Notes to Consolidated Financial Statements
NOTE 1. Significant Accounting Policies
Consolidation: 3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products. All applicable subsidiaries are consolidated. All intercompany transactions are eliminated. As used herein, the term “3M” or “Company” refers to 3M Company and subsidiaries unless the context indicates otherwise.
Basis of presentation: Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year presentation.
Effective in the first quarter of 2021, 3M made the following changes. Information provided herein reflects the impact of these changes for all periods presented.
•Change in accounting principle for net periodic pension and postretirement plan cost. See below for additional information.
•Change in measure of segment operating performance used by 3M’s chief operating decision maker—impacting 3M’s disclosed measure of segment profit/loss (business segment operating income). See additional information in Note 19.
•Change in alignment of certain products within 3M’s Consumer business segment—creating the Consumer Health and Safety Division. See additional information in Note 19.
Foreign currency translation: Local currencies generally are considered the functional currencies outside the United States with the exception of 3M’s subsidiaries in Argentina, the economy of which was considered highly inflationary beginning in 2018, and accordingly, the financial statements of these subsidiaries are remeasured as if their functional currency is that of their parent. Assets and liabilities for operations in local-currency environments are translated at month-end exchange rates of the period reported. Income and expense items are translated at average monthly currency exchange rates in effect during the period. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
3M had a consolidating subsidiary in Venezuela, the financial statements of which were remeasured as if its functional currency were that of its parent because Venezuela’s economic environment is considered highly inflationary. The operating income of this subsidiary was immaterial as a percent of 3M’s consolidated operating income for the periods presented. In light of circumstances, including the country’s unstable environment and heightened unrest leading to sustained lack of demand, and expectation that these circumstances will continue for the foreseeable future, during May 2019, 3M concluded it no longer met the criteria of control in order to continue consolidating its Venezuelan operations. As a result, as of May 31, 2019, the Company began reflecting its interest in the Venezuelan subsidiary as an equity investment that does not have a readily determinable fair value. This resulted in a pre-tax charge of $162 million within other expense (income) in the second quarter of 2019. The charge primarily relates to $144 million of foreign currency translation losses associated with foreign currency movements before Venezuela was accounted for as a highly inflationary economy and pension elements previously included in accumulated other comprehensive loss along with write-down of intercompany receivable and investment balances associated with this subsidiary. Beginning May 31, 2019, 3M’s consolidated balance sheets and statements of operations no longer include the Venezuelan entity’s operations other than an immaterial equity investment and associated loss or income thereon largely only to the extent, that 3M provides support or materials and receives funding or dividends.
Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company considered the coronavirus (COVID-19) related impacts on its estimates, as appropriate, within its consolidated financial statements and there may be changes to those estimates in future periods. 3M believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. Such estimates and assumptions are subject to inherent uncertainties which may result in actual amounts differing from these estimates.
Cash and cash equivalents: Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when acquired.
Marketable securities: Marketable securities include available-for-sale debt securities and are recorded at fair value. Cost of securities sold use the first in, first out (FIFO) method. The classification of marketable securities as current or non-current is based on the availability for use in current operations. 3M reviews impairments associated with its marketable securities in accordance with the measurement guidance provided by ASC 320, Investments-Debt Securities and ASC 326-30, Available-
for-Sale Debt Securities, when determining whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. An impairment relating to credit losses is recorded through an allowance for credit losses. The allowance is limited by the amount that the fair value is less than the amortized cost basis. A change in the allowance for credit losses is recorded into earnings in the period of the change. Any impairment that has not been recorded through an allowance for credit losses is recorded through accumulated other comprehensive income as a component of shareholders’ equity. The factors considered in determining whether a credit loss exists can include the extent to which fair value is less than the amortized cost basis, changes in the credit quality of the underlying loan obligors, credit ratings actions, as well as other factors. When a credit loss exists, the Company compares the present value of cash flows expected to be collected from the debt security with the amortized cost basis of the security to determine what allowance amount, if any, should be recorded. Amounts are reclassified out of accumulated other comprehensive income and into earnings upon sale or a change in the portions of impairment related to credit losses and not related to credit losses.
Investments: All equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value with changes therein reflected in net income. 3M utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments at cost less impairment plus or minus observable price changes in orderly transactions. The balance of these securities is disclosed in Note 7.
Other assets: Other assets include deferred income taxes, product and other insurance receivables, the cash surrender value of life insurance policies, medical equipment in rental arrangements utilized primarily by hospitals and other medical clinics, prepaid pension and postretirement and other long-term assets. Investments in life insurance policies are reported at the amount that could be realized under contract at the balance sheet date, with any changes in cash surrender value or contract value during the period accounted for as an adjustment of premiums paid. Cash outflows and inflows associated with life insurance activity are included in “Purchases of marketable securities and investments” and “Proceeds from maturities and sale of marketable securities and investments,” respectively.
Inventories: Inventories are stated at the lower of cost or net realizable value (NRV), which is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Cost is determined on a first-in, first-out basis.
Property, plant and equipment: Property, plant and equipment, including capitalized interest and internal direct engineering costs, are recorded at cost. Depreciation of property, plant and equipment generally is computed using the straight-line method based on the estimated useful lives of the assets. The estimated useful lives of buildings and improvements primarily range from ten to forty years, with the majority in the range of twenty to forty years. The estimated useful lives of machinery and equipment primarily range from three to fifteen years, with the majority in the range of five to ten years. Fully depreciated assets other than capitalized internally developed software are retained in property, plant and equipment and accumulated depreciation accounts until disposal. Upon disposal, assets and related accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to operations. Property, plant and equipment amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. 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. 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.
Conditional asset retirement obligations: A liability is initially recorded at fair value for an asset retirement obligation associated with the retirement of tangible long-lived assets in the period in which it is incurred if a reasonable estimate of fair value can be made. Conditional asset retirement obligations exist for certain long-term assets of the Company. The obligation is initially measured at fair value using expected present value techniques. Over time the liabilities are accreted for the change in their present value and the initial capitalized costs are depreciated over the remaining useful lives of the related assets. The asset retirement obligation liability was $176 million and $145 million at December 31, 2021 and 2020, respectively.
Goodwill: Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is not amortized. Goodwill is tested for impairment annually in the fourth quarter of each year, and is tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. 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. 3M did not combine any of its reporting units for impairment testing. The impairment loss is measured as the amount by which the carrying value of the reporting unit’s
net assets exceeds its estimated fair value, not to exceed the carrying value of the reporting unit’s goodwill. The estimated fair value of a reporting unit is determined based on a market approach using comparable company information such as EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. Companies have the option to first assess qualitative factors to determine whether the fair value of a reporting unit is not “more likely than not” less than its carrying amount, which is commonly referred to as “Step 0”. 3M has chosen not to apply Step 0 for its annual goodwill assessments.
Intangible assets: Intangible asset types include customer related, patents, other technology-based, tradenames and other intangible assets acquired from an independent party. Intangible assets with a definite life are amortized over a period ranging from five years to twenty years on a systematic and rational basis (generally straight line) that is representative of the asset’s use. The estimated useful lives vary by category, with customer-related largely between ten to twenty years, patents largely between seven to thirteen years, other technology-based largely between six to twenty years, definite lived tradenames largely between six and twenty years, and other intangibles largely between five to eight years. Intangible assets are removed from their respective gross asset and accumulated amortization accounts when they are no longer in use. Refer to Note 4 for additional details on the gross amount and accumulated amortization of the Company’s intangible assets. Costs related to internally developed intangible assets, such as patents, are expensed as incurred, within “Research, development and related expenses.”
Intangible 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.
Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs, and impairment or accelerated depreciation/amortization of assets associated with such actions. Employee-related severance charges are largely based upon distributed employment policies and substantive severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Severance amounts for which affected employees in certain circumstances are required to render service in order to receive benefits at their termination dates were measured at the date such benefits were communicated to the applicable employees and recognized as expense over the employees’ remaining service periods. Contract termination and other charges primarily reflect costs to terminate a contract before the end of its term (measured at fair value at the time the Company provided notice to the counterparty) or costs that will continue to be incurred under the contract for its remaining term without economic benefit to the Company.
Revenue (sales) recognition: The Company sells a wide range of products to a diversified base of customers around the world and has no material concentration of credit risk or significant payment terms extended to customers. The vast majority of 3M’s customer arrangements contain a single performance obligation to transfer manufactured goods as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and, therefore, not distinct. However, to a limited extent 3M also enters into customer arrangements that involve intellectual property out-licensing, multiple performance obligations (such as equipment, installation and service), software with coterminous post-contract support, services and non-standard terms and conditions.
The Company recognizes revenue in light of the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods/services have been delivered as that is generally when legal title, physical possession and risks and rewards of goods/services transfer to the customer. In limited arrangements, control transfers over time as the customer simultaneously receives and consumes the benefits as 3M completes the performance obligation(s).
Revenue is recognized at the transaction price which the Company expects to be entitled. When determining the transaction price, 3M estimates variable consideration applying the portfolio approach practical expedient under ASC 606. The main sources of variable consideration for 3M are customer rebates, trade promotion funds, and cash discounts. These sales incentives are recorded as a reduction to revenue at the time of the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a range of possible consideration outcomes. The range of possible consideration outcomes are primarily derived from the following inputs: sales terms, historical
experience, trend analysis, and projected market conditions in the various markets served. Because 3M serves numerous markets, the sales incentive programs offered vary across businesses, but the most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Free goods are accounted for as an expense and recorded in cost of sales. Product returns are recorded as a reduction to revenue based on anticipated sales returns that occur in the normal course of business. 3M primarily has assurance-type warranties that do not result in separate performance obligations. Sales, use, value-added, and other excise taxes are not recognized in revenue. The Company has elected to present revenue net of sales taxes and other similar taxes.
For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using 3M’s best estimate of the standalone selling price of each distinct good or service in the contract.
The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods.
The Company does not have material unfulfilled performance obligation balances for contracts with an original length greater than one year in any years presented. Additionally, the Company does not have material costs related to obtaining a contract with amortization periods greater than one year for any year presented.
3M applies ASC 606 utilizing the following allowable exemptions or practical expedients:
•Exemption to not disclose the unfulfilled performance obligation balance for contracts with an original length of one year or less.
•Practical expedient relative to costs of obtaining a contract by expensing sales commissions when incurred because the amortization period would have been one year or less.
•Portfolio approach practical expedient relative to estimation of variable consideration.
•“Right to invoice” practical expedient based on 3M’s right to invoice the customer at an amount that reasonably represents the value to the customer of 3M’s performance completed to date.
•Election to present revenue net of sales taxes and other similar taxes.
•Sales-based royalty exemption permitting future intellectual property out-licensing royalty payments to be excluded from the otherwise required remaining performance obligations disclosure
The Company recognizes revenue from the rental of durable medical devices in accordance with the guidance of ASC 842, Leases. The Company recognizes rental revenue based on the length of time a device is used by the patient/organization, (i) at the contracted rental rate for contracted customers and (ii) generally, retail price for non-contracted customers. The leases are short-term in nature, generally providing for daily or monthly pricing, and are all classified as operating leases.
Accounts receivable and allowances: Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances for bad debts, cash discounts, and various other items. The allowances for bad debts and cash discounts are based on the best estimate of the amount of expected credit losses in existing accounts receivable and anticipated cash discounts. The Company determines the allowances based on historical write-off experience by industry and regional economic data, current expectations of future credit losses, and historical cash discounts. The Company reviews the allowances monthly. The allowances for bad debts as well as the provision for credit losses, write-off activity and recoveries for the periods presented are not material. The Company does not have any significant off-balance-sheet credit exposure related to its customers. The Company has long-term customer receivables that do not have significant credit risk, and the origination dates of which are typically not older than five years. These long-term receivables are subject to an allowance methodology similar to other receivables.
Advertising and merchandising: These costs are charged to operations in the period incurred, and totaled $327 million in 2021, $278 million in 2020 and $348 million in 2019.
Research, development and related expenses: These costs are charged to operations in the period incurred and are shown on a separate line of the Consolidated Statement of Income. Research, development and related expenses totaled $1.994 billion in 2021, $1.878 billion in 2020 and $1.911 billion in 2019. Research and development expenses, covering basic scientific research and the application of scientific advances in the development of new and improved products and their uses, totaled $1.243 billion in 2021, $1.146 billion in 2020 and $1.253 billion in 2019. Related expenses primarily include technical support; internally developed patent costs, which include costs and fees incurred to prepare, file, secure and maintain patents; amortization of externally acquired patents and externally acquired in-process research and development; and gains/losses associated with certain corporate approved investments in R&D-related ventures.
Internal-use software: The Company capitalizes direct costs of services used in the development of, and external software acquired for use as, internal-use software. Amounts capitalized are amortized over a period of three to seven years, generally on a straight-line basis, unless another systematic and rational basis is more representative of the software’s use. Amounts are reported as a component of either machinery and equipment or finance leases within property, plant and equipment. Fully depreciated internal-use software assets are removed from property, plant and equipment and accumulated depreciation accounts.
Environmental: Environmental expenditures relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed. Reserves for liabilities related to 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.
Income taxes: The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exists. As of December 31, 2021 and 2020, the Company had valuation allowances of $142 million and $135 million on its deferred tax assets, respectively. The Company recognizes and measures its uncertain tax positions based on the rules under ASC 740, Income Taxes.
Earnings per share: The difference in the weighted average 3M shares outstanding for calculating basic and diluted earnings per share attributable to 3M common shareholders is the result of the dilution associated with the Company’s stock-based compensation plans. Certain options outstanding under these stock-based compensation plans during the years 2021, 2020 and 2019 were not included in the computation of diluted earnings per share attributable to 3M common shareholders because they would have had an anti-dilutive effect (7.8 million average options for 2021, 18.1 million average options for 2020, and 8.9 million average options for 2019). The computations for basic and diluted earnings per share for the years ended December 31 follow:
Earnings Per Share Computations
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(Amounts in millions, except per share amounts)
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2021
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2020
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2019
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Numerator:
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Net income attributable to 3M
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$
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5,921
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$
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5,449
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$
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4,517
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Denominator:
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Denominator for weighted average 3M common shares outstanding – basic
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579.0
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577.6
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577.0
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Dilution associated with the Company’s stock-based compensation plans
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6.3
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4.6
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8.1
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Denominator for weighted average 3M common shares outstanding – diluted
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585.3
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582.2
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585.1
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Earnings per share attributable to 3M common shareholders – basic
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$
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10.23
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$
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9.43
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$
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7.83
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Earnings per share attributable to 3M common shareholders – diluted
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$
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10.12
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$
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9.36
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$
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7.72
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Stock-based compensation: The Company recognizes compensation expense for its stock-based compensation programs, which include stock options, restricted stock, restricted stock units (RSUs), performance shares, and the General Employees’ Stock Purchase Plan (GESPP). Under applicable accounting standards, the fair value of share-based compensation is determined at the grant date and the recognition of the related expense is recorded over the period in which the share-based compensation vests. However, with respect to income taxes, the related deduction from taxes payable is based on the award’s intrinsic value at the time of exercise (for an option) or on the fair value upon vesting of the award (for RSUs), which can be either greater (creating an excess tax benefit) or less (creating a tax deficiency) than the deferred tax benefit recognized as compensation cost is recognized in the financial statements. These excess tax benefits/deficiencies are recognized as income tax benefit/expense in the statement of income and, within the statement of cash flows, are classified in operating activities in the same manner as other cash flows related to income taxes. The extent of excess tax benefits/deficiencies is subject to variation in 3M stock price and timing/extent of RSU vestings and employee stock option exercises.
Comprehensive income: Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Changes in Equity.
Accumulated other comprehensive income (loss) is composed of foreign currency translation effects (including hedges of net investments in international companies), defined benefit pension and postretirement plan adjustments, unrealized gains and losses on available-for-sale debt securities, and unrealized gains and losses on cash flow hedging instruments. The Company uses the portfolio approach for releasing income tax effects from accumulated other comprehensive income.
Derivatives and hedging activities: All derivative instruments within the scope of ASC 815, Derivatives and Hedging, are recorded on the balance sheet at fair value. The Company uses interest rate swaps, currency swaps, and foreign currency forward and option contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity market volatility. All hedging instruments that qualify for hedge accounting are designated and effective as hedges, in accordance with U.S. generally accepted accounting principles. If the underlying hedged transaction ceases to exist, all changes in fair value of the related derivatives that have not been settled are recognized in current earnings. Instruments that do not qualify for hedge accounting are marked to market with changes recognized in current earnings. Cash flows from derivative instruments are classified in the statement of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The Company does not hold or issue derivative financial instruments for trading purposes and is not a party to leveraged derivatives.
Credit risk: 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. 3M enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a result of multiple, separate derivative transactions. The Company does not anticipate nonperformance by any of these counterparties. 3M has elected to present the fair value of derivative assets and liabilities within the Company’s consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation.
Fair value measurements: 3M follows ASC 820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Acquisitions: The Company accounts for business acquisitions in accordance with ASC 805, Business Combinations. This standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard prescribe, among other things, the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting. In addition to business combinations, 3M periodically acquires certain tangible and/or intangible assets and purchases interests in certain enterprises that do not otherwise qualify for accounting as business combinations. These transactions are largely reflected as additional asset purchase and investment activity.
Leases: 3M determines if an arrangement is a lease upon inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the underlying asset and the right to direct how and for what purpose the asset is used. 3M determines certain service agreements that contain the right to use an underlying asset are not leases because 3M does not control how and for what purpose the identified asset is used. Examples of such agreements include master supply agreements, product processing agreements, warehouse and distribution services agreements, power purchase agreements, and transportation purchase agreements.
Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is 3M’s incremental borrowing rate or, if available, the rate implicit in the lease. 3M determines the incremental borrowing rate for leases using a portfolio approach based primarily on the lease term and the economic environment of the applicable country or region.
As a lessee, the Company leases distribution centers, office space, land, and equipment. Certain 3M lease agreements include rental payments adjusted annually based on changes in an inflation index. 3M’s leases do not contain material residual value guarantees or material restrictive covenants. Lease expense is recognized on a straight-line basis over the lease term.
Certain leases include one or more options to renew, with terms that can extend the lease term up to five years. 3M includes options to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, 3M is not reasonably certain to exercise such options.
For the measurement and classification of its lease agreements, 3M groups lease and non-lease components into a single lease component for all underlying asset classes. Variable lease payments primarily include payments for non-lease components, such as maintenance costs, payments for leased assets used beyond their noncancellable lease term as adjusted for contractual options to terminate or renew, additional payments related to a subsequent adjustment in an inflation index, and payments for non-components such as sales tax. Certain 3M leases contain immaterial variable lease payments based on number of units produced.
Change in Accounting Principle for Determining Net Periodic Pension and Postretirement Plan Cost
In the first quarter of 2021, 3M changed the method it uses to calculate the market-related value of fixed income securities included in its pension and other postretirement plan assets. The market-related value is used to determine the expected return on plan assets and the amortization of net unamortized actuarial gains or losses expense components of net periodic benefit cost. The Company previously used the calculated value approach for all plan assets, deferring over three years the impact on these amounts of asset gains or losses that differed from expected returns. 3M changed to the fair value approach for calculating market-related value for the fixed income class of plan assets, which does not involve deferring the impact of excess plan asset gains or losses in the determination of these two components of net periodic benefit cost. 3M considers the use of the fair value approach preferable to the calculated value approach as it results in a more current reflection of impacts of changes in value of these plan assets in the determination of net periodic benefit cost. Additionally, given the plans’ liability-driven investment strategy whereby the changes in value of the fixed income plan assets should offset changes in the value of the plans’ liabilities, this approach more closely aligns the expected return on plan assets expense component with the value reflected in the plans’ funded status. This change was applied retrospectively to all periods presented within 3M’s financial statements. The change did not impact consolidated operating income or net cash provided by operating activities but did impact the previously reported portion of pension and postretirement net periodic benefit cost (benefit) that was included within non-operating other expense (income) along with related consolidated income items such as net income and earnings per share. Other impacts included related changes to previously reported consolidated other comprehensive income, retained earnings, accumulated other comprehensive income (loss), and associated line items within the determination of net cash provided by operating activities. For classes of plan assets other than fixed income investments, the Company continues to use the calculated value approach to determine their market-related value.
The adoption of this change impacted previously reported amounts included herein as indicated in the tables below.
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Consolidated Statement of Income
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Year ended December 31,
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2020
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2019
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(Millions, except per share amounts)
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Under Prior
Method
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As Adjusted
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Under Prior
Method
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As Adjusted
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Other expense (income), net
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450
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366
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462
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531
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Income before income taxes
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6,711
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|
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6,795
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|
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5,712
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|
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5,643
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Provision for income taxes
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1,318
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1,337
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|
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1,130
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1,114
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Income of consolidated group
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5,393
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|
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5,458
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4,582
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4,529
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|
|
|
|
|
|
Net income including noncontrolling interest
|
|
5,388
|
|
|
5,453
|
|
|
4,582
|
|
|
4,529
|
|
Net income attributable to 3M
|
|
5,384
|
|
|
5,449
|
|
|
4,570
|
|
|
4,517
|
|
Earnings per share attributable to 3M common shareholders — basic
|
|
9.32
|
|
9.43
|
|
7.92
|
|
7.83
|
Earnings per share attributable to 3M common shareholders — diluted
|
|
9.25
|
|
9.36
|
|
7.81
|
|
7.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
(Millions)
|
|
Under Prior
Method
|
|
As Adjusted
|
|
Under Prior
Method
|
|
As Adjusted
|
Net income including noncontrolling interest
|
|
5,388
|
|
|
5,453
|
|
|
4,582
|
|
|
4,529
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Defined benefit pension and postretirement plans adjustment
|
|
171
|
|
|
106
|
|
|
(560)
|
|
|
(507)
|
|
Total other comprehensive income (loss), net of tax
|
|
476
|
|
|
411
|
|
|
(421)
|
|
|
(368)
|
|
Comprehensive income (loss) including noncontrolling interest
|
|
5,864
|
|
|
5,864
|
|
|
4,161
|
|
|
4,161
|
|
Comprehensive income (loss) attributable to 3M
|
|
5,862
|
|
|
5,862
|
|
|
4,150
|
|
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
As of December 31, 2020
|
(Millions)
|
|
Under Prior
Method
|
|
As Adjusted
|
Retained earnings
|
|
43,761
|
|
|
43,821
|
|
Accumulated other comprehensive income (loss)
|
|
(7,661)
|
|
|
(7,721)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
(Millions)
|
|
Under Prior
Method
|
|
As Adjusted
|
|
Under Prior
Method
|
|
As Adjusted
|
Net income including noncontrolling interest
|
|
5,388
|
|
|
5,453
|
|
|
4,582
|
|
|
4,529
|
|
Company pension and postretirement expense
|
|
406
|
|
|
322
|
|
|
357
|
|
|
426
|
|
Other — net
|
|
398
|
|
|
417
|
|
|
(111)
|
|
|
(127)
|
|
The cumulative adjustment as of January 1, 2019, the beginning of the earliest period presented in the consolidated financial statements included herein, was a $5 million reduction to each of retained earnings and accumulated other comprehensive loss.
Related Party Activity:
3M does not have any material related party activity.
New Accounting Pronouncements
The tables below provide summaries of new accounting pronouncements adopted by 3M during 2021 and of pronouncements issued, but not yet adopted by the Company.
|
|
|
|
|
|
|
|
|
|
|
|
Standards Adopted During 2021
|
Standard
|
Relevant Description
|
Effective Date for 3M
|
Impact and Other Matters
|
ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740)
|
Eliminates certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting for transactions outside of business combination that result in a step-up in the tax basis of goodwill.
|
January 1, 2021
|
Adoption of this ASU did not have a material impact on 3M’s consolidated results of operations and financial condition.
|
ASU No. 2020-01, Clarifying the Interactions between Topic 321, Investments—Equity Securities, Topic 323, Investments—Equity Method and Joint Ventures, and Topic 815, Derivatives and Hedging
|
Clarifies when accounting for certain equity securities, a Company should consider observable transactions before applying or upon discontinuing the equity method of accounting for the purposes of applying the measurement alternative.
Indicates when determining the accounting for certain derivatives, a Company should not consider if the underlying securities would be accounted for under the equity method or fair value option.
|
January 1, 2021
|
Adoption of this ASU did not have a material impact on 3M’s consolidated results of operations and financial condition.
|
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting and ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope
|
Provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as LIBOR which is being phased out beginning at the end of 2021, to alternate reference rates, such as SOFR.
|
Effective upon ASU issuances in 2020 & 2021
|
3M will apply this guidance to applicable contracts and instruments when/if they are modified. Review of relevant arrangements concluded that implications of these ASUs would not have a material impact on 3M’s consolidated results of operations and financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
Standards Issued and Not Yet Adopted
|
Standard
|
Relevant Description
|
Effective Date for 3M
|
Impact and Other Matters
|
ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
|
Issued in October 2021. Requires acquiring entities to apply ASC 606 to recognize and measure contract assets and liabilities acquired through a business combination.
|
January 1, 2023
|
This guidance is applicable to all business combinations occurring after the effective date.
|
ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
|
Issued in November 2021. Requires disclosures about certain types of government assistance received. The disclosures include information about the nature of the transactions and related accounting policy used to account for them, the line items on the balance sheet and income statement affected by the transactions and the amounts applicable to each financial statement item, and the significant terms and conditions of the transaction.
|
January 1, 2022
|
As this ASU relates to disclosures only, there will be no impact to 3M’s consolidated results of operations and financial condition.
|
NOTE 2. Revenue
Contract Balances:
Deferred revenue primarily relates to revenue that is recognized over time for one-year software license contracts. Refer to Note 7 for deferred revenue balances at December 31, 2020 and 2021. Approximately $470 million of the December 31, 2020 balance was recognized as revenue during the year ended December 31, 2021, while approximately $410 million of the December 31, 2019 balance was recognized as revenue during the year ended December 31, 2020.
Operating Lease Revenue:
Net sales includes rental revenue from durable medical devices as part of operating lease arrangements (reported within the Medical Solutions Division), which was $582 million and $586 million for the year ended December 31, 2021 and December 31, 2020, respectively. Applicable rental revenue for the year ended December 31, 2019 was not material.
Disaggregated revenue information:
The Company views the following disaggregated disclosures as useful to understanding the composition of revenue recognized during the respective reporting periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Net Sales (Millions)
|
|
2021
|
|
2020
|
|
2019
|
Abrasives
|
|
$
|
1,410
|
|
|
$
|
1,179
|
|
|
$
|
1,386
|
|
Automotive Aftermarket
|
|
1,241
|
|
|
1,099
|
|
|
1,226
|
|
Closure and Masking Systems
|
|
1,033
|
|
|
993
|
|
|
1,111
|
|
Electrical Markets
|
|
1,254
|
|
|
1,116
|
|
|
1,201
|
|
Industrial Adhesives and Tapes
|
|
3,007
|
|
|
2,542
|
|
|
2,669
|
|
Personal Safety
|
|
4,499
|
|
|
4,432
|
|
|
3,503
|
|
Roofing Granules
|
|
428
|
|
|
389
|
|
|
366
|
|
Other Safety and Industrial
|
|
8
|
|
|
(16)
|
|
|
28
|
|
Total Safety and Industrial Business Segment
|
|
12,880
|
|
|
11,734
|
|
|
11,490
|
|
|
|
|
|
|
|
|
Advanced Materials
|
|
1,205
|
|
|
1,037
|
|
|
1,245
|
|
Automotive and Aerospace
|
|
1,857
|
|
|
1,614
|
|
|
1,914
|
|
Commercial Solutions
|
|
1,766
|
|
|
1,529
|
|
|
1,786
|
|
Electronics
|
|
4,014
|
|
|
3,771
|
|
|
3,713
|
|
Transportation Safety
|
|
918
|
|
|
890
|
|
|
942
|
|
Other Transportation and Electronics
|
|
9
|
|
|
(8)
|
|
|
(5)
|
|
Total Transportation and Electronics Business Segment
|
|
9,769
|
|
|
8,833
|
|
|
9,595
|
|
|
|
|
|
|
|
|
Drug Delivery
|
|
—
|
|
|
146
|
|
|
372
|
|
Food Safety
|
|
373
|
|
|
341
|
|
|
341
|
|
Health Information Systems
|
|
1,220
|
|
|
1,140
|
|
|
1,177
|
|
Medical Solutions
|
|
5,068
|
|
|
4,787
|
|
|
3,435
|
|
Oral Care
|
|
1,427
|
|
|
1,076
|
|
|
1,321
|
|
Separation and Purification Sciences
|
|
960
|
|
|
853
|
|
|
790
|
|
Other Health Care
|
|
2
|
|
|
2
|
|
|
(5)
|
|
Total Health Care Business Group
|
|
9,050
|
|
|
8,345
|
|
|
7,431
|
|
|
|
|
|
|
|
|
Consumer Health and Safety
|
|
613
|
|
|
563
|
|
|
603
|
|
Home Care
|
|
1,097
|
|
|
1,066
|
|
|
991
|
|
Home Improvement
|
|
2,626
|
|
|
2,336
|
|
|
2,074
|
|
Stationery and Office
|
|
1,379
|
|
|
1,197
|
|
|
1,358
|
|
Other Consumer
|
|
141
|
|
|
149
|
|
|
103
|
|
Total Consumer Business Group
|
|
5,856
|
|
|
5,311
|
|
|
5,129
|
|
|
|
|
|
|
|
|
Corporate and Unallocated
|
|
2
|
|
|
(2)
|
|
|
109
|
|
Elimination of Dual Credit
|
|
(2,202)
|
|
|
(2,037)
|
|
|
(1,618)
|
|
Total Company
|
|
$
|
35,355
|
|
|
$
|
32,184
|
|
|
$
|
32,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Net Sales (Millions)
|
|
2021
|
|
2020
|
|
2019
|
Americas
|
|
$
|
18,097
|
|
|
$
|
16,525
|
|
|
$
|
16,124
|
|
Asia Pacific
|
|
10,600
|
|
|
9,569
|
|
|
9,796
|
|
Europe, Middle East and Africa
|
|
6,660
|
|
|
6,109
|
|
|
6,226
|
|
Other Unallocated
|
|
(2)
|
|
|
(19)
|
|
|
(10)
|
|
Worldwide
|
|
$
|
35,355
|
|
|
$
|
32,184
|
|
|
$
|
32,136
|
|
Americas included United States net sales to customers of $15.0 billion, $13.9 billion and $13.2 billion in 2021, 2020 and 2019, respectively. Asia Pacific included China/Hong Kong net sales to customers of $4.0 billion, $3.5 billion and $3.3 billion in 2021, 2020 and 2019, respectively.
NOTE 3. Acquisitions and Divestitures
Acquisitions:
3M makes acquisitions of certain businesses from time to time that are aligned with its strategic intent with respect to, among other factors, growth markets and adjacent product lines or technologies. Goodwill resulting from business combinations is largely attributable to the existing workforce of the acquired businesses and synergies expected to arise after 3M’s acquisition of these businesses.
2021 acquisitions:
There were no acquisitions that closed during the year ended December 31, 2021.
2020 acquisitions:
There were no acquisitions that closed during the year ended December 31, 2020.
2019 acquisitions:
In February 2019, 3M completed the acquisition of the technology business of M*Modal for $0.7 billion of cash, net of cash acquired, and assumption of $0.3 billion of M*Modal’s debt. Based in Pittsburgh, Pennsylvania, M*Modal is a leading healthcare technology provider of cloud-based, conversational artificial intelligence-powered systems that help physicians efficiently capture and improve the patient narrative. The allocation of purchase consideration related to M*Modal was completed in the fourth quarter of 2019. Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations in 2019 were approximately $300 million and $25 million, respectively. M*Modal is reported within the Company’s Health Care business.
In October 2019, the Company completed the acquisition of all of the ownership interests of Acelity Inc. and its KCI subsidiaries. Acelity is a leading global medical technology company focused on advanced wound care and specialty surgical applications marketed under the KCI brand. In the first quarter of 2020, the Company paid certain considerations previously accrued under the terms of related agreements. Adjustments in 2020 to the purchase price allocation were approximately $34 million and related to identification and valuation of certain acquired assets and liabilities. The change to provisional amounts did not result in material impacts to results of operations in 2020 or any portion related to earlier quarters in the measurement period. The allocation of purchase consideration related to Acelity was completed in the third quarter of 2020. Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations in the fourth quarter of 2019 were approximately $350 million and $45 million, respectively. Acelity is reported within the Company’s Health Care business.
Proforma information related to these acquisitions has not been included as the impact on the Company’s consolidated results of operations was not considered material. The following table shows the impact on the consolidated balance sheet of the purchase price allocations related to the 2019 acquisitions and assigned finite-lived asset weighted average lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Acquisition Activity
|
(Millions)
Asset (Liability)
|
|
M*Modal
|
|
Acelity
|
|
Total
|
|
Finite-Lived
Intangible-Asset
Weighted-Average Lives (Years)
|
Accounts receivable
|
|
$
|
75
|
|
|
$
|
295
|
|
|
$
|
370
|
|
|
|
Inventory
|
|
—
|
|
|
186
|
|
|
186
|
|
|
|
Other current assets
|
|
2
|
|
|
65
|
|
|
67
|
|
|
|
Property, plant, and equipment
|
|
8
|
|
|
147
|
|
|
155
|
|
|
|
Purchased finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
Customer related intangible assets
|
|
275
|
|
|
1,760
|
|
|
2,035
|
|
|
18
|
Other technology-based intangible assets
|
|
160
|
|
|
1,390
|
|
|
1,550
|
|
|
10
|
Definite-lived tradenames
|
|
11
|
|
|
485
|
|
|
496
|
|
|
16
|
Purchased goodwill
|
|
517
|
|
|
2,952
|
|
|
3,469
|
|
|
|
Other assets
|
|
58
|
|
|
73
|
|
|
131
|
|
|
|
Accounts payable and other liabilities
|
|
(127)
|
|
|
(438)
|
|
|
(565)
|
|
|
|
Interest bearing debt
|
|
(251)
|
|
|
(2,322)
|
|
|
(2,573)
|
|
|
|
Deferred tax asset/(liability) and accrued income taxes
|
|
(24)
|
|
|
(288)
|
|
|
(312)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
704
|
|
|
$
|
4,305
|
|
|
$
|
5,009
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
708
|
|
|
$
|
4,486
|
|
|
$
|
5,194
|
|
|
|
Less: Cash acquired
|
|
4
|
|
|
206
|
|
|
210
|
|
|
|
Cash paid, net of cash acquired
|
|
$
|
704
|
|
|
$
|
4,280
|
|
|
$
|
4,984
|
|
|
|
Consideration payable
|
|
—
|
|
|
25
|
|
|
25
|
|
|
|
Cash paid and consideration payable, net of cash acquired
|
|
$
|
704
|
|
|
$
|
4,305
|
|
|
$
|
5,009
|
|
|
|
Purchased identifiable finite-lived intangible assets related to acquisitions which closed in 2019 totaled $4.081 billion. The associated finite-lived intangible assets acquired will be amortized on a systematic and rational basis (generally straight line) over a weighted-average life of 14 years (lives ranging from 6 to 19 years).
Divestitures:
3M may divest certain businesses from time to time based upon review of the Company’s portfolio considering, among other items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses results in the greatest value creation for the Company and for shareholders. As discussed in Note 19 (Business Segments), gains/losses on sale of businesses are reflected in Corporate and Unallocated.
2021 divestitures and announced divestitures:
There were no divestitures that closed during the year ended December 31, 2021.
In December 2021, 3M entered into a binding offer to sell its floor products business in Western Europe, part of the Consumer business. This business has annual sales of less than $30 million. The transaction is expected to close in the first quarter of 2022, subject to customary closing conditions and regulatory requirements. 3M expects an immaterial pre-tax gain as a result of this divestiture.
In December 2021, 3M entered into agreements with NEOGEN Corporation pursuant to which 3M will separate its Food Safety Division business (part of the Health Care business) and combine it with NEOGEN in a transaction that is intended to be tax-
efficient to 3M and its shareholders for U.S. federal income tax purposes. Under the terms of the agreements, which involve a tax-free Reverse Morris Trust, the Food Safety business will be spun-off or split-off to 3M shareholders and simultaneously merged with NEOGEN. Existing NEOGEN shareholders will continue to own approximately 49.9% of the combined company and 3M shareholders will receive approximately 50.1% of the combined company. In connection with the transaction, the Food Safety business will incur new debt and fund to 3M consideration valued at approximately $1 billion, subject to closing and other adjustments. The transaction is expected to close by the end of the third quarter of 2022, subject to approval by NEOGEN shareholders, receipt of required regulatory approvals and the satisfaction of other customary closing conditions. Net sales information relative to the Food Safety Division is included in Note 2. Due to factors such as the potential nature of the transaction and underlying approvals, the Food Safety business is not considered held for sale as of December 31, 2021.
2020 divestitures:
In January 2020, 3M completed the sale of its advanced ballistic-protection business, formerly part of the Transportation and Electronics business, to Avon Rubber p.l.c for $86 million in cash and recognized certain contingent consideration from the outcome of pending tenders. Further contingent consideration of less than $25 million may be recognized depending on outcomes in the future. The business, with annual sales of approximately $85 million, consists of ballistic helmets, body armor, flat armor and related helmet-attachment products serving government and law enforcement. 3M reflected immaterial impacts in the third quarter of 2019 as a result of measuring this disposal group at the lower of its carrying amount or fair value less cost to sell and in the first quarter 2020 related to completion of the divestiture and recognition of contingent consideration.
In May 2020, 3M completed the sale of substantially all of its drug delivery business, formerly part of the Health Care business, to an affiliate of Altaris Capital Partners, LLC for $617 million in consideration including $487 million of cash, approximately $70 million in the form of an interest-bearing security, and approximately $60 million in the form of a 17 percent noncontrolling interest in the new company, Kindeva Drug Delivery (Kindeva). Non-cash consideration was valued at time of initial recognition on an income-based approach using relevant estimated future cash flows and applicable market interest rates while considering impacts of restrictions related to transferability. The divested business had annual sales of approximately $380 million. 3M retained its transdermal drug delivery components business. 3M reflected a pre-tax gain of $387 million as a result of the divestiture. The Company reflects its ownership interest in Kindeva using the equity method of accounting incorporating the recording of 3M’s share of earnings/losses on a lag-basis based on availability of Kindeva financial statements. As a result, income/loss from this unconsolidated subsidiary began to be reflected in 3M’s financial statements in the third quarter of 2020. Kindeva and 3M entered into certain limited-term agreements related to post-divestiture transition and supply services.
In the third quarter of 2020, 3M completed the sale of a small dermatology products business, formerly part of the Health Care business, for immaterial proceeds that approximated the business’s book value.
2019 divestitures:
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 an aggregate immaterial gain.
In August 2019, 3M closed on the sale of its gas and flame detection business, a leader in fixed and portable gas and flame detection, to Teledyne Technologies Incorporated. 3M’s gas and flame business was part of the overall October 2017 acquisition of underlying legal entities and associated assets of Scott Safety. This business has annual sales of approximately $120 million. The transaction resulted in a pre-tax gain of $112 million.
Operating income and held for sale amounts
The aggregate operating income of these businesses, including the announced divestitures, was approximately $120 million, $160 million and $160 million in 2021, 2020 and 2019, respectively. The amounts of major assets and liabilities associated with disposal groups classified as held-for-sale as of December 31, 2021 were not material.
NOTE 4. Goodwill and Intangible Assets
Goodwill
There was no goodwill recorded from acquisitions during 2021 and 2020. The acquisition activity in the following table also includes the net impact of adjustments to the preliminary allocation of purchase price within the one year measurement-period following prior acquisitions, which decreased goodwill by $34 million during 2020. The amounts in the “Translation and other”
column in the following table primarily relate to changes in foreign currency exchange rates. The goodwill balance by business segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Safety and Industrial
|
|
Transportation
and
Electronics
|
|
Health Care
|
|
Consumer
|
|
Total
Company
|
Balance as of December 31, 2019
|
|
$
|
4,621
|
|
|
$
|
1,830
|
|
|
$
|
6,739
|
|
|
$
|
254
|
|
|
$
|
13,444
|
|
Acquisition activity
|
|
—
|
|
|
—
|
|
|
(34)
|
|
|
—
|
|
|
(34)
|
|
Divestiture activity
|
|
—
|
|
|
(10)
|
|
|
(19)
|
|
|
—
|
|
|
(29)
|
|
Translation and other
|
|
66
|
|
|
38
|
|
|
306
|
|
|
11
|
|
|
421
|
|
Balance as of December 31, 2020
|
|
4,687
|
|
|
1,858
|
|
|
6,992
|
|
|
265
|
|
|
13,802
|
|
Translation and other
|
|
(65)
|
|
|
(33)
|
|
|
(206)
|
|
|
(12)
|
|
|
(316)
|
|
Balance as of December 31, 2021
|
|
$
|
4,622
|
|
|
$
|
1,825
|
|
|
$
|
6,786
|
|
|
$
|
253
|
|
|
$
|
13,486
|
|
Accounting standards require that goodwill be tested for impairment annually and between annual tests in certain circumstances such as a change in reporting units or the testing of recoverability of a significant asset group within a reporting unit. At 3M, reporting units correspond to a division.
As described in Note 19, effective in the first quarter of 2021, 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. Goodwill balances reported above reflect these business segment reporting changes in the earliest period presented. The Company also completed its annual goodwill impairment test in the fourth quarter of 2021 for all reporting units and determined that no impairment existed. In addition, the Company had no impairments of goodwill in 2020, 2019 or cumulatively.
Acquired Intangible Assets
The carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of non-amortizable intangible assets, as of December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
Customer related intangible assets
|
|
$
|
4,216
|
|
|
$
|
4,280
|
|
Patents
|
|
513
|
|
|
537
|
|
Other technology-based intangible assets
|
|
2,111
|
|
|
2,114
|
|
Definite-lived tradenames
|
|
1,171
|
|
|
1,178
|
|
Other amortizable intangible assets
|
|
105
|
|
|
104
|
|
Total gross carrying amount
|
|
8,116
|
|
|
8,213
|
|
|
|
|
|
|
Accumulated amortization — customer related
|
|
(1,616)
|
|
|
(1,422)
|
|
Accumulated amortization — patents
|
|
(500)
|
|
|
(512)
|
|
Accumulated amortization — other technology-based
|
|
(839)
|
|
|
(638)
|
|
Accumulated amortization — definite-lived tradenames
|
|
(447)
|
|
|
(385)
|
|
Accumulated amortization — other
|
|
(79)
|
|
|
(79)
|
|
Total accumulated amortization
|
|
(3,481)
|
|
|
(3,036)
|
|
|
|
|
|
|
Total finite-lived intangible assets — net
|
|
4,635
|
|
|
5,177
|
|
|
|
|
|
|
Non-amortizable intangible assets (primarily tradenames)
|
|
653
|
|
|
658
|
|
Total intangible assets — net
|
|
$
|
5,288
|
|
|
$
|
5,835
|
|
Certain tradenames acquired by 3M are not amortized because they have been in existence for over 60 years, have a history of leading-market share positions, have been and are intended to be continuously renewed, and the associated products of which are expected to generate cash flows for 3M for an indefinite period of time. As discussed in Note 15, 3M reflected an immaterial charge related to impairment of certain indefinite-lived assets in the first quarter of 2020.
Amortization expense for the years ended December 31 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Amortization expense
|
|
$
|
529
|
|
|
$
|
537
|
|
|
$
|
341
|
|
Expected amortization expense for acquired amortizable intangible assets recorded as of December 31, 2021 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
|
After 2026
|
Amortization expense
|
|
$
|
514
|
|
|
$
|
485
|
|
|
$
|
457
|
|
|
$
|
427
|
|
|
$
|
420
|
|
|
$
|
2,332
|
|
The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, changes in foreign currency exchange rates, impairment of intangible assets, accelerated amortization of intangible assets and other events. 3M expenses the costs incurred to renew or extend the term of intangible assets.
NOTE 5. Restructuring Actions
2021 and 2020 Restructuring Actions:
Operational/Marketing Capability Restructuring
In late 2020, 3M announced it would undertake certain actions to further enhance its operations and marketing capabilities to take advantage of certain global market trends while de-prioritizing investments in slower-growth end markets. During the fourth quarter of 2020, management approved and committed to undertake associated restructuring actions impacting approximately 2,100 positions resulting in a pre-tax charge of $137 million. In 2021, management approved and committed to undertake additional actions under this initiative resulting in a pre-tax charge of $124 million. Remaining activities related to the restructuring actions approved and committed under this initiative are expected to be largely completed through the third quarter of 2022. 3M expects to commit to further actions under this initiative through early 2022. This aggregate initiative, begun in 2020 and continuing through early 2022, is expected to impact approximately 3,100 positions worldwide with an expected pre-tax charge approaching $300 million over that period. The related restructuring charges were recorded in the income statement as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
Cost of sales
|
|
$
|
19
|
|
|
$
|
51
|
|
Selling, general and administrative expenses
|
|
88
|
|
79
|
|
Research, development and related expenses
|
|
17
|
|
7
|
|
Total operating income impact
|
|
$
|
124
|
|
|
$
|
137
|
|
The business segment operating income impact of these restructuring charges is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
(Millions)
|
|
Employee Related
|
|
Employee Related
|
|
Asset-Related and Other
|
|
Total
|
Safety and Industrial
|
|
30
|
|
$
|
36
|
|
|
$
|
7
|
|
|
$
|
43
|
|
Transportation and Electronics
|
|
24
|
|
16
|
|
|
12
|
|
|
28
|
|
Health Care
|
|
21
|
|
23
|
|
|
3
|
|
|
26
|
|
Consumer
|
|
7
|
|
10
|
|
|
1
|
|
|
11
|
|
Corporate and Unallocated
|
|
42
|
|
16
|
|
|
13
|
|
|
29
|
|
Total Operating Expense
|
|
$
|
124
|
|
|
$
|
101
|
|
|
$
|
36
|
|
|
$
|
137
|
|
Restructuring actions, including cash and non-cash impacts, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Employee-
Related
|
|
Asset-Related
and Other
|
|
Total
|
Expense incurred in the fourth quarter of 2020
|
|
$
|
101
|
|
|
$
|
36
|
|
|
$
|
137
|
|
Non-cash changes
|
|
—
|
|
|
(36)
|
|
|
(36)
|
|
Accrued restructuring action balances as of December 31, 2020
|
|
101
|
|
|
—
|
|
|
101
|
|
Incremental expense incurred in 2021
|
|
124
|
|
|
—
|
|
|
124
|
|
Cash Payments
|
|
(127)
|
|
|
—
|
|
|
(127)
|
|
Adjustments
|
|
(11)
|
|
|
—
|
|
|
(11)
|
|
Accrued restructuring action balances as of December 31, 2021
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
87
|
|
Divestiture-Related Restructuring
During the second quarter of 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. These actions affected approximately 1,300 positions worldwide and resulted in a second quarter 2020 pre-tax charge of $55 million, within Corporate and Unallocated. The divestiture-related restructuring actions were recorded in the income statement as follows:
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2020
|
Cost of sales
|
|
$
|
42
|
|
Selling, general and administrative expenses
|
|
12
|
|
Research, development and related expenses
|
|
1
|
|
Total operating income impact
|
|
$
|
55
|
|
Divestiture-related restructuring actions, including cash and non-cash impacts, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Employee-Related
|
|
Asset-Related and Other
|
|
Total
|
Expense incurred in the second quarter of 2020
|
|
$
|
32
|
|
|
$
|
23
|
|
|
$
|
55
|
|
Non-cash changes
|
|
—
|
|
|
(14)
|
|
|
(14)
|
|
Cash payments
|
|
(14)
|
|
|
—
|
|
|
(14)
|
|
Adjustments
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
Accrued restructuring action balance as of December 31, 2020
|
|
15
|
|
|
9
|
|
|
24
|
|
Cash Payments
|
|
(5)
|
|
|
—
|
|
|
(5)
|
|
Adjustments
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Accrued restructuring action balance as of June 30, 2021
|
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
18
|
|
Remaining activities related to this divestiture-related restructuring were largely completed in the third quarter of 2021.
Other Restructuring
Additionally, in the second quarter of 2020, management approved and committed to undertake certain restructuring actions addressing structural enterprise costs and operations in certain end markets as a result of the COVID-19 pandemic and related
economic impacts. These actions affected approximately 400 positions worldwide and resulted in a second quarter 2020 pre-tax charge of $58 million. The restructuring charges were recorded in the income statement as follows:
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2020
|
Cost of sales
|
|
$
|
13
|
|
Selling, general and administrative expenses
|
|
37
|
|
Research, development and related expenses
|
|
8
|
|
Total operating income impact
|
|
$
|
58
|
|
The business segment operating income impact of these restructuring charges is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(Millions)
|
|
Employee-Related
|
|
Asset-Related and Other
|
|
Total
|
Safety and Industrial
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Transportation and Electronics
|
|
11
|
|
|
—
|
|
|
11
|
|
Health Care
|
|
12
|
|
|
—
|
|
|
12
|
|
Consumer
|
|
5
|
|
|
—
|
|
|
5
|
|
Corporate and Unallocated
|
|
—
|
|
|
23
|
|
|
23
|
|
Total Operating Expense
|
|
$
|
35
|
|
|
$
|
23
|
|
|
$
|
58
|
|
Restructuring actions, including cash and non-cash impacts, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Employee-Related
|
|
Asset-Related
|
|
Total
|
Expense incurred in the second quarter of 2020
|
|
$
|
35
|
|
|
$
|
23
|
|
|
$
|
58
|
|
Non-cash changes
|
|
—
|
|
|
(23)
|
|
|
(23)
|
|
Cash payments
|
|
(2)
|
|
|
—
|
|
|
(2)
|
|
Adjustments
|
|
(9)
|
|
|
—
|
|
|
(9)
|
|
Accrued restructuring action balances as of December 31, 2020
|
|
24
|
|
|
—
|
|
|
24
|
|
Cash Payments
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
Adjustments
|
|
(9)
|
|
|
—
|
|
|
(9)
|
|
Accrued restructuring action balances as of March 31, 2021
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
11
|
|
Remaining activities related to this restructuring were largely completed in the second quarter of 2021.
2019 Restructuring Actions:
During the second quarter of 2019, in light of slower than expected 2019 sales, management approved and committed to undertake certain restructuring actions. These actions impacted approximately 2,000 positions worldwide, including attrition. The Company recorded second quarter 2019 pre-tax charges of $148 million. Additionally, during the fourth quarter of 2019, to realign 3M’s organizational structure and operating model to improve growth and operational efficiency, management approved and committed to undertake certain restructuring actions. These actions impacted approximately 1,500 positions worldwide. The Company recorded fourth quarter 2019 pre-tax charges of $134 million. These restructuring charges were recorded in the income statement as follows:
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2019
|
Cost of sales
|
|
$
|
72
|
|
Selling, general and administrative expenses
|
|
137
|
|
Research, development and related expenses
|
|
37
|
|
Total operating income impact
|
|
246
|
|
Other expense (income), net
|
|
36
|
|
Total income before income taxes impact
|
|
$
|
282
|
|
The second quarter 2019 actions included a voluntary early retirement incentive initial charge (further discussed in Note 13), the charge for which is included in other expense (income), net above.
The operating income impact of these restructuring charges are summarized by business segment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(Millions)
|
|
Employee-Related
|
|
Asset-Related
|
|
Total
|
Safety and Industrial
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
50
|
|
Transportation and Electronics
|
|
31
|
|
|
—
|
|
|
31
|
|
Health Care
|
|
17
|
|
|
—
|
|
|
17
|
|
Consumer
|
|
8
|
|
|
—
|
|
|
8
|
|
Corporate and Unallocated
|
|
100
|
|
|
40
|
|
|
140
|
|
Total Operating Expense
|
|
$
|
206
|
|
|
$
|
40
|
|
|
$
|
246
|
|
Restructuring actions, including cash and non-cash impacts, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Employee-Related
|
|
Asset-Related
|
|
Total
|
Expense incurred in the second quarter and fourth quarter of 2019
|
|
$
|
242
|
|
|
$
|
40
|
|
|
$
|
282
|
|
Non-cash changes
|
|
(36)
|
|
|
(40)
|
|
|
(76)
|
|
Cash payments
|
|
(52)
|
|
|
—
|
|
|
(52)
|
|
Adjustments
|
|
(14)
|
|
|
—
|
|
|
(14)
|
|
Accrued restructuring action balances as of December 31, 2019
|
|
140
|
|
|
—
|
|
|
140
|
|
Cash Payments
|
|
(51)
|
|
|
—
|
|
|
(51)
|
|
Adjustments
|
|
(59)
|
|
|
—
|
|
|
(59)
|
|
Accrued restructuring action balances as of December 31, 2020
|
|
30
|
|
|
—
|
|
|
30
|
|
Adjustments in the table above reflect changes in estimates from factors such as additional natural attrition and redeployment as COVID-19 delayed the start of plan execution and update of costs associated with the mix of impacted roles. Remaining activities related to this restructuring were largely completed through early 2021.
NOTE 6. Supplemental Income Statement Information
Other expense (income), net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Interest expense
|
|
$
|
488
|
|
|
$
|
529
|
|
|
$
|
448
|
|
Interest income
|
|
(26)
|
|
|
(29)
|
|
|
(80)
|
|
Pension and postretirement net periodic benefit cost (benefit)
|
|
(297)
|
|
|
(134)
|
|
|
1
|
|
Loss on deconsolidation of Venezuelan subsidiary
|
|
—
|
|
|
—
|
|
|
162
|
|
Total
|
|
$
|
165
|
|
|
$
|
366
|
|
|
$
|
531
|
|
Interest expense includes early debt extinguishment pre-tax charges of approximately $11 million and $10 million in 2021 and 2020, respectively.
Pension and postretirement net periodic benefit costs described in the table above include all components of defined benefit plan net periodic benefit costs except service cost, which is reported in various operating expense lines. Pension and postretirement net periodic benefit costs for 2019 included a second quarter charge related to the voluntary early retirement incentive program announced in May 2019 in addition to U.S. non-qualified pension plan settlement charges of $32 million recognized in the fourth quarter of 2019. Refer to Note 13 for additional details on the voluntary early retirement incentive program in addition to the components of pension and postretirement net periodic benefit costs.
In 2019, the Company incurred a charge of $162 million related to the deconsolidation of its Venezuelan subsidiary. Refer to Note 1 for additional details.
NOTE 7. Supplemental Balance Sheet Information
Additional supplemental balance sheet information is provided in the table that follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
Other current assets
|
|
|
|
|
Derivative assets-current
|
|
$
|
78
|
|
|
$
|
34
|
|
Insurance related (receivables, prepaid expenses and other)
|
|
110
|
|
|
125
|
|
Other
|
|
151
|
|
|
166
|
|
Total other current assets
|
|
$
|
339
|
|
|
$
|
325
|
|
|
|
|
|
|
Property, plant and equipment - at cost
|
|
|
|
|
Land
|
|
$
|
312
|
|
|
$
|
338
|
|
Buildings and leasehold improvements
|
|
8,086
|
|
|
8,021
|
|
Machinery and equipment
|
|
17,305
|
|
|
16,866
|
|
Construction in progress
|
|
1,510
|
|
|
1,425
|
|
Gross property, plant and equipment
|
|
27,213
|
|
|
26,650
|
|
Accumulated depreciation
|
|
(17,784)
|
|
|
(17,229)
|
|
Property, plant and equipment - net
|
|
$
|
9,429
|
|
|
$
|
9,421
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
Deferred income taxes
|
|
$
|
581
|
|
|
$
|
871
|
|
Prepaid pension and post retirement
|
|
943
|
|
|
630
|
|
Insurance related receivables and other
|
|
51
|
|
|
49
|
|
Cash surrender value of life insurance policies
|
|
261
|
|
|
258
|
|
Equity method investments
|
|
129
|
|
|
134
|
|
Equity and other investments
|
|
133
|
|
|
80
|
|
Other
|
|
510
|
|
|
418
|
|
Total other assets
|
|
$
|
2,608
|
|
|
$
|
2,440
|
|
|
|
|
|
|
Other current liabilities
|
|
|
|
|
Accrued rebates
|
|
$
|
731
|
|
|
$
|
639
|
|
Deferred revenue
|
|
529
|
|
|
498
|
|
Derivative liabilities
|
|
23
|
|
|
81
|
|
Employee benefits and withholdings
|
|
219
|
|
|
192
|
|
Contingent liability claims and other
|
|
487
|
|
|
556
|
|
Property, sales-related and other taxes
|
|
326
|
|
|
308
|
|
Pension and postretirement benefits
|
|
78
|
|
|
71
|
|
Other
|
|
798
|
|
|
933
|
|
Total other current liabilities
|
|
$
|
3,191
|
|
|
$
|
3,278
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
Long term income taxes payable
|
|
$
|
1,324
|
|
|
$
|
1,511
|
|
Employee benefits
|
|
400
|
|
|
410
|
|
Contingent liability claims and other
|
|
872
|
|
|
815
|
|
Finance lease obligations
|
|
93
|
|
|
93
|
|
Deferred income taxes
|
|
458
|
|
|
333
|
|
Other
|
|
256
|
|
|
300
|
|
Total other liabilities
|
|
$
|
3,403
|
|
|
$
|
3,462
|
|
NOTE 8. Supplemental Equity and Comprehensive Income Information
Common stock ($.01 par value per share) of 3 billion shares is authorized, with 944,033,056 shares issued as of December 31, 2021, 2020 and 2019. Preferred stock, without par value, of 10 million shares is authorized but unissued.
Cash dividends declared and paid totaled $1.48, $1.47, and $1.44 per share for each quarter in 2021, 2020 and 2019, respectively, which resulted in total year declared and paid dividends of $5.92, $5.88, and $5.76 per share, respectively.
In connection with 3M’s January 1, 2019 adoption of ASU No. 2018-2, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, and ASU No. 2016-2, Leases, the Company recorded an increase in retained earnings of approximately $0.9 billion (with offsetting increase to accumulated other comprehensive loss for the same amount) and $14 million, respectively.
Changes in Accumulated Other Comprehensive Income (Loss) Attributable to 3M by Component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Cumulative
Translation
Adjustment
|
|
Defined Benefit
Pension and
Postretirement
Plans
Adjustment
|
|
Cash Flow
Hedging
Instruments,
Unrealized
Gain (Loss)
|
|
Total
Accumulated
Other
Comprehensive
Income (Loss)
|
Balance at December 31, 2018, net of tax:
|
|
$
|
(2,098)
|
|
|
$
|
(4,880)
|
|
|
$
|
64
|
|
|
$
|
(6,914)
|
|
Impact of Adoption of ASU No. 2018-02
|
|
(13)
|
|
|
(817)
|
|
|
(23)
|
|
|
(853)
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
|
Amounts before reclassifications
|
|
102
|
|
|
(1,205)
|
|
|
(26)
|
|
|
(1,129)
|
|
Amounts reclassified out
|
|
142
|
|
|
505
|
|
|
(70)
|
|
|
577
|
|
Total other comprehensive income (loss), before tax
|
|
244
|
|
|
(700)
|
|
|
(96)
|
|
|
(552)
|
|
Tax effect
|
|
(32)
|
|
|
193
|
|
|
24
|
|
|
185
|
|
Total other comprehensive income (loss), net of tax
|
|
212
|
|
|
(507)
|
|
|
(72)
|
|
|
(367)
|
|
Balance at December 31, 2019, net of tax:
|
|
(1,899)
|
|
|
(6,204)
|
|
|
(31)
|
|
|
(8,134)
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
|
Amounts before reclassifications
|
|
387
|
|
|
(582)
|
|
|
(113)
|
|
|
(308)
|
|
Amounts reclassified out
|
|
—
|
|
|
619
|
|
|
(71)
|
|
|
548
|
|
Total other comprehensive income (loss), before tax
|
|
387
|
|
|
37
|
|
|
(184)
|
|
|
240
|
|
Tax effect
|
|
62
|
|
|
69
|
|
|
42
|
|
|
173
|
|
Total other comprehensive income (loss), net of tax
|
|
449
|
|
|
106
|
|
|
(142)
|
|
|
413
|
|
Balance at December 31, 2020, net of tax:
|
|
$
|
(1,450)
|
|
|
$
|
(6,098)
|
|
|
$
|
(173)
|
|
|
$
|
(7,721)
|
|
Other comprehensive income (loss), before tax:
|
|
|
|
|
|
|
|
|
Amounts before reclassifications
|
|
(428)
|
|
|
1,223
|
|
|
108
|
|
|
903
|
|
Amounts reclassified out
|
|
—
|
|
|
658
|
|
|
47
|
|
|
705
|
|
Total other comprehensive income (loss), before tax
|
|
(428)
|
|
|
1,881
|
|
|
155
|
|
|
1,608
|
|
Tax effect
|
|
(65)
|
|
|
(536)
|
|
|
(36)
|
|
|
(637)
|
|
Total other comprehensive income (loss), net of tax
|
|
(493)
|
|
|
1,345
|
|
|
119
|
|
|
971
|
|
Balance at December 31, 2021, net of tax:
|
|
$
|
(1,943)
|
|
|
$
|
(4,753)
|
|
|
$
|
(54)
|
|
|
$
|
(6,750)
|
|
Income taxes are not provided for foreign translation relating to permanent investments in international subsidiaries, but tax effects within cumulative translation does include impacts from items such as net investment hedge transactions. Reclassification adjustments are made to avoid double counting in comprehensive income items that are subsequently recorded as part of net income.
Reclassifications out of Accumulated Other Comprehensive Income Attributable to 3M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income Components (Millions)
|
|
Amounts Reclassified from
Accumulated Other Comprehensive Income
|
|
Location on
Income Statement
|
Year ended December 31,
|
2021
|
|
2020
|
|
2019
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
Deconsolidation of Venezuelan subsidiary
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(142)
|
|
|
Other (expense) income, net
|
Total before tax
|
|
—
|
|
|
—
|
|
|
(142)
|
|
|
|
Tax effect
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
Net of tax
|
|
—
|
|
|
—
|
|
|
(142)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension and postretirement plans adjustments
|
|
|
|
|
|
|
|
|
Gains (losses) associated with defined benefit pension and postretirement plans amortization
|
|
|
|
|
|
|
|
|
Transition asset
|
|
(2)
|
|
|
(2)
|
|
|
—
|
|
|
Other (expense) income, net
|
Prior service benefit
|
|
60
|
|
|
62
|
|
|
69
|
|
|
Other (expense) income, net
|
Net actuarial loss
|
|
(689)
|
|
|
(659)
|
|
|
(524)
|
|
|
Other (expense) income, net
|
Curtailments/Settlements
|
|
(27)
|
|
|
(20)
|
|
|
(48)
|
|
|
Other (expense) income, net
|
Deconsolidation of Venezuelan subsidiary
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
Other (expense) income, net
|
Total before tax
|
|
(658)
|
|
|
(619)
|
|
|
(505)
|
|
|
|
Tax effect
|
|
160
|
|
|
148
|
|
|
121
|
|
|
Provision for income taxes
|
Net of tax
|
|
(498)
|
|
|
(471)
|
|
|
(384)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedging instruments gains (losses)
|
|
|
|
|
|
|
|
|
Foreign currency forward/option contracts
|
|
(38)
|
|
|
80
|
|
|
74
|
|
|
Cost of sales
|
Interest rate contracts
|
|
(9)
|
|
|
(9)
|
|
|
(4)
|
|
|
Interest expense
|
Total before tax
|
|
(47)
|
|
|
71
|
|
|
70
|
|
|
|
Tax effect
|
|
11
|
|
|
(17)
|
|
|
(17)
|
|
|
Provision for income taxes
|
Net of tax
|
|
(36)
|
|
|
54
|
|
|
53
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
(534)
|
|
|
$
|
(417)
|
|
|
$
|
(473)
|
|
|
|
NOTE 9. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Cash income tax payments, net of refunds
|
|
$
|
1,695
|
|
|
$
|
1,351
|
|
|
$
|
1,198
|
|
Cash interest payments
|
|
472
|
|
|
524
|
|
|
370
|
|
Cash interest payments include interest paid on debt and finance lease balances. Cash interest payments exclude the cash paid for early debt extinguishment costs. Additional details are described in Note 12.
Individual amounts in the Consolidated Statement of Cash Flows exclude the impacts of acquisitions, divestitures and exchange rate impacts, which are presented separately.
NOTE 10. Income Taxes
Income Before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
United States
|
|
$
|
3,716
|
|
|
$
|
3,795
|
|
|
$
|
2,954
|
|
International
|
|
3,488
|
|
|
3,000
|
|
|
2,689
|
|
Total
|
|
$
|
7,204
|
|
|
$
|
6,795
|
|
|
$
|
5,643
|
|
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Currently payable
|
|
|
|
|
|
|
Federal
|
|
$
|
756
|
|
|
$
|
720
|
|
|
$
|
534
|
|
State
|
|
104
|
|
|
123
|
|
|
59
|
|
International
|
|
597
|
|
|
632
|
|
|
673
|
|
Deferred
|
|
|
|
|
|
|
Federal
|
|
(219)
|
|
|
(44)
|
|
|
(43)
|
|
State
|
|
(25)
|
|
|
(17)
|
|
|
(28)
|
|
International
|
|
72
|
|
|
(77)
|
|
|
(81)
|
|
Total
|
|
$
|
1,285
|
|
|
$
|
1,337
|
|
|
$
|
1,114
|
|
Components of Deferred Tax Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
Deferred tax assets:
|
|
|
|
|
Accruals not currently deductible
|
|
|
|
|
Employee benefit costs
|
|
$
|
237
|
|
|
$
|
232
|
|
Product and other claims
|
|
257
|
|
|
338
|
|
Miscellaneous accruals
|
|
157
|
|
|
153
|
|
Pension costs
|
|
351
|
|
|
849
|
|
Stock-based compensation
|
|
249
|
|
|
231
|
|
Advanced payments
|
|
286
|
|
|
—
|
|
Net operating/capital loss/state tax credit carryforwards
|
|
120
|
|
|
148
|
|
Foreign tax credits
|
|
115
|
|
|
100
|
|
Currency translation
|
|
—
|
|
|
90
|
|
Lease liabilities
|
|
219
|
|
|
227
|
|
Product and other insurance receivables
|
|
48
|
|
|
—
|
|
Inventory
|
|
68
|
|
|
54
|
|
Other
|
|
31
|
|
|
112
|
|
Gross deferred tax assets
|
|
2,138
|
|
|
2,534
|
|
Valuation allowance
|
|
(142)
|
|
|
(135)
|
|
Total deferred tax assets
|
|
1,996
|
|
|
2,399
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Product and other insurance receivables
|
|
—
|
|
|
(4)
|
|
Accelerated depreciation
|
|
(665)
|
|
|
(606)
|
|
Intangible amortization
|
|
(985)
|
|
|
(1,023)
|
|
Right-of-use asset
|
|
(222)
|
|
|
(228)
|
|
Total deferred tax liabilities
|
|
(1,872)
|
|
|
(1,861)
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
124
|
|
|
$
|
538
|
|
The net deferred tax assets are included as components of Other Assets and Other Liabilities within the Consolidated Balance Sheet. See Note 7 “Supplemental Balance Sheet Information” for further details.
As of December 31, 2021, the Company had tax effected operating losses, capital losses, and tax credit carryovers for federal (approximately $115 million), state (approximately $75 million), and international (approximately $44 million), with all amounts before limitation impacts and valuation allowances. Federal tax attribute carryovers will expire after one to 10 years, the state after one to 11 years, and the international after one year to an indefinite carryover period. As of December 31, 2021, the Company has provided $142 million of valuation allowance against certain of these deferred tax assets based on management’s determination that it is more-likely-than-not that the tax benefits related to these assets will not be realized.
Reconciliation of Effective Income Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
Statutory U.S. tax rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
State income taxes - net of federal benefit
|
|
0.9
|
|
|
1.2
|
|
|
0.5
|
|
International income taxes - net
|
|
(1.2)
|
|
|
(1.2)
|
|
|
0.2
|
|
Global Intangible Low Taxed Income (GILTI)
|
|
0.7
|
|
|
0.8
|
|
|
1.8
|
|
Foreign Derived Intangible Income (FDII)
|
|
(3.1)
|
|
|
(1.8)
|
|
|
(2.9)
|
|
U.S. research and development credit
|
|
(0.7)
|
|
|
(1.0)
|
|
|
(1.7)
|
|
Reserves for tax contingencies
|
|
0.6
|
|
|
0.5
|
|
|
2.3
|
|
Employee share-based payments
|
|
(0.6)
|
|
|
(0.5)
|
|
|
(1.3)
|
|
All other - net
|
|
0.2
|
|
|
0.7
|
|
|
(0.2)
|
|
Effective worldwide tax rate
|
|
17.8
|
%
|
|
19.7
|
%
|
|
19.7
|
%
|
The effective tax rate for 2021, 2020, and 2019 were 17.8 percent, 19.7 percent, and 19.7 percent, respectively. These reflect a decrease of 1.9 percentage points from 2020 to 2021 and a flat comparison from 2019 to 2020. The primary factors that decreased the effective tax rate for 2021 were geographical income mix and favorable adjustments in 2021 related to impacts of U.S. international tax provisions.
The 2017 Tax Cuts and Jobs Act (TCJA) involved a transition tax that is payable over eight years beginning in 2018. As of December 31, 2021 and December 31, 2020, 3M reflected $508 million and $584 million, respectively, in long term income taxes payable. As of December 31, 2021 and December 31, 2020, 3M reflected $68 million and $69 million, respectively, payable within one year associated with the transition tax.
The IRS has completed its field examination of the Company’s U.S. federal income tax returns through 2018, but the years 2005 through 2017 have not closed as the Company is in the process of resolving issues identified during those examinations. In addition to the U.S. federal examination, there is also audit activity in several U.S. state and foreign jurisdictions where the Company is subject to ongoing tax examinations and governmental assessments, which could be impacted by evolving political environments in those jurisdictions. As of December 31, 2021, no taxing authority proposed significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.
It is reasonably possible that the amount of unrecognized tax benefits could significantly change within the next 12 months. The Company has ongoing federal, state and international income tax audits in various jurisdictions and evaluates uncertain tax positions that may be challenged by local tax authorities and not fully sustained. These uncertain tax positions are reviewed on an ongoing basis and adjusted in light of facts and circumstances including progression of tax audits, developments in case law and closing statutes of limitation. At this time, the Company is not able to estimate the range by which these potential events could impact 3M’s unrecognized tax benefits within the next 12 months.
The Company recognizes the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows:
Federal, State and Foreign Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Gross UTB Balance at January 1
|
|
$
|
1,113
|
|
|
$
|
1,167
|
|
|
$
|
647
|
|
|
|
|
|
|
|
|
Additions based on tax positions related to the current year
|
|
91
|
|
|
74
|
|
|
76
|
|
Additions for tax positions of prior years
|
|
22
|
|
|
106
|
|
|
132
|
|
Additions related to recent acquisitions
|
|
—
|
|
|
—
|
|
|
396
|
|
Reductions for tax positions of prior years
|
|
(60)
|
|
|
(173)
|
|
|
(56)
|
|
Settlements
|
|
(57)
|
|
|
(8)
|
|
|
(4)
|
|
Reductions due to lapse of applicable statute of limitations
|
|
(38)
|
|
|
(53)
|
|
|
(24)
|
|
|
|
|
|
|
|
|
Gross UTB Balance at December 31
|
|
$
|
1,071
|
|
|
$
|
1,113
|
|
|
$
|
1,167
|
|
|
|
|
|
|
|
|
Net UTB that would impact the effective tax rate at December 31
|
|
$
|
1,112
|
|
|
$
|
1,145
|
|
|
$
|
1,178
|
|
The total amount of UTB, if recognized, would affect the effective tax rate by $1,112 million as of December 31, 2021, $1,145 million as of December 31, 2020, and $1,178 million as of December 31, 2019. The ending net UTB results from adjusting the gross balance for deferred items, interest and penalties, and deductible taxes. The net UTB is included as components of Other Assets, Accrued Income Taxes, and Other Liabilities within the Consolidated Balance Sheet.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized in the consolidated statement of income on a gross basis approximately $14 million of expense, $21 million of expense, and $33 million of expense in 2021, 2020, and 2019, respectively. The amount of interest and penalties recognized may be an expense or benefit due to new or remeasured unrecognized tax benefit accruals. At December 31, 2021, and December 31, 2020, accrued interest and penalties in the consolidated balance sheet on a gross basis were $140 million and $126 million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
As a result of certain employment commitments and capital investments made by 3M, income from certain foreign operations in the following countries is subject to reduced tax rates or, in some cases, is exempt from tax for years through the following: China (2022), Switzerland (2026), Brazil (2029) and Singapore (2032). The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $204 million (36 cents per diluted share) in 2021, $163 million (28 cents per diluted share) in 2020, and $127 million (22 cents per diluted share) in 2019.
As of December 31, 2021, the Company has approximately $17.7 billion of undistributed earnings in its foreign subsidiaries. Approximately $5.5 billion of these earnings are no longer considered permanently reinvested. The incremental tax cost to repatriate these earnings to the US is immaterial. The Company has not provided deferred taxes on approximately $12.2 billion of undistributed earnings from non-U.S. subsidiaries as of December 31, 2021 which are indefinitely reinvested in operations. Because of the multiple avenues by which to repatriate the earnings to minimize tax cost, and because a large portion of these earnings are not liquid, it is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.
NOTE 11. Marketable Securities
Marketable Securities
The Company invests in asset-backed securities, certificates of deposit/time deposits, commercial paper, and other securities. The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities (current and non-current).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
Corporate debt securities
|
|
$
|
—
|
|
|
$
|
7
|
|
Commercial paper
|
|
109
|
|
|
237
|
|
Certificates of deposit/time deposits
|
|
14
|
|
|
31
|
|
U.S. treasury securities
|
|
75
|
|
|
125
|
|
U.S. municipal securities
|
|
3
|
|
|
4
|
|
Current marketable securities
|
|
$
|
201
|
|
|
$
|
404
|
|
|
|
|
|
|
U.S. municipal securities
|
|
$
|
27
|
|
|
$
|
30
|
|
Non-current marketable securities
|
|
$
|
27
|
|
|
$
|
30
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
228
|
|
|
$
|
434
|
|
At December 31, 2021 and 2020, gross unrealized, gross realized, and net realized gains and/or losses (pre-tax) were not material.
The balance at December 31, 2021, for marketable securities by contractual maturity are shown below. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
Due in one year or less
|
|
$
|
201
|
|
Due after one year through five years
|
|
15
|
|
Due after five years through ten years
|
|
12
|
|
Total marketable securities
|
|
$
|
228
|
|
NOTE 12. Long-Term Debt and Short-Term Borrowings
The following debt tables reflect effective interest rates, which include the impact of interest rate swaps, as of December 31, 2021. If the debt was issued on a combined basis, the debt has been separated to show the impact of the fixed versus floating effective interest rates. Carrying value includes the impact of debt issuance costs and fair value hedging activity. Long-term debt and short-term borrowings as of December 31 consisted of the following:
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
Currency/
Fixed vs. Floating
|
|
Effective
Interest Rate
|
|
Final
Maturity Date
|
|
Carrying Value
|
Description / 2021 Principal Amount
|
|
|
|
|
2021
|
|
2020
|
Eurobond (repaid in 2021)
|
|
EUR Fixed
|
|
—
|
%
|
|
2021
|
|
—
|
|
|
367
|
|
Eurobond (repaid in 2021)
|
|
EUR Floating
|
|
—
|
%
|
|
2021
|
|
—
|
|
|
374
|
|
Medium-term note (repaid in 2021)
|
|
USD Fixed
|
|
—
|
%
|
|
2021
|
|
—
|
|
|
449
|
|
Medium-term note (€500 million)
|
|
EUR Fixed
|
|
0.45
|
%
|
|
2022
|
|
567
|
|
|
612
|
|
Medium-term note ($600 million)
|
|
USD Fixed
|
|
2.17
|
%
|
|
2022
|
|
599
|
|
|
598
|
|
Medium-term note (€600 million)
|
|
EUR Fixed
|
|
1.14
|
%
|
|
2023
|
|
679
|
|
|
731
|
|
Registered note ($500 million)
|
|
USD Fixed
|
|
1.86
|
%
|
|
2023
|
|
499
|
|
|
498
|
|
Medium-term note ($650 million)
|
|
USD Fixed
|
|
2.26
|
%
|
|
2023
|
|
649
|
|
|
649
|
|
Medium-term note ($300 million)
|
|
USD Fixed
|
|
3.30
|
%
|
|
2024
|
|
299
|
|
|
299
|
|
Medium-term note ($500 million)
|
|
USD Fixed
|
|
2.98
|
%
|
|
2024
|
|
501
|
|
|
502
|
|
Medium-term note ($300 million)
|
|
USD Floating
|
|
0.42
|
%
|
|
2024
|
|
300
|
|
|
299
|
|
Medium-term note ($550 million)
|
|
USD Fixed
|
|
3.04
|
%
|
|
2025
|
|
548
|
|
|
548
|
|
Registered note ($750 million)
|
|
USD Fixed
|
|
2.12
|
%
|
|
2025
|
|
746
|
|
|
744
|
|
Registered note ($500 million)
|
|
USD Fixed
|
|
2.67
|
%
|
|
2025
|
|
498
|
|
|
498
|
|
Medium-term note (€750 million)
|
|
EUR Fixed
|
|
1.65
|
%
|
|
2026
|
|
842
|
|
|
908
|
|
Medium-term note ($650 million)
|
|
USD Fixed
|
|
2.37
|
%
|
|
2026
|
|
645
|
|
|
644
|
|
Medium-term note ($850 million)
|
|
USD Fixed
|
|
2.95
|
%
|
|
2027
|
|
844
|
|
|
843
|
|
Floating rate note ($19 million)
|
|
USD Floating
|
|
—
|
%
|
|
2027
|
|
19
|
|
|
19
|
|
30-year debenture ($220 million)
|
|
USD Fixed
|
|
6.44
|
%
|
|
2028
|
|
224
|
|
|
225
|
|
Floating rate note ($250 million)
|
|
USD Floating
|
|
2.07
|
%
|
|
2028
|
|
240
|
|
|
—
|
|
Floating rate note ($150 million)
|
|
USD Floating
|
|
2.02
|
%
|
|
2028
|
|
144
|
|
|
—
|
|
Floating rate note ($100 million)
|
|
USD Floating
|
|
2.11
|
%
|
|
2028
|
|
96
|
|
|
—
|
|
Medium-term note ($600 million)
|
|
USD Fixed
|
|
3.62
|
%
|
|
2028
|
|
598
|
|
|
598
|
|
Floating rate note ($150 million)
|
|
USD Floating
|
|
2.53
|
%
|
|
2028
|
|
147
|
|
|
—
|
|
Floating rate note ($150 million)
|
|
USD Floating
|
|
2.48
|
%
|
|
2028
|
|
147
|
|
|
—
|
|
Registered note ($1 billion)
|
|
USD Fixed
|
|
2.50
|
%
|
|
2029
|
|
988
|
|
|
986
|
|
Medium-term note ($800 million)
|
|
USD Fixed
|
|
3.38
|
%
|
|
2029
|
|
797
|
|
|
796
|
|
Medium-term note (€500 million)
|
|
EUR Fixed
|
|
1.90
|
%
|
|
2030
|
|
560
|
|
|
604
|
|
Registered note ($600 million)
|
|
USD Fixed
|
|
3.09
|
%
|
|
2030
|
|
596
|
|
|
595
|
|
Medium-term note (€500 million)
|
|
EUR Fixed
|
|
1.54
|
%
|
|
2031
|
|
563
|
|
|
608
|
|
30-year bond ($555 million)
|
|
USD Fixed
|
|
5.73
|
%
|
|
2037
|
|
551
|
|
|
551
|
|
Floating rate note ($52 million)
|
|
USD Floating
|
|
—
|
%
|
|
2040
|
|
52
|
|
|
51
|
|
Floating rate note ($96 million)
|
|
USD Floating
|
|
—
|
%
|
|
2041
|
|
96
|
|
|
96
|
|
Medium-term note ($325 million)
|
|
USD Fixed
|
|
4.05
|
%
|
|
2044
|
|
315
|
|
|
315
|
|
Floating rate note ($54 million)
|
|
USD Floating
|
|
—
|
%
|
|
2044
|
|
53
|
|
|
53
|
|
Medium-term note ($500 million)
|
|
USD Fixed
|
|
3.37
|
%
|
|
2046
|
|
477
|
|
|
476
|
|
Medium-term note ($500 million)
|
|
USD Fixed
|
|
3.68
|
%
|
|
2047
|
|
492
|
|
|
492
|
|
Medium-term note ($650 million)
|
|
USD Fixed
|
|
4.07
|
%
|
|
2048
|
|
638
|
|
|
637
|
|
Medium-term note ($500 million)
|
|
USD Fixed
|
|
3.78
|
%
|
|
2048
|
|
505
|
|
|
505
|
|
Registered note ($500 million)
|
|
USD Fixed
|
|
3.37
|
%
|
|
2049
|
|
485
|
|
|
969
|
|
Registered note ($350 million)
|
|
USD Fixed
|
|
3.72
|
%
|
|
2050
|
|
346
|
|
|
642
|
|
Other borrowings
|
|
Various
|
|
0.19
|
%
|
|
2022-2029
|
|
2
|
|
|
2
|
|
Total long-term debt
|
|
|
|
|
|
|
|
17,347
|
|
|
18,783
|
|
Less: current portion of long-term debt
|
|
|
|
|
|
|
|
1,291
|
|
|
794
|
|
Long-term debt (excluding current portion)
|
|
|
|
|
|
|
|
$
|
16,056
|
|
|
$
|
17,989
|
|
Post-Swap Borrowing (Long-Term Debt, Including Current Portion)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
(Millions)
|
|
Carrying
Value
|
|
Effective
Interest Rate
|
|
Carrying
Value
|
|
Effective
Interest Rate
|
Fixed-rate debt
|
|
$
|
16,053
|
|
|
2.80
|
%
|
|
$
|
17,889
|
|
|
2.80
|
%
|
Floating-rate debt
|
|
1,294
|
|
|
1.43
|
%
|
|
894
|
|
|
0.06
|
%
|
Total long-term debt, including current portion
|
|
$
|
17,347
|
|
|
|
|
$
|
18,783
|
|
|
|
Short-Term Borrowings and Current Portion of Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
Interest Rate
|
|
Carrying Value
|
(Millions)
|
|
|
2021
|
|
2020
|
Current portion of long-term debt
|
|
1.20
|
%
|
|
$
|
1,291
|
|
|
$
|
794
|
|
U.S. dollar commercial paper
|
|
—
|
%
|
|
—
|
|
|
—
|
|
Other borrowings
|
|
4.10
|
%
|
|
16
|
|
|
12
|
|
Total short-term borrowings and current portion of long-term debt
|
|
|
|
$
|
1,307
|
|
|
$
|
806
|
|
Other short-term borrowings primarily consisted of bank borrowings by international subsidiaries.
Future Maturities of Long-term Debt
Maturities of long-term debt in the table below reflect the impact of put provisions associated with certain debt instruments and are net of the unaccreted debt issue costs such that total maturities equal the carrying value of long-term debt as of December 31, 2021. The maturities of long-term debt for the periods subsequent to December 31, 2021 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
|
After 2026
|
|
Total
|
$
|
1,291
|
|
|
$
|
1,923
|
|
|
$
|
1,100
|
|
|
$
|
1,792
|
|
|
$
|
1,487
|
|
|
$
|
9,754
|
|
|
$
|
17,347
|
|
As a result of put provisions associated with certain debt instruments, long-term debt payments due in 2022 include floating rate notes totaling $124 million (classified as current portion of long-term debt) and $95 million due in 2023.
Credit Facilities
3M has an amended and restated $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 2021 with an expiration date of November 2022. The 364-day credit agreement includes a provision under which 3M may convert any advances outstanding on the maturity date into term loans having a maturity date one year later. These credit facilities were undrawn at December 31, 2021. 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, 2021, this ratio was approximately 20 to 1. Debt covenants do not restrict the payment of dividends.
In December 2021, 3M entered into a $1 billion debt financing commitment related to the intended Food Safety Division spin-off or split-off transaction discussed in Note 3. This commitment provides potential bridge financing for the Food Safety business's payment of approximately $1 billion of consideration, subject to closing and other adjustments, to 3M under the terms of the transaction. Amounts outstanding under this facility have a term of 364 days following the borrowing date and are required to be repaid when certain conditions are met, including upon completion of permanent financing. This commitment was undrawn at December 31, 2021. Upon the close of the spin-off or split-off transaction, outstanding obligations under the commitment transfer with the Food Safety business and become those of the separate newly combined company.
Other Credit Facilities
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 an additional $266 million in stand-alone letters of credit and bank guarantees issued and outstanding at December 31, 2021. These instruments are utilized in connection with normal business activities.
Long-Term Debt Issuances and Fixed-to-Floating Interest Rate Swaps
The principal amounts, interest rates and maturity dates of individual long-term debt issuances can be found in the long-term debt table found at the beginning of this note.
During the second and third quarters of 2021, 3M entered into interest rate swaps with an aggregate notional amount of
$800 million. These swaps converted $500 million and $300 million of 3M’s $1.0 billion and $650 million principal amount of
fixed rate notes due 2049 and 2050, respectively, into floating rate debt for the portion of their terms through mid-2028 with an
interest rate based on a three-month LIBOR index.
In March 2020, 3M issued $1.75 billion aggregate principal amount of fixed rate registered notes. These were comprised of $500 million of 5-year notes due 2025 with a coupon rate of 2.65%, $600 million of 10-year notes due 2030 with a coupon rate of 3.05%, and $650 million of 30-year notes due 2050 with a coupon rate of 3.70%.
In February 2019, 3M issued $2.25 billion aggregate principal amount of fixed rate medium-term notes. These were comprised of $450 million of 3-year notes due 2022 with a coupon rate of 2.75%, $500 million of remaining 5-year notes due 2024 with a coupon rate of 3.25%, $800 million of 10-year notes due 2029 with a coupon rate of 3.375%, and $500 million of remaining 29.5-year notes due 2048 with a coupon rate of 4.00%. Issuances of the 5-year and 29.5-year notes were pursuant to a reopening of existing securities issued in September 2018.
In August 2019, 3M issued $3.25 billion aggregate principal amount of fixed rate registered notes. These were comprised of $500 million of 3.5-year notes due 2023 with a coupon rate of 1.75%, $750 million of 5.5-year notes due 2025 with a coupon rate of 2.00%, $1.0 billion of 10-year notes due 2029 with a coupon rate of 2.375%, and $1.0 billion of 30-year notes due 2049 with a coupon rate of 3.25%.
Long-Term Debt Maturities and Extinguishments
In November 2021, 3M repaid 600 million euros aggregate principal amount of Eurobonds that matured.
In March 2021, 3M, via a make-whole-call offer, redeemed $450 million principal amount of 2.75% notes due 2022. The
Company recorded an early debt extinguishment pre-tax charge of approximately $11 million within interest expense. This
charge reflected the differential between the carrying value and the amount paid to reacquire the notes and related expenses.
In December 2020, 3M, via make-whole-call offers, repaid $1 billion aggregate principal amount of its outstanding notes. This included $400 million aggregate principal amount of 3.00% notes and $600 million aggregate principal amount of 1.625% notes, both of which were due to mature in 2021. The Company recorded an early debt extinguishment pre-tax charge of approximately $10 million within interest expense. This charge reflected the differential between the carrying value and the amount paid to reacquire the notes and related expenses.
In May 2020, 3M repaid 650 million euros aggregate principal amount of floating-rate medium-term notes that matured. In August 2020, 3M repaid $500 aggregate principal amount of floating rate medium-term notes that matured.
In June 2019, 3M repaid $625 million aggregate principal amount of fixed-rate medium-term notes that matured.
In 2019, 3M also assumed approximately $2.6 billion of debt in connection with the acquisitions of Acelity and M*Modal (See Note 3) of which $2.1 billion was immediately redeemed or paid at close.
In-Substance Defeasance
In conjunction with the October 2019 acquisition of Acelity (see Note 3), 3M assumed outstanding debt of the business, of which $445 million in principal amount of third lien senior secured notes (Third Lien Notes) maturing in 2021 with a coupon rate of 12.5% was not immediately redeemed at closing. Instead, at closing, 3M satisfied and discharged the Third Lien Notes via an in-substance defeasance, whereby 3M transferred cash equivalents and marketable securities to a trust with irrevocable
instructions to redeem the Third Lien Notes on May 1, 2020. The trust assets were restricted from use in 3M’s operations and were only used for the redemption of the Third Lien Notes that occurred in May 2020.
Floating Rate Notes
At various times, 3M has issued floating rate notes containing put provisions. 3M would be required to repurchase these securities at various prices ranging from 99 percent to 100 percent of par value according to the reduction schedules for each security. In December 2004, 3M issued a forty-year $60 million floating rate note, with a rate based on a floating LIBOR index. Under the terms of this floating rate note due in 2044, holders have an annual put feature at 100 percent of par value from 2014 and every anniversary thereafter until final maturity. Under the terms of the floating rate notes due in 2027, 2040 and 2041, holders have put options that commence ten years from the date of issuance and each third anniversary thereafter until final maturity at prices ranging from 99 percent to 100 percent of par value. For the periods presented, 3M was required to repurchase an immaterial amount of principal on the aforementioned floating rate notes.
NOTE 13. Pension and Postretirement Benefit Plans
As discussed in Note 1, effective in the first quarter of 2021, 3M made a change in accounting principle for net periodic pension
and postretirement plan cost. This impacted the expected return on plan assets and the amortization of net unamortized actuarial
gains or losses expense components of net periodic benefit cost. This change was applied retrospectively to all periods
presented within 3M’s financial statements.
3M has company-sponsored retirement plans covering substantially all U.S. employees and many employees outside the United States. In total, 3M has over 75 defined benefit plans in 28 countries. Pension benefits associated with these plans generally are based on each participant’s years of service, compensation, and age at retirement or termination. The primary U.S. defined-benefit pension plan was closed to new participants effective January 1, 2009. The Company also provides certain postretirement health care and life insurance benefits for its U.S. employees who reach retirement age while employed by the Company and were employed by the Company prior to January 1, 2016. Most international employees and retirees are covered by government health care programs. The cost of company-provided postretirement health care plans for international employees is not material and is combined with U.S. amounts in the tables that follow.
The Company has made deposits for its defined benefit plans with independent trustees. Trust funds and deposits with insurance companies are maintained to provide pension benefits to plan participants and their beneficiaries. There are no plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health care and life insurance benefit plans, the Company has set aside amounts at least equal to annual benefit payments with an independent trustee.
The Company also sponsors employee savings plans under Section 401(k) of the Internal Revenue Code. These plans are offered to substantially all regular U.S. employees. For eligible employees hired prior to January 1, 2009, employee 401(k) contributions of up to 5% of eligible compensation matched in cash at rates of 45% or 60%, depending on the plan in which the employee participates. Employees hired on or after January 1, 2009, receive a cash match of 100% for employee 401(k) contributions of up to 5% of eligible compensation and receive an employer retirement income account cash contribution of 3% of the participant’s total eligible compensation. All contributions are invested in a number of investment funds pursuant to the employees’ elections. Employer contributions to the U.S. defined contribution plans were $231 million, $201 million and $186 million for 2021, 2020 and 2019, respectively. 3M subsidiaries in various international countries also participate in defined contribution plans. Employer contributions to the international defined contribution plans were $117 million, $103 million and $96 million for 2021, 2020 and 2019, respectively.
In May 2019 (as part of the 2019 restructuring actions discussed in Note 5), the Company began offering a voluntary early retirement incentive program to certain eligible participants of its U.S. pension plans who met age and years of pension service requirements. The eligible participants who accepted the offer and retired by July 1, 2019 received an enhanced pension benefit. Pension benefits were enhanced by adding one additional year of pension service and one additional year of age for certain benefit calculations. Approximately 800 participants accepted the offer and retired before July 1, 2019. As a result, the Company incurred a $35 million charge related to these special termination benefits in the second quarter of 2019.
In the fourth quarter of 2019, the Company recognized a non-operating $32 million settlement expense in its U.S. non-qualified pension plan. The charge is related to lump sum payments made to employees at retirement. The settlement expense is an accelerated recognition of past actuarial losses.
In the second quarter of 2020, as a result of the divestiture of the drug delivery business, the Company recognized a curtailment in its United Kingdom Pension Plan. The resulting re-measurement of the pension plan funded status reduced long-term prepaid
pension and post retirement assets (located within “other assets” of the Company’s balance sheet) by approximately $80 million, which was offset within accumulated other comprehensive income (located within the equity section of the Company’s balance sheet). The expense impact of this re-measurement was immaterial for the second quarter of 2020 and subsequent periods.
The following tables include a reconciliation of the beginning and ending balances of the benefit obligation and the fair value of plan assets as well as a summary of the related amounts recognized in the Company’s consolidated balance sheet as of December 31 of the respective years. 3M also has certain non-qualified unfunded pension and postretirement benefit plans, inclusive of plans related to supplement/excess benefits for employees impacted by particular relocations and other matters, that individually and in the aggregate are not significant and which are not included in the tables that follow. The obligations for these plans are included within other liabilities in the Company’s consolidated balance sheet and aggregated to less than $40 million as of December 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified and Non-Pension Benefits
|
|
Postretirement
Benefits
|
|
|
United States
|
|
International
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
19,376
|
|
|
$
|
17,935
|
|
|
$
|
8,770
|
|
|
$
|
7,931
|
|
|
$
|
2,397
|
|
|
$
|
2,242
|
|
Acquisitions/Transfers
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Service cost
|
|
286
|
|
|
261
|
|
|
164
|
|
|
152
|
|
|
53
|
|
|
43
|
|
Interest cost
|
|
360
|
|
|
499
|
|
|
98
|
|
|
117
|
|
|
43
|
|
|
62
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
10
|
|
|
9
|
|
|
—
|
|
|
—
|
|
Foreign exchange rate changes
|
|
—
|
|
|
—
|
|
|
(325)
|
|
|
427
|
|
|
(4)
|
|
|
(14)
|
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Actuarial (gain) loss
|
|
(588)
|
|
|
1,785
|
|
|
(433)
|
|
|
464
|
|
|
(89)
|
|
|
176
|
|
Benefit payments
|
|
(1,330)
|
|
|
(1,104)
|
|
|
(298)
|
|
|
(274)
|
|
|
(113)
|
|
|
(107)
|
|
Settlements, curtailments, special termination benefits and other
|
|
—
|
|
|
—
|
|
|
(45)
|
|
|
(57)
|
|
|
(6)
|
|
|
(5)
|
|
Benefit obligation at end of year
|
|
$
|
18,104
|
|
|
$
|
19,376
|
|
|
$
|
7,942
|
|
|
$
|
8,770
|
|
|
$
|
2,281
|
|
|
$
|
2,397
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
17,127
|
|
|
16,099
|
|
|
8,194
|
|
|
6,923
|
|
|
1,376
|
|
|
1,338
|
|
Acquisitions/Transfers
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Actual return on plan assets
|
|
1,079
|
|
|
2,071
|
|
|
321
|
|
|
1,102
|
|
|
93
|
|
|
147
|
|
Company contributions
|
|
77
|
|
|
61
|
|
|
100
|
|
|
92
|
|
|
3
|
|
|
3
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
10
|
|
|
9
|
|
|
—
|
|
|
—
|
|
Foreign exchange rate changes
|
|
—
|
|
|
—
|
|
|
(265)
|
|
|
376
|
|
|
—
|
|
|
—
|
|
Benefit payments
|
|
(1,330)
|
|
|
(1,104)
|
|
|
(298)
|
|
|
(274)
|
|
|
(113)
|
|
|
(107)
|
|
Settlements, curtailments, special termination benefits and other
|
|
—
|
|
|
—
|
|
|
(46)
|
|
|
(34)
|
|
|
(6)
|
|
|
(5)
|
|
Fair value of plan assets at end of year
|
|
$
|
16,953
|
|
|
$
|
17,127
|
|
|
$
|
8,016
|
|
|
$
|
8,194
|
|
|
$
|
1,353
|
|
|
$
|
1,376
|
|
Funded status at end of year
|
|
$
|
(1,151)
|
|
|
$
|
(2,249)
|
|
|
$
|
74
|
|
|
$
|
(576)
|
|
|
$
|
(928)
|
|
|
$
|
(1,021)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheet as of December 31, (Millions)
|
|
Qualified and Non-qualified Pension Benefits
|
|
Postretirement
Benefits
|
|
United States
|
|
International
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Non-current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
943
|
|
|
$
|
630
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
(59)
|
|
|
(52)
|
|
|
(14)
|
|
|
(15)
|
|
|
(5)
|
|
|
(4)
|
|
Non-current liabilities
|
|
(1,092)
|
|
|
(2,197)
|
|
|
(855)
|
|
|
(1,191)
|
|
|
(923)
|
|
|
(1,017)
|
|
Ending balance
|
|
$
|
(1,151)
|
|
|
$
|
(2,249)
|
|
|
$
|
74
|
|
|
$
|
(576)
|
|
|
$
|
(928)
|
|
|
$
|
(1,021)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income as of December 31, (Millions)
|
|
Qualified and Non-qualified Pension Benefits
|
|
Postretirement
Benefits
|
|
United States
|
|
International
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Net transition obligation (asset)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net actuarial loss (gain)
|
|
4,991
|
|
|
6,157
|
|
|
960
|
|
|
1,570
|
|
|
538
|
|
|
702
|
|
Prior service cost (credit)
|
|
(80)
|
|
|
(104)
|
|
|
3
|
|
|
(2)
|
|
|
(197)
|
|
|
(230)
|
|
Ending balance
|
|
$
|
4,911
|
|
|
$
|
6,053
|
|
|
$
|
969
|
|
|
$
|
1,577
|
|
|
$
|
341
|
|
|
$
|
472
|
|
The balance of amounts recognized for international plans in accumulated other comprehensive income as of December 31 in the preceding table are presented based on the foreign currency exchange rate on that date.
The pension accumulated benefit obligation represents the actuarial present value of benefits based on employee service and compensation as of the measurement date and does not include an assumption about future compensation levels. The following table summarizes the total accumulated benefit obligations, the accumulated benefit obligations and fair value of plan assets for defined benefit pension plans with accumulated benefit obligations in excess of plan assets, and the projected benefit obligation and fair value of plan assets for defined benefit pension plans with projected benefit obligation in excess of plan assets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified and Non-qualified Pension Plans
|
|
|
United States
|
|
International
|
(Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Accumulated benefit obligation
|
|
$
|
17,305
|
|
|
$
|
18,441
|
|
|
$
|
7,484
|
|
|
$
|
8,181
|
|
Plans with accumulated benefit obligation in excess of plan assets
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
514
|
|
|
$
|
18,441
|
|
|
$
|
2,843
|
|
|
$
|
3,119
|
|
Fair value of plan assets
|
|
—
|
|
|
17,127
|
|
|
2,194
|
|
|
2,199
|
|
Plans with projected benefit obligation in excess of plan assets
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
18,104
|
|
|
$
|
19,376
|
|
|
$
|
3,204
|
|
|
$
|
3,528
|
|
Fair value of plan assets
|
|
16,953
|
|
|
17,127
|
|
|
2,335
|
|
|
2,322
|
|
Components of net periodic cost and other amounts recognized in other comprehensive income
The service cost component of defined benefit net periodic benefit cost is recorded in cost of sales, selling, general and administrative expenses, and research, development and related expenses. As discussed in Note 6, the other components of net periodic benefit cost are reflected in other expense (income), net. Components of net periodic benefit cost and other supplemental information for the years ended December 31 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified and Non-qualified Pension Benefits
|
|
Postretirement
Benefits
|
|
|
United States
|
|
International
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Net periodic benefit cost (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
286
|
|
|
$
|
261
|
|
|
$
|
251
|
|
|
$
|
164
|
|
|
$
|
152
|
|
|
$
|
131
|
|
|
$
|
53
|
|
|
$
|
43
|
|
|
$
|
43
|
|
Non-operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
360
|
|
|
499
|
|
|
620
|
|
|
98
|
|
|
117
|
|
|
156
|
|
|
43
|
|
|
62
|
|
|
82
|
|
Expected return on plan assets
|
|
(1,055)
|
|
|
(1,046)
|
|
|
(1,024)
|
|
|
(326)
|
|
|
(306)
|
|
|
(295)
|
|
|
(78)
|
|
|
(80)
|
|
|
(78)
|
|
Amortization of transition asset
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service benefit
|
|
(24)
|
|
|
(24)
|
|
|
(24)
|
|
|
(3)
|
|
|
(5)
|
|
|
(12)
|
|
|
(33)
|
|
|
(33)
|
|
|
(33)
|
|
Amortization of net actuarial loss
|
|
529
|
|
|
491
|
|
|
398
|
|
|
104
|
|
|
121
|
|
|
89
|
|
|
56
|
|
|
47
|
|
|
37
|
|
Settlements, curtailments, special termination benefits and other
|
|
24
|
|
|
16
|
|
|
70
|
|
|
3
|
|
|
1
|
|
|
10
|
|
|
3
|
|
|
3
|
|
|
5
|
|
Total non-operating expense (benefit)
|
|
(166)
|
|
|
(64)
|
|
|
40
|
|
|
(122)
|
|
|
(70)
|
|
|
(52)
|
|
|
(9)
|
|
|
(1)
|
|
|
13
|
|
Total net periodic benefit cost (benefit)
|
|
$
|
120
|
|
|
$
|
197
|
|
|
$
|
291
|
|
|
$
|
42
|
|
|
$
|
82
|
|
|
$
|
79
|
|
|
$
|
44
|
|
|
$
|
42
|
|
|
$
|
56
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of transition asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
|
$
|
(2)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Prior service cost (benefit)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
(171)
|
|
Amortization of prior service benefit
|
|
24
|
|
|
24
|
|
|
24
|
|
|
3
|
|
|
5
|
|
|
12
|
|
|
33
|
|
|
33
|
|
|
33
|
|
Net actuarial (gain) loss
|
|
(614)
|
|
|
760
|
|
|
910
|
|
|
(434)
|
|
|
(358)
|
|
|
340
|
|
|
(104)
|
|
|
108
|
|
|
117
|
|
Amortization of net actuarial loss
|
|
(529)
|
|
|
(491)
|
|
|
(398)
|
|
|
(104)
|
|
|
(121)
|
|
|
(89)
|
|
|
(56)
|
|
|
(47)
|
|
|
(37)
|
|
Foreign currency
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71)
|
|
|
79
|
|
|
7
|
|
|
(1)
|
|
|
(7)
|
|
|
(1)
|
|
Settlements, curtailments, special termination benefits and other
|
|
(23)
|
|
|
(16)
|
|
|
(35)
|
|
|
(1)
|
|
|
(1)
|
|
|
(8)
|
|
|
(3)
|
|
|
(3)
|
|
|
(5)
|
|
Total recognized in other comprehensive (income) loss
|
|
$
|
(1,142)
|
|
|
$
|
277
|
|
|
$
|
501
|
|
|
$
|
(608)
|
|
|
$
|
(398)
|
|
|
$
|
265
|
|
|
$
|
(131)
|
|
|
$
|
84
|
|
|
$
|
(64)
|
|
Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss
|
|
$
|
(1,022)
|
|
|
$
|
474
|
|
|
$
|
792
|
|
|
$
|
(566)
|
|
|
$
|
(316)
|
|
|
$
|
344
|
|
|
$
|
(87)
|
|
|
$
|
126
|
|
|
$
|
(8)
|
|
Weighted-average assumptions used to determine benefit obligations as of December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified and Non-qualified Pension Benefits
|
|
Postretirement
Benefits
|
|
|
United States
|
|
International
|
|
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Discount rate
|
|
2.89
|
%
|
|
2.55
|
%
|
|
3.25
|
%
|
|
1.80
|
%
|
|
1.38
|
%
|
|
1.81
|
%
|
|
2.88
|
%
|
|
2.50
|
%
|
|
3.27
|
%
|
Compensation rate increase
|
|
3.21
|
%
|
|
3.21
|
%
|
|
3.21
|
%
|
|
2.86
|
%
|
|
2.88
|
%
|
|
2.88
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
Weighted-average assumptions used to determine net cost for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified and Non-qualified Pension Benefits
|
|
Postretirement
Benefits
|
|
|
United States
|
|
International
|
|
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Discount rate - service cost
|
|
2.81
|
%
|
|
3.41
|
%
|
|
4.44
|
%
|
|
1.23
|
%
|
|
1.61
|
%
|
|
2.39
|
%
|
|
3.21
|
%
|
|
3.45
|
%
|
|
4.53
|
%
|
Discount rate - interest cost
|
|
1.92
|
%
|
|
2.87
|
%
|
|
4.02
|
%
|
|
1.13
|
%
|
|
1.61
|
%
|
|
2.26
|
%
|
|
2.20
|
%
|
|
3.00
|
%
|
|
4.15
|
%
|
Expected return on assets
|
|
6.50
|
%
|
|
6.75
|
%
|
|
7.00
|
%
|
|
4.36
|
%
|
|
4.70
|
%
|
|
4.90
|
%
|
|
6.15
|
%
|
|
6.32
|
%
|
|
6.43
|
%
|
Compensation rate increase
|
|
3.21
|
%
|
|
3.21
|
%
|
|
4.10
|
%
|
|
2.88
|
%
|
|
2.88
|
%
|
|
2.89
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
The Company provides eligible retirees in the U.S. postretirement health care benefit plans to a savings account benefits-based plan. The contributions provided by the Company to the health savings accounts increase 3 percent per year for employees who retired prior to January 1, 2016 and increase 1.5 percent for employees who retire on or after January 1, 2016. Therefore, the Company no longer has material exposure to health care cost inflation.
The Company determines the discount rate used to measure plan liabilities as of the December 31 measurement date for the pension and postretirement benefit plans, which is also the date used for the related annual measurement assumptions. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. The Company sets its rate to reflect the yield 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. Using this methodology, the Company determined a discount rate of 2.89% for the U.S. pension plans and 2.88% for the postretirement benefit plans as of December 31, 2021, which is an increase of 0.34 percentage points and 0.38 percentage points, respectively, from the rates used as of December 31, 2020. An increase in the discount rate decreases the Projected Benefit Obligation (PBO), the increase in the discount rate as of December 31, 2021 resulted in an approximately $0.9 billion lower benefit obligation for the U.S. pension and postretirement plans.
The Company measures service cost and interest cost 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.
For the primary U.S. qualified pension plan, the Company’s assumption for the expected return on plan assets was 6.50% in 2021. Projected returns are based primarily on broad, publicly traded equity and fixed-income indices and forward-looking estimates of active portfolio and investment management. As of December 31, 2021, the Company’s 2022 expected long-term rate of return on U.S. plan assets is 6.00%. The expected return assumption is based on the strategic asset allocation of the plan, long term capital market return expectations and expected performance from active investment management. The 2021 expected long-term rate of return is based on an asset allocation assumption of 22% global equities, 12% private equities, 50% fixed-income securities, and 16% absolute return investments independent of traditional performance benchmarks, along with positive returns from active investment management. The actual net rate of return on plan assets in 2021 was 6.7%. In 2020 the plan earned a rate of return of 13.6% and in 2019 earned a return of 16.3%. The average annual actual return on the plan assets over the past 10 and 25 years has been 8.6% and 8.7%, respectively. 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.
As of December 31, 2019, the Company converted to the “Pri-2012 Aggregate Mortality Table”. In 2021 the Company updated the mortality improvement scales to the Society of Actuaries Scale MP- 2021. The December 31, 2021 update resulted in an immaterial increase to the U.S. pension PBO and U.S. accumulated postretirement benefit obligations.
During 2021, the Company contributed $177 million to its U.S. and international pension plans and $3 million to its postretirement plans. During 2020, the Company contributed $153 million to its U.S. and international pension plans and $3 million to its postretirement plans. In 2022, the Company expects to contribute an amount in the range of $100 million to $200 million of cash to its U.S. and international retirement plans. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2022. Future contributions will depend on market conditions, interest rates and other factors.
Future Pension and Postretirement Benefit Payments
The following table provides the estimated pension and postretirement benefit payments that are payable from the plans to participants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified and Non-qualified
Pension Benefits
|
|
Postretirement
Benefits
|
(Millions)
|
|
United States
|
|
International
|
|
2022 Benefit Payments
|
|
$
|
1,120
|
|
|
$
|
271
|
|
|
$
|
131
|
|
2023 Benefit Payments
|
|
1,123
|
|
|
277
|
|
|
137
|
|
2024 Benefit Payments
|
|
1,122
|
|
|
290
|
|
|
144
|
|
2025 Benefit Payments
|
|
1,119
|
|
|
305
|
|
|
149
|
|
2026 Benefit Payments
|
|
1,118
|
|
|
320
|
|
|
155
|
|
Next five years
|
|
5,461
|
|
|
1,724
|
|
|
796
|
|
Plan Asset Management
3M’s investment strategy for its pension and postretirement plans is to manage the funds on a going-concern basis. The primary goal of the trust funds is to meet the obligations as required. The secondary goal is to earn the highest rate of return possible, without jeopardizing its primary goal, and without subjecting the Company to an undue amount of contribution risk. Fund returns are used to help finance present and future obligations to the extent possible within actuarially determined funding limits and tax-determined asset limits, thus reducing the potential need for additional contributions from 3M. The investment strategy has used long duration cash bonds and derivative instruments to offset a significant portion of the interest rate sensitivity of U.S. pension liabilities.
Normally, 3M does not buy or sell any of its own securities as a direct investment for its pension and other postretirement benefit funds. However, due to external investment management of the funds, the plans may indirectly buy, sell or hold 3M securities. The aggregate amount of 3M securities are not considered to be material relative to the aggregate fund percentages.
The discussion that follows references the fair value measurements of certain assets in terms of levels 1, 2 and 3. See Note 15 for descriptions of these levels. While the company believes the valuation methods 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.
U.S. Pension Plans and Postretirement Benefit Plan Assets
In order to achieve the investment objectives in the U.S. pension plans and U.S. postretirement benefit plans, the investment policies include a target strategic asset allocation. The investment policies allow some tolerance around the target in recognition that market fluctuations and illiquidity of some investments may cause the allocation to a specific asset class to vary from the target allocation, potentially for long periods of time. Acceptable ranges have been designed to allow for deviation from strategic targets and to allow for the opportunity for tactical over- and under-weights. The portfolios will normally be rebalanced when the quarter-end asset allocation deviates from acceptable ranges. The allocation is reviewed regularly by the named fiduciary of the plans. Approximately 65% of the postretirement benefit plan assets are in a 401(h) account. The 401(h) account assets are in the same trust as the primary U.S. pension plan and invested with the same investment objectives as the primary U.S. pension plan.
The fair values of the assets held by the U.S. pension plans by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Inputs Considered as
|
|
Fair Value at December 31,
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Asset Class (Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equities
|
|
$
|
1,875
|
|
|
$
|
2,082
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,875
|
|
|
$
|
2,082
|
|
Non-U.S. equities
|
|
1,465
|
|
|
2,041
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,465
|
|
|
2,041
|
|
Index and long/short equity funds*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
404
|
|
|
433
|
|
Total Equities
|
|
3,340
|
|
|
4,123
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,744
|
|
|
4,556
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
1,417
|
|
|
1,301
|
|
|
716
|
|
|
978
|
|
|
—
|
|
|
—
|
|
|
2,133
|
|
|
2,279
|
|
Non-U.S. government securities
|
|
—
|
|
|
—
|
|
|
89
|
|
|
71
|
|
|
—
|
|
|
—
|
|
|
89
|
|
|
71
|
|
Preferred and convertible securities
|
|
—
|
|
|
—
|
|
|
54
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
54
|
|
|
55
|
|
U.S. corporate bonds
|
|
11
|
|
|
10
|
|
|
4,620
|
|
|
4,501
|
|
|
—
|
|
|
—
|
|
|
4,631
|
|
|
4,511
|
|
Non-U.S. corporate bonds
|
|
—
|
|
|
—
|
|
|
883
|
|
|
820
|
|
|
—
|
|
|
—
|
|
|
883
|
|
|
820
|
|
Derivative instruments
|
|
11
|
|
|
(4)
|
|
|
6
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
3
|
|
Other*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
71
|
|
Total Fixed Income
|
|
1,439
|
|
|
1,307
|
|
|
6,368
|
|
|
6,432
|
|
|
—
|
|
|
—
|
|
|
7,939
|
|
|
7,810
|
|
Private Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth equity
|
|
58
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58
|
|
|
70
|
|
Partnership investments*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
|
1,801
|
|
Total Private Equity
|
|
58
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,061
|
|
|
1,871
|
|
Absolute Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income and other
|
|
1
|
|
|
—
|
|
|
166
|
|
|
134
|
|
|
—
|
|
|
—
|
|
|
167
|
|
|
134
|
|
Hedge fund/fund of funds*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,943
|
|
|
2,046
|
|
Partnership investments*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
567
|
|
Total Absolute Return
|
|
1
|
|
|
—
|
|
|
166
|
|
|
134
|
|
|
—
|
|
|
—
|
|
|
2,727
|
|
|
2,747
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
11
|
|
|
25
|
|
|
9
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
37
|
|
Repurchase agreements and derivative margin activity
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
Cash and cash equivalents, valued at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
678
|
|
|
475
|
|
Total Cash and Cash Equivalents
|
|
11
|
|
|
25
|
|
|
9
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
698
|
|
|
506
|
|
Total
|
|
$
|
4,849
|
|
|
$
|
5,525
|
|
|
$
|
6,543
|
|
|
$
|
6,572
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,169
|
|
|
$
|
17,490
|
|
Other items to reconcile to fair value of plan assets
|
|
|
|
|
|
|
|
|
|
(216)
|
|
|
(363)
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,953
|
|
|
$
|
17,127
|
|
* In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding and is determined by the investment manager or custodian of the fund. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
The fair values of the assets held by the postretirement benefit plans by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Inputs Considered as
|
|
Fair Value at December 31,
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Asset Class (Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equities
|
|
$
|
292
|
|
|
$
|
347
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
292
|
|
|
$
|
347
|
|
Non-U.S. equities
|
|
80
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
80
|
|
|
103
|
|
Index and long/short equity funds*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
31
|
|
Total Equities
|
|
372
|
|
|
450
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|
481
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
109
|
|
|
95
|
|
|
180
|
|
|
214
|
|
|
—
|
|
|
—
|
|
|
289
|
|
|
309
|
|
Non-U.S. government securities
|
|
—
|
|
|
—
|
|
|
7
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
6
|
|
U.S. corporate bonds
|
|
1
|
|
|
1
|
|
|
291
|
|
|
267
|
|
|
—
|
|
|
—
|
|
|
292
|
|
|
268
|
|
Non-U.S. corporate bonds
|
|
—
|
|
|
—
|
|
|
59
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
52
|
|
Derivative instruments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
3
|
|
Total Fixed Income
|
|
110
|
|
|
96
|
|
|
537
|
|
|
539
|
|
|
—
|
|
|
—
|
|
|
654
|
|
|
638
|
|
Private Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth equity
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
Partnership investments*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
95
|
|
Total Private Equity
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110
|
|
|
98
|
|
Absolute Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income and other
|
|
—
|
|
|
—
|
|
|
9
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
7
|
|
Hedge fund/fund of funds*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
100
|
|
Partnership investments*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
28
|
|
Total Absolute Return
|
|
—
|
|
|
—
|
|
|
9
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
143
|
|
|
135
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
20
|
|
|
25
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
26
|
|
Cash and cash equivalents, valued at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
23
|
|
Total Cash and Cash Equivalents
|
|
20
|
|
|
25
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
49
|
|
Total
|
|
$
|
505
|
|
|
$
|
574
|
|
|
$
|
546
|
|
|
$
|
547
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,363
|
|
|
$
|
1,401
|
|
Other items to reconcile to fair value of plan assets
|
|
|
|
|
|
|
|
|
|
(10)
|
|
|
(25)
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,353
|
|
|
$
|
1,376
|
|
*In accordance with ASC 820-10, certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding and is determined by the investment manager or custodian of the fund. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded.
Fixed income includes derivative instruments such as credit default swaps, interest rate swaps and futures contracts. Corporate debt includes bonds and notes, asset backed securities, collateralized mortgage obligations and private placements. Swaps and derivative instruments are valued by the custodian using closing market swap curves and market derived inputs. U.S. government and government agency bonds and notes are valued at the closing price reported in the active market in which the individual security is traded. Corporate bonds and notes, asset backed securities and collateralized mortgage obligations are valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments, but includes
adjustments for certain risks that may not be observable such as credit and liquidity risks. Private placements are valued by the custodian using recognized pricing services and sources.
The private equity portfolio is a diversified mix of derivative instruments, growth equity and partnership interests. Growth equity investments are valued at the closing price reported in the active market in which the individual securities are traded.
Absolute return consists primarily of partnership interests in hedge funds, hedge fund of funds or other private fund vehicles. Corporate debt instruments are valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risk ratings.
Other items to reconcile to fair value of plan assets include, interest receivables, amounts due for securities sold, amounts payable for securities purchased and interest payable.
There were no level 3 assets in the fair values of the U.S. pension and postretirement plans assets for the periods ended December 31, 2021 and 2020.
International Pension Plans Assets
Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees. The disclosure below of asset categories is presented in aggregate for over 70 defined benefit plans in 25 countries; however, there is significant variation in asset allocation policy from country to country. Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment allocation process in each country. The Company provides standard funding and investment guidance to all international plans with more focused guidance to the larger plans.
Each plan has its own strategic asset allocation. The asset allocations are reviewed periodically and rebalanced when necessary.
The fair values of the assets held by the international pension plans by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Inputs Considered as
|
|
Fair Value at December 31,
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Asset Class (Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth equities
|
|
$
|
315
|
|
|
$
|
547
|
|
|
$
|
181
|
|
|
$
|
209
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
496
|
|
|
$
|
756
|
|
Value equities
|
|
328
|
|
|
659
|
|
|
15
|
|
|
396
|
|
|
—
|
|
|
—
|
|
|
343
|
|
|
1,055
|
|
Core equities
|
|
107
|
|
|
46
|
|
|
547
|
|
|
99
|
|
|
5
|
|
|
4
|
|
|
659
|
|
|
149
|
|
Equities, valued at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
74
|
|
Total Equities
|
|
750
|
|
|
1,252
|
|
|
743
|
|
|
704
|
|
|
5
|
|
|
4
|
|
|
1,500
|
|
|
2,034
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic government
|
|
73
|
|
|
71
|
|
|
1,039
|
|
|
1,045
|
|
|
4
|
|
|
5
|
|
|
1,116
|
|
|
1,121
|
|
Foreign government
|
|
22
|
|
|
33
|
|
|
458
|
|
|
476
|
|
|
—
|
|
|
—
|
|
|
480
|
|
|
509
|
|
Corporate debt securities
|
|
32
|
|
|
34
|
|
|
2,389
|
|
|
2,470
|
|
|
10
|
|
|
11
|
|
|
2,431
|
|
|
2,515
|
|
Fixed income securities, valued at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893
|
|
|
563
|
|
Total Fixed Income
|
|
127
|
|
|
138
|
|
|
3,886
|
|
|
3,991
|
|
|
14
|
|
|
16
|
|
|
4,920
|
|
|
4,708
|
|
Private Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
2
|
|
|
128
|
|
|
58
|
|
|
86
|
|
|
5
|
|
|
5
|
|
|
65
|
|
|
219
|
|
Real estate, valued at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
92
|
|
Partnership investments*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
116
|
|
Total Private Equity
|
|
2
|
|
|
128
|
|
|
58
|
|
|
86
|
|
|
5
|
|
|
5
|
|
|
454
|
|
|
427
|
|
Absolute Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
—
|
|
|
—
|
|
|
20
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
1
|
|
Insurance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
504
|
|
|
555
|
|
|
504
|
|
|
555
|
|
Other
|
|
7
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
|
13
|
|
|
14
|
|
Other, valued at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
1
|
|
Hedge funds*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535
|
|
|
410
|
|
Total Absolute Return
|
|
7
|
|
|
8
|
|
|
20
|
|
|
1
|
|
|
510
|
|
|
561
|
|
|
1,072
|
|
|
981
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
145
|
|
|
149
|
|
|
46
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
191
|
|
|
200
|
|
Cash and cash equivalents, valued at net asset value*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
Total Cash and Cash Equivalents
|
|
145
|
|
|
149
|
|
|
46
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
192
|
|
|
201
|
|
Total
|
|
$
|
1,031
|
|
|
$
|
1,675
|
|
|
$
|
4,753
|
|
|
$
|
4,833
|
|
|
$
|
534
|
|
|
$
|
586
|
|
|
$
|
8,138
|
|
|
$
|
8,351
|
|
Other items to reconcile to fair value of plan assets
|
|
|
|
|
|
|
|
|
|
(122)
|
|
|
(157)
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,016
|
|
|
$
|
8,194
|
|
*In accordance with ASC 820-10, certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding and is determined by the investment manager or custodian of the fund. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
Equities consist primarily of mandates in public equity securities managed to various public equity indices. Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded.
Fixed Income investments include domestic and foreign government, and corporate, (including mortgage backed and other debt) securities. Governments, corporate bonds and notes and mortgage backed securities are valued at the closing price reported if traded on an active market or at yields currently available on comparable securities of issuers with similar credit
ratings or valued under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.
Private equity funds consist of partnership interests in a variety of funds. Real estate consists of property funds and REITS (Real Estate Investment Trusts). REITS are valued at the closing price reported in the active market in which it is traded.
Absolute return consists of private partnership interests in hedge funds, insurance contracts, derivative instruments, hedge fund of funds, and other alternative investments. Insurance consists of insurance contracts, which are valued using cash surrender values which is the amount the plan would receive if the contract was cashed out at year end. Derivative instruments consist of various swaps and bond futures that are used to help manage risks.
Other items to reconcile to fair value of plan assets include the net of interest receivables, amounts due for securities sold, amounts payable for securities purchased and interest payable.
The balances of and changes in the fair values of the international pension plans’ level 3 assets consist primarily of insurance contracts under the absolute return asset class. In 2021 the aggregate of net purchases and net unrealized gains and losses decreased this balance by $7 million and the change in currency exchange rates decreased this balance by $44 million for a net decrease of $51 million. In 2020 the aggregate net purchases and net unrealized gains decreased this balance by $1 million and the change in currency exchange rates increased the balance by $44 million for a net increase to this balance of $43 million.
NOTE 14. Derivatives
The Company uses interest rate swaps, currency swaps, and forward and option contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments used by 3M, how and why 3M uses such instruments, how such instruments are accounted for, and how such instruments impact 3M’s financial position and performance.
Additional information with respect to derivatives is included elsewhere as follows:
•Impact on other comprehensive income of nonderivative hedging and derivative instruments is included in Note 8.
•Fair value of derivative instruments is included in Note 15.
•Derivatives and/or hedging instruments associated with the Company’s long-term debt are also described in Note 12.
Refer to the section below titled Statement of Income Location and Impact of Cash Flow and Fair Value Derivative Instruments
and Derivatives Not Designated as Hedging Instruments for details on the location within the consolidated statements of
income for amounts of gains and losses related to derivative instruments designated as cash flow or fair value hedges (along
with similar information relative to the hedged items) and derivatives not designated as hedging instruments. Additional
information relative to cash flow hedges, fair value hedges, net investment hedges and derivatives not designated as hedging
instruments is included below as applicable.
Cash Flow Hedges:
For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Cash Flow Hedging - Foreign Currency Forward and Option Contracts: 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. The settlement or extension of these derivatives will result in reclassifications (from accumulated other comprehensive income) to earnings in the period during which the hedged transactions affect earnings. 3M may de-designate these cash flow hedge relationships in advance of the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously included in accumulated other comprehensive income for de-designated hedges remains in accumulated other comprehensive income until the forecasted transaction occurs or becomes probable of not occurring. Changes in the value of derivative instruments after de-designation are recorded in earnings and are included in the Derivatives Not Designated as Hedging Instruments section below. 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.
Cash Flow Hedging — Interest Rate Contracts: The Company may use forward starting interest rate contracts and treasury rate lock contracts to hedge exposure to variability in cash flows from interest payments on forecasted debt issuances.
During 2019, the Company entered into additional forward starting interest rate swaps with a notional amount of $743 million. These swaps, as well as $700 million of notional amount in existing outstanding swaps had been designated as hedges against interest rate volatility associated with forecasted issuances of fixed rate debt. Concurrent with the issuance of the medium-term notes in February 2019 and the additional issuance of registered notes in August 2019, 3M terminated all outstanding interest rate swaps related to forecasted issuances of debt. These terminations resulted in a net loss of $143 million within accumulated other comprehensive income that will be amortized over the respective lives of the debt.
In March 2020, the Company entered into treasury rate lock contracts with a notional amount of $500 million that were terminated concurrently with the March 2020 issuance of registered notes as discussed in Note 12. The termination resulted in an immaterial net loss within accumulated other comprehensive income that will be amortized for the respective lives of the debt.
The amortization of gains and losses on forward starting interest rate swaps is included in the tables below as part of the gain/(loss) reclassified from accumulated other comprehensive income into income.
As of December 31, 2021, the Company had a balance of $54 million associated with the after-tax net unrealized loss associated with cash flow hedging instruments recorded in accumulated other comprehensive income. This includes a remaining balance of $100 million (after-tax loss) related to the forward starting interest rate swap and treasury rate lock contacts, which will be amortized over the respective lives of the notes. Based on exchange rates as of December 31, 2021, of the total after-tax net unrealized balance as of December 31, 2021, 3M expects to reclassify approximately $22 million after-tax net unrealized gain over the next 12 months (with the impact offset by earnings/losses from underlying hedged items).
The amount of pretax gain (loss) recognized in other comprehensive income related to derivative instruments designated as cash
flow hedges is provided in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax Gain (Loss) Recognized in Other
Comprehensive Income on Derivative
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Foreign currency forward/option contracts
|
|
$
|
108
|
|
|
$
|
(111)
|
|
|
$
|
96
|
|
Interest rate contracts
|
|
—
|
|
|
(2)
|
|
|
(122)
|
|
Total
|
|
$
|
108
|
|
|
$
|
(113)
|
|
|
$
|
(26)
|
|
Fair Value Hedges:
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.
Fair Value Hedging - Interest Rate Swaps: The Company manages interest expense 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 mark-to-market of these fair value hedges is recorded as gains or losses in interest expense and is offset by the gain or loss of the underlying debt instrument, which also is recorded in interest expense.
In November 2013, 3M issued a Eurobond which was due in 2021 for a face amount of 600 million euros. Upon debt issuance, 3M completed a fixed-to-floating interest rate swap on a notional amount of 300 million euros as a fair value hedge of a portion of the fixed interest rate Eurobond obligation. This interest rate swap matured in conjunction with the repayment of the Eurobond in November 2021.
In June 2014, 3M issued $950 million aggregate principal amount of medium-term notes. Upon debt issuance, the Company entered into an interest rate swap to convert $600 million of a $625 million note that was due in 2019, included in this issuance, to an interest rate based on a floating three-month LIBOR index as a fair value hedge of a portion of the fixed interest rate medium-term note obligation. This interest rate swap matured in conjunction with the repayment of the $625 million aggregate principal amount of fixed-rate medium notes that matured in June 2019.
In August 2015, 3M issued $1.5 billion aggregate principal amount of medium-term notes. Upon debt issuance, the Company entered into two interest rate swaps as fair value hedges of a portion of the fixed interest rate medium-term note obligation. The first converted a $450 million three-year fixed rate note that matured in August 2018 at which time the associated interest rate swap also matured, and the second converted $300 million of a five-year fixed rate note that matured in August 2020 at which time the associated interest rate swap also matured.
In the fourth quarter of 2017, the Company entered into an interest rate swap as a fair value hedge with a notional amount of $200 million that converted the company’s fixed-rate medium-term note that matured in August 2020 at which time the associated interest rate swap also matured.
In September 2018, the Company entered into an interest rate swap with a notional amount of $200 million that converted a portion of the Company’s $400 million aggregate principal amount of fixed rate medium-term notes due 2021 into a floating rate note with an interest rate based on a three-month LIBOR index as a hedge of its exposure to changes in fair value that are attributable to interest rate risk. The Company terminated this interest rate swap in conjunction with the early debt repayment in December 2020 of $400 million aggregate principal amount of fixed-rate medium notes further described in Note 12.
During the second and third quarters of 2021, 3M entered into interest rate swaps with an aggregate notional amount of
$800 million. These swaps converted $500 million and $300 million of 3M’s $1.0 billion and $650 million principal amount of
fixed rate notes due 2049 and 2050, respectively, into floating rate debt for the portion of their terms through mid-2028 with an
interest rate based on a three-month LIBOR index.
The following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value of the
Hedged Liabilities
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Liabilities
|
Location on the Consolidated Balance Sheet (Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Short-term borrowings and current portion of long-term debt
|
|
$
|
—
|
|
|
$
|
373
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Long-term debt
|
|
997
|
|
|
225
|
|
|
(4)
|
|
|
6
|
|
Total
|
|
$
|
997
|
|
|
$
|
598
|
|
|
$
|
(4)
|
|
|
$
|
11
|
|
Net Investment Hedges:
The Company may use non-derivative (foreign currency denominated debt) and derivative (foreign exchange forward contracts) instruments to hedge portions of the Company’s investment in foreign subsidiaries and manage foreign exchange risk. For instruments that are designated and qualify as hedges of net investments in foreign operations and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within other comprehensive income. The remainder of the change in value of such instruments is recorded in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. To the extent foreign currency denominated debt is not designated in or is de-designated from a net investment hedge relationship, changes in value of that portion of foreign currency denominated debt due to exchange rate changes are recorded in earnings through their maturity date.
3M’s use of foreign exchange forward contracts designated in hedges of the Company’s net investment in foreign subsidiaries can vary by time period depending on when foreign currency denominated debt balances designated in such relationships are de-designated, matured, or are newly issued and designated. Additionally, variation can occur in connection with the extent of the Company’s desired foreign exchange risk coverage.
At December 31, 2021, the total notional amount of foreign exchange forward contracts designated in net investment hedges was approximately 150 million euros, along with a principal amount of long-term debt instruments designated in net investment hedges totaling 2.9 billion euros. The maturity dates of these derivative and nonderivative instruments designated in net investment hedges range from 2022 to 2031.
The amount of gain (loss) excluded from effectiveness testing recognized in income relative to instruments designated in net investment hedge relationships is not material. The amount of pretax gain (loss) recognized in other comprehensive income related to derivative and nonderivative instruments designated as net investment hedges are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax Gain (Loss) Recognized as Cumulative Translation within Other Comprehensive Income
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Foreign currency denominated debt
|
|
$
|
296
|
|
|
$
|
(351)
|
|
|
$
|
108
|
|
Foreign currency forward contracts
|
|
8
|
|
|
(1)
|
|
|
32
|
|
Total
|
|
$
|
304
|
|
|
$
|
(352)
|
|
|
$
|
140
|
|
Derivatives Not Designated as Hedging Instruments:
Derivatives not designated as hedging instruments include de-designated foreign currency forward and option contracts that formerly were designated in cash flow hedging relationships (as referenced in the Cash Flow Hedges section above). 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. These derivative instruments are not designated in hedging relationships; therefore, fair value gains and losses on these contracts are recorded in earnings. The Company does not hold or issue derivative financial instruments for trading purposes.
Statement of Income Location and Impact of Cash Flow and Fair Value Derivative Instruments and Derivatives Not Designated as Hedging Instruments
The location in the consolidated statement of income and pre-tax amounts recognized in income related to derivative instruments designated in a cash flow or fair value hedging relationship and for derivatives not designated as hedging instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss) Recognized in Income
|
|
|
Cost of sales
|
|
Other expense (income), net
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Information regarding cash flow and fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of cash flow or fair value hedges are recorded
|
|
$
|
18,795
|
|
|
$
|
16,605
|
|
|
$
|
17,136
|
|
|
165
|
|
|
366
|
|
|
531
|
|
Gain or (loss) on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward/option contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income
|
|
(38)
|
|
|
80
|
|
|
74
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
(9)
|
|
|
(4)
|
|
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
4
|
|
|
(8)
|
|
Derivatives designated as hedging instruments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16)
|
|
|
(4)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (loss) on derivatives not designated as instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward/option contracts
|
|
5
|
|
|
2
|
|
|
2
|
|
|
(11)
|
|
|
43
|
|
|
(13)
|
|
Location, Fair Value and Gross Notional Amounts of Derivative Instruments:
The following tables summarize the fair value of 3M’s derivative instruments, excluding nonderivative instruments used as hedging instruments, and their location in the consolidated balance sheet. Notional amounts below are presented at period end foreign exchange rates, except for certain interest rate swaps, which are presented using the inception date’s foreign exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Notional Amount
|
|
Assets
|
|
Liabilities
|
|
|
|
Location
|
|
Fair Value Amount
|
|
Location
|
|
Fair Value Amount
|
(Millions)
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward/option contracts
|
|
1,768
|
|
|
1,630
|
|
|
Other current assets
|
|
$
|
54
|
|
|
$
|
14
|
|
|
Other current liabilities
|
|
$
|
19
|
|
|
$
|
67
|
|
Foreign currency forward/option contracts
|
|
800
|
|
|
669
|
|
|
Other assets
|
|
41
|
|
|
10
|
|
|
Other liabilities
|
|
1
|
|
|
25
|
|
Interest rate contracts
|
|
—
|
|
|
403
|
|
|
Other current assets
|
|
—
|
|
|
7
|
|
|
Other current liabilities
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
|
800
|
|
|
—
|
|
|
Other Assets
|
|
—
|
|
|
—
|
|
|
Other liabilities
|
|
9
|
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
95
|
|
|
31
|
|
|
|
|
29
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward/option contracts
|
|
3,731
|
|
|
3,166
|
|
|
Other current assets
|
|
24
|
|
|
13
|
|
|
Other current liabilities
|
|
4
|
|
|
14
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
24
|
|
|
13
|
|
|
|
|
4
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments
|
|
|
|
|
|
|
|
$
|
119
|
|
|
$
|
44
|
|
|
|
|
$
|
33
|
|
|
$
|
106
|
|
Credit Risk and Offsetting of Assets and Liabilities of Derivative Instruments:
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. 3M enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a result of multiple, separate derivative transactions. The Company does not anticipate nonperformance by any of these counterparties.
3M has elected to present the fair value of derivative assets and liabilities within the Company’s consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. However, the following tables provide information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default or termination as stipulated by the terms of netting arrangements with each of the counterparties. For each counterparty, if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period based on the 3M entity that is a party to the transactions. Derivatives not subject to master netting agreements are not eligible for net presentation.
Offsetting of Financial Assets under Master Netting Agreements with Derivative Counterparties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet
|
|
Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
|
|
Net Amount of Derivative Assets
|
|
|
|
Gross Amount of Eligible Offsetting Recognized Derivative Liabilities
|
|
Cash Collateral Received
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Derivatives subject to master netting agreements
|
|
$
|
119
|
|
|
$
|
44
|
|
|
$
|
25
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
94
|
|
|
$
|
33
|
|
Derivatives not subject to master netting agreements
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
119
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
$
|
94
|
|
|
$
|
33
|
|
Offsetting of Financial Liabilities under Master Netting Agreements with Derivative Counterparties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet
|
|
Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
|
|
Net Amount of Derivative Liabilities
|
|
|
|
Gross Amount of Eligible Offsetting
Recognized Derivative Assets
|
|
Cash Collateral Received
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Derivatives subject to master netting agreements
|
|
$
|
33
|
|
|
$
|
106
|
|
|
$
|
25
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
95
|
|
Derivatives not subject to master netting agreements
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
33
|
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
$
|
8
|
|
|
$
|
95
|
|
Foreign Currency Effects
3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, decreased pre-tax income by approximately $105 million in 2021, 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.
NOTE 15. Fair Value Measurements
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:
For 3M, assets and liabilities that are measured at fair value on a recurring basis primarily relate to available-for-sale marketable securities and certain derivative instruments. Derivatives include cash flow hedges, interest rate swaps and net investment hedges. The information in the following paragraphs and tables primarily addresses matters relative to these financial assets and liabilities. Separately, there were no material fair value measurements with respect to nonfinancial assets or liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis for 2021 and 2020.
3M uses various valuation techniques, which are primarily based upon the market and income approaches, with respect to financial assets and liabilities. Following is a description of the valuation methodologies used for the respective financial assets and liabilities measured at fair value.
Available-for-sale marketable securities — except certain U.S. municipal securities:
Marketable securities, except certain U.S. municipal securities, are valued utilizing multiple sources. A weighted average price is used for these securities. Market prices are obtained for these securities from a variety of industry standard data providers, security master files from large financial institutions, and other third-party sources. These multiple prices are used as inputs into a distribution-curve-based algorithm to determine the daily fair value to be used. 3M classifies U.S. treasury securities as level
1, while all other marketable securities (excluding certain U.S. municipal securities) are classified as level 2. Marketable securities are discussed further in Note 11.
Available-for-sale marketable securities —certain U.S. municipal securities only:
3M holds municipal securities with several cities in the United States as of December 31, 2021. Due to the nature of these securities, the valuation method references the carrying value of the corresponding finance lease obligation, and as such, will be classified as level 3 securities separately.
Derivative instruments:
The Company’s derivative assets and liabilities within the scope of ASC 815, Derivatives and Hedging, are required to be recorded at fair value. The Company’s derivatives that are recorded at fair value include foreign currency forward and option contracts, interest rate swaps, and net investment hedges where the hedging instrument is recorded at fair value. Net investment hedges that use foreign currency denominated debt to hedge 3M’s net investment are not impacted by the fair value measurement standard under ASC 820, as the debt used as the hedging instrument is marked to a value with respect to changes in spot foreign currency exchange rates and not with respect to other factors that may impact fair value.
3M has determined that foreign currency forwards, currency swaps, foreign currency options, interest rate swaps and cross-currency swaps will be considered level 2 measurements. 3M uses inputs other than quoted prices that are observable for the asset. These inputs include foreign currency exchange rates, volatilities, and interest rates. Derivative positions are primarily valued using standard calculations/models that use as their basis readily observable market parameters. Industry standard data providers are 3M’s primary source for forward and spot rate information for both interest rates and currency rates, with resulting valuations periodically validated through third-party or counterparty quotes and a net present value stream of cash flows model.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis.
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Fair Value Measurements Using Inputs Considered as
|
Description
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|
Fair Value
|
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Level 1
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Level 2
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|
Level 3
|
At December 31, (Millions)
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|
2021
|
|
2020
|
|
2021
|
|
2020
|
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2021
|
|
2020
|
|
2021
|
|
2020
|
Assets:
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|
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|
|
|
|
Available-for-sale:
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|
|
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|
|
|
|
|
|
|
|
|
|
Marketable securities:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
|
109
|
|
|
237
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|
|
—
|
|
|
—
|
|
|
109
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|
|
237
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|
|
—
|
|
|
—
|
|
Certificates of deposit/time deposits
|
|
14
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
31
|
|
|
—
|
|
|
—
|
|
U.S. treasury securities
|
|
75
|
|
|
125
|
|
|
75
|
|
|
125
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
U.S. municipal securities
|
|
30
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
34
|
|
Derivative instruments — assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward/option contracts
|
|
119
|
|
|
37
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|
|
—
|
|
|
—
|
|
|
119
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|
|
37
|
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
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|
|
|
|
|
|
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|
|
|
|
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|
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Liabilities:
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|
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|
|
|
|
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|
|
|
|
Derivative instruments — liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward/option contracts
|
|
24
|
|
|
106
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
106
|
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (level 3).
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Marketable securities — certain U.S. municipal securities only
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Beginning balance
|
|
$
|
34
|
|
|
$
|
46
|
|
|
$
|
40
|
|
Total gains or losses:
|
|
|
|
|
|
|
Included in earnings
|
|
—
|
|
|
—
|
|
|
—
|
|
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchases and issuances
|
|
—
|
|
|
10
|
|
|
9
|
|
Sales and settlements
|
|
(4)
|
|
|
(22)
|
|
|
(3)
|
|
Transfers in and/or out of level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
|
30
|
|
|
34
|
|
|
46
|
|
Change in unrealized gains or losses for the period included in earnings for securities held at the end of the reporting period
|
|
—
|
|
|
—
|
|
|
—
|
|
In addition, the plan assets of 3M’s pension and postretirement benefit plans are measured at fair value on a recurring basis (at least annually). Refer to Note 13.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis:
Disclosures are required for certain assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis in periods subsequent to initial recognition. For 3M, such measurements of fair value primarily relate to indefinite-lived and long-lived asset impairments, goodwill impairments, and adjustment in carrying value of equity securities for which the measurement alternative of cost less impairment plus or minus observable price changes is used. There were no material long-lived asset impairments for 2019 and 2021. There were no material adjustments to equity securities using the measurement alternative for 2019 and 2021. 3M reflected an immaterial charge related to impairment of certain indefinite-lived assets and a net charge of $22 million related to adjustment to the carrying value of equity securities using the measurement alternative during the first quarter of 2020.
Fair Value of Financial Instruments:
The Company’s financial instruments include cash and cash equivalents, marketable securities, held-to-maturity debt securities, accounts receivable, certain investments, accounts payable, borrowings, and derivative contracts. The fair values of cash equivalents, accounts receivable, held-to-maturity debt securities, accounts payable, and short-term borrowings and current portion of long-term debt approximated carrying values because of the short-term nature of these instruments. Available-for-sale marketable securities, in addition to certain derivative instruments, are recorded at fair values as indicated in the preceding disclosures. To estimate fair values (classified as level 2) for its long-term debt, the Company utilized third-party quotes, which are derived all or in part from model prices, external sources, market prices, or the third-party’s internal records. Information with respect to the carrying amounts and estimated fair values of these financial instruments follow:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
December 31, 2020
|
(Millions)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Long-term debt, excluding current portion
|
|
$
|
16,056
|
|
|
$
|
17,601
|
|
|
$
|
17,989
|
|
|
$
|
20,496
|
|
The fair values reflected above consider the terms of the related debt absent the impacts of derivative/hedging activity. The carrying amount of long-term debt referenced above is impacted by certain fixed-to-floating interest rate swaps that are designated as fair value hedges and by the designation of certain fixed rate Eurobond securities issued by the Company as hedging instruments of the Company’s net investment in its European subsidiaries. A number of 3M’s fixed-rate bonds were trading at a premium at December 31, 2021 and 2020 due to the lower interest rates and tighter credit spreads compared to issuance levels.
NOTE 16. Commitments and Contingencies
Warranties/Guarantees:
3M’s accrued product warranty liabilities, recorded on the Consolidated Balance Sheet as part of current and long-term liabilities, are estimated at approximately $48 million at December 31, 2021, and $46 million at December 31, 2020. Further information on product warranties is not disclosed, as the Company considers the balance immaterial to its consolidated results of operations and financial condition. 3M guarantees of loans with third parties and other guarantee arrangements are not material.
Legal Proceedings:
The Company and some of its subsidiaries are involved in numerous claims and lawsuits, principally in the United States, and regulatory proceedings worldwide. These claims, lawsuits and proceedings include, but are not limited to, products liability (involving products that the Company now or formerly manufactured and sold), intellectual property, commercial, antitrust, federal healthcare program related laws and regulations, such as the False Claims Act and anti-kickback laws, securities, and environmental laws in the United States and other jurisdictions. Unless otherwise stated, the Company is vigorously defending all such litigation and proceedings. From time to time, the Company also receives subpoenas, investigative demands or requests for information from various government agencies. The Company generally responds in a cooperative, thorough and timely manner. These responses sometimes require time and effort and can result in considerable costs being incurred by the Company. Such requests can also lead to the assertion of claims or the commencement of administrative, civil or criminal legal proceedings against the Company and others, as well as to settlements. The outcomes of legal proceedings and regulatory matters are often difficult to predict. Any determination that the Company’s operations or activities are not, or were not, in compliance with applicable laws or regulations could result in the imposition of fines, civil or criminal penalties, and equitable remedies, including disgorgement, suspension or debarment or injunctive relief.
Process for Disclosure and Recording of Liabilities Related to Legal Proceedings
Many lawsuits and claims involve highly complex issues relating to causation, scientific evidence, and alleged actual damages, all of which are otherwise subject to substantial uncertainties. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. When making determinations about recording liabilities related to legal proceedings, the Company complies with the requirements of ASC 450, Contingencies, and related guidance, and records liabilities in those instances where it can reasonably estimate the amount of the loss and when the loss is probable. Where the reasonable estimate of the probable loss is a range, the Company records as an accrual in its financial statements the most likely estimate of the loss, or the low end of the range if there is no one best estimate. The Company 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. The Company discloses significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or both, if the Company believes there is at least a reasonable possibility that a loss may be incurred.
Because litigation is subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be no certainty that the Company may not ultimately incur charges in excess of presently recorded liabilities. Many of the matters described are at preliminary stages or seek an indeterminate amount of damages. It is not uncommon for claims to be resolved over many years. A future adverse ruling, settlement, unfavorable development, or increase in accruals for one or more of these matters could result in future charges that could have a material adverse effect on the Company’s results of operations or cash flows in the period in which they are recorded. Based on experience and developments, the Company reexamines its estimates of probable liabilities and associated expenses and receivables each period, and whether it is able to estimate a liability previously determined to be not estimable and/or not probable. Where appropriate, the Company makes additions to or adjustments of its estimated liabilities. As a result, the current estimates of the potential impact on the Company’s consolidated financial position, results of operations and cash flows for the legal proceedings and claims pending against the Company could change in the future.
Process for Disclosure and Recording of Insurance Receivables Related to Legal Proceedings
The Company estimates insurance receivables based on an analysis of the terms of its numerous policies, including their exclusions, pertinent case law interpreting comparable policies, its experience with similar claims, and assessment of the nature of the claim and remaining coverage, and records an amount it has concluded is recognizable and expects to receive in light of the loss recovery and/or gain contingency models under ASC 450, ASC 610-30, and related guidance. For those insured legal proceedings where the Company has recorded an accrued liability in its financial statements, the Company also records
receivables for the amount of insurance that it concludes as recognizable from the Company’s insurance program. For those insured matters where the Company has not recorded an accrued liability because the liability is not probable or the amount of the liability is not estimable, or both, but where the Company has incurred an expense in defending itself, the Company records receivables for the amount of insurance that it concludes as recognizable for the expense incurred.
The following sections first describe the significant legal proceedings in which the Company is involved, and then describe the liabilities and associated insurance receivables the Company has accrued relating to its significant legal proceedings.
Respirator Mask/Asbestos Litigation
As of December 31, 2021, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various courts that purport to represent approximately 3,876 individual claimants, compared to approximately 2,075 individual claimants with actions pending on December 31, 2020.
The vast majority of the lawsuits and claims resolved by and currently pending against the Company allege use of some of the Company’s mask and respirator products and seek damages from the Company and other defendants for alleged personal injury from workplace exposures to asbestos, silica, coal mine dust or other occupational dusts found in products manufactured by other defendants or generally in the workplace. A minority of the lawsuits and claims resolved by and currently pending against the Company generally allege personal injury from occupational exposure to asbestos from products previously manufactured by the Company, which are often unspecified, as well as products manufactured by other defendants, or occasionally at Company premises.
The Company’s current volume of new and pending matters is substantially lower than it experienced at the peak of filings in 2003. The Company expects that filing of claims by unimpaired claimants in the future will continue to be at much lower levels than in the past. Accordingly, the number of claims alleging more serious injuries, including mesothelioma, other malignancies, and black lung disease, will represent a greater percentage of total claims than in the past. Over the past twenty plus years, the Company has prevailed in fifteen of the sixteen cases tried to a jury (including the lawsuits in 2018 described below). In 2018, 3M received a jury verdict in its favor in two lawsuits – one in California state court in February and the other in Massachusetts state court in December – both involving allegations that 3M respirators were defective and failed to protect the plaintiffs against asbestos fibers. In April 2018, a jury in state court in Kentucky found 3M’s 8710 respirators failed to protect two coal miners from coal mine dust and awarded compensatory damages of approximately $2 million and punitive damages totaling $63 million. In August 2018, the trial court entered judgment and the Company appealed. During March and April 2019, the Company agreed in principle to settle a substantial majority of the then-pending coal mine dust lawsuits in Kentucky and West Virginia for $340 million, including the jury verdict in April 2018 in the Kentucky case mentioned above. That settlement was completed in 2019, and the appeal has been dismissed. In October 2020, 3M defended a respirator case before a jury in King County, Washington, involving a former shipyard worker who alleged 3M’s 8710 respirator was defective and that 3M acted negligently in failing to protect him against asbestos fibers. The jury delivered a complete defense verdict in favor of 3M, concluding that the 8710 respirator was not defective in design or warnings and any conduct by 3M was not a cause of plaintiff’s mesothelioma. The plaintiff’s appeal is pending. A ruling is expected during the first quarter of 2022.
The Company has demonstrated in these past trial proceedings that its respiratory protection products are effective as claimed when used in the intended manner and in the intended circumstances. Consequently, the Company believes that claimants are unable to establish that their medical conditions, even if significant, are attributable to the Company’s respiratory protection products. Nonetheless, the Company’s litigation experience indicates that claims of persons alleging more serious injuries, including mesothelioma, other malignancies, and black lung disease, are costlier to resolve than the claims of unimpaired persons, and it therefore believes the average cost of resolving pending and future claims on a per-claim basis will continue to be higher than it experienced in prior periods when the vast majority of claims were asserted by medically unimpaired claimants. Since the second half of 2020, the Company has experienced an increase in the number of cases filed that allege injuries from exposures to coal mine dust; that increase represents the substantial majority of the growth in case numbers referred to above.
As previously reported, the State of West Virginia, through its Attorney General, filed a complaint in 2003 against the Company and two other manufacturers of respiratory protection products in the Circuit Court of Lincoln County, West Virginia, and amended its complaint in 2005. The amended complaint seeks substantial, but unspecified, compensatory damages primarily for reimbursement of the costs allegedly incurred by the State for worker’s compensation and healthcare benefits provided to all workers with occupational pneumoconiosis and unspecified punitive damages. In October 2019, the court granted the State’s motion to sever its unfair trade practices claim. In January 2020, the manufacturers filed a petition with the West Virginia Supreme Court, challenging the trial court’s rulings; that petition was denied in November 2020. Trial for the unfair trade practices claims has been set for August 2022. No liability has been recorded for this matter because the Company believes that liability is not probable and reasonably estimable at this time. In addition, the Company is not able to estimate a possible loss or range of loss given the lack of any meaningful discovery responses by the State of West Virginia, the otherwise
minimal activity in this case, and the assertions of claims against two other manufacturers where a defendant’s share of liability may turn on the law of joint and several liability and by the amount of fault, if any, a jury may allocate to each defendant if the case were ultimately tried.
Respirator Mask/Asbestos Liabilities and Insurance Receivables
The Company regularly conducts a comprehensive legal review of its respirator mask/asbestos liabilities. The Company reviews recent and historical claims data, including without limitation, (i) the number of pending claims filed against the Company, (ii) the nature and mix of those claims (i.e., the proportion of claims asserting usage of the Company’s mask or respirator products and alleging exposure to each of asbestos, silica, coal or other occupational dusts, and claims pleading use of asbestos-containing products allegedly manufactured by the Company), (iii) the costs to defend and resolve pending claims, and (iv) trends in filing rates and in costs to defend and resolve claims, (collectively, the “Claims Data”). As part of its comprehensive legal review, the Company regularly provides the Claims Data to a third party with expertise in determining the impact of Claims Data on future filing trends and costs. The third party assists the Company in estimating the costs to defend and resolve pending and future claims. The Company uses these estimates to develop its best estimate of probable liability.
Developments may occur that could affect the Company’s estimate of its liabilities. These developments include, but are not limited to, significant changes in (i) the key assumptions underlying the Company’s accrual, including the number of future claims, the nature and mix of those claims, the average cost of defending and resolving claims, and in maintaining trial readiness, (ii) trial and appellate outcomes, (iii) the law and procedure applicable to these claims, and (iv) the financial viability of other co-defendants and insurers.
As a result of its review of its respirator mask/asbestos liabilities, of pending and expected lawsuits and of the cost of resolving claims of persons who claim more serious injuries, including mesothelioma, other malignancies, and black lung disease, the Company increased its accruals in 2021 for respirator mask/asbestos liabilities by $74 million. In 2021, the Company made payments for legal defense costs and settlements of $96 million related to the respirator mask/asbestos litigation. As previously disclosed, during the first quarter of 2019, the Company recorded a pre-tax charge of $313 million in conjunction with an increase in the accrual as a result of the March and April 2019 settlements-in-principle of the coal mine dust lawsuits mentioned above and the Company’s assessment of other then current and expected coal mine dust lawsuits (including the costs to resolve all then current and expected coal mine dust lawsuits in Kentucky and West Virginia at the time of the charge). As of December 31, 2021, the Company had an accrual for respirator mask/asbestos liabilities (excluding Aearo accruals) of $640 million. This accrual represents the Company’s best estimate of probable loss and reflects an estimation period for future claims that may be filed against the Company approaching the year 2050. The Company cannot estimate the amount or upper end of the range of amounts by which the liability may exceed the accrual the Company has established because of the (i) inherent difficulty in projecting the number of claims that have not yet been asserted or the time period in which future claims may be asserted, (ii) the complaints nearly always assert claims against multiple defendants where the damages alleged are typically not attributed to individual defendants so that a defendant’s share of liability may turn on the law of joint and several liability, which can vary by state, (iii) the multiple factors described above that the Company considers in estimating its liabilities, and (iv) the several possible developments described above that may occur that could affect the Company’s estimate of liabilities.
As of December 31, 2021, the Company’s receivable for insurance recoveries related to the respirator mask/asbestos litigation was $4 million. The Company continues to seek coverage under the policies of certain insolvent and other insurers. Once those claims for coverage are resolved, the Company will have collected substantially all of its remaining insurance coverage for respirator mask/asbestos claims.
Respirator Mask/Asbestos Litigation — Aearo Technologies
On April 1, 2008, a subsidiary of the Company acquired the stock of Aearo Holding Corp., the parent of Aearo Technologies (“Aearo”). Aearo manufactured and sold various products, including personal protection equipment, such as eye, ear, head, face, fall and certain respiratory protection products.
As of December 31, 2021, Aearo and/or other companies that previously owned and operated Aearo’s respirator business (American Optical Corporation, Warner-Lambert LLC, AO Corp. and Cabot Corporation (“Cabot”)) are named defendants, with multiple co-defendants, including the Company, in numerous lawsuits in various courts in which plaintiffs allege use of mask and respirator products and seek damages from Aearo and other defendants for alleged personal injury from workplace exposures to asbestos, silica-related, coal mine dust, or other occupational dusts found in products manufactured by other defendants or generally in the workplace.
As of December 31, 2021, the Company, through its Aearo subsidiary, had accruals of $46 million for product liabilities and defense costs related to current and future Aearo-related asbestos, silica-related and coal mine dust claims. This accrual represents the Company’s best estimate of Aearo’s probable loss and reflects an estimation period for future claims that may be filed against Aearo approaching the year 2050. The accrual reflects the Company’s assessment of pending and expected lawsuits, its review of its respirator mask/asbestos liabilities, and the cost of resolving claims of persons who claim more serious injuries. Responsibility for legal costs, as well as for settlements and judgments, is currently shared in an informal arrangement among Aearo, Cabot, American Optical Corporation and a subsidiary of Warner Lambert and their respective insurers (the “Payor Group”). Liability is allocated among the parties based on the number of years each company sold respiratory products under the “AO Safety” brand and/or owned the AO Safety Division of American Optical Corporation and the alleged years of exposure of the individual plaintiff.
Aearo’s share of the contingent liability is further limited by an agreement entered into between Aearo and Cabot on July 11, 1995. This agreement provides that, so long as Aearo pays to Cabot a quarterly fee of $100,000, Cabot will retain responsibility and liability for, and indemnify Aearo against, any product liability claims involving exposure to asbestos, silica, or silica products for respirators sold prior to July 11, 1995. Because of the difficulty in determining how long a particular respirator remains in the stream of commerce after being sold, Aearo and Cabot have applied the agreement to claims arising out of the alleged use of respirators involving exposure to asbestos, silica or silica products prior to January 1, 1997. With these arrangements in place, Aearo’s potential liability is limited to exposures alleged to have arisen from the use of respirators involving exposure to asbestos, silica, or silica products on or after January 1, 1997. To date, Aearo has elected to pay the quarterly fee. Aearo could potentially be exposed to additional claims for some part of the pre-July 11, 1995 period covered by its agreement with Cabot if Aearo elects to discontinue its participation in this arrangement, or if Cabot is no longer able to meet its obligations in these matters.
Developments may occur that could affect the estimate of Aearo’s liabilities. These developments include, but are not limited to: (i) significant changes in the number of future claims, (ii) significant changes in the average cost of resolving claims, (iii) significant changes in the legal costs of defending these claims, (iv) significant changes in the mix and nature of claims received, (v) trial and appellate outcomes, (vi) significant changes in the law and procedure applicable to these claims, (vii) significant changes in the liability allocation among the co-defendants, (viii) the financial viability of members of the Payor Group including exhaustion of available insurance coverage limits, and/or (ix) a determination that the interpretation of the contractual obligations on which Aearo has estimated its share of liability is inaccurate. The Company cannot determine the impact of these potential developments on its current estimate of Aearo’s share of liability for these existing and future claims. If any of the developments described above were to occur, the actual amount of these liabilities for existing and future claims could be significantly larger than the amount accrued.
Because of the inherent difficulty in projecting the number of claims that have not yet been asserted, the complexity of allocating responsibility for future claims among the Payor Group, and the several possible developments that may occur that could affect the estimate of Aearo’s liabilities, the Company cannot estimate the amount or range of amounts by which Aearo’s liability may exceed the accrual the Company has established.
Environmental Matters and Litigation
The Company’s operations are subject to environmental laws and regulations including those pertaining to air emissions, wastewater discharges, toxic substances, and the handling and disposal of solid and hazardous wastes enforceable by national, state, and local authorities around the world, and private parties in the United States and abroad. These laws and regulations provide, under certain circumstances, a basis for the remediation of contamination, for capital investment in pollution control equipment, for restoration of or compensation for damages to natural resources, and for personal injury and property damage claims. The Company has incurred, and will continue to incur, costs and capital expenditures in complying with these laws and regulations, defending personal injury and property damage claims, and modifying its business operations in light of its environmental responsibilities. In its effort to satisfy its environmental responsibilities and comply with environmental laws and regulations, the Company has established, and periodically updates, policies relating to environmental standards of performance for its operations worldwide.
Under certain environmental laws, including the United States Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and similar state laws, the Company may be jointly and severally liable, typically with other companies, for the costs of remediation of environmental contamination at current or former facilities and at off-site locations. The Company has identified numerous locations, most of which are in the United States, at which it may have some liability. Please refer to the section entitled “Environmental Liabilities and Insurance Receivables” that follows for information on the amount of the accrual for such liabilities.
Environmental Matters
As previously reported, the Company has been voluntarily cooperating with ongoing reviews by local, state, federal (primarily the U.S. Environmental Protection Agency (EPA)), and international agencies of possible environmental and health effects of various perfluorinated compounds, including perfluorooctanoate (PFOA), perfluorooctane sulfonate (PFOS), perfluorohexane sulfonate (PFHxS), or other per- and polyfluoroalkyl substances (collectively PFAS). As a result of its phase-out decision in May 2000, the Company no longer manufactures certain PFAS compounds including PFOA, PFOS, PFHxS, and their pre-cursor compounds. The Company ceased manufacturing and using the vast majority of these compounds within approximately two years of the phase-out announcement and ceased all manufacturing and the last significant use of this chemistry by the end of 2008. The Company continues to manufacture a variety of shorter chain length PFAS compounds, including, but not limited to, pre-cursor compounds to perfluorobutane sulfonate (PFBS). These compounds are used as input materials to a variety of products, including engineered fluorinated fluids, fluoropolymers and fluorelastomers, as well as surfactants, additives, and coatings. Through its ongoing life cycle management and its raw material composition identification processes associated with the Company’s policies covering the use of all persistent and bio-accumulative materials, the Company continues to review, control or eliminate the presence of certain PFAS in purchased materials or as byproducts in some of 3M’s current fluorochemical manufacturing processes, products, and waste streams.
PFAS Regulatory Activity
Regulatory activities concerning PFAS continue in the United States, Europe and elsewhere, and before certain international bodies. These activities include gathering of exposure and use information, risk assessment, and consideration of regulatory approaches. In the European Union, where 3M has manufacturing facilities in countries such as Germany and Belgium, recent regulatory activities have included both preliminary and on-going work on various restrictions under the Regulation concerning the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), including the restriction of PFAS in certain usages and a broader restriction of PFAS as a class. As of the second half of 2020, PFOA is subject to broad restrictions under the EU’s Persistent Organic Pollutants (POPs) Regulation. Dyneon, a 3M subsidiary that operates a facility at Gendorf, Germany, has a recycling process for a critical emulsifier from which small amounts of PFOA are present after recycling, as an unintended and unavoidable byproduct of certain earlier process steps. The recycling process removes and concentrates the PFOA for incineration in accordance with applicable waste law. With respect to the applicability of the recently enacted POPs, Dyneon proactively consulted with the relevant German regulatory authority regarding process improvements underway that are designed to ensure compliance with the PFOA limits in the recycled material. In October 2021, Dyneon also discussed with the authority technical complexities it had recently discovered in achieving PFOA reductions. The engagement is ongoing.
In addition, as previously disclosed, 3M Belgium, a subsidiary of the Company, has been working with the Public Flemish Waste Agency (OVAM) for several years to investigate and remediate historical PFOA contaminations at and near the 3M Belgium facility in Zwijndrecht, Antwerp, Belgium. In connection with a ring road construction project (the Oosterweel Project) in Antwerp that has involved extensive soil work, an investigative committee with judicial investigatory powers was formed in June 2021 by the Flemish Parliament to investigate PFAS found in the soil and groundwater near the Zwijndrecht facility. The Company testified at Flemish parliamentary committee hearings in June and September 2021 on PFAS-related matters. The Flemish Parliament, the Minister of the Environment, and regulatory authorities have initiated investigations and demands for information related to the release of PFAS from the Zwijndrecht facility. The Company is cooperating with the authorities in the investigations and information requests. Separately, as previously disclosed, the Company is aware that certain residents of Zwijndrecht have filed a criminal complaint with an Antwerp investigatory judge against 3M Belgium, alleging it had unlawfully abandoned waste in violation of its environmental care obligations. 3M Belgium has not been served with any such complaint.
Safety measures – wastewater discharge. In August 2021, the Flemish Government served 3M Belgium with a notice of intent to impose a safety measure (wastewater discharge stoppage) and issued an infraction report alleging permit and/or legal violations in connection with the discharge of certain specific PFAS compounds for alleged lack of specific authorization. Following discussions with the government officials, 3M Belgium implemented a focused safety measure that would allow continued production activities and plans to contest through appeal the underlying legal and factual basis for the safety measure. Separately, the permitting authority has initiated a process to tighten the wastewater discharge limits immediately. In October 2021, the Province of Antwerp adopted lower discharge limits for the nine PFAS compounds specifically identified in the water discharge permit and added a special condition that essentially prohibits discharge of any PFAS chemistry without a specific limit in the permit. The action by the Province was timely appealed and a hearing on the appeal was held in January 2022. The Flemish Regional Environmental Permit Commission subsequently issued a recommendation that the appeal be denied and that lower limits on PFAS compounds be imposed immediately. A decision on the appeal is pending. An adverse ruling on the appeal would restrict the discharge of wastewater under the special condition noted above, which would materially and adversely impact the facility’s operations including the possibility of causing the facility to cease operations. While the
Company is exploring multiple options to mitigate the impact of an adverse ruling, a prolonged suspension or interruption of the facility's operations could have a significant adverse impact on the Company's businesses that receive products and other materials from the facility, some of which may not be available in similar quantities from other 3M facilities.
Safety measure – emissions. As previously disclosed, in October 2021, the Flemish environmental agency issued a new safety measure that prohibits all emissions of all forms of PFAS from the facility unless and until specifically approved on a process-by-process basis. 3M Belgium thereupon commenced an immediate appeal process to the Council of States, seeking, among other things, urgent suspension of the safety measure during the pendency of the appeal process. At the same time, 3M Belgium initiated efforts to comply with the safety measure by temporarily idling the affected production at the facility. The Council of States declined to grant urgent suspension of the safety measure. An unsuccessful appeal of the safety measure would extend the period the affected production is idled and could have a material negative impact on the Zwijndrecht facility’s operations. 3M Belgium has established a regular cadence of meetings with the relevant authorities in connection with the requests to restart specific production processes that may result in emissions to air. The authorities have accepted the third-party experts proposed by 3M Belgium who are required by the safety measure to review and opine on proposals necessary for process restart. Although some limited requests have been approved for testing purposes, and the facility is taking actions to remedy emission issues, a prolonged suspension and idling of the facility's operations could have a significant adverse impact on the Company's businesses that receive products and other materials from the facility, some of which may not be available in similar quantities from other 3M facilities, which could in turn impact these businesses’ ability to fulfill supply obligations to their customers.
Administrative measure – soil piles. In September 2021, the Flemish Government served 3M Belgium with a notice of intent to impose an administrative measure related to the removal and potential remediation of soil piles on the Zwijndrecht site. 3M Belgium continues to have discussions with the relevant authorities to explain the timing constraints for certain actions.
Notice of default – environmental law compliance. Also in September 2021, the Flemish Region issued a notice of default alleging violations of environmental laws and seeking PFAS-related information, indemnity and a remediation plan for soil and water impacts due to PFAS originating from the Zwijndrecht facility. In September 2021, 3M responded to the notice of default and announced a plan to invest up to 125 million euros in the next three years in actions related to the Zwijndrecht community, including support for local commercial farmers impacted by restrictions on sale of agricultural products, and enhancements to site discharge control technologies. 3M is also committed to payment for ongoing off-site descriptive soil investigation and appropriate soil remediation.
In the United States, the EPA has developed human health effects documents summarizing the available data studies of both PFOA and PFOS. In May 2016, the EPA announced lifetime health advisory levels for PFOA and PFOS at 70 parts per trillion (ppt) (superseding the provisional levels established by the EPA in 2009 of 400 ppt for PFOA and 200 ppt for PFOS). Where PFOA and PFOS are found together, EPA’s lifetime health advisory for PFOA and PFOS combined is also 70 ppt. Lifetime health advisories, which are non-enforceable and non-regulatory, provide information about concentrations of drinking water contaminants at which adverse health effects are not expected to occur over the specified exposure duration.
The U.S. Agency for Toxic Substances and Disease Registry (ATSDR) within the Department of Health and Human Services released a draft Toxicological Profile for PFAS for public review and comment in June 2018. In the draft report, ATSDR proposed draft minimal risk levels (MRLs) for PFOS, PFOA and several other PFAS. An MRL is an estimate of the daily human exposure to a hazardous substance that is likely to be without appreciable risk of adverse non-cancer health effects over a specified duration of exposure. MRLs establish a screening level and are not intended to define cleanup or action levels for ATSDR or other agencies. In May 2021, ATSDR released a final toxicological profile for certain PFAS that preserved the draft MRLs. Earlier, in April 2021, EPA released a final toxicity assessment for PFBS.
As periodically required under the Safe Drinking Water Act (SDWA), the EPA published in May 2012 a list of unregulated substances, including six PFAS chemicals, required to be monitored during the period 2013-2015 by public water system suppliers to determine the extent of their occurrence. Through January 2017, the EPA reported results for 4,920 public water supplies nationwide. Based on the 2016 lifetime health advisory, 13 public water supplies exceeded the level for PFOA and 46 exceeded the level for PFOS (unchanged from the July 2016 EPA summary). These results are based on one or more samples collected during the period 2012-2015 and do not necessarily reflect current conditions of these public water supplies. EPA reporting does not identify the sources of the PFOA and PFOS in the public water supplies. In December 2021, EPA published the fifth version of the unregulated contaminant monitoring rule, which requires monitoring for 29 PFAS compounds between 2023 and 2025.
With respect to PFOA and PFOS in groundwater, EPA issued interim recommendations in December 2019, providing guidance for screening levels and preliminary remediation goals for groundwater that is a current or potential drinking water source, to inform final clean-up levels of contaminated sites.
In October 2021, EPA released its “PFAS Strategic Roadmap: EPA's Commitments to Action 2021-2024,” which presents EPA’s approach to PFAS, including investing in research to increase an understanding of PFAS, pursuing a comprehensive approach to proactively control PFAS exposures to humans and the environment, and broadening and accelerating the scope of clean-up of PFAS in the environment. The 2021-2024 Roadmap sets timelines by which EPA plans to take specific actions, including, among other items, publishing a national PFAS testing strategy, proposing to designate PFOA and PFOS as CERCLA hazardous substances, restricting PFAS discharges from industrial sources through Effluent Limitations Guidelines, publishing the final toxicity assessment for five additional PFAS compounds, requiring water systems to test for 29 PFAS compounds under the SDWA, and publishing improved analytical methods in eight different environmental matrices to monitor 40 PFAS compounds present in wastewater and stormwater discharges.
EPA previously published its intention to initiate a process to develop a national primary drinking water regulation for PFOA and PFOS; the process is expected to take several years and will include further analyses, scientific review and opportunities for public comment. EPA initiated the first step in the process in November 2021 by referring its proposed approach to developing a Maximum Contaminant Level Goal to the Science Advisory Board and soliciting public comment. The Company submitted initial comments in December 2021. In October 2021, in response to a petition by New Mexico, EPA announced it will initiate a rulemaking to designate four PFAS compounds as hazardous constituents under the Resource Conservation and Recovery Act (RCRA). Further, in January 2022, EPA formally submitted to the Office of Management and Budget (OMB) its plan to designate PFOA and PFOS as hazardous substances under CERCLA.
EPA has also taken several actions to increase reporting and restrictions regarding PFAS under the Toxic Substances Control Act (TSCA) and the Toxics Release Inventory (TRI), which is a part of the Emergency Planning and Community Right-to-Know Act. EPA has added more than 170 PFAS compounds to the list of substances that must be included in TRI reports as of July 2021. In June 2021, EPA published a proposed rule under TSCA that, if adopted, would require certain persons that manufacture (including import) or have manufactured PFAS in any year since 2011 to report information regarding PFAS uses, production volumes, disposal, exposures, and hazards. The Company submitted comments on the proposed rule during the public comment period, which ended in September 2021.
Several state legislatures and state agencies have been evaluating or have taken actions related to cleanup standards, groundwater values or drinking water values for PFOS, PFOA, and other PFAS, and 3M has submitted various responsive comments. Those states include the following:
•Minnesota Department of Health in May 2017 stated that Health Based Values (HBVs) “are designed to reduce long-term health risks across the population and are based on multiple safety factors to protect the most vulnerable citizens, which makes them overprotective for most of the residents in our state.” As of 2021, the current HBVs are 35 ppt for PFOA, 15 ppt for PFOS, 47 ppt for PFHxS and 2 ppb for PFBS. In February 2018, the MDH published reports finding no unusual rates of certain cancers or adverse birth outcomes (low birth rates or premature births) among residents of Washington and Dakota Counties in Minnesota.
•Minnesota Pollution Control Agency (MPCA) and three other state agencies published “Minnesota’s PFAS Blueprint” in February 2021. The Blueprint outlines the State’s plans to manage, investigate, monitor, research and regulate PFAS discharges or releases in Minnesota. In November 2021, MPCA published for public notice its “Draft PFAS Monitoring Plan,” which proposes a system for voluntary PFAS monitoring at solid waste, wastewater and stormwater facilities, facilities with air emissions, and sites in the Superfund or the state’s Brownfield programs.
•California finalized drinking water response levels for PFOA and PFOS in February 2020.
•Vermont finalized drinking water standards for a combination of PFOA, PFOS and three other PFAS compounds in March 2020.
•New Jersey finalized drinking water standards and designated PFOA and PFOS as hazardous substances in June 2020.
•New York established drinking water standards for PFOA and PFOS in July 2020.
•New Hampshire established drinking water standards by legislation for certain PFAS compounds, including PFOS and PFOA, in July 2020.
•Michigan implemented final drinking water standards for certain PFAS compounds, including PFOS and PFOA, in August 2020.
•Massachusetts published final regulations establishing a drinking water standard relating to six combined PFAS compounds in October 2020.
Some other states have also been evaluating or have taken actions relating to PFOA, PFOS and other PFAS compounds in products such as food packaging, carpets and other products. For example, in October 2021, two bills were signed into law in California that prohibit the use of PFAS in children’s products and in food packaging. Additionally, in December 2021, California finalized its listing of PFOS as a carcinogen, and PFNA as a reproductive toxicant under its Proposition 65 law. California has also proposed listing PFOA as a carcinogen and PFDA, PFHxS, and PFUNDA as reproductive toxicants under Proposition 65. In August 2021, Maine became the first state to ban all PFAS compounds in all products, except where use is unavoidable. The ban becomes effective in 2030.
In October 2020, 3M and several other parties filed notices of appeal in the appellate division of the Superior Court of New Jersey to challenge the validity of the New Jersey PFOS and PFOA regulations. In January 2021, the appellate division of the court denied the group’s motion to stay the regulations. The parties completed briefing on the merits in October 2021. In March 2021, 3M filed a lawsuit against the New York State Department of Health, on the grounds that drinking water levels set by the agency for PFOS and PFOA should be vacated because they are arbitrary and did not comply with statutorily required processes. An oral argument on the merits was held in December 2021. In April 2021, 3M also filed a lawsuit against the Michigan Department of Environment, Great Lakes, and Energy (EGLE) to invalidate the drinking water standards EGLE promulgated under an accelerated timeline. EGLE moved to dismiss that lawsuit. In September 2021, the court denied EGLE’s motion in part, and the parties are proceeding to litigation on the merits of the remaining claims.
The Company cannot predict what additional regulatory actions in the United States, Europe and elsewhere arising from the foregoing or other proceedings and activities, if any, may be taken regarding such compounds or the consequences of any such actions to the Company.
Litigation Related to Historical PFAS Manufacturing Operations in Alabama
As previously reported, a former employee filed a putative class action lawsuit against 3M, BFI Waste Management Systems of Alabama, and others in the Circuit Court of Morgan County, Alabama (the “St. John” case), seeking property damage from exposure to certain perfluorochemicals at or near the Company’s Decatur, Alabama, manufacturing facility. The parties have agreed to repeated stays of the St. John case, to permit ongoing mediation between the parties involved in this case and another case discussed below. Two additional putative class actions filed in the same court by certain residents in the vicinity of the Decatur plant seeking relief on similar grounds (the Chandler case and the Stover case, respectively) are stayed pending the resolution of class certification issues in the St. John case.
In June 2016, the Tennessee Riverkeeper, Inc. (Riverkeeper), a non-profit corporation, filed a lawsuit in the U.S. District Court for the Northern District of Alabama against 3M; BFI Waste Systems of Alabama; the City of Decatur, Alabama; and the Municipal Utilities Board of Decatur, Morgan County, Alabama. The complaint alleges that the defendants violated the Resource Conservation and Recovery Act in connection with the disposal of certain PFAS compounds through their ownership and operation of their respective sites. The complaint further alleges such practices may present an imminent and substantial endangerment to health and/or the environment and that Riverkeeper has suffered and will continue to suffer irreparable harm caused by defendants’ failure to abate the endangerment unless the court grants the requested relief, including declaratory and injunctive relief. This case was also stayed pending ongoing mediation and discussions between the parties in conjunction with the St. John case.
In October 2021, 3M reached agreements in principle to resolve litigation with the Tennessee Riverkeeper organization, as well as the plaintiffs in the St. John (including Stover, Owens and Chandler) matters. The agreements, if finalized and approved by the court, will complement the Interim Consent Order that 3M entered with the Alabama Department of Environmental Management (ADEM) in 2020, as described below. Key provisions of these agreements include 3M’s continued environmental characterization, including sampling of environmental media, such as soil, ground water, and sediment, regarding the potential presence of PFAS at the 3M Decatur facility and legacy disposal sites, as well as supporting the execution of appropriate remedial actions. In December 2021, the court in the St. John action granted preliminary approval of the class settlement, and a hearing for final approval is scheduled for April 2022. Also in December 2021, the court handling the Tennessee Riverkeeper action administratively closed that case in light of the settlement between the parties.
In October 2015, West Morgan-East Lawrence Water & Sewer Authority (Water Authority) filed a complaint against 3M Company, Dyneon, L.L.C, and Daikin America, Inc., in the U.S. District Court for the Northern District of Alabama. The complaint also includes representative plaintiffs who brought the complaint on behalf of themselves, and a class of all owners and possessors of property who use water provided by the Water Authority and five local water works to which the Water Authority supplies water. The complaint seeks compensatory and punitive damages and injunctive relief based on allegations that the defendants’ chemicals, including PFOA and PFOS from their manufacturing processes in Decatur, have contaminated the water in the Tennessee River at the water intake, and that the chemicals cannot be removed by the water treatment processes utilized by the Water Authority. In April 2019, 3M and the Water Authority settled the lawsuit for $35 million, which will fund a new water filtration system, with 3M indemnifying the Water Authority from liability resulting from the resolution of the currently pending and future lawsuits against the Water Authority alleging liability or damages related to 3M PFAS. In October 2021, with respect to the putative class claims brought by the representative plaintiffs who were supplied drinking water by the Water Authority (the “Lindsey” case), the parties reached an agreement in principle, subject to court approval, to resolve the claims for an immaterial amount. In November 2021, the court entered an order of preliminary approval of the class settlement. A hearing on final approval of the settlement is scheduled for March 2022.
In August 2016, a group of over 200 plaintiffs filed a putative class action against West Morgan-East Lawrence Water and Sewer Authority (Water Authority), 3M, Dyneon, Daikin, BFI, and the City of Decatur in state court in Lawrence County,
Alabama (the “Billings” case). Plaintiffs are residents of Lawrence, Morgan and other counties who are or have been customers of the Water Authority. They contend defendants have released PFAS that contaminate the Tennessee River and, in turn, their drinking water, causing damage to their health and properties. In January 2017, the court in the St. John case, discussed above, stayed this litigation pending resolution of the St. John case. Plaintiffs in the Billings case have amended their complaint numerous times to add additional plaintiffs. There are now approximately 4,500 named plaintiffs. The parties have reached an agreement in principle to resolve the litigation.
In January 2017, several hundred plaintiffs sued 3M, Dyneon and Daikin America in Lawrence and Morgan Counties, Alabama (the “Owens” case). The plaintiffs are owners of property, residents, and holders of property interests who receive their water from the West Morgan-East Lawrence Water and Sewer Authority (Water Authority). They assert common law claims for negligence, nuisance, trespass, wantonness, and battery, and they seek injunctive relief and punitive damages. The plaintiffs contend that the defendants own and operate manufacturing and disposal facilities in Decatur that have released and continue to release PFOA, PFOS and related chemicals into the groundwater and surface water of their sites, resulting in discharges into the Tennessee River. The plaintiffs contend that, as a result of the alleged discharges, the water supplied by the Water Authority to the plaintiffs was, and is, contaminated with PFOA, PFOS and related chemicals at a level dangerous to humans. The court denied a motion by co-defendant Daikin to stay this case pending resolution of the St. John case. The parties have reached an agreement in principle to resolve the litigation.
In November 2017, a putative class action (the “King” case) was filed against 3M, Dyneon, Daikin America and the West Morgan-East Lawrence Water and Sewer Authority (Water Authority) in the U.S. District Court for the Northern District of Alabama. The plaintiffs are residents of Lawrence and Morgan County, Alabama who receive their water from the Water Authority and seek injunctive relief, attorneys’ fees, compensatory and punitive damages for their alleged personal injuries. The plaintiffs contend that the defendants own and operate manufacturing and disposal facilities in Decatur, Alabama that have released and continue to release PFOA, PFOS and related chemicals into the groundwater and surface water of their sites, resulting in discharges into the Tennessee River. The plaintiffs contend that, as a result of the alleged discharges, the water supplied by the Water Authority to the plaintiffs was, and is, contaminated with PFOA, PFOS and related chemicals at a level dangerous to humans. In November 2019, the King plaintiffs amended their complaint to withdraw all class allegations. Since then, the complaint has been amended several times to add or dismiss plaintiffs, and the case currently involves 42 plaintiffs. The case is scheduled for trial in July 2023. Discovery in this case is proceeding.
In July 2019, 3M announced that it had initiated an investigation into the possible presence of PFAS in three closed municipal landfills in Decatur that accepted waste from 3M’s Decatur plant and other companies in the 1960s through the 1980s. 3M has worked with the City of Decatur and other local and state entities such as Morgan County and Decatur Utilities as it conducted its investigation. In November 2021, 3M and the City of Decatur, Decatur Utilities and Morgan County executed a collaborative agreement under which the Company agreed to contribute approximately $99 million and also to continue to address certain PFAS-related matters in the area. The contribution relates to initiatives to improve the quality of life and overall environment in Decatur, including community redevelopment and recreation projects by the City, County and Decatur Utilities. It also includes addressing PFAS matters at the Morgan County landfill and reimbursement of costs previously incurred related to PFAS remediation. In addition to the contribution, 3M will continue to address PFAS at certain other closed municipal sites at which the Company historically disposed waste and continue environmental characterization in the area. This work will complement the Interim Consent Order that 3M entered with ADEM in 2020 and includes sampling of environmental media, such as ground water, regarding the potential presence of PFAS at the 3M Decatur facility and legacy disposal sites, as well as supporting the execution of any appropriate remedial actions.
3M is also defending or has received notice of potential lawsuits in state and federal court brought by individual property owners who claim damages related to historical PFAS disposal at former area landfills near their Decatur-area properties. 3M continues to negotiate with property owners and has resolved for an immaterial amount some of the claims brought by them.
In September 2020, the City of Guin Water Works and Sewer Board (Guin WWSB) brought a lawsuit against 3M in Alabama state court alleging that PFAS contamination in the Guin water system stems from manufacturing operations at 3M’s Guin facility and disposal activity at a nearby landfill. In this same month, Guin WWSB dismissed its lawsuit without prejudice and has been working with 3M to further investigate the presence of chemicals in the area. In December 2021, the parties reached a settlement under which 3M agreed to contribute $30 million that will be used on a new treatment system for Guin’s drinking water and a new wastewater treatment facility.
Litigation Related to Historical PFAS Manufacturing Operations in Minnesota
In July 2016, the City of Lake Elmo filed a lawsuit in the U.S. District Court for the District of Minnesota against 3M alleging that the City suffered damages from drinking water supplies contaminated with PFAS, including costs to construct alternative sources of drinking water. In April 2019, 3M and the City of Lake Elmo agreed to settle the lawsuit for less than $5 million.
State Attorneys General Litigation related to PFAS
Minnesota. In December 2010, the State of Minnesota, by its Attorney General, filed a lawsuit in Hennepin County District Court against 3M seeking damages and injunctive relief with respect to the presence of PFAS in the groundwater, surface water, fish or other aquatic life, and sediments in the state of Minnesota (the “NRD Lawsuit”). In February 2018, 3M and the State of Minnesota reached a resolution of the NRD Lawsuit. Under the terms of the settlement, 3M agreed to provide an $850 million grant to the State for a special “3M Water Quality and Sustainability Fund.” This Fund, which is administered by the State, will enable projects that support water sustainability in the Twin Cities East Metro region, such as continued delivery of water to residents and enhancing groundwater recharge to support sustainable growth. Other purposes of the grant include habitat and recreation improvements, such as fishing piers, trails, and open space preservation. 3M recorded a pre-tax charge of $897 million, inclusive of legal fees and other related obligations, in the first quarter of 2018 associated with the resolution of this matter.
In connection with the above referenced settlement, the Minnesota Pollution Control Agency and the Department of Natural Resources, as co-trustees of the Fund, released in September 2020 a conceptual drinking water supply plan for the communities in the East Metro area, seeking public comment on three recommended options for utilizing the Fund. In December 2020, 3M submitted preliminary comments on the co-trustees’ draft conceptual drinking water supply plan to address legal and technical aspects of the draft plan. The Company and the State continue to discuss those aspects of the draft plan.
New York. The State of New York, by its Attorney General, has filed four lawsuits (in June 2018, February 2019, July 2019, and November 2019) against 3M and other defendants seeking to recover the costs incurred in responding to PFAS contamination allegedly caused by Aqueous Film Forming Foam (AFFF) manufactured by 3M and others. Each of the four suits was filed in Albany County Supreme Court before being removed to federal court, and each has been transferred to the multi-district litigation (MDL) proceeding for AFFF cases, which is discussed further below. The state is seeking compensatory and punitive damages, and injunctive and equitable relief in the form of a monetary fund for the State’s reasonably expected future damages, and/or requiring defendants to perform investigative and remedial work.
Ohio. In December 2018, the State of Ohio, by its Attorney General, filed a lawsuit in the Common Pleas Court of Lucas County, Ohio against 3M, Tyco Fire Products LP, Chemguard, Inc., Buckeye Fire Equipment Co., National Foam, Inc., and Angus Fire Armour Corp., seeking injunctive relief and compensatory and punitive damages for remediation costs and alleged injury to Ohio natural resources from AFFF manufacturers. This case was removed to federal court and transferred to the MDL.
New Jersey. In March 2019, the New Jersey Attorney General filed two actions against 3M, DuPont, and Chemours on behalf of the New Jersey Department of Environmental Protection (NJDEP), the NJDEP’s commissioner, and the New Jersey Spill Compensation Fund regarding alleged discharges at two DuPont facilities in Pennsville, New Jersey (Salem County) and Parlin, New Jersey (Middlesex County). 3M is included as a defendant in both cases because it allegedly supplied PFOA to DuPont for use at the facilities at issue. Both cases expressly seek to have the defendants pay all costs necessary to investigate, remediate, assess, and restore the affected natural resources of New Jersey. DuPont removed these cases to federal court. In June 2020, the court consolidated the two actions, along with two others brought by the NJDEP relating to the DuPont facilities, for case management and pretrial purposes. In December 2021, the court denied various motions to dismiss that the defendants had filed, including 3M's motions. The parties are conducting discovery.
In May 2019, the New Jersey Attorney General and NJDEP filed a lawsuit against 3M, DuPont, and six other companies, alleging natural resource damages from AFFF products and seeking damages, including punitive damages, and associated fees. This case was removed to federal court and transferred to the AFFF MDL.
New Hampshire. In May 2019, the New Hampshire Attorney General filed two lawsuits alleging contamination of the state’s drinking water supplies and other natural resources by PFAS chemicals. The first lawsuit was filed against 3M and seven co-defendants, alleging PFAS contamination resulting from the use of AFFF products at several sites around the state. This case was removed to federal court and transferred to the AFFF MDL. The second suit asserts PFAS contamination from non-AFFF sources and names 3M, DuPont, and Chemours as defendants. In its June 2020 ruling on defendants’ motions to dismiss, the court dismissed the state’s trespass claim, but allowed several claims to proceed. In October 2020, the state amended its complaint to add a state commission as plaintiff and make a claim related to the state’s drinking water and groundwater trust fund statute. In July 2021, the court granted defendants’ motions to dismiss these amendments. In September 2021 the state filed its second amended complaint, which 3M answered in October 2021. A hearing on case scheduling has been set for March 2022, and the case remains in early stages of litigation.
Vermont. In June 2019, the Vermont Attorney General filed two lawsuits alleging contamination of the state’s drinking water supplies and other natural resources by PFAS chemicals. The first lawsuit was filed against 3M and ten co-defendants, alleging PFAS contamination resulting from the use of AFFF products at several sites around the state. This case was removed to federal
court and transferred to the AFFF MDL. The second suit asserts PFAS contamination from non-AFFF sources and names 3M and several entities related to DuPont and Chemours as defendants. This suit is proceeding in state court. In May 2020, the court denied the defendants’ motion to dismiss, but dismissed the state’s trespass claim as to property the state does not own. The parties are now engaged in discovery and the court has set a trial-ready date in October 2023.
Michigan. In January 2020, the Michigan Attorney General filed a lawsuit in state court against 3M, Dyneon, DuPont, Chemours and others seeking injunctive and equitable relief and damages for alleged injury to Michigan public natural resources and its residents related to PFAS, excluding AFFF. The case was removed to federal court in March 2021 and subsequently transferred to the AFFF MDL. The state has filed a motion to remand the case to state court. In addition, in August 2020, the Michigan Attorney General filed two lawsuits against numerous AFFF manufacturers and distributors, and suppliers of PFAS to AFFF manufacturers. 3M is named a defendant in one of the lawsuits, filed in federal court, and the case has been transferred to the AFFF MDL, where it remains in early stages of litigation.
Guam. In September 2019, the Attorney General of Guam filed a lawsuit against 3M and other defendants relating to contamination of the territory’s drinking water supplies and other natural resources by PFAS, allegedly resulting from the use of AFFF products at several sites around the island. This lawsuit has been removed to federal court and transferred to the AFFF MDL.
Commonwealth of Northern Mariana Islands. In December 2019, the Attorney General of the Commonwealth of Northern Mariana Islands, a U.S. territory, filed a lawsuit against 3M and other defendants relating to contamination of the territory’s drinking water supplies and other natural resources by PFAS, allegedly resulting from the use of AFFF products. This lawsuit has been removed to federal court and transferred to the AFFF MDL.
Mississippi. In December 2020, the Mississippi Attorney General filed an AFFF-related PFAS lawsuit against 3M and other defendants directly with the AFFF MDL court in South Carolina. The lawsuit alleges injuries to the State’s property and natural resources purportedly caused by PFAS contamination from AFFF use and seeks both compensatory and punitive damages.
Alaska. In April 2021, the State of Alaska filed a lawsuit against 3M and other defendants, alleging damages from the release of PFAS into the environment from a variety of products, including AFFF. This lawsuit was removed to federal court and transferred to the AFFF MDL in August 2021.In addition, in July 2021, the State of Alaska named 3M as a third-party defendant in two cases originally brought against the state by plaintiffs alleging property damage from AFFF use. Both of these cases were also removed to federal court and transferred to the AFFF MDL.
North Carolina. In November 2021, the State of North Carolina filed four lawsuits against 3M and other defendants, alleging damages from the release of PFAS into the environment from AFFF use at certain air force bases and a fire training academy. These cases have been removed to federal court and have been transferred to the AFFF MDL.
In addition to the above state attorneys general actions, several other states and the District of Columbia, through their attorneys general, have announced selection processes to retain outside law firms to bring PFAS-related lawsuits against certain manufacturers including the Company. In addition, the Company is in discussions with several state attorneys general and agencies, responding to information and other requests relating to PFAS matters and exploring potential resolution of some of the matters raised.
Aqueous Film Forming Foam (AFFF) Environmental Litigation
3M manufactured and marketed AFFF for use in firefighting at airports and military bases from approximately 1963 to 2002. As of December 31, 2021, 2,043 lawsuits (including 32 putative class actions) alleging injuries or damages by AFFF use have been filed against 3M (along with other defendants) in various state and federal courts. As further described below, a vast majority of these pending cases are in a federal Multi-District Litigation (MDL) court in South Carolina. Additional AFFF cases continue to be filed in or transferred to the MDL. The Company also continues to defend certain AFFF cases that remain in state court and is in discussions with pre-suit claimants for possible resolutions where appropriate.
In December 2018, the U.S. Judicial Panel on Multidistrict Litigation (JPML) granted motions to transfer and consolidate all AFFF cases pending in federal courts to the U.S. District Court for the District of South Carolina to be managed in an MDL proceeding to centralize pre-trial proceedings. The parties in the MDL are currently in the process of conducting discovery. An initial pool of ten water supplier cases was selected in February 2021 for case-specific fact discovery as potential bellwether cases. In October 2021, the parties and the MDL court selected three of these cases for additional fact and expert discovery and for potential trial as bellwether cases. The MDL court in August 2021 issued a scheduling order and set the first bellwether cases to begin trial on or after January 1, 2023. The MDL court has encouraged the parties to negotiate to resolve cases in the
MDL. In November 2021, the defendants filed an omnibus motion regarding their government contractor defense. In December 2021, the plaintiffs filed a response.
In June 2019, several subsidiaries of Valero Energy Corporation, an independent petroleum refiner, filed eight AFFF cases against 3M and other defendants, including DuPont/Chemours, National Foam, Buckeye Fire Equipment, and Kidde-Fenwal, in various state courts. Plaintiffs seek damages that allegedly have been or will be incurred in investigating and remediating PFAS contamination at their properties and replacing or disposing of AFFF products containing long-chain PFAS compounds. Two of these cases have been removed to federal court and transferred to the AFFF MDL. Five cases remain pending in state courts where they are in early stages of litigation, after Valero dismissed its Ohio state court action without prejudice in October 2019. The parties in the state court cases have agreed to stay all five cases until March 2022.
As of December 31, 2021, the Company is aware of 15 other AFFF suits originally filed in various state courts in which the Company has been named a defendant. Seven of these cases have been removed to federal court, where defendants have sought transfer to the AFFF MDL.
Two subsidiaries of Husky Energy filed suit in April 2020 against 3M and other AFFF manufacturers in Wisconsin state court relating to alleged PFAS contamination from AFFF use at Husky facilities in Superior, Wisconsin and Lima, Ohio. The parties have entered into a tolling agreement deferring further action on the plaintiffs’ claims. The plaintiffs filed a notice of dismissal without prejudice in September 2020.
Separately, the Company is aware of pre-suit claims or demands by other parties related to the use and disposal of AFFF, one of which purports to represent a large group of firefighters. The Company had discussions with certain potential pre-suit claimants and, as a result of such discussions, reached a negotiated resolution for an immaterial amount with the City of Bemidji in March 2021.
Other PFAS-related Product and Environmental Litigation
3M manufactured and sold various products containing PFOA and PFOS, including Scotchgard, for several decades. Starting in 2017, 3M has been served with individual and putative class action complaints in various state and federal courts alleging, among other things, that 3M’s customers’ improper disposal of PFOA and PFOS resulted in the contamination of groundwater or surface water. The plaintiffs in these cases generally allege that 3M failed to warn its customers about the hazards of improper disposal of the product. They also generally allege that contaminated groundwater has caused various injuries, including personal injury, loss of use and enjoyment of their properties, diminished property values, investigation costs, and remediation costs. Several companies have been sued along with 3M, including Saint-Gobain Performance Plastics Corp., Honeywell International Inc. f/k/a Allied-Signal Inc. and/or AlliedSignal Laminate Systems, Inc., Wolverine World Wide Inc., Georgia-Pacific LLC, E.I. DuPont De Nemours and Co., Chemours Co., and various carpet manufacturers.
In New York, 3M is defending 40 individual cases and one putative class action filed in the U.S. District Court for the Northern District of New York and four additional individual cases filed in New York state court against 3M, Saint-Gobain Performance Plastics Corp. (Saint-Gobain), Honeywell International Inc. and E.I. DuPont De Nemours and Co. (DuPont). Tonaga, Inc. (Taconic) is also a defendant in the state court actions. Plaintiffs allege that PFOA discharged from fabric coating facilities operated by non-3M entities (that allegedly had used PFOA-containing materials from 3M, among others) contaminated the drinking water in the Village of Hoosick Falls, the Town of Hoosick and Petersburg, New York. They assert various tort claims for personal injury and property damage and in some cases request medical monitoring. 3M has answered the complaints in these individual cases, which are now proceeding through discovery. In the federal court individual cases, the parties selected 24 claimants in May 2021 for a pool from which eight plaintiffs will be chosen for expert discovery and dispositive motions. At the conclusion of these motions, the court will determine which case(s) will continue toward trial. In the putative class action, certain parties, including 3M, reached an agreement to resolve litigation among the settling parties. In February 2022, the district court issued an order granting final approval of the settlement. Under the agreement, 3M, Saint-Gobain and Honeywell will collectively contribute to a fixed total amount of approximately $65 million to resolve the plaintiffs’ claims and those of the proposed classes. 3M’s contribution is not considered material. 3M is also defending 13 cases in the U.S. District Court for the Eastern District of New York filed by various drinking water providers. The plaintiffs in these cases allege that products manufactured by 3M, DuPont, and additional unnamed defendants contaminated plaintiffs’ water supply sources with various PFAS compounds. DuPont’s motion to transfer these cases to the AFFF MDL was denied in March 2020. 3M has filed answers in these cases and discovery is ongoing.
In Michigan, one consolidated putative class action is pending in the U.S. District Court for the Western District of Michigan against 3M and Wolverine World Wide (Wolverine). The action arises from Wolverine’s allegedly improper disposal of materials and wastes, including 3M Scotchgard, related to Wolverine’s shoe manufacturing operations. Plaintiffs allege Wolverine used 3M Scotchgard in its manufacturing process and that chemicals from 3M’s product contaminated the
environment and drinking water sources after disposal. In June 2021, the court partially denied the defendants' motions to dismiss, by granting the motions to dismiss the negligence claim only insofar as the plaintiffs seek damages for personal injuries, as opposed to property damage. In September 2021, the plaintiffs filed a motion to amend the complaint, including to add four new named plaintiffs and putative class representatives. 3M and Wolverine filed a motion to strike the plaintiffs’ motion for class certification and opposed plaintiffs’ motion to amend the complaint. The parties also filed several dispositive and expert witness-related Daubert motions in November 2021, and the parties have had ongoing mediation discussions. The court has set a trial date in June 2022. In addition to the consolidated federal court putative class action, as of December 31, 2021, 3M is a defendant in approximately 275 private individual actions in Michigan state court based on similar allegations. These cases are coordinated for pre-trial purposes. Five of these cases were selected over time for bellwether trials. In January 2020, the court issued the first round of dispositive motion rulings related to the first two bellwether cases, including dismissing the second bellwether case entirely and dismissing certain plaintiffs’ medical monitoring and risk of future disease claims, and granting summary judgment to the defendants on one plaintiff’s cholesterol injury claims. The parties settled the first bellwether case in early 2020 for an immaterial amount. In June 2020, the court denied the plaintiffs’ motion to reconsider the dismissal of the second bellwether case, and the plaintiffs have appealed the decision to the state appellate court. In January 2021, the court granted summary judgment in favor of the defendants in one of three remaining bellwether cases. The plaintiffs in this dismissed bellwether case have also appealed the dismissal to the state appellate court. The Company settled both remaining bellwether cases for an immaterial amount. Following mediation, in October 2021, 3M and Wolverine reached a settlement in principle with counsel representing all but three of the remaining private individual actions. At a further mediation in December 2021, 3M and Wolverine reached a settlement in principle to resolve two more of the remaining cases (on behalf of seven plaintiff families). Upon completion of these settlements, only one private individual action will remain pending in Michigan state court.
3M was also a defendant, together with Georgia-Pacific as co-defendant, in a putative class action in federal court in Michigan brought by residents of Parchment, who allege that the municipal drinking water was contaminated from waste generated by a paper mill owned by Georgia-Pacific’s corporate predecessor. The defendants’ motion to dismiss certain claims in the complaint was denied in January 2021. The parties engaged in mediation and in April 2021 reached a preliminary settlement agreement, subject to court approval, under which 3M and Georgia-Pacific would jointly pay an amount and be released from plaintiffs’ putative class action claims. 3M’s portion is not considered material. The court approved the settlement in September 2021.
In Alabama and Georgia, 3M, together with multiple co-defendants, is defending three state court cases brought by municipal water utilities, relating to 3M’s sale of PFAS-containing products to carpet manufacturers in Georgia. The plaintiffs in these cases allege that the carpet manufacturers improperly discharged PFAS into the surface water and groundwater, contaminating drinking water supplies of cities located downstream along the Coosa River, including Rome, Georgia and Centre and Gadsden, Alabama. The three water utility cases are proceeding through discovery. Another case originally filed in Georgia state court was brought by individuals asserting PFAS contamination by the Georgia carpet manufacturers and seeking economic damages and injunctive relief on behalf of a putative class of Rome and Floyd County water subscribers. This case has been removed to federal court, where 3M filed a motion to dismiss a series of amended complaints, resulting in the dismissal of plaintiffs’ negligence claim against 3M. This case is proceeding through discovery. 3M, together with co-defendants, is also defending another putative class action in federal court in Georgia, in which plaintiffs seek relief on behalf of a class of individual ratepayers in Summerville, Georgia who allege their water supply was contaminated by PFAS discharged from a textile mill. In May 2021, the City of Summerville filed a motion to intervene in the lawsuit, which remains pending. 3M has moved to dismiss this case. This case remains in early stages of litigation.
In California, 3M and other defendants were named as defendants in an action brought in federal court by Golden State Water Company, alleging PFAS contamination of certain wells located in its water systems. 3M filed a motion to dismiss in November 2020 and in January 2021, the court granted defendants’ motion to dismiss the case for lack of personal jurisdiction. In February 2021, the plaintiffs voluntarily dismissed their action without prejudice and filed a new case in the AFFF MDL court. Separately, in December 2020, the Orange County Water District and ten additional local water providers sued 3M, Decra Roofing and certain DuPont-related entities in California state court, alleging PFAS contamination of the plaintiffs’ water sources and also referring to 3M's industrial minerals facility in Corona, California as a potential source of contamination. The plaintiffs filed an amended complaint, and 3M filed a demurrer to the amended complaint in March 2021. In April 2021, the court denied 3M’s demurrer, and the case remains in early stages of litigation. In May 2021, the Orange County plaintiffs filed a second amended complaint. In June 2021, the case was removed to the U.S. District Court for the Central District of California where the plaintiffs moved to remand the case back to state court. The court granted plaintiffs’ motion to remand. 3M has appealed the remand decision to the U.S. Court of Appeals for the Ninth Circuit, which is hearing the appeal on an expedited basis, with oral argument scheduled in February 2022. Pending that appeal, in September 2021, the state court ordered that discovery can proceed against 3M. In February 2021, the City of Corona and a local utility authority filed a lawsuit in California state court against 3M and other defendants, alleging PFAS contamination from 3M products generally as well as from 3M’s Corona facility and roofing granules products. Plaintiffs filed an amended complaint in June 2021. In July 2021, the case was removed to the U.S. District Court for the Central District of California. The federal court granted plaintiffs’ motion to remand the action to state court. In October 2021, 3M filed a demurrer to the amended complaint in state court. In October 2021, a lawsuit was filed against 3M in California state court in San Luis Obispo County by the Atascadero Mutual Water
Company, a local water supplier. The complaint alleges PFAS contamination from 3M products generally. In November 2021, the case was removed to the U.S. District Court for the Central District of California. The plaintiffs have indicated they intend to amend their complaint.
In Delaware, 3M, together with several co-defendants, is defending one putative class action brought by individuals alleging PFAS contamination of their water supply resulting from the operations of local metal plating facilities. Plaintiffs allege that 3M supplied PFAS to the metal plating facilities. DuPont, Chemours, and the metal platers have also been named as defendants. This case has been removed from state court to federal court, and plaintiffs have withdrawn its motion to remand to state court and filed an amended complaint. 3M has filed a motion to dismiss the amended complaint. In February 2021, the court raised the question whether subject matter jurisdiction under the Class Action Fairness Act was proper, issued an order requiring the parties to brief the issue and denied defendants’ motions to dismiss with leave to renew pending the court’s ruling on jurisdiction. An oral argument was held in September 2021. In December 2021, the court issued an order retaining jurisdiction over the case and 3M renewed its previous motion to dismiss.
In New Jersey, 3M is a defendant in an action brought in federal court by Middlesex Water Company, alleging PFAS contamination of its water wells. 3M’s motion to transfer the case to the AFFF MDL was denied. 3M has moved to dismiss the complaint, and discovery closed in September 2021. The parties are engaged in mediation. In September 2020, 3M was named a defendant in a similar lawsuit brought by the Borough of Hopatcong. In December 2020, 3M filed a motion to dismiss the Hopatcong matter. In January 2021, 3M was named a defendant in another similar lawsuit brought by the Pequannock Township. In March 2021, 3M filed a motion to dismiss the Pequannock matter. Discovery is ongoing in both Hopatcong and Pequannock matters. 3M, together with several co-defendants, is also defending fourteen cases in New Jersey federal court brought by individuals with private drinking water wells near certain DuPont and Solvay facilities that were allegedly supplied with PFAS by 3M. These cases have all been coordinated for discovery, which is ongoing. Plaintiffs in eight of these cases seek medical monitoring and property damages. 3M’s motion to dismiss the earliest filed of these cases was largely denied in February 2021, and 3M has since filed answers in all eight cases. Plaintiffs in the six remaining individual cases in federal court allege personal injuries to themselves or their disabled adult children. 3M has moved to dismiss five of these cases, and it has not yet been served in the sixth. In February 2022, 3M's motion to dismiss was largely denied. In December 2021, plaintiffs filed four additional cases in New Jersey state court similar to the personal injury actions filed in federal court. 3M has not yet been served in these cases. Finally, 3M is also defending a putative class action filed in New Jersey federal court in November 2021 by individuals who received drinking water from Middlesex Water Company that was allegedly contaminated with PFAS in excess of state regulatory levels. Middlesex Water Company is also named as a defendant in this action. With respect to 3M, the suit asserts claims for negligence, nuisance, and trespass. Plaintiffs seek an injunction to include bottled water and home treatment systems and alleged damages for diminution-in-property value, among other relief. 3M plans to respond to the complaints. This case remains in early stages of litigation.
In October 2018, 3M and other defendants, including DuPont and Chemours, were named in a putative class action in the U.S. District Court for the Southern District of Ohio brought by the named plaintiff, a firefighter allegedly exposed to PFAS chemicals through his use of firefighting foam, purporting to represent a putative class of all U.S. individuals with detectable levels of PFAS in their blood. The plaintiff brings claims for negligence, battery, and conspiracy and seeks injunctive relief, including an order “establishing an independent panel of scientists” to evaluate PFAS. 3M and other entities jointly filed a motion to dismiss in February 2019. In September 2019, the court denied the defendants’ motion to dismiss. In February 2020, the court denied 3M’s motion to transfer the case to the AFFF MDL. Briefing on plaintiff’s class certification motion is complete, and the court’s ruling on class certification is pending.
Other PFAS-related Matters
In July 2019, the Company received a written request from the Subcommittee on Environment of the Committee on Oversight and Reform, U.S. House of Representatives, seeking certain documents and information relating to the Company’s manufacturing and distribution of PFAS products. In September 2019, a 3M representative testified before and responded to questions from the Subcommittee on Environment with respect to PFAS and the Company’s environmental stewardship initiatives. The Company continues to cooperate with the Subcommittee.
The Company continues to make progress in its work, under the supervision of state regulators, to remediate historic disposal of PFAS-containing waste associated with manufacturing operations at its Decatur, Alabama; Cottage Grove, Minnesota; and Cordova, Illinois plants.
As previously reported, the Illinois EPA in August 2014 approved a request by the Company to establish a groundwater management zone at its manufacturing facility in Cordova, Illinois, which includes ongoing pumping of impacted site groundwater, groundwater monitoring and routine reporting of results.
In Minnesota, the Company continues to work with the Minnesota Pollution Control Agency (MPCA) pursuant to the terms of the previously disclosed May 2007 Settlement Agreement and Consent Order to address the presence of certain PFAS compounds in the soil and groundwater at former disposal sites in Washington County, Minnesota (Oakdale and Woodbury) and at the Company’s manufacturing facility at Cottage Grove, Minnesota. Under this agreement, the Company’s principal obligations include (i) evaluating releases of certain PFAS compounds from these sites and proposing response actions; (ii) providing treatment or alternative drinking water upon identifying any level exceeding a HBV or Health Risk Limit (HRL) (i.e., the amount of a chemical in drinking water determined by the Minnesota Department of Health (MDH) to be safe for human consumption over a lifetime) for certain PFAS compounds for which a HBV and/or HRL exists as a result of contamination from these sites; (iii) remediating identified sources of other PFAS compounds at these sites that are not controlled by actions to remediate PFOA and PFOS; and (iv) sharing information with the MPCA about certain perfluorinated compounds. During 2008, the MPCA issued formal decisions adopting remedial options for the former disposal sites in Washington County, Minnesota (Oakdale and Woodbury). In August 2009, the MPCA issued a formal decision adopting remedial options for the Company’s Cottage Grove manufacturing facility. During the spring and summer of 2010, 3M began implementing the agreed upon remedial options at the Cottage Grove and Woodbury sites. 3M commenced the remedial option at the Oakdale site in late 2010. At each location the remedial options were recommended by the Company and approved by the MPCA. The Company has completed remediation work and continues with operational and maintenance activities at the Oakdale and Woodbury sites. Remediation work has been substantially completed at the Cottage Grove site, with operational and maintenance activities ongoing.
In Alabama, as previously reported, the Company entered into a voluntary remedial action agreement with ADEM to remediate the presence of PFAS in the soil and groundwater at the Company’s manufacturing facility in Decatur, Alabama associated with the historic (1978-1998) incorporation of wastewater treatment plant sludge. With ADEM’s agreement, 3M substantially completed installation of a multilayer cap on the former sludge incorporation areas. Further remediation activities, including certain on-site and off-site investigations and studies, will be conducted in accordance with the July 2020 Interim Consent Order described below.
The Company operates under a 2009 consent order issued under the federal Toxic Substances Control Act (TSCA) (the “2009 TSCA consent order”) for the manufacture and use of two perfluorinated materials (FBSA and FBSEE) at its Decatur, Alabama site that does not permit release of these materials into “the waters of the United States.” In March 2019, the Company halted the manufacture, processing, and use of these materials at the site upon learning that these materials may have been released from certain specified processes at the Decatur site into the Tennessee River. In April 2019, the Company voluntarily disclosed the releases to the U.S. EPA and ADEM. During June and July 2019, the Company took steps to fully control the aforementioned processes by capturing all wastewater produced by the processes and by treating all air emissions. These processes have been back on-line and in operation since July 2019. The Company continues to cooperate with the EPA and ADEM in their investigations and will work with the regulatory authorities to demonstrate compliance with the release restrictions.
The Company is authorized to discharge wastewater from its Decatur plant pursuant to the terms of a Clean Water Act National Pollutant Discharge Elimination System (NPDES) permit issued by ADEM. The NPDES permit requires the Company to report on a monthly and quarterly basis the quality and quantity of pollutants discharged to the Tennessee River. In June 2019, as previously reported, the Company voluntarily disclosed to the EPA and ADEM that it had included incorrect values in certain of its monthly and quarterly reports. The Company has submitted the corrected values to both the EPA and ADEM.
As previously reported, as part of ongoing work with the EPA and ADEM to address compliance matters at the Decatur facility, the Company discovered it had not fully characterized its PFAS discharge in its NPDES permit. In September 2019, the Company disclosed the matter to the EPA and ADEM and announced that it had elected to temporarily idle certain other manufacturing processes at 3M Decatur. The Company is reviewing its operations at the plant, has installed wastewater treatment controls and has restarted idled processes.
As a result of the Company’s discussions with ADEM to address these and other related matters in the state of Alabama, as previously reported, 3M and ADEM agreed to the terms of an interim Consent Order in July 2020 to cover all PFAS-related wastewater discharges and air emissions from the Company’s Decatur facility. Under the interim Consent Order, the Company’s principal obligations include commitments related to (i) future ongoing site operations such as (a) providing certain notices or reports and performing various analytical and characterization studies and (b) future capital improvements; and (ii) remediation activities, including certain on-site and off-site investigations and studies. Obligations related to ongoing future site operations under the Consent Order will involve additional operating costs and capital expenditures over multiple years. As offsite investigation activities continue, additional remediation amounts may become probable and reasonably estimable in the future.
As previously reported, in December 2019, the Company received a grand jury subpoena from the U.S. Attorney’s Office for the Northern District of Alabama for documents related to, among other matters, the Company’s compliance with the 2009 TSCA consent order and unpermitted discharges to the Tennessee River. The Company is cooperating with this and other inquiries and requests regarding its manufacturing facilities and is producing documents in response to the inquiries.
In addition, as previously reported, as part of its ongoing evaluation of regulatory compliance at its Cordova, Illinois facility, the Company discovered it had not fully characterized its PFAS discharge in its NPDES permit for the Cordova facility. In November 2019, the Company disclosed this matter to the EPA, and in January 2020 disclosed this matter to the Illinois Environmental Protection Agency (IEPA). The Company continues to work with the EPA and IEPA to address these issues from the Cordova facility, including a draft EPA SDWA Administrative Consent Order received in December 2021 proposing that the Company survey and sample proposed private and public drinking water wells within the vicinity of the Cordova facility.
The Company is also reviewing operations at its other plants with similar manufacturing processes, such as the plant in Cottage Grove, Minnesota, to ensure those operations are in compliance with applicable environmental regulatory requirements and Company policies and procedures. As a result of these reviews, as previously reported, the Company discovered it had not fully characterized its PFAS discharge in its NPDES permit for the Cottage Grove facility. In March 2020, the Company disclosed this matter to the Minnesota Pollution Control Agency (MPCA) and the EPA. In July 2020, the Company received an information request from MPCA for documents and information related to, among other matters, the Company’s compliance with the Clean Water Act at its Cottage Grove facility. The Company is cooperating with this inquiry and is producing documents and information in response to the request for information. The Company continues to work with the MPCA and EPA to address the discharges from the Cottage Grove facility.
Separately, as previously reported, in June 2020, the Company reported to EPA and MPCA that it had not fully complied with elements of the inspection, characterization and waste stream profile verification process of the Waste and Feedstream Analysis Plan (WAP/FAP) of its Resource Conservation and Recovery Act (RCRA) permit for its Cottage Grove incinerator. In July 2020, the Company received an information request from MPCA related to the June 2020 disclosure, to which the Company responded in September 2020. The Company continues to work with the MPCA to address WAP/FAP implementation issues disclosed in June 2020. In January 2021, the Company received a notice of violation (NOV) from MPCA related to, among other matters, the above-described Clean Water Act and RCRA issues. The Company is cooperating with MPCA to address the issues that are the subject of the NOV and is in discussions with MPCA regarding an assessed penalty. In October 2021, the Company received information requests from MPCA seeking additional toxicological and other information related to certain PFAS compounds. The Company is cooperating with these inquires and is producing documents and information in response to the requests.
In February 2020, as previously reported, the Company received an information request from EPA for documents and information related to, among other matters, the Company’s compliance with the Clean Water Act at its facilities that manufacture, process and use PFAS, including the Decatur, Cordova and Cottage Grove facilities. The Company is cooperating with this inquiry and is producing documents and information in response to the request for information.
The Company continues to work with relevant federal and state agencies (including EPA, the U.S. Department of Justice, state environmental agencies and state attorneys general) as it conducts these reviews and responds to information, inspection and other requests from the agencies. The Company cannot predict at this time the outcomes of resolving these compliance matters, what actions may be taken by the regulatory agencies or the potential consequences to the Company.
Other Environmental Litigation
In July 2018, the Company, along with more than 120 other companies, was served with a complaint seeking cost recovery and contribution towards the cleaning up of approximately eight miles of the Lower Passaic River in New Jersey. The plaintiff, Occidental Chemical Corporation, alleges that it agreed to design and pay the estimated $165 million cost to remove and cap sediment containing eight chemicals of concern, including PCBs and dioxins. The complaint seeks to spread those costs among the defendants, including the Company. The Company’s involvement in the case relates to its past use of two commercial drum conditioning facilities in New Jersey. Whether, and to what extent, the Company may be required to contribute to the costs at issue in the case remains to be determined.
For environmental matters and litigation described above, unless otherwise described below, no liability has been recorded as the Company believes liability in those matters is not probable and reasonably estimable and the Company is not able to estimate a possible loss or range of possible loss at this time. The Company’s environmental liabilities and insurance receivables are described below.
Environmental Liabilities and Insurance Receivables
The Company periodically examines whether the contingent liabilities related to the environmental matters and litigation described above are probable and reasonably estimable based on experience and ongoing developments in those matters, including discussions regarding negotiated resolutions. During 2021, as a result of recent developments in ongoing environmental matters and litigation, the Company increased its accrual for PFAS-related other environmental liabilities by $138 million since December 31, 2020 and made related payments of $142 million. As previously disclosed, in the first and fourth quarters of 2019, in conjunction with other adjustments as a result of developments in then ongoing environmental matters and litigation, 3M recorded pre-tax charges aggregating to $449 million. These pre-tax charges were in light of the EPA issuance of its PFAS Action Plan; the Company’s settlement of litigation with the Water Authority; updates to evaluation of certain customer-related litigation based on continued, productive settlement discussions with multiple parties; completion of and then ongoing updates to a comprehensive review with the assistance of environmental consultants and other experts regarding environmental matters and litigation related to historical PFAS manufacturing operations; and expanded evaluation of other 3M sites that may have used certain PFAS-containing materials and locations at which they were disposed. As of December 31, 2021, the Company had recorded liabilities of $412 million for “other environmental liabilities.” The accruals represent the Company’s best estimate of the probable loss in connection with the environmental matters and PFAS-related litigation described above. The Company is not able to estimate a possible loss or range of possible loss in excess of the established accruals at this time.
As of December 31, 2021, the Company had recorded liabilities of $29 million for estimated non-PFAS related “environmental remediation” costs to clean up, treat, or remove hazardous substances at current or former 3M manufacturing or third-party sites. The Company evaluates available facts with respect to each individual site each quarter and records liabilities for remediation costs on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or the Company’s commitment to a plan of action. Liabilities for estimated costs of environmental remediation, depending on the site, are based primarily upon internal or third-party environmental studies, and estimates as to the number, participation level and financial viability of any other potentially responsible parties, the extent of the contamination and the nature of required remedial actions. The Company adjusts recorded liabilities as further information develops or circumstances change. The Company expects that it will pay the amounts recorded over the periods of remediation for the applicable sites, currently ranging up to 20 years.
It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Developments may occur that could affect the Company’s current assessment, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) success in allocating liability to other potentially responsible parties; and (v) the financial viability of other potentially responsible parties and third-party indemnitors. For sites included in both “environmental remediation liabilities” and “other environmental liabilities,” at which remediation activity is largely complete and remaining activity relates primarily to operation and maintenance of the remedy, including required post-remediation monitoring, the Company believes the exposure to loss in excess of the amount accrued would not be material to the Company’s consolidated results of operations or financial condition. However, for locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of possible loss in excess of the associated established accruals for the reasons described above.
The Company has both pre-1986 general and product liability occurrence coverage and post-1985 occurrence reported product liability and other environmental coverage for environmental matters and litigation. As of December 31, 2021, the Company’s receivable for insurance recoveries related to the environmental matters and litigation was $8 million. Various factors could affect the timing and amount of recovery of this and future expected increases in the receivable, including (i) delays in or avoidance of payment by insurers; (ii) the extent to which insurers may become insolvent in the future, (iii) the outcome of negotiations with insurers, and (iv) the scope of the insurers’ purported defenses and exclusions to avoid coverage.
Product Liability Litigation
Aearo Technologies sold Dual-Ended Combat Arms – Version 2 earplugs starting in about 2003. 3M acquired Aearo Technologies in 2008 and sold these earplugs from 2008 through 2015, when the product was discontinued. In December 2018, a military veteran filed an individual lawsuit against 3M in the San Bernardino Superior Court in California alleging that he sustained personal injuries while serving in the military caused by 3M’s Dual-Ended Combat Arms earplugs – Version 2. The plaintiff asserts claims of product liability and fraudulent misrepresentation and concealment. The plaintiff seeks various damages, including medical and related expenses, loss of income, and punitive damages.
As of December 31, 2021, the Company is a named defendant in approximately 3,616 lawsuits (including 14 putative class actions) in various state and federal courts that purport to represent approximately 13,531 individual claimants making similar allegations. In April 2019, the U.S. Judicial Panel on Multidistrict Litigation granted motions to transfer and consolidate all cases pending in federal courts to the U.S. District Court for the Northern District of Florida to be managed in a multi-district litigation (MDL) proceeding to centralize pre-trial proceedings. The plaintiffs and 3M filed preliminary summary judgment motions on the government contractor defense. In July 2020, the MDL court granted the plaintiffs’ summary judgment motion and denied the defendants’ summary judgment motion, ruling that plaintiffs’ claims are not barred by the government contractor defense. The court denied the Company’s request to immediately certify the summary judgment ruling for appeal to the U.S. Court of Appeals for the Eleventh Circuit. In December 2020, the court granted the plaintiffs’ motion to consolidate three plaintiffs for the first bellwether trial, which began in March 2021.
In April 2021, 3M received an adverse jury verdict in the first bellwether trial. The jury awarded the three plaintiffs less than $1 million in compensatory damages and $6 million in punitive damages for a total of $7 million. 3M has appealed the verdicts, challenging, among other rulings, the MDL court's denial of 3M’s motion to assert the government contractor defense. The next two bellwether trials occurred in May and June of 2021. In May 2021, 3M received a verdict in its favor in the second bellwether trial, in which a jury rejected claims that 3M knowingly sold earplugs with design defects. In June 2021, 3M received an adverse verdict in the third bellwether trial. The jury found 3M liable for strict liability failure to warn, but found 3M not liable for design defect or fraud. The jury apportioned fault 62 percent to 3M and 38 percent to the plaintiff for a total damage award of approximately $1 million. 3M has appealed the verdict. In October 2021, 3M received an adverse verdict in the fourth bellwether trial, in which a jury awarded $8 million to the plaintiff. 3M plans to appeal the verdict. 3M received verdicts in its favor in the fifth and sixth bellwether trials. 3M received an adverse verdict in the seventh and eighth bellwether trials, in which the juries awarded the plaintiffs $13 million and $23 million, respectively. 3M plans to appeal these verdicts. 3M prevailed in the ninth and tenth bellwether cases but received adverse verdicts in the eleventh bellwether case in which the jury awarded each of the two plaintiffs $15 million in compensatory and $40 million in punitive damages. 3M plans to appeal these verdicts. The next five bellwether cases are scheduled for trial in March, April and May 2022. These trials will not include several bellwether cases that plaintiffs' counsel dismissed with prejudice either during discovery or after being set for trial. An administrative docket of approximately 240,000 unfiled and unverified claims (after factoring in approximately 50,000 claims in a transitional process as described below) has also been maintained at the MDL court. The MDL court in August 2021 provided notice of an intent to issue forthcoming transition orders requiring all claims be moved off the administrative docket to the active docket on a rolling basis over 12 months. The orders will provide that any case not moved to the active docket will be dismissed without prejudice, and the administrative docket will then be closed. To date approximately 50,000 claims are in the process of being transitioned to the active docket or dismissed. The MDL court also ordered the parties to prepare for trial 1,500 cases in three waves of 500 cases over the next 14 months. After the preparation of these cases is completed, the cases will be remanded to the federal district courts where the cases were originally filed. In November 2021, the judge issued the first wave order of the first 500 cases over the next eight months.
3M is also defending lawsuits brought primarily by non-military plaintiffs in state court in Hennepin County, Minnesota. 3M removed these actions to federal court, and the federal court remanded them to state court in March 2020. On appeal, the U.S. Court of Appeals for the Eighth Circuit ruled in October 2021 that the cases brought by non-military plaintiffs were properly remanded to state court, whereas the cases brought by military contractor plaintiffs who had received the Combat Arms Earplugs from the military should have remained in federal court. In November 2021, the Eighth Circuit granted 3M's unopposed motion to vacate the remand orders in the remaining appeals of military service member cases. The military service member cases are expected to be remanded to federal court and transferred to the MDL. There are approximately 65 lawsuits involving approximately 1,100 plaintiffs pending in the state court, but the number of plaintiffs is expected to decline as cases are remanded to federal court. The cases remaining in state court are subject to a bellwether case selection process. The first trial in Hennepin County is scheduled for no earlier than April 2022.
No liability has been recorded for these matters because the Company believes that any such liability is not probable and reasonably estimable at this time.
As of December 31, 2021, the Company was a named defendant in approximately 5,266 lawsuits in the United States and one Canadian putative class action with a single named plaintiff, alleging that the Bair Hugger™ patient warming system caused a surgical site infection.
As previously disclosed, 3M is a named defendant in lawsuits in federal courts involving over 5,000 plaintiffs alleging that they underwent various joint arthroplasty, cardiovascular, and other surgeries and later developed surgical site infections due to the use of the Bair Hugger™ patient warming system. The plaintiffs seek damages and other relief based on theories of strict liability, negligence, breach of express and implied warranties, failure to warn, design and manufacturing defect, fraudulent and/or negligent misrepresentation/concealment, unjust enrichment, and violations of various state consumer fraud, deceptive or unlawful trade practices and/or false advertising acts.
The U.S. Judicial Panel on Multidistrict Litigation (JPML) consolidated all cases pending in federal courts to the U.S. District Court for the District of Minnesota to be managed in a multi-district litigation (MDL) proceeding. In July 2019, the court excluded several of the plaintiffs’ causation experts, and granted summary judgment for 3M in all cases pending at that time in the MDL. Plaintiffs appealed that decision to the U.S. Court of Appeals for the Eighth Circuit. Plaintiffs also appealed a 2018 jury verdict in favor of 3M in the first bellwether trial in the MDL and appealed the dismissal of another bellwether case. The Eighth Circuit court heard oral argument on all pending appeals in March 2021. A panel of the appellate court in August 2021 reversed the district court’s exclusion of the plaintiffs’ causation experts and the grant of summary judgment for 3M. The Company sought further appellate en banc review by the full Eighth Circuit court. In November 2021, the Eighth Circuit court denied 3M’s petition for rehearing en banc. In February 2022, the Company filed a petition for a writ of certiorari in the U.S. Supreme Court. The MDL court has not yet issued a new case management order. In February 2022, the MDL court ordered the parties to engage in any mediation sessions that a court-appointed mediator deems appropriate. Also, in August 2021, the Eighth Circuit court separately affirmed the 2018 jury verdict in 3M’s favor in the only bellwether trial in the MDL.
In addition to the federal cases, there are four state court cases. Three are pending in Missouri state court and combine Bair Hugger product liability claims with medical malpractice claims. Two of the Missouri cases are set for trial; one in September 2022 and one in April 2023. There is also one case in Hidalgo County, Texas that combines Bair Hugger product liability claims with medical malpractice claims. In August 2019, the MDL court enjoined the individual plaintiff from pursuing his claims in Texas state court because he had previously filed and dismissed a claim in the MDL. That plaintiff has appealed the order to the U.S. Court of Appeals for the Eighth Circuit, which heard oral argument on this appeal in March 2021. In May 2021, the Court of Appeals lifted the MDL court’s injunction that barred plaintiff from litigating the Texas state court case. The court has set a trial date in December 2022.
As previously disclosed, 3M had been named a defendant in 61 cases in Minnesota state court. In January 2018, the Minnesota state court excluded plaintiffs’ experts and granted 3M’s motion for summary judgment on general causation. The Minnesota Court of Appeals affirmed the state court orders in their entirety and the Minnesota Supreme Court denied plaintiffs’ petition for review and entered the finial dismissal in 2019, effectively ending the Minnesota state court cases.
In June 2016, the Company was served with a putative class action filed in the Ontario Superior Court of Justice for all Canadian residents who underwent various joint arthroplasty, cardiovascular, and other surgeries and later developed surgical site infections that the representative plaintiff claims was due to the use of the Bair Hugger™ patient warming system. The representative plaintiff seeks relief (including punitive damages) under Canadian law based on theories similar to those asserted in the MDL.
No liability has been recorded for the Bair Hugger™ litigation because the Company believes that any such liability is not probable and reasonably estimable at this time.
For product liability litigation matters described in this section for which a liability has been recorded, the amount recorded is not material to the Company’s consolidated results of operations or financial condition. In addition, the Company is not able to estimate a possible loss or range of possible loss in excess of the established accruals at this time.
Securities and Shareholder Litigation
In July 2019, Heavy & General Laborers’ Locals 472 & 172 Welfare Fund filed a putative securities class action against 3M Company, its former Chairman and CEO, current Chairman and CEO, and former CFO in the U.S. District Court for the District of New Jersey. In August 2019, an individual plaintiff filed a similar putative securities class action in the same district. Plaintiffs allege that defendants made false and misleading statements regarding 3M's exposure to liability associated with PFAS and bring claims for damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against all defendants, and under Section 20(a) of the Securities and Exchange Act of 1934 against the individual defendants. In October 2019, the court consolidated the securities class actions and appointed a group of lead plaintiffs. In January 2020, the defendants filed a motion to transfer venue to the U.S. District Court for the District of Minnesota. In August 2020, the court denied the motion to transfer venue, and in September 2020, the defendants filed a petition for writ of mandamus to the U.S. Court of Appeals for the Third Circuit. In November 2020, the federal Court of Appeals granted 3M’s petition for a writ of mandamus and directed the New Jersey federal court to transfer the action to the Minnesota federal court. The defendants filed a motion to dismiss the action in January 2021, and in September 2021, the Minnesota federal court granted 3M’s motion to dismiss the securities class action, which judgment is now final.
In October 2019, a stockholder derivative lawsuit was filed in the U.S. District Court for the District of New Jersey against 3M and several of its current and former executives and directors. In November and December 2019, two additional derivative lawsuits were filed in a Minnesota state court. The derivative lawsuits rely on similar factual allegations as the putative securities class action discussed above. The state court cases were consolidated and stayed pending a decision on the motion to dismiss in the securities class action, and the Minnesota state plaintiffs are likely to have until March 2022 to file an amended
complaint. In October 2020, the derivative action pending in the U.S. District Court for the District of New Jersey was dismissed, without prejudice, for failure to serve the complaint within the required time period.
In August 2020, a stockholder who had previously submitted a books and records demand filed an additional follow-on derivative lawsuit in the U.S. District Court for the District of New Jersey against 3M and several of its current and former executives and directors. This derivative lawsuit, having been transferred to Minnesota federal court, also relies on similar factual allegations as the putative securities class action discussed above. In February 2021, an additional stockholder derivative lawsuit was filed in the District of Minnesota, making similar factual allegations as the putative securities class action discussed above. The Minnesota federal court consolidated these federal derivative suits and stayed them pending and through any appeal of the securities class action dismissal. The Minnesota federal plaintiffs have until February 16, 2022 to file an amended complaint.
Federal False Claims Act / Qui Tam Litigation
In October 2019, 3M acquired Acelity, Inc. and its KCI subsidiaries, including Kinetic Concepts, Inc. and KCI USA, Inc. As previously disclosed in the SEC filings by the KCI entities, in 2009, Kinetic Concepts, Inc. received a subpoena from the U.S. Department of Health and Human Services Office of Inspector General. In 2011, following the completion of the government’s review and its decision declining to intervene in two qui tam actions described further below, the qui tam relator-plaintiffs’ pleadings were unsealed.
The government inquiry followed two qui tam actions filed in 2008 by two former employees against Kinetic Concepts, Inc. and KCI USA, Inc. (collectively, the “KCI defendants”) under seal in the U.S. District Court for the Central District of California. The complaints contain allegations that the KCI Defendants violated the federal False Claims Act by submitting false or fraudulent claims to federal healthcare programs by billing for V.A.C.® Therapy in a manner that was not consistent with the Local Coverage Determinations issued by the Durable Medical Equipment Medicare Administrative Contractors and seek monetary damages. One complaint (the “Godecke case”) also contains allegations that the KCI Defendants retaliated against the relator-plaintiff for alleged whistle-blowing behavior.
In October 2016, the KCI Defendants filed counterclaims in the Godecke case, asserting breach of contract and conversion. In August 2017, the relator-plaintiff’s fraud claim in the Godecke case was dismissed in favor of the KCI defendants. In January 2018, the district court stayed the retaliation claim and the KCI Defendants' counterclaims pending the relator-plaintiff’s appeal. In September 2019, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded the case to the district court for further proceedings. In August 2021, the district court entered a discovery and pretrial schedule with an April 2022 trial date. Relator-plaintiff Godecke and the KCI Defendants reached a settlement, which includes a settlement payment by the KCI Defendants to relator-plaintiff of an agreed amount and a complete dismissal of all claims with prejudice by both parties and without prejudice to the United States. In January 2022, the district court entered an order dismissing the case with prejudice as to the relator-plaintiff and the KCI Defendants and without prejudice to the United States.
Separately, in June 2019, the district court in the second case (the “Hartpence case”) entered summary judgment in the KCI Defendants’ favor on all of the relator-plaintiff’s claims. The relator-plaintiff then filed an appeal in the U.S. Court of Appeals for the Ninth Circuit. Oral argument in the Hartpence case was held in July 2020. The appellate court’s opinion remains pending.
For the matters described in this section for which a liability has been recorded, the amount recorded is not material to the Company’s consolidated results of operations or financial condition.
Compliance Matter
The Company, through its internal processes, discovered certain travel activities and related funding and record keeping issues raising concerns, arising from marketing efforts by certain business groups based in China. The Company initiated an internal investigation to determine whether the expenditures may have violated the U.S. Foreign Corrupt Practices Act (FCPA) or other potentially applicable anti-corruption laws. The Company has retained outside counsel and a forensic accounting firm to assist with the investigation. In July 2019, the Company voluntarily disclosed this investigation to both the Department of Justice and Securities and Exchange Commission and is cooperating with both agencies. The Company cannot predict at this time the outcome of its investigation or what potential actions may be taken by the Department of Justice or Securities and Exchange Commission.
NOTE 17. Leases
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Operating lease cost
|
|
$
|
319
|
|
|
$
|
348
|
|
|
$
|
308
|
|
Finance lease cost:
|
|
|
|
|
|
|
Amortization of assets
|
|
15
|
|
|
21
|
|
|
20
|
|
Interest on lease liabilities
|
|
2
|
|
|
1
|
|
|
2
|
|
Variable lease cost
|
|
127
|
|
|
101
|
|
|
93
|
|
Total net lease cost
|
|
$
|
463
|
|
|
$
|
471
|
|
|
$
|
423
|
|
Short-term lease cost and income related to sub-lease activity is immaterial for the Company.
Supplemental balance sheet information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions unless noted)
|
|
Location on face of Balance Sheet
|
|
2021
|
|
2020
|
Operating leases:
|
|
|
|
|
|
|
Operating lease right of use assets
|
|
Operating lease right of use assets
|
|
$
|
858
|
|
|
$
|
864
|
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
Operating lease liabilities - current
|
|
263
|
|
|
256
|
|
Noncurrent operating lease liabilities
|
|
Operating lease liabilities
|
|
591
|
|
|
609
|
|
Total operating lease liabilities
|
|
|
|
854
|
|
|
865
|
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
Property, plant and equipment
|
|
223
|
|
|
225
|
|
Accumulated amortization
|
|
Property, plant and equipment (accumulated depreciation)
|
|
(117)
|
|
|
(106)
|
|
Property and equipment, net
|
|
|
|
106
|
|
|
119
|
|
|
|
|
|
|
|
|
Current obligations of finance leases
|
|
Other current liabilities
|
|
7
|
|
|
22
|
|
Finance leases, net of current obligations
|
|
Other liabilities
|
|
93
|
|
|
93
|
|
Total finance lease liabilities
|
|
|
|
$
|
100
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years):
|
|
|
|
|
Operating leases
|
|
|
|
5.5
|
|
5.6
|
Finance leases
|
|
|
|
6.6
|
|
7.6
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
|
|
Operating leases
|
|
|
|
1.8
|
%
|
|
2.4
|
%
|
Finance leases
|
|
|
|
3.3
|
%
|
|
3.5
|
%
|
Supplemental cash flow and other information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
317
|
|
|
$
|
326
|
|
|
$
|
309
|
|
Operating cash flows from finance leases
|
|
2
|
|
|
1
|
|
|
2
|
|
Financing cash flows from finance leases
|
|
19
|
|
|
58
|
|
|
18
|
|
|
|
|
|
|
|
|
Right of use assets obtained in exchange for lease liabilities:
|
|
|
|
|
|
|
Operating leases
|
|
342
|
|
|
250
|
|
|
326
|
|
Finance leases
|
|
3
|
|
|
18
|
|
|
61
|
|
Sale leased-back activity in 2021 was not material. In the first quarter of 2020, 3M sold and leased-back certain recently constructed machinery and equipment in return for municipal securities, which in aggregate, were recorded as a finance lease asset and obligation of approximately $10 million. In the first quarter of 2019, 3M sold and leased-back certain recently constructed machinery and equipment in return for municipal securities, which in aggregate, were recorded as a finance lease asset and obligation of approximately $9 million. During 2019, the Company sold and leased-back an office location and a manufacturing site resulting in a combined gain of $82 million.
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
(Millions)
|
|
Finance Leases
|
|
Operating Leases
|
2022
|
|
$
|
20
|
|
|
$
|
280
|
|
2023
|
|
19
|
|
|
203
|
|
2024
|
|
17
|
|
|
134
|
|
2025
|
|
11
|
|
|
80
|
|
2026
|
|
9
|
|
|
45
|
|
After 2026
|
|
31
|
|
|
151
|
|
Total
|
|
107
|
|
|
893
|
|
Less: Amounts representing interest
|
|
7
|
|
|
39
|
|
Present value of future minimum lease payments
|
|
100
|
|
|
854
|
|
Less: Current obligations
|
|
7
|
|
|
263
|
|
Long-term obligations
|
|
$
|
93
|
|
|
$
|
591
|
|
As of December 31, 2021, the Company has additional operating lease commitments that have not yet commenced of approximately $18 million. These commitments pertain to 3M’s right of use of certain buildings.
NOTE 18. Stock-Based Compensation
At the May 2021 Annual Meeting, the shareholders approved the Amended and Restated 3M Company 2016 Long-Term Incentive Plan (LTIP), which included an increase of 26,633,508 in the number of shares available for issuance. Awards may be issued in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards, and performance units and performance shares. As of December 31, 2021, the remaining shares available for grant under the LTIP Program are 37 million and there were approximately 8,100 participants with outstanding options, restricted stock, or restricted stock units.
The Company’s annual stock option and restricted stock unit grant is made in February to provide a strong and immediate link between the performance of individuals during the preceding year and the size of their annual stock compensation grants. The grant to eligible employees uses the closing stock price on the grant date. Accounting rules require recognition of expense under a non- substantive vesting period approach, requiring compensation expense recognition when an employee is eligible to retire. Employees are considered eligible to retire at age 55 and after having completed ten years of service. This retiree-eligible
population represents 35 percent of the annual grant’s stock-based compensation expense; therefore, higher stock-based compensation expense is recognized in the first quarter.
In addition to the annual grants, the Company makes other minor grants of stock options, restricted stock units and other stock-based grants. The Company issues cash settled restricted stock units and stock appreciation rights in certain countries. These grants do not result in the issuance of common stock and are considered immaterial by the Company.
Amounts recognized in the financial statements with respect to stock-based compensation programs, which include stock options, restricted stock, restricted stock units, performance shares and the General Employees’ Stock Purchase Plan (GESPP), are provided in the following table. Capitalized stock-based compensation amounts were not material.
Stock-Based Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
|
2021
|
|
2020
|
|
2019
|
Cost of sales
|
|
$
|
47
|
|
|
$
|
50
|
|
|
$
|
47
|
|
Selling, general and administrative expenses
|
|
185
|
|
|
169
|
|
|
185
|
|
Research, development and related expenses
|
|
42
|
|
|
43
|
|
|
46
|
|
Stock-based compensation expenses
|
|
274
|
|
|
262
|
|
|
278
|
|
Income tax benefits
|
|
(100)
|
|
|
(82)
|
|
|
(141)
|
|
Stock-based compensation expenses (benefits), net of tax
|
|
$
|
174
|
|
|
$
|
180
|
|
|
$
|
137
|
|
Stock Option Program
The following table summarizes stock option activity for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
(Options in thousands)
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
Under option —
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
35,401
|
|
$
|
156.23
|
|
|
33,675
|
|
$
|
151.15
|
|
|
34,569
|
|
$
|
138.98
|
|
Granted
|
|
3,612
|
|
175.04
|
|
|
4,777
|
|
157.25
|
|
|
3,434
|
|
200.80
|
|
Exercised
|
|
(4,163)
|
|
110.20
|
|
|
(2,759)
|
|
93.23
|
|
|
(4,193)
|
|
89.89
|
|
Forfeited
|
|
(290)
|
|
182.63
|
|
|
(292)
|
|
181.33
|
|
|
(135)
|
|
201.27
|
|
December 31
|
|
34,560
|
|
163.52
|
|
|
35,401
|
|
156.23
|
|
|
33,675
|
|
151.15
|
|
Options exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
26,956
|
|
$
|
161.25
|
|
|
27,537
|
|
$
|
149.67
|
|
|
26,487
|
|
$
|
136.75
|
|
Stock options generally vest over a period from one to three years with the expiration date at 10 years from date of grant. As of December 31, 2021, there was $48 million of compensation expense that has yet to be recognized related to non-vested stock option based awards. This expense is expected to be recognized over the remaining weighted-average vesting period of 20 months. For options outstanding at December 31, 2021, the weighted-average remaining contractual life was 61 months and the aggregate intrinsic value was $733 million. For options exercisable at December 31, 2021, the weighted-average remaining contractual life was 50 months and the aggregate intrinsic value was $662 million.
The total intrinsic values of stock options exercised during 2021, 2020 and 2019 was $325 million, $206 million and $433 million, respectively. Cash received from options exercised during 2021, 2020 and 2019 was $457 million, $256 million and $375 million, respectively. The Company’s actual tax benefits realized for the tax deductions related to the exercise of employee stock options for 2021, 2020 and 2019 was $69 million, $44 million and $91 million, respectively.
For the primary annual stock option grant, the weighted average fair value at the date of grant was calculated using the Black-Scholes option-pricing model and the assumptions that follow.
Stock Option Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
2021
|
|
2020
|
|
2019
|
Exercise price
|
|
$
|
175.04
|
|
|
$
|
157.24
|
|
|
$
|
201.12
|
|
Risk-free interest rate
|
|
0.8
|
%
|
|
1.5
|
%
|
|
2.6
|
%
|
Dividend yield
|
|
2.8
|
%
|
|
2.7
|
%
|
|
2.5
|
%
|
Expected volatility
|
|
22.6
|
%
|
|
19.7
|
%
|
|
20.4
|
%
|
Expected life (months)
|
|
83
|
|
78
|
|
79
|
Black-Scholes fair value
|
|
$
|
25.33
|
|
|
$
|
21.58
|
|
|
$
|
34.19
|
|
Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. For the 2021 annual grant date, the Company estimated the expected volatility based upon the following three volatilities of 3M stock: the median of the term of the expected life rolling volatility; the median of the most recent term of the expected life volatility; and the implied volatility on the grant date. The expected term assumption is based on the weighted average of historical grants.
Restricted Stock and Restricted Stock Units
The following table summarizes restricted stock and restricted stock unit activity for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
(Shares in thousands)
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested balance —
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1
|
|
1,722
|
|
|
$
|
189.78
|
|
|
1,573
|
|
|
$
|
201.11
|
|
|
1,789
|
|
|
$
|
180.02
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
822
|
|
|
176.82
|
|
|
733
|
|
|
157.29
|
|
|
564
|
|
|
200.41
|
|
Other
|
|
—
|
|
|
—
|
|
|
45
|
|
|
159.49
|
|
|
15
|
|
|
180.08
|
|
Vested
|
|
(462)
|
|
|
228.94
|
|
|
(570)
|
|
|
176.20
|
|
|
(732)
|
|
|
149.33
|
|
Forfeited
|
|
(95)
|
|
|
176.13
|
|
|
(59)
|
|
|
196.31
|
|
|
(63)
|
|
|
192.52
|
|
As of December 31
|
|
1,987
|
|
|
175.96
|
|
|
1,722
|
|
|
189.78
|
|
|
1,573
|
|
|
201.11
|
|
As of December 31, 2021, there was $94 million of compensation expense that has yet to be recognized related to non-vested restricted stock and restricted stock units. This expense is expected to be recognized over the remaining weighted-average vesting period of 24 months. The total fair value of restricted stock and restricted stock units that vested during December 31, 2021, 2020 and 2019 was $83 million, $91 million and $144 million, respectively. The Company’s actual tax benefits realized for the tax deductions related to the vesting of restricted stock and restricted stock units for 2021, 2020 and 2019 was $16 million, $17 million and $28 million, respectively.
Restricted stock units granted generally vest three years following the grant date assuming continued employment. Dividend equivalents equal to the dividends payable on the same number of shares of 3M common stock accrue on these restricted stock units during the vesting period, although no dividend equivalents are paid on any of these restricted stock units that are forfeited prior to the vesting date. Dividends are paid out in cash at the vest date on restricted stock units. Since the rights to dividends are forfeitable, there is no impact on basic earnings per share calculations. Weighted average restricted stock unit shares outstanding are included in the computation of diluted earnings per share.
Performance Shares
Instead of restricted stock units, the Company makes annual grants of performance shares to members of its executive management. The 2021 performance criteria for these performance shares (organic volume growth, return on invested capital, free cash flow conversion, and earnings per share growth) were selected because the Company believes that they are important drivers of long-term stockholder value. The number of shares of 3M common stock that could actually be delivered at the end of the three year performance period may be anywhere from 0% to 200% of each performance share granted, depending on the performance of the Company during such performance period. When granted, these performance shares are awarded at 100% of
the estimated number of shares at the end of the three-year performance period and are reflected under “Granted” in the table below. Non-substantive vesting requires that expense for the performance shares be recognized over one or three years depending on when each individual became a 3M executive. The performance share grants accrue dividends; therefore, the grant date fair value is equal to the closing stock price on the date of grant. Since the rights to dividends are forfeitable, there is no impact on basic earnings per share calculations. Weighted average performance shares whose performance period is complete are included in computation of diluted earnings per share.
The following table summarizes performance share activity for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2019
|
(Shares in thousands)
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Undistributed balance —
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1
|
|
423
|
|
|
$
|
188.61
|
|
|
444
|
|
|
$
|
205.58
|
|
|
562
|
|
|
$
|
188.96
|
|
Granted
|
|
166
|
|
|
176.79
|
|
|
203
|
|
|
153.16
|
|
|
166
|
|
|
207.49
|
|
Distributed
|
|
(115)
|
|
|
228.80
|
|
|
(206)
|
|
|
190.84
|
|
|
(210)
|
|
|
162.16
|
|
Performance change
|
|
40
|
|
|
176.35
|
|
|
25
|
|
|
166.49
|
|
|
(48)
|
|
|
204.73
|
|
Forfeited
|
|
(33)
|
|
|
171.35
|
|
|
(43)
|
|
|
172.92
|
|
|
(26)
|
|
|
209.96
|
|
As of December 31
|
|
481
|
|
|
175.12
|
|
|
423
|
|
|
188.61
|
|
|
444
|
|
|
205.58
|
|
As of December 31, 2021, there was $15 million of compensation expense that has yet to be recognized related to performance shares. This expense is expected to be recognized over the remaining weighted-average earnings period of 20 months. The total fair value of performance shares that were distributed were $22 million, $35 million, and $45 million for 2021, 2020 and 2019, respectively. The Company’s actual tax benefits realized for the tax deductions related to the distribution of performance shares were $4 million, $7 million, and $9 million per year for 2021, 2020, and 2019, respectively.
General Employees’ Stock Purchase Plan (GESPP):
As of December 31, 2021, shareholders have approved 60 million shares for issuance under the Company’s GESPP. Substantially all employees are eligible to participate in the plan. Participants are granted options at 85% of market value at the date of grant. There are no GESPP shares under option at the beginning or end of each year because options are granted on the first business day and exercised on the last business day of the same month.
The weighted-average fair value per option granted during 2021, 2020 and 2019 was $27.80, $23.47 and $27.14, respectively. The fair value of GESPP options was based on the 15% purchase price discount. The Company recognized compensation expense for GESSP options of $32 million in 2021, $31 million in 2020, and $30 million in 2019.
NOTE 19. Business Segments and Geographic Information
3M’s businesses are organized, managed and internally grouped into segments based on differences in markets, products, technologies and services. 3M manages its operations in four business segments: 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. Transactions among reportable segments are recorded at cost. 3M is an integrated enterprise characterized by substantial intersegment cooperation, cost allocations and inventory transfers. Therefore, management does not represent that these segments, if operated independently, would report the operating income information shown.
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 (see Note 3), and divestiture-related restructuring actions (see Note 5).
Effective in the first quarter of 2021, the measure of segment operating performance used by 3M’s CODM changed and, as a result, 3M’s disclosed measure of segment profit/loss (business segment operating income) was updated. 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. The change included the following:
Changes in cost attribution
The extent of allocation and method of attribution of certain net costs were updated to result in fewer items remaining in Corporate and Unallocated and, instead, including them in 3M’s business segments’ operating performance. See the updated description of Corporate and Unallocated below. Previously, a larger portion of ongoing corporate staff costs and costs associated with centrally managed material resource centers was retained in Corporate and Unallocated. In addition, portions of pension costs and costs associated with certain centrally managed but ongoing business-related legal matters, along with certain insurance-related costs, were retained in Corporate and Unallocated.
Continued alignment of customer account activity
As part of 3M’s regular customer-focus initiatives, the Company realigned certain customer account activity (“sales district”) to correlate with the primary divisional product offerings in various countries and reduce complexity for customers when interacting with multiple 3M businesses. This impacted the amount of dual credit certain business segments receive as a result of sales district attribution.
Also effective in the first quarter of 2021, within 3M’s Consumer business segment, certain safety products formerly within the
Construction and Home Improvement Division and the Stationery and Office Division were moved to the newly named
Consumer Health and Safety Division (formerly the Consumer Health Care Division).
The financial information presented herein reflects the impact of the preceding business segment reporting changes for all periods presented.
Business Segment Products
|
|
|
|
|
|
|
|
|
Business Segment
|
|
Representative revenue-generating activities, products or services
|
Safety and Industrial
|
|
○ 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 OEMs
○ Structural adhesives and tapes
○ Respiratory, hearing, eye and fall protection solutions
○ Natural and color-coated mineral granules for shingles
|
Transportation and Electronics
|
|
○ 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
|
Health Care
|
|
○ 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
|
|
○ 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
|
Business Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales (Millions)
|
|
2021
|
|
2020
|
|
2019
|
Safety and Industrial
|
|
$
|
12,880
|
|
|
$
|
11,734
|
|
|
$
|
11,490
|
|
Transportation and Electronics
|
|
9,769
|
|
|
8,833
|
|
|
9,595
|
|
Health Care
|
|
9,050
|
|
|
8,345
|
|
|
7,431
|
|
Consumer
|
|
5,856
|
|
|
5,311
|
|
|
5,129
|
|
Corporate and Unallocated
|
|
2
|
|
|
(2)
|
|
|
109
|
|
Elimination of Dual Credit
|
|
(2,202)
|
|
|
(2,037)
|
|
|
(1,618)
|
|
Total Company
|
|
$
|
35,355
|
|
|
$
|
32,184
|
|
|
$
|
32,136
|
|
|
|
|
|
|
|
|
Operating Performance (Millions)
|
|
|
|
|
|
|
Safety and Industrial
|
|
$
|
2,692
|
|
|
$
|
2,784
|
|
|
$
|
2,373
|
|
Transportation and Electronics
|
|
2,008
|
|
|
1,814
|
|
|
2,119
|
|
Health Care
|
|
2,150
|
|
|
1,790
|
|
|
1,796
|
|
Consumer
|
|
1,248
|
|
|
1,203
|
|
|
1,075
|
|
Elimination of Dual Credit
|
|
(553)
|
|
|
(521)
|
|
|
(399)
|
|
Total business segment operating income
|
|
7,545
|
|
|
7,070
|
|
|
6,964
|
|
Corporate and Unallocated
|
|
|
|
|
|
|
Special items:
|
|
|
|
|
|
|
Significant litigation-related (charges)/benefits
|
|
—
|
|
|
(17)
|
|
|
(762)
|
|
Gain/(loss) on sale of businesses
|
|
—
|
|
|
389
|
|
|
114
|
|
Divestiture-related restructuring actions
|
|
—
|
|
|
(55)
|
|
|
—
|
|
Other corporate expense - net
|
|
(176)
|
|
|
(226)
|
|
|
(142)
|
|
Total Corporate and Unallocated
|
|
(176)
|
|
|
91
|
|
|
(790)
|
|
Total Company operating income
|
|
7,369
|
|
|
7,161
|
|
|
6,174
|
|
|
|
|
|
|
|
|
Other expense/(income), net
|
|
165
|
|
|
366
|
|
|
531
|
|
Income before income taxes
|
|
$
|
7,204
|
|
|
$
|
6,795
|
|
|
$
|
5,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Depreciation & Amortization
|
|
Capital Expenditures
|
(Millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Safety and Industrial
|
|
$
|
11,744
|
|
|
$
|
11,711
|
|
|
$
|
593
|
|
|
$
|
562
|
|
|
$
|
509
|
|
|
$
|
339
|
|
|
$
|
451
|
|
|
$
|
391
|
|
Transportation and Electronics
|
|
6,999
|
|
|
6,997
|
|
|
419
|
|
|
429
|
|
|
401
|
|
|
453
|
|
|
454
|
|
|
390
|
|
Health Care
|
|
14,055
|
|
|
14,531
|
|
|
636
|
|
|
626
|
|
|
392
|
|
|
249
|
|
|
251
|
|
|
264
|
|
Consumer
|
|
2,783
|
|
|
2,567
|
|
|
147
|
|
|
140
|
|
|
134
|
|
|
109
|
|
|
120
|
|
|
130
|
|
Corporate and Unallocated
|
|
11,491
|
|
|
11,538
|
|
|
120
|
|
|
154
|
|
|
157
|
|
|
453
|
|
|
225
|
|
|
524
|
|
Total Company
|
|
$
|
47,072
|
|
|
$
|
47,344
|
|
|
$
|
1,915
|
|
|
$
|
1,911
|
|
|
$
|
1,593
|
|
|
$
|
1,603
|
|
|
$
|
1,501
|
|
|
$
|
1,699
|
|
Assets subject to attribution to business segments largely include accounts receivable; inventories; property, plant and equipment; goodwill; intangible assets; and certain limited other assets. All other items are reflected in Corporate and Unallocated. Accounts receivable and inventory are attributed based on underlying sales or activity. Property, plant and equipment are attributed to a particular business segment based on that item’s primary user while certain items such as corporate-shared headquarters/administrative centers, laboratories, distribution centers and enterprise software systems are reflected in Corporate and Unallocated. Intangible assets and goodwill are largely directly associated with a particular reporting unit and attributed on that basis. Business segment depreciation reflected above is based on the underlying usage of assets (while the particular asset itself may be entirely reflected within a different business segment’s asset balance as its primary user). This depreciation also includes allocated depreciation associated with a number of the assets reflected in Corporate and Unallocated as described above.
Corporate and Unallocated
Corporate and Unallocated operating income includes “special items” and “other corporate expense-net”. Special items include significant litigation-related charges/benefits, gain/loss on sale of businesses, and divestiture-related restructuring costs. Other corporate expense-net includes items such as net costs related to limited unallocated corporate staff and centrally managed material resource centers of expertise costs, certain litigation and environmental expenses largely related to legacy products businesses not allocated to business segments, corporate philanthropic activity, and other net costs that 3M may choose not to allocate directly to its business segments. Other corporate expense-net also includes costs and income from 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. Items classified as revenue from this activity are included in Corporate and Unallocated net sales. Because Corporate and Unallocated includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis.
Elimination of Dual Credit
3M business segment reporting measures include dual credit to business segments for certain sales and related operating income. Management evaluates each of its four business segments based on net sales and operating income performance, including dual credit reporting to further incentivize sales growth. As a result, 3M reflects additional (“dual”) credit to another business segment when the customer account activity (“sales district”) with respect to the particular product sold to the external customer is provided by a different business segment. This additional dual credit is largely reflected at the division level. For example, privacy screen protection products are primarily sold by the Display Materials and Systems Division within the Transportation and Electronics business segment; however, certain sales districts within the Consumer business segment provide the customer account activity for sales of the product to particular customers. In this example, the non-primary selling segment (Consumer) would also receive credit for the associated net sales initiated through its sales district and the related approximate operating income. The assigned operating income related to dual credit activity may differ from operating income that would result from actual costs associated with such sales. The offset to the dual credit business segment reporting is reflected as a reconciling item entitled “Elimination of Dual Credit,” such that sales and operating income in total are unchanged.
Geographic Information
Geographic area information is used by the Company as a secondary performance measure to manage its businesses. Export sales and certain income and expense items are generally reported within the geographic area where the final sales to 3M customers are made. Refer to Note 2 for geographic net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and
Equipment - net
|
(Millions)
|
|
2021
|
|
2020
|
Americas
|
|
$
|
5,864
|
|
|
$
|
5,752
|
|
Asia Pacific
|
|
1,582
|
|
|
1,662
|
|
Europe, Middle East and Africa
|
|
1,983
|
|
|
2,007
|
|
Total Company
|
|
$
|
9,429
|
|
|
$
|
9,421
|
|
United States net property, plant and equipment (PP&E) was $5,484 million and $5,358 million at December 31, 2021 and 2020, respectively. China/Hong Kong net property, plant and equipment (PP&E) was $578 million and $583 million at December 31, 2021 and 2020, respectively.