3M Company — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Although the request references 2020 Q4, this filing reports the full fiscal year; selected fourth-quarter results are included below. 3M is a global diversified technology and manufacturing company, operating in Safety and Industrial, Transportation and Electronics, Health Care, and Consumer.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $32.184 billion | $32.136 billion |
| Net income attributable to 3M | $5.384 billion | $4.570 billion |
| Diluted EPS | $9.25 | $7.81 |
| Operating income / margin | $7.161 billion / 22.3% | $6.174 billion / 19.2% |
| Adjusted diluted EPS (non-GAAP) | $8.74 | $8.88 |
| Operating cash flow | $8.113 billion | $7.070 billion |
| Capital expenditures | $1.501 billion | $1.699 billion |
| Free cash flow (non-GAAP) | $6.612 billion | $5.371 billion |
- Organic local-currency sales fell 1.7%; reported sales rose 0.1%, with acquisitions adding 3.5 percentage points and divestitures reducing sales 1.4 points.
- GAAP operating margin increased 3.1 percentage points, primarily reflecting lower litigation charges and larger divestiture gains. Excluding special items, operating margin edged up to 21.3% from 21.2%.
- Reported diluted EPS rose 18.4%, while adjusted diluted EPS declined 1.5%. The comparison was affected by significant litigation charges in 2019 and 2020 gains on business sales.
- Fourth-quarter sales were $8.583 billion versus $8.111 billion; net income attributable to 3M was $1.389 billion versus $969 million, and diluted EPS was $2.38 versus $1.66.
Segments and material changes
- Safety and Industrial: sales $11.767 billion, up 2.2%; segment operating income $3.054 billion, up 21.7%. Respirator demand and roofing granules helped offset weakness in general industrial markets.
- Transportation and Electronics: sales $8.827 billion, down 8.0%; operating income $1.927 billion, down 13.3%. Automotive, aerospace, commercial solutions, and transportation safety were weak; electronics-related businesses grew.
- Health Care: sales $8.345 billion, up 12.3%, largely reflecting acquisitions; operating income was $1.828 billion, down 1.6%. Organic local-currency sales grew 1.0%.
- Consumer: sales $5.336 billion, up 3.6%; operating income $1.249 billion, up 11.2%, supported by home improvement and home care.
- 3M sold substantially all of its drug delivery business in May 2020, recording a $387 million pre-tax gain. It also sold its advanced ballistic-protection business. The Acelity and M*Modal acquisitions contributed to Health Care sales and costs.
- Segment reporting and the measure of segment profit changed during 2020; prior periods were recast in the filing. Take care when comparing reported segment figures with earlier filings.
Cash, debt and liquidity
- At year-end, cash, cash equivalents and marketable securities totaled $5.068 billion, versus $2.494 billion a year earlier. Total debt was $18.795 billion, down from $20.313 billion; company-defined net debt fell to $13.727 billion from $17.819 billion.
- Current assets were $14.982 billion and current liabilities $7.948 billion. No commercial paper was outstanding; committed revolving credit facilities totaling $4.25 billion were undrawn. The company reported an approximately 17:1 EBITDA-to-interest ratio against a 3:1 minimum covenant.
- Cash dividends paid were $3.388 billion, or $5.88 per share. Share repurchases were $368 million; the board-authorized program was suspended in March 2020, with repurchases planned to resume in 2021.
Outlook, risks and unusual items
- Management did not provide a clear 2021 sales or EPS forecast in the supplied filing text. It estimated a 2021 effective tax rate of approximately 20%–21%, capital spending of $1.8–$2.0 billion, pension and postretirement contributions of $100–$200 million, and defined-benefit expense about $40 million lower than in 2020.
- 3M said the duration and financial impact of COVID-19 remained unpredictable. Respirator demand supported growth, while disrupted supply chains, shutdowns, and weakness in several end markets weighed on results. The company expects 2021 share repurchases to resume.
- PFAS-related matters are a major contingency. Recorded liabilities included $416 million for other environmental liabilities and $662 million for respirator mask/asbestos claims, plus $28 million for Aearo-related claims. 3M stated that it could not estimate potential losses above these accruals. Environmental and regulatory investigations, including at manufacturing sites, remain ongoing.
- 3M faced approximately 3,130 Combat Arms earplug lawsuits representing about 12,400 claimants; it recorded no liability because it considered any loss not probable and estimable. The filing also reported 943 AFFF lawsuits against 3M and extensive PFAS litigation and regulatory activity.
- Other items included $195 million of non-divestiture restructuring charges, a $55 million divestiture-related restructuring charge, and a $22 million charge related to equity securities. Credit ratings were A1 and A+, both with negative outlooks. Additional risks include currency exposure, raw-material availability and pricing, pensions, cybersecurity and ERP implementation, and legal and regulatory proceedings.
Key facts for investors to verify
- Reconcile GAAP earnings growth with the 1.5% decline in adjusted diluted EPS, including litigation items and the drug-delivery divestiture gain.
- Assess whether organic sales and adjusted margins recover, particularly in Transportation and Electronics and COVID-affected end markets.
- Review PFAS, AFFF, respirator and Combat Arms litigation developments, recorded accruals, and the company’s inability to estimate losses beyond certain reserves.
- Check execution and cash costs of announced restructuring actions, including the planned 2021 actions and expected position reductions.
- Monitor debt maturities, negative credit-rating outlooks, planned resumption of share repurchases, and actual 2021 capital spending and pension contributions.