Microsoft Excel LibreOffice Calc

3M Co. (MMM)


Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. 3M records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exists. As of December 31, 2018 and 2017, 3M had valuation allowances of $67 million and $81 million on its deferred tax assets, respectively. 3M recognizes and measures its uncertain tax positions based on the rules under ASC 740, Income Taxes.

Source: 10-K (filing date: 2019-02-07).


Income Tax Expense (Benefit)

3M Co., income tax expense (benefit), continuing operations

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Federal 698  1,022  1,192  1,338  1,103 
State 109  59  75  101  108 
International 763  722  733  566  1,008 
Currently payable 1,570  1,803  2,000  2,005  2,219 
Federal (38) 162  (3) (55) (171)
State (17) 15  (9)
International (54) 76  (11) 26  (11)
Deferred (109) 253  (5) (23) (191)
Tax Cuts and Jobs Act (TCJA) non-current transition tax provision 176  623  —  —  — 
Provision for income taxes 1,637  2,679  1,995  1,982  2,028 

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Currently payable Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. 3M Co.’s currently payable declined from 2016 to 2017 and from 2017 to 2018.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. 3M Co.’s deferred increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. 3M Co.’s provision for income taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Effective Income Tax Rate (EITR)

3M Co., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Statutory U.S. tax rate 21.00% 35.00% 35.00% 35.00% 35.00%
State income taxes, net of federal benefit 1.00% 0.80% 0.90% 1.10% 0.90%
International income taxes, net 0.20% -6.30% -2.70% -3.90% -5.80%
Global Intangible Low Taxed Income (GILTI) 1.10% 0.00% 0.00% 0.00% 0.00%
Foreign Derived Intangible Income (FDII) -1.30% 0.00% 0.00% 0.00% 0.00%
U.S. TCJA enactment, net impacts 2.50% 10.10% 0.00% 0.00% 0.00%
U.S. research and development credit -1.50% -0.70% -0.50% -0.50% -0.40%
Reserves for tax contingencies 1.20% 2.20% 0.20% -1.00% 0.60%
Domestic Manufacturer’s deduction 0.00% -1.80% -1.80% -1.80% -1.30%
Employee share-based payments -1.40% -3.20% -2.80% -0.10% -0.10%
All other, net 0.60% -0.60% 0.00% 0.30% 0.00%
Effective worldwide tax rate 23.40% 35.50% 28.30% 29.10% 28.90%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Effective worldwide tax rate Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. 3M Co.’s effective worldwide tax rate increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Components of Deferred Tax Assets and Liabilities

3M Co., components of deferred tax assets and liabilities

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Employee benefit costs 187  178  195  175  148 
Product and other claims 228  204  326  146  152 
Miscellaneous accruals 113  98  92  114  137 
Accruals not currently deductible 528  480  613  435  437 
Pension costs 643  760  1,217  1,120  1,312 
Stock-based compensation 203  210  302  305  290 
Net operating/capital loss/tax credit carryforwards 71  89  93  109  175 
Foreign tax credits —  32  22  25  360 
Currency translation —  59  —  —  — 
Inventory 54  51  53  46  221 
Other 24  —  —  —  — 
Gross deferred tax assets 1,523  1,681  2,300  2,040  2,795 
Valuation allowance (67) (81) (47) (31) (22)
Deferred tax assets 1,456  1,600  2,253  2,009  2,773 
Product and other insurance receivables (7) (6) (27) (28) (31)
Accelerated depreciation (521) (447) (730) (736) (804)
Intangible amortization (799) (784) (903) (1,017) (719)
Currency translation (35) —  (276) (199) — 
Other (8) (87) (40) (70) (61)
Deferred tax liabilities (1,370) (1,324) (1,976) (2,050) (1,615)
Net deferred tax assets (liabilities) 86  276  277  (41) 1,158 

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Gross deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. 3M Co.’s gross deferred tax assets declined from 2016 to 2017 and from 2017 to 2018.
Deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. 3M Co.’s deferred tax assets declined from 2016 to 2017 and from 2017 to 2018.
Net deferred tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. 3M Co.’s net deferred tax assets (liabilities) declined from 2016 to 2017 and from 2017 to 2018.

Deferred Tax Assets and Liabilities, Classification

3M Co., deferred tax assets and liabilities, classification

USD $ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current deferred tax assets (included in Other current assets) —  —  —  —  444 
Noncurrent deferred tax assets (included in Other assets) 365  511  422  510  889 
Current deferred tax liabilities (included in Other current liabilities) —  —  —  —  34 
Noncurrent deferred tax liabilities (included in Other liabilities) 279  235  145  551  141 

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Noncurrent deferred tax assets (included in Other assets) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. 3M Co.’s noncurrent deferred tax assets (included in Other assets) increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Noncurrent deferred tax liabilities (included in Other liabilities) Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. 3M Co.’s noncurrent deferred tax liabilities (included in Other liabilities) increased from 2016 to 2017 and from 2017 to 2018.

Analyst Adjustments: Removal of Deferred Taxes

3M Co., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Current Assets
Current assets (as reported) 13,709  14,277  11,726  10,986  11,765 
Less: Current deferred tax assets, net —  —  —  —  444 
Current assets (adjusted) 13,709  14,277  11,726  10,986  11,321 
Adjustment to Total Assets
Total assets (as reported) 36,500  37,987  32,906  32,718  31,269 
Less: Current deferred tax assets, net —  —  —  —  444 
Less: Noncurrent deferred tax assets, net 365  511  422  510  889 
Total assets (adjusted) 36,135  37,476  32,484  32,208  29,936 
Adjustment to Current Liabilities
Current liabilities (as reported) 7,244  7,687  6,219  7,118  5,998 
Less: Current deferred tax liabilities, net —  —  —  —  34 
Current liabilities (adjusted) 7,244  7,687  6,219  7,118  5,964 
Adjustment to Total Liabilities
Total liabilities (as reported) 26,652  26,365  22,563  20,971  18,127 
Less: Current deferred tax liabilities, net —  —  —  —  34 
Less: Noncurrent deferred tax liabilities, net 279  235  145  551  141 
Total liabilities (adjusted) 26,373  26,130  22,418  20,420  17,952 
Adjustment to Total 3M Company Shareholders’ Equity
Total 3M Company shareholders’ equity (as reported) 9,796  11,563  10,298  11,708  13,109 
Less: Net deferred tax assets (liabilities) 86  276  277  (41) 1,158 
Total 3M Company shareholders’ equity (adjusted) 9,710  11,287  10,021  11,749  11,951 
Adjustment to Net Income Attributable To 3M
Net income attributable to 3M (as reported) 5,349  4,858  5,050  4,833  4,956 
Add: Deferred income tax expense (benefit) (109) 253  (5) (23) (191)
Net income attributable to 3M (adjusted) 5,240  5,111  5,045  4,810  4,765 

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).


3M Co., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Deferred Taxes (Summary)

3M Co., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current Ratio
Reported current ratio 1.89 1.86 1.89 1.54 1.96
Adjusted current ratio 1.89 1.86 1.89 1.54 1.90
Net Profit Margin
Reported net profit margin 16.33% 15.35% 16.77% 15.96% 15.57%
Adjusted net profit margin 15.99% 16.14% 16.76% 15.89% 14.97%
Total Asset Turnover
Reported total asset turnover 0.90 0.83 0.92 0.93 1.02
Adjusted total asset turnover 0.91 0.84 0.93 0.94 1.06
Financial Leverage
Reported financial leverage 3.73 3.29 3.20 2.79 2.39
Adjusted financial leverage 3.72 3.32 3.24 2.74 2.50
Return on Equity (ROE)
Reported ROE 54.60% 42.01% 49.04% 41.28% 37.81%
Adjusted ROE 53.96% 45.28% 50.34% 40.94% 39.87%
Return on Assets (ROA)
Reported ROA 14.65% 12.79% 15.35% 14.77% 15.85%
Adjusted ROA 14.50% 13.64% 15.53% 14.93% 15.92%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. 3M Co.’s adjusted current ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. 3M Co.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. 3M Co.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
3M Co.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. 3M Co.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. 3M Co.’s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

3M Co., Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Current assets 13,709  14,277  11,726  10,986  11,765 
Current liabilities 7,244  7,687  6,219  7,118  5,998 
Ratio
Current ratio1 1.89 1.86 1.89 1.54 1.96
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted current assets 13,709  14,277  11,726  10,986  11,321 
Adjusted current liabilities 7,244  7,687  6,219  7,118  5,964 
Ratio
Adjusted current ratio2 1.89 1.86 1.89 1.54 1.90

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 13,709 ÷ 7,244 = 1.89

2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 13,709 ÷ 7,244 = 1.89

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. 3M Co.’s adjusted current ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to 3M 5,349  4,858  5,050  4,833  4,956 
Net sales 32,765  31,657  30,109  30,274  31,821 
Ratio
Net profit margin1 16.33% 15.35% 16.77% 15.96% 15.57%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to 3M 5,240  5,111  5,045  4,810  4,765 
Net sales 32,765  31,657  30,109  30,274  31,821 
Ratio
Adjusted net profit margin2 15.99% 16.14% 16.76% 15.89% 14.97%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Net profit margin = 100 × Net income attributable to 3M ÷ Net sales
= 100 × 5,349 ÷ 32,765 = 16.33%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to 3M ÷ Net sales
= 100 × 5,240 ÷ 32,765 = 15.99%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. 3M Co.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net sales 32,765  31,657  30,109  30,274  31,821 
Total assets 36,500  37,987  32,906  32,718  31,269 
Ratio
Total asset turnover1 0.90 0.83 0.92 0.93 1.02
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Net sales 32,765  31,657  30,109  30,274  31,821 
Adjusted total assets 36,135  37,476  32,484  32,208  29,936 
Ratio
Adjusted total asset turnover2 0.91 0.84 0.93 0.94 1.06

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= 32,765 ÷ 36,500 = 0.90

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 32,765 ÷ 36,135 = 0.91

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. 3M Co.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total assets 36,500  37,987  32,906  32,718  31,269 
Total 3M Company shareholders’ equity 9,796  11,563  10,298  11,708  13,109 
Ratio
Financial leverage1 3.73 3.29 3.20 2.79 2.39
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted total assets 36,135  37,476  32,484  32,208  29,936 
Adjusted total 3M Company shareholders’ equity 9,710  11,287  10,021  11,749  11,951 
Ratio
Adjusted financial leverage2 3.72 3.32 3.24 2.74 2.50

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Financial leverage = Total assets ÷ Total 3M Company shareholders’ equity
= 36,500 ÷ 9,796 = 3.73

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total 3M Company shareholders’ equity
= 36,135 ÷ 9,710 = 3.72

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
3M Co.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to 3M 5,349  4,858  5,050  4,833  4,956 
Total 3M Company shareholders’ equity 9,796  11,563  10,298  11,708  13,109 
Ratio
ROE1 54.60% 42.01% 49.04% 41.28% 37.81%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to 3M 5,240  5,111  5,045  4,810  4,765 
Adjusted total 3M Company shareholders’ equity 9,710  11,287  10,021  11,749  11,951 
Ratio
Adjusted ROE2 53.96% 45.28% 50.34% 40.94% 39.87%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 ROE = 100 × Net income attributable to 3M ÷ Total 3M Company shareholders’ equity
= 100 × 5,349 ÷ 9,796 = 54.60%

2 Adjusted ROE = 100 × Adjusted net income attributable to 3M ÷ Adjusted total 3M Company shareholders’ equity
= 100 × 5,240 ÷ 9,710 = 53.96%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. 3M Co.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to 3M 5,349  4,858  5,050  4,833  4,956 
Total assets 36,500  37,987  32,906  32,718  31,269 
Ratio
ROA1 14.65% 12.79% 15.35% 14.77% 15.85%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to 3M 5,240  5,111  5,045  4,810  4,765 
Adjusted total assets 36,135  37,476  32,484  32,208  29,936 
Ratio
Adjusted ROA2 14.50% 13.64% 15.53% 14.93% 15.92%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 ROA = 100 × Net income attributable to 3M ÷ Total assets
= 100 × 5,349 ÷ 36,500 = 14.65%

2 Adjusted ROA = 100 × Adjusted net income attributable to 3M ÷ Adjusted total assets
= 100 × 5,240 ÷ 36,135 = 14.50%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. 3M Co.’s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.