3M(US:MMM)2024-02-06 16:00Global Economic and Geopolitical Risks - Approximately 54% of the company's revenues are derived from outside the United States, exposing it to global economic and geopolitical risks[48] - The company is subject to risks from foreign currency exchange rate fluctuations, as 54% of its revenues are denominated in non-U.S. currencies[48] - The company is exposed to risks from global trade tensions, including those between the U.S. and China, which could adversely impact its operations[48] - The company suspended operations in Russia in March 2022 and completed the sale of related assets in June 2023[48] PFAS-Related Liabilities and Settlements - The company recorded a pre-tax charge of $0.8 billion in Q4 2022 related to exiting PFAS manufacturing by the end of 2025[50] - The company entered into a proposed class-action settlement in June 2023, agreeing to pay $10.5 billion to $12.5 billion to resolve PFAS-related drinking water claims[52] - The company recognized a pre-tax charge of $897 million in Q1 2018 related to a PFAS settlement with the State of Minnesota[52] - The company faces potential liabilities and compliance costs related to PFAS regulations and litigation, which could materially impact its financial position[50][52] - The company is working to discontinue the use of PFAS across its product portfolio by the end of 2025, with progress already made in certain product categories[50] - Manufactured PFAS products related costs were $1,267 million in 2023, compared to $970 million in 2022[88] - The company recorded a charge related to impairment of long-lived assets due to the exit from PFAS manufacturing, with fair values determined using discounted cash flow models[132] - The company recorded a $0.3 billion goodwill impairment charge in December 2022 related to the exit from PFAS manufacturing[200] Legal and Compliance Risks - The company faces compliance risks related to international laws and regulations, including the U.S. Foreign Corrupt Practices Act (FCPA), which could result in fines or penalties[54] - The company incurred $15.2 billion in pre-tax costs for significant litigation during 2023, including $10.5 billion related to the PWS Settlement and $4.3 billion related to the CAE Settlement[77] - The CAE Settlement involves a $6.0 billion contribution from 2023 to 2029, subject to participation thresholds and legal uncertainties[64] - Contingent liability claims and other liabilities include $7.5 billion and $3.5 billion related to the PWS Settlement and CAE Settlement as of December 31, 2023[212] Operational and Financial Performance - The company's growth depends on the timing and market acceptance of new product offerings, with no guarantee of commercial success[55] - Supply chain disruptions, material shortages, and cost fluctuations could materially impact the company's ability to fulfill customer obligations[57] - Operational execution risks, including workforce restructuring and productivity improvements, could negatively impact financial performance[60] - Total organic growth/productivity and other impacts resulted in a net year-on-year increase of $0.73 per share in 2023, driven by benefits from spending discipline, sourcing actions, restructuring, higher selling prices, and ongoing productivity actions[79] - Restructuring pre-tax charges were $437 million in 2023, compared to $59 million in 2022[82] - Foreign currency impacts increased operating loss by approximately $162 million in 2023, compared to a decrease of $271 million in 2022[82] - The effective tax rate for 2023 was 27.8% on a pre-tax loss, compared to 9.6% on pre-tax income in 2022[83] - Lower shares outstanding increased earnings per diluted share for 2023 and 2022[83] - Net costs for significant litigation in 2023 included $249 million for the Safety and Industrial business segment and $(1,258) million for the Transportation and Electronics business segment[86] - In 2023, 3M recorded a gain on final disposal of net assets in Russia, following a charge in 2022 related to impairment of these assets[89] - The adjusted effective tax rates for 2023, 2022, and 2021 were 17.5%, 17.5%, and 18.1%, respectively[83] - Total Company GAAP net sales for 2023 were $32.681 billion, a decrease of 4.5% compared to 2022[96] - Adjusted total Company (non-GAAP measures) net sales for 2023 were $31.392 billion, also a decrease of 4.5%[94] - Transportation and Electronics segment GAAP net sales for 2023 were $8.501 billion, a decrease of 4.5% compared to 2022[96] - Safety and Industrial segment GAAP net sales for 2023 were $10.956 billion, a decrease of 5.6% compared to 2022[96] - Health Care segment GAAP net sales for 2023 were $8.195 billion, a decrease of 2.8% compared to 2022[96] - Consumer segment GAAP net sales for 2023 were $5.026 billion, a decrease of 5.0% compared to 2022[96] - Total Company GAAP operating income (loss) for 2023 was $(9.128) billion, a significant decrease compared to $6.539 billion in 2022[96] - Adjusted total Company (non-GAAP measures) operating income for 2023 was $6.388 billion, a decrease of 20.3% compared to 2022[94] - Americas geographic area net sales for 2023 were $18.375 billion, a slight decrease of 0.1% compared to 2022[98] - Asia Pacific geographic area net sales for 2023 were $8.463 billion, a significant decrease of 14.5% compared to 2022[98] - Net sales cost of sales increased to 56.5% in 2023 from 56.2% in 2022, driven by investments in growth, productivity, and higher energy costs[101] - SG&A expenses increased to 26.5% of net sales in 2023, impacted by pre-tax charges of $10.3 billion and $4.2 billion related to legal settlements[101] - R&D expenses rose to 5.6% of net sales in 2023, reflecting continued investment in innovation and restructuring charges[101] - Safety and Industrial segment sales declined by 5.6% in 2023, with organic sales down 5.1% due to declines in personal safety and industrial adhesives[110][111] - Transportation and Electronics segment sales decreased by 4.5% in 2023, with organic sales down 3.5% due to weakness in consumer electronics[116][117] - Corporate and Unallocated operating expenses increased in 2023, driven by higher litigation and divestiture costs[107][108] - Effective tax rate rose to 27.8% in 2023 from 9.6% in 2022, influenced by changes in pre-tax income and tax provisions[102] - Income from unconsolidated subsidiaries increased to $18 million in 2023 from $11 million in 2022[103] - Net income attributable to noncontrolling interest increased to $16 million in 2023 from $14 million in 2022[104] - Business segment operating income decreased by 10.9% to $1,603 million in 2023, with margins impacted by a $0.8 billion asset impairment charge related to the exit from PFAS manufacturing[120] - Health Care sales decreased by 2.8% to $8,195 million in 2023, with organic sales growth of 0.7% offset by divestitures and translation impacts[121][122] - Consumer sales declined by 5.0% to $5,026 million in 2023, with organic sales down 4.7% due to reduced spending on discretionary items[124][125] - Total company employment decreased from 92,000 in 2022 to 85,000 in 2023, with reductions across all geographic regions[123][128] - Capital spending decreased by 7.7% to $1,615 million in 2023, with investments focused on manufacturing and sourcing capabilities[123][129] - Health Care operating income margins decreased due to manufacturing and supply chain headwinds, inflation impacts, and restructuring costs, partially offset by pricing and productivity actions[122] - Net sales for 2023 decreased to $32,681 million from $34,229 million in 2022, a decline of 4.5%[162] - Operating income (loss) for 2023 was $(9,128) million, compared to $6,539 million in 2022, a significant decline[162] - Net income (loss) attributable to 3M for 2023 was $(6,995) million, compared to $5,777 million in 2022[162] - Earnings (loss) per share attributable to 3M common shareholders — diluted was $(12.63) in 2023, compared to $10.18 in 2022[160] - Net cash provided by operating activities in 2023 was $6,680 million, compared to $5,591 million in 2022[178] - 3M re-consolidated Aearo Technology and related entities in Q2 2023 after court dismissal of bankruptcy proceedings, previously deconsolidated in Q2 2022[180] - Asset retirement obligation liability was $190 million at December 31, 2023, compared to $177 million at December 31, 2022[182] - Advertising and merchandising costs totaled $265 million in 2023, down from $323 million in 2022 and $327 million in 2021[184] - Research, development, and related expenses totaled $1.8 billion in 2023, compared to $1.9 billion in 2022 and $2.0 billion in 2021[184] - Research and development expenses specifically were $1.0 billion in 2023, down from $1.1 billion in 2022 and $1.2 billion in 2021[184] - Deferred revenue recognized during 2023 was approximately $520 million, compared to $500 million in 2022[193] - Operating lease revenue from durable medical devices was $590 million in 2023, $577 million in 2022, and $582 million in 2021[193] - Net sales for the Safety and Industrial Business Segment were $10.956 billion in 2023, down from $11.604 billion in 2022[193] - Net sales for the Health Care Business Group were $8.195 billion in 2023, compared to $8.427 billion in 2022[193] - Net sales for the Consumer Business Group were $5.026 billion in 2023, down from $5.292 billion in 2022[193] - Americas net sales were $18.375 billion in 2023, slightly lower than $18.400 billion in 2022[193] - Asia Pacific net sales were $8.463 billion in 2023, down from $9.901 billion in 2022[193] - China/Hong Kong net sales were $3.2 billion in 2023, compared to $3.8 billion in 2022[194] - The company completed the sale of its dental local anesthetic business for $60 million, resulting in a net pre-tax gain of $36 million[196] - The company expects to spin off its Health Care business in the first half of 2024, retaining an initial 19.9% ownership position[196] - Goodwill balance as of December 31, 2023, is $12.927 billion, with a $0.3 billion accumulated goodwill impairment loss[199] - Total gross carrying amount of acquired finite-lived intangible assets is $7.814 billion as of December 31, 2023[200] - Expected amortization expense for acquired amortizable intangible assets in 2024 is $453 million[202] - The company incurred a $437 million pre-tax charge in 2023 for restructuring actions impacting approximately 6,000 positions[203] - The company expects to impact approximately 8,500 positions worldwide with a pre-tax charge of $700 million to $900 million from 2023 to 2025[203] - The company recorded a $64 million pre-tax charge in 2023 for PFAS exit actions impacting approximately 550 positions[203] - Interest expense for 2023 is $942 million, including $566 million related to outstanding debt[206] - Property, plant, and equipment - net is $9.159 billion as of December 31, 2023[212] - Total cash dividends declared and paid per share in 2023 were $6.00, compared to $5.96 in 2022 and $5.92 in 2021[215] - Accumulated Other Comprehensive Income (Loss) balance at December 31, 2023, net of tax, was $(6,778) million[215] - Cash income tax payments, net of refunds, were $1,384 million in 2023, compared to $1,320 million in 2022 and $1,695 million in 2021[217] - Income (loss) before income taxes in 2023 was $(9,688) million, compared to $6,392 million in 2022 and $7,204 million in 2021[218] - Net deferred tax assets as of December 31, 2023, were $4,391 million, compared to $400 million in 2022[221] - The effective worldwide tax rate for 2023 was 27.8%, compared to 9.6% in 2022 and 17.8% in 2021[222] - The company had approximately $16.1 billion of undistributed earnings in its foreign subsidiaries as of December 31, 2023[224] - Earnings (loss) per share attributable to 3M common shareholders — diluted was $(12.63) in 2023, compared to $10.18 in 2022 and $10.12 in 2021[227] - Current marketable securities decreased from $238 million in 2022 to $53 million in 2023, a 77.7% decline[228] - Total marketable securities as of December 31, 2023 were $73 million, with $53 million due within one year[228] - Long-term debt decreased from $15,939 million in 2022 to $14,240 million in 2023, a 10.7% reduction[229] - Fixed-rate debt accounted for $13,027 million (91.5%) of total long-term debt in 2023, with an effective interest rate of 3.09%[230] - Floating-rate debt increased slightly from $1,201 million in 2022 to $1,213 million in 2023, with effective interest rate rising from 5.70% to 6.88%[230] - The company entered into a new $4.25 billion five-year revolving credit facility in May 2023, replacing previous credit agreements[232] - EBITDA to Interest Ratio was approximately 15 to 1 as of December 31, 2023, well above the required minimum of 3 to 1[232] - In 2023, the company repaid $500 million of fixed-rate registered notes, $650 million of fixed-rate medium-term notes, and €600 million of fixed-rate medium-term notes[234] - Employer contributions to U.S. defined contribution plans remained steady at $241 million in both 2023 and 2022[236] - International defined contribution plan contributions decreased from $117 million in 2021 to $108 million in both 2022 and 2023[236] - Benefit obligation at end of year for 2023 is $13,498 million, showing a slight decrease from $13,505 million in 2022[240] - Fair value of plan assets at end of year for 2023 is $12,348 million, compared to $12,648 million in 2022[240] - Funded status at end of year for 2023 is $(1,150) million, worsening from $(857) million in 2022[240] - Net actuarial loss for 2023 is $4,809 million, up from $4,616 million in 2022[240] - Discount rate for Qualified and Non-qualified Pension Benefits in the US for 2023 is 4.98%, down from 5.18% in 2022[243] - Compensation rate increase for Qualified and Non-qualified Pension Benefits in the US for 2023 is 3.77%, up from 3.37% in 2022[243] - Service cost for Qualified and Non-qualified Pension Benefits in the US for 2023 is $171 million, down from $256 million in 2022[244] - Interest cost for Qualified and Non-qualified Pension Benefits in the US for 2023 is $662 million, up from $417 million in 2022[244] - Expected return on plan assets for Qualified and Non-qualified Pension Benefits in the US for 2023 is $(974) million, slightly worse than $(963) million in 2022[244] - Total net periodic benefit cost for Qualified and Non-qualified Pension Benefits in the US for 2023 is $122 million, unchanged from 2022[244] Cybersecurity Risks - Cybersecurity risks, including data breaches and cyberattacks, could disrupt operations and lead to significant financial and reputational damage[58] - The company's cybersecurity risk management is overseen by the audit committee, with quarterly reports from the Chief Information and Digital Officer (CIDO) and Chief Information Security Officer (CISO)[67] - The company's CISO has over 25 years of experience in information security and is a certified information systems security professional[68] - As of the date of the Form 10-K, the company is not aware of any cybersecurity incidents that have materially affected its business strategy, results of operations, or financial condition[68] Acquisitions, Divestitures, and Strategic Alliances - Acquisitions, divestitures, and strategic alliances may affect future results, with integration challenges and unexpected liabilities posing risks[60] - The planned spin-off of the Health Care business faces risks, including delays, tax liabilities, and potential business disruption[65] - The company plans to spin off its Health Care business as a separate public company, expected to be completed in the first half of 2024[77] - The company expects to spin off its Health Care business in the first half of 2024, retaining an initial 19.9% ownership position[196] Pension and Postretirement Benefits - The company's defined benefit pension plans are exposed to financial