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TableofContents
Forprepaidservicecontracts,salesrevenueisrecognizedonastraight-linebasisoverthetermofthecontract,unlesshistorical
evidenceindicatesthecostsareincurredonotherthanastraight-linebasis.Licensefeerevenueisrecognizedasearned,andno
revenueisrecognizeduntiltheinceptionofthelicenseterm.
Onoccasion,agreementswillcontainmilestones,or3Mwillrecognizerevenuebasedonproportionalperformance.Forthese
agreements,anddependingonthespecifics,3Mmayrecognizerevenueuponcompletionofasubstantivemilestone,orinproportion
tocostsincurredtodatecomparedwiththeestimateoftotalcoststobeincurred.
Accountsreceivableandallowances:Tradeaccountsreceivablearerecordedattheinvoicedamountanddonotbearinterest.The
Companymaintainsallowancesforbaddebts,cashdiscounts,productreturnsandvariousotheritems.Theallowancefordoubtful
accountsandproductreturnsisbasedonthebestestimateoftheamountofprobablecreditlossesinexistingaccountsreceivableand
anticipatedsalesreturns.TheCompanydeterminestheallowancesbasedonhistoricalwrite-offexperiencebyindustryandregional
economicdataandhistoricalsalesreturns.TheCompanyreviewstheallowancefordoubtfulaccountsmonthly.TheCompanydoes
nothaveanysignificantoff-balance-sheetcreditexposurerelatedtoitscustomers.
Advertisingandmerchandising:Thesecostsarechargedtooperationsintheperiodincurred,andtotaled$368millionin2015,$407
millionin2014and$423millionin2013.
Research,developmentandrelatedexpenses:Thesecostsarechargedtooperationsintheperiodincurredandareshownona
separatelineoftheConsolidatedStatementofIncome.Research,developmentandrelatedexpensestotaled$1.763billionin2015,
$1.770billionin2014and$1.715billionin2013.Researchanddevelopmentexpenses,coveringbasicscientificresearchandthe
applicationofscientificadvancesinthedevelopmentofnewandimprovedproductsandtheiruses,totaled$1.223billionin2015,
$1.193billionin2014and$1.150billionin2013.Relatedexpensesprimarilyincludetechnicalsupport;internallydevelopedpatent
costs,whichincludecostsandfeesincurredtoprepare,file,secureandmaintainpatents;amortizationofexternallyacquiredpatents
andexternallyacquiredin-processresearchanddevelopment;andgains/lossesassociatedwithcertaincorporateapproved
investmentsinR&D-relatedventures,suchasequitymethodeffectsandimpairments.
Internal-usesoftware:TheCompanycapitalizesdirectcostsofservicesusedinthedevelopmentofinternal-usesoftware.Amounts
capitalizedareamortizedoveraperiodofthreetosevenyears,generallyonastraight-linebasis,unlessanothersystematicand
rationalbasisismorerepresentativeofthesoftware’suse.Amountsarereportedasacomponentofeithermachineryandequipment
orcapitalleaseswithinproperty,plantandequipment.
Environmental:Environmentalexpendituresrelatingtoexistingconditionscausedbypastoperationsthatdonotcontributetocurrent
orfuturerevenuesareexpensed.Reservesforliabilitiesrelatedtoanticipatedremediationcostsarerecordedonanundiscounted
basiswhentheyareprobableandreasonablyestimable,generallynolaterthanthecompletionoffeasibilitystudies,theCompany’s
commitmenttoaplanofaction,orapprovalbyregulatoryagencies.Environmentalexpendituresforcapitalprojectsthatcontribute
tocurrentorfutureoperationsgenerallyarecapitalizedanddepreciatedovertheirestimatedusefullives.
Incometaxes: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.TheCompanyrecordsavaluationallowancetoreduceitsdeferredtaxassetswhenuncertaintyregardingtheir
realizabilityexists.AsofDecember31,2015and2014,theCompanyhadvaluationallowancesof$31millionand$22millionon
itsdeferredtaxassets,respectively.TheincreaseinvaluationallowanceatDecember31,2015relatestocurrentacquisitionsin
certaininternationaljurisdictions.TheCompanyrecognizesandmeasuresitsuncertaintaxpositionsbasedontherulesunderASC
740,IncomeTaxes.
Earningspershare:Thedifferenceintheweightedaverage3Msharesoutstandingforcalculatingbasicanddilutedearningsper
shareattributableto3McommonshareholdersistheresultofthedilutionassociatedwiththeCompany’sstock-basedcompensation
plans.Certainoptionsoutstandingunderthesestock-basedcompensationplansduringtheyears2015,2014and2013werenot
includedinthecomputationofdilutedearningspershareattributableto3Mcommonshareholdersbecausetheywouldnothavehad
adilutiveeffect(5.0millionaverageoptionsfor2015,1.4
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