3M CO, 10-Q filed on 4/26/2019
Quarterly Report
v3.19.1
Document and Entity Information
3 Months Ended
Mar. 31, 2019
shares
Document and Entity Information  
Entity Registrant Name 3M Company
Trading Symbol mmm
Entity Central Index Key 0000066740
Document Type 10-Q
Document Period End Date Mar. 31, 2019
Amendment Flag false
Current Fiscal Year End Date --12-31
Entity Current Reporting Status Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Common Stock, Shares Outstanding 576,426,706
Document Fiscal Year Focus 2019
Document Fiscal Period Focus Q1
v3.19.1
Consolidated Statement of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Consolidated Statement of Income    
Net sales $ 7,863 $ 8,278
Operating expenses    
Cost of sales 4,310 4,236
Selling, general and administrative expenses 1,948 2,573
Research, development and related expenses 477 486
Gain on sale of businesses (8) (24)
Total operating expenses 6,727 7,271
Operating income 1,136 1,007
Interest expense and income    
Other expense (income), net 48 42
Income before income taxes 1,088 965
Provision for income taxes 195 359
Net income including noncontrolling interest 893 606
Less: Net income attributable to noncontrolling interest 2 4
Net income attributable to 3M $ 891 $ 602
Weighted average 3M common shares outstanding - basic (in shares) 577.5 596.2
Earnings per share attributable to 3M common shareholders - basic (in dollars per share) $ 1.54 $ 1.01
Weighted average 3M common shares outstanding - diluted (in shares) 588.5 612.7
Earnings per share attributable to 3M common shareholders - diluted (in dollars per share) $ 1.51 $ 0.98
v3.19.1
Consolidated Statement of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Consolidated Statement of Comprehensive Income    
Net income including noncontrolling interest $ 893 $ 606
Other comprehensive income (loss), net of tax:    
Cumulative translation adjustment 77 167
Defined benefit pension and postretirement plans adjustment 84 116
Cash flow hedging instruments 6 (61)
Total other comprehensive income (loss), net of tax 167 222
Comprehensive income (loss) including noncontrolling interest 1,060 828
Comprehensive (income) loss attributable to noncontrolling interest (2) (3)
Comprehensive income (loss) attributable to 3M $ 1,058 $ 825
v3.19.1
Consolidated Balance Sheet - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 2,938 $ 2,853
Marketable securities - current 539 380
Accounts receivable - net 5,173 5,020
Inventories    
Finished goods 2,221 2,120
Work in process 1,333 1,292
Raw materials and supplies 984 954
Total inventories 4,538 4,366
Prepaids 713 741
Other current assets 473 349
Total current assets 14,374 13,709
Property, plant and equipment 25,124 24,873
Less: Accumulated depreciation (16,295) (16,135)
Property, plant and equipment - net 8,829 8,738
Operating lease right of use assets 797  
Goodwill 10,611 10,051
Intangible assets - net 3,047 2,657
Other assets 1,482 1,345
Total assets 39,140 36,500
Current liabilities    
Short-term borrowings and current portion of long-term debt 790 1,211
Accounts payable 2,309 2,266
Accrued payroll 517 749
Accrued income taxes 183 243
Operating lease liabilities — current 255  
Other current liabilities 3,071 2,775
Total current liabilities 7,125 7,244
Long-term debt 15,580 13,411
Pension and postretirement benefits 2,919 2,987
Operating lease liabilities 531  
Other liabilities 3,228 3,010
Total liabilities 29,383 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 5,755 5,643
Retained earnings 41,159 40,636
Treasury stock, at cost: 367,606,350 shares at March 31, 2019; 367,457,888 shares at December 31, 2018 (29,668) (29,626)
Accumulated other comprehensive income (loss) (7,552) (6,866)
Total 3M Company shareholders' equity 9,703 9,796
Noncontrolling interest 54 52
Total equity 9,757 9,848
Total liabilities and equity $ 39,140 $ 36,500
v3.19.1
Consolidated Balance Sheet (Parenthetical) - $ / shares
Mar. 31, 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) 367,606,350 367,457,888
v3.19.1
Consolidated Statement of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash Flows from Operating Activities    
Net income including noncontrolling interest $ 893 $ 606
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities    
Depreciation and amortization 375 382
Company pension and postretirement contributions (47) (232)
Company pension and postretirement expense 70 102
Stock-based compensation expense 130 159
Gain on sale of businesses (5) (24)
Deferred income taxes (56) (103)
Changes in assets and liabilities    
Accounts receivable (78) (260)
Inventories (178) (209)
Accounts payable (3) (88)
Accrued income taxes (current and long-term)   212
Other - net (53) (402)
Net cash provided by (used in) operating activities 1,048 143
Cash Flows from Investing Activities    
Purchases of property, plant and equipment (PP&E) (391) (304)
Proceeds from sale of PP&E and other assets 1 83
Acquisitions, net of cash acquired (704)  
Purchases of marketable securities and investments (511) (517)
Proceeds from maturities and sale of marketable securities and investments 369 990
Proceeds from sale of businesses, net of cash sold 6 40
Other - net 5 (11)
Net cash provided by (used in) investing activities (1,225) 281
Cash Flows from Financing Activities    
Change in short-term debt - net (428) 1,581
Repayment of debt (maturities greater than 90 days) (246) (6)
Proceeds from debt (maturities greater than 90 days) 2,265 6
Purchases of treasury stock (701) (937)
Proceeds from issuance of treasury stock pursuant to stock option and benefit plans 215 219
Dividends paid to shareholders (830) (810)
Other - net (17) (7)
Net cash provided by (used in) financing activities 258 46
Effect of exchange rate changes on cash and cash equivalents 4 (32)
Net increase (decrease) in cash and cash equivalents 85 438
Cash and cash equivalents at beginning of year 2,853 3,053
Cash and cash equivalents at end of period $ 2,938 $ 3,491
v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 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 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 are 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. For the periods presented, 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. 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.

 

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. The Company continues to monitor these circumstances. 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 VES. As of March 31, 2019, the Company had a balance of net monetary liabilities denominated in VES of approximately 60 million VES and the DICOM exchange rate was approximately 3,333 VES per U.S. dollar. A need to deconsolidate the Company’s Venezuelan subsidiary’s operations may result 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. Based upon a review of factors as of March 31, 2019, the Company continues to consolidate its Venezuelan subsidiary. 3M also continues to monitor the macro-economic and operating business environment of Venezuela and may make certain resulting strategic decisions. As of March 31, 2019, the balance of accumulated other comprehensive loss associated with this subsidiary was approximately $145 million, and the amount of intercompany receivables due from this subsidiary and its total equity balance were not significant.

 

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 March 31, 2019, the Company had a balance of net monetary assets denominated in Argentine pesos (ARS) of approximately 190 million ARS and the exchange rate was approximately 43 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 (5.2 million average options for the three months ended March 31, 2019 and 1.9 million average options for the three months ended March 31, 2018). The computations for basic and diluted earnings per share follow:

 

Earnings Per Share Computations

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

 

 

 

March 31,

 

(Amounts in millions, except per share amounts)

    

2019

    

2018

 

Numerator:

 

 

 

 

 

 

 

Net income attributable to 3M

 

$

891

 

$

602

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Denominator for weighted average 3M common shares outstanding basic

 

 

577.5

 

 

596.2

 

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

 

 

11.0

 

 

16.5

 

Denominator for weighted average 3M common shares outstanding diluted

 

 

588.5

 

 

612.7

 

 

 

 

 

 

 

 

 

Earnings per share attributable to 3M common shareholders basic

 

$

1.54

 

$

1.01

 

Earnings per share attributable to 3M common shareholders diluted

 

$

1.51

 

$

0.98

 

 

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)

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 is currently assessing this ASU’s impact.

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. The new ASU provides narrow-scope amendments to help apply these recent standards. The transition requirements and effective date of this ASU for 3M is January 1, 2020 with early adoption permitted for certain amendments. The Company is currently assessing this standard’s impact on 3M’s consolidated result of operations and financial condition.

 

 

 

 

 

v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue  
Revenue

NOTE 2.  Revenue

 

Contract Balances:

Deferred revenue (current portion) as of March 31, 2019 and December 31, 2018 was $619 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 $370 million of the December 31, 2018 balance was recognized as revenue during the three months ended March 31, 2019, while approximately $280 million of the December 31, 2017 balance was recognized as revenue during the three months ended March 31, 2018. 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 

 

 

 

March 31,

 

Net Sales (Millions)

 

2019

    

2018

 

Abrasives

 

$

433

 

$

473

 

Adhesives and Tapes

 

 

807

 

 

842

 

Advanced Materials

 

 

312

 

 

304

 

Automotive and Aerospace

 

 

500

 

 

556

 

Automotive Aftermarket

 

 

390

 

 

419

 

Closure and Masking Systems

 

 

278

 

 

307

 

Separation and Purification

 

 

214

 

 

235

 

Other Industrial

 

 

(5)

 

 

(1)

 

Total Industrial Business Group

 

$

2,929

 

$

3,135

 

 

 

 

 

 

 

 

 

Commercial Solutions

 

$

458

 

$

485

 

Personal Safety

 

 

939

 

 

957

 

Roofing Granules

 

 

92

 

 

101

 

Transportation Safety

 

 

217

 

 

237

 

Other Safety and Graphics

 

 

(2)

 

 

(1)

 

Total Safety and Graphics Business Group

 

$

1,704

 

$

1,779

 

 

 

 

 

 

 

 

 

Drug Delivery

 

$

92

 

$

119

 

Food Safety

 

 

83

 

 

81

 

Health Information Systems

 

 

260

 

 

205

 

Medical Solutions

 

 

764

 

 

777

 

Oral Care

 

 

341

 

 

354

 

Other Health Care

 

 

 —

 

 

(1)

 

Total Health Care Business Group

 

$

1,540

 

$

1,535

 

 

 

 

 

 

 

 

 

Electronics

 

$

863

 

$

930

 

Energy

 

 

330

 

 

420

 

Other Electronics and Energy

 

 

(3)

 

 

 —

 

Total Electronics and Energy Business Group

 

$

1,190

 

$

1,350

 

 

 

 

 

 

 

 

 

Consumer Health Care

 

$

98

 

$

102

 

Home Care

 

 

258

 

 

269

 

Home Improvement

 

 

462

 

 

458

 

Stationery and Office

 

 

294

 

 

303

 

Other Consumer

 

 

11

 

 

13

 

Total Consumer Business Group

 

$

1,123

 

$

1,145

 

 

 

 

 

 

 

 

 

Corporate and Unallocated

 

$

21

 

$

 —

 

Elimination of Dual Credit

 

 

(644)

 

 

(666)

 

Total Company

 

$

7,863

 

$

8,278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2019

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

1,082

 

$

823

 

$

727

 

$

297

 

$

 —

 

$

2,929

 

Safety and Graphics

 

 

635

 

 

469

 

 

408

 

 

191

 

 

 1

 

 

1,704

 

Health Care

 

 

725

 

 

305

 

 

378

 

 

132

 

 

 —

 

 

1,540

 

Electronics and Energy

 

 

203

 

 

840

 

 

94

 

 

53

 

 

 —

 

 

1,190

 

Consumer

 

 

631

 

 

266

 

 

130

 

 

96

 

 

 —

 

 

1,123

 

Corporate and Unallocated

 

 

19

 

 

 2

 

 

 —

 

 

 3

 

 

(3)

 

 

21

 

Elimination of Dual Credit

 

 

(249)

 

 

(227)

 

 

(113)

 

 

(55)

 

 

 —

 

 

(644)

 

Total Company

 

$

3,046

 

$

2,478

 

$

1,624

 

$

717

 

$

(2)

 

$

7,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2018

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

1,100

 

$

937

 

$

787

 

$

312

 

$

(1)

 

$

3,135

 

Safety and Graphics

 

 

652

 

 

493

 

 

436

 

 

198

 

 

 —

 

 

1,779

 

Health Care

 

 

702

 

 

298

 

 

394

 

 

141

 

 

 —

 

 

1,535

 

Electronics and Energy

 

 

229

 

 

910

 

 

145

 

 

67

 

 

(1)

 

 

1,350

 

Consumer

 

 

610

 

 

286

 

 

143

 

 

106

 

 

 —

 

 

1,145

 

Corporate and Unallocated

 

 

(1)

 

 

 —

 

 

 —

 

 

 —

 

 

 1

 

 

 —

 

Elimination of Dual Credit

 

 

(248)

 

 

(248)

 

 

(113)

 

 

(57)

 

 

 —

 

 

(666)

 

Total Company

 

$

3,044

 

$

2,676

 

$

1,792

 

$

767

 

$

(1)

 

$

8,278

 

 

v3.19.1
Acquisitions and Divestitures
3 Months Ended
Mar. 31, 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

 

 

16

 

 

 

Property, plant, and equipment

 

 

 9

 

 

 

Purchased finite-lived intangible assets:

 

 

 

 

 

 

Customer related intangible assets

 

 

290

 

15

 

Other technology-based intangible assets

 

 

160

 

 6

 

Definite-lived tradenames

 

 

11

 

 6

 

Purchased goodwill

 

 

580

 

 

 

Other assets

 

 

55

 

 

 

Accounts payable and other liabilities

 

 

(113)

 

 

 

Interest bearing debt

 

 

(251)

 

 

 

Deferred tax asset/(liability)

 

 

(130)

 

 

 

 

 

 

 

 

 

 

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 three months ended March 31, 2019 totaled $461 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 12 years (lives ranging from 6 to 15 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 intangible assets, working capital, 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 first quarter of 2019 were approximately $50 million and $20 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.

 

There were no acquisitions that closed during the three months ended March 31, 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.

 

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 $10 million and not material in the first three 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 March 31, 2019 and as of December 31, 2018 were not material.

 

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

v3.19.1
Goodwill and Intangible Assets
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets  
Goodwill and Intangible Assets

NOTE 4.  Goodwill and Intangible Assets

 

Goodwill from acquisitions totaled $580 million during the first three months of 2019, none of which was deductible for tax purposes. 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 March 31, 2019, follow:

 

Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Millions)

 

Industrial

 

Safety and Graphics

 

Health Care

 

Electronics and Energy

 

Consumer

 

Total Company

 

Balance as of December 31, 2018

 

 

2,614

 

 

4,325

 

 

1,654

 

 

1,250

 

 

208

 

 

10,051

 

Acquisition activity

 

 

 —

 

 

 —

 

 

580

 

 

 —

 

 

 —

 

 

580

 

Translation and other

 

 

(28)

 

 

(4)

 

 

(11)

 

 

(7)

 

 

30

 

 

(20)

 

Balance as of March 31, 2019

 

$

2,586

 

$

4,321

 

$

2,223

 

$

1,243

 

$

238

 

$

10,611

 

 

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 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 quarter 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 March 31, 2019, and December 31, 2018, follow:

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

(Millions)

    

2019

    

2018

 

Customer related intangible assets

 

$

2,577

 

$

2,291

 

Patents

 

 

539

 

 

542

 

Other technology-based intangible assets

 

 

738

 

 

576

 

Definite-lived tradenames

 

 

674

 

 

664

 

Other amortizable intangible assets

 

 

125

 

 

125

 

Total gross carrying amount

 

$

4,653

 

$

4,198

 

 

 

 

 

 

 

 

 

Accumulated amortization — customer related

 

 

(1,034)

 

 

(998)

 

Accumulated amortization — patents

 

 

(489)

 

 

(487)

 

Accumulated amortization — other technology-based

 

 

(350)

 

 

(333)

 

Accumulated amortization — definite-lived tradenames

 

 

(284)

 

 

(276)

 

Accumulated amortization — other

 

 

(88)

 

 

(88)

 

Total accumulated amortization

 

$

(2,245)

 

$

(2,182)

 

 

 

 

 

 

 

 

 

Total finite-lived intangible assets — net

 

$

2,408

 

$

2,016

 

 

 

 

 

 

 

 

 

Non-amortizable intangible assets (primarily tradenames)

 

 

639

 

 

641

 

Total intangible assets — net

 

$

3,047

 

$

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 months ended March 31, 2019 and 2018 follows:

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

 

 

 

March 31,

 

(Millions)

    

2019

    

2018

 

Amortization expense

 

$

69

 

$

64

 

 

Expected amortization expense for acquired amortizable intangible assets recorded as of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remainder of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After

 

(Millions)

 

2019

 

2020

 

2021

 

2022

 

2023

 

2024

 

2024

 

Amortization expense

 

$

215

 

$

276

 

$

267

 

$

252

 

$

222

 

$

196

 

$

980

 

 

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.

v3.19.1
Restructuring Actions and Exit Activities
3 Months Ended
Mar. 31, 2019
Restructuring Actions and Exit Activities  
Restructuring Actions and Exit Activities

NOTE 5.  Restructuring Actions and Exit Activities

2018 Restructuring Actions:

 

During the second quarter and fourth quarter of 2018, management approved and committed to undertake certain restructuring actions related to addressing corporate functional costs following the Communication Markets Division divestiture. These actions affected approximately 1,200 positions worldwide and resulted in a second quarter 2018 pre-tax charge of $105 million and a fourth quarter pre-tax charge of $22 million, net of adjustments for reductions in cost estimates of $10 million, essentially all within Corporate and Unallocated. The restructuring charges were recorded in the income statement as follows:

 

 

 

 

 

 

 

 

 

(Millions)

    

Second Quarter 2018

 

Fourth Quarter 2018

 

Cost of sales

 

$

12

 

$

15

 

Selling, general and administrative expenses

 

 

89

 

 

16

 

Research, development and related expenses

 

 

 4

 

 

 1

 

Total

 

$

105

 

$

32

 

 

Restructuring actions, including cash and non-cash impacts, follow:

 

 

 

 

 

 

 

 

 

 

 

 

(Millions)

    

Employee-Related

    

Asset-Related

    

Total

 

Expense incurred in the second quarter and fourth quarter of 2018

 

$

125

 

$

12

 

$

137

 

Non-cash changes

 

 

 —

 

 

(12)

 

 

(12)

 

Cash payments

 

 

(24)

 

 

 —

 

 

(24)

 

Adjustments

 

 

(17)

 

 

 —

 

 

(17)

 

Accrued restructuring action balances as of December 31, 2018

 

$

84

 

$

 —

 

$

84

 

Cash payments

 

 

(13)

 

 

 —

 

 

(13)

 

Adjustments

 

 

(1)

 

 

 —

 

 

(1)

 

Accrued restructuring action balances as of March 31, 2019

 

$

70

 

$

 —

 

$

70

 

 

Remaining activities related to this restructuring are expected to be largely completed through 2019.

v3.19.1
Supplemental Income Statement Information
3 Months Ended
Mar. 31, 2019
Supplemental Income Statement Information  
Supplemental Income Statement Information

NOTE 6.  Supplemental Income Statement Information

 

Other expense (income), net consists of the following:

 

 

 

 

 

 

 

 

 

    

Three months ended 

 

 

 

March 31,

 

(Millions)

 

2019

    

2018

 

Interest expense

 

$

104

 

$

82

 

Interest income