REG - 3M Company - Annual Financial Report - Updated by Form 8-K <Origin Href="QuoteRef">MMM.N</Origin> - Part 6

3M CoAnnouncement

05/05/2017 07:07

- Part 6: For the preceding part double click  ID:nRSE2625Ee 

liability. See Note 14 for further detail. 3M assessed the materiality of this correction to prior periods' financial
statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. (SAB) 99, Materiality, and
SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements, codified in ASC 250, Presentation of Financial Statements. The Company concluded that the correction was not
material to prior periods and therefore, amendments of previously filed reports are not required. In accordance with ASC
250, 3M corrected prior periods presented herein by revising the consolidated balance sheet amounts, including associated
deferred taxes. Period to period changes in previous estimates of probable loss were similar to those of the revised
amounts. Accordingly, the correction had no impact on consolidated results of operations and cash flows for the periods
presented, as this correction originates in periods prior to those presented in the annual report. The impact of this
revision on the Company's previously reported consolidated balance sheet, consolidated statement of changes in equity, and
related amounts in Notes 5, 8, 14 and 16 is as follows: 
 
                                                                                                                                                                                              
                                          December 31, 2015            December 31, 2014     
 (Millions)                               Previously Reported          Adjustment            As Revised    Previously Reported          Adjustment     As Revised    
 Other assets                             $                    1,053                      $  165           $                    1,218               $  1,769         $  165      $  1,934     
 Total assets                                                  32,718                        165                                32,883                 31,209           165         31,374    
 Other liabilities                                             1,580                         444                                2,024                  1,555            444         1,999     
 Total liabilities                                             20,971                        444                                21,415                 18,067           444         18,511    
 Retained earnings                                             36,575                        (279)                              36,296                 34,317           (279)       34,038    
 Total 3M Company shareholders' equity                         11,708                        (279)                              11,429                 13,109           (279)       12,830    
 Total equity                                                  11,747                        (279)                              11,468                 13,142           (279)       12,863    
 
 
As the correction originates in periods prior to those presented in this annual report, the previously reported amounts of
retained earnings and total equity as of December 31, 2013 of $32,416 million and $17,948 million, respectively, in the
consolidated statement of changes in equity have each been reduced by $279 million. 
 
Foreign currency translation: Local currencies generally are considered the functional currencies outside the United
States. Assets and liabilities for operations in local-currency environments are translated at month-end exchange rates of
the period reported. Income and expense items are translated at month-end exchange rates of each applicable month.
Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in
shareholders' equity. 
 
Although local currencies are typically considered as the functional currencies outside the United States, under ASC 830,
Foreign Currency Matters, the reporting currency of a foreign entity's parent is assumed to be that entity's functional
currency when the economic environment of a foreign entity is highly inflationary-generally when its cumulative inflation
is approximately 100 percent or more for the three years that precede the beginning of a reporting period. 3M has a
subsidiary in Venezuela with operating income representing less than 1.0 percent of 3M's consolidated operating income for
2016. Since January 1, 2010, the financial statements of the Venezuelan subsidiary have been remeasured as if its
functional currency were that of its parent. 
 
The Venezuelan government sets official rates of exchange and conditions precedent to purchase foreign currency at these
rates with local currency. Such rates and conditions have been and continue to be subject to change. In January 2014, the
Venezuelan government announced that the National Center for Foreign Commerce (CENCOEX), had assumed the role with respect
to the continuation of the existing official exchange rate, significantly expanded the use of a second currency auction
exchange mechanism called the Complementary System for Foreign Currency Acquirement (or SICAD1), and issued exchange
regulations indicating the SICAD1 rate of exchange would be used for payments related to international investments. In late
March 2014, the Venezuelan government launched a third foreign exchange mechanism, SICAD2, which it later replaced with
another foreign currency exchange platform in February 2015 called the Marginal System of Foreign Currency (SIMADI). The
SIMADI rate was described as being derived from daily private bidders and buyers exchanging offers through authorized
agents. This rate was approved and published by the Venezuelan Central Bank. In March 2016, the Venezuelan government
effected a replacement of its preferential CENCOEX rate with Tipo de Cambio Protegido (DIPRO), described as available
largely for essential imports; eliminated its SICAD exchange mechanism; and replaced its SIMADI rate with Tipo de Cambio
Complementario (DICOM), published by the Venezuelan Central Bank and described as fluctuating in rate based on supply and
demand. 
 
The financial statements of 3M's Venezuelan subsidiary were remeasured utilizing the official CENCOEX (or its predecessor)
rate into March 2014, the SICAD1 rate beginning in late March 2014, the SICAD2 rate beginning in June 2014, and the DICOM
rate (or its SIMADI predecessor) beginning in February 2015. 3M's uses of these rates were based upon evaluation of a
number of factors including, but not limited to, the exchange rate the Company's Venezuelan subsidiary may legally use to
convert currency, settle transactions or pay dividends; the probability of accessing and obtaining currency by use of a
particular rate or mechanism; and the Company's intent and ability to use a particular exchange mechanism. Other factors
notwithstanding, remeasurement impacts of the changes in use of these exchange rates did not have material impacts on 3M's
consolidated results of operations or financial condition. 
 
The Company continues to monitor circumstances relative to its Venezuelan subsidiary. Changes in applicable exchange rates
or exchange mechanisms may continue in the future. These changes could impact the rate of exchange applicable to remeasure
the Company's net monetary assets (liabilities) denominated in Venezuelan Bolivars (VEF). As of December 31, 2016, the
Company had a balance of net monetary assets denominated in VEF of less than 1.5 billion VEF and the DIPRO and DICOM
exchange rates were approximately 10 VEF and 670 VEF per U.S. dollar, respectively. 
 
A need to deconsolidate the Company's Venezuelan subsidiary's operations may result from a lack of exchangeability of
VEF-denominated cash coupled with an acute degradation in the ability to make key operational decisions due to government
regulations in Venezuela. 3M monitors factors such as its ability to access various exchange mechanisms; the impact of
government regulations on the Company's ability to manage its Venezuelan subsidiary's capital structure, purchasing,
product pricing, and labor relations; and the current political and economic situation within Venezuela. Based upon such
factors as of December 31, 2016, the Company continues to consolidate its Venezuelan subsidiary. As of December 31, 2016,
the balance of intercompany receivables due from this subsidiary and its equity balance were not significant. 
 
Reclassifications: Certain amounts in the prior years' consolidated financial statements have been reclassified to conform
to the current year presentation. 
 
Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates. 
 
Cash and cash equivalents: Cash and cash equivalents consist of cash and temporary investments with maturities of three
months or less when acquired. 
 
Marketable securities: The classification of marketable securities as current or non-current is based on the nature of the
securities and availability for use in current operations. 3M reviews impairments associated with its marketable securities
in accordance with the measurement guidance provided by ASC 320, Investments-Debt and Equity Securities, when determining
the classification of the impairment as "temporary" or "other-than-temporary". A temporary impairment charge results in an
unrealized loss being recorded in the other comprehensive income component of shareholders' equity. Such an unrealized loss
does not reduce net income for the applicable accounting period because the loss is not viewed as other-than-temporary. The
factors evaluated to differentiate between temporary and other-than-temporary include the projected future cash flows,
credit ratings actions, and assessment of the credit quality of the underlying collateral, as well as other factors. 
 
Investments: Investments primarily include equity method, cost method, and available-for-sale equity investments.
Available-for-sale investments are recorded at fair value. Unrealized gains and losses relating to investments classified
as available-for-sale are recorded as a component of accumulated other comprehensive income (loss) in shareholders'
equity. 
 
Other assets: Other assets include deferred income taxes, product and other insurance receivables, the cash surrender value
of life insurance policies, and other long-term assets. Investments in life insurance are reported at the amount that could
be realized under contract at the balance sheet date, with any changes in cash surrender value or contract value during the
period accounted for as an adjustment of premiums paid. Cash outflows and inflows associated with life insurance activity
are included in "Purchases of marketable securities and investments" and "Proceeds from maturities and sale of marketable
securities and investments," respectively. 
 
Inventories: Inventories are stated at the lower of cost or market, with cost generally determined on a first-in, first-out
basis. 
 
Property, plant and equipment: Property, plant and equipment, including capitalized interest and internal engineering
costs, are recorded at cost. Depreciation of property, plant and equipment generally is computed using the straight-line
method based on the estimated useful lives of the assets. The estimated useful lives of buildings and improvements
primarily range from ten to forty years, with the majority in the range of twenty to forty years. The estimated useful
lives of machinery and equipment primarily range from three to fifteen years, with the majority in the range of five to ten
years. Fully depreciated assets are retained in property and accumulated depreciation accounts until disposal. Upon
disposal, assets and related accumulated depreciation are removed from the accounts and the net amount, less proceeds from
disposal, is charged or credited to operations. Property, plant and equipment amounts are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An
impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss recorded
is calculated by the excess of the asset's carrying value over its fair value. Fair value is generally determined using a
discounted cash flow analysis. 
 
Conditional asset retirement obligations: A liability is initially recorded at fair value for an asset retirement
obligation associated with the retirement of tangible long-lived assets in the period in which it is incurred if a
reasonable estimate of fair value can be made. Conditional asset retirement obligations exist for certain long-term assets
of the Company. The obligation is initially measured at fair value using expected present value techniques. Over time the
liabilities are accreted for the change in their present value and the initial capitalized costs are depreciated over the
remaining useful lives of the related assets. The asset retirement obligation liability was $111 million and $102 million
at December 31, 2016 and 2015, respectively. 
 
Goodwill: Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities
assumed in a business combination. Goodwill is not amortized. Goodwill is tested for impairment annually in the fourth
quarter of each year, and is tested for impairment between annual tests if an event occurs or circumstances change that
would indicate the carrying amount may be impaired. Impairment testing for goodwill is done at a reporting unit level, with
all goodwill assigned to a reporting unit. Reporting units are one level below the business segment level, but can be
combined when reporting units within the same segment have similar economic characteristics. 3M did not combine any of its
reporting units for impairment testing. An impairment loss generally would be recognized when the carrying amount of the
reporting unit's net assets exceeds the estimated fair value of the reporting unit. The estimated fair value of a reporting
unit is determined using earnings for the reporting unit multiplied by a price/earnings ratio for comparable industry
groups, or by using a discounted cash flow analysis. Companies have the option to first assess qualitative factors to
determine whether the fair value of a reporting unit is not "more likely than not" less than its carrying amount, which is
commonly referred to as "Step 0". 3M has chosen not to apply Step 0 for 2016 or prior period annual goodwill assessments. 
 
Intangible assets: Intangible asset types include customer related, patents, other technology-based, tradenames and other
intangible assets acquired from an independent party. Intangible assets with a definite life are amortized over a period
ranging from one to twenty years on a systematic and rational basis (generally straight line) that is representative of the
asset's use. The estimated useful lives vary by category, with customer related largely between seven to seventeen years,
patents largely between five to thirteen years, other technology-based largely between two to fifteen years, definite lived
tradenames largely between three and twenty years, and other intangibles largely between two to ten years. Costs related to
internally developed intangible assets, such as patents, are expensed as incurred, primarily in "Research, development and
related expenses." 
 
Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the
carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount
of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of
the impairment loss recorded is calculated by the excess of the asset's carrying value over its fair value. Fair value is
generally determined using a discounted cash flow analysis. 
 
Intangible assets with an indefinite life, namely certain tradenames, are not amortized. Indefinite-lived intangible assets
are tested for impairment annually, and are tested for impairment between annual tests if an event occurs or circumstances
change that would indicate that the carrying amount may be impaired. An impairment loss generally would be recognized when
the fair value is less than the carrying value of the indefinite-lived intangible asset. 
 
Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance
charges, contract termination costs, and impairment or accelerated depreciation/amortization of assets associated with such
actions. Employee-related severance charges are largely based upon distributed employment policies and substantive
severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable,
which typically is when management approves the associated actions. Severance amounts for which affected employees were
required to render service in order to receive benefits at their termination dates were measured at the date such benefits
were communicated to the applicable employees and recognized as expense over the employees' remaining service periods.
Contract termination and other charges primarily reflect costs to terminate a contract before the end of its term (measured
at fair value at the time the Company provided notice to the counterparty) or costs that will continue to be incurred under
the contract for its remaining term without economic benefit to the Company. Asset impairment charges related to intangible
assets and property, plant and equipment reflect the excess of the assets' carrying values over their fair values. 
 
Revenue (sales) recognition: The Company sells a wide range of products to a diversified base of customers around the world
and has no material concentration of credit risk. Revenue is recognized when the risks and rewards of ownership have
substantively transferred to customers. This condition normally is met when the product has been delivered or upon
performance of services. The Company records estimated reductions to revenue or records expense for customer and
distributor incentives, primarily comprised of rebates and free goods, at the time of the initial sale. These sales
incentives are accounted for in accordance with ASC 605, Revenue Recognition. The estimated reductions of revenue for
rebates are based on the sales terms, historical experience, trend analysis and projected market conditions in the various
markets served. Since the Company serves numerous markets, the rebate programs offered vary across businesses, but the most
common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives.
Free goods are accounted for as an expense and recorded in cost of sales. Sales, use, value-added and other excise taxes
are not recognized in revenue. 
 
The vast majority of 3M's sales agreements are for standard products and services with customer acceptance occurring upon
delivery of the product or performance of the service. However, to a limited extent 3M also enters into agreements that
involve multiple elements (such as equipment, installation and service), software, or non-standard terms and conditions. 
 
For non-software multiple-element arrangements, the Company recognizes revenue for delivered elements when they have
stand-alone value to the customer, they have been accepted by the customer, and for which there are only customary refund
or return rights. Arrangement consideration is allocated to the deliverables by use of the relative selling price method.
The selling price used for each deliverable is based on vendor-specific objective evidence (VSOE) if available, third-party
evidence (TPE) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Estimated selling
price is determined in a manner consistent with that used to establish the price to sell the deliverable on a standalone
basis. In addition to the preceding conditions, equipment revenue is not recorded until the installation has been completed
if equipment acceptance is dependent upon installation or if installation is essential to the functionality of the
equipment. Installation revenues are not recorded until installation has been completed. 
 
For arrangements (or portions of arrangements) falling within software revenue recognition standards and that do not
involve significant production, modification, or customization, revenue for each software or software-related element is
recognized when the Company has VSOE of the fair value of all of the undelivered elements and applicable criteria have been
met for the delivered elements. When the arrangements involve significant production, modification or customization,
long-term construction-type accounting involving proportional performance is generally employed. 
 
For prepaid service contracts, sales revenue is recognized on a straight-line basis over the term of the contract, unless
historical evidence indicates the costs are incurred on other than a straight-line basis. License fee revenue is recognized
as earned, and no revenue is recognized until the inception of the license term. 
 
On occasion, agreements will contain milestones, or 3M will recognize revenue based on proportional performance. For these
agreements, and depending on the specifics, 3M may recognize revenue upon completion of a substantive milestone, or in
proportion to costs incurred to date compared with the estimate of total costs to be incurred. 
 
Accounts receivable and allowances: Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
The Company maintains allowances for bad debts, cash discounts, product returns and various other items. The allowance for
doubtful accounts and product returns is based on the best estimate of the amount of probable credit losses in existing
accounts receivable and anticipated sales returns. The Company determines the allowances based on historical write-off
experience by industry and regional economic data and historical sales returns. The Company reviews the allowance for
doubtful accounts monthly. The Company does not have any significant off-balance-sheet credit exposure related to its
customers. 
 
Advertising and merchandising: These costs are charged to operations in the period incurred, and totaled $385 million in
2016, $368 million in 2015 and $407 million in 2014. 
 
Research, development and related expenses: These costs are charged to operations in the period incurred and are shown on a
separate line of the Consolidated Statement of Income. Research, development and related expenses totaled $1.735 billion in
2016, $1.763 billion in 2015 and $1.770 billion in 2014. Research and development expenses, covering basic scientific
research and the application of scientific advances in the development of new and improved products and their uses, totaled
$1.225 billion in 2016, $1.223 billion in 2015 and $1.193 billion in 2014. Related expenses primarily include technical
support; internally developed patent costs, which include costs and fees incurred to prepare, file, secure and maintain
patents; amortization of externally acquired patents and externally acquired in-process research and development; and
gains/losses associated with certain corporate approved investments in R&D-related ventures, such as equity method effects
and impairments. 
 
Internal-use software: The Company capitalizes direct costs of services used in the development of internal-use software.
Amounts capitalized are amortized over a period of three to seven years, generally on a straight-line basis, unless another
systematic and rational basis is more representative of the software's use. Amounts are reported as a component of either
machinery and equipment or capital leases within property, plant and equipment. 
 
Environmental: Environmental expenditures relating to existing conditions caused by past operations that do not contribute
to current or future revenues are expensed. Reserves for liabilities related to anticipated remediation costs are recorded
on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of
feasibility studies, the Company's commitment to a plan of action, or approval by regulatory agencies. Environmental
expenditures for capital projects that contribute to current or future operations generally are capitalized and depreciated
over their estimated useful lives. 
 
Income taxes: The provision for income taxes is determined using the asset and liability approach. Under this approach,
deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts
and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when
uncertainty regarding their realizability exists. As of December 31, 2016 and 2015, the Company had valuation allowances of
$47 million and $31 million on its deferred tax assets, respectively. The increase in valuation allowance at December 31,
2016 relates to certain international jurisdictions with taxable loss carryforwards that are expected to expire prior to
utilization. The Company recognizes and measures its uncertain tax positions based on the rules under ASC 740, Income
Taxes. 
 
Earnings per share: The difference in the weighted average 3M shares outstanding for calculating basic and diluted earnings
per share attributable to 3M common shareholders is the result of the dilution associated with the Company's stock-based
compensation plans. Certain options outstanding under these stock-based compensation plans during the years 2016, 2015 and
2014 were not included in the computation of diluted earnings per share attributable to 3M common shareholders because they
would have had an anti-dilutive effect (3.6 million average options for 2016, 5.0 million average options for 2015, and 1.4
million average options for 2014. The computations for basic and diluted earnings per share for the years ended December 31
follow: 
 
Earnings Per Share Computations 
 
                                                                                                                         
 (Amounts in millions, except per share amounts)                              2016         2015     2014     
 Numerator:                                                                                                              
 Net income attributable to 3M                                                $     5,050        $  4,833    $  4,956    
                                                                                                                         
 Denominator:                                                                                                            
 Denominator for weighted average 3M common shares outstanding - basic              604.7           625.6       649.2    
                                                                                                                         
 Dilution associated with the Company's stock-based compensation plans              14.0            11.6        12.8     
                                                                                                                         
 Denominator for weighted average 3M common shares outstanding - diluted            618.7           637.2       662.0    
                                                                                                                         
 Earnings per share attributable to 3M common shareholders - basic            $     8.35         $  7.72     $  7.63     
 Earnings per share attributable to 3M common shareholders - diluted          $     8.16         $  7.58     $  7.49     
 
 
Stock-based compensation: The Company recognizes compensation expense for its stock-based compensation programs, which
include stock options, restricted stock, restricted stock units, performance shares, and the General Employees' Stock
Purchase Plan (GESPP). Under applicable accounting standards, the fair value of share-based compensation is determined at
the grant date and the recognition of the related expense is recorded over the period in which the share-based compensation
vests. Refer to the New Accounting Pronouncements section that follows for discussion of Accounting Standards Update (ASU)
No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which 3M adopted on January 1, 2016. 
 
Comprehensive income: Total comprehensive income and the components of accumulated other comprehensive income (loss) are
presented in the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Changes in Equity.
Accumulated other comprehensive income (loss) is composed of foreign currency translation effects (including hedges of net
investments in international companies), defined benefit pension and postretirement plan adjustments, unrealized gains and
losses on available-for-sale debt and equity securities, and unrealized gains and losses on cash flow hedging instruments. 
 
Derivatives and hedging activities: All derivative instruments within the scope of ASC 815, Derivatives and Hedging, are
recorded on the balance sheet at fair value. The Company uses interest rate swaps, currency and commodity price swaps, and
foreign currency forward and option contracts to manage risks generally associated with foreign exchange rate, interest
rate and commodity market volatility. All hedging instruments that qualify for hedge accounting are designated and
effective as hedges, in accordance with U.S. generally accepted accounting principles. If the underlying hedged transaction
ceases to exist, all changes in fair value of the related derivatives that have not been settled are recognized in current
earnings. Instruments that do not qualify for hedge accounting are marked to market with changes recognized in current
earnings. Cash flows from derivative instruments are classified in the statement of cash flows in the same category as the
cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The Company does not
hold or issue derivative financial instruments for trading purposes and is not a party to leveraged derivatives. 
 
Credit risk: The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps,
currency swaps, commodity price swaps, and forward and option contracts. However, the Company's risk is limited to the fair
value of the instruments. The Company actively monitors its exposure to credit risk through the use of credit approvals and
credit limits, and by selecting major international banks and financial institutions as counterparties. 3M enters into
master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master
netting arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a
result of multiple, separate derivative transactions. The Company does not anticipate nonperformance by any of these
counterparties. 3M has elected to present the fair value of derivative assets and liabilities within the Company's
consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements
and may otherwise qualify for net presentation. 
 
Fair value measurements: 3M follows ASC 820, Fair Value Measurements and Disclosures, with respect to assets and
liabilities that are measured at fair value on a recurring basis and nonrecurring basis. Under the standard, fair value is
defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market
participants would use in valuing the asset or liability developed based on market data obtained from sources independent
of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the factors market participants
would use in valuing the asset or liability developed based upon the best information available in the circumstances. The
hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices)
that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for
the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. 
 
Acquisitions: The Company accounts for business acquisitions in accordance with ASC 805, Business Combinations. This
standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed in a business combination. Certain provisions of this standard prescribe, among
other things, the determination of acquisition-date fair value of consideration paid in a business combination (including
contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition
accounting. 
 
New Accounting Pronouncements 
 
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers,
and in August 2015 issued ASU No. 2015-14, which amended the standard as to effective date. The ASU provides a single
comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes most
current revenue recognition guidance, including industry-specific guidance. The standard's stated core principle is that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve
this core principle the ASU includes provisions within a five step model that includes identifying the contract with a
customer, identifying the performance obligations in the contract, determining the transaction price, allocating the
transaction price to the performance obligations, and recognizing revenue when (or as) an entity satisfies a performance
obligation. The standard also specifies the accounting for some costs to obtain or fulfill a contract with a customer and
requires expanded disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers. During 2016, the FASB also issued ASU No. 2016-08, Principal versus Agent Considerations
(Reporting Revenue Gross versus Net); ASU No. 2016-10, Identifying Performance Obligations and Licensing; ASU No. 2016-12,
Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20, Technical Corrections and Improvements to Topic
606, Revenue from Contracts with Customers which amend ASU No. 2014-09. These amendments include clarification of principal
versus agent guidance in situations in which a revenue transaction involves a third party in providing goods or services to
a customer. In such circumstances, an entity must determine whether the nature of its promise to the customer is to provide
the underlying goods or services (i.e., the entity is the principal in the transaction) or to arrange for the third party
to provide the underlying goods or services (i.e., the entity is the agent in the transaction). The amendments clarify, in
terms of identifying performance obligations, how entities would determine whether promised goods or services are
separately identifiable from other promises in a contract and, therefore, would be accounted for separately. The guidance
allows entities to disregard goods or services that are immaterial in the context of a contract and provides an accounting
policy election to account for shipping and handling activities as fulfillment costs rather than as additional promised
services. With regard to the licensing, the amendments clarify how an entity would evaluate the nature of its promise in
granting a license of intellectual property, which determines whether the entity recognizes revenue over time or at a point
in time. The amendments also address implementation issues relative to transition (adding a practical expedient for
contract modifications and clarifying what constitutes a completed contract when employing full or modified retrospective
transition methods), collectability, noncash consideration, and the presentation of sales and other similar-type taxes
(allowing entities to exclude sales-type taxes collected from transaction price). Finally, the amendments make certain
technical corrections and provide additional guidance in the areas of disclosure of performance obligations, provisions for
losses on certain types of contracts, scoping, and other areas. Overall, ASU No. 2014-09, as amended, provides for either
full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period
presented. For 3M, the ASU is effective January 1, 2018. The Company is continuing to evaluate the standard's impact on
3M's consolidated results of operations and financial condition. 3M has conducted initial analyses, developed project
management relative to the process of adopting this ASU, and is currently completing detailed contract reviews to determine
necessary adjustments to existing accounting policies and to support an evaluation of the standard's impact on the
Company's consolidated results of operations and financial condition. For the majority of 3M's revenue arrangements, no
significant impacts are expected as these transactions are not accounted for under industry-specific guidance that will be
superseded by the ASU and generally consist of a single performance obligation to transfer promised goods or services.
However, in addition to expanded disclosures regarding revenue, the ASU could, for example, impact the timing of revenue
recognition in some arrangements for which software industry-specific guidance (which the ASU supersedes) is presently
utilized. The Company currently anticipates utilizing the modified retrospective method of adoption on January 1, 2018. 
 
In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, which changes guidance related
to both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models. With respect to the VIE
model, the standard changes, among other things, the identification of variable interests associated with fees paid to a
decision maker or service provider, the VIE characteristics for a limited partner or similar entity, and the primary
beneficiary determination. With respect to the VOE model, the ASU eliminates the presumption that a general partner
controls a limited partnership or similar entity unless the presumption can otherwise be overcome. Under the new guidance,
a general partner would largely not consolidate a partnership or similar entity under the VOE model. The Company adopted
this ASU effective January 1, 2016. Because 3M did not have significant involvement with entities subject to consolidation
considerations impacted by the VIE model changes or with limited partnerships potentially impacted by the VOE model
changes, the adoption did not have a material impact on the Company's consolidated results of operations and financial
condition. 
 
In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Arrangement, which requires
a customer to determine whether a cloud computing arrangement contains a software license. If the arrangement contains a
software license, the customer would account for fees related to the software license element in a manner consistent with
accounting for the acquisition of other acquired software licenses. If the arrangement does not contain a software license,
the customer would account for the arrangement as a service contract. An arrangement would contain a software license
element if both (1) the customer has the contractual right to take possession of the software at any time during the
hosting period without significant penalty and (2) it is feasible for the customer to either run the software on its own
hardware or contract with another party unrelated to the vendor to host the software. 3M adopted this ASU prospectively to
arrangements entered into, or materially modified beginning January 1, 2016. The adoption did not have a material impact on
3M's consolidated results of operations and financial condition. 
 
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which modifies existing
requirements regarding measuring inventory at the lower of cost or market. Under existing standards, the market amount
requires consideration of replacement cost, net realizable value (NRV), and NRV less an approximately normal profit margin.
The new ASU replaces market with NRV, defined as estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine and consider
replacement cost or NRV less an approximately normal profit margin when measuring inventory. For 3M, this standard is
effective prospectively beginning January 1, 2017. The Company does not expect this ASU to have a material impact on 3M's
consolidated results of operations and financial condition. 
 
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial
Liabilities, which revises the accounting related to (1) the classification and measurement of investments in equity
securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU
also amends certain disclosure requirements associated with the fair value of financial instruments. The new guidance
requires the fair value measurement of investments in equity securities and other ownership interests in an entity,
including investments in partnerships, unincorporated joint ventures and limited liability companies (collectively, equity
securities) that do not result in consolidation and are not accounted for under the equity method. Entities will need to
measure these investments and recognize changes in fair value in net income. Entities will no longer be able to recognize
unrealized holding gains and losses on equity securities they classify under current guidance as available for sale in
other comprehensive income (OCI). They also will no longer be able to use the cost method of accounting for equity
securities that do not have readily determinable fair values. Instead, for these types of equity investments that do not
otherwise qualify for the net asset value practical expedient, entities will be permitted to elect a practicability
exception and measure the investment at cost less impairment plus or minus observable price changes (in orderly
transactions). The ASU also establishes an incremental recognition and disclosure requirement related to the presentation
of fair value changes of financial liabilities for which the fair value option (FVO) has been elected. Under this guidance,
an entity would be required to separately present in OCI the portion of the total fair value change attributable to
instrument-specific credit risk as opposed to reflecting the entire amount in earnings. For derivative liabilities for
which the FVO has been elected, however, any changes in fair value attributable to instrument-specific credit risk would
continue to be presented in net income, which is consistent with current guidance. For 3M, this standard is effective
beginning January 1, 2018 via a cumulative-effect adjustment to beginning retained earnings, except for guidance relative
to equity securities without readily determinable fair values which is applied prospectively. The Company is currently
assessing this ASU's impact on 3M's consolidated results of operations and financial condition. 
 
In February 2016, the FASB issued ASU No. 2016-02, Leases, replacing existing lease accounting guidance. The new standard
introduces a lessee model that would require entities to recognize assets and liabilities for most leases, but recognize
expenses on their income statements in a manner similar to current accounting. The ASU does not make fundamental changes to
existing lessor accounting. However, it modifies what qualifies as a sales-type and direct financing lease and related
accounting and aligns a number of the underlying principles with those of the new revenue standard, ASU No. 2014-09, such
as evaluating how collectability should be considered and determining when profit can be recognized. The guidance
eliminates existing real estate-specific provisions and requires expanded qualitative and quantitative disclosures. The
standard requires modified retrospective transition by which it is applied at the beginning of the earliest comparative
period presented in the year of adoption. For 3M, the ASU is effective January 1, 2019. Information under existing lease
guidance with respect to rent expense for operating leases and the Company's minimum lease payments for capital and
operating leases with non-cancelable terms in excess one year as of December 31, 2016 is included in Note 14. The Company
is currently assessing this ASU's impact on 3M's consolidated results of operations and financial condition. 
 
In March 2016, the FASB issued ASU No. 2016-06, Contingent Put and Call Options in Debt Instruments. This ASU clarifies
guidance used to determine if debt instruments that contain contingent put or call options would require separation of the
embedded put or call feature from the debt instrument and trigger accounting for the feature as a derivative with changes
in fair value recorded through income. Under the new guidance, fewer put or call options embedded in debt instruments would
require derivative accounting. For 3M, this ASU is effective January 1, 2017. The Company's outstanding debt with embedded
put provisions does not require separate derivative accounting under existing guidance. As a result, 3M does not expect
this ASU to have a material impact on the Company's consolidated results of operations and financial condition. 
 
In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which
eliminates the existing requirement to apply the equity method of accounting retrospectively (revising prior periods as if
the equity method had always been applied) when an entity obtains significant influence over a previously held investment.
The new guidance would require the investor to apply the equity method prospectively from the date the investment qualifies
for the equity method. The investor would add the carrying value of the existing investment to the cost of any additional
investment to determine the initial cost basis of the equity method investment. For 3M, this ASU is effective January 1,
2017 on a prospective basis, with early adoption permitted. 3M would apply this guidance to investments that transition to
the equity method after the adoption date. 
 
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which modifies
certain accounting aspects for share-based payments to employees including, among other elements, the accounting for income
taxes and forfeitures, as well as classifications in the statement of cash flows. With respect to income taxes, under
current guidance, when a share-based payment award such as a stock option or restricted stock unit (RSU) is granted to an
employee, the fair value of the award is generally recognized over the vesting period. However, the related deduction from
taxes payable is based on the award's intrinsic value at the time of exercise (for an option) or on the fair value upon
vesting of the award (for RSUs), which can be either greater (creating an excess tax benefit) or less (creating a tax
deficiency) than the compensation cost recognized in the financial statements. Excess tax benefits are recognized in
additional paid-in capital (APIC) within equity, and tax deficiencies are similarly recognized in APIC to the extent there
is a sufficient APIC amount (APIC pool) related to previously recognized excess tax benefits. Under the new guidance, all
excess tax benefits/deficiencies would be recognized as income tax benefit/expense in the statement of income. The new
ASU's income tax aspects also impact the calculation of diluted earnings per share by excluding excess tax
benefits/deficiencies from the calculation of assumed proceeds available to repurchase shares under the treasury stock
method. Relative to forfeitures, the new standard allows an entity-wide accounting policy election either to continue to
estimate the number of awards that will be forfeited or to account for forfeitures as they occur. The new guidance also
impacts classifications within the statement of cash flows by no longer requiring inclusion of excess tax benefits as both
a hypothetical cash outflow within cash flows from operating activities and hypothetical cash inflow within cash flows from
financing activities. Instead, excess tax benefits would be classified in operating activities in the same manner as other
cash flows related to income taxes. Additionally, the new ASU requires cash payments to tax authorities when an employer
uses a net-settlement feature to withhold shares to meet statutory tax withholding provisions to be presented as financing
activity (eliminating previous diversity in practice). For 3M, this standard is required effective January 1, 2017, with
early adoption permitted. The Company early adopted ASU No. 2016-09 as of January 1, 2016. Prospectively beginning January
1, 2016, excess tax benefits/deficiencies have been reflected as income tax benefit/expense in the statement of income
resulting in a $184 million tax benefit in 2016. The extent of excess tax benefits/deficiencies is subject to variation in
3M stock price and timing/extent of RSU vestings and employee stock option exercises. 3M's adoption of this ASU also
resulted in associated excess tax benefits being classified as operating activity in the same manner as other cash flows
related to income taxes in the statement of cash flows prospectively beginning January 1, 2016. Based on the adoption
methodology applied, the statement of cash flows classification of prior periods has not changed. In addition, 3M did not
change its accounting principles relative to elements of this standard and continued its existing practice of estimating
the number of awards that will be forfeited. 
 
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises
guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an
approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the
impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the
current expected credit losses model) applies to most financial assets measured at amortized cost and certain other
instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and
off-balance-sheet credit exposures. With respect to available-for-sale (AFS) debt securities, the ASU amends the current
other-than-temporary impairment model. For such securities with unrealized losses, entities will still consider if a
portion of any impairment is related only to credit losses and therefore recognized as a reduction in income. However,
rather than also reflecting that credit loss amount as a permanent reduction in cost (amortized cost) basis of that AFS
debt security, the ASU requires that credit losses be reflected as an allowance. As a result, under certain circumstances,
a recovery in value could result in previous allowances, or portions thereof, reversing back into income. For 3M, this ASU
is effective January 1, 2020, with early adoption permitted. Entities are required to apply the standard's provisions as a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance
is adopted. The Company is currently assessing this ASU's impact on 3M's consolidated result of operations and financial
condition. 
 
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is
intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the
statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of
zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of
insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying
cash receipts and payments that have aspects of more than one class of cash flows. For 3M, this ASU is effective January 1,
2018, with early adoption permitted. The Company early adopted ASU No. 2016-15 as of January 1, 2017. Since the associated
changes in classification were immaterial to all periods presented, no impact was reflected in the Company's consolidated
results of operations and financial condition presented. 
 
In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which modifies
existing guidance and is intended to reduce diversity in practice with respect to the accounting for the income tax
consequences of intra-entity transfers of assets. The ASU indicates that the current exception to income tax accounting
that requires companies to defer the income tax effects of certain intercompany transactions would apply only to
intercompany inventory transactions. That is, the exception would no longer apply to intercompany sales and transfers of
other assets (e.g., intangible assets). Under the existing exception, income tax expense associated with intra-entity
profits in an intercompany sale or transfer of assets is eliminated from earnings. Instead, that cost is deferred and
recorded on the balance sheet (e.g., as a prepaid asset) until the assets leave the consolidated group. Similarly, the
entity is prohibited from recognizing deferred tax assets for the increases in tax bases due to the intercompany sale or
transfer. For 3M, this ASU is effective January 1, 2018, with early adoption permitted as of January 1, 2017. The standard
requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period
of adoption. Upon adoption, a company would write off any income tax effects that had been deferred from past intercompany
transactions involving non-inventory assets to opening retained earnings. In addition, an entity would record deferred tax
assets with an offset to opening retained earnings for amounts that entity had previously not recognized under existing
guidance but would recognize under the new guidance. While 3M could initiate additional relevant transactions prior to this
ASU's adoption date, based on deferred tax amounts related to applicable past intercompany transactions as of December 31,
2016, the Company does not expect this ASU to have a material impact on 3M's consolidated results of operations and
financial condition. 
 
In October 2016, the FASB issued ASU No. 2016-17, Interests Held through Related Parties That Are under Common Control,
which modifies existing guidance with respect to how a decision maker that holds an indirect interest in a variable
interest entity (VIE) through a common control party determines whether it is the primary beneficiary of the VIE as part of
the analysis of whether the VIE would need to be consolidated. Under the ASU, a decision maker would need to consider only
its proportionate indirect interest in the VIE held through a common control party. Previous guidance had required the
decision maker to treat the common control party's interest in the VIE as if the decision maker held the interest itself.
As a result of the ASU, in certain cases, previous consolidation conclusions may change. For 3M, the standard is effective
January 1, 2017 with retrospective application to January 1, 2016. 3M does not have significant involvement with entities
subject to consolidation considerations impacted by VIE model factors. As a result, 3M does not expect this ASU to have a
material impact on the Company's consolidated results of operations and financial condition. 
 
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies guidance on the classification and
presentation of restricted cash in the statement of cash flows. Under the ASU, changes in restricted cash and restricted
cash equivalents would be included along with those of cash and cash equivalents in the statement of cash flows. As a
result, entities would no longer present transfers between cash/equivalents and restricted cash/equivalents in the
statement of cash flows. In addition, a reconciliation between the balance sheet and the statement of cash flows would be
disclosed when the balance sheet includes more than one line item for cash/equivalents and restricted cash/equivalents. For
3M, this ASU is effective January 1, 2018, with early adoption permitted. For 3M, this ASU is effective January 1, 2018,
with early adoption permitted. The Company early adopted ASU No. 2016-18 as of January 1, 2017. Due to the immaterial use
of restricted cash and restricted cash equivalents, no impact was reflected in the Company's consolidated results of
operations and financial condition presented. 
 
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing
definition of a business and provides a framework for evaluating whether a 

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