3M 2007 Annual Report Download - page 14

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Item 1A. Risk Factors.
The most significant risk factors applicable to the Company are as follows:
* Results are impacted by the effects of, and changes in, worldwide economic conditions. The Company operates in
more than 60 countries and derives approximately 63% of its revenues from outside the United States. The
Company’s business may be affected by factors in the United States and other countries that are beyond its control,
such as downturns in economic activity in a specific country or region, or in the various industries in which the
Company operates; social, political or labor conditions in a specific country or region; or adverse changes in interest
rates, tax, or regulations in the jurisdictions in which the company operates.
* The Company’s results are affected by competitive conditions and customer preferences. Demand for the
Company’s products, which impacts revenue and profit margins, is affected by (i) the development and timing of the
introduction of competitive products; (ii) the Company’s response to downward pricing to stay competitive; (iii)
changes in customer order patterns, such as changes in the levels of inventory maintained by customers and the
timing of customer purchases which may be affected by announced price changes, changes in the Company’s
incentive programs, or the customer’s ability to achieve incentive goals; and (iv) changes in customers’ preferences
for our products, including the success of products offered by our competitors, and changes in customer designs for
their products that can affect the demand for some of the Company’s products.
* Foreign currency exchange rates and fluctuations in those rates may affect the Company’s ability to realize
projected growth rates in its sales and earnings. Because the Company derives approximately 63% of its revenues
from outside the United States, its ability to realize projected growth rates in sales and earnings could be adversely
affected if the U.S. dollar strengthens significantly against foreign currencies.
* The Company’s growth objectives are largely dependent on the timing and market acceptance of its new product
offerings, including its ability to continually renew its pipeline of new products and to bring those products to market.
This ability may be adversely affected by difficulties or delays in product development, such as the inability to identify
viable new products, obtain adequate intellectual property protection, or gain market acceptance of new products.
There are no guarantees that new products will prove to be commercially successful.
* The Company’s future results are subject to fluctuations in the costs and availability of purchased components,
compounds, raw materials and energy, including oil and natural gas and their derivatives, due to shortages, increased
demand, supply interruptions, currency exchange risks, natural disasters and other factors. The Company depends on
various components, compounds, raw materials, and energy (including oil and natural gas and their derivatives)
supplied by others for the manufacturing of its products. It is possible that any of its supplier relationships could be
interrupted due to natural and other disasters and other events, or be terminated in the future. Any sustained
interruption in the Company’s receipt of adequate supplies could have a material adverse effect on the Company. In
addition, while the Company has a process to minimize volatility in component and material pricing, no assurance can
be given that the Company will be able to successfully manage price fluctuations or that future price fluctuations or
shortages will not have a material adverse effect on the Company.
* Acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions
and other evolving business strategies, and possible organizational restructuring could affect future results. The
Company monitors its business portfolio and organizational structure and has made and may continue to make
acquisitions, strategic alliances, divestitures and changes to its organizational structure. With respect to acquisitions,
future results will be affected by the Company’s ability to integrate acquired businesses quickly and obtain the
anticipated synergies.
* The Company’s future results may be affected if the Company generates fewer productivity improvements than
estimated. The Company utilizes various tools, such as Lean Six Sigma, to improve operational efficiency and
productivity. There can be no assurance that all of the projected productivity improvements will be realized.
* The Company’s future results may be affected by various legal and regulatory proceedings, including those involving
product liability, antitrust, environmental or other matters. The outcome of these legal proceedings may differ from the
Company’s expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably
predict. Various factors or developments can lead the Company to change current estimates of liabilities and related
insurance receivables where applicable, or make such estimates for matters previously not susceptible of reasonable
estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory
developments or changes in applicable law. A future adverse ruling, settlement or unfavorable development could
result in future charges that could have a material adverse effect on the Company’s results of operations or cash flows
in any particular period. For a more detailed discussion of the legal proceedings involving the Company and the
associated accounting estimates, see the discussion in Note 13.