3M CO, 10-Q filed on 7/26/2018
Quarterly Report
v3.10.0.1
Document and Entity Information
6 Months Ended
Jun. 30, 2018
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 Jun. 30, 2018
Amendment Flag false
Current Fiscal Year End Date --12-31
Entity Current Reporting Status Yes
Entity Filer Category Large Accelerated Filer
Entity Common Stock, Shares Outstanding 586,613,476
Document Fiscal Year Focus 2018
Document Fiscal Period Focus Q2
v3.10.0.1
Consolidated Statement of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Consolidated Statement of Income        
Net sales $ 8,390 $ 7,810 $ 16,668 $ 15,495
Operating expenses        
Cost of sales 4,227 4,020 8,463 7,902
Selling, general and administrative expenses 1,800 1,620 4,373 3,234
Research, development and related expenses 468 478 954 954
Gain on sale of businesses (506) (461) (530) (490)
Total operating expenses 5,989 5,657 13,260 11,600
Operating income 2,401 2,153 3,408 3,895
Interest expense and income        
Other expense (income), net 51 11 93 16
Income before income taxes 2,350 2,142 3,315 3,879
Provision for income taxes 488 557 847 968
Net income including noncontrolling interest 1,862 1,585 2,468 2,911
Less: Net income attributable to noncontrolling interest 5 2 9 5
Net income attributable to 3M $ 1,857 $ 1,583 $ 2,459 $ 2,906
Weighted average 3M common shares outstanding - basic (in shares) 591.4 598.1 593.8 598.1
Earnings per share attributable to 3M common shareholders - basic (in dollars per share) $ 3.14 $ 2.65 $ 4.14 $ 4.86
Weighted average 3M common shares outstanding - diluted (in shares) 604.2 612.8 608.5 612.4
Earnings per share attributable to 3M common shareholders - diluted (in dollars per share) $ 3.07 $ 2.58 $ 4.04 $ 4.74
Cash dividends paid per 3M common share (in dollars per share) $ 1.36 $ 1.175 $ 2.72 $ 2.35
v3.10.0.1
Consolidated Statement of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Consolidated Statement of Comprehensive Income        
Net income including noncontrolling interest $ 1,862 $ 1,585 $ 2,468 $ 2,911
Other comprehensive income (loss), net of tax:        
Cumulative translation adjustment (496) (67) (329) 225
Defined benefit pension and postretirement plans adjustment 114 78 230 161
Cash flow hedging instruments unrealized gain (loss) 162 (51) 101 (127)
Total other comprehensive income (loss), net of tax (220) (40) 2 259
Comprehensive income (loss) including noncontrolling interest 1,642 1,545 2,470 3,170
Comprehensive (income) loss attributable to noncontrolling interest (1) (2) (4) (8)
Comprehensive income (loss) attributable to 3M $ 1,641 $ 1,543 $ 2,466 $ 3,162
v3.10.0.1
Consolidated Balance Sheet - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Current assets    
Cash and cash equivalents $ 2,801 $ 3,053
Marketable securities - current 385 1,076
Accounts receivable — net 5,383 4,911
Inventories    
Finished goods 1,979 1,915
Work in process 1,292 1,218
Raw materials and supplies 967 901
Total inventories 4,238 4,034
Prepaids 713 937
Other current assets 370 266
Total current assets 13,890 14,277
Property, plant and equipment 24,758 24,914
Less: Accumulated depreciation (16,113) (16,048)
Property, plant and equipment - net 8,645 8,866
Goodwill 10,107 10,513
Intangible assets - net 2,787 2,936
Other assets 1,349 1,395
Total assets 36,778 37,987
Current liabilities    
Short-term borrowings and current portion of long-term debt 3,225 1,853
Accounts payable 1,871 1,945
Accrued payroll 646 870
Accrued income taxes 293 310
Other current liabilities 2,867 2,709
Total current liabilities 8,902 7,687
Long-term debt 11,294 12,096
Pension and postretirement benefits 3,254 3,620
Other liabilities 2,900 2,962
Total liabilities 26,350 26,365
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 5,550 5,352
Retained earnings 39,442 39,115
Treasury stock, at cost: 357,419,580 shares at June 30, 2018; 349,148,819 shares at December 31, 2017 (27,617) (25,887)
Accumulated other comprehensive income (loss) (7,019) (7,026)
Total 3M Company shareholders' equity 10,365 11,563
Noncontrolling interest 63 59
Total equity 10,428 11,622
Total liabilities and equity $ 36,778 $ 37,987
v3.10.0.1
Consolidated Balance Sheet (Parenthetical) - $ / shares
Jun. 30, 2018
Dec. 31, 2017
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) 357,419,580 349,148,819
v3.10.0.1
Consolidated Statement of Cash Flows - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash Flows from Operating Activities    
Net income including noncontrolling interest $ 2,468 $ 2,911
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities    
Depreciation and amortization 762 818
Company pension and postretirement contributions (261) (279)
Company pension and postretirement expense 204 163
Stock-based compensation expense 208 206
Gain on sale of businesses (530) (490)
Deferred income taxes (1) (120)
Changes in assets and liabilities    
Accounts receivable (606) (412)
Inventories (337) (347)
Accounts payable (12) (60)
Accrued income taxes (current and long-term) 234 257
Other - net (87) (17)
Net cash provided by operating activities 2,042 2,630
Cash Flows from Investing Activities    
Purchases of property, plant and equipment (PP&E) (669) (589)
Proceeds from sale of PP&E and other assets 96 13
Acquisitions, net of cash acquired 13  
Purchases of marketable securities and investments (964) (407)
Proceeds from maturities and sale of marketable securities and investments 1,636 543
Proceeds from sale of businesses, net of cash sold 806 862
Other - net (11) 5
Net cash provided by investing activities 907 427
Cash Flows from Financing Activities    
Change in short-term debt - net 774 (113)
Repayment of debt (maturities greater than 90 days) (6) (650)
Proceeds from debt (maturities greater than 90 days) 6  
Purchases of treasury stock (2,537) (1,184)
Proceeds from issuance of treasury stock pursuant to stock option and benefit plans 305 496
Dividends paid to shareholders (1,612) (1,403)
Other - net (26) (2)
Net cash used in financing activities (3,096) (2,856)
Effect of exchange rate changes on cash and cash equivalents (105) 55
Net increase (decrease) in cash and cash equivalents (252) 256
Cash and cash equivalents at beginning of year 3,053 2,398
Cash and cash equivalents at end of period $ 2,801 $ 2,654
v3.10.0.1
Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Significant Accounting Policies  
Significant Accounting Policies

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 Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 Annual Report on Form 10-K).

 

As described in the “New Accounting Pronouncements” section, the Company adopted Accounting Standards Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, effective January 1, 2018 on a retrospective basis. This ASU changed how 3M presents net periodic benefit cost within its consolidated statement of income, as reflected in the table that follows. The financial information presented herein reflects these impacts for all periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2017

 

Previously

 

 

 

 

 

(Millions)

    

Reported

    

Revised

    

Change

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

7,810

 

$

7,810

 

$

 —

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

4,007

 

 

4,020

 

 

13

 

Selling, general and administrative expenses

 

 

1,607

 

 

1,620

 

 

13

 

Research, development and related expenses

 

 

473

 

 

478

 

 

 5

 

Gain on sale of businesses

 

 

(461)

 

 

(461)

 

 

 —

 

Total operating expenses

 

 

5,626

 

 

5,657

 

 

31

 

Operating income

 

$

2,184

 

$

2,153

 

$

(31)

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

$

42

 

$

11

 

$

(31)

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

2,142

 

$

2,142

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2017

 

Previously

 

 

 

 

 

(Millions)

    

Reported

    

Revised

    

Change

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

15,495

 

$

15,495

 

$

 —

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

7,876

 

 

7,902

 

 

26

 

Selling, general and administrative expenses

 

 

3,207

 

 

3,234

 

 

27

 

Research, development and related expenses

 

 

944

 

 

954

 

 

10

 

Gain on sale of businesses

 

 

(490)

 

 

(490)

 

 

 —

 

Total operating expenses

 

 

11,537

 

 

11,600

 

 

63

 

Operating income

 

$

3,958

 

$

3,895

 

$

(63)

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

$

79

 

$

16

 

$

(63)

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

3,879

 

$

3,879

 

$

 —

 

 

In addition, as described in Note 16, effective in the first quarter of 2018, 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 consolidation of customer account activity within international countries (expanding dual credit reporting) and the centralization of manufacturing and supply chain technology platforms. Segment information presented herein reflects the impact of these changes for all periods presented.

 

The Company updated its financial information and disclosures in its Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 Annual Report on Form 10-K) to reflect the retrospective application of ASU No. 2017-07 and the preceding business reporting changes.

 

Changes to Significant Accounting Policies

 

The following accounting policies have been updated since the Company’s 2017 Annual Report on Form 10-K (which was updated by 3M’s Current Report on Form 8-K dated May 8, 2018 in regards to the adoption of ASU 2017-07 and the business segment reporting changes discussed above).

 

Revenue (sales) recognition: As described in the “New Accounting Pronouncements” section,  3M adopted ASU No. 2014-09, Revenue from Contracts with Customers, and other related ASUs on January 1, 2018 using the modified retrospective transition approach. The Company’s accounting policy with respect to revenue recognition and additional disclosure relative to this ASU are included in Note 2.

 

Investments: As described in the “New Accounting Pronouncements” section, 3M adopted ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities,  effective January 1, 2018. As a result, all equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value with changes therein reflected in net income. 3M utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments at cost less impairment plus or minus observable price changes in orderly transactions. Further, the change in balance of these securities for the three and six months ended June 30, 2018 was not considered material for additional disclosure.

 

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 is immaterial as a percent of 3M’s consolidated operating income for 2017. 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 same periods, the Venezuelan government’s official exchange was Tipo de Cambio Protegido (DIPRO), or its predecessor, until its discontinuance in the first quarter of 2018.

 

Note 1 in 3M’s Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 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 Venezuelan Bolivars (VEF). As of June 30, 2018, the Company had a balance of net monetary assets denominated in VEF of less than 860 billion VEF and the DIPRO exchange rate was approximately 96,000 VEF per U.S. dollar. A need to deconsolidate the Company’s Venezuelan subsidiary’s operations may result from a lack of exchangeability of VEF-denominated cash coupled with an acute degradation in the ability to make key operational decisions due to government regulations in Venezuela. Based upon a review of factors as of June 30, 2018, the Company continues to consolidate its Venezuelan subsidiary. As of June 30, 2018, 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 equity balance were not significant.

 

3M has subsidiaries in Argentina, the operating income of which is less than one half of one percent of 3M’s consolidated operating income for 2017. 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, the financial statements of the Argentine subsidiaries will be remeasured as if its functional currency were that of its parent, starting in the third quarter of 2018. As of June 30, 2018, the Company had a balance of net monetary assets denominated in Argentine pesos (ARS) of less than 230 million ARS and the exchange rate was approximately 28 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 not have had a dilutive effect (3.5 million average options for the three months ended June 30, 2018;  2.7 million average options for the six months ended June 30, 2018; insignificant for the three months ended June 30, 2017; 1.6 million average options for the six months ended June 30, 2017). 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)

    

2018

    

2017

    

2018

    

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to 3M

 

$

1,857

 

$

1,583

 

$

2,459

 

$

2,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for weighted average 3M common shares outstanding basic

 

 

591.4

 

 

598.1

 

 

593.8

 

 

598.1

 

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

 

 

12.8

 

 

14.7

 

 

14.7

 

 

14.3

 

Denominator for weighted average 3M common shares outstanding diluted

 

 

604.2

 

 

612.8

 

 

608.5

 

 

612.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to 3M common shareholders basic

 

$

3.14

 

$

2.65

 

$

4.14

 

$

4.86

 

Earnings per share attributable to 3M common shareholders diluted

 

$

3.07

 

$

2.58

 

$

4.04

 

$

4.74

 

 

New Accounting Pronouncements

 

See the Company’s Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 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.

 

 

 

 

 

Standards Adopted During the Current Fiscal Year

Standard

Relevant Description

Effective Date for 3M

Impact and Other Matters

ASU No. 2014-09, Revenue from Contracts with Customers (as amended by ASU Nos. 2015-14, 2016-08, 2016-10, 2016-12, and 2016-20) and related ASU No. 2017-10, Determining the Customer of the Operation Services

Provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance.

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.

Requires disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Specifies the accounting for some costs to obtain or fulfill a contract with a customer.

January 1, 2018

See Note 2 for detailed discussion and disclosures.

Adopted using a modified retrospective approach. January 1, 2018 balance of retained earnings was increased by less than $2 million.

ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities

Requires investments in equity securities in an entity that do not result in consolidation and are not accounted for under the equity method to be measured at fair value with changes therein reflected in net income.

Simplifies the impairment assessment and allows for a fair value measurement alternative for equity investments without a readily determinable fair value.

Eliminates the previous cost method of accounting for certain equity securities that did not have readily determinable fair values.

January 1, 2018

Measurement alternative adopted prospectively.

See the preceding “Changes to Significant Accounting Policies” section for impact.

 

ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory

Exempts income tax accounting that requires companies to defer the income tax effects of certain intercompany transactions only for intercompany inventory transactions.

The exception no longer applies to intercompany sales and transfers of other assets (e.g., intangible assets).

January 1, 2018

Adopted using a modified retrospective approach. January 1, 2018 balance of retained earnings was decreased by less than $2 million.

ASU No. 2017-01, Clarifying the Definition of a Business

Narrows the previous definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business.

January 1, 2018

Adopted prospectively with no immediate impact.

Fewer sets of transferred assets and activities are expected to be considered businesses.

ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

Largely impacts the sale of nonfinancial assets (such as real estate and intellectual property) that do not constitute a business, when the purchaser is not a customer.

Seller applies certain recognition and measurement principles of ASU No. 2014-09, Revenue from Contracts with Customers, even though the purchaser is not a customer.

January 1, 2018

Adopted coincident with the adoption of ASU No. 2014-09 with no material impact.

Standards Adopted During the Current Fiscal Year (continued)

Standard

Relevant Description

Effective Date for 3M

Impact and Other Matters

ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

Changes previous classification of net periodic defined benefit pension and postretirement benefit costs within operating expenses.

Requires that only the service cost component of net periodic benefit cost be included in operating expenses and that only the service cost component is eligible for capitalization into assets such as inventory.

Specifies that other net periodic benefit costs components (such as interest, expected return on plan assets, prior service cost amortization and actuarial gain/loss amortization) would be reported outside of operating income.

January 1, 2018

Adopted on a retrospective basis.

No impact on previously reported income before income taxes and net income attributable to 3M. However, non-service cost components of net periodic benefit costs in prior periods have been reclassified from operating expenses and are now reported outside of operating income within other expense (income), net.

See the “Basis of Presentation” section above for impact of this ASU’s adoption on prior period income statement amounts. 

Prospective impact on costs capitalized into assets was not material.

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.

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. 2016-02, Leases (as amended by ASU No. 2018-10)

Introduces 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 current accounting. This ASU does not make fundamental changes to existing lessor accounting.

January 1, 2019

Requires modified retrospective transition applied to earliest period presented

3M is currently assessing this ASU’s impact.

See the “Relevant New Standards Issued Subsequent to Most Recent Annual Report” below for further discussion on ASU No. 2018-10 issued in July 2018.

ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments

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. 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.

3M does not expect this ASU to have a material impact.

 

 

 

 

 

Standards Issued and Not Yet Adopted (continued)

Standard

Relevant Description

Effective Date for 3M

Impact and Other Matters

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.

3M does not expect this ASU to have a material impact.

ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities

Amends existing 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

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.

 

Relevant New Standards Issued Subsequent to Most Recent Annual Report

 

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify, to retained earnings, the one-time income tax effects stranded in accumulated other comprehensive income (AOCI) arising from the change in the U.S. federal corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017. An entity that elects to make this reclassification must consider all items in AOCI that have tax effects stranded as a result of the tax rate change, and must disclose the reclassification of these tax effects as well as the entity’s policy for releasing income tax effects from AOCI. The ASU may be applied either retrospectively or as of the beginning of the period of adoption. For 3M, the ASU is effective January 1, 2019. While this ASU will have no impact on 3M’s results of operations, the Company is currently assessing this standard’s impact on its consolidated financial condition.

 

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which largely aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. The ASU also clarifies that any share-based payment issued to a customer should be evaluated under ASC 606, Revenue from Contracts with Customers. The ASU requires a modified retrospective transition approach. For 3M, the ASU is effective as of January 1, 2019. Because the Company does not grant share-based payments to nonemployees or customers, this ASU will not have a material impact on its consolidated results of operations and financial condition.

 

In June 2018, the FASB issued ASU No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The ASU applies to entities that receive or make contributions, which primarily are not-for-profit entities but also affects business entities that make contributions. In the context of business entities that make contributions, the FASB clarified 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 (or a right of release of the business entity’s obligation to transfer assets). The recognition of contribution expense is deferred for conditional arrangements and is immediate for unconditional arrangements. The ASU requires modified prospective transition to arrangements that have not been completed as of the effective date or that are entered into after the effective date, but full retrospective application to each period presented is permitted. For 3M, the ASU is effective as of January 1, 2019. The Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.

 

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends ASU No. 2016-02, Leases. The new ASU includes certain clarifications to address potential narrow-scope implementation issues which the Company is incorporating into its assessment and adoption of ASU No. 2016-02. This ASU has the same transition requirements and effective date as ASU No. 2016-02, which for 3M is January 1, 2019.

v3.10.0.1
Revenue
6 Months Ended
Jun. 30, 2018
Revenue  
Revenue

NOTE 2.  Revenue

 

The Company adopted ASU No. 2014-09 and related standards (collectively, Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers), as described in Note 1, on January 1, 2018 using the modified retrospective method of adoption. Prior periods have not been restated. Due to the cumulative net impact of adopting ASC 606, the January 1, 2018 balance of retained earnings was increased by less than $2 million, primarily relating to the accelerated recognition for software installation service and training revenue. This cumulative impact reflects retrospective application of ASC 606 only to contracts that were not completed as of January 1, 2018. Further, the Company applied the practical expedient permitting the effect of all contract modifications that occurred before January 1, 2018 to be aggregated in the transition accounting. The impact of applying ASC 606 as compared with previous guidance applied to revenues and costs was not material for the three and six months ended June 30, 2018.

 

Performance Obligations:

The Company sells a wide range of products to a diversified base of customers around the world and has no material concentration of credit risk or significant payment terms extended to customers. The vast majority of 3M’s customer arrangements contain a single performance obligation to transfer manufactured goods as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and, therefore, not distinct. However, to a limited extent 3M also enters into customer arrangements that involve intellectual property out-licensing, multiple performance obligations (such as equipment, installation and service), software with coterminous post-contract support, services and non-standard terms and conditions.

 

Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods/services have been delivered as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. In limited arrangements, control transfers over time as the customer simultaneously receives and consumes the benefits as 3M completes the performance obligation(s).

 

Revenue is recognized at the transaction price which the Company expects to be entitled. When determining the transaction price, 3M estimates variable consideration applying the portfolio approach practical expedient under ASC 606. The main sources of variable consideration for 3M are customer rebates, trade promotion funds, and cash discounts. These sales incentives are recorded as a reduction to revenue at the time of the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a range of possible consideration outcomes. The range of possible consideration outcomes are primarily derived from the following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. Because 3M serves numerous markets, the sales incentive programs offered vary across businesses, but the most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Free goods are accounted for as an expense and recorded in cost of sales. Product returns are recorded as a reduction to revenue based on anticipated sales returns that occur in the normal course of business. 3M primarily has assurance-type warranties that do not result in separate performance obligations. Sales, use, value-added, and other excise taxes are not recognized in revenue. The Company has elected to present revenue net of sales taxes and other similar taxes.

 

For substantially all arrangements recognized over time, the Company applies the “right to invoice” practical expedient. As a result, 3M recognizes revenue at the invoice amount when the entity has a right to invoice a customer at an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

 

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using 3M’s best estimate of the standalone selling price of each distinct good or service in the contract.

 

The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods.

 

Contract Balances:

Deferred income (current portion) as of June 30, 2018 and December 31, 2017 was $512 million and $513 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 of income for goods that are in-transit at period end for which control transfers to the customer upon delivery. Approximately $110 million and $390 million of the December 31, 2017 balance was recognized as revenue during the three and six months ended June 30, 2018, respectively. The amount of noncurrent deferred income is not considered significant.

 

Exemptions and Practical Expedients Applied or Elected:

3M applies ASC 606 utilizing the following allowable exemptions or practical expedients:

·

Exemption to not disclose the unfulfilled performance obligation balance for contracts with an original length of one year or less.

·

Practical expedient relative to costs of obtaining a contract by expensing sales commissions when incurred because the amortization period would have been one year or less.

·

Portfolio approach practical expedient relative to estimation of variable consideration.

·

“Right to invoice” practical expedient based on 3M’s right to invoice the customer at an amount that reasonably represents the value to the customer of 3M’s performance completed to date.

·

Election to present revenue net of sales taxes and other similar taxes.

·

Sales-based royalty exemption permitting future intellectual property out-licensing royalty payments to be excluded from the otherwise required remaining performance obligations disclosure.

 

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 

 

Six months ended 

 

 

 

June 30,

 

June 30,

 

Net Sales (Millions)

 

2018

    

2017

    

2018

    

2017

 

Abrasives

 

$

473

 

$

437

 

$

948

 

$

867

 

Adhesives and Tapes

 

 

1,165

 

 

1,096

 

 

2,318

 

 

2,171

 

Advanced Materials

 

 

317

 

 

287

 

 

621

 

 

574

 

Automotive and Aerospace

 

 

519

 

 

489

 

 

1,078

 

 

997

 

Automotive Aftermarket

 

 

438

 

 

418

 

 

856

 

 

835

 

Separation and Purification

 

 

238

 

 

219

 

 

474

 

 

439

 

Other Industrial

 

 

(2)

 

 

 —

 

 

(3)

 

 

(1)

 

Total Industrial Business Group

 

$

3,148

 

$

2,946

 

$

6,292

 

$

5,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Solutions

 

$

502

 

$

457

 

$

987

 

$

900

 

Personal Safety

 

 

957

 

 

721

 

 

1,919

 

 

1,428

 

Roofing Granules

 

 

99

 

 

96

 

 

200

 

 

193

 

Transportation Safety

 

 

257

 

 

295

 

 

493

 

 

598

 

Other Safety and Graphics

 

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

Total Safety and Graphics Business Group

 

$

1,815

 

$

1,569

 

$

3,598

 

$

3,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drug Delivery

 

$

119

 

$

120

 

$

238

 

$

241

 

Food Safety

 

 

84

 

 

76

 

 

166

 

 

149

 

Health Information Systems

 

 

205

 

 

195

 

 

410

 

 

386

 

Medical Solutions

 

 

772

 

 

729

 

 

1,548

 

 

1,443

 

Oral Care

 

 

342

 

 

330

 

 

696

 

 

666

 

Other Health Care

 

 

(2)

 

 

(1)

 

 

(2)

 

 

(1)

 

Total Health Care Business Group

 

$

1,520

 

$

1,449

 

$

3,056

 

$

2,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronics

 

$

925

 

$

883

 

$

1,856

 

$

1,761

 

Energy

 

 

411

 

 

404

 

 

831

 

 

817

 

Other Electronics and Energy

 

 

 1

 

 

 3

 

 

 —

 

 

 3

 

Total Electronics and Energy Business Group

 

$

1,337

 

$

1,290

 

$

2,687

 

$

2,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Health Care

 

$

100

 

$

104

 

$

202

 

$

206

 

Home Care

 

 

255

 

 

253

 

 

524

 

 

514

 

Home Improvement

 

 

507

 

 

460

 

 

954

 

 

868

 

Stationery and Office

 

 

351

 

 

340

 

 

650

 

 

632

 

Other Consumer

 

 

10

 

 

12

 

 

20

 

 

22

 

Total Consumer Business Group

 

$

1,223

 

$

1,169

 

$

2,350

 

$

2,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and Unallocated

 

$

12

 

$

 2

 

$

12

 

$

 3

 

Elimination of Dual Credit

 

 

(665)

 

 

(615)

 

 

(1,327)

 

 

(1,216)

 

Total Company

 

$

8,390

 

$

7,810

 

$

16,668

 

$

15,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

1,182

 

$

870

 

$

777

 

$

318

 

$

 1

 

$

3,148

 

Safety and Graphics

 

 

747

 

 

419

 

 

443

 

 

206

 

 

 —

 

 

1,815

 

Health Care

 

 

703

 

 

292

 

 

381

 

 

145

 

 

(1)

 

 

1,520

 

Electronics and Energy

 

 

244

 

 

899

 

 

131

 

 

63

 

 

 —

 

 

1,337

 

Consumer

 

 

742

 

 

236

 

 

138

 

 

105

 

 

 2

 

 

1,223

 

Corporate and Unallocated

 

 

 8

 

 

 1

 

 

 1

 

 

 4

 

 

(2)

 

 

12

 

Elimination of Dual Credit

 

 

(278)

 

 

(213)

 

 

(113)

 

 

(60)

 

 

(1)

 

 

(665)

 

Total Company

 

$

3,348

 

$

2,504

 

$

1,758

 

$

781

 

$

(1)

 

$

8,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

2,282

 

$

1,814

 

$

1,562

 

$

634

 

$

 —

 

$

6,292

 

Safety and Graphics

 

 

1,399

 

 

916

 

 

879

 

 

404

 

 

 —

 

 

3,598

 

Health Care

 

 

1,405

 

 

591

 

 

775

 

 

286

 

 

(1)

 

 

3,056

 

Electronics and Energy

 

 

473

 

 

1,810

 

 

276

 

 

129

 

 

(1)

 

 

2,687

 

Consumer

 

 

1,352

 

 

508

 

 

279

 

 

211

 

 

 —

 

 

2,350

 

Corporate and Unallocated

 

 

 8

 

 

 —

 

 

 1

 

 

 3

 

 

 —

 

 

12

 

Elimination of Dual Credit

 

 

(527)

 

 

(459)

 

 

(222)

 

 

(119)

 

 

 —

 

 

(1,327)

 

Total Company

 

$

6,392

 

$

5,180

 

$

3,550

 

$

1,548

 

$

(2)

 

$

16,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2017

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

1,114

 

$

810

 

$

709

 

$

314

 

$

(1)

 

$

2,946

 

Safety and Graphics

 

 

639

 

 

370

 

 

364

 

 

195

 

 

 1

 

 

1,569

 

Health Care

 

 

697

 

 

261

 

 

353

 

 

137

 

 

 1

 

 

1,449

 

Electronics and Energy

 

 

233

 

 

855

 

 

136

 

 

67

 

 

(1)

 

 

1,290

 

Consumer

 

 

694

 

 

231

 

 

139

 

 

105

 

 

 —

 

 

1,169

 

Corporate and Unallocated

 

 

 2

 

 

 2

 

 

 —

 

 

(1)

 

 

(1)

 

 

 2

 

Elimination of Dual Credit

 

 

(252)