DELAWARE

41-0417775

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

3M Center, St. Paul, Minnesota

55144

(Address of principal executive offices)

(Zip Code)

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

(Do not check if a smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

Class

Outstanding at June 30, 2018

Common Stock, $0.01 par value per share

586,613,476 shares

TABLE OF CONTENTS

BEGINNING
PAGE

PART I 

FINANCIAL INFORMATION

ITEM 1. 

Financial Statements

Index to Financial Statements:

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies

Note 2. Revenue

Note 3. Acquisitions and Divestitures

Note 4. Goodwill and Intangible Assets

Note 5. Restructuring Actions and Exit Activities

Note 6. Supplemental Income Statement Information 

Note 7. Supplemental Equity and Comprehensive Income Information

Note 8. Income Taxes

Note 9. Marketable Securities

Note 10. Long-Term Debt and Short-Term Borrowings

Note 11. Pension and Postretirement Benefit Plans

Note 12. Derivatives

Note 13. Fair Value Measurements

Note 14. Commitments and Contingencies

Note 15. Stock-Based Compensation

Note 16. Business Segments

Report of Independent Registered Public Accounting Firm

ITEM 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Index to Management’s Discussion and Analysis:

Overview

Results of Operations

Performance by Business Segment

Financial Condition and Liquidity

Cautionary Note Concerning Factors That May Affect Future Results

ITEM 3. 

Quantitative and Qualitative Disclosures About Market Risk

ITEM 4. 

Controls and Procedures

PART II 

OTHER INFORMATION

ITEM 1. 

Legal Proceedings

ITEM 1A. 

Risk Factors

ITEM 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

ITEM 3. 

Defaults Upon Senior Securities

ITEM 4. 

Mine Safety Disclosures

ITEM 5. 

Other Information

ITEM 6. 

Exhibits

Three months ended 

Six months ended 

June 30,

June 30,

(Millions, except per share amounts)

2018

2017

2018

2017

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

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

591.4

598.1

593.8

598.1

Earnings per share attributable to 3M common shareholders — basic

$

3.14

$

2.65

$

4.14

$

4.86

Weighted average 3M common shares outstanding — diluted

604.2

612.8

608.5

612.4

Earnings per share attributable to 3M common shareholders — diluted

$

3.07

$

2.58

$

4.04

$

4.74

Cash dividends paid per 3M common share

$

1.36

$

1.175

$

2.72

$

2.35

Three months ended 

Six months ended 

June 30,

June 30,

(Millions)

2018

2017

2018

2017

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

June 30,

December 31,

(Dollars in millions, except per share amount)

2018

2017

Assets

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

Liabilities

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)

Equity

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

Six months ended 

June 30,

(Millions)

2018

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

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

$

 —

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

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.

·

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.

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)