What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-25 compared with 2023-04-25 · 318 added, 136 removed, 499 unchanged (48% of the section changed)

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• Cautionary Note Concerning Factors That May Affect Future Results

The term "N/M" used herein references "not meaningful" for certain percent changes.

Forward-looking statements in Part I, Item 2 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to the section entitled Cautionary Note Concerning Factors That May Affect Future Results in Part I, Item 2 and the risk factors provided in Part II, Item 1A for discussion of these risks and uncertainties).

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Effective in the first quarter of 2023, 3M made the following changes:

• Changes in measure of segment operating performance and segment composition used by 3M’s chief operating decision maker—impacting 3M’s disclosed measure of segment profit/loss (business segment operating income)—and realignment of 3M's Consumer business segment from four divisions to three divisions.

• Changes in measure of segment operating performance and segment composition used by 3M’s chief operating decision maker—impacting 3M’s disclosed measure of segment profit/loss (business segment operating income (loss))—and realignment of 3M's Consumer business segment from four divisions to three divisions.

See additional information in Note 15.

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The Overview section of Part II, Item 7 of the Company’s 2022 Annual Report on Form 10-K provides a description of how COVID-19 has impacted or may impact 3M.

In addition within this Form 10-Q for the quarterly period ended March 31, 2023, risk factors with respect to COVID-19 can be found in Item 1A “Risk Factors” and certain COVID-19 impacts are referenced in various discussions within this Form 10-Q, including in this Item 2.

In addition within this Form 10-Q for the quarterly period ended June 30, 2023, risk factors with respect to COVID-19 can be found in Item 1A “Risk Factors” and certain COVID-19 impacts are referenced in various discussions within this Form 10-Q, including in this Item 2.

3M is also impacted by certain special items such as costs for significant litigation and the sales and income associated with manufactured PFAS products that 3M plans to exit by the end of 2025.

During the first six months of 2023, 3M's costs for significant litigation (see Certain amounts adjusted for special items - (non-GAAP measures) section below) totaled approximately $10.5 billion pre-tax and included, among other things, a $10.3 billion pre-tax charge related to the proposed settlement agreement announced in the second quarter of 2023 with public water systems in the United States regarding PFAS.

See Certain amounts adjusted for special items - (non-GAAP measures) section below for additional discussion of these and other special items, including references therein to where further information is provided.

Additional information regarding certain items impacting pre-2023 periods that may also be relevant in 2023 can be found in the Overview section of Part II, Item 7 as well as in further sections of 3M’s 2022 Annual Report on Form 10-K.

Earnings per share attributable to 3M common shareholders – diluted:

The following table provides the increases (decreases) in diluted earnings per share.

Earnings per diluted share Three months ended

March 31, 2023

Earnings (loss) per share attributable to 3M common shareholders – diluted:

The following table provides the increases (decreases) in diluted earnings (loss) per share.

Earnings (loss) per diluted share Three months ended

June 30, 2023 Six months ended

June 30, 2023

Same period last year $ 0.14 $ 2.40

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Foreign exchange impacts (0.02) (0.12)

Divestitures (0.03)

Acquisitions/divestitures (0.03) (0.05)

Other expense (income), net (0.03) (0.05)

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Divestiture costs (0.19) (0.34)

Russia exit (charges) benefits 0.04 0.04

Manufactured PFAS products 0.06 0.07

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These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for special items - (non-GAAP measures) section below.

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

A discussion related to the components of year-on-year changes in earnings (loss) per diluted share follows:

Total organic growth/productivity and other:

• For the first quarter of 2023, the following components impacted earnings per diluted share year-on-year:

◦ Declines in disposable respirator demand year-on-year and the 2022 exit of operations in Russia negatively impacted earnings per share by $0.21.

• For the second quarter of 2023, the following components impacted operating margins and earnings (loss) per diluted share year-on-year:

◦ Declines in disposable respirator demand year-on-year negatively impacted earnings (loss) per share by $0.09.

◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year increase of $0.15 per share which was impacted by the following:

• Benefits from ongoing productivity actions, restructuring, strong spending discipline and higher selling prices

• Lower sales volumes (particularly electronics/consumer retail), inflation impacts and investments in growth, productivity, and sustainability

• For the first six months of 2023, the following components impacted operating margins and earnings (loss) per diluted share year-on-year:

◦ Declines in disposable respirator demand year-on-year and the 2022 exit of operations in Russia negatively impacted earnings (loss) per share by $0.30.

◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year decline of $0.02 per share which was impacted by the following:

▪ Lower sales volumes (particularly electronics/consumer retail);

investments in growth, productivity, and sustainability;

manufacturing/supply chain headwinds;

inflation impacts;

China (COVID-related);

and Europe geopolitical impacts

▪ Benefits from higher selling prices;

aggressive spending discipline;

ongoing productivity actions

▪ Investments in growth, productivity, and sustainability

▪ Benefits from spending discipline, restructuring, higher selling prices and ongoing productivity actions

Restructuring:

• 3M recorded restructuring pre-tax charges of $52 million in the first quarter of 2023 compared to $18 million in the same period last year (refer to Note 5 for additional discussion).

• 3M recorded restructuring pre-tax charges of $212 million and $264 million in the second quarter and first six months of 2023, respectively, compared to no charges and $18 million in the same periods last year, respectively, (refer to Note 5 for additional discussion).

Raw material impact:

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Foreign exchange impacts

• Foreign currency impacts (net of hedging) decreased operating income and pre-tax earnings by approximately $76 million year-on-year for the first quarter of 2023, primarily resulting from the strength of the U.S.

• Foreign currency impacts (net of hedging) decreased operating income (loss) by approximately $39 million (or a decrease of pre-tax earnings (loss) by approximately $23 million) year-on-year for the second quarter of 2023 and decreased operating income (loss) by approximately $115 million (or a decrease of pre-tax earnings (loss) by approximately $99 million) year-on-year for the first six months of 2023, primarily resulting from the strength of the U.S.

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.

Divestitures:

Acquisitions/divestitures:

• Acquisition and divestiture impacts are measured separately for the first 12 months post-transaction.

• Divestiture impact includes lost income from divested businesses and remaining stranded costs (net of transition arrangement income).

In the third quarter of 2022, 3M completed both the split-off of the Food Safety business (discussed in Note 3) and the deconsolidation of the Aearo Entities (discussed in Note 14).

In the third quarter of 2022, 3M completed the split-off of the Food Safety business (discussed in Note 3).

• In the third quarter of 2022, 3M deconsolidated the Aearo Entities and, in the second quarter of 2023, reconsolidated those entities (discussed in Note 14).

For each of the 12-months post-deconsolidation and post-reconsolidation, impacts are each reflected separately as divestiture and acquisition, respectively.

Other expense (income), net:

• Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for the first quarter of 2023.

• Interest expense (net of interest income) decreased for the first quarter of 2023 compared to the same period year-on-year.

• Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for the second quarter and first six months of 2023.

• Interest expense (net of interest income) decreased for the second quarter and first six months of 2023 compared to the same period year-on-year.

Income tax rate:

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

Overall, the effective tax rate for the first quarter of 2023 was 17.7 percent, a decrease from 18.8 percent in the prior year.

The primary factor that decreased the Company's effective tax rate for first quarter 2023 was deferred tax impacts of 2023 activity.

• On an adjusted basis (as discussed below), the effective tax rate for the first quarter of 2023 was 17.7 percent, an increase of 0.2 percentage points compared to the same period year-on-year.

Overall, the effective tax rate for the second quarter of 2023 was 24.2 percent on a pre-tax loss, compared to (38.3) percent on pre-tax income in the prior year.

The primary factor that impacted the comparison of these rates was the second quarter 2022 charge related to steps toward resolving Combat Arms Earplugs litigation (see Note 14).

The effective tax rate for the first six months of 2023 was 25.2 percent, compared to 16.8 percent in the prior year.

The primary factor that impacted the comparison of the six-month rates was the second quarter 2023 charge related to the proposed settlement agreement with public water systems in the United States regarding PFAS (discussed in Note 14).

• On an adjusted basis (as discussed below), the effective tax rate for the second quarter and first six months of 2023 was 19.1 percent and 18.5 percent, respectively, a decrease of 0.7 percentage points and a decrease of 0.1 percent, respectively, compared to the same period year-on-year.

Shares of common stock outstanding:

• Lower shares outstanding increased earnings per share year-on-year for the first quarter of 2023.

• Lower shares outstanding increased earnings (loss) per share year-on-year for the second quarter and first six months of 2023.

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

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The information herein reflects the impacts of these changes for all periods presented.

This document contains measures for which 3M provides the reported GAAP measure and a non-GAAP measure adjusted for special items.These measures and reasons 3M believes they are useful to investors (and, as applicable, used by 3M) include:

This document contains measures for which 3M provides the reported GAAP measure and a non-GAAP measure adjusted for special items.

These measures and reasons 3M believes they are useful to investors (and, as applicable, used by 3M) include:

GAAP amounts for which a measure adjusted for special items is also provided:

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useful in understanding underlying business performance, provides additional transparency to special items

• Operating income, segment operating income and operating income margin

• Income before taxes

• Operating income (loss), segment operating income (loss) and operating income (loss) margin

• Income (loss) before taxes

• Provision for income taxes and effective tax rate

• Earnings per share

• Net income (loss)

• Earnings (loss) per share

Special items for the periods presented include:

Net costs for significant litigation:

• These relate to 3M's respirator mask/asbestos, PFAS-related other environmental, and Combat Arms Earplugs matters (as discussed in Note 14).

Net costs include the impacts of any changes in accrued liabilities, external legal fees, and insurance recoveries, along with the 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.

• These relate to 3M's respirator mask/asbestos (which include Aearo and non-Aearo items), PFAS-related other environmental, and Combat Arms Earplugs matters (as discussed in Note 14).

Net costs include the impacts of changes in accrued liabilities (including interest imputation on contractual settlement obligations), external legal fees, and insurance recoveries, along with the associated tax impacts.

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

In addition, during the voluntary chapter 11 bankruptcy period (which began in July 2022 and ended in June 2023—see Note 14), costs associated with the Aearo portion of respirator mask/asbestos matters were reflected in corporate special items in Corporate and Unallocated.

Prior to the bankruptcy, costs associated with Combat Arms Earplugs matters were reflected as part of special items in the Safety and Industrial business segment.

Divestiture costs:

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Estimated income does not contemplate impacts on non-operating items such as net interest income/expense and the non-service cost components portion of defined benefit plan net periodic benefit costs.

Three months ended March 31, 2022

(Dollars in millions, except per share amounts) Net Sales Operating Income Operating Income Margin Income Before Taxes Provision for Income Taxes Effective tax rate Net Income Attributable to 3M Earnings per Diluted Share

Russia exit charges/benefits:

• In the second quarter of 2023, 3M recorded a gain on final disposal of net assets in Russia.

Previously, in the third quarter of 2022, 3M recorded a charge primarily related to impairment of these assets in connection with management's committed exit and disposal plan.

Refer to Note 13 for further details.

Three months ended June 30, 2022

(Dollars in millions, except per share amounts) Net sales Operating income (loss) Operating income (loss) margin Income (loss) before taxes Provision (benefit) for income taxes Effective tax rate Net income (loss) attributable to 3M Earnings per diluted share

Safety and Industrial

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Adjusted amounts (non-GAAP measures) $ 8,384 $ 1,806 21.6 % $ 1,756 $ 345 19.8 % $ 1,406 $ 2.45

Three months ended March 31, 2023

(Dollars in millions, except per share amounts) Net Sales Sales Change Operating Income Operating Income Margin Income Before Taxes Provision for Income Taxes Effective tax rate Net Income Attributable to 3M Earnings per Diluted Share Earnings per diluted share percent change

Three months ended June 30, 2023

(Dollars in millions, except per share amounts) Net sales Sales change Operating income (loss) Operating income (loss) margin Income (loss) before taxes Provision (benefit) for income taxes Effective tax rate Net income (loss) attributable to 3M Earnings (loss) per diluted share Earnings (loss) per diluted share percent change

Safety and Industrial

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Total Company

GAAP amounts $ 8,031 (9.0) % $ 1,241 15.4 % $ 1,189 $ 210 17.7 % $ 976 $ 1.76 (22) %

GAAP amounts $ 8,325 (4.3) % $ (8,958) (107.6) % $ (9,023) $ (2,184) 24.2 % $ (6,841) $ (12.35) N/M

Adjustments for special items:

Net costs for significant litigation 1

— 10,437 10,449 2,457 7,992 14.43

Manufactured PFAS products (332) (41) (41) (10) (31) (0.06)

Russia exit charges (benefits) — (18) (18) 3 (21) (0.04)

Divestiture costs — 125 125 20 105 0.19

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Adjusted amounts (non-GAAP measures) $ 7,993 (4.7) % $ 1,545 19.3 % $ 1,492 $ 286 19.1 % $ 1,204 $ 2.17 (12) %

Three months ended March 31, 2023

1 For the per share amount, this includes adjusting-out the impact of this item causing weighted average shares outstanding to be the same for both basic and diluted loss per share in periods of resulting net losses.

Three months ended June 30, 2023

Sales Change Organic sales Acquisitions Divestitures Translation Total sales change

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Adjusted Transportation and Electronics (non-GAAP measures) (2.4) % 0.6 % (1.5) % (1.4) % (4.7) %

Six months ended June 30, 2022

Safety and Industrial

GAAP amounts $ (80) (1.3) %

Adjustments for special items:

Net costs for significant litigation 1,400

Total special items 1,400

Adjusted amounts (non-GAAP measures) $ 1,320 22.1 %

Transportation and Electronics

GAAP amounts $ 4,608 $ 939 20.4 %

Adjustments for special items:

Manufactured PFAS products (638) (36)

Total special items (638) (36)

Adjusted amounts (non-GAAP measures) $ 3,970 $ 903 22.8 %

Total Company

GAAP amounts $ 17,531 $ 1,751 10.0 % $ 1,663 $ 279 16.8 % $ 1,377 $ 2.40

Adjustments for special items:

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

Manufactured PFAS products (638) (36) (36) (10) (26) (0.05)

Total special items (638) 1,930 1,930 389 1,541 2.68

Adjusted amounts (non-GAAP measures) $ 16,893 $ 3,681 21.8 % $ 3,593 $ 668 18.6 % $ 2,918 $ 5.08

Six months ended June 30, 2023

Safety and Industrial

GAAP amounts $ 1,135 20.5 %

Adjustments for special items:

Net costs for significant litigation 41

Total special items 41

Adjusted amounts (non-GAAP measures) $ 1,176 21.2 %

Transportation and Electronics

GAAP amounts $ 4,241 (8.0) % $ 704 16.6 %

Adjustments for special items:

Manufactured PFAS products (677) (51)

Total special items (677) (51)

Adjusted amounts (non-GAAP measures) $ 3,564 (10.2) % $ 653 18.3 %

Total Company

GAAP amounts $ 16,356 (6.7) % $ (7,717) (47.2) % $ (7,834) $ (1,974) 25.2 % $ (5,865) $ (10.60) N/M

Adjustments for special items:

Net costs for significant litigation 1

— 10,480 10,492 2,464 8,028 14.51

Manufactured PFAS products (677) (51) (51) (13) (38) (0.07)

Russia exit charges (benefits) — (18) $ (18) 3 (21) (0.04)

Divestiture costs — 227 227 40 187 0.34

Total special items (677) 10,638 10,650 2,494 8,156 14.74

Adjusted amounts (non-GAAP measures) $ 15,679 (7.2) % $ 2,921 18.6 % $ 2,816 $ 520 18.5 % $ 2,291 $ 4.14 (19) %

Six months ended June 30, 2023

Sales Change Organic sales Acquisitions Divestitures Translation Total sales change

Total Company (3.6) % 0.1 % (1.3) % (1.9) % (6.7) %

Remove manufactured PFAS products special item impact (0.5) — (0.1) 0.1 (0.5)

Adjusted total Company (non-GAAP measures) (4.1) % 0.1 % (1.4) % (1.8) % (7.2) %

Transportation and Electronics (4.7) % 0.2 % (1.1) % (2.4) % (8.0) %

Remove manufactured PFAS products special item impact (2.3) 0.1 (0.2) 0.2 (2.2)

Adjusted Transportation and Electronics (non-GAAP measures) (7.0) % 0.3 % (1.3) % (2.2) % (10.2) %

Sales and operating income (loss) by business segment:

The following tables contain sales and operating income (loss) results by business segment for the three months ended March 31, 2023 and 2022.

The following tables contain sales and operating income (loss) results by business segment for the three and six months ended June 30, 2023 and 2022.

Refer to the section entitled Performance by Business Segment later in MD&A for additional discussion concerning 2023 versus 2022 results, including Corporate and Unallocated.

Refer to Note 15 for additional information on business segments.

Three months ended March 31,

Three months ended June 30,

2023 2022 % change

(Dollars in millions) Net

Sales Operating

Income (Loss) Net

Sales Operating

Income (Loss) Net

Sales Operating

Income (Loss)

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Corporate and Unallocated 1 (10,548) 1 (398)

Total Company $ 8,031 $ 1,241 $ 8,829 $ 1,641 (9.0) % (24.4) %

Three months ended March 31, 2023

Total Company $ 8,325 $ (8,958) $ 8,702 $ 110 (4.3) % N/M

Six months ended June 30,

2023 2022 % change

(Dollars in millions) Net Sales Operating Income (Loss) Net Sales Operating Income (Loss) Net Sales Operating Income (Loss)

Business Segments

Safety and Industrial $ 5,544 $ 1,135 $ 5,975 $ (80) (7.2) % N/M

Transportation and Electronics 4,241 704 4,608 939 (8.0) (25.1)

Health Care 4,085 771 4,307 937 (5.2) (17.7)

Consumer 2,485 414 2,639 467 (5.8) (11.4)

Corporate and Unallocated 1 (10,741) 2 (512)

Total Company $ 16,356 $ (7,717) $ 17,531 $ 1,751 (6.7) % N/M

Three months ended June 30, 2023

Worldwide Sales Change

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Total Company (2.2) 0.1 (1.3) (0.9) (4.3)

Six months ended June 30, 2023

Worldwide Sales Change

By Business Segment Organic sales Acquisitions Divestitures Translation Total sales change

Safety and Industrial (5.3) % — % — % (1.9) % (7.2) %

Transportation and Electronics (4.7) 0.2 (1.1) (2.4) (8.0)

Health Care 0.8 — (4.2) (1.8) (5.2)

Consumer (4.5) — (0.1) (1.2) (5.8)

Total Company (3.6) 0.1 (1.3) (1.9) (6.7)

Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details on the impact of special items on sales (and sales change) and operating income (loss) by business segment.

Sales by geographic area:

Percent change information compares the three months ended March 31, 2023 with the same prior year period, unless otherwise indicated.

Percent change information compares the three and six months ended June 30, 2023 with the same prior year period, unless otherwise indicated.

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

Three months ended March 31, 2023

Three months ended June 30, 2023

Americas Asia

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Organic sales 0.1 (8.1) 0.3 (2.2)

Acquisitions 0.2 — — 0.1

Divestitures (1.6) (1.0) (0.8) (1.3)

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Total sales change (1.5) % (12.8) % 0.6 % (4.3) %

Six months ended June 30, 2023

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

Net sales (millions) $ 9,077 $ 4,314 $ 2,965 $ — $ 16,356

% of worldwide sales 55.5 % 26.4 % 18.1 % 100.0 %

Components of net sales change:

Organic sales 0.6 (11.7) (2.2) (3.6)

Acquisitions 0.1 — — 0.1

Divestitures (1.6) (1.0) (0.9) (1.3)

Translation (0.3) (4.6) (2.0) (1.9)

Total sales change (1.2) % (17.3) % (5.1) % (6.7) %

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

• For the first quarter of 2023, in the Americas geographic area, U.S.

• For the second quarter of 2023, in the Americas geographic area, U.S.

total sales decreased 1 percent which included flat organic sales.

Total sales in Mexico increased 9 percent which included increased organic sales of 11 percent.

In Canada, total sales decreased 16 percent which included decreased organic sales of 11 percent.

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

In the Asia Pacific geographic area, China total sales decreased 8 percent which included decreased organic sales of 4 percent.

In Japan, total sales decreased 19 percent which included decreased organic sales of 13 percent.

• For the first six months of 2023, in the Americas geographic area, U.S.

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

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The stronger U.S.

dollar had a negative impact on sales in the first three months of 2023 compared to the same period last year.

Net of the Company’s hedging strategy, foreign currency negatively impacted earnings in the first three months of 2023 compared to the same period last year.

dollar had a negative impact on sales in the second quarter and first six months of 2023 compared to the same period last year.

Net of the Company’s hedging strategy, foreign currency negatively impacted earnings in the second quarter and first six months of 2023 compared to the same period last year.

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

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

In the first three months of 2023, the Company purchased $29 million of its own stock, compared to $773 million of stock purchases in the first three months of 2022.

As of March 31, 2023, approximately $4.2 billion remained available under the authorization.

In the first six months of 2023, the Company purchased $29 million of its own stock, compared to $773 million of stock purchases in the first six months of 2022.

As of June 30, 2023, approximately $4.2 billion remained available under the authorization.

In February 2023, 3M’s Board of Directors declared a first-quarter 2023 dividend of $1.50 per share, an increase of 1 percent.

This marked the 65th consecutive year of dividend increases for 3M.

In May 2023, 3M's Board of Directors declared a second-quarter 2023 dividend of $1.50 per share.

RESULTS OF OPERATIONS

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Three months ended

(Percent of net sales) 2023 2022 Change

June 30, Six months ended

(Percent of net sales) 2023 2022 Change 2023 2022 Change

Cost of sales 55.3 % 58.5 % (3.2) % 56.4 % 56.6 % (0.2) %

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Research, development and related expenses (R&D) 5.7 5.5 0.2 5.8 5.5 0.3

Operating income margin 15.4 % 18.6 % (3.2) %

Stock compensation expense was $135 million and $135 million for the three months ended March 31, 2023 and 2022, respectively, which impacts cost of sales;

Operating income (loss) margin (107.6) % 1.3 % (108.9) % (47.2) % 10.0 % (57.2) %

Stock compensation expense was $41 million and $47 million for the second quarter of 2023 and 2022, respectively, and was $176 million and $182 million for the six months ended June 30, 2023 and 2022, respectively, which impacts cost of sales;

selling, general and administrative expenses (SG&A);

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3M expects global defined benefit pension and postretirement service cost expense in 2023 to decrease by approximately $160 million pre-tax when compared to 2022, which impacts cost of sales, SG&A, and R&D.

The year-on-year decrease in defined benefit pension and postretirement service cost expense for the first three months of 2023 was approximately $42 million.

The year-on-year decrease in defined benefit pension and postretirement service cost expense for the second quarter and first six months of 2023 was approximately $38 million and $80 million, respectively.

For total year 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.

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Cost of Sales:

Cost of sales, measured as a percent of sales, increased in the first three months of 2023 when compared to the same period last year.

Increases were primarily due to higher raw materials and energy costs;

Cost of sales, measured as a percent of sales, decreased in the second quarter and first six months of 2023 when compared to the same period last year.

Decreases were primarily due to lower year-on-year net costs for significant litigation to address certain PFAS-related matters at 3M's Zwijndrecht, Belgium site, higher selling prices, spending discipline and restructuring benefits.

These decreases were partially offset by higher raw materials and energy costs;

manufacturing productivity headwinds;

investments in growth, productivity and sustainability;

and restructuring.

These increases were partially offset year-on-year due to lower net costs for significant litigation to address certain PFAS-related other environmental matters, strong pricing and aggressive spending discipline.

and restructuring charges.

Selling, General and Administrative Expenses:

SG&A, measured as a percent of sales, was consistent in the first three months of 2023 when compared to the same period last year.

SG&A was impacted restructuring charges and continued investment in key growth initiatives.

These impacts were offset by lower net costs for significant litigation to address Combat Arms Earplugs and 3M's respirator mask/asbestos litigation matters, restructuring benefits and ongoing general 3M cost management.

SG&A, measured as a percent of sales, increased in the second quarter and first six months of 2023 when compared to the same period last year.

SG&A in 2023 was primarily impacted by a $10.3 billion pre-tax charge related to the proposed settlement agreement announced in the second quarter of 2023 with public water systems in the United States regarding PFAS (see Note 14).

SG&A was also impacted by restructuring charges, divestiture costs (related to separating and preparing the Health Care business for spin-off), continued investment in key growth initiatives and ongoing respirator mask/asbestos litigation matters.

These impacts were partially offset by lower net costs for significant litigation to address Combat Arms Earplugs litigation matters (for which a pre-tax charge of approximately $1.2 billion was reflected in the second quarter of 2022), restructuring benefits and ongoing general 3M cost management.

Research, Development and Related Expenses:

R&D, measured as a percent of sales, increased in the first three months of 2023 when compared to the same period last year.

R&D, measured as a percent of sales, increased in the second quarter and first six months of 2023 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.

R&D was also impacted by restructuring charges.

Other Expense (Income), Net:

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

Interest expense (net of interest income) decreased in the first quarter of 2023 primarily due to prior period debt maturities and interest income generated on invested cash.

The non-service pension and postretirement net benefit decreased approximately $36 million in the first quarter of 2023 compared to the same period year-on-year.

Provision for Income Taxes:

Interest expense (net of interest income) decreased in the second quarter and first six months of 2023 compared to the same period year-on-year primarily driven by interest income generated on invested cash.

The non-service pension and postretirement net benefit decreased approximately $36 million and $72 million in the second quarter and first six months of 2023, respectively, compared to the same period year-on-year.

Provision (benefit) for Income Taxes:

Three months ended

(Percent of pre-tax income) 2023 2022

June 30, Six months ended

(Percent of pre-tax income/loss) 2023 2022 2023 2022

Effective tax rate 24.2 % (38.3) % 25.2 % 16.8 %

The primary factor that decreased the Company's effective tax rate for first quarter 2023 was deferred tax impacts of 2023 activity.

The primary factors that impacted the comparisons of the Company's effective tax rate for the second quarters and the first six months of 2023 and 2022 were the second quarter 2022 charge related to steps toward resolving Combat Arms Earplugs litigation and the second quarter 2023 charge related to the proposed settlement agreement with public water systems in the United States regarding PFAS (both discussed in Note 14).

The tax rate can vary from quarter to quarter due to discrete items, such as the settlement of income tax audits, changes in tax laws, and employee share-based payment accounting;

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Three months ended

June 30, Six months ended

(Millions) 2023 2022 2023 2022

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Three months ended

June 30, Six months ended

(Millions) 2023 2022 2023 2022

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In addition, disclosures relating to 3M’s business segments are provided in Note 15.

Effective in the first quarter of 2023, the measure of segment operating performance and segment composition used by 3M’s chief operating decision maker (CODM) changed and, as a result, 3M’s disclosed measure of segment profit/loss (business segment operating income) was updated for all comparative periods presented.

The change to business segment operating income aligns with the update to how the CODM assesses performance and allocates resources for the Company’s business segments (see Note 15 for additional details).

Effective in the first quarter of 2023, the measure of segment operating performance and segment composition used by 3M’s chief operating decision maker (CODM) changed and, as a result, 3M’s disclosed measure of segment profit/loss (business segment operating income (loss)) was updated for all comparative periods presented.

The change to business segment operating income (loss) aligns with the update to how the CODM assesses performance and allocates resources for the Company’s business segments (see Note 15 for additional details).

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

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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 15.

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

Corporate special items include net costs for significant litigation associated with Combat Arms Earplugs and Aearo-respirator mask/asbestos matters during the chapter 11 bankruptcy period (which began in July 2022) and with PFAS-related other environmental matters (see Note 14).

Corporate special items also include divestiture costs, gain/loss on business divestitures (see Note 3), divestiture-related restructuring costs (see Note 5), and Russia exit costs (see Note 13).

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

Corporate special items include net costs for significant litigation impacting operating income (loss) associated with PFAS-related other environmental and Combat Arms Earplugs matters.

In addition, during the voluntary chapter 11 bankruptcy period (which began in July 2022 and ended in June 2023—see Note 14) costs associated with the Aearo portion of respirator mask/asbestos matters were also included in corporate special items.

Prior to the bankruptcy, costs associated with Combat Arms Earplugs matters were not included in the Corporate net costs for significant litigation special item, instead being reflected in the Safety and Industrial business segment.

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/benefits (see Note 13).

Divestiture costs include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture.

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

Corporate and Unallocated operating expenses increased in the first three months of 2023, when compared to the same period last year.

Corporate and Unallocated operating expenses increased in the second quarter and first six months of 2023, when compared to the same period last year.

The subsections below provide additional information.

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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 15 for additional information on the components of corporate special items.

Corporate special item net costs remained flat year over year.

Corporate special item net costs increased year-over-year primarily due to increased net costs for significant litigation as a result of the $10.3 billion pre-tax charge related to the proposed settlement agreement announced in the second quarter of 2023 with public water systems in the United States regarding PFAS (see Note 14) and divestiture costs.

Other Corporate Expense - Net

Other corporate operating expenses, net, increased in the first three months of 2023, when compared to the same period last year.

The year-on-year increase was primarily due to higher pre-tax restructuring charges and lower gains on sale of property, plant and equipment.

Other corporate operating expenses, net, increased in the second quarter and first six months of 2023, when compared to the same period last year.

The year-on-year increase was primarily due to higher pre-tax restructuring charges (see Note 5).

Operating Business Segments:

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Three months ended

June 30, Six months ended

2023 2022 2023 2022

Sales (millions) $ 2,765 $ 2,924 $ 5,544 $ 5,975

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Business segment operating income (loss) (millions) $ 534 $ (707) $ 1,135 $ (80)

Percent change (4.2) %

Percent change (175.6) % N/M

Percent of sales 19.3 % (24.2) % 20.5 % (1.3) %

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

For Safety and Industrial these adjustments include net costs for respirator mask/asbestos (Aearo-related and non-Aearo related) and Combat Arms Earplugs litigation matters.

During the Aearo chapter 11 bankruptcy period (which began in July 2022 — see Note 14), net costs related to Combat Arms Earplugs and Aearo-respirator mask/asbestos matters are reflected as corporate special items in Corporate and Unallocated while those associated with non-Aearo respirator mask/asbestos matters continue to be reflected as special items in the Safety and Industrial business segment.

For Safety and Industrial these adjustments include net costs related to respirator mask/asbestos (Aearo-related and non-Aearo related).

During the voluntary Aearo chapter 11 bankruptcy period (which began in July 2022 and ended in June 2023 —see Note 14), net costs related to Aearo-respirator mask/asbestos matters were reflected as corporate special items in Corporate and Unallocated while those associated with non-Aearo respirator mask/asbestos matters continued to be reflected as special items in the Safety and Industrial business segment.

Prior to the bankruptcy, costs associated with Combat Arms Earplugs matters were reflected in the Safety and Industrial business segment (rather than reflected in Corporate and Unallocated--see note 15 for additional information).

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

First quarter 2023 results:

Second quarter 2023 results:

Sales in Safety and Industrial were down 5.5 percent in U.S.

On an organic sales basis:

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

• Growth was held back by the disposable respirator sales decline within personal safety along with the exit of Russia (which, together, negatively impacted year-on-year first quarter organic growth by 9.9 percentage points);

declines within industrial adhesives and tapes due to consumer electronics softness, closure and masking systems was down as consumers pulled back on discretionary spending impacting e-commerce shipments.

Business segment operating income margins increased year-on-year from pricing, aggressive spending discipline, and productivity actions which more than offset the decline driven by lower sales volume, manufacturing and supply chain headwinds, carryover raw material/logistics/energy cost inflation, investments in the business and China COVID-related challenges.

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

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

• Growth was held back by disposable respirator sales decline within personal safety (which negatively impacted year-on-year second quarter organic growth by 4.8 percentage points);

declines in closure and masking systems due to slowdown in packaging and shipping activity;

and declines within industrial adhesives and tapes from continued end-market softness in electronics.

Business segment operating income (loss) margins increased year-on-year primarily due to lower special item costs for significant litigation.

2022 was impacted by a pre-tax charge in the second quarter of approximately $1.2 billion related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14).

In addition, year-on-year margins increased from productivity actions, strong spending discipline, and pricing which more than offset the decline driven by lower sales volume, restructuring costs, and inflation impacts.

Adjusting for special items (non-GAAP measure), business segment operating income margins increased year-on-year as displayed above.

First six months 2023 results:

Sales in Safety and Industrial were down 7.2 percent in U.S.

On an organic sales basis:

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

• Growth was held back by the disposable respirator sales decline within personal safety along with the exit of Russia (which, together, negatively impacted year-on-year organic growth by 7.3 percentage points) for the first six months of 2023;

Business segment operating income (loss) margins increased year-on-year primarily due to lower special item costs for significant litigation.

2022 was impacted by a pre-tax charge in the second quarter of approximately $1.2 billion related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 14).

Margins were also impacted by aggressive spending discipline, pricing and productivity actions which were more than offset by the lower sales volume, restructuring costs, inflation impacts, investments in the business and China COVID-related challenges.

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

Transportation and Electronics Business:

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Sales (millions) $ 2,191 $ 2,268 $ 4,241 $ 4,608

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Organic sales (1.3) % (4.7) %

Acquisitions 0.5 % 0.2

Divestitures (1.3) (1.1)

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Organic sales (2.4) % (7.0) %

Acquisitions 0.6 0.3

Divestitures (1.5) (1.3)

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

First quarter 2023 results:

Second quarter 2023 results:

Sales in Transportation and Electronics were down 3.4 percent in U.S.

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On an organic sales basis:

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

• Growth continued to be held back by significant consumer electronics end-market weakness along with tiers and original equipment manufacturers (OEMs) aggressively reducing inventories particularly for smartphones, tablets and TVs.

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 from lower sales volumes, manufacturing and supply chain headwinds, carryover raw material/logistics/energy cost inflation, investments in the business and China COVID-related challenges partially offset by benefits from pricing, aggressive spending discipline, and productivity actions.

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

• Growth continued to be held back by soft end-market demand for electronics partially offset by growth in automotive and aerospace, which outpaced global car and light truck builds.

Acquisitions/divestitures:

• Divestiture and acquisition impacts relate to lost/gained Transportation and Electronics sales year-on-year from the Aearo Entities.

In the third quarter of 2022, 3M deconsolidated the Aearo Entities and, in the second quarter of 2023, reconsolidated those entities (discussed in Note 14).

For each of the 12-months post-deconsolidation and post-reconsolidation, impacts are each reflected separately as divestiture and acquisition, respectively.

Business segment operating income margins decreased year-on-year from sales volume declines, restructuring costs, and inflation impacts partially offset by benefits from strong spending discipline, productivity actions, and pricing.

Adjusting for special item PFAS manufactured products (non-GAAP measure), business segment operating income margins decreased year-on-year as displayed above.

First six months 2023 results:

Sales in Transportation and Electronics were down 8.0 percent in U.S.

Adjusting for special item PFAS manufactured products (non-GAAP measure), sales were down 10.2 percent in U.S.

On an organic sales basis:

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

• Growth continued to be held back by consumer electronics end-market weakness.

Acquisitions/divestitures:

• Divestiture and acquisition impacts relate to lost/gained Transportation and Electronics sales year-on-year from the Aearo Entities.

In the third quarter of 2022, 3M deconsolidated the Aearo Entities and, in the second quarter of 2023, reconsolidated those entities (discussed in Note 14).

For each of the 12-months post-deconsolidation and post-reconsolidation, impacts are each reflected separately as divestiture and acquisition, respectively.

Business segment operating income margins decreased year-on-year from lower sales volumes, inflation impacts, investments in the business, restructuring costs, manufacturing and supply chain headwinds and China COVID-related challenges partially offset by benefits from aggressive spending discipline, pricing and productivity actions.

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

Health Care Business:

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Sales (millions) $ 2,075 $ 2,179 $ 4,085 $ 4,307

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Percent of sales 19.8 % 22.6 % 18.9 % 21.8 %

First quarter 2023 results:

Second quarter 2023 results:

Sales in Health Care were down 4.8 percent in U.S.

On an organic sales basis:

• Sales increased in medical solutions, and oral care;

were flat in health information systems, and decreased in separation and purification.

• Growth was held back by declines in separation and purification due to the normalization of post-COVID-related biopharma demand along with overall headwinds from the exit of Russia.

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

• Growth was held back by declines in separation and purification and health information systems, which continued to be negatively impacted by lower post-COVID-related biopharma demand and ongoing stress on hospital budgets.

Divestitures:

• Divestiture impact relates to the lost sales year-on-year from the Food Safety Division split-off transaction in the third quarter of 2022.

Business segment operating income margins decreased year-on-year due to manufacturing and supply chain headwinds, carryover raw material/logistics/energy costs inflation and investments in the business, partially offset by benefits from pricing, aggressive spending discipline, and productivity actions.

Business segment operating income margins decreased year-on-year due to lower sales volume, restructuring costs, and inflation impacts partially offset by benefits from strong spending discipline, productivity actions, and pricing.

As discussed in Note 3, in the third quarter of 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.

In addition, as discussed in Note 3, in the second quarter of 2023, 3M entered into agreements to sell the assets associated with its dental local anesthetic business That transaction is expected to close in the third quarter of 2023.

First six months 2023 results:

Sales in Health Care were down 5.2 percent in U.S.

On an organic sales basis:

• Sales increased in medical solutions and oral care and decreased in separation and purification and health information systems.

• Growth was held back by declines in separation and purification due to the normalization of post-COVID-related biopharma demand, declines in health information systems from ongoing stress on hospital budgets along with overall headwinds from the exit of Russia.

Divestitures:

• Divestiture impact relates to the lost sales year-on-year from the divestiture from the Food Safety Division split-off transaction and combination with Neogen completed in the third quarter of 2022.

Business segment operating income margins decreased year-on-year due to due to manufacturing and supply chain headwinds, inflation impacts, investments in the business and restructuring costs partially offset by benefits from aggressive spending discipline, pricing and productivity actions.

Consumer Business:

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Sales (millions) $ 1,293 $ 1,330 $ 2,485 $ 2,639

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Percent of sales 18.2 % 18.6 % 16.7 % 17.7 %

First quarter 2023 results:

Second quarter 2023 results:

Sales in Consumer were down 2.7 percent in U.S.

On an organic sales basis:

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

• Growth was negatively impacted as consumers have shifted their spending patterns to more non-discretionary items and retailers have aggressively reduced their inventory levels.

Business segment operating income margins decreased year-on-year from lower sales volumes;

manufacturing and supply chain headwinds and carryover raw material/logistics/energy cost inflation, partially offset by benefits from pricing, aggressive spending discipline, and productivity actions.

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

• Growth was negatively impacted as discretionary spending trends on hardline categories remains soft.

Business segment operating income margins decreased year-on-year from lower sales volumes, restructuring costs, and inflation impacts, partially offset by benefits from strong spending discipline, productivity actions, and pricing.

First six months 2023 results:

Sales in Consumer were down 5.8 percent in U.S.

On an organic sales basis:

• Sales decreased in home improvement, home health and auto care, and stationery and office.

• Growth was negatively impacted as consumers have shifted their spending patterns to more non-discretionary items.

Business segment operating income margins decreased year-on-year from lower sales volumes, inflation impacts, investments, manufacturing and supply chain headwinds, and restructuring costs partially offset by benefits from aggressive spending discipline, pricing and productivity actions.

FINANCIAL CONDITION AND LIQUIDITY

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

The Company had $1.1 billion in commercial paper outstanding at March 31, 2023, compared to no commercial paper outstanding as of December 31, 2022.

The Company had $1.8 billion in commercial paper outstanding at June 30, 2023, compared to no commercial paper outstanding as of December 31, 2022.

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

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

As of March 2023, 3M has a credit rating of A1, negative outlook from Moody's Investors Service, and a credit rating of A, CreditWatch negative from S&P Global Ratings.

The Company’s total debt at March 31, 2023 was consistent when compared to December 31, 2022 as maturities of $1.15 billion of fixed-rate notes were offset by issuances of commercial paper of $1.1 billion.

As of June 2023, 3M has a credit rating of A2, negative outlook from Moody's Investors Service, and a credit rating of A-, CreditWatch negative from S&P Global Ratings.

The Company’s total debt at June 30, 2023 was consistent when compared to December 31, 2022 as maturities of $1.8 billion of fixed-rate notes were offset by issuances of commercial paper of $1.8 billion.

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

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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.

USD LIBOR rates that did not cease on December 31, 2021 will continue to be published through June 30, 2023, and certain USD LIBOR rates subject to a synthetic methodology will continue to be published until September 2024.

The Company anticipates its debt securities, bank facilities, and derivative instruments that previously utilized LIBOR as the reference rate will transition to the Secured Overnight Financing Rate, or SOFR, as a reference rate as necessary.

Effective February 8, 2023, 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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In May 2016, 3M entered into an amended and restated distribution agreement relating to the future issuance and sale (from time to time) of the Company’s medium-term notes program (Series F), up to the aggregate principal amount of $18 billion, which was an increase from the previous aggregate principal amount up to $9 billion of the same Series.

As of March 31, 2023, 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).

As of June 30, 2023, the total amount of debt issued as part of the medium-term notes program (Series F), inclusive of debt issued in February 2019 and prior years is approximately $17.6 billion (utilizing the foreign exchange rates applicable at the time of issuance for the euro denominated debt).

Information with respect to long-term debt issuances and maturities for the periods presented is included in Note 10 of this Form 10-Q and Note 12 in 3M's 2022 Annual Report on Form 10-K.

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

In May 2023, 3M entered into a $4.25 billion five-year revolving credit facility expiring in 2028;

the facility was amended in July 2023.

The revolving credit agreement includes a provision under which 3M may request an increase of up to $1.0 billion (at lender’s discretion), bringing the total facility up to $5.25 billion.

In addition, 3M entered into a $1.25 billion 364-day credit facility, which was renewed in November 2022 with an expiration date of November 2023.

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

These credit facilities were undrawn at March 31, 2023.

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

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

At March 31, 2023, this ratio was approximately 17 to 1.

The agreement replaced the amended and restated $3.0 billion, five-year revolving credit agreement and the $1.25 billion 364-day credit facility that would have expired in November 2024 and November 2023, respectively.

The credit facility was undrawn at June 30, 2023.

Under the $4.25 billion credit facility, the Company is required to maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not less than 3.0 to 1.

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

At June 30, 2023, this ratio, reflecting the July 2023 amendment, was approximately 17 to 1.

Debt covenants do not restrict the payment of dividends.

The Company also had $320 million in stand-alone letters of credit and bank guarantees issued and outstanding at March 31, 2023.

The Company also had $315 million in stand-alone letters of credit and bank guarantees issued and outstanding at June 30, 2023.

These instruments are utilized in connection with normal business activities.

Cash, cash equivalents and marketable securities:

At March 31, 2023, 3M had $4.0 billion of cash, cash equivalents and marketable securities, of which approximately $2.7 billion was held by the Company’s foreign subsidiaries and approximately $1.3 billion was held in the United States.

At June 30, 2023, 3M had $4.3 billion of cash, cash equivalents and marketable securities, of which approximately $3.2 billion was held by the Company’s foreign subsidiaries and approximately $1.1 billion was held in the United States.

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

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

The following table provides net debt as of March 31, 2023 and December 31, 2022.

(Millions) March 31, 2023 December 31, 2022 Change

The following table provides net debt as of June 30, 2023 and December 31, 2022.

(Millions) June 30, 2023 December 31, 2022 Change

Total debt $ 15,987 $ 15,939 $ 48

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Working capital (non-GAAP measure):

(Millions) March 31, 2023 December 31, 2022 Change

(Millions) June 30, 2023 December 31, 2022 Change

Current assets $ 15,754 $ 14,688 $ 1,066

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Balance changes in current assets increased working capital by $1.1 billion, driven largely by increases in cash and cash equivalents and accounts receivable.

Balance changes in current liabilities decreased working capital by $1.0 billion, primarily due to increases in short-term borrowings driven by issuances of commercial paper partially offset by decreases in accrued payroll.

Balance changes in current liabilities decreased working capital by $1.4 billion, primarily due to increases in short-term borrowings driven by issuances of commercial paper and increases in other current liabilities.

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

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Cash Flows from Operating Activities:

Three months ended March 31,

Six months ended June 30,

(Millions) 2023 2022

Net income including noncontrolling interest $ 981 $ 1,303

Net income (loss) including noncontrolling interest $ (5,855) $ 1,385

Depreciation and amortization 915 921

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

In the first three months of 2023, cash flows provided by operating activities increased $264 million compared to the same period last year, primarily driven by the combination of accounts receivable, inventories and accounts payable increasing operating cash flow by $54 million in the first three months of 2023, compared to operating cash flow decreasing by $247 million for these items in the first three months of 2022 (additional discussion on working capital changes is provided earlier in the Financial Condition and Liquidity section).

These favorable working capital changes along with decreased annual incentive cash compensation were partially offset by lower net income.

In the first six months of 2023, cash flows provided by operating activities increased $646 million compared to the same period last year, primarily driven by the combination of accounts receivable, inventories and accounts payable.

Cumulatively, they decreased operating cash flow by $157 million in the first six months of 2023, compared to operating cash flow decreasing by $893 million for these items in the first six months of 2022.

The second quarter pre-tax charges of approximately $10.3 billion in 2023 related to the proposed settlement agreement with public water systems in the United States regarding PFAS and $1.2 billion in 2022 related to steps toward resolving Combat Arms Earplugs litigation (both discussed in Note 14) largely impacted the net income component above, with offsets in the other-net and deferred tax elements in each of those periods.

Cash Flows from Investing Activities:

Three months ended March 31,

Six months ended June 30,

(Millions) 2023 2022

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Proceeds from sale of PP&E and other assets 23 56

Acquisitions, net of cash acquired — —

Purchases and proceeds from maturities and sale of marketable securities and investments, net 170 (62)

Proceeds from sale of businesses, net of cash sold 3 13

Other — net 37 (13)

Net cash provided by (used in) investing activities $ (619) $ (814)

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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 (including the cash payment from the Food Safety business split-off).

Refer to Note 3 for information on acquisitions and divestitures.

The Company is actively considering additional acquisitions, investments and strategic alliances, and from time to time may also divest certain businesses.

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Cash Flows from Financing Activities:

Three months ended March 31,

Six months ended June 30,

(Millions) 2023 2022

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Net cash provided by (used in) financing activities $ (1,519) $ (3,102)

Total debt was approximately $16.0 billion at March 31, 2023 and $15.9 billion at December 31, 2022.

During the first quarter of 2023, maturities of $1.15 billion of fixed-rate notes were offset by issuances of commercial paper of $1.1 billion.

The Company had $1.1 billion in commercial paper outstanding at March 31, 2023, compared to no commercial paper outstanding as of December 31, 2022.

Total debt was approximately $16.0 billion at June 30, 2023 and $15.9 billion at December 31, 2022.

During the first six months of 2023, maturities of $1.8 billion of fixed-rate notes were offset by issuances of commercial paper of $1.8 billion.

The Company had $1.8 billion in commercial paper outstanding at June 30, 2023, compared to no commercial paper outstanding as of December 31, 2022.

Net commercial paper issuances in addition to repayments and borrowings by international subsidiaries are largely reflected in “Proceeds from debt (maturities greater than 90 days)” in the preceding table.

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

In the first three months of 2023, the Company purchased $29 million of its own stock.

In the first six months of 2023, the Company purchased $29 million of its own stock.

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

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

In May 2023, 3M's Board of Directors declared a second-quarter 2023 dividend of $1.50 per share.

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

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generally accepted accounting principles (GAAP).

Therefore, they should not be considered a substitute for income or cash flow data prepared in accordance with U.S.

Therefore, they should not be considered a substitute for income (loss) or cash flow data prepared in accordance with U.S.

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

1 unchanged sentence

It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.

The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M.

The Company defines free cash flow conversion as free cash flow divided by net income (loss) attributable to 3M.

The Company believes free cash flow and free cash flow conversion are meaningful to investors as they are useful measures of performance and the Company uses these measures as an indication of the strength of the company and its ability to generate cash.

2 unchanged sentences

Refer to the preceding Cash Flows from Operating Activities and Cash Flows from Investing Activities sections for discussion of items that impacted the operating cash flow and purchases of PP&E components of the calculation of free cash flow.

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

Three months ended March 31,

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

Six months ended June 30,

(Millions) 2023 2022

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Free cash flow 1,932 1,330

Net income attributable to 3M $ 976 $ 1,299

Net income (loss) attributable to 3M $ (5,865) $ 1,377

Free cash flow conversion (33) % 97 %

1 unchanged sentence

See the Financial Condition and Liquidity - Material Cash Requirements from Known Contractual and Other Obligations section of Item 7 of 3M's 2022 Annual Report on Form 10-K.

In addition, the Company expects to pay up to $12.5 billion in the aggregate from 2024 through 2036 pursuant to the terms of a proposed settlement agreement with public water systems in the United States related to PFAS.

See Note 14 and the settlement agreement that is included in the exhibit list to this filing for additional information.

Cautionary Note Concerning Factors That May Affect Future Results

8 unchanged sentences

• liabilities and the outcome of contingencies related to certain fluorochemicals known as "PFAS," as well as matters related to the Company's plans to discontinue the use of PFAS,

• risks related to the proposed class-action settlement (“Settlement”) to resolve claims by public water systems in the United States regarding PFAS, including whether court approval of the Settlement will be obtained, whether the number of plaintiffs that opt out of the Settlement will exceed current expectations or will exceed the level that would permit 3M to terminate the Settlement (and whether 3M will elect to terminate the Settlement if this occurs), whether the Settlement is appealed, the timing and amount of payments made under the Settlement, and the impact of the settlement on other PFAS-related matters,

• the Company’s strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position,

20 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis