REG - 3M Company - Half Yearly Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 2
29/10/2014 09:34
- Part 2: For the preceding part double click ID:nRSA0731Oa
tourists. The government
had begun publishing the SICAD1 rate resulting from currency auctions in December 2013. In late March 2014, the Venezuelan
government launched a third foreign exchange mechanism, SICAD2, which relies on U.S. dollar cash and U.S. dollar
denominated bonds offered by the Venezuelan Central Bank, PDVSA (the Venezuelan national oil and gas company) and certain
private companies. SICAD2 was announced as being available to all industry sectors and that its use would not be restricted
as to purpose.
Since January 1, 2010, as discussed above, the financial statements of 3M's Venezuelan subsidiary have been remeasured as
if its functional currency were that of its parent. For the periods presented, this remeasurement utilized the SITME rate
through January 2013, the official CADIVI/CENCOEX rate beginning in February 2013, the SICAD1 rate beginning in March 2014,
and the SICAD2 rate beginning in June 2014. 3M's use of SICAD1 and subsequently SICAD2 was 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, the elimination of the SITME rate and use of the CADIVI/CENCOEX exchange rate beginning in February 2013,
use of the SICAD1 rate beginning in March 2014, and use of the SICAD2 rate beginning in June 2014 did not have a material
impact 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 June 30, 2014, the Company
had a balance of net monetary liabilities denominated in VEF of less than 115 million VEF and the SICAD1 and SICAD2
exchange rates were approximately 10 VEF and 50 VEF per U.S. dollar, respectively. Had 3M utilized the SICAD1 rate rather
than the SICAD2 rate of exchange for remeasurement of such items as of June 30, 2014, the differential would not have had a
material impact on 3M's consolidated results of operations or financial condition.
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 a result of the dilution associated with the Company's stock-based compensation
plans. Certain options outstanding under these stock-based compensation plans were not included in the computation of
diluted earnings per share attributable to 3M common shareholders because they would not have had a dilutive effect (3.1
million average options for the three months ended June 30, 2014; 2.7 million average options for the six months ended June
30, 2014; 3.7 million average options for the three months ended June 30, 2013; and 3.9 million average options for the six
months ended June 30, 2013). The computations for basic and diluted earnings per share follow:
Earnings Per Share Computations
Three months ended Six months ended
June 30, June 30,
(Amounts in millions, except per share amounts) 2014 2013 2014 2013
Numerator:
Net income attributable to 3M $ 1,267 $ 1,197 $ 2,474 $ 2,326
Denominator:
Denominator for weighted average 3M common shares
outstanding - basic 652.0 688.2 656.7 689.6
Dilution associated with the Company's stock-based
compensation plans 12.6 10.9 12.9 11.0
Denominator for weighted average 3M common shares
outstanding - diluted 664.6 699.1 669.6 700.6
Earnings per share attributable to 3M common
shareholders - basic $ 1.94 $ 1.74 $ 3.77 $ 3.37
Earnings per share attributable to 3M common
shareholders - diluted $ 1.91 $ 1.71 $ 3.70 $ 3.32
New Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-05,
Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of
Assets within a Foreign Entity or of an Investment in a Foreign Entity. This standard provides additional guidance with
respect to the reclassification into income of the cumulative translation adjustment (CTA) recorded in accumulated other
comprehensive income associated with a foreign entity of a parent company. The ASU differentiates between transactions
occurring within a foreign entity and transactions/events affecting an investment in a foreign entity. For transactions
within a foreign entity, the full CTA associated with the foreign entity would be reclassified into income only when the
sale of a subsidiary or group of net assets within the foreign entity represents the substantially complete liquidation of
that foreign entity. For transactions/events affecting an investment in a foreign entity (for example, control or ownership
of shares in a foreign entity), the full CTA associated with the foreign entity would be reclassified into income only if
the parent no longer has a controlling interest in that foreign entity as a result of the transaction/event. In addition,
acquisitions of a foreign entity completed in stages will trigger release of the CTA associated with an equity method
investment in that entity at the point a controlling interest in the foreign entity is obtained. For 3M, this ASU was
effective prospectively beginning January 1, 2014. This ASU had no immediate impact on 3M's consolidated results of
operations and financial condition as the Company had no event/transaction as described above.
In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued
operations and modifies related disclosure requirements. This standard will have the impact of reducing the frequency of
disposals reported as discontinued operations, by requiring such a disposal to represent a strategic shift that has or will
have a major effect on an entity's operations and financial results. However, existing provisions that prohibit an entity
from reporting a discontinued operation if it has certain continuing cash flows or involvement with the component after
disposal are eliminated by this standard. The ASU also expands the disclosures for discontinued operations and requires new
disclosures related to individually significant disposals that do not qualify as discontinued operations. For 3M, this ASU
is effective prospectively beginning January 1, 2015. Early adoption is, however, permitted. This ASU would impact 3M's
consolidated results of operations and financial condition only in the instance of a disposal as described above.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive
model to be used in the accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. The standard's stated core principle is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core
principle the ASU includes provisions within a five step model that includes identifying the contract with a customer,
identifying the performance obligations in the contract, determining the transaction price, allocating the transaction
price to the performance obligations, and recognizing revenue when (or as) an entity satisfies a performance obligation.
The standard also specifies the accounting for some costs to obtain or fulfill a contract with a customer and requires
expanded disclosures about revenue recognition. The standard provides for either full retrospective adoption or a modified
retrospective adoption by which it is applied only to the most current period presented. For 3M, this ASU is effective
January 1, 2017. The Company is currently assessing this ASU's impact on 3M's consolidated results of operations and
financial condition.
NOTE 2. Acquisitions and Divestitures
3M makes acquisitions of certain businesses from time to time that the Company feels align 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. 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.
During the six months ended June 30, 2014, the purchase price paid for business combinations (net of cash acquired) was $94
million, which related to 3M's acquisition of Treo Solutions LLC (discussed below).
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 allocation of purchase price related to this acquisition is considered preliminary, largely with
respect to intangible assets, and tax-related assets and liabilities.
Purchased identifiable finite-lived intangible assets related to the acquisition which closed in the first six months ended
of 2014 totaled $34 million and will be amortized on a straight-line basis 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. 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.
Refer to Note 2 in 3M's Current Report on Form 8-K dated May 15, 2014 (which updated 3M's 2013 Annual Report on Form 10-K)
for information on 3M's 2011 through 2013 acquisitions and divestitures.
NOTE 3. Goodwill and Intangible Assets
Purchased goodwill related to the acquisition which closed during the first six monthsof 2014 totaled $65 million, none 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 balances by business segment as of December 31, 2013 and
June 30, 2014, are as follows:
Goodwill
December 31, 2013 Acquisition Translation June 30, 2014
(Millions) Balance activity and other Balance
Industrial $ 2,166 $ - $ 10 $ 2,176
Safety and Graphics 1,740 - (2) 1,738
Electronics and Energy 1,612 - 1 1,613
Health Care 1,596 65 1 1,662
Consumer 231 - 2 233
Total Company $ 7,345 $ 65 $ 12 $ 7,422
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 generally correspond to a division.
As discussed in Note 13, effective in the first quarter of 2014, the Company transferred a product line between divisions
within different business segments and in both the first and second quarters of 2014 made other changes within business
segments in its continuing effort to improve the alignment of its businesses around markets and customers. 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 and second quarters of 2014, the Company completed its
assessment of any potential goodwill impairment for reporting units impacted by this new structure and determined that no
impairment existed.
Acquired Intangible Assets
For the six months ended June 30, 2014, gross intangible assets (excluding goodwill) acquired through business combinations
increased the gross carrying amount, with this impact partially offset by changes in foreign currency exchange rates. The
carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of
non-amortizable intangible assets, as of June 30, 2014, and December 31, 2013, follow:
June 30, December 31,
(Millions) 2014 2013
Customer related intangible assets $ 1,409 $ 1,411
Patents 601 602
Other technology-based intangible assets 422 406
Definite-lived tradenames 410 411
Other amortizable intangible assets 225 217
Total gross carrying amount $ 3,067 $ 3,047
Accumulated amortization - customer related (563) (514)
Accumulated amortization - patents (474) (458)
Accumulated amortization - other technology-based (203) (179)
Accumulated amortization - definite-lived tradenames (187) (178)
Accumulated amortization - other (166) (159)
Total accumulated amortization $ (1,593) $ (1,488)
Total finite-lived intangible assets - net $ 1,474 $ 1,559
Non-amortizable intangible assets (primarily tradenames) 129 129
Total intangible assets - net $ 1,603 $ 1,688
Amortization expense for acquired intangible assets for the three-month and six-month periods ended June 30, 2014 and 2013 follows:
Three months ended Six months ended
June 30, June 30,
(Millions) 2014 2013 2014 2013
Amortization expense $ 57 $ 60 $ 114 $ 120
The table below shows expected amortization expense for acquired amortizable intangible assets recorded as of June 30, 2014:
(Millions) Remainder
of After
2014 2015 2016 2017 2018 2019 2019
Amortization expense $ 109 $ 206 $ 193 $ 177 $ 160 $ 148 $ 481
The 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. Supplemental Equity and Comprehensive Income Information
Consolidated Statement of Changes in Equity
Three months ended June 30, 2014 3M Company Shareholders
(Millions) Total Common Stock and Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehen-sive Income (Loss) Non-controlling Interest
Balance at March 31, 2014 $ 17,924 $ 4,554 $ 33,312 $ (16,577) $ (3,841) $ 476
Net income 1,283 1,267 16
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment 127 123 4
Defined benefit pension and post-retirement
plans adjustment 60 60 -
Debt and equity securities - unrealized gain (loss) 1 1 -
Cash flow hedging instruments - unrealized
gain (loss) (9) (9) -
Total other comprehensive income (loss), net
of tax 179
Dividends declared (556) (556)
Purchase of subsidiary shares (5) (1) (4)
Stock-based compensation, net of tax impacts 97 97
Reacquired stock (1,382) (1,382)
Issuances pursuant to stock option and
benefit plans 306 (187) 493
Balance at June 30, 2014 $ 17,846 $ 4,650 $ 33,836 $ (17,466) $ (3,666) $ 492
Six months ended June 30, 2014 3M Company Shareholders
(Millions) Total Common Stock and Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehen-sive Income (Loss) Non-controlling Interest
Balance at December 31, 2013 $ 17,948 $ 4,384 $ 32,416 $ (15,385) $ (3,913) $ 446
Net income 2,508 2,474 34
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment 147 131 16
Defined benefit pension and post-retirement
plans adjustment 121 121 -
Debt and equity securities - unrealized gain (loss) 2 2 -
Cash flow hedging instruments - unrealized
gain (loss) (7) (7) -
Total other comprehensive income (loss),
net of tax 263
Dividends declared (555) (555)
Purchase of subsidiary shares (5) (1) (4)
Stock-based compensation, net of tax impacts 267 267
Reacquired stock (3,155) (3,155)
Issuances pursuant to stock option and
benefit plans 575 (499) 1,074
Balance at June 30, 2014 $ 17,846 $ 4,650 $ 33,836 $ (17,466) $ (3,666) $ 492
Three months ended June 30, 2013 3M Company Shareholders
(Millions) Total Common Stock and Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehen-sive Income (Loss) Non-controlling Interest
Balance at March 31, 2013 $ 18,528 $ 4,188 $ 31,073 $ (12,178) $ (5,001) $ 446
Net income 1,213 1,197 16
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment (279) (260) (19)
Defined benefit pension and post-retirement
plans adjustment 91 91 -
Debt and equity securities - unrealized gain (loss) (4) (4) -
Cash flow hedging instruments - unrealized
gain (loss) 8 8 -
Total other comprehensive income (loss), net
of tax (184)
Dividends declared (436) (436)
Stock-based compensation, net of tax impacts 64 64
Reacquired stock (1,232) (1,232)
Issuances pursuant to stock option and
benefit plans 366 (118) 484
Balance at June 30, 2013 $ 18,319 $ 4,252 $ 31,716 $ (12,926) $ (5,166) $ 443
Six months ended June 30, 2013 3M Company Shareholders
(Millions) Total Common Stock and Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehen-sive Income (Loss) Non-controlling Interest
Balance at December 31, 2012 $ 18,040 $ 4,053 $ 30,679 $ (12,407) $ (4,750) $ 465
Net income 2,360 2,326 34
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment (677) (620) (57)
Defined benefit pension and post-retirement
plans adjustment 176 176 -
Debt and equity securities - unrealized gain (loss) (4) (4) -
Cash flow hedging instruments - unrealized
gain (loss) 32 32 -
Total other comprehensive income (loss),
net of tax (473)
Dividends declared (876) (876)
Sale of subsidiary shares 8 7 1
Stock-based compensation, net of tax impacts 192 192
Reacquired stock (2,039) (2,039)
Issuances pursuant to stock option and
benefit plans 1,107 (413) 1,520
Balance at June 30, 2013 $ 18,319 $ 4,252 $ 31,716 $ (12,926) $ (5,166) $ 443
3M has historically declared and paid dividends in the same quarter. In December 2013, 3M's Board of Directors declared a
first-quarter 2014 dividend of $0.855 per share (paid in March 2014). This reduced 3M's stockholders equity and increased
other current liabilities as of December 31, 2013 by $567 million. This resulted in total year 2013 declared dividends of
$3.395 per share, with $2.54 per share paid in 2013 and the additional $0.855 per share paid in March 2014.
Changes in Accumulated Other Comprehensive Income (Loss) Attributable to 3M by Component
Three months ended June 30, 2014
(Millions) Cumulative Translation Adjustment Defined Benefit Pension and Postretirement Plans Adjustment Debt and Equity Securities, Unrealized Gain (Loss) Cash Flow Hedging Instruments, Unrealized Gain (Loss) Total Accumulated Other Comprehen-sive Income (Loss)
Balance at March 31, 2014, net of tax $ (180) $ (3,654) $ (1) $ (6) $ (3,841)
Other comprehensive income (loss),
before tax:
Amounts before reclassifications 128 - 1 (21) 108
Amounts reclassified out - 92 - 5 97
Total other comprehensive income (loss),
before tax 128 92 1 (16) 205
Tax effect (5) (32) - 7 (30)
Total other comprehensive income (loss),
net of tax 123 60 1 (9) 175
Balance at June 30, 2014, net of tax $ (57) $ (3,594) $ - $ (15) $ (3,666)
Six months ended June 30, 2014
(Millions) Cumulative Translation Adjustment Defined Benefit Pension and Postretirement Plans Adjustment Debt and Equity Securities, Unrealized Gain (Loss) Cash Flow Hedging Instruments, Unrealized Gain (Loss) Total Accumulated Other Comprehen-sive Income (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 134 - 3 (12) 125
Amounts reclassified out - 183 - (1) 182
Total other comprehensive income (loss),
before tax 134 183 3 (13) 307
Tax effect (3) (62)
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