3M 2012 Annual Report Download - page 39

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Systems Division), 3M will continue to monitor conditions to assess whether long term expectations have been
significantly impacted such that future interim impairment tests would be required. As of December 31, 2012, 3M had
approximately $600 million of goodwill and approximately $300 million of long-lived assets related to Security Systems.
Long-lived assets with a definite life are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset (asset group) may not be recoverable. If future non-cash asset impairment charges
are taken, 3M would expect that only a portion of the long-lived assets or goodwill would be impaired. 3M will continue to
monitor its reporting units and asset groups in 2013 for any triggering events or other indicators of impairment.
Income Taxes:
The extent of 3M’s operations involves dealing with uncertainties and judgments in the application of complex tax
regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations
with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax
audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United
States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due.
The Company follows guidance provided by ASC 740, Income Taxes, regarding uncertainty in income taxes, to record
these liabilities (refer to Note 7 for additional information). The Company adjusts these reserves in light of changing facts
and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a
payment that is materially different from the Company’s current estimate of the tax liabilities. If the Company’s estimate of
tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of
these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax
benefits being recognized in the period when the Company determines the liabilities are no longer necessary.
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding new accounting pronouncements is included in Note 1 to the Consolidated Financial Statements.
FINANCIAL CONDITION AND LIQUIDITY
As indicated in the following table, at December 31, 2012, 3M had $5.693 billion of cash, cash equivalents, and
marketable securities and $6.001 billion of debt. Debt included $4.916 billion of long-term debt, $986 million related to the
current portion of long-term debt and short-term borrowings of $99 million. The current portion of long-term debt includes
$850 million (principal amount) of medium-term notes due in August 2013. 3M repaid $500 million (principal amount) of
medium term notes that matured in December 2012. As discussed in Note 9, in June 2012, 3M issued $650 million
aggregate principal amount of five-year fixed rate notes due 2017 and $600 million aggregate principal amount of ten-year
fixed rate notes due 2022. The strength of 3M’s capital structure and consistency of its cash flows provide 3M reliable
access to capital markets. Additionally, the Company’s maturity profile is staggered to ensure refinancing needs in any
given year are reasonable in proportion to the total portfolio. The Company has an AA- credit rating, with a stable outlook,
from Standard & Poor’s and an Aa2 credit rating, with a stable outlook, from Moody’s Investors Service.
The Company generates significant ongoing operating cash flow, which has been used, in part, to pay dividends on 3M
common stock, for acquisitions, and to fund share repurchase activities. As discussed in Note 2, in 2012 3M acquired
Ceradyne, Inc. and other acquisitions for approximately $1 billion. In 2011, 3M acquired Winterthur Technologie AG and
other acquisitions for approximately $700 million (including purchases of noncontrolling interest). 3M was able to complete
these acquisitions while maintaining a strong net debt position, as shown in the table below.
At December 31
(Millions)
2012
2011
Total Debt
$
6,001
$
5,166
Less: Cash and cash equivalents and marketable securities
5,693
4,576
Net Debt
$
308
$
590
The Company defines net debt as total debt less cash, cash equivalents and current and long-term marketable securities.
3M considers net debt to be an important measure of liquidity and its ability to meet ongoing obligations. This measure is
not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled
measures used by other companies.