3M 2015 Annual Report Download - page 58

TableofContents
amountoftheimpairmentlossrecordediscalculatedbytheexcessoftheasset’scarryingvalueoveritsfairvalue.Fairvalueis
generallydeterminedusingadiscountedcashflowanalysis.

Intangibleassetswithanindefinitelife,namelycertaintradenames,arenotamortized.Indefinite-livedintangibleassetsaretestedfor
impairmentannually,andaretestedforimpairmentbetweenannualtestsifaneventoccursorcircumstanceschangethatwould
indicatethatthecarryingamountmaybeimpaired.Animpairmentlossgenerallywouldberecognizedwhenthefairvalueisless
thanthecarryingvalueoftheindefinite-livedintangibleasset.

Restructuringactions:Restructuringactionsgenerallyincludesignificantactionsinvolvingemployee-relatedseverancecharges,
contractterminationcosts,andimpairmentoraccelerateddepreciation/amortizationofassetsassociatedwithsuchactions.
Employee-relatedseverancechargesarelargelybasedupondistributedemploymentpoliciesandsubstantiveseveranceplans.These
chargesarereflectedinthequarterwhentheactionsareprobableandtheamountsareestimable,whichtypicallyiswhen
managementapprovestheassociatedactions.Severanceamountsforwhichaffectedemployeeswererequiredtorenderservicein
ordertoreceivebenefitsattheirterminationdatesweremeasuredatthedatesuchbenefitswerecommunicatedtotheapplicable
employeesandrecognizedasexpenseovertheemployees’remainingserviceperiods.Contractterminationandothercharges
primarilyreflectcoststoterminateacontractbeforetheendofitsterm(measuredatfairvalueatthetimetheCompanyprovided
noticetothecounterparty)orcoststhatwillcontinuetobeincurredunderthecontractforitsremainingtermwithouteconomic
benefittotheCompany.Assetimpairmentchargesrelatedtointangibleassetsandproperty,plantandequipmentreflecttheexcessof
theassets’carryingvaluesovertheirfairvalues.

Revenue(sales)recognition: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.Revenueisrecognizedwhentherisksandrewardsofownershiphavesubstantively
transferredtocustomers.Thisconditionnormallyismetwhentheproducthasbeendeliveredoruponperformanceofservices.The
Companyrecordsestimatedreductionstorevenueorrecordsexpenseforcustomeranddistributorincentives,primarilycomprisedof
rebatesandfreegoods,atthetimeoftheinitialsale.ThesesalesincentivesareaccountedforinaccordancewithASC605,Revenue
Recognition.Theestimatedreductionsofrevenueforrebatesarebasedonthesalesterms,historicalexperience,trendanalysisand
projectedmarketconditionsinthevariousmarketsserved.SincetheCompanyservesnumerousmarkets,therebate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.Freegoodsareaccountedforasanexpenseandrecordedincostofsales.Sales,use,value-added
andotherexcisetaxesarenotrecognizedinrevenue.

Thevastmajorityof3M’ssalesagreementsareforstandardproductsandserviceswithcustomeracceptanceoccurringupondelivery
oftheproductorperformanceoftheservice.However,toalimitedextent3Malsoentersintoagreementsthatinvolvemultiple
elements(suchasequipment,installationandservice),software,ornon-standardtermsandconditions.

Fornon-softwaremultiple-elementarrangements,theCompanyrecognizesrevenuefordeliveredelementswhentheyhavestand-
alonevaluetothecustomer,theyhavebeenacceptedbythecustomer,andforwhichthereareonlycustomaryrefundorreturnrights.
Arrangementconsiderationisallocatedtothedeliverablesbyuseoftherelativesellingpricemethod.Thesellingpriceusedforeach
deliverableisbasedonvendor-specificobjectiveevidence(VSOE)ifavailable,third-partyevidence(TPE)ifVSOEisnotavailable,
orestimatedsellingpriceifneitherVSOEnorTPEisavailable.Estimatedsellingpriceisdeterminedinamannerconsistentwith
thatusedtoestablishthepricetosellthedeliverableonastandalonebasis.Inadditiontotheprecedingconditions,equipment
revenueisnotrecordeduntiltheinstallationhasbeencompletedifequipmentacceptanceisdependentuponinstallationorif
installationisessentialtothefunctionalityoftheequipment.Installationrevenuesarenotrecordeduntilinstallationhasbeen
completed.

Forarrangements(orportionsofarrangements)fallingwithinsoftwarerevenuerecognitionstandardsandthatdonotinvolve
significantproduction,modification,orcustomization,revenueforeachsoftwareorsoftware-relatedelementisrecognizedwhenthe
CompanyhasVSOEofthefairvalueofalloftheundeliveredelementsandapplicablecriteriahavebeenmetforthedelivered
elements.Whenthearrangementsinvolvesignificantproduction,modificationorcustomization,long-termconstruction-type
accountinginvolvingproportionalperformanceisgenerallyemployed.

58
