Item 7.01. Regulation FD
As previously disclosed in our SEC filings, 3M continually reviews factors and changes that could lead to a deconsolidation of its Venezuelan subsidiary, such as the ability to access various exchange mechanisms, the impact of government regulations on our ability to manage our subsidiary’s capital structure, purchasing, product pricing, and labor relations, and the current political and economic situation within the country.
In light of continuing challenging circumstances in Venezuela, including its unstable environment and heightened unrest that have led to a sustained lack of demand, and our expectation that these circumstances will continue for the foreseeable future, 3M has concluded that it no longer meets the criteria of control to continue consolidating its Venezuelan operations, and therefore deconsolidated its Venezuelan subsidiary as of May 31, 2019. 3M notified relevant employees today that it has suspended local operations of this subsidiary for the foreseeable future.
The deconsolidation results in a pre-tax charge of approximately $160 million, or $0.27 per diluted share, in the second quarter of 2019. This charge was not part of the “2019 Updated Outlook” for full-year earnings expectations projected in the Company’s first quarter earnings release dated April 25, 2019. While reporting GAAP-basis results, 3M also expects to provide certain non-GAAP income and earnings per share measures that will exclude the charge associated with this deconsolidation.
There is no economic impact to 3M from the deconsolidation of the subsidiary. The operations were immaterial to 3M’s overall operations. The charge is non-cash and primarily relates to foreign currency translation losses previously included in accumulated other comprehensive losses associated with foreign currency movements before Venezuela was accounted for as a highly inflationary economy.
Forward-Looking Statements
This Current Report contains forward-looking information about 3M’s financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the use of words such as “anticipate,” “estimate,” “expect,” “aim,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “could,” “target,” “forecast” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, regulatory, capital markets and other external conditions and other factors beyond the Company’s control, including natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers; (2) the Company’s credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) operational execution, including scenarios where the Company generates fewer productivity improvements than estimated; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company’s information technology infrastructure; (10) financial market risks that may affect the Company’s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2018, and any subsequent quarterly reports on Form 10-Q (the “Reports”). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under “Cautionary Note Concerning Factors That May Affect Future Results” and “Risk Factors” in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The information contained in this Current Report is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this Current Report as a result of new information or future events or developments.