age at retirement or termination. The primary
U.S. defined-benefit pension plan was closed to new participants effective January 1, 2009. The Company also provides
certain postretirement health care and life insurance benefits for substantially all of its U.S. employees who reach
retirement age while employed by the Company. Most international employees and retirees are covered by government health
care programs. The cost of company-provided postretirement health care plans for international employees is not material
and is combined with U.S. amounts in the tables that follow.
The Company also sponsors employee savings plans under Section 401(k) of the Internal Revenue Code. These plans are offered
to substantially all regular U.S. employees. For eligible employees hired prior to January 1, 2009, employee 401(k)
contributions of up to 6% of eligible compensation were matched in cash at rates of 60% or 75%, depending on the plan in
which the employee participates. Employees hired on or after January 1, 2009, received a cash match of 100% for employee
401(k) contributions of up to 6% of eligible compensation and also received an employer retirement income account cash
contribution of 3% of the participant's total eligible compensation. Beginning on January 1, 2016, for U.S. employees, the
Company reduced its match on employee 401(k) contributions. For eligible employees hired prior to January 1, 2009, employee
401(k) contributions of up to 5% of eligible compensation will be matched in cash at rates of 45% or 60%, depending on the
plan in which the employee participates. Employees hired on or after January 1, 2009, will receive a cash match of 100% for
employee 401(k) contributions of up to 5% of eligible compensation and will also continue to receive an employer retirement
income account cash contribution of 3% of the participant's total eligible compensation. All contributions are invested in
a number of investment funds pursuant to the employees' elections. Employer contributions to the U.S. defined contribution
plans were $165 million, $153 million and $136 million for 2015, 2014 and 2013, respectively. 3M subsidiaries in various
international countries also participate in defined contribution plans. Employer contributions to the international defined
contribution plans were $77 million, $75 million and $71 million for 2015, 2014 and 2013, respectively.
The Company has made deposits for its defined benefit plans with independent trustees. Trust funds and deposits with
insurance companies are maintained to provide pension benefits to plan participants and their beneficiaries. There are no
plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health care and life insurance benefit
plans, the Company has set aside amounts at least equal to annual benefit payments with an independent trustee.
3M's primary U.S. qualified defined benefit plan does not have a mandatory cash contribution because the Company has a
significant credit balance from previous discretionary contributions that can be applied to any Pension Protection Act
funding requirements.
As a result of changes made to its U.S. postretirement health care benefit plans in 2010, the Company has transitioned all
current and future retirees to a savings account benefits-based plan. These changes became effective beginning January 1,
2013, for all Medicare eligible retirees and their Medicare eligible dependents and became effective beginning January 1,
2016, for all non-Medicare eligible retirees and their eligible dependents. In August 2015, 3M modified the 3M Retiree
Welfare Benefit Plan postretirement medical benefit reducing the future benefit for participants not retired as of January
1, 2016. For participants retiring after January 1, 2016, the Retiree Medical Savings Account (RMSA) is no longer credited
with interest and the indexation on both the RMSA and the Medicare Health Reimbursement Arrangement is reduced from 3
percent to 1.5 percent per year (for those employees who are eligible for these accounts). Also effective January 1, 2016,
3M no longer offers 3M Retiree Health Care Accounts to new hires. Due to these changes the plan was re-measured in the
third quarter of 2015, resulting in a decrease to the projected benefit obligation liability of approximately $233 million,
and a related increase to shareholders' equity, specifically accumulated other comprehensive income.
In the third quarter of 2014, former U.S. employees who have a pension benefit for which they have not begun receiving
payment (term vested) were offered a lump sum payout of their pension benefit. As a result of this action, the projected
benefit obligation (PBO) liability was reduced in the fourth quarter of 2014 by approximately $270 million, with the actual
cash payout of approximately the same amount paid from the plan's assets in the fourth quarter of 2014. The PBO liability
reduction was 34% of the term vested eligible PBO and a 2% reduction in the overall U.S. pension PBO liability based on the
December 31, 2013, valuation. There was no pension expense impact as a result of this action on 3M's consolidated statement
of income in 2014.
In the fourth quarter of 2014, 3M's Board of Directors approved an amendment of the U.S. defined benefit pension plan to
include a lump sum payment option for employees that have vested retirement benefits who commence their pension January 1,
2015, or later. This option is also available to vested employees who leave 3M before becoming eligible to retire at the
time of termination. This change reduced 3M's year-end 2014 U.S. pension PBO liability by approximately $266 million.
As of December 31, 2014, the Company converted to the "RP 2014 Mortality Tables" and updated the mortality improvement
scale it used for calculating the year-end 2014 U.S. defined benefit pension annuitant and postretirement obligations and
2015 expense. The impact of this change increased the year-end 2014 U.S. pension PBO by approximately $820 million and the
U.S. accumulated postretirement benefit obligation by approximately $100 million.
In March 2015, 3M Japan modified the Japan Limited Defined Benefit Corporate Pension Plan (DBCPP). Beginning July 1, 2015,
eligible employees receive a company provided contribution match of 6.12% of their eligible salary to their defined
contribution plan. Employees no longer earn additional service towards their defined benefit pension plans after July 1,
2015, except for eligible salaries above the statutory defined contribution limits. As a result of this plan modification,
the Company re-measured the DBCPP, which resulted in a $17 million pre-tax curtailment gain for the year ending December
31, 2015. In March 2015, 3M also received a favorable Internal Revenue Service tax determination letter to terminate a
frozen defined benefit pension plan of one of 3M's acquired subsidiaries. By the end of 2015, this plan made final
distributions of $16 million to participants. The Company also had other settlements, curtailments, special termination
benefits and other items in 2015 aggregating to the amounts indicated in these components in the applicable tables that
follow.
3M was informed during the first quarter of 2009, that the general partners of WG Trading Company, in which 3M's benefit
plans hold limited partnership interests, are the subject of a criminal investigation as well as civil proceedings by the
SEC and CFTC (Commodity Futures Trading Commission). In March 2011, over the objections of 3M and six other limited
partners of WG Trading Company, the district court judge ruled in favor of the court appointed receiver's proposed
distribution plan (and in April 2013, the United States Court of Appeals for the Second Circuit affirmed the district
court's ruling). The benefit plan trustee holdings of WG Trading Company interests were adjusted to reflect the decreased
estimated fair market value, inclusive of estimated insurance proceeds, as of the annual measurement dates. The Company has
insurance that it believes, based on what is currently known, will result in the probable recovery of a portion of the
decrease in original asset value. In the first quarter of 2014, 3M and certain 3M benefit plans filed a lawsuit in the U.S.
District Court for the District of Minnesota against five insurers seeking insurance coverage for the WG Trading Company
claim. In September 2015, the court ruled in favor of the defendant insurance companies on a motion for summary judgment
and dismissed the lawsuit. In October 2015, 3M and the 3M benefit plans filed a notice of appeal to the United States Court
of Appeals for the Eighth Circuit. As of the 2015 measurement date, these holdings represented less than one half of one
percent of 3M's fair value of total plan assets. 3M currently believes that the resolution of these events will not have a
material adverse effect on the consolidated financial position of the Company.
The following tables include a reconciliation of the beginning and ending balances of the benefit obligation and the fair
value of plan assets as well as a summary of the related amounts recognized in the Company's consolidated balance sheet as
of December 31 of the respective years. 3M also has certain non-qualified unfunded pension and postretirement benefit
plans, inclusive of plans related to supplement/excess benefits for employees impacted by particular relocations and other
matters, that individually and in the aggregate are not significant and which are not included in the tables that follow.
The obligations for these plans are included within other liabilities in the Company's consolidated balance sheet and
aggregated less than $35 million as of December 31, 2015 and 2014.
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2015 2014 2015 2014 2015 2014
Change in benefit obligation
Benefit obligation at beginning of year $ 16,452 $ 13,967 $ 6,979 $ 6,346 $ 2,462 $ 2,017
Acquisitions/Transfers in - - 94 - - -
Service cost 293 241 154 141 75 65
Interest cost 655 676 206 252 98 97
Participant contributions - - 9 10 14 18
Foreign exchange rate changes - - (589) (663) (22) (11)
Plan amendments - (266) (6) 3 (211) -
Actuarial (gain) loss (657) 2,874 (274) 1,128 (80) 415
Medicare Part D Reimbursement - - - - 1 1
Benefit payments (874) (1,039) (232) (235) (122) (140)
Settlements, curtailments, special termination benefits and other (13) (1) (19) (3) 1 -
Benefit obligation at end of year $ 15,856 $ 16,452 $ 6,322 $ 6,979 $ 2,216 $ 2,462
Change in plan assets
Fair value of plan assets at beginning of year $ 14,643 $ 13,889 $ 5,957 $ 5,758 $ 1,436 $ 1,405
Acquisitions/Transfers in - - 8 - - -
Actual return on plan assets 100 1,749 287 813 36 148
Company contributions 113 45 151 165 3 5
Participant contributions - - 9 10 14 18
Foreign exchange rate changes - - (498) (554) - -
Benefit payments (874) (1,039) (232) (235) (122) (140)
Settlements, curtailments, special termination benefits and other (16) (1) (13) - - -
Fair value of plan assets at end of year $ 13,966 $ 14,643 $ 5,669 $ 5,957 $ 1,367 $ 1,436
Funded status at end of year $ (1,890) $ (1,809) $ (653) $ (1,022) $ (849) $ (1,026)
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2015 2014 2015 2014 2015 2014
Amounts recognized in the Consolidated Balance Sheet as of Dec. 31,
Non-current assets $ 3 $ 3 $ 185 $ 43 $ - $ -
Accrued benefit cost
Current liabilities (47) (46) (10) (10) (3) (4)
Non-current liabilities (1,846) (1,766) (828) (1,055) (846) (1,022)
Ending balance $ (1,890) $ (1,809) $ (653) $ (1,022) $ (849) $ (1,026)
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2015 2014 2015 2014 2015 2014
Amounts recognized in accumulated other comprehensive income as of Dec. 31,
Net transition obligation (asset) $ - $ - $ (2) $ (3) $ - $ -
Net actuarial loss (gain) 5,366 5,462 1,610 2,200 815 914
Prior service cost (credit) (227) (251) (68) (93) (270) (102)
Ending balance $ 5,139 $ 5,211 $ 1,540 $ 2,104 $ 545 $ 812
The balance of amounts recognized for international plans in accumulated other comprehensive income as of December 31 in
the preceding table are presented based on the foreign currency exchange rate on that date.
The pension accumulated benefit obligation represents the actuarial present value of benefits based on employee service and
compensation as of the measurement date and does not include an assumption about future compensation levels. The
accumulated benefit obligation of the U.S. pension plans was $14.834 billion and $15.335 billion at December 31, 2015 and
2014, respectively. The accumulated benefit obligation of the international pension plans was $5.773 billion and $6.401
billion at December 31, 2015 and 2014, respectively.
The following amounts relate to pension plans with accumulated benefit obligations in excess of plan assets as of December
31:
Qualified and Non-qualified Pension Plans
United States International
(Millions) 2015 2014 2015 2014
Projected benefit obligation $ 15,856 $ 16,435 $ 2,382 $ 2,588
Accumulated benefit obligation 14,834 15,319 2,149 2,335
Fair value of plan assets 13,966 14,623 1,566 1,636
Components of net periodic cost and other amounts recognized in other comprehensive income
Net periodic benefit cost is recorded in cost of sales, selling, general and administrative expenses, and research,
development and related expenses. Components of net periodic benefit cost and other changes in plan assets and benefit
obligations recognized in other comprehensive income for the years ended December 31 follow:
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2015 2014 2013 2015 2014 2013 2015 2014 2013
Net periodic benefit cost (benefit)
Service cost $ 293 $ 241 $ 258 $ 154 $ 141 $ 147 $ 75 $ 65 $ 80
Interest cost 655 676 598 206 252 238 98 97 88
Expected return on plan assets (1,069) (1,043) (1,046) (308) (312) (291) (91) (90) (90)
Amortization of transition (asset) obligation - - - (1) (1) (1) - - -
Amortization of prior service cost (benefit) (24) 4 5 (13) (16) (16) (42) (47) (66)
Amortization of net actuarial (gain) loss 409 243 399 144 121 153 73 56 95
Net periodic benefit cost (benefit) $ 264 $ 121 $ 214 $ 182 $ 185 $ 230 $ 113 $ 81 $ 107
Settlements, curtailments, special termination benefits and other 2 - - (6) 4 2 1 - -
Net periodic benefit cost (benefit) after settlements, curtailments, special termination benefits and other $ 266 $ 121 $ 214 $ 176 $ 189 $ 232 $ 114 $ 81 $ 107
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
Amortization of transition (asset) obligation - - - 1 1 1 - - -
Prior service cost (benefit) - (266) - 10 3 3 (212) - (20)
Amortization of prior service cost (benefit) 24
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