3M Co. (MMM)

Analysis of Debt

Difficulty: Advanced

3M Co., Statement of Financial Position, Debt

USD $ in millions

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Short-term borrowings and current portion of long-term debt	1,853	972	2,044	106	1,683
Long-term debt, excluding current portion	12,096	10,678	8,753	6,731	4,326
Capital lease obligations	60	45	46	59	58
Total debt (carrying amount)	14,009	11,695	10,843	6,896	6,067

Source: Based on data from 3M Co., Annual Reports

Item	Description	The company
Total debt (carrying amount)	Sum of the carrying values as of the balance sheet date of all debt plus capital lease obligations.	3M Co.'s total debt increased from 2015 to 2016 and from 2016 to 2017.

	Dec 31, 2017
Selected Financial Data (USD $ in millions)
Short-term borrowings and current portion of long-term debt, except Medium-term fixed rate note nad Eurobond securities	1,853
Long-term debt, excluding current portion, except Medium-term fixed rate note nad Eurobond securities	12,535
Medium-term fixed rate note	–
Eurobond securities	–
Total debt (fair value)	14,388
Ratio
Debt, fair value to carrying amount	1.03

Source: Based on data from 3M Co., Annual Reports

	Interest Rate	Debt Amount¹	Interest Rate × Debt Amount	Weighted-average Interest Rate²
	2.45%	9,681	237
	0.76%	3,517	27
	1.50%	745	11
	5.35%	6	0
Total		13,949	275	1.97%

Source: Based on data from 3M Co., Annual Reports

¹ USD $ in millions

² Weighted-average interest rate = 100 × 275 ÷ 13,949 = 1.97%

3M Co.

USD $ in millions

12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Interest expense	322	199	149	142	145
Capitalized interest	12	10	13	15	21
Interest costs incurred	334	209	162	157	166

Source: Based on data from 3M Co., Annual Reports

Item	Description	The company
Interest expense	Represents the portion of interest incurred in the period on debt arrangements that was charged against earnings.	3M Co.'s interest expense increased from 2015 to 2016 and from 2016 to 2017.
Capitalized interest	The amount of interest that was capitalized during the period.	3M Co.'s capitalized interest declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.
Interest costs incurred	Total interest costs incurred during the period and either capitalized or charged against earnings.	3M Co.'s interest costs incurred increased from 2015 to 2016 and from 2016 to 2017.

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Selected Financial Data (USD $ in millions)
Net income attributable to 3M	4,858	5,050	4,833	4,956	4,659
Add: Net income attributable to noncontrolling interest	11	8	8	42	62
Add: Income tax expense	2,679	1,995	1,982	2,028	1,841
Add: Interest expense	322	199	149	142	145
Earnings before interest and tax (EBIT)	7,870	7,252	6,972	7,168	6,707

Interest costs incurred	334	209	162	157	166
Ratio With and Without Capitalized Interest
Interest coverage ratio (excluding capitalized interest)¹	24.44	36.44	46.79	50.48	46.26
Adjusted interest coverage ratio (including capitalized interest)²	23.56	34.70	43.04	45.66	40.40

2017 Calculations

¹ Interest coverage ratio (excluding capitalized interest) = EBIT ÷ Interest expense
= 7,870 ÷ 322 = 24.44

² Adjusted interest coverage ratio (including capitalized interest) = EBIT ÷ Interest costs incurred
= 7,870 ÷ 334 = 23.56

Ratio	Description	The company
Adjusted interest coverage ratio	A solvency ratio calculated as EBIT divided by interest payments (including capitalized interest).	3M Co.'s adjusted interest coverage ratio deteriorated from 2015 to 2016 and from 2016 to 2017.