3M CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of 3M’s financial statements with a narrative from the perspective of management. 3M’s MD&A is presented in the following sections: • Overview • Results of Operations • Performance by Business Segment • Financial Condition and Liquidity • Cautionary Note Concerning Factors That May Affect Future Results 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). OVERVIEW 3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. Effective in the first quarter of 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 (loss))—and realignment of 3M's Consumer business segment from four divisions to three divisions. See additional information in Note 15. 3M's disclosed disaggregated revenue was also updated as a result of these changes. See additional information in Note 2. • Changes to non-GAAP measures - certain amounts adjusted for special items. Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section below for additional information. Information provided herein reflects the impact of these changes for all periods presented. 3M manages its operations in four operating business segments: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a combined basis. 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. 3M has been and may continue to be impacted by the global pandemic and related effects associated with the coronavirus (COVID-19). 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 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. 54 Table of Contents 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 Net costs for significant litigation 2.34 2.73 Manufactured PFAS products (0.03) (0.05) Total special items 2.31 2.68 Same period last year, excluding special items $ 2.45 $ 5.08 Increase/(decrease) due to: Total organic growth/productivity and other 0.06 (0.32) Restructuring (0.31) (0.36) Raw material impact (0.04) (0.18) Foreign exchange impacts (0.02) (0.12) Acquisitions/divestitures (0.03) (0.05) Other expense (income), net (0.03) (0.05) Income tax rate 0.02 — Shares of common stock outstanding 0.07 0.14 Current period, excluding special items 2.17 4.14 Net costs for significant litigation (14.43) (14.51) Divestiture costs (0.19) (0.34) Russia exit (charges) benefits 0.04 0.04 Manufactured PFAS products 0.06 0.07 Total special items (14.52) (14.74) Current period $ (12.35) $ (10.60) The Company refers to various "adjusted" amounts or measures on an “adjusted basis.” These exclude special items. These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for special items - (non-GAAP measures) section below. A discussion related to the components of year-on-year changes in earnings (loss) per diluted share follows: Total organic growth/productivity and other: • 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 spending discipline, restructuring, higher selling prices and ongoing productivity actions 55 Table of Contents Restructuring: • 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: • 3M continued to experience headwinds year-on-year from the carryover impact of higher raw material, logistics and energy cost inflation. Foreign exchange impacts • 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. dollar. These estimates include: (a) the effects of year-on-year changes in exchange rates on translating current period functional currency profits into U.S. dollars and on current period non-functional currency denominated purchases or transfers of goods between 3M operations, and (b) year-on-year changes in transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks. 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 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 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 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 (loss) per share year-on-year for the second quarter and first six months of 2023. 56 Table of Contents Certain amounts adjusted for special items - (non-GAAP measures): In addition to reporting financial results in accordance with U.S. GAAP, 3M also provides certain non-GAAP measures. These measures are not in accordance with, nor are they a substitute for GAAP measures, and may not be comparable to similarly titled measures used by other companies. Certain measures adjust for the impacts of special items. Special items for the periods presented include the items described below. Because 3M provides certain information with respect to business segments, it is noteworthy that special items impacting operating income (loss) are reflected in Corporate and Unallocated, except as described below with respect to net costs for significant litigation and manufactured PFAS products items. In 2023, 3M changed certain of its non-GAAP measures by adjusting for the results of manufactured PFAS products in arriving at results, adjusted for special items. In the fourth quarter of 2022, 3M recorded a charge for PFAS manufacturing exit costs and included it as an adjustment in arriving at results, adjusted for special items. The 2023 non-GAAP measure change involved expanding the extent of adjustment to include the sales and estimates of income (including exit costs) and associated activity regarding manufactured PFAS products that 3M plans to exit by the end of 2025. 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: GAAP amounts for which a measure adjusted for special items is also provided: Reasons 3M believes the measure is useful • Net sales (and sales change) Considered, in addition to segment operating performance, in evaluating and managing operations; useful in understanding underlying business performance, provides additional transparency to special items • Operating income (loss), segment operating income (loss) and operating income (loss) margin • Income (loss) before taxes • Provision for income taxes and effective tax rate • 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 (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: • These include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture. Manufactured PFAS products: • These amounts relate to sales and estimates of income regarding manufactured PFAS products that 3M plans to exit by the end of 2025 included within the Transportation and Electronics business segment. 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. 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. 57 Table of Contents 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 GAAP amounts $ (707) (24.2) % Adjustments for special items: Net costs for significant litigation 1,337 Total special items 1,337 Adjusted amounts (non-GAAP measures) $ 630 21.5 % Transportation and Electronics GAAP amounts $ 2,268 $ 475 21.0 % Adjustments for special items: Manufactured PFAS products (318) (20) Total special items (318) (20) Adjusted amounts (non-GAAP measures) $ 1,950 $ 455 23.4 % Total Company GAAP amounts $ 8,702 $ 110 1.3 % $ 60 $ (23) (38.3) % $ 78 $ 0.14 Adjustments for special items: Net costs for significant litigation — 1,716 1,716 374 1,342 2.34 Manufactured PFAS products (318) (20) (20) (6) (14) (0.03) Total special items (318) 1,696 1,696 368 1,328 2.31 Adjusted amounts (non-GAAP measures) $ 8,384 $ 1,806 21.6 % $ 1,756 $ 345 19.8 % $ 1,406 $ 2.45 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 GAAP amounts $ 534 19.3 % Adjustments for special items: Net costs for significant litigation 80 Total special items 80 Adjusted amounts (non-GAAP measures) $ 614 22.2 % Transportation and Electronics GAAP amounts $ 2,191 (3.4) % $ 410 18.7 % Adjustments for special items: Manufactured PFAS products (332) (41) Total special items (332) (41) Adjusted amounts (non-GAAP measures) $ 1,859 (4.7) % $ 369 19.8 % Total Company 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 Total special items (332) 10,503 10,515 2,470 8,045 14.52 Adjusted amounts (non-GAAP measures) $ 7,993 (4.7) % $ 1,545 19.3 % $ 1,492 $ 286 19.1 % $ 1,204 $ 2.17 (12) % 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 Total Company (2.2) % 0.1 % (1.3) % (0.9) % (4.3) % Remove manufactured PFAS products special item impact (0.3) — (0.1) — (0.4) Adjusted total Company (non-GAAP measures) (2.5) % 0.1 % (1.4) % (0.9) % (4.7) % Transportation and Electronics (1.3) % 0.5 % (1.3) % (1.3) % (3.4) % Remove manufactured PFAS products special item impact (1.1) 0.1 (0.2) (0.1) (1.3) Adjusted Transportation and Electronics (non-GAAP measures) (2.4) % 0.6 % (1.5) % (1.4) % (4.7) % 58 Table of Contents Six 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 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 (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 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) % 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. 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) % 59 Table of Contents Sales and operating income (loss) by business segment: The following tables contain sales and operating income (loss) results by business segment for the three and 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 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 $ 2,765 $ 534 $ 2,924 $ (707) (5.5) % (175.6) % Transportation and Electronics 2,191 410 2,268 475 (3.4) (13.8) Health Care 2,075 411 2,179 492 (4.8) (16.4) Consumer 1,293 235 1,330 248 (2.7) (5.1) Corporate and Unallocated 1 (10,548) 1 (398) 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 By Business Segment Organic sales Acquisitions Divestitures Translation Total sales change Safety and Industrial (4.6) % — % — % (0.9) % (5.5) % Transportation and Electronics (1.3) 0.5 (1.3) (1.3) (3.4) Health Care 0.1 — (4.1) (0.8) (4.8) Consumer (2.2) — — (0.5) (2.7) 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. 60 Table of Contents Sales by geographic area: 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 June 30, 2023 Americas Asia Pacific Europe, Middle East & Africa Other Unallocated Worldwide Net sales (millions) $ 4,678 $ 2,134 $ 1,513 $ — $ 8,325 % of worldwide sales 56.2 % 25.6 % 18.2 % 100.0 % Components of net sales change: Organic sales 0.1 (8.1) 0.3 (2.2) Acquisitions 0.2 — — 0.1 Divestitures (1.6) (1.0) (0.8) (1.3) Translation (0.2) (3.7) 1.1 (0.9) 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 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. Total sales in Mexico increased 7 percent which included increased organic sales of 11 percent. In Canada, total sales decreased 15 percent which included decreased organic sales of 9 percent. In Brazil, total sales increased 1 percent which included increased organic sales of 5 percent. In the Asia Pacific geographic area, China total sales decreased 16 percent which included decreased organic sales of 11 percent. In Japan, total sales decreased 20 percent which included decreased organic sales of 12 percent. Managing currency risks: The stronger U.S. 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. 3M also uses financial hedges to mitigate currency risk. In the case of more liquid currencies, 3M hedges a portion of its aggregate exposure, using a 12, 24 or 36 month horizon, depending on the currency in question. For less liquid currencies, financial hedging is frequently more expensive with more limitations on tenor. Thus, this risk is largely managed via local operational actions using natural hedging tools as discussed above. In either case, 3M’s hedging approach is designed to mitigate a portion of foreign currency risk and reduce volatility, ultimately allowing time for 3M’s businesses to respond to changes in the marketplace. 61 Table of Contents Financial condition: Refer to the section entitled Financial Condition and Liquidity later in MD&A for a discussion of items impacting cash flows. In November 2018, 3M’s Board of Directors replaced the Company’s February 2016 repurchase program with a new repurchase program. This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date. In the first 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 Net Sales: Refer to the preceding Overview section and the Performance by Business Segment section later in MD&A for additional discussion of sales change. Operating Expenses: Three months ended June 30, Six months ended June 30, (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) % Selling, general and administrative expenses (SG&A) 146.6 34.7 111.9 85.0 27.9 57.1 Research, development and related expenses (R&D) 5.7 5.5 0.2 5.8 5.5 0.3 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); and research, development and related expenses (R&D). The Company’s annual stock option and restricted stock unit grant is made in February. Accounting rules require recognition of expense under a non-substantive vesting period approach, requiring compensation expense recognition when an employee is eligible to retire. This retiree-eligible population represents 35 percent of the annual grant stock-based compensation expense; therefore, higher stock-based compensation expense is recognized in the first quarter each year. 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 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. For total year 2023, defined benefit pension and postretirement service cost expense is anticipated to total approximately $270 million while non-service pension and postretirement net benefit cost 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 in expense of approximately $30 million compared to 2022. The Company is continuing the ongoing deployment of an enterprise resource planning (ERP) system on a worldwide basis, with these investments impacting cost of sales, SG&A, and R&D. Cost of Sales: Cost of sales, measured as a percent of sales, 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 charges. 62 Table of Contents Selling, General and Administrative Expenses: 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 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 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 June 30, Six months ended June 30, (Percent of pre-tax income/loss) 2023 2022 2023 2022 Effective tax rate 24.2 % (38.3) % 25.2 % 16.8 % 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; as well as recurring factors, such as the geographic mix of income before taxes. Refer to Note 8 for further discussion of income taxes. Income from Unconsolidated Subsidiaries, Net of Taxes: Three months ended June 30, Six months ended June 30, (Millions) 2023 2022 2023 2022 Income (loss) from unconsolidated subsidiaries, net of taxes $ 3 $ (1) $ 5 $ 1 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. Net Income (Loss) Attributable to Noncontrolling Interest: Three months ended June 30, Six months ended June 30, (Millions) 2023 2022 2023 2022 Net income (loss) attributable to noncontrolling interest $ 5 $ 4 $ 10 $ 8 Net income (loss) attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M ownership interests in 3M consolidated entities. The primary noncontrolling interest relates to 3M India Limited, of which 3M’s effective ownership is 75 percent. 63 Table of Contents Significant Accounting Policies: Information regarding new accounting standards is included in Note 1 to the Consolidated Financial Statements. PERFORMANCE BY BUSINESS SEGMENT Item 1, Business Segments, provides an overview of 3M’s business segments. 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 (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. 3M manages its operations in four business segments. The reportable segments are Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. 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 15. 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. 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, gains/losses from sales of property, plant and equipment and other assets, 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 2022 split-off of 3M's Food Safety business. Items classified as revenue from this activity are included in Corporate and Unallocated net sales. Because Corporate and Unallocated includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis. Corporate and Unallocated operating expenses 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. 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 15 for additional information on the components of corporate special items. 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 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: Information related to 3M’s business segments is presented in the tables that follow with additional context in the corresponding narrative below the tables. Refer to 3M's 2022 Annual Report on Form 10-K, Item 1, Business, for discussion of 3M products that are included in each business segment. 64 Table of Contents Safety and Industrial Business: Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Sales (millions) $ 2,765 $ 2,924 $ 5,544 $ 5,975 Sales change analysis: Organic sales (4.6) % (5.3) % Translation (0.9) (1.9) Total sales change (5.5) % (7.2) % Business segment operating income (loss) (millions) $ 534 $ (707) $ 1,135 $ (80) Percent change (175.6) % N/M Percent of sales 19.3 % (24.2) % 20.5 % (1.3) % Adjusted business segment operating income (millions) (non-GAAP measure) $ 614 $ 630 $ 1,176 $ 1,320 Percent change (2.4) % (10.9) % Percent of sales 22.2 % 21.5 % 21.2 % 22.1 % The preceding table also displays business segment operating income (loss) information adjusted for special items. 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. Second quarter 2023 results: Sales in Safety and Industrial were down 5.5 percent in U.S. dollars. On an organic sales basis: • 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. 65 Table of Contents First six months 2023 results: Sales in Safety and Industrial were down 7.2 percent in U.S. dollars. 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; 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 (slowing down in packaging and shipping activity). 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 June 30, 2023 2022 2023 2022 Sales (millions) $ 2,191 $ 2,268 $ 4,241 $ 4,608 Sales change analysis: Organic sales (1.3) % (4.7) % Acquisitions 0.5 % 0.2 Divestitures (1.3) (1.1) Translation (1.3) (2.4) Total sales change (3.4) % (8.0) % Business segment operating income (millions) $ 410 $ 475 $ 704 $ 939 Percent change (13.8) % (25.1) % Percent of sales 18.7 % 21.0 % 16.6 % 20.4 % Adjusted sales (millions) (non-GAAP measure) $ 1,859 $ 1,950 $ 3,564 $ 3,970 Sales change analysis: Organic sales (2.4) % (7.0) % Acquisitions 0.6 0.3 Divestitures (1.5) (1.3) Translation (1.4) (2.2) Total sales change (4.7) % (10.2) % Adjusted business segment operating income (millions) (non-GAAP measure) $ 369 $ 455 $ 653 $ 903 Percent change (19.3) % (27.8) % Percent of sales 19.8 % 23.4 % 18.3 % 22.8 % The preceding table also displays business segment sales (and sales change) and operating income (loss) information adjusted for special items. For Transportation and Electronics these adjustments include the sales and estimates of income regarding PFAS manufactured products that 3M plans to exit by the end of 2025. Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details. 66 Table of Contents Second quarter 2023 results: Sales in Transportation and Electronics were down 3.4 percent in U.S. dollars. Adjusting for special item PFAS manufactured products (non-GAAP measure), sales were down 4.7 percent in U.S. dollars. On an organic sales basis: • 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. dollars. Adjusting for special item PFAS manufactured products (non-GAAP measure), sales were down 10.2 percent in U.S. dollars. 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. 67 Table of Contents Health Care Business: Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Sales (millions) $ 2,075 $ 2,179 $ 4,085 $ 4,307 Sales change analysis: Organic sales 0.1 % 0.8 % Divestitures (4.1) (4.2) Translation (0.8) (1.8) Total sales change (4.8) % (5.2) % Business segment operating income (millions) $ 411 $ 492 $ 771 $ 937 Percent change (16.4) % (17.7) % Percent of sales 19.8 % 22.6 % 18.9 % 21.8 % Second quarter 2023 results: Sales in Health Care were down 4.8 percent in U.S. dollars. On an organic sales basis: • 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 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. dollars. 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. 68 Table of Contents Consumer Business: Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Sales (millions) $ 1,293 $ 1,330 $ 2,485 $ 2,639 Sales change analysis: Organic sales (2.2) % (4.5) % Divestitures — (0.1) Translation (0.5) (1.2) Total sales change (2.7) % (5.8) % Business segment operating income (millions) $ 235 $ 248 $ 414 $ 467 Percent change (5.1) % (11.4) % Percent of sales 18.2 % 18.6 % 16.7 % 17.7 % Second quarter 2023 results: Sales in Consumer were down 2.7 percent in U.S. dollars. On an organic sales basis: • 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. dollars. 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. 69 Table of Contents FINANCIAL CONDITION AND LIQUIDITY The strength and stability of 3M’s business model and strong free cash flow capability, together with proven capital markets access, provide financial flexibility to deploy capital in accordance with the Company's stated priorities and meet needs associated with contractual commitments and other obligations. Investing in 3M’s business to drive organic growth and deliver strong returns on invested capital remains the first priority for capital deployment. This includes research and development, capital expenditures, and commercialization capability. The Company also continues to actively manage its portfolio through acquisitions and divestitures to maximize value for shareholders. 3M expects to continue returning cash to shareholders through dividends and share repurchases. To fund cash needs in the United States, the Company relies on ongoing cash flow from U.S. operations, access to capital markets and repatriation of the earnings of its foreign affiliates that are not considered to be permanently reinvested. For those international earnings still considered to be reinvested indefinitely, the Company currently has no plans or intentions to repatriate these funds for U.S. operations. See Note 10 in 3M's 2022 Annual Report on Form 10-K for further information on earnings considered to be reinvested indefinitely. 3M maintains a strong liquidity profile. The Company’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M believes it will have continuous access to the commercial paper market. 3M’s commercial paper program permits the Company to have a maximum of $5 billion outstanding with a maximum maturity of 397 days from date of issuance. The Company had $1.8 billion in commercial paper outstanding at June 30, 2023, compared to no commercial paper outstanding as of December 31, 2022. Total debt: The strength of 3M’s credit profile and significant ongoing cash flows provide 3M proven access to capital markets. Additionally, the Company’s debt maturity profile is staggered to help ensure refinancing needs in any given year are reasonable in proportion to the total portfolio. As of 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. In July 2017, the United Kingdom’s Financial Conduct Authority announced that it would no longer require banks to submit rates for the London InterBank Offered Rate (“LIBOR”) after 2021. In November 2020, the ICE Benchmark Administration (IBA), LIBOR’s administrator, proposed extending the publication of USD LIBOR through June 2023. Subsequently, in March of 2021, IBA ceased publication of certain LIBOR rates after December 31, 2021. USD LIBOR rates that did not cease on December 31, 2021 will continue to be published through June 30, 2023, 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. This replaced 3M’s previous shelf registration dated February 10, 2020. 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 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. 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. 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. 70 Table of Contents 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 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. 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 $1.2 billion was held by the United States. The increase from December 31, 2022 primarily resulted from cash flow from operations. Net Debt (non-GAAP measure): Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be important indicators of liquidity and financial position. The following table provides net debt as of June 30, 2023 and December 31, 2022. (Millions) June 30, 2023 December 31, 2022 Change Total debt $ 15,987 $ 15,939 $ 48 Less: Cash, cash equivalents and marketable securities 4,337 3,916 421 Net debt (non-GAAP measure) $ 11,650 $ 12,023 $ (373) Refer to the preceding Total Debt and Cash, Cash Equivalents and Marketable Securities sections for additional details. Balance Sheet: 3M’s strong balance sheet and liquidity provide the Company with significant flexibility to fund its numerous opportunities going forward. The Company will continue to invest in its operations to drive growth, including continual review of acquisition opportunities. The Company uses working capital measures that place emphasis and focus on certain working capital assets, such as accounts receivable and inventory activity. Working capital (non-GAAP measure): (Millions) June 30, 2023 December 31, 2022 Change Current assets $ 15,754 $ 14,688 $ 1,066 Less: Current liabilities 10,936 9,523 1,413 Working capital (non-GAAP measure) $ 4,818 $ 5,165 $ (347) Various assets and liabilities, including cash and short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. Working capital is not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. The Company defines working capital as current assets minus current liabilities. 3M believes working capital is meaningful to investors as a measure of operational efficiency and short-term financial health. Working capital decreased $0.3 billion compared with December 31, 2022. 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 $1.4 billion, primarily due to increases in short-term borrowings driven by issuances of commercial paper and increases in other current liabilities. 71 Table of Contents Cash Flows: Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in the Consolidated Statement of Cash Flows exclude the effects of acquisitions, divestitures and exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects. Cash Flows from Operating Activities: Six months ended June 30, (Millions) 2023 2022 Net income (loss) including noncontrolling interest $ (5,855) $ 1,385 Depreciation and amortization 915 921 Company pension and postretirement contributions (57) (80) Company pension and postretirement expense 75 83 Stock-based compensation expense 176 182 Income taxes (deferred and accrued income taxes) (2,956) (460) Accounts receivable (393) (457) Inventories 101 (837) Accounts payable 135 401 Other — net 10,643 1,000 Net cash provided by (used in) operating activities $ 2,784 $ 2,138 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 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: Six months ended June 30, (Millions) 2023 2022 Purchases of property, plant and equipment (PP&E) $ (852) $ (808) 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) Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. 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. 3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance. Costs related to maintenance, ordinary repairs, and certain other items are expensed. 3M also invests in growth, which adds to capacity, driven by new products, both through expansion of current facilities and new facilities. Finally, 3M also invests in other initiatives, such as information technology (IT), laboratory facilities, and a continued focus on investments in sustainability. 72 Table of Contents 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. Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and investments are primarily attributable to certificates of deposit/time deposits, commercial paper, and other securities, which are classified as available-for-sale. Refer to Note 9 for more details about 3M’s diversified marketable securities portfolio. Purchases of investments include additional survivor benefit insurance, plus investments in equity securities. Cash Flows from Financing Activities: Six months ended June 30, (Millions) 2023 2022 Change in short-term debt — net $ 651 $ 344 Repayment of debt (maturities greater than 90 days) (1,802) (1,179) Proceeds from debt (maturities greater than 90 days) 1,107 1 Total cash change in debt (44) (834) Purchases of treasury stock (29) (773) Proceeds from issuances of treasury stock pursuant to stock option and benefit plans 218 227 Dividends paid to shareholders (1,655) (1,700) Other — net (9) (22) Net cash provided by (used in) financing activities $ (1,519) $ (3,102) 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. 3M’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 2022 issuances, maturities, and extinguishments of short-and long-term debt are described in Note 10 to the Consolidated Financial Statements in 3M’s 2022 Annual Report on Form 10-K. Repurchases of common stock are made to support the Company’s stock-based employee compensation plans and for other corporate purposes. In the first 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. The Company does not utilize derivative instruments linked to the Company’s stock. 3M has paid dividends since 1916. 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 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. Free Cash Flow (non-GAAP measure): Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered a substitute for income (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. The Company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income (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. 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. 73 Table of Contents Refer to the preceding Cash Flows from Operating Activities and Cash Flows from Investing Activities sections for discussion of items that impacted the operating cash flow and purchases of PP&E components of the calculation of free cash flow. Refer to the preceding Results of Operations section for discussion of items that impacted the net income (loss) attributable to 3M component of the calculation of free cash flow conversion. Six months ended June 30, (Millions) 2023 2022 Major GAAP Cash Flow Categories Net cash provided by (used in) operating activities $ 2,784 $ 2,138 Net cash provided by (used in) investing activities (619) (814) Net cash provided by (used in) financing activities (1,519) (3,102) Free Cash Flow (non-GAAP measure) Net cash provided by (used in) operating activities $ 2,784 $ 2,138 Purchases of property, plant and equipment (852) (808) Free cash flow 1,932 1,330 Net income (loss) attributable to 3M $ (5,865) $ 1,377 Free cash flow conversion (33) % 97 % Material Cash Requirements from Known Contractual and Other Obligations: 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. 74 Table of Contents Cautionary Note Concerning Factors That May Affect Future Results This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to shareholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements. Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” “forecast” and other words and terms of similar meaning, typically identify such forward-looking statements. In particular, these include, among others, statements relating to: • worldwide economic, political, regulatory, international trade, geopolitical, capital markets and other external conditions, such as interest rates, monetary policy, financial conditions of our suppliers and customers, trade restrictions such as tariffs and retaliatory counter measures, inflation, recession, military conflicts, and natural and other disasters or climate change affecting the operations of the Company or our suppliers and customers, • risks related to unexpected events such as the public health crises associated with the coronavirus (COVID-19) global pandemic, • 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, • competitive conditions and customer preferences, • foreign currency exchange rates and fluctuations in those rates, • new business opportunities, product and service development, and future performance or results of current or anticipated products and services, • fluctuations in the costs and availability of purchased components, compounds, raw materials and energy, • information technology systems including implementation of an enterprise resource planning (ERP) system, • security breaches and other disruptions to information technology infrastructure, • the scope, nature or impact of acquisition, strategic alliance and divestiture activities, • operational execution, including inability to generate productivity improvements and impact of organizational restructuring activities, • future levels of indebtedness, common stock repurchases and capital spending, • future access to credit markets and the cost of credit, • pension and postretirement obligation assumptions and future contributions, • asset impairments, • tax liabilities and effects of changes in tax rates, laws or regulations, • the proposed spin-off of the Company's Health Care business to establish two separate public companies, • the voluntary chapter 11 proceedings initiated by the Company's Aearo Entities, and • laws and regulations, as well as legal compliance risks (including third-party risks), and legal and regulatory proceedings related to the same, including with regards to environmental matters and product liability, in the United States and other countries in which we operate. 75 Table of Contents The Company assumes no obligation to update or revise any forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those reflected in any such forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this document, including, among others, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings of “Overview,” “Financial Condition and Liquidity” and annually in “Critical Accounting Estimates.” Discussion of these factors is incorporated by reference from Part II, Item 1A, “Risk Factors,” of this document, and should be considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 10-K, 10-Q and 8-K filed with the SEC from time to time.