01—Abstract
Summary
Summary of the 8-K filed April 26, 2022. Cited figures are marked; the original filing is the authoritative source.
3M filed this supplemental 8-K on April 26, 2022 to recast its historical segment, disaggregated revenue, and non-GAAP figures for two changes effective Q1 2022.
First, 3M stopped crediting 'dual credit' sales and operating income to secondary selling segments, which lowers reported segment sales and profit but leaves consolidated totals unchanged. Second, litigation costs tied to respirator mask/asbestos and Combat Arms Earplugs now sit within the Safety and Industrial segment, and the adjusted-for-special-items framework now captures all net litigation costs rather than only those deemed significant. No new operating results were reported; this is a restatement of prior periods to a new basis, so investors should treat the recast figures as non-GAAP until the Q1 2022 10-Q is issued.
The headline effect is a sharp reduction in reported Safety and Industrial sales, which fall from $12,880 million to $11,981 milliona for 2021 (a $899 million cut), and in Transportation and Electronics, which fall from $9,769 million to $9,262 million. Total company net sales and operating income are unchanged at $35,355 million and $7,369 million for 2021. Segment operating income is restated lower, with the total business segment operating income falling from $7,545 million to a figure that equals the consolidated total after the dual credit elimination reconciling item.
Safety and Industrial operating income drops from $2,692 million to $2,466 millionb for 2021, and the restated 2019 Safety and Industrial figure falls more sharply, from $2,373 million to $1,866 million, because of the litigation cost reallocation. For non-GAAP profitability, the revised adjusted EBITDA is $9,747 million for 2021, a 27.6% margin, compared with $9,091 million (28.2%) for 2020 and $8,504 million (26.5%) for 2019. Adjusted diluted EPS for 2021 is $10.73, up 16% from $9.29 in 2020, versus GAAP diluted EPS of $10.12.
Because the adjustments now capture broader litigation costs, adjusted figures are not directly comparable to those previously reported, and the 2021 net litigation charge adjustment is $463 millionc pre-tax. Investors should focus on the consolidated totals, which are unaffected, and on the segment and adjusted metrics as the new reporting baseline going forward.
02—Key points
Key Highlights
- Total company net sales ($35,355M in 2021) and total operating income ($7,369M) are unchanged; the segment changes are reallocations within 3M's reporting.
- Safety and Industrial 2021 net sales restated down 7% to $11,981M from $12,880M, and operating income down to $2,466M from $2,692M, after eliminating dual credit and adding litigation costs.
- Transportation and Electronics 2021 net sales restated to $9,262M from $9,769M, a $507M reduction from removing dual credit.
- Elimination of Dual Credit reconciling item totals $2,202M of 2021 sales and $553M of operating income, which previously double-counted activity across segments.
- Adjusted EBITDA for 2021 was $9,747M (27.6% margin), up from $9,091M in 2020, while adjusted diluted EPS reached $10.73 (up 16%) versus GAAP EPS of $10.12.
- The new non-GAAP basis is expected to be replaced by GAAP comparative segment results in the Q1 2022 Form 10-Q, so these figures are provisional until then.
- Litigation-related special items were broadened to include Combat Arms Earplugs, external legal fees, and insurance recoveries, with 2021 net litigation costs of $463M pre-tax adjusted out.
03—Questions
Frequently Asked Questions
Does this filing change 3M's reported revenue or earnings?
No. The consolidated net sales, operating income, income before taxes, and GAAP net income for prior periods are unchanged. The changes reallocate sales and operating income among business segments and alter the non-GAAP adjustments for special items. The 'Elimination of Dual Credit' line offsets the segment-level changes so totals remain the same.
Why did Safety and Industrial and Transportation and Electronics sales fall so much?
Previously, when a secondary segment's sales district handled a customer account for a product sold by another segment, the secondary segment also received credit for those sales. 3M now credits sales only to the primary selling segment. For example, privacy screen products are primarily sold by Transportation and Electronics, so Consumer no longer receives that credit. The reductions in Safety and Industrial and Transportation and Electronics reflect products they had been crediting from other segments' customer relationships.
Why did 2019 Safety and Industrial operating income drop so significantly?
Beginning in Q1 2022, all litigation-related costs for respirator mask/asbestos matters are included in the Safety and Industrial segment, not just significant amounts recorded as a corporate special item. For 2019, this reallocation reduced segment operating income from $2,373M to $1,866M, a decline of $507M, with an offsetting change in Corporate and Unallocated.
Should investors rely on the adjusted EBITDA and adjusted EPS figures in this filing?
They are useful for understanding the revised underlying trend, but they are non-GAAP and are not directly comparable with figures 3M previously reported. Adjusted EBITDA and adjusted EPS now exclude a broader set of litigation costs, including external legal fees and insurance recoveries, so the adjusted numbers have changed. Investors should compare periods only on the new basis and reconcile to GAAP results in the tables provided.
When will investors see GAAP comparative results on the new segment basis?
3M stated it would report comparative segment results under the new measure starting with its Form 10-Q for the quarter ending March 31, 2022. Until then, the recast amounts are non-GAAP measures, and the company furnished this information so investors could evaluate the impact on historical periods ahead of that filing.
04—Continue