3M 2014 Annual Report Download - page 61

55
SICAD1 and SICAD2 exchange rates were approximately 10 VEF and 50 VEF per U.S. dollar, respectively. Had 3M
utilized the SICAD1 rate rather than the SICAD2 rate of exchange for remeasurement of such items as of December 31,
2014, the differential would not have had a material impact on 3M’s consolidated results of operations or financial
condition.
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. 3M monitors factors such as its 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. Based
upon such factors as of December 31, 2014, the Company continues to consolidate its Venezuelan subsidiary. As of
December 31, 2014, the balance of intercompany receivables due from this subsidiary is less than $20 million and its
equity balance is not significant.
Reclassifications: Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform
to the current year presentation.
Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and cash equivalents: Cash and cash equivalents consist of cash and temporary investments with maturities of
three months or less when acquired.
Marketable securities: The classification of marketable securities as current or non-current is dependent upon
management’s intended holding period, the security’s maturity date and liquidity considerations based on market
conditions. If management intends to hold the securities for longer than one year as of the balance sheet date, they are
classified as non-current. 3M reviews impairments associated with its marketable securities in accordance with the
measurement guidance provided by ASC 320, Investments-Debt and Equity Securities, when determining the
classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results in an
unrealized loss being recorded in the other comprehensive income component of shareholders’ equity. Such an
unrealized loss does not reduce net income for the applicable accounting period because the loss is not viewed as other-
than-temporary. The factors evaluated to differentiate between temporary and other-than-temporary include the projected
future cash flows, credit ratings actions, and assessment of the credit quality of the underlying collateral, as well as other
factors.
Investments: Investments primarily include equity method, cost method, and available-for-sale equity investments.
Available-for-sale investments are recorded at fair value. Unrealized gains and losses relating to investments classified as
available-for-sale are recorded as a component of accumulated other comprehensive income (loss) in shareholders’
equity.
Other assets: Other assets include deferred income taxes, product and other insurance receivables, the cash surrender
value of life insurance policies, and other long-term assets. Investments in life insurance are reported at the amount that
could be realized under contract at the balance sheet date, with any changes in cash surrender value or contract value
during the period accounted for as an adjustment of premiums paid. Cash outflows and inflows associated with life
insurance activity are included in “Purchases of marketable securities and investments” and “Proceeds from maturities
and sale of marketable securities and investments,” respectively.
Inventories: Inventories are stated at the lower of cost or market, with cost generally determined on a first-in, first-out
basis.
Property, plant and equipment: Property, plant and equipment, including capitalized interest and internal engineering
costs, are recorded at cost. Depreciation of property, plant and equipment generally is computed using the straight-line
method based on the estimated useful lives of the assets. The estimated useful lives of buildings and improvements
primarily range from ten to forty years, with the majority in the range of twenty to forty years. The estimated useful lives of
machinery and equipment primarily range from three to fifteen years, with the majority in the range of five to ten years.
Fully depreciated assets are retained in property and accumulated depreciation accounts until disposal. Upon disposal,
assets and related accumulated depreciation are removed from the accounts and the net amount, less proceeds from
disposal, is charged or credited to operations. Property, plant and equipment amounts are reviewed for impairment