What changed in this filing

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Item 1A. Risk Factors

2023-07-25 compared with 2023-04-25 · 25 added, 12 removed, 191 unchanged (16% of the section changed)

18 unchanged sentences

and other governments have imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia.

3M suspended operations of its subsidiaries in Russia in March 2022 and, in September 2022, committed to a plan to exit the related net assets through an intended sale of the subsidiaries.

3M suspended operations of its subsidiaries in Russia in March 2022 and completed a sale of the related assets in June 2023.

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

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For example, we recorded a pre-tax charge of $897 million, inclusive of legal fees and other related obligations, in the first quarter of 2018 with respect to the settlement of a matter brought by the State of Minnesota involving the presence of PFAS in the groundwater, surface water, fish or other aquatic life, and sediments in the state.

In addition, as described in greater detail in Note 14, “Commitments and Contingencies,” within the Notes to Consolidated Financial Statements, in June 2023, the Company entered into a proposed class-action settlement (“Settlement”) to resolve a wide range of drinking water claims by public water systems in the United States regarding any PFAS, subject to court approval.

If the court approves the Settlement and all conditions in the Settlement are met, 3M will pay $10.5 billion to $12.5 billion in total to resolve the claims released by the Settlement, with payments to be made annually from 2024 through 2036, in exchange for a release of certain claims, as described further in Note 14.

The Settlement gives 3M the option to terminate the Settlement if the numbers of eligible class members opting out of the Settlement exceed specified levels.

Unexpected events related to the Settlement, including whether court approval of the Settlement will be obtained, whether the number of plaintiffs that opt out of the Settlement will exceed current expectations or will exceed the level that would permit 3M to terminate the Settlement (and whether 3M will elect to terminate the Settlement if this occurs), whether the Settlement is appealed, and the impact of the settlement on other PFAS-related matters could have a material adverse effect on the Company’s results of operations, cash flows or its consolidated financial position.

Governmental inquiries, lawsuits, or laws and regulations involving PFAS could lead to our incurring liability for damages or other costs, civil or criminal proceedings, the imposition of fines and penalties, or other remedies, including orders to conduct remediation, as well as restrictions on or added costs for our business operations going forward, including in the form of restrictions on discharges at our manufacturing facilities, requiring the installation of control technologies, suspension or shutdown of facility operations, switching costs in seeking alternative sources of supply, potential customer damage claims due to supply disruptions or otherwise, and reporting requirements or bans on PFAS and PFAS-containing products manufactured by the Company.

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Risks Related to Our Business

* 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;

* The Company employs information technology systems to support its business and collect, store, and/or use proprietary and confidential information, including ongoing phased implementation of an enterprise resource planning (ERP) system as part of its 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, networks 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;

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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.

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, 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 of 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 and third parties we utilize have experienced, and expect to continue to experience, cyberattacks on and breaches and disruptions of the Company’s and the third parties' information technology systems and infrastructure, we do not believe that any such incidents to date have had a material impact on the Company.

Third parties and threat actors, including organized criminals, nation-state entities, 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 becoming increasingly sophisticated.

Despite our cybersecurity and business continuity counter 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 systems, 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, or zero day attacks, in our systems or in the systems of our vendors and third-party service providers, the introduction of computer viruses, malware or ransomware, service or cloud provider disruptions or security breaches, phishing attempts, employee error or malfeasance, power outages, telecommunication or utility failures, systems failures, natural disasters, or other catastrophic events.

Despite our cybersecurity counter 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 of 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 and third parties we utilize have experienced, and expect to continue to experience, cyberattacks on and breaches and other disruptions of the Company’s and the third parties' information technology systems and infrastructure, we do not believe that any such incidents to date have 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;

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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.

As of March 2023, 3M has a credit rating of A1, negative 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.

As of June 2023, 3M has a credit rating of A2, negative outlook from Moody's Investors Service, and a credit rating of A-, CreditWatch negative from S&P Global Ratings.

Moody’s Investor Service downgraded the Company’s credit rating from A1 to A2, and S&P Global Ratings downgraded the Company’s credit rating from A to A- (and downgraded the Company’s short-term credit rating from A-2 to A-1), in connection with the Company’s announcement of the Settlement.

The addition of further leverage to the Company’s capital structure could impact 3M’s credit ratings in the future.

Failure to maintain strong investment grade ratings would adversely affect the Company’s cost of funding and could adversely affect liquidity and access to capital markets.

Failure to maintain strong investment grade ratings and further downgrades by the ratings agencies, would adversely affect the Company’s cost of funding and could adversely affect liquidity and access to capital markets.

* Changes in tax rates, laws, or regulations could adversely impact our financial results.

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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.

This represented 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.

3M committed $1.0 billion to fund this trust and an additional $0.2 billion to fund projected related case expenses.

Under the terms of the funding agreement, 3M would provide additional funding if required by the Aearo Entities.

As discussed in Note 14, “Commitments and Contingencies,” within the Notes to Consolidated Financial Statements, in June 2023, the bankruptcy court dismissed the bankruptcy proceeding, and the judge certified a direct appeal of the dismissal to the U.S.

Court of Appeals for the Seventh Circuit.

Aearo has appealed the decision.

Following dismissal of the bankruptcy, Combat Arms earplugs claims against the Aearo Entities will proceed in the federal and state multidistrict litigation, and will continue to proceed against 3M, which is a defendants in those litigation matters.

3M has been engaged in active confidential mediation pursuant to the orders of the federal and state MDL courts.

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

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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.

In addition, due to the dismissal of the Aearo Entities bankruptcy proceeding, attempts to comprehensibly resolve with finality all Combat Arms earplugs claims against the Aearo Entities and 3M outside of the bankruptcy proceeding and in a litigation settlement involve significant challenges that could cause the Company to incur substantial and material costs.

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 related litigation.

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

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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