3M Company (MMM) — FY 2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. 3M is a global diversified manufacturer operating in Safety and Industrial, Transportation and Electronics, Health Care, and Consumer. It reported broad-based organic growth across segments and geographies despite pandemic-related supply constraints. Approximately 60% of revenue is generated outside the United States.
Key financial metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $35.355 billion | $32.184 billion |
| Organic sales growth | 8.8% | (1.7)% |
| Operating income | $7.369 billion | $7.161 billion |
| Operating margin | 20.8% | 22.3% |
| Net income attributable to 3M | $5.921 billion | $5.449 billion |
| Diluted EPS | $10.12 | $9.36 |
| Effective tax rate | 17.8% | 19.7% |
| Cash from operations | $7.454 billion | $8.113 billion |
| Capital expenditures | $1.603 billion | $1.501 billion |
| Free cash flow (non-GAAP) | $5.851 billion | $6.612 billion |
| Cash, cash equivalents and marketable securities | $4.792 billion | $5.068 billion |
| Total debt | $17.363 billion | $18.795 billion |
| Net debt (non-GAAP) | $12.571 billion | $13.727 billion |
Free cash flow conversion was 99%, down from 121%. Working capital was $6.368 billion, down $666 million year over year; current assets were $15.403 billion and current liabilities were $9.035 billion. 3M repurchased $2.2 billion of shares and paid $3.420 billion in dividends during 2021. The quarterly dividend declared for Q1 2022 was $1.49 per share.
Segment results
| Segment | 2021 sales | Sales change | Operating income change |
|---|---|---|---|
| Safety and Industrial | $12.880 billion | 9.8% | (3.3)% |
| Transportation and Electronics | $9.769 billion | 10.6% | 10.7% |
| Health Care | $9.050 billion | 8.4% | 20.1% |
| Consumer | $5.856 billion | 10.3% | 3.7% |
Material changes versus 2020
- Total sales rose 9.9%, including 8.8% organic growth and a 1.6% favorable currency impact, partly offset by a 0.5% divestiture impact.
- Reported operating margin fell 1.5 percentage points. Excluding special items, margin declined from 21.3% to 20.8%, as higher raw-material, logistics, outsourced manufacturing, and compensation costs and supply-chain productivity headwinds outweighed pricing, volume growth, and productivity actions.
- Operating cash flow fell $659 million, primarily reflecting working-capital movements. Receivables, inventory, and payables together reduced 2021 operating cash flow by $507 million, versus a $326 million improvement in 2020.
- Health Care operating income grew strongly, supported by sales leverage and restructuring benefits. Safety and Industrial operating income declined despite higher sales, with inflation, litigation costs, lower property-sale gains, and manufacturing headwinds among the factors.
- 3M’s 2020 results included a $387 million pre-tax gain on the Drug Delivery divestiture; no special items were reported in 2021 under the company’s reconciliation. 2021 earnings also included a $91 million pre-tax benefit from a Brazilian tax decision.
Outlook, risks, contingencies and unusual items
- Outlook: The provided filing text does not state a clear company-wide 2022 sales or EPS guidance range. Management expected higher capital spending in 2022 and environmental-purpose capital spending of approximately $668 million in aggregate for 2022–2023. Expected 2022 global pension and postretirement contributions were $100–$200 million; expected related expense was about $20 million lower than in 2021.
- Supply chain and inflation: 3M cited constrained supply, raw-material price inflation, higher logistics costs, weather disruptions, and manufacturing productivity impacts. Management described productivity, reformulation, and multi-sourcing efforts to mitigate these pressures; the duration and effect of shortages remain uncertain.
- PFAS and environmental exposure: At year-end, 3M recorded $412 million in other environmental liabilities, including PFAS matters, and $29 million for non-PFAS environmental remediation. It increased PFAS-related other environmental accruals by $138 million during 2021 and paid $142 million. The company could not estimate possible losses above established accruals. At its Zwijndrecht, Belgium facility, discharge and emissions restrictions, including idled production, could materially affect operations and downstream supply if prolonged. 3M announced a plan to invest up to €125 million over three years related to the community and facility.
- Litigation: The respirator mask/asbestos liability accrual was $640 million, excluding Aearo; Aearo-related accruals were $46 million. 3M reported approximately 3,876 claimants in respirator-related lawsuits. In the Combat Arms earplug litigation, it faced approximately 3,616 lawsuits representing about 13,531 claimants, as well as a large administrative docket of unfiled and unverified claims. 3M reported mixed bellwether trial outcomes and said it had not accrued a liability because it did not consider a loss probable and reasonably estimable. Outcomes and potential losses remain uncertain.
- Portfolio actions: 3M agreed to a tax-efficient transaction to separate its Food Safety business and combine it with NEOGEN, expected to close by the end of Q3 2022 subject to approvals and other conditions. The transaction contemplated approximately $1 billion of consideration to 3M and new debt at the Food Safety business. A sale of a small Western European floor-products business was also expected to close in Q1 2022.
- Other risks: The filing highlights COVID-19 uncertainty, foreign-exchange exposure, competition and product acceptance, regulatory and legal proceedings, cybersecurity and ERP implementation, pension assumptions, and possible changes in tax laws. Moody’s and S&P credit ratings were A1 and A+, respectively, both with negative outlooks.
Important facts for investors to verify
- Whether price increases and productivity can offset ongoing inflation, logistics costs, and constrained supply without further margin erosion.
- Developments in PFAS litigation, environmental investigations and regulation, particularly at the Zwijndrecht facility, and whether existing accruals remain adequate.
- Progress and trial outcomes in Combat Arms earplug litigation, including the transition of claims from the administrative docket.
- Completion terms, timing, and financing of the Food Safety/NEOGEN transaction and the Western Europe floor-products divestiture.
- Cash-flow conversion and working-capital trends, alongside continued dividends and share repurchases; verify debt maturities and liquidity against capital needs.
- 3M reported an unqualified audit opinion, effective internal control over financial reporting, and no goodwill impairment in its 2021 annual test.