3M CO, 10-Q filed on 10/25/2019
Quarterly Report
v3.19.3
Document and Entity Information
9 Months Ended
Sep. 30, 2019
shares
Entity Registrant Name 3M CO
Entity Central Index Key 0000066740
Document Type 10-Q
Document Quarterly Report true
Document Transition Report false
Document Period End Date Sep. 30, 2019
Amendment Flag false
Current Fiscal Year End Date --12-31
Entity File Number 1-3285
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 41-0417775
Entity Address, Address Line One 3M Center
Entity Address, City or Town St. Paul
Entity Address, State or Province MN
Entity Address, Postal Zip Code 55144-1000
City Area Code 651
Local Phone Number 733-1110
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding 575,050,655
Document Fiscal Year Focus 2019
Document Fiscal Period Focus Q3
Common Stock | New York Stock Exchange, Inc.  
Title of 12(b) Security Common Stock, Par Value $.01 Per Share
Trading Symbol MMM
Security Exchange Name NYSE
Common Stock | Chicago Stock Exchange, Inc.  
Title of 12(b) Security Common Stock, Par Value $.01 Per Share
Trading Symbol MMM
Security Exchange Name CHX
1.500% Notes due 2026 | New York Stock Exchange, Inc.  
Title of 12(b) Security 1.500% Notes due 2026
Trading Symbol MMM26
Security Exchange Name NYSE
Floating Rate Notes due 2020 | New York Stock Exchange, Inc.  
Title of 12(b) Security Floating Rate Notes due 2020
No Trading Symbol Flag true
0.375% Notes due 2022 | New York Stock Exchange, Inc.  
Title of 12(b) Security 0.375% Notes due 2022
Trading Symbol MMM22A
Security Exchange Name NYSE
0.950% Notes due 2023 | New York Stock Exchange, Inc.  
Title of 12(b) Security 0.950% Notes due 2023
Trading Symbol MMM23
Security Exchange Name NYSE
1.750% Notes due 2030 | New York Stock Exchange, Inc.  
Title of 12(b) Security 1.750% Notes due 2030
Trading Symbol MMM30
Security Exchange Name NYSE
1.500% Notes due 2031 | New York Stock Exchange, Inc.  
Title of 12(b) Security 1.500% Notes due 2031
Trading Symbol MMM31
Security Exchange Name NYSE
v3.19.3
Consolidated Statement of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Consolidated Statement of Income        
Net sales $ 7,991 $ 8,152 $ 24,025 $ 24,820
Operating expenses        
Cost of sales 4,188 4,159 12,811 12,622
Selling, general and administrative expenses 1,455 1,547 5,089 5,920
Research, development and related expenses 443 430 1,390 1,384
Gain on sale of businesses (106)   (114) (530)
Total operating expenses 5,980 6,136 19,176 19,396
Operating income 2,011 2,016 4,849 5,424
Interest expense and income        
Other expense (income), net 45 51 349 144
Income before income taxes 1,966 1,965 4,500 5,280
Provision for income taxes 378 419 888 1,266
Net income including noncontrolling interest 1,588 1,546 3,612 4,014
Less: Net income attributable to noncontrolling interest 5 3 11 12
Net income attributable to 3M $ 1,583 $ 1,543 $ 3,601 $ 4,002
Weighted average 3M common shares outstanding - basic (in shares) 576.5 585.6 577.2 591.1
Earnings per share attributable to 3M common shareholders - basic (in dollars per share) $ 2.75 $ 2.64 $ 6.24 $ 6.77
Weighted average 3M common shares outstanding - diluted (in shares) 583.0 598.4 585.9 605.1
Earnings per share attributable to 3M common shareholders - diluted (in dollars per share) $ 2.72 $ 2.58 $ 6.15 $ 6.61
v3.19.3
Consolidated Statement of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Consolidated Statement of Comprehensive Income        
Net income including noncontrolling interest $ 1,588 $ 1,546 $ 3,612 $ 4,014
Other comprehensive income (loss), net of tax:        
Cumulative translation adjustment (202) (112) (2) (441)
Defined benefit pension and postretirement plans adjustment 76 114 356 344
Cash flow hedging instruments 8 46 (24) 147
Total other comprehensive income (loss), net of tax (118) 48 330 50
Comprehensive income (loss) including noncontrolling interest 1,470 1,594 3,942 4,064
Comprehensive (income) loss attributable to noncontrolling interest (3)   (10) (4)
Comprehensive income (loss) attributable to 3M $ 1,467 $ 1,594 $ 3,932 $ 4,060
v3.19.3
Consolidated Balance Sheet - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 7,731 $ 2,853
Marketable securities - current 30 380
Accounts receivable - net 5,020 5,020
Inventories    
Finished goods 1,890 2,120
Work in process 1,231 1,292
Raw materials and supplies 886 954
Total inventories 4,007 4,366
Prepaids 717 741
Other current assets 515 349
Total current assets 18,020 13,709
Property, plant and equipment 25,508 24,873
Less: Accumulated depreciation (16,617) (16,135)
Property, plant and equipment - net 8,891 8,738
Operating lease right of use assets 834  
Goodwill 10,410 10,051
Intangible assets - net 2,847 2,657
Other assets 1,548 1,345
Total assets 42,550 36,500
Current liabilities    
Short-term borrowings and current portion of long-term debt 1,960 1,211
Accounts payable 2,079 2,266
Accrued payroll 669 749
Accrued income taxes 137 243
Operating lease liabilities - current 241  
Other current liabilities 2,735 2,775
Total current liabilities 7,821 7,244
Long-term debt 17,479 13,411
Pension and postretirement benefits 2,667 2,987
Operating lease liabilities 584  
Other liabilities 3,235 3,010
Total liabilities 31,786 26,652
Commitments and contingencies (Note 14)
3M Company shareholders' equity:    
Common stock par value, $.01 par value; 944,033,056 shares issued 9 9
Additional paid-in capital 5,861 5,643
Retained earnings 42,085 40,636
Treasury stock, at cost: 368,982,401 shares at September 30, 2019; 367,457,888 shares at December 31, 2018 (29,865) (29,626)
Accumulated other comprehensive income (loss) (7,388) (6,866)
Total 3M Company shareholders' equity 10,702 9,796
Noncontrolling interest 62 52
Total equity 10,764 9,848
Total liabilities and equity $ 42,550 $ 36,500
v3.19.3
Consolidated Balance Sheet (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
Consolidated Balance Sheet    
Common stock, par value per share (in dollars per share) $ 0.01 $ 0.01
Common stock, shares issued (in shares) 944,033,056 944,033,056
Treasury stock (in shares) 368,982,401 367,457,888
v3.19.3
Consolidated Statement of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash Flows from Operating Activities    
Net income including noncontrolling interest $ 3,612 $ 4,014
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities    
Depreciation and amortization 1,130 1,117
Company pension and postretirement contributions (129) (303)
Company pension and postretirement expense 242 306
Stock-based compensation expense 230 258
Gain on sale of businesses (111) (530)
Deferred income taxes (88) (73)
Loss on deconsolidation of Venezuelan subsidiary 162  
Changes in assets and liabilities    
Accounts receivable (14) (596)
Inventories 255 (562)
Accounts payable (222) 148
Accrued income taxes (current and long-term) (53) 122
Other - net (282) 280
Net cash provided by (used in) operating activities 4,732 4,181
Cash Flows from Investing Activities    
Purchases of property, plant and equipment (PP&E) (1,161) (1,046)
Proceeds from sale of PP&E and other assets 91 143
Acquisitions, net of cash acquired (704) 13
Purchases of marketable securities and investments (917) (1,352)
Proceeds from maturities and sale of marketable securities and investments 1,265 2,066
Proceeds from sale of businesses, net of cash sold 236 806
Other - net 45 8
Net cash provided by (used in) investing activities (1,145) 638
Cash Flows from Financing Activities    
Change in short-term debt - net (466) (698)
Repayment of debt (maturities greater than 90 days) (871) (456)
Proceeds from debt (maturities greater than 90 days) 6,116 2,247
Purchases of treasury stock (1,243) (3,601)
Proceeds from issuance of treasury stock pursuant to stock option and benefit plans 437 401
Dividends paid to shareholders (2,488) (2,406)
Other - net (158) (36)
Net cash provided by (used in) financing activities 1,327 (4,549)
Effect of exchange rate changes on cash and cash equivalents (36) (138)
Net increase (decrease) in cash and cash equivalents 4,878 132
Cash and cash equivalents at beginning of year 2,853 3,053
Cash and cash equivalents at end of period $ 7,731 $ 3,185
v3.19.3
Significant Accounting Policies
9 Months Ended
Sep. 30, 2019
Significant Accounting Policies  
Significant Accounting Policies

3M Company and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1. Significant Accounting Policies

Basis of Presentation

The interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair statement of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal, recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year. The interim consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K.

As described in Note 17, effective in the second quarter of 2019, the Company realigned its former five business segments into four to enable the Company to better serve global customers and markets. In addition, certain product lines were moved to better align with their respective end customers. Earlier in the first quarter of 2019, the Company changed its business segment reporting in its continuing effort to improve the alignment of businesses around markets and customers. These changes included the realignment of certain customer account activity in various countries (affecting dual credit reporting), creation of the Closure and Masking Systems and Medical Solutions divisions, and certain other actions that impacted segment reporting. Segment information presented herein reflects the impact of these changes for all periods presented.

Changes to Significant Accounting Policies

The following significant accounting policies have been added or changed since the Company’s 2018 Annual Report on Form 10-K.

Leases: As described in the “New Accounting Pronouncements” section, 3M adopted Accounting Standards Update (ASU) No. 2016-02, Leases, and other related ASUs (collectively, Accounting Standards Codification (ASC) 842) on January 1, 2019, using the modified retrospective method of adoption. This ASU replaced previous lease accounting guidance. The Company’s accounting policy with respect to leases and additional disclosure relative to ASC 842 are included in Note 15.

Income Taxes: As described in the “New Accounting Pronouncements” section, 3M adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The Company’s accounting policy for income taxes has been updated to indicate the uses of the portfolio approach for releasing income tax effects from accumulated other comprehensive loss.

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.

3M has a subsidiary in Venezuela, the financial statements of which were remeasured as if its functional currency were that of its parent because Venezuela’s economic environment is considered highly inflationary. The operating income of this subsidiary was immaterial as a percent of 3M’s consolidated operating income for 2018. The Venezuelan government sets official rates of exchange and conditions precedent to purchase foreign currency at these rates with local currency. The government has also operated various expanded secondary currency exchange mechanisms that have been eliminated and replaced from time to time. Such rates and conditions have been and continue to be subject to change. During the third quarter of 2018, the Venezuelan government effected a conversion of its currency to the Sovereign Bolivar (VES), essentially equating to its previous Venezuelan Bolivar divided by 100,000. For the periods presented through May 2019, the financial statements of 3M’s Venezuelan subsidiary were remeasured utilizing the rate associated with the secondary auction mechanism, Tipo de Cambio Complementario (DICOM), or its predecessor.

Note 1 in 3M’s 2018 Annual Report on Form 10-K provides additional information the Company considers in determining the exchange rate used relative to its Venezuelan subsidiary as well as factors which could lead to its deconsolidation. As described therein, a need to deconsolidate the Company’s Venezuelan subsidiary’s operations results from a lack of exchangeability of VES-denominated cash coupled with an acute degradation in the ability to make key operational decisions due to government regulations in Venezuela. 3M continued to review changes in these underlying factors such as the 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. In light of circumstances, including the country’s unstable environment and heightened unrest leading to sustained lack of demand, and expectation that these circumstances will continue for the foreseeable future, during May 2019, 3M concluded it no longer met the criteria of control in order to continue consolidating its Venezuelan operations. As a result, as of May 31, 2019, the Company began reflecting its interest in the Venezuelan subsidiary as an equity investment that does not have a readily determinable fair value. This resulted in a pre-tax charge of $162 million within other expense (income) in the second quarter of 2019. The charge primarily relates to $144 million of foreign currency translation losses associated with foreign currency movements before Venezuela was accounted for as a highly inflationary economy and pension elements previously included in accumulated other comprehensive loss along with write-down of intercompany receivable and investment balances associated with this subsidiary. Beginning May 31, 2019, 3M’s consolidated balance sheets and statements of operations no longer include the Venezuelan entity’s operations other than an immaterial equity investment and associated loss or income thereon largely only to the extent, if any, that 3M provides support or materials and receives funding or dividends.

3M has subsidiaries in Argentina, the operating income of which was less than one half of one percent of 3M’s consolidated operating income for 2018. Based on various indices, Argentina’s cumulative three-year inflation rate exceeded 100 percent in the second quarter of 2018, thus being considered highly inflationary. As a result, beginning in the third quarter of 2018, the financial statements of the Argentine subsidiaries were remeasured as if their functional currency were that of their parent. As of September 30, 2019, the Company had a balance of net monetary assets denominated in Argentine pesos (ARS) of approximately 430 million ARS and the exchange rate was approximately 57 ARS per U.S. dollar.

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 have had an anti-dilutive effect (11.9 million average options for the three months ended September 30, 2019; 8.0 million average options for the nine months ended September 30, 2019; 3.2 million average options for the three months ended September 30, 2018; 2.8 million average options for the nine months ended September 30, 2018). The computations for basic and diluted earnings per share follow:

Earnings Per Share Computations

    

Three months ended 

    

Nine months ended 

 

September 30,

September 30,

(Amounts in millions, except per share amounts)

    

2019

    

2018

    

2019

    

2018

 

Numerator:

Net income attributable to 3M

$

1,583

$

1,543

$

3,601

$

4,002

Denominator:

Denominator for weighted average 3M common shares outstanding basic

 

576.5

 

585.6

 

577.2

 

591.1

Dilution associated with the Company’s stock-based compensation plans

 

6.5

 

12.8

 

8.7

 

14.0

Denominator for weighted average 3M common shares outstanding diluted

 

583.0

 

598.4

 

585.9

 

605.1

Earnings per share attributable to 3M common shareholders basic

$

2.75

$

2.64

$

6.24

$

6.77

Earnings per share attributable to 3M common shareholders diluted

$

2.72

$

2.58

$

6.15

$

6.61

New Accounting Pronouncements

See the Company’s 2018 Annual Report on Form 10-K for a more detailed discussion of the standards in the tables that follow, except for those pronouncements issued subsequent to the most recent Form 10-K filing date for which separate, more detailed discussion is provided below as applicable.

Standards Adopted During the Current Fiscal Year

Standard

Relevant Description

Effective Date for 3M

Impact and Other Matters

ASU No. 2016-02, Leases (as amended by ASU Nos. 2018-10, 2018-11, 2018-20, and 2019-01)

Provides a lessee model that requires entities to recognize assets and liabilities for most leases, but recognize expenses on their income statements in a manner similar to previous accounting. This ASU does not make fundamental changes to previous lessor accounting.

January 1, 2019

See Note 15 for detailed discussion and disclosures.

Adopted using the modified retrospective approach

Impact on January 1, 2019 includes a $14 million increase in the balance of retained earnings and recording of additional lease assets and liabilities of $0.8 billion each

ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities

Shortens the amortization period to the earliest call date for the premium related to certain callable debt securities that have explicit, noncontingent call features and are callable at a fixed price and preset date.

January 1, 2019

3M’s marketable security portfolio includes limited instances of callable debt securities held at a premium.

The adoption of this ASU did not have a material impact.

ASU No. 2017-11, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

Amends (1) the classification of financial instruments with down-round features as liabilities or equity by revising certain guidance relative to evaluating if they must be accounted for as derivative instruments and (2) the guidance on recognition and measurement of freestanding equity-classified instruments.

January 1, 2019

No financial instruments with down-round features have been issued.

The adoption of this ASU did not have a material impact.

ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, and related ASU No. 2018-16

Amends previous guidance to simplify application of hedge accounting in certain situations and allow companies to better align their hedge accounting with risk management activities.

Simplifies related accounting by eliminating requirement to separately measure and report hedge ineffectiveness.

Expands an entity’s ability to hedge nonfinancial and financial risk components.

January 1, 2019

See Note 12 for additional details.

The adoption of this ASU did not have a material impact

ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Permits entities to reclassify, to retained earnings, the one-time income tax effects stranded in accumulated other comprehensive income arising from the change in the U.S. federal corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017.

January 1, 2019

See Note 8 for additional discussion.

Impact on January 1, 2019 includes increases of $0.9 billion in each of retained earnings and accumulated other comprehensive loss.

See also the preceding “Changes to Significant Accounting Policies” section.

ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting

Aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees.

Clarifies that any share-based payment issued to a customer should be evaluated under ASC 606, Revenue from Contracts with Customers

January 1, 2019

The adoption of this ASU did not have a material impact as 3M does not issue share-based payments to nonemployees or customers

Standards Adopted During the Current Fiscal Year (continued)

Standard

Relevant Description

Effective Date for 3M

Impact and Other Matters

ASU No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made

Clarifies that a contribution is conditional if the arrangement includes both a barrier for the recipient to be entitled to the assets transferred and a right of return for the assets transferred.

Recognition of contribution expense is deferred for conditional arrangements and is immediate for unconditional arrangements.

January 1, 2019

Adopted prospectively with no immediate impact.

ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities

Changes how entities evaluate decision-making fees under the variable interest guidance.

Indirect interests held through related parties under common control will be considered on a proportionate basis rather than in their entirety.

January 1, 2019

Adoption of this ASU did not have a material impact as 3M does not have significant involvement with entities subject to consolidation considerations impacted by variable interest entity model factors.

ASU No. 2018-18, Clarifying the Interaction between Topic 808 and Topic 606

Clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606, Revenue from Contracts with Customers, when the counterparty is a customer.

Precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction.

January 1, 2019

Adoption of this ASU did not have a material impact as 3M has limited collaborative arrangements.

ASU No. 2017-09, Scope of Modification Accounting

Provides that fewer changes to the terms of share-based payment awards will require accounting under the modification model (which generally would have required additional compensation cost).

January 1, 2018

Adopted prospectively with no immediate impact.

3M does not typically make changes to the terms or conditions of its issued share-based payments.

Standards Issued and Not Yet Adopted

Standard

Relevant Description

Effective Date for 3M

Impact and Other Matters

ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (in conjunction with ASU No. 2018-19, 2019-04 and 2019-05)

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.

Amends the current other-than-temporary impairment model for available-for-sale debt securities. 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.

January 1, 2020

Required to make a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

3M continues to evaluate this ASU’s impact on its consolidated results of operations and financial condition. Based on the analysis completed to date and due to the nature and extent of 3M’s financial instruments in scope for this ASU (primarily accounts receivable) and the historical, current and expected credit quality of its customers, 3M does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.

See the “Relevant New Standards Issued Subsequent to Most Recent Annual Report” below for further discussion on ASU No. 2019-04 and 2019-05 issued in April 2019 and May 2019, respectively.

ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement

Eliminates, amends, and adds disclosure requirements for fair value measurements, primarily related to Level 3 fair value measurements.

January 1, 2020

As this ASU relates to disclosures only, there will be no impact to 3M’s consolidated results of operations and financial condition.

ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

Aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service arrangement (i.e. hosting arrangement) with the guidance on capitalizing costs in ASC 350-40, Internal-Use Software

January 1, 2020

ASU permits either prospective or retrospective transition.

As 3M utilizes limited cloud-computing services where significant implementation costs are incurred, the Company does not expect this ASU to have a material impact.

Relevant New Standards Issued Subsequent to Most Recent Annual Report

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 – Financial Instruments and in May 2019, the FASB issued ASU No. 2019-05, Targeted Transition Relief to Topic 326, Financial Instruments – Credit Losses. ASU No. 2019-04 provides narrow-scope amendments to help apply these recent standards, while ASU No. 2019-05 provides the option to make a one-time fair value election regarding certain assets which is not applicable for 3M as the Company does not have any assets carried under the fair value option. The effective date for 3M is January 1, 2020 with early adoption permitted for certain amendments. The Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.

v3.19.3
Revenue
9 Months Ended
Sep. 30, 2019
Revenue  
Revenue

NOTE 2. Revenue

Contract Balances:

Deferred revenue (current portion) as of September 30, 2019 and December 31, 2018 was $605 million and $617 million, respectively, and primarily relates to revenue that is recognized over time for one-year software license contracts, the changes in balance of which are related to the satisfaction or partial satisfaction of these contracts. The balance also contains a deferral for goods that are in-transit at period end for which control transfers to the customer upon delivery. Approximately $80 million and $560 million of the December 31, 2018 balance was recognized as revenue during the three and nine months ended September 30, 2019, respectively, while approximately $70 million and $460 million of the December 31, 2017 balance was recognized as revenue during the the three and nine months ended September 30, 2018, respectively. The amount of noncurrent deferred revenue is not significant.

Disaggregated revenue information:

The Company views the following disaggregated disclosures as useful to understanding the composition of revenue recognized during the respective reporting periods:

Three months ended 

Nine months ended 

September 30,

September 30,

Net Sales (Millions)

2019

    

2018

    

2019

    

2018

Abrasives

$

345

$

362

$

1,079

$

1,171

Adhesives and Tapes

696

734

2,075

2,191

Automotive Aftermarket

310

334

929

1,038

Closure and Masking Systems

282

300

835

920

Communication Markets

8

169

Electrical Markets

298

315

911

949

Personal Safety

813

864

2,656

2,745

Roofing Granules

101

83

293

283

Other Safety and Industrial

4

21

18

76

Total Safety and Industrial Business Segment

$

2,849

$

3,021

$

8,796

$

9,542

Advanced Materials

$

319

$

313

$

961

$

932

Automotive and Aerospace

485

509

1,486

1,610

Commercial Solutions

437

436

1,361

1,415

Electronics

1,001

1,101

2,759

2,951

Transportation Safety

261

260

745

758

Other Transportation and Electronics

(1)

Total Transportation and Electronics Business Segment

$

2,503

$

2,619

$

7,312

$

7,665

Drug Delivery

$

99

$

102

$

301

$

340

Food Safety

86

82

254

246

Health Information Systems

296

208

853

618

Medical Solutions

737

732

2,294

2,273

Oral Care

312

317

991

1,013

Separation and Purification Sciences

191

203

602

631

Other Health Care

(1)

(5)

(3)

Total Health Care Business Group

$

1,721

$

1,643

$

5,290

$

5,118

Consumer Health Care

$

97

$

97

$

297

$

300

Home Care

242

249

747

773

Home Improvement

612

579

1,739

1,694

Stationery and Office

361

367

1,006

1,022

Other Consumer

12

10

32

30

Total Consumer Business Group

$

1,324

$

1,302

$

3,821

$

3,819

Corporate and Unallocated

$

28

$

35

$

98

$

47

Elimination of Dual Credit

(434)

(468)

(1,292)

(1,371)

Total Company

$

7,991

$

8,152

$

24,025

$

24,820

Three months ended September 30, 2019

Net Sales (Millions)

    

United States

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

Safety and Industrial

$

1,153

$

713

$

626

$

356

$

1

$

2,849

Transportation and Electronics

 

594

 

1,390

 

363

 

157

 

(1)

 

2,503

Health Care

827

360

388

145

1

1,721

Consumer

 

843

 

233

 

136

 

112

 

 

1,324

Corporate and Unallocated

 

25

 

1

 

1

 

1

 

 

28

Elimination of Dual Credit

 

(150)

 

(207)

 

(49)

 

(27)

 

(1)

 

(434)

Total Company

$

3,292

$

2,490

$

1,465

$

744

$

$

7,991

Nine months ended September 30, 2019

Net Sales (Millions)

    

United States

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

Safety and Industrial

$

3,498

$

2,190

$

2,035

$

1,073

$

$

8,796

Transportation and Electronics

 

1,796

 

3,917

 

1,138

 

463

 

(2)

 

7,312

Health Care

2,477

1,121

1,253

438

1

5,290

Consumer

 

2,342

 

745

 

413

 

321

 

 

3,821

Corporate and Unallocated

 

91

 

1

 

1

 

6

 

(1)

 

98

Elimination of Dual Credit

 

(462)

 

(591)

 

(158)

 

(81)

 

 

(1,292)

Total Company

$

9,742

$

7,383

$

4,682

$

2,220

$

(2)

$

24,025

Three months ended September 30, 2018

Net Sales (Millions)

    

United States

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

Safety and Industrial

$

1,208

$

788

$

665

$

361

$

(1)

$

3,021

Transportation and Electronics

 

627

 

1,464

 

378

 

149

 

1

 

2,619

Health Care

740

357

399

146

1

1,643

Consumer

 

818

 

237

 

137

 

110

 

 

1,302

Corporate and Unallocated

 

36

 

 

 

 

(1)

 

35

Elimination of Dual Credit

 

(164)

 

(225)

 

(52)

 

(25)

 

(2)

 

(468)

Total Company

$

3,265

$

2,621

$

1,527

$

741

$

(2)

$

8,152

Nine months ended September 30, 2018

Net Sales (Millions)

    

United States

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

Safety and Industrial

$

3,726

$

2,397

$

2,296

$

1,126

$

(3)

$

9,542

Transportation and Electronics

 

1,838

 

4,151

 

1,218

 

458

 

 

7,665

Health Care

2,248

1,114

1,303

453

5,118

Consumer

 

2,273

 

778

 

438

 

330

 

 

3,819

Corporate and Unallocated

 

43

 

 

 

3

 

1

 

47

Elimination of Dual Credit

 

(471)

 

(639)

 

(178)

 

(81)

 

(2)

 

(1,371)

Total Company

$

9,657

$

7,801

$

5,077

$

2,289

$

(4)

$

24,820

v3.19.3
Acquisitions and Divestitures
9 Months Ended
Sep. 30, 2019
Acquisitions and Divestitures  
Acquisitions and Divestitures

NOTE 3. 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.

2019 Acquisition Activity

 

Finite-Lived

Intangible-Asset

(Millions)

    

    

Weighted-Average

 

Asset (Liability)

M*Modal

Lives (Years)

 

Accounts receivable

$

77

Other current assets

 

2

Property, plant, and equipment

 

8

Purchased finite-lived intangible assets:

Customer related intangible assets

 

275

14

Other technology-based intangible assets

160

6

Definite-lived tradenames

11

6

Purchased goodwill

 

508

Other assets

59

Accounts payable and other liabilities

 

(124)

Interest bearing debt

 

(251)

Deferred tax asset/(liability)

 

(21)

Net assets acquired

$

704

Supplemental information:

Cash paid

$

708

Less: Cash acquired

 

4

Cash paid, net of cash acquired

$

704

Purchased identifiable finite-lived intangible assets related to acquisitions which closed in the nine months ended September 30, 2019 totaled $446 million. The associated finite-lived intangible assets acquired will be amortized on a systematic and rational basis (generally straight line) over a weighted-average life of 11 years (lives ranging from 6 to 14 years).

In February 2019, 3M completed the acquisition of the technology business of M*Modal for $0.7 billion of cash, net of cash acquired, and assumption of $0.3 billion of M*Modal’s debt. Based in Pittsburgh, Pennsylvania, M*Modal is a leading healthcare technology provider of cloud-based, conversational artificial intelligence-powered systems that help physicians efficiently capture and improve the patient narrative. The allocation of purchase consideration related to M*Modal is considered preliminary with provisional amounts primarily related to certain tax-related and contingent liability amounts. 3M expects to finalize the allocation of purchase price within the one-year measurement-period following the acquisition. Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations for the third quarter of 2019 were approximately $75 million and $5 million, respectively. Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations for the first nine months of 2019 were approximately $200 million and $40 million, respectively. Proforma information related to the acquisition has not been included as the impact on the Company’s consolidated results of operations was not considered material.

In October 2019, 3M completed the acquisition of Acelity Inc. and its KCI subsidiaries for cash of approximately $4.5 billion, subject to closing and other adjustments, and assumption of $2.5 billion of debt and related items (see also Note 10). Acelity is a leading global medical technology company focused on advanced wound care and specialty surgical applications marketed under the KCI brand. This transaction will be reflected within the Company’s Health Care business. Due to the limited amount of time since the October acquisition date and the limitations on access to Acelity information prior to the acquisition date, the preliminary allocation of purchase consideration is incomplete at this time. As a result, the Company is unable to provide the amounts recognized as of the

acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill.

There were no acquisitions that closed during the nine months ended September 30, 2018.

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.

2019 divestitures:

During the first quarter of 2019, the Company sold certain oral care technology comprising a business and reflected an earnout on a previous divestiture resulting in an aggregate immaterial gain.

In August 2019, 3M closed on the sale of its gas and flame detection business, a leader in fixed and portable gas and flame detection, to Teledyne Technologies Incorporated. This business has annual sales of approximately $120 million. The transaction resulted in a pre-tax gain of $112 million that was reported within the Company’s Safety and Industrial business.

In August 2019, 3M entered into an agreement with Avon Rubber p.l.c. to purchase 3M’s advanced ballistic-protection business for $91 million, subject to closing and other adjustments, plus contingent considerations of up to $25 million depending on the outcome of pending tenders. The business, with annual sales of approximately $85 million, consists of ballistic helmets, body armor, flat armor and related helmet-attachment products serving government and law enforcement. The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to be completed in late 2019 or early 2020. The Company reflected an immaterial impact in the third quarter of 2019 within the Transportation and Electronics business as a result of measuring this disposal group at the lower of its carrying amount or fair value less cost to sell.

2018 divestitures:

During 2018, as described in Note 3 in 3M’s 2018 Annual Report on Form 10-K, the Company divested a number of businesses including: certain personal safety product offerings primarily focused on noise, environmental and heat stress monitoring; a polymer additives compounding business; an abrasives glass products business; and substantially all of its Communication Markets Division.

Operating income and held for sale amounts:

The aggregate operating income of these businesses was approximately $30 million and immaterial in the first nine months of 2018 and 2019, respectively. The approximate amounts of major assets and liabilities associated with disposal groups classified as held-for-sale as of December 31, 2018 were not material and as of September 30, 2019 included the following:

    

September 30,

 

(Millions)

    

2019

 

Inventory

$

25

Property, plant and equipment

10

Intangible assets

35

In addition, approximately $10 million of goodwill was estimated to be attributable to disposal groups classified as held-for-sale as of September 30, 2019, based upon relative fair value. The amounts above have not been segregated and are classified within the existing corresponding line items on the Company’s consolidated balance sheet.

Refer to Note 3 in 3M’s 2018 Annual Report on Form 10-K for more information on 3M’s acquisitions and divestitures.

v3.19.3
Goodwill and Intangible Assets
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets  
Goodwill and Intangible Assets

NOTE 4. Goodwill and Intangible Assets

Goodwill from acquisitions totaled $508 million during the first nine months of 2019. The amounts in the “Translation and other” row in the following table primarily relate to changes in foreign currency exchange rates. The goodwill balance by business segment as of December 31, 2018 and September 30, 2019, follow:

Goodwill

(Millions)

Safety and Industrial

Transportation and Electronics

Health Care

Consumer

Total Company

Balance as of December 31, 2018

4,716

1,857

3,248

230

10,051

Acquisition activity

508

508

Divestiture activity

(49)

(49)

Translation and other

(51)

(27)

(53)

31

(100)

Balance as of September 30, 2019

$

4,616

$

1,830

$

3,703

$

261

$

10,410

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 17, effective in the second quarter of 2019, the Company realigned its former five business segments into four to enable the Company to better serve global customers and markets. In addition, effective in the first quarter of 2019, the Company changed its business segment reporting in its continuing effort to improve the alignment of its businesses around markets and customers. For any product changes 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 2019, 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

The carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of non-amortizable intangible assets, as of September 30, 2019, and December 31, 2018, follow:

    

September 30,

    

December 31,

 

(Millions)

    

2019

    

2018

 

Customer related intangible assets

$

2,525

$

2,291

Patents

 

536

 

542

Other technology-based intangible assets

 

727

 

576

Definite-lived tradenames

 

673

 

664

Other amortizable intangible assets

 

122

 

125

Total gross carrying amount

$

4,583

$

4,198

Accumulated amortization — customer related

 

(1,107)

 

(998)

Accumulated amortization — patents

 

(493)

 

(487)

Accumulated amortization — other technology-based

 

(382)

 

(333)

Accumulated amortization — definite-lived tradenames

 

(300)

 

(276)

Accumulated amortization — other

 

(89)

 

(88)

Total accumulated amortization

$

(2,371)

$

(2,182)

Total finite-lived intangible assets — net

$

2,212

$

2,016

Non-amortizable intangible assets (primarily tradenames)

 

635

 

641

Total intangible assets — net

$

2,847

$

2,657

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 three and nine months ended September 30, 2019 and 2018 follows:

    

Three months ended 

    

Nine months ended 

September 30,

September 30,

(Millions)

    

2019

    

2018

    

2019

2018

 

Amortization expense

$

69

$

61

$

208

$

188

Expected amortization expense for acquired amortizable intangible assets recorded as of September 30, 2019:

Remainder of

After

 

(Millions)

2019

2020

2021

2022

2023

2024

2024

 

Amortization expense

$

69

$

264

$

256

$

242

$

213

$

183

$

950

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. The table above excludes the impact of the carrying value of finite-lived intangible assets associated with disposal groups classified as held-for-sale at September 30, 2019. See Note 3 for additional details. 3M expenses the costs incurred to renew or extend the term of intangible assets.

v3.19.3
Restructuring Actions and Exit Activities
9 Months Ended
Sep. 30, 2019
Restructuring Actions and Exit Activities  
Restructuring Actions and Exit Activities

NOTE 5. Restructuring Actions and Exit Activities

2019 Restructuring Actions:

During the second quarter of 2019, in light of a slower than expected 2019 sales, management approved and committed to undertake certain restructuring actions. These actions impacted approximately 2,000 positions worldwide, including attrition. The Company recorded a second quarter 2019 pre-tax charge of $148 million. The restructuring charges were recorded in the income statement as follows:

(Millions)

    

Second Quarter 2019

 

Cost of sales

$

18

Selling, general and administrative expenses

 

89

Research, development and related expenses

 

5

Total operating income impact

112

Other expense (income), net

36

Total income before taxes impact

$

148

The operating income impact of these restructuring charges are summarized by business segment as follows:

Second Quarter 2019

 

(Millions)

    

Employee-Related

    

Asset-Related

    

Total

 

Safety and Industrial

$

11

$

$

11

Transportation and Electronics

8

8

Health Care

6

6

Consumer

5

5

Corporate and Unallocated

 

42

 

40