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Revenue
9 Months Ended
Sep. 30, 2018
Revenue  
Revenue

NOTE 2.  Revenue

 

The Company adopted ASU No. 2014-09 and related standards (collectively, Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers), as described in Note 1, on January 1, 2018 using the modified retrospective method of adoption. Prior periods have not been restated. Due to the cumulative net impact of adopting ASC 606, the January 1, 2018 balance of retained earnings was increased by less than $2 million, primarily relating to the accelerated recognition for software installation service and training revenue. This cumulative impact reflects retrospective application of ASC 606 only to contracts that were not completed as of January 1, 2018. Further, the Company applied the practical expedient permitting the effect of all contract modifications that occurred before January 1, 2018 to be aggregated in the transition accounting. The impact of applying ASC 606 as compared with previous guidance applied to revenues and costs was not material for the three and nine months ended September 30, 2018.

 

Performance Obligations:

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 or significant payment terms extended to customers. The vast majority of 3M’s customer arrangements contain a single performance obligation to transfer manufactured goods as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and, therefore, not distinct. However, to a limited extent 3M also enters into customer arrangements that involve intellectual property out-licensing, multiple performance obligations (such as equipment, installation and service), software with coterminous post-contract support, services and non-standard terms and conditions.

 

Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods/services have been delivered as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. In limited arrangements, control transfers over time as the customer simultaneously receives and consumes the benefits as 3M completes the performance obligation(s).

 

Revenue is recognized at the transaction price which the Company expects to be entitled. When determining the transaction price, 3M estimates variable consideration applying the portfolio approach practical expedient under ASC 606. The main sources of variable consideration for 3M are customer rebates, trade promotion funds, and cash discounts. These sales incentives are recorded as a reduction to revenue at the time of the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a range of possible consideration outcomes. The range of possible consideration outcomes are primarily derived from the following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. Because 3M serves numerous markets, the sales incentive 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. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Free goods are accounted for as an expense and recorded in cost of sales. Product returns are recorded as a reduction to revenue based on anticipated sales returns that occur in the normal course of business. 3M primarily has assurance-type warranties that do not result in separate performance obligations. Sales, use, value-added, and other excise taxes are not recognized in revenue. The Company has elected to present revenue net of sales taxes and other similar taxes.

 

For substantially all arrangements recognized over time, the Company applies the “right to invoice” practical expedient. As a result, 3M recognizes revenue at the invoice amount when the entity has a right to invoice a customer at an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

 

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using 3M’s best estimate of the standalone selling price of each distinct good or service in the contract.

 

The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods.

 

Contract Balances:

Deferred revenue (current portion) as of September 30, 2018 and December 31, 2017 was $614 million and $513 million, respectively, and primarily relates to revenue that is recognized over time for one-year software license contracts, the changes in balance of which are related to the satisfaction or partial satisfaction of these contracts. The balance also contains a deferral for goods that are in-transit at period end for which control transfers to the customer upon delivery. Approximately $70 million and $460 million of the December 31, 2017 balance was recognized as revenue during the three and nine months ended September 30, 2018, respectively. The amount of noncurrent deferred revenue is not considered significant.

 

Exemptions and Practical Expedients Applied or Elected:

3M applies ASC 606 utilizing the following allowable exemptions or practical expedients:

·

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.

 

Disaggregated revenue information:

The Company views the following disaggregated disclosures as useful to understanding the composition of revenue recognized during the respective reporting periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended 

 

 

 

September 30,

 

September 30,

 

Net Sales (Millions)

 

2018

    

2017

    

2018

    

2017

 

Abrasives

 

$

427

 

$

441

 

$

1,375

 

$

1,308

 

Adhesives and Tapes

 

 

1,164

 

 

1,170

 

 

3,482

 

 

3,341

 

Advanced Materials

 

 

314

 

 

281

 

 

935

 

 

855

 

Automotive and Aerospace

 

 

499

 

 

490

 

 

1,577

 

 

1,487

 

Automotive Aftermarket

 

 

397

 

 

414

 

 

1,253

 

 

1,249

 

Separation and Purification

 

 

224

 

 

228

 

 

698

 

 

667

 

Other Industrial

 

 

(2)

 

 

(1)

 

 

(5)

 

 

(2)

 

Total Industrial Business Group

 

$

3,023

 

$

3,023

 

$

9,315

 

$

8,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Solutions

 

$

439

 

$

444

 

$

1,426

 

$

1,344

 

Personal Safety

 

 

881

 

 

732

 

 

2,800

 

 

2,160

 

Roofing Granules

 

 

83

 

 

98

 

 

283

 

 

291

 

Transportation Safety

 

 

259

 

 

279

 

 

752

 

 

877

 

Other Safety and Graphics

 

 

(2)

 

 

(2)

 

 

(3)

 

 

(2)

 

Total Safety and Graphics Business Group

 

$

1,660

 

$

1,551

 

$

5,258

 

$

4,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drug Delivery

 

$

102

 

$

137

 

$

340

 

$

378

 

Food Safety

 

 

83

 

 

78

 

 

249

 

 

227

 

Health Information Systems

 

 

208

 

 

197

 

 

618

 

 

583

 

Medical Solutions

 

 

734

 

 

756

 

 

2,282

 

 

2,199

 

Oral Care

 

 

317

 

 

318

 

 

1,013

 

 

984

 

Other Health Care

 

 

 1

 

 

(1)

 

 

(1)

 

 

(2)

 

Total Health Care Business Group

 

$

1,445

 

$

1,485

 

$

4,501

 

$

4,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronics

 

$

1,103

 

$

1,095

 

$

2,959

 

$

2,856

 

Energy

 

 

339

 

 

419

 

 

1,170

 

 

1,236

 

Other Electronics and Energy

 

 

 1

 

 

 1

 

 

 1

 

 

 4

 

Total Electronics and Energy Business Group

 

$

1,443

 

$

1,515

 

$

4,130

 

$

4,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Health Care

 

$

96

 

$

111

 

$

298

 

$

317

 

Home Care

 

 

249

 

 

263

 

 

773

 

 

777

 

Home Improvement

 

 

518

 

 

517

 

 

1,472

 

 

1,385

 

Stationery and Office

 

 

362

 

 

376

 

 

1,012

 

 

1,008

 

Other Consumer

 

 

10

 

 

12

 

 

30

 

 

34

 

Total Consumer Business Group

 

$

1,235

 

$

1,279

 

$

3,585

 

$

3,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and Unallocated

 

$

35

 

$

 3

 

$

47

 

$

 6

 

Elimination of Dual Credit

 

 

(689)

 

 

(684)

 

 

(2,016)

 

 

(1,900)

 

Total Company

 

$

8,152

 

$

8,172

 

$

24,820

 

$

23,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2018

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

1,137

 

$

898

 

$

683

 

$

308

 

$

(3)

 

$

3,023

 

Safety and Graphics

 

 

678

 

 

411

 

 

381

 

 

191

 

 

(1)

 

 

1,660

 

Health Care

 

 

687

 

 

282

 

 

340

 

 

137

 

 

(1)

 

 

1,445

 

Electronics and Energy

 

 

212

 

 

1,079

 

 

95

 

 

57

 

 

 —

 

 

1,443

 

Consumer

 

 

779

 

 

221

 

 

129

 

 

107

 

 

(1)

 

 

1,235

 

Corporate and Unallocated

 

 

34

 

 

(1)

 

 

(2)

 

 

 —

 

 

 4

 

 

35

 

Elimination of Dual Credit

 

 

(262)

 

 

(269)

 

 

(99)

 

 

(59)

 

 

 —

 

 

(689)

 

Total Company

 

$

3,265

 

$

2,621

 

$

1,527

 

$

741

 

$

(2)

 

$

8,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2018

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

3,419

 

$

2,712

 

$

2,245

 

$

942

 

$

(3)

 

$

9,315

 

Safety and Graphics

 

 

2,077

 

 

1,327

 

 

1,260

 

 

595

 

 

(1)

 

 

5,258

 

Health Care

 

 

2,092

 

 

873

 

 

1,115

 

 

423

 

 

(2)

 

 

4,501

 

Electronics and Energy

 

 

685

 

 

2,889

 

 

371

 

 

186

 

 

(1)

 

 

4,130

 

Consumer

 

 

2,131

 

 

729

 

 

408

 

 

318

 

 

(1)

 

 

3,585

 

Corporate and Unallocated

 

 

42

 

 

(1)

 

 

(1)

 

 

 3

 

 

 4

 

 

47

 

Elimination of Dual Credit

 

 

(789)

 

 

(728)

 

 

(321)

 

 

(178)

 

 

 —

 

 

(2,016)

 

Total Company

 

$

9,657

 

$

7,801

 

$

5,077

 

$

2,289

 

$

(4)

 

$

24,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2017

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

1,111

 

$

883

 

$

700

 

$

331

 

$

(2)

 

$

3,023

 

Safety and Graphics

 

 

612

 

 

393

 

 

352

 

 

195

 

 

(1)

 

 

1,551

 

Health Care

 

 

730

 

 

263

 

 

354

 

 

140

 

 

(2)

 

 

1,485

 

Electronics and Energy

 

 

233

 

 

1,069

 

 

142

 

 

71

 

 

 —

 

 

1,515

 

Consumer

 

 

785

 

 

242

 

 

139

 

 

112

 

 

 1

 

 

1,279

 

Corporate and Unallocated

 

 

 3

 

 

(1)

 

 

 —

 

 

 1

 

 

 —

 

 

 3

 

Elimination of Dual Credit

 

 

(251)

 

 

(269)

 

 

(98)

 

 

(66)

 

 

 —

 

 

(684)

 

Total Company

 

$

3,223

 

$

2,580

 

$

1,589

 

$

784

 

$

(4)

 

$

8,172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2017

 

Net Sales (Millions)

    

United States

 

Asia Pacific

    

Europe, Middle East and Africa

    

Latin America and Canada

    

Other Unallocated

    

Worldwide

 

Industrial

 

$

3,307

 

$

2,546

 

$

2,105

 

$

950

 

$

(3)

 

$

8,905

 

Safety and Graphics

 

 

1,832

 

 

1,194

 

 

1,067

 

 

578

 

 

(1)

 

 

4,670

 

Health Care

 

 

2,117

 

 

784

 

 

1,060

 

 

410

 

 

(2)

 

 

4,369

 

Electronics and Energy

 

 

697

 

 

2,775

 

 

421

 

 

203

 

 

 —

 

 

4,096

 

Consumer

 

 

2,066

 

 

732

 

 

404

 

 

319

 

 

 —

 

 

3,521

 

Corporate and Unallocated

 

 

 6

 

 

 —

 

 

 —

 

 

 1

 

 

(1)

 

 

 6

 

Elimination of Dual Credit

 

 

(734)

 

 

(696)

 

 

(286)

 

 

(184)

 

 

 —

 

 

(1,900)

 

Total Company

 

$

9,291

 

$

7,335

 

$

4,771

 

$

2,277

 

$

(7)

 

$

23,667