01—Abstract
Summary
Summary of the 8-K filed April 26, 2022. Cited figures are marked; the original filing is the authoritative source.
This 8-K filing by 3M Co. (MMM) on April 26, 2022, primarily serves to update its 2021 Form 10-K regarding changes in business segment reporting and non-GAAP financial measures, effective in the first quarter of 2022.
These updates are important for investors to accurately assess segment performance and the impact of litigation costs. The key changes include the elimination of "dual credit" in measuring segment operating performance, meaning sales and related income will only be attributed to the primary selling segment.
Additionally, litigation-related costs for respirator mask/asbestos matters will now be reported within the Safety and Industrial segment, rather than as a special item in Corporate and Unallocated. These adjustments affect the presentation of financial data for all periods presented, notably impacting 2019 results due to the litigation cost reallocation.
02—Key points
Key Highlights
- Updated business segment reporting to eliminate "dual credit" for sales and operating income, attributing them solely to the primary selling segment.
- Litigation-related costs for respirator mask/asbestos matters will now be included within the Safety and Industrial segment's operating performance.
- Previously, significant litigation costs for these matters were classified as a special item under Corporate and Unallocated.
- Changes to non-GAAP measures now include net costs for respirator mask/asbestos litigation and PFAS-related environmental matters within special items, broadening their scope.
- The scope of "special items" for non-GAAP measures has been expanded to include external legal fees and insurance recoveries for litigation matters, not just changes in accrued liabilities.
- These reporting changes are effective for all periods presented, starting in the first quarter of 2022.
- This filing incorporates updated information into the Management's Discussion and Analysis, Financial Statements, and Significant Accounting Policies sections of the 2021 10-K.
03—Questions
Frequently Asked Questions
What is the "dual credit" elimination and why is it significant for investors?
The elimination of "dual credit" means that sales and related operating income will now be solely attributed to the business segment that is primarily responsible for selling the product, rather than also giving partial credit to other segments that might have customer account activity. This change provides a clearer and more accurate picture of each segment's direct contribution to revenue and profitability, removing a potential layer of complexity in performance evaluation.
How does the reallocation of litigation costs affect the Safety and Industrial segment?
Previously, significant litigation costs related to respirator mask/asbestos matters were grouped under "Corporate and Unallocated." Now, these costs will be recognized directly within the Safety and Industrial segment's operating performance. This change makes the performance of the Safety and Industrial segment more reflective of the actual costs associated with its operations and associated legal matters.
What are the implications of changes to 3M's non-GAAP "special items" definition?
The definition of "special items" used in 3M's non-GAAP financial measures has been broadened. It now includes a wider range of litigation-related costs, specifically for respirator mask/asbestos and PFAS matters, and encompasses external legal fees and insurance recoveries, not just changes in accrued liabilities. This means that the adjusted (non-GAAP) financial results will more comprehensively reflect the financial impact of these significant legal and environmental issues.
Are these changes reflected in past financial reports, or only going forward?
These reporting changes are effective starting in the first quarter of 2022 but are applied retrospectively to all periods presented in the updated filings. This means that investors can expect to see these adjustments reflected in historical data (e.g., 2019 in the case of litigation cost reallocation) when reviewing the updated sections of the 2021 10-K and subsequent reports.
04—Continue