3m Company

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which was successfully applied at GE and a number of other companies. 3M is using Six Sigma for everything from focusing sales efforts to developing new kinds of products.

Unfunded pension and post-retirement benefit obligations reduce cash flow. 3M has significant unfunded pension obligations. 3M provides retirement benefits for most of its employees, either directly or by contributing to independently administered funds. In 2014, the company’s pension and post-retirement benefit obligations, in total stood at $23,431 million as compared to planned assets of $20,600 million, resulting into an unfunded status of $2,831 million. Thus, unfunded pension benefit obligation forces the company to make additional cash contributions toward bridging the gap between pension obligations, which, in turn reduces the cash flow available for growth initiatives.

3M and some of its subsidiaries are involved in numerous claims and lawsuits, principally in the US, and regulatory proceedings worldwide. In 2014, the company paid over $140 million in lawsuits.

MANAGEMENT & GOVERNANC

Inge Thulin has been the Chairman of the Board, President and Chief Executive Officer at 3M since 2012. Prior to this, he was the Executive Vice President and Chief Operating Officer at the company from 2011 to 2012. He previously served as the Executive Vice President at 3M International Operations from 2004 to 2011. He serves on the board at Chevron. He has been with the company for 36 years. According to the company’s 2014 proxy statement, as chairman of the board, president and CEO at 3M, Inge made $14,309,525 in total compensation. Of this total $1,392,560 was received as a salary, $3,500,000 was received as a bonus, $4,053,263 was received in stock options, $4,750,085 was awarded as stock and $613,617 came from other types of compensation. In 2014, the average total CEO compensation package for conglomerates industry was $11.31 million. In addition, the industry’s average CEOs’ ownership of shares of stock was 0.05% or $0.02 million. Compared to the industry average, his compensation package was very adequate. Nicholas Gangestad has been the Senior Vice President and Chief Financial Officer at 3M since 2014. Previously, he served as the Vice President, Corporate Controller and Chief Accounting Officer at the company from 2011 to 2014. From 2003 to 2007, he served as the Vice President of Finance and Information Technology at 3M Canada. He started his career in 1987 as a System Analyst in Finance and became a Financial Manager for Latin America in 1998. As senior vice president and chief financial officer at 3M, he made $3,363,372 in total compensation. Hak Cheol Shin has been the Executive Vice President of International Operations at 3M since 2011. Previously, he served as the Executive Vice President of Industrial and Transportation Business at the company from 2006 to 2011. Prior to that, he was the Executive Vice President of Industrial Business at 3M from 2005 to 2006. As executive vice president of international operations at 3M, he made $4,968,737 in total compensation. The bard of directors consists of 12 directors. 3M’s board of directors are elected in an annual election. Board directors elected by a majority vote of the shareholders. The company’s board of directors is sufficiently independent because 11 out of 12 directors are independent.

FINANCIAL ANALYSIS

The company recorded revenues of $30,871 million during 2014, an increase of 3.2% over 2013. For 2014, the US, the company’s largest geographic market, accounted for 36.1% of the total revenues. In 2014, 3M generated revenues through five business segments: industrial 33.7% of the total revenues, safety and graphics 18%, electronics and energy 17.2%, health care 17%, and consumer 14.1%. In addition, the company generated 29.3% of its total revenues from Asia Pacific, and 22.9% from Europe, Middle East and Africa. The remaining 11.7% of the total revenues were generated from Latin America and Canada.

INVESTMENT RISKS

Intense competition can decrease product demand, market share and margins. 3M operates in rapidly evolving and intensely competitive segments. As the company is a diversified manufacturing company, it faces intense competition from various large scale companies in its existing businesses. Some of its competitors have greater financial and other resources than the company. It faces direct competition from Balchem, Bayer, General Electric, Danaher, Honeywell, ITT, Textron, CONMED, H.B. Fuller, Johnson and Johnson, and Cardinal Health. Hence, intense competition in the industry can

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