3M CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of 3M’s financial statements with a narrative from the perspective of management. 3M’s MD&A is presented in the following sections: • Overview • Results of Operations • Performance by Business Segment • Financial Condition and Liquidity • Cautionary Note Concerning Factors That May Affect Future Results Forward-looking statements in Part I, Item 2 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to the section entitled “Cautionary Note Concerning Factors That May Affect Future Results” in Part I, Item 2 and the risk factors provided in Part II, Item 1A for discussion of these risks and uncertainties). OVERVIEW 3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. Effective in the first quarter of 2022, 3M made the following changes: • Changes in measure of segment operating performance used by 3M’s chief operating decision maker—impacting 3M’s disclosed measure of segment profit/loss (business segment operating income). See additional information in Note 16. 3M's disclosed disaggregated revenue was also updated as a result of the changes in segment reporting. See additional information in Note 2. • Changes to non-GAAP measures - certain amounts adjusted for special items. Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section below for additional information. Information provided herein reflects the impact of these changes for all periods presented. 3M manages its operations in four operating business segments: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. 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 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. Given the diversity of 3M’s businesses, some of the factors described in that Overview—Consideration of COVID-19 section have increased the demand for 3M products, while others have decreased demand or made it more difficult for 3M to serve customers. 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 nine months of 2022, 3M's costs for significant litigation (see Certain amounts adjusted for special items - (non-GAAP measures section below) totaled approximately $2.2 billion pre-tax and included, among things, pre-tax charges associated with steps toward resolving Combat Arms Earplugs litigation and associated with additional commitments to address PFAS-related matters at its Zwijndrecht, Belgium site (approximately $1.3 billion and $355 million, respectively, in the first nine months of 2022). These matters are further discussed in Note 14. In the third quarter of 2022, 3M also completed the split-off of its Food Safety Division business resulting in a pre-tax gain of $2.7 billion. See Certain amounts adjusted for special items - (non-GAAP measures) section below for additional discussion of these and other special items. 3M Belgium has experienced interruptions to portions of the manufacturing at its site in Zwijndrecht, Belgium, as more fully discussed in Note 14 . As discussed in Note 14, 3M Belgium received agreement with authorities in June 2022 to begin the process toward restarting operations at the Zwijndrecht facility. 3M Belgium has provided information required by the Flemish environmental authorities to receive agreement from the authorities to restart operations, and has done so for production or sampling purposes. Belgian government authorities continue to maintain oversight of these operations and compliance with applicable requirements. 57 Table of Contents 3M is also impacted by the Russia-Ukraine conflict. In light of a number of factors, 3M suspended operations of its subsidiaries in Russia in March 2022, the net sales of which were less than one percent of 3M’s consolidated net sales for 2021. Further, in September 2022, management committed to a plan to exit and dispose of the related net assets through an intended sale of the subsidiaries. The associated charge in the third quarter of 2022 related to this action is further discussed in Note 13. 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. Though 3M monitors relevant factors as well as options to mitigate potential impacts, it is not able to predict the extent to which these circumstances may have a material effect on 3M’s consolidated results of operations or financial condition. Relevant risk factors can be found in Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q. 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 and nine months ended September 30, 2022 and 2021. Three months ended September 30, 2022 Nine months ended September 30, 2022 Percent of net sales Earnings per diluted share Percent of net sales Earnings per diluted share Same period last year 20.0 % $ 2.45 21.5 % $ 7.81 Net costs for significant litigation 1.1 0.13 1.4 0.47 Same period last year, excluding special items 21.1 2.58 22.9 8.28 Increase/(decrease) due to: Total organic growth/productivity and other 2.9 0.41 1.1 0.53 Raw material impact (2.6) (0.31) (2.7) (0.97) Divestitures — (0.02) — (0.02) Foreign exchange impacts 0.1 (0.12) — (0.28) Other expense (income), net N/A — N/A (0.01) Income tax rate N/A 0.07 N/A 0.10 Shares of common stock outstanding N/A 0.08 N/A 0.19 Current period, excluding special items 21.5 2.69 21.3 7.82 Net costs for significant litigation (3.1) (0.37) (8.5) (3.10) Divestiture costs (0.1) (0.01) — (0.01) Gain on business divestitures 31.6 4.71 10.4 4.69 Divestiture-related restructuring actions (0.5) (0.05) (0.2) (0.06) Russia exit charges (1.2) (0.20) (0.4) (0.19) Total special items 26.7 4.08 1.3 1.33 Current period 48.2 % $ 6.77 22.6 % $ 9.15 58 Table of Contents The Company refers to various "adjusted" amounts or measures on an “adjusted basis”. These exclude special items. These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for special items - (non-GAAP measures) section below. A discussion related to the components of year-on-year changes in operating income margin and earnings per diluted share follows: Total organic growth/productivity and other: • For the third 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 0.3 percent and earnings per share by $0.07. ◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.48 to earnings per share and 3.2 percent to operating margins which was impacted by the following: ▪ Strong pricing, spending discipline and benefits from restructuring actions taken in 2021 ▪ Recovery of sales backlog in China from earlier 2022 COVID-related shutdowns ▪ Manufacturing headwinds from global supply chain challenges; geopolitical impacts due to the Russia/Ukraine conflict ▪ Increased investments in growth, productivity and sustainability • For the first nine 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 $0.19. ◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.72 to earnings per share and 1.4 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; geopolitical impacts due to the Russia/Ukraine conflict as well as the COVID-related shutdown in China, offset by China backlog recovery later in 2022 ▪ 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: • 3M continued to experience inflationary pressures with year-on-year increases in raw material and logistics costs. Divestitures: • Divestiture impact includes lost income from divested businesses and remaining stranded costs (net of transition arrangement income). 3M completed the split-off of the Food Safety business in September 2022 (discussed in Note 3). The impact also includes lost income from deconsolidation of the Aearo Entities in July 2022 (discussed in Note 14). Foreign exchange impacts • Foreign currency impacts (net of hedging) decreased operating income by approximately $88 million (or a decrease of pre-tax earnings by approximately $87 million) year-on-year for the third quarter of 2022 and decreased operating income by approximately $199 million (or a decrease of pre-tax earnings by approximately $208 million) year-on-year for the first nine months of 2022, primarily resulting from the strength of the U.S. dollar. These estimates include: (a) the effects of year-on-year changes in exchange rates on translating current period functional currency profits into U.S. dollars and on current period non-functional currency denominated purchases or transfers of goods between 3M operations, and (b) year-on-year changes in transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks. Other expense (income), net: • Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for the third quarter and first nine months of 2022. • Interest expense (net of interest income) decreased for the third quarter and first nine months of 2022 compared to the same period year-on-year. 59 Table of Contents Income tax rate: • Certain items above reflect specific income tax rates associated therewith. Overall, the effective tax rate for the third quarter of 2022 was 6.6 percent, a decrease from 18.4 percent in the prior year. The effective tax rate for the first nine months of 2022 was 9.5 percent, as compared to 18.8 percent in the prior year. The primary factor that decreased the Company's effective tax rate for third quarter 2022 was the tax efficient structure associated with the third quarter 2022 gain on split-off of the Food Safety business (see Note 3). The primary factors that decreased the Company's effective tax rate for the first nine months of 2022 were the tax efficient structure associated with the third quarter 2022 gain on split-off of the Food Safety business (see Note 3) and 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 third quarter and first nine months of 2022 was 16.2 percent and 17.9 percent, respectively, a decrease of 2.3 percentage points and a decrease of 1.1 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 third quarter and first nine months of 2022. Certain amounts adjusted for special items - (non-GAAP measures): In addition to reporting financial results in accordance with U.S. GAAP, 3M also provides non-GAAP measures that adjust for the impacts of special items. For the periods presented, special items include the items described below. 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. While the Company includes certain items in its measure of segment operating performance, it also considers these non-GAAP measures in evaluating and managing its operations. The Company believes that discussion of results adjusted for special items is useful to investors in understanding underlying business performance, while also providing additional transparency to the special items. Special items impacting operating income are reflected in Corporate and Unallocated, except as described below with respect to net costs for significant litigation. The determination of these items may not be comparable to similarly titled measures used by other companies. In the first quarter of 2022, the Company changed the extent of matters and charges/benefits it includes within special items with respect to net costs for significant litigation. Previously, 3M included net costs, when significant, associated with changes in accrued liabilities related to respirator mask/asbestos litigation and PFAS-related other environmental matters, along with the associated tax impacts. These non-GAAP measure changes involved including net costs for litigation related to 3M’s Combat Arms Earplugs, expanding net costs to include external legal fees and insurance recoveries associated with the applicable matters in addition to changes in accrued liabilities, and to include all such net costs for the applicable matters, not just when considered significant. Information provided herein reflects the impact of these changes for all periods presented. Special items for the periods presented include: Net costs for significant litigation: • These relate to 3M's respirator mask/asbestos, PFAS-related other environmental, and Combat Arms Earplugs matters (as discussed in Note 14). Net costs include the impacts of any changes in accrued liabilities, external legal fees, and insurance recoveries, along with associated tax impacts. Prior to initiating voluntary chapter 11 bankruptcy proceedings in July 2022, net costs related to Combat Arms Earplugs and Aearo-respirator mask/asbestos matters along with non-Aearo respirator mask/asbestos matters were reflected as special items in the Safety and Industrial business segment. During the bankruptcy period, net costs related to Combat Arms Earplugs and Aearo-respirator mask/asbestos matters are reflected as corporate special items in Corporate and Unallocated while those associated with non-Aearo respirator mask/asbestos matters continue to be reflected as special items in the Safety and Industrial business segment. Net costs associated with PFAS-related other environmental matters are primarily reflected as corporate special items in Corporate and Unallocated. Divestiture costs: • These include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture. Gain on business divestitures: • In the third quarter of 2022, 3M recorded a gain related to the split-off and combination of its Food Safety business with Neogen Corporation. Refer to Note 3 for further details. 60 Table of Contents Divestiture-related restructuring actions: • In the third quarter of 2022, following the split-off of the Food Safety business (see Note 3), management approved and committed to undertake certain restructuring actions addressing corporate functional costs across 3M in relation to the magnitude of amounts previously allocated to the divested business. Refer to Note 5 for further details. Russia exit charges: • In the third quarter of 2022, 3M recorded a charge primarily related to impairment of net assets in Russia in connection with management's committed exit and disposal plan. Refer to Note 13 for further details. 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 Attributable to 3M Earnings per Diluted Share Earnings per diluted share percent change Three months ended September 30, 2021 GAAP $ 562 18.7% $ 1,788 20.0 % $ 1,757 $ 324 18.4 % $ 1,434 $ 2.45 Adjustments for special items: Net costs for significant litigation 60 97 97 18 79 0.13 Three months ended September 30, 2021 adjusted amounts (non-GAAP measures) $ 622 20.7% $ 1,885 21.1 % $ 1,854 $ 342 18.5 % $ 1,513 $ 2.58 Three months ended September 30, 2022 GAAP $ 652 22.5% $ 4,156 48.2 % $ 4,132 $ 271 6.6 % $ 3,859 $ 6.77 177 % Adjustments for special items: Net costs for significant litigation 21 267 267 57 210 0.37 Divestiture costs — 6 6 2 4 0.01 Gain on business divestitures — (2,724) (2,724) (39) (2,685) (4.71) Divestiture-related restructuring actions — 41 41 9 32 0.05 Russia exit charges — 109 109 (2) 111 0.20 Total special items $ 21 $ (2,301) $ (2,301) $ 27 $ (2,328) (4.08) Three months ended September 30, 2022 adjusted amounts (non-GAAP measures) $ 673 23.2% $ 1,855 21.5 % $ 1,831 $ 298 16.2 % $ 1,531 $ 2.69 4 % 61 Table of Contents 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 Attributable to 3M Earnings per Diluted Share Earnings per diluted share percent change Nine months ended September 30, 2021 GAAP $ 1,976 21.6% $ 5,753 21.5 % $ 5,640 $ 1,058 18.8 % $ 4,582 $ 7.81 Adjustments for special items: Net costs for significant litigation 177 359 359 80 279 0.47 Nine months ended September 30, 2021 adjusted amounts (non-GAAP measures) $ 2,153 23.6% $ 6,112 22.9 % $ 5,999 $ 1,138 19.0 % $ 4,861 $ 8.28 Nine months ended September 30, 2022 GAAP $ 581 6.6% $ 5,907 22.6 % $ 5,795 $ 550 9.5 % $ 5,236 $ 9.15 17 % Adjustments for special items: Net costs for significant litigation 1,421 2,233 2,233 456 1,777 3.10 Divestiture costs — 6 6 2 4 0.01 Gain on business divestitures — (2,724) (2,724) (39) (2,685) (4.69) Divestiture-related restructuring actions — 41 41 9 32 0.06 Russia exit charges — 109 109 (2) 111 0.19 Total special items $ 1,421 $ (335) $ (335) $ 426 $ (761) $ (1.33) Nine months ended September 30, 2022 adjusted amounts (non-GAAP measures) $ 2,002 22.6% $ 5,572 21.3 % $ 5,460 $ 976 17.9 % $ 4,475 $ 7.82 (6) % 62 Table of Contents 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 nine months ended September 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 September 30, 2022 2021 % change (Dollars in millions) Net Sales Oper. Income (Loss) Net Sales Oper. Income (Loss) Net Sales Oper. Income (Loss) Business Segments Safety and Industrial $ 2,894 $ 652 $ 3,005 $ 562 (3.7) % 15.9 % Transportation and Electronics 2,239 474 2,327 435 (3.8) 9.1 Health Care 2,076 452 2,173 510 (4.4) (11.3) Consumer 1,409 299 1,434 308 (1.7) (3.0) Corporate and Unallocated 1 2,279 3 (27) Total Company $ 8,619 $ 4,156 $ 8,942 $ 1,788 (3.6) % 132.5 % Nine months ended September 30, 2022 2021 % change (Dollars in millions) Net Sales Oper. Income (Loss) Net Sales Oper. Income (Loss) Net Sales Oper. Income (Loss) Business Segments Safety and Industrial $ 8,869 $ 581 $ 9,133 $ 1,976 (2.9) % (70.6) % Transportation and Electronics 6,847 1,446 7,078 1,504 (3.3) % (3.8) % Health Care 6,379 1,394 6,407 1,522 (0.4) % (8.4) % Consumer 4,052 770 4,123 867 (1.7) % (11.2) % Corporate and Unallocated 3 1,716 2 (116) Total Company $ 26,150 $ 5,907 $ 26,743 $ 5,753 (2.2) % 2.7 % Three months ended September 30, 2022 Worldwide Sales Change By Business Segment Organic sales Acquisitions Divestitures Translation Total sales change Safety and Industrial 1.7 % — % — % (5.4) % (3.7) % Transportation and Electronics 3.0 — (0.8) (6.0) (3.8) Health Care 1.7 — (1.3) (4.8) (4.4) Consumer 1.5 — — (3.2) (1.7) Total Company 2.0 — (0.5) (5.1) (3.6) Nine months ended September 30, 2022 Worldwide Sales Change By Business Segment Organic sales Acquisitions Divestitures Translation Total sales change Safety and Industrial 1.0 % — % — % (3.9) % (2.9) % Transportation and Electronics 1.1 — (0.3) (4.1) (3.3) Health Care 3.7 — (0.5) (3.6) (0.4) Consumer 0.8 — — (2.5) (1.7) Total Company 1.6 — (0.2) (3.6) (2.2) 63 Table of Contents Sales by geographic area: Percent change information compares the three and nine months ended September 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 September 30, 2022 Americas Asia Pacific Europe, Middle East & Africa Other Unallocated Worldwide Net sales (millions) $ 4,741 $ 2,485 $ 1,393 $ — $ 8,619 % of worldwide sales 55.0 % 28.8 % 16.2 % 100.0 % Components of net sales change: Organic sales 2.3 2.8 (0.3) 2.0 Divestitures (0.7) (0.5) (0.2) (0.5) Translation (0.5) (8.3) (12.9) (5.1) Total sales change 1.1 % (6.0) % (13.4) % (3.6) % Nine months ended September 30, 2022 Americas Asia Pacific Europe, Middle East & Africa Other Unallocated Worldwide Net sales (millions) $ 13,930 $ 7,702 $ 4,518 $ — $ 26,150 % of worldwide sales 53.3 % 29.5 % 17.2 % 100.0 % Components of net sales change: Organic sales 2.8 1.3 (1.4) 1.6 Divestitures (0.2) (0.2) (0.1) (0.2) Translation (0.2) (5.6) (9.5) (3.6) Total sales change 2.4 % (4.5) % (11.0) % (2.2) % Additional information beyond what is included in the preceding tables are as follows: • For the third quarter of 2022, in the Americas geographic area, U.S. total sales was flat which included flat organic sales. Total sales in Mexico increased 8 percent which included increased organic sales of 14 percent. In Canada, total sales increased 10 percent which included increased organic sales of 14 percent. In Brazil, total sales increased 9 percent which included increased organic sales of 11 percent. In the Asia Pacific geographic area, China total sales increased 3 percent which included increased organic sales of 8 percent. In Japan, total sales decreased 17 percent which included flat organic sales. • For the first nine 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 10 percent which included increased organic sales of 12 percent. In Canada, total sales increased 15 percent which included increased organic sales of 17 percent. In Brazil, total sales increased 15 percent which included increased organic sales of 11 percent. In the Asia Pacific geographic area, China total sales decreased 3 percent which included decreased organic sales of 1 percent. In Japan, total sales decreased 11 percent which included increased organic sales of 2 percent. 64 Table of Contents Managing currency risks: The stronger U.S. dollar had a negative impact on sales in the third quarter and first nine months of 2022 compared to the same periods last year. Net of the Company’s hedging strategy, foreign currency negatively impacted earnings in the third quarter and first nine 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. 3M also uses financial hedges to mitigate currency risk. In the case of more liquid currencies, 3M hedges a portion of its aggregate exposure, using a 12, 24 or 36 month horizon, depending on the currency in question. For less liquid currencies, financial hedging is frequently more expensive with more limitations on tenor. Thus, this risk is largely managed via local operational actions using natural hedging tools as discussed above. In either case, 3M’s hedging approach is designed to mitigate a portion of foreign currency risk and reduce volatility, ultimately allowing time for 3M’s businesses to respond to changes in the marketplace. Financial condition: Refer to the section entitled “Financial Condition and Liquidity” later in MD&A for a discussion of items impacting cash flows. In November 2018, 3M’s Board of Directors replaced the Company’s February 2016 repurchase program with a new repurchase program. 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 nine months of 2022, the Company purchased $928 million of its own stock, compared to $1,261 million of stock purchases in the first nine months of 2021. As of September 30, 2022, approximately $4.7 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. In August 2022, 3M's Board of Directors declared a third-quarter dividend of $1.49 per share. 3M expects to contribute approximately $100 million to $200 million of cash to its global defined benefit pension and postretirement plans in 2022. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2022. RESULTS OF OPERATIONS Net Sales: Refer to the preceding “Overview” section and the “Performance by Business Segment” section later in MD&A for additional discussion of sales change. Operating Expenses: Three months ended September 30, Nine months ended September 30, (Percent of net sales) 2022 2021 Change 2022 2021 Change Cost of sales 54.9 % 54.3 % 0.6 % 56.0 % 52.7 % 3.3 % Selling, general and administrative expenses (SG&A) 23.1 20.3 2.8 26.4 20.1 6.3 Research, development and related expenses (R&D) 5.4 5.4 — 5.4 5.7 (0.3) Gain on business divestitures (31.6) — (31.6) (10.4) — (10.4) Operating income margin 48.2 % 20.0 % 28.2 % 22.6 % 21.5 % 1.1 % 3M expects global defined benefit pension and postretirement service cost expense in 2022 to decrease by approximately $68 million pre-tax when compared to 2021, which impacts cost of sales; selling, general and administrative expenses (SG&A); and research, development and related expenses (R&D). The year-on-year decrease in defined benefit pension and postretirement service cost expense for the third quarter and first nine months of 2022 was approximately $19 million and $53 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. 65 Table of Contents 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. Cost of Sales: Cost of sales, measured as a percent of sales, increased in the third quarter and first nine 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 shutdown of certain operations in Belgium and progress on restarting previously-idled operations, and investments in growth, productivity and sustainability. Selling, General and Administrative Expenses: SG&A, measured as a percent of sales, increased in the third quarter and first nine 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 and other subsequent impacts, costs related to exiting Russia (see Note 13), divestiture-related restructuring charges (see Note 5), 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, was flat in the third quarter and decreased in first nine 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. Gain on Business Divestitures: In the third quarter of 2022, 3M recorded a pre-tax gain of $2.7 billion ($2.7 billion after tax) related to the split-off and combination of its Food Safety business with Neogen Corporation. Refer to Note 3 for further details. Other Expense (Income), Net: See Note 6 for a detailed breakout of this line item. Interest expense (net of interest income) decreased in the third quarter of 2022 primarily due to prior period debt maturities and foreign exchange; net interest decreased in the first nine 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 $15 million and $40 million in the third quarter and first nine months of 2022, respectively, compared to the same period year-on-year. 66 Table of Contents Provision for Income Taxes: Three months ended September 30, Nine months ended September 30, (Percent of pre-tax income) 2022 2021 2022 2021 Effective tax rate 6.6 % 18.4 % 9.5 % 18.8 % The primary factor that decreased the Company's effective tax rate for third quarter 2022 was the tax efficient structure associated with the third quarter 2022 gain on split-off of the Food Safety business (see Note 3). The primary factors that decreased the Company's effective tax rate for the first nine months of 2022 were the tax efficient structure associated with the third quarter 2022 gain on split-off of the Food Safety business (see Note 3) and the tax impact associated with the second quarter 2022 charge related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14). The tax rate can vary from quarter to quarter due to discrete items, such as the settlement of income tax audits, changes in tax laws, and employee share-based payment accounting; as well as recurring factors, such as the geographic mix of income before taxes. Refer to Note 8 for further discussion of income taxes. Income from Unconsolidated Subsidiaries, Net of Taxes: Three months ended September 30, Nine months ended September 30, (Millions) 2022 2021 2022 2021 Income (loss) from unconsolidated subsidiaries, net of taxes $ 2 $ 4 $ 3 $ 7 Income (loss) from unconsolidated subsidiaries, net of taxes, is attributable to the Company’s accounting under the equity method for ownership interests in certain entities such as Kindeva following 3M's divestiture of the drug delivery business in 2020. Net Income (Loss) Attributable to Noncontrolling Interest: Three months ended September 30, Nine months ended September 30, (Millions) 2022 2021 2022 2021 Net income (loss) attributable to noncontrolling interest $ 4 $ 3 $ 12 $ 7 Net income (loss) attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M ownership interests in 3M consolidated entities. The primary noncontrolling interest relates to 3M India Limited, of which 3M’s effective ownership is 75 percent. Significant Accounting Policies: Information regarding new accounting standards is included in Note 1 to the Consolidated Financial Statements. PERFORMANCE BY BUSINESS SEGMENT Disclosures relating to 3M’s business segments are provided in Note 16. Effective in the first quarter of 2022, the measure of segment operating performance used by 3M’s chief operating decision maker (CODM) changed and, as a result, 3M’s disclosed measure of segment profit/loss (business segment operating income) was updated for all comparative periods presented. The change to business segment operating income aligns with the update to how the CODM assesses performance and allocates resources for the Company’s business segments (see Note 16 for additional details). Information provided herein reflects the impact of these changes for all periods presented. 3M manages its operations in four business segments. The reportable segments are Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. 67 Table of Contents Corporate and Unallocated: In addition to these four business segments, 3M assigns certain costs to “Corporate and Unallocated,” which is presented separately in the preceding business segments table and in Note 16. Corporate and Unallocated operating income includes “corporate special items” and “other corporate expense-net”. Corporate special items include net costs for significant litigation associated with Combat Arms Earplugs and Aearo-respirator mask/asbestos matters during the chapter 11 bankruptcy period (which began in July 2022) and with PFAS-related other environmental matters (see Note 14). Corporate special items also include divestiture costs, gain/loss on business divestitures (see Note 3), divestiture-related restructuring costs (see Note 5), and Russia exit costs (see Note 13). Divestiture costs include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture. Other corporate expense-net includes items such as net costs related to limited unallocated corporate staff and centrally managed material resource centers of expertise costs, corporate philanthropic activity, and other net costs that 3M may choose not to allocate directly to its business segments. Other corporate expense-net also includes costs and income from transition supply, manufacturing and service arrangements with Neogen Corporation following the split-off of 3M's Food Safety business in 2022 and with the acquirer of the former Drug Delivery business following its 2020 divestiture. Items classified as revenue from this activity are included in Corporate and Unallocated net sales. 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 decreased in the third quarter and first nine 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 special items and to Note 16 for addition information on the components of corporate special items. Corporate special item net costs decreased in the third quarter and first nine months of 2022 year over year primarily due to the gain on divestiture associated with the 2022 split-off of the Food Safety business (discussed in Note 3) partially offset by additional commitments in 2022 to address PFAS-related matters, including at 3M's Zwijndrecht, Belgium site (discussed in Note 14). Other Corporate Expense - Net Other corporate operating expenses, net, increased 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 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. 68 Table of Contents Safety and Industrial Business: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Sales (millions) $ 2,894 $ 3,005 $ 8,869 $ 9,133 Sales change analysis: Organic sales 1.7 % 1.0 % Translation (5.4) (3.9) Total sales change (3.7) % (2.9) % Business segment operating income (loss) (millions) $ 652 $ 562 $ 581 $ 1,976 Percent change 15.9 % (70.6) % Percent of sales 22.5 % 18.7 % 6.6 % 21.6 % Adjusted business segment operating income (millions) (non-GAAP measure) $ 673 $ 622 $ 2,002 $ 2,153 Percent change 8.2 % (7.0) % Percent of sales 23.2 % 20.7 % 22.6 % 23.6 % 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 (Aearo-related and non-Aearo related) and Combat Arms Earplugs litigation matters. During the Aearo chapter 11 bankruptcy period (which began in July 2022 — see Note 14), net costs related to Combat Arms Earplugs and Aearo-respirator mask/asbestos matters are reflected as corporate special items in Corporate and Unallocated while those associated with non-Aearo respirator mask/asbestos matters continue to be reflected as special items in the Safety and Industrial business segment. Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details. Third quarter 2022 results: Sales in Safety and Industrial were down 3.7 percent in U.S. dollars. On an organic sales basis: • Sales increased in automotive aftermarket, roofing granules, electrical markets, abrasives, closure and masking systems, and industrial adhesives and tapes and decreased in personal safety. • Growth from continued improving general industrial manufacturing activity, other end-market demand and backlog recovery from the 2022 second quarter COVID-related lockdowns in China were partially offset by the disposable respirator sales decline within personal safety, which negatively impacted year-on-year third quarter organic growth by 4.6 percentage points. Business segment operating income margins increased year-on-year from selling price actions, strong spending discipline and restructuring actions which more than offset increased raw materials and logistics costs and manufacturing productivity headwinds. Adjusting for special item costs for significant litigation (non-GAAP measure), business segment operating income margins increased year-on-year as displayed above. 69 Table of Contents First nine months 2022 results: Sales in Safety and Industrial were down 2.9 percent in U.S. dollars. On an organic sales basis: • Sales increased in abrasives, electrical markets, closure and masking systems, roofing granules, automotive aftermarket, and industrial adhesives and tapes 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 organic growth by 3.9 percentage points. 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 increased raw materials and logistics costs, manufacturing productivity headwinds, partially offset by selling price actions, spending discipline and 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. 70 Table of Contents Transportation and Electronics Business: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Sales (millions) $ 2,239 $ 2,327 $ 6,847 $ 7,078 Sales change analysis: Organic sales 3.0 % 1.1 % Divestitures (0.8) (0.3) Translation (6.0) (4.1) Total sales change (3.8) % (3.3) % Business segment operating income (millions) $ 474 $ 435 $ 1,446 $ 1,504 Percent change 9.1 % (3.8) % Percent of sales 21.2 % 18.7 % 21.1 % 21.2 % Third quarter 2022 results: Sales in Transportation and Electronics were down 3.8 percent in U.S. dollars. On an organic sales basis: • Sales increased in automotive and aerospace, commercial solutions, and advanced materials, and decreased in transportation safety and electronics. • Growth benefited from continued COVID-related backlog recovery in the greater China region which was partially offset by increased weakness in consumer electronics demand, along with the continued constraints in the semiconductor supply chain. Divestitures: • Divestiture impact relates to lost Transportation and Electronics sales year-on-year from deconsolidation of the Aearo Entities in July 2022. Business segment operating income margins increased year-on-year from selling price actions, strong spending discipline and restructuring actions which more than offset increased raw materials and logistics costs and manufacturing productivity headwinds. First nine months 2022 results: Sales in Transportation and Electronics were down 3.3 percent in U.S. dollars. On an organic sales basis: • Sales increased in commercial solutions, automotive and aerospace and advanced materials, and decreased in 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. Divestitures: • Divestiture impact relates to lost Transportation and Electronics sales year-on-year from deconsolidation of the Aearo Entities in July 2022. 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 shutdown of certain operations in Belgium and investments in auto electrification, partially offset by selling price actions, strong spending discipline and restructuring actions. 71 Table of Contents Health Care Business: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Sales (millions) $ 2,076 $ 2,173 $ 6,379 $ 6,407 Sales change analysis: Organic sales 1.7 % 3.7 % Divestitures (1.3) (0.5) Translation (4.8) (3.6) Total sales change (4.4) % (0.4) % Business segment operating income (millions) $ 452 $ 510 $ 1,394 $ 1,522 Percent change (11.3) % (8.4) % Percent of sales 21.8 % 23.5 % 21.9 % 23.8 % Third quarter 2022 results: Sales in Health Care were down 4.4 percent in U.S. dollars. On an organic sales basis: • Sales increased in medical solutions, food safety, separation and purification, and health information systems, and decreased in oral care. • Sales continue to be impacted by COVID-related trends on elective procedure volumes and ongoing inflationary pressures. Divestitures: • Divestiture impact relates to the lost sales year-on-year from the Food Safety Division split-off transaction in September 2022. Business segment operating income margins decreased year-on-year due to increased raw materials and logistics costs, manufacturing productivity headwinds, and investments in the business, partially offset by selling price actions, 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. First nine months 2022 results: Sales in Health Care were down 0.4 percent in U.S. dollars. On an organic sales basis: • Sales increased in separation and purification, medical solutions, food safety and health information systems, and decreased in oral care. • Sales continue to be impacted by COVID-related trends on elective procedure volumes and ongoing inflationary pressures. Divestitures: • Divestiture impact relates to the lost sales year-on-year from the divestiture from the Food Safety Division split-off transaction and combination with Neogen completed in the third quarter of 2022. 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 restructuring actions. 72 Table of Contents Consumer Business: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Sales (millions) $ 1,409 $ 1,434 $ 4,052 $ 4,123 Sales change analysis: Organic sales 1.5 % 0.8 % Translation (3.2) (2.5) Total sales change (1.7) % (1.7) % Business segment operating income (millions) $ 299 $ 308 $ 770 $ 867 Percent change (3.0) % (11.2) % Percent of sales 21.3 % 21.5 % 19.0 % 21.0 % Third quarter 2022 results: Sales in Consumer totaled were down 1.7 percent in U.S. dollars. On an organic sales basis: • Sales increased in consumer health and safety, stationery and office and home care and decreased in home improvement. • Sales decreases impacted by soft back-to-school season performance due to elevated inventory levels at retailers. Business segment operating income margins decreased year-on-year from increased raw materials, logistics and outsourced hardgoods manufacturing costs along with manufacturing productivity headwinds and investments in the business, partially offset by selling price actions, strong spending discipline and restructuring actions. First nine months 2022 results: Sales in Consumer totaled were down 1.7 percent in U.S. dollars. On an organic sales basis: • Sales increased in consumer health and safety, stationery and office, 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 Post-it® products. Business segment operating income margins decreased year-on-year as a result of increased raw materials, logistics and outsourced hardgoods manufacturing costs along with manufacturing productivity headwinds and investments in the business, partially offset by sales growth (including selling price actions), strong spending discipline and restructuring actions. 73 Table of Contents 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, 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. This includes research and development, capital expenditures, and commercialization capability. The Company also continues to actively manage its portfolio through acquisitions and divestitures to maximize value for shareholders. 3M expects to continue returning cash to shareholders through dividends and share repurchases. To fund cash needs in the United States, the Company relies on ongoing cash flow from U.S. operations, access to capital markets and repatriation of the earnings of its foreign affiliates that are not considered to be permanently reinvested. 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. operations. 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. The Company’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M believes it will have continuous access to the commercial paper market. 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 September 30, 2022 and December 31, 2021. Total debt: 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. As of September 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 September 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. For discussion of repayments of and proceeds from debt refer to the following “Cash Flows from Financing Activities” section. In July 2017, the United Kingdom’s Financial Conduct Authority announced that it would no longer require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021. In November 2020, the ICE Benchmark Administration (IBA), LIBOR’s administrator, proposed extending the publication of USD LIBOR through June 2023. Subsequently, in March of 2021, IBA ceased publication of certain LIBOR rates after December 31, 2021. USD LIBOR rates that did not cease on December 31, 2021 will continue to be published through June 30, 2023. The Company has reviewed its debt securities, bank facilities, and derivative instruments and continues to evaluate commercial contracts that may utilize LIBOR as the reference rate. 3M will continue its assessment and monitor regulatory developments during the transition period. Effective February 10, 2020, the Company updated its “well-known seasoned issuer” (WKSI) shelf registration statement, which registers an indeterminate amount of debt or equity securities for future issuance and sale. This replaced 3M’s previous shelf registration dated February 24, 2017. 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 September 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). 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 Current Report on Form 8-K dated April 26, 2022 (which updated 3M’s 2021 Annual Report on Form 10-K). 74 Table of Contents 3M has an amended and restated $3.0 billion five-year revolving credit facility expiring in November 2024. The revolving credit agreement includes a provision under which 3M may request an increase of up to $1.0 billion (at lender’s discretion), bringing the total facility up to $4.0 billion. In addition, 3M entered into a $1.25 billion 364-day credit facility, which was renewed in November 2021 with an expiration date of November 2022. 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 September 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 September 30, 2022, this ratio was approximately 21 to 1. Debt covenants do not restrict the payment of dividends. As disclosed in Note 10, 3M had debt financing facilities providing commitments for term loans and potential bridge financing aggregating $1.0 billion related to the Food Safety Division split-off transaction and combination with Neogen (discussed in Note 3). The debt commitments also included a $150 million revolving credit facility for the Food Safety business. Coincident with completion of the September 2022 split-off, the Food Safety business term loan borrowings funded the cash payment to 3M discussed in Note 3. The bridge financing component of these facilities was terminated early and not utilized. Obligations under the commitments (including the $150 million revolving credit facility) transferred with the Food Safety business and became those of Neogen. The Company also had $314 million in stand-alone letters of credit and bank guarantees issued and outstanding at September 30, 2022. These instruments are utilized in connection with normal business activities. Cash, cash equivalents and marketable securities: At September 30, 2022, 3M had $3.6 billion of cash, cash equivalents and marketable securities, of which approximately $2.9 billion was held by the Company’s foreign subsidiaries and approximately $0.7 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 and cash consideration and earlier borrowings related to the Food Safety transaction (see Note 3) offset by ongoing dividend payments, purchases of treasury stock, capital expenditures, and the fixed-rate medium-term note maturities in the first nine months of 2022. Net Debt (non-GAAP measure): Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 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 September 30, 2022 and December 31, 2021. (Millions) September 30, 2022 December 31, 2021 Change Total debt $ 15,705 $ 17,363 $ (1,658) Less: Cash, cash equivalents and marketable securities 3,616 4,792 (1,176) Net debt (non-GAAP measure) $ 12,089 $ 12,571 $ (482) Refer to the preceding “Total Debt” and “Cash, Cash Equivalents and Marketable Securities” sections for additional details. Balance Sheet: 3M’s strong balance sheet and liquidity provide the Company with significant flexibility to fund its numerous opportunities going forward. The Company will continue to invest in its operations to drive growth, including continual review of acquisition opportunities. The Company uses working capital measures that place emphasis and focus on certain working capital assets, such as accounts receivable and inventory activity. 75 Table of Contents Working capital (non-GAAP measure): (Millions) September 30, 2022 December 31, 2021 Change Current assets $ 14,895 $ 15,403 $ (508) Less: Current liabilities 9,543 9,035 508 Working capital (non-GAAP measure) $ 5,352 $ 6,368 $ (1,016) Various assets and liabilities, including cash and short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. Working capital is not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. The Company defines working capital as current assets minus current liabilities. 3M believes working capital is meaningful to investors as a measure of operational efficiency and short-term financial health. Working capital decreased $1.0 billion compared with December 31, 2021. Balance changes in current assets decreased working capital by $0.5 billion, driven largely by decreases in cash and cash equivalents. Balance changes in current liabilities decreased working capital by $0.5 billion, primarily due to increases in short-term borrowings and current-portion of long-term debt and accounts payable. Inventory increased $630 million from December 31, 2021, primarily as a result of increased underlying 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 nine 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: Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in the Consolidated Statement of Cash Flows exclude the effects of acquisitions, divestitures and exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects. Cash Flows from Operating Activities: Nine months ended September 30, (Millions) 2022 2021 Net income including noncontrolling interest $ 5,248 $ 4,589 Depreciation and amortization 1,371 1,408 Company pension and postretirement contributions (102) (121) Company pension and postretirement expense 124 137 Stock-based compensation expense 226 227 Gain on business divestitures (2,724) — Income taxes (deferred and accrued income taxes) (506) (196) Accounts receivable (467) (324) Inventories (1,018) (823) Accounts payable 175 340 Other — net 1,342 212 Net cash provided by (used in) operating activities $ 3,669 $ 5,449 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. 76 Table of Contents In the first nine months of 2022, cash flows provided by operating activities decreased $1,780 million compared to the same period last year, with this decrease primarily due to increased variable compensation and benefits costs, increased payments related to net costs for significant litigation and the cash impact from capitalization of R&D for U.S. tax purposes. The combination of accounts receivable, inventories and accounts payable decreased operating cash flow by $1,310 million in the first nine months of 2022, compared to an operating cash flow decrease of $807 million in the first nine 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: Nine months ended September 30, (Millions) 2022 2021 Purchases of property, plant and equipment (PP&E) $ (1,243) $ (1,047) Proceeds from sale of PP&E and other assets 65 44 Purchases and proceeds from maturities and sale of marketable securities and investments, net 28 (447) Proceeds from sale of businesses, net of cash sold 13 — Cash payment from Food Safety business split-off, net of divested cash 478 — Other — net 1 18 Net cash provided by (used in) investing activities $ (658) $ (1,432) Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. The Company expects 2022 capital spending to be approximately $1.75 billion to $1.85 billion as 3M continues to invest in growth, productivity and sustainability. 3M records capital-related government grants earned as reductions to the cost of property, plant and equipment; and associated unpaid liabilities and grant proceeds receivable are considered non-cash changes in such balances for purposes of preparation of statement of cash flows. 3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance. Costs related to maintenance, ordinary repairs, and certain other items are expensed. 3M also invests in growth, which adds to capacity, driven by new products, both through expansion of current facilities and new facilities. Finally, 3M also invests in other initiatives, such as information technology (IT), laboratory facilities, and a continued focus on investments in sustainability. Refer to Note 3 for information on acquisitions and divestitures (including the cash payment from the Food Safety business split-off). The Company is actively considering additional acquisitions, investments and strategic alliances, and from time to time may also divest certain businesses. Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and investments are primarily attributable to certificates of deposit/time deposits, commercial paper, and other securities, which are classified as available-for-sale. Refer to Note 9 for more details about 3M’s diversified marketable securities portfolio. Purchases of investments include additional survivor benefit insurance, plus investments in equity securities. 77 Table of Contents Cash Flows from Financing Activities: Nine months ended September 30, (Millions) 2022 2021 Change in short-term debt — net $ 340 $ 4 Repayment of debt (maturities greater than 90 days) (1,179) (450) Proceeds from debt (maturities greater than 90 days) 1 1 Total cash change in debt (838) (445) Purchases of treasury stock (928) (1,261) Proceeds from issuances of treasury stock pursuant to stock option and benefit plans 310 566 Dividends paid to shareholders (2,550) (2,572) Other — net (29) (21) Net cash provided by (used in) financing activities $ (4,035) $ (3,733) Total debt was approximately $15.7 billion at September 30, 2022 and $17.4 billion at 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. The Company had no commercial paper outstanding at September 30, 2022 and December 31, 2021. In conjunction with the Food Safety Division split-off transaction and combination with Neogen (discussed in Note 3), the associated non-cash debt-for-debt exchange in the third quarter of 2022 reduced, then-outstanding 3M commercial paper indebtedness of $350 million (borrowed earlier in the year) which became new term-debt obligations of Neogen. 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. 3M’s primary short-term liquidity needs are met through cash on hand and U.S. 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 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 nine months of 2022, the Company purchased $928 million of its own stock. For more information, refer to the table titled “Issuer Purchases of Equity Securities” in Part II, Item 2. The Company does not utilize derivative instruments linked to the Company’s stock. 3M has paid dividends since 1916. 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 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. In August 2022, 3M's Board of Directors declared a third-quarter 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. Free Cash Flow (non-GAAP measure): Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flow conversion are meaningful to investors as they are useful measures of performance and the Company uses these measures as an indication of the strength of the company and its ability to generate cash. Free cash flow and free cash flow conversion vary across quarters throughout the year. Below find a recap of free cash flow and free cash flow conversion. 78 Table of Contents Refer to the preceding “Cash Flows from Operating Activities” and “Cash Flows from Investing Activities” sections for discussion of items that impacted the operating cash flow and purchases of PP&E components of the calculation of free cash flow. 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. Nine months ended September 30, (Millions) 2022 2021 Major GAAP Cash Flow Categories Net cash provided by (used in) operating activities $ 3,669 $ 5,449 Net cash provided by (used in) investing activities (658) (1,432) Net cash provided by (used in) financing activities (4,035) (3,733) Free Cash Flow (non-GAAP measure) Net cash provided by (used in) operating activities $ 3,669 $ 5,449 Purchases of property, plant and equipment (1,243) (1,047) Free cash flow 2,426 4,402 Net income attributable to 3M $ 5,236 $ 4,582 Free cash flow conversion 46 % 96 % 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. 79 Table of Contents CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to shareholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements. Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” “forecast” and other words and terms of similar meaning, typically identify such forward-looking statements. In particular, these include, among others, statements relating to: • worldwide economic, political, regulatory, international trade, capital markets and other external conditions, such as interest rates, financial conditions of our suppliers and customers, trade restrictions such as tariffs in addition to retaliatory counter measures, inflation, military conflicts, and natural and other disasters or climate change affecting the operations of the Company or our suppliers and customers, • risks related to public health crises such as the global pandemic associated with the coronavirus (COVID-19), • liabilities related to certain fluorochemicals and the outcome of contingencies, • the Company’s strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position, • competitive conditions and customer preferences, • foreign currency exchange rates and fluctuations in those rates, • new business opportunities, product development, and future performance or results of current or anticipated products, • fluctuations in the costs and availability of purchased components, compounds, raw materials and energy, • Information technology systems including ERP system roll-out and implementations, • Security breaches and other disruptions to information technology infrastructure, • the scope, nature or impact of acquisition, strategic alliance and divestiture activities, • operational execution, including inability to generate productivity improvements as estimated, • future levels of indebtedness, common stock repurchases and capital spending, • future availability of and access to credit markets, • pension and postretirement obligation assumptions and future contributions, • asset impairments, • 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. The Company assumes no obligation to update or revise any forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those reflected in any such forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this document, including, among others, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings of “Overview,” “Financial Condition and Liquidity” and annually in “Critical Accounting Estimates.” Discussion of these factors is incorporated by reference from Part II, Item 1A, “Risk Factors,” of this document, and should be considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 10-K, 10-Q and 8-K filed with the SEC from time to time. 80 Table of Contents