REG - 3M Company - Annual Financial Report - Updated by Form 8-K <Origin Href="QuoteRef">MMM.N</Origin> - Part 7
05/05/2017 07:07
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transaction should be accounted for as an
acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair
value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable
assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a
business, the set would need to include an input and a substantive process that together significantly contribute to the
ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas
of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be
considered businesses. For 3M, this ASU is effective January 1, 2018 on a prospective basis with early adoption permitted.
3M would apply this guidance to applicable transactions after the adoption date.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard,
goodwill impairment would be measured as the amount by which a reporting unit's carrying value exceeds its fair value, not
to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine
goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a
reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination.
For 3M, this ASU is effective prospectively to impairment tests beginning January 1, 2020, with early adoption permitted.
3M would apply this guidance to applicable impairment tests after the adoption date.
NOTE 2. Acquisitions and Divestitures
Acquisitions:
3M makes acquisitions of certain businesses from time to time that are aligned with its strategic intent with respect to,
among other factors, growth markets and adjacent product lines or technologies.
Goodwill resulting from business combinations is largely attributable to the existing workforce of the acquired businesses
and synergies expected to arise after 3M's acquisition of these businesses. Pro forma information related to acquisitions
was not included because the impact on the Company's consolidated results of operations was not considered to be material.
In addition to business combinations, 3M periodically acquires certain tangible and/or intangible assets and purchases
interests in certain enterprises that do not otherwise qualify for accounting as business combinations. These transactions
are largely reflected as additional asset purchase and investment activity.
2016 acquisitions:
During 2016, 3M completed the acquisition of Semfinder AG and Sembrowser AG (collectively "Semfinder") along with an
additional immaterial acquisition, the impacts of which on the consolidated balance sheet were not considered material. In
September 2016, 3M (Health Care Business) acquired all of the outstanding shares of Semfinder, headquartered in
Kreuzlingen, Switzerland. Semfinder is a leading developer of precision software that enables efficient coding of medical
procedures in multiple languages. The purchase price paid for these business combinations (net of cash acquired) during
2016 aggregated to $16 million.
Adjustments in 2016 to the preliminary purchase price allocations of other acquisitions within the allocation period
primarily related to the identification of contingent liabilities and certain tax-related items aggregating to
approximately $35 million along with other balances related to the 2015 acquisition of Capital Safety Group S.A.R.L. The
change to provisional amounts resulted in an immaterial impact to the results of operations in the third quarter of 2016, a
portion of which related to earlier quarters in the measurement period.
Purchased identifiable finite-lived intangible assets related to acquisition activity in 2016 totaled $4 million. The
associated finite-lived intangible assets acquired in 2016 will be amortized on a systematic and rational basis (generally
straight line) over a weighted-average life of 8 years (lives ranging from two to 20 years). Acquired in-process research
and development and identifiable intangible assets for which significant assumed renewals or extensions of underlying
arrangements impacted the determination of their useful lives were not material.
2015 acquisitions:
In March 2015, 3M (Health Care Business) purchased all of the outstanding shares of Ivera Medical Corp., headquartered in
San Diego, California. Ivera Medical Corp. is a manufacturer of health care products that disinfect and protect devices
used for access into a patient's bloodstream. In addition, in the first quarter of 2015, 3M (Industrial Business) purchased
the remaining interest in a former equity method investment for an immaterial amount.
In August 2015, 3M (Safety and Graphics Business) acquired all of the outstanding shares of Capital Safety Group S.A.R.L.,
with operating headquarters in Bloomington, Minnesota, from KKR & Co. L.P. for $1.7 billion, net of cash acquired. The net
assets acquired included the assumption of $0.8 billion of debt. Capital Safety is a leading global provider of fall
protection equipment.
In August 2015, 3M (Industrial Business) acquired the assets and liabilities associated with Polypore International, Inc.'s
Separations Media business (hereafter referred to as Membrana), headquartered in Wuppertal, Germany, for $1.0 billion.
Membrana is a leading provider of microporous membranes and modules for filtration in the life sciences, industrial and
specialty segments.
The impact on the consolidated balance sheet of the purchase price allocations related to 2015 acquisitions and assigned
weighted-average intangible asset lives, including adjustments relative to other acquisitions within the measurement
period, follows. Adjustments in 2015 to the preliminary allocations primarily related to the identification and valuation
of certain indefinite-lived intangible assets. The change to provisional amounts resulted in an immaterial impact to
results of operations in the fourth quarter of 2015, a portion of which relates to earlier quarters in the measurement
period.
2015 Acquisition Activity
Finite-Lived
Intangible-Asset
(Millions) Capital Polypore Separations Weighted-Average
Asset (Liability) Safety Media (Membrana) Other Total Lives (Years)
Accounts receivable $ 66 $ 30 $ 7 $ 103
Inventory 63 35 4 102
Other current assets 10 1 1 12
Property, plant, and equipment 36 128 7 171
Purchased finite-lived intangible assets:
Customer related intangible assets 445 270 40 755 16
Patents 44 11 7 62 7
Other technology-based intangible assets 85 42 1 128 7
Definite-lived tradenames 26 6 1 33 16
Other amortizable intangible assets - - 2 2 4
Purchased indefinite-lived intangible assets 520 - - 520
Purchased goodwill 1,764 636 95 2,495
Accounts payable and other liabilities, net of other assets (105) (122) (5) (232)
Interest bearing debt (766) - - (766)
Deferred tax asset/(liability) (464) - (7) (471)
Net assets acquired $ 1,724 $ 1,037 $ 153 $ 2,914
Supplemental information:
Cash paid $ 1,758 $ 1,037 $ 154 $ 2,949
Less: Cash acquired 34 - 1 35
Cash paid, net of cash acquired $ 1,724 $ 1,037 $ 153 $ 2,914
Purchased identifiable finite-lived intangible assets related to acquisition activity in 2015 totaled $1.0 billion. The
associated finite-lived intangible assets acquired in 2015 will be amortized on a systematic and rational basis (generally
straight line) over a weighted-average life of 14 years (lives ranging from two to 20 years). Indefinite-lived intangible
assets of $520 million relate to certain tradenames associated with the Capital Safety acquisition which have been in
existence for over 55 years, have a history of leading market-share positions, have been and are intended to be
continuously renewed, and the associated products of which are expected to generate cash flows for 3M for an indefinite
period of time. Acquired in-process research and development and identifiable intangible assets for which significant
assumed renewals or extensions of underlying arrangements impacted the determination of their useful lives were not
material.
2014 acquisitions:
3M completed one business combination during 2014, the impact of which on the consolidated balance sheet was not considered
material. In April 2014, 3M (Health Care Business) purchased all of the outstanding equity interests of Treo Solutions LLC,
headquartered in Troy, New York. Treo Solutions LLC is a provider of data analytics and business intelligence to healthcare
payers and providers. The purchase price paid for this business combination (net of cash acquired) and the impact of other
matters (net) during 2014 aggregated to $94 million.
Separately, as discussed in Note 6, during 2014, 3M (via Sumitomo 3M Limited) purchased Sumitomo Electric Industries,
Ltd.'s 25 percent interest in 3M's consolidated Sumitomo 3M Limited subsidiary for 90 billion Japanese Yen. Because 3M
already had a controlling interest in this consolidated subsidiary, this transaction was separately recorded as a financing
activity in the statement of cash flows.
Purchased identifiable finite-lived intangible assets related to acquisition activity in 2014 totaled $34 million. The
associated finite-lived intangible assets acquired in 2014 will be amortized on a systematic and rational basis (generally
straight line) over a weighted-average life of six years (lives ranging from three to 10 years). Acquired in-process
research and development and identifiable intangible assets for which significant assumed renewals or extensions of
underlying arrangements impacted the determination of their useful lives were not material.
Divestitures:
3M may divest certain businesses from time to time based upon review of the Company's portfolio considering, among other
items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in
addition to considering if selling the businesses results in the greatest value creation for the Company and for
shareholders.
In January 2015, 3M (Electronics and Energy Business) completed the sale of its global Static Control business to Desco
Industries Inc., based in Chino, California. 2014 sales of this business were $46 million. This transaction was not
considered material.
In the fourth quarter of 2015, 3M (Safety and Graphics Business) entered into agreements with One Equity Partners Capital
Advisors L.P. (OEP) to sell the assets of 3M's library systems business. The sales of the North American business and the
majority of the business outside of North America closed in October and November 2015, respectively. The sale of the
remainder of the library systems business closed in the first quarter of 2016 (discussed further below). In December 2015,
3M (Safety and Graphics Business) also completed the sale of Faab Fabricauto, a wholly-owned subsidiary of 3M, to Hills
Numberplates Limited. The library systems business, part of the Traffic Safety and Security Division, delivers circulation
management solutions to library customers with on-premise hardware and software, maintenance and service, and an emerging
cloud-based digital lending platform. Faab Fabricauto, also part of the Traffic Safety and Security Division, is a leading
French manufacturer of license plates and signage solutions. The aggregate cash proceeds relative to the 2015 global
library systems and Faab Fabricauto divestiture transactions was $104 million. The Company recorded a net pre-tax gain of
$40 million (approximately $10 million after tax) in 2015 as a result of the sale and any adjustment of carrying value.
In the first quarter of 2016, 3M (Safety and Graphics Business) completed the sale of the remainder of the assets of 3M's
library systems business to One Equity Partners Capital Advisors L.P. (OEP). 3M had previously sold the North American
business and the majority of the business outside of North America to OEP in the fourth quarter of 2015. The library
systems business delivers circulation management solutions to library customers with on-premise hardware and software,
maintenance and service, and an emerging cloud-based digital lending platform. Also in the first quarter of 2016, 3M
(Industrial Business) sold to Innovative Chemical Products Group, a portfolio company of Audax Private Equity, the assets
of 3M's pressurized polyurethane foam adhesives business (formerly known as Polyfoam). This business is a provider of
pressurized polyurethane foam adhesive formulations and systems into the residential roofing, commercial roofing and
insulation and industrial foam segments in the United States with annual sales of approximately $20 million. The Company
recorded a pre-tax gain of $40 million in the first quarter of 2016 as a result of the sales of these businesses (recorded
in selling, general and administrative expenses).
In October 2016, 3M (Industrial Business) sold the assets of its temporary protective films business to Pregis LLC. This
business, with annual sales of approximately $50 million, is a provider of adhesive-backed temporary protective films used
in a broad range of industries. In December 2016, 3M (Electronics and Energy Business) sold the assets of its cathode
battery technology out-licensing business, with annual sales of approximately $10 million, to UMICORE. The aggregate
selling price relative to these two businesses was $86 million. The Company recorded a pre-tax gain of $71 million in the
fourth quarter of 2016 as a result of the sales of these businesses (recorded in selling, general and administrative
expenses).
In December 2016, 3M (Safety and Graphics Business) announced that it agreed to sell its identity management business to
Gemalto N.V. for $850 million, subject to closing and other adjustments. This business, with 2016 sales of approximately
$205 million, is a leader in identity management solutions providing biometric hardware and software that enable identity
verification and authentication, as well as secure materials and document readers. The transaction is expected to close
during the first half of 2017. In January 2017, 3M (Safety and Graphics Business) sold the assets of its safety
prescription eyewear business, with annual sales of approximately $45 million, to HOYA Vision Care. The Company expects a
pre-tax gain of approximately $500 million as a result of these two divestitures. The amounts of major assets and
liabilities associated with these disposal groups classified as held-for-sale as of December 31, 2016 include accounts
receivable; property, plant and equipment (net); intangible assets; and deferred revenue (other current liabilities) of
approximately $25 million, $25 million, $35 million, and $35 million, respectively. In addition, approximately $270 million
of goodwill is estimated to be attributable to these businesses as of December 31, 2016 based upon relative fair value.
These amounts have not been segregated and are classified within the existing corresponding line items on the Company's
consolidated balance sheet. The aggregate operating income of these two businesses was less than $20 million in each of
2016, 2015 and 2014.
NOTE 3. Goodwill and Intangible Assets
Purchased goodwill from acquisitions totaled $14 million in 2016, none of which is deductible for tax purposes. The
acquisition activity in the following table also includes the net impact of adjustments to the preliminary allocation of
purchase price within the one year measurement-period following prior acquisitions, which increased goodwill by $39 million
during 2016. Purchased goodwill from acquisitions totaled $2.5 billion in 2015, $636 million of which is deductible for tax
purposes. The amounts in the "Translation and other" column in the following table primarily relate to changes in foreign
currency exchange rates. The goodwill balance by business segment follows:
Goodwill
Dec. 31, 2015 2015 Dec. 31, 2016 2016 Dec. 31,
2014 acquisition translation 2015 acquisition translation 2016
(Millions) Balance activity and other Balance activity and other Balance
Industrial $ 2,042 $ 637 $ (106) $ 2,573 $ - $ (37) $ 2,536
Safety and Graphics 1,650 1,764 (72) 3,342 41 (59) 3,324
Health Care 1,589 94 (59) 1,624 12 (27) 1,609
Electronics and Energy 1,554 - (44) 1,510 - (21) 1,489
Consumer 215 - (15) 200 - 8 208
Total Company $ 7,050 $ 2,495 $ (296) $ 9,249 $ 53 $ (136) $ 9,166
Accounting standards require that goodwill be tested for impairment annually and between annual tests in certain
circumstances such as a change in reporting units or the testing of recoverability of a significant asset group within a
reporting unit. At 3M, reporting units correspond to a division.
As described in Note 16, effective in the first quarter of 2017, within the Industrial business segment, the Company formed
the Automotive and Aerospace Solutions Division, which combined the former Automotive and Aerospace and Commercial
Transportation divisions. In addition, as described in Note 16 and effective in the first quarter of 2017, 3M's former
Renewable Energy Division (RED) was integrated into existing divisions within the Electronics and Energy business segment
and Safety and Graphics business segment. For any product moves that resulted in reporting unit changes, the Company
applied the relative fair value method to determine the impact on goodwill of the associated reporting units. During the
first quarter of 2017, the Company completed its assessment of any potential goodwill impairment for reporting units
impacted by this new structure and determined that no impairment existed. The Company also completed its annual goodwill
impairment test in the fourth quarter of 2016 for all reporting units and determined that no impairment existed. In
addition, the Company had no impairments of goodwill in prior years.
Acquired Intangible Assets
The carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of
non-amortizable intangible assets, as of December 31, follow:
(Millions) 2016 2015
Customer related intangible assets $ 1,939 $ 1,973
Patents 602 616
Other technology-based intangible assets 524 525
Definite-lived tradenames 420 421
Other amortizable intangible assets 211 216
Total gross carrying amount $ 3,696 $ 3,751
Accumulated amortization - customer related (797) (668)
Accumulated amortization - patents (497) (481)
Accumulated amortization - other technology based (302) (252)
Accumulated amortization - definite-lived tradenames (236) (215)
Accumulated amortization - other (173) (169)
Total accumulated amortization $ (2,005) $ (1,785)
Total finite-lived intangible assets - net $ 1,691 $ 1,966
Non-amortizable intangible assets (primarily tradenames) 629 635
Total intangible assets - net $ 2,320 $ 2,601
Certain tradenames acquired by 3M are not amortized because they have been in existence for over 55 years, have a history
of leading-market share positions, have been and are intended to be continuously renewed, and the associated products of
which are expected to generate cash flows for 3M for an indefinite period of time.
Amortization expense for the years ended December 31 follows:
(Millions) 2016 2015 2014
Amortization expense $ 262 $ 229 $ 228
Expected amortization expense for acquired amortizable intangible assets recorded as of December 31, 2016 follows:
After
(Millions) 2017 2018 2019 2020 2021 2021
Amortization expense $ 223 $ 202 $ 190 $ 180 $ 164 $ 732
The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from
estimated amounts due to additional intangible asset acquisitions, changes in foreign currency exchange rates, impairment
of intangible assets, accelerated amortization of intangible assets and other events. 3M expenses the costs incurred to
renew or extend the term of intangible assets.
NOTE 4. Restructuring Actions
2015 Restructuring Actions:
During the fourth quarter of 2015, management approved and committed to undertake certain restructuring actions primarily
focused on structural overhead, largely in the U.S. and slower-growing markets, with particular emphasis on Europe, Middle
East, and Africa (EMEA) and Latin America. This impacted approximately 1,700 positions worldwide and resulted in a
fourth-quarter 2015 pre-tax charge of $114 million.
Components of these restructuring charges are summarized by business segment as follows:
Year ended December 31, 2015
(Millions) Employee-Related Asset-Related Total
Industrial $ 30 $ 12 $ 42
Safety and Graphics 11 - 11
Health Care 9 - 9
Electronics and Energy 8 4 12
Consumer 3 - 3
Corporate and Unallocated 37 - 37
Total Expense $ 98 $ 16 $ 114
The preceding restructuring charges were recorded in the income statement as follows:
(Millions) 2015
Cost of sales 40
Selling, general and administrative expenses 62
Research, development and related expenses 12
Total $ 114
Components of these restructuring actions, including cash and non-cash impacts, follow:
(Millions) Employee-Related Asset-Related Total
Expense incurred $ 98 $ 16 $ 114
Non-cash changes (8) (16) (24)
Cash payments (27) - (27)
Accrued restructuring action balances as of December 31, 2015 $ 63 $ - $ 63
Cash payments (57) - (57)
Accrued restructuring action balances as of December 31, 2016 $ 6 $ - $ 6
Non-cash changes include certain pension settlements and special termination benefits recorded in accrued defined benefit
pension and postretirement benefits and accelerated deprecation resulting from the cessation of use of certain long-lived
assets.
NOTE 5. Supplemental Balance Sheet Information
Accounts payable (included as a separate line item in the Consolidated Balance Sheet) includes drafts payable on demand of
$88 million at December 31, 2016, and $79 million at December 31, 2015. Accumulated depreciation for capital leases totaled
$89 million and $98 million as of December 31, 2016, and 2015, respectively. Additional supplemental balance sheet
information is provided in the table that follows.
(Millions) 2016 2015
Other current assets
Prepaid expenses and other $ 1,014 $ 1,081
Derivative assets-current 148 211
Insurance related (receivables, prepaid expenses and other) 109 106
Total other current assets $ 1,271 $ 1,398
Investments
Equity method $ 60 $ 56
Cost method 67 59
Other investments 1 2
Total investments $ 128 $ 117
Property, plant and equipment - at cost
Land $ 341 $ 354
Buildings and leasehold improvements 7,252 7,120
Machinery and equipment 14,935 14,743
Construction in progress 809 723
Capital leases 162 158
Gross property, plant and equipment 23,499 23,098
Accumulated depreciation (14,983) (14,583)
Property, plant and equipment - net $ 8,516 $ 8,515
Other assets
Deferred income taxes $ 422 $ 675
Insurance related receivables and other 68 49
Cash surrender value of life insurance policies 236 241
Other 255 253
Total other assets $ 981 $ 1,218
Other current liabilities
Accrued trade payables $ 578 $ 566
Deferred income 551 518
Derivative liabilities 92 65
Employee benefits and withholdings 155 148
Contingent liability claims and other 201 147
Property and other taxes 90 89
Pension and postretirement benefits 66 60
Other 739 811
Total other current liabilities $ 2,472 $ 2,404
Other liabilities
Long term income taxes payable $ 244 $ 154
Employee benefits 256 254
Contingent liability claims and other 719 739
Capital lease obligations 45 46
Deferred income 15 19
Deferred income taxes 145 551
Other 224 261
Total other liabilities $ 1,648 $ 2,024
NOTE 6. Supplemental Equity and Comprehensive Income Information
Common stock ($.01 par value per share) of 3.0 billion shares is authorized, with 944,033,056 shares issued. Treasury stock
is reported at cost, with 347,306,778 shares at December 31, 2016, 334,702,932 shares at December 31, 2015, and 308,898,462
shares at December 31, 2014. Preferred stock, without par value, of 10 million shares is authorized but unissued.
Cash dividends declared and paid totaled $1.11 per share for each quarter in 2016, which resulted in total year declared
dividends of $4.44 per share. In 2015, 3M's Board of Directors declared a second, third, and fourth quarter dividend of
$1.025 per share, which resulted in total year 2015 declared dividends of $3.075 per share. In December 2014, 3M's Board of
Directors declared a first quarter 2015 dividend of $1.025 per share (paid in March 2015), which when added to second,
third and fourth quarter 2014 declared dividends of $0.855 per share, resulted in total year 2014 declared dividends of
$3.59 per share. In December 2013, 3M's Board of Directors declared a first quarter 2014 dividend of $0.855 per share (paid
in March 2014).
Changes in Accumulated Other Comprehensive Income (Loss) Attributable to 3M by Component
Defined Benefit Debt and Cash Flow Accumulated
Pension and Equity Hedging Other
Cumulative Postretirement Securities, Instruments, Comprehensive
Translation Plans Unrealized Unrealized Income
(Millions) Adjustment Adjustment Gain (Loss) Gain (Loss) (Loss)
Balance at December 31, 2013, net of tax: $ (188) $ (3,715) $ (2) $ (8) $ (3,913)
Other comprehensive income (loss), before tax:
Amounts before reclassifications (856) (2,638) 2 171 (3,321)
Amounts reclassified out - 360 1 (4) 357
Total other comprehensive income (loss), before tax (856) (2,278) 3 167 (2,964)
Tax effect (92) 716 (1) (60) 563
Total other comprehensive income (loss), net of tax (948) (1,562) 2 107 (2,401)
Impact from purchase of subsidiary shares 41 (16) - - 25
Balance at December 31, 2014, net of tax: $ (1,095) $ (5,293) $ - $ 99 $ (6,289)
Other comprehensive income (loss), before tax:
Amounts before reclassifications (447) 367 - 212 132
Amounts reclassified out - 537 - (174) 363
Total other comprehensive income (loss), before tax (447) 904 - 38 495
Tax effect (137) (415) - (13) (565)
Total other comprehensive income (loss), net of tax (584) 489 - 25 (70)
Balance at December 31, 2015, net of tax $ (1,679) $ (4,804) $ - $ 124 $ (6,359)
Other comprehensive income (loss), before tax:
Amounts before reclassifications (244) (1,122) - 57 (1,309)
Amounts reclassified out - 421 - (109) 312
Total other comprehensive income (loss), before tax (244) (701) - (52) (997)
Tax effect (85) 177 - 19 111
Total other comprehensive income (loss), net of tax (329) (524) - (33) (886)
Balance at December 31, 2016, net of tax: $ (2,008) $ (5,328) $ - $ 91 $ (7,245)
Income taxes are not provided for foreign translation relating to permanent investments in international subsidiaries, but
tax effects within cumulative translation does include impacts from items such as net investment hedge transactions.
Reclassification adjustments are made to avoid double counting in comprehensive income items that are also recorded as part
of net income.
Reclassifications out of Accumulated Other Comprehensive Income Attributable to 3M
Amounts Reclassified from
Accumulated Other Comprehensive Income
Details about Accumulated Other Year ended Year ended Year ended
Comprehensive Income Components December 31, December 31, December 31, Location on Income
(Millions) 2016 2015 2014 Statement
Gains (losses) associated with, defined benefit pension and postretirement plans amortization
Transition asset $ 1 $ 1 $ 1 See Note 11
Prior service benefit 92 79 59 See Note 11
Net actuarial loss (506) (626) (420) See Note 11
Curtailments/Settlements (8) 9 - See Note 11
Total before tax (421) (537) (360)
Tax effect 148 176 122 Provision for income taxes
Net of tax $ (273) $ (361) $ (238)
Debt and equity security gains (losses)
Sales or impairments of securities $ - $ - $ (1) Selling, general and administrative expenses
Total before tax - - (1)
Tax effect - - - Provision for income taxes
Net of tax $ - $ - $ (1)
Cash flow hedging instruments gains (losses)
Foreign currency forward/option contracts $ 110 $ 178 $ 3 Cost of sales
Commodity price swap contracts - (2) 2 Cost of sales
Interest rate swap contracts (1) (2) (1) Interest expense
Total before tax 109 174 4
Tax effect (39) (63) (1) Provision for income taxes
Net of tax $ 70 $ 111 $ 3
Total reclassifications for the period, net of tax $ (203) $ (250) $ (236)
Purchase of Subsidiary Shares
On September 1, 2014, 3M (via Sumitomo 3M Limited) purchased Sumitomo Electric Industries, Ltd.'s 25 percent interest in
3M's consolidated Sumitomo 3M Limited subsidiary for 90 billion Japanese Yen. Upon completion of the transaction, 3M owned
100 percent of Sumitomo 3M Limited. This transaction was recorded as a financing activity (Purchase of noncontrolling
interest) in the statement of cash flows.
In April 2014, 3M purchased the remaining noncontrolling interest in a consolidated 3M subsidiary for an immaterial amount,
which was classified as a financing activity (Purchase of noncontrolling interest) in the consolidated statement of cash
flows.
The following table summarizes the effects of these 2014 transactions on equity attributable to 3M Company shareholders:
Year ended
(Millions) December 31, 2014
Net income attributable to 3M $ 4,956
Impact of purchase of subsidiary shares (409)
Change in 3M Company shareholders' equity from net income
attributable to 3M and impact of purchase of subsidiary shares $ 4,547
NOTE 7. Supplemental Cash Flow Information
(Millions) 2016 2015 2014
Cash income tax payments, net of refunds $ 1,888 $ 2,331 $ 1,968
Cash interest payments 194 134 178
Capitalized interest 10 13 15
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.
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 2016 and 2014 valued at approximately $12 million and $15 million,
respectively, as of the transaction date.
In addition, as discussed in Note 6, in the fourth quarter of 2014, 3M's Board of Directors declared a first quarter 2015
dividend of $1.025 per share (paid in March 2015). In the fourth quarter of 2013, 3M's Board of Directors declared a first
quarter 2014 dividend of $0.855 per share (paid in March 2014).
NOTE 8. Income Taxes
Income Before Income Taxes
(Millions) 2016 2015 2014
United States $ 4,366 $ 4,399 $ 3,815
International 2,687 2,424 3,211
Total $ 7,053 $ 6,823 $ 7,026
Provision for Income Taxes
(Millions) 2016 2015 2014
Currently payable
Federal $ 1,192 $ 1,338 $ 1,103
State 75 101 108
International 733 566 1,008
Deferred
Federal (3) (55) (171)
State 9 6 (9)
International (11) 26 (11)
Total $ 1,995 $ 1,982 $ 2,028
Components of Deferred Tax Assets and Liabilities
(Millions) 2016 2015
Deferred tax assets:
Accruals not currently deductible
Employee benefit costs $ 195 $ 175
Product and other claims 326 311
Miscellaneous accruals 92 114
Pension costs 1,217 1,120
Stock-based compensation 302 305
Net operating/capital loss carryforwards 93 109
Foreign tax credits 22 25
Inventory 53 46
Gross deferred tax assets 2,300 2,205
Valuation allowance (47) (31)
Total deferred tax assets $ 2,253 $ 2,174
Deferred tax liabilities:
Product and other insurance receivables $ (27) $ (28)
Accelerated depreciation (730) (736)
Intangible amortization (903) (1,017)
Currency translation (276) (199)
Other (40) (70)
Total deferred tax liabilities $ (1,976) $ (2,050)
Net deferred tax assets $ 277 $ 124
The net deferred tax assets are included as components of Other Assets and Other Liabilities within the Consolidated
Balance Sheet. See Note 5 "Supplemental Balance Sheet Information" for further details.
As of December 31, 2016, the Company had tax effected operating losses, capital losses, and tax credit carryovers for
federal (approximately $21 million), state (approximately $1 million), and international (approximately $71 million), with
all amounts 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, 2016, the Company has provided $47 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
2016 2015 2014
Statutory U.S. tax rate 35.0 % 35.0 % 35.0 %
State income taxes - net of federal benefit 0.9 1.1 0.9
International income taxes - net (2.7) (3.9) (5.8)
U.S. research and development credit (0.5) (0.5) (0.4)
Reserves for tax contingencies 0.2 (1.0) 0.6
Domestic Manufacturer's deduction (1.8) (1.8) (1.3)
Employee share-based payments (2.8) (0.1)
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