What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-04-26 · 246 added, 105 removed, 449 unchanged (44% of the section changed)

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From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a combined basis.

As described in the Overview—Consideration of COVID-19 section of Part II, Item 7 of the Company’s 2021 Annual Report on Form 10-K, 3M continues to be impacted by the global pandemic and related effects associated with the coronavirus (COVID-19).

As described in the Overview—Consideration of COVID-19 section of Part II, Item 7 of the Company's Current Report on Form 8-K dated April 26, 2022 (which updated the Company’s 2021 Annual Report on Form 10-K), 3M continues to be impacted by the global pandemic and related effects associated with the coronavirus (COVID-19).

In addition, risk factors with respect to COVID-19, can be found in Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

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Due to the speed with which the COVID-19 situation continues to develop and evolve and the uncertainty of its duration and the timing of recovery, 3M is not able at this time to predict the extent to which the COVID-19 pandemic may have a material effect on its consolidated results of operations or financial condition.

During the first six month of 2022, 3M's costs for significant litigation (see Certain amounts adjusted for special items - (non-GAAP measures section below) included, among things, pre-tax charges associated with steps toward resolving Combat Arms Earplugs litigation and associated with additional commitments to address PFAS-related maters at its Zwijndrecht, Belgium site (approximately $1.2 billion and $355 million, respectively, in the second quarter of 2022).

These matters are further discussed in Note 14.

3M is experiencing interruption to a portion of the manufacturing at its site in Zwijndrecht, Belgium as more fully discussed in Note 14.

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Relevant risk factors can be found in Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

As discussed in Note 14, 3M continues to explore and deploy options to mitigate the impact of a prolonged suspension or interruption of the Zwijndrecht facility's operations.

As discussed in Note 14, 3M received approval in June 2022 to begin the process toward restarting manufacturing operations at the Zwijndrecht facility.

The process for restarting previously-idled operations at the facility is progressing according to plan.

Belgian government authorities continue to maintain oversight of these operations and compliance with applicable requirements.

With respect to the Russia-Ukraine conflict, the business and operational environment in Russia is impacted by, among other things, Russian laws and regulations as well as sanctions imposed by the U.S.

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If the environment were to deteriorate, such as a lack of currency exchangeability coupled with an acute degradation in the ability to make key operational decisions, a need to deconsolidate these subsidiaries' operations could arise.

In addition, 3M has other operations that source certain raw materials from suppliers in Russia and have experienced related supply disruption due to the conflict.

Additionally, the Company continues to evaluate options, some of which could lead to termination of activities of these subsidiaries and substantially their liquidation.

3M monitors factors such as its ability to access various exchange mechanisms;

the impact of government regulations on the Company’s ability to manage its Russian subsidiaries' capital structure, purchasing, product pricing, and labor relations;

and the current political and economic situation.

Based upon a review of factors as of June 30, 2022, the Company continues to consolidate its Russian subsidiaries.

As of June 30, 2022, the balance of accumulated other comprehensive loss associated with these subsidiaries was approximately $40 million and the amount of intercompany receivables due from these subsidiaries and their total net assets was approximately $90 million.

3M also has other operations that source certain raw materials from suppliers in Russia and have experienced related supply disruption due to the conflict.

Further supply disruption could lead to downstream customer impacts.

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Operating income margin and earnings per share attributable to 3M common shareholders – diluted:

The following table provides the increases (decreases) in operating income margins and diluted earnings per share for the three months ended March 31, 2022 and 2021.

The following table provides the increases (decreases) in operating income margins and diluted earnings per share for the three and six months ended June 30, 2022 and 2021.

Three months ended

March 31, 2022

June 30, 2022 Six months ended

June 30, 2022

net sales Earnings per

diluted share Percent of

net sales Earnings per

diluted share

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Foreign exchange impacts (0.1) (0.13) — (0.17)

Other expense (income), net N/A 0.01

Income tax rate N/A (0.02)

Shares of common stock outstanding N/A 0.05

Other expense (income), net N/A (0.02) N/A (0.01)

Income tax rate N/A 0.05 N/A 0.03

Shares of common stock outstanding N/A 0.07 N/A 0.12

Current period, excluding special items 21.0 % $ 2.48 21.2 % $ 5.13

6 unchanged sentences

Total organic growth/productivity and other:

• For the first quarter of 2022, the following components impacted operating margins and earnings per diluted share year-on-year:

• For the second quarter of 2022, the following components impacted operating margins and earnings per diluted share year-on-year:

◦ Declines in disposable respirator demand year-on-year negatively impacted operating margins by 0.4 percent and earnings per share by $0.09.

◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.03 to earnings per share and penalty of 0.3 percent to operating margins.

The increase in organic sales did not fully offset operating margin effects of non-raw material/logistics cost headwinds as a percent of sales.

Impacts included the following:

◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.21 to earnings per share and 1.2 percent to operating margins which was impacted by the following:

▪ Strong pricing, spending discipline and benefits from restructuring actions taken in 2021

▪ Manufacturing headwinds from global supply chain challenges, including geopolitical impacts due to the Russia/Ukraine conflict

▪ Manufacturing headwinds from global supply chain challenges, including geopolitical impacts due to the Russia/Ukraine conflict as well as the COVID related shutdown in China

▪ Second quarter of 2021 pre-tax benefit of $91 million pre-tax ($0.12 per share after tax) from the impact of the favorable decision of the Brazilian Supreme Court regarding the calculation of past social taxes

▪ Increased investments in growth, productivity and sustainability

• For the first six months of 2022, the following components impacted operating margins and earnings per diluted share year-on-year:

◦ Declines in disposable respirator demand year-on-year negatively impacted operating margins by 0.3 percent and earnings per share by $0.12.

◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.24 to earnings per share and 0.5 percent to operating margins which was impacted by the following:

▪ Strong pricing, spending discipline and benefits from restructuring actions taken in 2021

▪ Manufacturing headwinds from global supply chain challenges, including geopolitical impacts due to the Russia/Ukraine conflict as well as the COVID related shutdown in China

▪ Second quarter of 2021 benefit of $91 million pre-tax ($0.12 per share after tax) from the impact of the favorable decision of the Brazilian Supreme Court regarding the calculation of past social taxes

▪ Increased investments in growth, productivity and sustainability

Raw material impact:

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Foreign exchange impacts

• Foreign currency impacts (net of hedging) decreased operating income by approximately $42 million (or a decrease of pre-tax earnings by approximately $26 million) year-on-year for the first three months of 2022 primarily the result of the strength of the U.S.

• Foreign currency impacts (net of hedging) decreased operating income by approximately $84 million (or a decrease of pre-tax earnings by approximately $95 million) year-on-year for the second quarter of 2022 and decreased operating income by approximately $111 million (or a decrease of pre-tax earnings by approximately $121 million) year-on-year for the first six months of 2022 primarily the result of the strength of the U.S.

These estimates include:

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Other expense (income), net:

• Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for the first three months of 2022.

• Interest expense (net of interest income) decreased for the first quarter of 2022 compared to the same period year-on-year.

• Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for the first three and six months of 2022.

• Interest expense (net of interest income) increased for the three months ended June 30, 2022 compared to the same period year-on-year and decreased for the six months ended June 30, 2022 compared to the same period year-on-year.

Income tax rate:

• Certain items above reflect specific income tax rates associated therewith.

Overall, the effective tax rate for the first quarter of 2022 was 18.8 percent, an increase from 16.4 percent in the prior year.

The primary factor that increased the Company's effective tax rate included adjustments to reserves for uncertain tax positions.

• On an adjusted basis (as discussed below), the effective tax rate for the first quarter of 2022 was 17.6%, an increase of 0.7 percentage points compared to the same period year-on-year.

Overall, the effective tax rate for the second quarter of 2022 was (38.3) percent, a decrease from 21.5 percent in the prior year.

The effective tax rate for the first six months of 2022 was 16.8 percent, as compared to 18.9 percent in the prior year.

The primary factor that decreased the Company's effective tax rate for both periods was the tax impact associated with the second quarter 2022 charge related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14).

• On an adjusted basis (as discussed below), the effective tax rate for the second quarter and first six months of 2022 was 19.8 percent and 18.7 percent, respectively, a decrease of 1.8 percentage points and a decrease of 0.5 percent, respectively, compared to the same period year-on-year.

Shares of common stock outstanding:

• Lower shares outstanding increased earnings per share year-on-year for the first three months of 2022.

• Lower shares outstanding increased earnings per share year-on-year for the first three and six months of 2022.

Certain amounts adjusted for special items - (non-GAAP measures):

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For the periods presented, special items include the items described below.

Operating income, segment operating income, income before taxes, net income, earnings per share, and the effective tax rate are all measures for which 3M provides the reported GAAP measure and a measure adjusted for special items.

Operating income, segment operating income (loss), income before taxes, net income, earnings per share, and the effective tax rate are all measures for which 3M provides the reported GAAP measure and a measure adjusted for special items.

The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures.

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Net costs related to respirator mask/asbestos and Combat Arms Earplugs matters are reflected as special items in the Safety and Industrial business segment while those associated with PFAS-related other environmental matters are primarily reflected as corporate special items in Corporate and Unallocated.

Operating Income

Operating Income (Loss)

(Dollars in millions, except per share amounts) Safety and Industrial Safety and Industrial Margin Total Company

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percent change

Three months ended March 31, 2021 GAAP

Three months ended June 30, 2021 GAAP

$ 662 21.8% $ 1,971 22.0 % $ 1,938 $ 415 21.5 % $ 1,524 $ 2.59

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Net costs for significant litigation 52 127 127 30 97 0.16

Three months ended March 31, 2021 adjusted amounts (non-GAAP measures)

Three months ended June 30, 2021 adjusted amounts (non-GAAP measures)

$ 714 23.6% $ 2,098 23.4 % $ 2,065 $ 445 21.6 % $ 1,621 $ 2.75

Three months ended March 31, 2022 GAAP

Three months ended June 30, 2022 GAAP

$ (707) (24.2)% $ 110 1.3 % $ 60 $ (23) (38.3) % $ 78 $ 0.14 (95) %

1 unchanged sentence

Net costs for significant litigation 1,337 1,716 1,716 374 1,342 2.34

Three months ended March 31, 2022 adjusted amounts (non-GAAP measures)

Three months ended June 30, 2022 adjusted amounts (non-GAAP measures)

$ 630 21.5% $ 1,826 21.0 % $ 1,776 $ 351 19.8 % $ 1,420 $ 2.48 (10) %

Sales and operating income by business segment:

The following tables contain sales and operating income results by business segment for the three months ended March 31, 2022 and 2021.

Operating Income (Loss)

(Dollars in millions, except per share amounts) Safety and Industrial Safety and Industrial Margin Total Company

Total Company Margin

Income Before

Taxes Provision for

Income Taxes Effective Tax

Rate Net Income

Attrib-utable to

3M Earnings per

Diluted Share Earnings per

diluted share

percent change

Six months ended June 30, 2021 GAAP

$ 1,414 23.1% $ 3,965 22.3 % $ 3,883 $ 734 18.9 % $ 3,148 $ 5.36

Adjustments for special items:

Net costs for significant litigation 117 262 262 62 200 0.34

Six months ended June 30, 2021 adjusted amounts (non-GAAP measures)

$ 1,531 25.0% $ 4,227 23.7 % $ 4,145 $ 796 19.2 % $ 3,348 $ 5.70

Six months ended June 30, 2022 GAAP

$ (71) (1.2)% $ 1,751 10.0 % $ 1,663 $ 279 16.8 % $ 1,377 $ 2.40 (55) %

Adjustments for special items:

Net costs for significant litigation 1,400 1,966 1,966 399 1,567 2.73

Six months ended June 30, 2022 adjusted amounts (non-GAAP measures)

$ 1,329 22.2% $ 3,717 21.2 % $ 3,629 $ 678 18.7 % $ 2,944 $ 5.13 (10) %

Sales and operating income (loss) by business segment:

The following tables contain sales and operating income (loss) results by business segment for the three and six months ended June 30, 2022 and 2021.

Refer to the section entitled “Performance by Business Segment” later in MD&A for additional discussion concerning 2022 versus 2021 results, including Corporate and Unallocated.

Refer to Note 16 for additional information on business segments.

Three months ended March 31,

Three months ended June 30,

2022 2021 % change

(Dollars in millions) Net

Income (Loss) Net

Income (Loss)

Business Segments

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Total Company $ 8,702 $ 110 $ 8,950 $ 1,971 (2.8) % (94.4) %

Three months ended March 31, 2022

Six months ended June 30,

2022 2021 % change

(Dollars in millions) Net

Income (Loss) Net

Income (Loss)

Business Segments

Safety and Industrial $ 5,975 $ (71) $ 6,128 $ 1,414 (2.5) % (105.0) %

Transportation and Electronics 4,608 972 4,751 1,069 (3.0) % (9.1) %

Health Care 4,303 942 4,234 1,012 1.6 % (7.0) %

Consumer 2,643 471 2,689 559 (1.7) % (15.7) %

Corporate and Unallocated 2 (563) (1) (89)

Total Company $ 17,531 $ 1,751 $ 17,801 $ 3,965 (1.5) % (55.8) %

Three months ended June 30, 2022

Worldwide Sales Change

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Total Company 1.0 — — (3.8) (2.8)

Six months ended June 30, 2022

Worldwide Sales Change

By Business Segment Organic sales Acquisitions Divestitures Translation Total sales

Safety and Industrial 0.6 % — % — % (3.1) % (2.5) %

Transportation and Electronics 0.1 — — (3.1) (3.0)

Health Care 4.5 — — (2.9) 1.6

Consumer 0.3 — — (2.0) (1.7)

Total Company 1.4 — — (2.9) (1.5)

Sales by geographic area:

Percent change information compares the three months ended March 31, 2022 with the same period last year, unless otherwise indicated.

Percent change information compares the three and six months ended June 30, 2022 with the same period last year, unless otherwise indicated.

Additional discussion of business segment results is provided in the Performance by Business Segment section.

Three months ended March 31, 2022

Three months ended June 30, 2022

Americas Asia

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Total sales change 3.7 % (7.8) % (12.2) % (2.8) %

Additional information beyond what is included in the preceding table is as follows:

• In the Americas geographic area, U.S.

total sales were flat which included increased organic sales of 1 percent.

Six months ended June 30, 2022

Americas Asia

Pacific Europe,

& Africa Other

Unallocated Worldwide

Net sales (millions) $ 9,189 $ 5,217 $ 3,125 $ — $ 17,531

% of worldwide sales 52.4 % 29.8 % 17.8 % 100.0 %

Components of net sales change:

Organic sales 3.2 0.5 (2.0) 1.4

Divestitures — — — —

Translation (0.1) (4.3) (7.9) (2.9)

Total sales change 3.1 % (3.8) % (9.9) % (1.5) %

Additional information beyond what is included in the preceding tables are as follows:

• For the second quarter of 2022, in the Americas geographic area, U.S.

total sales increased 2 percent which included increased organic sales of 2 percent.

Total sales in Mexico increased 13 percent which included increased organic sales of 13 percent.

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In Japan, total sales decreased 11 percent which included increased organic sales of 1 percent.

• For the first six months of 2022, in the Americas geographic area, U.S.

total sales increased 1 percent which included increased organic sales of 1 percent.

Total sales in Mexico increased 11 percent which included increased organic sales of 12 percent.

In Canada, total sales increased 17 percent which included increased organic sales of 19 percent.

In Brazil, total sales increased 18 percent which included increased organic sales of 11 percent.

In the Asia Pacific geographic area, China total sales decreased 6 percent which included decreased organic sales of 5 percent.

In Japan, total sales decreased 8 percent which included increased organic sales of 2 percent.

Managing currency risks:

The stronger U.S.

dollar had a negative impact on sales in the first three months of 2022 compared to the same periods last year.

Net of the Company’s hedging strategy, foreign currency negatively impacted earnings in the first three months of 2022 compared to the same period last year.

dollar had a negative impact on sales in the first three and six months of 2022 compared to the same periods last year.

Net of the Company’s hedging strategy, foreign currency negatively impacted earnings in the first three and six months of 2022 compared to the same period last year.

3M utilizes a number of tools to manage currency risk related to earnings including natural hedges such as pricing, productivity, hard currency, hard currency-indexed billings, and localizing source of supply.

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This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date.

In the first three months of 2022, the Company purchased $773 million of its own stock, compared to $231 million of stock purchases in the first three months of 2021.

As of March 31, 2022, approximately $4.8 billion remained available under the authorization.

In the first six months of 2022, the Company purchased $773 million of its own stock, compared to $734 million of stock purchases in the first six months of 2021.

As of June 30, 2022, approximately $4.8 billion remained available under the authorization.

In February 2022, 3M’s Board of Directors declared a first-quarter 2022 dividend of $1.49 per share, an increase of 1 percent.

This marked the 64th consecutive year of dividend increases for 3M.

In May 2022, 3M's Board of Directors declared a second-quarter dividend of $1.49 per share.

3M expects to contribute approximately $200 million of cash to its global defined benefit pension and postretirement plans in 2022.

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Three months ended

(Percent of net sales) 2022 2021 Change

June 30, Six months ended

(Percent of net sales) 2022 2021 Change 2022 2021 Change

Cost of sales 58.5 % 52.7 % 5.8 % 56.6 % 51.9 % 4.7 %

5 unchanged sentences

and research, development and related expenses (R&D).

The year-on-year decrease in defined benefit pension and postretirement service cost expense for the first quarter of 2022 was approximately $16 million.

The year-on-year decrease in defined benefit pension and postretirement service cost expense for the second quarter and first six months of 2022 was approximately $18 million and $34 million.

For total year 2021, the Company recognized consolidated defined benefit pre-tax pension and postretirement service cost expense of $503 million and a benefit of $297 million related to all non-service pension and postretirement net benefit costs (after settlements, curtailments, special termination benefits and other) for a total consolidated defined benefit pre-tax pension and postretirement expense of $206 million.

For total year 2022, defined benefit pension and postretirement service cost expense is anticipated to total approximately $435 million while non-service pension and postretirement net benefit cost is anticipated to be a benefit of approximately $250 million, for a total consolidated defined benefit pre-tax pension and postretirement expense of approximately $185 million, a decrease in expense of approximately $20 million compared to 2021.

The Company is continuing the ongoing deployment of an enterprise resource planning (ERP) system on a worldwide basis,

with these investments impacting cost of sales, SG&A, and R&D.

The Company is continuing the ongoing deployment of an enterprise resource planning (ERP) system on a worldwide basis, with these investments impacting cost of sales, SG&A, and R&D.

Cost of Sales:

Cost of sales, measured as a percent of sales, increased in the first three months of 2022 when compared to the same periods last year.

Increases primarily due to negative manufacturing productivity impacts from ongoing global supply chain, raw material and logistics challenges, including estimate of idled portions of Belgium manufacturing facility, increased net costs for significant litigation, increased compensation and benefit costs, and increased investments in growth, productivity and sustainability.

Cost of sales, measured as a percent of sales, increased in the first three and six months of 2022 when compared to the same periods last year.

Increases were primarily due to 2022 special item costs for significant litigation from additional commitments to address PFAS-related maters at 3M's Zwijndrecht, Belgium site (discussed in Note 14), higher raw materials and logistics costs, manufacturing productivity headwinds which were further magnified by the combined impact of COVID-related lockdowns in China and the shutdown of certain operations in Belgium, compensation and benefit costs, and investments in growth, productivity and sustainability.

Selling, General and Administrative Expenses:

SG&A, measured as a percent of sales, increased in the first three months of 2022 when compared to the same period last year.

SG&A was impacted by increased compensation and benefit costs, and continued investment on key growth initiatives.

SG&A, measured as a percent of sales, increased in the first three and six months of 2022 when compared to the same period last year.

SG&A was impacted by increased special item costs for significant litigation primarily related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14) resulting in a 2022 second quarter pre-tax charge of approximately $1.2 billion, compensation and benefit costs, and continued investment on key growth initiatives.

Cost increases were partially offset by restructuring benefits and ongoing general 3M cost management.

Research, Development and Related Expenses:

R&D, measured as a percent of sales, decreased in the first three months of 2022 when compared to the same period last year.

3M continued to invest in its key initiatives, including R&D aimed at disruptive innovation programs with the potential to create entirely new markets and disrupt existing markets.

R&D, measured as a percent of sales, decreased in the first three and six months of 2022 when compared to the same period last year.

3M continues to invest in a range of R&D activities from application development, product and manufacturing support, product development and technology development aimed at disruptive innovations.

Other Expense (Income), Net:

See Note 6 for a detailed breakout of this line item.

Interest expense (net of interest income) decreased in the first three months of 2022 compared to the same period year-on-year due to an early debt extinguishment pre-tax charge in the first quarter of 2021.

The non-service pension and postretirement net benefit decreased approximately $12 million in the first three months of 2022 compared to the same period year-on-year.

Interest expense (net of interest income) increased in the second quarter of 2022 primarily driven by foreign exchange;

net interest decreased in the first six months of 2022 compared to the same period year-on-year due to an early debt extinguishment pre-tax charge in the first quarter of 2021 and generation of incremental interest income.

The non-service pension and postretirement net benefit decreased approximately $13 million and $25 million in the first three and six months of 2022, respectively, compared to the same period year-on-year.

Provision for Income Taxes:

Three months ended

June 30, Six months ended

(Percent of pre-tax income) 2022 2021 2022 2021

Effective tax rate (38.3) % 21.5 % 16.8 % 18.9 %

The primary factor that increased the Company’s effective tax rate included adjustments to uncertain tax positions.

The primary factor that decreased the Company’s effective tax rate for the second quarter of 2022 and first six months of 2022 versus the same period in the prior year was the tax impact associated with the second quarter 2022 charge related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14).

3M currently estimates its effective tax rate for 2022 to be approximately 17.5 to 18.5 percent.

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Three months ended

June 30, Six months ended

(Millions) 2022 2021 2022 2021

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Three months ended

June 30, Six months ended

(Millions) 2022 2021 2022 2021

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Because Corporate and Unallocated includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis.

Corporate and Unallocated operating expenses increased in the first three months of 2022, when compared to the same period last year.

Corporate and Unallocated operating expenses increased in the first three and six months of 2022, when compared to the same period last year.

The subsections below provide additional information.

Corporate Special Items

Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details on the impact of net costs for significant litigation, gain/loss on sale of businesses, and divestiture-related restructuring actions.

Corporate special item net costs increased in the first three and six months of 2022 year over year primarily due to additional commitments in 2022 to address PFAS-related maters at 3M's Zwijndrecht, Belgium site (discussed in Note 14),

Other Corporate Expense - Net

Other corporate operating expenses, net, in the first three months of 2022, was relatively flat when compared to the same period last year.

Other corporate operating expenses, net, increased in the first three and six months of 2022, when compared to the same period last year primarily due to a $91 million pre-tax benefit from the impact of the favorable decision of the Brazilian Supreme Court included in the second quarter of 2021 regarding the calculation of past social taxes.

Operating Business Segments:

Information related to 3M’s business segments is presented in the tables that follow with additional context in the corresponding narrative below the tables.

Refer to 3M’s 2021 Annual Report on Form 10-K, Item 1, Business, for discussion of 3M products that are included in each business segment.

Refer to 3M's Current Report on Form 8-K dated April 26, 2022 (which updated 3M’s 2021 Annual Report on Form 10-K), Item 1, Business, for discussion of 3M products that are included in each business segment.

Safety and Industrial Business:

Three months ended

June 30, Six months ended

2022 2021 2022 2021

Sales (millions) $ 2,924 $ 3,029 $ 5,975 $ 6,128

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Total sales change (3.4) % (2.5) %

Business segment operating income (millions) $ 636 $ 752

Business segment operating income (loss) (millions) $ (707) $ 662 $ (71) $ 1,414

Percent change (206.9) % (105.0) %

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Percent of sales 21.5 % 23.6 % 22.2 % 25.0 %

The preceding table also displays business segment operating income information adjusted for special items.

The preceding table also displays business segment operating income (loss) information adjusted for special items.

For Safety and Industrial these adjustments include net costs for respirator mask/asbestos and Combat Arms Earplugs litigation matters.

Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details.

First quarter 2022 results:

Second quarter 2022 results:

Sales in Safety and Industrial were down 3.4 percent in U.S.

On an organic sales basis:

• Sales increased in closure and masking systems, industrial adhesives and tapes, abrasives, electrical markets, roofing granules, and automotive aftermarket and decreased in personal safety.

• Growth from continued improving general industrial manufacturing activity and other end-market demand was partially offset by the disposable respirator sales decline within personal safety, which negatively impacted year-on-year first quarter organic growth by 1.5 percent.

Business segment operating income margins decreased year-on-year due to increased raw materials and logistics costs, special item costs for significant litigation and manufacturing productivity headwinds, partially offset by selling price actions, strong spending discipline and benefits from restructuring actions.

• Sales increased in abrasives, electrical markets, closure and masking systems, roofing granules, automotive aftermarket, and industrial adhesives and tapes and decreased in personal safety.

COVID-related lockdowns in China also negatively impacted growth.

Business segment operating income margins decreased year-on-year due to special item costs for significant litigation primarily related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14) resulting in a 2022 second quarter pre-tax charge of approximately $1.2 billion.

Margins were also impacted by manufacturing productivity headwinds further magnified by the COVID-related lockdowns in China, partially offset by spending discipline and benefits from restructuring actions.

Adjusting for special item costs for significant litigation (non-GAAP measure), business segment operating income margins decreased year-on-year as displayed above.

First six months 2022 results:

Sales in Safety and Industrial were down 2.5 percent in U.S.

On an organic sales basis:

• Sales increased in closure and masking systems, abrasives, electrical markets, industrial adhesives and tapes, roofing granules, and automotive aftermarket and decreased in personal safety.

Margins were also impacted by increased raw materials and logistics costs, manufacturing productivity headwinds further magnified by the COVID related lockdowns in China, partially offset by selling price actions, spending discipline and benefits from restructuring actions.

Adjusting for special item costs for significant litigation (non-GAAP measure), business segment operating income margins decreased year-on-year as displayed above.

Transportation and Electronics Business:

Three months ended

June 30, Six months ended

2022 2021 2022 2021

Sales (millions) $ 2,268 $ 2,355 $ 4,608 $ 4,751

6 unchanged sentences

Percent of sales 21.0 % 21.8 % 21.1 % 22.5 %

First quarter 2022 results:

Second quarter 2022 results:

Sales in Transportation and Electronics were down 3.7 percent in U.S.

On an organic sales basis:

• Sales increased in commercial solutions and decreased in electronics, automotive and aerospace and transportation safety, while advanced materials was flat.

• Sales declines were primarily due to the ongoing impacts of the semiconductor supply chain constraints on the automotive and consumer electronics end-markets.

Business segment operating income margins decreased year-on-year due to increased raw materials and logistics costs, manufacturing productivity headwinds and investments in auto electrification, partially offset by selling price actions, strong spending discipline and benefits from restructuring actions.

• Sales increased in advanced materials, commercial solutions, and automotive and aerospace, and decreased in electronics and transportation safety.

• Growth was held back by the COVID-related lockdowns in China along with the ongoing impacts of the semiconductor supply chain constraints on the automotive and consumer electronics end-markets.

Business segment operating income margins decreased year-on-year due to manufacturing productivity headwinds from the combined impact of COVID-related lockdowns in China and the continued shutdown during Q2 of certain operations in Belgium, partially offset by strong spending discipline and benefits from restructuring actions.

First six months 2022 results:

Sales in Transportation and Electronics were down 3.0 percent in U.S.

On an organic sales basis:

• Sales increased in commercial solutions and advanced materials, and decreased in automotive and aerospace, electronics and transportation safety.

• Growth was held back by the ongoing impacts of the semiconductor supply chain constraints on the automotive and consumer electronics end-markets along with the COVID-related lockdowns in China.

Business segment operating income margins decreased year-on-year due to increased raw materials and logistics costs, manufacturing productivity headwinds which were further magnified by the combined impact of COVID-related lockdowns in China and the shutdown of certain operations in Belgium and investments in auto electrification, partially offset by selling price actions, strong spending discipline and benefits from restructuring actions.

Health Care Business:

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2022 2021 2022 2021

Sales (millions) $ 2,179 $ 2,165 $ 4,303 $ 4,234

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Percent of sales 22.7 % 25.3 % 21.9 % 23.9 %

First quarter 2022 results:

Second quarter 2022 results:

Sales in Health Care were up 0.6 percent in U.S.

On an organic sales basis:

• Sales increased in food safety, separation and purification, medical solutions, health information systems, and in oral care.

• Sales increased in separation and purification, health information systems, medical solutions, and oral care, and were flat in food safety.

• Sales increased in medical solutions and oral care, but continue to be impacted by COVID-related trends on elective procedure volumes.

• Sales increased in health information systems due to strong growth in revenue cycle management.

• Sales increased in separation and purification with sustained demand for biopharma filtration solutions for COVID-related vaccines.

Business segment operating income margins decreased year-on-year due to manufacturing productivity headwinds, investments in the business and transaction-related costs associated with the announced divestiture of the food safety business (see Note 3), partially offset by benefits from leverage on sales growth, strong spending discipline and benefits from restructuring actions.

As discussed in Note 3, in July 2022, 3M announced its intention to spin off the Health Care business as a separate public company.

3M expects to initially retain a 19.9% ownership position in the Health Care business.

The Company expects to complete the transaction by year-end 2023.

First six months 2022 results:

Sales in Health Care were up 1.6 percent in U.S.

On an organic sales basis:

• Sales increased in separation and purification, medical solutions, health information systems, food safety and oral care.

• Sales increased in medical solutions and oral care, but continue to be impacted by COVID-related trends on elective procedure volumes.

• Sales increased in separation and purification with sustained demand for biopharma filtration solutions for COVID-related vaccines and therapeutics.

• Sales increased in health information systems due to strong growth in revenue cycle management and clinician solutions.

Business segment operating income margins decreased year-on-year due to increased raw materials and logistics costs along with manufacturing productivity headwinds and investments, partially offset by sales growth (including selling price actions), strong spending discipline and benefits from restructuring actions.

Business segment operating income margins decreased year-on-year due to increased raw materials and logistics costs along with manufacturing productivity headwinds, investments in the business and transaction-related costs associated with the announced divestiture of the food safety business (see Note 3), partially offset by sales growth (including selling price actions), strong spending discipline and benefits from restructuring actions.

Consumer Business:

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2022 2021 2022 2021

Sales (millions) $ 1,330 $ 1,400 $ 2,643 $ 2,689

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Percent of sales 18.5 % 20.7 % 17.8 % 20.8 %

First quarter 2022 results:

Sales in Consumer totaled were up 1.8 percent in U.S.

Second quarter 2022 results:

Sales in Consumer totaled were down 5.0 percent in U.S.

On an organic sales basis:

• Sales increased in consumer health and safety, home care, stationery and office and home improvement.

• Sales increased in stationery and office and home care, and decreased in consumer health and safety and home improvement.

• Sales decreases primarily due to soft consumer market conditions and continued product availability issues.

Business segment operating income margins decreased year-on-year as a result of ongoing supply chain constraints, along with manufacturing productivity headwinds, partially offset by strong spending discipline and benefits from restructuring actions.

First six months 2022 results:

Sales in Consumer totaled were down 1.7 percent in U.S.

On an organic sales basis:

• Sales increased in stationery and office, consumer health and safety, and home care and decreased in home improvement.

• Sales increases continue to be benefited by strength and demand in market-lead categories such as Filtrete TM air quality solutions and Command TM adhesives.

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FINANCIAL CONDITION AND LIQUIDITY

The strength and stability of 3M’s business model and strong free cash flow capability, together with proven capital markets access, provides financial flexibility and enables the Company to invest through business cycles.

The strength and stability of 3M’s business model and strong free cash flow capability, together with proven capital markets access, provide financial flexibility to deploy capital in accordance with the Company's stated priorities and meet needs associated with contractual commitments and other obligations.

Investing in 3M’s business to drive organic growth and deliver strong returns on invested capital remains the first priority for capital deployment.

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For those international earnings still considered to be reinvested indefinitely, the Company currently has no plans or intentions to repatriate these funds for U.S.

See Note 10 to the Consolidated Financial Statements in 3M’s 2021 Annual Report on Form 10-K for further information on earnings considered to be reinvested indefinitely.

See Note 10 to the Consolidated Financial Statements in 3M's Current Report on Form 8-K dated April 26, 2022 (which updated 3M’s 2021 Annual Report on Form 10-K) for further information on earnings considered to be reinvested indefinitely.

3M maintains a strong liquidity profile.

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3M’s commercial paper program permits the Company to have a maximum of $5 billion outstanding with a maximum maturity of 397 days from date of issuance.

The Company had no commercial paper outstanding at March 31, 2022 and December 31, 2021.

The Company had $350 million and no commercial paper outstanding at June 30, 2022 and December 31, 2021, respectively.

The strength of 3M’s credit profile and significant ongoing cash flows provide 3M proven access to capital markets.

Additionally, the Company’s debt maturity profile is staggered to help ensure refinancing needs in any given year are reasonable in proportion to the total portfolio.

3M currently has an A1 credit rating with a stable outlook from Moody’s Investors Service and an A+ credit rating with negative outlook from Standard and Poor’s.

The Company’s total debt was lower at March 31, 2022 when compared to December 31, 2021.

Decreases in debt were largely due to the February 2022 repayment of 500 million euros aggregate principal amount of fixed-rate medium-term notes.

As of July 2022, 3M has a credit rating of A1, stable outlook from Moody's Investors Service and a credit rating of A+, CreditWatch negative from S&P Global Ratings.

The Company’s total debt was lower at June 30, 2022 when compared to December 31, 2021.

Decreases in debt were largely due to the repayments of 500 million euros and $600 million aggregate principal amounts of fixed-rate medium-term notes in February 2022 and June 2022, respectively, offset by increases in commercial paper outstanding.

For discussion of repayments of and proceeds from debt refer to the following “Cash Flows from Financing Activities” section.

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In May 2016, in connection with the WKSI shelf, 3M entered into an amended and restated distribution agreement relating to the future issuance and sale (from time to time) of the Company’s medium-term notes program (Series F), up to the aggregate principal amount of $18 billion, which was an increase from the previous aggregate principal amount up to $9 billion of the same Series.

As of March 31, 2022, the total amount of debt issued as part of the medium-term notes program (Series F), inclusive of debt issued in February 2019 and prior years is approximately $17.6 billion (utilizing the foreign exchange rates applicable at the time of issuance for the euro denominated debt).

Information with respect to long-term debt issuances and maturities for the periods presented is included in Note 10 of this Form 10-Q and Note 12 to the Consolidated Financial Statements in 3M’s 2021 Annual Report on Form 10-K.

As of June 30, 2022, the total amount of debt issued as part of the medium-term notes program (Series F), inclusive of debt issued in February 2019 and prior years is approximately $17.6 billion (utilizing the foreign exchange rates applicable at the time of issuance for the euro denominated debt).

3M has an amended and restated $3.0 billion five-year revolving credit facility expiring in November 2024.

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The 364-day credit agreement includes a provision under which 3M may convert any advances outstanding on the maturity date into term loans having a maturity date one year later.

These credit facilities were undrawn at March 31, 2022.

These credit facilities were undrawn at June 30, 2022.

Under both the $3.0 billion and $1.25 billion credit agreements, the Company is required to maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not less than 3.0 to 1.

This is calculated (as defined in the agreement) as the ratio of consolidated total EBITDA for the four consecutive quarters then ended to total interest expense on all funded debt for the same period.

At March 31, 2022, this ratio was approximately 20 to 1.

At June 30, 2022, this ratio was approximately 15 to 1.

Debt covenants do not restrict the payment of dividends.

As disclosed in Note 12 to the Consolidated Financial Statements in 3M’s 2021 Annual Report on Form 10-K, 3M has a $1 billion debt financing commitment related to the intended Food Safety Division spin-off or split transaction.

Amounts outstanding under this facility have a term of 364 days following the borrowing date and are required to be repaid when certain conditions are met.

This commitment was undrawn at March 31, 2022.

The Company also had $286 million in stand-alone letters of credit and bank guarantees issued and outstanding at March 31, 2022.

As disclosed in Note 10, 3M has financing facilities that provide commitments of $650 million of term loans and $350 million of bridge financing along with $150 million of revolving credit related to the intended Food Safety Division split-off transaction.

Amounts outstanding under the term loan commitment are payable over five years following the closing date while those under the bridge financing facility have a term of 364 days following the borrowing date and are required to be repaid when certain conditions are met.

These commitments were undrawn at June 30, 2022.

The Company also had $321 million in stand-alone letters of credit and bank guarantees issued and outstanding at June 30, 2022.

These instruments are utilized in connection with normal business activities.

Cash, cash equivalents and marketable securities:

At March 31, 2022, 3M had $3.4 billion of cash, cash equivalents and marketable securities, of which approximately $3.0 billion was held by the Company’s foreign subsidiaries and approximately $0.4 billion was held in the United States.

At June 30, 2022, 3M had $3.0 billion of cash, cash equivalents and marketable securities, of which approximately $2.7 billion was held by the Company’s foreign subsidiaries and approximately $0.3 billion was held in the United States.

These balances are invested in bank instruments and other high-quality fixed income securities.

At December 31, 2021, 3M had $4.8 billion of cash, cash equivalents and marketable securities, of which approximately $3.1 billion was held by the Company’s foreign subsidiaries and $1.7 billion was held by the United States.

The decrease from December 31, 2021 primarily resulted from cash flow from operations offset by ongoing dividend payments, purchases of treasury stock, capital expenditures, and the Q1 2022 Eurobond maturity.

The decrease from December 31, 2021 primarily resulted from cash flow from operations and proceeds from commercial paper offset by ongoing dividend payments, purchases of treasury stock, capital expenditures, and the fixed-rate medium-term note maturities in the first six months of 2022.

Net Debt (non-GAAP measure):

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3M believes net debt is meaningful to investors as 3M considers net debt and its components to be important indicators of liquidity and financial position.

The following table provides net debt as of March 31, 2022 and December 31, 2021.

(Millions) March 31,

The following table provides net debt as of June 30, 2022 and December 31, 2021.

(Millions) June 30,

2022 December 31,

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Working capital (non-GAAP measure):

(Millions) March 31,

(Millions) June 30,

2022 December 31,

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Balance changes in current assets decreased working capital by $0.9 billion, driven largely by decreases in cash and cash equivalents .

Balance changes in current liabilities decreased working capital by $0.1 billion, primarily due to increases in current-portion of long-term debt and accounts payable.

Accounts receivable increased $155 million and inventory increased $305 million, respectively, from December 31, 2021, primarily as a result of increased sequential sales and related operating activity from that of late 2021 partially offset by foreign currency translation impacts.

Current portion of long-term debt increased as upcoming debt maturities now considered current were partially offset by the realized Eurobond maturity in the first quarter of 2022, while accounts payable also increased as a result of increased sequential operating activity from that of late 2021 partially offset by foreign currency translation impacts.

Balance changes in current liabilities decreased working capital by $0.9 billion, primarily due to increases in short-term borrowings and current-portion of long-term debt and accounts payable.

Accounts receivable increased $254 million and inventory increased $660 million, respectively, from December 31, 2021, primarily as a result of increased sequential sales and related operating activity partially offset by foreign currency translation impacts.

Current portion of long-term debt increased as upcoming debt maturities now considered current were partially offset by the bond maturities in the first six months of 2022, while accounts payable also increased as a result of increased sequential operating activity partially offset by foreign currency translation impacts.

Cash flows from operating, investing and financing activities are provided in the tables that follow.

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Cash Flows from Operating Activities:

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(Millions) 2022 2021

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Cash flows from operating activities can fluctuate significantly from period to period, as working capital movements, tax timing differences and other items can significantly impact cash flows.

In the first three months of 2022, cash flows provided by operating activities decreased $677 million compared to the same period last year, with this decrease primarily due to increased variable compensation and benefits costs and increased net costs for significant litigation.

The combination of accounts receivable, inventories and accounts payable decreased operating cash flow by $247 million in the first three months of 2022, compared to an operating cash flow decrease of $354 million in the first three months of 2021.

In the first six months of 2022, cash flows provided by operating activities decreased $1,437 million compared to the same period last year, with this decrease primarily due to increased variable compensation and benefits costs and increased net costs for significant litigation.

The combination of accounts receivable, inventories and accounts payable decreased operating cash flow by $893 million in the first six months of 2022, compared to an operating cash flow decrease of $570 million in the first six months of 2021.

Additional discussion on working capital changes is provided earlier in the “Financial Condition and Liquidity” section.

The 2022 second quarter pre-tax charge of approximately $1.2 billion related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14) largely impacted the 2022 net income component above, with offsets in the other-net and deferred tax elements..

Cash Flows from Investing Activities:

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(Millions) 2022 2021

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Cash Flows from Financing Activities:

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(Millions) 2022 2021

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Net cash provided by (used in) financing activities $ (3,102) $ (2,434)

Total debt was approximately $16.7 billion at March 31, 2022 and $17.4 billion at December 31, 2021.

Decreases in debt were largely due to the February 2022 repayment of 500 million euros aggregate principal amount of fixed-rate medium-term notes.

The Company had no commercial paper outstanding at March 31, 2022 and December 31, 2021.

Total debt was approximately $16.3 billion at June 30, 2022 and $17.4 billion at December 31, 2021.

The Company had $350 million and no commercial paper outstanding at June 30, 2022 and December 31, 2021, respectively.

In July 2022, 3M exchanged $350 million of commercial paper debt for obligations under $350 million of new debt securities due in 2030 that, in addition to obligations under certain other anticipated new debt, are intended to be assumed by Neogen Corporation in connection with the intended Food Safety Division split-off transaction expected to close in the third quarter of 2022 (see Note 3).

Net commercial paper issuances in addition to repayments and borrowings by international subsidiaries are largely reflected in “Change in short-term debt – net” in the preceding table.

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commercial paper issuances.

2021 issuances, maturities, and extinguishments of short-and long-term debt are described in Note 10 to the Consolidated Financial Statements in 3M’s 2021 Annual Report on Form 10-K.

2021 issuances, maturities, and extinguishments of short-and long-term debt are described in Note 10 to the Consolidated Financial Statements in 3M's Current Report on Form 8-K dated April 26, 2022 (which updated 3M’s 2021 Annual Report on Form 10-K).

Repurchases of common stock are made to support the Company’s stock-based employee compensation plans and for other corporate purposes.

In the first three months of 2022, the Company purchased $773 million of its own stock.

In the first six months of 2022, the Company purchased $773 million of its own stock.

For more information, refer to the table titled “Issuer Purchases of Equity Securities” in Part II, Item 2.

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This is equivalent to an annual dividend of $5.96 per share and marked the 64th consecutive year of dividend increases.

In May 2022, 3M's Board of Directors declared a second-quarter 2022 dividend of $1.49 per share.

Other cash flows from financing activities may include various other items, such as cash paid associated with certain derivative instruments, distributions to or sales of noncontrolling interests, changes in overdraft balances, and principal payments for finance leases.

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Refer to the preceding “Results of Operations” section for discussion of items that impacted the net income attributable to 3M component of the calculation of free cash flow conversion.

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(Millions) 2022 2021

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Free cash flow conversion 97 % 91 %

Material Cash Requirements from Known Contractual and Other Obligations:

See the Financial Condition and Liquidity - Material Cash Requirement from Known Contractual and Other Obligations section of Item 7 of 3M's Current Report on Form 8-K dated April 26, 2022 (which updated 3M’s 2021 Annual Report on Form 10-K).

Additionally, in July 2022, as discussed in Note 14 herein, in connection with steps toward resolving Combat Arms Earplugs litigation, 3M entered into an agreement and committed $1.0 billion to fund a trust to satisfy claims determined to be entitled to compensation and committed an additional $0.2 billion to fund projected related case expenses.

CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

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• asset impairments,

• tax liabilities and effects of changes in tax rates, laws or regulations, and

• tax liabilities and effects of changes in tax rates, laws or regulations,

• the proposed spin-off of the Company's Health Care business to establish two separate public companies,

• the voluntary chapter 11 proceedings initiated by the Company's Aearo Entities, and

• legal and regulatory proceedings, legal compliance risks (including third-party risks) with regards to environmental, product liability and other laws and regulations in the United States and other countries in which we operate.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis