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Item 7. Management’s Discussion and Analysis

2023-02-08 compared with 2022-02-09 · 341 added, 367 removed, 481 unchanged (60% of the section changed)

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Forward-looking statements in Item 7 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 Item 1 and the risk factors provided in Item 1A for discussion of these risks and uncertainties).

Additional information about results of operations and financial condition for 2020 and 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Additional information about results of operations and financial condition for 2021 and 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in 3M's Current Report on Form 8-K dated April 26, 2022 (which updated 3M's 2021 Annual Report on Form 10-K).

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:

Information provided herein reflects the impact of these changes for all periods presented.

• Change in accounting principle for net periodic pension and postretirement plan cost.

See detailed discussion in Note 1.

• Change 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).

• 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 19.

• Change in alignment of certain products within 3M’s Consumer business segment—creating the Consumer Health and Safety Division.

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:

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

References are made to organic sales (which include both organic volume impacts and selling price impacts) that is defined as the change in net sales, absent the separate impacts on sales from foreign currency translation and acquisitions, net of divestitures.

References are made to organic sales change (which include both organic volume impacts and selling price impacts), which is defined as the change in net sales, absent the separate impacts on sales from foreign currency translation and acquisitions, net of divestitures.

Acquisition and divestiture sales change impacts, if any, are measured separately for the first twelve months post-transaction.

3M believes this information is useful to investors and management in understanding ongoing operations and in analysis of ongoing operating trends.

Consideration of COVID-19:

3M is impacted by the global pandemic and related effects associated with the coronavirus (COVID-19).

Risk factors with respect to COVID-19 can be found in Item 1A “Risk Factors” in this document.

Given the diversity of 3M’s businesses, some of the factors relative to COVID-19 have increased the demand for 3M products, while others have decreased demand or made it more difficult for 3M to serve customers.

Overall, 3M experienced broad-based organic growth across business segments and all geographies in 2021 despite global supply challenges.

3M’s total sales increased 9.9% for the full year 2021 when compared to 2020.

Organic sales increased 8.8% for the full year 2021 when compared to 2020.

In 2021, COVID-related respirator sales negatively impacted year-on-year organic sales growth by approximately 0.2% as they grew at a slower rate than the rest of the Company.

Given the diversity of 3M's businesses, the impact of COVID-19 varied across the Company.

In 2020, 3M experienced strong sales in personal safety, as well as in other areas such as home improvement, general cleaning, semiconductor, data center, and biopharma filtration while businesses aligned to general industrial applications with strength in abrasives and industrial adhesives and tapes.

At the same time, weakness in several end markets, while improving, contributed in part to sales declines in a number of 3M's businesses such as oral care, automotive and aerospace, advanced materials, commercial solutions, stationery and office,

automotive aftermarket.

Refer to the Performance by Business Segment section later in MD&A for additional discussion of sales by segment.

3M’s operating income margins decreased 1.5 percentage points year-on-year for the year ending December 31, 2021.

Factoring out the impact on operating income of special items as described in the Certain amounts adjusted for special items -(non-GAAP measures) section below, operating income margins decreased 0.5 percentage points to 20.8 percent for the year ending December 31, 2021 when compared to 2020.

Various COVID-19 implications contributed in part to these results.

Given the diversity of 3M’s businesses, some of the factors relative to COVID-19 increase the demand for 3M products, while others decrease demand or make it more difficult for 3M to serve customers.

Certain resulting impacts are referenced in various discussions within this Item 7.

Overall, the impact of the COVID-19 pandemic on 3M’s consolidated results of operations was primarily driven by factors related to changes in demand for products and disruption in global supply chains.

While it is not feasible to identify or quantify all the other direct and indirect implications on 3M’s results of operations, below are factors that 3M believes have also affected its 2021 results when compared to 2020:

Factors contributing to charges or other impacts:

• Increased raw materials and logistics costs from ongoing COVID-19 related global supply chain challenges further magnified by extreme weather events, such as February 2021 winter storm Uri in the United States.

• Cost management in discretionary spending in areas such as travel, professional services, and advertising/merchandising resulting in lower spending in 2020.

• Government-sponsored COVID-response stimulus and relief initiatives in 2020, including certain employee retention benefits under the Coronavirus Aid, Relief and Economic Security (CARES) Act in the United States.

• Lower incentive compensation and self-insured medical visit/insurance expense in 2020.

Factors providing benefits or other impacts:

• Continued productivity efforts, including year-on-year savings from restructuring actions taken in 2020 and 2021.

• Period expenses of unabsorbed manufacturing costs and increased expected credit losses on customer receivables in 2020.

• Restructuring actions addressing structural enterprise costs and operations in certain end markets as a result of the COVID-19 pandemic and related economic impact resulting in a 2020 charge of $58 million.

• Committed financial support in 2020 to various COVID-relief and medical research initiatives.

• Charge of $22 million in 2020 related to equity securities as discussed in the “Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis” section of Note 15 that use the measurement alternative described therein in addition to an immaterial pre-tax charge related to impairment of certain indefinite lived tradenames.

Refer to the Financial Condition and Liquidity section below for more information on the Company’s liquidity position.

Due to the speed with which the COVID-19 situation is developing and evolving 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.

3M is not able to predict the extent to which the COVID-19 pandemic may have a material effect on its consolidated results of operations or financial condition.

In 2022, 3M's costs for significant litigation (see Certain amounts adjusted for special items - (non-GAAP measures section below) totaled approximately $2.3 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 2022).

These matters are further discussed in Note 16.

In 2022, 3M also completed the split-off of its Food Safety Division business resulting in a pre-tax gain of $2.7 billion and committed to a plan to exit PFAS manufacturing by the end of 2025 resulting in a 2022 pre-tax charge of $0.8 billion related to impairment as discussed in Note 15.

See Certain amounts adjusted for special items - (non-GAAP measures) section below for additional discussion of these and other special items.

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3M Belgium has experienced interruptions to portions of the manufacturing at its site in Zwijndrecht, Belgium, as more fully discussed in Note 16.

As discussed in Note 16, 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.

In December 2022, 3M Belgium received an official infraction report from the Flemish Environmental Inspectorate and continues to work with the government authorities to comply with applicable legal requirements.

See further discussion in Note 16.

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 2022 related to this action is further discussed in Note 15.

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 Annual Report on Form 10-K.

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

The following table provides the increase (decrease) in operating income margins and diluted earnings per share for 2021 compared to the same period last year, in addition to 2020 compared to 2019.

As applicable, certain items in the table reflect specific income tax rates associated therewith.

Percent of net sales Earnings per diluted share

The following table provides the increases (decreases) in operating income margins and diluted earnings per share.

Year ended December 31,

Percent of net sales Earnings per diluted share Percent of net sales Earnings per diluted share

Same period last year 20.8 % $ 10.12 22.3 % $ 9.36

Significant litigation-related charges/benefits — 2.4 (0.07) 1.01

Gain/loss on sale of businesses (1.2) (0.4) (0.52) (0.22)

Net costs for significant litigation 1.4 0.61 1.0 0.37

Gain on business divestitures — — (1.2) (0.52)

Divestiture-related restructuring actions — — 0.2 0.08

Loss on deconsolidation of Venezuelan subsidiary N/A N/A — 0.28

Total special items 1.4 0.61 — (0.07)

Same period last year, excluding special items 22.2 10.73 22.3 9.29

Increase/(decrease) due to:

Organic growth/productivity and other 0.3 — 0.89 (0.27)

Selling price and raw material impact (0.8) 0.7 (0.27) 0.36

Acquisitions/divestitures — (0.5) (0.05) (0.10)

Total organic growth/productivity and other 1.0 0.56 0.7 1.07

Raw material impact (2.4) (1.13) (0.8) (0.27)

Divestitures — (0.05) — (0.05)

Foreign exchange impacts — (0.39) — 0.16

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Current period, excluding special items 20.8 10.10 22.2 10.73

Significant litigation-related charges/benefits — — — 0.07

Gain/loss on sale of businesses — 1.2 — 0.52

Net costs for significant litigation (6.7) (3.20) (1.4) (0.61)

Divestiture costs (0.2) (0.08) — —

Gain on business divestitures 8.0 4.73 — —

Divestiture-related restructuring actions (0.1) (0.05) — —

Russia exit charges (0.3) (0.20) — —

PFAS manufacturing exit costs (2.4) (1.12) — —

Total special items (1.7) 0.08 (1.4) (0.61)

Current period 19.1 % $ 10.18 20.8 % $ 10.12

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A discussion related to the components of year-on-year changes in operating income margin and earnings per diluted share follows:

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Organic growth/productivity and other:

• In 2021, organic volume growth and ongoing cost management offset by manufacturing headwinds from global supply chain challenges, increased compensation/benefit costs, and increased litigation-related costs increased operating income margins and earnings per diluted share year-on-year.

• In 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 $0.29.

• Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.85 to earnings per share and 1.3 percent to operating margins which was impacted by the following:

◦ Benefits from strong pricing, spending discipline and 2021 restructuring actions

◦ Manufacturing headwinds from global supply chain challenges;

geopolitical impacts due to the Russia/Ukraine conflict as well as ongoing COVID-related challenges 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

• In 2021, organic volume growth and ongoing cost management increased operating income margins and earnings per diluted share year-on-year offset by manufacturing headwinds from global supply chain challenges and increased compensation/benefit costs.

The following also impacted results or provide additional information:

• 2021 benefit of $91 million pre-tax ($0.12 per share after tax) from a favorable Brazilian Supreme Court decision that concluded on the impact of state value-added tax when determining Brazil’s federal sales-based social tax—essentially lowering the social tax that 3M should have paid in prior periods.

• Certain changes in legal reserve charges year-over-year.

3M regularly reviews and updates its associated liabilities and is involved in various trials and defense preparation as discussed in Note 16.

• 3M continued prioritization of investments in growth and sustainability.

• 2021 benefit from restructuring actions taken in 2020 and positive/negative impact of year-over-year change in non-divestiture-related restructuring charges, net of adjustments, for respective periods.

• 2021 benefit from higher selling prices, restructuring actions taken in 2020 and positive/negative impact of year-over-year change in non-divestiture-related restructuring charges, net of adjustments, for respective periods.

Note 5 provides additional information relative to restructuring actions.

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• COVID-impacts recognized on certain assets in 2020.

• In 2020, lower organic volume growth as a result of significant COVID-19 related impacts, in addition to COVID-related net factors described in the preceding Overview—Consideration of COVID-19 section, decreased both earnings per diluted share and operating income margin year-on-year.

3M also experienced year-over-year increased costs as a result of the regular review of its respirator mask liabilities and certain follow-on accelerated depreciation

following some of the restructuring in 2019 and 2020.

Partially offsetting these increased costs were year-on-year net gains related to certain property sales (in 2020 within Safety and Industrial and in 2019 within Corporate and Unallocated), lower non divestiture-related restructuring charges year-on-year, in addition to benefits recognized in 2020 related to the restructuring and other actions taken in 2019 (and the adjustments thereto in 2020) along with continued cost management and productivity efforts.

• On a combined basis, higher defined benefit pension and postretirement service cost increased expense year-on-year for both 2021 and 2020.

Selling price and raw material impact:

• In 2021, 3M experienced higher raw material, logistics, and outsourced manufacturing costs from strong end-market demand and ongoing COVID-19 and related global supply chain challenges that were further magnified by extreme weather events, such as February 2021 winter storm Uri in the U.S.

These factors were partially offset by higher selling prices in 2021.

• In 2020, higher selling prices in addition to lower raw material cost impacts benefited operating income margins year-on-year

• In 2021, higher defined benefit pension and postretirement service cost increased expense year-on-year.

Raw material impact:

• In 2022, 3M continued to experience inflationary pressures with year-on-year increases in raw material and logistics costs driven by many geopolitical, logistics, and disruptive events that caused imbalance in the global supply chain.

• In 2021, 3M experienced higher raw material, logistics, and outsourced manufacturing costs from strong end-market demand, ongoing COVID-19 and related global supply chain challenges that were further magnified by extreme weather events, such as February 2021 winter storm Uri in the U.S.

Acquisitions/divestitures:

• Divestiture impacts in 2021 and 2020 are primarily comprised of the lost income from the divestiture of the Company’s drug delivery business (sale completed in May 2020).

• Acquisition impacts, which are measured for the first twelve months post-transaction, relate to the acquisitions of M*Modal (first quarter 2019), and Acelity (fourth quarter 2019).

The net impacts related to these acquisitions included income from operations, more than offset by transaction and integration costs.

Financing costs related to these acquisitions is also included.

• Divestiture impacts in 2022 include 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 16).

• Divestiture impacts in 2021 are primarily comprised of the lost income from the divestiture of the Company’s drug delivery business (sale completed in May 2020).

Foreign exchange impacts:

• Foreign currency impacts (net of hedging) increased operating income by approximately $103 million and decreased operating income by approximately $62 million (or an increase in pre-tax earnings of approximately $119 million and a decrease in pre-tax earnings of approximately $57 million) year-on-year for 2021 and 2020, respectively.

• Foreign currency impacts (net of hedging) decreased operating income by approximately $271 million and $103 million (or a decrease in pre-tax earnings of approximately $280 million and $119 million) year-on-year for 2022 and 2021, respectively.

These estimates include:

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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.

Prior to 2021, for (a) 3M used prior year functional currency profits and non-functional currency purchase/transfer information as the base in determining these amounts.

Comparative prior period amounts have been updated to reflect this updated methodology.

Other expense (income), net:

• Higher income related to non-service cost components of pension and postretirement expense decreased expense year-on-year for both 2021 and 2020.

• Interest expense (net of interest income) decreased in 2021 compared to the same periods year-on-year.

2021 interest expense also included an early debt extinguishment pre-tax charge in the first quarter of 2021.

• Interest expense (net of interest income) increased in 2020, as a result of higher U.S.

average debt balances and lower year-on-year interest income driven by lower average interest rates on cash balances.

2020 interest expense also included an early debt extinguishment charge in conjunction with the repayment of notes in December 2020.

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

Higher income related to non-service cost components of pension and postretirement expense decreased expense year-on-year for 2021.

• Interest expense (net of interest income) decreased in 2022 compared to the same period year-on-year driven by debt maturities in the ordinary course and interest income on invested cash.

• Interest expense (net of interest income) decreased in 2021 compared to the same period year-on-year due in part to interest expense savings from early debt extinguishment actions in 2020.

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Income tax rate :

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Overall, the effective tax rates for 2022, 2021, and 2020 were 9.6 percent, 17.8 percent, and 19.7 percent, respectively.

These reflect a decrease of 1.9 percentage points from 2020 to 2021 and a flat comparison from 2019 to 2020.

• On an adjusted basis (as discussed below), the effective tax rates for 2021, 2020, and 2019 were 17.8 percent, 20.3 percent, and 20.2 percent, respectively.

These reflect a decrease of 2.5 percentage points from 2020 to 2021 and an increase of 0.1 percentage points from 2019 to 2020.

These reflect a decrease of 8.2 percentage points from 2021 to 2022 and a decrease of 1.9 percentage points from 2020 to 2021.

The primary factors that decreased the Company's effective tax rate for 2022 were the tax efficient structure associated with the gain on split-off of the Food Safety business (see Note 3).

The primary factors that decreased the Company's effective tax rate in 2021 were geographical income mix and favorable adjustments in 2021 related to impacts of U.S.

international tax provisions.

Refer to Note 10 for additional details.

• On an adjusted basis (as discussed below), the effective tax rates for 2022, 2021, and 2020 were 17.7 percent, 18.1 percent, and 20.5 percent, respectively.

These reflect a decrease of 0.4 percent percentage points from 2021 to 2022 and a decrease of 2.4 percentage points from 2020 to 2021.

Shares of common stock outstanding:

• Higher shares outstanding decreased earnings per share per diluted share for 2021, while lower shares outstanding increased earnings per share diluted share for 2020.

• Lower shares outstanding increased earnings per share per diluted share for 2022, while higher shares outstanding decreased earnings per share diluted share for 2021.

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

In addition to reporting financial results in accordance with U.S.

GAAP, the Company also provides non-GAAP measures that adjust for the impacts of special items.

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 (measure of segment operating performance), 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.

The Company considers these non-GAAP measures in evaluating and managing the Company’s operations.

The Company believes that discussion of results adjusted for these items is meaningful to investors as it provides a useful analysis of ongoing underlying operating trends.

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 and PFAS manufacturing exit costs.

The determination of these items may not be comparable to similarly titled measures used by other companies.

Special items include:

Significant litigation-related charges/benefits:

• In 2020, 3M recorded a net pre-tax charge of $17 million ($13 million after tax) related to PFAS (certain perfluorinated compounds) matters.

The charge was more than offset by a reduction in tax expense of $52 million related to resolution of tax treatment with authorities regarding the previously disclosed 2018 agreement reached with the State of Minnesota that resolved the Natural Resources Damages lawsuit.

These items, in aggregate, resulted in a $39 million after tax benefit.

• In 2019, the Company recorded significant litigation-related charges of $762 million ($590 million after tax) related to PFAS matters ($449 million pre-tax) and coal mine dust respirator mask lawsuits ($313 million pre-tax).

These charges are further discussed in Note 16.

Gain/loss on sale of businesses:

• In 2020, 3M recorded a pre-tax gain of $2 million ($1 million loss after tax) related to the sale of its advanced ballistic-protection business and recognition of certain contingent consideration and a pre-tax gain of $387 million ($304 million after tax) related to the sale of its drug delivery business.

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 16).

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.

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Gain on business divestitures:

• In 2022, 3M recorded a gain related to the split-off and combination of its Food Safety business with Neogen Corporation.

In 2020, 3M recorded a gain primarily related to the divestiture of its Drug Delivery business.

Refer to Note 3 for further details.

• In the first quarter of 2019, 3M recorded a gain related to the sale of certain oral care technology comprising a business in addition to reflecting an earnout on a previous divestiture, which together resulted in a net gain of $8 million ($7 million after tax).

In the second quarter of 2019, as a result of a “held for sale” tax benefit related to the legal entities associated with the pending divestiture of the Company’s gas and flame detection business, 3M recorded an after-tax gain of $43 million.

In the third quarter of 2019, 3M recorded a gain related to the divestiture of the Company’s gas and flame detection business and an immaterial impact as a result of measuring a disposal group at the lower of its carrying amount or fair value less cost to sell, which in aggregate resulted in a pre-tax gain of $106 million ($79 million after tax).

Divestiture-related restructuring actions:

• In 2020, following the divestiture of substantially all of the drug delivery business (see Note 3) management approved and committed to undertake certain restructuring actions addressing corporate functional costs and manufacturing footprint across 3M in relation to the magnitude of amounts previously allocated/burdened to the divested business.

As a result, 3M recorded a pre-tax charge of $55 million ($46 million after tax) and made a subsequent immaterial adjustment thereto.

• In the third quarter of 2022, following the split-off of the Food Safety business, and in 2020, following the divestiture of the Drug Delivery 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 businesses.

Refer to Note 5 for further details.

Loss on deconsolidation of Venezuelan subsidiary:

• In 2019, 3M recorded a pre-tax charge of $162 million related to the deconsolidation of the Company’s Venezuelan subsidiary as further discussed in Note 1.

(Dollars in millions, except per share amounts) Operating

Income Operating Income

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

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 15 for further details.

PFAS manufacturing exit costs:

• These costs relate to 3M's December 2022 commitment to a plan to exit PFAS manufacturing by the end of 2025.

Charges for the applicable period relate to asset impairments.

These charges were reflected within the Transportation and Electronics business segment.

Refer to Note 15 for further details.

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Operating Income (Loss)

(Dollars in millions, except per share amounts) Safety and Industrial Safety and Industrial Margin Transportation and Electronics Transportation and Electronics 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

Year ended December 31, 2020 GAAP

$ 2,588 23.6% $ 1,701 20.2% $ 7,161 22.3 % $ 6,795 $ 1,337 19.7 % $ 5,449 $ 9.36

Adjustments for special items:

Significant litigation-related charges/benefits 762 762 172 590 1.01

Gain/loss on sale of businesses (114) (114) 15 (129) (0.22)

Loss on deconsolidation of Venezuelan subsidiary — 162 — 162 0.28

Net costs for significant litigation 205 — 353 353 136 217 0.37

Gain on business divestitures — — (389) (389) (86) (303) (0.52)

Divestiture-related restructuring actions — — 55 55 9 46 0.08

Total special items 205 — 19 19 59 (40) (0.07)

Year ended December 31, 2020 adjusted amounts (non-GAAP measures)

$ 2,793 25.5% $ 1,701 20.2% $ 7,180 22.3 % $ 6,814 $ 1,396 20.5 % $ 5,409 $ 9.29

Year ended December 31, 2021 GAAP

$ 2,466 20.6% $ 1,880 20.3% $ 7,369 20.8 % $ 7,204 $ 1,285 17.8 % $ 5,921 $ 10.12 8 %

Adjustments for special items:

Significant litigation-related charges/benefits 17 17 56 (39) (0.07)

Gain/loss on sale of businesses (389) (389) (86) (303) (0.52)

Divestiture-related restructuring actions 55 55 9 46 0.08

Net costs for significant litigation 249 — 463 463 104 359 0.61

Total special items 249 — 463 463 104 359 0.61

Year ended December 31, 2021 adjusted amounts (non-GAAP measures)

$ 2,715 22.7% $ 1,880 20.3% $ 7,832 22.2 % $ 7,667 $ 1,389 18.1 % $ 6,280 $ 10.73 16 %

Year ended December 31, 2022 GAAP

$ 1,199 10.3% $ 1,012 11.4% $ 6,539 19.1 % $ 6,392 $ 612 9.6 % $ 5,777 $ 10.18 1 %

Adjustments for special items:

Net costs for significant litigation 1,414 — 2,291 2,291 476 1,815 3.20

Divestiture costs — — 60 60 13 47 0.08

Gain on business divestitures — — (2,724) (2,724) (39) (2,685) (4.73)

Divestiture-related restructuring actions — — 41 41 9 32 0.05

Russia exit charges — — 109 109 (2) 111 0.20

PFAS manufacturing exit costs — 800 800 800 162 638 1.12

Total special items 1,414 800 577 577 619 (42) (0.08)

Year ended December 31, 2022 adjusted amounts (non-GAAP measures)

Year 2021 sales and operating income by business segment:

The following tables contain sales and operating income results by business segment for the years ended December 31, 2021 and 2020.

$ 2,613 22.5% $ 1,812 20.4% $ 7,116 20.8 % $ 6,969 $ 1,231 17.7 % $ 5,735 $ 10.10 (6) %

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Sales and operating income (loss) by business segment:

The following tables contain sales and operating income (loss) results by business segment for the years ended December 31, 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 19 for additional information on business segments, including Elimination of Dual Credit.

2021 2020 2021 vs 2020

(Dollars in millions) Net

Refer to Note 19 for additional information on business segments.

2022 2021 % change

(Dollars in millions) Net Sales % of Total Operating Income (Loss) Net Sales % of Total Operating Income (Loss) Net Sales Operating Income (Loss)

Business Segments

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Corporate and Unallocated 4 — 1,519 2 — (176)

Elimination of Dual Credit (2,202) (6.2) (553) (2,037) (6.3) (521)

Total Company $ 34,229 100.0 % $ 6,539 $ 35,355 100.0 % $ 7,369 (3.2) % (11.3) %

Year ended December 31, 2022

Worldwide Sales Change by Business Segment Organic sales Acquisitions Divestitures Translation Total sales change

Worldwide Sales Change

By Business Segment Organic sales Acquisitions Divestitures Translation Total sales change

Safety and Industrial 1.0 % — % — % (4.2) % (3.2) %

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Total Company 1.2 — (0.5) (3.9) (3.2)

Year 2021 sales results by geographic area

Percent change information compares the year ended December 31, 2021 with the same period last year, unless otherwise indicated.

Sales by geographic area:

Percent change information compares the years ended December 31, 2022 and 2021 with the same prior year period, unless otherwise indicated.

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

Year ended December 31, 2022

Americas Asia

Pacific Europe,

& Africa Other

Unallocated Worldwide

Americas Asia Pacific Europe, Middle East & Africa Other Unallocated Worldwide

Net sales (millions) $ 18,400 $ 9,901 $ 5,928 $ — $ 34,229

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Organic sales 2.6 0.3 (0.6) 1.2

Acquisitions — — — —

Divestitures (0.6) (0.4) (0.6) (0.5)

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Total sales change 1.7 % (6.6) % (11.0) % (3.2) %

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

• In the Americas geographic area, U.S.

total sales increased 8 percent which included increased organic sales of 8 percent.

Total sales in Mexico increased 18 percent which included increased organic sales of 16 percent.

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

In Brazil, total sales increased 18 percent which included increased organic sales of 22 percent.

• In the Asia Pacific geographic area, China total sales increased 17 percent which included increased organic sales of 11 percent.

In Japan, total sales were flat which included increased organic sales of 2 percent.

Year 2020 sales results by geographic area

Percent change information compares the full year 2020 with the full year 2019, unless otherwise indicated.

Year ended December 31, 2021

Americas Asia

Pacific Europe,

& Africa Other

Unallocated Worldwide

Americas Asia Pacific Europe, Middle East & Africa Other Unallocated Worldwide

Net sales (millions) $ 18,097 $ 10,600 $ 6,660 $ (2) $ 35,355

2 unchanged sentences

Organic sales 9.8 8.5 6.3 8.8

Acquisitions 5.5 0.7 2.8 3.5

Divestitures (0.6) — (1.1) (0.5)

1 unchanged sentence

Total sales change 9.5 % 10.8 % 9.0 % 9.9 %

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

• In the Americas geographic area, U.S.

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

• For the full year 2022, in the Americas geographic area, U.S.

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

Total sales in Mexico increased 8 percent which included increased organic sales of 12 percent.

In Canada, total sales increased 9 percent which included increased organic sales of 13 percent.

In Brazil, total sales increased 15 percent which included increased organic sales of 12 percent.

In the Asia Pacific geographic area, China total sales decreased 6 percent which included decreased organic sales of 3 percent.

In Japan, total sales decreased 12 percent which included increased organic sales of 2 percent.

• For the full year 2021, in the Americas geographic area, U.S.

total sales increased 8 percent which included increased organic sales of 8 percent.

Total sales decreased 14 percent in Mexico which included decreased organic sales of 12 percent.

total sales decreased 1 percent which included decreased organic sales of 4 percent.

In Brazil, total sales decreased 17 percent which included increased organic sales of 7 percent.

Total sales in Mexico increased 18 percent which included increased organic sales of 16 percent.

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

In Brazil, total sales increased 18 percent which included increased organic sales of 22 percent.

In the Asia Pacific geographic area, China total sales increased 17 percent which included increased organic sales of 11 percent.

In Japan, total sales decreased 3 percent which included decreased organic sales of 7 percent.

In Japan, total sales were flat which included increased organic sales of 2 percent.

Managing currency risks:

The weaker U.S.

dollar had a positive impact on sales in full year 2021 compared to the same period last year.

Net of the Company’s hedging strategy, foreign currency positively impacted earnings for full year 2021 compared to the same period last year.

The stronger U.S.

dollar had a negative impact on sales in full year 2022 compared to the same periods last year.

Net of the Company’s hedging strategy, foreign currency negatively impacted earnings in full year 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 2021, the Company purchased $2.2 billion of its own stock and $0.4 billion in 2020.

In 2022, the Company purchased $1.5 billion of its own stock, compared to $2.2 billion of stock purchases in 2021.

As of December 31, 2022, approximately $4.2 billion remained available under the authorization.

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Asset returns in 2022 for the primary U.S.

qualified pension plan were 6.7%, as 3M strategically invests in both growth assets and fixed income matching assets to manage its funded status.

qualified pension plan were -17.4 percent, as 3M strategically invests in both growth assets and fixed income matching assets to manage its funded status.

For the primary U.S.

qualified pension plan, the expected long-term rate of return on an annualized basis for 2022 is 6.00%.

qualified pension plan, the expected long-term rate of return on an annualized basis for 2023 is 7.5 percent.

The primary U.S.

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The increase in U.S.

discount rates resulted in an decreased valuation of the projected benefit obligation (PBO).

discount rates resulted in a decreased valuation of the projected benefit obligation (PBO).

The primary U.S.

qualified pension plan’s funded status increased 5 percentage point in 2021 due to the lower PBO resulting from the discount rate increase.

qualified pension plan’s funded status remained at 97% as of December 31, 2022 due to the lower PBO resulting from the discount rate increase, offset by the negative returns of the plan's assets.

Additional detail and discussion of international plan asset returns and discount rates is provided in Note 13 (Pension and Postretirement Benefit Plans).

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Refer to “Critical Accounting Estimates” within MD&A and Note 13 (Pension and Postretirement Benefit Plans) for additional information concerning 3M’s pension and post-retirement plans.

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RESULTS OF OPERATIONS

1 unchanged sentence

Operating Expenses:

(Percent of net sales) 2021 2020 2021 versus 2020

(Percent of net sales) 2022 2021 Change

Cost of sales 56.2 % 53.2 % 3.0 %

1 unchanged sentence

Research, development and related expenses (R&D) 5.4 5.6 (0.2)

Gain on sale of businesses — (1.2) 1.2

Gain on business divestitures (8.0) — (8.0)

Goodwill impairment expense 0.8 — 0.8

Operating income margin 19.1 % 20.8 % (1.7) %

Pension and postretirement service cost expense is recorded in cost of sales, SG&A, and R&D.

Refer to Note 13 (Pension and Postretirement Plans) for the service cost components of net periodic benefit costs.

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 includes manufacturing, engineering and freight costs.

Cost of sales, measured as a percent of sales, increased in 2021 when compared to 2020 due to higher raw material, logistics and outsourced manufacturing costs;

manufacturing productivity impacts from global supply chain challenges;

increased compensation and benefit costs;

increased adjustments to other environmental liabilities;

and increased investments in growth, productivity and sustainability.

Cost of sales was also impacted by year-over-year changes in restructuring charges, net of restructuring benefits.

Year-over-year cost increases were partially offset by lower COVID-related net impacts taken in 2021 versus last year, including period expenses of unabsorbed manufacturing costs taken in 2020.

Cost of sales, measured as a percent of sales, increased in 2022 when compared to the same period last year.

Increases were primarily due to 2022 special item costs for significant litigation from additional commitments to address PFAS-related matters at 3M's Zwijndrecht, Belgium site (discussed in Note 16), 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.

On a percent of sales basis, these increases were partially offset by increases in selling prices.

Selling, General and Administrative Expenses:

SG&A, measured as a percent of sales, decreased in 2021 when compared to 2020.

SG&A was impacted by increased litigation-related costs, compensation and benefit costs, and spending on key growth initiatives.

SG&A was also impacted by year-over-year changes in restructuring charges, net of restructuring benefits.

Cost increases were partially offset by the impact of the favorable decision of the Brazilian Supreme Court in the second quarter of 2021 regarding the calculation of past social taxes and ongoing general 3M cost management.

Prior year also included a number of COVID-related net impacts as described in the Overview- Consideration of COVID-19 section above.

SG&A, measured as a percent of sales, increased in 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 16) resulting in a 2022 second quarter pre-tax charge of approximately $1.2 billion, certain impairment costs related to exiting PFAS manufacturing (see Note 15), costs related to exiting Russia (see Note 15), divestiture-related restructuring charges (see Note 5), and continued investment in key growth initiatives.

These 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 2021 when compared to 2020.

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.

Gain on Sale of Businesses:

During 2020, the Company recorded a pre-tax gain of $2 million ($1 million loss after tax) related to the sale of its advanced ballistic-protection business and recognition of certain contingent consideration.

Additionally, in 2020, the Company recorded a pre-tax gain of $387 million ($304 after tax) related to the sale of substantially all of its drug delivery business.

R&D, measured as a percent of sales, decreased in 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.

Goodwill Impairment Expense:

As a result of 3M's commitment to exit per- and polyfluoroalkyl substance (PFAS) manufacturing, 3M recorded a goodwill impairment charge related to the Advanced Materials reporting unit (within the Transportation and Electronics business).

Refer to Note 15 for further details.

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Other Expense (Income), Net:

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

Interest expense (net of interest income) decreased during 2021 and increased during 2020.

The decrease in 2021 was due to lower U.S.

average debt balances and the impact of interest rate swaps placed during the year.

2021 interest expense also included an early debt extinguishment pre-tax charge in the first quarter of 2021.

The increase in 2020 was due to higher U.S.

average debt balances and lower year-on-year interest income driven by lower average interest rates on cash balances.

2020 interest expense also included an early debt extinguishment charge in conjunction with the repayment of notes in December 2020.

The non-service pension and postretirement net benefit increased $163 million and $135 million in 2021 and 2020, respectively.

The higher year-on-year benefit in 2021 was primarily due to decreased expense from lower discount rates applicable to 2021.

Interest expense (net of interest income) decreased in 2022 compared to the same period year-on-year driven by debt maturities in the ordinary course and interest income on invested cash.

Interest expense (net of interest income) decreased in 2021 compared to the same period year-on-year due in part to interest expense savings from early debt extinguishment actions in 2020.

The non-service pension and postretirement net benefit decreased $49 million and increased $163 million in 2022 and 2021, respectively.

The lower year-on-year benefit in 2022 was primarily due to higher interest costs due to higher discount rates as of the year-end 2021, lower expected returns on plan assets for 2023, partially offset by a reduction in actuarial loss amortization, which was driven by the lower discount rates.

Refer to Note 13 for additional details.

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Refer to Note 10 for further discussion of income taxes.

Income (Loss) from Unconsolidated Subsidiaries, Net of Taxes:

Income from Unconsolidated Subsidiaries, Net of Taxes:

(Millions) 2022 2021

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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.

In the fourth quarter of 2022, 3M sold its remaining ownership interest in Kindeva resulting in an immaterial gain.

Net Income (Loss) Attributable to Noncontrolling Interest:

13 unchanged sentences

and Consumer.

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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 19.

Corporate and Unallocated operating income includes “special items” and “other corporate expense-net”.

Special items include significant litigation-related charges/benefits, gain/loss on sale of businesses, and divestiture-related restructuring costs.

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, certain litigation and environmental expenses largely related to legacy products/businesses not allocated to business segments, corporate philanthropic activity, and other net costs that 3M may choose not to allocate directly to its business segments.

corporate expense-net also includes costs and income from contract manufacturing, transition services and other arrangements with the acquirer of the Communication Markets Division following its 2018 divestiture through 2019 and the acquirer of the former Drug Delivery business following its 2020 divestiture.

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 16).

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 15).

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 net operating loss increased in 2021 when compared to 2020 primarily related to the pre-tax gain of $387 million included in special items in 2020 as a result of 3M's divestiture of its drug delivery business (see Note 3 for additional details).

Special Items

Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section and Note 5 for additional details on the impact of significant litigation-related charges/benefits, gain/loss on sale of businesses, and divestiture-related restructuring actions that are reflected in Corporate and Unallocated.

Corporate and Unallocated operating expenses decreased in 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 19 for additional information on the components of corporate special items.

Corporate special item net costs decreased in 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 16).

Other Corporate Expense - Net

Other corporate operating expenses decreased in 2021 when compared to 2020.

The decrease was primarily due to a $91 million pre-tax benefit from the impact of the favorable decision of the Brazilian Supreme Court in the second quarter of 2021 regarding the calculation of past social taxes, continued lower overall corporate staff spending and first quarter 2020 charges related to equity securities (as discussed in the “Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis” section of Note 15), partially offset by increased legal and reserve adjustment costs.

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.

The following discusses total year results for 2021 compared to 2020 and 2020 compared to 2019 for each business segment.

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Safety and Industrial Business (33.9% of consolidated sales):

2 unchanged sentences

Organic sales 1.0 % 7.3 %

Divestitures — (0.6)

Translation (4.2) 1.9

Total sales change (3.2 %) 9.2 %

Business segment operating income (millions) $ 2,692 $ 2,784

Business segment operating income (loss) (millions) $ 1,199 $ 2,466

Percent change (51.4 %) (4.7 %)

Percent of sales 10.3 % 20.6 %

Adjusted business segment operating income (millions) (non-GAAP measure) $ 2,613 $ 2,715

Percent change (3.7) % (2.8) %

Percent of sales 22.5 % 22.7 %

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 16), 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.

Year 2022 results:

Sales in Safety and Industrial were up 9.8 percent in U.S.

Sales in Safety and Industrial were down 3.2 percent in U.S.

On an organic sales basis:

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

• Growth was driven by improving general industrial manufacturing activity and other end-market demand partially offset by prior-year strong pandemic-related respirator mask demand.

Business segment operating income margins decreased year-on-year due to increases in raw materials, logistics and litigation-related costs;

lower gain on sale of properties;

and manufacturing productivity impacts that were partially offset by sales growth leverage, lower year-on-year respirator mask reserve increases, and benefits from restructuring actions and lower related charges.

• Sales increased in electrical markets, abrasives, automotive aftermarket, roofing granules, closure and masking systems, 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 4.5 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 16) 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.

Year 2021 results:

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On an organic sales basis:

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

• Strong growth related to unprecedented demand for respirators as a result of the COVID-19 pandemic was partially offset by softness that impacted sales growth across most of the Company’s general industrial-related portfolio.

Divestitures:

• 2019 divestitures that impacted 2020 results relate to the August 2019 sale of the gas and flame detection business.

Business segment operating income margins increased 3.0% year-on-year primarily related to strong productivity, continued cost discipline and benefits from certain property sale, 2019 restructuring and other actions.

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

• Growth was driven by improving general industrial manufacturing activity and other end-market demand partially offset by prior-year strong pandemic-related respirator mask demand.

Business segment operating income margins decreased year-on-year due to increases in raw materials, logistics and special item costs for significant litigation;

lower gain on sale of properties;

and manufacturing productivity impacts that were partially offset by sales growth leverage, and benefits from restructuring actions and lower related charges.

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

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Transportation and Electronics Business (26.0% of consolidated sales):

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Percent of sales 11.4 % 20.3 %

Adjusted business segment operating income (millions) (non-GAAP measure) $ 1,812 $ 1,880

Percent change (3.6) % 10.6 %

Percent of sales 20.4 % 20.3 %

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

For Transportation and Electronics these adjustments include PFAS manufacturing exit costs.

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

Year 2022 results:

Sales in Transportation and Electronics were down 3.9 percent in U.S.

On an organic sales basis:

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

• Growth was held back by weaker consumer electronics end-market demand and ongoing impacts of semiconductor supply chain constraints on automotive 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 special item charges for PFAS manufacturing exit costs related to asset impairments (discussed in Note 15) resulting in a 2022 fourth quarter pre-tax charge of $0.8 billion.

Margins were also impacted by 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.

Adjusting for special item PFAS manufacturing exit costs (non-GAAP measure), business segment operating income margins increased year-on-year as displayed above.

Year 2021 results:

Sales in Transportation and Electronics were up 10.2 percent in U.S.

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

• Sales increased in automotive and aerospace from improving automotive-end market activity and increases in car and light truck builds, partially offset by impacts from semiconductor supply chain constraints.

• Sales increased in electronics due to strong demand in data center, semiconductor, interconnect and consumer electronics markets, partially offset by impacts from semiconductor supply chain constraints.

• Sales increased in commercial solutions, advanced materials and transportation safety due to increased advertising spend and return to workplace trends.

• Growth benefited from improving automotive-end market activity such as increases in car and light truck builds, strong demand in data center, semiconductor, interconnect and consumer electronics markets and increased advertising spend and return to workplace trends partially offset by impacts from semiconductor supply chain constraints.

Business segment operating income margins increased year-on-year due to sales growth leverage, benefits from restructuring actions and lower related charges, and COVID impacts recognized on certain assets in 2020 that were partially offset by increases in raw materials and logistic costs, manufacturing productivity impacts, and increased compensation and benefit costs.

Year 2020 results:

Sales in Transportation and Electronics were down 7.9 percent in U.S.

On an organic sales basis:

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

• Electronics-related growth was led by demand for semiconductor, data center, and factory automation end-markets, and was partially offset by softness in the consumer electronics end-market.

• Automotive and aerospace was primarily impacted by the decline in global car and light truck builds.

Commercial solutions and transportation safety were impacted by soft-end markets such as hospitality, advertising and highway infrastructure due to social distancing and work-from-home protocols as a result of COVID-19.

Divestitures:

• In January 2020, 3M completed the sale of its advanced ballistic-protection business.

Refer to Note 3 for details.

Business segment operating income margins decreased 1.6%, primarily related to lower sales and reduced productivity in key end-markets due to COVID-19 related impacts, partially offset by continued cost discipline and benefits from 2019 restructuring actions.

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Health Care Business (24.6% of consolidated sales):

2 unchanged sentences

Organic sales 3.2 % 10.2 %

Acquisitions — 15.5

Divestitures (1.4) (2.0)

5 unchanged sentences

Year 2022 results:

Sales in Health Care were up 8.4 percent in U.S.

Sales in Health Care were down 2.0 percent in U.S.

On an organic sales basis:

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

• Sales increased in oral care driven by higher year-on-year dental procedures and in separation and purification from continued high demand for biopharma filtration solutions for COVID-related vaccine and therapeutic development and manufacturing.

• Sales increased in medical solutions from rising elective procedure volumes in the first six months of 2021 and strong respirator demand in the first quarter of 2021.

• Sales increased in health information systems due to improving hospital information technology investments.

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

• Growth continues to be impacted by COVID-related trends on elective procedure volumes and ongoing inflationary pressures.

Divestitures:

• In May 2020, 3M completed the sale of substantially all of its drug delivery business.

and logistics costs, deal-related costs associated with the announced divestiture of the food safety business (see Note 3), manufacturing productivity impacts, increased compensation and benefit costs, and increased investments in growth.

• 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.

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.

Year 2021 results:

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On an organic sales basis:

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

• Increases in healthcare volumes benefited both medical solutions and oral care after significant disruptions in the second quarter, with strong pandemic-related demand for disposable respirators resulting in increased sales for medical solutions, while oral care sales decreased year-on-year.

In addition, health information systems decreased due to hospitals remaining cautious relative to their information technology investments.

Acquisitions:

• In February 2019, 3M acquired M*Modal, a leading healthcare technology provider of cloud-based, conversational artificial intelligence-powered systems that help physicians efficiently capture and improve the patient narrative.

• In October 2019, 3M completed the acquisition of Acelity Inc.

and its KCI subsidiaries, a leading global medical technology company focused on advanced wound care and specialty surgical applications.

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

• Growth benefited from higher year-on-year dental procedures, continued high demand for biopharma filtration solutions for COVID-related vaccine and therapeutic development and manufacturing, rising elective procedure volumes in the first six months of 2021 and due to improving hospital information technology investments.

Divestitures:

• In the first quarter of 2019, the Company sold certain oral care technology comprising a business.

• In May 2020, 3M completed the sale of substantially all of its drug delivery business.

Business segment operating income margins decreased 2.7% year-on-year, driven by impacts related to the Acelity acquisition in addition to significant sales declines in oral care during the second quarter of 2020, partially offset by continued cost discipline and benefits from 2019 restructuring and other costs.

Business segment operating income margins increased year-on-year due to sales growth leverage and benefits from restructuring actions and lower related charges that were partially offset by supply chain disruptions, increases in raw materials and logistics costs, deal-related costs associated with the announced divestiture of the food safety business (see Note 3), manufacturing productivity impacts, increased compensation and benefit costs, and increased investments in growth.

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Consumer Business (15.5% of consolidated sales):

2 unchanged sentences

Organic sales (0.9) % 9.8 %

Divestitures (0.4) —

Translation (2.6) 1.0

4 unchanged sentences

Year 2022 results:

Sales in Consumer were up 10.3 percent in U.S.

Sales in Consumer were down 3.9 percent in U.S.

On an organic sales basis:

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

• Sales increased in home improvement driven by continued strength in the market with strong demand for Command TM adhesives, Filtrete TM air quality solutions, Meguiars TM auto care and Scotch Blue TM painter’s tape.

• Sales increased in stationery and office from ongoing strength in demand for packaging and shipping products, Post-it ® -solutions and Scotch ® brand office tapes as the business laps last year’s COVID-related comparisons.

Business segment operating income margins decreased year-on-year as a result of increases in raw materials, logistics, and outsourced hardgoods manufacturing costs, manufacturing productivity impacts, and increased compensation and benefit costs that more than offset leverage from sales growth and benefits from restructuring actions and lower related charges.

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

• Growth was impacted by softening trends in the Consumer retail business as consumers pulled back on discretionary spending and retailers took actions to reduce their inventories.

These impacts were partially offset by demand for Scotch Blue TM painter’s tape, Scotch-Brite TM , and Post-it®-solutions.

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.

Year 2021 results:

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On an organic sales basis:

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

• Stationery and office declined year-on-year as a result of many business offices and schools remaining partially or fully closed due to the pandemic.

• Sales showed continued strength in the Company’s Command ™ , Filtrete ™ , Scotch Blue ™ , Scotch Brite ™ , and Meguiars ™ brands.

Business segment operating income margins increased 1.6% year-on-year as a result of strong organic sales growth and continued cost discipline.

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

• Growth driven by continued strength in the market with strong demand for Command TM adhesives, Filtrete TM air quality solutions, Meguiars TM auto care and Scotch Blue TM painter’s tape and from ongoing strength in demand for packaging and shipping products, Post-it ® -solutions and Scotch ® brand office tapes as the business laps last year’s COVID-related comparisons.

PERFORMANCE BY GEOGRAPHIC AREA

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Refer to the “Overview” section for a summary of net sales by geographic area and business segment.

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Geographic Area Supplemental Information

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Total Company 92,000 95,000 $ 1,749 $ 1,603 $ 9,178 $ 9,429

Employment remained consistent in 2021 when compared to 2020.

Employment decreased in 2022 when compared to 2021.

The above table includes the impact of acquisitions, net of divestitures and other actions.

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Note 13 provides the weighted averages of these assumptions as of applicable dates and for respective periods and additional information on how the rates were determined.

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Discount rate

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For the primary U.S.

qualified pension plan, the expected long-term rate of return on an annualized basis for 2022 is 6.00%, a decrease from 6.50% in 2021.

qualified pension plan, the expected long-term rate of return on an annualized basis for 2023 is 7.50%, an increase from 6.00% in 2022.

Return on assets assumptions for international pension and other post-retirement benefit plans are calculated on a plan-by-plan basis using plan asset allocations and expected long-term rate of return assumptions.

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For the year ended December 31, 2022, the Company recognized consolidated defined benefit pre-tax pension and postretirement service cost expense of $426 million and a benefit of $248 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 $178 million, down from $206 million in 2021.

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

The table below summarizes the impact on 2022 pension expense for the U.S.

and international pension plans of a 0.25 percentage point increase/decrease in the expected long-term rate of return on plan assets and discount rate assumptions used to measure plan liabilities and 2021 net periodic benefit cost.

The table assumes all other factors are held constant, including the slope of the discount rate yield curves.

Increase (Decrease) in Net Periodic Benefit Cost

Discount Rate Expected Return on Assets

(Millions) -0.25% +0.25% -0.25% +0.25%

pension plans $ 35 $ (34) $ 40 $ (40)

International pension plans 14 (7) 19 (19)

Goodwill and Certain Long-Lived Assets:

The Company makes certain estimates and judgments in relation to goodwill and certain long-lived assets.

Those include considerations made in the valuation of certain acquired identifiable definite-lived and indefinite-lived assets as a result of business combinations as well as considerations in impairment assessments of goodwill.

Acquisition of certain identifiable definite-lived and indefinite-lived assets

In conjunction with an acquisition of a business, the Company records identifiable definite-lived and indefinite-lived intangible assets acquired at their respective fair values as of the date of acquisition.

The corresponding fair value estimates for these assets acquired include projected future cash flows, associated discount rates used to calculate present value, asset life cycles, royalty rates, and customer retention rates.

The fair value calculated for indefinite-lived intangible assets such as certain tradenames, in addition to intangible assets that are definite-lived such as patents, customer relationships, tradenames and other technology-based assets may change during the finalization of the purchase price allocation, due to the significant estimates used in determining their fair value.

As a result, the Company may make adjustments to the provisional amounts recorded for certain items as part of the purchase price allocation subsequent to the acquisition, not to exceed one year after the acquisition date, until the purchase accounting allocation is finalized.

Changes in factors that may impact projected future cash flows, discount rates, customer preferences, and other estimates above, as well as underlying market and overall economic conditions, among other items, cause these estimates to be subject to uncertainty.

In 2023, defined benefit pension and postretirement service cost expense is anticipated to total approximately $270 million while non-service pension and postretirement net benefit costs is anticipated to be a benefit of approximately $125 million, for a total consolidated defined benefit pre-tax pension and postretirement expense of approximately $145 million, a decrease of approximately $30 million compared to 2022.

Assessments of Goodwill:

The Company makes certain estimates and judgments in impairment assessments of goodwill.

As of December 31, 2022, 3M goodwill totaled approximately $12.8 billion.

Goodwill is tested for impairment annually in the fourth quarter of each year, as further discussed below, and is tested between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired.

Goodwill is tested for impairment annually in the fourth quarter of each year and is tested between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired.

If future non-cash asset impairment charges are taken, 3M would expect that only a portion of the goodwill would be impaired.

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Impairment testing for goodwill is done at a reporting unit level, with all goodwill assigned to a reporting unit.

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3M also performs a discounted cash flow analysis for certain reporting units where the market approach indicates additional review is warranted.

Where applicable, the discounted cash flow analysis uses projected cash flows that are based on sales growth and terminal value assumptions, among other factors.

A discounted cash flow analysis involves key assumptions including projected sales, EBITDA margins, capital expenditures, and discount rates.

Changes in reporting unit earnings, comparable company information, and expected future cash flows, as well as underlying market and overall economic conditions, among other factors, make these estimates subject to uncertainty.

As described in Note 19, effective in the first quarter of 2021, the Company changed its business segment reporting.

For changes that resulted in reporting unit changes, the Company applied the relative fair value method to determine the impact on goodwill of the associated reporting units, the results of which were immaterial.

In conjunction with the change in segment reporting, 3M completed an assessment indicating no resulting goodwill impairment existed.

The discussion that follows relates

to the separate fourth quarter 2021 annual impairment test and is in the context of the reporting unit structure that existed at that time.

Based on the annual test in the fourth quarter of 2021, no goodwill impairment was indicated for any of the reporting units.

Based on the annual test in the fourth quarter of 2022 completed as of October 1, 2022, no goodwill impairment was indicated for any of the reporting units.

As of October 1, 2022, 3M had 21 primary reporting units, with ten reporting units accounting for approximately 94 percent of the goodwill.

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3M’s focus on research and development has resulted in a portion of 3M’s value being comprised of internally developed businesses.

Following the annual impairment test, as a result of 3M's December 2022 announced commitment to a plan to exit per- and polyfluoroalkyl substance (PFAS) manufacturing as described in Notes 4 and 15, 3M tested the Advanced Materials and Electronics Materials Solutions reporting units (within the Transportation and Electronics business) for impairment resulting in a goodwill impairment charge related to the Advanced Materials reporting unit.

3M will continue to monitor its reporting units and asset groups in 2023 for any triggering events or other indicators of impairment.

Assessments of Long-Lived Assets:

The Company makes certain estimates and judgments in impairment assessments of long-lived assets.

As discussed in Note 1, long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable.

An impairment loss is recognized when the carrying amount exceeds the estimated undiscounted future cash flows expected to result from the use of the asset group and its eventual disposition.

The amount of the impairment is based on the excess of the asset group’s carrying value over its fair value.

As discussed in Notes 4 and 15, in December 2022, as a result of 3M's commitment to a plan to exit per- and polyfluoroalkyl substance (PFAS) manufacturing, 3M recorded a charge related to impairment of long-lived assets.

Underlying fair values were determined primarily using discounted cash flow models.

Key assumptions included projected sales, EBITDA margins, capital expenditures, and discount rates.

Changes in underlying market and overall economic conditions, including changes in competitive conditions and customer preferences;

operational execution of activities associated with these asset groupings;

and items mentioned in Item 1A—Risk Factors with respect to 3M’s exit of PFAS manufacturing, among other factors, make these estimates subject to uncertainty.

Uncertainty in Income Tax Positions:

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Information regarding new accounting pronouncements is included in Note 1 to the Consolidated Financial Statements.

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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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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.

At December 31, 2021, there was no commercial paper issued and outstanding.

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

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 negative outlook from Moody’s Investors Service and an A+ credit rating with negative outlook from Standard and Poor’s.

As of December 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 December 31, 2022 when compared to December 31, 2021.

Decreases in debt are further described in Note 12 and were largely due to the March 2021 early redemption via make-whole call offers of $450 million in debt and the November 2021 repayment of 600 million euros aggregate principal amount of Eurobonds that matured.

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.

As discussed in Note 12, during the second and third quarters of 2021, 3M entered into interest rate swaps that converted part of the Company’s $1.0 billion and $650 million principal amount of fixed rate notes due 2049 and 2050, respectively, into floating rate debt for the portion of their terms through mid-2028.

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 stated it will cease publication of certain LIBOR rates after December 31, 2021.

USD LIBOR rates that do 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 that utilize LIBOR as the reference rate and these agreements contain relevant fallback language.

The Company’s analysis of its other commercial contracts found that such contracts, as a general practice, do not reference LIBOR.

3M will continue its assessment and monitor regulatory developments during the transition period.

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, derivative instruments, and commercial contracts that may utilize LIBOR as the reference rate.

Contracts will be modified to apply a new reference rate where applicable.

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.

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As of December 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).

Additionally, the August 2019 and March 2020 debt was issued under the WKSI shelf registration, but not as part of the medium-term notes program (Series F).

Information with respect to long-term debt issuances and maturities for the periods presented and credit facilities is included in Note 12.

Information with respect to long-term debt issuances and maturities for the periods presented is included in Note 12.

As disclosed in Note 12, 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.

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Cash, cash equivalents and marketable 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 approximately $1.7 billion was held by the United States.

At December 31, 2022, 3M had $3.9 billion of cash, cash equivalents and marketable securities, of which approximately $2.7 billion was held by the Company’s foreign subsidiaries and approximately $1.2 billion was held in the United States.

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

At December 31, 2020, 3M had $5.1 billion of cash, cash equivalents and marketable securities, of which approximately $2.8 billion was held by the Company’s foreign subsidiaries and approximately $2.3 billion was held by the United States.

The decrease from December 31, 2020 resulted from higher share repurchases of treasury stock, the March 2021 early redemption via make-whole call offers of $450 million in debt, and the November 2021 repayment of 600 million euros aggregate principal amount, partially offset by strong cash flow from operations.

The decrease from December 31, 2021 primarily resulted from cash flow from operations and Food Safety transaction-related cash consideration and earlier borrowings (see Note 3) offset by ongoing dividend payments, purchases of treasury stock, capital expenditures, and the fixed-rate medium-term note maturities in 2022.

Net Debt (non-GAAP measure):

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

December 31, Change

(Millions) 2021 2020

(Millions) 2022 2021 Change

Total debt $ 15,939 $ 17,363 $ (1,424)

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Working capital (non-GAAP measure):

December 31, Change

(Millions) 2021 2020

(Millions) 2022 2021 Change

Current assets $ 14,688 $ 15,403 $ (715)

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Working capital decreased $1.2 billion compared with December 31, 2021.

Balance changes in current assets increased working capital, driven by increases in inventory, partially offset by decreases in marketable securities-current.

Balance changes in current liabilities decreased working capital, primarily due to increases in short-term borrowing and the current portion of long-term debt and accounts payable.

Inventory increased from December 31, 2020, primarily as a result of increased underlying operating activity related to increased sales partially offset by foreign currency translation impacts, while marketable securities-current decreased from lower investments in commercial paper and U.S.

treasury securities.

Current portion of long-term debt increased based on underlying debt maturities while accounts payable also increased as a result of increased operating activity from that of late 2020 partially offset by foreign currency translation impacts.

Return on Invested Capital (non-GAAP measure):

Return on Invested Capital (ROIC) is not defined under U.S.

generally accepted accounting principles.

Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S.

GAAP and may not be comparable to similarly titled measures used by other companies.

The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt).

The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation.

The calculation is provided in the below table.

The increase in ROIC was driven by the increased operating income and the higher non-service pension and postretirement net benefit year-on-year.

Years ended December 31 (Millions) 2021 2020

Return on Invested Capital (non-GAAP measure)

Net income including non-controlling interest $ 5,929 $ 5,453

Interest expense (after-tax) (1) 400 424

Adjusted net income (Return) $ 6,329 $ 5,877

Average shareholders' equity (including non-controlling interest) (2) $ 14,497 $ 11,507

Average short-term and long-term debt (3) 17,991 20,413

Average invested capital $ 32,488 $ 31,920

Return on invested capital (non-GAAP measure) 19.5 % 18.4 %

(1) Effective income tax rate used for interest expense 17.8 % 19.7 %

(2) Calculation of average equity (includes non-controlling interest)

Ending total equity as of:

March 31 $ 13,828 $ 10,214

June 30 14,516 10,925

September 30 14,530 11,959

December 31 15,117 12,931

Average total equity $ 14,497 $ 11,507

(3) Calculation of average debt

Ending short-term and long-term debt as of:

March 31 $ 18,187 $ 22,495

June 30 18,248 20,762

September 30 18,165 19,598

December 31 17,363 18,795

Average short-term and long-term debt $ 17,991 $ 20,413

Balance changes in current assets decreased working capital by $0.7 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 offset by decreases in accrued payroll.

Inventory increased $387 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 2022, while accounts payable also increased as a result of increased sequential operating activity partially offset by foreign currency translation impacts.

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

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Cash Flows from Operating Activities:

Years Ended December 31, (Millions) 2021 2020

Year ended December 31, (Millions) 2022 2021

Net income including noncontrolling interest $ 5,791 $ 5,929

Depreciation and amortization 1,831 1,915

Long-lived and indefinite-lived asset impairment expense 618 —

Goodwill impairment expense 271 —

Company pension and postretirement contributions (158) (180)

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Stock-based compensation expense 263 274

Gain on sale of businesses — (389)

Gain on business divestitures (2,724) —

Income taxes (deferred and accrued income taxes) (710) (410)

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Other — net 854 227

Net cash provided by operating activities $ 7,454 $ 8,113

Cash flows from operating activities can fluctuate significantly from period to period, as pension funding decisions, tax timing differences and other items can significantly impact cash flows.

In 2021, cash flows provided by operating activities decreased compared to the same period last year, with this decrease primarily due to working capital changes.

The combination of accounts receivable, inventories and accounts payable decreased operating cash flow by $507 million in 2021, compared to an operating cash flow improvement of $326 million in 2020.

Net cash provided by (used in) operating activities $ 5,591 $ 7,454

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 2022, cash flows provided by operating activities decreased $1,863 million compared to the same period last year, with this decrease primarily due to lower net income 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 $623 million in 2022, compared to an operating cash flow decrease of $507 million in 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 16) largely impacted the 2022 net income component above, with offsets in the other-net and deferred tax elements.

The 2022 non-cash impairment expenses added back to net income in arriving at net cash provided by operating activities above primarily relate to 3M's commitment to a plan to exit per- and polyfluoroalkyl substance (PFAS) manufacturing as described in Note 15.

Cash Flows from Investing Activities:

Years ended December 31, (Millions) 2021 2020

Year ended December 31, (Millions) 2022 2021

Purchases of property, plant and equipment (PP&E) $ (1,749) $ (1,603)

Proceeds from sale of PP&E and other assets 200 51

Acquisitions, net of cash acquired — (25)

Purchases and proceeds from maturities and sale of marketable securities and investments, net 11 204

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 31

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Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency.

In 2020, 3M reduced overall spending in light of uncertainty regarding COVID-19, but continued to invest in expanding the Company’s ability to increase production of respiratory products to meet worldwide demand.

The Company expects increased capital spending in 2022 as 3M continues to invest in growth, productivity and sustainability.

The Company expects 2023 capital spending to be approximately $1.5 billion to $1.8 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.

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3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance.

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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.

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.

Acquisitions, net of cash acquired,

in 2020 primarily relate to the payment made for contingent consideration in regards to the Acelity acquisition.

Proceeds from sale of businesses in 2020 primarily relate to the sales of the Company’s advanced ballistic-protection business and its drug delivery business.

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.

In 2020 these included the maturity of the held-to-maturity debt security that was purchased to satisfy the redemption of the Third Lien Notes (which matured in May 2020).

Refer to Note 11 for more details about 3M’s diversified marketable securities portfolio.

Purchases of investments include additional survivor benefit insurance, plus investments in equity securities.

Cash Flows from Financing Activities:

Years ended December 31, (Millions) 2021 2020

Year ended December 31, (Millions) 2022 2021

Change in short-term debt — net $ 340 $ (2)

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Proceeds from issuances of treasury stock pursuant to stock option and benefit plans 381 639

Dividends paid to stockholders (3,420) (3,388)

Dividends paid to shareholders (3,369) (3,420)

Other — net (60) (20)

Net cash used in financing activities $ (6,145) $ (5,300)

Net cash provided by (used in) financing activities $ (5,350) $ (6,145)

2022 Debt Activity:

Decreases in debt were largely due to the March 2021 early redemption of $450 million in debt maturing in 2022 via make-whole call offers and the November 2021 repayment of 600 million euros aggregate principal amount of Eurobonds that matured.

The Company had no commercial paper outstanding at December 31, 2021 and December 31, 2020.

Total debt was approximately $15.9 billion at December 31, 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 December 31, 2022 and 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.

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2021 Debt Activity:

Decreases in debt related to the repayment of debt primarily consisting of the aggregate $445 million principal amount of Third Lien Notes and the 650 million euros and $500 million aggregate principal amount of floating-rate medium-term notes that matured in May 2020 and August 2020, respectively.

During the third quarter of 2020, the Company paid the outstanding balances on their Japanese yen and euro credit facilities.

In addition, $1.0 billion aggregate principal amount of notes maturing in September 2021 were repaid in December 2020 via make-whole-call offers.

Increases in debt were related to the March 2020 issuance of $1.75 billion in registered notes.

Outstanding commercial paper decreased $150 million from December 31, 2019 to December 31, 2020.

The Company had no commercial paper outstanding at December 31, 2021 and December 31, 2020.

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.

Repurchases of Common Stock:

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

In 2021, the Company purchased $2.2 billion of its own stock.

3M repurchased shares, after having suspended repurchases (with other repurchase activity limited to 3M's stock compensation plans) in the first quarter of 2020.

In 2022, the Company purchased $1,464 million of its own stock.

For more information, refer to the table titled “Issuer Purchases of Equity Securities” in Part II, Item 5.

The Company does not utilize derivative instruments linked to the Company’s stock.

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Dividends Paid to Shareholders:

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This is equivalent to an annual dividend of $6.00 per share and marked the 65th consecutive year of dividend increases.

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 cash overdraft balances, and principal payments for finance leases.

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):

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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

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.

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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.

Free cash flow conversion decreased in 2021 compared to 2020 as net income attributable to 3M increased while free cash flow decreased.

Years ended December 31, (Millions) 2021 2020

Year ended December 31, (Millions) 2022 2021

Major GAAP Cash Flow Categories

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Free cash flow conversion 66 % 99 %

Material Cash Requirement from Known Contractual and Other Obligations:

Material Cash Requirements from Known Contractual and Other Obligations:

3M’s material cash requirements from known contractual and other obligations primarily relate to following, for which information on both a short-term and long-term basis is provided in the indicated notes to the consolidated financial statements:

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Additionally, contractual capital commitments represent a small part of the Company’s expected capital spending.

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FINANCIAL INSTRUMENTS

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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-K

Item 7. Management’s Discussion and Analysis