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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2022
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to
__________
Commission file number
1-3285
3M COMPANY
State of Incorporation:
Delaware
I.R.S. Employer Identification No. 41-0417775
Principal executive offices:
3M Center,
St. Paul,
Minnesota
55144
Telephone number:
(651)
733-1110
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, Par Value $.01 Per Share |
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MMM |
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New York Stock Exchange |
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MMM |
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Chicago Stock Exchange, Inc. |
0.950% Notes due 2023 |
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MMM23 |
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New York Stock Exchange |
1.500% Notes due 2026 |
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MMM26 |
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New York Stock Exchange |
1.750% Notes due 2030 |
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MMM30 |
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New York Stock Exchange |
1.500% Notes due 2031 |
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MMM31 |
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New York Stock Exchange |
Note: The common stock of the registrant is also traded on the SIX
Swiss Exchange.
Securities registered pursuant to section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes x No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of
the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
x |
Accelerated filer |
o
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Non-accelerated filer |
o |
Smaller reporting company |
☐ |
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
o
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. Yes ☒
No o
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an
error to previously issued financial statements.
o
Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers
during the relevant recovery period pursuant to
§240.10D-1(b) o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes ☐
No x
The aggregate market value of voting stock held by nonaffiliates of
the registrant, computed by reference to the closing price and
shares outstanding, was approximately $63.3 billion as of January
31, 2023 (approximately $73.7 billion as of June 30, 2022, the
last business day of the registrant’s most recently completed
second quarter).
Shares of common stock outstanding at January 31, 2023: 550.5
million
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Company’s definitive proxy statement (to be filed
pursuant to Regulation 14A within 120 days after Registrant’s
fiscal year-end of December 31, 2022) for its annual meeting
to be held on May 9, 2023, are incorporated by reference in
this Form 10-K in response to Part III, Items 10,
11, 12, 13 and 14.
3M COMPANY
FORM 10-K
For the Year Ended December 31, 2022
Pursuant to Part IV, Item 16, a summary of Form 10-K content
follows, including hyperlinked cross-references (in the EDGAR
filing). This allows users to easily locate the corresponding items
in Form 10-K, where the disclosure is fully presented. The summary
does not include certain Part III information that will be
incorporated by reference from the proxy statement, which will be
filed after this Form 10-K filing.
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Beginning
Page |
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MD&A is designed to provide a reader of 3M’s financial
statements with a narrative from the perspective of management.
3M’s MD&A is presented in eight sections: |
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3M COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2022
PART I
Item 1.
Business.
3M Company was incorporated in 1929 under the laws of the State of
Delaware to continue operations begun in 1902. The Company’s ticker
symbol is MMM. As used herein, the term “3M” or “Company” includes
3M Company and its subsidiaries unless the context indicates
otherwise. In this document, for any references to Note 1 through
Note 19, refer to the Notes to Consolidated Financial Statements in
Item 8.
Available Information
The Securities and Exchange Commission (SEC) maintains a website
that contains reports, proxy and information statements, and other
information regarding issuers, including the Company, that file
electronically with the SEC. The public can obtain any documents
that the Company files with the SEC at http://www.sec.gov. The
Company files annual reports, quarterly reports, proxy statements
and other documents with the SEC under the Securities Exchange Act
of 1934 (Exchange Act).
3M also makes available free of charge through its website
(http://investors.3M.com) the Company’s Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and, if applicable, amendments to those
reports filed or furnished pursuant to the Exchange Act as soon as
reasonably practicable after the Company electronically files such
material with, or furnishes it to, the SEC.
General
3M is a diversified technology company with a global presence in
the following businesses: Safety
and Industrial; Transportation and Electronics; Health Care; and
Consumer. 3M is among the leading manufacturers of products for
many of the markets it serves. Most 3M products involve expertise
in product development, manufacturing and marketing, and are
subject to competition from products manufactured and sold by other
technologically oriented companies.
Business Segments
3M manages its operations in four business segments. The reportable
segments are Safety and Industrial, Transportation and Electronics,
Health Care, and Consumer. 3M’s four business segments bring
together common or related 3M technologies, enhancing the
development of innovative products and services and providing for
efficient sharing of business resources. In July 2022, 3M announced
its intention to spin off the Health Care business as a separate
public company (see Note 3 for additional information). Refer to
segment descriptions summarized below (Financial information and
other disclosures relating to 3M’s business segments and operations
in major geographic areas are provided in the Notes to Consolidated
Financial Statements):
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Business Segment |
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Safety and Industrial |
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Transportation and Electronics |
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Health Care |
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Consumer |
Underlying divisions/businesses
Refer to Note 2 for disaggregated revenue information
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•Abrasives
•Automotive
aftermarket
•Closure
and masking systems
•Electrical
markets
•Industrial
adhesives and tapes
•Personal
safety
•Roofing
granules
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•Advanced
materials
•Automotive
and aerospace
•Commercial
solutions
•Display
materials and systems
•Electronics
materials solutions
•Transportation
safety
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•Health
information systems
•Medical
solutions
•Oral
care
•Separation
and purification sciences
•Food
safety (divested in 2022)
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•Consumer
health and safety
•Home
care
•Home
improvement
•Stationery
and office
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Representative revenue-generating activities, products or
services |
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•Industrial
abrasives and finishing for metalworking applications
•Autobody
repair solutions
•Closure
systems for personal hygiene products, masking, and packaging
materials
•Electrical
products and materials for construction and maintenance, power
distribution and electrical original equipment manufacturers
(OEMs)
•Structural
adhesives and tapes
•Respiratory,
hearing, eye and fall protection solutions
•Natural
and color-coated mineral granules for shingles
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•Advanced
ceramic solutions
•Attachment
tapes, films, sound and temperature management for transportation
vehicles
•Premium
large format graphic films for advertising and fleet
signage
•Light
management films and electronics assembly solutions
•Packaging
and interconnection solutions
•Reflective
signage for highway, and vehicle safety
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•Health
care procedure coding and reimbursement software
•Skin,
wound care, and infection prevention products and
solutions
•Dentistry
and orthodontia solutions
•Filtration
and purification systems
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•Consumer
bandages, braces, supports and consumer respirators
•Cleaning
products for the home
•Retail
abrasives, paint accessories, car care DIY products, picture
hanging and consumer air quality solutions
•Stationery
products
Some seasonality impacts this business segment related to
back-to-school, generally in the third quarter of each
year
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Example brands/offerings |
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•3M™
Cubitron™ II abrasives
•Scotch-Brite™
Abrasives
•Scotch
& Temflex Vinyl Tapes, Scotchkote Coatings, Dynatel locators,
Scotchcast resins
•Collision
repair and paint spray products
•Reclosable
fasteners; tapes and label materials for durable goods
•Electrical
infrastructure products; medium voltage cable accessories and
insulation tapes
•3M
™ VHB™ Bonding tapes; Scotch® masking, packaging and filament
tapes
•Disposable
respirators and fall protection products
•Scotchgard™
Protector for shingles
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•3M™
Nextel™ Ceramic fibers and textiles
•Thinsulate™
Acoustic Insulation products and automotive components
•3M™
Novec™ Engineered Fluids
•3M™
Scotchlite™ graphic films, 3M™ Scotchcal™ and 3M™ Controltac™
Commercial graphics
•Electronic
display enhancement films and optically clear
adhesives
•Electronic
interconnect products
•3M™
Diamond Grade™ DG3 reflective sheeting for transportation
safety
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•3M™
360 Encompass™ medical coding systems
•3M
™ Tegaderm™ wound dressings, V.A.C.® Therapy Systems and disposable
respirators in the health care channel
•3M™
Filtek™ and 3M™ RelyX™ dental filing materials and cements; 3M™
Clarity™ aligners
•Biopharma
and other filtration systems, bags, capsules and
components
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•ACE™
, FUTURO™ and Nexcare™ personal health care products
•Scotch-Brite™
cleaning supplies, sponges, brushes, and scouring pads; Scotchgard™
products
•Scotch®
tapes and other products, Filtrete™ filters and Command™ adhesive
products
•Post-it®
products
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Representative market trends or opportunities |
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•Personal
safety
•Connected
bodyshop
•Grid
modernization
•Robotics
and automation
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•Automotive/mobility
•Electronic
materials
•Semiconductor
•Graphic
and architectural films
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•Wound
care
•Healthcare
IT
•Biopharma
filtration
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•Home
improvement
•Consumer
safety & well-being
•Package
protection & shipping
•Appearance
auto care
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Distribution
3M products are sold through numerous distribution channels,
including directly to users and through numerous e-commerce and
traditional wholesalers, retailers, jobbers, distributors and
dealers in a wide variety of trades in many countries around the
world. Management believes the confidence of wholesalers,
retailers, jobbers, distributors and dealers in 3M and its products
— a confidence developed through long association with skilled
marketing and sales representatives — has contributed significantly
to 3M’s position in the marketplace and to its growth.
Resources
Human Capital
On December 31, 2022, the Company employed approximately 92,000
people (full-time equivalents), with approximately 37,000 employed
in the United States and 55,000 employed internationally. The
ability to recruit, retain, develop, protect, and fairly compensate
its global workforce are enablers of 3M’s success. This includes
four general categories of focus: Health and Safety; Development;
Diversity, Equity and Inclusion; and Compensation and
Benefits.
Health and Safety
3M is committed to the safety, health, and well-being of its
employees. The Company continuously evaluates opportunities to
raise safety and health standards, visiting sites to identify and
manage environmental health and safety risks; evaluating compliance
with regulatory requirements and 3M policy; and maintaining a
global security operation for the protection of facilities and
people on 3M sites. 3M also promotes a culture of health and
well-being through disease prevention programs, on-site clinical
services, employee assistance programs, and comprehensive health
care benefits.
Development
Developing employees contributes to growing 3M’s business. 3M
maintains talent and succession planning processes, including
regular review by the Company’s chief executive officer (CEO) and
reporting up through the Board of Directors. The Company has a
suite of high-potential leadership development programs which
brings a consistent approach to leadership development. 3M also has
development programs for managers and supervisors and provides
learning opportunities for all employees, in addition to regular
coaching and support from their supervisor. With the Company’s
global online employee learning platform, employees are able to
access unique, just-in-time development resources in over 15
languages to support their career aspirations and advance their
skills.
Diversity, Equity and Inclusion
A diverse, global workforce and inclusive culture that provides
fair and equitable opportunities helps 3M remain competitive,
advance its innovation culture, and serve customers. 3M focuses on
attracting and advancing top talent and has publicly committed to
advance global diversity in management across all dimensions, with
additional specific goals to continue advancing pay equity and to
increase the Company’s diversity with underrepresented groups. 3M
supports these values with an internal CEO Inclusion Council, a
forum led by senior management to advance diversity, equity, and
inclusion initiatives. The Company also plans to invest $50 million
over 2020 to 2025 to address racial opportunity gaps through
workforce development initiatives in the communities in which its
employees live and 3M business operates.
Compensation and Benefits
3M has a trust-based approach to work that empowers employees to
work where and when they can best achieve their goals, which
supports attraction and retention of talent around the globe. In
addition to a professional and flexible work environment that
promotes innovation, well-being, and rewards performance, 3M’s
total compensation for employees includes a variety of components
that support sustainable employment and the ability to build a
strong financial future, including competitive market-based pay and
comprehensive benefits. In addition to earning a base salary,
eligible employees are compensated for their contributions to the
Company’s goals with both short-term cash incentives and long-term
equity-based incentives. Through its global pay philosophy,
principles and consistent implementation, 3M is committed to
providing fair and equitable pay for employees. Eligible full-time
employees in the United States also have access to medical, dental,
and vision plans; savings and retirement plans; a 3M employee stock
purchase plan; and other resources. Some of these benefits can also
be available to regular part-time employees who work at least 20
hours a week. Programs and benefits differ internationally for a
variety of reasons, such as local legal requirements, market
practices, and negotiations with works councils, trade unions, and
other employee representative bodies.
Raw Materials
In 2022, many geopolitical, logistics, and disruptive events caused
imbalance in the global supply chain, similar to the past few
years. The Company experienced raw material price inflation and
constrained supply throughout the global marketplace and continued
to deploy productivity projects to minimize the impact. To help
manage disruption in its manufacturing operations, 3M deployed
careful management of existing raw material inventories, strategic
relationships with key suppliers, and qualification of additional
supply sources. 3M manages spend category price risks through
negotiated supply contracts and price protection agreements. In
addition, 3M evaluates suppliers’ conformance with environmental
and social compliance requirements. Overall, on a consolidated
basis, 3M experienced net raw material price inflation in
2022.
Patents, Trademarks and Licenses
The Company’s products are sold around the world under various
trademarks. The Company also owns, or holds licenses to use,
numerous U.S. and foreign patents. The Company’s research and
development activities generate a steady stream of inventions that
are covered by new patents or trade secrets. Patents applicable to
specific products extend for varying periods according to the date
of patent application filing or patent grant and the legal term of
patents in the various countries where patent protection is
obtained. The actual protection afforded by a patent, which can
vary from country to country, depends upon the type of patent, the
scope of its coverage and the availability of legal remedies in the
country.
The Company believes that its trademarks, patents, and trade
secrets provide an important competitive advantage in many of its
businesses. In general, no single patent or group of related
patents is in itself essential to the Company as a whole or to any
of the Company’s business segments.
Government Regulation and Environmental Law Compliance
The Company’s business operations are subject to various
governmental regulations in the U.S. and internationally,
including, among others, those related to product liability;
antitrust; intellectual property; environmental, health, and
safety; tax; the U.S. Foreign Corrupt Practices Act and other
anti-bribery laws, international import and export requirements and
trade sanctions compliance; regulations of the U.S. Food and Drug
Administration (FDA) and similar foreign agencies, U.S. federal
healthcare program-related laws and regulations, such as the False
Claims Act, anti-kickback laws and the Sunshine Act.
3M’s manufacturing operations are affected by national, state and
local environmental laws and regulations around the world. The
Company places consistent emphasis on environmental responsibility.
3M has made, and plans to continue making, necessary expenditures
for compliance with applicable laws and regulations. 3M is also
involved in remediation actions relating to environmental matters
from past operations at certain sites (refer to “Environmental
Matters and Litigation” in Note 16, Commitments and
Contingencies).
Environmental expenditures relating to existing conditions caused
by past operations that do not contribute to current or future
revenues are expensed. Reserves for liabilities for 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.
In 2022, 3M expended approximately $317 million on capital projects
for environmental purposes as defined below. Capital projects for
environmental purposes include waste reduction and pollution
control programs such as, water usage reduction and water quality
improvement equipment, scrubbers, containment structures, solvent
recovery units and thermal oxidizers. Capital expenditures for
similar projects are presently expected to approach approximately
$646 million for 2023 and 2024 in aggregate.
Although an estimate of certain nearer-term capital expenditures is
provided above, 3M cannot predict with certainty whether future
costs of compliance with government regulations (including
environmental regulations) will have a material effect on its
capital expenditures, earnings or competitive
position.
Information about our Executive Officers
Following is a list of the executive officers of 3M, and their age,
present position, the year elected to their present position and
other positions they have held during the past five years. No
family relationships exist among any of the executive officers
named, nor is there any undisclosed arrangement or understanding
pursuant to which any person was selected as an officer. This
information is presented in the table below as of the date of the
10-K filing (February 8, 2023).
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Name |
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Age |
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Present Position |
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Year Elected to Present Position |
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Other Positions Held during 2018 - 2022
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Michael F. Roman |
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63 |
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Chairman of the Board and Chief Executive Officer |
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2019 |
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Chief Executive Officer, 2018-2019
Chief Operating Officer and Executive Vice President, 2017-2018
Executive Vice President, Industrial Business Group,
2014-2017 |
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John P. Banovetz |
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55 |
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Executive Vice President, Chief Technology Officer and
Environmental Responsibility |
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2021 |
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Senior Vice President, Chief Technology Officer and Environmental
Responsibility, 2021
Senior Vice President, Innovation and Stewardship and Chief
Technology Officer, 2020
Senior Vice President of Research and Development and Chief
Technology Officer, 2017-2019 |
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Karina Chavez |
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49 |
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Senior Vice President and Chief Strategy Officer |
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2021 |
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Senior Vice President, Customer Operations, 2020-2021
Global Business Director, Home Improvement Business,
2017-2020 |
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Zoe Dickson |
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49 |
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Executive Vice President and Chief Human Resources
Officer |
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2021 |
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Senior Vice President, Talent, Learning and Insights, 2021
Vice President, Organization Effectiveness and Talent, Human
Resources, 2020-2021
Vice President, Organization Effectiveness, Human Resources
2019-2020
Vice President, Global Human Resources Business Operations, Human
Resources 2018-2019
HR Director, Consumer Business Group 2016-2018 |
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Peter D. Gibbons |
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61 |
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Group President, Enterprise Operations |
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2021 |
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Chief Executive Officer, Tirehub, 2018-2021
Executive Vice President, Global Development and Product Supply
& CSCO, Mattel, Inc, 2013-2018 |
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Eric D. Hammes |
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48 |
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Executive Vice President, Chief Country Governance and Services
Officer |
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2021 |
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Senior Vice President, Manufacturing & Supply Chain,
2019-2021
Senior Vice President, Business Transformation & Information
Technology, 2017-2019
Vice President, Corporate Controller and Chief Accounting Officer,
2014-2017 |
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Ashish K. Khandpur |
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55 |
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Group President, Transportation & Electronics |
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2021 |
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Executive Vice President, Transportation & Electronic Business
Group, 2019-2021
Executive Vice President, Electronics & Energy Business Group,
2017-2019
Senior Vice President, Research and Development, and Chief
Technology Officer, 2014-2017 |
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Jeffrey R. Lavers |
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59 |
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Group President, Consumer Business Group and Interim Group
President, Health Care Business Group |
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2022 |
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Executive Vice President, Consumer Business Group, 2020-2021
Vice President and General Manager, Automotive and Aerospace
Solutions Division, 2019-2020
Vice President and General Manager, Construction and Home
Improvement Division, 2015-2019 |
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Mark Murphy |
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54 |
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Executive Vice President, Chief Information and Digital
Officer |
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2021 |
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Chief Information Officer, Abbott Laboratories,
2020-2021
Global Chief Information Officer and Vice President, BTS, Abbott
Laboratories, 2018-2020
Medical Devices Chief Information Officer and Divisional VP, Abbott
Laboratories, 2017-2018
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Monish Patolawala |
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53 |
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Executive Vice President, Chief Financial and Transformation
Officer |
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2021 |
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Senior Vice President and Chief Financial Officer 2020-2021
Chief Financial Officer, Health Care and Vice President,
Operational Transformation, General Electric, 2019-2020
Chief Financial Officer, Health Care, General Electric,
2015-2019 |
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Kevin H. Rhodes |
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60 |
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Executive Vice President, Chief Legal Affairs Officer |
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2022 |
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Senior Vice President and Deputy General Counsel, 2021
Vice President and Deputy General Counsel, 2019-2021
President and Chief Intellectual Property Counsel, Office of
Intellectual Property Counsel and 3M Innovative Properties
2008-2019 |
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Michael G. Vale |
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56 |
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Group President, Safety & Industrial Business Group |
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2021 |
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Executive Vice President, Safety & Industrial Business Group,
2019-2021
Executive Vice President, Health Care Business Group,
2016-2019 |
Cautionary Note Concerning Factors That May Affect Future
Results
This Annual Report on Form 10-K, including “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7, contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company may also make forward-looking statements in
other reports filed with the Securities and Exchange Commission, in
materials delivered to shareholders and in press releases. In
addition, the Company’s representatives may from time to time make
oral forward-looking statements.
Forward-looking statements relate to future events and typically
address the Company’s expected future business and financial
performance. Words such as “plan,” “expect,” “aim,” “believe,”
“project,” “target,” “anticipate,” “intend,” “estimate,” “will,”
“should,” “could,” “forecast” and other words and terms of similar
meaning, typically identify such forward-looking statements. In
particular, these include, among others, statements relating
to:
•worldwide
economic, political, regulatory, international trade, geopolitical,
capital markets and other external conditions, such as interest
rates, monetary policy, financial conditions of our suppliers and
customers, trade restrictions such as tariffs and retaliatory
counter measures, inflation, recession, military conflicts, and
natural and other disasters or climate change affecting the
operations of the Company or our suppliers and
customers,
•risks
related to unexpected events such as the public health crises
associated with the coronavirus (COVID-19) global
pandemic,
•liabilities
and the outcome of contingencies related to certain fluorochemicals
known as "PFAS," as well as matters related to the Company's plans
to discontinue the use of PFAS,
•the
Company’s strategy for growth, future revenues, earnings, cash
flow, uses of cash and other measures of financial performance, and
market position,
•competitive
conditions and customer preferences,
•foreign
currency exchange rates and fluctuations in those
rates,
•new
business opportunities, product and service development, and future
performance or results of current or anticipated products and
services,
•fluctuations
in the costs and availability of purchased components, compounds,
raw materials and energy,
•information
technology systems including implementation of an enterprise
resource planning (ERP) system,
•security
breaches and other disruptions to information technology
infrastructure,
•the
scope, nature or impact of acquisition, strategic alliance and
divestiture activities,
•operational
execution, including inability to generate productivity
improvements as estimated,
•future
levels of indebtedness, common stock repurchases and capital
spending,
•future
access to credit markets and the cost of credit,
•pension
and postretirement obligation assumptions and future
contributions,
•asset
impairments,
•tax
liabilities and effects of changes in tax rates, laws or
regulations,
•the
proposed spin-off of the Company's Health Care business to
establish two separate public companies,
•the
voluntary chapter 11 proceedings initiated by the Company's Aearo
Entities, and
•laws
and regulations, as well as legal compliance risks (including
third-party risks), and legal and regulatory proceedings related to
the same, including with regards to environmental matters and
product liability, in the United States and other countries in
which we operate.
The Company assumes no obligation to update or revise any
forward-looking statements.
Forward-looking statements are based on certain assumptions and
expectations of future events and trends that are subject to risks
and uncertainties. Actual future results and trends may differ
materially from historical results or those reflected in any such
forward-looking statements depending on a variety of factors.
Important information as to these factors can be found in this
document, including, among others, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” under
the headings of “Overview,” “Financial Condition and Liquidity” and
annually in “Critical Accounting Estimates.” Discussion of these
factors is incorporated by reference from Part I, Item 1A, “Risk
Factors,” of this document, and should be considered an integral
part of Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” For additional
information concerning factors that may cause actual results to
vary materially from those stated in the forward-looking
statements, see our reports on Form 10-K, 10-Q and 8-K filed with
the SEC from time to time.
Item 1A.
Risk Factors.
Provided below is a cautionary discussion of what we believe to be
the most important risk factors applicable to the Company.
Discussion of these factors is incorporated by reference into and
considered an integral part of Part II, Item 7, “Management’s
Discussion and Analysis of Financial Conditions and Results of
Operations.”
Risks Related to the Global Economy and Public Health
Crises
* The Company’s results are impacted by the effects of, and changes
in, worldwide economic, political, regulatory, international trade,
geopolitical, and other external conditions.
The Company operates in more than 70 countries and derives
approximately 60 percent of its revenues from outside the United
States, and, accordingly, the Company’s operations and the
execution of its business strategies and plans are subject to
global competition and economic and geopolitical risks that are
beyond its control, such as, among other things, disruptions in
financial markets, economic downturns, military conflicts, public
health emergencies such as COVID-19, political changes and trends
such as protectionism, economic nationalism resulting in government
actions impacting international trade agreements or imposing trade
restrictions such as tariffs and retaliatory counter measures, and
government deficit reduction and other austerity measures in
locations or industries in which the Company operates. Further
escalation of specific trade tensions, including those between the
U.S. and China, or more broadly in global trade conflict, could
adversely impact the Company's business and operations around the
world. The Company's business is also impacted by social,
political, and labor conditions in locations in which the Company
or its suppliers or customers operate; adverse changes in the
availability and cost of capital; monetary policy; interest rates;
inflation; recession; commodity prices; currency volatility or
exchange control; ability to expatriate earnings; and other laws
and regulations in the jurisdictions in which the Company or its
suppliers or customers operate. For example, changes in local
economic condition or outlooks, such as lower economic growth rates
in China, Europe, or other key markets, impact the demand or
profitability of the Company's products.
The global economy has been impacted by the military conflict
between Russia and Ukraine. The U.S. and other governments have
imposed export controls on certain products and financial and
economic sanctions on certain industry sectors and parties in
Russia. 3M suspended operations of its subsidiaries in Russia in
March 2022 and, in September 2022, committed to a plan to exit the
related net assets through an intended sale of the subsidiaries. 3M
also has other operations that source certain raw materials from
suppliers in Russia and has experienced related supply disruption
due to the conflict. These geopolitical tensions could result in,
among other things, cyberattacks, further supply chain disruptions
impacting downstream customers, higher energy costs, lower consumer
demand, and changes to foreign exchange rates and financial
markets, any of which may adversely affect the Company's business
and supply chain.
Climate change, as well as related environmental and social
regulations, may negatively impact the Company or its customers and
suppliers, in terms of availability and cost of natural resources,
sources and supply of energy, product demand and manufacturing, and
the health and well-being of individuals and communities in which
we or our suppliers or customers operate.
* Unexpected events, such as those related to the coronavirus
(COVID-19) public health crisis, may increase the Company's cost of
doing business and disrupt the Company's operations.
3M, as a global company, is impacted by unexpected events,
including war, acts of terrorism, public health crises (such as the
COVID-19 pandemic), civil unrest, natural disasters, and severe
weather in the locations in which the Company or its suppliers or
customers operate, and these events have adversely affected, and
could in the future adversely affect, the Company's operations and
financial performance. For example, the global pandemic associated
with COVID-19, including related evolving governmental responses to
the pandemic, has significantly increased economic and demand
uncertainty, and has impacted and will continue to impact 3M’s
operations, including its supply chain and its manufacturing and
distribution capabilities. Although COVID-19 increased demand for
certain 3M products, it also resulted in decreased demand from
certain end markets, made it more difficult for 3M to serve
customers, and resulted in conditions that had the potential to
damage 3M's reputation, including third-party price gouging,
counterfeiting, and other illegal or fraudulent activities
involving 3M's products. Furthermore, COVID-19 has impacted and may
further impact the broader economies of affected countries,
including negatively impacting economic growth, the proper
functioning of financial and capital markets, foreign currency
exchange rates, and interest rates. As the pandemic evolves, demand
for personal protection products such as disposable respirators has
experienced a decline from prior levels. 3M is not able to predict
the impact of unexpected events, such as the COVID-19 pandemic, and
unexpected events may have a material adverse effect on 3M's
consolidated results of operations or financial
condition.
* Foreign currency exchange rates and fluctuations in those rates
may affect the Company’s ability to realize projected growth rates
in its sales and earnings.
Because the Company’s financial statements are denominated in U.S.
dollars and approximately 60 percent of the Company’s revenues are
derived from outside the United States, the Company’s results of
operations and its ability to realize projected growth rates in
sales and earnings could be adversely affected if the U.S. dollar
strengthens significantly against foreign currencies. For a
discussion of the impact of foreign currency exchange rates on the
Company, see Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Risks Related to Legal and Regulatory Proceedings
*
The Company faces liabilities related to certain fluorochemicals,
which could adversely impact our results.
As previously reported, governments in the United States and
internationally have increasingly been regulating a broad group of
perfluoroalkyl and polyfluoroalkyl substances produced by the
Company, collectively known as “PFAS.” 3M has noticed several
global regulatory trends related to PFAS, including declining
emission standards and limits set as to the presence of certain
compounds in various media, and the inclusion of a broadening group
of PFAS. Developments in these and other global regulatory trends
may require additional actions by 3M, including investigation,
remediation, and compliance, or may result in additional litigation
and enforcement action costs.
The Company has been voluntarily cooperating with various local,
state, federal (primarily the U.S. Environmental Protection Agency
(EPA)), and international agencies in their review of the
environmental and health effects of certain PFAS produced by the
Company.
The PFAS group contains several categories and classes of durable
chemicals and materials with properties that include oil, water,
temperature, chemical, and fire resistance, as well as electrical
insulating properties. The strength of the carbon-fluorine bond
also means that these compounds do not easily degrade. These
characteristics have made PFAS substances critical to the
manufacture of electronic devices such as cell phones, tablets, and
semi-conductors. They are also used to help prevent contamination
of medical products like surgical gowns and drapes. Commercial
aircraft and low-emissions vehicles also rely on PFAS technology.
PFAS compounds are manufactured by various companies, including 3M,
and are used in everyday products, including some manufactured by
3M. As science and technology evolve and advance, and in response
to evolving knowledge and the understanding that certain PFAS
compounds had the potential to build up over time, 3M announced in
2000 that we would voluntarily phase out production of two PFAS
substances, perfluorooctanoate (PFOA) and perfluorooctane sulfonate
(PFOS) globally as a precautionary measure. We phased out of
materials used to produce certain repellants and surfactant
products, with most of these activities in the U.S. completed by
the end of 2002. Phased out products included Aqueous Film Forming
Foam (AFFF) and certain coatings for food packaging, for example.
The Company continues to review, control, or eliminate the presence
of certain PFAS in purchased materials, as intended substances in
products, or as byproducts of some of 3M’s current manufacturing
processes, products, and waste streams.
3M announced in December 2022 it will take two actions: exiting all
PFAS manufacturing by the end of 2025; and working to discontinue
the use of PFAS across its product portfolio by the end of 2025.
3M’s decision is based on careful consideration and a thorough
evaluation of the evolving external landscape, including multiple
factors such as accelerating regulatory trends focused on reducing
or eliminating the presence of PFAS in the environment and changing
stakeholder expectations. The Company recognized a $0.8 billion
pre-tax charge in the fourth quarter of 2022 associated with this
announcement related to asset impairments, and will incur
additional expenses in connection with its exit activities. In
addition, these two announced actions (the “exit”) involve risks,
including the actual timing, costs, and financial impact of such
exit; the Company’s ability to complete such exit, on the
anticipated timing or at all; potential governmental or regulatory
actions relating to PFAS manufacturing and production, or the
Company’s exit plans; the Company’s ability to identify and
manufacture acceptable substitutes for the discontinued products,
and the possibility that such substitutes will not achieve the
anticipated or desired commercial or operational results; potential
litigation relating to the Company’s exit plans; and the
possibility that the planned exit will involve greater costs than
anticipated, or otherwise have negative impacts on the Company’s
relationships with its customers and other
counterparties.
3M currently is defending lawsuits concerning various PFAS-related
products and chemistries, and is subject to unasserted and asserted
claims and governmental regulatory proceedings and inquiries
related to the production and use of PFAS in a variety of
jurisdictions, as discussed in Note 16, “Commitments and
Contingencies,” within the Notes to Consolidated Financial
Statements. 3M has seen increased public and private lawsuits being
filed on behalf of states, counties, cities, and utilities
alleging, among other things, harm to the general public and
damages to natural resources, some of which are pending in the
Aqueous Film Forming Foam (AFFF) multi-district litigation and some
of which are pending in other jurisdictions. Various factors or
developments in these and other disclosed actions could result in
future charges that could have a material adverse effect on 3M. For
example, we recorded a pre-tax charge of $897 million, inclusive of
legal fees and other related obligations, in the first quarter of
2018 with respect to the settlement of a matter brought by the
State of Minnesota involving the presence of PFAS in the
groundwater, surface water, fish or other aquatic life, and
sediments in the state. Governmental inquiries, lawsuits, or laws
and regulations involving PFAS could lead to our incurring
liability for damages or other costs, civil or criminal
proceedings, the imposition of fines and penalties, or other
remedies, including orders to conduct remediation, as well as
restrictions on or added costs for our business operations going
forward, including in the form of restrictions on discharges at our
manufacturing facilities, requiring the installation of control
technologies, suspension or shutdown of facility operations,
switching costs in seeking alternative sources of supply, potential
customer damage claims due to supply disruptions or otherwise, and
reporting requirements or bans on PFAS and PFAS-containing products
manufactured by the Company.
* The Company is subject to risks related to international,
federal, state, and local treaties, laws, and regulations, as well
as compliance risks related to legal or regulatory requirements,
contract requirements, policies and practices, or other matters
that require or encourage the Company or its suppliers, vendors, or
channel partners to conduct business in a certain way. The outcome
of legal and regulatory proceedings related to compliance with
these treaties, laws, regulations, and requirements could have a
material adverse effect on the Company's ability to execute its
strategy and its results of operations.
The Company is subject to risks related to international, federal,
state, and local treaties, laws, and regulations, including those
involving product liability; antitrust; intellectual property;
environmental, health, and safety; tax; the U.S. Foreign Corrupt
Practices Act and other anti-bribery laws; international import and
export requirements and trade sanctions compliance; regulations of
the U.S. Food and Drug Administration (FDA) and similar foreign
agencies; U.S. federal healthcare program-related laws and
regulations including the False Claims Act, anti-kickback laws, and
the Sunshine Act; and other matters. The Company is also subject to
compliance risks related to legal or regulatory requirements,
contract requirements, policies and practices, or other matters
that require or encourage the Company and its suppliers, vendors,
or channel parties, to conduct business in a certain way. Legal
compliance risks also include third-party risks where the Company’s
suppliers, vendors, or channel partners have business practices
that are inconsistent with 3M’s Supplier Responsibility Code, 3M
performance requirements, or with legal requirements.
The Company's results of operations could be adversely impacted if
the costs to comply with these evolving treaties, laws,
regulations, and requirements are greater than projected by the
Company. In addition, the outcome of legal and regulatory
proceedings related to compliance with these treaties, laws,
regulations, and requirements are difficult to reliably predict,
may differ from the Company’s expectations, and can result in,
among other things, criminal or civil sanctions, including fines;
limitations on the extent to which the Company can conduct
business; and private rights of action that result in litigation
exposure, including expenses and costs incurred in connection with
settlement or court proceedings, for the Company. Although the
Company maintains general liability insurance to mitigate monetary
exposure, the amount of liability that may result from certain of
these risks may not always be covered by, or could exceed, the
applicable insurance coverage. Various factors or developments can
lead the Company to change current estimates of liabilities and
related insurance receivables where applicable, or make such
estimates for matters previously not susceptible of reasonable
estimates, such as a significant judicial ruling or judgment, a
significant settlement, significant regulatory developments or
changes in applicable law. A future adverse ruling, settlement, or
unfavorable development could result in future charges that could
have a material adverse effect on the Company’s results of
operations or cash flows. In addition, negative publicity related
to the matters noted above or other matters involving the Company
may negatively impact the Company’s reputation. The Company also
relies on patent and other intellectual property protection, and
challenges to the Company’s intellectual property rights, or claims
that the Company’s activities interfere with the intellectual
property rights of a third party, could cause the Company to incur
significant expenses to assert or defend against such claims, could
result in reduced revenue, and could damage the Company’s
reputation, any of which could have an adverse effect on the
Company. For a more detailed discussion of the legal proceedings
involving the Company and the associated accounting estimates, see
the discussion in Note 16, “Commitments and Contingencies,” within
the Notes to Consolidated Financial Statements.
Risks Related to Our Products and Customer Preferences
* The Company’s results are affected by competitive conditions and
customer preferences.
Demand for the Company’s products, which impacts revenue and profit
margins, is affected by, among other things, (i) the development
and timing of the introduction of competitive products; (ii) the
Company’s pricing strategies; (iii) changes in customer order
patterns, such as changes in the levels of inventory maintained by
customers, vendors, or channel partners; (iv) changes in customers’
preferences for our products, including the success of products
offered by our competitors, and changes in customer designs for
their products that can affect the demand for some of the Company’s
products; and (v) changes in the business environment related to
disruptive technologies, such as artificial intelligence,
block-chain, expanded analytics, and other enhanced learnings from
increasing volume of available data.
* The Company’s growth objectives are largely dependent on the
timing and market acceptance of its new product offerings,
including its ability to continually renew its pipeline of new
products and to bring those products to market.
This ability is subject to difficulties or delays in product
development, such as the inability to identify viable new products,
obtain adequate intellectual property protection, or gain market
acceptance of new products. There are no guarantees that new
products will prove to be commercially successful.
* The Company’s future results are subject to vulnerability with
respect to materials and fluctuations in the costs and availability
of purchased components, compounds, raw materials, energy, and
labor due to shortages, increased demand and wages, logistics,
supply chain interruptions, manufacturing site disruptions,
regulatory developments, natural disasters, and other disruptive
factors.
The Company depends on various components, compounds, raw
materials, and energy (including oil and natural gas and their
derivatives) supplied by others for the manufacturing of its
products. Supplier relationships have been and could be interrupted
in the future due to supplier material shortage, climate impacts,
natural and other disasters, and other disruptive events such as
military conflicts, or be terminated. Any sustained interruption in
the Company’s receipt of adequate supplies, supply chain
disruptions impacting the distribution of products, or disruption
to key manufacturing sites’ operations due to natural and other
disasters or events, such as government actions relating to
discharge or emission permits or other legal or regulatory
requirements, could have a material adverse effect on the Company.
In addition, there can be no assurance that the Company's processes
to minimize volatility in component and material pricing will be
successful or that future price fluctuations or shortages will not
have a material adverse effect on the Company.
Risks Related to Our Business
* The Company employs information technology systems to support its
business and collect, store, and use proprietary and confidential
information, including ongoing phased implementation of an
enterprise resource planning (ERP) system as part of business
transformation on a worldwide basis over the next several years.
Security and data breaches, cyberattacks, and other cybersecurity
incidents involving the Company’s information technology systems
and infrastructure could disrupt or interfere with the Company’s
operations; result in the compromise and misappropriation of
proprietary and confidential information belonging to the Company
or its customers, suppliers, and employees; and expose the Company
to numerous expenses, liabilities, and other negative consequences,
any or all of which could adversely impact the Company’s business,
reputation, and results of operations.
In the ordinary course of business, the Company relies on
centralized and local information technology networks and systems,
some of which are provided, hosted, or managed by vendors and other
third parties, to process, transmit, and store electronic
information, and to manage or support a variety of businesses.
Additionally, the Company collects and stores certain data,
including proprietary business information, and has access to
confidential or personal information in certain of our businesses
that is subject to privacy and cybersecurity laws, regulations, and
customer-imposed controls. Third parties and threat actors,
including organized criminals, nation-state, or nation-state
supported actors, regularly attempt to gain unauthorized access to
the Company’s information technology networks and infrastructure,
data, and other information, and many such attempts are
increasingly sophisticated.
Despite our cybersecurity and business continuity measures
(including employee and third-party training, monitoring of
networks and systems, patching, maintenance, and backup of systems
and data), the Company’s information technology networks and
infrastructure are still potentially susceptible to attack,
compromise, damage, disruption, or shutdown, including as a result
of the exploitation of known or unknown hardware or software
vulnerabilities in our systems or in the systems of our vendors and
third-party service providers, the introduction of computer viruses
or ransomware, service or cloud provider disruptions or security
breaches, phishing attempts, employee error or malfeasance, power
outages, telecommunication or utility failures, systems failures,
natural disasters, or other catastrophic events. The Company’s
increased adoption of remote working, initially driven by the
pandemic, also introduces additional threats and risk of
disruptions to our information technology networks and
infrastructure. Despite our cybersecurity measures, it is possible
for security vulnerabilities or a cyberattack to remain undetected
for an extended time period, up to and including several years, and
the prioritization of decisions with respect to security measures
and remediation of known vulnerabilities that we and the vendors
and other third parties upon which we rely make may prove
inadequate to protect against attacks. While we and third parties
we utilize have experienced, and expect to continue to experience,
cyberattacks on and breaches and disruptions of the Company’s and
the third parties' information technology systems and
infrastructure, we do not believe that any such incidents to date
have had a material impact on the Company. Any cybersecurity
incident or information technology network disruption could result
in numerous negative consequences, including the risk of legal
claims or proceedings, investigations or enforcement actions by
U.S., state, or foreign regulators; liabilities or penalties under
applicable laws and regulations, including privacy laws and
regulations in the U.S. and other jurisdictions; interference with
the Company’s operations; the incurrence of remediation costs; loss
of intellectual property protection; the loss of customer,
supplier, or employee relationships; and damage to the Company’s
reputation, any of which could adversely affect the Company’s
business. Although the Company maintains insurance coverage for
various cybersecurity and business continuity risks, there can be
no guarantee that all costs or losses incurred will be fully
insured.
* Acquisitions, strategic alliances, divestitures, and other
strategic events resulting from portfolio management actions and
other evolving business strategies, and possible organizational
restructuring, could affect future results.
The Company monitors its business portfolio and organizational
structure and has made and may continue to make acquisitions,
strategic alliances, divestitures, and changes to its
organizational structure. With respect to acquisitions and
strategic alliances, future results will be affected by, as
applicable, the Company’s ability to integrate acquired businesses
quickly and obtain the anticipated synergies and the Company's
ability to operationalize and derive anticipated benefits from
alliances. Divestitures may include continued financial involvement
in the divested businesses, such as through guarantees or other
financial arrangements, following the transaction, will result in
the loss of revenue associated with the businesses that are
divested, and may result in unexpected liabilities through
indemnification or other risk-shifting mechanisms in the applicable
divestiture agreement. Any of the foregoing could adversely affect
the Company’s future results.
* The Company’s future results may be affected by its operational
execution, including scenarios where the Company generates fewer
productivity improvements than planned.
The Company’s financial results depend on the successful execution
of its business operating plans. The Company utilizes various
tools, such as continuous improvement, to improve productivity and
reduce expenses and engages in ongoing global business
transformation to improve operational efficiency, productivity, and
the speed and efficiency with which it serves customers. This is
enabled by the ongoing multi-year phased implementation of an ERP
system. There can be no assurance that we will realize the benefits
of such activities, or that such activities will not result in
unexpected consequences, such as a reduced ability to generate
sales or provide the experience that our customers, suppliers,
vendors, and channel partners expect from us. In addition, the
ability to adapt to business model and other changes, including
responding to evolving customer needs and service expectations, are
important, and, if not done successfully, could negatively impact
the Company’s ability to win new business and enhance revenue and
3M’s brand. Operational challenges, including those related to
customer service, pace of change and productivity improvements,
could have a material adverse effect on the Company’s business,
financial conditions and results of operations.
Risks Related to Financial and Capital Markets and Tax
Matters
* The Company's defined benefit pension and postretirement plans
are subject to financial market risks that could adversely impact
our results.
The performance of financial markets and discount rates impact the
Company's funding obligations under its defined benefit plans.
Significant changes in market interest rates, decreases in the fair
value of plan assets and investment losses on plan assets, and
legislative or regulatory changes relating to defined benefit plan
funding may increase the Company's funding obligations and
adversely impact its results of operations and cash
flows.
* Change in the Company’s credit ratings could increase cost of
funding.
The Company’s credit ratings are important to 3M’s cost of capital.
The major rating agencies routinely evaluate the Company’s credit
profile and assign debt ratings to 3M. This evaluation is based on
a number of factors, which include financial strength, business and
financial risk, as well as transparency with rating agencies and
timeliness of financial reporting. As of December 2022, 3M has a
credit rating of A1, stable outlook from Moody's Investors Service,
and a credit rating of A+, CreditWatch negative from S&P Global
Ratings. The Company’s credit ratings have served to lower 3M’s
borrowing costs and facilitate access to a variety of lenders. The
addition of further leverage to the Company’s capital structure
could impact 3M’s credit ratings in the future. Failure to maintain
strong investment grade ratings would adversely affect the
Company’s cost of funding and could adversely affect liquidity and
access to capital markets.
* Changes in tax rates, laws, or regulations could adversely impact
our financial results.
The Company’s business is subject to tax-related external
conditions, such as tax rates, tax laws and regulations, changing
political environments in the U.S. and foreign jurisdictions that
impact tax examination, and assessment and enforcement approaches.
In addition, changes in tax laws including further regulatory
developments arising from U.S. or international tax reform
legislation could result in a tax expense or benefit recorded to
the Company’s Consolidated Statement of Earnings. In connection
with the Base Erosion and Profit Shifting (BEPS) Integrated
Framework provided by Organization for Economic Cooperation and
Development (OECD), determination of multi-jurisdictional taxation
rights and the rate of tax applicable to certain types of income
may be subject to potential change. Due to the evolving nature of
global tax laws and regulations and compliance approaches, it is
currently not possible to assess the ultimate impact of these
actions on our financial statements, but these actions could have
an adverse impact on the Company's financial results.
Risks Related to the Voluntary Chapter 11 Proceedings Initiated by
the Company’s Aearo Entities
* The Company is subject to risks related to its subsidiaries’
chapter 11 proceedings.
On July 26, 2022, Aearo Technologies and certain of its related
entities (“Aearo Entities"), all wholly owned subsidiaries of the
Company, voluntarily initiated chapter 11 proceedings seeking
bankruptcy court supervision to establish a trust – funded by the
Company – to address potential liabilities related to Dual-Ended
Combat Arms – Version 2 earplugs and mask/respirator products
historically manufactured and sold by Aearo Entities. This
represents a change in strategy for managing the Combat Arms
Version 2 earplugs and Aearo respirator mask/asbestos alleged
litigation liabilities. Aearo Entities were acquired by the Company
in 2008 and they, along with its related subsidiaries, have
operated as Company subsidiaries since that time. 3M has entered
into a funding agreement with Aearo Entities and committed to fund
a trust to satisfy all claims determined to be entitled to
compensation, and to support Aearo Entities as they continue to
operate during the chapter 11 proceedings. There are a number of
risks and uncertainties associated with the chapter 11 proceedings,
including, among others, those related to: legal risks related to
the chapter 11 proceedings; potential impacts to the Company’s
reputation and relationships with its customers, suppliers, federal
contracting officials, employees, regulators, and other
counterparties and community members; impacts to the Company’s
liquidity or results of operations, including risks related to the
amount that will be necessary to fully and finally resolve all of
the Company’s obligations to make payments to resolve such claims
under the terms of its funding and indemnification agreement with
Aearo Entities; the costs of chapter 11 proceedings and length of
time necessary to resolve the cases; and Aearo Entities’ ability to
reach acceptable agreements with claimants and navigate the chapter
11 proceedings to obtain approval and consummation of a plan of
reorganization. Due to the inherent uncertainty of litigation, the
Company cannot predict the timing, outcome, or financial impact of
this matter, or any other ongoing or future
litigation.
Risks Related to the Planned Spin-off of the Company’s Health Care
Business
* The Company is subject to risks related to its plan to spin off
its Health Care business.
On July 26, 2022, the Company announced its intent to spin off its
Health Care business, resulting in two standalone public companies,
in a transaction that is intended to be tax-free for the Company’s
stockholders for U.S. federal income tax purposes. The spin-off
will be subject to the satisfaction of a number of conditions,
including final approval by the Company’s board of directors, the
filing and effectiveness of a Form 10 registration statement, the
receipt of a private letter ruling from the Internal Revenue
Service and a tax opinion from external counsel, and other
customary conditions. The failure to satisfy all of the required
conditions, many of which are outside of the Company’s control,
could delay the completion of the spin-off relative to the
anticipated timeline or prevent it from occurring. Any delay in the
completion of the spin-off or any change to the anticipated terms
of the transaction could reduce the expected benefits of the
transaction, or delay the time at which such benefits are realized.
There can also be no assurance that the anticipated benefits of the
transaction will be realized if the spin-off is completed, or that
the costs or dis-synergies of the transaction (including costs of
related restructuring transactions), will not exceed the
anticipated amounts. Whether or not the spin-off is ultimately
completed, the pendency of the transaction may impose challenges on
the Company and its business, including potential business
disruption; the diversion of management time on matters relating to
the transaction; the impact on the Company’s ability to retain
talent; and potential impacts on the Company’s relationships with
its customers, employees, regulators, and other counterparties. In
addition, while it is intended that the transaction would be
tax-free to the Company’s stockholders for U.S. federal income tax
purposes, there is no assurance that the transactions will qualify
for this treatment. If the spin-off was ultimately determined to be
taxable, the Company, the Health Care business, or the Company’s
stockholders could incur income tax liabilities that could be
significant. Any of these factors could negatively impact our
business, financial condition, results of operations, cash flows,
and the price of our common stock.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
In the U.S., 3M’s general offices, corporate research laboratories,
and certain division laboratories are located in St. Paul,
Minnesota. The Company operates 61 manufacturing facilities in 29
states. Internationally, the Company operates 83 manufacturing and
converting facilities in 28 countries.
3M owns the majority of its physical properties. 3M’s physical
facilities are highly suitable for the purposes for which they were
designed. Because 3M is a global enterprise characterized by
substantial inter-segment cooperation, properties are often used by
multiple business segments.
Item 3.
Legal Proceedings.
Discussion of legal matters is incorporated by reference from Part
II, Item 8, Note 16, “Commitments and Contingencies,” of this
document, and should be considered an integral part of Part I, Item
3, “Legal Proceedings.”
Item 4.
Mine Safety
Disclosures.
Pursuant to Section 1503 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “Act”), the Company is required to
disclose, in connection with the mines it operates, information
concerning mine safety violations or other regulatory matters in
its periodic reports filed with the SEC. The information concerning
mine safety violations or other regulatory matters required by
Section 1503(a) of the Act is included in Exhibit 95
to this annual report.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Equity compensation plans’ information is incorporated by reference
from Part III, Item 12, “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters,”
of this document, and should be considered an integral part of Item
5. At January 31, 2023, there were 62,488 shareholders of
record. 3M’s stock ticker symbol is MMM and is listed on the New
York Stock Exchange, Inc. (NYSE), the Chicago Stock
Exchange, Inc., and the SIX Swiss Exchange. Cash dividends
declared and paid totaled $1.49 and $1.48 per share for each
quarter in 2022 and 2021, respectively. 3M typically declares and
pays dividends in the same quarter.
Issuer Purchases of Equity Securities
Repurchases of 3M common stock are made to support the Company’s
stock-based employee compensation plans and for other corporate
purposes. In November 2018, 3M’s Board of Directors replaced the
Company’s February 2016 repurchase program with a new repurchase
program. This new program authorizes the repurchase of up to $10
billion of 3M’s outstanding common stock, with no pre-established
end date.
Issuer Purchases of Equity
Securities (registered pursuant to
Section 12 of the Exchange Act)
|
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|
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|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased (1) |
|
Average Price Paid per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs (2) |
|
Maximum Approximate Dollar Value of Shares that May Yet Be
Purchased under the Plans or Programs (Millions) |
January 1 - 31, 2022
|
|
1,458,623 |
|
|
$ |
176.61 |
|
|
1,458,623 |
|
|
$ |
5,329 |
|
February 1 - 28, 2022
|
|
1,445,206 |
|
|
147.03 |
|
|
1,441,534 |
|
|
5,117 |
|
March 1 - 31, 2022
|
|
1,871,301 |
|
|
145.61 |
|
|
1,871,301 |
|
|
4,845 |
|
January 1 - March 31, 2022
|
|
4,775,130 |
|
|
155.51 |
|
|
4,771,458 |
|
|
|
April 1 - 30, 2022
|
|
— |
|
|
— |
|
|
— |
|
|
4,845 |
|
May 1 - 31, 2022
|
|
— |
|
|
— |
|
|
— |
|
|
4,845 |
|
June 1 - 30, 2022
|
|
— |
|
|
— |
|
|
— |
|
|
4,845 |
|
April 1 - June 30, 2022
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
July 1 - 31, 2022
|
|
— |
|
|
— |
|
|
— |
|
|
4,845 |
|
August 1 - 31, 2022
|
|
— |
|
|
— |
|
|
— |
|
|
4,845 |
|
September 1 - 30, 2022
|
|
1,665,747 |
|
|
114.10 |
|
|
1,665,747 |
|
|
4,655 |
|
July 1 - September 30, 2022
|
|
1,665,747 |
|
|
114.10 |
|
|
1,665,747 |
|
|
|
|
|
|
|
|
|
|
|
|
October 1 - 31, 2022
|
|
2,831,831 |
|
|
114.21 |
|
|
2,831,831 |
|
|
4,331 |
|
November 1 - 30, 2022
|
|
1,002,117 |
|
|
126.87 |
|
|
1,002,117 |
|
|
4,204 |
|
December 1 - 31, 2022
|
|
378,006 |
|
|
125.91 |
|
|
378,006 |
|
|
4,157 |
|
October 1 - December 31, 2022
|
|
4,211,954 |
|
|
118.27 |
|
|
4,211,954 |
|
|
|
January 1 - December 31, 2022
|
|
10,652,831 |
|
|
134.31 |
|
|
10,649,159 |
|
|
|
____________________
(1)The
total number of shares purchased includes: (i) shares purchased
under the Board’s authorizations described above, and (ii) shares
purchased in connection with the exercise of stock
options.
(2)The
total number of shares purchased as part of publicly announced
plans or programs includes shares purchased under the Board’s
authorizations described above.
Item 6.
[Reserved].
Item 7.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) is designed to provide a reader of
3M’s financial statements with a narrative from the perspective of
management. 3M’s MD&A is presented in eight
sections:
•Overview
•Results
of Operations
•Performance
by Business Segment
•Performance
by Geographic Area
•Critical
Accounting Estimates
•New
Accounting Pronouncements
•Financial
Condition and Liquidity
•Financial
Instruments
Forward-looking statements in Item 7 may involve risks and
uncertainties that could cause results to differ materially from
those projected (refer to the section entitled “Cautionary Note
Concerning Factors That May Affect Future Results” in
Item 1 and the risk factors provided in Item 1A for discussion
of these risks and uncertainties).
Additional information about results of operations and financial
condition for 2021 and 2020 can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” sections in 3M's Current Report on Form 8-K dated April
26, 2022 (which updated 3M's 2021 Annual Report on Form
10-K).
OVERVIEW
3M is a diversified global manufacturer, technology innovator and
marketer of a wide variety of products and services. Effective in
the first quarter of 2022, 3M made the following
changes:
•Changes
in measure of segment operating performance used by 3M’s chief
operating decision maker—impacting 3M’s disclosed measure of
segment profit/loss (business segment operating income). See
additional information in Note 19. 3M's disclosed disaggregated
revenue was also updated as a result of the changes in segment
reporting. See additional information in Note 2.
•Changes
to non-GAAP measures - certain amounts adjusted for special items.
Refer to the
Certain amounts adjusted for special items - (non-GAAP
measures)
section below for additional information.
Information provided herein reflects the impact of these changes
for all periods presented.
3M manages its operations in four operating business segments:
Safety and Industrial; Transportation and Electronics; Health Care;
and Consumer. From a geographic perspective, any references to EMEA
refer to Europe, Middle East and Africa on a combined basis.
References are made to organic sales change (which include both
organic volume impacts and selling price impacts), which is defined
as the change in net sales, absent the separate impacts on sales
from foreign currency translation and acquisitions, net of
divestitures. Acquisition and divestiture sales change impacts, if
any, are measured separately for the first twelve months
post-transaction. 3M believes this information is useful to
investors and management in understanding ongoing operations and in
analysis of ongoing operating trends.
3M is impacted by the global pandemic and related effects
associated with the coronavirus (COVID-19). Risk factors with
respect to COVID-19 can be found in Item 1A “Risk Factors” in this
document. Given the diversity of 3M’s businesses, some of the
factors relative to COVID-19 increase the demand for 3M products,
while others decrease demand or make it more difficult for 3M to
serve customers. Certain resulting impacts are referenced in
various discussions within this Item 7. Overall, the impact of the
COVID-19 pandemic on 3M’s consolidated results of operations was
primarily driven by factors related to changes in demand for
products and disruption in global supply chains. 3M is not able to
predict the extent to which the COVID-19 pandemic may have a
material effect on its consolidated results of operations or
financial condition.
In 2022, 3M's costs for significant litigation (see
Certain amounts adjusted for special items - (non-GAAP
measures
section below) totaled approximately $2.3 billion pre-tax and
included, among things, pre-tax charges associated with steps
toward resolving Combat Arms Earplugs litigation and associated
with additional commitments to address PFAS-related matters at its
Zwijndrecht, Belgium site (approximately $1.3 billion and $355
million, respectively, in 2022). These matters are further
discussed in Note 16. In 2022, 3M also completed the split-off of
its Food Safety Division business resulting in a pre-tax gain of
$2.7 billion and committed to a plan to exit PFAS manufacturing by
the end of 2025 resulting in a 2022 pre-tax charge of $0.8
billion related to impairment as discussed in Note 15. See
Certain amounts adjusted for special items - (non-GAAP
measures)
section below for additional discussion of these and other special
items.
3M Belgium has experienced interruptions to portions of the
manufacturing at its site in Zwijndrecht, Belgium, as more fully
discussed in Note
16. As discussed in Note 16, 3M Belgium received agreement with
authorities in June 2022 to begin the process toward restarting
operations at the Zwijndrecht facility. 3M Belgium has provided
information required by the Flemish environmental authorities to
receive agreement from the authorities to restart operations, and
has done so for production or sampling purposes. Belgian government
authorities continue to maintain oversight of these operations and
compliance with applicable requirements. In December 2022, 3M
Belgium received an official infraction report from the Flemish
Environmental Inspectorate and continues to work with the
government authorities to comply with applicable legal
requirements. See further discussion in Note 16.
3M is also impacted by the Russia-Ukraine conflict. In light of a
number of factors, 3M suspended operations of its subsidiaries in
Russia in March 2022, the net sales of which were less than one
percent of 3M’s consolidated net sales for 2021. Further, in
September 2022, management committed to a plan to exit and dispose
of the related net assets through an intended sale of the
subsidiaries. The associated charge in 2022 related to this action
is further discussed in Note 15. 3M also has other operations that
source certain raw materials from suppliers in Russia and have
experienced related supply disruption due to the conflict. Further
supply disruption could lead to downstream customer
impacts.
Though 3M monitors relevant factors as well as options to mitigate
potential impacts, it is not able to predict the extent to which
these circumstances may have a material effect on 3M’s consolidated
results of operations or financial condition. Relevant risk factors
can be found in Item 1A “Risk Factors” in this Annual Report on
Form 10-K.
Operating income margin and earnings per share attributable to 3M
common shareholders – diluted:
The following table provides the increases (decreases) in operating
income margins and diluted earnings per share.
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|
|
|
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|
|
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|
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|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Percent of net sales |
|
Earnings per diluted share |
|
Percent of net sales |
|
Earnings per diluted share |
Same period last year |
|
|
|
|
|
|
|
|
20.8 |
% |
|
$ |
10.12 |
|
|
22.3 |
% |
|
$ |
9.36 |
|
Net costs for significant litigation |
|
|
|
|
|
|
|
|
1.4 |
|
|
0.61 |
|
|
1.0 |
|
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on business divestitures |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
(1.2) |
|
|
(0.52) |
|
Divestiture-related restructuring actions |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
0.2 |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special items |
|
|
|
|
|
|
|
|
1.4 |
|
|
0.61 |
|
|
— |
|
|
(0.07) |
|
Same period last year, excluding special items |
|
|
|
|
|
|
|
|
22.2 |
|
|
10.73 |
|
|
22.3 |
|
|
9.29 |
|
Increase/(decrease) due to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total organic growth/productivity and other |
|
|
|
|
|
|
|
|
1.0 |
|
|
0.56 |
|
|
0.7 |
|
|
1.07 |
|
Raw material impact |
|
|
|
|
|
|
|
|
(2.4) |
|
|
(1.13) |
|
|
(0.8) |
|
|
(0.27) |
|
Divestitures |
|
|
|
|
|
|
|
|
— |
|
|
(0.05) |
|
|
— |
|
|
(0.05) |
|
Foreign exchange impacts |
|
|
|
|
|
|
|
|
— |
|
|
(0.39) |
|
|
— |
|
|
0.16 |
|
Other expense (income), net |
|
|
|
|
|
|
|
|
N/A |
|
0.02 |
|
|
N/A |
|
0.27 |
|
Income tax rate |
|
|
|
|
|
|
|
|
N/A |
|
0.06 |
|
|
N/A |
|
0.32 |
|
Shares of common stock outstanding |
|
|
|
|
|
|
|
|
N/A |
|
0.30 |
|
|
N/A |
|
(0.06) |
|
Current period, excluding special items |
|
|
|
|
|
|
|
|
20.8 |
|
|
10.10 |
|
|
22.2 |
|
|
10.73 |
|
Net costs for significant litigation |
|
|
|
|
|
|
|
|
(6.7) |
|
|
(3.20) |
|
|
(1.4) |
|
|
(0.61) |
|
Divestiture costs |
|
|
|
|
|
|
|
|
(0.2) |
|
|
(0.08) |
|
|
— |
|
|
— |
|
Gain on business divestitures |
|
|
|
|
|
|
|
|
8.0 |
|
|
4.73 |
|
|
— |
|
|
— |
|
Divestiture-related restructuring actions |
|
|
|
|
|
|
|
|
(0.1) |
|
|
(0.05) |
|
|
— |
|
|
— |
|
Russia exit charges |
|
|
|
|
|
|
|
|
(0.3) |
|
|
(0.20) |
|
|
— |
|
|
— |
|
PFAS manufacturing exit costs |
|
|
|
|
|
|
|
|
(2.4) |
|
|
(1.12) |
|
|
— |
|
|
— |
|
Total special items |
|
|
|
|
|
|
|
|
(1.7) |
|
|
0.08 |
|
|
(1.4) |
|
|
(0.61) |
|
Current period |
|
|
|
|
|
|
|
|
19.1 |
% |
|
$ |
10.18 |
|
|
20.8 |
% |
|
$ |
10.12 |
|
The Company refers to various "adjusted" amounts or measures on an
“adjusted basis”. These exclude special items. These non-GAAP
measures are further described and reconciled to the most directly
comparable GAAP financial measures in the
Certain amounts adjusted for special items - (non-GAAP
measures)
section below.
A discussion related to the components of year-on-year changes in
operating income margin and earnings per diluted share
follows:
Organic growth/productivity and other:
•In
2022, the following components impacted operating margins and
earnings per diluted share year-on-year:
•Declines
in disposable respirator demand year-on-year negatively impacted
operating margins by 0.3 percent and earnings per share by
$0.29.
•Remaining
organic growth/productivity and other impacts resulted in a net
year-on-year benefit $0.85 to earnings per share and 1.3 percent to
operating margins which was impacted by the following:
◦Benefits
from strong pricing, spending discipline and 2021 restructuring
actions
◦Manufacturing
headwinds from global supply chain challenges; geopolitical impacts
due to the Russia/Ukraine conflict as well as ongoing COVID-related
challenges in China
◦Second
quarter of 2021 benefit of $91 million pre-tax ($0.12 per share
after tax) from the impact of the favorable decision of the
Brazilian Supreme Court regarding the calculation of past social
taxes
◦Increased
investments in growth, productivity and sustainability
•In
2021, organic volume growth and ongoing cost management increased
operating income margins and earnings per diluted share
year-on-year offset by manufacturing headwinds from global supply
chain challenges and increased compensation/benefit costs. The
following also impacted results or provide additional
information:
•2021
benefit of $91 million pre-tax ($0.12 per share after tax) from a
favorable Brazilian Supreme Court decision that concluded on the
impact of state value-added tax when determining Brazil’s federal
sales-based social tax—essentially lowering the social tax that 3M
should have paid in prior periods.
•3M
continued prioritization of investments in growth and
sustainability.
•2021
benefit from higher selling prices, restructuring actions taken in
2020 and positive/negative impact of year-over-year change in
non-divestiture-related restructuring charges, net of adjustments,
for respective periods. Note 5 provides additional information
relative to restructuring actions.
•Lower
year-on-year net gains related to certain property
sales.
•COVID-impacts
recognized on certain assets in 2020.
•In
2021, higher defined benefit pension and postretirement service
cost increased expense year-on-year.
Raw material impact:
•In
2022, 3M continued to experience inflationary pressures with
year-on-year increases in raw material and logistics costs driven
by many geopolitical, logistics, and disruptive events that caused
imbalance in the global supply chain.
•In
2021, 3M experienced higher raw material, logistics, and outsourced
manufacturing costs from strong end-market demand, ongoing COVID-19
and related global supply chain challenges that were further
magnified by extreme weather events, such as February 2021 winter
storm Uri in the U.S.
Acquisitions/divestitures:
•Divestiture
impacts in 2022 include lost income from divested businesses and
remaining stranded costs (net of transition arrangement income). 3M
completed the split-off of the Food Safety business in September
2022 (discussed in Note 3). The impact also includes lost income
from deconsolidation of the Aearo Entities in July 2022 (discussed
in Note 16).
•Divestiture
impacts in 2021 are primarily comprised of the lost income from the
divestiture of the Company’s drug delivery business (sale completed
in May 2020).
Foreign exchange impacts:
•Foreign
currency impacts (net of hedging) decreased operating income by
approximately $271 million and $103 million (or a decrease in
pre-tax earnings of approximately $280 million and $119 million)
year-on-year for 2022 and 2021, respectively. These estimates
include: (a) the effects of year-on-year changes in exchange rates
on translating current period functional currency profits into U.S.
dollars and on current period non-functional currency denominated
purchases or transfers of goods between 3M operations, and (b)
year-on-year changes in transaction gains and losses, including
derivative instruments designed to reduce foreign currency exchange
rate risks.
Other expense (income), net:
•Lower
income related to higher non-service cost components of pension and
postretirement expense increased expense year-on-year for 2022.
Higher income related to non-service cost components of pension and
postretirement expense decreased expense year-on-year for
2021.
•Interest
expense (net of interest income) decreased in 2022 compared to the
same period year-on-year driven by debt maturities in the ordinary
course and interest income on invested cash.
•Interest
expense (net of interest income) decreased in 2021 compared to the
same period year-on-year due in part to interest expense savings
from early debt extinguishment actions in 2020.
Income tax rate:
•Certain
items above reflect specific income tax rates associated therewith.
Overall, the effective tax rates for 2022, 2021, and 2020 were 9.6
percent, 17.8 percent, and 19.7 percent, respectively. These
reflect a decrease of 8.2 percentage points from 2021 to 2022 and a
decrease of 1.9 percentage points from 2020 to 2021. The primary
factors that decreased the Company's effective tax rate for 2022
were the tax efficient structure associated with the gain on
split-off of the Food Safety business (see Note 3). The primary
factors that decreased the Company's effective tax rate in 2021
were geographical income mix and favorable adjustments in 2021
related to impacts of U.S. international tax
provisions.
•On
an adjusted basis (as discussed below), the effective tax rates for
2022, 2021, and 2020 were 17.7 percent, 18.1 percent, and 20.5
percent, respectively. These reflect a decrease of 0.4 percent
percentage points from 2021 to 2022 and a decrease of 2.4
percentage points from 2020 to 2021.
Shares of common stock outstanding:
•Lower
shares outstanding increased earnings per share per diluted share
for 2022, while higher shares outstanding decreased earnings per
share diluted share for 2021.
Certain amounts adjusted for special items - (non-GAAP
measures):
In addition to reporting financial results in accordance with U.S.
GAAP, 3M also provides non-GAAP measures that adjust for the
impacts of special items. For the periods presented, special items
include the items described below. Operating income, segment
operating income (loss), income before taxes, net income, earnings
per share, and the effective tax rate are all measures for which 3M
provides the reported GAAP measure and a measure adjusted for
special items. The adjusted measures are not in accordance with,
nor are they a substitute for, GAAP measures. While the Company
includes certain items in its measure of segment operating
performance, it also considers these non-GAAP measures in
evaluating and managing its operations. The Company believes that
discussion of results adjusted for special items is useful to
investors in understanding underlying business performance, while
also providing additional transparency to the special items.
Special items impacting operating income are reflected in Corporate
and Unallocated, except as described below with respect to net
costs for significant litigation and PFAS manufacturing exit costs.
The determination of these items may not be comparable to similarly
titled measures used by other companies.
In the first quarter of 2022, the Company changed the extent of
matters and charges/benefits it includes within special items with
respect to net costs for significant litigation. Previously, 3M
included net costs, when significant, associated with changes in
accrued liabilities related to respirator mask/asbestos litigation
and PFAS-related other environmental matters, along with the
associated tax impacts. These non-GAAP measure changes involved
including net costs for litigation related to 3M’s Combat Arms
Earplugs, expanding net costs to include external legal fees and
insurance recoveries associated with the applicable matters in
addition to changes in accrued liabilities, and to include all such
net costs for the applicable matters, not just when considered
significant. Information provided herein reflects the impact of
these changes for all periods presented.
Special items for the periods presented include:
Net costs for significant litigation:
•These
relate to 3M's respirator mask/asbestos, PFAS-related other
environmental, and Combat Arms Earplugs matters (as discussed in
Note 16). Net costs include the impacts of any changes in accrued
liabilities, external legal fees, and insurance recoveries, along
with associated tax impacts. Prior to initiating voluntary chapter
11 bankruptcy proceedings in July 2022, net costs related to Combat
Arms Earplugs and Aearo-respirator mask/asbestos matters along with
non-Aearo respirator mask/asbestos matters were reflected as
special items in the Safety and Industrial business segment. During
the bankruptcy period, net costs related to Combat Arms Earplugs
and Aearo-respirator mask/asbestos matters are reflected as
corporate special items in Corporate and Unallocated while those
associated with non-Aearo respirator mask/asbestos matters continue
to be reflected as special items in the Safety and Industrial
business segment. Net costs associated with PFAS-related other
environmental matters are primarily reflected as corporate special
items in Corporate and Unallocated.
Divestiture costs:
•These
include costs related to separating and divesting substantially an
entire business segment of 3M following public announcement of its
intended divestiture.
Gain on business divestitures:
•In
2022, 3M recorded a gain related to the split-off and combination
of its Food Safety business with Neogen Corporation. In 2020, 3M
recorded a gain primarily related to the divestiture of its Drug
Delivery business. Refer to Note 3 for further
details.
Divestiture-related restructuring actions:
•In
the third quarter of 2022, following the split-off of the Food
Safety business, and in 2020, following the divestiture of the Drug
Delivery business, (see Note 3) management approved and committed
to undertake certain restructuring actions addressing corporate
functional costs across 3M in relation to the magnitude of amounts
previously allocated to the divested businesses. Refer to Note 5
for further details.
Russia exit charges:
•In
the third quarter of 2022, 3M recorded a charge primarily related
to impairment of net assets in Russia in connection with
management's committed exit and disposal plan. Refer to Note 15 for
further details.
PFAS manufacturing exit costs:
•These
costs relate to 3M's December 2022 commitment to a plan to exit
PFAS manufacturing by the end of 2025. Charges for the applicable
period relate to asset impairments. These charges were reflected
within the Transportation and Electronics business segment. Refer
to Note 15 for further details.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, except per share amounts) |
|
Safety and Industrial |
|
Safety and Industrial Margin |
|
Transportation and Electronics |
|
Transportation and Electronics Margin |
|
Total Company |
|
Total Company Margin |
|
Income Before Taxes |
|
Provision for Income Taxes |
|
Effective Tax Rate |
|
Net Income Attributable to 3M |
|
Earnings per Diluted Share |
|
Earnings per diluted share percent change |
Year ended December 31, 2020 GAAP
|
|
$ |
2,588 |
|
23.6% |
|
$ |
1,701 |
|
20.2% |
|
$ |
7,161 |
|
22.3 |
% |
|
$ |
6,795 |
|
$ |
1,337 |
|
19.7 |
% |
|
$ |
5,449 |
|
$ |
9.36 |
|
|
|
Adjustments for special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net costs for significant litigation |
|
205 |
|
|
|
|
— |
|
|
|
|
353 |
|
|
|
|
353 |
|
|
136 |
|
|
|
|
217 |
|
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on business divestitures |
|
— |
|
|
|
— |
|
|
|
(389) |
|
|
|
(389) |
|
(86) |
|
|
|
(303) |
|
(0.52) |
|
|
Divestiture-related restructuring actions |
|
— |
|
|
|
— |
|
|
|
55 |
|
|
|
55 |
|
9 |
|
|
|
46 |
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special items |
|
205 |
|
|
|
— |
|
|
|
19 |
|
|
|
19 |
|
59 |
|
|
|
(40) |
|
(0.07) |
|
|
Year ended December 31, 2020 adjusted amounts (non-GAAP
measures)
|
|
$ |
2,793 |
|
25.5% |
|
$ |
1,701 |
|
20.2% |
|
$ |
7,180 |
|
22.3 |
% |
|
$ |
6,814 |
|
$ |
1,396 |
|
20.5 |
% |
|
$ |
5,409 |
|
$ |
9.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2021 GAAP
|
|
$ |
2,466 |
|
20.6% |
|
$ |
1,880 |
|
20.3% |
|
$ |
7,369 |
|
20.8 |
% |
|
$ |
7,204 |
|
$ |
1,285 |
|
17.8 |
% |
|
$ |
5,921 |
|
$ |
10.12 |
|
8 |
% |
Adjustments for special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net costs for significant litigation |
|
249 |
|
|
|
|
— |
|
|
|
|
463 |
|
|
|
|
463 |
|
|
104 |
|
|
|
|
359 |
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special items |
|
249 |
|
|
|
|
— |
|
|
|
|
463 |
|
|
|
|
463 |
|
|
104 |
|
|
|
|
359 |
|
|
0.61 |
|
|
|
Year ended December 31, 2021 adjusted amounts (non-GAAP
measures)
|
|
$ |
2,715 |
|
22.7% |
|
$ |
1,880 |
|
20.3% |
|
$ |
7,832 |
|
22.2 |
% |
|
$ |
7,667 |
|
$ |
1,389 |
|
18.1 |
% |
|
$ |
6,280 |
|
$ |
10.73 |
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022 GAAP
|
|
$ |
1,199 |
|
10.3% |
|
$ |
1,012 |
|
11.4% |
|
$ |
6,539 |
|
19.1 |
% |
|
$ |
6,392 |
|
$ |
612 |
|
9.6 |
% |
|
$ |
5,777 |
|
$ |
10.18 |
|
1 |
% |
Adjustments for special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net costs for significant litigation |
|
1,414 |
|
|
|
|
— |
|
|
|
|
2,291 |
|
|
|
|
2,291 |
|
|
476 |
|
|
|
|
1,815 |
|
|
3.20 |
|
|
|
Divestiture costs |
|
— |
|
|
|
|
— |
|
|
|
|
60 |
|
|
|
|
60 |
|
|
13 |
|
|
|
|
47 |
|
|
0.08 |
|
|
|
Gain on business divestitures |
|
— |
|
|
|
|
— |
|
|
|
|
(2,724) |
|
|
|
|
(2,724) |
|
|
(39) |
|
|
|
|
(2,685) |
|
|
(4.73) |
|
|
Divestiture-related restructuring actions |
|
— |
|
|
|
|
— |
|
|
|
|
41 |
|
|
|
|
41 |
|
|
9 |
|
|
|
|
32 |
|
|
0.05 |
|
|
Russia exit charges |
|
— |
|
|
|
|
— |
|
|
|
|
109 |
|
|
|
|
109 |
|
|
(2) |
|
|
|
|
111 |
|
|
0.20 |
|
|
PFAS manufacturing exit costs |
|
— |
|
|
|
|
800 |
|
|
|
|
800 |
|
|
|
|
800 |
|
|
162 |
|
|
|
|
638 |
|
|
1.12 |
|
|
Total special items |
|
1,414 |
|
|
|
|
800 |
|
|
|
|
577 |
|
|
|
|
577 |
|
|
619 |
|
|
|
|
(42) |
|
|
(0.08) |
|
|
Year ended December 31, 2022 adjusted amounts (non-GAAP
measures)
|
|
$ |
2,613 |
|
22.5% |
|
$ |
1,812 |
|
20.4% |
|
$ |
7,116 |
|
20.8 |
% |
|
$ |
6,969 |
|
$ |
1,231 |
|
17.7 |
% |
|
$ |
5,735 |
|
$ |
10.10 |
|
(6) |
% |
Sales and operating income (loss) by business segment:
The following tables contain sales and operating income (loss)
results by business segment for the years ended December 31,
2022 and 2021. Refer to the section entitled “Performance by
Business Segment” later in MD&A for additional discussion
concerning 2022 versus 2021 results, including Corporate and
Unallocated. Refer to Note 19 for additional information on
business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
% change |
(Dollars in millions) |
|
Net Sales |
|
% of Total |
|
Operating Income (Loss) |
|
Net Sales |
|
% of Total |
|
Operating Income (Loss) |
|
Net Sales |
|
Operating Income (Loss) |
Business Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety and Industrial |
|
$ |
11,604 |
|
33.9 |
% |
|
$ |
1,199 |
|
$ |
11,981 |
|
33.9 |
% |
|
$ |
2,466 |
|
(3.2) |
% |
|
(51.4) |
% |
Transportation and Electronics |
|
8,902 |
|
26.0 |
|
|
1,012 |
|
9,262 |
|
26.2 |
|
|
1,880 |
|
(3.9) |
|
|
(46.2) |
|
Health Care |
|
8,421 |
|
24.6 |
|
|
1,815 |
|
8,597 |
|
24.3 |
|
|
2,037 |
|
(2.0) |
|
|
(10.9) |
|
Consumer |
|
5,298 |
|
15.5 |
|
|
994 |
|
5,513 |
|
15.6 |
|
|
1,162 |
|
(3.9) |
|
|
(14.4) |
|
Corporate and Unallocated |
|
4 |
|
— |
|
|
1,519 |
|
2 |
|
— |
|
|
(176) |
|
|
|
|
Total Company |
|
$ |
34,229 |
|
|
100.0 |
% |
|
$ |
6,539 |
|
$ |
35,355 |
|
|
100.0 |
% |
|
$ |
7,369 |
|
|
(3.2) |
% |
|
(11.3) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022 |
Worldwide Sales Change
By Business Segment |
|
Organic sales |
|
Acquisitions |
|
Divestitures |
|
Translation |
|
Total sales change |
Safety and Industrial |
|
1.0 |
% |
|
— |
% |
|
— |
% |
|
(4.2) |
% |
|
(3.2) |
% |
Transportation and Electronics |
|
1.2 |
|
|
— |
|
|
(0.5) |
|
|
(4.6) |
|
|
(3.9) |
|
Health Care |
|
3.2 |
|
|
— |
|
|
(1.4) |
|
|
(3.8) |
|
|
(2.0) |
|
Consumer |
|
(0.9) |
|
|
— |
|
|
(0.4) |
|
|
(2.6) |
|
|
(3.9) |
|
Total Company |
|
1.2 |
|
|
— |
|
|
(0.5) |
|
|
(3.9) |
|
|
(3.2) |
|
Sales by geographic area:
Percent change information compares the years ended
December 31, 2022 and 2021 with the same prior year period,
unless otherwise indicated. Additional discussion of business
segment results is provided in the Performance by Business Segment
section.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022 |
|
|
Americas |
|
Asia Pacific |
|
Europe, Middle East & Africa |
|
Other Unallocated |
|
Worldwide |
Net sales (millions) |
|
$ |
18,400 |
|
|
$ |
9,901 |
|
|
$ |
5,928 |
|
|
$ |
— |
|
|
$ |
34,229 |
|
% of worldwide sales |
|
53.8 |
% |
|
28.9 |
% |
|
17.3 |
% |
|
|
|
100.0 |
% |
Components of net sales change: |
|
|
|
|
|
|
|
|
|
|
Organic sales |
|
2.6 |
|
|
0.3 |
|
|
(0.6) |
|
|
|
|
1.2 |
|
Divestitures |
|
(0.6) |
|
|
(0.4) |
|
|
(0.6) |
|
|
|
|
(0.5) |
|
Translation |
|
(0.3) |
|
|
(6.5) |
|
|
(9.8) |
|
|
|
|
(3.9) |
|
Total sales change |
|
1.7 |
% |
|
(6.6) |
% |
|
(11.0) |
% |
|
|
|
(3.2) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2021
|
|
|
Americas |
|
Asia Pacific |
|
Europe, Middle East & Africa |
|
Other Unallocated |
|
Worldwide |
Net sales (millions) |
|
$ |
18,097 |
|
|
$ |
10,600 |
|
|
$ |
6,660 |
|
|
$ |
(2) |
|
|
$ |
35,355 |
|
% of worldwide sales |
|
51.2 |
% |
|
30.0 |
% |
|
18.8 |
% |
|
|
|
100.0 |
% |
Components of net sales change: |
|
|
|
|
|
|
|
|
|
|
Organic sales |
|
9.8 |
|
|
8.5 |
|
|
6.3 |
|
|
|
|
8.8 |
|
Divestitures |
|
(0.6) |
|
|
— |
|
|
(1.1) |
|
|
|
|
(0.5) |
|
Translation |
|
0.3 |
|
|
2.3 |
|
|
3.8 |
|
|
|
|
1.6 |
|
Total sales change |
|
9.5 |
% |
|
10.8 |
% |
|
9.0 |
% |
|
|
|
9.9 |
% |
Additional information beyond what is included in the preceding
tables is as follows:
•For
the full year 2022, in the Americas geographic area, U.S. total
sales were flat which included increased organic sales of 1
percent. Total sales in Mexico increased 8 percent which included
increased organic sales of 12 percent. In Canada, total sales
increased 9 percent which included increased organic sales of 13
percent. In Brazil, total sales increased 15 percent which included
increased organic sales of 12 percent. In the Asia Pacific
geographic area, China total sales decreased 6 percent which
included decreased organic sales of 3 percent. In Japan, total
sales decreased 12 percent which included increased organic sales
of 2 percent.
•For
the full year 2021, in the Americas geographic area, U.S. total
sales increased 8 percent which included increased organic sales of
8 percent. Total sales in Mexico increased 18 percent which
included increased organic sales of 16 percent. In Canada, total
sales increased 18 percent which included increased organic sales
of 11 percent. In Brazil, total sales increased 18 percent which
included increased organic sales of 22 percent. In the Asia Pacific
geographic area, China total sales increased 17 percent which
included increased organic sales of 11 percent. In Japan, total
sales were flat which included increased organic sales of 2
percent.
Managing currency risks:
The stronger U.S. dollar had a negative impact on sales in full
year 2022 compared to the same periods last year. Net of the
Company’s hedging strategy, foreign currency negatively impacted
earnings in full year 2022 compared to the same period last year.
3M utilizes a number of tools to manage currency risk related to
earnings including natural hedges such as pricing, productivity,
hard currency, hard currency-indexed billings, and localizing
source of supply. 3M also uses financial hedges to mitigate
currency risk. In the case of more liquid currencies, 3M hedges a
portion of its aggregate exposure, using a 12, 24 or 36 month
horizon, depending on the currency in question. For less liquid
currencies, financial hedging is frequently more expensive with
more limitations on tenor. Thus, this risk is largely managed via
local operational actions using natural hedging tools as discussed
above. In either case, 3M’s hedging approach is designed to
mitigate a portion of foreign currency risk and reduce volatility,
ultimately allowing time for 3M’s businesses to respond to changes
in the marketplace.
Financial condition:
Refer to the section entitled “Financial Condition and Liquidity”
later in MD&A for a discussion of items impacting cash
flows.
In November 2018, 3M’s Board of Directors replaced the Company’s
February 2016 repurchase program with a new repurchase program.
This new program authorizes the repurchase of up to $10 billion of
3M’s outstanding common stock, with no pre-established end date. In
2022, the Company purchased $1.5 billion of its own stock, compared
to $2.2 billion of stock purchases in 2021. As of December 31,
2022, approximately $4.2 billion remained available under the
authorization. In February 2023, 3M’s Board of Directors declared a
first-quarter 2023 dividend of $1.50 per share, an increase of 1
percent. This marked the 65th consecutive year of dividend
increases for 3M.
Raw materials:
Refer to the section entitled “Raw materials” in Item 1 for
discussion of 3M's sources and availability of raw materials in
2022.
Pension and postretirement defined benefit/contribution
plans:
On a worldwide basis, 3M’s pension and postretirement plans were 96
percent funded at year-end 2022. The primary U.S. qualified pension
plan, which is approximately 70 percent of the worldwide pension
obligation, was 97 percent funded and the international pension
plans were 116 percent funded. The U.S. non-qualified pension plan
is not funded due to tax considerations and other factors. Asset
returns in 2022 for the primary U.S. qualified pension plan were
-17.4 percent, as 3M strategically invests in both growth assets
and fixed income matching assets to manage its funded status. For
the primary U.S. qualified pension plan, the expected long-term
rate of return on an annualized basis for 2023 is 7.5 percent. The
primary U.S. qualified pension plan year-end 2022 discount rate was
5.18%, up 2.29 percentage points from the year-end 2021 discount
rate of 2.89%. The increase in U.S. discount rates resulted in a
decreased valuation of the projected benefit obligation (PBO). The
primary U.S. qualified pension plan’s funded status remained at 97%
as of December 31, 2022 due to the lower PBO resulting from the
discount rate increase, offset by the negative returns of the
plan's assets. Additional detail and discussion of international
plan asset returns and discount rates is provided in Note 13
(Pension and Postretirement Benefit Plans).
3M expects to contribute approximately $100 million to $200 million
of cash to its global defined benefit pension and postretirement
plans in 2023. The Company does not have a required minimum cash
pension contribution obligation for its U.S. plans in 2023. 3M
expects global defined benefit pension and postretirement expense
in 2023 to decrease by approximately $30 million pre-tax when
compared to 2022. Refer to “Critical Accounting Estimates” within
MD&A and Note 13 (Pension and Postretirement Benefit Plans) for
additional information concerning 3M’s pension and post-retirement
plans.
RESULTS OF OPERATIONS
Net Sales:
Refer to the preceding “Overview” section and the “Performance by
Business Segment” section later in MD&A for additional
discussion of sales change.
Operating Expenses:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Percent of net sales) |
|
|
|
|
|
|
|
2022 |
|
2021 |
|
Change |
Cost of sales |
|
|
|
|
|
|
|
56.2 |
% |
|
53.2 |
% |
|
3.0 |
% |
Selling, general and administrative expenses (SG&A) |
|
|
|
|
|
|
|
26.5 |
|
|
20.4 |
|
|
6.1 |
|
Research, development and related expenses (R&D) |
|
|
|
|
|
|
|
5.4 |
|
|
5.6 |
|
|
(0.2) |
|
Gain on business divestitures |
|
|
|
|
|
|
|
(8.0) |
|
|
— |
|
|
(8.0) |
|
Goodwill impairment expense |
|
|
|
|
|
|
|
0.8 |
|
|
— |
|
|
0.8 |
|
Operating income margin |
|
|
|
|
|
|
|
19.1 |
% |
|
20.8 |
% |
|
(1.7) |
% |
The
Company is continuing the ongoing deployment of an enterprise
resource planning (ERP) system on a worldwide basis, with these
investments impacting cost of sales, SG&A, and
R&D.
Cost of Sales:
Cost of sales, measured as a percent of sales, increased in 2022
when compared to the same period last year. Increases were
primarily due to 2022 special item costs for significant litigation
from additional commitments to address PFAS-related matters at 3M's
Zwijndrecht, Belgium site (discussed in Note 16), higher raw
materials and logistics costs, manufacturing productivity headwinds
which were further magnified by the shutdown of certain operations
in Belgium and progress on restarting previously-idled operations,
and investments in growth, productivity and sustainability. On a
percent of sales basis, these increases were partially offset by
increases in selling prices.
Selling, General and Administrative Expenses:
SG&A, measured as a percent of sales, increased in 2022 when
compared to the same period last year. SG&A was impacted by
increased special item costs for significant litigation primarily
related to steps toward resolving Combat Arms Earplugs litigation
(discussed in Note 16) resulting in a 2022 second quarter pre-tax
charge of approximately $1.2 billion, certain impairment costs
related to exiting PFAS manufacturing (see Note 15), costs related
to exiting Russia (see Note 15), divestiture-related restructuring
charges (see Note 5), and continued investment in key growth
initiatives. These increases were partially offset by restructuring
benefits and ongoing general 3M cost management.
Research, Development and Related Expenses:
R&D, measured as a percent of sales, decreased in 2022 when
compared to the same period last year. 3M continues to invest in a
range of R&D activities from application development, product
and manufacturing support, product development and technology
development aimed at disruptive innovations.
Gain on Business Divestitures:
In the third quarter of 2022, 3M recorded a pre-tax gain of $2.7
billion ($2.7 billion after tax) related to the split-off and
combination of its Food Safety business with Neogen Corporation.
Refer to Note 3 for further details.
Goodwill Impairment Expense:
As a result of 3M's commitment to exit per- and polyfluoroalkyl
substance (PFAS) manufacturing, 3M recorded a goodwill impairment
charge related to the Advanced Materials reporting unit (within the
Transportation and Electronics business). Refer to Note 15 for
further details.
Other Expense (Income), Net:
See Note 6 for a detailed breakout of this line item.
Interest expense (net of interest income) decreased in 2022
compared to the same period year-on-year driven by debt maturities
in the ordinary course and interest income on invested cash.
Interest expense (net of interest income) decreased in 2021
compared to the same period year-on-year due in part to interest
expense savings from early debt extinguishment actions in
2020.
The non-service pension and postretirement net benefit decreased
$49 million and increased $163 million in 2022 and 2021,
respectively. The lower year-on-year benefit in 2022 was primarily
due to higher interest costs due to higher discount rates as of the
year-end 2021, lower expected returns on plan assets for 2023,
partially offset by a reduction in actuarial loss amortization,
which was driven by the lower discount rates. Refer to Note 13 for
additional details.
Provision for Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Percent of pre-tax income) |
|
|
|
|
|
2022 |
|
2021 |
Effective tax rate |
|
|
|
|
|
9.6 |
% |
|
17.8 |
% |
Factors that impacted the tax rates between years are further
discussed in the Overview section above and in Note
10.
The tax rate can vary from quarter to quarter due to discrete
items, such as the settlement of income tax audits, changes in tax
laws, and employee share-based payment accounting; as well as
recurring factors, such as the geographic mix of income before
taxes.
Refer to Note 10 for further discussion of income
taxes.
Income from Unconsolidated Subsidiaries, Net of Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions) |
|
|
|
|
|
2022 |
|
2021 |
Income (loss) from unconsolidated subsidiaries, net of
taxes |
|
|
|
|
|
$ |
11 |
|
$ |
10 |
Income (loss) from unconsolidated subsidiaries, net of taxes, is
attributable to the Company’s accounting under the equity method
for ownership interests in certain entities such as Kindeva
following 3M's divestiture of the drug delivery business in 2020.
In the fourth quarter of 2022, 3M sold its remaining ownership
interest in Kindeva resulting in an immaterial gain.
Net Income (Loss) Attributable to Noncontrolling
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions) |
|
|
|
|
|
2022 |
|
2021 |
Net income (loss) attributable to noncontrolling
interest |
|
|
|
|
|
$ |
14 |
|
|
$ |
8 |
|
Net income (loss) attributable to noncontrolling interest
represents the elimination of the income or loss attributable to
non-3M ownership interests in 3M consolidated entities. The primary
noncontrolling interest relates to 3M India Limited, of which 3M’s
effective ownership is 75 percent.
PERFORMANCE BY BUSINESS SEGMENT
Item 1, Business Segments, provides an overview of 3M’s business
segments. In addition, disclosures relating to 3M’s business
segments are provided in Note 19. Effective in the first quarter of
2022, the measure of segment operating performance used by 3M’s
chief operating decision maker (CODM) changed and, as a result,
3M’s disclosed measure of segment profit/loss (business segment
operating income) was updated for all comparative periods
presented. The change to business segment operating income aligns
with the update to how the CODM assesses performance and allocates
resources for the Company’s business segments (see Note 19 for
additional details).
Information provided herein reflects the impact of these changes
for all periods presented. 3M manages its operations in four
business segments. The reportable segments are Safety and
Industrial; Transportation and Electronics; Health Care; and
Consumer.
Corporate and Unallocated:
In addition to these four business segments, 3M assigns certain
costs to “Corporate and Unallocated,” which is presented separately
in the preceding business segments table and in Note 19. Corporate
and Unallocated operating income includes “corporate special items”
and “other corporate expense-net”. Corporate special items include
net costs for significant litigation associated with Combat Arms
Earplugs and Aearo-respirator mask/asbestos matters during the
chapter 11 bankruptcy period (which began in July 2022) and with
PFAS-related other environmental matters (see Note 16). Corporate
special items also include divestiture costs, gain/loss on business
divestitures (see Note 3), divestiture-related restructuring costs
(see Note 5), and Russia exit costs (see Note 15). Divestiture
costs include costs related to separating and divesting
substantially an entire business segment of 3M following public
announcement of its intended divestiture. Other corporate
expense-net includes items such as net costs related to limited
unallocated corporate staff and centrally managed material resource
centers of expertise costs, corporate philanthropic activity, and
other net costs that 3M may choose not to allocate directly to its
business segments. Other corporate expense-net also includes costs
and income from transition supply, manufacturing and service
arrangements with Neogen Corporation following the split-off of
3M's Food Safety business in 2022 and with the acquirer of the
former Drug Delivery business following its 2020 divestiture. Items
classified as revenue from this activity are included in Corporate
and Unallocated net sales. Because Corporate and Unallocated
includes a variety of miscellaneous items, it is subject to
fluctuation on a quarterly and annual basis.
Corporate and Unallocated operating expenses decreased in 2022,
when compared to the same period last year. The subsections below
provide additional information.
Corporate Special Items
Refer to the
Certain amounts adjusted for special items - (non-GAAP
measures)
section for additional details on the impact of special items and
to Note 19 for additional information on the components of
corporate special items. Corporate special item net costs decreased
in 2022 year over year primarily due to the gain on divestiture
associated with the 2022 split-off of the Food Safety business
(discussed in Note 3) partially offset by additional commitments in
2022 to address PFAS-related matters, including at 3M's
Zwijndrecht, Belgium site (discussed in Note 16).
Other Corporate Expense - Net
Other corporate operating expenses, net, increased when compared to
the same period last year primarily due to a $91 million pre-tax
benefit from the impact of the favorable decision of the Brazilian
Supreme Court included in the second quarter of 2021 regarding the
calculation of past social taxes.
Operating Business Segments:
Information related to 3M’s business segments is presented in the
tables that follow with additional context in the corresponding
narrative below the tables.
Safety and Industrial Business (33.9% of consolidated
sales):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
Sales (millions) |
|
|
|
|
|
|
|
|
|
$ |
11,604 |
|
$ |
11,981 |
Sales change analysis: |
|
|
|
|
|
|
|
|
|
|
|
|
Organic sales |
|
|
|
|
|
|
|
|
|
1.0 |
% |
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation |
|
|
|
|
|
|
|
|
|
(4.2) |
|
|
1.9 |
|
Total sales change |
|
|
|
|
|
|
|
|
|
(3.2 |
%) |
|
9.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment operating income (loss) (millions) |
|
|
|
|
|
|
|
|
|
$ |
1,199 |
|
$ |
2,466 |
Percent change |
|
|
|
|
|
|
|
|
|
(51.4 |
%) |
|
(4.7 |
%) |
Percent of sales |
|
|
|
|
|
|
|
|
|
10.3 % |
|
20.6 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted business segment operating income (millions) (non-GAAP
measure) |
|
|
|
|
|
|
|
|
|
$ |
2,613 |
|
$ |
2,715 |
Percent change |
|
|
|
|
|
|
|
|
|
(3.7) % |
|
(2.8) % |
Percent of sales |
|
|
|
|
|
|
|
|
|
22.5 % |
|
22.7 % |
The preceding table also displays business segment operating income
(loss) information adjusted for special items. For Safety and
Industrial these adjustments include net costs for respirator
mask/asbestos (Aearo-related and non-Aearo related) and Combat Arms
Earplugs litigation matters. During the Aearo chapter 11 bankruptcy
period (which began in July 2022 — see Note 16), net costs related
to Combat Arms Earplugs and Aearo-respirator mask/asbestos matters
are reflected as corporate special items in Corporate and
Unallocated while those associated with non-Aearo respirator
mask/asbestos matters continue to be reflected as special items in
the Safety and Industrial business segment. Refer to the
Certain amounts adjusted for special items - (non-GAAP
measures)
section for additional details.
Year 2022 results:
Sales in Safety and Industrial were down 3.2 percent in U.S.
dollars.
On an organic sales basis:
•Sales
increased in electrical markets, abrasives, automotive aftermarket,
roofing granules, closure and masking systems, and industrial
adhesives and tapes and decreased in personal safety.
•Growth
from continued improving general industrial manufacturing activity
and other end-market demand was partially offset by the disposable
respirator sales decline within personal safety, which negatively
impacted year-on-year organic growth by 4.5 percentage
points.
Business segment operating income margins decreased year-on-year
due to special item costs for significant litigation primarily
related to steps toward resolving Combat Arms Earplugs litigation
(discussed in Note 16) resulting in a 2022 second quarter pre-tax
charge of approximately $1.2 billion. Margins were also impacted by
increased raw materials and logistics costs, manufacturing
productivity headwinds, partially offset by selling price actions,
spending discipline and restructuring actions. Adjusting for
special item costs for significant litigation (non-GAAP measure),
business segment operating income margins decreased year-on-year as
displayed above.
Year 2021 results:
Sales in Safety and Industrial were up 9.2 percent in U.S.
dollars.
On an organic sales basis:
•Sales
increased in abrasives, industrial adhesives and tapes, automotive
aftermarket, electrical markets, roofing granules, and closure and
masking systems and decreased in personal safety.
•Growth
was driven by improving general industrial manufacturing activity
and other end-market demand partially offset by prior-year strong
pandemic-related respirator mask demand.
Business segment operating income margins decreased year-on-year
due to increases in raw materials, logistics and special item costs
for significant litigation; lower gain on sale of properties; and
manufacturing productivity impacts that were partially offset by
sales growth leverage, and benefits from restructuring actions and
lower related charges. Adjusting for special item costs for
significant litigation (non-GAAP measure), business segment
operating income margins decreased year-on-year as displayed
above.
Transportation and Electronics Business (26.0% of consolidated
sales):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
Sales (millions) |
|
|
|
|
|
|
|
|
|
$ |
8,902 |
|
$ |
9,262 |
Sales change analysis: |
|
|
|
|
|
|
|
|
|
|
|
|
Organic sales |
|
|
|
|
|
|
|
|
|
1.2 |
% |
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures |
|
|
|
|
|
|
|
|
|
(0.5) |
|
|
— |
|
Translation |
|
|
|
|
|
|
|
|
|
(4.6) |
|
|
1.5 |
|
Total sales change |
|
|
|
|
|
|
|
|
|
(3.9) |
% |
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment operating income (millions) |
|
|
|
|
|
|
|
|
|
$ |
1,012 |
|
$ |
1,880 |
Percent change |
|
|
|
|
|
|
|
|
|
(46.2) |
% |
|
10.6 |
% |
Percent of sales |
|
|
|
|
|
|
|
|
|
11.4 % |
|
20.3 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted business segment operating income (millions) (non-GAAP
measure) |
|
|
|
|
|
|
|
|
|
$ |
1,812 |
|
$ |
1,880 |
Percent change |
|
|
|
|
|
|
|
|
|
(3.6) % |
|
10.6 % |
Percent of sales |
|
|
|
|
|
|
|
|
|
20.4 % |
|
20.3 % |
The preceding table also displays business segment operating income
(loss) information adjusted for special items. For Transportation
and Electronics these adjustments include PFAS manufacturing exit
costs. Refer to the
Certain amounts adjusted for special items - (non-GAAP
measures)
section for additional details.
Year 2022 results:
Sales in Transportation and Electronics were down 3.9 percent in
U.S. dollars.
On an organic sales basis:
•Sales
increased in automotive and aerospace, commercial solutions and
advanced materials, and decreased in transportation safety and
electronics.
•Growth
was held back by weaker consumer electronics end-market demand and
ongoing impacts of semiconductor supply chain constraints on
automotive markets.
Divestitures:
•Divestiture
impact relates to lost Transportation and Electronics sales
year-on-year from deconsolidation of the Aearo Entities in July
2022.
Business segment operating income margins decreased year-on-year
due to special item charges for PFAS manufacturing exit costs
related to asset impairments (discussed in Note 15) resulting in a
2022 fourth quarter pre-tax charge of $0.8 billion. Margins were
also impacted by increased raw materials and logistics costs,
manufacturing productivity headwinds which were further magnified
by the shutdown of certain operations in Belgium and investments in
auto electrification, partially offset by selling price actions,
strong spending discipline and restructuring actions. Adjusting for
special item PFAS manufacturing exit costs (non-GAAP measure),
business segment operating income margins increased year-on-year as
displayed above.
Year 2021 results:
Sales in Transportation and Electronics were up 10.2 percent in
U.S. dollars.
On an organic sales basis:
•Sales
increased in advanced materials, commercial solutions, automotive
and aerospace, electronics and transportation safety.
•Growth
benefited from improving automotive-end market activity such as
increases in car and light truck builds, strong demand in data
center, semiconductor, interconnect and consumer electronics
markets and increased advertising spend and return to workplace
trends partially offset by impacts from semiconductor supply chain
constraints.
Business segment operating income margins increased year-on-year
due to sales growth leverage, benefits from restructuring actions
and lower related charges, and COVID impacts recognized on certain
assets in 2020 that were partially offset by increases in raw
materials and logistic costs, manufacturing productivity impacts,
and increased compensation and benefit costs.
Health Care Business (24.6% of consolidated sales):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
Sales (millions) |
|
|
|
|
|
|
|
|
|
$ |
8,421 |
|
$ |
8,597 |
Sales change analysis: |
|
|
|
|
|
|
|
|
|
|
|
|
Organic sales |
|
|
|
|
|
|
|
|
|
3.2 |
% |
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures |
|
|
|
|
|
|
|
|
|
(1.4) |
|
|
(2.0) |
|
Translation |
|
|
|
|
|
|
|
|
|
(3.8) |
|
|
1.6 |
|
Total sales change |
|
|
|
|
|
|
|
|
|
(2.0) |
% |
|
9.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment operating income (millions) |
|
|
|
|
|
|
|
|
|
$ |
1,815 |
|
$ |
2,037 |
Percent change |
|
|
|
|
|
|
|
|
|
(10.9) |
% |
|
22.5 |
% |
Percent of sales |
|
|
|
|
|
|
|
|
|
21.6 |
% |
|
23.7 |
% |
Year 2022 results:
Sales in Health Care were down 2.0 percent in U.S.
dollars.
On an organic sales basis:
•Sales
increased in separation and purification, health information
systems, food safety and medical solutions, and was flat in oral
care.
•Growth
continues to be impacted by COVID-related trends on elective
procedure volumes and ongoing inflationary pressures.
Divestitures:
•Divestiture
impact relates to the lost sales year-on-year from the divestiture
from the Food Safety Division split-off transaction and combination
with Neogen completed in the third quarter of 2022.
Business segment operating income margins decreased year-on-year
due to increased raw materials and logistics costs along with
manufacturing productivity headwinds, investments in the business
and transaction-related costs associated with the announced
divestiture of the food safety business (see Note 3), partially
offset by sales growth (including selling price actions), strong
spending discipline and restructuring actions.
As discussed in Note 3, in July 2022, 3M announced its intention to
spin off the Health Care business as a separate public company. 3M
expects to initially retain a 19.9% ownership position in the
Health Care business.
Year 2021 results:
Sales in Health Care were up 9.8 percent in U.S.
dollars.
On an organic sales basis:
•Sales
increased in oral care, separation and purification, food safety,
health information systems and medical solutions.
•Growth
benefited from higher year-on-year dental procedures, continued
high demand for biopharma filtration solutions for COVID-related
vaccine and therapeutic development and manufacturing, rising
elective procedure volumes in the first six months of 2021 and due
to improving hospital information technology
investments.
Divestitures:
•In
May 2020, 3M completed the sale of substantially all of its drug
delivery business.
Business segment operating income margins increased year-on-year
due to sales growth leverage and benefits from restructuring
actions and lower related charges that were partially offset by
supply chain disruptions, increases in raw materials and logistics
costs, deal-related costs associated with the announced divestiture
of the food safety business (see Note 3), manufacturing
productivity impacts, increased compensation and benefit costs, and
increased investments in growth.
Consumer Business (15.5% of consolidated sales):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
Sales (millions) |
|
|
|
|
|
|
|
|
|
$ |
5,298 |
|
$ |
5,513 |
Sales change analysis: |
|
|
|
|
|
|
|
|
|
|
|
|
Organic sales |
|
|
|
|
|
|
|
|
|
(0.9) |
% |
|
9.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures |
|
|
|
|
|
|
|
|
|
(0.4) |
|
|
— |
|
Translation |
|
|
|
|
|
|
|
|
|
(2.6) |
|
|
1.0 |
|
Total sales change |
|
|
|
|
|
|
|
|
|
(3.9) |
% |
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment operating income (millions) |
|
|
|
|
|
|
|
|
|
$ |
994 |
|
$ |
1,162 |
Percent change |
|
|
|
|
|
|
|
|
|
(14.4) |
% |
|
3.8 |
% |
Percent of sales |
|
|
|
|
|
|
|
|
|
18.8 |
% |
|
21.1 |
% |
Year 2022 results:
Sales in Consumer were down 3.9 percent in U.S.
dollars.
On an organic sales basis:
•Sales
increased in stationery and office and home care, was flat in
consumer health and safety, and decreased in home
improvement.
•Growth
was impacted by softening trends in the Consumer retail business as
consumers pulled back on discretionary spending and retailers took
actions to reduce their inventories. These impacts were partially
offset by demand for Scotch BlueTM
painter’s tape, Scotch-BriteTM,
and Post-it®-solutions.
Business segment operating income margins decreased year-on-year as
a result of increased raw materials, logistics and outsourced
hardgoods manufacturing costs along with manufacturing productivity
headwinds and investments in the business, partially offset by
sales growth (including selling price actions), strong spending
discipline and restructuring actions.
Year 2021 results:
Sales in Consumer were up 10.8 percent in U.S.
dollars.
On an organic sales basis:
•Sales
increased in stationery and office, home improvement, consumer
health and safety and home care.
•Growth
driven by continued strength in the market with strong demand for
CommandTM
adhesives, FiltreteTM
air quality solutions, MeguiarsTM
auto care and Scotch BlueTM
painter’s tape and from ongoing strength in demand for packaging
and shipping products, Post-it®-solutions
and Scotch®
brand office tapes as the business laps last year’s COVID-related
comparisons.
Business segment operating income margins decreased year-on-year as
a result of increases in raw materials, logistics, and outsourced
hardgoods manufacturing costs, manufacturing productivity impacts,
and increased compensation and benefit costs that more than offset
leverage from sales growth and benefits from restructuring actions
and lower related charges.
PERFORMANCE BY GEOGRAPHIC AREA
While 3M manages its businesses globally and believes its business
segment results are the most relevant measure of performance, the
Company also utilizes geographic area data as a secondary
performance measure. Export sales are generally reported within the
geographic area where the final sales to 3M customers are made. A
portion of the products or components sold by 3M’s operations to
its customers are exported by these customers to different
geographic areas. As customers move their operations from one
geographic area to another, 3M’s results will follow. Thus, net
sales in a particular geographic area are not indicative of
end-user consumption in that geographic area. Financial information
related to 3M operations in various geographic areas is provided in
Note 2 and Note 19.
Refer to the “Overview” section for a summary of net sales by
geographic area and business segment.
Geographic Area Supplemental Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees as of December 31, |
|
Capital Spending |
|
Property, Plant and Equipment - net as of December
31, |
(Millions, except Employees) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Americas |
|
54,000 |
|
|
56,000 |
|
|
$ |
1,321 |
|
|
$ |
1,046 |
|
|
$ |
6,066 |
|
|
$ |
5,864 |
|
Asia Pacific |
|
18,000 |
|
|
18,000 |
|
|
182 |
|
|
216 |
|
|
1,389 |
|
|
1,582 |
|
Europe, Middle East and Africa |
|
20,000 |
|
|
21,000 |
|
|
246 |
|
|
341 |
|
|
1,723 |
|
|
1,983 |
|
Total Company |
|
92,000 |
|
|
95,000 |
|
|
$ |
1,749 |
|