Hello, I'm Professor Brian Bushee. Welcome back. Our trip around the accounting cycle has culminated in the preparation of the first two financial statements. The income statement and the balance sheet. As is our custom, we'll end the week by taking a look at the 3M company and report to see what their income statement and balance sheet look like. So without further ado, let's look at 3M's annual report. Let's start with 3M's income statement, which is on page 46 of their annual report. And to make this interesting, why don't we just compare this directly to what we did for Relic Spotter. So over here is the Relic Spotter income statement that we prepared. And we'll just compare it directly to the 3M company. We started out with net revenue as the top line broken into the two segments. 3M just gives us one line for net sales. Then we have the cost of revenues or cost of goods sold. Again, 3M has just one line item. We had selling, general and administrative expenses. 3M has that as their next item, again only one line item. They also have R&D, which we didn't have as Relic Spotter. Just let me delete that, so that goes away. But they also had R&D, which we did not have in Relic Spotter. That gives operating income. And we see the same thing on the 3M financial statements. And so far, we're seeing the same items in the same order. There's just a lot more detail in Relic Spotter. Below the operating income line, we get to interest revenue and interest expense. Same thing for 3M. Then we have pretax income, income tax expense, net income. And you see the same order for 3M, the only thing is they have this noncontrolling interest which we'll talk about later in the term. Now you may be wondering how can a big multinational company like 3M, producer of Post-it Notes and Scotch tape and all sorts of other cool stuff, get away with providing less information in their income statement than Relic Spotter? Well as it turns out, 3M is gonna provide more information. It's just not shown on the face of the income statement. If we go back to that MD&A section, management, discussion and analysis this is back on page 18 of the report. We'll find that here is where 3M gives us a lot more detail about their income statement. So here's net sales. They give us US versus international. They tell us how much of it is price versus volume growth, how much of it is organic versus acquisitions. They give you some geographic and product segment information, and they'll give you more of that, I'll show you in a second. For operating expenses like costs of sales, they give you a whole paragraph explaining what happened. So it includes manufacturing, engineering and freight costs. One of the effect of the changes year on year was the impact of selling price, raw material, cost changes. Same thing with SG&A. They don't quite give you the same detail breakdown of the components but they do talk about how different line items change, like pension expense, restructuring expenses, cost control and productivity efforts. So you're getting more detail on the line items. Here that you didn't see on the income statement. Same thing with interest income and interest expense, income taxes, and then as I mentioned, they go through each segment, and for each segment, like industrial and transportation business, healthcare business, consumer and office business, so this is the Post-it Note segment. Safety, Security and Protection Services, maybe this is Post-it Notes, but in each case, they're giving you the sales by the segment, operating income by segment and some details about what happened. So we do actually get more of the information than we see in the income statement, but you have to dig into a different part of the report to find it. Now let's take a look at the balance sheet, which is on page 48 of the 3M 10K, and again we will compare it to our Relic Spotter balance sheet. So this is as of December 31st a point in time. Always start with cash, that's the most liquid asset. 3M also has marketable securities which are very liquid, so, things like securities that deposit. Accounts receivable come next on both statements. 3M talks about allowances. In a couple weeks, we'll talk about what these allowances for accounts receivable mean. Then we had inventory. We also see inventories, oops. We also see inventories for 3M. As a manufacturing company they have different categories of inventory. We'll talk about that in about three weeks. We add things like prepaid interest receivable, notes receivable. 3M just lumps those into other current assets. Then for non-current assets we had land, building, metal detectors, accumulated depreciation PP&E. If we look at 3M, they have their PP&E at cost in one line. Less accumulated depreciation to get the net. So it's the same treatment of original cost minus total depreciation gives you net, that we saw with Relic Spotter. It's just, with Relic Spotter, we got a little bit more detail on the makeup of the PP&E. And then for intangible assets we just had software, 3M has a lot more, goodwill, intangible assets net, and prepaid pensions, and the always popular other assets. In terms of liabilities, we had accounts payable, interest payable, income taxes payable, unearned revenue for Relic Spotter. We can fond similar things for 3M. Accounts payable, accrued payroll, accrued income taxes. Accrued income taxes in another way of saying income taxes payable. So accrued means the same thing as payable. They have an other current liabilities, which presumably will have Have some of these other liabilities in there. We had one long-term debt mortgage payable. Here, 3M has their long-term debt. And as I talked about in the prior video, you can also put the current portion of that in current liabilities, as 3M does. Gets us down to total liabilities for 3M after there's a couple others liabilities that we didn't have for Relic Spotter. And then finally for shareholders equity we had common stock, APIC and retained earnings. So 3M common stock, notice it's a really small balance because their par value is really small. Basically only 1 cent per share, so almost all of their contributing capital goes into APIC. Then they have retained earnings. And I think I said last video that retained earnings always comes last. Well, it didn't take long to find an exception to that. [LAUGH] 3M lists treasury stock and accumulated other comprehensive income after retained earnings. We'll talk about what these two items are, whoops. We'll talk about these two items much, much later in the course. There's also this non controlling interest stuff which we'll talk about later, but then bottom line, total liabilities in stockholder's equity. And in Relic Spotter, our assets equaled our liabilities plus equity. And the same thing for 3M, no matter how big the company is, the two have to be equal. Wow, what a mess. So now you may be wondering, let's say I really need to know about prepaid assets for 3M. Is there anyway I can find them because I can't just go with this other current assets because it's not going to tell me what I need to know about prepaids. In footnote four of the 10k, which is on page 66, 3M provides us some more detail on the balance sheet. So basically they break down some of those line items like other current assets, other assets, and property plan equipment, so that we can see our prepaid expenses which we didn't see on 3M's balance sheet was included in this total for other current assets. Property, plant, equipment at costs, so the original costs. Here 3M provides us the breakdown of land, buildings, machinery, leases, to get the gross property plan equipment. That's PP&E at cost. Same thing with other current liabilities we get a break down into other kinds of payables. So there's other kind of trade payables, derivative liabilities, restructuring, employee benefits and so forth. So what 3M decided to do was instead of making their balance sheet two or three pages, they put as few lines as they could get away with on their balance sheet and then provided a footnote which gave us a breakdown of some of the other line items. Now there's not a section in the MD&A talking about these assets and liabilities in more detail, because basically the footnotes tend to be oriented around a lot of these accounts. So we see more detail in the footnotes. For example, here's note three, goodwill and intangible assets. This'll tell us everything we need to know, hopefully, about goodwill and intangible assets. So the additional balance sheet information we get, we could usually go through the footnotes and dig it out. And so that's what we see for the balance sheet and the income statement for the 3M company. So, that's a wrap for week two. I hope to see you again next week where we'll talk about preparing the statement of cash flows, the third of the four major financial statements. I'll see you then.
