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Significant Accounting Policies (Policies) | 9 Months Ended
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Sep. 30, 2019
Significant Accounting Policies |
Basis of Presentation | 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 | 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 | 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 | 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 ​
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​ |  | 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 | ​
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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 | ​
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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 | 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. ​
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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
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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.
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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.
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