3M 2013 Annual Report Download - page 58

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Notes to Consolidated Financial Statements
NOTE 1. Significant Accounting Policies
Consolidation: 3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products.
All subsidiaries are consolidated. All significant intercompany transactions are eliminated. As used herein, the term “3M”
or “Company” refers to 3M Company and subsidiaries unless the context indicates otherwise.
Foreign currency translation: Local currencies generally are considered the functional currencies outside the United
States. Assets and liabilities for operations in local-currency environments are translated at month-end exchange rates of
the period reported. Income and expense items are translated at month-end exchange rates of each applicable month.
Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in
shareholders’ equity.
Although local currencies are typically considered as the functional currencies outside the United States, under
Accounting Standards Codification (ASC) 830, Foreign Currency Matters, the reporting currency of a foreign entity’s
parent is assumed to be that entity’s functional currency when the economic environment of a foreign entity is highly
inflationary — generally when its cumulative inflation is approximately 100 percent or more for the three years that
precede the beginning of a reporting period. 3M has a subsidiary in Venezuela with operating income representing less
than 1.0 percent of 3M’s consolidated operating income for 2013. 3M has determined that the cumulative inflation rate of
Venezuela has exceeded, and continues to exceed, 100 percent since November 2009. Accordingly, since January 1,
2010, the financial statements of the Venezuelan subsidiary have been remeasured as if its functional currency were that
of its parent.
The Venezuelan government sets official rates of exchange and conditions precedent to purchase foreign currency at
these rates with local currency. Such rates and conditions are subject to change. For the periods presented through
January 2013, this rate was set under the Transaction System for Foreign Currency Denominated Securities (SITME). In
February 2013, the Venezuelan government announced a devaluation of its currency, the elimination of the SITME
market, and the creation of the Superior Body for the Optimization of the Exchange System to oversee its foreign currency
exchange policies. As a result, the new official exchange rate changed to a rate less favorable than the previous SITME
rate. Since January 1, 2010, as discussed above, the financial statements of 3M’s Venezuelan subsidiary have been
remeasured as if its functional currency were that of its parent. For the periods presented, this remeasurement utilized the
SITME rate through January 2013 and the new official rate discussed above thereafter. Other factors notwithstanding, the
elimination of the SITME rate and use of the new official exchange rate beginning in February 2013 did not have a
material impact on 3M’s consolidated results of operations or financial condition.
The Company continues to monitor circumstances relative to its Venezuelan subsidiary. In January 2014, the Venezuelan
government announced that it was making certain changes to its foreign exchange system, the details of which have not
been fully released. These changes could impact the rate of exchange applicable to remeasure the Company’s net
monetary assets denominated in Venezuelan Bolivars (VEF) as well as the amount of VEF required to obtain other
currencies in Venezuela to ultimately satisfy that subsidiary’s non-VEF denominated intercompany payables to other 3M
entities primarily as a result of the importation of 3M products for sale in Venezuela. As of December 31, 2013, the
balance of the Company’s net monetary assets denominated in VEF was less than 12 million VEF and the exchange rate
established by the Venezuelan government was 6.3 VEF per dollar. In addition, the balance of the Venezuelan
subsidiary’s non-VEF denominated intercompany payables to other 3M entities was approximately $45 million as of
December 31, 2013.
Reclassifications: Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform
to the current year presentation.
Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and cash equivalents: Cash and cash equivalents consist of cash and temporary investments with maturities of
three months or less when acquired.