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REG - 3M Company - Annual Financial Report




 



RNS Number : 0866O
3M Company
05 February 2021
 

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zClick on, or paste the following link into your web browser, to view the associated PDF document. 

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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, 2020

 

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:

 

 

 

 

 

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, Par Value $.01 Per Share

 

MMM

 

New York Stock Exchange, Inc.

 

 

MMM

 

Chicago Stock Exchange, Inc.

0.375% Notes due 2022

 

MMM22A

 

New York Stock Exchange, Inc.

0.950% Notes due 2023

 

MMM23

 

New York Stock Exchange, Inc.

1.500% Notes due 2026

 

MMM26

 

New York Stock Exchange, Inc

1.750% Notes due 2030

 

MMM30

 

New York Stock Exchange, Inc.

1.500% Notes due 2031

 

MMM31

 

New York Stock Exchange, Inc.

 

Note: The common stock of the registrant is also traded on the SWX 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      No  

 

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      No  

 

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      No  

 

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      No  

 

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.

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer 

Accelerated filer 

 

Non-accelerated filer

  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.

 

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    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes       No  

 

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 $101.7 billion as of January 31, 2021 (approximately $89.9 billion as of June 30, 2020, the last business day of the registrant's most recently completed second quarter).

 

Shares of common stock outstanding at January 31, 2021: 579.1 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, 2020) for its annual meeting to be held on May 11, 2021, 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, 2020

 

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.

 

 

 

 

 

Beginning
Page

PART I

 

 

 

 

ITEM 1

 

Business

 

4

 

 

 

 

 

ITEM 1A

 

Risk Factors

 

10

 

 

 

 

 

ITEM 1B

 

Unresolved Staff Comments

 

14

 

 

 

 

 

ITEM 2

 

Properties

 

14

 

 

 

 

 

ITEM 3

 

Legal Proceedings

 

14

 

 

 

 

 

ITEM 4

 

Mine Safety Disclosures

 

14

 

 

 

 

 

PART II

 

 

 

 

ITEM 5

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

15

 

 

 

 

 

ITEM 6

 

Selected Financial Data

 

16

 

 

 

 

 

ITEM 7

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

 

 

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

 

17

 

 

Results of Operations

 

28

 

 

Performance by Business Segment

 

33

 

 

Performance by Geographic Area

 

38

 

 

Critical Accounting Estimates

 

39

 

 

New Accounting Pronouncements

 

42

 

 

Financial Condition and Liquidity

 

43

 

 

Financial Instruments

 

51

 

 

 

 

 

ITEM 7A

 

Quantitative and Qualitative Disclosures About Market Risk

 

51

 

 

 

 

 

ITEM 8

 

Financial Statements and Supplementary Data

 

53

 

 

 

 

 

 

 

Index to Financial Statements

 

53

 

 

 

 

 

 

 

Management's Responsibility for Financial Reporting

 

53

 

 

Management's Report on Internal Control Over Financial Reporting

 

53

 

 

Report of Independent Registered Public Accounting Firm

 

54

 

 

Consolidated Statement of Income for the years ended December 31, 2020, 2019 and 2018

 

56

 

 

Consolidated Statement of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

 

57

 

 

Consolidated Balance Sheet at December 31, 2020 and 2019

 

58

 

 

 

 

 

 

 

 

 

Beginning
Page

ITEM 8

 

Financial Statements and Supplementary Data (continued)

 

 

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the years ended December 31, 2020, 2019 and 2018

 

59

 

 

Consolidated Statement of Cash Flows for the years ended December 31, 2020, 2019 and 2018

 

60

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

61

 

 

 

 

 

 

 

Note 1. Significant Accounting Policies

 

61

 

 

Note 2. Revenue

 

69

 

 

Note 3. Acquisitions and Divestitures

 

70

 

 

Note 4. Goodwill and Intangible Assets

 

73

 

 

Note 5. Restructuring Actions

 

75

 

 

Note 6. Supplemental Income Statement Information

 

78

 

 

Note 7. Supplemental Balance Sheet Information

 

79

 

 

Note 8. Supplemental Equity and Comprehensive Income Information

 

80

 

 

Note 9. Supplemental Cash Flow Information

 

81

 

 

Note 10. Income Taxes

 

81

 

 

Note 11. Marketable Securities and Held-to-Maturity Debt Securities

 

85

 

 

Note 12. Long-Term Debt and Short-Term Borrowings

 

86

 

 

Note 13. Pension and Postretirement Benefit Plans

 

89

 

 

Note 14. Derivatives

 

98

 

 

Note 15. Fair Value Measurements

 

106

 

 

Note 16. Commitments and Contingencies

 

109

 

 

Note 17. Leases

 

127

 

 

Note 18. Stock-Based Compensation

 

128

 

 

Note 19. Business Segments and Geographic Information

 

131

 

 

Note 20. Quarterly Data (Unaudited)

 

135

 

 

 

 

 

ITEM 9

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

136

 

 

 

 

 

ITEM 9A

 

Controls and Procedures

 

136

 

 

 

 

 

ITEM 9B

 

Other Information

 

136

 

 

 

 

 

PART III

 

 

 

 

ITEM 10

 

Directors, Executive Officers and Corporate Governance

 

137

 

 

 

 

 

ITEM 11

 

Executive Compensation

 

137

 

 

 

 

 

ITEM 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

138

 

 

 

 

 

ITEM 13

 

Certain Relationships and Related Transactions, and Director Independence

 

138

 

 

 

 

 

ITEM 14

 

Principal Accounting Fees and Services

 

138

 

 

 

 

 

PART IV

 

 

 

 

ITEM 15

 

Exhibits, Financial Statement Schedules

 

139

 

 

 

 

 

ITEM 16

 

Form 10-K Summary

 

141

 

 

 

 

 

 

 

3M COMPANY

ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 2020

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 20, refer to the Notes to Consolidated Financial Statements in Item 8.

 

Available Information

 

The 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 Securities and Exchange Commission (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 businessesSafety 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. 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.

 

As described in Note 19, effective in the first quarter of 2020, the Company changed its business segment reporting in its continuing effort to improve the alignment of businesses around markets and customers. Additionally, the Company consolidated the way it presents geographic area net sales by providing an aggregate Americas geographic region (combining former United States and Latin America and Canada areas). Also, effective in the second quarter of 2020, the measure of segment operating performance used by 3M's chief operating decision maker changed and, as a result, the Company's disclosed measure of segment profit/loss has been updated. Information provided herein reflects the impact of these changes for all periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and

 

 

 

 

Business Segment

 

Safety and Industrial

 

Electronics

 

Health Care

 

Consumer

Underlying divisions/businesses

Refer to Note 2 for disaggregated revenue information

 

• Abrasives
• Automotive aftermarket
• Closure and masking systems
• Communication markets (divested in 2018)
• Electrical markets
• Industrial adhesives and tapes
• Personal safety
• Roofing granules
• Other safety and industrial

 

• Advanced materials
• Automotive and aerospace
• Commercial solutions
• Display materials and systems
• Electronics materials solutions
• Transportation and safety
• Other transportation and electronics

 

• Drug delivery (divested in 2020)
• Food safety
• Health information systems
• Medical solutions
• Oral care solutions
• Separation and purification sciences
• Other health care

 

• Consumer health care
• Home care
• Home improvement
• Stationery and office
• Other consumer

 

 

 

 

 

 

 

 

 

Representative revenue-generating activities, products or services

 

• 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

 

 

• 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

 

• Food safety indicator solutions
• Health care procedure coding and reimbursement software
• Skin, wound care, and infection prevention products and solutions
• Dentistry and orthodontia solutions
• Filtration and purification systems

 

• 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

Example brands/offerings

 

• 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

 

• 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

 

• 3M™ Petrifilm™ and 3M™ Allergen Testing

• 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

 

• 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

 

 

 

 

 

 

 

 

 

Representative market trends or opportunities

 

• Connected safety
• Structural bonding
• Surface finishing
• Respiratory protection

• Building components

• Automation and robotics

• Grid modernization

• Automotive electrification

• Sustainable packaging

 

• Automotive electrification
• Semiconductor fabrication and assembly
• Datacenter thermal management

 

• Advanced wound care

• Population health clinical care improvement platform
• Increased food safety
• Biopharma industry expansion
• Custom orthodontics

 

• Air quality
• Connected filters and other
products

 

 

 

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, 2020, the Company employed approximately 95,000 people (full-time equivalents), with approximately 40,000 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. 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

 

In addition to a professional work environment that promotes innovation 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 2020, the coronavirus (COVID-19) pandemic caused fluctuations in supply markets. Generally, as demand for certain COVID-related products surged, 3M saw a corresponding tightening in supply and some degree of price inflation in associated markets. Within the supply chain of less essential products, 3M experienced raw material price deflation as economies slowed and certain producers scaled back or idled operations. Conversely, as markets re-opened and demand increased, the Company experienced raw material price inflation with some level of stabilization late in the year.

 

The Company continued to deploy productivity projects to minimize the impact of raw material inflation and market supply challenges, including input management, reformulations, and multi-sourcing activities. Overall, on a consolidated basis, 3M experienced net raw material price deflation in 2020. To date, the Company is receiving sufficient quantities of all raw materials to meet its reasonably foreseeable production requirements. It is difficult to predict future shortages of raw materials or the impact any such shortages would have. 3M has avoided disruption to its manufacturing operations through careful management of existing raw material inventories, strategic relationships with key suppliers, and development as well as 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.

 

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, tax, the U.S. Foreign Corrupt Practices Act and other anti-bribery laws, U.S. trade sanctions, 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 2020, 3M expended approximately $55 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 $400 million for 2021 and 2022 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 4, 2021).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

 

 

 

 

 

 

 

Elected

 

 

 

 

 

 

 

 

to Present

 

 

Name

    

Age

    

Present Position

    

Position

 

Other Positions Held during 2016 - 2020

Michael F. Roman

 

61

 

Chairman of the Board, President and Chief Executive Officer

 

2019

 

Chief Executive Officer, 2018-2019
Chief Operating Officer and Executive Vice President, 2017-2018
 Executive Vice President, Industrial Business Group, 2014-2017

 

 

 

 

 

 

 

 

 

John P. Banovetz

 

53

 

Senior Vice President, Innovation and Stewardship and Chief Technology Officer

 

2020

 

Senior Vice President of Research and Development and Chief Technology Officer, 2017-2019
Managing Director, DACH Region, 2016-2017

 

 

 

 

 

 

 

 

 

Ivan K. Fong

 

59

 

Senior Vice President, General Counsel and Secretary

 

2019

 

Senior Vice President, Legal Affairs & General Counsel, 2012-2019

 

 

 

 

 

 

 

 

 

Eric D. Hammes

 

46

 

Executive Vice President, Enterprise Operations

 

2019

 

Senior Vice President, Manufacturing & Supply Chain, 2019
Senior Vice President, Business Transformation & Information Technology, 2017-2019
 Vice President, Corporate Controller and Chief Accounting Officer, 2014-2017

 

 

 

 

 

 

 

 

 

Ashish K. Khandpur

 

53

 

Executive Vice President, Transportation & Electronics Business Group

 

2019

 

Executive Vice President, Electronics & Energy Business Group, 2017-2019
 Senior Vice President, Research and Development, and Chief Technology Officer, 2014-2017

 

 

 

 

 

 

 

 

 

Veena M. Lakkundi

 

52

 

Senior Vice President, Strategy & Business Development

 

2020

 

Vice President and General Manager, Industrial Adhesives and Tapes Division, 2019-2020
Vice President and Chief Ethics & Compliance Officer, Ethics & Compliance, Legal Affairs, 2019
Vice President, Chief Compliance Officer, Compliance and Business Conduct, Legal Affairs, 2017-2019
 Business Director, Manufacturing Solutions, Industrial Adhesives and Tapes Division, 2015-2017

 

 

 

 

 

 

 

 

 

Jeffrey R. Lavers

 

57

 

Executive Vice President, Consumer Business Group

 

2020

 

Vice President and General Manager, Automotive and Aerospace Solutions Division, 2019-2020
Vice President and General Manager, Construction and Home Improvement Division, 2015-2019

 

 

 

 

 

 

 

 

 

Kristen M. Ludgate

 

58

 

Senior Vice President, Human Resources

 

2018

 

Senior Vice President, Corporate Communications and Enterprise Services, 2018
Vice President, Global Human Resources Business Operations, Human Resources, 2017-2018
Vice President, Associate General Counsel & Chief Compliance Officer, Compliance and Business Conduct, 2015-2017

 

 

 

 

 

 

 

 

 

Monish Patolawala

 

51

 

Senior Vice President and Chief Financial Officer

 

2020

 

Chief Financial Officer, Health Care and Vice President, Operational Transformation, General Electric, 2019-2020
Chief Financial Officer, Health Care, General Electric, 2015-2019

 

 

 

 

 

 

 

 

 

Mojdeh Poul

 

58

 

Executive Vice President, Health Care Business Group

 

2019

 

Executive Vice President, Safety and Graphics Business Group, 2018-2019
President and General Manager, 3M Canada, 2016-2018
 Vice President and General Manager, Infection Prevention Division, 2014-2016

 

 

 

 

 

 

 

 

 

Denise R. Rutherford

 

58

 

Senior Vice President, Corporate Affairs

 

2019

 

Vice President, Research & Development and Commercialization, Industrial Business Group, 2017- 2019
Managing Director, 3M Japan, 2016-2017
Vice President, Greater China Area and Managing Director, 3M China, 2015-2016

 

 

 

 

 

 

 

 

 

Michael G. Vale

 

54

 

Executive Vice President, Safety & Industrial Business Group

 

2019

 

Executive Vice President, Health Care Business Group, 2016-2019
 Executive Vice President, Consumer Business Group, 2012-2016

 

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 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, capital markets and other external conditions, such as interest rates, financial conditions of our suppliers and customers, trade restrictions such as tariffs in addition to retaliatory counter measures, and natural and other disasters or climate change affecting the operations of the Company or our suppliers and customers,

•      risks related to public health crises such as the global pandemic associated with the coronavirus (COVID-19),

•      liabilities related to certain fluorochemicals and the outcome of contingencies,

•      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 development, and future performance or results of current or anticipated products,

•      fluctuations in the costs and availability of purchased components, compounds, raw materials and energy,

•      Information technology systems including ERP system roll-out and implementations,

•      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 availability of and access to credit markets,

•      pension and postretirement obligation assumptions and future contributions,

•      asset impairments,

•      tax liabilities and effects of changes in tax rates, laws or regulations, and

•      legal and regulatory proceedings, legal compliance risks (including 3rd party risks) with regards to environmental, product liability and other laws and regulations 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 I, Item 2, "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 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 business is subject to global competition and geopolitical risks that are beyond its control, such as disruptions in financial markets, economic downturns, government actions impacting international trade agreements, imposing trade restrictions such as tariffs, and retaliatory counter measures, government deficit reduction and other austerity measures in specific countries or regions, or in the various industries in which the Company operates; social, political or labor conditions in specific countries or regions; or adverse changes in the availability and cost of capital, interest rates, or exchange control, ability to expatriate earnings and other regulations in the jurisdictions in which the Company operates. 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 operate.

* The Company is subject to risks related to public health crises such as the global pandemic associated with the coronavirus (COVID-19). 

3M, as a global company, is impacted by public health crises such as the global pandemic associated with COVID-19. The outbreak has significantly increased economic and demand uncertainty. In addition, public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote working, have impacted 3M's operations. In these challenging and dynamic circumstances, 3M continues to work to protect its employees and the public, maintain business continuity and sustain its operations, including ensuring the safety and protection of approximately 50,000 people who work in our plants and distribution centers across the world, many of whom support the manufacturing and delivery of products that are critical in response to the global pandemic. COVID-19 has impacted 3M's supply chains relative to global demand for products like respirators, surgical masks and commercial cleaning solutions. Even with 3M's accelerated production at its global facilities combined with capacity from other manufacturers, the industry-wide challenge is that global demand for N95 and other respirators continues to exceed the industries' ability to deliver. Within individual regions and countries around the world, 3M is working with governments, distributors and others to prioritize supplies to the most critical customer and public health needs. 3M's manufacturing, supply chain and distribution protocols have, for example, been impacted by the need to prioritize rated orders issued by the Federal Emergency Management Agency pursuant to the U.S. Defense Production Act. In addition, trade barriers, export restrictions and other similar measures imposed by national governments also negatively impact the supplies of personal protection equipment including those made by 3M going into the most needed areas. COVID-19 has also affected the ability of suppliers and vendors to provide products and services to 3M. Some of these COVID-related factors have increased demand for certain 3M products, while others have decreased demand from certain end markets or could make it more difficult for 3M to serve customers. 3M has received reports of price gouging, counterfeiting and other illegal or fraudulent activities involving its N95 respirators, has taken legal action in several states and continues to work with state, federal and international law enforcement to protect the public and 3M against those who seek to exploit 3M's brand and reputation and defraud others. 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. For example, COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and could adversely impact access to capital. As economies start to reopen in certain parts of the world, workplace safety, for the Company and others, will increasingly become a focus of concern. As part of the return to work process at the Company, the Company could face additional privacy and data security risks related to the collection of data regarding employees and contractors with respect to COVID-19 testing, temperature checks, and contact tracing. Due to the speed and scope with which the COVID situation is developing and evolving and the uncertainty of its duration and the timing of recovery, 3M is not able at this time to predict the extent to which the COVID-19 pandemic may have a material effect on its 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.

Risks Related to Legal and Regulatory Proceedings

The Company faces liabilities related to certain fluorochemicals, which could adversely impact our results.

As previously reported, 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 a broad group of perfluoroalkyl and polyfluoroalkyl substances produced by the Company, collectively known as "PFAS." 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 critical to the manufacture of electronic devices such as cell phones, tablets and semi-conductors. They are also used to help prevent infections in 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. As science and technology evolve and advance, and in response to evolving knowledge and the understanding that PFAS compounds had the potential to build up over time, 3M announced in 2000 that we would voluntarily phase out production of 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 coatings for food packaging, for example. 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. An adverse outcome in any one or more of these matters could be material to our financial results. 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 or lawsuits 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, 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 or otherwise.

* The Company's future results may be affected by various asserted and unasserted legal and regulatory proceedings and legal compliance risks, including those involving product liability, antitrust, intellectual property, environmental, tax, the U.S. Foreign Corrupt Practices Act and other anti-bribery laws, U.S. 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, the Sunshine Act, or other matters. 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 outcome of these legal proceedings may differ from the Company's expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. Although the Company maintains general liability insurance, 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 any particular period. In addition, negative publicity related to product liability, environmental, health and safety or other matters referenced above involving the Company may negatively impact the Company's reputation. 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 (i) the development and timing of the introduction of competitive products; (ii) the Company's response to downward pricing to stay competitive; (iii) changes in customer order patterns, such as changes in the levels of inventory maintained by customers and the timing of customer purchases which may be affected by announced price changes, changes in the Company's incentive programs, or the customer's ability to achieve incentive goals; (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 and energy, due to shortages, increased demand, supply interruptions, manufacturing site disruptions, 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, or be terminated. Any sustained interruption in the Company's receipt of adequate supplies or disruption to key manufacturing sites' operations could have a material adverse effect on the Company. In addition, while the Company has a process to minimize volatility in component and material pricing, no assurance can be given that the Company will be able to successfully manage price fluctuations 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, 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 breaches and other disruptions to the Company's information technology infrastructure could interfere with the Company's operations, compromise information belonging to the Company or its customers, suppliers, and employees, exposing the Company to liability which could adversely impact the Company's business and reputation. 

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 security laws, regulations and customer-imposed controls. 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 vulnerable to the security risks of our vendors and third-party service providers, security breaches, damage, disruptions or shutdowns due to attacks by threat actors including nation-state actors, computer viruses, hardware, software, and system vulnerabilities, ransomware, service or cloud provider disruptions or security breaches, 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, which was driven by the pandemic, may also introduce additional threats to our information technology networks and infrastructure. Despite our cybersecurity measures, it is possible for security vulnerabilities to remain undetected for an extended time period, up to and including several years. While we have experienced, and expect to continue to experience, threats and disruptions to the Company's information technology infrastructure, none of them to date has had a material impact to the Company. Any such threats or disruptions could result in legal claims or proceedings, liability or penalties under privacy laws, interference with the Company's operations, and damage to the Company's reputation, 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 unusual 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, including, for example, the recently completed acquisition of Acelity, Inc. and its KCI subsidiaries (a leading global medical technology company), future results will be affected by the Company's ability to integrate acquired businesses quickly and obtain the anticipated synergies. The Company realigned from five to four business segments, effective in April of 2019, to better serve its global customers and markets. Successful execution of the realignment and the associated adjustments of our portfolio and business operating model, as well as other organizational changes, will be important to 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 estimated. 

The Company's financial results depend on the successful execution of its business operating plans. The Company utilizes various tools, such as Lean Six Sigma, and engages in ongoing global business transformation. Business transformation is defined as changes in processes and internal/external service delivery across 3M to move to more efficient business models to improve operational efficiency and productivity, while allowing 3M to serve customers with greater speed and efficiency. This is enabled by the ongoing multi-year phased implementation of an ERP system. There can be no assurance that all of the projected productivity improvements will be realized. In addition, the ability to adapt to business model and other changes and agility to respond to customer needs and service expectations are important, which, 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. 3M currently has an A1 credit rating with a negative outlook from Moody's Investors Service and an A+ credit rating with a negative outlook from Standard & Poor's. 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, assessment and enforcement approaches. In addition, changes in tax laws including further regulatory developments arising from U.S. tax reform legislation and/or regulations around the world 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 uncertainty of the regulation changes and other tax-related factors stated above, it is currently not possible to assess the ultimate impact of these actions on our financial statements.

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 64 manufacturing facilities in 29 states. Internationally, the Company operates 97 manufacturing and converting facilities in 35 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 intersegment 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. For the year 2020, 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, 2021, there were 68,372 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 SWX Swiss Exchange. Cash dividends declared and paid totaled $1.47 and $1.44 per share for each quarter in 2020 and 2019, 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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

    

Maximum

 

 

 

 

 

 

 

 

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

Dollar Value of

 

 

 

 

 

 

 

 

Total Number of

 

Shares that May

 

 

 

 

 

 

 

 

Shares Purchased

 

Yet Be Purchased

 

 

 

Total Number of

 

Average Price

 

as Part of Publicly

 

under the Plans

 

 

 

Shares Purchased

 

Paid per

 

Announced Plans

 

or Programs

 

Period

 

(1)

 

Share

 

or Programs (2)

 

(Millions)

 

January 1-31, 2020

 

 567,358

 

$

 175.01

 

 567,162

 

$

 7,973

 

February 1-29, 2020

 

 752,388

 

$

 157.29

 

 750,262

 

$

 7,855

 

March 1-31, 2020

 

 723,676

 

$

 140.55

 

 723,676

 

$

 7,753

 

Total January 1-March 31, 2020

 

 2,043,422

 

$

 156.28

 

 2,041,100

 

$

 7,753

 

April 1-30, 2020

 

 86

 

$

 133.13

 

 -

 

$

 7,753

 

May 1-31, 2020

 

 -

 

$

 -

 

 -

 

$

 7,753

 

June 1-30, 2020

 

 -

 

$

 -

 

 -

 

$

 7,753

 

Total April 1-June 30, 2020

 

 86

 

$

 114.18

 

 -

 

$

 7,753

 

July 1-31, 2020

 

 -

 

$

 -

 

 -

 

$

 7,753

 

August 1-31, 2020

 

 -

 

$

 -

 

 -

 

$

 7,753

 

September 1-30, 2020

 

 779

 

$

 172.38

 

 -

 

$

 7,753

 

Total July 1-September 30, 2020

 

 779

 

$

 172.38

 

 -

 

$

 7,753

 

October 1-31, 2020

 

 -

 

$

 -

 

 -

 

$

 7,753

 

November 1-30, 2020

 

 680

 

$

 173.64

 

 -

 

$

 7,753

 

December 1-31, 2020

 

 -

 

$

 -

 

 -

 

$

 7,753

 

Total October 1-December 31, 2020

 

 680

 

$

 173.64

 

 -

 

$

 7,753

 

Total January 1-December 31, 2020

 

 2,044,967

 

$

 156.29

 

 2,041,100

 

$

 7,753

 

 

 

(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. Selected Financial Data.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions, except per share amounts)

    

2020

    

2019*

    

2018**

    

2017

    

2016

 

 Years ended December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 32,184

 

$

 32,136

 

$

 32,765

 

$

 31,657

 

$

 30,109

 

Net income attributable to 3M

 

 

 5,384

 

 

 4,570

 

 

 5,349

 

 

 4,858

 

 

 5,050

 

Per share of 3M common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to 3M - basic

 

 

 9.32

 

 

 7.92

 

 

 9.09

 

 

 8.13

 

 

 8.35

 

Net income attributable to 3M - diluted

 

 

 9.25

 

 

 7.81

 

 

 8.89

 

 

 7.93

 

 

 8.16

 

Cash dividends declared and paid per 3M common share

 

 

 5.88

 

 

 5.76

 

 

 5.44

 

 

 4.70

 

 

 4.44

 

 At December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

 47,344

 

$

 44,659

 

$

 36,500

 

$

 37,987

 

$

 32,906

 

Long-term debt (excluding portion due within one year) and long-term lease obligations

 

 

 18,082

 

 

 17,629

 

 

 13,486

 

 

 12,156

 

 

 10,723

 

 

* The Company adopted ASU No. 2016-02 and related standards (collectively, Accounting Standards Codification (ASC) 842, Leases), as described in Note 1, on January 1, 2019 using the modified retrospective method of adoption. The adoption resulted in the recording of right of use assets and associated lease liabilities of $0.8 billion each as of January 1, 2019, $0.5 billion of which relates to long-term operating lease obligations.

** The Company adopted ASU No. 2014-09 and related standards (collectively, ASC 606, Revenue from Contracts with Customers), as described in Note 2, on January 1, 2018 using the modified retrospective method of adoption, the impact of which was not material to the Company's consolidated results of operations and financial condition. Prior periods have not been restated.

 

 

 

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 for year end 2018 and certain year-on-year comparisons between 2019 and 2018 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

 

OVERVIEW

 

3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. As more fully described in both the Performance by Business Segment section in MD&A and in Note 19, effective in the first quarter of 2020, the Company changed its business segment reporting in its continuing effort to improve the alignment of businesses around markets and customers. Additionally, the Company consolidated the way it presents geographic area net sales by providing an aggregate Americas geographic region (combining former United States and Latin America and Canada areas). Also, effective in the second quarter of 2020, the measure of segment operating performance used by 3M's chief operating decision maker changed and, as a result, the Company's disclosed measure of segment profit/loss has been updated. Business segment information presented 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.

 

Consideration of COVID-19:

 

3M is impacted by the global pandemic and related effects associated with the coronavirus (COVID-19). The Company updated its risk factors with respect to COVID-19, which can be found in Item 1A "Risk Factors" in this document.

 

Public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote working, have impacted 3M's operations. 3M continues to work to protect its employees and the public, maintain business continuity and sustain its operations, including ensuring the safety and protection of people who work in its plants and distribution centers across the world, many of whom support the manufacturing and delivery of products that are critical in response to the global pandemic. COVID-19 has impacted 3M's supply chains relative to global demand for products like respirators, surgical masks and commercial cleaning solutions. As this situation continues, 3M also closely monitors and responds to potential impacts to the Company's broader supply chain associated with other products. COVID-19 has also affected the ability of suppliers and vendors to provide products and services to 3M. Furthermore, COVID-19 has impacted the broader economies of affected countries, including negatively impacting economic growth.The Company has taken steps to help employees lead safe and productive lives during the outbreak including remote working; escalated procedures in factories related to personal safety, cleaning and medical screening measures; and pandemic leave policies. 3M closely monitors how the spread of COVID-19 is affecting employees and business operations and has preparedness plans to help protect the safety of employees around the world while safely continuing business. While nearly all of our manufacturing locations and distribution centers are fully or partially operational, the Company implemented plant and/or line shutdowns during 2020 related to certain markets due to weaker customer demand or government mandates. Some of the above factors have increased the demand for 3M products, while others have decreased demand or made it more difficult for 3M to serve customers. Serving 3M customers is a priority and teams continue to communicate with individual customers about potential disruptions.

 

3M's total sales increased 0.1% for the full year 2020 when compared to 2019. Organic local-currency sales decreased 1.7% for the full year 2020 when compared to 2019. Given the diversity of 3M's businesses, the impact of COVID-19 varied across the Company throughout 2020. 3M experienced strong sales growth in personal safety, as well as in other areas such as home improvement, general cleaning, semiconductor, data center, and biopharma filtration. COVID-related respirator sales are estimated to have impacted year-on-year organic local-currency sales growth by approximately 3 percent for the year ending December 31, 2020. At the same time, weakness in several end markets, while improving, contributed in part to sales declines in a number of 3M's businesses with the biggest year-on-year total sales decreases in oral care (down 19 percent), advanced materials (down 17 percent), automotive and aerospace (down 16 percent), commercial solutions (down 14 percent), stationery and office (down 11 percent), closure and masking (down 11 percent), automotive aftermarket (down 10 percent), and businesses aligned to general industrial applications such as abrasives (down 15 percent) and industrial adhesives and tapes (down 5 percent).

 

3M's operating income margins increased 3.1 percentage points year-on-year for the year ending December 31, 2020. Factoring out the impact on operating income of special items as described in the Certain amounts adjusted for special items - (non-GAAP measures) section below, operating income margins increased 0.1 points to 21.3 percent for the year ending December 31, 2020 when compared to 2019. Various COVID-19 implications contributed in part to these results.

 

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 as described above. While it is not feasible to identify or quantify all the other direct and indirect implications on 3M's results of operations, below are factors that 3M believes have also affected its 2020 results:

 

Factors contributing to charges:

·      Period expenses of unabsorbed manufacturing costs and increased expected credit losses on customer receivables.

·      Restructuring actions addressing structural enterprise costs and operations in certain end markets as a result of the COVID-19 pandemic and related economic impact resulting in a second quarter 2020 charge of $58 million (as further discussed in Note 5).

·      Committed financial support to various COVID-relief and medical research initiatives.

·      Charge of $22 million related to equity securities as discussed in the "Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis" section of Note 15 that use the measurement alternative described therein in addition to an immaterial pre-tax charge related to impairment of certain indefinite lived tradenames in the first quarter of 2020. 3M continues to regularly consider if COVID-19 and other related market implications could indicate it is more likely than not the carrying amount of various applicable assets may be impaired and assess whether certain investments without readily determinable fair values may have been impacted.

 

Factors providing benefits or other impacts:

·      Decreased discretionary spending in areas such as travel, professional services, and advertising/merchandising as well as cost reduction efforts, hiring freezes, and maintaining only essential contract workers. 3M continues to monitor discretionary spending and deploy cost control efforts as the situation continues.

·      Government-sponsored COVID-response stimulus and relief initiatives, including certain employment retention benefits under the Coronavirus Aid, Relief and Economic Security (CARES) Act in the United States.

·      Lower self-insured medical visit/instance expense during 2020.

·      Instituted accelerated vacation usage policies which benefited the second quarter of 2020 year-on-year, but provided a penalty in comparison to prior year in the second half of 2020.

 

As previously disclosed, in light of circumstances, 3M took actions to ensure sources of cash may remain strong, including the March 2020 issuance of $1.75 billion of registered notes, suspension of share repurchases, and the decrease of its 2020 capital spending to approximately $1.5 billion. While capital spending decreased, it included additional expansion of respirator production capacity. 3M continues to have access to its commercial paper program and undrawn committed credit facility. Refer to the Financial Condition and Liquidity section below for more information on the Company's liquidity position.

The Company also continues to evaluate the extent to which it may avail itself of various government-sponsored COVID-response stimulus, relief, and production initiatives around the world, such as under the Defense Production Act (DPA) and CARES Act in the United States. During 2020 and into January 2021, 3M reached certain agreements with governments in the U.S. and other countries involving just over $250 million of asset funding to expand capacity to supply N-95 respirators.

 

Due to the speed with which the COVID-19 situation is developing and evolving and the uncertainty of its duration and the timing of recovery, 3M is not able at this time to predict the extent to which the COVID-19 pandemic may have a material effect on its consolidated results of operations or financial condition.

 

Earnings per share (EPS) attributable to 3M common shareholders - diluted:

 

The following table provides the increase (decrease) in diluted earnings per share for 2020 compared to the same period last year, in addition to 2019 compared to 2018. As applicable, certain items in the table reflect specific income tax rates associated therewith.

 

 

 

 

 

 

 

 

 

 

    

Year ended December 31,

 

(Earnings per diluted share)

    

2020

 

2019

 

Same period last year

 

$

 7.81

 

$

 8.89

 

Significant litigation-related charges/benefits

 

 

 1.01

 

 

 1.28

 

TCJA measurement period adjustment

 

 

 -

 

 

 0.29

 

Loss on deconsolidation of Venezuelan subsidiary

 

 

 0.28

 

 

 -

 

Gain/loss on sale of businesses

 

 

 (0.22)

 

 

 (0.73)

 

Divestiture-related restructuring actions

 

 

 -

 

 

 0.18

 

Same period last year, excluding special items

 

$

 8.88

 

$

 9.91

 

Increase/(decrease) in earnings per share - diluted, due to:

 

 

 

 

 

 

 

Organic growth/productivity and other

 

 

 (0.06)

 

 

 (0.60)

 

Non divestiture-related restructuring actions

 

 

 0.12

 

 

 (0.41)

 

Acquisitions/divestitures

 

 

 (0.10)

 

 

 (0.24)

 

Foreign exchange impacts

 

 

 (0.11)

 

 

 -

 

Income tax rate

 

 

 (0.03)

 

 

 -

 

Shares of common stock outstanding

 

 

 0.04

 

 

 0.22

 

Current period, excluding special items

 

$

 8.74

 

$

 8.88

 

Significant litigation-related charges/benefits

 

 

 0.07

 

 

 (1.01)

 

Loss on deconsolidation of Venezuelan subsidiary

 

 

 -

 

 

 (0.28)

 

Gain/loss on sale of businesses

 

 

 0.52

 

 

 0.22

 

Divestiture-related restructuring actions

 

 

 (0.08)

 

 

 -

 

Current period

 

$

 9.25

 

$

 7.81

 

 

Year 2020 EPS:

 

For year ended December 31, 2020, net income attributable to 3M was $5.384 billion, or $9.25 per diluted share basis, compared to $4.570 billion, or $7.81 per diluted share, for year ended December 31, 2019, an increase of 18.4 percent on a per diluted share basis.

 

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.

 

On an adjusted basis, net income attributable to 3M was $5.088 billion, or $8.74 per diluted share for 2020 compared to $5.193 billion, or $8.88 per diluted share in December 31, 2019, a decrease of 1.5 percent on a per diluted share basis.

 

Additional discussion related to the components of the year-on-year change in earnings per diluted share follows:

 

Organic growth/productivity and other:

·      Lower organic volume growth in 2020 as a result of significant COVID-19 related impacts, in addition to COVID-related net factors described in the preceding Overview-Consideration of COVID-19 section, decreased earnings per diluted share year-on-year. 3M also experienced year-over-year increased costs as a result of the regular review of its respirator mask liabilities and certain follow-on accelerated depreciation following some of the restructuring described below. Partially offsetting this net decrease in earnings per share were year-on-year net gains related to certain property sales (in 2020 within Safety and Industrial and in 2019 within Corporate and Unallocated) in addition to benefits recognized in 2020 related to the restructuring and other actions taken in 2019 (and the adjustments thereto in 2020) along with continued cost management and productivity efforts.

·      On a combined basis, higher defined benefit pension and postretirement service cost increased expense year-on-year.

·      Interest expense (net of interest income) increased in 2020, as a result of higher U.S. average debt balances and lower year-on-year interest income driven by lower average interest rates on cash balances. 2020 interest expense also included an early debt extinguishment charge in conjunction with the repayment of notes in December 2020.

 

Non divestiture-related restructuring actions:

·      3M recorded non divestiture-related restructuring pre-tax charges aggregating $195 million in 2020. These included charges in the second quarter of 2020 to address certain COVID-related impacts and in the fourth quarter as 3M initiated actions to further enhance its operational and marketing capabilities. In 2019, charges included $282 million as the Company committed to actions in light of slower than expected 2019 sales and associated with realigning its organizational structure and operating model. See Note 5 for additional details.

·      The year-on-year impact of the non divestiture-related restructuring actions taken in 2020 and 2019 increased earnings per diluted share by 12 cents.

 

Acquisitions/divestitures:

·      Acquisition impacts, which are measured for the first twelve months post-transaction, relate to the acquisitions of M*Modal (first quarter 2019), and Acelity (fourth quarter 2019). These items collectively decreased earnings per diluted share by 7 year-on-year for 2020. The net impacts related to these acquisitions included income from operations, more than offset by transaction and integration costs. Financing costs related to these acquisitions is also included.

·      Divestiture impacts include the lost operating income from divested businesses, which decreased earnings per diluted share by 3 cents year-on-year for 2020. This was primarily related to the divestiture of the Company's drug delivery business.

 

Foreign exchange impacts:

·      Foreign currency impacts (net of hedging) decreased pre-tax earnings year-on-year by approximately $81 million in 2020, which decreased earnings per diluted share by 11 cents, excluding the impact of foreign currency changes on tax rates.

 

Income tax rate:

·      Certain items above reflect specific income tax rates associated therewith. Overall, the effective tax rate for 2020 was 19.6 percent, a decrease of 0.2 percentage points versus 2019. On an adjusted basis (as discussed below), the effective tax rate increased 0.1 percentage points year-on-year for 2020.

·      Factors that decreased the effective tax rate for 2020 included geographical income mix and adjustments to uncertain tax positions. These decreases were partially offset by decreased benefit from stock options. Refer to Note 10 for additional details.

 

Shares of common stock outstanding:

·      Lower shares outstanding increased earnings per share year-on-year by 4 cents per diluted share for 2020. Weighted-average diluted shares outstanding in 2020 declined 0.5 percent year-on-year, which benefited earnings per share. The decrease in the outstanding weighted-average diluted shares relates to the Company's purchase of $368 million of its own stock, prior to suspension of share repurchases under its board-approved stock repurchase program in late March 2020 with other repurchase activity limited to 3M's stock compensation plans.

 

Year 2019 EPS:

 

Organic growth/productivity and other:

·      Negative organic local-currency sales growth as a result of softness in certain end markets and channel inventory adjustments, along with actions taken by 3M in response to lower sales volumes and high inventory levels, which resulted in lower manufacturing and inventory absorption, reduced earnings per diluted share. Partially offsetting these impacts were benefits from restructuring actions taken in the second quarter of 2019.

·      Defined benefit pension and postretirement service cost expense decreased expense year-on-year, which benefited earnings per diluted share.

·      Lower income related to non-service cost components of pension and postretirement expense, increased expense year-on-year.

·      Interest expense (net of interest income) increased in 2019, as a result of higher U.S. average debt balances, partially offset by the increase in interest income driven by higher balances in cash, cash equivalents and marketable securities during the year resulting from the proceeds from debt issuances in advance of the October 2019 Acelity acquisition.

 

Non divestiture-related restructuring actions:

·      During the second quarter of 2019, in light of slower than expected 2019 sales, and additionally in the fourth quarter to realign 3M's organizational structure and operating model, management approved and committed to undertake certain restructuring actions. In aggregate, the Company recorded a full year 2019 combined pre-tax charge of $282 million, or 41 cents per diluted share. See Note 5 for additional details.

 

Acquisitions/divestitures:

·      Acquisition impacts, which are measured for the first twelve months post-transaction, relate to the acquisitions of M*Modal (first quarter 2019), and Acelity (fourth quarter 2019). These items collectively decreased earnings per diluted share by 19 cents year-on-year for 2019. The net impacts related to these acquisitions included income from operations, more than offset by transaction and integration costs. Interest expense related to financing costs of these acquisitions is also included. Expenses related to the October 2019 acquisition of Acelity also include financing costs and the tax effect of repatriating funds in advance of the close of the acquisition.

·      Divestiture impacts collectively decreased earnings per diluted share by 5 cents year-on-year for 2019. They include remaining stranded costs and lost operating income related to the 2018 divestiture of the Communication Markets Division, which decreased earnings per diluted share by 4 cents year-on-year, and lost operating income from other divested businesses (primarily the Company's gas and flame detection business), which decreased earnings per diluted share by 1 cent year-on-year.

 

Foreign exchange impacts:

·      Foreign currency impacts (net of hedging) were essentially flat year-on-year, excluding the impact of foreign currency changes on tax rates.

 

Income tax rate:

·      Certain items above reflect specific income tax rates associated therewith. Overall, the effective tax rate for 2019 was 19.8 percent, a decrease of 3.6 percentage points versus 2018. On an adjusted basis (as discussed below), the effective tax rate increased 0.2 percentage points year-on-year for 2019.

·      Factors that decreased the effective tax rate on a GAAP basis for 2019 included prior year measurement period adjustments related to 2017 Tax Cuts and Jobs Act (TCJA), prior year resolution of the NRD lawsuit (as described in Note 16) and geographical income mix. These decreases were partially offset by the deconsolidation of the Venezuelan subsidiary, adjustments to uncertain tax positions, and significant litigation-related charges. Refer to Note 10 for additional details.

 

Shares of common stock outstanding:

·      Lower shares outstanding increased earnings per share year-on-year by 22 cents per diluted share for 2019. Weighted-average diluted shares outstanding in 2019 declined 2.8 percent year-on-year which benefited earnings per share. The decrease in the outstanding weighted-average diluted shares relates to the Company's purchase of $1.4 billion of its own stock in 2019.

 

 

 

Certain amounts adjusted for special items - (non-GAAP measures):

 

In addition to reporting financial results in accordance with U.S. GAAP, the Company also provides non-GAAP measures that adjust for the impacts of special items. For the periods presented, special items include the items described below. Beginning in 2020, the Company includes gain/loss on sale of businesses and divestiture-related restructuring actions as special items due to their potential distortion of underlying operating results. Information provided herein reflects the impact of this change for all periods presented. Operating income (measure of segment operating performance), 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. The Company considers these non-GAAP measures in evaluating and managing the Company's operations. The Company believes that discussion of results adjusted for these items is meaningful to investors as it provides a useful analysis of ongoing underlying operating trends. The determination of these items may not be comparable to similarly titled measures used by other companies. Special items include:

 

Significant litigation-related charges/benefits:

·      In 2020, 3M recorded a net pre-tax charge of $17 million ($13 million after tax) related to PFAS (certain perfluorinated compounds) matters. The charge was more than offset by a reduction in tax expense of $52 million related to resolution of tax treatment with authorities regarding the previously disclosed 2018 agreement reached with the State of Minnesota that resolved the Natural Resources Damages lawsuit. These items, in aggregate, resulted in a $39 million after tax benefit.

·      In 2019, the Company recorded significant litigation-related charges of $762 million ($590 million after tax) related to PFAS matters and coal mine dust respirator mask lawsuits of which $214 million ($166 million after tax) occurred in the fourth quarter. The aggregate 2019 pre-tax charge was reflected in cost of sales ($328 million) and selling, general and administrative expense ($434 million). These charges are further discussed in Note 16.

·      In 2018, the Company recorded significant litigation-related charges of $897 million ($770 million after tax) for PFAS matters related to the previously disclosed agreement reached with the State of Minnesota that resolved the Natural Resource Damages lawsuit. Essentially all of the aggregate 2018 pre-tax charge was reflected in selling, general and administrative expense.

 

Gain/loss on sale of businesses:

·      In the first quarter of 2020, 3M recorded a pre-tax gain of $2 million ($1 million loss after tax) related to the sale of its advanced ballistic-protection business and recognition of certain contingent consideration. In the second quarter of 2020, 3M recorded a pre-tax gain of $387 million ($304 million after tax) related to the sale of its drug delivery business. Refer to Note 3 for further details.

·      In the first quarter of 2019, 3M recorded a gain related to the sale of certain oral care technology comprising a business in addition to reflecting an earnout on a previous divestiture, which together resulted in a net gain of $8 million ($7 million after tax). In the second quarter of 2019, as a result of a "held for sale" tax benefit related to the legal entities associated with the pending divestiture of the Company's gas and flame detection business, 3M recorded an after-tax gain of $43 million. In the third quarter of 2019, 3M recorded a gain related to the divestiture of the Company's gas and flame detection business and an immaterial impact as a result of measuring a disposal group at the lower of its carrying amount or fair value less cost to sell, which in aggregate resulted in a pre-tax gain of $106 million ($79 million after tax).

·      In the first quarter of 2018, 3M recorded a gain related to the sale of certain personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring, the sale of its polymer additives compounding business, and a gain on final closing adjustments from a prior divestiture which, in aggregate, resulted in a net pre-tax gain of $24 million ($19 million after tax). In the second quarter of 2018, 3M recorded a pre-tax gain of $12 million ($10 million after tax) related to the sale of its abrasive glass products business. In the fourth quarter of 2018, 3M recorded a gain of $2 million related to an earnout from a previous divestiture. Additionally, in 2018, 3M completed the sale of substantially all of its Communication Markets Division and reflected a pre-tax gain of $509 million ($410 million after tax).

 

Divestiture-related restructuring actions:

·      In the second quarter 2020, following the divestiture of substantially all of the drug delivery business (see Note 3) management approved and committed to undertake certain restructuring actions addressing corporate functional costs and manufacturing footprint across 3M in relation to the magnitude of amounts previously allocated/burdened to the divested business. As a result, 3M recorded a second quarter 2020 pre-tax charge of $55 million ($46 million after tax) and made a subsequent immaterial adjustment thereto. Refer to Note 5 for further details.

·      During 2018, management approved and committed to undertake certain restructuring actions as further described in Note 5, related to addressing corporate functional costs following the Communication Markets Division divestiture resulting in a 2018 pre-tax charge of $127 million ($110 million after tax), net of adjustments for reductions in cost estimates of $10 million.

 

Loss on deconsolidation of Venezuelan subsidiary:

·      In the second quarter of 2019, 3M recorded a pre-tax charge of $162 million related to the deconsolidation of the Company's Venezuelan subsidiary as further discussed in Note 1.

 

Measurement period accounting for TCJA:

·      3M recorded a net tax expense of $176 million in 2018 as a measurement period adjustment to the enactment of the 2017 Tax Cuts and Jobs Act (TCJA). See Note 10 for additional information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions, except per share amounts)

 

 

Operating Income

 

Operating Income 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, 2018 GAAP

 

$

 7,207

 

 22.0

%

$

 7,000

 

$

 1,637

 

 23.4

%

$

 5,349

 

$

 8.89

 

 

 

Adjustments for special items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant litigation-related charges/benefits

 

 

 897

 

 

 

 

 897

 

 

 127

 

 

 

 

 770

 

 

 1.28

 

 

 

Gain/loss on sale of businesses

 

 

 (547)

 

 

 

 

 (547)

 

 

 (107)

 

 

 

 

 (440)

 

 

 (0.73)

 

 

 

Divestiture-related restructuring actions

 

 

 127

 

 

 

 

 127

 

 

 17

 

 

 

 

 110

 

 

 0.18

 

 

 

Measurement period accounting for TCJA

 

 

 -

 

 

 

 

 -

 

 

 (176)

 

 

 

 

 176

 

 

 0.29

 

 

 

Year ended December 31, 2018 adjusted amounts (non-GAAP measures)

 

$

 7,684

 

 23.5

%

$

 7,477

 

$

 1,498

 

 20.0

%

$

 5,965

 

$

 9.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2019 GAAP

 

$

 6,174

 

 19.2

%

$

 5,712

 

$

 1,130

 

 19.8

%

$

 4,570

 

$

 7.81

 

 (12.1)

%

Adjustments for special items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant litigation-related charges/benefits

 

 

 762

 

 

 

 

 762

 

 

 172

 

 

 

 

 590

 

 

 1.01

 

 

 

Gain/loss on sale of businesses

 

 

 (114)

 

 

 

 

 (114)

 

 

 15

 

 

 

 

 (129)

 

 

 (0.22)

 

 

 

Loss on deconsolidation of Venezuelan subsidiary

 

 

 -

 

 

 

 

 162

 

 

 -

 

 

 

 

 162

 

 

 0.28

 

 

 

Year ended December 31, 2019 adjusted amounts (non-GAAP measures)

 

$

 6,822

 

 21.2

%

$

 6,522

 

$

 1,317

 

 20.2

%

$

 5,193

 

$

 8.88

 

 (10.4)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2020 GAAP

 

$

 7,161

 

 22.3

%

$

 6,711

 

$

 1,318

 

 19.6

%

$

 5,384

 

$

 9.25

 

 18.4

%

Adjustments for special items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Significant litigation-related charges/benefits

 

 

 17

 

 

 

 

 17

 

 

 56

 

 

 

 

 (39)

 

 

 (0.07)

 

 

 

Gain/loss on sale of businesses

 

 

 (389)

 

 

 

 

 (389)

 

 

 (86)

 

 

 

 

 (303)

 

 

 (0.52)

 

 

 

Divestiture-related restructuring actions

 

 

 55

 

 

 

 

 55

 

 

 9

 

 

 

 

 46

 

 

 0.08

 

 

 

Year ended December 31, 2020 adjusted amounts (non-GAAP measures)

 

$

 6,844

 

 21.3

%

$

 6,394

 

$

 1,297

 

 20.3

%

$

 5,088

 

$

 8.74

 

 (1.5)

%

 

 

 

 

Year 2020 sales and operating income by business segment:

 

The following tables contain sales and operating income results by business segment for the years ended December 31, 2020 and 2019. Refer to the section entitled "Performance by Business Segment" later in MD&A for additional discussion concerning 2020 verses 2019  results, including Corporate and Unallocated. Refer to Note 19 for additional information on business segments, including Elimination of Dual Credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020 vs 2019

 

 

 

 

2020

 

2019

 

% change

 

 

    

 

Net

    

% of

    

Oper.

    

Net

    

% of

    

Oper.

    

Net

    

Oper.

 

(Dollars in millions)

 

 

Sales

 

Total

 

Income

 

Sales

 

Total

 

Income

 

Sales

 

Income

 

Business Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safety and Industrial

 

 

$

 11,767

 

 36.6

%  

$

 3,054

 

$

 11,514

 

 35.8

%  

$

 2,510

 

 2.2

%  

 21.7

%

Transportation and Electronics

 

 

 

 8,827

 

 27.4

 

 

 1,927

 

 

 9,591

 

 29.8

 

 

 2,221

 

 (8.0)

 

 (13.3)

 

Health Care

 

 

 

 8,345

 

 25.9

 

 

 1,828

 

 

 7,431

 

 23.1

 

 

 1,858

 

 12.3

 

 (1.6)

 

Consumer

 

 

 

 5,336

 

 16.6

 

 

 1,249

 

 

 5,151

 

 16.0

 

 

 1,124

 

 3.6

 

 11.2

 

Corporate and Unallocated

 

 

 

 (1)

 

 -

 

 

 (363)

 

 

 110

 

 0.3

 

 

 (1,130)

 

 -

 

 -

 

Elimination of Dual Credit

 

 

 

 (2,090)

 

 (6.5)

 

 

 (534)

 

 

 (1,661)

 

 (5.0)

 

 

 (409)

 

 -

 

 -

 

Total Company

 

 

$

 32,184

 

 100.0

%  

$

 7,161

 

$

 32,136

 

 100.0

%  

$

 6,174

 

 0.1

%  

 16.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2020

 

Worldwide Sales Change

 

Organic local-

 

 

 

 

 

 

 

Total sales

 

By Business Segment

 

currency sales

 

Acquisitions

 

Divestitures

 

Translation

 

change

 

Safety and Industrial

 

 3.5

%  

 -

%  

 (0.6)

%  

 (0.7)

 %  

 2.2

%

Transportation and Electronics

 

 (7.1)

 

 -

 

 (1.1)

 

 0.2

 

 (8.0)

 

Health Care

 

 1.0

 

 15.5

 

 (4.1)

 

 (0.1)

 

 12.3

 

Consumer

 

 4.1

 

 -

 

 -

 

 (0.5)

 

 3.6

 

Total Company

 

 (1.7)

%  

 3.5

%  

 (1.4)

%  

 (0.3)

%  

 0.1

%

 

 

 

Year 2020 sales results by geographic area/business segment: 

 

Percent change information compares the year ended December 31, 2020 with the same period last year, unless otherwise indicated. Additional discussion of business segment results is provided in the Performance by Business Segment section.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2020

 

 

 

 

 

 

 

 

 

Europe,

 

 

 

 

 

 

 

 

 

 

 

Asia

 

Middle East

 

Other

 

 

 

 

 

    

Americas

    

Pacific

    

& Africa

    

Unallocated

    

Worldwide

 

Net sales (millions)

 

$

 16,525

 

$

 9,569

 

$

 6,109

 

$

 (19)

 

$

 32,184

 

% of worldwide sales

 

 

 51.3

%

 

 29.7

%

 

 19.0

%

 

 -

 

 

 100.0

%

Components of net sales change:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume - organic

 

 

 (1.2)

%

 

 (2.9)

%

 

 (4.0)

%

 

 -

 

 

 (2.3)

%

Price

 

 

 1.0

 

 

 (0.5)

 

 

 1.2

 

 

 -

 

 

 0.6

 

Organic local-currency sales

 

 

 (0.2)

 

 

 (3.4)

 

 

 (2.8)

 

 

 -

 

 

 (1.7)

 

Acquisitions

 

 

 5.5

 

 

 0.7

 

 

 2.8

 

 

 -

 

 

 3.5

 

Divestitures

 

 

 (1.5)

 

 

 (0.2)

 

 

 (2.9)

 

 

 -

 

 

 (1.4)

 

Translation

 

 

 (1.3)

 

 

 0.6

 

 

 1.0

 

 

 -

 

 

 (0.3)

 

Total sales change

 

 

 2.5

%

 

 (2.3)

%

 

 (1.9)

%

 

 -

 

 

 0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total sales change:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safety and Industrial

 

 

 2.8

%

 

 (1.4)

%

 

 4.7

%

 

 -

 

 

 2.2

%

Transportation and Electronics

 

 

 (15.4)

%

 

 (2.4)

%

 

 (12.9)

%

 

 -

 

 

 (8.0)

%

Health Care

 

 

 20.5

%

 

 (0.8)

%

 

 3.8

%

 

 -

 

 

 12.3

%

Consumer

 

 

 5.2

%

 

 (1.3)

%

 

 1.5

%

 

 -

 

 

 3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Organic local-currency sales change:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safety and Industrial

 

 

 5.0

%

 

 (1.5)

%

 

 5.6

%

 

 -

 

 

 3.5

%

Transportation and Electronics

 

 

 (11.4)

%

 

 (2.8)

%

 

 (13.8)

%

 

 -

 

 

 (7.1)

%

Health Care

 

 

 3.9

%

 

 (6.0)

%

 

 0.2

%

 

 -

 

 

 1.0

%

Consumer

 

 

 6.3

%

 

 (2.2)

%

 

 0.1

%

 

 -

 

 

 4.1

%

 

Additional information beyond what is included in the preceding table is as follows:

 

·      In the Americas geographic area, U.S. total sales increased 6 percent and organic-local currency sales increased 1 percent. Total sales in Mexico decreased 14 percent while organic local-currency sales decreased 12 percent. In Canada, total sales decreased 1 percent as organic local-currency sales decreases of 4 percent were partially offset by acquisition-related sales growth. In Brazil, total sales decreased 17 percent while organic local-currency sales increased 7 percent, as organic sales growth was more than offset by foreign currency translation impacts.

·      In the Asia Pacific geographic area, China total sales increased 4 percent and organic local-currency sales increased 3 percent. In Japan, total sales decreased 3 percent and organic local currency sales decreased 7 percent.

 

Foreign currency translation decreased year-on-year sales by 0.3 percent, while selling prices increased by 0.6 percent year-on-year for 2020, with price growth in EMEA and Americas, while Asia Pacific decreased.

 

 

 

Year 2019 sales results by geographic area/business segment: 

 

Percent change information compares the full year 2019 with the full year 2018, unless otherwise indicated. Additional discussion of business segment results is provided in the Performance by Business Segment section.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2019

 

 

 

 

 

 

 

 

 

Europe,

 

 

 

 

 

 

 

 

 

 

 

Asia

 

Middle East

 

Other

 

 

 

 

 

    

Americas

    

Pacific

    

& Africa

    

Unallocated

    

Worldwide

 

Net sales (millions)

 

$

 16,124

 

$

 9,796

 

$

 6,226

 

$

 (10)

 

$

 32,136

 

% of worldwide sales

 

 

 50.1

%

 

 30.5

%

 

 19.4

%

 

 -

 

 

100.0

%

Components of net sales change:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume - organic

 

 

 (1.5)

%

 

 (2.8)

%

 

 (2.2)

%

 

 -

 

 

 (2.1)

%

Price

 

 

 0.8

 

 

 (0.1)

 

 

 1.3

 

 

 -

 

 

 0.6

 

Organic local-currency sales

 

 

 (0.7)

 

 

 (2.9)

 

 

 (0.9)

 

 

 -

 

 

 (1.5)

 

Acquisitions

 

 

 3.5

 

 

 0.3

 

 

 1.0

 

 

 -

 

 

 2.0

 

Divestitures

 

 

 (0.6)

 

 

 (0.2)

 

 

 (1.9)

 

 

 -

 

 

 (0.7)

 

Translation

 

 

 (0.6)

 

 

 (1.7)

 

 

 (4.6)

 

 

 -

 

 

 (1.7)

 

Total sales change

 

 

 1.6

%

 

 (4.5)

%

 

 (6.4)

%

 

 -

 

 

 (1.9)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total sales change:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safety and Industrial

 

 

 (5.3)

%

 

 (7.6)

%

 

 (11.0)

%

 

 -

 

 

 (7.2)

%

Transportation and Electronics

 

 

 (3.8)

%

 

 (5.3)

%

 

 (6.6)

%

 

 -

 

 

 (5.1)

%

Health Care

 

 

 15.5

%

 

 2.5

%

 

 0.6

%

 

 -

 

 

 8.9

%

Consumer

 

 

 2.2

%

 

 (2.8)

%

 

 (4.6)

%

 

 -

 

 

 0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Organic local-currency sales change:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safety and Industrial

 

 

 (3.3)

%

 

 (4.7)

%

 

 (2.4)

%

 

 -

 

 

 (3.4)

%

Transportation and Electronics

 

 

 (3.3)

%

 

 (4.1)

%

 

 (2.2)

%

 

 -

 

 

 (3.6)

%

Health Care

 

 

 1.1

%

 

 3.1

%

 

 1.4

%

 

 -

 

 

 1.5

%

Consumer

 

 

 2.6

%

 

 (1.1)

%

 

 0.4

%

 

 -

 

 

 1.7

%

 

Additional information beyond what is included in the preceding table is as follows:

·      In the Americas geographic area, U.S. total sales increased 2 percent and organic-local currency decreased 1 percent. Total sales remained flat in Mexico, as organic local-currency sales increases of 1 percent were partially offset by lost sales from divested businesses and foreign currency translation impacts. In Canada, total sales and organic local currency increased 3 percent. In Brazil, total sales decreased 4 percent, as organic local-currency sales growth of 3 percent was more than offset by foreign currency translation impacts.

·      In the Asia Pacific geographic area, China total sales decreased 7 percent and organic local-currency sales decreased 4 percent. In Japan, total sales decreased 2 percent and organic local currency sales decreased 3 percent.

 

Foreign currency translation decreased year-on-year sales by 1.7 percent, while selling prices increased by 0.6 percent year-on-year for 2019, with price growth in EMEA and Americas, while Asia Pacific was flat.

 

Managing currency risks:

The stronger U.S. dollar had a negative impact on sales in full year 2020 compared to the same period last year. Net of the Company's hedging strategy, foreign currency negatively impacted earnings for full year 2020 compared to the same period last year. 3M utilizes a number of tools to hedge currency risk related to earnings. 3M uses natural hedges such as pricing, productivity, hard currency and 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:

 

3M generated $8.1 billion of operating cash flow in 2020, an increase of $1.0 billion when compared to 2019. This increase was primarily due to cost saving actions taken in response to COVID-19 and lower year-on-year significant litigation-related charges and the timing of associated payments. This followed an operating cash flow increase of $631 million when comparing 2019 to 2018. 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 2020, the Company purchased $0.4 billion of its own stock, compared to purchases of $1.4 billion in 2019. As of December 31, 2020, approximately $7.8 billion remained available under the authorization. In the first quarter of 2020, the Company suspended repurchases under its board-approved share repurchase program with other repurchase activity limited to 3M's stock compensation plans. The Company plans to resume share purchases in 2021. In February 2021, 3M's Board of Directors declared a first-quarter 2021 dividend of $1.48 per share, an increase of 1 percent. This marked the 63rd consecutive year of dividend increases for 3M.

 

Raw materials:

 

In 2020, the coronavirus (COVID-19) pandemic caused fluctuations in supply markets. Generally, as demand for certain COVID-related products surged, 3M saw a corresponding tightening in supply and some degree of price inflation in associated markets. Within the supply chain of less essential products, 3M experienced raw material price deflation as economies slowed and certain producers scaled back or idled operations. Conversely, as markets re-opened and demand increased, the Company experienced raw material price inflation with some level of stabilization late in the year.

 

In response, the Company continued to deploy productivity projects to minimize the impact of raw material inflation and market supply challenges, including input management, reformulations, and multi-sourcing activities. Overall, on a consolidated basis, 3M experienced net raw material deflation in 2020. To date, the Company is receiving sufficient quantities of all raw materials to meet its reasonably foreseeable production requirements. It is difficult to predict future shortages of raw materials or the impact any such shortages would have. 3M has avoided disruption to its manufacturing operations through careful management of existing raw material inventories, strategic relationships with key suppliers, and development as well as 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.

 

Pension and postretirement defined benefit/contribution plans:

 

On a worldwide basis, 3M's pension and postretirement plans were 87 percent funded at year-end 2020. The primary U.S. qualified pension plan, which is approximately 67 percent of the worldwide pension obligation, was 91 percent funded and the international pension plans were 93 percent funded. The U.S. non-qualified pension plan is not funded due to tax considerations and other factors. Asset returns in 2020 for the primary U.S. qualified pension plan were 13.6%, 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 2021 is 6.50%. The primary U.S. qualified pension plan year-end 2020 discount rate was 2.55%, down 0.70 percentage points from the year-end 2019 discount rate of 3.25%. The decrease in U.S. discount rates resulted in an increased valuation of the projected benefit obligation (PBO). The primary U.S. qualified pension plan's funded status decreased 1 percentage point in 2020 due to the higher PBO resulting from the discount rate decrease and partially offset by higher return on 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 2021. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2021. 3M expects global defined benefit pension and postretirement expense in 2021 to decrease by approximately $40 million pre-tax when compared to 2020. 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:

 

 

 

 

 

 

 

 

 

(Percent of net sales)

 

2020

 

2019

 

2020 versus 2019

 

Cost of sales

 

 51.6

%  

 53.4

%  

 (1.8)

%  

Selling, general and administrative expenses (SG&A)

 

 21.5

 

 21.9

 

 (0.4)

 

Research, development and related expenses (R&D)

 

 5.8

 

 5.9

 

 (0.1)

 

Gain on sale of businesses

 

 (1.2)

 

 (0.4)

 

 (0.8)

 

Operating income margin

 

 22.3

%  

 19.2

%  

 3.1

%  

 

Operating income margins increased year over year for 2020. The increase from 2019 to 2020 was primarily driven by lower significant litigation-related charges and higher gains on divestitures (net of divestiture-related restructuring actions) year-on-year. These items are further described in the Certain amounts adjusted for special items - (non-GAAP measures) section above. A number of factors impact the various income statement line items. Expanded discussion of each of the income statement line items follows in the various sections below.

 

In 2020 the Company's operating expenses were impacted by factors described in the preceding Overview - Consideration of COVID-19 section above.

 

In 2020 and 2019, 3M approved and committed to certain restructuring actions that impacted cost of sales, SG&A, and R&D (see Note 5 for additional details). In addition to actions related to divestitures (as discussed earlier in the Certain amounts adjusted for special items - (non-GAAP measures) section), for 2020 these included charges to address certain COVID-related impacts and actions to further enhance its operational and marketing capabilities. In 2019, charges included actions in light of slower than expected 2019 sales and associated with realigning its organizational structure and operating model.

 

Pension and postretirement service cost expense is recorded in cost of sales, SG&A, and R&D. In total, 3M's defined benefit pension and postretirement service cost expense increased $31 million in 2020. Refer to Note 13 (Pension and Postretirement Plans) for the service cost components of net periodic benefit costs.

 

The Company is investing in an initiative called business transformation, with these investments impacting cost of sales, SG&A, and R&D. Business transformation encompasses the ongoing multi-year phased implementation of an enterprise resource planning (ERP) system on a worldwide basis, as well as changes in processes and internal/external service delivery across 3M.

 

Cost of Sales:

 

Cost of sales includes manufacturing, engineering and freight costs.

 

Cost of sales, measured as a percent of sales, decreased during 2020 when compared to 2019. Decreases were related to lower significant litigation-related charges taken in 2020, which were partially offset by 2020 COVID-related net impacts, including period expenses of unabsorbed manufacturing costs, in addition to higher restructuring action charges taken in 2020 along with certain related follow-on accelerated depreciation. In addition, selling prices increased year-on-year by 0.6 percent for full year 2020, and lower raw material costs reduced cost of sales as a percentage of sales.

 

 

 

Selling, General and Administrative Expenses:

 

SG&A in dollars decreased slightly in 2020 when compared to 2019. The decrease was driven by cost saving actions taken in response to COVID-19, in addition to benefits from prior year restructuring (and adjustments thereto in 2020). Additional factors that decreased SG&A in 2020 also include lower year-on-year impact related to significant litigation-related charges. In terms of SG&A as a percent of sales, partially offsetting these decreases was the overall effect of the COVID-19 pandemic on sales that resulted in higher costs as a percent of sales. SG&A was also impacted by increased spending year-on-year related to Acelity, which was acquired in the fourth quarter of 2019.

 

Research, Development and Related Expenses:

 

R&D in dollars decreased slightly in 2020 when compared to 2019 and remained relatively consistent as a percent of sales at 5.8% in 2020 compared to 5.9% in 2019. 3M continued to invest in its key initiatives, including R&D aimed at disruptive innovation programs with the potential to create entirely new markets and disrupt existing markets. Incremental R&D spending in 2020 included activities related to the Acelity business acquired in the fourth quarter of 2019. 3M also experienced lower year-on-year restructuring activities impacting R&D.

 

Gain on Sale of Businesses:

 

During the first quarter of 2020, the Company recorded a pre-tax gain of $2 million ($1 million loss after tax) related to the sale of its advanced ballistic-protection business and recognition of certain contingent consideration. During the second quarter of 2020, the Company recorded a pre-tax gain of $387 million ($304 after tax) related to the sale of substantially all of its drug delivery business.

 

During the first quarter of 2019, the Company sold certain oral care technology comprising a business and reflected an earnout on a previous divestiture resulting in a pre-tax gain of $8 million ($7 million gain after tax). In the third quarter of 2019, 3M recorded a gain related to the divestiture of the Company's gas and flame detection business and an immaterial impact as a result of measuring a disposal group at the lower of its carrying amount or fair value less cost to sell, which in aggregate resulted in a pre-tax gain of $106 million ($79 million after tax). Refer to Note 3 for additional details on divestitures.

 

Operating Income Margin:

 

3M uses operating income as one of its primary business segment performance measurement tools. Refer to the table below for a reconciliation of operating income margins for 2020 and 2019.

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

(Percent of net sales)

    

2020

 

2019

 

Same period last year

 

 19.2

%

 22.0

%

Significant litigation-related charges/benefits

 

 2.4

 

 2.7

 

Gain/loss on sale of businesses

 

 (0.4)

 

 (1.6)

 

Divestiture-related restructuring actions

 

 -

 

 0.4

 

Same period last year, excluding special items

 

 21.2

%

 23.5

%

Increase/(decrease) in operating income margin, due to:

 

 

 

 

 

Organic volume/productivity and other

 

 (0.1)

 

 (1.7)

 

Non divestiture-related restructuring actions

 

 0.2

 

 (0.8)

 

Acquisitions/divestitures

 

 (0.5)

 

 (0.6)

 

Selling price and raw material impact

 

 0.7

 

 0.4

 

Foreign exchange impacts

 

 (0.2)

 

 0.4

 

Current period, excluding special items

 

 21.3

%

 21.2

%

Significant litigation-related charges/benefits

 

 -

 

 (2.4)

 

Gain/loss on sale of businesses

 

 1.2

 

 0.4

 

Divestiture-related restructuring actions

 

 (0.2)

 

 -

 

Current period

 

 22.3

%

 19.2

%

 

 

 

Year 2020 operating income:

 

Operating income margins increased 3.1 percentage points in 2020 when compared to 2019. Factoring out the impact on operating income of special items as described in the Certain amounts adjusted for special items - (non-GAAP measures) section above, operating margins increased 0.1 percentage points to 21.3 percent in 2020 when compared to 2019.

 

Additional discussion related to the components of the year-on-year change in operating income margins follows:

 

Organic volume/productivity and other:

·      Lower organic volume growth in 2020 as a result of significant COVID-19 related impacts, in addition to COVID-related net factors described in the preceding Overview-Consideration of COVID-19 section, decreased operating income margins year-on-year. 3M also experienced year-over-year increased costs as a result of the regular review of its respirator mask liabilities and certain follow-on accelerated depreciation following some of the restructuring described below. Partially offsetting this net decrease were year-on-year net gains related to certain property sales (in 2020 with Safety and Industrial and in 2019 within Corporate and Unallocated) in addition to benefits recognized in 2020 related to the restructuring and other actions taken in 2019 (and the adjustments thereto in 2020) along with continued cost management and productivity efforts.

·      Operating income margins decreased year-on-year due to higher defined benefit pension and postretirement service cost expense.

 

Non divestiture-related restructuring actions:

·      3M recorded non divestiture-related restructuring charges that impacted operating income aggregating $195 million in 2020. These included charges in the second quarter of 2020 to address certain COVID-related impacts and in the fourth quarter as 3M initiated actions to further enhance its operational and marketing capabilities. In 2019, charges included $246 million impacting operating income (and $36 million impacting other expense (income)) as the Company committed to actions in light of slower than expected 2019 sales and associated with realigning its organizational structure and operating model. See Note 5 for additional details.

·      The year-on-year impact of the non divestiture-related restructuring charges taken in 2020 and 2019 increased operating income margins.

 

Acquisitions/divestitures:

·      Acquisition-related impacts relate to the ongoing integration of M*Modal and Acelity, which decreased operating income margins year-on-year.

·      Divestiture impacts, which includes lost operating income from divested businesses, increased operating income margins year-on-year.

 

Selling price and raw material impact:

·      Higher selling prices in addition to lower raw material cost impacts benefited operating income margins year-on-year for 2020.

 

Foreign exchange impacts:

·      Foreign currency effects (net of hedge gains) decreased operating income margins year-on-year.

 

Significant litigation-related charges:

·      Operating income margins for 2020 and 2019 included the $17 million and $762 million impact, respectively, of significant litigation-related charges (as discussed earlier in the Certain amounts adjusted for special items - (non-GAAP measures) section).

 

Gain/loss on sale of businesses:

·      2020 and 2019 included gains of $389 million and $114 million, respectively, on sale of businesses. See the Certain amounts adjusted for special items - (non-GAAP measures) section for more information.

 

 

Divestiture-related restructuring actions:

·      Operating income margins for full year 2020 included the $55 million second quarter impact as a result of certain restructuring actions following the divestiture of substantially all of the drug delivery business addressing corporate functional costs and manufacturing footprint across 3M in relation to the magnitude of amounts previously allocated/burdened to the divested business. Refer to Note 5 for further details. This item was also discussed earlier in the Certain amounts adjusted for special items - (non-GAAP measures) section.

 

Year 2019 operating income:

 

Operating income margins decreased 2.8 percentage points for the full year 2019 when compared to full year 2018. Factoring out the impact on operating income of special items as described in the Certain amounts adjusted for special items - (non-GAAP measures) section above, operating margins decreased 2.3 percentage points to 21.2 percent in 2019 when compared to 2018.

 

Organic volume/productivity and other:

·      Negative organic local sales volume growth as a result of softness in certain end markets and channel inventory adjustments, along with actions taken by 3M in response to lower sales volumes and high inventory levels, which resulted in lower manufacturing and inventory absorption, reduced operating margins. Partially offsetting these impacts were benefits from restructuring actions taken in the second quarter of 2019.

·      Operating income margins increased year-on-year due to lower defined benefit pension and postretirement service cost expense.

 

Non divestiture-related restructuring actions:

·      During the second quarter of 2019, in light of slower than expected 2019 sales, and additionally in the fourth quarter to realign 3M's organizational structure and operating model, management approved and committed to undertake certain restructuring actions. The resulting charges included $246 million impacting operating income (and $36 million impacting other expense (income)). See Note 5 for additional details.

 

Acquisitions/divestitures:

·      Acquisition-related impacts relate to the on-going integration of M*Modal and Acelity, which decreased operating income margins year-on-year.

·      Divestiture impacts include the lost operating income from divested businesses, which increased operating income margins year-on-year and primarily relate to the divestiture of the Communication Markets Division.

·      Remaining stranded costs from the 2018 divestiture of the Communication Markets Division also reduced operating margins year-on-year.

 

Selling price and raw material impact:

·      Higher selling prices, partially offset by raw material cost increases, benefited operating income margins year-on-year for 2019.

 

Foreign exchange impacts:

·      Foreign currency effects (net of hedge gains) increased operating income margins year-on-year.

 

Significant litigation-related charges:

·      Operating income margins for 2018 and 2019 included the $897 million and $762 million impact, respectively, of significant litigation-related charges (as discussed earlier in the Certain amounts adjusted special items - (non-GAAP measures) section.

 

Other Expense (Income), Net:

 

See Note 6 for a detailed breakout of this line item.

 

The decrease in other expense (income) during 2020 was primarily due to the 2019 impact of deconsolidation of the Company's Venezuelan subsidiary. Refer to Note 1 for additional details.

 

Interest expense (net of interest income) increased during 2020 and 2019. The increase in 2020 was due to higher U.S. average debt balances and lower year-on-year interest income driven by lower average interest rates on cash balances. 2020 interest expense also included an early debt extinguishment charge in conjunction with the repayment of notes in December 2020. The increase in 2019 was driven by higher U.S. average debt balances, partially offset by the year-on-year increase in interest income driven by higher balances in cash, cash equivalents and marketable securities during the year resulting from the proceeds from debt issuances in advance of the October 2019 Acelity acquisition.

 

In addition, other expense (income) was impacted by lower year-on-year pension and postretirement net periodic benefit non-service benefits for 2020 and 2019, respectively. The lower year-on-year benefit in 2020 was primarily due to the increased expense from lower December 31, 2019 discount rates. The decreases in 2019 was primarily due to the charge associated with the voluntary retirement program taken in the second quarter of 2019 in addition to the pension settlement charges in the fourth quarter of 2019 related to employee retirements. Refer to Note 13 for additional details.

 

Provision for Income Taxes:

 

 

 

 

 

 

(Percent of pre-tax income)

 

2020

    

2019

    

Effective tax rate

 

 19.6

%  

 19.8

%  

 

The effective tax rate for 2020 was 19.6 percent, a decrease of 0.2 percentage points when compared to 2019. The effective tax rate for 2019 was 19.8 percent, compared to 23.4 percent in 2018, a decrease of 3.6 percentage points. Factors that impacted the tax rates between years are further discussed in the Overview section above and in Note 10.

 

3M currently estimates its effective tax rate for 2021 will be approximately 20 to 21 percent.

 

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)

    

2020

    

2019

Income (loss) from unconsolidated subsidiaries, net of taxes

 

$

 (5)

 

$

 -

 

Income (loss) from unconsolidated subsidiaries, net of taxes, is primarily attributable to the Company's ownership interest in Kindeva using the equity method of accounting following 3M's divestiture of the drug delivery business in 2020. See Note 3 for further discussion.

 

Net Income Attributable to Noncontrolling Interest:

 

 

 

 

 

 

 

 

 

(Millions)

 

2020

    

2019

    

Net income (loss) attributable to noncontrolling interest

 

$

 4

 

$

 12

 

 

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.

 

Currency Effects:

 

3M estimates that year-on-year currency effects, including hedging impacts, decreased pre-tax income by $81 million in 2020 and increased pre-tax income by $1 million in 2019. This estimate includes the effect of translating profits from local currencies into U.S. dollars; the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and abroad; and transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks. 3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, decreased pre-tax income by approximately $21 million in 2020 and increased pre-tax income by approximately $201 million in 2019. These estimates include transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks. Refer to Note 14 in the Consolidated Financial Statements for additional information concerning 3M's hedging activities. 

 

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 2020, the Company changed its business segment reporting in its continuing effort to improve the alignment of businesses around markets. Also, effective in the second quarter of 2020, 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) has been updated for all 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.

 

As discussed in Note 19, 3M discloses business segment operating income as its measure of segment profit/loss, reconciled to both total 3M operating income and income before taxes. Business segment operating income includes dual credit for certain related operating income (as described below in "Elimination of Dual Credit"). Business segment operating income excludes certain expenses and income that are not allocated to business segments (as described below in "Corporate and Unallocated"). Additionally, the following special items are excluded from business segment operating income and, instead, are included within Corporate and Unallocated: significant litigation-related charges/benefits, gain/loss on sale of businesses, and divestiture-related restructuring actions.

 

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 includes a variety of miscellaneous items, such as corporate investment gains and losses, certain derivative gains and losses, certain insurance-related gains and losses, certain litigation and environmental expenses, corporate restructuring charges and certain under- or over-absorbed costs (e.g. pension, stock-based compensation) that the Company determines not to allocate directly to its business segments. Additionally, Corporate and Unallocated operating income includes special items such as significant litigation-related charges/benefits, gain/loss on sale of businesses, and divestiture-related restructuring costs. Corporate and Unallocated also includes sales, costs, and income from contract manufacturing, transition services and other arrangements with the acquirer of the Communication Markets Division following its 2018 divestiture through 2019 and the acquirer of the former drug delivery business following its 2020 divestiture. Because this category includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis.

 

Corporate and Unallocated net operating loss decreased by $767 million in 2020 when compared to 2019.

 

Special Items

Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section and Note 5 for additional details on the impact of significant litigation-related charges/benefits, gain/loss on sale of businesses, and divestiture-related restructuring actions that are reflected in Corporate and Unallocated.

 

Other Corporate Expense - Net

Other corporate operating expenses increased in 2020. The increases were due to year-over-year increased net costs as a result of the regular review of 3M's respirator mask liabilities, lower year-on-year gains from certain property sales reflected in Corporate and Unallocated, in addition to transition service and other arrangement costs, net of income, post-divestiture of the Company's former drug delivery business in 2020, and increased legal expenses. These increases were partially offset by lower year-on-year non divestiture-related restructuring costs reflected in Corporate and Unallocated.

 

Operating Business Segments:

 

Information related to 3M's business segments is presented in the tables that follow. Organic local-currency sales include both organic volume impacts plus selling price impacts. Acquisition impacts, if any, are measured separately for the first twelve months post-transaction. The divestiture impacts, if any, foreign currency translation impacts and total sales change are also provided for each business segment. Any references to EMEA relate to Europe, Middle East and Africa on a combined basis.

 

The following discusses total year results for 2020 compared to 2019 and 2019 compared to 2018, for each business segment. Refer to the preceding "Sales and operating income by geographic area" section for organic local-currency sales growth by business segment within major geographic areas.

 

Safety and Industrial Business (36.6% of consolidated sales):

 

 

 

 

 

 

 

 

 

 

2020

    

2019

    

Sales (millions)

 

$

 11,767

 

$

 11,514

 

Sales change analysis:

 

 

 

 

 

 

 

Organic local-currency

 

 

 3.5

%  

 

 (3.4)

%  

Divestitures

 

 

 (0.6)

 

 

 (1.7)

 

Translation

 

 

 (0.7)

 

 

 (2.1)

 

Total sales change

 

 

 2.2

%  

 

 (7.2)

%  

 

 

 

 

 

 

 

 

Business segment operating income (millions)

 

$

 3,054

 

$

 2,510

 

Percent change

 

 

 21.7

%  

 

 (12.2)

%  

Percent of sales

 

 

 26.0

%  

 

 21.8

%  

 

Year 2020 results:

 

Sales in Safety and Industrial totaled $11.8 billion, an increase of 2.2 percent compared to the same period last year. Organic local-currency sales increased 3.5 percent, divestitures decreased sales by 0.6 percent, and foreign currency translation decreased sales by 0.7 percent.

 

On an organic local-currency sales basis:

·      Sales increased in personal safety and roofing granules, while industrial adhesives and tapes, electrical markets, closure and masking systems, automotive aftermarket, and abrasives sales declined year-on-year.

·      Strong growth related to unprecedented demand for respirators as a result of the COVID-19 pandemic was partially offset by softness that impacted sales growth across most of the Company's general industrial-related portfolio. 

 

Divestitures:

·      2018 divestitures that impacted 2019 results relate to the sale of certain personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring (first quarter 2018), and it's abrasives glass products business (second quarter of 2018).

·      Also in 2018, 3M completed the sale of substantially all of its Communication Markets Division.

·      In August 2019, 3M completed the sale of its gas and flame detection business.

 

Business segment operating income:

·      Business segment operating income margins increased 4.2 percentage points, primarily related to strong productivity, continued cost discipline and benefits from certain property sale, 2019 restructuring and other actions.

 

 

 

Year 2019 results:

 

Sales in Safety and Industrial totaled $11.5 billion, down 7.2 percent in U.S. dollars, compared to full year 2018. Organic local-currency sales decreased 3.4 percent, divestitures decreased sales by 1.7 percent, and foreign currency translation decreased sales by 2.1 percent.

 

On an organic local-currency sales basis:

·      Sales increased in roofing granules and personal safety, while electrical markets, industrial adhesives and tapes, abrasives, automotive aftermarket, and closure and masking systems declined year-on-year.

 

Divestitures:

·      In February 2018, 3M closed on the sale of certain personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring.

·      In May 2018, 3M divested an abrasives glass products business.

·      In 2018, 3M completed the sale of substantially all of its Communication Markets Division.

·      In August 2019, 3M completed the sale of its gas and flame detection business.

 

Business segment operating income:

·      Operating income margins decreased 1.2 percentage points, primarily related to sales declines, particularly in Asia Pacific and the U.S, in addition to inventory reductions and restructuring impacts.

 

Transportation and Electronics Business (27.4% of consolidated sales):

 

 

 

 

 

 

 

 

    

2020

    

2019

    

Sales (millions)

 

$

 8,827

 

$

 9,591

 

Sales change analysis:

 

 

 

 

 

 

 

Organic local-currency

 

 

 (7.1)

%  

 

 (3.6)

%  

Divestitures

 

 

 (1.1)

 

 

 -

 

Translation

 

 

 0.2

 

 

 (1.5)

 

Total sales change

 

 

 (8.0)

%  

 

 (5.1)

%  

 

 

 

 

 

 

 

 

Business segment operating income (millions)

 

$

 1,927

 

$

 2,221

 

Percent change

 

 

 (13.3)

%  

 

 (16.0)

%  

Percent of sales

 

 

 21.8

%  

 

 23.2

%  

 

Year 2020 results:

 

Sales in Transportation and Electronics totaled $8.8 billion, down 8.0 percent in U.S. dollars. Organic local-currency sales decreased 7.1 percent, divestitures decreased sales by 1.1 percent, and foreign currency translation increased sales by 0.2 percent.

 

On an organic local-currency sales basis:

·      Sales declined in transportation safety, advanced materials, commercial solutions, and automotive and aerospace. Automotive and aerospace was primarily impacted by the decline in global car and light truck builds. Commercial solutions and transportation safety were impacted by soft-end markets such as hospitality, advertising and highway infrastructure due to social distancing and work-from-home protocols as a result of COVID-19.

·      Sales increased in 3M's electronics-related businesses. Electronics-related growth was led by demand for semiconductor, data center, and factory automation end-markets, and was partially offset by softness in the consumer electronics end-market.

 

Divestitures:

·      In January 2020, 3M completed the sale of its advanced ballistic-protection business. Refer to Note 3 for details.

 

 

 

Business segment operating income:

·      Business segment operating income margins decreased 1.4 percentage points, primarily related to lower sales and reduced productivity in key end-markets due to COVID-19 related impacts, partially offset by continued cost discipline and benefits from last year's restructuring actions.

 

Year 2019 results:

 

Sales in Transportation and Electronics totaled $9.6 billion, down 5.1 percent in U.S. dollars. Organic local-currency sales decreased 3.6 percent, and foreign currency translation decreased sales by 1.5 percent.

 

On an organic local-currency sales basis:

·      Sales increased in advanced materials and transportation safety, while commercial solutions and automotive and aerospace solutions declined.

·      Automotive and aerospace was impacted by the decline in global car and light truck builds along with channel inventory reductions within its Automotive OEM business, particularly in China.

·      Sales decreased 6 percent in 3M's electronics-related businesses, with decreases in both display materials and systems and electronics materials solutions. Electronics-related growth was impacted by soft consumer electronics and factory automation end markets in addition to channel inventory adjustments.

·      Sales decreased 4 percent in Asia Pacific, where 3M's electronics business is concentrated.

 

Business segment operating income:

·      Operating income margins decreased 3.0 percentage points, primarily impacted by continued sales declines, particularly in Asia Pacific and the U.S, in addition to inventory reductions. Operating income margins were also impacted by the restructuring charges initiated in 2019.

 

Health Care Business (25.9% of consolidated sales):

 

 

 

 

 

 

 

 

 

    

2020

    

2019

    

Sales (millions)

 

$

 8,345

 

$

 7,431

 

Sales change analysis:

 

 

 

 

 

 

 

Organic local-currency

 

 

 1.0

%  

 

 1.5

%  

Acquisitions

 

 

 15.5

 

 

 9.4

 

Divestitures

 

 

 (4.1)

 

 

 -

 

Translation

 

 

 (0.1)

 

 

 (2.0)

 

Total sales change

 

 

 12.3

%  

 

 8.9

%  

 

 

 

 

 

 

 

 

Business segment operating income (millions)

 

$

 1,828

 

$

 1,858

 

Percent change

 

 

 (1.6)

%  

 

 (3.1)

%  

Percent of sales

 

 

 21.9

%  

 

 25.0

%  

 

Year 2020 results:

 

Sales in Health Care totaled $8.3 billion, up 12.3 percent in U.S. dollars. Organic local-currency sales increased 1.0 percent, acquisitions increased sales by 15.5 percent, divestitures decreased sales by 4.1 percent, and foreign currency translation decreased sales by 0.1 percent.

 

On an organic local-currency sales basis:

·      Sales increased in medical solutions, separation and purification sciences, and food safety, while sales decreased in health information systems and oral care.

·      Increases in healthcare volumes benefited both medical solutions and oral care after significant disruptions in the second quarter, with strong pandemic-related demand for disposable respirators resulting in increased sales for medical solutions, while oral care sales decreased year-on-year. In addition, health information systems decreased due to hospitals remaining cautious relative to their information technology investments.

 

 

Acquisitions:

·      In February 2019, 3M acquired M*Modal, a leading healthcare technology provider of cloud-based, conversational artificial intelligence-powered systems that help physicians efficiently capture and improve the patient narrative.

·      In October 2019, 3M completed the acquisition of Acelity Inc. and its KCI subsidiaries, a leading global medical technology company focused on advanced wound care and specialty surgical applications.

 

Divestitures:

·      In the first quarter of 2019, the Company sold certain oral care technology comprising a business.

·      In May 2020, 3M completed the sale of substantially all of its drug delivery business.

 

Business segment operating income:

·      Operating income margins decreased 3.1 percentage points year-on-year, driven by impacts related to the Acelity acquisition in addition to significant sales declines in oral care during the second quarter of 2020, partially offset by continued cost discipline and benefits from 2019 restructuring and other costs.

 

Year 2019 results:

 

Sales in Health Care totaled $7.4 billion, up 8.9 percent in U.S. dollars. Organic local-currency sales increased 1.5 percent, acquisitions increased sales 9.4 percent, and foreign currency translation decreased sales by 2.0 percent.

 

On an organic local-currency sales basis:

·      Sales increased in health information systems, food safety, and medical solutions, while separation and purification sciences decreased, and oral care was flat.

·      Drug delivery declined year-on-year, as continued softness in the business negatively impacted overall Health Care organic growth.

 

Acquisitions:

·      In February 2019, 3M acquired M*Modal, a leading healthcare technology provider of cloud-based, conversational artificial intelligence-powered systems that help physicians efficiently capture and improve the patient narrative.

·      In October 2019, 3M completed the acquisition of Acelity Inc. and its KCI subsidiaries, a leading global medical technology company focused on advanced wound care and specialty surgical applications.

 

Divestitures:

·      In the first quarter of 2018, 3M completed the sale of its polymer additives compounding business.

·      In the first quarter of 2019, the Company sold certain oral care technology comprising a business.

 

Business segment operating income:

·      Operating income margins decreased 3.1 percentage points year-on-year.

 

 

 

Consumer Business (16.6% of consolidated sales):

 

 

 

 

 

 

 

 

    

2020

    

2019

    

Sales (millions)

 

$

 5,336

 

$

 5,151

 

Sales change analysis:

 

 

 

 

 

 

 

Organic local-currency

 

 

 4.1

%  

 

 1.7

%  

Translation

 

 

 (0.5)

 

 

 (1.2)

 

Total sales change

 

 

 3.6

%  

 

 0.5

%  

 

 

 

 

 

 

 

 

Business segment operating income (millions)

 

$

 1,249

 

$

 1,124

 

Percent change

 

 

 11.2

%  

 

 3.7

%  

Percent of sales

 

 

 23.4

%  

 

 21.8

%  

 

Year 2020 results:

 

Sales in Consumer totaled $5.3 billion, an increase of 3.6 percent in U.S. dollars. Organic local-currency sales increased 4.1 percent and foreign currency translation decreased sales by 0.5 percent.

 

On an organic local-currency sales basis:

·      Sales grew in home improvement and home care, while consumer health care and stationery and office declined.

·      Stationery and office declined year-on-year as a result of many business offices and schools remaining partially or fully closed due to the pandemic.

·      Sales showed continued strength in the Company's CommandTM, FiltreteTM, Scotch BlueTM, Scotch BriteTM, and MeguiarsTM brands.

 

Business segment operating income:

·      Operating income margins increased 1.6 percentage points year-on-year as a result of strong organic sales growth and continued cost discipline.

 

Year 2019 results:

 

Sales in Consumer totaled $5.2 billion, an increase of 0.5 percent in U.S. dollars. Organic local-currency sales increased 1.7 percent and foreign currency translation decreased sales by 1.2 percent.

 

On an organic local-currency sales basis:

·      Sales grew in home improvement, while home care and stationery and office were flat. Consumer health care decreased year on year.

·      Geographically, the U.S. showed particular strength in the Company's FiltreteTM and CommandTM brands, while Asia Pacific was impacted by lower consumer demand for respiratory solutions.

 

Business segment operating income:

·      Operating income margins increased 0.7 percentage points year-on-year. Increases in operating income margins were primarily due to benefits from portfolio and footprint actions taken, partially offset by the restructuring charges initiated in 2019.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, Plant and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment - net

 

 

 

 Employees as of December 31,

 

Capital Spending

 

 as of December 31,

 

(Millions, except Employees)

    

2020

    

2019

    

2018

    

2020

    

2019

    

2018

    

2020

    

2019

 

Americas

 

 56,042

 

 56,027

 

 53,661

 

$

 943

 

$

 1,218

 

$

 1,044

 

$

 5,752

 

$

 5,873

 

Asia Pacific

 

 18,271

 

 18,724

 

 18,971

 

 

 235

 

 

 241

 

 

 238

 

 

 1,662

 

 

 1,637

 

Europe, Middle East and Africa

 

 20,674

 

 21,412

 

 20,884

 

 

 323

 

 

 240

 

 

 295

 

 

 2,007

 

 

 1,823

 

Total Company

 

 94,987

 

 96,163

 

 93,516

 

$

 1,501

 

$

 1,699

 

$

 1,577

 

$

 9,421

 

$

 9,333

 

 

Employment:

 

Employment decreased by approximately 1,200 positions in 2020 and increased by approximately 2,600 positions in 2019. The above table includes the impact of acquisitions (which involved approximately 5,500 positions in 2019), net of divestitures and other actions.

 

Capital Spending/Net Property, Plant and Equipment:

 

Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. In 2020, 63 percent of 3M's capital spending was within the Americas, followed by Europe, Middle East and Africa, and Asia Pacific. 3M is increasing its investment in manufacturing and sourcing capability in order to more closely align its product capability with its sales in major geographic areas in order to best serve its customers throughout the world with proprietary, automated, efficient, safe and sustainable processes. Capital spending is discussed in more detail later in MD&A in the section entitled "Cash Flows from Investing Activities."

 

 

CRITICAL ACCOUNTING ESTIMATES

 

Information regarding significant accounting policies is included in Note 1 of the consolidated financial statements. As stated in Note 1, the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The Company believes its most critical accounting estimates relate to legal proceedings, pension and postretirement obligations, goodwill and certain long-lived assets, and uncertainty in income tax positions. Senior management has discussed the development, selection and disclosure of its critical accounting estimates with the Audit Committee of 3M's Board of Directors.

 

Legal Proceedings:

 

Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable in accordance with Accounting Standard Codification (ASC) 450, Contingencies. Please refer to the section entitled "Process for Disclosure and Recording of Liabilities Related to Legal Proceedings" (contained in "Legal Proceedings" in Note 16) for additional information about such estimates.

 

Pension and Postretirement Obligations:

 

The Company makes certain estimates and judgements in relation to its defined benefit pension and postretirement obligations.

 

The benefit obligation represents the present value of the benefits that employees are entitled to in the future for services already rendered as of the measurement date. The Company measures the present value of these future benefits by projecting benefit payment cash flows for each future period and discounting these cash flows back to the December 31 measurement date, using the yields of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits. Service cost and interest cost are measured separately using the spot yield curve approach applied to each corresponding obligation. Service costs are determined based on duration-specific spot rates applied to the service cost cash flows. The interest cost calculation is determined by applying duration-specific spot rates to the year-by-year projected benefit payments. The spot yield curve approach does not affect the measurement of the total benefit obligations as the change in service and interest costs offset in the actuarial gains and losses recorded in other comprehensive income.

 

Using this methodology, the Company determined discount rates for its plans as follow:

 

 

 

 

 

 

 

 

 

 

U.S. Qualified Pension

    

International Pension (weighted average)

    

U.S. Postretirement Medical

 

December 31, 2020 Liability:

 

 

 

 

 

 

 

Benefit obligation

 

 2.55

%

 1.38

%

 2.35

%

2021 Net Periodic Benefit Cost Components:

 

 

 

 

 

 

 

Service cost

 

 2.84

%

 1.23

%

 2.71

%

Interest cost

 

 1.93

%

 1.13

%

 1.68

%

 

Another significant element in determining the Company's pension expense is the expected return on plan assets. The expected return on plan assets for the primary U.S. qualified pension plan is based on strategic asset allocation of the plan, long-term capital market return expectations, and expected performance from active investment management. For the primary U.S. qualified pension plan, the expected long-term rate of return on an annualized basis for 2021 is 6.50%, a decrease from 6.75% in 2020. Return on assets assumptions for international pension and other post-retirement benefit plans are calculated on a plan-by-plan basis using plan asset allocations and expected long-term rate of return assumptions. The weighted average expected return for the international pension plans is 4.36% for 2021 compared to 4.70% for 2020. Refer to Note 13 for information on how the 2020 rates were determined.

 

3M follows ASC 820, Fair Value Measurements and Disclosures in determining the fair value of plan assets within the Company's pension and postretirement benefit plans. While the Company believes the valuation methods used to determine the fair value of plan assets are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. See Note 13 for additional discussion of actuarial assumptions used in determining defined benefit pension and postretirement health care liabilities and expenses.

 

For the year ended December 31, 2020, the Company recognized consolidated defined benefit pre-tax pension and postretirement service cost expense of $456 million and a benefit of $50 million related to all non-service pension and postretirement net benefit costs (after settlements, curtailments, special termination benefits and other) for a total consolidated defined benefit pre-tax pension and postretirement expense of $406 million, up from $357 million in 2019.

 

In 2021, defined benefit pension and postretirement service cost expense is anticipated to total approximately $497 million while non-service pension and postretirement net benefit costs is anticipated to be a benefit of approximately $130 million, for a total consolidated defined benefit pre-tax pension and postretirement expense of $367 million, a decrease of approximately $40 million compared to 2020.

 

The table below summarizes the impact on 2021 pension expense for the U.S. and international pension plans of a 0.25 percentage point increase/decrease in the expected long-term rate of return on plan assets and discount rate assumptions used to measure plan liabilities and 2020 net periodic benefit cost. The table assumes all other factors are held constant, including the slope of the discount rate yield curves.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Net Periodic Benefit Cost

 

 

 

Discount Rate

 

Expected Return on Assets

 

(Millions)

   

-0.25%

   

+0.25%

   

-0.25%

   

+0.25%

 

U.S. pension plans

 

$

 34

 

$

 (34)

 

$

 39

 

$

 (39)

 

International pension plans

 

 

 27

 

 

 (28)

 

 

 21

 

 

 (17)

 

 

Goodwill and Certain Long-Lived Assets:

 

The Company makes certain estimates and judgments in relation to goodwill and certain long-lived assets. Those include considerations made in the valuation of certain acquired identifiable definite-lived and indefinite-lived assets as a result of business combinations as well as considerations in the recoverability and impairment assessments of long-lived assets and goodwill.

 

Acquisition of certain identifiable definite-lived and indefinite-lived assets

 

In conjunction with an acquisition of a business, the Company records identifiable definite-lived and indefinite-lived intangible assets acquired at their respective fair values as of the date of acquisition. The corresponding fair value estimates for these assets acquired include projected future cash flows, associated discount rates used to calculate present value, asset life cycles, royalty rates, and customer retention rates. The fair value calculated for indefinite-lived intangible assets such as certain tradenames, in addition to intangible assets that are definite-lived such as patents, customer relationships, tradenames and other technology-based assets may change during the finalization of the purchase price allocation, due to the significant estimates used in determining their fair value. As a result, the Company may make adjustments to the provisional amounts recorded for certain items as part of the purchase price allocation subsequent to the acquisition, not to exceed one year after the acquisition date, until the purchase accounting allocation is finalized.

 

Assessments of long-lived assets and goodwill

 

As of December 31, 2020, net property, plant and equipment totaled $9.4 billion and net identifiable intangible assets totaled $5.8 billion, of which $0.7 billion related to indefinite-lived tradenames. In addition, 3M goodwill totaled approximately $13.8 billion as of December 31, 2020. Long-lived assets with a definite life are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount exceeds the estimated undiscounted cash flows from the asset's or asset group's ongoing use and eventual disposition. If an impairment is identified, the amount of the impairment loss recorded is calculated by the excess of the asset's carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. Intangible assets with an indefinite life, namely certain tradenames, are not amortized. Indefinite-lived intangible assets are tested for impairment annually and are tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired. An impairment loss would be recognized when the fair value is less than the carrying value of the indefinite-lived intangible asset. Goodwill is tested for impairment annually in the fourth quarter of each year, as further discussed below, and is tested between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. If future non-cash asset impairment charges are taken, 3M would expect that only a portion of the long-lived assets or goodwill would be impaired.

Management makes estimates and assumptions in preparing the consolidated financial statements for which actual results will emerge over long periods of time. This includes the recoverability of long-lived assets employed in the business, including assets of acquired businesses. These estimates and assumptions are closely monitored by management and periodically adjusted as circumstances warrant. For instance, expected asset lives may be shortened or an impairment recorded based on a change in the expected use of the asset or performance of the related asset group. Factors which could result in future impairment charges include, among others, changes in worldwide economic conditions, changes in competitive conditions and customer preferences, and fluctuations in foreign currency exchange rates. These risk factors are discussed in Item 1A, "Risk Factors," of this document. In addition, changes in the weighted average cost of capital could also impact impairment testing results.

 

As of December 31, 2020, the $0.7 billion of indefinite-lived tradenames primarily relates to Capital Safety (acquired in 2015), whose tradenames ($520 million at acquisition date) have been in existence for over 60 years (refer to Note 4 for more detail). The primary valuation technique used in estimating the fair value of indefinite lived intangible assets (tradenames) is a discounted cash flow approach. Specifically, a relief of royalty rate is applied to estimated sales, with the resulting amounts then discounted using an appropriate market/technology discount rate. The relief of royalty rate is the estimated royalty rate a market participant would pay to acquire the right to market/produce the product. In the first quarter of 2020, 3M reflected an immaterial charge related to impairment of certain indefinite-lived assets in 2020. Based on annual impairment testing in the third quarter of 2020, no additional impairment was indicated.

 

3M goodwill totaled approximately $13.8 billion as of December 31, 2020. 3M's annual goodwill impairment testing is performed in the fourth quarter of each year. Impairment testing for goodwill is done at a reporting unit level, with all goodwill assigned to a reporting unit. Reporting units are one level below the business segment level, but are required to be combined when reporting units within the same segment have similar economic characteristics. At 3M, reporting units correspond to a division. 3M did not combine any of its reporting units for impairment testing. An impairment loss would be recognized when the carrying amount of the reporting unit's net assets exceeds the estimated fair value of the reporting unit, and the loss would equal that difference. The estimated fair value of a reporting unit is determined using earnings for the reporting unit multiplied by a price/earnings ratio for comparable industry groups, or by using a discounted cash flow analysis. 3M typically uses the price/earnings ratio approach for stable and growing businesses that have a long history and track record of generating positive operating income and cash flows. 3M uses the discounted cash flow approach for start-up, loss position and declining businesses, in addition to using for businesses where the price/earnings ratio valuation method indicates additional review is warranted. 3M also uses discounted cash flow as an additional tool for businesses that may be growing at a slower rate than planned due to economic or other conditions. Where applicable, 3M uses a weighted-average discounted cash flow analysis for certain divisions, using projected cash flows that were weighted based on different sales growth and terminal value assumptions, among other factors. The weighting was based on management's estimates of the likelihood of each scenario occurring.

 

As described in Note 19, effective in the first quarter of 2020, the Company changed its business segment reporting. For any product changes that resulted in reporting unit changes, the Company applied the relative fair value method to determine the impact on goodwill of the associated reporting units, the results of which were immaterial. In conjunction with the change in segment reporting, 3M completed an assessment indicating no goodwill impairment existed as a result of this new segment structure. The discussion that follows relates to the separate fourth quarter 2020 annual impairment test and is in the context of the reporting unit structure that existed at that time.

 

Based on the annual test in the fourth quarter of 2020, no goodwill impairment was indicated for any of the reporting units. As of October 1, 2020, 3M had 22 primary reporting units, with ten reporting units accounting for approximately 93 percent of the goodwill. These ten reporting units were comprised of the following divisions: Advanced Materials, Display Materials and Systems, Electronics Materials Solutions, Health Information Systems, Industrial Adhesives and Tapes, Medical Solutions, Oral Care Solutions, Personal Safety, Separation and Purification Sciences, and Transportation Safety.

 

3M is a highly integrated enterprise, where businesses share technology and leverage common fundamental strengths and capabilities, thus many of 3M's businesses could not easily be sold on a stand-alone basis. 3M's focus on research and development has resulted in a portion of 3M's value being comprised of internally developed businesses that have no goodwill associated with them.

 

3M will continue to monitor its reporting units and asset groups in 2021 for any triggering events or other indicators of impairment.

 

Uncertainty in Income Tax Positions:

 

The extent of 3M's operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. The Company follows guidance provided by ASC 740, Income Taxes, a subset of which relates to uncertainty in income taxes, to record these liabilities (refer to Note 10 for additional information). The Company adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the tax liabilities. If the Company's estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

Information regarding new accounting pronouncements is included in Note 1 to the Consolidated Financial Statements.

 

FINANCIAL CONDITION AND LIQUIDITY

 

The strength and stability of 3M's business model and strong free cash flow capability, together with proven capital markets access, provides financial flexibility and enables the Company to invest through business cycles. Investing in 3M's business to drive organic growth and deliver strong returns on invested capital remains the first priority for capital deployment. This includes research and development, capital expenditures, and commercialization capability. Organic investments will be supplemented by complementary acquisitions. The Company also continues to actively manage its portfolio to maximize value for shareholders. Given uncertainty arising from COVID-19, the Company suspended repurchases under its board-approved share repurchase program effective March 2020 with other repurchase activity limited to 3M's stock compensation plans. 3M will continue to return cash to shareholders through dividends and plans to resume share repurchases in 2021. 3M maintains strong liquidity and further added to its liquidity position through the issuance of $1.75 billion in registered notes in March 2020. To fund cash needs in the United States, the Company relies on ongoing cash flow from U.S. operations, access to capital markets and repatriation of the earnings of its foreign affiliates that are not considered to be permanently reinvested. For those international earnings still considered to be reinvested indefinitely, the Company currently has no plans or intentions to repatriate these funds for U.S. operations. See Note 10 for further information on earnings considered to be reinvested indefinitely.

 

3M's primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M believes it will have continuous access to the commercial paper market. 3M's commercial paper program permits the Company to have a maximum of $5 billion outstanding with a maximum maturity of 397 days from date of issuance. At December 31, 2020, there was no commercial paper issued and outstanding.

 

Total Debt:

 

The strength of 3M's credit profile and significant ongoing cash flows provide 3M proven access to capital markets. Additionally, the Company's debt maturity profile is staggered to help ensure refinancing needs in any given year are reasonable in proportion to the total portfolio. 3M currently has an A1 credit rating with a negative outlook from Moody's Investors Service and an A+ credit rating with negative outlook from Standard and Poor's.

 

The Company's total debt was $1.5 billion lower at December 31, 2020 when compared to December 31, 2019. Decreases in debt are further described in Note 12 and include the repayment of aggregate $445 million principal amount of Third Lien Notes subject to in-substance defeasance, 650 million euros and $500 million aggregate principal amount of floating-rate medium-term notes that matured, the December 2020 repayment of $1 billion aggregate principal amount of notes related to make-whole-call offers, lower commercial paper balance, and the repayment of the 80 billion Japanese yen and 150 million euro credit facilities. These decreases were partially offset by the March 2020 issuance of $1.75 billion of registered notes. For discussion of repayments of and proceeds from debt refer to the following "Cash Flows from Financing Activities" section.

 

In July 2017, the United Kingdom's Financial Conduct Authority announced that it would no longer require banks to submit rates for the London InterBank Offered Rate ("LIBOR") after 2021. In November 2020, the ICE Benchmark Administration (IBA), LIBOR's administrator, proposed extending the publication of USD LIBOR through June 2023. The Company has reviewed its debt securities, bank facilities, and derivative instruments and continues to evaluate commercial contracts that may utilize LIBOR as the reference rate. 3M will continue its assessment and monitor regulatory developments during the transition period.

 

Effective February 10, 2020, the Company updated its "well-known seasoned issuer" (WKSI) shelf registration statement, which registers an indeterminate amount of debt or equity securities for future issuance and sale. This replaced 3M's previous shelf registration dated February 24, 2017. In May 2016, in connection with the WKSI shelf, 3M entered into an amended and restated distribution agreement relating to the future issuance and sale (from time to time) of the Company's medium-term notes program (Series F), up to the aggregate principal amount of $18 billion, which was an increase from the previous aggregate principal amount up to $9 billion of the same Series.

 

As of December 31, 2020, the total amount of debt issued as part of the medium-term notes program (Series F), inclusive of debt issued in February 2019 and prior years is approximately $17.6 billion (utilizing the foreign exchange rates applicable at the time of issuance for the euro denominated debt). Additionally, the August 2019 and March 2020 debt was issued under the WKSI shelf registration, but not as part of the medium-term notes program (Series F). Information with respect to long-term debt issuances and maturities for the periods presented is included in Note 12.

The Company has a $3.0 billion five-year revolving credit facility expiring in November 2024. The revolving credit agreement includes a provision under which 3M may request an increase of up to $1.0 billion (at lender's discretion), bringing the total facility up to $4.0 billion. In addition, 3M entered into a $1.25 billion 364-day credit facility, which was renewed in November 2020 with an expiration date of November 2021. The 364-day credit agreement includes a provision under which 3M may convert any advances outstanding on the maturity date into term loans with a maturity date one year later. These credit facilities were undrawn at December 31, 2020. Under both the $3.0 billion and $1.25 billion credit agreements, the Company is required to maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not less than 3.0 to 1. This is calculated (as defined in the agreement) as the ratio of consolidated total EBITDA for the four consecutive quarters then ended to total interest expense on all funded debt for the same period. At December 31, 2020, this ratio was approximately 17 to 1. Debt covenants do not restrict the payment of dividends.

 

Apart from the committed credit facilities described above, in September 2019, 3M entered into a credit facility initially expiring in July 2020 that was further extended to August 2021 in the amount of 80 billion Japanese yen. In November 2019, 3M entered into a credit facility expiring in November 2020 in the amount of 150 million euros. During the third quarter of 2020, the Company paid the outstanding balances and closed these credit facilities. The Company also had $273 million in stand-alone letters of credit and bank guarantees issued and outstanding at December 31, 2020. These instruments are utilized in connection with normal business activities.

 

Cash, Cash Equivalents and Marketable Securities:

 

At December 31, 2020, 3M had $5.1 billion of cash, cash equivalents and marketable securities, of which approximately $2.8 billion was held by the Company's foreign subsidiaries and approximately $2.3 billion was held by the United States. These balances are invested in bank instruments and other high-quality fixed income securities. At December 31, 2019, 3M had $2.5 billion of cash, cash equivalents and marketable securities, of which approximately $2.4 billion was held by the Company's foreign subsidiaries and approximately $100 million was held by the United States. The increase from December 31, 2019 primarily resulted from strong cash flow from operations, reduced capital expenditures, and lower share repurchases. 

 

Net Debt (non-GAAP measure):

 

Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be important indicators of liquidity and financial position. The following table provides net debt as of December 31, 2020 and 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31,

 

 

2020 versus

 

(Millions)

 

2020

 

2019

 

2019

 

Total debt

 

$

 18,795

 

$

 20,313

 

$

 (1,518)

 

Less: Cash, cash equivalents and marketable securities

 

 

 5,068

 

 

 2,494

 

 

 2,574

 

Net debt (non-GAAP measure)

 

$

 13,727

 

$

 17,819

 

$

 (4,092)

 

 

Refer to the preceding "Total Debt" and "Cash, Cash Equivalents and Marketable Securities" sections for additional details. 

 

Balance Sheet:

 

3M's strong balance sheet and liquidity provide the Company with significant flexibility to fund its numerous opportunities going forward. The Company will continue to invest in its operations to drive growth, including continual review of acquisition opportunities.

 

The Company uses working capital measures that place emphasis and focus on certain working capital assets, such as accounts receivable and inventory activity.

 

 

Working Capital (non-GAAP measure):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

2020 versus

 

(Millions)

 

 

2020

 

 

2019

 

 

2019

 

Current assets

 

$

 14,982

 

$

 12,971

 

$

 2,011

 

Less: Current liabilities

 

 

 7,948

 

 

 9,222

 

 

 (1,274)

 

Working capital (non-GAAP measure)

 

$

 7,034

 

$

 3,749

 

$

 3,285

 

 

Various assets and liabilities, including cash and short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. Working capital is not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. The Company defines working capital as current assets minus current liabilities. 3M believes working capital is meaningful to investors as a measure of operational efficiency and short-term financial health.

 

Working capital increased $3.3 billion compared with December 31, 2019. Balance changes in current assets increased working capital by $2.0 billion, driven by increases in cash and cash equivalents and inventory, partially offset by decreases in accounts receivable. Balance changes in current liabilities increased working capital by $1.3 billion, primarily due to decreases in short-term borrowing and the current portion of long-term debt.

 

Accounts receivable decreased $86 million from December 31, 2019, primarily due to ongoing collection management and increased expected credit losses on customer receivables related to COVID-19 uncertainty. Inventory increased $105 million from December 31, 2019 primarily as a result of foreign currency impacts. These increases were partially offset by inventory decreases as a result of the divestiture of the drug delivery business.

 

Return on Invested Capital (non-GAAP measure):

 

Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt). The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation. The calculation is provided in the below table.

 

 

 

In 2020, ROIC of 18.2 percent was higher than 2019. The increase was driven by the lower year-over-year impact of significant litigation-related charges in addition to the non-repeating charge from the 2019 deconsolidation of the Company's Venezuela subsidiary. 2019 ROIC was also negatively impacted by the increase in cash and cash equivalents in anticipation of the funding of the acquisition of Acelity.

 

 

 

 

 

 

 

 

 

Years ended December 31

    

    

 

    

    

 

    

(Millions)

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Return on Invested Capital (non-GAAP measure)

 

 

 

 

 

 

 

Net income including non-controlling interest

 

$

 5,388

 

$

 4,582

 

Interest expense (after-tax) (1)

 

 

 425

 

 

 359

 

Adjusted net income (Return)

 

$

 5,813

 

$

 4,941

 

 

 

 

 

 

 

 

 

Average shareholders' equity (including non-controlling interest) (2)

 

$

 11,500

 

$

 10,198

 

Average short-term and long-term debt (3)

 

 

 20,413

 

 

 17,982

 

Average invested capital

 

$

 31,913

 

$

 28,180

 

 

 

 

 

 

 

 

 

Return on invested capital (non-GAAP measure)

 

 

 18.2

%

 

 17.5

%

 

 

 

 

 

 

 

 

(1) Effective income tax rate used for interest expense

 

 

 19.6

%

 

 19.8

%

 

 

 

 

 

 

 

 

(2) Calculation of average equity (includes non-controlling interest)

 

 

 

 

 

 

 

Ending total equity as of:

 

 

 

 

 

 

 

March 31

 

$

 10,209

 

$

 9,757

 

June 30

 

 

 10,915

 

 

 10,142

 

September 30

 

 

 11,943

 

 

 10,764

 

December 31

 

 

 12,931

 

 

 10,126

 

Average total equity

 

$

 11,500

 

$

 10,198

 

 

 

 

 

 

 

 

 

(3) Calculation of average debt

 

 

 

 

 

 

 

Ending short-term and long-term debt as of:

 

 

 

 

 

 

 

March 31

 

$

 22,495

 

$

 16,370

 

June 30

 

 

 20,762

 

 

 15,806

 

September 30

 

 

 19,598

 

 

 19,439

 

December 31

 

 

 18,795

 

 

 20,313

 

Average short-term and long-term debt

 

$

 20,413

 

$

 17,982

 

 

Cash Flows:

 

Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in the Consolidated Statement of Cash Flows exclude the effects of acquisitions, divestitures and exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects.

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

Years Ended December 31

    

    

 

    

    

 

 

(Millions)

 

2020

 

2019

 

Net income including noncontrolling interest

 

$

 5,388

 

$

 4,582

 

Depreciation and amortization

 

 

 1,911

 

 

 1,593

 

Company pension and postretirement contributions

 

 

 (156)

 

 

 (210)

 

Company pension and postretirement expense

 

 

 406

 

 

 357

 

Stock-based compensation expense

 

 

 262

 

 

 278

 

Gain on sale of businesses

 

 

 (389)

 

 

 (111)

 

Income taxes (deferred and accrued income taxes)

 

 

 (33)

 

 

 (68)

 

Loss on deconsolidation of Venezuelan subsidiary

 

 

 -

 

 

 162

 

Accounts receivable

 

 

 165

 

 

 345

 

Inventories

 

 

 (91)

 

 

 370

 

Accounts payable

 

 

 252

 

 

 (117)

 

Other - net

 

 

 398

 

 

 (111)

 

Net cash provided by operating activities

 

$

 8,113

 

$

 7,070

 

 

Cash flows from operating activities can fluctuate significantly from period to period, as pension funding decisions, tax timing differences and other items can significantly impact cash flows.

 

In 2020, cash flows provided by operating activities increased $1.0 billion compared to the same period last year, with this increase primarily due to cost saving actions taken in response to COVID-19 and lower year-on-year significant litigation-related charges and the timing of associated payments. The combination of accounts receivable, inventories and accounts payable improved operating cash flow by $326 million in 2020, compared to an operating cash flow improvement of $598 million in 2019. Additional discussion on working capital changes is provided earlier in the "Financial Condition and Liquidity" section.

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

Years ended December 31

    

    

 

    

    

 

 

(Millions)

 

2020

 

2019

 

Purchases of property, plant and equipment (PP&E)

 

$

 (1,501)

 

$

 (1,699)

 

Proceeds from sale of PP&E and other assets

 

 

 128

 

 

 123

 

Acquisitions, net of cash acquired

 

 

 (25)

 

 

 (4,984)

 

Purchases and proceeds from maturities and sale of marketable securities and investments, net

 

 

 232

 

 

 (192)

 

Proceeds from sale of businesses, net of cash sold

 

 

 576

 

 

 236

 

Other - net

 

 

 10

 

 

 72

 

Net cash provided by (used in) investing activities

 

$

 (580)

 

$

 (6,444)

 

 

Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. In 2020, 3M reduced overall spending in light of uncertainty regarding COVID-19, but continued to invest in expanding the Company's ability to increase production of respiratory products to meet worldwide demand. The Company expects 2021 capital spending to be approximately $1.8 billion to $2.0 billion as 3M continues to invest in growth, productivity and sustainability.

 

3M records capital-related government grants earned as reductions to the cost of property, plant and equipment; and associated unpaid liabilities and grant proceeds receivable are considered non-cash changes in such balances for purposes of preparation of statement of cash flows.

 

3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance. Costs related to maintenance, ordinary repairs, and certain other items are expensed. 3M also invests in growth, which adds to capacity, driven by new products, both through expansion of current facilities and new facilities. Finally, 3M also invests in other initiatives, such as information technology (IT), laboratory facilities, and a continued focus on investments in sustainability.

Refer to Note 3 for information on acquisitions and divestitures. The Company is actively considering additional acquisitions, investments and strategic alliances, and from time to time may also divest certain businesses. Acquisitions, net of cash acquired, in 2020 primarily relate to the payment made for contingent consideration in regards to the Acelity acquisition. Proceeds from sale of businesses in 2020 primarily relate to the sales of the Company's advanced ballistic-protection business and its drug delivery business. Acquisitions, net of cash acquired, in 2019 primarily include the purchase of M*Modal and Acelity Inc. Proceeds from sale of businesses in 2019 primarily relate to the sale of certain oral care technology comprising a business and the gas and flame detection business.

 

Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and investments are primarily attributable to certificates of deposit/time deposits, commercial paper, and other securities, which are classified as available-for-sale. In 2020 these included the maturity of the held-to-maturity debt security that was purchased to satisfy the redemption of the Third Lien Notes (which matured in May 2020). Refer to Note 11 for more details about 3M's diversified marketable securities portfolio. Purchases of investments include additional survivor benefit insurance, plus investments in equity securities.

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

Years ended December 31

    

    

 

    

    

 

 

(Millions)

 

2020

 

2019

 

Change in short-term debt - net

 

$

 (143)

 

$

 (316)

 

Repayment of debt (maturities greater than 90 days)

 

 

 (3,482)

 

 

 (2,716)

 

Proceeds from debt (maturities greater than 90 days)

 

 

 1,750

 

 

 6,281

 

Total cash change in debt

 

$

 (1,875)

 

$

 3,249

 

Purchases of treasury stock

 

 

 (368)

 

 

 (1,407)

 

Proceeds from issuances of treasury stock pursuant to stock option and benefit plans

 

 

 429

 

 

 547

 

Dividends paid to stockholders

 

 

 (3,388)

 

 

 (3,316)

 

Other - net

 

 

 (98)

 

 

 (197)

 

Net cash used in financing activities

 

$

 (5,300)

 

$

 (1,124)

 

 

2020 Debt Activity:

 

Total debt was approximately $18.8 billion at December 31, 2020 and $20.3 billion at December 31, 2019. Repayment of debt primarily consists of the aggregate $445 million principal amount of Third Lien Notes and the 650 million euros and $500 million aggregate principal amount of floating-rate medium-term notes that matured in May 2020 and August 2020, respectively. During the third quarter of 2020, the Company paid the outstanding balances on their Japanese yen and euro credit facilities. In addition, $1.0 billion aggregate principal amount of notes maturing in September 2021 were repaid in December 2020 via make-whole-call offers. Increases in debt were related to the March 2020 issuance of $1.75 billion in registered notes. There was no outstanding commercial paper at December 31, 2020, as compared to $150 million at December 31, 2019. Net commercial paper issuances in addition to repayments and borrowings by international subsidiaries are largely reflected in "Change in short-term debt - net" in the preceding table. 3M's primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. Refer to Note 12 for more detail regarding debt.

 

2019 Debt Activity:

 

Total debt was approximately $5.7 billion higher at December 31, 2019 when compared to December 31, 2018. Increases in debt related to the first quarter and third quarter 2019 issuances of $2.25 billion of medium-term notes and $3.25 billion of other registered notes, respectively, 69 billion Japanese yen (approximately $632 million at December 31, 2019 exchange rates) outstanding from the 80 billion Japanese yen credit facility established in September 2019, 150 million euros (approximately $168 million at December 31, 2019 exchange rates) outstanding credit facility established in November 2019, and $0.5 billion of debt assumed and not yet repaid as a result of the Company's acquisition of Acelity Inc. Repayment of debt primarily consists of the June 2019 repayment of $625 million aggregate principal amount of fixed-rate medium-term notes that had matured, in addition to debt assumed and subsequently repaid as a result of the Company's acquisitions of M*Modal and Acelity Inc. as discussed in Note 3. Outstanding commercial paper decreased $285 million from December 31, 2018 to  December 31, 2019. Refer to Note 12 for more detail regarding debt.

 

 

 

Repurchases of Common Stock:

 

Repurchases of 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. In 2020, the Company purchased $0.4 billion of its own stock, compared to purchases of $1.4 billion in 2019. As of December 31, 2020, approximately $7.8 billion remained available under the authorization. In the first quarter of 2020, the Company suspended repurchases under its board-approved share repurchase program with other repurchase activity limited to 3M's stock compensation plans. The Company plans to resume share purchases in 2021. For more information, refer to the table titled "Issuer Purchases of Equity Securities" in Part II, Item 5. The Company does not utilize derivative instruments linked to the Company's stock.

 

Dividends Paid to Shareholders:

 

Cash dividends paid to shareholders totaled $3.388 billion ($5.88 per share) in 2020, $3.316 billion ($5.76 per share) in 2019, and $3.193 billion ($5.44 per share) in 2018. 3M has paid dividends since 1916. In February 2021, 3M's Board of Directors declared a first-quarter 2021 dividend of $1.48 per share, an increase of 1 percent. This is equivalent to an annual dividend of $5.92 per share and marked the 63rd consecutive year of dividend increases.

 

Other cash flows from financing activities may include various other items, such as cash paid associated with certain derivative instruments, distributions to or sales of noncontrolling interests, changes in cash overdraft balances, and principal payments for finance leases.

 

Free Cash Flow (non-GAAP measure):

 

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flow conversion are meaningful to investors as they are useful measures of performance and the Company uses these measures as an indication of the strength of the company and its ability to generate cash. The first quarter of each year is typically 3M's seasonal low for free cash flow and free cash flow conversion. Below find a recap of free cash flow and free cash flow conversion.

 

Refer to the preceding "Cash Flows from Operating Activities" and "Cash Flows from Investing Activities" sections for discussion of items that impacted the operating cash flow and purchases of PP&E components of the calculation of free cash flow. Refer to the preceding "Results of Operations" section for discussion of items that impacted the net income attributable to 3M component of the calculation of free cash flow conversion.

 

 

 

Free cash flow conversion grew to 123% in 2020 compared to 118% in 2019 as increases in free cash flow out-paced increases in net income attributable to 3M.

 

 

 

 

 

 

 

 

 

Years ended December 31

    

    

 

    

    

 

    

(Millions)

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Major GAAP Cash Flow Categories

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

 8,113

 

$

 7,070

 

Net cash provided by (used in) investing activities

 

 

 (580)

 

 

 (6,444)

 

Net cash provided by (used in) financing activities

 

 

 (5,300)

 

 

 (1,124)

 

 

 

 

 

 

 

 

 

Free Cash Flow (non-GAAP measure)

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

 8,113

 

$

 7,070

 

Purchases of property, plant and equipment

 

 

 (1,501)

 

 

 (1,699)

 

Free cash flow

 

$

 6,612

 

$

 5,371

 

Net income attributable to 3M

 

$

 5,384

 

$

 4,570

 

Free cash flow conversion

 

 

 123

%  

 

 118

%

 

 

Off-Balance Sheet Arrangements and Contractual Obligations:

 

As of December 31, 2020, the Company has not utilized special purpose entities to facilitate off-balance sheet financing arrangements. Refer to the section entitled "Warranties/Guarantees" in Note 16 for discussion of accrued product warranty liabilities and guarantees.

 

In addition to guarantees, 3M, in the normal course of business, periodically enters into agreements that require the Company to indemnify either major customers or suppliers for specific risks, such as claims for injury or property damage arising out of the use of 3M products or the negligence of 3M personnel, or claims alleging that 3M products infringe third-party patents or other intellectual property. While 3M's maximum exposure under these indemnification provisions cannot be estimated, these indemnifications are not expected to have a material impact on the Company's consolidated results of operations or financial condition.

 

Contractual Obligations

 

A summary of the Company's significant contractual obligations as of December 31, 2020, follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments due by year

 

 

    

    

 

    

    

 

   

   

 

   

   

 

   

   

 

   

   

 

   

After

 

(Millions)

 

Total

 

2021

 

2022

 

2023

 

2024

 

2025

 

2025

 

Total debt (Note 12)

 

$

 18,795

 

$

 806

 

$

 1,659

 

$

 1,878

 

$

 1,100

 

$

 1,790

 

$

 11,562

 

Interest on long-term debt

 

 

 6,540

 

 

 501

 

 

 475

 

 

 449

 

 

 416

 

 

 389

 

 

 4,310

 

Operating leases (Note 17)

 

 

 930

 

 

 273

 

 

 201

 

 

 141

 

 

 93

 

 

 60

 

 

 162

 

Finance leases (Note 17)

 

 

 123

 

 

 20

 

 

 18

 

 

 18

 

 

 16

 

 

 10

 

 

 41

 

Tax Cuts and Jobs Act (TCJA) transition tax (Note 10)

 

 

 653

 

 

 69

 

 

 69

 

 

 129

 

 

 172

 

 

 214

 

 

 -

 

Unconditional purchase obligations and other

 

 

 1,735

 

 

 1,027

 

 

 330

 

 

 218

 

 

 97

 

 

 48

 

 

 15

 

Total contractual cash obligations

 

$

 28,776

 

$

 2,696

 

$

 2,752

 

$

 2,833

 

$

 1,894

 

$

 2,511

 

$

 16,090

 

 

As a result of put provisions associated with certain debt instruments, long-term debt payments due in 2021 include floating rate notes totaling $53 million (classified as current portion of long-term debt).

 

In conjunction with the 2017 Tax Cuts and Jobs Act (TCJA), the Company has a transition tax liability that is payable over 8 years beginning in 2018. See Note 10 for additional details.

 

Unconditional purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding on the Company. Included in the unconditional purchase obligations category above are certain obligations related to take or pay contracts, capital commitments, service agreements and utilities. These estimates include both unconditional purchase obligations with terms in excess of one year and normal ongoing purchase obligations with terms of less than one year. Many of these commitments relate to take or pay contracts, in which 3M guarantees payment to ensure availability of products or services that are sold to customers. The Company expects to receive consideration (products or services) for these unconditional purchase obligations. Contractual capital commitments are included in the preceding table, but these commitments represent a small part of the Company's expected capital spending. The purchase obligation amounts do not represent the entire anticipated purchases in the future but represent only those items for which the Company is contractually obligated. The majority of 3M's products and services are purchased as needed, with no unconditional commitment. For this reason, these amounts will not provide a reliable indicator of the Company's expected future cash outflows on a stand-alone basis.

 

Other obligations, included in the preceding table within the caption entitled "Unconditional purchase obligations and other" include the current portion of the liability for uncertain tax positions under ASC 740, which is expected to be paid out in cash in the next 12 months, when applicable. The Company is not able to reasonably estimate the timing of the long-term payments, or the amount by which the liability will increase or decrease over time; therefore, the long-term portion of the total net tax liability of $933 million is excluded from the preceding table. In addition, the transition tax prescribed under the Tax Cuts and Jobs Act (TCJA) is separately included in the table above. Refer to Note 10 for further details. Additionally, included within the caption entitled "Unconditional purchase obligations and other" are operating lease commitments that have not yet commenced, which as of December 31, 2020, totaled approximately $18 million. These commitments pertain to 3M's right of use buildings.

 

As discussed in Note 13, the Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2021 and Company contributions to its U.S. and international pension plans are expected to be largely discretionary in future years; therefore, amounts related to these plans are not included in the preceding table.

 

FINANCIAL INSTRUMENTS

 

The Company enters into foreign exchange forward contracts, options and swaps to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies and to offset, in part, the impacts of changes in value of various non-functional currency denominated items including certain intercompany financing balances. The Company manages interest rate risks using a mix of fixed and floating rate debt. To help manage borrowing costs, the Company may enter into interest rate swaps. Under these arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The Company manages commodity price risks through negotiated supply contracts and price protection agreements.

 

Refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", for further discussion of foreign exchange rates risk, interest rates risk, commodity prices risk and value at risk analysis.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

In the context of Item 7A, 3M is exposed to market risk due to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and commodity prices. Changes in those factors could impact the Company's results of operations and financial condition. Senior management provides oversight for risk management and derivative activities, determines certain of the Company's financial risk policies and objectives, and provides guidelines for derivative instrument utilization. Senior management also establishes certain associated procedures relative to control and valuation, risk analysis, counterparty credit approval, and ongoing monitoring and reporting.

 

The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps, currency swaps, and forward and option contracts. However, the Company's risk is limited to the fair value of the instruments. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. The Company does not anticipate nonperformance by any of these counterparties.

 

Foreign Exchange Rates Risk:

 

Foreign currency exchange rates and fluctuations in those rates may affect the Company's net investment in foreign subsidiaries and may cause fluctuations in cash flows related to foreign denominated transactions. 3M is also exposed to the translation of foreign currency earnings to the U.S. dollar. The Company enters into foreign exchange forward and option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies. These transactions are designated as cash flow hedges. 3M may dedesignate these cash flow hedge relationships in advance of the occurrence of the forecasted transaction. The maximum length of time over which 3M hedges its exposure to the variability in future cash flows of the forecasted transactions is 36 months. In addition, 3M enters into foreign currency contracts that are not designated in hedging relationships to offset, in part, the impacts of changes in value of various non-functional currency denominated items including certain intercompany financing balances. As circumstances warrant, the Company also uses foreign currency forward contracts and foreign currency denominated debt as hedging instruments to hedge portions of the Company's net investments in foreign operations. The dollar equivalent gross notional amount of the Company's foreign exchange forward and option contracts designated as either cash flow hedges or net investment hedges was $2.3 billion at December 31, 2020. The dollar equivalent gross notional amount of the Company's foreign exchange forward and option contracts not designated as hedging instruments was $3.2 billion at December 31, 2020. In addition, as of December 31, 2020, the Company had 3.5 billion Euros in principal amount of foreign currency denominated debt designated as non-derivative hedging instruments in certain net investment hedges as discussed in Note 14 in the "Net Investment Hedges" section.

 

Interest Rates Risk:

 

The Company may be impacted by interest rate volatility with respect to existing debt and future debt issuances. 3M manages interest rate risk and expense using a mix of fixed and floating rate debt. In addition, the Company may enter into interest rate swaps that are designated and qualify as fair value hedges. Under these arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The dollar equivalent (based on inception date foreign currency exchange rates) gross notional amount of the Company's interest rate swaps at December 31, 2020 was $403 million. Additional details about 3M's long-term debt can be found in Note 12, including references to information regarding derivatives and/or hedging instruments, further discussed in Note 14, associated with the Company's long-term debt.

 

Commodity Prices Risk:

 

The Company manages commodity price risks through negotiated supply contracts and price protection agreements. The related mark-to-market gain or loss on qualifying hedges was included in other comprehensive income to the extent effective, and reclassified into cost of sales in the period during which the hedged transaction affected earnings.

 

Value At Risk:

 

The value at risk analysis is performed annually to assess the Company's sensitivity to changes in currency rates, interest rates, and commodity prices. A Monte Carlo simulation technique was used to test the impact on after-tax earnings related to debt instruments, interest rate derivatives and underlying foreign exchange and commodity exposures outstanding at December 31, 2020. The model (third-party bank dataset) used a 95 percent confidence level over a 12-month time horizon. The exposure to changes in currency rates model used nine currencies, interest rates related to two currencies, and commodity prices related to five commodities. This model does not purport to represent what actually will be experienced by the Company. This model does not include foreign currency hedges, because the Company believes their inclusion would not materially impact the results. The following table summarizes the possible adverse and positive impacts to after-tax earnings related to these exposures.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adverse impact on after-tax

 

Positive impact on after-tax

 

 

 

earnings

 

earnings

 

(Millions)

    

2020

    

2019

    

2020

    

2019

 

Foreign exchange rates

 

$

 (169)

 

$

 (133)

 

$

 175

 

$

 137

 

Interest rates

 

 

 (1)

 

 

 (11)

 

 

 2

 

 

 10

 

Commodity prices

 

 

 -

 

 

 (2)

 

 

 -

 

 

 1

 

 

An analysis of the global exposures related to purchased components and materials is performed at each year-end. A one percent price change would result in a pre-tax cost or savings of approximately $70 million per year. The global energy exposure is such that a ten percent price change would result in a pre-tax cost or savings of approximately $40 million per year. Global energy exposure includes energy costs used in 3M production and other facilities, primarily electricity and natural gas.

 

Item 8. Financial Statements and Supplementary Data.

 

Index to Financial Statements

 

A complete summary of Form 10-K content, including the index to financial statements, is found at the beginning of this document.

 

 

Management's Responsibility for Financial Reporting

 

Management is responsible for the integrity and objectivity of the financial information included in this report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Where necessary, the financial statements reflect estimates based on management's judgment.

 

Management has established and maintains a system of internal control over financial reporting for the Company and its subsidiaries. This system and its established accounting procedures and related controls are designed to provide reasonable assurance that assets are safeguarded, that the books and records properly reflect all transactions, that policies and procedures are implemented by qualified personnel, and that published financial statements are properly prepared and fairly presented. The Company's system of internal control over financial reporting is supported by widely communicated written policies, including business conduct policies, which are designed to require all employees to maintain high ethical standards in the conduct of Company affairs. Internal auditors continually review the accounting and control system.

 

3M Company

 

Management's Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Management conducted an assessment of the Company's internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on the assessment, management concluded that, as of December 31, 2020, the Company's internal control over financial reporting is effective.

 

The Company's internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2020.

 

3M Company

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors of 3M Company

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated balance sheet of 3M Company and its subsidiaries (the "Company") as of December 31, 2020 and 2019, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

 

Change in Accounting Principle

 

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

 

Basis for Opinions

 

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

 

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Legal Proceedings Contingencies

 

As described in Note 16 to the consolidated financial statements, management records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss and when the liability is probable. Where the reasonable estimate of the probable loss is a range, management records the most likely estimate of the loss, or the low end of the range if there is no one best estimate. Management either discloses the amount of a possible loss or range of loss in excess of established accruals if estimable, or states that such an estimate cannot be made. Management discloses significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or both, if management believes there is at least a reasonable possibility that a loss may be incurred.

 

The principal considerations for our determination that performing procedures relating to legal proceedings contingencies is a critical audit matter are there was significant judgment by management when assessing the likelihood of a loss being incurred and when estimating the loss or range of loss for each claim, which in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management's assessment of the liabilities and disclosures associated with legal proceedings.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's evaluation of the liability related to legal proceedings, including controls over determining the likelihood of a loss and whether the amount of loss can be reasonably estimated, as well as financial statement disclosures. These procedures also included, among others, obtaining and evaluating the letters of audit inquiry with internal and external legal counsel, evaluating the reasonableness of management's assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable, and evaluating the sufficiency of the Company's disclosures related to legal proceedings.

 

/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota

February 4, 2021

 

We have served as the Company's auditor since 1975.

 

 

 

3M Company and Subsidiaries

Consolidated Statement of Income

Years ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

(Millions, except per share amounts)

    

 

    

2019

    

2018

 

Net sales

 

 

$

 32,184

 

$

 32,136

 

$

 32,765

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 16,605

 

 

 17,136

 

 

 16,682

 

Selling, general and administrative expenses

 

 

 

 6,929

 

 

 7,029

 

 

 7,602

 

Research, development and related expenses

 

 

 

 1,878

 

 

 1,911

 

 

 1,821

 

Gain on sale of businesses

 

 

 

 (389)

 

 

 (114)

 

 

 (547)

 

Total operating expenses

 

 

 

 25,023

 

 

 25,962

 

 

 25,558

 

Operating income

 

 

 

 7,161

 

 

 6,174

 

 

 7,207

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

 

 450

 

 

 462

 

 

 207

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

 

 6,711

 

 

 5,712

 

 

 7,000

 

Provision for income taxes

 

 

 

 1,318

 

 

 1,130

 

 

 1,637

 

Income of consolidated group

 

 

$

 5,393

 

$

 4,582

 

$

 5,363

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from unconsolidated subsidiaries, net of taxes

 

 

 

 (5)

 

 

 -

 

 

 -

 

Net income including noncontrolling interest

 

 

$

 5,388

 

$

 4,582

 

$

 5,363

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Net income (loss) attributable to noncontrolling interest

 

 

 

 4

 

 

 12

 

 

 14

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to 3M

 

 

$

 5,384

 

$

 4,570

 

$

 5,349

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average 3M common shares outstanding - basic

 

 

 

 577.6

 

 

 577.0

 

 

 588.5

 

Earnings per share attributable to 3M common shareholders - basic

 

 

$

 9.32

 

$

 7.92

 

$

 9.09

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average 3M common shares outstanding - diluted

 

 

 

 582.2

 

 

 585.1

 

 

 602.0

 

Earnings per share attributable to 3M common shareholders - diluted

 

 

$

 9.25

 

$

 7.81

 

$

 8.89

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.

 

 

 

3M Company and Subsidiaries

Consolidated Statement of Comprehensive Income

Years ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

(Millions)

    

 

2020

    

2019

    

2018

 

Net income including noncontrolling interest

 

 

$

 5,388

 

$

 4,582

 

$

 5,363

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 

 447

 

 

 211

 

 

 (467)

 

Defined benefit pension and postretirement plans adjustment

 

 

 

 171

 

 

 (560)

 

 

 444

 

Cash flow hedging instruments

 

 

 

 (142)

 

 

 (72)

 

 

 176

 

Total other comprehensive income (loss), net of tax

 

 

 

 476

 

 

 (421)

 

 

 153

 

Comprehensive income (loss) including noncontrolling interest

 

 

 

 5,864

 

 

 4,161

 

 

 5,516

 

Comprehensive (income) loss attributable to noncontrolling interest

 

 

 

 (2)

 

 

 (11)

 

 

 (8)

 

Comprehensive income (loss) attributable to 3M

 

 

$

 5,862

 

$

 4,150

 

$

 5,508

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.

 

 

3M Company and Subsidiaries

Consolidated Balance Sheet

At December 31

 

 

 

 

 

 

 

 

 

(Dollars in millions, except per share amount)

    

2020

    

2019

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 4,634

 

$

 2,353

 

Marketable securities - current

 

 

 404

 

 

 98

 

Accounts receivable - net of allowances of $233 and $161

 

 

 4,705

 

 

 4,791

 

Inventories

 

 

 

 

 

 

 

Finished goods

 

 

 2,081

 

 

 2,003

 

Work in process

 

 

 1,226

 

 

 1,194

 

Raw materials and supplies

 

 

 932

 

 

 937

 

Total inventories

 

 

 4,239

 

 

 4,134

 

Prepaids

 

 

 675

 

 

 704

 

Other current assets

 

 

 325

 

 

 891

 

Total current assets

 

 

 14,982

 

 

 12,971

 

Property, plant and equipment

 

 

 26,650

 

 

 26,124

 

Less: Accumulated depreciation

 

 

 (17,229)

 

 

 (16,791)

 

Property, plant and equipment - net

 

 

 9,421

 

 

 9,333

 

Operating lease right of use assets

 

 

 864

 

 

 858

 

Goodwill

 

 

 13,802

 

 

 13,444

 

Intangible assets - net

 

 

 5,835

 

 

 6,379

 

Other assets

 

 

 2,440

 

 

 1,674

 

Total assets

 

$

 47,344

 

$

 44,659

 

Liabilities

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Short-term borrowings and current portion of long-term debt

 

$

 806

 

$

 2,795

 

Accounts payable

 

 

 2,561

 

 

 2,228

 

Accrued payroll

 

 

 747

 

 

 702

 

Accrued income taxes

 

 

 300

 

 

 194

 

Operating lease liabilities - current

 

 

 256

 

 

 247

 

Other current liabilities

 

 

 3,278

 

 

 3,056

 

Total current liabilities

 

 

 7,948

 

 

 9,222

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 17,989

 

 

 17,518

 

Pension and postretirement benefits

 

 

 4,405

 

 

 3,911

 

Operating lease liabilities

 

 

 609

 

 

 607

 

Other liabilities

 

 

 3,462

 

 

 3,275

 

Total liabilities

 

$

 34,413

 

$

 34,533

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

3M Company shareholders' equity:

 

 

 

 

 

 

 

Common stock par value, $.01 par value; 944,033,056 shares issued

 

$

 9

 

$

 9

 

Shares outstanding - December 31, 2020: 577,749,638

 

 

 

 

 

 

 

Shares outstanding - December 31, 2019: 575,184,835

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 6,162

 

 

 5,907

 

Retained earnings

 

 

 43,761

 

 

 42,135

 

Treasury stock, at cost:

 

 

 (29,404)

 

 

 (29,849)

 

Accumulated other comprehensive income (loss)

 

 

 (7,661)

 

 

 (8,139)

 

Total 3M Company shareholders' equity

 

 

 12,867

 

 

 10,063

 

Noncontrolling interest

 

 

 64

 

 

 63

 

Total equity

 

$

 12,931

 

$

 10,126

 

Total liabilities and equity

 

$

 47,344

 

$

 44,659

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.

 

 

3M Company and Subsidiaries

Consolidated Statement of Changes in Equity

Years Ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3M Company Shareholders

 

 

 

 

 

    

 

 

    

Common

    

 

 

    

 

 

    

Accumulated

    

 

 

 

 

 

 

 

 

Stock and

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Comprehensive

 

Non-

 

 

 

 

 

 

Paid-in

 

Retained

 

Treasury

 

Income

 

controlling

 

(Dollars in millions, except per share amounts)

 

Total

 

Capital

 

Earnings

 

Stock

 

(Loss)

 

Interest

 

Balance at December 31, 2017

 

$

 11,622

 

$

 5,361

 

$

 39,115

 

$

 (25,887)

 

$

 (7,026)

 

$

 59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 5,363

 

 

 

 

 

 5,349

 

 

 

 

 

 

 

 

 14

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 (467)

 

 

 

 

 

 

 

 

 

 

 

 (461)

 

 

 (6)

 

Defined benefit pension and post-retirement plans adjustment

 

 

 444

 

 

 

 

 

 

 

 

 

 

 

 444

 

 

 -

 

Cash flow hedging instruments - unrealized gain (loss)

 

 

 176

 

 

 

 

 

 

 

 

 

 

 

 176

 

 

 -

 

Total other comprehensive income (loss), net of tax

 

 

 153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared ($5.44 per share, Note 8)

 

 

 (3,193)

 

 

 

 

 

 (3,193)

 

 

 

 

 

 

 

 

 

 

Transfer of ownership involving non-wholly owned subsidiaries

 

 

 -

 

 

 

 

 

 14

 

 

 

 

 

 1

 

 

 (15)

 

Stock-based compensation

 

 

 291

 

 

 291

 

 

 

 

 

 

 

 

 

 

 

 

 

Reacquired stock

 

 

 (4,888)

 

 

 

 

 

 

 

 

 (4,888)

 

 

 

 

 

 

 

Issuances pursuant to stock option and benefit plans

 

 

 500

 

 

 

 

 

 (649)

 

 

 1,149

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

 9,848

 

$

 5,652

 

$

 40,636

 

$

 (29,626)

 

$

 (6,866)

 

$

 52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of adoption of ASU No. 2018-02

 

 

 -

 

 

 

 

 

 853

 

 

 

 

 

 (853)

 

 

 

 

Impact of adoption of ASU No. 2016-02

 

 

 14

 

 

 

 

 

 14

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 4,582

 

 

 

 

 

 4,570

 

 

 

 

 

 

 

 

 12

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 211

 

 

 

 

 

 

 

 

 

 

 

 212

 

 

 (1)

 

Defined benefit pension and post-retirement plans adjustment

 

 

 (560)

 

 

 

 

 

 

 

 

 

 

 

 (560)

 

 

 -

 

Cash flow hedging instruments - unrealized gain (loss)

 

 

 (72)

 

 

 

 

 

 

 

 

 

 

 

 (72)

 

 

 -

 

Total other comprehensive income (loss), net of tax

 

 

 (421)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared ($5.76 per share, Note 8)

 

 

 (3,316)

 

 

 

 

 

 (3,316)

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 264

 

 

 264

 

 

 

 

 

 

 

 

 

 

 

 

 

Reacquired stock

 

 

 (1,381)

 

 

 

 

 

 

 

 

 (1,381)

 

 

 

 

 

 

 

Issuances pursuant to stock option and benefit plans

 

 

 536

 

 

 

 

 

 (622)

 

 

 1,158

 

 

 

 

 

 

 

Balance at December 31, 2019

 

$

 10,126

 

$

 5,916

 

$

 42,135

 

$

 (29,849)

 

$

 (8,139)

 

$

 63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 5,388

 

 

 

 

 

 5,384

 

 

 

 

 

 

 

 

 4

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

 

 447

 

 

 

 

 

 

 

 

 

 

 

 449

 

 

 (2)

 

Defined benefit pension and post-retirement plans adjustment

 

 

 171

 

 

 

 

 

 

 

 

 

 

 

 171

 

 

 -

 

Cash flow hedging instruments - unrealized gain (loss)

 

 

 (142)

 

 

 

 

 

 

 

 

 

 

 

 (142)

 

 

 -

 

Total other comprehensive income (loss), net of tax

 

 

 476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared ($5.88 per share, Note 8)

 

 

 (3,388)

 

 

 

 

 

 (3,388)

 

 

 

 

 

 

 

 

 

 

Purchase of non-controlling interest

 

 

 (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (1)

 

Stock-based compensation

 

 

 255

 

 

 255

 

 

 

 

 

 

 

 

 

 

 

 

 

Reacquired stock

 

 

 (358)

 

 

 

 

 

 

 

 

 (358)

 

 

 

 

 

 

 

Issuances pursuant to stock option and benefit plans

 

 

 433

 

 

 

 

 

 (370)

 

 

 803

 

 

 

 

 

 

 

Balance at December 31, 2020

 

$

 12,931

 

$

 6,171

 

$

 43,761

 

$

 (29,404)

 

$

 (7,661)

 

$

 64

 

 

 

 

 

 

 

 

 

 

Supplemental share information

    

2020

    

2019

    

2018

 

Treasury stock

 

 

 

 

 

 

 

Beginning balance

 

 368,848,221

 

 367,457,888

 

 349,148,819

 

Reacquired stock

 

 2,286,109

 

 7,575,647

 

 23,526,293

 

Issuances pursuant to stock options and benefit plans

 

 (4,850,912)

 

 (6,185,314)

 

 (5,217,224)

 

Ending balance

 

 366,283,418

 

 368,848,221

 

 367,457,888

 

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.

 

 

3M Company and Subsidiaries

Consolidated Statement of Cash Flows

Years ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

(Millions)

    

 

2020

    

2019

    

2018

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interest

 

 

$

 5,388

 

$

 4,582

 

$

 5,363

 

Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 1,911

 

 

 1,593

 

 

 1,488

 

Company pension and postretirement contributions

 

 

 

 (156)

 

 

 (210)

 

 

 (370)

 

Company pension and postretirement expense

 

 

 

 406

 

 

 357

 

 

 410

 

Stock-based compensation expense

 

 

 

 262

 

 

 278

 

 

 302

 

Gain on sale of businesses

 

 

 

 (389)

 

 

 (111)

 

 

 (545)

 

Deferred income taxes

 

 

 

 (165)

 

 

 (273)

 

 

 (57)

 

Loss on deconsolidation of Venezuelan subsidiary

 

 

 

 -

 

 

 162

 

 

 -

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 165

 

 

 345

 

 

 (305)

 

Inventories

 

 

 

 (91)

 

 

 370

 

 

 (509)

 

Accounts payable

 

 

 

 252

 

 

 (117)

 

 

 408

 

Accrued income taxes (current and long-term)

 

 

 

 132

 

 

 205