REG - 3M Company - Annual Financial Report - Part 1 <Origin Href="QuoteRef">MMM.N</Origin> - Part 8
13/02/2018 07:06
- Part 8: For the preceding part double click ID:nRSM6559Eg
512
Medium-term note (500 million Euros) Euro Fixed 1.54 % 2031 595 518
30-year bond ($555 million) USD Fixed 5.73 % 2037 550 743
Floating rate note ($96 million) USD Floating 1.29 % 2041 95 96
Medium-term note ($325 million) USD Fixed 4.05 % 2044 313 313
Floating rate note ($55 million) USD Floating 1.21 % 2044 54 54
Medium-term note ($500 million) USD Fixed 3.13 % 2046 473 473
Medium-term note ($500 million) USD Fixed 3.68 % 2047 491 -
Other borrowings Various 1.26 % 2018-2040 73 74
Total long-term debt $ 13,198 $ 11,478
Less: current portion of long-term debt 1,102 800
Long-term debt (excluding current portion) $ 12,096 $ 10,678
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
2017 2016
Carrying Effective Carrying Effective
(Millions) Value Interest Rate Value Interest Rate
Fixed-rate debt $ 9,681 2.45 % $ 8,372 2.42 %
Floating-rate debt 3,517 0.76 % 3,106 0.48 %
Total long-term debt, including current portion $ 13,198 $ 11,478
Short-Term Borrowings and Current Portion of Long-Term Debt
Effective Carrying Value
(Millions) Interest Rate 2017 2016
Current portion of long-term debt 0.67 % $ 1,102 $ 800
U.S. dollar commercial paper 1.50 % 745 -
Other borrowings 5.35 % 6 172
Total short-term borrowings and current portion of long-term debt $ 1,853 $ 972
Other short-term borrowings primarily consisted of bank borrowings by
international subsidiaries. In 2016, these were primarily related to Japan and
Korea.
Future Maturities of Long-term Debt
Maturities of long-term debt in the table below are net of the unaccreted debt
issue costs such that total maturities equal the carrying value of long-term
debt as of December 31, 2017. The maturities of long-term debt for the periods
subsequent to December 31, 2017 are as follows (in millions):
After
2018 2019 2020 2021 2022 2022 Total
$ 1,102 $ 692 $ 1,368 $ 1,333 $ 1,191 $ 7,512 $ 13,198
Long-term debt payments due in 2018, 2019, and 2020 include floating rate
notes totaling $54 million (classified as current portion of long-term debt),
$71 million (included in other borrowings in the long-term debt table), and
$95 million (included within the long-term debt table), respectively, as a
result of put provisions associated with these debt instruments.
Credit Facilities
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 lender's discretion), bringing the total facility up to $5.0
billion. This revolving credit facility was undrawn at December 31, 2017.
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, 2017, this ratio was approximately 29 to 1. Debt covenants do
not restrict the payment of dividends.
Other Credit Facilities
Apart from the committed revolving facility, an additional $288 million in
stand-alone letters of credit and bank guarantees were also issued and
outstanding at December 31, 2017. These instruments 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 October 2017, 3M issued $650 million aggregate principal amount of 5.5-year
fixed rate medium-term notes due 2023 with a coupon rate of 2.25%, $850
million aggregate principal amount of 10-year fixed rate medium-term notes due
2027 with a coupon rate of 2.875%, and $500 million aggregate principal amount
of 30-year fixed rate medium-term notes due 2047 with a coupon rate of 3.625%.
In May 2016, 3M issued 1 billion Euros aggregate principal amount of
medium-term notes. In September 2016, 3M issued $1.75 billion aggregate
principal amount of medium-term notes.
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.
Long-Term Debt Maturities and Extinguishments
In June 2017, 3M repaid $650 million aggregate principal amount of fixed rate
medium-term notes that matured.
In October 2017, 3M, via cash tender offers, repurchased $305 million
aggregate principal amount of its outstanding notes. This included $110
million of its $330 million principal amount of 6.375% notes due 2028 and $195
million of its $750 million principal amount of 5.70% notes due 2037. The
Company recorded an early debt extinguishment charge of approximately $96
million in the fourth quarter of 2017 within interest expense, the cash
outflow for which is recorded within other financing activities on the
statement of cash flows. This charge reflected the differential between the
carrying value and the amount paid to acquire the tendered notes and related
expenses.
In September 2016, 3M repaid $1 billion aggregate 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. For the periods
presented, 3M was required to repurchase an immaterial amount of principal on
the aforementioned floating rate notes.
NOTE 12. 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
75 defined benefit plans in 27 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 its U.S. employees who reach retirement age
while employed by the Company and were employed by the Company prior to
January 1, 2016. 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 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.
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 5% of eligible compensation 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, receive a cash
match of 100% for employee 401(k) contributions of up to 5% of eligible
compensation and 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 $159 million, $139 million and $165 million for 2017, 2016 and
2015, respectively. 3M subsidiaries in various international countries also
participate in defined contribution plans. Employer contributions to the
international defined contribution plans were $88 million, $87 million and $77
million for 2017, 2016 and 2015, respectively.
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.
3M was informed in 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. In the first quarter of 2014, 3M
and certain 3M benefit plans filed a lawsuit that was removed by the insurers
to 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. In May 2017, the appellate court affirmed the
lower court's decision. The decision reduced U.S. pension and postretirement
plan assets by $73 million at the December 31, 2017 measurement date and did
not have a material adverse effect on the consolidated financial position of
the Company.
As part of a diversified investment strategy, the U.S. pension and
postretirement benefit plans made investments in the natural gas fired power
generation industry during the period 2011 through 2013. In April 2017, one of
these entities, Panda Temple Power, LLC, filed for Chapter 11 bankruptcy
protection in the U.S. Bankruptcy Court for the District of Delaware. This
investment loss represented less than one percent of the fair value of the
U.S. pension and postretirement plans' assets and was reflected in the fair
value measurement as of December 31, 2017.
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 $40
million as of December 31, 2017 and 2016.
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2017 2016 2017 2016 2017 2016
Change in benefit obligation
Benefit obligation at beginning of year $ 16,202 $ 15,856 $ 6,625 $ 6,322 $ 2,259 $ 2,216
Acquisitions/Transfers - - 3 (5) - -
Service cost 268 259 142 133 52 54
Interest cost 565 575 157 171 80 79
Participant contributions - - 8 8 - -
Foreign exchange rate changes - - 667 (472) 3 7
Plan amendments - 5 6 (4) (6) -
Actuarial (gain) loss 1,263 427 170 724 127 7
Benefit payments (936) (919) (276) (245) (105) (104)
Settlements, curtailments, special termination benefits and other (2) (1) - (7) - -
Benefit obligation at end of year $ 17,360 $ 16,202 $ 7,502 $ 6,625 $ 2,410 $ 2,259
Change in plan assets
Fair value of plan assets at beginning of year $ 14,081 $ 13,966 $ 5,617 $ 5,669 $ 1,356 $ 1,367
Acquisitions/Transfers - - 2 - - -
Actual return on plan assets 1,693 779 714 512 143 90
Company contributions 852 259 112 121 3 3
Participant contributions - - 8 8 - -
Foreign exchange rate changes - - 560 (444) - -
Benefit payments (936) (919) (276) (245) (105) (104)
Settlements, curtailments, special termination benefits and other (4) (4) - (4) - -
Fair value of plan assets at end of year $ 15,686 $ 14,081 $ 6,737 $ 5,617 $ 1,397 $ 1,356
Funded status at end of year $ (1,674) $ (2,121) $ (765) $ (1,008) $ (1,013) $ (903)
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2017 2016 2017 2016 2017 2016
Amounts recognized in the Consolidated Balance Sheet as of Dec. 31,
Non-current assets $ 4 $ 4 $ 233 $ 48 $ - $ -
Accrued benefit cost
Current liabilities (53) (52) (12) (10) (4) (4)
Non-current liabilities (1,625) (2,073) (986) (1,046) (1,009) (899)
Ending balance $ (1,674) $ (2,121) $ (765) $ (1,008) $ (1,013) $ (903)
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2017 2016 2017 2016 2017 2016
Amounts recognized in accumulated other comprehensive income as of Dec. 31,
Net transition obligation (asset) $ - $ - $ - $ - $ - $ -
Net actuarial loss (gain) 5,921 5,704 1,720 1,933 774 761
Prior service cost (credit) (175) (198) (40) (56) (163) (214)
Ending balance $ 5,746 $ 5,506 $ 1,680 $ 1,877 $ 611 $ 547
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
$16.270 billion and $15.149 billion at December 31, 2017 and 2016,
respectively. The accumulated benefit obligation of the international pension
plans was $6.870 billion and $6.058 billion at December 31, 2017 and 2016,
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) 2017 2016 2017 2016
Projected benefit obligation $ 17,350 $ 16,202 $ 2,687 $ 2,590
Accumulated benefit obligation 16,260 15,149 2,449 2,351
Fair value of plan assets 15,671 14,081 1,731 1,635
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) 2017 2016 2015 2017 2016 2015 2017 2016 2015
Net periodic benefit cost (benefit)
Service cost $ 268 $ 259 $ 293 $ 142 $ 133 $ 154 $ 52 $ 54 $ 75
Interest cost 565 575 655 157 171 206 80 79 98
Expected return on plan assets (1,035) (1,043) (1,069) (293) (308) (308) (86) (90) (91)
Amortization of transition asset - - - - (1) (1) - - -
Amortization of prior service benefit (23) (24) (24) (13) (13) (13) (53) (55) (42)
Amortization of net actuarial loss 388 354 409 126 91 144 56 61 73
Settlements, curtailments, special termination benefits and other 2 4 2 4 4 (6) (4) - 1
Net periodic benefit cost (benefit) after settlements, curtailments, special $ 165 $ 125 $ 266 $ 123 $ 77 $ 176 $ 45 $ 49 $ 114
termination benefits and other
Other changes in plan assets and benefit obligations recognized in other
comprehensive (income) loss
Amortization of transition asset - - - - 1 1 - - -
Prior service cost (benefit) - 5 - 6 (5) 10 (1) - (212)
Amortization of prior service benefit 23 24 24 13 13 13 53 55 42
Net actuarial (gain) loss 605 692 312 (248) 512 (270) 69 8 (23)
Amortization of net actuarial loss (388) (354) (409) (126) (91) (144) (56) (61) (73)
Foreign currency - - - 167 (93) (174) - - (1)
Total recognized in other comprehensive (income) loss $ 240 $ 367 $ (73) $ (188) $ 337 $ (564) $ 65 $ 2 $ (267)
Total recognized in net periodic benefit cost (benefit) and other $ 405 $ 492 $ 193 $ (65) $ 414 $ (388) $ 110 $ 51 $ (153)
comprehensive (income) loss
Amounts expected to be amortized from accumulated other comprehensive income
into net periodic benefit costs over the next fiscal year
Qualified and Non-qualified
Pension Benefits Postretirement
(Millions) United States International Benefits
Amortization of transition (asset) obligation $ - $ - $ -
Amortization of prior service cost (benefit) (23) (13) (40)
Amortization of net actuarial (gain) loss 503 116 62
Total amortization expected over the next fiscal year $ 480 $ 103 $ 22
The Company primarily amortizes amounts recognized as prior service cost
(benefit) over the average future service period of active employees at the
date of the amendment.
Weighted-average assumptions used to determine benefit obligations as of
December 31
Qualified and Non-qualified Pension Benefits Postretirement
United States International Benefits
2017 2016 2015 2017 2016 2015 2017 2016 2015
Discount rate 3.68 % 4.21 % 4.47 % 2.41 % 2.54 % 3.12 % 3.79 % 4.26 % 4.48 %
Compensation rate increase 4.10 % 4.10 % 4.10 % 2.89 % 2.90 % 2.90 % N/A N/A N/A
Weighted-average assumptions used to determine net cost for years ended
December 31
Qualified and Non-qualified Pension Benefits Postretirement
United States International Benefits
2017 2016 2015 2017 2016 2015 2017 2016 2015
Discount rate - service cost 4.42 % 4.70 % 4.10 % 2.32 % 2.84 % 3.11 % 4.50 % 4.70 % 4.07 %
Discount rate - interest cost 3.61 % 3.73 % 4.10 % 2.25 % 2.72 % 3.11 % 3.80 % 3.80 % 4.07 %
Expected return on assets 7.25 % 7.50 % 7.75 % 5.16 % 5.77 % 5.90 % 6.48 % 6.91 % 6.91 %
Compensation rate increase 4.10 % 4.10 % 4.10 % 2.90 % 2.90 % 3.33 % N/A N/A N/A
The Company provides eligible retirees in the U.S. postretirement health care
benefit plans to a savings account benefits-based plan. The contributions
provided by the Company to the health savings accounts increase 3 percent per
year for employees who retired prior to January 1, 2016 and increase 1.5
percent for employees who retire on or after January 1, 2016. Therefore, the
Company no longer has material exposure to health care cost inflation.
The Company determines the discount rate used to measure plan liabilities as
of the December 31 measurement date for the pension and postretirement
benefit plans, which is also the date used for the related annual measurement
assumptions. The discount rate reflects the current rate at which the
associated liabilities could be effectively settled at the end of the year.
The Company sets its rate to reflect the yield of a portfolio of high quality,
fixed-income debt instruments that would produce cash flows sufficient in
timing and amount to settle projected future benefits. Using this methodology,
the Company determined a discount rate of 3.68% for pension and 3.79% for
postretirement benefits to be appropriate for its U.S. plans as of
December 31, 2017, which is a decrease of 0.53 percentage points and 0.47
percentage points, respectively, from the rates used as of December 31, 2016.
For the international pension and postretirement plans the discount rates also
reflect the current rate at which the associated liabilities could be
effectively settled at the end of the year. If the country has a deep market
in corporate bonds the Company matches the expected cash flows from the plan
either to a portfolio of bonds that generate sufficient cash flow or a
notional yield curve generated from available bond information. In countries
that do not have a deep market in corporate bonds, government bonds are
considered with a risk premium to approximate corporate bond yields.
Beginning in 2016, 3M changed the method used to estimate the service and
interest cost components of the net periodic pension and other postretirement
benefit costs. The new method measures service cost and interest cost
separately using the spot yield curve approach applied to each corresponding
obligation. Service costs are determined based on duration-specific spot rates
applied to the service cost cash flows. The interest cost calculation is
determined by applying duration-specific spot rates to the year-by-year
projected benefit payments. The spot yield curve approach does not affect the
measurement of the total benefit obligations as the change in service and
interest costs offset in the actuarial gains and losses recorded in other
comprehensive income. The Company changed to the new method to provide a more
precise measure of service and interest costs by improving the correlation
between the projected benefit cash flows and the discrete spot yield curve
rates. The Company accounted for this change as a change in estimate
prospectively beginning in the first quarter of 2016. As a result of the
change to the spot yield curve approach, 2016 annual defined benefit pension
and postretirement net periodic benefit cost decreased approximately $180
million.
For the primary U.S. qualified pension plan, the Company's assumption for the
expected return on plan assets was 7.25% in 2017. Projected returns are based
primarily on broad, publicly traded equity and fixed-income indices and
forward-looking estimates of active portfolio and investment management. As of
December 31, 2017, the Company's 2018 expected long-term rate of return on
U.S. plan assets is 7.25%, consistent with 2017. The expected return
assumption is based on the strategic asset allocation of the plan, long term
capital market return expectations and expected performance from active
investment management. The 2017 expected long-term rate of return is based on
an asset allocation assumption of 25% global equities, 16% private equities,
41% fixed-income securities, and 18% absolute return investments independent
of traditional performance benchmarks, along with positive returns from active
investment management. The actual net rate of return on plan assets in 2017
was 12.4%. In 2016 the plan earned a rate of return of 5.8% and in 2015 earned
a return of 0.7%. The average annual actual return on the plan assets over the
past 10 and 25 years has been 7.0% and 9.4%, respectively. Return on assets
assumptions for international pension and other post-retirement benefit plans
are calculated on a plan-by-plan basis using plan asset allocations and
expected long-term rate of return assumptions.
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 projected benefit obligation (PBO) by approximately $820
million and the U.S. accumulated postretirement benefit obligation by
approximately $100 million. As of December 31, 2016, the Company updated the
mortality improvement scale to Scale MP-2016, which was released by the
Society of Actuaries in October 2016. The impact of this change decreased the
year-end 2016 U.S. pension PBO by approximately $440 million and the U.S.
accumulated postretirement benefit obligation by approximately $60 million. As
of December 31, 2017, the Company updated the mortality improvement scale to
Scale MP-2017. The update resulted in a small decrease to the U.S. pension PBO
and U.S. accumulated postretirement benefit obligations.
During 2017, the Company contributed $964 million to its U.S. and
international pension plans and $3 million to its postretirement plans. During
2016, the Company contributed $380 million to its U.S. and international
pension plans and $3 million to its postretirement plans. In 2018, the Company
expects to contribute an amount in the range of $300 million to $500 million
of cash to its U.S. and international retirement plans. The Company does not
have a required minimum cash pension contribution obligation for its U.S.
plans in 2018. Future contributions will depend on market conditions, interest
rates and other factors.
Future Pension and Postretirement Benefit Payments
The following table provides the estimated pension and postretirement benefit
payments that are payable from the plans to participants.
Qualified and Non-qualified
Pension Benefits Postretirement
(Millions) United States International Benefits
2018 Benefit Payments $ 1,074 $ 237 $ 139
2019 Benefit Payments 1,090 251 148
2020 Benefit Payments 1,102 260 157
2021 Benefit Payments 1,110 278 166
2022 Benefit Payments 1,126 285 174
Next five years 5,724 1,640 843
Plan Asset Management
3M's investment strategy for its pension and postretirement plans is to manage
the funds on a going-concern basis. The primary goal of the trust funds is to
meet the obligations as required. The secondary goal is to earn the highest
rate of return possible, without jeopardizing its primary goal, and without
subjecting the Company to an undue amount of contribution risk. Fund returns
are used to help finance present and future obligations to the extent possible
within actuarially determined funding limits and tax-determined asset limits,
thus reducing the potential need for additional contributions from 3M. The
investment strategy has used long duration cash bonds and derivative
instruments to offset a significant portion of the interest rate sensitivity
of U.S. pension liabilities.
Normally, 3M does not buy or sell any of its own securities as a direct
investment for its pension and other postretirement benefit funds. However,
due to external investment management of the funds, the plans may indirectly
buy, sell or hold 3M securities. The aggregate amount of 3M securities are not
considered to be material relative to the aggregate fund percentages.
The discussion that follows references the fair value measurements of certain
assets in terms of levels 1, 2 and 3. See Note 14 for descriptions of these
levels. While the company believes the valuation methods are appropriate and
consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments
could result in a different estimate of fair value at the reporting date.
This information is provided by RNS
The company news service from the London Stock Exchange
92 79 See Note 12
Net actuarial loss (570) (506) (626) See Note 12
Curtailments/Settlements (2) (8) 9 See Note 12
Total before tax (483) (421) (537)
Tax effect 116 148 176 Provision for income taxes
Net of tax $ (367) $ (273) $ (361)
Cash flow hedging instruments gains (losses)
Foreign currency forward/option contracts $ 8 $ 110 $ 178 Cost of sales
Commodity price swap contracts - - (2) Cost of sales
Interest rate swap contracts (1) (1) (2) Interest expense
Total before tax 7 109 174
Tax effect (3) (39) (63) Provision for income taxes
Net of tax $ 4 $ 70 $ 111
Total reclassifications for the period, net of tax $ (363) $ (203) $ (250)
NOTE 8. Supplemental Cash Flow Information
(Millions) 2017 2016 2015
Cash income tax payments, net of refunds $ 1,604 $ 1,888 $ 2,331
Cash interest payments 214 194 134
Cash interest payments include interest paid on debt and capital lease balances, including net interest payments/receipts
related to accreted debt discounts/premiums, payment of debt issue costs, as well as net interest payments/receipts
associated with interest rate swap contracts. Cash interest payments exclude the cash paid for early debt extinguishment
costs. Additional details are described in Note 11.
Individual amounts in the Consolidated Statement of Cash Flows exclude the impacts of acquisitions, divestitures and
exchange rate impacts, which are presented separately.
Transactions related to investing and financing activities with significant non-cash components are as follows:
· 3M sold and leased-back, under a capital lease, certain recently constructed machinery and equipment in return for
municipal bonds with the City of Nevada, Missouri during 2017 and 2016 valued at approximately $13 million and $12 million,
respectively, as of the transaction date.
In addition, as discussed in Note 7, 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).
NOTE 9. Income Taxes
Income Before Income Taxes
(Millions) 2017 2016 2015
United States $ 4,149 $ 4,366 $ 4,399
International 3,399 2,687 2,424
Total $ 7,548 $ 7,053 $ 6,823
Provision for Income Taxes
(Millions) 2017 2016 2015
Currently payable
Federal $ 1,022 $ 1,192 $ 1,338
State 59 75 101
International 722 733 566
Tax Cuts and Jobs Act (TCJA) non-current transition tax provision 623 - -
Deferred
Federal 162 (3) (55)
State 15 9 6
International 76 (11) 26
Total $ 2,679 $ 1,995 $ 1,982
Components of Deferred Tax Assets and Liabilities
(Millions) 2017 2016
Deferred tax assets:
Accruals not currently deductible
Employee benefit costs $ 178 $ 195
Product and other claims 204 326
Miscellaneous accruals 98 92
Pension costs 760 1,217
Stock-based compensation 210 302
Net operating/capital loss carryforwards 89 93
Foreign tax credits 32 22
Currency translation 59 -
Inventory 51 53
Gross deferred tax assets 1,681 2,300
Valuation allowance (81) (47)
Total deferred tax assets $ 1,600 $ 2,253
Deferred tax liabilities:
Product and other insurance receivables $ (6) $ (27)
Accelerated depreciation (447) (730)
Intangible amortization (784) (903)
Currency translation - (276)
Other (87) (40)
Total deferred tax liabilities $ (1,324) $ (1,976)
Net deferred tax assets $ 276 $ 277
The net deferred tax assets are included as components of Other Assets and Other Liabilities within the Consolidated
Balance Sheet. See Note 6 "Supplemental Balance Sheet Information" for further details.
As of December 31, 2017, the Company had tax effected operating losses, capital losses, and tax credit carryovers for
federal (approximately $7 million), state (approximately $12 million), and international (approximately $70 million), with
all amounts net before valuation allowances. The federal tax attribute carryovers will expire after 15 to 20 years, the
state after 5 to 10 years, and the international after one to three years or have 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, 2017, the Company has provided $81 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
2017 2016 2015
Statutory U.S. tax rate 35.0 % 35.0 % 35.0 %
State income taxes - net of federal benefit 0.8 0.9 1.1
International income taxes - net (6.3) (2.7) (3.9)
U.S. TCJA - net impacts 10.1 - -
U.S. research and development credit (0.7) (0.5) (0.5)
Reserves for tax contingencies 2.2 0.2 (1.0)
Domestic Manufacturer's deduction (1.8) (1.8) (1.8)
Employee share-based payments (3.2) (2.8) (0.1)
All other - net (0.6) - 0.3
Effective worldwide tax rate 35.5 % 28.3 % 29.1 %
The effective tax rate for 2017 was 35.5 percent, compared to 28.3 percent in 2016, an increase of 7.2 percentage points,
impacted by several factors. Primary factors that increased the Company's effective tax rate included the impacts due to
the Tax Cuts and Jobs Act (TCJA) being enacted in 2017 (see further information below) and remeasurements and establishment
of 3M's uncertain tax positions. Combined, these factors increased the Company's effective tax rate by 12.1 percentage
points. The increase was partially offset by a 4.9 percentage point decrease, which related to international taxes that
were impacted by increasing benefits from the Company's supply chain centers of expertise, changes to the geographic mix of
income before taxes and prior year cash optimization actions, higher year-on-year excess tax benefit for employee
share-based payment, increased benefits from the R&D tax credit, a reduction of state taxes, and other items.
The effective tax rate for 2016 was 28.3 percent, compared to 29.1 percent in 2015, a decrease of 0.8 percentage points,
impacted by several factors. Primary factors that decreased the Company's effective tax rate included the recognition of
excess tax benefits beginning in 2016 related to employee share-based payments (resulting from the adoption of ASU No.
2016-09, as discussed in Note 1) and a reduction in state taxes. Combined, these factors decreased the Company's effective
tax rate by 3.2 percentage points. The decrease was partially offset by a 2.4 percentage point increase, which related to
remeasurements of 3M's uncertain tax positions and international taxes that were impacted by changes to both the geographic
mix of income before taxes and additional tax expense related to global cash optimization actions.
The TCJA was enacted in December 2017. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35
percent to 21 percent beginning in 2018, requires companies to pay a one-time transition tax on previously unremitted
earnings of non-U.S. subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced
earnings. The SEC staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for enactment
effects of the TCJA. SAB 118 provides a measurement period of up to one year from the TCJA's enactment date for companies
to complete their accounting under ASC 740. In accordance with SAB 118, to the extent that a company's accounting for
certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a
provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in
its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in
effect immediately before the enactment of the TCJA.
In connection with 3M's initial analysis of the impact of the enactment of the TCJA, the Company recorded a net tax expense
of $762 million in the fourth quarter of 2017. For various reasons that are discussed more fully below, including the
issuance of additional technical and interpretive guidance, 3M has not completed its accounting for the income tax effects
of certain elements of the TCJA. However, with respect to the following, 3M was able to make reasonable estimates of the
TCJA's effects and, as such, recorded provisional amounts:
Transition tax: The transition tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of
certain of the Company's non-U.S. subsidiaries. To determine the amount of the transition tax, 3M must determine, in
addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S.
income taxes paid on such earnings. Further, the transition tax is based in part on the amount of those earnings held in
cash and other specified assets. 3M was able to make a reasonable estimate of the transition tax and recorded a provisional
obligation and additional income tax expense of $745 million in the fourth quarter of 2017. However, the Company is
continuing to gather additional information and will consider additional technical guidance to more precisely compute and
account for the amount of the transition tax. This amount may change when 3M finalizes the calculation of post-1986 foreign
E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. The
TCJA's transition tax is payable over eight years beginning in 2018. As of December 31, 2017, 3M reflected $122 million and
$623 million in current accrued income taxes and long term income taxes payable, respectively.
Remeasurement of deferred tax assets/liabilities and other impacts: 3M remeasured certain deferred tax assets and
liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent under the
TCJA. 3M is still analyzing certain aspects of the TCJA, considering additional technical guidance, and refining its
calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax
amounts. This includes the potential impacts of the global low-taxed income ("GILTI") provision within the TCJA on deferred
tax assets/liabilities. 3M also is considering other impacts of the 2017 enactment of the TCJA including, but not limited
to effects on the Company's indefinite reinvestment assertion. As discussed further below in this Note 9, 3M previously has
not provided deferred taxes on unremitted earnings attributable to international companies that have been considered to be
reinvested indefinitely. The full effects of underlying tax rates of the TCJA causes some reassessment of previous
indefinite reinvestment assertions with respect to certain jurisdictions. While 3M was able to make a reasonable estimate
of these impacts, it may be affected by other analyses related to the TCJA, including, but not limited to, the calculation
of the transition tax on deferred foreign income. The provisional amount recorded in the fourth quarter of 2017 related to
deferred tax assets/liabilities and other impacts was a net additional income tax expense of $17 million.
3M has not completed its full analysis with respect to the GILTI provision within the TCJA and is not yet able to make
reasonable estimates of its related effects. Therefore, no provisional adjustments relative to GILTI were recorded.
Currently, 3M has not yet elected a policy as to whether it will recognize deferred taxes for basis differences expected to
reverse as GILTI or whether 3M will account for GILTI as period costs if and when incurred. 3M is not aware of other
elements of the TCJA for which the Company was not yet able to make reasonable estimates of the enactment impact and for
which it would continue accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the
TCJA.
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
2014. 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 2015, 2016,
and 2017. It is anticipated that the IRS will complete its examination of the Company for 2015 by the end of the third
quarter of 2018, for 2016 by the end of the first quarter of 2018, and for 2017 by the end of the first quarter of 2019. As
of December 31, 2017, 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 2017 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. Currently, the Company is estimating a decrease in
unrecognized tax benefits during the next 12 months as a result of anticipated resolutions of audit issues.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows:
Federal, State and Foreign Tax
(Millions) 2017 2016 2015
Gross UTB Balance at January 1 $ 319 $ 381 $ 583
Additions based on tax positions related to the current year 119 67 77
Additions for tax positions of prior years 149 43 140
Reductions for tax positions of prior years (38) (66) (399)
Settlements (3) (95) (4)
Reductions due to lapse of applicable statute of limitations (16) (11) (16)
Gross UTB Balance at December 31 $ 530 $ 319 $ 381
Net UTB impacting the effective tax rate at December 31 $ 526 $ 333 $ 369
The total amount of UTB, if recognized, would affect the effective tax rate by $526 million as of December 31, 2017, $333
million as of December 31, 2016, and $369 million as of December 31, 2015. 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 $20 million of expense, $10 million of
expense, and $2 million of expense in 2017, 2016, and 2015, 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, 2017, and December
31, 2016, accrued interest and penalties in the consolidated balance sheet on a gross basis were $68 million and $52
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: Thailand (2018), China (2019), Korea (2019), Switzerland (2023), Singapore (2025), and Brazil
(2073). The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $228 million (37
cents per diluted share) in 2017, $142 million (23 cents per diluted share) in 2016, and $114 million (18 cents per diluted
share) in 2015.
The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have been
considered to be reinvested indefinitely. As noted above, the effects of the TCJA caused some reassessment of previous
indefinite reinvestment assertions with respect to certain jurisdictions. While 3M was able to make a reasonable estimate
of these impacts, it may be affected by other analyses related to the TCJA. The unremitted earnings relate to ongoing
operations and were approximately $15 billion as of December 31, 2017. Because of 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 10. Marketable Securities
The Company invests in asset-backed securities, certificates of deposit/time deposits, commercial paper, 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) 2017 2016
Corporate debt securities $ 14 $ 10
Commercial paper 899 14
Certificates of deposit/time deposits 76 197
U.S. municipal securities 3 3
Asset-backed securities:
Automobile loan related 16 31
Credit card related 68 18
Other - 7
Asset-backed securities total 84 56
Current marketable securities $ 1,076 $ 280
U.S. municipal securities $ 27 $ 17
Non-current marketable securities $ 27 $ 17
Total marketable securities $ 1,103 $ 297
At December 31, 2017 and 2016, gross unrealized, gross realized, and net realized gains and/or losses (pre-tax) were not
material.
The balance at December 31, 2017, 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, 2017
Due in one year or less $ 1,071
Due after one year through five years 18
Due after five years through ten years 14
Total marketable securities $ 1,103
3M has a diversified marketable securities portfolio. Within this portfolio, asset-backed securities primarily include
interests in automobile loans, credit cards and other asset-backed securities. 3M's investment policy allows investments in
asset-backed securities with minimum credit ratings of Aa3 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, 2017, all asset-backed security investments
were in compliance with this policy. Approximately 90 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 11. 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, 2017. 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 / 2017 Principal Amount Floating Rate Date 2017 2016
Medium-term note (repaid in 2017) USD Fixed - % - $ - $ 649
Medium-term note (500 million Euros) Euro Floating - % 2018 600 523
Medium-term note ($450 million) USD Floating 1.50 % 2018 448 448
Medium-term note ($600 million) USD Floating 1.63 % 2019 596 598
Medium-term note ($25 million) USD Fixed 1.74 % 2019 25 25
Medium-term note (650 million Euros) Euro Floating - % 2020 779 680
Medium-term note ($300 million) USD Floating 1.58 % 2020 296 297
Medium-term note ($200 million) USD Floating 1.49 % 2020 198 199
Eurobond (300 million Euros) Euro Floating - % 2021 378 336
Eurobond (300 million Euros) Euro Fixed 1.97 % 2021 358 312
Medium-term note ($600 million) USD Fixed 1.63 % 2021 598 598
Medium-term note (500 million Euros) Euro Fixed 0.45 % 2022 597 520
Medium-term note ($600 million) USD Fixed 2.17 % 2022 595 593
Medium-term note (600 million Euros) Euro Fixed 1.14 % 2023 712 619
Medium-term note ($650 million) USD Fixed 2.26 % 2023 647 -
Medium-term note ($550 million) USD Fixed 3.04 % 2025 546 546
Medium-term note (750 million Euros) Euro Fixed 1.71 % 2026 885 770
Medium-term note ($650 million) USD Fixed 2.25 % 2026 641 640
Medium-term note ($850 million) USD Fixed 2.95 % 2027 839 -
30-year debenture ($220 million) USD Fixed 6.01 % 2028 227 342
Medium-term note (500 million Euros) Euro Fixed 1.90 % 2030 589 512
Medium-term note (500 million Euros) Euro Fixed 1.54 % 2031 595 518
30-year bond ($555 million) USD Fixed 5.73 % 2037 550 743
Floating rate note ($96 million) USD Floating 1.29 % 2041 95 96
Medium-term note ($325 million) USD Fixed 4.05 % 2044 313 313
Floating rate note ($55 million) USD Floating 1.21 % 2044 54 54
Medium-term note ($500 million) USD Fixed 3.13 % 2046 473 473
Medium-term note ($500 million) USD Fixed 3.68 % 2047 491 -
Other borrowings Various 1.26 % 2018-2040 73 74
Total long-term debt $ 13,198 $ 11,478
Less: current portion of long-term debt 1,102 800
Long-term debt (excluding current portion) $ 12,096 $ 10,678
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
2017 2016
Carrying Effective Carrying Effective
(Millions) Value Interest Rate Value Interest Rate
Fixed-rate debt $ 9,681 2.45 % $ 8,372 2.42 %
Floating-rate debt 3,517 0.76 % 3,106 0.48 %
Total long-term debt, including current portion $ 13,198 $ 11,478
Short-Term Borrowings and Current Portion of Long-Term Debt
Effective Carrying Value
(Millions) Interest Rate 2017 2016
Current portion of long-term debt 0.67 % $ 1,102 $ 800
U.S. dollar commercial paper 1.50 % 745 -
Other borrowings 5.35 % 6 172
Total short-term borrowings and current portion of long-term debt $ 1,853 $ 972
Other short-term borrowings primarily consisted of bank borrowings by international subsidiaries. In 2016, these were
primarily related to Japan and Korea.
Future Maturities of Long-term Debt
Maturities of long-term debt in the table below are net of the unaccreted debt issue costs such that total maturities equal
the carrying value of long-term debt as of December 31, 2017. The maturities of long-term debt for the periods subsequent
to December 31, 2017 are as follows (in millions):
After
2018 2019 2020 2021 2022 2022 Total
$ 1,102 $ 692 $ 1,368 $ 1,333 $ 1,191 $ 7,512 $ 13,198
Long-term debt payments due in 2018, 2019, and 2020 include floating rate notes totaling $54 million (classified as current
portion of long-term debt), $71 million (included in other borrowings in the long-term debt table), and $95 million
(included within the long-term debt table), respectively, as a result of put provisions associated with these debt
instruments.
Credit Facilities
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 lender's discretion), bringing the total
facility up to $5.0 billion. This revolving credit facility was undrawn at December 31, 2017. 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,
2017, this ratio was approximately 29 to 1. Debt covenants do not restrict the payment of dividends.
Other Credit Facilities
Apart from the committed revolving facility, an additional $288 million in stand-alone letters of credit and bank
guarantees were also issued and outstanding at December 31, 2017. These instruments 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 October 2017, 3M issued $650 million aggregate principal amount of 5.5-year fixed rate medium-term notes due 2023 with a
coupon rate of 2.25%, $850 million aggregate principal amount of 10-year fixed rate medium-term notes due 2027 with a
coupon rate of 2.875%, and $500 million aggregate principal amount of 30-year fixed rate medium-term notes due 2047 with a
coupon rate of 3.625%.
In May 2016, 3M issued 1 billion Euros aggregate principal amount of medium-term notes. In September 2016, 3M issued $1.75
billion aggregate principal amount of medium-term notes.
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.
Long-Term Debt Maturities and Extinguishments
In June 2017, 3M repaid $650 million aggregate principal amount of fixed rate medium-term notes that matured.
In October 2017, 3M, via cash tender offers, repurchased $305 million aggregate principal amount of its outstanding notes.
This included $110 million of its $330 million principal amount of 6.375% notes due 2028 and $195 million of its $750
million principal amount of 5.70% notes due 2037. The Company recorded an early debt extinguishment charge of approximately
$96 million in the fourth quarter of 2017 within interest expense, the cash outflow for which is recorded within other
financing activities on the statement of cash flows. This charge reflected the differential between the carrying value and
the amount paid to acquire the tendered notes and related expenses.
In September 2016, 3M repaid $1 billion aggregate 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. For the periods
presented, 3M was required to repurchase an immaterial amount of principal on the aforementioned floating rate notes.
NOTE 12. 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 75 defined benefit plans in 27 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 its U.S. employees who reach retirement age while
employed by the Company and were employed by the Company prior to January 1, 2016. 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 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.
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 5% of eligible compensation 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, receive a cash match of 100% for employee 401(k)
contributions of up to 5% of eligible compensation and 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 $159 million, $139
million and $165 million for 2017, 2016 and 2015, respectively. 3M subsidiaries in various international countries also
participate in defined contribution plans. Employer contributions to the international defined contribution plans were $88
million, $87 million and $77 million for 2017, 2016 and 2015, respectively.
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.
3M was informed in 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. In the first quarter of 2014, 3M and certain
3M benefit plans filed a lawsuit that was removed by the insurers to 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. In May
2017, the appellate court affirmed the lower court's decision. The decision reduced U.S. pension and postretirement plan
assets by $73 million at the December 31, 2017 measurement date and did not have a material adverse effect on the
consolidated financial position of the Company.
As part of a diversified investment strategy, the U.S. pension and postretirement benefit plans made investments in the
natural gas fired power generation industry during the period 2011 through 2013. In April 2017, one of these entities,
Panda Temple Power, LLC, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of
Delaware. This investment loss represented less than one percent of the fair value of the U.S. pension and postretirement
plans' assets and was reflected in the fair value measurement as of December 31, 2017.
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 $40 million as of December 31, 2017 and 2016.
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2017 2016 2017 2016 2017 2016
Change in benefit obligation
Benefit obligation at beginning of year $ 16,202 $ 15,856 $ 6,625 $ 6,322 $ 2,259 $ 2,216
Acquisitions/Transfers - - 3 (5) - -
Service cost 268 259 142 133 52 54
Interest cost 565 575 157 171 80 79
Participant contributions - - 8 8 - -
Foreign exchange rate changes - - 667 (472) 3 7
Plan amendments - 5 6
- More to follow, for following part double click ID:nRSM6559EiRecent 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