What changed in this filing

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Item 1A. Risk Factors

2022-07-27 compared with 2022-04-26 · 43 added, 10 removed, 111 unchanged (32% of the section changed)

4 unchanged sentences

* The Company’s results are impacted by the effects of, and changes in, worldwide economic, political, regulatory, international trade and other external conditions.

The Company operates in more than 70 countries and derives approximately 60 percent of its revenues from outside the United States, and, accordingly, the Company’s business is sub ject to global competition and geopolitical risks that are beyond its control, such as disruptions in financial markets, economic downturns, military conflicts, government actions impacting international trade agreements, imposing trade restrictions such as tariffs, and retaliatory counter measures, inflation, government deficit reduction and other austerity measures in specific countries or regions, or in the various industries in which the Company operates;

The Company operates in more than 70 countries and derives approximately 60 percent of its revenues from outside the United States, and, accordingly, the Company’s business is subject to global competition and geopolitical risks that are beyond its control, such as disruptions in financial markets, economic downturns, military conflicts, government actions impacting international trade agreements, imposing trade restrictions such as tariffs, and retaliatory counter measures, inflation, government deficit reduction and other austerity measures in specific countries or regions, or in the various industries in which the Company operates;

social, political or labor conditions in specific countries or regions;

3 unchanged sentences

The Company has suspended its operations in Russia.

In addition, 3M has other operations that source certain raw materials from suppliers in Russia and have experienced related supply disruption due to the conflict.

If the environment were to deteriorate, such as a lack of currency exchangeability coupled with an acute degradation in the ability to make key operational decisions, a need to deconsolidate these subsidiaries' operations could arise.

Additionally, the Company continues to evaluate options, some of which could lead to termination of activities of these subsidiaries and substantially their liquidation.

3M also has other operations that source certain raw materials from suppliers in Russia and have experienced related supply disruption due to the conflict.

These geopolitical tensions related to the military conflict could result in, among other things, cyberattacks, further supply chain disruptions impacting downstream customers, higher energy cost, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect the Company's business and supply chain.

66 unchanged sentences

Risks Related to Our Business

* The Company employs information technology systems to support its business, including ongoing phased implementation of an enterprise resource planning (ERP) system as part of business transformation on a worldwide basis over the next several years.

Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with the Company’s operations, compromise information belonging to the Company or its customers, suppliers, and employees, exposing the Company to liability which could adversely impact the Company’s business and reputation.

* The Company employs information technology systems to support its business and collect, store and use proprietary and confidential information, including ongoing phased implementation of an enterprise resource planning (ERP) system as part of business transformation on a worldwide basis over the next several years.

Security and data breaches, cyberattacks and other cybersecurity incidents involving the Company’s information technology systems and infrastructure could disrupt or interfere with the Company’s operations, result in the compromise and misappropriation of proprietary and confidential information belonging to the Company or its customers, suppliers and employees, and expose the Company to numerous expenses, liabilities and other negative consequences, any or all of which could adversely impact the Company’s business, reputation and results of operations.

In the ordinary course of business, the Company relies on centralized and local information technology networks and systems, some of which are provided, hosted or managed by vendors and other third parties, to process, transmit and store electronic information, and to manage or support a variety of businesses.

Additionally, the Company collects and stores certain data, including proprietary business information, and has access to confidential or personal information in certain of our businesses that is subject to privacy and cybersecurity laws, regulations and customer-imposed controls.

Despite our cybersecurity and business continuity measures (including employee and third-party training, monitoring of networks and systems, patching, maintenance, and backup of systems and data), the Company’s information technology networks and infrastructure are still potentially vulnerable to the security risks of our vendors and third-party service providers, security breaches, damage, disruptions or shutdowns due to attacks by threat actors including nation-state actors, computer viruses, hardware, software, and system vulnerabilities, ransomware, service or cloud provider disruptions or security breaches, employee error or malfeasance, power outages, telecommunication or utility failures, systems failures, natural disasters or other catastrophic events.

The Company’s increased adoption of remote working, initially driven by the pandemic, may also introduce additional threats or disruptions to our information technology networks and infrastructure.

Despite our cybersecurity measures, it is possible for security vulnerabilities to remain undetected for an extended time period, up to and including several years.

While we have experienced, and expect to continue to experience, threats and disruptions to the Company’s information technology infrastructure, none of them to date has had a material impact to the Company.

Any such threats or disruptions could result in legal claims or proceedings, disclosures to regulators, liability or penalties under privacy laws, interference with the Company’s operations, and damage to the Company’s reputation, which could adversely affect the Company’s business.

Third parties and threat actors, including organized criminals, nation-state or nation-state supported actors, regularly attempt to gain unauthorized access to the Company’s information technology networks and infrastructure, data and other information, and many such attempts are increasingly sophisticated.

Despite our cybersecurity and business continuity measures (including employee and third-party training, monitoring of networks and systems, patching, maintenance, and backup of systems and data), the Company’s information technology networks and infrastructure are still potentially susceptible to attack, compromise, damage, disruption or shutdown, including as a result of the exploitation of known or unknown hardware or software vulnerabilities in our systems or in the systems of our vendors and third-party service providers, the introduction of computer viruses or ransomware, service or cloud provider disruptions or security breaches, phishing attempts or employee error or malfeasance, power outages, telecommunication or utility failures, systems failures, natural disasters or other catastrophic events.

The Company’s increased adoption of remote working, initially driven by the pandemic, also introduces additional threats and risk of disruptions to our information technology networks and infrastructure.

Despite our cybersecurity measures, it is possible for security vulnerabilities or a cyberattack to remain undetected for an extended time period, up to and including several years, and the prioritization decisions with respect to security measures and remediation of known vulnerabilities that we and the vendors and other third parties upon which we rely make may prove inadequate to protect against attacks.

While we have experienced, and expect to continue to experience, cyberattacks on and disruptions of the Company’s information technology systems and infrastructure, we are not aware of any such incidents to date having had a material impact on the Company.

Any cybersecurity incident or information technology network disruption could result in numerous negative consequences, including the risk of legal claims or proceedings, investigations or enforcement actions by U.S., state or foreign regulators, liabilities or penalties under applicable laws and regulations, including privacy laws and regulations in the U.S.

and other jurisdictions, interference with the Company’s operations, the incurrence of remediation costs, loss of intellectual property protection, the loss of customer, supplier or employee relationships and damage to the Company’s reputation, which could adversely affect the Company’s business.

Although the Company maintains insurance coverage for various cybersecurity and business continuity risks, there can be no guarantee that all costs or losses incurred will be fully insured.

19 unchanged sentences

This evaluation is based on a number of factors, which include financial strength, business and financial risk, as well as transparency with rating agencies and timeliness of financial reporting.

3M currently has an A1 credit rating with a stable outlook from Moody’s Investors Service and an A+ credit rating with a negative outlook from Standard & Poor’s.

As of July 2022, 3M has a credit rating of A1, stable outlook from Moody's Investors Service and a credit rating of A+, CreditWatch negative from S&P Global Ratings.

The Company’s credit ratings have served to lower 3M’s borrowing costs and facilitate access to a variety of lenders.

8 unchanged sentences

Due to uncertainty of the regulation changes and other tax-related factors stated above, it is currently not possible to assess the ultimate impact of these actions on our financial statements.

Risks Related to the Voluntary Chapter 11 Proceedings Initiated by the Company’s Aearo Entities

*The Company is subject to risks related to its subsidiaries’ chapter 11 proceedings.

On July 26, 2022, Aearo Technologies and certain of its related entities (“Aearo Entities"), all wholly owned subsidiaries of the Company, voluntarily initiated chapter 11 proceedings seeking bankruptcy court supervision to establish a trust – funded by the Company – to address potential liabilities related to Dual-Ended Combat Arms – Version 2 earplugs and mask/respirator products historically manufactured and sold by Aearo Entities.

This represents a change in strategy for managing the Combat Arms Version 2 earplugs and Aearo respirator mask/asbestos alleged litigation liabilities.

Aearo Entities were acquired by the Company in 2008 and they, along with its related subsidiaries, have operated as Company subsidiaries since that time.

3M has entered into a funding agreement with Aearo Entities and committed to fund a trust to satisfy all claims determined to be entitled to compensation, and to support Aearo Entities as they continue to operate during the chapter 11 proceedings.

There are a number of risks and uncertainties associated with the chapter 11 proceedings, including, among others, those related to:

legal risks related to the chapter 11 proceedings;

potential impacts to the Company’s reputation and relationships with its customers, suppliers, federal contracting officials, employees, regulators and other counterparties and community members;

impacts to the Company’s liquidity or results of operations, including risks related to the amount that will be necessary to fully and finally resolve all of the Company’s obligations to make payments to resolve such claims under the terms of its funding and indemnification agreement with Aearo Entities;

the costs of chapter 11 proceedings and length of time necessary to resolve the cases;

and Aearo Entities’ ability to reach acceptable agreements with claimants and navigate the chapter 11 proceedings to obtain approval and consummation of a plan of reorganization.

Due to the inherent uncertainty of litigation, the Company cannot predict the timing, outcome or financial impact of this matter, or any other ongoing or future litigation.

Risks Related to the Planned Spin-off of the Company’s Health Care Business

*The Company is subject to risks related to its plan to spin off its Health Care business .

On July 26, 2022, the Company announced its intent to spin off its Health Care business, resulting in two standalone public companies, in a transaction that is intended to be tax-free for the Company’s stockholders for U.S.

federal income tax purposes.

The spin-off will be subject to the satisfaction of a number of conditions, including final approval by the Company’s board of directors, the filing and effectiveness of a Form 10 registration statement, the receipt of a private letter ruling from the Internal Revenue Service and a tax opinion from external counsel, and other customary conditions.

The failure to satisfy all of the required conditions, many of which are outside of the Company’s control, could delay the completion of the spin-off relative to the anticipated timeline or prevent it from occurring.

Any delay in the completion of the spin-off or any change to the anticipated terms of the transaction could reduce the expected benefits of the transaction, or delay the time at which such benefits are realized.

There can also be no assurance that the anticipated benefits of the transaction will be realized if the spin-off is completed, or that the costs or dis-synergies of the transaction (including costs of related restructuring transactions) will not exceed the anticipated amounts.

Whether or not the spin-off is ultimately completed, the pendency of the transaction may impose challenges on the Company and its business, including potential business disruption;

the diversion of management time on matters relating to the transaction;

the impact on the Company’s ability to retain talent;

and potential impacts on the Company’s relationships with its customers, employees, regulators and other counterparties.

In addition, while it is intended that the transaction would be tax-free to the Company’s stockholders for U.S.

federal income tax purposes, there is no assurance that the transactions will qualify for this treatment.

If the spin-off was ultimately determined to be taxable, either the Company, Health Care business, or the Company’s stockholders could incur income tax liabilities that could be significant.

Any of these factors could negatively impact our business, financial condition, results of operations, cash flows, and/or the price of our common stock.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors